C&F International, Inc. v. Interoil Services, LLC ( 2020 )

Affirmed and Memorandum Opinion filed April 2, 2020.
In The
Fourteenth Court of Appeals
NO. 14-18-00698-CV
C&F INTERNATIONAL, INC., Appellant / Cross-Appellee
V.
INTEROIL SERVICES, LLC, Appellee / Cross-Appellant
On Appeal from the 151st District Court
Harris County, Texas
Trial Court Cause No. 2015-33978
MEMORANDUM OPINION
Interoil Services, LLC sued C&F International, Inc. (CFI) for breach of an
oral contract and quantum meruit for commissions that CFI owed to Interoil
resulting from the companies’ business transactions with a third party (Schahin)
after Schahin failed to pay its debts. CFI counterclaimed for breach of a written
contract, claiming indemnity for losses from the Schahin transactions. A jury
found that the written contract applied, awarded CFI damages of $1,044,910.02,
and awarded Interoil damages of $1,140,991.65. Each party moved for entry of a
judgment, claiming attorney’s fees, pre- and post-judgment interest, and costs.
Each party disputed the other party’s claims for attorney’s fees and interest. The
trial court signed a final judgment awarding Interoil $96,081.63 in damages,
$95,200.00 in attorney’s fees, pre- and post-judgment interest, and costs.
Each party appealed. In four issues, Interoil contends that the trial court
erred by (1) failing to construe the written contract as a matter of law to exclude
the Schahin transactions from being covered by the indemnity clause, and (2)
enforcing the indemnity clause. In two issues, CFI contends that the trial court
erred by (1) awarding attorney’s fees, interest, and costs to Interoil because Interoil
did not prevail on any claim, and (2) denying CFI’s request for attorney’s fees.
We affirm.
I. BACKGROUND
For more than a decade, Schahin was CFI’s customer. Schahin was
involved in oil drilling and would use CFI to source and purchase equipment.
Schahin would inform CFI what products Schahin needed, CFI would present
quotes to Schahin, and CFI would purchase equipment and sell it to Schahin. CFI
would finance the sales for up to 360 days.
David Haese was the head of the oil and gas department at CFI, which did
the purchasing and sales for Schahin. CFI’s Chief Financial Officer Matthias
Lietsch testified that Haese “brought that business. He was the connection to that
business. He was the lifeline to this. He was basically the know-how carrier.”
Lietsch testified that Schahin was Haese’s customer and nobody at CFI “really
understood this business besides David Haese and his team.”
In 2003, CFI informed Haese and the rest of the employees in his
department that CFI was terminating their employment because CFI no longer
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wanted to be in the oil field supply business. However, Haese and his department
were “spun out” to form Interoil, which continued to do “all the work” for Schahin.
Haese was the president of Interoil.
CFI and Interoil entered into services agreements in 2003 and 2009,
whereby Interoil leased office space from CFI and would receive administrative
and back-office support from CFI, among other services. Sections 1(a) and 4 of
the 2009 agreement provided for profit-sharing and indemnity to CFI regarding
sales to “customers of Interoil”:
1. Services. To support the activities of Interoil in the United States,
and in accordance with the instructions of Interoil, but subject to
the terms of this Agreement, CFI shall provide the following
services (the “Services”):
a. CFI may, in its discretion and as agreed upon by CFI and
Interoil on a case-by-case basis, accept orders from customers
of Interoil, and such transactions shall be conducted under
CFI’s risk management guidelines, and CFI shall perform such
transactions in accordance with the terms thereof (singularly, a
“CFI Sale”, and collectively, the “CFI Sales”);
....
4. CFI Sales. For each CFI Sale, CFI and Interoil shall agree, on a
case-by-case basis, on a profit share which shall be payable by CFI
to Interoil once all payments for the CFI Sale have been collected
by CFI from the customer. . . . Interoil hereby indemnifies and
holds CFI harmless from and against any losses or damages arising
from or relating to the failure of any customer to pay any amounts
due and owing under any of the CFI Sales which are not
reimbursed by export credit insurance.
Lietsch testified that CFI acted “like a bank” for Interoil, providing a line of
credit and obtaining credit insurance for the Schahin transactions. Lietsch testified
that the 2009 agreement applied to “basically, again, only Schahin business.” In
negotiations for the 2009 agreement, Lietsch wrote to Haese and others that the
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agreement was “a mutually agreeable profit sharing agreement on business that is
routed via CFI’s books, in order to secure financing and risk management (credit
insurance) on certain business (Shahin) [sic], which could be extended to other
customers.”
In 2010, CFI and Schahin entered into a procurement agreement, which
provided that Schahin “hereby appoints CFI as [Schahin]’s exclusive procurement
representative, to globally source products, machinery and equipment in
accordance with specifications issued by [Schahin].” Lietsch testified that the
purpose of the procurement agreement, and CFI’s practice of invoicing and
accepting payment from Schahin, was so that the transactions could be covered by
CFI’s credit insurance. Haese testified that Interoil did “all of the work” on the
Schahin transactions and retained a majority of the profits from those transactions.
In emails, Interoil employees repeatedly referred to Schahin as “our customer.”
In 2013 or 2014, Schahin stopped paying its bills, and CFI stopped paying
commissions owed to Interoil under the 2009 services agreement because their
exposure on the Schahin transactions exceeded the amount of commissions owed
to Interoil. CFI relied on the indemnity clause of Section 4 of the agreement. CFI
acknowledged that the unpaid commissions amounted to $1,140,991.65. Haese,
citing Section 4 of the agreement, made multiple demands for payment of the
commissions owed.
Interoil sued CFI for the unpaid commissions, asserting claims for breach of
an oral agreement and quantum meruit. CFI counterclaimed for breach of the 2009
services agreement, relying on the indemnity clause in Section 4. At trial, CFI
admitted through its evidence and through arguments that it owed Interoil
$1,140,991.65 in unpaid commissions, but CFI asked the jury to award CFI the
amount of its losses on the Schahin transactions. CFI claimed $3,879,860.25 in
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“total Schahin loss” after accounting for its credit insurance and mitigation of
damages, as follows:
Unpaid balance from Schahin: $1,014,820.79
Order backlog (equipment CFI purchased): $30,089.23
Interest: $2,816,914.81
Travel expenses for collection efforts: $18,035.42
Neither party objected to the first three questions in the jury charge, which
asked:
Question 1
Were the Schahin transactions in question “CFI Sales” as that term is
used in Paragraph 1(a) of the 2009 agreement?
Answer “Yes” or “No.”
Answer: ______________
Question 2
For the Schahin transactions in Question 1 that you found to be “CFI
Sales” under the 2009 Services Agreement, what sum of money
should be paid to Interoil?
Do not add any amount for interest on damages, if any.
Answer separately in dollars and cents for damages, if any.
Consider the following elements of damages, if any, and none other:
Profit share based on the gross profit (sales minus (a) cost of
goods sold, (b) interest expenses and (c) export credit
insurance).
Answer: ______________
Question 3
For the Schahin transactions in question 1 that you found to be “CFI
Sales” under the 2009 Services Agreement, what sum of money
should be paid to C&F International, Inc.?
Do not add any amount for interest on damages, if any.
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Answer separately in dollars and cents for damages, if any.
Consider the following elements of damages, if any, and none other:
Losses or damages arising from or relating to the failure of any
customer to pay any amounts due and owing under any of the
CFI Sales which are not reimbursed by export credit insurance.
Answer: ______________
The remaining questions concerned Interoil’s claims for breach of an oral contract
and quantum meruit. The parties stipulated to the amounts of reasonable and
necessary attorney’s fees: $113,356.00 for CFI and $95,200.00 for Interoil. The
parties did not stipulate regarding the legal availability of fees, which depended on
the verdict from the jury.
Interoil argued to the jury that Schahin was not “Interoil’s customer,” and
therefore, the Schahin transactions were not “CFI Sales.” Interoil asked the jury,
nonetheless, to award Interoil $1,140,991.65 in damages under Question No. 2 if
the jury believed the 2009 services agreement applied to the Schahin transactions.
The jury answered the questions as follows: (1) Yes; (2) $1,140,991.65; and
(3) $1,044,910.02. The jury did not answer the remaining questions because they
were predicated on a “no” answer to Question No. 1.
Each party moved for entry of a judgment in its favor. CFI calculated the
judgment it sought by adding pre-judgment interest to its damages award, then
subtracting Interoil’s damages, and adding CFI’s attorney’s fees. Interoil sought a
judgment for the net difference in damages awarded by the jury, $96,081.62, plus
attorney’s fees and pre-judgment interest. Interoil also filed a motion for judgment
notwithstanding the verdict, asserting that the indemnity clause failed “fair notice”
requirements, so CFI was not entitled to any damages (and Interoil was entitled to
the full $1,140,991.65 in damages plus fees and interest).
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The trial court signed a final judgment awarding Interoil $96,081.62 in
damages, $95,200.00 in attorney’s fees, $13,939.00 in pre-judgment interest, post-
judgment interest, and costs. Both parties appealed.
II. INTEROIL’S APPEAL
In its first two issues, Interoil contends that the “unambiguous language of
the underlying contracts is a legal issue to be decided by the trial court as a matter
of law” and that “[p]ursuant to the plain language of the underlying contracts, the
Schahin Entities were the direct customer of [CFI] as a matter of law.” In its third
and fourth issues, Interoil contends that CFI “was not entitled to indemnification as
awarded by the jury as a matter of law” and the “indemnification clause relied on
by [CFI] is unenforceable as a matter of law.”
A. Contractual Interpretation Issues Not Preserved
Under the first two issues, Interoil contends that the Schahin transactions
were not “CFI Sales” as a matter of law, contrary to the jury’s finding, and that the
trial court was required to rule on the plain meaning of the 2009 services
agreement and the 2010 procurement agreement as a matter of law. Interoil
contends that it made three attempts to obtain rulings from the trial court based on
the language of the underlying contracts and to enforce the plain and unambiguous
meaning of the contracts: (1) motion for summary judgment; (2) request for a
directed verdict; and (3) motion for judgment notwithstanding the verdict.
When a trial court denies a motion for summary judgment and the case is
tried on the merits, the order denying the summary judgment cannot be reviewed
on appeal. United Parcel Serv., Inc. v. Tasdemiroglu, 25 S.W.3d 914, 916 (Tex.
App.—Houston [14th Dist.] 2000, pet. denied). The party’s remedy is to assign
error to the trial court’s judgment ultimately rendered following the trial on the
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merits. Id. To preserve error for a “matter of law” challenge to the trial court’s
judgment following a jury trial, an appellant must raise the issue through one of the
following means: (1) a motion for directed verdict; (2) a motion for judgment
notwithstanding the verdict; (3) an objection to the submission of the question to
the jury; (4) a motion to disregard the jury’s answer to a vital fact question; or (5) a
motion for new trial. See, e.g., Ginn v. Pierce, No. 14-17-00742-CV, 2019 WL
4511328, at *1 (Tex. App.—Houston [14th Dist.] Sept. 19, 2019, no pet. h.);
Tasdemiroglu, 25 S.W.3d at 916.
Although Interoil raised its contractual-interpretation issues in a motion for
summary judgment, Interoil did not request a directed verdict at trial, nor did it
raise this issue in its motion for judgment notwithstanding the verdict. Interoil did
not object to the submission of Question No. 1, move to disregard the jury’s
answer, or move for a new trial. Accordingly, Interoil failed to preserve error for
its “matter of law” issues regarding whether the Schahin transactions were “CFI
Sales” under the 2009 services agreement. See Tasdemiroglu, 25 S.W.3d at 916.
Interoil’s first two issues are overruled.
B. Fair Notice Not Required
In its third and fourth issues, Interoil contends that the indemnity clause is
unenforceable because it provides indemnification for CFI’s “negligent credit
decisions” and is not conspicuous.
To be enforceable, “extra-ordinary risk shifting clauses must meet certain
fair notice requirements.” Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 386 (Tex.
1997). Such clauses must be “conspicuous” as defined by Texas’s version of the
Uniform Commercial Code. Id. Extraordinary risk-shifting clauses include
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“releases and indemnity clauses in which one party exculpates itself from its own
future negligence.” Id. at 387.
In Solis, the supreme court rejected an argument that the fair-notice
requirements should apply to a no-damages-for-delay clause. Id. The court
distinguished its prior cases concerning the shifting of tort and negligence
damages, whereas the clause in Solis shifted only “economic damages resulting
from a breach of contract.” Id.
Interoil argues that CFI’s loss was due to “its own negligent credit
decisions.” But the pleadings in this case do not show that CFI was seeking
indemnity for its own negligence. Interoil did not request a fact-finding on
whether CFI was negligent, and neither the jury nor the court made such a finding.
The record does not conclusively establish that CFI’s loss was due to its own
negligence. Rather, the record shows that CFI’s loss was based on economic
damages resulting from a third-party’s breach of contract. See id. Because the
record does not show that CFI was seeking indemnity from its own negligence,
conspicuousness is not required. See DDD Energy, Inc. v. Veritas DGC Land, Inc.,
60 S.W.3d 880, 885 (Tex. App.—Houston [14th Dist.] 2001, no pet.) (holding that
the fair-notice requirements do “not apply where an indemnitee is seeking
indemnification from claims not based on the negligence of the indemnitee”); cf.
Audubon Indem. Co. v. Custom Site-Prep Inc., 358 S.W.3d 309, 320 (Tex. App.—
Austin 2011, no pet.) (holding that fair notice was not required for a subcontractor
to indemnify a contractor because although the indemnity provision applied to
some negligence of the contractor, the indemnity claim arose from an arbitrator’s
findings of negligence and breach of contract against the contractor that were
based on the subcontractor’s negligence).
Interoil’s third and fourth issues are overruled.
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III. CFI’S APPEAL
In its first issue, CFI asks “[w]hether the Trial Court properly awarded
Interoil Services LLC attorneys’ fees, pre- and post-judgment interest, and costs of
court?” In its second issue, CFI asks, “[w]hether the Trial Court erroneously
denied C&F International, Inc.’s request for attorneys’ fees when CFI prevailed on
all of its claims for affirmative relief?”
A. Interoil’s Breach of Written Contract Claim Tried by Consent
In its first issue, CFI contends that Interoil did not prevail on any of its
claims—breach of an oral contract or quantum meruit. CFI argues that Interoil
“did not seek any relief under the 2009 Services Agreement.” CFI challenges only
the award of attorney’s fees, interest, and costs. CFI does not challenge the award
of damages, arguing that “the judgment should be modified to reflect that CFI
prevailed on its claims and that the most that should be awarded to Interoil is the
net payment required under the 2009 Services Agreement.”
CFI does not cite to any rule of procedure, statute, or case law for this issue,
nor does CFI provide this court with a legal framework within which to resolve the
issue. Assuming without deciding that CFI’s first issue is not waived due to
inadequate briefing, we will address the merits of the issue as much as reasonably
possible. See St. John Missionary Baptist Church v. Flakes, No. 18-0513, 2020
WL 593694, at *2, *4 (Tex. Feb. 7, 2020) (reaffirming that “courts of appeals
retain their authority to deem an unbriefed point waived in lieu of requesting
additional briefing” but noting that appellate courts should reach the merits of an
appeal whenever reasonably possible); see also Tex. R. App. P. 38.1(i) (“The brief
must contain a clear and concise argument for the contentions made, with
appropriate citations to authorities and to the record.”); Alexander v. Citibank N.A.,
No. 14-04-01087-CV, 2006 WL 89517, at *1 (Tex. App.—Houston [14th Dist.]
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Jan. 17, 2006, no pet.) (mem. op.) (appellant waived both issues on appeal by
failing to cite to legal authority other than the rules of evidence).
A trial court’s judgment must conform to the pleadings, see Tex. R. Civ.
P. 301, and a trial court cannot render a judgment on a theory of recovery not
sufficiently set forth in the pleadings or otherwise tried by consent. Herrington v.
Sandcastle Condo. Ass’n, 222 S.W.3d 99, 102 (Tex. App.—Houston [14th Dist.]
2006, no pet.). “When issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all respects as if they had
been raised in the pleadings.” Tex. R. Civ. P. 67. The rule for trial by consent is
intended to cover the exceptional case in which the record clearly shows the parties
tried an unpleaded issue. Herrington, 222 S.W.3d at 102.
In Ingram v. Deere, for example, the Supreme Court of Texas held that an
issue was tried by consent when both parties presented evidence on the subject and
allowed the issue to be raised in the jury charge. See 288 S.W.3d 886, 893 (Tex.
2009); see also Sage Street Assoc. v. Northdale Const. Co., 863 S.W.2d 438, 446
(Tex. 1993) (ambiguity of contract tried by consent because the parties allowed a
damages question to go to the jury and there was conflicting testimony on the
subject).
Interoil did not assert in its live petition a claim based on CFI’s breach of the
2009 services agreement. But both parties adduced evidence that CFI owed
Interoil commissions under the 2009 services agreement. The jury charge did not
ask whether either party breached the 2009 services agreement, but it asked
whether the Schahin transactions were “‘CFI Sales’ as that term is used in
Paragraph 1(a) of the 2009 Services Agreement.” The charge then asked the jury
“what sum of money should be paid to Interoil” and instructed the jury about what
“elements of damages” to consider. CFI did not object to the jury question about
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Interoil’s damages under the 2009 services agreement. CFI told the jury that it
agreed with Interoil’s entitlement to damages under the 2009 services agreement:
Number 2, if you answered yes [to Question No. 1], your answer here
should be $1.1 million. In fact, I’ll give you the exact number. We
calculated it. It’s $1,140,991.65. I agree with [counsel for Interoil]
that that’s our number and that’s the amount that Interoil would be
entitled to under the 2009 agreement.
Because the parties adduced evidence about what CFI was owed under the 2009
services agreement and then asked the jury to determine Interoil’s “damages”
under the agreement, the issue was tried by consent. See Ingram, 288 S.W.3d at
893.
Interoil included in its petition a request for attorney’s fees under
Section 38.001 of the Civil Practice and Remedies Code. See Tex. Civ. Prac. &
Rem. Code § 38.001(8) (“A person may recover reasonable attorney’s fees from an
individual or corporation, in addition to the amount of a valid claim and costs, if
the claim is for: . . . an oral or written contract.”). Because Interoil recovered
damages on a claim for a written contract, Interoil was entitled to attorney’s fees.
See id.; see also Solis, 951 S.W.2d at 390. And because Interoil was successful
and obtained a money judgment, Interoil was entitled to costs, see Tex. R. Civ.
P. 131, pre-judgment interest, see Johnson & Higgins of Tex., Inc. v. Kenneco
Energy, Inc., 962 S.W.2d 507, 533 (Tex. 1998), and post-judgment interest, see
Tex. Fin. Code § 304.003(a).
CFI’s first issue is overruled.
B. No Attorney’s Fees for Claim Against Limited Liability Companies
In its second issue, CFI contends that the trial court “erroneously denied
CFI’s request for attorneys’ fees presumably on a rationale that a net recovery is
required for a party to obtain an award for attorney’s fees,” citing McKinley v.
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Drozd. See 685 S.W.2d 7, 10–11 (Tex. 1985) (holding that net recovery was not
required under predecessor statute to Section 38.001, and the statute allowed
recovery of attorney’s fees “even if the amount of the claim is entirely offset by an
opposing party’s claim”).
It is undisputed that Interoil is a limited liability company. CFI alleged in its
live petition that Interoil is “an Ohio limited liability company.” A party cannot
recover attorney’s fees under Section 38.001 against a limited liability company.
Alta Mesa Holdings, L.P. v. Ives, 488 S.W.3d 438, 455 (Tex. App.—Houston [14th
Dist.] 2016, pet. denied). Thus, the trial court did not err by overruling CFI’s
request for attorney’s fees. See Beard v. Endeavor Nat. Gas, L.P., No. 01-08-
00180-CV, 2008 WL 5392026, at *8 (Tex. App.—Houston [1st Dist.] Dec. 19,
2008, pet. denied) (mem. op.) (“Here, the trial court did not reveal the basis for the
denial of attorney’s fees, and thus we may uphold its ruling on any basis supported
by the evidence.”); Smith v. McCarthy, 195 S.W.3d 301, 305 (Tex. App.—Fort
Worth 2006, pet. denied) (same); Sharp v. Hobart Corp., 957 S.W.2d 650, 654
(Tex. App.—Austin 1997, no pet.) (same).
CFI’s second issue is overruled.
IV. CONCLUSION
The parties’ issues are overruled. The trial court’s judgment is affirmed.
/s/ Ken Wise
Justice
Panel consists of Chief Justice Frost and Justices Wise and Hassan.
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