jerry-hudgeons-individually-and-in-his-capacity-as-stockholders ( 2015 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-14-00194-CV
JERRY HUDGEONS, APPELLANT
INDIVIDUALLY AND IN HIS
CAPACITY AS STOCKHOLDERS’
REPRESENTATIVE FOR THE
FORMER STOCKHOLDERS OF
TOTAL ELECTRICAL SERVICE &
SUPPLY CO.
V.
DARRELL HALLMARK APPELLEE
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FROM THE 236TH DISTRICT COURT OF TARRANT COUNTY
TRIAL COURT NO. 236-261088-12
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MEMORANDUM OPINION1
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See Tex. R. App. P. 47.4.
I. INTRODUCTION
The primary issues we address in this summary judgment appeal are (1)
whether Appellant Jerry Hudgeons, Individually and in his capacity as
stockholders’ representative for the former stockholders of Total Electrical
Service & Supply Co. (TESSCO), possesses standing to pursue the
counterclaims he asserted against Appellee Darrell Hallmark, and (2) whether
the trial court erroneously granted declaratory-judgment relief concerning parties
not before it. Because we answer both issues in the negative, we will affirm the
trial court’s summary judgment.
II. FACTUAL OVERVIEW
On December 31, 2009, TESSCO merged into Power Line Services, Inc.
(PLSI). There were four parties to the merger agreement: TESSCO, PLSI, Total
Electric Acquisition Corp.—a PLSI subsidiary, and Hudgeons as the
“Stockholders’ Representative.” The merger agreement defined the term
“Stockholders’ Representative” as meaning “Jerry L. Hudgeons, as the
representative of the Stockholders.”
Before the merger, TESSCO had adopted and administered two written
incentive compensation plans; certain officers were eligible for bonus payments
under the plans. Hallmark was a senior vice-president of TESSCO when the
merger occurred and was eligible for bonus payments under the incentive
compensation plans. Before the closing date for TESSCO’s merger into PLSI,
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TESSCO made bonus payments under the terms of the incentive compensation
plans to Hallmark and other officers.
Hudgeons alleges that the bonus payments were miscalculated and that,
consequently, Hallmark and other officers were overpaid. Hudgeons asserts that
this overpayment resulted in a shortfall in TESSCO’s “Net Working Capital
Target” as that term was defined in the merger agreement. Hudgeons asserts
that purchase-monies funded by PLSI that would have been paid to TESSCO’s
stockholders under the merger agreement but for the “Net Working Capital
Target” shortage were instead utilized, per the terms of the merger agreement, to
raise the “Net Working Capital Target” to the pre-closing dollar figure required by
the agreement. Hallmark sued for declaratory judgment and Hudgeons
counterclaimed for unjust enrichment and monies had and received, seeking to
recoup the monies Hudgeons alleges Hallmark was overpaid under TESSCO’s
incentive compensation plans: $133,480 under one of the incentive plans and
$53,400 under the other.
III. PROCEDURAL OVERVIEW
The trial court granted Hallmark’s motion for summary judgment on
Hudgeons’s claim for unjust enrichment. Prior to that summary judgment
hearing, Hudgeons had amended his pleadings to also assert a cause of action
for money had and received. Hallmark then filed a second summary judgment
motion seeking summary judgment on all remaining claims; the motion asserted
Hallmark’s entitlement to summary judgment on Hudgeons’s claim for money had
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and received and to summary judgment on Hallmark’s own claim for declaratory
judgment. The trial court granted summary judgment to Hallmark on the grounds
that “[n]either Hudgeons nor the Former Stockholders whom he purports to
represent have standing to assert the claims or make the demands relating to
[the] 2009 Incentive Plan Payments made by TESSCO to Hallmark.” The trial
court also granted Hallmark summary judgment on his own claim for declaratory
judgment, and awarded him attorney’s fees. Hudgeons perfected this appeal.
IV. STANDING
In his issue A, Hudgeons argues that he possesses standing to assert
claims against Hallmark for TESSCO’s alleged overpayment of bonuses owed
Hallmark under TESSCO’s incentive compensation plans because the
“overpayment directly results in the shareholders fulfilling a contractual obligation
[in the merger agreement] to make the seller and buyer whole at the expense of
the shareholders by reducing their merger consideration.” Hudgeons asserts that
he has standing individually for the injury done directly to him by Hallmark and
also asserts that he possesses standing based on equitable subrogation.2
Hallmark argues that Hudgeons lacks standing to seek recovery of
overpayments, if any, that TESSCO made to Hallmark; Hallmark asserts that any
2
Hudgeons does not purport to assert a stockholders derivative suit, claim
standing to do so, or allege compliance with derivative requirements. See Tex.
Bus. Orgs. Code Ann. §§ 21.551–.563 (West 2012).
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claim for any overpayment made by TESSCO pursuant to the terms of
TESSCO’s incentive compensation plans belongs to and must be brought by
TESSCO.
Standing is a component of subject-matter jurisdiction, and a plaintiff must
have standing to maintain a suit. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852
S.W.2d 440, 445–46 (Tex. 1993). When a defendant challenges a plaintiff’s
standing in a traditional motion for summary judgment, we apply the standard of
review governing traditional motions for summary judgment. Kilpatrick v.
Kilpatrick, 205 S.W.3d 690, 700 (Tex. App.—Fort Worth 2006, pet. denied).
The general rule is that a corporate stockholder cannot recover damages
personally for a wrong done solely to the corporation, even though he may be
injured by that wrong. Wingate v. Hajdik, 795 S.W.2d 717, 719 (Tex. 1990);
Swank v. Cunningham, 258 S.W.3d 647, 661 (Tex. App.—Eastland 2008, pet.
denied). The Texas Supreme Court has explained,
Ordinarily, the cause of action for injury to the property of a
corporation, or the impairment or destruction of its business, is
vested in the corporation, as distinguished from its stockholders,
even though it may result indirectly in loss of earnings to the
stockholders. Generally, the individual stockholders have no
separate and independent right of action for injuries suffered by the
corporation which merely result in the depreciation of the value of
their stock. This rule is based on the principle that where such an
injury occurs each shareholder suffers relatively in proportion to the
number of shares he owns, and each will be made whole if the
corporation obtains restitution or compensation from the wrongdoer.
Such action must be brought by the corporation, not alone to avoid a
multiplicity of suits by the various stockholders and to bar a
subsequent suit by the corporation, but in order that the damages so
recovered may be available for the payment of the corporation’s
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creditors, and for proportional distributions to the stockholders as
dividends, or for such other purposes as the directors may lawfully
determine.
Wingate, 795 S.W.2d at 719 (quoting Mass. v. Davis, 140 Tex. 398, 407, 168
S.W.2d 216, 221 (1942), cert. denied, 320 U.S. 210, 63 S. Ct. 1447 (1943)).
Hudgeons argues that this general rule does not apply because he is
entitled to assert a cause of action in his individual capacity “for direct injury done
to him when the wrongdoer violates a duty arising from a contract, or otherwise,
that is owed directly by the wrongdoer to the shareholder.” See Faour v. Faour,
789 S.W.2d 620, 622 (Tex. App.—Texarkana 1990, writ denied). But Hudgeons
does not identify any duty owed directly to him contractually or otherwise by the
purported wrongdoer he has sued, Hallmark.3 Thus, we hold that Hudgeons
lacks standing in his individual capacity to assert claims against Hallmark for
unjust enrichment and money had and received based on alleged overpayments
to Hallmark made by TESSCO pursuant to two written employee incentive
compensation plans.
Hudgeons next asserts that he possesses standing to assert unjust
enrichment and money had and received claims against Hallmark based on the
doctrine of equitable subrogation. Equitable subrogation is a legal fiction
3
In his capacity as stockholders’ representative, Hudgeons was a named
party to the merger agreement and claims that “the contractual nature of the
relationship between TESSCO and Hudgeons under the merger places a legal
obligation on Hudgeons which is more than that of a mere shareholder.” We
agree with this statement, but it does not evidence any contractual merger-
agreement duty owed to Hudgeons by either TESSCO or Hallmark.
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whereby an obligation extinguished by a payment made by a third person is
treated as still subsisting for the benefit of this third person, so that by means of it
one creditor is substituted to the rights, remedies, and securities of another.
Bank of Am. v. Babu, 340 S.W.3d 917, 925 (Tex. App.—Dallas 2011, pet.
denied) (citing First Nat'l Bank of Houston v. Ackerman, 70 Tex. 315, 320, 8 S.W.
45, 47 (1888)). The doctrine prevents unjust enrichment when one person
confers upon another a benefit by involuntarily paying a debt primarily owed by
another in a situation that favors equitable relief. Frymire Eng’g Co., ex rel.
Liberty Mut. Ins. Co. v. Jomar Int’l., Ltd., 259 S.W.3d 140, 142 (Tex. 2008); Smart
v. Tower Land & Inv. Co., 597 S.W.2d 333, 337 (Tex. 1980).
Here, the terms of the merger agreement required that TESSCO’s “Net
Working Capital Target” meet or exceed a particular dollar figure; the merger
agreement provided that it if did not, some pre-closing purchase monies tendered
into escrow by PLSI would be utilized to raise the “Net Working Capital Target”
to the required figure. Thus, the stockholders did not pay any monies, nor did
they extinguish an obligation of TESSCO or an obligation of Hallmark. Instead,
the contractual terms of the merger agreement (agreed to by the stockholders
through their representative, Hudgeons, who signed the merger agreement in his
capacity as stockholders’ representative) dictated the application of the pre-
closing purchase monies tendered by PLSI to raise TESSCO’s “Net Working
Capital Target” to meet the figure required by the merger agreement. Although,
ultimately, implementation of the terms of the merger agreement did result in a
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lower payment to TESSCO’s stockholders following the merger, we cannot agree
that the implementation of the contractual provisions of the merger agreement—
the use of PSLI’s pre-merger purchase monies to raise TESSCO’s “Net Working
Capital Target” to the required figure, a provision agreed to by the stockholders
through Hudgeons as the stockholders’ representative—qualifies as a “payment”
by the stockholders that gives rise to equitable subrogation. See, e.g., Blume v.
Wells Fargo Bank, N.A., No. 05-13-01429-CV, 2014 WL 5768981, *3 (Tex.
App.— Dallas Nov. 6, 2014, no pet.) (mem. op.) (upholding summary judgment
on claims for unjust enrichment, money had and received, and equitable
subrogation). And to the extent the use of PSLI’s pre-merger purchase monies
to raise TESSCO’s “Net Working Capital Target” could be construed as a
“payment,” it was a payment required by a contract (the merger agreement), and
therefore not recoverable under the doctrine of equitable subrogation. See
Smart, 597 S.W.2d at 337 (explaining equitable subrogation is available only
when a person confers a benefit on another that is not required by contract); see
also Frymire Eng’g Co., 259 S.W.3d at 145 (explaining that “we read Smart as
preventing a person who confers a benefit on a party as ‘required by legal duty or
contract’ from leveraging equitable subrogation to assert claims against that
same party”).
We overrule Hudgeons’s issue A.4
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Having determined that Hudgeons lacked standing to assert unjust
enrichment and money had and received claims against Hallmark—the only
claims he asserted—we need not address his issues C, D, or E, challenging the
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V. RELIEF NOT GRANTED CONCERNING PARTIES NOT BEFORE THE COURT
In his issue B, Hudgeons asserts that the trial court erred by granting relief
to parties that were not before the court. Hudgeons preserved this complaint in
the trial court by filing a plea to the jurisdiction pointing out to the trial court that
paragraphs 4.13(b), 4.13(c), and 4.13(f)5 of Hallmark’s second motion for
summary judgment titled, “[Hallmark’s] motion for summary judgment on all
remaining claims,” not only purported to seek summary judgment from the trial
court on Hallmark’s declaratory judgment action but also urged the trial court to
make declarations concerning “employees who received payments” under
TESSCO’s incentive compensation plans, “including Hallmark.” Subsequently,
Hallmark filed a notice of withdrawal of certain relief indicating he expressly
“withdraws that portion of the requested relief being complained about by
[Hudgeons] in Paragraphs 4.13(b), (c), and (f) of Plaintiff’s Motion for Summary
Judgment on all Remaining Claims and limits the requested relief to apply to
Hallmark only.”
“[A] motion for summary judgment shall state the specific grounds
therefor.” Tex. R. Civ. P. 166a(c); McConnell v. Southside ISD, 858 S.W.2d 337,
denial of Hudgeons’s plea in abatement and alternative grounds supporting the
trial court’s summary judgment for Hallmark on Hudgeons’s unjust enrichment
and money had and received claims. See Tex. R. App. P. 47.1 (requiring
appellate court to address only issues necessary to disposition of appeal).
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Although Hallmark’s summary judgment motion, Hudgeons’s plea to the
jurisdiction, and Hallmark’s notice of withdrawal all reference 4.13 followed by a
subsection, the trial court’s order stated 3.14.
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341 (Tex. 1993) (holding that “a motion for summary judgment must itself
expressly present the grounds upon which it is made. A motion must stand or fall
on the grounds expressly presented in the motion.”). When a motion for
summary judgment asserts grounds A and B, it cannot be upheld on grounds C
and D, which were not asserted, even if the summary judgment proof supports
them. McConnell, 858 S.W.2d at 342; see also, e.g., State Farm Fire & Cas. Co.
v. S.S., 858 S.W.2d 374, 384 n.2 (Tex. 1993) (“Of course, if a ground was
abandoned or otherwise withdrawn, it would be improper for the appellate court
to render [summary] judgment upon it.”).
Here, paragraphs 4.13(b), (c), and (f) of the trial court’s summary judgment
limit the declaration of rights set forth in each of those paragraphs to Hallmark
only. Hallmark expressly, by a written pleading, withdrew any request for any
declaration of rights that could be interpreted to apply to parties not before the
court on those grounds, and the trial court’s summary judgment so limits the
declaratory relief it granted on those grounds. See, e.g., McConnell, 858 S.W.2d
at 341.
To the extent Hudgeons’s brief on appeal complains of the summary
judgment relief granted by the trial court in paragraphs 4.13(k) and 4.13(l) of the
summary judgment order, both of these provisions relate to Hallmark’s assertion
that Hudgeons is estopped from asserting his unjust enrichment and money had
and received claims based on the “Post Closing Adjustment Release” signed by
Hudgeons as stockholders’ representative. But because we hold that Hudgeons
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lacks standing, we need not address this alternative basis for upholding the trial
court’s summary judgment. See Zimmerhanzel v. Green, 346 S.W.3d 721, 724–
25 (Tex. App.—El Paso 2011, pet. denied) (“When summary judgment is sought
and granted on multiple grounds, we will affirm if any of the grounds is
meritorious.”). And we make it clear here that we do not address the propriety of
paragraphs 4.13(k) or 4.13(l) of the trial court’s summary judgment.
We overrule Hudgeons’s issue B.
VI. ATTORNEY’S FEES
In his issue F, Hudgeons asserts that the $33,474.60 in attorney’s fees
awarded to Hallmark on his declaratory judgment action were not equitable and
just; Hudgeons does not challenge the attorney’s fee award on any other ground.
Hudgeons points out that Hallmark’s counsel either currently or formerly
represented three other TESSCO employees whom Hudgeons had also sued to
recoup allegedly miscalculated and overpaid bonuses under TESSCO’s incentive
compensation plans. Hudgeons argues that “[t]he bulk of the work necessary for
each pleading and filing in the instant case was previously undertaken, in whole
or in part, for the benefit of the other similarly situated individuals represented by
[Hallmark’s counsel].” Hallmark, on the other hand, points out that Hudgeons
does not challenge the amount of the attorney’s fees, did not object to Hallmark’s
attorney’s fees affidavit, and did not supply a controverting affidavit.
In “any proceeding” under the Uniform Declaratory Judgments Act, “the
court may award costs and reasonable and necessary attorney’s fees as are
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equitable and just.” Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West 2015).
The UDJA “entrusts attorney fee awards to the trial court’s sound discretion,
subject to the requirements that any fees awarded be reasonable and necessary,
which are matters of fact, and to the additional requirements that fees be
equitable and just, which are matters of law.” Bocquet v. Herring, 972 S.W.2d
19, 21 (Tex. 1998).
We review a trial court’s award of attorney’s fees in a declaratory judgment
action for an abuse of discretion. Id. It is an abuse of discretion for a trial court
to rule arbitrarily, unreasonably, or without regard to guiding legal principles. Id.
We must view the evidence in the light most favorable to the trial court’s ruling,
indulging every presumption in its favor. Approach Res. I, L.P. v. Clayton, 360
S.W.3d 632, 639 (Tex. App.—El Paso 2012, no pet.).
Hallmark’s attorney’s fees affidavit details the services rendered, the hours
expended, and the hourly rates of the attorneys who worked on the case. It
segregated fees for claims Hallmark initially asserted but dropped in his first
amended petition.6 It set forth and applied the Arthur Andersen factors and
concluded that the services were necessary and that the fees charged were
reasonable. See Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812,
818 (Tex. 1997). Viewing the evidence in the light most favorable to the
6
To the extent Hudgeons’s arguments under his issue F may be liberally
construed as asserting that Hallmark failed to segregate the attorney’s fees he
was not entitled to recover for the tort actions Hallmark initially pleaded, we note
that Hallmark’s attorney’s fees affidavit does segregate these fees.
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attorney’s fees finding, and indulging every reasonable presumption in favor of
the finding, the trial court did not act arbitrarily, unreasonably, or without regard to
guiding legal principles in determining that an attorney’s fee award of $33,474.60
to Hallmark on his declaratory judgment action was equitable and just. See, e.g.,
Barshop v. Medina Cty. Underground Water Conservation Dist., 925 S.W.2d 618,
637–38 (Tex. 1996) (recognizing trial court’s broad discretion in granting or
denying attorney’s fees under UDJA); Oake v. Collin Cty., 692 S.W.2d 454, 455
(Tex. 1985) (same).
We overrule Hudgeons’s issue F.
VII. CONCLUSION
Having overruled Hudgeons’s issue A by determining that the trial court
correctly granted summary judgment for Hallmark based on Hudgeons’s lack of
standing to assert claims for unjust enrichment and monies had and received,
having determined that we need not address Hudgeons’s issues C, D, and E,
and having overruled Hudgeons’s issues B and F, we affirm the trial court’s
summary judgment.
/s/ Sue Walker
SUE WALKER
JUSTICE
PANEL: WALKER, GABRIEL, and SUDDERTH, JJ.
DELIVERED: September 24, 2015
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