WCW Int'l, Inc. v. Broussard

• Court: Texas Court of Appeals
• Writing for the Court: Marc W. Brown
• Decision Date: 04 March 2014
• Docket Number: NO. 14-12-01077-CV,NO. 14-12-01139-CV,NO. 14-12-00940-CV,14-12-00940-CV,14-12-01077-CV,14-12-01139-CV
• Citation: WCW Int'l, Inc. v. Broussard, NO. 14-12-00940-CV, NO. 14-12-01077-CV, NO. 14-12-01139-CV (Tex. App. Mar 04, 2014)
• Parties: WCW INTERNATIONAL, INC., AND CHRIS WILMOT, Appellants/Cross-Appellees v. JERRY W. BROUSSARD, RONNIE D. LABORDE, DAVID M. KERNION, DAVID O. STRICKLAND, CRAIG M. BOREL, KEVIN J. ROUSSEL, GEORGE A. LOWERY, AND CARLOS O. GIRON, Appellees/Cross-Appellants

WCW INTERNATIONAL, INC.,AND CHRIS WILMOT, Appellants/Cross-Appellees v. JERRY W. BROUSSARD, RONNIE D. LABORDE,DAVID M. KERNION, DAVID O. STRICKLAND,CRAIG M. BOREL, KEVIN J. ROUSSEL,GEORGE A. LOWERY, AND CARLOS O. GIRON, Appellees/Cross-Appellants

NO. 14-12-00940-CV

NO. 14-12-01077-CV

NO. 14-12-01139-CV

State of Texas in the Fourteenth Court of Appeals

Opinion filed March 4, 2014

Affirmed and Memorandum Opinion filed March 4, 2014.

On Appeal from the 152nd District Court

Harris County, Texas

Trial Court Cause No. 2009-12773

MEMORANDUM OPINION

This consolidated appeal concerns a Stock Purchase Agreement ("SPA") entered into among appellant/cross-appellee WCW International, Inc. ("WCW"),and appellees/cross-appellants Jerry Broussard, Ronnie D. Laborde, David M. Kernion, David O. Strickland, Craig M. Borel, Kevin J. Roussel, George A. Lowery, and Carlos O. Giron. In the SPA, WCW agreed to purchase stock from appellees/cross-appellants,¹ who were shareholders in two engineering firms. This purchase was to be made partly in cash, with the rest to be represented by promissory notes. Appellant/cross-appellee Chris Wilmot, WCW's CEO and President, also executed a guaranty, wherein he agreed to be bound with WCW and deliver a letter of credit to Shareholders.

Shareholders ultimately sued WCW and Wilmot for breach of the SPA, the promissory notes, and the guaranty, and for fraud and fraudulent inducement. WCW and Wilmot counterclaimed for breach of the SPA, and for fraud and fraudulent inducement. The jury rendered findings mostly favorable to Shareholders and awarded damages to them on WCW's breach of the SPA and the promissory notes, and on the fraud claims. The trial court granted JNOV on the fraud findings and otherwise entered judgment on the verdict. WCW and Wilmot present six issues on appeal; Shareholders present one issue on cross-appeal.² We affirm the trial court's judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

In late 2007, WCW, a company that provides engineering and other services, and Wilmot, WCW's sole shareholder, CEO, and President, expressed interest in purchasing two consulting engineering companies, Spectrum Engineering, Inc., and Spectrum Services, Inc. (collectively, "Spectrum"). Spectrum was owned by a group of eight shareholders: Jerry Broussard, Ronnie D. Laborde, David M. Kernion, David O. Strickland, Craig M. Borel, Kevin J. Roussel, George A.Lowery, and Carlos O. Giron. Starting in January 2008, WCW negotiated with Shareholders and engaged in due diligence for the purchase of 100% of Spectrum's outstanding stock. WCW/Wilmot's due diligence team consisted of Eric Amoako, Ed Laborde,³ Musheer Robinson, Hal Bouknight, Mike Hagarty, Abe and Ahmad Fatemizadeh. WCW also retained CPA Dan Ramey with the accounting firm PKF Texas ("PKF") to provide a written due diligence report, which Ramey provided in February 2008 and updated in June 2008. PKF's report was based on financial data provided by Spectrum from 2005 through May 30, 2008.

WCW and Shareholders entered into the SPA, which had an effective date of July 16, 2008. The full purchase price was based on a four-times multiple of Spectrum's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) at the end of 2007. WCW agreed to provide initial consideration of $4.6 million in cash on July 16, 2008; $3.8 million in deferred consideration, to be represented by promissory notes (the "Notes") to Shareholders and to be secured by a letter of credit ("LOC"); and $2.8 million in eamout consideration, for a total amount of $11.2 million. The $3.8 million represented by the Notes was to be paid in three installments: (1) $1 million on January 31, 2009; (2) $1 million on January 31, 2010; and (3) $1.8 million on January 31, 2011. The SPA included provisions wherein Shareholders made certain representations regarding Spectrum's financial statements and status with regard to its customers, disclosures, accounts, and any litigation. The Shareholders⁴ agreed to repay any outstanding indebtedness on company loans.

WCW did not provide the initial consideration or provide the LOC on July16, 2008. Wilmot advised that the funds and LOC would be delivered on July 21. They were not. WCW and Shareholders then entered into a deposit agreement, wherein WCW agreed to place $250,000 in escrow, to be forfeited if WCW failed to pay the initial consideration and deliver the LOC by July 29, 2008. WCW failed to meet the deadline, and the $250,000 was forfeited to Shareholders.

In September 2008, WCW and Shareholders amended the SPA, requiring WCW to pay the initial consideration in three installments: (1) $250,000 by September 24, 2008; (2) $250,000 by October 8, 2008; and (3) the $4.1 million balance by October 31, 2008, along with the LOC. WCW also agreed to pay off or cause Shareholders' guarantees on Spectrum's line of credit at Whitney National Bank to be released by October 20, 2008. The amendment authorized a delay payment of $250,000 as liquidated damages for failure to timely pay the initial consideration and timely deliver the LOC. With this amendment, Shareholders released all closing documents to WCW, the stock transferred, and WCW assumed full management of Spectrum. The amendment had an effective date of July 16, 2008. At the same time as the amendment, Wilmot executed a commercial guaranty, wherein he agreed to be bound with WCW under the SPA, up to the sum of $4.1 million, and agreed to deliver the LOC.

WCW paid Shareholders $250,000 on September 25, 2008, and $250,000 on October 8, 2008. WCW did not pay or cause Spectrum's bank indebtedness to be released by October 20, 2008. WCW did not make the remaining $4.1 million cash payment or provide the LOC by October 31, 2008. On November 10, 2008, Shareholders sent a notice of default letter to WCW. On November 26, 2008, WCW paid Shareholders $1 million but still had not delivered the LOC. WCW did not make its $1 million first payment on the Notes on January 31, 2009, and failed to make any subsequent payments.

In February 2009, Shareholders filed suit against WCW for breach of contract, against Wilmot for breach of guaranty, and against WCW and Wilmot for fraud and fraudulent inducement. WCW and Wilmot counterclaimed for breach of contract, and fraud and fraudulent inducement. The jury returned findings in favor of Shareholders on most issues. Specifically, in pertinent part, the jury found:

• WCW, Broussard, Kernion, R. Laborde, and Strickland breached the SPA.

• WCW failed to comply with the SPA first.

• WCW's failure to comply with the SPA was not excused.

• Broussard, Kernion, R. Laborde, and Strickland's failures to comply with the SPA were excused.

• WCW failed to pay all of the Shareholders' Notes.

• WCW's failure to pay the Notes was not excused.

• Wilmot failed to comply with the guaranty.

• Wilmot's failure to comply with the guaranty was not excused.

• WCW and Wilmot committed fraud in the inducement of a contract against all of the Shareholders. Shareholders did not commit fraud in the inducement of a contract against WCW and Wilmot.

• WCW and Wilmot committed common law fraud against all the Shareholders. Shareholders did not commit common law fraud against WCW and Wilmot.

• The following sums, if paid now in cash, would fairly and reasonably compensate the respective Shareholders for their damages proximately caused by WCW's breach: Borel, $63,264.80; Broussard, $1,601,713.80; Giron, $63,264.80; Kernion, $399,673.30; R. Laborde, $399,673.30; Lowery, $63,264.80; Roussel, $63,264.80; Strickland, $399,673.30—a total of just over $3 million.

• The following sums, if paid now in cash, would fairly and reasonably compensate the respective Shareholders for their damages proximately caused by WCW's failure to pay the Notes: Borel, $77,551; Broussard, $1,977,550; Giron, $77,551; Kernion, $504,082; R. Laborde, $504,082; Lowery, $77,551; Roussel, $77,551;Strickland, $504,082—a total of $3.8 million.

• No damages to Shareholders resulted from Wilmot's breach of the guaranty.

• The jury also awarded Shareholders damages on the fraud claims against WCW and Wilmot.

Shareholders moved for entry of judgment on the jury's verdict. WCW and Wilmot moved to disregard all of the jury's adverse findings. The trial court granted their motion as to the fraud findings, but otherwise entered judgment on the verdict—thus awarding the full amount of damages on the breach claims against WCW and no damages against Wilmot. The trial court awarded Shareholders attorneys' fees in an amount stipulated to by WCW. All parties appealed from the final judgment.

WCW and Wilmot attack the judgment in six issues. First, they contend there is no evidence that WCW breached the SPA first and conclusive evidence that Shareholders materially breached the SPA first. Second, WCW and Wilmot argue that there was a failure or lack of consideration as a matter of law, and the trial court erred by refusing to submit a jury question on Spectrum's value. Third, they argue that indemnification provisions in the SPA limit Shareholders' recovery to $500,000 as a matter of law. Fourth, they also argue that the SPA either precludes or limits the recovery of certain Shareholders as to the Notes. Fifth, WCW and Wilmot contend that Shareholders' attorney's fee award must be reversed if the judgment against WCW is reversed or reduced. Finally, they argue that if a new trial is ordered on Shareholders' breach claims against WCW, then the new trial must include WCW and Wilmot's breach and fraud counterclaims. In their cross-appeal, Shareholders argue that the trial court erred in not holding Wilmot jointly and severally liable as to WCW's breach.

II. LEGAL SUFFICIENCY STANDARD OF REVIEW

The test for legal sufficiency is whether the evidence at trial "would enable reasonable and fair-minded people to reach the verdict under review." City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). In making this determination, we must view the evidence in the light most...