Kroesche v. Wassar Logistics Holdings, LLC
| Decision Date | 31 January 2023 |
| Docket Number | 01-20-00047-CV |
| Parties | MARTIN KROESCHE, STEVE SCHONEFELD, AND WASSAR LOGISTICS, INC., Appellants/Cross-Appellees v. WASSAR LOGISTICS HOLDINGS, LLC, Appellee/Cross-Appellant |
| Court | Court of Appeals of Texas |
On Appeal from the 333rd District Court Harris County, Texas Trial Court Case No. 2016-54111
Panel consists of Justices Goodman, Rivas-Molloy, and Farris.
This appeal arises from a series of interrelated disputes that developed between several persons and companies after they bought the assets of Flo Trend, a manufacturer of water filtration equipment. Appellants are Wassar Logistics, Inc. ("Old Wassar"), Martin Kroesche, and Steve Schonefeld. Appellee is Wassar Logistics Holdings, LLC ("New Wassar").
Appellants appeal from a final judgment entered following a bench trial. In six issues, appellants assert that the trial court committed reversible error by:
New Wassar cross-appeals. In two issues, it asserts the trial court erred in refusing to award it (1) certain attorney's fees under a fee provision in New Wassar's company agreement because it was the prevailing party; and (2) certain other attorney's fees under Chapter 38 of the Civil Practice and Remedies Code because it prevailed on its claim for damages under the advancing promissory note. New Wassar also asks that we modify the trial court's judgment to delete its decree that Old Wassar, Kroesche, and Schonefeld did not breach the advancing promissory note in a way that triggered the note's acceleration provision.
For the reasons stated in this opinion, we sustain appellants' first issue and overrule appellants' remaining issues. In the cross-appeal, we sustain New Wassar's two issues and request for modification. In summary, we reverse the take-nothing judgment on Kroesche's claim for damages under the promissory note, render judgment in favor of Kroesche for the amount of principal due under the note, and remand to the trial court to conduct a new trial on the amount of interest due as damages under the promissory note. We further reverse the trial court's denial of New Wassar's attorney's fees under the company agreement and remand this cause to the trial court to determine whether New Wassar is entitled to fees under the company agreement and, if so, the amount of the fees to which it is entitled. We further reverse the part of the judgment denying New Wassar attorney's fees on its claim for damages under the advancing promissory note and remand this cause to the trial court to conduct a new trial as to the amount of New Wassar's reasonable and necessary attorney's fees consistent with our opinion. In addition, we modify the trial court's judgment to delete the part decreeing that appellants did not trigger the advancing promissory note's acceleration provision. We affirm the remainder of the trial court's judgment as modified.
Flo Trend, a manufacturer of water filtration equipment, hired Martin Kroesche as chief operating officer in August 2014. During his tenure with the company, Kroesche hired Steven Schonefeld and Glenn Massey. Together, the three men eventually discussed buying the company from its owners (non-parties who are not involved in this litigation). They formed Wassar Logistics, Inc., or "Old Wassar," for this purpose.
By late November 2015, Kroesche, Schonefeld, and Massey had entered into an agreement with the owners to buy Flo Trend. They paid $500,000 toward the purchase of the company and took over day-to-day operations. But they did not yet own the company. They had to obtain additional financing to complete the transaction, which would close in February 2016. They had to secure the financing by the closing date. If they failed Kroesche, Schonefeld, and Massey would lose the down payment.
In their financing search, they met Peter Shaper, Courtland Loeffler, and George Dempsey, investors who were interested in the Flo Trend purchase. Together, all six men formed Wassar Logistics Holdings, LLC, or "New Wassar," to complete the financing of the purchase of Flo Trend.
New Wassar bought Flo Trend's assets for $3 million. To pay this sum, it raised $1.5 million in equity and took on $1.5 million in debt.
Flo Trend's owners would not sell the company's assets unless the building was included in the sale. Old Wassar agreed to buy the building. Shaper, Loeffler, and Dempsey did not want to buy the building, which they believed was overpriced. Nonetheless, Old Wassar and New Wassar jointly funded the purchase of the building via a bank loan or loans. Old Wassar owned the building, and New Wassar paid rent to continue running Flo Trend's business in that building. As part of the financing arrangement between the companies New Wassar made payments to the bank as rent, and Old Wassar executed an advancing promissory note in New Wassar's favor that grew by the same amount as each rental payment that New Wassar made. So long as the building lease was in effect between the two companies, Old Wassar was not obliged to make interest or other payments on this advancing promissory note. Kroesche, Schonefeld, and Massey all personally guaranteed payment of this note.
After the purchase of Flo Trend's assets, Kroesche, Schonefeld and Massey ran the company's day-to-day operations. Kroesche was president.
Later, the relationship between the parties deteriorated. Schonefeld alleged that Kroesche mismanaged the business. By April 2016, Schonefeld was urging the company to fire Kroesche. New Wassar fired Kroesche on July 9, 2016.
Under the company agreement, New Wassar had the right to repurchase the membership units of fired employees like Kroesche. New Wassar tried to do so by tendering a promissory note to Kroesche for $166,666.67, the amount that Kroesche had invested in the company. Kroesche disagreed that this amount was adequate, asserting instead that the units were worth more than $1.5 million. Litigation ensued.
New Wassar filed a declaratory judgment action against Kroesche on August 15, 2016. New Wassar sought a declaration that upon firing Kroesche, it had a right to repurchase his membership units in the company for $166,666.67.
Kroesche filed his own suit on September 1, 2016. Alleging that he remained a minority owner of New Wassar, he described his suit as a shareholder derivative action. He sued the majority shareholders: Shaper, Loeffler, Massey, Schonefeld, Dempsey, and several companies other than New Wassar. Contending that the majority shareholders had severely undervalued his units at $166,666.67, he asserted causes of action for fraud, breach of fiduciary duty, breach of contract, quantum meruit, and derivative claims, including shareholder oppression.
The parties jointly moved to consolidate the two suits. On October 19, 2016, the trial court signed an order consolidating them.
Over the course of the consolidated litigation, Kroesche insisted that the fair market value of his membership units was far more than $166,666.67. For example:
The nature of the parties' disputes changed over time in several significant ways. In February 2017, Schonefeld switched sides in the litigation after he was terminated from Flo Trend, joining Kroesche in his suit against the others. Like Kroesche, Schonefeld maintained that his membership interest in New Wassar was more valuable than the company said. In Schonefeld's June 10, 2017 response to requests for disclosure, he valued his units at more than $1,000,000. This dispute over the value of his membership units subsequently dropped out of the litigation after...
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