Ginn v. NCI Building Systems, Inc.
472 S.W.3d 802
Tex. App.2015Background
- Kelly Ginn was NCI's executive VP of operations; he received unvested restricted stock governed by earlier Restricted Stock Agreements and had access to NCI trade secrets and confidential data.
- After a March 14, 2008 meeting where Ginn did not get a promotion, NCI and Ginn executed a March 27, 2008 Separation Agreement: Ginn resigned as an officer, was retained as a paid consultant for one year, and NCI agreed to immediate vesting of previously unvested restricted stock (valued at about $1.58M) plus salary/benefits.
- Unknown to NCI, the night before signing Ginn copied ~18,000 NCI files from a synchronized personal laptop to an external Buffalo hard drive and kept the files; he later used some material in a business plan and formed Green-Span, which competed with NCI.
- NCI sued Ginn for fraud (common-law and statutory), breach of fiduciary duty, unjust enrichment, and contract claims; the trial court granted partial summary judgment that the Separation Agreement's non-compete and certain non-solicitation provisions were unenforceable under the Texas Covenants Not to Compete Act, and NCI nonsuited remaining contract claims.
- A jury found Ginn liable for common-law and statutory fraud, breach of fiduciary duty (for copying with intent to use/ disclose), and unjust enrichment, and awarded $359,342 for salary/benefits but $0 for the vested stock; the trial court later (1) disregarded the jury's $0 finding on stock and entered JNOV awarding $1,582,167 for vested stock, (2) disregarded the jury's statutory-fraud finding then reversed that legal conclusion on appeal, (3) rescinded the Separation Agreement and awarded restitution, and (4) denied attorney's fees to both parties.
Issues
| Issue | NCI's Argument (Plaintiff) | Ginn's Argument (Defendant) | Held |
|---|---|---|---|
| Whether the Separation Agreement was a "transaction involving stock" under Tex. Bus. & Com. Code §27.01, supporting statutory-fraud and attorney's-fee recovery | The Separation Agreement caused immediate vesting and conveyance of stock; §27.01 applies so statutory fraud and fees are available | The Restricted Stock Agreements already conveyed stock; the Separation Agreement merely effected separation, not a stock conveyance | Court: Separation Agreement did effect transfer (stock vested by its terms); statutory-fraud finding should stand, but NCI's attorney's-fee claim under §27.01 was barred by the Covenants Not to Compete Act as to enforcement-related fees, so fees denied |
| Sufficiency of evidence for common-law fraud (reliance, intent, nondisclosure) | NCI: Ginn intentionally hid possession of confidential files and promised not to compete; NCI relied when executing the Separation Agreement | Ginn: NCI knew laptop synced; no fraudulent intent shown because he did not compete for a year; no duty to disclose while negotiating on his own behalf | Court: Evidence legally and factually sufficient—Ginn was a corporate officer (fiduciary duty), lied about other data, copied files before signing, later used materials; jury verdict on common-law fraud upheld |
| Trial court’s disregard of jury’s $0 award for vested stock and entry of JNOV/rescission remedy | NCI: Evidence conclusively established the stock value ($1,582,167); rescission and restitution are proper equitables because fraud procured the contract | Ginn: Court should have respected jury's zero finding; rescission untimely or barred by election of remedies and status-quo impossibility | Court: Evidence conclusively established stock value; trial court properly entered JNOV on stock damages, rescission appropriate (NCI did not know of fraud when it earlier sought injunction), and awarding monetary restitution (stock value) was proper since stock could not be returned |
| Effect of Texas Covenants Not to Compete Act on fee claims and partial summary judgment | NCI: Its nonsuit of contract enforcement claims should not bar fee recovery under §27.01; fees available under statutory fraud | Ginn: Act preempts other remedies; partial summary judgment already held covenants unenforceable and Act forbids employer attorney-fee recovery to enforce non-competes | Court: Act preempts and bars employer's recovery of attorney's fees for enforcing covenants; trial court did not err denying NCI fees under §27.01 because Act prohibits employer fees when covenant enforcement was adjudicated |
| Timeliness/sufficiency of pleadings and amendment to add statutory fraud / rescission | NCI: Fifth amended petition added statutory-fraud and rescission but did not assert new facts; relief consistent with fraud claims; amendment timely | Ginn: Fifth amended petition filed 11 days before trial prejudiced defense and added new causes/relief unfairly | Court: Denial of motion to strike was not an abuse of discretion—new claim was based on same facts; rescission was pled adequately earlier via general relief and fraud allegations |
Key Cases Cited
- Fort Bend Cnty. Drainage Dist. v. Sbrusch, 818 S.W.2d 392 (Tex. 1991) (trial court may disregard jury finding if legally insufficient)
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (standards for legal sufficiency review of jury evidence)
- Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768 (Tex. 2009) (elements of common-law fraud and proof of intent)
- Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (Tex. 2011) (measure of rescission damages; restitution to restore plaintiff)
- Ernst & Young, L.L.P. v. Pacific Mutual Life Ins. Co., 51 S.W.3d 573 (Tex. 2001) (justifiable reliance and third-party fraud principles)
- Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848 (Tex. 1980) (election of remedies requires an informed choice)