Robert L. & Julia T. McCullough v. Scarbrough, Medlin & Associates, Inc

REVERSE and RENDER in part; AFFIRM in part; Opinion Filed June 20, 2014.
Court of Appeals
S In The
Fifth District of Texas at Dallas
No. 05-11-01303-CV
ROBERT L. MCCULLOUGH AND JULIA T. MCCULLOUGH, Appellants
V.
SCARBROUGH, MEDLIN & ASSOCIATES, INC. AND SCARBROUGH, MEDLIN &
ASSOCIATES FINANCIAL SERVICES, INC., Appellees
On Appeal from the 416th Judicial District Court
Collin County, Texas
Trial Court Cause No. 416-02008-2009
OPINION
Before Justices FitzGerald, Lewis, and Brown 1
Opinion by Justice Brown
Robert L. McCullough 2 and Julia T. McCullough appeal from the trial court’s judgment
rendered on a jury verdict in favor of Scarbrough, Medlin & Associates, Inc. and Scarbrough,
Medlin & Associates Financial Services, Inc. (collectively, SMA) on SMA’s claims for breach of
contract, breach of fiduciary duty, fraud, and civil theft against McCullough and their equitable
claim of money had and received against both McCullough and his wife, Julia McCullough. We
reverse that portion of the trial court’s judgment awarding SMA statutory damages and
1
The Honorable Mary L. Murphy, Retired Justice, was a member of the panel at the time this case was submitted, but due to her resignation
from this Court on June 7, 2013, she did not participate in deciding this case. She was replaced on the panel by Justice Ada E. Brown in
accordance with the appellate rules. See TEX. R. APP. P. 41.1(a).
2
Because this appeal primarily concerns the conduct of Robert McCullough and his contractual relationship with appellees, the use of
“McCullough” throughout this opinion refers to Robert McCullough. We refer to appellants jointly as “the McCulloughs.”
attorneys’ fees and render judgment SMA cannot recover those amounts. We affirm the trial
court’s judgment in all other respects.
I. BACKGROUND
A. SMA’s business and McCullough’s employment at SMA
Scarbrough, Medlin & Associates, Inc. is a commercial insurance agency. The firm is
owned by brothers Don and Rod Medlin, who are the only principals of the firm. Don Medlin is
the firm’s president, and because he testified on behalf of SMA at trial, we will refer to him as
“Medlin.”
In November 1998, the Medlins hired McCullough to create a financial services division
of the firm and serve as the division’s president. Financial services encompassed employee
benefit and retirement plans, and the addition of the division expanded the firm’s business
beyond selling commercial property and casualty insurance. Although the financial services
division lost money the first few years, it developed into a viable part of the firm, at which time
the Medlins formed Scarbrough, Medlin & Associates Financial Services, Inc. for the purpose of
putting the division into a separate corporate entity. That entity was incorporated in 2005 but
remains a shell corporation.
McCullough’s responsibilities as president of the financial services division included
running the division, hiring employees, managing and overseeing the products sold, sales
training, and development of the support staff. As compensation, McCullough received a salary
plus one third of the division’s profits at the end of the year as a bonus. McCullough also
received other benefits, including use of a corporate American Express card, a car allowance,
and reimbursement for his expenses.
SMA generates income either by charging a fee to the client for negotiating the premiums
for the client’s insurance program or collecting a commission from the insurance carriers based
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on the insurance products sold to SMA’s clients. The amount of the commission ranges from
five to fifteen percent depending on the line of coverage sold. For most of the products sold by
SMA, the commissions earned were to be paid by the insurance carrier to SMA, not to the
individual agent who sold the insurance. For any insurance product that involved the sale of
securities, like 401(k) and retirement plans, however, the commission could be received only by
one who holds a Series 7 license. Because McCullough held a Series 7 license, Medlin knew
that commissions for those products would be paid to McCullough directly. In turn, McCullough
would pass on the commissions to SMA.
B. Problems with accounting for financial services commissions
In 2006, Medlin learned that SMA was receiving commission-based income from the sale
of financial services products by personal checks from McCullough and not by payments from
the insurance carriers. That is, McCullough changed the payment instructions with various
carriers and directed those carriers to pay him the commissions earned (as opposed to paying
SMA) not only for Series 7 products but also for other financial services products. The
commission statements would go to McCullough’s home address. After McCullough received
the commission check from the carrier, he would either endorse the check to SMA or deposit the
money into his personal bank account and issue a personal check to SMA. He also received
electronic fund transfers of commission payments from the insurance carriers into his personal
bank account. SMA did not give McCullough permission to handle financial services
commissions in this manner, and excluding the products that required a Series 7 license, Medlin
could think of no valid business reason for this practice. Medlin also was concerned because the
practice affected the accuracy of SMA’s financial information for tax-reporting purposes and the
firm’s cash flow. With this practice, SMA did not have access to its cash until SMA received the
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payment from McCullough, yet SMA paid all expenses that accompanied running the financial
services division.
Beginning in 2006 and continuing through 2008, SMA’s accounting department tried to
reconcile the accounting for financial services commissions. As part of the reconciliation, the
department requested bank and commission statements from McCullough and pressed him to
provide bank routing numbers so commission payments could be re-wired from McCullough’s
bank account to SMA’s account. McCullough did not provide the requested information; rather,
he offered “plausible excuses” for the delay. And despite receiving communications about
SMA’s concerns over the accounting and commission practices (including SMA’s repeated
requests for online access to the commissions deposited into McCullough’s personal bank
account), McCullough continued the practice and added another carrier to the list of carriers that
deposited funds into his personal bank account, which SMA learned about in September 2008.
Around that same time, SMA’s outside CPA, Robert Wilson, became involved in the
process to resolve the financial services accounting issues and met with McCullough at SMA’s
request on October 31, 2008. During the meeting, Wilson discussed with McCullough SMA’s
need to obtain financial records from him for the purpose of reconciling SMA’s income. Wilson
gave McCullough an agenda listing several requests for McCullough’s records and information,
including requests for McCullough to provide all bank statements from 2006 through October
31, 2008 and access codes to the account in which McCullough deposited commissions related to
the sale of securities. Wilson also asked McCullough to change the payment structure for
commissions paid by all insurance carriers so that the commission checks would be payable to
SMA. Wilson was particularly concerned about the fact that business funds were being
deposited into McCullough’s joint account with his wife. Wilson asked McCullough to close
that account and open a separate business account that both McCullough and SMA could access.
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McCullough agreed to close the joint account and provide the bank statements. Wilson gave
McCullough a deadline of November 15, 2008 to fulfill the requests.
From November 7 through the end of December, Wilson asked McCullough for updates
on the requests, emphasizing the need for McCullough to provide the bank statements for the
reconciliation. McCullough responded with assurances of “progress” and gave Wilson some
partial printouts from bank websites. According to Wilson, he never received the specific
documents requested.
In early January 2009, McCullough announced he was leaving SMA. At a subsequent
meeting attended by the Medlins, their attorney, McCullough, and his attorney, Medlin learned
that McCullough not only was resigning from SMA but also he was taking the financial services
division with him, including several of the employees, and selling the business to a competitor,
Frost Insurance Agency, Inc. The Medlins considered suing McCullough, but because a lawsuit
would necessarily involve joint clients, they decided to negotiate an agreement with
McCullough.
C. The Separation Agreement between SMA and McCullough
As a result of the negotiations, SMA and McCullough entered into a letter agreement,
dated February 27, 2009 (the “Separation Agreement”). The Separation Agreement terminated
McCullough’s employment with SMA effective February 28, 2009 and established that all
commissions and other revenues associated with products sold by McCullough or the financial
services division through the termination date belonged to SMA. The agreement also addressed
the sale of the financial services book of business to Frost. Under those provisions, McCullough
and SMA agreed to a 50/50 split of all payments received from Frost for the sale. The parties
received the first check for $375,000 from Frost the day after the sale, and to finish the sale,
Frost paid monthly checks over a period of eighteen months. SMA also agreed to release the
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financial services employees from any non-compete obligations so that those employees could be
employed by Frost.
The Separation Agreement also outlined a mechanism for resolving the accounting
dispute over financial services commissions between SMA and McCullough. Specifically, the
agreement provided that “SMA’s CPA will make a determination of any commissions or other
revenues associated with all insurance products sold by McCullough or the financial services
division of SMA that have been received by McCullough through the Termination Date and not
remitted to SMA.” The agreement refers to the amount of commissions and revenues unremitted
by McCullough and due SMA as the “Recovered Premiums.” The Recovered Premiums were to
be reduced by any sums SMA owed McCullough for expense reimbursement or the one-third
distribution of profits from the sale of insurance products by McCullough or the division. The
process of calculating the amount of Recovered Premiums less the amount owed to McCullough
is called the “CPA Determination.” Before the Separation Agreement was signed, SMA
estimated that McCullough owed SMA about $137,000 in unremitted commissions. But in the
agreement, the parties capped the amount McCullough would be required to pay at $75,000.
The parties agreed to cooperate in good faith to accomplish this accounting. As part of
that cooperation, McCullough promised to “promptly” provide all information, records, and
documents identified in an exhibit to the agreement (the “Due Diligence Items”) that were
needed for the CPA Determination. The agreement contemplated a notice and cure period
related to McCullough’s cooperation in providing the Due Diligence Items. If McCullough did
not promptly provide or act upon the items, SMA could send McCullough a written non-
compliance notice that details the Due Diligence Items not provided or fulfilled. McCullough
then had thirty days from the date he received the notice to comply; if he did not, he had five
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days to pay the negotiated cap of $75,000. SMA agreed to bear the cost of the CPA
Determination, which was to be completed by August 31, 2008.
The Separation Agreement also contained a release provision in which SMA and
McCullough agreed to “mutually release each other from any claims, demands, causes of action
and liabilities, known or unknown, either has against the other based on any facts, events,
transactions and occurrences through February 29, 2009.” The parties’ mutual release, however,
excepted out “the obligations or outstanding issues or claims” provided in the Separation
Agreement.
D. Events leading to suit
Less than two weeks after signing the Separation Agreement, Wilson sent McCullough a
non-compliance notice, detailing the Due Diligence Items that McCullough had not yet provided
as required by the Separation Agreement. Wilson reminded McCullough in the notice that he
had thirty days to provide the requested items and his failure to do so within the thirty-day period
would trigger his obligation to pay SMA $75,000. McCullough’s counsel responded by letter
dated April 9, 2009, stating that McCullough had provided the requested bank statements during
the negotiations. Counsel also attached to the response a two-page printout of McCullough’s
March 2009 bank activity for one account. The printout from the bank website shows that
McCullough received sums from four insurance carriers during that month, even though
McCullough was required under the Due Diligence Items to contact the carriers regarding
outstanding payments due to SMA in accordance with the terms of the Separation Agreement. 3
SMA disputed McCullough’s contention that he provided the requested bank statements
by letter from counsel dated April 30, 2009. Counsel listed the specific Due Diligence Items that
3
SMA also had flagged this practice beginning in 2006, asking McCullough why commission checks from certain carriers were being
deposited directly into McCullough’s bank account and whether the carriers were “requiring [SMA] to receive [their] commission that way.”
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had not been delivered within the thirty-day cure period and asserted that McCullough’s failure
to provide the materials constituted a breach of the Separation Agreement. SMA reminded
McCullough that he had the right under the Separation Agreement to limit his future liability by
paying SMA $75,000, but because he did not do so, SMA demanded that McCullough pay the
full amount of the commissions and other revenue that McCullough collected but did not remit to
SMA. The firm threatened to file suit against McCullough to recover the unremitted money.
E. SMA files this lawsuit against the McCulloughs
McCullough did not pay SMA $75,000 or any amount to reconcile what he owed SMA.
Nor did McCullough provide any of the remaining Due Diligence Items identified by Wilson and
requested in the non-compliance notice and the April 30 demand letter. So, SMA filed this
lawsuit against McCullough and his wife on May 21, 2009.
In their original petition, SMA alleged McCullough had deposited commissions and other
revenue belonging to SMA into bank accounts maintained by him and Julia and when SMA
asked McCullough to return the money, McCullough did not do so. SMA asserted a breach of
contract claim against McCullough based on his failure to fulfill his obligations under the
Separation Agreement and an equitable claim for money had and received against the
McCulloughs, alleging they were in possession of monies that belonged to SMA. SMA asked
the trial court to place a constructive trust on all monies received by the McCulloughs that
belonged to SMA and the proceeds and assets acquired with the monies. In an amended petition,
which was the live pleading at the time of trial, SMA raised additional claims against
McCullough for breach of fiduciary duty, civil theft under the Texas Theft Liability Act, and
fraud. SMA sought actual, statutory, and punitive damages and the equitable remedies of
disgorgement, forfeiture, constructive trust, and restitution under the theory of unjust enrichment.
SMA also sought to recover their attorneys’ fees and costs.
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The McCulloughs specially excepted to all of SMA’s pleaded claims, except the breach
of contract claim, asserting, among other things, that based on the mutual release contained in the
Separation Agreement, SMA’s claims are limited to breach of that agreement. They also
asserted various affirmative defenses, including release, and counterclaims for breach of contract
and declarations that the Separation Agreement limited SMA’s causes of action to breach of the
agreement and McCullough’s liability to $75,000. SMA generally denied the McCulloughs’
counterclaims and responded that declaratory relief is not necessary because the dispute would
be resolved through SMA’s breach of contract claim.
F. The jury returns a verdict for SMA.
The case was tried to a jury for four days. After both sides rested, the McCulloughs
moved for instructed verdict on all claims, except the claim against McCullough for breach of
the Separation Agreement. McCullough again argued that based on the mutual release provision
in the agreement, the only viable claim against him is one for breach of that agreement and all
other claims are precluded as a matter of law. He also maintained that (1) SMA’s damages are
limited to those specified by the Separation Agreement, (2) SMA cannot recover the fees
generated by Wilson because SMA agreed to bear that cost as stated in the agreement, and (3)
SMA cannot recover the fee paid to McCullough from a particular client because that fee is
outside the scope of the Separation Agreement. Julia argued that because she is not a party to the
Separation Agreement, which controls the rights and obligations of the parties, SMA’s claims
against her should be denied.
The trial court denied the motion for instructed verdict and submitted the case to the jury,
which returned a verdict in favor of SMA on all claims against McCullough individually and the
claim for money had and received against both McCullough and Julia. The parties filed post-
judgment motions: SMA filed a motion for entry of the judgment, and the McCulloughs filed
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amended motions for judgment notwithstanding the verdict, a new trial, and an election of
remedies. After a hearing on those motions, the trial court denied the McCulloughs’ motions and
signed a final judgment on July 14, 2011 awarding SMA the following sums to be recovered
from McCullough: (1) $138,572.20 in actual damages plus pre-judgment interest, (2) $700,000
in punitive damages, and (3) $201,105 as an equitable forfeiture and disgorgement remedy, and
awarding SMA $35,371.10 in damages plus pre-judgment interest to be recovered from
McCullough and Julia, jointly and severally. The court also awarded SMA their attorneys’ fees
in the amount of $172,438.53 and placed a constructive trust on five of the McCulloughs’ bank
accounts for certain amounts. The judgment ordered that the McCulloughs take nothing on their
counterclaims, including their requests for declaratory judgment.
II. DISCUSSION
The McCulloughs raise seven issues on appeal. In their first issue, they argue that we
should reverse the judgment against them and render judgment that SMA take nothing on their
extra-contractual claims for fraud, breach of fiduciary duty, and civil theft and equitable claim
for money had and received because those claims are barred as a matter of law by the mutual
release provision in the Separation Agreement. They also maintain as a part of their first issue
that the very existence of the Separation Agreement precludes SMA’s claim for money had and
received and remedy of unjust enrichment and the disclaimer-of-reliance provision in the
agreement negates an element of SMA’s fraud claim. McCullough also challenges the legal and
factual sufficiency of the evidence supporting the jury’s answers related to his breach of the
Separation Agreement and SMA’s claims for accounting and attorneys’ fees (Issues Three and
Four). Alternatively, McCullough contends there is legally and factually insufficient evidence to
support the jury’s answers on SMA’s claims for fraud, breach of fiduciary duty, and civil theft
and the jury’s award of equitable disgorgement and punitive damages (Issues Two and Six). The
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McCulloughs further argue in the alternative that the trial court erred in entering a judgment on
all of SMA’s claims in violation of the one-satisfaction rule (Issue Five). And they contend the
trial court erred in entering a turnover order in the judgment (Issue Seven). We begin with the
McCulloughs’ arguments related to whether the mutual release operates to bar most of SMA’s
claims.
A. Did the mutual release bar SMA’s extra-contractual and equitable claims?
The McCulloughs argue in their first issue that they are entitled to judgment as a matter
of law on SMA’s extra-contractual and equitable claims because these claims are barred under
the broad language of the mutual release provision contained in the Separation Agreement.
Although the McCulloughs do not state the ruling from which this issue arises, we construe their
argument as raising a challenge to the trial court’s denial of the motion for instructed verdict and
amended motion for judgment notwithstanding the verdict. Cf. United Parcel Serv., Inc. v.
Tasdemiroglu, 25 S.W.3d 914, 916 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (matter
of law point preserved in motion for directed verdict or JNOV).
1. Standard of Review
An instructed verdict for a defendant may be proper when (1) a plaintiff fails to present
evidence raising a fact issue essential to the plaintiff’s right to recover, or (2) the plaintiff admits
or the evidence conclusively establishes a defense to the plaintiff’s cause of action. Prudential
Ins. Co. of Am. v. Fin. Review Servs., Inc. 29 S.W.3d 74, 77 (Tex. 2000); see also Byrd v.
Delasancha, 195 S.W.3d 834, 836 (Tex. App.—Dallas 2006, no pet.) (directed verdict warranted
when evidence is such that no other verdict can be rendered and movant is entitled to judgment
as a matter of law). Similarly, a judgment notwithstanding the verdict is proper when (1) the
evidence is conclusive and one party is entitled to judgment as a matter of law, or (2) a legal
principle precludes recovery. Tiller v. McLure, 121 S.W.3d 709, 713 (Tex. 2003) (per curiam);
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John Masek Corp. v. Davis, 848 S.W.2d 170, 173 (Tex. App.—Houston [1st Dist.] 1992, writ
denied).
When, as here, the ruling on the motion for instructed verdict is based on a question of
law, we review that aspect of the ruling under a de novo standard of review. COC Servs., Ltd. v.
CompUSA, Inc., 150 S.W.3d 654, 662 (Tex. App.—Dallas 2004, pet. denied). “A motion for
judgment [notwithstanding the verdict] based on a legal principle is appropriately granted when
it is conclusively established that recovery is precluded even though all the allegations are
proven.” Pitts & Collard, L.L.P. v. Schechter, 369 S.W.3d 301, 320 (Tex. App.—Houston [1st
Dist.] 2011, no pet.).
2. Applicable Law
A release is a contractual arrangement that operates as a complete bar to any later action
based upon matters covered in the release. Schomburg v. TRW Vehicle Safety Sys., Inc., 242
S.W.3d 911, 913 (Tex. App.—Dallas 2008, pet. denied). A release is subject to the rules of
contract construction, including the rules related to ambiguity. Leighton v. Rebeles, 399 S.W.3d
721, 725 (Tex. App.—Dallas 2013, no pet.); D.R. Horton-Tex., Ltd. v. Savannah Props. Assocs.,
L.P., 416 S.W.3d 217, 226 (Tex. App.—Fort Worth 2013, no pet.). In construing a release, as
with other contracts, our primary task is to determine the true intentions of the parties as
expressed in the writing itself. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341
S.W.3d 323, 333 (Tex. 2011). We must consider the entire writing in an effort to harmonize and
give effect to the provisions of the contract so that none will be rendered meaningless. Id.
Terms are given their plain, ordinary, and generally accepted meaning unless the instrument
shows the parties used terms in a technical and different sense. ECF N. Ridge Assocs., L.P. v.
ORIX Capital Mkts., L.L.C., 336 S.W.3d 400, 407 (Tex. App.—Dallas 2011, pet. denied).
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To release a claim effectively, the releasing instrument must “mention” the claim to be
released. Keck, Mahin & Cate v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 20 S.W.3d 692,
698 (Tex. 2000) (discussing Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 938 (Tex.
1991)). But the parties need not anticipate and identify each potential cause of action relating to
the subject matter of the release. Id. Rather, “a valid release may encompass unknown claims
and damages that develop in the future.” Id. Further, the “mention” requirement does not bar
general, categorical releases, but such releases are to be narrowly construed. Brady, 811 S.W.2d
at 938; see also Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 422 (Tex. 1984). We also
construe releases in light of the facts and circumstances surrounding the execution of the release.
Brady, 811 S.W.2d at 939. Claims not “clearly within the subject matter of the release” are not
discharged, even if those claims exist at the time release was executed. Id. at 938.
3. The Mutual Release in the Separation Agreement
The stated purpose of the Separation Agreement was to evidence an agreement between
SMA and McCullough “related to McCullough’s separation from SMA and the sale of his
benefits/financial services book of business to Frost.” The mutual release is contained in
paragraph 6 of the agreement:
6. Mutual Releases. Effective upon the payment to SMA of 50% of the
purchase price to be paid by Frost at the closing of the sale of the Book, SMA, its
subsidiaries, affiliates and their respective officers and directors on the one hand
and McCullough on the other mutually release each other from any claims,
demands, causes of action and liabilities, known or unknown, either has against
the other based on any facts, events, transactions and occurrences through
February 28, 2009, excepting the obligations or outstanding issues or claims
provided herein.
The scope of the last line of the release, which excludes from the release “the obligations or
outstanding issues or claims provided herein,” is the focus of the parties’ disagreement. The
Separation Agreement does not define these terms.
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4. The Parties’ interpretations of the release and exception clause
The McCulloughs argue that all of SMA’s claims (except the claim for breach of the
Separation Agreement) arising out of the parties’ employment relationship and existing at the
time the agreement was signed are covered and barred by this broad release. They further argue
the exception to the release does not alter the release of other extra-contractual or equitable
claims, known or unknown to SMA at the time of the agreement. Rather, the McCulloughs
assert the use of phrase “provided herein” dictates that we look to the express terms of the
agreement itself to determine what “obligations,” “outstanding issues,” or “claims” were not
included or encompassed in the release.
Looking to the terms of the Separation Agreement, they first explain that the agreement
provides for certain “obligations,” such as McCullough’s obligation to provide the Due
Diligence Items, the obligation to perform the CPA Determination, and the parties’ obligations to
cooperate in good faith to accomplish the accounting. They contend those contractual
obligations are part of the exception and not released. In the same way, they explain that the
agreement mentions certain “claims” that may occur in the future. For example, the agreement
states that if McCullough rejects the CPA Determination and gives SMA written notice of the
rejection within a certain period, “SMA shall have the right to bring suit against McCullough”
for the amount of the unrecovered commissions and “such other damages and costs (including
reasonable attorneys’ fees) related thereto.” In addition, the agreement contemplates that other
“claims” could arise, such as a claim for breach of the agreement’s non-compete or non-
disparagement clauses, payment of monies due and owing under the agreement, or
indemnification. The McCulloughs interpret these “claims” arising under the agreement as being
excepted from the release.
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Regarding the “outstanding issues” provided in the agreement, the McCulloughs maintain
this term refers to “those matters still in controversy under the Separation Agreement.” They
assert that “the only issue in controversy” as evidenced by the terms of the agreement was the
amount of any unremitted commissions—specifically, “the amount of commissions received by
McCullough and owed to SMA, if any,” after offsetting any amount owed to McCullough. They
claim there is no dispute in the evidence that at the time the parties entered into the Separation
Agreement, SMA knew (1) McCullough received commissions that belonged to SMA, (2) that
he put the commissions into his personal bank account but did not remit the money to SMA, and
(3) that the money he received included commissions from clients he failed to disclose to SMA.
The McCulloughs explain that what the parties did not know was how much money was owed,
and because they wanted to determine the amount, they entered into the Separation Agreement,
which contains detailed accounting provisions for resolving the controversy over the amount.
The McCulloughs also assert the Separation Agreement as a whole supports the
interpretation that the release bars SMA’s extra-contractual and equitable claims. They point out
that “nowhere in the Separation Agreement is there evidence of any intent to preserve claims
independent from those arising under the Agreement.” Instead, they claim the broad-form
release encompasses “any claims . . . known or unknown . . . based on any facts, events,
transactions and occurrences through February 28, 2009.” They argue that to adopt an
interpretation of the release as preserving the very claims SMA knew about at the time they
signed the agreement would render the inclusion of the “known” claims language in the release
meaningless. They contend that the inclusion of the broad-form release, in the absence of any
language evidencing the parties’ intent to preserve extra-contractual or equitable claims, negates
these claims as a matter of law.
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SMA responds that the McCulloughs’ interpretation of the release as embracing SMA’s
extra-contractual and equitable claims renders the term “outstanding issues” in the exception to
the release superfluous or meaningless. SMA agrees that the “obligations” provided in the
agreement relate to the contractual promises or duties imposed by the agreement and the term
“claims” means the claims that are provided in the agreement. SMA also appears to agree that
the “outstanding issue” was the amount of money that was owed, or stated another way, the issue
was “who owes who money.” But SMA parts ways with the McCulloughs’ interpretation of the
term because SMA asserts the “outstanding issue” of how much money was owed is more than
just a preserved contractual claim under the agreement. Rather, SMA contends the exception to
the release carved out all claims related to the outstanding issue.
SMA contends that when you read the agreement as a whole and apply the plain meaning
of the term, “outstanding issues” means “those issues addressed in the Agreement that were not
immediately resolved therein.” SMA explains that at the time the parties entered into the
Separation Agreement, there were numerous issues between the parties—such as the termination
of McCullough’s employment, the ownership of the book of business and collection of
commissions associated with the book through the termination date, the accounting for
commissions collected but not remitted to SMA, and the sale of the book of business to Frost—
that the agreement was meant to resolve. In particular, the accounting mechanism outlined in the
agreement was supposed to resolve the issue related to the money that was owed. But SMA
asserts the accounting mechanism failed when McCullough did not cooperate and deliver the
Due Diligence Items necessary for the CPA Determination, leaving the issue of how much
money was owed unresolved or “outstanding,’’ and thus, the claims related to the “outstanding
issues” unreleased.
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SMA also contends the release is not a part of a “comprehensive settlement agreement”
that expresses an intent to settle all disputes between the parties. Rather, the release is contained
in a letter agreement that recites an intent to show an agreement between the parties related to
two things: McCullough’s separation from employment and the sale of the book of business to
Frost. And because the release does not clearly express an intent to release the extra-contractual
claims if the accounting mechanism fails, SMA maintains we should apply the rule that broad
releases are to be narrowly construed and conclude the release does not bar these claims.
5. Analysis
Although the parties present conflicting interpretations of the release, neither party
contends the provision is ambiguous. Of course, the question of whether an agreement is
ambiguous is a question of law, and we may conclude an agreement is ambiguous even if the
parties do not plead ambiguity or argue the agreement contains an ambiguity. See Coker v.
Coker, 650 S.W.2d 391, 394 (Tex. 1983); Hackberry Creek Country Club, Inc. v. Hackberry
Creek Home Owners Ass’n, 205 S.W.3d 46, 56 (Tex. App.—Dallas 2006, pet. denied). A
writing or term is not ambiguous because it lacks clarity or the parties offer different
interpretations. DeWitt Cnty. Elec. Coop, Inc. v. Parks, 1 S.W.3d 96, 100 (Tex. 1999). But if the
language, after applying the relevant rules of contract construction, is susceptible to more than
one reasonable interpretation, the contract contains an ambiguity and a fact issue exists as to the
parties’ intent. Coker, 650 S.W.2d at 394.
Our job in reviewing the trial court’s denial of the McCulloughs’ motion for instructed
verdict and amended motion for judgment notwithstanding the verdict is to determine whether
the McCulloughs, as movants, were entitled to judgment as a matter of law. To show their
entitlement to judgment as a matter of law, the McCulloughs had to conclusively establish that
SMA’s extra-contractual and equitable claims were not viable because the claims were barred by
–17–
the mutual release provision in the Separation Agreement. See Pitts & Collard, 369 S.W.3d at
320; see also Schindley v. Ne. Tex. Cmty. Coll., 13 S.W.3d 62, 65 (Tex. App.—Texarkana 2000,
pet. denied) (JNOV appropriate when, as a matter of law, “the claim or defense presented is not
viable and should never have been presented to the jury”). The trial court ruled against them on
this issue, so to show reversible error, the McCulloughs had to show that no other verdict could
be rendered because their interpretation of the release (as barring all claims except the claim for
breach of contract) is reasonable and SMA’s interpretation (that any claims related to the money
were covered under the exclusion to the release) is unreasonable. If we agree that the
McCulloughs’ interpretation of the release is reasonable and SMA’s interpretation is
unreasonable, we would reverse the judgment against the McCulloughs and render judgment for
them on SMA’s extra-contractual and equitable claims because those claims would not be viable
based on the release. But if we determine that SMA’s interpretation is reasonable (regardless of
whether the competing interpretation also is reasonable), the McCulloughs’ challenge to the
court’s rulings fails because, at best, this created an ambiguity in the release, raising a fact
question as to the parties’ intent. A disputed question of fact prevents the McCulloughs from
conclusively establishing their entitlement to judgment as a matter of law. See Pitts & Collard,
369 S.W.3d at 320.
Under the mutual release provision in paragraph 6, “outstanding issues” provided in the
Separation Agreement were excluded from the release. According to the parties and as
supported by the language in paragraph 3 of the agreement, the “outstanding issue” related to the
parties’ dispute over how much money was owed the other. To figure out the amount owed, the
parties agreed to the accounting mechanism in paragraph 3, specifically, that SMA’s CPA would
determine the amount of commissions and other revenues received by McCullough but not
remitted to SMA and reduce that amount by any money owed to McCullough.
–18–
SMA’s position is that they released claims that were dealt with by the Separation
Agreement and did not release claims that were not dealt with by the agreement and the
exception language was put in the release to preserve SMA’s ability to bring suit on the nature,
character, and amount of the missing money if McCullough did not follow the agreement, which
allowed him to limit his exposure. That is, under this interpretation, if the accounting does not
happen, you go back to the exception to the release, which carves out from the release the
“outstanding issues” provided in the agreement. And the claims related to the “outstanding
issue”—here, the amount of money owed—remain because the agreed-upon procedure to resolve
the issue failed.
This interpretation makes sense when we consider the language of the agreement and
release with the facts and circumstances surrounding the execution of the release. See Brady,
811 S.W.2d at 939 (release to be construed in light of facts and circumstances surrounding
release’s execution). The success of the accounting depended on McCullough’s promise in the
agreement to cooperate in providing the Due Diligence Items necessary for the CPA
Determination. The record shows that in the two years leading up to the execution of the
Separation Agreement, SMA tried to complete an accounting of commissions for the financial
services division and that McCullough had not cooperated with those efforts. Beginning in 2006,
SMA made repeated requests for McCullough to provide bank statements and access to bank
accounts and change payment instructions with the carriers. In response to those requests,
McCullough offered partial printouts from his bank website or documents showing electronic
fund transfers and otherwise dodged SMA’s pleas with his excuses. When SMA finally pressed
McCullough for the information, McCullough did not provide the materials, resigned, and
announced he was taking the financial services division with him. Although both parties
promised to cooperate to accomplish the accounting, the agreement appears to contemplate a
–19–
lack of cooperation only by McCullough; it states that “[s]hould McCullough fail to cooperate in
providing and acting upon the Due Diligence Items promptly,” SMA will provide written notice
of the failure from which time McCullough will have thirty days to cure or pay $75,000.
The record also shows that in January 2009, after McCullough told the Medlins he was
resigning but before the parties signed the Separation Agreement, McCullough’s attorney
communicated a calculation done by McCullough that reflected an estimate of about $23,000 in
unreconciled commissions. Medlin understood the calculation to be an identification that
McCullough knew he owed money to SMA. But McCullough did not believe the estimate
showed he owed SMA money; he thought a reconciliation needed to be done and this calculation
was part of that process.
The McCulloughs’ primary contention for why SMA’s interpretation is not reasonable is
that it renders the inclusion of the “known” claims language in the release meaningless given that
SMA knew there was an issue related to the amount of unremitted commissions. They explain
that the issue of the amount of “so-called ‘missing monies’” was specifically contemplated in the
Separation Agreement and that this issue was the only matter “still in controversy” under the
agreement. They maintain that in the absence of an intent to preserve the claims related to the
money, SMA’s claims would fall within the broad release.
But if the “outstanding issue” excepted from the release is the dispute over the amount of
unremitted commissions, it does not matter if the nature of or the underlying legal theories
related to the unremitted commissions were known or unknown at the time of the release; any
claims connected to the unremitted commissions were not released. Nothing in the language of
the release or the exception to the release prohibits an extra-contractual claim related to the
missing money as opposed to a contractual claim related to the missing money. See, e.g., id. at
938 (general categorical releases are to be narrowly construed). Nor does the Separation
–20–
Agreement contain a recital that the parties resolved the issue of whether McCullough owed
SMA money. Rather, paragraph 3 recognizes there is an outstanding issue related to the money,
and the amount of commissions owed (offset by any amount owed to McCullough) was
supposed to have been accounted for through the procedures outlined in that paragraph. The
McCulloughs do not respond to SMA’s contention that the McCulloughs’ interpretation renders
the term “outstanding issues” meaningless. That is, if you limit the “outstanding issue” to the
accounting under paragraph 3 to determine how much money was owed, then the term
“outstanding issues” in the exception to the release would be irrelevant because the accounting
would simply be an “obligation” provided for in the agreement.
The record shows SMA knew there were some unremitted commissions and had been
trying to get information from McCullough to reconcile their income for over two years before
the parties entered into the Separation Agreement. McCullough did not cooperate, resigned from
his employment, and announced he was selling the financial services book of business to a
competitor. The parties entered into an agreement and promised cooperation in figuring out
“who owes who money.” McCullough did not believe he owed money to SMA. In light of the
facts and circumstances leading up to the execution of the Separation Agreement, we conclude
SMA’s interpretation of the exception to the release as permitting suit on claims connected to the
amount of unremitted commissions, including McCullough’s conduct leading up to the issue of
unremitted commissions, that were not resolved by the Separation Agreement is reasonable, and
therefore, the McCulloughs cannot conclusively establish that the release barred the extra-
contractual and equitable claims as a matter of law. 4 Accordingly, the trial court properly denied
4
We express no opinion on whether the McCulloughs also offered a reasonable interpretation of the mutual release or exception to the
release.
–21–
the motion for instructed verdict and amended motion for judgment notwithstanding the verdict
on this ground.
6. The McCulloughs’ additional arguments related to the Separation Agreement
The McCulloughs raise two additional arguments as part of their first issue, both of
which are unavailing. The first argument is that SMA’s equitable claims for unjust enrichment
and money had and received are not viable because the same subject matter is covered by the
express terms of the Separation Agreement. We note that unjust enrichment is not an
independent claim; rather it is a theory of recovery that “characterizes the result of a failure to
make restitution of benefits either wrongfully or passively received under circumstances which
give rise to an implied or quasi-contractual obligation to repay.” Walker v. Cotter Props., Inc.,
181 S.W.3d 895, 900 (Tex. App.—Dallas 2006, no pet.). Money had and received is an
equitable claim that conceptually belongs to the doctrine of unjust enrichment. Edwards v. Mid-
Continent Office Distribs., L.P., 252 S.W.3d 833, 837 (Tex. App.—Dallas 2008, pet. denied)
(quoting Amoco Prod. Co. v. Smith, 946 S.W.2d 162, 164 (Tex. App.—El Paso 1997, no writ)).
The claim “seeks to restore money where equity and good conscience require restitution.” Id.
Importantly, under the principle of unjust enrichment, restitution is an appropriate remedy in
circumstances where the agreement contemplated is not fully performed. City of Harker
Heights, Tex. v. Sun Meadows Land, Ltd., 830 S.W.2d 313, 319 (Tex. App.—Austin 1992, no
writ). As will be discussed in section II.B.6 of this opinion, there is more than a scintilla of
evidence to support the jury’s finding that McCullough did not perform under the Separation
Agreement. See Barton v. Sclafani Invs., Inc., 320 S.W.3d 453, 463 (Tex. App.—Dallas 2010,
pet. denied) (reviewing rulings on motion for directed verdict or JNOV under legal sufficiency
test, which fails if more than scintilla of evidence supports the finding). Consequently, we reject
–22–
the McCulloughs’ contention that the existence of the Separation Agreement bars SMA’s ability
to recover restitution.
Their second argument is that SMA’s fraud claim is barred by the disclaimer of reliance
clause contained in the Separation Agreement, which states:
The parties agree that this letter agreement embodies the entire agreement of the
parties with regard to the subject matter described herein and supersedes any prior
agreement and any oral representations. The parties have made their own
investigations and are not relying on any statement or representation not
contained herein. Since the parties are represented by counsel and both counsel
have had input in the drafting of this letter agreement, this letter agreement will
not construed against either party.
(Emphasis added). The McCulloughs contend this provision “expresses the Parties’ clear intent
to waive or release fraud claims by conclusively establishing disclaimer, or waiver, of reliance
by SMA,” which is an essential element of SMA’s fraud claim. We disagree. We read this
disclaimer-of-reliance clause as relating to the parties’ decision to enter into the Separation
Agreement. Thus, the clause disclaiming reliance would preclude a fraudulent inducement claim
related to the agreement, but not the fraud alleged by SMA, which was based on McCullough’s
failure to disclose that he had received and failed to remit SMA’s income and that he was doing
business on the side.
7. Issue One Disposition
Based on our conclusion that the McCulloughs did not conclusively establish that the
release barred SMA’s extra-contractual and equitable claims as a matter of law and our rejection
of their additional arguments related to the Separation Agreement, we overrule the
McCulloughs’ first issue.
B. Challenges to the Legal and Factual Sufficiency of the Evidence
In his second and third issues, McCullough raises legal and factual sufficiency challenges
to nearly all of the jury’s liability findings. He argues in his second issue that even if the release
–23–
did not bar SMA’s fraud, breach of fiduciary duty and related equitable disgorgement, and civil
theft claims, there is legally and factually insufficient evidence to support the jury’s answers on
those claims. He asserts in his third issue that the jury’s answers related to his breach of the
Separation Agreement are not supported by legally or factually sufficient evidence. We analyze
these issues under the same legal standards.
When an appellant challenges the legal sufficiency of the evidence on a matter for which
he did not have the burden of proof, he must demonstrate on appeal that there is no evidence to
support the adverse findings. Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983). Under a
no-evidence point, we consider the evidence in the light most favorable to the verdict, indulging
every reasonable inference in support. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex.
2005). We are mindful in our review that jurors are the sole judges of the credibility of the
witnesses and the weight to be given their testimony. Id. at 819. A legal sufficiency challenge
fails if there is more than a scintilla of evidence to support the judgment. BMC Software Belg.,
N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002). “The final test for legal sufficiency must
always be whether the evidence at trial would enable reasonable and fair-minded people to reach
the verdict under review.” City of Keller, 168 S.W.3d at 827. Evidence that does no more than
create a surmise or suspicion is insufficient to rise to the level of a scintilla and, in legal effect, is
no evidence. Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004).
When we evaluate a factual sufficiency challenge, we must consider and weigh all the
evidence; we can set aside a verdict only if the evidence is so weak or if the finding is so against
the great weight and preponderance of the evidence that it is clearly wrong and unjust. Dow
Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001) (per curiam); Pool v. Ford Motor Co.,
715 S.W.2d 629, 635 (Tex. 1986). If we affirm a challenged jury verdict as being supported by
factually sufficient evidence, we need not detail all the evidence in support of the verdict. In re
–24–
Columbia Med. Ctr. of Las Colinas, Subsidiary, L.P., 290 S.W.3d 204, 211 (Tex. 2009) (orig.
proceeding) (citing Ellis Cnty. State Bank v. Keever, 888 S.W.2d 790, 794 (Tex. 1994)). We
must not substitute our judgment for that of the jury and should remain cognizant that the jury is
the sole judge of witness credibility. Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757,
761 (Tex. 2003).
1. Relevant testimony and evidence
Because our review of these issues requires us to consider the entire record, we recount
the testimony and evidence relevant to our consideration of the issues below.
a. Testimony of Don Medlin
Medlin testified SMA hired McCullough for his expertise in financial services insurance
products and trusted McCullough to handle the income for the financial services division and run
the division’s day-to-day operations. Through his employment at SMA, McCullough received
confidential business information about SMA’s accounts that was not available to every SMA
employee. The information included any financial information related to the accounts. Medlin
testified that SMA owns the accounts that are produced by the employees within the company.
McCullough did not have an ownership interest in SMA, the firm’s accounts, or in the financial
services division book of business. And until the parties entered into the Separation Agreement,
McCullough did not have the authority to sell the book of business. Medlin explained that when
the division made a profit, McCullough received a bonus of one-third of the profit earned, but
McCullough did not share in the division’s losses or pay any expenses associated with running
the division.
When Medlin found out that SMA had been receiving financial services commissions
from McCullough rather than from direct payment by the carrier, he thought the issue could be
addressed on a “low-key basis” and did not anticipate any problems in resolving the issue.
–25–
Medlin knew of times when McCullough would endorse a check and bring the check to SMA,
and Medlin discovered that McCullough changed the carrier contracts so that commissions “were
all made payable to him.” Medlin said the property and casualty side of the firm did not receive
commission income in this manner and this was “not the way that [SMA] wanted it done” for
financial services. Nor could Medlin think of a valid business reason for this practice. Medlin
testified that although he was troubled by the accuracy of SMA’s financial information, the issue
was not an “overwhelming concern” at that time. To Medlin, “it was a business responsibility
that [SMA] had to take care of,” and he “didn’t foresee any long-lasting problems.” Medlin
tasked the accounting department with addressing the issue.
Periodically, Medlin would receive reports from the accountants that McCullough was
not providing the information necessary for SMA to update and reconcile the accounts.
McCullough was questioned about why certain carriers were requiring SMA to receive
commissions through McCullough and informed of SMA’s concerns about not having access to
their money from a cash-flow standpoint. Medlin said there was “always an excuse” from
McCullough, and the accounting department continued to follow up with McCullough to resolve
the issue. Medlin wanted McCullough to provide the information so the accounting department
could relieve McCullough of any accounting responsibilities. Medlin admitted that at the time
the firm started the financial services division, SMA did not have an accounting software
program capable of detailing the division’s accounting information. SMA purchased one several
years later to facilitate the accounting.
The Medlins relied on the commission reports and corresponding commission checks
provided by McCullough for purposes of determining what money was earned by the division.
Medlin considered the reports to be a proper accounting of what McCullough had been
receiving. Medlin also testified that if McCullough failed to disclose that he received checks or
–26–
electronic fund transfers for which he had not accounted, Medlin relied upon that silence by not
taking action.
Medlin testified that in the first part of 2008, they were “pushing to get this issue
resolved.” Part of the reason for the push was that the income for the first quarter of 2008 was
“way off,” and the Medlins decided “it was time to sit down and cover all the outstanding issues
and get everything up to speed.” One of the issues discussed with McCullough was that SMA
wanted control of all bank accounts in which SMA’s income was deposited. After they met with
McCullough, though, Medlin said they came away from the meeting believing McCullough had
“just been overworked” and the issue related to the division’s loss of income was not as serious
as they had thought. Medlin testified McCullough was “rather convincing,” and Medlin thought
they would not have to deal with this any further.
The Medlins continued the push to resolve the accounting issues in June and July 2008.
Medlin testified they were looking to identify and get access to “everything” to reconcile SMA’s
financial records. Medlin was concerned because the firm’s outside CPA advised him SMA
could not withstand an IRS audit without McCullough’s records. Medlin also was concerned
about SMA being able to meet the conditions of their fidelity bond, which required SMA to
maintain records in accordance with the provisions of the bond.
Medlin testified to a series of e-mails between SMA and McCullough showing the efforts
to get information from McCullough. The e-mails were admitted as exhibits. In a June 2008 e-
mail, Robin Boemer, one of SMA’s accountants, asked McCullough about providing his monthly
bank statements so SMA could satisfy the requirements of the fidelity bond. McCullough
responded over a month later and informed Boemer that he would look into the option of
receiving a paper statement for the accounts. McCullough also wrote that he had started to set up
a separate bank account “so there will be less confusion.” Boemer forwarded her e-mail
–27–
conversations with McCullough to the Medlins, expressing concern that more than a month had
elapsed and McCullough had not provided the bank statements despite the ease in doing so with
online banking. Medlin responded that if McCullough was “setting up a brand new account it
should be one that we control as per [McCullough’s] discussion with Rod.” According to
Medlin, McCullough knew SMA wanted to have control of the bank accounts in which SMA’s
commissions were deposited.
Medlin also testified about e-mails sent in September 2008 related to concerns raised by
Robert Wilson. McCullough was informed by Boemer that a particular concern was “the
possibility of missing statements” from one of SMA’s largest carriers that had standardized
statements and electronic fund transfer dates. McCullough was asked to provide the missing
commission statements. Instead of providing the statements, McCullough responded by
complaining about SMA’s lack of an accounting system back when he started. He also said the
problem with the request for bank statements is that he does not receive monthly statements; he
prints off his activity for “a week or two” and writes the applicable checks. McCullough further
complained about dealing with the accounting departments from the carriers to get prior vendor
statements. Medlin considered McCullough’s response to be “another put off,” and because they
were not getting any results from McCullough, the Medlins asked McCullough to meet with
Wilson. Medlin testified that McCullough agreed to do so and provide the requested
information.
In January 2009, McCullough told Medlin he was leaving SMA. McCullough denied
taking another job; he told Medlin that he was “deciding what he was going to do.” Medlin said
that at the time, McCullough did not officially resign, so to prepare for a transition, Medlin asked
McCullough for a meeting. Medlin testified that at the meeting, which was attended by the
Medlins, McCullough, and their respective attorneys, Medlin learned that McCullough had “been
–28–
out with the information about [SMA’s] business and, in fact, had made an arrangement to sell
the financial services business” to a competitor and was taking “several of the employees” with
him. Medlin said he was “blindsided” by the announcement and considered suing McCullough.
The Medlins decided, however, that it would be better to work out a “business arrangement”
with McCullough—the Separation Agreement—to protect SMA’s clients.
Medlin testified that when McCullough announced his resignation, McCullough still had
not provided the bank statements and other financial information requested for the reconciliation
of commissions. But Medlin “had an idea that there was some missing money.” The accounting
department did an internal accounting and estimated that there was a little over $137,000 in
anticipated commissions to be received. In contrast, McCullough’s attorney communicated that
McCullough’s calculations reflected “a little more than $23,000 in unreconciled commissions.”
The calculation was handwritten on a piece of paper with the words “Missing $” at the top of the
page. McCullough’s attorney represented that this was his “client’s calculation.” Medlin
understood the calculation to be an identification of what McCullough knew he owed SMA, but
according to Medlin, when McCullough signed the Separation Agreement, he never admitted
that he owed SMA money.
Medlin testified the purpose of the Separation Agreement was to resolve the issues with
McCullough. One of the issues was the “[i]ncome that was earned and not paid to [SMA]”
before the termination date, which was addressed by paragraph 3 of the agreement. That
paragraph also provided that the CPA would account for any money owed to McCullough. But
McCullough did not provide any documentation of expenses he claims were not paid. Medlin
explained that to receive expense reimbursement, SMA required the employee to submit an
expense report, and SMA paid the specific amount. Medlin made the decision to not pay
–29–
McCullough’s salary for the last two weeks in February 2009 because McCullough was not
doing any work for SMA.
Medlin looked to Wilson to tell him whether SMA received what was needed for the
CPA Determination and authorized Wilson to send the non-compliance notice in March 2009
because there was a deficiency in getting the Due Diligence Items. Medlin testified that
McCullough did not fully comply with the Due Diligence Items despite receiving the non-
compliance notice; Medlin said McCullough provided only a “hodgepodge” of stuff. Wilson
eventually got the requested bank statements, but this was not until after SMA filed suit and
sought the records by subpoena to the McCulloughs’ bank. Medlin said one of SMA’s
objectives in filing suit was to get the records they needed to do the accounting.
Medlin testified that during the course of the litigation, SMA discovered that in 2008,
McCullough received $35,034 from one of SMA’s clients, Andres Construction, for some
consulting work he had done related to the client’s group medical plan. McCullough did not
disclose to SMA that he was doing any consulting work for Andres Construction or that he
received a fee for the work he performed.
b. Testimony of Robert Wilson
Wilson testified he agreed to meet with McCullough in October 2008 about accounting
for the financial services division after the Medlins explained they were having a difficult time
getting information from McCullough. At the meeting, Wilson told McCullough that SMA
“want[ed] to get [him] out of the accounting business” and SMA “just need[ed] the records from
[him] in order to sync everything up and make sure that all the income is being reported.”
Wilson gave McCullough a deadline and said McCullough agreed to work on gathering the
information. McCullough said nothing about not being able to provide the information or do the
–30–
other things asked of him at the meeting, such as close his joint account with his wife or change
the payment instructions with the carriers, within the deadline.
Wilson testified that after the meeting “[n]othing” happened in terms of addressing the
requests. Wilson said he sent prompts to McCullough to check on McCullough’s progress and
that McCullough provided some “printouts” from a bank website that did not represent a
“complete record of all the transactions for a statement cycle.” Wilson could tell the printouts
were incomplete because of the page numbering and the fact that portions of the statements were
redacted. Wilson explained he needed bank statements that showed the full month’s activity. If
Wilson did not have a full month’s activity, “it would be easy to not see everything that
happened that month.” Wilson said McCullough did not provide the specific items Wilson
requested.
Wilson understood that under the Separation Agreement, he was to determine the amount
of commissions McCullough owed to SMA and reduce that amount by any amounts due
McCullough. Wilson said the list of Due Diligence Items was based primarily on what was
discussed with McCullough during the October 2008 meeting, and the items were what Wilson
needed to the accounting work required for the CPA Determination. Wilson testified that before
he sent the March 2009 non-compliance notice, “pretty much all [McCullough] had provided”
was the printouts from the bank website. Wilson eventually received the information he needed
after the McCulloughs’ bank provided the bank statements, deposit slips, and canceled checks
pursuant to the subpoena.
Wilson testified to the report he prepared showing the money McCullough received but
did not remit to SMA. Wilson included over fifty pages of accounting detail with his report. In
his review of the documents provided by the bank, he identified six accounts in which
McCullough deposited commission money. One account was McCullough’s joint account with
–31–
his wife; two accounts related to accounts McCullough set up to receive SMA commissions,
including commissions associated with the sale of securities; another account was a personal
savings account; and the remaining two accounts were the individual savings accounts for the
McCulloughs’ children. Wilson said that by reviewing all the documents listed in his report, he
was able to identify the deposits that went into McCullough’s accounts that did not get paid to
SMA. Wilson identified $138,747.39 in unremitted commissions. He testified his report does
not include any discussion related to reducing this amount by money owed to McCullough
because that was outside the scope of his assignment. That is, Wilson’s report is not the CPA
Determination as contemplated by the agreement. Rather, he performed an accounting as an
expert in the lawsuit to determine what McCullough owed SMA.
Wilson’s report includes detail related to the $35,034 consulting fee McCullough
received from Andres Construction. Wilson determined that the fee was deposited in the
McCulloughs’ joint account on December 15, 2008. The report read that although McCullough
“took the position on his 2008 Individual Federal Income Tax Return that this payment was not
related to his employment by SMA,” Wilson determined that because Andres Construction was
an SMA client, the amount should have been remitted to SMA. Wilson based this conclusion on
the provision of the Separation Agreement that said “any commissions and other revenues
associated with all insurance products sold by McCullough or the financial services division”
were to be included in the determination of the amounts received by McCullough through the
termination date and not remitted to SMA.
Wilson’s fees for performing the accounting totaled $61,541.17. He testified that had he
done the CPA Determination for which SMA agreed to pay in the Separation Agreement, it
would have cost SMA between $25,000 and $30,000. He explained that the accounting he did
–32–
for purposes of the lawsuit cost more because there was a lot of wasted time and effort in trying
to analyze incomplete information and figure out what was missing in those two years.
c. Testimony of Robert McCullough
McCullough testified by video deposition and before the jury. In his video deposition,
McCullough testified he was not sure whether he wrote that there was $23,000 in “Missing $.” 5
He also did not know what the $23,000 was tied to; he thought there were three or four missing
statements, and the notes represented what he found. McCullough was then asked about certain
electronic deposits made by insurance carriers into his bank accounts and whether he remitted
the amounts to SMA. He agreed the amounts represented commissions received by him for
business done through the financial services division of SMA. But he was not aware of the
amounts being remitted to SMA. He also had “no clue” why he transferred money on multiple
occasions from the business account into his personal accounts. He agreed that the purpose of
the business account was to receive commissions from the carriers and then he was to remit the
commissions to SMA so SMA could pay the division’s expenses. He also agreed there would be
no reason for him to transfer money out of the business account.
During his live testimony, McCullough agreed that as the president of the financial
services division at SMA, he occupied a position of trust and confidence. Despite his title, he
was not an officer of the firm; he understood he was SMA’s employee. McCullough’s position
included responsibilities for the commissions generated by the division.
McCullough had no memory of why he created the calculation of “Missing $.” He
speculated that the calculation was part of his “due diligence” leading up to the Separation
Agreement but said this was just “some very, very preliminary research” on commission
5
A document examiner and handwriting expert testified, however, that everything on the calculation of “Missing $” except for the final
total was written by McCullough.
–33–
statements he thought were missing. He testified, however, that based on the testimony
presented at trial, he “believe[d] those do all match up” to commission checks that he received
and did not remit to SMA. Even though he had determined that these commissions were
missing, he did not pay SMA the money because he was leaving.
McCullough admitted that in previous hearings before the court, he testified that in his
opinion, he did not have possession of any commission checks that should be given to SMA. He
also had verified in his answers to SMA’s interrogatory requests that he knew of no commissions
received between 2006 and February 27, 2009 that were not remitted to SMA. But he also said
there was over $13,000 sitting in his business/securities account that he was prepared to give
SMA if SMA would sign the appropriate paperwork. McCullough testified that this amount
covered commissions received for the last months in 2008 and the beginning of 2009. He said he
did not ask SMA to sign the paperwork so SMA could receive the money because “that’s what
we mutually agreed on.” He asserted that he finally realized he owed SMA some money after
reviewing Wilson’s report.
McCullough also agreed that his attorney stipulated that certain items on Wilson’s report
represented commissions McCullough received but did not account for or deliver to SMA. 6 He
testified that he never performed his own accounting to determine the amount of unreconciled
commissions independent of any work done by Wilson or his own accounting expert; he said this
was “not his job.” He also did not reconcile his own checkbook. He agreed that it “appears to be
the case” that there were instances of him receiving a check and not endorsing it to SMA. He
knew this was SMA’s money and testified that “[i]t was money [he] should have remitted” to
SMA. He also testified he knew that when he received checks and electronic fund transfers from
the carriers, it was for the benefit of SMA and that he was supposed to give SMA any checks or
6
His attorney told the jury that McCullough will “agree there’s $96,000 that he missed . . . .”
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money received by electronic fund transfer because SMA paid the overhead and expenses
associated with the division. He further understood that SMA was supposed to receive the
money earned on the book of business. He proclaimed, however, that he thought the money was
his because the “whole business was in [his] name.”
McCullough described the six bank accounts identified in Wilson’s report. He testified
that one business account was set up as an expense account to receive and reimburse his
expenses but that “last year or so, we set that up to have EFT’s run through that account.” The
other business account was to receive commissions associated with the sale of securities. When
asked how commission money was put in savings accounts for his children when McCullough
had two designated business accounts, McCullough testified that he “just must have made a
mistake, human error.” He agreed that it happened more than one time and said that he never
read the statements related to the accounts. He explained that he signed “hundreds and hundreds
of checks” with “zero checks and balances” at SMA and the checks could have been deposited
into the personal accounts “accidentally.” He also complained that SMA was a “loosely run
ship” with no accounting system or audit. But he admitted that SMA did not know he deposited
commissions into his personal accounts. McCullough did not know whether it was wrong to put
the money in there in the first place.
McCullough claimed SMA did not ask him to re-wire electronic fund transfers he
received so the money could be transferred to SMA’s bank account until 2008 when he was
planning to leave the firm despite e-mail requests as early as 2006 asking McCullough to arrange
for money to be re-wired. He said he “guess[ed]” he did not understand what SMA wanted by
the 2006 requests.
McCullough started shopping the book of business to four or five commercial insurance
agencies in the summer of 2008. He ultimately decided to sell the book to Frost, but did not tell
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the Medlins about this until January 2009. He claimed he did not disclose the sale because it was
a “complicated situation” and at the time, he did not feel it was in his best interest. He also did
not tell the Medlins that he got information to facilitate the sale from SMA’s financial records.
McCullough thought that because he did not have a non-compete agreement with SMA, he could
take the clients with him because he was listed as the named broker. Despite this belief, he
entered into the Separation Agreement to avoid being sued.
Regarding the consulting fee received by Andres Construction, McCullough testified that
he was entitled to keep the $35,034 earned because, in part, he did the work as a favor for a
friend. The other part was that he believed this was his personal opportunity because he built the
financial services division off his “proprietary knowledge and information.” McCullough
explained that he brought Andres Construction to SMA as a client in 1998 but until 2007, he did
not do any work for Andres Construction outside of his capacity as an SMA representative. He
said that in 2008 he consulted on the company’s group medical plan, which was serviced by
another agent. For this work, McCullough reviewed marketplace rates and prepared a proposal
on SMA’s template, which McCullough said he created. McCullough testified SMA did not
know he was doing this work for Andres Construction, and this was “one of the many, many,
many things [SMA] had no idea what we were doing.”
Before the Separation Agreement was signed, McCullough said that he had been sending
SMA’s attorneys his bank statements. He testified that because it was such a contentious
separation, he made a “good faith intent right up front” to provide his statements and tax returns.
He said Frost also helped provide the Due Diligence Items. When he received the non-
compliance notice sent by Wilson in March 2009, he felt the notice was a “nonfactor” because he
“had already complied” with the requests. He claimed the “only thing” he did not provide was
“copies of [his] kids’ statements” because “that was a huge invasion of [his] privacy.” He
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admitted, however, that had SMA not subpoenaed the records from the bank, Wilson would not
have known that over $31,000 of SMA’s money went into those accounts. McCullough said that
other than the statements for those accounts, he tried his best to turn over all the Due Diligence
Items.
McCullough testified that the “outstanding issue” that existed at the time the Separation
Agreement was signed was that “[t]hey owe me some money. I owe them some money. Who
owes who what? It’s both sides of the equation.” He also testified that based on SMA’s internal
accounting done before the agreement was signed, “everybody knew that we were going to find
some money that was not turned over.” He said he made it clear that if he owed SMA some
money, he would pay it. He wanted SMA to tell him the amount and then also the amount SMA
owed him. McCullough admitted he never submitted an expense report showing any expenses
owed to him.
McCullough testified that even though he admitted in his deposition that he had SMA’s
money in his accounts, he has not paid that money back to SMA. He said he had “no problem
paying that money,” but this matter was to be addressed by the Separation Agreement. He added
that SMA owes money too, and until SMA’s CPA does that due diligence, “no one is writing
anybody a check.”
d. Other Testimony
The jury also heard testimony from representatives of Andres Construction. The chief
financial officer for the company testified that Warren Andres had asked McCullough for help in
reducing the company’s insurance costs. Because McCullough’s help resulted in huge savings,
Warren offered to share the savings with McCullough. The offer was to pay McCullough
twenty-five percent of the savings or $35,034.
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Tom Stewart, the McCulloughs’ accounting expert, testified to his conclusion that SMA
owes McCullough $38,600. He said he relied on the number provided in Wilson’s report as the
starting point for his work, but after he subtracted the Andres Construction fee and focused on
the profitability of the financial services division, he concluded that money was owed to
McCullough. Wilson provided additional testimony and a supplemental report rebutting
Stewart’s conclusions. In the supplemental report, Wilson acknowledged that his initial
determination that McCullough owes SMA $138,747.39 should be reduced by $1,346.26, which
represented an underpayment of year-end profits for two years, for a net amount owed by
McCullough of $137,401.13.
2. Sufficiency of the evidence that McCullough committed fraud
In his first argument under his second issue, McCullough challenges the legal and factual
sufficiency of the evidence to support the jury’s finding that he committed fraud against SMA.
SMA asserted a fraud claim against McCullough based on his failure to disclose that he had
received and failed to remit income to SMA, was doing business on the side while he was an
SMA employee, had made efforts to sell SMA’s book of business, and used SMA’s confidential
business information to further the sale. Cf. Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d
171, 181 (Tex. 1997) (fraud by non-disclosure arises when one with duty to disclose facts fails to
do so).
McCullough points to the “clear and express terms and provisions” of the Separation
Agreement to support his contention that the jury’s answer that he committed fraud by non-
disclosure against SMA is not supported by legally or factually sufficient evidence. He claims
the agreement’s terms “belie the conclusion” that he failed to disclose the matters upon which
SMA’s fraud claim is based and that the agreement provides SMA relief for each item SMA
alleged was not disclosed. He maintains that by providing such relief in the agreement, “it
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follows McCullough did not intend SMA act without knowledge of any undisclosed facts and
that SMA could not have suffered injury as a result of acting without knowledge of any
undisclosed fact.”
SMA responds that McCullough misconstrues the nature of their fraud claim. SMA
argues that the fact that the agreement reflects SMA’s knowledge that McCullough owed money
for unremitted commissions for some wrongdoing does not change the fact that from “at least
2006 to 2008, McCullough misappropriated SMA’s money and did not disclose that fact to SMA
so that SMA could prevent the continuing loss of its money.” SMA maintains that because the
complained-of fraud occurred before the Separation Agreement, the terms of the agreement are
irrelevant to knowledge and causation of those events.
We agree with SMA’s contentions and conclude the jury’s finding that McCullough
committed fraud by non-disclosure against SMA is supported by legally and factually sufficient
evidence. As evidenced by SMA’s pleadings and the jury question, SMA’s fraud claim is based
on McCullough’s failure to disclose his misuse of SMA’s money, which included not only the
amount of unremitted commissions but also the fee received from performing consulting for
Andres Construction. In the fraud damages question, the jury was asked to quantify the amount
of money McCullough “retained which he was not entitled to retain” and the extra accounting
fees incurred by SMA to determine this amount. The jury found damages in the amount of
$137,401.13 (the amount of unremitted commissions from Wilson’s supplemental report) and
$36,541.17, which represented the amount SMA spent trying to figure out the amount of
unremitted commissions.
The record shows that McCullough, as the president of the financial services division,
directed commission payments to him by changing the payment instructions with various
insurance carriers. Some of the commissions were paid to him by check sent to his home address
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and other commissions were deposited directly by the carrier into bank accounts to which SMA
did not have access. McCullough transferred money between his accounts, with money
transferred from his business account into his various personal accounts. McCullough admitted
there was no reason for moving money out of the business account. SMA knew there was
something off with the income for the division, but when SMA asked McCullough to help
reconcile the accounting for commissions, McCullough did not provide the requested
information, leaving SMA without access to its cash and in the position of relying on the
commission reports submitted by McCullough. McCullough did not respond to SMA’s
questions about why carriers wanted commissions to be paid in this manner. And the record
does not contain an explanation for this practice.
The record includes McCullough’s admissions regarding his misuse of SMA’s money
and other non-disclosures related to the financial services book of business and use of SMA’s
confidential client information. McCullough specifically acknowledged that there were
instances in which he received commission checks or electronic fund transfers from carriers but
did not forward the commission money to SMA. He agreed he received the commissions for the
benefit of SMA, that he was supposed to give the money to SMA, and that this was money he
should have turned over to SMA. He further agreed that he had told the court in previous
hearings that he did not have possession of any commission checks that should be returned to
SMA. Yet his attorney told the jury there was $96,000 in missing money. McCullough also
admitted that SMA did not know that he deposited commissions that belonged to SMA into his
personal bank accounts, including his children’s savings accounts, received $35,034 for
consulting for Andres Construction (a fact SMA learned during the course of the litigation),
shopped the financial services book of business to competitors, or used SMA’s financial
information to facilitate a sale. McCullough told the jury that it would not have been in his best
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interest to disclose the fact of the sale of a division he had no authority to sell. McCullough’s
only explanation for why SMA’s money was in his personal accounts was that he must have
made a mistake; he had “no clue” why he transferred money from his business accounts to his
personal accounts. Despite his responsibility for accounting for the division’s income, he never
read his bank statements for the children’s savings accounts or balanced his own checkbook.
Medlin testified that McCullough never disclosed that he received and kept SMA’s
money. And based on this non-disclosure, SMA relied on his silence and did not take any action
to remedy the situation. Instead, SMA spent over two years asking McCullough for access to
information and bank accounts so SMA could reconcile their financial information and retrieve
their money from his accounts. McCullough would not provide his bank statements showing the
monthly activity or provide access codes to the accounts, even after he signed the Separation
Agreement, which required his cooperation in providing the Due Diligence Items. He also
ignored requests for him to have money re-wired from his accounts to SMA. The jury heard how
McCullough offered excuses and complaints about SMA’s accounting systems. Medlin told the
jury that one of the reasons they filed this lawsuit was to gain access to the bank records for the
reconciliation.
In the years leading up to suit, Medlin knew only that there was an issue with unremitted
commissions that affected the financial services income and that SMA needed to an accounting;
he thought this was a business responsibility they needed to address and did not think it would be
a long-lasting problem. When they received the records from the bank, SMA discovered the
extent of the situation, including the fact that McCullough put a significant amount of SMA’s
money into his children’s savings accounts, a fact which would not have been discovered had
SMA not subpoenaed the records from the bank.
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After reviewing the record in the light most favorable to the verdict, we conclude that
reasonable and fair-minded people could reach the conclusion that McCullough committed fraud
by non-disclosure against SMA. City of Keller, 168 S.W.3d at 827. Likewise, after considering
and weighing all the evidence, we conclude the evidence was not so weak as to render the jury’s
finding of fraud unfair or unjust. See Dow Chem. Co., 46 S.W.3d at 242. Thus, McCullough’s
legal and factual sufficiency challenges to the jury’s fraud finding fail.
3. Sufficiency of the evidence that McCullough breached his fiduciary duty
McCullough’s next argument under his second issue attacks the jury’s finding that he
breached his fiduciary duty to SMA. SMA alleged a claim for breach of fiduciary duty against
McCullough based on his (1) receipt and failure to properly account for SMA’s income; (2)
failure to remit to SMA all of their income; (3) efforts to sell a book of business owned by SMA
while employed by SMA without SMA’s knowledge or consent; (4) disclosure of SMA’s
confidential information in furtherance of his efforts to sell SMA’s book of business; and (5)
appropriation of insurance-related business for himself and failure to disclose this fact to SMA,
including but not limited to, the Andres Construction transaction that generated a fee of over
$35,000. See, e.g., Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 510 (Tex. App.—Houston
[1st Dist.] 2003, no pet.) (“When a fiduciary relationship of agency exists between employee and
employer, the employee has a duty to act primarily for the benefit of the employer in matters
connected with his agency.”) (citing Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 200
(Tex. 2002)).
Like his arguments challenging the jury’s fraud finding, McCullough invokes the
existence of the Separation Agreement and points to evidence surrounding the execution of the
agreement to support his contention that there is no evidence that McCullough breached any
fiduciary duty owed to SMA or that his actions caused SMA damage. He claims that the facts in
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this case establish that he “satisfied his duty to account for profits owed SMA by entering into
the Separation Agreement, [and] that he acted fairly in disclosing and dealing with SMA
regarding such profits and the sale of his book of business to Frost.” We disagree.
McCullough appears to argue that because he disclosed the fact that there were
“unremitted revenues [he] had not yet accounted for to SMA” at the time of his termination,
there is no evidence to show he “failed to properly account for income of SMA” or did not deal
fairly with SMA. Cf. Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 514 (Tex.
1942) (recognizing that if fiduciary employee “takes any gift, gratuity, or benefit in violation of
his duty, or acquires any interest adverse to his principal, without a 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”). But like their fraud claim, SMA’s breach-of-fiduciary duty claim is based on
conduct that occurred before the parties entered into the Separation Agreement. While
McCullough agreed to cooperate so that an accounting of the missing money could be done, this
after-the-fact disclosure of the facts that form the basis of SMA’s breach-of-fiduciary duty claim
does not restore the parties to a position as if there had been no breach.
McCullough was the president of SMA’s financial services division and was responsible
for running the division and handling the income generated for the division. McCullough’s
position as a trusted employee of SMA called on him to properly account for SMA’s commission
income, including remitting to SMA any commissions he collected for SMA’s benefit, and make
full disclosure of all the facts and circumstances concerning his receipt of the commissions from
SMA’s clients, like Andres Construction. The record shows that McCullough retained over
$137,000 to which he was not entitled, did not account for the missing money despite requests
from his employer for information to help reconcile SMA’s financial records, and in fact, stalled
his employer’s efforts to do a reconciliation. His stalling lasted for two years before he resigned
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and agreed to cooperate to accomplish the accounting. During the years leading up to the
Separation Agreement, McCullough was able to receive the commission payments from carriers
because he changed the payment instructions on contracts, which was not how the Medlins
wanted commissions handled, and the record contains no response by McCullough to SMA’s
questions about why commissions were handled in this way. Nor could he explain why
commissions were transferred from his business account into his personal accounts. By
McCullough’s own admission, SMA did not know he was putting SMA’s commissions into his
personal accounts. He agreed that the commissions he collected were for the benefit of SMA
and should have been remitted to SMA. Medlin relied on the commissions reports provided by
McCullough to determine the income for the financial services division and trusted McCullough
to provide a proper accounting for commission income.
McCullough maintains that in the Separation Agreement, he “agreed to properly account
for income owing SMA, including those derived from any clients not previously disclosed to
SMA, i.e., Andres Construction” and given these facts, he “did account for all monies he had
received.” He contends that as a matter of law, he cannot be held to have breached any fiduciary
duty to account for profits due SMA. This contention is contradicted by the evidence. Although
McCullough says he accounted for all the money he received but did not remit to SMA, the
record shows he only promised to so. When he signed the Separation Agreement, he agreed to
cooperate with the accounting mechanism so the parties could determine who owes who money.
SMA claimed he did not provide the Due Diligence Items, sent him notice of this fact, and ended
up filing suit to get the documents needed to do the accounting. Wilson eventually determined
that McCullough had $137,401.13 of SMA’s money and that the amount included a consulting
fee McCullough received from one of SMA’s customers while he was still employed by SMA.
McCullough did not tell SMA he did this consulting work.
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McCullough finally argues that his at-will status and disclosure of the fact that he was
selling the financial services book of business to Frost shows that he acted fairly and did not
attempt to retain any benefit for himself to the exclusion of SMA regarding the Frost sale. He
adds that SMA’s agreement to the Frost sale and receipt of half the purchase price “negates a
finding of any breach of a fiduciary duty by [him].” Generally, an employee has no duty to
disclose to his employer his plans to compete with the employer. See PAS, Inc. v. Engel, 350
S.W.3d 602, 613 (Tex. App.—Houston [14th Dist.] 2011, no pet.). But even though an at-will
employee may plan to compete with his employer and take steps to further that plan without
disclosing his plans to his employer, he may not act for his future interests at the expense of his
employer or engage in a course of conduct designed to hurt his employer. Id. at 614; see also
Abetter Trucking Co., 113 S.W.3d at 510. Here, McCullough testified he began shopping the
financial services book of business to SMA’s competitors over six months before he told SMA
about it and not until he had made a deal with Frost to buy the book of business. Medlin testified
that the financial services book of business belonged to SMA and that McCullough did not have
the authority to sell it. McCullough said he did not disclose the sale to SMA because it would
not have been in his best interest. We disagree that the evidence shows McCullough acted fairly
with regard to the sale of the book of business to Frost.
Anything more than a scintilla of evidence is legally sufficient to support the jury’s
finding that McCullough did not comply with his fiduciary duty to SMA. See City of Keller, 168
S.W.3d at 827. And we conclude that more than a scintilla of evidence exists because the
evidence discussed above furnishes some reasonable basis for fair-minded people to reach the
verdict under review. Id. Further, because the evidence supporting the jury’s finding that
McCullough breached his fiduciary duty is not so weak and the evidence to the contrary is not so
overwhelming that the finding should be set aside, we also conclude there was factually
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sufficient evidence to support the jury’s finding. See Dow Chem. Co., 46 S.W.3d at 242.
Accordingly, McCullough’s legal and factual sufficiency challenges to the jury’s liability finding
on the claim for breach of fiduciary duty also fail.
4. Sufficiency of the evidence supporting disgorgement award
McCullough’s next argument in his second issue relates to the disgorgement damages
awarded to SMA for McCullough’s breach of his fiduciary duty. The jury found that
McCullough received $402,210 in salary, profits, or other income during the time he committed
his breach of fiduciary duty and that he was entitled to receive only $201,105. The final
judgment states that SMA has a judgment against McCullough for $201,105.00 “as an equitable
forfeiture and disgorgement remedy.”
Under the equitable remedy of disgorgement or fee forfeiture, a person who renders
service to another in a relationship of trust may be denied compensation for his service if he
breaches that trust. Burrow v. Arce, 997 S.W.2d 229, 237 (Tex. 1999). The remedy essentially
returns to the principal the value of what it paid for because it did not receive the trust or loyalty.
Id. at 237–38. The amount of disgorgement is within the trial court’s discretion; the court may
“deny him all compensation or allow him a reduced compensation or allow him full
compensation.” Id. at 237 (quoting RESTATEMENT (SECOND) OF TORTS § 243 (1959)).
McCullough first argues that the award was improper because it creates a double-
recovery problem in violation of the one-satisfaction rule. McCullough argues that the only
evidence presented of profits or fees that he was entitled to receive was the one-third profit on
the amount of unremitted money (or 33% of $137,401.13). He claims this profit he was entitled
to is “subsumed” in the jury’s answer that SMA is entitled to damages in the full amount of the
unremitted money, and to allow disgorgement of these same monies in addition to the jury’s
award of unremitted money results in a double recovery to SMA.
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The disgorgement award here does not result in double-recovery problem. Equitable
disgorgement is distinct from an award of actual damages in that the disgorgement award “serves
a separate function of protecting fiduciary relationships.” Saden v. Smith, 415 S.W.3d 450, 469
(Tex. App.—Houston [1st] Dist. 2013, pet. denied) (citing ERI Consulting Eng’rs, Inc. v.
Swinnea, 318 S.W.3d 867, 874 (Tex. 2010)); see also Burrow, 997 S.W.2d at 238 (purpose of
disgorgement remedy is to protect relationships of trust by discouraging agent’s disloyalty or
other misconduct). And because equitable disgorgement and actual damages are intended to
address separate and distinct injuries, the one-satisfaction rule does not preclude the recovery of
both. Saden, 415 S.W.3d at 469.
The basis for the disgorgement award was predicated on the liability question for breach
of fiduciary duty, and it was phrased in terms of the “salary, profits or other income”
McCullough received “during the time” he committed the tortious conduct. SMA introduced
McCullough’s payroll records and a spreadsheet showing the bonuses he received in the relevant
years. The jury found that McCullough was entitled to half of the $402,210 in “salary, profits or
other income” he received, and the trial court ordered McCullough to pay back the other half.
See Burrow, 997 S.W.2d at 237.
Of course, where equitable remedies exist, “the remedy of forfeiture must fit the
circumstances presented” because “[i]t would be inequitable for an agent who had performed
extensive services faithfully to be denied all compensation” if the misconduct was slight or
inadvertent. Id. at 241. So courts should consider certain factors in deciding whether to order
disgorgement. ERI Consulting Eng’rs, 318 S.W.3d at 874 (listing factors). McCullough
generally argues there is no evidence to support the court’s decision to order the disgorgement
remedy and that the decision violates, rather than promotes, principles of equity, especially in
light of the Separation Agreement, which provides a full accounting to SMA for the unremitted
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revenues, half of the sales price paid by Frost, and various other promises made to effectuate the
agreement. Although he lists the relevant factors for a court to consider, he does not present
argument that the trial court failed to consider these factors when it ordered the disgorgement
award or analyze how the principles are not supported by sufficient evidence as he is required to
do under the relevant standard of review. See TEX. R. APP. P. 38.1(i); see also PopCap Games,
Inc. v. MumboJumbo, LLC, 350 S.W.3d 699, 722 (Tex. App.—Dallas 2011, pet. denied). He
also does not explain his contention for how the court’s decision to award equitable
disgorgement violates the principles of equity. We therefore reject McCullough’s argument that
“there is no evidence to support disgorgement of fees, profits, or both” under the factors as
conclusory and inadequately briefed. See PopCap Games, Inc., 350 S.W.3d at 722.
McCullough also has not complained about the amount of the equitable disgorgement award, so
we express no opinion on the measure of the equitable remedy or whether the trial court abused
its discretion in awarding that amount. See Saden, 415 S.W.3d at 469.
5. Sufficiency of the evidence supporting a violation of the Texas Theft Liability Act
McCullough’s final argument under his second issue is that there is no evidence or
insufficient evidence to support SMA’s claim that he violated the Texas Theft Liability Act. See
TEX. CIV. PRAC. & REM. CODE ANN. §§ 134.001–.005 (West 2011 & Supp. 2013). Under the
Theft Liability Act, a person who commits theft as defined by the Texas Penal Code “is liable for
the damages resulting from the theft.” Id. § 134.003(a); see also TEX. PENAL CODE ANN. §
31.03(a), (b) (West Supp. 2013) (theft).
In Question No. 7, the jury found that McCullough committed theft against SMA after
considering the following instruction:
“Theft” means unlawfully appropriating property with intent to deprive the owner
of the property.
Appropriation of property is unlawful if:
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(1) it is without the owner’s effective consent; or
(2) the property is stolen and the actor appropriates the property knowing it was
stolen by another.
McCullough contends that based on the express terms of the Separation Agreement, “there is no
evidence, or insufficient evidence, of any ‘intent to deprive’ SMA of the revenues due and owing
them.” He also argues that the word “deprive” means “to withhold property from the owner
permanently or for so extended a period of time that a major portion of the value or enjoyment of
the property is lost to the owner.” (quoting TEX. PENAL CODE ANN. § 31.01(2)(A)). And he
complains there is no evidence showing he intended to deprive SMA of revenue due them for
such an extended period of time or permanently.
We reject McCullough’s argument that the terms of the Separation Agreement negate the
intent-to-deprive element. The relevant “intent to deprive” is the person’s intent at the time of
the taking. See Wirth v. State, 361 S.W.3d 694, 697 (Tex. Crim. App. 2012) (citing Wilson v.
State, 663 S.W.2d 834, 836–37 (Tex. Crim. App. 1984)). As with their other claims, SMA’s
claim that McCullough violated the Theft Liability Act is based on conduct that occurred before
the Separation Agreement was signed. The fact that the parties later entered into an agreement
addressing the misappropriated property does not nullify McCullough’s intent at the time he took
and kept SMA’s money.
We also reject McCullough’s argument that there is no evidence to show McCullough
intended to deprive SMA of their money for an extended period of time or permanently. In his
report, Wilson identified multiple transactions representing sums belonging to SMA that were
deposited into McCullough’s various accounts, including his joint account with Julia, that he did
not account for or remit to SMA. These transactions began in 2006 and continued through the
end of 2008. The record includes testimony and documents showing that SMA sought bank and
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commission statements from McCullough as well as access to bank accounts for over two years
in an effort to reconcile their accounting information. McCullough dodged the requests and
never provided the requested information. He continued the practice of receiving money into his
personal accounts despite SMA’s requests that he change the payment instructions with the
carriers and after he signed the Separation Agreement. McCullough testified that he knew the
commissions he received from carriers belonged to SMA and should have turned the money over
to them. And despite acknowledging that he realized he owed SMA some money after he
reviewed Wilson’s report, he has not returned any of the money that he admitted he owed. The
intent to deprive can be inferred from the words and acts of the person. Banks v. State, 471
S.W.2d 811, 812 (Tex. Crim. App. 1971). When we consider the evidence in the light most
favorable to the jury’s finding, we conclude there was more than a scintilla of evidence for the
jury to infer from McCullough’s conduct that he took SMA’s money with the intent to keep it
permanently or for an extended period of time. City of Keller, 168 S.W.3d at 827. Thus,
McCullough’s legal sufficiency challenge to the jury’s theft liability finding fails.
We also conclude that after considering and weighing all the evidence, the jury’s finding
that McCullough intended to deprive SMA of its money is supported by factually sufficient
evidence. McCullough told the jury that SMA had no accounting checks and balances, and
because he signed hundreds of checks, the fact that SMA’s money ended up in his personal
accounts was by accident. He also told the jury it was not his job to perform an accounting of
commissions to determine whether he turned all commissions over to SMA (even though he was
responsible for commissions as the division’s president) and that he did not reconcile his own
checkbook. He further said that he thought the money was his because he brokered the business
under his name. But as previously stated, McCullough acknowledged that he received
commissions from carriers that he should have turned over to SMA. And the record contains no
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explanation for why he changed the payment instructions with the carriers so that he could
receive SMA’s money in the first place. Thus, on this record, the evidence is not so weak as to
render the jury’s answer that McCullough committed theft unfair or unjust. See Dow Chem. Co.,
46 S.W.3d at 242.
6. Sufficiency of the evidence supporting breach of the Separation Agreement
In his third issue, McCullough argues there is legally and factually insufficient evidence
to support the jury’s answer that he breached the Separation Agreement. 7 In section II.E of this
opinion, we conclude the liability theory that affords SMA the greatest recovery is breach of
fiduciary duty, not breach of contract. We therefore address the sufficiency challenge to the
extent it relates to our rejection of the McCulloughs’ contention that the existence of the
Separation Agreement bars SMA’s ability to recover restitution. See City of Harker Heights,
Tex., 830 S.W.2d at 319 (restitution appropriate remedy when agreement contemplated not fully
performed). Our resolution of the McCulloughs’ fifth issue obviates our need to address his
factual sufficiency points. See TEX. R. APP. P. 47.1.
McCullough devotes his brief on this issue to his contention that he did not breach the
Separation Agreement as a matter of law because “an insufficient amount of time had elapsed to
warrant SMA’s notice of cure under the terms of the Agreement and McCullough did not fail to
comply within the stated time frame.” He maintains that because the Separation Agreement does
not contain a “time is of the essence” clause (only his agreement to “promptly” provide the Due
Diligence Items), SMA’s non-compliance notice sent just thirteen days after the parties signed
the agreement is self-serving and contrary to the parties’ intent under the agreement.
7
He also asserts as part of his issue statement that the jury’s answer regarding his “failure to satisfy conditions precedent” is not supported
by legally or factually sufficient evidence, but he does not offer any argument in support of this assertion. So, we do not address it.
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Regardless of McCullough’s contention that SMA unilaterally imposed a date of
performance when the agreement does not support such a date, the record contains more than a
scintilla of evidence that McCullough actually never provided all the documents he promised to
provide under the agreement, and this evidence is legally sufficient to support the jury’s answer
that he failed to comply with the contract. McCullough agreed to cooperate to accomplish the
accounting and provide to SMA or SMA’s CPA “all such information, records and documents”
set forth on the exhibit listing the Due Diligence Items. Wilson testified that except for the
request for McCullough’s tax returns, the list of Due Diligence Items essentially mirrored the
agenda Wilson provided McCullough at the October 31, 2008 meeting in which Wilson asked
McCullough to provide documents for the reconciliation. Wilson testified that at the time he sent
the non-compliance notice, all McCullough had provided were incomplete printouts from the
bank website; Medlin said McCullough had provided only a “hodgepodge” of documents. For
example, an exhibit admitted at trial of a bank statement McCullough provided in May 2009
shows page “6 of 9” for one account mixed with single pages of a bank statement for other
accounts. Wilson explained that for an accounting, “[i]f there are nine pages in the bank
statements, I wanted all nine pages.” He also told McCullough that “bank statements” refers to
the monthly bank statements and deposit slips and checks”; he testified that he needed the
deposit slips and checks to verify the transaction. Wilson also testified that the “partial bank
statements” provided by McCullough and his attorney in May 2009 covered three of
McCullough’s accounts but that there were a total of six accounts. Both Medlin and Wilson
testified that SMA ultimately received the bank documents they needed after issuing a subpoena
to the McCulloughs’ bank. The bank provided the full monthly bank statements as well as
deposit slips and canceled checks. There was no testimony or other evidence that McCullough
was the one who provided the documents he agreed to provide in the agreement. The parties
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testified that the issue of who owes who money was an outstanding issue at the time they entered
into the agreement; the CPA Determination depended on McCullough’s cooperation in providing
documents.
The jury also heard McCullough’s testimony in which he acknowledged that he did not
deliver all the bank statements requested in the Due Diligence Items. McCullough specifically
agreed to provide copies of any and all bank statements for a specific time frame “for any past,
current or future account(s) in which deposits relating to any commissions or bonuses
McCullough has received or will receive in connection with or arising from his sale of
benefits/financial services.” After reviewing the documents provided by the bank, Wilson found
that $31,000 of the $137,401.13 in missing money had been deposited into the savings accounts
for the McCulloughs’ children. McCullough admitted he did not provide the records related to
those accounts because it was an invasion of his privacy. He also admitted that had SMA not
subpoenaed the records from the bank, Wilson would not have found the $31,000 of SMA’s
money that ended up in his children’s accounts. In describing his performance in providing the
Due Diligent Items, McCullough said he “tried his best” to turn over the items.
As the sole judge of the credibility of the witness, the jury was free to give little weight to
McCullough’s contention he tried his “best” to comply with the agreement and resolve the issue
in SMA’s favor. City of Keller, 168 S.W.3d at 819. And when we consider the evidence in the
light most favorable to the jury’s finding, we conclude there was more than a scintilla of
evidence for the jury to find that McCullough did not comply with the Separation Agreement.
Id. at 827.
7. Disposition of McCullough’s Second and Third Issues
We conclude there is legally and factually sufficient evidence to support the jury’s
answers on SMA’s claims for fraud, breach of fiduciary duty, and civil theft and the jury’s award
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of equitable disgorgement. Accordingly, we overrule McCullough’s second issue. We also
conclude the jury’s answer related to McCullough’s breach of the Separation Agreement is
supported by legally sufficient evidence and overrule his third issue on this basis. As previously
stated, we need not address the factual sufficiency challenge raised in McCullough’s third issue.
C. McCullough’s challenges to the accounting and attorneys’ fees awards
McCullough’s fourth issue relates to the jury’s awards of $36,541.17 in accounting fees
and $172,438.53 in attorneys’ fees to SMA. He complains these awards are not supported by
legally or factually sufficient evidence.
a. Accounting Fees
The jury found SMA incurred $36,541.17 in accounting fees to determine the amount of
money McCullough had wrongfully retained. The jury found that amount as damages for
McCullough’s breach of the Separation Agreement, breach of his fiduciary duty, and fraud.
McCullough’s first argument related to the award of accounting fees is a legal challenge,
which he preserved in his motion for instructed verdict, rather than a sufficiency challenge. He
argues SMA was not entitled to recover the accounting fees because SMA assumed the
obligation for these fees under the Separation Agreement. McCullough bases his argument on
this provision in the agreement: “SMA shall bear the cost of the CPA for the CPA
Determination.”
Wilson testified, however, that the work he performed for SMA to determine how much
of SMA’s money McCullough wrongfully retained was not the CPA Determination provided for
in the Separation Agreement. The CPA Determination required Wilson to figure out the amount
of Recovered Premiums and then reduce that amount by any sums owed to McCullough. Wilson
did not perform the second calculation as a part of the services he completed for SMA.
Nonetheless, the jury’s award of accounting fees appears to take into account the fact that SMA
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agreed to pay for the cost of the CPA Determination. Wilson estimated that had he done the
CPA Determination, his fees would have been between $25,000 and $30,000. The jury’s finding
that SMA incurred $36,541.17 in accounting fees to determine how much money McCullough
wrongfully kept was $25,000 less than the $61,541.17 in total fees Wilson billed SMA.
McCullough next argues that the accounting-fees award is not supported by legally or
factually sufficient evidence because the evidence offered by SMA to support the recovery of the
additional accounting fees was not based solely on accounting functions. McCullough claims the
evidence shows that Wilson wrote the notice and cure letters, which were legal functions, not
“necessary accounting functions,” and that Wilson performed other non-accounting functions,
such as attend business meetings, prepare a business plan and agenda, and engage in
communications with McCullough following the October 2008 meeting about providing
documents.
SMA sought as damages the “accounting fees incurred in ascertaining the amounts due to
[SMA].” Those fees were for Wilson’s services about which Wilson testified, and Wilson’s bills
detailing the services he provided were admitted as Plaintiff’s Exhibit 90. The record shows that
for Wilson to reconcile SMA’s accounting records with McCullough’s financial information to
determine whether any money was owed, he necessarily had to collect and review the bank
statements and other documents related to McCullough’s accounts. He also had to have an
understanding of the relevant provisions in the Separation Agreement, such as the CPA
Determination outlined in paragraph 3 and the requirement that McCullough cooperate in
providing the Due Diligence Items.
The notice and cure letters Wilson sent relate to his attempts to get the relevant data he
needed to determine who owed who money. Similarly, McCullough’s record citations for
Wilson’s services related to a “business plan” and “agenda” and communications with
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McCullough were connected to the reconciliation of SMA’s accounting records Wilson was
trying to accomplish in 2008. Wilson testified he met with McCullough at the end of October
2008 to discuss the need for McCullough to provide certain financial information that was listed
on the “agenda” so SMA could “sync everything up and make sure that all the income is being
reported.” Wilson also testified that he sent communications to McCullough to check on
McCullough’s progress in providing the requested documents. McCullough provides no analysis
or argument for why these services did not constitute accounting functions or why the services
would not be relevant to performing the reconciliation. See TEX. R. APP. P. 38.1(i). Nor does he
provide insight into why an accounting function must be a “necessary accounting function” for
SMA to be able to recover the extra money they spent in trying to ascertain the amounts
McCullough owed. In addition, none of the charges listed on Plaintiff’s Exhibit 90 are for
services performed in 2008.
Finally, McCullough states that Wilson’s “review and preparation of a report does not
include the functions offered by SMA to support their additional accounting fees.” To the extent
McCullough is arguing that the fees Wilson incurred in preparing his expert report are not
recoverable as a matter of law because expert-witness fees are not proper damages, we conclude
this argument is not preserved. See TEX. R. CIV. P. 324(b); United Parcel Serv., Inc. v.
Tasdemiroglu, 25 S.W.3d 914, 916 (Tex. App.—Houston [14th Dist.] 2000, pet. denied).
McCullough did not complain about the accounting fees as expert-witness fees in his motion for
instructed verdict, amended motion for judgment notwithstanding the verdict, or amended
motion for new trial. 8
We reject McCullough’s attack on the jury’s award of accounting fees and overrule his
fourth issue to the extent it relates to accounting fees.
8
We express no opinion on whether the fees Wilson billed SMA in preparation for his expert report are proper damages.
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b. Attorneys’ Fees
McCullough raises a factual sufficiency challenge to the jury’s award of $172,438.53 in
attorneys’ fees. As will be discussed in more detail in section II.E of this opinion, however,
SMA is not entitled to recover attorneys’ fees in this case so we need not address this challenge.
See TEX. R. APP. P. 47.1.
D. McCullough’s challenges to the exemplary damages award
In his sixth issue, McCullough raises several challenges to the jury’s award of exemplary
damages. He claims the award is not supported by legally or factually sufficient evidence,
should be capped, and is excessive in violation of due process.
Under Texas Civil Practice and Remedies Code section 41.003(a), exemplary damages
may be awarded “only if the claimant proves by clear and convincing evidence” that the
claimant’s harm for which it seeks recovery resulted from fraud, malice, or gross negligence.
TEX. CIV. PRAC. & REM. CODE ANN. § 41.003(a) (West 2008). “Clear and convincing” evidence
is that “measure or degree of proof that will produce in the mind of the trier of fact a firm belief
or conviction as to the truth of the allegations sought to be established.” Id. § 41.001(2). This
standard of proof falls between the preponderance standard of proof of most civil proceedings
and the reasonable doubt standard of proof of most criminal proceedings but with no requirement
that the evidence be unequivocal or undisputed. State v. Addington, 588 S.W.2d 569, 570 (Tex.
1979) (per curiam).
The jury awarded SMA $700,000 in exemplary damages after finding by clear and
convincing evidence that the harm to SMA resulted from McCullough’s malice or fraud.
McCullough’s first argument for why the award cannot stand relates to his sufficiency challenges
to the jury’s liability findings on SMA’s claims for fraud, breach of fiduciary duty, and civil
theft. He maintains that because the evidence is insufficient to support those findings, SMA is
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not entitled to exemplary damages. We have already discussed in detail the evidence supporting
the jury’s findings related to the theory that McCullough committed fraud by non-disclosure, his
conduct was a breach of his fiduciary duty, and he intended to deprive SMA of their money in
violation of the Theft Liability Act and concluded the evidence was both legally and factually
sufficient to support the jury’s answers. So, this argument fails. See Marin v. IESI TX Corp.,
317 S.W.3d 314, 333–34 (Tex. App.—Houston [1st Dist.] 2010, pet. denied) (overruling
appellant’s challenge to sufficiency of evidence to support exemplary damages where court
found sufficient evidence supporting jury’s findings of fraud, forgery, and misapplication of
fiduciary duty).
We recognize, however, that those conclusions were made under the review standard for
findings proved by a preponderance of the evidence, a standard that permits us to use “any
evidence that does not merely create surmise or suspicion” to show that something is more likely
than not. Sw. Bell Tel. Co. v. Garza, 164 S.W.3d 607, 621 (Tex. 2004). But here, proof of the
allegation must be clear and convincing, an elevated standard of proof that also must meet an
elevated standard of review. Id.; see also TEX. CIV. PRAC. & REM. CODE ANN. § 41.013.
McCullough asks us to reverse the exemplary damages award and render judgment that
SMA take nothing on their claim for such damages because the jury’s award of exemplary
damages is not supported by legally or factually sufficient evidence. He claims the “element of
fraud or malice necessary for the recovery of [exemplary] damages is not met in this case.” And
although he cites the requirement that the proof of exemplary damages must be by clear and
convincing evidence, he offers only the following two sentences in support of his position: “any
evidence of fraud or malice did not meet the clear-and-convincing burden of proof. In light of
the Separation Agreement and the disclosures made during negotiations of the Agreement, the
evidence is not capable of producing a firm belief or conviction of intent to defraud or deprive
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SMA of the revenues due them.” He provides no analysis explaining how the evidence heard by
the jury does not meet the clear and convincing standard or explain why the Separation
Agreement and related negotiations preclude a finding that SMA’s harm resulted from
McCullough’s fraud or malice, especially in light of the fact that the complained-of conduct
occurred before the parties entered into the Separation Agreement. These general assertions are
inadequate to challenge the sufficiency of the evidence supporting the jury’s exemplary damages
award under the elevated standard of proof. The failure to adequately brief an issue by failing to
specifically argue and analyze one’s position waives any error on appeal. In re M.A.S., 233
S.W.3d 915, 924 (Tex. App.—Dallas 2007, pet. denied). We therefore do not address these
arguments and overrule this issue to the extent McCullough complains that the exemplary
damages award is not supported by legally or factually sufficient evidence.
McCullough next argues that the trial court erroneously refused to apply the statutory cap
to the exemplary damages award. See TEX. CIV. PRAC. & REM. CODE ANN. § 41.008(b). Under
section 41.008(b), an award of exemplary damages must not exceed an amount equal to the
greater of (1) two times the amount of economic damages plus an amount equal to any
noneconomic damages, not to exceed $750,000, or (2) $200,000. Id. The statutory cap does not
apply to a cause of action against a defendant from whom a plaintiff seeks recovery of exemplary
damages based on certain conduct described as a felony by the Texas Penal Code, if the conduct
was committed knowingly or intentionally. Id. § 41.008(c) (listing seventeen penal code
provisions). Relevant to McCullough’s argument is the exception for conduct under chapter 32
of the penal code for misapplication of fiduciary property and chapter 31 for theft. Id.
§ 41.008(c)(10), (13). He claims that SMA failed to obtain jury findings that he violated these
particular penal code provisions and without any jury findings to support uncapped exemplary
damages, SMA is not entitled to an uncapped award.
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We conclude the jury’s findings that McCullough committed intentional theft of
$137,401.13 supports application of the exception to the statutory cap on exemplary damages.
Id. § 41.008(c)(13) (cap does not apply to conduct committed under chapter 31 of the penal code,
“the punishment level for which is a felony of the third degree or higher”). In Question No. 7,
the jury found that McCullough committed theft against SMA, and based on the affirmative
answer to the theft question, the jury awarded SMA $137,401.13, which was the amount of
money he unlawfully appropriated. The instruction accompanying the charge on the theft claim,
quoted in section II.B.5 of this opinion, tracks the description of the offense in the penal code,
see TEX. PENAL CODE ANN. § 31.03(a), (b), and the amount awarded by the jury for the theft
raises the offense to the level of a second degree felony, see id. § 31.03(e)(6)(A) (offense is
second degree felony if value of property stolen is between $100,000 and $200,000).
McCullough argues that SMA is required under section 41.008(c) to obtain a jury finding
on the specific criminal code violation and a separate finding that the violation was committed
knowingly or intentionally, citing Signal Peak Enters. of Tex., Inc. v. Bettina Invs., Inc., 138
S.W.3d 915, 927 (Tex. App.—Dallas 2004, pet. struck). The intent element for theft under the
penal code, however, was submitted as part of the jury question. See TEX. PENAL CODE ANN. §
31.03(a). And to the extent a separate question on the “knowingly or intentionally” element of
section 41.008(c) is required, we will imply the finding to support it. See TEX. R. CIV. P. 279.
The record does not show a request by McCullough for submission of a separate jury question on
this element, and McCullough did not object to the missing question on this element. 9 He also
has not challenged the sufficiency of the evidence on that element. Thus, based on the jury’s
9
The record shows that the parties had “many hours of charge conference off the record.” Before the charge was read to the jury, the trial
court gave the parties a chance to put their objections on the record, noting that “previously [the] objections were not on the record.” The only
objection put in the record by the McCulloughs related to the instructions at the beginning of the charge for “fee-based income.”
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finding that McCullough had engaged in the enumerated conduct (theft) under section 41.008(c),
the trial court properly refused to apply the cap to SMA’s exemplary damages award.
McCullough finally challenges the amount of the exemplary damages awarded, arguing
that $700,000 is unconstitutionally excessive because the award exceeds the appropriate ratio of
exemplary damages. In Question 22, the jury was instructed to consider the following statutory
factors in determining the amount of exemplary damages to be assessed against McCullough:
(1) the nature of the wrong; (2) the character of the conduct involved; (3) the degree of
McCullough’s culpability; (4) the situation and sensibilities of the parties concerned; (5) the
extent to which such conduct offends a public sense of justice and propriety; and (6)
McCullough’s net worth. See TEX. CIV. PRAC. & REM. CODE ANN. § 41.011(a). The jury also
was instructed that exemplary damages may be awarded as “a penalty or by way of punishment.”
See id. §§ 41.001(5), 41.010(a). The determination of whether to award exemplary damages and
the amount of exemplary damages lies within the discretion of the trier of fact. Id. § 41.010(b).
The Due Process Clause places outer limits on the size of a civil damages award.
Browning-Ferris Indus. of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 276 (1989); Bennett v.
Reynolds, 315 S.W.3d 867, 873 (Tex. 2010). An exemplary damages award that is “grossly
excessive” offends “due process because it ‘furthers no legitimate purpose and constitutes an
arbitrary deprivation of property.’” Bennett, 315 S.W.3d at 873 (quoting State Farm Mut. Auto.
Ins. Co. v. Campbell, 538 U.S. 408, 417 (2003)). To determine whether an award is excessive in
violation of due process, we a apply a three-part framework, referred to as the “Gore”
guideposts: (1) the degree of reprehensibility of the defendant’s conduct; (2) the disparity
between the harm or potential harm suffered by the victim and the exemplary damages award;
and (3) the sanctions authorized and imposed in other cases for comparable misconduct. Id.
(citing BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574–75 (1996)). We conclude that
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application of the guideposts at issue in this case—reprehensibility and the ratio between
exemplary damages and compensatory damages—does not require us to reverse the exemplary
damages award because it is grossly excessive.
The “reprehensibility” guidepost focuses on the “enormity” of the defendant’s
misconduct and involves consideration of five non-exclusive factors: whether (1) the harm
inflicted was physical rather than economic; (2) the tortious conduct showed ‘an indifference to
or a reckless disregard for the health or safety of others’; (3) the target of the conduct had
financial vulnerability; (4) the conduct involved repeated actions, not just an isolated incident;
and (5) the harm resulted from intentional malice, trickery, or deceit, as opposed to a mere
accident. Id. at 874 (quoting Campbell, 538 U.S. at 419). The reprehensibility analysis permits
the court to consider related conduct that may be probative to the “deliberateness and culpability
of the defendant’s action” provided that the conduct has a nexus to the specific harm suffered by
the plaintiff. Id. at 875 (quoting Campbell, 538 U.S. at 422). To some extent, we may also
consider surrounding circumstances beyond the underlying tort. Id.
As discussed throughout this opinion, McCullough, as a trusted employee of SMA,
engaged in conduct that resulted in the misappropriation of SMA’s money. McCullough directed
payment of SMA’s commissions to him personally by changing payment instructions with
carriers in a manner that was not in accordance with how SMA wanted the commissions
directed. McCullough knew the commissions belonged to SMA and should be paid to SMA.
When SMA discovered there was an issue with commission payments, they asked questions of
McCullough and asked for his help in fixing the issue; SMA asked him for bank statements,
access to accounts in which SMA’s money was deposited, and for McCullough to set up
instructions to have payments re-wired into SMA’s bank accounts. Because of the way in which
McCullough directed the commission payments, SMA did not have access to their cash (needed
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to pay the expenses of the division, including employee salaries) and their financial records were
inaccurate. SMA also was in the position of being out of compliance with the requirements of
their fidelity bond. McCullough claims the fact that SMA’s money repeatedly ended up in his
personal accounts (including his children’s accounts) was accidental. But instead of working
with SMA to correct his “human error” and resolve the accounting issues, he stalled SMA’s
efforts for two years, continued receiving commission payments in a manner of which SMA
disapproved, and ultimately resigned without ever cooperating in the reconciliation.
McCullough’s related conduct of shopping the financial services book of business to
SMA’s competitors during the time SMA asked him to provide information and then selling the
book of business to Frost when he had no authority to do so (despite his personal belief that
although he was not a principal of SMA, paid no expenses to run the division, and did not own
the accounts generated by the division, the book was his to shop because he brokered the
accounts in his name) and hiding the fact of the sale from SMA for months showed his
indifference to his duties as a fiduciary of SMA and additional intent to deceive SMA. See
Citizens Nat’l Bank v. Allen Rae Invs., Inc., 142 S.W.3d 459, 485 (Tex. App.—Fort Worth 2004,
no pet.) (concluding evidence supporting jury finding of nondisclosures of facts were made with
callous indifference justifying the award of exemplary damages). SMA had shouldered the
burden of the losses of the division in the early years and paid the expenses for the division. Yet
McCullough attempted to sell the division with the expectation that he could take the division
with him because the clients were in his name.
The second guidepost looks at the ratio between the exemplary damages award and the
compensatory damages award. Bennett, 315 S.W.3d at 877; see also Gore, 517 U.S. at 580–82
(exemplary damages must bear reasonable relationship to compensatory damages). Although the
Supreme Court has declined to draw a mathematical bright-line ratio, the Court has said that “an
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award of more than four times the amount of compensatory damages might be close to the line of
constitutional impropriety.” Campbell, 538 U.S. at 425; Bennett, 315 S.W.3d at 877.
Using the damages assessed by the jury for the civil theft claim—$137,401.13 +
$1,000—as a baseline, McCullough argues that the $700,000 exemplary damages award “results
in more than a 5:1 ratio.” In contrast, SMA argues the resulting ratio is less than a 4:1 ratio
based on compensatory damages of $338,506.13 ($137,401.13 + the disgorgement remedy of
$201,105). But the amount of actual damages found by the jury on SMA’s theories of liability
was $173,942.30, which represented the amount of money McCullough wrongfully retained
($137,401.13) and the fees incurred to determine how much he wrongfully retained
($36,541.17). Based on those actual damages, the ratio of exemplary damages to compensatory
damages in this case is 4.02:1.
In Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310 (Tex. 2006), the Texas
Supreme Court concluded that a 4.33:1 ratio exceeded constitutional limits where only the fifth
of the five reprehensibility factors favored the exemplary damages award. But here, at least
three of the reprehensibility factors favor the award, and the 4:1 ratio was exceeded only slightly.
See Bennett, 315 S.W.3d at 879 (noting that “rigid application of a 4:1 ratio is not universally
required”). And keeping in mind that the amount of exemplary damages awarded ultimately lies
within the discretion of the jury, which has assessed the witnesses’ credibility and determined the
weight to be given their testimony and to the evidence, we cannot conclude that the award of
$700,000 is excessive. See TEX. CIV. PRAC. & REM. CODE ANN. § 41.010(b). We overrule
McCullough’s sixth issue.
E. Did the trial court enter a judgment in violation of the one-satisfaction rule?
In their fifth issue, the McCulloughs contend that even if SMA’s extra-contractual and
equitable claims are not barred by the release, the trial court erred in entering a judgment on all
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of SMA’s claims in violation of the one-satisfaction rule. They complain SMA was awarded
duplicative damages under multiple theories of liability despite suffering only a single injury.
The McCulloughs raised this issue in a post-trial motion to modify, correct, or reform the
judgment, which the trial court denied. In this context, we review the trial court’s judgment for
an abuse of discretion. Wagner v. Edlund, 229 S.W.3d 870, 879 (Tex. App.—Dallas 2007, pet.
denied).
A party may sue and seek damages on alternative theories of liability. Waite Hill Servs.,
Inc. v. World Class Metal Works, Inc., 959 S.W.2d 182, 184 (Tex. 1998) (per curiam); see also
TEX. R. CIV. P. 48. And “a judgment awarding damages on each alternate theory may be upheld
if the theories depend on separate and distinct injuries and if separate and distinct damages
findings are made as to each theory.” Madison v. Williamson, 241 S.W.3d 145, 158 (Tex.
App.—Houston [1st Dist.] 2007, pet. denied); see also Birchfield v. Texarkana Mem’l Hosp., 747
S.W.3d 361, 367 (Tex. 1987). But for one injury, there can be only one recovery. Utts v. Short,
81 S.W.3d 822, 831 (Tex. 2002) (one-satisfaction rule); see also Chapa, 212 S.W.3d at 303–04.
So, when a defendant’s acts result in a single injury and the jury returns favorable findings on
two or more theories of liability, the plaintiff “has the right to a judgment on the theory entitling
him to the greatest or most favorable relief.” Boyce Iron Works, Inc. v. Sw. Bell Tel. Co., 747
S.W.2d 785, 787 (Tex. 1988).
The jury awarded identical economic damages—$137,401.13 for the amount
McCullough misappropriated and $36,541.17 for the amount SMA spent trying to uncover the
misappropriation—for each of SMA’s liability theories (breach of contract, fraud, and breach of
fiduciary duty). 10 The trial court awarded these amounts just one time in the judgment and then
10
For SMA’s civil theft claim, the jury awarded only the amount of money McCullough unlawfully appropriated, or $137,401.13.
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also awarded SMA $1,000 in statutory damages, the $201,105 equitable disgorgement remedy,
$700,000 in exemplary damages, and $172,438.53 in attorneys’ fees.
While the judgment does not appear to award duplicative economic damages for SMA’s
alternate theories of liability, it does award various damage elements that arise under the
different theories. For example, for breach of contract, SMA could recover economic damages
and attorneys’ fees but not exemplary damages, equitable disgorgement, or statutory damages.
Chapa, 212 S.W.3d at 304. For fraud, SMA could recover economic and exemplary damages
but not attorneys’ fees, equitable disgorgement, or statutory damages. Id. SMA could recover
economic and exemplary damages plus statutory damages and attorneys’ fees for their civil theft
claim but could not receive the equitable disgorgement remedy. TEX. CIV. PRAC. & REM. CODE
ANN. §§ 134.003(a), 134.005(a), (b); id. § 41.008(b), (c)(13) (noting that damages awarded for
felony theft in the third degree or higher under penal code are exempt from cap on exemplary
damages). And under a breach-of-fiduciary duty theory, SMA could receive the equitable
disgorgement remedy plus economic and exemplary damages but not attorneys’ fees or statutory
damages. See W. Reserve Life Assurance Co. of Ohio v. Graben, 233 S.W.3d 360, 377–78 (Tex.
App.—Fort Worth 2007, no pet.); Murphy v. Canion, 797 S.W.2d 944, 949 (Tex. App.—
Houston [14th Dist.] 1990, no writ). 11
SMA argues they are entitled to recover all amounts awarded in the trial court’s judgment
because they suffered separate and distinct injuries. We disagree. Based on our review of
SMA’s pleadings and the record, it is clear that SMA’s claims all concerned the same conduct by
McCullough—his misappropriation of SMA’s money. SMA was injured because McCullough
wrongfully retained money that belonged to SMA and by having to pay extra accounting fees to
11
In addition, a constructive trust may be imposed for a breach of fiduciary duty. See Anderton v. Cawley, 378 S.W.3d 38, 54 n.4 (Tex.
App.—Dallas 2012, no pet.). We reject the McCulloughs’ argument that the trial court erred by awarding both actual damages and a constructive
trust on the same damages.
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figure out how much money he owed. The rule is that if the plaintiff suffers only a single injury,
it can recover only those damages authorized under the single theory that affords the greatest
recovery. Boyce, 747 S.W.2d at 787; see also Chapa, 212 S.W.3d at 303–04; Am. Rice, Inc. v.
Producers Rice Mill, Inc., 518 F.3d 321, 335–36 (5th Cir. 2008) (applying Texas law and noting
that prevailing parties may not “pick and choose” remedies from different sources to maximize
relief). And when the prevailing party fails to elect between alternative measures of damages,
“the court should utilize the findings affording the greater recovery and render judgment
accordingly.” Birchfield, 747 S.W.2d at 367; see also TEX. R. CIV. P. 301 (judgment should be
“so framed as to give the party all the relief to which he may be entitled”). Here, that theory is
breach of fiduciary duty.
Under a breach-of-fiduciary duty theory, SMA can recover economic and exemplary
damages and receive an equitable disgorgement remedy, but they cannot simultaneously recover
attorneys’ fees or statutory damages. We conclude the trial court’s judgment is erroneous to the
extent it awards SMA attorneys’ fees and statutory damages. We therefore sustain the
McCulloughs’ fifth issue and reverse that portion of the trial court’s judgment that awarded SMA
$1,000 in statutory damages and $172,438.53 in attorneys’ fees and render judgment that SMA
cannot recover those amounts.
F. Whether the trial court’s judgment erroneously contains a turnover order
In their final issue, the McCulloughs contend the trial court erred in granting turnover
relief in its judgment (1) that is not supported by any pleading, evidence, or finding entitling
SMA to that relief and (2) without requiring SMA to satisfy the requirements for turnover relief
under Texas Civil Practice and Remedies Code section 31.002. See TEX. CIV. PRAC. & REM.
CODE ANN. § 31.002 (West 2008). This issue arises out of the trial court’s denial of the
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McCulloughs’ motion to modify, correct, or reform the judgment, which we review for an abuse
of discretion. See Wagner, 229 S.W.3d at 879.
As a part of the damages for their breach of fiduciary duty claim, SMA asked the court to
impose a constructive trust “on all monies received by McCullough and/or Julia McCullough
which rightfully belong to SMA.” The jury found McCullough breached his fiduciary duty and
that the McCulloughs had money in their possession that belonged to SMA. In the judgment, the
trial court placed a constructive trust on amounts deposited into five bank accounts, with one
account owned by the McCulloughs jointly and the remaining accounts owned by McCullough
individually. The trial court ordered the McCulloughs “to turnover to [SMA]” the amount in the
joint account “within 30 days of the date of this Final Judgment . . . .” (Emphasis added). And
McCullough was ordered “to turnover to [SMA] the amounts in the other accounts listed . . .
within 30 days of the date of this Final Judgment.” (Emphasis added). The McCulloughs
conceded in their motion to modify, correct, or reform the judgment that “the evidence at trial
showed the amounts listed in the Judgment were deposited in to the respective bank accounts.” 12
We disagree with the McCulloughs’ contention that the “turnover” language in the
judgment constitutes a turnover order. A turnover order is a statutory, post-judgment collection
procedural device used to assist judgment creditors reach assets of a judgment debtor that are
difficult to attach or levy by ordinary legal process. TEX. CIV. PRAC. & REM. CODE ANN.
§ 31.002(a)(1); Davis v. West, 317 S.W.3d 301, 309 (Tex. App.—Houston [1st Dist.] 2009, no
pet.). Under the statute, the judgment creditor can apply for aid from the court for an injunction
or other means to satisfy a judgment through a judgment debtor’s property. TEX. CIV. PRAC. &
REM. CODE ANN. § 31.002(a). In contrast, a constructive trust is a remedial device that when
12
They argued, however, that there was no evidence presented regarding whether such amounts remained in the accounts and claimed that
had they been afforded the opportunity to present evidence, they would have established that many of the accounts no longer existed and were
closed. Although the McCulloughs complained about the lack of opportunity to put on evidence regarding the accounts in a hearing before
judgment was entered, they did not state why they were unable to present this evidence at trial.
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imposed, subjects the one who holds title to the property to an equitable duty “to convey it to
another, on the ground that his acquisition or retention of the property is wrongful and that he
would be unjustly enriched if he were permitted to retain the property.” Cote v. Texcan Ventures
II, 271 S.W.3d 450, 453 (Tex. App.—Dallas 2008, no pet.) (quoting Baker Botts, L.L.P. v.
Cailloux, 224 S.W.3d 723, 736 (Tex. App.—San Antonio 2007, pet. denied)). Here, the trial
court signed a final judgment granting the relief requested by SMA—for a constructive trust
placed on money identified to be held by the McCulloughs that belonged to SMA. The trial
court’s use of the “turnover” language in the judgment does not grant aid to SMA “through
injunction or other means” to obtain satisfaction on the judgment. TEX. CIV. PRAC. & REM.
CODE ANN. § 31.002(a). Rather, that language is part of the equitable remedy; it was the
mechanism for the McCulloughs jointly and McCullough individually to restore the amounts
covered by the constructive trust to SMA within a certain time frame. See Cote, 271 S.W.3d at
453. Indeed, this order requiring the McCulloughs to “turnover” the money belonging to SMA is
appropriate given that the purpose of a constructive trust is to compel a judgment debtor to give
back money it would be unjust for him to keep. Id. at 452–53. We therefore conclude the trial
court did not abuse its discretion in denying the McCulloughs’ motion to modify, correct, or
reform the judgment on this ground. We overrule their seventh issue.
IV. CONCLUSION
We conclude that portion of the trial court’s judgment awarding SMA $1,000 in statutory
damages and $172,438.53 in attorneys’ fees should be reversed because the liability theory for
which SMA receives the greatest recovery is breach of fiduciary duty for which such fees are not
recoverable. We render judgment that SMA cannot recover those amounts.
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We affirm the trial court’s judgment in all other respects.
/Ada Brown/
ADA BROWN
JUSTICE
111303F.P05
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S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
ROBERT L. MCCULLOUGH AND JULIA On Appeal from the 416th Judicial District
T. MCCULLOUGH, Appellants Court, Collin County, Texas
Trial Court Cause No. 416-02008-2009.
No. 05-11-01303-CV V. Opinion delivered by Justice Brown.
Justices FitzGerald and Lewis participating.
SCARBROUGH, MEDLIN &
ASSOCIATES, INC. AND
SCARBROUGH, MEDLIN &
ASSOCIATES FINANCIAL SERVICES,
INC., Appellees
In accordance with this Court’s opinion of this date, the judgment of the trial court is
AFFIRMED in part and REVERSED in part. We REVERSE that portion of the trial court’s
judgment awarding appellees Scarbrough, Medlin & Associates, Inc. and Scarbrough, Medlin &
Associates Financial Services, Inc. $1,000.00 as statutory damages and $172,438.53 in attorneys’
fees and RENDER judgment that appellees cannot recover those amounts. In all other respects,
the trial court's judgment is AFFIRMED.
It is ORDERED that appellees Scarbrough, Medlin & Associates, Inc. and Scarbrough,
Medlin & Associates Financial Services, Inc. recover their costs of this appeal and the amount of
the trial court’s judgment from appellants Robert L. McCullough and Julia T. McCullough and
from the cash deposit in lieu of cost bond. After all costs have been paid, the clerk of the District
Courts of Collin County, Texas is directed to release the balance, if any, of the cash deposit to
Julia T. McCullough.
Judgment entered this 20th day of June, 2014.
/Ada Brown/
ADA BROWN
JUSTICE