AES VALVES, LLC AND IES INTERNATIONAL ENERGY SERVICES, LTD., Appellants
KOBI INTERNATIONAL, INC. D/B/A KOBI GROUP, Appellee
Appeal from the 125th District Court Harris County, Texas,
Trial Court Case No. 2016-61999
consists of Chief Justice Radack and Justices Goodman and
Radack Chief Justice.
restricted appeal, appellants, AES Valves, LLC
("AES") and IES International Energy Services, Ltd.
("IES"), argue that the trial court improperly
granted a no-answer default judgment in favor of appellee,
Kobi International, Inc. d/b/a Kobi Group ("Kobi").
In three issues, appellants argue that (1) the trial court
improperly granted a default judgment and (2) legally and
factually insufficient evidence supports the award of
damages, attorney's fees, and prejudgment interest.
affirm in part and reverse and remand in part.
2012, Kobi and AES entered into a $1.25 million purchase
order for custom plug valves for a pipeline project in Peru.
Although AES delivered the plug valves, Kobi alleged that the
plug valves were defective and inoperable for the project.
Despite AES and IES's assurances that they would repair the
plug valves, Kobi alleged that the plug valves were never
adequately repaired. Kobi sued appellants for breach of
contract, breach of implied warranty of merchantability,
breach of implied warranty of fitness for a particular
purpose, fraud, and violations of the Deceptive Trade
Practices Act ("DTPA"). As relevant here, Kobi
sought economic damages, treble damages under the DTPA,
exemplary damages for fraud, and
attorney's fees under section 38.001(8) of the Texas
Civil Practice and Remedies Code and section 17.50(d) of the
DTPA. Kobi also alleged that AES and IES were jointly and
severally liable pursuant to alter ego theories.
attempted to serve Robert Schmidt, the president and
registered agent of both AES and IES, multiple times with a
private process server and a constable. When those attempts
at service were unsuccessful, Kobi filed a motion for
substituted service. Kobi asserted that it used reasonable
diligence to find the registered agent at appellants'
registered office, and Kobi attached the process server's
affidavit, stating that she could not locate Robert Schmidt.
Kobi requested that the trial court allow Kobi to serve the
secretary of state, as appellants' agent for service of
December 27, 2016, the trial court granted Kobi's motion
for substituted service, allowing service of process on
appellants in one of five ways, including serving the Texas
Secretary of State, as agent for appellants.
appellants failed to answer, Kobi sought a default judgment
on liability, asserting that it completed substituted service
by affixing "a true copy of the citation and a copy of
Plaintiff's First Amended Petition to the front door of
the usual place of abode of Defendants AES Valves, LLC's
and IES International Energy Services, Ltd.'s registered
agent, Robert Schmidt, 13714 Vinery, Cypress, TX 77429."
Kobi stated that it received returns of service for both AES
and IES on February 16, 2017. Kobi asserted that because AES
and IES had not answered, it was entitled to a default
judgment on liability and a hearing to establish the amount
April 25, 2017, the trial court granted the default judgment
on liability. Kobi then moved for a default judgment on
damages, asserting that it was entitled to recover damages as
stated in its first amended petition. Kobi sought economic
damages of $8, 347, 015.78 via its DTPA, fraud, and other
causes of actions, and it sought treble damages of $16, 694,
031.56 pursuant to the DTPA. Alternatively, Kobi sought
exemplary damages of $33, 388, 063.12 under its fraud cause
of action and section 41.003 of the Texas Civil Practice and
Remedies Code. Kobi also sought attorney's fees under
section 38.001(8) of the Texas Civil Practice and Remedies
Code and under section 17.50 of the DTPA.
hearing on its motion for default judgment on damages on July
13, 2017,  Kobi filed a supplement to its motion,
asserting that the trial court requested that Kobi submit a
revised proposed order that awarded treble damages but not
punitive damages and awarded attorney's fees incurred on
a contingency basis. The trial court signed a July 26, 2017
final judgment, which awarded Kobi a lump sum of $25, 041,
047.34 in damages, $400, 640.00 in attorney's fees, and
prejudgment interest. The trial court's final judgment
further provided that AES and IES are jointly and severally
liable to Kobi for all amounts in the judgment.
January 25, 2018, appellants filed a notice of restricted
their first issue, appellants argue that the default judgment
cannot stand because they were not properly served.
Standard of Review
succeed on a restricted appeal, a party is required, among
other things, to show that error is apparent on the face
of the record. Tex.R.App.P. 30; Barker CATV Constr., Inc.
v. Ampro, Inc., 989 S.W.2d 789, 791 (Tex. App.-Houston
[1st Dist.] 1999, no pet.); see Primate Constr., Inc. v.
Silver, 884 S.W.2d 151, 152 (Tex. 1994). The face of the
record consists of all the papers on file in the appeal,
including any reporter's record. Osteen v.
Osteen, 38 S.W.3d 809, 813 (Tex. App.-Houston [14th
Dist.] 2001, no pet.). A review of a restricted appeal
includes review of the legal and factual sufficiency of the
evidence, including the evidence of damages. Norman
Commc'ns v. Tex. Eastman Co., 955 S.W.2d 269 270
(Tex. 1997); Regions Bank v. Centerpoint Apartments,
290 S.W.3d 510, 512 (Tex. App.-Amarillo 2009, no pet.).
restricted appeal is a direct attack. Barker CATV,
989 S.W.2d at 792; see Primate, 884 S.W.2d at 152.
The record must affirmatively show strict compliance with the
rules for service of citation in order for a default judgment
to withstand direct attack. Barker CATV, 989 S.W.2d
at 792; Primate, 884 S.W.2d at 152. If strict
compliance is not affirmatively shown, the service of process
is invalid and has no effect. Barker CATV, 989
S.W.2d at 792. There are no presumptions in favor of valid
issuance, service, or return of citation in the face of a
restricted appeal attacking a default judgment. See
Primate, 884 S.W.2d at 152.
as here, the defendants' registered agent cannot be found
at its registered office with reasonable diligence, the
plaintiff is permitted to seek substituted service on the
secretary of state. See Tex. Bus. Orgs. Code §
5.251(1)(B). Service of process on the secretary of state is
accomplished by delivering duplicate copies of the process
and any required fee. See id. § 5.252.
Thereafter, the secretary of state shall forward the process
to the entity's most recent address on file with the
secretary of state by certified mail, return receipt
requested. See id. § 5.253. The secretary may
issue a certificate of service known as a Whitney
Certificate. See Wright Bros. Energy, Inc. v.
Krough, 67 S.W.3d 271, n.1 (Tex. App.-Houston [1st
Dist.] 2001, no pet.) (stating that "Whitney
certificate" is issued by secretary of state when it has
received two copies of petition and citation and has
forwarded one copy of each to defendant) (citing Whitney
v. L & L Realty Corp., 500 S.W.2d 94, 95-96 (Tex.
1973)). "Absent fraud or mistake, the Secretary of
State's certificate is conclusive evidence that the
Secretary of State, as agent of [the defendant], received
service of process for [the defendant] and forwarded the
service as required by the statute." Capitol Brick,
Inc. v. Fleming Mfg. Co., 722 S.W.2d 399, 401 (Tex.