E.F. Johnson Company v. Infinity Global Technology F/K/A Infinity Gear and Technology, LLC ( 2016 )

REVERSE in Part, MODIFY in Part, and AFFIRM; Opinion Filed August 11, 2016.
Court of Appeals
S In The
Fifth District of Texas at Dallas
No. 05-14-01209-CV
E.F. JOHNSON COMPANY, Appellant
V.
INFINITY GLOBAL TECHNOLOGY
F/K/A INFINITY GEAR AND TECHNOLOGY, LLC,
AND CHARLES KIRMUSS D/B/A KIRMUSS & ASSOCIATES, Appellees
On Appeal from the 95th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-11-14303-D
MEMORANDUM OPINION
Before Justices Fillmore, Stoddart, and O’Neill 1
Opinion by Justice O’Neill
A jury found that appellant E.F. Johnson Company (EFJ) fraudulently induced appellees
Infinity Global Technology f/k/a Infinity Gear and Technology, LLC (Infinity) and Charles
Kirmuss d/b/a Kirmuss & Associates (Kirmuss) to enter into a Distribution Agreement. The jury
found further that EFJ failed to comply with the terms of the Distribution Agreement. The jury
assessed damages for both the fraudulent inducement and breach of contract; the trial court
assessed attorney’s fees. In seven issues, EFJ challenges: (1) the trial court’s failure to apply a
contractual limitation-of-liability provision, (2) Kirmuss’s status as a party to the Distribution
Agreement, (3) the sufficiency of the evidence supporting a finding of fraudulent intent, (4) the
1
The Hon. Michael J. O’Neill, Justice, Court of Appeals, Fifth District of Texas at Dallas, Retired, sitting by assignment.
sufficiency of the evidence supporting the damages award, (5) the trial court’s failure to require
appellees to elect their remedy, (6) the basis and rate of prejudgment interest, and (7) the
sufficiency of the evidence supporting the trial court’s award of attorney’s fees. Infinity and
Kirmuss bring three cross issues, challenging the trial court’s interest award and its segregation
of attorney’s fees as between them. We reverse the trial court’s judgment in part, modify it in
part, and affirm the remainder.
BACKGROUND
Kirmuss operated an electronics business that specialized in radio-related products. In
2007, at a trade show in Hong Kong, he discovered a speaker microphone with a built-in global
positioning system (the GPS-Mic), manufactured by Wintectronics (Wintec). Kirmuss believed
the GPS-Mic could transform communications for first responders and military units, so he
arranged to meet and discuss the product with Wintec’s owner. After the meeting, Wintec
granted Kirmuss the exclusive right to distribute and sell the GPS-Mic in North America.
Kirmuss visited Wintec’s facility and then returned to the United States to share the new
project with Lance McCullough, the president of Infinity. Kirmuss shared offices with Infinity,
and Infinity was already a distributor for Kirmuss radio products. Kirmuss and Infinity
promoted the GPS-Mic at conferences and trade shows, and a number of companies showed
interest in marketing the product.
In February of 2008, EFJ discovered the GPS-Mic at a trade show in Las Vegas. On
August 4, 2008, after significant negotiations, Kirmuss and Infinity and EFJ executed a
Memorandum of Understanding (MOU). The MOU required Infinity to halt any negotiations or
dealings with other parties concerning distribution rights to the GPS-Mic. In return, EFJ agreed
that the parties’ agreement would include a minimum purchase commitment of at least 50,000
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units during a three-year term, with 12,500 units guaranteed to be purchased by EFJ in the first
twelve months of the agreement.
The parties formalized the terms of their proposed agreement in their Distribution
Agreement, which was effective November 24, 2008. They agreed Infinity would provide EFJ
with 12,500 GPS-Mics within the first twelve months of the agreement’s term. EFJ would pay
$300 per unit, for a total of $3,750,000. EFJ guaranteed this minimum purchase for the first
year; the Distribution Agreement called the commitment “irrevocable and non-cancellable.” The
parties further agreed Infinity would provide an additional 37,500 GPS-Mics over the next two
years. Thus the three-year agreement was for Infinity to provide a total of 50,000 GPS-Mics and
for EFJ to pay a total of $15 million.
Within a relatively short time, however, the parties’ relationship began to falter. EFJ
offered testimony that the GPS-Mics delivered by Infinity did not perform as they were
represented. Appellees, on the other hand, offered testimony that EFJ failed to obtain an
agreement to provide the GPS-Mics to the United States Army, and that EFJ invented excuses to
get out of its contractual obligations. On November 4, 2009, EFJ provided written notice to
Infinity that it was terminating the Distribution Agreement.
Infinity sued EFJ for breach of the Distribution Agreement and fraudulent inducement.
Kirmuss later joined the suit as a plaintiff, claiming fraudulent inducement. The jury returned
findings that EFJ had breached the Distribution Agreement with Infinity and that EFJ had
fraudulently induced both appellees to enter into the agreement. The jury found damages in
amounts between $1.2 million and $1.3 million on each claim. The trial court’s judgment
awarded Infinity $1,256,250 in actual damages without identifying the claim on which it was
recovering. The judgment awarded Kirmuss $1,300,000 in actual damages.
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The parties agreed below to try the issue of attorney’s fees to the court after trial.
Attorneys for both parties submitted affidavits opining as to reasonable and necessary attorney’s
fees for Infinity and Kirmuss. The trial court eventually awarded Infinity $1,276,913 and
Kirmuss $535,322 as their reasonable and necessary attorney’s fees. The court also awarded
Infinity interest at eighteen percent and Kirmuss interest at five percent.
EFJ appeals, and Infinity and Kirmuss cross-appeal.
EFJ’S APPEAL
EFJ raises seven issues in this Court.
The Contractual Limitation-of-Liability Provision
In its first issue, EFJ contends the limitation-of-liability provision in the Distribution
Agreement should cap recoveries by both appellees at $49,600, the amount actually paid to
Infinity by EFJ before the latter refused to take or pay for any more units. The provision at issue,
section 18.3 of the Distribution Agreement, contains two sentences and states in its entirety:
[1] EXCEPT FOR A BREACH OF SECTION 22 (CONFIDENTIALITY) AND
EITHER PARTY’S OBLIGATION OF INDEMNIFICATION UNDER
SECTION 17 (INTELLECTUAL PROPERTY INDEMNIFICATION), IN NO
EVENT WILL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL,
INDIRECT, EXEMPLARY, SPECIAL OR INCIDENTAL DAMAGES
ARISING FROM OR RELATING TO THIS AGREEMENT, INCLUDING
INABILITY TO USE PRODUCTS, SOFTWARE OR DOCUMENTATION,
DAMAGES RELATING TO THE LOSS OF INFORMATION OR AUDIO,
DEVICE INACCURACY, INABILITY TO LOCATE A PERSON OR AREA,
LOSS OF DATA, COMPUTER PROGRAMS, PROFITS, BUSINESS
GOODWILL, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. [2] EXCEPT FOR A BREACH OF SECTION 22
(CONFIDENTIALITY) AND EITHER PARTY’S OBLIGATION OF
INDEMNIFICATION UNDER SECTION 17 (INTELLECTUAL PROPERTY
INDEMNIFICATION), EACH PARTY’S TOTAL CUMULATIVE LIABILITY
IN CONNECTION WITH THIS AGREEMENT AND THE [INFINITY]
PRODUCTS, SOFTWARE, AND DOCUMENTATION WHETHER IN
CONTRACT OR TORT OR OTHERWISE, WILL NOT EXCEED THE
AMOUNT OF MONIES ACTUALLY PAID TO [INFINITY] BY EFJ UNDER
THIS AGREEMENT.
–4–
The trial court instructed the jury not to consider this provision in making its award. Instead, the
court reserved the issue to itself as a question of law. After trial, the parties briefed and argued
the issue. The trial court did not apply the limitation in its judgment; it did not explain its
reasoning.
EFJ contends the limitation provision should have limited the appellees’ recovery to
$49,600, which was the total amount EFJ had paid them before terminating the Distribution
Agreement. EFJ relies on the Texas UCC to support what EFJ calls the plain language of the
agreement. The relevant statute provides that:
(1) the agreement may provide for remedies in addition to or in substitution for
those provided in this chapter and may limit or alter the measure of damages
recoverable under this chapter, as by limiting the buyer’s remedies to return of the
goods and repayment of the price or to repair and replacement of non-conforming
goods or parts; and
(2) resort to a remedy as provided is optional unless the remedy is expressly
agreed to be exclusive, in which case it is the sole remedy.
TEX. BUS. & COM. CODE ANN. § 2.719(a) (West 2009). EFJ argues the parties agreed to limit
recoverable damages and to make those limited damages the sole remedy available for breach of
the Distribution Agreement. EFJ states correctly that Texas courts “apply this UCC provision.”
See, e.g., SAVA gumarska in kemijska industria d.d. v. Advanced Polymer Scis., Inc., 128 S.W.3d
304, 317 (Tex. App.—Dallas 2004, no pet.) (“In general, parties to a contract are free to limit or
modify the remedies available for breach of their agreement.”) (citing section 2.719); Muss v.
Mercedes-Benz of N. Am., Inc., 734 S.W.2d 155, 158 (Tex. App.—Dallas 1987, writ ref’d n.r.e.)
(“While a buyer and seller may freely negotiate to extend liability into the future with respect to
nonconforming goods, they may also freely negotiate to limit such liability exclusively to repair
and replacement costs.”) (citing section 2.719). We agree that if, under the circumstances of this
case, the Distribution Agreement’s limitation-of-liability provision satisfies the standards of
section 2.719, it should be enforced.
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But appellees argue the limitation-of-liability provision does not satisfy the standards of
section 2.719. Appellees look to that section’s provision stating, “Where circumstances cause an
exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in
this title.” TEX. BUS. & COM. CODE ANN. § 2.719(b). Appellees also rely on the official
commentary for section 2.719. Reading these provisions together with those relied upon by EFJ,
section 2.719 leaves parties free to fashion their own remedy and reasonable limitations on
remedies are permitted. But the section does not allow parties to enforce a provision that
deprives another of “minimum adequate remedies.” Id. § 2.719, comment 1 (West 2009).
Instead, parties “must accept the legal consequence that there be at least a fair quantum of
remedy for breach of the obligations or duties outlined in the contract.” Id. If the parties’ self-
styled remedy fails to provide that “fair quantum of remedy,” then it will be stricken, and the
remedies provided by Chapter 2 of the business and commerce code will apply. Id. There is no
“fair quantum of remedy” where remedies are limited in an unconscionable manner or “where an
apparently fair and reasonable clause because of circumstances fails in its purpose or operates to
deprive either party of the substantial value of the bargain.” Id. Although the official comments
following Texas’s UCC provisions are not law, they are persuasive authority concerning
interpretation of the statutory language. Fetter v. Wells Fargo Bank Tex., N.A., 110 S.W.3d 683,
687 (Tex. App.—Houston [14th Dist.] 2003, no pet.).
Appellees argue EFJ’s interpretation of the limitation-of-liability provision causes the
parties’ remedy provision—and ultimately their agreement as a whole—to fail in its purpose.
According to appellees, the contract’s fundamental purpose was the agreement that Infinity
would permit EFJ to act as exclusive distributor of the GPS-Mic in return for EFJ’s “irrevocable
and non-cancellable” promise to take and pay for a minimum purchase of the GPS-Mic over
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three years. Appellees argue that if EFJ is permitted to avoid its minimum-purchase obligation,
they will be deprived of the substantial value of their bargain. See id.
The interpretation of an unambiguous contract is a question of law that we review de
novo. 2 MCI Tel. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 650–51 (Tex. 1999). The
primary objective of contract interpretation is to ascertain the intent of the parties as expressed in
the written agreement. See Nat’l Union Fire Ins. Co. v. CBI Indus. Inc., 907 S.W.2d 517, 520
(Tex. 1995). We examine the entire agreement in an effort to harmonize and give effect to all
provisions of the contract so no provision will be rendered meaningless. See City of Midland v.
Waller, 430 S.W.2d 473, 478 (Tex. 1968). We review the trial court’s legal conclusions de
novo, and we will uphold the court’s judgment if it can be sustained on any legal theory
supported by the record. See BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex.
2002); see also Young v. Gumfory, 322 S.W.3d 731, 741 (Tex. App.—Dallas 2010, no pet.) (“We
uphold conclusions of law if the judgment can be sustained on any legal theory supported by the
evidence.”). In this case, the trial court concluded the limitation provision should not be applied,
so if that conclusion can be sustained on a legal theory supported by the record, we will uphold
it.
The first sentence of the Distribution Agreement’s provision contains an agreement that
there will be no consequential damages recovered other than in two exceptional cases, neither of
which apply in this case. Courts will enforce such a ban on consequential damages so long as
the ban is not unconscionable. See SAVA, 128 S.W.3d at 317; see also TEX. BUS. & COMM.
CODE ANN. § 2.719(c). The provision at issue goes on to disallow:
indirect, exemplary, special or incidental damages arising from or relating to this
agreement, including inability to use products, software or documentation,
damages relating to the loss of information or audio, device inaccuracy, inability
2
Neither party contends this limitation provision—or any other provision in the Distribution Agreement—is ambiguous.
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to locate a person or area, loss of data, computer programs, profits, [and] business
goodwill, even if advised of the possibility of such damages.
It is fair to say that this first sentence of the limitation-of-liability provision disallows any
recovery other than direct, actual damages.
The second sentence of the provision is critical to the parties’ arguments in this case. It
provides that “each party’s total cumulative liability in connection with this agreement and the
[Infinity] products, software, and documentation whether in contract or tort or otherwise, will not
exceed the amount of monies actually paid to [Infinity] by EFJ under this agreement.” The
parties agree this provision is not ambiguous, so we limit our focus to the language of the
sentence, in the context of the agreement as a whole. See City of Midland, 430 S.W.2d at 478. 3
Read in isolation, the sentence supports EFJ’s interpretation: EFJ’s total liability will not exceed
the amount it has paid to Infinity. However, read in the context of the agreement as a whole, we
agree with the trial court that the provision cannot be applied in this case. The comment to
section 2.719 recognizes that a limitation of liability provision may, due to “circumstances” of a
particular case, fail in its purpose or improperly operate to deny a party a “fair quantum of
remedy.” Here, the agreed-upon remedy might function well if the circumstances were shipment
of a carton of damaged GPS-Mics: the remedy would be limited to refund of the amount paid for
that carton. But under circumstances where the seller foregoes selling product to any other
distributor because the buyer has made an “irrevocable and non-cancellable” minimum purchase
commitment, the provision, if enforced, would effectively allow the buyer both to abandon its
commitment and to avoid exposure to “minimum adequate remedies.” Section 2.719 requires
effect be given to “reasonable agreements” that limit remedies. We conclude the circumstances
3
Given this limitation, we do not consider such arguments as whether the limitation was intended only for third-parties or whether a party
is bound by invocation of a similar provision in other litigation.
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of EFJ’s breach—a breach that is not challenged on appeal—render the limitation-of-liability
provision unreasonable and thus unenforceable. 4
EFJ relies primarily on an unpublished federal opinion, AssistMed, Inc. v. Conceptual
Health Solutions, Inc., 2006 WL 3691003 (N.D. Tex. 2006), in which a similar limitation-of-
liability provision is enforced. That opinion, however, involves a software license agreement
rather than a sale of goods. Thus, Chapter 2 of the business and commerce code does not apply,
and, indeed, section 2.719 is not discussed in any way in the AssistMed opinion. The license
agreement in that case is not an exclusive dealings or minimum purchase agreement. Chapter 2
makes the “circumstances” critical in determining whether a limitation-of-liability provision will
be enforced. The circumstances in AssistMed are not comparable to those in the case before us.
EFJ argues for the enforcement of a limitation-of-liability provision that would operate to
deprive appellees of the substantial value of their bargain; we reject that argument. See TEX.
BUS. & COMM. CODE ANN. § 2.719 comment 1. We resist the notion inherent in EFJ’s argument
that a contracting party can excuse its own performance by refusing to perform and can limit its
own liability by refusing to pay what it promised to pay. Such a result would turn contract law
on its head. We conclude the trial court did not err in refusing to enforce the limitation-of-
liability provision in this case.
We overrule EFJ’s first issue.
4
We agree with appellees that EFJ’s interpretation of the provision “creates a sliding scale that moves in the wrong direction.” Thus, had
EFJ complied with all its obligations but for a final small shipment, its damages could approach the entire value of the contract. But, as in this
case, its abandonment of a three-year obligation with only minimal payment limits its damages to that minimal amount.
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Kirmuss’s Status Under the Distribution Agreement
The jury found that EFJ fraudulently induced Kirmuss into entering the Distribution
Agreement. In its second issue, EFJ argues that, as a matter of law, Kirmuss never entered into
that agreement. EFJ contends Kirmuss is not a party to the Distribution Agreement, has no rights
or obligations under it, and suffered no damages flowing from it. 5
At the outset, we address whether EFJ has preserved the issue of Kirmuss’s status under
the Distribution Agreement for our review. EFJ argues Kirmuss lacks the capacity both to sue
on the Distribution Agreement and to recover under it. Both of these defensive theories
implicate rule 93 of the Texas Rules of Civil Procedure, which requires verification by affidavit
of a pleading setting up a plaintiff’s legal capacity to sue and his right to recover in the capacity
in which he sues. TEX. R. CIV. P. 93(1), (2). “A challenge to privity is a capacity issue . . . and
requires compliance with rule 93.” King-Mays v. Nationwide Mut. Ins. Co., 194 S.W.3d 143,
145 (Tex. App.—Dallas 2006, pet. denied) (citing Pledger v. Schoellkopf, 762 S.W.2d 145, 145–
46 (Tex. 1988) (per curiam)). A party who wishes to contest his opponent’s capacity to sue must
do so through a verified plea under rule 93. Sw. Indus. Inv. Co., Inc. v. Berkeley House Inv’rs,
695 S.W.2d 615, 617 (Tex. App.—Dallas 1985, writ ref’d n.r.e.) (“A party who fails to raise the
issue of capacity through a verified plea waives that issue at trial and on appeal.”). The Texas
Supreme Court “ha[s] not hesitated in previous cases to hold that parties who do not follow rule
93’s mandate waive any right to complain about the matter on appeal.” Nootsie, Ltd. v.
Williamson County Appraisal Dist., 925 S.W.2d 659, 662 (Tex. 1996).
5
Alternatively, EFJ purports to rely on the timing of the execution of Kirmuss’s agreements with Wintec and Infinity to argue Kirmuss was
not induced by EFJ to enter the Distribution Agreement and did not rely on EFJ in doing so. This argument cites no authority and does not
attempt to explain how the timing of the agreements with the manufacturer and Infinity—specifically referred to in section 12.6 of the
Distribution Agreement and clearly negotiated by the same parties—somehow disproves elements of Kirmuss’s fraud claim. We conclude this
issue is not sufficiently briefed for our review. See TEX. R. APP. P. 38.1(i).
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We have reviewed EFJ’s Original Answer, General Denial and Affirmative Defense to
the Petition of Charles Kirmuss. As the pleading’s title suggests, the answer includes a general
denial and the single affirmative defense of limitations. The answer contains no verified denial.
EFJ’s reply brief concludes its argument on this point by stating emphatically: “Any
theory that lets Kirmuss sue on the Agreement fails as a matter of law.” (Emphasis original.) To
make this argument at trial or on appeal, EFJ was required to make a verified denial. By failing
to do so, it has waived the argument. See Nootsie, 925 S.W.2d at 662.6
If we were to consider EFJ’s status argument, we would nevertheless conclude that
Kirmuss was a party to the Distribution Agreement. In the context of a contract for the sale of
goods, “‘Party’ . . . means a person that has engaged in a transaction or made an agreement
subject to this title.” TEX. BUS. & COM. CODE ANN. § 1.201(b)(26) (West Supp. 2015) (made
applicable to article 2 by § 2.103(d)). EFJ acknowledges that Kirmuss initialed each page of the
Distribution Agreement. Kirmuss also signed and filled in a signature block printed on the
agreement for Kirmuss & Associates under the statement: “The parties have executed this
Agreement as of the Effective Date.”
And as for obligations of Kirmuss under the Distribution Agreement, they are stated in
detail in section 12.6, which we summarize here and reproduce in its entirety in the notes. 7 The
6
We note that the issue of whether Kirmuss provided (or received) consideration for his participation in the Distribution Agreement is
“raised” in a parenthetical in EFJ’s brief. The defense of lack of consideration must also be raised by a verified pleading to avoid waiver. TEX.
R. CIV. P. 93(9). Thus, even if lack of consideration were properly briefed, EFJ waived the defense by failing to plead and verify it.
7
Paragraph 12.6 states:
The Parties to this Agreement understand the importance for EFJ to continue supplying products to their customers should
[Infinity] (or any entity of its supply chain) become incapable or unwilling to perform their respective obligations in a
timely manner. [Kirmuss] is the supplier to [Infinity] of all Products that [Infinity] is supplying to EFJ. In the Escrow
Agreement that [Kirmuss] will execute with the contract manufacturer, within 60 days of EFJ’s acceptance of First Article
Deliverables [Kirmuss] will have on deposit in its favor in an Escrow account, the rights to manufacture all Products with
all manufacturing and product “know how” should the contract manufacturer become insolvent, incapable, or unwilling to
produce the products supplied to [Kirmuss] and [Infinity]. In this event, [Kirmuss] will directly replace the contract
manufacturer. Should [Kirmuss] become insolvent, incapable or unwilling to perform its obligations, the [Kirmuss]
Escrow Agreement transfers all escrow materials held in trust to [Infinity]. In this event, [Infinity] directly replaces
[Kirmuss]. Should [Infinity] become insolvent, incapable, or unwilling to perform its obligations under this Agreement,
[Kirmuss] (as a signatory to this Agreement) will assume all liabilities and obligations of [Infinity] under this Agreement.
Finally, in the event the contract manufacturer becomes insolvent, incapable or unwilling to perform its obligations to
[Kirmuss] and [Infinity], and both [Kirmuss] and [Infinity] are insolvent, incapable, or unwilling to continue to perform
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paragraph embodies EFJ’s effort to assure that each link in the chain of distribution of the GPS-
Mics was guaranteed to continue delivery to EFJ. The section begins with the representation and
acknowledgment that Kirmuss “is the supplier to [Infinity] of all Products that [Infinity] is
supplying to EFJ.” The paragraph then goes on to require Kirmuss to execute an escrow
agreement with the manufacturer (i.e., Wintec); the escrow agreement would create an account
holding both the right to manufacture the GPS-Mic and all “manufacturing and product ‘know
how.’” The escrow agreement was to require this information pass to Kirmuss—so that Kirmuss
could replace the manufacturer—in the event the manufacturer became unable or unwilling to
produce the product. In like manner, the paragraph requires the escrowed information to pass:
to Infinity, if Kirmuss became unable or unwilling to perform; to Kirmuss, if Infinity became
unable or unwilling to perform; and finally to EFJ itself, if the manufacturer, Kirmuss, and
Infinity all became unable or unwilling to perform. The paragraph required Infinity and
Kirmuss—specifically citing Kirmuss’s obligations “as a signatory to this Agreement”—to
create these escrow agreements in their own agreement and with any other individual in the
“complete supply chain” so that the manufacture and supply of the product would always flow to
EFJ. The paragraph concludes with a statement that failure by Infinity or Kirmuss to establish
the escrow agreements called for by this paragraph “shall constitute a material breach of this
Agreement.” Of course, as a general rule, only a party to a contract can be responsible for a
breach of that contract. C & A Invs., Inc. v. Bonnet Res. Corp., 959 S.W.2d 258, 262 (Tex.
App.—Dallas 1997, writ denied) (action for breach of contract cannot be maintained against
their respective obligations under this Agreement, the escrowed materials will be released to EFJ who will be named as a
Preferred Beneficiary in the Escrow Agreement executed between [Kirmuss] and its contract manufacturer. In their
respective agreements between themselves and the contract manufacturer, [Kirmuss] and [Infinity] will: (a) identify
escrow materials identical to the escrow materials described in Exhibit E of this Agreement; (b) include release events
which are identical to, or more favorable than, the release events described in Exhibit E, and (c) will include language
similar to this Section 12.6 as a means of describing the complete supply chain relationship, including identification of all
parties as Preferred Beneficiaries under the respective escrow agreements. [Infinity] or [Kirmuss] failure to establish the
Escrow Agreement described in this Section and Exhibit E shall constitute a material breach of this Agreement.
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person not party to contract); Bernard Johnson, Inc. v. Cont’l Constructors, Inc., 630 S.W.2d
365, 369 (Tex. App.—Austin 1982, writ ref’d n.r.e.) (same).
We reject EFJ’s argument that Kirmuss had no obligations under the Distribution
Agreement. And as to rights under that contract, EFJ’s independent promise to pay for the
product supplied is not tied specifically to Infinity. Paragraph 9.1 of the Distribution Agreement
states, “EFJ shall pay the purchase price for Product(s) specified in Exhibit A.” At a minimum,
then, Kirmuss’s promise to step into Infinity’s shoes if necessary means Kirmuss possessed a
contingent right to payment.
As to whether Kirmuss’s damages flowed from the Distribution Agreement, EFJ relies on
ISG State Operations, Inc. v. National Heritage Insurance Co., Inc., 234 S.W.3d 711, 718 (Tex.
App.—Eastland 2007, pet. denied), which stresses that a fraudulent inducement claim must seek
damages flowing from the executed contract procured by fraud. EFJ wants this principle to
mean that fraudulent inducement cannot implicate, in any way, a related agreement between
parties to the main agreement. But ISG State Operations does not speak to that question.
Instead the Eastland court denied a party’s recovery of damages for “profits it anticipated earning
from an unexecuted contract.” Id. (refusing to allow recovery of damages from alleged oral
agreement that varied and enlarged parties’ written agreement). ISG State Operations is not
helpful to our analysis.
The language of the Distribution Agreement establishes that EFJ required Kirmuss to be
contractually linked to the enterprise EFJ was undertaking. The record supports this
understanding of EFJ’s intent. Ed Kelley was EFJ’s representative at the time the MOU and
Distribution Agreement were executed. Kirmuss testified at trial that Kelley required Kirmuss’s
personal involvement beginning with signing the MOU. Kelly required Kirmuss’s signature,
to ensure that there was a proper link between all of the parties. I was the
supplier. I was buying from Wintec. Lance was buying the product from me and
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-- or Infinity, and Infinity was selling to E.F. Johnson. And this way here, all the
players were identified, and obviously for other distribution agreement
requirements as well.
In the end, Kirmuss promised to create the escrow account and to replace and take on all of
Infinity’s contractual obligations in return for its share of the purchase price of the product. The
agreement as to how EFJ’s payment would be split between Kirmuss and Infinity was their
decision, but the terms of that split did not affect Kirmuss’s obligations or EFJ’s insistence that
those obligations be solemnified in the Distribution Agreement. EFJ could not require the
contractual presence and promises of Kirmuss and then deny Kirmuss’s claim and allege it was
not party to the contract.
We overrule EFJ’s second issue.
Sufficiency of Evidence of Fraudulent Intent
In its third issue, EFJ contends there is legally and factually insufficient evidence to
support the jury’s finding on fraudulent intent.
In a legal sufficiency review, we ask whether the evidence at trial—crediting favorable
evidence if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors
could not—would enable reasonable and fair-minded people to reach the verdict under review.
City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). In a factual sufficiency review, we
consider and weigh all the evidence, both in support of and contrary to the challenged finding.
Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996) (per curiam). We set aside the finding only if it
is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.
Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986) (per curiam). In neither case will we substitute
our judgment for that of the trier of fact or pass on the credibility of the witnesses. Mar.
Overseas Corp. v. Ellis, 971 S.W.2d 402, 407 (Tex. 1998).
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Fraudulent intent may be established by either direct or circumstantial evidence, and the
subsequent failure to perform the promise, while not alone dispositive, can be considered with
other factors to establish intent. Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962
S.W.2d 507, 526 (Tex. 1998); Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434–35 (Tex.
1986). Indeed, “breach combined with ‘slight circumstantial evidence’ of fraud is enough to
support a verdict for fraudulent inducement.” Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d
299, 305 (Tex. 2006). We begin, therefore, by acknowledging EFJ’s failure to perform its
contractual promise, which is not challenged on appeal. And we look next to determine whether
the record contains “slight circumstantial evidence” of fraudulent intent; we conclude the record
contains more than that.
Lance McCullough, Infinity’s owner, testified concerning the formation of Infinity’s
contractual relationship with EFJ. According to McCullough, EFJ was an attractive business
partner for Infinity, because of EFJ’s large number of potential outlets and its large sales force.
EFJ wanted to distribute the GPS-Mics exclusively. Over a lengthy period of negotiations,
Infinity made clear that the price of that exclusivity was the minimum purchase commitment of
50,000 units over three years. McCullough stated Infinity was not interested in an agreement
whereby EFJ merely sold what it could:
Q. [W]hy not just rely on E.F. Johnson to sell the microphone and pay you
and why would you have to have a minimum orders requirement to satisfy you?
A. Well, because we didn’t control their sales force. We had no ability to
dictate or control their sales, and so if they made no effort to sell, then if we relied
on their sales, we would dry up, and so it was an absolute necessity that they took
product without a contingent for them to sell product.
EFJ did commit to the minimum purchase Infinity required. Delivery began, and as EFJ
looked to the possibility of a large contract with the Army, it tested the GPS-Mics. As time went
by, McCullough grew concerned that EFJ was giving him inaccurate information concerning
–15–
problems with the product. He contacted Katherine Broadwell, the original program manager of
the contract for EFJ, and he testified to what he learned from her:
Q. What did Ms. Broadwell tell you about E.F. Johnson’s intentions to perform this
distribution agreement?
A. She told me it was a setup and --
Q. On what basis did Ms. Broadwell inform you that this contract was a setup?
A. That only if they were to get a large sale to some customer, some military
customer, would they abide by the terms of the contract.
Q. How did she know that?
A. I believe she had gained that knowledge while at E.F. Johnson negotiating the
contract –
Broadwell herself testified at trial by video deposition. She stated that after negotiating
the MOU between EFJ and Infinity, she had primary responsibility for negotiating the
Distribution Agreement. She acknowledged that EFJ was an attractive business partner for
Infinity because Infinity had no distribution ability, and EFJ did. She also acknowledged that for
EFJ to obtain the exclusivity it wanted, it would have to guarantee sales. There was evidence
that Broadwell and McCullough had a good working relationship, but she began to have
difficulties with her supervisor, Ed Kelly, concerning the contract negotiations in August of
2008, and he took over her role as primary negotiator in September. Kelly terminated
Broadwell’s employment with EFJ at the end of November 2008.
Kelly testified as well. He denied that EFJ had addressed “a way out of the contract” if it
were unable to obtain a sufficiently large contract for sale of the units. However, McCullough
and Broadwell produced evidence the jury could have believed over Kelly’s denial. Credibility
is an issue for the jury, not this Court. See Mar. Overseas Corp., 971 S.W.2d at 407.
Of course, EFJ was a distributor; its business was buying and re-selling products. All
parties were aware that EFJ planned and intended to re-sell the GPS-Mics and that the Army was
–16–
the primary focus of EFJ’s plans. 8 This awareness of EFJ’s preferences, however, did not afford
EFJ the legal ability to enter into the Distribution Agreement with “conditional intent.” In terms
of fraudulent intent, EFJ could not enter this contract with the “conditional” promise to take the
minimum purchase only if it obtained the buyer it wanted. Nor can it take the position that
Infinity and Kirmuss should not, or could not, rely on EFJ’s keeping its promise because they
were aware EFJ might not obtain the buyer it wanted.
EFJ also argued its “partial performance” negates any fraudulent intent on its part.
However the jury could reasonably have concluded that the minimal performance EFJ relies
upon was merely an effort to stall until it could determine whether it could successfully obtain
the Army deal. Such behavior was especially problematic given the exclusivity EFJ had
bargained for: Infinity was bound to EFJ and its concerns and demands during this time. EFJ’s
“partial performance” could be seen as nothing more than a deceptive effort to keep Infinity
believing EFJ was committed to its minimum purchase promise.
We conclude—whether we view only the evidence supporting fraudulent intent in the
light most favorable to the verdict, or all the evidence as the jury heard it—there is sufficient
evidence of EFJ’s fraudulent intent. We decide EFJ’s third issue against it.
Sufficiency of Evidence of Damages
In its fourth issue, EFJ contends insufficient evidence supports the jury’s findings of
actual damages because Infinity and Kirmuss did not prove they had the ability to fulfill their
bargain beyond the number of units already delivered to EFJ. We apply the same standards
outlined above as we review the sufficiency of the evidence supporting the damages award. See
City of Keller, 168 S.W.3d at 827; Ortiz, 917 S.W.2d at 772.
8
Indeed Broadwell testified that the Army was not EFJ’s only potential target market, stating that she and McCullough had specifically
discussed “that there were other customer—well, there were other customers that would be interested as well.”
–17–
EFJ’s factual argument is based upon problems that developed between Infinity and
Kirmuss when EFJ delayed in performing under the Distribution Agreement because of
purported defects in the GPS-Mics. The Kirmuss-Infinity relationship became sufficiently
strained that Kirmuss terminated his agreement with Infinity. EFJ argues that because Kirmuss
terminated his supplier relationship with Infinity before EFJ terminated the Distribution
Agreement, Infinity could not have delivered the number of units it promised, so it cannot claim
it was damaged by EFJ’s breach. EFJ argues further that Kirmuss’s damages flow solely from
Infinity’s sales to EFJ, so if Infinity could not deliver product as promised, then Kirmuss has no
evidence of damages either. EFJ summarizes its argument thus: “Infinity was ‘dead in the
water’ at that point, and cannot claim damages based on the sale of the product that it did not
have and could not get.”
But the record does not support EFJ’s concerns for Infinity’s ability to deliver product as
promised in the Distribution Agreement. Both McCullogh and Kirmuss testified that Kirmuss
excepted EFJ orders from his termination of dealings with Infinity. Kirmuss confirmed he
would have been able to supply Infinity with the products it needed to fill EFJ orders. Indeed,
Kirmuss’s termination letter, which was introduced into evidence, stated Kirmuss would
continue to supply product for EFJ and more than a dozen other companies. The record, thus,
established Kirmuss intended to honor its commitments to Infinity and EFJ.
EFJ’s legal argument has an entirely different basis: the cases it cites address claims in
which the damages sought are based on speculative profits or events. 9 In Texas Instruments, Inc.
v. Teletron Energy Management, Inc., 877 S.W.2d 276, 277 (Tex. 1994), for example, the
designer of a novel programmable thermostat contracted to pay $32,200 in return for TI’s
9
EFJ bridges its dissonant factual and legal arguments using the awkward phrase that Infinity had only “hopeful speculation” of filling
EFJ’s orders once its agreement with Kirmuss had been terminated. The statement is disproved by the record and misleading as to the kind of
speculation that is problematic in the cases cited.
–18–
building ten working prototypes of the thermostat in eleven weeks. When TI could not create the
prototype after two years of trying, the designer sued, claiming expenses, breach of warranty
damages, and $14 million in lost profits. Id. The jury awarded $500,000 in lost profits; the trial
court refused to award that element of damages; the court of appeals modified the judgment to
include the $500,000 award. Id. The supreme court vacated the award, saying, “Teletron’s
evidence that a strong market existed for its unique thermostat at a moderate price is beside the
point; no such product ever existed.” Id. at 281. This is the premise behind the general rule that
lost profits for a new business may be too speculative to predict. But Infinity and Kirmuss did
not seek lost profits as a measure of damages. Instead, they sought only the benefit of their
bargain, based upon the agreed-upon purchase price of the GPS-Mics at issue. There is nothing
speculative about the contract sales price.
EFJ also cites City of Dallas v. Villages of Forest Hills, L.P., Phase 1, 931 S.W.2d 601,
605–06 (Tex. App.—Dallas 1996, no pet.). In that case, an apartment complex owner developed
a five-stage plan to rehabilitate his complex. Id. at 602. He applied to the City through a
program intended to assist such rehabilitation, and the relevant City agency approved the request
for funding the first phase of the plan. Id. at 603. However, the City was never able to find a
lender to participate in the rehabilitation, and the program was later suspended by the City. The
owner’s loan was never funded. Id. After a bench trial, the trial court awarded the owner
$360,705 plus attorney’s fees and interest, but the court refused to award damages related to the
later four stages of the project, concluding those damages were too speculative. Id. We affirmed
the trial court’s decision, stating that commencement of the future stages of the project was
dependent on factors beyond the owner’s control, so that damages associated with those future
stages were too speculative to be recovered. Id. at 606. In the case before us, the Distribution
Agreement was a multi-year contract, but the jury awarded only one year’s damages. Moreover,
–19–
as we discussed above, those damages were not speculative at all, but represented the parties’
agreed-upon price for the minimum product order.
EFJ’s argument on this point fails both factually and legally. The evidence supports
Infinity’s ability to service the contract as it promised, and nothing about recovering one year’s
agreed-upon price can be characterized as speculative. We overrule EFJ’s fourth issue.
Prejudgment Interest
In its sixth issue, EFJ argues the trial court incorrectly calculated prejudgment interest in
this case. We review the trial court’s award of prejudgment interest for an abuse of discretion.
Bufkin v. Bufkin, 259 S.W.3d 343, 356 (Tex. App.—Dallas 2008, pet. denied).
Initially, EFJ complains that the trial court awarded interest on appellees’ future damages,
contending that all damages sought by Infinity and Kirmuss resulted from future deliveries they
hoped to make under the Distribution Agreement. EFJ relies on the finance code’s proscription:
“Prejudgment interest may not be assessed or recovered on an award of future damages.” TEX.
FIN. CODE ANN. § 304.1045 (West 2006). We note at the outset that the subchapter in which the
proscription is found applies only to cases involving wrongful death, personal injury, or property
damage. Id. § 304.101. EFJ does not cite, and we have not found, a case applying section
304.1045 in a contract case. However, we need not reach the issue of the section’s applicability
in this case because we conclude the damage award in this case does not include future damages.
“Future damages are the monetary equivalent of the harm or injuries not yet actually sustained
by the plaintiffs/appellees, but which they will suffer from the date of judgment forward in
time.” Missouri Pac. R. Co. v. Lemon, 861 S.W.2d 501, 529 (Tex. App.—Houston [14th Dist.]
1993, writ dism’d by agreement). The Distribution Agreement had an effective date of
November 24, 2008 and a three-year term. The trial court’s final judgment was signed June 25,
–20–
2014. All damages resulting from EFJ’s breach, regardless of the manner used to calculate them,
accrued well before the date of judgment in this case. We reject EFJ’s future-damages argument.
Under this issue, EFJ also argues the trial court erroneously applied an eighteen percent
rate to Infinity’s award of prejudgment interest. Section 9.3 of the Distribution Agreement
provided:
[P]ayments are considered late if any outstanding balance remains unpaid for
forty six (46) calendar days from date of invoice. A late payment fee will be
charged at one and one half percent (1.5%) monthly of the outstanding balance
and prorated on a daily basis from date of invoice.
EFJ argues this provision does not apply here because it did not owe on any unpaid invoices at
the time it terminated the Distribution Agreement. We cannot read this provision so narrowly.
EFJ does not contest it breached its obligation under the Distribution Agreement to purchase
50,000 units from Infinity over the agreement’s three-year term. However, once EFJ refused to
take product, Infinity stopped sending invoices. Thus, it could be technically true that EFJ did
not “owe on any unpaid invoices,” but it cannot be said that EFJ did not have an outstanding
balance. We cannot read the agreement’s interest provision in a way that renders meaningless
EFJ’s breach of its contractual obligations to pay for the units it promised to receive. See City of
Midland, 430 S.W.2d at 478.
In a breach of contract case, the prejudgment interest rate is the same as the postjudgment
interest rate. See Johnson & Higgins of Tex., Inc., 962 S.W.2d at 532. Postjudgment interest—
and therefore prejudgment interest—in a case in which the contract provides for interest is the
lesser of the interest rate specified in the contract or eighteen percent a year. TEX. FIN. CODE
ANN. § 304.002 (West 2006). We conclude the trial court did not err by awarding Infinity
prejudgment interest at the rate of eighteen percent. See id.
We overrule EFJ’s sixth issue.
–21–
Attorney’s Fees
In its seventh issue, EFJ challenges the trial court’s awards of attorney’s fees to Infinity
and Kirmuss. EFJ includes five specific complaints concerning the trial court’s fee award. 10 The
award of attorney’s fees generally rests in the sound discretion of the trial court. El Apple I, Ltd.
v. Olivas, 370 S.W.3d 757, 761 (Tex. 2012).
Applying the Contractual Limitation-of-Liability Provision
First, EFJ argues the limitation-of-liability provision in the Distribution Agreement
should apply to cap attorney’s fees as well. We have concluded the limitation does not apply to
the contract damages award in this case. Given that conclusion, we see no reasonable basis for
applying the provision to the court’s award of attorney’s fees.
Moreover, we will not interpret one provision of a contract in a way that negates another
provision. Instead, our goal is to “harmonize and give effect to all the provisions of the contract
so that none will be rendered meaningless.” See J.M. Davidson, Inc. v. Webster, 128 S.W.3d
223, 229 (Tex. 2003). Section 20.4 of the Distribution Agreement provides that “the losing Party
in any litigation arising out of this Agreement shall pay the cost of litigation.” All parties agree
the phrase “cost of litigation” includes attorney’s fees. The language concerning recovery of
costs is straightforward; it refers neither to an upper limit on those costs nor to section 18.3, the
limitation-of-liability provision. We conclude that application of the limitation-of-liability
provision to the recovery of attorney’s fees in this case would require reading a limitation into
section 20.4 that the parties did not include or intend.
In addition, Infinity pleaded a separate ground for recovery of its attorney’s fees: chapter
38 of the Texas Civil Practice and Remedies Code. This independent basis for recovery could
10
EFJ’s fourth complaint concerns the trial court’s segregation of the attorney’s fee award between Infinity and Kirmuss. We address that
complaint below, together with the cross appellants’ issue on segregation of fees.
–22–
not be affected by the contractual provision and thus would have supported a full recovery of
Infinity’s reasonable fees incurred in prosecuting its breach of contract claim. See TEX. CIV.
PRAC. & REM. CODE ANN. § 38.001(8) (West 2015).
Using a Multiplier in Calculating Fees
In its second and third sub-points, EFJ challenges the trial court’s use of a multiplier in
calculating the attorney’s fees due Infinity and Kirmuss. EFJ initially challenges the
reasonableness of the trial court’s selection of 1.5 as the multiplier in this case.
The Texas Supreme Court has recently addressed the use of a multiplier in determining
an attorney’s fee award. See El Apple I, Ltd., 370 S.W.3d at 760. The supreme court first
described the proper method of calculating the “lodestar” or base amount of fees by multiplying
the reasonable number of hours worked by a reasonable hourly rate for the service provider. Id.
After making the lodestar calculation, the court stated, “The [trial] court may then adjust the base
lodestar up or down (apply a multiplier), if relevant factors indicate an adjustment is necessary to
reach a reasonable fee in the case.” Id. The court looked to rule 42, governing class actions,
which addresses calculation of attorney’s fees using the lodestar method. Id. (citing TEX. R. CIV.
P. 42(i)(1)). The rule states:
In awarding attorney fees, the court must first determine a lodestar figure by
multiplying the number of hours reasonably worked times a reasonable hourly
rate. The attorney fees award must be in the range of 25% to 400% of the lodestar
figure. In making these determinations, the court must consider the factors
specified in Rule 1.04(b), TEX. DISCIPLINARY R. PROF. CONDUCT.
TEX. R. CIV. P. 42(i)(1). The supreme court stated that when the particular circumstances of the
case made it appropriate, a trial court may use a multiplier to increase or decrease the lodestar
figure so that the award will “approximate a reasonable fee.” El Apple I, 370 S.W.3d at 764.
And as to the size of the multiplier, the court stated “the lodestar method should not vary from
claim to claim,” so that trial courts should employ the same formula as in class actions. See id.
–23–
Thus, a trial court that concludes the circumstances of its case call for use of a multiplier, should
choose one that results in an award “in the range of 25% to 400% of the lodestar figure.” See
TEX. R. CIV. P. 42(i)(1). Stated differently, a trial court should not reduce a fee award to less
than one quarter of the lodestar and should not increase a fee award by more than four times the
lodestar. See id.
The factors that must be considered in arriving at a multiplier are the eight factors
enumerated in disciplinary rule 1.04(b). 11 Our review of the record establishes that appellees’
counsel addressed these factors in arriving at the amount of fees he proposed as reasonable and
necessary in this case. Moreover, the 1.5 multiplier he proposed is well within the acceptable
range provided by the rules. But EFJ argues the evidence supporting the fee award is insufficient
because the only evidence offered to prove the necessity of a multiplier was the attorney’s
testimony. We disagree. “[T]estimony from a party’s attorney is taken as true as a matter of law
and is alone sufficient to support an award of attorneys’ fees if the testimony is clear, positive,
direct, and free from contradiction.” Jarvis v. Rocanville Corp., 298 S.W.3d 305, 319 (Tex.
App.—Dallas 2009, pet. denied).
11
Those factors are:
1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the
legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other
employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been
rendered.
TEX. RULES DISCIPLINARY P. 1.04(b), reprinted in TEX. GOV’T CODE ANN., tit. 2, subtit. G, app. A-1 (West 2013).
–24–
EFJ goes on to argue that the evidence is insufficient to establish why this case had to be
brought as a contingency-fee case. We find no authority requiring such a showing before a
multiplier may be employed. 12 Nevertheless, our review of the record shows the issue was
before the trial court in the form of argument of counsel:
MR. SANDERSON: . . . . Because if you -- if you are -- if the rule is that you’re
never going to be allowed to get anything more than what the lodestar value
comes out to, then why are you going to agree to take a case like Infinity where
you got Lance [McCullogh] and Charles [Kirmuss] fighting over whether the
product worked, all those facts and uncertainties on the front end, agree --
THE COURT: No, I --
MR. SANDERSON: -- agree to wait two years?
We conclude the difficulties inherent in prosecuting this case were sufficiently presented on the
record to the court.
The supreme court has stated that when it is appropriate under the circumstances of a
case, a trial court may use a multiplier to increase the lodestar figure to approximate a reasonable
fee. El Apple I, Ltd., 370 S.W.3d at 764. Indeed, “Texas courts . . . consistently allow the use of
a multiplier to compensate for the uncertainty of recovery in contingent-fee cases.” La Ventana
Ranch Owners’ Ass’n, Inc. v. Davis, 363 S.W.3d 632, 650 (Tex. App.—Austin 2011, pet.
denied). As we have determined, the multiplier used in this case is on the low end of the
approved range. We conclude the evidence is sufficient to support the trial court’s use of the 1.5
multiplier in this case.
EFJ then argues that no evidence supports the reasonableness of the fee awards in this
case in light of the amount in controversy and the results obtained by appellees. Application of
the multiplier, EFJ contends, took the fee award to an unreasonable level given the degree of
12
EFJ relies here on ViewPoint Bank v. Allied Prop. & Cas. Ins. Co., 439 S.W.3d 626 (Tex. App.—Dallas 2014, pet. denied). We resolved
that case against awarding the fees requested because: “The affidavit in this case, even though not controverted, is not clear about the method
used to determine the amount of attorney’s fees.” Id. at 638. The attorney did not testify to the hours worked or to the rates charged.
In this case, appellees’ evidence included both details of the hours worked and rates charged.
–25–
success appellees experienced in the trial court. Again, we disagree. Appellees succeeded on
both of their substantive claims against EFJ, for breach of contract and fraudulent inducement.
The jury awarded each plaintiff damages between $1.2 and 1.3 million on its claim(s). We
conclude ample evidence supports the amount of fees awarded by the trial court, and we cannot
say—given the significant degree of appellees’ success—that it was an abuse of discretion for
the trial court to award the amount of fees it did.
Attorney’s Fees for Tort Recovery
Finally, EFJ asserts the judgment improperly awards Kirmuss attorney’s fees on a tort
claim. On this matter, we agree with EFJ. Kirmuss contends his fraudulent inducement claim
arises under the Distribution Agreement. However, “[t]he duty not to fraudulently procure a
contract arises from the general obligations of law rather than the contract itself.” Tony Gullo
Motors I, L.P., 212 S.W.3d at 304. Settled Texas law disallows recovery of attorney’s fees for a
fraud claim. See id. at 310. Indeed, the supreme court has rejected an exception to that rule even
if issues involving contract and fraud theories are “inextricably intertwined” in the case. MBM
Fin. Corp. v. Woodlands Operating Co., L.P., 292 S.W.3d 660, 666–67 (Tex. 2009); see also
Tony Gullo Motors, 212 S.W.3d at 313 (“Intertwined facts do not make tort fees recoverable.”). 13
We reverse the trial court’s award of attorney’s fees to Kirmuss.
13
MBM Financial involved a dispute between two businesses involving copy machine leases. 292 S.W.3d at 663. The prevailing party
argued, inter alia, that it was entitled to attorney’s fees for its fraud claim because the fraud “arose out of” the breach of the lease. See id. The
supreme court stated, “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 from a breach of contract, that is no basis for an attorney’s fee
award.” Id. at 667 (interior citation omitted).
–26–
Election of Remedy
In its fifth issue, EFJ complains that Infinity was not required to elect a remedy as
between its fraudulent inducement and breach of contract recoveries. We agree that neither the
trial court nor Infinity made a specific election of remedies on the record.
A party is generally entitled to pursue damages through alternative theories of recovery,
but it is not entitled to a double recovery. Waite Hill Servs., Inc. v. World Class Metal Works,
Inc., 959 S.W.2d 182, 184 (Tex. 1998). “A double recovery exists when a plaintiff obtains more
than one recovery for the same injury.” Id. If the party receives favorable findings on two or
more theories, it has a right to judgment on the theory entitling him to the greatest relief. Boyce
Iron Works, Inc. v. Sw. Bell Tel. Co., 747 S.W.2d 785, 787 (Tex. 1988). When the prevailing
party fails to elect between alternative measures of damages, the trial court should utilize the
findings affording the greater recovery and render judgment accordingly. Birchfield v.
Texarkana Mem’l Hosp., 747 S.W.2d 361, 367 (Tex. 1987). If the trial court does not do so, the
appellate court must determine the greatest theory of recovery and render judgment accordingly.
Main Place Custom Homes, Inc. v. Honaker, 192 S.W.3d 604, 613 (Tex. App.—Fort Worth
2006, pet. denied).
In this case, the trial court awarded Infinity what appears to be a consistent contract
recovery: actual damages, attorney’s fees, and the rate of prejudgment interest (eighteen
percent) provided by the Distribution Agreement. We have upheld the amount of each of these
trial court awards. The jury awarded the identical amount of actual damages for Infinity’s breach
of contract and fraud claims. We have concluded that a fraud recovery in this case cannot
support an award of attorney’s fees. We conclude further (see discussion infra) that a fraud
recovery will not support the higher prejudgment interest rate prescribed by the Distribution
–27–
Agreement. Accordingly, Infinity’s contract theory of recovery yields the greater recovery, and
it is entitled to that recovery.
We affirm the trial court’s award to Infinity and specifically affirm that the award is for
Infinity’s breach of contract claim.
CROSS-APPEAL
Infinity and Kirmuss raise three issues in their cross-appeal. The first two issues address
the trial court’s award of prejudgment interest. The third issue argues the trial court should not
have segregated its award of attorney’s fees by party.
Prejudgment Interest
We review the trial court’s award of prejudgment interest for an abuse of discretion. See
Bufkin, 259 S.W.3d at 356.
In their first cross issue, Infinity and Kirmuss contend the trial court erroneously
calculated the amount of prejudgment interest they are due. The trial court awarded interest
beginning the 180th day after each of the cross-appellants filed suit against EFJ. However,
prejudgment interest properly accrues from the earlier of (1) 180 days after the date a defendant
receives written notice of a claim or (2) the date suit is filed. Ventling v. Johnson, 466 S.W.3d
143, 149 (Tex. 2015) (citing TEX. FIN. CODE ANN. § 304.104 (West 2006)). Because it used
neither of these accrual dates in making its prejudgment interest awards, we conclude the trial
court erred in awarding interest beginning 180 days after the filing of suit.
Cross-appellants point to a number of communications between the parties, alleging each
of them should have given EFJ notice of their claim. However we conclude none of the
communications cited by cross-appellants so clearly amount to a “written notice of a claim” that
–28–
we can—as a matter of law—say that interest should have begun to accrue on that date. 14 See,
e.g., Robinson v. Brice, 894 S.W.2d 525, 528 (Tex. App.—Austin 1995, writ denied) (written
notice of claim under statute requires “notice of a demand for compensation or an assertion of a
right to be paid”).
We conclude, therefore, that prejudgment interest should have accrued from the date
each of the cross-appellants filed suit. See TEX. FIN. CODE ANN. § 304.104. We sustain cross-
appellants’ first cross issue and conclude that prejudgment interest should have accrued on
November 10, 2011 for Infinity and on April 19, 2013 for Kirmuss.
In their second issue, Infinity and Kirmuss contend Kirmuss’s recovery for fraudulent
inducement should bear interest at the rate of eighteen percent, just as Infinity’s recovery does.
Their contention is that if Kirmuss is to receive the benefit of his bargain, then he should recover
the rate of interest (as well as the attorney’s fees—discussed supra) that he would have received
under the contract. Benefit-of-the-bargain damages include the difference between the value of
the agreement as represented and the value received. Formosa Plastics Corp. USA v. Presidio
Engineers & Contractors, Inc., 960 S.W.2d 41, 49 (Tex. 1998). Thus, the benefit of Kirmuss’s
bargain was the value he would have received from the sale of the goods EFJ promised to buy.
The Distribution Agreement’s provisions for fees and interest existed for the circumstance in
which that agreement was breached, not for when it would have been performed. Kirmuss made
no claim for breach of contract, so these remedies are not available to him.
We decide cross-appellants’ second issue against them.
14
Indeed, even the communication identified by Infinity as “a formal notice” under the Distribution Agreement does not demand payment
from EFJ. It seeks “good faith” resolution of the problems caused by EFJ’s delay in performance and it seeks to avoid “escalation” of the parties’
dispute.
–29–
Segregation of Fees By Party
In their third cross issue, Infinity and Kirmuss argue the trial court should not have
divided the attorney’s fee award between Infinity and Kirmuss. The trial court initially awarded
a single amount of fees—$1,812,235—to Infinity and Kirmuss, who were represented by the
same firm at trial. EFJ then sought segregation of the fees between the two plaintiffs. The trial
court subsequently signed a new judgment that awarded Infinity $1,276,913 in attorney’s fees
and Kirmuss $535,322. Cross appellants contend this segregation between plaintiffs was error
because their claims are inextricably intertwined.
“The general rule is that attorney’s fees attributable to other defendants and other causes
of action must be segregated.” Flagship Hotel, Ltd. v. City of Galveston, 117 S.W.3d 552, 565
(Tex. App.—Texarkana 2003, pet. denied) (citing Stewart Title Guar. Co. v. Sterling, 822
S.W.2d 1, 10–11 (Tex. 1991) and Aetna Cas. & Sur. v. Wild, 944 S.W.2d 37, 40 (Tex. App.—
Amarillo 1997, writ denied)); Wylie v. Hide-A-Way Lake Club, Inc., 12-12-00290-CV, 2013 WL
6797871, at *13 (Tex. App.—Tyler Dec. 20, 2013, pet. denied) (memo op.). The determination
of whether attorney’s fees can be segregated is a question for the court. Aetna Cas. & Sur., 944
S.W.2d at 41.
The cross appellants rely upon Anderson Mill Municipal Utility District v. Robbins, No.
03-04-00369-CV, 2005 WL 2170355 (Tex. App.—Austin Sept. 8, 2005, no pet.), to support their
argument that the trial court improperly segregated the fees between them. In that case, all the
plaintiffs sought the same relief for identical claims. Id. at *7. Thus, the court concluded that
the claims were “inextricably intertwined,” and one plaintiff was entitled to recover the entire
original award if the other plaintiffs lost their own claims to the fees. Id. In this case, Kirmuss
was represented for less time and for only one claim rather than the two claims urged by Infinity.
Kirmuss joined the lawsuit seventeen months after Infinity filed suit. He received the benefit of
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his attorney’s earlier work concerning the fraudulent inducement claim, but the work was not
performed for him as a client. Moreover, some significant portion of that earlier work related to
Infinity’s breach of contract claim, and Kirmuss made no claim for breach of contract. We
conclude Robbins is not dispositive of this issue.
EFJ also argues there was no evidence to support the segregation of attorney’s fees.
Appellees’ counsel filed his original affidavit seeking a single award of fees for both plaintiffs.
After EFJ sought segregation of the fees by party—at the court’s direction—counsel filed a
second affidavit responding to EFJ’s request. EFJ does not challenge this second affidavit,
which apportioned the initial fee award as follows:
• $415,087.50 in hourly fees for Infinity, incurred before any legal work was
performed for Kirmuss;
• $436,188.22 in hourly fees for Infinity between March 5, 2013 through January
29, 2014 ; and
• $356,881.28 in hourly fees for Kirmuss between March 5, 2013 through January
29, 2014.
The affidavit explained that the apportionment of approximately fifty-five percent of the firm’s
billed time to Infinity after Kirmuss joined the suit (as opposed to approximately forty-five
percent of the time apportioned to Kirmuss) was due to time spent responding to EFJ’s summary
judgment motion, which was lodged only against Infinity. Counsel then applied his proposed 1.5
multiplier to the apportioned figures, yielding the amounts ultimately awarded by the trial court:
$1,276,913 for Infinity and $535,322 for Kirmuss. The trial court reasonably could have
credited this evidence and employed it in making its award. We conclude sufficient evidence
supported the trial court’s apportionment.
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Finally, in this case, judicial efficiency is a product of the segregation required by the
trial court. We have concluded today that Kirmuss may not recover attorney’s fees on his fraud
claim. Because the trial court segregated the fees by party, we can reverse Kirmuss’s fee award
without doing violence to the award of fees to Infinity. Were the fees unsegregated, we would
be forced to remand the issue of attorney’s fees for a new trial. See Tony Gullo, 212 S.W.3d at
314–15; see also Brown v. Zimmerman, 160 S.W.3d 695, 705 (Tex. App.—Dallas 2005, no pet.)
(appeal after remand that was based on failure to segregate fees between parties).
We conclude the trial court did not abuse its discretion by segregating its attorney’s fee
award between Infinity and Kirmuss. We conclude further that sufficient evidence supported the
actual segregation. We decide this issue against both EFJ and the cross appellants.
CONCLUSION
We reverse the trial court’s award of attorney’s fees to Kirmuss. We modify the trial
court’s judgment to provide that prejudgment interest on Infinity’s actual damages shall accrue
on November 10, 2011. We further modify the judgment to provide that prejudgment interest on
Kirmuss’s actual damages shall accrue on April 19, 2013. In all other respects, we affirm the
trial court’s judgment.
/Michael J. O'Neill/
MICHAEL J. O’NEILL
JUSTICE, ASSIGNED
141209F.P05
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S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
E.F. JOHNSON COMPANY, Appellant On Appeal from the 95th Judicial District
Court, Dallas County, Texas
No. 05-14-01209-CV V. Trial Court Cause No. DC-11-14303-D.
Opinion delivered by Justice O’Neill,
INFINITY GLOBAL TECHNOLOGY Justices Fillmore and Stoddart participating.
F/K/A INFINITY GEAR AND
TECHNOLOGY, LLC, and CHARLES
KIRMUSS D/B/A KIRMUSS &
ASSOCIATES, Appellees
In accordance with this Court’s opinion of this date:
We REVERSE the trial court’s award of attorney’s fees to Charles Kirmuss d/b/a
Kirmuss & Associates.
We MODIFY the trial court’s judgment as follows:
Prejudgment interest on Infinity Global Technology f/k/a Infinity
Gear and Technology, LLC’s actual damages shall accrue on
November 10, 2011, and prejudgment interest on Charles Kirmuss
d/b/a Kirmuss & Associates’s actual damages shall accrue on April
19, 2013.
It is ORDERED that, in all other respects, the judgment of the trial court is
AFFIRMED.
It is ORDERED that appellee Infinity Global Technology f/k/a Infinity Gear and
Technology, LLC, and Charles Kirmuss d/b/a Kirmuss & Associates recover their costs of this
appeal from appellant E.F. Johnson Company.
Judgment entered this 11th day of August, 2016.
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