New Process Steel Corp., Inc. v. Steel Corp. of Texas, Inc.

• Decision Date: 24 October 1985
• Docket Number: No. 01-84-0149-CV,01-84-0149-CV
• Citation: 703 S.W.2d 209
• Parties: NEW PROCESS STEEL CORPORATION, INC., et al., Appellants, v. STEEL CORPORATION OF TEXAS, INC., Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 209

703 S.W.2d 209

NEW PROCESS STEEL CORPORATION, INC., et al., Appellants, v. STEEL CORPORATION OF TEXAS, INC., Appellee.

No. 01-84-0149-CV.

Court of Appeals of Texas Houston (1st Dist.).

Oct. 24, 1985.

Rehearing Denied Jan. 9, 1986.

Thomas J. Sims, Lee M. Larkin, Fouts & Moore, Sheldon E. Richie, Susan Steinfink Soussan, Jane Cooper-Hill, Richie & Greenberg, Houston, for appellants.

William Key Wilde and Mark E. Lowes, Bracewell & Patterson, Houston, John Athens, Conners & Winters, Tulsa, Okl., of counsel, for appellee.

Before EVANS, C.J., and HOYT and HUGHES (Retired), JJ.

OPINION

HUGHES, Justice (Retired).

New Process Steel Corporation, E.R. Fant, Inc., and S & S Alloys, Inc. brought this action against Steel Corporation of Texas (SCOT), alleging breach of contract and fraud. SCOT answered and filed counterclaims, asserting interference with its security interests, civil conspiracy, and a claim for debt. A jury answered issues on the contract and fraud actions in favor of New Process Steel, Fant, and S & S Alloys, awarding damages on those issues in excess of $1,200,000, plus $4,000,000 exemplary damages.

The trial court granted SCOT's motion to disregard all findings of the jury on damages, including the jury's answer of "zero" on SCOT's damages issue, and rendered a judgment non obstante verdicto. The judgment awarded no damages to New Process Steel, Fant, and S & S Alloys on their claims against SCOT, rescinded the agreement in question, and adjudged $323,292 attorney's fees against SCOT with provision for increased amounts in the event of appeals. The court's judgment also awarded SCOT the sum of $1,242,318 on its counterclaim against S & S Alloys and $171,000 as attorney's fees on that claim.

We affirm in part, reverse and render in part, and reverse and remand in part.

In 1977, S & S Alloys owed SCOT an unsecured debt of approximately $500,000, but because of S & S Alloys' financial condition, it was questionable whether the debt would ever be paid. After the secured creditors of S & S Alloys threatened to foreclose on their debts, SCOT decided to buy out their interests and to obtain better management for S & S Alloys so that it could become a profitable business.

For this purpose, SCOT's board of directors authorized its president, Robert C. Kiefer, to negotiate with New Process Steel about taking over the management of S & S Alloys. In April 1978, SCOT's board of directors, by corporate resolution, delegated authority to Kiefer to "negotiate a repayment schedule" with S & S Alloys, subject to the approval of the board's executive committee. As a result of negotiations between Kiefer and E.R. Fant, who was the majority shareholder of New Process Steel and of E.R. Fant, Inc., a management agreement was reached in May 1978. New Process Steel agreed to provide management, inventory, and working capital to S & S Alloys while determining if it was interested in purchasing S & S Alloys. SCOT, through Kiefer, agreed (1) that it would not try to collect its debt from S & S Alloys during the term of the management agreement and (2) that as the sole secured creditor of S & S Alloys, it would place an upper limit on its security interest in an amount equal to the dollar value of that security interest at the time New Process Steel began its management of S & S Alloys.

During this management period, New Process Steel made numerous sales and cash advances to S & S Alloys, while Kiefer and E.R. Fant continued to negotiate regarding the purchase of S & S Alloys. A major topic of conversation was SCOT's release of its security interest in S & S Alloys. Fant considered the release essential to S & S Alloys' being able to obtain additional credit and becoming a profitable entity. Kiefer kept SCOT's executive board abreast of these negotiations.

Kiefer and Fant succeeded in their efforts to reach an agreement, and a closing date was set for January 16, 1979. Shortly before that date, Kiefer spoke with a majority of SCOT's executive committee and received their individual approvals of the proposed agreement. At the closing, E.R. Fant, Inc., purchased S & S Alloys on the understanding that SCOT would accept a new note guaranteed by E.R. Fant, Inc. in exchange for (1) the $1,000,000 promissory note that SCOT held against S & S Alloys and (2) the outstanding accounts receivable due to SCOT from S & S Alloys. According to Fant, the new note was to be drawn up after the correct dollar amount for the transaction had been calculated.

After the closing, SCOT's management began to have second thoughts about the advisability of the transaction. SCOT fired Kiefer in June 1979, and then advised Fant that, to the extent any agreement had been made on January 16, SCOT was not willing to perform. New Process Steel, E.R. Fant, Inc., and S & S Alloys brought this suit against SCOT on August 16, 1979. On September 1, 1979, inventory that had been shipped to S & S Alloys during the management agreement period and after the January 16 purchase of S & S Alloys, and for which no payment had been made, was transferred back to New Process Steel by a bookkeeping transaction. Also transferred to New Process Steel were S & S Alloys' accounts receivable. New Process Steel's evidence showed that assets sufficient to satisfy SCOT's security interest were left with S & S Alloys.

The trial to the jury lasted some 11 weeks, and the 34 volume statement of facts contains 8,245 pages. The trial court submitted 26 special issues to the jury. In response to these issues, the jury found:

(Special Issue No. 1) That Kiefer, as president of SCOT; E.R. Fant, acting on his own behalf as well as for New Process Steel; S & S Alloys; and E.R. Fant, Inc., made an agreement on or about January 16, 1979, whereby: Fant would purchase the stock of S & S Alloys; Fant would personally guarantee or endorse SCOT's note from S & S Alloys for over $1,400,000, representing all of S & S Alloys' debts to SCOT; S & S Alloys would pay SCOT about $99,000 upon SCOT's release of its lien; SCOT would cancel its $1,000,000 note; SCOT would waive any accounts receivable owing from S & S Alloys; and SCOT would release its lien on all assets;

(Special Issue No. 2) That the majority of SCOT's executive committee approved this agreement;

(Special Issue No. 3) That Kiefer had express authority to make the agreement;

(Special Issue No. 4) That Kiefer had apparent authority to make the agreement;

(Special Issue No. 5) That SCOT was estopped to deny the agreement;

(Special Issue No. 6) That SCOT ratified the agreement; and

(Special Issue No. 7) That New Process Steel and E.R. Fant, Inc., knew or should have known on September 26, 1979, that SCOT would not perform the agreement.

In response to the damage issue in the contract action, the jury found:

(Special Issue No. 8) That the sum of $616,737 would restore to New Process Steel and E.R. Fant, Inc., the value and funds of materials supplied to S & S Alloys, Inc., pursuant to the agreement with SCOT.

In response to the issues submitted on the fraud theory, the jury found:

(Special Issue No. 9) That on or about January 16, 1979, SCOT fraudulently failed to inform New Process Steel that SCOT did not intend to perform the agreement; and

(Special Issue No. 10) That the sum of $660,590 would reasonably compensate New Process Steel for damages caused by SCOT's fraudulent failure to inform New Process Steel that it did not intend to perform the agreement.

In response to an additional damage issue, the jury awarded:

(Special Issue No. 11) $4,000,000 to New Process Steel as exemplary damages.

In response to SCOT's issues, the jury:

(Special Issue No. 12) Failed to find that S & S Alloys owed any money to SCOT;

(Special Issue No. 13) Failed to find that E.R. Fant individually, E.R. Fant, Inc., or New Process Steel had effected the transfer of inventory, accounts receivable, and equipment from S & S Alloys to New Process Steel in September 1979, with the intent to delay or hinder SCOT or to defraud SCOT;

(Special Issue No. 14) Failed to find that such transfer was not accompanied by immediate delivery and was not followed by actual and continued change of possession, or that such transfer prejudiced SCOT's rights in such items;

(Special Issue No. 15) Failed to find that such transfer was a major part of the materials, supplies, and inventory of S & S Alloys;

(Special Issue No. 16) Found that such transfer was in the ordinary course of S & S Alloys' business;

(Special Issue No. 17) Failed to find that such items had any value on the date of transfer;

(Special Issue No. 18) Failed to find that E.R. Fant, individually, E.R. Fant, Inc., or New Process Steel intentionally and improperly interfered with the performance by S & S Alloys of its payment and debt obligations to SCOT;

(Special Issue No. 19) Found $0 damages were due to SCOT.

In response to Special Issue Nos. 20-23, the jury failed to find any civil conspiracy between Kiefer, Fant, E.R. Fant, Inc., or New Process Steel, or that any damages resulted therefrom, and it refused to award exemplary damages to SCOT. In response to the remaining issues, the jury found:

(Special Issue No. 24) That SCOT represented to Kiefer that he had authority to enter into the agreement on January 16, 1979;

(Special Issue No. 25) That Kiefer relied on such representations; and

(Special Issue No. 26) That a reasonably prudent person, in the same or similar circumstances as Kiefer, would, by reason of the normal custom and practice of doing business at SCOT, reasonably have believed that he had authority to enter into the agreement.

We first consider New Process Steel's points of error two, three, and four, challenging the trial court's refusal to give effect to the jury findings on Special Issue No. 10, the damages issue submitted on the fraud theory, and Special Issue No. 11, the exemplary damages issue.

A court may disregard the jury's finding to a special issue only if the finding has...