ACCEPTED
12-14-00323-CV
TWELFTH COURT OF APPEALS
TYLER, TEXAS
6/8/2015 8:38:00 PM
CATHY LUSK
CLERK
FILED IN
12th COURT OF APPEALS
No. 12-14-00323-CV TYLER, TEXAS
6/8/2015 8:38:00 PM
__________________________________ CATHY S. LUSK
Clerk
In the Twelfth Court of Appeals
Tyler, Texas
__________________________________
David Tubb and Superior Shooting System, Inc.,
Appellants
v.
Aspect International, Inc. and James Sterling
Appellees
___________________________________
Appellants’ Brief
___________________________________
Wesley Hill Greg Smith
Bar No. 24032294 Bar No. 18600600
Ward, Smith & Hill, PLLC Ramey & Flock, P. C.
P. O. Box 1231 100 E. Ferguson, Suite 500
Longview, Texas 75606 Tyler, Texas 75702
Telephone: 903-757-6400 Telephone: 903-597-3301
Facsimile: 903-757-2323 Facsimile: 903-507-2413
Attorneys for Appellants
Oral Argument Requested
Statement Regarding Oral Argument
Oral argument is appropriate. The outcome below is novel, indeed
surprising. On liability, the trial court found that Superior repudiated the
parties’ venture despite its consistently voiced intent to perform and
notwithstanding Aspect’s confession that Superior’s intent appeared genuine.
As relief, Aspect has been granted a substantial sum in “restitution” even
though there is no evidence it is any worse off—or Superior is any better
off—than before the venture. The Court would benefit from the chance to ask
questions probing this outcome.
i
The Parties and Their Counsel
I. Appellants:
David Tubb
Superior Shooting System, Inc.
II. Appellees:
Aspect International, Inc.
James Sterling
III. Counsel for Appellants:
Gregory D. Smith
Nolan Smith
RAMEY & FLOCK, P.C.
100 E. Ferguson, Suite 500
Tyler, TX 75702
Telephone: (903) 597-3301
Facsimile: (903) 597-2413
gregs@rameyflock.com
nolans@rameyflock.com
Wesley Hill
Texas Bar No. 24032294
Ward, Smith & Hill, PLLC
P. O. Box 1231
Longview, Texas 75606
Telephone: 903-757-6400
Facsimile: 903-757-2323
wh@wsfirm.com
ii
IV. Counsel for Appellees:
M. Keith Dollahite
M. Keith Dollahite, P.C.
5457 Donnybrook Ave.
Tyler, Texas 75703
Telephone: 903-581-2110
Facsimile: 903-581-2113
keith@mkdlaw.us
Trey Yarbrough
Yarbrough Wilcox, PLLC
100 E. Ferguson, Suite 1015
Tyler, Texas 75702
Telephone: 903-595-3111
Facsimile: 903-595-0191
trey@yw-lawfirm.com
/s/ Gregory D. Smith
GREGORY D. SMITH
iii
CONTENTS
Statement Regarding Oral Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Identity of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Statement of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x
Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statement of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary of Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
I. There is no evidence Superior repudiated the executory
contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
A. In Texas, repudiation requires a contract’s fixed and
unequivocal renunciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
B. Superior didn’t make any fixed and unequivocal
renunciation of the venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1. Aspect relied on speculative conclusions . . . . . . . . . . . . . 13
2. Superior’s actions were the opposite of
repudiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
a. Tubb’s comments about moving the
manufacturing location were no repudiation . . . . . . 15
iv
b. Superior never intentionally withheld supplies . . . . 22
3. Both parties were negotiating towards a written
contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
C. It was Aspect that chose to get out of the contract . . . . . . . . . . 32
II. There is no evidence supporting Aspect’s damage recovery . . . . . 35
A. Aspect has no basis to recover for Sterling’s time . . . . . . . . . . 35
1. Because the venture was a partnership, Sterling’s
time is not compensable . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2. There was no probative evidence quantifying any
benefit to be restored . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
B. Sterling’s damage proof was inadmissible, was not
probative, and did not show a complete damage calculation . . 39
C. Aspect could have mitigated any damage . . . . . . . . . . . . . . . . 42
D. When Aspect left the venture, it was no worse off
than when it began . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
E. The recovery is excessive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
III. Aspect owes attorney’s fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Conclusion and Prayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Certificate of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Certificate of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
v
Appendices:
A. Findings of Fact and Conclusions of Law
B. Final Judgment
vi
AUTHORITIES
CASES:
Coastal Transp. Co. v. Crown Cent. Petroleum Corp., 136
S.W.3d 227 (Tex. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Davis v. Canyon Creek Estates HOA, 350 S.W.3d 301
(Tex.App.–San Antonio 2011, pet. denied) . . . . . . . . . . . . . . . . . . 12
Dora v. Mullick, 2000 WL 33322942, (Tex.App.--
Texarkana 2001, no pet.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Dudley v. Born, 710 S.W.2d 638 (Tex.App.–Beaumont 1986,
writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Ennis Business Forms, Inc. v. Gehrig, 534 S.W.2d 183
(Tex.Civ.App.–Waco 1976, writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . 11
Glass v. Anderson, 596 S.W.2d 507 (Tex. 1980) . . . . . . . . . . . . . . . . . . . 18
G.R.A.V.I.T.Y. Enters., Inc. v. Reece Supply Co., 177 S.W.3d
537 (Tex.App.–Dallas 2005, no pet.) . . . . . . . . . . . . . . . . . . . . . . . 48
Green Int’l v. Solis, 951 S.W.2d 384 (Tex. 1997) . . . . . . . . . . . . . . . . . . . 47
Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d 707 (Tex. 1982) . . . . . . . . . 21
Houston Unlimited, Inc. Metal Processing v. Mel Acres Ranch,
443 S.W.3d 820 (Tex. 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Ingram v. Deere, 288 S.W.3d 886 (Tex. 2009) . . . . . . . . . . . . . . . . . . . . . 37
Kaiser v. Northwest Shopping Center, Inc., 587 S.W.2d 454
(Tex.Civ.App.–Dallas 1979, writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . 20
vii
Kilgore v. Northwest Texas Baptist Educational Society, 37 S.W.
598 (Tex. 1896) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Litton Indus. Prods. v. Gammage, 668 S.W.2d 319 (Tex. 1984) . . . . . . . 23
McKenzie v. Farr, 541 S.W.2d 879 (Tex.Civ.App.–Beaumont 1976,
writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
McKinley v. Drozd, 685 S.W.2d 7 (Tex. 1985) . . . . . . . . . . . . . . . . . . . . . 47
Preston v. Love, 240 S.W.2d 486 (Tex.Civ.App.–Austin 1951,
no writ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Ravkind v. Ravkind, 1995 WL 458856 (Tex.App.–Houston
[14th Dist.] Aug. 3, 1995, writ denied) . . . . . . . . . . . . . . . . . . . . . . 19
Rhodes v. Amarillo Hosp. Dist., 654 F.2d 1148 (5th Cir. 1981) . . . . . 11, 28
Smith v. Patrick W. Y. Tam Trust, 296 S.W.3d 545 (Tex. 2009) . . . . . . . 48
Stanley Manly Boys’ Clothes, Inc. v. Hickey, 259 S.W. 160
(Tex. 1924) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Thomas v. Bobby D. Assoc., 2008 WL 3020339
(Tex.App.–Tyler 2008, no pet.(mem.op.) . . . . . . . . . . . . . . . . . . . . 47
Townewest HOA v. Warner Communications, Inc., 826 S.W.2d
638 (Tex.App.–Houston [14th Dist.] 1992, no pet.) . . . . . . . . . . . . 20
Whirlpool Corp. v. Camacho, 298 S.W.3d 631 (Tex. 2009) . . . . . . . . . . . 41
RULES, STATUTES AND OTHER AUTHORITIES:
Calvert, No Evidence and Insufficient Evidence Points of Error,
38 TEX. L. REV. 359 (1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
viii
RESTATEMENT OF CONTRACTS § 317(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 20
RESTATEMENT (SECOND) OF CONTRACTS § 278(1) . . . . . . . . . . . . . . . . . . 18
RESTATEMENT (SECOND) OF CONTRACTS § 344 . . . . . . . . . . . . . . . . . . . . 38
TEX. BUS. ORG. CODE § 152.203(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 35, 38
TEX. BUS. ORG. CODE ANN. § 152.051(b) . . . . . . . . . . . . . . . . . . . . . . . . . 36
TEX. BUS. ORG. CODE ANN. § 152.202 . . . . . . . . . . . . . . . . . . . . . . . . 35, 36
TEX. CIV. PRAC. & REM. CODE § 38.001 . . . . . . . . . . . . . . . . . . . . . . . . . . 47
TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8) . . . . . . . . . . . . . . . . . . . 48
24 WILLISTON ON CONTRACTS § 64:2 (4th ed.,
updated May 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ix
The Case
Nature of the case Aspect and Superior joined in a speculative venture for
manufacturing precision small-arms ammunition. Both
sides performed for about a year, but the effort—to build a
competition-beating precision-ammunition operation from
scratch—progressed slower than Aspect anticipated.
Just as the venture was on the cusp of commercial
production, Aspect stopped work, demanded payment for
invoices it was to have contribute as venture capital, and
filed this suit. It said this was required because the parties
hadn’t signed a written venture contract. And it now says
Superior repudiated the deal. But there was no deadline for
a venture document. And Superior repeatedly reaffirmed
the venture, which Aspect easily could have salvaged.
Trial court Hon. Kerry Russell, 7th District Court of Smith County
Course of proceedings Bench trial. Judge Russell found the parties had a contract
(which was uncontested), but concluded the agreement did
not create a partnership. He also concluded that Superior
repudiated the venture. 4 CR 452-68 (Appendix Tab A).
Aspect alleged lost profits of $4.1 million—just in the
venture’s first year. Judge Russell properly denied this
relief as speculative. But he granted Aspect—a previously
inactive corporation with no expertise in commercial
munitions manufacture—$175,000 as “restitution” for the
alleged value of its input on the project. With attorney’s
fees exceeding $110,000, costs and interest, the judgment
liability approaches $300,000. 5 CR 668-70 (Appendix
Tab B).
x
Issues Supporting Reversal
1. Does the evidence support the determination that Superior repudiated the
parties’ venture?
2. Does the evidence support a recovery of $175,000 as restitution?
3. Was Aspect’s damage proof–principally James Sterling’s conclusory
opinion testimony and his litigation-driven, hearsay invoices—even admissible in
evidence?
4. Was it actually Aspect that breached or repudiated the venture agreement?
5. Did Aspect fail to mitigate its damages?
6. Did the trial court err in not awarding Superior its attorney’s fees incurred
in successfully pursuing a contractual offset?
xi
Introduction
This case arises out of a joint-venture, for profit, between two
corporations. Plaintiff Aspect had never before conducted business of any
kind. 6 RR 21. Its protagonist, James Sterling, had been retired since 2000,
living on his wife’s earnings and his own disability-insurance benefits. 6 RR
22. The year was 2011 and the United States was in a panic-driven run on
small-arms ammunition. Along with David Tubb and his company, Superior
Shooting Systems, Aspect and Sterling set out on a venture to make the best
quality precision small-arms ammunition, through Aspect, initially from
Sterling’s garage. The plan was to leverage Tubb’s munitions expertise and
celebrity in the firearms community.
The project proceeded for about a year, in which both parties devoted
time to planning and implementation and Superior spent $240,000 on
production equipment and supplies. Then, in January 2013, Aspect withdrew.
It blamed Superior, claiming it had lost interest in the venture. Yet at every
turn, Tubb affirmed Superior’s intent to see the venture through, and Superior
was continuing to perform, procuring supplies, even as Aspect withdrew and
sued.
1
Aspect claims Mr. Sterling worked full time on the project, and that his
work was worth a princely $140 per hour. But there is no admissible,
probative evidence quantifying the level of Sterling’s time commitment or
setting any basis on which to determine the value of that time. Rather, Aspect
relies on Sterling’s inadmissible say so, “corroborated” by the cryptic,
conclusory and hearsay invoices Sterling prepared after filing suit. These
items should have been excluded pursuant to Superior’s Daubert/Robinson
challenge and its hearsay objection.
Sterling had utterly no expertise in the manufacture of munitions—or
in manufacturing anything else. All Sterling could point to was that he had
sometimes loaded his own ammunition, manually, as a hobbyist. Most evern
manufacturing start up would present a substantial learning curve. This one
certainly did.
Sterling seems not to have comprehended this: throughout trial, he
expressed repeated exasperation over each modification, improvement, and
refinement Tubb had made in the equipment or proposed manufacturing
protocol. Sterling saw these as delaying production. Yet such tweaks are an
unavoidable part of the process with any manufacturing start-up. Indeed, they
are essential to ultimate success.
2
Aspect made much of the fact that Tubb at a dinner conversation said
he thought the manufacturing operation should be moved to Superior’s
location in the Panhandle. But Sterling himself conceded that the suggestion
was retracted almost immediately and, so, was not any proper basis for a claim
of repudiation. Yet it is an express basis of the trial court’s decision.
Superior failed to have all the raw materials to Tyler when Aspect
finally was in position to go forward with commercial production. Aspect said
this proved Superior wanted to repudiate the contract. 4 RR 37. But that is not
possible. In fact, the case for repudiation is outlandish. Superior had invested
$240,000 of hard cash and numerous man hours into the venture. And Tubb
repeatedly confirmed Superior’s commitment to the venture. When the trial
court agreed with Aspect, its ruling was the first of several clear errors.
Statement of Facts
The Agreement. In late 2011, James Sterling approached David Tubb,
a renowned marksman, about entering a venture to produce high-quality
small-arms ammunition at a high volume. 4RR109; 7RR17-18; 7RR44-45;
8RR41. The two men soon agreed to start such a business, through their
respective companies---Aspect International (an inactive corporation owned
3
by Sterling’s wife) and Superior Shooting Systems, through which Tubb
produced and marketed rifle-related products. 7RR158.
Both companies would participate in control of the business and they
would split the profits 50/50. 5RR11-12; 6RR6; 6RR167. Superior agreed to
also (a) fund the purchase of production equipment and materials, 6RR169-70,
7RR18; (b) lend Tubb’s name to the venture, 6RR169; and (c) provide access
to Tubb’s distributorship network. 4RR87-88. Aspect would (a) contribute the
invoices from some IT work Sterling had performed for Superior; (b) refit
Sterling’s garage as an initial manufacturing facility; (c) obtain retail
packaging for the ammunition products; and (d) run the venture’s
manufacturing operation. 7RR46-48; 4RR100.
The Machine. To facilitate the venture plan for mass-producing
precision ammunition of unparalleled quality, the venture needed a loading
machine capable of both high volume and extreme accuracy. To design and
make such a machine, the venture hired FillPro, a company that had
manufactured powder-filling machines for the Army, Navy, and Department
of Defense. 4RR91, 4RR96; 4RR144-45; 6RR166-67.
Over the next eight to nine months, FillPro developed and built the
machine, 4RR145; 4RR166-67, which Superior bought, 6RR50; 6RR177, and
4
Fill-Pro installed in Sterling’s remodeled garage, in late October 2012.1 The
machine’s digital infrastructure then remained incomplete and Sterling was
still several months away from being capable of the machine’s commercial
operation. 4RR162, 168-69. Over the following months, Sterling worked at
mastering the machine’s commercial operation, understanding its Windows
platform, and addressing IT issues. 4RR150-51. In the same period, various
bugs and deficiencies with the machine and the surrounding manufacturing
process had to be worked through with FillPro’s designers. 4RR117. Sterling
felt the machine was ready for production on January 1, 2013. 4RR236. But
even he agreed that the necessary retail packaging was (which he was
responsible for procuring) was not available until mid- to late January.
7RR34; 6RR12.
While Sterling was Fill-Pro’s primary contact following the machine’s
installation, 4RR149, Tubb’s involvement was strong on both the project’s
development side (where he initiated numerous improvements to the machine
and the manufacturing process, e.g., 4RR115; 7RR17-18) and its mechanical
1
While the machine had some unique characteristics, 4RR148, FillPro had
manufactured the same configuration before, 4RR148-49, and there were at least a few
other machines like this one in operation. 4RR148-49.
5
aspect. 4RR152; 4RR115; 6RR13-15. Sterling disagreed, 4RR199-200, but
Tubb felt he had as much time in the business as Sterling did. 7RR51.
The Venture’s End. Sterling had been impatient with the venture’s
progress from virtually the start, complaining every time Tubb would make
a process or machine improvement. Ultimately, Sterling pulled Aspect out of
the deal---just before he would have had to bring the machine into commercial
production. At this time, in January of 2013, Sterling (a) accused Tubb–the
man who had invested $240,000 in the project–with trumped up charges of not
intending to perform the venture, (b) demanded payment on the IT invoices
Aspect was supposed to have contributed to the venture as capital, and (c)
threatened to withhold the administrative credentials to Superior’s customer
website, which he alone controlled.
Tubb, who thought the business could be profitable and so wanted it to
go forward, 7RR34, never once told Sterling he wanted out of the venture. He
instead said he wanted to move forward. Superior even paid the IT invoices.
But Sterling never returned to work on the project, and Aspect sued. In the
suit, it demanded compensation of $300,000, DX58; 6RR129, and for a year
refused to release Superior’s equipment. 6RR51, 129. It turns out the suit was
a designed exit strategy.
6
Sterling sent Tubb an email that was meant to go to his attorney. DX11;
7RR39-40. In it, Sterling revealed his own desire to leave the venture
(consistent with his history as a workplace vagabond) and his plan for doing
so, stating: “if I want out of it, my option is simply to send him a bill [for prior
IT work] and then pursue it. . . . If he sues me and Aspect, then my only
option, it appears, would be a countersuit out of Tyler. This further gives
weight to the bill him and walk away option.” 7RR39-40.
Today, after Superior has invested $240,000 in the machine and
supplies, 6RR7-8, the machine gathers dust in Tubb’s warehouse and is not
expected to ever be put into production. 6RR223; 7RR26.
The damage model. Aspect’s primary damage model, seeking lost
profits, was rejected at trial and so is not relevant. Its alternative damage
model sought compensation for Sterling’s time on the ammunition project.
Aspect claims Sterling---who had been retired and drawing insurance
disability checks for over a decade, e.g., 5RR22---somehow worked time
worth over $300,000 on the project. 6RR95. But there was no evidence that
Sterling’s services had cost Aspect anything or ever would. 6RR95. Nor was
there no probative evidence valuing the services that Sterling---a drop out
7
from 4 colleges, with no manufacturing or munitions-industry experience and
a history as a serial job hopper2---claims to have performed.
To estimate the quantity of his services, Sterling relied on old calendars
and a phone log. 4RR237-38; 6RR40-41; PX57. He and his wife never said
what all he had done on the project, aside from talking on the phone and
“research.” They simply alleged he had worked at least 40 hours each week,
for months. And Sterling assumed a value of $140 per hour for all of this time,
4RR238; PX57, even though he could recall only one instance of ever having
been paid even $120 per hour (this was by Superior, on a prior IT project).
4RR238. In the end, Sterling valued his time at over $300,000, PX57; 6RR40-
41, based on a series of litigation-motivated invoices lacking even a basic
account of the underlying services or time increments. 6RR43, 48.
2
Sterling, a workaday vagabond, had held about 12 jobs, each lasting a couple of
years or much less. PX56; 4RR61-65. At trial, Sterling burnished his resume beyond
recognition, painting a highly flattering but disingenuous picture of his responsibilities and
accomplishments. Aspect’s skilled trial counsel, in contrast, would say only that Sterling’s
resume was “interesting.” 4 RR 31-32. That is more than charitable. Judge Russell, who
saw Sterling’s puffery for what it was, called it out in the court’s findings. See 4 CR 163-64
(FOF 56).
8
Summary of the Argument
The trial court determined that Superior repudiated the parties’ venture
by a combination of actions. This decision cannot be sustained. The alleged
proof falls far short of the necessary showing of a fixed and definite, absolute
renunciation of the contract. Rather, Superior consistently announced its
intention to perform and it at all relevant times continued in its efforts to do
so. If anyone repudiated the venture, it would be Aspect, which quit work and
insisted that it would not resume the work unless Superior first paid invoices
that the parties had agreed were a part of Aspect’s contribution to the venture.
Because the determination of Superior’s repudiation is insupportable,
so also is the determination to award Aspect $175,000 in restitution for the
alleged value of Sterling’s time in the venture. By Aspect’s reasoning, it was
entitled to recover the value of Sterling’s time, so as to be placed back “in the
position it would have” occupied had Superior not breached. 4 RR 39-40. But
that recovery was unsustainable even apart from the lack of a Superior
repudiation, for many reasons. For instance: Aspect sustained no out-of-
pocket loss and Superior reaped no quantifiable benefit from this time. Aspect
didn’t otherwise begin to prove a complete factual basis for restitutionary
relief. And while according to Aspect’s proof it had the clear opportunity to
9
mitigate any loss, it chose not to do so, thus forfeiting its right to recover.
Finally, the trial court erred in failing to award Superior a recovery of
attorney’s fees. Once that court determined that Superior was entitled to a
$35,019 contractual offset refunding its payment on invoices, Superior was in
its own right a prevailing party entitled to recovery its contract attorney’s fees
under Section 38.001 of the Texas Civil Practice and Remedies Code.
Argument
1. There is no evidence Superior repudiated the executory contract.
The trial court found a repudiation. 4 CR 455, 458-59 (FOF 11, 33-35).
But there is no evidence supporting that finding. And evidence of an ordinary,
partial breach of the ongoing contract would never allow Aspect to recover
the value of what it had input into the venture. When the trial court rested its
decision on such a determination, it abandoned over 100 years of settled law.
A. In Texas, repudiation requires a contract’s absolute
renunciation.
The law does not generally allow one to claim repudiation of contract
unless the circumstances indicate a clear and unmistakable intention to
abandon it. Conduct that merely falls short of the agreed performance is an
10
ordinary breach—especially not when, as here, the defendant consistently
states an intention to continue under the contract and the counter-party
believes that intent is genuine.
The law of Texas respecting repudiation (also called anticipatory
breach) is clear. At the turn of the last century, in Kilgore v. Northwest Texas
Baptist Educational Society, the Texas Supreme Court already had held that
to repudiate a contract, the intention to abandon the agreement must have been
“declared in positive terms and unconditionally.” Kilgore v. Northwest Texas
Baptist Educational Soc., 37 S.W. 598, 600 (Tex. 1896). Today, all Texas
appellate courts agree that repudiation requires exacting circumstances—acts
or words unconditionally declaring “a distinct and unequivocal absolute
refusal to perform” the contract. McKenzie v. Farr, 541 S.W.2d 879, 882
(Tex. Civ. App.–Beaumont 1976, writ ref’d n.r.e.)(reversing because the
record contained no evidence of any “distinct and unequivocal absolute
refusal to perform the promise”).3 The defendant’s words or conduct must
3
See also Preston v. Love, 240 S.W.2d 486, 487 (Tex. Civ. App.–Austin 1951, no
writ)(declaration of intent to abandon “must be in positive and unconditional terms”);
Ennis Business Forms, Inc. v. Gehrig, 534 S.W.2d 183, 189 (Tex. Civ. App.–Waco 1976,
writ ref’d n.r.e.) (Declaration must constitute an “unequivocal renunciation of the
contract”); accord Rhodes v. Amarillo Hosp. Dist., 654 F.2d 1148, 1151-52 (5th Cir.
1981)(diversity; applying Texas law)(“Typically, ‘anticipatory repudiation’ arises when
a party unequivocally renounces his duties under a contract prior to the time fixed for his
performance.”).
11
clearly announce “a distinct, positive, unequivocal, and absolute refusal”
projecting “a fixed intention to abandon, renounce, and refuse to perform the
contract.” Davis v. Canyon Creek Estates HOA, 350 S.W.3d 301, 313 (Tex.
App.–San Antonio 2011, pet. denied).
Understandably, the cases in which trial-court findings of repudiation
are reversed on appeal are legion. E.g., Davis, 350 S.W.3d at 313 (finding no
evidence of the necessary “distinct, positive, unequivocal, and absolute
refusal’ to perform). When the claim is that repudiation should be inferred
from conduct, the burden to show an absolute repudiation is an especially
difficult hurdle. And rightfully so. Otherwise, there would simply be too much
confusion as to what constituted repudiation and when it had occurred.
B. Superior didn’t make any fixed and unequivocal renunciation
of the venture.
Superior is alleged to have worked a repudiation by (1) not acting
aggressively enough to negotiate a written venture agreement, (2) not having
sufficient raw materials on site when Aspect was finally ready for commercial
production, and (3) suggesting that the manufacturing operation might
someday need to move from Tyler (where James Sterling, Aspect’s principal,
lives) to Superior’s Panhandle headquarters. The case holds no water.
12
This venture was a manufacturing start up. They don’t occur without
hiccups—delays, setbacks, and revisions to even the most carefully hatched
plan. Matters in this case played out mostly according to this norm. They
didn’t establish the necessary absolute, fixed intent to renounce the venture.
1. Aspect relied on speculative conclusions.
At trial Sterling opined that “Tubb was done, 6 RR 21, and claimed that
in the venture’s last days he hadn’t been “getting an indication that [Tubb]
wanted to continue.” 6 RR 29. But Sterling’s subjective impression and self-
serving opinions aren’t a sufficient basis for a repudiation finding. Instead, a
viable repudiation finding must be built on evidence of Superior’s actual
words and conduct. This doesn’t exist here.
The agreement, reached late in 2011, 4 RR 93, was quite general. The
venture would make and sell small-arms ammunition. Superior would provide
the materials, fund the purchase of production equipment, and allow the
venture to use Tubb’s celebrity and Superior’s distributor network. 4 RR 215;
6 RR 50, 169-70; 7 RR 18. Aspect would provide the initial manufacturing
facility and supervise the manufacturing process—“load the ammunition,
package it, and distribute it to the distributor or directly to the end user. 4 RR
89-90; 6 RR 172-73. It would contribute as capital about $35,000 in past
13
invoices, from a website project undertaken for Superior. 7 RR 47-48. And
just as Superior contributed capital, equipment and materials, Aspect was to
contribute what Tubb understood to be Sterling’s knowledge of running multi-
level companies, securing military contracts, and IT experience. 7 RR 24-25.
Any profits would be divided equally. 4 RR 87-88.
There were no further specifics: No time periods or deadlines, 6 RR
152, no specific schedule as to which calibers to produce at what times, and
nothing in particular about the timing of the materials purchases, or quantities,
or exactly what would be furnished.
The goal was to produce a product that was higher quality than the
competition but at an equivalent price. 4 RR 109. Sterling expected that
Tubb’s reputation and a “really accurate” product would bring success. 4 RR
221-22. This of course required an ammunition loading machine that could
make precision ammunition of no equal, in several calibers. 7 RR 17-18, 43-
44.
As it turned out, Sterling had never run any multi-level company, or
secured any military contract, or sold ammunition before. 7 RR 61.
14
2. Superior’s actions were the opposite of repudiation.
a. Tubb’s comments about moving the manufacturing
location were no repudiation.
Sterling has said Superior repudiated the agreement on November 14,
when Tubb proposed to move the equipment to Canadian, Texas, where
Superior is located. 6 RR 17. But this was no evidence of a repudiation.
• That manufacturing operations might move in the future is not
inconsistent with the parties’ agreement, which was that the
manufacturing operations initially would be in Tyler.
• There is no reason why an eventual move of operations from Tyler
would oust Aspect from control of or supervision over the
manufacturing operation.
• A statement that an action may be considered in the future ordinarily is
not a present breach, let alone a repudiation of the entire contract.
• Tubb never attempted to move the equipment while the agreement
remained in force. 6 RR 141-42.
i. Tubb’s comments were not inconsistent with the
agreement.
There was no agreement to remain in Tyler forever. The initial
manufacturing location was to be Tyler. 6 RR 172-73. Sterling’s own draft of
the proposed joint-venture agreement stated “Venture parties agree that
Aspect International will ‘initially provide facilities for the operation.’” 6 RR
15
142; PX1. Mrs. Sterling, Aspect’s sole shareholder, agreed that the deal was
for manufacturing to be in Tyler “to start.” 8 RR 52. Thus, even Sterling
conceded that the agreement contemplated that the facility might move at
some point. 6 RR 142.
Nor did the thought of an eventual move threaten Aspect’s role as
manufacturing supervisor. Sterling claimed a move of the equipment would
take the manufacturing out of Aspect’s control. 4 RR 194. But how is that?
The where of the manufacturing and the who (as in who supervises or controls
the manufacturing process) are different matters. Businesses move
manufacturing operations all the time, with key supervisory personnel moving
along with them. Aspect, which had no other operations holding it back, could
relocate with the operations.
And, in any event, Tubb’s statement clearly implied Superior’s
intention that the parties would in the future still be in their venture. There was
no intention to void the contract.
ii. The comments were excused by Sterling’s prior
misrepresentation.
The context of Tubb’s statements is critical. The machine had been
located in Tyler and not in Canadian largely because Tubb’s location was
16
close to railroad tracks. The thought was that vibration from passing trains
could impair the equipment’s accurate performance. 7 RR 25. Tubb had made
a big deal of this. Yet Sterling had for months avoided telling Tubb that his
own Tyler location also was close to a railroad—closer than Tubb’s. 7 RR 25-
27. Tubb learned this after the $200,000 machine was installed, upon his visit
to Sterling’s home. When Tubb saw the abutting train tracks, he felt wronged
and hurt. 7 RR 60.
According to Tubb, he commented about a potential move while the
men were trying to work out the fact that Sterling’s garage was located close
to train tracks. 7 RR 25-27. But after a thorough discussion about the garage’s
proximity to train tracks, Tubb relented and allowed the equipment to sta in
Tyler, for Sterling’s convenience. 6 RR 195. Ultimately, Tubb got over the
train issue. 6 RR 196.
iii. Any statement about initially moving operations
was retracted.
An otherwise repudiating statement will not count as a breach if it is
retracted before the repudiation is accepted. As the Restatement (Second) of
Contracts states: an anticipatory breach “is nullified by a retraction of the
statement if notification of the retraction comes to the attention of the injured
17
party before he materially changes his position in reliance on the repudiation
or indicates to the other that he considers the repudiation final.”
RESTATEMENT (SECOND) OF CONTRACTS § 278(1); see Glass v. Anderson, 596
S.W.2d 507, 512-13 (Tex. 1980) (“Anderson could ahve retracted his
repudiation under the circumstances described in section 278(1) . . .")(citing
Section 278(1) with approval). That is what happened here.
As Sterling conceded, before the Tubbs’ Tyler visit was over, Tubb
agreed that the equipment could remain in Tyler initially, where Sterling
would try to “work the bugs out.” 6 RR 192-93; see also 4 RR 201. Sterling
even memorialized this in an email. DX 3 (Sterling’s email states “on
November 14, 2012, you stated your intention to break your agreement.
Within 24 hours you reversed your decision.”)(emphasis added); accord 6 RR
139. Sterling then confirmed that the venture was ongoing, stating that “[a]ny
materials you can send me I will load and ship out for sale.” PX99, p. 2. Thus,
as of December 24, Sterling did not take anything arising from Tubb’s Tyler
visit as a repudiation. PX99.
18
iv. Superior continued to perform.
Even when one breaches a contract, if he later resumes performance,
there is no anticipatory or total breach, but only a partial one. E.g., Ravkind v.
Ravkind, 1995 WL 458856, *1 (Tex.App.–Houston [14th Dist.] Aug. 3, 1995,
writ denied). Well after the Tubbs’ November visit to Tyler, as Sterling
conceded, Tubb’s position was to move the deal forward. 4 RR 203. As is
undisputed, Tubb then continued investing time and money towards the
machine’s ultimate commercial operation. 4 RR 116. And when Sterling
complained about the lack of .223 bullets, Tubb pledged to check into it and
step up the process of getting materials. 4 RR 206. As Sterling conceded Tubb
had ordered bullets for subsonic ammunition. In fact, he had bought all the
supplier had. 4 RR 209. And Tubb had obtained quite a lot of “brass.” 4 RR
210-12.
Tubb was committed to the project, otherwise he wouldn’t have
pumped $240,000 into it. 6RR7-9. Superior bought the equipment, paying a
quarter million dollars for it. There is no dispute about that. There is no
allegation that Superior ever denied the venture the use of his name. The
venture didn’t make it that far–but only because Aspect chose to end it
19
prematurely, consistent with Sterling’s unbroken string of fleeting jobs and
business opportunities.
v. The alleged “repudiation” was never accepted.
Even an absolute renunciation “merely gives the innocent party . . . the
option to also consider the agreement to be at an end.” Townewest HOA v.
Warner Communication, Inc., 826 S.W.2d 638, 640 (Tex. App.–Houston [14th
Dist.] 1992, no pet.). If the claimant instead treats the contract as continuing,
the sole remedy is for any partial breach. RESTATEMENT OF CONTRACTS §
317(2); Kaiser v. Northwest Shopping Center, Inc., 587 S.W.2d 454, 457
(Tex. Civ. App.–Dallas 1979, writ ref’d n.r.e.). The intention to repudiate, if
it is to have effect, “must be accepted by the other party as a complete and
binding repudiation and termination of the contract. . . . [D]eclarations
concerning future matters must be unconditional and must be promptly acted
upon by the other party.” Dudley v. Born, 710 S.W.2d 638, 644 (Tex.
App.–Beaumont, 1986, writ ref’d n.r.e.) (emphasis ours).4 Moreover, if, as
4
In Dudley, the defendant had come to the plaintiff in August or September, while
their construction project was ongoing, and suggested that Born start looking somewhere
else to finance the project. This was no evidence of repudiation, both because it didn’t meet
the exacting requirements for a declaration of repudiation, id. at 643 (“Even under Born’s
version of the conversation, Dudley’s statements were not of a nature so as to constitute
an anticipatory repudiation”), and also because Born “did not act upon” the statement but
made subsequent requests for advances of funds. Id. at 643-44. This case is no different.
20
Aspect did, a party elects to treat a contract as continuing even after learning
the facts allegedly constituting the other party’s breach, the plaintiff loses any
excuse for its own subsequent non-performance. Hanks v. GAB Bus. Servs.,
Inc., 644 S.W.2d 707, 708 (Tex. 1982). Performance constituting an election
to treat the contract as ongoing need not be long, but may be brief. See Dora
v. Mullick, 2000 WL 33322942, *6 (Tex. App.–Texarkana 2001, no
pet.)(where plaintiff learned of defendant’s breach in January 1993 but
continued performance of the contract for another month afterwards, the
subsequent performance conclusively waived any right to use the opponent’s
breach as an excuse not to perform his own further contractual obligations).
Sterling has admitted facts constituting continued performance: As
Sterling admitted, after Tubb’s comment he and Tubb worked the remainder
of the day on the equipment and the Tubbs stayed over at the Sterling home.
4 RR 193-94. Sterling and his wife also agreed that they continued to perform,
working on both the equipment and the packaging afterwards. 8 RR 74-75.
And in this suit, Aspect has invoiced Superior $22,400 for Sterling’s further
work for the entire month of December 2012. PX 57.
Tubb’s statements were not repudiations. And Aspect in any event treated the contract as
continuing.
21
What is more, on January 7, 2013, Sterling confirmed that the parties
had reaffirmed their agreement to manufacture ammunition and split the
profits 50/50 “of the net profits coming from our manufacture of an
ammunition product line for your company.” PX 106. This means, of course,
that nothing occurring beforehand could be taken by Aspect as a Superior
repudiation because there was never any acceptance of it.
b. Superior never intentionally withheld supplies.
Aspect argues that Superior didn’t get the necessary component
materials to Tyler when, finally, Aspect was in a position to begin commercial
operations. There are several problems with that allegation.
i. The materials that weren’t present were on order.
Sterling’s contention that Superior withheld supplies was a ruse, and
certainly was not supported by legally or factually sufficient evidence. Tubb
had bullets on order. He kept Sterling informed about their status. 7 RR 34.
And while all the bullets Tubb sought weren’t in Tyler when Aspect quit the
contract, the bullets, which were being shipped, in fact could have been there
if Aspect would have waited just a couple weeks more, until a week beyond
when it filed suit. 7 RR 34, 58. Tubb was having difficulty getting bullets. But
22
he was working on the problem. On December 14, 2013, Sterling and Tubb
were exchanging emails about a “lot” of subsonic bullets Tubb had located.
PX95. On January 29, 2013, just days before Aspect sued, Tubb emailed
Sterling to confirm that a full pallet of “223 brass” had arrived while Tubb
was at a firearms show, including brass for the venture’s “absolute” brand
ammunition. PX101.
At trial, Aspect held up Sterling’s assertion that he had located a
distributor with access to the same caliber bullets Tubb was waiting on. Based
on this, Sterling speculated that “the materials were never ordered.” 4 RR 205.
The premise—Sterling’s claim that he was able to locate bullets—does not
compel the Sterling’s conclusion.
Even if Sterling were able to order the materials from a distributor,
Tubb’s contact was with the president of the manufacturer. 4 RR 204-05. That
a distributor has bullets is not evidence that Tubb’s direct order with the
manufacturer wasn’t genuine. When demand exceeds supply, there is nothing
unusual about a manufacturer giving priority to its distributors over direct
customers like Tubb. Sterling’s contrary speculative conclusion is no
evidence. See, e.g., Litton Indus. Prods. v. Gammage, 668 S.W.2d 319, 324
(Tex. 1984) (proof that is subject to equally plausible and opposing inferences
23
is no evidence of either one); Calvert, “No Evidence and Insufficient Evidence
Points of Error,” 38 TEX. L. REV. 359 (1963). The proof is simply too weak
to support any probative inference that bullets had not been ordered, let alone
that Superior had formed a fixed and absolute intention to repudiate the deal.
ii. Any material shortage was easily cured.
There is no allegation that Superior refused to order or pay for the
requested materials. This is critical, because Aspect claims that it was able to
source the materials. If that is so, where is any repudiation? If Aspect had
located the materials, it could have sourced them and had Superior pay the
bill. This is what anyone committed to the venture would have done. A matter
so easily mitigated, at no cost to the claimant, is no basis for a repudiation
finding—especially not where, as here, Aspect conceded knowing that
Superior wanted to continue on in the venture.
iii. Any minimal delay in getting materials reflects the
venture’s start-up nature and external constraints.
No delay in getting some supplies could reasonably be taken as a
repudiation by Superior. Indeed, until mid-January of 2013, right before
Aspect sued, there would have been no need to have the component materials
24
on site because the venture wasn’t otherwise ready to launch into commercial
production.
As even Sterling agreed, the steps predicating the actual commercial
production of ammunition were formidable. 4 RR 89-90 (“a myriad” of things
had to be done). Many of them still required modifications throughout
November and December of 2012 and into January: The loading machine
required adjustments, Sterling still needed to work on the proficiency for
commercially operating the machine, and Aspect needed to follow through on
its own commitment to get the necessary packaging.
To be sure, Sterling at trial opined that the machine, delivered in late
October, 2012, 6 RR 9, could have been used to manufacture ammunition
right away. 6 RR 12. But that wouldn’t have been apparent to one in Tubb’s
position. In fact, it wasn’t a possibility but was negated, by undisputed proof
that:
• The expertise necessary to successfully operate the machine on a
commercial scale would have taken a considerable period of time to
develop. 4 RR 151. As Tubb understood and Rue Marshall testified
without contradiction, when the machine was set up, Sterling, who had
no experience making commercial ammunition, 4 RR 172, was two or
three months away from the necessary proficiency for commercial
production. 4 RR 90-91, 168-69.
25
• It also was impossible to commercially produce any product because
there wasn’t any packaging, which didn’t show up until mid- to late
January. 7 RR 34; 8 RR 81-83. Sterling had been in charge of ordering
the boxes. 6 RR 12-13.
• The venture was launched at the height of a frenzy in the demand for
ammunition that invariably squeezed the supply of component
materials such as bullets.
• Well after the machine was installed, the parties and Rue Marshall were
finding “quite a few” issues with the equipment’s operation, including
software deficiencies and “digital infrastructure issues” that FillPro’s
software designer had to work through. 4 RR 117, 151, 162.
There was a cornucopia of changes still to be made to toolheads, sorting
routines, pressure adjustments, and innumerable other critical items. 6 RR 14-
15. As of November 21, for example, Aspect was addressing outside
consultants about ongoing software issues, and issues regarding “sensor
adjustment/design.” PX112. Sterling’s email of that date notes the need of a
“setup procedure” respecting “set up fills, press forces and inseriton depth/part
height.,” and notes a serious “shortfall” and “impractical[ity]” preventing
“long runs” and limiting any production to short, “lot runs,” after which “a lot
must be started, examined and tested,” and rounds not within specifications
must be manually identified and discarded. PX112. In response, the consultant
had proposed “an add on to the system,” to be preceded by “discuss[ion]” as
to “how you want this to work exactly.” PX112. But Sterling disagreed,
26
arguing that the problem was instead “software related,” and confessing that
“[i]n retrospect I should have made sure that this capability was put in from
the beginning.” PX112.
Yet another issue discussed in the November 21 email concerned the
“primer tube blast shields,” which had to be “taken back to [Tubb’s] shop for
design modification.” PX112. The same email states that Tubb and Sterling
would “decide on a sorting algorithm” that will in turn “require software
changes and testing time.” PX112. But this algorithm could not even “be truly
considered until we see substantial production to determine primarily where
rounds are consistently dropped by pressure settings.” PX112. The issues
continued. PX 112. And this is just from one of Aspect’s trial exhibits.
Even in December, Rue Marshall was quoting costs for yet-to-be-made
“software modification[s]” and Sterling was exploring “anything that
improves the production output.” PX92.
Just as Sterling was inquiring about inputs like bullets and brass, Tubb
was monitoring Sterling’s progress towards getting production boxes. 7 RR
55. So, the delays precluding commercial operations were mutual. Aspect
wasn’t ready to distribute any product commercially before, at the earliest,
mid-January, 2013—just a few weeks before it sued. Tight up until Aspect
27
sued, there was simply no need, acute or otherwise, for commercial quantities
of raw materials. The fact of a delay in obtaining bullets or brass is, in these
circumstances, not evidence of the necessary absolute renunciation of the
venture. See Rhodes v. Amarillo Hosp. Dist., 654 F.2d 1148, 1150 (5th Cir.
1981)(applying Texas law).5
iv. The agreement had not imposed any particular deadline
for provisioning materials.
Sterling was impatient. But his impatience needs to be distinguished
from the contractual promises. This was a start-up manufacturing operation,
seeking to best the competition for quality. The parties were learning as they
went. The agreement didn’t provide any template: it stated no internal
milestones or deadlines for completing them. These were instead matters for
good-faith efforts, and basic trial and error.
5
In Rhodes, the defendant’s failure to have promptly obtained the necessary Texas
medical licensure was not a basis for finding repudiation when at the time several weeks
of “formal orientation” were still ahead before the defendant doctor would have been in a
position to treat patients even if he had promptly secured a Texas license; thus, the delay
in licensure “was not then acute.” 654 F.2d at 1150. Here, the lack of commercial quantities
of materials would not have delayed production at all in 2012, because Aspect for its own
reasons then was in no position to attempt commercial production.
28
v. Aspect knew Superior intended to proceed.
As Sterling conceded and Tubb testified, Tubb never once said he was
ending the partnership. 6 RR 21. In an email intended for his counsel, Sterling
confessed to believing that Tubb “wants to continue,” and “wants a contract.”
DX 11; 6 RR 25-26. In a later, December 29, email to Tubb, Sterling likewise
admitted he believed Tubb still “would like to continue to do business.”
PX109. This was with full knowledge of Tubb’s acts and statements (and
without the distorting effects of litigation influences). And Tubb did want the
business to go forward, with Aspect managing the operation, because he
believed it would be profitable. And he had no intention of loading
ammunition. 7 RR 34, 45-46. Tubb told Sterling as much several times,
including on January 7, 2013, as reflected in a recorded phone transcript. 7 RR
39.
3. Both parties were negotiating towards a written contract.
The district court’s third and final basis for finding repudiation was
Superior’s alleged failure to commit to a written contract. Yet, as with other
aspects of the deal, there had never been a timetable specified for such a
29
document. In fact, the parties’ agreement had not specified any requirement
that there even be a written contract document.
The fact is that both parties were moving steadily, if deliberately,
toward a written document.
The first evidence of any proposed written agreement from Aspect–a
mere “sample” fill-the-blanks form of a Joint Venture Agreement, PX 1—was
not passed to Superior until mid-September 2014. 4 RR 120. Tubb’s counsel
initially had recommended an equipment lease arrangement, 4 RR 217, then
recognized that a lease was inappropriate for the situation, causing some
confusion. 4 RR 217. But it is clear he was actively working on the matter, at
Tubb’s direction.
On November 15, for instance, counsel was advising Tubb as to several
concerns he had respecting Aspect’s proposed form document including
“especially . . . the termination provisions . . . .” PX 110. He recommended
that a “business counsel” “oversee” the drafting of a new, clean document
because in his view the existing draft’s problems could not “be fixed by
simply removing the objectionable termination provisions.” PX110. Two
weeks later, on November 30, Superior’s attorney was actively working on a
“Joint Venture Agreement,” but had gotten “stuck on a couple things” and was
30
thus recommending the involvement of an additional “Texas business
attorney” to help get the contract drafted “in a manner which is right for
Texas.” PX108. Moreover, Tubb and Sterling were having “numerous” phone
discussions and email exchanges. In that time, not once did Tubb say he
would not sign a written document. Meanwhile, the parties had been
performing within the venture for about a year without a written contract to
absolutely no adverse effect. None of this sounds like a repudiation was in the
works.
At trial, Sterling contended he had “observed” Tubb’s reluctance to
entering a written agreement and claimed Tubb appeared to have his mind
made up to end the deal. 4 RR 121. But Sterling’s own contemporaneous
communications, in December 2012 and January 2013, show otherwise. Then,
even Sterling took Tubb to indicate that he, too, was trying to salvage the deal.
6 RR 15-16. Then—before his perspective was colored by the
litigation—Sterling conceded the relationship required “some back and forth”
and time for exploring “other ideas,” PX82, and he confessed to believing that
Tubb also truly wanted a contract. DX11; 6RR25-26. How could he honestly
think anything else? Sterling certainly had no alternate explanation for the
concrete proof of Superior’s efforts toward a written document.
31
The progress towards a written document may have come more slowly
than Sterling would have wished. But that reflects nothing more than the
simple fact the parties had not settled on the venture’s precise legal structure.
The district court took an ordinary negotiation over a venture’s legal
form as proof of repudiation. This was error.
C. It was Aspect that chose to get out of the contract.
Having never persevered in any job of business beyond a couple yers,
8RR83-85, Sterling just didn’t appear to understand that manufacturing start
ups don’t always work like you want them to, 7 RR 41, regardless of the
parties’ best intentions. Instead, by December 14, 2012, DX11, Sterling had
formulated an exit strategy and was seeking counsel’s blessing for it, saying
“if I want out of it, my option is simply to send him a bill and then pursue it.”
DX11; 7 RR 39-40. This email concluded that other factors gave “further
weight to the bill him and walk away option.” 7 RR 40. (Incidentally, in this
same email Sterling admitted to knowing Tubb wanted to go forward on the
deal.)
So what did Sterling do? He promptly dunned Tubb for the IT invoices
that Aspect was supposed to have contributed as capital for the venture. And
32
he announced he was stopping work—that he “will not spend any further time
on this matter other than the time required to accept delivery of the packaging
already in process” until a signed contract was created. PX106, p. 2. Sterling
followed this with a lawsuit then more invoices, allegedly accounting for his
time spent on the partnership. 6 RR 38. In the process, Sterling announced
Aspect’s intent to leave the venture loud and clear. 7 RR 39-40. And he did
so upon an ostensible basis (the absence of a signed venture agreement) that
is as a matter of law not a Superior repudiation. PX106 (“Since we don’t have
a signed contract on the ammunition project, you need to pay me for my time
on the SMD project.”). There was nothing about the venture that would have
made forgiveness of these invoices depend on when or even whether the
parties signed a written document.
If anything in the case were a repudiation, this would be it. It was not
excused. It explicitly renounced an express contract term, and it did so
unequivocally. It was not retracted, but was implicitly accepted when Superior
paid the $35,019 billed, albeit under duress to reclaim the administrative rights
to its retail website. DX27. Aspect never resumed work.6 Its decision to quit
the venture, made before Aspect was capable of performing its duty to
6
Sterling’s total work for January 2013 was for 1.5 hours, or $210. 6 RR 48.
33
produce commercial quantities of ammunition, thus relieved Superior of any
subsequent duty to perform and certainly thwarted Aspect’s recovery of
substantial restitution damages.
When the trial court denied that Aspect’s act of commercial ransom was
a breach of contract, that was clear and reversible error.
In summary, Just because Sterling, not being otherwise employed and
being innately restless, chose to complain of Tubb’s tweaks and refinements,
that doesn’t mean Superior worked any repudiation. Rather, Superior
committed to the deal in both word and act. It plowed nearly a quarter million
dollars into specialized equipment and materials. It had arrangements pending
for shipping additional materials. It never refused to provide materials.
Through Tubb, it reassured Aspect of its commitment. And any delay in
procuring bullets was only slightly longer than Aspect’s own delay in getting
packaging. There was never any reasonable case for saying that Superior
expressed any fixed and absolute intention to avoid the contract.
If anyone repudiated the venture, it was Aspect.
34
II. There is no evidence supporting Aspect’s damage recovery.
The district court rejected a lost-profit recovery, as it was entitled to do.
But it awarded an indefensible recovery allegedly compensating Sterling’s
input of time into the venture. The record does not sustain any such recovery.
Other than its request for the rejected lost profit, Aspect’s only alternative
claim at trial was to “be placed back in the position it occupied before
contracting.” But Aspect never proved it is any worse off than before the
parties contracted. Rather, it entered the agreement as an inactive company,
with no assets and no other prospective business dealings, and is none the
worse off today.
A. Aspect has no basis to recovery for Sterling’s time.
1. Because the venture was a partnership, Sterling’s time is
not compensable.
In this case, the Texas Business Organizations Code provides both the
framework for determining whether a partnership exists and the rules
governing the consequence of the venture’s legal form. Under this
Code–specifically, its section 152.203(c), a partner is not entitled to receive
compensation from the other partners for services rendered to the partnership.
Upon a partnership’s dissolution, the parties are entitled to return of their hard
35
capital. But, recognizing that all partners contribute time, no partner is
entitled to compensation for services rendered to the partnership. TEX. BUS.
ORG. CODE ANN. § 152.202. Such investments of time do not add to the
partner’s capital account.
When it comes to identifying a venture’s form, the Business
Organizations Code displaces the old rigid rules of the common law, under
which a failure to meet all the partnership factors required the courts to reject
a partnership. Now, the approach is less formalistic and more practical. Now,
under the Code, any “association of . . . persons to carry on a business for
profit as owners creates a partnership” unless an association or organization
actually has been created under a different statute providing for a different
business form. TEX. BUS. ORG. CODE ANN. § 152.051(b).7 In other words,
unless the parties clearly have opted to create a business under another
recognized business form, the default position is a partnership. In determining
this, the Courts must consider the totality of circumstances. As Ingram v.
Deere makes clear, existence of a partnership is determined from the totality
7
“(b) Except as provided by Subsection (c) and Section 152.053(a), an association
of two or more persons to carry on a business for profit as owners creates a partnership,
regardless of whether: (1) the persons intend to create a partnership; or (2) the association
is called a “partnership,” “joint venture,” or other name.” TEX. BUS. ORG. CODE ANN.
§152.051(b).
36
of circumstances considering the statutory factors. Unlike the common law,
proof of every relevant factor is not required. Ingram, 288 S.W.3d 886, 898
(Tex. 2009). And yet there is such proof in this case.
Here, the proof establishes each partnership factor:
• Receipt or right to receive a share of profits. Aspect has admitted an
agreement to split profits equally.
• Expression of an intent to be partners. Sterling admitted multiple
times that he intended to create a partnership, and was impeached at
trial by his deposition testimony to this effect. See Ex. DX7, DX18a,
DX24.
• Participation in control of the business or the right to do so. Aspect
had the right to set up the manufacturing facility and it did so. Aspect
likely had the right to run the manufacturing facility, to handle
packaging issues, and otherwise to participate in the venture’s control.
• Agreement to share losses. Implicit in the splitting of net profits is an
accounting of expenses and losses. As in any partnership, Aspect and
Superior as well stood to lose their investments –there was no provision
for Superior to reimburse Aspect for its labor–if the venture proved
unsuccessful.
• Agreement to contribute money or property to the business. Both
parties agreed to and did contribute money and property. Superior
contributed a quarter million dollars in specially procured equipment
and supplies, while Aspect contributed expenses to set up an initial
manufacturing location, and it agreed to contribute an accounts-
receivable balance exceeding $35,000. DX24.
So as a matter of law and despite the district court’s contrary
determinations, 4 CR 455 (FOF 12 - 18),467 (COL 2), the parties in this case
37
created a joint-venture partnership. Consequently, Aspect is not entitled to
compensation for its time. TEX. BUS. ORG. CODE 152.203(c). This is only fair,
as both sides have invested considerable time into the deal. Superior in
addition happens to have invested about a quarter million dollars, most of it
in a machine that today sits, gathering dust, representing an additional, huge
hard-dollar loss. And Aspect—which repeatedly told the trial court it just
wanted to be put back where it was before the agreement—is no worse off
today than when entering the deal.
2. There was no probative evidence quantifying any benefit
to be restored.
There is nothing to be restored. The restitution interest is the interest in
having restored the “benefit conferred on the other party.” RESTATEMENT
(SECOND) OF CONTRACTS § 344; quoted in 24 WILLISTON ON CONTRACTS
§64:2 (4th ed., updated May 2014). Sterling’s time was contributed to the
venture. But this does not mean Superior received any benefit to be disgorged.
The benefit, if any, conferred on Superior was embodied in the equipment–the
only thing Superior got out of the deal. Stering’s time thus would not have
provided Superior a disgorgeable benefit except if it enhanced the
equipment’s value beyond what FillPro provided. There is no evidence of any
38
such enhancement and certainly no attempt to value it. Consequently, there is
no legally (or factually) sufficient basis for the lower court’s damage award.
Cf. 4 CR 461 (FOF 40).
B. Sterling’s damage proof was inadmissible, no evidence, and
did not show a complete damage calculation.
The district court erred in overruling Superior’s motion to exclude
Sterling’s opinion testimony on Aspect’s damages, as unreliable per Robinson.
See 1 CR 38.
Sterling offered his bald conclusion that the charges for his time were
the reasonable and customary hourly compensation for a project manager. 6
RR 136. But there was no evidence Sterling was qualified as an expert to
testify to the value of time spent in making preparation for the venture. As the
district court noted, Sterling was not qualified as an expert on such matters as
marketing, economics, accounting, lost-profits calculations, business, or any
“other relevant commercial endeavors.” 4 CR 466 (FOF 56(g)). There is no
reason to think he was any better qualified to value the time he spent
attempting to set up a scratch manufacturing operation in the munitions
industry. Rather, the evidence, fairly characterized, is merely that Sterling
once might have been paid $120/hour by Superior in connection with setting
39
up an internet website. 4RR238.8 This does not make Sterling an expert on
damages in this case, which does not concern any website.
Superior bought production equipment from FillPro, a commercial
vendor of such equipment. Superior rightly owns the equipment, having paid
for it and taken title in its name. There is no probative evidence that Sterling’s
time, as opposed to Tubb’s substantive inputs, enhanced the equipment’s
value and no evidence quantifying any such alleged enhancement. Indeed,
there is no evidence of what exactly Sterling actually did respecting the
machine. He did not design it, or manufacture it, or install it.
The attempted valuation proof—Sterling’s speculative say so and a set
of cryptic and litigation-driven hearsay “invoices” that merely memorialize
Sterling’s ipse dixit—was clearly inadmissible over Superior’s objection (and
would in law be no evidence in any event). Indeed, Sterling, with his self-
serving and speculative valuation opinions, is a poster child for why the courts
are to act as gatekeepers against such testimony. As the Texas Supreme Court
holds:
• “[T]he evidentiary value of expert testimony is derived from its basis,
not from the mere fact that the expert has said it.” Houston Unlimited,
8
Sterling also purported to know that the project manager for San Diego Media, on
its web site build, was paid $140 per hour. 4 RR 238-29. But what a website build might
have to do with this case (nothing) was never addressed.
40
Inc. Metal Processing v. Mel Acres Ranch, 443 S.W.3d 820, 829 (Tex.
2014).
• Regarding that basis, “[i]t is incumbent on an expert to connect the data
relied on and his or her opinion and to show how that data is valid
support for the opinion reached.” Whirlpool Corp. v. Camacho, 298
S.W.3d 631, 642 (Tex. 2009).
• “Opinion testimony that is conclusory or speculative is not relevant
evidence, because it does not tend to make the existence of a material
fact ‘more probable or less probable.’” Coastal Transp. Co. v. Crown
Cent. Petroleum Corp., 136 S.W.3d 227, 232 (Tex. 2004).
• Conclusory, naked and unsupported opinion testimony “cannot support
a judgment even when no objection” to it is lodged at trial. Id.
Sterling’s bald, unexplained and speculative opinions are not exempt from
these rules, even if he is a party. They are unreliable and inadmissible, and
would lack any probative value even if they would never have been attacked
in a Daubert/Robinson motion. Id.9
9
Aspect’s remaining proof–mostly vague assertions that Sterling was always “busy”
“making phone calls” and “researching” for the venture, e.g., 8RR52-53–is insufficient,
both legally and factually, to prove $175,000 in compensable services. The evidence is that
the venturers’ tweaks to FillPro’s design and to the manufacturing process were primarily
driven by Tubb’s detailed knowledge and his substantive inputs. E.g., 4RR152-53. Indeed,
Sterling, who lacked the perspective of prior expertise in the commercial munitions
industry and apparently sought mostly to pocket a quick buck during a temporary supply
shortage, complained throughout trial of seemingly every such tweak, viewing these
necessary inputs as mere delays, never mind that the goal was to produce a superior
product.
41
At bottom, if any tangible benefit from Sterling’s inputs survived his
decision to pull the plug on the parties’ venture, there is no evidence
identifying it or attempting to quantify its value, let alone any non-speculative
proof that this would have cost $175,000 on the open market. This is fatal to
Aspect’s recovery.
Because Aspect presented no other expert testimony capable of
establishing the existence or amount of recoverable damages, the proper
remedy is a take-nothing judgment.
C. Aspect could have mitigated any damage.
It is a contract claimant’s duty to undertake reasonable steps to mitigate
damages or act at its peril. Stanley Manly Boys’ Clothes, Inc. v. Hickey, 259
S.W. 160 (Tex. 1924). This logically includes ordering available supplies
when that will avert a larger loss. Here, Aspect says Tubb’s inability to
promptly secure bullets was a sham because Sterling claimed to have located
similar materials, at a distributor. Yet Aspect produced no evidence of any
attempt to mitigate its damages by actually ordering the bullets. There is no
evidence Aspect was not capable of such action, or that it could not have
accomplished the equivalent merely by ordering the materials, with the bill
42
forwarded to Superior for payment. There is no evidence Superior would not
have paid any such effort.
In any event, the failure to have provided raw materials would at most
have sustained a recovery for the profit lost owing to the temporary inability
to produce. For example, if while the venture was up, running, and operating
at a profit, production would have halted for 3 weeks because Superior didn’t
pay for raw materials, Superior might then have been liable to pay Aspect
damages measured as 50% of 3 weeks’ proven lost profits. But the record
doesn’t sustain even this recovery because the evidence was that Aspect
located the necessary materials and presumably it could have obtained them
before it was otherwise ready to proceed with commercial production.
D. When Aspect left the venture, it was no worse off than when it
began.
Aside from the failed request for speculative lost profits, Aspect asked
to be put in its pre-contracting position. Yet there is no evidence Aspect was
any worse off when it exited the venture than when it entered it as an inactive,
penniless company that had never before done any business. 5 RR 21.10
10
According to Sterling, he formed Aspect in 1997 just in case he might ever want
to do something in the firearms industry. 5 RR 21.
43
Nor is there any finding that Aspect was any worse off because of the
deal. Rather, without considering Aspect’s lack of any changed condition and
without evidence quantifying any benefit to Superior, the district court simply
found that “AII sustained restitution damages in the amount of $175,000.00.”
(FOF 40.) Aspect’s proof was clearly not probative of this.
Aspect, solely owned by Sterling’s wife, never was out of pocket
anything for Sterling’s time.
E. The recovery is excessive.
$175,000 just isn’t a reasonable recovery in this case, given that:
• Aspect was an inactive company that had never conducted business.
• Sterling, a former workplace vagabond with an implausible account of
his workplace exploits, was 13-years retired, with no experience
commercially producing ammunition.
• The amount awarded rivals the entire amount spent on production
equipment and manufacturing materials.
• FillPro, which had made essentially the same machine before, did the
design, manufacture, and install.
• Just because Sterling called FillPro frequently doesn’t mean so many
calls were necessary or always helpful. Even FillPro’s Rue
Marshall–whose favor Sterling had curried–called Sterling’s
involvement “excessive” and implied it had gummed up the
manufacturing process.
44
• The machine —which Superior bought—is mothballed, with issues,
and may never be brought into production.
Sterling never documented any truly relevant prior expertise, certainly
not as a project manager on the start-up of a manufacturing business. Rue
Marshall, Sterling’s contribution to the project was mostly in ironing out little
subtleties. 4 RR 152-53.
Tubb, in contrast, was the one with the relevant expertise in the
munitions business. He appears to have done the bulk of the work on the
product specifications and he also participated in the equipment preparation.
4 RR 98. 7 RR 51 (I have as much time invested as he does); 7 RR 67-68 (We
both put in time). According to Rue Marshall, Tubb’s involvement was
“strong” on the development side of the project and also later on, respecting
the mechanical side, to ensure the machine would be a versatile one and
capable of handling different munitions types. 4 RR 152.
Even Sterling conceded Tubb’s hands-on involvement, 4RR199-200,
which didn’t stop when the equipment was installed, but continued afterwards,
when Tubb was fitting toolheads, refining the machine’s sorting routine, and
making pressure adjustments to the machine. 6 RR 14-15.
45
What is more, neither Sterling nor his wife could ever really say what
it was Sterling did that allegedly took so many hours or quantify any concrete
benefits he had created. Contractors did the real work on Sterling’s garage
conversion (primarily sheet rocking, insulating, electrical, and painting). 4 RR
100-01. The two-loader/one-controller concept which Sterling claims as his
innovation was a tweak; it was not revolutionary. There doesn’t appear any
reason why the same production results could not have been accomplished
with two independent loader/controllers. Nor is there any concrete evidence
that it ushered any material savings in equipment, time, or otherwise.
Superior submits that the maximum sustainable recovery, if Sterling is
to be awarded anything for his time, would not exceed $70/hour for twelve
40-hour work weeks—less than the $25,019 Sterling extorted through the
payment of invoices.
III. Aspect owes attorney’s fees.
The district court has adjudicated Superior’s right to the $35,019 paid
on the prior invoices. But it has denied Superior the coordinate recovery of
any attorney’s fees. This is legal error.
46
Here, the parties’ agreement called on Aspect to contribute its service
invoices as capital. Everyone agrees on this. In breach of this agreement,
Aspect required Superior to pay those invoices or else Sterling would not
relinquish administrative rights over Superior’s website. The district court has
agreed Aspect had no basis for this conduct, and has awarded the $35,019 to
Superior as an offset. 4 CR 468 (COL 7); 5 CR 168. This establishes Aspect’s
contract breach and Superior’s right to an attorney’s fee award as a matter of
law.
Under Section 38.001 of the Texas Civil Practice and Remedies Code,
a party is entitled to recover attorney’s fees upon satisfying two requirements.
It must (1) prevail on a fee-bearing claim (such as a claim for breach of a
contract), and (2) recover damages. See Green Int’l v. Solis, 951 S.W.2d 384,
390 (Tex. 1997). Superior met both requirements.
To satisfy Section 38.001, it is not necessary to be the “net winner” or
even to obtain a “net recovery.” See McKinley v. Drozd, 685 s.W.2d 7, 10-11
(Tex. 1985). Nothing more is required than to recover an “amount of a valid
claim” under a fee-bearing cause of action—even if that amount is entirely
offset by the opponent’s recoveries on other claims. Id.; Thomas v. Bobby D.
Assoc., 2008 WL 3020339, *2 (Tex. App.–Tyler 2008, no pet.)(mem.op.)
47
(claimant who recovers damages on a fee-bearing claim is a prevailing party
entitled to an award of attorney’s fees whether or not he obtains a net
recovery); G.R.A.V.I.T.Y. Enters., Inc. v. Reece Supply Co., 177 S.W.3d 537,
548 (Tex. App.–Dallas 2005, no pet.)(same).
This fee recovery was mandatory. “If attorney’s fees are proper under
§ 38.001(8), the trial court has no discretion to deny them.” Smith v. Patrick
W. Y. Tam Trust, 296 S.W.3d 545, 547 (Tex. 2009). Under Section 38.001,
every successful contract claimant is entitled to recover the reasonable and
necessary attorney’s fees expended on the fee-bearing claim. TEX. CIV. PRAC.
& REM. CODE ANN. § 38.001(8).
Conclusion and Prayer
For all the reasons stated above, the judgment below should be
reversed, in part, and (a) judgment should be rendered in part that Aspect take
nothing on its claims, (b) Superior’s recovery of a refund for $35,019,
constituting the previous payment of invoices, should be affirmed, and (c) the
cause otherwise should be remanded for entry of an appropriate attorney’s fee
award in Superior’s favor. Alternatively, the judgment should be reversed and
48
a remittitur suggested or, failing remittitur, a new trial granted. Superior of
course also prays for all additional relief it may be entitled to receive.
Respectfully submitted,
/s/ Greg Smith
Greg Smith
State Bar No. 18600600
RAMEY & FLOCK, P.C.
100 East Ferguson, Suite 500
Tyler, TX 75702
Telephone: (903) 597-3301
Facsimile: (903) 597-2413
gsmith@rameyflock.com
Wesley Hill
State Bar No. 24032294
WARD, SMITH & HILL, PLLC
P. O. Box 1231
Longview, TX 75606
Telephone: (903) 757-6400
Facsimile: (903) 757-2323
wh@wsfirm.com
COUNSEL FOR APPELLANTS
49
Certificate of Service
The undersigned certifies that a copy of the above and foregoing
document was served upon counsel for Appellees in accordance with the
applicable Texas Rules of Civil Procedure on this the 8th day of June, 2015,
on the following:
keith@mkdlaw.us
Keith Dollahite
M. Keith Dollahite, P.C.
5457 Donnybrook Ave.
Tyler, Texas 75703
trey@yw-lawfirm.com
Trey Yarbrough
Yarbrough Wilcox, PLLC
100 E. Ferguson, Suite 1015
Tyler, Texas 75702
/s/ Greg Smith
Greg Smith
50
Certificate of Compliance
1. This brief complies with the type-volume limitation of TEX. R. APP. P.
9.4 because it contains 10,106 words, excluding the parts of the brief
exempted by TEX. R. APP. P. 9.4(i)(2)(B).
2. This brief complies with the typeface requirements of TEX. R. APP. P.
9.4(e) because it has been prepared in the proportionally spaced typeface
using Word Perfect X5 in 14 point Times New Roman font.
Dated: June 8, 2015.
/s/ Greg Smith
Greg Smith
51
No. 12-14-00323-CV
In the Twelfth Court of Appeals
Tyler, Texas
DAVID TUBB AND SUPERIOR SHOOTING
SYSTEM, INC.
Appellants
v.
ASPECT INTERNATIONAL, INC. AND
JAMES STERLING
Appellees
Appealed from the 7th Judicial District Court
Smith County, Texas
APPENDICES
A. Findings of Fact and Conclusions of Law
(4 CR 452-68)
B. Final Judgment
(5 CR 168-70)
2