Dennis Draper, Greg Hadley, and Charles Huston v. Austin Manufacturing Services I, Inc. ( 2015 )

ACCEPTED
03-15-00429-CV
7179551
THIRD COURT OF APPEALS
AUSTIN, TEXAS
10/1/2015 9:33:36 AM
JEFFREY D. KYLE
CLERK
No. 03-15-00429-CV
FILED IN
3rd COURT OF APPEALS
IN THE THIRD COURT OF APPEALS AUSTIN, TEXAS
AUSTIN, TEXAS 10/1/2015 9:33:36 AM
JEFFREY D. KYLE
Clerk
Dennis Draper, Greg Hadley, and Charles Huston,
Appellants,
v.
Austin Manufacturing Services, I, Inc.,
Appellee.
On Appeal from No. D-1-GN-09-004416, in the 353rd Judicial District Court, Travis County
Honorable Orlinda Naranjo, Presiding
BRIEF OF APPELLANTS DENNIS DRAPER, GREG HADLEY, AND
CHARLES HUSTON
LAW OFFICE OF MICHAEL S. TRUESDALE, PLLC
Michael S. Truesdale
State Bar No. 00791825
801 West Avenue, Suite 201
Austin, TX 78701
512-482-8671
866-847-8719 (fax)
mike@truesdalelaw.com
COUNSEL FOR APPELLANTS
DRAPER, HADLEY, and HUSTON
ORAL ARGUMENT REQUESTED
IDENTITY OF PARTIES AND COUNSEL
Appellants Dennis Draper, Greg Hadley, Charles Huston
(defendants below)
Appellant’s Trial Counsel THE O’TOOLE LAW FIRM, PC
Brian O’Toole
botoole@botoolepc.com
504 Lavaca, Suite 945
Austin, TX 78701
512-476-4740
Appellant’s Appellate LAW OFFICE OF MICHAEL S. TRUESDALE, PLLC
Counsel Michael S. Truesdale
mike@truesdalelaw.com
801 West Avenue, Suite 201
Austin, TX 78701
512-482-8671
866-847-8719 (fax)
Appellee Austin Manufacturing Services I, Inc.
(plaintiff below)
Appellee’s Counsel Brian A. Colao (trial)
bcolao@dykema.com
Christopher D. Kratovil (appeal)
ckratovil@dykema.com
Dykema Gossettt PLLC
1717 Main Street, Suite 4000
Dallas, TX 75201
214-462-6400
214-462-6401 (fax)
Other parties to the trial court’s final judgment include Darryl Cornish, Assistant
Pro, Inc., and TQI Corporation. These entities did not appeal. They were
represented in the trial court by The Law Office of Shane M. Boasberg, Shane M.
Boasberg (shaneb@law-smb.com), 2901 Bee Caves Road, Box E, 78746, 512-561-
5003, 512-561-5004 (fax)
i
TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL ............................................................ i
TABLE OF CONTENTS ......................................................................................... ii
INDEX OF AUTHORITIES ................................................................................... iv
STATEMENT OF THE CASE .................................................................................v
STATEMENT REGARDING ORAL ARGUMENT ...............................................v
ISSUES PRESENTED ............................................................................................ vi
STATEMENT OF FACTS........................................................................................3
A.
The “Golf Guru” device ..................................................................................3
B.
Efforts to manufacture Golf Gurus .................................................................4
1.
AMS agrees to extend credit to TQI – but not to A-Pro.......................4
a.
The Purchase Order to be guaranteed.............................................5
b.
The Guaranty of the Purchase Order ..............................................6
2.
Efforts to ensure that the PO listed A-Pro as the “purchaser” so
it could earn credit ................................................................................7
C.
AMS does not satisfy the terms of PO 1682, ultimately changes its
price, quantity, delivery date, and the products to be covered ........................8
D.
Cornish brings in a new investor who diluted the Individuals’ interests ........8
E.
A-Pro initiates its own orders with AMS........................................................9
F.
Cornish sells all Golf Guru units and decides what to do with the sales
proceeds.........................................................................................................10
G.
AMS realizes the Guaranty did not cover transactions under PO 1682
but names the Guarantors with other defendants anyway.............................11
1.
Trial evidence shows a zero balance was due under PO 1682 ...........11
2.
The trial court’s judgment...................................................................13
SUMMARY OF ARGUMENT...............................................................................14
ARGUMENTS AND AUTHORITIES ...................................................................16
I.
The judgment against the Individuals constitutes error given the terms
of the Guaranty and the evidence in the record.............................................16
A.
Standard of review ........................................................................................17
B.
The record demonstrates why the Individuals cannot be liable under
the Guaranty ..................................................................................................18
1.
AMS failed to establish the existence of a transaction that
would invoke the terms of the Guaranty.............................................19
ii
a.
AMS did not extend credit to A-Pro as contemplated by
the Guaranty .............................................................................19
b.
A-Pro was not a party to PO 1682............................................20
c.
AMS failed to establish an underlying breach of contract
by A-Pro ...................................................................................21
2.
Any obligations that could have ever existed under the
Guaranty were eliminated by the multiple material alterations of
any transaction described in the Guaranty ..........................................23
3.
The evidence established that no amounts were due under PO
1682.....................................................................................................25
a.
Testimony from AMS’s own controller confirms what
AMS’s exhibits show – that nothing remained due under
PO 1682 ....................................................................................25
b.
AMS’s “sworn account” exhibits and testimony from
other witnesses confirm that nothing remained due and
owing under PO 1682 ...............................................................26
c.
The record confirmed that invoices particular to PO 1682
were not in fact aging so as to give rise to a claim under
the Guaranty .............................................................................29
d.
Every other exhibit cited by AMS in its motion for entry
of judgment confirms that nothing remained due and
owing under PO 1682 ...............................................................30
e.
AMS cannot classify the PO as a “blanket” PO in order
to pigeonhole later obligations as arising under PO 1682
and thus subject to the Guaranty...............................................31
4.
The Guaranty was limited to “amounts due” under PO 1682.............33
C.
The award of attorney’s fees constitutes error ..............................................34
PRAYER FOR RELIEF ..........................................................................................36
CERTIFICATE OF SERVICE................................................................................37
CERTIFICATE OF COMPLIANCE ......................................................................38
APPENDIX .........................................................................................................TAB
iii
INDEX OF AUTHORITIES
Cases
City of Keller v. Wilson,
168 S.W.3d 802 (Tex. 2005).........................................................................18
Cox v. Lerman,
949 S.W.2d 527 (Tex. App. — Houston [14th Dist.] 1997, no writ).............20
Fourticq v. Fireman’s Fund Ins. Co.,
679 S.W.2d 562 (Tex. App.—Dallas 1984, no writ) ....................................23
Material Partnership v. Ventura,
102 S.W.3d 252 (Tex. App.—Houston [14th Dist.] 2003, pet. denied)...20, 22
McKnight v. Virginia Mirror Co., Inc.,
464 S.W.2d 428 (Tex. 1971).......................................................13, 14, 19, 23
Moore v. White Motor Credit Corp.,
708 S.W.2d 465 (Tex. App.—Dallas 1985, writ ref’d n.r.e.) .......................20
Mustang Pipeline Co. v. Drier Pipeline Co.,
134 S.W.3d 195 (Tex. 2004).........................................................................21
OAIC Commercial Assets v. Stonegate Village,
234 S.W.3d 726 (Tex. App. — Dallas 2007, pet. denied) ............................21
Pham v. Mongiello,
58 S.W.3d 284 (Tex. App. — Austin 2001, pet. denied)..............................19
Republic Nat’l Bank v. Northwest Nat’l Bank,
578 S.W.2d 109 (Tex. 1978).........................................................................21
Tony Gullo Motors v. Chapa,
212 S.W.3d 299 (Tex. 2007).........................................................................35
United Concrete Pipe Corp. v. Spin-Line Co.,
430 S.W.2d 360 (Tex. 1968).........................................................................23
Vastine v. Bank of Dallas,
808 S.W.2d 463 (Tex.1991)....................................................................13, 24
iv
STATEMENT OF THE CASE
This is a suit for a breach of contract and to enforce a commercial guaranty.
Austin Manufacturing Services, I, Inc. (AMS) sued Assistant Pro, Inc. (A-Pro),
TQI Corporation (TQI), and Daryl Cornish for amounts it alleged to be due under
an account. AMS also sued Dennis Draper, Greg Hadley and Charles Huston
(referred to as the “Individuals”) asserting a claim on a guaranty against a default
by A-Pro of payments for any amounts due under a particular purchase order. See
generally CR 4-14. After a bench trial, the trial court, Honorable Orlinda Naranjo,
rendered judgment in favor of AMS and against A-Pro, TQI, and Cornish, and
against the Individuals. CR 492. The judgment awarded $475,800 in damages,
$150,000 in trial court attorney’s fees, and up to $45,000 in conditional appellate
attorney’s fees. CR 494. The Individuals were each adjudged liable on a guaranty
for 25% of the amount of damages awarded ($87,586.21 each), and were each
adjudged jointly and severally liable for the award of attorneys’ fees. CR 495-96.
The Individuals appealed the judgment holding them liable for a portion of debts
owed by A-Pro and TQI, but Cornish did not appeal the judgment against him or
against TQI and A-Pro, the companies he owned and whose liability would be
reduced by up to 75% were the Individuals found liable under the Guaranty.
STATEMENT REGARDING ORAL ARGUMENT
Pursuant to Tex. R. App. P. 38.1(e), Appellants submit that oral argument
will assist this Court with the resolution of this appeal. Oral argument will provide
v
an opportunity to address questions regarding the Guaranty, and the various
reasons why liability thereunder was never triggered.
ISSUES PRESENTED
1. The trial court erred in rendering judgment against the Individuals:
– The record conclusively established that the transaction
contemplated by the Guaranty – a contract between AMS and A-
Pro whereby AMS would extend A-Pro credit and A-Pro would be
a purchaser – did not occur, such that there was no transaction to
guarantee
– Assuming a transaction arose subject to the Guaranty, the essential
terms of the purchase order giving rise to the Guaranty were
modified without notice to or the consent of the Individuals,
invalidating as a matter of law any obligation that may have
otherwise arisen under any Guaranty
– The record conclusively established that no amounts were in
default by A-Pro under the purchase order referenced by the
Guaranty, and instead, any amounts due arose from other purchase
orders not subject to the Guaranty, such that, as a matter of law, the
Individuals cannot be liable under the Guaranty
2. The trial court erred in rendering judgment awarding attorney’s fees
because AMS did not segregate the fees awarded in its favor.
vi
TO THE HONORABLE COURT OF APPEALS:
Appellants Dennis Draper, Greg Hadley, and Charles Huston (the
Individuals) file this Brief of Appellants, complaining of the final judgment in
favor of Austin Manufacturing Services, I, Inc., and in support state as follows:
The judgment holds the Individuals liable under a personal guaranty (the
Guaranty).1 By the Guaranty, each Individual purportedly guaranteed twenty-five
percent of any amounts due to AMS under a specific purchase order (PO 1682) for
the purchase of 5,000 units of product on which A-Pro, as the “Purchaser”,
defaulted. See 6RR 27-30 (Guaranty); 6RR 25 (PO 1682)). This appeal is not
about whether A-Pro or any other entity defaulted on obligations to AMS under
other purchase orders. It simply challenges whether the judgment against the
Individuals could properly arise given the terms of the Guaranty and the evidence
surrounding any transactions purportedly invoking the Guaranty. The judgment
against them constitutes error for at least three reasons.
First, the Guaranty presupposes a contract between AMS and A-Pro
whereby AMS would extend credit to A-Pro, and A-Pro would be a “Purchaser”,
under a designated purchase order – PO 1682. 6RR 27. But no such transaction
occurred with the parties so configured. AMS refused to contract with A-Pro,
declined to accept a purchase order from A-Pro, and instead only contracted with
1
Each of the Individuals executed the same form personal guaranty, see 6RR 27-30, and
that form is referred to herein simply as “the Guaranty”.
1
the separate entity TQI Corporation (TQI) that was in fact named as the
“Purchaser” on the PO identified in the Guaranty. In the absence of an underlying
contract between AMS and A-Pro as described in the Guaranty, no liability could
even arise under the Guaranty.
Second, even had A-Pro entered into a contract with AMS when the
Guaranty was executed (which the record shows it did not), the terms of any
guaranteed agreement were fundamentally altered without notice to, and without
the consent of, the Individuals. Instead, Darryl Cornish (through Rick Horne, an
employee of the “Purchaser” TQI) directed AMS to alter the PO, changing the
delivery date, the quantity, and the pricing structure, and directing AMS to produce
a new line of products beyond what had been at issue under the Guaranty when it
was executed. Those changes made it impossible to sell the units described in the
Guaranty before the Christmas season, sales which would have eliminated any
liability that could have ever arisen under the Guaranty. And while AMS’s sworn
account claim references a series of other purchase orders entered into between
AMS and A-Pro at a later time, those transactions are not referenced by, or subject
to the terms of, the Guaranty and cannot justify a judgment against the Individuals.
Finally, and most importantly, the Guaranty only governed amounts “in
default” by A-Pro to the extent it was the “purchaser” under “PO 1682”. The
evidence at trial demonstrated that no amounts remained due under PO 1682, and
2
accordingly, there was no default by A-Pro (or, for that matter, anyone else) of
obligations under that PO to trigger any obligation under the Guaranty. Whether
amounts remained due to AMS from TQI or A-Pro under other purchase orders
entered into on later dates is immaterial to whether the Individuals can be held
liability under the Guaranty. AMS’s remedy for any such amounts would be
against TQI or A-Pro or the owners of those entities, but the Guaranty does not
give recourse against the Individuals for those debts that they never guaranteed.
STATEMENT OF FACTS
A. The “Golf Guru” device
In 2006, Dennis Draper, Greg Hadley, Charles Huston, and Darryl Cornish,
shareholders of Assistant Pro, Inc. (A-Pro), began efforts to manufacture a product
called the “Golf Guru,” a hand-held GPS unit to assist golfers. Cornish was also
the sole owner of a separate entity called TQI Corporation (TQI),2 which
contracted with A-Pro to develop its products, build a website, and work on sales
and marketing. 3RR 158-59; 3RR 11.3 Cornish and TQI employee Rick Horne
started talks with Austin Manufacturing Services, Inc. (AMS), a company Cornish
used in the past on other projects, about building the Golf Gurus. See 2RR 78.
2
Through the operative time periods (2007-2008) Cornish was the only person affiliated
both with TQI and A-Pro, 3RR 36, as he was also a partial owner and/or shareholder of
A-Pro. 3RR 107.
3
The Reporter’s Record contains an amended Volume 3, and citations herein to “3RR
__” are to the amended volume.
3
B. Efforts to manufacture Golf Gurus
Cornish indicated to AMS he was working with a new venture, A-Pro, and
that A-Pro wanted to establish credit and have AMS build its devices. 2RR 26.
AMS would not extend credit to A-Pro because A-Pro was a new entity with no
credit history, see 2RR 79; 6RR 440. But AMS indicated it would consider
granting credit to TQI if TQI and A-Pro committed to be fully liable and if the
principals of A-Pro gave personal guarantees. 2RR 26; 2RR 70. As part of the
discussions with AMS, Cornish and Horne sought bids on various quantities of
black and white display (grayscale) units, and on September 24, 2007, AMS
presented a bid. See id; see also 6RR 115-120 (Ex. 104).
1. AMS agrees to extend credit to TQI – but not to A-Pro
Originally, the proposal raised by Cornish assumed that A-Pro would issue a
5,000 piece purchase order to AMS. But that turned out not to be an option
because of AMS’s concerns over A-Pro’s lack of credit history. The original PO
sent from A-Pro to AMS was rejected because of A-Pro’s lack of a credit history.
3RR 39. AMS declined to extend credit to A-Pro, did not enter into a contract with
A-Pro, and rejected A-Pro’s proposed purchase order. 3RR 38. Cornish proposed
an alternative plan whereby the Individuals would guarantee obligations of TQI,
but the Individuals made it perfectly clear they would only guarantee a purchase
order for A-Pro, and never for TQI. 4RR 61.
4
At no time did AMS agree to provide any units directly to A-Pro in
connection with this initial transaction, and in connection with the Guaranty, AMS
never approved any purchase order directing any shipments to be made directly to
A-Pro. Instead, AMS accepted a purchase order from TQI that tracked the terms
of AMS’s bid both in terms of price and quantity but that named TQI as the
contracting party. 6RR 26 (Exhibit 1) (PO 1682). But as noted, the Individuals
did not agree to guarantee a debt of TQI, only a debt of the entity to which they
were shareholders – A-Pro. 4RR 62.
With that understanding in mind, Huston reviewed the draft of the personal
guaranty proposed by AMS, changing its reference to a guaranty from “all
amounts” to only those due under any specified purchase order, and ensuring its
reference to amounts in default by “A-Pro” to the extent it was denominated as a
purchaser under the purchase order to be referenced by the Guaranty. 6RR 646-47.
Once Horne circulated a purchase order number to be inserted in the Guaranty, the
Individuals signed the Guaranty.
a. The Purchase Order to be guaranteed
PO 1682, dated October 7, 2007, referenced the bid number for AMS’s
earlier quote, and tracked the quoted pricing and quantities for the product number
contained in that bid (i.e., product number TC21301 for a grayscale Golf Guru
unit). 6RR 26; compare with 6 RR 668 (Sept. 24, 2007 quotation). The PO
5
provided that the units were to be shipped to “TQI Systems” (not to A-Pro4), with
an expected delivery date of November 23, 2007. Id. That date was important
because it would have allowed for the marketing and sale of the units prior to the
holiday season. See 3RR 69. In fact, Greg Hadley confirmed that if all the
products would have been delivered on that schedule, they would have sold out.
4RR 25-26; see also 3RR 43 (noting importance of the November delivery
deadline).
b. The Guaranty of the Purchase Order
By its terms, the Guaranty was given in consideration for the extension of
credit to A-Pro, the entity defined as the “Purchaser”. Specifically, the Guaranty
read:
I [name of guarantor] for and in consideration of your extending credit at my
request to Assistant Pro, Inc., a Texas Corporation (hereinafter referred to as
the “Purchaser”), of which I am a shareholder, personally guarantee to you
the payment of twenty-five percent (25%) all amounts due to [AMS] under
Purchase Order 1682 for the purchase of 5000 Golf Guru units (hereinafter
“Guaranteed Portion.”).
4
The trial court made a finding of fact that TQI and A-Pro were “sister companies.” The
record does not support such a finding. Even Darryl Cornish testified that TQI simply
had a management contract with A-Pro. See 3 RR 159. The two entities had separate tax
identification numbers and different telephone numbers among other things. 3RR 37. A-
Pro did not share an office with TQI, operated remotely from TQI, and nobody from A-
Pro was in the office of TQI. 3 RR 15. Similarly, Horne testified A-Pro and TQI were
not the same company, and that TQI and A-Pro were simply operating under a
management contract, whereby TQI would provide marketing, production and
development of the products that ended up in the stream of commerce to A-Pro. 3RR 35;
see also 3RR 56 (the companies were not the same; TQI just had a contract with A-Pro
that authorized it to negotiate with AMS); 3RR 100 (no A-Pro employees officed at TQI
and A-Pro maintained a different address).
6
***
I hereby agree to pay such Guaranteed Portion punctually if default in
payment thereof is made by the Purchaser.
6RR 27-30 (emphasis added). Thus, by its terms, the consideration exchanged for
the Guaranty was to be the provision of credit from AMS to A-Pro, while the
commitment given by the Individuals was to pay amounts due from A-Pro to AMS
under PO 1682 if A-Pro defaulted on those payments for which credit had been
extended to it (consistent with the willingness of the Individuals to guarantee debts
of A-Pro, not TQI). Id. And, as liability was limited to a default by A-Pro on
amounts due to AMS under PO 1682, the Guaranty was limited to defaults on A-
Pro’s part on amounts due from A-Pro to AMS for 5,000 grayscale Golf Guru units
to be delivered by November 23, 2007.
2. Efforts to ensure that the PO listed A-Pro as the “purchaser” so it
could earn credit
When Huston saw that the purchase order referenced in the Guaranty was in
TQI’s name rather than in A-Pro’s, he thought it must be a mistake given the entire
point of the guarantee process, specifically because a purchase order in TQI’s
name would not establish any credit record for A-Pro if it were not the named party
to the contract. See 4RR 60-61; 6RR 458 (Ex. 25). Thus, Huston asked Horne to
confirm whether an error had occurred in that the PO referenced by the Guaranty
identified TQI rather than A-Pro as the purchaser. At no point did AMS did amend
PO 1682 to name A-Pro as the contracting party rather than TQI.
7
C. AMS does not satisfy the terms of PO 1682, ultimately changes its price,
quantity, delivery date, and the products to be covered
AMS did not deliver 5,000 units to TQI by November 23, 2007. At the
direction of Cornish, in January 2008, Horne requested Iain Hurn, his point of
contact at AMS, to accept a new, revised PO 1682. That PO was for 1,000 color
units at a higher per-unit price, back-dated to October 7, 2007, the same date as the
original PO 1682. See 3RR 102-03; 6RR 420. But Horne testified that AMS’s
quotes and bids relating to a purchase order for color units gave rise to a “different
PO than the 5,000 units.” Id. He also noted that subsequent orders of golf guru
units were not under PO 1682 – none referenced PO 1682 and all subsequent
orders were under different purchase orders. 3RR 104. While AMS’s Hurn
discussed those changes with Horne, AMS did not discuss them, nor bring them to
the attention of, any of the Individuals. See 2RR 215-16. In fact, AMS never had
any communications with Huston. 4RR 46. And despite Huston’s earlier request
that A-Pro be named as the purchaser, the modification to PO 1682 resulting from
Horne’s discussions with Hurn resulted in no such change.
D. Cornish brings in a new investor who diluted the Individuals’ interests
In March 2008, Darryl Cornish brought in a new investor, Tim Alberts, into
A-Pro who received preferred stock for his contributions, and who made an
investment to pay down debt owed by A-Pro to AMS and to fund, manufacture,
and sell a new product. 3RR 54. The effect of that contribution was to effectively
8
dilute the common shares owned by Draper, Hadley and Huston so much as to
“wash out” any equity interest they had, leading Huston to resign his position with
A-Pro in March 2008. See 3RR 174; 4RR 58. Cornish had represented to the
Individual Guarantors that their collective liability under the Guaranty had been
limited to $20,000 (Ex. 130, 136, 22), and that the Alberts’ investment had paid
that liability down.
E. A-Pro initiates its own orders with AMS
By late 2008 and going into 2009, A-Pro did start issuing its own purchase
orders to AMS for golf guru units. See, e.g., 6RR 692-696 (Ex 65-69). But those
purchase orders did not purport to relate to, or make any reference to PO 1682. Id.;
see also 3RR 104 (Horne noting that those subsequent orders were under purchase
orders separate than PO 1682). After Alberts came in and the Individuals’ interests
were diluted, in December 2008, A-Pro and AMS entered into PO 1007 for a total
of $140,862. 6RR 687 (Ex. 61). And as another example, in March 2009, A-Pro
and AMS entered into another PO, this time PO 1019, for $222,243.60. 6RR 694
(Ex. 62). Neither PO 1007 nor PO 1019 referred to PO 1682 or purported in any
way to be a “draw down” of products identified under PO 1682.
At trial, AMS claimed that A-Pro was liable for payments due under PO
1007 and asserted amounts due under that PO as being owed by the Individuals
under the Guaranty. See 6RR 908 (Ex. 81, listing PO 1007 as an invoice for which
9
a balance of $30,679.54 was due). Similarly, AMS also claimed that A-Pro
defaulted on amounts due under PO 1019. See 6RR 908 (listing PO 1019 as
having a balance due of $142,395.50). But while AMS’s lawsuit claimed amounts
due under both of those specific purchase orders, the exhibits to its lawsuit did not
claim any amount were due from anyone under PO 1682, the one specific purchase
order identified in the Guaranty on which AMS sued the Individuals. See id.
(showing no balance due for that PO).
F. Cornish sells all Golf Guru units and decides what to do with the sales
proceeds
Through 2008 and 2009, AMS delivered approximately 5,300 golf guru
units to TQI in some mix of grayscale and color units. During that same time,
AMS was paid approximately $830,000 for the units. 3RR 188. A-Pro sold every
Golf Guru unit delivered to it. 5 RR 38. But Cornish decided to allocate the money
that came in for the units to other expenses rather than to pay AMS. 5RR 39-40.
That decision was outside of the control of the Individuals, who, by that time, had
been “washed out” of A-Pro. Thus, the Individuals who had guaranteed against any
default by A-Pro on a particular purchase order in 2007 had no control how
Cornish or AMS allocated any payments that should have been credited against
amounts due under PO 1682 (if in fact they were not so credited).
10
G. AMS realizes the Guaranty did not cover transactions under PO 1682
but names the Guarantors with other defendants anyway
In 2009, Cornish informed Huston that AMS was aware it had made a
mistake in connection with the PO that it had accepted; specifically, that AMS had
accepted a PO from TQI and not A-Pro, and that it understood that the Guaranty
did not apply to the purchase order it had accepted. 4RR 47. Nevertheless, in
2009, AMS sued Cornish, Draper, Hadley and Huston on the Guaranty, along with
a variety of entities5 for amounts it alleged to be due under the “contract”, which it
defined as Purchase Order 1682. CR 4-16.
1. Trial evidence shows a zero balance was due under PO 1682
While the documents on which AMS relied in asserting a sworn account
claim showed invoices owed by A-Pro and TQI to AMS, none of the delinquent
invoices arose from or referred to PO 1682 such that they would be covered by the
Guaranty. See Supp. CR at 12-16 (“sworn account” attachment to the affidavit of
AMS president Brad Scoggins, did not show any amounts aging pursuant to PO
1682). In fact, financial records for transactions concerning golf guru units subject
to PO 1682 (whether the original PO 1682 or the one amended by Horne and
Hurn), uniformly showed that a zero balance remained due on that purchase order,
regardless of whether any amounts remained due under any other purchase orders
for transactions between TQI and AMS. Robert Wallace, AMS’s self-proclaimed
5
These entities include A-Pro, Optinal LP Holdings, L.P., Optimal Intellectual Property,
and TQI, CR 4-5, but AMS later nonsuited Optinal and Optimal, see 2RR 16.
11
“guy on accounting”, 2RR 323, testified that, upon reviewing a spreadsheet he
prepared addressing invoices on which AMS based its sworn account claim,
amounts remained due on a variety of different invoices for different items, but the
records “show[] a balance of zero” due under the one invoice that mattered for the
Guaranty – PO 1682. 2RR 329; see also 6RR 908 (Ex. 81) (source record showing
a zero balance for PO 1682); 6RR 909 (pivot table showing zero balance due under
PO 1682). And the sworn account exhibit provided with AMS’s original petition
(offered as exhibit D to the affidavit of Brad Scoggins, Supp. CR at 12-16, and
offered at trial as exhibit 94, 6RR 1045) similarly showed no amounts due under
PO 1682. See, e.g., 2RR 329. Moreover, AMS president, Brad Scoggins, in
reviewing the invoices on which AMS based its claims conceded that PO 1682 did
not appear to be an “aging” invoice on which AMS based its claims. Finally,
Exhibit 141 offered at trial (a re-creation of exhibit 82) similarly showed that
numerous amounts were due under other invoices between TQI and A-Pro and
AMS, but it did not show any amounts due under PO 1682. 6RR 424-36. Thus,
whatever the record may have shown to be due and owing as between TQI and A-
Pro and AMS, the record did not show any amounts were due under PO 1682, the
only purchase order subject to the Guaranty, and did not show any default by A-
Pro on any such amounts that would trigger the Guaranty.
12
2. The trial court’s judgment
During trial, Cornish conceded liability for amounts due by TQI and A-Pro
to AMS and even conceded his personal liability for one-quarter of amounts due to
AMS, while the Individuals took the position that any obligation under the
Guaranty must be strictly construed. They argued that there could be no liability
under the Guaranty beyond the strict terms of the Guaranty and for changes to the
Guaranty to which the Individual Guarantors did not consent. After trial, the court:
relied heavily on McKnight v. Virginia Mirror Co., Inc., 464 S.W.2d 428,
430 (Tex. 1971)) and Vastine v. Bank of Dallas, 808 S.W.2d 463
(Tex.1991). Specifically, McKnight holds that ‘a guarantor is entitled to
have his agreement strictly construed and that it may not be extended by
construction or implication beyond the precise terms of his contract’ without
the guarantor’s consent. (emphasis added).
CR 88 (letter from trial court to parties regarding preliminary ruling).
That recognition notwithstanding, the trial then court rendered final
judgment in favor of AMS and against A-Pro, TQI, and Cornish, and the
Individuals. CR 435. As to TQI and A-Pro, it awarded judgment jointly and
severally in the amount of $382,484.92 plus interest, along with judgment against
them, jointly and severally for attorney’s fees through trial and conditional
appellate attorney’s fees. Id 435-36. (By way of a judgment nunc pro tunc, the
trial court reduced the amount of fees to $150,000, CR 493.). As to the
Individuals, it rendered judgment against each for $70,408.47 plus interest and
liability for attorney’s fees. CR 425.
13
In response to a request from the Individuals, CR 440, the trial court entered
findings of fact and conclusions of law, CR 443, but declined to enter modified
findings and conclusion in response to their request, see CR 454, 485. The
Individuals timely filed a notice of appeal, CR 505, but Cornish, TQI, and A-Pro
did not appeal.
SUMMARY OF ARGUMENT
The judgment against the Individual Guarantors should be reversed, as the
evidence at trial demonstrates it is contrary to applicable law.
As the judgment against the Individual Guarantors arises from the Guaranty,
the starting point must be the law governing guarantees. Texas law requires that
guarantees be strictly construed, and a guarantor may not be held liable for any
modifications of a guaranty made without the guarantor’s consent. See McKnight
v. Virginia Mirror Co., Inc., 463 S.W.2d 428, 430 (Tex. 1971). Thus, whatever the
record may establish as to the liability of A-Pro or TQI or Cornish to AMS on the
basis of any contractual relationships, the judgment enforcing the Guaranty against
the Individual Guarantors constitutes error because the judgment extends liability
beyond the Guaranty’s terms. A strict construction of the Guaranty reveals its
obligations were not triggered for at least the following reasons.
First, while the Guaranty contemplated the extension of credit to “A-Pro” as
an entity (the only entity with which the Individuals were affiliated), and in fact
14
expressly stated it was given in consideration for such credit,6 the purchase order
enforced by the judgment was not with A-Pro and was instead with the separate
entity TQI, owned exclusively by Cornish.7 A strict construction of the Guaranty,
as required by Texas law, compels the conclusion that the transaction contemplated
by the Guaranty – the extension of credit to A-Pro – never occurred, such that no
obligation arose under the Guaranty to be enforced.
Second, assuming a transaction that would trigger any guaranteed obligation
ever occurred, the terms of any such transaction were materially altered without the
consent of the Individual Guarantors from what had been described in the
Guaranty. Specifically, after the execution of the Guaranty, agreements were made
that altered the price of the products subject to PO 1682, the quantity, and the date
of delivery for such products, all without consultation or consent of the Individual
Guarantors. Under Texas law, those alterations eliminated any obligations that
may have otherwise existed under the Guaranty because they extended liability
beyond the precise terms of the Guaranty.
Finally, even assuming an obligation arose under the Guaranty to secure all
amounts due to AMS under PO 1682, the evidence in the record established no
liability was triggered – the record failed to demonstrate the existence of any
“default” on any “amounts due” under PO 1682 by A-Pro as “purchaser.” First,
6
6RR 27-30.
7
6RR 25.
15
the record established that TQI – not A-Pro – was the “Purchaser” under PO 1682
such that the “purchaser” requirement of the Guaranty was not satisfied. But more
importantly, the record established that there was no default on obligations under
PO 1682 by anyone. Every exhibit offered by AMS showed a zero balance due in
connection with PO 1682 (even while they showed amounts due under other
purchase orders), such that the “default” on amounts due element was not satisfied
either. As any obligation undertaken by the Individuals must be constrained by the
terms of the Guaranty, which narrowed any obligations to amounts due under PO
1682, the fact that nothing remained due under that PO (pursuant to AMS’s own
records) demonstrates that the judgment against the Individuals under the Guaranty
constitutes error.
As to the award of attorney’s fees, as the judgment against the Individuals
must be reversed for the reasons noted above, so too must the award of attorney’s
fees. But that award also must be reversed because AMS did not segregate among
recoverable and non-recoverable fees, and fees incurred in connection with
prosecuting and defending claims that did not concern the Individuals.
ARGUMENTS AND AUTHORITIES
I. The judgment against the Individuals constitutes error given the terms
of the Guaranty and the evidence in the record
AMS’s counsel was emphatic at trial in referring to the importance of
Purchase Order 1682 to the case. See 2RR 24 (“You’ll get sick of that as this goes
16
on. You’ll hear a lot about Purchase Order 1682.”) And counsel certainly was
correct about the importance of PO 1682. But its importance arises from the fact
that its terms demonstrate the error in the judgment below: (1) PO 1682 does not
demonstrate a transaction between A-Pro and AMS as contemplated by the
Guaranty that would amount to the extension of credit to A-Pro, but only one
between TQI and AMS; (2) any Guaranty referencing PO 1682 was materially
altered in at least three respects (price, quantity, and Christmas season delivery
dates) without the consent of the Individuals when PO 1682 was altered by Horne
and Hurn, thus eliminating any obligations that could otherwise exist; and (3) the
evidence at trial established that PO 1682 carried with it a zero balance, leaving no
amount in default to be enforced pursuant to the terms of the Guaranty, assuming
A-Pro was the “Purchaser” who could default under that PO in any event.
A. Standard of review
The Individuals challenge the legal sufficiency of the evidence supporting
the liability findings. More precisely, their points contend that (1) AMS presented
no evidence on a point on which it bore the burden of proof, the absence of which
was fatal to its claim, and/or (2) the evidence in the record conclusively establishes
the opposite of a fact essential to AMS’s prima facie case. See City of Keller v.
Wilson, 168 S.W.3d 802, 822 (Tex. 2005).
17
To the extent AMS sought to enforce a Guaranty of PO 1682, it had the
burden to establish the existence of a valid and enforceable Guaranty, that the
material terms did not change or that if they did, then that any such change was
made with the consent of the Individuals, and that amounts remained due under
that PO that were guaranteed. As the Individuals’ points either rely on an outright
absence of evidence on an essential fact (i.e., that a contract was entered between
A-Pro and AMS, that AMS extended credit to A-Pro, or that any amounts remain
due under PO 1682) or on a showing that evidence conclusively established facts
contrary to those essential to AMS’s case (i.e., that any transaction that may have
been guaranteed was materially altered without the consent of the Individuals)
those issues are subject to a legal sufficiency standard of review.
B. The record demonstrates why the Individuals cannot be liable under the
Guaranty
In announcing its ruling, the trial court correctly noted that the Individuals
should be liable “only to the extent provided in the Guaranty and Purchase Order
1682.” See CR 88-89. That ruling was consistent with the established legal
principle that a guarantor is entitled to have the guaranty strictly construed, and
cannot be liable for any modifications made without the guarantor’s consent. Id.
(citing McKnight, 463 S.W.2d at 430); see also Pham v. Mongiello, 58 S.W.3d
284, 288 (Tex. App. — Austin 2001, pet. denied) (“A guarantor’s obligation will
not be extended by implication beyond the precise written terms of the guaranty
18
contract.”). But given the evidence offered at trial, and given the terms of the
Guaranty and Purchase Order, the extent of the Individual Guarantor’s liability
should have been zero.
1. AMS failed to establish the existence of a transaction that would
invoke the terms of the Guaranty
Nobody disputes that the Individuals executed the Guaranty. The issue,
however, is whether the transaction contemplated by the Guaranty ever actually
occurred such that the Guaranty would be enforceable in the first instance.
a. AMS did not extend credit to A-Pro as contemplated by the
Guaranty
By its own terms, the Guaranty was given in consideration for the extension
of credit by AMS to A-Pro, of which each of the Individuals was a shareholder.
See 2RR 27-30. The contemplated consideration constituted credit to be given to
A-Pro, and the contemplated obligation to be guaranteed by A-Pro’s shareholders
given in exchange constituted all amounts due to AMS under Purchase Order 1682
for the purchase of 5000 Golf Guru units on which A-Pro (as “Purchaser”)
defaulted. Id.
It is undisputed that Purchase Order 1682 was not a contract between AMS
and A-Pro (its terms so indicate), but instead was a contract between AMS and
TQI Systems. 6RR 25. PO 1682 thus did not constitute any extension of credit to
A-Pro; rather, if any credit had been extended in connection with PO 1682, it was
extended to TQI, the sole named party on the PO. Indeed, Charles Huston drafted
19
a PO in A-Pro’s name, see 6RR 423, but AMS would not use it and would not
agree to extend credit to A-Pro.8 As the transaction did not give rise to an extension
of credit by AMS to A-Pro such that it could create a credit history, the Guaranty,
when strictly construed, cannot be enforced against the Individuals because the
consideration sought in connection with any guaranty was not given. See Material
Partnership v. Ventura, 102 S.W.3d 252, 261 (Tex. App.—Houston [14th Dist.]
2003, pet. denied) (a guaranty cannot be binding without consideration).
b. A-Pro was not a party to PO 1682
In the absence of a contract between AMS and A-Pro as referenced in the
Guaranty, the Individuals cannot be held liable as guarantors of A-Pro because A-
Pro was not subject to a contract on which it was liable. A guarantor’s liability on
a debt depends upon the liability of its principal. See Moore v. White Motor Credit
Corp., 708 S.W.2d 465, 472 (Tex. App.—Dallas 1985, writ ref’d n.r.e.). Thus, the
obligation of the guarantor depends upon the obligation of the parties to any
underlying contract. Republic Nat’l Bank v. Northwest Nat’l Bank, 578 S.W.2d
109, 114 (Tex. 1978). In the absence of any contract (PO 1682) between A-Pro
and AMS, there is no underlying contract that would give rise to liability of the
Individuals under the Guaranty because there are no contractual obligations owed
8 Whether AMS entered into separate purchases with A-Pro for other products and under
other POs many months later, that fact does not extend the scope of the Guaranty drafted
in light of the version of PO 1682 in effect in October 2007. See Cox v. Lerman, 949
S.W.2d 527, 530 (Tex. App. — Houston [14th Dist.] 1997, no writ) (an obligation will not
extend beyond its precise terms).
20
by A-Pro under PO 1682 on which it could be in default. See, e.g., OAIC
Commercial Assets v. Stonegate Village, 234 S.W.3d 726, 738 (Tex. App. —
Dallas 2007, pet. denied) (standing to maintain breach of contract claim requires
showing of third party beneficiary status or privity).
c. AMS failed to establish an underlying breach of contract by
A-Pro
The essential elements of a breach of contract claim require a showing (a)
that there is a valid, enforceable contract; (b) the plaintiff is the proper party to sue
for breach; (c) the plaintiff performed, tendered performance, or was excused from
performing; (d) the defendant breached the contract; and (e) the breach caused
injury to the plaintiff. Mustang Pipeline Co. v. Drier Pipeline Co., 134 S.W.3d
195, 200 (Tex. 2004). AMS’s claims fail for want of evidence on at least several
of these elements that are necessary prerequisites to a judgment holding the
Individuals liable under the Guaranty.
There is a disconnect between the breach by A-Pro alleged by AMS and the
scope of any Guaranty. The contractual claims AMS seeks to have guaranteed by
the Individuals are not contracts identified in the Guaranty. A guaranty must (1)
set forth the names of the parties involved, (2) reflect a manifestation of an intent
to guaranty an obligation, and (3) describe the obligation to be guaranteed.
Hartford Fire Ins. Co. v. C Springs 300, Ltd., 287 S.W.3d 771, 778 (Tex. App.—
Houston [1st Dist.] 2009, pet. denied); Material Partnerships, 201 S.W.3d at 261.
21
To enforce the Guaranty pursuant to its terms as strictly construed, AMS must
establish not only (1) the existence of a valid and enforceable contract between it
and A-Pro, but also (2) that such a contract is subject to the terms of the Guaranty.
In other words, any valid and enforceable contracts between AMS and A-Pro are
legally immaterial to a claim against Individuals as guarantors unless AMS shows
that those contracts are subject to the Guaranty. In the absence of a contract
between AMS and A-Pro for the purchase of goods under PO 1682, there can be
no default for payments due by A-Pro as a purchaser, and thus, no amounts to be
guaranteed.
As to the existence of a “contract” element, the record demonstrated A-Pro
was not a party to the purchase order identified in the Guaranty, as noted above.
And as to the “breach” element, the evidence offered by AMS established that any
obligation breached by A-Pro (i.e., PO 1007, 1019) were not subject to the
Guaranty, a guaranty that only covered PO 1682.
No consideration supports a guaranty if neither the primary debtor (here A-
Pro) nor the guarantor (here the Individuals) receive any benefit, and the primary
creditor (here AMS) has not relinquished anything (here the extension of credit to
A-Pro) or suffered any detriment (any default of payments owed by A-Pro as
purchaser under PO 1682). Fourticq v. Fireman’s Fund Ins. Co., 679 S.W.2d 562,
22
564-65 (Tex. App.—Dallas 1984, no writ). Thus, there can be no claim against
the Guarantors.
In short, the contract sued upon as the basis for the Guaranty never arose,
leaving AMS without standing to asset liability against A-Pro for default of
payment obligations under PO 1682, and depriving AMS of any claim against the
Individuals as guarantors for such nonexistent obligations.
2. Any obligations that could have ever existed under the Guaranty
were eliminated by the multiple material alterations of any
transaction described in the Guaranty
If obligations arose under the Guaranty, then such obligations were
eliminated by unauthorized alterations to the obligations that were the subject of
the Guaranty. McKnight, 463 S.W.2d at 430. Under Texas law, if a contract
subject to a surety is altered without the consent of the surety, the surety’s
obligation ceases, as the altered contract is no longer the contract of the surety.
United Concrete Pipe Corp. v. Spin-Line Co., 430 S.W.2d 360, 366 (Tex. 1968).
Here, the record establishes at least three categories of material alterations made
without the Individual Guarantor’s consent: the change in the delivery date, the
change in the quantity, and the change in the per-unit price. See 6RR 420; 6RR
968; 2RR 121.
The record establishes that changes to PO 1682 were made at the request of
Rick Horne acting on Darryl Cornish’s instructions, but that they were not made at
23
the request of any of the Individual Guarantors. Specifically, Iain Hurn testified
that while the original PO 1682 had an expected delivery date of November 23, he
discussed changing that date with Horne and perhaps Cornish, but that he had no
discussions with any of the Individual Guarantors about the change. 2RR 220.
Given the evidence that the terms of the transaction supposedly guaranteed were
materially changed in multiple respects, and the absence of evidence establishing
that the Individual Guarantors consented to the changes, any obligation under the
Guaranty cannot extend beyond the precise terms of the contract, i.e., to a
guarantee of the purchase order as written when the Guaranty was signed. See,
e.g., Vastine v. Bank of Dallas, 808 S.W.2d 463, 465 (Tex. 1991) (material
alteration defense warranted reversal of a judgment against a guarantor). To the
extent the judgment imposed liability beyond the Guaranty as originally written, it
thus constitutes error.
Relying on self-serving testimony, AMS argued that the extension of the
delivery deadline actually operated to the benefit of the individuals, but other
testimony demonstrates why that conclusion is demonstrably incorrect. Testimony
at trial established that had the units been delivered in time for the Christmas 2007
selling season, A-Pro would have been able to sell them all, which would have
relieved the Individuals of any obligations and which would have provided a basis
for A-Pro to earn credit. See 3 RR 69. Because the transaction as guaranteed was
24
altered without the consent of the Individuals, any liability under the Guaranty
terminated.
3. The evidence established that no amounts were due under PO
1682.
Finally, judgment against the Individuals under the Guaranty constitutes
error because AMS’s own evidence and witnesses confirm that no balance was due
on PO 1682, and thus, no amount remained subject to the Guaranty, assuming a
guaranty of default on amounts due under PO 1682 ever became effective.
Whether amounts were due under any other purchase orders, the evidence at trial
demonstrated that no amounts remained due under the purchase order referenced
by the Guaranty, PO 1682. That conclusion should have been fatal to any claim
against the Individuals.
a. Testimony from AMS’s own controller confirms what AMS’s
exhibits show – that nothing remained due under PO 1682
Robert Wallace, AMS’s controller and self-proclaimed “guy on accounting”,
2RR 323, testified about amounts due under specific purchase orders. He
described Exhibit 81 as a “pivot table” he had generated from a spreadsheet that he
had also prepared showing the balance due for each of the purchase order numbers
listed. 2RR 324. From that exhibit Wallace testified that balances were due in
connection with certain purchase orders (for example, PO 1007, and 1019), but that
25
a balance of zero was due under the purchase order that was subject to the
Guaranty – PO 1682:
Q. So that the next purchase order is 1682, right?
A. Yes.
Q. What’s the quantity of 1682?
A. 1,000.
Q. And that matches the exhibit we look at 139, right?
A. I believe so.
Q. And that show a balance of zero, correct?
A. It does show a balance of zero.
2RR 329-30; see also 6RR 908 (Exhibit 81) (The spreadsheet used to create
Exhibit 81 was Exhibit 82 (6RR 909), and that exhibit also shows a balance of zero
due under PO 1682.) Exhibit 81 and 82, coupled with the testimony of AMS’s
accounting spokesperson, confirm that, as to the operative purchase order (the only
one subject to the Guaranty), no amount was due, relieving the Individual
Guarantors of any liability that ever could have attached to the transaction via the
Guaranty of PO 1682.
b. AMS’s “sworn account” exhibits and testimony from other
witnesses confirm that nothing remained due and owing under
PO 1682
Similarly, during trial, AMS offered Exhibit 94 in support of its “sworn
account” claim. 6RR 1045. (Trial exhibit 94 was previously attached as Exhibit C
26
to AMS’s Original Petition, Supp. CR 12, purporting to constitute the systematic
record of “amounts due” supporting AMS’s claim for a sworn account). That
exhibit purported to show receivables with aging balances on which AMS asserted
its claim, and the purchase orders with which those receivables corresponded.
Notably, while Exhibit 94 identified various purchase orders under which amounts
purportedly remained due to AMS from TQI or A-Pro, the exhibit did not show
any amounts due under the one purchase order, PO 1682, referenced by the
Guaranty on which AMS based its claims against the Individuals. See 6RR 1045-
46 (Exhibit 94).
The disconnect between the amounts AMS claims to be owed by TQI and/or
A-Pro and the amounts subject to the Guaranty traces back to AMS’s original
petition and to the accompanying affidavit of Brad Scoggins offered to support
AMS’s “sworn account” claim. Scoggins first noted that:
AMS entered into Purchase Order 1682 with Assistant Pro, Inc. (‘Assistant
Pro’) and TQI Corporation (‘TQI’) whereby Assistant Pro and TQI agreed to
pay AMS for certain golf GPS navigation equipment and other materials,
labor and services (the ‘Contract’)9. A systematic record has been kept of
the Assistant Pro account and all amounts due and owing under the Contract.
Supp. CR 17, Orig. Pet., Ex. D, ¶ 2 (emphasis added). But the sleight of hand then
comes when Scoggins identifies the “records” purportedly supporting AMS’s
9
Notably, this premise is demonstrably false as PO 1682 is only between AMS and TQI,
does not name A-Pro, and does not otherwise reference a contract between AMS and A-
Pro. 6RR 26.
27
sworn account claim. Scoggins does not refer to “records” showing amounts due
under PO 1682, or even due “under the Contract”. Instead, Scoggins references
records showing amounts due under the “account of Assistant Pro and TQI.” Id. ¶
3 (“Attached to AMS’s Original Petition as Exhibit C are certain business records
from AMS reflecting the account of Assistant Pro and TQI.”) (emphasis added);
see also id. ¶ 5 (“The records within Exhibit C reflect Assistant Pro’s account and
show that Assistant Pro and TQI owe AMS $241,977.52”) (emphasis added).
Notably, that amount is totally detached from any reference to any amount due
under PO 1682 (such that they would invoke the Guarantor) or “under the
Contract” as a subpart of “Assistant Pro’s account” generally. Moreover, the
exhibits supporting Scoggins’ affidavit confirm that, as to PO 1682, nothing was
aging or due, as he testified at trial. Again, whether any amount was due AMS
from TQI and/or A-Pro on their “account” misses the point and does not establish
that any amounts remained due under PO 1682 and subject to any Guaranty.
Similarly, Iain Hurn testified that PO 1682 encompassed all of the business
that A-Pro did with AMS regarding handheld GPS units, 2RR 212, including all
color units built after AMS’s September 2008 bid, 2RR 215. Thus, AMS’s liability
theory as to the Individuals extended beyond the terms of the Guaranty and
covered all amounts due in relation to any transaction between AMS and either A-
Pro or TQI, regardless whether incurred pursuant to PO 1682 or otherwise. Hurn
28
so testified, even recognizing that the Guaranty referenced PO 1682 and that PO
1682 referenced a specific part at issue that differed from the parts used in the
color units. 2RR 219. When any obligations under the Guaranty are constrained
to defaults on amounts due by A-Pro as the Purchaser under PO 1682, the error in
the judgment below against the Individuals is apparent because the record shows
no such defaults existed.
c. The record confirmed that invoices particular to PO 1682
were not in fact aging so as to give rise to a claim under the
Guaranty
Other AMS documents establish that no amounts were due and outstanding
as to PO 1682. For example, trial exhibit 70, a compilation of invoices from AMS,
failed to demonstrate that, as to PO 1682, anything remained due and outstanding.
See generally 6RR 697-852. Exhibit 70 purported to include outstanding and
aging invoices giving rise to AMS’s claims. But none of the invoices included
within the 155-page span of exhibit 70 that referenced PO 1682 appeared on
AMS’s list of aging receivables that gave rise to any of its claims. Indeed,
Scoggins, testified about invoices concerning PO 1682 in exhibit 70:
Q. And in other words, the invoices that specifically reference PO 1682
appear to have been paid?
A. The POs references that show 1682 as the customer delivery PO on
our invoices do not appear in the aging.
2RR 150.
29
To the extent that AMS did not even allege that the invoice on which it
based its claims tied back to PO 1682, AMS’s claims cannot purport to invoke the
Guaranty as a basis for holding the Individuals liable under the Guaranty. As
AMS’s own evidence confirms, AMS did not sue on any aged obligation relating
to PO 1682, and as the only guaranteed obligations relate to PO 1682, the
Individuals were entitled to rendition of judgment in their behalf because AMS’s
claims did not implicate any guaranteed transactions.
d. Every other exhibit cited by AMS in its motion for entry of
judgment confirms that nothing remained due and owing
under PO 1682
Other documentary evidence confirmed that the balance due under PO 1682
was zero, regardless whether TQI or A-Pro owed AMS on any other purchase
orders or accounts. For further example, Exhibit 141, cited by AMS in its motion
for entry of judgment, in fact made thirteen different references to amounts
invoiced against PO 1682, but showed that all thirteen were paid and that no
balance remained due on that PO. See 6RR 424 (Exhibit 141). Again, while the
exhibit indicated amounts were due under other purchase orders, it also confirmed
that nothing was due under the one PO referenced in the Guaranty.
In short, each exhibit referenced by AMS in its motion for entry of judgment
that referenced “amounts due” against PO 1682, uniformly show that “zero” was
due under PO 1682. See 6RR 908 (Exhibit 81); 6RR 909 (Exhibit 82); 6RR 1045
30
(Exhibit 94), 6RR 424 (Exhibit 141); 6RR 697 (Exhibit 70); see also 2 RR 329
(Wallace testifying PO 1682 shows a balance due of zero); 2RR 150 (Scoggins’
testimony confirming PO 1682 is not an aging invoice). In the face of that
evidence and testimony, the Individuals had no liability because they only agreed
to guarantee defaults by A-Pro on amounts due under PO 1682. AMS’s own
evidence established that any liability arising under the Guaranty had been satisfied
and nothing remained in default as to PO 1682. That record shows the absence of
any liability on the part of the Individuals. Thus, the Individuals are entitled to a
reversal of the judgment against them.
e. AMS cannot classify the PO as a “blanket” PO in order to
pigeonhole later obligations as arising under PO 1682 and
thus subject to the Guaranty
AMS argued throughout trial that PO 1682 was something of a “blanket
PO”, or a manufacturer’s service agreement, such that the obligations of PO 1682
persisted even though PO 1682 was never referenced in subsequent purchase
orders, even when AMS’s own “sworn account” spreadsheet showed no amounts
were due under PO 1682, and even when AMS’s records showed that the purchase
orders sued upon were based on entirely different purchase orders, some with
entirely different parties. See 6RR 1045 (Ex. 94) (basing liability on numbered
POs, some naming TQI as purchaser and others naming A-Pro as purchaser, but
31
none referencing amounts due under PO 1682). Those arguments must be rejected
for several reasons.
First, PO 1682 does not indicate that it is a blanket PO or manufacturer’s
service agreement. In fact, the bid on which PO 1682 is based expressly noted
that, in the absence of a manufacturer’s service agreement, reference to a particular
purchase order would be necessary. See 6RR 668 (Ex. 42). AMS went forward
without a manufacturer’s service agreement, such that it cannot now claim that PO
1682 was a “blanket order.
Second, the record established that new purchase orders were entered
starting in December 2008 – for the first time between AMS and A-Pro rather than
TQI. See 6RR 688 (PO 1007). Notably, while AMS’s liability spreadsheet shows
no amounts due under PO 1682, it does show amounts due under this new PO and
the ones that followed it, POs that issued more than a year after the Guaranty was
signed. See 6RR 908. Thus, the fact that AMS invoiced matters based on
particular purchase orders, but without reference to whether those orders were
draw-downs of any particular “master” or “blanket” purchase order defeats ay
implication that the Guaranty was intended to apply beyond its plain terms to
govern other purchase orders as well. See Cox, 949 S.W.2d at 530. The “blanket
PO” theory is thus a red herring that cannot be invoked to impose liability under
the Guaranty where none otherwise exists.
32
4. The Guaranty was limited to “amounts due” under PO 1682
Under the operative language of the Guaranty, the Individuals agreed to
guarantee “the payment of twenty five percent (25%) [of] all amounts due to
Austin Manufacturing Services L.P. Inc, a Texas Limited Partnership, under
Purchase Order 1682 for the purchase of 5,000 Golf Guru units (hereinafter
“Guaranteed Portion”) on which A-Pro, as purchaser, defaulted. 6RR 27.
Wallace’s testimony, and Exhibits 81, 82, 94, 141, and 70 all confirmed that a zero
balance remained due under Purchase Order 1682. Such evidence disposes of any
liability under the Guaranty because it confirms that whatever may have been
guaranteed (“all amounts due” under Purchase Order 1682) has been satisfied (zero
remains due on Purchase Order 1682) assuming A-Pro was a “purchaser” as
defined in the Guaranty in the first instance.
In describing the potential extent of the Individuals liability, the trial court
ruled they were “liable under the Guaranty only to the extent provided in the
Guaranty and Purchase Order 1682. Specifically, the individual guarantors each
guaranteed 25% of the purchase price of 5,000 black and white GPS Golf Guru
units at a unit price of $128.95.” See CR 89 (emphasis added). But that
description about the extent of potential liability departs from the Guaranty’s
terms.
33
By the Guaranty, the individuals did not guarantee 25% of the purchase
price of 5,000 black and white GPS Golf Guru units at a price of $128.95 (or at any
price). Instead, they guaranteed 25% of “all amounts due” to AMS under PO 1682
on which the Purchaser (defined as “A-Pro”) defaulted for the purchase of 5,000
Golf Guru units. The distinction is issue-dispositive.
Absent a showing of “amounts due” under PO 1682 on which A-Pro, as
purchaser, defaulted, there can be no liability under the Guaranty. The Guarantors
did not purport to guarantee that AMS would receive any certain purchase price for
any certain number of units and they did not guarantee every obligation as between
AMS and A-Pro and TQI. A contrary interpretation of the Guaranty would offend
the rules requiring guarantees be strictly construed in favor of the guarantor and
not extended by construction or implication. See McKnight, 463 S.W.2d at 430.
In sum, given the evidence and given testimony from AMS’s controller that
zero was due under the guaranteed PO 1682, there is no basis to hold the
Individuals liable for any amounts under the Guaranty. The trial court’s ruling to
the contrary thus constitutes error and must be reversed.
C. The award of attorney’s fees constitutes error
The trial court’s award of attorney’s fees in favor of AMS constitutes error.
The award is erroneous because AMS did not segregate among recoverable and
34
non-recoverable fees or in light of with which defendant particular fees were
incurred.
There is no question that AMS should have been obligated to segregate its
fees and allocate among tasks for which fees may be awarded and those for which
fees may not be awarded. First, because AMS spent thousands of dollars pursuing
fraud and alter-ego claims, tasks that are not recoverable under chapter 38 of the
Civil Practice and Remedies Code or pursuant to the terms of the Guaranty, AMS
should have been obligated to segregate those fees out from those that might be
recovered. See Tony Gullo Motors v. Chapa, 212 S.W.3d 299, 314 (Tex. 2007)
(“no question” that fees incurred pursuing fraud claims were not recoverable).
AMS sued two defendants who it later nonsuited, filed a quantum meruit claim,
and undertook numerous other tasks that fell outside of the realm of a chapter 38
award of attorney’s fees or an award pursuant to any contractual provision.
Not only should allocation among recoverable and non-recoverable tasks
have been required, allocation among tasks attributable to the various defendants
should have also been required. For example, to the extent AMS incurred fees in
developing and proving a liability case against TQI, it makes no sense to hold the
Individuals jointly and severally liable for those fees. In the absence of such
allocation, the award holds the Individuals liable not only for fees that are not
otherwise recoverable under chapter 38 of the Civil Practice and Remedies Code
35
against anyone, but also holds them liable for unrecoverable fees attributable to the
conduct of other parties over whose litigation strategy they had no control (i.e., the
award holds the Individuals liable for AMS’s fees incurred in responding to
TQI/Cornish’s summary judgment pleadings). Thus, the Individuals pray that this
Court, at a minimum, vacate the award of attorney’s fees.
PRAYER FOR RELIEF
Wherefore, premises considered, the Individuals respectfully pray that this
Court reverse the judgment of the trial court and render judgment that AMS take
nothing by its claims against them, retaining the judgment in favor of AMS as to
Assistant Pro, Inc., TQI Corporation, and Darryl Cornish, and affirming the award
of attorney’s fess assessed against those defendants in a manner this Court deems
appropriate. Alternatively, the Individuals pray that this Court reverse the
judgment of the trial court and vacate the award of attorney’s fees in AMS’s favor.
The Individuals additionally pray for any additional relief to which it may be
entitled.
36
Respectfully submitted,
/S/ Michael S. Truesdale
Michael S. Truesdale
LAW OFFICE OF MICHAEL S. TRUESDALE, PLLC
State Bar No. 00791825
801 West Avenue, Suite 201
Austin, TX 78701
512-482-8671
866-847-8719 (fax)
mike@truesdalelaw.com
Counsel for Dennis Draper, Greg Hadley and Charles
Huston
CERTIFICATE OF SERVICE
On September 30, 2015, the undersigned certifies that he served a copy of
this Brief of Appellants on the following via e-service, in compliance with Texas
Rules of Appellate Procedure 9.5 and 25.1(e):
Brian A. Colao Shane M. Boasberg
bcolao@dykema.com shaneb@law-smb.com
Christopher Kratovil The Law Offices of Shane M.
ckratovil@dykema.com Boasberg, P.C.
Dykema Gossett PLLC 2901 Bee Caves Road,
1717 Main Street, Suite 4000 Commissioner’s House, Box E
Dallas, Texas 75201 Austin, Texas 78746
Counsel for Austin Manufacturing Counsel for Assistant Pro, Inc., TQI
Services Corporation, and Darryl Cornish
/s/ Michael S. Truesdale
Michael S. Truesdale
SBN 00791825
37
CERTIFICATE OF COMPLIANCE
The undersigned certifies that this brief complies with the word limitation
contained in Texas Rule of Appellate Procedure 9.4(i)(2)(E) in that the brief
contains a total of 8,928 words, excluding parts of the brief exempted by Tex. R.
App. P. 9.4(i)(1), as calculated by the word count tool of Microsoft Word (2008)
for Mac.
/s/ Michael S. Truesdale
Michael S. Truesdale
38
APPENDIX
Tab 1 Final Judgment (CR 492)
Tab 2 Findings of Fact and Conclusions of Law (CR 443)
Tab 3 Additional Findings of Fact and Conclusions of Law (CR 484)
1
Tab 1
DC BK15188 PG701
CAUSE NO. n-t-GN-09-004416
AUSTIN MANUFACTURlNG §
SERVICES I, INC., §
§
Plaintiffs, §
§
v. §
§
ASSIST ANT PRO INC, OPTIMAL § 353rd JUDICIAL DISTRICT
LP HOLDINGS, I.P., OPTIMAL §
INTELLECTUAL PROPERTY, INC., §
TQI CORPORATION, DARRYL §
CORNISH, DENNIS DRAPER, §
GREG HADLEY, and CHARLES §
HUSTON, §
§
Defendants. § TRAVIS COUNTY, TEXAS
FINAL JUDGMENT
The Court hereby renders Final Judgment in favor of Plaintiff Austin Manufacturing
Services I, Inc. ("Plaintiff' or "AMS"). Trial in this case occuned on Apri114-16 and concluded
on April 30, 2014 before the Honorable Judge Orlinda L. Naranjo on breach of contract and
other claims asserted by Plaintiff against Defendants Assistant Pro Inc., ("A-Pro") TQI
Corporation ("TQI"), Darryl Cornish ("Cornish"), Dennis Draper ("Draper"), Greg Hadley
("Hadley"), and Charles Huston ("Huston") (Cornish, Draper, Hadley and Huston are
collectively referred to herein as the "Guarantors") (A-Pro, TQI, and the Guarantors are further
collectively refen·ed to herein as the "Defendants"). 1 Plaintiff and Defendants each appeared in
person and through their respective attorneys of t'ecord and announced ready for trial. The Court
determined it had jurisdiction over the subject matter and Patties to this proceeding.
1 Defendants Draper, Hadley, Huston and A-Pro also asserted cross-claims against Defendant TQI and Cornish.
Optimal IP Holdings, LP and Optimal Intellectual Property, Inc. were non-suited by Plaintiff prior to the time of
trial.
FINALJPDGMENT-Page 1 of6
I\IIIII IIIII IIIII IIIII IIIII IIIII IIIII IIIII IIIII Ill\ Ill\
004104352
492
DC BK15188 PG702
On September 24, 2014, the Court found and held that Defendants A-Pro and TQI failed
to make proper payment to Plaintiff under Purchase Order 1682; the Court further found and
held that the Guarantors failed to make proper payment under their Guaranties of Purchase Order
1682. As a result, this Court finds and holds, that Defendants are validly justly indebted to
Plaintiff and also that Plaintiff is entitled to recover its attorneys' fees and costs under both Texas
law and the terms of the Guaranties at issue in this case.
On April 16, 2015 the Court entered its Final Judgment in this case. On June 5, 2015
Plaintiff moved for Judgment Nunc Pro Tunc to correct two cledcal errors in the original April
16, 2015 Final Judgment. The errors corrected by this Judgment are the name of Plaintiff Austin
Manufacturing Services I, Inc. originally described as Austin Manufacturing Services, Inc. and
the amount of the attorneys' fees award against each Defendant, which was incot1·ectly listed
at$196,961.55 for all Defendants but Defendant Huston. The correct sum of attorneys' fees
awarded to Plaintiff is $150,000.00, assessed jointly and severally against all Defendants and the
correct name of the Plaintiff in this case is Austin Manufacturing Services I, Inc. This Final
Judgment does not modify in any substantive way the Coutt's prior Judgment and merely
conects these two clerical cnors.
Consistent with the Court's rulings, findings and interlocutory holdings (all of which are
incorporated into this Final Judgment for all purposes), the Court renders Final Judgment on all
claims asselted by and between all Parties in the above-referenced proceeding as follows:
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the Court enters
judgment in favor of Plaintiff AMS against Defendants A-Pro, TQI, Cornish, Draper, Hadley and
Huston; Plaintiff AMS is the prevailing party in all respects and is entitled to FINAL
JUDGMENT on its claims for breach of contract and/or guaranty.
FINAL JUDGMENT-Page 2 of6
493
DC BK15188 PG703
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that AMS has prevailed
on its claim for breach of contruct against Defendants TQI and A-Pro. AMS shall have Final
Judgment against and shall recover from TQI and A-Pro, jointly and severally, the amount of
$382,484.92 for goods and services provided by AMS, plus 5% pre-judgment interest from
December 29, 2009 through November 14, 2014 of $93,315.84, plus $52.40 per day until this
Final Judgment is entered. The total judgment against A-Pro and TQI for breach of contract is
$475,800.76, plus $52.40 per day. This total sum shall bear post-judgment interest at 5% per
annum, compounding annually, ti·om the date of entry of this Final Judgment until such
judgment is fully satisfied. AMS shall also have Final Judgment against Defendants TQI and
A-Pro, jointly and severally with all Defendants, for its attorneys' fees and costs in the amount of
$150,000.00 through the submission of judgment, with conditional fees of $25,000.00 if the
matter is appealed to the Austin Comt of Appeals, and another $20,000.00 of conditional fees if
a further appeal is taken to the Texas Supreme Court.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that AMS has prevailed
on its claim for breach of guaranty against Defendant Cornish. AMS shall have Final Judgment
against Cornish for goods and services guaranteed by Comish in the amount of$85,621.23, plus
5% pre-judgment interest irom December 29, 2009 through November 14, 2014 of $20,889.23
plus $11.73 per day until this Final Judgment is entered. The total judgment against Comish for
breach of guaranty is $106,510.45, plus $11.73 per day. This total sum shall bear post-judgment
interest at 5% per annum, compounding annually, from the date of ently of this Final Judgment
until such judgment is fully satisfied. AMS shall also have Final Judgment against Defendant
Cornish, jointly and severally with all Defendants, for its attorneys' fees and costs in the amount
of $150,000.00 through the submission of judgment, with conditional fees of $25,000.00 if the
FINAL JUDGMENT-Page 3 of6
494
DC BK15188 PG704
matter is appealed to the Austin Court of Appeals, and another $20,000.00 of conditional fees if
a further appeal is taken to the Texas Supreme Court.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that AMS has prevailed
on its claim for breach of guaranty against Defendant Draper. AMS shall have Final Judgment
against Draper for goods and services guaranteed by Draper in the amount of $70,408.47, plus
5% pre-judgment interest from December 29, 2009 through November 14, 2014 of $17,177.74,
plus $9.64 per day until Judgment is entered. The total judgment against Draper for breach of
guaranty is $87,586.21, plus $9.64 per day. This total sum shall bear post-judgment interest at
5% per annum, compounding annually, fmm the date of entry of this Final Judgment until such
judgment is fully satisfied. AMS shall also have l1inal Judgment against Defendant Draper,
jointly and severally with all Defendants, for its attorneys' fees and costs in the amount of
$150,000.00 through the submission of judgment, with conditional fees of $25,000.00 if the
matter is appealed to the Austin Court of Appeals, and another $20,000.00 of conditional fees if
a further appeal is taken to the Texas Supreme Court.
IT IS FURTHER ORDF.Rfi~D. AD.JUDGED AND DECREED that AMS has prevailed
on its claim for breach of guaranty against Defendant Hadley. AMS shall have Final Judgment
against Hadley for goods and services guaranteed by Hadley in the amount of $70,408.47, plus
5% pre-judgment interest from December 29, 2009 through November 14, 2014 of $17,177.74,
plus $9.64 per day until Judgment is entered. The total judgment against Hadley for breach of
guaranty is $87,586.21, plus $9.64 per day. This total sum shall bear post-judgment interest at
5% per annum, compounding annually, from the date of entry of this Final Judgment until such
judgment is fully satisfied. AMS shall also have Final Judgment against Defendant Hadley,
jointly and severally with all Defendants, for its attorneys' fees and costs in the amount of
FJNALJPDGMENT-Pue 4 of6
495
DC BK15188 PG705
$150,000.00 through the submission of judgment, with conditional fees of $25,000.00 if the
matter is appealed to the Austin Court of Appeals, and another $20,000.00 of conditional fees if
a further appeal is taken to the Texas Supreme Court.
IT IS FURTHER ORDERED, AD.JUDGED AND DECREED that AMS has prevailed
on its claim for breach of guaranty against Defendant Huston. AMS shall have Final Judgment
against Huston for goods and services guaranteed by Huston in the amount of $70,408.47, plus
5% pre-judgment interest from December 29,2009 through November 14,2014 of$17,177.74,
plus $9.64 per day until Judgment is entered. The total judgment against Huston for breach of
guaranty is $87,586.21, plus $9.64 per day. This total sum shall bear post-judgment interest at
5% per annum, compounding annually, fi·om the date of entry of this Final Judgment until such
judgment is fully satisfied. AMS shall also have Final Judgment against Defendant Huston,
jointly and severally with all Defendants, for its attorneys' fees and costs in the amount of
$150,000.00 through the submission of judgment, with conditional fees of $25,000.00 if the
matter is appealed to the Austin Court of Appeals, and another $20,000.00 of conditional fees if
a fut1her appeal is taken to the Texas Supreme Cow1.
IT IS HEREBY ORDERED, ADJUDGED AND DI~CREED that Plaintiff AMS is the
prevailing party for all purposes and is therefore entitled to recover its costs of court from the
Defendants, who are jointly and severally responsible for the payment of all Plaintiffs'
recoverable costs of court.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that all writs and
processes for the enforcement and collection of this FINAL JUDGMENT may issue as
necessary.
FINAL JUDGMENT-Pace 5 or6
496
DC BK15188 PG706
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that this judgment
finally disposes of all Parties and all claims and is appealable. This is a FINAL JUDGMENT.
All relief not specifically granted herein is expressly DENIED.
']~.oo\~
Signed this _cp__ day of~ 2014.
APPROVED AS TO FORM ONLY:
Counsel for Dennis Draper, Greg Hadley, and Charles Huston
FINAL JUDGMENT- Pace 6 of 6
497
Tab 2
Filed in The District Court
of Travis County, Texas
MAY 2.1 2015 tA
D-1-G N -09-004416
At-:--~=-=-``3()==:..---f"'-M.
Velva L. Price, District lerk
AUSTIN MANUFACTURING § IN THE DISTRICT COURT
SERVICES, INC., AMS, LP, and AMS §
ACQUISITION CORP., §
§
Plaintiffs, §
§
v. § 353rd JUDICIAL DISTRICT
§
ASSISTANT PRO INC, OPTINAL LP §
HOLDINGS, L.P., OPTIMAL §
INTELLECTUAL PROPERTY, INC., §
TQI CORPORATION, DARRYL §
CORNISH, DENNIS DRAPER, GREG §
HADLEY, and CHARLES HUSTON, §
§
Defendants. § TRAVIS COUNTY, TEXAS
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The Court entered Final Judgment in favor of Plaintiff Austin Manufacturing Service
("Plaintiff" or "AMS") on April 16, 2015, consistent with this Court's September 26, 2014 letter
ruling, against Defendants Assistant Pro, Inc. ("A-Pro"), TQI Corporation ("TQI"), Darryl
Cornish ("Cornish"), Dennis Draper ("Draper"), Greg Hadley ("Hadley") and Charles Huston
("Huston" and collectively with Cornish, Draper and Hadley the "Guarantors;" A-Pro, TQI and
the Guarantors are further collectively referred to herein as the "Defendants") following a bench
trial conducted on April 14-16 and 30th of2014. On May 4, 2015, Defendants Draper, Hadley
and Huston requested Findings of Fact and Conclusions of Law.
This Court makes the following findings of fact and conclusions of law. To the extent
that any finding of fact made by this Court should properly be considered a conclusion of law,
and to the extent that any conclusion of law made by this Court should properly be considered a
finding of fact, it is the express intent of the Court that any statement identified herein as a
1111111111111111111111111111111111111111111111111111111
004041550
Findings of Fact and Conclusions of Law Page 1
443
finding of fact also be deemed a conclusion of law and any statement identified herein as a
conclusion of law shall also be deemed a finding of fact.
After considering the case file, the pleadings, the evidence presented at trial, the
testimony of the parties, and the argument and briefs of counsel, the Court finds that the
following findings of fact and conclusions of law are supported by a preponderance of the
evidence, and are consistent with its Final Judgment of April 16, 2015:
I.
FINDINGS OF FACT
1. Defendants Dennis Draper ("Draper"), Darryl Cornish ("Cornish"), Greg Hadley
("Hadley") and Charles Huston ("Huston" and collectively with Cornish, Draper and Hadley, the
"Guarantors") were the owners and principals of Defendant Assistant Pro, Inc. ("A-Pro") and/or
Defendant TQI Corporation ("TQI").
2. A-Pro and TQI (hereinafter "A-Pro/TQI") are sister companies doing business in
Travis County, Texas. The Guarantors were authorized to act on behalf of A-Pro and conducted
business and operations on its behalf. Defendant Cornish was authorized to act on behalf ofTQI
and conducted business and operations on its behalf.
3. A-Pro and TQI shared common management including specifically but not limited to
Defendant Cornish and employee Richard Home ("Home"), office space and other resources,
were affiliated companies in all respects, and interacted with Plaintiff AMS Manufacturing
Services, Inc. ("AMS" or "Plaintiff') as a single and/or joint unit. Cornish and Home were
authorized to act on behalf of both A-Pro and TQI, and they did so in their dealings withAMS.
4. A-Pro developed and sold "Golf Guru" units, portable GPS units designed to assist
golfers during their rounds of golf. A-Pro/TQI contracted withAMS, an Austin, Texas based
Findings of Fact and Conclusions of Law Page2
444
manufacturing company, to manufacture these Golf Guru units. Defendants A-Pro/TQI entered
into a contract withAMS on behalf of A-Pro to purchase 5,000 black and white Golf Guru units
priced at $128.95 each on October 9, 2007. This contractual order was reflected and
memorialized in Purchase Order 1682 ("PO 1682"), a true and correct copy of which is attached
hereto as Exhibit 1. A-Pro/TQI assumed responsibility for any and all materials and or/all units
manufactured by AMS pursuant to or under PO 1682. As such, A-Pro/TQI are jointly
responsible for and obliged to AMS under PO 1682.
5. On October 19, 2007, the Guarantors each individually signed and personally
guaranteed (the "Guarantees") 25% of PO 1682 (the "Guaranteed Portion"). The Guarantees
expressly included 25% of the order of 5,000 black and white Golf Guru units at $128.95 per
unit, referred to as the "Guaranteed Portion" under the Guarantees.
6. The Guarantors waived and abandoned notice of acceptance of guaranty, demands
and notices of nonpayment, and consented to any extensions of time for payment of the
Guarantees.
7. The Guarantors contractually agreed to pay any attorneys' fees and costs incurred by
AMS in collecting under the Guarantees and/or under PO 1682.
8. AMS manufactured the Golf Guru units for A-Pro/TQI which, in tum, were
guaranteed by the Guarantors who were the principals and owners of A-Pro and/or TQI.
9. A-Pro/TQI took and accepted delivery of several thousand Golf Guru units
manufactured pursuant to PO 1682. A-Pro/TQI took and accepted delivery from AMS of models
with both color screens and black and white screens. AMS delivered all the Gulf Guru units and
fully satisfied all of its obligations to A-Pro/TQI.
10. A-Pro/TQI sold the Golf Guru units manufactured and received from AMS and
received payment from third parties for those units sold. The Guarantors acknowledged that the
Findings of Fact and Conclusions of Law Page3
445
Golf Guru units were received and accepted by A-Pro/TQI; that they were aware of such receipt
and that, following such receipt the Golf Guru units were sold by A-Pro/TQI without remitting
payment to AMS.
11. A-Pro/TQI failed to pay in full for the goods delivered to them by AMS.
Specifically, A-Pro/TQI failed to pay AMS in full for the Golf Guru units ordered under PO
1682.
12. A-Pro/TQI's outstanding balance due to AMS, excluding any interest and fees, for
purchases under PO 1682 (and excluding all other amounts owed to AMS) is comprised of: (1)
accounts receivable of$241,977.52; (2) work in progress of$51,873.06; (3) raw materials in the
amount of $42,379.58; and (4) finished goods in the amount of $6,254.76. Thus, the total
amount due to AMS under PO 1682 (and excluding all other amounts owed to AMS by A-
Pro/TQI) was $342,484.92.
13. The total amount past due and owing to AMS by A-Pro and TQI, excluding fees and
interest, for all purchases made by A-Pro/TQI was $382,484.92. This amount reflects all partial
payments made to AMS by A-Pro/TQI as well as any lawful offsets and credits and represents
the total amount due and owing under PO 1682.
14. The application of all payments and/or credits to the balance owed on PO 1682 was
done either at the express instruction of one or more of the Defendants, with their authorization,
and/or where no instruction was given, consistent with industry practice and with notification to
Defendants of the application and an opportunity to object to same. Defendants did not object to
the application of any payment.
15. The total amount due to AMS by A-Pro/TQI can be segregated into black and white
and color Golf Guru units. The total amount due to AMS for black and white Gulf Guru units
(i.e., excluding any color screen units) under PO 1682 was $300,892.08 after the application of
Findings of Fact and Conclusions of Law Page4
446
all payments, lawful offsets, and credits (excluding any interest and fees); the remaining amount
due and owing is attributable to color Golf Guru units. The black and white Golf Guru units
balance is comprised of the following amounts: (1) $230,432.62 in receivables; (2) $21,825.12
for work in progress; (3) $42,379.58 in raw materials; and (4) $6,254.76 in finished goods. The
black and white Golf Guru units have a unique number allowing AMS to properly identify and
segregate the amounts due and owing on black and white versus color Golf Guru units.
16. The application of all payments and/or credits applied to black and white Golf Guru
units and also any color Golf Guru units was done either at the express instruction of one or more
of the Defendants, with their authorization, and/or where no instruction was given, consistent
with industry practice and with notification to Defendants of the application and an opportunity
to object to same. Defendants did not object to the application of any payment.
17. Defendant and Guarantor Cornish, an officer for both corporations, specifically
admitted and acknowledged that A-Pro/TQI were liable to AMS in the amount of$382,484.92.
18. Defendant Cornish unequivocally approved and consented to individually and
personally guarantee the purchase of both color and black and white Golf Guru units from AMS
by A-Pro under PO 1682. However, the terms of the other Guarantors' Guarantees remained the
same at 5,000 black and white Golf Guru units at $128.95. The fundamental terms of PO 1682
never changed. Any decisions made by Cornish or Horne or any additional orders or
modifications of PO 1682 materially benefitted both Cornish and his fellow Guarantors as A-Pro
accepted and materially benefitted from the sale of both color and black and white Golf Guru
units.
19. Defendant Cornish consented to and accepted all changes to PO 1682. As a result,
the amount owed by Defendant Cornish under his individual Guaranty to AMS, was $85,621.23,
exclusive of attorneys' fees and interest, which represents 25% (twenty five percent) of the total
Findings of Fact and Conclusions of Law PageS
447
amount still due and owed to AMS under PO 1682. Defendant Cornish expressly admitted and
acknowledged his liability in this amount.
20. Defendants Draper, Hadley and Huston each individually guaranteed 25% (twenty
five percent) of the purchase of 5,000 black and white (as distinct from color) Golf Guru units
from AMS at the price of $128.95 per unit. Defendants Draper, Hadley and Huston did not
guarantee the purchase of any color Golf Guru units from AMS.
21. AMS' recovery from Defendants Draper, Hadley and Huston is limited to black and
white units ($300,892.08) at a unit price of$128.95. After applying a unit price of$128.95, the
accounts receivable balance is reduced to $211,368.54 and the finished goods balance is
$6,060.65. The amounts owed for WIP ($21,825.12) cannot be further reduced as they are not
reflected at a final sales or unit price, but rather at their extended value which is a lower amount.
Similarly, the amounts owed for raw materials ($42,379.58) need not be further reduced as they
are billed at cost (there is no mark-up on the amount) which is lower than a unit or sales price.
22. The amount due and owing to Plaintiff is $281,633.89. Defendants Draper, Huston,
and Hadley each guaranteed twenty-five percent of that amount which made them each liable for
$70,408.47.
23. Accordingly, the portion of PO 1682 guaranteed by Defendants Draper, Hadley and
Huston was $70,408.47 each, exclusive of attorneys' fees and interest, or 25% (twenty five
percent) of the total amount due to AMS under PO 1682 at the price of $128.95 per black and
white Golf Guru unit.
24. A-Pro/TQI defaulted on their obligations to AMS, including specifically on their
obligations under PO 1682; AMS fully performed under PO 1682 but has not been fully paid for
the Golf Guru units it delivered to A-Pro/TQI. A-Pro/TQI have failed to pay for the Gulf Guru
units ordered and delivered under PO 1682.
Findings of Fact and Conclusions of Law Page6
448
25. The Guarantors defaulted on their obligations to AMS under PO 1682 and the
Guarantees; the Guarantors have not paid AMS the amounts they guaranteed and that A-Pro/TQI
failed to pay to AMS under PO 1682. Each Guarantor has breached his Guaranty to AMS.
26. A-Pro/TQI and the Guarantors each failed to pay their due-and-owing obligations to
AMS despite multiple demands made by AMS to them to do so.
27. Plaintiff AMS was compelled to retain and pay for the services of legal counsel in
order to obtain payment from the Defendants. Plaintiff AMS incurred $196,961.5 5 in attorneys'
fees during the prosecution of this lawsuit, including trial. The Court determined after hearing
the evidence and testimony by counsel that $46,961.55 were required to be segregated and
represented non-recoverable fees. The Court found the remaining fees, in the amount of
$150,00.00, to be reasonable and necessary to the prosecution of AMS' lawsuit, properly
segregated, to bear a reasonable relationship to the amount in controversy, and that the award of
these fees is just and proper.
28. Further segregation of attorneys' fees is unnecessary and/or not possible in this case,
as Plaintiff has established that the time expended upon all the discrete legal services performed
in this case for which fees have been awarded advanced both the recoverable and unrecoverable
claims asserted by Plaintiff, or necessarily rebutted affirmative defenses asserted by the
Defendants. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 313 (Tex. 2006); Stewart
Title Guar. Co. v. Aiello, 941 S.W.2d 68, 73 (Tex. 1997). All of the claims and affirmative
defenses asserted in this case arise from a common nucleus of operative fact. The Court
concludes that the recoverable and unrecoverable claims asserted by Plaintiff, as well as the
rebuttal of affirmative defenses asserted by the Defendants, were all deeply and inherently
intertwined and thus not subject to further or additional segregation under Texas law. !d.
Findings of Fact and Conclusions of Law Page7
449
29. Plaintiff initiated this lawsuit against the Defendants to obtain payment on December
29,2009.
30. This Court held a bench trial on April 14-16 and April 30, 2014 on Plaintiffs claims.
31. On Aprill6, 2015, the Court entered Final Judgment in favor of Plaintiff and against
all Defendants. This Final Judgment is based upon and consistent with the letter ruling of
September 26, 2014 in favor of Plaintiff.
32. On May 4, 2015, Defendants Hadley, Huston and Draper requested findings of fact
and conclusions of law.
33. Any of the foregoing Findings of Fact that should more properly be considered a
Conclusion of Law is so deemed, and should be treated as such.
II.
CONCLUSIONS OF LAW
1. All Defendants are subject to personal jurisdiction in Texas.
2. This Court has subject matter jurisdiction over this matter.
3. AMS is a party to all contracts between itself, TQI, A-Pro and the Guarantors and is
the proper party to bring any suit under any such contract or purchase order, including expressly
PO 1682 and the Guarantees.
4. The Guarantees are enforceable, valid contracts between the Guarantors and AMS.
5. Purchase Order 1682 (PO 1682) is an enforceable, valid contract between AMS, TQI
and A-Pro. !d. PO 1682 may be enforced by AMS against TQI and A-Pro.
6. AMS fully performed all of its obligations to A-Pro, TQI and the Guarantors,
including expressly the manufacture and delivery of Golf Guru units, fulfilling any and all
conditions precedent to the performance of Defendants.
Findings of Fact and Conclusions of Law PageS
450
7. A-Pro/TQI failed to perform their obligations to AMS by failing to remit payment in
full for all the Golf Guru units manufactured and delivered by AMS. This failure to perform
constituted a material breach of A-Pro's and TQI's obligations to AMS.
8. A-Pro/TQI failed to perform their material obligations to AMS by failing to remit
payment in full for all the Golf Guru units manufactured and delivered by AMS under PO 1682.
This failure to perform constituted a material breach of A-Pro/TQI's obligations to AMS under
PO 1682.
9. The Guarantors failed to perform their material obligations to AMS by failing to
remit-despite proper demand from AMS-payment in the amount of the Guaranteed Portion
for 25% of the manufactured black and white Golf Guru units manufactured and delivered by
AMS under PO 1682. This failure to perform constituted a material breach of the Guarantors'
obligations to AMS under their respective Guarantees.
10. Defendant and Guarantor Cornish consented to and accepted any and all changes in
his individual Guarantee.
11. No material alteration of Defendants Hadley, Huston or Draper's respective
Guarantees occurred because no material changes to the terms of their Guarantee encompassing
PO 1682 occurred, and, if such change had occurred, because any such material changes would
have been beneficial to the respective Guarantors. Austin Hardwoods Inc. v. Vanden Berghe,
917 S.W.2d 320, 325 (Tex. App.-El Paso 1995, writ denied). The Guarantors other than
Cornish further materially benefitted from all decisions made by either Cornish or Horne with
respect to PO 1682. As a result, Draper, Hadley and Huston remained liable under the
Guarantees for 5,000 black and white Golf Guru units at $128.95 per unit. The Guarantors were
never discharged or released from their obligations under their Guarantees.
Findings of Fact and Conclusions of Law Page9
451
12. The Guarantees obligated Defendants Hadley, Huston and Draper to each pay 25% of
the purchase price of 5,000 black and white Golf Guru units at $128.95 per unit, but the
Guarantors have failed to make these required payments to AMS.
13. The Guarantees obligated Cornish to pay back 25% of A-Pro/TQI's total liability
under PO 1682, but Cornish has failed to pay the required payments to AMS.
14. The Guarantors contractually agreed to pay Plaintiffs attorneys' fees incurred in any
attempt to collect under PO 1682 or the Guarantees. In addition to this contractual basis for
recovery of fees, all Defendants are also liable for Plaintiffs attorneys' fees under Chapter 38 of
the Texas Civil Practice & Remedies Code.
15. The Court awards reasonable and necessary attorneys' fees in the amount of
$150,000.00 to Plaintiff AMS. The conditional attorneys' fees of $25,000 in the event of an
appeal to the Austin Court of Appeals and $20,000 in the event of an appeal to the Texas
Supreme Court are also reasonable and necessary.
16. All Defendants are jointly and severally liable for Plaintiffs attorneys' fees.
17. Plaintiff AMS is the prevailing party in this case for all purposes and as the prevailing
party, Plaintiff is entitled to recover its costs of court.
18. Plaintiff is entitled to pre-judgment interest on all amounts recovered from
Defendants through April 16, 2015 at 5%.
19. Plaintiff is entitled to post-judgment interest on all amounts recovered from
Defendants beginning on April 16, 2015 at 5% interest, compounding annually until the
judgment is fully satisfied.
Findings of Fact and Conclusions of Law Page 10
452
D-1-GN- QC( ~OLf41&
20. Any of the foregoing Conclusions of Law that should more properly be considered a
Finding of Fact is so deemed, and should be treated as such.
``A~
ilJGEPSIDING '
Findings of Fact and Conclusions of Law Page 11
453
Tab 3
Filed in The District Court
of Travis Countv;. ' 7I w~,,.~
~ ....
">A;)
JUN - 8 2015 r 1\
CAUSE NO. D-1-GN-09-004416 At r O~ 1J) ``U
Velva l. Pnce, District Clerk
AUSTIN MANUFACTURING § IN THE DISTRICT COURT
SERVICES I, INC., §
§
Plaintiff, §
§
v. §
§ 353rd JUDICIAL DISTRICT
ASSISTANT PRO INC, OPTINAL LP §
HOLDINGS, L.P., OPTIMAL §
INTELLECTUAL PROPERTY, INC., §
TQI CORPORATION, DARRYL §
CORNISH, DENNIS DRAPER, GREG §
HADLEY, and CHARLES HUSTON, §
§
Defendants. §
§ TRAVIS COUNTY, TEXAS
ADDITIONAL FINDINGS OF
FACT AND CONCLUSIONS OF LAW
The Court entered Final Judgment in favor of Plaintiff Austin Manufacturing Service I,
Inc. ("Plaintiff' or "AMS") on April 16, 2015, consistent with this Court's September 26, 2014
letter ruling, against Defendants Assistant Pro, Inc. ("A-Pro"), TQI Corporation ("TQI"), Darryl
Cornish ("Cornish"), Dennis Draper ("Draper"), Greg Hadley ("Hadley") and Charles Huston
("Huston" and collectively with Cornish, Draper and Hadley the "Guarantors;" A-Pro, TQI and
the Guarantors are further collectively referred to herein as the "Defendants") following a bench
trial conducted on April 14-16 and 30th of 2014. On May 4, 2015, Defendants Draper, Hadley
and Huston requested Findings of Fact and Conclusions of Law. Plaintiff filed its Proposed
Findings of Fact and Conclusions of Law on May 18, 2015. The Court entered its Findings of
Fact and Conclusions of law on May 21, 2015. Defendants Draper, Hadley and Huston
requested additional findings of fact and conclusions of law on May 27, 2015. After considering
the pleadings, the evidence presented at trial, and the arguments and briefs of counsel, the Court
1111111111111111111111111111111111111111111111111111111
004062633
484
makes the following additional findings of fact m support of and consistent with its Final
Judgment of April 16, 2015:
I.
FINDINGS OF FACT
1. Austin Manufacturing Services, L.P., ("AMS LP") a partnership, was a
predecessor entity to Austin Manufacturing Services I, Inc. AMS LP merged into Austin
Manufacturing Services I, Inc., whose Chief Executive Officer at the time of trial was Brad
Scoggins. Any and all obligations, debts, accounts receivables, contracts or other debts or
instruments belonging to AMS LP or any other "Austin Manufacturing Services" entity now
belong in their entirety to Austin Manufacturing Services I, Inc., including but not limited to
AMS LP' s interest in any Guarantees executed by any of the Defendants in this case or its
contractual relationships with any of the Defendants in this case. Austin Manufacturing Services
I, Inc. was the Plaintiff and prevailing party in this case.
2. The Court's Finding of Fact No.4 entered on May 21, 2015 referred to a copy of
PO 1682 which was not attached as "Exhibit 1" as specified. The Court hereby attaches PO
1682 as "Exhibit 1" in reference to Finding of Fact No. 4.
3. The Final Judgment is in favor of Plaintiff Austin Manufacturing Services I, Inc.
in its capacity as Plaintiff and sole prevailing party under the Final Judgment.
ENTERED ON: J~ ~ l QQ\5
JUDGE PRESIDING
485
EXHIBIT
1
486
TQJ Systems, LTO
•
Purchase Order
9008 Anderson Mill Rd
Austin, TX 78729
Phone# 512-401-8103
10/9/2007 1682
Fax# 512-250-5020
..
·
AMS TQI Systems
Po Box 671161 TQI Systems, LTO
Dallas, TX 75267-1161 9008 Anderson Mill Rd
Austin, TX 78729
Vendor Contact: Steve Bandy
Vendor Phone: 512-651-5327
Vendor Fax:
. ·;.;~
Lauotk,# .;;;; ~;;' "
!t"' •IL;~·: : · .•::f: ~-.
··T:erms
' }'~
.'? ~tr Ext>ectf!d,
">·bcf,_.;.. • .•;
. , ship Via,·
. :.:· ..
9/24/2007 Net60 11/23/2007
TQI PIN Vendor P/N MPN Description Qty UIM Cost Deliver On Extension
TC21301 TC21301 GPS Golf Guru Assembly 5,000 ea 128.95 644750.00
ToolingCh .. PCB Tooling 1,000.00 1,000.00
• NOTE:
To be shipped direct to
customer from AMS
• Approved By:______
AMS SUPP000322
J Total
IMPORTANT! Please confirm receipt of PO, along with pricing and delivery by email to
jsmith@tqicorp.com, or fax to 512-250-5020
AMS SUFAMSJ9lllm
$645,750.00
487
TRENT HIGHTOWER
ORLINDA NARANJO Staff Attorney
(512) 854-4029
Judge
(512) 854-4023
DORA CANIZALES
Official Court Reporter
TAMMY ST.GEORGE 419TH DISTRICT COURT (512) 854-9329
Court Operations Officer
(512) 854-4023
HEMAN MARION SWEATT TRAVIS COUNTY COURTHOUSE
P. 0. BOX 1748 STEPHANIE WILLIAMS
AUSTIN, TEXAS 78767 Court Clerk
(512) 854-5854
FAX: (512) 854-2224
June 8, 2015
Via Facsimile (214) 462-6401 Via Facsimile (512) 476-1228
Brian Colao Brian O'Toole
Dykema Gossett PLLC Attorney for Defendants Dennis Draper, Greg
Attorneys for Plaintiff Hadley, and Charles Huston
1717 Main Street, Suite 4000 O'Toole Atwell, PC
Dallas, Texas 75201 504 Lavaca, Suite 945
Austin, Texas 7870 I
Via Facsimile (512) 561-5004
Shane Boasberg
Attorney for Defendant Darryl Cornish
The Jaw Offices of Shane M. Boasberg, PC
290 I Bee Caves Road, Suite E
Austin, Texas 78746
Re: Cause No. D-1-GN-09-004416; Austin Manufacturing Services Inc. vs.
Assistant Pro Inc,. et al,; In the 353rd. Judicial District Court, Travis County, Texas
Dear Counsel:
Enclosed is the signed Additional Findings of Fact and Conclusions of Law in the above-
referenced matter. The Order has been stamped and filed with the District Clerk's Office.
If you have any questions regarding this matter, please contact me directly at (512) 854-4023.
(J:;Iy, j,~
Tam~orge
Court Operations Officer to Judge Orlinda L. Naranjo
419th District Court, Travis County
Enclosures (I)
xc: Ms. Velva Price, District Clerk
488
489
.~.r--``
.. ~·I·
-~ "``
419™ DISTRICT COURT
HEMAN MARION SWEATT TRA VTS COUNTY COURTHOUSE
P.O. BOX 1748
OltLINDA L. NARANJO AUSTIN, TEXAS 78767 DORA CANIZALF.S
Judge Official Court Reporter
(512) 854-4023 FAX: (512) 854-2224 (512) 854-9329
TAMMY ST.GF.OR(.oF. TRENT HIGHT()Wf:lt
Court Opero1tions Officer Statf Attorney
( 5 12) 854-4023 (512) 854-4029
FAX COVER SHEET
Date: 6/8/15
To: Brian Colao
Brian O'Toole
Shane Boasberg
Fax No.: (214) 462-64(11
(512) 476-1228
(512) 561-5004
l<'rom: Tammy St. George, Court Operations Officer to Judge Orlinda Naranjo
Fax No.: 512-854-2224
Mcs!mge: Signed Order from Judge Naranjo's 419111• Civil District Court
Number of Pages: 6 Tm:lutling Ftu: Cover)
If there is a problem with the transmission of this facsimile, please me at 512--854-
4023.
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11
419T DISTRICT COURT
HEMAN MARION SWEA"IT TRAVIS COUNTY COURTHOUSE
P.O. llOX 1748
ORLINDA L. NARANJO AUSTIN. TEXAS 78767 DORA CANIZALES
Judge Official Court Rep(•rter
(512) 854-4023 FAX: (512) 854-2224 (512) 854-9329
TAMMY ST.GEORGE TRENT HIGHTOW.~k
Com1 Operations Oflicer Staff Attorney
(512) 854-4023 (512) 854-4029
FAX COVER SHEET
Date: ~
To: Brian Colao
Brian O'Toole
Shane Boasberg
FuNo.: {214) 462-64fJJ
(512) 476-1228
(512) 561-5004
From: Tammy St. George. Court Operations Officer to Judge Orlinda Naranjo
Fax No.: 512·854•2224
Message: Signed Order from .Judge Naranjo's 419th. Civil District Court
Number of Pages: 6/nclutling Fax Cover)
1f there is a problem with the transmission of this facsimile, please me at 512-854-
4023.
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