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Salas v. Total Air Services, LLC

Court of Appeals of Texas, Eighth District, El Paso

February 14, 2018


         Appeal from County Court at Law No. 5 of El Paso County, Texas (TC # 2012DCV03672)

          Before McClure, C.J., Rodriguez, and Palafox, JJ.


          ANN CRAWFORD McCLURE, Chief Justice

         This appeal turns our attention to the fiduciary duty that an employee may owe an employer when the employee starts a competing business. At-will employees (who have not entered valid non-compete agreements) are free in Texas to leave and form competing businesses. Even while still employed, the employee can take preparatory steps to that end. In this case, however, the employee actually ran a competing business while still drawing a salary with his employer. For the reasons stated below, we affirm the judgment obtained by the employer against the employee, subject to a suggested remittitur.


         Total Air Services, LLC sued its former employee, Heriberto Salas after it learned he opened and operated a competing company--Iceland Refrigeration--while still working for Total Air. Total Air is a heating, ventilation, and air-conditioning contractor. Brandon Brooks and his wife, Janette Brooks, started the company in 2007. At the time of the events we describe here, the company employed between six to twelve workers, depending on seasonal workload. Before starting Total Air, Brandon had worked as an employee for other similar companies. He met Salas in 2004 when they both worked for AC Experts, and he considered Salas a friend. They both left AC Experts, but met again in 2008 when Brandon loaned Salas a set of study books so that Salas could take the test to obtain his own air-conditioning license. Salas had intended to start his own company, though he later told Brandon he failed the test and put the issue off to the side.

         Brandon met Salas again in early 2011. Salas complained about his then employer, and asked if he and Brandon could form a partnership. Brandon declined, but soon thereafter offered Salas a job. According to Brandon, he hired Salas as a crew manager. The position entrusted Salas with supervising a crew, obtaining city required permits, getting inspections completed by the city, installing air-conditioning systems, and "whatever it takes to continue the success and the growth of the company." While Brandon prepared the quotes for all the bigger jobs, Salas occasionally had to deliver them to the customer. Salas would also generate the numbers for some quotes. Each bid form contained a job costing analysis that listed all of Total Air's confidential component costs. Brandon claimed that only he, his wife, and Salas were privy to that information. Salas worked on a straight salary, and at $52, 000 a year, he was the highest paid employee, including the owners. When hired in April 2011, Salas was also the only employee paid an annual salary.

         Conversely, Salas contended that he was hired as an "installer." He acknowledged being in charge of installation jobs, but was only supervising his helper, who was his younger brother, Richard. His job also required him to troubleshoot other jobs, and when he did so, he oversaw those other jobs. He claimed to prepare quotes "every now and then" but denied he was hired to solicit sales. Salas denied that he was a "manager" but defined that term to mean setting crews up, sitting back and "just kind of supervise and stuff."

         Salas worked for Total Air from April 2011 until March 28, 2012, when he and his brother resigned. This suit arose when Total Air learned that while employed, Salas had been actively competing against it. On March 31, 2011, a few weeks prior to being hired by Total Air, Salas submitted an application for a contractor's license to the Texas Department of Licensing and Regulation under the name Iceland Refrigeration (Iceland). On May 20, 2011, (at 2:25 pm during the middle of workday with Total Air), Salas filed an assumed names form with the county clerk for Iceland. Records from the Better Business Bureau, and an on-line referral site, note that Salas started Iceland in 2011. Iceland's own website similarly reflects it started business in 2011. Salas opened a bank account under his name, "dba Iceland Refrigeration" in January 2012. Iceland operates the same kind of business as Total Air -- both sell, install, and service residential and industrial air-conditioning.

         Moreover, Iceland was actually doing business while Salas was still employed with Total Air. We note a few examples from the trial. Bank records show that on July 25, 2011, Salas deposited $13, 600 into his personal account from a bus company for "A/C Service." Salas admitted to performing air-conditioning work for the owner of the company. A few days later, he deposited another check into his personal account for $122.50, which also indicated it was for air-conditioning services. In September 2011, Total Air had prepared a quote for a potential customer, David Grau, for an air-conditioning system costing between $13, 689 to $18, 634, depending on the options selected. Total Air did not get the job, but the city issued a permit the same month to Iceland to perform the work at the same address. Salas made two large cash deposits -- $4, 000.00 on the same day the city approved a portion of the Grau job -- and another larger cash deposit, $6, 500, within two weeks of when the job was completed.

         Iceland also issued a February 9, 2012 quote to Santiago Soto for a job proposed between $5, 995 and $6, 695. Two weeks later, Iceland pulled a mechanical permit from the city to do the work. The customer wrote a check to Iceland for $7, 220 for "AC/Furnace Installation" on February 27, 2012. On March 14, 2012, Iceland issued a quote to Manny Martinez for work estimated at between $5, 595 and $5, 895. The customer ended up paying at total of $6, 381.34 to Iceland on March 27, 2012, the day before Salas resigned from Total Air. Iceland issued another quote to Robert Cervantes on March 23, 2012 for $6395; the city issued a permit for the same address and Cervantes paid for the job on April 3, 2012. Salas admitted quoting the job while he still was employed with Total Air.

         The issue came to a head when Brandon became suspicious of Salas' absences in March 2012. After learning of Iceland through an internet search, he confronted Salas, who then tendered his resignation. Before that time, Salas never disclosed that he intended to go into business for himself, or was in business for himself, while employed by Total Air.

         A jury found that found Salas breached his fiduciary duty to Total Air and that Total Air lost $50, 000 of profits because of that breach. The jury also found that Salas acted with malice, and assessed an additional $20, 000 in punitive damages. The trial court entered judgment only on the actual damages along with pre-judgment interest and court costs.

         Salas brings nine issues for our review. He challenges: (1) the sufficiency of the evidence to support the liability and damages findings; (2) the trial court's formulation of the jury charge; and (3) the trial court's refusal to remit a portion of the verdict. We re-order his issues for the sake of clarity.


         Salas' sixth and seventh issues challenge how the trial court submitted the breach of the fiduciary duty to the jury. The jury was asked if Salas failed to comply with his fiduciary duty to Total Air. The question instructed the jury that as an employee, Salas owed Total Air a fiduciary duty. It further instructed that to prove its claim, Total Air must show:

1. Heriberto Salas failed to act in the utmost good faith or exercise the most scrupulous honesty toward Total Air Services, LLC; or
2. Heriberto Salas placed his own interests before Total Air Services, LLC's, used the advantage of his position to gain a benefit for himself at the expense of Total Air Services, LLC, or placed himself in a position where his self-interest might conflict with his obligations as a fiduciary; or
3. Heriberto Salas failed to fully and fairly disclose all important information to Total Air Services, LLC concerning the transactions.[1]

         Salas' seventh issue specifically claims that the trial court erred by instructing the jury that Salas owed a fiduciary duty to Total Air. His sixth issue complains that the trial court refused his tendered question inquiring, "Did a fiduciary relationship of agency exist between [Salas] and [Total Air]?

         Standard of Review

         We review charge error for an abuse of discretion. Shupe v. Lingafelter, 192 S.W.3d 577, 579 (Tex. 2006); Financial Ins. Co. v. Ragsdale, 166 S.W.3d 922, 926 (Tex.App.--El Paso 2005, no pet.). "A trial court abuses its discretion if it acts in an arbitrary or unreasonable manner without reference to any guiding rules or principles." Walker v. Gutierrez, 111 S.W.3d 56, 62 (Tex. 2003), citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). The trial court must submit in the charge all questions, instructions, and definitions raised by the pleadings and the evidence. See Tex.R.Civ.P. 278; Hyundai Motor Co. v. Rodriguez, 995 S.W.2d 661, 663 (Tex. 1999). In reviewing the charge, we consider the pleadings, the evidence presented at trial, and the charge in its entirety. De Leon v. Furr's Supermarkets, Inc., 31 S.W.3d 297, 300 (Tex.App.--El Paso 2000, no pet.). Even if the trial court has abused its discretion, we reverse only when the error is shown to be harmful. Boatland of Houston, Inc. v. Bailey, 609 S.W.2d 743, 749-50 (Tex. 1980). "We may not reverse unless the error, when viewed in light of the totality of the circumstances, amounted to such a denial of the rights of the complaining party as was reasonably calculated and probably did cause rendition of an improper judgment." Braudrick v. Wal-Mart Stores, Inc., 250 S.W.3d 471, 475 (Tex.App.--El Paso 2008, no pet.), quoting De Leon, 31 S.W.3d at 300.

         Controlling Law

         Texas law recognizes two types of fiduciary relationships. Meyer v. Cathey, 167 S.W.3d 327, 330-31 (Tex. 2005); Jones v. Blume, 196 S.W.3d 440, 447 (Tex.App.--Dallas 2006, pet. denied). "The first is a formal fiduciary relationship, which arises as a matter of law and includes the relationships between attorney and client, principal and agent, partners, and joint venturers." Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 508 (Tex.App.--Houston [1st Dist] 2003, no pet.), citing Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998). "The second is an informal fiduciary relationship, which may arise from 'a moral, social, domestic or purely personal relationship of trust and confidence, generally called a confidential relationship.'" Abetter Trucking Co., 113 S.W.3d at 508, quoting Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 287 (Tex. 1998). Whether an informal relationship rises to the level of a fiduciary relationship is often a question of fact. Crim Truck & Tractor Co. v. Navistar Intern. Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992). Nonetheless, "'[w]here the underlying facts are undisputed, determination of the existence, and breach, of fiduciary duties are questions of law, exclusively within the province of the court.'" National Medical Enterprises, Inc. v. Godbey, 924 S.W.2d 123, 147 (Tex. 1996), quoting Lacy v. Ticor Title Ins. Co., 794 S.W.2d 781, 787 (Tex.App.--Dallas 1990), writ refused per curiam, 803 S.W.2d 265 (Tex. 1991).

         An agent generally has a fiduciary duty to act for the benefit of his principal in all matters connected with the agency. Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 200 (Tex. 2002); Abetter Trucking Co., 113 S.W.3d at 510. "Among the agent's fiduciary duties to the principal is . . . the duty not to compete with the principal on his own account . . . in matters relating to the subject matter of the agency, and the duty to deal fairly with the principal in all transactions between them." Johnson, 73 S.W.3d at 200, quoting Restatement (Second) of Agency § 13, cmt. a (Am. Law Inst. 1958); see also Restatement (Third) Agency § 8.01 (Am. Law Inst. 2005)("An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship."). Furthermore, an agent who uses his position to gain a business opportunity belonging to the principal commits an actionable wrong. Abetter Trucking Co., 113 S.W.3d at 510, citing Bray v. Squires, 702 S.W.2d 266, 270 (Tex.App.--Houston [1st Dist] 1985, no writ).

         A master and servant (or employer--employee) are a species of the formal principal-agent relationship. Restatement (Second) Agency §§ 2, 25 (Am. Law Inst. 1958); Restatement (Third) Agency § 1.01 (Am. Law Inst. 2005)("The elements of common-law agency are present in the relationships between employer and employee[.]"). As such, employment relationships may impose some fiduciary duties. See Johnson, 73 S.W.3d at 201-02. Thus, when a fiduciary relationship of agency exists between employee and employer, an employee has a duty to act primarily for the benefit of his employer in matters connected with his employment. Daniel v. Falcon Interest Realty Corp., 190 S.W.3d 177, 185 (Tex.App.--Houston [1st Dist] 2005, no pet). Additionally, an employee may not (1) appropriate company trade secrets; (2) solicit the former employer's customers while still working for his employer; (3) solicit the departure of other employees while still working for his employer; or (4) carry away confidential information. Abetter Trucking Co., 113 S.W.3d at 512; Wooters v. Unitech Intl., Inc., 513 S.W.3d 754, 762-63 (Tex.App.--Houston [1st Dist.] 2017, pet. denied).

         But an employee's fiduciary duty is not unlimited. "[A]n employer's right to demand and receive loyalty must be tempered by society's legitimate interest in encouraging competition." Johnson, 73 S.W.3d at 201. As a Massachusetts court (quoted approvingly by the Texas Supreme Court) explained:

An at-will employee may properly plan to go into competition with his employer and may take active steps to do so while still employed. Such an employee has no general duty to disclose his plans to his employer, and generally he may secretly join other employees in the endeavor without violating any duty to his employer. The general policy considerations are that at-will employees should be allowed to change employers freely and competition should be encouraged. If an employer wishes to restrict the post-employment competitive ...

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