Christopher Boehringer and Enginuity Engineering, Inc. v. Mark A. Konkel , 2013 Tex. App. LEXIS 4279 ( 2013 )

Opinion issued April 4, 2013
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-11-00702-CV
———————————
CHRISTOPHER BOEHRINGER AND
ENGINUITY ENGINEERING, INC., Appellants
V.
MARK A. KONKEL, Appellee
On Appeal from the 61st District Court
Harris County, Texas
Trial Court Cause No. 2009-11255
OPINION
Appellants, Christopher Boehringer and Enginuity Engineering, Inc.
(“EEI”), challenge the trial court’s judgment, entered after a jury trial, in favor of
appellee, Mark A. Konkel, in Konkel’s suit against Boehringer and EEI for
shareholder oppression. In five issues, Boehringer and EEI contend that the
evidence is legally and factually insufficient to support the jury’s findings that
Boehringer refused to allow Konkel to examine EEI’s books, awarded himself
excessive salaries and compensation, and withheld payment of dividends to
Konkel; Konkel failed to “establish shareholder oppression as a matter of law;”
and the evidence is factually insufficient to support the jury’s finding on their
claims that Konkel violated the Federal Wiretap Act. 1 We affirm.
Background
Konkel, who Boehringer met in the late 1990s when they both worked for
Lubrizol Corporation in Deer Park, Texas, became a shareholder in Boehringer’s
close corporation in 2001. Konkel bought 49.9% of the stock for $499, and the
first shareholder meeting ended with the election of Subchapter S corporation
status 2 and salaries set at $60,000 annually for both men. Boehringer acted as
president, and Konkel as vice president. Both men are chemical engineers, and the
company designed industrial processes and machinery and equipment used in
refineries, chemical plants, biofuel facilities, and pharmaceutical production
facilities.
1
See Wire and Electronic Communications Interception and Interception of Oral
Communications, 18 U.S.C.A. §§ 2510–2522 (2008).
2
See generally 26 U.S.C.A. § 1361 (2010).
2
From 2001 to 2004, the company was a two-man operation, with both men
working independently on contracts. In 2005, the company began using the name
“Enginuity Engineering, Incorporated,” and it acquired office space, hired
employees, and earned significant revenue. The two men did not discuss
compensation aside from their annual salaries and splitting the corporation’s
profits. Between 2005 and 2008, EEI’s annual sales were in excess of $1 million
compared to 2004 sales of $550,000.
Shortly after this marked success, the relationship between Konkel and
Boehringer deteriorated. Konkel did not live up to Boehringer’s expectations; he
filed invoices late, failed to renew necessary software subscriptions, and kept
irregular office hours. Likewise, Boehringer did not live up to Konkel’s
expectations; he became verbally abusive to Konkel and other employees. Some
employees quit because of the abuse; some testified at trial about the abuse that
they endured from Boehringer. When Konkel drafted an employee handbook,
suggested a formalized holiday schedule, and attempted to outline corporate
policies, Boehringer refused to consider them as he did not want to be held to
policies. And, when Konkel made between ten and twenty requests for EEI’s
corporate records from between 2001 and 2009, Boehringer honored none of the
requests, other than providing to Konkel a one-page spreadsheet that Boehringer
created.
3
The situation reached its boiling point at the February 2, 2009 shareholder
meeting. When Boehringer personally handed notice of the meeting to Konkel, he
told Konkel that he was “going to make [Konkel’s] fucking life miserable.” On
every issue presented at the meeting, at which Boehringer’s lawyer kept minutes,
Boehringer voted his 501 shares against Konkel’s 499, with Konkel losing every
measure. With Boehringer voting his 501 shares, he made his wife vice president,
replacing Konkel. Also, Boehringer voted to make EEI’s Subchapter S status
revocable upon his own behest, and he created restrictions on the sale of stock.
During the meeting, Konkel read from a statement, reiterating his previous
requests for company records. Boehringer agreed to provide three years of EEI’s
tax returns, but only if Konkel signed a confidentiality agreement. And when
Konkel requested his share certificates, Boehringer would not provide them.
Following the shareholder meeting, Boehringer sent a company-wide email
stating that Konkel was no longer in management. Boehringer instructed Konkel,
through his attorney, to work out of his house because his presence in the office
made Boehringer uncomfortable. He then locked Konkel out of the company’s
software development computer and the office.
On March 11, 2009, Boehringer instructed Konkel to be in the office
between 7:00 a.m. and 5:00 p.m. Monday through Thursday and alternating
4
Fridays. Konkel resigned from EEI the next day, stating that his only remaining
connection to the corporation was as a shareholder.
Later, Konkel learned that Boehringer had secretly awarded himself a pay
raise in late 2008. In 2009, Boehringer’s gross pay was increased to $240,000
annually, compared to Konkel’s $48,000. Boehringer testified that he did not give
Konkel a raise because he “did not deserve a raise in salary based on his actions in
2007 and 2008.” Boehringer also testified that he had been advised to raise his
own salary because it was too low and might trigger an Internal Revenue Service
(“IRS”) audit.
Despite years of splitting EEI’s profits according to the share percentages
owned, Boehringer did not issue dividends for 2008. Typically, in late December
of each year, Boehringer would estimate yearly profits and report to Konkel that
number, which Konkel would use to calculate his taxes and submit a payment to
the IRS. At the close of a fiscal year, Boehringer would finalize and report official
earnings for tax corrections. In December 2008, Boehringer released the
preliminary earnings, and at the February 2 shareholder meeting, he released the
final numbers. Although Konkel used these calculations to submit $76,500 in
taxes to the IRS, Boehringer never issued to Konkel the dividends from EEI’s 2008
earnings. Boehringer testified that he did not do so because he was concerned
about meeting EEI’s financial obligations.
5
Before May 29, 2007, Konkel “checked a box” on the website of EEI’s e-
mail provider, directing the e-mail provider to make administrative copies of
Boehringer’s e-mail. E-mails addressed to Boehringer were then forwarded to
Konkel’s e-mail account.
On February 23, 2009, Konkel filed the instant suit against Boehringer and
EEI, alleging shareholder oppression. He later added causes of action for breach of
contract, breach of fiduciary duty, and fraudulent transfer. He also sought a
declaratory judgment regarding ownership of a computer program that he had
developed, to pierce the corporate veil, and obtain attorneys’ fees. Boehringer
filed a counterclaim against Konkel for alleged violations of both the Texas 3 and
Federal wiretap statutes.
The jury found that Boehringer had maliciously or wrongfully refused to
allow Konkel to examine EEI’s books, used his position to award himself an
excessive salary to Konkel’s detriment, and withheld EEI dividends from Konkel
in 2008. The trial court had previously entered a partial summary judgment in
favor of Boehringer on his contentions against Konkel for violations of the Texas
and Federal Wire Tap Acts. The question of damages for any wiretap violations
3
See TEX. CIV. PRAC. & REM. CODE ANN. § 123.002(a)(1)–(2) (Vernon
2011).
6
was submitted to the jury, which found that Konkel violated the acts “0” times and
incurred “0” damages.
In its final judgment, the trial court found that shareholder oppression
occurred as a matter of law. It ordered, in equitable relief, that the corporation be
liquidated, with proceeds split according the share distribution after all debts were
subtracted. And it further ordered that Boehringer take nothing on his
counterclaims for the alleged violations of the wiretap acts.
Legal and Factual Sufficiency
In their first, second, and third issues, Boehringer and EEI complain that the
evidence is legally and factually insufficient to support the jury findings that
Boehringer maliciously or wrongfully refused to allow Konkel to examine EEI’s
books and records, awarded himself excessive salaries and compensation, and
withheld payment of dividends to Konkel.
We will sustain a legal-sufficiency or “no-evidence” challenge if the record
shows one of the following: (1) a complete absence of evidence of a vital fact, (2)
rules of law or evidence bar the court from giving weight to the only evidence
offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no
more than a scintilla, or (4) the evidence establishes conclusively the opposite of
the vital fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005). In
conducting a legal-sufficiency review, a “court must consider evidence in the light
7
most favorable to the verdict, and indulge every reasonable inference that would
support it.” Id. at 822. The term “inference” means,
In the law of evidence, a truth or proposition drawn from another
which is supposed or admitted to be true. A process of reasoning by
which a fact or proposition sought to be established is deduced as a
logical consequence from other facts, or a state of facts, already
proved . . . .
Marshall Field Stores, Inc. v. Gardiner, 859 S.W.2d 391, 400 (Tex. App.—
Houston [1st Dist.] 1993, writ dism’d w.o.j.) (citing BLACK’S LAW DICTIONARY
700 (5th ed. 1979)). For a jury to infer a fact, “it must be able to deduce that fact
as a logical consequence from other proven facts.” Id.
If there is more than a scintilla of evidence to support the challenged finding,
we must uphold it. Formosa Plastics Corp. USA v. Presidio Eng’rs &
Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998). “‘[W]hen the evidence offered
to prove a vital fact is so weak as to do no more than create a mere surmise or
suspicion of its existence, the evidence is no more than a scintilla and, in legal
effect, is no evidence.’” Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex.
2004) (quoting Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex. 1983)).
However, if the evidence at trial would enable reasonable and fair-minded people
to differ in their conclusions, then jurors must be allowed to do so. City of Keller,
168 S.W.3d at 822; see also King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751
(Tex. 2003). “A reviewing court cannot substitute its judgment for that of the trier-
8
of-fact, so long as the evidence falls within this zone of reasonable disagreement.”
City of Keller, 168 S.W.3d at 822.
In conducting a factual-sufficiency review, we must consider, weigh, and
examine all of the evidence that supports or contradicts the jury’s determination.
See Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001); PlasTex, Inc. v.
U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989). We note that the jury is the
sole judge of the witnesses’ credibility, and it may choose to believe one witness
over another; a reviewing court may not impose its own opinion to the contrary.
See Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003). We
may set aside the verdict only if the evidence is so weak or the finding is so against
the great weight and preponderance of the evidence that it is clearly wrong or
manifestly unjust. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986).
“The doctrine of shareholder oppression protects the close corporation
minority stockholder from the improper exercise of majority control.” Douglas
Moll, Majority Rule Isn’t What It Used To Be: Shareholder Oppression in Texas
Close Corporations, 63 TEX. B.J. 434, 435 (2000). This Court has held that there
are two non-exclusive definitions of shareholder oppression:
1. majority shareholders’ conduct that substantially defeats the
minority’s expectations that, objectively viewed, were both
reasonable under the circumstances and central to the minority
shareholder’s decision to join the venture; or
9
2. burdensome, harsh, or wrongful conduct; a lack of probity and fair
dealing in the company’s affairs to the prejudice of some members;
or a visible departure from the standards of fair dealing and a
violation of fair play on which each shareholder is entitled to rely.
Willis v. Bydalek, 997 S.W.2d 798, 801 (Tex. App.—Houston [1st Dist.] 1999, pet.
denied); see also Ritchie v. Rupe, 339 S.W.3d 275, 289 (Tex. App.—Dallas 2011,
pet. granted).
In determining whether majority shareholder conduct rises to the level of
oppression, we exercise caution, balancing the minority shareholder’s reasonable
expectations against the corporation’s need to exercise its business judgment and
run its business efficiently. Ritchie, 339 S.W.3d at 289. As we observed in Davis
v. Sheerin, however, “[c]ourts take an especially broad view of the application of
oppressive conduct to a closely-held corporation, where oppression may more
easily be found.” 754 S.W.2d 375, 381 (Tex. App.—Houston [1st Dist.] 1988, writ
denied). It is within the province of a jury as factfinder to determine whether
certain acts occurred when those acts are disputed. Ritchie, 339 S.W.3d at 289.
The determination of whether those facts constitute shareholder oppression toward
a minority shareholder is a question of law for the trial court. Davis, 754 S.W.2d
at 380; See Ritchie, 339 S.W.3d at 289. A claim of oppressive conduct can be
independently supported by evidence of a variety of conduct. Davis, 754 S.W.2d
at 380. Oppressive conduct is an independent ground for relief that does not
10
require a showing of fraud, illegality, mismanagement, wasting of assets, or
deadlock. Id. at 381–82.
In regard to the first definition of shareholder oppression, we note that when
determining whether a minority shareholder’s reasonable expectations were
substantially defeated, we distinguish between those specific reasonable
expectations and general reasonable expectations. Ritchie, 339 S.W.3d at 290.
Specific expectations will require proof of specific facts giving rise to the
expectations in a particular case and a showing that the expectation was reasonable
under the circumstances of the case as well as central to the minority shareholder’s
decision to join the venture. Id. at 291. Examples of specific reasonable
expectations are employment in the corporation or a role in management. Id.
General reasonable expectations are expectations that arise from the mere
status of being a shareholder. Id. These expectations belong to all shareholders
and, absent evidence to the contrary, are both reasonable and central to the decision
to invest in the corporation. Id. Examples of general reasonable expectations are
the right to proportionate participation in the earnings of the company, the right to
any stock appreciation, the right, with proper purpose, to inspect corporate records,
and the right to vote if the stock has voting rights. Id. at 291–92.
11
Access to EEI’s Books and Records
In their first issue, Boehringer and EEI assert that the evidence is legally and
factually insufficient to support the jury’s finding that Boehringer maliciously and
wrongfully refused to allow Konkel to examine EEI’s books and records. Jury
Question One asked:
Do you find from a preponderance of the evidence that Chris
Boehringer maliciously or wrongfully refused to allow Mark Konkel
to examine the books and records of Enginuity Engineering, Inc.?
Boehringer and EEI do not challenge Jury Question One as defective on appeal,
nor do they complain about the trial court’s denial of their tendered charge on this
question. Accordingly, we will not review any objection to the charge that they
made at trial. 4 Boehringer and EEI acknowledge that they did not raise a separate
issue on the jury charge, but urge us to consider the correctness of Jury Question
One as subsidiary to their legal- and factual-sufficiency issue. However, an
4
Boehringer and EEI first objected to this jury question on statute-of-limitations
grounds and they asked that the jury be instructed to consider Konkel’s requests
for EEI’s records after February 23, 2007 only. Next, Boehringer and EEI
objected that the proper predicate had not been laid and a proper predicate for the
question would have required the question to ask whether a written request for a
proper purpose had been made for the corporate books. See Chavco Inv. Co. v.
Pybus, 613 S.W.2d 806, 809 (Tex. App.—Corpus Christi 1981, writ ref’d n.r.e.).
Boehringer and EEI further asked that “proper purpose” be defined as “whether
the inspection is directed toward obtaining information bearing upon the
protection of the shareholder’s interest and that of other shareholders in the
corporation.” The trial court overruled their objections and denied the tendered
charge.
12
appellant’s brief must “state concisely all issues or points presented for review.”
TEX. R. APP. P. 38.1(f). Rule 38.1(f) also compels that this Court treat the
statement of an issue or point “as covering every subsidiary question that is fairly
included.” Id.
Boehringer and EEI have cited no authority, nor have we found any,
considering a challenge to a jury question as a subsidiary question to a legal- and
factual-sufficiency issue on appeal. Accordingly, we will review the sufficiency of
the evidence under the question asked and the instructions actually given. See
Osterberg v. Peca, 12 S.W.3d 31, 33 (Tex. 2000) (“[I]t is the court’s charge, not
some other unidentified law, that measures the sufficiency of the evidence.”); see
also Cathy v. Meyer, 115 S.W.3d 644, 659–50 (Tex. App.—Waco 2003), aff’d in
part, rev’d in part on other grounds, 167 S.W.3d 327 (Tex. 2005) (considering
sufficiency issue, but concluding waiver where appellant had not raised as issue on
appeal his objections to wording of jury charge).
Konkel testified that he “made more than ten, less than 20” requests for
EEI’s records over a period of eight and a half years, including requests in each
year from 2001 to 2005. During this time, Boehringer did not provide access to
bank records or tax returns or any other EEI records, with one exception: after one
of Konkel’s requests, Boehringer provided a one-page ledger sheet that he drafted
himself.
13
Konkel also made a written request for EEI’s financial records in 2007. In
two e-mails, dated May 24 and 25, 2007, Konkel wrote to Boehringer as follows:
I also need a complete detailed ledger report for our cash flow for all
of last year, and this year as of April. I do have a vested interest in
seeing where our money is being spent. A report from QuickBooks
listing check number – paid to – amount – date is all I am looking for.
Then every month after that. Nothing less than I would easily get
from an accounting firm.
Konkel’s statement that he had a vested interest in seeing how the company’s
money was being spent constitutes a statement of a proper purpose for which the
request was made. Boehringer responded, via e-mail, “We will address this
sometime next week prior to a Board Meeting.” Konkel testified, however, that
there was no board meeting scheduled or held and Boehringer did not offer any
contrary evidence. And Boehringer admitted that he never gave Konkel any tax
returns or any bank statements.
The minutes of the February 2, 2009 shareholder meeting document another
request by Konkel for EEI’s books and records and contain a copy of Konkel’s
written request made the same day:
1) I, Mark Konkel, need to see and to have the opportunity to copy
all original banking documents available, or electronic bank
documents, if originals are not available, including, but not
limited to all cancelled checks, deposit slips, bank statements,
wire transfers – everything regarding any transfers of money to
the corporation.
2) I need to see and be able to copy all corporate documents I have
not seen.
14
In response, Boehringer offered access to only the last three years of tax returns
provided that Konkel sign a confidentiality statement. Konkel testified that he was
not provided any corporate records until they were ordered produced for this
lawsuit.
Boehringer further argues there is legally- and factually-insufficient
evidence to support a finding that he withheld EEI’s records maliciously or
wrongfully. In Jury Question One, the trial court instructed the jury that:
A person acts “maliciously” when his actions are accompanied by ill-
will, bad or evil motive, or such gross indifference to the rights of
others as will amount to a willful or wanton act, done without just
cause or excuse.
“Wrongfully” means an act committed with evil intent, with legal
malice, without reasonable ground for believing the act to be lawful,
and without legal justification.
As Boehringer and EEI note, the admitted ill-will between Boehringer and Konkel
does not automatically establish ill-will in regard to Konkel’s requests for EEI’s
records. Malice can be established by direct or circumstantial evidence. See Seber
v. Union Pac. R.R. Co., 350 S.W.3d 640, 654 (Tex. App.—Houston [14th Dist.]
2011, no pet.).
As a shareholder, Konkel had a general and reasonable expectation to have
access to review EEI’s corporate records. Although there is evidence that
Boehringer did provide Konkel with a ledger sheet after one of his requests to see
15
EEI’s records, Boehringer did not respond to Konkel’s repeated requests for
records. And there is evidence that Boehringer acted with ill-will, bad or evil
motive, or gross indifference to Konkel’s rights as a shareholder. When
Boehringer responded to Konkel’s written request in 2007, he did not provide or
agree to provide the requested records, he simply said, “We will address this
sometime next week prior to a Board Meeting.” There is evidence that there was
no actual board meeting scheduled and this was Boehringer’s way of threatening
Konkel, reminding him that he was the majority shareholder, and controlled
Konkel as the minority shareholder. Boehringer did not offer any evidence of
justification for his refusal to provide EEI’s corporate records after Konkel had
asked to see them. The jury could have reasonably inferred from the evidence
presented that Boehringer’s refusal to provide EEI’s corporate records stemmed
from ill-will, bad or evil motive, or gross indifference to Konkel’s rights as a
shareholder in the corporation.
Viewing the evidence in the light most favorable to the jury’s finding and
indulging every reasonable inference that would support it, we conclude that the
jury could have reasonably found that Boehringer maliciously or wrongfully
refused to allow Konkel to examine EEI’s book and records. We further conclude
that the evidence supporting this finding is not so weak as to render the jury’s
verdict clearly wrong and manifestly unjust. Accordingly, we hold that the
16
evidence is legally and factually sufficient to support the jury’s finding that
Boehringer maliciously or wrongfully refused to allow Konkel to examine EEI’s
books and records.
We overrule Boehringer and EEI’s first issue.
Excessive Salary and Compensation
In their second issue, Boehringer and EEI assert that the evidence is legally
and factually insufficient to support the jury’s finding that Boehringer maliciously
or wrongfully awarded himself an excessive salary. Jury Question Two asked:
Do you find from a preponderance of the evidence that Chris
Boehringer maliciously or wrongfully used his position as the
President of Enginuity Engineering, Inc. to award excessive salaries
and compensation to himself to the detriment of Mark Konkel?
An expectation of annual compensation through employment cannot be said
to be a general expectation held by all shareholders of a corporation. See ARGO
Data Res. Corp. v. Shagrithaya, 380 S.W.3d 249, 266 (Tex. App.—Dallas 2012,
pet. filed). Accordingly, if Konkel was complaining about his annual salary from
EEI, he would be required to provide proof of specific facts showing that his
specific expectation of a certain level of compensation was reasonable under the
circumstances and central to his decision to join EEI. However, Konkel is not
complaining about his own compensation, but that Boehringer’s raising of his own
salary was detrimental to Konkel.
17
The minutes of the August 4, 2001 Boehringer & Associates shareholder
meeting, during which Konkel joined the company as a 49.9% shareholder, contain
the board resolution declaring that Boehringer, as president, and Konkel, as vice-
president, would both receive $60,000 annually as salary, “until such salary shall
be changed by the Shareholders at the annual or special meeting called for that
purpose.” Konkel testified that he and Boehringer never discussed salaries after
that time, although Boehringer would make statements to him such as, “We’re
going to pay ourselves 40,000 this year.” And Konkel was never paid more than
$70,000 a year.
In 2009, Boehringer unilaterally increased his own salary to $20,000 per
month (gross), and he received that salary for at least five months despite testifying
that at the beginning of 2009, “[B]usiness started to dry up, you know, drastically.
And we were getting in a position where there was a cash crunch.” At the same
time, Boehringer did not raise Konkel’s salary as vice president, stating that
Konkel “didn’t deserve a raise in salary.” In the first two months of 2009,
Konkel’s net monthly salary was $1,937.28 and $1,677.00 while Boehringer’s was
$14,700.00. Boehringer testified that he was advised to raise his salary because a
low salary might trigger an IRS audit as his low salary was so disproportionate to
the annual corporate revenue of EEI as a Subchapter S corporation. Boehringer
explained that this was why he then raised his own salary, despite his concerns
18
about “running out of funds in 2009 to meet the obligations . . . to our different
creditors, the rent, software leases, maintenance on software utilities.” Boehringer
noted that that because EEI was a Subchapter S corporation, he needed to pay
himself a reasonable salary and his salary was unreasonably low. There is no
evidence that, in previous years, Boehringer and Konkel’s salaries had been
different or their corporate profit distributions had ever been different based on
their 49.9% / 50.1% net profit split.
Boehringer and Konkel’s business relationship started with an agreement
that each would receive a $60,000 yearly salary. This supports an inference that
they viewed their contributions to the corporation as equal. And the near equal
split in stock and split of profits based on stock ownership percentages further
supports this inference. Moreover, there is no evidence of a significant shift in the
nature, extent, and scope of their work that would warrant a substantial difference
in the salaries of Boehringer and Konkel. Thus, the jury could have reasonably
inferred that Boehringer awarded himself an excessive salary.
Boehringer next asserts that there is insufficient evidence to support the
finding that Boehringer acted maliciously or wrongfully in raising his salary. After
he informed Konkel that he would make Konkel’s life “miserable,” Boehringer did
not issue yearly dividends and claimed economic hardship for EEI. Yet, despite
this hardship, he increased his own salary while denying a pay raise to Konkel,
19
claiming he “didn’t deserve a raise in salary.” Boehringer did not inform Konkel,
an interested shareholder, of his significant pay raise, nor is there evidence of an
annual or special shareholder meeting to change the corporate officers’ salaries as
provided in the board resolution from 2001. Prefacing his actions with an
expressed intent to make Konkel’s life “miserable” supplies evidence of
Boehringer’s bad motive. Additionally, granting himself a secret pay raise defeats
Boehringer’s stated motivation for denying dividends, economic hardship.
As a shareholder, Konkel had a general and reasonable expectation to have
the right to proportionate participation in the earnings of the company. Based on
the board resolution from the first shareholder meeting at which Konkel joined the
company he had a reasonable expectation that corporate money would be divided
equally between Boehringer and him as the two shareholders, based on their
proportionate ownership of shares. The board resolution provided for an equal
salary that would be changed only by the shareholders at an annual or special
meeting. The jury could have reasonably inferred from the evidence presented that
Boehringer used his position as president of EEI to award himself an excessive
salary to Konkel’s detriment.
Viewing the evidence in the light most favorable to the jury’s finding and
indulging every reasonable inference that would support it, we conclude that the
jury could have reasonably found that Boehringer wrongfully awarded himself an
20
excessive salary to Konkel’s detriment. We further conclude that the evidence
supporting this finding is not so weak as to render the jury’s verdict clearly wrong
and manifestly unjust. Accordingly, we hold that the evidence is legally and
factually sufficient to support the jury’s finding that Boehringer maliciously or
wrongfully used his position as president of EEI to award himself excessive
salaries and compensation to the detriment of Konkel.
We overrule Boehringer and EEI’s second issue.
Withholding Dividend Payments
In their third issue, Boehringer and EEI assert that the evidence is legally
and factually insufficient to support the jury’s finding that he used his position as
president of EEI to maliciously or wrongfully direct the withholding of dividend
payment to Konkel in 2008. EEI was set up as a Subchapter S corporation, and the
evidence shows that Boehringer and Konkel split the corporation’s net profits
based on their respective ownership of 50.1% and 49.9% of the shares each year
between 2001 and 2007.
Konkel testified that Boehringer would disclose preliminary yearly profits in
late December of each year and then provide the final numbers in January. Konkel
would use these preliminary figures to file his taxes and avoid late penalties. In
2008, Konkel paid $75,000 in taxes based on Boehringer’s statement to him that
EEI’s net profit for 2008 was $574,000 minus Konkel’s expenses. After
21
Boehringer provided final numbers at the February 2, 2009 shareholder meeting,
Konkel corrected his $75,000 tax payment with an additional $1,500 in taxes to
avoid a penalty. Konkel gave the following undisputed testimony at trial:
COUNSEL: Okay. Now, in 2009 were you ever paid the K1 by
Mr. Boehringer?
KONKEL: No, sir.
COUNSEL: Was there any indication at all throughout the
entire [Feb 2, 2009] shareholders meeting that you
were not going to be paid your share of the net
profits?
KONKEL: No.
Konkel’s statement that he received no payments in 2009 referred to the 2008
dividend. Boehringer testified that he did not pay himself a K-1 distribution for
2008, even though he paid the IRS $86,000 as a pre-tax payment on January 15,
2009. He stated that when the time came to pay the 2008 dividend, certain creditor
accounts had not been paid, and, after those payments, there was no money left to
be distributed. Boehringer explained that he did not believe that the $574,000 that
he had estimated as net profits for 2008 was “cash in the bank” at the time he made
the estimate.
The right to proportionate participation in the earnings of a company is a
general reasonable expectation of any shareholder. See ARGO, 380 S.W.3d at 265.
A minority shareholder’s rights may be impacted if he is prevented from sharing in
22
the profits of the company. See id. A shareholder does not, on the other hand,
have a general reasonable expectation about the compensation levels of the
corporation’s executives. Id. (citing Ritchie, 339 S.W.3d at 292). Therefore,
Konkel needed to demonstrate that Boehringer received compensation in excess to
what was reasonable for his position and level of responsibility such that he
received a de facto dividend to the exclusion of Konkel. See ARGO, 380 S.W.3d
at 268; see also Gibney v. Culver, No. 13-06-112-CV, 2008 WL 1822767 at *16
(Tex. App.—Corpus Christi Apr. 24, 2008, pet. denied) (mem. op).
A shareholder does not have a general expectation of receiving a dividend.
ARGO, 380 S.W.3d at 270. Corporations are not required to issue dividends under
Texas law. See Act of May 14, 1987, 70th Leg., R.S., ch. 93, art. 2.38-1, 1987
Tex. Gen. Laws 203, 213, expired Jan. 1, 2010, Act of May 13, 2003, 78th Leg.,
R.S., ch. 182, § 2, 2003 Tex. Gen. Laws 267, 595 (current version at TEX. BUS.
ORGS. CODE ANN. § 21.302 (Vernon 2012)).
Here in 2009, after Boehringer had promised to make Konkel’s life
“miserable,” Boehringer, as president of EEI, withheld the K-1 distribution of
profits for the 2008 fiscal year. The jury could have reasonably inferred from the
evidence about the non-payment of a corporate dividend for 2008 and 2009, and
Boehringer’s increase in his own salary to a $20,000 monthly gross payment, that
Boehringer gave himself a de facto dividend to the exclusion of Konkel as the
23
minority shareholder. It is true that because neither shareholder received a
dividend for 2008, EEI’s corporate earnings were “distributed” to Konkel to the
same extent that they were “distributed” to Boehringer. However, in the context of
a corresponding salary increase for Boehringer, the jury could have concluded that
Boehringer withheld issuance of a dividend and used his two-fold pay increase as a
means of denying Konkel his proportionate participation in the company’s
earnings as a shareholder.
The jury could have reasonably inferred from the evidence presented that
Boehringer used his position as president of EEI to maliciously or wrongfully
direct the withholding of payment of dividends from EEI to Konkel in 2008.
Viewing the evidence in the light most favorable to the jury’s finding, and
indulging every reasonable inference that could support it, we conclude that the
jury could have reasonably found that Boehringer wrongfully withheld the
payment of the 2008 corporate dividend while increasing his own salary to
Konkel’s detriment. We further conclude that the evidence supporting this finding
is not so weak as to render the jury’s verdict clearly wrong and manifestly unjust.
Accordingly, we hold that the evidence is legally and factually sufficient to support
the jury’s findings that Boehringer maliciously or wrongfully used his position as
president of EEI to direct the withholding of payment of dividends from EEI to
Konkel in 2008.
24
We overrule Boehringer and EEI’s third issue.
Shareholder Oppression
In their fourth issue, Boehringer and EEI argue that because the evidence is
insufficient to support the above jury findings, the trial court erred in finding that
they engaged in shareholder oppression as a matter of law. Whether certain
conduct constitutes shareholder oppression is a question of law. Willis, 997 S.W.2d
at 801. We review questions of law de novo. J.M. Davidson, Inc. v. Webster, 128
S.W.3d 223, 239 (Tex. 2003). Specifically, we review the trial court’s legal
conclusions drawn from the facts to determine their correctness. See BMC
Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002).
“Because any one of a variety of activities or conduct can give rise to
shareholder oppression, the fact that there may be a lack of evidence to support the
existence of one such activity does not defeat the claim so long as there is evidence
to support that another such instance of conduct occurred.” Redmon v. Griffith,
202 S.W.3d 225, 234 n.3 (Tex. App.—Tyler 2006, pet. denied). Denying access to
company books or records, paying excessive compensation, and wrongfully
withholding dividends are typical wrongdoings found in shareholder oppression
cases. Willis, 997 S.W.2d at 801–802 (describing fact patterns in various
shareholder oppression cases).
25
Here, all three of the above jury findings regarding certain acts by
Boehringer relate to general reasonable expectations that any shareholder would
have based on his mere status as a shareholder of a corporation. See Ritchie, 339
S.W.3d at 291–92 (explaining difference between general and specific reasonable
expectations of shareholders and giving examples of both). Absent evidence to the
contrary, these expectations are reasonable under the circumstances and central to
the decision to invest in a corporation. See id.
Conduct of majority shareholders that substantially defeats the reasonable
expectations of a minority shareholder will often be conduct that is “burdensome,”
“harsh,” or “wrongful,” or constitutes “a lack of probity and fair dealing in the
company’s affairs” or “a visible departure from the standards of fair dealing and a
violation of fair play on which each shareholder is entitled to rely.” See id. at 294.
The trial court could have reasonably concluded, based on the jury’s findings, that
Boehringer acted oppressively toward Konkel by refusing to allow him access to
EEI’s corporate records and not issuing him a dividend in 2008, while at the same
time granting himself an excessive salary without any shareholder vote or
resolution.
In addition to the jury’s findings and the evidence outlined above, there is
evidence that Boehringer locked Konkel out of EEI’s office and his software
development computer. Boehringer also sent a company-wide e-mail stating that
26
Konkel was no longer part of management and employees were not “to listen to
Konkel anymore.” As the majority shareholder, at the February 2, 2009
shareholder meeting, Boehringer also voted in restrictions on the sale of Konkel’s
stock. See Ritchie, 339 S.W.3d at 292–93 (citing Sandor Petroleum Corp. v.
Williams, 321 S.W.2d 614, 616–17 (Tex. Civ. App.—Eastland 1959, writ ref’d
n.r.e.) (noting general reasonable expectation of shareholder of being able to sell
unrestricted shares of stock).
The three acts found by the jury to have occurred in this case substantially
defeated Konkel’s general reasonable expectations as a shareholder. Sufficient
evidence supported the jury findings, and any one of the acts alone would support
the trial court’s finding of shareholder oppression. Accordingly, we hold that the
trial court did not err in finding shareholder oppression as a matter of law.
We overrule Boehringer and EEI’s fourth issue.
Federal Wiretap Act
In his fifth issue, Boehringer argues that the evidence is factually insufficient
to support the jury’s finding that Konkel violated the Federal Wiretap Act “0 days”
because he had proved the “answer” had to be “1447 days.”
Prior to trial Boehringer moved for partial summary judgment, seeking an
affirmative finding that Konkel had violated the Texas and Federal Wiretap Acts,
which the trial court granted.
27
In Jury Question Eight, the trial court informed the jury that it had
previously determined that Konkel had violated the Federal Wiretap Act and it was
up to the jury to determine the amount of damages that Boehringer could recover.
Then, the trial court asked the jury to determine the number of days that Konkel
had violated the Federal Wiretap Act.5 It instructed the jury that either of three
separate acts could constitute a separate violation: (1) an interception of an e-mail
intended for Boehringer; (2) a disclosure of such an e-mail or its contents to
another person; and (3) an intentional use of such e-mail and its contents.
The jury answered that Konkel had violated the Federal Wiretap Act “0
days.” Boehringer moved for a judgment notwithstanding the jury verdict in
regard to the Federal Wiretap Act, which was denied by the trial court. On appeal,
Boehringer does not challenge the jury question as it was submitted to the jury, he
argues only that the evidence is factually insufficient to support the jury’s finding.
When a party challenges the factual sufficiency of the evidence on a finding
on an issue upon which that party had the burden of proof, that party must
demonstrate that the adverse finding is against the great weight and preponderance
5
Damages for violating the Federal Wire Tap Act are assessed as the greater of
$100 a day for each day of violation or $10,000. 18 U.S.C.A. § 2520 (c)2(B)
(2008). Under the Texas Wiretap Act, a claimant is entitled to injunctive relief
and statutory damages of $10,000 for each occurrence in addition to actual
damages in excess of $10,000, reasonable attorney’s fees, and punitive damages.
TEX. CIV. PRAC. & REM. CODE ANN. § 123.004 (Vernon 2011).
28
of the evidence. Francis, 46 S.W.3d at 242; R.B. Hardy & Sons, Inc. v. Hoyer
Global (USA), Inc., No. 01-09-00041-CV, 2010 WL 2305753, at *3 (Tex. App.—
Houston [1st Dist.] June 10, 2010, pet. denied). We must consider and weigh all of
the evidence and set aside the finding only if it is so against the great weight and
preponderance of the evidence that it is clearly wrong and manifestly unjust. Id.
We note that the jury is the sole judge of the witnesses’ credibility and the weight
to be given their testimony. Jackson, 116 S.W.3d at 761.
The Federal Wiretap Act provides a private right of action against one who
“intentionally intercepts, endeavors to intercept, or procures any other person to
intercept or endeavor to intercept, any wire, oral, or electronic communication.” 18
U.S.C. § 2511(1)(a) (2008); see 18 U.S.C. § 2520 (2008) (providing private right
of action). The Federal Wiretap Act defines “intercept” as “the aural or other
acquisition of the contents of any wire, electronic, or oral communication through
the use of any electronic, mechanical, or other device.” Id. § 2510(4) (2008).
Thus, Boehringer had to establish five elements to make his claim: that Konkel (1)
intentionally (2) intercepted, endeavored to intercept, or procured another person to
intercept or endeavor to intercept (3) the contents of (4) an electronic
communication (5) using a device.
Although the trial court granted summary judgment on liability under the
Federal Wiretap Act, it further instructed the jury on acts that constituted separate
29
violations of the act. Thus, the jury was asked to determine the number of days
that Konkel violated the act based on an instruction that spoke to liability under the
statute.
Boehringer’s forensic computer expert, Paul Price, found in Konkel’s e-mail
inbox 3,118 emails addressed to Boehringer along with other emails addressed to
other EEI employees. Price testified that the emails were not supposed to be in
Konkel’s inbox because he was not the intended recipient, but he could not testify
as to whether the emails were intercepted or copied. Price further testified that
Boehringer’s e-mails were reviewed by Konkel for 447 days based on Price’s
adding up the number of days that the emails were received.
Konkel testified that he directed his e-mail provider to make administrative
copies of exempt employees’ e-mails by checking a box on the e-mail provider’s
company website. And he testified that he did not “intercept” the emails as
follows:
COUNSEL: Okay. So, the stored communication, stored
e-mail, was copied?
KONKEL: That’s correct.
COUNSEL: It was not intercepted?
KONKEL: It’s impossible to intercept it with the
system I was using.
30
The Federal Wiretap Act does not apply to electronic communications that are in
storage. See Steve Jackson Games, Inc. v. U.S. Secret Serv., 36 F.3d 457, 461–62
(5th Cir. 1994). Boehringer presented no evidence that Konkel disclosed the e-
mails or their contents to another person or evidence of the intentional use of the e-
mails or their contents. We conclude that the jury’s finding that Konkel violated
the Federal Wiretap Act “0 days” is not so against the great weight and
preponderance of the evidence as to be clearly wrong and unjust. Accordingly we
hold that the evidence is factually sufficient to support the jury’s finding.
We overrule Boehringer’s fifth issue.
Conclusion
We affirm the judgment of the trial court.
Terry Jennings
Justice
Panel consists of Justice Jennings, Higley, and Sharp.
31