Bam Heavy Equipment and Repair, LLC v. Jackson

Decision Date29 July 2021
Docket Number09-19-00309-CV
CourtTexas Court of Appeals

Submitted on April 26, 2021

Before Golemon, C.J., Kreger and Johnson, JJ.


Michael E. Jackson sued BAM Heavy Equipment and Repair, LLC and Bert T. Johnson for breach of contract regarding BAM's failure to continue making payments to Jackson, even after he stopped working with the company. [1] A jury found in Jackson's favor and awarded him $117, 318. BAM appeals the judgment in Jackson's favor.[2] In five issues, BAM complains: (1) Jackson failed to obtain a finding that he was a member of BAM, a controlling issue under Tex.R.Civ.P. 279; (2) the evidence was legally and factually insufficient to show that Jackson was a member of BAM, and therefore, he is not entitled to any distributions from the company; (3) Jackson's evidence of damages was legally and factually insufficient to support the judgment; (4) the charge contained Casteel error because Question No. 1 contained an instruction on ratification when Jackson did not affirmatively plead ratification and Question No. 2 allowed the jury to find that BAM breached an unspecified agreement though the jury made the finding only as to the alleged amended operating agreement; and (5) the trial court abused its discretion by admitting evidence of settlement negotiations he had with BAM and a recording. We affirm.

I. Background

Jackson married Florence Dees in approximately 2012. Florence's daughter and Jackson's stepdaughter, Carrie, was married to Johnson. A heavy equipment mechanic, Johnson wanted to start his own business. In late 2013, Jackson and Florence agreed to help Johnson start his own company, BAM Heavy Equipment and Repair.

They decided to form an LLC, and Johnson, Jackson, and Florence used LegalZoom to prepare the formation documents. Jackson loaned Johnson money to purchase four trucks to be paid back at interest rates between eight and nine percent. The money loaned for the vehicles totaled $330, 000 and was secured by four promissory notes. Jackson also deposited $35, 500 when they opened BAM's bank account. This money was eventually rolled into the last truck promissory note because Johnson indicated he wanted to pay that money back. Jackson testified that he set aside $46, 000 to ensure the company had enough money to pay Johnson's salary, but he never had to use that money. There was no dispute at trial that Johnson repaid the truck loans and the additional $35, 500.

At trial, Jackson testified that Johnson initially offered to make Jackson a partner in the business with an ownership interest, but Jackson declined. He said he and Florence wanted to help get the company going the first twelve to fifteen months, then leave it in Johnson's hands. According to Jackson, the parties settled on Johnson being the managing member with full ownership interest. Jackson explained that he and Florence would also be members but would not have an ownership interest in BAM. Jackson also testified that despite having executed an Original Operating Agreement (the "Original Agreement") a few days prior, on December 27, 2013, the parties executed an "Amendment to the BAM Operating Agreement" (the "Amended Agreement") whereby BAM would pay Jackson and Florence an annual "dividend" equivalent to four percent of BAM's gross income.[3] This payment was at the center of the parties' dispute. This Amended Agreement referred to Jackson and Florence as "investors" rather than members. Johnson denied signing the Amended Agreement.

Jackson testified that he volunteered to basically help Johnson perform any task he needed done so Johnson could focus on working and getting business. Jackson explained that this included helping secure insurance, running parts, and picking up Johnson's kids from school, among other things. Florence started out keeping BAM's books. Neither Jackson nor Florence took a salary for their work. Johnson testified that the quarterly payments were for them doing the books and only while they worked for the company. However, BAM paid the "dividend" in 2014 and 2015 without incident but did so quarterly rather than annually. Johnson admitted he was aware the checks had been written and saw the money come out of the account but denied having approval authority over the checks. Yet, Johnson also testified that he thought the four percent payment was based on gross income rather than gross profit. In April 2016, Jackson and Florence received the last dividend check.

In 2016, Jackson and Florence were going through a contentious divorce, and Johnson approached them about reducing the payment from four percent to two percent of BAM's gross income, with each of them getting one percent. Jackson testified that he was agreeable to that and told Johnson to have his lawyer draft something up. Johnson said he did this because Florence threatened to sue him. When Jackson did not receive the quarterly BAM payment, he approached Johnson and inquired about it. Johnson advised that BAM would not be making the payments until a new agreement was signed and Florence and Jackson's divorce was finalized. Jackson testified that eventually, Johnson's lawyer sent over a new proposed agreement reducing the payment to two percent; however, other terms changed he was not agreeable to, and a new agreement was not signed reducing the dividend. The changes included the payment being based on gross profit rather than gross income. Jackson alleged in his petition that because the parties did not execute a new agreement, the Amended Agreement remains in effect. The parties' testimony was consistent that the two percent reduction agreement was never finalized.

During this time, Jackson testified that things "weren't quite sitting right with me" which led him to surreptitiously record a February 7 meeting he had with Johnson about non-payment of the dividend. Over objection, the trial court admitted the entire recording, comprised of two separate conversations, which Jackson played a portion of for the jury. The trial court also admitted a transcript of one of the recorded conversations as evidence.

Jackson moved for directed verdict on BAM's counterclaim for fraud based on a lack of evidence of misrepresentation, which the trial court granted. BAM moved for directed verdict on Jackson's breach of contract claim arguing there was no evidence that a valid agreement existed, and Jackson failed to present any evidence of damages. The trial court denied BAM's motion for directed verdict. Specifically, the trial court noted that Plaintiff's Exhibit 17, a spreadsheet breaking down BAM's quarterly gross income from the second quarter of 2016 through the third quarter of 2018, coupled with the testimony and evidence that the dividend paid to Jackson and Florence was four percent of gross income, provided sufficient evidence of damages. The trial court admitted this exhibit during pretrial, and BAM failed to object. Specifically, when asked if there were additional exhibits BAM could agree to preadmit, counsel responded that "[exhibit]17 are the numbers I gave him for gross income. I can't exactly object to those."

The Court's charge included instructions on ratification and implied ratification with Question 1, which addressed the existence of an agreement. During the charge conference, BAM objected to the submission of the contract questions, arguing that Jackson failed to prove the existence of a valid contract. BAM also objected to the instructions included with Question 1 regarding ratification. BAM further objected to Questions 1 and 2 as follows:

[COUNSEL]: I object to the Question Number 1 and 2 of the Charge further, the wording of them. In Question Number 2, it says, Comply with the agreement. It doesn't have the definition of the agreement. Under Question 1, it does not have an end date to when the dividend would be paid, and I believe that is a -- is a fatal flaw in the question if my clients -- if the jury finds that my clients agree to pay a dividend.
With respect to omitted questions or issues, BAM objected as follows:
[COUNSEL]: [A]s to questions that are not included on this jury charge, I object to the fact that Defendant's claim of forgery is not included in the jury charge for the promissory note, the bank documents, and the - - the W-9. There's clear and convincing evidence that those were forged by Mr. Jackson and they should be included on the jury charge as well as damages just for such.

The trial court overruled these objections as to Questions 1 and 2 and to the failure to include a proposed charge for BAM's counterclaim for forgery. In overruling these objections, the trial court noted that it had not received any proposed submissions.[4] However, the trial court ultimately included a question in the charge asking whether Jackson forged the Amended Agreement.

The jury returned a verdict in Jackson's favor. The jury found that: (1) Jackson and BAM agreed BAM would pay Jackson a dividend per the "Amendment to BAM Heavy Equipment &Repair Operating Agreement;" (2) BAM failed to comply with the Agreement; (3) Jackson was entitled to $117, 318 in damages; and (4) the "Amendment to BAM Heavy Equipment &Repair Operating Agreement" was not forged. BAM moved for judgment notwithstanding the verdict, which the trial court denied.

II. Issues One and Two: Membership Status and the Court's Charge

BAM first contends a fact issue existed regarding whether Jackson was a member of the LLC, and this was a "controlling issue" that required submission of the...

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