Appeal from the 334th District Court Harris County, Texas
Trial Court Case No. 2013-23041
consists of Chief Justice Radack and Justices Jennings and
companion cases arise from efforts to enforce a judgment
against an executive officer and his company. We interpret
the provisions of two agreements- the company's agreement
to indemnify the officer, and the company's later
settlement agreement with the plaintiff in the underlying
case-to determine whether the company must indemnify the
officer for the judgment against him and whether the
settlement released the plaintiff's collection of that
judgment if the company is obligated to pay it. We conclude
that the company owes indemnity to the officer and, because
the company is obligated to indemnify its officer, the
settlement agreement precludes further collection of the
judgment. Because the trial court similarly ruled, we affirm
Sandt was a former officer and shareholder of Energy
Maintenance Services Group I, LLC, a closely held Delaware
limited liability company. Timothy Nesler was the chief
executive officer of Energy Maintenance. In 2005, Sandt sued
Energy Maintenance and Nesler, among other officers of the
company. The gravamen of Sandt's suit was that Energy
Maintenance, Nesler, and the other officers wrongfully had
diluted Sandt's ownership interest in Energy Maintenance,
committing fraud and breach of fiduciary duty.
receives indemnification for the Sandt lawsuit
August 2007, while Sandt's suit was pending, Energy
Maintenance's board of directors agreed to indemnify
Nesler for any liability arising out of or relating to the
Sandt litigation. The board memorialized that
agreement in a company resolution:
[It is] FURTHER RESOLVED, that the Company shall indemnify
Mr. Nesler . . . in full against all damages, claims,
judgments, fines and costs, including costs of defense,
investigation and settlement and the cost of separate
counsel, if any, together with all other expenses and damages
of any kind, including punitive damages, if any, as and when
incurred . . . which arise out of or are related in any way
to the Sandt litigation . . . .
board's resolution states that it agreed to indemnify
Nesler after reviewing the Sandt litigation and
discussing the facts and circumstances of it with the
company's officers and attorneys. The resolution further
recites that, as required by the limited liability company
agreement as a precondition to indemnification, the board
determined that Nesler had acted in good faith and in a
manner that he reasonably believed was in, and not opposed
to, Energy Maintenance's best interests:
[It is] FURTHER RESOLVED, that pursuant to Section 8.3 of the
Company's LLC Agreement, and with respect to the events
that are the subject of the Sandt litigation, the Board has
determined that indemnification of Mr. Nesler is proper under
the circumstances because he has met the standard of conduct
set forth in Section 8.1 of the LLC agreement . . . .
wins the lawsuit
Sandt lawsuit went to trial in June 2009, about two
years after the board had agreed to indemnify Nesler. A Fort
Bend County jury found in favor of Sandt and against both
Energy Maintenance and Nesler. The jury found that Nesler had
breached his fiduciary duty to Sandt by diluting Sandt's
interest in the company. It further found that Energy
Maintenance and Nesler had committed statutory fraud against
Sandt. Based on these and other findings, the trial court
entered judgment in Sandt's favor in July 2009. The
judgment awarded $780, 000 in damages and attorney's fees
to Sandt from Energy Maintenance, Nesler, and two other
officers, jointly and severally. In addition, the judgment
awarded Sandt $300, 000 in punitive damages against Energy
Maintenance and Nesler individually.
defendants in the Sandt case appealed the judgment.
While the appeal was pending, Energy Maintenance's
primary creditor took control of the company and fired Nesler
from his position as chief executive officer.
board attempts to revoke its indemnity agreement
September 2011, a new board of directors voted by written
consent to "revoke" the indemnification that the
board had authorized in August 2007 "effective as of the
date indemnification was purportedly granted." In
support of its revocation, the board passed a resolution
stating that its "investigation to date indicates that
Mr. Nesler misrepresented to the Board the facts,
circumstances and status of the Sandt Matter." The new
board further stated:
[I]nvestigation to date indicates that it may have been
inappropriate for the Board to purport to agree to indemnify
Mr. Nesler from all liability, regardless of the basis
therefor and apparently with no exclusions or exceptions . .
company settles the Sandt litigation
March 2012, the Fourteenth Court of Appeals affirmed
Sandt's judgment against Energy Maintenance and Nesler.
See Energy Maint. Servs. Grp. I, LLC v. Sandt, 401
S.W.3d 204, 223 (Tex. App.-Houston [14th Dist.] 2012, pet.
Maintenance and the defendant officers petitioned for review
to the Texas Supreme Court. In October 2012, while their
petition was pending, Energy Maintenance settled with Sandt,
as did the other company officers, save Nesler. The
settlements resolved all liability other than the $300, 000
exemplary-damages award assessed against Nesler individually.
The settlement agreement between Energy Maintenance and Sandt
expressly provided that Sandt would not seek recovery of the
$300, 000 owed by Nesler from Energy Maintenance, either
"directly or indirectly."
alone continued to pursue appellate review of the judgment.
The Texas Supreme Court denied his petition.
seeks indemnity from the company
the Court denied review in the Sandt case, Nesler
sought indemnity from Energy Maintenance. Energy Maintenance
refused to provide it and filed this suit against Nesler in
April 2013, seeking a declaration that it did not owe him
indemnity. Energy Maintenance contended that the jury's
findings of fraud and breach of fiduciary duty against Nesler
in the Sandt litigation alleviated the company's
indemnification obligation, and it asserted that revocation
of its agreement to indemnify Nesler was proper because
Nesler had misled the board of directors about the
Sandt litigation. Nesler counterclaimed for breach
of contract, seeking indemnity and his attorney's fees.
company sues to enforce the Sandt settlement
Maintenance also sued Sandt. It requested the trial court to
construe the settlement agreement between Energy Maintenance
and Sandt and declare that, based on their agreement, Sandt
was not owed the $300, 000 Nesler judgment if Energy
Maintenance was obligated to indemnify Nesler.
Maintenance and Nesler moved for summary judgment. The trial
court denied Energy Maintenance's motion and granted
Nesler's motion in part, ruling that Nesler was entitled
to indemnity based on the board's August 2007 indemnity
resolution, and that Energy Maintenance's failure to
indemnify Nesler was a breach of that agreement.
Maintenance subsequently amended its pleadings to add
additional claims against both Sandt and Nesler. Energy
Maintenance sued Sandt for breach of the parties'
settlement agreement, alleging that Sandt's attempts to
collect the $300, 000 from Nesler breached the settlement
agreement. Energy Maintenance sued Nesler for breach of
fiduciary duty and fraud. Energy Maintenance alleged that
Nesler breached his fiduciary duty to the company by engaging
in self-dealing when he diluted Sandt's ownership
interest in December 2003 and when he obtained indemnity from
the board of directors by misleading it in August 2007.
Energy Maintenance alleged that Nesler committed fraud by
concealing the nature of Sandt's allegations and the
extent of his misconduct from the board when he sought