J. Mark Swinnea v. ERI Consulting Engineers, Inc. and Larry Snodgrass
12-14-00288-CV
| Tex. App. | Aug 6, 2015Background
- This appeal arises from prior findings that J. Mark Swinnea committed fraudulent inducement and breached fiduciary duties in a buyout of ERI; he conceded liability years earlier and did not challenge the trial court’s factual findings on remand.
- The Texas Supreme Court in ERI Consulting Eng’rs, Inc. v. Swinnea held that where willful breach of fiduciary duty amounts to fraudulent inducement, a fiduciary must disgorge contractual consideration in equity regardless of proof of actual damages, subject to limiting principles; it described disgorgement as non-exemplary.
- The Twelfth Court of Appeals on remand (Swinnea II) affirmed punitive damages and directed the trial court to enter specific findings applying the Supreme Court’s disgorgement principles.
- The trial court made detailed supplemental findings on the equitable factors authorizing disgorgement (including Swinnea’s intent to financially destroy ERI and Snodgrass); those findings are unchallenged on appeal.
- Swinnea argues the disgorgement award is punitive (and therefore subject to punitive-damage caps and constitutional excessiveness review), seeks remand for fresh punitive-damage analysis, and disputes certain recoveries; appellees (ERI and Snodgrass) counter that disgorgement is an equitable remedy distinct from punitive damages and that prior holdings and unchallenged findings foreclose his arguments.
Issues
| Issue | Plaintiff's Argument (Swinnea) | Defendant's Argument (ERI/Snodgrass) | Held |
|---|---|---|---|
| Nature of disgorgement — punitive or equitable? | Disgorgement is effectively punitive and must be treated and analyzed as punitive damages. | Disgorgement is an equitable remedy to protect fiduciary relationships (not primarily punitive); it may coexist with punitive damages. | Disgorgement is equitable, not punitive; Burrow and Swinnea I support disgorgement as non-exemplary. |
| Requirement of actual damages or ‘‘windfall’’ for disgorgement | Disgorgement improper absent proof of actual damages or a windfall to plaintiff. | Actual damages or windfall are not prerequisites; equitable forfeiture protects the relationship even without provable loss. | Actual damages/windfall not required; precedent (Kinzbach, Burrow, Swinnea I) rejects that predicate. |
| Applicability of statutory punitive-damage cap (Tex. Civ. Prac. & Rem. Code §41.008(c)) | Punitive award should be capped; remand required because changed damage calculations affect excessiveness review. | This court already held that the cap does not apply under §41.008(c) given the findings; law of the case and Supreme Court review foreclose re-litigation. | Court of Appeals previously found the cap inapplicable; no new grounds to revisit—law of the case controls. |
| Due process/excessiveness review of punitive damages (ratio, reprehensibility, comparable penalties) | Combined awards may be constitutionally excessive given changed damage figures; requires fresh analysis/remand. | Federal due-process standards are satisfied: reprehensibility is high, ratios (even measured conservatively) are within acceptable limits, and statutory-penalty comparison is unchallenged. | Appellate analysis supports punitive awards as constitutional under Gore/State Farm factors; no remand required. |
Key Cases Cited
- Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999) (equitable forfeiture/disgorgement protects fiduciary relationships and is not mainly punitive)
- ERI Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867 (Tex. 2010) (Supreme Court: disgorgement of contractual consideration allowed for fraudulent inducement; disgorgement characterized as non-exemplary)
- Swinnea v. ERI Consulting Eng’rs, Inc., 364 S.W.3d 321 (Tex. App.—Tyler 2012) (appellate court applied Kraus factors and affirmed punitive damages; remanded for disgorgement findings)
- Alamo Nat’l Bank v. Kraus, 616 S.W.2d 908 (Tex. 1981) (framework for reviewing exemplary/punitive damages)
- State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (U.S. 2003) (due-process guideposts for punitive damages: reprehensibility, ratio, and comparable penalties)
- BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (U.S. 1996) (limitations on punitive damages and factors for excessiveness review)
- Cooper Indus. v. Leatherman Tool Group, 532 U.S. 424 (U.S. 2001) (appellate courts’ de novo review of punitive-damage excessiveness)
- Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509 (Tex. 1942) (fiduciary cannot keep secret profits even if principal appears uncompensated)