Swinnea v. Eri Consulting Engineers, Inc.

• Decision Date: 30 August 2007
• Docket Number: No. 12-05-00428-CV.,12-05-00428-CV.
• Citation: 236 S.W.3d 825
• Parties: J. Mark SWINNEA, Brady Environmental, Inc. and Malmeba Company, Ltd., Appellants v. ERI CONSULTING ENGINEERS, INC. and Larry G. Snodgrass, Appellees.
• Court: Texas Court of Appeals

236 S.W.3d 825

J. Mark SWINNEA, Brady Environmental, Inc. and Malmeba Company, Ltd., Appellants v. ERI CONSULTING ENGINEERS, INC. and Larry G. Snodgrass, Appellees.

No. 12-05-00428-CV.

Court of Appeals of Texas, Tyler.

August 30, 2007.

Rehearing Overruled November 19, 2007.

Gregory D. Smith, Sheral K. Maloy, for appellants.

Deborah J. Race, Roger W. Anderson, Tyler, for appellees.

Panel consisted of WORTHEN, C.J., GRIFFITH, J., and HOYLE, J.

OPINION

SAM GRIFFITH, Justice.

Mark Swinnea, Brady Environmental, Inc., and Malmeba Company, Ltd. appeal from an adverse judgment entered after a bench trial in a suit brought by ERI Consulting Engineers, Inc. (ERI) and Larry G. Snodgrass for fraud, breach of contract, breach of fiduciary duty, and conspiracy. Appellants attack the sufficiency of the evidence to support the damage awards, the trial court's determination that Snodgrass has standing to recover, the finding of Brady's liability, the viability and amount of the punitive damage award, and the failure to find that ERI is liable for unpaid rentals on the building lease. We affirm in part and, because the evidence is legally insufficient to support the damage awards, we reverse and render in part.

BACKGROUND

Beginning in 1992, Larry Snodgrass and Mark Swinnea co-owned ERI, an environmental engineering company. Much of their work involved consulting on asbestos abatement projects. They were also partners in a limited partnership called Malmeba, which owned the building that ERI leased. On August 31, 2001, Snodgrass bought out Swinnea's interest in ERI. The document memorializing the buyout is entitled "Stock Redemption Agreement." By virtue of this agreement, ERI repurchased Swinnea's five thousand shares of capital stock in ERI for three named items of consideration: $497,500.00 cash paid to Swinnea, transfer to Swinnea of Snodgrass's ownership interest in Malmeba, and the right for ERI to purchase certain equipment from Malmeba. At the same time, the parties signed an employment contract by which Swinnea agreed to work for ERI for six years. The contract included a noncompete agreement in effect for the six year term of the employment contract. Additionally, ERI entered a lease agreement with Malmeba to lease the land and building housing ERI for a period of six years.

In the summer of 2001, before the buyout of ERI, Swinnea and Chris Power, another ERI employee, formed a new company called Air Quality Associates, Inc. (AQA). AQA, an abatement contractor, began bidding on ERI administered asbestos abatement projects. Snodgrass was unaware that Swinnea and Power owned AQA until Jeff Shannon of Merico Abatement told him. Merico, also an abatement contractor, was one of ERI's biggest clients but stopped bidding on ERI projects when Snodgrass refused Merico's request for ERI to stop accepting bids from AQA. In February 2002, Power bought Swinnea's interest in AQA.

In August 2002, about a year after the buyout of Swinnea's ERI stock, Swinnea's wife, Dawn, started a new abatement contracting company, Brady Environmental, Inc. Swinnea continued to be employed by ERI until June 2004, when he was terminated. ERI and Snodgrass filed suit against Swinnea and Brady on August 5, 2004, alleging common law fraud, fraud in a stock transaction, breach of contract, breach of fiduciary duty, and conspiracy. Swinnea and Brady counterclaimed for breach of contract and conspiracy. Malmeba filed a third party complaint against ERI and Snodgrass for anticipatory breach of the lease agreement. ERI moved out of the Malmeba building September 30, 2004. In August 2005, ERI and Snodgrass amended their petition to add a cause of action for breach of the duty of good faith and fair dealing.

The case was tried to the bench. Among many other findings, the trial court found that Swinnea breached his fiduciary duty to Snodgrass and ERI, committed fraud in the context of the buyout, made false representations of past and existing material facts to induce Snodgrass and ERI to enter into the buyout, made false promises regarding his performance to induce Snodgrass and ERI to enter into the transaction, and engaged in a conspiracy with Brady. The court also found that Swinnea must forfeit "unjust profits and gains" he obtained as a result of his wrongful conduct. Therefore, the court found that ERI and Snodgrass were entitled to recover $133,200.00 for the lease payments of $3,600.00 per month from September 1, 2001 through September 30, 2004; $437,500.00, a portion of the up front cash paid in the buyout; $150,000.00 for one half the value of Malmeba; and $300,000.00 for the loss of income from ERI's business relationship with Merico. The trial court ordered that ERI and Snodgrass recover those amounts from Swinnea and Brady as actual damages totaling $1,020,700.00, that Swinnea pay Snodgrass $1,000,000.00 in exemplary damages, and that Snodgrass and ERI recover attorneys' fees. The court ordered that Swinnea, Brady, and Malmeba take nothing on their claims against Appellees.

JURISDICTION

In their second issue, Appellants assert that there is no evidence that Snodgrass, rather than ERI, paid any portion of the cash Swinnea received in the buyout or that Snodgrass had standing to recover the purchase money. They further argue that Snodgrass did not have standing individually to recover any loss of Merico income and any such award would belong solely to ERI. As the issue of standing is jurisdictional, we will address this issue out of order.

A plaintiff has standing when it is personally aggrieved, regardless of whether it is acting with legal authority. See Nootsie, Ltd. v. Williamson County Appraisal Dist., 925 S.W.2d 659, 661 (Tex. 1996). A party has capacity when it has the legal authority to act, regardless of whether it has a justiciable interest in the controversy. Id. Standing is jurisdictional and can be raised for the first time on appeal. See Texas Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 445-46 (Tex.1993). Capacity is not jurisdictional and may be waived. See Nootsie, 925 S.W.2d at 662.

The gist of Appellants' argument is that, because the transaction at issue was the repurchase by ERI of its own stock, and Snodgrass individually was not a party to the transaction, he cannot be entitled to win damages individually. This argument raises the issue of capacity, not standing. See Murphy v. American Rice, Inc., No. 01-03-01357-CV, 2007 WL 766016, at *13, 2007 Tex.App. LEXIS 2031, at *44 (Tex. App.-Houston [1st Dist.] March 9, 2007, no pet.); Mackie v. Guthrie, 78 S.W.3d 462, 465-66 (Tex.App.-Tyler 2001, pet. denied). Rule of civil procedure 93(2) requires a party complaining that a plaintiff is not entitled to recover in the capacity in which he sues to raise the issue at trial by filing a sworn affidavit. TEX.R. CIV. P. 93(2). Failure to comply with Rule 93 results in waiver of the right to complain on appeal about the plaintiff's capacity. Nootsie, 925 S.W.2d at 662. Appellants' answer does not raise the issue of capacity, nor is it verified by affidavit. Appellants have waived the right to raise the issue of Snodgrass's capacity. We overrule Appellants' second issue.

STANDARD OF REVIEW

Findings of fact entered in a case tried to the court are of the same force and dignity as a jury's answers to jury questions. Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex.1991). The trial court's findings of fact are reviewable for legal and factual sufficiency of the evidence to support them by the same standards that are applied in reviewing the legal and factual sufficiency of the evidence supporting a jury's answer to a jury question. Id. Conclusions of law will be upheld on appeal if the judgment can be sustained on any legal theory supported by the evidence; they will not be reversed unless they are erroneous as a matter of law. Texas Dep't of Pub. Safety v. Stockton, 53 S.W.3d 421, 423 (Tex.App.-San Antonio 2001, pet. denied).

If an appellant is attacking the legal sufficiency of an adverse finding on an issue on which he did not have the burden of proof, the appellant must demonstrate on appeal that there is no evidence to support the adverse finding. See Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex.1983). The reviewing court views the evidence in the light most favorable to the verdict, indulging every reasonable inference that would support it. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex.2005). The reviewing court must credit evidence that supports the verdict if a reasonable fact finder could and disregard contrary evidence unless a reasonable fact finder could not. Id. at 827. We must determine whether the evidence at trial would enable a reasonable and fair minded person to find the facts at issue. Id. A legal sufficiency challenge may be sustained only when 1) the record discloses a complete absence of evidence of a vital fact; 2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; 3) the evidence offered to prove a vital fact is no more than a mere scintilla; or 4) the evidence establishes conclusively the opposite of a vital fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998).

SUFFICIENCY OF THE EVIDENCE OF ACTUAL DAMAGES

In their first issue, Appellants contend there is no evidence or factually insufficient evidence to support the awards of actual damages. They assert that Appellees did not prove the value of ERI or the redeemed shares. They argue that Appellees failed to present evidence that Appellants' actions contributed to causing an identifiable loss or improper gain. Appellants further assert that the evidence of lost Merico income is speculative.

The trial court found Appellants liable for four separate categories of actual damages: $133,200.00 for lease payments of $3,600.00 per month from September 1, 2001 to September 30, 2004; $437,500.00, a portion of the up front cash paid in...