470 S.W.3d 67
Tex. App.2015Background
- John K. Jones was a founding member of Texas Ear Nose & Throat Consultants, PLLC (TENT); his relationship was governed by a 1996 Employment Agreement (1996 EA), a 2002 Members Agreement (2002 MA), and amended 2002 Regulations.
- In Nov. 2009 Jones alleged members improperly terminated him (Edmonds told him to leave by Jan. 2010), he delivered a written retirement notice Nov. 19, 2009, stopped working Dec. 15, 2009, and later sued TENT and three physician-members for breach of agreements, denial of books-and-records access, and shareholder oppression.
- Jury found TENT breached the 1996 EA (awarding Jones $374,694.01 as ‘‘ancillary income’’), found Jones breached the 2002 MA (but excused on 1996 EA breach), found Jones remained a member and director at trial, and found individual members committed oppressive acts and set fair market value at $555,000.
- Trial court awarded mutual breach damages and fees, awarded attorney’s fees to Jones for denial of access, and ordered the other members to buy out Jones at one-half the jury’s fair market value.
- On appeal the court affirmed most findings but: (1) held attorney’s-fees award for denial of access should be against TENT (not individuals) and remanded to segregate/calculate fees; (2) reversed the buy-out order under shareholder-oppression law and remanded the oppression claims for further proceedings; and (3) reversed and rendered judgment for TENT take nothing on its damages/fees claim arising from Jones’s alleged breach of the 2002 MA.
Issues
| Issue | Plaintiff's Argument (Jones) | Defendant's Argument (TENT / members) | Held |
|---|---|---|---|
| Whether TENT breached the 1996 EA by effectively terminating Jones without six months’ written notice | Edmonds’ Nov. 17 remark that Jones had to leave by Jan. 2010 amounted to termination in less than six months, breaching section 4.2(f) | No unanimous board termination occurred; Edmonds had no unilateral authority and evidence is insufficient | Court: Evidence legally and factually sufficient to support jury finding that TENT breached the 1996 EA (issue overruled) |
| Recoverability and calculation of ancillary income damages for breach of the 1996 EA | Jones: entitled to five years of ancillary revenue (per later member agreement/board action) — expert computed $374,694.01 | TENT: 1996 EA didn’t reference ancillary income; expert opinion was conclusory/improper | Court: Ancillary income concept was encompassed by 1996 EA; expert explained methodology; award sustained (issue overruled) |
| Whether attorney’s fees for denial of access to books/records were properly awarded and against whom | Jones: denied access after repeated requests; fees recoverable under Business Organizations Code; fees awarded | TENT: pre-Code Act request means old statute applied (required stated purpose) and individual members were improperly charged | Court: Business Organizations Code applied; fees discretionary but award must be against TENT (not individuals); remanded to segregate and recompute amount (partial reversal/remand) |
| Shareholder oppression remedy and buy-out order | Jones: oppressive acts by other members justified buy-out at fair market value | Members: actions did not warrant buy-out; evidence insufficient under new law | Court: Post-Ritchie precedent limits shareholder-oppression remedy; buy-out order reversed and oppression claims remanded for further proceedings under current law (remand) |
Key Cases Cited
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (standards for legal and factual sufficiency review)
- Cain v. Bain, 709 S.W.2d 175 (Tex. 1986) (factual-sufficiency standard)
- Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195 (Tex. 2004) (material breach excuses other party’s performance)
- Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014) (limits shareholder-oppression remedies; receiver is primary statutory remedy)
- Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006) (rule on segregation of attorney’s fees)
- Coastal Transp. Co. v. Crown Cent. Petroleum Corp., 136 S.W.3d 227 (Tex. 2004) (conclusory expert opinions are insufficient)