Introduction. The case of Zermeno v. Garcia is about a business divorce gone bad, leading to costly and protracted litigation between family members over the operation of a family-owned concrete business. 14-17-00843-CV, 2019 WL 2063090 (Tex. App.—Houston [14th Dist.] May 9, 2019, no pet. h.). After the initial lawsuit was filed, the parties entered into a settlement agreement. Unfortunately, as part of the settlement, the parties attempted to continue to work together in some form or fashion leading to additional costly litigation including this appeal.

Background. Gloria Zermeno and her brother, Ricardo Guzman, started a concrete business, Z Ready Mix, Inc., many years prior to the underlying litigation. Gloria was in charge of administration and Mario managed operations. Half of the shares in the company were owned by Gloria and the other half were owned by Mario’s wife, Noelia.

In 2014, disputes over Z Ready Mix arose between Gloria and Mario. As a result, Noelia and Mario, individually and derivatively on behalf of Z Ready Mix, sued Gloria and Ricardo who in turn sued Noelia and Mario.  After mediation, the parties entered into a settlement agreement that divided the assets and debts of Z Ready Mix between the parties. One plant owned by Z Ready Mix would go to Gloria and Ricardo and the other would go to Noelia and Mario. The parties were to evenly divide the cash in the company’s accounts, accounts receivable, and the company’s debts. Both couples were going to start new concrete companies. The electricity and water sources were located only on the property Noelia and Mario received. Thus, the parties agreed that all utilities would continue to be connected to Gloria and Ricardo’s plant until new connections for Noelia and Mario’s plant could be established.

Subsequently, Gloria and Ricardo allegedly had trouble with the supply of power and water to their plant and asserted new claims against Noelia and Mario for breach of the settlement agreement. In turn, Noelia and Mario asserted new claims on behalf of Z Ready Mix against Gloria for breach of fiduciary duty.

Z Ready Mix alleged that Gloria breached her fiduciary duties by:

  • Collecting cash payments from Z Ready Mix customers and not depositing them to the Z Ready Mix’s bank account.
  • Accepting payment for services alleged provided by Gloria’s newly formed company that were actually for debts owed to Z Ready Mix.
  • Converting Z Ready Mix accounts receivables.

Jury verdict. The jury found no breach by  Noelia and Mario of the settlement agreement. However, the jury found that Gloria breached her fiduciary duty, resulting in Z Ready Mix/Noelia and Mario sustaining $467,000 in damages. The trial court entered a judgment for that amount in favor of Noelia, Mario, and Z Ready Mix, and Gloria appealed.

Court of appeals affirms. The court of appeals found that as a corporate officer of Z Ready Mix Gloria owed fiduciary duties to it, there was sufficient evidence to support the jury’s findings that Gloria breached her fiduciary duties, and affirmed the trial court’s judgment.

Lessons learned. This case is an example of a business divorce gone bad. It appears that after suing one another, the parties continued to attempt to work together as part of their settlement agreement, rather than completely separating their interests. When negotiating a business divorce it is always best for the adverse parties to completely divide their business interests and go their separate ways. Otherwise, the settlement agreement may be nothing more than a bandaid to the problems the parties are attempting to resolve, leading to additional protracted and costly litigation.