Supply Pro, Inc. and Harmon K. Fine, Individually v. Ecosorb International, Inc., D/B/A Biocel Technologies

Opinion issued August 30, 2016
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-15-00621-CV
———————————
SUPPLY PRO, INC. AND HARMON K. FINE, INDIVIDUALLY, Appellants
V.
ECOSORB INTERNATIONAL, INC. D/B/A BIOCEL TECHNOLOGIES,
Appellee
On Appeal from the 11th District Court
Harris County, Texas
Trial Court Case No. 2012-24524
MEMORANDUM OPINION
Appellants Supply Pro, Inc. and Harmon K. Fine appeal a final judgment
rendered on a jury verdict in favor of appellee Ecosorb International, Inc. d/b/a
Biocel Technologies in a breach of contract and fraud case. In five issues, appellants
argue that: (1) there is legally insufficient evidence to support the jury’s finding that
the parties agreed to include a clawback provision1 as part of a workout agreement
entered into by the parties; (2) alternatively, the trial court erred by refusing to submit
appellants’ requested jury charge question on fraudulent inducement/equitable
estoppel; (3) the evidence is legally insufficient to support the damage awards for
storage charges, the clawback provision, and the take-or-pay term; (4) the evidence
is legally insufficient to support the awards of punitive damages; and, (5) the trial
court erred by not incorporating Biocel’s remitittur on prejudgment interest into the
judgment.
We modify the trial court’s judgment, and affirm, as modified.
Background
Harmon Fine is the President and owner of Supply Pro, Inc. (Supply Pro).
Supply Pro manufactures absorbent floating boom that is used to contain and cleanup
offshore oil spills.
After British Petroleum’s (BP) Deepwater Horizon oil rig exploded in April
2010, causing a massive oil spill in the Gulf of Mexico, scrap polypropylene, Supply
Pro’s regular boom-fill material, was in short supply after the spill. As a result,
1
Biocel refers to this provision as the “participation clause.” For ease of reference,
however, we will adopt appellants’ terminology.
2
Supply Pro and other boom manufacturers had to look for a competitively priced
alternative.
Ecosorb International, Inc. d/b/a Biocel Technologies (Biocel), and its parent
company, International Cellulose Corporation (ICC), manufacture and sell one such
alternative—K-Sorb, a cellulose fiber product that has been chemically treated to
make it water repellent. Steve Kempe is the owner of ICC, which manufactures
K-Sorb and the other goods that Biocel sells. After the Deepwater Horizon spill,
Biocel’s product was in demand by companies which manufactured oil containment
booms. In May 2010, Supply Pro began purchasing K-Sorb from Biocel to use as a
filler in its booms.
In mid-June 2010, BP (through Supply Pro’s distributor, Pacific
Environmental) requested Supply Pro to produce ten truckloads of boom per day. To
achieve that level of production, Supply Pro invested heavily in expanding its
facilities and equipment and increased its employees from 50 to 350. By June 29,
Supply Pro was expecting to produce and ship five truckloads of boom per day in
early July, then ten per day by the middle of July.
On July 11, Biocel emailed Supply Pro that it had “many new customers that
are booking more than their needs” and that “due to the extreme production demands
created by the oil containment crisis in the Gulf of Mexico, all orders for our
3
hydrophobic materials” would, among other things, be “non-cancellable, ‘take or
pay.’” Supply Pro did not reply to this email.
On July 13, 2010, Supply Pro submitted blanket purchase order no. 41724 (the
July 13 PO) for 31,680 bags (twenty-eight truckloads) of K-Sorb. This PO did not
include any terms and conditions besides the product, quantity, price, and net
thirty-day payment terms.
On July 16, 2010, Biocel issued order acknowledgment No. 5301 (the July 16
OA) for the July 13 PO which confirmed a purchase price of $14,572.80 for only
1,056 bags (one truckload) of K-Sorb.
BP capped the leaking well on July 15, 2010. Then, on July 23-25, Tropical
Storm Bonnie dispersed the remaining oil from the spill. In the late afternoon on July
27, BP instructed Supply Pro to reduce its production from ten truckloads of boom
per day to three, but cautioned that circumstances could change quickly as the oil
moved or reached land areas.
On July 29, Supply Pro submitted PO no. 41778 (the July 29 PO) to Biocel
for the 29,568 bags (twenty-eight truckloads) of K-Sorb that would be needed to
meet BP’s three-truckload production level. On July 29, Biocel issued an OA (the
July 29 OA) for Supply Pro’s July 13 PO. This OA also included Biocel’s
non-cancellation take-or-pay term.
4
On July 30, BP instructed Supply Pro to stop all boom production, but
acknowledged that production could resume at a later time.
On or about August 4, 2010, Supply Pro sent a notice to Biocel stating that it
was canceling the remainder of its July 13 PO and all of its July 29 PO. As of that
date, Biocel had already produced 6,912 bags of K-Sorb pursuant to these purchase
orders.
Fine and Kempe met for lunch on August 11, 2010. Kempe testified in detail
about the workout agreement that he and Fine reached at that meeting. According to
Kempe, he sent an email to Fine on August 13, 2010 that reflected the terms of their
deal.
In his August 13, 2010 email to Fine, Kempe stated: “I am certain we can
work together to craft a mutually agreeable resolution.” Kempe further stated:
“Based on our discussions and some subsequent thinking, we propose the
following.” He then set forth the terms of the workout which was organized into two
parts.
The first part of the email applied if Supply Pro was not compensated by
Pacific or BP for its cancelled orders. This part contained three sections providing:
(1) Supply Pro and Biocel would try to sell the 6,912 bags of K-Sorb over a 6-month
period (until February 1, 2011), at which time Supply Pro would purchase any
remaining bags; (2) Supply Pro was given the option of (i) paying $12,750
5
restocking fee in order to immediately return the raw chemical feedstock that Biocel
had on hand to Biocel’s suppliers or (ii) having Biocel use the feedstock to produce
K-Sorb that could be sold or used later, in which case Supply Pro would be invoiced
for any bags of K-Sorb remaining as of January 2011; and (3) Biocel would waive
remaining purchase requirements under open orders.
The second part, which appellants refer to as the “clawback provision,”
applied if Supply Pro was compensated by Pacific or BP. It contained five sections,
which provided, among other things, that: Biocel would be compensated by Supply
Pro in the same proportion Supply Pro was compensated for cancelled orders (“less
the restocking fee outlined above if the raw material return option is elected by
Supply Pro”); “other than the offset for the 12[,]750 restocking fee should Supply
Pro elect that option there will be no other offsets to compensate or quantities
delivered;” and Supply Pro would notify Biocel in a timely manner in the event of
receipt of payments from BP.
After setting forth these alternative scenarios, Kempe stated: “Kindly confirm
your acceptance of the above. I also need to hear from you specifically regarding the
disposition of the unconverted raw material.” Kempe further stated that Biocel is
“reviewing several strategies” that Fine and Kempe discussed at lunch “regarding
ongoing natural fiber boom sales” and that Biocel will contact Fine the following
week to discuss Biocel’s ideas.
6
On August 16, Fine sent Kempe an email, replying to the August 13 email.
Fine’s email: (1) authorized Biocel to return the raw materials and charge Fine
$12,750; and (2) agreed to purchase the balance of the 6,912 bags of K-Sorb
remaining after six months. Fine’s email did not expressly refer to any of the other
proposed terms set forth in Kempe’s August 13th email. Kempe replied that same
day and informed Fine that the return process was underway.
At trial, Kempe explained that subsections 1-2 of part one, and all of part two,
including the clawback provision, were agreed to at lunch. Kempe testified that Fine
acknowledged to Kempe during their meeting that Supply Pro was subject to
Biocel’s take-or-pay terms. Fine claimed “he [Supply Pro] was left holding the bag
with all the expenses and the cancellation of what he had in progress.” Fine said he
did not expect to be paid for cancelled orders. Fine and Kempe concluded the lunch
with a handshake:
We [Fine and I] had an agreement and a handshake at Goode’s BBQ. I
followed that up—not—I’m not an attorney. I did the best I could
preparing that document, summarizing that agreement. There’s a lot of
detail in that. I sent that to him in case I missed something. He
responded to me with the two portions of the agreement that required
me to do something, rejected none of the other elements as we had
agreed at lunch and we moved on from there; that’s correct.
On August 27, Kempe emailed Fine that the raw material return had been completed.
On September 4, after negotiations between BP and Pacific, Supply Pro
received a check for $1,592,448 from Pacific, which it contends was intended to
7
compensate for some of the costs incurred expanding its production facility. Biocel
did not learn of this payment until September 2014—over two years after it filed suit
against appellants.
On December 1, Fine advised Kempe that Supply Pro still had twenty-one
truckloads of boom in its warehouse and $1.7M of feedstock that would probably
never be used. None of the remaining 6,912 bags of K-Sorb in Biocel’s factory were
ever sold, and Supply Pro did not pay for them.
Biocel filed suit against appellants in 2012, and the case was tried to a jury in
February 2015. The jury found in Biocel’s favor with regard to its breach of contract
and fraud claims against appellants. Specifically, the jury found that: (1) Supply Pro
and Biocel agreed that the clawback provision proposed in the August 13 email
would be part of the “workout agreement,” (2) Supply Pro failed to comply with the
workout agreement, (3) Biocel and Fine agreed that Fine would personally guaranty
the workout agreement, (4) Fine failed to comply with the personal guaranty, and
(5) Supply Pro and Fine each committed fraud against Biocel.2
2
As it was submitted in the charge, Biocel’s fraud claim was based on the allegations
that Fine and Supply Pro had fraudulently induced the workout agreement by: (1)
entering into it without intending to perform; and (2) misrepresenting that Supply
Pro was in a precarious financial position due to the sudden evaporation of its market
for boom and that Supply Pro had no expectation of receiving compensation for the
cancellation of its boom sales.
8
The jury also found breach of contract damages for: (a) the price of the 6,912
bales on February 1, 2011 that Biocel was unable to resell at a reasonable price
($95,385.60); (b) commercially reasonable and necessary charges for the custody
and care of the goods stored by Biocel ($303,815.65); and (c) Biocel’s proportionate
share of compensation received by Supply Pro from its distributor for the termination
of the boom deliveries ($385,517.00).
With regard to Biocel’s fraud damages, the jury found that: (1) the price of
the 6,912 bales on February 1, 2011 that Biocel was unable to resell was $95,385.60,
(2) commercially reasonable and necessary charges for the custody and care of the
goods stored by Biocel were $303,815.65; (3) Biocel’s proportionate share of
compensation received by Supply Pro from its distributor for the termination of the
boom deliveries was $385,517.00, and (4) the unpaid amounts due under the July
POs was $480,902.60.
Finally, the jury unanimously found that there was clear and convincing
evidence that Supply Pro’s and Fine’s fraud harmed Biocel, and assessed $800,000
in exemplary damages against Supply Pro and $1,000,000 in exemplary damages
against Fine.
On April 21, 2015, pursuant to Biocel’s election not to take the contract
damages, the trial court entered judgment on the fraud and exemplary damage
findings. Specifically, the court rendered judgment in favor of Biocel for: (1)
9
$783,421.05 in actual damages and $118,266.64 in prejudgment interest against
appellees, jointly and severally; (2) $800,000 in exemplary damages against Supply
Pro; and (3) $1,000,000 in exemplary damages against Fine. 3 The $783,421.05 in
actual damages awarded includes all of the fraud damages that the jury found, except
for the $480,902.60 the jury found was due under the July POs.
Appellants filed various timely post-judgment motions. The trial court denied
appellants’ post-judgment motions on June 29, 2015, but did not rule on, or modify
the judgment to reflect, the remittitur that Biocel filed on June 29, 2105 to correct
the award of prejudgment interest. This appeal followed.
Clawback Provision
In their first issue, appellants argue that there is legally insufficient evidence
supporting the jury’s liability findings relating to the clawback provision.
A. Standard of Review
When conducting a legal sufficiency challenge, we view the evidence in the
light most favorable to the verdict, crediting favorable evidence if reasonable jurors
could do so and disregarding contrary evidence unless reasonable jurors could not.
City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005); see Tiller v. McLure, 121
S.W.3d 709, 713 (Tex. 2003) (holding that, in reviewing “no evidence” point, court
3
The judgment also awarded Biocel $637,455 in attorney’s fees through trial and an
additional $75,000 in contingent attorney’s fees.
10
views evidence in light that tends to support finding of disputed fact and disregards
all evidence and inferences to contrary). To sustain a challenge to the legal
sufficiency of the evidence supporting a jury finding, the reviewing court must find
that (1) there is a complete lack of evidence of a vital fact; (2) the court is barred by
rules of law or of evidence from giving weight to the only evidence offered to prove
a vital fact; (3) there is no more than a mere scintilla of evidence to prove a vital
fact; or (4) the evidence conclusively established the opposite of a vital fact.
Volkswagen of Am., Inc. v. Ramirez, 159 S.W.3d 897, 903 (Tex. 2004). “[M]ore than
a scintilla of evidence exists if the evidence ‘rises to a level that would enable
reasonable and fair-minded people to differ in their conclusions.’” Ford Motor Co.
v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004) (quoting Merrell Dow Pharm., Inc. v.
Havner, 953 S.W.2d 706, 711 (Tex. 1997)). Conversely, evidence that is “so weak
as to do no more than create a mere surmise or suspicion” is no more than a scintilla
and, thus, no evidence. Id. (quoting Kindred v. Con/Chem., Inc., 650 S.W.2d 61, 63
(Tex. 1983)).
B. Applicable Law
1. Contract Interpretation
In construing a written contract, our primary concern is to ascertain and give
effect to the parties’ intentions as expressed in the document. Italian Cowboy
Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011); Frost
11
Nat’l Bank v. L&F Distribs., Ltd., 165 S.W.3d 310, 311–12 (Tex. 2005). Contract
terms will be given their plain, ordinary, and generally accepted meanings unless the
contract itself shows them to be used in a technical or different sense. Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). If, after applying the
pertinent contract construction rules, the contract can be given a certain or definite
legal meaning or interpretation, then it is not ambiguous, and we will construe the
contract as a matter of law. Frost Nat’l Bank, 165 S.W.3d at 312.
If a contract is ambiguous, the court should accept parol evidence and can
empanel a jury to decide, as an issue of fact, the “true intent of the parties.” Coker v.
Coker, 650 S.W.2d 391, 394–95 (Tex. 1983); see also Pitts & Collard, L.L.P. v.
Schechter, 369 S.W.3d 301, 315 (Tex. App.—Houston [1st Dist.] 2011, no pet.).
While evidence of circumstances can be used to inform the contract text and render
it capable of one meaning, extrinsic evidence can only be considered to interpret an
ambiguous writing, not to create an ambiguity. See Kachina Pipeline Co., Inc. v.
Lillis, 471 S.W.3d 445, 450 (Tex. 2015) (citations omitted).
2. Contract Formation
A plaintiff suing based on a contract must prove the essential elements of a
contract, including offer, acceptance, and a meeting of the minds. See Principal Life
Ins. Co. v. Revalen Dev., LLC, 358 S.W.3d 451, 454–55 (Tex. App.—Dallas 2012,
pet. denied). “[T]he offer must be reasonably definite in its terms and must
12
sufficiently cover the essentials of the proposed transaction that, with an expression
of assent, there will be a complete and definite agreement on all essential details.”
Id. at 455; see also CRSS Inc. v. Runion, 992 S.W.2d 1, 4 (Tex. App.—Houston [1st
Dist.] 1995, writ denied) (“[A]n acceptance must be identical with the offer to make
a binding contract”). In other words, “[t]he parties must agree to the same thing, in
the same sense, at the same time.” Principal Life Ins. Co., 358 S.W.3d at 455.
“Whether the parties reached an agreement is a question of fact.” Parker Drilling
Co. v. Romfor Supply Co., 316 S.W.3d 68, 72 (Tex. App.—Houston [14th Dist.]
2010, pet. denied). “Whether an agreement is legally enforceable, however, is a
question of law.” Id.
There are certain circumstances in which silence may operate as acceptance.
“When an offeree fails to reply to an offer, his silence and inaction operate as an
acceptance . . . . [w]here because of previous dealings or otherwise, it is reasonable
that the offeree should notify the offeror if he does not intend to accept.”
RESTATEMENT (SECOND) OF CONTRACTS § 69(1) (Am. Law Inst. 1981). Whether
silence is acceptance, however, is a question of fact. See Union Carbide Corp. v.
Jones, No. 01-14-00574-CV, 2016 WL 1237825, at *6 (Tex. App.—Houston [1st
Dist.] Mar. 29, 2016, no pet. h.) (mem. op.). An ambiguous acceptance also presents
a question of fact for the factfinder. See Amedisys, Inc. v. Kingwood Home Health
13
Care, LLC, 437 S.W.3d 507, 517 (Tex. 2014) (citing Coleman v. Reich, 417 S.W.3d
488, 493–94 (Tex. App.—Houston [14th Dist.] 2013, no pet.)).
C. Analysis
Biocel argues that Fine’s September 10, 2013 deposition testimony and
Kempe’s trial testimony are some evidence that the parties accepted all of the terms
set forth in Kempe’s August 13 email, including the clawback provision. We can
consider extrinsic evidence as part of our sufficiency review if the workout
agreement is ambiguous. See Coker, 650 S.W.2d at 394–95; see also Kachina
Pipeline Co., Inc., 471 S.W.3d at 450 (noting that extrinsic evidence cannot be used
to create contractual ambiguity).
Fine’s August 16 response expressly references only two parts of Kempe’s
proposed workout agreement: (1) Biocel’s offer of assistance in selling the 6,912
bags of K-Sorb, and (2) Biocel’s proposed plan to mitigate some of its losses by
returning any unused raw materials to its manufacturer. When he authorized Biocel
to return the raw materials, Fine also agreed to pay the associated $12,750 restocking
fee. Notably, this restocking fee provision is in both the first section of Kempe’s
email, and in the clawback provision. Fine’s August 16 response does not expressly
reject or accept the remaining provisions of the offer, nor does he suggest any
modifications to the offer.
14
After reviewing the plain language of the August 13 and August 16 emails,
we conclude that Fine’s silence in the written documents, with regard to the other
terms of Kempe’s offer, is susceptible to more than one reasonable interpretation.
See Union Carbide Corp., 2016 WL 1237825, at *6 (stating that party’s silence may
be interpreted as acceptance and if offeree’s silence is ambiguous, this creates
question of fact). If Fine’s silence was intended to indicate that he implicitly
accepted all of the terms of Kempe’s offer, then the clawback provision is part of the
workout agreement. If, however, Fine’s silence was intended to indicate that he
rejected those other terms, then Fine’s reply does not meet the requirements for an
acceptance because “an acceptance must be identical with the offer to make a
binding contract.” CRSS Inc., 992 S.W.2d at 4. We note that because Fine’s August
16 email did not attempt to modify the terms of Kempe’s offer, his response is not a
counteroffer. See Parker Drilling Co., 316 S.W.3d at 74 (stating that purported
acceptance that changes or qualifies offer’s material terms constitutes rejection and
counteroffer rather than acceptance).4
Because Fine’s silence in the written record creates an ambiguity as to whether
he is accepting or rejecting the other terms of Kempe’s offer, including the clawback
provision, a question of fact is presented with regard to appellants’ intent. See
4
We have not found—and the parties have not directed us to—any cases in which a
party’s express acceptance of some parts of an offer, but silence as to others,
constitutes an implicit modification of the offer.
15
Amedisys, Inc., 437 S.W.3d at 517. In light of such ambiguity, the jury was free to
consider parol or extrinsic evidence when determining fact questions such as what
was the parties’ agreement about the clawback provision.
Some of the parol or extrinsic evidence that Biocel relies upon is Fine’s
September 10, 2013 deposition testimony which seems to indicate that appellants
accepted all of the terms set forth in Kempe’s August 13 email, including the
clawback provision:
Q. Okay. And, so, your agreement—you accepted essentially the
terms of the work-out deal as contained in the August 13th
e-mail; is that fair?
A. Yes.
Appellants argue that Biocel’s reliance upon this statement is misplaced because
Fine’s testimony relates only to the first section of the workout agreement, and not
the clawback provision. While questioning Fine about his August 16 email to
Kempe, Fine was asked whether he accepted the terms of the workout agreement “as
contained in the August 13th e-mail.” It is undisputed that Kempe’s August 13th
email included the clawback provision. However, the question was not limited to a
specific section of the offer and applies to the entire offer, which includes the
clawback provision. Further, Fine, who did not testify at trial, did not qualify his
answer during his deposition or introduce any evidence that his response was limited
to the first half of the workout agreement.
16
In addition to Fine’s deposition testimony, Kempe testified at trial about
previous dealings with Fine that made it “reasonable that [Fine] should notify
[Kempe] if [Fine] d[id] not intend to accept.” RESTATEMENT (SECOND) OF
CONTRACTS § 69(1). Kempe testified that, at a lunch meeting on August 11, he and
Fine discussed and agreed, at least in principle, to all of the terms of the workout
agreement set forth in Kempe’s August 13 email, including the clawback provision.
Kempe testified that, given this oral agreement, Kempe treated Fine’s August 16
email as a full acceptance and went forward with the deal by returning the feedstock.
Specifically, Kempe testified that Fine “responded to me with the two portions of
the agreement that required me to do something, rejected none of the other elements
of the agreement as we had agreed at lunch and we moved on from there.”
Appellants argue that Kempe’s testimony should be excluded from our
sufficiency review because it is conclusory and barred by the parol evidence rule.
See City of Emory v. Lusk, 278 S.W.3d 77, 89 (Tex. App.—Tyler 2009, no pet.) (“A
conclusory and nonprobative opinion is legally insufficient to support a jury
verdict.”). Evidence is legally conclusory if it does nothing more than state a legal
conclusion, and it is factually conclusory if it does not provide the underlying facts
to support a conclusion. See Rizkallah v. Conner, 952 S.W.2d 580, 587–88 (Tex.
App.—Houston [1st Dist.] 1997, no writ). Kempe testified at length about each
provision of the agreement reached at the August 11 lunch and averred that he and
17
Fine had discussed and agreed to the provisions. Therefore, Kempe’s testimony is
not conclusory and, as previously discussed, it was not barred by the parol evidence
rule.
In light of Fine’s deposition testimony, Kempe’s trial testimony, and the
August 13 and August 16 emails, there is more than a scintilla of evidence to support
the jury’s finding that Biocel and Supply Pro agreed that the clawback provision
would be part of the workout agreement.
We overrule appellants’ first issue.
Fraudulent Inducement
In their second issue, appellants argue that if the take-or-pay term was part of
the parties’ original agreements on the July 13 and July 29 purchase orders, then it
was arguably induced by fraud and the evidence raised a material fact question on
this issue, and the trial court erred by refusing to submit appellants’ requested charge
question on fraudulent inducement/equitable estoppel. Biocel responds that the
workout agreement was a novation, and/or a compromise and settlement agreement,
and, therefore, it superseded any defenses to the original purchase agreements.
Novation is the substitution of a new agreement between the same parties or
the substitution of a new party with respect to an existing agreement. New York Party
Shuttle, LLC v. Bilello, 414 S.W.3d 206, 214 (Tex. App.—Houston [1st Dist.] 2013,
pet. denied). When a novation occurs, only the new agreement can be enforced. Id.
18
“A novation agreement need not be in writing or evidenced by express words of
agreement, and an express release is not necessary to effect a discharge of an original
obligation by novation.” Bank of N. Am. v. Bluewater Maint., Inc., 578 S.W.2d 841,
842 (Tex. Civ. App.—Houston [1st Dist.] 1979, writ ref’d n.r.e.). “The intent to
accept the new obligation in lieu and in discharge of the old one may be inferred
from the facts and circumstances surrounding the transaction [and] the conduct of
the parties.” Id.
The parties do not dispute that the workout agreement is a novation of the
original July purchase agreements. Appellants argue, however, that the workout
agreement does not foreclose its claim for fraudulent inducement because the
workout agreement does not contain an express release of such claims or a disclaimer
of reliance. See, e.g., Italian Cowboy, 341 S.W.3d at 332 (stating that contract with
adequate disclaimer of reliance clause can negate fraudulent inducement claim as
matter of law) (citing Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 179
(Tex. 1997)). As this court has previously noted, however, “an express release is not
necessary to effect a discharge of an original obligation by novation.” Bank of N.
Am., 578 S.W.2d at 842.
Appellants further contend that the workout agreement, like all other
contracts, is subject to avoidance on the ground of fraudulent inducement. The
opinions that appellants rely upon for this proposition, however, are distinguishable
19
because in those cases the parties alleged that the settlement agreement itself, not the
previous agreement, was the product of fraudulent inducement. See generally Ford
Motor Co. v. Castillo, 444 S.W.3d 616 (Tex. 2014); Italian Cowboy, 341 S.W.3d at
331. On appeal, appellants argue that they were fraudulently induced to accept the
take-or-pay provision in the underlying agreements, i.e., the July purchase
agreements. They do not argue that they were fraudulently induced to accept the
workout agreement, i.e., the novation. We have not found—and appellants have not
cited—any Texas cases in which a settlement agreement or novation was set aside
because of a claim that the original, or an underlying agreement, was the product of
fraudulent inducement.
Accordingly, we find appellants’ argument unpersuasive. We hold that
because the workout agreement constitutes a novation of the original purchase
agreements, it superseded all defenses to the original agreements, and therefore,
appellants’ fraudulent inducement claim is moot.5
We overrule appellants’ second issue.
5
Biocel further contends that even if appellants’ challenges to original purchase
agreements were not moot, appellants would still not have been entitled to a jury
question on their fraudulent inducement/equitable estoppel claim because they did
not present any evidence at trial that anyone from Biocel made any false, material
misrepresentations or that appellants actually relied upon these statements.
20
Sufficiency of Damages Award
In their third issue, appellants argue that the evidence is legally insufficient to
support the damage awards for the clawback provision, the take-or-pay term, and the
storage charges.
A. Clawback Provision
In answer to questions 6c, 7c, and 10, the jury found that Biocel’s damages
pertaining to the clawback provision were $385,517.00. Appellants argue that
because the clawback provision was not part of the workout agreement, it could not
have been fraudulently induced or breached, and therefore, the evidence is legally
insufficient to support the jury’s answers awarding recovery for this element of
damage. Because we have determined that there is legally sufficient evidence to
support the jury’s finding that the parties agreed to include the clawback provision
in the workout agreement, we find appellants’ argument unpersuasive.
B. Take-or-Pay Term
In answer to questions 7d and 11, the jury found that the unpaid amount due
under the July 13 and July 29 POs was $480,902.60. This represents the amount that
would have been due for all 34,848 bags that remained undelivered when Supply
Pro cancelled the POs. This amount is equal to the sum of the damages the jury found
in response to questions 7a ($95,385.60) and 7c ($385,517.00).
21
Appellants argue that Biocel could not recover the $480,902.60 due under the
July POs based on its fraud claim because Biocel alleged fraud only with regard to
the workout agreement, not the underlying POs, and that because of the way the jury
charge was organized, an award of damages based on 7d and 11 amounts to a double
recovery. The trial court’s award of $783,421.05 in actual damages, however, equals
the sum of the first three categories of fraud damages that the jury found: the price
of the 6,912 bags of K-Sorb ($95,385.60), plus storage ($303,815.65), plus Biocel’s
proportionate share of BP’s payment ($385,517.00), minus an agreed credit
($1,297.20). The record does not reflect that the trial court awarded Biocel any
damages based on the jury’s answers to questions 7d and 11.
C. Storage Fees
Appellants argue that the evidence is legally insufficient to support the award
of $303,815.65 in damages for storage charges because there is no evidence that: (1)
the 6,912 bags of K-Sorb should have been stored at all; (2) Biocel incurred any
out-of-pocket cost for storing that material; or (3) the storage rate charged by Biocel
was commercially reasonable.
1. Standard of Review
We measure the sufficiency of the evidence against the submitted charge to
determine whether evidence supports both the existence of damages and the amount
awarded. See Regal Fin. Co. v. Tex Star Motors, Inc., 355 S.W.3d 595, 601 (Tex.
22
2010). If the terms used in the charge are not defined for the jury, and no objection
is made on this issue, we measure sufficiency of the evidence against the commonly
understood meanings of such terms. See Osterberg v. Peca, 12 S.W.3d 31, 55 (Tex.
2000).
Evidence is legally insufficient when (a) evidence of a vital fact is completely
absent; (b) the court is barred by rules of law or of evidence from giving weight to
the only evidence offered to prove a vital fact; (c) the evidence offered to prove a
vital fact is no more than a mere scintilla; or (d) the evidence establishes conclusively
the opposite of the vital fact. City of Keller, 168 S.W.3d at 810. When conducting
our sufficiency review, we consider only the evidence and reasonable inferences
supporting the jury’s damages finding, and we must disregard any evidence to the
contrary, except when such evidence is conclusive. See id. at 817, 821.
2. Analysis
Although the jury was asked to find the “commercially reasonable and
necessary charges for custody and care of the goods stored by Biocel,” the key terms,
i.e., “commercially reasonable” and “necessary,” were not defined in the charge.
Because no objection was made to the lack of definitions, we will review the
sufficiency of the evidence based on the charge that was given and give these
undefined terms their commonly understood meaning. See Osterberg, 12 S.W.3d at
55.
23
Black’s Law Dictionary defines “reasonable” as “[f]air, proper, or moderate
under the circumstances” and commerce as involving the exchange of goods and
services. BLACK’S LAW DICTIONARY 110, 523 (1996 pocket ed.). The common
meaning of “necessary” is “being essential, indispensable, or requisite.” Sw. Bell
Tel., L.P. v. Emmett, 459 S.W.3d 578, 584 (Tex. 2015) (citing to WEBSTER’S NEW
UNIVERSAL UNABRIDGED DICTIONARY 1161 (1996 ed.)). Thus, the phrase
“commercially reasonable and necessary charges” can be commonly understood to
refer to charges that are “[f]air, proper, or moderate” in the context of an exchange
of goods and services and are “essential, indispensable, or requisite.”
The evidence establishes that on December 1, 2010, Kempe emailed Fine that,
pursuant to their workout agreement, any of the 6,912 bags of K-Sorb that remained
unsold by February 1, 2011, would be invoiced and shipped to Supply Pro. On
February 1, Kempe invoiced Supply Pro $95,385.60 for the 6,912 bags. That same
day, Fine and Kempe exchanged a series of contentious email messages regarding
the remaining materials. In particular, after reminding Fine that Biocel had already
“maintained this material on [appellants’] behalf for over 6 months,” Kempe stated
that any of the 6,912 bags of K-Sorb that were not delivered would accrue storage
charges of $0.15 per bag in March, $0.20 per bag in April, and $1.00 per bag
thereafter.
24
When asked at his deposition if he was trying to renege on the workout
agreement in early February 2011, Fine testified that he was not, and he claimed that,
at that time, he intended to “eventually take the . . . fiber,” he just could not take it
on February 1st, as the parties had originally agreed. Fine also testified that although
Biocel sent him monthly invoices for the storage fees, he never disputed the charges
or attempted to store the product elsewhere, or negotiate an alternative storage
arrangement with Biocel. Because Fine never paid for or took delivery of the K-Sorb,
or directed Biocel to discard or store the product elsewhere, Biocel continued to store
the bags in its production plant until the time of trial. The jury awarded Biocel
$303,815.65 in damages, which is the full amount of the accumulated storage
charges from March 1, 2011 until the time of trial.
In support of the award of storage fees, Kempe testified that Biocel stored
Fine’s K-Sorb in its manufacturing plant because the company does not have a
designated storage facility. According to Kempe, the stored material took up
between 3,000-3,500 square feet of space in the plant that would otherwise have
been used for productive purposes. Kempe also testified that Biocel had to adjust the
manner in which it conducted business in order to accommodate the large volume of
K-Sorb being stored in its production facility.
Kempe explained that “the purpose of imposing a storage charge” was “[t]o
compensate [Biocel] for the burden of storing and maintaining the material.” When
25
asked if it “cost [Biocel] money to have to take up floor space or truck space to store
material for somebody,” Kempe responded, “Sure. There’s an inconvenience and
kind of a non-discrete financial burden on dealing with that issue.” Kempe further
testified that Fine “didn’t have to take delivery [of the K-Sorb]. He could have asked
me to store it, which is what he in effect did. I’m storing product that by contract
and by our agreement belonged to him as of February 1st, 2011.” When asked why
the cost of storage increased over time, Kempe explained that it was “[b]ecause of
the ongoing burden of us having to manage, handle, store and to try to maintain that
in as good of condition as possible.”
There is some evidence that appellants agreed to purchase the K-Sorb that
Biocel had in its possession on February 1, 2011, and that appellants, not Biocel,
owned the bags of K-Sorb as of that date. There is also some evidence that Biocel
told appellants that they would be charged a storage fee for any bags still in Biocel’s
possession beginning on March 1, 2011. There is also evidence that Biocel sent
appellants monthly invoices for the accruing storage fees and that appellants never
disputed the storage charges or attempted to work out alternative storage
arrangements with Biocel.
The jury could reasonably infer from Kempe’s testimony that the amount of
storage fees charged by Biocel was fair under the circumstances in order to
compensate Biocel for the financial burden associated with its management and
26
storage of appellants’ product. The jury could also infer that, given their contractual
obligation, and Fine’s expressed intent to “eventually take the . . . fiber,” it was
necessary for Biocel to continue to store the K-Sorb until Supply Pro took possession
of the product, or instructed Biocel to destroy it or store it elsewhere.
Therefore, although Kempe did not specifically testify that the storage charges
were “necessary” or “reasonable,” the jury was nevertheless provided sufficient
evidence from which it could conclude that the storage charges were essential in
order to compensate Biocel for the financial burden of storing appellants’ product,
unless and until appellants took possession of the product or instructed Biocel how
to proceed with their property, e.g., store it elsewhere or discard it. See generally
Ron Craft Chevrolet, Inc. v. Davis, 836 S.W.2d 672, 677 (Tex. App.—El Paso 1992,
writ denied) (stating that witness does not have to speak “magic words,” such as
“reasonable” and “necessary,” to support jury’s damages award).
Appellants also argue that the evidence is legally insufficient because there is
no evidence that Biocel incurred any out-of-pocket cost for storing the K-Sorb. The
jury, however, did not have to find that Biocel incurred any out-of-pocket costs or
expenses in order to award storage damages in this case. The jury was simply asked
to find the amount of “commercially reasonable and necessary charges for custody
and care of the goods stored by Biocel.” Business and Commerce Code section 2.710
permits recovery of incidental damages in UCC cases, e.g., “commercially
27
reasonable charges . . . incurred in . . . care and custody of goods after the buyer’s
breach.” TEX. BUS. & COM. CODE ANN. § 2.710 (West 2009). Although the UCC
governs the parties’ original purchase agreements, it does not apply to the workout
agreement, which is not a contract for the sale of goods—it is a settlement agreement
and a novation of the original agreements. See Adams v. Petrade Int’l, Inc., 754
S.W.2d 696, 715 (Tex. App.—Houston [1st Dist.] 1988, writ denied). Because the
UCC is inapplicable to the workout agreement, the trial court did not err by refusing
to include the word “incurred” in this portion of the charge and the UCC cases that
appellants rely upon are similarly distinguishable. See, e.g., Malone v. Carl Kisabeth
Co., Inc., 726 S.W.2d 188, 191–92 (Tex. App.—Fort Worth 1987, writ ref’d n.r.e.)
(reversing and rendering take-nothing judgment in UCC case).
After reviewing the evidence presented to the jury, including Fine’s and
Kempe’s testimony, we hold that there is more than a scintilla of evidence to support
the jury’s award of damages based on storage fees.
We overrule appellants’ third issue.
Punitive Damages Award
In their fourth issue, appellants argue that the evidence is legally insufficient
to support the awards of punitive damages against Supply Pro ($800,000) and Fine
($1,000,000) and that the combined award of $1,800,000 exceeds the statutory
damages cap and violates due process. The crux of appellants’ arguments is that they
28
must be treated separately for purposes of assessing liability for fraud (i.e., that
Fine’s conduct should not be imputed to Supply Pro), but, since Fine is the
corporation’s lone shareholder, he and the corporation are effectively the same
entity, and, therefore, they must be treated as one, solitary defendant for purposes of
assessing exemplary damages that are based on the same conduct.
A. Standards of Review
When reviewing the legal sufficiency of the evidence to support an award of
punitive damages, i.e., exemplary damages, an appellate court must be mindful of
the burden of proof governing the determinations of the factfinder. See Finley v.
P.G., 428 S.W.3d 229, 238 (Tex. App.—Houston [1st Dist.] 2014, no pet.). An
elevated burden of proof at trial requires a higher standard of review on appeal. City
of Keller, 168 S.W.3d at 817 (citation omitted). An award of exemplary damages
under Texas law requires the claimant to meet an elevated burden of proof, i.e., clear
and convincing evidence. See Finley, 428 S.W.3d at 238. Clear and convincing
evidence means the “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.” In re J.F.C.,
96 S.W.3d 256, 264 (Tex. 2002). The constitutionality of exemplary damages is a
legal question, which we review de novo. Tony Gullo, 212 S.W.3d at 307.
29
B. Applicable Law
Under Chapter 41 of the Texas Civil Practice and Remedies Code, a claimant
may be awarded exemplary damages if it can prove by clear and convincing evidence
that it was harmed as a result of the other party’s fraud. TEX. CIV. PRAC. & REM.
CODE ANN. § 41.003(a)(1), (b) (West 2015). In addition to authorizing awards of
exemplary damages in suits for fraud, Chapter 41 also sets forth the factors that
courts must consider when assessing such damages and it limits the amount and
scope of an individual defendant’s liability for exemplary damages.
Specifically, in assessing exemplary damages, the factfinder must consider:
(1) the nature of the wrong; (2) the character of the conduct at issue; (3) “the degree
of culpability of the wrongdoer”; (4) the situation and the parties’ sensibilities; (5)
the extent to which such conduct offends a public sense of justice and propriety; and
(6) the defendant’s net worth. Id. § 41.011(a) (West 2015). In multi-defendant cases,
“an award of exemplary damages must be specific to a defendant, and each
defendant is liable only for the amount of the award made against that defendant.”
Id. § 41.006 (West 2015).
Chapter 41 also caps the maximum amount of damages that may be awarded
against an individual defendant in a given case. See TEX. CIV. PRAC. & REM. CODE
ANN. § 41.002(b) (West 2015). Pursuant to section 41.008:
Exemplary damages awarded against a defendant may not exceed an
amount equal to the greater of:
30
(1)(A) two times the amount of economic damages; plus
(B) an amount equal to any noneconomic damages found by the jury,
not to exceed $750,000; or
(2) $200,000.
TEX. CIV. PRAC. & REM. CODE § 41.008(b) (West 2015). The parties do not dispute
that the exemplary damages cap applies in this case.
In addition to this statutory cap, there are also due process limits against
grossly excessive or arbitrary exemplary damage awards. State Farm Mut. Auto. Ins.
Co. v. Campbell, 538 U.S. 408, 417–18, 123 S. Ct. 1513, 1520–21 (2003). The
prevailing principle is that a “grossly excessive” award of exemplary damages
offends due process because it “furthers no legitimate purpose and constitutes an
arbitrary deprivation of property.” Id. at 417, 123 S. Ct. at 1520. In conducting a due
process review, courts must consider: (1) the degree of reprehensibility of the
defendant’s conduct; (2) the ratio between actual and exemplary damages; and (3)
the size of civil penalties in similar cases. Id. at 418, 123 S. Ct. at 1520. Although
there are no bright-line rules, there is a long history of penalties in the double, treble,
and quadruple range, and awards in the single-digit range are more likely to comport
with due process. Id. at 425–26, 123 S. Ct. at 1524.
C. Sufficiency of the Evidence
Appellants argue that the evidence is legally insufficient to support the jury’s
award of exemplary damages against Supply Pro based on fraud because the
31
evidence is legally insufficient to prove that Supply Pro committed fraud
independently from Fine. Biocel responds that the evidence is sufficient to support
the jury’s award against Supply Pro because the evidence conclusively establishes
that Fine is a vice principal of Supply Pro, and therefore, Fine’s tortious conduct can
be imputed to Supply Pro as a matter of law. See Bennett v. Reynolds, 315 S.W.3d
867, 884 (Tex. 2010).
In its live pleading at trial, Biocel alleged that appellants engaged in fraud
when Supply Pro entered into the workout agreement with no intention to perform
under the contact, and when Supply Pro misrepresented to Biocel that Supply Pro
was in a precarious financial position after the spill and had no hope of receiving
compensation for BP’s cancelled orders.
Question 5 asked the jury: “Did Supply Pro or Harmon Fine commit fraud
against Biocel?” The jury answered, “yes,” to both Supply Pro and Fine. When asked
whether there was clear and convincing evidence that Biocel was harmed by the
fraud of Supply Pro or Fine in Question 8, the jury unanimously answered “yes,” to
both Supply Pro and Fine. Notably, the jury was never asked whether Supply Pro
committed fraud against Biocel independently from Fine.6 Appellants did not object
6
The jury was also never instructed that Supply Pro was responsible for Fine’s acts
and omissions, or that Fine’s fraud could be attributed to Supply Pro, but only if the
jury found that Fine was Supply Pro’s vice-principal. See generally GTE Sw., Inc.
v. Bruce, 998 S.W.2d 605, 618 (Tex. 1999) (holding corporation may be liable for
torts of its vice-principals and stating that individual’s “status as a vice-principal of
32
to the charge on this basis and they are not challenging the charge on appeal.
Accordingly, we will assess the sufficiency of the evidence based on the charge that
was actually submitted to the jury. See Osterberg, 12 S.W.3d at 55.
It is well established that corporations, like Supply Pro, can “only act through
individuals.” Tri v. J.T.T., 162 S.W.3d 552, 562 (Tex. 2005). A vice-principal is an
individual who represents the corporation in its corporate capacity, and “‘includes
persons who have authority to employ, direct, and discharge servants of the master,
and those to whom a master has confided the management of the whole or a
department or division of his business.’” See Bennett, 315 S.W.3d at 884 (quoting
GTE Sw., Inc. v. Bruce, 998 S.W.2d 605, 618 (Tex. 1999)). The acts of a
vice-principal are deemed to be acts of the corporation for purposes of exemplary
damages because the vice-principal “represents the corporation in its corporate
capacity.” Bennett, 315 S.W.3d at 883 (quoting Hammerly Oaks, Inc. v. Edwards,
958 S.W.2d 387, 391–92 (Tex. 1997)). A corporation’s officers are considered
corporate vice-principals. See Bennett, 315 S.W.3d at 884.
Further, a corporation and its corporate officer can both be liable for
exemplary damages based on the same misconduct. See Bennett, 315 S.W.3d at 884–
the corporation is sufficient to impute liability to [the corporation] with regard to
his actions taken in the workplace”); cf. Steel v. Wheeler, 993 S.W.2d 376, 381 (Tex.
App.—Tyler 1999, pet. denied) (holding failure to submit question and instruction
harmless because evidence on point was conclusive).
33
85. In Bennett, the Texas Supreme Court held that both the corporation and its
president were subject to exemplary damages based on the president’s stealing of
cattle, because the president, Bennett, was a corporate vice-principal who was acting
in his corporate capacity when he stole the cattle. Id. Specifically, the court stated
that based on Bennett’s status as the corporation’s “highest corporate officer, the
president,” and Bennett’s testimony that he “[runs] the ranch” and made the
decisions for the corporation, “not only was Bennett indisputably a vice-principal of
[the c]orporation, he was most likely the only vice-principal and the only person
whose conduct and decisions could subject the corporation to exemplary damages.”
Id. at 884.
Appellants argue that Bennett is distinguishable because section 41.008’s cap
did not apply in that case. See TEX. CIV. PRAC. & REM. CODE § 41.008(c)(13) (West
2015) (setting forth felony theft exception to statutory cap). The applicability of the
damages cap, however, has no bearing with respect to whether a corporation and its
corporate officer can both be liable for exemplary damages based on the same
misconduct.
Appellants further note that in addressing whether the corporation (as well as
its president, Bennett) could be independently liable for punitive damages, the court
did not confine its analysis to the fact that Bennett was a vice-principal of the
corporation. See Bennett, 315 S.W.3d at 884–85. The court also focused on whether
34
Bennett had used his corporate authority over corporate employees, on corporate
land, to convert cattle using corporate equipment. See id. at 884–85. Those facts,
however, go to whether Bennett was acting in his capacity as a corporate
vice-principal and are not independent grounds for imputing a corporate officer’s
conduct to its corporation. See GTE Sw., Inc., 998 S.W.2d at 618 (defining corporate
vice-principals to include “persons who have authority to employ, direct, and
discharge servants of the master, and those to whom a master has confided the
management of the whole or a department or division of his business”).
In this case, the evidence conclusively establishes that Fine, Supply Pro’s
owner and President, is a corporate officer of Supply Pro, and, therefore, a
vice-principal of the corporation.7 See Bennett, 315 S.W.3d at 884 (defining
vice-principals as, inter alia, corporate officers) (citation omitted). As Supply Pro’s
vice-principal, Fine’s actions are “deemed to be the acts of the corporation itself.”
GTE Sw., Inc., 998 S.W.2d at 618. Notably, appellants are not challenging the
sufficiency of the evidence supporting the jury’s finding that Fine committed fraud
against Biocel. Because the evidence conclusively establishes that Fine is Supply
7
A corporation, however, cannot be liable for its vice-principal’s actions “if the vice-
principal’s misconduct occurred while he was acting in a personal capacity
unrelated to his authority as a corporate vice-principal.” Bennett v. Reynolds, 315
S.W.3d 867, 884–85 (Tex. 2010). There is ample evidence that Fine was acting in
his corporate capacity when he negotiated and entered into the workout agreement
on behalf of Supply Pro after he canceled the purchase orders that Supply Pro had
previously placed with Biocel.
35
Pro’s corporate vice-principal, and therefore, his conduct can be imputed to Supply
Pro as a matter of law, we hold that there is legally sufficient evidence that Supply
Pro committed fraud against Biocel. See Bennett, 315 S.W.3d at 883–84.
D. Statutory Cap and Excessiveness of Exemplary Damages Award
Appellants also argue that Fine and Supply Pro must be treated as one
defendant for purposes of assessing exemplary damages because Fine and Supply
Pro are effectively the same entity, and that the combined $1.8 million award of
exemplary damages, based solely on the conduct of Fine, exceeds section 41.008’s
cap on the amount of exemplary damages that may be awarded based on the conduct
of one defendant. Appellants further contend that the combined award of $1.8
million in exemplary damages is excessive in light of the fact that the alleged fraud
did not cause physical harm, threaten safety, or cause or threaten financial ruin. See
State Farm, 538 U.S. at 419, 123 S. Ct. at 1521 (identifying factors courts consider
when assessing reprehensibility of defendant’s conduct for purposes of evaluating
constitutionality of exemplary damages award) (citation omitted).
Specifically, appellants argue that refusing to treat them as a single defendant
for purposes of assessing exemplary damages “defeats the purpose of Chapter 41 to
limit, rather than increase, damages.” The plain language of Chapter 41, however,
indicates that it is intended to limit the amount of damages recoverable against an
individual defendant in a given legal proceeding, not a group of defendants. See TEX.
36
CIV. PRAC. & REM. CODE §§ 41.006 (prohibiting joint and several liability for
exemplary damages and stating that “each defendant is liable only for the amount of
the award made against that defendant”), 41.008(b) (limiting amount of exemplary
damages recoverable from “a defendant”), and 41.011(a)(3), (6) (stating that
factfinder must consider, inter alia, “the degree of culpability of the wrongdoer” and
“the net worth of the defendant” when determining amount of exemplary damages
to award). Supply Pro and Fine, its owner, president, and corporate vice-principal,
are both named defendants in the underlying suit.
Appellants also suggest that it is a violation of due process when the
vice-principal doctrine allows a corporation and a vice-principal like Fine who is
also the corporation’s sole shareholder, to both be subject to exemplary damages for
the same conduct. Citing to Owens-Corning Fiberglas Corp., appellants argue that
the award of punitive damages against Supply Pro and Fine “amounts to a multiple
award of punitive damages for the same conduct by a single person.” See
Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 48 (Tex. 1998). In that
case, the court recognized that “repeatedly imposing punitive damages on the same
defendant for the same course of wrongful conduct may implicate substantive due
process constraints.” 972 S.W.2d at 50 (emphasis added). Owens-Corning Fiberglas
Corp., however, is distinguishable on its facts because, unlike here, that case
involved one defendant who was being subjected to multiple punitive damage
37
awards in different legal proceedings that were brought by different plaintiffs based
on the defendant’s exact same conduct, i.e., manufacturing and distributing
asbestos-containing products. The exemplary damages awarded in this case were
awarded against different defendants, Supply Pro and Fine.
We have not found any authority requiring courts to treat a corporation and
its vice-principal as a single defendant. It is well established that a corporation is a
separate legal entity from its shareholders, officers, and directors. Singh v. Duane
Morris, L.L.P., 338 S.W.3d 176, 181–82 (Tex. App.—Houston [14th Dist.] 2011,
pet. denied) (citing Sparks v. Booth, 232 S.W.3d 853, 868 (Tex. App.—Dallas 2007,
no pet.)). “A bedrock principle of corporate law is that an individual can incorporate
a business and thereby normally shield himself from personal liability for the
corporation’s contractual obligations.” Singh, 338 S.W.3d at 182 (citing Sparks, 232
S.W.3d at 868). An entity’s corporate status, however, cannot be used as both a
sword and a shield, i.e., used when it benefits the shareholders, only to be
disregarded when it is advantageous for the shareholders or corporate organizers to
do so. See Singh, 338 S.W.3d at 182 (citations omitted). That is essentially what
appellants are asking this court to do—to disregard Supply Pro’s corporate status in
order to limit the total amount of exemplary damages recoverable in this case from
the two named defendants.
38
Accordingly, we find appellants’ argument that they should be treated as one
defendant for purposes of assessing exemplary damages to be unpersuasive.
In light of our resolution of this issue, we need not address appellants’
argument that the combined award of $1.8 million in exemplary damages against
one defendant violates due process.
We overrule appellants’ fourth issue.
Remitittur on Prejudgment Interest
In their fifth issue, appellants argue that the trial court erred by not
incorporating Biocel’s remitittur on prejudgment interest into the judgment.
Although Biocel filed a remittitur with the trial court reflecting that prejudgment
interest should have been $116,779.82 rather than the $118,266.64, the trial court’s
judgment awarded Biocel $118,266.64 in prejudgment interest. Biocel does not
dispute on appeal that $116,779.82 is the amount of prejudgment interest that should
have been awarded in this case. Accordingly, we sustain appellants’ fifth issue and
modify the judgment to award Biocel $116,779.82 in prejudgment interest. See TEX.
R. APP. 43.2(b).8
8
In light of our resolution of this case, we need not consider Biocel’s counter-issue.
39
Conclusion
We modify the trial court’s judgment, and affirm, as modified.
Russell Lloyd
Justice
Panel consists of Chief Justice Radack and Justices Jennings, and Lloyd.
40