*2
HIGGINBOTHAM,
Before
SMITH
OWEN,
Judges.
Circuit
OWEN,
Judge:
Circuit
to Goldman
tions
Sachs to transfer
of SulphCo
per
stock
month to
Partners, L.P.
Arete
sued Rudolf Gun-
Arete;
no
would sell more than
nerman
fraud in
for breach
contract and
*3
35,000
week;
shares of SulphCo
per
stock
agreement
connection with
settlement
(5) when Arete
a total of
received
parties.
the
by
ap-
entered
Gunnerman
million from the sale of stock and the
peals
judgment
the district
from
court’s
$750,000 cash payment, Arete would exe-
claim,
in
of
finding
favor Arete on its fraud
(6)
release
judgment;
cute a
of the
and
if
the district
arguing
by:
that
court erred
$5,250,000
and when Arete realized
from
(1) misapplying Texas law to find that
stock,
of SulphCo
the sale
Arete would
intent;
(2)
had
fraudulent
any remaining
transfer
stock back to Gun-
finding fraudulent
intent based on the
parties
nerman. The
it
made
clear in the
(3)
presented;
finding
facts
fraud because
that any
record
release of the
(4)
reliance;
there was no evidence of
cal-
did
end the
obligations
not
contractual
of
culating
damages;
Arete’s fraud-based
parties.
present
the
Gunnerman was
in
(5)
exemplary
awarding
damages. Be-
court
the agreement
when
was set forth
cause the facts are insufficient to establish
on
stated
the record that he under-
intent,
that Gunnerman had fraudulent
we
stood the
agreed
settlement and
to its
reverse and remand.
terms.
I
timely
$750,000
paid Arete
cash; however,
originally
Arete
filed suit
Gunnerman never
against Gun-
trans-
1,100,000
nerman for fraud and
ferred
breach of contract
shares into
escrow ac-
related to a securities
count. Gunnerman’s
on
parties
sale. The
counsel
securities
signed a contractual
matters informed him
settlement before the
that
sale of Sul-
phCo
case
the jury.
trigger
reached
A
la-
shares would
certain report-
few months
ter,
ing
Arete filed an
complaint,
requirements
amended
al-
under the Securities and
Exchange
leging that Gunnerman breached the set-
Commission’s rules. While
agreement.
reporting
tlement
those
day
trial,
being
On the
of
issues were
re-
solved,
parties
again
agreed
once
Arete
accept
reached
settle-
wire
ment
against
resolve Arete’s
transfer
based
the highest
claims
price
closing
Gunnerman.
for the week the shares were
due to be sold.
agreement
The
terms
were read
into the district court’s record
the at-
Gunnerman instructed his contact at
torneys
parties.
for the
Although
1,100,000
rec- Goldman Sachs to divide
shares
ord
that
reflects
there was
35,000
considerable
of
stock
SulphCo
into units of
discussion and confusion as
shares,
to the terms of
in anticipation
having
of
the shares
agreement
that
during
process,
can,
it
transferred
Arete. Gunnerman’s coun-
persistence,
gleaned
be
that
from
rec-
sel informed Arete’s
that they
counsel
an-
(1)
ord that
agreed:
a judg-
that
ticipated
the shares would be trans-
ment would be entered in
of
favor Arete
through physical
ferred
delivery of the
against
million; (2)
Gunnerman for $4.5
certificates to Arete’s counsel’s office on a
pay
Gunnerman would
weekly
they
basis and that
in'
were
cash;
(3) Gunnerman would transfer
of
process
drafting an
agreement
escrow
unrestricted,
of
fully
shares
to facilitate transfer of the shares. Arete
SulphCo
tradeable
stock
objected
into an escrow
proposed
Gunnerman’s
Sachs,
account at Goldman
with instruc-
of
course
action
the agreement
violated
(1)
highest closing price
the transfer of restricted
stock for
because:
Although
a formal draft of
promise
fully
tradea-
week.
violated
shares
shares,
their
ble,
physical parties’
amendment
settlement
unrestricted
prepared,
it
delivery
shares violated the
was never
signed. Following
parties’ agreement,
a transfer into a Goldman Sachs
to make
payments
vary-
cash
Ultimately, Gunnerman Gunnerman made
escrow account.
35,000
amounts,
ing
although
transfers of
shares to
the amounts did not
made three
105,000
Arete,
any particular relation to
resulting
appear
in a transfer of
to bear
calculating
an identifiable method of
Gun-
total.
obligations
par-
nerman’s
to Arete.
*4
After Arete had sold
shares
dispute
timing
ties continued to
both the
stock,
buy
Gunnerman offered to
back
the
periodic
and the amounts of Gunnerman’s
already
remaining shares that had
the
payments.
cash
highest
transferred for the
market
been
stopped altogether,
the payments
the week of transfer. Arete
After
price during
Gunnerman,
against
sell the stock if Gunnerman Arete filed this suit
agreed not to
of action for
of
alleging
for the stock and also stat-
causes
breach
con-
payment
wired
In response,
continued to deliver
tract and fraud.
Gunnerman
that if Gunnerman
ed
35,000
week,
every
Arete would filed a motion to release the
million
the
$4.5
judgment,
though
undisputed
him
it re-
even
it was
the certificates to
when
return
of that
Subsequently,
payments
week.
that
toward satisfaction
ceived
each
judgment had not reached its full amount.
Arete’s counsel
informed Gunnerman’s
trial,
At
of
total
Arete had not received stock
the time
the
consideration
counsel that
in
April
May
provided
of
11th or
13th.
both cash and stock
to Arete
for the weeks
$4,390,390.71,
by
counsel
that Gunnerman
Gunnerman was
which
Arete’s
stated
(1)
$750,000
the sum of:
the initial
agreement,
in material breach of the
was
(2)
proceeds
cash
the actual
begin
process
payment;
Arete would
the
of exe-
the
shares of
stock sent
cuting
on its
unless Gunnerman
(3)
Gunnerman;
$350,000
by
A few to
the total
wired
to Arete’s account.
later,
payments
an email to
of the wire transfer
made
lieu
days
Arete’s counsel sent
obligations.
subject
with the
“Got of Gunnerman’s stock transfer
Gunnerman’s counsel
that
are
your message”: “I believe
we
still
trial,
In a bench
the district court found
got
I
behind one week.
do not believe we
action
in favor of Arete on its causes of
the
April
stock for the week of
Send
The district
breach of contract and fraud.
money everyweek
highest
for the
[sic]
court noted that Gunnerman had essential-
get
great.
will work
But we need
prices
ly conceded each of the elements of Arete’s
money
for week one.” Gunnerman’s
claim,
only
and the
dis-
breach-of-contract
responded,
spoke
“Ok.
I
counsel
proper
measure
pute on this claim was
to confirm.”
Stan
damages.
The district court also found
communication,
in favor of Arete on its fraud claim. The
As
result
found that the
modi-
court found that Gunnerman never intend-
district court
agreement,
party
keep
promises
and neither
ed to
two distinct
Arete:
fied their
permit
Ar-
disputes
finding
appeal.
Under
“Gunnerman never intended
realize more than
million and
agreement,
the modified
lieu of stock
ete to
transfers,
agreed
to wire
never intended to
shares.” The court
transfer cash to Arete at the end of each
transfer
week,
that the difference between the
the amount based on the
concluded
calculating
(1)
amount Arete received and what it
findings
would
are without substantial
them;
(2)
to support
have received if Gunnerman
evidence
per-
had
the court
evidence;
misinterpreted the effect of the
formed the modified agreement
prom-
or
although
which,
there is
if
$1,060,649.27.
evidence
ised was
The court found
credible,
substantial,
would be
the force
that Arete was entitled to this amount as
and, effect of the testimony, considered as
actual damages under both its fraud and
whole,
convinces the
that the
court
find-
breach-of-contract causes of action. Fur-
ings
against
are
preponderance
thermore, because the district court found
testimony.2
credible
damages
that Arete’s
were the result of
promises
Gunnerman,
fraudulent
Ill
district court found that Arete was entitled
appeal,
On
argues
in exemplary damages in addi-
that,
finding
inducement,
fraudulent
tion to
actual damages.
Alternatively,
district court incorrectly applied Texas law
the district court
found
Arete was
findings
and its factual
were in clear error.
damages plus
entitled to actual
attorneys
law,
Under Texas
“[a] fraud cause of ac
fees under its contract claim. Arete was
*5
requires
tion
a material misrepresentation,
required to make an election between
false,
which was
and which was either
these two
recovery
alternative
of
measures
known to be false when made or was as
entry
before the
of judgment; Arete elect-
serted
knowledge
truth,
without
of its
recovery
claim,
ed
based on its fraud
which was intended
upon,
to be acted
the district court
judgment.
entered
which was
upon,
relied
and which caused
subsequently
filed a motion
injury.”3 A promise to do an act in the
to
amend the
and the court’s
future
actionable misrepresentation
findings of fact
law,
and conclusions of
when made with the intent to deceive and
arguing that the district court had incor-
with no intention of performing the act.4
rectly found that Gunnerman had fraudu-
A party’s intent is determined at the time
lent intent when he entered into the set-
party
the
made
representation;
the
how
tlement agreement. The district court
ever,
party’s
may
intent
by
be inferred
rejected Gunnerman’s arguments and de-
party’s
subsequent
following
acts
nied the motion. Gunnerman then filed
representation.5
“Failure
perform,
to
appeal.
alone,
standing
is no evidence of
prom
issor’s intent not to perform when the
II
promise
was made.
that fact is
appeal
trial,
On an
from a bench
a circumstance to be considered with other
we review the district
legal
court’s
deter
facts to establish intent.”6 Even “slight
minations de novo and its factual findings
circumstantial
fraud,
evidence of
when
for clear error.1 We will find clear error if
considered with the
promise
breach of
XXI, Ltd.,
Agrifinance,
(Tex.
8) (internal
1. Rabo
Inc. v. Terra
583
quotation
199
marks omit-
(5th Cir.2009).
F.3d
352
ted).
2. Bd.
Employers
Trs. New Orleans
Int’l
of
4.
Id. at 48.
Ass’n,
Longshoremen’s
AFL-CIO Pension Fund
Gabriel, Roeder,
Co.,
v.
Smith &
529 F.3d
Tours, Inc.,
Spoljaric
v. Percival
708 S.W.2d
(5th Cir.2008).
509
(Tex.1986).
434
Corp.
Formosa Plastics
USA v. Presidio
Contractors, Inc.,
Eng’rs &
960 S.W.2d
Id. at 435.
instead, Miga
application
is an
support
finding Spoljaric;
is sufficient
perform,
legal principles
Spoljar-
discussed in
The evidence must
fraudulent intent.”7
Miga
that
par-
intent at the
ic. The court held
to the defendant’s
be relevant
over contractual
at trial
dispute
made.8 ties’
terms
representation
time
party
that a
that he was insufficient evidence
did
party’s
have held
denial
“Courts
words,
In
showing
perform.
is a factor
not intend to
other
promise
made a
ever
satisfy
made the
the evidence was insufficient to
intent
when he
no
for fraudulent intent as set forth in
Supreme
Court of Texas
test
promise.”9
Here, in order for Arete to
“[u]sually,
Spoljaric.
that
successful
has also noted
claim,
in-
Arete was
inducement have
recover under its fraud
claims of fraudulent
required
prove
the defendant or its
that Gunnerman entered
volved confessions
into the settlement
“with the
requisite
intent.”10
agents
intention, design
purpose
deceiving,
argues
first
the district
performing
and with no intention of
incorrectly applied Texas law to find
court
act.”16
requisite
had the
fraudu-
that Gunnerman
maintains that
Gunnerman contends that
there is no
lent
intent. Gunnerman
an error of
evidence of fraudulent intent. The district
the district court committed
Supreme
court found that
by applying
“[t]he
law
the Texas
evidence
record
Spoljaric
v. Percival
establishes Gunnerman never intended to
Court’s decision
Tours, Inc.,11
keep
promises
rather
than its decision
two distinct
to Arete:
Spoljaric
opportunity
v.
held that
Arete would have the
Miga
“[a]
Jensen.12
stock;
of SulphCo
to do an act in the future is action-
sell
promise
*6
(2)
intention,
when made with the
and
that Arete could achieve a maxi-
able fraud
recovery
design
purpose
deceiving,
proceeds
of
and with mum
of
million as
performing
of
the act.”13 In
on the sale of
stock.”
no intention
The dis-
finding
concluded trict court
of
Miga,
Supreme
the Texas
Court
based its
fraudulent
(1)
support
no evidence to
intent on two factors:
Gunnerman’s
that there was
interpretation
agree-
of fraud and held that a
of the settlement
jury’s finding
(2)
ment,
“dispute
“pattern
at trial over the contract’s terms
Gunnerman’s
of
that
not
not evidence
Jensen did
malfeasance.”
[was]
at
perform”
intend to
the time he entered
law,
As a matter of
the district court
court held that this
the contract.14 The
Ar-
agreed
held that the
had
that
“a
breach of contract case” and
was
classic
opportunity
ete would have the
to realize
wronged party
that the
had “no cause of
(1)
$6,000,000
payment
from Gunnerman’s
fraud.”15
action for
with
together
of
the sale of
1,100,000
misapprehends the court’s
shares of stock. Gunnerman tes-
Gunnerman
understanding
agree-
that his
of the
Miga. Miga
supplant
decision in
did not
tified
omitted).
(Tex.2002).
(internal quotation
12.
11.
reached in Miga Miga. and for on all otherwise against found Jensen issues, Supreme The including fraud.23 The district court’s conclusion is also no evidence Texas held there was Court of contrary by approach taken at did not intend that Jensen Supreme Texas Court Formosa Plastics That granted the time he option.24 Corp. Engineers v. Presidio & USA Con- rejected argument that explicitly court Inc,26 tractors, case, In that Formosa had disagreement option’s about the Jensen’s represented package in a bid it submitted “was tantamount to a denial of the terms to Presidio and in the construction con- agreement jury found he option parties subsequently signed tract the two made.”25 that Presidio would have control over con- present interpreta- facts of the case are indis- crete deliveries.27 Formosa’s Miga. obligations from those at issue in tion of its under the contract in tinguishable recognized regard contrary “specific[ district court was to the Although the ] interpretation unequivocal]” faith terms of the good “a difference contract a meaning particular over the contract and “even Formosa’s own witnesses admit- that, in- provision plain language is not evidence of fraudulent ted under the contract, tent,” Miga attempted distinguish it Presidio had control over the finding scheduling delivery on a that Gunnerman’s testi- of concrete.”28 based understanding of his the court mony regarding based its determina- agreement tion that obligations original “legally under the there was sufficient evi- court knowingly representations was false. The district dence that Formosa made puts a for- no performing repre- reasoned that “when defendant intention of self-serving, facially meritless in- sented” not on ward this evidence but on direct contract, that, the effect of evidence from a terpretation employee Formosa contrary representation which would be to relieve the defendant of to the the bid obligations package some or all of his under the it submitted to Presidio and two contract, interpretation effectively signed, is weeks before the contract was For- delivery that an mosa the same as denial decided “to take over the Presidio”; contrary informing This Tex- the concrete without was ever made.” uphold finding To a fraud Presidio was not informed of this decision as authorities. permit signed; on such a basis would a factfinder until after the contract was and a simply by disbelieving employee to find fraud that a Formosa testified that “Formosa acted party’s interpretation deceptively taking of an over the con- *8 delivery scheduling faith of its correct- crete and when the bid good offered belief words, package expressly provided ness. In other fraud could be that the con- control,” solely credibility based on a determination tractor would have and “that For- rely a witness testified as to his or her mosa knew that Presidio would on when this representation in understanding agree- preparing of the terms of an its bid.”29 27. Id. 22. Id.
23. Id. at 209-10. 28. Id. Id. at 210-11. Id. at 48-49. Id. at 210. (Tex.1998).
26. 960 S.W.2d though the district court found conduct is Even Gunnerman’s not evidence of contrary interpretation Gunnerman’s to be fraudulent intent at the time that he agreement, original plain to the terms of the Gun- reached or modified settle- Arete, interpretation agreement, agreement imposi- nerman’s ment and alone, standing punitive damages any is not evidence fraudu- tion of such con- lent intent. The district concluded that is impermissible. duct “Gunnerman used the modification a [to Because the' evidence is insufficient to a color- transaction] cash-based create fraud, support finding we do not reach alleged able basis for his confusion over remaining arguments Gunnerman’s re- obligations the total amount of his to Ar- garding proper reliance and the measure again, ete.” But here there is no evidence damages. of fraud parties agreed that at the time the modify agreement, their settlement Gun- performing nerman had no intention of reasons, foregoing For RE- we rely and intended that Arete detri- VERSE VACATE the district court’s
ment the modified terms. exemplary damages award of actual and claim, based on Arete’s fraud RE- and we In denying its order Gunnerman’s allow recovery MAND to Arete to elect findings motion to amend the of fact and under its breach-of-contract claim. judgment, the district court stated that pattern it also found “Gunnerman’s of mal HIGGINBOTHAM, E. PATRICK persuasive feasance to be evidence of Gun Judge, dissenting: Circuit intent,” pointing nerman’s fraudulent appeal challenges This specific find- alleged Gunnerman’s breach of an earlier ing of fraudulent intent agreement district settlement connection with court; finding we review for clear error. litigation. clearly The district court is intent, finding In fraudulent the district credibility entitled to assess Gunnerman’s court relied on Gunnerman’s indefensible “pattern based on Gunnerman’s of malfeas post-execution reading of the contract and ance.”30 conduct Gunnerman’s throughout efforts to avoid trial during pre-trial proceedings prior and his litigation, which involved tactics intended alleged agreement breach of a settlement delay opposing party and frustrate the is not sufficient evidence to show that Gun court, and the including courthouse settle- perform nerman did not intend to the set honor, ments he did not intend to all re- tlement at issue here. In a trial, sulting three scheduled trials two jury generally we permit would not agreements. Seeing settlement party to this con- introduce as evidence of fraud in duct as sufficient evidence of fraudulent history the inducement the prior suits support intent to the district find- court’s parties, settlements between the dis ings that covery there was no intent to possible discovery skirmishes or abuses, the settlement when it en- pre-trial or conduct that was dis dissent, tered, I respectfully. must pleasing to the trial judge. The same in a apply standards bench-tried case. Al *9 I though during sanctions for conduct dis covery pre-trial matter, and other proceedings preliminary As a in characteriz- may circumstances, ing be warranted some opinion suggest- the district court’s 52(a)(6) ("[T]he reviewing opportunity judge 30. See Fed.R.Civ.P. the witnesses' credibili- give regard court must due to the trial court's ty-”)- In solely agreement. February on a tlement “fraud could be based ing when a Arete sued Gunnerman for the credibility determination witness breach. understanding of Judge Sparks promptly as to his or her set the case for a testified majority agreement,” jury the terms of an second trial for March 2005. Gun- by tactics, made the district responded delaying relies on statements nerman denying Gunnerman’s refusing deposed making court in its order to be himself Findings of Fact and deposition by repairing Motion to Amend unavailable for the an order di- Judgment, Motion to Amend Korea where he claimed he be- South specific objections at to the court’s came ill and not return. rected could With the made Gunnerman. The isolat- findings parties second trial imminent the reached language unfairly that de- ing agreement, focus on another settlement the one at this, court’s footing just scribes the of the district issue here—and as the first perform when finding agreement, only long of an intent not to enough lived to avoid followed, signed, the settlement and trial. alleging This suit breach of fully capture the district court’s Judge Sparks does not contract and fraud. set the subject ap- of this findings that are case for trial for a time for February third point- 21, order also peal. year The district court’s 2006—now one after the second of conduct as pattern setting. ed to Gunnerman’s as the district court subject pages found, of fourteen of Find- again deployed its his de- Fact, copy tactics, a of which I attach. ings laying failing interroga- of to answer oath, failing present
tories under him- deposition, self for breaching express II representations appear he would for trial plain Fact make that Findings These of February findings 2006—all unchal- finding of the district court did not base its lenged regards here. With to this last solely fraud on the silliness of Gunner- finding, through Gunnerman claimed his interpretation. man’s contract Rather the ill, daughter he was and filed a medical con- pattern district court relied on his statement the trial court found to be throughout litigation, finding duct that “meaningless.” ducking dodging his truculent es- cape judgment day evidenced an intent conduct, on this including Based incon- perform not to the “settle- from the start testimony regard- sistent and unbelievable agreement,” part ment which was a central ing understanding parties’ dodge.1 Despite prominence of his agreement, the district court concluded Findings, history the district court’s that to fulfill Gunnerman never intended Gunnerman’s conduct is absent from the promises he made the settlement majority’s opinion: originally sued agreement. n relating Gunnerman for breach of contract purchase to a of stock. The first trial was Ill commenced on October but be- closing arguments disagreement fore reached Under Texas law over Having judgment, interpretation settlement. avoided contract alone is insufficient days within the set- in- performance breached evidence was never majority ordinary part 1. The asserts that in an settlement entered into as fraud in the inducement case the evidence of course action calculated to avoid trial. argument intent not include diffi- evidence would be not to would not discovery litigation. puzzling. culties of in that This is admitted is *10 400 carefully po- Texas courts
tended.2 While the boundaries of contract law lest tort lice GUNNERMAN, Rudolf W. Defendant. over, run it it does so with its rule that law No. A-05-CA-921-SS. “slight even circumstantial evidence of fraud, with the breach of when considered Court, United States District support is sufficient to promise perform, Texas, W.D. ma- finding of fraudulent intent.”3 The jority doing much further and in goes so Austin Division. upsets operating spheres this balance of 3,May tort contract law. It does so at the and Jr., Brothers, R. George, George James & expense legal principles control- of basic LLP, Austin, TX, for Plaintiff. ling conduct.4 ac- fraudulent Gunnerman’s Tillotson, Jeffrey Volney, Mark John tions, court, by the district are described Lynn, Cox, LLP, Tillotson Pinker & Dal- support findings sufficient evidence to las, TX, for Defendant. of fraud. That this conduct was sanctiona- ble does not mean that it was not also SPARKS, Judge. SAM District evidence of an intent not AND FINDINGS OF FACT escape judgment made to CONCLUSIONS OF
day judge, of trial. This veteran district LAW with a of trial experience, lifetime equipped better judgment make this BE IT REMEMBERED on the 21st than this court. More to point, day February the Court called the entry federal district court is not a mere above-captioned matter for trial and the gate Appeals. to the Court It is an parties appeared through counsel. The independent legal court to which we owe a specifically Court had set this case and duty of deference. fail duty We to- 21, 2006, specially February for trial on day. simply, Put might we have order entered December 2005. The reached a different conclusion in the first history litigation between these instance is of no moment. I important As find no is following to understand the court, error of the district findings of fact. error, certainly respectfully not clear I Partners, September On dissent. (“Arete”) L.P., against filed suit Clean Fu- (“Clean Fuels”) Technology,
els Inc. Rudolf the 200th District APPENDIX Texas, County, suing Court of Travis both PARTNERS, L.P., Plaintiff, ARETE defendants for breach of contract con- v. nection with purchase Arete’s of Clean Fu- Jensen, (Tex. Tours, Inc., Miga v. 96 S.W.3d 210-11 v. Percival 708 S.W.2d 435 2003). (Tex. 1986)). Though majority characterizes materially indistinguishable this case as from Miga, rely here the district court did not sole majority's handwringing opening 4. The over ly disagreement on the over the terms of the the door to claims of fraud in all contract contract as evidence of fraud as the trial court disputes by finding party that a in breach Miga did there. does not control. credibility misplaced. lacked The district simply recognized court did not do that. It I, Tony Chapa, age Gullo Motors L.P. v. ducking old "D and D” defense— (Tex.2007) (citing Spoljaric dodging' plain. S.W.3d a case where it was —in
401 deposition by allegedly going a so-called “most-favored to els stock under South 25, 2005, February open Korea. On agreement. timely The case was nations” court, represent- counsel for Gunnerman or October to this Court on about removed ed that Gunnerman had become ill in 2003, 29, A- assigned and cause number Korea, hospitalized, South was and would scheduling A order was en- 03-CV-784. be unable to travel for weeks. The 5, 14, January 2004. On June tered on again Court then extended the time to 2004, Arete filed a second amended com- respond pending to the motion for sum- plaint alleging defendant Gunnerman had mary judgment, but refused to continue the contract but only not breached also trial setting. the Jury had committed fraud. selection and trial were scheduled for October 2004. begin The second trial was to March on However, selection, jury par- the prior to 28, 2005, available, jury panel and with a Fuels, agreed ties to the dismissal of Clean again counsel, parties, through advised only Ru- proceeded against and the case a settlement had been reached. This time juryA was and dolf Gunnerman. selected the settlement was dictated proceeded trial on October into the record and was clear and unam- First, biguous. be would en- evidence, presentation After the of the against tered favor of Arete instructions, jury preparation Second, million. a collateral $4.5 argument, parties oral an- and before agreement required pay Gunnerman to Ar- they nounced had entered into a settle- $750,000.00 ete the sum of cash on or and requested ment Court Third, April before parties to order a mistrial to allow the contractually transfer, obligated was effectuate the settlement. 11, 2005, 1,100,000 April shares of unre- February Arete riled its third stricted, fully SulphCo tradeable stock into complaint, again alleging amended Defen- an account at escrow Goldman Sachs with breached his contract— dant Gunnerman instructions to Goldman Sachs transfer this time the settlement contract —as he 140,000 SulphCo per shares of stock month pay agreed had failed to sum of $2.4 agreed to Arete. Arete sell no more Arete, pay- million to failed to secure this SulphCo than per stock by escrowing ment one million shares of week, procedure, and under this when and stock, SulphCo (“SulphCo”) Inc. and failed $5,250,000.00 if Arete from realized to transfer five hundred thousand shares stock, SulphCo any remaining sale of stock stock to Arete. Because of the would be transferred back Gunnerman. circumstances, jury a second trial was Therefore, with the cash scheduled for March $750,000.00 possible recovery February, In Gunnerman refused to $5,250,000.00 from the sale of SulphCo make himself available for deposition, and stock, Arete could realize a maximum of $6 him deposed the Court ordered to be million as a result of the settlement con- days within ten of the Court’s order or parties agreed tract. The further sanctions would be entered. Arete filed when Arete had received a total of summary judgment, motion for million from all sources—the sale of the granted respond stock, extension of time to payment, any cash not because Gunnerman had been de- other source—it would execute a release of time, At that posed. judgment. Gunnerman deliber- the March ately any made himself unavailable for the made it clear the record release of *12 that, supplement not the contractual if he could the record judgment did end deposition with Gunnerman’s to be taken obligations parties. of the date, any at a later he would not file in court and stated the record he was procedure motion for continuance. This agreed and understood the settlement agreed by was counsel for Arete and the Thereafter, jury panel the terms. was non-jury proceeded. trial Plaintiff filed a judgment entered. released and along copy trial brief with a of Gunner- 31, 2005, Partners, Arete On October 13, 2006, deposition on March man’s and L.P., suit in fried the instant cause number post-trial briefing completed April was against Gunnerman for A-05-CV-921 3, 2006. fraud, alleging spe- contract breach of and testimony Based on the and documenta- Gunnerman, cifically again, deliber- trial, ry presented evidence at along ately SulphCo to transfer the stock failed deposition testimony, with Gunnerman’s account; deliberately into the escrow following the Court makes the factual find- 35,000 SulphCo failed to deliver shares of First, ings. parties’ original settle- Arete; moreover, per stock week to ment agreement clearly was dictated into comply never intended to with the contrac- 28, 2005, the record on March and its obligations tual he made to avoid trial reasonably terms cannot be Ar- disputed. 28, number two on March 2005. Arete ete, for part, required its was to surrender for contractual damages, alternately sued right any to recover more than $4.5 fraud, sought punitive actual and judgment origi- million on the itself in the damages. Gunnerman, nal lawsuit. on the other Gunnerman then filed a motion to de- hand, obligated was two inde- judgment clare the of March First, pendent obligations. A-03-CV-784, cause number released required Gunnerman pay- to make a cash undisputed when the pay- evidence was all $750,000. Independently, ment of Gunner- every by ments of nature made Gunner- man required to transfer to Goldman man to Arete had not reached the $4.5 unrestricted, Sachs shares of ful- million amount. That motion ly tradeable stock for Arete’s 1, was denied on December 2005. Although benefit. there was a limit on the circumstances, Under those trial A- total amount Arete through could recover (for immediately 05-CV-921 was set for Febru- the sale of the million $5.25 stock— ary grand recovery total million Gunnerman continued in his after $6 $750,000 accounting for the cash delaying pay- tactical by declining manner ment) parties made clear that oath, Arete’s interrogatories answer under failing —the recovery of million would have no present $4.5 deposition, himself for and im- effect on Gunnerman’s contractual obli- portantly, breaching express representa- Rather, gations. only impact Ar- appear tions he would for trial on Febru- realizing ete’s million would be the ary 21, trial, the date On set for agreed judgment. release of the lawyer Gunnerman’s advised he had been by daughter informed Gunnerman’s Although timely Gunnerman made a feeling Gunnerman was ill and had been on March admitted to a hospital and was unable to thereafter, immediately almost it became meaningless attend the trial. A medical clear he would not follow the terms of the produced statement was and filed of rec- parties’ original agreement. settlement ord, Initially, but counsel for alleges Gunnerman indicated he was ad- corporate counsel that because shares were made on April vised rules, Arete’s sale of Sul- May During time, of certain SEC Gun- compli- certain phCo trigger shares would buy nerman offered to out reporting requirements. cated While agreement for the difference between the *13 being were worked reporting those issues already amounts Arete had received and 6, 2005, out, April on Gunnerman’s counsel million. Arete declined Gunnerman’s $4.5 sought permission for Gunnerman to make offer. payment equivalent that would be cash 18, 2005, May On counsel for Arete 35,000
to the sale of the shares of stock wrote an email offering Gunnerman an permitted Arete would have been to sell alternative to complying with the terms of April for the week of 2005.1 Ex. P-11. original agreement. He wrote: Gunnerman’s counsel offered to base the I believe that we are still behind one payment average cash on either the clos- week. I do not believe got we stock for ing price highest closing price or the for April the week of money Send the the week. Id. Counsel for Arete re- everyweek highest prices [sic] sponded accept that Arete would a wire will great. get work But we need to payment highest transfer based on the money for week one. closing price by for the week made 5:00 Ex. P-23. Counsel for Gunnerman re- p.m. Friday on the the week the shares sponded: I spoke “Ok. with Stan to con- were due to be sold. Id. 2, 2005, firm.” Id. On June went, April and no came $447,300 transferred to Arete. According SulphCo of shares stock were escrowed. counsel, to Gunnerman’s this amount was following day, The Gunnerman’s counsel 105,000 based aon theoretical sale of preparing informed Arete he was SulphCo shares of stock at the highest agreement begin making escrow and would closing prices during two different weeks physical delivery of restricted shares to in May. A formal parties’ draft of the Arete in the near future. Ex. P-10. Ar- amendment to agreement their settlement objected proposed ete that Gunnerman’s prepared signed. but was never Gun- of action course violated the payments nerman continued to make cash (1) because: the transfer of restricted varying of through amounts December of fully the promise shares violated of tradea- appeared none of which any bear (2) ble, shares; unrestricted physical particular relation to an identifiable meth- delivery of shares violated the calculating accruing obligations od of to make a transfer into a Goldman Sachs account, Arete. escrow which was intended to fa- cilitate an efficient broker-to-broker trans- parties agree that the total consid- 11, 2005, During April fer. the week of no provided eration in both and stock cash made, escrow was no shares were trans- by $4,390,390.71. Arete Gunnerman was ferred, and no cash payment wire transfer (1) represents: This amount the initial
was made in lieu thereof. 31, 2005; cash on March (2) 105,000 proceeds the actual Monday, April
On by sent shares of stock via Federal stock sent to Arete (3) $456,239.98; Express to Arete. Two more deliveries the total Gunnerman — Although comply this email communication advised indication that Gunnerman could not might problem initially obligations that there be a with his to escrow the Arete, by April the sale of shares there was no shares of stock 2005. Ex. P-11. words, payments of the wire transfer made lieu ete and million. In other Gun- obligations recovery of Gunnerman’s stock transfer nerman believes Arete’s should $109,609.29. However, agreement— under the modified be limited Gunner- $3,184,150.73. theory No stock or cash has been man’s he owes no more than $109,609.29 paid to Arete December entirely unsupportable since parties’ original based the terms of the Arete asserts causes action for breach agreement as well as the terms of the prove of contract and fraud. To its cause agreement, modified the latter of which contract, of action for breach of replaced stock pay- transfers with cash (1) must establish: the existence of a valid equivalent ments that were based on the contract; that it performed or tendered *14 weekly sales of shares of stock at (3) performance; that Gunnerman breach highest closing price the for each week.2 contract; ed the that it suffered damages as a result of deposition, gave Gunnerman’s At his Gunnerman testi- Hussong mony breach. v. Schwan’s Sales En regarding understanding his Inc., 320, terp., 896 (Tex.App. parties’ agreement S.W.2d 326 that was both inconsis- writ). 1995, Houston [1st no tent posi- Dist.] and unbelievable. Gunnerman’s recovery $750,000 also seeks from Gunnerman un tion was the payment cash towas theory. promise der a fraud “A to part do an be included as a obligation of his 1,100,000 act in the future is actionable fraud when amake transfer of shares. Ex. intention, made design pur with the P-56 at 11-12. While he insisted that pose deceiving, and with no intention of gotten up Arete “could have to million” $6 performing Spoljaric the act.” v. Percival had the been higher price, stock he also Tours, Inc., (Tex. 432, 708 S.W.2d 434 stated that he agree did not that Arete 1986). party’s “Courts have held a denial “opportunity would have the to collect promise $750,000 $5,250,000 he ever made a plus factor from the sale of showing no intent to perform when he stock.” Id. promise.”
made the Id. at 435. “always Gunnerman admitted he intend- brief, In post-trial get 1,100,000 essen- ed to credit on the shares of tially the presence $750,000 concedes of each of the payment stock” for the he made elements of front, Arete’s contract claim. up His at despite Id. 23. This the fact only dispute proper is over the measure of that such a credit would have made abso- damages. view, In only Gunnerman’s lutely no sense in the origi- context of the damages to which Arete is entitled is the agreement. nal agreement When the was difference between the value of the originally cash dictated into the record on and stock already he has to Ar- tendered March clearly there were two argues payments performance that the cash payments stitute based on cash average highest should have been based on the weekly closing prices. stock at the Ex. P- Thereafter, price highest closing price rather the for each Gunnerman’s counsel sent single piece week. there is not a payment Arete an email that its first cash evidence in the record to indicate that Arete expressly under the new was based ever acceded to highest weekly price such method of calculation. on the of two weeks in Moreover, specifically May Gunnerman's counsel simply of 2005. Ex. P-27. There is no accepted highest weekly closing price concluding as basis in the record for appropriate agreed anything measure of calculating Gunnerman's other man obligations separate modified on two obligations occa- Gunnerman’s substituted cash at First, 18, email, May sions. in a anything SulphCo’s highest Gun- weekly other man accepted closing price. nerman’s counsel Aide’s offer of sub- Sciences, Inc., separate obligations 304, undertaken Gun- 128 S.W.3d 317 n. 6 (“The payment of cash (Tex.App.-Dallas nerman—-one no pet.) nor one for the transfer of stock. The cash- mal damages measure of in a breach of equivalency appeared issues never stock contract case is the benefit-of-the-bargain measure.”); Interests, Inc., until Gunnerman refused to transfer the Green v. Allied Sachs, required stock Goldman under 963 S.W.2d 208 (Tex.App.-Austin denied) (“Texas original agreement. pet. clearly recognizes law benefit-of-the-bargain damages for com position The Court finds Gunnerman’s fraud”). mon law The benefit-of-the-bar always that he understood the gain damages measure of requires the obligation could offset his look Court to at the difference in value entirely transfer shares was between what Arete was promised and Furthermore, fabricated after the fact. actually what it received. finds that initial Court Gunnerman’s requests to convert the from a Arete has offered several different calculating stock-based transaction to cash-based methods for damages, some part were of the fraud he which transaction are based on the prevailing price attempting perpetrate on Arete and on stock on December *15 Specifically, Court. used the date on which Arete contends Gunner- the modification to create a colorable basis man “decided stop paying Arete.” Pl.’s alleged for his confusion over the Trial total Br. at 6. any method of obligations amount calculating damages of his to Arete. That that presumes Gun- is, agree once he had induced Arete to obligations nerman’s to transfer actual in accept required cash lieu of the shares stock were still in place May after 2005 stock, then, then, only clearly since, he would improper be would be as Arete shown, straight able to claim with a face that the has parties agreed the to an alter- payment required by arrangement cash native whereby Gunnerman applied at the outset could be to his stock ultimately permitted was to transfer cash obligations. expressly Instead, transfer The Court lieu of actual stock. a proper permit finds Gunnerman never intended to benefit-of-the-bargain analysis requires any Arete to realize more than million the to begin by hypothesizing Court what $4.5 agree- and never intended to happened per- would have had Gunnerman 1,100,000 ment to transfer obligations promised. shares. The formed his as Un- evidence of record original agreement, establishes Gunnerman der the terms of the keep prom- never intended to two distinct Gunnerman would have transferred (1) $750,000 ises to Arete: that Arete 2, would have cash to Arete April before 1,100,000 opportunity to sell shares 2005 and transferred shares of stock; SulphCo that Arete could stock to Goldman Sachs for Arete’s benefit achieve a maximum recovery mil- April 2005. Arete could then begin $5.25 proceeds lion as on the sale of selling shares at a rate of no more than Indeed, 35,000 appears stock. it per the Court week. allergic
that Gunnerman is to the truth. next actually Court considers what theory Under either a contract or a happened. any Gunnerman did not make theory, fraud damages proper- Arete’s are shares available to Arete that would have ly measured a benefit-of-the-bargain any under allowed it to make during sales gumarska did, however, calculus. See kemijs- April SAVA week of 2005. He ka industria v. Polymer d.d. Advanced make three transfers that allowed Arete to 406 105,000 three entitled to shares of actual stock. following sales for the weeks.
make Thereafter, each week that Arete could have sold parties’ reached their mod- For performed that allowed stock had Gunnerman under ified agreement, including payments parties’ original cash for the stock to substitute 11, 2005, April the week of Arete was Arete would have been authorized to sell. original agreement, payment equivalent entitled to a cash Accordingly, under modified, 35,000 highest at the subsequently the Court finds stock clos- expect following ing price entitled to of the week. The total cash payments from For which Arete was entitled to re- performance Gunnerman: weeks agreement, and 4 of the Arete was ceive under this scenario are as follows: beginning High Closing Expected Payment Price Week April $198.800 $5.68 2005 11. April 18, $5.60 None—Actual shares received 2005 April 25, $5.46 2005 None—Actual shares received May 2, $4.80 2005 None—Actual shares received $3,99 May 9, $139,650 2005 $129,500 May 16, $3.70 2005 May 23, $134,750 $3.85 2005 May 30, $136,500 $3.90 2005 $143,500 June 4.10 $129,150 $3.69 June June 4.49 $143.500 *16 June 2005 July 4, $120,400 $3.44 2005 July 11, $134,050 2005 July 18, $128.800 2005 3.68 July 25, $133,000 $3.80 2005 August 1, $126,000 $3.60 2005 August 8, $133,000 $3.80 2005 15, August $4,16 $145,600 2005 August 22, $183,750 2005 5.25 August 29, $170,800 $4.S 2005 September 5, $172,900 $4.94 2005 September 12, $168,000 $4.80 2005 $166,250 September 19, 2005 4.75 September 26, 2005 4.57 None3 3, $4,65 $162,750 October 2005 $156.450 $4.47 October 2005 $4.51 October 2005 parties’ original agreement every 3. The called for shares week available sell for it selling SulphCo Spe- shares to be delivered to Arete at a rate of would have been stock. 140,000 per every cifically, beginning September month on the first of month for the week (with during exception April, previously of which Arete would have sold all 11th). shares, shares were to be transferred on the transferred and it would not receive a Coupled following with the tact that there are more new until allotment week. month, Thus, beginning every September than the week four weeks in almost this 2005 35,000 designated means that Arete would not have had is as a no-sale week in the table.
407 24, 2005_$4.55_$159.250 October 2005_$463_$162,050
October 31. 2005_$410_$143.500
November 7. 14, 2005_$jh99_$139.650 November 2005_$455_$68,2504 November 21.
_Total:_
_ actually damages. wired Arete cash Tex. Crv. Prac. & Rem.Code 41.003(a)(1). § In $3,184,150.73 formulating appro- during the total amount of priate exemplary award, damages Thus, period. difference between (1) Court considers: the nature the amount Arete received and what it (2) wrong; the character of the conduct if would have received had (3) involved; the degree culpability performed modified (4) wrongdoer; the situation and sensi- $1,060,649.27.6 is promised figure This concerned; bilities of the parties actual represents damages Arete’s under the extent to which the defendant’s con- its fraud7 and contract both causes of ac- duct offends public justice sense of tion. Baucum, Sanders v. propriety. 929 Because the Court finds Arete has (N.D.Tex.1996) F.Supp. (citing shown, by evidence, clear convincing Alamo Nat’l Bank San Antonio v. expectancy damages were the re- Kraus, (Tex.1981)). 616 S.W.2d Gunnerman, promises by sult of fraudulent Considering these factors and the individu- it exemplary case,8 is entitled an award of al circumstances of this the Court Although weekly Arguably, each damages other totals is the fraud measure of 35,000 highest weekly based on shares at the slightly different than the contract measure closing price, weekly the final total is based promises underlying because the fraudulent only many shares since the fraud claim were made in the course of agree- would remain in the final week of the original, the formation of the rather than the ment. modified, agreement. settlement *17 because Arete’s reliance on Gunnerman’s trial, presented damages expert, 5. At promises false accep- was also a factor in its Kokernak, Stephen testify Louis on various original tance of the modifications to the damages. calculations for its The Court de- agreement, expectan- the Court holds Arete's rely figures clines to on his for two reasons. cy respect to the modified First, report, in his Kokernak made basic provides appropriate calculating basis for recording highest closing price errors in damages. Arete's fraud beginning May for the weeks 2005 and July by assigning weekly each a clos- Although making Gunnerman’s conduct in ing price days from that fell outside each promises keep he never intended to is suffi- Second, respective although week. Koker- support cient on its own to this award of testimony nak's reflects he understood the exemplary damages, the Court would further 140,000 per effect that the month limitation note that consistently Gunnerman has flouted expected payments, would have on Arete’s his legal obligations proceedings in these report does not reflect his calculations were disregard shown a for how his conduct would modified to account for this effect. everyone affect else involved. In both this lawsuit, previous case and the dispute 6. There is no that Gunnerman actual- repeatedly appear railed to ly scheduled delivered the initial cash proceedings, promised, willingly partici- court failed to and that he tendered pate during satisfying discovery period actual shares the three week number of his Thus, beginning April obligations, agreements those and failed to honor sum, amounts are not at issue in this calculation. made his counsel on his In behalf. $500,000 an appropriate exemplary finds MILLION SIXTY THOUSAND SIX damages award. HUNDRED FORTY-NINE AND 27/100 ($1,060,649.27), DOLLARS as well as ex- alternative, In the Arete is entitled to its emplary damages in the amount of FIVE contract, damages plus under the attor HUNDRED THOUSAND AND NO/100 Houston, ney’s fees. See Star Inc. v. She ($500,000.00). DOLLARS (Tex. vack, 414, 422 886 S.W.2d & n. 9 denied) IT IS FINALLY ORDERED that Arete App.-Houston [1st Dist.] writ shall file a notice with the Court within ten (explaining party that a prevailing on (10) days entry of the date of the of this causes of action for both fraud and breach making order an election may of contract between the rem- obtain either actual and edies for its breach of contract and exemplary damages for actual fraud or fraud causes of action.9 damages plus attorney’s fees under the contract); Tex. Civ. Prac. Rem.Code & 38.001(8). § entry judg Before the
ment, Arete must make an election be
tween these two alternative measures of Houston,
recovery. Star 886 S.W.2d at
422-23. U.S. COMMODITY FUTURES Conclusion COMMISSION, TRADING
In accordance with the foregoing: Plaintiff-Appellant, IT ORDERED IS that Arete has estab- v. lished its breach against of contract claim Anthony DIZONA, Defendant-Appellee. by preponderance of the evi- dence and is thus entitled to actual No. dam- 08-20418. ages under the contract in the amount of United States Court of Appeals, ONE MILLION SIXTY THOUSAND Fifth Circuit.
SIX HUNDRED FORTY-NINE AND ($1,060,649.27), plus DOLLARS at- 27/100 Jan.
torney’s fees.
IT IS FURTHER ORDERED that Ar-
ete has against established its fraud claim
Gunnerman by clear and convincing evi-
dence and thus is entitled to actual dam-
ages for fraud the amount of ONE consistently it, Gunnerman has shown he has no counsel summarized said shares; regard anyone for how his conduct affects but "that he will not wire the Arete will get paper, wipe them via himself. Arete can their Rudy ass with them for all cares." Ex. P-7. thoughtless disregard Gunnerman's
rights highlighted by of Arete is a comment he recovery In the event Arete elects under its concerning made to his counsel his decision action, application contract cause of physi- release shares to Arete via attorney's prepared fees should be and filed delivery through cal rather than entry broker- after compliance arrangement agreed CV-7(i). to-broker he to. As his Local Rule