Jerry L. Starkey, TBDL, L.P., and PBW Development Corporation v. Glen Graves ( 2014 )

Affirmed as Modified in Part; Reversed in Part; Remanded; and Opinion
filed September 11, 2014.
In The
Fourteenth Court of Appeals
NO. 14-12-00633-CV
NO. 14-12-00709-CV
JERRY L. STARKEY, TBDL, L.P., AND PBW DEVELOPMENT
CORPORATION, Appellants/Cross-Appellees
V.
GLEN GRAVES, Appellee/Cross-Appellant
On Appeal from the 405th District Court
Galveston County, Texas
Trial Court Cause No. 09-CV-0620
OPINION
When the relationship between the companies and individuals involved in a
limited partnership broke down, the aggrieved limited partner sued the other
partners and their owner, alleging that they breached successive partnership
agreements and committed or conspired to commit statutory and common-law
fraud and breaches of the duties of loyalty and care. The plaintiff sought the same
two categories of actual damages for every theory of liability, and the jury assessed
the same damages against at least one of the defendants under each cause of action
submitted. On appeal, the liable defendants argue that the plaintiff cannot recover
either category of damages, and that judgment cannot be supported under any
theory of liability.
We affirm the award of actual damages under some of the jury findings but
reverse the award of expert fees and deposition costs because no evidence supports
the statutory-fraud finding. We remand the case for relitigation of attorney’s fees.
Because some of the jury’s findings were made in response to erroneous questions
in the charge, the plaintiff on remand may elect between (1) judgment based on the
remaining favorable findings that were not successfully challenged in this appeal;
or (2) a new trial of the claims asserted by or against the appellants, as explained
below.
I. FACTUAL AND PROCEDURAL BACKGROUND 1
Glen Graves owned a three-story retail-sales building in Galveston known as
the Peanut Butter Warehouse, and he intended to add a fourth story, continue using
the first floor for retail sales, and convert most of the remainder of the building to
condominiums. After expending his own available funds and an additional
$500,000 from a bank loan on the renovations, Graves needed more money to
complete the work. He began discussions with potential investors.
Graves ultimately entered into multiple partnership agreements with
appellant Jerry Starkey or with two of Starkey’s companies—PBW Development
1
Because the appellants challenge the legal sufficiency of the evidence to support certain
findings, but none of the parties has briefed the factual sufficiency of the evidence, we
summarize the relevant evidence in accordance with the legal-sufficiency standard of review.
2
Corporation (“the General Partner”) and TBDL, L.P. We refer to Starkey and the
two companies collectively as “the Starkey parties.” Starkey is an attorney, a
CPA, and the principal of a company that owns a parking lot near the building.
Graves testified that Starkey was the attorney for all parties involved in the
partnership, including Graves; Starkey testified that he was the attorney for all of
those parties except Graves. Starkey’s wife Elizabeth is also a CPA and was the
bookkeeper for the partnership, TBDL, and the General Partner.
Of the three partnership agreements alleged to have been executed—one in
October 2006, one in January 2007, and one in April 2008—only the 2007 and
2008 agreements were produced at trial. 2 Starkey testified that there was no 2006
agreement, and that Graves signed the 2007 and 2008 agreements. Graves testified
that he did not sign the 2007 agreement, and that Starkey must have attached the
signature page from the 2006 agreement to the 2007 agreement, and then destroyed
the 2006 agreement. The jury was not asked to resolve this factual dispute.
Instead, Graves ultimately asked the trial court to submit breach-of-contract
questions to the jury about each of the three agreements, and the jury found that all
three were breached. We therefore refer to all three agreements as if each were
executed by the parties.
A. The October 2006 Agreement
The jury found that in October 2006, Starkey and Graves agreed to a written
partnership agreement in which Starkey and Graves were “co-general partners.”
Graves was to contribute the building to the partnership, “oversee the project,” and
receive a gross salary of $1,500 per week, which is $78,000 per year. Starkey was
2
It is undisputed that PBW Development Corporation is the general partner under the 2007 and
2008 partnership agreements, so we refer to it as the “General Partner” as a matter of
convenience. There is no express finding that this company was a general partner in the
remaining agreement, and it is unnecessary to imply such a finding.
3
to provide parking and “borrowing power with the banks for necessary loans.”
Through the General Partner and TBDL, Starkey also was to invest $500,000 in the
project. The trial court incorporated these findings in the judgment.
As for the performance of this contract, Graves testified that at the same
time he signed this partnership agreement, he executed a separate document
transferring some or all of the building’s ownership to the partnership or to
Starkey. 3 It is unclear whether Graves was paid anything in 2006, but he presented
evidence that he was paid between $47,000 and $57,000 through the end of 2007;4
that he was not paid again until April 2008; and that after he was paid a further
$14,000, payments were stopped again and never resumed. During the time
between the execution of the 2006 and 2007 agreements, Starkey made no capital
contributions to the partnership. Although the partnership applied for a bank loan
of $1.7 million in November 2006, the loan did not close until after the 2007
partnership agreement was executed.
B. The January 2007 Agreement
In January 2007, Graves, TBDL and the General Partner entered into a
written partnership agreement. Under the terms of this agreement, Graves was a
limited partner, and the contract specified that limited partners had no right of
control or management over the partnership’s business and affairs. Graves was to
contribute the building and have a 49% share of the partnership; TBDL was to
3
Neither document was offered into evidence. In any event, Graves executed a deed conveying
the building to the partnership after the 2007 partnership was signed.
4
The partnership’s financial documents indicate that Graves was paid $57,000 in 2007. Graves
testified that he was paid $47,000 “the first year” of the partnership, and that Starkey also gave
him a check from the partnership for $10,000 that was not part of his salary. According to
Graves, the parties had agreed in October 2006 that Starkey would pay him an additional
$20,000 for being allowed to invest in the partnership, and the $10,000 payment was supposed to
have been part of that payment.
4
contribute $470,000 and have a 49% share; and the General Partner was to
contribute $20,000 and have a 2% share. The agreement provides that the General
Partner will “receive an annual guaranteed fee, initially in the amount of $78,000
to offset the salary of a General Manager.” Unlike the 2006 agreement, parking is
not mentioned.
C. The April 2008 Agreement
Before the end of March 2008, Starkey told Graves that the partnership
needed more than $300,000 in additional capital contributions and insisted that
Graves contribute the entire amount. Graves refused, and he testified that Starkey
demanded that Graves sign an amended partnership agreement as follows:
[Starkey] said to sign this or you will be in jail tomorrow morning.
And while you’re in jail, I’m going to go down and have this thing
foreclosed on and I have already made arrangements with the banker
for him to come in and buy it directly from the bank and exclude me
completely.
In other words, everything that I own would just simply be
gone.
As for the grounds for having Graves jailed, Graves testified that Starkey “said he
was an attorney and he knew how to do it.” Graves signed the agreement.
The relevant terms of the 2008 agreement are the same as those of the 2007
agreement, except that the General Partner and TBDL together contributed an
additional $300,000, and a 19% share of the partnership effectively was transferred
to them from Graves. 5 After this, the relationship between Starkey and Graves
continued to deteriorate until Starkey had Graves locked out the building.
5
Graves’s share of the partnership was reduced from 49% to 30%; the General Partner’s share of
the partnership was increased from 2% to 6%; and TBDL’s share was increased from 49% to
64%.
5
D. The Jury’s Liability Findings
Graves sued the Starkey parties, asserting claims against the General Partner
and TBDL for breach of all three partnership agreements.6 In addition, Graves
sought to hold all three of the Starkey parties liable under theories of statutory
fraud, common-law fraud, conspiracy to commit fraud, breach of the duties of
loyalty and care, and conspiracy to breach the duties of loyalty and care. The trial
lasted for over a month before being submitted to the jury through a lengthy and
complex charge.
Regarding the breach-of-contract claims, the jury found that Graves and
Starkey “agreed in October 2006 to a written partnership agreement” that included
among its terms that (1) Graves “would be co-general partner with Jerry Starkey”;
(2) Graves would receive $1,500 per week as compensation; and (3) Starkey
“would provide parking as part of his investment.” The jury found that the General
Partner breached the 2006, 2007, and 2008 agreements; that TBDL breached the
2006 and 2007 agreements; and that TBDL’s breach of the 2007 agreement was
excused.
In connection with the statutory-fraud claim, the jury was asked to determine
whether Starkey, the General Partner, or TBDL falsely represented a past or
existing material fact to Graves to induce him to enter the 2006 agreement. The
jury found that Starkey and TBDL committed statutory fraud, but that Graves
“ratified” TBDL’s statutory fraud by entering into a new agreement or otherwise
affirming the contract after becoming aware of the fraud.
The jury also found that Starkey and the General Partner committed
common-law fraud. Unlike the question in the charge concerning statutory fraud,
6
He also sued Elizabeth Starkey, but she was not found to be liable under any theory.
6
the question addressing liability for common-law fraud was not restricted to
fraudulent acts or omissions concerning a particular agreement.
The questions concerning breach of the duties of loyalty and care were
accompanied by an instruction that Graves was required to show that the act or
omission constituting the breach was performed or omitted fraudulently, or that it
constituted gross negligence or willful misconduct. The jury found that the
General Partner and Starkey breached the duties of loyalty and care to Graves.
Finally, the jury found that Starkey and the General Partner conspired to
commit statutory or common-law fraud, and that they conspired to breach the
duties of loyalty and care to Graves.
E. The Jury’s Damage Findings and Allocation of Responsibility
As to each liability theory, Graves sought the same two measures of actual
damages: “loss of compensation as general manager sustained in the past,” and
“out of pocket losses sustained in the past.” The damage questions were
unaccompanied by any definitions. In response to each damage question, the jury
found that $173,000 would fairly and reasonably compensate Graves for past loss
of compensation, and that $437,000 would fairly and reasonably compensate him
for past out-of-pocket losses. The jury further found by clear and convincing
evidence that harm to Graves resulted from common-law fraud and assessed
$95,000 in exemplary damages against Starkey and $90,000 against the General
Partner.
The jury also was required to answer two questions allocating responsibility
for damages associated with three theories of liability. Jurors were instructed that
if they found that more than one person or entity committed statutory or common-
law fraud, they were to assign a percentage of responsibility to those persons or
7
entities. The jury was not instructed to ignore any person or entity whose
fraudulent conduct had been ratified by Graves. The jury found that Starkey was
responsible for 50% of the damages, and the General Partner and TBDL each were
responsible for 25% of the damages. Similarly, jurors were instructed to allocate
responsibility for the damages resulting from breach of the duties of loyalty and
care if they found that more than one person or entity engaged in such conduct.
The jury found that Starkey was 60% responsible and the General Partner was 40%
responsible.
The jury additionally was instructed that if it found that any party breached
any agreement or committed statutory fraud, it was to determine the amount of a
reasonable fee for the necessary services of Graves’s attorneys. The jury found
that $592,000 was a reasonable fee for preparation and trial of the case, and
$50,000 was reasonable for any appeal.7
F. Graves’s Election of Remedies
Graves elected to recover against the General Partner and TBDL for breach
of the 2006 agreement, and subject to the one-satisfaction rule, to recover against
Starkey for statutory fraud. The trial court stated in the judgment that if an
appellate court determined that Graves was not entitled to recover his damages
under either of these two theories of liability, then he could elect to recover for
breach of the 2007 agreement, breach of the 2008 agreement, common-law fraud,
or “breach of fiduciary duty,” which we understand to refer to breach of the duties
of loyalty and care.
7
The General Partner also prevailed in some of its counterclaims against Graves. The jury found
that Graves breached the duties of loyalty and care to the General Partner and converted the
partnership’s funds or personal property. It assessed damages under each theory of liability at
$5,000, and the trial court ordered Graves to pay the General Partner $5,000 in actual damages.
The portion of the judgment addressing Graves’s liability has not been contested, nor does
Graves challenge the jury’s failure to find Elizabeth Starkey liable on any liability theory.
8
The trial court rendered judgment holding the General Partner and TBDL
jointly and severally liable for actual damages of $610,000 (which is the sum of
$173,000 for past loss of compensation and $437,000 for past out-of-pocket losses)
and trial attorney’s fees of $592,000. The trial court held that Starkey shared
liability with the General Partner and TBDL for $310,000 of Graves’s actual
damages8 and half of the trial attorney’s fees. Finally, the trial court held that if all
or part of the judgment against any of the Starkey parties were affirmed, then all
Starkey parties that filed a notice of appeal would be jointly and severally liable for
appellate attorney’s fees of $50,000.
All three Starkey parties appealed the judgment. In addition, Graves filed a
cross-appeal challenging the trial court’s denial of his post-judgment motion for
leave to amend his pleading “to more clearly assert [his] claims for statutory fraud,
fraudulent inducement, and breach of [the] dut[ies] of care and loyalty to match the
evidence and jury verdict.”
II. SCOPE OF REVIEW
On original submission, parties are not required to address the question of
whether, in the event the trial court’s judgment is reversed, the party who prevailed
at trial is entitled to recover based on the jury’s favorable findings under an
alternative theory. See Boyce Iron Works, Inc. v. Sw. Bell Tel. Co., 747 S.W.2d
785, 787 (Tex. 1988) (“When the jury returns favorable findings on two or more
alternative theories, the prevailing party need not formally waive the alternative
findings. That party may seek recovery under an alternative theory if the judgment
is reversed on appeal.”). Nevertheless, if alternative bases for judgment have been
8
Although Starkey does not argue on appeal that the amount for which he was held liable is
based on an error in calculation, we note that under the jury’s statutory-fraud finding, he would
be liable for only 50% of the actual damages, which would be $305,000.
9
briefed by the parties, we can address them on original submission. See Hatfield v.
Solomon, 316 S.W.3d 50, 60 n.3 (Tex. App.—Houston [14th Dist.] 2010, no pet.)
(op. on reh’g). Here, the Starkey parties have challenged the jury’s findings on
each of Graves’s theories of liability, 9 and Graves has responded in his brief.
Moreover, Graves has expressed a preference that we render judgment on an
alternative theory if possible, rather than remanding the case. We have identified
the most favorable judgment that could be rendered and modified the judgment
accordingly, and although the extent of liability for certain defendants has
increased or decreased and it is necessary to relitigate attorney’s fees, the total
amount of actual damages remains the same. It nevertheless is true that although
the prevailing party is entitled to recover on the most favorable theory supported
by the verdict, he is not required to make that election until he knows his choices.
See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 314 (Tex. 2006). Thus,
after Graves’s attorney’s fees have been reassessed, he may choose whether to
9
In their first issue, the Starkey parties argue that Graves is not entitled to recover damages for
lost compensation. In their second issue, they challenge the legal sufficiency of the evidence that
Graves suffered any out-of-pocket losses. They assert in their third issue that “the finding
imposing obligations to provide parking rights [was] improper.” In a portion of their fourth
issue, they argue that the 2006 agreement was not legally enforceable because it violated the
Statute of Frauds. They contend in their fifth issue that Graves lacks standing to complain about
losses to the partnership, breaches of partnership obligations, or misappropriations of partnership
property. In their sixth issue, they argue that by signing the 2008 agreement, Graves ratified all
prior breaches of contract and tortious conduct by the defendants. They assert in their seventh
issue that the finding that Graves was a co-general partner with Starkey is incorrect. In their
eighth issue, they challenge the legal sufficiency of the evidence supporting the jury’s findings
that the General Partner and TBDL breached the 2006, 2007, or 2008 agreements. In their ninth
issue, they argue that Graves cannot recover for statutory fraud because the claim was not
supported by the pleadings or the evidence. They assert in their tenth and eleventh issues that
Graves cannot recover for common-law fraud or for breach of the duties of loyalty and care. In
their twelfth issue, they contend that the conspiracy findings are insupportable because the
General Partner could not conspire with Starkey. In their thirteenth issue, they argue that if we
change the judgment, then we also must reduce or eliminate the award of attorney’s fees. They
argue in their fourteenth issue that the judgment must be reversed because certain of the jury’s
findings in connection with Graves’s claims of fraud and of breach of the duties of loyalty and
care impermissibly included invalid liability theories.
10
recover on the modified judgment or to relitigate his claims against the Starkey
entities and their counterclaims against him.
We therefore will proceed as follows. Because it is potentially dispositive of
every other issue, we will begin by addressing the question of standing. We will
then work our way through the jury charge, addressing the findings that are
reflected in the judgment, discussing each challenged type of relief or category of
damages and the theory of liability under it was awarded. The jury was asked to
assess two types of damages for every theory of liability; their answers were the
same for each cause of action, and we will address each measure of damages
separately. If an award under one theory of liability is successfully challenged, we
will determine whether the same relief is available based on the jury’s findings
under an alternative theory of liability. We will then modify the judgment “to give
the party all the relief to which he may be entitled either in law or equity.” TEX. R.
CIV. P. 301. See also TEX. R. APP. P. 43.3 (“When reversing a trial court’s
judgment, the court must render the judgment that the trial court should have
rendered, except when: (a) a remand is necessary for further proceedings; or
(b) the interests of justice require a remand for another trial.”).
III. STANDING
Standing is a component of subject-matter jurisdiction. Tex. Ass’n of Bus. v.
Tex. Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993). A trial court is not
authorized to decide a case over which it lacks subject-matter jurisdiction. Id. We
therefore begin our analysis with the issue of standing, because if the Starkey
parties are correct in asserting that Graves lacked standing to assert the claims he
has raised, then we must reverse the judgment and dismiss the case. See Allstate
Indem. Co. v. Forth, 204 S.W.3d 795, 796 (Tex. 2006) (per curiam) (reversing the
judgment and dismissing the plaintiff’s claims where the plaintiff did not allege
11
that she suffered an actual or threatened injury).
The Starkey parties assert that Graves does not have standing to assert his
causes of action because they involve claims owned and damages suffered by the
partnership rather than by him individually. The jury charge shows that the claims
Graves actually litigated were for (a) breaches of contracts that he signed in his
individual capacity; (b) statutory fraud in inducing him, in his individual capacity,
to enter into one of the contracts; (c) common-law fraud “against Glen Graves”;
(d) conspiracy to commit such statutory or common-law fraud; (e) breach of the
duties of loyalty and care “to Glen Graves”; and (f) conspiracy to breach those
duties of loyalty and care. Because these are all contractual, statutory, or common-
law duties owed to Graves in his individual capacity, the breach of such duties are
not claims owned by the partnership.
The Starkey parties also argue that the damages found by the jury are
damages sustained by the partnership rather than by Graves individually. We
agree that if the Starkey parties misappropriated the partnership’s funds or caused
the partnership to lose profits or value, then those would be injuries suffered by the
partnership, not by Graves individually. He therefore would lack standing to
recover such damages. See Nauslar v. Coors Brewing Co., 170 S.W.3d 242, 250
(Tex. App.—Dallas 2005, no pet.). Graves does not dispute this, but instead
contends that he did not seek to recover damages for diminution of the
partnership’s value and other such injuries to the partnership. Instead, the jury was
asked to assess damages only for “loss of compensation as general manager
sustained in the past” and “out of pocket losses sustained in the past.” The
question, then, is whether these damages compensate Graves for injuries sustained
by the partnership or by Graves individually.
As for the loss of compensation, Graves alleged that there was an agreement
12
that he personally would receive a stated salary. The jury agreed and found that
“Glen Graves and Jerry Starkey agree[d] in October 2006 to a written partnership
agreement” in which “Glen Graves would receive $1,500 per week ($78,000 per
year) as compensation.” Because the contractual duty to pay Graves the stated
compensation was a duty owed to him personally, the breach of that duty did not
harm the partnership; it harmed Graves. He therefore has standing to recover such
damages.
Regarding out-of-pocket losses, the jury received no instructions as to how
these were to be measured; thus, jurors were permitted to assess these damages
based on injuries sustained by Graves individually. The question of whether there
is any evidence that Graves personally was injured is a question of sufficiency of
the evidence, not a question of standing. We accordingly overrule this issue.10
IV. THE EXISTENCE AND TERMS OF THE 2006 PARTNERSHIP AGREEMENT
In the first question of the charge, the jury was asked to resolve the
following factual dispute about the existence and terms of a written partnership
agreement allegedly executed in October 2006:
Did Glen Graves and Jerry Starkey agree in October 2006 to a
written partnership agreement which included the following terms?
Glen Graves would contribute the Peanut Butter Warehouse
Building and oversee the project,
Glen Graves would be co-general partner with Jerry Starkey,
Glen Graves would receive $1,500 per week ($78,000 per year)
as compensation,
Jerry Starkey would provide parking as part of his investment,
and
Jerry Starkey, through [the General Partner] and TBDL, would
10
This was the Starkey parties’ fifth issue.
13
invest $500,000 and provide borrowing power with the banks
for necessary loans.
The jury answered, “Yes.” The Starkey parties challenge a portion of the judgment
in which the trial court recited certain of the jury’s findings about the 2006
agreement’s terms.
A. The trial court did not err in including in the judgment the finding that
the 2006 contract included a term that “Jerry Starkey would provide
parking as part of his investment in the Partnership.”
The Starkey parties argue that “the finding imposing obligations to provide
parking rights [was] improper” for several reasons. This argument is based on a
flawed premise.
The trial court did not impose an obligation to provide parking rights. It
stated in the judgment, “It is ORDERED that the 2006 contract between the parties
contains the following terms: Jerry Starkey would provide parking as part of his
investment in the Partnership . . . .” The jury found that this was one of the terms
of the 2006 contract, and the trial court incorporated that finding in the judgment,
but the finding did not form the basis of any other relief. Graves did not contend
that the breach of this contractual duty caused him past loss of compensation or
past out-of-pocket losses, and he sought no other damages for breach of the 2006
contract. The trial court was not asked to enforce this contractual provision or to
render declaratory judgment determining its effect on the parties’ rights, and the
question of whether this provision currently is enforceable was neither presented
nor addressed.
We find no error in incorporating a jury finding into the judgment. We
therefore overrule this issue, and affirm this portion of the judgment. 11
11
This is the Starkey parties’ third issue.
14
B. The Starkey parties waived their complaint about the finding that
Graves and Starkey agreed in the 2006 contract that they would be co-
general partners.
In their statement of the issues presented in this appeal, the Starkey parties
have included an issue in which they challenge the finding that the 2006 contract
included a provision that Graves would be co-general partner with Starkey;
however, they did not brief this issue. It accordingly is waived, and we affirm this
portion of the judgment. See TEX. R. APP. P. 38.1(i); In re S.A.H., 420 S.W.3d 911,
929 (Tex. App.—Houston [14th Dist.] 2014, no pet.). 12
V. PAST LOSS OF COMPENSATION
The jury assessed damages of $173,000 for Graves’s past loss of
compensation as general manager. He elected to recover these damages from the
General Partner and TBDL on his claim for breach of the 2006 contract, and to
recover the same damages from Starkey based on his statutory-fraud claim. In
accordance with the one-satisfaction rule, the trial court stated in the judgment that
Graves “is entitled to only [one] satisfaction of actual damages for his total
injury . . . from any combination of [the General Partner], TBDL, LP, and Jerry
Starkey up to the amounts for which each is liable.” See Stewart Title Guar. Co. v.
Sterling, 822 S.W.2d 1, 7 (Tex. 1991) (“The one satisfaction rule applies to prevent
a plaintiff from obtaining more than one recovery for the same injury. [It applies]
when the defendants commit the same act as well as when defendants commit
technically differing acts which result in a single injury.”). We therefore determine
whether the award of these damages can be sustained under the theory on which
Graves elected to recover. If it cannot, we will determine if he may recover them
under an alternative theory of liability, subject to the one-satisfaction rule.
12
This is their seventh issue.
15
A. Graves is entitled to recover lost-compensation damages from the
General Partner and TBDL for breach of the 2006 contract.
The jury found that Graves and Starkey agreed in October 2006 to a written
partnership agreement that included a provision that “Glen Graves would receive
$1,500 per week ($78,000 per year) as compensation.” The Starkey parties do not
challenge the legal or factual sufficiency of the evidence to support this finding;
thus, it is binding on appeal. See Abatement Inc. v. Williams, 324 S.W.3d 858, 862
(Tex. App.—Houston [14th Dist.] 2010, pet. denied). The jury further found that
the General Partner and TBDL failed to comply with the written 2006 agreement,
and that $173,000 would fairly and reasonably compensate Graves for loss of
compensation sustained in the past as a result of that breach.
In their appellate arguments attacking this portion of the judgment, the
Starkey parties ignore the jury’s findings almost entirely. 13 They assert that “[t]he
provision upon which Graves relies does not even apply to him, but rather is a right
to reimbursement owned by the corporate general partner,” but Graves relies on the
finding that he and Starkey agreed that “Glen Graves would receive $1,500 per
week ($78,000 per year) as compensation.” (emphasis added). Reimbursement of
the corporate general partner was not mentioned in this part of the charge at all.
They argue that the 2006 contract was subject to the Statute of Frauds, and suggest
that it is unenforceable because it was required to be in writing, but ignore the
jury’s finding that the agreement was in writing. They contend that Graves is not
entitled to recover for “lost compensation for continued employment,” but the jury
assessed damages for unpaid compensation for past employment, not employment
continuing into the future. They maintain that Graves must be considered an at-
will employee and that no written provision prevented his termination, but there is
13
These arguments were presented in their first issue.
16
no finding that Graves was terminated, and the question of whether he was an at-
will employee or an independent contractor is irrelevant to the question of whether
he was paid as agreed.
The Starkey parties’ failure to challenge the findings that the jury actually
made forecloses all of these arguments, leaving only their affirmative defenses, to
which we now turn.
1. The Starkey parties failed to establish conclusively that the 2007 and
2008 agreements supersede the employment-compensation provision
of the 2006 agreement.
The Starkey parties maintain that because the 2007 and 2008 agreements
contain merger-and-integration clauses, each of those contracts supersedes all prior
terms of all prior agreements. But merger is an affirmative defense. See Flag-
Redfern Oil Co. v. Humble Exploration Co., 744 S.W.2d 6, 9 (Tex. 1987). It
therefore is an issue on which the Starkey parties bore the burden of proof. See In
re Office of Attorney Gen., 422 S.W.3d 623, 631 n.10 (Tex. 2013) (orig.
proceeding) (“‘[T]he defendant bears the burden of proving an affirmative
defense.’” (quoting BLACK’S LAW DICTIONARY 482 (9th ed. 2009))). Because the
jury was not asked to address this issue, this affirmative defense is waived unless
the Starkey parties conclusively established that the employment-compensation
provision of the 2006 contract was merged into the 2007 or 2008 contract. See
TEX. R. CIV. P. 279. We conclude that they have not conclusively established this.
The 2007 and 2008 agreements are not inconsistent with the employment-
compensation provision of the 2006 agreement. See Smith v. Smith, 794 S.W.2d
823, 828 (Tex. App.—Dallas 1990, writ dism’d) (“A written agreement is not
superseded or invalidated by a subsequent integration relating to the same subject
matter if the agreement is such that might naturally be made as a separate
agreement. Parties to a contract may adjust the details of a transaction without
17
abrogating the entire agreement.”). Each of the later agreements provides that
“[t]he General Partner shall receive an annual guaranteed fee, initially in the
amount of $78,000 to offset the salary of a General Manager . . . .” This language
is consistent with the 2006 contract because it acknowledges the parties’ intent to
employ a general manager at an initial salary of $78,000. The 2007 and 2008
partnership agreements do not purport to alter the employment contract between
the parties to the 2006 contract. Cf. BACM 2001-1 San Felipe Rd. Ltd. P’ship v.
Trafalgar Holdings I, Ltd., 218 S.W.3d 137, 146 (Tex. App.—Houston [14th Dist.]
2007, pet. denied) (“A modification alters only those terms of the original
agreement to which it refers, leaving intact those unmentioned portions of the
original agreement that are not inconsistent with the modification.”). Because the
Starkey parties neither requested that the jury make any findings regarding merger
nor established conclusively that the employment-compensation provision of the
2006 agreement was merged into the later agreements, they waived this affirmative
defense.
2. The Starkey parties failed to establish conclusively that Graves
ratified the breach of the 2006 contract’s employment-compensation
provision.
The Starkey parties further contend that by executing the 2008 agreement,
Graves ratified any prior breaches of contract. Like merger, ratification is an
affirmative defense. Land Title Co. of Dall., Inc. v. F. M. Stigler, Inc., 609 S.W.2d
754, 756 (Tex. 1980). It is “the adoption or confirmation by a person, with
knowledge of all material facts, of a prior act which did not then legally bind that
person and which that person had the right to repudiate.” Chrisman v. Electrastart
of Hous., Inc., No. 14-02-00516-CV, 2003 WL 22996909, at *5 (Tex. App.—
Houston [14th Dist.] Dec. 23, 2003, no pet.) (mem. op.). Whether a person has
ratified an act is “essentially a question of fact, to be determined from all the
18
circumstances [in] evidence.” Id. (quoting Colvin v. Blanchard, 103 S.W. 1118,
1119 (Tex. Civ. App.—Fort Worth 1907), aff’d, 101 Tex. 231, 106 S.W. 323(1908)).
Although the jury was asked whether Graves ratified any statutory or
common-law fraud committed by the Starkey parties, the jury was not asked
whether Graves ratified any breach of contract. Thus, the affirmative defense that
Graves ratified a breach of contract is waived unless it is conclusively established.
See TEX. R. CIV. P. 279.
Once again, the Starkey parties have not met that burden. Although they
have cited cases dealing with ratification of fraud,14 they have cited no authority in
which a party’s execution of one contract constituted a ratification of the breach of
a different contract. See TEX. R. APP. P. 38.1(i). The ratification arguments they
make in connection with the breach-of-contract claims instead appear to be
dependent on the success of their merger arguments, which we have rejected.
In sum, we overrule the Starkey parties’ arguments pertaining to the liability
of TBDL and the General Partner to pay Graves $173,000 for loss of compensation
sustained in the past as a result of their failure to comply with the written 2006
agreement.15 We affirm that portion of the judgment.
B. There is legally insufficient evidence to support the judgment against
Starkey based on statutory fraud.
Graves elected to recover past loss of compensation from Starkey based on
the jury’s findings that Starkey committed statutory fraud and was responsible for
14
See, e.g., R & L Inv. Prop., L.L.C. v. Hamm, 715 F.3d 145, 149–51 (5th Cir. 2013); Fortune
Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 676–80 (Tex. 2000); B & R Dev., Inc. v. Rogers, 561
S.W.2d 639, 642–43 (Tex. Civ. App.—Texarkana 1978, writ ref’d n.r.e.); Wise v. Pena, 552
S.W.2d 196, 199 (Tex. Civ. App.—Corpus Christi 1977, writ dism’d).
15
These arguments formed all or part of the Starkey parties’ first, fourth, sixth, and eighth issues.
19
50% of the damages Graves sustained as a result of any statutory or common-law
fraud. We agree with the Starkey parties’ argument that no evidence supports the
statutory-fraud finding. 16
When the opposing party fails to object to the charge, we measure the
sufficiency of the evidence by the charge as submitted. Romero v. KPH
Consolidation, Inc., 166 S.W.3d 212, 221 & n.30 (Tex. 2005). We analyze legal
sufficiency by considering the evidence in the light most favorable to the verdict
and indulging every reasonable inference that would support the challenged
finding, crediting favorable evidence if a reasonable factfinder could and
disregarding contrary evidence unless a reasonable factfinder could not. See City
of Keller v. Wilson, 168 S.W.3d 802, 819, 827 (Tex. 2005). We will sustain a
legal-sufficiency challenge only when (1) there is a complete absence of evidence
of a vital fact, (2) the court is barred by rules of law or of evidence from giving
weight to the only evidence offered to prove a vital fact, (3) the evidence offered to
prove a vital fact is no more than a mere scintilla, or (4) the evidence conclusively
establishes the opposite of the vital fact. Id. at 810.
The statutory-fraud claim is based on the following statute, which makes it
unlawful to commit fraud in real-estate and stock transactions:
(a) Fraud in a transaction involving real estate or stock in a
corporation or joint stock company consists of a
(1) false representation of a past or existing material fact,
when the false representation is
(A) made to a person for the purpose of inducing that
person to enter into a contract; and
(B) relied on by that person in entering into that
contract; or
16
Because this argument is dispositive of the claim, we express no opinion on the Starkey
parties’ arguments that statutory fraud was not pleaded and does not apply to this transaction.
20
(2) false promise to do an act, when the false promise is
(A) material;
(B) made with the intention of not fulfilling it;
(C) made to a person for the purpose of inducing that
person to enter into a contract; and
(D) relied on by that person in entering into that
contract.
TEX. BUS. & COM. CODE ANN. § 27.01(a) (West 2009). A person who commits
statutory fraud is liable to the person defrauded not only for actual damages, but
also for attorney’s fees, expert-witness fees, costs for copies of depositions, and
costs of court. Id. § 27.01(e).
The jury was not asked to determine whether the Starkey parties made any
false promises such as those discussed in section 27.01(a)(2) of the statutory-fraud
provision. Instead, the jury was asked only whether each of the Starkey parties
made a false representation of a past or existing material fact for the purpose of
inducing Graves to enter into the 2006 agreement. Although the jury found that
Starkey did so, we have found no evidence that supports this finding.17
In his responsive brief, Graves identifies only two statements that he
contends were false representations of present or existing facts made to induce him
to enter the 2006 contract. First, he states that “Starkey effectively represented that
the [2006] agreement was valid and accurately reflected their deal.” But that
representation was true, as is shown by the jury’s finding that Starkey and Graves
agreed in October 2006 to a written partnership agreement containing the terms
described by Graves. Graves points out that Starkey “now says . . . that the 2006
agreement, as Graves explained it at trial, did not accurately reflect the parties’
17
The jury also found that TBDL committed statutory fraud, but it found that Graves ratified
TBDL’s conduct.
21
deal.” (emphasis added). The jury, however, did not believe Starkey’s later
statement; thus, at best, Starkey’s denial of the 2006 agreement’s existence and
terms was a misrepresentation made five years after the agreement. Moreover,
Graves emphatically did not rely on Starkey’s denial.
The second misrepresentation that Graves identified is that “Starkey falsely
represented in October 2006 that he was Graves’s lawyer. . . . Starkey now denies
that he was ever Graves’s lawyer.” (emphasis added). But if Starkey represented
that he was Graves’s attorney and Graves relied on that representation, then
Starkey was Graves’s attorney. See Valls v. Johanson & Fairless, L.L.P., 314
S.W.3d 624, 633–34 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (explaining
that “an attorney-client relationship arises from a lawyer’s agreement to render
professional services to a client” and “may arise by implication if the lawyer
knows a person reasonably expects him to provide legal services but does nothing
to correct that misapprehension”). Where this particular statement is concerned,
any implied finding that the representation was made and was relied upon would
negate an implied finding that the representation was false.
We sustain the Starkey parties’ no-evidence challenge to the jury’s statutory-
fraud finding. 18 Because statutory fraud is the only cause of action that would have
supported the award of expert fees and the cost of obtaining copies of depositions,
we reverse the portion of the judgment ordering Starkey to pay Graves for those
expenses. It is possible, however, that even though Graves cannot recover loss-of-
compensation damages from Starkey for statutory fraud, the same damages can be
sustained by the jury’s findings on an alternative theory of liability. We therefore
turn next to the arguments directed to those alternative theories.
18
This argument formed a part of the Starkey parties’ ninth issue. In light of our holding that
there was no evidence to support the statutory-fraud claim submitted, we do not address Graves’s
conditional cross-issue.
22
C. Graves cannot recover for common-law fraud or conspiracy to commit
fraud, because in those parts of the charge, common-law fraud was
commingled with the unsupported statutory-fraud claim.
A trial court errs if, over a preserved objection, it submits to the jury a
broad-form question that is based in part on a theory of liability for which there is
no evidence. See Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 381 (Tex. 2000)
(op. on reh’g) (“[S]ubmitting invalid theories of liability in a single broad-form
jury question is harmful error when it cannot be determined whether the jury based
its verdict on one or more of the invalid theories.”); see also Romero, 166 S.W.3d
at 225–26 (applying the same reasoning to a question in which the jury was asked
to allocate responsibility based in part on a theory of liability for which there was
no evidence). Here, the parties agreed on the record that all no-evidence objections
to every question in the charge were preserved.
Several such no-evidence objections were valid. A number of questions in
the charge were predicated in part on the jury’s finding that at least one of the
Starkey parties committed statutory fraud. Most of these questions commingled
statutory and common-law fraud. 19 Specifically, the jury was instructed that if it
found that any of the Starkey parties committed statutory fraud or common-law
fraud, it was to (1) answer one question assessing all of the damages for both types
of fraud, (2) allocate 100% of the responsibility for those damages among the
persons that the jury found committed either type of fraud, and (3) determine
whether each defendant conspired to commit fraud. The Starkey parties argue that
because there is no evidence to support the statutory-fraud claim, the trial court
reversibly erred in submitting each of these questions.20 We agree. Because we
19
An additional question concerning attorney’s fees commingled statutory fraud and breach of
contract, but the Starkey parties briefed that issue separately, and we have addressed it under a
separate heading. See section VII, infra.
20
A ratification question also was predicated in part on the statutory-fraud finding, but the
23
are not reasonably certain that the jury was not significantly influenced by the
statutory-fraud finding when answering these questions, we conclude that the error
was harmful. 21 See Romero, 166 S.W.3d at 227–28. We therefore cannot base a
damage award on the alternative theories of common-law fraud or conspiracy to
commit fraud, because these were predicated in part on the erroneous statutory-
fraud finding. 22
D. Graves can recover past loss-of-compensation damages from Starkey
and the General Partner for breach of the duties of loyalty and care.
The Starkey parties do not specifically contend that Graves is not entitled to
recover a particular category of damages that resulted from the breach of the duties
of loyalty and care. Instead, they argue more generally that Starkey and the
General Partner cannot be held liable for breach of these statutory duties at all. For
Starkey parties do not complain of charge error concerning that question.
21
This is a part of the Starkey parties’ fourteenth issue. In light of our disposition of this issue, it
is unnecessary to discuss in detail their tenth issue, which contains further challenges to the
common-law-fraud findings. Most of the arguments offered in support of the Starkey parties’
tenth issue are the same merger and ratification arguments we previously have rejected. The
Starkey parties also fail to discuss any evidence other than the 2008 agreement. Moreover, they
do not even identify the misrepresentations and nondisclosures on which Graves’s common-law
fraud claim could have been based. Finally, they assert that there is no evidence of any
misrepresentation, but they do not contend that there is legally insufficient evidence of fraud by
non-disclosure, and the jury was instructed that it could base a fraud finding on a
misrepresentation or a non-disclosure. We also do not reach the portion of their twelfth issue in
which they challenge the jury’s finding that Starkey and the General Partner conspired to defraud
Graves. Like the fraud-related damage questions and percentage-of-responsibility questions, that
fraud-conspiracy question was predicated in part on the erroneous statutory-fraud finding.
22
We reverse part of the judgment based on charge error, which normally would require that we
remand for a new trial, at least as to those theories of liability that were improperly commingled
with others for which there was no evidence. See Romero, 166 S.W.3d at 230–31. Here,
however, it may be unnecessary to relitigate those issues because (a) the same damages are
supported by the jury’s findings on alternative theories of liability that were not affected by the
charge error; (b) the parties have briefed all of the alternative theories; (c) the judgment
specifically provides that if it cannot be sustained on appeal based on the remedies Graves
elected in the trial court, he may elect to recover on one of the alternative theories of liability;
and (d) to conserve judicial resources, Graves has asked that we render judgment based on an
alternative theory rather than remanding for him to make such an election in the trial court.
24
the reasons discussed below, we conclude that none of these arguments has merit.
1. The 2008 agreement does not disclaim all duties of loyalty and care.
The Starkey parties assert that Graves cannot recover for breach of the duties
of loyalty and care because the 2008 agreement supersedes the prior agreements
and disclaims these statutory duties. We need not address their contention that the
2008 agreement supersedes all prior agreements, because in any event, the Starkey
parties are mistaken about its content. The 2008 agreement limits but does not
disclaim all such duties and liability, 23 and the instructions accompanying the
relevant questions in the charge included that contract’s language containing the
limitation of these statutory duties. That instruction was as follows:
To prove [a defendant] failed to comply with its duty, Glen
Graves must show that [the defendant’s] actions or omissions were:
performed or omitted fraudulently
constituted gross negligence, or
constituted willful misconduct.
“Gross negligence” means an act or omission by [the
defendant],
(a) Which when viewed objectively from the standpoint of [the
defendant] at the time of its occurrence involve[d] an extreme degree
of risk, considering the probability and magnitude of the potential
harm to others; and
(b) Of which [the defendant] ha[d] actual, subjective awareness of
the risk involved, but nevertheless proceed[ed] with conscious
indifference to the rights, safety, or welfare of others.
You are instructed that under the Partnership Agreement, 24 the
General Partner, when permitted to make a decision in its discretion,
23
Nor could it disclaim these duties entirely. See TEX. BUS. ORGS. CODE ANN. § 152.002(b)(2),
(b)(3) (West 2012) (providing that neither the partnership agreement nor the partners may
“eliminate the duty of loyalty” or “eliminate the duty of care”) (emphasis added).
24
The “Partnership Agreement” mentioned here was not identified as the 2006, 2007, or 2008
agreement.
25
shall be entitled to consider such interests and factors as it desires and
may consider its own interests. Further, the General Partner may take
any action or make any decision pursuant to the authority granted it in
the Partnership Agreement so long as such action or decision was not
performed or omitted with the intent to defraud or deliberately cause
injury to the Limited Partners.
You are further instructed that neither the General Partner, its
Affiliates, nor any owner, manager, officer, director, partner,
employee or agent of the General Partner or its Affiliates, shall be
liable, responsible or accountable in damages or otherwise to the
Partnership or any Partner for any action taken or failure to act (even
if such action constituted the negligence of a person) on behalf of the
Partnership within the scope of the authority conferred on the person
described in this Agreement or by law unless such act or omission was
performed or omitted fraudulently or constituted gross negligence or
willful misconduct.
The jury impliedly found that the acts or omissions that breached the duties of
loyalty and care were performed or omitted fraudulently, or that they constituted
gross negligence or willful misconduct. The Starkey parties do not challenge these
implied findings, which support the imposition of liability.
2. The Starkey parties’ argument concerning alleged charge error in
connection with this liability theory was not preserved for review.
The Starkey parties additionally contend that Graves cannot recover against
Starkey under this theory of liability because there is no jury finding that Starkey
owed Graves duties of loyalty and care in the first place; however, the Starkey
parties did not object in the trial court that the question concerning Starkey’s
liability was required to be predicated on a factual finding that he owed Graves any
such duties. Cf. TEX. R. CIV. P. 278 (explaining that if a party relies on an omitted
question, the opposing party preserves error by objecting to the omission). Thus, if
such a finding is necessary, then it is deemed found. See TEX. R. CIV. P. 279
(providing that if the jury finds one or more elements essential to a ground of
recovery and necessarily referable to that ground, but other unrequested elements
26
were omitted without objection, the omitted elements are deemed found in support
of the judgment).
We overrule this issue. We also overrule the related argument that in the
absence of such a predicate question, the liability findings improperly commingled
valid and invalid liability theories. 25
3. Starkey can be held jointly and severally liable with the General
Partner for damages Graves sustained as a result of their breach of
the duties of loyalty and care.
Three questions were predicated on the jury’s finding that at least one of the
Starkey parties breached the duties of loyalty and care. First, the jury was asked to
allocate responsibility among the liable parties. The jury found that Starkey was
responsible for causing or contributing to cause 60% of Graves’s damages, and the
General Partner was responsible for the remaining 40%. Second, the jury assessed
damages, and as with all of the other damage questions, the jury found that as a
result of this conduct, Graves sustained damages of $173,000 in past loss of
compensation and $437,000 in past out-of-pocket losses. Third, the jury was asked
to determine if each defendant conspired in the breach of the duties of loyalty and
care that damaged Graves. The jury found that only Starkey and the General
Partner were part of such a conspiracy.
Starkey argues that he cannot be held jointly and severally liable with the
General Partner based on the conspiracy finding because the General Partner could
not conspire with its only agent. He additionally contends that imposing joint
liability based on the conspiracy finding would impermissibly circumvent the
requirements for proving alter-ego liability. It is unnecessary for us to address
25
These arguments were made in the Starkey parties’ eleventh and fourteenth issues.
27
these arguments because they make no difference to the outcome of the case.26 We
have upheld the finding that Starkey and the General Partner are liable for breach
of the duties and loyalty and care, and the Starkey parties do not challenge the
jury’s finding allocating 60% of the responsibility for this claim to Starkey; thus,
Starkey can be held jointly and severally liable with the General Partner for these
damages even in the absence of a conspiracy finding. See TEX. CIV. PRAC. & REM.
CODE ANN. § 33.013(b) (West 2008) (providing that a defendant who is more than
50% responsible for the damages associated with a particular cause of action is
jointly and severally liable for those damages).
We accordingly hold that although Graves cannot recover past loss of
compensation from Starkey for statutory fraud, Starkey can be held jointly and
severally liable with the General Partner for past loss of compensation resulting
from their breach of the duties of loyalty and care.
VI. OUT-OF-POCKET LOSSES
We begin by clarifying the issue presented for our review in connection with
the findings that Graves sustained out-of-pocket losses in the past. In their
statement of the issues, the Starkey parties asserted that there is legally and
factually insufficient evidence to support the damages awarded for out-of-pocket
losses.27 In their briefing, however, they challenge only the existence of out-of-
pocket losses on the same grounds on which they challenged Graves’s standing.
They do not challenge the amount awarded, and they do not mention the factual
sufficiency of the evidence again. Any challenge to the amount of out-of-pocket
26
These arguments were raised in the Starkey parties’ twelfth issue.
27
As with the award of lost compensation, Graves elected to recover these damages from the
General Partner and TBDL for breach of the 2006 contract, and to recover the same damages
from Starkey based on his statutory-fraud claim. Again, the awards were subject to the one-
satisfaction rule.
28
losses found by the jury or to the factual sufficiency of the evidence of such losses
has been waived. TEX. R. APP. P. 38.1(i). We accordingly address only the legal
sufficiency of the evidence that any such damages exist.
Before we can do so, we also must identify the correct standard by which the
sufficiency of the evidence is measured. In their respective briefs, the Starkey
parties focus on “out-of-pocket damages” as that phrase is used in fraud cases,
while Graves emphasizes the definition of “out-of-pocket damages” used in
breach-of-contract actions.28 Each side’s arguments suffer from the same flaw:
they ignore the charge. Here, the jury was told to find the amount of Graves’s past
out-of-pocket losses without any definition of that term. No one asked the trial
court to include an instruction explaining what an out-of-pocket loss is or how or
when it is measured, and no one objected to the absence of any such instructions.
Thus, the jury was left to interpret the phrase “out of pocket losses” as those words
are commonly understood by non-lawyers, and we must measure the sufficiency of
the evidence by that standard. See Romero, 166 S.W.3d at 221; Securitycomm
Grp., Inc. v. Brocail, No. 14-09-00295-CV, 2010 WL 5514333, at *4 (Tex. App.—
Houston [14th Dist.] Dec. 28, 2010, pet. denied) (mem. op.) (explaining that where
28
In cases of fraud or negligent misrepresentation, out-of-pocket damages are the difference
between the value paid and the value received, measured at the time of the transaction. See
Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex. 1997) (sub. op.). But
where liability is based on breach of contract, such out-of-pocket damages are not necessarily
determined as of that date. In a contract claim, out-of-pocket damages protect a reliance interest
by restoring to the non-breaching party the expenditures made in reliance on the contract. See
Wes-Tex Tank Rental, Inc. v. Pioneer Natural Res. USA, Inc., 327 S.W.3d 316, 320 n.4 (Tex.
App.—Eastland 2010, no pet.). These out-of-pocket damages include “expenditures made in
preparation for performance or in performance, less any loss that the party in breach can prove
with reasonable certainty the injured party would have suffered had the contract been
performed.” Mistletoe Express Serv. of Okla. City, Okla. v. Locke, 762 S.W.2d 637, 638 (Tex.
App.—Texarkana 1988, no writ) (quoting RESTATEMENT (SECOND) OF CONTRACTS § 349
(1981)). Thus, where liability is based on breach of contract, out-of-pocket damages can be used
to reimburse the non-defaulting party for expenditures made to perform the contract, regardless
of whether those expenditures were made before the contract was signed or during the course of
performance.
29
the charge instructed the jury to measure damages by “out-of-pocket expenses” but
did not define the term, jurors were “free to use the ordinary definition of ‘out-of-
pocket’ rather than the legal definition in Texas, and our review is similarly
defined”).
We have identified two ways in which jurors could have interpreted the
words “out of pocket.” They could have read the phrase to have the same meaning
that it does in the expressions “out-of-pocket costs” or “out-of-pocket expenses,”
that is, an outlay of cash. See Securitycomm Grp., 2010 WL 5514333, at *4;
WEBSTER’S NINTH NEW COLLEGIATE DICTIONARY 838 (1991). Jurors also could
have read “out of pocket” more broadly to mean a financial loss. See 2 THE
COMPACT EDITION OF THE OXFORD ENGLISH DICTIONARY 2218 (1971) (noting that
“to be out of pocket” means “to be a loser (by some transaction),” as in “The
proprietors complain . . . they are yet out of pocket by it”). We therefore will
determine if there is more than a scintilla of evidence that Graves sustained either
kind of loss in the past.
A. There is legally insufficient evidence that Graves sustained past out-of-
pocket losses as a result of a breach of contract.
To recover damages for breach of contract, the breach must have caused
those damages. Hatfield, 316 S.W.3d at 65. A loss results from a breach of
contract if the loss is the natural, probable, and foreseeable consequence of the
breach. Mead v. Johnson Grp., Inc., 615 S.W.2d 685, 687 (Tex. 1981). But there
is no evidence that a breach of any of the partnership agreements by any of the
Starkey parties caused Graves to sustain a past out-of-pocket loss as that term
would have been understood by jurors.
First, there is no evidence that a breach of contract resulted in an outlay of
cash in the past. Graves does not contend otherwise.
30
Second, there is no evidence that he sustained a financial loss in the past as a
result of a breach of contract. Graves contends that he contributed the building and
“received nothing from the partnership—no payments, no profits, no
distributions.” But with the exception of the obligation to pay him the
compensation agreed upon for his work as the general manager, there is no
evidence that under the terms of any of the contracts, he was required to be paid
any “payments, profits, or distributions” in the past. To see why this is so, let us
look at the terms of each agreement, beginning with the most recent.
In the 2008 amended partnership agreement, Graves agreed that in exchange
for contributing the building to the partnership, he would receive a 30% share of
“distributable cash” under the contract’s terms if and when such a distribution was
made, but there is no evidence in the record that a distribution was made or was
required to have been made. See In re Prodigy Servs., LLC, No. 14-14-00248-CV,
2014 WL 2936928, at *5 (Tex. App.—Houston [14th Dist.] June 26, 2014, orig.
proceeding) (mem. op.) (explaining that a partnership interest “is the partner’s right
to receive his distributive share of the profits and surpluses of the partnership”).
He also would receive a 30% share of the proceeds distributed upon the winding
up and termination of the partnership’s business, but this event had not occurred by
the time of trial, either. As of the time of trial, Graves still retained his 30% share
of the partnership, which is exactly what he was to receive under the contract’s
terms. Thus, regardless of whether Graves sustains any financial loss in the future
as a result of the Starkey parties’ breach of contract, there is no evidence that he
already has sustained such a loss.
The terms of the 2007 agreement were the same as the 2008 agreement
except that under the 2007 agreement, Graves would have received a 49% share of
distributions if any had been made, whether as a result of a distribution declared by
31
the General Partner or as a result of the winding up and termination of the
partnership’s business. But just as with the 2008 agreement, there is no evidence
that any distributions were made or were required to have been made, or that the
partnership has terminated.
As for the 2006 agreement, the only terms that we know existed are those
found by the jury. The jury found that Graves and Starkey agreed that Graves
would be compensated at the rate of $1,500 per week, but the breach of that
provision was addressed by the jury’s assessment of damages for past loss of
compensation. None of the other terms found by the jury required anyone to make
any other payment to Graves in the past.
At trial, Graves characterized the evidence as presenting another possible
basis for finding past out-of-pocket losses. There is evidence that Starkey and
Graves specified in the 2007 and 2008 contracts that when Graves contributed the
building, its agreed value after deducting liabilities was $1.2 million, but Starkey
and the General Partner caused the partnership’s books to indicate that this was the
building’s value before deducting liabilities. According to Graves’s evidence, the
result is that on the partnership’s books, Graves’s initial capital contribution—and
thus, the balance in his capital account going forward—is hundreds of thousands of
dollars less than it should be. The capital-account balances affect the amount each
partner is entitled to receive upon the winding up and termination of the
partnership, but that has not happened yet. Thus, the reduction in Graves’s capital
account on the partnership’s books has not caused Graves a past financial loss.
We sustain this portion of the issue presented as it pertains to the legal
sufficiency of the evidence that Graves sustained out-of-pocket losses in the past as
32
a result of any of the Starkey parties’ breach of contract. 29 As discussed below,
however, Graves can recover the same damages from Starkey and the General
Partner under an alternative theory of liability.
B. There is legally sufficient evidence that Graves sustained past out-of-
pocket losses as a result of the breach of the statutory duties of loyalty
and care.
Although Graves sought the same damages for every cause of action and the
parties frequently ignore the distinctions between different theories of liability, the
claims involve different conduct—and sometimes, different results. Graves did not
sustain a past out-of-pocket loss as a result of a breach of contract, because with
the exception of the breach of the obligation to pay him the agreed compensation,
he received what he bargained for. But there is evidence that Graves sustained an
out-of-pocket loss in the past when, as a result of the breach of the duties of loyalty
and care, he lost part of what he did receive in exchange for contributing the
building: his partnership interest.
Under the terms of the 2007 agreement, Graves owned a 49% share of the
partnership. After signing the 2008 agreement, he owned a 30% share of the
partnership. Thus, on the day he signed the 2008 agreement, he lost a 19% share
of the partnership. If there is more than a scintilla of evidence that this share of the
partnership had financial value at that time, then losing it was a financial loss, and
hence, an out-of-pocket loss.
Here, the Starkey parties’ own actions implicitly recognized that the 19%
partnership interest had financial value. In March 2008, Starkey made a “cash
call” in which he told Graves that the partnership needed additional contributions
of more than $300,000. According to Graves, Starkey demanded that Graves
29
The challenge to the legal sufficiency of the evidence of out-of-pocket losses was part of the
Starkey parties’ second issue.
33
provide all of these funds. Graves testified that because he would not agree to
contribute the money, Starkey demanded that he sign the 2008 amended
partnership agreement, and threatened that if Graves did not sign it, then Starkey
would have him thrown in jail. Graves signed. The effect of the 2008 agreement
was that TBDL and the General Partner agreed to contribute an additional
$300,000 to the partnership and their interest in the partnership was increased by a
total of 19%, while Graves’s interest was reduced by 19%. Under the terms of the
2008 agreement, the increase in the General Partner and TBDL’s contribution and
partnership interest—and corresponding decrease in Graves’s partnership
interest—was treated as a sale of that partnership interest. 30 In effect, the General
Partner and TBDL purchased an additional 19% partnership interest for $300,000.
This is more than a scintilla of evidence from which a reasonable jury could
conclude that when Graves signed the 2008 contract and lost a 19% share of the
partnership, he suffered an out-of-pocket loss.
The Starkey parties maintain that Graves suffered no out-of-pocket losses at
the time of his initial investment in the partnership, but under the language of the
30
Both the 2007 and 2008 agreements provided as follows:
In the event the General Partner determines that funds in addition to [the initial
capital contributions] are necessary to carry out the purposes of the Partnership
and the General Partner and the Limited Partners do not agree to contribute such
funds in their respective Sharing Ratios, the General Partner is authorized to offer
and sell additional Partnership Interests and admit any purchasers thereof (which
may include existing Partners or their Affiliates) as additional limited partners of
the Partnership.
Although these agreements permitted the General Partner (and Starkey, as the General Partner’s
agent) to take such actions, the agreements also specified that if an act was within the authority
of the General Partner or its agents, the actor would not be liable to the other partners “unless
such act or omission was performed or omitted fraudulently or constituted gross negligence or
willful misconduct.” As we previously have pointed out, the Starkey parties do not challenge the
jury’s implied findings that the acts or omissions that breached the duties of loyalty and care
were performed or omitted fraudulently, or that they constituted gross negligence or willful
misconduct. See supra, section V.D.1.
34
charge, the jury was not limited to considering losses that occurred at that time.
They also contend that Graves seeks only to recover for reduction in the value of
his partnership interest, but they ignore the reduction in the size of his partnership
interest; thus, they do not contend that loss of part of Graves’s partnership interest
was not an out-of-pocket loss.
We already have addressed the Starkey parties’ remaining challenges to any
recovery for breach of the duties of loyalty and care, and for the reasons previously
discussed, we reject those arguments.31 As for Graves’s remaining theories of
liability that arguably could support an award of damages for past out-of-pocket
losses—statutory fraud, common-law fraud, and conspiracy to commit fraud—the
same reasons that prevent Graves from recovering damages for past loss of
compensation under those theories also prevent him from recovering damages for
past out-of-pocket losses.32
VII. ATTORNEY’S FEES
In the final issue we address, the Starkey parties argue that if we reverse or
modify the judgment as to damages, then we also must reverse the award of
attorney’s fees. The jury assessed attorney’s fees based on its breach-of-contract
and statutory-fraud findings, and Graves elected to recover from TBDL and the
General Partner based on breach of contract and to recover against Starkey based
on statutory fraud. Attorney’s fees are available to the prevailing party in
connection with each of these causes of action. See TEX. BUS. & COM. CODE ANN.
§ 27.01(d) (statutory fraud); TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8)
(West 2008) (breach of contract). We have concluded, however, that Graves is not
entitled to recover on his statutory-fraud claim; thus, he can no longer recover
31
See supra, section V.D.
32
See supra, sections V.B and V.C.
35
attorney’s fees from Starkey. We also have concluded that there is no evidence
that Graves suffered past out-of-pocket losses as a result of a breach of contract,
and we accordingly have reduced the amount of damages that he can recover from
TBDL and the General Partner for breach of contract by more than two-thirds.
Under these circumstances, we cannot be reasonably certain that in assessing
a reasonable fee for the necessary services of Graves’s attorney, the jury was not
significantly influenced by the consideration of damages and theories of liability
for which there is no evidence. See Barker v. Eckman, 213 S.W.3d 306, 313–15
(Tex. 2006). We therefore agree that the attorney’s-fee award must be reversed
and that issue must be remanded.33
VIII. DISPOSITION
The ultimate disposition of this case is complicated in that it turns on an
election that Graves is not yet required to make. On one hand, because the jury’s
favorable common-law-fraud findings were based on an erroneous charge, Graves
is entitled to relitigate them. And because his various claims against the Starkey
parties (and the General Partner’s counterclaims against him) are not separable
from the fraud claims without unfairness to the parties, all of those claims would
have to be retried.34 On the other hand, Graves prevailed on alternative theories of
33
This was the Starkey parties’ thirteenth issue.
34
After reversing a judgment, the appellate court “can limit the scope of remand to the part
affected by the error if that part is separable without unfairness to the parties.” Nat’l City Bank
of Ind. v. Ortiz, 401 S.W.3d 867, 884 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) (op.
on reh’g) (citing TEX. R. APP. P. 44.1(b)). But Graves’s various fraud claims cannot be separated
from any of his other claims against the Starkey parties without unfairness to the parties, as is
shown by Graves’s position that he sustained the same two measures of damages in the same
amounts, regardless of which parties were liable or the conduct on which liability was based.
The General Partner’s counterclaims for conversion and breach of the duties of loyalty and care
are compulsory counterclaims that also are not separable without unfairness to the parties. See
Double Ace, Inc. v. Pope, 190 S.W.3d 18, 25–27 (Tex. App.—Amarillo 2005, no pet.) (where
judgment against a corporation on its claims for breach of contract, breach of fiduciary duty, and
36
liability, and he can choose to recover on those theories. He cannot do both,
however, because he is not entitled to multiple recoveries for the same injuries.
Moreover, Graves is not required to choose until after attorney’s fees are
relitigated, because until then, he will not know what he would be giving up to
pursue a new trial. See Tony Gullo Motors I, L.P., 212 S.W.3d at 314–15.
The result is that two steps must performed on remand. First, the factfinder
must reassess the attorney’s fees that Graves can recover from the General Partner
and TBDL based on their breach of the 2006 contract, which caused him damages
of $173,000 for past loss of compensation. Second, Graves must elect whether to
(a) stand on his right to recover damages and the reassessed attorney’s fees based
on the jury’s remaining findings that were not successfully challenged on appeal;
or (b) exercise his right to a new trial of all of his claims against the Starkey parties
and their counterclaims against him. If he chooses the first option, then his most
favorable judgment would be as set forth below. If he chooses a new trial, then the
existing findings on Graves’s claims against the Starkey parties and their
counterclaims against him will cease to have any legal effect.
IX. CONCLUSION
Although we must reverse parts of the judgment due to charge error or lack
of evidence, Graves still can recover actual damages in the same amount found by
the jury based on alternate theories of liability. Unless Graves elects a new trial,
our judgment primarily will affect the extent of the Starkey parties’ individual
fraud were reversed on appeal, the general manager and president’s compulsory counterclaims
also had to be reversed and remanded).
In contrast, no claims between Graves and Elizabeth Starkey were challenged on appeal,
and those claims are separable without unfairness to the parties. The take-nothing judgment on
Graves’s claims against her remains intact, and those claims are excluded from the scope of
remand, regardless of any election that Graves makes. See Plas-Tex, Inc. v. U.S. Steel Corp.,
772 S.W.2d 442, 446 (Tex. 1989).
37
liability and the ancillary relief associated with particular causes of action.
Because no evidence supports the statutory-fraud finding, Graves is not entitled to
recover the costs for copies of depositions or expert witnesses, and because the
amount of damages that Graves can recover on causes of action for which
attorney’s fees are recoverable has been reduced by more than two-thirds, we
reverse the portion of the judgment awarding attorney’s fees and remand for
relitigation of that issue.
The net result is as follows:
A. We affirm the portion of the judgment in which the trial court
stated the terms of the written 2006 contract as found by the jury;
B. Regarding damages for past loss of compensation, we modify
the judgment to
1. hold the General Partner and TBDL jointly and severally
liable to Graves for past loss of compensation in the amount of
$173,000 as a result of their breach of the written 2006
partnership agreement;
2. hold Starkey and the General Partner liable to Graves for
past loss of compensation in the amount of $173,000 as a result
of their breach of the duties of loyalty and care, with Starkey
being solely liable for 60% of this amount ($103,800), and
jointly and severally liable with the General Partner for the
remaining 40% ($69,200);
3. order that the recovery of damages for past loss of
compensation is subject to the one-satisfaction rule, so that
Graves may recover no more than $173,000 for those damages
from any combination of Starkey, the General Partner, and
TBDL;
C. Regarding damages for out-of-pocket losses sustained in the
past, we modify the judgment to hold Starkey and the General Partner
liable to Graves for past out-of-pocket losses of $437,000 as a result
of their breach of the duties of loyalty and care, with Starkey being
solely liable for 60% of this amount ($262,200), and jointly and
severally liable with the General Partner for the remaining 40%
38
($174,800);
D. We reverse the portions of the judgment in which the trial court
held Starkey liable for statutory fraud and required him to pay
Graves’s deposition costs and expert fees;
E. We reverse the awards of attorney’s fees; and
F. We remand the case for
1. relitigation of the amount of reasonable and necessary
attorney’s fees to be recovered from the General Partner and
TBDL in light of the reduced amount of damages on causes of
action for which such fees are recoverable;
2. recalculation of the interest recoverable from each of the
Starkey parties in light of this court’s modification of the
judgment and the relitigation of attorney’s fees; and
3. Graves’s election between
(a) rendition of judgment in accordance with those
adjustments and incorporating the modifications
described in this opinion, but leaving intact the
portions of the trial court’s judgment that were not
successfully challenged in this appeal;35 or
alternatively,
(b) a new trial on his claims against the Starkey parties
and their claims against him, leaving intact only
the take-nothing judgment on Graves’s claims
against Elizabeth Starkey.
/s/ Tracy Christopher
Justice
Panel consists of Justices Christopher, McCally, and Brown.
35
If Graves elects to recover on the jury’s favorable findings as set forth in this opinion, then
none of his theories of liability will be relitigated, and the General Partner’s $5,000 judgment
against Graves and the take-nothing judgment on his claims against Elizabeth Starkey will be
unaffected.
39