E.F. Johnson Co. v. Technology
| Decision Date | 11 August 2016 |
| Docket Number | No. 05-14-01209-CV,05-14-01209-CV |
| Parties | E.F. JOHNSON COMPANY, Appellant v. INFINITY GLOBAL TECHNOLOGY F/K/A INFINITY GEAR AND TECHNOLOGY, LLC, AND CHARLES KIRMUSS D/B/A KIRMUSS & ASSOCIATES, Appellees |
| Court | Texas Court of Appeals |
On Appeal from the 95th Judicial District Court Dallas County, Texas
Before Justices Fillmore, Stoddart, and O'Neill1
Opinion by Justice O'Neill
A jury found that appellant E.F. Johnson Company (EFJ) fraudulently induced appellees Infinity Global Technology f/k/a Infinity Gear and Technology, LLC (Infinity) and Charles Kirmuss d/b/a Kirmuss & Associates (Kirmuss) to enter into a Distribution Agreement. The jury found further that EFJ failed to comply with the terms of the Distribution Agreement. The jury assessed damages for both the fraudulent inducement and breach of contract; the trial court assessed attorney's fees. In seven issues, EFJ challenges: (1) the trial court's failure to apply a contractual limitation-of-liability provision, (2) Kirmuss's status as a party to the Distribution Agreement, (3) the sufficiency of the evidence supporting a finding of fraudulent intent, (4) the sufficiency of the evidence supporting the damages award, (5) the trial court's failure to require appellees to elect their remedy, (6) the basis and rate of prejudgment interest, and (7) the sufficiency of the evidence supporting the trial court's award of attorney's fees. Infinity and Kirmuss bring three cross issues, challenging the trial court's interest award and its segregation of attorney's fees as between them. We reverse the trial court's judgment in part, modify it in part, and affirm the remainder.
Kirmuss operated an electronics business that specialized in radio-related products. In 2007, at a trade show in Hong Kong, he discovered a speaker microphone with a built-in global positioning system (the GPS-Mic), manufactured by Wintectronics (Wintec). Kirmuss believed the GPS-Mic could transform communications for first responders and military units, so he arranged to meet and discuss the product with Wintec's owner. After the meeting, Wintec granted Kirmuss the exclusive right to distribute and sell the GPS-Mic in North America.
Kirmuss visited Wintec's facility and then returned to the United States to share the new project with Lance McCullough, the president of Infinity. Kirmuss shared offices with Infinity, and Infinity was already a distributor for Kirmuss radio products. Kirmuss and Infinity promoted the GPS-Mic at conferences and trade shows, and a number of companies showed interest in marketing the product.
In February of 2008, EFJ discovered the GPS-Mic at a trade show in Las Vegas. On August 4, 2008, after significant negotiations, Kirmuss and Infinity and EFJ executed a Memorandum of Understanding (MOU). The MOU required Infinity to halt any negotiations or dealings with other parties concerning distribution rights to the GPS-Mic. In return, EFJ agreed that the parties' agreement would include a minimum purchase commitment of at least 50,000 units during a three-year term, with 12,500 units guaranteed to be purchased by EFJ in the first twelve months of the agreement.
The parties formalized the terms of their proposed agreement in their Distribution Agreement, which was effective November 24, 2008. They agreed Infinity would provide EFJ with 12,500 GPS-Mics within the first twelve months of the agreement's term. EFJ would pay $300 per unit, for a total of $3,750,000. EFJ guaranteed this minimum purchase for the first year; the Distribution Agreement called the commitment "irrevocable and non-cancellable." The parties further agreed Infinity would provide an additional 37,500 GPS-Mics over the next two years. Thus the three-year agreement was for Infinity to provide a total of 50,000 GPS-Mics and for EFJ to pay a total of $15 million.
Within a relatively short time, however, the parties' relationship began to falter. EFJ offered testimony that the GPS-Mics delivered by Infinity did not perform as they were represented. Appellees, on the other hand, offered testimony that EFJ failed to obtain an agreement to provide the GPS-Mics to the United States Army, and that EFJ invented excuses to get out of its contractual obligations. On November 4, 2009, EFJ provided written notice to Infinity that it was terminating the Distribution Agreement.
Infinity sued EFJ for breach of the Distribution Agreement and fraudulent inducement. Kirmuss later joined the suit as a plaintiff, claiming fraudulent inducement. The jury returned findings that EFJ had breached the Distribution Agreement with Infinity and that EFJ had fraudulently induced both appellees to enter into the agreement. The jury found damages in amounts between $1.2 million and $1.3 million on each claim. The trial court's judgment awarded Infinity $1,256,250 in actual damages without identifying the claim on which it was recovering. The judgment awarded Kirmuss $1,300,000 in actual damages.
The parties agreed below to try the issue of attorney's fees to the court after trial. Attorneys for both parties submitted affidavits opining as to reasonable and necessary attorney's fees for Infinity and Kirmuss. The trial court eventually awarded Infinity $1,276,913 and Kirmuss $535,322 as their reasonable and necessary attorney's fees. The court also awarded Infinity interest at eighteen percent and Kirmuss interest at five percent.
EFJ appeals, and Infinity and Kirmuss cross-appeal.
EFJ raises seven issues in this Court.
In its first issue, EFJ contends the limitation-of-liability provision in the Distribution Agreement should cap recoveries by both appellees at $49,600, the amount actually paid to Infinity by EFJ before the latter refused to take or pay for any more units. The provision at issue, section 18.3 of the Distribution Agreement, contains two sentences and states in its entirety:
[1] EXCEPT FOR A BREACH OF SECTION 22 (CONFIDENTIALITY) AND EITHER PARTY'S OBLIGATION OF INDEMNIFICATION UNDER SECTION 17 (INTELLECTUAL PROPERTY INDEMNIFICATION), IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT, EXEMPLARY, SPECIAL OR INCIDENTAL DAMAGES ARISING FROM OR RELATING TO THIS AGREEMENT, INCLUDING INABILITY TO USE PRODUCTS, SOFTWARE OR DOCUMENTATION, DAMAGES RELATING TO THE LOSS OF INFORMATION OR AUDIO, DEVICE INACCURACY, INABILITY TO LOCATE A PERSON OR AREA, LOSS OF DATA, COMPUTER PROGRAMS, PROFITS, BUSINESS GOODWILL, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. [2] EXCEPT FOR A BREACH OF SECTION 22 (CONFIDENTIALITY) AND EITHER PARTY'S OBLIGATION OF INDEMNIFICATION UNDER SECTION 17 (INTELLECTUAL PROPERTY INDEMNIFICATION), EACH PARTY'S TOTAL CUMULATIVE LIABILITY IN CONNECTION WITH THIS AGREEMENT AND THE [INFINITY] PRODUCTS, SOFTWARE, AND DOCUMENTATION WHETHER IN CONTRACT OR TORT OR OTHERWISE, WILL NOT EXCEED THE AMOUNT OF MONIES ACTUALLY PAID TO [INFINITY] BY EFJ UNDER THIS AGREEMENT.
The trial court instructed the jury not to consider this provision in making its award. Instead, the court reserved the issue to itself as a question of law. After trial, the parties briefed and argued the issue. The trial court did not apply the limitation in its judgment; it did not explain its reasoning.
EFJ contends the limitation provision should have limited the appellees' recovery to $49,600, which was the total amount EFJ had paid them before terminating the Distribution Agreement. EFJ relies on the Texas UCC to support what EFJ calls the plain language of the agreement. The relevant statute provides that:
TEX. BUS. & COM. CODE ANN. § 2.719(a) (West 2009). EFJ argues the parties agreed to limit recoverable damages and to make those limited damages the sole remedy available for breach of the Distribution Agreement. EFJ states correctly that Texas courts "apply this UCC provision." See, e.g., SAVA gumarska in kemijska industria d.d. v. Advanced Polymer Scis., Inc., 128 S.W.3d 304, 317 (Tex. App.—Dallas 2004, no pet.) ("In general, parties to a contract are free to limit or modify the remedies available for breach of their agreement.") (citing section 2.719); Muss v. Mercedes-Benz of N. Am., Inc., 734 S.W.2d 155, 158 (Tex. App.—Dallas 1987, writ ref'd n.r.e.) () (citing section 2.719). We agree that if, under the circumstances of this case, the Distribution Agreement's limitation-of-liability provision satisfies the standards of section 2.719, it should be enforced.
But appellees argue the limitation-of-liability provision does not satisfy the standards of section 2.719. Appellees look to that section's provision stating, "Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this title." TEX. BUS. & COM. CODE ANN. § 2.719(b). Appellees also rely on the official commentary for section 2.719. Reading these provisions together with those relied upon by EFJ, section 2.719 leaves parties free to fashion their own remedy and reasonable limitations on remedies are permitted. But the section does not allow parties to enforce a provision that deprives another of "minimum adequate remedies." Id. § 2.719, comment 1 (West 2009). Instead, parties ...
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