RDA Professional Beauty Supply Inc. and Velvia Deanne Kennel, Appellants/Cross-Appellees v. Kristal K. Clay, Appellee/Cross-Appellant ( 2023 )

NO. 12-23-00050-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
RDA PROFESSIONAL BEAUTY
SUPPLY INC. AND VELVIA DEANNE § APPEAL FROM THE 4TH
KENNEL, APPELLANTS/
CROSS-APPELLEES
V. § JUDICIAL DISTRICT COURT
KRISTAL K. CLAY,
APPELLEE/
CROSS-APPELLANT § RUSK COUNTY, TEXAS
MEMORANDUM OPINION
Appellants RDA Professional Beauty Supply Inc. (RDA) and Velvia Deanne Kennel
appeal from the trial court’s judgment entered following a jury trial. In ten issues, they challenge
the sufficiency of the evidence, the applicability of the economic loss rule, the award of
damages, Appellee Kristal K. Clay’s ability to challenge the trial court’s judgment, and venue. In
a single issue on cross appeal, Clay asserts that this Court should remand the entire case in the
event it reverses the portion of the judgment in her favor. We reverse and render in part and
affirm as modified in part.
BACKGROUND
RDA sells haircare products and equipment to hair salons, barber shops, beauty schools,
and stylists through its retail stores. Kennel (sometimes referred to as “Dee” in the record)
formed RDA on June 7, 2013, after purchasing the assets of a similar company. Initially, Kennel
owned all of RDA’s 1,000 authorized shares. Kennel sought to hire Clay, a former coworker, to
manage RDA’s finances, and offered to give Clay a 25% interest in RDA if she would accept the
position. Clay agreed, and on October 1, 2013, RDA passed a resolution appointing Kennel as
President and CEO of the corporation and Clay as Secretary, Treasurer, and CFO. Kennel then
transferred 250 of her shares in RDA to Clay. Clay was solely responsible for RDA’s
bookkeeping and accounting, for which she used Intuit’s QuickBooks software program. Clay
provided regular financial reports to Kennel. Kennel allegedly did not know how to use the
accounting software and did not have passwords to access RDA’s online bank accounts or credit
card accounts.
In December of 2019, Kennel became concerned that she was not sufficiently informed
about RDA’s finances and obtained the passwords from Clay for RDA’s QuickBooks, online
banking, and credit card accounts. Kennel discovered that Clay recorded large payments from
RDA to both herself and Kennel as loans to shareholders. 1 The note balances at the end of 2019
showed a loan balance for Clay of $253,291.00, and a loan balance of $230,747.00 for Kennel.
Kennel additionally learned that Clay issued company credit cards to herself and other members
of her family, which they used to pay personal expenses such as dental bills, pet care, and costs
for travel unrelated to RDA. Based upon these events, Kennel terminated Clay’s employment
with RDA. Subsequently, Kennel performed a detailed review of RDA’s finances and spending,
and discovered that from 2015 to 2019, Clay misappropriated a total of $635,771.00 from the
corporation.
Court Proceedings
On December 3, 2020, Clay sued RDA and Kennel in Rusk County, alleging breach of
contract and negligent misrepresentation. Clay alleged the existence and breach of two oral
contracts at issue in this appeal. Regarding the first contract, Clay claimed that she and
Appellants orally agreed that Kennel’s and Clay’s “pay, benefits, and perks” from RDA would
be equal, except that Kennel would receive $10,000.00 more per year (hereafter the
Compensation Agreement). Clay’s claim for negligent misrepresentation similarly alleges that
Kennel represented that she and Clay would be partners, operate RDA as equals, and receive
equal compensation for their respective efforts. But instead, Clay alleged Kennel received much
greater compensation than Clay did throughout her involvement with RDA. Regarding the
second contract, Clay alleged that at the meeting wherein Kennel terminated Clay’s employment
with RDA, Kennel and RDA orally agreed to buy Clay’s shares in the corporation following both
1
QuickBooks requires that the operator supply a “code” for each business expense recorded, designating
the general type of the expense.
2
parties procuring an “evaluation” (hereafter the Separation Agreement). In the interim, Clay
would receive payments of $5,000.00 per month, up to a maximum of $50,000.00, and the
amount of such payments would be deducted from Clay’s payment for the eventual sale of her
shares.
Appellants moved to transfer venue on the ground that few or no events or omissions
giving rise to Clay’s claims occurred in Rusk County, which the trial court denied following a
hearing. On February 9, 2021, Appellants countersued Clay for breach of fiduciary duty (against
both RDA and Kennel) and money had and received. The parties did not reach any extrajudicial
resolution or settlement, and this matter proceeded to a jury trial.
The Jury’s Verdict
In response to the first jury question, the jury found that Clay and Appellants agreed that
Clay’s and Kennel’s “pay, benefits, and perks” from RDA would be equal except that Kennel
would receive $10,000.00 more per year. The jury also found that both Kennel and RDA failed
to comply with this agreement. Because of these findings, the third question instructed the jurors
to determine what sum of money would compensate Clay for her damages resulting from such
failure. The jury’s answer was zero.
In response to the fourth jury question, the jury found that Clay and RDA agreed that
upon her exit from RDA, Clay would receive a payment of $5,000.00 per month (up to
$50,000.00) to be repaid from the sale of Clay’s RDA shares to Kennel for an appraised value.
In response to the fifth and sixth questions, the jury determined that RDA (but not Kennel) failed
to comply with the agreement, and that Clay should receive $50,000.00 as compensation.
In response to the seventh jury question, the jury found that Kennel made a negligent
misrepresentation on which Clay justifiably relied. The eighth question instructed the jurors to
determine what sum of money would compensate Clay for her damages resulting from said
reliance. This time, the jury’s response was, “$835,000.00.”
Finally, in response to the ninth and tenth jury questions, the jury determined that Clay
failed to comply with her fiduciary duty to RDA, and in considering “the amount of money . . .
that was misappropriated by Kristal Clay from RDA,” damages in the amount of $235,000.00
were appropriate. 2
The jury made additional findings as to Appellants’ claims for money had and received and exemplary
2
damages, which are not at issue in this appeal.
3
Clay moved the trial court to enter her proposed judgment based upon the jury’s verdict.
The trial court entered Clay’s proposed judgment. Appellants filed a motion to modify, correct,
or reform the judgment, a motion for judgment notwithstanding the verdict, and a motion for a
new trial. Following a hearing, the trial court denied all post-trial motions. This appeal and
cross appeal followed.
ISSUES PRESENTED
Appellants generally ask this Court to (1) reverse the portions of the trial court’s
judgment against Kennel and RDA on Clay’s claims for negligent misrepresentation and breach
of contract, (2) render a take-nothing judgment on those claims, and (3) affirm the trial court’s
judgment against Clay on Appellants’ claim for breach of fiduciary duty. In the alternative,
Appellants request that we reverse and remand “the entire case” for a new trial.
Clay’s sole cross-issue, labeled a “conditional issue,” contends that if we reverse the trial
court’s judgment in Clay’s favor on her negligent misrepresentation claim and remand that claim
for a new trial, then we should remand all of the parties’ claims for a new trial.
ECONOMIC LOSS RULE
In their first issue, Appellants contend that the economic loss rule bars Clay’s negligent
misrepresentation claim against Kennel.
Applicable Law
The economic loss rule generally precludes recovery in tort for economic losses resulting
from a party’s failure to fulfill a contractual obligation when the harm consists only of the
economic loss of a contractual expectancy. Chapman Custom Homes, Inc. v. Dallas Plumbing
Co., 445 S.W.3d 716, 718 (Tex. 2014); see also MEMC Pasadena, Inc. v. Riddle Power, LLC,
472 S.W.3d 379, 397 (Tex. App.—Houston [14th Dist.] 2015, no pet.) (economic loss rule
precludes recovery in tort when the only economic loss to the plaintiff is subject matter of
contract). In operation, the rule “restricts contracting parties to contractual remedies for those
economic losses associated with the relationship, even when the breach might reasonably be
viewed as a consequence of a contracting party’s negligence.” Lamar Homes, Inc. v. Mid-
Continent Cas. Co., 242 S.W.3d 1, 12–13 (Tex. 2007).
4
Under the economic loss rule, a plaintiff may not bring a claim for negligent
misrepresentation unless the plaintiff can establish that she suffered an injury that is “distinct,
separate, and independent” from the economic losses recoverable under a breach of contract
claim. Guerrero-McDonald v. Nassour, 516 S.W.3d 198, 210 (Tex. App.—Eastland 2017, no
pet.) (citing Sterling Chemicals, Inc. v. Texaco Inc., 259 S.W.3d 793, 797–98 (Tex. App.—
Houston [1st Dist.] 2007, pet. denied) (“[I]f a negligent misrepresentation claim only seeks
benefit of the bargain damages … (1) a plaintiff cannot establish an independent injury that is
distinct from the economic losses recoverable under a breach of contract claim and (2) the
economic loss rule bars any recovery of these damages under the negligent misrepresentation
claim.”)). “[T]he damages recoverable for a negligent misrepresentation do not include the
benefit of the plaintiff’s contract with the defendant.” D.S.A., Inc. v. Hillsboro Indep. Sch.
Dist., 973 S.W.2d 662, 664 (Tex. 1998).
Analysis
As an initial matter, we must determine whether Appellants preserved this issue for our
review by raising it for the first time in a post-trial motion. Clay argues against preservation
because Appellants did not object to the jury charge which allowed for recovery of both tort and
contract damages.
In Equistar Chemicals, L.P. v. Dresser-Rand Co., a products liability action, the
Supreme Court of Texas held that a defendant (Dresser) failed to preserve error as to the
application of the economic loss rule when it did not plead the rule, reference the rule in any
motions, or object to the jury charge on the basis of the rule. 240 S.W.3d 864, 868 (Tex. 2007).
Further, Dresser did not mention the economic loss rule in any of its pre- or post-trial motions;
however, the appellate court found that Dresser’s general no-evidence complaints encompassed
its assertion of the economic loss rule. Id. In overturning that finding, the Court noted that Texas
law provides defective product remedies in both tort and contract, but the economic loss rule
would apply when “losses from an occurrence arise from failure of a product and the damage or
loss is limited to the product itself.” Id. at 867. However, in Equistar, the jury was only asked
to find one damages amount and was not instructed to distinguish the damages resulting from its
respective findings that the defendant committed torts and that the defendant breached a contract.
Id. In finding that Dresser failed to preserve error on the issue, the Court stated, “If Dresser
believed that the jury charge presented an improper measure of damages because it allowed the
5
jury to find both tort and contract damages by a single answer, it was required to timely object
and make the trial court aware of its complaint in order to preserve error for appeal.” Id.
Subsequently, in MEMC Pasadena, Inc. v. Riddle Power, LLC, an appellate court found
that a defendant preserved error as to the economic loss rule when it raised the issue for the first
time in a post-trial motion. 472 S.W.3d at 411 n.8. The court distinguished the case from
Equistar by noting that MEMC involved a different application of the economic loss rule than
the one applied in products liability actions. Id. The court further noted that asserting a question
of law (such as the applicability of the economic loss rule) in a post-trial motion “preserves an
issue for review if the legal question is one that the trial court is not required to resolve before
the jury could properly perform its fact-finding role.” Id. (citing Holland v. Wal-Mart Stores,
Inc., 1 S.W.3d 91, 94 (Tex. 1999)). Specifically, the trial court was not required to resolve the
applicability of the rule before the jury could assess whether the defendant entity had been
negligent at all and the percentage of its responsibility. Id.Most recently, in Dixie Carpet Installations, Inc. v. Residences at Riverdale, LP (a case
involving claims for breach of contract and conversion), an appellate court found that the
appellee preserved error as to the economic loss rule by raising same in its oppositions to the
appellant’s pre-remand and post-remand motions for judgment. 599 S.W.3d 618, 633–34 (Tex.
App.—Dallas 2020, no pet.). The court similarly distinguished the matter from Equistar by
noting that that case involved the version of the economic loss rule applicable to products
liability cases. Id. at 636 n.8. Further, because the jury in Equistar was only asked to find one
damages amount for both tort and contract, the defendant therein would have had to object to the
improper submission to preserve its economic loss rule argument; the “one damages amount”
issue was not present in Dixie Carpet. Id. at 636 n.8.
In this case, the jury charge contained separate damages questions for Clay’s separate
claims of breach of the Compensation Agreement and negligent misrepresentation, and the jury
determined a separate damages amount for each claim, so the “one damages amount” issue
present in Equistar is not present here. Further, similar to the situation in MEMC (and because
the damages questions were separated), it was not necessary for the trial court to resolve
Kennel’s economic loss rule issue of law before the jury performed its factfinding role. If the
jury found that the Compensation Agreement was either nonexistent or nonbinding (and thus
there was no contract related to that subject matter), then the economic loss rule would have no
6
application. Similarly, if the jury found in Kennel’s favor on the negligent misrepresentation
claim, there would be no economic loss rule issue, because there would be no liability for Kennel
under the tort claim. Therefore, we conclude that Kennel preserved the economic loss rule issue
for appellate review by raising same in her post-trial motion.
We now turn to the question of whether the economic loss rule applies to bar Clay’s
recovery of damages under her tort claim for negligent misrepresentation. We note that, contrary
to Clay’s assertion, Texas courts have not chosen to condition the application of the economic
loss rule on whether the jury actually awarded the plaintiff damages under claims for both tort
and contract. 3 The rule does not state that a plaintiff cannot recover in both contract and tort;
rather, the economic loss rule precludes any recovery in tort for the economic losses recoverable
(not necessarily actually recovered) under a claim for breach of contract. See Guerrero-
McDonald, 516 S.W.3d at 210. This is because when the damages sought are the result of a
breach of a contractually created duty, the action itself “sounds in contract alone.” MEMC
Pasadena, Inc., 472 S.W.3d at 397. Stated differently, when the only economic loss to the
plaintiff is the value she expected to receive under a contract, that plaintiff is confined to
contractual remedies to recover for that loss. See Chapman Custom Homes, Inc., 445 S.W.3d at
718; Lamar Homes, Inc., 242 S.W.3d at 12–13. This is so even when the breach could
reasonably be viewed as a consequence of a contracting party’s negligence. Lamar Homes, Inc.,
242 S.W.3d at 12–13. Also contrary to Appellee’s argument, the economic loss rule applies to
claims for negligent misrepresentation where the damages sought comprise the benefit of the
contractual bargain. See, e.g., D.S.A., Inc., 973 S.W.2d at 664; Severs v. Mira Vista
Homeowners Ass’n, Inc., 559 S.W.3d 684, 703 (Tex. App.—Fort Worth 2018, pet. denied);
Guerrero-McDonald, 516 S.W.3d at 210. To avoid application of the rule, the plaintiff has the
burden to establish an injury or loss attributable to the alleged negligent misrepresentation that is
“distinct, separate, and independent” from the loss of her contractual expectancy. Guerrero-
McDonald, 516 S.W.3d at 210; see also Sterling Chemicals, Inc., 259 S.W.3d at 797–98.
3
Clay cites to MCN Energy Enterprises, Inc. v. Omagro de Colombia, L.D.C. as standing for the
proposition that “because the jury found for the defendant on the contract claim, there was no economic-loss rule
problem.” 98 S.W.3d 766, 772 (Tex. App.—Fort Worth 2003, pet. denied). However, the jury in MCN found that
there was no contract between the parties, so the appellate court found that the economic loss rule (which the
opinion does not mention by name) did not bar a damages award for negligent misrepresentation. Id. In contrast,
here, the jury found that there was a contract between RDA and Clay regarding Clay’s compensation, and that
Appellants breached that contract; however, the jury declined to award damages for the breach.
7
As found by the jury in its answer to the first jury question, the Compensation Agreement
provided that “Kristal K Clay, on the one hand, and Deanne Kennel and RDA Professional
Beauty Supply, Inc, on the other hand, agree[d] that their pay, benefits and perks from RDA
Professional Beauty Supply, Inc, would be equal except that Kennel would receive $10,000 more
a year then Kristal K Clay[.]” And both jury question three (damages for breach of the
Compensation Agreement) and jury question eight (damages for negligent misrepresentation)
instruct the jury to consider the same single element of damages “and none other,”— that
element being “[t]he amount of pay, benefits and perks that Deanne Kennel received from RDA
Professional Beauty Supply, Inc. in excess of the amount agreed to in jury question number one,
if any.” That is, the jury charge instructs the factfinder to consider (in determining damages for
both Appellants’ breach of the Compensation Agreement and Kennel’s alleged negligent
misrepresentation) only the amount of money that would make equal the amounts of “pay,
benefits, and perks” received by Clay and Kennel (excepting the additional $10,000.00 per year
to Kennel), under the terms of the Compensation Agreement.
Appellants and Clay were parties to the Compensation Agreement, and Clay sued
Appellants for allegedly breaching that contract. Clay’s First Amended Petition, her live pleading
at the time of trial, does not allege any separate injury or category of damages specific to her
claim for negligent misrepresentation. Finally, in reviewing the jury charge, the measure of the
damages Clay sought to recover under both her breach of contract claim and her negligent
misrepresentation claim were identical, and both depend on an affirmative answer to the first
jury question—namely, that Appellants and Clay had a contract regarding Clay’s compensation.
That is, if the jury had found in answering the first jury question that there was no contract, then
per the jury charge, the amount of damages for the negligent misrepresentation would have
necessarily been zero. Clay does not argue that she alleged before the trial court the independent
injury required to overcome the application of the economic loss rule to her claim for negligent
misrepresentation, and we find that the record similarly fails to establish any such independent
injury. For this reason, we conclude that Clay’s claim against Appellants regarding her
compensation as an employee of RDA sounds solely in contract, and the economic loss rule bars
her recovery of any tort damages from Kennel under her negligent misrepresentation claim. 4
In her sole conditional counter-issue as cross-appellee, Clay contends that “[i]f, for any reason, the Court
4
remands Clay’s claim for negligent misrepresentation, the Court then should reverse and remand the entire case.”
8
Accordingly, we sustain Appellants’ first issue. 5 See MEMC Pasadena, Inc., 472 S.W.3d at
397.
LEGAL SUFFICIENCY OF EVIDENCE
In their third issue, Appellants challenge the legal sufficiency of the evidence to support
the jury’s findings regarding breach of contract (specifically the Separation Agreement).
Standard of Review
Legal sufficiency questions the existence of any evidence to support a particular finding,
and essentially claims the evidence at trial can point to only one legal outcome—that is, the
opposite of the outcome made by the fact finder. See, e.g., Ford Motor Co. v. Ridgway, 135
S.W.3d 598, 601 (Tex. 2004). When a party challenges both the legal and factual sufficiency of
the evidence, appellate courts should decide the legal sufficiency issues first. Altice v.
Hernandez, 668 S.W.3d 399, 409 (Tex. App.—Houston [1st Dist.] 2022, no pet.).
A party who challenges the legal sufficiency of the evidence to support an issue upon
which it did not have the burden of proof at trial must demonstrate on appeal that there is no
evidence to support the adverse finding. Bright v. Addison, 171 S.W.3d 588, 595 (Tex. App.—
Dallas 2005, pet. denied). Our review is restricted to the jury charge as submitted when there
was no objection to the instruction. Seger v. Yorkshire Ins. Co., 503 S.W.3d 388, 407 (Tex.
2016). To analyze a legal sufficiency challenge, we must determine whether the evidence
presented would enable reasonable and fair-minded people to make the finding under review.
City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). A legal sufficiency review “must
credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless
reasonable jurors could not.” Id. at 821-22, 827.
The jury is the sole judge of the witnesses’ credibility and the weight to be given to their
testimony; the jurors are entitled to believe one witness and disbelieve another. Id. at 819. On
She repeats, “were the Court to somehow reverse and remand Clay’s recovery under the negligent misrepresentation
claim, the Court should in that event reverse and remand the entire case, including RDA’s recovery from Clay.”
Because we do not reverse and remand on the issue of negligent misrepresentation, we need not address this
counter-issue. See TEX. R. APP. P. 47.1.
5
Because we conclude that the economic loss rule precludes Clay’s negligent misrepresentation claim and
any recovery of damages thereunder, we do not reach Appellants’ second and seventh issues regarding the legal and
factual sufficiency of the jury’s findings pertaining to that claim. See id.9
appeal, we assume the jury resolved all conflicts in the evidence and all conflicting inferences
reasonably drawn from the evidence in accordance with the verdict. Id. at 821.
Applicable Law
The existence of a valid contract between the parties is a prerequisite to a finding of
breach of contract. Domingo v. Mitchell, 257 S.W.3d 34, 39 (Tex. App.—Amarillo 2008, pet.
ref’d). For a contract to be valid and enforceable, it must address all essential and material terms
of the parties’ agreement with sufficient definiteness to enable a court to understand the parties’
obligations and give an appropriate remedy for a breach. Fischer v. CTMI, L.L.C., 479 S.W.3d
231, 237 (Tex. 2016); see also Farone v. Bag’n Baggage, Ltd., 165 S.W.3d 795, 802 (Tex.
App.—Eastland 2005, no pet.) (terms of an oral contract must be definite, certain, and clear as to
all essential terms or oral contract fails for indefiniteness). An appellate court decides whether a
contract contains all essential terms on a case-by-case basis, and the “primary purpose” of the
contract governs this determination. Rustic Nat. Res. LLC v. DE Midland III LLC, 669 S.W.3d
494, 501 (Tex. App.—Eastland 2022, pet. filed). When an agreement leaves material matters
open for future agreement and that agreement never occurs, the contract is not sufficiently
definite, constitutes merely an agreement to agree, and is not binding on the parties. Playoff
Corp. v. Blackwell, 300 S.W.3d 451, 455 (Tex. App.—Fort Worth 2009, pet. denied); see also
Martin v. Martin, 326 S.W.3d 741, 749 (Tex. App.—Texarkana 2010, pet. denied); Cent. Texas
Micrographics v. Leal, 908 S.W.2d 292, 297 (Tex. App.—San Antonio 1995, no pet.) (no
enforceable contract “where the agreement of the parties leaves an essential term for later
determination and it is never determined.”) (emphasis in original). An agreement to enter into
negotiations in the future cannot be enforced because the court has no means to determine what
sort of contract the negotiations would have produced. Meru v. Huerta, 136 S.W.3d 383, 391
(Tex. App.—Corpus Christi 2004, no pet.).
The question of whether a particular contract is an unenforceable agreement to agree is a
question of law. See Martin, 326 S.W.3d at 746-47 (citing Mickens v. Longhorn DFW Moving,
Inc., 264 S.W.3d 875, 880 (Tex. App.—Dallas 2008, pet. denied)).
Analysis
As an initial matter, Clay contends that Appellants failed to preserve error on this
argument because they did not specifically raise the issue of legal enforceability in their post-trial
motions. However, as the Texas Supreme Court has explained, a general “no evidence”
10
complaint directed to a specific jury issue is usually sufficient to preserve error without further
detail as to why no evidence exists, and the rules regarding the specificity of post-trial objections
should be construed liberally. Arkoma Basin Exploration Co. v. FMF Assocs. 1990–A, Ltd.,
249 S.W.3d 380, 387 (Tex. 2008). Appellants raise just such a general complaint in their motion
for judgment notwithstanding the verdict, 6 so we conclude that said motion preserved error on
Appellants’ legal sufficiency point related to the enforceability of the Separation Agreement.
Appellants allege that the Separation Agreement is not a valid, enforceable contract, but
only an agreement to agree, because it does not provide a price for the shares. The price to be
paid for the object of a sale is an essential element of a sales contract and is therefore a material
term for this contract. John Wood Grp. USA, Inc. v. ICO, Inc., 26 S.W.3d 12, 20 (Tex. App.—
Houston [1st Dist.] 2000, pet. denied).
The fourth jury question, which the jury answered affirmatively, asks:
Did Kristal K Clay, on the one hand, and Deanne Kennel and RDA Professional Beauty Supply,
Inc, on the other hand, agree that when Crystal K Clay exited RDA Professional Beauty Supply,
Inc that she would be paid the sum of $5,000 per month (up to $50,000), to be deducted from the
sale of Kristal K Clay’s shares in RDA Professional Beauty Supply, Inc to Deanne Kennel for an
appraised value?
The parties do not dispute that the Separation Agreement was solely an oral contract, and that
Clay never had a written agreement of any kind with Kennel or with RDA. At trial, Clay testified
as follows regarding the terms of the Separation Agreement:
On the day that I was fired, Dee and I both came to an agreement that she would buy me out that
day. And she offered $5,000 a month for up to $50,000 to be deducted off the sale of the purchase
… So the day of our separation, we discussed that we would both -- as soon as the taxes were filed
that we would both get an evaluation of the company and we would come to an agreement, and
then she would purchase the shares from me.
Upon our review, this testimony is the only direct evidence in the record concerning the
terms of the Separation Agreement. 7 Elsewhere, Clay testified that she and Kennel came to an
agreement on “buyout” on “[t]he day that she fired me,” but did not specify further.
6
To preserve error on a legal sufficiency point of error, the appellant must raise the issue through one of
the following: (1) a motion for directed verdict; (2) a motion for judgment notwithstanding the verdict; (3) an
objection to the submission of the question to the jury; (4) a motion to disregard the jury’s answer to a vital fact
question; or (5) a motion for new trial. See Cecil v. Smith, 804 S.W.2d 509, 510–11 (Tex. 1991).
7
Neither the e-mail nor the letter from Kennel that Clay referenced in her testimony appears in the record.
11
Clay’s testimony makes clear that the primary goal of the Separation Agreement was
Appellants’ future purchase of Clay’s shares in RDA, and that the agreed-upon monthly
payments were not merely severance or additional compensation but were instead an advance on
the purchase price of the shares. However, the Separation Agreement also explicitly leaves the
material price term open for later determination, pending the completion of at least two
competing “evaluation[s]” and subsequent negotiation between the parties. The parties do not
dispute that no such evaluations ever occurred, nor is there any indication that they later came to
an agreement as to price. Specifically regarding an oral agreement to transfer stock, the terms
must state “the specific quantity of shares and the specific price” in order to be considered clear,
certain, and definite. See Selzer v. Dunn, No. 12-12-00150-CV, 2014 WL 356992, at *4 (Tex.
App.—Tyler Jan. 31, 2014, pet. denied) (mem. op.) (citing Gannon v. Baker, 830 S.W.2d 706,
709 (Tex. App.—Houston [1st Dist.] 1992, writ denied) (op. on remand)). For this reason alone,
the Separation Agreement is unenforceable. Even if this were not so, Appellants and Clay left a
material term open for later determination, but the record before us indicates that determination
never occurred—a factual situation that renders the Separation Agreement an unenforceable
“agreement to agree” as a matter of law. See Martin, 326 S.W.3d at 746-47; Leal, 908 S.W.2d
at 297.
Although courts have implied terms (including price terms) when the circumstances of a
contract left little doubt as to the parties’ intentions, we cannot imply terms where the parties did
not actually reach an agreement, but merely planned to reach an agreement that never came to
fruition. Kottke v. Scott, No. 03-10-00071-CV, 2011 WL 1467194, at *5 (Tex. App.—Austin
Apr. 14, 2011, no pet.) (mem. op.) (citing Ski River Dev., Inc. v. McCalla, 167 S.W.3d 121, 134
(Tex. App.—Waco 2005, pet. denied)). The Separation Agreement does not set forth how the
parties intended the evaluations to factor into their negotiations on the sale price. Nor does any
record evidence indicate that the parties intended to be bound by any one appraisal price, or any
specific amount mathematically derived from the appraisals, as the purchase price for the shares.
Though not specifically addressed, another material term for which there is no evidence is the
date as of which the value of RDA, and accordingly its stock value, is to be determined. The
record indicates that on the day Clay was fired, RDA did not have enough liquid capital to cover
the upcoming payroll, requiring Kennel to borrow money to keep RDA in business. However, in
the ensuing years since Clay’s departure (in which she continued to own 25% of RDA), RDA
12
has returned to solvency and made a record amount in gross sales. Obviously, the parties will
have opposing desires as to the valuation date of the company in relation to the sale of Clay’s
shares, but the record is silent as to any discussion or agreement by the parties as to this date. In
summary, the record evidence regarding the Separation Agreement fails to provide either a set
price or a “formula or standard” by which to determine same. Fischer, 479 S.W.3d at 241. In the
absence of this information (or any information setting forth how the parties intended to fix a
price), this Court has no ability to determine the sale price upon which the parties would have
eventually agreed, or any other terms of the sale, cannot approximate the amount which Clay
would have received after the $50,000.00 offset, and therefore cannot fashion an appropriate
remedy for any breach. See id. at 237; Meru, 136 S.W.3d at 391.
We conclude as a matter of law that no binding contract exists providing for an advance
on the eventual sale price of Clay’s RDA shares. The trial evidence does not meet the test of
enabling reasonable and fair-minded people to reach the verdict which we review here. See City
of Keller, 168 S.W.3d at 827. We sustain Appellant’s third issue. 8
REMAINING ISSUES
Having reversed the verdict in Clay’s favor on her claims of negligent misrepresentation
and breach of the Separation Agreement, we do not reach Appellants’ fourth issue alleging that
the trial court erred in failing to order Clay to forfeit said recoveries. See TEX. R. APP. P. 47.1.
Moreover, because Clay does not challenge on appeal the verdict or damages award
against her for breach of fiduciary duty, we need not reach Appellants’ fifth issue regarding
Clay’s purported waiver of her ability to do so. See id. Therefore, we also do not reach
Appellants’ tenth issue regarding the damages award for this claim. See id.
Finally, having reversed the findings in Clay’s favor on her claims of negligent
misrepresentation and breach of the Separation Agreement, we do not reach Appellants’
remaining sixth issue regarding venue they submitted as an alternative issue only. See id.
DISPOSITION
8
Because we sustain Appellants’ third issue and find that no binding contract existed as a matter of law, we
need not reach Appellants’ eighth and ninth issues regarding factual insufficiency of this claim and enforcement of
the sale of Clay’s shares in RDA to Appellants. See TEX. R. APP. P. 47.1.
13
Having sustained Appellants’ first issue, we reverse the portion of the trial court’s final
judgment of November 28, 2022, ordering that Clay recover from Kennel the sum of
$835,000.00 for negligent misrepresentation, and render judgment that Clay take nothing for this
claim.
Having sustained Appellants’ third issue, we reverse the portion of the trial court’s final
judgment ordering that Clay recover from RDA the sum of $50,000.00 for breach of contract,
and render judgment that Clay take nothing for this claim.
We further modify the trial court’s final judgment to delete the paragraph reducing the
amount of RDA’s recovery from Clay to $185,000.00 as an offset for Clay’s recovery for breach
of contract. We additionally modify the judgment to delete the paragraph ordering that Clay
recover a judgment against Kennel for pre- and post-judgment interest.
We otherwise affirm the judgment of the trial court as modified.
GREG NEELEY
Justice
Opinion delivered December 14, 2023.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
14
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
DECEMBER 14, 2023
NO. 12-23-00050-CV
RDA PROFESSIONAL BEAUTY SUPPLY INC. AND VELVIA DEANNE KENNEL,
Appellants/Cross-Appellees
V.
KRISTAL K. CLAY,
Appellant/Cross-Appellee
Appeal from the 4th District Court
of Rusk County, Texas (Tr.Ct.No. 2020-271)
THIS CAUSE came to be heard on the appellate record, oral argument, and
briefs filed herein, and the same being considered, it is the opinion of this court that the judgment
of the court below should be reversed and rendered in part, and affirmed as modified in part.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment of
the court below be reversed as to the portion of the trial court’s final judgment of November 28,
2022, ordering that Kristal K. Clay recover from Velvia Deanne Kennel the sum of $835,000.00
for negligent misrepresentation, and rendered that Clay take nothing for this claim.
It is therefore FURTHER ORDERED, ADJUDGED and DECREED that the
judgment of the court below be reversed as to the portion of the trial court’s final judgment
ordering that Clay recover from RDA Professional Beauty Supply, Inc. the sum of $50,000.00
for breach of contract, and rendered that Clay take nothing for this claim.
It is therefore FURTHER ORDERED, ADJUDGED and DECREED that the
judgment of the court below be modified to delete (1) the paragraph reducing the amount of
RDA’s recovery from Clay to $185,000.00 as an offset for Clay’s recovery for breach of
contract, and (2) the paragraph ordering that Clay recover a judgment against Velvia Deanne
Kennel for pre- and post-judgment interest.
In all other respects, the judgment of the trial court is affirmed.
It is FURTHER ORDERED that all costs of this appeal are hereby adjudged
against the Appellee, KRISTAL K. CLAY, for which execution may issue; and that this
decision be certified to the court below for observance.
Greg Neeley, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.