chris-thygesen-and-bruce-w-derrick-derivatively-on-behalf-of ( 2013 )

Affirmed and Memorandum Opinion filed May 21, 2013.
In The
Fourteenth Court of Appeals
NO. 14-09-00866-CV
NO. 14-10-00324-CV
CHRIS THYGESEN AND BRUCE W. DERRICK, DERIVATIVELY ON
BEHALF OF CLEARMEDIAONE, INC., AND ITS SHAREHOLDERS,
Appellants
V.
ROBERT F. STRANGE, JR., ROBERT J. VIGUET, JR., AND THOMPSON
& KNIGHT, LLP, Appellees
On Appeal from the 157th District Court
Harris County, Texas
Trial Court Cause No. 2008-35835
MEMORANDUM OPINION
This case is a derivative shareholder suit brought by appellants, Chris
Thygesen and Bruce W. Derrick, Derivatively on Behalf of ClearMediaOne, Inc.
and its Shareholders, against appellees, Robert F. Strange, Jr., Robert J. Viguet, Jr.,
and Thompson & Knight, LLP. In three issues, appellants contend the trial court
erred by rendering a take-nothing judgment on the jury’s verdict instead of
adjudicating appellants’ request for equitable relief as a “Chancellor in Equity
under Delaware law.” We affirm.
I. BACKGROUND1
Appellants owned shares in ClearMediaOne, Inc. (“ClearMediaOne”), one
of several companies founded and directed by appellee Strange. Appellee Viguet,
through his current law firm, appellee Thompson & Knight (collectively “the
lawyer defendants”), and former law firms, has performed legal work over the
years for Strange and his companies. According to appellants, Strange
masterminded a fraud on the ClearMediaOne shareholders and the lawyer
defendants facilitated the fraud via their alleged representation of Strange and his
companies. Although appellants made numerous allegations regarding appellees’
actions, ultimately the jury was asked about appellees’ conduct relative to three
transactions.
(1) Discontinuing ClearMediaOne and Starting SecurityComm. During
its existence, ClearMediaOne experienced financial difficulties. Strange
discontinued operation of ClearMediaOne and formed SecurityComm Group, Inc.
(“SecurityComm”). Appellants claim SecurityComm was formed to evade
liabilities to ClearMediaOne’s shareholders and use its assets for SecurityComm’s
business without benefit to ClearMediaOne’s shareholders.
(2) Acquisition of Westex. SecurityComm acquired a company named
“Westex.” Relative to that acquisition, Strange represented to Westex that
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In their appellate brief, appellants present almost thirty pages of factual background.
Because all those facts are not material to our disposition, we present only a brief overview.
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SecurityComm had acquired another company named “APT.” Appellants allege
this statement was false because the APT acquisition had not closed, which
contributed to the unraveling of Westex.
(3) Settlement of the Westex Litigation. Shortly after the Westex
acquisition, conflicts arose and SecurityComm and Strange became involved in
litigation with the stockholders, principals, and lenders of Westex. The parties
reached a partial settlement whereby SecurityComm and Strange received funds in
exchange for releasing their interest in Westex. According to appellants, the funds
were improperly distributed to the lawyer defendants under the guise of a payment
for legal fees and to Strange as payment under a consulting contract.
Appellants sued appellees for various causes of action and sought actual
damages, exemplary damages, and equitable relief. The only issues submitted to
the jury concerned alleged breaches of fiduciary duties by Strange and alleged
conspiracy in such conduct by the lawyer defendants. The jury found that Strange
breached his fiduciary duty to ClearMediaOne with respect to “Discontinuing
ClearMediaOne and starting SecurityComm.” However, the jury declined to
award any damages for this breach or find any harm to ClearMediaOne resulted
from malice on the part of Strange. The jury found that Strange did not breach his
fiduciary duty to ClearMediaOne with respect to “The acquisition of Westex” or
“The settlement of the Westex Litigation.” The questions concerning the lawyer
defendants, including whether they knowingly participated in a conspiracy to
damage ClearMediaOne and whether any such conduct was committed with
malice, were conditioned on a finding of damages against Strange. Therefore, the
jury did not answer any questions concerning the lawyer defendants.
In their post-trial filing, appellants stated they had previously claimed a jury
had no “adjudicative role” in the case although they agreed to the jury sitting in an
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“advisory role,” to avoid “any issues” concerning the right to trial by jury.
Appellees requested the trial court to grant equitable relief, sitting as “a Court of
Chancery in Delaware.” On September 25, 2009, the trial court signed a final
judgment ordering appellants take nothing from appellees.
II. ANALYSIS
In three issues, appellants contend the trial court erred by (1) failing to apply
Delaware law and adjudicate the case as a “Chancellor in Equity under Delaware
law,” (2) rendering judgment on the jury’s verdict because it was advisory only,
and (3) violating the “fundamental maxim” that “equity will not suffer a wrong
without a remedy” via the actions described in issues one and two. Appellants do
not challenge sufficiency of the evidence to support any of the jury’s findings.
Appellants complain only that the trial court rendered a take nothing judgment on
the jury verdict rather than adjudicating their request for equitable relief.
Appellants seek equitable relief in the form of rescissory damages and fee
forfeiture.
Appellants contend that, under the law of Delaware, as the state of
ClearMediaOne’s incorporation, the Delaware Court of Chancery has exclusive
jurisdiction over all aspects of a claim for breach of fiduciary duty by a corporate
fiduciary even when monetary relief is the only remedy. Thus, appellants suggest
the jury verdict was advisory only and the trial court, sitting as a Delaware
Chancellor in Equity, was required to decide the equitable issues of whether
appellees’ actions deceived the ClearMediaOne shareholders and fashion a
remedy. Therefore, appellants maintain this case has never been properly
adjudicated and they have thereby been deprived of an equitable remedy.
We disagree the jury’s verdict was advisory only. Appellees properly
demanded their right to a trial by jury. In a pre-trial Rule 11 agreement, appellants
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agreed to a trial by jury. When the trial court entertained objections to the jury
charge, appellants did not object to any of the questions. Moreover, when a suit is
brought in a Texas state court, procedural matters are governed by Texas law even
if the law of another state or federal law governs substantive issues. See Mitchell
v. Missouri–Kansas–Texas R.R. Co., 786 S.W.2d 659, 661 (Tex. 1990) (op. on
rehearing), overruled on other grounds by Union Pac. R. Co. v. Williams, 85
S.W.3d 162, 169 (Tex. 2002); Penny v. Powell, 347 S.W.2d 601, 602 (Tex. 1961);
Illinois Tool Works, Inc. v. Harris, 194 S.W.3d 529, 532 (Tex. App.—Houston
[14th Dist.] 2006, no pet.); In re Wells Fargo Bank Minn. N.A., 115 S.W.3d 600,
605 n.7 (Tex. App.—Houston [14th Dist.] 2003, orig. proceeding [mand. denied]).
Whether a party is entitled to a jury trial on a particular claim is typically a
procedural issue governed by the law of the forum. Wells Fargo Bank Minn., 115
S.W.3d at 605 n.7 (citing Restatement (Second) of Conflict of Laws § 129 (2012));
see Restatement (Second) of Conflict of Laws § 129 cmt. a. (“The local law of the
forum determines whether a party is entitled to a jury trial on any aspect of his
case.”); see also Mitchell, 786 S.W.2d at 661–62 (“This court has recognized that
rules relating to the form, necessity, and effect of jury issues are procedural rather
than substantive if they do not interfere with a right or defense provided by the
F.E.L.A.”) (emphasis in original; internal quotations omitted).
Relative to the apportionment of duties between the jury and the trial court
when a party requests equitable relief, the Supreme Court of Texas has held: “As a
general rule, a jury does not determine the expediency, necessity, or propriety of
equitable relief. . . . However, when contested fact issues must be resolved before
equitable relief can be determined, a party is entitled to have that resolution made
by a jury.” Burrow v. Arce, 997 S.W.2d 229, 245 (Tex. 1999) (internal quotations
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omitted). More specifically, with respect to the equitable remedy at issue in
Burrow, attorney-fee forfeiture, the court continued:
Thus, when forfeiture of an attorney’s fee is claimed, a trial
court must determine from the parties whether factual disputes exist
that must be decided by a jury before the court can determine whether
a clear and serious violation of duty has occurred, whether forfeiture
is appropriate, and if so, whether all or only part of the attorney’s fee
should be forfeited. Such factual disputes may include, without
limitation, whether or when the misconduct complained of occurred,
the attorney’s mental state at the time, and the existence or extent of
any harm to the client. If the relevant facts are undisputed, these
issues may, of course, be determined by the court as a matter of law.
Once any necessary factual disputes have been resolved, the court
must determine, based on the factors we have set out, whether the
attorney’s conduct was a clear and serious breach of duty to his client
and whether any of the attorney’s compensation should be forfeited,
and if so, what amount.
Id. at 246. Accordingly, under Texas procedural law applicable in this case, the
jury had the exclusive role of resolving factual issues underlying a request for
equitable relief, including whether appellees breached fiduciary duties or
committed any other misconduct; the court then had the role of deciding whether to
order equitable relief based on any jury finding of misconduct. See id. at 245–46.
Appellants’ brief is devoted to the contention that this case has not been
adjudicated because the trial court failed to consider an equitable remedy. We
disagree. The trial lasted approximately a week. The jury heard testimony from
eight witnesses, as well as arguments of counsel, before rendering its verdict.
Appellants then presented their request for equitable relief to the trial court before
it signed the judgment. In the judgment, the court ordered that appellants take
nothing based on the jury verdict and then recited, “All other relief not expressly
granted in this judgment is denied.” Therefore, the trial court did rule on the
request for equitable relief—it denied the request.
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Appellants did not obtain a jury finding that (1) the lawyer defendants
breached fiduciary duties or committed any other misconduct, or (2) Strange
breached fiduciary duties or committed any other misconduct relative to the
acquisition of Westex and settlement of the Westex litigation. The jury expressly
found Strange did not breach his fiduciary duties with respect to those transactions.
The requirement that the jury answer questions concerning the lawyer defendants
was conditioned on a finding of damages against Strange. Appellants did not
object to this conditional submission. Because the jury found no damages against
Strange, it did not answer the questions concerning the lawyer defendants. Thus,
appellants failed to obtain the factual findings prerequisite to equitable relief on (1)
any claims against the lawyer defendants, and (2) the claims against Strange
relative to acquisition of Westex and settlement of the Westex litigation.
The jury did find Strange breached a fiduciary duty with respect to
discontinuation of ClearMediaOne and formation of SecurityComm, although the
jury did not assess any damages and found no malice on the part of Strange. We
recognize a jury’s refusal to award actual damages for breach of fiduciary duty
does not preclude a trial court from ordering equitable relief, such as disgorgement
of profits or fee forfeiture, although the fiduciary’s mental state and existence of
actual damages are factors for the trial court’s consideration. See id. at 239–240,
246. However, equitable relief is not mandatory because the “the expediency,
necessity, or propriety of equitable relief” is committed to the trial court’s
discretion. See Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419, 428–29
(Tex. 2008); see also Burrow, 997 S.W.2d at 240–42, 246. Accordingly, a trial
court’s decision on whether to order equitable relief is reviewed for abuse of
discretion. Wagner & Brown, 282 S.W.3d at 428–29; see Illinois Tool Works, 194
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S.W.3d at 532 (stating the applicable standard of review is a procedural matter
governed by law of the forum).
However, appellants have not demonstrated the trial court abused its
discretion. Specifically, appellants do not present an appellate issue, contending
the trial court abused its discretion by denying their request for equitable relief at
least on the one transaction for which the jury found Strange breached fiduciary
duties. Instead, appellants’ complaint is that the trial court failed to adjudicate
their request for equitable relief at all and decide the underlying factual and legal
issues relative to all the transactions as a Delaware Chancellor in Equity. For
instance, in their brief, appellants suggest the trial court was required to treat all
the jury findings as advisory only, decide for itself that appellees committed
misconduct relative to all three transactions, and then order equitable relief:
The jury answered this question (whether SecurityComm was a
“sham to perpetuate a fraud”) affirmatively in broad form by finding
that [Strange] failed to comply with his fiduciary duty to
[ClearMediaOne] in discontinuing [ClearMediaOne] and starting up
[SecurityComm]. In pointing this out, Appellants lay no claim to this
verdict, which Appellants continue to believe was flawed and should
not be parsed out by one seeking equity. What is lacking here is a
proper adjudication of the case.
(emphasis added).
At some points, appellants request a remand for the trial court to adjudicate
their request for equitable relief. At another point, appellants suggest that, because
of the trial court’s alleged failure to adjudicate their request, we act as the court in
equity and order the following relief: rescissory damages in an amount over $2.3
million, allocated pro rata among “innocent shareholders;” and forfeiture of the
$244,000.00 obtained by appellees in settlement of the Westex litigation.
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As discussed above, the trial court has ruled on the request for equitable
relief in accordance with applicable Texas law governing the apportionment of
duties among the jury and the trial court. On most of appellants’ claims, the trial
court was precluded from ordering such relief based on the lack of a prerequisite
jury finding. We reject appellants’ suggestion that the trial court was required, or
even authorized, to consider the verdict as advisory only and re-decide factual
issues underlying the request for equitable relief. On the other claim, appellants
fail to demonstrate the trial court abused its discretion by denying the request for
equitable relief. Accordingly, we decline to remand for any further determination
or order recovery of the sums urged by appellants.
We overrule appellants’ three issues and affirm the trial court’s judgment.
/s/ John Donovan
Justice
Panel consists of Justices Boyce, McCally, and Donovan.
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