Opinion issued June 30, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-13-00853-CV
———————————
DERNICK RESOURCES, INC., Appellant
V.
DAVID WILSTEIN AND LEONARD WILSTEIN, INDIVIDUALLY AND
AS TRUSTEE OF THE LEONARD AND JOYCE WILSTEIN REVOCABLE
TRUST, Appellees
On Appeal from the 164th District Court
Harris County, Texas
Trial Court Case No. 2002-31310
OPINION
Appellees, David Wilstein and Leonard Wilstein, individually and as trustee
of the Leonard and Joyce Wilstein revocable trust (“the Wilsteins”), sued Dernick
Resources, Inc. (“Dernick”) for breach of contract, breach of fiduciary duties,
fraud, and conversion related to the Wilsteins’ investment in two different oil and
gas leases—the Bradshaw Joint Venture and the McCourt Field Joint Venture. The
trial court originally concluded that the Wilsteins’ claims for breach of fiduciary
duty were barred by the statute of limitations. On appeal, this Court held that
Dernick breached its fiduciary duty as a matter of law, that its failure to disclose
information necessary for the Wilsteins to discover their injuries tolled the statute
of limitations, and that, therefore, the Wilsteins’ claims were not time barred. On
remand, the trial court ruled that the issues of duty and breach were already
established as a matter of law and thus submitted only questions of causation and
damages to the jury. The trial court also held a bench trial to address the
Wilsteins’ claim for fee forfeiture.
In four issues, Dernick argues that (1) the trial court abused its discretion in
entering its June 18, 2012 order defining the scope of trial and in instructing the
jury that duty and breach had already been determined, based on this Court’s prior
ruling in this case; (2) the trial court abused its discretion in ordering the fee
forfeiture in favor of the Wilsteins; (3) the trial court erred in awarding pre-
judgment interest on the fee forfeiture award; and (4) the trial court abused its
discretion by awarding excessive attorney’s fees.
The Wilsteins, in their cross-appeal, challenge the trial court’s decision to
disregard the jury’s finding of $750,000 in damages regarding revenue generated
2
by the Bradshaw Joint Venture. The Wilsteins argue that this award was improper
because (1) the Wilsteins’ pleadings were sufficient to give Dernick fair notice that
they were demanding an accounting of revenues; (2) even if their pleadings were
not adequate, Dernick did not suffer any prejudice or surprise; and (3) the evidence
was legally sufficient to support the jury’s award.
We modify the judgment and affirm as modified.
Background
The Wilsteins were joint venturers with Dernick under Joint Venture
Agreements (“JVAs”) for a Nebraska gas field (“the McCourt Field”) and a Kansas
oil and gas field (“the Bradshaw Field”). See Dernick Res., Inc. v. Wilstein, 312
S.W.3d 864, 868 (Tex. App.—Houston [1st Dist.] 2009, no pet.). The JVAs,
which were substantially similar, required any party to give full written notice to
the other parties regarding any proposed sale of an interest, the proposed purchase
price, and all other terms of the offer. They also provided that Dernick, who
served as the attorney-in-fact for the Wilsteins under both JVAs and as the record
title holder, was required to inform the Wilsteins if joint venture assets were sold
and to account to them for their share of the proceeds.
Regarding the McCourt Field, Dernick was the attorney in fact and record
title holder for both its own 15% interest and the Wilsteins’ 10% interest. In 1996,
when the operator of the McCourt Field, Snyder Oil Corporation (“Snyder”),
3
decided to sell its 75% working interest in the McCourt Field, it provided written
notice to Dernick as required by the JVA. It offered to sell its interest to Dernick
for approximately $3 million in cash. Stephen Dernick, the principal of Dernick,
told David Wilstein of the opportunity to participate in the acquisition of Snyder’s
interest (“the Snyder acquisition”) for a cash payment of $3 million. Wilstein told
Dernick that the Wilsteins were not interested in making the acquisition. Dernick
did not provide any notice of the opportunity to the Wilsteins in writing, in breach
of the JVA.
Dernick then pursued other financing options and decided to purchase the
Snyder acquisition itself with no cash down using a volumetric production
payment (“VPP”) 1 which burdened the entire McCourt Field, including the
Wilsteins’ interest, with an obligation to sell gas produced from the field to the
holder of the VPP and with a mortgage to secure the VPP payments. Dernick
never informed the Wilsteins in any way of the opportunity to finance the Snyder
acquisition with the VPP, and it never informed the Wilsteins that it had burdened
their interest in the McCourt Field with the VPP. Furthermore, this purchase made
Dernick the owner of the majority interest in the McCourt Field. Dernick named
1
A volumetric production payment agreement is a common oil and gas financing
device. Dernick Res., Inc. v. Wilstein, 312 S.W.3d 864, 868 n.1 (Tex. App.—
Houston [1st Dist.] 2009, no pet.) (citing EOG Res., Inc. v. Dep’t of Revenue, 86
P.3d 1280, 1282 (Wyo. 2004)). The VPP at issue in this case was entered into
between Dernick and Resource Fund, L.P.I. to finance Dernick’s purchase of
Snyder’s interest in the McCourt Field.
4
its alter ego, Pathex Petroleum, as the field operator and collected more than $15
million in fees pursuant to the McCourt Field Joint Operating Agreement.
Several years later, Dernick decided to repurchase the VPP, thereby un-
burdening the gas in the McCourt Field. It again failed to inform the Wilsteins of
this change in their interest, and it continued to pay the Wilsteins for their portion
of the gas produced from the field at the reduced rate required by the VPP.
Regarding the Bradshaw Field, Dernick sold the entire interest to which it
held title in the Bradshaw Field, which necessarily included the portion owned by
the Wilsteins because Dernick was the record title holder under the JVA. Dernick
failed to disclose the sale to the Wilsteins and failed to provide them with the
accounting required by the JVA, but it did record the sale in the Kansas real
property records. After the sale, the buyer conveyed back to Dernick an overriding
royalty interest. Dernick likewise failed to disclose the existence of the royalty
interest to the Wilsteins and failed to provide an accounting for them or otherwise
give the Wilsteins their portion of the proceeds.
In October 2003, following the completion of two independent audits, the
Wilsteins discovered these breaches of fiduciary duty and joined in litigation that
was already pending against Dernick. The Wilsteins asserted claims against
Dernick for breach of fiduciary duty and fraud in connection with several acts:
(1) Dernick’s sale of the Wilsteins’ interest in the Bradshaw Field without notice;
5
(2) Dernick’s acquisition of the interest of a third party, Snyder, in the McCourt
Field by burdening the field with a VPP; and (3) Dernick’s repurchase of the VPP
and resale of the gas for its own benefit. The Wilsteins also claimed that they had
not had notice of the sale of their working interest in the Bradshaw Field, that they
had not been given the opportunity to participate in the acquisition of Snyder’s
interest in the McCourt Field financed with the VPP, and that they had not been
notified of the repurchase of the VPP and offered the benefit of the same bargain as
Dernick. Id. at 873.
A. The 2005 Bench Trial and the 2006 Jury Trial
In 2005, the trial court held a two-week bench trial on the Wilsteins’ claims.
It ruled that the Wilsteins’ claims for breach of the JVA and breach of fiduciary
duty with respect to the Bradshaw Field were barred by limitations because
Dernick recorded the sale of their interests in the Bradshaw Field in the Kansas
land records in June 1998, which gave the Wilsteins constructive notice of the sale.
Id. Regarding the Wilsteins’ McCourt Field claims, the trial court found that
Stephen Dernick’s telephone call to David Wilstein fairly informed them of the
Snyder acquisition. Accordingly, the trial court ruled that the Wilsteins’ complaint
that Dernick breached its common law and contractual fiduciary duties by failing
to fully and fairly inform them of the opportunity to purchase Snyder’s interest in
the McCourt Field was likewise barred by the statute of limitations. Id. at 876.
6
However, the trial court also found that Dernick’s act of burdening the McCourt
Field with the VPP “was a breach of the narrow fiduciary duties owed the Wilstein
Brothers as the co-owners” of the McCourt Field and that those claims were not
barred by limitations, and it allowed the McCourt Field claim dealing with the VPP
to proceed to trial. Id. at 875.
Following a May 2006 jury trial, the trial court entered judgment in 2007
awarding the Wilsteins $287,400 for losses sustained as a result of the McCourt
Field VPP, $13,226 for the difference between the amount that the Wilsteins
received for their share of gas produced from the McCourt Field and the amount
they should have received, $225,000 in attorney’s fees, and $500,000 in exemplary
damages (the “2007 judgment”). Dernick appealed the jury’s award on the breach
of fiduciary duty claim arising out of the McCourt Field VPP and its award of
exemplary damages. The Wilsteins appealed the trial court’s pre-trial rulings that
their claims for breach of fiduciary duty arising out of the acquisition of Snyder’s
interest in the McCourt Field and the sale of their interest in the Bradshaw Field
were barred by the statute of limitations.
B. The 2009 Appellate Opinion
In a 2009 opinion (“2009 opinion”), a panel of this Court held that, because
they were joint venturers and Dernick owed the Wilsteins the fiduciary duties of a
joint venturer, the fraudulent concealment doctrine applied to the Wilsteins’
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claims. Id. at 878–79. This Court further held that the Wilsteins’ claims were not
barred by the statute of limitations. See id. at 883, 885. In so holding, we
reasoned, “Dernick breached its fiduciary duty to the Wilsteins by failing to
disclose its sale of their interest in the Bradshaw Field” and “the Wilsteins were
not put on constructive notice of the sale by the filing of the sale in the Kansas
public records.” Id. at 885. Concerning the McCourt Field claim, we concluded
that by failing to disclose, “orally or in writing, the opportunity to purchase
Snyder’s interest by entering a VPP agreement with Resource Fund,” Dernick
breached the notice requirement of the joint operating agreement and the JVA and,
“in doing so, breached its duty of full and fair disclosure to the Wilsteins.” Id. at
880. Accordingly, we reversed the 2007 judgment on the Wilsteins’ appealed
claims and remanded the case for further proceedings consistent with our opinion.
See id. at 886. We overruled Dernick’s issues on appeal and affirmed the 2007
judgment as it related to the Wilsteins’ breach of fiduciary duty claim arising out
of the VPP on the McCourt Field.
C. The 2012 Mistrial and 2013 Jury and Bench Trials
On remand, the parties filed briefs in the trial court outlining which issues
remained to be tried. The trial court entered an order identifying the “issues [that]
were remanded by the Court of Appeals for a new trial.” The trial court found
“that duty and breach of the contractual right to notify in writing and breach of
8
fiduciary duty are established as a matter of law as to both the McCourt Field and
Bradshaw Field. It is therefore, ORDERED that those issues will not be tried.”
The trial court further ordered that “the only two issues that are ripe for trial are
causation and damages as a result of the duty and breach.”
Dernick challenged this ruling by mandamus in this Court, and we denied
the petition for writ of mandamus. See In re Dernick Res., Inc., No. 01-12-00633-
CV, 2012 WL 5878097, at *1 (Tex. App.—Houston [1st Dist.] Nov. 21, 2012,
orig. proceeding) (per curiam). Dernick also filed a petition for writ of mandamus
in the Texas Supreme Court that was likewise denied.
The case proceeded to trial in February 2012. However, on the third day of
that trial, Dernick moved for a mistrial, arguing that the Wilsteins “injected into
this case matters that were tried in the first case” and that the trial court had
previously ruled that “any issues of double charges were not a matter to be tried in
this case.” The Wilsteins replied that “this is an accounting and profits trial,” so
information relevant to whether Dernick double-billed the Wilsteins for certain
services was relevant to determining profits and losses. Dernick and the trial court
both expressed concern, however, at the prejudicial effect the testimony would
have on the jury. Accordingly, the trial judge granted the mistrial, stating that
there was “enough question” about her previous rulings regarding what evidence
9
should be admissible to justify a mistrial and that she wanted “to make a nice,
clean record.”
A second trial on remand was commenced in April 2013. The trial court
instructed the jury that the questions of whether Dernick owed a fiduciary duty and
whether Dernick had breached that duty with respect to both fields had already
been determined as a matter of law. The jury found that the Wilsteins did not
sustain any damages as a result of Dernick’s breach of fiduciary duty in failing to
notify them of the opportunity to acquire Snyder’s interest in the McCourt Field.
In fact, the jury found that the Wilsteins would have sustained a loss on the past
sale from the gas and from fees for the use of the field’s gas gathering system.
Regarding the Bradshaw Field claim, the jury found that Dernick’s failure to notify
the Wilsteins about its sale of their interest in the Bradshaw Field and its failure to
account to the Wilsteins for their share of the assets of the Bradshaw Joint Venture
proximately caused damages in the amount of $162,194.14, representing the
Wilsteins’ share of the sales proceeds of the Bradshaw Joint Venture, and
$750,000, representing the Wilsteins’ share of production revenues of the
Bradshaw Joint Venture.
Following the jury trial, the trial court held a bench trial on the issue of
attorney’s fees and on the Wilsteins’ claim for an equitable fee forfeiture. The
Wilsteins sought forfeiture of all fees paid by them to Pathex, Dernick’s alter-ego,
10
as operator of the McCourt Field, based on Dernick’s breach of its fiduciary duty
in failing to notify the Wilsteins of the opportunity to participate in the Snyder
acquisition and Dernick’s resultant seizure of the opportunity to become majority
owner of the McCourt Field and to name its operator. The trial court found in the
Wilsteins’ favor on the fee-forfeiture issue and ruled that Dernick should forfeit the
fees that it collected as operator of the McCourt Field following the Snyder
acquisition. The trial court also determined that the Wilsteins’ attorney’s fees for
prosecuting the Bradshaw Field claim, on which they prevailed and obtained
damages, totaled $727,324.82, which was 30% of the reasonable and necessary
attorney’s fees incurred by the Wilsteins between December 2006 and July 2013. 2
Dernick subsequently moved to disregard the jury’s finding awarding the
Wilsteins $750,000 for damages representing the Wilsteins’ share of production
revenues of the Bradshaw Joint Venture. Dernick argued that the finding must be
disregarded because it was unsupported by evidence and because it was immaterial
and should never have been submitted due to the Wilsteins’ “failure to plead for
and disclose such damages.” The trial court agreed with Dernick and disregarded
that jury finding.
2
The trial court found that the Wilsteins incurred attorney’s fees in the amount of
$2,424,416.10 for the prosecution of their lawsuit between December 2006 and
July 2013.
11
The trial court then entered judgment, ordering that the Wilsteins recover the
$162,194.14 found by the jury for damages representing the Wilsteins’ share of the
sales proceeds of the Bradshaw Joint Venture and prejudgment interest on that
award; $1,709,421.06 as an “equitable fee forfeiture” and prejudgment interest on
that claim; and attorney’s fees and costs. Dernick and the Wilsteins both appealed.
I. DERNICK’S APPEAL
Scope of Trial
In its first issue, Dernick argues that the trial court erred in limiting the
issues tried on remand in 2009 to the issues of causation and damages.
Dernick argues that the trial court abused its discretion in failing to observe
and comply with this Court’s mandate remanding certain claims for a new trial
without limitation and in entering its order identifying the issues for trial as
including only the issues of causation and damages. Dernick asserts that the merits
of the Wilsteins’ claims were never reached, and, thus, it is entitled to a full trial on
the merits, including scope of its fiduciary duty, liability, causation, and
affirmative defenses. It cites Texas Rule of Civil Procedure 320 and Texas Rule of
Appellate Procedure 44.1, both of which provide that a court may not order a
separate jury trial solely on the issue of unliquidated damages where liability is
also contested. TEX. R. CIV. P. 320; TEX. R. APP. P. 44.1(b). It also cites various
cases, such as Estrada v. Dillon, which hold that an appellate court may not
12
remand a case only for the issue of damages where liability is contested. 44
S.W.3d 558, 562 (Tex. 2001) (per curiam).
However, the law cited by Dernick does not prevent the trial court on
remand from determining some of those liability issues as a matter of law in light
of this Court’s previous opinion. See id.; Hudson v. Wakefield, 711 S.W.2d 628,
630 (Tex. 1986) (holding that “courts should look not only to the mandate itself,
but also to the opinion of the court” in interpreting mandate of appellate court and
determining scope of remand); Denton Cnty. v. Tarrant Cnty., 139 S.W.3d 22, 23
(Tex. App.—Fort Worth 2004, pet. denied) (holding that trial court has reasonable
amount of discretion in complying with mandate and may look to mandate itself
and appellate court’s opinion).
In considering this case on remand, the trial court was bound by the law of
the case. See In re Henry, 388 S.W.3d 719, 728 (Tex. App.—Houston [1st Dist.]
2012, orig. proceeding). The law of the case doctrine is defined as “that principle
under which questions of law decided on appeal to a court of last resort will govern
the case throughout its subsequent stages.” Loram Maint. Of Way, Inc. v. Ianni,
210 S.W.3d 593, 596 (Tex. 2006). Accordingly, where the court of appeals’
decision is not challenged in the supreme court, the law of the case doctrine
ordinarily binds the court of appeals to its initial decision if there is a subsequent
appeal in the same case. Briscoe v. Goodmark Corp., 102 S.W.3d 714, 716 (Tex.
13
2003). Although a decision rendered on an issue before the appellate court does
not absolutely bar re-consideration of the same issue on a second appeal,
application of the doctrine lies within the sound discretion of the court, depending
on the particular circumstances surrounding that case. Id. For example, it is an
exception to the general rule that the original rulings govern the case where those
rulings were clearly erroneous. Id.
Generally, when we reverse and remand a case for further proceedings and
the mandate is not limited by special instructions, the effect is to remand the case
to the lower court on all issues of fact. In re Henry, 388 S.W.3d at 728 (quoting
Simulis, L.L.C. v. Gen. Elec. Capital Corp., 392 S.W.3d 729, 734 (Tex. App.—
Houston [14th Dist.] 2011, pet. denied)). The law of the case doctrine, by contrast,
applies to questions of law and does not apply to questions of fact. Hudson, 711
S.W.2d at 630; In re Henry, 388 S.W.3d at 728. When, as here, there are no
factual questions to resolve, a determination was made as a matter of law, and that
determination was not challenged by a petition for review in the supreme court,
“the trial court on remand is bound by our previous legal conclusion.” See In re
Henry, 388 S.W.3d at 728.
In our 2009 opinion, we held, as a matter of law, that Dernick owed the
Wilsteins contractual and common-law fiduciary duties with regard to both the
McCourt Field and the Bradshaw Field. See Dernick Res., 312 S.W.3d at 877–78.
14
We further held that Dernick breached its fiduciary duties to the Wilsteins when it
participated in the Snyder acquisition in the McCourt Field without full and fair
disclosure to the Wilsteins and when it sold the Wilsteins’ interest in the Bradshaw
Field without providing them with the required notice. Id. at 880, 884. Dernick
did not seek review of this opinion in the supreme court. Accordingly, the trial
court was bound by our previous legal conclusion that Dernick breached the
fiduciary duties it owed the Wilsteins with respect to both fields. See Hudson, 711
S.W.2d at 630; In re Henry, 388 S.W.3d at 728.
Dernick also argues that the trial court’s order determining the scope of
issues to be tried presumed liability based on the Wilsteins’ Bradshaw Field claims
involving a “Horizontal Drilling Program” that were barred by a summary
judgment ruling before the 2006 trial proceedings that was not reversed and
remanded in the 2009 opinion. However, the record does not support Dernick’s
contention that issues relating to the Horizontal Drilling Program were retried in
2013. Dernick does not identify any portions of the record where such claims or
evidence were erroneously presented to the jury, nor does it point this Court to any
place where it objected on this basis in the trial court, as it was required to do to
preserve this complaint for review on appeal. See TEX. R. APP. P. 33.1(a). Dernick
further argues that certain findings of fact from the 2006 trial were erroneous.
Again, it does not appear that Dernick presented this argument to the trial court,
15
and it did not challenge those findings of fact during or after its prosecution of its
appeal in 2009. Accordingly, this argument is not preserved for review on appeal.
See id.
We overrule Dernick’s first issue.
Fee Forfeiture
In its second issue, Dernick complains of the trial court’s award of equitable
fee forfeiture following the 2013 bench trial, in which the Wilsteins sought
forfeiture of the fees they had paid to Dernick’s alter ego Pathex as operator of the
McCourt Field following Dernick’s seizure of the opportunity to become majority
owner of the field through the Snyder acquisition without notice to them and its
subsequent appointment of Pathex as operator. The bench trial also addressed the
issue of the amount of reasonable and necessary attorney’s fees. This bench trial
was conducted after the 2013 trial to the jury on the issues of causation and
damages arising from Dernick’s breach of its fiduciary duty to provide notice to
the Wilsteins of the opportunity to participate in the Snyder acquisition in the
McCourt Field. Dernick argues that the Wilsteins did not secure the necessary jury
findings or present legally sufficient proof to support an award of equitable fee
forfeiture. It further argues that there is no evidence of a “clear and serious
violation” as required for equitable fee forfeiture. Finally, it argues that the fee
forfeiture award is improper because it relates to fees paid under an operating
16
agreement, for which there was no finding of breach, not the joint venture
agreement, and it argues that the fee forfeiture was improper and excessive.
In its third issue, Dernick argues that the trial court erroneously awarded pre-
judgment interest on the equitable fee forfeiture award. Dernick contends that the
fee forfeiture award was not compensatory in nature, and thus prejudgment interest
does not apply.
A. Equitable Fee Forfeiture Award
1. Facts relevant to fee forfeiture award
In contrast to its claim on appeal that the Wilsteins did not secure the
necessary jury findings or present legally sufficient evidence to support an award
of equitable fee forfeiture, Dernick argued in pretrial briefing on the claims and
issues to be tried on remand that
[t]he Wilsteins also seek the equitable remedy of disgorgement and
fee forfeiture. Because this is an equitable rather than a legal remedy,
it should be presented to the Court, not the jury, after the jury renders
its verdict on the Wilsteins’ limited damage claims. Burrow v. Arce,
997 S.W.2d 229, 245 (Tex. 1999) (“Forfeiture of an agent’s
compensation, we have already explained, is an equitable remedy
similar to a constructive trust. As a general rule, a jury does not
determine the expediency, necessity, or propriety of equitable relief.”)
(internal quotations omitted).
Accordingly, the trial court held a bench trial and heard evidence and
arguments of counsel on the issue of the Wilsteins’ request for equitable fee
forfeiture from Dernick regarding fees Dernick received from the Wilsteins as the
17
operator of the McCourt Field. The Wilsteins informed the trial court that there
were no facts remaining to be decided and that the amount of the fees had been
stipulated to by the parties. Dernick did not object to this characterization of the
Wilsteins’ claim as a claim for equitable fee forfeiture in a stipulated amount, or
did it suggest to the trial court that there were fact questions that needed to be
resolved before the court could consider the Wilsteins’ fee forfeiture claim.
The Wilsteins presented evidence that Dernick recorded more than $15
million in fees over sixteen years with respect to the McCourt Field and that the
Wilsteins themselves paid approximately $1.7 million of those fees. They argued
that Dernick received these fees from them as a result of its breach of its fiduciary
duty. The Wilsteins pointed to the established facts of the case, as supported by
exhibits and testimony that had already been presented to the trial court at various
stages in the litigation since 2005: Dernick breached its fiduciary duty in failing to
notify the Wilsteins of the opportunity to purchase a controlling interest in the
McCourt Field by making the Snyder acquisition; Dernick took for itself the
opportunity to purchase the controlling interest in the McCourt Field, thereby
allowing it to select its alter ego operating company, Pathex Petroleum, as the
successor field operator under the joint operating agreement; Dernick acquired the
controlling interest in the McCourt Field by burdening the Wilsteins’ interest in
that field with a VPP and a mortgage without providing notice to them of that fact;
18
and Dernick failed to notify the Wilsteins of the opportunity to repurchase the
VPP, thereby underpaying them for their share of the gas produced in the McCourt
Field during that time period.
The Wilsteins also presented evidence that Dernick misrepresented its
ownership of the interest in the McCourt Field to Resource Fund, the party that
provided the VPP financing option. And they presented evidence that Stephen
Dernick lied when the Wilsteins confronted him about their interests in the
McCourt Field: Stephen Dernick told the Wilsteins that their “McCourt Field
assets were not utilized to acquire the Snyder interest and were not burdened by the
VPP”; Dernick then refused to continue to market and sell the Wilsteins’ share of
the gas from the McCourt Field, and Pathex, Dernick’s alter ego, threatened to
discontinue insurance coverage on the Wilsteins’ portion of the McCourt Field
interest. The Wilsteins argued that these acts constituted a clear and serious
violation of Dernick’s fiduciary duty to them and required it to forfeit the fees that
the Wilsteins had paid for the operation of the McCourt Field during the relevant
time period.
Dernick did not object to any of this evidence or otherwise argue to the trial
court that the form of the Wilsteins’ evidence, comprised of documents and
testimony excerpts from the previous trials and other proceedings, was in any way
inadequate or erroneous.
19
Dernick argued instead that all of the Wilsteins’ claims about wrongdoing
related to the VPP and were fully tried in 2006. Dernick pointed out that the 2006
jury awarded the Wilsteins $13,226 in damages based on the underpayment for
gas, and, Dernick argued, the Wilsteins received $500,000 in punitive damages for
breach of the fiduciary duty relating to the VPP. Dernick argued that the Wilsteins
did not seek fee forfeiture at that time on the claim that Dernick breached its
fiduciary duty with regard to the VPP, and, thus, it contended, they could not seek
fee forfeiture on their claim that Dernick breached its fiduciary duty by failing to
inform them of the opportunity to purchase Snyder’s interest in the McCourt Field.
Dernick argued that the Wilsteins were not entitled to fee forfeiture because they
were not allowed to “re-try the 2006 case.”
Dernick presented evidence that the McCourt Field was not a successful
investment, in terms of profitability, and therefore the Wilsteins could not show
that they were harmed by Dernick’s failure to allow them to participate in
acquiring a majority interest in that field. Dernick relied, in part, on the jury’s
finding that if the Wilsteins had participated in the acquisition of Snyder’s interest
they would have lost money.
Dernick also argued that the breach was not particularly grave—Dernick
informed the Wilsteins about the opportunity to acquire Snyder’s interest on the
phone, and it did not tell the Wilsteins about the VPP financing method because it
20
was expensive and high risk, and Dernick did not think they would be interested.
Dernick also relied on testimony and documents that had been admitted in previous
proceedings, including the 2006 bench trial and the 2013 trial to the jury
underlying the present appeal. Dernick argued that in discussing the Snyder
acquisition on the phone Stephen Dernick was simply following the course of
conduct that had developed between the parties over the years, and thus Dernick’s
failure to inform the Wilsteins in writing of the opportunity to acquire a portion of
Snyder’s interest in the McCourt Field was not intentional or negligent.
The evidence demonstrated that Snyder was originally the operator of the
McCourt Field. Once Dernick purchased Snyder’s interest, it was able to name a
new operator under the terms of the joint operating agreement. Dernick named its
alter ego, Pathex Petroleum, as the operator and was paid approximately $15
million in fees in that capacity during the relevant time period. The Wilsteins
sought forfeiture of the portion of those fees—approximately $1.7 million—that
they had paid to Dernick under the joint operating agreement. Dernick argued that
there was no evidence that it failed to properly manage the McCourt Field and
there was no breach of fiduciary duty or mismanagement of any kind relating to
the fees the Wilsteins paid to Dernick to operate the McCourt Field. Stated another
way, Dernick argued that the fees the Wilsteins wanted Dernick to forfeit were
unconnected to its breach in failing to give notice of the opportunity to buy
21
Snyder’s interest in the McCourt Field because the fees were charged under the
joint operating agreement, but its fiduciary duty was set out in the joint venture
agreement. Thus, Dernick argued, the breach was not central to the scope of the
fiduciary relationship.
Following this bench trial, the trial court made several relevant findings of
fact:
4. Dernick’s breach of fiduciary duties concerning the McCourt Field
Joint Venture Agreement and Joint Operating Agreement gave it
control of the McCourt Field and allowed it to appoint its alter ego,
Pathex Petroleum, Inc. (“Pathex”), as the field operator to charge fees
per well [including operator fees, and fees for the use of the Gas
Gathering System and Salt Water Disposal System].
5. Without Dernick’s breach of fiduciary duties concerning the
McCourt Field [JVA and JOA], Dernick would not have been entitled
to receive any of the fees at issue.
....
7. Dernick’s conduct on which fee forfeiture is based was deliberate
and intentional; not merely negligent.
....
10. Because Dernick’s right to charge and collect certain fees from the
Wilstein Brothers arose by virtue of Dernick’s breach of fiduciary
duty, equity dictates that Dernick may not retain such benefits.
....
16. Dernick’s conduct constituted a clear and serious breach of
fiduciary duty. . . .
22
17. The Court considered the seriousness of the violation, including
the gravity and timing of the violation, its willfulness, its effect on the
value of Dernick’s work for the Wilsteins, other threatened or actual
harm to the Wilsteins, and the adequacy of other remedies. . . .
The trial court also found that the parties stipulated to the amount of fees
charged and collected by Dernick as operator of the McCourt Field over the
relevant time period—between January 1997, when it took over as operator, and
March 2013. The trial court found that Dernick charged and collected over $15
million in fees as the operator of the McCourt Field under the JOA and as the
owner and operator of the Gas Gathering System and Salt Water Disposal System.
The trial court further found that the Wilsteins paid $764,286.15 for the field
operations of the McCourt Field under the terms of the JOA, $818,472.29 for the
Gas Gathering System of the McCourt Field, and $126,662.61 for the Salt Water
Disposal System of the McCourt Field. The trial court concluded that the
Wilsteins “should recover $1,709,421.05 from [Dernick] for equitable fee
forfeiture as a result of Dernick’s clear and serious breach of fiduciary duties under
the McCourt Field [JVA and JOA].”
The trial court’s judgment ordered that the each of the Wilsteins recover
$854,710.53, for a total of $1,709,421.06, in “equitable fee forfeiture,” plus five
percent prejudgment interest on that award, based on its findings and conclusions
following the bench trial.
23
2. Standard of review and law of fee forfeiture
Courts may fashion equitable remedies such as profit disgorgement and fee
forfeiture to remedy a breach of a fiduciary duty. ERI Consulting Eng’rs, Inc. v.
Swinnea, 318 S.W.3d 867, 873 (Tex. 2010); see also Burrow, 997 S.W.2d at 237
(“[A]s a rule a person who renders service to another in a relationship of trust may
be denied compensation for his service if he breaches that trust.”). The primary
purpose of fee forfeiture as an equitable remedy is not to compensate the injured
principal, but to protect relationships of trust by discouraging disloyalty. Swinnea,
318 S.W.3d at 872–73 (quoting Burrow, 997 S.W.2d at 238). Forfeiture is not
justified in every instance in which a fiduciary violates a legal duty because some
violations are inadvertent or do not significantly harm the principal. Burrow, 997
S.W.2d at 241 (quoting RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS
§ 49 cmt. b (1996)); Miller v. Kennedy & Minshew, Prof’l Corp., 142 S.W.3d 325,
338 (Tex. App.—Fort Worth 2003, pet. denied). The remedy of fee forfeiture is
only available for “clear and serious” violations of a fiduciary duty. Burrow, 997
S.W.2d at 241; Miller, 142 S.W.3d at 338.
“Whether a fee forfeiture should be imposed must be determined by the trial
court based on the equity of the circumstances.” Miller, 142 S.W.3d at 338; see
also Burrow, 997 S.W.2d at 245 (“As a general rule, a jury ‘does not determine the
expediency, necessity, or propriety of equitable relief.’”) (quoting State v. Tex. Pet
24
Foods, Inc., 591 S.W.2d 800, 803 (Tex. 1979)). However, certain matters—such
as whether or when the alleged misconduct occurred, the fiduciary’s mental state
and culpability, the value of the fiduciary’s services, and the existence and amount
of harm to the principal—may present fact issues for the jury to decide. Burrow,
997 S.W.2d at 246; Miller, 142 S.W.3d at 338. Once the factual disputes have
been resolved, the trial court must determine whether the fiduciary’s conduct was a
clear and serious breach of duty to the principal, whether any of the fees should be
forfeited, and if so, what the amount should be. Burrow, 997 S.W.2d at 245–46;
Miller, 142 S.W.3d at 338.
The remedy of forfeiture must fit the circumstances presented. Swinnea, 318
S.W.3d at 874. The trial court should consider factors such as the gravity and
timing of the breach, the level of intent or fault, whether the principal received any
benefit from the fiduciary despite the breach, the centrality of the breach to the
scope of the fiduciary relationship, any other threatened or actual harm to the
principal, the adequacy of other remedies, and whether forfeiture “fit[s] the
circumstances and work[s] to serve the ultimate goal of protecting relationships of
trust.” Id. at 875; see Burrow, 997 S.W.2d at 243–46; Miller, 142 S.W.3d at 338–
39.
We review the trial court’s fee forfeiture determination for an abuse of
discretion. Miller, 142 S.W.3d at 339 (citing Burrow, 997 S.W.2d at 243 (“It is
25
within the discretion of the court whether the trustee who has committed a breach
of trust shall receive full compensation or whether his compensation shall be
reduced or denied.”)). A trial court abuses its discretion if it acts arbitrarily or
unreasonably, without reference to any guiding rules or principles. Id. Legal and
factual sufficiency are relevant factors to be considered in assessing whether the
trial court abused its discretion. Id. (citing Beaumont Bank, N.A. v. Buller, 806
S.W.2d 223, 226 (Tex. 1991)). However, an abuse of discretion does not occur
when the trial court bases its decision on conflicting evidence, as long as some
evidence reasonably supports the trial court’s decision. Id. (citing Butnaru v. Ford
Motor Co., 84 S.W.3d 198, 211 (Tex. 2002)).
3. Analysis
Dernick argues that the trial court abused its discretion in awarding fee
forfeiture of the fees the Wilsteins had paid to Pathex, Dernick’s alter ego, as a
result of Dernick’s seizure of the opportunity to acquire a majority interest in the
McCourt Field and appoint Pathex as operator because the Wilsteins did not obtain
the necessary jury findings as a predicate for finding such equitable relief.
However, Dernick did not preserve this issue, as no such objection was made in the
trial court. See TEX. R. APP. P. 33.1(a). Furthermore, Dernick affirmatively argued
in its pretrial briefing that the issue of equitable fee forfeiture had to be presented
to the trial court in a bench trial following the jury trial and should not be presented
26
to the jury. Thus, this case is distinguishable from the case relied upon by Dernick,
Dallas Fire Insurance Co. v. Texas Contractors Surety & Casualty Agency, which
held that the plaintiff could not seek equitable fee forfeiture because it did not
establish that the breach of fiduciary duty caused damages and it failed to obtain
jury findings regarding whether the agents acted intentionally, with gross
negligence, or recklessly, and regarding the value of the agents’ services. See 128
S.W.3d 279, 303 (Tex. App.—Fort Worth 2004), reversed on other grounds, 159
S.W.3d 895 (Tex. 2004).
At the 2013 bench trial, the parties represented that all fact issues had been
resolved, either by this Court in the 2009 opinion or in the 2013 jury trial on
remand. The Wilsteins presented evidence of a stipulation between themselves
and Dernick regarding the amounts of fees paid by the Wilsteins to Pathex as
operator of the McCourt Field. The only question left to be answered was whether
Dernick’s breach of its fiduciary duty by seizing the opportunity to purchase the
majority interest in the McCourt Field and appoint Pathex as operator was “clear
and serious” so as to justify equitable fee forfeiture and, if so, what amount of fees
should be forfeited. These are questions that are properly determined by the trial
court. See Burrow, 997 S.W.2d at 245–46; Miller, 142 S.W.3d at 338.
Dernick also argues the evidence was legally insufficient to support
equitable fee forfeiture because there was no evidence of a clear and serious
27
violation of fiduciary duty. Dernick argues on appeal that “the Wilsteins’
complaint for [the McCourt Field] boils down to a technical complaint that an oral
notice should have been put in writing and that the Wilsteins should have been
advised of financing opportunities that they would not have used.”
However, the record contradicts this view of the evidence. Dernick acted as
the attorney in fact and record title holder for both its own and the Wilsteins’
interest in the McCourt field. As the Wilsteins’ joint venture partner, Dernick
owed the Wilsteins a duty to provide written notice of the opportunity to
participate in the Snyder acquisition, but it failed to perform this duty. The
Wilsteins point to evidence that they would have been interested in acquiring
Snyder’s interest in the McCourt Field using the VPP financing option. The
evidence also establishes that Dernick informed David Wilstein over the phone—
not in writing—of the opportunity to purchase Snyder’s interest for a cash
payment. Stephen Dernick admitted that he never informed the Wilsteins of the
opportunity to participate in the Snyder acquisition using the VPP as a financing
tool.
The Wilsteins further argue, and produced evidence, that Dernick’s
acquisition of Snyder’s interest without giving them the full and written notice
required by their JVA made Dernick the majority owner of the McCourt Field.
Dernick’s majority-owner status allowed it to name itself, via its alter-ego Pathex,
28
as operator of the McCourt Field and to charge approximately $15 million in
operation fees under the McCourt Field Joint Operating Agreement. Dernick’s
failure was not a “technical complaint.” Its failure to satisfy its fiduciary duty
under the JVA resulted in Dernick’s having an opportunity to enrich itself at the
expense of its principal, the Wilsteins. Accordingly, there is evidence that the
breach of fiduciary duty was serious and grave. See Burrow, 997 S.W.2d at 243
(stating that gravity of violation is factor to consider in determining whether fee
forfeiture is appropriate).
Furthermore, there was evidence that Dernick’s breach of its fiduciary duty
in failing to notify the Wilsteins in writing of the opportunity to make the Snyder
acquisition, and its seizure of the opportunity to become majority owner and
appoint the operator of the field, was not a single limited, “technical” failure
arising from the parties’ business practice, as Dernick argues. Rather, it was part
of repeated conduct on Dernick’s part that involved concealing or failing to
disclose information it was required to disclose, using the Wilsteins’ interest to
enrich itself, and threatening further harm to the Wilsteins’ interest in the field.
Thus, there is evidence that the violation had repercussions that were felt by the
Wilsteins over a period of years, from 1997 until the time of trial in 2013, and that
it was willful.
29
Dernick also argues that the trial court erred in considering evidence relevant
to its breach of fiduciary duties with regard to the burdening of the Wilsteins’
interest in the McCourt Field with a VPP because the burdening of the field with
the VPP had already been considered by the jury in the 2006 jury trial; the jury had
awarded the Wilsteins damages, including exemplary damages; and that judgment
had been paid. However, the 2007 judgment awarded the Wilsteins only their
actual losses for the difference between their share of the gas produced from the
McCourt Field and what they would have received had it not been improperly
burdened by the VPP plus exemplary damages for Dernick’s breach of its fiduciary
duty solely with respect to its burdening the field with the VPP. It did not consider
the effect on the Wilsteins’ interests of Dernick’s seizure of the opportunity to
purchase a majority interest in the McCourt Field without giving notice of the
opportunity to the Wilsteins and its subsequent appointment of its alter ego Pathex
as operator, which enabled it to enrich itself by millions of dollars in fees. These
claims were not heard in the 2006 trial because the trial court had held prior to that
trial that the Wilsteins’ damage claims arising from Dernick’s failure to give notice
of the opportunity to make the Snyder acquisition were barred by limitations. This
Court heard and reversed that determination in the 2009 opinion on appeal, and
those claims were not tried until 2013.
30
This appeal arises solely from the issues tried in 2013. The 2013 jury
awarded no damages for lost gas sales on the McCourt Field, and the question of
equitable fee forfeiture of the fees paid by the Wilsteins to Pathex as operator of
the McCourt Field after Dernick’s purchase of the majority interest in the field
without notice to the Wilsteins was tried to the bench. It is that award which
Dernick now appeals. Evidence of all of Dernick’s breaches of fiduciary duty and
bad acts was relevant to establish the Wilsteins’ entitlement to equitable forfeiture
of the fees Dernick received as operator for the McCourt Field. Evidence of
Dernick’s intent to breach its duty to give notice to the Wilsteins of the opportunity
to purchase the majority interest in the McCourt Field, evidence of Dernick’s
purchase of that interest following its failure to given notice, evidence of its
appointment of its alter ego Pathex as operator, and evidence of the millions of
dollars in fees Dernick, through Pathex, charged the Wilsteins in its capacity as
operator of the field after the purchase were all material to the establishment of the
Wilsteins’ right to equitable fee forfeiture of the fees they paid to Dernick as
operator of the McCourt Field. Dernick’s pattern of abuse of the fiduciary
relationship demonstrated that its failure under the McCourt Field JVA with regard
to the Snyder acquisition was not an innocent mistake on Dernick’s part, but rather
part of its repeated pattern of behavior to use the Wilsteins’ trust in it as a fiduciary
31
to enrich itself in its capacity as operator of the field. See id. (stating that intent
behind breach of trust is factor relating to propriety of fee forfeiture).
Dernick also argues that forfeiture of fees collected under the operating
agreement was not permissible for claimed breaches of the joint venture
agreement, as opposed to the joint operating agreement. Dernick cites Gregory v.
Porter & Hedges, LLP, 398 S.W.3d 881 (Tex. App.—Houston [14th Dist.] 2013,
pet. denied), for the proposition that fee forfeiture is not permitted for a separate
agreement for which there is no breach finding. In Gregory, our sister court of
appeals held that a former client seeking forfeiture of attorney’s fees was not
entitled to recover fees paid by a third party. Id. at 886. In Gregory, the client
sought forfeiture of attorney’s fees paid during the second occasion on which the
law firm provided legal representation. Id. The court observed that the former
client and the attorneys “had two distinct attorney-client relationships,” that it was
undisputed that the attorneys fully performed all of their obligations under the first
attorney-client relationship, and that all of the client’s claims arose out of the
second representation, for which the client never paid any fees. Id. at 886–87.
Because the client had paid no fees related to the second representation, she could
not seek the forfeiture of any fees. Id. at 887.
Here, in contrast, the Wilsteins are seeking forfeiture of the fees that they
themselves paid to Pathex for the operation of the McCourt Field following the
32
Snyder acquisition—fees that Dernick was able to collect only because of its
breach of its fiduciary duty to the Wilsteins under the joint venture agreement. The
circumstances in Gregory are thus clearly distinguishable from those in the present
case. As stated above, Dernick’s acquisition of Snyder’s interest without giving
the Wilsteins the full and fair written notice required by their JVA enabled Dernick
to become the majority owner of the McCourt Field, which allowed Dernick to
appoint itself in its alter ego capacity as the operator of the McCourt Field and
thereby to collect millions of dollars in operating fees under the Joint Operating
Agreement. The Wilsteins sought the forfeiture of the fees they paid to Dernick as
a result of Dernick’s breach of the JVA.
Finally, Dernick argues that the amount of the fee forfeiture was excessive.
Dernick complains that the trial court abused its discretion in awarding “total fee
forfeiture, despite the jury’s finding that the Wilsteins suffered no damages, and, in
fact, avoided additional losses by not participating in the Snyder acquisition.” We
observe that the parties stipulated, and the trial court found, that Dernick collected
over $15 million in fees as the operator of the McCourt Field and that the Wilsteins
paid more than $1.7 million of those fees.
Although it is true that total fee forfeiture is not always appropriate, the
supreme court has held, “Ordinarily, forfeiture extends to all fees for the matter for
which the [fiduciary] was retained.” Burrow, 997 S.W.2d at 241 (quoting
33
RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS, § 49 cmt. e); see also
Swinnea, 318 S.W.3d at 873 (“[C]ourts may disgorge all ill-gotten profits from a
fiduciary when a fiduciary agent usurps an opportunity properly belonging to a
principal, or competes with a principal.”). As an example of when total fee
forfeiture is not appropriate, the supreme court has cited a circumstance such as
“when a lawyer performed valuable services before the misconduct began, and the
misconduct was not so grave as to require forfeiture of the fee for all services.”
Burrow, 997 S.W.2d at 241 (quoting RESTATEMENT (THIRD) OF THE LAW
GOVERNING LAWYERS, § 49 cmt. e). It stated that “[s]ome violations are
inadvertent or do not significantly harm the client” and can “be adequately dealt
with by . . . a partial forfeiture.” Id. (quoting RESTATEMENT (THIRD) OF THE LAW
GOVERNING LAWYERS, § 49 cmt. b). Ultimately, fee forfeiture must be applied
with discretion, based on all of the circumstances of the case. Id. at 241–42;
Swinnea, 318 S.W.3d at 874–75.
As discussed above, the breach of fiduciary duty in this case cannot be
described as “inadvertent.” Dernick failed to provide a full and fair disclosure of
the opportunity to participate in the Snyder acquisition to the Wilsteins and instead
took the opportunity solely unto itself. Dernick was able to acquire a majority
interest in the McCourt Field, name itself the operator, and proceed to collect fees
from the Wilsteins. Although Dernick argues that it provided valuable services
34
that the Wilsteins would have been required to pay for in any event, we observe
that Dernick’s ability to charge all of those fees was the direct result of its
misconduct. Dernick usurped an opportunity properly belonging to the Wilsteins
and was enriched because of that breach. Thus, this is the type of violation for
which total fee forfeiture is appropriate. See Swinnea, 318 S.W.3d at 873; Burrow,
997 S.W.2d at 241.
Furthermore, Dernick’s argument that the Wilsteins should not be entitled to
receive an equitable remedy because the jury failed to award it a legal remedy is
unavailing. As the supreme court held in Burrow, “Even though the main purpose
of the remedy is not to compensate the client, if other remedies do not afford the
client full compensation for his damages, forfeiture may be considered for that
purpose.” 997 S.W.2d at 244. Thus, the purpose of the fee forfeiture is not to
compensate the Wilsteins for financial loss related to the lost opportunity to
participate in the Snyder acquisition—it is to protect the fiduciary relationship.
And, it is precisely for situations such as the one here—where traditional legal
remedies do not adequately compensate for the loss of trust in the fiduciary
relationship—that fee forfeiture “may be considered for that purpose.” See
Swinnea, 318 S.W.3d at 874; see also Russell v. Truitt, 554 S.W.2d 948, 953 (Tex.
Civ. App.—Fort Worth 1977, writ ref’d n.r.e.) (upholding total fee forfeiture,
reasoning that “[a]lthough the alleged secret agreement may have put [the
35
defendant] in a better position to look after the interests of the plaintiffs it also put
the defendants in a position to make an additional profit which plaintiffs would not
share”).
We overrule Dernick’s second issue.
B. Prejudgment Interest on Equitable Fee Forfeiture
In its third issue, Dernick argues that the trial court erred in awarding
prejudgment interest on the fee forfeiture award. The Wilsteins argue that the trial
court’s award of prejudgment interest was not an abuse of discretion but was
instead “consistent with the purposes of prejudgment interest.” They assert that the
award of prejudgment interest on the fee forfeiture was appropriate because it
served to encourage settlement and discourage Dernick’s delay.
We review a trial court’s decision regarding the award of prejudgment
interest for an abuse of discretion, giving only limited deference to the trial court’s
application of the law to the facts. Purcell Constr., Inc. v. Welch, 17 S.W.3d 398,
402 (Tex. App.—Houston [1st Dist.] 2000, no pet.).
Prejudgment interest is compensation for the lost use of money owed as
damages. Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809, 812 (Tex. 2006)
(holding that prejudgment interest is awarded to fully compensate injured party,
not to punish defendant); Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc.,
962 S.W.2d 507, 528 (Tex. 1998) (stating that decision to extend prejudgment
36
interest recovery to personal injury, wrongful death, and survival actions was
“driven primarily by the rationale that awarding prejudgment interest was
necessary to fully compensate injured plaintiffs”). Awarding prejudgment interest
serves two purposes: (1) encouraging settlement and (2) expediting settlements and
trials by removing incentives for defendants to delay without creating such
incentives for plaintiffs. Johnson & Higgins, 962 S.W.2d at 529.
An award of prejudgment interest may be based either on an enabling statute
or on general principles of equity. Johnson & Higgins, 962 S.W.2d at 528. Here,
the Wilsteins sought prejudgment interest on the fee forfeiture award based on
principles of equity, arguing that Dernick ought not to benefit from its protracted
litigation and delayed forfeiture of its wrongly-acquired fees. Here, there is no
statute enabling the recovery of prejudgment interest for a breach of fiduciary duty
such as the one asserted by the Wilsteins. Cf. TEX. FIN. CODE ANN. § 304.102
(Vernon 2006) (“A judgment in a wrongful death, personal injury, or property
damage case earns prejudgment interest.”). However, the supreme court has held
that awards of prejudgment interest may be based on “general principles of equity”
and that when no statute controls the parties must look to equitable considerations
to support an award of prejudgment interest. Cavnar v. Quality Control Parking,
Inc., 696 S.W.2d 549, 552 (Tex. 1985). Thus, when, as here, no statute controls
the award of prejudgment interest, the decision to award prejudgment interest is
37
left to the sound discretion of the trial court, which should rely upon equitable
principles and public policy in making its decision. Henry v. Masson, 453 S.W.3d
43, 2014 WL 6678937, at *5 (Tex. App.—Houston [1st Dist.] 2014, no pet.)
(citing Citizens Nat’l Bank v. Allen Rae Invs., Inc., 142 S.W.3d 459, 487 (Tex.
App.—Fort Worth 2004, no pet.), and Purcell Constr., 17 S.W.3d at 402).
In examining the general principles of equity implicated in this case, we
conclude that the trial court did not abuse its discretion in awarding prejudgment
interest on the fee forfeiture award. The trial court awarded the fee forfeiture,
including prejudgment interest on that amount, based on its findings and
conclusions regarding the nature and severity of Dernick’s breach of its fiduciary
duty to the Wilsteins and the amount of fees that it would not have collected but
for its breach. The trial court found that Dernick’s “clear and serious” breach of its
fiduciary duty to the Wilsteins was “intentional and deliberate.” It further found
that “Dernick’s right to charge and collect the fees . . . arose by virtue of [its]
breach of fiduciary duty” and thus, “equity dictates that Dernick may not retain
such benefit.”
Not only did Dernick commit a “clear and serious” breach of its fiduciary
duty to the Wilsteins, it then engaged in protracted litigation—dating back to
2003—to avoid facing the consequences of that breach. The trial court’s ruling
here thus served an essential equitable function of prejudgment interest—to
38
encourage settlement and discourage delay by removing incentives for defendants
such as Dernick to use lengthy legal proceedings to avoid its obligations as a
fiduciary. See Johnson & Higgins, 962 S.W.2d at 529.
Furthermore, the trial court’s grant of prejudgment interest on the fee
forfeiture award served to award the injured party—the Wilsteins—the use of the
forfeited money for the time its claims were being litigated. We have already
upheld the trial court’s determination that equity dictated that Dernick forfeit the
fees it collected from the Wilsteins as a result of its breach of fiduciary duty. It
was likewise appropriate for the trial court to conclude that Dernick should not
retain the benefit of the use of the fees it was eventually ordered to forfeit during
the protracted litigation and that, instead, the Wilsteins were entitled to that benefit.
See Johnson & Higgins, 962 S.W.2d at 528–29 (holding that prejudgment interest
is compensation for lost use of money due as damages and that prejudgment
interest serves dual purposes of encouraging settlement and discouraging delay);
see also Swinnea, 318 S.W.3d at 881 (holding, in context of equitable forfeiture of
contractual consideration, that “the rule allowing such equitable remedies to
protect relationships of trust encompasses the ability to fashion such remedies
against those who would conspire to abuse such relationships”).
Dernick, however, argues that prejudgment interest is available only for
compensatory damages and that, because the fee forfeiture award did not constitute
39
compensatory damages, prejudgment interest should not be available on that
award. We first observe that the supreme court has never held that prejudgment
interest is available only on compensatory damages, and its holding on equitable
fee forfeiture indicates otherwise. Moreover, Dernick does not cite, and we could
not find, any cases in which the supreme court has prohibited awards of
prejudgment interest on equitable remedies such as the fee forfeiture here. Cf.
Brainard, 216 S.W.3d at 812 (holding that prejudgment interest is intended to fully
compensate injured party, not to punish defendant, and stating, “We have
consistently viewed prejudgment interest as falling within the common law
meaning of damages”); Johnson & Higgins, 962 S.W.2d at 528–29 (purpose of
prejudgment interest is to fully compensate plaintiff for lost use of money due as
compensation).
We note that the supreme court has carefully distinguished those types of
damages for which prejudgment interest is not available—damages that do not
apply here. See Cavnar, 696 S.W.2d at 555 (holding that prejudgment interest is
not available on punitive damages or future damages); see also TEX. CIV. PRAC. &
REM. CODE ANN. § 41.007 (Vernon 2015) (“Prejudgment interest may not be
assessed or recovered on an award of exemplary damages.”). Dernick relied on
similar reasoning in arguing that the trial court did not abuse its discretion in
excluding the fee forfeiture award when it calculated the amount of the
40
supersedeas bond required for Dernick to pursue its appeal. In that instance, we
agreed with Dernick and held that for purposes of setting the amount of the
supersedeas bond, the fee forfeiture award “was not primarily intended to
compensate the Wilsteins, but to protect relationships of trust by deterring Dernick
from breaching its fiduciary duties.” However, based on our analysis of all of the
equitable principles involved here and the underlying purposes of awards of
prejudgment interest, as discussed above, we cannot conclude that the trial court
abused its discretion in awarding the Wilsteins prejudgment interest on the fee
forfeiture award.
We overrule Dernick’s third issue.
Attorney’s Fees
In its fourth issue, Dernick argues that the attorney’s fees awarded on the
Wilsteins’ Bradshaw Field claim were excessive.
A. Relevant Facts
Following the jury trial, the trial court held a bench trial on the issue of
attorney’s fees. The Wilsteins presented evidence in the form of invoices,
summaries, and other documents, in addition to the testimony of its attorneys.
The Wilsteins’ appellate attorney, who also testified as an expert on
attorney’s fees, stated that the Wilsteins segregated their attorney’s fees so that
only the fees necessary to the litigation of the Bradshaw Field claim against
41
Dernick were presented. The attorney testified to the method he used to determine
what portion of the work was allocated to the Bradshaw Field claim—the attorneys
eliminated any work that was specifically related to an unrecoverable claim, such
as those arising out of the McCourt Field claims. Of the remaining fees invoiced
to the Wilsteins, the attorneys “perform[ed] an allocation based upon the type of
work that was being done and how much of that work, if any, would have been
avoided if the non-recoverable claim had not been pursued.” The attorney testified
that some portions of the work, such as reading the record from the trial, would
still have been 100% necessary even if the non-recoverable claim had not been
pursued. Also, both the recoverable and non-recoverable claims were based on
similar contracts with similar legal theories, so some of the broader research
applied 100% to the recoverable claim. Other portions of the work, such as
preparing briefing and preparing for oral argument, required that the attorney
determine what portion of that time was dedicated solely to the recoverable claim.
In total, the amount the attorney allocated to the recoverable claims was
approximately 62% of the total billing.
The attorney likewise testified about the nature of the work done on the case,
the attorneys and paralegals who worked on the case, their professional
qualifications, and their billable rates.
42
The attorney acknowledged that the attorney’s fees incurred in the case were
higher than usual, but he testified that the high fees were due to the unusual nature
of the case. The fees were incurred over a period ranging from 2006, following the
first jury trial, until the 2013 trial underlying this appeal. He also testified that
Dernick’s strategy of repeatedly challenging the trial court’s implementation of the
2009 opinion and mandate caused a lot of the fees: the “$466,000 figure—had the
parties simply prepared the case and gone to trial, that figure would have $200,000
less, but for the argument that the defendant decided to make” regarding the
interpretation of the 2009 opinion and mandate and the scope of issues for trial on
remand. The attorney testified that, between the issuance of this Court’s judgment
in the 2009 appeal and the start of the 2013 trial on remand, Dernick filed several
motions and emergency motions in this Court, including a motion to stay, and
Dernick also filed a mandamus to this Court and a mandamus to the supreme court,
both of which required prompt responses and were more costly than work that can
be done “at a slower pace.” These proceedings that occurred between the original
appeal and the trial on remand also created additional expenses for “trials that
didn’t go forward, trial settings that got blown, the necessity of the mistrial, [and]
preparing for trials that didn’t happen,” all of which added to the legal fees
incurred in this case.
43
Ultimately, the trial court found that the Wilsteins’ reasonable and necessary
attorney’s fees for the entire case, from 2006 until the time of the underlying trial
in 2013 were $2,424,416.10. The trial court found that the Wilsteins properly
segregated their fees to include only the fees incurred in litigating their recoverable
claim—the Bradshaw Field claim—and awarded them $727,324.82, or thirty
percent of their total fees.
B. Standard of Review on Attorney’s Fees
The prevailing party in a breach of contract suit is entitled to attorney’s fees.
TEX. CIV. PRAC. & REM.CODE ANN. § 38.001(8) (Vernon 2015); Haden v. David J.
Sacks, P.C., 332 S.W.3d 503, 510 (Tex. App.—Houston [1st Dist.] 2009, pet.
denied). An award of attorney’s fees must be supported by evidence that the fees
are reasonable and necessary. See Stewart Title Guar. Co. v. Sterling, 822 S.W.2d
1, 10 (Tex. 1991). A trial court determines the reasonableness of an attorney’s fees
award by considering the factors enumerated in Arthur Andersen & Co. v. Perry
Equipment Corp. 945 S.W.2d 812, 818 (Tex. 1997) (holding that evidence of
contingency fee agreement alone does not support award of reasonable and
necessary attorney’s fees and that trial court must still consider other factors). The
reasonableness of attorney’s fees is generally a fact issue. Haden, 332 S.W.3d at
512. We review attorney’s fees awards for an abuse of discretion. Ridge Oil Co.
v. Guinn Invs., Inc., 148 S.W.3d 143, 163 (Tex. 2004).
44
Regarding the amount of attorney’s fees, the party applying for the award
bears the burden of proof. El Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 762–63
(Tex. 2012). In El Apple I, the supreme court stated:
That proof should include the basic facts underlying the lodestar,
which are: (1) the nature of the work, (2) who performed the services
and their rate, (3) approximately when the services were performed,
and (4) the number of hours worked. An attorney could, of course,
testify to these details, but in all but the simplest cases, the attorney
would probably have to refer to some type of record or documentation
to provide this information.
Id. at 763. Thus, the supreme court held that, when applying for a fee under the
lodestar method, “the applicant must provide sufficient details of the work
performed before the court can make a meaningful review of the fee request” and
that such evidence includes “documentation of the services performed, who
performed them and at what hourly rate, when they were performed, and how
much time the work required.” Id. at 764.
Furthermore, attorney’s fee “claimants have always been required to
segregate fees between claims for which they are recoverable and claims for which
they are not.” Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 311 (Tex.
2006) (citing Stewart Title Guar. Co. v. Aiello, 941 S.W.2d 68, 73 (Tex. 1997)).
However, the supreme court has recognized a narrow exception “when discrete
legal services advance both a recoverable and unrecoverable claim” and thus “are
so intertwined that they need not be segregated.” Id. at 313–14. The court stated:
45
This standard does not require more precise proof for attorney’s fees
than for any other claims or expenses. Here, Chapa’s attorneys did
not have to keep separate time records when they drafted the fraud,
contract, or DTPA paragraphs of her petition; an opinion would have
sufficed stating that, for example, 95 percent of their drafting time
would have been necessary even if there had been no fraud claim.
The court of appeals could then have applied standard factual and
legal sufficiency review to the jury’s verdict based on that evidence.
Id. at 314.
C. Analysis
Dernick complains about the amount of attorney’s fees awarded here,
arguing that they were excessive and not supported by the record. Specifically, it
argues that the Wilsteins were only entitled to recover fees based on their claim for
breach of contract for the Bradshaw Field, for which they recovered approximately
$162,000 in damages. Thus, the attorney’s fees award was almost five times more
than the damages the Wilsteins recovered. 3
However, it is undisputed that the Wilsteins recovered damages on their
claim of breach of contract. Thus, Dernick’s argument can only be interpreted as a
complaint that the Wilsteins did not segregate their fees regarding the different
measures of damages presented to the jury on that single Bradshaw Field claim.
Dernick made no such complaint in the trial court, and accordingly, it is waived.
3
Dernick also argues that the Wilsteins’ presentation on fees related to the jury
award that the trial court subsequently disregarded—the $750,000 in damages
representing the Wilsteins’ share of production revenues of the Bradshaw Joint
Venture. However, in the analysis of the Wilsteins’ cross-appeal, we reinstate this
award, so we do not consider this argument here.
46
See Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 389 (Tex. 1997) (holding that
parties waive error regarding failure to segregate attorney’s fees by failing to
object); see also TEX. R. APP. P. 33.1(a).
Furthermore, the evidence at the bench trial indicated that the Wilsteins
properly segregated their attorney’s fees to limit them only to the recoverable
claim. See Chapa, 212 S.W.3d at 313. The Wilsteins’ attorney and expert on
attorney’s fees testified that the attorneys all went through their invoices and
removed any items that related only to non-recoverable claims. They then went
through each item in the invoice and determined what percentage of the remaining
fees, if any, would have been necessary even in the absence of the non-recoverable
claims. See id. at 314. The expert testified that the Wilsteins were seeking
approximately 62% of their total fees as attributable to their litigation of the
Bradshaw Field claim. The Wilsteins provided both documentary evidence and
testimony regarding the type of work done, the professional who completed the
work, their hourly rates, the dates on which the work was performed, and how
much time the work required. See El Apple I, 370 S.W.3d at 764.
Dernick also argues that the fees awarded in this case were not reasonable or
necessary because the amount of fees awarded was so high, especially in light of
the “minimal” focus on the Bradshaw Field claims during trial. Dernick argues
that the high fees resulted from “overwhelming duplication of effort, having
47
multiple attorneys read the massive record (multiple times) from the prior trial,
even though the merits of the Bradshaw claim had nothing to do with it, and the
focus on Bradshaw was minimal.” However, the record demonstrates that, in spite
of the Wilsteins’ request for more, the trial court awarded them only 30% of their
total fees. Furthermore, the Wilsteins’ expert acknowledged that the fees in this
case were higher than usual, but argued that the high fees were the result of the
protracted length of the litigation and the strategic choices made by Dernick to file
multiple emergency motions and mandamuses that resulted in high fees to prepare
responses on an emergency basis and caused wasted effort preparing for trial
settings and other matters that were delayed.
Dernick also argues that “even though the Wilsteins were responsible for a
mistrial [in 2012], there was no deduction for any of those fees.” However, the
record again demonstrates that Dernick failed to ask for segregation on this basis in
the trial court. See Solis, 951 S.W.2d at 389 (holding that parties waive error
regarding failure to segregate attorney’s fees by failing to object); see also TEX. R.
APP. P. 33.1(a). And the record demonstrates that the mistrial was not due to any
legal maneuverings on the Wilsteins’ part. Rather, it was Dernick that sought the
mistrial, which the trial court granted because it believed its own rulings were
unclear and wanted to be sure to have a clean trial with a clean record for appeal.
48
Thus, we conclude that the attorney’s fees awarded were reasonable and
necessary under the circumstances of this case.
We overrule Dernick’s fourth issue.
II. THE WILSTEINS’ CROSS-APPEAL
Accounting of Revenues from Bradshaw Joint Venture
In their cross-appeal, the Wilsteins challenge the trial court’s decision to
disregard the jury’s finding of damages regarding revenue generated by the
Bradshaw Joint Venture.
A. Facts Relevant to the Wilsteins’ Issue
The Wilsteins collectively owned a 25% interest in the Bradshaw Field,
Dernick owned a 25% interest, and a third party owned a 50% interest. Dernick
sold the entire interest to which it held title in the Bradshaw Field, which
necessarily included the portion owned by the Wilsteins because Dernick was the
record title holder under the JVA. Dernick failed to disclose the sale to the
Wilsteins and failed to provide them with the accounting required by the JVA, but
it did record the sale in the Kansas real property records. After the sale, the buyer
conveyed overriding royalty interests back to Dernick. Dernick likewise failed to
disclose the existence of the interests to the Wilsteins and failed to provide an
accounting for them or otherwise give the Wilsteins their portion of the proceeds.
49
In their live pleading at the time of trial, 4 the Wilsteins asserted multiple
causes of action, including a cause of action for breach of contractual and fiduciary
duties, stating that Dernick was “required to maintain and furnish [the Wilsteins]
with accurate records regarding the monthly and cumulative accounting of the
expenses incurred in operations, the value of gas produced and marketed, and the
revenues [the Wilsteins] were entitled to receive from the Properties,” a duty that
the Wilsteins alleged was breached. The Wilsteins further contended that Dernick
was their “agent in the marketing of gas, the handling of revenues, and in the
representation of [the Wilsteins] in litigation filed by Dernick,” that Dernick was
their fiduciary and owed them fiduciary duties, and that Dernick breached those
duties for its own purposes and gains. Several of their specifically enumerated
complaints dealt with the failure to pay revenues, including an allegation that
Dernick “unlawfully and without authority asserted and assumed dominion and
control over [the Wilsteins’] gas and revenues, thereby converting same to [its] use
and benefit and also breaching [its] fiduciary and agency duties. . . .”
“Count Seven” of the Wilsteins’ live pleading was for a claim “for Breach of
Contractual and Fiduciary Duties and Claim for Accounting.” Under this cause of
action for “an accounting,” the Wilsteins pleaded facts related to Dernick’s sale of
their interest in the Bradshaw Field without notice and without paying them their
4
Their live pleading was their seventh amended petition, which was filed on August
2, 2004, prior to the original trial.
50
share of the proceeds. The Wilsteins further alleged that they “ha[d] not received
any monies whatsoever representing the value of their collective 25% interest in
the assets of lease acquisition costs of initial investment of the Joint Venture, nor
[had] the Wilsteins received an accounting of the profits realized from the sale of
these properties.” They also alleged that Dernick failed “to properly account for
the assets of the Joint Venture” and that Dernick’s wrongful acts “resulted in
[Dernick’s] unjust retention of benefits, properties, profits and proceeds under the
Bradshaw Joint Venture Agreement which would have otherwise flowed to the
Wilsteins.” In their prayer for relief, the Wilsteins sought “[j]udgment against
Dernick for breach of fiduciary and contractual duties related to the Bradshaw
Program” and “[j]udgment against Dernick for a sum to be determined in the
accounting.”
In 2005, the trial court ruled that all of the Wilsteins’ claims for breach of
fiduciary duties related to the Bradshaw Joint Venture were barred by limitations.
This ruling was appealed to this Court, which stated:
The Wilsteins contend that ‘Dernick’s failure to properly account for
the assets of the Joint Venture . . . and its failure to disclose the sale of
the properties, both constitute a breach of its fiduciary duties, and a
breach of the terms of the [Bradshaw Field JVA]. . . .’ Again, we
agree with the Wilsteins.
Dernick Res., 312 S.W.3d at 884. Thus, we concluded in our 2009 opinion that
Dernick owed the Wilsteins a fiduciary duty under the Bradshaw Field JVA and
51
that Dernick breached its duties to the Wilsteins with regard to the sale of their
interest in the Bradshaw Field as a matter of law when it failed to provide them
with notice of the sale or proceeds. Id. at 884–85. We remanded the case for trial
on the claims that the trial court excluded on limitations grounds.
The Wilsteins subsequently filed an expert witness designation and
supplement to their responses to Dernick’s request for disclosure designating
experts to testify to the “lost profits in connection with Dernick’s breach of
fiduciary duty to the Wilsteins in the remanded Bradshaw claim” and to “[t]he
benefits and profits made by Dernick in the Bradshaw transaction as a result of its
breach of fiduciary duty to the Wilsteins, including Dernick’s commingling of
funds belonging to the Wilsteins from the sale of leases to Bradshaw Energy,
LLC.” The Wilsteins identified an expert who would testify regarding benefits that
Dernick retained in the sale of the Bradshaw Field that were not shared with the
Wilsteins, and they stated, “It is believed that there may be additional assignments
and interests purchased by Dernick that were within the scope of the Bradshaw
Joint Venture, and that were not shared with the Wilsteins.”
Likewise, Dernick designated an expert to testify regarding the revenue the
Wilsteins would have received under the Bradshaw Joint Venture between 1994,
when they entered into the JVA, and 1998, when Dernick sold their interest
without informing them of the sale or compensating them for their interest. The
52
Wilsteins deposed this witness, Howard Blunk, in 2011. At that time, Blunk stated
that he was originally engaged to determine the net revenue earned by the
Wilsteins’ interests from the date of the acquisition to the date of the sale but that
he was not able to obtain the necessary information to do so.
The Wilsteins also made a disclosure regarding the amount and any method
of calculating economic damages by referring to the “second amended expert
witness designation and supplement hereto.” They stated,
With respect to the Bradshaw claim, the burden is on Dernick, as the
breaching fiduciary, to account to the Wilsteins for their share of the
proceeds received from the Bradshaw sale. Absent a full accounting,
the Wilsteins are entitled to 25% of the net sales proceeds from the
Bradshaw sale.
At trial, the Wilsteins established that they entered into the Bradshaw JVA in
1994, thus obtaining a collective 25% interest in the Bradshaw Field, and that the
Bradshaw Field had producing wells from 1994 through 1998 and even in the
2000s. The evidence indicated that Dernick sold its entire title interest in the
Bradshaw Field in 1998, which included the Wilsteins’ interest because Dernick
was the record title holder, for approximately $8.25 million. It is undisputed that it
never paid any of those proceeds to the Wilsteins. Dernick also obtained, as part of
the sale of the Bradshaw Field interest, an overriding royalty interest. 5 It was
5
“An overriding royalty is an interest in the oil and gas produced at the surface, free
of the expense of production.” Paradigm Oil, Inc. v. Retamco Operating, Inc.,
372 S.W.3d 177, 180 n.1 (Tex. 2012).
53
likewise undisputed that Dernick never paid any portion of that overriding royalty
interest to the Wilsteins, even though there was evidence that the Bradshaw Field
wells were producing during the relevant time. Dernick did not object to any of
the Wilsteins’ evidence based on a failure to disclose.
Dernick’s expert, Blunk, testified at trial that he could not determine the
amount of revenue generated by the Bradshaw Field. Stephen Dernick likewise
testified that he did not know “what amount of revenue is attributable to” the
Wilsteins’ interests in the Bradshaw Field. And Blunk could not provide an
accounting for the value of the overriding royalty interest conveyed back to
Dernick as part of the sale of the Bradshaw Field. He testified that if there were
producing properties there would be revenue, but he could not do an accounting
because Dernick had told him the records were not available.
The jury charge asked the jury what sum of money would compensate the
Wilsteins for their damages, if any, “that were proximately caused by Dernick’s
breach of fiduciary duty in failing to notify the Wilstein Brothers about the
acquisition of leasehold interests in Greeley County, Kansas, and in failing to
account to the Wilsteins Brothers for their share of the assets of the Bradshaw Joint
Venture.” Dernick objected to the submission of a question on production
revenues on the ground that it was not supported by the Wilsteins’ pleadings and
was barred by their disclosures and that the Wilsteins did not establish what their
54
production revenues would be. The trial court overruled this objection. Dernick
did not object to the jury charge on the ground that lost profits, rather than
production revenues, was the proper measure of damages, nor did it provide any
alternative measure of damages.
The jury found that the Wilsteins’ “share of the sales proceeds of the
Bradshaw Joint Venture” was $162,194.14. The jury further found that the
Wilsteins’ “share of the production revenues of the Bradshaw Joint Venture” was
$750,000.
Dernick filed a motion to disregard the jury’s finding that the Wilsteins were
entitled to $750,000 as their share of the production revenues of the Bradshaw
Joint Venture. Dernick argued that the finding must be disregarded because it was
unsupported by evidence and because it was immaterial and should never have
been submitted due to the Wilsteins’ “failure to plead for and disclose such
damages.” Dernick argued that the submission of that question was barred by
Rules 193.6, 278, and 301, and that it challenged the submission of the question
based on the Wilsteins’ failure to disclose such damages. Dernick also argued,
“Assuming, arguendo, that the Wilsteins had pleaded for and disclosed their intent
to seek damages related to production of oil and gas from the Bradshaw leases,”
lost profits, not lost revenues, was the proper measure of damages. The trial court
granted Dernick’s motion to disregard.
55
B. Standard of Review
The trial court has broad discretion in submitting the jury charge, subject
only to the requirement that the questions submitted must (1) control the
disposition of the case; (2) be raised by the pleadings and the evidence; and
(3) properly submit the disputed issues for the jury’s determination. TEX. R. CIV.
P. 277, 278; Moore v. Kitsmiller, 201 S.W.3d 147, 153 (Tex. App.—Tyler 2006,
pet. denied).
Error in the charge must be preserved by distinctly designating the error and
the grounds for the objection. Keetch v. Kroger Co., 845 S.W.2d 262, 267 (Tex.
1992); see TEX. R. CIV. P. 274. The test for whether a party has preserved error in
the jury charge is whether the party made the trial court aware of the complaint
timely and plainly and obtained a ruling. State Dep’t of Highways & Pub. Transp.
v. Payne, 838 S.W.2d 235, 241 (Tex. 1992).
A trial court may disregard a jury finding if (1) the finding is immaterial or
(2) there is no evidence to support one or more of the jury findings on issues
necessary to liability. TEX. R. CIV. P. 301; Spencer v. Eagle Star Ins. Co. of Am.,
876 S.W.2d 154, 157 (Tex. 1994). A finding is immaterial when the
corresponding question either: (1) should not have been submitted; (2) calls for a
finding beyond the province of the jury, such as a question of law; or (3) was
properly submitted but has been rendered immaterial by other findings. Se. Pipe
56
Line Co. v. Tichacek, 997 S.W.2d 166, 172 (Tex. 1999); Spencer, 876 S.W.2d at
157.
We review the grant or denial of a motion for judgment notwithstanding the
verdict or a motion to disregard jury findings as a legal-sufficiency challenge. See
City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005). In conducting a legal-
sufficiency review, we credit favorable evidence if a reasonable factfinder could
and disregard contrary evidence unless a reasonable factfinder could not. Id. at
827; Brown v. Brown, 236 S.W.3d 343, 348 (Tex. App.—Houston [1st Dist.] 2007,
no pet.). We consider the evidence in the light most favorable to the finding under
review and indulge every reasonable inference that would support it. City of
Keller, 168 S.W.3d at 822. We sustain a no-evidence contention only if: (1) the
record reveals a complete absence of evidence of a vital fact; (2) the court is barred
by rules of law or of 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; or (4) the evidence conclusively establishes the opposite of the vital
fact. Id. at 810; Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.
1997).
C. Analysis
Here, Dernick argues that the trial court should disregard the jury’s finding
regarding production revenues for the Bradshaw Field because the question is
57
immaterial and because no evidence supports the finding. Specifically, Dernick
argues that the question is immaterial because it should not have been submitted—
the Wilsteins’ pleadings did not properly raise the question of whether they were
entitled to any damages beyond their share of the proceeds from the sale of the
field.6 Dernick argues that the Wilsteins’ pleadings only sought recovery of their
share of the proceeds of the sale of the Bradshaw Field and that they never
mentioned “production revenues” in their pleadings or disclosures.
The Wilsteins’ pleadings and disclosures focused on the loss of sales
proceeds arising from Dernick’s sale of its interest in the Bradshaw Field. This
Court’s 2009 opinion overturned the trial court’s judgment in the case as originally
pleaded and tried. We concluded:
Dernick breached its fiduciary duty to the Wilsteins by failing to
disclose its sale of their interest in the Bradshaw Field and that the
Wilsteins were not put on constructive notice of the sale by the filing
of the sale in the Kansas public records. The trial court found that the
Wilsteins discovered the sale of their interest in the Bradshaw Field
following the 2002 audit of that field. This finding is supported by the
evidence. Because the Wilsteins filed their Bradshaw Field claims in
2003, their claims were not barred by the four-year statute of
limitations for breach of fiduciary duty and fraud.
6
Dernick also argues that the Wilsteins failed to disclose such a measure of
damages. However, Rule of Civil Procedure 193.6, which Dernick cites as
authority here, does not deal with submission of questions to the jury. Rather, it
provides that the remedy for failing to disclose evidence or witnesses is exclusion
of that evidence. See TEX. R. CIV. P. 193.6. Dernick does not point to any
specific evidence that should have been excluded for this reason. Thus, this
argument is unavailing.
58
Dernick Res., 312 S.W.3d at 885. Thus our opinion and mandate remanded the
claim for breach of contractual and fiduciary duties arising out of Dernick’s sale of
the Wilsteins’ interest in the Bradshaw Field because the trial court had erred in
excluding trial of these claims on limitations grounds. Our opinion did not address
the Wilsteins’ right to any production revenues for the time between when they
entered into the Bradshaw Field JVA in 1994 and when Dernick sold the interest in
1998. That is, our opinion did not address damages for which Dernick might be
held liable on remand. It is undisputed that the “share of the sales proceeds of the
Bradshaw joint venture” constituted a measure of the Wilsteins’ damages. Thus,
we must determine whether “production revenues” could also be a measure of
damages for Dernick’s breach of contractual and fiduciary duties on retrial.
The Wilsteins’ pleadings and the evidence at trial indicated that their
damages went beyond their share of the sales proceeds. It was established that, as
part of the sale, Dernick obtained an overriding royalty interest. Dernick never
paid any portion of this overriding royalty to the Wilsteins, despite the fact that it
obtained the royalty in part by selling the Wilsteins’ interest in the Bradshaw Field.
An overriding royalty interest can be considered “production revenues.” See
Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177, 180 n.1 (Tex.
2012) (“An overriding royalty is an interest in the oil and gas produced at the
surface, free of the expense of production.”). We conclude that the question
59
regarding damages beyond the sales proceeds for breach of contractual and
fiduciary duties is controlling and was raised by the pleadings and the evidence.
Dernick argued in the trial court that “production revenue” was not the
proper measure of damages. However, Dernick did not argue in the trial court that
some alternate method of determining these damages should have been submitted.
It did not offer any alternative instruction to address these damages. Therefore,
this objection is waived. See TEX. R. CIV. P. 274; Keetch, 845 S.W.2d at 267;
Payne, 838 S.W.2d at 241.
Dernick also argues that the Wilsteins presented no evidence supporting
their right to production revenues in any amount. Dernick further argues on appeal
that the evidence of production revenue is factually insufficient and the award was
“excessive” and “manifestly too large.” However, Dernick’s argument
mischaracterizes the evidence. The record indicates that Dernick sold the 50%
interest it held in the Bradshaw Field, including its own 25% interest and the
Wilsteins’ 25% interest, for $8.25 million in 1998 and that it also obtained an
overriding royalty interest in the field as part of that transaction. The record also
demonstrated that there was production of hydrocarbons in that field as recently as
2009. Thus, there is evidence on which a fact finder could rely to conclude that
production revenues were paid to Dernick in the eleven years between 1998 and
60
2009 and that the Wilsteins, by virtue of their 25% interest, were entitled to some
portion of that money.
Dernick, as the breaching fiduciary, bore the burden of providing more
specific information regarding the revenues generated by the royalty it obtained by
selling the Wilsteins’ interest in the Bradshaw Field. Thus, we find this case
similar to Thompson v. Duncan, 44 S.W.2d 904 (Tex. Comm’n App. 1932, judgm’t
adopted). There, the court considered the failure of a joint venture and stated:
When the [fiduciary] was called upon by letter for specific
information, which he as a trustee was under a solemn duty to furnish
his associates in this enterprise, he wholly ignored their request. He
declined to permit an inspection of his books after promising to do so.
When this case was called for trial he absented himself and did not
offer any evidence whatever. Although [the plaintiffs] offered
evidence on the trial tending to show that other sales had been made
by [the fiduciary] since the filing of his purported report, yet no report
covering same was made up to the time of the trial, and [the fiduciary]
declined to make any showing upon the trial which would in any way
tend to excuse or justify his conduct. We can hardly imagine a state
of facts which would show a more flagrant disregard of the rights of
the members of the joint enterprise by the man who was designated as
trustee to conduct its operations. . . .
But it is argued by [the fiduciary] that [the plaintiffs] produced
no proof upon the trial showing injury to them by reason of his failure
to make the reports required by the contract. We think, as before
stated, there were sufficient circumstances shown to justify an
inference that [the fiduciary] had made sales of lots not covered by his
report. Even if this were not true, [the fiduciary], resting under the
solemn duty of furnishing his associates with full information in
regard to all transactions had in the common enterprise, and having
failed and refused to do so, is in no position to complain of the
insufficiency of the showing made by them as to injury.
Thompson, 44 S.W.2d at 908.
61
The facts here are similar. The Wilsteins sought an accounting from
Dernick regarding these revenues, but Dernick never provided one. At trial,
Stephen Dernick testified that he had no way of accounting for any revenues that
might be due to the Wilsteins. However, the Wilsteins presented evidence that
Dernick obtained some sort of revenues, in the form of its overriding royalty
interest on a field that was known to be producing. Dernick, as the fiduciary, owed
“the solemn duty of furnishing [its] associates with full information” in regard to
this transaction and, “having failed and refused to do so, is in no position to
complain of the insufficiency of the showing made by them as to injury.” See id.
We cannot conclude that the jury’s finding on this issue was immaterial or
that there is no evidence to support it. See TEX. R. CIV. P. 301; Spencer, 876
S.W.2d at 157. Accordingly, the trial court erred in disregarding the jury’s
finding.7
We sustain the Wilsteins’ issue and reinstate the jury’s finding, including
pre-judgment interest.
7
The Wilsteins have agreed to waive their right to remand to recalculate attorney’s
fees if this Court determines that rendering judgment is the proper disposition on
appeal. We have concluded that we will modify the judgment and affirm it as
modified, so we will not remand for recalculation of attorney’s fees.
62
Conclusion
We modify the trial court’s judgment to reinstate the jury’s award to the
Wilsteins of $750,000 for damages relating to production revenues and
$365,924.26 for prejudgment interest on that claim. 8 We affirm the judgment as
modified.
Evelyn V. Keyes
Justice
Panel consists of Chief Justice Radack and Justices Jennings and Keyes.
8
The calculation of prejudgment interest is governed by Financial Code section
304.003. See TEX. FIN. CODE ANN. § 304.003(c)(2) (Vernon 2006) (providing
accrual rate for post-judgment interest); Johnson & Higgins of Tex., Inc. v.
Kenneco Energy, Inc., 962 S.W.2d 507, 532 (Tex. 1998) (holding that
prejudgment interest accrues at same rate as post-judgment interest). The interest
rate is 5% simple interest, and the interest is calculated from the date the Wilsteins
filed their claims against Dernick on October 8, 2003, until the date of the final
judgment on July 8, 2013. This amounts to $365,924.26.
63