Ensley v. Cody Resources, Inc.

               IN THE UNITED STATES COURT OF APPEALS

                        FOR THE FIFTH CIRCUIT
                           _______________

                             No. 97-21042
                           _______________



                               ART ENSLEY,

                                                        Plaintiff-Appellee-
                                                        Cross-Appellant,

                                   VERSUS

                     CODY RESOURCES, INC., ET AL

                                                        Defendants,

              CODY RESOURCES INC; CODY ENERGY, INC.,

                                                        Defendants-Appellants-
                                                        Cross-Appellees.

                      _________________________

           Appeals from the United States District Court
                 for the Southern District of Texas
                      _________________________

                            April 13, 1999

Before JONES, SMITH, and EMILIO M. GARZA, Circuit Judges.

JERRY E. SMITH, Circuit Judge:



     Cody Resources, Inc., and Cody Energy, Inc. (collectively,

“Cody”), appeal a quantum meruit judgment.                Art Ensley cross-

appeals,   seeking   prejudgment    interest      and   to   reverse   summary

judgment   entered   against    him   on    his    fraud     claim;    in   the

alternative, he requests a new trial.        We affirm.
                                      I.

      Working as an independent broker and consultant for petroleum-

related businesses, Ensley provided services to Cody by bringing

mineral interests to Cody's attention, for which he typically was

paid a commission or finder's fee; he also performed marketing,

price analysis, title services, and various due diligence tasks at

a periodic rate.         In their first few major transactions, the

parties reduced compensation agreements to writing.

      In May 1992, Ensley and his wife, each taking a fifty percent

share, incorporated Ensley Properties, Inc. (“EPI”).             Thereafter,

Ensley billed     Cody   for   his   due   diligence   and   other   services

through, and had Cody remit payments to, EPI.1

      While working on Cody's attempt to acquire the Louisiana

Natural Gas pipeline in the spring of 1992, Ensley learned that

Ultramar Oil and Gas, Inc. (“Ultramar”), owned certain properties

likely to be of interest to Cody. Upon contacting Ultramar, Ensley

discovered that the entire corporation might be for sale and

brought this to Cody's attention.          Rick Westerberg, Cody's chief

financial officer, testified that he informed Ensley during their

initial conversation regarding Ultramar that he already knew it was

for sale; Cody's president, Bob Kubik, apparently already was



      1
        For example, the written commission agreement for the Winding Stairwell
acquisition, a deal the parties initiated in March 1992, was addressed to EPI
rather than Ensley individually.

                                      2
aware, too.       Cody retained Ensley as a consultant to facilitate

contacts with Ultramar and perform due diligence services, paying

Ensley at a periodic rate.

     The parties dispute whether they entered into a commission

agreement for the Ultramar deal.2               Westerberg testified that he and

Ensley discussed the possibility of a commission but that he

informed      Ensley    it   would    not     be   possible   because   of    Cody's

foreknowledge.         Westerberg told Ensley that he might be able to

work for Cody if they successfully completed the arrangement.

Ensley testified that he convinced Ultramar to negotiate with Cody

and that he believed they had reached an oral commission agreement.

     When the deal closed, Westerberg asked Ensley to work for

Cody.     According to Ensley, as part of the compensation package,

and in lieu of a commission on the Ultramar transaction, Westerberg

promised Ensley that he would share in a stock distribution to

Cody's management.           Although a stock plan was not yet in place,

Westerberg showed Ensley an Ernst & Young report naming him a

participant in the proposed plan.                  Westerberg further encouraged

Ensley by saying that stock in a growing company would be more

valuable in the long run than would a one-time commission.                    Ensley

accepted employment.

     Six      months    later,       Cody's     directors     adopted   the    stock

management plan, but without Ensley's participation, and eliminated


     2
          This dispute forms the basis of the breach of contract and quantum meruit
claims.

                                            3
Ensley's position.      Ensley claims that, while indicating Cody was

pleased with Ensley's performance, Kubik “abruptly informed” him

that Cody was closing its Houston office and eliminating his job.

According to Cody, Ensley demanded a large salary increase to leave

Houston; Cody terminated him for the salary demand and because

Ensley needed supervision that was not available.

     When terminated, Ensley asked about the stock promise.           Kubik

allegedly replied, “What promises?”3 Kubik testified that he first

heard of a commission promise for the Ultramar deal in a letter

from Ensley's attorney two months after Ensley's termination.



                                    II.

     Ensley sued Cody for damages incurred as the result of the

Ultramar transaction and the reneged stock promise, alleging, inter

alia,   breach     of   contract,   quantum     meruit,   and   fraudulent

inducement. At the close of Ensley's case-in-chief, Cody moved for

judgment as a matter of law (j.m.l.) on all three counts, claiming

that Ensley had failed to establish a prima facie case on the fraud

count and    lacked standing to recover damages in his individual

capacity    for   services   rendered     by   EPI   during   the   Ultramar

transaction.      The   court entered j.m.l. on the fraud count and

deferred a ruling on the other two.



      3
        The alleged unfulfilled stock promise is the gravamen of Ensley's
fraudulent inducement claim.

                                     4
      Those two counts went to the jury, which found against Ensley

on the contract claim but awarded him $486,321 in quantum meruit.

The court entered judgment in that amount, plus prejudgment and

postjudgment interest.

      Cody again moved for j.m.l. on the standing issue.                 Finding

that the quantum meruit claim belonged to EPI, the court granted

the   motion   and   entered    an   amended   take-nothing       judgment   and

provisionally found (in case it were reversed on the underlying

claim) that Ensley was not entitled to prejudgment interest.

      On reconsideration, the court held that Cody's objection was

not   “standing”     in   its   jurisdictional     sense    and    sua   sponte

determined that the objection was a real-party-in-interest question

that Cody had waived by not raising it before trial.                 The court

entered a second amended judgment awarding Ensley the quantum

meruit damages and postjudgment interest.



                                     III.

      Cody argues that the court erred in denying its motion for

j.m.l. on the quantum meruit claim.4              Cody presents a simple



      4
        We review the grant or denial of j.m.l. de novo. See Freeman v. County
of Bexar, 142 F.3d 848, 850 (5th Cir. 1998); Hidden Oaks Ltd. v. City of Austin,
138 F.3d 1036, 1042 (5th Cir. 1998).      “[W]e apply the same standard as the
district court, considering all evidence with all reasonable inferences in the
light most favorable to the non-moving party.” Id. (quotations and citation
omitted). But neither party disputes the narrow issue of whether sufficient
evidence supports the verdict that Ensley performed services for Cody for which
he was not compensated, entitling him to damages in quantum meruit. Rather, they
dispute whether he performed those services through EPI and whether he can
collect for damages that belong to EPI.

                                       5
argument:    Because Ensley performed all the work on the Ultramar

deal through EPI, EPI incurred the damages, and Ensley, as an EPI

shareholder, lacks standing to pursue those damages individually.5

Cody styles the argument as jurisdictional, hence excusing the fact

that it delayed making the argument until after Ensley's case-in-

chief.      Ensley     responds     that    the   record   provides     sufficient

evidence of his individual efforts to support the jury's verdict

and, as the objection is not to standing in its jurisdictional

sense,    Cody   waived   it   by    failing      to   raise   it   before   trial.

Assuming arguendo that the cause of action belongs to EPI,6 we

agree with the district court that the objection is waived and

affirm the judgment.



                                           A.

      “The standing doctrine has its origins in 'both constitutional

imitations on federal court jurisdiction and prudential limitations

on its exercise.'”        O'Hair v. White, 675 F.2d 680, 685 (5th Cir.

1982) (en banc) (quoting Warth v. Seldin, 422 U.S. 490, 498

(1975)).         The   irreducible         minimum     constitutional     standing



      5
        The standing issue presents a question of law that we review de novo.
Douglas v. DynMcDermott Petroleum Operations Co., 144 F.3d 364, 369 (5th Cir.
1998), cert. denied, 119 S. Ct. 798 (1999).
      6
         The jury decided for Ensley on the quantum meruit claim when the
complaint and arguments focused on Ensley but made no distinction between EPI and
Ensley. It appears that Cody did attempt to distinguish between the two in some
of its questioning but not in arguments or jury instructions. Without a timely
objection to Ensley's pursuing the claim, we affirm the verdict.

                                           6
requirement to invoke a federal court's article III jurisdiction is

(1) injury-in-fact (2) fairly traceable to the defendant's actions

and (3) likely to be redressed by a favorable decision.                See Raines

v. Byrd, 521 U.S. 811, 818 (1997); Valley Forge Christian College

v.   Americans     United   for   Separation    of    Church   &   State,   Inc.,

454 U.S. 464, 472 (1982).            The prudential limitations on jus-

ticiability include that “a plaintiff generally may not rest his

claim to relief on the legal rights of third parties even if he has

alleged     injury   sufficient    to   satisfy      article   III.”     O'Hair,

675 F.2d at 687.



                                        B.

      In asserting that the court erred in failing to grant j.m.l.,

Cody relies on Texas caselaw holding that a shareholder lacks

standing to pursue the corporation's cause of action.7                  But Cody

does not actually contest Ensley's injury in fact and neglects to

address the dispositive distinction between constitutional and

prudential limitations on standing.



                                        1.

      Ensley suffered a concrete injury sufficient to meet the

constitutional justiciability requirement.             Although Cody disputes

that it has conceded Ensley's injury in fact, it has done so, in


      7
          See, e.g., Wingate v. Hajdik, 795 S.W.2d 717, 719 (Tex. 1990).

                                        7
essence.      Its incantation that a shareholder may not sue for the

corporation's injury does not attack Ensley's injury in fact, and

the   cited    casesSSstate     and   federalSSdo   not    suggest   that    the

limitation on shareholder suits is based on a lack of injury.

Indeed, Ensley and his wife face a significant diminution in the

value of their sharesSSEPI's only sharesSSwithout the quantum meruit

damages; an award of over $400,000 would redress that injury.8



                                        2.

      The real issue is not whether there is jurisdiction, but the

prudential limitation on our exercise of that jurisdiction over a

jus tertii/third party plaintiff.            Although the cases Cody cites

refer to lack of standing as a shareholder, not one holds that the

inquiry is jurisdictional or that the objection may not be waived.

Indeed, Congress may alter prudential aspects of standing.9              Cody's

standing objection is a prudential limitation that constitutes an

objection     to   the   real   party   in   interest     under   FED. R. CIV.




      8
        See Lewis v. Knutson, 699 F.2d 230, 236 (5th Cir. 1983) (noting that
“[t]he minimal requirements of Article III, or 'pure' standing, affects
significantly fewer cases than the prudential limitation because if plaintiff did
not have the minimal personal involvement and adverseness which Article III
requires, he would not be engaging in the costly pursuit of litigation”)
(quotation omitted); see also Whelan v. Abell, 953 F.2d 663, 672 (D.C. Cir. 1992)
(noting that injury to shareholders of closely held corporation does not present
an article III problem).

      9
        See Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 100 (1979)
(“Congress may, by legislation, expand standing to the full extent permitted by
Art. III, thus permitting litigation by one 'who otherwise would be barred by
prudential standing rules.'”) (quoting Warth, 422 U.S. at 501).

                                        8
P. 17(a).10      Because the Federal Rules of Civil Procedure address

this prudential standing requirement, they govern our inquiry.

      Although      precedent       indicates           that    a   shareholder      lacks

“standing”      under      this    prudential           limitation,       in   our   cases

addressing a shareholder's standing, the defendant objected before

trial.11     Here, Cody did not object until after Ensley's case-in-

chief; this is too late, and hence the objection is waived.12

      Ensley      relies     on    Whelan,         which       provides    a   compelling

analysis.13     On the first day of trial, the defendants claimed that

the   plaintiffs      could       not   sue       for   the     lost   value    of   their

investments because the corporation in which they held shares was

the real party in interest; the district court agreed.                         See Whelan,

953 F.3d at 671.        The court of appeals reversed, holding that the

district court had abused its discretion in granting the motion so

late in the proceedings.           See id.        It also rejected the defendants'



      10
         See, e.g., Thomas v. N.A. Chase Manhattan Bank, 994 F.2d 236, 247 (5th
Cir. 1993) (addressing, in addition to article III standing, the “capacity”
standing requirement of whether plaintiff is real party in interest under FED.
R. CIV. P. 17(a)); Lewis, 699 F.2d at 236-38 (discussing F ED. R. CIV. P. 23.1's
shareholder derivative “standing requirements” as prudential aspect of standing);
Gregory v. Mitchell, 634 F.2d 199, 202 (5th Cir. Jan. 1981) (addressing FED. R.
CIV. P. 17 and holding that shareholder lacks standing to bring suit for
corporation's injury).
      11
         See, e.g., Cottingham v. General Motors Corp., 119 F.3d 373, 378-79 (5th
Cir. 1997); Crocker v. FDIC, 826 F.2d 347, 349 (5th Cir. 1987); United States v.
Palmer, 578 F.2d 144, 145-46 (5th Cir. 1978); see also supra note 10.
      12
         See International Meat Traders, Inc. v. H & M Food Sys., 70 F.3d 836, 840
(5th Cir. 1995); Gogolin & Stelter v. Karn's Auto Imports, 886 F.2d 100, 102 (5th
Cir. 1989) (holding objection raised at end of case-in-chief too late).

      13
           Tellingly, Cody ignores this case in its reply brief.

                                              9
attempt to recharacterize the issue on appeal as standing to avoid

the   timeliness   problem.        The    court   held    that     the    cases    on

shareholders' lacking standing do not address injury in fact;

indeed, in a closely held corporation the injury is obvious.                      See

id. at 672.     The real objection, rather, was to the real party in

interest under FED. R. CIV. P. 17(a); that objection was waived.

See id. Because this well-reasoned analysis does not conflict with,

but   compliments,      our   jurisprudence,      we   endorse     it,    deem    the

standing argument waived, and affirm the denial of j.m.l.



                                         3.

      Cody   attempts    to   avoid    this   result     by    arguing    that    its

standing/real party in interest objection was timely.                Because the

pleadings and arguments unambiguously stated that Ensley was suing

to recover damages allegedly suffered by him, individually, a

rule 17 motion would have been sanctionable under FED. R. CIV. P. 11

if made before Ensley's case established that the injury was to the

corporation.

      The    district    court   was     appropriately        skeptical   of     this

argument.      Cody's cross-examination of Ensley suggests it was

attempting to distinguish Ensley and EPI. Furthermore, if, as Cody

contends, the facts so pellucidly indicate that the cause of action

belongs to EPI, then it should have anticipated Ensley's case and

made the motion.     Had it failed, it would have bound Ensley to only


                                         10
individual damages.     The idea that an earlier motion would have

been sanctionable is far-fetched.

     Cody offers the red-herring that Ensley waived any defense

based on rule 17 by not raising it in the district court.               Ensley

presents no such defense. Cody attacks the verdict and judgment on

the standing issue; the district court merely clarified that the

objection properly was a waivable rule 17 objection and rejected

the standing challenge.       Ensley may defend that determination on

any groundSSespecially one addressed by the district court.

     Cody   also   contends    that   rule   17   applies   only   to   honest

mistakes of mis-naming plaintiffs in difficult cases, and here

Ensley should have known to whom the action belonged.              But we are

not applying rule 17.         Finding the objection to be a waivable

rule 17 objection rather than jurisdictional does not mean we apply

rule 17 to generate a cause of action.

     Finally, Cody argues that Ensley should be judicially estopped

from claiming an entitlement to EPI's damages because he expressly

disavowed any intent to recover those damages. Again, it is Cody's

objection that is tardy; without a timely argument to the contrary,

we affirm the verdict.

     Furthermore, judicial estoppel generally requires reliance by

the district court.    See, e.g., Afram Carriers, Inc. v. Moeykens,

145 F.3d 298, 304 (5th Cir. 1998), cert. denied, 119 S. Ct. 1031

(1999). Here, the court found that the damages belonged to EPI and


                                      11
yet entered judgment for Ensley.            It did not rely on Ensley's

argument that the damages belonged to him individually.



                                      IV.

      On cross-appeal, Ensley argues that (1) his case merits

prejudgment interest, (2) the district court erred by granting

j.m.l.     on    the   fraudulent   inducement   claim,    and   (3)   in   the

alternative, he deserves a new trial because the court abused its

discretion in (a) denying Ensley's impeachment evidence that Cody

is suing Westerberg, its star witness in absentia, and (b) ad-

mitting     an    unsigned    draft   contract    into    evidence     without

foundation.       We find no reversible error.



                                      A.

      Ensley asserts error in the denial of prejudgment interest.14

Prejudgment interest should be awarded from the date of the injury

or loss “where damages are established as of a definite time and

the amount thereof is definitely determinable.”            City of Ingleside

v. Stewart, 554 S.W.2d 939, 946-47 (Tex. Civ. App.SSCorpus Christi

1977, writ ref'd n.r.e.).       Neither party disputes that the damages


      14
         Neither party mentions, and no Fifth Circuit case provides us with, the
standard of review.    Texas appellate courts review a denial of prejudgment
interest for abuse of discretion. See Castle v. Harris, 960 S.W.2d 140, 142
(Tex. App.SSCorpus Christi 1997, no writ); Marsh v. Marsh, 949 S.W.2d 734, 744
(Tex. App.SSHouston [14th Dist.] 1997, no writ) (applying abuse of discretion to
grant of interest with limited deference to trial court's application of law to
facts). This comports with our usual standard for reviewing interest awards, and
we apply it here.

                                      12
were     established   at   the   definite   time   of   the   transaction's

completion; the parties disagree as to whether the amount was

definitely determinable at that time.

         Ensley correctly urges that “definitely determinable” requires

that the measure, not an amount, of damages “is fixed by conditions

existing at the time the claim arose.”          See id. at 947.15   Although

Ensley provides adequate factual distinctions for the cases on

which the district court relied, he fails to establish a known

measure for his damages. That a commission typically is determined

by   a    percentage   of   the   transaction    price   leaves   open   what

percentage to apply here.         Even Ensley's expert presented only a

range, and the jury's damages fall well below the bottom of that

range.      Nor do the parties have a history of always following a

certain percentage commission, determinable by presenting evidence.

The jury had to decide what quantum of damages to award, without

the guidance of a “definitely determinable” formula. The court did

not abuse its discretion.



                                      B.

         Ensley avers that the court erred in granting j.m.l. on his

fraudulent inducement count.        We review de novo a grant of j.m.l.,



      15
         See also Great Am. Ins. Co. v. North Austin Mun. Util. Dist. No. 1,
950 S.W.2d 371, 373 (Tex. 1997) (per curiam) (holding damages “ascertainable”
even though extrinsic evidence may be needed to quantify the damages if the
contract “fixes a measure by which the sum payable can be ascertained with
reasonable certainty in light of the attending circumstances”).

                                      13
viewing all reasonable inferences in favor of Ensley.                 See supra

note 4.

       At issue is whether Ensley established, as part of his prima

facie case, that Cody made the stock and commission promises with

the intent of never fulfilling them.16           A denial that the promise

ever was made and a failure to perform are factors demonstrating an

intent not to perform. See id.; Spoljaric v. Percival Tours, Inc.,

708 S.W.2d 432, 435 (Tex. 1986).            But these alone do not suffice;

some    additional   “slight    circumstantial      evidence”    of   fraud   is

required.17   The question is whether the instant case exhibits that

additional circumstantial evidence sufficient to survive j.m.l.18


       16
          The elements of Ensley's fraud action are (1) that a material
representation was made; (2) that it was false; (3) that the speaker knew it was
false when made; (4) that it was made with the intent of inducing reliance;
(5) that the party relied on it; (6) damages; and, in the case of a promise to
act in the future, (7) that the promisor had no intention of performing when he
made the promise. See T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218,
222 (Tex. 1992).

       17
        See Spoljaric, 708 S.W.2d at 435; Hoechst Celanese Corp. v. Arthur Bros.,
Inc., 882 S.W.2d 917, 925 (Tex. App.SSCorpus Christi 1994, writ denied).

       18
         Ensley asserts that a failure to perform and denial of the promise alone
suffice to survive j.m.l. Although there is dicta to that effect, the Texas
Supreme Court's most recent pronouncement on the subject refutes this contention.

      In T.O. Stanley Boot Co., the defendant both failed to perform a promise
to extend credit and denied the promise; in addition, there was a memorandum
indicating that the bank continued investigating sources of finance in lieu of
the credit, which the plaintiff asserted demonstrated an intent never to perform.
See T.O. Stanley Boot Co., 847 S.W.2d at 222. The court found the evidence too
weak to support the verdict. See id. See also, e.g., Spoljaric, 708 S.W.2d at
435 (finding several inquiries into pledged bonus plan, employer's refusal to
enter written employment contract where it did so with others, and insistence on
written bonus plan despite oral employment agreement); Stanfield v. O'Boyle,
462 S.W.2d 270, 272 (Tex. 1971) (pointing to testimony relaying conversation only
a couple of days after promise made where promisor indicated he would not
perform); Hoechst Celanese Corp., 882 S.W.2d at 925 (finding disdain for
                                                                (continued...)

                                       14
      Ensley relies on the additional evidence that Cody (1) ad-

mitted       that    someone    in      Ensley's    position       would     expect

payment,(2) fired Ensley when he inquired about the Stock options,

and   (3)     did   not   immediately    inform    Ensley   that    he     had   been

terminated by the board of directors.19 These factors do not defeat

j.m.l.      Although the admission that someone in Ensley's position

would expect payment, in the form of a commission or stock,

supports the existence of a promise, it does not support the intent

never to perform.

      The timing argument also fails. The board's minutes show that

Cody terminated Ensley well before he inquired about the stock



      18
           (...continued)
contractee, refusals to meet with its officials, timing of decision not to renew
the contract, and recantation of criticisms during testimony buttressed case for
intent not to perform); see also Beijing Metals & Minerals Import/Export Corp.
v. American Bus. Cent., Inc., 993 F.2d 1178, 1186 (5th Cir. 1993) (applying Texas
law to find sufficient evidence of fraud where, in addition to denial and
failure, the defendant explicitly refused to reduce agreement to writing and
almost immediately repudiated the promise); cf. T.O. Stanley Boot Co., 847 S.W.2d
at 222 (finding no evidence of fraud despite denial, failure, and memorandum that
could imply no intent to perform); Barbouti v. Barchilde Trust, 866 S.W.2d 288,
295 (Tex. App.SSHouston 1993, writ denied) (finding no evidence of fraud where
denial, failure, and related denials raised questions as to intent to perform).
But see Stone v. Williams, 358 S.W.2d 151, 155 (Tex. Civ. App.SSHouston 1962,
writ ref'd n.r.e.) (finding sufficient evidence of fraud from only failure and
denial).
       19
          Ensley also points to Cody's pleadings alleging fraudulent conduct by
Westerberg that he alleges should have been admitted to show Cody's knowledge
that Westerberg may have lied to Ensley and to establish the intent to commit
this fraud. The record reflects that Ensley did not attempt to introduce this
evidence to substantiate the fraud count, and Ensley has provided no record
citations to show otherwise; the first related discussion appears after the close
of his case-in-chief and focuses solely on its impeachment value. Nonetheless,
the court did not abuse its discretion in excluding the evidence under FED. R.
EVID. 403. It had ample discretion to determine that the pleadings, which were
not redacted but for allegations of sexual harassment, contained too much
extraneous information such that unfair prejudice, jury confusion, and delay
would substantially outweigh their probative value.

                                         15
options.   We fail to see how the delay in informing him that he had

been terminated supports his contention that Cody never intended to

perform on the stock promise.         Absent any additional evidence

supporting that element, the court did not err in entering j.m.l.



                                 C.

     In the alternative, Ensley seeks a new trial on his quantum

meruit and/or oral contract claims, pointing to alleged evidentiary

errors. Because we affirm the quantum meruit judgment, we need not

reach these arguments.

     The judgment is AFFIRMED.




                                 16