T. Christian Cooper v. Sanders H. Campbell/Richard T. Mullen, Inc. D/B/A the Mullen Company ( 2016 )

Affirmed, in part, Reversed and Remanded, in part, and Opinion Filed August 24, 2016.
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-15-00340-CV
T. CHRISTIAN COOPER, Appellant
V.
SANDERS H. CAMPBELL/RICHARD T. MULLEN, INC.
D/B/A THE MULLEN COMPANY, Appellee
On Appeal from the 162nd Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-12-15127
MEMORANDUM OPINION
Before Justices Bridges, Lang, and O'Neill1
Opinion by Justice Lang
T. Christian Cooper appeals the trial court’s final judgment that awards Sanders H.
Campbell/Richard T. Mullen, Inc. d/b/a The Mullen Company (Mullen Co.) $890,823.29 on its
promissory note claim. The Mullen Co. was initially awarded $1,431,000 on the promissory
note claim, but that sum was reduced by the trial court’s award to Cooper of $519,300 on his
equitable forfeiture claim and $20,000 in damages awarded by the jury on his breach of contract
counterclaim. The parties’ claims and counterclaims in this case relate to the Mullen/Cooper
Joint Venture in which Cooper and the Mullen Co. were partners.
1
The Hon. Michael J. O'Neill, Justice, Assigned
Cooper raises three issues on appeal. First, he argues the trial court erred when it denied
his motions for directed verdict, judgment notwithstanding the verdict, and to modify the final
judgment or for new trial on the claim for enforcement of a promissory note brought by the
Mullen Co. because the Mullen Co. was not the holder or owner of the promissory note. Second,
Cooper asserts the trial court erred when it denied his motions for directed verdict and judgment
notwithstanding the verdict because, as a matter of law, the promissory note is “non-recourse,”
which precludes the imposition of personal liability on Cooper. Third, he argues the trial court
erred when it denied his motion to modify the final judgment or for new trial because the trial
court’s limited order of equitable forfeiture does not “fit the circumstances or adequately protect”
him from the breach of fiduciary duty by the Mullen Co.
The Mullen Co. filed a cross appeal. In cross-issues one and two, the Mullen Co. argues
the trial court erred when it: (1) denied its motion to modify the judgment or for new trial
because the record does not show the trial court determined its conduct was “a clear and serious
breach of duty,” supporting the imposition of equitable forfeiture; and (2) denied its motion to
modify the judgment or for new trial because the amount of forfeiture should have been limited
to the amount of compensation or profits realized by the Mullen Co. Also, in cross-issue three,
the Mullen Co. argues the trial court erred when it granted Cooper’s motion for directed verdict
on its claim for an accounting.
We conclude the trial court did not err when it denied Cooper’s motions for directed
verdict, judgment notwithstanding the verdict, and to modify the final judgment or for new trial
as to the promissory note claim of the Mullen Co. However, we conclude the trial court erred as
to two of its rulings. First, it erred when it denied the motion to modify the final judgment or for
new trial filed by the Mullen Co. on the issue of equitable forfeiture. Second, the trial court
erred when it granted, in part, Cooper’s motion for directed verdict on the Mullen Co.’s claim
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seeking an accounting. The trial court’s final judgment is affirmed, in part, and reversed and
remanded, in part.
I. FACTUAL AND PROCEDURAL CONTEXT
In 2001, Cooper was employed by the Mullen Co. That same year, he assisted the
Mullen Co. in entering into a management agreement with Newnan Crossing Partnership. As a
result, in 2001, the Mullen Co. executed a management agreement with Newnan Crossing
Partnership. Pursuant to that management agreement, the Mullen Co. was responsible for
managing, developing, and marketing ten real estate properties, the largest of which was located
in Georgia. Newnan Crossing was a partnership of several families in Monterrey, Mexico, and
those families were represented by Roberto Segovia Kane (Segovia). Also, Newnan Crossing
invested through a company named Agave Investments. Then, in 2004, Cooper and the Mullen
Co. became partners, executing the Mullen/Cooper Joint Venture, which, in part, gave Cooper a
30% ownership interest in the Newnan Crossing investment.
In 2006, Cooper learned the The PNL Companies were “interested in purchasing” some
of the Newnan Crossing property. However, they were “actually [] talking about forming a
venture and supplying a loan into the property.” Cooper approached Mullen about participating
with him in that deal, but Mullen “[did not] want to go into the business of competing against
Newnan Crossing.” However, Cooper decided “to be a partner in that deal” in his individual
capacity. In order to fund his partnership interest, Cooper, in his individual capacity, worked
with Segovia to obtain a loan for $600,000 from Newnan Crossing. The loan was made upon
Cooper’s execution of a business loan agreement, a promissory note, and a pledge and security
agreement. In the promissory note, Cooper agreed to “apply all distributions received from the
[p]artnership [i]nterest [] to the [n]ote.” Cooper received distributions in the amounts of
$1,388,959.57, $14,389, and $30,000. However, he did not apply any of these partnership
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distributions toward repayment of the promissory note as agreed or repay the promissory note.
According to Cooper, in 2008, he called Segovia to explain that he could not repay the
promissory note and Segovia “forgave the loan,” stating “don’t worry about it.” However, the
December 31, 2008 and May 1, 2009 balance sheets for Newnan Crossing show an account
receivable of $600,000 due from Cooper.
In September 2010, Segovia died unexpectedly and the new leadership of Newnan
Crossing refused to pay approximately $1.8 million in management fees that the Mullen Co. and
Cooper believed were owed pursuant to the 2001 management agreement. On January 24, 2011,
John McFarland, an attorney for Newnan Crossing, spoke on the telephone with Cooper about
the $600,000 loan. Contrary to Cooper’s assertion that Segovia “forgave” or discharged the
loan, according to McFarland, Cooper told him that “[h]e [] got [] Segovia to agree that Cooper
would pay the $600,000 back at a later time, or it would be an offset by future fees payable to
Cooper from the Mullen/Cooper management agreement with [Newnan Crossing].” However,
during their conversation, Cooper claimed there was no documentation for the loan.
As a result of Newnan Crossing’s refusal to pay, the Mullen Co., as party to the
management agreement, sued Newnan Crossing to recover the unpaid management fees. Also,
Newnan Crossing filed a completely separate suit against the Mullen Co., as party to the
management agreement.
Eventually, in 2012, the Mullen Co., Newnan Crossing, and Agave settled their claims as
to the management agreement. The Mullen Co. agreed to dismiss its claims against Newnan
Crossing regarding the management agreement in exchange for $300,000 and an assignment of
any causes of action and claims that Newnan Crossing or Agave may have against the
Mullen/Cooper Joint Venture or Cooper. According to McFarland, the “Cooper debt clearly was
a factor in determining the amount of the settlement that [Newnan Crossing] was willing to pay.”
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In December 2012, the Mullen Co. sued Cooper. In its first amended petition, the Mullen
Co. alleged the following claims for damages against Cooper: (1) money had and received; (2)
unjust enrichment; and (3) an accounting. Also, the Mullen Co., as assignee of the $600,000
promissory note, asserted a claim on the promissory note against Cooper, seeking an equitable
lien on the collateral securing the promissory note, pre- and post-judgment interest, and
attorneys’ fees.
In Cooper’s first amended answer, he generally denied the allegations and asserted that
the claims brought by the Mullen Co., as partner in the Mullen/Cooper Joint Venture, were: (1)
barred by the statute of limitations, the doctrine of unclean hands, and the doctrine of estoppel;
(2) he was not the actual or proximate cause of the damages; and (3) the Mullen Co., as partner
in the Mullen/Cooper Joint Venture, failed to mitigate its damages. Further, Cooper sought a
setoff of any damages awarded on his counterclaims against the Mullen Co., as partner in the
Mullen/Cooper Joint Venture. Also, Cooper contended that the claims brought by the Mullen
Co., as assignee of the promissory note, had no merit because: (1) the assignment of claims was
invalid; (2) the promissory note was not delivered; (3) it is not the holder or owner of the
promissory note; (4) the promissory note is not a negotiable instrument; (5) the promissory note
was discharged or forgiven; (6) the promissory note was non-recourse; and (7) the claim for
attorneys’ fees brought by the Mullen Co., as assignee of the promissory note, is beyond the
scope of the section 38.001 of the Texas Civil Practices and Remedies Code.
In his original counterclaim, Cooper sought damages against the Mullen Co., as partner in
the Mullen/Cooper Joint Venture, for breach of contract and breach of fiduciary duty,2 and
recovery of his attorneys’ fees. As to his counterclaim for breach of fiduciary duty, Cooper
2
The parties do not argue or address whether section 152.204 of the Texas Business Organizations Code allows for a breach of fiduciary duty
claim in against a partner. See TEX. BUS. ORGS. CODE ANN. § 152.204 (West 2012). Accordingly, we express no opinion as to the effect of
section 152.204 on claims for breach of fiduciary duty in a partnership.
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claimed that the Mullen Co., as partner in the Mullen/Cooper Joint Venture, did not consult with
him about the settlement made between the Mullen Co., as party to the management agreement,
and Newnan Crossing, or obtain his approval to the terms of the settlement agreement as
required by the Mullen/Cooper Joint Venture.
The case was tried to a jury. At the conclusion of the evidence, Cooper moved for a
directed verdict as to: (1) the claims for money had and received, unjust enrichment, and an
accounting; and (2) the claim to enforce the promissory note. After a hearing, the trial court
denied Cooper’s motion for a directed verdict as to the claims for money had and received,
unjust enrichment, and the promissory note claim. However, the trial court granted Cooper’s
motion for directed verdict as to the accounting claim.
The jury found in favor of the Mullen Co. on its claims for: (1) money had and received,
finding that Cooper received $300,000 that in equity and justice belonged to the Mullen Co.; and
(2) unjust enrichment, awarding it no compensation. In addition, the jury found in favor of the
Mullen Co. on its claim to enforce the promissory note, the damages of which were liquidated,
and awarding it $15,000 in attorneys’ fees for trial and no attorneys’ fees in the event of an
appeal. Also, the jury found against Cooper on his affirmative defense of discharge as to the
claim to enforce the promissory note. Further, the jury found in favor of Cooper on his
counterclaims against the Mullen Co. for: (1) breach of contract, awarding him $20,000 in
damages; and (2) breach of fiduciary duty, awarding him no damages.
Cooper filed a motion for judgment notwithstanding the verdict, arguing the trial court
should disregard some of the jury’s findings and, because the jury found in favor of Cooper on
his counterclaim for breach of fiduciary duty, but awarded Cooper no damages, the trial court
should impose the equitable remedy of forfeiture. Also, the Mullen Co. filed a motion for
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judgment. Cooper responded to the motion for judgment, arguing the trial court should render a
take nothing judgment on the promissory note claim.
The final judgment signed by the trial court granted, in part, and denied, in part, the
motion for judgment filed by the Mullen Co. and Cooper’s motion for judgment notwithstanding
the verdict. The final judgment also states that the trial court accepted the jury’s verdict and
found that each question submitted was supported by the evidence adduced at trial, except for the
finding as to appellate attorneys’ fees. Further, the final judgment awarded to the Mullen Co. a
total recovery of $1,431,000 in damages, less $519,300, which is comprised of the amount
awarded by the trial court to Cooper as equitable forfeiture claim based on breach of fiduciary
duty by the Mullen Co., and $20,000 that was awarded by the jury to Cooper on his counterclaim
for breach of contract. As a result, the net recovery, including interest, to the Mullen Co. was
$890,823.29. In addition, the final judgment awarded the Mullen Co. attorneys’ fees and set
aside the jury’s findings that it should recover no attorneys’ fees in the event of an appeal. Both
parties filed motions to modify the final judgment or for new trial, which were overruled by
operation of law. See TEX. R. CIV. P. 329b(c).
II. MOTIONS FOR DIRECTED VERDICT,
JUDGMENT NOTWITHSTANDING THE VERDICT, AND
MODIFY THE FINAL JUDGMENT OR FOR NEW TRAIL
Each issue and cross-issue on appeal challenges multiple rulings by the trial court.
Although the issues and cross-issues vary as to the specific combination of rulings challenged in
each, collectively they challenge the trial court’s rulings on: (1) Cooper’s motions for directed
verdict, judgment notwithstanding the verdict, and to modify the final judgment or for new trial;
and (2) the Mullen Co.’s motion to modify the final judgment or for new trial.
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A. Standards of Review
1. Motion for Directed Verdict
A directed verdict is warranted when the evidence is such that no other verdict can be
reached and the moving party is entitled to judgment as a matter of law. See Blackstone Med.,
Inc. v. Phoenix Surgicals, L.L.C., 470 S.W.3d 636, 645 (Tex. App.—Dallas 2015, no pet.);
Halmos v. Bombardier Aerospace Corp., 314 S.W.3d 606, 619 (Tex. App.—Dallas 2010, no
pet.); Byrd v. Delasancha, 195 S.W.3d 834, 836 (Tex. App.—Dallas 2006, no pet.). A directed
verdict for a defendant may be proper in three situations: (1) when a plaintiff fails to present
evidence raising a fact issue essential to the plaintiff’s right of recovery; (2) if the plaintiff either
admits or the evidence conclusively establishes a defense to the plaintiff’s cause of action; or (3)
a legal principle precludes recovery. See Prudential Ins. v. Fin. Review Servs., 29 S.W.3d 74, 77
(Tex. 2000); Blackstone, 470 S.W.3d at 645; JSC Neftegas-Impex v. Citibank, N.A., 365 S.W.3d
387, 398 (Tex. App.—Houston [1st Dist.] 2011, pet. denied) (noting directed verdict also proper
when legal principle precludes recovery); see also Cambio v. Briers, No. 01-10-00807-CV, 2015
WL 2229274, at *3 (Tex. App.—Houston [1st Dist.] May 12, 2015, no pet.) (mem. op.) (noting
directed verdict also proper when legal principle precludes recovery).
To the extent that a trial court’s denial of a directed verdict is based on the evidence, the
standard of review is a legal sufficiency or “no evidence” standard of review. See Blackstone,
470 S.W.3d at 645; Mauricio v. Castro, 287 S.W.3d 476, 478–79 (Tex. App.—Dallas 2009, no
pet.). Similarly, when reviewing a trial court’s order granting a directed verdict, an appellate
court also follows the standard of review for assessing the legal sufficiency of the evidence. See
Flagstar Bank, FSB v. Walker, 451 S.W.3d 490, 498 (Tex. App.—Dallas 2014, no pet.). When
reviewing a directed verdict, an appellate court considers all the evidence in a light most
favorable to the nonmovant, and resolves all reasonable inferences that arise from the evidence
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admitted at the trial in the nonmonvant’s favor. See King Ranch, Inc. v. Chapman, 118 S.W.3d
742, 750–51 (Tex. 2003); Blackstone, 470 S.W.3d at 645; Mikob Props., Inc. v. Joachim, 468
S.W.3d 587, 594 (Tex. App.—Dallas 2015, pet. denied). If a fact issue is raised on a material
question, a directed verdict is not proper and the issue must go to the jury. See Exxon Corp. v.
Emerald Oil & Gas Co., 348 S.W.3d 194, 220–21 (Tex. 2011); Blackstone, 470 S.W.3d at 645.
To the extent that the trial court’s ruling on a directed verdict is based on a question of
law, an appellate court reviews that aspect of the ruling de novo. See JSC Neftegas-Impex, 365
S.W.3d at 398; see also Cambio, 2015 WL 2229274, at *3.
2. Motion for Judgment Notwithstanding the Verdict
A trial court should grant a motion for judgment notwithstanding the verdict when: (1)
the evidence is conclusive and one party is entitled to recover as a matter of law, or (2) a legal
principle precludes recovery. See Blackstone, 470 S.W.3d at 645; Iroh v. Igwe, 461 S.W.3d 253,
261 (Tex. App.—Dallas 2015, pet. denied); see also TEX. R. CIV. P. 301. A judgment
notwithstanding the verdict is proper when a directed verdict would have been proper. See TEX.
R. CIV. P. 301; Fort Bend Cty. Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex. 1991);
Blackstone, 470 S.W.3d at 645; Helping Hands Home Care, Inc. v. Home Health of Tarrant Cty.,
Inc., 393 S.W.3d 492, 515 (Tex. App.—Dallas 2013, pet. denied). Also, the standard of review
for the denial of a motion for judgment notwithstanding the verdict is the same as for the denial
of a motion for directed verdict. City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005) (“the
test for legal sufficiency should be the same for summary judgments, directed verdicts,
judgments notwithstanding the verdict, and appellate no-evidence review”); Blackstone, 470
S.W.3d at 645–46; Iroh, 461 S.W.3d at 261 n.3; Cambio, 2015 WL 2229274, at *3 (judgment
notwithstanding the verdict also proper when legal principle precludes recovery, which is
reviewed de novo); JSC Neftegas-Impex, 365 S.W.3d at 398.
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3. Motion to Modify the Judgment or For New Trial
An appellate court reviews a trial court’s denial of a motion to modify a final judgment
under an abuse of discretion standard. See Hodges v. Rajpal, 459 S.W.3d 237, 250 (Tex. App.—
Dallas 2015, no pet.). In addition, an appellate court reviews the denial of a motion for new trial
for an abuse of discretion. See Hodges, 459 S.W.3d at 250. A trial court abuses its discretion
when its actions are arbitrary or unreasonable, or when it acts without reference to any guiding
rules or principles. See Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex.
1985); Hodges, 459 S.W.3d at 250; Dernick, 471 S.W.3d at 482; Miller, 142 S.W.3d at 338.
Legal and factual sufficiency are relevant factors to be considered in assessing whether the trial
court abused its discretion. See Dernick, 471 S.W.3d at 482; Miller, 142 S.W.3d at 338.
However, an abuse of discretion does not occur when a trial court bases its decision on
conflicting evidence, as long as some evidence reasonably supports the trial court’s decision.
See Dernick, 471 S.W.3d at 482–83; Miller, 142 S.W.3d at 338.
B. Enforcement of the Promissory Note
In issues one and two, Cooper challenges: (1) the legal and factual sufficiency of the
evidence to support the jury’s findings that the Mullen Co. established its claim to recover on the
promissory note; and (2) the trial court’s conclusion that, as a matter of law, Cooper was
personally liable for that promissory note.
1. Owner or Holder of the Promissory Note
In issue one, Cooper argues the trial court erred when it denied his motions for directed
verdict, judgment notwithstanding the verdict, and to modify the final judgment or for new trial
on the promissory note claim because the evidence is legally and factually insufficient to support
the jury’s answer to question no. 7, finding that the Mullen Co. was the holder or owner of the
promissory note. Cooper maintains that the Mullen Co. is not the holder of the promissory note
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because evidence shows that it does not have possession of and never indorsed the promissory
note. Also, Cooper contends that the Mullen Co. is not the owner of the promissory note because
the evidence shows there was no transfer of the promissory note, the assignment was made to an
entity that was not a party to the lawsuit, and the settlement agreement between Newnan
Crossing and the Mullen Co., as party to the management agreement, did not reference or attach
the promissory note. The Mullen Co. responds that it “has never claimed the rights of a holder.”
However, the Mullen Co. argues it is the owner of the promissory note because the jury found
that “Cooper issue[d] the signed promissory note to Newnan Crossing” and the evidence shows
that Newnan Crossing assigned the promissory note to the Mullen Co., as party to the
management agreement.
a. Applicable Law
To recover on a promissory note, the plaintiff must prove: (1) the note in question; (2) the
party sued signed the note; (3) the plaintiff is the owner or holder of the note; and (4) a certain
balance is due and owing on the note. See Manley v. Wachovia Small Bus. Capital, 349 S.W.3d
233, 237 (Tex. App.—Dallas 2011, pet. denied); Bean v. Bluebonnet Sav. Bank FSB, 884 S.W.2d
520, 522 (Tex. App.—Dallas, no writ); see also Perkins v. Crittenden, 462 S.W.2d 565, 568
(Tex. 1970) (plaintiff must establish he is present legal owner or holder of note sued upon).
One of the elements required to enforce a promissory note is that the plaintiff is the
owner or holder of the note. The Texas Uniform Commercial Code defines “person entitled to
enforce” an instrument as: (i) the holder of the instrument; (ii) a nonholder in possession of the
instrument who has the rights of a holder; or (iii) a person not in possession of the instrument
who is entitled to enforce the instrument pursuant to section 3.309 or 3.418(d). See TEX. BUS. &
COM. CODE ANN. §§ 1.101, 3.301; Manley, 349 S.W.3d at 239. Also, a person may be a person
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entitled to enforce the instrument even though the person is not the owner of the instrument or is
in wrongful possession of the instrument. See TEX. BUS. & COM. CODE ANN. § 3.301.
A “holder” is “the person in possession of a negotiable instrument that is payable either
to bearer or to an identified person that is the person in possession.” TEX. BUS. & COM. CODE
ANN. § 1.201(b)(21); see Manley, 349 S.W.3d at 239. However, Texas law also recognizes that
even if a person is not the “holder” of the note, he may prove that he is the “owner” and entitled
to enforce the note. See Manley, 349 S.W.3d at 240. That is, the owner of a note may enforce
the note even if he is not a holder. See Manley, 349 S.W.3d at 240. As a result, even if a person
is not the holder of a note, he may still be able to foreclose on collateral and obtain a deficiency
judgment under common-law principles of assignment. See Myers v. HCB Real Holdings,
L.L.C., No. 05-13-00113-CV, 2015 WL 2265152, at *2 (Tex. App.—Dallas 2015, pet. denied)
(mem. op.); Nelson v. Regions, 170 S.W.3d 858, 864 (Tex. App.—Dallas 2005, no pet.).
Likewise, under certain circumstances, common law principles of agency allow enforcement of a
note by one not in possession. See Nelson, 170 S.W.3d at 864. Further, the law of negotiable
instruments is supplemented not only by principles of law such as assignment and agency, but
also by principles of equity. See TEX. BUS. & COM. CODE ANN. § 1.103(b) (unless specifically
displaced, Uniform Commercial Code is supplemented by principles of law and equity such as
assignment, agency, and mistake); Manley, 349 S.W.3d at 240; Nelson, 170 S.W.3d at 864. It
would be inequitable to conclude that the owner of an unpaid note who did not have possession
of the original note due to a mistake could not sue to enforce the note. See Manley, 349 S.W.3d
at 240.
A party not identified in a note who is seeking to enforce it as the owner or holder must
prove the transfer by which it acquired the note. See Myers, 2015 WL 2265152, at *2; Leavings
v. Mills, 175 S.W.3d 301, 309 (Tex. App.—Houston [1st Dist.] 2004, no pet.). Under Texas law,
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the transfer of a note may be proved by testimony or documentation. See Leavings, 175 S.W.3d
at 312. An unexplained gap in the chain of title creates a genuine issue of material fact. See
Myers, 2015 WL 2265152, at *2; Leavings, 175 S.W.3d at 309.
b. Application of the Law to the Facts
In his first issue, Cooper challenges the legal and factual sufficiency of the evidence to
prove that the Mullen Co. is the owner or holder of the promissory note. The jury answered
“yes” to question no. 7 that asked if the Mullen Co. was the “owner or holder” of the promissory
note. Because the Mullen Co. acknowledges it is not the holder of the promissory note, we limit
our review to whether the evidence is legally and factually sufficient to support the jury’s answer
to question no. 7, in so far as it found that the Mullen Co. was the owner of the promissory note.
The jury made three findings in favor of the Mullen Co. on its promissory note claim.
First, in question no. 6 of the jury charge, the jury found that Cooper issued the signed
promissory note to Newnan Crossing. Second, in question no. 7, the jury found that the Mullen
Co. was the holder or owner of the promissory note. Third, in question no. 8, the jury found
against Cooper on his defense of discharge.
The promissory note, which was admitted into evidence, provides language
contemplating the assignment of the promissory note and explains:
17. Successor and Assigns. This Note and all covenants, promises and
agreements contained herein shall be jointly and severally binding upon and shall
inure to the benefit of [Cooper] and [Newnan Crossing] [] and their respective
successors and assigns.
[Italics added].
In addition, the pledge and security agreement, which was also admitted into evidence,
includes language in paragraph 9, titled “Miscellaneous,” that assignment of the promissory note
is expressly permitted. It states, in part: “Without limiting the generality of the foregoing, the
Secured Party may assign or otherwise transfer the Note to any other person, and such other
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person shall thereupon become vested with all of the benefits in respect thereof granted to the
Secured Party herein or otherwise.” [Emphais added].
Also, the settlement agreement between Newnan Crossing, Agave, and the Mullen Co.
was admitted into evidence. That settlement agreement specifically states that it is between
“Newnan Crossing [], Agave [], and Sanders H. Campbell/Richard T. Mullen, Inc., d/b/a The
Mullen Company.” In a section titled “Assignment of Claims,” Newnan Crossing and Agave
transferred and assigned to “Richard T. Mullen and Company, Inc.” all causes of action and
claims they may have against Cooper.
During the trial, Cooper testified that he understood that the Mullen Co. agreed to dismiss
its claims against Newnan Crossing “in exchange for a $300,000 cash payment and an
assignment of claims against [him].” Also, McFarland testified that: (1) “the terms of the
settlement were that the parties would dismiss the lawsuits and release their claims in exchange
for a $300,000 cash payment to the Mullen Co[.] and an assignment of any claims or causes of
action that Newnan [Crossing] or its managing partner[,] Agave[,] had against Mr. Cooper.”; (2)
“the ultimate settlement reached [] involved an assignment of claims from Newnan to the Mullen
Co[.]”; and (3) the assignment of claims Newnan Crossing made in connection with the
settlement agreement states, “Newnan [Crossing] and Agave . . . hereby transfer and assign to
Richard T[.] Mullen and Company Inc[.], to the fullest extent permitted by law any and all
causes of action[] and claims that either or both of them may have against . . . Cooper.” In
addition, Mullen testified that he obtained “an assignment of the claims that Newnan Crossing []
had against . . . Cooper.” However, Mullen also testified that “Richard T. Mullen Company,
Inc.” is an affiliated company of the Mullen Co.
Based on the record, we conclude that there was legally and factually sufficient evidence
to support the jury’s finding that the Mullen Co. was the owner of the note. See Myers, 2015 WL
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2265152, at *2 (Even if a person is not the holder of note, he may still be able to foreclose on the
collateral and obtain a deficiency judgment under the common-law principle of assignment.).
Accordingly, we conclude the trial court did not err when it denied Cooper’s motions for directed
verdict, judgment notwithstanding the verdict, and to modify the final judgment or for new trial
as to the jury’s finding that the Mullen Co. was the owner of the promissory note.
Issue one is decided against Cooper.
2. Personal Liability
In issue two, Cooper argues the trial court erred because, as a matter of law, Cooper was
not personally liable on the promissory note claim. He claims that he cannot be held personally
liable because the promissory note is a non-recourse note and the only remedy available under
the promissory note was the security interest in the collateral and that “pledged collateral was
gone.” The Mullen Co. responds that while the promissory note limits Cooper’s personal
liability, it did not eliminate it. Also, the Mullen Co. claims it did not seek to impose any
personal liability on Cooper beyond the partnership distributions and proceeds from the sale of
the partnership interest in accordance with the limitation on liability in the promissory note.
a. Applicable Law
Courts employ the same rules for interpreting a promissory note that they use to interpret
a contract. See Fin. Freedom Senior Funding Corp. v. Horrocks, 294 S.W.3d 749, 753 (Tex.
App.—Houston [14th Dist.] 2009, no pet.). It is a basic premise of contract interpretation that
unambiguous contracts are construed as a matter of law. See Plains Expl. & Prod. Co. v. Torch
Energy Advisors Inc., 473 S.W.3d 296, 305 (Tex. 2015); Coker v. Coker, 650 S.W.2d 391, 393
(Tex. 1983); Worldwide Asset Purchasing, L.L.C. v. Rent-A-Center E., Inc., 290 S.W.3d 554,
560 (Tex. App.—Dallas 2009, no pet.). The entire instrument, taken by its four corners, must be
read and considered to determine the true intention of the parties. Worldwide Asset, 290 S.W.3d
–15–
at 560; First Union Nat’l Bank v. Richmont Capital Partners I, L.P., 168 S.W.3d 917, 924 (Tex.
App.—Dallas 2005, no pet.). Terms are given their plain, ordinary, and generally accepted
meaning, unless the instrument shows the parties used them in a technical or different sense. See
Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996); Worldwide Asset, 290
S.W.3d at 560; First Union, 168 S.W.3d at 924.
When interpreting a contract, courts examine the entire agreement in an effort to
harmonize and give effect to all provisions of the contract so that none will be meaningless. See
Plains Expl., 473 S.W.3d at 305; MCI Telecomms. Corp. v. Tex. Util. Elec. Co., 995 S.W.2d 647,
651 (Tex. 1999); Worldwide Asset, 290 S.W.3d at 560; First Union, 168 S.W.3d at 924. No
single provision taken alone is given controlling effect. See Plains Expl., 473 S.W.3d at 305.
Rather, each provision must be considered in the context of the instrument as a whole. See
Plains Expl., 473 S.W.3d at 305. Courts presume the parties to a contract intend every clause to
have some effect. See Heritage Res., 939 S.W.2d at 121; Worldwide Asset, 290 S.W.3d at 560;
First Union, 168 S.W.3d at 924. When interpreting a promise or agreement, specific and exact
terms are given greater weight than general language. See Worldwide Asset, 290 S.W.3d at 560;
First Union, 168 S.W.3d at 924. However, although courts may consider the title of a contract
provision or section to interpret a contract, the greater weight must be given to the operative
contractual clauses of the agreement. See RSUI Indem. Co. v. The Lloyd Co., 466 S.W.3d 113,
121 (Tex. 2015).
Section 9.102(a)(66) of the Texas Uniform Commercial Code defines a “promissory
note” as “an instrument that evidences a promise to pay a monetary obligation, does not evidence
an order to pay, and does not contain an acknowledgement by a bank that the bank has received
for deposit a sum of money or funds.” TEX. BUS. & COM. CODE ANN. § 9.102(a)(66) (West
Supp. 2015). “Collateral” means, in part, “the property subject to a security interest” and
–16–
includes proceeds to which a security interest attaches. TEX. BUS. & COM. CODE ANN. §
9.102(a)(12). Generally, a non-recourse note has the effect of making the note payable out of a
particular fund or source, namely, the proceeds of the sale of the collateral securing the note. See
Patton v. Porterfield, 411 S.W.3d 147, 157 (Tex. App.—Dallas 2013, no pet.); Fein v. R.P.H.,
Inc., 68 S.W.3d 260, 266 (Tex. App.—Houston [14th Dist.] 2002, pet. denied). Under a non-
recourse note, the maker does not personally guarantee repayment of the note and thus, will have
no personal liability. See Patton, 411 S.W.3d at 157; Fein, 68 S.W.3d at 266. If a maker of a
non-recourse note elects not to repay the note, he is not exposed to personal liability, but, instead,
takes the risk that the collateral securing the note will be lost if the holder of the note decides to
enforce its security interest in the collateral. See Patton, 411 S.W.3d at 157; Fein, 68 S.W.3d at
266.
b. Application of the Law to the Facts
In its first original petition, the Mullen Co. claimed it was “entitled to recover from []
Cooper the value of the collateral securing the note up to $600,000, plus interest and reasonable
attorney’s fees pursuant to the terms of the note.” The final judgment awarded the Mullen Co.
damages on its promissory note claim as follows:
ORDERED, ADJUDGED, AND DECREED that [the Mullen Co.] is entitled to
recover from [Cooper] $600,000, together with $30,000 in prejudgment interested
(calculated at the rate of 5% per annum from July 14, 2006 through July 13,
2007), and together with $801,000 in prejudgment interest (calculated at the rate
of 18% per annum from July 14, 2007 through the date of this judgment), for a
total recovery in the amount of $1,431,000, which amount is to be adjusted as set
forth below.
During the trial, Cooper testified that he received distributions in the amounts of
$1,388,959.57, $14,389, and $30,000. Cooper stated that he had promised to use those
distributions to repay the promissory note, he did not fulfill that promise, and he spent the money
from the distributions elsewhere.
–17–
The parties identify paragraph 18 of the promissory note as the provision that is relevant
to interpret whether the promissory note is non-recourse. However, we conclude that paragraph
3 is also instructive. We interpret these paragraphs together in conjunction with the entire
promissory note. See Plains Expl., 473 S.W.3d at 305.
First, paragraph 3 of the promissory note does not specify the amounts or dates on which
Cooper is obligated to pay. Instead, it includes an affirmative duty for Cooper to “apply” or
transfer all partnership distributions to repay the promissory note. Specifically, it states:
3. Payments Required. During the period beginning on the date of this Note
and ending on the Maturity Date (as hereinafter defined), [Cooper] shall apply all
distributions received from the Partnership Interest (“Partnership Distributions”)
to the Note with payments to be applied first to any accrued and unpaid. interest,
and the balance, if any, applied to reduce the outstanding principal balance of the
Note; provided, [Cooper] may reduce the amount of Partnership Distributions
applied to the Note by any federal income taxes incurred by [Cooper] with respect
to the Partnership Interest. All remaining accrued but unpaid interest, together
with all unpaid principal and any additional charges applicable as provided in this
Note, shall be due and payable on the Maturity Date (as hereinafter defined).
Second, paragraph 18 identifies Cooper’s liability and states:
18. Limitation on Liability of [Cooper]. Nothing in the Note or the Loan
Documents to the contrary withstanding, Payee shall look solely to the
Partnership Distributions (reduced by tax obligations of [Cooper], as provided
above) and the Partnership Interest for payment on this Note. No deficiency
judgment for amounts unsatisfied after application of such distributions and
proceeds from sale of the Partnership Interest shall ever be instituted, sought,
taken or obtained against any party for any amounts which become due and
owing.
Although paragraph 18 is titled “Limitation on Liability of [Cooper],” we must give
greater weight to the operative contractual clauses of the promissory note. See RSUI Indem., 466
S.W.3d at 121. In order to properly analyze the meaning of paragraph 18, we must address its
two material parts. Those are: (1) “Nothing in the Note or the Loan Documents to the contrary
withstanding, Payee shall look solely to the Partnership Distributions (reduced by tax obligations
of [Cooper], as provided above) and the Partnership Interest for payment on this Note”; and (2)
–18–
“No deficiency judgment for amounts unsatisfied after application of such distributions and
proceeds from sale of the Partnership Interest shall ever be instituted, sought, taken or obtained
against any party for any amounts which become due and owing.”
Further, although it uses the language “shall look solely to,” the first part of paragraph 18
also states that it relates to “payment on the [n]ote.” See Patton, 411 S.W.3d at 157 (generally,
non-recourse note has effect of making note payable out of particular fund or source, namely,
proceeds of sale of collateral securing note); Fein, 68 S.W.3d at 266. As a result, it restates
Cooper’s affirmative duty, as stated in paragraph 3, to repay the promissory note from the
partnership distributions. See Patton, 411 S.W.3d at 157 (if maker of non-recourse note elects
not to repay note, he is not exposed to personal liability, but takes risk collateral securing note
will be lost if holder decides to enforce security interest); Fein, 68 S.W.3d at 266. However,
importantly, the language of the note does not address default or a deficiency judgment. Nor
does it specify that the secured party has no recourse against Cooper or that Cooper will not be
held personally liable in the event of a default or deficiency.
The second part of paragraph 18 establishes that the secured party may not seek a
deficiency judgment for “amounts unsatisfied after application of such distributions and proceeds
from the sale of the Partnership Interest.” We construe this language to identify the extent of any
recourse against Cooper. However, by its plain language, this provision that Cooper claims
demonstrates the promissory note is non-recourse, only makes clear the non-recourse provision
is contingent on or does not take effect until “after the application of such distributions.” See
Worldwide Asset, 290 S.W.3d at 560 (courts examine entire agreement and terms are given plain,
ordinary, and generally accepted meaning, unless instrument shows they are used in technical or
different sense).
–19–
The record shows Cooper testified at trial that he did not fulfill his promise to use the
partnership distributions he received to repay the promissory note and he spent the money from
the distributions elsewhere. As a result, by its own terms, the second part of paragraph 18, which
says “No deficiency judgment for amounts unsatisfied after application of such distributions and
proceeds from sale of the Partnership Interest shall ever be instituted, sought, taken or obtained
against any party for any amounts which become due and owing,” did not become effective
because no partnership distribution was applied to pay the promissory note. Accordingly, we
conclude the trial court did not err when it denied Cooper’s motions for directed verdict and
judgment notwithstanding the verdict as to the Mullen Co.’s promissory note claim.
Issue two is decided against Cooper.
C. Equitable Forfeiture
In issue three and cross-issues one and two, the parties argue the trial court erred when it
denied their respective motions to modify the final judgment or for new trial as to the issue of
equitable forfeiture. In issue one, Cooper complains the final judgment improperly included
only a limited order of equitable forfeiture in the final judgment. He claims this relief “does not
fit the circumstances or adequately protect” him from the Mullen Co.’s breach of fiduciary duty
and the Mullen Co. should not be allowed any recovery on the assigned promissory note that was
obtained through the self-dealing of the Mullen Co. In cross-issue one, the Mullen Co. argues
the trial court abused its discretion in making an equitable forfeiture award to Cooper. This is
because the record does not show the trial court made the required determination that the conduct
of the Mullen Co. was a “clear and serious” breach of fiduciary duty, which the trial court can
conclude only after applying the factors identified by the Texas Supreme Court. See ERI
Consulting Eng’r, Inc. v. Swinnea, 318 S.W.3d 867, 874, 875 (Tex. 2010). In cross-issue two,
the Mullen Co. argues the trial court abused its discretion when it determined the amount of
–20–
forfeiture, which should have been limited to the amount of compensation or profits realized by
the Mullen Co.
1. Standard of Review—Forfeiture
An appellate court reviews a trial court’s forfeiture determination for an abuse of
discretion. See Burrow v. Arce, 997 S.W.2d 229, 243 (Tex. 1999) (quoting Restatement
(Second) of Trusts § 243 cmt. c (9159)); see also Dernick Resources, Inc. v. Wilstein, 471
S.W.3d 468, 482 (Tex. App.—Houston [1st Dist.] 2015, pet. filed); Miller v. Kennedy &
Monshew, Prof’l Corp., 142 S.W.3d 325, 338 (Tex. App.—Fort Worth 2003, pet. denied);
Jackson Law Office, P.C. v. Chappell, 37 S.W.3d 15, 23 (Tex. App.—Tyler 2000, pet. denied).
2. Applicable Law
Courts may fashion equitable remedies such as disgorgement and forfeiture to remedy a
breach of a fiduciary duty. See ERI Consulting, 318 S.W.3d at 873–875; Burrow, 997 S.W.3d at
873; see also Dernick, 471 S.W.3d at 482. Disgorgement is an equitable forfeiture of benefits
wrongfully obtained. See In re Longview Energy Co., 464 S.W.3d 353, 361 (Tex. 2015) (orig.
proceeding); Swinnea v. ERI Consulting Eng’r, Inc., 481 S.W.3d 747, 752 (Tex. App.—Tyler
2016, no pet.). A party must plead forfeiture to be entitled to that equitable remedy. See Alavi v.
MCI Worldcom Network Servs., Inc., No. 09-05-00364-CV, 2007 WL 274565, at *3 (Tex.
App.—Beaumont Feb. 1, 2007, pet. denied) (mem. op.); Lee v. Lee, 47 S.W.3d 767, 780 (Tex.
App.—Houston [14th Dist.] 2001, pet. denied).
Whether a forfeiture should be imposed must be determined by the trial court based on
the equity of the circumstances. See Burrow, 997 S.W.2d at 245; Swinnea, 481 S.W.3d at 753;
Dernick, 471 S.W.3d at 482. However, certain matters may present fact issues for the jury to
decide, such as whether or when the alleged misconduct occurred, the fiduciary’s mental state
and culpability, the value of the fiduciary’s services, and the existence and amount of harm to the
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principal. See Dernick, 471 S.W.3d at 482; Miller, 142 S.W.3d at 338. Once the factual disputes
have been resolved, the trial court must determine: (1) whether the fiduciary’s conduct was a
“clear and serious” breach of duty to the principal; (2) whether any monetary sum should be
forfeited; and (3) if so, what the amount should be. See Swinnea, 481 S.W.3d at 753 (citing
Burrow, 997 S.W.2d at 245–46); Dernick, 471 S.W.3d at 482.
As stated above, the trial court’s first step is to determine whether there was a “clear and
serious” breach of duty. See Swinnea, 481 S.W.3d at 753; Dernick, 471 S.W.3d at 482. The trial
court should consider factors such as: (1) the gravity and timing of the breach; (2) the level of
intent or fault; (3) whether the principal received any benefit from the fiduciary despite the
breach; (4) the centrality of the breach to the scope of the fiduciary relationship; (5) any other
threatened or actual harm to the principal; (6) the adequacy of other remedies; and (7) whether
forfeiture fits the circumstances and will work to serve the ultimate goal of protecting
relationships of trust. See ERI Consulting, 318 S.W.3d at 875; Swinnea, 481 S.W.3d at 753;
Dernick, 471 S.W.3d at 482. However, forfeiture is not justified in every instance in which a
fiduciary violates a legal duty because some violations are inadvertent or do not significantly
harm the principal. See Burrow, 997 S.W.2d at 241; Dernick, 471 S.W.3d at 482; Miller, 142
S.W.3d at 338.
Second, the trial court must determine whether any monetary sum should be forfeited.
The central purpose of forfeiture as an equitable remedy is not to compensate the injured
principal, but to protect relationships of trust by discouraging disloyalty. See In re Longview,
464 S.W.3d at 361 (Tex. 2015) (orig. proceeding); ERI Consulting, 318 S.W.3d at 872–73;
Burrow, 997 S.W.2d at 238; see also Dernick, 471 S.W.3d at 482. Disgorgement is
compensatory in the same sense as attorney fees, interest, and costs, but it is not damages. See In
re Longview, 464 S.W.3d at 361. As a result, equitable forfeiture is distinguishable from an
–22–
award of actual damages incurred as a result of a breach of fiduciary duty. See Burrow, 997
S.W.2d at 240; McCullough v. Scarbrough, Medlin & Assocs., Inc., 435 S.W.3d 871, 905 (Tex.
App.—Dallas 2014, pet. denied); Swinnea, 481 S.W.3d at 753. In fact, a claimant need not
prove actual damages to succeed on a claim for forfeiture because they address different wrongs.
See Burrow, 997 S.W.2d at 240; Swinnea, 481 S.W.3d at 753. In addition to serving as a
deterrent, forfeiture can serve as restitution to a principal who did not receive the benefit of the
bargain due to his agent’s breach of fiduciary duty. See Swinnea, 481 S.W.3d at 753 (citing
Burrow, 997 S.W.2d at 237–38).
Third, if the trial court determines there should be a forfeiture, it must determine what the
amount should be. The amount of disgorgement is based on the circumstances and is within the
trial court’s discretion. See McCullough, 435 S.W.3d at 905; Swinnea, 481 S.W.3d at 753. For
example, it would be inequitable for an agent who performed extensive services faithfully to be
denied all compensation if the misconduct was slight or inadvertent. See McCullough, 435
S.W.3d at 905 (quoting Burrow, 997 S.W.2d at 241).
3. Application of the Law to the Facts
The record shows that Cooper filed a counterclaim against the Mullen Co. for breach of
fiduciary duty, seeking actual and punitive damages, which he sought to be determined by the
jury. However, Cooper’s counterclaim pleading did not raise in any way the equitable remedy of
forfeiture. See Alavi, 2007 WL 274565, at *3 (party must plead forfeiture to be entitled to
remedy); Lee, 47 S.W.3d at 780. The jury found that the Mullen Co. breached its fiduciary duty
to Cooper, but awarded Cooper no damages. The trial court’s charge did not ask the jury to
determine the Mullen Co.’s mental state or culpability, the value of its services, or the existence
and amount of harm to Cooper. See Dernick, 471 S.W.3d at 482 (noting matters that may
present fact issues for jury on equitable forfeiture claim); Miller, 142 S.W.3d at 338.
–23–
The record before us shows that Cooper first asserted his counterclaim for the equitable
remedy of forfeiture in his motion for judgment notwithstanding the verdict, arguing:
In addition, the [trial court] should order that, based on the jury’s finding that [the
Mullen Co.] breached its fiduciary duty to [Cooper] in entering into the settlement
agreement by which [the Mullen Co.] allegedly obtained an assignment of its
claim to enforce the promissory note at issue, [the Mullen Co.] forfeit the ill-
gotten gains it obtained in the settlement.
In a footnote to his motion for judgment notwithstanding the verdict, Cooper added
“Accordingly, the [trial court] should, as an equitable remedy for [the Mullen Co.’s] breach of
fiduciary duty, order that [the Mullen Co.] forfeit its assigned claim to enforce the promissory
note—along with any money it might be able to recover in connection therewith.”
The quoted statements comprise the entirety of Cooper’s argument in his motion.
Although Cooper did cite in that motion the seminal Texas Supreme Court case respecting
equitable forfeiture, ERI Consulting, he failed to address the factors that the Texas Supreme
Court identified which are to be considered by a trial court when determining whether there was
a “clear and serious” breach of duty. See ERI Consulting, 318 S.W.3d at 874–75; Swinnea, 481
S.W.3d at 753; Dernick, 471 S.W.3d at 482. Whether there was a “clear and serious” breach of
duty is the predicate to the determination of whether there should be an equitable forfeiture in
any amount. Further, Cooper did not argue in his motion the amount or propose a calculation for
determining the amount that he believed the Mullen Co. should be required to forfeit. See
Swinnea, 481 S.W.3d at 753 (trial court must determine whether monetary sum should be
forfeited and if so, what amount).3
The Mullen Co. filed a motion for judgment based on the jury’s verdict. In his response,
Cooper incorporated the equitable forfeiture argument previously made in his motion for
3
The case summary, which is included in the clerk’s record, indicates that there was a hearing on Cooper’s motion for judgment
notwithstanding the verdict, but no reporter’s record of that hearing has been filed on appeal.
–24–
judgment notwithstanding the verdict, arguing only that “[the Mullen Co.] obtained the note (if it
did) by breaching its fiduciary duty to [Cooper] and, therefore, should forfeit the note and any
proceeds therefrom.” Again, as with his motion for judgment notwithstanding the verdict,
Cooper did not address the factors identified by the Texas Supreme Court for determining
whether there was a “clear and serious” breach of duty by the Mullen Co. Nor did he argue the
amount or propose a calculation for determining the amount that he believed the Mullen Co.
should be required to forfeit.
When the trial court rendered its judgment, it ordered as follows regarding equitable
forfeiture:
ORDERED, ADJUDGED, AND DECREED that, based on the Court’s exercise
of its powers in Equity, [the Mullen Co.] shall forfeit the amount of $519,300
(Being the sum of 30% of the amount which [the Mullen Co.] would otherwise be
entitled to recover, and 30% of the $300,000 received by [the Mullen Co.] from
Newnan Crossing []) from its recovery of the amount calculated in the previous
paragraph, thereby reducing the amount to be awarded to [the Mullen Co.] from
$1,431,000 to $911,700, which amount is to be adjusted further as set forth below.
Thereafter, Cooper filed a motion to modify the final judgment or, in the alternative, for
new trial. In that motion, Cooper conceded that the trial court “granted [his] request[,] in part,
ordering that [the Mullen Co.] only be required to forfeit 30% of the recovery on the Note, plus
30% of the $300,000 cash received by [the Mullen Co.] in settlement with [Newnan Crossing].”
However, Cooper asked the judgment to be modified “to order that [the Mullen Co.] forfeit any
and all recovery on its claim to enforce the Note.” The Mullen Co. also filed a motion for new
trial and to modify the judgment. The Mullen Co. argued the trial court should modify the
judgment, in part, because “[A]ny breach [of fiduciary duty] [by the Mullen Co.] was not the
type of clear and serious breach of fiduciary duty that is a prerequisite to forfeiture.” The
parties’ motions to modify the judgment or for new trial were overruled by operation of law. See
TEX. R. CIV. P. 329b(c).
–25–
Our concern regarding the imposition of equitable forfeiture of $519,300 by the trial
court in this case is based on the holding of the Texas Supreme Court in ERI Consulting. See
ERI Consulting, 318 S.W.3d at 875. In that case, the Texas Supreme Court wrote at length about
the concept of equitable forfeiture and the requirement that, in order for equitable forfeiture to be
imposed, a trial court must conclude a party committed a “clear and serious” breach of duty. See
ERI Consulting, 318 S.W.3d at 875. Importantly, that court identified the “factors” and
“principles” which must be addressed in making the determination of whether the breach of duty
was a “clear and serious” one and in fashioning the award. Those “factors” and “principles” are:
(1) the gravity and timing of the breach; (2) the level of intent or fault; (3) whether the principal
received any benefit from the fiduciary despite the breach; (4) the centrality of the breach to the
scope of the fiduciary relationship; (5) any other threatened or actual harm to the principal; (6)
the adequacy of other remedies; and (7) whether forfeiture fits the circumstances and will work
to serve the ultimate goal of protecting relationships of trust. See ERI Consulting, 318 S.W.3d at
875; see also Swinnea, 481 S.W.3d at 753; Dernick, 471 S.W.3d at 482.
Further, critical to the case before us, the Texas Supreme Court, in ERI Consulting,
concluded there was no indication in the record the trial court followed the “factors” and
“principles” enumerated above for determining whether there was a “clear and serious” breach of
duty and in “fashioning its award” of equitable forfeiture. ERI Consulting, 318 S.W.3d at 875.
That court determined that case must be remanded to the trial court “for consideration of these
factors.” See id.
Cooper did not identify or brief in the trial court the requirement that the trial court
conclude there was a “clear and serious” breach of duty as a predicate to assessing a sum that
should be awarded as an equitable forfeiture. Cooper does not cite to anything in the record, nor
can we find anything in the record, to show that in the fashioning of the equitable forfeiture
–26–
award the trial court considered the “principles” or “factors” enumerated in ERI Consulting.
Accordingly, we conclude the claim of forfeiture should be remanded to the trial court for
consideration of the factors described by the Texas Supreme Court. See ERI Consulting, 398
S.W.3d at 875.
Cross-issue one is decided in favor of the Mullen Co. Based on our resolution of cross-
issue one, we need not address issue three or cross-issue two.
C. Accounting
In cross-issue three, the Mullen Co. argues the trial court erred when it granted Cooper’s
motion for directed verdict on its claim for an accounting. It claims that the Texas Uniform
Partnership Act permits a partner to maintain an action for an accounting without suing for
dissolution or the necessity of proving an inadequate remedy at law. Cooper responds that: (1)
the Mullen Co. pleaded a claim for an equitable accounting and had the burden to prove that the
facts and accounts were so complex that adequate relief may not be obtained at law; (2) the
Mullen Co. sought an accounting as to the $600,000 loan made to Cooper in his individual
capacity and it cannot seek an accounting on an asset that is not part of the partnership; and (3)
the claim for an accounting was an improper attempt to circumvent the statute of limitations
barring the common law claims for money had and received, and unjust enrichment brought by
the Mullen Co.
1. Standard of Review—Accounting
A suit for an accounting is generally founded in equity. See Palmetto Lumber Co. v.
Gibbs, 80 S.W.2d 742, 748 (Tex. 1935); Sw. Livestock & Tucking Co. v. Dooley, 884 S.W.2d
805, 809 (Tex. App.—San Antonio 1994, writ denied). The decision to grant an accounting is
within the discretion of the trial court. See Sw. Livestock, 884 S.W.2d at 809–10.
–27–
2. Applicable Law
Section 152.211(b) of the Texas Business Organizations Code provides that, “A partner
may maintain an action against the partnership or another partner for legal or equitable relief,
including an accounting of partnership business,” to enforce a right under the partnership
agreement or other rights established in the statute. See TEX. BUS. ORGS. CODE ANN. §
152.211(b) (West 2012). However, a right to an accounting does not revive a claim barred by
law. See TEX. BUS. ORGS. CODE ANN. § 152.211(b)(d).
3. Application of the Law to the Facts
In its first amended petition, the Mullen Co. brought a claim for an accounting against
Cooper. The Mullen Co. alleged that Cooper has failed and refused to account for or to deliver
$750,000 lent or advanced to him by Newnan Crossing against the fees earned by the Mullen
Co., as party to the management agreements. The $750,000 was comprised of the $600,000 loan
and $150,000 in earned fees relating to a different venture. As a result, the Mullen Co. sought an
accounting to investigate and establish the parties’ interest in the $750,000 and claimed there
was no adequate remedy at law.
During the trial, Cooper sought a directed verdict on the claim for an accounting brought
by the Mullen Co. on the sole basis that “the evidence that comes out shows the facts and
accounts are not so complex that [the Mullen Co.] lacks an adequate remedy at law.” However,
section 19.01 of the Mullen/Cooper Joint Venture agreement, which is titled “Equitable
Remedies,” and was admitted into evidence shows the parties agreed as follows:
It is mutually agreed that[,] in the event of a breach or threatened breach of this
Agreement by any Venturer[,] there is no adequate remedy at law in favor of
the other Venturer and any Venturer, in addition to all other rights which may be
available, shall have the right of specific performance in the even of any breach or
injunction in the event of any threatened breach, of this Agreement by the other
Venturer(s).
–28–
(Emphasis added). By the terms of the parties’ agreement, there was no adequate remedy at law.
Accordingly, we conclude the trial court erred when it granted Cooper’s motion for directed
verdict on the claim for an accounting as described above.
Cross-issue three is decided in favor of the Mullen Co.
III. CONCLUSION
The trial court did not err when it denied Cooper’s motions for directed verdict, judgment
notwithstanding the verdict, and to modify the final judgment or for new trial on the Mullen
Co.’s promissory note claim. This part of the trial court’s final judgment is affirmed.
However, the trial court erred when it denied the motion to modify the final judgment or
for new trial filed by Mullen Co. on the issue of equitable forfeiture. The portion of the trial
court’s final judgment granting equitable forfeiture and reducing the Mullen Co.’s total recovery
by $519,300 is reversed and the claim is remanded to the trial court for further proceedings
consistent with this opinion.
Finally, the trial court erred when it granted, in part, Cooper’s motion for directed verdict
on the Mullen Co.’s claim seeking an accounting. Accordingly, that ruling of the trial court is
reversed and that claim is remanded for further proceedings consistent with this opinion.
Accordingly, the trial court’s final judgment is affirmed, in part, and reversed and
remanded, in part.
150340F.P05 /Douglas S. Lang/
DOUGLAS S. LANG
JUSTICE
–29–
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
T. CHRISTIAN COOPER, Appellant On Appeal from the 162nd Judicial District
Court, Dallas County, Texas
No. 05-15-00340-CV V. Trial Court Cause No. DC-12-15127.
Opinion delivered by Justice Lang. Justices
SANDERS H. CAMPBELL/RICHARD T. Bridges and O’Neill participating.
MULLEN, INC. D/B/A THE MULLEN
COMPANY, Appellee
In accordance with this Court’s opinion of this date, the final judgment of the trial court
is AFFIRMED, in part, and REVERSED, in part.
We REVERSE the portion of the trial court’s final judgment granting appellant T.
CHRISTIAN COOPER’s counterclaim for equitable forfeiture and motion for directed verdict
on appellee SANDERS H. CAMPBELL/RICHARD T. MULLEN, INC. D/B/A THE MULLEN
COMPANY’s claim for an accounting.
In all other respects, the trial court’s final judgment is AFFIRMED.
We REMAND this cause to the trial court for further proceedings consistent with this
Court’s opinion.
It is ORDERED that appellee SANDERS H. CAMPBELL/RICHARD T. MULLEN,
INC. D/B/A THE MULLEN COMPANY recover its costs of this appeal and cross-appeal from
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appellant T. CHRISTIAN COOPER and from the cash deposit in lieu of cost bond. After all
costs have been paid, the Clerk of the District Court is directed to release the balance, if any, of
the cash deposit to T. CHRISTIAN COOPER.
Judgment entered this 24th day of August, 2016.
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