Opinion issued March 25, 2010
In The
Court of Appeals
For The
First District of Texas
____________
NO. 01-08-0472-CV
____________
TIN INC., D/B/A TEMPLE-INLAND, FORMERLY KNOWN AS GAYLORD CONTAINER CORPORATION, Appellant
V.
ACTION BOX CO., Appellee
On Appeal from 234th District Court
Harris County, Texas
Trial Court Cause No. 2003-63481
MEMORANDUM OPINION
Both parties to this appeal contest the trial court's judgment in this case. Appellant, TIN Inc. d/b/a Temple Inland, formerly Gaylord Container Corporation ("Gaylord"), contests the trial court's entry of judgment notwithstanding the verdict ("JNOV"). In four issues, Gaylord contends the trial court erred by entering JNOV in favor of Action Box, Inc. ("Action Box") because (1) there is more than a scintilla of evidence that Action Box committed the first material breach of the Settlement Agreement at issue, causing Gaylord to sustain damages; (2) the evidence conclusively supports a judgment in Gaylord's favor on its "benefit of the bargain" damages; (3) the evidence conclusively supports a judgment for Gaylord on its damages resulting from Action Box's failure to complete the Discount Program; and (4) Action Box failed to present legally sufficient evidence that it complied with the contractually obligated procedure for ordering products.
Appellee, Action Box, contends that the trial court erred by failing to award Action Box its attorney's fees for appeal. Further, Action Box asserts a conditional cross-point arguing that the trial court erred by ruling that, as a matter of law, the Settlement Agreement only obligated Gaylord to fill Action Box's orders that were for products that Gaylord offered and sold to the market in general.
We reverse the trial court's entry of JNOV and enter judgment in favor of Gaylord in the amount of $5,070.00.
BACKGROUND
Action Box manufactures corrugated cardboard boxes. Gaylord is a supplier of raw material from which such boxes are made. Gaylord's Bogalusa, Louisiana plant ("Bogalusa") produces bulk boxes as well as other cardboard-related materials. The plant's primary product is laminated cardboard boxes, a specialty product manufactured by only a few other competitors. The cardboard products produced by Bogalusa vary according to their composition, weight and strength, and are made of various combinations of cardboard components (i.e., walls, sheets, fluting). Bogalusa bases its pricing upon the cost of goods sold as well as upon the distance to the customer, and the market to which it sells varies according to the product produced.
Action Box was a customer of Bogalusa, primarily purchasing solid fiber material to manufacture boxes. Eighty percent of the cardboard materials Action Box uses are single-walled sheets of cardboard.
The Parties' Initial Dispute Leads to a Settlement Agreement
In 2003, Gaylord filed a lawsuit against Action Box in Louisiana (the "Louisiana Lawsuit"), in which Gaylord alleged that Action Box owed it $54,533.24 for four orders of solid fiber cardboard in January and March 2003. Shortly thereafter, Action Box filed a reciprocal lawsuit suit against Gaylord in Harris County, Texas (the "Texas Lawsuit"), alleging that the cardboard it purchased in January and March 2003 from Gaylord was pitted and thus defective, causing Action Box to incur significant damages. Action Box alleged violations of the Texas Deceptive Trade Practices Act and that Gaylord negligently represented the quality of its products.
In May 2004, the parties mediated their dispute regarding the pitted cardboard and reached an agreement by which Action Box would pay Gaylord $54,533.24 by June 15, 2004, and Gaylord, upon receiving such payment, would grant Action Box a 5% discount on certain of its products, up to a total discount of $70,000 (the "Discount Program"). Jim McIntyre, Gaylord's sales manager at the time, testified that this was the first such Discount Program Gaylord had ever entered into. On June 1, 2004, Action Box attempted to place its first order taking advantage of the Discount Program. The order was for a large quantity of single wall sheets--a product that the Gaylord Bogalusa plant did not generally sell and that it had not previously sold to Action Box. The order was rejected by Gaylord. McIntyre stated that the order was rejected because the Gaylord Bogalusa facility, "as a general rule," did not produce single wall sheets in the quantity ordered by Action Box because the plant was "not equipped to handle" the order. McIntyre testified that Action Box was verbally informed that Gaylord would not fill the order for single wall sheets on the grounds that single wall sheets were not usually produced by the Bogalusa plant. At trial, McIntyre testified that, due to the process of manufacturing and the size of the machines at issue, only 1/100th of the Bogalusa plant's output was single wall sheets. McIntyre testified that the small quantities of single wall sheet that were produced went to four customers, and that most of it was sent to local customers. McIntyre explained that these sales were "special deals" to accommodate these customers and that Gaylord sold only a small quantity of single wall board to each of these customers. McIntyre further testified that much of the single wall material sold was taken out of overrun from other products. Rick Bailey, a salesman for Gaylord, also testified that it was "very difficult" to handle sales of single wall sheets and that it was not the normal course of Gaylord's business to do so. Bailey also testified that Bogalusa did not sell single wall sheets in the quantities ordered by Action Box. At trial, purchase orders and testimony showed that Bogalusa sold single wall sheets to other companies during 2004, but that these sales were in smaller quantities than the orders placed by Action Box. McIntyre testified that, if Action Box had ordered a quantity of single wall sheets that he could fill from his overrun supplies, then he would have filled the order. McIntyre also described that, in the Bogalusa manufacturing process, the plant's ability to produce a particular product at a particular price depended upon the dimensions of the sheets ordered as well as the total square footage of the order.
Accordingly, Gaylord faxed the June 1, 2006 order back to Action Box with the following notation: "Please process through Texas Sheets. Orders not to be processed through Bogalusa Plant until paid in full by the proposed due date of June 15, 2004." Texas Sheets is a San Antonio facility owned by Gaylord's parent company, Temple-Inland. Texas Sheets is a "sheet plant" and one of its products is single wall sheets, although not the specialty heavy weight single wall sheets that the Bogalusa plant can produce. The fax did not inform Action Box that Bogalusa did not manufacture single wall sheets in the quantity Action Box sought.
In mid-June 2004, Action Box and Gaylord formalized their settlement by executing the Settlement Agreement and Mutual Release ("Settlement Agreement"). The Settlement Agreement stated its purpose was to settle the Texas and the Louisiana Lawsuits because both parties wished to "avoid further time, expense and the uncertaint[ies] involved in the lawsuit[s]." Action Box agreed to pay Gaylord $54,533.24 to settle the Louisiana Lawsuit in exchange for Gaylord's agreement that it would "release and forever discharge Action Box from any claim asserted or which could have been asserted in the Louisiana Action" and an agreement that Gaylord would "dismiss, with prejudice, the Louisiana Action."
As to the Texas Lawsuit, the parties formalized the agreed-upon "Discount Program" under which Action Box would receive a 5% discount on all of its purchases of solid fiber, solid fiber boxes, triple wall, double wall and single wall products from the Inland Gaylord-Bogalusa Plant, up to a total discount of $70,000. The parties agreed that they would "in good faith . . . attempt to complete" the full Discount Program by November 30, 2004, but they also agreed that the Discount Program would last until the full benefits had been received by Action Box. The Settlement Agreement stated
The prices for the goods (prior to the discount) being sold by Gaylord to Action Box pursuant to this settlement shall be competitive and pegged to the current prices being paid by Action Box for the same goods which Action Box purchases from competitors of Gaylord.
Action Box also agreed that it would "release and forever discharge Gaylord from any claims asserted or which could have been asserted in the Texas Action" and that it would "dismiss, with prejudice, the Texas Action."
Action Box paid Gaylord $54,533.24 in mid-June 2004, as it had promised in the Settlement Agreement. Action Box did not, however, file a non-suit or notice of dismissal of the Texas Lawsuit.
In late June and early July 2004, Action Box placed more orders with Gaylord, again ordering a large quantity of single wall sheets. Gaylord refused to fill these orders, this time returning the orders via fax with the following notes: "Send to Texas Sheets. Not run in Bogalusa" and "Not for Bogalusa-We don't run for you. Send to Texas Sheets." McIntyre testified that Action Box appeared to be ordering "multiple truckloads" of single-walled sheets, and that he had informed Action Box that the single wall product it was ordering was something that the Bogalusa plant did not normally produce.
During the summer, Action Box also ordered a quantity of double-walled and triple-walled sheets, but paid less than the quoted price for the double-walled sheets. McIntyre testified that he had charged Action Box a previously quoted price and that he had not "pegged" the price to the current prices Action Box may have been paying other suppliers because Action Box did not provide verification of those prices. McIntyre also admitted that he was not aware of the particulars of the Discount Program at the time, but he testified that if Action Box had provided him with documentation of competitor's prices and informed him of the Discount Program particulars, he would have lowered the quoted prices accordingly.
Despite these ongoing disputes, Action Box continued to place orders for various products, including double wall and triple wall cardboard. Action Box placed orders for products on October 12, 2004, and another on January 14, 2005. On January 21, 2005, Don Sparaco, the plant manager for the Bogalusa plant, wrote a letter to Action Box informing it that Bogalusa could not produce the requested sizes of double wall sheets at the price Action Box specified:
We received a fax order from your company for various size double wall sheets and relayed that we would be happy to process this order through our Texas Sheets operation. Unfortunately, unless we had overruns available from orders for converted boxes, Bogalusa could not sell the ordered products at the prices indicated on your order form.
. . . .
We are willing to produce the products you ordered, but at higher prices than indicated on your order form. Of course, you would receive the 5% discount off of our prices, per our Settlement Agreement.
Action Box continued to send orders for products and quantities that Bogalusa did not normally produce. Sparaco sent another letter to Action Box on March 28, 2005, stating:
As a member of the solid fiber/corrugated paper industry, you know that the Bogalusa plant['s] manufacturing and packaging capabilities are incompatible with your order. . . . Additionally, you are submitting blind orders for products, with prices already specified. You know . . . this is not the way we operate.
. . . .
This lawsuit has created a strange situation. Action Box is now ordering products under the settlement agreement that you never ordered from this facility before and which you know the facility cannot fulfill. You are also submitting orders differently than before.
. . . .
We are ready to sell to Action Box products sold from this facility in the ordinary course of business, at a competitive price discounted by the agreed upon five percent. However, we cannot sell Action Box products we do not ourselves sell in the ordinary course of our business.
Additional Litigation Arises out of the Settlement Agreement
In late summer and fall of 2004, while Gaylord and Action Box were exchanging correspondence regarding the above orders, they were also filing new claims and suits against each other. On August 6, 2004, Gaylord filed a new lawsuit in Louisiana, seeking a declaratory judgment that the Settlement Agreement did not require it to sell Action Box single wall sheets. On September 9, 2004, Action Box filed its "First Amended Original Petition" in the Texas Lawsuit, which it had never dismissed despite its agreement to do so--with prejudice--in the Settlement Agreement. Action Box later added claims for breach of contract, alleging that the agreement reached between the parties at mediation and the Settlement Agreement constituted one, single agreement, and that Gaylord had failed to comply with the terms of that agreement by failing to fill Action Box's June 1, 2004 order for single wall sheets and that Gaylord "further indicated it would never sell single wall sheets to Action Box." In addition, Action Box alleged that Gaylord had breached its agreement to sell products to Action Box at prices that were "pegged to the current prices being paid by Action Box for the same goods which Action Box purchase[d] from competitors of Gaylord," and that Gaylord "failed to act in good faith to complete sales contemplated by the agreement." Action Box sought to recover damages and attorney's fees based upon Gaylord's alleged breaches.
Gaylord counterclaimed, alleging that Action Box had failed to act in "good faith" to place enough orders to complete the Discount Program. Gaylord alleged that Action Box had breached the Settlement Agreement by failing to dismiss the Texas Lawsuit, by opposing abatement of the Texas Lawsuit, and by continuing to prosecute the Texas Lawsuit. Gaylord also alleged that Action Box's failure to place enough orders to complete the Discount Program violated the Settlement Agreement.
Action Box raised the affirmative defenses of anticipatory repudiation, prior material breach, and failure of consideration. Action Box also alleged that Gaylord had failed to mitigate its own damages.
Gaylord pled the affirmative defenses of estoppel and failure of consideration. In addition, Gaylord asserted that Chapter 154 of the Texas Civil Practice and Remedies Code barred any recovery by Action Box and that Action Box had judicially admitted that it could have fulfilled its obligations under the Discount Program within one year of the Settlement Agreement. Gaylord also argued that Action Box was not entitled to its attorney's fees because it had not complied with the requirements of Section 38.002 of the Texas Civil Practice and Remedies Code.
Before the case went to trial, Gaylord obtained a ruling from the trial court construing the Settlement Agreement to mean that Gaylord's obligation to sell products to Action Box was limited to those products and quantities that the Gaylord-Bogalusa facility actually offered, produced, and otherwise sold to the market in general. That order is not part of the clerk's record in this appeal.
The Evidence at Trial
During trial, Action Box presented evidence that, over the course of 2004, Bogalusa quoted and sold a large quantity of single wall and double wall sheets to other companies, but that Gaylord refused to fill Action Box's June and July orders for what Action Box claimed was a similar product. McIntyre testified that the products sold to these customers and the products requested by Action Box were substantially different, and that Bogalusa did not generally offer the single wall products ordered by Action Box in 2004. Further, both Bailey and McIntyre testified that Action Box requested a much larger quantity of product than the other customers. Brett Camp, purchasing manager for Action Box, testified that Gaylord had never told Action Box it had a minimum or maximum order for any of its products. Further, Camp testified that he had never been told, prior to the rejection of the June 1, 2004 order, that Bogalusa did not manufacture and sell single wall sheets to the general market. Instead, Camp testified that he placed the single wall order with Bogalusa just as he would have with Action Box's other suppliers, and that he continued to place the order despite Gaylord's refusal to fill it. Camp testified that he placed an order for double wall sheets at a price he confirmed with McIntyre, contradicting McIntyre's testimony that the order was not paid in full. Camp stated that Action Box continued to place orders, in good faith, with Gaylord to fulfill the Discount Program but that the companies continued to disagree about the prices to be paid for double wall sheets and whether Bogalusa was obligated to fill Action Box's orders for single wall sheets. Camp also testified that Action Box's quick turnaround time on orders meant that he did not have time to negotiate with a supplier on an unfavorable price, but that he instead would then take the order to another supplier for a better price. Camp confirmed that, over 11 and a half months, Action Box ordered a sufficient quantity of materials from other suppliers to fulfill its obligations under the Discount Program and that, had Bogalusa sold it single wall products, Action Box would have placed these orders through Bogalusa. According to Camp, Gaylord never informed Action Box that it could only fill orders of single wall products in the amounts it generally made available to other customers, nor did Action Box know the amount of single wall sheet Gaylord generally made available to other customers. Camp stated that he would have accepted an offer from Bogalusa to partially fill the orders Action Box placed, and he still intended, as late as February 2005, to place orders under the Discount Program. Other Action Box representatives confirmed Action Box's intention to continue to place orders under the Discount Program, regardless of the ongoing disputes with Gaylord.
Don Sparaco testified on behalf of Gaylord, estimating that Gaylord had suffered $398,400 in lost profits as a result of Action Box's failure to complete the Discount Program by purchasing the required amount of $1,400,000 in products from the Bogalusa facility. Sparaco's estimate was based upon a general 8.46% profit margin for the facility, which would have amounted to $48,440 in profits upon $1,400,000 in sales, less the $70,000 in discounts promised to Action Box. Sparaco testified that the profit margin depended upon the product ordered, and that 8.46% was a conservative estimate of the profit Gaylord could have expected. In addition, Sparaco asserted that Gaylord's mill, which supplied Bogalusa with its raw materials, also suffered damages of $350,000 in profits lost from sales to the Bogalusa facility due to Action Box's failure to complete the Discount Program. In total, Sparaco testified that Gaylord suffered $397,388 in lost profits. Sparaco was cross-examined on his damages model, and admitted that he had not included a possible 2% discount for payments within 20 days. Sparaco also admitted that, even if Action Box had not placed orders for particular products, Gaylord could have used the raw materials and resources at issue to fulfill other customers' orders at full price, thus reducing its damages. Finally, Sparaco stated that he did not know the profit margin on single wall sheets. None of the testifying Gaylord employees stated that they ever informed Action Box that Bogalusa could supply it with smaller quantities of single wall product from its overrun supplies.
Both sides offered the testimony of their trial attorneys regarding the fees their clients accrued in prosecution and defense of the lawsuit. Martin Shellist, Action Box's trial counsel, testified at length regarding the fees incurred by his client. Shellist testified that the case, pending since 2004, was a complex commercial case involving legal issues that required the trial court's intervention. Shellist briefly described his involvement in the mediation and ensuing revival of litigation between Action Box and Gaylord, describing it as a "shame; a crying shame." Shellist testified that, in his opinion, the fees Action Box incurred were reasonable and necessary, and that the fees through trial were estimated to be over $290,000. Shellist also testified that he believed appellate fees would total over $135,000. Shellist was cross-examined by Gaylord's attorneys about the segregation of his firm's work on various causes of action and defenses raised by Action Box during the lawsuit.
Gaylord's trial counsel, John Newton, III, also testified about the fees his client incurred. Newton testified about fees and costs Gaylord incurred to (1) defeat Action Box's claim for the defective materials it ordered in 2003; (2) prosecute its counterclaim against Action Box for failing to dismiss the Texas Lawsuit as it had promised in the Settlement Agreement; and (3) prosecute its second counterclaim against Action Box for failing to complete the Discount Program in good faith. The total amount, including estimated trial time, was $373,701.40. Newton testified that Gaylord was not seeking to recover the fees it incurred in defending itself against Action Box's breach of contract claim. Like Shellist, Newton also testified that the case was complicated and time-intensive. Newton also testified that he believed attorney's fees could reasonably exceed the amount of damages in controversy because "[Y]ou can't stop working. You have to do the work."
Newton also stated that the fees incurred to defeat Action Box's claim for defective solid fiber board were incurred because Action Box failed to honor its commitment to dismiss the Texas Lawsuit with prejudice. According to Newton, Action Box's attorneys drafted a proposed dismissal with prejudice of the Texas Lawsuit, circulated it to Gaylord, but never filed it. Newton testified that Action Box instead continued to seek damages relating to the solid fiber board dispute into the fall of 2004, and that it was his professional opinion that it was necessary for Gaylord to actively seek the Court's intervention and have that claim dismissed from the litigation. Newton testified that he filed special exceptions and sent discovery requests to determine whether Action Box was indeed continuing to seek damages related to the pitted fiber board, and that he filed a motion for summary judgment on Gaylord's behalf to finally resolve the issue. According to Newton, all of these actions caused Gaylord to incur attorney's fees and costs. On cross-examination, Newton agreed that, even though Gaylord had expended a sum of money in seeing that Action Box's claims regarding the defective fiber board were finally dismissed, and it was his opinion that these actions were necessary to protect Gaylord's interests, the jury was the ultimate decision maker as to whether those fees were reasonably necessary. Newton was cross-examined regarding his segregation of fees and his contention that some categories of both Action Box's and Gaylord's attorneys' fees were not recoverable as a matter of law in the case.
Robert M. Roach, Jr., another of Gaylord's attorneys, also testified regarding Gaylord's attorney's fees. Roach specifically stated that all of the attorney's fees Gaylord incurred in order to get summary judgment were a direct result of Action Box's failure to dismiss the Texas Lawsuit. Roach also testified that a distinction existed between Action Box's decision not to prosecute its defective product claims in the Texas Lawsuit further and a dismissal of those claims and suit with prejudice.
[Counsel for Action Box:] Just having a case on file somewhere, does not necessarily cause a party to have any damages.
[Roach:] I disagree with that completely.
[Counsel for Action Box:] Okay. A party only has damages if they - if another party actually pursues the case against them and gets a judgment, isn't that right, sir?
[Roach:] No, sir, that's silly.
[Counsel for Action Box:] How am I wrong about that, sir?
[Roach:] Well, I teach my students and associates if a lawsuit is pending against you, you cannot sit on your hands and do nothing. You have been sued. And you have got to affirmatively protect your client as long as that lawsuit is on - is on file.
So it would be, in my opinion, silly and malpractice to treat this as - as not being there and something you could ignore.
[Counsel for Action Box:] Yes, sir. What about a lawsuit that has been released?
[Roach:] If it has not been dismissed with prejudice when it is supposed to be dismissed with prejudice, you have a problem that you have to take very seriously. And this lawsuit, and that fact that we are here today, is evidence that if you don't take it seriously you are making a big mistake.
A third expert witness, John Spalding, also testified on Gaylord's behalf regarding attorney's fees. Spalding testified that he believed Action Box had made a strategic decision not to dismiss the Texas Lawsuit, even though it had agreed to do so in the Settlement Agreement, so that the Texas Lawsuit would remain in force in case Gaylord sought to file a Louisiana Lawsuit over any disputes that might arise under the Discount Program. Spalding based this opinion on statements made in Action Box's bills for its attorneys' time, which revealed that Action Box's attorneys conducted research on the "first filed rule"--a rule courts generally follow when two lawsuits are filed in different forums, requiring the latter-filed suit to stop and wait for the resolution of the earlier suit. (1) Spalding also generally opined as to the necessity and reasonableness of the fees in the case, stating that Action Box's fees appeared to be too high and include mistaken entries and some double-invoicing and that Gaylord's fees appeared to be generally reasonable, with the exception of some mistaken entries.
The Jury's Verdict
At trial, the jury found that both Gaylord and Action Box had breached the Settlement Agreement. The jury found that Gaylord breached the Settlement Agreement by, on October 14, 2004 and January 14, 2005, failing to peg its prices to the then-current prices being paid by Action Box for the same goods that Action Box purchased from competitors. The jury found that Gaylord's breach of the Settlement Agreement was material, and assessed benefit of the bargain damages for Action Box of $13,378.27. The jury awarded Action Box $158,696.97 in attorney's fees for preparation and trial, but did not award any attorney's fees for appeal.
The jury also found that Action Box's failure to dismiss the Texas Lawsuit was a material breach of the Settlement Agreement, and awarded Gaylord $5,070 as damages for the cost of defending the lawsuit after Action Box failed to dismiss it. The jury did not award Gaylord any additional attorney's fees.
The jury was specifically asked which party failed to comply with the Settlement Agreement first. The jury found that Action Box had been the first to fail to comply with the Settlement Agreement.
The Trial Court Enters JNOV
Gaylord's Motion for JNOV
After the jury's verdict, Gaylord moved for entry of judgment based on the jury's verdict and for judgment notwithstanding the verdict. Gaylord asked the court to enter judgment in accordance with the jury's answers to Questions 13 and 16-- that Action Box's failure to dismiss the Texas Lawsuit was a material breach of the Settlement Agreement, and that Action Box was the party that first breached the Settlement Agreement. Further, Gaylord argued that the jury's answers to Questions 2 and 3--that Gaylord had failed to comply with the Settlement Agreement by refusing to peg its prices in accordance with the Agreement--should be disregarded in light of the jury's findings that Action Box committed the first material breach of the Settlement Agreement. Alternatively, Gaylord argued that the evidence was insufficient to support the jury's answer to Questions 2 and 3. Based upon its arguments that the jury's answers to Questions 2 and 3 should be disregarded, Gaylord also argued that Action Box was not entitled to recover its attorney's fees.
Gaylord also asked the trial court to enter judgment in accordance with the jury's answers to Questions 1, 4, and 5--that Gaylord had not breached the Settlement Agreement by not filling orders Action Box placed on July 6, 2004; March 22, 2005; October 12, 2005. (2)
In addition to seeking judgment based upon the jury's answers that Action Box had been the first to breach the Settlement Agreement, and that Action Box had materially breached the Settlement Agreement by failing to dismiss the Texas Lawsuit, Gaylord asked the trial court to award it more damages than the jury had awarded as damages for Action Box's failure to dismiss the Texas Lawsuit. Instead of the $5,070 awarded by the jury for Action Box's failure to dismiss the lawsuit, Gaylord argued that the evidence conclusively established it suffered damages in the amount of $463,055.76--$65,667.76 in fees and costs related to the lawsuit and $397,388 in benefit of the bargain damages lost as a result of Action Box's failure to fulfill its purchasing obligations under the Settlement Agreement. Similarly, Gaylord asked the court to enter judgment notwithstanding the jury's answer to Question 15--that, despite Action Box's material breach and Gaylord's damages, Gaylord was not entitled to any attorney's fees.
Finally, Gaylord asked the trial court to disregard the jury's answer to Question 19--that Action Box had not failed to comply with its obligation under the Settlement Agreement to make a good faith effort to complete the Discount Program by November 30, 2004 or a reasonable date thereafter. Instead, Gaylord argued that it was entitled to judgment that Action Box had not acted in good faith under the Settlement Agreement and that it was also entitled to receive its benefit of the bargain damages and attorney's fees. Action Box's Motion for JNOV
Action Box also moved for judgment notwithstanding the verdict. Action Box argued that, while the jury found that Action Box was the first to breach the Settlement Agreement, that the breach was not material and therefore did not excuse Gaylord's performance under the Discount Program. Accordingly, Action Box argued that it was entitled to judgment in its favor on its breach of contract claims against Gaylord. Further, Action Box argued that it was entitled to the full measure of its alleged benefit of the bargain damages--more than the $13,378.27 awarded by the jury. Instead, Action Box moved for an award of $69,378.27--the unused amount of the $70,000 discount that Gaylord promised in the Settlement Agreement.
Final Judgment
The trial court entered judgment in favor of Action Box, awarding $69,378.27 for Gaylord's breach of the Settlement Agreement and $158,696.97 in attorney's fees and costs for preparation and trial. The trial court did not award any attorney's fees on appeal.
Gaylord filed a motion for new trial. Action Box filed a motion to amend the judgment, arguing that it was entitled to its appellate attorney's fees in the amount of $85,000. Both Gaylord and Action Box now appeal the trial court's judgment.
ANALYSIS
I. Standard of Review
A party with the burden of proof at trial is entitled to JNOV on a particular issue only if evidence establishes that issue as a matter of law. Cain v. Pruett, 938 S.W.2d 152, 160 (Tex. App.--Dallas 1996, no writ). A trial court may not properly disregard a jury's negative finding and substitute its own affirmative finding unless the evidence conclusively establishes the issue. Burns v. Resolution Trust Corp., 880 S.W.2d 149, 154 (Tex. App.--Houston [14th Dist.] 1994, no writ). Similarly, when a party who did not have the burden of proof at trial requests a judgment notwithstanding the verdict, it must show there is no evidence upon which the jury could have relied for its findings. Thompson v. Henderson, 45 S.W.3d 283, 287 (Tex. App.--Dallas 2001, pet. denied).
We review the trial court's entry of a JNOV under a legal sufficiency standard. See City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005) ("[T]he test for legal sufficiency should be the same for summary judgments, directed verdicts, judgments notwithstanding the verdict, and appellate no-evidence review."). City of Keller confirms the four instances in which a legal sufficiency challenge must be sustained, as follows: (1) there is complete absence of a vital fact; (2) the rules of law or evidence preclude according 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 scintilla; and (4) the evidence conclusively establishes the opposite of a vital fact. 168 S.W.3d at 810 & n.16 (citing, among other cases, King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003)).
In applying the legal-sufficiency standard, we must credit evidence that supports the judgment if reasonable jurors could credit that evidence, and we must disregard contrary evidence unless reasonable jurors could not disregard that evidence. Id. at 827. Accordingly, we review the evidence in the light most favorable to the verdict, but disregard all contrary evidence that a reasonable jury could have disbelieved. Ysleta Indep. Sch. Dist. v. Monarrez, 177 S.W.3d 915, 917 (Tex. 2005) (citing City of Keller, 168 S.W.3d at 812). If the evidence falls within the zone of reasonable disagreement, we may not invade the role of the fact-finder, who alone determines the credibility of the witnesses, the weight to give their testimony, and whether to accept or reject all or any part of that testimony. City of Keller, 168 S.W.3d at 822. A fact-finder is free to believe all, part, or none of the testimony of a witness, but a fact-finder's "decisions regarding credibility must be reasonable." Id. at 820. The fact-finder, however, "cannot ignore undisputed testimony that is clear, positive, direct, otherwise credible, free from contradictions and inconsistencies, and could have been readily controverted." Id.
II. Did the trial court err by entering JNOV that Action Box recover on its claim against Gaylord and that Gaylord take nothing on its claim against Action Box?
The jury found that both Action Box and Gaylord had materially breached the Agreement, and that both had incurred damages as a result of the other's breach. The jury also found, however, that Action Box had committed the first material breach. The trial court disregarded the jury's finding that Action Box had committed the first material breach, and entered JNOV that Action Box should recover from Gaylord and that it should recover more damages than the jury had awarded.
The materiality of Action Box's breach of the Settlement Agreement by failing to dismiss the Texas Lawsuit was an issue on which Gaylord carried the burden of proof. Accordingly, we review the record to determine whether there was no evidence supporting the jury's finding that Action Box's failure to dismiss the Texas Lawsuit was a material breach of the Settlement Agreement.
The essential elements in a suit for breach of contract are: (1) the existence of a valid contract; (2) the plaintiff performed or tendered performance; (3) the defendant breached the contract; and (4) the plaintiff was damaged as a result of the breach. Bank of Tex. v. VR Elec., Inc., 276 S.W.3d 671, 677 (Tex. App.--Houston [1st Dist.] 2008, pet. denied); Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.--Houston [1st Dist.] 2002, pet. denied). "A breach of contract occurs when a party fails to perform an act that it has expressly or impliedly promised to perform." Case Corp. v. Hi-Class Bus. Sys. of Am., Inc., 184 S.W.3d 760, 769-70 (Tex. App.--Dallas 2005, pet. denied). A material breach by one party to a contract can excuse the other party from any obligation to perform. See Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004) ("It is a fundamental principle of contract law that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from further performance."); Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 692 (Tex. 1994). Whether a party to a contract has breached the contract is generally a question of law for the court, which determines as a matter of law what the contract requires of the parties. See Meek v. Bishop Peterson & Sharp, P.C., 919 S.W.2d 805, 808 (Tex. App.--Houston [14th Dist.] 1996, writ denied). On the other hand, the materiality of a breach--the question of whether a party's breach of a contract will render the contract unenforceable--generally presents a dispute for resolution by the trier of fact. See Cont'l Dredging, Inc. v. De-Kaizered, Inc., 120 S.W.3d 380, 394-95 (Tex. App.--Texarkana 2003, pet. denied) (citing Hudson v. Wakefield, 645 S.W.2d 427, 430 (Tex. 1983)); Tex. Pattern Jury Charges 101.21-.22 (proposing jury question on whether defendant's failure to comply with contract was excused, and instructing that defendant's failure to comply is excused by plaintiff's previous failure to comply with a material obligation of the same agreement). Materiality may be, however, a question of law in some cases. See, e.g., Mustang Pipeline Co., 134 S.W.3d at 196, 199 (holding that, because Driver's timely performance was "essential" under terms of agreement, and Driver undisputedly did not timely perform, materiality of Driver's breach was question of law that did not require resolution by trier of fact).
Question No. 13 asked the jury, "Was Action Box's failure to dismiss the 'Texas Action' as defined in the Settlement Agreement a material breach of the Settlement Agreement?" The Question instructed the jury that the circumstances to be considered in determining whether a breach of an agreement is material included:
(a) the extent to which the injured party will be deprived of the benefit he reasonably expected;
(b) the extent to which the injured part can be adequately compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of the circumstances including any reasonable assurances; [and]
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
The jury answered, "Yes." In Question 14, the jury awarded $5,070 for Gaylord's damages, which the question defined as "[t]he cost in defending this lawsuit after Action Box failed to dismiss it, including but not limited to, attorney's fees and expenses associated with defending this suit." In Question 15, the jury did not award any additional attorney's fees relating to Action Box's failure to dismiss the Texas Lawsuit. In Question 16, the jury was asked, "Who failed to comply with the Settlement Agreement first?" The jury answered, "Action Box."
Despite the jury's answers, the trial court entered JNOV in favor of Action Box. Gaylord now argues that the trial court erred because there was some evidence supporting the jury's finding that Action Box's failure to dismiss the Settlement Agreement was a material breach of the Settlement Agreement. On appeal, the parties do not take issue with the phrasing of the jury question submitted, and Action Box does not argue that its failure to dismiss the Texas Lawsuit was not a breach of the Settlement Agreement. Instead, the parties dispute whether there was any evidence supporting the jury's verdict that the failure to dismiss the Texas Lawsuit with prejudice was "material." Action Box's briefing essentially concedes it failed to comply with the Settlement Agreement, but it argues that the Agreement did not specify a deadline by which it was to dismiss the Texas Lawsuit, Gaylord did not suffer any damages, and its failure to dismiss the Texas Lawsuit therefore cannot, as a matter of law, be a material breach excusing Gaylord's performance of the Discount Program.
The Settlement Agreement explicitly stated that its purpose was to allow Gaylord and Action Box to "avoid further time, expense and the uncertaint[ies] involved in the lawsuit[s]." The evidence at trial showed that Gaylord and Action Box had entered into the Settlement Agreement after a mediation involving a number of the people who actually testified at trial, and that both sides expected the Settlement Agreement to resolve the differences between them and allow them to continue to do business with each other. There is no dispute that, after it received Action Box's payment under the Settlement Agreement, Gaylord dismissed the Louisiana Lawsuit. The course of dealing between the parties quickly deteriorated after that. There was some evidence, based upon the timing of the events at issue, that could have reasonably led the jury to infer that the soured relationship was due, in some part, to Action Box's failure to dismiss the still-pending Texas Lawsuit, thus depriving Gaylord of the benefit it sought in the Settlement Agreement and supporting a finding by the jury that Action Box's breach failed to "comport[] with standards of good faith and fair dealing."
In addition, Gaylord's attorney testified that, as a result of Action Box's failure to dismiss the Texas Lawsuit as it had promised, he contacted Action Box's attorneys' to ask them to dismiss the Texas Lawsuit with prejudice and that he even reviewed and signed an agreed dismissal with prejudice that Action Box's attorneys prepared and circulated to Gaylord but that Action Box then failed to file with the trial court. Once the litigation over the failed Settlement Agreement began in earnest, Gaylord's attorneys' took steps to clarify Action Box's pleadings as to whether Action Box was still seeking damages for the claims it raised regarding the pitted cardboard, or whether Action Box was now solely limiting itself to the allegation that Gaylord was obligated to sell single wall sheets to Action Box, and to peg its prices to a competitive price, conducted discovery on the issue, and filed a motion for summary judgment. There was testimony that Action Box's failure to dismiss the Texas Lawsuit was a "strategic" decision Action Box made to ensure any further litigation would be based in Texas rather than Louisiana, and that Gaylord's attorneys expended time and effort to finally defeat any pending claims relating to the pitted cardboard, thus incurring damages in the form of attorney's fees for Gaylord.
The plain terms of the Settlement Agreement called for Action Box to dismiss the pending Texas Lawsuit "with prejudice," thus closing the chapter on the original Gaylord-Action Box dispute regarding the pitted cardboard. A dismissal with prejudice is the final resolution of a controversy, and the claims raised in the lawsuit cannot be re-litigated. See, e.g., Mossler v. Shields, 818 S.W.2d 752, 754 (Tex. 1991) (per curiam) ("[I]t is well established that a dismissal with prejudice functions as a final determination on the merits."); accord Ritchey v. Vasquez, 986 S.W.2d 611, 612 (Tex. 1999) (per curiam). As Gaylord's attorneys testified, a dismissal with prejudice is distinct from an instance in which a party files a lawsuit and then decides to delay or avoid prosecution of that lawsuit without achieving a final resolution of the claims. Here, the jury heard evidence from Gaylord's attorneys that Gaylord expected Action Box to dismiss the Texas Lawsuit with prejudice after the Settlement Agreement was in effect, and it was their professional opinion that Gaylord was required to defend itself against any lingering claims Action Box may have been raising in the Texas Lawsuit relating to the pitted fiber board, notwithstanding the fact that those claims had been released in the Settlement Agreement. Gaylord's attorney testified that, in his opinion, it would have been "malpractice" for Gaylord's attorneys to fail to take action to finally defeat the claim filed against their client, and that Gaylord suffered damages in the form of attorney's fees and costs as a result of having to finally defeat any claims relating to the pitted fiber board. Action Box did not present any evidence to the contrary, but instead contended that its live pleadings, after September 2004, did not relate to the pitted fiber board.
Accordingly, there was more than a scintilla of evidence supporting the jury's finding that Action Box materially breached the Settlement Agreement by failing to dismiss the Texas Lawsuit and requiring Gaylord to take action to finally resolve these claims to achieve the benefit it sought in the Settlement Agreement. We sustain this part of Gaylord's first issue, and hold that the trial court erred when it entered JNOV in favor of Action Box and disregarded the jury's finding that Action Box was the first to materially breach the Settlement Agreement.
III. Did Gaylord conclusively establish that it is entitled to $463,055.76 as damages for Action Box's failure to dismiss the Settlement Agreement?
As noted above, the jury found that Gaylord was entitled to $5,070 in damages, including attorney's fees, as a result of Action Box's failure to dismiss the Texas Lawsuit. Having found in favor of Gaylord on its breach of contract claim against Action Box for failure to dismiss the Settlement Agreement, we next turn to the issue of Gaylord's damages stemming from Action Box's failure to dismiss the Settlement Agreement. In part of its first issue and in its second issue on appeal, Gaylord argues that it should recover $463,055.76 as damages for Action Box's failure to dismiss the Lawsuit because it contends that it conclusively established at trial, as a matter of law, that it was entitled to such damages in the form of lost profits and attorney's fees. We disagree.
First, the testimony on Gaylord's lost profits fell far short of "conclusive." Don Sparaco testified regarding Gaylord's general profit margin on the Bogalusa plant, and based upon that profit margin he conservatively estimated that the Bogalusa plant and the mill would have earned a combined profit of $398,440 if Action Box had purchased the full $1.4 million in products under the Discount Program. Sparaco's testimony was undermined, however, by his admission that he had not included a 2% discount for prompt payment as called for by the Settlement Agreement, and by his admission that he did not know the underlying costs of production for the products listed in the Settlement Agreement. Further, his testimony as to the actual lost profits was contradicted by his admission that the Bogalusa plant had been able to use the raw materials and processing effort that it would have directed to filling Action Box's orders under the Discount Program to filling orders for other customers at full price--thus presumably making rather than losing money for the Bogalusa facility.
Second, the jury heard a great deal of testimony regarding the nature of the dispute between the two parties, and was the ultimate decision maker as to the reasonableness and necessity of the attorney's fees incurred by Gaylord. Gaylord asks us to award the full amount of attorney's fees it claims it incurred as a result of Action Box's failure to dismiss the Texas Lawsuit with prejudice. Gaylord points to testimony from its attorneys at trial and argues that the evidence conclusively established that it incurred $65,667.76 in attorney's fees and expenses as a result of Action Box's failure to dismiss the Texas Lawsuit, and complains that the jury essentially awarded it nothing on attorney's fees. We note, however, that the jury's award of $5,070 in response to Question 14 specifically included "[t]he cost in defending this lawsuit after Action Box failed to dismiss it, including but not limited to, attorney's fees and expenses associated with defending this suit." Gaylord does not complain on appeal that the question was improper. Thus, under the plain language of the question submitted, Gaylord did recover some of its attorney's fees related to Action Box's failure to dismiss the Texas Lawsuit.
Further, Gaylord's attorneys were subject to cross-examination on the amount of time they spent on the matters to which they testified, and the jury could have legitimately found that the attorney's fees in excess of $5,070 were not reasonable in light of the circumstances of this case, which included breaches of the Settlement Agreement by both parties and an admittedly long history of contention between Gaylord and Action Box.
"The reasonableness of attorney's fees is ordinarily left to the factfinder, and a reviewing court may not substitute its judgment for the jury's." Smith v. Patrick W.Y. Tam Trust, 296 S.W.3d 545, 547 (Tex. 2009) (citing Barker v. Eckman, 213 S.W.3d 306, 314 (Tex. 2006); Ragsdale v. Progressive Voters League, 801 S.W.2d 880, 881 (Tex. 1990)). In Ragsdale, the Texas Supreme Court noted that generally, "the testimony of an interested witness, such as a party to the suit, though not contradicted, does no more than raise a fact issue to be determined by the jury." 801 S.W.2d at 882. It recognized "an exception to this rule, which is that where the testimony of an interested witness is not contradicted by any other witness, or attendant circumstances, and the same is clear, direct and positive, and free from contradiction, inaccuracies, and circumstances tending to cast suspicion thereon, it is taken as true, as a matter of law." Id. Here, the evidence about attorney's fees was subject to extensive cross-examination as to its necessity and reasonableness.
Ragsdale recognized that its rule would not apply every time that attorney's fees testimony is undisputed:
[W]e do not mean to imply that in every case when uncontradicted testimony is offered it mandates an award of the amount claimed. For example, even though the evidence might be uncontradicted, if it is unreasonable, incredible, or its belief is questionable, then such evidence would only raise a fact issue to be determined by the trier of fact.
Id. A jury may still find uncontroverted testimony unreasonable if the attendant circumstances contradict the requested fees. See Stewart Title Guar. Co. v. Aiello, 911 S.W.2d 463, 477 (Tex. App.--El Paso 1995) (holding it is not error for jury to reduce uncontested attorney's fees), rev'd on other grounds, 941 S.W.2d 68 (Tex. 1997); see also Bethel v. Butler Drilling Co., 635 S.W.2d 834, 842 (Tex. App.--Houston [14th Dist.] 1982, writ ref'd n.r.e.) (holding jury can award less than uncontradicted evidence supported for attorney's fees).
The evidence regarding attorney's fees Gaylord incurred was subject to cross-examination, and even Gaylord's own expert admitted that some of the time for which Gaylord sought reimbursement was not recoverable. Each side extensively cross-examined the other about which claims were recoverable and whether the attorneys had properly segregated their time on the recoverable and non-recoverable claims. Further, the attendant circumstances of this case--including but not limited to the number of lawyers for each side, especially Gaylord, who had three experts on attorney's fees alone; the protracted history of litigation between the parties; the questionable conduct of each side in relation to the Settlement Agreement; and the overall harm, other than attorney's fees, that Gaylord suffered as a result of Action Box's failure to dismiss the Texas Lawsuit--could have reasonably supported the jury's decision to award Gaylord less than the full amount of attorney's fees that it requested.
Because Gaylord did not "conclusively establish" that it was entitled to $463,055.76 in damages, and because Question 14 included an award of attorney's fees to Gaylord, we find that the evidence supports the jury's award of $5,070 in Gaylord's favor. We overrule Gaylord's second issue.
IV. Is there sufficient evidence to support the jury's finding that Action Box did not breach the Settlement Agreement by failing to "make a good faith effort to complete the Discount Program" in a timely fashion?
Gaylord argues that Action Box did not present sufficient evidence that it complied with the ordering procedure set forth in the Settlement Agreement, and that Gaylord is entitled to its "conclusively established" damages as a result. We construe this as an attack on the jury's answer to Question 9. Question 9 asked whether Action Box had breached the Settlement Agreement by failing to make a good faith effort to complete the Discount Program by November 30, 2004, or a reasonable time thereafter. The jury answered, "No."
While Gaylord argued otherwise during trial, Action Box's employees repeatedly testified that they desired to have orders filled by the Bogalusa plant in an effort to fulfill the Discount Program and thus recoup some of the $70,000 in discounts to which Action Box was entitled under the Settlement Agreement. Although those orders did not always conform to the specifics of the products offered by the Bogalusa plant, the jury heard testimony and saw evidence that Action Box submitted orders to Bogalusa and to other competitors and that it fully intended to complete the Discount Program within the required time frame. Gaylord failed to conclusively establish that Action Box breached the Settlement Agreement by failing to make a good faith effort to complete the Discount Program by November 30, 2004, or a reasonable time thereafter, and there is sufficient evidence to support the jury's verdict. Accordingly, we overrule Gaylord's third issue on appeal.
V. Is there sufficient evidence to support judgment on Action Box's breach of contract against Gaylord for breach of the Settlement Agreement?
In its fourth point of error, Gaylord argues that the jury's finding that it breached the Settlement Agreement when it failed to fulfill Action Box's October 14, 2004 and January 14, 2005 orders is not supported by sufficient evidence. Because the evidence supports the jury's finding that Action Box was the first party to materially breach the Settlement Agreement, any subsequent breaches by Gaylord were then excused as a matter of law. Accordingly, we do not reach this issue.
VI. Did the trial court err by failing to award Action Box its attorney's fees for appeal?
We next turn to Action Box's cross-issue on appeal. (3) Action Box argues that the trial court erred by failing to include any amount for appellate attorney's fees in the judgment in favor of Action Box. Because we have found that the evidence supports the jury's finding that Action Box was the first party to materially breach the Settlement Agreement, Action Box is not entitled to recover its attorney's fees. Accordingly, we overrule Action Box's issue on appeal.
CONCLUSION
We sustain Gaylord's first issue on appeal and reverse the trial court's JNOV in favor of Action Box. We overrule Gaylord's second, third and fourth issues on appeal. In accordance with the jury's findings that both parties materially breached the Settlement Agreement, that Action Box was the party that committed the first material breach, and that Gaylord suffered $5,070.00 in damages, including attorney's fees, as a result of Action Box's material breach, we render judgment in favor of Gaylord in the amount of $5,070.00.
George C. Hanks, Jr.
Justice
Panel consists of Justices Jennings, Hanks and Bland.
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