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Adonai Communications, Ltd. v. Awstin Investments, LLC

United States District Court, N.D. Texas, Dallas Division

December 1, 2017

ADONAI COMMUNICATIONS, LTD., Plaintiff,
v.
AWSTIN INVESTMENTS, L.L.C., PREMIUM ACQUISITIONS, INC. f/k/a MIDCOAST ACQUISITIONS CORP., MDC CREDIT CORP. f/k/a MIDCOAST CREDIT CORPORATION, PREMIUM INVESTORS, INC., f/k/a MIDCOAST INVESTMENTS, INC., SHOREWOOD ASSOCIATES, INC., SHOREWOOD HOLDINGS CORP., and MICHAEL BERNSTEIN, individually, Defendants.

          MEMORANDUM OPINION AND ORDER

          Sam A. Lindsay, United States District Judge.

         Before the court is Plaintiff Adonai Communications, Ltd.'s (“Adonai” or “Plaintiff”) Motion to Reform and Finalize Judgment (Doc. 70), filed April 28, 2017. Having reviewed the motion, brief, and appendix filed in support of the motion, [1] Plaintiff's Supplement to its Motion to Reform and Finalize Judgment (Doc. 75), filed November 16, 2017, record, and applicable law, and for the reasons set forth below, the court grants in part and denies in part Adonai's Motion to Reform and Finalize Judgment (Doc. 70).

         I. Background

         This action arose out of an alleged breach of contract involving Adonai's sale of its shares in Awstin Worldwide Communications, Ltd. (“Awstin Worldwide”) to Awstin Investments, LLC (“Awstin Investments”) pursuant to a Share Purchase Agreement (“Agreement”). On December 10, 2010, Adonai sued an individual named Michael Bernstein (“Bernstein”); Shorewood Holdings Corp.; Shorewood Associates, Inc.; Premium Acquisitions, Inc., formerly known as MidCoast Acquisitions Corp.; Premium Investors, Inc., formerly known as MidCoast Investments, Inc.; Awstin Investments; and MDC Credit Corp., formerly known as MidCoast Credit Corporation (collectively, “Defendants”). On April 5, 2011, Adonai filed its First Amended Complaint, asserting claims for breach of contract, negligent misrepresentation, statutory fraud, common law fraud, and fraud by nondisclosure, and sought indemnification as well as a judicial declaration of its rights and duties under the Agreement. See First Am. Comp. (Doc. 11). Adonai alleged that Bernstein and the other Defendants promised to indemnify it and pay outstanding tax obligations as part of the Agreement with no intention of fulfilling their promise. Adonai alleged that Defendants' breach of the obligation to indemnify it and pay outstanding tax obligations resulted in the Internal Revenue Service (“IRS”) pursuing it and seeking several million in taxes that it did not owe.

         On January 6, 2012, Adonai filed its Motion for Entry of Default and for Default Judgment (Doc. 52). On January 9, 2012, the clerk of court granted Adonai's request for entry of default against Defendants. The court thereafter granted Adonai's motion for default judgment, and directed Adonai to supplement the record to assist the court with determining its damages. Adonai provided the court with the supplemental information. On April 30, 2012, after considering the supplemental information, the court issued an order granting Adonai's request for attorney's fees and costs incurred in connection with prosecuting the lawsuit but denied as premature its request for damages arising from the ongoing tax protest litigation it had filed with the IRS. The court stated:

Under the terms of the Agreement, Defendant MidCoast Investments, Inc., now known as Premium Investors, Inc., assumed the tax liabilities of Awstin Worldwide [], of which Adonai owned 82.5%. The Internal Revenue Service is now holding Adonai [] liable for a tax deficiency for Awstin Worldwide's fiscal year ending February 28, 2005, in addition to penalties, fees, and interest thereon. Plaintiff filed a tax protest to protect its rights. Plaintiff states that it incurred consequential, out-of-pocket damages of $190, 932.26 as a result of the tax proceedings and requests that the court award this amount as damages incurred to date.
The Agreement states that Defendants were required to indemnify Plaintiff[] (the seller[] of Awstin Worldwide) “against any and all claims, damages, losses, deficiencies, or liabilities, including reasonable legal fees and expenses” that result from any breach of the Agreement. See Agreement, Section 6.2 [Doc. #1-1 at 13]. Plaintiff, however, has not cited, and this court has not found on its own, any cases establishing the court's authority to grant an interim award of damages or attorney's fees under facts that are identical or similar to those of this case . . . The fees and costs incurred as a result of the ongoing tax protest are not final, and the court declines to make an interim award of damages without further authority.

         Order 1-2 (Doc. 64) (emphasis added). That same day, the court issued a Judgment limited to liability, and awarded attorney's fees and costs incurred through January 30, 2012, in the amount of $52, 975.50, and instructed the clerk of court to administratively close the case pending completion of the tax protest litigation:

[F]or the reasons stated in its order of April 30, 2012, the court administratively closes this action to the extent it relates to damages Adonai seeks as a result of filing the tax protest litigation. Adonai's claim for damages will be addressed and determined once it can provide the court with a reasonable degree of certainty as to the amount of damages that it has suffered as a result of filing the related tax protest litigation.

         Judgment 2 (Doc. 65).

         On April 11, 2017, the court reopened this matter after Adonai informed it that the tax protest litigation was complete. The court directed Adonai to file the appropriate motion for the relief it sought on or before April 28, 2017. On April 28, 2017, Adonai filed its Motion to Reform and Finalize Judgment (Doc. 70). In the course of considering Adonai's motion, the court noted that Adonai had miscalculated the total amount paid to the IRS and failed to establish conclusively that it was entitled to damages, as the record reflected that its principal, Dr. Graves, had paid the IRS debt. In that vein, on November 3, 2017, the court issued an order instructing Adonai to file a supplement to its motion addressing these deficiencies. On November 16, 2017, Adonai filed Plaintiff's Supplement to its Motion to Reform and Finalize Judgment (“Supplement”) (Doc. 75). In its Supplement, Adonai corrected its previous mathematical errors and provided the court with the additional information requested.

         II. Analysis

         As the court has already reached its decision as to liability and awarded Adonai its attorney's fees and costs incurred in connection with prosecuting the lawsuit through January 30, 2012, in the amount of $52, 976.50, see supra, the only remaining issue is the amount of damages to award Adonai in connection with the tax protest litigation and the amount of any additional attorney's fees incurred between January 30, 2012, and the date of this decision.

         The appropriate measure of damages is a question of law. Under Texas law, actual damages may be either “direct” or “consequential.” Cherokee Cty. Cogeneration Partners, L.P. v. Dynegy Mktg. & Trade, 305 S.W.3d 309, 314 (Tex. App.-Houston [14th Dist.] 2009, no pet.) (citing Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 816 (Tex. 1997)). “Actual damages” and “compensatory damages” are synonymous terms. DaimlerChrysler Motors Co., LLC v. Manuel, 362 S.W.3d 160, 185 n.25 (Tex. App.-Fort Worth 2012, no pet.) (collecting authority). Direct damages are those inherent in the nature of the breach of the obligation between the parties, and they compensate a plaintiff for a loss that is conclusively presumed to have been foreseen by the defendant as a usual and necessary consequence of the defendant's act. Arthur Andersen & Co., 945 S.W.2d ...


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