John Masek Corp. v. Davis, 01-92-00135-CV

CourtCourt of Appeals of Texas
Citation848 S.W.2d 170
Docket NumberNo. 01-92-00135-CV,01-92-00135-CV
PartiesJOHN MASEK CORPORATION and John A. Masek, Appellants, v. Marvin DAVIS and Bilo Zarif, Appellees. (1st Dist.)
Decision Date19 November 1992

Page 170

848 S.W.2d 170
JOHN MASEK CORPORATION and John A. Masek, Appellants,
Marvin DAVIS and Bilo Zarif, Appellees.
No. 01-92-00135-CV.
Court of Appeals of Texas,
Houston (1st Dist.).
Nov. 19, 1992.
Rehearing Denied March 11, 1993.

Page 172

Duane H. Guy, Houston, for appellants.

W. Wendell Hall, San Antonio, for appellees.



O'CONNOR, Justice.

This Court is asked whether the trial court erred in entering a judgment non obstante veredicto ordering the plaintiff take nothing. We find it did not and affirm.

Fact summary

The plaintiffs, John Masek and John Masek Corporation (Masek Corp.), sued Marvin Davis, Marvin Davis Corporation (Davis Corp.), John Aylsworth, and Bilo Zarif for breach of fiduciary duty, tortious interference with contract, civil conspiracy, and piercing the corporate veil. The plaintiffs' claims relate to the liquidation of Davis Trading Company (Davis Trading).

Masek and Davis had a long history of professional and personal relationships. In 1986, Davis, Masek, Glen Natiello, and Gerald Gray created Davis Trading. Each of the four formed a Subchapter "S" corporation to shield themselves from any personal liability that might arise from the affairs of Davis Trading. The four individuals formed Davis Trading with their Subchapter "S" corporations as the members. Davis Trading was a high-risk company whose financial outlook was dependent upon two types of speculative transactions: (1) cash market transactions, which involved the future acquisition, transport, and/or delivery of refined petroleum products; and (2) trading of futures contracts for crude oil and refined petroleum products on the New York Mercantile Exchange.

Davis Corp., Davis' Subchapter "S" corporation, contributed $10,000,000 to Davis Trading (all of Davis Trading's capital), assumed financial responsibility for all of Davis Trading's losses, and owned 46 percent of the shares of Davis Trading. Davis Corp. also paid Natiello a $1,000,000 bonus. Because Davis Corp. was the only entity in Davis Trading that contributed money and the only one that bore any financial risk, the partnership agreement forming Davis Trading provided Davis Corp. had the contractual right to withdraw its capital from Davis Trading, liquidate the business of Davis Trading at any time, and remove Masek as the managing partner. Each partner's employment agreement repeated the provisions giving Davis Corp. unilateral rights to liquidate the business. Natiello's employment agreement stated, "Davis Corp. shall have the absolute discretion and authority to terminate [Natiello's] employment with Davis Trading or discontinue the business of Davis Trading Company at any time for any reason." All the parties are in agreement the contract granted Davis Corp. the right to liquidate.

After Davis Trading was formed, Davis sent Aylsworth, a Davis Corp. vice-president and accountant, and Bilo Zarif, Davis' son-in-law, to survey Davis Trading. Both Aylsworth and Zarif acknowledged they were at Davis Trading because Davis asked them to be there. Aylsworth was there as an accountant, and Zarif was there to learn about Davis Trading.

From the beginning, the partners disagreed how the company should be run. The financial reporting and accounting for the company was behind, and it was difficult to reduce the backlog, because of the high volume of transactions. In August 1986, Aylsworth expressed his concern and suggested the traders slow down the volume of trades, but they did not. As a result of the backlog, it was impossible to

Page 173

get an accurate reading of the company's financial situation.

In October 1986, Aylsworth tried once more to get the traders to reduce the number of trades. Aylsworth made the suggestion after Chase Manhattan, Davis Trading's bank, expressed concern over the possible "churning" of the accounts and the liberties taken with the credit limit. In January 1987, the partners met, and Davis told the traders to reduce the volume of trades to give the accounting department an opportunity to catch up.

According to the plaintiffs, there were rumors Zarif was not at Davis Trading just to observe. He told one of the employees he was planning to kick Masek out and remove Natiello. Later, Masek told Zarif he was not qualified to represent Davis Corp. in Davis Trading's transactions and asked him to leave. Zarif told Davis that Masek had asked him not to return. Masek alleges Davis offered him $1,000,000 for his interest in Davis Trading, or he would shut down the company.

In February 1987, Davis Trading posted a $1,000,000 loss, and Davis decided to exercise Davis Corp.'s option under the partnership agreement to withdraw its capital. Aylsworth was sent by Davis to tell the other partners. Davis did not choose to exercise its option to liquidate the company, but it was scheduled to withdraw its $10,000,000 in capital and give Masek and Natiello a chance to sell the company or find another partner. In April 1987, Davis Trading was liquidated after Masek and Natiello chose not to continue running the company. Masek gave his written consent to liquidate.

The trial court directed a verdict in favor of Aylsworth on the plaintiffs' tortious interference claim and agency claim and in favor of Davis on the plaintiffs' claim for piercing the corporate veil. The trial court also declined to submit the conspiracy claim to the jury. Following a verdict against Davis and Zarif, but not Davis Corp., the trial court entered judgment notwithstanding the verdict in favor of Davis and Zarif.

In this appeal, the plaintiffs claim Davis breached fiduciary duties by withdrawing capital and winding down Davis Trading.


A motion to disregard jury findings and for JNOV should be granted: (1) when the evidence is conclusive, and one party is entitled to recover as a matter of law, Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 227 (Tex.1990); or (2) when a legal principle precludes recovery. See, e.g., Stevenson v. Koutzarov, 795 S.W.2d 313, 319-20 (Tex.App.--Houston [1st Dist.] 1990, writ denied) (a judgment on the verdict...

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