Jeniffer Aloysius v. Mark Kislingbury ( 2014 )

Opinion issued August 19, 2014
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-13-00147-CV
———————————
JENIFFER ALOYSIUS, Appellant
V.
MARK KISLINGBURY, Appellee
On Appeal from the 270th District Court
Harris County, Texas
Trial Court Case No. 2008-23683
MEMORANDUM OPINION
Appellant, Jeniffer Aloysius, challenges the trial court’s judgment, entered
after a trial to the court, in favor of appellee, Mark Kislingbury, in his suit against
her for breach of contract, fraud, conversion, and breach of fiduciary duties. In
four issues, Aloysius contends that Kislingbury lacks standing to recover in his
individual capacity, the evidence is legally and factually insufficient to support the
amount of damages awarded, and the trial court erred in awarding Kislingbury
appellate attorney’s fees.
We affirm the judgment of the trial court as modified.
Background
In his third amended petition, Kislingbury alleged that he and Aloysius
organized StenoMaster, Inc. (“Stenomaster”), a Colorado corporation, on October
5, 2004. He and Aloysius were the directors and shareholders, with Kislingbury
owning 75 percent of the issued stock and Aloysius owning 25 percent. In his
individual capacity, Kislingbury sued Aloysius for breach of contract, fraud,
conversion, and misappropriation, alleging that she had “directly and uniquely
injured” him by “maliciously suppress[ing] the payment . . . of monies to which he
was entitled.” As a shareholder, derivatively on behalf of StenoMaster,
Kislingbury sued Aloysius for fraud, breach of fiduciary duty, and negligent
management. He asserted that StenoMaster is a closely held corporation and he
had “not sought to have this suit brought for [StenoMaster] nor made a demand for
accounting by the Board of Directors of [StenoMaster], since any effort would be
futile in that [Aloysius] is an alleged director . . . [and] would not have taken action
against herself.” Aloysius answered with a general denial, asserted various
2
affirmative defenses, and included a verified denial that Kislingbury had capacity
to sue in Texas.
At trial, Kislingbury testified that he has been a court reporter for thirty
years and is engaged in the business of training other court reporters and providing
educational materials through various companies he owns. He met Aloysius, who
is also a court reporter, when he spoke at a convention, and she later asked him to
speak at a convention in Colorado, where she lives. Shortly thereafter, they
decided to form StenoMaster to allow Kislingbury to focus on conducting his
educational seminars and selling court-reporting training materials, while Aloysius
marketed his products and performed the administrative duties.
In February 2004, Kislingbury and Aloysius executed an agreement (the
“Agreement”) to form StenoMaster. Although Kislingbury was a Texas resident,
they filed their articles of incorporation in Colorado, where Aloysius resided.
They appointed Kislingbury as president and chief executive officer, with Aloysius
serving as vice-president. The Agreement provides that StenoMaster’s revenues,
liabilities, and “management and operating expenses” were to be apportioned in
accordance with the ownership ratio, i.e., 75 percent to 25 percent. Further, in
regard to “management and operating expenses,” the parties agreed
to consult with each other prior to committing Corporate funds or
extending Corporate liability and [to] do so only upon mutual
agreement. Neither party is precluded from contributing to the
Corporation without the expectation of remuneration or
3
reimbursement and freely waives the right to recover such
remuneration or reimbursement.
The Agreement further provides that intellectual property rights were to “remain
the exclusive property of the originator of the product concept or service.” It is
undisputed that, in 2005, the parties agreed to modify the apportionment of
revenues, liabilities, and expenses to 70 percent owing to Kislingbury and 30
percent to Aloysius.
Kislingbury explained that in 2007, the parties’ relationship began to
deteriorate. He sought to buy Aloysius’s interest in StenoMaster and retained a
business valuator, but Aloysius refused to provide an accounting. Upon
discovering that she had written numerous checks from the StenoMaster account to
herself and to CourtReps, Inc. (“CourtReps”), an independent company that she
owned, Kislingbury brought the instant suit.
Kislingbury further testified that Aloysius had made “improper” payments to
herself, totaling $158,241.74, and to CourtReps, totaling $184,868.69. The
payments included “reimbursements” of $11,000 for “office supplies,” $15,000 for
seminar expenses, $28,000 for “office administration,” $45,000 for
“communications,” and $101,000 for “tech support.” In regard to Aloysius’s
claimed “reimbursements,” Kislingbury had “never seen any checks from
CourtReps or [Aloysius] paying any of the people she claim[ed] to have paid.” He
also noted that Aloysius, without his consent, had made numerous regular
4
payments to herself and to CourtReps for “teaching” and “consulting.” And he
sought to recover “his part of the funds” that Aloysius “had diverted.” In
December 2007, when Kislingbury stopped payment on two checks totaling
$15,000 that Aloysius had written to herself, she “shut down” the StenoMaster
website and redirected its students to CourtReps. Kislingbury explained that this
action “essentially shut down StenoMaster.”
Aloysius testified that she maintained the bookkeeping for StenoMaster,
wrote checks from the StenoMaster checking account, and had a StenoMaster
credit card for expenses. She explained that neither she nor Kislingbury had made
opening capital contributions and, during its operating period, from January 2004
until August 2008, StenoMaster “was not profitable.” Specifically, the total
income during that period was $849,245, and total expenses were $915,282. She
explained that because “StenoMaster consistently didn’t have the funds,” she
would pay its expenses from her personal accounts and “reimburse herself when
funds became available” in the StenoMaster account.
After trial, Kislingbury moved for entry of judgment “in favor of Plaintiff,
Mark Kislingbury.” Without stating the grounds on which he prevailed, the trial
court rendered judgment for Kislingbury against Aloysius for damages in the
amount of $240,177.30, trial attorney’s fees of $98,000, and appellate attorney’s
fees in the event of appeal. The trial court noted that its judgment was final and all
5
other relief was denied. Although the trial court did not issue findings of fact and
conclusions of law, the record does not show that Aloysius filed the requisite
notice of past due findings.1 And her motion for new trial was overruled by
operation of law.
Standing
In her first issue, Aloysius argues that the trial court erred in awarding
damages to Kislingbury individually because “StenoMaster is the only party that
can recover for [her] alleged misappropriation of the corporation’s assets.” She
further argues that because Kislingbury “claim[s] that [she] improperly paid
herself” from StenoMaster’s checking account and “misappropriated”
StenoMaster’s assets, “[t]he damages belong to StenoMaster—not Kislingbury
personally.”
A challenge to a plaintiff’s right to seek individual redress based on
allegations of wrongs done to a corporation implicates standing. See Wingate v.
Hajdik, 795 S.W.2d 717, 719 (Tex. 1990); see also Saden v. Smith, 415 S.W.3d
450, 462–63 (Tex. App.—Houston [1st Dist.] 2013, pet. denied). Standing is
implicit in the concept of subject-matter jurisdiction, and subject-matter
jurisdiction is essential to the authority of a court to decide a case. Tex. Ass’n of
Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993). Thus, standing is
1
See TEX. R. CIV. P. 297; Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398,
410 (Tex. App.—Houston [1st Dist.] 2005, pet. denied).
6
never presumed and cannot be waived. Id. at 443–44. We review standing under
the same standard by which we review subject-matter jurisdiction generally. Id. at
446. Whether a trial court has subject-matter jurisdiction is a question of law that
we review de novo. Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217,
228 (Tex. 2004).
The test for standing requires that there be a real controversy between the
parties that will actually be determined by the judicial declaration sought. See
Nootsie, Ltd. v. Williamson Cnty. Appraisal Dist., 925 S.W.2d 659, 662 (Tex.
1996). Without a breach of a legal right belonging to the plaintiff, no cause of
action can accrue to his benefit. See Nobles v. Marcus, 533 S.W.2d 923, 927 (Tex.
1976).
Generally, “[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, 795 S.W.2d at 719. However, “[t]his rule does not . . . prohibit
a stockholder from recovering damages for wrongs done to him individually where
the wrongdoer violates a duty arising from contract or otherwise, and owing
directly by him to the stockholder.” Id.; see Faour v. Faour, 789 S.W.2d 620, 622
(Tex. App.—Texarkana 1990, writ denied) (explaining that principle is “a
recognition that a shareholder may sue for violation of his individual rights,
regardless of whether the corporation also has a cause of action”). “[T]o recover
7
individually, a stockholder must prove a personal cause of action and personal
injury.” Wingate, 795 S.W.2d at 719.
In Saden, the plaintiff and defendant were the sole shareholders of a closely
held corporation that they formed under an agreement to “share equally in the
revenues” of the company. 415 S.W.3d at 457. The plaintiff, in his individual
capacity and in a derivative capacity as a shareholder of the company, sued the
defendant for breach of contract and breach of fiduciary duty, alleging that the
defendant had diverted company revenues to his personal account and withheld
information regarding the financial status of the company. Id. at 457–59. We
explained that the plaintiff had alleged “a claim for a personal breach of contract
based on ‘contractual obligations,’ and [the plaintiff’s] contractual rights under the
several agreements signed by the parties” in forming the company. Id. at 463. We
concluded, in part, that the plaintiff had standing to assert his claims individually.
Id.
Here, like the parties in Saden, Kislingbury and Aloysius are the sole
shareholders of a closely held corporation that they formed under an agreement to
share in its revenues. See id. at 457. Kislingbury brought a breach-of-contract
claim in his individual capacity based on the Agreement to form StenoMaster that
he and Aloysius had executed in their individual capacities. See id. at 459.
Kislingbury alleged that Aloysius had “breached the terms of the Agreement” by
8
diverting StenoMaster revenues to her personal accounts, failing to make
distributions in accordance with the apportionment stated in the Agreement, and
withholding complete information regarding the financial status of the company.
See id. at 457–58. And Kislingbury alleged that he was “injured individually by
the . . . monetary benefits” that Aloysius received to his exclusion.
We hold that Kislingbury has standing to recover on his breach-of-contract
claim in his individual capacity. See Wingate, 795 S.W.2d at 719 (stating that
stockholder may recover “damages for wrongs done to him individually ‘where the
wrongdoer violates a duty arising from contract’”); Saden, 415 S.W.3d at 463.
We overrule Aloysius’s first issue.
Sufficiency of the Evidence to Support Damages
In her second issue, Aloysius argues that the trial court erred in awarding
damages to Kislingbury because the evidence is legally and factually insufficient to
support the amount of damages awarded.
In a nonjury trial, when no findings of fact or conclusions of law are filed, as
here, we imply that the trial court made all necessary findings to support its
judgment. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 83 (Tex. 1992).
When a reporter’s record is filed, as here, the implied findings are not conclusive,
and a party may challenge both the legal and factual sufficiency of the evidence
supporting those findings. BMC Software Belg., N.V. v. Marchand, 83 S.W.3d
9
789, 795 (Tex. 2002). The applicable standards of review are the same as those
applied to review jury findings. Roberson v. Robinson, 768 S.W.2d 280, 281 (Tex.
1989). The trial court’s judgment must be affirmed if it can be upheld on any legal
theory finding support in the evidence. Worford v. Stamper, 801 S.W.2d 108, 109
(Tex. 1990).
When, as here, an appellant attacks the legal sufficiency of an adverse
finding on an issue on which it did not have the burden of proof, it must
demonstrate that no evidence supports the finding. Examination Mgmt. Servs., Inc.
v. Kersh Risk Mgmt., Inc., 367 S.W.3d 835, 839 (Tex. App.—Dallas 2012, no pet.).
We will sustain a legal-sufficiency or “no-evidence” challenge if the record shows
one of the following: (1) a complete absence of evidence of a vital fact, (2) rules of
law or evidence bar the court from giving weight to the only evidence offered to
prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a
scintilla, or (4) the evidence establishes conclusively the opposite of the vital fact.
City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005). In conducting a legal-
sufficiency review, a “court must consider evidence in the light most favorable to
the verdict, and indulge every reasonable inference that would support it.” Id. at
822. The term “inference” means,
[i]n the law of evidence, a truth or proposition drawn from another
which is supposed or admitted to be true. A process of reasoning by
which a fact or proposition sought to be established is deduced as a
10
logical consequence from other facts, or a state of facts, already
proved . . . .
Marshall Field Stores, Inc. v. Gardiner, 859 S.W.2d 391, 400 (Tex. App.—
Houston [1st Dist.] 1993, writ dism’d w.o.j.) (quoting BLACK’S LAW DICTIONARY
700 (5th ed. 1979)). For a factfinder to infer a fact, “it must be able to deduce that
fact as a logical consequence from other proven facts.” Id.
If there is more than a scintilla of evidence to support the challenged finding,
we must uphold it. Formosa Plastics Corp. USA v. Presidio Eng’rs &
Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998). “[W]hen the evidence offered
to prove a vital fact is so weak as to do no more than create a mere surmise or
suspicion of its existence, the evidence is no more than a scintilla and, in legal
effect, is no evidence.” Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex.
2004). However, if the evidence at trial would enable reasonable and fair-minded
people to differ in their conclusions, then factfinders must be allowed to do so.
City of Keller, 168 S.W.3d at 822; see also King Ranch, Inc. v. Chapman, 118
S.W.3d 742, 751 (Tex. 2003). “A reviewing court cannot substitute its judgment
for that of the trier-of-fact, so long as the evidence falls within this zone of
reasonable disagreement.” City of Keller, 168 S.W.3d at 822.
In conducting a factual-sufficiency review, we must consider, weigh, and
examine all of the evidence that supports or contradicts the factfinder’s
determination. See Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001);
11
Plas–Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989). In a bench
trial, the trial court is the sole judge of the witnesses’ credibility, and it may choose
to believe one witness over another; a reviewing court may not impose its own
opinion to the contrary. See Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d
757, 761 (Tex. 2003); Zenner v. Lone Star Striping & Paving L.L.C., 371 S.W.3d
311, 314 (Tex. App.—Houston [1st Dist.] 2012, pet. denied). We may set aside
the verdict only if the evidence is so weak or the finding is so against the great
weight and preponderance of the evidence that it is clearly wrong or manifestly
unjust. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986).
Here, the trial court did not, in its judgment, state the grounds on which
Kislingbury prevailed. Thus, its judgment must be affirmed if it can be upheld on
any legal theory finding support in the evidence. Worford, 801 S.W.2d at 109.
The elements of a breach of contract claim are: (1) the existence of a valid
contract, (2) performance or tendered performance by the plaintiff, (3) breach of
the contract by the defendant, and (4) resulting damages to the plaintiff. Northern
& Western Ins. Co. v. Sentinel Inv. Grp., LLC, 419 S.W.3d 534, 539 (Tex. App.—
Houston [1st Dist.] 2013, no pet.). Aloysius does not contend that the Agreement
is not a valid contract, that Kislingbury did not perform under the Agreement, or
that she not breach the Agreement. See id. Rather, Aloysius challenges the
12
sufficiency of the evidence to support the amount of damages awarded to
Kislingbury.
“[I]n a breach-of-contract case, the normal measure of damages is just
compensation for the loss or damage actually sustained, commonly referred to as
the benefit of the bargain.” Bowen v. Robinson, 227 S.W.3d 86, 96 (Tex. App.—
Houston [1st Dist.] 2006, pet. denied). Here, the Agreement provides that the
parties agreed to divide StenoMaster’s revenues, liabilities, and expenses by the
“ownership ratio” of 75 percent to Kislingbury and 25 percent to Aloysius. It is
undisputed that the parties later agreed to adjust the ratio to 70 percent to
Kislingbury and 30 percent to Aloysius. And in regard to “management and
operating expenses,” the parties agreed “to consult with each other prior to
committing Corporate funds or extending Corporate liability and [to] do so only
upon mutual agreement.”
Kislingbury testified that Aloysius made “improper payments” in the form
of unauthorized fees and “reimbursements” to herself that totaled $158,241.74 and
to CourtReps that totaled $184,868.69, the sum of which is $343,110.43. He
explained that he was entitled to 70 percent of this sum, or $240,177.30, as the
amount of the diverted funds that should have been distributed to him under the
Agreement. And the trial court awarded Kislingbury damages in this amount.
13
Aloysius asserts that “Kislingbury’s damage model is based solely on the
money that [she] paid to herself and CourtReps” and “fails to take into account . . .
expenses and liabilities.” She argues that because the Agreement requires the
parties to divide revenues, liabilities, and expenses, the proper measure of damages
is a lost-profits model.
A benefit-of-the-bargain measure of damages may include reasonably
certain lost profits. Id. “Lost profits are damages for the loss of net income to a
business and, broadly speaking, reflect income from lost-business activity, less
expenses that would have been attributable to that activity.” Id. (citing Miga v.
Jensen, 96 S.W.3d 207, 213 (Tex. 2002)). A claimant must demonstrate one
complete calculation of lost profits. Holt Atherton, 835 S.W.2d at 85. And the
calculation of lost-profits damages must be based on net profits, not gross revenue
or gross profits. Id. at 83 n.1. The amount of the loss need not “be susceptible of
exact calculation” but must be shown by competent evidence with reasonable
certainty. Id. at 84.
The trial court admitted into evidence a profit and loss summary reflecting
that the total income for StenoMaster from January 2004 to August 2008 was
$849,245, and its total expenses were $915,282. Kislingbury testified that
Aloysius made payments to herself that totaled $158,241.74 and to CourtReps that
totaled $184,868.69, the sum of which is $343,110. Aloysius admits that she made
14
payments to herself and her company, but she asserts that she did so in
reimbursement for expenses that she had paid from her own accounts. And the
trial court admitted into evidence Aloysius’s spreadsheet on which she asserts that
she paid expenses of $139,382 from her personal accounts and $195,529 from
CourtReps’s account, the sum of which is $334,911. Thus, the amount of the
damages Kislingbury alleged, and the trial court awarded, is reasonably supported
by Aloysius’s own evidence. See id. And if the over $300,000 in challenged
payments are subtracted from the total expenses shown on the profit-and-loss
summary, StenoMaster would have been a profitable company.
Further, the trial court admitted into evidence numerous cancelled checks
revealing over $100,000 in disbursements that Aloysius made to herself and
CourtReps, including monthly distributions ranging from $2,500 to $10,000 for
“teaching,” “consultant,” and “tech support” fees.
The parties disputed in the trial court whether there were any legitimate
expenses attributable to the sums that Aloysius paid to herself and to CourtReps.
Aloysius asserts that all of her payments to herself constituted reimbursements for
expenses, which Kislingbury’s damages model failed to take into account.
Kislingbury asserts that all of the “reimbursements” that Aloysius claimed as
expenses constituted “improper payments” of income to herself. And the
Agreement required the parties “to consult with each other prior to committing
15
Corporate funds or extending Corporate liability and [to] do so only upon mutual
agreement.” Kislingbury testified that he had never agreed to pay Aloysius
teaching, consulting, or tech support fees. And he asserted that Aloysius failed to
provide “any documentation . . . to support her reimbursement claims, either
during discovery or at trial.” He asserted that he had “never seen any checks from
CourtReps or [Aloysius]” demonstrating that she had paid “any of the people she
claims to have paid.” And Aloysius does not direct us to any place in the record
showing any checks, credit card receipts, or statements from any of her personal
accounts or account of CourtReps.
As the sole judge of the witnesses’ credibility, the trial court could have
chosen to believe Kislingbury over Aloysius. See Golden Eagle Archery, 116
S.W.3d at 761. And the trial court could have reasonably concluded that the total
amount of damages asserted represented income that was directed to the benefit of
Aloysius. See Saden, 415 S.W.3d at 466–67.
Considering the evidence in the light most favorable to the verdict, and
indulging every reasonable inference that would support it, we conclude that there
is more than a scintilla of evidence to support the trial court’s damages finding.
Formosa Plastics, 960 S.W.2d at 48. Viewing the evidence neutrally, we further
conclude that the evidence is not so weak or the finding so against the great weight
and preponderance of the evidence that it is clearly wrong or manifestly unjust.
16
See Pool, 715 S.W.2d at 635. Accordingly, we hold that the evidence is legally
and factually sufficient to support the trial court’s finding that Kislingbury
sustained $240,177.30 in damages on his breach-of-contract claim.
We overrule Aloysius’s second issue. 2
Appellate Attorney’s Fees
In her fourth issue, Aloysius argues that the trial court erred in awarding
appellate attorney’s fees to Kislingbury because it did not make the award
contingent on Aloysius’s appeal being unsuccessful.
The trial court’s judgment reflects that it ordered that Kislingbury recover
from Aloysius $20,000 in attorney’s fees “in the event there is an appeal to the
Court of Appeals” and $5,000 “in the event there is an appeal to the Texas
Supreme Court.” An award of appellate attorney’s fees to an appellee must be
made conditioned upon the appellant’s appeal being unsuccessful. Hoefker v.
Elgohary, 248 S.W.3d 326, 332 (Tex. App.—Houston [1st Dist.] 2007, no pet.).
Kislingbury concedes that the award of attorney’s fees to the Texas Supreme Court
should be modified to be made conditional on the appeal being unsuccessful.
2
Having held that Kislingbury has standing to recover on his breach-of-contract
claim and the evidence is legally and factually sufficient to support the trial court’s
damages award, we need not reach Aloysius’s third issue, in which she argues that
StenoMaster cannot recover against her “because it did not appeal the take-nothing
judgment against it.”
17
We conclude that the trial court’s judgment should be modified to make
Kislingbury’s award of attorney’s fees for any appeal by Aloysius to the Texas
Supreme Court conditional on her appeal being unsuccessful. Having overruled
Aloysius’s issues in the instant appeal, the contingency of the award of attorney’s
fees concerning her appeal to this court is moot.
Accordingly, we sustain Aloysius’s fourth issue, in part.
18
Conclusion
We modify the trial court’s judgment to make the award of attorney’s fees to
Kislingbury for an appeal by Aloysius to the Texas Supreme Court contingent
upon her appeal being unsuccessful.
We affirm the judgment of the trial court as modified.
Terry Jennings
Justice
Panel consists of Justices Jennings, Bland, and Massengale.
19