Dynegy Inc v. Yates
| Decision Date | 23 February 2011 |
| Docket Number | No. 04-10-00041-CV,04-10-00041-CV |
| Parties | DYNEGY, Inc., Appellant v. Terry W. YATES, Individually, and Terry W. Yates, P.C., Appellees |
| Court | Texas Court of Appeals |
From the 127th Judicial District Court, Harris County, Texas
Honorable Sharolyn P. Wood, Judge Presiding
OPINION ON APPELLEES' MOTION FOR REHEARING
Opinion by: Phylis J. Speedlin, Justice
Sitting: Catherine Stone, Chief Justice
The panel, on its own motion, has reconsidered the motion for rehearing filed by appellees, Terry W. Yates, Individually, and Terry W. Yates, P.C., on June 30, 2010, and has determined that its analysis of the statute of frauds issue in its opinion dated August 25, 2010 is erroneous. Accordingly, this court's opinion and judgment dated August 25, 2010 are withdrawn, and this opinion and judgment are substituted.
Dynegy, Inc. appeals the trial court's judgment in favor of Terry W. Yates, Individually, and Terry W. Yates, P.C. (collectively "Yates") for fraud arising out of an oral contract for the payment of attorney's fees. Among other issues on appeal, Dynegy asserts the judgment must be reversed because of insufficient evidence to support the jury finding of fraud in the formation of an oral contract for attorney's fees. Because we hold the evidence is legally insufficient, we reverse the trial court's judgment based on the jury's fraud finding and render judgment on the jury's findings on the alternative theory of breach of contract.
On June 10, 2003, Jamie Olis, a former officer of Dynegy, was indicted on multiple counts of securities fraud, mail and wire fraud, and conspiracy arising out of Olis' work on a complex financing transaction known as "Project Alpha" while he was Senior Director of Tax Planning in Dynegy's Tax Division. Pursuant to its articles of incorporation, the Dynegy Board of Directors passed a resolution in October 2002 that authorized the advancement of attorney's fees and expenses to certain officers and directors, including Jamie Olis, who were under investigation for their roles in Project Alpha. The resolution stated in relevant part that reasonable legal expenses arising out of Project Alpha were to be advanced to Olis upon receipt of (i) a signed statement that he had acted in good faith and in the corporation's best interests, with no reasonable cause to believe his conduct was unlawful, and (ii) a signed undertaking to repay the legal expenses if the Board ultimately determined he did not meet the standard of conduct required for indemnification. The Board resolution also provided, "such approval may be modified or revoked by this Board at any time as a result of changes in circumstances or further analysis." Olis signed the written undertaking in January 2003, and agreed to repay his legal expenses if it was determined he did not meet the indemnification standard.
Ten days after his indictment, on June 20, 2003, Olis hired criminal defense attorney Terry W. Yates to defend him in the federal criminal prosecution and in the on-going civil investigation conducted by the Securities and Exchange Commission ("SEC"). Olis told Yates, and his associate Mark Clark, that Dynegy would be paying his legal fees. That day, Clark called Cristin Cracraft, an attorney in Dynegy's legal division, to confirm that Dynegy would pay Olis' legal fees and to discuss the payment procedure. During the phone call, Clark told Cracraft that Olis had hired Yates to represent him and asked for confirmation that Dynegy was paying Olis' legal expenses. Clark testified that Cracraft stated, "the Board has passed a resolution, so, yes, we are paying Jamie Olis' fees," and instructed Clark that the bills should be submitted to her. Cracraft stated the hourly rates, however, should be negotiated with Olis because he was Yates' client, not Dynegy. Cracraft's trial testimony about her conversation with Clark was consistent with Clark's version.
Yates testified that he made an oral agreement with Olis that he (Yates) would look solely to Dynegy for payment of his fees for representing Olis. Olis signed a written fee contract with Yates on June 20, 2003 specifying the hourly rates to be charged and agreeing that he (Olis) was financially responsible for payment of Yates' legal fees. Although Dynegy's name is not mentioned, the written contract contains a phrase stating "all fees are due when billed unless other specific arrangements have been made." At trial, Yates testified this modifier was intended to refer to the fact that Dynegy was paying Olis' fees because Yates orally agreed with Olis never to look to him for payment of the legal fees. Yates further testified that he called Cracraft on June 20, 2003, after he faxed her the written fee contract signed by Olis which showed the hourly rates to be charged.
Yates stated that Cracraft confirmed that she received the fax and told him that Dynegy would pay Olis' legal fees directly to Yates through trial. Cracraft contradicted Yates' testimony about the phone call, however, stating that she never spoke to Yates on the phone that day, and in fact had never spoken to or met Yates as of the date of trial. Finally, Yates testified that he relied on Cracraft's oral promise that Dynegy would pay Olis' legal fees directly to Yates through trial.
On August 13, 2003, Dynegy hand-delivered a letter to Yates, addressed to Olis, stating that it would directly pay Yates his legal fees billed through August 17, 2003; after that date, Dynegy would pay the fees into an escrow account pursuant to a July 23, 2003 Board resolution. Dynegy paid Yates' June invoice for $15,000 within two weeks of its submission, but then mistakenly escrowed the $105,000 for Yates' July invoice; it was paid in November 2003 after Olis' criminal trial ended. Yates submitted a third and final invoice for $448,556, representing all work performed from August 2003 through April 2004, including the November 2003 trial. Dynegy initially escrowed that amount, but later rejected payment of Yates' third invoice.
Yates filed suit against Dynegy to recover his unpaid attorney's fees. 1 Yates alleged breach of contract and fraudulent inducement and sought benefit-of-the-bargain damages for both claims. After a three-week trial, a jury found in favor of Yates on both his breach of contract claim and his fraud claim, awarding him (a) $448,556 in actual damages for breach of contract plus $574,718 in attorney's fees through trial (plus appellate fees), and (b) $500,000 in actual damages for fraud plus $2 million in punitive damages. Yates elected to recover under his fraud claim. On May 25, 2007, the trial court entered judgment in favor of Yates for $500,000 in actual damages, plus pre-judgmentinterest, and $2 million in punitive damages, plus costs of court and post-judgment interest. Dynegy now appeals.
We begin our analysis by examining whether the statute of frauds bars enforcement of the oral contract. The statute of frauds requires that certain types of promises or agreements, such as a promise by one person to pay the debt of another, be in writing and signed by the party to be charged. Tex. Bus. & Com. Code Ann. § 26.01(a), (b)(2) (West 2009). Generally, whether a contract falls within the statute of frauds is a question of law. Bratcher v. Dozier, 162 Tex. 319, 346 S.W.2d 795, 796 (1961); Beverick v. Koch Power, Inc., 186 S.W.3d 145, 149 (Tex. App.—Houston [1st Dist.] 2005, pet. denied). We review questions of law de novo. El Paso Natural Gas Co. v. Minco Oil & Gas, Inc., 8 S.W.3d 309, 312 (Tex. 1999); Rittmer v. Garza, 65 S.W.3d 718, 722 (Tex. App.—Houston [14th Dist.] 2001, no pet.).
Dynegy argues the judgment below should be reversed and rendered because the oral agreement between Yates and Dynegy was to answer for the debt of a third person, i.e., Jamie Olis, and therefore is unenforceable under the statute of frauds. Dynegy notes that Yates failed to plead an exception to the statute of frauds, and failed to secure jury findings establishing an applicable exception to the statute of frauds. See Adams v. Petrade Int'l, Inc., 754 S.W.2d 696, 705 (Tex. App.—Houston [1st Dist.] 1988, writ denied) (); see also Otto Vehle & Reserve Law Officers Ass'n v. Brenner, 590 S.W.2d 147, 152 (Tex. Civ. App.—San Antonio 1979, no writ) (same). Therefore, Dynegy asserts that both Yates' fraud claim seeking benefit-of-the-bargain damages and his alternative breach of contract theory are barred. Yates responds that the statute of frauds does not preclude his claimsbecause: (1) Dynegy failed to meet its burden to prove the statute of frauds applies when it did not seek summary judgment or a directed verdict, or submit a jury question, on that issue; (2) Dynegy's promise to pay Yates' legal fees as they were incurred was not a promise to answer for the debt of another; (3) the contract was completely performed by Yates; and (4) the oral contract was performed within one year.
The first question we must address is whether Dynegy met its burden of proof on its affirmative defense of the statute of frauds. Yates argues that Dynegy failed to meet its burden when it did not move for summary judgment or a directed verdict on that ground, and did not submit a jury question on the statute of frauds. We agree that statute of frauds is an affirmative defense which is waived ifnot pleaded. See Tex. R. Civ. P. 94; Phillips v. Phillips, 820 S.W.2d 785, 791 (Tex. 1991). In addition, the party pleading the statute of frauds bears an initial burden to establish its applicability. Brenner, 590 S.W.2d at 152. We disagree, however, that a motion for summary judgment or directed verdict is required. Here, Dynegy pled the affirmative defense of the statute of frauds in its answer, and moved for judgment notwithstanding...
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