Horizon Health Corporation v. Acadia Healthcare Company, Inc. Psychiatric Resource Partners, Inc. Michael A. Saul Timothy J. Palus Peter D. Ulasewicz Barbara H. Bayma And John M. Piechocki , 520 S.W.3d 848 ( 2017 )

IN THE SUPREME COURT OF TEXAS
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NO . 15-0819
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HORIZON HEALTH CORPORATION, PETITIONER/CROSS-RESPONDENT
v.
ACADIA HEALTHCARE COMPANY, INC.; PSYCHIATRIC RESOURCE PARTNERS, INC.;
MICHAEL A. SAUL; TIMOTHY J. PALUS; PETER D. ULASEWICZ;
BARBARA H. BAYMA; AND JOHN M. PIECHOCKI,
RESPONDENTS/CROSS-PETITIONERS
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ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE SECOND DISTRICT OF TEXAS
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Argued March 1, 2017
JUSTICE GREEN delivered the opinion of the Court.
In this case, we must determine whether the court of appeals erred in concluding that the
evidence of the petitioner’s future lost profits was legally insufficient to support the jury’s award and
whether the exemplary damages award is unconstitutionally excessive despite the court of appeals’
suggested remittitur. We agree that the evidence is legally insufficient to support any award of future
lost profits, but we conclude that the court of appeals’ remitted exemplary damages award is
unconstitutionally excessive. We also agree with the court of appeals that the entity defendants
cannot be held jointly and severally liable for the exemplary damages awarded against the individual
defendants, that it is proper to remand the issue of attorney’s fees given the insufficient evidence
supporting any award of future lost profits, and that the trial court did not err in imposing discovery
sanctions against one of the individual defendants. Accordingly, we reverse the judgment of the
court of appeals in part and remand the case to that court so that it may reconsider its suggested
remittitur of exemplary damages in light of our decision.
I. Background
Horizon Health Corporation provides contract management services to hospitals and
healthcare providers to manage their psychiatric and behavioral health programs. Originally formed
in 1981, Horizon was acquired by Psychiatric Solutions, Inc. (PSI) in 2007. In 2010, members of
Horizon’s upper-management team, who called themselves “Project Shamrock,” attempted to
purchase Horizon from PSI after learning that PSI was considering converting from a publicly traded
company into a private entity.1 However, PSI was ultimately acquired by Universal Health Services
(UHS), a large publicly traded company. The members of Project Shamrock attempted to purchase
Horizon from UHS, but UHS rejected the proposal in late 2010.
Subsequently, PSI’s chief executive officer, Joey Jacobs, left PSI and became chief executive
officer of Acadia Healthcare Company, which owns “freestanding psychiatric, child and adolescent,
residential, chemical dependency treatment” facilities. In May 2011, Horizon’s president, Michael
Saul, approached Acadia about joining Acadia’s team and presented a business plan to Acadia’s
president, Brent Turner, proposing that Acadia establish a subsidiary to manage mental-health
programs for hospitals and other mental-health providers. In his presentation, Saul identified several
1
Project Shamrock’s members included Horizon’s president (Michael Saul), chief clinical officer (Barbara
Bayma), senior vice president of business development (Peter Ulasewicz), chief financial officer (Cory Thomas), and
senior vice presidents of operations (Jack DeVaney and Tim Palus).
2
companies that would be “competition” for the proposed subsidiary, including Horizon, which Saul
indicated was “lost in UHS bureaucracy” and would lose customers “due to relationships.” Acadia
agreed to the proposal, and Saul sent Turner his résumé and the résumés of other members of
Horizon’s management who had been part of Project Shamrock (Peter Ulasewicz, Tim Palus, and
Barbara Bayma) as a “proposed management team.” Saul also told Turner that they “would go hard”
after John Piechocki, a member of Ulasewicz’s sales team, based on his successful sales record at
Horizon, and Saul and Ulasewicz began to recruit Piechocki shortly thereafter.
A. Management Lift-Out and Direct Competition with Horizon
On two separate occasions in June 2011, Saul, Ulasewicz, Palus, and Bayma met to discuss
their anticipated move to Acadia and their plans for the Acadia subsidiary. In August and September
2011, Saul, Ulasewicz, Bayma, Palus, and Piechocki resigned from Horizon and joined Acadia’s
recently formed subsidiary based on Saul’s proposal, Psychiatric Resource Partners (PRP).
After losing multiple members of its upper-management team in a two-month period,
Horizon conducted a forensic investigation of its computer system. Horizon discovered that Saul,
Ulasewicz, Bayma, and Palus had coordinated their departures from Horizon to join the newly
formed Acadia subsidiary. Horizon also learned that some of the Horizon defectors had made copies
of several Horizon documents preceding their move to PRP. For example, Saul purchased an
external hard drive in late 2010 and, after having Horizon’s internal encryption system disabled,
copied what Jack DeVaney, Horizon’s president, described as “a massive, massive amount” of
Horizon documents on it, such as policies and procedures, “non-standard” contract language,
financial models, monthly account listings, sales presentations, orientation materials, and legal files.
3
Similarly, Piechocki copied Horizon contracts, financial models, and lists of Horizon’s sales leads,
marking some of the leads “DEAD” before resigning from his position at Horizon and adding those
leads to PRP’s “master contact list” after joining PRP.
In September 2011, Horizon notified Saul, Ulasewicz, Bayma, Palus, and Piechocki that their
resignations and subsequent employment with Acadia were in violation of their employment
agreements, the restrictive covenants entered into “at the inception of [their] employment,” and of
their common-law duties of good faith and loyalty.2 Horizon demanded that they end their
employment with Acadia and return all documents to Horizon.
Upon their resignations from Horizon, and after receiving Horizon’s notice, the new
members of PRP began competing with Horizon, soliciting business from Horizon’s prospective and
existing client base—though it is undisputed that Horizon did not lose any existing customers to
PRP. For example, Piechocki secured a consulting contract for PRP with Southwest Regional
Medical Center, which was an active Horizon sales lead that Piechocki had emailed to his personal
email address before his departure. In January 2012, Piechocki signed Westlake Regional Hospital
(Westlake) to a contract with PRP in “direct competition” with Horizon, using Horizon’s financial
models to “crunch[] numbers” to win the contract. Similarly, Ulasewicz scheduled a meeting with
Cottage Hospital, a potential client with which he had met while employed by Horizon. Ulasewicz
had learned while working at Horizon that Cottage Hospital’s barrier to using contract-management
2
Piechocki had not signed an employment agreement but acknowledged when first hired that he had reviewed
Horizon’s employee handbook, which restricted an employee’s use of Horizon’s confidential information and prohibited
direct competition with Horizon.
4
services might be removed; however, Ulasewicz did not share this information with anyone at
Horizon.
B. Procedural History
In October 2011, Horizon filed suit against Saul, Ulasewicz, Bayma, Palus, and Piechocki
(the individual defendants) for breach of fiduciary duty, misappropriation of trade secrets,
conversion, liability under the Harmful Access by Computer Act, liability under the Theft Liability
Act, tortious interference with existing contracts, tortious interference with prospective business
relationships, and conspiracy. Horizon also brought claims against Saul, Palus, Ulasewicz, and
Bayma for breach of the restrictive covenants not to compete, fraud, and breach of contract. Horizon
alleged that Acadia and PRP (the entity defendants) were liable for essentially all of these acts and
omissions either because they were directly involved or under the doctrines of ratification and
vicarious liability and because they aided and abetted the individual defendants in committing the
underlying misconduct.
At the ensuing trial, the jury entered a unanimous verdict in Horizon’s favor on many of its
claims. The jury found that Saul, Ulasewicz, Bayma, and Palus breached the terms of their non-
compete agreements (NCAs); Saul and Ulasewicz breached the terms of their covenants not to solicit
with respect to their efforts to ensure Piechocki’s move to PRP; and all of the individual defendants
failed to comply with their fiduciary duties to Horizon. Furthermore, the jury found that Acadia and
PRP ratified this conduct and will earn future profits as a result. Additionally, the jury found that
the individual defendants, while acting in the scope of their employment with Acadia and PRP,
intentionally interfered with the NCAs; misappropriated Horizon’s trade secrets; converted
5
Horizon’s proprietary information; intentionally committed theft of Horizon’s property and trade
secrets; and knowingly accessed Horizon’s computers, computer network, or computer system
without consent and with intent to harm Horizon. The jury also found that Acadia and PRP ratified
this conduct. The jury further found that Saul, Ulasewicz, Bayma, and Palus committed fraud and
fraud by nondisclosure by submitting expense reports for trips taken in June 2011. Moreover, the
jury found that all of the defendants participated in a conspiracy that damaged Horizon and that
Acadia and PRP intentionally aided and abetted the individual defendants in breaching some of their
fiduciary duties, intentionally interfering with the NCAs, misappropriating trade secrets, and
converting Horizon’s proprietary information, but only PRP aided and abetted the theft of Horizon’s
property or trade secrets and the harmful computer access. Finally, the jury found that the damage
sustained by Horizon as a result of the individual defendants’ breach of fiduciary duties, intentional
interference with the NCAs, misappropriation of trade secrets, conversion of Horizon’s proprietary
information, and theft was attributable to the malice of the individual defendants, as well as the
entity defendants, Acadia and PRP.
The jury awarded Horizon $898,000 in future lost profits from the Westlake contract based
on Saul’s, Palus’s, Ulasewicz’s, and Bayma’s failure to comply with their covenants not to compete
and $3,300,000 in future lost profits based on Saul’s and Ulasewicz’s failures to comply with their
covenants not to solicit—constituting Horizon’s lost sales from Piechocki’s future sales production.3
The jury also awarded Horizon $50,000 as the fair market value of the stolen property or trade
3
These awards are also based on Horizon’s claims for breach of fiduciary duty, intentional interference with
the employment agreements, misappropriation of Horizon’s trade secrets, conversion of proprietary information,
intentional theft of trade secrets, knowing access of Horizon’s computer system, and fraud.
6
secrets that were the subject of Horizon’s claim for theft of property or trade secrets; $5,049.24 for
the travel expenses charged to Horizon by Ulasewicz, Palus, and Bayma that were not associated
with Horizon’s business; $1,750,000 in exemplary damages; and $900,000 in attorney’s fees for
representation costs incurred through the conclusion of trial. In total, the jury awarded Horizon
$6,903,049.24. The trial court rendered final judgment in July 2013, awarding Horizon the full
amount of damages found by the jury, as well as $41,740 in sanctions against Saul based on the trial
court’s pretrial discovery-abuse ruling. The trial court, however, reduced Horizon’s trial attorney’s
fee award from $900,000 to $769,432, disregarded the jury’s zero award of appellate attorney’s fees,
and awarded Horizon $97,500 for appellate attorney’s fees. Acadia appealed, presenting multiple
issues for review, and Horizon cross-appealed on the limited issue of the trial court’s reduction in
the attorney’s fees award.
The court of appeals reversed the trial court’s judgment and rendered a take-nothing
judgment in part and remanded in part. 472 S.W.3d 74, 105–06 (Tex. App.—Fort Worth 2015, pet.
granted). The court of appeals held that Horizon was not entitled to any award of future lost profits
damages because its expert testimony was impermissibly speculative and legally insufficient. Id. at
89–91. Thus, the court of appeals rendered a take-nothing judgment against Horizon on all of its
contractual and tort claims, except for theft of property and trade secrets ($50,000 jointly and
severally) and fraudulent expense reports ($5,049.24 jointly and severally). Id. at 92–93. Because
only $55,049.24 in compensatory damages remained, the court of appeals held that the jury’s
$1,750,000 exemplary damages award was unconstitutionally excessive and remanded for a new trial
on Horizon’s attorney’s fees. Id. at 104. In its initial decision, the court of appeals suggested a
7
remittitur of the exemplary damages award to a total amount of $220,196.96, to be apportioned
among the individual defendants in the same proportions awarded by the jury. Id. at 98. On
rehearing, however, the court of appeals increased its suggested remittitur to $220,196.96 for each
individual defendant, totaling $1,100,984.80. Id. at 99 & n.31. The court of appeals also reversed
the trial court’s judgment holding Acadia and PRP jointly and severally liable for the exemplary
damages assessed against the individual defendants. Id. at 101–02. Finally, the court of appeals
affirmed the trial court’s award of discovery sanctions against Saul. Id. at 105.
Both sides filed petitions for review raising a number of issues. The issues include whether
(1) the court of appeals erred in holding that the evidence of future lost profits is legally insufficient;
(2) an exemplary damages award is proper in this case and whether the court of appeals’ suggested
remittitur of exemplary damages violates the Due Process Clause of the Fourteenth Amendment; and
(3) the court of appeals erred in reversing the joint-and-several exemplary damages awards against
Acadia and PRP.
II. Sufficiency of the Evidence of Future Lost Profits
Horizon argues that the court of appeals erred by holding that the evidence is legally
insufficient to support the jury’s award of $4,198,000 for future lost profits.4 We disagree.
A. Standard of Review
The court of appeals properly stated the law regarding legal-sufficiency review of a jury’s
finding: “In a legal-sufficiency review, we determine whether more than a scintilla of evidence
4
Because the jury found that Horizon suffered no damages for past lost profits, we refer to the “future lost
profits” simply as “lost profits” in the remainder of this decision.
8
supports the jury’s finding by considering evidence favorable to the finding if a reasonable
fact-finder could and disregarding evidence contrary to the finding unless a reasonable fact-finder
could not.” Id. at 87 (citing Cent. Ready Mix Concrete Co. v. Islas, 228 S.W.3d 649, 651 (Tex.
2007); Cont’l Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 450 (Tex. 1996)). The evidence
supporting a jury’s finding is legally insufficient if: (1) there is a complete absence of evidence of
a vital fact; (2) the rules of law or of evidence bar a court from giving weight to the only evidence
presented to prove a vital fact; (3) there is no more than a mere scintilla of evidence presented to
prove a vital fact; or (4) the evidence offered conclusively establishes the opposite of a vital fact.
Sw. Energy Prod. Co. v. Berry-Helfand, 491 S.W.3d 699, 713 (Tex. 2016) (citing City of Keller v.
Wilson, 168 S.W.3d 802, 810 (Tex. 2005)). In conducting a legal-sufficiency review, the court is
“‘limited to reviewing only the evidence tending to support the jury’s verdict and must disregard all
evidence to the contrary,’ except contrary evidence that is conclusive.” Id. (quoting Mancorp, Inc.
v. Culpepper, 802 S.W.2d 226, 227 (Tex. 1990), and citing City of Keller, 168 S.W.3d at 817).
B. Applicable Law
As we have explained, the rules concerning the sufficiency of evidence of lost profits
damages are well established:
Recovery for lost profits does not require that the loss be susceptible of exact
calculation. However, the injured party must do more than show that [it] suffered
some lost profits. The amount of the loss must be shown by competent evidence with
reasonable certainty. What constitutes reasonably certain evidence of lost profits is
a fact intensive determination. As a minimum, opinions or estimates of lost profits
must be based on objective facts, figures, or data from which the amount of lost
profits can be ascertained. Although supporting documentation may affect the weight
of the evidence, it is not necessary to produce in court the documents supporting the
opinions or estimates.
9
ERI Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867, 876 (Tex. 2010) (quoting Holt Atherton
Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex.1992)). Thus, lost profits damages can be recovered
only when both the fact and amount of damages is proved with reasonable certainty. See, e.g.,
Heine, 835 S.W.2d at 85. A party’s bare assertion that a contract was lost does not establish lost
profits with reasonable certainty. Id. Rather, the general rule is that recovery of lost profits as
damages is allowed “where it is shown that a loss of profits is the natural and probable consequence
of the act or omission complained of, and their amount is shown with sufficient certainty.” Tex.
Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994) (quoting Sw.
Battery Corp. v. Owen, 115 S.W.2d 1097, 1098 (Tex. 1938)). However, “anticipated profits cannot
be recovered where they are dependent upon uncertain and changing conditions, such as market
fluctuations, or the chances of business, or where there is no evidence from which they may be
intelligently estimated.” Id. (quoting Owen, 115 S.W.2d at 1098). Indeed, “[t]he law is wisely
skeptical of claims of lost profits from untested ventures or in unpredictable circumstances, which
in reality are little more than wishful thinking.” Phillips v. Carlton Energy Grp., LLC, 475 S.W.3d
265, 280 (Tex. 2015). Although legally sufficient evidence might otherwise establish a breach of
contract or tort permitting an award of lost profits, “profits ‘not susceptible of being established by
proof to that degree of certainty which the law demands’ cannot be recovered as damages.” Id. at
279 (quoting Owen, 115 S.W.2d at 1099). When the evidence supporting a claim for lost profits
damages is largely speculative or a mere hope for success, lost profits have not been established with
reasonable certainty. Tex. Instruments, 877 S.W.2d at 279.
10
With these rules in mind, we now consider whether legally sufficient evidence establishes
the fact and amount of Horizon’s lost profits damages with reasonable certainty.
C. Analysis
As a preliminary matter, we need not distinguish between Horizon’s causes of action
supporting the award of lost profits damages because these damages are recoverable for any one of
those claims. Swinnea, 318 S.W.3d at 877 n.3 (citing Waite Hill Servs., Inc. v. World Class Metal
Works, Inc., 959 S.W.2d 182, 184–85 (Tex.1998) (per curiam)). However, because Horizon
presented two different bases supporting the award of lost profits damages—the loss of the Westlake
contract and the loss of Piechocki’s future contract acquisitions—we must consider whether Horizon
established the fact and amount of its lost profits arising from each basis independently.
1. Westlake Contract
The jury awarded Horizon $898,000 in damages for lost profits based on Saul’s, Ulasewicz’s,
Bayma’s, and Palus’s breach of their NCAs, breaches of fiduciary duties, intentional interference
with the employment agreements, misappropriation of trade secrets, conversion of proprietary
information, theft of trade secrets, knowing access of Horizon’s computer system, and fraud. In
doing so, the jury apparently concluded that it was more likely than not that Horizon would have
won the Westlake contract absent the misconduct of these defendants and that, in reasonable
probability, Horizon would suffer $898,000 in lost profits as a result. For the reasons explained
below, we hold that the evidence is legally insufficient to establish the fact of lost profits damages
regarding the Westlake contract with reasonable certainty.
11
Texas courts require that a plaintiff seeking damages based on lost profits from future
business opportunities adduce evidence establishing that prospective customers would have done
business with the plaintiff absent the defendant’s misconduct. See, e.g., City of Dall. v. Vills. of
Forest Hills, L.P., Phase I, 931 S.W.2d 601, 606–07 (Tex. App.—Dallas 1996, no writ); see also
Heine, 835 S.W.2d at 85 (holding that a business owner’s testimony was insufficient to establish lost
profits where he “was not able to specify which contracts they lost, how many they lost, how much
profit they would have had from the contracts, or who would have awarded them contracts” and
explaining that the plaintiffs “could have supported their lost profits with testimony that they had lost
out on specific contracts” but failed to do so). Thus, to recover lost profits from a contract with
Westlake as damages, Horizon needed to present evidence showing that Westlake would have
entered into a contract with it.
We conclude that there is no evidence that Westlake would have entered into a contract with
Horizon, as opposed to some other company, had it not signed a contract with PRP. Rather, the
evidence shows only that PRP would not have won the Westlake contract absent the misconduct of
the individual defendants; no evidence supports the conclusion that Horizon would have won
Westlake’s business. Horizon’s damages expert, Jeff Balcombe, simply assumed that Horizon would
have won the Westlake contract if not for the defendants’ wrongful conduct, and he specifically
stated that he had no opinion as to whether Horizon would have retained Westlake. Further,
Balcombe testified that PRP’s contract with Westlake included a term providing for a $150,000 loan
or advance of construction costs. Although Balcombe apparently deducted this amount from his
calculations, he also acknowledged that he could not recall seeing any Horizon contract containing
12
a similar provision. Piechocki’s unrefuted testimony confirms that the Westlake contract included
the $150,000 loan provision and that Horizon never included such terms in its contracts.
Additionally, we cannot identify any evidence supporting a conclusion that Westlake would have
accepted Horizon’s bid had it not accepted PRP’s. Indeed, it is equally plausible that Westlake
would have rejected all of the bids had it not accepted PRP’s proposal. Thus, Balcombe’s testimony
is insufficient because he admittedly assumed that Horizon would have won the Westlake contract.
Horizon argues that the evidence establishes that Westlake was on its lead list before the
individual defendants’ departures and that the defendants utilized Horizon’s trade secrets in
preparing PRP’s more attractive and winning bid for Westlake’s business, supporting an inference
that Horizon would have won Westlake’s business absent the defendants’ misconduct. However,
even if we assume that the jury could have reasonably found that the defendants’ misconduct allowed
PRP to bid on and ultimately win the Westlake contract, it is pure speculation to conclude that
Horizon would have won the bid had PRP not made a more attractive offer. This is especially true
given that there is no evidence that Horizon would have included a $150,000 loan or advance of
construction costs in its own bid. Put simply, there is no evidence in the record establishing to a
reasonable degree of certainty that Horizon would have won the Westlake contract absent the
defendants’ misconduct, and Balcombe specifically acknowledged that he based his calculations on
the assumption that Horizon would have won the Westlake contract had the defendants not
committed the underlying torts. Thus, Horizon failed to establish the fact of damages relating to the
Westlake contract with reasonable certainty. See Heine, 835 S.W.2d at 85 (“[T]he bare assertion that
contracts were lost does not demonstrate a reasonably certain objective determination of lost
13
profits.”); see also Coastal Transp. Co. v. Crown Cent. Petroleum Corp., 136 S.W.3d 227, 232 (Tex.
2004) (“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.’” (quoting TEX .
R. EVID . 401)).
In sum, we hold that the evidence is legally insufficient to support the jury’s finding that
Horizon sustained lost profits with respect to the Westlake contract because the evidence does not
establish the fact of damages with reasonable certainty.
2. Piechocki’s Future Sales
We also conclude that the evidence is legally insufficient with respect to Horizon’s claim for
lost profits relating to the defendants’ wrongful solicitation of Piechocki. As explained below,
Balcombe’s estimates regarding the amount of time Piechocki would have remained at Horizon and
the number of contracts he would have sold during that time are too speculative to constitute
competent evidence. Furthermore, no evidence speaks to the profitability of the contracts Piechocki
would have sold had he remained at Horizon. Put simply, the record supports the court of appeals’
conclusion that Balcombe’s testimony regarding the length of Piechocki’s future employment at
Horizon and the success he would have had during that time was based on improper assumptions and
thus conclusory.
The evidence shows that Piechocki was Horizon’s best salesperson and that he was in the top
90% of salespeople in his field. In calculating the damages that resulted from the wrongful
solicitation of Piechocki, Balcombe assumed, among other things, that (1) Piechocki, an at-will
employee, would have stayed at Horizon for two years if not promoted, or four years if promoted,
14
and (2) Piechocki would have outperformed his average replacement by selling six contracts per year
instead of four and that the profitability and initial contract term of each of those contracts would
have comported with Horizon’s historical averages.
Balcombe testified that he calculated Piechocki’s anticipated length of employment at
Horizon based on a statistical analysis, estimating how long Piechocki would have stayed with
Horizon absent the defendants’ wrongful conduct. Balcombe testified that he “prepared an analysis,
looking at employee historical tenure of people in the business development role at the VP level, as
well as the senior VP level.” This analysis was based on ten years of Horizon’s retention data for
employees in Piechocki’s position, including twenty-four sales vice presidents. Balcombe presented
two alternatives. For Alternative 1, Balcombe assumed that Piechocki would have left Horizon after
two years had the wrongful conduct not occurred, based on his analysis that the probability of an
individual with Piechocki’s tenure dropped “below 50 percent after year two if they have been there
as long as Mr. Piechocki had.” Thus, Balcombe estimated that even if Piechocki had not been
promoted, a sales professional with Piechocki’s tenure would have remained at Horizon for at least
two more years. For Alternative 2, Balcombe assumed that Piechocki would have been promoted
to the position of senior vice president of business development and would have left Horizon after
four years, based on his calculation of the statistical probability of his continued employment
dropping to less than 50% in year four. Balcombe testified that the four-year length of employment
assumed in Alternative 2 was “based upon the fact that senior vice presidents stayed longer.”
Balcombe confirmed that, in his Alternative 2 analysis, if Piechocki stayed an additional four
years, it was because he was promoted. But Balcombe’s assumption that Piechocki would have been
15
promoted was based on a statement by DeVaney and did not take into account whether Piechocki
himself intended to stay with Horizon. Indeed, Piechocki’s testimony supports that his decision to
leave Horizon was motivated in part by DeVaney’s decision not to promote him when DeVaney had
the chance, upon Ulasewicz’s departure, despite Piechocki’s specific request that DeVaney consider
him for the position. Additionally, nothing in the record suggests that Balcombe considered whether
the employees who were the subject of his analysis had signed employment agreements or NCAs and
whether that affected the length of their employment. This is particularly significant because
Piechocki was not bound by an NCA or any other type of employment agreement—a fact Balcombe
conceded but did not factor into his analysis.
However, Balcombe’s assumptions about the prospective length of Piechocki’s future
employment at Horizon appear to have some ground in fact. See Burroughs Wellcome Co. v. Crye,
907 S.W.2d 497, 499 (Tex. 1995) (explaining that an expert may offer an opinion based on assumed
facts that are established by legally sufficient evidence). Piechocki admitted that: (1) he wanted the
promotion; (2) he expressed his interest to DeVaney after the other defendants left; and (3) Horizon’s
sales manager told Piechocki that she wanted him to take the position. DeVaney essentially
scheduled an interview with Piechocki, and DeVaney testified that Piechocki was the “only real
option” Horizon had to fill the position from within the company. Piechocki also testified that he
had no plans to leave Horizon before he was solicited to join PRP. Rather, Piechocki’s decision was
motivated in part by DeVaney’s decision not to promote him and in part by the opportunity to join
16
PRP.5 Thus, while scant evidence supports Balcombe’s Alternative 2 analysis, at least some
evidence supports that Piechocki would not have left Horizon when he did absent the defendants’
solicitation in violation of their employment agreements.
As to the number of sales Piechocki would have won during his continued employment at
Horizon, in addition to Horizon’s historical sales data showing that Piechocki outpaced his peers
two-to-one, an email from Ulasewicz to Saul supports the conclusion that Horizon lost sales as a
result of Piechocki’s departure. Ulasewicz wrote:
I cannot think of a bigger body blow relative to impacting future new sales for
Horizon than to get Piechocki out of there. If he is working for us, you have a very,
very formidable sales team. . . . You take him out of Horizon and that will set their
sales back at least one year - I mean it will stop - less than five deals. Recruiting
effective sales people is very difficult and training takes along [sic] time.
DeVaney similarly testified to a one-year period before any replacement salesperson could be
expected to close a contract. In fact, the loss of Piechocki was particularly harmful because
Piechocki had experience in both psychiatric operations and sales, making him uniquely qualified
to sell services to hospital operations executives.6 Furthermore, an email from Saul to Turner stated
that, in addition to Ulasewicz, Bayma, and Palus, “we would go hard after John Piechocki, VP
Sales--as recruiting the 2 best salesmen in the country would be a significant advantage to us and put
a real hurt on the competition.” In fact, DeVaney specifically testified about how Horizon’s sales
5
DeVaney testified that he would only have given Piechocki an “opportunity” to interview for Ulasewicz’s
position on either an interim or permanent basis. Piechocki testified that DeVaney stated he was going to “take his time”
in filling Ulasewicz’s position and would “oversee the sales department” himself in the interim.
6
At the time of trial, Piechocki had twenty-seven years of experience in the mental health field; seventeen of
those years were spent working for Horizon.
17
had been impacted by the loss of Piechocki. DeVaney testified that Horizon signed fourteen new
contracts in 2011, the year Piechocki left, but signed only seven new contracts the next year. In total,
Horizon sold nine new contracts from the time that Ulasewicz and Piechocki left in the fall of 2011
through the date of the December 2012 trial, but none of those contracts were sold by Piechocki’s
replacement. Contrasting this with the fact that PRP signed five contracts over that same
period—two won by Piechocki and three won by Ulasewicz—makes the evidence detailed above
even more compelling. Thus, at least some evidence other than Balcombe’s testimony supports that
the loss of Piechocki caused Horizon to lose future sales.
Nevertheless, the fact that Piechocki might have stayed at Horizon a little longer and might
have sold contracts generating revenue for Horizon is not enough to establish that Horizon lost
profits— evidence establishing the profitability of contracts Piechocki would have sold is necessary.
See Miga v. Jensen, 96 S.W.3d 207, 213 (Tex. 2002) (“Lost profits are damages for the loss of net
income to a business measured by reasonable certainty.” (emphasis added)). But the record does not
include evidence regarding the profitability of contracts Piechocki sold or would have sold had he
remained at Horizon. Balcombe assumed when formulating his opinion regarding the lost profits
damages relating to Piechocki that the value of contracts Piechocki would have sold in the future
would have comported with Horizon’s historical averages. Put differently, Balcombe based his
calculations on the average profit generated by a contract sold by Horizon generally, not the profit
generated by the contracts Piechocki sold. Balcombe did this by compiling data of Horizon’s profit
per contract over an approximately ten-year period. This assumes, however, that the profitability of
Piechocki’s contracts corresponded with the average profitability of Horizon’s contracts. The fact
18
that Piechocki sold more contracts than his peers does not speak to the profitability of those
contracts. See id. In fact, we cannot identify any evidence regarding the profitability of any contract
Piechocki sold while a Horizon employee. Nor was there any evidence as to whether the contracts
sold by Piechocki were more or less profitable than those sold by other salespeople.
In the absence of evidence showing the profit associated with Piechocki’s sales, the number
of contracts he might have sold is meaningless, and there is insufficient evidence to determine
whether Horizon lost any profit as a result of his departure.7 In short, Horizon failed to prove the fact
of lost profits relating to Piechocki’s departure because the evidence speaks only to the number of
contracts Piechocki sold previously and might have sold in the future, not the profitability of those
contracts. This is fatal to Horizon’s claim for lost profits relating to Piechocki. For Horizon to
establish lost profits relating to the wrongful interference with a particular employee—that is, to
establish with reasonable certainty damages for the lost sales that an employee would have obtained
for Horizon absent the wrongful interference—Horizon’s evidence estimating those lost profits must
be tied to the performance of that employee. Horizon failed to offer such evidence, and the evidence
is thus legally insufficient to establish that Horizon lost profits because of Piechocki’s departure.
7
In light of this conclusion, we need not consider the defendants’ argument that the fact that Piechocki was an
at-will employee is enough to render Balcombe’s testimony regarding the estimated length of Piechocki’s future tenure
with Horizon speculative and thus no evidence. Even if we were to assume that a party can recover lost profits for the
work of an at-will employee, Horizon failed to establish its damages with reasonable certainty and is therefore precluded
from recovering the additional profits Piechocki might have earned had the other individual defendants not solicited him
in breach of their NCAs.
19
In sum, we hold that the evidence is legally insufficient to support the jury’s finding that
Horizon sustained lost profits because the evidence does not establish the fact of damages.8
D. Horizon’s Remaining Arguments Regarding Lost Profits
Horizon argues that the court of appeals’ opinion conflicts with our decision in Arkoma Basin
Exploration Co. v. FMF Associates 1990-A, Ltd., 249 S.W.3d 380 (Tex. 2008), in which we held
that experts need not introduce foundational data supporting their conclusions unless the opposing
party or trial court insists. Id. at 389–90 (citing TEX . R. EVID . 705(a)). Horizon’s argument is based
entirely on a comment by the court of appeals that “Balcombe’s calculations, estimates, ‘statistical
analysis,’ and ‘work papers’ supporting his conclusions were not admitted into evidence and were
merely demonstrative aids” and that “[b]ecause this information was not admitted into evidence,
some of Balcombe’s explanations for his conclusions are difficult to decipher on appeal.” 472
S.W.3d at 89. According to Horizon, the court of appeals erred by finding Balcombe’s testimony
“not competent” to the extent that his underlying work papers were admitted as demonstratives only.
Reading the court’s analysis as a whole, it is clear that the absence of Balcombe’s work papers did
not impact the court of appeals’ decision. Rather, as shown above, Balcombe’s testimony is
insufficient in light of his own testimony that he simply assumed Horizon would have won the
Westlake contract and based his estimates regarding the profitability of Piechocki’s future sales on
8
Because we conclude that Horizon failed to establish the fact of damages with reasonable certainty, we need
not address Acadia’s argument that Horizon cannot recover lost profits because Horizon admitted that it never lost an
existing customer or contract. Furthermore, because we hold that no evidence supports the only damages relating to
Horizon’s claim regarding the defendants’ breach of their NCAs, we need not reach Acadia’s arguments regarding the
enforceability of those agreements.
20
the average profit generated by contracts sold by Horizon generally, rather than the profit generated
by the contracts Piechocki sold. We conclude that this argument has no merit.
Horizon also argues that we should remand for a new trial on the issue of lost profits. The
court of appeals declined to do so, concluding that “Balcombe’s testimony did not establish any
amount of lost-profit damages with reasonable certainty.” Id. at 90 n.20. According to Horizon, this
was an error because “when there is sufficient evidence that lost profits were suffered, the
appropriate remedy is either remittitur or remand, not a take nothing judgment.” In support of its
argument for remand, Horizon relies on our decision in ERI Consulting Engineers, Inc. v. Swinnea,
in which we held that courts should suggest remittitur or remand for a new trial on damages where
“competent evidence exists to establish some reasonably certain amount of lost profits—just not the
particular amount awarded.” 318 S.W.3d at 880. We conclude that Swinnea has no applicability
to the facts of this case because, as we have explained, the evidence is insufficient to establish that
Horizon lost any amount of profits. Rendition is proper on this issue.
III. Exemplary Damages Against the Individual Defendants
Acadia argues that the evidence is legally insufficient to support any award of exemplary
damages against any defendant because no evidence supports the jury’s finding that the individual
defendants acted with malice. Acadia also challenges the exemplary damages award as grossly
excessive in light of the actual damages sustained by Horizon and thus unconstitutional, even after
the court of appeals suggested a remittitur of the exemplary damages award. For the reasons
explained below, we hold that legally sufficient evidence supports an exemplary damages award, but
21
we agree with Acadia that the exemplary damages award remains unconstitutionally excessive
despite the court of appeals’ suggested remittitur.
A. Sufficiency of the Evidence Supporting an Exemplary Damages Award
The court of appeals held that legally sufficient evidence supports the jury’s finding that all
of the individual defendants acted with malice. 472 S.W.3d at 95. We agree.
Pursuant to the Texas Civil Practice and Remedies Code, “exemplary damages may be
awarded only if the claimant proves by clear and convincing evidence that the harm with respect to
which the claimant seeks recovery of exemplary damages results from: (1) fraud; (2) malice; or
(3) gross negligence.” TEX . CIV . PRAC. & REM . CODE § 41.003(a). “‘Clear and convincing’ means
the measure or degree of proof that will produce in the mind of the trier of fact a firm belief or
conviction as to the truth of the allegations sought to be established.” Id. § 41.001(2). “‘Malice’
means a specific intent by the defendant to cause substantial injury or harm to the claimant.” Id.
§ 41.001(7).
“[I]n reviewing the legal sufficiency of evidence to support a finding that must be proved by
clear and convincing evidence, an appellate court must ‘look at all the evidence in the light most
favorable to the finding to determine whether a reasonable trier of fact could have formed a firm
belief or conviction that its finding was true.’” Sw. Bell Tel. Co. v. Garza, 164 S.W.3d 607, 609
(Tex. 2004) (quoting In re J.F.C., 96 S.W.3d 256, 266 (Tex. 2002)). In doing so, the “reviewing
court must assume that the factfinder resolved disputed facts in favor of its finding if a reasonable
factfinder could do so.” Id. at 627 (quoting In re J.F.C., 96 S.W.3d at 266).
22
In Question 21, the jury found by clear and convincing evidence “that the harm to Horizon
inquired about in Question No. 14 resulted from malice” by each individual defendant. Question 14
inquired about both the harm from the theft of Horizon’s trade secrets and the harm from
Ulasewicz’s, Bayma’s, and Palus’s submission of fraudulent expense reports. In Question 22, the
jury found by clear and convincing evidence “that the harm to Horizon resulted from the fraud found
in Question No. 12 or Question No. 13”—the questions relating to Ulasewicz’s, Bayma’s, and
Palus’s submission of fraudulent expense reports for the June 2011 meetings. Thus, the jury found
that malice supports an exemplary damages award for all of the harms Horizon suffered and that
fraud supports an exemplary damages award only for the harm relating to the fraudulent expense
reports.9
The defendants have not argued in this Court or in the court of appeals that insufficient
evidence supports the jury’s finding that the harm to Horizon resulting from Ulasewicz’s, Bayma’s,
and Palus’s submission of improper expense reports constitutes fraud—an independent basis to
award exemplary damages for that harm. See TEX . R. APP . P. 38.1(f), 53.2(f). Nevertheless, we
must determine whether the jury could have reasonably concluded that the individual defendants
acted with malice in order to support an exemplary damages award for the harm Horizon sustained
as a result of the defendants’ theft of trade secrets.
In concluding that legally sufficient evidence supported the jury’s finding that the individual
defendants specifically intended to cause substantial injury or harm to Horizon, the court of appeals
9
In response to Question 23, the jury awarded Horizon $1,750,000 in exemplary damages against the individual
defendants: $500,000 against Saul; $500,000 against Ulasewicz; $250,000 against Palus; $250,000 against Bayma; and
$250,000 against Piechocki.
23
failed to analyze the evidence supporting the malice of each defendant and instead grouped them
together. See 472 S.W.3d at 95–96. Further, the court of appeals relied on evidence of the tort itself,
with little more, to support the jury’s finding. Id. This was improper under the circumstances of this
case.
Under this Court’s precedent, to recover exemplary damages based on malice, Horizon
needed to prove actual damages and submit clear and convincing evidence of outrageous, malicious,
or otherwise reprehensible conduct. Safeshred, Inc. v. Martinez, 365 S.W.3d 655, 660 (Tex. 2012).
It was also required to prove that the defendants specifically intended for Horizon to suffer
substantial injury that was “independent and qualitatively different” from the compensable harms
associated with the underlying causes of action. Id. at 662 (quoting Transp. Ins. Co. v. Moriel, 879
S.W.2d 10, 19 (Tex. 1994)). Thus, we conclude that the court of appeals failed to properly analyze
whether legally sufficient evidence supports the malice finding on which the trial court based its
exemplary damages award. Nevertheless, as shown below, we hold that the evidence is sufficient
to support the jury’s finding of malice as to each individual defendant.
1. Saul
We agree with the court of appeals that clear and convincing evidence supports malice on
Saul’s part. First, the evidence supports that Saul orchestrated the management team “lift-out” and
worked with Acadia to form PRP. Further, part of the business plan that Saul presented to Acadia
in advocating for the formation of an Acadia subsidiary recognized that part of the subsidiary’s
strategy would include targeting Horizon’s customers. Indeed, this strategy was reflected in
materials Saul presented to Acadia before his departure from Horizon. One of the five “revenue
24
sources” Saul highlighted in his presentation was “Horizon Business.” The presentation also
projected that the revenue from “HOR Business” would be $2.28 million a year for 2012 and 2013,
and that future operating management contracts, derived in part from Horizon’s business, would
produce over $25 million by 2016.
Moreover, Saul sent Acadia’s president an email recognizing that his planned “management
team ‘lift-out’” while the other individual defendants were employed by Horizon carried “risk[s],”
such as a “claim [of] tortious interference.” Saul also sent Acadia’s president an email explaining
that “we would go hard after John Piechocki, VP Sales--as recruiting the 2 best salesmen in the
country would be a significant advantage to us and put a real hurt on the competition.”
Once Acadia decided to proceed with Saul’s plan, Saul requested an external hard drive for
his Horizon computer, paid for by Horizon, and, after instructing his secretary to disable the
encryption on his computer, downloaded “everything that was non-financial on [Horizon’s] server.”
Saul also emailed many of Horizon’s confidential documents to himself before resigning. This
evidence is sufficient to have produced a firm belief in the minds of the jury that Saul acted with
specific intent to cause substantial injury or harm to Horizon.
2. Ulasewicz
The court of appeals also correctly held that the evidence is sufficient to support the jury’s
finding that Ulasewicz acted with malice. Specifically, we agree that one email from Ulasewicz to
Saul, which the court of appeals considered “particularly damning,” supports the jury’s conclusion.
472 S.W.3d at 95–96. The email, which was sent while Ulasewicz and Saul were both Horizon
employees and before Saul’s presentation to Acadia, stated:
25
Here are my thoughts on a 12–24 month stratetgy [sic] relative to positioning. This
time frame is critical to us in terms of success. Based on our preliminary sales plan
as presented, we are in fact saying that we are going to take [a] certain number of
agreements out of Horizon’s hide, both new deals but also terming contracts. . . . I
would also recommend you begin to group the contracts we know are coming up over
the next two years and place them in maybe three categories from In Play to Unlikely
to Switch. . . . We also need to know not only the termination dates but much more
importantly any rollover dates, this is critical. . . .
. . . The more members of our senior management we bring over the greater our
ability to shape and hone a message to potential clients that is based implicitly and
explicitly on our knowledge that Horizon exists in name only. . . . I do advocate we
get either Palus or [Piechocki] and . . . we should bring in Bayma. Hurting Horizon
early and often is a business stratetgy [sic] and a good one. . . .
. . . I cannot think of a bigger body blow relative to impacting future new sales for
Horizon than to get Piechocki out of there.
. . . The message to potential clients is Pedigree—we need to convey this is not a
startup, this is a logical continuation of the undeniably established Leadership,
Experience and Expertise that maintained Horizon in its number one position for the
last ten years. . . .
. . . [T]ransition timing is very important I believe. We need to gut punch them as we
leave, to me that means having all of our ducks in a row so we can move quickly into
the market. Let’s make sure we talk around timelines before you commit, I know you
are anxious to leave but if you wait for the right time, it will be all the sweeter.
Business first—success is the best rvenge [sic]—trust me on this.
We conclude that this email supports the jury’s finding that Ulasewicz acted with malice
because it shows that he intended to “[h]urt[] Horizon early and often” and “gut punch” Horizon in
executing the scheme to form a business that would compete directly with Horizon.
3. Piechocki
We also hold that the evidence supports the jury’s conclusion that Piechocki specifically
intended to cause substantial harm to Horizon. First, Piechocki admitted that he secured the
26
Westlake contract for PRP and that he used Horizon’s confidential documents in doing so. This
shows that Piechocki used Horizon’s trade secrets and proprietary information after moving to PRP
to acquire the business of a prospective Horizon client. Piechocki also surreptitiously forwarded
emails containing proprietary and confidential information, including lists of active Horizon sales
leads, to his personal email account on the eve of his departure (and in violation of the employee
handbook) for the purpose of providing key client information to a Horizon competitor.10 Piechocki
also marked certain sales prospects as “DEAD” before he resigned, and those same leads were added
to Acadia’s sales list when he joined PRP. Piechocki even admitted that he used Horizon’s stolen
documents to create PRP’s bid for Westlake and that he met with Horizon’s existing customers after
he took copies of those customers’ contracts from Horizon. PRP used Horizon’s most recent Master
Contact List to create a new sales lead list for PRP—and Ulasewicz described disclosure of sales
leads as an act of “treason.” Finally, after joining PRP, Piechocki simply replaced Horizon’s name
with PRP’s on a confidential document containing specific language for customer contracts.
This evidence, on balance, supports the jury’s malice finding with respect to Piechocki
without focusing solely on the underlying torts because it shows that Piechocki subsequently used
all of the materials he stole to benefit Acadia and PRP at Horizon’s expense. That is, this
circumstantial evidence is legally sufficient to support a finding of malice. See, e.g., Bentley v.
Bunton, 94 S.W.3d 561, 596 (Tex. 2002) (explaining in the context of defamation that “[t]he
defendant’s state of mind can—indeed, must usually—be proved by circumstantial evidence”).
10
PRP later secured a consulting contract with Southwest Regional Medical Center— one of the active Horizon
leads Piechocki had forwarded to his personal email address.
27
4. Bayma
We also hold that legally sufficient evidence supports the jury’s finding that Bayma acted
with malice. The evidence shows that Bayma first began communicating with Saul about his plans
in May 2011—the month Saul pitched the idea to Acadia of a new subsidiary that would compete
with Horizon. In his presentation, Saul identified several companies that would be “competition”
for the proposed subsidiary, including Horizon, which Saul indicated was “lost in UHS bureaucracy”
and would lose customers “due to relationships.” On June 8, 2011, all of the individual defendants
except Piechocki met at Saul’s home to discuss Saul’s new plans with Acadia. The next day, Bayma
sent Saul an email outlining her questions and recommendations regarding the new Acadia
subsidiary. Further, on June 24, 2011, Bayma forwarded Horizon training documents to Saul
relating to freestanding psychiatric hospitals. That same day, Saul sent Palus and Bayma information
regarding Acadia’s benefits package, the proposed dates for submitting resignations, and invited
Bayma and Palus to his home for a second “planning session,” cautioning them to “[k]eep [their]
plans discrete.” Five days later, all of the individual defendants except Piechocki met at Saul’s
home, and Bayma asked Horizon to pay for those preparations without disclosing her true purpose.
Further, the evidence confirms that the individual defendants—a large portion of Horizon’s
upper-management team—coordinated their departures from the outset so that they would each
announce their resignation in a rapid succession, leaving Horizon without much of its leadership and
in disarray. As planned, Ulasewicz, Bayma, and Palus all announced their resignations within seven
days of each other. Unsurprisingly, DeVaney testified that the defendants’ successive departures
caused “a lot of unrest” within Horizon.
28
Weeks after their departures, the newly formed Acadia subsidiary began soliciting Horizon’s
current and prospective clients using sales materials and contracts stolen from Horizon. In fact, the
evidence shows that Bayma and Palus supported the preparation of PRP’s sales proposals and
contracts—based on documents stolen from Horizon—shortly after joining PRP. In sum, we think
the jury could have concluded that Bayma’s participation in the scheme to form a business that
would compete directly with Horizon, using Horizon’s trade secrets and proprietary materials, while
still employed by Horizon, evidences her intent to injure Horizon—a conclusion the jury obviously
reached in light of its finding that each of the defendants participated in a conspiracy to damage
Horizon. Indeed, the defendants recognized that keeping their plans secret, coordinating their
departures, and their immediate use of Horizon’s documents were essential to PRP’s success and to
their business strategy of “[h]urting Horizon early and often” and their goal of “gut punch[ing]”
Horizon on their way out the door.
5. Palus
Much of the evidence supporting the jury’s malice finding as to Bayma equally supports a
finding that Palus acted with malice. Therefore, and as explained further below, we hold that legally
sufficient evidence supports the jury’s finding of malice with respect to Palus.
In addition to the evidence supporting Bayma’s malice, the evidence shows that Palus first
began communicating with Saul about his plans in April 2011—one month before Saul presented
to Acadia his idea for a new subsidiary that would compete directly with Horizon. Palus also joined
the other individual defendants at Saul’s home in June 2011, and Palus asked Horizon to reimburse
him for the expenses incurred on those trips while concealing the true purpose of those meetings.
29
Further, Palus waited to announce his resignation, staying for a few days longer than Bayma
and Ulasewicz, feeding information to Saul, Ulasewicz, and Bayma regarding the fallout happening
at Horizon. In one of Palus’s final emails as a Horizon employee, he told his cohorts that “[f]inal
transitions are in full swing and things seem to be setting up well,” and he noted that he had
contacted one of Horizon’s clients to schedule a meeting. Additionally, the evidence shows that,
following his resignation, Palus supported the preparation of PRP’s sales proposals and contracts
based on documents stolen from Horizon. Palus also helped prepare PRP’s “new proforma model”
and other documents using “former templates” (i.e., Horizon’s property) that he had forwarded to
his personal email account on the eve of his departure. In sum, we hold that sufficient evidence
supports the jury’s conclusion that Palus acted with the specific intent to harm Horizon in light of
his participation in the scheme to form a business that would compete directly with Horizon, using
Horizon’s trade secrets and proprietary materials.
Thus, the record supports the jury’s assessment of exemplary damages against each of the
individual defendants.
B. Excessiveness of Exemplary Damages Award
In light of our decision that insufficient evidence supports the jury’s award of lost profits
damages,11 $55,049.24 of actual damages remain: $50,000 for the fair market value of the
trade-secret items that the individual defendants misappropriated and $5,049.24 for the fraudulent
reimbursements Ulasewicz, Bayma, and Palus requested from Horizon for their pre-resignation trip
11
See Section II, supra.
30
to discuss their plans for PRP. Therefore, like the court of appeals, we must determine whether the
exemplary damages award is excessive in light of the remaining actual damages award and, thus,
unconstitutional. 472 S.W.3d at 96–97. For the reasons explained below, we hold that the
exemplary damages award is excessive despite the court of appeals’ suggested remittitur and thus
remand the case to the court of appeals so it may consider a remittitur in a constitutionally
permissible amount.
The jury found that each of the individual defendants caused the $50,000 damages relating
to the theft of property and theft of trade secrets in varying degrees. The jury found that Saul was
40% responsible for the harm and that Ulasewicz, Bayma, Palus, and Piechocki were each 15%
responsible for the theft of trade secret damages. The jury also found that Ulasewicz, Bayma, and
Palus submitted fraudulent expense reports in the following amounts: (1) Ulasewicz: $1,398.45;
(2) Bayma: $1,049.38; and (3) Palus: $2,601.41. Ultimately, the jury found that the individual
defendants caused harm to Horizon as follows:
Table 1
Defendant Theft of Property Fraudulent Total Damages
or Trade Secrets Expense Reports Caused
Saul $20,000.00 ------ $20,000.00
Ulasewicz $7,500.00 $1,398.45 $8,898.45
Bayma $7,500.00 $1,049.38 $8,549.38
Palus $7,500.00 $2,601.41 $10,101.41
Piechocki $7,500.00 ------ $7,5000.00
Total $50,000.00 $5,049.24 $55,049.24
31
Because the jury found that the individual defendants committed felonious theft of trade
secrets as defined in the Penal Code, the trial court assessed joint and several liability for the full
amount of compensatory damages against each of the individual defendants.12 See TEX . CIV . PRAC.
& REM . CODE § 33.013(b)(2); TEX . PENAL CODE § 31.05.
The jury awarded a total of $1,750,000 in exemplary damages against the individual
defendants: $500,000 each against Saul and Ulasewicz and $250,000 each against Bayma, Palus, and
Piechocki. The table below summarizes the jury’s assessment of exemplary damages:
Table 2
Defendant Liability for Proportion
Exemplary Damages
Saul $500,000 29%
Ulasewicz $500,000 29%
Bayma $250,000 14%
Palus $250,000 14%
Piechocki $250,000 14%
Total $1,750,000 100%
The court of appeals’ initial decision suggested a remittitur of total exemplary damages to
$220,196.96, allocated among the individuals in the same proportion as the jury assessed exemplary
damages (a “per-judgment” approach). 472 S.W.3d at 98–99. The table below depicts the ratio of
compensatory to exemplary damages liability (joint and several) for each individual defendant in the
court of appeals’ initial opinion, and the cumulative totals:
12
Additionally, because the jury found that the individual defendants committed theft of trade secrets as defined
in the Penal Code, the statutory cap on exemplary damages does not apply. T EX . C IV . P RAC . & R EM . C O DE
§ 41.008(c)(13); T EX . P EN AL C O D E § 31.05.
32
Table 3
Defendant Remitted Exemplary Joint & Several Ratio
Damages Liability
Saul $63,857.13 (29%) $55,049.24 1.16:1
Ulasewicz $63,857.13 (29%) $55,049.24 1.16:1
Bayma $30,827.57 (15%) $55,049.24 0.56:1
Palus $30,827.57 (15%) $55,049.24 0.56:1
Piechocki $30,827.57 (15%) $55,049.24 0.56:1
Total $220,196.96 $55,049.24 4:1
On rehearing, however, the court of appeals held that each individual defendant should be
assessed $220,196.96 in exemplary damages, using a “per-defendant” rather than “per-judgment”
approach. Id. Thus, the court of appeals’ suggested remittitur assesses exemplary damages liability
as follows:
Table 4
Defendant Remitted Exemplary Joint & Several Ratio
Damages Liability
Saul $220,196.96 $55,049.24 4:1
Ulasewicz $220,196.96 $55,049.24 4:1
Bayma $220,196.96 $55,049.24 4:1
Palus $220,196.96 $55,049.24 4:1
Piechocki $220,196.96 $55,049.24 4:1
Total $1,100,984.80 $55,049.24 20:1
As explained below, we conclude that the court of appeals’ suggested remittitur on rehearing
results in an award that violates due process because a 4:1 ratio of compensatory to exemplary
damages is not appropriate in this case. The more interesting and complicated question, however,
33
is how the constitutional excessiveness of an exemplary damages award should be assessed when
multiple defendants face joint and several liability for compensatory damages but are individually
liable for exemplary damages, as required by Texas law. See TEX . CIV . PRAC. & REM . CODE
§ 41.006.
A few key principles emerge in reviewing the Supreme Court’s decisions exploring the
constitutional limits of exemplary damages. First, compensatory and exemplary damages serve
different purposes; compensatory damages redress concrete losses caused by the defendant’s
wrongful conduct, while exemplary damages are aimed at deterrence and retribution. See State Farm
Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003); Cooper Indus., Inc. v. Leatherman Tool
Grp., Inc., 532 U.S. 424, 432 (2001); see also Bennett v. Grant (Bennett II), ___ S.W.3d ___, ___
(Tex. 2017) (“As an overarching premise, exemplary damages further the state’s interest in punishing
and deterring unlawful conduct.”). Second, “[e]lementary notions of fairness enshrined in [the
Supreme Court’s] constitutional jurisprudence dictate that a person receive fair notice not only of
the conduct that will subject him to punishment, but also of the severity of the penalty” that may be
imposed. BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574 (1996). Accordingly, “[t]he Due Process
Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary
punishments on a tortfeasor.” Campbell, 538 U.S. at 416.
Whether an award comports with due process is measured by three guideposts: “(1) the
degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or
potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference
between the punitive damages awarded by the jury and the civil penalties authorized or imposed in
34
comparable cases.”13 Id. at 418 (citing Gore, 517 U.S. at 575). We review the constitutionality of
an exemplary damages award de novo. Bunton v. Bentley, 153 S.W.3d 50, 54 (Tex. 2004) (per
curiam).
The court of appeals’ evaluation of these factors was flawed because the court failed to
analyze them as to each individual defendant and instead grouped them together. See 472 S.W.3d
at 97–98 (analyzing the Gore/Campbell factors globally rather than on a defendant-by-defendant
basis). Constitutional rights are personal in nature, and, therefore, inquiries into the constitutional
excessiveness of an exemplary damages award must be defendant-specific. See Gore, 517 U.S. at
574 (explaining that the constitutional considerations of exemplary damages “dictate that a person
receive fair notice . . . of the conduct that will subject him to punishment”); see also Campbell, 538
U.S. at 417 (explaining that the fair notice requirement guards against “arbitrary deprivation of [the
defendant’s] property”). Indeed, the requirement that courts focus on the degree of culpability of
each tortfeasor has long been established by this Court. For example, in St. Louis & Southwestern
Railway Co. of Texas v. Thompson, 113 S.W. 144 (Tex. 1908), we explained:
If the defendants or either of them were actuated by malice in making the charges
against Thompson . . . then the plaintiff may in the discretion of the jury recover
exemplary damages against either or all of the said defendants in such sum as the jury
13
Because we conclude that the remitted exemplary damages award is clearly excessive under the first two
guideposts, we do not consider whether the award is also excessive under the third guidepost. Bennett v. Reynolds
(Bennett I), 315 S.W .3d 867, 880 (Tex. 2010) (explaining that courts need not analyze the “comparable sanctions”
guidepost when the excessiveness of an exemplary damages award is demonstrated under the first two guideposts). W e
do, however, reiterate that the Supreme Court has instructed courts to analyze “the difference between the punitive
damages awarded by the jury and the civil penalties authorized or imposed in comparable cases” and has cautioned that
criminal penalties have less utility “[w]hen used to determine the dollar amount of the award.” Campbell, 538 U.S. at
418, 428 (emphasis added). Further, we have held that civil and criminal penalties are “incommensurate, and
incarceration does not translate meaningfully to a dollar-figure fine” and have stressed “the limited usefulness of criminal
penalties.” Bennett I, 315 S.W .3d at 880–82.
35
may believe should be assessed against the said defendants or either of them. It is not
necessary, as in case of actual damages recovered, that all of the defendants should
be subjected to the same verdict because some of the defendants may have acted
without malice, but in combination with others, and as to such defendants there
would be no right to recover exemplary damages.
Id. at 147. Thompson clearly stands for the proposition that, unlike actual damages, all defendants
should not be subject to the same verdict of exemplary damages in every case because they may have
acted with varying degrees of malice, or with no malice at all. Id. In fact, Horizon recognizes this
principle in its briefing, arguing that “[a]s the Campbell guideposts reflect, the constitutionality of
punitive damages is determined as to each defendant, not the resulting harm to plaintiff” and that the
“constitutionality of punitive damages must be evaluated defendant-by-defendant.” In compliance
with this well-established principle, we next examine the constitutional propriety of the court of
appeals’ suggested remittitur by analyzing each defendant separately.
1. Reprehensibility
The degree of reprehensibility of a defendant’s conduct is “the most important indicium of
the reasonableness of a punitive damages award.” Gore, 517 U.S. at 575. Courts determine the
reprehensibility of a defendant’s conduct by considering whether: (1) the harm caused was physical
as opposed to economic; (2) the tortious conduct demonstrated an indifference to or a reckless
disregard of the health or safety of others; (3) the target of the conduct had financial vulnerability;
(4) the conduct involved repeated actions or was an isolated incident; and (5) the harm was the result
of intentional malice, trickery, or deceit, or mere accident. Id. at 576–77.
Here, the harm caused by the individual defendants was entirely economic in nature. Horizon
incorrectly argues that this factor “do[es] not carry weight in this case.” To the contrary, this factor
36
weighs against a finding of reprehensibility and, therefore, in favor of the individual defendants.
Further, the parties agree that the conduct of the individual defendants shows no indifference to the
health or safety of others, and Horizon is not a financially vulnerable target. Thus, the first three
reprehensibility factors run counter to the remitted exemplary damages award.
The fourth reprehensibility factor—whether the conduct involved repeated actions or was an
isolated incident—also weighs against the court of appeals’ suggested remittitur. The court of
appeals concluded that the individual defendants’ “repeated and intentional” conduct supported the
increased reprehensibility of their actions. See 472 S.W.3d at 97. However, the Supreme Court and
Texas courts have clearly stated that Campbell’s fourth reprehensibility factor is about recidivism,
not the course of conduct giving rise to the plaintiff’s ultimate harm or the wrongdoer’s attempts to
conceal his wrongdoing. See Gore, 517 U.S. at 577 (“Our holdings that a recidivist may be punished
more severely than a first offender recognize that repeated misconduct is more reprehensible than
an individual instance of malfeasance.”); Bennett I, 315 S.W.3d at 874–78 & n.55 (explaining that
Campbell’s repeated-actions factor “refers to recidivism” rather than the course of conduct giving
rise to the plaintiff’s cause of action (citing Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299,
308–09 (Tex. 2006) (“The Supreme Court says ‘repeated conduct’ refers to recidivism . . . .”))); see
also Khorshid, Inc. v. Christian, 257 S.W.3d 748, 768 (Tex. App.—Dallas 2008, no pet.)
(“[A]lthough appellants took possession of [the plaintiff’s] automobile on two occasions, there was
no evidence appellants have been involved in other similar incidents.”).
We conclude that there is no evidence of recidivism in this case because nothing in the record
supports that the individual defendants are repeat offenders who have committed past transgressions.
37
See, e.g., Gore, 517 U.S. at 577. Rather, the “repeated actions” by the individual defendants are the
individual parts of their overall scheme to leave Horizon and form a competing business.
Horizon is correct that all of the individual defendants were found to have committed
multiple torts, but these findings do not show recidivism. See id.; Bennett I, 315 S.W.3d at 878 n.55;
Chapa, 212 S.W.3d at 308–09. We agree that the defendants’ misconduct was not isolated to theft
of documents—they used the stolen property to solicit Horizon’s existing customers and secure
future contracts for PRP. It is also true that the individual defendants were found to have conspired
to commit the underlying torts. Regardless, this is not the type of repeated misconduct contemplated
by the Supreme Court or Texas courts when applying Campbell’s reprehensibility factors.
This is not to say that we must look only to the precise contours of the defendants’ tortious
actions. Rather, we have held that surrounding circumstances having a sufficient nexus to the
underlying tort may be considered. Bennett I, 315 S.W.3d at 874–77. For example, in Bennett I, the
defendant rounded up and auctioned cattle that were on his land, despite questions from his own
ranch hands about whether the cattle belonged to a neighbor with whom the defendant had
long-running disputes over fencing and stray cattle. Id. at 869–71. When the neighbor sued for
conversion, the defendant engaged in a remarkable variety of conduct intended to conceal his own
culpability and instead implicate the plaintiff. Id. at 875–77. The defendant’s efforts to cover up
his actions included bribing and threatening witnesses, tampering with photographic evidence, suing
and pursuing the prosecution of a former ranch hand who cooperated with the neighbor’s
investigation, and attempting to register the neighbor’s brand as his own. Id. We rejected the
defendant’s argument that this conduct should not be considered in assessing the reprehensibility
38
guidepost, holding that the malicious theft of cattle and the numerous efforts to conceal it showed
that the plaintiff’s harm “resulted from intentional malice, trickery, or deceit.” Id. at 877. Similarly,
when the former ranch hand later sued the defendant for malicious prosecution and sought exemplary
damages, the Third Court of Appeals considered multiple extraneous acts of misconduct by the
defendant and tied those misdeeds to the fifth reprehensibility factor but explicitly refused to say that
the defendant’s misconduct was repeated. Bennett v. Grant, 460 S.W.3d 220, 250 n.18 (Tex.
App.—Austin 2015), aff’d in part, rev’d in part on other grounds, ___ S.W.3d ___ (Tex. 2017).
Accordingly, none of the four reprehensibility factors examined to this point weigh in favor
of the remitted exemplary damages award. Rather, as in Bennett I, much of the evidence on which
Horizon relies to establish repeated misconduct speaks to the fifth factor—intentional malice,
trickery, and deceit. Indeed, the final reprehensibility factor weighs in favor of an exemplary award
because the evidence supports that the harm caused by each of the individual defendants was the
result of intentional malice, trickery, or deceit rather than accident. We discussed this point above,
so we need not address it extensively here.14 As explained, there is evidence that each of the
individual defendants acted with malice and that three of the individual defendants committed fraud.
In sum, only one of the five reprehensibility factors is present in this case. We believe the
fact that only Campbell’s fifth factor (harm resulting from intentional malice, trickery, or deceit) is
present demands the conclusion that the exemplary damages award remains excessive despite the
court of appeals’ suggested remittitur. See Campbell, 538 U.S. at 425 (refusing to adopt a bright-line
14
See Section III.A, supra.
39
rule but noting that “four times the amount of compensatory damages might be close to the line of
constitutional impropriety”); Chapa, 212 S.W.3d at 308–10 (holding that a 4.33:1 ratio was
unconstitutionally excessive where only the fifth reprehensibility factor was present and explaining
that “[p]ushing exemplary damages to the absolute constitutional limit in a case like this [e.g., purely
economic harm] leaves no room for punishment in cases involving death, grievous physical injury,
financial ruin, or actions that endanger a large segment of the public”).
2. Disparity Between Compensatory and Exemplary Damages
The parties raise unique arguments regarding the disparity between the compensatory and
exemplary damages awards.15 First, Acadia argues that the disparity ratio should be assessed for
constitutional excessiveness on a per-judgment rather than per-defendant basis. The court of appeals
utilized this per-judgment approach in its original decision, calculating the constitutionally
permissible award by allocating a four-times multiplier of the total compensatory damages award
among the individuals in the same proportion as the jury assessed punitive damages.16 472 S.W.3d
at 98–99. On rehearing, however, the court of appeals agreed with Horizon’s argument that the ratio
should be assessed for constitutional excessiveness on a per-defendant basis, calculating the
constitutionally permissible award by allocating a four-times multiplier to each defendant’s joint and
15
The manner in which courts should assess the constitutional propriety of an exemplary damages award in
multiple-defendant cases is a question of first impression for this Court and one the Supreme Court has not yet answered.
Although the Supreme Court has instructed courts to consider “the disparity between the actual or potential harm suffered
by the plaintiff and the punitive damages award,” Campbell, 538 U.S. at 418 (citing Gore, 517 U.S. at 575), the Court’s
framework arose from a series of single-defendant cases in which the Court did not face— and we believe did not
contemplate— the scenario before us now.
16
See Table 3, supra.
40
several liability for compensatory damages.17 Id. The result on rehearing is that each defendant is
liable for more than $220,000 in exemplary damages, even though each defendant is jointly and
severally liable for approximately $55,000 in compensatory damages and four of five of the
individual defendants caused harm to Horizon in amounts less than $11,000.18 Before this Court,
Horizon advocates for a “per-defendant, joint-and-several” approach, while Acadia argues that we
must calculate the ratio based on a “per-judgment” or “per-defendant, causation” approach. We
consider these various approaches in the sections that follow.
a. Per-Judgment or Per-Defendant Approach
Assuming temporarily that the court of appeals’ universal 4:1 ratio was appropriate—which
it was not—the first question we must answer is whether the court of appeals erred by assessing the
disparity between the compensatory and exemplary damages award on a per-defendant rather than
a per-judgment basis. We hold that the court of appeals did not err on this point. Our prior decisions
support that the proper basis for assessing the constitutional excessiveness of an exemplary damages
award is per-defendant rather than per-judgment. See, e.g., Thompson, 113 S.W. at 147. This
approach is also consistent with the underlying purpose and focus of exemplary damages—to punish
the wrongdoer rather than to compensate the claimant.
Courts that have examined this question generally agree that the constitutional inquiry into
the amount of exemplary damages turns on their effect on the individual defendant. For example,
in Huynh v. Phung, No. 01-04-00267-CV, 2007 WL 495023 (Tex. App.—Houston [1st Dist.]
17
See Table 4, supra.
18
See Table 1, supra.
41
Feb. 16, 2007, no pet.) (mem. op.), the First Court of Appeals rejected the argument “that damages
should be assessed based on a ratio of combined exemplary damages to compensatory damages,
rather than . . . based on a ratio of individual exemplary damages to compensatory damages.” Id.
at *13. As that court explained, “[b]ecause exemplary damages are awarded on an individual basis
and require separate jury findings as to each defendant, the proper method for reviewing the
constitutionality of exemplary damages is to compare the exemplary damages awarded against each
individual with the compensatory damages awarded against that individual.” Id. The First Court
of Appeals reached the same conclusion in Carlton Energy Group, LLC v. Phillips, 369 S.W.3d 433,
460 (Tex. App.—Houston [1st Dist.] 2012), aff’d in part, rev’d in part on other grounds, 475
S.W.3d 265 (Tex. 2015). In Phillips, the court upheld as constitutional exemplary damages awards
of $8.5 million each against two defendants by “comparing the amount of exemplary damages
awarded against [the defendants] separately to the amount of actual damages awarded against them
jointly and severally.” Id. at 460–61. The outcome in those cases also corresponds with section
41.006 of the Texas Civil Practice and Remedies Code, under which exemplary damages are
assessed strictly on an individual basis.
We have found no decision by a Texas court adopting the per-judgment rule that Acadia
proposes. In fact, in other contexts this Court has evaluated exemplary damages by weighing their
impact on the individual defendant. For example, when considering the statutory cap on
wrongful-death damages, we held that the cap should be calculated on a per-defendant basis. See
Rose v. Doctors Hosp., 801 S.W.2d 841, 846 (Tex. 1990). In Rose, the jury awarded $1.3 million
in actual damages jointly and severally against two defendants. Id. at 846–47. Because the statutory
42
cap “clearly applies to the recovery against the individual defendant, not the award to the individual
plaintiff,” the trial court’s judgment was proper because it was less than double the statutory cap,
which is “multiplied by two since there are two culpable defendants.” Id. In short, our past
decisions make clear that damages caps should be calculated on a “per defendant” basis.
Moreover, calculating the constitutionally permissible ratio by comparing the total
compensatory damages recoverable to the total exemplary damages awarded fails to contemplate the
scenarios in which defendants act with varying degrees of reprehensibility—as is the case here. It
also runs counter to the court’s task of determining whether any of the defendants’ due-process rights
were violated and shifts the court’s focus away from a particular defendant’s conduct to the
defendants’ conduct collectively. Because exemplary damages are assessed by the jury on a
per-defendant basis according to each defendant’s culpability, the alleged excessiveness of those
damages must also be evaluated on a per-defendant basis. See TEX . CIV . PRAC. & REM . CODE
§ 41.006; Thompson, 113 S.W. at 147. Consequently, we hold that the court of appeals did not err
by analyzing the constitutionality of the exemplary damages awards on a per-defendant basis on
rehearing.
b. Determining the Denominator for the Per-Defendant Approach
Our determination that the ratio must be calculated on a per-defendant basis answers only
half of the question. We still must determine whether the joint-and-several compensatory award or
the compensable harm caused by each defendant is the proper denominator for calculating the ratio
of compensatory to exemplary damages. That is, we must determine whether courts must calculate
the ratio based on the harm each individual defendant caused rather than the harm for which each
43
individual defendant is jointly and severally liable. Acadia argues that if exemplary damages are not
to be assessed using the per-judgment approach, then they should be assessed by comparing the
exemplary damages per individual defendant to the actual damages per individual defendant:
Exemplary damages per individual defendant
Actual damages per individual defendant
In other words, Acadia argues that comparing the individual awards of exemplary damages to the
aggregate amount of actual damages awarded against all defendants yields an unconstitutionally
excessive exemplary damages award under the facts of this case.19 We agree.
Given that the purpose of exemplary damages is to punish defendants for civil wrongs and to
deter future misconduct, the punishment should fit the misconduct rather than a state’s joint and
several liability regime. Compensatory and exemplary damages undoubtedly serve different purposes,
and the joint and several liability regime is intended to further the purpose of compensatory
damages—redressing concrete losses caused by the defendant’s wrongful conduct. Stated differently,
we do not believe that a person should be punished by the assessment of exemplary damages simply
because of his or her ability to pay, which is the case when a defendant is held jointly and severally
liable for an entire compensatory damages award even though that defendant only caused a small
portion of the plaintiff’s injury. We note that while Texas law allows defendants faced with joint-
and-several compensatory awards to seek contribution from the other wrongdoers if required to pay
19
Horizon argues that Acadia waived this argument by not raising it in the court of appeals. W e disagree. This
issue did not arise until the court of appeals revised its suggestion of remittitur on rehearing. See Bunton, 153 S.W .3d
at 52 (“The petitioner’s claim that the exemplary damages were excessive in light of the actual harm thus arose only after
the court of appeals reduced the compensatory-damage award. Consequently, we conclude that the claim is not waived,
and we remand this case to the court of appeals for reconsideration of the exemplary damages.”).
44
the entire award, this is not the case with exemplary damages given that Texas law does not allow
joint-and-several exemplary damages awards. See TEX . CIV . PRAC. & REM . CODE § 41.006. Thus,
we hold that in determining the basis for a constitutionally permissible amount of exemplary
damages, courts must consider the harm each defendant actually caused and assess the punishment
based on that harm because this approach most closely matches the punishment to each defendant’s
misconduct.
As explained above, the jury found that of the $55,049.24 in actual damages for which
Horizon is entitled to recovery, Saul caused $20,000, Ulasewicz caused $8,898.45, Palus caused
$10,101.41, Bayma caused $8,549.39, and Piechocki caused $7,500.20 Employing an approach that
bases the ratio’s calculation on the harm caused by each defendant, as found by the jury, the court of
appeals’ suggested remittitur results in ratios of compensatory to exemplary damages against each
individual defendant as follows:
Table 5
Defendant Remitted Exemplary Total Damages Ratio
Damages Caused
Saul $220,196.96 $20,000.00 11:1
Ulasewicz $220,196.96 $8,898.45 24.7:1
Bayma $220,196.96 $8,549.38 25.8:1
Palus $220,196.96 $10,101.41 21.8:1
Piechocki $220,196.96 $7,500.00 29.4:1
Total $1,100,984.80 $55,049.24 20:1
20
See Table 1, supra.
45
In light of these ratios, coupled with our conclusion that only one of the five reprehensibility
factors is present in this case, we hold that the exemplary damages award remains unconstitutionally
excessive despite the court of appeals’ suggested remittitur. Given the purely economic nature of the
harm, the fact that the individual defendants’ misconduct cannot properly be categorized as
“repeated,” the lack of any reckless disregard for the health or safety of others, and Horizon’s
financial status, we conclude that the imposition of ratios far exceeding 4:1 is improper as to the
individual defendants.
We recognize that the Supreme Court has stated that Gore’s second guidepost—the
ratio—becomes less important as the amount of compensatory damages decreases. That is, when
compensatory damages are relatively modest but the other guideposts point strongly in favor of
exemplary damages, even a relatively large ratio of compensatory to exemplary damages may not
offend due process. See Gore, 517 U.S. at 582 (“[L]ow awards of compensatory damages may
properly support a higher ratio than high compensatory awards, if, for example, a particularly
egregious act has resulted in only a small amount of economic damages.”). In this regard, however,
the actual damages must be nominal, extremely modest, or otherwise not truly compensatory. See,
e.g., Williams v. Kaufman Cty., 352 F.3d 994, 1016 (5th Cir. 2003). When the award of exemplary
damages is based on “substantial” economic harm suffered, a plaintiff may not argue that the actual
damage award is nominal and thus justifies a higher ratio of exemplary damages. Bennett I, 315
S.W.3d at 879–80 (explaining that when the statutory predicate for an award of exemplary damages
is economic damages in excess of $5,000, a plaintiff may not argue for an enhanced ratio on the
theory that recovery was insubstantial for due-process purposes). Here, the $55,049.24 compensatory
46
award is neither nominal nor insubstantial, and the defendants’ conduct is not so egregious that it
permits an enhanced ratio between those damages and exemplary damages. See id. at 879. Thus, we
hold that the facts of this case do not warrant invocation of the narrow exception for minor or nominal
compensatory awards.
C. Summary
In sum, we hold that the facts of this case do not support the court of appeals’ suggested
remittitur and therefore remand the case to the court of appeals to reexamine this issue, analyzing the
reprehensibility of each individual defendant’s conduct and comparing the ratio of compensatory to
exemplary damages on a per-defendant basis, calculated based on the harm that the jury found each
defendant caused Horizon to suffer.
IV. Exemplary Damages Against the Entity Defendants
We now consider whether the court of appeals erred by holding that Acadia and PRP
preserved error with respect to their contention that the trial court’s judgment improperly awarded
exemplary damages against them jointly and severally. See 472 S.W.3d at 100 n.34. The trial court
entered the exemplary damages awards assessed as to each of the individual defendants against
Acadia and PRP on a joint and several basis. However, section 41.006 of the Texas Civil Practice
and Remedies Code provides that “[i]n any action in which there are two or more defendants, an
award of exemplary damages must be specific as to a defendant, and each defendant is liable only for
the amount of the award made against that defendant.” Because the jury was not asked to assess
exemplary damages against Acadia or PRP, section 41.006 clearly precludes the imposition of
exemplary damages against them—assuming Acadia and PRP preserved error. TEX . CIV . PRAC. &
47
REM . CODE § 41.006. As explained below, we agree with the court of appeals that Acadia and PRP
preserved error on this ground, such that reversal of the trial court’s judgment assessing exemplary
damages against them on a joint and several basis was proper.
Horizon argues that Acadia and PRP waived this issue by failing to raise it in the trial court
and in their opening appellate brief. We disagree. Prior to the trial court’s entry of judgment, the
individual defendants filed a motion opposing Horizon’s motion for entry of judgment, arguing that
“Exemplary Damages Must Be Assessed Specifically, Not Jointly and Severally” and that “the
proposed Final Judgment should be revised to accurately reflect the jury’s exemplary damages award
as to each individual Defendant rather than joint and several liability among all Defendants.” Further,
the individual defendants argued in response to Horizon’s amended motion for entry of judgment that
“[t]he jury was not asked to assess exemplary damages against Acadia or PRP. . . . Acadia and PRP
cannot be jointly and severally liable for the exemplary damages assessed against Saul, Palus,
Ulasewicz, Bayma, and Piechocki.” Acadia and PRP adopted the individual defendants’ arguments
raised in their response to Horizon’s amended motion for entry of judgment. Thus, Acadia and PRP
preserved error in the trial court. Cf. In re B.L.D., 113 S.W.3d 340, 353 (Tex. 2003) (orig.
proceeding) (recognizing that preservation-of-error rules support the “strong interest in ensuring that
our trial courts have an opportunity to correct errors as a matter of judicial economy”); Pirtle v.
Gregory, 629 S.W.2d 919, 920 (Tex. 1982) (“The reason for the requirement that a litigant preserve
a trial predicate for complaint on appeal is that one should not be permitted to waive, consent to, or
neglect to complain about an error at trial and then surprise his opponent on appeal by stating his
complaint for the first time.”).
48
We also hold that Acadia and PRP preserved error in the court of appeals. In Question 24,
the jury found, by clear and convincing evidence, that the harm arising from the individual
defendants’ theft of trade secrets “resulted from malice attributable to” Acadia and PRP. The jury
was instructed that “malice may be attributed to Acadia or PRP if . . . Acadia or PRP, or a
vice-principal or Acadia or PRP, ratified or approved the acts by Saul, Palus, Ulasewicz, Bayma, or
Piechocki.” The jury also found that the individual defendants were acting in the course and scope
of their employment with Acadia or PRP when they stole Horizon’s property or trade-secret
information and that Acadia and PRP ratified this conduct. Thus, Question 24, taken with a number
of other questions, went to the prerequisite for exemplary damages—malice, ratification, course and
scope, and underlying tortious conduct. See TEX . CIV . PRAC. & REM . CODE § 41.005(c) (authorizing
employer liability for exemplary damages in suits “arising out of a criminal act committed by an
employee” if certain conditions, such as the employer’s ratification of the act, are met). However,
these findings do not allow an award of exemplary damages absent a specific assessment of
exemplary damages by the jury. Id. § 41.006.
In Acadia and PRP’s opening appellate brief, they argued that the “award of exemplary
damages against Acadia and PRP is improper” and that the “jury’s answer to question 24 does not
support a judgment against Acadia and PRP for exemplary damages assessed against each individual
defendant.” Acadia and PRP also argued that “Horizon was not entitled to recover exemplary
damages” against the individual defendants and that the “trial court’s error was compounded because
it also awarded exemplary damages against Acadia and PRP under a vicarious liability theory, which
is never proper under Texas law.” Although Acadia and PRP referenced Texas Civil Practice and
49
Remedies Code section 41.006 only in their reply brief, that provision unquestionably requires that
an assessment of exemplary damages be specific as to each defendant. We conclude that this
argument is sufficiently broad to cover Acadia and PRP’s argument based on section 41.006. See
TEX . R. APP . P. 38.1(f) (“The statement of an issue or point will be treated as covering every
subsidiary question that is fairly included.”); see also First United Pentecostal Church of Beaumont
v. Parker, ___ S.W.3d ___, ___ (Tex. 2017) (“In considering assertions that claims have been waived,
we . . . construe briefing reasonably, yet liberally, so that the right to appellate review is not lost by
waiver.” (internal quotation marks omitted)); El Paso Nat. Gas Co. v. Minco Oil & Gas, Inc., 8
S.W.3d 309, 316 (Tex. 1999) (“[W]e liberally construe issues presented to obtain a just, fair, and
equitable adjudication of the rights of the litigants.”).
Finally, Horizon asks that we remand for a new trial on exemplary damages so that they may
be assessed separately against Acadia and PRP, arguing that every court to consider this scenario has
held that the appropriate relief is remand for a new trial on exemplary damages. We do not believe
such relief is appropriate. Section 41.006 demands that a plaintiff secure a specific assessment of
exemplary damages against each defendant, but Horizon failed to obtain that finding. We see no
reason why Horizon should get a second bite at the apple; Horizon had the chance to present its case
and failed to obtain the findings required under section 41.006. Despite Horizon’s argument that
other courts have remanded for a new trial on exemplary damages under similar circumstances, the
cases on which Horizon relies are not on point—as the court of appeals properly explained:
Although we agree that the joint-and-several nature of the award against
Acadia and PRP was error as a matter of law, the remedy for such error is not as clear.
Two appellate courts have remanded the issue to the trial court for a determination of
50
the amount of exemplary damages to be awarded against each individual
defendant. However, both appeals were from bench trials, and the trial courts solely
awarded exemplary damages jointly and severally, i.e., there were no individual
awards of exemplary damages. Here however, Horizon proposed the jury questions
regarding exemplary damages and specifically requested that the jury be asked to
assign a specific dollar amount against each individual defendant but did not ask for
a specific dollar amount against either Acadia or PRP. Because the jury charge, at
Horizon’s request, specifically asked for dollar amounts for exemplary damages to be
awarded only against each individual defendant, we need not remand to the trial court
“to determine whether to award exemplary damages as to any specific defendant.”
The error in the form of the exemplary-damages award is its joint and several nature,
not that it wholly failed to award exemplary damages against any defendant
individually; thus, we are able to render an award that is not joint and several and
appropriately awards amounts only against individual parties as the jury was charged
and as allowed by section 41.006.
472 S.W.3d at 102 (emphasis added) (citations omitted). In other words, courts have remanded when
parties failed to comply with section 41.006 by failing to obtain a jury finding awarding exemplary
damages “against any defendant individually.” Id. Here, the jury specifically assessed exemplary
damages against each of the individual defendants, and the trial court tacked on joint and several
liability as to Acadia and PRP in its final judgment based on other jury answers. The proper remedy
in such circumstances is to reverse the trial court’s joint-and-several exemplary damages award
against Acadia and PRP and render a take-nothing judgment as to Acadia’s and PRP’s liability for
exemplary damages.
V. Horizon’s Attorney’s Fees
The court of appeals reversed the trial court’s award of attorney’s fees and remanded the case
for a new trial on that issue in light of its decision on the lost profits damages award. Id. at 104. For
the reasons explained below, we affirm the court of appeals’ judgment on this point.
51
Horizon had two claims that could support an award of attorney’s fees: (1) breach of contract;
and (2) violation of the Texas Theft Liability Act (TTLA). TEX . CIV . PRAC. & REM . CODE
§§ 38.001(8), 134.005(b). The breach of contract attorney’s fees claim is based on Horizon’s claims
for breach of the NCAs. The TTLA attorney’s fees claim is based on the jury’s findings that the
individual defendants intentionally stole Horizon’s property or trade secrets, as prohibited by section
31.05 of the Penal Code, during the course and scope of their employment with Horizon, and which
Acadia and PRP ratified. See Act of May 26, 1999, 76th Leg., R.S., ch. 858, § 4, 1999 Tex. Gen.
Laws 3537, 3539 (amended in 2013 to remove section 31.05 from the purview of the TTLA upon
adoption of Uniform Trade Secrets Act) (current version at TEX . CIV . PRAC. & REM . CODE
§§ 134.002(2), .005(b)).
Like the court of appeals, we have concluded that no evidence supports the only damages
relating to Horizon’s breach of contract claim.21 472 S.W.3d at 104. Thus, Horizon’s TTLA claim
is the only claim for which Horizon may recover an award of attorney’s fees. See Mustang Pipeline
Co. v. Driver Pipeline Co., 134 S.W.3d 195, 201 (Tex. 2004) (explaining that plaintiffs may recover
attorney’s fees only if they prevailed on a claim authorizing such fees and recovered damages).
When Horizon’s expert testified about Horizon’s attorney’s fees, he segregated the fees
unrelated to Horizon’s breach of contract and TTLA claims, but he did not specifically delineate the
fees on a claim-by-claim basis. Thus, we have no way to know the amount of attorney’s fees relating
solely to the TTLA violations. In this instance, vacating the attorney’s fees award and remanding for
21
See Section II, supra.
52
a new trial on the issue is proper. See Bossier Chrysler-Dodge II, Inc. v. Rauschenberg, 238 S.W.3d
376, 376 (Tex. 2007) (per curiam); Barker v. Eckman, 213 S.W.3d 306, 314–15 (Tex. 2006). Further,
a new trial will render moot Horizon’s argument regarding the trial court’s “sua sponte post-trial
remittitur” of the attorney’s fees award, so we need not address that issue. In short, we affirm the
court of appeals’ judgment reversing the attorney’s fees award and remanding for a new trial on
attorney’s fees.
VI. Discovery Sanctions Imposed Against Saul
Acadia argues that the trial court erred in granting discovery sanctions against Saul. We hold
that the court of appeals correctly rejected this argument and affirm its judgment on this issue.
Sanctions may be imposed, after notice and a hearing, on parties who refuse to respond, or
who give inadequate responses, to valid discovery requests or orders. See TEX . R. CIV . P. 215.1–.5.
For purposes of these provisions, evasive or incomplete answers are treated as a failure to answer.
TEX . R. CIV . P. 215.1(c). Further, sanctions may be appropriate even when a party eventually
complies with a discovery request. See, e.g., Drozd Corp. v. Capitol Glass & Mirror Co., 741 S.W.2d
221, 223 (Tex. App.—Austin 1987, no writ).
Rule 215 generally leaves sanctions to the sound discretion of the trial court. TransAmerican
Nat. Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex. 1991). We review a trial court’s imposition
of discovery sanctions for a clear abuse of discretion. See Cire v. Cummings, 134 S.W.3d 835, 838
(Tex. 2004). A trial court abuses its discretion if it acts “without reference to any guiding rules or
principles.” Id. at 839 (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241 (Tex.
1985)). Its judgment should be reversed only if the ruling was arbitrary or unreasonable. Id.
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However, the broad discretion granted to trial courts to impose discovery sanctions is not
unlimited; the award must further one of the recognized purposes of discovery sanctions. See Bodnow
Corp. v. City of Hondo, 721 S.W.2d 839, 840 (Tex. 1986) (per curiam) (“The purposes of discovery
sanctions are to: (1) secure the parties’ compliance with the rules of discovery; (2) deter other litigants
from violating the discovery rules; and (3) punish parties that violate the rules of discovery.”
(citations omitted)); see also CHRISTUS Health Gulf Coast v. Carswell, 505 S.W.3d 528, 540 (Tex.
2016) (explaining that another purpose of discovery sanctions is to “rectify discovery abuse by
compensating the aggrieved party for expenses incurred”). Further, the sanctions imposed must be
“just,” no more severe than required to further their legitimate purposes, and specifically related to
the harm done by the condemned conduct. See, e.g., Spohn Hosp. v. Mayer, 104 S.W.3d 878, 882
(Tex. 2003); Powell, 811 S.W.2d at 917.
Horizon sought sanctions against all of the defendants for their failure to comply with the trial
court’s earlier discovery order, issued following Horizon’s motion to compel, and for newly
uncovered discovery abuses. The trial court granted the motion for sanctions after two hearings but
ordered only Saul to pay Horizon $41,740.80 for his “failure to timely produce all relevant documents
and tangible things, and . . . refusal to cooperate with his discovery obligations.” Finally, the trial
court, with a new judge sitting and following another hearing, later denied Saul’s motion to reconsider
the sanctions order and included the sanctions award in its final judgment.
We find it difficult to decipher Acadia’s arguments regarding the alleged impropriety of the
discovery sanctions imposed against Saul. Nevertheless, the evidence supporting the trial court’s
order sanctioning Saul for his misconduct during the discovery process is compelling. As an initial
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matter, however, we note that Acadia raised only one narrow issue in the court of appeals with respect
to sanctions: “Whether the trial court’s sanctions award against Mike Saul should be set aside because
it was based on a mistaken view of Saul’s legal duties.” According to Acadia’s opening appellate
brief,
the subject matter of this dispute turns on the issue of whether Saul acted rightly or
wrongly when he backed up files from a laptop to a portable hard drive when he left
Horizon. This issue is related to the merits of Horizon’s claims that Saul breached
fiduciary duties owed to Horizon.
In the court of appeals, unlike here, Acadia argued simply that “[i]n the event [the court of appeals]
grants relief to Saul on Horizon’s fiduciary duty claims, he respectfully requests that [it] grant the
same relief on the issue of discovery sanctions.”22 Acadia did not mention the sanctions issue in its
appellate reply brief. Thus, on appeal, Acadia claimed only that the sanctions “relate to the merits”
of Horizon’s fiduciary duty claims against Saul and that the sanctions order should be reversed if the
court of appeals granted relief with respect to those claims.
The court of appeals did not reach Acadia’s fiduciary duty issue because it held that no
evidence supported the only damages relating to Horizon’s breach of fiduciary duty claim (i.e., lost
profits). 472 S.W.3d at 92. However, the court of appeals rejected Acadia’s “relate to the merits”
argument, reasoning that the trial court’s order imposing sanctions against Saul was “based on the
breach of his duty as a party to preserve relevant evidence after Horizon filed suit against Acadia,
22
Acadia’s fiduciary duty issue related to its assertion that the trial court erred in submitting a question regarding
the individual defendants’ breach of fiduciary duties and that the jury’s finding is supported by legally and factually
insufficient evidence.
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PRP, and the individual defendants. The sanctions were not related to Horizon’s ultimate success on
its claim for breach of fiduciary duty against Saul.” Id. at 105 (citation omitted).
Acadia raises a number of new issues in its briefing before this Court. For example, Acadia
contends that the trial court’s sanctions order failed to specify the grounds for the sanctions. It also
seems to assert that the new judge was not bound by the earlier, now-retired judge’s factual findings
relating to Saul’s discovery misconduct and that the new judge failed to expressly rule on Saul’s
post-trial motion for reconsideration. We hold that Acadia waived these issues by not raising them
in the court of appeals. TEX . R. APP . P. 53.2(f), 55.2; see also Specialty Retailers, Inc. v.
DeMoranville, 933 S.W.2d 490, 493 (Tex. 1996) (holding that matters not raised in an appellant’s
briefing in the court of appeals are waived).
As to the issue Acadia did preserve for review—the “relate to the merits” issue, the record
shows that the court of appeals did not err. The trial court’s sanctions order, entered after notice and
a hearing, was not related to any particular cause of action. The trial court entered the sanctions order
as a “just sanction under Rule 215.2 for failure to comply with discovery in this case.” The trial court
based its sanctions decision on a host of discovery misconduct by Saul that was established through
multiple hearings and motions and supported by affidavit testimony and other evidence. In particular,
the record shows that the trial court could have reasonably determined that Saul refused to disclose
or produce a computer containing “volumes” of Horizon’s proprietary materials that were central to
disputed facts relating to Horizon’s claims, in violation of the trial court’s earlier motion compelling
Saul and the other defendants to:
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3. Search for and produce all emails -- whether from personal or business email
accounts -- responsive to outstanding discovery requests residing in any folders or
spaces within the possession, custody or control of Defendants Michael Saul, Peter
Ulasewicz, John Piechocki, Timothy Palus, and Barbara Bayma . . . ;
4. Search for and produce all emails and other documents relating to or mentioning
the transmission or delivery of one or more of Horizon Health Corporation’s pro
forma financial spreadsheets or models, including any relating to Wayne Memorial
Hospital . . . ; and
5. Search for and produce any other documents responsive to outstanding discovery
requests that, to date, have not been produced by Defendants. . . .
The trial court also could have reasonably concluded that Saul submitted an affidavit in his response
to Horizon’s subsequent motion for sanctions that deliberately attempted to mislead the trial court
about the existence of that computer. Further, the trial court could have reasonably found that Saul
had deleted evidence from his computer’s hard drive. Additionally, the record supports a finding that
Saul failed to produce evidence explaining how he had obtained the Wayne Memorial pro forma, a
document created by Horizon after his departure, which itself suggests that Saul had deleted an email
sent by Piechocki while still a Horizon employee. Finally, the trial court could have found that Saul
delayed the production of other emails in response to the trial court’s earlier order compelling
production. These acts support the trial court’s decision to impose sanctions against Saul. Put
simply, based on the record, the trial court could have reasonably found that Saul caused Horizon to
incur additional costs by failing to comply with discovery requests. Thus, a direct relationship exists
between the $41,740.08 sanction—the amount of Horizon’s additional costs in obtaining
discovery—and Saul’s misconduct. This record does not reveal an abuse of discretion.
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VII. Remaining Issues
The parties raise a number of additional issues that we need not address because of our
disposition on other issues, including: (1) whether Horizon waived its right to accept the court of
appeals’ suggested remittitur in lieu of a new trial; and (2) whether the trial court erred in ruling that
the NCAs were valid. We do not reach the first issue because we are remanding the case to the court
of appeals with an instruction to reexamine its suggested remittitur on the exemplary damages award.
Further, we do not reach the issue regarding the enforceability of the NCAs because we hold that no
evidence supports the only damages relating to those claims.
VIII. Conclusion
We hold that the evidence is legally insufficient to support any award of lost profits. We
further hold that the exemplary damages award is unconstitutionally excessive despite the court of
appeals’ suggested remittitur and that Acadia and PRP cannot be held jointly and severally liable for
the exemplary damages assessed against the individual defendants. Finally, we hold that the court
of appeals did not err by remanding the case for a new trial on the issue of attorney’s fees and that the
trial court did not err in imposing discovery sanctions against Saul. Accordingly, we affirm the
judgment of the court of appeals in part, reverse it in part, and remand the case to the court of appeals
so that it may reconsider its suggested remittitur of exemplary damages in light of our decision.
____________________________________
Paul W. Green
Justice
OPINION DELIVERED: May 26, 2017
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