George E. Rhymes Jr. and Rhymes Industrial Filtration & Consulting, LLC v. Filter Resources, Inc.

In The
Court of Appeals
Ninth District of Texas at Beaumont
____________________
NO. 09-14-00482-CV
____________________
GEORGE E. RHYMES JR. AND RHYMES INDUSTRIAL FILTRATION &
CONSULTING, L.L.C., Appellants
V.
FILTER RESOURCES, INC., Appellee
_________________________________ ______________________
On Appeal from the 136th District Court
Jefferson County, Texas
Trial Cause No. D-194,154
____________________________________________ ____________
MEMORANDUM OPINION ON REHEARING
On appellants’ motion for rehearing, we withdrew our opinion of April 14,
2016, and we substitute this opinion in its place.
Filter Resources, Inc. (“Filter”) sued George E. Rhymes Jr. (“Rhymes”) and
Rhymes Industrial Filtration & Consulting, L.L.C. (“Industrial”) for breach of
contract, breach of fiduciary duty, and tortious interference. A jury found in
favor of Filter. In eight appellate issues, Rhymes challenges the jury’s verdict, the
1
admission of evidence, and the injunctive relief award. Filter presents two
cross-issues regarding damages and attorney’s fees.1
Factual Background
According to the record, Rhymes first became employed with Filter in
1998. James Metcalf Jr., Filter’s chief executive officer and president, testified
that Rhymes was a branch manager and salesman for Filter. There was testimony
that Rhymes had access to confidential information, such as products, prices,
contracts, and financial, vendor, and customer information. In 2000, Filter asked
Rhymes to sign a contract that contained the following clause:
The Employee shall not for a period of one year immediately
following the termination of his employment with the Employer,
either directly or indirectly:
1. Make known to any person, firm, or corporation the names
and addresses of any of the customers of the Employer or any
other information pertaining to them; or
2. Call on, solicit, or take away, or attempt to call on, solicit,
or take away any of the customers of the Employer on whom
the Employee called or with whom he became acquainted
during his employment with the Employer, whether for
himself or for any other person, firm, or corporation.
1
We group Rhymes’s complaints into eight issues.
2
The contract also stated:
The Employee during the term of employment under this agreement
will have access to and become familiar with various trade
secrets, consisting of formulas, patterns, devises, secret inventions,
processes, and compliance [sic] of information, records, and
specifications, customer lists, vendor lists, marketing strategies,
pricing strategies, financial information, and specifications, which
are owned by the Employer and which are regularly used in the
operation of the business of the Employer. The Employee shall not
disclose any of the aforesaid trade secrets, directly or indirectly, nor
use them in any way, either during the term of this agreement or at
any time thereafter, except as required in the course of his
employment. All files, records, documents, drawings, specification,
[sic] equipment and similar items relating to the business of the
Employer, whether prepared by the Employee or otherwise coming
into his possession, shall remain the exclusive property of the
Employer and shall not be removed from the premises of the
Employer under any circumstances whatsoever without the prior
written consent of the Employer.
Rhymes testified that he did not want to sign the contract. According to Rhymes,
his boss stated that it was just paperwork and not to worry; thus, Rhymes
believed he was not bound by the contract. Rhymes admitted knowing that he
might be sued if he competed with Filter.
Franklin Bridges, Filter’s vice-president, managed the sales area
Rhymes worked in. Bridges testified that Rhymes told him he planned to leave
Filter to go into a different business. Rhymes’s last day of work with Filter was
August 17, 2012, but Rhymes remained on Filter’s payroll through the end of
3
August. Bridges testified that Rhymes’s Industrial business card listed the same
cell phone number that he used while employed with Filter. Cheryl Rhymes,
Rhymes’s wife, testified that this was Rhymes’s personal phone that he also used
for business and that she paid Rhymes’s phone bill, which Filter reimbursed.
Rhymes testified that Filter paid his phone bill and that he still uses the same
phone number, but that he had the phone number before his employment with
Filter. Bridges admitted that Rhymes brought the phone number and a cell phone
with him when he began working for Filter. He testified that Filter subsequently
paid for Rhymes’s new cell phone and the cell phone bill.
Metcalf testified that Rhymes also used a planner to record business
information but that Filter owned the information Rhymes recorded in the
planner. Rhymes admitted taking his planner and some business cards when he
left Filter, but he claimed to have had the planner before he went to work for
Filter. Metcalf opined that Rhymes should not have taken the planner when he
left Filter because the planner contained information that belonged to Filter.
Bridges testified that, within six weeks of leaving Filter, Rhymes was
selling to five of Filter’s customers. He and Metcalf testified that Rhymes’s
customers were all Filter customers. Cheryl testified that Industrial sells the same
products as Filter and is a competitor of Filter. She was unaware that Industrial
4
had any customers outside of those Rhymes served during his employment with
Filter, but she claimed that each of those customers first contacted Rhymes.
Rhymes also admitted that Industrial is in direct competition with Filter, that all
of his customers are former Filter customers, and that Industrial sells almost all
the same products as Filter. He further admitted to calling on, soliciting, and
selling products to Filter’s customers. Rhymes explained that he did not believe
he had violated the non-compete agreement because Filter’s customers contacted
him first.
Joshua Crookshank, an area manager for Filter, testified that before
Rhymes left Filter, Rhymes took Crookshank to meet some of Filter’s customers
and Rhymes told the customers he was starting his own business. Alan Clarke
testified that he is the president of Jonell, a company that manufactures filter
elements. Rhymes told Clarke that he intended to go into the distribution business
with a concentration on the natural gas market, which Clarke believed to be
different from Filter’s business. Rhymes told Clarke that he chose a different
market because he had a non-compete agreement with Filter. At some point,
Clarke became aware that Rhymes was ordering parts from Jonell on behalf of
some of Filter’s customers. Rhymes told Clarke that he spoke with an attorney
and that the non- solicitation clause was not worth a “s---.”
5
Harold Doucet, Filter’s account manager, testified that Filter has a
consignment agreement with Total Refining and that he learned of Rhymes’s
attempts to circumvent that agreement. He explained that a part Filter provides to
Total, through the consignment agreement, had not been replenished by Filter
but had been replaced by Rhymes. He also testified that he saw Rhymes’s
business card on the desk of another one of Filter’s customers.
According to Metcalf and Bridges, after Rhymes left, Filter’s sales
decreased by over a million dollars. Doucet testified that sales declined
monthly and he could not recoup all the lost sales. Clarke testified that Filter does
more business with Jonell than Rhymes but that Jonell’s sales to Filter were
“continually sliding[.]” Jeffrey Compton, a certified public accountant, testified
that Filter’s lost profits total $622,800.
The jury found that: (1) Rhymes failed to comply with the non-solicitation
clause, the confidentiality and non-disclosure provisions, and his duties “not to
compete with Filter Resources by establishing his own new, competing business,
while still employed at Filter Resources[,]” “not to misuse Filter Resources’
materials and resources to establish his own new, competing business, while still
employed at Filter Resources[,]” and “to refrain from using Filter Resources’
confidential and proprietary information, disclosed during employment with
6
Filter Resources;” (2) appellants intentionally interfered with Filter’s prospective
contractual or business relations; (3) appellants did not have a good faith belief
that their conduct was not prohibited by the employment contract; (4) Filter was
entitled to $620,000 in damages; (5) the harm caused to Filter resulted from
malice; (6) Filter was entitled to $0 in exemplary damages; and (7) Filter was
entitled to $125,000 in attorney’s fees. The trial court granted Rhymes’s motion
for judgment notwithstanding the verdict regarding attorney’s fees, disregarded
the jury’s answer to question seven in light of the zero award for exemplary
damages, conditionally granted injunctive relief requiring Rhymes to return the
cell phone and SIM card, and denied additional injunctive relief.
Legal Sufficiency
In issues one through six, Rhymes challenges the legal sufficiency of the
evidence to support the jury’s verdict. Under a legal sufficiency review, we
consider whether the evidence “would enable reasonable and fair-minded
people to reach the verdict under review.” City of Keller v. Wilson, 168
S.W.3d 802, 827 (Tex. 2005). We view the evidence in the light most favorable
to the verdict, credit favorable evidence if a reasonable factfinder could, and
disregard contrary evidence unless a reasonable factfinder could not. Del Lago
Partners, Inc. v. Smith, 307 S.W.3d 762, 770 (Tex. 2010).
7
Rhymes’s first, second, and third issues challenge the jury’s findings that
he breached the contract’s non-solicitation provision, violated the contract’s
confidentiality and non-disclosure provisions, and breached his fiduciary
duties. The one-year non-solicitation clause prohibited Rhymes from directly or
indirectly calling on, soliciting, or taking away, or attempting to call on, solicit,
or take away any of Filter’s customers on whom Rhymes had called or with
whom he became acquainted during his employment with Filter. Additional
provisions prohibited Rhymes from (1) making known to any person, firm, or
corporation the names and addresses of Filter’s customers or any other
information pertaining to those customers; and (2) directly or indirectly
disclosing or using any trade secrets during or after his employment.
An at-will employee may properly plan to go into competition with his
employer and may take active steps to do so while still employed, and the
employee has no general duty to disclose his plans to his employer. Johnson v.
Brewer & Pritchard, P.C., 73 S.W.3d 193, 201 (Tex. 2002). An employee may
not appropriate his employer’s trade secrets, solicit his employer’s customers
during his employment, carry away employer information, such as customer
lists, or act for his future interests at his employer’s expense by using the
8
employer’s funds or employees for personal gain or by a course of conduct
designed to hurt the employer. Id. at 202.
In this case, the jury heard evidence that, before leaving Filter, Rhymes
incorporated Industrial and contacted Kim Jackson at RBF, one of Filter’s
customers, to obtain a new vendor form. Rhymes told Jackson that he was
thinking of leaving Filter and asked Jackson about the procedures for getting set
up as a vendor. Rhymes also spoke with Jerry James at Koch Pipeline, another
Filter customer, and provided James with Industrial’s information. Rhymes
testified that James called him for the purpose of helping him get set up with
Koch. Rhymes’s telephone records indicate that, while still on Filter’s payroll, he
initiated calls to some of Filter’s customers.
The jury heard Cheryl and Rhymes testify that Industrial made sales to
Filter’s customers only after those customers first contacted Rhymes. Rhymes
admitted that Industrial is a competitor of Filter, Industrial sells almost all the
same products as Filter, and that he called on, solicited, and sold products to
Filter’s customers. Additionally, the record demonstrates that Industrial made
sales to five of Filter’s customers within the first six weeks of Rhymes leaving
Filter and that within the first year of business, all of Industrial’s customers were
former Filter customers. Rhymes visited BASF, a Filter customer, on numerous
9
occasions, filed a vendor application with BASF, took BASF employees shooting
and hunting, and discussed BASF filters with Jonell before making a sale to
BASF. The jury also heard Doucet testify that Rhymes circumvented a
consignment agreement between Filter and Total.
Moreover, the jury heard Metcalf and Bridges testify that Rhymes had
access to confidential information. Rhymes testified that he protected Filter’s
financial information during his employment and did not use it for his own
purposes. He denied using any of Filter’s pricing information. The jury heard
Rhymes testify that, despite his access to Filter’s pricing information and his
disclaiming use of such information, he represented to his insurance company
that Industrial’s projected annual sales would be at least $750,000. Although
Rhymes denied formulating this number based on sales to Filter’s customers, the
jury heard evidence that Industrial generated annual sales of $732,914.80.
As sole judge of the weight and credibility of the evidence, the jury was
entitled to decide which evidence to believe and, therefore, could reasonably
conclude that Rhymes violated the non-solicitation clause by directly or
indirectly calling on, soliciting, or taking away Filter’s customers on whom
Rhymes had either called or had become acquainted with during his
employment. See Wilson, 168 S.W.3d at 819. The jury was entitled to reject
10
Rhymes’s testimony that he did not use Filter’s confidential information, such
as customer information and pricing lists, to further Industrial’s business. See
id. In doing so, the jury could reasonably conclude that Rhymes breached the
contract’s confidentiality and non-disclosure provisions. See id. Additionally,
the jury was asked if Rhymes violated any of the following fiduciary duties, to
which the jury answered “yes:”
Duty not to compete with Filter Resources by establishing his own
new, competing business, while still employed at Filter Resources;
Duty not to misuse Filter Resources’ materials and resources to
establish his own new, competing business, while still employed at
Filter Resources[;]
Duty to refrain from using Filter Resources’ confidential and
proprietary information, disclosed during employment with Filter
Resources[.]
Although Rhymes was entitled to begin planning to compete with Filter during
his employment, at the very least, the jury could reasonably conclude that Rhymes
breached his fiduciary duty by engaging in a course of conduct designed to harm
Filter, such as misusing Filter’s resources to contact and obtain Filter’s
customers.2 See Johnson, 73 S.W.3d at 201-02. Accordingly, we conclude that the
2
With regard to breach of the duty to refrain from using Filter’s confidential
and proprietary information, Rhymes argues that “Question 2 [regarding breach of
non-disclosure provisions] submits a breach of contract theory based on the
contractual provisions in the Employment Contract which prohibit ownership in a
11
evidence is legally sufficient to support the jury’s findings. We overrule issues
one, two, and three.
In issue four, Rhymes maintains that the evidence is legally insufficient to
support the jury’s finding that he and Industrial tortiously interfered with Filter’s
prospective contractual or business relations. To prevail on a claim for tortious
interference, a plaintiff must prove the following:
(1) there was a reasonable probability that the plaintiff would have
entered into a business relationship with a third party; (2) the
defendant either acted with a conscious desire to prevent the
relationship from occurring or knew the interference was certain or
substantially certain to occur as a result of the conduct; (3) the
defendant’s conduct was independently tortious or unlawful; (4) the
interference proximately caused the plaintiff injury; and (5) the
plaintiff suffered actual damage or loss as a result.
Coinmach Corp. v. Aspenwood Apt. Corp., 417 S.W.3d 909, 923 (Tex. 2013).
According to Rhymes, Filter failed to demonstrate an independent tort that
proximately caused actual damage to Filter.
The intentional breach of a fiduciary duty is a tort. Brosseau v. Ranzau, 81
S.W.3d 381, 396 (Tex. App.—Beaumont 2002, pet. denied). As previously
discussed, the evidence is legally sufficient to support the jury’s breach of
competing corporation and disclosure of Filter Resources’ confidential and
proprietary information, the identical fiduciary duties submitted in Question 3
under a tort theory.” According to Rhymes, “[t]he contractual provisions foreclose
any tort liability for breach of fiduciary duty.” However, as previously noted, the
charge asked the jury whether Rhymes violated any of three fiduciary duties.
12
fiduciary duty finding. When “a third party knowingly participates in the
breach of duty of a fiduciary, such third party becomes a joint tortfeasor with
the fiduciary and is liable as such.” Kinzbach Tool Co. v. Corbett-Wallace Corp.,
160 S.W.2d 509, 514 (Tex. 1942). According to Rhymes, the jury charge does
not include a separate question regarding knowing participation. The jury was
asked if “Rhymes and/or Rhymes Industrial intentionally interfere[d] with Filter
Resources’ prospective contractual or business relations[.]” The trial court
instructed the jury that tortious interference occurs, in part, when the party “acted
with a conscious desire to prevent the relationship from occurring or knew that
the interference was certain or substantially certain to occur as a result of his
conduct[.]”
To find that Industrial knowingly participated in Rhymes’s breach, the jury
would have to f i n d that (1) Industrial knew that Rhymes owed a duty to
Filter and (2) Industrial was aware of its participation in the breach. See
DeYoung v. Beirne, Maynard & Parsons, L.L.P., No. 01-13-00365-CV, 2014
Tex. App. LEXIS 2965, at *15 (Tex. App.—Houston [1st Dist.] Mar. 18,
2014, no pet.) (mem. op.). Such findings are subsumed within the jury’s
conclusion that Industrial knew that interference with Filter’s relationships was
certain or substantially certain to occur as a result of Rhymes’s conduct. The
13
trial court was not required to submit a separate question on knowing
participation. See Tex. R. Civ. P. 277 (“In all jury cases the court shall, whenever
feasible, submit the cause upon broad-form questions.”); see also Hyundai
Motor Co. v. Rodriguez, 995 S.W.2d 661, 665-66 (Tex. 1999) (“While trial
courts should obtain fact findings on all theories pleaded and supported by
evidence, a trial court is not required to, and should not, confuse the jury by
submitting differently worded questions that call for the same factual finding.”).
Rhymes also contends that knowing participation cannot support tortious
interference by Industrial because it is a derivative tort rather than an independent
tort. “Independently tortious” does not mean that the plaintiff must prove an
independent tort; rather, it means that the “defendant’s conduct would be
actionable under a recognized tort.” Wal-Mart Stores, Inc. v. Sturges, 52
S.W.3d 711, 726 (Tex. 2001). The jury heard evidence that Industrial relied on
Rhymes’s knowledge, sales, and solicitation of business. Cheryl testified that
Industrial was formed with the knowledge that, if Rhymes solicited Filter’s
customers, he would be violating his employment contract. The record also
indicates that Industrial knew that its customers were all previous customers of
Filter. The record contains evidence supporting a conclusion that Industrial’s
conduct would be actionable under a recognizable tort, which is all Filter was
14
required to show. See id. The jury could reasonably conclude that Industrial
knew of the fiduciary duties Rhymes owed to Filter and knew that it was
participating in Rhymes’s breach of those duties. See Coinmach Corp., 417
S.W.3d at 923; see also Kinzbach Tool Co., 160 S.W.2d at 514.
“The classic proximate-cause tests for cause-in-fact and foreseeability
apply to claims of tortious interference.” Richardson-Eagle, Inc. v. William M.
Mercer, Inc., 213 S.W.3d 469, 474 (Tex. App.—Houston [1st Dist.] 2006, pet.
denied). “Establishing causation requires that the plaintiff bring forth sufficient
facts so that the evidence, and logical inferences drawn from the evidence,
support a reasonable probability that the defendant’s acts or omissions were a
substantial factor in bringing about injury.” Id. The record contains evidence
demonstrating that, after Rhymes’s departure, Jonell’s sales to Filter began
declining, Filter’s sales substantially decreased, Filter’s lost sales could not all be
recouped, Filter lost several customers to Rhymes and Industrial, and Rhymes
interfered with an existing consignment agreement. The jury was entitled to
conclude that Filter presented sufficient facts to support a reasonable probability
that Rhymes’s conduct was a substantial factor in bringing about actual damage
to Filter. See id. We overrule issue four.
15
In issue five, Rhymes contends that Filter failed to show damages
proximately caused by breach of the non-solicitation clause, breach of the non-
disclosure and confidentiality provisions, breach of fiduciary duty, and tortious
interference. “Proximate cause comprises two elements: cause in fact and
foreseeability.” Smith, 307 S.W.3d at 774. The test for causation in fact is
“whether the defendant’s act or omission was a substantial factor in causing the
injury and without which the injury would not have occurred.” Id. “Foreseeability
requires only ‘that the injury be of such a general character as might reasonably
have been anticipated; and that the injured party should be so situated with
relation to the wrongful act that injury to him or to one similarly situated might
reasonably have been foreseen.’” Ryder Integrated Logistics, Inc. v. Fayette
Cty., 453 S.W.3d 922, 929 (Tex. 2015) (quoting Nixon v. Mr. Prop. Mgmt.
Co., 690 S.W.2d 546, 551 (Tex. 1985)).
Again, the record contains evidence demonstrating that Rhymes’s breaches
and tortious interference led to the loss of customers and, consequently, the loss
of substantial profits that otherwise would have gone to Filter. As previously
discussed, the jury heard evidence by which it could reasonably conclude that
Rhymes’s conduct was a substantial factor in causing harm to Filter. See
Smith, 307 S.W.3d at 774. The jury could also reasonably conclude that Filter’s
16
injury, the loss of customers and profits, would not have occurred absent
Rhymes’s conduct. See id. That Filter would lose customers and sales is an injury
that Rhymes should reasonably have anticipated would result from his conduct.
See Ryder Integrated Logistics, Inc., 453 S.W.3d at 929. We overrule issue five.
In issue six, Rhymes argues that the evidence is legally insufficient to
support the jury’s damage award. In our opinion of April 14, 2016, which we
have withdrawn, we affirmed the jury’s award of lost profits of $620,000 to
Filter. In his motion for rehearing, Rhymes argues that it was error for this Court
to affirm the lost profits damage award of $620,000, because it was based on
evidence of Industrial’s gross revenues for the one-year period covered by the
non-compete agreement. According to Rhymes, under Texas law, the calculation
of lost profits must be based on net profits, not gross revenues or gross sales.
While Rhymes argues that there is no legally sufficient evidence to support the
jury’s lost profits award of $620,000, he claims that the evidence is sufficient to
support an award of $206,767 in lost profits. Rhymes asks that we suggest a
remittitur of $206,767.
The rule determining whether there is adequate evidence of lost profits is
well established:
17
Recovery for lost profits does not require that the loss be susceptible
of exact calculation. However, the injured party must do more than
show that they suffered some lost profits. The amount of the loss must
be shown by competent evidence with reasonable certainty. What
constitutes reasonably certain evidence of lost profits is a fact
intensive determination. As a minimum, opinions or estimates of lost
profits must be based on objective facts, figures, or data from which
the amount of lost profits can be ascertained. Although supporting
documentation may affect the weight of the evidence, it is not
necessary to produce in court the documents supporting the opinions
or estimates.
Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992) (citations
omitted). The jury awarded Filter $620,000 in lost profits for the one-year non-
solicitation period. In our legal sufficiency analysis, we review whether competent
evidence establishes this amount with reasonable certainly. See id. Additionally, in
light of Rhymes’s contention that there is legally sufficient evidence to support an
award of $206,767 in lost profits, we will also review whether competent evidence
exists to support a lesser award.
“Lost profits are damages for the loss of net income to a business measured
by reasonable certainty.” Miga v. Jensen, 96 S.W.3d 207, 213 (Tex. 2002). The
calculation of lost profits must be based on net profits. Holt Atherton, 835 S.W.2d
at 83 n.1. Although there is more than one correct method for calculating lost
profits, once a party has chosen a particular method, recovery of lost profits must
be predicated on one complete calculation. Springs Window Fashions Div., Inc. v.
18
Blind Maker, Inc., 184 S.W.3d 840, 884 (Tex. App.—Austin 2006, pet. granted,
judgm’t vacated w.r.m.) (op. on reh’g). “The plaintiff bears the burden of
providing evidence supporting a single complete calculation of lost profits, which
may often require certain credits and expenses.” ERI Consulting Eng’rs, Inc. v.
Swinnea, 318 S.W.3d 867, 878 (Tex. 2010).
The jury heard Compton, Filter’s lost profits expert, testify that in his
opinion, Filter incurred $622,800 in lost profits over a five-year period due to
Rhymes selling to Filter’s customers during the one-year non-solicitation period.
Compton explained to the jury how he calculated Filter’s lost profits over a five-
year period. Compton testified that he compared Rhymes’s and Filter’s financial
and sales information and prepared a report showing Filter’s estimated lost profits
ranging from $234,000 during the first year to almost $623,000 over a five-year
period. Compton testified that he based his lost profits calculations on the profits
that Rhymes made by selling to Filter’s customers during the non-solicitation
period.
Compton testified that Rhymes’s actual sales to Filter’s customers during
the non-solicitation period was $638,746. Compton further testified that he
deducted $403,959 in expenses, which was the cost of the goods Rhymes sold to
Filter’s customers, from Rhymes’s actual sales and concluded that Rhymes made
19
a profit of $234,787 over a one-year period. Compton explained that he used
Rhymes’s profit of $234,787 from that first year as Filter’s lost profits. Compton
then made a deduction on Filter’s side, subtracting $28,020 in avoided salary
costs, for the amount that Filter saved during that first year by not immediately
replacing Rhymes. According to Compton’s calculations, Filter incurred
$206,767 in lost profits during the first year. Compton further explained how he
used Filter’s lost profits for the first year to calculate that Filter incurred
$622,800 in lost profits over a five-year period.
The jury also heard testimony from Bridges, Filter’s vice-president, who
was familiar with Filter’s financial and sales history. Bridges testified that
Rhymes ranged from $638,745 to $732,914 in total sales income the first year
that Rhymes was set up as Industrial, and that all of Rhymes’s sales came from
Filter’s clients. Bridges testified that these profits would have remained with
Filter but for Rhymes’s actions and would have been pure profit for Filter. The
jury awarded Filter $620,000 in lost profits for the one-year non-solicitation
period ranging from August 18, 2012, to August 17, 2013.
In reviewing whether legally sufficient evidence exits to support the jury’s
award of $620,000 in lost profits for the non-solicitation period, we must
determine whether competent evidence establishes this amount with reasonable
20
certainty. See Holt Atherton, 835 S.W.2d at 84. Filter had the burden of providing
evidence supporting a single complete calculation of lost profits, including any
required credits and expenses. See Swinnea, 318 S.W.3d at 878. Neither
Compton’s nor Bridges’s testimony concerning the amount of Rhymes’s actual
sales during the first year provided a single complete calculation of lost
profits. See id. Compton testified that Rhymes’s actual sales to Filter’s
customers during the non-solicitation period was $638,746, and Bridges testified
that Rhymes’s total sales income the first year ranged from $638,745 to
$732,914. Testimony concerning Rhymes’s total sales income provided
evidence of lost sales to Filter, and lost sales are not the same thing as lost
profits. See Holt Atherton, 835 S.W.2d at 84 (“[L]ost income is not the correct
measure of damages.”); Kellmann v. Workstation Integrations, Inc., 332 S.W.3d
679, 685 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (holding that evidence
of gross revenue, rather than net revenue, did not establish lost profits).
Lost profits are for the loss of net income, and the calculation of lost profit
damages must be based on net profits. Miga, 96 S.W.3d at 213; Holt Atherton,
835 S.W.2d at 83 n.1. Because lost profit damages must be based on net profits,
Compton’s and Bridges’s testimony regarding the amount of Rhymes’s total
sales during the first year fails to provide competent evidence supporting a single
21
complete calculation of lost profits. See Swinnea, 318 S.W.3d at 878. We
conclude the evidence was legally insufficient to support the jury’s award of
$620,000 in lost profits during the non-solicitation period. We sustain Rhymes’s
sixth issue.
However, this insufficiency does not extend to a reasonable certainty as to
any amount of lost profit damages. See id. at 880. Filter suggests, and we agree,
that competent evidence exists to support a lesser award of lost profits. Because
Filter proved lost profit damages in some amount, its entitlement to recover them
survives the jury awarding an excessive amount. See id. at 878. “If part of a
damage verdict lacks sufficient evidentiary support, the proper course is to
suggest a remittitur of that part of the verdict.” Larson v. Cactus Util. Co., 730
S.W.2d 640, 641 (Tex. 1987); see also Tex. R. App. P. 46.3. Because the
evidence in this case justifies some award of lost profit damages, but is
insufficient to support the jury’s $620,000 award, we must determine the
maximum amount the jury could reasonably award based on the record before us.
In determining the maximum amount the jury could have awarded, we
consider Rhymes’s contention that $206,767 is the highest amount of lost profit
damages supported by the evidence. Our review of the record shows that
competent evidence exists to establish with reasonable certainty that Filter
22
incurred lost profit damages of $206,767. See Holt Atherton, 835 S.W.2d at 84.
Compton testified that Filter incurred $206,767 in lost profits during the first
year, and he explained that he calculated his estimate by using Rhymes’s total
sales during the first year as Filter’s lost profits and then deducting the cost of
goods and avoided salary costs. Because Compton’s calculation of $206,767 in
lost profit damages is based on net profits, we hold that Compton’s testimony
provides competent evidence supporting a single complete calculation of lost
profits. See id. at 83 n.1.
We conclude that there is sufficient evidence to support that Filter incurred
$206,767 in lost profit damages during the one-year non-solicitation period.
Accordingly, we suggest a remittitur of $206,767. The party prevailing in the trial
court must be given the option of accepting the remittitur or having the case
remanded for a new trial. See Larson, 730 S.W.2d at 641. If the sum is not
remitted, the judgment will be reversed, and the cause will be remanded to the
trial court for a new trial.
In its first cross-issue, Filter asks that, in the event we disagree with Filter’s
arguments supporting the jury’s damage award for the one-year non-solicitation
period, we set aside the award and apportion the $620,000 across periods of
time where the jury awarded $0 in damages. The trial court’s charge
23
instructed the jury to consider awarding lost profit damages over three
periods of time. The jury awarded $620,000 in damages for the first
period of August 18, 2012, to August 17, 2013, which covered the one-
year non-solicitation period. The jury awarded $0 in damages for the
second period ranging from August 18, 2013, to the date of trial, and the
third period beginning on the date of trial and ending August 17, 2017.
Filter contends that the jury’s findings of zero damages for two of the
periods is not supported by legally sufficient evidence. Filter argues that the jury
could not disregard Compton’s opinion that Filter’s damages over a five-year
period would be approximately $620,000, because Compton’s testimony was
uncontroverted and established as a matter of law. According to Filter, because
Compton’s testimony exclusively established that Filter would incur damages of
$620,000, this Court should render judgment awarding Filter damages for all
three periods, totaling $620,000. Rhymes argues that Texas law does not allow
appellate courts to reapportion damage awards in this manner. See Cressman
Tubular Prods. Corp. v. Kurt Wiseman Oil & Gas, Ltd., 322 S.W.3d 453, 462-63
& n.7 (Tex. App.—Houston [14th Dist.] 2010, pet. denied). According to
Rhymes, the fact that the jury’s award of $620,000 for the one-year non-
solicitation period is excessive and unsupported by the evidence does not
24
authorize this Court to allocate damages to periods where the jury awarded zero
damages.
“[T]he judgments and inferences of experts or skilled witnesses, even
when uncontroverted, are not conclusive on the jury or trier of fact, unless the
subject is one for experts or skilled witnesses alone, where the jury or court
cannot properly be assumed to have or be able to form correct opinions of their
own based upon evidence as a whole and aided by their own experience and
knowledge of the subject of inquiry.” McGalliard v. Kuhlmann, 722 S.W.2d 694,
697 (Tex. 1986). An expert’s opinion testimony does not establish any material
fact as a matter of law. Id. The jury is afforded considerable discretion in
evaluating opinion testimony on the issue of damages and is entitled to
disbelieve or discount any part of an expert’s testimony. Id.; Vela v. Wagner &
Brown, Ltd., 203 S.W.3d 37, 50 (Tex. App.—San Antonio 2006, no pet.).
Although Compton testified that he used standard methodology for
calculating Filter’s lost profits over a five-year period, the assumption he used to
determine the extent of Filter’s future lost profits was speculative. See AZZ Inc. v.
Morgan, 462 S.W.3d 284, 298 (Tex. App.—Fort Worth 2015, no pet.). Compton
testified that he based his opinion that Filter would incur lost profit damages over
a five-year period on the assumption that Filter’s losses were indefinite, meaning
25
that there was no time limit on the damages. Compton agreed that the issue of
whether Filter had been damaged indefinitely was a question for the jury to
decide.
Compton explained that it is harder to calculate the plaintiff’s damages over
a longer time period because it becomes too difficult to connect future lost profits
with the defendant’s actions and because other things happen that mitigate
damages. To account for uncertainty and mitigation, Compton explained that he
reduced his estimates of lost profits by twenty percent each year over the five-
year period. Compton further explained that he accounted for the uncertainty of
the longer time period by discounting the future losses by twelve percent each
year.
Because the jury has considerable discretion in evaluating expert testimony,
the jury could choose to not believe Compton’s assumption that Filter was
damaged indefinitely, and thus disregard Compton’s opinion that Filter would
incur lost profits over a five-year period. See McGalliard, 722 S.W.2d at 697;
Vela, 203 S.W.3d at 50. We conclude that the jury could have reasonably
determined that the assumption was incorrect, that Compton’s opinion
concerning Filter’s future lost profits was speculative, and that an award of
future lost profit damages based on the assumption was not justified. We further
26
conclude that Compton’s testimony was only opinion evidence and did not
conclusively establish as a matter of law that Filter would incur future lost
profits during the time periods where the jury awarded $0 in damages. See
McGalliard, 722 S.W.2d at 697; see also Senegal v. Payne, No. 09-13-00508-
CV, 2015 WL 4053504 at *4-5 (Tex. App.—Beaumont July 2, 2015, no pet.)
(mem. op.). We overrule Filter’s first cross-issue.
Evidentiary Challenge
In issue seven, appellants argue that any evidence of damages sustained after
the contract’s one-year non-solicitation period was improperly admitted because it
was speculative. “We review a trial court’s evidentiary rulings for abuse of
discretion.” Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 906 (Tex.
2000).We will not reverse unless the error probably caused the rendition of an
improper judgment. Tex. R. App. P. 44.1(a)(1).
In his expert report, Compton provides three periods of lost profits. “Case
3” estimated lost profits assuming Filter suffered indefinite damage. Rhymes
moved to exclude Case 3 on grounds that the one-year non-solicitation clause
covers the period from August 18, 2012, to August 17, 2013, but Case 3
attempts to recover $622,845 for the five-year period from August 18, 2012, to
August 17, 2017. Rhymes argued that Case 3 was “irrelevant, unreliable,
27
speculative and contrary to the terms of the Employment Contract.” The trial
court overruled Rhymes’s objection to the admission of Compton’s testimony
regarding Case 3, stating that Compton’s “analysis [is] based on an assumption
that may or may not be correct, that’s a fact of the matter in dispute between the
parties [that] would go to the weight[,] not the admissibility.” On appeal, without
citation to record references, Rhymes argues that:
The lost sales that comprise the future damages sought by Filter
Resources for the 4 years after the expiration of the non-
solicitation covenant are attributable to customers who had no
contractual agreements with Filter Resources and who were free to
stop sending business to Filter Resources at any time for any reason.
This renders the damages sought by Filter Resources for the four
years after the expiration of the non-solicitation covenant speculative
and no evidence as a matter of law.
The trial court has discretion to determine the admissibility of expert
testimony. E.I. du Pont de Nemours and Co., Inc. v. Robinson, 923 S.W.2d 549,
558 (Tex. 1995). The trial court’s ultimate task is to determine whether the
expert’s analysis is reliable, not to determine whether the expert’s conclusions
are correct. TXI Transp. Co. v. Hughes, 306 S.W.3d 230, 239 (Tex. 2010). Any
question about the reasonableness of Compton’s methodology or the factual
basis of his testimony goes to its weight and not its admissibility. See Pena v.
Ludwig, 766 S.W.2d 298, 304 (Tex. App.—Waco 1989, no writ).
28
At trial, Compton explained that he reviewed Rhymes’s and Filter’s
financial information and actual sales, lawsuit documents, and depositions. He
testified that there are Texas guidelines that he must follow when formulating
a calculation and that he followed these guidelines. Compton testified that he
assumed that Rhymes’s leaving Filter caused the loss of business and that
Filter was damaged indefinitely by Rhymes’s actions, which he defined as a five-
year period. He described in detail the formula he used to determine Filter’s lost
profits. On cross-examination, Rhymes challenged Compton’s assumption that
Filter suffered indefinite damage and the calculations based on that assumption.
We conclude that Rhymes’s complaint about Compton’s testimony went to its
weight and not its admissibility. Accordingly, the trial court did not abuse its
discretion by admitting the complained-of evidence. Moreover, even if the trial
court had erred in admitting the evidence, it did not result in an improper
judgment, because the jury only awarded damages for the one-year non-
solicitation period. See Tex. R. App. P. 44.1(a)(1). We overrule issue seven.
Injunctive Relief
In issue eight, Rhymes contends that there is no basis for the trial court’s
award of injunctive relief. In its final judgment, the trial court conditionally
granted Filter’s request for injunctive relief requiring Rhymes to return his cell
29
phone and SIM card should Rhymes fail to do so voluntarily. The trial court
denied Filter’s request for additional injunctive relief. On appeal, Rhymes
maintains that the cell phone and SIM card are his personal property, Filter did
not submit the issue of ownership to the jury, and without a jury finding on the
issue, Filter has waived a right to relief.
“The jury does not determine the expediency, necessity, or propriety of
equitable relief.” State v. Tex. Pet Foods, Inc., 591 S.W.2d 800, 803 (Tex. 1979).
“The determination of whether to grant an injunction based upon the
ultimate issues of fact found by the jury is for the trial court, exercising chancery
powers, and not the jury.” Id. “Injunctive relief is recognized as a proper remedy
to protect confidential information and trade secrets.” Rugen v. Interactive
Bus. Sys., Inc., 864 S.W.2d 548, 551 (Tex. App.—Dallas 1993, no writ.). “An
injunction is appropriate when necessary to prohibit an employee from using
confidential information to solicit his former employer’s clients.” Id.
The record indicates that Rhymes brought a particular cell phone number
along with him when he began working for Filter. Filter proceeded to purchase
a new cell phone, using this same number, for Rhymes and Filter paid at least a
portion of Rhymes’s cell phone bill during his employment. After leaving Filter,
Rhymes took the cell phone, which contained information regarding Filter’s
30
customers, and used that cell phone to solicit Filter’s customers. The jury
found that Rhymes breached his employment contract with Filter, breached his
fiduciary duties, and tortiously interfered with Filter’s prospective business
relations; thus, the trial court was entitled to conclude that Rhymes had engaged
in a settled course of conduct and to assume that such conduct would continue.
See Tex. Pet Foods, Inc., 591 S.W.2d at 803-04. In so doing, the trial court could
reasonably conclude that an injunction requiring Rhymes to return the cell phone
and SIM card was necessary to prevent Rhymes from continuing to use Filter’s
confidential information to solicit Filter’s customers. See id. at 803; see also
Rugen, 864 S.W.2d at 551. We overrule issue eight.
Attorney’s Fees
In its second cross-issue, Filter argues that the trial court abused its
discretion by finding that Filter was not entitled to attorney’s fees as awarded
by the jury. The jury awarded Filter $125,000 in attorney’s fees for
representation in the trial court based on its conclusion that Rhymes breached
the non-solicitation clause. Rhymes filed a motion for judgment notwithstanding
the verdict, in which he contended that the Texas Covenants Not to Compete Act
(the “Act”) prohibited an award of attorney’s fees. The trial court granted
Rhymes’s motion on this issue. On appeal, Filter argues that it is entitled to
31
attorney’s fees under section 38.001(8) of the Civil Practice and Remedies
Code because: (1) the jury found that Rhymes breached the contract’s non-
disclosure provision; and (2) the trial court awarded injunctive relief.3
In response, Rhymes argues that Filter’s request for attorney’s fees under
section 38.001 is barred by a lack of presentment. “A person may recover
reasonable attorney’s fees from an individual or corporation, in addition to the
amount of a valid claim and costs, if the claim is for . . . an oral or written
contract.” Tex. Civ. Prac. & Rem. Code Ann. § 38.001(8) (West 2015). To recover
such fees, “the claimant must present the claims to the opposing party or to a duly
authorized agent of the opposing party[]” and “payment for the just amount owed
must not have been tendered before the expiration of the 30th day after the claim is
presented.” Id. § 38.002(2), (3). Presentment is “required to allow the person
against whom the claim is asserted an opportunity to pay the claim within thirty
days of receiving notice of the claim, thereby avoiding the obligation to pay
3
Rhymes contends that Filter has waived its complaint with regard to breach
of the non-disclosure provision. According to the record, in response to Rhymes’s
motion for judgment notwithstanding the verdict, Filter argued that Rhymes’s
argument ignored the fact that Filter requested injunctive relief. On appeal, Filter
maintains that attorney’s fees are authorized by section 38.001(8) because Filter
received something of value in the form of injunctive relief because of Rhymes’s
breach of contract. See Tex. Civ. Prac. & Rem. Code Ann. § 38.001(8) (West
2015). Accordingly, we conclude that Filter’s complaint is preserved for appellate
review.
32
attorney’s fees.” Note Inv. Grp., Inc. v. Assocs. First Capital Corp., 476
S.W.3d 463, 485 (Tex. App.—Beaumont 2015, no pet.). “All that is necessary is
that the party seeking attorney’s fees show that it made an assertion of a debt or
claim and a request for compliance to the opposing party, and that the opposing
party refused to pay the claim.” Id. Although a particular form of presentment is
not required, “neither the filing of suit, nor the allegation of a demand in the
pleadings can, alone, constitute presentment of a claim or a demand that a claim
be paid.” Id.
Filter maintains that it satisfied the presentment requirement because: (1)
during his deposition, Rhymes “was confronted with evidence of his breach of
the Employment Contract[]” and denied any breach, “thereby indicating his
intention to continue operating his competing business[;]” (2) during mediation,
Filter informed Rhymes’s counsel that “Filter considered Rhymes to be in breach
of the Employment Contract and demand[ed] that he stop[;]” and (3) “Filter made
several demands far in advance of trial in this case, and it is undisputed that
[Rhymes] did not respond or make any tender of payment within 30 days of any
of the demands.” Filter does not cite this Court to any record references to
substantiate its contention regarding mediation or any other demands made
before trial. See Genender v. USA Store Fixtures, LLC, 451 S.W.3d 916, 927
33
(Tex. App.—Houston [14th Dist.] 2014, no pet.) (“Evidence that the parties
participated in settlement negotiations, without more, is no evidence of
presentment.”); see also Tex. R. App. P. 38.1(g), 38.2(a)(1). Moreover,
“presentment” refers to a request or demand for payment or performance. Note
Inv. Grp., Inc., 476 S.W.3d at 485. Filter does not direct this Court to any
request or demand for payment or performance arising out of the breach. See id.;
see also King v. Wells Fargo Bank, N.A., 205 S.W.3d 731, 734-35 (Tex. App.—
Dallas 2006, no pet.) (It is the party’s burden to direct the appellate court to
evidence in the record that supports the party’s contention; it is not an appellate
court’s duty to conduct an independent search of the record for evidence to
support a party’s position.). Robert Alan Black, Filter’s attorney’s fees expert,
testified that he had not seen any presentment “one way or the other.” Our
review of the record has not revealed any evidence of presentment upon which
the trial court could enforce the jury’s attorney’s fee award under section 38.001.
We overrule Filter’s second cross-issue.
Conclusion
In conclusion, we affirm the judgment of the trial court conditioned on
Filter remitting the jury’s damage award for the one-year non-solicitation period
in the sum of $206,767. If Filter accepts the remittitur that we have suggested
34
within fifteen days of the date of this opinion, we will affirm the trial court’s
judgment, as reformed. See Tex. R. App. P. 46.3, 46.5. If Filter fails to timely file
the suggested remittitur, we will reverse the trial court’s judgment and remand
the cause to the trial court for a new trial. See Larson, 730 S.W.2d at 641.
AFFIRMED CONDITIONALLY.
STEVE McKEITHEN
Chief Justice
Submitted on May 19, 2016
Opinion Delivered September 22, 2016
Before McKeithen, C.J., Horton and Johnson, JJ.
35
Concurring Opinion
I concur in the result the majority reaches, which is to affirm the trial
court’s judgment conditioned on a significant remittitur of the damages the jury
awarded in its verdict to Filter. However, I cannot agree with the analysis the
majority employs to resolve issue seven, wherein the court holds that the trial court
properly admitted the entirety of the testimony of Filter’s damages expert, Jeffrey
Compton. Therefore, I do not join that portion of the Court’s opinion.
According to the majority, the entirety of Compton’s testimony was properly
admitted into evidence because: “Any question about the reasonableness of
Compton’s methodology or the factual basis of his testimony goes to its weight and
not its admissibility.” Nevertheless, the majority’s discussion of issue six outlines a
significant reliability problem with a large part of Compton’s testimony, as the
Court determined that Compton’s damages testimony was legally insufficient to
support the jury’s award of $620,000 in damages. I agree with the Court’s
resolution of issue six, as I fully agree that Compton’s testimony was unreliable
and cannot support an award of $620,000 in damages.
Nonetheless, the Court then explains why Compton’s testimony would have
supported an award of $206,767, an amount that represents Filter’s damages during
the one-year period following the date that Rhymes left his job with Filter.
1
According to the majority, damages of that amount are supported by reliable
evidence because Compton’s damage calculation for that period did not suffer
from the flaw that existed in his opinion calculating Filter’s damages in the amount
of $620,000. According to the Court, Compton’s calculation of the damages Filter
suffered in the first year that Rhymes left his job with Filter was reliable because
he based that calculation on a single complete calculation of lost profits, as is
required by Texas law.
In summary, the majority reasons that Compton’s testimony was legally
competent to support the jury’s damage award for the first year that Rhymes left
his job with Filter, but incompetent evidence with respect to supporting additional
damages in other years. In issue seven, however, having declared Compton’s
testimony largely unreliable, the majority states that the trial court did not err in
admitting Compton’s testimony despite the Court’s extensive explanation about
why it was largely unreliable and misleading regarding Filter’s damages.
According to the majority, the methodology Compton utilized to arrive at his
estimate is a matter that concerns solely the weight the jury should have given
Compton’s testimony. I disagree, as the flaw made Compton’s $620,000 estimate
unreliable and misleading, and in this case caused the jury to return a verdict that
was based on legally insufficient evidence. Because the flaw in Compton’s
2
$620,000 damage estimate affected the reliability of that estimate, the trial court
erred by admitting the testimony and effectively delegating the court’s
responsibility as gatekeeper of expert testimony to place that responsibility on the
jury. In my opinion, it is the trial court’s responsibility to ensure that the jury heard
only reliable testimony on the issue of Filter’s damages. And, to the extent
Compton’s testimony was unreliable, that portion of his testimony should not have
been admitted. See E.I. du Pont de Nemours and Company v. Robinson, 923
S.W.2d 549, 556 (Tex. 1995).
To support the proposition that the entirety of Compton’s testimony was
properly before the jury, the majority relies on Pena v. Ludwig, 766 S.W.2d 298
(Tex. App.—Waco 1989, no writ), a case decided well before the Texas Supreme
Court decided Robinson. In Robinson, the Court explained that the trial court was
responsible for limiting expert testimony so that the jury heard reliable evidence,
indicating “[t]he trial court is responsible for making the preliminary determination
of whether the proffered testimony meets the standards set forth today.” 923
S.W.2d at 556. Compton’s testimony was required to meet the reliability standards
identified in Robinson, and Pena does not support the proposition that legally
insufficient evidence of a party’s damages is admissible. I would hold the trial
court erred by admitting Compton’s testimony that Filter’s damages were $620,000
3
because that part of his damages testimony was unreliable.
Nonetheless, if Filter accepts the remittitur that the Court has suggested, the
trial court’s error in admitting that part of Compton’s damages testimony that was
unreliable will not have resulted in an improper judgment. The Court has remitted
the damages to an amount that is supported by sufficiently reliable evidence, so the
judgment the Court has proposed will not include any damages that are based on
the unreliable portions of Compton’s testimony. Therefore, I concur with the
amount of the suggested remittitur, and with the decision to award Rhymes and
Rhymes Industrial Filtration & Consulting L.L.C. a new trial if Filter refuses to
accept the judgment the Court proposes.
_________________________
HOLLIS HORTON
Justice
Concurrence Delivered
September 22, 2016
4