Opinion issued November 24, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00706-CV
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ACCURATE PRECISION PLATING, LLC, Appellant
V.
JUAN GUERRERO, GUERRERO PLATING TECHNOLOGY, LLC, AND
ALLIED PLATING, LLC, Appellees
On Appeal from the 215th District Court
Harris County, Texas
Trial Court Case No. 2013-33528A
MEMORANDUM OPINION
In this commercial litigation case, appellant Accurate Precision Plating,
LLC, sued appellees Juan Guerrero, Guerrero Plating Technology, LLC, and
Allied Plating, LLC, for breach of contract, intentional interference with business
relations, and misappropriation of trade secrets. In two issues, appellant contends
that the trial court abused its discretion in refusing to allow APP’s owner, Alberto
Mani, to testify at trial regarding future lost profits, and that the exclusion of
Mani’s testimony was harmful error. We affirm.
Background
In 2007, Mani and Juan formed APP. Mani, the majority owner, was the
company’s President, and Juan, the minority owner, its Vice-President. In 2012,
Mani learned that Juan intended to leave APP to form his own plating company.
Thereafter, Mani and Juan executed a release and indemnity agreement under
which Mani agreed to pay Juan $300,000 for his interest in APP and one year’s
salary of more than $100,000. The agreement also included a non-compete
agreement under which, with the exception of three of APP’s customers, Juan
agreed not to contact, or disclose the identity of, any of APP’s then-existing
customers for a period of ten years. At the time the agreement was executed, Juan
had already formed his own company, Guerrero Plating Technology.
In May 2013, well after Juan’s departure, APP received two purchase orders
from Sauer Machine, one of its customers. The order forms, however, were
addressed to Juan’s attention and referenced a company identified as Allied
Plating, LLC. Subsequent investigation revealed that this was a company formed
by Juan’s father, who was an APP employee at the time. APP subsequently filed
2
suit against Juan for breach of contract, and against Juan, Guerrero Plating
Technology, and Allied Plating for misappropriation of trade secrets and tortious
interference with business relations. In its suit, APP sought damages for past and
future lost profits. 1 The case proceeded to trial in January 2014.
During trial, Mani testified about APP’s claim for lost profits based on the
loss of business from five of its customers—Sauer Machine, Innova Integrated
Solutions, Precision Machined Components, Peridot Corporation, and Precision
Energy Service Weatherford. Mani testified that APP’s combined sales from these
five customers had decreased 76% in the year following Juan’s departure, and that
the only explanation for the loss of sales was Juan’s interference with APP’s
customers.
When appellees’ counsel took Mani on voir dire, Mani testified that he had
no degree, certification, or experience in accounting, economics, or business
forecasting, and that he did not know what steps an accountant or economist would
take to calculate lost profits for specific customers. To determine APP’s profit
from a particular customer, Mani testified that he adds the cost of a particular
plating job to the cost of labor and, from that figure, is able to determine the profit
margin. Mani testified that APP targets a general profit margin, and that he
1
APP also sought a temporary restraining order and temporary injunction which the
trial court granted.
3
“shoot[s] for a minimum of 25 percent.” Later, Mani testified that he calculates
future lost profits by taking a customer’s sales over one year, projecting them over
time without increasing sales, and multiplying that figure by twenty percent. Mani
testified that “[e]ven though the target with some customers can be higher or
lower, I think 20 percent is a fair number.”
Mani testified that, although market conditions “vary from time to time,” he
does not believe that the plating business is a risky one and he had not seen a large
fluctuation in conditions to date. Mani admitted that he did not know why Innova
and Precision Machined were no longer sending work to APP. He testified that he
did not know whether Peridot, Precision Machined, Innova, and Precision Energy
sent work to companies other than Guerrero Plating Technology and Allied. He
further testified that, of its 426 customers, APP had a contract with only one and
had to bid on projects for the others.
When asked under what circumstances he has had to calculate lost profits for
customers, he replied that he has done it if the “market change[s].” Mani testified
that he has calculated lost profits for gross sales but he did not understand when
asked whether he had ever calculated lost profits for net sales. Following the voir
dire examination, the trial court sustained appellees’ objection to Mani’s proposed
testimony about APP’s future lost profits.
4
APP subsequently made a bill of review during which Mani testified as
follows:
Q: [I]f you were allowed to testify regarding lost future profit, could
you explain the basis that you would utilize to calculate those lost
profits?
....
A: I will take these sales, project them over time and do the profit of
20 percent without increasing sales up.
....
Q: So you could take those numbers and do what with them to
calculate your future loss?
A: Basically, add them up and do a projection of these numbers.
Q: Okay. And how would you do that?
A: I will do it over—well, you know, we have a non-compete for ten
years. So one year has elapsed. So I will do it over nine years.
When asked about the circumstances under which he had previously
calculated future lost profits, Mani testified that he once performed a calculation in
order to provide a price quote to a potential client and, on another occasion, when
he evaluated a price increase for a current customer. When asked what he used to
calculate the future lost profit for the quote, he testified that he used certain factors
for determining the cost of the plating process but that he would not disclose his
pricing strategies because the information was proprietary.
5
At the conclusion of trial, the jury rendered a verdict in favor of APP,
awarding $230,112.28 in past lost profits damages. 2 On July 22, 0214, the trial
court signed its final judgment. This appeal followed.
Standard of Review
The admission or exclusion of evidence is within the sound discretion of the
trial court. Tex. Dep’t of Transp. v. Able, 35 S.W.3d 608, 617 (Tex. 2000); Simien
v. Unifund CCR Partners, 321 S.W.3d 235, 239 (Tex. App.—Houston [1st Dist.]
2010, no pet.). A trial court abuses its discretion when it acts without reference to
any guiding rules or principles. City of Brownsville v. Alvarado, 897 S.W.2d 750,
754 (Tex. 1995).
For the exclusion of evidence to constitute reversible error, the complaining
party must demonstrate that (1) the trial court committed error, and (2) the error
was reasonably calculated to, and probably did, cause rendition of an improper
judgment. TEX. R. APP. P. 44.1(a); Owens–Corning Fiberglas Corp. v. Malone, 72
S.W.2d 35, 43 (Tex. 1998). In determining if the excluded evidence probably
resulted in the rendition of an improper judgment, the appellate court reviews the
entire record. Able, 35 S.W.3d at 617; Hahn v. Love, 394 S.W.3d 14, 35 (Tex.
App.—Houston [1st Dist.] 2012, pet. denied).
2
The jury found in favor of APP on all of its claims against appellees but it found
that Allied’s misappropriation was excused.
6
Discussion
APP first contends that the trial court abused its discretion when it refused to
allow Mani to testify by application of the Property Owner Rule. APP argues that
Mani’s testimony regarding APP’s future lost profits with regard to five of its
customers should have been allowed. It also asserts that Mani’s proposed
testimony was reliable and based on objective facts, and that its exclusion was
harmful error.
Rule of Evidence 701 provides that “[i]f a witness is not testifying as an
expert, testimony in the form of an opinion is limited to one that is: (a) rationally
based on the witness’s perception; and (b) helpful to clearly understanding the
witness’s testimony or to determining a fact in issue.” TEX. R. EVID. 701. Rule
701 has been interpreted to include a Property Owner Rule, which holds that a
property owner is qualified to testify to the value of his property even if he is not
an expert and would not be qualified to testify to the value of other property. Reid
Rd. Mun. Util. Dist. No. 2 v. Speedy Stop Food Stores, Ltd., 337 S.W.3d 846, 852–
53 (Tex. 2011); see Del Mar Capital, Inc. v. Prosperity Bank, No. 01-14-00028-
CV, 2014 WL 5780302, at *5 (Tex. App.—Houston [1st Dist.] Nov. 6, 2014, no
pet.) (“The Property Owner Rule, as its name suggests, excepts property owners
from the requirement that an expert testify on the valuation of the property.”) The
rule is based on the presumption that a property owner is familiar with his property
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and its value. Id. at 853. However, the property owner’s testimony must be based
on market value, not intrinsic value or some speculative value of the property. 3
See Natural Gas Pipeline Co. of Am. v. Justiss, 397 S.W.3d 150, 155 (Tex. 2012)
(citing Porras v. Craig, 675 S.W.2d 503 (Tex. 1984)).
We are unaware of any case—nor has appellant directed us to any—in
which the Property Owner Rule has been applied to testimony regarding lost
profits, either past or future. Rather, the cases in which courts have considered
application of the Property Owner Rule involve property, real or personal, that has
a market value. See e.g., Justiss, 397 S.W.3d at 155 (applying Property Owner
Rule to property owners’ claims of diminished value to homes and land due to
permanent nuisance); Reid Rd. Mun. Util. Dist., 337 S.W.3d at 846 (concluding
officer of defendant company’s general partner was not qualified to testify to
market value of partnership property under Property Owner Rule); Porras, 675
S.W.2d at 503 (applying Property Owner Rule to property owner’s testimony
regarding valuation of land); DZM, Inc. v. Garren, 467 S.W.3d 700, 705 (Tex.
3
“Market value is ‘the price the property will bring when offered for sale by one
who desires to sell, but is not obliged to sell, and is bought by one who desires to
buy, but is under no necessity of buying.’” City of Harlingen v. Estate of
Sharboneau, 48 SW.3d 177, 182 (Tex. 2001) (citation omitted); Village Place,
Ltd. v. VP Shopping, LLC, 404 S.W.3d 115, 133 (Tex. App.—Houston [1st Dist.]
2013, no pet.). Evidence of price paid, nearby sales, tax valuations, appraisals,
online resources, and any other relevant factors may be offered to support a
valuation claim. See Natural Gas Pipeline Co. of Am. v. Justiss, 397 S.W.3d 150,
159 (Tex. 2012).
8
App.—Houston [14th Dist.] 2015, no pet.) (finding property owner’s testimony
offered under Property Owner Rule regarding fair market value of various items of
leased property was insufficient to establish value of items at time of alleged
conversion); Smirl v. State, No. 01–12–00989–CV, 2014 WL 2507639, at *4–6
(Tex. App.—Houston [1st Dist.] June 3, 2014, no pet.) (mem. op.) (upholding
summary judgment against owner of leasehold because owner’s affidavit testimony
was insufficient evidence of valuation of leasehold interest); City of Emory v. Lusk,
278 S.W.3d 77, Tex. App.—Tyler 2009, no pet.) (applying Property Owner Rule to
easement in inverse condemnation case); Royce Homes v. Humphrey, 244 S.W.3d
570 (Tex. App.—Beaumont 2008, pet. denied) (applying Property Owner Rule to
owner’s claimed damages to home and land); Lefton v. Griffith, 136 S.W.3d 271
(Tex. App.—San Antonio 2004, no pet.) (applying Property Owner Rule to
owner’s valuation of store inventory and home). APP did not argue at trial—nor
does it assert on appeal—that the “property” about which Mani sought to testify
has a market value. The Property Owner Rule does not apply to the facts in this
case.4
4
APP also asserts that the trial court abused its discretion in excluding Mani’s
testimony regarding APP’s future lost profits when it erroneously applied Rule of
Evidence 702. However, the only reference to Rule 702 in the record before us is
by APP’s counsel. In response to appellees’ objection to Mani’s proposed
testimony regarding future lost profits, APP’s counsel stated, “As a layman, Judge,
and as a business owner, he is clearly capable, under Rule 702, of testifying as to
the value of his property, not only in past but in the future as far as lost profits are
9
Moreover, Mani’s proposed testimony does not constitute competent
evidence from which his claimed future lost profits could be calculated with
reasonable certainty. The rule concerning adequate evidence of lost profits
damages is well established:
Recovery for lost profits does not require that the loss be susceptible
of exact calculation. However, the injured party must do more than
show that they suffered some lost profits. The amount of the loss
must be shown by competent evidence with reasonable certainty.
What constitutes reasonably certain evidence of lost profits is a fact
intensive determination. As a minimum, opinions or estimates of lost
profits must be based on objective facts, figures, or data from which
the amount of lost profits can be ascertained. Although supporting
documentation may affect the weight of the evidence, it is not
necessary to produce in court the documents supporting the opinions
or estimates.
ERI Consulting Engineers, Inc. v. Swinnea, 318 S.W.3d 867, 878–79 (Tex. 2010)
(quoting Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992)). Lost
profits must be based on net profits, not gross revenues. See Heine, at 83 n.1.5
Based on the record before us, we conclude that APP did not provide
competent evidence of its future lost profits to a reasonable certainty. Mani
testified that APP has a general target profit margin of twenty-five percent but did
concerned.” Given the substance of the statement, however, it appears that
counsel was attempting to introduce Mani’s testimony under the Property Owner’s
Rule under Rule 701.
5
“Net profits” is defined as the difference between a business’s total receipts and all
of the expenses incurred in carrying on the business. Texaco, Inc. v. Phan, 137
S.W.3d 763, 771 (Tex. App.—Houston [1st Dist.] 2004, no pet.).
10
not explain the basis for it, and then later stated that he considered twenty percent
to be a “fair number,” but offered no explanation why. In other words, Mani
premised his entire future lost profits analysis on a 20% [or 25%] profit margin but
offered no proof that such a profit margin had a connection to the facts. Mani
offered no evidence of what APP’s profit margin had been historically and thus
failed to connect his future lost profits analysis to objective facts, figures, or data.
See Heine, 835 S.W.2d at 83.
Mani also failed to demonstrate that the purported damage APP suffered was
connected to appellees’ conduct, or to account for, or even consider other factors
that may have caused APP to lose revenue. Although Mani testified that the only
explanation for the loss of the five customers was appellees’ interference with
APP’s business, he later stated that APP had a contract with only one customer and
had to submit bids to the others, and that he did not know why two of its customers
no longer did business with APP. See Heine, 835 S.W.2d at 85 (“[T]he bare
assertion that contracts were lost does not demonstrate a reasonably certain
objective determination of lost profits.”); Rusty’s Weigh Scales & Serv., Inc. v. N.
Texas Scales, Inc., 314 S.W.3d 105, 111 (Tex. App.—El Paso 2010, no pet.)
(concluding that evidence in support of plaintiff’s claim for lost profits was
insufficient where claim was based in part on assumption that it lost customers
based on competitor’s alleged use of plaintiff’s software despite fact that plaintiff
11
was not under contract with its clients). Further, while he testified that he had
calculated lost profits based on gross sales, he was unable to state whether he had
ever calculated future lost profits based on net sales. See Heine, 835 S.W.2d at 83
n.1 (noting lost profits must be based on net profits rather than gross revenues).
Simply put, Mani’s testimony does not constitute the reasonably certain objective
evidence upon which a calculation of future lost profits may be based. Heine, 835
S.W.2d at 84; Fraud-Tech, Inc. v. Choicepoint, Inc., 102 S.W.3d 366, 381 (Tex.
App.—Dallas (Tex. App. 2003, pet. denied) (noting mere speculation by plaintiff
does not constitute objective information needed to establish lost profits).
Accordingly, we conclude that the trial court did not abuse its discretion in
sustaining appellees’ objection to Mani’s testimony regarding APP’s future lost
profits. We overrule APP’s first issue.6
Conclusion
We affirm the trial court’s judgment. 7
6
In light of our disposition, we do not reach APP’s issue regarding whether the
exclusion of Mani’s testimony was harmful. See TEX. R. APP. P. 44.1, 47.1.
7
We further grant appellees’ unopposed motions to dismiss their conditional
cross-appeals.
12
Russell Lloyd
Justice
Panel consists of Justices Higley, Huddle, and Lloyd.
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