Sam Rayburn Mun. Power Agency v. Ralph J. Gillis, Gillis Borchardt & Barthel LLP
| Decision Date | 26 July 2018 |
| Docket Number | NO. 09-16-00339-CV,09-16-00339-CV |
| Parties | SAM RAYBURN MUNICIPAL POWER AGENCY, Appellant v. RALPH J. GILLIS, GILLIS BORCHARDT & BARTHEL LLP, OBAIN ASSOCIATES LIMITED AND THE JASPER/VPPA SETTLEMENT TRUST, Appellees |
| Court | Texas Court of Appeals |
On Appeal from the 253rd District Court Liberty County, Texas
This appeal involves two complex energy projects and the relationship between the members of the projects and an attorney that assisted the members in structuring both projects. Sam Rayburn Municipal Power Agency (SRMPA, Plaintiff, Appellant or Cross-Appellee) is a municipal energy provider, organized in 1979 by ordinances of three Texas cities: Jasper, Livingston, and Liberty. SRMPA purchases electrical power wholesale and sells it to (1) its constituent members Jasper, Livingston, and Liberty, (2) Vinton Public Power Authority (VPPA), which is the electrical power arm of Vinton, Louisiana, and (3) other potential buyers. SRMPA filed suit against its former attorney, Ralph J. Gillis (Gillis), and Gillis's law firm, Gillis Borchardt & Barthel LLP1 (the Gillis Firm), Obain Associates Limited (Obain), and the Jasper/VPPA Settlement Trust (the Trust) (collectively Defendants or Appellees) regarding what the parties referenced as the "Nisco Deal" and the "Cambridge Project." SRMPA alleged that Gillis and the Gillis Firm acted as SRMPA's "general counsel" at the time of both projects and that Gillis engaged in wrongful conduct causing damages to SRMPA. It is undisputed that SRMPA was not a participant in the Nisco Deal. SRMPA claims that Gillis failed to disclose the opportunity to participate in the Nisco Deal to SRMPA. And, SRMPA contends in its appellate brief that:
By using his alter ego, Obain Associates Limited (of which Gillis was the undisclosed principal), [], and intermediary trusts that Gillis also created, [], Gillis concealed from his client, SRMPA, that he would be personally receiving millions of dollars from each of these two sets of contracts. [] Gillis is even yet scheduled to receive an additional $1 million per year from the Cambridge Project until 2036, approximately another twenty million dollars. []
SRMPA also alleged that the City of Jasper and the Trust knowingly participated in Gillis's conduct.
Gillis denied the allegations made by SRMPA, and the City of Jasper and the Trust also denied the allegations. The Trust filed a counterclaim against SRMPA for contractual indemnity and filed a motion to bifurcate the counterclaim because "[n]o party has alleged that the indemnity provision at issue is ambiguous, so there is no liability issue to be submitted to the jury as to the [indemnity] [c]laim." The trial court signed an Order Bifurcating the Trust's Indemnity Claim Against Plaintiff, and reserving the counterclaim for post-verdict consideration by the trial court.
The claims of SRMPA were tried to a jury. In a 10-2 verdict, the jury responded "No" to the first question, "Did Gillis comply with his fiduciary duty to SRMPA regarding the NISCO Deal[.]" In response to the fourth question, the jury awarded $5,000,000 in damages for the Nisco Deal. In the fifth question the jury found that Gillis fraudulently concealed his breach of fiduciary duty in connection with the Nisco Deal. In the sixth question the jury was asked to find the date on which SRMPA obtained sufficient knowledge that would have required a reasonably prudent person to make an inquiry that, if pursued would lead to discovery of the breach, and the jury answered: "March 27, 2001." In response to the seventh question, the jury answered "No" to the question, "Did Gillis comply with hisfiduciary duty to SRMPA regarding the Cambridge Project[.]" In response to question ten, the jury awarded SRMPA past damages of $1,799,059 for the Cambridge Project, but no future damages. In response to question eleven, the jury found that Gillis complied with his fiduciary duty to SRMPA with respect to the cost of transmission upgrades. In response to question two, the jury found that the City of Jasper did not knowingly participate in Gillis's conduct regarding the Nisco Deal. In response to question eight, the jury found that neither the City of Jasper nor the Trust knowingly participated in Gillis's conduct regarding the Cambridge Deal. The jury answered "yes" to question thirteen, asking whether Obain was responsible for the conduct of Gillis. Ten of the members of the jury also answered "yes" that the harm to SRMPA resulted from gross negligence, malice, or fraud, but the jury left blank the answer of the amount of exemplary damages and that question required the jury to unanimously agree upon its answer.
The trial court struck the jury's answer to question fourteen asking whether the harm to SRMPA resulted from gross negligence, malice or fraud, because the question's predicate required a unanimous answer and only ten of the twelve jurors agreed, and the court concluded that the jury plainly erred by answering the question "on less than a unanimous vote and by not complying with the Question's predicate[.]" Because of the jury's response to question six, the trial court concludedthat the claims against Gillis and the Gillis Firm as to the Nisco Deal were barred by limitations. The trial court then awarded SRMPA $1,799,059 in damages for the Cambridge Project in past damages and no future damages, denied the Trust's indemnity claim, and ordered SRMPA to pay all of the Trust's costs of court. SRMPA appealed, and Gillis, Obain, and the Trust cross appealed. We affirm the trial court's judgment.
Gillis is an attorney and, according to all parties, Gillis is knowledgeable regarding the law, regulations, and contractual aspects of acquiring and selling electrical power. Gillis represented SRMPA and VPPA for more than thirty years as legal counsel in various energy transactions and projects.
According to the Plaintiff's Fifth Amended Petition, the live pleading at the time of trial (hereinafter "the petition"), SRMPA alleged that Gillis structured business transactions that affected his client's interests, Gillis utilized separate legal entities of his creation that disguised the arrangements of the projects and that he was making over $1 million yearly for over twenty years from the projects. The Plaintiff alleged that Gillis, the Gillis Firm, and the entities he created, were liable to SRMPA on theories of breach of fiduciary duty, fraud, unjust enrichment, moneyhad and received, alter ego, usurpation of opportunity, and interference with prospective contract.
Specifically, SRMPA complained in the petition about two energy arrangements or concepts, the "Nisco Deal" and the "Cambridge Project." SRMPA alleged that Gillis failed to disclose to SRMPA that the contracts for the Nisco Deal violated SRMPA's rights under its Power Supply Agreement with VPPA, and SRMPA alleged that Gillis created Obain and the Trust to hide significant payments that Obain (and thereby Gillis) would be receiving as a result of the new contracts Gillis structured as part of the Nisco Deal. SRMPA also alleged Gillis and the parties to the Nisco Deal contracts entered into confidentiality agreements on Gillis's advice, and SRMPA was "deprived of its opportunity to participate in the Nisco Deal and has suffered damages in the amount of 50% of the Nisco Deal revenues generated during 2001 through 2011." SRMPA alleged that, until shortly before this lawsuit was filed, SRMPA never learned what the Nisco Deal was, that Entergy had brought the deal to Gillis as lawyer for SRMPA, that Gillis had taken the deal instead to Jasper and VPPA, or that Gillis was benefiting personally from it.
SRMPA alleged that in response to a change in gas prices that occurred in approximately 2003, amendments to the Nisco Deal agreements were made under Gillis's new concept, the Cambridge Project, and one of the necessary participantsof the Cambridge Project was SRMPA rather than Jasper. According to the petition, the Cambridge Project involved SRMPA, three Entergy affiliates, Jasper, VPPA and the Trust, and the Trust would receive the payments from SRMPA. SRMPA alleged that Gillis created the Trust to help disguise the fact that much of the money that SRMPA would be paying under the Cambridge Project was actually going to Obain and Gillis. According to the petition, Gillis, the Gillis Firm, Obain, and the Trust breached their fiduciary duty to SRMPA, Gillis and the Gillis Firm fraudulently concealed that Obain was a beneficiary of the Trust, Obain was Gillis's alter ego, and the Defendants were unjustly enriched.
The Nisco Deal was developed in the late 1990s, became operational in 2001, and continued in operation until December 1, 2011. The Nisco Deal was developed from certain losses Entergy Gulf States Louisiana, L.L.C. (Entergy) was experiencing in the 1990s from regulations, primarily in Texas, that affected Entergy's relationship with the owner of a power-generating operation fueled by "petcoke," a byproduct of three petrochemical plants and refineries near Lake Charles, Louisiana. Former Entergy officer John Hurstell testified that he contactedGillis about helping him structure a deal for Entergy to lower unrecovered costs. Hurstell and Gillis discussed an assignment of the retail loads to VPPA which would then have a "sleeve" that would be either SRMPA or Jasper. Gillis testified that he told Hurstell that Jasper or SRMPA could be the intermediary wholesale purchaser, and that Gillis preferred SRMPA because it was a stronger entity than Jasper. Gillis testified that at that time he did not know if SRMPA would be interested because SRMPA "was beginning to look at some structure to dissolve . . . and they had just spent a lot of money over two years to get [another agreement] negotiated and in place[,]" so Gillis suggested that Jasper be a "backup arrangement" if...
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