C.M. Asfahl Agency v. Tensor, Inc.

• Decision Date: 29 January 2004
• Docket Number: No. 01-01-00692-CV.,01-01-00692-CV.
• Citation: 135 S.W.3d 768
• Parties: C.M. ASFAHL AGENCY, Appellant v. TENSOR, INC.; Quality Drilling Technology, Inc.; Quantum Solutions, Inc.; and Allied Signal, Inc., Appellees. Tensor, Inc.; Quality Drilling Technology, Inc.; and Quantum Solutions, Inc., Appellants v. C.M. Asfahl Agency, Appellee.
• Court: Texas Court of Appeals

135 S.W.3d 768

C.M. ASFAHL AGENCY, Appellant v. TENSOR, INC.; Quality Drilling Technology, Inc.; Quantum Solutions, Inc.; and Allied Signal, Inc., Appellees.

Tensor, Inc.; Quality Drilling Technology, Inc.; and Quantum Solutions, Inc., Appellants v. C.M. Asfahl Agency, Appellee.

No. 01-01-00692-CV.

Court of Appeals of Texas, Houston (1st Dist.).

January 29, 2004.

Rehearing Overruled May 6, 2004.

Robert B. Dubose, Cook & Roach, LLP, Robert M. Roach, Jr., Cook, Roach & Lawless, L.L.P., Roger R. Evans, Evans & Kosut, P.C., Houston, TX, for Appellant.

Daniel K. Hedges, Joanne M. Vorpahl, Jennifer Elizabeth Bloom, Porter & Hedges, L.L.P., Jesse R. Pierce, Clements, O'Neill, Pierce & Nickens, Houston, TX, for Appellees.

Panel consists of Justices TAFT, JENNINGS, and ALCALA.

OPINION

ELSA ALCALA, Justice.

Appellant and appellee, C.M. Asfahl Agency (the Agency), plaintiff below, entered into sales and marketing agreements with appellants and appellees, Tensor, Inc. (Tensor), Quality Drilling Technology, Inc. (QDT), and Quantum Solutions, Inc. (QSI) (collectively, the Tensor parties), defendants below, which entities eventually merged into a single Tensor entity.¹ In 1998, appellee, Allied Signal, Inc. (Allied Signal), also a defendant below, and Tensor executed an agreement by which Allied Signal purchased the Tensor assets. Allied Signal maintained that, under the terms of the asset-purchase agreement and because it had purchased only the Tensor assets, the Agency no longer had any right to receive commissions under its sales and marketing agreements with the Tensor parties. Asfahl² disagreed and, through the Agency, sued the Tensor parties, Allied Signal, George F. Roberts, a Tensor principal, and Robert L. Waters, an Allied Signal principal.³

The Agency sought recovery for claims that included breach of the sales and marketing agreements, tortious interference with those agreements by Allied Signal, quantum meruit, violations of the Sales Representative Act,⁴ fraud, fraudulent transfer, conspiracy, and indemnity. The trial court resolved most of these claims by partial summary judgment before trial began or before the case was submitted to the jury, either by directed verdict or refusal to include the Agency's theories in the jury charge.

The Tensor parties and Allied Signal did not present any evidence at trial and rested after the Agency completed its case-inchief. The case was submitted to the jury under a breach-of-contract theory of liability. The jury found that the Tensor parties failed to comply with the sales agreements with the Agency and awarded $906,793.90 in actual damages for commissions due under the agreements, $1,328,922.00 in attorney's fees for preparation and trial, with additional awards of $48,000.00 and $40,000.00 for appeals through the Texas courts. The trial court rendered judgment on this verdict.⁵ In accordance with the jury's finding that 28.6 percent of commissions due to the Agency were from wholesale sales, the trial court's judgment adjudicated the Tensor parties jointly and severally liable for an additional $518,686.10 as trebled damages under the Sales Representative Act.

The Agency's appeal presents six points of error that challenge the trial court's directing a verdict in favor of the Tensor parties and refusing to submit certain damages issues to the jury, failing to treble all of the Agency's damages for unpaid commissions, directing a verdict in favor of Allied Signal on the Agency's claim of tortious interference with a contract, and rendering summary judgment against the Agency on its fraudulent transfer and quantum-meruit claims.

The Tensor parties' appeal presents six contentions, framed as "issues," in which they argue that (1) the trial court erred by permitting the jury to award the Agency actual damages for commissions relating to certain sales, or (2), alternatively, that the judgment of the trial court should be reformed because the evidence is factually insufficient to support the damages awarded; (3) the treble damages awarded to the Agency under the Sales Representative Act should be vacated; (4) the trial court erred by admitting the Agency's damages summary; and (5) the judgment of the trial court should be reversed and the cause remanded because the evidence offered to support the award of attorney's fees did not segregate between recoverable and non-recoverable claims, or (6), alternatively, the judgment should be reformed because the fees awarded are excessive.

We overrule the Agency's points of error. We sustain the Tensor parties' issue and overrule their remaining issues. We affirm in part and reverse and render in part.

Background

The Tensor parties manufactured magnetometers, which are highly specialized, sophisticated components used in proximity-detection machinery for the oil and gas industry. Engineers who formed Tensor in 1975 had developed the magnetometers for use in its business. After Tensor began to sell its machines to other companies, which incorporated the

Tensor products into their own machinery and equipment, Asfahl proposed marketing Tensor magnetometers to other companies.

The Agency's Sales Agreements with the Tensor Parties

The Agency had sales agreements with each of the Tensor parties. The Agency's first agreement was with Tensor, in 1981. The agreement with QSI was in 1991, and the agreement with QDT was in 1993. Asfahl drafted each agreement without legal assistance, and each agreement differs from the others. He referred to "a book" when he drafted the later contracts, which he considered improvements over the Agency's first agreement with Tensor.

A. Territory and Commissions

The sales agreement with Tensor granted the Agency a 10 percent commission; the QDT and QSI agreements provided the Agency a five percent commission. The QDT agreement is the broadest of the three agreements, in that it is not limited to specific companies and covers a territory broadly defined as consisting of the United States, Canada, and Mexico, for which the Agency was granted exclusive commission rights. Asfahl worked alone and had no sales associates. The Agency's income from the three agreements was substantial and totaled over $1.3 million in commissions in 1997 alone.

B. "Continuity" Provisions

Each of the three sales agreements included a provision that the parties refer to as a "continuity" clause. Under the Agency's agreement with Tensor, the "rights" granted by the agreement endured "for such time as [the customer in question, as named in the agreement] has active purchase orders or contracts accepted by Tensor, Inc., plus an additional one and onehalf years extending beyond the completion of such purchase orders or contracts." The agreement with QSI provides for a specific term of "a period of ten years beginning 7 August 1991 and ending on 6 August 2001," but could also be terminated by either party on 30 days' notice. Although Tensor continued to abide by the QSI agreement after Tensor merged with QSI, it is undisputed that the QSI agreement terminated in 1998. Under the agreement with QDT, which merged with Tensor in 1998, "[c]ommissions [would] cease to be paid on orders ... following a period of two years wherein no orders are accepted by QDT from that customer or its successors."

In addition to a "continuity" provision, each sales agreement contains a provision that the agreement would be binding on the "successors and assigns" of the Tensor parties. The Agency relied extensively on the "continuity" provisions in claiming that it was entitled to future commissions even after the transfer of assets to Allied Signal. The Agency also relied on the "successors and assigns" terms, as well as the time-period designations in each of the sales agreements, to support the Agency's claim that the Tensor parties' obligations to the Agency continued, even though the Tensor parties ceased to exist after Allied Signal purchased their assets.

March 31, 1998 Asset Purchase of Tensor by Allied Signal

Allied Signal manufactured instruments that Tensor used in its products. In 1996, Allied Signal began efforts to purchase Tensor's assets. A major difference between the two companies was that Allied Signal did not employ independent sales agents like Asfahl to market its products and relied instead on in-house employees who were either salaried or earned substantially smaller commissions than the Agency earned under the sales agreements with the Tensor parties.

Allied Signal acquired Tensor's assets by an asset-purchase agreement (APA) entitled "Agreement and Plan of Reorganization." The purchase price exceeded $40 million, and the APA was executed on March 31, 1998.⁶ Specific provisions of the APA excluded Tensor assets from the assets Allied Signal purchased. Other provisions of the APA specified liabilities and obligations that Allied Signal assumed in the purchase. Allied Signal and Tensor also executed a separate assumption agreement for the liabilities assumed by the APA.

A. Assets Excluded by APA

Paragraph 2.2 of the APA governed "Excluded Assets." (Emphasis in original.) This paragraph addressed specific Tensor assets that were not conveyed to Allied Signal. Subparagraph (b) of paragraph 2.2 lists, "Those certain Sales Agreements (the "Asfahl Agreements")" and deems them an "Excluded Asset." (Emphasis in original.) The "Agency Agreements" stand out in their specificity, in that the only other Tensor assets listed as excluded are (1) retained cash, subject to provisions of the APA governing final adjustment on the transaction, and (2) the corporate minute book, stock transfer records, and other documents and records of Tensor and its subsidiaries that were not related to the business.

B. Liabilities Assumed by APA

Paragraph 4.1 of the APA, entitled "Assumption of Certain Liabilities and Obligations by Purchaser," governed any liabilities of the Tensor parties that Allied Signal, as purchaser, expressly agreed to ...