Haut v. Green Café Mgmt., Inc.

• Decision Date: 12 June 2012
• Docket Number: No. 14–10–01224–CV.,14–10–01224–CV.
• Citation: 376 S.W.3d 171
• Parties: Andrew HAUT, Appellant, v. GREEN CAFÉ MANAGEMENT, INC. and Alabama Green, LLC, Appellees.
• Court: Texas Court of Appeals

376 S.W.3d 171

Andrew HAUT, Appellant,

v.GREEN CAFÉ MANAGEMENT, INC. and Alabama Green, LLC, Appellees.

No. 14–10–01224–CV.

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

June 12, 2012.

Kirk Allen Kennedy, Houston, for Appellant.

Keith M. Remels, Houston, for Appellees.

Panel consists of Justices FROST, BROWN, and CHRISTOPHER.

OPINION

JEFFREY V. BROWN, Justice.

A jury found that appellant Andrew Haut breached a fiduciary duty to two companies in which he owned minority shares of stock and membership interests. The trial court found that Haut's breach of fiduciary duty was clear and serious, warranting the remedy of equitable forfeiture of Haut's stock and membership interests in the companies. We affirm.

I

Green Café Management, Inc. (GCM), is a corporation that franchises “Ruggles Green” restaurants. Alabama Green, LLC, operates a Ruggles Green restaurant at 2311 West Alabama in Houston. As franchisor, GCM sold the Ruggles Green franchise to Alabama Green. Haut owned 10% of the shares in GCM and 5% of the membership interests in Alabama Green. Haut is not an officer, director, or manager of either company.

In 2007, Federico Marques, along with Bruce Molzan and Robert Guillerman, developed the concept of the first green restaurant in Houston—one certified by the Green Restaurant Association's food-industry standards.¹ Later that year, Marques discussed the business plan for the Ruggles Green restaurant with Haut. Marques had known Haut as a business acquaintance and friend for about ten years, and over the years he had discussed other business plans and ideas with Haut.

As the Ruggles Green concept took shape, Haut increasingly participated with Marques, Molzan, and Guillerman in discussions about the structure and operation of the nascent business. Eventually, Haut began to draft legal documents, including a GCM shareholders agreement, a franchise agreement between GCM and Alabama Green, and an operating agreement for Alabama Green. Haut testified that, in addition to drafting legal documents for the companies, he performed other services such as preparing financial projections for investors, budgeting, helping acquire a suitable restaurant location, and obtaining licenses and insurance.

Marques, Molzan, and Guillerman knew Haut was in law school at the time and was not a licensed attorney. Haut testified that, as a law student, he had agreed to take a “first cut” at drafting the legal documents, but it was always understood that the final versions would be forwarded to an attorney for review. According to Haut, he, Marques, Molzan, and Guillerman would meet regularly to review and discuss in detail the various provisions in the documents he prepared. Marques testified that Haut would explain any provisions they did not understand. Although Marques, Molzan, and Guillerman were experienced businessmen, none of them were lawyers. According to Marques, Haut was “very insistent” about what the law required and how things needed to be done, and so they accepted his advice.

Haut testified Marques told him that an attorney named Tom Coleman, an acquaintance of Molzan, would review the documents when they were finalized. Marques disputed this. According to Marques, although the group considered hiring Coleman at one time and met with him briefly, Coleman was never hired to represent GCM or Alabama Green. Marques also stated that Haut was critical of Coleman's competence, which influenced their decision to not hire him. Molzan testified that they could not afford to retain Coleman, and because Haut had criticized Coleman's legal skills, he agreed to have Haut do all the legal work for them in exchange for shares in the company.

Marques testified that he believed Haut could contribute to the business because he had a finance degree from the University of Pennsylvania's Wharton School, had previously run his own business, and was in law school. According to Marques, Haut said he was “very familiar” with the documents they would need to prepare, and he also had access to professors and other resources at law school to help with drafting the documents. Marques testified that he and the others trusted Haut to contribute his financial and legal knowledge to the enterprise and originally agreed to give Haut a 3% ownership interest in GCM in exchange for his efforts, including the drafting of legal documents. According to Marques, he asked Molzan and Guillerman to increase Haut's interest to 10% after Haut complained that he was doing a lot of work and needed a larger share.

Marques also testified that he, Molzan, and Guillerman were uncertain about structuring the business as a franchise, but Haut insisted that a franchise would be the legally proper way to proceed. Haut agreed that he advised the group that the business should be structured as a franchise even though Marques, Molzan, and Guillerman were against this initially. Haut described the advice he gave as “business” or “financial” advice rather than legal advice. Haut acknowledged, however, that he had no prior experience in franchise law and had never operated a franchise. He explained that he gave the group financial advice based in part on his legal research, but he denied that this constituted giving legal advice. Before drafting the agreements, Haut admitted that he conducted legal research into the requirements for a uniform franchise offering circular and franchise agreement.

Haut testified that Marques never discussed paying Haut for performing legal work on behalf of Ruggles Green. He also denied that he drafted the documents in exchange for stock in the companies. Instead, Haut testified, he contributed $300 for his shares in GCM and $100 for his interest in Alabama Green. He acknowledged, however, that his interests were increased from 3% in each company to 10% in GCM and 5% in Alabama Green because he “was working so hard” to provide financial and legal services to the companies. Haut also admitted that he had no previous experience in drafting corporate documents.

Ultimately, the GCM shareholders agreement was signed in May 2008 by Molzan, Marques, Guillerman, and Haut. Molzan, Marques, and Guillerman also signed the agreement on behalf of GCM. The shareholders agreement reflected that Molzan, Marques and Guillerman would be directors of GCM, but Haut would not. The next month, the Alabama Green operating agreement was signed by Molzan, Marques, Guillerman, and Haut, as well as Randy Bower, the sole investor in the restaurant, and Jennifer McGehee, a friend of Bower's who had introduced him to Molzan. Of these, only Molzan, Marques, and Guillerman were designated managers of the company. Molzan's title was “Chief Executive Manager.”

Haut acknowledged at trial that Molzan, Marques, and Guillerman wanted to make sure they had exclusive control over the operation and management of the business. To ease their concern that investors might interfere with their management, at one point Haut sent an email to them stating that there were “any number of legal maneuvers available to management to stifle investor interference” and “the law is on your side.” Haut denied that his statements could properly be described as legal advice. But Haut admitted that the final, signed documents did not give Marques, Molzan, and Guillerman, the directors of GCM, exclusive authority over the management of Alabama Green. Marques testified that, among other things, Haut drafted the GCM shareholders agreement and the Alabama Green operating agreement to give himself veto rights, effectively divesting GCM's directors and Alabama Green's managers of their ability to control the management of the respective companies.²

In November 2008, the Ruggles Green restaurant opened for business. According to Haut, however, the restaurant was losing money from its inception, and Haut believed it would soon run out of money and have to close. After about three weeks of operation, Haut contacted Bower to encourage him to replace Molzan and Guillerman as managers and take control of the restaurant. ³ Haut admitted he did this secretly without Molzan's and Guillerman's knowledge. Bower did not agree to Haut's proposal, and Bower instead contacted Molzan and Guillerman to tell them what Haut had said. The next day, according to Haut, Molzan and Guillerman gave Haut an ultimatum—either he goes or they go. Haut, who had no prior restaurant experience and was not a chef, chose to cease participating in the business. According to Marques, Haut complained that the company was being mismanaged, it was going to fail, and he no longer wanted to be part of a “sinking ship.” On December 20, Haut sent an email to the shareholders and members of GCM and Alabama Green informing them that he would no longer be involved in any aspect of the restaurant and also would consider selling his interests in the companies.

Bower testified that before Haut's departure, Haut would come in the restaurant and insult the employees if they were not doing things exactly as he preferred. Marques also testified that Haut was “volatile” and would yell at employees in front of customers. He described Haut as believing he was “smarter than everybody” and “very arrogant.” Bower also testified that since Haut's departure, Ruggles Green was doing very well financially and was extremely well run under the management of Molzan, Marques, and Guillerman. Marques expressed the opinion that if Molzan or Guillerman had been removed as Haut wanted, the company would have failed.

In August 2009, Haut sent Marques a spreadsheet reflecting Haut's estimated valuation of his interests in GCM and Alabama Green at $603,582.63. After the parties failed to reach an agreement to buy out Haut's interests in the companies, Haut filed a lawsuit against GCM and Alabama Green seeking access to the books and records of both companies and damages for breach of contract by Alabama Green. GCM and Alabama Green answered and filed counterclaims...