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Orbison v. Ma-Tex Rope Co., Inc.

Court of Appeals of Texas, Sixth District, Texarkana

June 15, 2018

SAMUEL D. ORBISON AND AMERICAN PIPING INSPECTION, INC., Appellants
v.
MA-TEX ROPE COMPANY, INC., Appellee

          Date Submitted: April 26, 2018

          On Appeal from the County Court at Law No. 2 Gregg County, Texas Trial Court No. 2016-1631-CCL2

          Before Morriss, C.J., Moseley and Burgess, JJ.

          OPINION

          Josh R. Morriss III, Chief Justice

         At the start of the almost five years that Samuel D. Orbison worked for Ma-Tex Rope Company, Inc. (Ma-Tex), he signed an employment agreement containing a non-competition agreement, a non-disclosure agreement, and a non-solicitation agreement. During his tenure, he learned various things about Ma-Tex's business and customers and became the coordinator of Ma-Tex's recertification department. Orbison continued in that position until he resigned from Ma-Tex, went to work for Ma-Tex's competitor, American Pipe Inspections, Inc. (API), as the coordinator of its recertification department, and began soliciting work for API from Ma-Tex's customers. This lawsuit arose from that series of events and centers on Orbison's non-competition, non-disclosure, and non-solicitation agreements.

         Ma-Tex fabricates and services equipment used in the oil and gas industry. As part of its services, Ma-Tex recertifies wireline[1] equipment for companies throughout the continental United States. Orbison began working for Ma-Tex in September 2011, at which time he executed the employment agreement that is at the center of this action. In July 2013, Orbison became the coordinator of Ma-Tex's recertification department. He resigned from Ma-Tex August 12, 2016.

         Shortly after Orbison left its employ, Ma-Tex discovered that Orbison was working for API in the same position he had filled with Ma-Tex and that he was soliciting recertification work from Ma-Tex's customers. When Ma-Tex failed to receive a satisfactory response to its cease-and-desist letter sent to Orbison and API, Ma-Tex sued them and obtained a temporary restraining order barring Orbison and API from disclosing or using Ma-Tex's trade secrets and confidential information, from soliciting or serving Ma-Tex's customers, and from competing with Ma-Tex in the servicing and recertification of wireline equipment in nineteen states. After a bench trial on the merits, the trial court granted Ma-Tex a permanent injunction against Orbison and API and awarded Ma-Tex actual damages and attorney fees against Orbison and API.

         In this appeal, Orbison and API (Appellants) assert that the trial court erred in admitting evidence of damages, in awarding damages, in enforcing the post-employment restrictions contained in the employment agreement, in issuing the permanent injunction, in denying Appellants' motion for sanctions, and in awarding attorney fees against them.

         While we find that (1) there is insufficient evidence in this record to support the award of damages for lost profits and lost good will, we also conclude that (2) there was no abuse of discretion in issuing the permanent injunction, (3) there was no abuse of discretion in denying API's motion for sanctions, (4) there was no abuse of discretion in awarding attorney fees, (5) Appellants waived any objection to late-disclosed evidence by refusing the offered continuance, and (6) Appellants failed to preserve their complaint regarding termination of the employment contract. Therefore, we reverse the award of damages for lost profits and good will, delete the award of just those two elements of damages, and affirm the trial court's judgment in all other respects.

         (1) There Is Insufficient Evidence in this Record to Support the Award of Damages for Lost Profits and Lost Good Will

         Appellants challenge the legal sufficiency of the evidence to support the award of damages for lost profits, lost good will, fee forfeiture, and profit disgorgement.[2] In its findings of fact, [3] the trial court found that, but for Orbison's solicitation on behalf of API, Ma-Tex would have secured the two recertification orders of Halliburton Pinnacle and Arklatex and that it would have made a net profit of $2, 321.00 on these orders. The trial court also found that Orbison's and API's actions in soliciting its customers caused Ma-Tex to lose good will of the value of $120, 000.00. In addition, the trial court found that Orbison spent at least 10% of his working time between April 11, 2016, and August 12, 2016, assisting API in setting up its recertification division to the detriment of Ma-Tex. The trial court also entered conclusions of law that Ma-Tex should recover unjust enrichment damages as a result of Orbison's misappropriation of trade secrets, and for his breach of fiduciary duties, in the amount of $1, 866.15 (10% of the salary paid to Orbison by Ma-Tex from April 16 through August 12, 2016), and $2, 307.68 (the amount paid to Orbison by API from August 15 through August 31, 2016). Appellants challenge the legal sufficiency of the evidence to support these findings.[4]

         "In reviewing a legal sufficiency complaint of an adverse finding on which the appellant did not have the burden of proof, the appellant must demonstrate on appeal that no evidence supports the adverse finding." Great N. Energy, Inc. v. Circle Ridge Prod., Inc., 528 S.W.3d 644, 669 (Tex. App.-Texarkana 2017, pet. denied) (quoting Monasco v. Gilmer Boating & Fishing Club, 339 S.W.3d 828, 830 (Tex. App.-Texarkana 2011, no pet.) (citing Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983))). We will find the evidence legally insufficient only when the record shows

(1) a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla of evidence; or (4) the evidence established conclusively the opposite of a vital fact.

Id. (quoting Monasco, 339 S.W.3d at 830) (citing Merrell Dow Pharms. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997)). "When the evidence offered to prove a vital fact is so weak as to do no more than create a mere surmise or suspicion of its existence, the evidence is no more than a scintilla and, in legal effect, is no evidence." Jelinek v. Casas, 328 S.W.3d 526, 532 (Tex. 2010) (quoting Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex. 1983)). In considering legal sufficiency of evidence, we determine "whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review." E.R.C., 496 S.W.3d at 284 (quoting City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005)).

         Lost Profits.

         In challenging the trial court's damage award of $2, 321.00 for lost profits, Appellants challenge the legal sufficiency of the evidence supporting the trial court's findings (1) that without Orbison's solicitation on behalf of API, Ma-Tex would have secured the two recertification orders of Halliburton Pinnacle and Arklatex and (2) that Ma-Tex would have made a net profit of $2, 321.00 on those orders. Assuming, without deciding, that sufficient evidence supports the trial court's finding that Ma-Tex would have secured the two recertification orders, we find that insufficient evidence supports its finding that Ma-Tex would have made a net profit of $2, 321.00 on those orders.

         The evidence at trial showed that Orbison's solicitation for API resulted in API securing one recertification job each from Halliburton Pinnacle and Arklatex. API's invoice to Halliburton Pinnacle showed charges for recertification of four 32" WTI sheaves, a load test and visual inspection of two chain slings and two wire rope slings, and a ½" Loc-a-loy, for total charges of $2, 455.00. Its invoice to Arklatex showed charges for recertification of two 17" WTI sheaves, a break test on one prototype tool, and a line retention pin, for total charges of $885.00. Testimony regarding Ma-Tex's lost profits from these two lost sales came from Matthews, its president.[5] Matthews testified as follows:

Q. [By counsel for Ma-Tex] Would you please just assume for me I've done the math correctly, and that [the Halliburton Pinnacle and the Arklatex invoices] total $3, 340?
A. That's correct.
Q. And then based on that number, has Ma-Tex then attempted to determine how much profit would be derived if they had done those two sales?
A. Yes, it was close to $2300.
. . . .
Q. (BY MR. SMITH) Make sure that our record is clear, how much was the amount that you just said?
. . . .
A. It was 23 -- $2321 is your net profits on that -- on those sales.

         In Texas, what constitutes sufficient evidence of lost profit damages is well-established:

Recovery for lost profits does not require that the loss be susceptible of exact calculation. However, the injured party must do more than show that they suffered some lost profits. The amount of the loss must be shown by competent evidence with reasonable certainty. What constitutes reasonably certain evidence of lost profits is a fact intensive determination. As a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits can be ascertained. Although supporting documentation may affect the weight of the evidence, it is not necessary to produce in court the documents supporting the opinions or estimates.

ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867, 876 (Tex. 2010) (quoting Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992) (citations omitted)). However, "[a] plaintiff 'must do more than show they suffered some lost profits.'" Lamont v. Vaquillas Energy Lopeno Ltd., LLP, 421 S.W.3d 198, 224 (Tex. App.-San Antonio 2013, pets. denied) (quoting Houston Mercantile Exch. Corp. v. Dailey Petrol. Corp., 930 S.W.2d 242, 248 (Tex. App.-Houston [14th Dist.] 1996, no writ) (citing Szczepanik v. First S. Trust Co., 883 S.W.2d 648, 649 (Tex. 1994) (per curiam))). Although there may be more than one method of calculating lost profits, once a method has been chosen, there must be a complete calculation provided. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 85 (Tex. 1992).

         Merely testifying as to the amount of claimed lost profits without providing any indication of how the lost profits were determined is legally insufficient evidence of lost profits. Id. at 84; see Columbia Med. Ctr. of Denton Subsidiary, L.P. v. DFW Super Grp. II, L.L.C., No. 02-12-00507-CV, 2013 WL 5658185, at *2 (Tex. App.-Fort Worth Oct. 17, 2013, pet. denied) (mem. op.) (testimony as to amount of lost profits without evidence indicating how they were determined is legally insufficient); Village Square, Ltd. v. Barton, 660 S.W.2d 556, 559-60 (Tex. App.- San Antonio 1983, writ ref'd n.r.e.) (same); Frank B. Hall & Co. v. Beach, Inc., 733 S.W.2d 251, 258 (Tex. App.-Corpus Christi 1987, writ ref'd n.r.e.) (same).

         In this case, Matthews testified that Ma-Tex had lost profits of $2, 321.00 based on the total amount API charged Halliburton Pinnacle and Arklatex. He provided no explanation of how these lost profits were determined, and Ma-Tex points to no other evidence in the record that provided an explanation of how the lost profits were determined. Rather, Ma-Tex points only to the API invoices and Matthews' testimony set forth above and claims that Matthews identified the goods and services involved, then "computed the incremental profit that Ma-Tex would have made on these projects." Even if we were to accept Ma-Tex's rather generous interpretation of Matthews' testimony, his testimony still does not provide this Court with the objective facts, figures, or data from which the amount of lost profits were calculated, nor the method he used to calculate them. Consequently, the evidence is legally insufficient to support the finding of $2, 321.00 in lost profits. We sustain this appellate issue insofar as it relates to lost profits and reverse the trial court's award of damages for lost profits.

         Goodwill.

         Appellants also challenge the legal sufficiency of the evidence supporting the trial court's finding that Ma-Tex suffered $120, 000.00 in damages to its good will. Appellants argue that Ma-Tex offered no evidence of the value of its good will before Orbison's actions and offered no evidence showing how it reached its calculation of its damages. Ma-Tex responds that there is no set formula in determining good will damages and that Matthews' testimony shows he calculated the minimum loss based on his and Drew's time and the expenditure of company funds to repair its good will. Both parties point to the following testimony of Matthews as the only testimony regarding the amount of good will damages:[6]

Q. [By Counsel for Ma-Tex] Has -- has Ma-Tex undertaken to try to restore its good will it believes it has lost as a result of Mr. Orbison's conduct?
A. It's going to be very difficult to do so; it's going to take years to do that.
Q. Do you believe that Ma-Tex has actually suffered damage to its good will as a result of Mr. Orbison's conduct?
. . . .
A. Are you talking about an amount for the good will?
Q. . . . . That is correct.
A. It's $120, 000; 10, 000 a month.
Q. And for how long? That 10, 000 a month is for how long?
A. Twelve months.
Q. And for how much?
A. 120, 000 total.

         "Good will is generally understood to mean the advantages that accrue to a business on account of its name, location, reputation and success." Taormina v. Culicchia, 355 S.W.2d 569, 574 (Tex. Civ. App.-El Paso 1962, writ ref'd n.r.e.). Although good will is intangible, it is an integral part of a business, and damages may be recovered for its injury. Tex. & P. Ry. Co. v. Mercer, 90 S.W.2d 557, 560 (Tex. 1936); see Marsh USA, Inc. v. Cook, 354 S.W.3d 764, 777 (Tex. 2011). The value of good will is based on "the fixed and favorable consideration of customers arising from an established and well-known and well-conducted business." Taormina, 355 S.W.2d at 574. The rule for measuring damage to good will "is the same as that for measuring damages to any other property." Mercer, 90 S.W.2d at 560. However, the nature of good will "preclude[s] a fixed standard by which its value might be determined in every case." Taormina, 355 S.W.2d at 575. Nevertheless, opinions as to the amount of good will damages must at least "be based on objective facts, figures or data from which the loss of good[]will may be ascertained." Auburn Invs., Inc. v. Lyda Swinerton Builder, Inc., No. 04-08-00067-CV, 2008 WL 2923643, at *4 (Tex. App.- San Antonio July 30, 2008, no pet.) (mem. op.); see Ingram v. Deere, 288 S.W.3d 886, 903 (Tex. 2009) (unsupported opinion testimony insufficient evidence of value of good will). Although damages to good will may not be subject to precise calculation, an opinion as to its estimated value may not be based on speculation. Sw. Energy Prod. Co. v. Berry-Helfand, 491 S.W.3d 699, 712 (Tex. 2016).

         In a proper case, damages to good will may be shown by evidence of the percentage of the salaries of employees required to forego regular duties, and of other expenses incurred, to repair the damage to the company's good will, in support of an opinion estimating the amount of damage to good will. See, e.g., Dozor Agency, Inc. v. Rosenberg, 218 A.2d 583, 585-86 (Pa. 1966). However, no such evidence was offered in this case. Matthews merely testified that the damage to Ma-Tex's good will would be $10, 000.00 a month for twelve months, totaling $120, 000.00. Matthews never testified how he determined these estimates. Ma-Tex does not point to any testimony, and we have found none, that provides any objective facts, figures, or data in support of his opinion. See Auburn Invs., Inc., 2008 WL 2923643, at *4. Consequently, we find the evidence is legally insufficient to support the trial court's finding of $120, 000.00 in good will damages. We sustain Appellants' second issue insofar as it relates to good will damages, and we reverse the trial court's award of damages for good will.

         Other Damages.

         Appellants also challenge the trial court's conclusions that Orbison was liable for unjust enrichment damages for his misappropriation of Ma-Tex's trade secrets, and for fee forfeiture and profit disgorgement for the breach of his fiduciary duties to Ma-Tex.[7] They argue that, since Orbison was an employee of Ma-Tex, he is not subject to a "fee forfeiture" and that he was not subject to "profit disgorgement" since there was no evidence that he was paid a commission on the two recertification jobs performed by API. The question is, then, whether these remedies are available against an employee who merely receives a salary.

         Generally, the term fiduciary "applies to any person who occupies a position of peculiar confidence towards another" and "contemplates fair dealing and good faith." Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 512 (Tex. 1942). It is well established in Texas that an employee may be in a fiduciary relationship with his or her employer. See id. at 513; Wooters v. Unitech Int'l, Inc., 513 S.W.3d 754, 762-63 (Tex. App.-Houston [1st Dist.] 2017, pet. denied). An employee may not, without breaching his fiduciary duties, "(1) appropriate the company's 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." Wooters, 513 S.W.3d at 763 (citing Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 512 (Tex. App.-Houston [1st Dist.] 2003, no pet.)); see Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 202 (Tex. 2002). In an unchallenged conclusion of law, which is supported by the evidence, the trial court found Orbison breached his fiduciary duties in each of these ways.

         When the court finds a breach of fiduciary duty, it may fashion an appropriate equitable remedy, including forfeiture of fees and disgorgement of any profit made at the expense of the employer. Swinnea, 318 S.W.3d at 873; Burrow v. Arce, 997 S.W.2d 229, 245-46 (Tex. 1999); Kinzbach Tool Co., 160 S.W.2d at 514. As the Texas Supreme Court noted, when an agent breaches his fiduciary duty, he is entitled to no compensation for conduct related to the breach, and if his breach is willful, "he is not entitled to compensation even for properly performed services."[8] Burrow, 997 S.W.2d at 244 (quoting Restatement (Second) of Agency § 469 (1958)). The main purpose of these equitable remedies "is not to compensate an injured principal, " but rather "to protect relationships of trust by discouraging agents' disloyalty." Swinnea, 318 S.W.3d at 872-73 (quoting Burrow, 997 S.W.2d at 238). Thus, a court "may disgorge all ill-gotten profits from a fiduciary when a fiduciary . . . usurps an opportunity properly belonging to a principal, or competes with a principal." Id. (citing Johnson, 73 S.W.3d at 200). It may also require the fiduciary to forfeit any compensation for his work paid by the principal. Id.

         Since the trial court found that Orbison breached his fiduciary duties to Ma-Tex, it had discretion to impose appropriate equitable remedies for the breach. Here, it elected to require forfeiture of a portion of the compensation paid by Ma-Tex to Orbison during the period of time that Orbison was assisting API to set up its recertification shop and was soliciting two of Ma-Tex's employee's to work for API. In addition, the trial court required disgorgement of an amount equal to the compensation paid by API to Orbison during the time that Orbison was actively competing with Ma-Tex by using Ma-Tex's confidential information to solicit its customers. Under Swinnea and the cases cited therein, we see no essential distinction between forfeiting a fee paid to an attorney or trustee who breaches his fiduciary duty and forfeiting the salary paid to an employee who does the same. In each instance the breaching fiduciary received compensation from the principal while breaching his trust. Neither do we see an essential distinction between disgorging a fee paid to, or the profit made by, an agent who usurps his principal's business opportunity and disgorging an amount equal to the salary paid to a former employee by his new employer when the former employee uses confidential information and trade secrets to solicit the customers of his former employer. In each instance, the breaching fiduciary profited by, or received compensation for, breaching the trust of his principal. The same principles apply to each of these circumstances, and the remedies of forfeiture and disgorgement are "necessary to prevent such abuses of trust." Id. at 874.

         Consequently, we find that, under the circumstances of this case, Orbison was subject to the forfeiture of his salary paid by Ma-Tex and to the disgorgement of the salary paid to him by API while he was actively using Ma-Tex's confidential information to solicit its customers. We overrule Appellants' second issue insofar as it relates to damages based on forfeiture and disgorgement.[9]

         (2) There Was No Abuse of Discretion in Issuing the Permanent Injunction

         Appellants challenge certain aspects of the restrictions contained in the permanent injunction.[10] A trial court's grant or denial of a permanent injunction is reviewed for an abuse of discretion. In re Epperson, 213 S.W.3d 541, 542-43 (Tex. App - Texarkana 2007, no pet.) (citing Operation Rescue-Nat'l v. Planned Parenthood of Houston & Se. Tex., Inc., 975 S.W.2d 546, 560 (Tex. 1998)). The trial court abuses its discretion when it acts without reference to any guiding rules and principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985).

         In pertinent part, the permanent injunction provides that Orbison and API desist and refrain from:

         Samuel D. Orbison

a. Directly or indirectly disclosing or using Ma-Tex's trade secrets and confidential information, which shall include Ma-Tex's (1) uniquely-developed tracking software, and information derived therefrom; and (2) all information about Ma-Tex's customers, including pricing information, purchase and bid histories, needs and requirements, and contact information of decision makers;
b. Directly or indirectly competing with Ma-Tex's niche business, in which it sells, services, and recertifies wireline equipment used in the upstream production of oil and gas, in the following United States markets: Texas, Louisiana, New Mexico, Oklahoma, Arkansas, Utah, Colorado, California, Kansas, Kentucky, Pennsylvania, Illinois, Mississippi, ...

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