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Opinion filed September 11, 2008
In The
Eleventh Court of Appeals
___________
No. 11-06-00334-CV
__________
BILLY TUCKER, DWAYNE KLEIN,
AND ANTHONY KLEIN, Appellants
V.
INTER-AMERICAN OIL WORKS, INC.; TEXAS OIL WORKS
SUPPLY, INC.; JOHNNY KIDD; KENNETH BLACK; AND
THOMAS LUTTRELL, Appellees
On Appeal from the 244th District Court
Ector County, Texas
Trial Court Cause No. C-106,244
M E M O R A N D U M O P I N I O N
This appeal arises from a suit filed by three former employees of a newly formed, close corporation. They asserted a breach of an oral agreement for them to be issued 49% of the corporate stock of the new corporation at the outset of its formation and operation. The jury agreed with the employees= assertion of the existence and breach of an oral agreement to issue stock to them. However, the jury determined that the employees did not incur damages as a result of the breach. The employees challenge the jury=s findings in five issues. We affirm.
Background Facts
Appellants, Dwayne Klein, Anthony Klein, and Billy Tucker, decided to open an oil field repair business in February 1997.[1] As a result of a chance meeting between Anthony Klein and Johnny Kidd of Inter-American Oil Works, Inc., appellants met with Kidd, Kenneth Black, and Thomas Luttrell of Inter-American for the purpose of discussing appellants= intended business venture. Inter-American agreed to finance the launch of Texas Oil Works Supply, Inc. as an oil field repair business with appellants serving as the principal employees of the new corporation. Appellants asserted that the parties had an oral agreement for the three of them to be issued 49% of the corporate stock of Texas Oil Works Supply at the outset of their employment in 1997. As noted, the jury agreed with their allegation of the existence and breach of this oral agreement.
Appellants were terminated as employees of Texas Oil Works Supply in the summer of 1998. The terminations were prompted by allegations that appellants had engaged in illegal activities in operating the corporation. In this regard, Anthony Klein pleaded guilty to a federal charge of aiding and abetting in the transportation of stolen goods. Appellees asserted a counterclaim against appellants alleging that they misappropriated the corporation=s inventory and charged customers for items that were never delivered. The jury rendered a verdict in favor of appellees on their counterclaim solely against Anthony Klein in the amount of $49,621.72 by finding that he breached a fiduciary duty owed to the corporation.
Kidd, Black, and Luttrell continued to operate Texas Oil Works Supply after appellants were terminated in 1998. Kidd testified that sales for the business dropped from $200,000 to $30,000 a month immediately after appellants were terminated. He estimated that Inter-American invested $250,000 into the business after the terminations for Adamage control@ to repay customers for stolen products and falsified invoices. Texas Oil Works Supply did not become profitable again until approximately a year after the terminations. Kidd testified that the company lost revenue of $1,000,000 in the one-year period after appellants were terminated and that the company lost profits of $250,000 as a result of the loss of revenue. Kidd, Black, and Luttrell subsequently sold Texas Oil Works Supply=s assets for $800,000 in 2001.
Issues
Appellants challenge the legal and factual sufficiency of the evidence supporting the award of damages against Anthony Klein in the amount of $49,621.72 in their first and second issues. In their third and fourth issues, appellants challenge the legal and factual sufficiency of the evidence supporting the jury=s Azero@ answer for the damages they incurred as a result of the breach of the oral agreement to issue stock. Appellants= fifth issue challenges the admission of five Acredit memos@ into evidence in support of appellees= counterclaim.
AZero@ Damages for Failure to Issue Corporate Stock
When a party attacks the legal sufficiency of an adverse finding on an issue on which he has the burden of proof, he must demonstrate on appeal that the evidence establishes, as a matter of law, all vital facts in support of the issue. Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989). In reviewing a Amatter of law@ challenge, the reviewing court must first examine the record for evidence that supports the finding, while ignoring all evidence to the contrary. Sterner, 767 S.W.2d at 690. If there is no evidence to support the finding, the reviewing court will then examine the entire record to determine if the contrary proposition is established as a matter of law. Sterner, 767 S.W.2d at 690. A party attacking the factual sufficiency of an adverse finding on an issue on which he has the burden of proof must demonstrate on appeal that the adverse finding is against the great weight and preponderance of the evidence. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001). In reviewing an issue asserting that a finding is against the great weight and preponderance of the evidence, we must consider and weigh all of the evidence and set aside the finding only if the evidence is so weak or the finding is so contrary to the great weight and preponderance of the evidence as to be clearly wrong and unjust. Dow Chem. Co., 46 S.W.3d at 242; In re King=s Estate, 244 S .W.2d 660, 661 (Tex. 1951). We review the evidence but may not substitute our opinion for that of the jury, as it is the jury=s role to judge the credibility of witnesses, to assign the weight afforded their testimony, and to resolve inconsistencies within or conflicts among the witnesses= testimony. Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003).
In a breach of contract action for failure to transfer shares of a closely held corporation, the proper measure of damages is the fair market value of the stock. Willis v. Donnelly, 118 S.W.3d 10, 40 (Tex. App.CHouston [14th Dist.] 2003), aff=d in part and rev=d in part on other grounds, 199 S.W.3d 262, 279 (Tex. 2006). The stock is to be valued at the time of the alleged breach or injury. Id. at 41. Market value of closed‑corporate stock is what a willing purchaser would pay to a willing seller under no compulsion to sell. Id.; InterFirst Bank Dallas, N.A. v. Risser, 739 S.W.2d 882, 889 (Tex. App.CTexarkana 1987), disapproved on other grounds by Tex. Commerce Bank, N.A. v. Grizzle, 96 S.W.3d 240 (Tex. 2002). When stock sales do not exist upon which fair market value may be determined, other methods of assessing fair market value must be utilized. See Willis, 118 S.W.3d at 41. If there is no evidence of fair market value, the value of stock in a closely held corporation is predicated upon the market value of the assets of the company after deducting its liabilities. See id.; Williams v. Gaines, 943 S.W.2d 185, 193 (Tex. App.CAmarillo 1997, writ denied).
Appellants assert that the evidence conclusively established the value of the stock they should have received based upon the sale of the assets of Texas Oil Works Supply in 2001 for $800,000. We disagree. As noted in the previous paragraph, the relevant date for valuing the stock to determine the amount of appellants= possible damages is the date of the alleged breach or injury. Appellants asserted that they were supposed to receive 49% of the stock at the outset of the corporation=s formation in 1997. Dwayne Klein testified that he confronted Kidd in September of 1997 to inquire about the company=s failure to issue appellants= stock to them. Kidd testified that he presented appellants with employment contracts after the meeting that addressed their employment and the issuance of the stock. Kidd requested his attorney to prepare stock certificates for appellants, but the certificates were never executed because appellants would not sign the proposed employment contracts.
Based upon appellants= contentions, the controlling date for valuing the stock occurred in 1997 because that is when appellees breached the agreement to convey the stock. At the latest, the breach occurred at some point prior to appellants= termination in 1998. The sale price of the corporation=s assets approximately three years later is not conclusive evidence of the fair market value of the stock at the inception of the corporation. Appellants= third issue is overruled.
We also conclude that the jury=s Azero@ answer is not against the great weight and preponderance of the evidence. In this regard, the parties presented very little evidence of the fair market value of the corporation=s stock at the outset of its operations or at any point prior to appellants= termination. While Kidd testified that the corporation started with $50,000 to $75,000 in inventory, there is no evidence of the corporation=s liabilities or whether the corporation=s assets exceeded its liabilities. From a post-termination perspective, there is evidence that Inter-American injected a large amount of capital to cover customer=s reimbursement claims. Additionally, Texas Oil Works Supply lost $1,000,000 in revenue and $250,000 in profits after the terminations. The evidence of these negative changes in the company=s finances supports the jury=s determination that appellants did not incur any damages as a result of the breach of the oral agreement. Appellants additionally argue that the corporation=s stock was worth at least $1,000 based upon a recital in its articles of incorporation. However, book value is entitled to little, if any, weight in determining the value of a corporation=s stock. Bendalin v. Delgado, 406 S.W.2d 897, 900‑01 (Tex. 1966). Appellant=s fourth issue is overruled.
Admissibility of Financial Documents
In their fifth issue, appellants challenge the trial court=s admission of five documents offered by appellees into evidence. Appellants contend that the trial court erred in denying their relevancy objections to these items of evidence. We review a trial court=s evidentiary rulings for abuse of discretion. See Owens‑Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex. 1998). Unless the trial court=s erroneous evidentiary ruling probably caused the rendition of an improper judgment, we will not reverse the ruling. See id. Evidence must be relevant to be admissible. Tex. R. Evid. 402. Evidence is relevant if it has Aany tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.@ Tex. R. Evid. 401.
Defendant=s Exhibit No. 12 constituted a check from Texas Oil Works Supply to ADawson@ in the amount of $16,984.80. Black testified that Texas Oil Works Supply issued this check to reimburse Dawson for fabricated invoices. Defendant=s Exhibit No. 13 constituted another check to Dawson. Appellees= counsel advised the court that this check also represented a reimbursement for falsified invoices. Kidd testified that Defendant=s Exhibit Nos. 14, 15, and 16 constituted credit memos for amounts reimbursed by Texas Oil Works Supply to its customers for falsified invoices.
The trial court did not abuse its discretion by overruling appellants= relevancy objections to these documents.[2] Appellees premised their counterclaim against Anthony Klein on the contention that he falsified customer=s invoices and that they incurred damages for his actions by having to reimburse their customers. Based upon the testimony that accompanied the admission of these documents, the documents were relevant to establishing the amount of reimbursement sought by appellees. Appellants= fifth issue is overruled.
Damages Against Anthony Klein
Appellants do not contest the jury=s determination that Anthony Klein breached a fiduciary duty he owed to Texas Oil Works Supply. However, they challenge the legal and factual sufficiency of the evidence supporting the jury=s finding that Texas Oil Works Supply incurred damages of $49,621.72 as a result of his breach.
A legal sufficiency challenge may only be sustained when (1) the record discloses 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 establishes conclusively the opposite of a vital fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998). In determining whether there is legally sufficient evidence to support the finding under review, we must consider evidence favorable to the finding if a reasonable factfinder could, and disregard evidence contrary to the finding unless a reasonable factfinder could not. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). An assertion that the evidence is factually insufficient to support a fact finding means that the evidence supporting the finding is so weak or the evidence to the contrary is so overwhelming that the answer should be set aside and a new trial ordered. Garza v. Alviar, 395 S.W.2d 821, 823 (Tex. 1965). We are required to consider all of the evidence in the case in making this determination, not just the evidence that supports the finding. Mar. Overseas Corp. v. Ellis, 971 S.W.2d 402, 406‑07 (Tex. 1998).
The damage question included two elements for the jury to consider: (1) Texas Oil Works Supply=s lost profits and (2) the reasonable and necessary costs for Texas Oil Works Supply to reimburse its customers. We focus our attention on the second element. The jury=s damage determination of $49,621.72 equals the sum of the amounts represented by Defendants= Exhibit Nos. 12, 13, 14, 15, and 16. The jury=s damage calculation is supported by legally and factually sufficient evidence because it coincides with the exact amount of reimbursement reflected in the documentary evidence. Appellants= first and second issues are overruled.
This Court=s Ruling
The judgment of the trial court is affirmed.
TERRY McCALL
JUSTICE
September 11, 2008
Panel consists of: Wright, C.J.,
McCall, J., and Strange, J.
[1]Dwayne Klein is Anthony Klein=s father. Billy Tucker is Dwayne Klein=s brother-in-law and Anthony Klein=s uncle by marriage.
[2]We note that appellants did not object to the admission of Defendant=s Exhibit No. 12 at the time it was admitted into evidence.