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Home Comfortable Supplies, Inc v. Cooper

Court of Appeals of Texas, Fourteenth District

February 22, 2018


         On Appeal from the 113th District Court Harris County, Texas Trial Court Cause No. 2013-73249

          Panel consists of Justices Christopher, Donovan, and Jewell.



         The president and attorney-in-fact of a corporation, acting individually and on the corporation's behalf, induced others to start a new business with him in the form of a limited partnership with his corporation. He then denied the partners and their principals access to financial records and bank accounts, refused to capitalize the new business as promised, unilaterally locked the new business's doors, seized the business's tangible assets, and gave the use of the assets, free of charge, to a new company formed by his wife. The other partners and their principals successfully sued for, among other things, fraudulent inducement, breach of fiduciary duty, conversion, and breach of contract, and were awarded actual damages, punitive damages, and attorneys' fees. On appeal, none of the trial court's liability or actual-damages are challenged; the sole issues are whether the trial court erred in awarding punitive damages and attorneys' fees.

         Regarding punitive damages, the corporate president and his company argue that the only actual damages proven and awarded were for breach of contract, which will not support an award of punitive damages. Although the trial court was not asked to identify the actual damages awarded or link them to a specific cause of action, there is legally sufficient evidence that the wronged parties sustained actual damages proximately caused by the tortious conduct alleged.

         As for attorneys' fees, these are challenged on the ground that the plaintiffs failed to segregate fees incurred for work performed solely to advance a claim that was unsuccessful or for which attorneys' fees are unavailable from the remainder of the claims for which attorneys' fees sought. Although the parties dispute whether this complaint is properly before us for review, we conclude that the issue was preserved during the bench trial when the failure to segregate was pointed out in closing argument. The issue was not waived on appeal as alleged, because the corporate president and his company specifically challenged the trial court's finding of fact that the fees awarded were for legal services that were "reasonably related to or were intertwined with services rendered in pursuing the causes of action on which relief is granted." We further hold that the prevailing parties were required to segregate recoverable from nonrecoverable fees, and that they failed to do so.

         We accordingly reverse the portion of the judgment awarding attorneys' fees, affirm the remainder of the judgment, and remand the cause for a new trial solely on the issue of attorneys' fees.

         I. Background

         In the scrap-metal industry, companies buy scrap metals that can be melted down and reused, then sell the metal either to other scrap-metal companies, whether locally or abroad, or to consumers such as mills that melt the material and use it in new products. Because the sales have a low profit margin, businesses generally must sell material in large quantities to succeed.

         Joshua Cooper has worked in the industry since 1993, including seven years during which he ran his own scrap trading company, buying scrap metal from yards, then shipping and selling it overseas, primarily in China. Cooper had worked on trades with Travis Bonner for years, and Bonner eventually joined Derichebourg Recycling, where Cooper was then employed.

         One of Derichebourg's customers was Weixiang "Jackson" Zhao, president of Home Comfortable Supplies, Inc., a small scrap-metal company that Zhao has at all times operated from a scrap yard and warehouse owned by his wife Shuhua Li a/k/a Semilla Zhao ("Li"). On behalf of Home Comfortable Supplies, Zhao buys scrap metal locally and ships it to China where it is sold.

         Zhao offered Cooper $160, 000 a year to work for Home Comfortable Supplies, but Cooper declined, saying that he wanted to start his own yard. Zhao then suggested that the two go into business together. Zhao represented that Home Comfortable Supplies would capitalize the new company for $1.6 million by investing $400, 000 a month for four months. Cooper would receive the same $160, 000 salary previously offered, plus an ownership interest and chances to both buy and earn a larger share of the company. For his part, Cooper recommended that the new company also hire Travis Bonner as operations manager, José Vallejo as a buyer, Rick Wilson as a demolition expert, and Colt Hendricks as a scale operator. Zhao agreed.

         A. The Agreements

         The parties formed the limited partnership of Paragon Worldwide, Ltd. in April 2013. Home Comfortable Supplies owned a 97% interest, and Cooper and Bonner each owned a 1% interest through their respective individual companies.[1] The remaining 1% interest was owned by Paragon's general partner PWM, GP, LLC ("the General Partner"). Home Comfortable owned an 80% interest in the General Partner, and Cooper's company purchased the remaining 20% for $5, 000.

         Starting up the company primarily involved three contracts: the Management Agreement, Paragon's Partnership Agreement, and the General Partner's Company Agreement. The Management Agreement stated that Cooper and Bonner were independent contractors terminable at will. If they were terminated without cause, then they were to be paid an additional two months' compensation. If they were terminated for cause, then Paragon and the General Partner were to buy back Cooper's and Bonner's respective interests in those companies for the amount paid for their interests.

         The Partnership Agreement specified that Cooper was to receive $81, 650 as compensation for the 2013 calendar year, and that Bonner would be paid a pro rata portion of a $112, 400 salary.[2] The General Partner was to have "full, exclusive and complete discretion in the management and control" of Paragon, with authority to, among other things, negotiate and execute all documents and instruments, draw checks, collect amounts due, pay debts, and acquire and dispose of Paragon's assets. The General Partner also was to maintain Paragon's books at Paragon's principal place of business, and all of Paragon's partners were to have all reasonable access to the books during business hours.

         Cooper was the General Partner's sole managing member, but the General Partner's company agreement provided that if Home Comfortable Supplies disagreed with Cooper's decisions, then "the will of [Home Comfortable Supplies] shall always govern." Home Comfortable Supplies' will was not absolute, however. The Partnership Agreement prohibited any partner from doing any act or deed with the intent of harming the Partnership's operations or from assigning the rights of the Partnership or of its partners in specific partnership assets without the partners' unanimous consent.

         B. The Startup

         Paragon leased its warehouse and yard from Zhao's wife Li. Although Li previously had run her own scrap metal company at that site, and Home Comfortable Supplies continued to operate there, Cooper and Bonner found that there was no occupancy certificate for the site, and repairs were necessary before Paragon could obtain one.

         Zhao caused Home Comfortable Supplies to invest $330, 000 in Paragon and an indeterminate amount of inventory. The Partnership Agreement specified that the $1.6 million that Home Comfortable Supplies agreed to provide could include business inventory and assets, and that the General Partner could determine the fair-market value of such contributed property, but that the value of the capital contribution was to be ratified by all of the partners. Bonner prepared a list of the contributed inventory and gave it to Zhao, but Zhao kept the list and the partners neither determined nor ratified any amount as the inventory's fair market value. Bonner estimated that Home Comfortable Supplies' total capital contribution, including the $330, 00 in cash, was less than $700, 000.

         C. The Operations

         Within a few weeks of beginning business, Zhao cut off Cooper's access to the business's checking account and financial records. Zhao complained that Paragon was losing money, but despite Cooper's repeated requests, Cooper received no financial reports. Cooper had to forego profitable deals for the company because he had no access to Paragon's funds. Checks to metals sellers ...

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