Lamajak, Inc. v. Frazin

• Decision Date: 06 July 2007
• Docket Number: No. 05-05-01032-CV.,05-05-01032-CV.
• Citation: 230 S.W.3d 786
• Parties: LAMAJAK, INC., Appellant, v. Timothy FRAZIN, Appellee.
• Court: Texas Court of Appeals

230 S.W.3d 786

LAMAJAK, INC., Appellant, v. Timothy FRAZIN, Appellee.

No. 05-05-01032-CV.

Court of Appeals of Texas, Dallas.

July 6, 2007.

Rehearing Overruled August 22, 2007.

Michael V. Powell, Cynthia Keely Timms, Locke, Liddell & Sapp, LLP, Dallas, Christopher Dove, Locke, Liddell & Sapp, LLP, Houston, for Appellant.

Scott Griffith, Jeff Rusthoven, Griffith & Nixon, P.C., Nina Cortell, Warren D. Dodson,

Haynes & Boone, L.L.P., Dallas, for Appellee.

Before Justices MORRIS, WRIGHT, and FITZGERALD.

OPINION

Opinion By Justice MORRIS.

Following a jury trial, the trial court rendered judgment upon appellee Timothy Frazin's election to recover the jury's award for breach of contract damages. In its appeal from the trial court's judgment, Lamajak, Inc. first contends the trial court erred in failing to apply the doctrine of res judicata to bar all of Frazin's claims and, further, abused its discretion in denying it leave to file a trial amendment on the issue. Lamajak next contends there is no evidence or insufficient evidence to support the jury's verdict in favor of Frazin and the attorney's fees awarded to him. Finally, Lamajak claims the amount of prejudgment interest awarded is incorrect and should be recalculated.

We conclude Frazin is not entitled to judgment for breach of contract but is entitled to judgment on the jury's findings of quantum meruit and attorney's fees. We agree with Lamajak that prejudgment interest was erroneously calculated. Accordingly, we reverse the trial court's judgment in part, affirm in part, and render judgment based on the jury's findings on the issue of quantum meruit.

I.

At the center of the parties' dispute is an alleged oral agreement made by Timothy Frazin and Michael Cohen, who, at the time of the purported agreement, was president, chief executive officer, and part owner of Lamajak, Inc. According to Frazin, he and Cohen were good friends and their friendship involved various business dealings. The subject of those dealings was the collectible toys known as Beanie Babies.

Lamajak owned a large number of gift shops that sold a variety of products including Beanie Babies and other plush toys. In the mid 1990s, Frazin was involved in the collectibles market and became interested in selling Beanie Babies as a collectible. Frazin created a wholly owned corporation for the purpose of opening stores to sell Beanie Babies and to capitalize on what he saw as a growing market. In 1997, Frazin and Cohen agreed to an arrangement under which Lamajak would supply Frazin with a particular type of Beanie Baby and Frazin would split his profits with Lamajak. Both Lamajak and Frazin agree that this agreement was fulfilled by both sides. Frazin testified that the agreement was entirely oral. Cohen, on the other hand, contended there was a written memorialization of the agreement, but he could not produce a copy of the alleged writing.

At trial, Frazin testified that in early 1998, he had a discussion with Cohen in which Cohen stated Lamajak was going to cut back on its own Beanie Baby orders because he felt the market for them was going to decline and the toy's recent popularity was probably just a Christmas fad. Frazin disagreed. He told Cohen he believed the market would continue to stay strong. He further maintained he could help sell the toys through his connections and outlets. Frazin told Cohen he felt Lamajak could make over $10 million in profits on Beanie Babies in 1998. According to Frazin, Cohen was skeptical and stated he would be happy with $4 million to $5 million in profits. Cohen then allegedly told Frazin that he could have all of Lamajak's profits over $6 million. Frazin testified he repeated the offer to Cohen to make sure he had understood him correctly. When Cohen confirmed the offer, Frazin said they shook hands on the deal. Cohen, however, denied the conversation ever occurred.

Frazin testified that, following his conversation with Cohen, he changed the marketing strategy for his business to maximize the sale of Beanie Babies supplied by Lamajak and enhance Lamajak's profits. Several people who worked for Frazin in 1998 testified he told them his goal was to push Lamajak's profits over $6 million. To achieve this end, Frazin stated he rapidly opened stores and kiosks to sell Beanie Babies and advised and assisted Lamajak with its marketing of the product. Frazin testified that, throughout 1998, he would ask Cohen about Lamajak's profits and, toward the end of the year, he repeatedly asked whether it had reached the $6 million mark. Although Frazin conceded Cohen was vague in his answers, he stated Cohen never acted as though he did not understand the purpose of the inquiries and never denied the existence of the agreement. Cohen testified that, although he and Frazin frequently discussed the Beanie Baby market, Frazin never advised him on marketing and he never discussed whether Lamajak's profits had exceeded $6 million.

Frazin testified that in January 1999, he formally demanded payment pursuant to the oral agreement. He testified Cohen told him that the profits for 1998 had not yet been calculated. Later, Cohen told Frazin that he was selling his interest in Lamajak in January 2000. Frazin said Cohen told him he would be paid as soon as the sale took place.

In October 1999, Cohen advanced Frazin a personal loan of $225,000 so that Frazin could invest in a new collectible item. Frazin signed a promissory note made payable to Cohen that was due to be paid in full four months after the loan was made. Frazin testified that he discussed with Cohen the fact that, even if his investment did not work out, he would be able to repay Cohen quickly because he would receive his share of Lamajak's profits in a little over two months. Frazin failed to pay off the note on schedule and has never paid the amount in full.

Cohen eventually completed the sale of his interest in Lamajak on January 1, 2001. Despite Frazin's frequent requests for payment, Lamajak never paid him under the 1998 agreement. On January 16, 2001, however, Cohen sued Frazin for failing to pay him under the terms of the promissory note. Frazin's initial responses to the suit did not mention the 1998 Beanie Baby agreement. It was not until his fourth amended answer that Frazin asserted counterclaims against Cohen and third-party claims against Lamajak based on allegations that Cohen and Lamajak made oral promises to Frazin that he would receive all profits made by Lamajak in 1998 that were in excess of $6 million.

Less than a year later, Frazin filed a partial non-suit of his claims against Cohen and a non-suit of all his claims against Lamajak. The only counterclaims remaining against Cohen were for usury, deceptive trade practices, slander, defamation, and intentional infliction of emotional distress. The trial court resolved Frazin's counterclaims against him. It granted a summary judgment in favor of Cohen on September 10, 2002. Frazin did not appeal that judgment.

In December 2002, Frazin filed the present lawsuit against Cohen and Lamajak alleging claims for, among other things, breach of contract, promissory estoppel, and quantum meruit based on the 1998 Beanie Baby agreement. Cohen moved for summary judgment on Frazin's claims arguing they were barred by the doctrine of res judicata. The trial court granted the motion, severed the claims against Cohen, and rendered a final judgment in his favor. Frazin appealed the summary judgment to this Court, and we affirmed the judgment as severed.

Lamajak also moved for summary judgment against Frazin on the basis of res judicata. The trial court denied Lamajak's motions, however, and Frazin's claims against Lamajak were tried to a jury. Frazin contended at trial that Lamajak had not pleaded res judicata and objected to any instruction about the defense being included in the jury charge. Lamajak responded that the defense was pleaded by virtue of the fact that its answer incorporated by reference Lamajak's motion for summary judgment based on res judicata. Lamajak nevertheless requested leave to file a trial amendment to its pleadings to add specifically the defense of res judicata. The trial court denied Lamajak's request and did not include an instruction on res judicata in the jury charge.

The jury returned a verdict in favor of Frazin on his claims for breach of contract, quantum meruit, and promissory estoppel. Frazin elected to recover on his breach of contract claim. The trial court signed a judgment awarding Frazin $4 million in damages together with attorney's fees of $1.6 million. The trial court also awarded Frazin pre-judgment interest in the amount of $1,508,383.10. Lamajak timely appealed to this Court.

II.

In its first issue on appeal, Lamajak argues that Frazin's claims are barred by the doctrine of res judicata and the trial court erred in both refusing to allow the company to amend its pleadings to add the defense and failing to grant Lamajak's motion for judgment not withstanding the verdict based on res judicata. Because we conclude res judicata does not bar Frazin's claims against Lamajak, we do not reach Lamajak's arguments relating to its motion to amend its pleadings and its motion for judgment.

To establish the defense of res judicata, a party must show (1) a prior final judgment on the merits by a court of competent jurisdiction, (2) identity of parties or those in privity with them, and (3) a second action based on the same claims that were raised or could have been raised in the first action. Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex.1996). Res judicata prevents the relitigation of a claim or cause of action that has either been finally adjudicated or, with the use of diligence, should have been litigated in the earlier suit. See Barr v. Resolution Trust Corp., 837 S.W.2d 627, 628 (Tex.1992). Texas uses the "transactional" approach to determine what claims should have been litigated in an earlier suit....