Duradril, L.L.C. v. Dynomax Drilling Tools, Inc.

• Decision Date: 16 February 2017
• Docket Number: NO. 14–14–00945–CV,14–14–00945–CV
• Citation: 516 S.W.3d 147
• Parties: DURADRIL, L.L.C., and Greg Ward, Appellants v. DYNOMAX DRILLING TOOLS, INC., Dynomax Drilling Tools USA, Inc., and Dean Livingstone, Appellees
• Court: Texas Court of Appeals

516 S.W.3d 147

DURADRIL, L.L.C., and Greg Ward, Appellants

v.DYNOMAX DRILLING TOOLS, INC., Dynomax Drilling Tools USA, Inc., and Dean Livingstone, Appellees

NO. 14–14–00945–CV

Court of Appeals of Texas, Houston (14th Dist.).

Opinion filed February 16, 2017

Eric Yollick, The Woodlands, TX, for Appellant.

Isaac Villarreal, Houston, TX, Farbod Farnia, Dallas TX, for Appellee.

Panel consists of Justices Busby, Donovan, and Brown.

OPINION

Marc W. Brown, Justice

Dynomax Drilling Tools, Inc. (DCan),¹ and Dynomax Drilling Tools USA, Inc. (DUSA)² (collectively, Dynomax), brought claims against Duradril, L.L.C.,³ and Greg Ward,⁴ including for declaratory judgment and breach of contract. The jury found that DCan, DUSA, Duradril, and Ward agreed to the terms of an asset purchase agreement (APA) that became effective on July 1, 2013. The jury found that both Duradril and Ward breached the APA and that their breaches were not excused. The jury also found that neither DCan nor DUSA converted Duradril's property and that neither DCan nor third-party defendant Dean Livingstone⁵ committed fraud in connection with the asset purchase. The jury awarded Dynomax damages of $1,004,000. The trial court issued final judgment in favor of Dynomax and ordered that Dynomax recover damages from Duradril and Ward jointly and severally.

Duradril and Ward challenge the judgment in twelve issues. Issues one through three present legal-sufficiency and jury-charge issues involving the statute of frauds and its partial-performance exception. In issue four, Duradril and Ward contest the factual sufficiency of the evidence supporting the July 1, 2013 APA. In issues five and six, Duradril and Ward argue that the trial court erred in issuing judgment in favor of DCan because it was not registered in Texas under the Texas Business Organizations Code. In issue seven, Duradril and Ward challenge the trial court's issuing judgment based on ratification. In issue eight, Duradril and Ward contend that the trial court erred in entering an award of damages based on joint and several liability where there was no finding that the damages resulted from the conduct of specific defendants. In issues nine through eleven, Duradril and Ward argue that the trial court erred by not submitting their wrongful-injunction, tortious-interference, and economic-duress issues to the jury. Finally, in issue twelve, Duradril and Ward assert the evidence was factually insufficient to support that Duradril did not meet its burden to prove conversion. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

In April 2009, Duradril and DCan entered into a distribution agreement whereby Duradril would be the exclusive distributor in the United States of drilling motors and related parts manufactured by DCan. Ward executed the distribution agreement for Duradril, and Livingstone executed it for DCan. Over the next few years, Duradril failed to meet its minimum-purchase requirements under the distribution agreement.

In late 2012, Ward and Livingstone began discussing potential ways to resolve Duradril's increasing arrearage. In February 2013, Ward was shot in the head at work. Over the new few months, as Ward recovered, he and Livingstone resumed their discussions. The most viable solution involved an exchange of Duradril's assets for its debt.

Ward and Livingstone met on June 4, 2013, to discuss an agreement. Livingstone memorialized the "asset deal" in his planner. Ward and Livingstone worked together to identify and value Duradril's accounts receivable and assets to be included in the deal. As of July 1, 2013, Duradril owed DCan $4,056,000 in outstanding debt. The APA was to be effective July 1, 2013, and involved the following "essential material" terms: DCan would clear the payables owed by Duradril; Duradril would transfer to DCan approximately $701,000 of its accounts receivable and just under $2,890,000 in fixed assets, free and clear of debt; Ward would issue a personal note payable to cover just under $454,000 remaining on the debt and would receive a five-percent interest in DUSA held against the note, with an option to purchase additional shares; and Ward would stay on for four to six months as general manager of DUSA.

On June 18, 2013, DCan filed papers to incorporate DUSA in Texas. On June 30, DCan credited Duradril for just under $3.6 million of its outstanding debt as a "purchase" and showed a balance of just under $454,000. On July 1, 2013, Ward and Livingstone shook hands, and held a meeting with Duradril's staff and informed them that they now would be DUSA employees. Ward became general manager of DUSA and was paid a $10,000 monthly salary. The former Duradril employees began receiving their pay and benefits from DUSA. With regard to Duradril's accounts receivable, after July 1, customer invoices were sent out under DCan's accounting and collected by DCan. Notices went out to Duradril's business contacts stating that "effective July 1, 2013, Dynomax Drilling Tools USA, Inc. has purchased the assets of DuraDril, LLC."

By mid-August 2013, Dynomax discovered that certain assets transferred by Duradril were not free and clear, but rather were encumbered by liens. By early September 2013, attempts by Ward and Livingstone to resolve this issue and enter a written APA had failed. Ward instructed staff to reissue customer invoices, which were supposed to be issued and collected by DCan, "under Duradril's accounting" instead and also instructed staff to not send out invoices at all.

On November 6, 2013, Dynomax filed suit against Duradril and Ward⁶ seeking a declaration that the APA is valid, binding, and enforceable on the parties thereto. Dynomax also alleged claims for breach of contract, specific performance, unjust enrichment, fraud, corporate veil-piercing, and attorney's fees under chapters 37 and 38. Dynomax alternatively alleged DCan was entitled to collect the $4 million in debt owed less credits for payments made and property transferred by Duradril.

On November 7, 2013, Dynomax obtained a temporary restraining order (TRO) enjoining Duradril and Ward from interfering in the running of Dynomax's business. Duradril and Ward filed counterclaims against Dynomax and third-party claims against Livingstone for fraud, tortious interference, conversion, economic duress, unreasonable debt collection, wrongful injunction, and declaratory judgment. DUSA terminated Ward on November 20, 2013.

At trial, the jury found:

• DCan, DUSA, Duradril, and Ward agreed to the terms of an APA that became effective July 1, 2013;

• Duradril or Ward ratified the APA that became effective on July 1, 2013;

• Duradril and Ward failed to comply with the July 1, 2013 APA;

• Duradril's and Ward's failures to comply were not excused due to prior material breach or fraudulent inducement;

• The sum of $1,004,000 would fairly and reasonably compensate DCan and DUSA for their damages that resulted from Duradril's and/or Ward's failure to comply with the July 1, 2013 APA;

• DCan and DUSA did not convert Duradril's property;

• DCan and Livingstone did not commit fraud in connection with the alleged asset purchase;

• DCan and DUSA did not engage in unreasonable debt collection.

Duradril and Ward filed a motion for JNOV and two supplements. The trial court issued its final judgment—declaring that: Duradril, Ward, DCan, and DUSA agreed to the terms of an APA that became effective July 1, 2013; Duradril and Ward failed to comply with the July 1, 2013 APA; neither Duradril's nor Ward's failure was excused; Duradril or Ward ratified the July 1, 2013 APA; and the July 1, 2013 APA was valid, enforceable, and binding on DCan, DUSA, Duradril, and Ward. The court further ordered that DCan and DUSA have and recover from Duradril and Ward, jointly and severally, damages in the amount of $1,004,000, plus court costs and post-judgment interest at the rate of five percent. The court ordered that Duradril and Ward take nothing on any claims asserted against DCan, DUSA, and Livingstone. Duradril and Ward filed a motion to modify judgment or for new trial, which was overruled by operation of law. Duradril and Ward timely appealed.⁷

Due to Duradril's petition for bankruptcy, we abated the appeal. See Tex. R. App. P. 8.1, 8.2. We reinstated the appeal after the bankruptcy court lifted the automatic stay.

II. ANALYSIS

A. Standard of review

When the appellant challenges the legal sufficiency of the evidence supporting an adverse finding on which he did not have the burden of proof at trial, he must demonstrate that there is no evidence to support the adverse finding. City of Keller v. Wilson , 168 S.W.3d 802, 807–08 (Tex. 2005) ; Croucher v. Croucher , 660 S.W.2d 55, 58 (Tex. 1983). To successfully challenge the legal sufficiency of an adverse finding on an issue on which he had the burden of proof, the appellant must conclusively establish all vital facts in support of that issue. Dow Chem. Co. v. Francis , 46 S.W.3d 237, 241 (Tex. 2001) (per curiam).

We review the evidence in the light most favorable to the verdict, crediting favorable evidence if a reasonable fact finder could, and disregarding contrary evidence unless a reasonable fact finder could not. City of Keller , 168 S.W.3d at 807, 822, 827. We cannot substitute our judgment for that of the fact finder if the evidence falls within this zone of reasonable disagreement. Id. at 822. "Anything more than a scintilla of evidence is legally sufficient to support the finding." Formosa Plastics Corp. U.S.A. v. Presidio Eng'rs & Contractors, Inc. , 960 S.W.2d 41, 48 (Tex. 1998). More than a scintilla exists when the evidence would enable reasonable and fair-minded people to reach different conclusions. Burbage v. Burbage , 447 S.W.3d 249, 259 (Tex. 2014). "However, if the evidence is so weak that it only creates a mere surmise or suspicion of its existence, it is regarded as no evidence." Waste Mgmt. of Tex., Inc. v. Tex. Disposal Sys. Landfill, Inc. , 434 S.W.3d 142, 156 (Tex. 2014). Evidence is conclusive...