Skeels v. Suder

Decision Date14 October 2021
Docket Number02-18-00112-CV
CourtCourt of Appeals of Texas
PartiesDavid A. Skeels, Appellant v. Jonathan T. Suder; Michael T. Cooke; and Friedman, Suder & Cooke, P.C., Appellees

Before Birdwell and Womack, JJ.; Lee Gabriel (Senior Justice Retired, Sitting by Assignment).

MEMORANDUM OPINION ON FURTHER REHEARING

Dana Womack, Justice.

On June 17, 2021, we issued a memorandum opinion and judgment on rehearing, affirming the trial court's declaratory judgment based on the application of the Texas Business Organizations Code but modifying the amended final judgment to delete the awards for attorney's fees and costs and for sanctions. Appellant and Appellees filed further motions for rehearing. See Tex. R. App. P. 49.5. Although we deny Appellant's further motion for rehearing, we withdraw our June 17, 2021 memorandum opinion and judgment on rehearing and substitute this memorandum opinion and our contemporaneously issued judgment on further rehearing. We deny Appellant's further motion for en banc reconsideration as moot. And we deny Appellees' further motion for rehearing.

I. Introduction

This appeal presents the question of the applicability of a corporate entity's shareholder agreement to the entity's right to redeem its shares. We conclude that the plain language of the shareholder agreement at issue is broad, clearly including any actions such as share redemption even though not specifically itemized in the agreement. Thus we affirm the trial court's declaratory judgment holding as such. But because the awards for sanctions, attorney's fees, and costs are supported by no evidence, we reverse those awards.

II. Background
A. Factual Background
1. The Firm Incorporates and Hires Skeels

Appellee Friedman, Suder & Cooke, P.C. ("the Firm") is a Texas professional corporation, which incorporated in December 1992 and is a closely held corporation.[1] See Tex. Bus. Org. Code Ann. § 21.563(a). The Firm's articles of incorporation expressly denied preemptive rights to the Firm's shareholders and granted the governing authority sole discretion as to the issuance and disposal of shares:

Any shares of stock authorized by these Articles or any additional authorized issues of any capital stock, rights or securities convertible into any shares of such stock may be issued and disposed of by the Board of Directors to such persons, firms, corporations or associations for such consideration, upon such terms and in such manner as the Board of Directors may, in its discretion, determine without any offering thereof on the same terms or on any other terms to the shareholders then of record or to any class of shareholders.

See Tex. Bus. Org. Code Ann. §§ 21.203, 21.204(b).

In 1993, 1999, and 2002, the Firm amended its articles to reflect the Firm's name changes and to provide that no shares in the corporation had been issued. The 1999 and 2002 amendments were signed by appellee Michael T. Cooke as "President." Walker C. Friedman, appellee Jonathan T. Suder, and Cooke were considered to be the Firm's "founding shareholders."

In 2007, appellant David A. Skeels began work as an associate attorney at the Firm for its business-litigation group, which was headed by Suder and Cooke. As an associate, Skeels was paid a guaranteed yearly salary with biannual bonuses.

2. Skeels Becomes a Shareholder and Shareholder Agreement Signed

In January 2011, Skeels was promoted to shareholder in the Firm and received 1, 000 shares. Skeels's compensation scheme changed and became based on a certain percentage of the business-litigation group's net profits with no guaranteed salary.[2]Under the percentage arrangement, the business litigators' recoveries (minus expenses) would be pooled, and each litigator would then receive a percentage, even if that litigator had not worked on every case included in the pool. Skeels received no dividends based on his shares, however. The share certificate, which was issued later but dated in January 2011, reflected that the shares had been "fully paid." See Tex. Bus. Org. Code Ann. §§ 21.157(b), 21.162.

That same year, Skeels and Suder tried a patent case ("Lighting Ballast "), which Skeels had begun working on while still an associate, that resulted in a $4.5 million jury verdict in favor of the Firm's client. See Lighting Ballast Control, LLC v. Philips Elecs. N. Am. Corp., 814 F.Supp.2d 665, 670, 698 (N.D. Tex. 2011), rev'd, 498 Fed.Appx. 986, 987 (Fed. Cir. 2013), [3] vacated & remanded, 574 U.S. 1133 (2015), affd, 790 F.3d 1329, 1333-34 (Fed. Cir. 2015), cert. denied, 577 U.S. 1144 (2016).

In early 2014 and while Lighting Ballast wended its way through the federal appellate courts, the Firm received notice of an impending IRS audit, and the Firm's bookkeeper recommended that its "record keeping" be shored up. In February 2014 and in an apparent response to the looming audit, the shareholders of the Firm executed a Resolution "to ratify, confirm and memorialize in writing a policy and practice of the Firm, and a right possessed by Walker Friedman, Jonathan Suder and Michael Cooke, before any current shareholder other than Walker Friedman, Jonathan Suder and Michael Cooke became a shareholder in the Firm." The policy and practice that was "resolved" in the Resolution was broadly worded:

Notwithstanding the number of shareholders, or the number of shares issued to any shareholder, Walker Friedman, Jonathan Suder and Michael Cooke, collectively, have been entitled, and shall continue to be entitled, to take affirmative action on behalf of the Firm, and veto any vote or action taken by or on behalf of the Firm, and/or by any other shareholder, whether individually, or collectively.

Friedman, Suder, and Cooke signed the Resolution in one column; in a separate column, Skeels and the three other shareholders signed it as well. Skeels does not contend that the Resolution was ambiguous or that he signed it under coercion or duress.

Cooke later stated that the purpose of the Resolution was to ensure that his, Friedman, and Suder's decisions about the management and control of the Firm- "whatever we need to do in the [F]irm"-could not be overturned by a combined vote of the other shareholders, which had been the Firm's prior practice and unwritten policy. In short, the shareholders memorialized that Friedman, Suder, and Cooke were the governing authority for the Firm. See Tex. Bus. Org. Code Ann. § 1.002(35)(A) (defining corporation's governing authority as a "group of persons who are entitled to manage and direct the affairs of an entity under this code and the governing documents of the entity"), § 3.101 (providing that a governing authority "manages and directs the business and affairs of the domestic entity"). As characterized by the Firm, the Resolution afforded "the founding shareholders final word in all matters relating to the [F]irm," including the "extinguishment or redemption of non-founding shareholders' shares." Similarly and as we previously quoted, the Firm's articles of incorporation denied the shareholders preemptive rights to their shares and provided that the governing authority could issue and dispose of shares at its discretion.

3. Skeels is Fired

In 2015, Skeels's relationship with Suder deteriorated, and Skeels began sending emails to another non-founding shareholder complaining about Suder's work ethic.

Skeels and the other shareholder began talks with another law firm later in 2015 about "exploring other opportunities." Skeels averred that he approached the other law firm as leverage to negotiate a higher percentage share of the profits at the Firm.

In early December 2015, Skeels and the other "younger" shareholders met with Suder and Cooke "to discuss with them some concerns [they] had about the division of profits and the way in which the [F]irm was compensating certain shareholders, particularly in light of how much work [Suder and Cooke] were doing or . . . not doing." Friedman apparently was not part of the meeting because he, Cooke, and Suder "operated internally like two different law firms; Walker Friedman and his group and [Cooke and Suder] separately with their group." It is unclear what the outcome of this meeting was.

On December 11, Suder discovered the emails in which Skeels had groused that Suder was "arrogant," "delusional," and prone to leave the office early.[4] On December 14, the Firm told Skeels that his employment would be terminated at the end of the year and, as part of its "Proposal Regarding Separation," required him to "tender" his shares in the Firm. In the proposal, the Firm stated that it would pay Skeels $50, 000 "from the Lighting Ballast matter" once all appeals were exhausted and the Firm received its fees.[5] Skeels asserted that this offer was later increased to $75, 000. Without accepting or rejecting the Firm's proposal, Skeels began working for the other law firm he had previously approached. The other shareholder on Skeels's emails was also fired; he began working at the same firm as Skeels.

4. The Firm Attempts a Share Redemption

On January 8, 2016, Skeels sent a letter to Cooke seeking "to evaluate and determine [his] rights in connection with [his] involuntary termination" from the Firm and requested multiple documents relating to the Firm's finances and corporate governance. See id. § 21.218(b). Skeels stated that once he received the requested information, he would be able to respond to the "proposals concerning my involuntary separation."

The Firm gave Skeels's newly retained attorney ("Attorney One") some of the requested documentation, which the Firm stated was information "given to all [Firm] lawyers at...

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