David Bruce, an Individual, Alliance Recruiting Resources, Inc., and Kingwood Place GP, LLC v. Misty Cauthen, an Individual and Direct Hire.com LLC ( 2016 )

Reversed and Remanded and Opinion filed October 25, 2016.
In The
Fourteenth Court of Appeals
NO. 14-15-00693-CV
DAVID BRUCE, AN INDIVIDUAL, ALLIANCE RECRUITING
RESOURCES, INC., AND KINGWOOD PLACE GP, LLC, Appellants
V.
MISTY CAUTHEN, AN INDIVIDUAL AND DIRECT HIRE.COM LLC,
Appellees
On Appeal from the 127th District Court
Harris County, Texas
Trial Court Cause No. 2013-11131
OPINION
This appeal involves business disputes that arose between two individuals
who were both shareholders in a staffing company and partners in a limited
partnership created to hold a multi-acre tract of land for future development. After
summary proceedings and a jury trial, the trial court signed a judgment awarding
the plaintiff in excess of $2 million in actual damages, exemplary damages, and
attorney’s fees. In eight issues, the appellant challenges the trial court’s pre-trial
liability findings, evidentiary and legal rulings during trial, and the awards of
exemplary damages and attorney’s fees to the appellee. For the reasons explained
below, we reverse and remand.
Factual and Procedural Background
In 2002, David Bruce founded Alliance Recruiting Resources, Inc.
(“Alliance”), a medical staffing company. That same year, Bruce hired Misty
Cauthen as a recruiter. In 2006, Cauthen was promoted to Vice-President and
awarded 20% of the shares of stock in Alliance. Cauthen’s ownership of the stock
was governed by a Buy-Sell Agreement between Alliance and its shareholders,
Bruce and Cauthen. Over time, Cauthen was awarded additional shares of stock
and eventually became President of Alliance. By 2010, Cauthen had been given an
additional 20% of the stock, increasing her ownership to 40% of the company.
In 2007, Bruce and Cauthen also formed Kingwood Place Investments #1,
LP (“the Partnership”). The limited partners in the Partnership were Bruce and
Cauthen, and the general partner was Kingwood Place GP, LLC, a company solely
owned by Bruce. Bruce and Cauthen’s ownership interests in the Partnership
mirrored their ownership interests in Alliance, except that Kingwood Place GP,
LLC, owned 1% of the Partnership. Consequently, in 2012, Bruce owned 60.4%
and Cauthen owned 39.6% of the Partnership.
The initial purpose of the Partnership was to hold title to an approximately
4.57-acre tract of undeveloped land it had purchased next to the Kingwood
Medical Center in Montgomery County, where Bruce and Cauthen intended to
construct a new office building for Alliance. Based on an “oral lease” agreement,
Alliance leased the land from the Partnership, and Alliance’s lease payments were
used to pay the Partnership’s mortgage loan. The Partnership had no assets other
2
than the land and no liabilities other than the mortgage.
By the fall of 2012, business disagreements arose between Bruce and
Cauthen, and ultimately Cauthen resigned from Alliance in February 2013. Based
on the terms of the Buy-Sell Agreement, Cauthen was entitled to $158,000.00 for
her shares in Alliance, payable by an initial down payment of 20% in cash and a
note to be paid in quarterly installments over five years. As part of her separation
from the company, Cauthen was also permitted to keep the company car she had
been using. Cauthen launched her own staffing company, DirectHire.com LLC.,
that same year.
Although Cauthen had resigned from Alliance, she was still a limited partner
in the Partnership. In 2013, the Partnership’s land was valued by one estimate at
$1,695,000.00. Cauthen asked Bruce to dissolve the Partnership and sell the land,
but he refused. Bruce also refused Cauthen’s offer to sell her interest in the
Partnership to Bruce for $478,000.00. Cauthen then tried to find a third party to
purchase her Partnership interest, but was unsuccessful.
In the meantime, Alliance continued to make lease payments to the
Partnership, and Bruce began invoicing Cauthen for her share of the Partnership’s
monthly mortgage payments and other operating expenses. Cauthen made no
payments, however, and the Partnership eventually declared her to be in default.1
In February 2014, Bruce notified Cauthen that her interest in the Partnership would
be sold at a foreclosure sale. Neither Cauthen nor her ex-husband, who was also
notified of the foreclosure sale, participated in the sale.
1
Bruce initially took the position that the invoices represented cash calls by the
Partnership. The invoices did not state that they were cash calls, however, and Bruce did not
receive similar invoices. Bruce acknowledged at trial that the invoices were not cash calls under
the terms of the limited partnership agreement, and that accordingly Cauthen was never in
default for failure to pay a cash call.
3
On March 6, 2014, a private foreclosure sale was held at which Bruce was
the only bidder. Bruce acquired Cauthen’s interest in the Partnership for the
amount of her alleged indebtedness, then totaling $51,234.02. About a week later,
Cauthen and her ex-husband were sent a “Notification of Transfer of Limited
Partnership Interest” informing them of the details of the sale and the general
partner’s transfer of Cauthen’s interest in the Partnership to Bruce.
Shortly after Cauthen resigned from Alliance, she and DirectHire.com sued
Bruce and Alliance for declaratory judgment. Cauthen sought declarations that she
owed no contractual or other duties to Bruce and Alliance, she and DirectHire.com
were free to compete in the staffing industry, and no trade secrets had been
appropriated from Alliance.
Bruce and Alliance filed answers, and Alliance asserted counterclaims for
breach of contract and tortious interference with existing contracts and prospective
contractual relations. Alliance also sought temporary and permanent injunctive
relief to prevent Cauthen and DirectHire.com from competing with Alliance, using
confidential information obtained from Alliance, or taking other actions that
Alliance considered harmful to its interests. On January 8, 2014, the trial court
granted Alliance a temporary injunction. The trial court later extended the
temporary injunction at Alliance’s request.
In March 2014, Cauthen and DirectHire.com amended their petition. In
addition to seeking declaratory relief, Cauthen asserted claims for wrongful
foreclosure on Cauthen’s partnership interest in violation of Texas’ codification of
the Uniform Commercial Code (“UCC”), common-law wrongful foreclosure,
conversion, breach of fiduciary duty, partnership oppression, breach of the limited
partnership agreement, shareholder oppression, and statutory and common-law
fraud. In a second amended petition, Cauthen and DirectHire.com added
4
Kingwood Place GP, the Partnership’s general partner, as a defendant. Kingwood
Place GP answered. The parties on both sides amended their pleadings as the case
proceeded.
Also in March 2014, Cauthen moved for partial summary judgment on her
claim for wrongful foreclosure under the UCC. On May 22, 2014, the trial court
granted Cauthen’s motion.
In July 2014, Cauthen moved to dissolve or modify the temporary
injunction. The next month, Bruce and Alliance moved for traditional and no-
evidence motions for partial summary judgment on Cauthen’s breach of fiduciary
duty claims against Alliance and derivatively against Bruce based on Cauthen’s
status as a minority shareholder. Cauthen responded with her own traditional
summary judgment motion on those claims, and she also sought summary
judgment on her breach of contract claims. Cauthen also requested a ruling relating
to the application of discounts to the valuation of her partnership interest.
On October 15, 2014, the trial court signed an amended temporary
injunction order against Cauthen and DirectHire.com, eliminating previously
imposed non-compete provisions and setting the order to expire on February 20,
2015. The trial court also granted Alliance’s and Bruce’s traditional and no-
evidence motions against Cauthen on her breach of fiduciary duty claims based on
her status as a minority shareholder. On December 1, the trial court denied
Cauthen’s motion for summary judgment “as to damages” and ruled that the
remainder of the motion was “still under consideration by the Court.”
Prior to trial, Bruce moved to bifurcate the case because Cauthen sought
punitive damages, and the trial court granted his motion. The roughly two-week
trial commenced on March 30, 2015.
5
At the start of the trial, the jury was informed that the trial court had already
ruled that Bruce had wrongfully foreclosed on Cauthen’s partnership interest in
violation of the UCC, and the only issue as to that claim would be the amount of
damages to be awarded. The other issues Cauthen would ask the jury to determine
were whether Bruce failed to comply with the limited partnership agreement and if
so, the amount of any resulting damages; whether and to what percentage the value
of Cauthen’s 39.6% limited partnership interest should be discounted for lack of
marketability and lack of control; whether Bruce failed to comply with his duty of
loyalty to Cauthen in connection with the transfer of her interest in the Partnership;
the value of the benefit, if any, to Bruce in connection with the transfer; and
whether there was clear and convincing evidence that the harm to Cauthen as a
result of Bruce’s failure to comply with his duty of loyalty resulted from malice.
Conversely, Bruce would ask the jury to determine whether Cauthen took
Alliance’s customer or physician data with her when she left Alliance and whether
she still had it.
Over the next four days, the jury heard testimony from Bruce, Cauthen,
Alliance’s chief financial officer, Alliance’s chief information officer, and the real
estate broker marketing the Partnership’s land. The jury also heard each party’s
expert witnesses testifying as to the value of Cauthen’s 39.6% interest in the
Partnership. At the close of the evidence in the first phase of the trial, Cauthen
moved for a directed verdict on her claim that Bruce breached the limited
partnership agreement. The trial court granted the motion.
Because the trial court had determined Bruce’s liability as a matter of law on
Cauthen’s claims for wrongful foreclosure and breach of contract, the court’s
charge instructed the jury to determine only the amount of damages to be awarded
on those claims. All other issues were submitted to the jury.
6
The jury unanimously answered all questions favorably to Cauthen,
awarding her $469,044.73 on her wrongful foreclosure claim, $469,044.73 on her
breach of contract claim, and $520,278.75 on her breach-of-loyalty claim. The jury
also found that no discounts should be applied to the fair market value of
Cauthen’s 39.6% limited partnership interest, Cauthen did not take or retain
Alliance’s customer or physician data, and Bruce acted with malice in connection
with the transfer of her limited partnership interest in the Partnership.
Because the jury found that Bruce had acted with malice, the second phase
of the trial focused on the amount of exemplary damages. Both parties decided not
to present any additional evidence, and instead proceeded directly to closing
arguments. The jury returned a verdict assessing exemplary damages of
$1,200,00.00 against Bruce.
Cauthen filed a motion for judgment, electing to recover for breach of the
duty of loyalty. Cauthen also requested an award of attorney’s fees based on her
submission of proof to the trial court. Bruce filed a motion for judgment
notwithstanding the verdict (JNOV) on all of Cauthen’s claims.
On May 15, 2015, the trial court signed a final judgment. After applying the
statutory cap to the amount of exemplary damages found by the jury,2 the trial
court ordered, in relevant part, that Cauthen recover from Bruce actual damages of
$520,278.75, exemplary damages of $1,040.567.50; and attorney’s fees of
$454,682.53. Bruce filed a motion for new trial, which was overruled by operation
of law. This appeal followed.
Issues on Appeal
On appeal, Bruce raises eight issues, contending that the trial court erred by
2
See Tex. Civ. Prac. & Rem. Code § 41.008(b).
7
(1) granting a partial summary judgment that Bruce wrongfully foreclosed on
Cauthen’s interest in the Partnership; (2) excluding Bruce’s testimony concerning
his belief that he was complying with the law and his intent to appeal the trial
court’s judgment; (3) denying a JNOV on Cauthen’s wrongful foreclosure claims;
(4) granting a directed verdict for Cauthen on her breach of contract claims; (5)
denying a JNOV on Cauthen’s claims for damages for breach of contract; (6)
denying a JNOV on Cauthen’s claims for breach of the duty of loyalty; (7)
granting judgment in Cauthen’s favor on her claim for exemplary damages; and (8)
granting Cauthen attorney’s fees. We address these issues in turn.
I. Cauthen’s Partial Summary Judgment on Wrongful Foreclosure
In his first issue, Bruce contends that the trial court erred by granting
Cauthen a partial summary judgment on her claim that Bruce wrongfully
foreclosed on Cauthen’s 39.6% interest in the Partnership in violation of section
9.625 of the UCC. See Tex. Bus. & Com. Code § 9.625(b) (providing that a debtor
may recover damages for losses caused by a secured party’s failure to comply with
chapter 9). According to Bruce, this ruling is the predominating issue because it is
the foundation for the rest of the case.
To succeed on a motion for summary judgment on her wrongful foreclosure
claim, Cauthen was required to show that there was no genuine issue of material
fact and that she was entitled to summary judgment as a matter of law. See Tex. R.
Civ. P. 166a(c). We review a summary judgment for evidence that would enable
reasonable and fair-minded jurors to differ in their conclusions. Wal-Mart Stores,
Inc. v. Spates, 186 S.W.3d 566, 568 (Tex. 2006) (per curiam).
Section 9.610 of the UCC, titled “Disposition of Collateral After Default,”
provides that after a default, a secured party “may sell, lease, license, or otherwise
dispose of any or all of the collateral . . . . Id. § 9.610(a). If the secured party
8
undertakes to dispose of the collateral, “[e]very aspect” of the disposition “must be
commercially reasonable,” including “the method, manner, time, place, and other
terms.” Id. § 9.610(b). If commercially reasonable, “a secured party may dispose of
collateral by public or private proceedings . . . and at any time and place and on
any terms.” Id. (emphasis added). However, the secured party may not purchase
the collateral at a private sale if the collateral is not “of a kind that is customarily
sold on a recognized market or the subject of widely distributed standard price
quotations.” Id. § 9.610(c)(2) (emphasis added).
Cauthen argues, as she did in the trial court, that section 9.610 cannot apply
because her minority interest in a limited partnership it is not the kind of property
“that is customarily sold on a recognized market or the subject of widely
distributed standard price quotations” as section 9.610(c) requires, and therefore
the private sale was governed by section 9.620. See id. § 9.610 cmt. 7 (explaining
that a secured party’s purchase of collateral at its own private disposition is
equivalent to a “strict foreclosure” and is governed by sections 9.620, 9.621, and
9.622). Section 9.620(a) governs a secured party’s acceptance of collateral in full
or partial satisfaction of a debt, and requires that either (1) the debtor consents to
the secured party’s acceptance in the manner specified in the statute, or (2) the
secured party does not timely receive notice of an objection to the secured party’s
proposal by the debtor or other interested persons. See id. § 9.620(a). Cauthen
argues that there is no evidence that Bruce complied with the requirements of
section 9.620(a). Accordingly, Cauthen maintains, she was entitled to summary
judgment on her wrongful foreclosure claim. See id. § 9.625.
On appeal, Bruce does not dispute that section 9.610(c) precludes him from
purchasing Cauthen’s minority interest in the Partnership at a private sale. Instead,
Bruce argues that the UCC permits section 9.610(c) to be modified by agreement
9
of the parties, noting that section 9.610(c) is not included in the list of mandatory
provisions that may not be waived or varied. See id. § 9.602 (prohibiting a debtor
or obligor from waiving or varying certain statutory provisions of the Code).
According to Bruce, the limited partnership agreement reflects the parties’
agreement that the foreclosure sale of any limited partnership interest as collateral
would be in a private sale to a restricted class of purchasers who would buy the
partnership interest as an investment and not for resale, and that Bruce meets the
contractual definition of such a purchaser. Bruce also argues that by signing the
limited partnership agreement, Cauthen agreed that the private sale was
commercially reasonable.
As support for his position, Bruce points to the entirety of Paragraph 7.2 of
the limited partnership agreement:
(b) Foreclosure. Each Partner, by signing this Agreement,
shall be deemed to have granted a lien to the Partnership and the non-
Defaulter, in the event that such Partner becomes a Defaulter, securing
the payment of all sums required to be paid and performance of all
covenants required to be performed by the Defaulter, and securing the
Partnership and the non-Defaulter against any loss, cost or expense
resulting from the default of the Defaulter, and the Partnership or the
non-Defaulter as secured parties may foreclose the lien in the manner
provided under the Texas Business and Commerce Code (the “UCC”).
If, upon an Event of Default the Defaulter’s interest in the Partnership
is disposed of, 10 days’ notice by the Partnership or by any Partner is
reasonable notice under any provision of the UCC requiring notice.
The Partners acknowledge that the Partnership or the non-Defaulter
may be unable to effect a public sale of any or all of the Defaulter’s
interest in the Partnership by reason of certain prohibitions contained
in the Securities Act of 1933, as amended, and applicable state
securities laws, and may be compelled to resort to one or more private
sales to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire the Defaulter’s interest in the
Partnership for their own respective accounts for investment and not
with a view to distribution or resale. The Partners acknowledge that
10
any private sale may result in prices or other terms less favorable to
the seller than if the sale were a public sale. Notwithstanding those
circumstances, each Partner agrees that a private sale is commercially
reasonable, and neither the Partnership nor the non-Defaulter is under
any obligation to take any steps in order to permit the Defaulter’s
interest in the Partnership to be sold at a public sale. . . .
Bruce also points to the testimony of his expert, Allyn Needham, who averred that
“the transactions and activities that led to the sale of Misty Cauthen’s interest in
Kingwood Place are consistent with the wording of the limited partnership and my
experience in reviewing other limited partnerships’ transactions.” Needham further
opined that the limited partnership agreement “anticipates and agrees to the
potential purchase of a defaulting limited partner’s interests in a private sale” and
that “[t]he limited partnership agreement also anticipates and agrees that a creditor
limited partner may purchase the defaulter’s interest in a private sale.”
In construing a contract, we must ascertain the true intentions of the parties
as expressed in the writing itself. Italian Cowboy Partners, Ltd. v. Prudential Ins.
Co. of Am., 341, S.W.3d 323, 333 (Tex. 2011). Initially, we note that Paragraph
7.2(b) of the limited partnership agreement grants a lien to both the Partnership and
the non-defaulting partner to secure another partner’s debt. The agreement also
authorizes foreclosure on the lien in accordance with the provisions of the UCC:
“the Partnership or the non-Defaulter as secured parties may foreclose the lien in
the manner provided under the Texas Business and Commerce Code (the ‘UCC’).”
As mentioned above, the UCC contemplates that a secured party may dispose of
collateral by commercially reasonable proceedings that may be either public or
private. See id. § 9.610(b). Consistent with this provision, Paragraph 7.2(b) reflects
the parties’ agreement that the sale of an interest in the Partnership via a public sale
may be problematic, requiring a private sale “to a restricted group of purchasers”
who would be obligated to agree to acquire the partnership interest as an
11
investment and “not with a view to distribution or resale.” Further, the parties
agreed that even though a private sale may result in “prices or other terms less
favorable to the seller,” such a sale “is commercially reasonable.”
Notably, however, Paragraph 7.2(b) does not include any express language
reflecting that the parties have agreed to modify section 9.610(c) of the UCC. Nor
is there any language indicating an agreement permitting the secured party to
acquire the defaulting party’s partnership interest at a private sale. Further, the
agreement does not modify section 9.610(c) to say that the potential purchaser may
also be the limited partner who is also the secured party. Indeed, the lack of any
express language providing that the secured party may purchase the defaulting
partner’s partnership interest at a private sale in direct contravention of the UCC
militates against Bruce’s argument that the parties intended and agreed to modify
section 9.610(c) to permit such a transaction.
We conclude that nothing in Paragraph 7.2(b) of the limited partnership
agreement modifies section 9.610(c) to permit Bruce to acquire Cauthen’s interest
at a private sale. Nor does Needham’s testimony raise a fact issue precluding a
partial summary judgment in Cauthen’s favor. Needham’s bare assertion that the
limited partnership agreement “anticipates and agrees that a creditor limited
partner may purchase the defaulter’s interest in a private sale” is unsupported by
any evidence or substantive analysis, and is therefore conclusory and no evidence.
See Elizondo v. Krist, 415 S.W.3d 259, 264 (Tex. 2013) (“A conclusory statement
of an expert witness is insufficient to create a question of fact to defeat summary
judgment”).3 Moreover, his testimony is also no evidence to the extent it addresses
3
Similarly, Needham’s statement that “the transactions and activities that led to the sale
of Misty Cauthen’s interest in [the Partnership] are consistent with the wording of the limited
partnership and my experience in reviewing other limited partnerships’ transactions” is vague,
unsupported by any evidence, and lacks any demonstrable and reasoned basis on which to
12
pure questions of law. See Greenberg Traurig of N.Y., P.C. v. Moody, 161 S.W.3d
56, 94 (Tex. App.—Houston [14th Dist.] 2004, no pet.). Consequently, we reject
Bruce’s argument that a fact issue exists as to whether the limited partnership
agreement modified section 9.610(c) to permit Bruce, as the secured party, to
acquire Cauthen’s partnership interest at a private sale.
Bruce additionally argues that the partnership agreement’s language and
Needham’s testimony establishes that the private sale was commercially
reasonable. Therefore, Bruce maintains, the sale fits within the Code’s safe harbor
provision that “a disposition of collateral is made in a commercially reasonable
manner” if the disposition is made “in conformity with reasonable commercial
practices among dealers in the type of property that was the subject of the
disposition.” See id. § 9.627(b)(3). But this argument is irrelevant because the
dispute is not whether some aspect of the disposition of Cauthen’s minority interest
in the Partnership was commercially unreasonable; the issue is whether Bruce, as
the secured party, acquired Cauthen’s minority interest in violation of the UCC.
On appeal, Bruce does not challenge the grounds for Cauthen’s partial
summary-judgment motion other than to argue that the private sale was governed
by section 9.610 as modified by the limited partnership agreement and was
commercially reasonable, arguments we have rejected. We therefore overrule
Bruce’s first issue.
II. The Exclusion of Bruce’s Testimony
In his second issue, Bruce contends that the trial court erred in excluding his
trial testimony concerning his belief that he was complying with the law when he
evaluate his opinion that Bruce’s acquisition of Cauthen’s interest was consistent with either the
language of the limited partnership agreement or other limited partnerships’ transactions. See
Elizondo, 415 S.W.3d at 264–65.
13
foreclosed on Cauthen’s partnership interest and that he intended to appeal the trial
court’s decision. We review a trial court’s evidentiary rulings for abuse of
discretion. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 906 (Tex.
2000). We will not reverse the ruling unless the trial court’s error probably caused
the rendition of an improper judgment. Id.
According to Bruce, the testimony was necessary to set out Bruce’s
motivations behind his actions, which was “critical evidence” for the jury’s
consideration of Cauthen’s claims for breach of the duty of loyalty and exemplary
damages. Bruce also complains that the trial court admonished him “in the
strongest terms” that both he and his counsel would be subject to sanctions if he
continued to provide such testimony. Thus, instead of giving truthful answers,
Bruce contends that he was required to repeatedly “admit” that the trial court had
concluded that he “knowingly acted wrongfully in foreclosing on Cauthen’s
interest,” and that the exclusion of his “truthful testimony” probably caused the
rendition of an improper judgment.
In his brief, Bruce does not cite to the record other than the page where the
trial court admonished Bruce and his counsel. A review of the proceedings leading
up to the admonishment shows that Bruce had testified several times that he
disagreed with the trial court’s ruling and believed that he had followed the law in
foreclosing on Cauthen’s partnership interest. During the second day of his
testimony, Bruce again disagreed that he obtained Cauthen’s partnership interest in
violation of the law. At that point, the trial court excused the jury and made the
following statement:
The Court: Outside the presence of the jury, defendants in this
case have taken issue both in court prior to trial and apparently during
[the] course of this trial with the Court’s ruling on the wrongful
foreclosure action. Defendants have every right to appeal this Court’s
14
decision, but have no right to question this Court’s decision in front of
a jury. It is not within the jury’s province to reconsider this Court’s
decision.
The next time defendants either through counsel or through a
witness question this Court’s decision, they will be sanctioned either
individually as counsel or individually as a witness.
Bruce does not point to a single instance in which, over counsel’s objections, he
was subsequently forced by the trial court to “admit” that the trial court had
concluded that he knowingly acted wrongfully in foreclosing on Cauthen’s
partnership interest, prevented from testifying as to his motivation for his actions at
the time, or required to testify untruthfully. Nor does Bruce cite to any evidence or
controlling legal authority to support his contention that continued testimony
concerning his belief that he was following the law and intended to appeal was
controlling on a material issue. Because Bruce has inadequately briefed this issue,
we do not consider it. See Tex. R. App. P. 38.1(i); Canton-Carter v. Baylor Coll. of
Med., 271 S.W.3d 928, 931 (Tex. App.—Houston [14th Dist.] 2008, no pet.)
(stating that the appellate briefing requirements are not satisfied by merely uttering
brief, conclusory statements unsupported by legal citations or substantive analysis).
Even assuming the issue was not waived, we cannot say that the trial court
abused its discretion by ordering Bruce and his counsel to cease relitigating before
the jury a matter previously determined as a matter of law. Further, because the
record shows that Bruce had already testified several times concerning his
disagreement with the trial court’s ruling, more of the same would merely have
been cumulative of the evidence already in the record.4 Bruce made no offer of
proof showing how additional evidence would have differed. See Tex. R. Evid.
4
Bruce acknowledges in his reply brief that his complaint is that he “was not allowed to
continue testifying concerning his contemporaneous belief that he was complying with the law or
his intent to appeal the Trial Court’s decision.”
15
103(a)(2). Thus even if the trial court’s ruling was error, it was not harmful error.
See Tex. Dept. of Transp. v. Able, 35 S.W.3d 608, 618 (Tex. 2000) (holding that
exclusion of cumulative testimony was not harmful error). We therefore overrule
Bruce’s second issue.
III. Denial of JNOV on Cauthen’s Wrongful Foreclosure Claim
In his third issue, Bruce contends that the trial court erred in denying his
JNOV and a directed verdict on Cauthen’s wrongful foreclosure claim. Within this
issue, Bruce complains that (1) the court’s charge was erroneous, and (2) Cauthen
failed to present any evidence of the proper measure of damages.
The trial court has wide discretion to determine the sufficiency of definitions
and instructions in the charge. Plainsman Trading Co. v. Crews, 898 S.W.2d 786,
791 (Tex. 1995). An error in the charge will be reversed only if it probably caused
rendition of an improper judgment or probably prevented the appellants from
properly presenting the case to the appellate court. Tex. R. App. 44.1(a); Bed, Bath
& Beyond, Inc. v. Urista, 211 S.W.3d 753, 757 (Tex. 2006).
A trial court may disregard a jury’s verdict and render a JNOV if no
evidence supports one or more of the jury’s findings or if a directed verdict would
have been proper. Tiller v. McLure, 121 S.W.3d 709, 713 (Tex. 2003). We review
directed verdicts under the same legal-sufficiency standard that applies to no-
evidence summary judgments. City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex.
2005). The evidence is legally sufficient if it would enable reasonable and fair-
minded people to reach the verdict under review. Id. at 827.
A. The Court’s Charge
Bruce first argues that, because the trial court’s pre-trial ruling that Bruce
had wrongfully foreclosed on Cauthen’s partnership interest in violation of the
16
UCC was error, the trial court erred by failing to present a liability question on
wrongful foreclosure in the charge. As discussed above, we have concluded that
the trial court did not err; therefore, we overrule Bruce’s initial complaint.
Bruce next contends that the trial court erroneously instructed the jury by
presenting an improper measure of damages in Jury Question No. 1, which asked
the jury to determine Cauthen’s damages caused by Bruce’s wrongful foreclosure
on her limited partnership interest. According to Bruce, when determining the fair
market value of a limited partnership interest, the calculation must include any
applicable discounts for lack of control and lack of marketability. Bruce points out
that Jury Question No. 1 expressly instructed the jury not to include in its answer
any discount for lack of marketability or lack of control.
Although the jury was expressly instructed not to include discounts for lack
of control or lack of marketability in its answer to Jury Question No. 1, the trial
court separately asked the jury to determine the applicable percentages for each
discount in Jury Question No. 3:
What discount should be applied, if any, to the fair market value
of Misty Cauthen’s 39.6% limited partnership interest in
Kingwood Place Investments #1, LP as of March 6, 2014?
Answer in percentage points, if any
1. Lack of Marketability
Answer _________________%
2. Lack of Control
Answer _________________%
The jury answered “0” to both questions.
Bruce’s argument neglects to mention that the jury was separately instructed
17
to consider whether either discount applied and, if so, by what percentage.
Moreover, whether and to what extent each of these discounts applied was hotly
contested at trial. On this record, we conclude that the trial court did not err by
separately submitting the damages issues in this way.
B. Evidence of Fair Market Value
In his second sub-issue, Bruce argues that the trial court should have granted
his motion for JNOV (and motion for directed verdict) because Cauthen failed to
present any evidence of the fair market value of her interest in the limited
partnership.
Bruce argues that Cauthen’s expert, James Trippon, agreed that a fair market
valuation included discounts for lack of marketability and lack of control, and
conceded that he “had not performed a fair market valuation” of Cauthen’s limited
partnership interest. Bruce claims that it is self-evident that Cauthen’s interest in
the Partnership lacked control because it was a minority interest, and Cauthen’s
failure for over a year to obtain a meaningful offer on her interest conclusively
demonstrates its lack of marketability.
Trippon is a Certified Public Accountant who was retained to determine the
amount of Cauthen’s damages resulting from the loss of her 39.6% interest in the
Partnership. Trippon explained that because the Partnership was a “single asset
entity” as opposed to an active business, the value of the Partnership’s land was an
appropriate starting point. Indeed, both Trippon and Bruce’s expert, Needham,
used the same land value in their calculations.5 Unlike Needham, however, Trippon
did not apply discounts for lack of control and lack of marketability. Trippon
5
Needham performed two valuations, one based on an appraisal of the land performed by
Russ Gressett, a commercial real estate appraiser retained by Cauthen, and another based on a
Montgomery County property tax appraisal. Needham acknowledged, however, that Gressett’s
analysis was the more reliable appraisal.
18
testified that he did not apply a lack-of-control discount because “the guy buying it
already had control of it. So if anything, it’s worth more to him than fair market
value, but it’s certainly not worth less.” Trippon also explained that he did not
apply a lack-of-marketability discount because the Partnership’s sole asset is a
single piece of undeveloped land that could simply be marketed for sale. For that
reason, Trippon opined that he saw no reason to apply the discount, particularly in
Houston where there was a ready market for property in prime locations.
Bruce relies on Trippon’s acknowledgement during cross-examination that
he did not perform a “fair market value calculation” of Cauthen’s limited
partnership interest. But Bruce takes Trippon’s statement out of context. A review
of Trippon’s testimony in context reveals that Bruce’s attorney was making a
distinction between a fair market value calculation and Cauthen’s damages
calculation, which included subtracting roughly $51,000.00 (representing
Cauthen’s proportionate share of the mortgage payments made on the land) from
the fair market value. Bruce’s attorney asked Trippon a series of questions
concerning whether Trippon had an opinion on how that $51,000.00 should be
characterized, but ultimately he declined to ask Trippon to give his opinion.
Trippon’s testimony does not reflect, as Bruce suggests, that Trippon failed to
consider whether certain discounts applied to the valuation of Cauthen’s interest in
the Partnership.
In summary, Trippon explained the basis for his damages calculation in
detail, including his reasoning in declining to apply any discounts, and he
concluded that Cauthen’s damages were $469,044.73—the same amount found by
the jury. Because this evidence supports the jury’s finding on the amount of
damages, the trial court did not err by refusing to grant Bruce’s JNOV or directed
verdict. We overrule Bruce’s third issue.
19
IV. Directed Verdict for Cauthen on Breach of Contract Claim
In his fourth issue, Bruce contends that the trial court erred by granting a
directed verdict to Cauthen on her breach of contract claim based on the limited
partnership agreement. The entirety of Bruce’s argument on this issue is that the
trial court erred because Cauthen’s motion for directed verdict “was granted in part
on the Partial Summary judgment of Wrongful Foreclosure and the previously
discussed testimony of David Bruce influenced by the Court’s erroneous
instructions to the witness.”
We have already held that the trial court did not err by ruling on the partial
summary judgment in Cauthen’s favor and by ordering Bruce and his counsel to
refrain from continuing to express disagreement with the trial court’s ruling in
front of the jury. To the extent that Bruce’s argument may be construed as a
complaint that the evidence did not support the trial court’s ruling, he has waived
his complaint because he does not direct us to any evidence of probative force
raising an issue of material fact precluding the directed verdict or cite to any
relevant authorities. See Tex. R. App. P. 38.1(i). Even if not waived, we would
conclude, based on the evidence presented, that Cauthen conclusively established
her right to a directed verdict on her breach of contract claim. We therefore
overrule Bruce’s fourth issue.
V. Denial of JNOV on Cauthen’s Claim for Breach of contract Damages
In his fifth issue, Bruce contends that the trial court erred in denying a JNOV
on the breach of contract damages found by the jury. In Jury Question No. 2, the
jury was asked to determine Cauthen’s damages, if any, resulting from Bruce’s
failure to comply with the limited partnership agreement. The jury found damages
of $469,044.73.
20
Although Bruce’s argument is not entirely clear, Bruce appears to argue, as
he did in his third issue, that the proper measure of damages would have been the
fair market value of Cauthen’s interest in the Partnership. As we have explained,
the jury determined in a separate question that no discounts should be applied to
the fair market value of Cauthen’s 39.6% limited partnership interest, and the
evidence was legally sufficient to support the jury’s damages finding, which was
the same amount the jury found for breach of contract. For the reasons previously
discussed in our analysis of Bruce’s third issue, we likewise overrule Bruce’s fifth
issue.
VI. Denial of JNOV on Cauthen’s Breach of Loyalty Claim
In his sixth issue, Bruce contends that the trial court erred by denying a
JNOV for Bruce on Cauthen’s claim for “breach of fiduciary duty/the duty of
loyalty.” Within this issue, Bruce argues that (1) the jury question on breach of the
duty of loyalty should have placed the burden of proof on Cauthen rather than
Bruce; and (2) there is no or insufficient evidence to support the jury’s finding that
Bruce violated this duty.
Bruce prefaces these issues with a recitation of several provisions of chapter
152 of the Business Organization Code concerning a partner’s duty of loyalty to
the partnership and other partners in a general partnership. See Tex. Bus. Orgs.
Code § 152.204, § 152.205.6 Bruce also points to section 152.210, which provides
that a partner’s liability is limited to either a breach of the partnership agreement or
a violation of partnership duties as provided under chapter 152 of the Business
6
Chapter 153 specifically addresses limited partnerships, but provides for some overlap
with chapter 152. See Tex. Bus. Orgs. Code § 153.003(a) (“Except as provided by Subsection
(b), in a case not provided for by this chapter and the other limited partnership provisions, the
provisions of Chapter 152 governing partnerships that are not limited partnerships and the rules
of law and equity govern.”).
21
Organizations Code. See id. § 152.210.
Bruce maintains that these statutes reflect that the duty of loyalty owed by
limited partners and general partners to the partnership and other partners is more
limited than common-law fiduciary duties. See id. § 152.204(c) (“A partner does
not violate a duty or obligation under this chapter or under the partnership
agreement merely because the partner’s conduct furthers the partner’s own
interest.”); § 152.204(d) (“A partner, in the partner’s capacity as partner, is not a
trustee and is not held to the standards of a trustee.”). Bruce also argues that the
interest of the partnership and its partners “do not need to be exactly co-extensive”
and that only transactions that are actually “adverse to the partnership” are barred
by the duty of loyalty. See id. § 152.205(2)–(3) (providing that a partner’s duty of
loyalty includes “refraining from dealing with the partnership on behalf of a person
who has an interest adverse to the partnership” and “refraining from competing or
dealing with the partnership in a manner adverse to the partnership”).
A. The Court’s Charge
Bruce first contends that the jury question on this issue erroneously placed
the burden of proof on Bruce to prove that he complied with his duty of loyalty,
rather than on Cauthen to prove that Bruce breached this duty. Bruce asserts that he
objected to the form of the question and therefore the jury’s answer should have
been disregarded because the question was defective. In making this argument,
Bruce does not make any reference to the Business Organizations Code provisions
he cited previously, provide any citations to relevant authorities, or offer any
discussion or meaningful analysis to support his premise. Because we are unable to
discern the legal or factual basis for his complaint, we hold that Bruce has waived
this issue due to inadequate briefing. See Tex. R. App. P. 38.1(i); See Lundy v.
Masson, 260 S.W.3d 482, 503 (Tex. App.—Houston [14th Dist.] 2008, pet.
22
denied) (appellant’s failure to support an issue with argument, authorities, or
relevant facts to support a contention waives the contention).
To the extent that Bruce’s appellate argument may be understood as a
complaint that the burden of proof should be on Cauthen because a partner’s duties
as codified in chapter 152 of the Business Organizations Code are not the
equivalent of common-law fiduciary duties,7 we conclude that Bruce has failed to
preserve such a complaint for appellate review because Bruce made a distinctly
different objection in the trial court. Indeed, at the charge conference, Bruce’s
attorney appeared to concede that Bruce owed Cauthen a fiduciary duty and that
Cauthen had the initial burden of proof, but that Bruce had presented evidence that
shifted the burden back to Cauthen:
[Bruce’s attorney:] The first objection, Your Honor, is an objection
that Question No. 4 is shifting the burden of proof to Mr. Bruce.
While fiduciaries can have the burden of proof in breach of fiduciary
duty cases, that burden is a - - a burden shifting is rebuttable and there
are times where that can shift back to the fiduciary. In this case we
believe the proper formulation of this question is the burden of proof
should be on Ms. Cauthen as the fiduciary. We have shown why we
did what we did and there is no question that there was [sic] fraud in
the sense that, you know, we didn’t lie about the numbers or anything.
We have a disagreement over what should have been done. That
should rebut the question and shift the burden back to Ms. Cauthen.
The test for determining whether a party has preserved error in the jury charge is
whether the party timely and plainly made the trial court aware of the complaint
and obtained a ruling. State Dep’t of Highways v. Payne, 838 S.W.2d 235, 241
(Tex.1992); Lundy, 260 S.W.3d at 507; see also Tex. R. Civ. P. 274 (requiring a
7
See, e.g., Lundy, 260 S.W.3d at 507 (stating that “the profiting fiduciary has the burden
of demonstrating the fairness of the transactions”); Chien v. Chen, 759 S.W.2d 484, 495 (Tex.
App.—Austin 1988, no writ) (“All transactions between the fiduciary and his principal are
presumptively fraudulent and void which is merely to say that the burden lies on the fiduciary to
establish the validity of any particular transaction in which he is involved.”).
23
party objecting to a charge to point out distinctly the objectionable matter and the
grounds of the objection); Tex. R. App. P. 33.1(a)(1)(A) (complaint must be made
“with sufficient specificity to make the trial court aware of the complaint, unless
the specific grounds were apparent from the context”). Further, to preserve error
for appeal, a party’s argument on appeal must correspond with its argument in the
trial court. See, e.g., Isaacs v. Bishop, 249 S.W.3d 100, 113 n.13 (Tex. App.—
Texarkana 2008, pet. denied); Wolhfhart v. Holloway, 172 S.W.3d 630, 639 (Tex.
App.—Houston [14th Dist.] 2005, pet. denied). Because Bruce’s objection at trial
does not comport with any fair reading of his appellate argument, we overrule
Bruce’s complaint of charge error without reaching his arguments regarding the
nature and extent of the duty of loyalty in the partnership context.
B. Sufficiency of the Evidence of Breach of Duty of Loyalty
Next, Bruce contends that there is no evidence or insufficient evidence to
support a finding that Bruce’s conduct breached the statutory duty of loyalty.
Therefore, Bruce concludes, the trial court should have granted a JNOV in Bruce’s
favor, and erred by granting judgment to Cauthen based on the jury’s finding that
Bruce breached a duty of loyalty to Cauthen.
Bruce first states, without discussion, that “Texas’s current Partnership Act
contains a codification of the common law rule that parties to a contractual
relationship are free to pursue their own interest without incurring tort liability
even if doing so results in a breach of the contract,” citing Seymour v. American
Grinding Co., 956 S.W.2d 49, 60 (Tex. App.—Houston [14th Dist.] 1996, writ
denied). Bruce next argues, without citations to record evidence or relevant
authorities, that there is no evidence to support the jury’s finding that there was a
breach of the duty of loyalty and no evidence that Bruce was acting in any manner
adverse to the Partnership as a whole. Bruce further asserts—again without citation
24
to the record or relevant authorities—that he was acting in a manner he reasonably
believed to be in the best interest of the partnership. Although Bruce appears to be
attempting to articulate some argument concerning the parameters of his duty of
loyalty based on the previously cited sections of the Business Organizations Code,
we cannot discern from the scant discussion of this issue what that argument might
be.
We conclude that this argument is inadequately briefed and therefore we do
not consider it. See Tex. R. App. P. 38.1(i); Howeth Invests., Inc. v. City of Hedwig
Village, 259 S.W.3d 877, 902 (Tex. App.—Houston [1st Dist.] 2008, pet.
denied) (concluding that appellant’s argument, which consisted of one paragraph
with no citation to legal authority, was inadequately briefed); Lundy, 260 S.W.3d
at 503 (concluding that appellant failed to provide argument or cite authority for
contention on appeal and stating that appellate court was “not required to do the
job of the advocate”).
Further, more than sufficient evidence supports the jury’s finding that Bruce
breached the duty of loyalty to Cauthen as that duty was explained in the charge.
Bruce did not merely “further his own interest” as he suggests; he admitted that he
created a false debt to foreclose on Cauthen’s partnership interest and take it for
himself based on the value of the nonexistent debt, thereby obtaining Cauthen’s
interest in the partnership while paying her nothing for it through a “private
foreclose sale” in violation of the UCC. And, contrary to Bruce’s suggestion that a
breach of contract does not necessarily result in tort liability, this was not an arm’s-
length transaction between strangers but an illegal acquisition of one partner’s
interest by another. There was also evidence that Bruce took advantage of Cauthen
during a time when she was having financial difficulties after leaving Alliance, and
he once warned her that “lawsuits weren’t about who was right or wrong, but
25
whoever could spend the most money and last the longest.” We overrule Bruce’s
sixth issue.
VII. Exemplary Damages
In his seventh issue, Bruce contends that the evidence is insufficient to
support the jury’s finding that Bruce acted with malice. Bruce also argues that
there is no evidence to support the amount of the award.
As discussed above, the trial was bifurcated at Bruce’s request. See Tex.
Civ. Prac. & Rem. Code § 41.009. In the first phase of the trial, the jury found by
unanimous verdict that there was clear and convincing evidence that the harm to
Cauthen from Bruce’s breach of his duty of loyalty resulted from malice. Before
the start of the second phase, both parties decided not to present any additional
evidence, instead relying on the evidence presented in the first phase. After the
parties’ closing arguments, the jury returned another unanimous verdict, awarding
exemplary damages of $1,200,000.00. The trial court reduced the award to
$1,040,567.50 after applying the statutory cap on exemplary damages. See Tex.
Civ. Prac. & Rem. Code § 41.008(b).
The entirety of Bruce’s argument concerning the sufficiency of the evidence
supporting the jury’s finding that Bruce acted with malice consists of the single,
conclusory sentence that “there was no evidence or factually insufficient evidence
of a specific intent by David Bruce to cause substantial injury or harm to Cauthen.”
Therefore, Bruce asserts, “there was not clear and convincing evidence to support
this answer as required by Tex. Civ. Prac. & Rem. Code § 41.”
Bruce fails to direct us to any record evidence or provide any analysis
explaining how the evidence presented to the trial court fails to meet the clear-and-
convincing standard. We therefore hold that Bruce has waived any challenge to the
26
legal and factual sufficiency of the evidence to support the jury’s finding of malice.
See Tex. R. App. P. 38.1(i); Siddiqui v. Fancy Bites, LLC, No. 14-14-00384-CV,
___ S.W.3d ___, 2016 WL 4036341, at *20 (Tex. App.—Houston [14th Dist.] July
26, 2016, n.p.h.) (holding that appellant waived challenge to sufficiency of
evidence to support award of exemplary damages by briefing waiver); McCullough
v. Scarbrough, Medlin & Assocs., Inc., 435 S.W.3d 871, 911–12 (Tex. App.—
Dallas 2014, pet. denied) (same); see also Rendleman v. Clarke, 909 S.W.2d 56,
58–59 (Tex. App.—Houston [14th Dist.] 1995, writ dism’d as moot) (declining to
reach the merits of appellant’s challenge to the legal and factual sufficiency of the
evidence to support the jury’s finding of gross negligence when appellant failed to
properly brief the issue).
Bruce next argues that the amount of the award is unsupported by any
evidence because after bifurcation, no additional evidence of “any Moriel factors”8
was presented at trial to support the amount of the award. Bruce makes no other
reference to the case or identify the factors to which he alludes. Bruce merely
concludes that “the award is supported only by the jury’s biases and prejudices
against Bruce and in favor of Cauthen as influenced by the erroneous ruling” on
Cauthen’s motion for partial summary judgment. Because Bruce fails to offer any
substantive argument or analysis with citations to relevant authorities to support his
argument that Cauthen was required to present some evidence in the second phase
of the bifurcated trial to support the amount of damages awarded, we conclude that
this issue also is inadequately briefed and decline to address it. See Tex. R. App. P.
38.1(i); Canton-Carter, 271 S.W.3d at 931. We overrule Bruce’s seventh issue.
8
Bruce does not include a citation to the case. Presumably, Bruce is referring to
Transportation Insurance Co. v. Moriel, 879 S.W.2d 10 (Tex. 1994), superseded by statute as
stated in U-Haul Int’l, Inc. v. Waldrip, 380 S.W.3d 118 (Tex. 2012).
27
VIII. Attorney’s Fees
In his eighth issue, Bruce contends that the trial court erred by awarding
Cauthen attorney’s fees. Within this issue, Bruce argues that Cauthen is not
entitled to attorney’s fees because she: (1) elected to recover on the tort claim of
breach of fiduciary duty9 for which fees are not recoverable; (2) failed to segregate
fees; and (3) improperly claimed expert fees as legal fees. Because we conclude
that Cauthen was not entitled to an award of attorney’s fees based on her election
to recover actual and exemplary damages for breach of fiduciary duty, we address
only that argument and do not reach Bruce’s additional arguments.
In Texas, a party may not recover attorney’s fees from the opposing party
unless an award of attorney’s fees is authorized by statute or contract. See Tony
Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310 (Tex. 2006). This rule is so
ubiquitous it has come to be known as the “American Rule.” Id. at 310–11. As a
corollary to that rule, it has long been recognized that party may not recover its
attorney’s fees incurred in an action based on a tort claim. See Turner v. Turner,
385 S.W.2d 230, 233 (Tex. 1964) (“[A]ttorney’s fees incurred by a party to
litigation are not recoverable against his adversary . . . in an action in tort . . . .”).
Breach of fiduciary duty is a tort claim for which attorney’s fees generally may not
be recovered. See, e.g., DeNucci v. Matthews, 463 S.W.3d 200, 209 (Tex. App.—
Austin 2014, no pet.); Hollister v. Maloney, Martin & Mitchell LLP, 2013 WL
2149823, at *2 (Tex. App.—Houston [14th Dist.] 2013, no pet.) (citing Willis v.
Donnelly, 118 S.W.3d 10, 44 (Tex. App.—Houston [14th Dist.] 2003, aff’d in part
and rev’d in part on other grounds, 199 S.W.3d 262 (Tex. 2008)); Potter v. GMP,
LLC, 141 S.W.3d 698, 705 (Tex. App.—San Antonio 2004, pet. dism’d).
9
Cauthen’s election identified her claim for breach of the duty of loyalty as a “breach of
fiduciary duty” claim, therefore we will address it as such in our discussion of this issue.
28
Nevertheless, Cauthen argues that she is entitled to recover attorney’s fees
for breach of contract in this case because her breach of fiduciary duty claim is
based on and “intertwined with” Bruce’s breach of the limited partnership
agreement. Cauthen acknowledges that she elected to recover on her fiduciary duty
claim, but points out that the trial court granted her motion for directed verdict on
her claim that Bruce breached the limited partnership agreement, she requested
attorney’s fees under Texas Civil Practice and Remedies Code section 38.001(8),
and the trial court awarded attorney’s fees pursuant to the statute. Cauthen asserts
that when the breach of fiduciary duty “subsumes a breach of contract and vice
versa,” and when the plaintiff receives jury findings on both theories, Texas courts
have permitted recovery of exemplary damages and attorney’s fees in addition to
actual damages.
In support of her contention, Cauthen primarily relies on two cases:
McGuire v. Kelley, 41 S.W.3d 679, 683 (Tex. App.—Texarkana 2001, no pet.)
(holding that when client obtained favorable jury findings against her attorney for
breach of fiduciary duty, breach of contract, and fraud, and client elected to recover
on fiduciary duty claim, client was entitled to award of attorney’s fees because the
acts of the attorney constituted both a breach of fiduciary duty and a breach of
contract); and Rodgers v. RAB Investments, Ltd., 816 S.W.2d 543, 550 (Tex.
App.—Dallas 1991, no writ) (affirming award of attorney’s fees in partnership
dispute when breach of fiduciary duty was predicated on conduct that breached the
parties’ agreement). Based on this line of cases, Cauthen asserts that because the
acts constituting breach of fiduciary duty were also violations of the limited
partnership agreement, she should be awarded her attorney’s fees.
This court applied similar reasoning in Gill Savings Association v. Chair
King, concluding that an award of attorney’s fees was permissible in a fraud case
29
because “there was a claim for and a finding of breach of contract, and the tort
complained of arose out of that breach.” 783 S.W.2d 674, 680 (Tex. App.—
Houston [14th Dist.] 1989), aff’d in part, modified in part on other grounds, 797
S.W.2d 31 (Tex. 1990) (per curiam). The court also concluded that attorney’s fees
were properly awarded when the claims were based on the same set of facts or
circumstances and thus were “intertwined to the point of being inseparable” such
that recoverable attorney’s fees could not be segregated from non-recoverable
attorney’s fees. See id. The Supreme Court of Texas, in Stewart Title Guaranty Co
v. Sterling, cited with approval Gill Savings’s discussion of this exception to the
general rule that recoverable attorney’s fees must be segregated from those that are
not recoverable. See 822 S.W.2d 1, 11–12 (Tex. 1991) (“Therefore, when the
causes of action involved in the suit are dependent upon the same set of facts or
circumstances and thus are ‘intertwined to the point of being inseparable,’ the party
suing for attorney’s fees may recover the entire amount covering all claims.”
(citing Gill Savings, 783 S.W.2d at 680)).
Fifteen years later, the Supreme Court revisited the application of Sterling’s
“inextricably intertwined” exception to the requirement that fees be segregated and
concluded that this exception “threatened to swallow the rule.” Chapa, 212 S.W.3d
311. The court explained that “[t]o the extent Sterling suggested that a common set
of underlying facts necessarily made all claims arising therefrom ‘inseparable’ and
all legal fees recoverable, it went too far.” Id. at 313. Consequently, the Chapa
court reaffirmed the general rule requiring that recoverable attorney’s fees be
segregated from those that were non-recoverable, and modified Sterling to hold
that “[i]ntertwined facts do not make tort fees recoverable; it is only when discrete
legal services advance both a recoverable and unrecoverable claim that they are so
intertwined that they need not be segregated.” Id. at 313–14.
30
More to the point in this case, the Chapa court also explained that, under the
one-satisfaction rule, a party who prevails on more than one theory of liability for a
single injury is limited to recover damages on only one of the theories:
In entering judgment for Chapa on all her contract, fraud, and DTPA
claims, the court of appeals violated the one-satisfaction rule. “There
can be but one recovery for one injury, and the fact that . . . there may
be more than one theory of liability[ ] does not modify this rule.”
Chapa alleged only one injury—delivery of a base-model Highlander
rather than a Highlander Limited. While she could certainly plead
more than one theory of liability, she could not recover on more than
one.
For breach of contract, Chapa could recover economic damages
and attorney’s fees, but not mental anguish or exemplary
damages. For fraud, she could recover economic damages, mental
anguish, and exemplary damages, but not attorney’s fees. For a
DTPA violation, she could recover economic damages, mental
anguish, and attorney’s fees, but not additional damages beyond
$21,639 (three times her economic damages). The court of appeals
erred by simply awarding them all.
Id. at 303–04 (internal citations omitted) (emphasis added).
A few years later, in MBM Financial Corp. v. Woodlands Operating Co.,
L.P., the Supreme Court again revisited Gill Savings and expressly rejected a
contention that Gill Savings supported a claim for attorney’s fees based on the tort
of fraud arising from a breach of contract:
Alternatively, the Woodlands argues it is entitled to attorney’s fees
based on fraud arising from a breach of contract, pointing to this
Court’s reference to such an award in Gill Savings Ass’n v. Chair
King. But in Gill we merely reinstated bankruptcy and appellate fees;
we did not address the court of appeals’ award of fees for both
contract and fraud on the basis that they were inextricably intertwined.
We explicitly rejected this intertwining exception in Tony Gullo
Motors I, L.P. v. Chapa and reiterated that fees are not allowed for
torts like fraud. Thus, even if the Woodlands’ fraud claim arose
31
from a breach of contract, that is no basis for an attorney’s fee
award.
Id. at 666–67 (internal citations omitted) (emphasis added).
Although Cauthen emphasizes that in her case, she was successful on both
her contract and breach of fiduciary duty claims, she elected to recover on her tort
claim for the damages she suffered as a result of Bruce’s conduct. Consequently,
she was entitled to recover actual damages and exemplary damages for that claim,
but not statutory attorney’s fees for breach of contract. See Chapa, 212 S.W.3d at
303–304.10 As Chapa makes clear, a plaintiff is entitled to elect to recover on the
claim that will provide the greatest recovery, but she is limited to that recovery,
which in this case is Cauthen’s recovery of actual and exemplary damages in tort.
See id.; see also W. Reserve Life Assurance Co. of Ohio v. Graben, 233 S.W.3d
360, 377–78 (Tex. App.—Fort Worth 2007, no pet.) (holding that as between
clients’ negligence and breach of fiduciary duty claims against brokerage firm and
broker who sold them variable annuities, the latter afforded the greatest possible
recovery and, further, holding that trial court erred by awarding attorney’s fees
because attorney’s fees “are not available for a breach of fiduciary duty claim.”).
Likewise, MBM Financial forecloses Cauthen’s argument that she is entitled
to recover statutory attorney’s fees, after electing to recover on her tort claim,
merely because Bruce’s conduct constituting a breach of fiduciary duty “arose out
of” Bruce’s breach of the limited partnership agreement. See MBM Financial
Corp. 292 S.W.3d at 666–67; see also McCollough, 435 S.W.3d at 917 (holding
10
In a supplemental brief, Cauthen argues that attorney’s fees have been awarded in other
similar contexts, but the cases she cites are distinguishable because they either predate Chapa, do
not involve an election of remedies, or concern whether a particular type of claim is in essence a
contract action. In contrast, Cauthen prevailed on multiple theories of liability based on the same
injury, and Cauthen elected to recover on a recognized tort claim for which attorney’s fees are
not recoverable.
32
that under a breach of fiduciary duty theory, a party can recover economic and
exemplary damages, and receive an equitable disgorgement remedy, but cannot
simultaneously recover attorney’s fees or statutory damages on claims that all
concerned the same conduct).
We hold that Cauthen, having elected to recover for breach of fiduciary
duty, was not entitled to also recover statutory attorney’s fees for breach of
contract. However, “[a] party may seek recovery under an alternative theory if the
judgment is reversed on appeal.” Boyce Iron Works, Inc. v. Sw. Bell Tel. Co., 747
S.w.2d 785, 787 (Tex. 1988). We have held that the trial court did not err by ruling
in Cauthen’s favor on her alternative theories of recovery, namely wrongful
foreclosure and breach of contract. Therefore, a remand for a re-election of
remedies would enable Cauthen to exercise her right to a judgment on the theory
entitling her to the greatest relief, while preventing her from obtaining a double
recovery, which is the only purpose for an election of remedies. See Drury Sw.,
Inc. v. Louie Ledeaux #1, Inc., 350 S.W.3d 287, 293 (Tex. App.—San Antonio
2011, pet. denied). We therefore sustain Bruce’s eighth issue, and reverse and
remand the case for Cauthen to make a new election of remedies.
CONCLUSION
We overrule Bruce’s issues one through seven, but sustain Bruce’s eighth
issue. We reverse the trial court’s judgment and remand the case for further
proceedings consistent with this opinion.
/s/ Ken Wise
Justice
Panel consists of Justices Busby, Donovan, and Wise.
33