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Ishee v. Ishee

Court of Appeals of Texas, Ninth District, Beaumont

May 25, 2017

MICHAEL ISHEE AND WORLD ENVIRONMENTAL, LLC, Appellants
v.
JANICE ISHEE, Appellee

          Submitted on May 4, 2016

         On Appeal from the 284th District Court Montgomery County, Texas Trial Cause No. 13-03-03184 CV

          Before McKeithen, C.J., Kreger and Horton, JJ.

          MEMORANDUM OPINION

          HOLLIS HORTON Justice.

         Michael Ishee and a company that he partially owns, World Environmental, LLC, appeal from the trial court's judgment following a jury trial. At the conclusion of the trial, the jury found that Michael failed to comply with the fiduciary duties he owed Janice Ishee, his former spouse, under the decree that was rendered in their divorce. Janice filed a cross-appeal, and she argues should Michael prevail, the case should be remanded to the trial court to allow that court to consider rendering a judgment against Michael based on the jury's breach of contract findings, which are also based on duties arising under the decree rendered following their divorce.

         The case was tried on both breach of contract and breach of fiduciary duty theories of recovery. Before the trial court rendered the judgment that is at issue in the appeal, Janice elected to recover judgment against Michael based on the jury's breach of fiduciary findings. On her fiduciary duty theory, Janice recovered a judgment against Michael for $361, 040 in actual and punitive damages. The judgment consists of $111, 520 in compensation related to the breach of fiduciary duty the jury found Michael committed, $111, 520 in damages because in equity and good conscience, the jury determined that sum of money rightfully belonged to Janice, and $130, 000 in exemplary damages. The trial court also awarded Janice $25, 000 in attorney's fees. The judgment made Michael and World Environmental jointly and severally liable for the $25, 000 in attorney's fees that the trial court awarded Janice on her declaratory judgment claim. Finally, the trial court ordered that Michael pay Janice $2, 500 in sanctions for abusing discovery.

         In five appellate issues, Michael argues that (1) the evidence is legally and factually insufficient to show that he breached the fiduciary duty he owed Janice; (2) the evidence is legally and factually insufficient to support the jury's award of $111, 520 in damages based on his failure to comply with the fiduciary duty the jury concluded he owed Janice; (3) the trial court did not have jurisdiction to hear Janice's claims; (4) disgorgement is not an appropriate remedy because Michael's failure, if any, to comply with the fiduciary duty he owed Janice was unintentional and the amount of the jury's fiduciary duty damages award is excessive; and (5) the evidence is legally and factually insufficient to support the exemplary damages award.

         World Environmental also appealed from the final judgment. In its first issue, World Environmental argues the trial court awarded declaratory relief exceeding that which Janice requested in her pleadings. In issue two, World Environmental argues the trial court committed error by making it jointly and severally liable with Michael for the attorney's fees awarded in the judgment.

         We conclude that factually and legally sufficient evidence supports the jury's finding that Michael breached his fiduciary duty to Janice. We further conclude the evidence is legally sufficient to support a portion of the fiduciary duty damages award, but is factually insufficient to support an award of $111, 520. Because reversing the damages award also requires that we order a retrial on the issue of whether Michael breached the fiduciary duty he owed to Janice, we need not reach Michael's remaining issues because sustaining them would result in the same relief Michael has been given based on our resolution of his second issue.

         With respect to World Environmental's appellate issues, we are not persuaded that Janice received declaratory relief in excess of the relief to which she showed that she was entitled. See Tex. Bus. Orgs. Code Ann. § 101.109 (West 2012). With respect to World Environmental's second issue, which concerns the attorney's fees award, Janice represented in her brief that she "does not oppose modifying the judgment" to delete the language in the judgment making World Environmental jointly and severally responsible for paying the attorney's fees the trial court awarded in its judgment. We reform the judgment so that World Environmental is not required to pay attorney's fees.

         Background

         Janice and Michael divorced in 2010. The divorce case was resolved in the 418th District Court in Montgomery County, Texas. When the 418th District Court granted the divorce, Michael owned a percentage interest in several closely held businesses, one of which was World Environmental. Under the terms of the decree in their divorce, ("the decree"), Janice was assigned a percentage of Michael's interest in the businesses in which he held memberships at the time he and Janice divorced.

         In 2013, Janice sued Michael, World Environmental, Charles Hall, who held a majority interest in World Environmental when Michael and Janice divorced, and the other businesses mentioned in the decree. In Janice's second amended petition, her live pleading for the purposes of the trial, Janice alleged that after she and Michael divorced, Michael never paid her the money she was entitled to receive based on her assigned interest in the businesses identified in the decree. Additionally, Janice sued for declaratory relief, and she requested that the court declare her rights under the assignment she acquired in Michael's interest in the businesses identified in the decree when she and Michael divorced.

         During the trial, Janice testified that Michael never distributed any of the benefits she should have received as his assignee in the businesses identified in the decree. According to Michael, he never sent Janice any money because after they divorced, the businesses identified in the decree never distributed any income, gains, losses, deductions, credits, distributions, or similar items. Additionally, Michael indicated that he never held a controlling interest in any of the businesses identified in the decree, and he suggested that he had no control over the manner the businesses accounted for their activities.

         The evidence before the jury included Form 1065 K1s that Michael received annually from World Environmental after Michael and Janice divorced, tax returns filed by World Environmental after Janice and Michael divorced, and testimony of Theo Rivers, the accountant who performed the accounting work for World Environmental. In large part, the parties' dispute centered on whether the rights Janice obtained in the businesses in which Michael held memberships required Michael to remit any of the amounts that he had received in guaranteed payments from the businesses after he and Janice divorced. According to Rivers, the guaranteed payments Michael received from World Environmental were reported on the K1s Michael received from the company, and the tax forms that she generated for the company reflected the company's income, loss, distributions, and business activities of the company. Janice did not call an accountant to dispute Rivers' testimony, so there is no testimony showing that the activities reflected in Michael's K1s were fraudulent, that World Environmental improperly accounted for its income or its expenses, or that Michael's K1s failed to properly reflect the monetary benefits that he received from World Environmental after he and Janice divorced.

         In final argument, Janice's attorney essentially asked the jury to ignore the testimony and evidence about the manner World Environmental accounted for its activities. In final argument, Janice's attorney suggested to the jury that Janice was entitled to receive a percentage of all of the benefits Michael received from World Environmental based on the assigned interest she held in the business following the divorce, which included a percentage of the guaranteed payments Michael received as well as a percentage of the cash value of his ...


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