Dynegy, Inc. v. Terry W. Yates, Individually, and Terry W. Yates, P.C.

i i i i i i

OPINION

No. 04-10-00041-CV

DYNEGY, Inc.,
Appellant

v.

Terry W. YATES, Individually, and Terry W. Yates, P.C.,
Appellees

From the 127th Judicial District Court, Harris County, Texas
Trial Court No. 2005-37892
Honorable Sharolyn P. Wood, Judge Presiding

OPINION ON APPELLEES’ MOTION FOR REHEARING

Opinion by: Phylis J. Speedlin, Justice

Sitting: Catherine Stone, Chief Justice
Phylis J. Speedlin, Justice
Marialyn Barnard, Justice

Delivered and Filed: February 23, 2011

REVERSED AND RENDERED

The panel, on its own motion, has reconsidered the motion for rehearing filed by appellees,

Terry W. Yates, Individually, and Terry W. Yates, P.C., on June 30, 2010, and has determined that

its analysis of the statute of frauds issue in its opinion dated August 25, 2010 is erroneous.

Accordingly, this court’s opinion and judgment dated August 25, 2010 are withdrawn, and this

opinion and judgment are substituted.
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Dynegy, Inc. appeals the trial court’s judgment in favor of Terry W. Yates, Individually, and

Terry W. Yates, P.C. (collectively “Yates”) for fraud arising out of an oral contract for the payment

of attorney’s fees. Among other issues on appeal, Dynegy asserts the judgment must be reversed

because of insufficient evidence to support the jury finding of fraud in the formation of an oral

contract for attorney’s fees. Because we hold the evidence is legally insufficient, we reverse the trial

court’s judgment based on the jury’s fraud finding and render judgment on the jury’s findings on the

alternative theory of breach of contract.

FACTUAL AND PROCEDURAL BACKGROUND

On June 10, 2003, Jamie Olis, a former officer of Dynegy, was indicted on multiple counts

of securities fraud, mail and wire fraud, and conspiracy arising out of Olis’ work on a complex

financing transaction known as “Project Alpha” while he was Senior Director of Tax Planning in

Dynegy’s Tax Division. Pursuant to its articles of incorporation, the Dynegy Board of Directors

passed a resolution in October 2002 that authorized the advancement of attorney’s fees and expenses

to certain officers and directors, including Jamie Olis, who were under investigation for their roles

in Project Alpha. The resolution stated in relevant part that reasonable legal expenses arising out

of Project Alpha were to be advanced to Olis upon receipt of (i) a signed statement that he had acted

in good faith and in the corporation’s best interests, with no reasonable cause to believe his conduct

was unlawful, and (ii) a signed undertaking to repay the legal expenses if the Board ultimately

determined he did not meet the standard of conduct required for indemnification. The Board

resolution also provided, “such approval may be modified or revoked by this Board at any time as

a result of changes in circumstances or further analysis.” Olis signed the written undertaking in

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January 2003, and agreed to repay his legal expenses if it was determined he did not meet the

indemnification standard.

Ten days after his indictment, on June 20, 2003, Olis hired criminal defense attorney Terry

W. Yates to defend him in the federal criminal prosecution and in the on-going civil investigation

conducted by the Securities and Exchange Commission (“SEC”). Olis told Yates, and his associate

Mark Clark, that Dynegy would be paying his legal fees. That day, Clark called Cristin Cracraft, an

attorney in Dynegy’s legal division, to confirm that Dynegy would pay Olis’ legal fees and to discuss

the payment procedure. During the phone call, Clark told Cracraft that Olis had hired Yates to

represent him and asked for confirmation that Dynegy was paying Olis’ legal expenses. Clark

testified that Cracraft stated, “the Board has passed a resolution, so, yes, we are paying Jamie Olis’

fees,” and instructed Clark that the bills should be submitted to her. Cracraft stated the hourly rates,

however, should be negotiated with Olis because he was Yates’ client, not Dynegy. Cracraft’s trial

testimony about her conversation with Clark was consistent with Clark’s version.

Yates testified that he made an oral agreement with Olis that he (Yates) would look solely

to Dynegy for payment of his fees for representing Olis. Olis signed a written fee contract with

Yates on June 20, 2003 specifying the hourly rates to be charged and agreeing that he (Olis) was

financially responsible for payment of Yates’ legal fees. Although Dynegy’s name is not mentioned,

the written contract contains a phrase stating “all fees are due when billed unless other specific

arrangements have been made.” At trial, Yates testified this modifier was intended to refer to the

fact that Dynegy was paying Olis’ fees because Yates orally agreed with Olis never to look to him

for payment of the legal fees. Yates further testified that he called Cracraft on June 20, 2003, after

he faxed her the written fee contract signed by Olis which showed the hourly rates to be charged.

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Yates stated that Cracraft confirmed that she received the fax and told him that Dynegy would pay

Olis’ legal fees directly to Yates through trial. Cracraft contradicted Yates’ testimony about the

phone call, however, stating that she never spoke to Yates on the phone that day, and in fact had

never spoken to or met Yates as of the date of trial. Finally, Yates testified that he relied on

Cracraft’s oral promise that Dynegy would pay Olis’ legal fees directly to Yates through trial.

On August 13, 2003, Dynegy hand-delivered a letter to Yates, addressed to Olis, stating that

it would directly pay Yates his legal fees billed through August 17, 2003; after that date, Dynegy

would pay the fees into an escrow account pursuant to a July 23, 2003 Board resolution. Dynegy

paid Yates’ June invoice for $15,000 within two weeks of its submission, but then mistakenly

escrowed the $105,000 for Yates’ July invoice; it was paid in November 2003 after Olis’ criminal

trial ended. Yates submitted a third and final invoice for $448,556, representing all work performed

from August 2003 through April 2004, including the November 2003 trial. Dynegy initially

escrowed that amount, but later rejected payment of Yates’ third invoice.

Yates filed suit against Dynegy to recover his unpaid attorney’s fees.1 Yates alleged breach

of contract and fraudulent inducement and sought benefit-of-the-bargain damages for both claims.

After a three-week trial, a jury found in favor of Yates on both his breach of contract claim and his

fraud claim, awarding him (a) $448,556 in actual damages for breach of contract plus $574,718 in

attorney’s fees through trial (plus appellate fees), and (b) $500,000 in actual damages for fraud plus

$2 million in punitive damages. Yates elected to recover under his fraud claim. On May 25, 2007,

the trial court entered judgment in favor of Yates for $500,000 in actual damages, plus pre-judgment

1
… Olis separately sued Dynegy in Olis v. Dynegy Holdings, Inc., et al., Trial Court No. 2006-CI-12424, in
the 57th Judicial District Court, Bexar County, Texas, alleging breach of contract and tort claims arising from Dynegy’s
alleged breach of its indemnification obligation owed to Olis. That case was transferred to Harris County.

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interest, and $2 million in punitive damages, plus costs of court and post-judgment interest. Dynegy

now appeals.

STATUTE OF FRAUDS

We begin our analysis by examining whether the statute of frauds bars enforcement of the

oral contract. The statute of frauds requires that certain types of promises or agreements, such as a

promise by one person to pay the debt of another, be in writing and signed by the party to be charged.

TEX . BUS. & COM . CODE ANN . § 26.01(a), (b)(2) (West 2009). Generally, whether a contract falls

within the statute of frauds is a question of law. Bratcher v. Dozier, 162 Tex. 319, 346 S.W.2d 795,

796 (1961); Beverick v. Koch Power, Inc., 186 S.W.3d 145, 149 (Tex. App.—Houston [1st Dist.]

2005, pet. denied). We review questions of law de novo. El Paso Natural Gas Co. v. Minco Oil &

Gas, Inc., 8 S.W.3d 309, 312 (Tex. 1999); Rittmer v. Garza, 65 S.W.3d 718, 722 (Tex.

App.—Houston [14th Dist.] 2001, no pet.).

Dynegy argues the judgment below should be reversed and rendered because the oral

agreement between Yates and Dynegy was to answer for the debt of a third person, i.e., Jamie Olis,

and therefore is unenforceable under the statute of frauds. Dynegy notes that Yates failed to plead

an exception to the statute of frauds, and failed to secure jury findings establishing an applicable

exception to the statute of frauds. See Adams v. Petrade Int’l, Inc., 754 S.W.2d 696, 705 (Tex.

App.—Houston [1st Dist.] 1988, writ denied) (whether exception to statute of frauds applies is

generally question of fact); see also Otto Vehle & Reserve Law Officers Ass’n v. Brenner, 590

S.W.2d 147, 152 (Tex. Civ. App.—San Antonio 1979, no writ) (same). Therefore, Dynegy asserts

that both Yates’ fraud claim seeking benefit-of-the-bargain damages and his alternative breach of

contract theory are barred. Yates responds that the statute of frauds does not preclude his claims

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because: (1) Dynegy failed to meet its burden to prove the statute of frauds applies when it did not

seek summary judgment or a directed verdict, or submit a jury question, on that issue; (2) Dynegy’s

promise to pay Yates’ legal fees as they were incurred was not a promise to answer for the debt of

another; (3) the contract was completely performed by Yates; and (4) the oral contract was performed

within one year.

The first question we must address is whether Dynegy met its burden of proof on its

affirmative defense of the statute of frauds. Yates argues that Dynegy failed to meet its burden when

it did not move for summary judgment or a directed verdict on that ground, and did not submit a jury

question on the statute of frauds. We agree that statute of frauds is an affirmative defense which is

waived if not pleaded. See TEX . R. CIV . P. 94; Phillips v. Phillips, 820 S.W.2d 785, 791 (Tex. 1991).

In addition, the party pleading the statute of frauds bears an initial burden to establish its

applicability. Brenner, 590 S.W.2d at 152. We disagree, however, that a motion for summary

judgment or directed verdict is required. Here, Dynegy pled the affirmative defense of the statute

of frauds in its answer, and moved for judgment notwithstanding the verdict on the basis of the

statute of frauds, thereby preserving it as a ground for judgment as a matter of law. TEX . R. CIV . P.

301; T.O. Stanley Boot Co., Inc. v. Bank of El Paso, 847 S.W.2d 218, 220 (Tex. 1992).

We next examine whether the oral contract was a promise by Dynegy to pay Olis’ debt. It

is a well-settled rule of law that if services are performed for one party upon the promise of another

to pay for the services, then the promisor is not liable for the debt of another, but for his own

obligation. Kinney v. Pearce, 65 S.W.2d 502, 503 (Tex. Civ. App.—Beaumont 1933, no writ);

Evans v. Shaw, 268 S.W. 1037, 1038 (Tex. Civ. App.—Waco 1925, no writ) (“Wherever the main

purpose and object of the promisor is, not to answer for another, but to subserve some purpose of

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his own, his promise is not within the statute, although it may be in form a promise to pay the debt

of another, and although the performance of it may incidentally have the effect of extinguishing the

liability of another.”). A distinction must be drawn between a promisor’s primary obligation, which

escapes the prohibitions of the statute of frauds, and a collateral obligation that does not.

Shahan-Taylor Co. v. Foremost Dairies, Inc., 233 S.W.2d 885, 888 (Tex. Civ. App.—San Antonio

1950, writ ref’d n.r.e.). In determining whether Dynegy was bound to a primary or secondary

obligation, the intention of the parties must be examined. See id.; see also Morris v. Carter, 261

S.W.2d 614, 616 (Tex. Civ. App.—Dallas 1953, writ ref’d n.r.e.). The intention of the parties may

be determined by considering all of the surrounding facts and circumstances, including: (1) the words

and expressions used by the parties; (2) the parties’ acts and conduct; (3) whether the services were

rendered before or after the promise; (4) the manner in which the seller carried the account on his

books; (5) the manner in which payments were made; (6) the purpose of the agreement; and (7) the

promisor’s interest in the transaction. See Shahan-Taylor, 233 S.W.2d at 888; Morris, 261 S.W.2d

at 616. “Unconditional and undisputed facts in many instances are enough to show, as a matter of

law, either an oral, contemporaneous, unconditional promise to perform the obligation of a contract,

on the one hand, or, on the other, that credit is given a debtor with another promisor as surety of

guarantor, creating only a collateral agreement.” Shahan-Taylor, 233 S.W.2d at 889.

In Banfield v. Davidson, the court examined a promise to pay for services rendered to another

and held the promise was an original undertaking or primary obligation. Banfield v. Davidson, 201

S.W. 442, 443 (Tex. Civ. App.—Galveston 1918, no writ). In that case, J.A. Banfield was driving

a vehicle that struck and injured Johnny Van. Id. at 442. Banfield brought Van to a hospital owned

by Dr. G.L. Davidson. Id. Davidson subsequently sued Banfield to recover the costs of the services

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provided to Van. Id. Davidson alleged that Banfield promised to pay Davidson for his services to

Van before any services were undertaken, performed, or rendered. Id. Banfield denied making any

such promise. Id. A jury found that Banfield promised to pay for the services and awarded

Davidson damages. Id. at 443. On appeal, Banfield asserted the trial court erred in refusing to

instruct the jury that a person cannot be liable upon a promise to answer for the debt of another

unless the agreement is in writing. Id. at 443. The appellate court held that Banfield’s agreement

was an original undertaking, noting, “[t]here is no contention by either party that it is alleged in the

pleadings of either party or shown by the evidence that the medical services or hospital

accommodation given to Johnny Van were first performed, and thereafter a promise was made by

appellant to pay the reasonable value for such services, etc.” Id. Accordingly, the court concluded

the cause of action alleged and proven was not subject to the statute of frauds. Id.

Similarly, in Kinney, H.G. Pearce sued Cleveland Kinney alleging that he sold goods to

William and Eugene Dempsey based on Kinney’s promise to pay for the goods. Kinney, 65 S.W.2d

at 502-03. Kinney denied making the promise and also asserted the oral promise was to answer for

the debt of another and not enforceable under the statute of frauds. Id. at 503. A jury found that

Kinney agreed to pay Pearce for the goods. Id. On appeal, Kinney asserted the jury should have

been asked about the timing of Kinney’s agreement to pay for the goods. Id. The appellate court

overruled this assertion, noting the evidence was undisputed that the promise was made before the

goods were sold. Id. The court concluded, “[u]nder the finding of the jury, the promise of appellant

was an original undertaking, and not collateral, and therefore the statute of frauds did not apply.”

Id.

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Finally, in Evans, a physician rendered services for the appellant’s adult son and his son’s

wife. Evans, 268 S.W. at 1037. The charges for those services amounted to $102. Id. When the

son again became ill, the physician informed appellant that he would not treat the son any further

unless the appellant agreed to pay for both the new services and the prior charges. Id. The physician

alleged the appellant promised to pay for the services to be performed and the prior charges, which

the appellant denied. Id. A jury found the appellant agreed to pay for the services and awarded the

physician $188 ($102 for the prior charges and $86 for the new services performed). Id. On appeal,

the appellant asserted that the physician was not entitled to recover based on the statute of frauds.

Id. at 1038. As to the $86 for the new services performed, the appellate court held that the services

were performed only after the appellant promised to pay for them; therefore, “appellant’s obligation

to pay was an original primary obligation.” Id. The court applied a different analysis to the $102

since the debt was pre-existing at the time appellant promised to pay it. Id. at 1038-39.

In Bledsoe v. Pritchard, the appellate court explained the difference between a primary

obligation and a collateral obligation. Bledsoe v. Pritchard, 107 S.W.2d 742 (Tex. Civ.

App.—Amarillo 1937, no writ). One of the issues raised on appeal was whether the statute of frauds

barred the recovery of damages for boarding services provided to LaVerne and Elise Owenbey, who

were the nieces of the appellant, Sallie Pritchard, and the daughters of Joe Owenbey. Id. at 742-43.

The court reasoned:

We think it is well settled that the plaintiff would have been obligated to pay
the defendants for this board bill if she had agreed to do so unconditionally and the
girls had been accepted in the home of defendants under such understanding. If the
plaintiff had so promised and the defendants had relied thereon, it would have
become plaintiff’s own obligation and debt and not that of her brother or nieces, and
therefore would not have come within the statute of frauds. [internal citations
omitted]. In the present case, however, the defendants admitted on cross-examination

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they were looking to Joe Owenbey primarily for this obligation, and that if he did not
pay the debt, then Mrs. Pritchard was expected to do so. The defendant R.H. Bledsoe
testified that Mrs. Pritchard promised to pay the debt if Owenbey did not. Such a
conditional promise, we think, would bring the alleged promise within the statute of
frauds. . . .

Id. at 744; see also Morris, 261 S.W.2d at 616 (promise to pay for repairs to a third party’s car was

not subject to statute of frauds where promise was made before the repairs were undertaken);

Shahan-Taylor, 233 S.W.2d at 889 (promise by dairy to pay for feed delivered to owner of dairy herd

held to be primary obligation not subject to statute of frauds). But see Kothmann v. Hall, No.

03-09-00081-CV, 2010 WL 2789805, at *4 (Tex. App.—Austin Jul. 15, 2010, no pet.) (mem. op.)

(foundation’s verbal approval of assistance to applicants in need of orthodontic services was not an

assumption of the primary obligation but was, at most, a promise to answer for debt of another

person subject to statute of frauds).

Looking beyond Texas cases to the Fifth Circuit, we find Pravel, Wilson & Matthews v. Voss,

471 F.2d 1186 (5th Cir. 1973), to be instructive. In that case, a stockholder of a company consulted

a lawyer regarding a patent infringement suit. Id. at 1187. The lawyer agreed to take the case but

sought assurance that his law firm would be paid for its services. Id. at 1187-88. The stockholder

referred the lawyer to the president of the company, who told the lawyer to “go for broke” and that

he would “take care” of the fee. Id. at 1188. Subsequently, the president was held personally liable

for the unpaid fees. Id. On appeal, the president asserted that he promised only to guarantee

payment by the company and, since the promise was not in writing, its enforcement was barred by

the statute of frauds. Id. The Fifth Circuit rejected this argument. Id. The Fifth Circuit reasoned

that the president’s promise was not to answer for the debt of the company, but was a promise that

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he would personally pay the fees for the services rendered to the company in the patent infringement

suit. Id. at 1189. As a result, the Fifth Circuit concluded the statute of frauds was simply

inapplicable. Id.

In the instant case, Dynegy promised to pay for the legal services that Yates was to provide

Olis. The promise was made before the services were undertaken. Dynegy’s Board of Directors

approved payment for Olis’ legal services because Olis was an officer of the company and was under

investigation for actions taken in connection with his work for the company on Project Alpha, which

was a transaction structured to provide substantial benefits to Dynegy. A Dynegy attorney told Yates

and Clark to submit the bills directly to Dynegy, and Dynegy began paying the bills as they were

submitted. The jury found that Dynegy agreed to pay Yates for his services. Under these facts and

circumstances, we hold as a matter of law that Dynegy’s promise was a primary obligation and not

the promise to pay the debt of another. Accordingly, the statute of frauds is inapplicable and does

not bar Yates’ recovery for breach of the oral contract.2

LEGAL SUFFICIENCY OF THE EVIDENCE - FRAUD FINDING

Dynegy asserts the evidence is legally insufficient to support the jury’s finding that it

committed fraud against Yates. Specifically, Dynegy asserts there is “no evidence” of fraud because:

(1) one corporate actor’s statement/representation may not be “mixed and matched” with another

corporate actor’s knowledge or intent to prove that the corporation committed fraud; (2) subsequent

events occurring after formation of the contract may not be used to prove fraudulent inducement of

the contract; (3) speculative evidence or a series of inferences does not constitute any evidence of

2
… Because we hold that the statute of frauds is inapplicable to Dynegy’s promise to pay for Yates’ legal
services, we need not address the potential applicability of any exceptions to the statute of frauds.

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fraud; and (4) there is no evidence of Yates’ actual, justifiable reliance on the alleged fraudulent

statements by Dynegy in the August 13, 2003 escrow letter, given the unambiguous writing.

Yates responds that, when combined with Dynegy’s breach of the oral fee contract, there is

sufficient circumstantial evidence of an intent not to perform by Dynegy on June 20, 2003 to uphold

the jury’s fraud verdict. See Huynh v. Phung, No. 01-04-00267-CV, 2007 WL 495023, at *4 (Tex.

App.—Houston [1st Dist.] Feb. 16, 2007, no pet.) (mem. op.) (slight circumstantial evidence of fraud

in combination with failure to perform as promised is legally sufficient to support finding of

fraudulent intent). In his brief, Yates disclaims any separate reliance on the August 13, 2003 escrow

letter as a separate fraud, stating that it was simply a “continuation of the fraud already begun.”

Yates relies solely on the oral promise by Cracraft on June 20, 2003 to support the fraud finding

based on fraudulent inducement, asserting that “the fraud was . . . the misrepresentation that Dynegy

would pay the legal bills directly to Yates as incurred.” Therefore, our review of the record and

analysis focuses on whether the elements of fraudulent inducement were present at the time of the

June 20, 2003 oral agreement between Cristin Cracraft and Mark Clark, and Cracraft and Terry

Yates.

Additional Background Facts

Dynegy’s Articles of Incorporation

Dynegy was an Illinois corporation during the period in question. Illinois law authorizes a

corporation to advance legal fees to its officers and directors under certain circumstances. 805 ILL.

COMP . STAT . 5/8.75(e) (permitting advancement in corporation’s discretion). Article 7(1)(D) of

Dynegy’s amended articles of incorporation permits the corporation to advance reasonable legal

expenses incurred by officers and directors in a civil or criminal proceeding upon certain terms and

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conditions. One such condition is the execution by such officer or director of a statement that he

“acted in good faith and in a manner which he believed to be in, or not opposed to the best interests

of the Corporation,” and an undertaking to repay the legal expenses if it is ultimately determined that

he is not entitled to indemnification. Section D further provides that the Dynegy board of directors

may by resolution provide for securing the payment of authorized advances by creating escrow

accounts with such restrictions as the Board deems appropriate. Section A of Article 7(1) provides

that

the Corporation shall indemnify any person who was or is a party . . . to any . . .
action, suit or proceeding, whether civil, criminal, administrative or investigative .
. . by reason . . . that he is or was a director or officer of the Corporation . . . against
expenses (including attorneys’ fees) . . . if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to be [sic] the best interests of the
Corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful.

October 2002 Board Resolution Approving Payment of Olis’ Attorney’s Fees

On October 18, 2002, the Dynegy board of directors passed a resolution under the authority

of Article 7(1)(D) that authorized the advancement of attorney’s fees and expenses to certain officers

and directors, including Jamie Olis, who were under investigation for their roles in Project Alpha.

The resolution stated in relevant part that reasonable legal expenses arising out of Project Alpha were

to be advanced to Olis “in advance of the final disposition of such action” upon receipt of (i) a signed

statement that he had acted in good faith and in the corporation’s best interests, and (ii) an

undertaking to repay the expenses “if it shall ultimately be determined that he . . . did not meet the

standard of conduct required for indemnification by Dynegy.” The resolution also contained a

condition that, “such approval may be modified or revoked by this Board at any time as a result

of changes in circumstances or further analysis.” In January 2003, Olis signed the written

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undertaking representing that he had acted in good faith and agreed to repay the advanced legal

expenses if it was determined he did not meet the indemnification standards. In March 2003, Olis

was terminated and received a severance. Olis signed a letter agreement stating he would continue

to cooperate with the Project Alpha investigations.

Dynegy’s Discussions with U.S. Attorney about “Cooperation”

Also in January 2003, Dynegy’s CEO, Bruce Williamson (who had taken over as CEO in

October 2002), received a letter from the Assistant United States Attorney Jimmy Sledge advising

him of the government’s concern that “Dynegy’s ‘cooperation’ is more apparent than real.”

Williamson and Dynegy’s outside counsel met with the U.S. Attorney for the Southern District of

Texas, Michael Shelby, to discuss Dynegy’s cooperation with the investigation. Williamson pledged

Dynegy’s “full cooperation,” understanding that the corporation would be indicted, and forced to

shut down as a result, if it did not fully cooperate. A January 17, 2003 letter from Shelby

memorializes Williamson’s pledge of “full cooperation” on behalf of Dynegy; Williamson had to

provide all documents requested, without redaction, and waive the corporation’s attorney/client

privilege in order to be “in cooperation.”

On January 20, 2003, the Thompson Memo concerning criminal prosecution of corporations

was issued to all U.S. Attorneys. The Thompson Memo stated that, in determining whether to indict

a corporation, the prosecutor should consider the corporation’s “willingness to cooperate,” and that

part of the “cooperation” analysis includes whether the corporation is advancing attorney’s fees to

culpable employees. The U.S. Attorney had the Thompson Memo hand-delivered to Williamson at

Dynegy. Williamson testified that before he arrived in October 2002 the Board had authorized direct

payment of legal fees for those employees under investigation. Williamson stated that sometime in

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the spring of 2003, the government made clear that payment of the legal fees was a factor that

conflicted with a corporation’s “full cooperation” under the Thompson Memo. Subsequently, in

March and May 2003, respectively, Dynegy advised two of the non-officer employees targeted in

the Project Alpha investigation, Richard Gould and Helen Sharkey, that it would no longer pay their

legal expenses for the criminal investigation. Cristin Cracraft drafted the May 2003 letter to Sharkey

terminating payment of her attorney’s fees.

Olis Hires Yates on June 20, 2003

Olis was indicted on June 10, 2003 for securities fraud, mail fraud, wire fraud and

conspiracy, along with his boss Gene Foster and Sharkey. Both Sharkey and Foster ultimately pled

guilty; only Olis proceeded to trial. Olis decided to change attorneys after his indictment, and hired

Terry Yates to represent him in the federal criminal investigation, as well as the on-going SEC

criminal investigation. Olis told Yates, and his associate Mark Clark, that Dynegy would be paying

his legal fees and Yates agreed to look solely to Dynegy for payment. At trial, Yates testified that

he relied on Cracraft’s oral promise made to both Clark and Yates that Dynegy would pay Olis’ legal

fees directly to Yates through trial; contrary to his usual practice, Yates did not request a retainer

from Olis. Further, Yates stated he knew that once he appeared on behalf of Olis in federal court,

the judge would have to consent to any withdrawal.

Partial Payment of Yates’ Legal Fees

Dynegy paid Yates directly within two weeks of his first invoice for June 2003 work. Yates’

July invoice for $105,000 was not immediately paid; Yates delayed its submission until October 2,

2003 because he had seen his prior bill in the Dynegy documents at the U.S. Attorney’s office. The

$105,000 for Yates’ second bill was placed into a Dynegy escrow account pursuant to the July 23

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Board resolution modifying the advancement procedure for Olis’ legal fees to require they be placed

in escrow. Cracraft testified she mistakenly put the $105,000 in escrow, instead of paying it directly

to Yates, because she did not realize the bill was for work done during July. Olis’ federal criminal

trial was held in November 2003, resulting in his conviction on all counts. The $105,000 was

ultimately paid to Yates in November, after Olis’ trial was over. In April 2004, Yates submitted his

third and final invoice for $448,556, covering all work performed from August 2003 through April

2004; Dynegy placed that amount in the escrow account pending the Board’s ultimate determination

as to whether Olis had acted in “good faith” while employed at Dynegy. Olis appealed his

conviction and sentence of 24 years. The Fifth Circuit affirmed Olis’ conviction but remanded for

resentencing, at which Olis received a sentence of six years. After Olis’ conviction was final,

Dynegy’s Board determined in March 2007 that he had not acted in good faith and that Dynegy was

not obligated to indemnify him or to release the escrowed $448,556 in attorney’s fees. Subsequently,

Yates sued Dynegy for fraud and breach of the oral contract to pay his attorney’s fees.

Trial on Yates’ Unpaid Attorney’s Fees

At the trial on Yates’ fraud and breach of contract claims, a series of emails between Dynegy

CEO Williamson and Shelby were introduced. One email exchange is dated June 13, 2003, prior

to Cracraft’s oral fee agreement with Clark/Yates on June 20, 2003; it is a cordial exchange with

general references to Dynegy’s cooperation with the investigation but contains nothing regarding

Dynegy’s payment of its employees’ legal fees. About one month later, on July 18 and 19, 2003,

Williamson and U.S. Attorney Shelby exchanged a series of emails about Dynegy’s advancement

of legal expenses for its employees under investigation. Williamson stated to Shelby that, “I am

totally supportive of trying to modify our legal support posture. I have wanted to do so for some

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time.” Shelby replied, “Thanks for looking into this. I think it [sic] in neither of our interests to have

the company pay for the defense of individuals whose actions were so egregious.” Williamson

responded, “I actually have been pushing it for about 6 months. Your actions give me ‘probable

cause’ to change.” Williamson sent another email to Shelby in the afternoon on July 19 stating, “I

just reviewed and approved a board resolution to change the process . . . I am no[t] paying for

Sharkey as it is so this impact is to Foster and Olis.” Finally, in the early evening on July 23, 2003,

Dynegy’s outside counsel sent Shelby an attachment email stating, “Attached is the Board resolution

passed today that was the subject of the telephone call Bruce [Williamson] placed to you.”

Williamson also emailed Shelby that night, saying, “Hope this helps.” The July 23 Board resolution

established an escrow account for “all authorized advances of . . . attorney’s fees incurred by Foster

and Olis” to hold the funds in escrow until the Board made its “good faith” determination.

Williamson testified that because Olis was a former officer, Dynegy could not simply stop paying

his legal fees under its bylaws and articles; the most Dynegy could do in order to more fully

cooperate with the government was to escrow the legal fees until the Board made a determination

whether Olis had met the “good faith” standard for indemnification under the articles. The Board

ultimately determined that Olis had not acted in good faith, and had engaged in unlawful conduct

while employed at Dynegy, and refused to pay the escrowed $448,556 in fees.

Standard of Review

When an appellant challenges the legal sufficiency of the evidence to support an adverse

finding on which it did not have the burden of proof, the appellant must show there is no evidence

in the record to support the finding in order to prevail on appeal. City of Pasadena v. Gennedy, 125

S.W.3d 687, 691-92 (Tex. App.—Houston [1st Dist.] 2003, pet. denied). In reviewing the legal

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sufficiency of the evidence to support the finding of fraud, we consider all the evidence in the record

in the light most favorable to the jury’s verdict, “crediting favorable evidence if reasonable jurors

could, and disregarding contrary evidence unless reasonable jurors could not.” City of Keller v.

Wilson, 168 S.W.3d 802, 807 (Tex. 2005); Formosa Plastics Corp. USA v. Presidio Eng’rs &

Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998). Anything more than a scintilla of evidence is

legally sufficient to support the finding. Formosa, 960 S.W.2d at 48.

Here, application of that standard, which requires us to view all the evidence in the light most

favorable to the verdict, means that we must credit Yates’ testimony that he had a conversation with

Cracraft on June 20, 2003 because a reasonable juror could have believed Yates’ testimony and

disbelieved Cracraft’s testimony that no conversation occurred. City of Keller, 168 S.W.3d at 807.

Applicable Law

To establish a common law fraud cause of action, a plaintiff must prove (1) a material

representation was made, (2) which was false, (3) which was either known to be false when made

or which was recklessly made as a positive assertion without knowledge of its truth, (4) which the

speaker made with intent that it be acted upon, and (5) the other party took action in reliance upon

the misrepresentation, and (6) thereby suffered injury. Formosa, 960 S.W.2d at 47; In re FirstMerit

Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001). A contractual promise made with no intention of

performing may give rise to an action for fraudulent inducement. Tony Gullo Motors I, L.P. v.

Chapa, 212 S.W.3d 299, 304 (Tex. 2006). A promise of future performance may form the basis of

a fraud claim if the promise was made with no intention of performing at the time the promise was

made. Formosa, 960 S.W.2d at 48. Mere breach of a contract does not constitute evidence that the

party did not intend to perform; however, “breach combined with ‘slight circumstantial evidence’

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of fraud” constitutes some evidence of fraudulent intent and is legally sufficient to support a verdict.

Tony Gullo Motors, 212 S.W.3d at 305. Evidence must be presented that a representation was made

with the intent to deceive, and with no intention of performing as represented, at the time the

representation was made. Formosa, 960 S.W.2d at 48; Spoljaric v. Percival Tours, Inc., 708 S.W.2d

432, 434 (Tex. 1986). The speaker’s intent at the time of the representation may be inferred from

the speaker’s subsequent acts after the representation was made. Spoljaric, 708 S.W.2d at 434.

Analysis

In the charge, the jury was asked to answer the general broad-form question, “Did Dynegy

Inc. commit fraud against Yates?” The jury was instructed on the basic elements of two fraud

theories—fraud by misrepresentation and fraud by omission of a material fact. The jury was further

instructed that a “misrepresentation” means either a false statement or “a promise of future

performance made with an intent not to perform as promised.” The jury answered in the affirmative.

In his brief, Yates argues the jury finding of fraud should be upheld because there is sufficient

evidence of fraudulent inducement based on the June 20, 2003 oral agreement, disclaiming reliance

on the August 13, 2003 escrow letter and the non-disclosure theory. Yates argues that the fraud was

“in the misrepresentation that Dynegy would pay the legal bills directly to Yates as incurred.”

Dynegy argues there is “no evidence” of fraudulent inducement in connection with the June 20, 2003

oral fee agreement because: (1) the same corporate speaker must make the promise and possess the

intent not to perform for the corporation to have committed fraud; (2) subsequent events may not be

used to prove intent not to perform at the time of the promise; (3) mere inferences and speculation,

without more, are not evidence of fraud; and (4) Yates did not prove his actual, justifiable reliance

on the misrepresentation.

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1. “Mixing and Matching” Fraud Elements – Different Corporate Actors

Dynegy asserts there is “no ‘mix and match’ theory of fraud” in which one corporate actor

of Dynegy could make the oral promise and another corporate actor could possess the intent not to

perform. It concedes that corporations act through their officers, directors, employees and agents,

and agrees that Dynegy was acting through Cracraft on June 20, 2003.3 Dynegy stresses, however,

that the record contains no evidence that Cracraft made the oral promise on June 20, 2003 with a

conscious intent not to perform as promised. Dynegy argues the only possible evidence of an intent

not to perform by a Dynegy agent is the CEO Williamson’s July 2003 statement that he had wanted

to modify Dynegy’s fee advancement policy for the past six months. It argues the jury’s fraud

finding against Dynegy cannot be supported by “mixing and matching” the oral promise by Cracraft

and the intent not to perform by Williamson.4

Dynegy asserts that Yates had to prove that the same corporate representative of Dynegy who

made the oral promise also had the requisite fraudulent intent at the time of the promise. It contends

that the subjective intent and/or knowledge of several corporate actors cannot be combined, or

“mixed and matched,” to satisfy the scienter requirement of fraud. In support, Dynegy relies

primarily on a Fifth Circuit securities fraud case holding that to determine whether a statement by

the corporation was made with the requisite scienter, the appropriate focus is on the state of mind

of the individual corporate official who made the statement rather than on the collective knowledge

3
… The jury was instructed that corporations act through their officers, directors, employees and agents.
4
… It is undisputed that the corporate representative who made the oral fee agreement on June 20, 2003 was
Cracraft. There is likewise no contention, and no evidence in the record, that the CEO W illiamson ever spoke to Terry
Yates or Mark Clark about the Olis fee arrangement.

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of all the corporation’s officers and employees. Southland Sec. Corp. v. INSpire Ins. Solutions, Inc.,

365 F.3d 353, 366 (5th Cir. 2004) (citing Nordstrom, Inc. v. Chubb & Son, Inc., 54 F.3d 1424, 1435

(9th Cir. 1995), for proposition that “there is no case law supporting an independent ‘collective

scienter’ theory”). The Fifth Circuit reasoned,

This is consistent with the general common law rule that where, as in fraud, an
essentially subjective state of mind is an element of a cause of action also involving
some sort of conduct, such as a misrepresentation, the required state of mind must
actually exist in the individual making (or being a cause of the making of) the
misrepresentation, and may not simply be imputed to that individual on general
principles of agency.

Id. (citing RESTATEMENT SECOND , Agency § 275, cmt. b; § 268, cmt. d (1958)). The Fifth Circuit

in Southland relies on several other circuit and federal district court opinions similarly rejecting a

“collective scienter” concept for corporations in the context of fraud actions. See id. at 366-67; see,

e.g., Woodmont, Inc. v. Daniels, 274 F.2d 132, 137 (10th Cir. 1959) (“while in some cases, a

corporation may be held constructively responsible for the composite knowledge of all of its agents,

. . . we are unwilling to apply the rule to fix liability where, as here, intent is an essential ingredient

of tort liability as for deceit”); In re Apple Computer, Inc. Sec. Litig., 243 F.Supp.2d 1012, 1023

(N.D. Cal. 2002) (“It is not enough to establish fraud on the part of a corporation that one corporate

officer makes a false statement that another officer knows to be false. A defendant corporation is

deemed to have the requisite scienter for fraud only if the individual corporate officer making the

statement has the requisite level of scienter, i.e., knows that the statement is false, or is at least

deliberately reckless as to its falsity, at the time he or she makes the statement.”); Gutter v. E.I.

Dupont De Nemours, 124 F.Supp.2d 1291, 1311 (S.D. Fla. 2000) (“The knowledge necessary to

form the requisite fraudulent intent must be possessed by at least one agent and cannot be inferred

and imputed to a corporation based on disconnected facts known by different agents.”); United States

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v. LBS Bank-New York, Inc., 757 F.Supp. 496, 501 n.7 (E.D. Pa. 1990) (“Although . . . a corporate

defendant is considered to have acquired the collective knowledge of its employees . . . specific

intent cannot be aggregated similarly.”); First Equity Corp. of Florida v. Standard & Poor’s Corp.,

690 F.Supp. 256, 260 (S.D. N.Y. 1988), aff’d, 869 F.2d 175 (2d Cir. 1989) (“While . . . a corporation

may be charged with the collective knowledge of its employees, it does not follow that the

corporation may be deemed to have a culpable state of mind when that state of mind is possessed

by no single employee. A corporation can be held to have a particular state of mind only when that

state of mind is possessed by a single individual.”). Accord Makor Issues & Rights, Ltd. v. Tellabs

Inc., 513 F.3d 702, 708 (7th Cir. 2008). Dynegy also relies on the Texas Supreme Court’s holding

in FirstMerit for the general fraud requirement that “when the representation was made, the speaker

knew it was false or made it recklessly without any knowledge of the truth . . . [and] the speaker

made the representation with the intent that the other party should act upon it.” In re FirstMerit, 52

S.W.3d at 758 (emphasis added).

Yates briefly responds by arguing that under Texas law, a corporation can only act through

its agents and the fraudulent intent of a corporate officer or agent acting with actual or apparent

authority can be imputed to the corporation. See NationsBank, N.A. v. Dilling, 922 S.W.2d 950, 952-

53 (Tex. 1996); Holloway v. Skinner, 898 S.W.2d 793, 795 (Tex. 1995). Yates also asserts that the

two federal circuit cases relied on by Dynegy, Southland and Makor, are federal securities fraud

cases and thus distinguishable. However, Southland cites and relies on several types of fraud cases

for its reasoning that there is no “collective scienter” concept for corporations. See Southland, 365

F.3d at 366-67 (internal citations omitted). Moreover, as noted by Dynegy in its reply brief, the

reasoning used in Southland is based on the traditional common law rules of agency. See id. at 366;

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see also Indiana Elec. Workers’ Pension Trust Fund IBEW v. Shaw Group, Inc., 537 F.3d 527, 533-

34 (5th Cir. 2008) (reaffirming Southland).

Dynegy is correct that the same corporate agent must commit all the elements of fraud before

the corporation may be held liable for the fraud. Therefore, Williamson’s statements in July 2003

that he had the desire and intent to stop paying Olis’ legal fees for the past six months cannot be

combined with Cracraft’s oral promise on June 20, 2003 in a “mix and match” method of fulfilling

all the elements of fraud. Therefore, since Cracraft was the corporate speaker who made the oral

agreement with Clark/Yates, it is her knowledge and intent that is at issue.

2. Intent: Subsequent Events After Formation of Oral Contract

Dynegy argues that “the essential facts at the core of the Plaintiff’s complaint occurred after

formation of the alleged oral agreement – meaning they cannot constitute fraudulent inducement.”

Specifically, it asserts that Williamson testified the U.S. Attorney first pressured Dynegy to stop

paying its officers’ legal fees on July 15, 2003, and Dynegy’s Board passed the resolution setting up

the escrow procedure on July 23, 2003; because these events occurred one month after formation

of the oral contract on June 20, 2003, it contends they do not constitute any evidence of fraudulent

intent at the time of the oral contract. In support, Dynegy cites Formosa for the basic proposition

that it is the party’s intent at the time the representation is made that is determinative. Formosa, 960

S.W.2d at 48. The law is equally clear, however, that intent at the time of the representation may

be inferred from the speaker’s subsequent acts after the representation. Spoljaric, 708 S.W.2d at

434; Oliver v. Rogers, 976 S.W.2d 792, 804 (Tex. App.—Houston [1st Dist.] 1998, pet. denied).

A failure to perform a future act as promised is fraud only when there was no intent to perform the

act at the time the promise was made. Oliver, 976 S.W.2d at 804. “[O]therwise, every breach of

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contract would involve fraud.” Id. (noting the distinction between cases involving a promise made

without any intention to perform from a promise made with intent to perform but the promisor

changes his mind and refuses to perform).

Here, the oral contract was formed on June 20, 2003 during the conversations between Clark

and Cracraft, and Yates and Cracraft. Therefore, the key inquiry is whether there is any evidence

that Cracraft had no intent to perform on June 20, 2003 when she made the oral promise that Dynegy

would directly pay Olis’ legal fees. See Formosa, 960 S.W.2d at 48. The parties’ discussion about

subsequent events being used to show intent at the time of the agreement centers on the email

exchange between Williamson and Shelby, which occurred primarily in July 2003—one month after

the agreement. Given the law, discussed supra, that it is the individual corporate speaker whose

intent must be determined, the subsequent actions by Williamson may not be used to infer Cracraft’s

subjective intent or knowledge on June 20. Yates points to no actions by Cracraft herself after June

20 from which an intent not to perform the oral fee agreement may be inferred.

Yates argues there is other evidence, including, for example, the January 2003 Assistant U.S.

Attorney letter about “apparent cooperation” and other emails between Williamson and Shelby,

showing the need for additional cooperation by Dynegy was under discussion before the June 20,

2003 oral fee agreement. Absent some evidence on which to base an inference that Cracraft knew

about these discussions, that evidence does not support an intent not to perform by Cracraft at the

time of the June 20, 2003 oral fee agreement.

3. Only Inferences and Speculation – Cracraft’s Fraudulent Intent

Dynegy asserts there is no evidence in the record to support a finding that Cracraft, as the

corporate speaker who made the oral fee agreement, had the intent not to perform the oral contract

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at the time she made it. See FirstMerit, 52 S.W.3d at 758. It contends that Yates’ theory of fraud

is mere inference stacking and thus cannot support the verdict.

Yates stresses that, when combined with Dynegy’s breach of the oral contract, only “slight

circumstantial evidence” of fraud is required to support the jury’s finding of fraudulent intent by

Dynegy. See Huynh, 2007 WL 495023, at *4 (holding slight circumstantial evidence of fraud in

combination with failure to perform as promised was legally sufficient to support finding of

fraudulent intent). Yates argues that there is “an abundance of circumstantial evidence” of Dynegy’s

fraudulent inducement on June 20, 2003. To support an inference of Cracraft’s fraudulent intent

not to perform the June 20, 2003 oral contract, Yates points primarily to Cracraft’s knowledge of the

Thompson Memo’s cooperation requirements in May 2003, her drafting of the May 2003 letter

cutting off Sharkey’s legal fees, Williamson’s July 2003 statement that he had been wanting to

modify the payment of legal fees for six months, and the subsequent August 13, 2003 letter setting

up an escrow procedure which Yates alleged was a scheme to disguise nonpayment as escrow.

First, the evidence is not clear that Dynegy did breach the oral fee contract. As of February

2004, Dynegy had paid Yates approximately $200,000 in legal fees for work performed prior to

August 18, 2003, and only his last bill for $448,556 was still escrowed; therefore, Dynegy had

partially performed the oral fee contract made by Cracraft. Cracraft’s oral agreement to pay Yates’

legal fees was premised on the October 2002 Board resolution and Olis’ signed undertaking. The

October 2002 resolution approving the payment of Olis’ legal fees contains language permitting

Dynegy’s Board to modify or revoke that approval “at any time as a result of changes in

circumstances or further analysis.” Thus, the Board retained broad authority and discretion to

modify the terms of the Olis fee payments, or even to revoke the payments entirely, at any time based

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on any “change in circumstances” or “further analysis.” Williamson testified that both of those

events occurred because the Board learned that Olis had stopped cooperating with the government’s

investigation as required by his signed undertaking, and additional evidence had arisen that caused

the Board to suspect that Olis had known that Project Alpha was illegal and had acted unlawfully

and “not in the best interest” of the corporation. Therefore, according to Williamson, the Board

determined that Olis’ fees should be escrowed as permitted by Dynegy’s articles of incorporation,

instead of paid directly to Yates, until the Board could make a final determination as to Olis’ good

faith and lawful or unlawful actions.

Second, the trial evidence does not support a reasonable inference that Cracraft had any intent

not to perform as promised at the time she made the oral fee agreement on June 20, 2003. As to the

June 20, 2003 oral conversation between Cracraft and Clark, both testified that Cracraft said that

Dynegy was paying the fees for Olis and to just send her the bill. Clark stated she said the legal fees

were being paid pursuant to the Board resolution, while Cracraft stated she said the fees were being

paid pursuant to Olis’ undertaking. As to the conversation between Cracraft and Yates, she stated

it did not occur, while Yates stated she confirmed that Dynegy would pay the Olis legal fees directly

to Yates through trial. There is no evidence that Cracraft had any knowledge of Williamson’s desire

to cut off the payments of legal fees to the officers under investigation at the time she made the June

20, 2003 oral agreement. Yates argues that Cracraft had to be aware of the pressure being put on

Dynegy by the U.S. Attorney to cut off payment of the legal fees, and that, at a minimum, an

inference can be drawn that Cracraft knew of the government’s pressure to cut off legal fees on June

20, 2003 when she made the oral contract with Yates. However, there is no evidence in the record

from which such an inference can reasonably be drawn. Cracraft admitted being aware of the

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Thompson Memo’s general cooperation requirements in May 2003, but not specifically with respect

to payment of legal fees for officers/employees. Cracraft also admitted that she wrote the May 2003

letter to Sharkey cutting off her legal fees, but stated that she did not know the reason for the letter

and was merely instructed to draft the letter by her supervisor; she later explained that Sharkey was

different from Olis because she was not an officer. Further, Cracraft testified that on June 20, 2003

she had no knowledge of Williamson’s desire or intent during the six months prior to July 2003 to

modify or cut off the payment of the officers’ legal fees. In addition, Cracraft repeatedly told Clark

when he inquired about payment of the outstanding fee bills that she had no involvement with the

Board, and “did not know” exactly how the July 2003 escrow resolution changed the payment

procedure or when, or if, Yates would be paid.

Based on the foregoing, we conclude the evidence is legally insufficient to support the

judgment based on fraud because there is no evidence that supports a reasonable inference that

Cracraft had the intent not to perform at the time she made the June 20, 2003 oral fee agreement.5

Without the fraud finding, there is no basis for the award of exemplary damages. Accordingly, we

reverse the trial court’s judgment, including its award of exemplary damages, and render a take

nothing judgment against Yates on his fraud claim.

YATES’ CONDITIONAL CROSS-POINT

Yates raises a conditional cross-point in the event this Court reverses the judgment based on

fraud. Specifically, he elects recovery under contract and asserts this Court must render judgment

in his favor on the jury’s breach of contract findings. When a judgment is reversed on appeal on one

5
… In its appellant’s brief, Dynegy limits its last sufficiency argument, that there is no evidence of actual or
justifiable reliance by Yates, to the written escrow letter. Yates waived any reliance on the August 13, 2003 escrow letter
as a separate basis of fraud in his appellee’s brief. Accordingly, we need not reach this issue.

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theory of recovery, a party may seek recovery under an alternative theory that the jury found in its

favor at the trial court level. Transport Ins. Co. v. Faircloth, 898 S.W.2d 269, 274 (Tex. 1995);

Boyce Iron Works, Inc. v. Sw. Bell Tel. Co., 747 S.W.2d 785, 787 (Tex. 1988). Here, in addition to

the favorable jury finding on fraud, Yates also received an affirmative finding on his breach of

contract claim.

As an initial matter, Yates asserts that Dynegy has waived any error in the breach of contract

findings by failing to include such an issue in its appellant’s brief. We disagree. Yates moved for

judgment seeking damages under his fraud theory, and the final judgment was rendered on that

theory. See id. Therefore, to reverse the judgment on appeal, Dynegy was only required to challenge

the specific grounds upon which the judgment was based. See Cincinnati Life Ins. Co. v. Cates, 927

S.W.2d 623, 626 (Tex. 1996) (courts of appeals should consider all grounds the trial court rules on

and the movant preserves for appellate review that are necessary for final disposition of the appeal).

Dynegy did not waive its right to assert alternative grounds denying Yates recovery in the event, as

here, we reverse the judgment on the fraud theory. See Oak Park Townhouses v. Brazosport Bank

of Tex., N.A., 851 S.W.2d 189, 190 n.3 (Tex. 1993) (per curiam) (citing Chesshir v. First State Bank

of Morton, Tex., 620 S.W.2d 101, 102 (Tex. 1981)) (party must raise the alternative grounds for

denying recovery in the court of appeals, either in its reply brief or on motion for rehearing). Here,

Dynegy responded to Yates’ conditional cross-appeal in its reply brief, arguing that Yates is not

entitled to judgment on the breach of contract theory. Therefore, Dynegy has not waived its right

to challenge Yates’ recovery under the alternative contract theory.

In its reply brief, Dynegy contends Yates is not entitled to judgment on the breach of contract

claim because: (1) “the fraud theory so infused the courtroom that reversal of that claim would

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require a new trial on the contract claim;” (2) the trial court abused its discretion in admitting PX 93,

which was harmful hearsay; and (3) reversal of the fraud judgment would require a new trial on

attorney’s fees for the breach of contract claim.6 First, Texas Rule of Appellate Procedure 38.1

requires an appellant’s brief to “contain a clear and concise argument for the contention made, with

appropriate citations to authorities and to the record.” TEX . R. APP . P. 38.1(i). Dynegy has waived

its “fraud theory so infused the courtroom” argument because its brief lacks any citations to the

record and any supporting legal authority for its one-sentence argument. See Nguyen v. Kosnoski,

93 S.W.3d 186, 188 (Tex. App.—Houston [14th Dist.] 2002, no pet.).

Second, Dynegy argues the trial court abused its discretion in admitting, over Dynegy’s

objection, a handwritten post-it note marked as trial exhibit PX 93. The note states, “ASAP 6-20

FAX K TO DYN FOR FINAL APPROVAL ATTN: CRACRAFT. CALL FOR FAX # . . . BILL

DYN NOT CLIENT. DYN TO PAY FEES & EXPENSES PER K CRACRAFT.” Yates testified

this post-it note was attached to his fee agreement, which was faxed to Cracraft and was the subject

of their conversation on June 20, 2003. Dynegy contends that Yates used this post-it note to win the

“he-said, she-said” swearing match over whether a conversation between Yates and Cracraft

occurred—in other words, to prove the truth of the matter asserted; therefore, the admission of the

note was harmful error requiring reversal and a new trial on the contract claim. To obtain a new trial

based on the alleged evidentiary error, Dynegy must prove the error probably resulted in an improper

judgment, that is, that the jury’s findings on breach of contract turned on the post-it note. See City

6
… Dynegy also references the “erroneous jury instruction on advancement” as requiring a new trial; however,
Dynegy’s discussion of the advancement instruction in its appellant’s brief relates entirely to the escrow fraud theory
which has been waived by Yates; further, Dynegy’s brief clearly presents it as a contingent issue, dependent on this Court
finding sufficient evidence to support the jury’s fraud finding which we have not done.

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 04-10-00041-CV

of Brownsville v. Alvarado, 897 S.W.2d 750, 753-54 (Tex. 1995). Our review of the entire record

shows the post-it note is cumulative of the trial testimony given by Clark and Cracraft in which they

both stated that during their phone conversation on June 20, 2003 Cracraft told Clark that Dynegy

was paying Olis’ legal fees and to submit the bills directly to her. Dynegy asserts the note

necessarily corroborated Yates’ testimony about his conversation with Cracraft (which she denied)

during which he confirmed her receipt of the faxed fee agreement. Given that it is the jury’s role to

resolve conflicts in the evidence and to assess the credibility of the witnesses and the weight of their

testimony, we may not substitute our judgment for that of the jury’s. City of Keller, 168 S.W.3d at

819. Viewing the note in the context of the entire trial record, we cannot say the jury’s favorable

findings on the contract theory turned on the admission of the post-it note; any error in the admission

of PX 93 was harmless. See Alvarado, 897 S.W.2d at 753-54.

Finally, Dynegy’s argument that if judgment is rendered on the contract claim, a new trial

will be required on attorney’s fees similarly fails. First, Dynegy cites us to no authority requiring

a new trial on attorney’s fees when one theory of recovery is reversed and judgment is rendered on

an alternative theory on which favorable findings were also returned. The two cases cited by Dynegy

involve remand for a new trial on attorney’s fees based on a reduction in damages on appeal under

a single theory of recovery. See Barker v. Eckman, 213 S.W.3d 306, 313-15 (Tex. 2006); Young v.

Qualls, 223 S.W.3d 312, 314-15 (Tex. 2007) (per curiam). In those cases, the Supreme Court held

that because it could not be reasonably certain that the erroneous damages award did not significantly

affect the fact finder’s consideration of the “results obtained” factor under the Arthur Andersen

analysis, a new trial on attorney’s fees was required. See Barker, 213 S.W.3d at 314-15; Young, 223

S.W.3d at 314-15 (citing Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex.

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1997)). Those cases are distinguishable, however, because here the damages being reversed are for

fraud, a claim for which no attorney’s fees are recoverable; therefore, there is no risk the jury was

affected by an erroneous amount of damages in calculating the reasonable attorney’s fees recoverable

on the contract claim. At trial, counsel for Yates presented evidence as to the legal work performed

on the contract claim, segregated from the fraud claim, as required. See Tony Gullo, 212 S.W.3d at

313-14. In Question No. 6, the jury made specific findings on the amount of necessary legal services

attributable solely to Yates’ contract claim, finding that $574,718 in fees were incurred through trial

and post-trial; the jury further found that conditional appellate fees were $125,000 for an appeal to

the Court of Appeals, $25,000 for filing a petition for review in the Texas Supreme Court, and

$35,000 if the Supreme Court granted review. We conclude that judgment may properly be rendered

in favor of Yates on his breach of contract claim as well as for recovery of attorney’s fees under the

contract claim. See TEX . CIV . PRAC. & REM . CODE ANN . § 38.001(8) (West 2008).
CONCLUSION

Based on the foregoing analysis, we reverse the trial court’s judgment based on the jury’s

fraud findings, including its award of exemplary damages, and render a take-nothing judgment

against Yates on the fraud claim. Because the jury also returned favorable findings on Yates’

alternative breach of contract theory, and Yates seeks recovery under that alternative theory, we

render judgment in favor of Yates based on the jury’s breach of contract findings and award Yates

actual damages of $448,556, plus prejudgment and post-judgment interest. Further, based on the

jury’s findings as to the reasonable and necessary attorney’s fees recoverable for the breach of

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 04-10-00041-CV

contract claim, we award Yates $699,718 in trial, post-trial and appellate attorney’s fees, plus

$60,000 in conditional appellate fees.

Phylis J. Speedlin, Justice

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