Petitioner’s Brief

Latch v. Gratty, Inc.

Description: This case was a breach of contract case involving the proposed purchase of a Kawasaki dealership min East Texas.  Latch had originally signed an agreement to sell his dealership to Gratty if Gratty secured approval from Kawasaki.  After Gratty dragged his feet in securing Kawasaki’s approval and Latch was threatened with the potential loss of his franchise, Latch signed a sales agreement with another buyer.   Kawasaki eventually terminated Latch’s franchise agreement and refused to award a new franchise to Gratty.  Gratty then sued Latch for breach of contract and tortious interference.  Gratty prevailed at trial on his tortious interference claim and Latch appealed.  The court of appeals affirmed.  Latch than filed a petition with the Texas Supreme Court which reversed and rendered a judgment in his favor. This brief was filed by Heygood, Orr & Pearson on behalf of their client.

No. 01-0773
IN THE SUPREME COURT
OF TEXAS
Louis Randall Latch
Petitioner,

v.

Gratty, Inc.,
Respondent.

Appeal from the 124th Judicial District
Court of Gregg County, TexasThe Honorable Alvin G. Khoury, Presiding

PETITIONER’S BRIEF

___________________________________________________________

ERIC D. PEARSON

IDENTITY OF PARTIES AND COUNSEL

Pursuant to Rule 55.2 (a) of the Texas Rules of Appellate Procedure, Petitioner certifies that the following is a complete list of the names and addresses of all parties to the trial court=s final judgment and their counsel in the trial court and court of appeals:

Louis Randall Latch
3130 N. Eastman Road
Longview, Texas  75605
(Petitioner/Defendant in the Trial Court)

Fun Motors of Longview, Inc.
3130 N. Eastman Road
Longview, Texas  75605
(Defendant in the Trial Court)

Heygood, Orr & Pearson
Eric D. Pearson
2331 W. Northwest Highway 2nd Floor
Dallas, Texas 75220
(Counsel for Petitioner/Defendant)

Mark D. Strachan
Attorney at Law
911 W. Loop 281, Suite 211
Longview, Texas 75604
(Counsel for Petitioner/Defendants
in Trial Court and Court of Appeals)

Gratty, Inc.
James Gratton
(Respondent/Plaintiff in the Trial Court)

Glenn D. Phillips
1003 Stone Road
Kilgore, Texas  75662
(Counsel for Respondent/Plaintiff)

TABLE OF CONTENTS

IDENTITIES OF PARTIES AND COUNSEL……………………………………………………………………. i

TABLE OF CONTENTS………………………………………………………………………………………………… ii

INDEX OF AUTHORITIES…………………………………………………………………………………………… iv

ABBREVIATIONS AND RECORD REFERENCES……………………………………………………….. vi

Abbreviations…………………………………………………………………………………………………… vi

Record References……………………………………………………………………………………………. vi

STATEMENT OF THE CASE………………………………………………………………………………………… 1

STATEMENT OF JURISDICTION…………………………………………………………………………………. 2

ISSUES PRESENTED……………………………………………………………………………………………………. 4

STATEMENT OF FACTS………………………………………………………………………………………………. 4

SUMMARY OF THE ARGUMENT……………………………………………………………………………….. 7

ARGUMENT AND AUTHORITIES……………………………………………………………………………….. 9

Issue No. 1 (Restated)………………………………………………………………………………………… 9

I.          Gratty was required to demonstrate that Latch acted solely for his own personal interests…………………………………………………………………………………………………..    9

II.         There was no evidence, or legally and factually insufficient evidence,

that Latch acted solely for his own personal interests……………………………. 11

III.       There was no evidence that Fun Motors complained of Latch’s

conduct ……………………………………………………………………………………………..     15

Issue No. 2 (Restated)………………………………………………………………………………………. 16

I.          There was no evidence, or legally and factually insufficient evidence, of proximate cause………………………………………………………………………………………………………      16

Issue No. 3 (Restated)………………………………………………………………………………………. 18

I.          The Court of Appeals erred in finding a contract subject to

interference ………………………………………………………………………………………….. 18

Issue No. 4 (Restated)………………………………………………………………………………………. 20

I.          The Court of Appeals erred in finding that the damages awarded by the Trial Court were supported by legally and factually sufficient evidence of lost profits              20

A.        Gratty=s expert witness ignored the relevant facts and figures and instead utilized unreliable projections of future profits…………………………..      20

B.        Gratty=s expert witness failed to deduct all appropriate

expenses…………………………………………………………………………………….. 23

PRAYER …………………………………………………………………………………………………………………….. 24

CERTIFICATE OF SERVICE……………………………………………………………………………………….. 25


INDEX OF AUTHORITIES

Cases

ACS Investors, Inc. v. McLaughlin, 943 S.W.2d 426 (Tex. 1997)…………………………….. 2, 10

 

Cherokee Communications, Inc. v. Skinny’s, Inc., 893 S.W.2d 313

(Tex. App. B Eastland 1994, writ denied)……………………………………………………. 18, 19

Coastal Corp. v. Atlantic Richfield Co., 852 S.W.2d 714

(Tex. App. B Corpus Christi 1993, no writ)…………………………………………………….. 3, 9

Frost Nat=l Bank v. Matthews, 713 S.W.2d 365

(Tex. App. B Texarkana 1986, writ ref=d n.r.e.)……………………………………………. 3, 10

Henderson v. Texas Commerce Bank- Midland, 837 S.W.2d 778

(Tex. App.BEl Paso 1992, writ denied)…………………………………………………………….. 18

 

Hill v. Heritage Resources, Inc., 964 S.W.3d 89

(Tex. App. B El Paso 1997, no writ)………………………………………………………………… 3, 9

Holloway v. Skinner, 898 S.W.2d 793 (Tex. 1995)…………………………………… 2, 9, 10, 14, 18

Holt Atherton Industries v. Heine, 835 S.W.2d 80 (Tex. 1992)………………………………. 20, 23

JMJ Enter., Inc. v. Via Veneto Italian Ice, Inc., 1998 WL 175888

(E.D. Pa. April 15, 1998)………………………………………………………………………………….. 22

Kahn v. Seely, 980 S.W.2d 794 (Tex. App. B San Antonio 1998,

pet. denied)………………………………………………………………………………………………… 23, 24

Kemp v. Tyson Seafood Group, Inc., 56 U.S.P.Q.2d 1125,

2000 WL 1062105 (D. Minn. 2000)…………………………………………………………………. 22

Leitch v. Hornsby, 935 S.W.2d 114 (Tex. 1996)…………………………………………………………… 16

Morgan Stanley & Company, Inc. v. Texas Oil Co.,

958 S.W.2d 178 (Tex. 1997)………………………………………………………….. 2, 3, 10, 13-15

Powell Industries v. Allen, 985 S.W.2d 455 (Tex. 1998)…………………………… 2, 3, 10, 15, 16

Southwest Battery Corporation v. Owen, 115 S.W.2d 1097

(Tex. 1938)………………………………………………………………………………………………………. 20

Statutes

Tex. R. App. P. 55………………………………………………………………………………………………………….. 1

Tex. Gov. Code ‘22.001(a)……………………………………………………………………………………….. 2, 3

ABBREVIATIONS AND RECORD REFERENCES

 

Abbreviations

ALatch@ refers to Petitioner/Defendant Louis Randall Latch.

AFun Motors@ refers to Defendant Fun Motors of Longview, Inc.

AGratty@ refers to Respondent/Plaintiff Gratty, Inc.

Record References

AC.R.@ refers to the Clerk=s Record on appeal.  Citations to the Clerk=s Record are to the page number on which the information appears.

ASupp. C.R.@ refers to the Supplemental Clerk=s Record on appeal.  Citations to the Clerk=s Record are to the page number on which the information appears.

AR.R.@ refers to the Reporter=s Record.  Citations to the Reporter=s Record are to the volume and page number on which the information appears, to the Plaintiff=s Exhibits (APX@) or to the Defendant=s Exhibits (ADX@).

AOpinion@ refers to the Court of Appeals= June 21, 2001 Opinion in this case.

No. 01-0773
IN THE SUPREME COURT
OF TEXAS
Louis Randall LatchPetitioner,v.Gratty, Inc.,Respondent. Appeal from the 124th Judicial District
Court of Gregg County, TexasThe Honorable Alvin G. Khoury, Presiding

__________________________________________________________________________

PETITIONER’S BRIEF

___________________________________________________________________________

 

TO THE SUPREME COURT OF TEXAS:

Petitioner Louis Randall Latch respectfully submits this Brief pursuant to Rule 55 of the Texas Rules of Appellate Procedure.

STATEMENT OF THE CASE

  1. The underlying suit was brought by Gratty against Fun Motors and Latch for breach of contract and tortious interference with contract.
  2. The Honorable Alvin G. Khoury signed the Judgment being appealed.
  3. This case is appealed from the 124th Judicial District Court of Gregg County, Texas.
  4. The Trial Court rendered judgment in favor of Gratty against Latch, but denied Gratty recovery against Fun Motors.
  5. The case was appealed to the Sixth District Court of Appeals in Texarkana.
  6. The opinion of the Court of Appeals was authored by Justice Ben Z. Grant with Chief Justice William J. Cornelius and Justice Donald R. Ross participating.
  7. The opinion of the Court of Appeals was published.
  8. The Court of Appeals affirmed the Judgment of the Trial Court.
  9. The Court of Appeals correctly stated the nature of the case.

STATEMENT OF JURISDICTION

This Court has jurisdiction under Section 22.001(a)(2) of the Texas Government Code because the Court of Appeals held differently from the prior decision of this Court in Holloway v. Skinner, 898 S.W.2d 793, 795 (Tex. 1995) by holding a corporate officer liable for tortiously interfering with his corporation=s contract.

This Court has jurisdiction under Section 22.001(a)(2) of the Texas Government Code because the Court of Appeals held differently from the prior decisions of this Court in ACS Investors, Inc. v. McLaughlin, 943 S.W.2d 426, 432 (Tex. 1997), Holloway v. Skinner, 898 S.W.2d 793, 798 (Tex. 1995), Powell Industries v. Allen, 985 S.W.2d 455, 457 (Tex. 1998) and Morgan Stanley & Company, Inc. v. Texas Oil Co., 958 S.W.2d 178, 182 (Tex. 1997)  by holding a corporate officer liable for tortiously interfering with his corporation=s contract without the requisite finding that the officer acted solely for his own personal interests.

This Court has jurisdiction under Section 22.001(a)(2) of the Texas Government Code because the Court of Appeals held differently from the prior decisions of this Court in Powell Industries v. Allen, 985 S.W.2d 455, 457 (Tex. 1998) and Morgan Stanley & Company, Inc. v. Texas Oil Co., 958 S.W.2d 178, 182 (Tex. 1997) by holding a corporate officer liable for tortiously interfering with his corporation=s contract without the requisite finding that the corporation complained of the officer=s actions.

This Court has jurisdiction under Section 22.001(a)(2) of the Texas Government Code because the Court of Appeals held differently from the prior decisions of the El Paso, Corpus Christi and Texarkana Courts of Appeal in Hill v. Heritage Resources, Inc., 964 S.W.3d 89, 126 (Tex. App. B El Paso 1997, no writ), Coastal Corp. v. Atlantic Richfield Co., 852 S.W.2d 714, 720 (Tex. App. B Corpus Christi 1993, no writ) and Frost Nat=l Bank v. Matthews, 713 S.W.2d 365, 369 (Tex. App. B Texarkana 1986, writ ref=d n.r.e.) by holding a corporate officer liable for tortiously interfering with his corporation=s contract.

This Court has jurisdiction under Section 22.001(a)(6) of the Texas Government Code because the Court of Appeals committed an error of law of such importance to the jurisprudence of the state that it requires correction.

ISSUES PRESENTED

1.         Whether the Court of Appeals erred in holding that Latch, an officer of Fun Motors, was liable for interfering with an agreement between Fun Motors and Gratty.

2.         Whether the Court of Appeals erred in finding that there was legally and factually sufficient evidence to support the Trial Court=s finding of proximate cause.

3.         Whether the Court of Appeals erred in finding that there was a valid and enforceable contract subject to interference.

4.         Whether the Court of Appeals erred in finding that the damages awarded by the Trial Court were supported by legally and factually sufficient evidence of lost profits and were not too uncertain or speculative to be awarded.

STATEMENT OF FACTS

Fun Motors was a Kawasaki Motors Corporation dealer in Longview, Texas and Latch was its President and owner. (R.R. Vol. I at 65, 84; R.R. Vol. II at  PX 1).  Beginning as early as August 1994, Gratty verbally agreed to purchase Fun Motors’ Kawasaki dealership if and when Gratty secured the approval of Kawasaki to become its franchisee.  (R.R. Vol. I at 70).  On November 6, 1996, Gratty executed an agreement with Fun Motors, signed by Latch, whereby Latch would sell Fun Motors= Longview Kawasaki dealership to Gratty upon Gratty securing the necessary approval from Kawasaki and the necessary financing.  (R.R. Vol. II at PX 10-2; R.R. Vol. I at 42-43, 84).  From August 1994 to early 1997, Gratty took no action to secure the approval of Kawasaki.  (R.R. Vol. I at 51, 70, 86).  In 1996, Kawasaki sought to terminate Fun Motors= Longview Kawasaki franchise, leading to a revocation hearing in Austin in January 1997.  (R.R. Vol. I at 70, 86).  At a break during the hearing, Latch called Jim Gratton, Gratty=s owner and President, to determine whether Gratty had sent in its application, applied for a loan or taken any concrete steps to secure Kawasaki=s approval.  (R.R. Vol. I at 70-71, 86-87).  Latch was concerned that if his Kawasaki franchise was terminated, he would have nothing to sell to Gratty.  (R.R. Vol. I at 86-87).

Latch=s concerns became even more acute when he learned that Gratty had still not received loan approval or sent its application to Kawasaki.  (R.R. Vol. I at 51, 86-88).  After Latch left the hearing in Austin in January 1997, the threat of losing his Kawasaki franchise hung over his head.  (R.R. Vol. I at 88).  Despite the fact that Latch had informed Gratty of the situation he was in, as of early March 1997, Gratty had still not sent its application to Kawasaki.  (R.R. Vol. I at 88-89).  Because Gratty had been unable to secure financing, it entered into a new agreement to purchase Fun Motors on March 4, 1997 in which Fun Motors would provide financing.  (R.R. Vol. I at 10-11, 88-89; R.R. Vol. II at PX 1).  Even after signing this new agreement, Gratty continued to delay sending its application to Kawasaki.  (R.R. Vol. I at 61, 89).

Gratty=s continued delays put Latch in an untenable situation.  Although he had an agreement to sell his Kawasaki franchise to Gratty if Gratty received approval from Kawasaki, he was now threatened with losing his franchise, leaving him nothing to sell.  (R.R. Vol. I at 76, 86, 89-90).  Latch saw no sign that Gratty was taking any of the steps necessary to secure approval from Kawasaki but, under the terms of the agreement, was powerless to force Gratty to act.  (R.R. Vol. I at 89-91; R.R. Vol. II at PX 1).  If Gratty=s foot-dragging continued, Latch faced the likelihood of losing his franchise before the sale could be consummated.  (R.R. Vol. I at 89, 92).

Rather than face the possibility that Fun Motors would receive nothing for its valuable Kawasaki franchise, Latch, acting on behalf of Fun Motors, took affirmative steps to find another buyer and, on April 1, 1997, signed a Buy/Sell Agreement to sell the franchise to Scott Zhorne.  (R.R. Vol. I at 84, 91-92; R.R. Vol. II at PX 5).  Latch knew that if he did not sign the agreement with Zhorne and Gratty either failed to send its application to Kawasaki or was rejected by Kawasaki, Fun Motors would be stuck without a buyer as the clock ticked down on its franchise rights.  (R.R. Vol. I at 92).

Even after Latch signed the agreement with Zhorne, Gratty continued to delay sending its application to Kawasaki.  (R.R. Vol. I at 61, 91).  In fact, it was not until after Jim Gratton heard about the agreement with Zhorne that Gratty was finally motivated to mail its application to Kawasaki=s attorneys.  (R.R. Vol. I at 77; R.R. Vol. II at DX3; R.R. Vol. II at PX 7, 8).  After finally receiving Gratty=s application on April 25, just three days before Zhorne=s, Kawasaki refused to consider either application.  (R.R. Vol. I at 93; R.R. Vol. II at PX 8, 9).  Instead, Kawasaki filed a lawsuit in May 1997 seeking a declaratory judgment as to which application it was required to consider.  (R.R. Vol. I at 93; R.R. Vol. II at PX 10).  Fun Motors= Kawasaki dealership was subsequently terminated, leaving Latch and Fun Motors nothing to sell to either Gratty or Zhorne.  (R.R. Vol. I at 94).

It is pure speculation to assume that Kawasaki would have awarded the franchise to Gratty but for Latch=s actions, and the Trial Court recognized as much by refusing to allow Gratty to testify to this effect.  (R.R. Vol. I at 37-8, 93).  Even Kawasaki had informed Gratty that Athe fact that you submitted a completed application with the letter of commitment is no guarantee that you will be approved as a dealer.@  (R.R. Vol. II at DX3).  In fact, after dismissing its lawsuit in early 1998, Kawasaki awarded the franchise to Zhorne.  (R.R. Vol. I at 36).

Gratty thereafter sued Fun Motors and Latch, alleging breach of contract by Fun Motors and tortious interference with the Fun Motors contract by Latch.  (C.R. at 14-24.)  Following a bench trial, the Trial Court ruled that there had been no breach of contract but awarded judgment to Gratty and against Latch on the tortious interference claim.  (C.R. at 47; Supp. C.R. at 3).  The Trial Court awarded out of pocket damages of $42,901.87 and lost profits of $133,000.  C.R. at 47.  Latch filed his Notice of Appeal on May 8, 2000.  C.R. at 59.

SUMMARY OF THE ARGUMENT

As a general principle, an officer of a corporation cannot interfere with his corporation=s contract unless the plaintiff demonstrates that the officer acted so contrary to the best interests of the corporation that he could only have been motivated by his own personal interests.  Rather than require such a finding, mandated by a long line of decisions of this Court, the Court of Appeals focused instead on the unrelated issue of capacity.  If the Court of Appeals= Opinion, which has been published, is not reversed, officers such as Latch will lose the protections afforded them through the use of the corporate entity and will be subjected to liability without the required finding that they acted solely for their own personal interests.  Such liability will effectively turn every breach of contract into a tortious interference case against the corporate officers or agents who recommended or participated in the breach, greatly expanding tort law in Texas beyond the boundaries carefully circumscribed by this Court.

In order to demonstrate that an officer has acted solely in his own personal interests, a plaintiff must show that the corporation itself has complained of its officer=s conduct.  Because there was no evidence of a corporate complaint, the Court of appeals erred in affirming the Trial Court=s Judgment against Latch.  If this error is not corrected, corporate officers will be subjected to liability without the necessity of a corporate complaint, allowing judges and juries to second-guess the judgment of the corporation.

One of the elements of tortious interference is proximate cause.  Here, there was no evidence, or legally and factually insufficient evidence, that anything Latch did proximately caused Gratty=s failure to be awarded Latch=s Kawasaki franchise.  The contract at issue required Gratty to secure Kawasaki=s approval, which he never obtained despite having applied in writing for the franchise.  There was no evidence, or legally and factually insufficient evidence, that Gratty would have obtained approval from Kawasaki but for the actions of Latch and Fun Motors.

Another of the elements of tortious interference is an existing contract subject to interference.  Because the agreement between Fun Motors and Gratty did not obligate Gratty to seek approval from Kawasaki, it lacked mutuality and was unenforceable as a matter of law.  The Court of Appeals erred in finding an existing contract subject to interference.

Under Texas law, damages which are too remote or speculative are not recoverable.  Here, Gratty=s damage expert ignored the available data and instead utilized unreliable projections which were contrary to the established facts.  He also failed to deduct the $90,000 purchase price of the franchise from his calculation of lost profits.  For these reasons, the damages awarded by the Trial Court and affirmed by the Court of Appeals were speculative and conjectural and were not supported by legally or factually sufficient evidence.

ARGUMENT AND AUTHORITIES

Issue No. 1 (Restated)

Whether the Court of Appeals erred in holding that Latch, an officer of Fun Motors, was liable for interfering with an agreement between Fun Motors and Gratty.

I.         Gratty was required to demonstrate that Latch acted solely for his own personal interests.

Latch, doing business as Fun Motors of Longview, Inc. entered into an Asset Purchase Agreement with Gratty to sell Gratty his Kawasaki dealership subject to approval by Kawasaki.  (R.R. Vol. II at PX 1).  This agreement, between Fun Motors and Gratty, is the agreement allegedly interfered with by Latch.  (R.R. Vol. II at PX 1).  And yet it is unquestioned that Latch was the President of Fun Motors.  (R.R. Vol. I at 84; R.R. Vol. II at PX 1).  Under Texas law, A[b]y definition, the person who induces the breach cannot be a contracting party.@  Holloway v. Skinner, 898 S.W.2d 793, 795 (Tex. 1995).  Moreover, A[a] party to a business relation cannot tortiously interfere with itself.@  Hill v. Heritage Resources, Inc., 964 S.W.3d 89, 126 (Tex. App. B El Paso 1997, no writ); Coastal Corp. v. Atlantic Richfield, 852 S.W.2d 714, 720 (Tex. App. B Corpus Christi 1993, no writ); Frost Nat=l Bank v. Matthews, 713 S.W.2d 365, 369 (Tex. App. B Texarkana 1986, writ ref=d n.r.e.).

An exception exists to the foregoing rule: an officer can be held liable for interfering with his corporation=s contract if the plaintiff pleads and proves that the officer was acting Ain a manner so contrary to the corporation=s best interests that his or her actions could only have been motivated by personal interest.@  ACS Investors, Inc. v. McLaughlin, 943 S.W.2d 426, 432 (Tex. 1997); see also Holloway, 898 S.W.2d at 798; Powell Industries v. Allen, 985 S.W.2d 455, 457 (Tex. 1998).  It is not enough that the officer had mixed motives; A[a] corporate officer=s mixed motives B to benefit himself and for the corporation to benefit B are insufficient to establish liability.@  ACS Investors, 943 S.W.2d at 432; see also Powell, 985 S.W.2d at 457.  Nor is it sufficient to show the officer=s actions had the potential for personal gain.  ACS Investors, 943 S.W.2d at 432.  Indeed, the possibility that the officer might have acted solely in his own personal interests is not enough:

To show tortious interference, neither an agent’s mistaken assessment of its principal’s interests nor the possibility that the agent might have acted in its own interests and contrary to its principal’s is enough.  We held in Holloway “that the ultimate issue in a case of this nature is whether the corporation’s agent acted in a manner so contrary to the corporation’s interests that the agent could only have been motivated by personal interest.”

Morgan Stanley & Co., Inc. v. Texas Oil Co., 958 S.W.2d 178, 179 (Tex. 1997).

Tellingly, the Trial Court entered no finding of fact or conclusion of law that Latch acted for his own personal interests.  Nor did the Court of Appeals reach such a conclusion, instead stating merely that the Aevidence is legally sufficient to uphold the trial court’s finding that Latch acted in his individual capacity when he signed the Buy/Sell Agreement with Zhorne.@ Opinion at 7.[1] This conclusion, as well as the Court of Appeals’ focus throughout its Opinion on the issues of capacity and alter ego, illustrates the court’s failure to apply well-established principles of Texas law.  Under the prior decisions of this Court as well as various courts of appeal, the issue is not one of capacity, but rather whether Latch acted solely for his own personal interests when he signed the contract with Zhorne.  Miscasting the issue as one of capacity essentially relieved Gratty of its burden of proof on one of the required elements of tortious interference and constituted a clear abuse of discretion.

II.        There was no evidence, or legally and factually insufficient evidence, that Latch acted solely for his own personal interests.

 

Although the Trial Court and Court of Appeals missed the issue entirely, a review of the record clearly establishes that there was no evidence or, in the alternative, factually and legally insufficient evidence, that Latch acted solely for his own personal interests and contrary to the interests of Fun Motors when he signed the subsequent contract with Zhorne.  As set forth above, Latch and Fun Motors were being threatened with losing their franchise, leaving them nothing to sell, but could do nothing to force Gratty to submit its application to Kawasaki.  (R.R. Vol. I at 76, 86, 89-90; R.R. Vol. II at PX 1).  If Gratty=s foot-dragging continued, they faced the likelihood of losing the franchise before the sale could be consummated, costing Fun Motors the $90,000 purchase price under the contract.  (R.R. Vol. I at 89, 92).  As the Court of Appeals stated, Fun Motors was Aoperating under a veritable Sword of Damacles as it awaited a ruling on the revocation of its franchise agreement.@  Opinion at 9.  Rather than allow Fun Motors to receive nothing for its valuable Kawasaki franchise, Latch took affirmative steps to find another buyer by signing the  Buy/Sell Agreement with Zhorne.  (R.R. Vol. I at 91-92; R.R. Vol. II at PX 5).  These facts clearly demonstrate that Latch was simply doing his best to secure a buyer for Fun Motors before its franchise rights expired.  There is no evidence that he was acting solely for his own personal interests or contrary to the interests of Fun Motors.

The Court of Appeals concluded that “Latch sought to bypass the corporate entity” by signing the contract with Zhorne but cited no evidence of such a plan.  Opinion at 7.  Certainly Latch’s form of signature on the agreement cannot be presumed to show such intent absent additional evidence; it merely shows that Latch used a simple form document to “paper” his agreement with Zhorne which failed to explicitly state Latch was signing the document on behalf of Fun Motors.  His form of signature is particularly insignificant given the fact that it is undisputed that Latch lacked the legal ability to transfer Fun Motors’ assets to Zhorne in any capacity other than his capacity as Fun Motors’ President.  The Court of Appeals viewed this fact as “irrelevant” to its analysis even though it supports the implication that Latch and Zhorne intended their agreement to bind Fun Motors.  Opinion at 7. [2]

The Court of Appeals also appears to have dismissed as irrelevant Latch’s trial testimony that he had no preference as to whether Gratty or Zhorne purchased Fun Motors, a fact which belies any intent to usurp a corporate opportunity by selling Fun Motors to Zhorne in his individual capacity.  (R.R. Vol. I at 31, 92).  The Court of Appeals likewise dismissed Latch’s unequivocal testimony that he acted on Fun Motors’ behalf at all times, noting that the Trial Court was free to disbelieve such testimony.  Opinion at 7.[3] While it is correct that the Trial Court was free to disregard this testimony, it was not free to reach the opposite conclusion — that Latch was acting solely for his own personal interests at the expense of Fun Motors — absent legally and factually sufficient evidence.  See, e.g. Morgan Stanley, 958 S.W.2d at 179-180 (Morgan Stanley’s affidavit stating that it acted at all times in Tenenco’s best interests entitled it to judgment on Texas Oil’s tortious interference claim unless Texas Oil adduced evidence raising a fact issue).  Only if the evidence was such that Latch could only have been motivated by personal interests was the Trial Court free to impose liability on Latch for tortious interference with his corporation’s contract.  Morgan Stanley, 958 S.W.2d at 179.  In the absence of such clear and convincing evidence, the Trial Court and Court of Appeals committed an abuse of discretion in entering judgment against Latch for tortious interference with the Fun Motors-Gratty contract.

One of the primary reasons corporate officers are shielded from liability for tortious interference with their corporation’s contracts unless they are acting solely in their own personal interests is so that corporations are not deterred from abandoning disadvantageous contracts for fear of tort liability:

Doing business through corporate structures is a recognized and necessary incident of business life.  A party is usually able to abandon a disadvantageous but valid contract and be responsible for breach of contract only.  Corporations would substantially be prevented from similarly abandoning disadvantageous but valid contracts, and from securing related business advice, if the officers and employees who advised and carried out the breach had to run the risk of personal responsibility in an action for personal interference with the contract.

Holloway, 898 S.W.2d at 795.  In the instant case, Latch explained at trial the need to secure another buyer for Fun Motors in light of the pending revocation proceedings and Gratty’s prolonged failure to submit its application to Kawasaki.  This entirely appropriate pursuit of Fun Motors’ best interests might have been deterred had Latch been aware that he faced potential personal tort liability for allegedly interfering with the Fun Motors-Gratty contract.  Even more important is the effect which the Court of appeals’ holding may have on others in the future.  Simply put, if the Court of Appeals= Opinion, which has been published, is not reversed, officers such as Latch will lose the protections afforded them through the use of the corporate entity and will be subjected to liability without the required finding that they acted solely for their own personal interests.  Such liability will effectively turn every breach of contract into a tortious interference case against the corporate officers or agents who recommended or participated in the breach, greatly expanding tort law in Texas beyond the boundaries carefully circumscribed by this Court.

III.      There was no evidence that Fun Motors complained of Latch=s conduct.

Even if this Court concluded that there was some evidence Latch may have acted for his own benefit, Gratty is still not entitled to judgment against Latch:

when determining whether an agent acted against the corporation=s interests, we consider the corporation=s evaluation of the agent=s actions.  A corporation is a better judge of its own best interests than a judge or jury.  A principal=s complaint about its agents actions is not conclusive of whether the agent acted against the principal=s best interests.  However, if a corporation does not complain about its agents actions, then the agent cannot be held to have acted contrary to the corporation=s interests.

Powell, 985 S.W.2d at 457 (emphasis added); see also Morgan Stanley, 958 S.W.2d at 182 (same).  Here, it is unquestioned that Fun Motors was a corporation and Latch was its President.  Gratty brought forth no evidence that Fun Motors complained about Latch=s conduct or objected to him signing the subsequent contract with Zhorne.  As set forth above, this is entirely understandable, as Latch=s only motivation was to procure a buyer for Fun Motors= assets before its franchise with Kawasaki was revoked.

Because there was no evidence of the corporate complaint necessary to find that Latch acted solely in his own personal interests, Gratty failed to meet its burden of proof and the Court of Appeals erred in affirming the verdict against Latch.  If this error is not corrected, corporate officers will be subjected to tort liability without the necessity of a corporate complaint, allowing judges and juries to second-guess the judgment of the corporation.

Issue No. 2 (Restated)

Whether the Court of Appeals erred in finding that there was legally and factually sufficient evidence to support the Trial Court=s finding of proximate cause.

I.         There was no evidence, or legally and factually insufficient evidence, of proximate cause.

In order to prove that Latch tortiously interfered with its agreement, Gratty must prove that Latch=s conduct proximately caused him to lose the Kawasaki franchise.  Powell Industries, 985 S.W.2d at 456.  And proximate cause consists of both cause in fact and foreseeabilty.  See, e.g., Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex. 1996).  Here, there is no evidence that Latch foresaw that entering into the alternate agreement with Zhorne would cause Gratty to lose the Kawasaki franchise.  At the point Latch signed the agreement with Zhorne, Gratty had done nothing to obtain Kawasaki=s approval and gave no signs of doing so.  (R.R. Vol. I at 61, 89 – 91).  Latch testified that he signed the contract with Zhorne because he was concerned Fun Motors would get nothing for its franchise rights, given Gratty’s foot-dragging and the pending termination proceedings.  (R.R. Vol. I at 91-92).

There is also insufficient evidence of cause in fact as there was no evidence Kawasaki would have approved Gratty=s application but for Latch=s conduct.  As set forth above, it is pure speculation to assume that Kawasaki would have awarded the franchise to Gratty and the Trial Court recognized as much when it refused to allow Gratty to testify that he would have received the franchise.  (R.R. Vol. I at 37-38, 93).  Gratty submitted no testimony from anyone at Kawasaki that they would have awarded him the franchise but for Latch=s actions.  In fact, Kawasaki had expressly informed Gratty that Athe fact that you submitted a completed application with the letter of commitment is no guarantee that you will be approved as a dealer.@  (R.R. Vol. II at DX3).

Even if one assumes without adequate factual support that Kawasaki would have approved Gratty’s application but for Latch’s conduct, this is not enough to establish cause in fact.  Rather, Gratty had to show that Kawasaki would have approved its application before Fun Motors’ franchise was terminated.  If the approval came only after Fun Motors’ franchise was terminated, Fun Motors would have no franchise rights to convey (R.R. Vol. I at 76, 86, 89-90) and the Gratty-Fun Motors agreement would essentially become void due to impossibility.  There was no evidence at trial, or legally and factually insufficient evidence, that Gratty’s application, which it had sat on for months, would have been approved prior to the termination of Fun Motors’ franchise rights but for the actions of Randall Latch.

Gratty alleges that proof of proximate cause is found in the fact that Gratty refused to tell Kawasaki which application to consider after learning that it had received applications from both Gratty and Zhorne.  The evidence at trial, however, refutes this allegation.  Although Latch admitted he did not tell Kawasaki which specific application to consider over the other for fear of being sued (R.R. Vol. I at 93), he testified in deposition and at trial that he told Kawasaki to consider whichever application it had received first.  (R.R. Vol. I at 81-82, 93).  And it is uncontroverted that Kawasaki received Gratty’s application on April 25, 1997, three days before it received Zhorne’s application. (R.R. Vol. II at PX 8).  Had Kawasaki followed Latch’s instructions to consider the first application received, it would have considered Gratty’s application.  Latch’s advice to Kawasaki regarding the competing applications obviously did not constitute an act of tortious interference.

Issue No. 3 (Restated)

Whether the Court of Appeals erred in finding that there was a valid and enforceable contract subject to interference.

I.         The Court of Appeals erred in finding a contract subject to interference.

The Asset Purchase Agreement between Latch and Gratty obligated Latch to sell the Fun Motors franchise to Gratty only if Gratty secured approval from Kawasaki.  (R.R. Vol. II at PX 1).  But nothing in the agreement obligated Gratty to seek approval from Kawasaki and there was nothing Fun Motors could do to compel Gratty to send in his application.  (R.R. Vol. II at PX 1; R.R. Vol. I at 89-91).  This lack of mutuality rendered the agreement unenforceable as a matter of law.  See, e.g., Henderson v. Texas Commerce Bank- Midland, 837 S.W.2d 778, 781 (Tex. App.BEl Paso 1992, writ denied).  Without an enforceable contract, there could be no tortious interference by Latch.  Holloway, 898 S.W.2d at 795.

The case of Cherokee Communications, Inc. v. Skinny’s, Inc., 893 S.W.2d 313 (Tex. App.–Eastland 1994, writ denied) does not change the result under the facts of the instant case.  In that case, the court held that the test for mutuality is applied not when an agreement is signed, but “as of the time enforcement is sought.”  Id. at 316.  And if one party has partially performed under the agreement to the benefit of the other, the court held, the test for mutuality is met.  Id. In this case, the relevant time for determining mutuality must be when Latch signed the contract with Zhorne, the event which allegedly constituted interference with the Fun Motors-Gratty agreement.  At that point in time, it is unquestioned that Gratty had not yet sent in its application to Kawasaki (R.R. Vol. I at 61, 91); indeed, such failure is what precipitated the singing of the contract with Zhorne.  (R.R. Vol. I at 91-92).

While Gratty must concede that it had not partially performed under its contract with Fun Motors by sending in its application to Kawasaki, it argues that the expenses it incurred in preparing to become a Kawsaki franchise constitute partial performance.  Response to Petition for Review at 4.  Those expenses, however, conferred no benefit on Fun Motors and thus do not constitute partial performance. As for the expenses incurred by Gratty in opening a shop on Cotton Street in Longview, Texas, it is unquestioned that Gratty actually operated its Arctic Cat and ATK franchises at that location before he signed the March 1997 contract allegedly interfered with.  (R.R. Vol. II at PX3; R.R. Vol. I at 43-36).  After signing the March 1997 agreement (R.R. Vol. II at PX1), Gratty continued to operate its other franchises out of the Cotton Street location. (R.R. Vol. I at 40-42).    As for the $135,000 loan Gratty obtained, it is unquestioned that James Gratton was explicitly told by Kawasaki that he did not need to close the loan to be approved as a Kawasaki franchisee, but merely had to provide evidence of a loan commitment, which he already had.  (R.R. Vol. II at DX 4, DX 2; R.R. Vol. I at 53-57).  Despite this fact, he closed the loan and used the proceeds not for the benefit of Fun Motors or in pursuit of the Kawasaki franchise, but to run his Arctic Cat and ATK franchises, to pay off loans on his Arctic Cat dealership in Kilgore and to pay personal expenses.  (R.R. Vol. I at 58-60).   These endeavors provided no benefit to Fun Motors and therefore constitute no partial performance sufficient to provide mutuality.

Issue No. 4 (Restated)

Whether the Court of Appeals erred in finding that the damages awarded by the Trial Court were supported by legally and factually sufficient evidence of lost profits and were not too uncertain or speculative to be awarded.

I.         The Court of Appeals erred in finding that the damages awarded by the Trial Court were supported by legally and factually sufficient evidence of lost profits.

A.        Gratty=s expert witness ignored the relevant facts and figures and instead utilized unreliable projections of future profits.

A claim for lost profits must be proved by competent evidence with reasonable certainty.  Southwest Battery Corporation v. Owen, 115 S.W.2d 1097, 1099 (Tex. 1938); Holt Atherton Industries v. Heine, 835 S.W.2d 80, 84 (Tex. 1992).  Moreover, A[a]t a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits can be ascertained.@  Holt Atherton, 835 S.W.2d at 84.  As set forth below, Gratty failed to meet this threshold burden.

Gratty attempted to prove lost profits by calling Sammie L. Smith, an accounting professor at Stephen F. Austin State University to testify that Gratty would have had profits with a present value of at least $133,333 had he been awarded the Kawasaki franchise.  (R.R. Vol. I at 101, 108).   Mr. Smith based his lost profits on a projected $1,000,000 in sales for 1999 and a projected 5% annual growth in sales.  (R.R. Vol. I at 109-110, 112-113; R.R. Vol. II at PX 15)  Each of these figures is based on pure speculation.

Rather than speculate, there were several sets of data that Mr. Smith could have considered.  He could have considered the actual profits and losses of the Kawasaki dealership that had been operated by Latch; in other words, the very franchise that Gratty was attempting to purchase. Mr. Smith also could have considered the experience of the Kawasaki dealership operated by Scott Zhorne after Kawasaki awarded him the franchise.  And he could have considered Gratty=s prior history of ATV and motorcycle sales. Instead, he ignored all of this data, admitting at trial that he failed to consider:

$          Documents showing the actual profits or losses of Zhorne=s Kawasaki dealership. (R.R. Vol. I at 116 );

$          Any documents showing the history of sales, profits or losses of Fun Motors. (R.R. Vol. I at 119 – 120);

$          Any income statements or other profit and loss documents from Gratty=s motorcycle and ATV dealership.  (R.R. Vol. I at 122 – 123).

Instead of relying on this actual data, Mr. Smith relied on a forecast of operations allegedly supplied by a Kawasaki representative to Jim Gratton, Gratty=s owner, when Gratton was discussing the potential of a Kawasaki dealership in Longview.  (R.R. Vol. I at 118 – 119).  Obviously a Kawasaki representative attempting to sell the concept of a new franchise to Gratton would have an incentive to inflate the projected sales figures, and Smith could offer no explanation for how the data was derived.  (R.R. Vol. I at 119).  In fact, he could not even state who prepared the document or when they prepared it.  Id.

Relying on projections when actual data exists is antithetical to any claim of reliability.  See Kemp v. Tyson Seafood Group, Inc., 56 U.S.P.Q.2d 1125, 2000 WL 1062105, *6 (D. Minn. 2000) (expert=s reliance on assumptions instead of available actual data rejected as Atroublesome, for it exalts fiction over non-fiction@); JMJ Enter., Inc. v. Via Veneto Italian Ice, Inc., 1998 WL 175888, *6 (E.D. Pa. April 15, 1998) (Aexpert testimony that ignores existing data and is based on speculation is inadmissible@).  AWhile deduction may fairly allow an inference from facts available, so as to draw a conclusion as to facts not available, when those facts are available, and not employed, the deduction cannot rise above a mere untested assumption.@  Kemp, 2000 WL 1062105, at *6.

The reason Smith chose to ignore the actual figures and rely instead on hypothetical projections was obvious: the actual data did not support the exorbitant profit projections he had calculated of $80,000 to $95,000 per year.  (R.R. Vol. II at PX 15).  Those projections were based on a presumption of total sales for 1998 of approximately $1,000,000 and 100 to 150 units.  (R.R. Vol. I at 112 – 113;  R.R. Vol. II at DX6).  The actual data which Smith failed to consider revealed the following:

$          Zhorne=s Kawasaki dealership was losing money on every unit sold.  (R.R. Vol. I at 114 – 115);

$          Zhorne=s Kawasaki dealership sold a total of 72 units in 1998, far less than the 100 to 150 Smith projected. (R.R. Vol. I at 116);

$          At no time did Fun Motors ever sell $1,000,000 worth of Kawasaki products. (R.R. Vol. I a 120); and

$          The sales of Kawasaki products in the entire region was less than Smith=s $1,000,000 annual sales projection. (R.R. Vol. I at 120 – 121).

By utilizing unreliable projections rather than the facts and figures available, Gratty failed to prove the amount of lost profits by competent evidence with reasonable certainty.

B.        Gratty=s expert witness failed to deduct all appropriate expenses.

Under Texas law, the proper measure of damages is Anot lost income, but lost profits, that is, the amount remaining after expenses are deducted from income.@  Kahn v. Seely, 980 S.W.2d 794, 799 (Tex. App.BSan Antonio 1998, pet. denied).  In addition to rejecting actual sales figures in favor of projections, Smith also failed to account for a major item of expense in his calculation of lost profits: the $90,000 purchase price for Latch=s Kawasaki franchise.  (R.R. Vol. II at PXs 1, 15).  The Court of Appeals excused this failure by assuming that Smith must have considered this expense since he seemingly understood the definition of profits.  Opinion at 16.  The Court of Appeals concluded that A[b]ecause of the definition of profits, it would be presumed that he accounted for the cost of the various assets when calculating profit, as any calculation of profits would require, unless the record reflects to the contrary.@  Opinion at 16.  This rationale turns the burden of proving lost profit damages on its head; the burden was on Gratty to demonstrate his lost profits Aby competent evidence with reasonable certainty,@ not on Latch to disprove them.  Holt Atherton, 835 S.W.2d at 84.

Moreover, there is no evidence to support the Court of Appeals= improper assumption, and the evidence admitted at trial actually contradicts it.  At trial, Smith was asked what documents he relied upon in determining a range of annual profits of $80,000 to $95,000.  He identified two documents, a Statement of Forecasted Operations allegedly created by a Kawasaki representative and a projected income statement prepared by Gratty=s accountant, Dale Henley.  (R.R. Vol. I at 109-110, 118, 122; R.R. Vol. II at Defendant=s Exhibits 6, 7).  Each of these documents specifically sets out the expenses considered, and omits any reference to the $90,000 purchase price of the franchise (R.R. Vol. II. at Defendant=s Exhibits 6, 7).  Finally, Smith=s report states merely that he considered Anormal ongoing operating expenses@ in his calculations and provides no indication he deducted the $90,000 purchase price of the franchise.  (R.R. Vol. II at PX 15). When a plaintiff fails to offer evidence that he deducted expenses from lost income, he fails to offer evidence of lost profits with reasonable certainty.  Kahn, 980 S.W.2d at 799-800.  The judgment of the Court of Appeals awarding lost profit damages of $133,000 should therefore be reversed.

PRAYER

Petitioner/Defendant Louis Randall Latch respectfully prays that this Court grant this Petition for Review, reverse the Judgments of the Court of Appeals and Trial Court and grant him such other and further relief to which he may be justly entitled.

Respectfully submitted,
HEYGOOD, ORR & PEARSON
2331 W. Northwest Highway
Second Floor
Dallas, Texas 75220
(214) 237-9001 (Telephone)
(214) 237-9002 (Telecopier)


[1]   Not only is this conclusion by the Court of Appeals irrelevant since it skirts the real issue, but it also appears to misstate the Findings of the Trial Court.  Nowhere did the Trial Court find that Latch “acted in his individual capacity” when he signed the contract with Zhorne.  At most, the Trial Court concluded that Latch “executed” and “entered into” the contract with Zhorne, but made no finding regarding the capacity in which he was acting (C.R. at 56-57).

[2]  To support an inference that Latch could only have been acting in his own personal interests at the expense of Fun Motors, the Trial Court would have had to conclude that Latch intended to usurp a corporate opportunity by selling Fun Motors’ assets to Zhorne in his individual capacity, intended to somehow transfer the corporation’s assets to Zhorne without the corporation’s agreement and intended to abscond with the sale proceeds rather than properly account to the company for them.  Of course, there is no evidence of such a Byzantine plot. The obvious and innocent explanation is that in signing the form agreement with Zhorne, Latch simply neglected to sign as President of Fun Motors.  Any contrary conclusion is based on speculation rather than legally and factually sufficient evidence.

[3]   Again misstating the issue as one of capacity, the Court of Appeals stated that Latch “testified he acted in his corporate capacity at all pertinent times.”  Opinion at 7.  In reality, Latch testified that he was “acting on behalf of Fun Motors” at all pertinent times.  (R.R. Vol. I at 84).