Kafai Lee v. Kenneth Lau, Connie Andrews, and Golden Wok, LTD.
04-15-00260-CV
| Tex. App. | Sep 4, 2015Background
- Kafai Lee (appellant) and Kenneth Lau & Connie Andrews (appellees) are co-owners/managers of entities operating Chinese restaurants; dispute centers on China Rose, Ltd. and related management agreements.
- Lee sought a declaratory judgment that he held a one-third interest in a Golden Wok restaurant; parties filed counterclaims and intervenor claims including breach of fiduciary duty, tortious interference, and conversion.
- At trial the jury largely favored Lee: it found Lee did not breach fiduciary duties for (a) amending three restaurant-management agreements (the “First Amendments”) and (b) opening a competing restaurant; the jury did find Lee intended harm when he terminated certain management agreements and moved them to his company CHR, LLC but found no actual harm resulted.
- The trial court nevertheless entered judgment n.o.v., reversing certain jury findings, held Lee breached fiduciary duties (including for executing the First Amendments and for moving agreements/income to CHR), awarded $452,000 in actual damages, attorney’s fees, and ordered Lee to forfeit his ownership interests in China Rose, Ltd. and China Rose Management, LLC.
- Lee appealed, arguing the trial court improperly disregarded jury findings, entered unsupported damages, ordered an unprecedented forfeiture of partnership interests, allowed double recovery, and improperly awarded attorney’s fees for breach of fiduciary duty.
Issues
| Issue | Plaintiff's Argument (Lee) | Defendant's Argument (Lau/Andrews/China Rose) | Held (trial-court action under review) |
|---|---|---|---|
| 1. Whether trial court could reverse jury on Question No.5 (First Amendments breach) | Jury reasonably found no breach; there was evidence of consent, management authority, and business judgment justification | Trial court concluded amendments breached fiduciary duty and reversed jury | Trial court reversed jury and found breach; Lee contends this reversal lacked conclusive evidence and was improper n.o.v. |
| 2. Whether trial court could reverse jury on Questions 7b & 8b (harm from moving agreements to CHR) | Jury found no substantial injury; evidence showed no payments were diverted or any profit was made | Trial court found the terminations/movements caused harm and reversed jury | Trial court reversed jury and found harm; Lee contends the jury verdict should stand. |
| 3. Sufficiency of trial court findings regarding statute-of-limitations defense | Appellees’ claim re: 2008 First Amendments is time-barred; trial court failed to address limitations after reversing the jury | Trial court omitted findings on limitations when entering n.o.v. | Trial court failed to make express findings on the limitations defense; Lee argues omission is deliberate and requires reversal. |
| 4. Whether forfeiture of partnership interest is available as remedy for fiduciary breach | Forfeiture of a partner’s ownership interest is unprecedented in Texas and an inappropriate, punitive remedy here (no profit/disgorgement shown) | Trial court ordered forfeiture of Lee’s interests in China Rose entities as equitable relief | Trial court ordered forfeiture; Lee contends abuse of discretion because Texas precedent limits remedies to fee forfeiture/disgorgement, not loss of partnership stake. |
| 5. Sufficiency of evidence for $452,000 damages (step-down fees) | Damages calculation improperly assumes managers paid reduced fees; no evidence of amounts actually paid or owed—so award unsupported | Trial court calculated damages over time based on reduced contractual amounts | Trial court awarded $452,000; Lee argues legally & factually insufficient evidence supports this award. |
| 6. Whether awarding both forfeiture and actual damages produces double recovery | Forfeiture plus damages duplicate recovery for same injury; violates one-satisfaction rule | Trial court awarded both remedies | Trial court granted both; Lee argues impermissible double recovery. |
| 7. Availability of attorney's fees for breach of fiduciary duty | Attorney’s fees are not recoverable for breach of fiduciary duty absent a statutory or contractual basis; no separate contract claim was adjudicated | Appellees received fees as damages and for pre-suit expenses | Trial court awarded pre-suit and trial attorney’s fees; Lee contends award was legally improper. |
Key Cases Cited
- Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999) (equitable remedies for fiduciary breaches include fee forfeiture and disgorgement where fiduciary profited)
- ERI Consulting Eng’rs., Inc. v. Swinnea, 318 S.W.3d 867 (Tex. 2010) (equitable relief may reach consideration received through a fiduciary breach)
- Tanner v. Nationwide Mut. Fire Ins. Co., 289 S.W.3d 828 (Tex. 2009) (no-evidence standard governs review of judgment n.o.v.)
- Holley v. Watts, 629 S.W.2d 694 (Tex. 1982) (trial court may not disregard a jury’s negative finding unless evidence conclusively establishes the affirmative)
- Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014) (business judgment rule can shield managers for rational corporate decisions)
- Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509 (Tex. 1942) (principles on relief when fiduciary profit results from breach)