Introduction. The Texas Supreme Court reversed a judgment rendered against IBM originally in the amount of $21 million because Lufkin Industries disclaimed its reliance upon IBM’s misrepresentations in the written contract between the parties. Int’l Bus. Machines Corp. v. Lufkin Indus., LLC, 573 S.W.3d 224 (Tex. 2019), reh’g denied (May 31, 2019).

Background. Lufkin manufactures machinery and equipment used in the energy industry. It needed to upgrade its business-operations computer-software system. After several meetings with IBM representatives, Lufkin purchased a new system from IBM. Lufkin apparently met with IBM representatives over a period of months to discuss Lufkin’s needs and the appropriate computer software system to meet those needs. After multiple meetings and discussions with IBM representatives, Lufkin signed a contract with IBM–the “Statement of Work” (SOW)–regarding the purchase and implementation of the new system. The SOW contained a disclaimer clause stating that Lufkin was not relying upon any representations by IBM not contained in the SOW.

Allegedly, the implementation of the system did not go well and the system failed numerous tests. Lufkin contended that IBM made numerous representations that the system would work and IBM would fix the problems. However,  when the system went live, it failed and “crippled Lufkin’s business.” Id. at p. 227.

Lufkin filed suit against IBM including for fraud and breach of contract. The jury found that IBM committed fraud resulting in $21million in damages to Lufkin. The jury also found that IBM breached its contract with Lufkin but oddly that Lufkin sustained no damages as a result of the breach. The trial court entered a judgment for $21 million based upon the jury’s fraud findings. The Court of appeals upheld the portion of the judgment based upon fraudulent inducement but suggested a $3.5 million reduction in the damages awarded and Lufkin agreed to the reduction. IBM filed a petition for writ of review with the Texas Supreme Court.

Court’s holding. The Texas Supreme Court discussed the elements of a fraudulent inducement claim. One of the elements that must be proven is that the plaintiff relied upon the fraudulent misrepresentations. In that regard, the Court held that the following disclaimer clause in the SOW (contract) barred Lufkin from recovering on its fraud claim:

In entering into this SOW, Lufkin Industries is not relying upon any representation made by or on behalf of IBM that is not specified in the Agreement or this SOW, including, without limitation, the actual or estimated completion date, amount of hours to provide any of the Services, charges to be paid, or the results of any of the Services to be provided under this SOW. This SOW, its Appendices, and the Agreement represent the entire agreement between the parties regarding the subject matter and replace any prior oral or written communications. p. 228.

In reaching its decision the court stated:

We have held that a merger clause, standing alone, does not prevent a party from suing for fraudulent inducement. [citation omitted] And similarly, a clause that merely recites that the parties have not made any representations other than those contained within the written contract is not effective to bar a fraudulent-inducement claim…But a clause that clearly and unequivocally expresses the party’s intent to disclaim reliance on the specific misrepresentations at issue can preclude a fraudulent-inducement claim.  [Citations omitted]. Not every such disclaimer is effective, and courts “must always examine the contract itself and the totality of the surrounding circumstances when determining if a waiver-of-reliance provision is binding.” [citation omitted]. Specifically, courts must consider such factors as whether (1) the terms of the contract were negotiated, rather than boilerplate, and during negotiations the parties specifically discussed the issue which has become the topic of the subsequent dispute; (2) the complaining party was represented by counsel; (3) the parties dealt with each other at arm’s length; (4) the parties were knowledgeable in business matters; and (5) the release language was clear.

Int’l Bus. Machines Corp. v. Lufkin Indus., LLC, supra, at p. 229.

The court found that the disclaimer clause in the SOW barred Lufkin from recovering on its fraud claims. This was true even though some of the alleged misrepresentations were made after the SOW was initially signed. The parties signed a series of subsequent amendments to the project after signing the SOW and each amendment incorporated the terms of the SOW including the disclaimer. Thus, the alleged post-contractual misrepresentations were also barred by the disclaimer.

However, all may not be lost for Lufkin. The court found that, contrary to the jury’s findings that IBM’s breach of contract resulted in zero damages to Lufkin, the evidence conclusively established that IBM’s breach caused some damages to Lufkin. Thus, the court remanded the case back to the trial court for a new trial on the breach of contract claim. Stay tuned.

Lessons learned. The Texas Supreme Court has handed down a series of recent decisions finding that contractual provisions barred the plaintiffs’ fraudulent inducement claims. When reviewing and revising a contract, the buyer should beware of clauses that bar the buyer from recovery for the seller’s fraud or that limit the types of damages that the buyer can recover. Further, a buyer who has sustained damages as a result of misrepresentations and breach of contract by the seller, should consider whether it might be strategically advantageous to forego suing for fraud and only sue for breach of contract, especially if the underlying contract contains language that would bar the seller from recovering for fraud. This will make a simpler case for the jury to decide, avoid the situation where the jury becomes confused in awarding damages for multiple theories of liability, and increase the odds that a judgment favorable to the plaintiff will be affirmed on appeal.

In Texas, handwritten wills are enforceable if they meet certain criteria. To be valid, a holographic will “must be signed by the testator and wholly in the testator’s handwriting.” Ajudani v. Walker, 177 S.W.3d 415, 418 (Tex. App.—Houston [1st Dist.] 2005, no pet.). Of course, many interesting issues arise in determining whether a handwritten instrument is truly a valid will. For example, in the recent case of Estate of Silverman of the Houston Court of Appeals held that fact issues existed as to whether the handwritten instrument was in fact a will disposing of the decedent’s property after death. 14-18-00256-CV, 2019 WL 2352457 (Tex. App.—Houston [14th Dist.] June 4, 2019, no pet. h.). As a result, the Court reversed the trial court’s summary judgment rendered in favor of the contestants of the hand-written will.

In the Estate of Silverman, “Seth Warren Silverman wrote the following on a piece of paper, entirely in his handwriting on October 26, 2015:


Karen Grenrood is my executor, administrator, [and] has all legal rights to my estate in the case of my untimely or timely death.

Very truly yours,


Jerry VanDaveer [witness]

Karen Grenrood [witness]”

The contestants of the handwritten instrument filed a motion for summary judgment on the grounds that the instrument did not convey property but merely appointed Grenrood as executor. Therefore, it lacked testamentary intent and should not be admitted as a will to probate.

The court held that fact issues existed as to whether this was in fact a valid will disposing of the Decedent’s property after death. On one hand, a reasonable interpretation of the handwritten instrument is that it merely appointed Grenrood to be the executor of Silverman’s estate but did not make any disposition of Silverman’s property after death. On the other hand, by stating that Greenrood has all “legal rights” to my estate, a reasonable interpretation is that Silverman intended to give all of his property to Greenrood. This ambiguity creates an issue of fact for the court or jury to decide.

(Note: the court also indicated that even if the instrument did not make a disposition of property, it still would be improper for the court to deny admitting it to probate. Since it appoints an executor, then it should be admitted for the purpose of appointing this executor to administer the estate.)

The Court reversed the trial court’s summary judgment because the contestants failed to show as a matter of law that the handwritten instrument was not a valid will entitled to admission to probate. If this case doesn’t settle, it looks like one for the jury to decide.

Introduction. Another Texas construction design defect case was recently dismissed under the Texas Certificate of Merit statute because the plaintiff failed to file a proper affidavit by a qualified design professional in support of the lawsuit. Kayne Anderson Capital Advisors, L.P. v. Hill & Frank, Inc., 570 S.W.3d 884 (Tex. App.—Houston [1st Dist.] 2018, no pet.).

Background. Kayne Anderson hired Hill & Frank to be the designer and architect on a project that included the design of a swimming pool on top of a parking garage. A dispute arose after the construction of the pool and Kayne Anderson sued Hill & Frank and the swimming pool contractor.

Kayne Anderson attached an affidavit by a licensed engineer to its lawsuit in support of its claims against Hill & Frank, a registered architectural firm, in an attempt to comply with the Texas Certificate of Merit statute. This statute requires the plaintiff “in any action or arbitration proceeding for damages arising out of the provision of professional services by a licensed or registered professional” to file with the lawsuit an affidavit by a qualified design expert. Tex. Civ. Prac. & Rem. Code (CPRC) §150.002. The statute requires that the affidavit must be by an expert who “holds the same professional license or registration as the defendant.” CPRC §150.002(a)(2).

Hill & Frank filed a motion to dismiss the lawsuit on the grounds that since the affidavit attached to the lawsuit was given by a licensed engineer rather than a licensed architect then it failed to comply with the certificate of merit statute. The trial court agreed. Since the defendant Hill Frank was a registered architectural firm, then the plaintiff Kayne Anderson had to provide an affidavit by a licensed architect. The trial court dismissed the lawsuit and the Houston Court of Appeals affirmed the decision.

Lessons learned. The plaintiff in a construction design defect case should always perform a diligent pre-suit investigation before filing suit and make sure to retain a qualified design professional expert who holds the same license as the defendant design professional. The expert will need to provide a detailed affidavit supporting the allegations against the defendant, to be filed with the lawsuit. Otherwise, the plaintiff’s lawsuit will be dismissed.

Stadium in the evening in full light before the match.

Introduction. The Fan Expo, LLC sued the NFL for tortious interference with Fan Expo’s contract with Electronic Arts, Inc. (EA). The trial court granted the NFL’s motion for summary judgment and rendered a take nothing judgment against Fan Expo leading to this appeal–The Fan Expo, LLC v. National Football League, supra, at *4, 05-17-01304-CV, 2019 WL 2211084 (Tex. App.—Dallas May 22, 2019, no pet. h.).

Background. The Fan Expo, LLC was created in 2015 to host the National Fantasy Football Convention, the first of which was to be held in Las Vegas, Nevada. Fan Expo invited numerous NFL football players to attend the 2015 convention, but the NFL warned the players that attendance may violate NFL gambling policies.  As a result, the Fan Expo cancelled the 2015 convention and sued the NFL.

While the litigation was underway, Fan Expo was preparing for the 2016 convention to be held in California. The main attraction at that convention was going to be the EA Sports Madden NFL Video game. The fans attending would be able to play the game against NFL players.  Fan Expo entered into a sponsorship agreement with Electronic Arts, Inc. (EA)–owner of Madden NFL video series. Fan Expo displayed an NFL logo on its website obtained from EA, which apparently caused a problem for EA with the NFL.

After communications between EA and the NFL regarding the use of the logo, EA sent an email to Fan Expo that it would not be participating in the convention. Fan Expo then sent a letter to the NFL demanding it cease and desist from contacting Fan Expo sponsors. Subsequently, Fan Expo sued the NFL for tortious interference with the EA sponsorship agreement, and a couple of months later Fan Expo cancelled the 2016 convention. In response to the lawsuit, the NFL filed a no-evidence motion for summary judgment (MSJ) asking the trial court to enter a take nothing judgment against Fan Expo as a matter of law. The trial court granted the motion leading to this appeal.

Court’s holding. The court of appeals stated:

The elements of a claim of tortious interference with an existing contract are: (1) an existing contract subject to interference; (2) a willful and intentional act of interference with the contract; (3) that proximately caused the plaintiff’s injury; and (4) caused actual damages or loss.

The Fan Expo, LLC v. National Football League, supra, at *4.

In response to the NFL’s no-evidence MSJ, Fan Expo had the burden to present at least some evidence that the NFL tortiously interfered with Fan Expo’s contract with EA. The court of appeals held that Fan Expo failed to do so, finding the following of significance:

  • The EA did not state it had withdrawn from the convention due to pressure from the NFL.
  • EA representatives testified that the NFL did not discourage EA from participation.
  • Email messages from the NFL complained primarily about use of the NFL logo–shield.
  • The NFL did not know that EA had a contract with Fan Expo to participate at the convention as a sponsor.

After reviewing all the evidence that Fan Expo presented in support of its response to the motion, the Dallas Court of Appeals found that there was no evidence to support Fan Expo’s claim against the NFL for tortious interference with the EA Contract, and affirmed the trial court’s take nothing judgment against Fan Expo in favor of the NFL.

Lessons learned. A claim for tortious interference with a contract can be more difficult to prove than a mere breach of contract because the plaintiff must prove that the defendant intended to induce the third party to breach the contract with plaintiff. Typically, neither the plaintiff nor the third party are going to admit that this is what the defendant intended to do. That means these cases often have to be proven by circumstantial evidence. Thus, it is important for the plaintiff and its counsel to perform a diligent pretrial investigation  followed by comprehensive discovery after the lawsuit is filed. Otherwise, like Fan Expo, the plaintiff’s case may be dismissed on a pre-trial motion for summary judgment.

Introduction. The case of  Rhormoos Venture v. UTSW DVA Healthcare, LLP, addressed the issue of whether a tenant is legally permitted to terminate a commercial lease based upon the landlord’s material breach of the lease. 16-0006, 2019 WL 1873428 (Tex. Apr. 26, 2019). The court reviewed its prior decisions on this issue and found that the material breach of a commercial lease is in fact a legal basis for the tenant to terminate the lease.  The court also found that the tenant as the prevailing party was entitled to recover attorney fees but failed to present sufficient evidence in support of the over $1,000,000 attorney fee award.

Background. The landlord, Rhormoss Venture, and the tenant, UT Southwestern DVA Healthcare, LLP (UTSW), entered into a commercial lease of a building in Dallas, Texas. Subsequently, water problems arose on the leased space penetrating the concrete foundation and floor tiles.

UTSW operated a dialysis clinic and state health inspectors criticized the operations because of the problems created by the water. UTSW notified Rhormoos of the problems and Rhormoos did not fix them.

UTSW thought the building was unsuitable for its “intended commercial purpose” and terminated the lease, while allegedly owing $250,000 in unpaid rent. UTSW sued Rhormoos for breach of contract, breach of implied warranty of suitability, and for a declaratory judgment that Rhormoos failed to remedy the water problems and resulting defects and that UTSW had the right to terminate the lease. UTSW did not submit a claim for money damages to the jury, other than for attorney fees. Rhormoos answered the lawsuit and also filed a counterclaim alleging that UTSW breached the lease.

Based upon the jury’s verdict, the trial court found in favor of UTSW and awarded it $1,025,000 in attorney fees for the trial and preparation of the case and subsequent appeals. Rhormoss appealed. The court of appeals upheld the trial court judgment in its entirety and Rhormoss filed a petition for review by the Texas Supreme Court.

Texas Supreme Court’s findings and holdings. The Texas Supreme Court discussed its prior 1988 decision in Davidow and stated that it stood for the proposition that an implied warranty exists in commercial leases that the premises are suitable for their intended commercial use. The court went on to hold that termination by the tenant of a commercial lease is an available remedy for the landlord’s breach of this implied warranty or material breach of the lease. Thus, the court affirmed the decision of the court of appeals on this issue.

The court also addressed UTSW’s right to recover attorney fees. The lease provisions entitled the prevailing party in an action to enforce the lease to recover reasonable attorney fees. The court found that UTSW was the prevailing party entitled to recover attorney fees.

However, the court found that the evidence presented by UTSW through its attorney’s testimony on attorney fees was conclusory and legally insufficient to support the fee award. In this regard the court stated:

“We understand Howard’s testimony that $ 800,000 in attorney’s fees for trial work may seem unreasonable for a breach of lease case that implicated roughly $300,000 in damages. We also understand Howard’s position that opposing counsel’s actions drove the cost of litigation, in most instances, and that made UTSW’s $ 800,000 in requested attorney’s fees necessary, even reasonable. However true this may be, Howard’s justification for why his fees should be $800,000—searching through “millions” of emails and reviewing “hundreds of thousands” of papers in discovery, more than forty depositions taken, and a forty-page motion for summary judgment—is too general to establish that the requested fees were reasonable and necessary. Without detail about the work done, how much time was spent on the tasks, and how he arrived at the $ 800,000 sum, Howard’s testimony lacks the substance required to uphold a fee award…. Attorneys should not have to take the stand for days and testify to every detail of a three-year-long case, but they must provide more than what Howard has said here. We conclude that Howard’s testimony is legally insufficient to support the attorney’s fee award.”

Apparently, UTSW did not offer its attorney’s invoices or any detailed documentation into evidence to support its claim for attorney fees. The court concluded that the record did not provide the required detailed evidence to support the award of attorney fees, reversed the court of appeals judgment on this issue and remanded the case to the trial court for a redetermination of attorney fees consistent with the opinion

Lessons learned. A landlord should take a tenant’s complaints seriously regarding defects in the leased premises. Otherwise, the landlord may open the door for the tenant to legally terminate the lease. Further, in any case where the plaintiff is claiming attorney fees, it would be wise for the plaintiff to present invoices or timesheets detailing the legal services provided by each attorney or paralegal who worked on the case as well as the rates charged for those services, to support the expert testimony on reasonable and necessary attorney fees. Otherwise, the trial court may deny a plaintiff’s claim for attorney fees for failing to provide sufficient evidence.

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.

Introduction. Preston Marshall, Appellant V. Ribosome L.P, is an interesting trust and limited partnership dispute involving the descendants of Texas oilman J. Howard Marshall II. 01-18-00108-CV, 2019 WL 2041062 (Tex. App.—Houston [1st Dist.] May 9, 2019, no pet. h.). The trial court granted a summary judgment against Preston Marshall on his claims against Ribosome for aiding and abetting breach of trustee’s fiduciary duty; breach of oral contract to distribute trust proceeds directly to Preston; promissory estoppel and demand for an accounting. The Houston Court of Appeals affirmed.

Background: According to the record in the court of appeals decision:

“The Marshall family, one of the wealthiest in the country, manages its wealth through a network of partnerships, trusts, and other entities, many of which are located outside the United States. Elaine Marshall, Preston’s mother, has played instrumental roles in the entities involved in this dispute. MarOpCo, a management company, provides administrative services, including accounting, bookkeeping, record maintenance, and tax preparation, for the Marshall entities.”

One of these limited partnerships was Ribosome, of which Elaine served as sole manager of Ribosome’s general partner. Ribosome had multiple limited partners including Preston, his brother and the Falcon and Harrier Trusts. Elaine was Trustee and Preston was a beneficiary of these trusts.

These Trust agreements provided that “[t]he Trustee in her sole discretion may accumulate or distribute income accruing for the benefit of the beneficiary(ies) until expiration of the trust. The Trustee shall have discretion in determining the time or frequency of any distributions. “

Apparently, in 2006, Elaine, as President of MarOpCo, hired Preston to serve as MarOPCo’s Vice President. “In a 2007 family meeting, Preston, his brother, Pierce, Jr., and Elaine entered into an oral agreement, under which Ribosome would bypass the Trusts and pay the Trusts’ shares directly to Preston as their beneficiary. Preston and MarOpCo’s then-controller implemented this distribution agreement, and it remained in place through June 2015, when Elaine terminated Preston’s employment.”

In addition to terminating Preston’s employment Elaine also ended the distribution agreement so that going forward distributions would be made to the Trust bank accounts. These accounts accumulated income but no trust benefits were subsequently paid to Preston.

Subsequently, litigation ensued which included claims made by Preston against Ribosome who filed a motion for summary judgment. The trial court granted Ribosome’s motion disposing of Preston’s claims, resulting in this appeal.

Court’s findings. In regard to the alleged breach of the oral distribution agreement, the court of appeals found that it was a contract of indefinite duration. “As a contract of indefinite duration that contemplated continuing or successive performance, it was terminable at the will of either party.” Thus, there was no breach for terminating the oral agreement and Ribosome resuming making distributions directly to the Trust bank accounts rather than directly to Preston. The court found that Preston’s promissory estoppel claims failed for similar reasons.

In regard to Preston’s claim that Ribosome aided and abetted Elaine in breaching fiduciary duties she owed as Trustee to the Trusts, the court found that “[u]nder the Trusts’ language the Trustee has absolute, unfettered discretion over the decision to accumulate or distribute the Trust income.” The court went on to hold that no evidence was presented raising a fact issue as to whether Elaine abused her discretionary authority under the Trust agreements. Thus, there was no underlying breach of fiduciary duty by Elaine to support Preston’s aiding and abetting of breach of fiduciary duty claim against Ribosome.

Lastly, in regard to the claim that an accounting must be given by the limited partnership Ribosome to Preston, this claim failed because Ribosome had provided Preston with all the financial information that was required by the limited partnership agreement. Although the agreement gave the limited partners the right to inspect Ribosome’s books and records, it did not include any additional right to an accounting. Therefore, the court found that as a matter of law Preston was not entitled to an accounting.

Lessons learned. This case shows the importance of carefully drafting the language in family trust and limited partnership documents. The trust documents apparently gave the trustee broad discretion in managing the trusts and the limited partnership documents specified the rights of the limited partners to review and receive limited partnership financial information. As a result, the court was able to look to the language of these documents to decide this matter through summary proceedings rather than a long and protracted trial.

Introduction. The case of Jang Won Cho v. Kun Sik Kim, involves a dispute between 3 investors who invested in a retail strip shopping mall venture in Houston, Texas.  No. 14-16-00962-CV, 2019 WL 1442412 (Tex. App.—Houston [14th Dist.] Apr. 2, 2019, no pet. h.). The 3 investors formed a corporation in which they became shareholders and the corporation purchased the land for the shopping mall. A strip center was built and became part of the property owned and managed by the corporation. The shopping center’s occupancy declined over time and relations between the investors became strained.

Two investors, the plaintiffs, sued the third investor, the defendant, who was also a director and officer of the corporation. The plaintiffs accused the defendant of abusing “their trust and confidence by secretly gaining personal benefits at their expense and driving the business off a financial cliff.” More specifically, the plaintiffs alleged that the defendant refused to contribute his fair share of capital, engaged in self-dealing including by awarding a construction contract to a company he owned and making misrepresentations regarding the cost of construction.

Trial court judgment. The case proceeded to trial and the jury found that the defendant  failed to comply with his fiduciary duties owed to the plaintiffs, committed fraud, committed negligent misrepresentation, and converted property belonging to the plaintiffs. Based upon the jury’s verdict, the trial court signed a final judgment against the defendant in the amount of $1,128,283 in actual damages and $6,769,698 as exemplary damages plus prejudgment interest. The defendant appealed the judgment.

Appellate decision. First, the court of appeals addressed the jury’s affirmative finding that the defendant breached his fiduciary duties. The court found that the circumstances did not give rise to a formal fiduciary relationship because a “co-shareholder in a closely held corporation, as a matter of law, does not owe a fiduciary duty to his co-shareholder.” The court stated that, as the corporation’s director, the defendant owed fiduciary duties to the corporation but not to the individual shareholders. The plaintiffs were not asserting a derivative claim on behalf of the corporations so this was not before the court.  The court also found that no informal fiduciary relationship existed since there was no evidence that a “long-standing personal or business relationship existed between the parties.” Thus, the court reversed the trial court’s judgment regarding liability and damages for breach of fiduciary duty.

Next, in addressing the jury’s affirmative finding regarding fraud by nondisclosure, the court found that there was insufficient evidence to support this finding. In regard to fraud by misrepresentation, the court found that there was no evidence to support the allegations that the defendant had made misrepresentations about management fees, interest paid on a loan, attorney’s fees paid, and profits. However, the court found that there was sufficient evidence  to support a finding based upon misrepresentations pertaining to the construction costs.

The court then examined the award of damages and after correcting what the court considered to be a double recovery, the court found that the total amount of actual damages that should have been awarded was only $352,600. Given that this was much lower than the actual damages set forth in the judgment, the court also reduced the amount of the exemplary damages award to $1,057,800. Thus the judgment awarding a total of $7,897,981 was reduced to $1,410,400. The case was remanded to the trial court for recalculation of prejudgment interest.

Lessons learned. Shareholders in a closely held corporation should diligently monitor the activities and finances of the corporation, and carefully scrutinize any self-dealing transactions between the corporation and its principals. Carefully drafted shareholder agreements can also help avoid these problems and the expense of protracted litigation. Further, in the event that one or more shareholders wants a business divorce from the other shareholders, these agreements can also provide a formula to liquidate the shares of unhappy shareholders.

Introduction. The San Antonio Court of Appeals has held that a property owner’s personal injury premises defect claim sounded in negligence rather than premises liability, even though the injuries were not caused by a contemporaneous activity of the contractor allegedly at fault. Arredondo v. Techserv Consulting & Training, Ltd., 567 S.W.3d 383 Tex. App.—San Antonio 2018, pet. filed).

Background. In this case, an electric company entered into a contract with a utility contractor for the contractor to perform services that included replacing utility poles for the electric company. In 2013, the utility contractor, pursuant to a work order from the electric company, removed a utility pole from the plaintiff’s property. The engineering firm retained by the electric company to inspect the utility contractor’s work, marked the work completed on December 2, 2013. On July 30, 2014, the plaintiff property owner stepped into a hole while mowing her grass, causing her to fall and injure her knee and back. The plaintiff sued the utility contractor, the electric company and the engineering firm.

This article only addresses negligence and premises liability issues concerning the utility contractor. The utility contractor filed a motion for summary judgment with the trial court requesting that the court find as a matter of law that the contractor was not liable for causing the injuries. The contractor argued in its motion that since this was a premises defect case then plaintiff’s claim sounded in premises liability rather than ordinary negligence. The significance of this is that in order to prove a premises liability claim one of the elements that the plaintiff would have to prove is that the contractor had knowledge (knew or should have known) of the existence of the defect at the time the injuries were sustained. This element does not have to be specifically proven to support an ordinary negligence claim. The trial court granted the contractor’s motion for summary judgment. The plaintiff property owner appealed the trial court’s ruling to the San Antonio Court of Appeals.

The San Antonio Court of Appeals overturned the summary judgment that had been rendered in favor of the contractor. The appellate court discussed the general rule that in order for a premises injury claim to be governed by ordinary negligence principles, the plaintiff’s injuries must be the result of the contemporaneous negligent activity of another. When the injuries are the result of the property’s condition, then premises liability principles apply. However, the court stated that a premises condition may also arise from another’s creating the dangerous condition. “When the property’s dangerous condition is caused or created by another, an independent claim against the other may lie in negligence.”  Arredondo v. Techserv Consulting & Training, Ltd., supra, at p. 392.

Court’s holding, The San Antonio Court of Appeals held that, since the plaintiff’s allegations were based upon the contractor creating the dangerous condition, the plaintiff had alleged a claim that sounded in ordinary negligence rather than premises liability. Thus, fact issues existed as to whether the contractor’s negligence proximately caused plaintiff’s injuries. As a result, the court of appeals reversed the summary judgment previously rendered in favor of the contractor as to plaintiff’s negligence claim, and remanded that claim to the trial court for further proceedings. Stay tuned–it appears that a petition for review has been filed with the Texas Supreme Court.

Lessons learned. A contractor performing construction or other premises work should take steps to protect themselves from exposure to liability. This  could include maintaining a log of the progress and completion date of the work, as well as photographing the condition of the premises upon completion. If the contractor has no choice but to leave the premises in a potentially dangerous condition, then proper barricades and warnings should be put into place. The contractor performing the work could also give written notice of the potentially dangerous condition to the party hiring the contractor and to the owner.

Lawsuits involving alleged violations by former employees of non-competition agreements are often hotly contested and involve injunctive relief. These cases can be challenging for the employer to obtain relief because covenants not to compete are governed by statutory law requiring these restrictive covenants to be reasonable as to time, geographical area, and scope of activity to be restrained. Tex. Bus. & Com. Code Ann. § 15.50 (West). There is a tendency for employers to draft these covenants too broadly causing problems when it becomes necessary to seek court enforcement.

In a recent Texas federal district court case involving the alleged breach of employment non-compete agreements, misappropriation of trade secrets, and other complaints, the Court dissolved the temporary restraining order (TRO) and denied  the Plaintiff employer’s request for preliminary injunctive relief. Scalefactor, Inc., Plaintiff, v. Process Pro Consultin, LLC; Adam Sharrow; & Andrew Millet; Defendants., 1:19-CV-229-RP, 2019 WL 1317332 (W.D. Tex. Mar. 22, 2019). In this case, the individual Defendants were former employees of Plaintiff, a company engaged in the business of solving finance and accounting problems for small businesses. These individual Defendants had signed non-compete agreements with Plaintiff. After the individual Defendants left their employment with Plaintiff, they formed the Defendant entity, Consultin, LLC, to advise small and medium sized businesses on improving their sales,  marketing and customer success  processes. Consultin, LLC provided no accounting or finance products or services.

Plaintiff alleged that the Defendants violated their non-compete agreements, misappropriated trade secrets, and committed fraud and other improper conduct. The Court granted Plaintiff’s request for a TRO at a telephonic hearing and ordered the parties to appear before the court only 8 days later to determine whether to grant Plaintiff’s request for preliminary injunctive relief. At this juncture, the Plaintiff was probably feeling pretty confident. Not so fast–the Court dissolved the TRO previously granted and denied the Plaintiff’s request for preliminary injunctive relief.

Beginning with the alleged violations of the non-competition agreements, the court held that the individual Defendants did not violate the agreements because the entity formed by them was not in competition with Plaintiff since the entity did not provide accounting or finance products or services. Thus, Plaintiff failed to establish a substantial likelihood  of proving that the former employees breached their non-compete agreements, an essential element that had to be proved to support the award of temporary injunctive relief.

In regard to the misappropriation of trade secret claim, the Court held that Plaintiff failed to demonstrate that the Defendants probably used or disclosed trade secrets–elements that the Plaintiff had to prove in order to prevail on its request for temporary injunctive relief based upon this cause of action. In regard to the remaining alleged causes of action, Plaintiff failed to show that damages would be unavailable or that Plaintiff would suffer irreparable harm if injunctive relief was not granted–also elements Plaintiff had to prove. The Court denied the Plaintiff’s request for preliminary injunctive relief and dissolved the TRO.

Lessons learned. When seeking a TRO and preliminary injunctive relief, the Plaintiff must thoroughly perform an investigation and prepare the supporting evidence well in advance of the TRO and preliminary injunction hearings. This is because, within a couple of weeks after the Court grants the TRO, the Plaintiff will be required to present its proof at the preliminary injunction hearing which is nothing short of a mini-trial. If the Plaintiff fails to have all ducks in a row or there is simply insufficient evidence to support the requested relief, the court will deny the Plaintiff’s request for preliminary injunctive relief.

It is also important for the employer’s attorney to carefully draft the non-competition agreement. Typical boilerplate language won’t do. The agreement should provide a detailed description of the employee’s job duties and an itemized list of any confidential information being provided to the employee. At the same time, the post-employment restrictions imposed upon the employee’s right to compete should be drafted to be reasonable as to time, the scope of the employee’s restricted postemployment activities and the restricted geographic area. If the restrictive covenants are too broad, they will be unenforceable or reformed by the court. If the court reforms the covenants, the Plaintiff will not be allowed to recover any related damages sustained before the court reformation.