Mary Flentge McAuley, Willie O. Flentge, Jr., and Charles Ray Flentge v. Carl Dean Flentge, Independent of the Estate of Laverna Flentge, Carl Dean Flentge, David Flentge and Daniel Junek, Independent of the Estate of Willie Otto Flentge, Sr., Individually, and as Shareholders and on Behalf of W.L. Ranch, Inc ( 2015 )

ACCEPTED
06-15-00051-CV
SIXTH COURT OF APPEALS
TEXARKANA, TEXAS
12/1/2015 10:38:57 AM
DEBBIE AUTREY
CLERK
NO. 06-15-00051-CV
IN THE SIXTH COURT OF APPEALS FILED IN
6th COURT OF APPEALS
TEXARKANA, TEXAS TEXARKANA, TEXAS
12/1/2015 10:38:57 AM
DEBBIE AUTREY
MARY FLENTGE MCAULEY, WILLIE O. Clerk
FLENTGE, JR., and CHARLES RAY FLENTGE
Appellants/Cross-Appellees
v.
CARL DEAN FLENTGE, INDEPENDENT
EXECUTOR OF THE ESTATE OF LAVERNA
FLENTGE, CARL DEAN FLENTGE, DAVID
FLENTGE and DANIEL JUNEK, INDEPENDENT
EXECUTOR OF THE ESTATE OF WILLIE
OTTO FLENTGE, SR., INDIVIDUALLY , and as
SHAREHOLDERS and on behalf of W.L. RANCH,
INC.
Appellees/Cross-Appellants.
Appeal from Final Judgment in Cause No. 26, 704,
21st Judicial District of Burleson County, Texas.
Hon. Carson Campbell, Presiding
BRIEF FOR CROSS-APPELLANTS
Wayne H. Paris
State Bar No. 15462000
Paris Law Group P.L.L.C.
State Bar No. 15462000
Two Riverway, Suite 1080
Houston, Texas 77056
Telephone: (713) 951-9100
Facsimile: (713) 961-3082
E-mail:waynehparis@yahoo.com
ATTORNEY FOR CROSS-
APPELLANTS
ORAL ARGUMENT REQUESTED
IDENTITY OF PARTIES AND COUNSEL
A complete list of all parties to the trial court’s judgment or order appealed
from, and the names and address of all trial and appellate counsel are as follows:
CROSS-APPELANTS AND APPELLEES:
Carl Dean Flentge, Independent Executor of the Estate of LaVerna Flentge,
individually, and as temporary shareholder and on behalf of W.L. Ranch, Inc.
Carl Dean Flentge, individually, and as shareholder and on behalf of W.L. Ranch,
Inc.
David Flentge, individually, and as shareholder and on behalf of W.L. Ranch, Inc.
Daniel Junek, Independent Executor of the Estate of Willie Otto Flentge, Sr.,
individually, and as temporary shareholder and on behalf of W.L. Ranch, Inc.
COUNSEL FOR CROSS-APPELANTS AND APPELLEES
(Trial and Appellate)
Wayne H. Paris
State Bar No. 15462000
Paris Law Group P.L.L.C.
Two Riverway, Suite 1080
Houston, Texas 77056
Telephone: (713) 951-9100
Facsimile: (713) 961-3082
E-mail:waynehparis@yahoo.com
COUNSEL FOR CARL DEAN FLENTGE, INDEPENDENT EXECUTOR
OF THE ESTATE OF LAVERNA FLENTGE
(Trial only)
Laura Upchurch
State Bar No. 00785131
207 East Main
ii
P.O. Box 1808
Brenham, Texas 77834-1808
Telephone: (979) 836-5664
Facsimile: (979) 830-0913
Email: upchurch@moormantate.com
COUNSEL FOR DANIEL JUNEK, INDEPENDENT EXECUTOR OF THE
ESTATE OF WILLIE OTTO FLENTGE, SR.
(Trial only)
Jeffrey M. Burns
State Bar No. 24054615
Burns & Reyes Burns, P.L.L.C.
17470 Highway 36 South
Somerville, Texas 77879
Telephone: (979) 596-3424
Facsimile: (979) 596-2837
E-mail: Jeff@BRBlawfirm.com
APPELLANTS AND CROSS-APPELLEES
Mary Flentge McAuley
Willie O. Flentge, Jr.
Charles Ray Flentge
COUNSEL FOR APPELLANTS AND CROSS-APPELLEES
(Trial and Appellate)
Mr. J. Steven Stewart
State Bar No. 19210500
The Law Office of J. Steven Stewart
5353 W. Alabama
Suite 605
Houston, Texas 77056
Telephone: 713-977-3447
Facsimile: 832-201-9117
Email: jss@jstevenstewart.com
iii
TABLE OF CONTENTS
Page
IDENTITY OF PARTIES AND COUNSEL ........................................................ ii-iii
TABLE OF CONTENTS ...................................................................................... iii-iv
INDEX OF AUTHORITIES ................................................................................ v-viii
STATEMENT OF THE CASE ................................................................................... 1
STATEMENT REGARDING ORAL ARGUMENT................................................ 2
ISSUES PRESENTED ............................................................................................. 2-3
A. Whether or not there was sufficient evidence in the trial record to raise a fact
issue that Cross-Appellees, Mary Flentge McAuley, Willie O. Flentge, Jr. and
Charles Ray Flentge breached their fiduciary duties, while acting as officers
and two (2) purported directors of W.L. Ranch, Inc.?.......................................2
B. Whether or not there was sufficient evidence in the trial record to raise a fact
issue that Cross-Appellees, Mary Flentge McAuley, Willie O. Flentge, Jr. and
Charles Ray Flentge, obtained “benefits” as a result of their breach of
fiduciary duties to W.L. Ranch, Inc., while acting as officers and two (2)
purported directors of the corporation?..............................................................3
C. Whether or not Cross-Appellants, individually, were entitled to and prevented
from presenting a claim for statutory reimbursement and indemnity against
W.L. Ranch, Inc., to be paid directly to Cross-Appellants, for attorney’s fees
and expenses they expended for a substantial benefit of W.L. Ranch, Inc. by
the trial court’s granting Cross-Appellees a directed verdict on Cross-
Appellants’ breach of fiduciary duty claim? …………………………………3
STATEMENT OF FACTS ..................................................................................... 3-12
iv
SUMMARY OF THE ARGUMENT ..................................................................12-14
ARGUMENT ........................................................................................................14-30
A. Standard of Review ........................................................................................14-16
B. There is Sufficient Evidence in the Trial Record to Raise a Fact Issue on
Cross-Appellees, Mary Flentge McAuley, Willie O. Flentge, Jr. and Charles
Ray Flentge breach of their Fiduciary Duties while acting as Officers and two
(2) purported Directors of W.L. Ranch, Inc. ...................................................16-24
C. There is Sufficient Evidence in the Trial Record to raise a fact Issue that Cross-
Appellees, Mary Flentge McAuley, Willie O. Flentge, Jr. and Charles Ray Flentge
obtained Benefits as a result of their Breach of Fiduciary Duties to W.L. Ranch,
Inc., while acting as officers and two (2) purported Directors of W.L.Ranch, Inc.
...............................................................................................................................24-26
D. The Individual Cross-Appellants were entitled to present their claim for
reimbursement of Attorney’s Fees and Expenses statutorily under the Equitable
Common Fund Doctrine to the Court for the Preservation of Corporate Property,
which was prevented by the Trial Court’s Grant of a Directed Verdict…....26-30
PRAYER ...............................................................................................................30-31
CERTIFICATE OF COMPLIANCE ....................................................................... 31
CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
APPENDIX ................................................................................................................ 33
v
INDEX OF AUTHORITIES
CASES
Page
Archer v. Griffith, 390 S.W.2d 735, 739 (Tex. 1984) .......................................... 22
Burrow v. Arce, 977 S.W.2d 229, 237 (Tex. 1999); ...............................................17
City of Dallas v. Arnett, 762 S.W. 942, 954 (Tex. App.-Dallas 1998, writ denied)27
City of Fort Worth v. Pippen, 439 S.W.2d 660, 665 (Tex. 1969) ..............................
City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). ..................................15
Cliff v. Higgins, 724 S.W.2d 778, 778-79 (Tex. 1987)...........................................15
Director, State Employees Workers' Comp. Div. v. Evans, 889 S.W. 226, 268 (Tex.
1994). ....................................................................................................................15
Fillion v. Troy, 656 S.W.2d 912, 914 (Tex.App.-Houston[1st Dist.] 1983, writ ref.
r.r.e.) ......................................................................................................................22
General Dynamic v. Torres, 915 S.W. 2d 45,49 (Tex. App.-El Paso 1995, writ
denied); .................................................................................................................18
Graham Morg. Corp. v. Hull, 307 S.W.2d 472, 479 (Tex. App. – Dallas 2010, no
pet.) .......................................................................................................................16
Gun v. Schafer, 683 S.W.2d 803, 506 (Tex.App.-Corpus Christi 1984, no court) 22
Home Loan Corp. v. Texas Am Title Co., 191 S.W.3d 728, 731 (Tex. App. –
Houston [14th Dist.] 2006, pet. denied),................................................................18
Huie v. DeShazo, 922 S.W.2d 920, 927-28 (Tex, 1996) ........................................16
Imperial Grp. V. Scholnick, 709 S.W.2d 358, 363 (Tex. App.- Tyler 1986, writ
ref’d r.r.e.) .............................................................................................................18
In re Essex Inc., 450 S.W.3d 524, 525-26(Tex. 2014). ..........................................15
In re TDFPS, 210 S.W.3d 609, 612 (Tex. 2006) . ..................................................15
International Bankers Life Ins. v. Holloway, 368 S.W.2d at 577 ..................... 17,18
Keck, Mahin & Cate v. National Union Fire Insurance Company of Pittsburg, 20
S.W.3d 692, 699 (Tex. 2000) ..............................................................................22
Kelly v. Grimes , 181 S.W.3d 394, 414 (Tex. App. – Waco 2005) ........................16
Kinzbach Tool Co. v. Corbett – Wallace Corp., 160 S.W.2d 509, 513-14(Tex.
1942); ......................................................................................................... 16,17,18
Knebel v. Capital Nat’l Bank, 518 S.W.2d 795, 798-99 (Tex. 1974); ............. 27,29
Libhart v. Copeland, 949 S.W.2d 783, 803-04 (Tex.App.-Waco 1997,no
writ)………………………………………………………………………….27,29
vi
Loy v. Hart, 128 S.W.3d 397, 408 (Tex. App. – Texarkana 2004 pet. denied)......18
Martiz v. Preiss, 121 S.W.3d 715, 720 (Tex. 2003) ...............................................16
Miller v. Miller, 700 S.W.2d 941, 945-46 (Tex. App. – Dallas , 1985, writ ref.
r.r.e.) ................................................................................................................. 22
Mills v. Angels, 995 S.W.2d 262, 267 (Tex. App.- Texarkana, 1999, no pet.) ......15
Poe v. Hutchens, 737 S.W.2d 574, 584 (Tex. App. – Dallas 1987, writ ref r.r.e.) .18
Porterfield v. Brinegar, 719 S.W. 2d 558,559 (Tex. 1986).....................................15
Priddy v. Rawson, 282 S.W.3d 588, 599(Tex.App.- Houston [14th Dist.] 2009, pet.
denied)...................................................................................................................16
Rente Co. v. Truckers Express, Inc., 116 S.W. 3d 326,330 (Tex. App. – Houston
[14th Dist.], 2003, no pet.); ....................................................................................15
Reyna v. First Nat’l Bank, 55 S.W. 3d 58,59 (Tex.App.-Corpus Christi 2001, no
pet.) .......................................................................................................................15
Ritchie v. Rupe, 443 S.W.3d 856, 876 (Tex. 2014). ................................................17
Robertson v. Odom, 296 S.W.3d 151, 155(Tex. App.-Houston [14th Dist.] 2009, no
pet.) .......................................................................................................................15
Slay v. Burnett Trust, 187 S.W.2d 377, 387-88 (Tex.1945) ...................................25
Sorrell v. Elsey, 748 S.W.2d 584, 586 (Tex. App.-San Antonio 1988, writ
denied)…………………………….....……………………………………….…22
Stephens County Museum, Inc. v. Swenson, 517 S.W.2d 257, 261. (Tex. 1974) ...25
Texas Bank & Trust Co. v. Moore, 595 S.W.2d 502, 509 (Tex. 1980) .................22
Trahan v. Lone Star Title Co., 247 S.W. 3d 269,287 (Tex. App. – El Paso 2007),
pet. denied);...........................................................................................................18
Upchurch v. Albear, 5 S.W.3d 274, 283 (Tex. App.-Amarillo 1999, pet. denied) .
...............................................................................................................................16
White v. Southwestern Bell Tel.Co., 651 S.W.2d 260, 262 (Tex. 1983); ...............15
vii
STATE STATUTES
Texas Business Organizations Code:
§4.007 ...................................................................................................... 12-13
§4.008 ...................................................................................................... 12-13
§20.002(c)(2) .......................................................................................... 12,22
§21.052 ..........................................................................................................13
§21.055 ..........................................................................................................13
§21.551 ............................................................................................................1
§21.561(b)(1) ................................................................................. 14,26,27,28
§21.563(c)(1)(2)............................................................................... 1,14,26,28
Texas Civil Practice & Remedies Code:
§37.004 ............................................................................................................1
§37.005 ............................................................................................................1
§37.009 ..........................................................................................................11
§65.011(1)(2)(3)(5) .........................................................................................1
RULES
Texas Rules of Appellate Procedure
Rule 9.4(i)(3) ............................................................................................ 31
viii
STATEMENT OF THE CASE
Cross-Appellants’ Statement of their case is as follows:
Type of Proceeding: Shareholder derivative suit brought by
Cross-Appellants pursuant to §21.551
and § 21.563, Tex.Bus.Org.Code.
Declaratory Judgment Action brought
by Cross-Appellants pursuant to
§37.004 and §37.005, Tex.Civ.Prac.&
Rem.Code. Application for Injunctive
Relief brought by Cross-Appellant,
LaVerna Flentge, pursuant to
§65.001,(1)(2)(3)(5)Tex.Civ.Prac.&R
em.Code (C.R. 9-18, 240-251, 308-
319)
Course of Proceeding: Trial court granted partial declaratory
summary judgments, except for
attorney fees in favor of Cross-
Appellants (C.R. 183)(S.Sup.C.R. 5,6,
7) Jury decided amount of attorney
fees for prior declaratory summary
judgments, February 6 2015 (C.R.
276,278;347-351) Trial court granted
directed verdict on Cross-Appelants’
claims for breach of fiduciary duties
when Cross-Appellants’ rested. (C.R.
267-269, 351) (C.R.R. Vol. 5, 1-8)
Trial Court’s Disposition
of the case: Final Judgment (C.R. 279-282). Order
denying Cross-Appelants’ Motion for
Partial New Trial (C.R. 299)
1
STATEMENT REGARDING ORAL ARGUMENT
Cross-Appelants believe that oral argument in this case is necessary to aid and
assist the Court’s decisional process regarding questions on their appeal relating to
benefits, as opposed to damages occurring as a result of breach of fiduciary duties
by Cross-Appellees in proving Cross-Appellant’s claims (misunderstood by the trial
court), the shifting of the burden of proof on same, potential statutory awards of
attorney fees from W.L. Ranch, Inc. and statutory indemnity for contributors for the
corporate action under the derivative statute, as well as an alleged restrictive By-
Law covenant upon the testamentary transfer of shares in this family held
corporation, W.L. Ranch, Inc. (which will be the subject of Appellees’ Brief)
ISSUES PRESENTED
Cross-Appellants’ issues presented on their appeal are set out below. All of
the following issues were brought to the attention of the trial court and are preserved
for the Cross-Appellants’ appeal in Cross-Appellants’ motion for partial new trial
(C.R. 283-292).
A. Whether or not there was sufficient evidence in the trial record to raise a fact
issue that Cross-Appellees, Mary Flentge McAuley, Willie O. Flentge, Jr. and
Charles Ray Flentge breached their fiduciary duties, while acting as officers
and two (2) purported directors of W.L. Ranch, Inc.?
B. Whether or not there was sufficient evidence in the trial record to raise a fact
2
issue that Cross-Appellees, Mary Flentge McAuley, Willie O. Flentge, Jr. and
Charles Ray Flentge, obtained “benefits” as a result of their breach of
fiduciary duties to W.L. Ranch, Inc., while acting as officers and two (2)
purported directors of the corporation?
C. Whether or not Cross-Appellants, individually, were entitled to and prevented
from presenting a claim for statutory reimbursement and indemnity against
W.L. Ranch, Inc., or to be paid directly to Cross-Appellants for attorney’s fees
and expenses they expended for a substantial benefit of W.L. Ranch, Inc., by
the trial court’s granting Cross-Appellees a directed verdict on Cross-
Appellants’ breach of fiduciary duty claim?
STATEMENT OF FACTS
When three (3) minority shareholders in W.L. Ranch, Inc., a Texas family
owned corporation, misappropriated corporate property, unilaterally increased their
share ownership form 14% to 20%, shifted the management and registered agent of
the corporation to themselves, and established a separate corporate bank account to
capture corporate oil royalty revenues (the only substantial income of the
corporation), in an attempted corporate takeover after the death on August 30, 2010
of Willie Otto Flentge, Sr., the corporate president and one of the two sole directors
of the corporation, without disclosing their actions to remaining shareholders or
board member and president LaVerna Flentge, the remaining four (4) majority
3
shareholders brought a shareholders derivative suit pursuant §21.551 and §21.563,
Tex. Bus.Org.Code on November 4, 2011 (C.R. 9-18)1. On November 4, 2011
shareholder LaVerna Flentge, as widow of Willie Otto Flentge, Sr., and as the new
president of the corporation and it’s sole remaining director, sought and obtained a
temporary restraining order to prevent further actions of these minority shareholders,
Mary Flentge McAuley, Willie O. Flentge, Jr. and Charles Ray Flentge, in order to
prevent further injury to the corporation W.L. Ranch, Inc., and her share
ownership.(S.Sup. C.R. 8-9, 20-23, 28)(C.R.R. Vol. 8, Ex.2) The Cross-Appellants,
as majority shareholders of W.L. Ranch, Inc., also sought a declaratory judgment in
the suit asking the trial court to construe that no By-Law restriction of W.L. Ranch,
Inc. prevented the testamentary transfer and vesting of Willie Otto Flentge’s shares
(100) of W.L. Ranch, Inc. under the Will of Willie Otto Flentge, Sr. to and in his
widow (LaVerna Flentge), that increased her share ownership to 200 shares, as well
as to declare an alleged board of directors meeting by the Cross-Appellees of
November 20, 2010 invalid for lack proper notice and By-Law requirements (C.R.
13-14, 246-248). Cross-Appellants obtained a temporary restraining order, but
before a temporary injunction hearing was held, the parties agreed to and the trial
1
The family corporation W.L. Ranch, Inc. was formed in 1974. Seven hundred (700) shares
were issued with the father (Willie Otto Flentge, Sr.) and mother (LaVerna Flentge) and five (5)
children (Carl, Mary, Willie Jr., Charles Ray and David) all receiving one hundred (100) shares a
piece (C.R.R. Vol.8, Ex. 5-7) All family members were officers in some capacity of the
corporation at all relevant times.
4
court referred the case to mediation (S.Supp. C. R. 10-11). Agreements were reached
in this initial mediation for the determination by the trial court on the declaratory
judgment claim by cross-motions for partial summary judgments relating to the issue
of testamentary transfer of stock, the deposit of oil royalty revenues (which had been
halted by the actions of Cross-Appellees) into the registry of the court and an agreed
injunction to prevent any of the parties to the case from temporarily conducting
business for W.L. Ranch, Inc., until all issues were resolved. The trial court entered
an order based upon the initial mediation agreement and the case proceeded
(S.Sup.C.R.12-19). Cross-motions for declaratory summary judgments were filed by
Cross-Appellants and Cross-Appellees on the testamentary transfer restriction issue.
(C.R. 90-173,177-182). The trial court granted Cross-Appellants’ motion by order
and later clarification order (at Cross-Appellants ’request) on June 11, 2012 and
August 31, 2012 (C.R. 183, 230-239)(S.Supp.C.R. 5)2 LaVerna Flentge passed away
during the course of the litigation in August 2012. A suggestion of death was filed
on August 22, 2012 and LaVerna Flentge’s duly appointed independent executor,
Carl Dean Flentge, was substituted by amended pleading as a Plaintiff in the
litigation (now Cross-Appellant) (S. Supp. C.R. 33,35). On February 25, 2013 the
2 Cross-Appellants’ appeal does not involve issues which will be or are raised by Appellants
concerning By- Law restrictions upon testamentary transfers of shares upon the death of
shareholders, Willie Otto Flentge, Sr. and later LaVerna Flentge. Those issues will be addressed
in Appellees’ Brief.
5
trial court (Judge Campbell, replacing Judge Flenniken) denied a motion and
amended motion for reconsideration of the prior orders granting Cross-Appellants a
declaratory summary judgment on the testamentary transfer issue (S.Supp.C.R.6). 2
Further, on September 16, 2013, the trial court granted a declaratory summary
judgment that any purported election of Cross-Appellees as directors at an alleged
board meeting of W.L. Ranch, Inc. on November 20, 2010 was null and void for
failure to comply with the By-Laws of W.L. Ranch, Inc. (S. Supp.C.R. 7). These
declaratory summary judgments were later incorporated into the Final Judgment of
the trial court, after the trial proceeded on the shareholders (Cross-Appellants)
derivative claims for breach of fiduciary duty (and the trial court granted a direct
verdict on same) and the jury determined the segregated amount of attorney’s fees
and expenses for the prior declaratory summary judgments, aside and apart from
amounts sought for segregated corporate expenditures of attorney’s fees and
expenses for a later proposed application to the trial court for statutory
reimbursement by the corporation or directly to the contributing shareholders for
substantial benefits to the corporation. (C.R.281; S.Supp. C.R. 54-57)
In the testimony at the trial all three (3) Cross-Appellees, Mary Flentge
McAuley (secretary), Charles Ray Flentge (third vice-president), and Willie O.
Flentge, Jr. (second vice-president) confirmed their corporate officer capacities at all
pertinent times to this lawsuit for W.L. Ranch, Inc. (C.R.R. Vol.3, 28; 8-11; 205: 2-
6
7; 234:19-21, Vol. 4 206; 6-15). Two Cross-Appellees, Mary Flentge McAuley and
Charles Ray Flentge, claimed they were board members of W.L. Ranch, Inc., (which
was highly disputed) and had been since September 2007, along with Willie Otto
Flentge, Sr. and LaVerna Flentge, prior to their deaths. (C.R.R. Vol. 3, 101: 9-16;
236:7-9, 20-24)3.
3
With his advancing age, Willie Otto Flentge, Sr., President of W.L. Ranch, Inc., was aware of
present and future conflicts that had developed between his five children, the resentment of Mary,
Willie Jr.,and Charles Ray of Carl, who was a live in son, acted as his right hand man in wildcatting
operating wells on the W.L. Ranch farm property and was the major caregiver to both him and his
wife, LaVerna. Accordingly, he took actions to mitigate these conflicts, as well as to preserve and
protect the corporate property, beginning in 2007 and leading up to his death on August 30, 2010.
First, he convened a shareholders and board meeting on September 16, 2007, at which time the
shareholders unanimously passed a resolution to amend the articles of incorporation, the board
voted to amend the By-Laws of the corporation to reduce the number of necessary directors to two
(2) and elected him and his wife, LaVerna, as sole directors. Armed with this authority he engaged
attorney Wayne Paris to file articles of amendment to the corporate By-Laws in April 2008 with
the Secretary of State and he and his wife executed First Amended By-Laws, as the sole directors,
in November 2008, which also precluded the sale of corporate property without a 100% vote of all
shareholders (which was also approved in the September 2007 corporate meeting) (C.R.R. Vol.8,
Ex. 8,10,11). He later introduced the amended articles and By-Laws at a corporate shareholders’
meeting on April 26, 2009, in which they were again approved. (C.R.R. Vol. 8, Ex. 13) Second,
he and his wife, LaVerna, also executed an Oil, Gas, and Mineral Lease with Clayton Williams
Energy, Inc. in September 2007, which effectively removed Carl from complaints about his actions
regarding the day to day well operations (C.R.R. Vol.8, Ex. 9). Next, he revised his Will, appointed
his longtime friend and local banker, Daniel Junek, the independent executor of his estate and
entered into an agreement with Junek, that upon his and his wife’s demise , that Junek undertake
certain corporate duties to continue corporate matters uninterrupted. He introduced Junek at an
annual shareholder’s meeting on July 6, 2010 for this purpose and there were no objections from
the other shareholders (C.R.R. Vol. 8, Ex. 14-15). Finally, on August 6, 2010, he and his wife
signed an affidavit ratifying all of the past actions of their son Carl and indicating an intent for
future assistance (C.R.R. Vol. 8, Ex. 16). He passed away shortly thereafter on August 30, 2010.
Unbeknown to him, Cross-Appellee, Mary Flentge McAuley, privately kept notes of the alleged
minutes of these meetings at her home, which were not revealed or approved by shareholders or
board, and which after her father’s death, the Cross-Appellees engaged an attorney named Richard
Moore and paid $20,000.00 to in order to prepare minutes with substantial differences from actual
occurrences, including the alleged election of McAuley and Charles Ray as directors in 2007,
rather than Willie Otto Sr. and LaVerna as sole directors, as well as to re-amend the articles of
incorporation and By-Laws without all to the shareholder’s approval or board approval, and to
improperly notice board meetings along with interfering with the testamentary transfer of shares
7
Cross-Appellee McAuley admitted that she filed false statements with the Texas
Secretary of State wherein she designated herself as registered agent for the
corporation, W.L. Ranch, Inc., that she opened a separate corporate bank account in
Dripping Springs, Texas without disclosing this to other shareholders and the then
president of the corporation, LaVerna Flentge (C.R.R. Vol. 3, 105:20-21; 113:9-14;
114:5-11:123:1-14; 132:18-22: 142:1-4; 144:1-9, 14-19; 146:1-8,22-24; 196:10-25;
197:1-4). While McAuley agreed that it was in the best interest of W.L. Ranch, Inc.
to maintain everyone’s share interest and not injure anyone’s else share interest, she
falsely approved a deed of correction that was filed in the deed records of Burleson
County, increasing her share interest in W.L. Ranch, Inc. and corresponding oil
royalty revenues to 20% from 14% and diminishing and liquidating the share
interests of Willie Otto Flentge, Sr. and LaVerna Flentge, without LaVerna’s or the
other shareholder Cross-Appellants knowledge (C.R.R. Vol. 3, 149:23-25; 152:17-
under Willie Sr.’s Will.(C.R.R. Vol. 3, 29:16-18; 32:4-6; 35:19-25; 37:8-18; 39:3-19; 44:21-25;
45:1-5;153:1-9:182:19-25; 183:1-12;Vol 8, Ex. 32, 34, 40, 41, 42, 45, 46) These alleged
unapproved written minutes developed by Moore were not revealed or provided by Moore until
after this litigation was filed. Moore was added as a Defendant in the litigation, but settled out for
a repayment to the corporation of the $20,000.00 before this case went to trial (C.R. S.Supp. 45,
50). During the course of this litigation Cross-Appellees filed counter claims, sued Cross-
Appelants’ lawyer in this case, attempted to disqualify Cross-Appellants’ lawyer, filed a
mandamus over the stock transfer issue in the Waco Court of Appeals and two collateral will
contests, all of which were with either dismissed, denied or non-suited before this case went to
trial. Cross-Appellees also engaged a predecessor counsel who was disqualified by the trial court
based upon a conflict of interest (S.Supp.C.R. 37)
8
21; 153:1-22; 158:16-25; 159:1-25;161:8-25; 162:1-6). Cross-Appellee Charles Ray
Flentge testified that the other shareholders (Cross-Appellants) were not asked to
approve the deed changing these interests before it was filed at the courthouse by
him (C.R.R. Vol. 4, 27: 12-25; 28:1-25; 51:1-4;58:12-21). Cross-Appellee, Willie
Otto Flentge, Jr., admitted that he participated in having royalties paid in a manner
different from their payment before his father’s death, had a separate bank account
opened in which the corporate president, LaVerna Flentge, had no signatory power
and that no vote was taken from the president of the corporation or others on an
address change of the corporation by Cross-Appellee McAuley to her home in
Dripping Springs, Texas (C.R.R. Vol 4, 218:9-20; 241:12-25; 245:1-10; 251: 4-25;
253:1-25; 255:1-6; 257:17-25; 261:1-25, Vol. 5, 25:19-23; 30:1-6). Cross-Appellee
Charles Ray Flentge admitted that he obtained corporate property from the corporate
farm after his father’s death (C.R.R. Vol. 4, 65: 6-9, 14-21). Cross-Appellant David
Flentge confirmed that corporate farm property was in the possession of Cross-
Appellee Charles Ray Flentge and described the property. (Vol. 5, 65:10-25; 66:18-
25). He further testified that he met with Clayton Williams, oil royalty lessee of W.L.
Ranch Property, Inc., and confirmed corporate royalties had been diverted by the
actions of Cross-Appellee McAuley (C.R.R. Vol. 5, 72: 1-15, 119: 12-16) Cross-
Appellant Carl Flentge testified that as a shareholder and officer (treasurer) none of
these actions by Cross-Appellees were revealed to him. (C.R.R. Vol. 4, 136: 17-25;
9
185:1-25; 188:13-25;190: 10-25; 203:19-25). Exhibits introduced at trial confirmed
this testimony. (C.R.R. Vol. 8, Ex. 9, 16,21,24,27,27,29,33,37,38,39,41,42).
Wayne Paris, trial attorney for Cross-Appellants Carl Flentge and David
Flentge, testified about reasonable and necessary attorney fees and expenses
incurred by the corporation for his representation in the case in a total amount of
$384,726.61. He also testified as to individuals contributions made to these fees by
the individual Cross-Appellants as follows: David Flentge, $50,000.00; Daniel
Junek a behalf of the Estate of Willie Otto Flentge, Sr., $53,345.01; the estate of
LaVerna Flentge: $58,325.00; LaVerna Flentge, individually, $68,451.66; and Carl
Dean Flentge $88,675.00, for a grand total of corporate contributions of $318,
889.67. Wayne Paris properly segregated from this total, the reasonable, necessary,
and just amount relating to the declaratory judgment actions in the amount of
$92,644.32 (C.R.R. Vol. 5, 164: 12-18; 167:11-14; 169:10-25; 170: 1-15, 20;
173:15-25). Laura Upchurch testified as to additional reasonable and necessary fees
and expenses advanced by the Estate of LaVerna Flentge to the corporation for
reimbursement to the estate for a total of $60, 991.05. Carl Flentge individually,
contributed $18,854.41 of that amount (C.R.R. Vol. 5, 206:22). Jeffrey Burns
testified as to the contributions of the estate of Willie Otto Flentge, Sr. to his firm of
fees of $37,106.90, with individuals Carl Flentge contributing $7,000.00, the estates
independent executor, Daniel Junek, contributing $4,655.90 and $2,425.50, and
10
LaVerna Flentge, individually, (prior to her death) contributing $10,000.00 (C.R.R.
Vol. 5, 215:21; 216:3;217:15-25; 218:13)
When the Cross-Appellants (Plaintiffs) rested, the Cross-Appellees
(Defendants) filed and presented a Motion for Directed Verdict on Plaintiff’s Claims
for Breach of Fiduciary Duties on February 5, 2015. (C.R. 267-269). The trial court
on February 6, 2015 granted the motion on the basis that Cross-Appellants had
shown no economic damages resulting from a breach of fiduciary duties and
incorporated that finding into the Final Judgment. (C.R.R. Vol. 6, 16:20-22)(C.R.
280). The Cross-Appellees then rested without putting on any further evidence.
(C.R.R. Vol. 6, 16:24-25; 17:1) Accordingly, the only issue left for the jury, after
the directed verdict on the breach of fiduciary duty claim, was the amount of the
segregated attorney’s fees and expenses associated with the prior declaratory
summary judgments. §37.009, Tex.Civ.Prac.&Rem.Code (R.R. Vol. 6,20:15-22;
21:16-23). The trial court submitted that question the jury, which answered
$92,644.32, plus additional fees in case of appeal. (C.R. 270-278). On March 23,
2015, the trial court signed a Final Judgment, wherein the Cross-Appellants
expressly reserved the right to appeal the directed verdict on the breach of fiduciary
duty claim (C.R. 2801). Cross-Appellants then filed a motion for partial new trial
pursuant to Rule 320, Tex.R. Civ.P. (C.R. 283-294). On April 6, 2015 the trial court
signed an Order denying Cross-Appellants’ motion for partial new trial (C.R. 299).
11
Cross-Appellants duly perfected their appeal by Cross-Notice of Appeal filed on
June 22, 2015 (C.R. 303-304)
SUMMARY OF THE ARGUMENT
The trial court erred in granting a directed verdict on Cross-Appellants
shareholder derivative claims on behalf of W.L. Ranch, Inc. for breach of fiduciary
duties because Cross-Appellants established a prima facie case by sufficient
probative evidence that Cross-Appellees, acting as officers and two (2) purported
directors of W.L. Ranch, Inc., breached their fiduciary duties to the corporation
and committed ultra vires acts beyond the scope of the express purposes of the
corporation and inconsistent with expressed limitations on the authority of officers
and directors (§20.002(c)(2), Tex.Bus.Org.Code) These generally included
usurping corporate opportunities for personal gain, participating in actions taken in
bad faith in the officers relations to the corporation, failing to disclose actions
taken for personal gain to the corporation and violating their duty of loyalty to the
corporation. These actions specifically included, but were not limited to, acquiring
for themselves benefits by misappropriation of corporate farm property and
corporate books and records, filing articles of amendment to the articles of
incorporation and public information reports containing false statements and filing
a correction deed in the deed records of Burleson County, without corporate
shareholder approval, that contained false statements in violation of §4.007-§4.008,
12
Tex.Bus.Org.Code and §21.052 and §21.055, Tex.Bus.Org.Code, that increased
their proportionate share interests in the corporation and corresponding oil
revenues, holding an improperly noticed board meeting and electing themselves by
directors at the board meeting, the unauthorized appointment of Cross-Appellee
McAuley as registered agent by herself, acquiring benefits for themselves by
opening an unauthorized corporate bank account to divert oil revenue, acquiring
benefits for themselves by drafting and filing documents increasing their interest in
shares of the corporation from 14% to 20% by the liquidation of the shares of
Willie Otto Flentge, Sr. and LaVerna Flentge and acquiring benefits for themselves
by assuming the management and control of the corporation, without disclosing
their actions to the president of the corporation and the other shareholders. The
Cross-Appellants established both a breach of fiduciary duties and the acquisition
of “benefits” by Cross-Appellees resulting from the breach by sufficient evidence
and did not need to establish the economic value of those “benefits” that Cross-
Appellees obtained, contrary to the trial court’s erroneous belief. Cross-Appellees
failed to meet their burden of proof that had then been shifted to them by failing to
establish their actions were fair and equitable to W.L. Ranch, Inc.
The erroneous action of the trial court in granting a directed verdict to Cross-
Appellees based upon lack of proof of economic damages in Cross-Appellants’
claim for breach of fiduciary duties precluded Cross-Appellants from presenting
13
statutory claims that the corporation reimburse the individual Cross-Plaintiffs for
their attorneys fees and expenses, by application made to the court upon the
termination of the proceeding, with a value of such fees and expenses determined
by the jury, if the court then found that the proceeding resulted in a substantial
benefit to W.L. Ranch, Inc., pursuant to §21.561(b)(1) and §21.563(c)
Tex.Bus.Org.Code, the codified common fund doctrine, because such recovery is
predicated on the element of establishing a successful claim.
Accordingly, this Court should reverse and remand that portion of the final
judgment directing a verdict on Cross-Appellants claims for breach of fiduciary
duties based upon lack of proof on economic damages and remand for a trial of
these issues, as clearly there were material fact issues in dispute for the jury based
upon the probative evidence in the record, and as Cross-Appellants had no burden
at the time they rested to prove Cross-Appellee obtained “benefits” from such
breach because the burden had shifted. Further, the trial court abused it’s discretion
in denying Cross-Appelants’ motion for partial new trial in failing to apply the law
properly regarding “benefits” obtained by Cross-Appellees from their improper
actions.
ARGUMENT
A.
Standard of Review
In reviewing the granting of a directed verdict the appellate court can
14
consider any reason the directed verdict should have been granted, even one that is
not stated in the Court’s order or parties motion Reyna v. First Nat’l Bank, 55 S.W.
3d 58,59 (Tex.App.-Corpus Christi 2001, no pet.). The appellate court must
consider all evidence in the light most favorable to the party against whom the
verdict is directed, crediting favorable evidence if reasonable jurors could and
disregarding contrary evidence if reasonable jurors would not Robertson v. Odom,
296 S.W.3d 151, 155(Tex. App.-Houston [14th Dist.] 2009, no pet.); City of Keller
v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). The Appellate court must determine
whether there is any probative evidence to raise a fact issue Porterfield v.
Brinegar, 719 S.W. 2d 558,559 (Tex. 1986). If the record contains any probative or
conflicting evidence on a material issue, the issue should have been resolved by the
jury, and the appellate court must reverse White v. Southwestern Bell Tel.Co., 651
S.W.2d 260, 262 (Tex. 1983); Rente Co. v. Truckers Express, Inc., 116 S.W. 3d
326,330 (Tex. App. – Houston [14th Dist.], 2003, no pet.); Mills v. Angels, 995
S.W.2d 262, 267 (Tex. App.- Texarkana, 1999, no pet.)
The standard of review for the trial court’s ruling on a motion for new trial is
abuse of discretion. Director, State Employees Workers’ Com. Div. v. Evans, 889
S.W.2d 266, 268 (Tex. 1994); Cliff v. Higgins, 724 S.W.2d 778, 778-79 (Tex.
1987). A clear failure to analyze and apply the law correctly constitutes an abuse of
discretion In re TDFPS, 210 S.W.3d 609, 612 (Tex. 2006); In re Essex, Ins., 450
15
S.W.3d 524, 525-26 (Tex. 2014). A trial court’s erroneous legal conclusion is an
abuse of discretion, even if the law is unsettled Huie v. De Shazo, 922 S.W.2d
920, 927-28 (Tex. 1996). The order denying a new trial is appealable as part of the
appeal from a final judgment Martiz v. Preiss, 121 S.W.3d 715, 720 (Tex. 2003)
B.
There is Sufficient Evidence in the Trial Record to Raise a Fact Issue on
Cross-Appellees, Mary Flentge McAuley, Willie O. Flentge, Jr. and Charles
Ray Flentge breach of their Fiduciary Duties, while acting as Officers and two
(2) purported Directors of W.L. Ranch, Inc.
The elements of a cause of action for breach of fiduciary duty are the
following: (1) The plaintiff and the defendant had a fiduciary relationship; (2) the
defendant breached it’s fiduciary duty to plaintiff and; (3) the defendants’ breach
resulted in (a) injury to plaintiff; or (b) benefit to the defendant Burrow v. Arce,
977 S.W.2d 229, 237 (Tex. 1999); Kinzbach Tool Co. v. Corbett – Wallace Corp.,
160 S.W.2d 509, 513-14(Tex. 1942); Graham Morg. Corp. v. Hull, 307 S.W.2d
472, 479 (Tex. App. – Dallas 2010, no pet.) To prove an action for breach of
fiduciary duties, the plaintiff must establish that the defendant’s breach resulted in
an injury to plaintiff or a benefit to defendant. Priddy v. Rawson, 282 S.W.3d 588,
599(Tex.App.- Houston [14th Dist.] 2009, pet. denied); Kelly v. Grimes , 181 S.W.
3d 394, 414 (Tex. App. – Waco 2005). It is not necessary for the plaintiff to prove
injury to prevail on a claim for breach of fiduciary duty Kinzbach Tool Co. , Inc. v.
Corbett – Wallace Corp, 160 S.W.2d at 514; Upchurch v. Albear, 5 S.W.3d 274,
16
283 (Tex. App.-Amarillo 1999, pet. denied) . Even if the plaintiff sustains no loss
from the defendants breach of fiduciary duty, the defendant cannot retain any
benefits it acquired from the breach. Kinzbach Tool Co., Inc. v. Corbett-Wallace
Corp., 160 S.W.2d at 514. It is the agent’s disloyalty, not any resulting harm that
violates the fiduciary relationship. Burrow v. Arce, 997 S.W.2d at 238 ( Tex.1999)
This issue in no injury/damages was long ago decided by the Supreme Court of
Texas in the Kinzbach Tool Co., Inc. case, supra, in which the Court stated at 573-
74:
“[5][6] … It would be a dangerous precedent for us to say that unless
some affirmative loss can be shown, the person who has violated his
fiduciary duty with another may…hold on to any secret gain or
benefit he may have therefore acquired. It is the law that in such
instances if a fiduciary takes any gift, gratuity, or benefit in violation
of his duty, or acquires any interest adverse to the principal, without
full disclosure, it is a betrayal of his trust and a breach of confidence,
and he must account to his principle for all he has received...”
Both officers and directors of a corporation owe fiduciary duties to the
corporation Ritchie v. Rupe, 443 S.W.3d 856, 876 (Tex. 2014). Directors, or those
acting as directors owe a fiduciary duty to the corporation in their directorial
actions and this duty includes their actions of uncorrupted business judgment for
the sole benefit of the corporation Int’l Bankers Life, Ins. Co. v. Holloway, 368
S.W.2d 567, 577 ( Tex. 1963); Ritchie v. Rupe at 868. Corporate officers and
directors owe the corporation and their collective shareholders a duty to act only in
their best interests.
17
Fiduciary duties that are owed by directors and officers of a corporation to the
corporation include the following: (a) the duty of loyalty to the corporation. General
Dynamic v. Torres, 915 S.W. 2d 45,49 (Tex. App.-El Paso 1995, writ denied); Poe
v. Hutchens, 737 S.W.2d 574, 584 (Tex. App. – Dallas 1987, writ ref r.r.e.); (b) the
duty of utmost good faith in officers relations with the corporation. Kinzbach Tool
Co. , Inc. v. Corbett – Wallace Corp, 160 S.W.2d at 512 (Tex.1942); Imperial Grp.
V. Scholnick, 709 S.W.2d 358, 363 (Tex. App.- Tyler 1986, writ ref’d r.r.e.); (c) the
duty to refrain from self dealings. Imperial Grp. V. Scholnick, 703 S.W.2d at 363;
(d) the duty of fair, honest, dealing Kinzbach Tool Co. , Inc. v. Corbett – Wallace
Corp at 512; (e) the duty of full disclosure City of Fort Worth v. Pippen, 439 S.W.
2d 660, 665 (Tex. 1969) Trahan v. Lone Star Title Co., 247 S.W. 3d 269,287 (Tex.
App. – El Paso 2007), pet. denied); Home Loan Corp. v. Texas Am Title Co., 191
S.W.3d 728, 731 (Tex. App. – Houston [14th Dist.] 2006, pet. denied), and; (f) the
duty not usurp corporate opportunities for personal gain International Bankers Life
Ins. v. Holloway, 368 S.W.2d at 577; Loy v. Hart, 128 S.W.3d 397, 408 (Tex. App.
– Texarkana 2004 pet. denied)
Cross-Appellants presented prima facie sufficient evidence of a breach of
fiduciary duties by Cross-Appellees, acting as officers and two (2) purported
directors to W.L. Ranch, Inc.
Cross-Appellee McAuley admitted she was and has always been the corporate
secretary and claimed to have been elected a board member in 2007 and again in
18
2010 (which was heavily disputed) (C.R.R. Vol. 3, 34:9-11;39:3-5; 101:9-16). She
further agreed that it was in the best interest of the corporation to maintain
everyone’s share interest and not to injure anyone’s share interest (C.R.R. Vol. 3,
68:20-25; 69:1) Nevertheless, she noticed a board meeting for November 20, 2010
(after her father’s death), did not notice her father’s independent executor and
claimed she was elected a board member by the board at such meeting (C.R.R. Vol.
3, 88: 4-25; 101:9-16; Vol. 8, Ex. 22) Further, although not mentioned in the minutes
of that meeting, she appointed herself as a new registered agent for the corporation,
filed amended articles with the secretary of state containing false statements, opened
a separate bank account for the corporation in her hometown, Dripping Springs,
Texas, communicated with Clayton-Williams about diverting oil revenues due the
corporation, and signed a deed of correction and conveyance eliminating her father
and mother’s share interest in the corporation and increasing her’s from 14% to 20%.
(C.R.R. Vol.3, 105:20-21; 113:9-14; 114:5-11; 132:18-22;142:1-4;149:23-
25:151:1-22;158:16-25;159:1-25) Although she agreed that when her revenue
interest was being increased such should be disclosed to the corporation, she did not
disclose same to the other shareholder Cross-Appellants and had no authorization to
open a new bank account for the corporation from the shareholders or the board.
(C.R.R. Vol. 3, 144:1-9; 146: 1-8, 24; 196:10-25; 197:1-4).
19
Cross-Appellee, Charles Ray Flentge, although admitting he was an officer of
the corporation and claiming to be a director, also admitted he appropriated
corporate property after his father died, that he did not seek approval from the other
shareholders after signing deeds to liquidate his father and mother’s interest in the
corporation, that he participated in opening a new bank account that did not advance
the interests of the corporation and that he never received authority from the
corporation to do such. (C.R.R. Vo. 3, 208: 4-14; 277:5-8; Vol. 4, 27:12-25; 28:1-
25; 51:1-4; 64:17-22; 65:14-21)
Cross-Appellee, Willie O. Flentge, Jr. admitted he was an officer and that he
had signature power for a new separate bank account for the corporation opened
after his father’s death on which LaVerna (mother-present of corporation),
Carl(Treasure), David (shareholder) and Daniel Junek (Independent executor of the
estate of Willie O. Flentge, Sr. and holder of shares of the deceased) had no signature
power. (C.R.R. Vol. 4, 206: 6-15; 251:4-25; 253:1-25; 255:1-6). However, he did
not ask his mother, as president of corporation, to approve new second articles of
amendment, McAuley appointing herself as registered agent, or deeds he drew up to
liquidate her and his deceased father’s interest. (C.R.R. Vo. 4, 261:1-25; Vol. 5, 25:
19-23) He also admitted to communicating with Clayton Williams for the purpose
of having royalties paid in a manner different than they were currently being paid.
(Vol. 5, 30:1-6)
20
Cross-Appellant, Carl Flentge, testified that he did not receive proper notices
from the Cross-Appellees for alleged corporate meetings and never voted to
liquidate his father and mother’s interest (C.R.R. Vol.4, 184:1, 12-20, 185:1-25;
188:13-25, 190:10-25 ; 203:19-25) Carl testified that oil revenues of W.L. Ranch,
Inc. were being held in the court’s registry and are sent to the district clerk by
Clayton-Williams presently. (C.R.R. Vol. 4 101:1-25; 102: 5-7)
Cross-Appellee, David Flentge, described corporate farm equipment and
stated it was in the possession of Cross-Appellee, Charles Ray Flentge (C.R.R. Vol.
5, 65: 10-25; 66:18-25).
The testimony of these Cross-Appellees and Cross-Appelants constituted
sufficient probative evidence of self-dealing, a lack of disclosure, a lack of loyalty
and good faith and usurping corporate opportunities by Cross-Appellees, as officers
and a purported two (2) directors of W.L. Ranch, Inc. The only defense presented
while Cross-Appellants were presenting their case and before they rested, if you
could call it one, was that the Cross-Appellee were functioning as officers and two(2)
directors. The First Amended By-Laws of W.L. Ranch, Inc. provide that the business
and affairs of the corporation shall be managed by the board of directors and that the
officers shall have the duties usually pertaining to their perspective offices (C.R.R.
Vol. 8, Ex. 11) No By-Laws of the corporation authorized the ultra vires acts, set out
21
above, by Cross-Appellees (C.R.R. Vol. 8, Ex. 22, 27, 28, 29, 33, 39); §20.002(c)
(2), Tex.Bus.Org.Code.
The shifting of the burden of proof and persuasion
The burden of proof is on the fiduciary when the fiduciary has profited or
benefited from a transaction with a beneficiary or has placed himself in a positon in
which his self-interest might conflict with the beneficiary. When the Cross-
Appellees, as fiduciaries in their capacity as officers and two (2) alleged directors,
placed themselves in position in which their self-interests might conflict with those
of the corporation or benefited from any transactions involving W.L.Ranch, Inc., a
rebuttable presumption of unfairness arose that shifted the burden of producing
evidence and the burden of persuasion to the fiduciary Cross-Appellees, when Cross-
Appellants rested, to show that the transactions were fair and equitable to the
corporation and all of it’s interests collectively. Keck, Mahin & Cate v. National
Union Fire Insurance Company of Pittsburg, 20 S.W.3d 692, 699 (Tex. 2000);
Texas Bank & Trust Co. v. Moore, 595 S.W.2d 502, 509 (Tex. 1980); Archer v.
Griffith, 390 S.W.2d 735, 739 (Tex. 1984); Sorrell v. Elsey, 748 S.W.2d 584, 586
(Tex. App.-San Antonio 1988, writ denied); Miller v. Miller, 700 S.W.2d 941, 945-
46 (Tex. App. – Dallas , 1985, writ ref. r.r.e.); Gun v. Schafer, 683 S.W.2d 803, 506
(Tex.App.-Corpus Christi 1984, no pet.); Fillion v. Troy, 656 S.W.2d 912, 914
(Tex.App.-Houston[1st Dist.] 1983, writ ref. r.r.e.)
22
In this case, once the Cross-Appellees, in their roles as officers and purported
directors, wrongfully appropriated corporate property and wrongfully assumed the
management positons in the corporation, along with increasing their share interests
in the corporation and it’s revenues, they had the burden of producing evidence to
show that all of these transactions were fair and equable to W.L. Ranch, Inc. But
Cross-Appellees offered no evidence to show that they did not breach their duties or
gain any such benefits or if they did, such gains were fair and equitable to the
corporation. This was the condition of the record when the trial court granted a
directed verdict. The trial court erred in granting the directed verdict for Cross-
Appellees on the breach of fiduciary duty claim because it misplaced the burden of
producing evidence and persuasion, at that time, and placed it upon Cross-
Appellants. Indeed, Cross-Appellees, rested without putting on any evidence that
their actions were fair and equitable to W.L Ranch, Inc. These points were raised
and preserved for review by this court in Cross-Appellants motion for partial new
trial, which was denied by the trial court. (C.R. 288-89, 299)
The Cross-Appellees argued in responding to the Cross-Appellees motion
for partial new trial that this burden never shifted because Cross-Appelants did not
show the value of economic benefits they obtained. (C.R.R. Vol. 7, 11:18-
25;13:11-15; 13:9-24). As shown by the case law above, this is not necessary and
will be further addressed below. The only necessity is to show that the Cross-
23
Appellees placed themselves into a positon where their self interests conflicted
with that of the beneficiary corporation. The record contains sufficient probative
evidence of such self-dealing creating a fact issue.
C.
There is Sufficient Evidence in the Trial Record to raise a fact Issue that
Cross-Appellees, Mary Flentge McAuley, Willie O. Flentge, Jr. and Charles
Ray Flentge obtained Benefits as a result of their Breach of Fiduciary Duties
to W.L. Ranch, Inc., while acting as Officers and two (2) purported Directors
of W.L.Ranch, Inc.
In their motion for directed verdict on Cross-Appelants’ breach of fiduciary
duty claims, Cross-Appellees stated that Cross Appellants had presented no
evidence of damages that resulted from their breach (C.R. 267-269). The trial court
granted the motion an incorporated that finding of “no damages” into the Final
Judgment. (C.R. 280). When Cross-Appellants pointed out that proof of damages
was not essential to find a breach of fiduciary duties, but that “benefits” to Cross-
Appellees were sufficient, the Cross-Appellees then argued at the motion for
partial new trial hearing that “benefits” to Cross-Appellees must be shown as
“specific economic benefits” by a dollars and cents value that flowed to any Cross-
Appellees. (C.R. 296) If such were the case there would be no differential between
proof of economic damages and economic benefits to Cross-Appellees and thus no
reason for an alternative element . Cross-Appellees have just engrafted economic
benefits onto the element, which is contrary to Texas law. As the Texas Supreme
Court stated in Kinzbach Tool Co, Inc. case at 573-74 and heretofore quoted,
24
affirmative loss need not be shown “… If the fiduciary takes any gift, gratuity or
benefit in violation of his duty or acquires any interest adverse to his principle,
without full disclosure, it is a betrayal of his trust and breach of confidence and he
must account to his principal for all he has received”. No injury or damages are
required to be shown.
The presumption of unfairness also arises and the burden of proof shifts to
fiduciary if the fiduciary places himself in a positon in which his self-interest might
conflict with his obligations as a fiduciary Stephens County Museum, Inc. v.
Swenson, 517 S.W.2d 257, 261. (Tex. 1974)(material issues are whether fiduciary
made reasonable use of trust and confidence placed in him and whether
transactions were ultimately fair and equitable to the beneficiary); Slay v. Burnett
Trust, 187 S.W.2d 377, 387-88 (Tex.1945). Texas law has never held that a
“benefit” to Cross-Appellees had to be shown by placing an economic value upon
it, as opposed to showing a position where the fiduciary’s self-interest might
conflict with his obligations as a fiduciary, in order to shift the burden of proof and
persuasion. The trial court erred in failing to recognize who had the burden of
proof at the juncture when granting the directed verdict on the breach of fiduciary
duty claim and misplaced same. This court should recognize same and reverse and
remand to the trial court for a new trial on the breach of fiduciary claim and for the
25
resulting improper benefits for this additional reason concerning the burden of
proof.
D.
The Individual Cross-Appellants were entitled to present their claim for
reimbursement of Attorney’s Fees and Expenses statutorily under the
Equitable Common Fund Doctrine to the Court for the Preservation of
Corporate Property which was prevented by the Trial Court’s Grant of a
Directed Verdict.
The Cross-Appellants sought a permanent injunction, as well as reasonable
and necessary attorney’s fees and expenses from the corporation pursuant to §21.561
(a)(1) and (2), Tex.Bus.Org.Code, to be paid directly to Cross-Appellants, pursuant
to §21.563(c)(1) and (2) Tex.Bus.Org.C. (C.R. 317). This point was preserved in the
trial court by Cross-Appellants’ motion for partial new trial, which was denied (C.R.
289-299). Sufficient evidence of the reasonableness and necessity of the expenses,
including attorney’s fees, expended for the substantial benefit of the corporation was
presented to the trial court by the testimony of the attorneys for Cross-Appellants,
along with each Cross-Appellant’s individual contributions to the attorney’s fees and
expenses, which was properly segregated from the attorney’s fees involving the
declaratory judgment actions. (C.R.R.Vol.5,152-173;173:23-25;205:13-25;
206:22;215:21,23-25; 216:3-13;217:15-25;218:13)
The fee and expense testimony was made as a basis for later requesting the
trial court, upon the termination of the litigation but before final judgment, to
award such under the statutory common fund doctrine from the corporate assets in
26
the registry of the Court to the individual Cross-Appellants, based upon a
substantial benefits they bestowed upon the corporation by the Cross-Appellants
preservation and safeguarding of the corporate assets.
To recover attorney’s fees under equity, the Plaintiff must establish the
following:
1) The plaintiff pleaded for attorney’s fees
2) The plaintiffs claim for attorney’s fees was based on one of the following
equitable principles:
a) The common fund doctrine, or
b) The attorney’s fees as damages theory
c) The plaintiff was represented by an attorney
d) The plaintiff prevailed in the lawsuit
e) The plaintiff incurred reasonable and necessary attorney’s fees
Knebel v. Capital Nat’l Bank, 518 S.W.2d 795, 798-99 (Tex. 1974); Libhart v.
Copeland, 949 S.W.2d 783, 803-04 (Tex.Ap.-Waco 1997, no writ)’ City of Dallas
v. Arnett, 762 S.W. 942, 954 (Tex. App.-Dallas 1998, writ denied). Cross-Appellants
sought attorney’s fees and costs in the case, among other requests, under
§21.561(a)(1)(2) Tex.Bus.Org.Code (C.R. 317). Cross-Appellants also sought in this
derivative proceeding that as shareholders their claims be treated as direct actions
by shareholders for the corporation’s own substantial benefit and that the court order
27
payment directly to the Cross-Appellants individually by the corporation of fees and
expenses, for their actions to protect the interest of all shareholders of the
corporation, pursuant to §21.563(c)(1) and (2) Tex.Bus.Org.Code (C.R. 37). On the
termination of the derivative proceeding, the court may order the domestic
corporation to pay the expenses the plaintiff incurred in the proceeding, if the court
finds the proceeding has resulted on a substantial benefit to the domestic corporation
§21.561(b)(1), Tex.Bus.Org.Code.
The common-fund doctrine in shareholder derivative actions has thus been
codified into §21.561(b)(1), Tex.Bus.Org.Code. The Cross-Appellants plead for
attorney’s fees, made a claim under sections §21.561 and §21.563, were represented
by attorneys, and incurred reasonable and necessary attorney’s fees, as were testified
to in the trial court by the Cross-Appellants’ attorneys. However, element number 4
above, that plaintiff had to prevail in the lawsuit, was precluded by the trial court’s
grant of a directed verdict on the shareholder’s derivative claim for breach of
fiduciary duties. Had the trial court denied the motion for directed verdict, the jury
question, with the burden properly placed, on the breach of fiduciary duty claim
would have gone to the jury, as well as a question on the reasonable attorney’s fees
and costs testified to for corporate reimbursement, and if the jury had found for
Cross-Appellants on the breach of fiduciary duties and the segregated amount of
attorney’s fees and costs, aside and apart from the declaratory judgment attorney’s
28
fees issue submitted, Cross-Defendants would have submitted an application to court
under §21.561 and §21.563 to access attorney’s fees to the corporation and award
reimbursement to the individual Cross-Appellants for their protection and
safeguarding of the corporation, from the corporate funds in the trial court’s registry.
The “common fund doctrine” allows for the recovery of attorney’s fees in
equity where the plaintiff has maintained a successful suit for the preservation,
protection and increase of a common fund Knebel v. Capital Nat’l Bank, 518 S.W.
2d at 799. The doctrine usually has application where a plaintiff’s successful
litigation confers a substantial benefit on the members of an ascertainable class.
Although, the term substantial benefit usually involves an ascertainable fund or
property received as a result of litigation, the rational has been extended to litigation
which prevents or corrects an abuse which would be prejudicial to the rights and
interests of others. It would be unrealistic to deny such to derivative suits instituted
in good faith to correct or prevent misconduct of corporate officers and directors
resulting in substantial benefits to the corporation. Actions to prevent such acts may
maintain the health of the corporation and raise the standard of fiduciary
relationships. Legal actions which correct such abuses confer a substantial benefit
on the corporation Libhart v. Copeland, 949 S.W.2d at 26-7. In this case, the Cross-
Appellants obtained a temporary restraining order and an agreed temporary
injunction which channeled all corporate revenues to the trial court’s registry for the
29
protection and preservation of corporate assets, based upon Cross-Appellees breach
of fiduciary duties as officers and alleged directors of the corporation (S.Sup.C.R.
8-9, 12-19, 20-23, 46-52, 58-62). The Cross-Appellants prayed for a permanent
injunction. The granting of the directed verdict by the trial court precluded this
request and rights of the Cross-Appellants for restitution of their personal funds
contributed for the substantial benefit they bestowed upon W.L. Ranch, Inc., in
preserving its assets for all of the shareholders, including the independent executors
of the estates. Accordingly, this court should reverse and remand this case for trial
upon the breach of fiduciary duty claim and, if successful, for the later presentation
to the trial court of an application for reimbursement to the individual Cross-
Appellants for their attorney’s fees and costs under the statutory equitable common-
fund doctrine against W.L Ranch, Inc.
PRAYER
WHEREFORE, PREMISES CONSIDERED, Cross-Appellants pray that this
Honorable Court affirm the Final Judgment of the trial court, except the directed
verdict upon their breach of fiduciary duty claim, and that this Honorable Court
reverse the judgment of the trial court granting a directed verdict on their breach of
fiduciary duty claim and remand that claim for a new trial upon same. Cross-
Appellants also pray for their costs of court and such other relief as may be deemed
appropriate.
30
Respectfully submitted
/s/ Wayne H. Paris
Wayne H. Paris
Paris Law Group P.L.L.C.
State Bar No. 15462000
Two Riverway, Suite 1080
Houston, Texas 77056
Telephone: (713) 951-9100
Facsimile: (713) 961-3082
E-mail: waynehparis@yahoo.com
Attorney for Cross-Appellants
CERTIFICATE OF COMPLIANCE
I hereby certify that the number of words in the length of the defined section
of this computer-generated document entitled Brief for Cross-Appellants is 7073
This certificate is made pursuant Rule 9.4 (i)(3), Tex. R. App.P.
/s/ Wayne H. Paris
Wayne H. Paris
31
CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing Brief for Cross-Appellants, along
with the Appendix to the Brief for Cross-Appelants has been sent to all interested
counsel of record on the 1st day of December 2015 electronically and/or facsimile
and/or U.S. First Class Mail.
/s/ Wayne H. Paris
Wayne H. Paris
Via Facsimile: (832) 201-9117:
Mr. J. Steven Stewart
The Law Office of J. Steven Stewart
5353 West Alabama, Suite 605
Houston, Texas 77056
Via Facsimile: 1 (979) 596-2837
Mr. Jeffery M. Burns
Burns & Reyes Burns, PLLC
17470 Highway 36 So.
Somerville, Texas 77879
Via Facsimile: (979) 830-0913
Ms. Laura UpChurch
MOORMAN, TATE, URQUHART, HALEY,
UPCHURCH & YATES, L.L.P.
207 East Main
Brenham, Texas 77834
32
NO. 06-15-00051-CV
MARY FLENTGE MCAULEY, WILLIE O.
FLENTGE, JR., and CHARLES RAY FLENTGE
Appellants/Cross-Appellees
v.
CARL DEAN FLENTGE, INDEPENDENT
EXECUTOR OF THE ESTATE OF LAVERNA
FLENTGE, CARL DEAN FLENTGE, DAVID
FLENTGE and DANIEL JUNEK, INDEPENDENT
EXECUTOR OF THE ESTATE OF WILLIE
OTTO FLENTGE, SR., INDIVIDUALLY , and as
SHAREHOLDERS and on behalf of W.L. RANCH,
INC.
Appellees/Cross-Appellants.
CROSS-APPELLANTS’ APPENDIX
LIST OF DOCUMENTS
1. Trial Court’s Judgment, dated March 23, 2015 (C.R. 279-282) ..................... *1
2. The Jury Charge and Verdict (C.R. 270-278) .................................................. *2
3. The text of any statute on which the argument is based. (C.R. 308, 317, 287,
289-90) .............................................................................................................. *3
4. Plaintiff motion for partial new trial and order (optional) (C.R. 283-294,
299) .................................................................................................................... *4
33
*1 Trial Court's Judgment, dated March
23, 2015 (C.R. 279-282)
..... ; ,
CAUSE NO. 26,704
CARL DEAN FLENTGE, INDEPENDENT § IN THE DISTRICT COURT
EXECUTOROFTHEESTATEOF §
LAVERNA FLENGE, CARL DEAN §
FLENTGE, DAVID FLENTGE §
AND DANIEL JUNEK, INDEPENDENT §
EXECUTOR OF THE ESTATE OF §
WILLIE OTTO FLENTGE, SR, §
INDIVIDUALLY, AND AS §
SHAREHOLDERS AND ON BEHALF §
W.L. RANCH, INC. §
Plaintiffs, §
vs. § OF BURLESON COUNTY, TEXAS
§
MARY FLENTGE MCAULEY, §
WU.LIE 0. FLENTGE, JR AND §
CHARLES RAY FLENTGE §
§
Defendants. § 2181 JUDICIAL DISTRICT
FINAL JUDGMENT
BE IT REMEMBERED that on February 2, 2015, this case was called to trial. Plaintiffs
Carl Dean Flentge, and David Flentge, Individually, and on behalf ofW.L. Ranch, Inc. appeared
in person and through their attorney Wayne H. Paris. Carl Dean Flentge, Independent Executor
of the Estate of LaVerna Flentge, Individually, and on behalf ofW.L. Ranch, Inc., appeared in
person and through their attorney, Laura Upchurch. Plaintiff, Daniel W. Junek, Independent
Executor of the Estate of Willie Otto Flentge, Sr., Individually, and on behalf of W.L. Ranch,
Inc. appeared through their attorney, Jeffrey M. Burns. Defendants Mary Flentge McAuley,
Willie 0. Flentge Jr. and Charles Ray Flentge appeared in person and through their attorney, J.
Steven Stewart All counsel announced ready for trial. Defendants, through their counsel,
·announced a filing and notice of partial non-suit on all remaining counter-claims, except those
claims previously determined by the Court's Amended Order Granting Partial Summary
Judgment signed and entered on August 31, 2012.
V.OL. A2 1 2PAGE 2 95
279
After a jury was duly impaneled, they heard evidence on the Plaintiffs case in chief and
the Plaintiffs rested on February 5, 2015. After Plaintiffs rested, the Defendants filed and
presented to the Court Defendant's Motion for Directed Verdict on Plaintiffs Claims for Breach
of Fiduciary Duties. On February 6, 2015, after argument, the Court granted Defendants' Motion
for Directed Verdict on Plaintiffs Claims for Breach of Fiduciary Duties and rendered judgment
as a matter oflaw that the Plaintiffs take nothing on their Claims for Breach of Fiduciary Duties
for the reason that Plaintiffs failed to introduce any evidence of damages. The Defendants then
rested.
The Court then submitted the Change of the Court to the jury, which included a single
question regarding a reasonable fee for the necessary services to the individual Plaintiffs solely
related to the following declaratory judgment claims and issues previously decided by the Court:
1. Order of Partial Summary Judgment signed and entered on August 31, 2012; and,
2. Order of Partial Summary Judgment signed and entered on September 16, 2013.
The jury then returned its findings (verdict) on February 6, 2015, which findings were made
final and filed in the records of the Court.
Plaintiffs filed a Motion for Judgment on the on declaratory summary judgments claims,
previously granted, requesting the Court find that the reasonable and necessary fees for services
of Plaintiffs attorney, as found by the jury, were equitable and just. The Plaintiffs reserved in
their motion their right to appeal to the Court's directed verdict on the derivative claim ofW.L.
Ranch, Inc. against the Defendants for breach of fiduciary duties resulting in injury to Plaintiff
corporation or benefit to the Defendants, and Plaintiffs associated claim for reasonable and
necessary attorney's fees, both statutory, and in equity incurred for the protection and substantial
benefit ofW.L. Ranch, Inc.
2
~-0 L. A212PAGE 2 QG
280
The Court heard the motion and finds that the reasonable fees for necessary services of
Plaintiffs attorney solely related to the declaratory judgment claims are equitable and just.
Accordingly, the Court RENDERS judgment for the individual Plaintiffs for reasonable and
necessary attorney's fees that that are equitable and just solely related to declaratory judgments
previously granted by the court as partial summary judgments. Those partial summary judgments
are incorporated and made final herein in this Final Judgment.
Accordingly, the Court ORDERS that Plaintiffs, Carl Dean Flentge, Independent
Executor of the Estate of LaVerna Flentge, Daniel W. Junek, Independent Executor of the Estate
of Willie Otto Flentge Sr., Carl Dean Flentge, and David Flentge do have and recover from
Defendants Mary Flentge McAuely, Willie 0. Flentge, Jr., and Charles Ray Flentge, jointly and
severally, the total sum of$92,644.32, representing reasonable and necessary attorney's fees that
are equitable and just solely related to the declaratory judgment actions.
The Court further orders that if Defendants unsuccessfully appeal the judgment to the
intermediate court of appeals solely on the declaratory judgments and matters relating thereto,
the Court ORDERS that Plaintiffs Carl Dean Flentge, Independent Executor of the Estate of
LaVerna Flentge, Daniel W. Junek, Independent Executor of the Estate of Willie Otto Flentge
Sr., Carl Dean Flentge and David Flentge do not have and recover from Defendants Mary
Flentge McAuley, Willie 0. Flentge, Jr. and Charles Ray Flentge, the additional total sums of:
I. $25 ,000. 00 for representation through the court of appeals representing the anticipated
reasonably and necessary fees and expenses that would be incurred by these individual Plaintiffs.
2. $5,000.00 for representation at the petition for review stage in the Supreme Court of
Texas repre'senting the anticipated reasonably and necessary fees and expenses that would be
incurred by these individual Plaintiffs in defending the appeal.
3
vni A2 1 2PAGE 2S 7
281
3. $10,000.00 for representation at the merits briefing stage representing the anticipated
reasonably and necessary fees and expenses that would be incurred by these individual Plaintiffs
in defending the appeal at briefing stage in the Supreme Court of Texas.
The Court further ORDERS that Plaintiffs and Defendants each bear their own costs of
court.
4. The Court further ORDERS that Plaintiffs Carl Dean Flentge, Independent Executor of
the Estate of LaVerna Flentge, Daniel W. Junek, Independent Executor of the Estate of Willie
Otto Flentge Sr., Carl Dean Flentge and David Flentge recover of and from Defendants, Mary
Flentge McAuley, Willie 0. Flentge, Jr. and Charles R. Flentge post judgment interest on all of
the above sums at the rate of five percent (5%), compounded annually from the date this
judgment is entered on the sum of $92,644.32, from the date this judgment is affirmed by the
court of appeals on an additional $25,000.00, from the date the petition for review is denied by
the Supreme Court of Texas on an additional $5,000.00, and from the date this judgment is
denied, after briefing, on an additional $10,000.00 by the Supreme Court of Texas.
All relief requested in this case and not expressly granted is denied. This judgment finally
disposes of all claims and parties and is appealable.
All writs and process for the enforcement and collection of this judgment or the costs of
the court may issue as necessary.
FILEDq·. a'--\ dJh
DATE 3 · :2L3 · 15
4
Dana Fritsche
ict Clerk, Burleson County
voL A2 12 PAGE 2 9'8
282
*2 The Jury Charge and Verdict (C.R.
270-278)
ORIGINAL
CAUSE NO. 26,704
CARL DEAN FLENTGE, INDEPENDENT § IN THE DISTRICT COURT
EXECUTOR OF THE ESTATE OF §
LAVERNA FLENGE, CARL DEAN §
FLENTGE, DAVID FLENTGE §
AND DANIEL JUNEK, INDEPENDENT §
EXECUTOR OF THE ESTATE OF §
WILLIE OTTO FLENTGE, SR, §
INDIVIDUALLY, AND AS §
SHAREHOLDERS AND ON BEHALF §
W.L. RANCH, INC. §
Plaintiffs, §
vs. § OF BURLESON COUNTY, TEXAS
§
MARY FLENTGE MCAULEY, §
WILLIE 0. FLENTGE, JR AND §
CHARLES RAY FLENTGE §
§
Defendants. § 21'1 JUDICIAL DISTRICT
CHARGE OF THE COURT
LADIES AND GENTLEMEN OF THE JURY:
After the closing arguments, you will go to the jury room to decide the case, answer the
questions that are attached, and reach a verdict. You may discuss the case with other jurors only
when you are all together in the jury room.
Remember my previous instructions: Do not discuss the case with anyone else, either in
person or by any other means. Do not do any independent investigation about the case or
conduct any research. Do not look up any words in dictionaries or on the Internet. Do not post
information about the case on the Internet. Do not share any special knowledge or experiences
with the other jurors. Do not use your phone or any other electronic device during your
deliberations for any reason. I will give you a number where others may contact you in case of
emergency.
VOL. A211 PAGE 406
270
Any notes you have taken are for your own personal use. You may take your notes back
into the jury room and consult them during deliberations, but do not show or read your notes to
your fellow jurors during your deliberations. Your notes are not evidence. Each of you should
rely on your independent recollection of the evidence and not be influenced by the fact that
another juror has or has not taken notes.
You must leave your notes with the bailiff when you are not deliberating. Tue bailiff will
give your notes to me promptly after collecting them from you. I will make sure your notes are
kept in a safe, secure location and not disclosed to anyone. After you complete your
deliberations, the bailiff will collect your notes. When you are released from jury duty, the
bailiff will promptly destroy your notes so that nobody can read what you wrote.
Here are the instructions for answering the questions:
1. Do not let bias, prejudice, or sympathy play any part in your decision.
2. Base your answers only on the evidence admitted in court and on the law that is these
instructions and questions. Do not consider or discuss any evidence that was not
admitted in the courtroom.
3. You are to make up your own minds about the facts. You are the sole judges of the
credibiiity of the witnesses and the weight to give their testimony. But on matters of law,
you must follow all of my instructions.
4. If my instructions use a word in a way that is different from its ordinary meaning, use the
meaning I give you, which will be a proper legal definition.
5. All the questions and answers are important. No one should say that any question or
answer is not important.
6. Answer "yes" or "no" to all questions unless you are told otherwise. A "yes" answer
2
v0L. A2 l 1Pl'.riF 4 0 7
271
must be based on a preponderance of the evidence, unless you are told otherwise.
Whenever a question requires an answer other than "yes" or "no," your answer must be
based upon a preponderance of the evidence, unless you are told otherwise.
The term "preponderance of the evidence" means the greater weight of credible
evidence presented in this case. If you do not find that a preponderance of the evidence
supports a "yes" answer, then answer "no." A preponderance of the evidence is not
measured by the number of witnesses or by the number of documents admitted in
evidence. For a fact to be proved by a preponderance of the evidence, you must find that
the fact is more likely true than not true.
7. Do not decide who you think should win before you answer the questions and then just
answer the questions to match your decision. Answer each question carefully without
considering who will win. Do not discuss or consider the effect your answers will have.
8. Do not answer questions by drawing straws or by any method of chance.
9. Some questions might ask you for a dollar amount. Do not agree in advance to decide on
a dollar amount by adding up each juror's amount and then figuring the average.
10. Do not trade your answers. For example, do not say, "I will answer this question your
way if you answer another question my way."
11. Unless otherwise instructed, the answers to the questions must be based on the decision
of at least 10 of the 12 jurors. The same 10 jurors must agree on every answer. Do not
agree to be bound by a vote of anything less than 10 jurors, even if it would be a
majority.
As I have said before, if you do not follow these instructions, you will be guilty of juror
misconduct, and I might have to order a new trial and start this process over again. This would
3
YOL. A211 P/\r.t: LlO R
272
waste your time and the parties' money, and would require the taxpayers of this county to pay for
another trial. If a juror breaks any of these rules, tell the person to stop and report it to me
immediately.
4
VO L.A211PAri~ Lft)Q
273
Presiding Juror:
1. When you go into the jury room to answer the questions, the first thing you will need to
do is choose a presiding juror.
2. The presiding juror has these duties:
a. have the complete charge read aloud if it will be helpful to your deliberations;
b. preside over your deliberations, meaning manage the discussions and see that you
follow these instructions;
c. give written questions or comments to the bailiff who will give them to the judge;
d. write down the answers you agree on;
e. get the signatures for the verdict certificate; and
f. notify the bailiff that you have reached a verdict.
Do you understand the duties of the presiding juror. If you do not, please tell me now.
s
VOL. A211PAGE 410
274
Instructions for Signing the Verdict Certificate:
1. Unless othetwise instructed, you may answer the questions on a vote of 10 jurors. The
same 10 jurors must agree on every answers in the charge. This means you may not have
one group of 10 jurors agree on one answer and a different group of 10 jurors agree on
another answer.
2. If 10 jurors agree on every answer, those 10 jurors sign the verdict.
If 11 jurors agree on every answer, those 11 jurors sign the verdict.
If all 12 of you agree on every answer, you are unanimous and only the presiding juror
signs the verdict.
3. All jurors should deliberate on every question. You may end up with all 12 of you
agreeing on some answers, while only 10 or 11 of you agree on other answers. But when
you sign the verdict, only those 10 who agree on every answer will sign the verdict.
Do you understand these instructions? If you do not, please tell me now.
FILED i g :(k GllY\
DATE ~-tR-ao\5
Dana Fritsche
:53rl'JV
6
VOL. A211 PAGE 411
275
QUESTION I
What is a reasonable fee for necessary services of the attorneys for Carl Dean Flentge,
Independent Executor of the Estate of LaVerna Flentge, Carl Dean Flenge, David Flentge, and
Daniel Junek, Independent Executor of the Estate of Willie Otto Flentge, Sr., and as shareholders
and on behalf of W.L. Ranch, Inc. solely related to the declaratory j udgment claims and issues
decided by the Court, stated in dollars and cents?
Answer with an amount for each of the following:
I. For representation in the trial court and on the mandamus action in the court of
appeals.
Answer:$ ~ Wt/. 3J
2. For representation through appeal to the court of appeals.
Answer: $ ;;/S- ooo, o o
3. For representation at the petition for review state in the Supreme Court of Texas.
Answer: $ 6 tJ (}(). O6
4. For representation at the merits briefrng state in the Supreme Court of Texas.
Answer: $ /(), OtJCJ , oo
I
You should consider the following factors that are relevant to the declaratory judgment
issues and claims in detennining a reasonable fee.
1. The time and labor required, the novelty and difficult ofthe questions involved and the
skill required to perform the legal services properly.
2. The likelihood that he acceptance of a particular employment will preclude other
employment by the lawyer.
3. The fee customarily charged in the locality for similar legal services.
7
V0L. A2 11 PAGE 412
276
4. The amount involved and the results obtained.
5. The time limitation imposed by the client or by the circumstances.
6. The nature and length of the professional relationship with the client
7. The experience, reputation, and ability of the lawyer or lawyer performing the services.
8. Whether the fee is fixed or contingent on the results obtained or uncertainty of collection
before the legal services.
8
VOL. A211 PAGE 413
277
Verdict Certificate
Check one:
Our verdict is unanimous. All 12 have agreed to each and every answer. The
presiding juror has signed the certificate for all 12 of us.
``;.{A,.,-,,__
~ePreSiding Juror
:;ice ft:,11,, e &r11ts"'
P~ed Name ofpresiding Juror
/ Our verdict is not unanimous. Eleven of us have agreed to each and every answer
and have signed the certificate below.
Our verdict is not unanimous. Ten of us have agreed to each and every answer
and have signed the certificate below.
FILED 11 - t.Q - C)QJ.5 9
Dana Fritsche
DistkiCfl Clerf. ~urle?on Counr\'
,.,vi!i_WµJn~
0
vni A2 1 1 p~r;F 4 1 4
278
*3 The text of any statute on which the
argument is based, Tex.Bus. Org. Code
(C.R.308,317,287,289-90)
prima f acie evidence of the existence or nonexistence of the facts
stated in the certificate.
(d) Subject to any qualification stated in the certificate, a
certificate issued by the secretary of state stating that a domestic
filing entity is in existence may be relied on as conclusive evidence
of the entity's existence.
(e) Subject to any qualification stated in the certificate , a
certificate issued by the secretary of state stating that a foreign
fil ing entity is in existence or registered may be relied on as
conclusive evidence that the foreign filing entity is registered and
authorized to transact business in this state.
Acts 2003, 78th Leg . , ch. 182, Sec. 1, eff. Jan . 1 , 2006 .
Amended by:
Acts 2009, 81st Leg . , R.S., Ch. 84 (S .B . 1442 ), Sec. 5, eff.
September 1, 2009.
Sec. 4.006. FORMS ADOPTED BY SECRETARY OF STATE . (a) The
secretary of state may adopt forms for a filing instrument or a
report authorized or required by this code to be filed wi th the
secretary of state .
(b) A person is not required to use a form adopted by the
secretary of state unless this code expressly requires use of that
form .
Acts 2003, 78th Leg., ch. 182, Sec . 1, eff. Jan. 1 , 2006.
Sec. 4.007. LIABILITY FOR FALSE FILING INSTRUMENTS . (a) A
person may recover damages, court costs, and reasonable attorney ' s
fees if the person incurs a loss and:
(1) the loss is caused by a :
(A) f orged filing instrument; or
(B) filed filing instrument that constitutes an
offense under Section 4.008 ; or
(2) the person reasonably relies on :
(A) a false statement of material fact in a filed
filing instrument; or
(B) the omission in a filed filing instrument of a
material fact required by this code to be included in the instrument.
(b) A person may recover under Subsection (a) from:
(1) each person who forged the forged filing instrument or
signed the filing instrument and knew when the instrument was signed
of the false statement or omission;
(2) any managerial official of the entity who directed the
signing and filing of the filing instrument who knew or should have
known when the instrument was signed or filed of the false statement
or omission; or
(3) the entity that authorizes the filing of the filing
instrument.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1 , 2006.
Sec. 4.008. OFFENSE; PENALTY. (a) A person commits an
offense if the person signs or directs the filing of a fi lin g
instrument that the person knows is materially false with intent that
the filing instrument be delivered on behalf of an entity to the
secretary of state for filing.
(b) An offense under this section is a Class A misdemeanor
unless the actor 's intent is to defraud or harm another , in which
event the offense is a state jail felony.
Acts 2003 , 78th Leg., ch. 182, Sec. 1, eff. Jan. 1 , 2006.
Sec. 4.009. FILINGS BY REAL ESTATE INVESTMENT TRUST . (a) A
filing instrument relating to a domestic real estate investment trust
must be filed with the county clerk of the county in which the
domestic real estate investment trust's principal place of business
is located.
(b) Subject to other state law governing the requirements for
filing instruments with a county clerk, this chapter applies to a
filing by a domestic real estate investment trust, except that in
relation to such a filing a reference in this chapter to the
secretary of state is considered to be a reference to the county
clerk of the county in which the domestic real estate investment
trust's principal place of business is located.
BUSINESS ORGANIZAT I ONS CODE
TITLE 2. CORPORATIONS
CHAPTER 20. GENERAL PROVISIONS
This section was amended by the 84th Legislature. Pending
publication of the current statutes, see S.B. 860 , 84th Legislature,
Regular Session, for amendments affecting this section.
Sec. 20.001. REQUIREMENT THAT FILING INSTRUMENT BE SIGNED BY
OFFICER. Unless otherwise provided by this title, a filing
instrument of a corporation must be signed by an officer of the
corporation.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Sec. 20.002. ULTRA VIRES ACTS. (a) Lack of capacity of a
corporation may not be the basis of any claim or defense at law or
in equity.
(b) An act of a corporation or a transfer of property by or to
a corporation is not invalid because the act or transfer was:
(1) beyond the scope of the purpose or purposes of the
corporation as expressed in the corporation's certificate of
formation; or
(2) inconsistent with a limitation on the authority of an
officer or director to exercise a statutory power of the
corporation, as that limitation is expressed in the corporation's
certificate of formation.
(c) The fact that an act or transfer is beyond the scope of
the expressed purpose or purposes of the corporation or is
inconsistent with an expressed limitation on the authority of an
officer or director may be asserted in a proceeding:
(1) by a shareholder or member against the corporation to
enjoin the performance of an act or the transfer of property by or
to the corporation;
(2) by the corporation, acting directly or through a
receiver, trustee, or other legal representative, or through members
in a representative suit, against an officer or director or former
officer or director of the corporation for exceeding that person's
authority; or
(3) by the attorney general to:
(A) terminate the corporation;
(B) enjoin the corporation from performing an
unauthorized act; or
(C) enforce divestment of real property acquired or
held contrary to the laws of this state.
(d) If the unauthorized act or transfer sought to be enjoined
under Subsection (c) (1) is being or is to be performed or made under
a contract to which the corporation is a party and if each party to
the contract is a party to the proceeding, the court may set aside
and enjoin the performance of the contract. The court may award to
the corporation or to another party to the contract, as appropriate,
compensation for loss or damage resulting from the action of the
cour t in setting aside and enjoining the performance of the
contract, excluding loss of anticipated profits.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
(ii) the board, by resolution adopted not later
than the 60th day after the date of issuance of those shares, has
allocated to surplus; and
(C) an amount not included in Paragraphs (A) and (B)
that has been transferred to stated capital of the corporation , on
the payment of a share dividend or on adoption by the board of
directors of a resolution directing that all or part of surplus be
transferred to stated capital, minus each reduction made as permitted
by law.
{12) "Surplus" means the amount by which the net assets of
a corporation exceed the stated capital of the corporation.
(13) "Treasury shares" means shares of a corporation that
have been issued, and subsequently acquired by the corporation, that
belong to the corporation and that have not been canceled. The term
does not include shares held by a corporation in a fiduciary
capacity, whether directly or through a trust or similar arrangement.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
SUBCHAPTER B. FORMATION AND GOVERNING DOCUMENTS
Sec. 21.051. NO PROPERTY RIGHT IN CERTIFICATE OF FORMATION. A
shareholder of a corporation does not have a vested property right
resu lting from the certificate of formation, including a provision in
the certificate of formation relating to the management, control,
capital structure, dividend entitlement , purpose, or duration of the
corporation.
Acts 2003, 78th Leg., ch. 182 , Sec. 1 , eff . Jan. 1, 2006.
This section was amended by the 84th Legislature. Pending publication
of the current statutes, see S.B. 860 , 84th Legislature, Regular
Session , for amendments affecting this section.
Sec. 21.052. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE OF
FORMATION. (a) To adopt an amendment to the certificate of
formation of a corporation as provided by Subchapter B, Chapter 3,
the board of directors of the corporation shall:
(1) adopt a resolution stating the proposed amendment; and
(2) follow the procedures prescribed by Sections 21 . 053-
2 1. 055 .
(b) The re solut ion may incorporate the proposed amendment in a
restated certifica te of formation that complies with Section 3.059 .
(b-1 ) The resolution may provide that at any time before the
filing of a certificate of amendment takes effect as provided by
Subchapter B, Chapter 3, the board of directors may abandon the
proposed amendment to the cert if i cate of formation without further
action by the shareholders of the corporation, notwiths t anding
authorization of the proposed amendment by the shareholders .
(c) The certificate of amendment must be filed in accordance
with Chapter 4 and takes effect as provided by Subchapter B, Chapter
3.
Acts 2003, 78th Leg . , ch. 182, Sec. 1, eff. Jan. 1, 2006 .
Amended by:
Acts 2005, 79th Leg ., Ch. 64 (H.B. 1319 ) , Sec . 43 , eff. January
1, 2006.
This section was amended by the 84th Legislature. Pending publication
of the current statutes, see S.B. 860 , 84th Legislature, Regular
Session, for amendments affecting this section .
Sec. 21.053. ADOPTION OF AMENDMENT BY BOARD OF DIRECTORS. (a)
If a corporation does not have any issued and outstanding shares, the
board of directors may adopt a proposed amendment to the
corporation 's certificate of formation by resolution without
shareholder approval.
(b) Notwithstanding Section 21 . 054 , the board of directors may
adopt a proposed amendment without shareholder approval in the manner
provided by Section 21 . 155 if the amendment to the corporation's
certificate of formation relates to a series of shares established by
the board under authority granted to the board in the certificate o f
formation as provided by Section 21 . 155 .
Acts 2003, 78th Leg., ch. 182, Sec . 1, eff. Jan. 1, 2006.
Amended by:
Acts 2005, 79th Leg., Ch. 64 (H.B. 1319 ), Sec. 44 , eff. January
1, 2006 .
(b) The court shall direct that notice be given to the affected
shareholders if the court determines that a proposed discontinuance
or settlement may substantial l y affect the i nte r ests of other
shareholders .
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Sec. 21 . 561. PAYMENT OF EXPENSES. (a) In this section,
"expenses" means reasonable expenses incurred by a party in a
derivative proceeding , including:
(1) attorney ' s fees;
(2) costs in pursuing an investigation of the matter that
was the subject of the derivative proceeding ; or
(3) expenses for which the domestic or foreign corporation
or a corporate defendant may be required to indemnify another person.
(b) On terminat i on of a derivative proceeding , the court may
orde r:
(1) the domestic or foreign corporation to pay the expenses
the plaintiff incurred in the proceeding if the court finds the
proceeding has resulted i n a substantial benefi t to the domestic or
foreign corporation;
(2) the plaintiff to pay the expenses the domestic or
foreign corporation or other defendant incurred in investigating and
defending the proceeding if the court finds the proceeding has been
instituted or maintained without reasonable cause or for an improper
purpose; or
(3) a party to pay the expenses incurred by another party
relating to the filing of a pleading , motion , or other paper if the
court finds the pleading, motion, or other paper:
(A) was not well grounded in fact after reasonable
i nquiry ;
(B) was not warranted by existing law or a good faith
argument for the extension , modification, or reversal of existing
l aw; or
(C) was interposed for an improper purpose, such as to
harass, cause unnecessary delay , or cause a needless increase in the
cost of litigation.
Acts 2003, 78th Leg., ch. 182 , Sec. 1, eff. Jan. 1, 2006.
Sec. 21.562. APPLICATION TO FOREIGN CORPORATIONS. (a) In a
derivative proceeding brought in the right of a foreign corporation,
the matters covered by this subchapter are governed by the laws of
the jurisdiction of incorporation of the foreign corporation, except
for Sections 21.555 , 21.560 , and 21 . 56l , which are procedural
provisions and do not relate to the internal affairs of the foreign
corporation.
(b) In the case of matters relating to a foreign corporation
under Section 21.554 , a reference to a person or group of persons
described by that section refers to a person or group entitled under
the laws of the jurisdiction of incorporation of the foreign
corporation to review and dispose of a derivative proceeding. The
standard of review of a decision made by the person or group to
dismiss the derivative proceeding shall be governed by the laws of
the jurisdiction of incorporation of the foreign corporation.
Acts 2003, 78th Leg . , ch. 182, Sec. 1, eff. Jan. 1, 2006 .
Sec. 21.563. CLOSELY HELD CORPORATION. (a) I n this section,
"closely held corporation" means a corporation that has:
(1) fewer than 35 shareholders; and
(2) no shares listed on a national securities exchange or
regularly quoted in an over- the- counter market by one or more members
of a national securities association.
(b) Sections 21.552 - 21.559 do not apply to a closely held
corporation.
(c) If just i ce requires:
(1) a derivative proceeding brought by a shareholder of a
close l y held corporation may be treated by a court as a direct ac ti on
brought by the shareholder for the shareholder's own benefit; and
(2) a recovery in a direct or derivative proceeding by a
shareholder may be paid directly to the plaint if f or to the
corporation if necessary to protect the interests of creditors or
other shareholders of the corporation.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Amended by:
*4 Plaintiffs' motion for partial new trial
and order on their Breach of Fiduciary
Duty Claim, Pursuant to the Rule 320,
Texas Rules of Civil Procedure and
Order (C.R. 283-294, 299)
CAUSE NO. 26,704
CARL DEAN FLENTGE, INDEPENDENT § IN THE DISTRICT COURT
EXECUTOR OF THE ESTATE OF §
LAVERNA FLENGE, CARL DEAN §
FLENTGE, DAVID FLENTGE §
AND DANIEL JUNEK, INDEPENDENT §
EXECUTOROFTHEESTATEOF §
WILLIE OTTO FLENTGE, SR, §
INDIVIDUALLY, AND AS §
SHAREHOLDERS AND ON BEHALF §
W.L. RANCH, INC. §
Plaintiffs, §
vs. § OF BURLESON COUNTY, TEXAS
§
MARY FLENTGE MCAULEY, §
WILLIE O. FLENTGE, JR AND §
CHARLES RAY FLENTGE §
§
Defendants. § 21st JUDICIAL DISTRICT
PLAINTIFFS' MOTION FOR PARTIAL NEW TRIAL ON THEIR BREACH OF
FIDUCIARY DUTIES CLAIM, PURSUANT TO RULE 320, TEXAS RULES CIVIL
PROCEDURE
TO TIIB HONORABLE JUDGE OF SAID COURT:
COME NOW the Plaintiffs and file this their Plaintiff's Motion for Partial New Trial on
Their Breach ofFiduciary Duties Claim, Pursuant to Rule 320, Texas Rules ofCivil Procedure and
for good cause would show unto the court as follows.
A. BACKGROUND
1. This case was tried on February 2-6, 2015. The Plaintiffs rested their case on February 5,
2015, whereupon the Defendants filed a written Defendants' Motion for Directed Verdict on
Plaintiffs Claim for Breach of Fiduciary Duties. Specifically, Defendants then argued that there
was no fact issue regarding any Plaintiff sustaining actual damages from any alleged breach of
fiduciary duties by Defendants. Defendants further argued that there was no evidence indicating
FILED {lf /oft?/
DATE" u-e.._
Dana Fritsche
Di · k, Burle n Count
By-fo,c...J....L'.c+-l..tU.-444~
283
that Plaintiffs either suffered an injury or damages. Defendants further argued that attorney's fees
are not recoverable for breach of fiduciary duties in that same is a tort not allowing such.
2. On February 6, 2015, after oral argument, the court granted the motion for direct verdict
based upon breach of fiduciary duties and removed that recovery and the associated attorney's fee
claim from the case.
3. The remainder of the case consisting of a question on reasonable and necessary attorney's
fees incurred by the individual Plaintiffs solely related to the partial summary declaratory
judgments, previously granted by the court, was submitted to the jury who returned a verdict on
February 6, 2015.
4. The Court has now entered a Final Judgment on that issue. In the Motion for Judgment on
the Verdict Plaintiffs expressly reserved their appellate rights on the directed verdict on the breach
of fiduciary duty and associated attorney's fees and costs claims that the court granted a directed
verdict upon.
B. ARGUMENT At'ID AUTHORITIES
5. Rule 320, Tex. R. Civ. P., permits the trial court to grant a new trial on part of the case
under the conditions that the matter is clearly separable, not unfair, and that the damages are
liquidated or unliquidated and liability is not in dispute.
6. In this case the W.L. Ranch, Inc.'s (corporation) claim for breach of fiduciary duties by it's
officers Mary Flentge McAuley, Willie 0. Flentge Jr. and Charles Ray Flentge and alleged
directors, Mary Felntge McAuley and Charles Ray Flentge, is clearly separable from the Plaintiffs
claims for declaratory judgments and associated attorney's fees solely related to those partial
summary judgments and related mandamus proceeding. Further, the matter is separable without
unfairness to the parties. Indeed, at the trial Plaintiffs attorney's fees on the summary declaratory
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judgments were segregated from the gross attorney's fees attributable to the breach of fiduciary
duty claims in order to prevent adouble recovery. Finally, reasonable costs and expenses in the
form of attorney's fees and expenses of the corporate derivative action are liquidated and not open
to speculation.
7. To prove an action for breach of fiduciary duties, the Plaintiff must establish that the Defendant's
breach resulted in an injury to Plaintiff or a benefit to the Defendant Priddy v. Rawson 282 S.W.
3d 588, 599 (Tex. App. -Houston [14th Dist.] 2009, pet den.); Kellyv. Grimes, 181S.W.3d 394,
414 (Tex. App.-Waco 2005). Itis not necessary for the Plaintiff to prove injury to prevail on a claim
for breach of fiduciary duty. Kinzbach Tool Co. Inc. v. Corbett-Wallace Corp, 160 S.W.2d 509,
514 (Tex.1942); Upchurch v. A/bear, 5 S.W.3d 274,283 (Tex. App.-Armarillo 1999, pet denied).
Even if Plaintiff sustains no loss from Defendant's breach of fiduciary duty, the Defendant cannot
retain any benefits it acquired from the breachKinzbach Tool Co. Inc., 160 S.W.2d at 514. It is the
agent' s disloyalty, not any resulting harm, that violates the fiduciary relationship. Burrow v. Arce
997 S.W.2d 229, 238 (Tex. 1999).
8. This precise.issue on no injury/damages was long ago decided by the Supreme Court of
Texas in the Kinzbach Tool Co, Inc. case, supra, at 573-574.
(5)(6]. .. It would be a dangerous precedent for us to say that unless some
affmnative loss can be shown, the person who has violated his fiduciary
relationship with another may .... hold on to any secret gain or benefit he may have
therefore acquired. It is the law that in such instances if the fiduciary takes any gift,
gratuity, or benefit in violation of his duty, or acquires any interest adverse to the
principal, without full disclosure, it is a betrayal of his trust and a breach of
confidence, and he must account to his principal for all he has received.
9. It is undisputed in this case that all three Defendants were corporate offices at all relevant
times of W.L. Ranch, Inc. Two of the Defendants, Mary Flentge McAuley arid Charles Ray
Flentge, claim they were elected as directors of W.L. Ranch, Inc. on September 16, 2007 and again
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285
on November 20, 2010. It is undisputed that both officers and directors of the corporation owe
fiduciary duties to the corporation W.L. Ranch, Inc. Ritchie v. Rupe, 443 S.W.3d 856, 876 (Tex.
2014). Directors, or those acing as directors owe a fiduciary duty to the corporation in their
directorial actions and this duty includes the dedication of their uncorrupted business judgment
for the sole benefit of the corporation Int'/ Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567,
577 (Tex. 1963); Ritchie v. Rupe at 868. Corporate offices and directors owe the corporation and
their collective shareholders a duty to act only in their best interests.
(i) Defendants Benefited by Acquiring Interests Adverse to the Corporation Without Full
Disclosure to the Collective Interests of the Corporation
10. In this case there is evidence in the trial record that:
(a) Defendants Charles Ray Flentge and/or Willie 0. Flentge,Sr., as officers and at least one
alleged director, misappropriated corporate property from the farm. - This was a benefit for these
Defendant officers and directors and a detriment to the corporation W.L. Ranch, Inc., without full
disclosure.
(b) Defendant Mary Flentge McAuley, acting as a secretary (officer) and alleged director,
designated herself, without disclosure or vote of the corporation, as the corporate registered agent
with the Secretary of State, public information documents of the state, on new articles of
amendment filed with the Secretary of State, on a separate bank account opened up for W.L.
Ranch. Inc. in Dripping Springs, Texas and on letters sent to Clayton Williams Energy, Inc. in an
attempt to divert corporate royalty funds to all three Defendants, without disclosure to the
corporation and all the shareholders collectively. These were acquired benefits by Defendant
McAuley to deal with Clayton Williams concerning royalties being paid. She acquired these
benefits adverse to the principle, W. L Ranch, Inc ..
(c) Defendants Mary Flentge McAuley, Willie 0 . Flentge, Jr. and Charles Ray Flentge executed
4
286
an amended deed of conveyance and filed it in the deed records of Burleson County increasing
their interest to 20% from 14% in oil royalties due to W.L. Ranch, Inc. on the Ayres Jackson well,
thereby squeezing out the interest of Willie 0. Flentge, Sr.'s estate and LaVerna Flentge to their
benefit, without disclosure, even though they knew of Will bequests of these other shares.
(d) Defendant Willie Otto Flentge Jr. and Mary Flentge McAuley, acting as purported directors
and as officers of W.L Ranch, Inc., with the help of attorney Richard Moore, changed corporate
minutes, amended articles of incorporation and By-Laws of W.L. Ranch Inc. and a corporate
address, to reflect Mary Flentge McAuJey and Charles Ray Flentge as two of three directors in
order to take control of corporate funds and divert those from being delivered to the old corporate
address and deprive Carl Flenge, LaVerna Flentge, David Flentge and W.L. Ranch, Inc. of the
delivery of those funds. This was a benefit to these Defendants and not the corporate whole. It is
definitely acquiring an interest, as directors, to assume management of the corporation, without
full disclosure and a betrayal of trust to the corporation. Acquiring a positon of management of the
corporation by breach of fiduciary duties was a benefit to these Defendants. Indeed, in this case
the corporation and shareholder, LaVerna Flentge sought and obtained injunctive relief to prevent
such further benefits to the Defendants from being unlawfully acquired. The court erred in denying
the admission of the Affidavit of LaVerna Flentge into evidence as admissible evidence on these
benefits to the Defendants and this suit as a substantial benefit to the corporation {p- 1).
11. The By-Laws and the Tex. Bus. Org. C. rest the management of the corporation W.L.
Ranch, Inc. in the hands of the directors and officers. Under Bus Org. C. §20.002(c)(2) the
corporation acting directly or through it's members in a representative suit may assert that such
acts of officers and directors are beyond the express purpose of the corporation or inconsistent
with the authority of an officer or director against an officer or director for exceeding that authority
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(such claim can be made by way of breach of fiduciary duties) Ritchie v. Rupe, supra. (no common
law cause of action for shareholders oppression)
12. Because of these and other benefits acquired by the Defendants at the expense of the
corporation, the Court erred in granting Defendants' Motion for Direeted Verdict on the Breach of
Fiduciary Duty Claims of the corporation in this derivative lawsuit. Plaintiffs believe the Court
granted the motion because it believed that the Plaintiffs had not shown "damages" to the
corporation. Such is not the law. Benefits to Defendants in the form set out above under the
Kinzbach Tool Co., Inc. case, supra, are sufficient . There is competent evidence on every one of
these benefits, as well as the elements of the breach. The granting of the directed verdict was
against the great weight and preponderance of the evidence in this regard. Further, Defendeants
presented no evidence that any of their actions were fair and equitable to W.L. Ranch, Inc.
(ii) Burden of Proof and Persuasion is upon Defendants and not Plaintiffs. The Court
Improperly placed the Burden on the Plaintiffs in Granting to Directed Verdict on Breach
of Fiduciary Duties
13. When the Defendants, as fiduciaries in their capacity as officers and Defendants McAuley
and Charles Ray Flentge, as alleged directors, benefited from transactions involving W.L. Ranch,
Inc. a rebuttable presumption of unfairness arose that shifted the burden of producing evidence
and the burden of persuasion to the fiduciary Defendants to show that the transactions were fair
and equitable to the corporation and all of it's interests collectively. Keck, Mahin & Cate v.
National Union Fire Insurance Company of Pittsburg, 20 S.W.3d 692, 699 (Tex. 2000); Texas
Bank & Trust Co. v. Moore, 595 S.W.2d 502, 509 (Tex. 1980); Archer v. Griffith, 390 S.W.2d
735,739 (Tex. 1964); Sorrell v. Elsey, 748 S.W.2d 584,586 (Tex. App-San Antonio 1988, writ
denied); Miller v. Miller, 700 S.W.2d 941, 945-946 (Tex. App-Dallas 1985, writ fef'd n.r. e.);
Gum v. Schaefer, 683 S.W.2d 803,806 (Tex. App. -Corpus Christi 1984, no writ); Fillion v. Troy,
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656 S.W.2d 912, 914 (Tex. App.-Houston [l st Dist.] 1983, writ refd n.r.e.)
14. In this case, once the Defendants in their roles and officers and purported directors,
appropriated property and assumed the management positions (which was undisputed) the
Defendants had burden of producing evidence that all of their transactions were fair and equitable
to W.L. Ranch, Inc. Defendants offered no evidence to show that they did not breach their fiduciary
duties or gain any such benefits. Plaintiff had no burden of producing evidence to show this. The
Court erred in granting a directed verdict for Defendants because same misplaced the burden of
producing evidence upon Plaintiffs. There was no evidence or the evidence was factually
insufficient in order for the Court to grant a directed verdict to Defendants. Indeed, the Defendants
rested without putting on any evidence that their actions were fair and equitable to W.L. Ranch,
Inc. and all of it's interests collectively.
(iii)The Erroneous Granting of the Directed Verdict Deprived the W.L. Ranch, Inc. and the
Individual Plaintiffs from Seeking Reasonable Expenses, Consisting of Attorney's Fees and
Costs in Equity under the Common Fund Doctrine and Statutorily under Bus. Org. C.
§21.561
15. Under the common fund theory with regard to shareholder derivative suits, the corporation
is treated as a representative of the group and the domestic corporation may be required to pay
reasonable costs and attorney's fees in equity incurred during the litigation. The Texas Supreme
Court has adopted the common fund doctrine, but expressly held that the winning Plaintiff's
attorney's fees and costs depend on a finding of a substantial benefit to the corporation. In order
to recover in an equitable action, the Plaintiffs must prove that its actions created an actual benefit
to the corporation or the shareholders collectively. The rule is that a successful suit or proceeding
should be for the protection, preservation or increase of a common fund. Knebel v. Capital
National Bank in Austin 518 S.W.2d 795, 799-802 (Tex. 1975)
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16. The Bus Org. C. bas codified the common fund doctrine in section 2 l.56 l(a) and (b)(l)
which defines reasonable expenses incurred by a party in a derivative proceeding to include
attorney's fees and costs and that upon termination of a derivative proceeding, the court may order
the domestic corporation to pay expenses to the Plaintiffs incurred in the proceeding if the court
finds the proceeding has resulted in a substantial benefit to the domestic corporation.
17. The determination in either the common law version of the common fund doctrine or the
statutory version is linked to successful litigation by Plaintiffs and a substantial benefit to the
corporation. A finding of Defendants breach of fiduciary duty, corresponding benefits to the
Defendants and the success of this action to preserve the corporate property and rectify the
breaches of fiduciary duties is a basis for the court to find a substantial benefit to the corporation.
Said another way, without a finding that Defendants breached their fiduciary duties and received
benefits to themselves, there is no basis that Plaintiffs claim of breach and restoring the corporation
to a position for the common good of all shareholders from the breach that substantially benefits
the corporation, W.L Ranch, Inc. In this case Plaintiffs sought and obtained injunctive relief to
preserve the assets of the corporation collectively, defeated squeeze out positons of Defendants,
obtained the appointment of a temporary custodian and defeated many attempts by Defendants to
reduce the corporate shares, all for a substantial benefit to the corporation, W.L. Ranch, Inc.
18. Accordingly, the courts erroneous grant of a directed verdict on the breach of fiduciary
duty claim has deprived the Plaintiffs of the right to prove that their actions in seeking a finding
from the court that the breaches were a resulting basis for a substantial benefit to the corporation,
and is against the great weight and preponderance of the evidence. Further, there is no evidence or
insufficient evidence supporting the directed verdict grant.
19. Finally, for the substantial benefit of the corporation, ifjustice requires, the court may treat
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a close corporation derivative proceeding (as in this case) as a direct action brought by a
shareholder and the recovery may be paid directly to the shareholder under section 21.563(c) Bus.
Org. C., but this pre-supposes that the Court finds the proceeding has resulted in a substantial
benefit to the corporation W .L. Ranch, Inc.,which is premised upon Defendants breach of fiduciary
duties and benefits accruing to Defendants. The erroneous directed verdict destroyed this premise
and was against the great weight and preponderance of the evidence.
CONCLUSION
20. The court should grant a new trial on the breach of fiduciary duty claim only under Rule
320, Tex. R. Civ. P. because that part affects only part of the matters in controversy and that part
is clearly separable from the declaratory judgment matters without unfairness to the parties. More
specifically, the Court should grant a new trial on the issue of breach of fiduciary duties that
resulted in benefits to Defendants because the directed verdict the court granted misplaced the
burden of proof, was against the great weight and preponderance of the evidence and was a basis
for Plaintiffs claims for equitable and statutory expenses, including attorney's fees and costs, in
order to show the Plaintiffs actions resulted in substantial benefit to the corporation.
PRAYER
21. For these reasons, and in the interest ofjustice a.r:d .fairness, Plaintiffs ask the Court to grant
a new trial and relitigate the case on the issue of breach of fiduciary duties, resulting benefits to
Defendants and equitable and statutory expenses, including attorney's fees and costs relating to
Plaintiffs actions in response to the breach of fiduciary duties that resulted in a substantial benefit
to W.L. Ranch, Inc.
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Respectfully submitted,
State Bar No. 15462000
Paris Law Group, P.L.L.C.
Two Riverway, Suite 1080
Houston, Texas 77056
Telephone: (713) 951-9100
Facsimile: (713) 961-3082
E-mail:waynehparis@yahoo.com
Attorney for Plaintiffs Carl DeanFlentge, and David
Flentge, individually and on behalf of Plaintiff, W. L.
'nch,Inc.