Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg
THUNDER ROSE ENTERPRISES, INC. AND MICHAEL J. PALMER, Appellants,
BILLY R. KIRK AND KIRK OILFIELD EQUIPMENT SALES, INC., Appellees.
appeal from the 24th District Court of Goliad County, Texas.
Justices Rodriguez, Contreras, and Longoria
case involves Michael Palmer's invention of a
pressure-equalizing gate valve for use in the oil and gas
industry. The principal question is whether a partnership
agreement was reached to produce and market the valve. A
Goliad County jury found that such an agreement did exist and
that it was breached by appellants Palmer and Thunder Rose
Enterprises, Inc. (Thunder Rose). The trial court rendered
judgment ordering the parties to specifically perform their
agreement and awarding attorney's fees and court costs to
appellees Billy R. Kirk and Kirk Oilfield Equipment Sales,
Inc. (collectively, Kirk).
appeal, appellants argue by eleven issues that (1) the
evidence was insufficient to support the judgment, (2) the
award of specific performance was error, (3) the jury charge
contained error, (4) it was error to exclude certain
evidence, and (5) the award of attorney's fees and costs
was improper. We affirm as modified in part and reverse and
remand in part.
developing his valve invention for over twenty years, Palmer
completed a prototype made out of wood and plastic in 2007.
He applied for a patent and assigned the patent rights to
Thunder Rose, a company owned by his two
daughters. Preparing to market the valve, Thunder
Rose filed trademark applications for "Bullhead, "
"Bullhead Control Systems, " and "Box
2008, Palmer contacted Billy Kirk, whom he had known and done
business with since the 1970s, in an effort to obtain
financing to test and market the valve. In November 2008,
Palmer met with Kirk at Kirk's office to show him the
prototype. Kirk and his associate Dickie McGee, who together
owned a company called Thrubore Valves LLC (Thrubore), had
discussions about forming an entity, to be called Excalibur
Control Systems (Excalibur), which would own the license to
produce and market the valve.
April 2009, Palmer, McGee, and Kirk met with Paul Wang, the
operator of a Chinese manufacturer called Centermart. At the
meeting, McGee, Kirk, and Wang each signed a non-disclosure
agreement (NDA) stating in part that nothing in the NDA
created a partnership. According to Kirk, he and Palmer
agreed at the April 2009 meeting that Thrubore would pay
Centermart to build a fully-functional prototype of the valve
made of steel. In May, Kirk set up a Wells Fargo bank account
in the name of Excalibur with Palmer, Kirk, and McGee listed
as signatories. Thrubore began advancing funds through
Excalibur for development of the prototype valve, including
funds paid to Palmer's lawyer for patent work. Appellants
note, however, that Thrubore accounted for those payments on
its books as notes receivable rather than as equity or
2009, Kirk and McGee prepared a draft agreement for Excalibur
stating that the parties did not intend to form a partnership
or joint venture. Under the draft agreement, McGee and Kirk
would each contribute $100, 000 in capital and Palmer would
assign the valve patent rights to Excalibur. The agreement
was never executed.
on the other hand, proposed that Excalibur would be jointly
owned by Thunder Rose and Thrubore. In exchange, Thrubore
would contribute $5 million into Excalibur. Thrubore did not
have $5 million in cash, so it suggested that it would sell
the valves packaged with other used oilfield equipment it
already owned. Additionally, Kirk and McGee approached Wells
Fargo about obtaining a $2 million loan in order to provide
the financing contemplated by Thunder Rose. Wells Fargo
declined to approve the loan.
in February 2010, Centermart's prototype valve was
delivered to Kirk's office. Kirk and his employee Victor
Barron took the prototype to RAM International, a machine
shop in Corpus Christi. RAM International pressure-tested the
valve and found that it tested well, but Palmer did not
approve of certain changes to the design which he claimed
made the valve less safe.
in 2010, a dispute arose between Kirk and McGee. Kirk filed
suit against McGee seeking to dissolve Thrubore and terminate
their business relationship. A settlement agreement was
reached in June 2012 under which Kirk received $1.3 million
in cash and over $100, 000 in Thrubore's inventory.
According to appellants, Kirk had substantial outstanding
debts to the IRS and sought to raise cash as soon as possible
by pushing the valve to market, without regard to concerns
expressed by Palmer that the design was inadequately
Kirk severed ties with McGee, he hired Barron, who had a
relationship with Douson, another Chinese manufacturing
concern. Barron, Palmer, and Kirk met with a Douson
representative in April 2010, and Kirk ordered a prototype
valve from Douson in May. In August, Palmer went with one of
his daughters to Douson's facility in China to oversee
testing of the first prototype. When the first prototype was
delivered, Palmer began to make modifications to the valve
for safety and operational reasons, which Palmer testified
was standard procedure.
September 2010, Kirk's attorney, Lee Lewis, prepared a
document with a diagram outlining the broad contours of a
license agreement between Thunder Rose and Kirk. Under the
diagram, Kirk would provide financing in the form of $1
million in equity and $3 million in a credit line. The
parties dispute as to whether they agreed that the diagram
would represent the business relationship between Thunder
Rose and Kirk regarding the licensing of the valve.
Kirk ordered ten additional valves from Douson. According to
appellants, Kirk did not notify Palmer of the order, and
Palmer had not yet completed modifications to the prototype
which were necessary to make the valve safe to use.
Appellants later alleged that Kirk undertook a number of
other actions that misrepresented the valve's state of
development and jeopardized their intellectual property
rights, including attempting to sell the valves without
conducting proper field testing.
2011, Kirk's attorney sent a draft agreement to
Palmer's attorney to establish a Delaware limited
liability corporation called Bullhead Control Systems, LLC
(Bullhead) which would own the patent, trademark, and
distribution rights on the valve. Under this draft agreement,
Kirk would be responsible for a $750, 000 capital
contribution, and Thunder Rose would contribute 100% in the
rights in the patent. The draft Bullhead agreement was never
instant dispute began in earnest on September 7, 2011, when
Palmer proposed granting Kirk a non-exclusive license to
develop and market the valve. On September 12, 2011,
Palmer's attorney sent cease and desist letters demanding
that Kirk immediately cease all marketing, sales, and
distribution activities in connection with the valve,
including using the trademark "Bullhead."
filed suit on September 26, 2011 alleging that he and Palmer
had formed a partnership in 2008 to develop, construct,
market, and sell the valve. Kirk alleged that Palmer breached
his duty of loyalty to Kirk, causing damages, by
"prevent[ing Kirk] from realizing and enjoying profits
from business opportunities presented to the
partnership" and by "negotiat[ing] and enter[ing]
into a competing agreement with a third party in an effort to
deprive [Kirk] of available business
live petition, dated June 12, 2014, added Thunder Rose as a
defendant and added allegations that both appellants breached
the partnership agreement and misappropriated
trademarks. Kirk requested a declaratory judgment
stating that a partnership exists, that the cease and desist
letters are null and void, that Kirk is the rightful licensee
and assignee of the patent and trademark rights to the valve,
and that Kirk is entitled to 50% of all past and future
profits from the valve. Kirk further requested actual
damages, exemplary damages, and specific performance of the
alleged partnership agreement. Appellants answered the suit
and filed a counterclaim seeking, among other things, a
declaration that they owned the valve trademarks. Appellants
denied that there was an oral partnership agreement but
argued in the alternative that, if there was a partnership,
Kirk breached his fiduciary duties owed to the partnership.
Both sides sought attorney's fees.
trial, the trial court found as a matter of law that there
was no written agreement between the parties other than the
April 2009 NDA. However, the jury found that appellants
entered into an oral partnership agreement with Kirk. The
jury specifically found that the agreement contained the
following terms: (1) Kirk was to supply financing and funding
for the development and production of the valve; (2) the
parties were to "split profits from the sale and
marketing of the valve" 50/50, with Kirk recouping his
expenses from his 50% share; (3) the parties were to
"share losses and liability to third parties from the
valve" 50/50; and (4) appellants were to assign Kirk an
exclusive worldwide right or license to sell and market the
valve. The jury found that appellants breached each of those
terms. The jury additionally found that
appellants own the three trademarks at issue; that Kirk is
ready, willing, and able to perform under the partnership
agreement; that Kirk substantially performed under the
partnership agreement before the cease and desist letters
were sent; and that Kirk did not breach any fiduciary duties
owed to appellants.
12, 2015, the trial court rendered judgment on the verdict,
declaring that a partnership exists with terms as found by
the jury and that the cease and desist letters are null and
void. The judgment ordered the parties to specifically
perform under the partnership agreement; in particular, it
ordered appellants to assign to Kirk an exclusive worldwide
license to sell and market the valve, and to pay Kirk fifty
percent of any past profits from the valve. The judgment
stated that appellants are owners of the trademarks at issue.
Finally, the judgment awarded Kirk $272, 552.11 in reasonable
and necessary trial attorney's fees, as well as $25, 000
"for post-judgment enforcement which the Court finds is
reasonable and probably necessary"; $50, 000 in the
event of an unsuccessful appeal to this Court; $25, 000 in
the event of an unsuccessful petition for review to the Texas
Supreme Court; and court costs. Appellants filed a motion for
new trial as well as a motion to disregard certain jury
findings and to modify, correct, or reform the judgment. Both
motions were denied by operation of law. See Tex. R.
Civ. P. 329b(c). This appeal followed.
first address appellants' arguments regarding the
jury's findings that an oral partnership agreement
existed and that appellants breached that agreement.
Appellants contend there was legally and factually
insufficient evidence to support those findings, and they
also contend that an oral partnership agreement is precluded
by the statute of frauds.
Standard of Review
determining whether evidence is legally sufficient to support
a jury finding, the ultimate test is whether the evidence
would enable reasonable and fair-minded people to make the
finding. City of Keller v. Wilson, 168 S.W.3d 802,
827 (Tex. 2005). Evidence will be legally insufficient to
support the finding if the record reveals: (1) the complete
absence of evidence of a vital fact; (2) that the court is
barred by the rules of law or evidence from giving weight to
the only evidence offered to prove a vital fact; (3) that the
evidence offered to prove a vital fact is no more than a
scintilla; or (4) that the evidence establishes conclusively
the opposite of a vital fact. Id. at 810. In a legal
sufficiency review, we view the evidence in the light most
favorable to the finding, and we assume that jurors credited
testimony favorable to the verdict and disbelieved testimony
contrary to it. Id. at 819. We defer to the
jury's determination as to the credibility of the
witnesses and the weight to give their testimony, and we
indulge every reasonable inference in support of the finding.
Id. at 819, 822.
reviewing a factual sufficiency challenge to a jury finding
on issues which the appellant did not have the burden to
prove, as here, we will set aside the verdict only if the
evidence that supports the finding is so weak as to make the
verdict clearly wrong and manifestly unjust. Cain v.
Bain, 709 S.W.2d 175, 176 (Tex. 1986) (per curiam);
Ins. Network of Tex. v. Kloesel, 266 S.W.3d 456,
469-70 (Tex. App.-Corpus Christi 2008, pet. denied). In a
factual sufficiency review, we consider and weigh all the
evidence, but as in a legal sufficiency review, we defer to
the jury as the sole judge of the witnesses' credibility.
Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex.
2001); see Golden Eagle Archery, Inc. v. Jackson,
116 S.W.3d 757, 761 (Tex. 2003).
both legal and factual sufficiency standards, the jury may
choose to believe one witness over another, and a reviewing
court may not impose its own opinion to the contrary.
City of Keller, 168 S.W.3d at 819; Golden Eagle
Archery, 116 S.W.3d at 761.
Existence of Agreement
of their first issue, appellants contend that the evidence
was legally and factually insufficient to support a finding
that they entered into an oral partnership agreement with
"partnership" is "an association of two or
more persons to carry on a business for profit as owners,
" regardless of whether the persons "intend to
create a partnership" and regardless of what the
association is called. Tex. Bus. Orgs. Code Ann. §
152.051(b) (West, Westlaw through 2015 R.S.); see Ingram
v. Deere, 288 S.W.3d 886, 898 (Tex. 2009) ("The
terms used by the parties in referring to the arrangement do
not control[.]"). In determining whether a partnership
has been created, we consider whether the persons involved:
(1) received or had the right to receive a share of the
business's profits; (2) expressed an intent to be
partners in the business; (3) participated or had the right
to participate in control of the business; (4) agreed to
share or shared the business's losses or liability for
claims by third parties against the business; and (5) agreed
to contribute or contributed money or property to the
business. Tex. Bus. Orgs. Code Ann. § 152.052(a) (West,
Westlaw through 2015 R.S.). The absence of any evidence of
these factors will preclude the recognition of a partnership,
and even conclusive evidence of only one factor normally will
be insufficient to establish the existence of a partnership.
Ingram, 288 S.W.3d at 898; see Tex. Bus.
Orgs. Code Ann. § 152.052(b) (providing that the right
to receive a share of profits or revenues will not, by
itself, indicate that a person is a partner in a business,
nor will the co-ownership of property). On the other hand,
conclusive evidence of all the factors will establish the
existence of the partnership as a matter of law.
Ingram, 288 S.W.3d at 898. Whether a partnership
exists must be determined by an examination of the totality
of the circumstances. Id. at 903-04.
trial, Kirk testified as follows with respect to their
November 2008 meeting:
A. Palmer brought the model into my office, laid it on the
desk and started explaining to me how it worked. I must have
looked at it for maybe an hour, checking it out. I put my
hands on it, pulled the box carrier out. We looked at the
little equalizer gates. I said, well, the specs are correct,
and if it will fit inside of a valve it will work. So we
talked a little more about it. And then we was talking about
a partnership. Palmer wanted me to be his partner. He said he
didn't want anybody else to be his partner. He wanted me
to be his partner. So we discussed what it would take to make
our partnership work.
Q. And what were those terms?
A. My obligation was to finance the whole operation,
including, including his crane needed fixing; offices needed
fixing; computers need to be put in. This was just
preliminary. We were just discussing what would happen, you
know, and how it would work. We visited for about three
hours. . . . That's where me and Palmer had a meeting of
the mind was in my office and we talked about the whole
thing. We agreed on ...