Friday, February 8, 2008

CPS loses appeal: Supreme Court denies review in case from Harris County, finding no error by Houston court of appeals

In its only opinion issued today, the Texas Supreme Court resolves issue regarding managing conservatorship of children in cases in which termination of the parent's rights was reversed on appeal and no independent grounds were proven to support appointment of CPS (DFPS) as managing conservator. The Court denies the Department's petitions for review on a finding that the First Court of Appeals' reversal of the appointment order, along with the termination, was proper. Colbert v. DFPS (Tex. App. - Houston [1st Dist.] Dec. 21. 2007, pet.). Several cases involving multiple children of the same mother were consolidated and decided in a single per curiam opinion. Justice Jennings had witten a separate opinion in the court of appeals.

In the Interest of D.N.C., a Child, No. 07-0621 (Tex. Feb 8, 2008) (CPS suits, termination of parental rights)
from Harris County; 1st district (01‑04‑01232‑CV, 227 S.W.3d 799, 12‑21‑06)


In these five cases, the Department of Family and Protective Services sought termination of Ericka Shanette Colbert’s parental rights to her seven children, T.J.C., T.D.C., D.N.C., T.L.J., T.B.J., E.D.C., and J.D.M. The trial court found that Colbert had endangered her children and terminated Colbert’s parental rights under section 161.001(1)(D) of the Family Code. Making no additional findings, the trial court appointed the Department of Family and Protective Services as the children’s managing conservator.

On appeal, Colbert challenged the sufficiency of the evidence to support the termination order, but she did not separately challenge appointment of the Department as the children’s managing conservator. The court of appeals reversed the termination order on factual insufficiency grounds, and also reversed the trial court’s conservatorship appointment. 227 S.W.3d 799, 816. The court reasoned that no findings had been made under Family Code section 153.131[1] that would independently support the conservatorship order, and thus the Department’s appointment was solely the consequence of the trial court’s termination decision under Family Code section 161.207[2] and had to be reversed as well. Id.

The Department here contends reversal of the conservatorship order was erroneous under our recent decision in In the Interest of J.A.J., ___ S.W.3d ___ (Tex. 2007). In J.A.J., however, the Department requested conservatorship pursuant to Family Code section 153.131 and the trial court made the specific findings that the statute requires: that appointment of a parent as J.A.J.’s managing conservator would not be in his best interest because it would significantly impair his physical health or emotional development, and that appointment of the Department was in J.A.J.’s best interest. Id. at ___. In light of these findings, we emphasized that the differing elements and standards of review applied to conservatorship and termination orders required separate challenges on appeal. Id. at ___. In this case, by comparison, the only available statutory mechanism for the Department’s appointment was as a consequence of the termination pursuant to section 161.207. See Tex. Fam. Code § 161.207. Accordingly, J.A.J. does not apply, and Colbert’s challenge to the conservatorship appointment was subsumed in her appeal of the parental-rights termination order.

The Department’s petition for reviews are denied.

Opinion Delivered: February 8, 2008

[1] Section 153.131 creates a presumption of managing conservatorship in favor of a parent or parents unless the court finds that such appointment “would not be in the best interest of the child because the appointment would significantly impair the child’s physical health or emotional development.” Tex. Fam. Code § 153.131(a). A finding of a history of family violence involving a child’s parents removes the presumption that appointment of the child’s parents is in the child’s best interest. Id. § 153.131(b).

[2] Section 161.207, entitled “Appointment of Managing Conservator on Termination,” provides that the court shall appoint a suitable managing conservator “[i]f the court terminates the parent-child relationship with respect to both parents or to the only living parent.” Tex. Fam. Code § 161.207(a).

Thursday, February 7, 2008

Judge Dorfman reversed in temporary injunction appeal

Grant or denial of temporary injunctive relief may be appealed immediately. Interlocutory appeal proved successful in this case.

EPG, Inc.v RDM, Inc. No. 14-07-00415-CV (Tex.App.- Houston [14th Dist.] Feb. 7, 2008)(Anderson) (temporary injunction appeal)

Opinion by Justice John Anderson
Panel members: Chief Justice Hedges, Justices Anderson and Seymore
Full case style: EPG, Inc. & Stanton Holt v. RDM, Inc.
Court below: 129th District Court of Harris County (Judge Grant Dorfman)
Disposition: Reversed and Dismissed
EPG's counsel: Diana E. Marshall
RDM, Inc.'s attorney: Leonard J. Meyer


This is an accelerated, interlocutory appeal[1] from the granting of a temporary injunction against appellants, EPG, Inc. (EPG) and Stanton Holt, in favor of appellees, RDM, Inc. (RDM), Paul McElroy, Nick Incrapera, Peter Holt, and Judson Holt. After an evidentiary hearing, the trial court entered a temporary injunction requiring Stanton and EPG to turn over or release to RDM all assets and property maintained for and/or belonging to the limited partnerships including but not limited to marketing files and/or records, human relations files and/or record, accounting files and/or records, ledgers, checkbooks, computer equipment, management fees, general fees, and administrative fees. Additionally, Stanton and EPG were prohibited from interfering in any way with RDM's management and collection of fees.

In six issues, appellants contend the trial court abused its discretion by granting a temporary injunction because (1) the trial court altered the status quo between the parties; (2) appellee's suit was barred by the doctrine of unclean hands; (3) appellee failed to show a probable right of recovery; (4) the injunction awarded appellee all relief requested; (5) the injunction awarded appellee possessory rights; and (6) the trial court failed to balance the equities, burdens, and hardships of the parties.

Factual and Procedural Background

Stanton is the founder of a restaurant chain called Lupe Tortilla. Stanton began his business with one Lupe Tortilla restaurant. The restaurant was a success, so he began considering the idea of expanding his business. In 1995, Stanton formed EPG to serve as the general partner for his expansion restaurants. Stanton was the sole director and a shareholder of EPG. Judson Holt, Peter Holt, Paul McElroy, and Nick Incrapera were also shareholders of EPG and served as officers for the corporation. From approximately 1997 to 2006, EPG developed and opened six more Lupe Tortilla restaurants in the Houston vicinity. Each expansion restaurant was formed as a limited partnership with EPG serving as its general partner. Each limited partnership was named Tres Habaneros followed by a reference to its location.

Around March 2007, disagreements began to form between Stanton and Judson, Peter, McElroy, and Incrapera. On March 7, 2007, McElroy was removed from his position as Chief Executive Officer (CEO) and President of EPG. Each side presented conflicting stories as to why McElroy was terminated. Stanton and EPG alleged that at the meeting on March 7, Judson, Peter, McElroy, and Incrapera insisted Stanton give up his voting control of the corporation. Appellants claimed McElroy advised Stanton he would no longer go forward with the plan to build additional Lupe Tortilla restaurants unless Stanton gave up this control. After hearing this, Stanton felt he had no other choice but to remove McElroy as CEO and President of EPG, but Stanton testified he subsequently offered McElroy a lateral position as Chief Financial Officer, which McElroy refused to accept. According to RDM, McElroy never refused to go forward with the expansion plan, and Stanton unilaterally decided to fire McElroy for no reason during their meeting on March 7.

On March 8, 2007, one day after being removed as CEO and President of EPG, McElroy formed another corporation called RDM. That same day, Judson, Peter, and Incrapera signed the Certificate of Formation as officers of RDM, while still employed as officers of EPG. Judson admitted RDM was formed with the purpose of taking over EPG’s position as general partner. On March 9 and 10, McElroy held meetings with some of EPG’s limited partners, including Judson and Peter. During the meetings, McElroy discussed with the limited partners the idea of replacing EPG with RDM as general partner, and he presented a form for them to sign agreeing to remove EPG. Stanton, as a limited partner, and EPG, as the general partner, never received notice of the meetings. The following week, McElroy worked to secure enough limited partners’ signatures to effectuate the removal of EPG as the general partner for each of the Tres Habaneros limited partnerships.

EPG and Stanton were unaware of these actions until March 19, 2007, when RDM delivered a letter to EPG’s corporate office informing it that 75% of the sharing ratio of the limited partners for each Tres Habaneros partnership had voted to remove EPG and replace it with RDM. The letter also demanded EPG to turn over the limited partnerships’ assets and property to RDM. Stanton refused to turn over the property and assets. That same day, RDM filed suit against Stanton for conversion and also sought a temporary restraining order and temporary injunction. The trial court signed a temporary restraining order requiring Stanton and EPG to safeguard and maintain the assets and property belonging to the limited partnerships and requiring the information be available to RDM and its designated representatives for inspection. On April 26, 2007, the trial court signed a temporary injunction requiring Stanton and EPG to turn over or release to RDM all assets and property maintained for and/or belonging to the limited partnerships including but not limited to marketing files and/or records, human relations files and/or record, accounting files and/or records, ledgers, checkbooks, computer equipment, management fees, general fees, and administrative fees. The temporary injunction is the basis of this appeal.


A. Did the Trial Court Fail to Maintain the Status Quo?

In their first issue, appellants claim the trial court abused its discretion because it altered the status quo by requiring EPG to turn over or release to RDM all of the limited partnerships’ assets and property.

1. Standard of Review

An applicant for a temporary injunction seeks extraordinary relief. In re Tex. Natural Res. Conservation Comm’n, 85 S.W.3d 201, 204 (Tex. 2002). The sole issue before the trial court in a temporary injunction hearing is whether the applicant may preserve the status quo of the litigation’s subject matter pending trial on the merits. Davis v. Huey, 571 S.W.2d 859, 862 (Tex. 1978). The status quo is the last actual, peaceable, noncontested status which preceded the pending controversy. RP&R, Inc. v. Territo, 32 S.W.3d 396, 402 (Tex. App. - Houston [14th Dist.] 2000, no pet.). An applicant must plead and prove three elements to obtain a temporary injunction: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002).

The applicant for the temporary injunction is not required to establish that he or she will prevail upon a final trial on the merits. Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993). The merits of the applicant’s suit are not presented for review. Davis, 571 S.W.2d at 861.

Our review is strictly limited to whether the trial court clearly abused its discretion in granting the temporary injunction. Id. at 862. We may not substitute our judgment for that of the trial court by vacating or modifying an injunction simply because we would have decided the issue differently. Landry’s Seafood Inn & Oyster Bar-Kemah, Inc. v. Wiggins, 919 S.W.2d 924, 926 (Tex. App. - Houston [14th Dist.] 1996, no writ).

Further, we may not reverse the trial court’s order granting a temporary injunction unless its decision was so arbitrary that it exceeded the bounds of reasonable discretion. Butnaru, 84 S.W.3d at 204. However, it is an abuse of discretion for the trial court to issue a temporary injunction which alters the status quo. See Dyer v. Weedon, 769 S.W.2d 711, 715 (Tex. App. - Waco 1989, no writ). The trial court does not abuse its discretion if the applicant pleads a cause of action and presents some evidence tending to sustain that cause of action. RP&R, Inc., 32 S.W.3d at 400. Furthermore, as the trial court functions as the fact finder in a temporary injunction hearing, an abuse of discretion does not exist where the trial court based its decision on conflicting evidence. Davis, 571 S.W.2d at 862. As the reviewing court, we must draw all legitimate inferences from the evidence in the light most favorable to the trial court’s order granting a temporary injunction. T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 21 (Tex. App. - Houston [1st Dist.] 1998, pet. dism’d).

2. Analysis

We begin by noting that the status quo is not necessarily the situation as it existed at the time the trial court entered its order. See McLean v. Employers Cas. Co., 381 S.W.2d 582, 584 (Tex. Civ. App.-Dallas 1964, no writ). Rather, as stated above, the status quo is the last actual, peaceable, noncontested status which preceded the pending controversy. RP&R, Inc., 32 S.W.3d at 402.

Appellants contend the trial court abused its discretion because it altered the status quo by requiring EPG to turn over or release to RDM all of the limited partnerships’ assets and property. Appellees, on the other hand, assert the trial court properly granted the temporary injunction because the last actual, peaceable, noncontested status was when RDM took over as the general partner. We cannot agree with appellees. It is undisputed the parties hotly contest the status of RDM as the general partner. This status, therefore, cannot constitute the status quo to be protected pending a trial on the merits. See Benavides Indep. Sch. Dist. v. Guerra, 681 S.W.2d 246, 249 (Tex. App. - San Antonio 1984, writ ref’d n.r.e.). If an act of one party alters the relationship between that party and another, and the latter contests the action, the status quo cannot be the relationship as it exists after the action. Id. In this case, McElroy, Judson, Peter, and Incrapera formed RDM with the purpose of taking over EPG’s position as general partner, they failed to notify both EPG and Stanton of multiple meetings held with the other limited partners, and they subsequently replaced EPG with RDM as the general partner. These actions altered the relationship between the two parties, and appellants contest these actions on multiple grounds. Accordingly, the status quo cannot be the relationship as it existed after RDM took over as the general partner. See id. (rejecting school district’s argument that the status quo to be maintained was the part-time employment status of employee before the suit was filed because school district had altered the relationship by reducing employee’s status from full-time to part-time and employee properly contested this action).

Thus, the last actual, peaceable, noncontested status was when EPG served as the general partner and maintained the assets and property for each of the Lupe Tortilla limited partnerships. The temporary injunction ordered by the trial court required appellants to turn over or release to RDM all assets and property, which disturbs the status quo. We conclude the trial court abused its discretion by entering the temporary injunction and altering the status quo. Accordingly, we sustain appellant’s first issue. The judgment of the trial court is reversed, and the order granting the temporary injunction is dissolved. Because of our disposition on this point of error, we need not reach appellant’s remaining points. Tex. R. Civ. P. 47.1


Having sustained appellant’s first issue, we reverse the judgment of the trial court and dissolve the order granting the temporary injunction.

/s/ John S. Anderson

Judgment rendered and Memorandum Opinion filed February 7, 2008.
Panel consists of Chief Justice Hedges and Justices Anderson and Seymore.
[1] Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(4) (Vernon Supp. 2007).

Counsel benefits from presumption of competence - juvenile client does not

Probation violations lands juvenile in jail. Court of appeals rejects argument that lousy lawyering by offender's attorney rendered legal representation ineffective. Appellant's admissions did not help - obviously.

Bottom line: "After reviewing the facts of this case, and considering that the record is silent as to counsel’s strategy, we must rely on the presumption that counsel’s actions were motivated by sound trial strategy. We conclude that Appellant’s counsel’s performance was not so deficient that it fell below the standard of professional norms. Therefore, we overrule Appellant’s second point of error."

In the Interest of RLR, III, No. 14-06-00926-CV) (Tex.App.- Houston [14th Dist.] Feb. 7, 2008)(Sears)(juvenile cases, revocation of probation)
Opinion by Judge Sears [assigned judge]
Before Judge Sears, Justices Brock Yates and Guzman
In the Interest of R.L.R. III
Trial court: 306th District Court of Galveston County (Judge Janis Louise Yarbrough)
Disposition: Affirmed


Appellant, R.L.R. III, was charged with violating the terms and conditions of his probation. After a hearing, the trial court modified Appellant’s probation and committed Appellant to the Texas Youth Commission (TYC). Appellant timely filed this appeal, arguing in three issues that (1) the evidence is factually insufficient to prove that Appellant possessed a controlled substance, (2) Appellant was denied effective assistance of counsel because his attorney failed to object to the improper filing by the State of a petition to modify Appellant’s disposition and failed to object to the application of the "law of parties," and (3) Appellant was denied effective assistance of counsel because his attorney was unable to hear properly during the proceedings. We affirm.

I. Factual and Procedural Background

Appellant was placed on juvenile probation on January 13, 2005 for unauthorized use of a vehicle. The probation was to last for 18 months, during which time Appellant agreed to comply with the terms and conditions of his probation. Appellant was still on probation when the State filed a petition to modify disposition, charging Appellant with several violations of the terms and conditions of his probation. Following a modification hearing in which the court established that Appellant had violated the terms and conditions of his probation, Appellant was committed to the TYC. Appellant timely filed this appeal.

Witness testimony during the modification hearing established numerous probation violations, including that Appellant failed to pay his probation fees, failed to report to his probation officer as required, missed school, violated curfew, and admitted to smoking marijuana and crack cocaine. Additionally, testimony revealed that on May 21, 2005, a Texas City police officer and his trainee knocked on the door of an apartment in response to a noise complaint. When someone eventually opened the door, the officers smelled burnt marijuana and entered the apartment to investigate. Appellant emerged from the back bedroom, but refused to reveal his hands to the officers and was subsequently arrested for resisting arrest, search, and transport.

Testimony also established that on May 10, 2006 a Galveston County constable attempted to execute an order to apprehend Appellant. The constable found Appellant driving a vehicle, called for back-up, and blocked Appellant’s vehicle to prevent him from leaving. The vehicle driven by Appellant was occupied by five individuals. The constable testified that he saw Appellant toss a plastic baggie towards the front seat passenger. The baggie was recovered outside the vehicle, after the front seat passenger stepped out of the car and onto the baggie in an attempt to hide it. The substance in the baggie tested positive for cocaine. During the adjudication phase of this probation modification, the court found that Appellant did intentionally and knowingly possess crack cocaine within 1000 feet of a high school, therefore violating the terms of his probation.

Despite testimony from Appellant and his mother during the disposition phase of the probation modification that Appellant did not need to be confined to the TYC, the court found that Appellant was a child who had engaged in delinquent conduct, who was previously on probation, and who violated probation by crack cocaine and marijuana use and by driving without a license. The court further found Appellant violated his probation by failing to pay probation fees, failing to report to his probation officer as required, missing school on at least three occasions, and violating curfew. Considering the numerous probation violations, the court decided that it was not in Appellant’s best interest to return to his mother’s house and instead committed him to the TYC.

II. Issues and Analysis

In three points of error, Appellant contends that: (1) the evidence was factually insufficient to prove that Appellant possessed a controlled substance and therefore the trial court erred in committing Appellant to TYC, (2) Appellant was denied effective assistance of counsel when his attorney failed to make certain objections, and (3) Appellant was denied effective assistance of counsel due to his attorney being unable to hear properly during the trial proceedings.

A. Did the trial court err in committing Appellant to TYC?

The Texas Family Code provides that a juvenile can be transferred to TYC following a trial court’s modification of a juvenile’s disposition, based on the trial court’s finding that the juvenile violated a reasonable and lawful order of the court. Tex. Fam. Code Ann. ' 54.05(f)(Vernon 2003). When considering the revocation or modification of a juvenile’s probation, the finding of a single probation violation alone is sufficient to support a court’s revocation of probation.[1] In a probation revocation or modification hearing for a juvenile offender, the decision about whether to revoke or modify rests within the discretion of the trial court. See In re T.R.S., 115 S.W.3d 318, 320 (Tex. App. - Texarkana 2003, no pet.). When reviewing a court’s probation modification of a juvenile’s disposition on appeal, we must decide whether the evidence is sufficient to support the court’s finding by a preponderance of the evidence that the juvenile violated a condition of the probation. Id. A trial court’s modification of a juvenile disposition is reviewed for an abuse of discretion. In re H.G., 993 S.W.2d 211, 213 (Tex. App. - San Antonio 1999, no pet.).

In the present case, the court’s decision was supported by its findings that Appellant violated numerous orders of the court. The court found that Appellant failed to pay his probation fees, failed to report to his probation officer as required, missed school on at least three occasions, violated curfew, and admitted to smoking marijuana and crack cocaine. Additionally, the court found that Appellant was a child who had engaged in delinquent conduct, who violated his probation by crack cocaine and marijuana use, and by driving without a license. The court further found that based on the numerous probation violations, it was not in Appellant’s best interest to return to his mother’s house. Appellant contends that the evidence was factually insufficient to prove that Appellant possessed a controlled substance; however, Appellant does not address nor contest any other probation violation identified by the trial court. Because of our determination that Appellant’s probation was properly revoked on any one of the numerous unchallenged violations, we need not consider whether the evidence is legally and factually sufficient to support the trial court’s finding regarding possession of crack cocaine.[2] We therefore overrule Appellant’s first point of error.

B. Did Appellant receive ineffective assistance of counsel?

In his second and third points of error, Appellant asserts that he received ineffective assistance of counsel. Both the United States and Texas Constitutions guarantee an accused the right to assistance of counsel. U.S. Con st. amend. VI; Tex. Const. art. I, ' 10; Tex. Code Crim. Pro. art. 1.051 (Vernon 2005). This right necessarily includes the right to reasonably effective assistance of counsel. Strickland v. Washington, 466 U.S. 668, 686, 104 S.Ct. 2052, 2064, 80 L.Ed.2d 674 (1984). When reviewing allegations of ineffective assistance of counsel, we apply a two prong test. See Salinas v. State, 163 S.W.3d 734, 740 (Tex. Crim. App. 2005)(citing Strickland, 466 U.S. at 687). To satisfy this test and establish ineffective assistance of counsel, the appellant must prove by a preponderance of the evidence that (1) his trial counsel’s representation was deficient in that it fell below an objective standard of reasonableness based on the prevailing professional norms, and (2) there is a reasonably probability that, but for counsel’s deficient performance, the result of the proceeding would have been different. Strickland, 466 U.S. at 688-92.

When reviewing Appellant’s claim for ineffective assistance of counsel, we apply a strong presumption that counsel was competent. Thompson v. State, 9 S.W.3d 808, 813 (Tex. Crim. App. 1999). We must look to the totality of the representation and the particular facts of each case. Id. Further, we presume that counsel’s actions and decisions were reasonably professional and were motivated by sound strategy. See Jackson v. State, 877 S.W.2d 768, 771 (Tex. Crim. App. 1994). Overcoming this presumption requires that "any allegation of ineffectiveness must be firmly founded in the record, and the record must affirmatively demonstrate the alleged ineffectiveness." Thompson, 9 S.W.3d at 914.

When there is no proper evidentiary record developed at a hearing on a motion for new trial, it is extremely difficult to show that trial counsel’s performance was deficient. See Bone v. State, 77 S.W.3d 828, 833 (Tex. Crim. App. 2002). When the record is silent as to trial counsel’s strategy, an appellate court may not speculate as to the reasons for counsel’s actions. See Toney v. State, 3 S.W.3d 199, 210 (Tex. App.BHouston[14th Dist.] 1999, pet. ref’d). In the absence of such testimony, it is difficult to meaningfully address appellant’s claims. See Davis v. State, 930 S.W.2d 765, 769 (Tex. App.BHouston[1st Dist.] 1996, pet. ref’d). On such a silent record, this court can only find ineffective assistance of counsel if the challenged conduct was Aso outrageous that no competent attorney would have engaged in it." Goodspeed v. State, 187 S.W.3d 390, 392 (Tex. Crim. App. 2005).

When reviewing a claim of ineffective assistance, we must look to the totality of the representation. Thompson, 9 S.W.3d at 813. Further, in order to prevail on a claim for ineffective assistance of counsel based on the failure to object during trial, Appellant must show that the trial judge would have committed error in overruling the objection had it been made. Ex parte White, 160 S.W.3d 46, 53 (Tex. Crim. App. 2004).

i. Trial Counsel’s Failure to Object

In the present case, counsel made strategic objections and arguments during pretrial motions and during opposing counsel’s examinations of each witness. Counsel cross-examined each witness, bringing credibility into question for several witnesses. Appellant fails to describe counsel’s representation for the majority of the trial and instead focuses solely on counsel’s failure to object. Although Appellant specifically refers to two objections that he claims should have been made by counsel, Appellant has not directed this court to any portion of the record that actually explains counsel’s strategy for declining to make the objections. Further, Appellant has not shown that the trial judge would have committed error in overruling either objection, had they been made.

Regarding the first objection, Appellant claims that when the State filed its amended petition to modify disposition, the State added a new charge and therefore counsel should have objected, an adjudication hearing should have been held, and a jury trial could have been requested. We disagree. A review of the charging document under which the State ultimately proceeded reveals that the document was indeed a petition to modify disposition. It is undisputed that Appellant was previously on juvenile probation and had violated various conditions of that probation. In a motion to modify a disposition, a jury is not available. Tex. Fam. Code Ann. § 54.05(c)(Vernon 2007). The record reflects that this proceeding was a modification of probation and not an adjudication. In addition to evidence about the new charge, the State presented testimony regarding Appellant’s various probation violations, Appellant’s admissions to his probation officer, and Appellant’s own testimony as to why he did not comply with the conditions of his probation. There is no indication from the record that counsel or Appellant were confused as to whether the proceeding was an adjudication or a modification. Therefore we conclude that the trial judge would not have committed error in overruling this objection.

Regarding the second objection, Appellant claims that trial counsel should have objected to the trial court’s application of the "law of parties" in its findings. Even if there is merit in the contention that the "law of parties" was not applicable in this case, we must determine that the failure to object was not part of a valid and reasonable strategy before we can find that Appellant was denied effective assistance of counsel. It is reasonable to conclude that the failure to object could have been part of a strategy by counsel to avoid objections that would not have a substantial effect on the proceedings. In the present case, Appellant had already admitted to violating the conditions of his probation. The testimony of his probation officer supplied further evidence of additional probation violations. The record reveals no indication that counsel’s performance was deficient or that the outcome of the proceeding was somehow affected by counsel’s failure to object on either ground identified by Appellant. Absent a contrary showing in the record, it must be presumed that Appellant’s counsel’s lack of objecting was part of a valid trial strategy and did not constitute ineffective assistance. See Thompson, 9 S.W.3d at 813-14 (holding that allegations of ineffective assistance must be firmly founded in the appellate record). Additionally, Appellant has not argued nor shown that the trial judge would have committed error in overruling this objection.

After reviewing the facts of this case, and considering that the record is silent as to counsel’s strategy, we must rely on the presumption that counsel’s actions were motivated by sound trial strategy. We conclude that Appellant’s counsel’s performance was not so deficient that it fell below the standard of professional norms. Therefore, we overrule Appellant’s second point of error.

ii. Trial Counsel’s Inability to Hear Properly During the Proceedings

Finally, there is no evidence of a reasonable probability that, but for counsel’s inability to hear adequately during the proceedings, the result of the proceeding would have been different. Although Appellant refers to numerous instances of counsel indicating that he was unable to hear, the record does not reflect that counsel ultimately did not understand any of the testimony or that his inability to hear certain portions of the proceedings prejudiced Appellant such that his hearing resulted in a different outcome. Because the finding of a single probation violation alone is sufficient to support a court’s revocation of a juvenile’s probation, and because Appellant admitted to numerous probation violations, we determine that even if defense counsel heard every word in the hearing, it could not result in a different outcome. Therefore, Appellant has not satisfied the second prong of the Strickland test and we overrule Appellant’s third point of error. See Strickland, 466 U.S. at 688-92.

III. Conclusion

Based on the foregoing, we affirm the trial court’s order modifying R.L.R. III’s disposition and placing him in TYC.

/s/ Ross Sears
Senior Justice

Judgment rendered and Memorandum Opinion filed February 7, 2008.
Panel consists of Justices Yates, Guzman, and Sears.*
[1] See In re T.R.S., 115 S.W.3d 318, 321 (Tex. App.-Texarkana 2003, no pet.) (holding that "[w]hen the state’s proof of any of the alleged violations of probation is sufficient to support a revocation of probation, the revocation should be affirmed ); see also Sanchez v. State, 603 S.W.2d 869, 871 (Tex. Crim. App. 1980) (holding that in adult criminal cases for probation revocation, probation may be revoked for a violation of a single condition).
[2] See Tex. R. App. P. 47.1.
* Senior Justice Ross Sears sitting by assignment.

Cancer Insurance: Late notice of claim did not defeat coverage

Applying fresh Texas Supreme Court precedent, Houston Court of Appeals holds that late notice did not prejudice insurance company in case where elderly wife did not know husband had cancer insurance and found out years after he had died, and thus did not release insurer from contractual obligation. Automatic premium payments kept going to insurer after insured's death until policy was discovered.

National Family Life Ins. Co. v. Vann No. 01-06-00245-CV (Tex.App.- Houston [1st Dist.] Feb. 7, 2008)(Alcala) (insurance litigation, sicko law, timeliness of notice of claim, prejudice criterion, test) Opinion by Justice Elsa Alcala
Before Chief Justice Radack, Justices Alcala and Bland
Full style of case: National Family Care Life Insurance Company v. Lelia E. Vann
Trial court: 239th District Court of Brazoria County (Judge Patrick Edward Sebesta)
Disposition: Trial court's judgment against insurer affirmed
Attorney for insurance company, Appellant: Anthony Icenogle, Benjamin S. De Leon
Attorney for Plaintiff-Appellee: Thomas Watson


This is an insurance policy dispute over the timeliness of the notice of the occurrence. Appellant, National Family Care Life Insurance Company (“National”), appeals from the trial court’s final judgment granting appellee, Lella E. Vann, $26,250 plus interest and attorneys fees. In three issues, National challenges the trial court’s finding that the notice of claim was filed within a reasonable time. Vann asserts that the notice was timely, but also contends that National must show that it was prejudiced by the delay in receiving notice before being excused from its contractual obligation. Assuming that National is correct in its three issues that assert the notice was untimely, we conclude that no evidence shows that it was prejudiced by the delay. We affirm.


Leila’s husband, Thomas, purchased a heart attack and cancer supplemental policy from National on March 25, 1988. The policy paid certain amounts for each day of hospitalization for cancer, upon notification and proof of the illness. Thomas did not tell anyone that he had purchased the policy, and National did not send any statements about the policy, so Leila was unaware of its existence.

Leila and Thomas ran a coffee shop at the Brazoria County Courthouse and the commissary of the Brazoria County jail. Thomas alone handled the financial affairs for the businesses until 1995 or 1996, when an employee took over that responsibility. Thomas, and later the employee, wrote checks and paid bills out of the business bank account, which was a bank account that was separate from the Vanns’ personal account. The automatic bank drafts for the insurance policy were taken from the business bank account. Thomas stopped running these businesses when he was hospitalized.

While hospitalized, Thomas was diagnosed with cancer on November 19, 1998. During his hospitalization, Thomas was unable to communicate verbally with his wife due to a tracheotomy and unable to write due the effects of his medication. He remained hospitalized until his death from cancer on April 16, 1999, leaving behind his wife Leila, who was nearly 80 years of age.
After Thomas’s death, the employee at the coffee shop continued to handle the financial responsibilities for the business until the shop was shut down in late 1999. When the coffee shop shut down, the business records were shipped to Leila’s residence at the end of 1999, but she did nothing with them or the bank statements she received for the business. Leila only used a personal bank account.

In late 2001 or early 2002, Leila’s daughters began, for the first time, to help her with Thomas’s estate, over which Leila was the executor. While one of Leila’s daughters was reviewing the bank statements for the shop, the daughter noticed the automatic monthly drafts taken by National, which had continued to be drafted after Thomas’s death. A search for the insurance policy by Leila’s family resulted in its discovery among the business records for the coffee shop. Leila’s family contacted National about the policy in January 2002, which was almost three years after Thomas died. In response to the call, the insurance company immediately ceased the automatic bank withdrawals. Leila’s family filed a claim form in February 2002. The next month, Leila wrote letters to obtain medical records required by the policy. The official claim form was filed on May 15, 2002 and National denied the claim two weeks later. Leila filed this suit alleging “a violation of the terms of the insurance policy.”

Requirement of Prejudice

The Supreme Court of Texas recently held that “an insured’s failure to timely notify its insurer of a claim or suit does not defeat coverage if the insurer was not prejudiced by the delay.” PAJ, Inc. v. Hanover Ins. Co., 51 Tex. Sup. Ct. J. 302, 2008 WL 109071, at *5 ( Tex. Jan. 11, 2008). The supreme court determined “that only a material breach of the timely notice provision will excuse [the insurer’s] performance under the policy.” Id. at *1. “[A]n immaterial breach does not deprive the insurer of the benefit of the bargain and thus cannot relieve the insurer of the contractual coverage obligation.” Id. A breach of the timely notice provision is not material when the insurer suffers no prejudice from the delay. See id.

The type of the insurance policy—whether occurrence or claims-made—is important in determining whether prejudice must be shown to deny a claim due to untimely notice. See id. at *5 (“The dissent, by focusing on the type of coverage rather than the type of policy, entirely disregards this important distinction.”). The supreme court explains that the Fifth Circuit, in applying Texas insurance law, “aptly describes the critical distinction between ‘occurrence’ policies and ‘claims-made’ policies” as follows:

In the case of an “occurrence” policy, any notice requirement is subsidiary to the event that triggers coverage. Courts have not permitted insurance companies to deny coverage on the basis of untimely notice under an “occurrence” policy unless the company shows actual prejudice from the delay. Id. (citing Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653, 658 (5th Cir. 1999)). In deciding whether prejudice must be shown, a court may also examine whether the notice of the claim was an essential part of the bargained-for exchange. See id.

Whether the notice is a covenant or condition, or exclusion or provision, does not resolve the matter of whether prejudice from lack of timely notice is required. Id. at *2 (describing court’s holding in Hernandez by stating, “Without distinguishing between covenants and conditions or classifying the exclusion as one or the other, we concluded that the insured’s breach of the settlement-without-consent provision was immaterial and thus the insurer could not avoid liability under the policy.”).

Thomas’s policy shows that the notice requirements appear under the section that purports to be requirements of the law. The insurance policy specifically stated,
. . . .
Notice of Claim: Written notice of claim must be given to [National] within 30 days after the occurrence or commencement of any loss covered by the policy, or as soon thereafter as is reasonably possible. Notice given by or on behalf of the Insured to [National], or to any authorized agent of [National] with information sufficient to identify the Insured, shall be deemed notice to [National] . . . .
. . . .
Proofs of Loss: Written proof of loss must be furnished to [National] within 90 days after the date of such loss. Failure to furnish such proof within the time required shall not invalidate or reduce any claim if it was not reasonably possible to give proof within such time, provided such proof is furnished as soon as reasonably possible and in no event, except in the absence of legal capacity, later than one year from the time proof is otherwise required.

By requiring notification of the claim upon the occurrence of hospitalization for cancer, this is an occurrence policy. See id. at *5. Because the notice section appears under the section purporting to be matters required by law, nothing in the policy suggests that the notice provision was an essential part of the bargained-for exchange. See id. Although National disputes that it is required to show prejudice, it does not claim that it suffered prejudice from the delayed claim, and the record undisputedly shows that it continued to take automatic premium deductions from Thomas’s bank account until it received notice of the claim.

We hold that the trial court did not err by concluding that Leila was entitled to payment under the policy, even assuming that notice of the claim was late under the policy, because National did not present any evidence of prejudice due to the late notice. Conclusion
We affirm the trial court’s judgment.

Elsa Alcala
Panel consists of Chief Justice Radack and Justices Alcala and Bland.

Roadkill Litigation: Roaming horse on highway not shown to be Centerpoint's Fault

Plaintiffs take nothing in suit for damages caused by collision with horse on the road. Still, it's a good idea to watch your gate, not to mention the road ahead.

Thomas v. Centerpoint Energy, Inc. NO. 01-07-00318-CV (Tex.App.- Houston [1st Dist.] Feb. 7, 2008)(Bland)(animal law, car - horse collision, proof of negligence, causation, evidence)
Opinion by Justice Bland
Before Chief Justice Radack, Justices Jennings and Bland
Lillian Thomas, John Ellard and Chris Ortiz v. Centerpoint Energy, Inc., and Centerpoint Energy Houston Electric, LLCAppeal from 412th Judicial District Court of Brazoria County (Judge W. Edwin Denman)
Disposition: Affirmed


In this case involving the collision of a car and a horse, Lillian Thomas, John Ellard, and Chris Ortiz (collectively, “appellants”) appeal the traditional and no-evidence summary judgment rendered in favor of Centerpoint Energy, Inc. and Centerpoint Energy Houston Electric, LLC (collectively, “Centerpoint”). Appellants contend that: (1) Centerpoint’s traditional motion for summary judgment fails to expressly state grounds for summary judgment; (2) the trial court improperly struck certain summary judgment evidence from the record; and (3) a genuine issue of material fact exists, precluding summary judgment as a matter of law. We conclude that the trial court properly granted summary judgment and therefore affirm.


On a February night in 2005, while driving on a rural stretch of road, Thomas and Ellard struck a horse in the roadway. Ortiz owned the horse, and the pasture in which it generally had been penned. Thomas and Ellard allege that they sustained personal injuries from the collision, and the horse was euthanized. Ortiz later intervened as a plaintiff. On the day of the accident, Centerpoint personnel were in the area to investigate a power outage. Appellants allege that Centerpoint unlocked and opened the gate to Ortiz’s horse pasture, purportedly to turn around their bucket truck, and failed to shut the gate before departing.

In his summary judgment affidavit, Scott Goodman, an employee of Centerpoint, acknowledges that he drove along County Road 601, the road upon which Ortiz’s pasture is located, on the appointed day, while en route to restore electricity for a customer. Goodman also acknowledges that he turned the Centerpoint truck around on County Road 601, but denies ever opening a pasture gate.

Centerpoint moved for both a traditional and no-evidence motion for summary judgment. In response, Ortiz offered an affidavit, but it was untimely filed. The trial court granted a continuance so that the parties could depose Ortiz. Thereafter, appellants filed a supplemental response, in which they attached Ortiz’s 158-page deposition, without referring the trial court to particular testimony.

At the summary judgment hearing, the trial court declined to consider appellants’ general references to the deposition. The court requested that appellants draft a letter brief citing authorities that supported appellants’ contention that the entire deposition should be considered without such references. After the hearing, appellants submitted an index referencing specific page and line numbers and a letter brief supporting their position that references were not required.

The court granted summary judgment on both traditional and no-evidence grounds. The court declined to consider the Ortiz deposition as too voluminous and further declined to consider the index because of its untimely submission. The court granted Centerpoint’s hearsay objection to Ortiz’s statements that another individual named Sam Hahn had stated that the Centerpoint employees had opened the gate. Additionally, the court granted Centerpoint’s objection to Ortiz’s affidavit opinion that the Centerpoint truck was too wide to turn around on County Road 601 without entering a pasture because the statement was conclusory, self-serving, and contradicted by Ortiz’s deposition testimony.

Standard of Review

We review a trial court’s summary judgment de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life Accid. Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). Under the traditional standard for summary judgment, the movant has the burden to show that no genuine issue of material fact exists and that the trial court should grant a judgment as a matter of law. Tex. R. Civ. P. 166a(c); KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). When reviewing a summary judgment, we take as true all evidence favorable to the nonmovant and indulge every reasonable inference and resolve any doubts in the nonmovant’s favor. Dorsett, 164 S.W.3d at 661; Knott, 128 S.W.3d at 215; Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997).

Traditional summary judgment is proper only if the movant establishes that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c). The motion must state the specific grounds relied upon for summary judgment. Id. A defendant moving for traditional summary judgment must conclusively negate at least one essential element of each of the plaintiff’s causes of action or conclusively establish each element of an affirmative defense. Sci. Spectrum, Inc., 941 S.W.2d at 911.

After adequate time for discovery, a party may move for a no-evidence summary judgment on the ground that no evidence exists to support one or more essential elements of a claim or defense on which the opposing party has the burden of proof. Tex. R. Civ. P. 166a(i). The trial court must grant the motion unless the nonmovant produces summary judgment evidence raising a genuine issue of material fact. Id. More than a scintilla of evidence exists if the evidence “would allow reasonable and fair-minded people to differ in their conclusions.” Forbes Inc. v. Granada Biosci., Inc., 124 S.W.3d 167, 172 (Tex. 2003).


Adequacy of the Motion

In their first point of error, appellants assert that the court did not adhere to the proper “standard of decision” for summary judgment. Specifically, appellants argue that summary judgment cannot be based on grounds that are not expressly presented in the motion for summary judgment. According to appellants, the court devoted “considerable discussion” to various hypotheticals favorable to Centerpoint at the hearing on motion for summary judgment, such as the possibility of the horse jumping over the fence rather than escaping through an open gate. Appellants argue that such hypotheticals were not expressly presented in Centerpoint’s motion for summary judgment. Appellants acknowledge, however, that Centerpoint expressly presented their contention, supported by Goodman’s affidavit, that Centerpoint’s employees did not open any gate and thus did not breach any duty or cause any injury. Rule 166a(c) of the Texas Rules of Civil Procedure establishes that a motion for summary judgment must “state the specific grounds therefor,” and the trial court is to render judgment if “the moving party is entitled to judgment as a matter of law on the issues expressly set out in the motion or in an answer or any other response.” Tex. R. Civ. P. 166a(c); Stiles v. Resolution Trust Corp., 867 S.W.2d 24 (Tex. 1993).

Centerpoint expressly set forth the specific grounds for summary judgment. Goodman’s affidavit also expressly negates the breach of duty and causation components of a negligence claim. Western Invs. v. Urena, 162 S.W.3d 547, 550 (Tex. 2005) (describing elements of a negligence action). Consequently, we hold that Centerpoint expressly presented grounds for summary judgment in its motion.

Admissibility of Summary Judgment Evidence

Appellants assert that the trial court improperly struck evidence from the record before determining whether summary judgment should be granted. We review a trial court’s decision to admit or deny summary judgment evidence under an abuse of discretion standard. Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex. 1998). The standards for the admissibility of evidence in a summary judgment proceeding are the same as those of a regular trial. United Blood Servs. v. Longoria, 938 S.W.2d 29, 30 (Tex. 1997). When reviewing abuse of discretion, we consider whether the trial court acted arbitrarily or unreasonably, or without reference to guiding rules and principles. Owens-Corning, 972 S.W.2d at 43.

First, appellants contend that the hearsay statements allegedly made by Hahn that were contained in Ortiz’s affidavit and deposition should not have been stricken from the record. According to the stricken evidence, Ortiz overheard Hahn, an acquaintance, telling a police officer on the night of the accident that he had seen a Centerpoint truck turn around in Ortiz’s pasture several hours earlier that day. Appellants contend that Hahn’s statement is an excited utterance or a present sense impression, and qualifies as an exception to the hearsay rule.
Out-of-court statements offered for their truth are inadmissible. Tex R. Evid. 802. However, a hearsay exception exists for statements “relating to a startling event or condition made while the declarant was under the stress of excitement caused by the event or condition.” Tex R. Evid. 803(2). A simple narrative of past events is disqualified from consideration as an excited utterance regardless of how soon after the event it is made. First Southwest Lloyds Ins. Co. v. MacDowell, 769 S.W.2d 954, 959 (Tex. App.—Texarkana 1989, writ denied) citing Gulf, C. & S.F.R. Co. v. Moore, 69 Tex. 157, 6 S.W. 631 (1887).

Based on Ortiz’s affidavit and deposition, there is no evidence that Hahn’s testimony to the police qualifies as an excited utterance. Hahn was not a witness to the car accident, and nowhere in the record does it indicate that he was under stress or spoke with excitement. In the absence of more specific information, the trial court reasonably could have concluded that Hahn’s statements to the police officer were presented in the narrative format determined by MacDowell to be preclusive of the excited utterance exception.

The “present sense impression” hearsay exception is similarly inapplicable. A present sense impression is “[a] statement describing or explaining an event or condition made while the declarant was perceiving the event or condition or immediately thereafter.” Tex. R. Evid. 803(1). Contemporaneity between the event and the statement is the lynchpin of this exception. Fischer v. State, 207 S.W.3d 846, 855 (Tex. App.—Houston [14th Dist.] 2006, pet. granted). The record contains no evidence to indicate that Hahn’s statement was contemporaneous with his alleged observation of the Centerpoint truck turning around in Ortiz’s pasture. The trial court thus did not abuse its discretion in concluding that Hahn’s hearsay statement does not qualify as a present sense impression.

Second, appellants assert that the trial court erred by striking the portion of Ortiz’s affidavit in which he testifies that Centerpoint’s “trucks are too wide to turn around on the single laned road on CR 601 . . . without getting off the road in some manner . . .” The trial court reasoned that the statement was self-serving, without a factual basis, and contradicted by Mr. Ortiz’s deposition testimony.

Statements made without a factual basis, otherwise known as conclusory statements, cannot support or defeat summary judgment. Marshall v. Sackett, 907 S.W.2d 925 (Tex. App.—Houston [1st Dist.] 1995, no writ). Here, Ortiz offers no factual basis for his statement. He did not see the Centerpoint truck that day, and demonstrated no personal knowledge regarding its turning radius.

Third, appellants contend that the court improperly removed Ortiz’s deposition from the record, and then improperly refused to consider the untimely filed index. A trial court is not required to search the record for evidence raising a material fact issue without specific guidance from the non-movant. Rogers v. Ricane Enters., Inc., 772 S.W.2d 76, 81 (Tex. 1989); Guthrie v. Suiter, 934 S.W.2d 820, 826 (Tex. App.—Houston [1st Dist.] 1996, no writ). Here, appellants filed deposition references in response to the trial court’s concern that the deposition was too lengthy. We have reviewed the deposition and its references, and conclude that, other than the statements previously discussed, none of the references attempt to controvert Goodman’s statement that he did not open the gate. Rather, the references describe the scene and the weather that day. Thus, even reviewing the deposition with its references, we conclude that it does not raise a fact issue.

Finally, appellants contend that the trial court, having refused to consider Ortiz’s deposition, should not have permitted Centerpoint to cite to the deposition to substantiate its claim of contradictory language in Ortiz’s affidavit and deposition. As we have considered both parties’ references in evaluating this appeal, appellants’ contention does not warrant reversal.

Question of Fact

In their last issue, appellants contend that circumstantial evidence supports the claim that Centerpoint employees opened the gate, raising a fact issue. Appellants reason that because “evidence provided by the non-movant will be taken as true,” and that circumstantial evidence “points strongly to Centerpoint entering the pasture,” the trial court should have denied summary judgment. They note that circumstantial evidence can defeat a no-evidence summary judgment. See Aust v. Conroe Indep. Sch. Dist., 153 S.W.3d 222, 226 (Tex. App.—Beaumont 2004, no pet.).

Material facts can be established with direct evidence, circumstantial evidence, or a combination of both. Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004). More than a scintilla of evidence exists when the evidence supporting the finding, as a whole, “rises to a level that would enable reasonable and fair-minded people to differ in their conclusions.” Merrel Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997). Circumstantial evidence, however, does not amount to a scintilla if it is “so weak as to do no more than create a mere surmise or suspicion” of the fact’s existence. Ford Motor, 135 S.W.3d at 601.

The only possible fact that would create more than a mere suspicion that the Centerpoint employees turned around in Ortiz’s pasture is Hahn’s alleged hearsay statement that Centerpoint employees opened the gate to turn around their truck. But Hahn did not offer an affidavit or testify, and we have held that the trial court did not abuse its discretion in excluding Ortiz’s statement about what Hahn said. The mere fact that a Centerpoint truck traveled down the country road on the day of the accident, without more, does not raise a fact issue that Centerpoint’s negligence caused the accident.


We conclude that the trial court correctly granted summary judgment in favor of Centerpoint. We therefore affirm the judgment of the trial court.

Jane Bland

Panel consists of Chief Justice Radack and Justices Jennings and Bland.

American Heritage, Inc. v. Nevada Gold & Casinos, Inc. (Tex.App. - Houston 2008)

American Heritage, Inc. v. Nevada Gold & Casinos, Inc. No. 01-07-00057-CV (Tex.App.- Houston [1st Dist.] Feb. 7 2008)(Bland) (standing, rescission, choice of law, alter ego theory)Opinion by Justice Bland
Panel: Chief Justice Radack, Justices Alcala and Bland
Full style: American Heritage, Inc., d/b/a The Gillmann Group v. Nevada Gold & Casinos, Inc.
Trial court: 234th District Court of Harris County (Hon. Reece Rondon)
Disposition: Modify trial court judgment and affirm as modified


American Heritage, Inc., d/b/a The Gillman Group (American Heritage) appeals the judgment against it in this breach of contract case, contending that, under Nevada law: (1) Nevada Gold & Casino, Inc. (Nevada Gold) lacks standing to assert its claims; (2) the trial court erred in granting Nevada Gold’s motion for judgment notwithstanding the verdict on rescission, improperly disregarding the jury’s finding that American Heritage returned everything of value to Nevada Gold; (3) the damages award in favor of Nevada Gold is not supported by legally sufficient evidence; and (4) the trial court erred in awarding prejudgment interest.

In its cross-appeal, Nevada Gold contends that, under Texas law, the trial court erred in granting American Heritage’s motion for j.n.o.v. on alter ego, improperly disregarding the jury’s finding that Fred Gillman (Gillman) is responsible for American Heritage’s conduct.

We conclude that Nevada Gold has standing to assert its claims, legally sufficient evidence supports the damages award, and the trial court did not err in granting j.n.o.v. on American Heritage’s rescission claim and Nevada Gold’s alter ego claim. We further conclude that Nevada law precludes an award of prejudgment interest in this case. We therefore modify the judgment to delete the award of prejudgment interest and, as modified, affirm.


This case arises out of an agreement to finance and develop a casino on tribal lands in New Mexico. American Heritage had expertise in the gaming industry and helped various Native American tribes throughout the United States open and operate casinos. Its expertise led to negotiations with the Pueblo of Laguna Tribe to develop a large casino, to be named the “Route 66 Casino.” American Heritage and the tribe’s development corporation entered into various contracts in which American Heritage agreed to provide consulting services, lease gaming equipment, and provide financing for the casino.

In early 2002, after the tribe opened and began earning a profit at a temporary casino on the future site of the Route 66 Casino, American Heritage began discussions with Nevada Gold about funding for the casino project. Nevada Gold is a developer and operator of gaming facilities and other lodging and entertainment sites, and also has experience working with Native American tribes. American Heritage and Nevada Gold entered into a contract, entitled the Amended and Restated Operating Contract (the operating contract), to form a limited liability corporation (LLC). In the operating contract, Nevada Gold agreed to use its best efforts to pursue financing for the casino project in exchange for essentially half of the net profits that American Heritage would receive under its contracts with the tribal development corporation.

Nevada Gold provided American Heritage $250,000 cash, secured by a promissory note that was convertible into equity in the LLC, in furtherance of its obligations under the contract. Within a month of signing the contract, American Heritage notified Nevada Gold that the tribe was considering the possibility of self-financing, but left Nevada Gold to continue pursuing financing so that funds would be in place by the November 2002 closing date for the project. In September 2002, however, American Heritage notified Nevada Gold that the tribe had decided to self-finance, and that Nevada Gold could no longer participate in the casino project. American Heritage continued with the project without Nevada Gold.

The Route 66 Casino opened about a year later. After approximately two years of profitable operations, American Heritage sold its interest in the casino to the tribe for $12.1 million.
Nevada Gold instituted an arbitration proceeding against American Heritage near the end of September 2002. It also demanded that American Heritage return the funds it provided that were secured by the promissory note. American Heritage repaid the note with interest. Soon afterward, Nevada Gold brought this suit against American Heritage in Harris County, seeking its contractual profit.

After several weeks of trial, the jury found that American Heritage breached the operating contract, and it awarded $8.3 million to Nevada Gold. The jury also responded affirmatively to the question whether American Heritage had “returned everything of value [it] received from Nevada Gold” under the contract, and that Gillman was individually responsible for the actions of American Heritage. After considering the parties’ post-verdict motions, the trial court entered judgment on the jury’s verdict in favor of Nevada Gold and awarded prejudgment interest on that amount. The trial court granted Nevada Gold’s motion for j.n.o.v. on the jury’s finding that Nevada Gold returned everything of value, and granted Gillman’s motion for j.n.o.v. on the jury’s finding that he was responsible for American Heritage’s conduct. The parties timely appealed.


I. Standing

Before reaching the merits of its appeal, American Heritage challenges Nevada Gold’s standing.

Standing, a necessary component of subject matter jurisdiction, is a constitutional prerequisite to maintaining a suit under Texas law. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 444 (Tex. 1993). A standing defect cannot be waived, and can be raised for the first time on appeal. Id. at 445–46. A party’s standing to pursue a cause of action is a question of law we review de novo. Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 928 (Tex. 1998).

“A plaintiff has standing when it is personally aggrieved, regardless of whether it is acting with legal authority . . . .” Nootsie, Ltd. v. Williamson County Appraisal Dist., 925 S.W.2d 659, 661 (Tex. 1996). Specifically, a plaintiff has standing to sue if: (1) the plaintiff has sustained, or is immediately in danger of sustaining, some direct injury as a result of a complained-of wrongful act; (2) there is a direct relationship between the alleged injury and the claim asserted; (3) the plaintiff has a personal stake in the controversy; (4) the challenged action has caused the plaintiff some injury in fact; or (5) the plaintiff is an appropriate party to assert both its own interest and the public interest in the matter. El Paso Cmty. Partners v. B & G/Sunrise Joint Venture, 24 S.W.3d 620, 624 (Tex. App.—Austin 2000, no pet.).

A party to a contract has standing to maintain a suit on the contract. Interstate Contracting Corp. v. City of Dallas, 135 S.W.3d 605, 618 (Tex. 2004). American Heritage contends that Nevada Gold has no standing to sue on the contract because the contract contemplates an LLC, which supplants any right Nevada Gold has to seek relief under the contract. Thus, American Heritage contends, Nevada Gold might be able to bring a derivative suit against American Heritage on behalf of the limited liability company, but it has no standing individually.

We disagree.

A limited liability company member may have an individual action against a defendant for a claim that the defendant has breached a contractual duty owed directly to the shareholder, individually. Wingate v. Hajdik, 795 S.W.2d 717, 719 (Tex. 1990) (quoting Mass. v. Davis, 168 S.W.2d 216, 222 (Tex. 1942)). The nature of the alleged wrong indicates whether the individual or solely the company has standing. Redmon v. Griffith, 202 S.W.3d 225, 234 (Tex. App.—Tyler 2006, pet. denied) (citing Faour v. Faour, 789 S.W.2d 620, 621–22 (Tex. App.—Texarkana 1990, writ denied)).

Nevada Gold lacks standing as a derivative shareholder because American Heritage’s breach of the contract barred Nevada Gold from procuring any interest in the LLC. American Heritage’s contention, as applied to these facts, is tantamount to saying that an individual who contracts with another party to purchase shares of a corporation and then is prevented by that party’s breach from completing the purchase must sue as a derivative shareholder. The parties’ agreement belies this contention. The operating contract expressly recognizes that each member owes duties to the other and provides for the possibility that a member may take legal action against another Member “arising between them out of this Agreement.” Nevada Gold’s suit against American Heritage falls within this description. Accordingly, we conclude that we have subject matter jurisdiction over Nevada Gold’s claims.

II. Choice of Law—Nevada

The operating contract between American Heritage and Nevada Gold expressly calls for the application of Nevada law. Both parties confirm that Nevada substantive law controls their claims. We apply Texas procedural law in addressing the issues raised in this appeal. Nexen Inc. v. Gulf Interstate Eng’g Co., 224 S.W.3d 412, 417 (Tex. App.—Houston [1st Dist.] 2006, no pet.).
III. Rescission

American Heritage claims that, because the jury answered “yes” to the question whether American Heritage returned everything of value received under the contract and the evidence supports the jury’s finding, the trial court erred in granting Nevada Gold’s motion for j.n.o.v. Instead, American Heritage contends, the trial court should have concluded from the jury’s finding that Nevada Gold had rescinded the contract, and thus was precluded from seeking benefit of the bargain damages by its pre-suit conduct. We review this challenge to the propriety of
the trial court’s j.n.o.v. under the legal sufficiency standard. See City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005); Harris v. McFerren, 788 S.W.2d 76, 78 (Tex. App.—Houston [1st Dist.] 1990, writ denied). Under this standard, we view the evidence in a light most favorable to the jury’s verdict, and indulge every reasonable inference in its support, reversing only if the evidence does not allow reasonable and fair-minded people to reach the verdict under review. City of Keller, 168 S.W.3d at 823–24, 827.

Nevada law on rescission

In Great American Insurance Co. v. General Builders, Inc., the Nevada Supreme Court explained that:

Rescission may be accomplished in one of two ways: In what is called “legal rescission,” a party, in response to a material breach on the part of the other party or for other valid reasons, unilaterally cancels the contract; alternatively, in what is known as “equitable rescission,” the aggrieved party brings an action in a court with equitable jurisdiction asking the court to nullify the contract.

934 P.2d 257, 262 (Nev. 1997).
[1] The trial court’s question to the jury derives from language set forth in Bergstrom v. Estate of DeVoe, 854 P.2d 860 (Nev. 1993). In Bergstrom, the plaintiff, not the defendant, pleaded for the equitable remedy of rescission of the contract. The Nevada Supreme Court explained that if parties partially perform a contract and one party breaches, the non-breaching party may elect to return everything of value it received under the contract and thereby rescind the contract. 854 P.2d at 861. Bergstrom does not address whether or how a party may invoke rescission as an affirmative defense, as American Heritage attempts here.
American Heritage does not use rescission in either way recognized under Nevada law. Rather, it advances rescission as if it is akin to the affirmative defense of accord and satisfaction. Regardless of the label that American Heritage attaches to its affirmative defense—whether rescission or accord and satisfaction—under Nevada law, it must prove the existence of a mutual agreement to extinguish any rights arising under the original contract. See Bates v. Chronister, 691 P.2d 865, 869 (Nev. 1984) (explaining that, “[f]or a subsequent agreement to constitute a rescission, it must be made with the mutual consent of the parties to the original contract”) (emphasis in original); see Restatement (Second) Contracts § 283.
[2] Section 283 of the Restatement provides:
(1) An agreement of rescission is an agreement under which each party agrees to discharge all of the other party’s remaining duties of performance under an existing contract.

(2) An agreement of rescission discharges all remaining duties of performance of both parties. It is a question of interpretation whether the parties also agree to make restitution with respect to the performance that has been rendered.

Restatement (Second) Contracts § 283. The Restatement further explains that “[c]onsideration is provided by each party’s discharge of the duties of the other. This is so even though one or both parties have partly performed their duties or one or both have a claim for damages for partial breach.” Id. at cmt. a.

As with any binding agreement, the evidence must objectively manifest an agreement to rescind. Our Texas Supreme Court in Texas Gas Utilities Co. v. Barrett, like the Nevada high court in Bergstrom, relies on the rule of rescission as defined by Professor Corbin in observing that:
parties may rescind their contract by mutual agreement and thereby discharge themselves from their respective duties. The mutual release of the rights of the parties is regarded as a sufficient consideration for the agreement. . . . [E]xpressions of assent are usually in the form of an offer by one and an acceptance by the other and an operating agreement of rescission can be made tacitly as well as expressly. 460 S.W.2d 404, 414 (Tex. 1970) (citing Arthur Linton Corbin, 5A Corbin on Contracts § 1236, at 542 (1964)); see Bergstrom, 854 P.2d at 861.

Effect of the jury’s finding

The question submitted to the jury did not ask whether Nevada Gold and American Heritage mutually agreed to rescind the contract. American Heritage contends that the finding that it returned to Nevada Gold everything of value received under the contract required the trial court to conclude as a matter of law that the contract was rescinded. Based on our understanding of Nevada law, we disagree with American Heritage’s contention that the question as submitted sufficed to submit the issue of rescission to the jury.

The question tendered by American Heritage and submitted to the jury tracks language from Bergstrom, which views rescission as an equitable remedy. See 854 P.2d at 861; see also Awada v. Shuffle Master, Inc., ___ P.3d ___, 2007 WL 4532521, at *5 (Nev. Dec. 27, 2007) (concluding that trial court did not abuse its discretion by rescinding parties’ agreement because substantial evidence supported finding of fraud in inducement). For purposes of our analysis, therefore, we interpret American Heritage’s request as one for equitable relief.

Under Texas procedure, the jury may decide ultimate issues of fact, but the trial court ultimately decides whether equitable relief is appropriate. See Indian Beach Property Owners’ Ass’n v. Linden, 222 S.W.3d 682, 690 (Tex. App.—Houston [1st Dist.] 2007, no pet.). Its decision to grant or deny equitable relief is a matter of discretion, subject to reversal only on a showing of abuse. See id. at 690–91. “An abuse of discretion occurs if the trial court (1) acts arbitrarily and unreasonably, without reference to guiding rules or principles, or (2) misapplies the law to the established facts of the case.” Id. at 691.

Here, the trial court did not abuse its discretion in declining to grant American Heritage’s request for equitable rescission. First, as the trial court observed, the question answered by the jury does not provide a sufficient factual basis to award rescission under Nevada law because it does not inquire whether the parties mutually consented to forego their rights under the contract.[3] See Great Am. Ins. Co., 113 Nev. at 354, 934 P.2d at 262. American Heritage did not point either the trial court or this court to any Nevada authority recognizing an equitable claim for rescission on behalf of a defendant under comparable circumstances.

Second, the record does not contain legally sufficient evidence that Nevada Gold, either explicitly or implicitly, agreed to discharge American Heritage’s remaining duties under the agreement when it demanded satisfaction of the promissory note, and the jury made no such finding. In pointing to Nevada Gold’s demand for return of the promissory note in isolation, American Heritage overlooks the fact that Nevada Gold already had instituted an arbitration proceeding seeking benefit of the bargain damages before it made the demand.[4]

There is no evidence that Nevada Gold offered to dismiss the arbitration proceeding or agreed not to pursue this civil action if American Heritage returned the funds. To the contrary, given Nevada Gold’s unflagging persistence in pursuing its legal remedies to hold American Heritage accountable for breaching its obligations under the contract, a reasonable juror could not find that Nevada Gold agreed to abandon its rights under the contract in exchange for payment of the promissory note, even had the jury been asked to decide the matter.

Instead, Nevada Gold’s demand for return of the funds is reasonably construed as an effort to mitigate its damages. Pertinent to American Heritage’s challenge, Professor Corbin, an authority that the Nevada Supreme Court relied on in Bergstrom, has noted the difference between rescission and mitigation in an earlier edition of his treatise:

When one party repudiates the contract, that repudiation discharges the other party from any further duty to perform under the contract. That party may try to avoid or reduce injury by contracting elsewhere for substitute material or service, demanding his money back or the reconveyance of his property . . . . In doing these things, he is trying to avoid harms and losses; he is not offering a “rescission,” or “waiving” his rights or “electing” a remedy. These are things that the injured party can do, but they are clearly distinguishable.

Corbin on Contracts § 1237 (1 vol. ed. 1952). The Texas Supreme Court’s reasoning in Barrett endorses the same distinction. In that case, the petitioner gas company sued a former lessee of a farm for breach of contract based on his failure to make payments. The respondent lessee contended that the gas company rescinded the contract by continuing to provide gas to the property but billing the property owner-lessor for the service. The Court disagreed, reasoning that:

the act of petitioner in billing the owner-lessor Thompson for gas subsequently delivered to the farm, and the success of petitioner in replacing the repudiated contract with later ones of similar import, all payments under which have been credited to respondents for the period in question, is not conduct indicative of assent to a rescission. It was the duty of petitioner to mitigate its losses and its doing so was favorable to respondents. Barrett, 460 S.W.2d at 415.

Here, because American Heritage repudiated the contract, Nevada Gold was entitled to mitigate its damages. In fact, it had the burden to do so. See Conner v. So. Nev. Paving, 741 P.2d 800, 801 (Nev. 1987) (stating that, “[a]s a general rule, a party cannot recover damages for loss that he could have avoided by reasonable efforts”), quoted in Sheehan & Sheehan v. Nelson Malley & Co., 117 P.3d 219, 226 (Nev. 2005). Given that American Heritage had already repudiated the contract by informing Nevada Gold it could no longer participate, Nevada Gold had no reason or obligation to act as if American Heritage would use the funds to Nevada Gold’s benefit in furtherance of the contract. See Schwartz v. Wasserburger, 30 P.3d 1114, 1116 n.5 (Nev. 2001) (observing that “when one party engages in anticipatory breach, the other party may treat the contract as ended and sue immediately”).

In summary, American Heritage’s reliance on Bergstrom and the jury’s finding to contend that the trial court abused its discretion in failing to rescind the agreement pursuant to its equitable power is misplaced. Rather, as the Nevada Supreme Court noted in Bates, rescission requires mutual consent. Although an aggrieved party to a contract may seek equitable rescission as a remedy, like the party in Bergstrom, we conclude that a breaching party must show mutual agreement to rescind before relying on equitable rescission to foreclose a non-breaching party’s remedies at law. Accordingly, we conclude that the trial court did not err in disregarding the jury’s finding or abuse its discretion in declining to uphold Nevada Gold’s rescission defense.

Election of remedies

American Heritage also claims that, by demanding return of the promissory note, Nevada Gold made an irrevocable election of remedies and, once American Heritage complied with that demand, Nevada Gold could not recover under the benefit of the bargain measure of damages found by the jury and awarded in the judgment. This claim does not comport with Nevada law concerning the election of remedies. See J.A. Jones Constr. Co. v. Lehrer McGovern Bovis, Inc., 89 P.3d 1009, 1017 & n.16 (Nev. 2004) (holding that plaintiff is not required to elect between theories of recovery before obtaining jury verdict because trial court can determine whether judgment on verdict would result in duplicate recovery). Nevada has endorsed the Restatement’s rule that, “[i]f a party has more than one remedy . . ., his manifestation of a choice of one of them by bringing suit or otherwise is not a bar to another remedy unless the remedies are inconsistent and the other party materially changes his position in reliance on the manifestation.” Restatement (Second) Contracts § 378, cited in Mackintosh v. Cal. Fed. Sav. & Loan Ass’n, 113 Nev. 393, 404, 935 P.2d 1154, 1161 (Nev. 1997). The Restatement explains that a change of position is “material” only when all of the circumstances indicate that a shift in remedies would be unjust. Restatement (Second) Contracts § 378 cmt. a. American Heritage has neither alleged nor proved such a change of position here.[5]

IV. Damages

Next, American Heritage contends that the trial court erred in entering judgment on the jury’s finding of damages because Nevada Gold did not provide competent evidence to support the award. Specifically, American Heritage urges that the judgment should be reversed because the jury’s damages award (1) does not follow the proper measure of damages in the court’s charge; (2) is not supported by proper expert testimony; and (3) includes speculative damages. After discussing Nevada Gold’s damages evidence, we address each contention in turn.

A. Nevada Gold’s evidence of damages

At trial, Nevada Gold put on evidence of its damages through its former chief financial officer, Christopher Domijan. Domijan testified that while employed at Nevada Gold, he was responsible for its financings and keeping financial records. To arrive at a net lost profits figure, Domijan used American Heritage’s financial reports from the casino project. Domijan also relied on his recollection of the parties’ discussions relating to projected expenses, and Nevada Gold’s overhead expenses saved because it did not participate in the project. American Heritage’s financial documents reported the revenues it actually earned and the expenses it actually charged to the casino project after it went forward without Nevada Gold. Domijan accepted these revenues figures, but identified certain expenses American Heritage had charged to the project that he testified should not have been charged. Overall, Nevada Gold would not have approved approximately $1.6 million of the total expenses American Heritage charged to the project. On the other hand, Domijan also adjusted the expense figure upward to include the 30% of the cost of overhead previously incurred by American Heritage that the parties had agreed to charge back to the project, and accounted for the 50% of the expenses charged to the project which Nevada Gold had agreed to pay.

Domijan further testified that Nevada Gold was to have taken over the accounting books for the joint venture and would have had some nominal accounting and travel expenses to split with American Heritage. Domijan reduced the actual profits by Nevada Gold’s capital contributions and adjusted the expenses to reflect the same amount, thus leaving a net profit. On cross-examination, Domijan conceded that he did not deduct any amount for state or federal taxes because profits would have been distributed through the LLC on a pre-tax basis.

In addition to American Heritage’s net profits from operating the casino, Domijan considered American Heritage’s eventual sale of the project to the tribe. Ultimately, Domijan testified that the casino project yielded a net profit of $17.5 million to American Heritage, of which fifty percent, or $8.75 million, constituted net profits Nevada Gold lost as a result of American Heritage’s breach.

B. Benefit of the bargain

American Heritage first contends that the damages awarded do not follow the measure of damages submitted in the court’s charge. The charge asked the jury to find the “sum of money, if any, if paid now in cash, [that] would fairly and reasonably compensate Nevada Gold for its damages, if any, that resulted from American Heritage’s failure to comply” with the contract. It further instructed the jury that “Nevada Gold is entitled to all sums which Nevada Gold would have received had American Heritage complied” with the contract.

“[I]n a breach-of-contract case, the normal measure of damages is just compensation for the loss or damage actually sustained, commonly referred to as the benefit of the bargain,” which may include reasonably certain lost profits. Bowen v. Robinson, 227 S.W.3d 86, 96 (Tex. App.—Houston [1st Dist.] 2006, no pet.).

The question submitted to the jury, which tracks the Texas pattern jury charge question on contract damages,[6] is an accurate statement of law, but does not constrain the jury to decide the amount of damages under any particular formula.

American Heritage did not object to the damages submission, but nevertheless cites to the operating contract language as providing the only proper measure of damages. In particular, American Heritage relies on provisions that declare that it and Nevada Gold were to distribute cash flow from operations at their discretion, and would reimburse each other through the LLC only for related expenses that they both approved. Domijan’s testimony is consistent with these provisions.

American Heritage asserts that, because of managerial discretion and the need for joint approval, Domijan could not have relied on personal knowledge in testifying about distributions made and expenses approved, making his testimony necessarily speculative. We understand American Heritage’s argument to be that the evidence is legally insufficient to support the jury’s damages finding because those damages allegedly contained lost profits that were not sufficiently proved, and address it accordingly. See Bowen, 227 S.W.3d at 95.

1. Evidentiary standard for proof of lost profits

When a plaintiff is prevented from performing a contract, “lost profits are generally an appropriate measure of damages so long as the evidence provides a basis for determining, with reasonable certainty, what the profits would have been had the contract not been breached.” Eaton v. J. H., Inc., 581 P.2d 14, 17 (Nev. 1978). The “party seeking damages has the burden of providing the court with an evidentiary basis upon which it may properly determine the amount of damages.” Frantz v. Johnson, 999 P.2d 351, 360 (Nev. 2000) (citing Mort Wallin v. Comm’l Cabinet, 784 P.2d 954, 955 (Nev. 1989)). Damages need not, however, “be proven with mathematical exactitude, and [] the mere fact that some uncertainty exists as to the actual amount of damages sustained will not preclude recovery.” Id.

Generally, a plaintiff may recover lost profits if it can show a history of profitability or the actual existence of future contracts from which lost profits can be calculated with reasonable certainty. See, e.g., Eaton, 581 P.2d at 17. The mere fact that the breached agreement contemplated a new business with no prior history of profits, however, does not bar recovery under a lost profits measure as too speculative, uncertain, or remote. “The rule barring recovery of uncertain lost profits is directed against ‘uncertainty as to the existence of (profits) rather than as to measure or extent.’” Gen. Elec. Supply Co. v. Mt. Wheeler Power, Inc., 587 P.2d 1312, 1313 (Nev. 1978) (quoting Fireman’s Fund Ins. v. Shawcross, 442 P.2d 907, 912 (Nev. 1968)).

2. Domijan’s testimony

American Heritage’s challenge, in part, concerns whether Domijan could provide competent testimony concerning the reasonableness of expenses. American Heritage posits that Nevada Gold could not prove its damages through Domijan because he lacked personal knowledge concerning what had transpired in the casino project as reflected in American Heritage’s financial documents, and also lacked specialized knowledge concerning what would have been appropriate expenditures under the contract.

Under Rule 701 of the Texas Rules of Evidence, a lay witness may testify to opinions or inferences rationally based on that witness’s perception and helpful to a clear understanding of the witness’s testimony or the determination of a fact issue. Tex. R. Evid. 701. Pertinent to this case, Texas courts regularly allow business owners or officers to testify as lay witnesses, based on knowledge derived from their position, about what they had reasonably anticipated from the business activities they were prevented from undertaking as a result of another party’s breach. See Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Ins. Co. of N. Am., 955 S.W.2d 120, 131–32 (Tex. App.—Houston [14th Dist.] 1997), aff’d sub nom. Keck, Mahin & Cate v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 20 S.W.3d 692 (Tex. 2000); Ishin Speed Sport, Inc. v. Rutherford, 933 S.W.2d 343, 352 (Tex. App.—Fort Worth 1996, no writ).[7] “A new business owner’s opinion of its lost profits may have probative value even though the estimate is based on knowledge of a previous similar business and the underlying business records are not introduced.” Ishin Speed Sport, Inc., 933 S.W.2d at 352.

Domijan based his calculations and conclusions on the actual revenues American Heritage received after cutting Nevada Gold from the project, and the expenses that he, as the financial representative for Nevada Gold, would have accepted as reasonable under the contract. Domijan testified that, as Nevada Gold’s CFO, he had previous experience securing financing for the gaming industry and was authorized to make financial decisions for the company. Based on personal knowledge derived from this experience, Domijan provided admissible testimony about the amount of net profits Nevada Gold could have reasonably anticipated. Domijan’s business experience with Nevada Gold equipped him to conclude that, but for American Heritage’s breach, Nevada Gold could have reasonably anticipated receiving approximately half of the net profits actually earned by the casino project, as the operating contract provides. See Jeaness v. Besnilian, 706 P.2d 143, 146 (Nev. 1985) (finding excluded partner entitled to recover half of net profits realized by partner running business as sole owner after breaching partnership agreement). The fact that Domijan could not have personal knowledge concerning the admitted, actual revenues because Nevada Gold did not participate in the project did not prevent him from using American Heritage’s financial data as a basis for determining Nevada Gold’s lost profits.
Furthermore, the fact that Domijan used American Heritage’s financial statements as a basis for calculating Nevada Gold’s reasonably anticipated lost profits did not require him to wholesale adopt the expenses documented by those financial statements. For example, Domijan deducted the expenses incurred by American Heritage in connection with this litigation, opining that Nevada Gold would not have agreed to charge them to the project. This opinion is consistent with the contract’s indemnification provision, which requires each member to “indemnify the Company, each Manager, and each other Member and hold them harmless from and against all losses, costs, liabilities, damages, and expenses (including, without limitation, costs of suit and attorney’s fees) they may incur on account of any breach of that Member of this Agreement.” Based on his personal knowledge and experience handling financial affairs for Nevada Gold, Domijan could provide admissible testimony concerning expenses that Nevada Gold would have accepted or rejected. American Heritage was free to challenge the reasonableness of Domijan’s conclusions on cross-examination. Disputes about particular parts of expenses, and whether or not they reasonably should be charged against the project, are matters affecting the weight and credibility of the testimony, not its overall admissibility. See Holt Atherton Indus. Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992); Texaco, Inc. v. Phan, 137 S.W.3d 763, 771 (Tex. App.—Houston [1st Dist.] 2004, no pet.).

American Heritage also complains that, because the contract expressly confers the authority to approve expenses on H. Thomas Winn, Nevada Gold’s CEO, the jury could not have found that Winn would have delegated that responsibility to Domijan. We disagree. Domijan testified that he would have been responsible for reviewing and approving expenses to be charged to the project. This evidence permitted the jury to reasonably find that Winn would have appointed CFO Domijan as his agent to exercise the authority to approve or reject expenses on behalf of Nevada Gold.

American Heritage further asserts that Nevada Gold’s evidence of lost profits resulting from the sale of the casino project is speculative because Domijan testified that Nevada Gold would not have agreed to the buyout. This testimony appears in the plaintiff’s bill of exception and, thus, the jury did not hear it. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 577 (Tex. 2006) (explaining that “[t]he purpose of a bill of exceptions is to allow a party to make a record for appellate review of matters that do not otherwise appear in the record, such as evidence that was excluded,” and holding that court of appeals could not consider testimony from bill of exceptions without having first determined, pursuant to properly assigned error, that trial court erred in refusing to admit testimony). Because the trial court did not admit the testimony, no error could have resulted from it.

Under the circumstances presented, Domijan’s testimony did not overstep the line separating
reasonably anticipated lost profits from impermissible speculation. We therefore hold that, under Nevada law, legally sufficient evidence supports the jury’s contract damages finding in favor of Nevada Gold.

V. Prejudgment interest

American Heritage next contends that the trial court erred in awarding prejudgment interest to Nevada Gold. Nevada law generally provides that, absent a contractual provision fixing a different rate of interest, “interest must be allowed at a rate equal to the prime rate at the largest bank in Nevada . . . on January 1 or July 1, as the case may be, immediately preceding the date of the transaction, plus 2 percent, upon all money from the time it becomes due . . . .” Nev. Rev. Stat. § 99.040(1). In a contract case,

[t]he amount of money to which the interest rate will be applied must be determined by the following factors: (1) if the contract breached provides for a definite sum of money, that sum; (2) if the performance called for in the contract, the value of which is stated in money or is ascertainable by mathematical calculation from a standard fixed in the contract or from established market prices of the subject matter, that sum.
Paradise Homes, Inc. v. Cent. Sur. & Ins. Corp., 437 P.2d 78, 83 (Nev. 1968).

Accordingly, the propriety of an award of prejudgment interest depends on whether a definite amount is stated, can be ascertained from information contained within the four corners of the contract, or can be calculated through possible reference to an established market price. Comparing the contract in this case with other Nevada cases, we do not find any of these characteristics present. See Hornwood v. Smith’s Food King No. 1, 807 P.2d 208, 214 (Nev. 1991); Jeaness, 706 P.2d at 147. Although the contract contains information for allocation of profits, it does not direct calculation of any sum certain, either standing alone or by reference to any market price.[8] Moreover, the contract does not identify any date that would serve for commencing the running of interest, and no figure was available until the jury awarded damages. In such circumstances, Nevada law does not allow recovery for prejudgment interest. See Hornwood, 807 P.2d at 214; Jeanness, 706 P.2d at 147.

VI. Nevada Gold’s appeal on alter ego

In its sole issue on appeal, Nevada Gold challenges the trial court’s ruling granting Gillman’s j.n.o.v., disregarding the jury’s finding that Gillman is individually liable for American Heritage’s conduct. Specifically, Nevada Gold contends that legally sufficient evidence supports the jury’s finding of legal unity between Gillman and American Heritage, and that Gillman used American Heritage to perpetrate a fraud on Nevada Gold for his personal benefit.

The charge instructed the jury that Gillman was responsible for American Heritage’s conduct if:
American Heritage was organized and operated as a mere tool or business conduit of Fred Gillman; there was such unity between American Heritage and Fred Gillman that the separateness of American Heritage had ceased and holding only American Heritage responsible would result in injustice; and Fred Gillman caused American Heritage to be used for the purpose of perpetuating [sic] and did perpetuate [sic] an actual fraud on Nevada Gold primarily for the direct personal benefit of Fred Gillman.

With respect to the unity element, the charge further instructed the jury to consider the total dealings of American Heritage and Fred Gillman, including:

1. The degree to which American Heritage’s property had been kept separate from that of Fred Gillman;
2. The amount of financial interest, ownership, and control Fred Gillman maintained over American Heritage; and
3. Whether American Heritage had been used for the personal purposes of Fred Gillman.
(Id.) Thus, we analyze whether the evidence of these three factors presented at trial “would enable reasonable and fair-minded people to reach the verdict under review.” City of Keller, 168 S.W.3d at 827.

In determining whether a unity between corporation and individual exists, Texas courts consider the totality of the circumstances, including:

(1) payment of alleged corporate debts with personal checks or other commingling of funds,
(2) representations that the individual will financially back the corporation,
(3) diversion of company profits for the individual’s personal use,
(4) inadequate capitalization, and
(5) other failures to keep corporate and personal assets separate.

Country Village Homes, Inc. v. Patterson, 236 S.W.3d 413, 428 (Tex. App.—Houston [1st Dist.] 2007, pet. filed).

In asserting that Gillman and American Heritage had such unity that the separateness of American Heritage had ceased, Nevada Gold directs us to the following evidence:

· Gillman identified himself as “the owner and the boss” of American Heritage;
· Gillman testified that, because American Heritage is a subchapter S corporation, “everything flows through” American Heritage to him;
· American Heritage does business as “The Gillman Group”;
· Gillman personally guaranteed one loan and provided another to American Heritage;
· Nevada Gold issued stock purchase warrants to Gillman individually;
· American Heritage paid insurance for luxury cars owned by Gillman.

We agree with the trial court that these facts do not amount to more than a scintilla of evidence to support a finding of unity. Concerning Gillman’s role as CEO and sole shareholder, “[a] showing that an individual is an officer, director, or majority shareholder is insufficient to support a finding of [a]lter [e]go.” Country Village Homes, Inc., 236 S.W.3d at 428. Nor do we find his description of the S corporation’s function sufficient to support a finding of unity.

Although personal loans to a corporation may support a finding of unity, courts typically cite to this factor in conjunction with proof of inadequate capitalization, which is not present here. See, e.g., id. at 436 (holding that evidence was legally and factually sufficient evidence to support finding that corporation was used to perpetrate actual fraud for personal benefit of individual defendant where most or all of corporate assets had been transferred to another company belonging to individual defendant, individual defendant would pay for personal items such as utility bills and car payments out of companies’ accounts); Sparks v. Booth, 232 S.W.3d 853, 869 (Tex. App.—Dallas 2007, no pet.) (holding that evidence was legally sufficient to support trial court’s implied finding of alter ego where individual testified he was president, secretary, sole shareholder, and sole director of bankrupt corporation, personally rented office building to corporation, and that corporation had no assets because it was subchapter S corporation so all benefits and detriments flowed to him); Hoffmann v. Dandurand, 180 S.W.3d 340, 350–51 (Tex. App.—Dallas 2005, no pet.) (concluding that evidence that defendant was principal, if not sole, shareholder of company did not support piercing corporate veil where no evidence supported allegation that he stripped corporation of its assets).

We disagree that the stock purchase warrants that Nevada Gold issued in Gillman’s name constitute any evidence to support a finding of unity. Nothing in the record suggests the purpose of the warrants was not a practice undertaken in the ordinary course of business—in other words, that the company wrongfully issued them or that the issuance of warrants to the CEO destroys corporate formalities. The only evidence explaining American Heritage’s payment of insurance for luxury cars shows that American Heritage used the cars to transport high roller gamblers and tribal leaders in connection with the casino business. Neither of these facts supports a reasonable inference that Gillman commingled corporate and personal assets or wrongfully diverted corporate assets for his personal use.

We hold that the trial court properly granted j.n.o.v. on this issue because no evidence would allow a reasonable jury to find that holding only American Heritage responsible would result in injustice. Here, no facts show, for example, that American Heritage was undercapitalized, that Gillman commingled personal and corporate assets to the corporation’s detriment, or that Gillman led Nevada Gold to believe it was dealing with him personally and used American Heritage as a shield from personal liability. See Hoffman, 180 S.W.3d at 350–51. Accordingly, under the totality of the circumstances, we agree with the trial court that the evidence is legally insufficient to support a finding that observing the corporate form would lead to injustice.


We hold that Nevada Gold has standing and that the trial court properly entered judgment for liability and damages on its breach of contract claim against American Heritage. We further hold that the trial court properly concluded that Gillman is not individually liable for American Heritage’s damages under an alter ego theory. Finally, we conclude that Nevada law does not allow for prejudgment interest on this contract claim. We therefore modify the judgment to delete the award of prejudgment interest and as modified, affirm.

Jane Bland

Panel consists of Chief Justice Radack and Justices Alcala and Bland.

[1] Noting that Great American had claimed the right to avoid any obligation under its surety contract with General Builders “simply because it had the power to cancel the bonds, rather than the right to cancel the contract in response to a material breach by General Builders,” the Nevada Supreme Court concluded that Great American had not properly pleaded rescission as a defense. Great Am. Ins. Co. v. Gen. Builders, Inc., 934 P.2d 257, 262–63 (Nev. 1997).

[2] Nevada, like Texas, generally follows the Restatement (Second) of Contracts. See, e.g., Zhang v. Eighth Judicial Dist. Court of State ex rel. County of Clark, 103 P.3d 20, 23-34 (Nev. 2004) (agreeing with Restatement (Second) of Contracts and Professor Corbin’s rejection of “the notion that rescission of a contract that is executory on both sides supplies consideration for a simultaneous new agreement” (emphasis in original)); NOLM, LLC v. County of Clark, 100 P.3d 658 (Nev. 2004); Traffic Control Servs., Inc. v. United Rentals Nw., Inc., 87 P.3d 1054 (Nev. 2004).
[3] American Heritage attempts to uphold its attempt to obtain a rescission finding by invoking Rule 279 of the Texas Rules of Appellate Procedure in its reply brief, but that rule has no application here. See Tex. R. Civ. P. 279 (providing that, under specified circumstances, trial court may make findings on omitted elements in support of the judgment) (emphasis added).
[4] This fact appears throughout the record—in Nevada Gold’s pleadings, motion in limine, and its Combined Motion to Disregard Jury Finding and Motion for Judgment on the Verdict. Also, a copy of the September 27, 2002 arbitration demand is attached to Nevada Gold’s Combined Motion.
[5] We do not suggest that an aggrieved party can obtain a double recovery by foregoing its election of remedies until judgment. Here, Nevada Gold accounted for the cash expenditure in connection with calculating its contractual profit. American Heritage does not contend that Nevada Gold receives a double recovery, but instead argues that Nevada Gold completely eliminated its right to benefit of the bargain damages when it sought, and received, a return of its cash expenditure.
[6] See Texas Pattern Jury Charges PJC 110.2 (2006 ed.).
[7] American Heritage relies on Texas law in challenging the competence and admissibility of Domijan’s testimony, and Nevada Gold does not identify any material difference between Texas law and Nevada law on these issues. Accordingly, for purposes of this analysis, we presume that Nevada law and Texas law are the same. See Coca-Cola Co. v. Harmar Bottling Co., 218 S.W.3d 671, 685 (Tex. 2006).
[8] We decline Nevada Gold’s invitation to construe this reference to an “established market price” as allowing for reference to American Heritage’s books and records.
[9] The parties make much of whether Texas or Nevada law applies to this alter ego finding, but, for purposes of this case, we do not discern a meaningful difference between the laws of the two states concerning the unity element of the alter ego doctrine. Compare Polaris Indus. Corp. v. Kaplan, 747 P.2d 884, 886 (Nev. 1987) (holding that for alter ego to exist, corporation must be influenced and governed by person asserted to be alter ego, there must be such unity of interest and ownership that one is inseparable from other, and facts must be such that adherence to corporate fiction of separate entity would, under circumstances, sanction fraud or promote injustice) with Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 228 (Tex. 1990) (stating that “under the alter ego theory, courts disregard the corporate entity when there exists such unity between corporation and individual that the corporation ceases to be separate and when holding only the corporation liable would promote injustice.”).