Plaintiff’s Response to Defendant’s Traditional and No-Evidence Motion for Summary Judgment

Utter v. North American Bancshares, Inc.

Description: This pleading was a response to a motion for summary judgment filed by the defendants in a breach of contract case brought on behalf of a former bank executive by his widow.  The suit alleged that the bank had orally promised the executive a 5% equity interest in the bank payable upon his death or the sale of the bank.  The 123-page response addresses issues including the enforceability of oral agreements, the statute of frauds, promissory estoppels, partial performance, the parol evidence rule, statutes of limitations, the doctrine of ratification, the rule against perpetuities, failure of a condition precedent and the economic loss rule.  The court denied the defendants’ motion and the case later settled during trial. This brief was filed by Heygood, Orr & Pearson on behalf of their client.

IN THE COUNTY COURT AT LAW NO. 1
GRAYSON COUNTY, TEXAS
GAIL UTTER, AS THE INDEPENDENT
EXECUTRIX OF THE ESTATE OF
SCOTT BARNETT SMITH, DECEASEDV.NORTH AMERICAN BANCSHARES,
INC., ET AL.
CAUSE NO. 2004-1-286-CV

 

PLAINTIFF’S RESPONSE TO LACY HARBER, DOROTHY HARBER,

AND NORTH AMERICAN BANCSHARES, INC.’S TRADITIONAL

AND NO-EVIDENCE MOTIONS FOR SUMMARY JUDGMENT


TABLE OF CONTENTS

 

 

INTRODUCTION.. 1

FACTS. 3

I.         Lacy Harber bought NABI in 1991 and retained Scott Smith to run the bank. 3

II. Harber established Scott Smith’s compensation package. 4

III. Relying on his agreements with Harber and the strong relationship of trust and confidence between them, Smith continued to work for NABI and dramatically increased the size of its banking operations  5

IV. During Scott Smith’s tenure with NABI, the Harbers provided him with a 5% equity interest in the bank that was payable upon his death, retirement or total disability or upon a change of control of the bank  6

V.        In Fall 1994, NABI hired attorney Thomas Hurtekant and KPMG consultants Robert Dill and Randy Staff to draft an employment agreement for Scott Smith reflecting the terms under which he was then employed by NABI. 9

VI. Dill, Staff and Hurtekant drafted an employment agreement for Scott Smith that incorporated the 5% equity agreement as previously described to them by Smith and Harber 12

VII. In March 1995, Smith’s employment agreement was presented to Lacy Harber; although Harber declined to sign the long, complicated document, he affirmed his agreement to its essential terms and agreed to sign a shorter, summary version of the agreement 16

VIII. Following the March 1995 meeting, neither KPMG nor attorney Hurtekant ever presented Harber with a summary version of the draft employment agreement 18

IX. Concerned about a potential change of control of the bank and the possibility a subsequent purchaser might not honor the oral 5% equity agreement, Smith drafted, and the Harbers signed, the one-page COC Agreement 19

X. The COC Agreement is ambiguous. 22

XI. Smith clearly believed his rights under the 5% equity agreement would survive his death and acted accordingly. 23

XII. Tom Hurtekant drafted the “Going to Africa letter” as the Harbers were about to leave for a Safari in Africa; Scott Smith never signed it 27

XIII. Following Smith’s death, Gail Utter met with Lacy Harber, who repudiated his agreements with Scott Smith  33

XIV. Harber hired his long-time friend and attorney David Hooper to review the COC Agreement and then sent Hooper’s analysis, repudiating the agreement, to Utter 33

RESPONSE TO TRADITIONAL MOTION FOR SUMMARY JUDGMENT. 35

STANDARDS FOR TRADITIONAL SUMMARY JUDGMENT. 35

ARGUMENT AND AUTHORITIES. 36

I.         The Motion should be denied as to Utter’s breach of oral contract claim.. 36

A.       There is ample evidence of a valid oral contract granting Smith a 5% equity interest in NABI payable upon his death. 36

B.        The existence of an oral contract granting Smith a 5% equity interest in NABI payable upon his death is a question of fact for the jury. 45

C.        The mere fact that Scott Smith and Gail Utter did not address the 5% equity interest in their financial statements or marital agreement is not outcome-determinative, but merely creates a fact question for the jury. 46

D.       Utter’s oral contract claims are not precluded by the statute of frauds. 47

1.          The statute of frauds does not apply to the oral agreement because it was performable within one year 47

a.       Smith’s death or disability or a change of control all could have            occurred within one year 47

b.       The retireement term of the oral agreement does not render the agreement unenforceable under the statute of frauds. 50

2.          The statute of frauds does not apply to the oral agreement because it did not involve the sale of securities. 52

3.          Promissory estoppel bars application of the statute of frauds. 55

4.          Defendants failed to address Utter’s claim that full and/or partial performance of the contract by Scott Smith takes the contract out of the statute of frauds. 57

5.          Defendants failed to address Utter’s claim that the confidential relationship between Scott Smith and Lacy Harber takes the contract out of the statute of frauds. 58

E.        Utter’s oral contract claims are not barred by the statute of limitations. 59

F.        Utter’s oral contract claims are not barred by the parol evidence rule or the doctrine of merger 61

G.       Utter’s oral contract claims are not barred by the doctrines of ratification and acceptance  63

II. The Motion should be denied as to Utter’s claims for breach of the written one-page COC Agreement 63

A.       The COC Agreement is ambiguous and its interpretation therefore presents a fact question for the jury  63

1.          The term “quit” is ambiguous. 66

2.          The term “terminated” is ambiguous. 69

3.          The term “heirs” is ambiguous. 71

4.          Because the COC Agreement is ambiguous, summary judgment is improper as a matter of law   73

B.        Utter’s claim for anticipatory breach of the COC Agreement does not seek to add terms to the COC Agreement as Defendants suggest 73

C.        The COC Agreement does not violate the rule against perpetuities. 73

1.          It is not entirely clear that the rule against perpetuities applies to purely commercial, non-donative transactions. 74

2.          The rule against perpetuities does not apply because Scott Smith’s 5% equity interest vested at the time the “one-pager” was signed. 74

3.          The rule against perpetuities does not apply because Scott Smith’s 5% equity interest was not an interest in property, but merely an interest in the proceeds of property. 78

4.          Even if the rule against perpetuities applied, it is not violated by the terms of the “one-pager” under the facts of this case. 79

D.       The obligations in the COC Agreement have not been discharged because of the failure of a condition precedent 83

1.          Defendants’ anticipatory repudiation of the COC Agreement allowed Utter to immediately sue for damages rather than await the time for performance. 83

2.          Defendants’ condition precedent argument is based on their interpretation of an ambiguous term of the COC Agreement that presents an issue of fact for the jury. 86

3.          An anticipatory breach excuses the non-occurrence of conditions. 87

4.          The Kiewit case does not support Defendants’ argument 88

E.        The claim for anticipatory breach of the COC Agreement is not barred by the doctrines of ratification and acceptance. 90

III. The Motion should be denied as to Utter’s claims for fraudulent inducement and breach of fiduciary duty  90

A.       Utter’s claims for fraudulent inducement and breach of fiduciary duty are not barred by Texas case law addressing “con-torts” or by the economic loss rule. 90

B.        Utter’s claims for fraudulent inducement and breach of fiduciary duty are not barred by the applicable statute of limitations. 93

IV. The Motion should be denied as to Utter’s claims for quantum meruit and unjust enrichment 95

A.       Utter properly alleged these claims in the alternative to her contract claims. 95

B.        Defendants’ assertion that Smith was “adequately compensated” has absolutely no bearing on Utter’s claims for unjust enrichment and quantum meruit 96

V. The Motion should be denied as to Utter’s claim for a constructive trust 97

VI. The Motion should be denied as to Utter’s claims for declaratory relief. 97

RESPONSE TO NO-EVIDENCE MOTION FOR SUMMARY JUDGMENT. 100

STANDARDS FOR NO-EVIDENCE SUMMARY JUDGMENT. 100

ARGUMENT AND AUTHORITIES. 101

I. The Motion should be denied as to Utter’s breach of contract claim as there is ample evidence to support each element of her claim.. 101

A.       There is ample evidence of a valid contract granting Smith a 5% equity interest in NABI payable upon his death. 101

B.        There is ample evidence that Scott Smith performed the contract through his employment with NABI  109

C.        There is ample evidence that Defendants breached the contract at issue. 110

D.       There is ample evidence that Defendants’ breach of contract caused Scott Smith actual damages  110

II. The Motion should be denied as to Utter’s claim for anticipatory repudiation of the COC Agreement 111

A.       There is ample evidence of a valid, binding COC Agreement 111

B.        There is ample evidence that Scott Smith performed the contract through his employment with NABI  111

C.        There is ample evidence that Defendants anticipatorily breached the COC Agreement 112

D.       There is ample evidence that Defendants’ anticipatory breach of contract caused Scott Smith actual damages. 114

III. The Motion should be denied as to Utter’s Quantum Meruit and Unjust Enrichment Claims  115

A.       There  is  ample  evidence of each of the elements of Utter’s quantum meruit claim.. 115

B.        There  is  ample evidence of each of the elements of Utter’s unjust enrichment claim.. 116

IV. The Motion should be denied as to Utter’s claim for fraudulent inducement 118

A.       There  is  ample  evidence  of  a  misrepresentation and the intent to induce reliance. 119

B.        There is ample evidence of intent to induce reliance. 122

C.        There is ample evidence of reliance and resulting damages. 122

CONCLUSION AND PRAYER.. 123

CERTIFICATE OF SERVICE.. 123

IN THE COUNTY COURT AT LAW NO. 1
GRAYSON COUNTY, TEXAS
GAIL UTTER, AS THE INDEPENDENT
EXECUTRIX OF THE ESTATE OF
SCOTT BARNETT SMITH, DECEASEDV.NORTH AMERICAN BANCSHARES,
INC., ET AL.
CAUSE NO. 2004-1-286-CV

PLAINTIFF’S RESPONSE TO LACY HARBER, DOROTHY HARBER,

AND NORTH AMERICAN BANCSHARES, INC.’S TRADITIONAL

AND NO-EVIDENCE MOTIONS FOR SUMMARY JUDGMENT

 

TO THE HONORABLE JUDGE OF SAID COURT:

 

COMES NOW Plaintiff, Gail Utter, as the Independent Executrix/Administratrix of the Estate of Scott Smith, Deceased (“Utter”), and files this Response to Lacy Harber, Dorothy Harber, and North American Bancshares, Inc.’s Traditional and No-Evidence Motions for Summary Judgment and would respectfully show the Court as follows:

INTRODUCTION

Defendants have filed a 106-page traditional summary judgment motion and a separate no-evidence motion challenging nearly every element of most of Plaintiff’s causes of action.  Defendants spend the first forty-five pages of their traditional motion laying out their version of the facts of the case, the facts upon which they base their entitlement to summary judgment on each of Plaintiff’s nine causes of action.  Despite the length of their factual recitation, Defendants omit to state six critically important facts that are fatal to their motions:

  1. 1.         The entire reason that Scott Smith was seeking a written employment agreement was not because he was concerned that Lacy Harber would not abide by the terms of their existing oral agreement, but because he was concerned that if the Harbers died or sold the bank, the new owners would not abide by the agreement if it was not in writing;
  2. The terms of the employment agreement drafted by Robert Dill and Thomas Hurtekant – including a 5% equity interest triggered upon Smith’s death, retirement or total disability — were not intended as a mere proposal, but were intended to reflect the terms under which Scott Smith was already employed by NABI;
  3. When Lacy Harber declined to sign the draft employment agreement presented to him in March 1995, he was not rejecting the terms of the agreement; in fact, he agreed to those terms, but asked that they be set out in a shorter, one or two-page document that he agreed to sign;
  4. For whatever reason, no summary of the employment agreement was ever presented to Harber after the March 1995 meeting; thus, the argument that Harber committed a tort or breach of contract that triggered limitations by refusing to sign such an agreement is nonsense;
  5. The one-page change of control agreement drafted by Smith was not intended to be a summary of the terms of his employment; rather, it was intended solely to confirm that those terms, including the 5% equity agreement, would survive a change of control; and
  6. The “Going to Africa” letter Defendants seek to enforce was hurriedly drafted by Thomas Hurtekant, did not reflect an existing agreement of the parties and, in any event, was never signed by Scott Smith.

Defendants’ motions are not only unsupported by the uncontroverted facts, they are also unsupported by existing case law.  As set forth more fully below, the statute of frauds does not apply to the parties’ oral agreement because it was performable within one year.  As for the “one-pager,” its terms are ambiguous, thereby precluding summary judgment.  Moreover, that agreement does not violate the rule against perpetuities and was not discharged by the failure of a condition precedent.  As for Plaintiff’s fraudulent inducement claim, the Texas Supreme Court has specifically recognized such a cause of action under the facts of this case.  Finally, Plaintiff’s claims for unjust enrichment and quantum meruit were properly stated in the alternative to her claims for breach of contract.  For these reasons, Defendants’ motions should be denied.

FACTS

I.          Lacy Harber bought NABI in 1991 and retained Scott Smith to run the bank.

Scott Smith was the son of J.W. Smith and the brother of Steve Smith.  In 1973, J.W. Smith bought the First State Bank of Denison.  Shortly thereafter, Scott Smith moved to Denison to work in the bank after graduating from the University of Texas in Austin with a degree in finance.  SS6-7.[1] J.W. Smith later formed a holding company known as North American Bancshares, Inc. (“NABI”) that held the stock of the bank in Denison.  SS8-9.  In 1984, NABI bought Texoma National Bank in Sherman and Steve Smith moved to Sherman to run that bank, while his brother Scott continued to run the bank in Denison.  Id.

By the late 1980s, NABI, like many banks, particularly in Texas, was experiencing financial difficulty.  SS11-13.  Facing foreclosure on the note securing their loan, the owners of NABI sought out investors to bring new capital into the bank.  They eventually settled on Lacy Harber, a local businessman in Sherman.  SS14-19.  As part of the refinancing of the bank, NABI’s noteholder agreed to settle its $11 million note for approximately $5.5 million.  SS24.  On December 31, 1991, 95% of the stock of NABI was transferred to Lacy Harber in exchange for $4 million, which was paid to NABI’s noteholder.  The rest of the $5.5 million note settlement was paid by the original owners of NABI.  SS24-25; LH17.  Over time, Lacy and Dorothy Harber acquired the remaining shares of NABI and now own 100% of those shares.  LH8.

At the time he purchased NABI in late 1991, Lacy Harber had absolutely no experience in banking.  LH24.  John Massey, a banker in Oklahoma and close friend of Harber, recommended to Harber that he buy the bank and keep Scott Smith on to run it.  JM12, 16-18.  Harber would not have purchased NABI if Scott Smith had not agreed to stay on and run the bank.  JM76.  Randy Staff, who was involved on behalf of Peat Marwick in Harber’s purchase of NABI, testified:

6      Q.   (BY MR. PEARSON)  Based on your conversations

7  with Mr. Harber, did he express to you that it was

8  important for Scott Smith to stay on and run the bank

9  after Lacy purchased it?

10      A.   Yes, that was my impression.

RS12.  Harber, relying on Massey’s recommendation and believing that Smith could successfully run the bank, asked him to stay on with the bank and become its CEO, and Smith agreed.  LH22-24; SS83-84.

II.        Harber established Scott Smith’s compensation package .

With the advice and assistance of John Massey, Harber set Scott Smith’s initial salary at $90,000.  JM20-22; LH44, 50.  In addition, Harber verbally agreed to give Smith an annual bonus of 5% of NABI’s after-tax profits.  LH50-51.  He also agreed that if he ever sold the bank, he would pay Smith a percentage of the profit from the sale.  LH57-58.  According to John Massey, Harber told him at about the time he purchased NABI that if he sold the bank he would pay Smith 5% of the profits.  JM22-23; Appendix at Tab 1.  Harber recently testified that “it was general knowledge that [Smith] got five percent of the profit if the bank was sold.”  LH70.

III.       Relying on his agreements with Harber and the strong relationship of trust and confidence between them, Smith continued to work for NABI and dramatically increased the size of its banking operations .

 

Over the years, Smith and the Harbers/NABI developed a strong relationship of trust and confidence.  See, e.g., JM26 (“Scott was the son [Harber] never had”); TH33 (“You have to understand their relationship.  They seemed to trust each other totally”); TH249 (“the two of them had as close a relationship as any other clients I had in 25 years of practicing law.”); TH261 (Smith and Harber were “like brothers”); LH38 (“our friendship was close”).  Smith, Harber and their families socialized together. LH38; DH5-6.  Smith and Harber were in civic groups together and served on boards together.  LH38.  And Smith was one of three members of the Trust Committee for the Lacy Harber Trust that controlled all of Harber’s assets.  Appendix at Tab 2 at p. 4398.  Based on his trust of Lacy Harber, Smith worked as the CEO of NABI from 1991 to 1995 without any written employment agreement.  LH49-50.

During Smith’s tenure as the CEO, NABI’s presence in the North Texas area increased dramatically, in terms of both bank locations and total assets.  The bank grew from two branches to thirteen and from $152M in assets to more than $815M.  Appendix at Tab 3; Appendix at Tab 4 at p. 004255; Appendix at Tab 5.  This growth came as a direct result of Scott Smith’s efforts.  JM54-55 (“Q.  Who do you believe is most responsible for the growth of American Bank? A.   Scott Smith.”); TH38 (“Scott was what made the bank work.”).  As Lacy Harber stated in various newspaper articles:

“The reason I’ve been successful, is I get real good people and then I get out of the way,” Harber said, deferring credit for the bank’s success to chairman of the board Scott Smith and other employees of American Bank.

Scott Smith was one of the finest, intelligent, hard-working men that I had the pleasure to work with.  The success of American Bank is due to Scott’s efforts.

Appendix at Tabs 3, 6.

IV.       During Scott Smith’s tenure with NABI, the Harbers provided him with a 5% equity interest in the bank that was payable upon his death, retirement or total disability or upon a change of control of the bank .

 

During Smith’s tenure with NABI, the Harbers, on behalf of themselves and NABI, agreed to reward Smith for his loyalty and success by providing him a 5% equity interest in NABI.  This equity interest was broader in scope than the change of control payment Harber had granted Smith at the inception of his employment.  The payment of this new 5% equity interest would be triggered by Smith’s death, retirement or total disability or by a change of control of the bank.  Attorney Thomas Hurtekant testified:

20      Q.   Can you recall how [Smith] articulated those terms?

21      A.   That he was to get a — an annual bonus of

22  five percent of basically profits of the bank and in

23  his kind of layman’s words that he had five percent of

24  the gain from the day Lacy invested going forward.

25      Q.   What did you understand the word “gain” to

1  mean?

2      A.   The value of the bank over the value that Lacy

3  invested at.

4      Q.   What was your understanding as to what Lacy’s

5  investment was?

6      A.   I don’t recall that.

7      Q.   Did you confirm with Mr. Harber or another

8  representative of the bank the existence of that

9  understanding?

10      A.   At some point, yes.

 

TH17-18; see also RD168-69, 176-77, 180-81, 286-87.  KPMG consultant Randy Staff testified:

2  At the time at which you were involved

3  with Peat Marwick in this transaction by which Lacy

4  Harber was purchasing American Bank, were you aware of

5  Scott Smith’s compensation agreement with the bank?

6      A.   Yes.

7      Q.   Tell me what you knew in that regard.

8      A.   That he had a base salary and five percent of

9  the after-tax profits and five percent carried interest

10  in the — that’s my recollection, and a five percent

11  carried interest in the deal, in the ownerships —

12  Lacy, only Lacy, because Lacy didn’t own a hundred

13  percent.  I think he owned 94.9 or something like that.

14      Q.   Your understanding of this five percent

15  carried interest, where did you gain that

16  understanding?

17      A.   It was — it was on this piece of paper, and

18  it was in a conversation.

19      Q.   Conversations with whom?

20      A.   Scott and Lacy.

 

RS20.

This 5% equity interest would be triggered upon Smith’s death, retirement or total disability or upon a change in control of NABI:

12       Q      And in that meeting was there a distinction drawn

13  between Scott Smith quitting and Scott Smith dying?

14       A      No.  I mean the only thing is, is I went through

15  each one of them.  I said, if he, you know, retires he gets

16  five percent; if he dies he gets five percent or his heirs —

17 heirs would get five percent; or he’s found by the board of

18  directors to be totally disable, then that would trigger five

19  percent.

20       Q      But in that meeting —

21       A      Change of control, same thing.

 

* * * * *

 

20       Q      — to under — undertake that duty.  One thing I’m

21  not quite clear on your testimony, and I apologize.  I want to

22  go back to I think the last question Mr. Pearson asked you.

23  And that is about if the bank was sold or a change of

24  condition then Scott’s estate would be entitled to be paid.

25  Do you remember that question and answer?

1       A      That in Scott’s say death, or the bank, or all the

2  conditions, yes, that Scott or his heirs would be due the five

3  percent of the bank.

4       Q      Now is it your understanding from your discussions

that when Scott died that it was Mr. Harber’s obligation or

the bank’s obligation to go get the money that represented

five percent of the value of the bank and pay to Scott’s

estate at that time?

9       A      Yes.

 

RD175, 282-83.  The only circumstances under which Smith would lose his 5% equity interest would be if he quit his employment or was terminated for cause:

21       Q      Now was — I gather from your earlier testimony

22  that in that initial meeting with Scott Smith and Lacy Harber

23  there were specific discussions about different events that

24  could occur in the future and how they would impact this five

25  percent equity interest; is that correct?

1       A      Correct.

2       Q      And one of the things was if Scott Smith quit.

3  Correct?

4       A      Correct.

5       Q      Just up and walked away.

6       A      Correct.

7       Q      And the discussion in front of Mr. Harber and

8  Mr. Smith was that if that happened, Mr. Smith would forfeit

9  his five percent equity interest.

10       A      Correct.

11       Q      And the only other event that was discussed in

12  that meeting between Mr. Smith and Mr. Harber, you and Randy

13  Staff, the only other event that would cause Mr. Smith to lose

14  that five percent equity interest was if he was terminated by

15  the bank for cause.

16       A      Correct.

17       Q      And there was a specific discussion that you

18  recall that if Mr. Smith was terminated without cause or he

19  suffered a disability or he died, that those events would not

20  void his five percent equity interest.

21       A      That’s correct.

 

RD173-74; RD120-21 (“The only two items that would not give him a five percent payment would be if he quits, which they address. Q. Uh-huh.  A. Or if he’s terminated with cause.”); RD231 (“the only two events that would not trigger a five percent equity interest payment would be quitting; or number two, termination with cause.”).  According to Thomas Hurtekant, Smith accepted a lower than normal salary for a bank CEO, $90,000 per year, in exchange for this 5% equity agreement.  TH19, 86-87.

V.        In Fall 1994, NABI hired attorney Thomas Hurtekant and KPMG consultants Robert Dill and Randy Staff to draft an employment agreement for Scott Smith reflecting the terms under which he was then employed by NABI.

In Fall 1994, NABI retained attorney Thomas Hurtekant and KPMG compensation consultants Robert Dill and Randy Staff to draft an employment agreement between NABI and Smith.  TH12; RS346; RD164-65.  While Smith trusted the Harbers to abide by their prior oral agreements, he was concerned that if they died or sold the bank, the new owner might not:

10                THE REPORTER:  “Question:  Based on your

11  conversations with Scott Smith about the reason for

12  Exhibit 4, —  was he — was he concerned about some

13  third party honoring the agreement, or was he concerned

14  about the Harbers honoring the agreement?

15                MR. STAGNER:  Again, we object as to

16  form.

17      A.   Well, my recollection is that he was more

18  concerned about — he was concerned about in the event

19  of Lacy and/or Dorothy’s death somebody else owns the

20  bank, particularly we talked about the Scottish Rite —

21  and Lacy had told me he was going to leave the company

22  to the Scottish Rite.  And they just — the real

23  purpose of that was to be sure that he would get his —

24  what he was — what they had agreed to.

 

RS73.  The entire reason for a more formal, written agreement, Robert Dill explained, was not to create a new agreement or a “proposal.”  It was to put into writing the then-existing terms of Smith’s employment in order to satisfy Scott Smiths concerns that Scottish Rite, to whom Lacy intended to leave his estate, or the entity to which Scottish Rite might sell the bank might not honor the verbal agreement already in existence:

22       At that point in time it had all been verbal,

23  gentleman’s agreement, handshake-type situation.  They wanted

24  to move it from a informal gentleman’s agreement into a more

25  formalized agreement.  The purpose of that being as long as

1  Scott and Lacy, nothing happened to either one of the two of

2  them, no issue at all.  If anything — and really the — the

3  thrust behind it was if anything were to happen to Lacy and it

4  was conveyed at that meeting that for all practical purposes

5  my understanding was everything that Lacy owned or had access

6  to would go to Scottish Rite Hospital.  And as a result of

7  that if there’s not anything written, that it would be Scott’s

8  word with Scottish Rites that there was a five percent equity

9  interest in the bank.  And they wanted to be sure that

10  everything was documented.

 

RD35-36.

Because Scott Smith had been working for NABI for many years, the first order of business for Dill and Staff was to understand the then-existing terms of Smith’s employment:

13       Q      Did you have an understanding at the time of that

14  initial meeting in the fall of 1994 whether Scott Smith was

15  currently an employee at bank?

16       A      Yes.

17       Q      And what was your understanding?

18       A      That he was not — not only a employee, but he was

19  also the president and CEO of the bank.

20       Q      And how long had he been in that position to your

21  knowledge?

22       A      Four to five years, I mean somewhere in that time

23  frame.  It was — it was a situation where he was already in

24  place, it wasn’t a situation of negotiating a deal for him

25  coming in from another bank.

1       Q      Right.

2       A      Yeah.

3       Q      And because of that, because he had been working

4  for the bank for several years your first goal was to find out

5  what was the arrangement that he had been working under all

6  these years.

7       A      Correct.

8       Q      Because what you were charged with doing was

9  taking whatever that arrangement was and putting it into a

10  more formal document.

11       A      Correct.

 

RD168-69.  During his initial meeting with Smith and Harber, Harber informed Dill of the 5% equity agreement as described above, an agreement to provide Smith with annual bonuses of 5% of NABI’s net profits and other provisions under which Smith was then employed by NABI.  TH17-18; RS20; RD120-21, 173-77, 180-81, 231, 286-87.

Throughout their Motion, i.e., Motion at pp. 19, 27, Defendants insinuate that the entire employment agreement was created out of thin air without any input from Lacy Harber.  The witnesses, however, clearly denied this in their deposition testimony.  For example, compensation consultant Robert Dill explained:

4       Q      But I think you’ve told us that early on, at least

5  on behalf of North American Bancshares, there wasn’t anyone

6  with the possible exception of John Massey that was putting —

7  giving input to the drafts.

8              MR. PEARSON:  Objection.  Form.

9       A      (By the Witness)  Well, Lacy gave input to the

10  draft.  Because that meeting that we had created the terms and

11  conditions of this.  I think this is the original or first

12  draft.

13       Q      (By Mr. Stagner)  Uh-huh.

14       A      This first draft was based upon that original

15  meeting.

 

* * * * *

25       Q      And that discussion — those things were verified

1  by Mr. Smith and Mr. Harber in your initial meeting in the

2  fall of 1994; is that true?

3       A      Right.  What I basically went through was each one

4  of those conditions.  And as a result of no discontent or

5  disagreement I basically said, in other words, the only two

6  conditions that would void this deal five percent equity

7  interest would be quitting or termination with cause.  They

8  said “exactly.”

9       Q      And —

10       A      That’s — and that’s what started the whole

11  process of — of drafting the — the agreement.

 

RD71, 174-75; RS255 (“the substance what Mr. Harber said was that it was — his agreement with Mr. Smith was quite simple.  He got a base salary, I can’t recall.  He got five percent of the profits, and he had this five percent carried interest.”).

VI.      Dill, Staff and Hurtekant drafted an employment agreement for Scott Smith that incorporated the 5% equity agreement as previously described to them by Smith and Harber .

 

Over a period of several months, Dill and Staff, with help from attorney Tom Hurtekant, drafted a series of employment agreements between NABI and Smith.  The first draft of the employment agreement, drafted by Robert Dill following his meeting between Harber and Smith, included as Section 3(b) “an equity position of 5% of the Corporation’s common stock as established by Mr. Lacy Harber to motivate the employee to enhance shareholder value of the corporation.”  Appendix at Tab 7 at p. 000004.  This provision was intended to incorporate the 5% equity agreement as described to Dill during his meeting with Harber and Smith:

25       Q      Looking at Exhibit Number 1, there’s a cover sheet

1  and then page two is a fax cover sheet to Scott from you —

2       A      Correct.

3       Q      — dated December 9, 1994?

4       A      Correct.

5       Q      And it says “enclosed is the draft of your

6  employment agreement.”  Correct?

7       A      Correct.

8       Q      And this is something you drafted after having had

9  the meeting with Lacy Harber and Scott Smith.

10       A      Correct.

11       Q      With respect to the five percent equity interest

12  was it your intention in Exhibit 1 to incorporate that

13  agreement as you understood it to already exist?

14       A      Correct.

15       Q      Not to just create something of your own accord?

16       A      That’s correct.

17       Q      Looking at Section 3(b) of Exhibit 1, would you

18  read that Section 3(b) out loud, please?

19       A      “An equity position of five percent of the

20  corporation’s common stock as established by Mr. Lacy Harber

21  to motivate the employee to enhance shareholder value of the

22  corporation.”

23       Q      And where did you come up with that provision that

24  you put in this employment agreement?

25       A      That was after the first meeting had — in that

1  meeting it was never disclosed that we wouldn’t be talking

2  about five percent common stock.  So therefore, that language

3  is saying five percent of the common stock, not phantom.

4       Q      When you say here in Section 3(b) “as established

5  by Mr. Lacy Harber” what did you mean by that?

6       A      That — just that Lacy Harber had established the

terms and Lacy Harber had said he would give Scott five

percent equity position.

9       Q      So that language was intended to reflect that this

10  is something Mr. Harber had agreed to.

11       A      It’s exactly.

12       Q      And then you go on to say — you say “as

13  established by Mr. Lacy Harber to motivate the employee” and

14  that’s Mr. Smith, right?

15       A      Correct.

16       Q      — “to motivate the employee to enhance

17  shareholder value of the corporation.”

18       A      Correct.

19       Q      Tell me where you — where you came up with that

20  language and what you were trying to convey there.

21       A      Well, that language was as a result of the

22  meeting.  Because one of the items that came up was that Lacy

23  was definitely interested in creating a shareholder value of

24  the bank.  And basically at this point in time there may have

25  been some appreciation but not much at that — this point in

1  time. And so what Lacy wanted to do was to have Scott share in

2  the enhanced shareholder value of the corporation.  Naturally,

3  that’s self-motivating for Lacy because he knows that if Scott

4  comes out real well in this, Lacy comes out 95 percent better

5  than Scott’s five percent.  Actually comes out 100 percent

6  but — when he takes out the cash proceeds.  And so it was a

7  good deal for — for Lacy to motivate Scott to enhance the

8  shareholder value of the bank.

9       Q      And this concept of this five percent equity

10  interest as intending to motivate Mr. Smith, was that

11  something that Mr. Harber expressed in your initial meeting?

12       A      That’s something we did — we discussed, and then

13  was one of the driving forces behind it.

RD192-95.

As the wording of the employment agreement evolved, the specific mechanism for the 5% equity payment evolved as well.  In the second draft of the agreement, as revised by attorney Hurtekant, the original Section 3(b) was replaced with a handwritten Rider B, which provided for a 5% equity interest payable “on the earlier of (i) employee’s death, mandatory retirement or total disability; a Change of Control; (iii) Employee’s termination for Good Cause; or (iv) termination of this Agreement by NABI without cause.”  Appendix at Tab 8 at p. 00028.  These provisions were all consistent with the 5% equity agreement as explained by Smith and Harber in their initial meeting with Robert Dill:

13       Q      Now would you look at Exhibit 2, please.  And you

14  talked — we talked about this — you talked about this

15  earlier with Mr. Stagner, that Section 3(b) of Exhibit 2 is

16  crossed off.  Correct?

17       A      Correct.

18       Q      And it says Rider B in its place.

19       A      Correct.

20       Q      And if you turn to Rider B — I’m going to try to

21  read this, and if I get it wrong, let me know.  It’s — Rider

22  B is in handwriting, correct?

23       A      Correct.

24       Q      It says a cash bonus — bonus payment payable on

25  the earlier of; number one, employee’s death, mandatory

1  retirement or total disability; number two, a change of

2  control; number three, employee’s termination for good cause;

3  or four, termination of this agreement by NABI without cause.

4  And then it says equal to the difference between, and then in

5  brackets it says current book value or FMV of a number of

6  shares equal to five percent of all stock outstanding as of

7  the effective date, and the book value or FMV of the same

8  number of shares as of the date of the event triggering such

9  payment.  Did I read that correctly?

10       A      Correct.

11       Q      And what does FMV mean?

12       A      Fair market value.

13       Q      Is it your understanding that that portion of the

14  Rider B that I — I just read is the five percent equity

15  interest we’ve been discussing?

16       A      Correct

17       Q      And do you see the five percent there, correct?

18       A      Correct.

19       Q      And you see that — well, these triggering events,

20  is this consistent with what you were told at the initial

21  meeting between Mr. Harber and Mr. Smith?

22      A      Correct.

23      Q      For example, Mr. Smith’s death, mandatory

24  retirement or total disability would actually entitle him to

25  the five percent equity interest, correct?

1       A      Correct.

2       Q      And then the last sentence in Rider B says

3  “employee’s rights to any such payment shall be terminated in

4  the event employee terminates this agreement without good

5  reason at any time prior to NABI’s becoming obligated to make

6  such payment.”  Did I read that correctly?

7       A      Correct.

8       Q      In other words if he — if he quit —

9       A      Quits.

10      Q      — without good cause, he gives up the five

11  percent equity interest.

12      A      He gives up.

13      Q      And is that consistent with what you understood

14  from the — from the initial meeting with Mr. Harber and

15  Mr. Smith?

16      A      Correct.

 

RD198-200.  While the method by which this 5% equity interest was calculated changed with the changing drafts, it continued to be triggered by Smith’s death, retirement or total disability:

21   In all the employment agreements that you drafted

22  is it fair to say that the five percent equity interest of

23  Scott Smith would survive his death and benefit his estate?

24              MR. STAGNER:  Objection as to form.

25       A      (By the Witness)  Yes.

 

RD203; see also Appendix at Tabs 9-12.

 

The initial draft of the employment agreement, like all subsequent drafts, also had a provision stating that it would inure to the benefit of the parties’ heirs:

11       A      Paragraph 19, “Effect on successors in interest.

12  This agreement shall inure to the benefit of and will be

13  binding upon the heirs, administrators, executors and

14  successors of each of the parties hereto.”

15       Q      And in layman’s terms what is your understanding

16  of the meaning of that provision?

17       A      That basically means that all heirs have got to

18  honor the wishes of this contract or this agreement.

19       Q      Does it also mean that — that all heirs will have

20  benefit of the contract?

21       A      Yes.

22       Q      And does that mean that — that specific provision

23  means that the benefits — I mean unless stated otherwise in

24  the agreement, the benefits of the agreement will inure to, or

25  in other words go to the heirs or successors of the parties to

1  the agreement?

2              MR. STAGNER:  Objection as to form.

3       A      (By the Witness)  Correct.

4       Q      (By Mr. Pearson)  Unless it says otherwise.

5       A      Unless it says otherwise.

 

RD197-98; Appendix at Tab 7 at p. 00010, par. 19.  This was consistent with the parties’ agreement that the 5% equity interest would be triggered by Scott Smith’s death.  TH32 (“if you are going to have a provision that says it’s payable to you on death, obviously if that survives, then this should survive.”).  While Defendants point to the language in the employment agreements stating that Smith’s “employment” would terminate upon his death, such provision said nothing about whether the other terms of the agreement would also terminate.  As Thomas Hurtekant explained, “your employment does terminate when you die.  You may have some benefit that continues, but your salary doesn’t usually continue.”  TH254.

VII.     In March 1995, Smith’s employment agreement was presented to Lacy Harber; although Harber declined to sign the long, complicated document, he affirmed his agreement to its essential terms and agreed to sign a shorter, summary version of the agreement .

 

In March of 1995, Dill presented the employment agreement — which complied with the statute of frauds — to Lacy Harber.  During the meeting, Dill discussed the 5% equity agreement and the events that would either trigger a payment under the agreement or terminate the agreement as set forth above:

18       Q      (By Mr. Pearson)  During the March, 1995 meeting

19  that you attended with Mr. Harber, did you discuss with him

20  the specific provision of the — of the draft employment

21  agreement that was then existing?

22       A      Yes.

23       Q      And did you — did that discussion include a

24  discussion of the five percent equity agreement?

25       A      Yes.

1       Q      Did that discussion include what would happen in

2  the event of Scott Smith’s death, retirement or total

3  disability?

4       A      Yes.

5       Q      And did you explain that those events would

6  trigger Mr. Smith’s five percent equity interest payment?

7       A      Yes.

8       Q      And did you explain during that March, 1995

9  meeting that the only events which would void or terminate

10  Mr. Smith’s five percent equity interest were his quitting, or

11  terminating himself, or his termination by the bank for good

12  cause?

13       A      Correct.

 

RD295-96.

As the meeting progressed, Lacy Harber made it clear that he did not want to sign a lengthy legal document.  RS348 (“he has openly said that I have arrangements with other people on a more simplified basis and this has worked, and I don’t want this long agreement.”).  He did not, however, voice any objections to the specific terms of the written employment agreement:

7      Q.   (BY MR. PEARSON)  Did Mr. Harber ever take

8  issue with any of the specific provisions in any of the

9  draft employment agreements regarding Scott Smith?

10      A.   Not to me.

11      Q.   And, to your knowledge, did he ever do that

12  with anyone else?

13      A.   Not to my knowledge.

 

RS348.  In fact, Harber consented to the agreement’s basic terms.  RD121 (“Lacy agreed to terms, he just wanted it simplified”).  His only concern was the length of the document; Harber did not want to sign a long, complicated document and instead asked that the existing written agreement be reduced to a shorter, one or two-page summary form.  RD113 (“He basically wanted the 11-page document condensed down into a one or two-pager, something very simple and without a lot of verbiage.”); RD186 (“he agreed upon the terms.  He just didn’t want to sign an 11 or 12-page document.  Summarize it, get it in front of him and sign it.”).

Prior to the conclusion of the March 1995 meeting, Harber confirmed the fact that he and NABI agreed to the terms of the employment agreement and stated that he would sign a written contract containing such terms if they were set forth in summary fashion in a shorter, one to two page document.  RD190 (“Lacy just in essence said, you know, fine, but I would like to abbreviate this, get it down to something, a one or two-pager, not all this, and I’ll sign off on it.”); RD265 (“Lacy said, “I really don’t want to sign a 12-page document.  What I would like to have is a one or two-pager with all the major bullet points and we’ll sign off on it.”); RD271 (Lacy said “I don’t want to sign an 11-page document but I will sign a one or two-pager summarizing this.”).    Contrary to Defendants’ assertions that Harber rejected the provisions of the draft employment agreement, he actually accepted those terms and merely rejected the length of the document in which they were embodied.

VIII.    Following the March 1995 meeting, neither KPMG nor attorney Hurtekant ever presented Harber with a summary version of the draft employment agreement .

 

Following the March 1995 meeting, neither KPMG nor attorney Hurtekant ever presented Harber with a summary version of the draft employment agreement. As Staff testified:

18      Q.   Tell me how this — this endeavor by Peat

19  Marwick to — to draft a formal employment agreement,

20  how did that come to an end?

21      A.   My recollection is it just, for lack of a

22  better term, just never got done.  There was

23  discussions, and it just never got completed.

24      Q.   And at some point Peat Marwick just stopped

25  working on the employment agreement?

1      A.   I was not at Peat Marwick any longer.  It

2  would not be truthful to say that I didn’t have

3  discussions about it with — with Scott and Lacy, but

4  it — my recollection is the — it just never — it was

5  never executed.

 

RS62-63.  Thomas Hurtekant similarly testified that no formal summary of the employment agreement was ever presented to Harber because Harber and Smith “lost interest” and because the process “died of its own weight.”  TH31, 37-38.

IX.       Concerned about a potential change of control of the bank and the possibility a subsequent purchaser might not honor the oral 5% equity agreement, Smith drafted, and the Harbers signed, the one-page COC Agreement .

 

On March 12, 1995, Smith and the Harbers signed a one page “Change of Control Agreement” agreement (the “COC Agreement” or the “one-pager”) that provided for a 5% payment to Smith in the event of a change in control of NABI.  Appendix at Tab 13.  Under the agreement, the only condition under which Smith would not receive the payment was if he quit before any change in control or his employment was terminated by the NABI Board of Directors or Harber more than two years before a change of control.

The COC Agreement was not intended to represent a summary of the terms of Smith’s employment or to serve as a substitute for the existing 5% equity agreement:

1       Q      Now is it your understanding that Exhibit 11 was

2  intended not to replace the five percent equity interest

3  agreement that Mr. Harber and Mr. Smith had, but simply to

4  guarantee its continued existence in the event of a change of

5  control?

6              MR. STAGNER:  Objection as to form.

7       A      (By the Witness)  I think that’s the intent,

8  it’s — whoever drafted this summarized it too much.

9       Q      (By Mr. Pearson)  Because clearly Exhibit 11 is

10  not a fair and accurate summary of the employment agreement

11  that you drafted is it?

12       A      Absolutely not.

13              MR. STAGNER:  Objection as to form.

14       Q      (By Mr. Pearson) I mean there’s — there’s nothing

15  in Exhibit 11 about Scott Smith’s salary, is there?

16       A      No

9       Q      (By Mr. Pearson)  Do you see any — any language

10  in Exhibit 11 that discusses Scott Smith’s annual salary?

11       A      No.

12       Q      Do you see any language in Exhibit 11 that

13  discusses a five percent annual profit bonus?

14       A      No.

15       Q      Is it — is it accurate to say that Exhibit 11 is

16  not a — a fair summary of the employment agreement you

17  drafted?

18       A      Correct.

 

RD218-19.

Rather than serve as a summary of the terms of Smith’s employment, the “one-pager” was intended solely to insure that those terms — and, in particular, the 5% equity agreement — were adhered to in the event the bank underwent a change in control:

19       Q      And based on your conversations with Scott Smith

20  about “I’m not worried about trusting you, Lacy, it’s — it’s

21  what happens if you die before me” is it your understanding

22  that Exhibit 11 was intended not to replace the five percent

23  equity interest but to guarantee it’s continued existence if

24  there was a change of control?

25       A      Yes.

 

RD219.

While Smith trusted the Harbers to abide by their prior oral agreement relating to the 5% equity interest in NABI, he was concerned that a new owner of the bank might not honor the agreement.  Of all of the contingencies that might lead to his entitlement to the 5% equity payment – his death, his retirement, his total disability or a change of control of the bank – Smith viewed a change of control as the most likely scenario to occur, particularly the most likely to occur in the near future.  This was because other, larger banks had made overtures about purchasing NABI.  TH252-53; LH54-55.

Smith was also concerned that a change of control would occur if the Harbers died.  Obviously, the Harbers were significantly older than Smith.  Moreover, they often traveled on Safaris in Africa, a venture Smith viewed as dangerous.  As Lacy Harber testified:

6  A.   In general Scott never wanted Dorothy and I to

7  go to Africa.  He thought it was a dangerous place to

8  go and he expressed that opinion several times.  And

9  I’ve got hundreds of other friends that don’t like for

10  us to go to Africa.  They think it’s a dangerous place

11  to go.  But as far as discussing this specific letter,

12  I just know in general most of our friends don’t like

13  the idea of us going to Africa on account of our

14  safety.

15  Q.   And was your understanding that the reason

16  Scott wanted you to sign something like this letter was

17  because he was concerned for your safety when you went

18  to Africa?

19  A.   I don’t remember the letter, but he was always

20  concerned about our safety in Africa.

 

LH102; see also RS276-77 (“the example he used was if they got eaten by a lion on a safari, which they tend to go on all the time.”); TH224 (Smith “was always concerned that they would get killed in a plane crash.  They traveled by small jets to remote locations in Africa, Asia, and — and Alaska.  And, frankly, he  just was worried just the odds that something could happen on one of these little prop planes was not good.”).  Smith knew that if the Harbers predeceased him, it would lead to a change of control of the bank since he knew that they intended to leave the bank to Scottish Rite:

6  Q.   Did he ever explain to you why it was he

7  wanted this agreement if you had already told him you

8  weren’t going to sell the banks?

9  A.   If something happened to Dorothy and I and it

10  went to Scottish Rite Hospital, he did not know what

11  they was going to do with them, and I still don’t know

12  today what they’re going to do with them.  That was

13  what worried him.

 

LH56; Appendix at Tab 14 (Smith “did not regard [the one-pager] as a model of drafting, but said he wanted something in place should something happen to you, especially if the stock of NAB should get in Scottish Rite’s hands and be sold since he had no long-term employment agreement.”).    It was for these reasons that Scott Smith drafted the COC Agreement.

X.        The COC Agreement is ambiguous .

On its face, the COC Agreement contains ambiguities which render it susceptible to more than one meaning.  Thomas Hurtekant, its primary drafter, repeatedly testified that the COC Agreement was vague, ambiguous and could easily be misinterpreted:

Q.   Now, didn’t you testify earlier that Exhibit

3  3, the one-page change of control agreement, is

4  actually silent as to what effect Scott Smith’s death

5  would have?

6      A.   Silent, ambiguous, whatever, it’s vague.

 

* * * * *

 

24      Q.   (BY MR. PEARSON)  In your opinion, is Exhibit

25  3 vague?

1      A.   I am not sure vague is the right word.

2      Q.   Exceptionally vague?

3      A.   Incomplete.

4      Q.   Ambiguous?

5      A.   Subject to interpretation, had a million

questions, yeah, I mean, this is typically a 12 or —

7  or 14, 15, 16-page agreement that addresses a lot of

8  the things that this lawsuit goes into.

9      Q.   In your opinion, is Exhibit 3 vague and

10  ambiguous?

11                MR. STAGNER:  Objection as to form.

12      A.   It’s ambiguous to me.

 

* * * * *

 

4      Q.   I just want to clear up one or two things.

5  You were asked about the statement that looking at the

6  one-page agreement as literally worded you could work

7  until you retire and not be entitled to a payment, this

8  whole vesting issue.  That’s not the only way that

9  agreement can be read, correct?

10      A.   No, but what I was raising was whether — that

11  the fact that it could be read that way bothered me.

12      Q.   Particularly with respect to how it could be

13  read by some third party?

14      A.   Yes, because I want to write a document that

15  is clear, and it wasn’t clear.

16      Q.   It was vague?

17      A.   Yes.

18      Q.   It was ambiguous?

19      A.   Yes.

 

TH280, 52-53, 290.

Thomas Hurtekant also opined about the ambiguous nature of the “one-pager” in various memoranda he wrote to Scott Smith following the execution of the agreement, including one dated February 5, 1998, in which he stated that “I believe the terms of the agreement contain three provisions that are vague and which may be read inconsistently with the parties’ intentions.”  Appendix at Tab 15 at p. 000281.  Because of these ambiguities, parol evidence of the parties’ prior oral and written agreements is critical to accurately assessing the parties’ intent:

2       Q      (By Mr. Pearson)  And if you were — if the jury

3  in this case is trying to ascertain and determine what

4  Mr. Harber and Mr. Smith intended globally with respect to

5  Mr. Smith’s employment, would you think they would have to

6  look not only at Exhibit 11, but also to the employment

7  agreements that you drafted?

8       A      Yes.

9              MR. STAGNER:  Objection as to form.

10       Q      (By Mr. Pearson)  And also look to the discussions

11  between Mr. Smith and Mr. Harber at that initial meeting that

12  you attended?

13       A      Yes.

 

RD220.

XI.      Smith clearly believed his rights under the 5% equity agreement would survive his death and acted accordingly .

 

As set forth more fully below, one of the key issues raised by Defendants is whether Smith’s rights under the 5% equity agreement survived his death.  Defendants posit that smith’s rights did not survive his death, while Utter maintains that they did.  The uncontroverted evidence supports Utter’s position on this critical issue.  For example, the testimony establishes that Scott Smith told several persons that if something ever happened to him, it would be important to locate the “one-pager:”

8  Q.   (By Mr. Stagner)  Okay.  Did you and — and your

9  husband talk about what he — what his concerns were, if

10  any, relating to the change of control agreement?

11  A.   He simply said, as he handed it to me, that if

12  anything happened to him, that I needed to have a copy of

13  that to prove that he had the 5-percent profit.

 

* * * * *

 

17  Q.   Okay.  Well, I — I guess what I’m trying to

18  figure out is, he told you that you need to keep this

19  because you’d need it if somebody happened to him.

20  Right?

21  A.   Yes, sir.

22  Q.   And what did you understand that to mean if —

23  if something happened to him.

24  A.   That the estate would be entitled to that

25  5-percent profit.

1  Q.   If he died.

2  A.   Right.

 

* * * * *

 

22  Q.   Well, I mean, he told you to put it away because

23  it would be of some value if something happened to him.

24  Right?

25  A.   Yes.

 

GU25, 42-43, 81; TH48 (Scott “told me at some  point when he was ill that the letter was in a certain place in his desk, and remind his secretary of that, or something like that, when she was pulling his stuff together.”).  Smith’s advice to locate the “one-pager” if anything happened to him would make no sense if his rights terminated upon his death as Defendants allege.

Witnesses also testified that Smith believed his 5% equity interest was very valuable, which it would not be if it could be voided by his death:

18      Q.   You said earlier that Scott believed that the

19  agreement reflected in Exhibit 3 was a valuable asset

20  to him?

21      A.   Yes.

22      Q.   And was it your understanding that that was

23  the most valuable asset he had?

24                MR. STAGNER:  Objection as to form.

25      A.   My understanding was that it was substantially

1  all of his net worth, but only generally.  I mean, I

2  never knew any details on that.

3      Q.   (BY MR. PEARSON)  When you say “It was

4  substantially all of his net worth”?

5      A.   That whatever rights he had under this

6  agreement were a — substantially all of his estate.

 

TH73-74; Appendix at Tab 14 (“I know Gail was aware of it before Scott’s death, and Scott told me that it was something important to him.  I know he valued it at several million dollars.”).

Finally, Smith believed without equivocation that his rights under the 5% equity agreement would survive his death.  TH32-33, 72, 89, 206.  So, according to Thomas Hurtekant, did Lacy Harber:

Q.   (BY MR. PEARSON)  Tell me about what you

7  believe Lacy and Scott’s understanding to be with

8  respect to the effect Scott’s death would have on this

9  agreement reflected in Exhibit 3.

10                MR. STAGNER:  Objection as to form.

11      A.   That it did not reduce to zero, that the

12  payment did not go away.

13      Q.   (BY MR. PEARSON)  Basically, that the

14  obligation evidenced by Exhibit 3 would survive Scott’s

15  death; is that correct?

16                MR. STAGNER:  Objection as to form.

17      A.   Depending on what the obligation is, which is

18  my points two and three, that I could never get them to

19  tell me what the answer was.

20      Q.   (BY MR. PEARSON)  Let me try to be clear with

21  my question, though.

22                Your understanding of what Scott and Lacy

23  intended with this Exhibit 3 was that the obligations

24  set forth in this Exhibit 3, whatever it was, would

25  survive Scott’s death; is that correct?

1                MR. STAGNER:  Objection as to form.

2      A.   Without quantifying what the obligation was,

3  Scott’s right to some payment at some time probably

4  stayed in place.

5      Q.   (BY MR. PEARSON)  And would survive his death?

6      A.   Yes.

7      Q.   And that’s what you believe the parties

8  intended?

9                MR. STAGNER:  Objection as to form.

10      A.   That’s what I in my heart believe, yes.

 

TH43-44.

While Smith’s words and actions substantiate the fact that the 5% equity agreement survived his death, so do the very purposes of that agreement.  All of the disinterested witnesses testified that the purpose of the 5% equity agreement was to incentivize Smith and to give he and Harber parallel interests.  As Tom Hurtekant testified, “[m]y understanding of Lacy’s intent was that he wanted to incentivize Scott and that he wanted his and Scott’s interests to be aligned in the sense that if the bank did well, Lacy did well, therefore, Scott did well.”  TH84; see also RS44 (“Lacy wanted them to have parallel interests.  He wanted Scott to have a big enough vested interest that it would be meaningful to him.”); RD195 (“what Lacy wanted to do was to have Scott share in the enhanced shareholder value of the corporation.  Naturally, that’s self-motivating for Lacy because he knows that if Scott comes out real well in this, Lacy comes out 95 percent better than Scott’s five percent.”).  These same witnesses explained that an equity interest that terminated upon Smith’s death would not incentivize him since it could be voided at any time and would provide no benefit to his family:

19      Q.   (BY MR. PEARSON)  Would it incentivize Scott

20  to have an agreement that upon his death after working

21  for the bank for 15 years and increasing its value his

22  estate would get nothing?

23                MR. STAGNER:  Objection as to form.

24      A.   No.

25      Q.   (BY MR. PEARSON)  No.

1      A.   No.

2      Q.   And so that wouldn’t be consistent with Lacy’s

3  intent as you understood it, correct?

4                MR. STAGNER:  Objection as to form.

5      A.   It would not be inconsistent — it would not

6  be consistent with his general intent, no.

 

TH84-85; see also RS421 (“My view is that the spirit of the agreement was they were going to work together, build the banks, and so in that response it is inconsistent with – with that agreement that there would be — it would simply terminate on his death.”); RD196 (“Q.  In your opinion based on your experience in drafting and negotiating employment agreements and compensation agreements would an executive officer like Scott Smith be motivated by an equity interest that terminated upon their death?  A  No.”).  In fact, Smith explicitly told Tom Hurtekant that an equity interest terminable upon his death would not motivate him:

1      Q.   Do you have any doubt that if someone had sat

2  down and told Scott Smith that if you work at this bank

3  for years and help increase the value and you die

4  prematurely, that your family will get nothing under

5  this change in control agreement that he would have

6  said, wait a minute, that’s not what I intended?

7                MR. STAGNER:  Objection as to form.

8      A.   Well, he so much as told me that wasn’t what

9  he intended.  Because when I raised it, he said that —

10  that doesn’t motivate me, basically.

 

TH263.  Defendants’ interpretation of the “one-pager” defies logic and common sense, strips the agreement of its essential purpose and is contrary to all of the disinterested witnesses’ clear understanding of the agreement.

XII.     Tom Hurtekant drafted the “Going to Africa letter” as the Harbers were about to leave for a Safari in Africa; Scott Smith never signed it .

 

As the Harbers were about to leave town for one of their African safaris, attorney Tom Hurtekant hurriedly drafted the February 28, 1997 letter referred to be the parties as the “Going to Africa” letter.  Although the letter was drafted by Hurtekant, it was printed on the letterhead of the Harbers and was drafted as if it was addressed from them to Scott Smith.  Appendix at Tab 16.  Hurtekant explained that he had very little time to write the letter:

25      Q.   (BY MR. PEARSON)  Why didn’t you — when you

1  wrote the Exhibit 12 letter, the going to Africa letter

2  as Mr. Stagner has called it, —

3      A.   Yes.

4      Q.   — why didn’t you take that opportunity to

5  amplify and clarify the Exhibit 3 change and control

6  agreement?

7      A.   Because I was told I had 30 minutes to write

8  that letter, and all I felt like I could do in that

9  circumstance was to make sure that this was not

10  construed as tearing up the other letter and

11  superseding it.

 

TH264-65.  The Going to Africa letter was drafted, Hurtekant explained, because “Lacy was going to go on a long hunting trip to Africa, and Scott wanted some piece of paper basically that said what happened — what the deal was, their oral, verbal deal in case Lacy and Dorothy died.”  TH36; TH224 (Smith was always concerned that they would get killed in a plane crash.  They traveled by small jets to remote locations in Africa, Asia, and — and Alaska.  And, frankly, he  just was worried just the odds that something could happen on one of these little prop planes was not good.”).   As he further explained, there was also a possibility of a sale of NABI at the time:

18      Q.   Why was it that rather than putting together a

19  comprehensive employment agreement, that you structured

20  it in the manner in which you did in Exhibit 12 as a

21  one and a half page letter?

22      A.   My recollection of the circumstances was that

23  there was the possibility that there would be a tender

24  offer, an offer made for North American, and that Scott

25  wanted — Scott and Lacy, according to Scott, wanted at

1  least this, the issues that were addressed here, to be

2  in place in case there was a change of control.  And

3  that Lacy wanted a noncompete which had never been

4  addressed and was addressed in this document.

 

LH102-03.  For the foregoing reasons, Hurtekant hurriedly drafted the “Going to Africa” letter.  TH227 (“This was literally something that I drafted in an hour at Scott’s request because he was in a hurry to get it because they were leaving.”).

There is no evidence that the parties to the Going to Africa letter had any oral communications regarding the letter or its substance.  First, Lacy Harber testified that he does not even remember who presented the letter to him and does not recall reading it or signing it:

1  Q.   Did that trouble you at all that this document

2  that you were signing looked like it was on your

3  letterhead?

4  A.   I don’t even remember signing it, so it

5  doesn’t bother me.  But I’ve since looked at it and

6  that is my signature.

7  Q.   But you don’t have any recollection of reading

8  this and signing it?

9  A.   No, sir, I don’t.

10  Q.   And so you don’t remember who presented it to

11  you?

12  A.   I do not know.  I just assume it’s Scott since

13  it addresses him.

 

LH100.  And he also testified that he could not recall any specific conversations with Scott Smith regarding the contents of the letter:

4  Q.   Do you recall any conversations with Scott

5  about this — this February 28th, 1997 letter?

6  A.   In general Scott never wanted Dorothy and I to

7  go to Africa.  He thought it was a dangerous place to

8  go and he expressed that opinion several times.  And

9  I’ve got hundreds of other friends that don’t like for

10  us to go to Africa.  They think it’s a dangerous place

11  to go.  But as far as discussing this specific letter,

12  I just know in general most of our friends don’t like

13  the idea of us going to Africa on account of our

14  safety.

15  Q.   And was your understanding that the reason

16  Scott wanted you to sign something like this letter was

17  because he was concerned for your safety when you went

18  to Africa?

19  A.   I don’t remember the letter, but he was always

20  concerned about our safety in Africa.

 

LH102.

While Defendants may claim that the mere fact that Scott Smith presented the letter to the Harbers for their signature establishes that he agreed to its terms, the testimony of the attorney who drafted the letter, Thomas Hurtekant, proves otherwise.  For example, with respect to the one-year severance payment set forth in the letter, Hurtekant testified as follows:

3      Q.   And these terms here as far as the one — the

4  one-year severance, these are not things that Scott

5  Smith suggested to you?

6      A.   No.

7      Q.   And these are not things that you understood

8  had been previously agreed to by the parties?

9      A.   No.

 

TH277.  With respect to the integration clause that Defendants’ seek to enforce, Hurtekant testified that it was his idea and was mere boilerplate:

5      Q.   And what did you interlineate there, “except

6  for our agreement”?

7       A.   “Except for our prior agreement relating to

8  compensation due to you in the event of certain changes

9  of control of NAB or the bank which remains in effect.”

10      Q.   Now, what caused you to make that

11  interlineation?

12      A.   I remember specifically making it now that I

13  think about it.  This was literally something that I

14  drafted in an hour at Scott’s request because he was in

15  a hurry to get it because they were leaving.  And I

16  pulled out a form agreement to mark up for basically

17  boiler plate, and it contained — the first sentence —

18  well, it contained the sentence that starts reading,

19  “This agreement shall be construed and governed by

20  Texas law.  It represents our entire agreement on the

21  subject matter.”  Okay.  Do you see that sentence?

22      Q.   Sure.

23      A.   And I became concerned when I wrote it, well,

24  it isn’t the entire agreement, and normally you put

25  that sentence in, but I felt like I had to pull in and

1  make sure that I didn’t obliterate the agreement that

2  they had reached.  Even though I wasn’t happy with it,

3  I needed to preserve it and say it isn’t intended to

4  overwrite that, whatever it says

 

TH227-28.

Hurtekant also testified that the entire third paragraph of the letter, which contains most of its essential terms, was something he created simply to provide the element of consideration necessary to support the covenant not to compete requested by Lacy Harber:

20      Q.   Now, that whole paragraph, the third paragraph

21  in Exhibit 12, is one that you wrote up by hand here —

22      A.   Yes.

23      Q.   — to insert, and that’s shown in Exhibit 10,

24  correct?

25     A.   Yes.

1      Q.   And in drafting that paragraph as you did by

2  hand here in Exhibit 10, was this just your attempt to

3  come up with some form of consideration that you hoped

4  would be acceptable to both sides in order to

5  provide —

6      A.   It was my attempt to be fair to NAB and say

7  that — I didn’t have any instructions that he was

8  entitled to anything in these events, and that

9  typically you are not entitled to severance in that

10  event, versus just flat out you’re terminated or you’re

11  fired.

12      Q.   Let me back up.  My question is, in drafting

13  the paragraph that became the third paragraph in

14  Exhibit 12, what was your intention?

15      A.   To come up with consideration that would

16  support a noncompete agreement but put as little burden

17  on the bank that they hadn’t agreed to already as

18  possible.

 

* * * * *

 

10      A.   When I wrote it, it was my attempt to give

11  them something to both look at so that if they wanted

12  the noncompete to be enforceable, this was, in my

13  judgment, sufficient consideration, the one year’s

14  severance, to support the noncompete and that the bank

15  could live with that, that my thought was that’s not

16  the end of the world.  If you want a noncompete, then

17  one year’s severance is not unreasonable.

18      Q.   (BY MR. PEARSON)  So you were looking for

19  something that would — would give some level of

20  consideration sufficient to support the noncompete and

21  that you thought would be palatable to the bank?

22      A.   Yes.

 

TH272-73, 276.

Based on the circumstances under which Hurtekant drafted the Going to Africa letter, Hurtekant confirmed that the fact that Smith presented the letter to the Harbers could not be read to mean that Smith agreed to the letters’ terms:

16      Q.   So I just want to make sure that there is not

17  an insinuation that because Scott apparently presented

18  this to the Harbers for their signature that he

19  necessarily agreed with all the terms in this document?

20                MR. STAGNER:  We are going to object to

21  that as to form.

22      A.   They weren’t his idea.  He accepted them based

23  on my representation that we had to have some

24  consideration.

25      Q.   (BY MR. PEARSON)  And who were you

1  representing when you drafted Exhibit 12?

2      A.   North America Bancshares.

TH277-78.

Finally, and most importantly, the fact that Smith never assented to the terms of the “Going to Africa” letter is further confirmed by the uncontroverted fact that he never signed the letter in the signature block provided.  See Appendix at Tab 16 at p. UTT0003; TH278-79; LH100-01.   Simply put, not only is there is no evidence that Smith ever assented to the terms of the Going to Africa letter and no evidence that Smith intended to be bound by those terms, but all of the uncontroverted evidence is to the contrary.

XIII.    Following Smith’s death, Gail Utter met with Lacy Harber, who repudiated his agreements with Scott Smith .

 

In January 2002, Smith died unexpectedly.  At the time, he remained the CEO of NABI.  In March 2002, Gail Utter met with Lacy Harber to discuss the 5% equity interest agreement.  Harber stated that he did not owe any money to Scott’s estate:

7  Q.   Okay.  So, this meeting that took place, I

8  believe you say, sometime in March of 2002, just you and

9  Lacy.

10  A.   Yes, sir.

11  Q.   How long did that take?

12  A.   It was 30 to 45 minutes.

13  Q.   Okay.  And tell us how the meeting started.

14  A.   We may have exchanged some pleasantries, and I

15  told him that the reason that I wanted to get together

16  with him was to see if we could negotiate something else

17  from the change of the control agreement.

18  Q.   And what did he say?

19  A.   He seemed to get a little nervous and figity,

20  and his eyes were kind of moving, and he was trying to

21  think about what — what I’d said.  And I’m not exactly

22  sure of his specific reply, but pretty quickly he said

23  that he was not obligated to do anything and didn’t

24  intend to.

GU109.  Harber “seemed to say two things.  He seemed to initially say that it didn’t apply because the banks hadn’t sold” and “then seemed to say that he would simply not honor it, regardless.”  GU111-12.  While “at times, he may have been evasive,” “ultimately, he was definitive in his statement that he would not honor the agreement.”  GU116.

XIV.    Harber hired his long-time friend and attorney David Hooper to review the COC Agreement and then sent Hooper’s analysis, repudiating the agreement, to Utter .

 

Within a day or two of the meeting, Lacy Harber sent the “one-pager” to attorney David Hooper for his review.  TH114.  Harber had known Hooper “for about 35 years” and Hooper had done legal work for one of Harber’s companies in Abilene.  LH114; Appendix at Tab 17 at p. 004424 (Harber described Hooper as “our long time friend and attorney”).  Hooper had no involvement in any discussions that led to the creation of the “one-pager” and had no involvement in its drafting.  Before composing his opinion letter to Harber, Hooper never spoke with Hurtekant or Dill about their understanding of the parties’ intent and never looked at any documents other than the “one-pager” itself.  TH116-17; Appendix at Tab 18 at Request Nos. 10, 11, 14.  Despite the fact that Hooper was unqualified to comment on the parties’ intent, Harber sent the “one-pager” to Hooper because “I’d been knowing him and used him for 35 years and I trusted him.”  LH116.

The Hooper letter clearly repudiated the COC Agreement, asserting that Smith’s death voided the Harbers’ and NABI’s obligations.  It unequivocally stated that Scott Smith’s death terminated his rights under the “one-pager” and that no money was then due to Smith’s estate or would ever become due, even if there were a change of control:

The event of Mr. Smith’s death before a change of control is to be treated the same as the provision of the letter agreement Paragraph 3, which provides no compensation in event Mr. Smith quits his employment before the change of control.  Mr. Smith’s heirs and/or estate are not entitled to any compensation.

 

Compensation under the letter agreement is conditioned upon a sale of your shares to a third party and a change of control of the Bank.  To be entitled to compensation, Mr. Smith would have to survive such a sale.  There is no compensation to Mr. Smith’s heirs or estate provided for in the letter agreement.

 

Appendix at Tab 19 at pars. 6, 7.  This was clearly a repudiation of the COC Agreement, as it was an indication that Defendants would not pay Smith or his estate a 5% equity interest when the Harbers or their heirs sold their NABI stock.  After Hooper sent the letter to Harber, Harber forwarded it to Gail Utter on or about March 20, 2002.  Appendix at Tab 18 at Request Nos. 1-3; GU37.   This lawsuit was filed by Gail Utter less than one year later, on January 6, 2003.

RESPONSE TO TRADITIONAL MOTION FOR SUMMARY JUDGMENT

STANDARDS FOR TRADITIONAL SUMMARY JUDGMENT

“To prevail on a traditional summary-judgment motion, a movant must show that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law.” Southwestern Elec. Power Co. v. Grant, 73 S.W.3d 211, 216 (Tex. 2002).  A movant must conclusively negate at least one essential element of a cause of action in order to be entitled to summary judgment on that claim. Id; see also Elliott-Williams Co. v. Diaz, 9 S.W.3d 801, 803 (Tex.1999). When reviewing a summary judgment, a court must take as true all evidence favorable to the nonmovant and indulge every reasonable inference and resolve any doubts in the nonmovant’s favor. Science Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex.1997); Friendswood Dev. Co. v. McDade & Co., 926 S.W.2d 280, 282 (Tex.1996).

When a defendant moves for summary judgment on an affirmative defense, he is entitled to judgment in his favor if he conclusively proves all the elements of the affirmative defense.  Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex.1999). To accomplish this, the defendant must “present summary judgment evidence that establishes each element of the affirmative defense as a matter of law.” Ryland Group, Inc. v. Hood, 924 S.W.2d 120, 121 (Tex.1996).   When reviewing the evidence, a court must apply the same standard it applies when a defendant is not relying on an affirmative defense and resolve every reasonable inference in favor of the non-movant and take all evidence favorable to the non-movant as true.   Science Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex.1997).

ARGUMENT AND AUTHORITIES

I. The Motion should be denied as to Utter’s breach of oral contract claim .

 

A. There is ample evidence of a valid oral contract granting Smith a 5% equity interest in NABI payable upon his death .

 

Defendants contend that, as a matter of law, no oral contract existed between Harber, NABI and Scott Smith.  Motion at p. 50.  As set forth below, applying the applicable summary judgment rules, there is a clear issue of fact precluding summary judgment on this basis.

In late 1994, the bank hired several outside consultants to draft a formal written employment agreement between NABI and Smith.  Up to that point, Smith had worked for the Harber and NABI without any formal written agreement. LH43, 49.  Because they were charged with drafting a written employment agreement documenting the then-existing terms of Smith’s employment, the consultants hired by the bank first had to gain an understanding of what those terms were.  They did so by talking with both Scott Smith and Lacy Harber.  Numerous witnesses specifically testified that they spoke with Lacy Harber and Scott Smith about the conditions under which Scott was then employed as CEO of NABI.  For example, Tom Hurtekant, the attorney hired by NABI to document the terms of Smith’s employment in a more formal written agreement, stated as follows:

Q.   (BY MR. PEARSON)  And let me back up.  You

3  said that you believe that Scott had an understanding

4  with respect to his employment with the bank, correct?

5      A.   Yes.

6      Q.   Tell me about that.

7      A.   Roughly the same terms as Deposition Exhibit

8  3.

9      Q.   And how did you come to be aware of that

10  understanding?

11      A.   Well, as we were going forward with these

12  compensation planning documents, you have to — you

13  have to say is there anything that they are supposed to

14  capture.  So I asked that.

15      Q.   Who did — who did you ask that question of?

16      A.   Scott.

17      Q.   What did he tell you?

18      A.   Basically the terms of Deposition Exhibit

19  Number 3.

20      Q.   Can you recall how he articulated those terms?

21      A.   That he was to get a — an annual bonus of

22  five percent of basically profits of the bank and in

23  his kind of layman’s words that he had five percent of

24  the gain from the day Lacy invested going forward.

25      Q.   What did you understand the word “gain” to

1  mean?

2      A.   The value of the bank over the value that Lacy

3  invested at.

4      Q.   What was your understanding as to what Lacy’s

5  investment was?

6      A.   I don’t recall that.

7      Q.   Did you confirm with Mr. Harber or another

8  representative of the bank the existence of that

9  understanding?

10      A.   At some point, yes.

TH17-18.

KPMG compensation expert Robert Dill was also hired by NABI to document the existing terms of Smith’s employment.  He repeatedly testified that he was not charged with negotiating a new employment agreement, but simply with documenting the agreement under which Smith had already been employed by the bank for many years:

Q      What was the purpose of that initial meeting

9  between you, Mr. Harber and Mr. Smith?

10       A      The purpose of the meeting was to document and

11  determine what the parties had verbally agreed upon and put

12  that in writing.

13       Q      Did you have an understanding at the time of that

14  initial meeting in the fall of 1994 whether Scott Smith was

15  currently an employee at bank?

16       A      Yes.

17       Q      And what was your understanding?

18       A      That he was not — not only a employee, but he was

19  also the president and CEO of the bank.

20       Q      And how long had he been in that position to your

21  knowledge?

22       A      Four to five years, I mean somewhere in that time

23  frame.  It was — it was a situation where he was already in

24  place, it wasn’t a situation of negotiating a deal for him

25  coming in from another bank.

1       Q      Right.

2       A      Yeah.

3       Q      And because of that, because he had been working

4  for the bank for several years your first goal was to find out

5  what was the arrangement that he had been working under all

6  these years.

7       A      Correct.

8       Q      Because what you were charged with doing was

9  taking whatever that arrangement was and putting it into a

10  more formal document.

11       A      Correct.

* * * * *

 

Q      And isn’t it true that with respect to the

25  specific item of the five percent equity interest, that at the

1  initial meeting that you attended with Scott Smith and Lacy

2  Harber they told you about the agreement they had already

3  reached and had been operating under for several years.

4       A      Correct.

5       Q      It wasn’t a matter of we want you to go negotiate

6  the five percent equity interest, it was go document in

7  writing what we’ve already agreed to.

8       A      Correct.

 

* * * * *

 

11       Q      And this five percent equity interest that you

12  discussed in that initial meeting, this was something you

13  understood had been in place for many years.

14       A      It had been in place for at least several —

15  several years verbally.  Not — there’s — five percent equity

16  interest had been in place or discussed, and it may have

17  been — to be honest with you, I don’t know if it was part of

18  the hiring process whenever he — he brought Scott in to run

19  the bank, whether it was mentioned at that time or it came

20  later, that I don’t know.

21       Q      But just to be clear, this wasn’t something where

22  Scott and Lacy said, hey, we have this great new idea where we

23  want to give Scott this five percent equity interest.

24       A      It did not come up during that meeting or shortly

25  before that meeting, it’s something that had always been there

1  that just needed to be documented.

2       Q      And that was the clear statements made by

3  Mr. Harber and Mr. Smith at this meeting.

4       A      Right.

5       Q      Was it your understanding that Mr. Smith had been

6  performing as an executive for the bank under this gentleman’s

7  agreement for some period of time?

8       A      My understanding was at least a couple of years.

 

RD168-69, 286-87, 176-77.

In Defendants’ Motion for Summary Judgment, they distort the record to try to convince the Court that the material terms of Smith’s employment agreement “were merely the subject of preliminary negotiations and discussions and were never intended to be the final manifestation of the parties’ agreement.”  Motion at p. 61.  In fact, Defendants cite Bob Dill’s deposition as “conclusively establishing” this allegation.  Id. In truth, as set forth above, Dill repeatedly testified that the 5% equity agreement he put into his draft employment agreement was based on his understanding of the terms under which Smith was already employed by NABI:

5       Q      And so was it your understanding as you were

6  drafting the initial employment agreement that Mr. Smith and

7  Mr. Harber as discussed with you in that initial meeting had

8  already reached agreement on the structure of the five percent

9  equity interest?

10       A      They had verbally agreed to it.

 

* * * * *

 

24       Q      And isn’t it true that with respect to the

25  specific item of the five percent equity interest, that at the

1  initial meeting that you attended with Scott Smith and Lacy

2  Harber they told you about the agreement they had already

3  reached and had been operating under for several years.

4       A      Correct.

5       Q      It wasn’t a matter of we want you to go negotiate

the five percent equity interest, it was go document in

writing what we’ve already agreed to.

8       A      Correct.

 

RD181, 286-87.  And Dill resisted the efforts of Defendants’ attorney to portray Dill’s draft employment agreements as “proposals:”

16       Q      But we’ve gone over this 100 times.  You have told

17  us that all of these were proposals and that you expected Ted

18  this to be negotiations subject to change.  Correct?

19       A      Basically what I did was documented what everyone

20  agreed upon, not necessarily I just went off and proposed this

21  in a vacuum.  All these terms and conditions were what was

22  verbalized between Lacy and Scott Smith.

23       Q      What — what they had discussed.

24       A      What they had discussed.

25       Q      Correct?

1       A       Right.

2       Q      And to make sure that everyone had a meeting of

3  the minds, you tried to reduce what you thought they intended

4  to paper. Correct?

5       A      Which is a document, not a proposal

 

RD145.  He also explained that while some of the terms in the more formal written employment agreement were subject to negotiation, the 5% equity interest was not, as it had already been agreed to by the parties years earlier:

Q      So during the line of questioning Mr. Stagner was

6  asking you, that the employment agreement you were drafting

7  was subject to negotiation and approval by the parties.  Is

8  that — do you remember those questions?

9       A      Yes, sir.

10       Q      Is it fair to say that with respect to just the

11  five percent equity interest, based on your conversations at

12  that meeting and the prior history of the parties, that

13  component of Scott Smith’s employment agreement had already

14  been negotiated and agreed to by the parties?

15              MR. STAGNER:  Objection as to form.

16       A      (By the Witness)  It had been agreed to by the

17  parties.

18       Q      (By Mr. Pearson)  And when you say it had been

19  agreed to by the parties, you mean the five percent equity

20  interest?

21       A      Yes.

22              MR. STAGNER:  Objection as to form.

23       Q      (By Mr. Pearson)  What — when to your

24  understanding had the five percent equity interest been agreed

25  to by the parties?

1       A      Within the last, you know, the two years prior to

2  my involvement.  As I indicated it was — it had been there

for a period of time, whether it’s been there two years, five

4  years, I don’t know.

5       Q      And so was it your understanding as you were

6  drafting the initial employment agreement that Mr. Smith and

7  Mr. Harber as discussed with you in that initial meeting had

8  already reached agreement on the structure of the five percent

9  equity interest?

10       A      They had verbally agreed to it.

 

RD180-81.

The entire reason for a more formal, written agreement, Dill explained, was not to create a new agreement or proposal.  It was to put into writing the then-existing terms of Smith’s employment in order to satisfy the parties’ concerns that Scottish Rite, to whom Lacy Harber intended to leave his estate, might not honor the verbal agreement already in existence:

22       At that point in time it had all been verbal,

23  gentleman’s agreement, handshake-type situation.  They wanted

24  to move it from a informal gentleman’s agreement into a more

25  formalized agreement.  The purpose of that being as long as

1  Scott and Lacy, nothing happened to either one of the two of

2  them, no issue at all.  If anything — and really the — the

3  thrust behind it was if anything were to happen to Lacy and it

4  was conveyed at that meeting that for all practical purposes

5  my understanding was everything that Lacy owned or had access

6  to would go to Scottish Rite Hospital.  And as a result of

7  that if there’s not anything written, that it would be Scott’s

8  word with Scottish Rites that there was a five percent equity

9  interest in the bank.  And they wanted to be sure that

10  everything was documented.

 

RD35-36.

In order to fully understand the terms of the 5% equity agreement then in existence – and the circumstances under which Smith would or would not be entitled to the value of his 5% interest – Bob Dill walked Lacy Harber and Scott Smith through various factual scenarios to determine which would trigger the 5% payment and which would void it.

13       Q      Now you testified that there was no discussion in

14  your meeting with Mr. Harber and Mr. Smith about what would

15  happen if Scott Smith died before Mr. Harber.  Correct?

16       A      No, I said in the first meeting I basically said

17  death would pay out the five percent.  I went through each of

18  those items in that first meeting.

19       Q      Right.  So the — the event of Mr. Smith’s death

20  and what effect that would have on his entitlement to the five

21  percent equity interest was discussed in the first meeting

22  that you attended with Mr. Harber and Mr. Smith.

23       A      Correct.

24       Q      And you expressed — and they agreed at that

25  meeting that Mr. Smith’s death would be a triggering event

1  that would actually entitle him to the five percent equity

2  interest.

3       A      Correct.

 

RD286-88.  This testimony clearly shows that Defendants’ statement in their Motion that “Dill testified in his deposition that in his meetings with Harber and Smith, the contingency of Smith’s death was never mentioned or discussed” (Motion at p. 60) is simply a distortion of the record.  In the cited passage, Dill merely stated that the issue of Smith dying before Harber was never discussed.  RD243-44.   But, as referenced above, the fact that Smith’s death would trigger the 5% payment was discussed.  RD287-88.

As a result of the foregoing discussion about the terms under which Smith was then employed, Dill put into the written employment agreements he drafted certain provisions regarding the 5% equity interest.  For example, the initial draft employment agreement referenced “an equity position of 5%” and subsequent drafts contained a 5% equity interest payable upon Smith’s “death, mandatory retirement or total disability.”  Appendix at Tab 7 at par. 3(b); Appendix at Tabs 9-12 at par. 3(b).  The agreements also contained a clause stating that they inured to the benefit of Smith’s heirs.  Appendix at Tabs 7-12 at par. 19.

After drafting the employment agreement, Dill met with Smith and Harber in March 1995 to discuss its terms.  During his conversation with Harber, Dill walked through each of the possible contingencies and explained which would entitle Scott Smith to the 5% equity interest payment and which would not.   He specifically explained that Smith’s death would trigger the 5% equity payment and that the only circumstances under which he would not be entitled to the payment would be if he quit or was terminated for cause:

18       Q      (By Mr. Pearson)  During the March, 1995 meeting

19  that you attended with Mr. Harber, did you discuss with him

20  the specific provision of the — of the draft employment

21  agreement that was then existing?

22       A      Yes.

23       Q      And did you — did that discussion include a

24  discussion of the five percent equity agreement?

25       A      Yes.

1       Q      Did that discussion include what would happen in

2  the event of Scott Smith’s death, retirement or total

3  disability?

4       A      Yes.

5       Q      And did you explain that those events would

6  trigger Mr. Smith’s five percent equity interest payment?

7       A      Yes.

8       Q      And did you explain during that March, 1995

9  meeting that the only events which would void or terminate

10  Mr. Smith’s five percent equity interest were his quitting, or

11  terminating himself, or his termination by the bank for good

12  cause?

13       A      Correct.

 

RD295-96.  Not only was Mr. Harber present and attentive at the meeting, but he affirmatively indicated that he understood and accepted these terms and would sign a written agreement encompassing them if the long employment agreement were synthesized down to a one or two- page summary sheet:

14       Q      And Mr. Harber was there.

15       A      Correct.

16       Q      Paying attention.

17       A      Correct.

18              MR. STAGNER:  Objection as to form.

19       Q      (By Mr. Pearson)  Did Mr. Harber seem to be paying

20  attention to you?

21              MR. STAGNER:  Objection as to form.

22       Q      (By Mr. Pearson)  I’m sorry, I didn’t hear your

23  answer.

24       A      Yes.

25       Q      And Mr. Harber never disagreed at that meeting

1  with the terms of the employment agreement as you recited

2  them, correct?

3       A      Correct.

4       Q      In fact, he said the terms were acceptable.  If

5  you would put them in a summary form he would sign the

6  document; is that right?

7       A      True.

8       Q      I’m sorry?

9       A      Correct.

10      Q      And that’s what your understanding was, that

11  someone was going to take the employment agreement that you

12  drafted, take its terms, put them in a shorter summary style

13  document and Mr. Harber as he had said he would do, would sign

14  the document.

15       A      Correct.  It would be summarized and that Scott

16  and then Lacy Harber would sign the agreement.

 

RD296-97.  As the above evidence clearly demonstrates, there was an oral agreement between Scott Smith on the one hand and the Harbers and NABI on the other whereby Smith had a 5% equity interest in NABI that was payable upon his death, retirement or total disability.

Under Texas law, oral agreements such as the 5% equity agreement discussed above may be proven by circumstantial evidence. Harris v. Balderas, 27 S.W.3d 71, 77 (Tex. App.—San Antonio 2000, pet. denied) (“The existence of an oral contract may be proved by circumstantial as well as direct evidence.”); PGP Gas Prods. v. Reserve Equip., Inc., 667 S.W.2d 604, 607 (Tex.App.–Austin 1984, writ ref’d n.r.e.) (“The existence of an oral contract may be proved by circumstantial evidence as well as by direct evidence.”).  They may also be proven by evidence of a course of conduct such as employment along certain terms for a length of time. Ishin Speed Sport, Inc. v. Rutherford, 933 S.W.2d 343, 348 (Tex. App.—Fort Worth 1996, no writ) (“the parties’ conduct may convey an objective assent to the terms of an agreement, and whether their conduct evidences their agreement is a question to be resolved by the finder of fact.”).  Under these authorities and the facts outlined above, there is clearly more than a scintilla of evidence of an offer, acceptance, meeting of the minds and mutual assent on the terms of the 5% equity interest.  Defendants’ Motion should therefore be denied.

B. The existence of an oral contract granting Smith a 5% equity interest in NABI payable upon his death is a question of fact for the jury .

 

In the final analysis, the Motion must be denied as to the oral contract claim for the simple reason that “[w]here a meeting of the minds is contested, as it is here, determination of the existence of a contract is a question of fact.”  Angelou v. African Oversea’s Union, 33 S.W.3d 269, 278 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (emphasis added).  As many courts have held, “[t]he question of whether an agreement was reached by the parties is generally a question of fact where the existence of the agreement is disputed.” Preston Farm & Ranch Supply, Inc. v. Bio-Zyme Enters., 625 S.W.2d 295, 298 (Tex. 1981); see also Gaede v. SK Investments, Inc., 38 S.W.3d 753, 757-58 (Tex.App.-Houston [14th Dist.] 2001, pet. denied) (“Whether an agreement constitutes a valid contract is generally a legal determination for the court. However, whether parties intended to make a contractual agreement is usually a fact issue for the jury.”) (emphasis original); Engelman Irr. Dist. v. Shields Bros., Inc., 960 S.W.2d 343, 349 (Tex. App.—Corpus Christi 1997, pet. denied) (“Whether parties intended to make an agreement is an issue of fact to be drawn from the facts and circumstances of the case.”); Beal Bank, S.S.B., v. Schleider, 124 S.W.3d 640, 653 n. 8 (Tex.App.–Houston [14th Dist.] 2003, pet. denied) (“Whether the parties reached an agreement is a question of fact.”).  As one court has stated, “[t]he intent of the parties is always a question of fact.”  CTTI Priesmeyer, Inc. v. K & O Ltd. Partnership, 164 S.W.3d 675, 682 (Tex.App.–Austin 2005, no pet.).

C.        The mere fact that Scott Smith and Gail Utter did not address the 5% equity interest in their financial statements or marital agreement is not outcome-determinative, but merely creates a fact question for the jury .

 

Defendants make the rather startling argument that the mere fact that Utter and Smith did not list the 5% equity interest in their financial statements or marital agreement proves as a matter of law that no such interest existed.  Motion at p. 66.  While this may create a fact issue for the jury, it is hardly outcome determinative.  First, as banker John Massey explained, it would be unusual to list a future contingent interest like the 5% equity interest in a financial statement:

15  Q.   Is it normal to list on a financial statement a

16  future contingent asset?

17  A.   No.  You list your current assets.  If you look

18  at these statements, it’s got your — your current assets

19  and your homestead and other little things that you —

20  like personal property and inheritance and automobiles.

21  That’s what Scott listed.  And then you’ve got your

22  liabilities.

23  Q.   So, it wouldn’t have made any sense for Scott to

24  put on there that “I have a 5-percent interest in the

25  bank in the event it sells” because that’s a future

1  contingent asset.

2  A.   That’s right.

 

JM65-66.   Second, this argument ignores the fact that Utter and Smith did not list the rights contained in the COC Agreement on their financial statements or marital agreement either, and yet Defendants admit that such rights existed and that Smith informed others of these rights.  Motion at p. 52 (“the only oral agreements entered into between Defendants and Smith were in the event the banks sold while Smith was still employed with the banks, Smith would be entitled to 5% of the sales price.”); Motion at p. 66 (“Smith told many of his friends as well as Utter, his brother, Steven, and Hurtekant, that he would receive five percent of the net profits if Harber sold NAB.”).  Clearly the mere fact that the 5% equity interest was not listed in financial statements or a marital agreement hardly proves that the interest did not exist.[2]

D.        Utter’s oral contract claims are not precluded by the statute of frauds .

As Defendant’s Motion correctly notes, to prevail on a motion for summary judgment asserting an affirmative defense, the movant must conclusively prove each element of the defense and establish his entitlement to judgment as a matter of law. Garza v. Exel Logistics, Inc., 161 S.W.3d 473, 475 & n. 10 (Tex. 2005); McIntyre v. Ramirez, 109 S.W.3d 741, 748 (Tex.2003).  Moreover, in determining this issue, the court must “take as true all evidence favorable to the nonmovant, and we indulge every reasonable inference and resolve any doubts in the nonmovant’s favor.”  Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Evidence that favors the movant’s position will not be considered unless it is uncontroverted. Great Am. Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex. 1965).  As set forth below, applying these standards, it is clear that Defendants have failed to establish their statute of frauds defense as a matter of law.

1.         The statute of frauds does not apply to the oral agreement because it was performable within one year .

a.         Smith’s death or disability or a change of control could have occurred within one year of the making of the agreement.

 

The statute of frauds applies only to those agreements that are not performable within one year of their making.  Niday v. Niday, 643 S.W.2d 919, 920 (Tex. 1982).  Where the time for performance under a contract is uncertain or indefinite, the contract will not fall within the statute of frauds “if the contract, from its terms, could possibly be performed within a year–however improbable performance within one year may be.” Iacono v. Lyons, 16 S.W.3d 92, 95 (Tex. App–Houston [1st Dist.] 2000, no pet.); see also Gerstacker v. Blum Consulting Engineers, Inc., 884 S.W.2d 845, 849 (Tex. App.–Dallas 1994, writ denied) (“Where the term of performance is uncertain such as a contract that merely provides for the performance of a particular act that can conceivably be performed within one year, section 26.01(b)(6) does not apply, however improbable performance within one year may be.”).

The oral agreement alleged by Utter – which the Court must accept as true for purposes of this Motion – is one in which Scott Smith was entitled to be paid the value of a 5% equity interest in NABI upon his death, retirement or total disability or upon a change of control of the bank.  If any of these contingencies could conceivably be performed within one year, the contract falls outside of the statute of frauds.  See Wright v. Donaubauer, 154 S.W.2d 637, 639 (Tex. 1941); Young v. Ward, 917 S.W.2d 506, 510 (Tex. App.–Waco 1996, no writ).  As a matter of logic, NABI conceivably could have been sold within one year of the agreement at issue.  In fact, Defendants assert that Smith sought a written, rather than merely verbal, agreement specifically because he was concerned that NABI might be sold.  Motion at p. 13.   Also as a matter of logic, Smith could conceivably have retired, died or become totally disabled within one year of the making of the oral agreement; even if such contingencies were improbable, so long as they were conceivable, the statute of frauds does not apply.

In their Motion, Defendants do not really challenge this proposition.  Instead, they admit that “Smith’s death or his total disability, change of control at NAB, or Smith’s termination by NAB without cause could all have occurred within one year.”  Motion at p. 67.   They argue, however, that this fact does not preclude the application of the statute of frauds, citing Gilliam v. Kouchoucos, 340 S.W.2d 27 (Tex. 1960). Motion at p. 68.  In that case, the court held that a contract of employment for a term of ten years that “terminated” upon the death of one of the parties was within the statute of frauds because death was a form of “excusable non-performance” rather than “an alternative form of performance.”  Id. at 303.  As set forth below, however, in the instant case, Scott Smith’s death constituted performance, i.e., a triggering event under the agreement, rather than excusable nonperformance.  As such, the agreement was performable within a year and is not within the statute of frauds.

In Young v. Ward, 917 S.W.2d 506 (Tex. App.–Waco 1996, no writ), the plaintiff’s employer orally agreed to pay him a lifetime monthly annuity if he would continue to work for him for a period of a few months.  When the employer stopped making the required payments after several years, Young sued for breach of their oral agreement.  Examining the statute of frauds, the court noted that the agreement to pay Young a lifetime annuity was not subject to the statute of frauds because Young could have died within a year of the agreement’s making.  Id. at 510.  Young’s death, the court noted, would constitute full performance, since it would signal the end of the employer’s obligation to make the annuity payments:

Young’s death was intended by the parties to be the defining event which would determine when the agreement was fully performed. Therefore, because both stages of the agreement, taken together, could have been fully performed within one year of the agreement’s making, we conclude that section 26.01(b)(6) is not applicable.

 

Id. at 512.

In Shaw v. Maddox Metal Works, Inc., 73 S.W.3d 472 (Tex. App.–Dallas 2002, no pet.), a case closely analogous to the instant case, Shaw’s employer, Maddox Metal, orally agreed that, after Shaw’s death, it would provide his surviving spouse a lifetime annuity.   When Shaw died and the employer ceased making payments after a few years, Shaw’s widow sued for breach of the oral agreement.  The Dallas Court of Appeals held that the agreement was not within the statute of frauds, noting that “because Shaw could have died at any time, the contract was capable of being performed within one year of its making.”  Id. at 480 (emphasis original).

The holding in Young was perhaps best explained by the Houston Court of Appeals when it stated:

If a contingent event that would result in the full performance of the agreement could conceivably occur within one year, the statute of frauds does not apply. However, if the occurrence of a contingent event would simply terminate the agreement, the possibility of that event happening within one year does not take the agreement out of the statute of frauds.

Parks v. Landfill Marketing Consultants, Inc., No. 14-02-01243-CV, 2004 WL 1351545 at *2 (Tex. App.—Houston [14th Dist.] June 17, 2004, pet. denied) (not designated for publication).  As the foregoing cases hold, because Scott Smith’s death was a triggering event under the oral agreement, that is, an act of performance rather than excusable non-performance, and because it could have occurred within one year of the agreement as Defendants concede, the statute of frauds does not apply to the agreement at issue.

b.         The retirement term of the oral agreement does not render the agreement unenforceable under the statute of frauds.

 

Finally, Defendants argue that the entire oral agreement is unenforceable because one of its provisions – the payment of the 5% equity interest upon Smith’s retirement – was not performable within one year.  The cases it cites for this proposition, however, are distinguishable.  In Webber, the plaintiff specifically alleged he had been promised his employment “would definitely last until my normal retirement at age 65” and it was this promise he was seeking to enforce.  Webber v. M.W. Kellogg Co., 720 S.W.2d 124, 126 (Tex. App.—Houston [14th Dist.] 1986, writ ref’d n.r.e.).  Similarly, in Molder, the plaintiff “sought to enforce an alleged oral contract by which he claims that the appellee agreed to employ him permanently until he reached age 65.”  Molder v. Southwestern Bell Telephone Co., 665 S.W.2d 175, 176 (Tex. App.—Houston [1st Dist.] 1983, writ ref’d n.r.e.).  Finally, in Schroeder, “[a]ccording to Schroeder’s deposition testimony, his idea was that as a result of the oral statements, he would be employed by TIW for another eight to ten years, until retirement.”  Schroeder v. Texas Iron Works, Inc., 813 S.W.2d 483, 489 (Tex. 1991).

Unlike the plaintiffs in Webber, Molder and Schroeder, Utter is not seeking to enforce the retirement term of an agreement.  Rather, she is only seeking to enforce the term that specified the 5% equity interest would be paid upon Smith’s death, an event Defendants concede “could have occurred within one year.”  Motion at p. 67.  Moreover, there is no evidence that the parties specified a certain retirement age for Smith, unlike the plaintiffs in Webber, Molder and Schroeder.  Robert Dill merely testified that “I think normal retirement age was 65” and referred to the draft employment agreements.  RD283.  None of those draft agreements define retirement or otherwise provide evidence of the meaning the parties assigned to that term.[3] They do, however, each contain a severability clause stating that “[t]he invalidity or unenforceability of any provision or provisions in this Agreement shall not affect the validity or enforceability of any other provision of this agreement, which shall remain in full force and effect.”  Appendix at Tabs 7-12 at par. 17.  Thus, even if the retirement term of the agreement, which Utter is not even trying to enforce, is unenforceable, the other provisions of the agreement are not.

Finally, unlike the contracts at issue in Webber, Molder and Schroeder, the oral contract in this case did not guarantee Smith employment until retirement age, it merely stated that a payment would be due him upon his retirement.  Thus, the oral agreement at issue does not violate the well-settled rule – which formed the basis of the holdings in Webber, Molder and Schroeder — that “[t]he promise of permanent or lifetime employment, or the promise of employment until retirement age, is the type of employment contract that must be reduced to writing to be enforceable.” Massey v. Houston Baptist University, 902 S.W.2d 81, 84 (Tex. App.—Houston [1st Dist.] 1995, pet denied).  Under the oral agreement at issue, Smith was an at-will employee who was entitled to certain compensation upon his retirement, death or total disability.  As the Texas Supreme Court has explained, there is a difference between a contract of guaranteed employment and a contract relating to compensation upon the happening of some future event such as retirement:

Although the Court held that the Statute of Frauds did not apply to the oral employment contracts in both Miller and Bratcher, those cases concerned the enforcement of oral compensation agreements, not promises of future job security. In both cases the employer was free to terminate the employee at any time and for any reason, provided it compensated the employee for work done up until the time of termination. Accordingly, in both cases the employer and employee were capable of completely performing their respective obligations within a year, and therefore Miller and Bratcher do not apply to Brown’s alleged agreement.

Montgomery County Hosp. Dist. v. Brown, 965 501, 505 (Tex. 1998) (Gonzalez, concurring).  Under the uncontested facts, the statute of frauds is simply inapplicable to the agreement Utter seeks to enforce, one in which her husband’s death triggered a 5% equity payment.

2.         The statute of frauds does not apply to the oral agreement because it did not involve the sale of securities .

 

Defendants assert that the statute of frauds found in prior Section 8.319 of the Texas Business and Commerce Code applies to the oral agreement at issue and bars its enforcement as a matter of law.  That statute, since repealed, stated in pertinent part that “a contract for the sale of securities is not enforceable by way of action or defense unless: (1) there is some writing signed by the party against whom enforcement is sought … sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price.”  Tex.Bus. & Com.Code Ann. § 8.319(1) (Vernon 1991).  Under the UCC, “a ‘sale’ consists in the passing of title of an item from the seller to the buyer for a price.”  Beta Drilling, Inc. v. Durkee, 821 S.W.2d 739, 740 (Tex. App.—Houston [14th Dist.] 1992, writ denied) (a case cited and relied upon by Defendant in its Motion (See Motion at p. 70)).  The uncontroverted evidence in this case, however, demonstrates that the oral agreement at issue was not one for the “sale” of securities.  When asked to explain whether Harber’s hand-written note that he refused to give or sell Smith 5% of the bank’s stock was inconsistent with the oral agreement at issue, Bob Dill explained as follows:

2       Q      That’s — that statement is not inconsistent with

3  this five percent equity interest that we’ve been discussing

4  here today, is it?

5       A      No.

6       Q      And can you explain to the jury why that is?

7       A      Because the five percent equity interest is a

8  phantom or a cash-type payment not a five percent stock where

9  I’m going to give you stock.  So consistent with everything

10  that we had done in the employment agreement and discussions,

11  Lacy basically wanted to give five percent equity interest,

12  which was a cash payment to Scott, and that was not an issue.

13  However, he did have an issue to giving anybody any stock

14  whatsoever of the bank.  Scott or anyone.  And so this was

15  consistent with what Lacy said and what Lacy was doing, by

16  buying what few shares were still out that did not come

17  underneath his control.

18       Q      And under the five percent equity interest

19  agreement as it was described to you by Mr. Harber and

20  Mr. Smith, Mr. Smith wasn’t given five percent stock of the

21  bank.

22       A      That’s correct.

23       Q      He had an equity interest in the profit

24  represented by the sale of the five percent of the bank.

25       A      Correct.

 

RD223.  Clearly the oral agreement at issue was not one for the “sale” of stock.

Even if the oral contract could be considered one in which the actual ownership of NABI stock was to be conveyed to Smith, it would still not fall within Section 8.319.  Numerous Texas courts have held that the statute is inapplicable where an employee is provided with stock as part of his employment rather than through a true “sale” of stock:

Whitten testified that, when that proposal fell through, he then proposed continuing to work for I-Star for $1,000 per week, plus a 25% equity interest in I-Star. Therefore, the contract underlying the first fraud was one of continued employment. “[T]he statute of frauds [under former section 8.319] does not apply to all agreements involving stock or securities,” but instead applies only to agreements for the sale of securities. The Uniform Commercial Code, under which former section 8.319 also fell, defines a “sale” as the “passing of title from the seller to the buyer for a price.” An employment agreement in which the one employed is to receive stock does not fit this definition of “sale” and is thus not an agreement for the sale of securities under former section 8.319.

Elliott v. Whitten, No. 01-02-00065-CV, 2004 WL 2115420 at *4 (Tex.App.—Houston [1st Dist.] 2004, pet. denied); see also Bowers Steel, Inc. v. DeBrooke, 557 S.W.2d 369 (Tex.Civ.App.–San Antonio 1977, no writ) (“A ‘sale’ consists in the passing of title from the seller to the buyer for a price.  There is no ‘price’ for stock transferred pursuant to an employment contract. The only consideration is the employment itself.”).

The one case cited by Defendants, Beta Drilling, is not to the contrary.  In fact, in that case, the court affirmed the general proposition above, that stock for employment is not a sale, but noted that the employee in its case actually paid $25,000 out of his pocket for the stock:

In Bowers Steel, Inc. v. DeBrooke, 557 S.W.2d 369 (Tex.Civ.App.–San Antonio 1977, no writ), the appellate court held that oral employment contracts, for which the consideration is to be corporate stock, are not prohibited by Tex.Bus. & Com.Code Ann. § 8.319 where the only consideration for the stock was acceptance of employment. Here the payment of $25,000 was also required. This transaction is a sale of securities and is under the statute of frauds.

Beta Drilling, 821 S.W.2d at 740.  Because there was no “sale” of securities involved in the oral contract at issue, Defendants’ statute of frauds defense fails as a matter of law.

3.         Promissory estoppel bars application of the statute of frauds .

Defendants argue that promissory estoppel does not bar the statute of frauds because there is no evidence that Harber agreed to sign a written document then in existence that contained the terms of the oral agreement at issue.  Defendants are incorrect, both legally and factually.  Legally, Defendants’ argument ignores the lineage of the cases holding that promissory estoppel will defeat the statute of frauds when one party agrees to sign a writing complying with the statute of frauds.  Defendants concede that Moore Burger, Inc. v. Phillips Petroleum Co., 492 S.W.3d 934 (Tex. 1972) is the “seminal case” in this area.  Motion at p. 71.  But then Defendants misstate the holding in that case.  In truth nowhere in its opinion did the Texas Supreme Court hold that the written agreement a party promised to sign had to be in existence at the time the promise was made. In fact, the court cited with approval a portion of the Restatement on Contract holding the exact opposite:

Though there has been no satisfaction of the Statute, an estoppel may preclude objection on that ground in the same way that objection to the non-existence of other facts essential for the establishment of a right or a defence may be precluded. A misrepresentation that there has been such satisfaction if substantial action is taken in reliance on the representation, precludes proof by the party who made the representation that it was false; And a promise to make a memorandum, if similarly relied on, may give rise to an effective promissory estoppel if the Statute would otherwise operate to defraud.

Id. at 937 (emphasis added).  The court’s statement on rehearing was simply that “[t]he promise which is determinative here is the promise to sign a written agreement which itself complies with the statute of frauds.”  Id. at 940; see also Adams v. Petrade Int’l, Inc., 754 S.W.2d 696, 707 (Tex. App.—Houston [1st Dist.] 1988, pet. denied) (“courts have also held that [promissory estoppel] is limited to those cases in which the complaining party relied on an oral promise to furnish a written contract that complied with the statute of frauds.”) (emphasis added).

Many courts of appeal have recognized the fact that Moore Burger did not limit the applicability of promissory estoppel to a promise to sign an agreement then in existence.  See, e.g., Cobb v. West Texas Microwave Co., 700 S.W.2d 615, 616-17 (Tex. App.—Austin 1985, writ ref’d n.r.e.) (finding promissory estoppel exception to statute of frauds where defendants promised “that the oral agreement to lease the space would be reduced to a written lease.”); EP Operating Co. v. MJC Energy Co., 883 S.W.2d 263, 268-69 (Tex. App.—Corpus Christi 1994, writ denied) (promissory estoppel may apply when a party “promises to sign proposed contract that has not yet been reduced to writing but on which the parties have reached agreement concerning all material terms.”); Levine v. Loma Corp., 661 S.W.2d 779, 781 (Tex.App.–Fort Worth 1983, no writ) (promissory estoppel applies when “there was a promise to put the oral agreement into writing”); Capital Reserve Corp. v. Day, No. 2-03-264-CV, 2004 WL 2793260 at *2 (Tex. App.—Fort Worth Dec. 2, 2004, pet. denied) (not designated for publication) (“Promissory estoppel requires that there was a promise by Day to put the oral agreement into writing that complies with the statute.”).

Defendants’ argument also ignores the facts of the case.  The summary judgment evidence is that there was a written agreement in existence that satisfied the statute of frauds.  Harber agreed to its terms, but did not want to sign a “long, complicated” document.  Instead, he asked that the existing written agreement be reduced to a shorter, one or two-page summary form and promised that he would then sign it.  RD113 (“He basically wanted the 11-page document condensed down into a one or two-pager, something very simple and without a lot of verbiage.”); RD121 (“Lacy agreed to terms, he just wanted it simplified”); RD186 (“he agreed upon the terms.  He just didn’t want to sign an 11 or 12-page document.  Summarize it, get it in front of him and sign it.”); RD190 (“Lacy just in essence said, you know, fine, but I would like to abbreviate this, get it down to something, a one or two-pager, not all this, and I’ll sign off on it.”); RD265 (“Lacy said, “I really don’t want to sign a 12-page document.  What I would like to have is a one or two-pager with all the major bullet points and we’ll sign off on it.”); RD271 (Lacy said “I don’t want to sign an 11-page document but I will sign a one or two-pager summarizing this.”).  Under these circumstances, equity demands that promissory estoppel be applied.

4.         Defendants failed to address Utter’s claim that full and/or partial performance of the contract by Scott Smith takes the contract out of the statute of frauds .

 

In Plaintiff’s Fifth Amended Petition, Utter clearly alleged that full and/or partial performance of the contract by Scott Smith takes the oral contract out of the statute of frauds:

The Harber’s promise to Smith constituted a binding oral agreement between Smith on the one hand and the Harbers and NABI on the other.  The oral agreement was performable within one year.  Moreover, Scott Smith fully and/or partially performed under the agreement through his employment with NABI.

Appendix at Tab 20 at par. 7.  It is unquestioned that Texas law recognizes full or partial performance as a defense to the statute of frauds.  See, e.g., Exxon v. Corp. v. Breezevale Ltd., 82 S.W.3d 429, 439-40 (Tex. App.–Dallas 2002, pet. denied) (“Under the partial performance exception to the statute of frauds, contracts that have been partly performed, but do not meet the requirements of the statute of frauds, may be enforced in equity if denial of enforcement would amount to a virtual fraud.”);  Estate of Kaiser v. Gifford, 692 S.W.2d 525, 526 (Tex.App.-Houston [1st Dist.] 1985, writ ref’d n.r.e.) (“when one party fully performs a contract, the Statute of Frauds is unavailable to the other who knowingly accepts benefits and partly performs.”).

The evidence before the Court is that Scott Smith fully performed under the contract by working as the CEO of NABI until his untimely death in January 2002, relying on the promise of the 5% equity interest.  JM56-57 (the COC Agreement kept Smith at the bank, where he worked “24 hours a day, seven days a week” until his death); TH112-113, 19, 29, 86-87 (Smith relied on Harber’s promises and took a below-market salary in exchange for the 5% equity interest).  Defendants’ Motion completely failed to address this defense to the statute of frauds.  As such, as a matter of law, Defendant has failed to demonstrate that the statute of frauds bars Utter’s oral contract claims.

5. Defendants failed to address Utter’s claim that the confidential relationship between Scott Smith and Lacy Harber takes the contract out of the statute of frauds .

 

Defendants also failed to address Utter’s claim that the confidential relationship between Scott Smith and Lacy Harber takes the oral contract out of the statute of frauds.  In her Fifth Amended Petition, Utter clearly alleged the existence of a confidential/fiduciary relationship between Harber and Smith:

Scott Smith was for many years the Chief Executive Officer of North American Bancshares, Inc. (“NABI”).  Lacy and Dorothy Harber own and control NABI.  Over the years, Smith and the Harbers/NABI developed a strong relationship of trust and confidence.  Witnesses deposed herein have described the unfaltering trust Smith had in Lacy Harber.

Appendix at Tab 20 at par. 5.   She also asserted a cause of action for breach of fiduciary duty.  Id. at par. 37.[4] And the facts demonstrate such a relationship between Smith and Harber.  See, e.g., JM26 (“Scott was the son [Harber] never had”); TH33 (“You have to understand their relationship.  They seemed to trust each other totally”); TH249 (“the two of them had as close a relationship as any other clients I had in 25 years of practicing law.”); TH261 (Smith and Harber were “like brothers”); LH38 (“our friendship was close”).  Under Texas law, the existence of a confidential or fiduciary relationship between contracting parties negates the application of the statute of frauds.  See, e.g., Ginther v. Taub, 675 S.W.2d 724, 728 (Tex. 1984) (“We recognize that the Statute of Frauds prohibits title to real property interests from resting in parol. However, a constructive trust based on a prior confidential relationship and unfair conduct or unjust enrichment escapes this rule.”); Vogel v. Greenblatt, No. 05-94-01966-CV, 1996 WL 479645 at *3 (Tex. App.—Dallas Aug. 20, 1996, writ denied) (not designated for publication) (“A confidential relationship giving rise to fiduciary duties, however, is a common law exception to the statute of frauds.”).  Defendants’ Motion completely failed to address this defense to the statute of frauds.  As a matter of law, Defendant has failed to demonstrate that the statute of frauds bars Utter’s oral contract claims.

E.         Utter’s oral contract claims are not barred by the statute of limitations . “A defendant moving for summary judgment on the affirmative defense of limitations has the burden to conclusively establish that defense.”  Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999).  In their Motion, Defendants assert that any breach of contract by Harber occurred when he refused in 1995 to sign a written agreement containing the 5% equity interest.  This argument is based on nothing less than a misstatement of Utter’s claims, a distortion of the evidence and a misunderstanding of the law.  First, even assuming that Harber’s failure to sign a written agreement after he orally promised to do so was a breach of contract, it is not a breach of contract for which Utter has sued.  Simply put, Utter’s breach of contract claim is not based on Harber’s failure to sign a written agreement; rather, it is clearly and unequivocally based on his failure to pay Smith’s estate a 5% equity interest upon his death.  Appendix at Tab 22 at par. 22 (“Scott Smith’s premature death was a triggering event under the 5% equity interest agreement.  Despite lawful demand, the Harbers and NABI have failed to honor such agreement.  This failure constitutes a breach of contract, for which Utter now sues.”).   The fact that limitations may have run on some hypothetical breach of contract claim Utter has not asserted is interesting, but hardly meaningful.

Second, the argument that Harber refused to sign a written agreement after promising to do so is based on a distortion of the record.  The evidence conclusively establishes that Harber was presented with a lengthy employment agreement during a meeting with Scott Smith and Robert Dill in March 1995.  RD190.  It was in that meeting that he both refused to sign the lengthy agreement and promised to sign a shorter, simpler agreement containing the same terms.  RD92, 113, 121, 186, 190.  The evidence shows, however, that he was never presented with such an agreement following the meeting. RD218-19.  For some reason, the matter was essentially dropped.  TH31, 37-8.  As a result, the only agreements he was asked to sign were the “one-pager,” which he signed on March 12, 1995, and, years later, the “Going to Africa” letter, which he also signed.  The notion that he “refused” to sign a written contract following his promise to do so simply misstates the record.

Finally, even if Harber refused to sign a written agreement as he had promised to do, such event would not trigger the running of the statute of limitations for the simple reason that it would cause Smith no discernible or legally cognizable damages.  Until Defendants indicated their refusal to pay Smith’s estate the amounts due under the contracts at issue, Smith had suffered no legal injury.  Without a legal injury, no cause of action could have accrued.  S.V. v.. R.V., 933 S.W.2d 1, 4 (Tex. 1996). (“A cause of action accrues when a wrongful act causes some legal injury”); Aquila Sw. Pipeline, Inc. v. Harmony Exploration, Inc., 48 S.W.3d 225, 235 (Tex.App.-San Antonio 2001, pet. denied) (“The elements in a suit for breach of contract are: (1) a valid contract; (2) the plaintiff performed or tendered performance; (3) the defendant breached the contract; and (4) the plaintiff was damaged as a result of that breach.”).

F.         Utter’s oral contract claims are not barred by the parol evidence rule or the doctrine of merger .

 

Defendants argue that the parol evidence rule and the doctrine of merger bar Utter’s claims for breach of the oral agreement because that agreement is inconsistent with the subsequent “Going to Africa” letter.  Motion at pp. 75-77.  As stated in Utter’s motion for summary judgment, however, the terms of the “Going to Africa” letter are unenforceable against Smith under the statute of frauds because it is unquestioned that he never signed the letter.  Appendix at Tab at p. 2; LH100.  See, e.g., Walker v. Tafralian, 107 S.W.3d 665, 668 (Tex. App.—Fort Worth 2003, pet. denied) (“The statute of frauds provides that ‘an agreement which is not to be performed within one year from the date of making the agreement’ is not enforceable unless it is in writing and signed by the person to be charged with the agreement.”).   The merger clause cannot be enforced against Smith for the simple reason that he never signed the “Going to Africa” letter.[5]

Even if the merger doctrine or parol evidence rule applied, it would only bar the oral agreement to the extent it is inconsistent with the terms of the “Going to Africa” letter.  See Carr v. Weiss, 984 S.W.2d 753, 764 (Tex. App.–Amarillo 1999, pet. denied) (“a subsequent agreement does not supersede a prior agreement if it is not inconsistent with the prior agreement”).  Defendants argue that the clause of the “Going to Africa” letter that Smith could be terminated without severance upon his death is inconsistent with the oral agreement alleged by Utter.  This is simply false.  First, the clause at issue simply says that NAB “may terminate” Smith’s employment without severance upon his death, not that such termination without severance is mandatory or automatic.  Therefore payment of a 5% equity interest upon Smith’s death is not inherently inconsistent with the “Going to Africa” letter.  Second, the 5% equity interest at issue was never characterized by any of the witnesses as a “severance payment” and thus is not inconsistent with the clause at issue.  RS364 (“Q.  Did you ever — did you ever hear anyone characterize this five percent carried interest of Scott Smith as a severance payment?  A. No.”).   Even Defendants’ own attorney recognized that the two agreements are not inconsistent:

Q.   [By David Stagner] So when you go over here to page 2 of — of

7  the going to Africa — going to Africa letter where you

8  have written that the prior agreement relating to our

9  compensation remains, do you in the event of certain

10  changes of control of NAB which remains in effect.  So

11  the February 28th, 1997, letter was not intended to

12  supersede entirely the one-page agreement, was it?

13      A.   No, it was intended to deal with a different

14  circumstance.

15      Q.   And it did deal with a different circumstance,

16  didn’t it?

17      A.   Yes.  Yes.

18      Q.   The one-pager dealt with, among other things,

19  Scott quitting.

20      A.   Yes.

21      Q.   This February 28th, 1997, letter dealt with

22  Scott dying?

23      A.   Yes.

24      Q.   And it says, if Scott dies, he gets no

25  severance?

1      A.   Yes.

2      Q.   Those two documents are not inconsistent, are

they?

4      A.   No.

TH237-38.  Finally, the Going to Africa letter contains entirely separate consideration from the oral agreement at issue, a three-year non-compete, thus rendering the merger doctrine inapplicable.  Carr, 984 S.W.2d at 764 (“a subsequent agreement does not supersede a prior agreement if it . . . is made for separate consideration”).  For these reasons, the doctrine of merger and the parol evidence rule do not bar Utter’s oral contract claims.

G.       Utter’s oral contract claims are not barred by the doctrines of ratification and acceptance .

 

Utter’s oral contract claims are not barred by the doctrines of ratification and acceptance.  Like other arguments of Defendants discussed above, the entire premise of this argument rests on a misstatement of the evidence.  Specifically, this defense rests on Defendants’ assertion that Scott Smith “continued his employment after Harber announced he would not sign the alleged written agreement to provide Smith with five percent of NAB payable upon death, retirement or disability.”  Motion at p. 92.  But, as discussed above at pages 17-18 and 58-59, Harber was never presented with such a document and there is no evidence Harber ever “announced” he would not sign such a document after the meeting in which he made the promise at issue.  Simply put, there is no evidence that during Scott Smith’s employment, Lacy Harber said or did anything that would have indicated he had decided not to honor the 5% equity agreement.  Under such circumstances, Smith’s continued employment cannot bar Utter’s contract claims.

II.        The Motion should be denied as to Utter’s claims for breach of the written one-page COC Agreement .

 

A.        The COC Agreement is ambiguous and its interpretation therefore presents a fact question for the jury .

Under Texas law, “whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in light of the circumstances present when the contract was entered.”  Friendswood Dev. Co. v. McDade & Co., 926 S.W.2d 280, 282 (Tex. 1996); Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983).  A contract is ambiguous when: (1) “its meaning is uncertain or doubtful” or (2) “it is reasonably susceptible to more than one meaning.”  Coker, 650 S.W.2d at 393; see also Donahue v. Bowles Troy Donahue Johnson, Inc., 949 S.W.2d 746, 753 (Tex. App. – Dallas 1997, writ denied).  Stated another way, if a contract “is subject to two or more reasonable interpretations after applying the pertinent rules of construction, the contract is ambiguous ….”  Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996).  An ambiguity in a contract may be either patent or latent.  A patent ambiguity is one which is evident on the face of the contract, whereas a latent ambiguity “exists when a contract is unambiguous on its face, but fails by reason of some collateral matter when it is applied to the subject with which it deals.”  Donahue, 949 S.W.2d at 753; see also Friendswood, 926 S.W.2d at 282-83.

The uncontroverted evidence in the instant case establishes that the “one-pager” is ambiguous.  In fact, Defendants’ primary evidentiary support for the converse position is based on a blatant misstatement of the record.  Twice in its Motion, Defendants assert that attorney Tom Hurtekant found no ambiguity in the “one-pager:”

“Hurtekant found no ambiguity in the condition contained in the ‘One Pager.’”

“Contrary to the bald assertion of Utter’s counsel in her pleading, Hurtekant opined that the one pager was not ambiguous.”

Motion at pp. 35, 79 (emphasis added).  Both of these statements are patently false.  Hurtekant actually stated, on the very page of his deposition cited by Defendants in their Motion at page 79, as follows:

Q.   Now, didn’t you testify earlier that Exhibit

3  3, the one-page change of control agreement, is

4  actually silent as to what effect Scott Smith’s death

5  would have?

6      A.   Silent, ambiguous, whatever, it’s vague.

TH280.[6] In fact, Mr. Hurtekant repeated the same opinion numerous times in his deposition when asked about the “one-pager:”

24      Q.   (BY MR. PEARSON)  In your opinion, is Exhibit

25  3 vague?

1      A.   I am not sure vague is the right word.

2      Q.   Exceptionally vague?

3      A.   Incomplete.

4      Q.   Ambiguous?

5      A.   Subject to interpretation, had a million

questions, yeah, I mean, this is typically a 12 or —

7  or 14, 15, 16-page agreement that addresses a lot of

8  the things that this lawsuit goes into.

9      Q.   In your opinion, is Exhibit 3 vague and

10  ambiguous?

11                MR. STAGNER:  Objection as to form.

12      A.   It’s ambiguous to me.

 

* * * * *

 

4      Q.   I just want to clear up one or two things.

5  You were asked about the statement that looking at the

6  one-page agreement as literally worded you could work

7  until you retire and not be entitled to a payment, this

8  whole vesting issue.  That’s not the only way that

9  agreement can be read, correct?

10      A.   No, but what I was raising was whether — that

11  the fact that it could be read that way bothered me.

12      Q.   Particularly with respect to how it could be

13  read by some third party?

14      A.   Yes, because I want to write a document that

15  is clear, and it wasn’t clear.

16      Q.   It was vague?

17      A.   Yes.

18      Q.   It was ambiguous?

19      A.   Yes.

 

TH52-53, 290.  Thomas Hurtekant also opined about the ambiguous nature of the “one-pager” in various memoranda he wrote to Scott Smith following the execution of the agreement, including one dated February 5, 1998, in which he stated that “I believe the terms of the agreement contain three provisions that are vague and which may be read inconsistently with the parties’ intentions.”  Appendix at Tab 15 at p. 000281.

In light of the foregoing evidence, it is difficult to understand how Defendants could represent to this Court that Hurtekant “opined that the one pager was not ambiguous.”  Regardless of Hurtekant’s testimony, a review of the language of the COC Agreement reveals that it is subject to multiple interpretations, making it ambiguous as a matter of law.

1.         The term “quit” is ambiguous .

Several of the key terms in the COC Agreement are subject to multiple interpretations and therefore ambiguous.  First, the term “quit” is ambiguous.  The third paragraph of the COC Agreement states that:

IF SCOTT SMITH QUITS HIS EMPLOYMENT WITH NABI BEFORE THE CHANGE OF CONTROL, HE IS NOT ENTITLED TO ANY OF THE PROFIT.

Appendix at Tab 13.  The opinion letter of attorney David Hooper, solicited by the Harbers and sent to Gail Utter after her ill-fated meeting with Lacy Harber following her husbands’ death, opined that “[t]he event of Mr. Smith’s death before a change of control is to be treated the same as the provision of the letter agreement Paragraph 3, which provides no compensation in event Mr. Smith quits his employment before the change of control.”  Appendix at Tab 19.  Thus, Hooper’s opinion is that the term “quit” in the “one-pager” is synonymous with death.

The opinions of the persons actually involved in the discussions that preceded the “one-pager” are in direct opposition to those of Mr. Hooper, a long-time friend of the Harbers who had no involvement whatsoever in the discussions leading to the creation of the agreement.  LH114, 116-18.   Robert Dill, the compensation expert hired by the bank to draft Smith’s employment agreement, testified extensively that, based on his discussions with Harber and Smith regarding the terms of their agreement, it would be inappropriate to equate Smith’s death with “quitting” as used in the “one-pager”:

Q      And looking at — specifically at paragraph six,

8  Mr. Hooper says, the event of Mr. Smith’s death before any

9  change of control is to be treated the same as the provision

10  of the letter — letter agreement, paragraph three, which

11  provides no compensation in event Mr. Smith quits his

12  employment before the change of control.  Mr. Smith’s heirs

13  and/or estate are not entitled to any compensation.  Did I

14  read that accurately?

15       A      Yes.

16       Q      Do you agree or disagree with that statement?

17              MR. STAGNER:  Objection as to form.

18       A      (By the Witness)  I disagree.

19       Q      (By Mr. Pearson)  Do you — specifically, do you

20  agree with Mr. Hooper’s opinion that Mr. Smith’s death before

21  any change of control is to be treated the same as his

22  quitting as set forth in the third paragraph of Exhibit 11?

23              MR. STAGNER:  Objection as to form.

24       A      (By the Witness)  I disagree.

25       Q      (By Mr. Pearson)  Why in your opinion is it

1  inappropriate to equate Mr. Smith’s death with him quitting as

2  set forth in the third paragraph of — of Exhibit 11?

3              MR. STAGNER:  Objection as to form.

4       A      (By the Witness)  It’s my opinion that quitting —

5  I mean dying is not equivalent to quitting.  It — when you

6  quit that’s a voluntary event, death is usually not a

7  voluntary event.

8       Q      (By Mr. Pearson)  Mr. Hooper’s opinion that

9  Mr. Smith’s death before a change of control should be treated

10  the same as quitting in Exhibit 11, is that consistent or

11  inconsistent with the way in which the five percent equity

12  interest agreement was described to you by Mr. Harber and

13  Mr. Smith?

14       A      Inconsistent.

15       Q      And why is that?

16       A      Because the agreement as discussed and as well

17  that — that we documented basically pertained that the only

18  two events that would not trigger a five percent equity

19  interest payment would be quitting; or number two, termination

20  with cause.

21       Q      And Mr. Hooper’s opinion that Mr. Smith’s death

22  before change of control should be treated the same as

23  quitting in paragraph three of Exhibit 11, is that consistent

24  or inconsistent with the way you documented the five percent

25  equity interest agreement in the employment agreement that you

1  drafted?

2       A      Inconsistent.

3       Q      Is there anything that — that Mr. Harber or

4  Mr. Smith said or did during your discussions with them, your

5  interaction with them in attempting to draft an employment

6  agreement that would support Mr. Hooper’s opinion that

7  Mr. Smith’s death before change of control should be treated

8  like quitting in the third paragraph of Exhibit 11?

9       A      No.

 

RD230-32.

Attorney Tom Hurtekant similarly testified that he believed the term “quit” as used in the “one-pager” meant that Scott Smith “left the bank voluntarily for another opportunity.”  TH40.  Randy Staff also testified that, in his discussions, no one ever equated death with quitting.  RS355.  Lacy Harber admitted that the “one-pager” does not state that Smith receives no 5% equity interest if he dies and stated that he never thought about Smith dying.  LH87.   Even Defendants’ own attorney seemed to understand that “quit” and “die” are two separate contingencies:

10    [By David Stagner]   If you look at this Exhibit Number 3, we

11  talked about — it says what it says.  It says, “If

12  Scott B. Smith quits his employment with NABI before

13  the change of control, he is not entitled to any of the

14  profit,” correct?

15      A.   That’s what it says, yes.

16      Q.   Yeah.  So that — and, of course, that talks

17  about change of control within a two-year period,

18  correct?

19      A.   Yes, it does.

20      Q.   And it addresses quitting?

21      A.   Yes.

22      Q.   It doesn’t address death.

23      A.   No, not specifically.

24      Q.   But your February 28th, 1997, letter does

25  address death, doesn’t it?

1      A.   Yes, it does.

2      Q.   It says, “In the event of your death, total

3  disability, you’re not entitled to any severance,”

4  correct?

5      A.   Yes.

6      Q.   So when you go over here to page 2 of — of

7  the going to Africa — going to Africa letter where you

8  have written that the prior agreement relating to our

9  compensation remains, do you in the event of certain

10  changes of control of NAB which remains in effect.  So

11  the February 28th, 1997, letter was not intended to

12  supersede entirely the one-page agreement, was it?

13      A.   No, it was intended to deal with a different

14  circumstance.

15      Q.   And it did deal with a different circumstance,

16  didn’t it?

17      A.   Yes.  Yes.

18      Q.   The one-pager dealt with, among other things,

19  Scott quitting.

20      A.   Yes.

21      Q.   This February 28th, 1997, letter dealt with

22  Scott dying?

23      A.   Yes.

 

TH236-37.

Finally, under Texas law, Court are to “Courts should give each word and phrase in a written agreement its plain, grammatical meaning unless it definitely appears that such meaning would defeat the parties’ intent, as evidenced by the entire agreement. See Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 529 (Tex. 1987); Lyons v. Montgomery, 701 S.W.2d 641, 643 (Tex. 1985).  The common meaning of quit is to voluntarily leave one’s place of employment, not to die.  Based on the foregoing evidence, the term “quit” as used in the “one-pager” is ambiguous and its interpretation therefore presents a fact issue for the jury.

2.         The term “terminated” is ambiguous .

Another key term of the COC Agreement that is ambiguous is the term “terminated.” The fourth paragraph of the COC Agreement stated that:

 

IF SCOTT B. SMITH’S EMPLOYMENT IS TERMINATED BY THE NABI BOARD OF DIRECTORS, OR LACY HARBER, HE IS ENTITLED TO THE 5% PROFIT IF THERE IS A CHANGE OF CONTROL WITHIN TWO YEARS OF SCOTT B. SMITH’S DISMISSAL.

 

Appendix at Tab 13.  Defendants’ Motion argues that the word “terminated” is synonymous with Scott Smith’s death.  Motion at pp. 88-89.  Again, attorney Tom Hurtekant disagrees:

6      Q.   Looking at the words “terminated” and

7  “dismissal,” what is your understanding as to what the

8  parties meant by those terms?

9                MR. STAGNER:  Objection as to form.

10      A.   I think this was meant to avoid a situation

11  where basically you fired someone, Scott in this

12  instance, immediately before a change of control.  It’s

13  basically meant to close a loophole, basically.  If the

14  payment’s due on a change of control and you are not

15  employed at the change of control, then you are not due

16  it.  So obviously one way to get around it is fire him

17  right before.  And this basically was intended to make

18  sure that that didn’t happen.

19      Q.   So you believe the parties understood the

20  words “terminated” and “dismissal” to apply to Scott

21  being fired?

22                MR. STAGNER:  Objection as to form.

23      A.   Yes.

 

TH52.  Other witnesses testified that the entire purpose of the two-year provision was to ensure that a potential buyer of the bank could not order that Smith be terminated prior to its purchase of the bank as a means of avoiding the 5% payment:

15       Q      Sure.  Under this one page agreement.  And if

16  Scott Smith — if there’s a change of control and Scott Smith

17  quits before the change of control, he’s not entitled to the

18  five percent profit.  Correct?

19       A      Correct.

20       Q      On the other hand if Scott Smith is terminated,

21  fired, whatever, within two years of a change of control, he

22  gets his five percent.

23       A      Correct.

24              MR. PEARSON:  Objection.  Form.

25       Q      (By Mr. Stagner)  So that keeps a bank from coming

1  in and making an offer — an outside bidder coming in and

2  saying we want to buy — we want to buy American Bank but

3  before we — we do it, we want you to fire the executive

4  officer.

5       A      Correct.

6       Q      That was for Scott’s protection, correct?

7       A      Correct.

 

RD124-25

Moreover, the fact that word “dismissal” is used interchangeably with “terminated” in the subject paragraph of the “one-pager,” lends support to the notion that “terminated” is meant to mean fired or dismissed rather than Smith’s premature death.  And the fact that the “termination” referred to in the preceding paragraph is specifically defined as a termination “by the NABI Board of Directors or Lacy Harber” leads to an inference that no other type of “termination” was meant to be included.  See, e.g., CKB & Associates, Inc. v. Moore McCormack Petroleum, Inc., 734 S.W.2d 653, 655 (Tex. 1987) (“The maxim expresio unius est exclusion alterius, meaning that the naming of one thing excludes another” was applicable to interpretation of contract for purposes of summary judgment).  Finally, and perhaps most importantly, all of the witnesses, including Lacy Harber, admitted that Scott Smith’s employment was never terminated by the NABI Board of Directors or by Lacy Harber.  LH87-8; RS367; JM57-8.  Based on the foregoing evidence, the word “terminated” as used in the “one-pager” is ambiguous and its interpretation therefore presents a fact issue for the jury.

3.         The term “heirs” is ambiguous .

Finally, the term “heirs” in the COC Agreement is ambiguous.  The first paragraph of the COC Agreement states:

IF LACY AND DOROTHY HARBER SELL THEIR CONTROLLING INTEREST IN NOPRTH AMERICAN BANCHSARES, INC. / OR, IF LACY AND DORORTHY HARBER DIE AND THEIR HEIRS SELL CONTROLLING INTEREST, SCOTT B. SMITH SHALL RECEIVE 5% OF THE PROFIT ON THE SALE.

Appendix at Tab 13.  Defendants argue that the term “heirs” means the descendants of Dorothy and Lacy Harber.  Motion at p. 82.  The uncontroverted summary judgment evidence, however, is that the Harbers intended to leave the bank to Scottish Rite, not to any of their descendants. LH32; DH25-26.  Under these circumstances, the word “heirs” could reasonably be interpreted to mean Scottish Rite:

24       Q      (By Mr. Pearson)  Now if you look at Exhibit 11,

25  the first paragraph says “If Lacy and Dorothy Harber sell

1  their controlling interest in North American Bancshares, Inc.

2  or if Lacy and Dorothy Harber die and their heirs sell

3  controlling interest, Scott B. Smith shall receive five

4  percent of the profit on the sale.”   Did I read that

5  correctly?

6       A      Correct.

7       Q      Now this use of the word “heirs” that could —

8  that could be intended to mean Scottish Rite, couldn’t it?

9              MR. STAGNER:  Objection as to form.

10       Q      (By Mr. Pearson)  If they have a will or a legal

11  document that leaves their estate to Scottish Rite, wouldn’t

12  Scottish Rite be considered to be there heir?

13              MR. STAGNER:  Objection as to form.

14       A      (By the Witness)  Correct.

15       Q      (By Mr. Pearson)  And in March of 1995 everybody

16  understood that Lacy Harber’s plan was to leave his estate to

17  Scottish Rite Hospital.

18       A      Correct.

19       Q      You understood it.  Yes?

20       A      Yes.

21       Q      Scott Smith understood it.

22       A      Yes.

23       Q      Mr. Harber said it time and time again.

24       A      Yes.

 

RD212-13.  Based on the foregoing evidence, the term “heirs” as used in the “one-pager” is ambiguous and its interpretation therefore presents a fact issue for the jury.

4.         Because the COC Agreement is ambiguous, summary judgment is improper as a matter of law .

 

When a contract such as the COC Agreement contains an ambiguity, “the granting of a motion for summary judgment is improper because the interpretation of the instrument becomes a fact issue.”  Coker, 650 S.W.2d at 394.  In other words, “if the contract is subject to two or more reasonable interpretations after applying the pertinent rules of construction, the contract is ambiguous, which creates a fact issue on the parties’ intent.” Columbia Gas, 940 S.W.2d at 589; see also Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 131 (Tex.App.-Houston [14th Dist.] 2000, pet. dism’d) (“An ambiguous contract raises a question of fact which cannot be disposed of on summary judgment.”).

B.      Utter’s claim for anticipatory breach of the COC Agreement does not seek to add terms to the COC Agreement as Defendants suggest .

 

Defendants seem to argue that Utter’s claim under the COC Agreement require the jury to add provisions relating to the effect Scott Smith’s death had on the agreement.  This is simply not true.  The operative paragraph of the agreement simply states that if the Harbers or their heirs sell their NABI stock, Smith is entitled to 5% of the profit:

IF LACY AND DOROTHY HARBER SELL THEIR CONTROLLING INTEREST IN NOPRTH AMERICAN BANCHSARES, INC. / OR, IF LACY AND DORORTHY HARBER DIE AND THEIR HEIRS SELL CONTROLLING INTEREST, SCOTT B. SMITH SHALL RECEIVE 5% OF THE PROFIT ON THE SALE.

Appendix at Tab 13.  Nothing in this paragraph can be read to require that Smith survive such a sale, and any argument to the contrary would itself require the jury to add terms to the agreement.

C.        The COC Agreement does not violate the rule against perpetuities.

 

“The rule against perpetuities renders invalid any will which attempts to create any estate or future interest which by any possibility may not become vested within a life or lives in being at the time of the testator’s death and twenty-one years thereafter, and when necessary the period of gestation.”  Foshee v. Republic National Bank of Dallas, 617 S.W.2d 675, 677 (Tex. 1981).  The purpose of the rule is “to prevent the taking of the subject matter of the perpetuity out of commerce or trade for the prohibited period.”  Kettler v. Atkinson, 383 S.W.2d 557, 560 (Tex. 1964); see also Henderson v. Moore, 190 S.W.2d 800, 801 (Tex. 1945) (same).  Under Texas law, “a construction which will render a contract or testamentary disposition enforceable rather than invalid is to be preferred even though the rule against perpetuities is involved.”  Mattern v. Herzog, 367 S.W.2d 312, 315 (Tex. 1963).

1.      It is not entirely clear that the rule against perpetuities applies to purely commercial, non-donative transactions .

It is not entirely clear that the rule against perpetuities applies to purely commercial, non-donative transactions such as that involved in this case.  As the Dallas Court of Appeals has stated, “[a]lthough courts generally have tested the legality of options by the rule against perpetuities, commercial transactions might be better analyzed under the restraint on alienation doctrine.”  Procter v. Foxmeyer Drug Co., 884 S.W.2d 853, 857 n.2 (Tex. App.—Dallas 1994, no writ).  The Texas Supreme Court has similarly noted that “[i]t has been suggested that the rule against perpetuities is ill adapted to fixing a limitation of reasonableness for options insofar as commercial transactions are concerned.”  Mattern, 367 S.W.2d at 315.  Finally, each of the Texas cases cited by Defendants involved the validity of a will; none involved a purely commercial, non-donative transaction such as that reflected by the “one-pager.”

2.      The rule against perpetuities does not apply because Scott Smith’s 5% equity interest vested at the time the “one-pager” was signed .

 

The rule against perpetuities provides that an interest is invalid unless it must vest within twenty-one years of after the death of some life or lives in being at the time of conveyance.  Foshee, 617 S.W.2d at 677.  The rule “is not applicable to present interests or future interests that vest at their creation. The word ‘vest’ refers to an immediate, fixed right of present or future enjoyment of the estate or interest; the estate or interest may vest in interest before it vests in possession.”  Meduna v. Holder, No. 03-02-00781-CV, 2003 WL 22964270 at *6 (Tex. App.—Austin Dec. 18, 2003, no pet.).  So long as the interest has vested, “’it is immaterial that full possession and enjoyment of the property is postponed beyond the period of a life or lives in being and twenty-one years thereafter with the ordinary period of gestation added.”  Rekdahl v. Long, 417 S.W.2d 387 (Tex.1967); Kelly v. Womack, 268 S.W.2d 903, 905 (Tex. 1954) (the rule “has no application to present interest, legal or equitable, in realty or personalty”).

“Texas law favors a construction that allows vesting at the earliest possible time, and Texas courts will not construe a remainder as contingent when it can reasonably be taken as vested.”  McGill v. Johnson, 799 S.W.2d 673, 675 (Tex.1990).  As the Austin Court of Appeals recently stated:

If the instrument of conveyance is capable of two constructions, one of which will give effect to the whole of the instrument, while the other would defeat it in whole or in part, courts favor the construction that saves the validity of the instrument rather than one that renders it void. Courts may refer to the intention of the grantor, and if a doubt exists as to that intention, the interest or estate will be held to be vested if reasonably within the language of the instrument.

Meduna, 2003 WL 22964270 at *6; see also Reed v. Reed, 569 S.W.2d 645, 647 (Tex. Civ. App.—Dallas 1978, writ ref’d n.r.e.) (“The rule in Texas is that, in the event of repugnancy, that construction which permits immediate vesting of the entire estate is favored and where this is in doubt, the doubt will be resolved in favor of the vesting of title at the earliest possible time. Such a construction avoids a violation of the rule against perpetuities and thus upholds the will.”).   For purposes of the rule, the word ‘vest’ means “to give an immediate, fixed right of present or future enjoyment and may be described as an interest clothed with a present, existing, and legal right of alienation.”  Maupin v. Dunn, 678 S.W.2d 180 (Tex.App.–Waco 1984, no writ).

Although Defendants note that the rule against perpetuities applies if “by any possible contingency” the interest might not come into being within twenty-one years of some life then in being, Motion at p. 81, “the rule against perpetuities is a rule of property and not one of construction; and where the instrument is capable to two constructions, ‘one of which would give effect to the whole and the other result in defeating (it),  in whole or in part, preference will be accorded to the construction which will uphold.”  Rust v. Rust, 211 S.W.2d 262, 269 (Tex. Civ.App.—Austin 1948), aff’d, 214 S.W.2d 462 (Tex. 1948).  As the Texas Supreme Court stated more than fifty years ago:

It is one thing to say that if the instrument creates any possible contingency which would violate the rule against perpetuities, the instrument cannot stand and must be held void. It is quite another thing to say that if by any possible construction the instrument creates some possible contingency in violation of the rule the instrument must be held void.

Kelly v. Womack, 268 S.W.2d 903, 906 (Tex. 1954).

In Luecke v. Wallace, 951 S.W.2d 267 (Tex. App.—Austin 1997, no writ), the court applied the foregoing rules to hold that an interested vested, and was therefore not subject to the rule, even though possession or use of the interest would not come into being for some indeterminable amount of time.  In that case, Carolyn Wallace signed a property settlement agreement with her ex-husband conveying her interest in a 303 acre tract of land to him but reserving an undivided one-half interest in any bonus money exceeding $50.00 per acre received by her ex-husband, his heirs or assigns from oil and gas deposits on the property.  Her ex-husband then conveyed his interest in the 303 acres to Jimmie Luecke.  When Luecke subsequently structured an oil and gas lease in a way intended to avoid the payment to Wallace, she sued and was granted summary judgment in her favor.  On appeal, Luecke argued that Wallace’s reserved interest under her property settlement agreement violated the rule against perpetuities because it was unclear as to when her royalty interest vested.  The court noted the distinction between the vesting of an interest and the actual possession or receipt of the interest, concluding that “so long as Wallace’s royalty interest was a present interest or a future interest vested upon execution of a 1984 deed, it does not violate the rule against perpetuities.”  Id. at 274.  Like Scott Smith’s five percent equity interest, the court noted that “a royalty interest is an interest in a share of the future product or profit” of an oil and gas lease.  Id.  Thus, the court noted, “neither oil or gas production or the existence of an oil and gas lease are necessary for a royalty interest to be a vested, present interest,” but rather, “all that is necessary is for the royalty-interest owner to have a present right to a share of future production.”  Id.  (Emphasis original).  Examining the language of the property settlement agreement, the court concluded that Wallace had a vested interest and a right to receive future proceeds and concluded that the word “future” in the language of the agreement “merely defines the amount of interest Wallace owns and reflects that Wallace cannot receive her share of royalties” until a lease is executed and oil or gas is produced from the tract.  Id.  (Emphasis original).

In the instant case, the “one-pager” can reasonably be interpreted to provide for immediate vesting of Smith’s 5% equity interest.  First and foremost, there is no vesting schedule in the agreement, leading to a presumption of immediate vesting.  Appendix at Tab 23 at p. 1.  (draft employment agreement “does not address vesting of your rights to the 5% payment and so presumes it is 100% vested”); RD225 (“If you don’t have a vesting schedule, you’re 100% vested.”).  Second, all of the witnesses who have been deposed have opined that the COC Agreement provided for immediate vesting.  RS322 (“he had the five percent carried interest from day one was my understanding.”); RD224 (“basically Scott had earned it”).  Finally, under well-established legal principles, such a construction is favored as a matter of law.  See, e.g., McGill, 799 S.W.2d at 675 (“Texas law favors a construction that allows vesting at the earliest possible time, and Texas courts will not construe a remainder as contingent when it can reasonably be taken as vested.”).  Because Smith’s interest under the COC Agreement can reasonably be interpreted to have vested upon the signing of the agreement, the fact that possession and enjoyment of the interest could be deferred for some time is immaterial, and the rule against perpetuities does not apply.  See, e.g., Rekdahl v. Long, 417 S.W.2d 387 (Tex.1967).

3.       The rule against perpetuities does not apply because Scott Smith’s 5% equity interest was not an interest in property, but merely an interest in the proceeds of property .

 

The rule also does not apply because it is applicable only to property itself and not to profits or proceeds from property.  “The rule against perpetuities deals with the vesting of title to an estate, not with the receiving of its profits.”  Atkinson v. Kettler, 372 S.W.2d 704, 711 (Tex. Civ. App.—Dallas 1963), aff’d, 383 S.W.2d 557 (Tex. 1964); Anderson v. Menefee, 174 S.W. 904, 908 (Tex. Civ. App.—Fort Worth 1915, writ ref’d) (“the rule deals with the vesting of the title, and not with the actual receiving of the profits of the estate.”).   This is true because the rule against perpetuities “is a public policy doctrine designed to insure that real property remains a comparatively free article of commerce.”  River Oaks Garden Club v. City of Houston, 371 S.W.2d 851, 859 (Tex. 1963).  For this reason, the rule applies only to a grant or interest which “operates to take the property out of commerce and restrict its alienation.”  Garza v. Sun Oil Co., 727 S.W.2d 115, 166 (Tex. App.—San Antonio 1987, no writ).

In the instant case, the rule is inapplicable because the COC Agreement did not give Smith any interest in the bank or its shares.  Rather, it merely gave him a future right to receive the proceeds of the sale of NABI:

18       Q      And under the five percent equity interest

19  agreement as it was described to you by Mr. Harber and

20  Mr. Smith, Mr. Smith wasn’t given five percent stock of the

21  bank.

22       A      That’s correct.

23       Q      He had an equity interest in the profit

24  represented by the sale of the five percent of the bank.

25       A      Correct.

RD223; RD223 (“the five percent equity interest is a phantom or a cash-type payment not a five percent stock where I’m going to give you stock.”).  Thus, the interest granted Smith by the COC Agreement does not take NABI or its stock out of commerce; in fact, payment of the interest under the COC Agreement is predicated on a sale of NABI or its stock.  Under such circumstances, as a matter of law, the “one-pager” does not violate the rule against perpetuities.

4.         Even if the rule against perpetuities applied, it is not violated by the terms of the “one-pager” under the facts of this case .

 

As stated above, under the rule against perpetuities, an interest is not valid unless it vests within twenty-one years of a life then in existence.  Defendants argue that the “one-pager” violates the rule because it could be generations before the Harbers’ children, grandchildren or great-grandchildren sell the bank after the death of Dorothy and Lacy Harber:

Obviously, the “heirs” of Lacy and Dorothy Harber could be their children, grandchildren, great-grandchildren, great-great-grandchildren, and so forth and so on.  There was no certainty that this possible sale or disposition would take occur within “lives in being plus twenty-one years.”

Motion at p. 82.  This argument, however, ignores the fundamental and uncontested fact that the Harbers wills do not leave the bank to their natural descendants, but to Scottish Rite Children’s Hospital:

8  Q.   Is it still your — and your wife’s plan to

9  leave the bank to charity?

10  A.   We’re going to leave them to Scottish Rite

11  Hospital for Crippled Children.  It’s in our estate

12  plan.  I’ve never sold anything.  You know, you pointed

13  out the marina I had in 1966.  I still own it.

14  Q.   When you say that’s in your estate plan, is

15  that something that you’ve done recently to document

16  your —

17  A.   No, it’s been in there for several years.

18  Q.   Before Scott died or after?

19  A.   Yes, sir, before.  And that’s — Scott knew it

20  was in the estate plan.

 

* * * * *

 

22  Q.   You and your husband plan to leave North

23  American Bancshares to Scottish Rite Hospital; is that

24  correct?

25  A.   That’s always been our plan.

1  Q.   And all of your — all of your shares in North

2  American Bancshares, Inc., correct?

3  A.   That’s what I understand.

4  Q.   And to your knowledge, Scott Smith knew that.

5  A.   I think everybody who knows Lacy and I or knew

6  us back then know — know or knew that is our plan.

LH32; DH25-26; see also Appendix at Tab 24 at p. 4372; Appendix at Tab 25 at p. 4083.            And the testimony of several witnesses establishes that Scottish Rite cannot run the bank and will have to sell it after some short period of time.  As Lacy Harber testified:

25  Q.   What is your understanding as to what will

1  happen when you leave that bank to Scottish Rite?

2  Will — will Scottish Rite run the bank?  Will it sell

3  the bank?  Do you have any understanding of that?

4  A.   I’ve checked into that.  Scottish Rite has

5  lots of businesses they own and they operate.  They’ve

6  got a board.  And I’ve come up with different thoughts

7  on that from legal counsel.  Some people say they can

8  own the bank and operate it for five years before it

9  has to be sold.  Other people said it could be maybe

10  one year to two years.  But that’s — that’s all up to

11  the FDIC, I believe.

LH32-33.  A document prepared by Lacy Harber seems to contemplate that Scottish Rite would sell the bank: “Let the Hospital sell some of the assets for cash.  The banks will be easy to sell for cash.”  Appendix at Tab 26 at p. 4410.  John Massey, a friend of Lacy Harber’s and a well-respected and successful banker in Southern Oklahoma, testified:

20  Q.   Was the — the main thrust that — of that

21  conversation is that since Lacy owned the vast majority

22  of —

23  A.   99.56, I think, is the number.

24  Q.   Right — that someone would come in and take

25  over the bank and Scott wouldn’t have a job?

1  A.   Well, the — the problem is that he had

2  everything going to the cripple children’s hospital in

3  Fort Worth, and they can’t own a bank.  And, you know,

4  Scott didn’t know where he’d be and what — what position

5  he’d be in, you know.  The banks would have to be sold

6  within a certain period of time and I don’t know what

7  that law is in Texas, you know.

 

* * * * *

 

20  Q.   Right.  Now, you mentioned that that hospital

21  can’t own a bank.  Correct?

22  A.   That’s correct.

23  Q.   And why is that?

24  A.   It’s the law.

25  Q.   So, if Lacy Harber were to die, he couldn’t

1  transfer title of the bank to the — directly to the

2  hospital, could he?

3  A.   You know, I don’t know.  That’s — that would

4  be — your lawyers to work that out with the State Bank

5  Department.  What we’d always assumed that if something

6  did happen to Lacy, that we would put either a group

7  together or my holding company and maybe some other

8  holding company in Texas would — would come in and buy

9  the bank at appraised value and then pay for it.

10  Q.   And then the money would go to Scottish Rite —

11  A.   That’s right.

12  Q.   — rather than the bank, itself, going to

13  hospital.

14  A.   That’s correct.

15  Q.   Hospitals don’t know how to run banks, I would

16  imagine.

17  A.   No.  And I don’t think FDIC would — would

18  insure a — a nonprofit corporation to own a bank.

JM29-30, 62-63.

Attorney Tom Hurtekant, who was looking at estate planning issues for the Harbers, similarly testified that the transfer of NABI stock to Scottish Rite would lead to a change of control of the bank:

19      Q.   And turning to the second page of your memo,

20  you say in the second to last paragraph, second

21  sentence, “I understand that the way they plan to

22  implement their objectives now is to bequest the NAB

23  stock outright to TSRH on the death of the last of them

24  to die,” correct?

25      A.   Correct.

1      Q.   And the next paragraph you say, “While this

2  planned bequest will, of course, implement their

3  expressed charitable intention to benefit TSRH, it

4  almost assures that their other intentions of promoting

5  continued economic interests of TSRH in NAB and

6  preserving NAB as an independent community bank will

7  not be realized.  In fact, it will almost assure a

8  change of control of NAB for two reasons.”  Did I read

9  that correctly?

10      A.   You did.

11      Q.   So your understanding would be the way that

12  they planned to implement their objective would upon

13  their death lead to a change of control of the bank?

14      A.   No.  I am talking about their — well, yes,

15  that if they left NAB to Scottish Rite on their death,

16  that I was concerned that while it achieved one

17  objective that they had expressed, that it would not

18  achieve two other ones, one of which was a continued

19  local management of the bank.

20      Q.   And you — your understanding was that if they

21  left — if they didn’t do something to structure it

22  differently, that Scottish Rite would certainly sell —

23      A.   Almost.

24      Q.   — the bank?

25      A.   Undoubtedly.

TH92-94.  The foregoing evidence clearly establishes that there would be a change of control of the bank within a few years of the Harbers’ deaths under their existing wills and estate plans.  Under these facts, the “one-pager” does not violate the rule against perpetuities because the interest at issue would vest (if not already vested) by no later than a few years after the Harbers’ deaths, certainly well before twenty-one years after their deaths.

D.        The obligations in the COC Agreement have not been discharged because of the failure of a condition precedent .

 

1.         Defendants’ anticipatory repudiation of the COC Agreement allowed Utter to immediately sue for damages rather than await the time for performance .

 

Repudiation may be proven by words or actions by a contracting party that indicate he is not going to perform his contract in the future. Chavez v. Chavez, 577 S.W.2d 306, 307 (Tex.Civ.App.–El Paso 1979, writ ref’d n.r.e.). It is conduct that shows a fixed intention to abandon, renounce, and refuse to perform the contract. Hubble v. Lone Star Contracting Corp., 883 S.W.2d 379, 382 (Tex.App.–Fort Worth 1994, writ denied).  As set forth below, the evidence demonstrates a clear anticipatory repudation of the COC Agreement by Defendants.   As detailed in the facts section above, following the meeting between Gail Utter and Lacy Harber in March 2002, Lacy Harber asked his friend David Hooper to write an opinion letter regarding the “one-pager.”  Hooper’s letter was then sent by Lacy Harber to Gail Utter.  That letter unequivocally states that Scott Smith’s death terminated his rights under the “one-pager” and that no money was then due to Smith’s or would ever become due, even if there were a change of control.  Specifically, the letter stated:

The event of Mr. Smith’s death before a change of control is to be treated the same as the provision of the letter agreement Paragraph 3, which provides no compensation in event Mr. Smith quits his employment before the change of control.  Mr. Smith’s heirs and/or estate are not entitled to any compensation.

Compensation under the letter agreement is conditioned upon a sale of your shares to a third party and a change of control of the Bank.  To be entitled to compensation, Mr. Smith would have to survive such a sale.  There is no compensation to Mr. Smith’s heirs or estate provided for in the letter agreement.

Appendix at Tab 19 at pars. 6, 7.  Witnesses have confirmed that the letter’s conclusion was that no money would ever be due Smith’s estate, even if the bank sold:

6  Q.   You have — you understand that Mr. Hooper’s

7  position in this letter is that after — as a result of

8  Scott’s death neither you nor the bank owe Scott or his

9  family anything.  Do you understand that?

10  A.   Yes, I do.

11  Q.   And do agree with that position?

12  A.   Yes, I do.  I think I paid Scott well while he

13  worked for me, and there’s nothing that makes me think

14  I should pay anybody anything now that he died.

 

* * * * *

 

11      Q.   And maybe my question — based on — and I am

12  trying to keep away from the conversations you had with

13  Lacy after Scott’s death, but based upon the letter

14  that Mr. Hooper wrote that you’ve seen a copy of, —

15      A.   Uh-huh.

16      Q.   — isn’t the position articulated in that

17  letter that the five percent agreement does not survive

18  Scott’s death?

19      A.   Yes.

20      Q.   So that regardless of timing, that Scott’s

21  estate is not due any money now or in the future?

22      A.   I think Scott — if your question is, would

23  Scott have expressed amazement that that was Lacy’s

24  position, yes.  That’s — that’s — yes.

25      Q.   Are you amazed?

1                MR. STAGNER:  We are going to object as

2  to form.

3      A.   I am amazed only because it is inconsistent

4  with what I would have expected, inconsistent with

5  standard practice, and not consistent with Lacy’s

6  intention of generally incentivizing someone.

LH120; TH90-91.  This was clearly an anticipatory repudiation of the COC Agreement, as it was an indication that Defendants would not pay Smith or his estate a 5% equity interest when the Harbers or their heirs sold their NABI stock.

The effect of an anticipatory repudiation “is to give the nonrepudiating party the option of treating the repudiation as a breach or ignoring the repudiation and awaiting the agreed upon time of performance.”  Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 211 (Tex. 1997).  As the Texas Supreme Court has stated, “[w]e have long recognized the rule of anticipatory breach: the repudiation of a contract before the time of performance has arrived amounts to a tender of breach of the entire contract and allows the injured party to immediately pursue an action for damages.”  Murray v. Crest Constr., Inc., 900 S.W.2d 342, 344 (Tex. 1995) (emphasis added); see also Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 211 (Tex. 1999) (“the effect of such an anticipatory repudiation is to give the nonrepudiating party the option of treating the repudiation as a breach or ignoring the repudiation and awaiting the agreed upon time of performance.”).  As the Dallas Court of Appeals has explained:

Generally, there can be no breach of a contract before time for performance arrives.  However, if a party expressly renounces the contract and declares his intention not to perform it before the time for performance arrives, the other party may treat the renunciation as a breach and immediately bring an action for damages.

Harlan v. Tate, No. No. 05-95-01346-CV, 1996 WL 743772 at * 4 (Tex. App.–Dallas, Dec 30, 1996, no writ) (not designated for publication); Thomas v. Thomas, 902 S.W.2d 621, 624 (Tex. App.—Austin 1995, writ denied) (“Under Texas law, when one party repudiates a contract, the nonrepudiating party has the right to accept the repudiation and bring a cause of action for damages immediately, or to keep the contract alive and sue for damages as they accrue.”).

2.      Defendants’ condition precedent argument is based on their interpretation of an ambiguous term of the COC Agreement that presents an issue of fact for the jury .

 

Defendants counter that their anticipatory repudiation of their agreement with Scott Smith does not excuse the failure of a condition precedent, that is, a change of control of the bank.  Motion at pp. 83-89.  But their entire argument is based on their interpretation of a term in the COC Agreement that is ambiguous and therefore presents a question of fact for the jury.  Specifically, they argue in the Motion that the condition precedent which has failed is “a change of control of NABI within two years of Smith’s death.”  Motion at p. 83.  But the actual language of the COC Agreement is as follows:

IF SCOTT B. SMITH’S EMPLOYMENT IS TERMINATED BY THE NABI BOARD OF DIRECTORS, OR LACY HARBER, HE IS ENTITLED TO THE 5% PROFIT IF THERE IS A CHANGE OF CONTROL WITHIN TWO YEARS OF SCOTT B. SMITH’S DISMISSAL.

Appendix at Tab 13 (emphasis added).  Rather than use this precise language in their Motion, Defendants adopt a convenient shorthand based on their own interpretation of the language:

“The condition that a change of control of NAB occurred within two years of Smith’s death did not occur.”

“Anticipatory repudiation does not excuse the condition precedent of a change of control within two years of Smith’s death.”

“The stated condition that a change of control occur within two years of Smith no longer being employed by NAB did not occur.”

“The conditional obligation – to pay five percent of the profits if a sale or change of control occurred within two years of Smith ceasing to be employed by the bank did not occur.”

Motion at pp. 83, 85, 88 (emphasis added).  Defendants’ condition precedent argument is thus based on their interpretation of the phrase “Scott B. Smith’s employment is terminated by the NABI Board of Directors or Lacy Harber” as including Scott Smith’s death.[7] But, as set forth in Section II.A.2 above, all of the disinterested witnesses have testified that “terminated” was not meant to encompass Smith’s death.  TH52; RD233-34.  At a minimum, this term is subject to multiple interpretations and is therefore ambiguous.  Because Defendants’ condition precedent argument is premised on their interpretation of an ambiguous term that presents a fact question for the jury, it must be rejected.  See, e.g., Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 131 (Tex.App.-Houston [14th Dist.] 2000, pet. dism’d) (“An ambiguous contract raises a question of fact which cannot be disposed of on summary judgment.”).

3.      An anticipatory breach excuses the non-occurrence of conditions

precedent .

 

Even if Defendants’ argument were not premised on its interpretation of an ambiguous contractual term, it would still be an inappropriate basis for summary judgment.   Where, as here, a party has anticipatorily breached a contract, conditions precedent to performance are thereby excused.  See, e.g., Carroll v. Wied, 572 S.W.2d 93, 97 (Tex. Civ. App.—Corpus Christi 1978, no writ) (“The appellants’ repudiation of the contract, constituted an anticipatory breach of the implied condition of the contract providing for a reasonable time to obtain financing.  Thus, appellees did not need to complete the condition precedent in order to sue for specific performance.”); Mar-Len of Louisiana, Inc. v. Gorman-Rupp Co., 795 S.W.2d 880, 888 (Tex.App.—Beaumont 1990, writ denied) (“Once Mar-Len repudiated the contract, Gorman-Rupp was relieved from any obligation to proceed further.  Mar-Len may no longer assert its procedural rights under the contract.”).

4.      The Kiewit case does not support Defendants’ argument .

The one case relied on by Defendants, Kiewit Texas Mining Co. v. Inglish, 865 S.W.2d 240 (Tex. App.—Waco 1993, writ denied), does not support their argument.  In that case, the plaintiffs sought to recover twenty-five years worth of royalties from a lignite lease and a bonus payable on the twenty-fifth anniversary of the lease despite the fact that the breach occurred in 1989, only twelve years into its term.  The court held that the plaintiffs could recover royalties for 1990 since the evidence established the lease would have been in place in 1990, but could not recover royalties for future years or the twenty-fifth year bonus because the evidence showed that the contract would not have been in force beyond 1990 even if the defendant had not breached it.  The court thus concluded that where the evidence conclusively established that future conditions precedent would not have occurred even had there been no anticipatory breach, the failure of those conditions was not excused:

Non-occurrence is not excused, however, “if the condition would not have occurred in any event.”

In fact, the evidence conclusively establishes that had the breach not occurred in 1989 the lease would not have been in force on June 28, 1991.

As for years after 1990, however, non-occurrences of the condition are not excused because the evidence conclusively establishes that the condition would not have occurred even if the lease had not been breached

Occurrence of that condition is likewise not excused because the evidence conclusively establishes that the condition would not have occurred in any event.

Id. at 245 -247.  The court also held, however, that when one could “reasonably conclude” by “drawing inferences from the evidence as a whole” that the lease would have been in force in 1990, damages for lease payments due in 1990 were recoverable.  Id. at 246.

In the instant case, Defendants have not “conclusively established” that the condition precedent at issue, the sale of the bank, will not occur.  In fact, as set forth above, Utter has demonstrated that, “drawing inferences from the evidence as a whole,” the condition precedent will occur for the simple reason that the Utter’s have left NABI to Scottish Rite, which will be legally required to sell the bank.  LH32; DH25-26; Appendix at Tab 24 at p. 4372; Appendix at Tab 25 at p. 4083; LH32-33; Appendix at Tab 26 at p. 4410; JM29-30, 62-63; TH92-94. Thus, like the plaintiff in Kiewit, Utter is entitled to submit to the jury damages based on the eventual occurrence of that condition precedent.

In the final analysis, the Kiewit case did not address a plaintiff’s entitlement to bring a claim for anticipatory repudiation.  Nor did it involve summary judgment.  Rather, it was simply a case involving the appropriate measure of damages.  Id. at 241 (“We must decide the proper measure of damages for the anticipatory breach of the lease.”).  There, the court held that “the proper measure of damages for anticipatory repudiation of the lease is the present value of all future payments due to be paid under the lease–i.e., those damages that would have been recoverable if the defendants had waited until the time of performance before breaching the agreement.’”  Id. at 243.  Because the evidence conclusively established that the lignite lease would not have continued beyond 1990 even if there had been no breach, the court ruled that there was “no evidence to support the award of annual royalties after 1990 or the twenty-fifth-year bonus.”  In the instant case, unlike the plaintiffs in Kiewit, Utter is not seeking damages for some lengthy period of time that might or might not come to fruition.  Rather, her expert has calculated her damages based on the value of the bank as of the time of the anticipatory breach in early 2002; she is not seeking damages based on the value of the bank as it has increased since the time of the breach.  For the foregoing reasons, Defendants’ Motion should be denied as to Utter’s claim for anticipatory breach of the COC Agreement.

 

E.        The claim for anticipatory breach of the COC Agreement is not barred by the doctrines of ratification and acceptance .

 

As set forth in Section I.F above, claims for breach of the COC Agreement are not barred by the doctrines of ratification and acceptance.  Utter reiterates and incorporates herein by reference the argument and authorities in Section I.F above.

III.      The Motion should be denied as to Utter’s claims for fraudulent inducement and

breach of fiduciary duty .

 

A.        Utter’s claims for fraudulent inducement and breach of fiduciary duty are not barred by Texas case law addressing “con-torts” or by the economic loss rule .

 

Defendants assert that Utter’s fraudulent inducement and breach of fiduciary duty claims are barred because they seek to recover tort damages for what is, in essence, a contract claim.  Defendants are simply wrong.  Texas law is well-established that “[t]he contractual relationship of the parties may create duties under both contract and tort law.”  Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986)  It is equally well-established that “[t]he acts of a party may breach duties in tort or contract alone or simultaneously in both.”  Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex. 1991).

Applying the foregoing principles, the Texas Supreme Court in Formosa Plastics Corp v. Presidio Engineers and Contractors, Inc., 960 S.W.2d 41 (Tex. 1998) clearly rejected the notion that a cause of action cannot sound in tort if the only damages are those which are the subject of a contract.  Among the pronouncements made by the court were the following:

“We too reject the application of DeLanney to preclude tort damages in fraud cases. Texas law has long imposed a duty to abstain from inducing another to enter into a contract through the use of fraudulent misrepresentations.”

“Moreover, it is well established that the legal duty not to fraudulently procure a contract is separate and independent from the duties established by the contract itself.”

“This Court has also repeatedly recognized that a fraud claim can be based on a promise made with no intention of performing, irrespective of whether the promise is later subsumed within a contract.”

“Our prior decisions also clearly establish that tort damages are not precluded simply because a fraudulent representation causes only an economic loss.”

“Almost 150 years ago, this Court held in Graham v. Roder, 5 Tex. 141, 149 (1849), that tort damages were recoverable based on the plaintiff’s claim that he was fraudulently induced to exchange a promissory note for a tract of land. Although the damages sustained by the plaintiff were purely economic, we held that tort damages, including exemplary damages, were recoverable. Since Graham, this Court has continued to recognize the propriety of fraud claims sounding in tort despite the fact that the aggrieved party’s losses were only economic losses.”

“Accordingly, tort damages are recoverable for a fraudulent inducement claim irrespective of whether the fraudulent representations are later subsumed in a contract or whether the plaintiff only suffers an economic loss related to the subject matter of the contract.”

“Allowing the recovery of fraud damages sounding in tort only when a plaintiff suffers an injury that is distinct from the economic losses recoverable under a breach of contract claim is inconsistent with this well-established law, and also ignores the fact that an independent legal duty, separate from the existence of the contract itself, precludes the use of fraud to induce a binding agreement.”

Id. at 46-47; see also Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 597 (Tex.1992) (“when one party enters into a contract with no intention of performing, that misrepresentation may give rise to an action in fraud.”); Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986) (“a promise to do an act in the future is actionable fraud when made with the intention, design and purpose of deceiving, and with no intention of performing the act.”).

Defendants cite the cases of Haase v. Glazner, 62 S.W.3d 795 (Tex. 2001) and 1001 McKinney Ltd. v. Credit Suisse First Boston Mortgage Capital, No. 14-04-00844-CV, 2005 WL 3116463 (Tex. App.—Houston [14th Dist.] Nov. 23, 2005, no pet. h.) for the proposition that Utter’s tort claims are barred because they seek damages arising from a breach of contract.  Neither case, however, so held and neither case overruled the clear pronouncements in Formosa set out above; in fact, in Haase, the court affirmed and reiterated its holding in Formosa, noting that “[i]n Formosa Plastics, we concluded that Presidio could bring a fraudulent inducement claim even though its damages consisted only of economic losses related to the performance and subject matter of the parties’ contract.”  Haase, 62 S.W.3d at 798.  The court noted, however, that it had not considered in Formosa a situation in which the contract at issue is unenforceable because of the statute of frauds:

Moreover, nothing in Formosa Plastics prevents the Statute of Frauds from precluding a fraud claim that seeks to recover the benefit of an unenforceable bargain. The Statute simply was not an issue in that case–neither party argued that the Statute of Frauds had anything to do with enforcing the parties’ contract. As a result, in Formosa Plastics we had no occasion to consider the Statute of Frauds’ effect on a fraud claim premised on an unenforceable contract.

Haase, 62 S.W.3d at 799.  Turning to the issue, the court held that “the Statute of Frauds bars a fraud claim to the extent the plaintiff seeks to recover as damages the benefit of a bargain that cannot otherwise be enforced because it fails to comply with the Statute of Frauds.”  Id.; see also 1001 McKinney, 2005 WL 3116463 at *5-6 (tort claims arising from alleged oral agreement were barred where the agreement itself was barred by the statute of frauds).

Defendants have not asserted that the COC Agreement is barred by the statute of frauds.  Moreover, as set forth in Section I.C above, the oral agreement at issue is not barred by the statute of frauds.  Thus, the fact that Utter’s fraud damages allegedly flow from the breach of these contracts cannot, under Haase, be grounds for dismissal of her fraud claims.  Formosa, 960 S.W.2d at 47 (“tort damages are recoverable for a fraudulent inducement claim irrespective of whether the fraudulent representations are later subsumed in a contract or whether the plaintiff only suffers an economic loss related to the subject matter of the contract.”).

B.        Utter’s claims for fraudulent inducement and breach of fiduciary duty are not barred by the applicable statute of limitations .

 

Utter’s claims for fraudulent inducement and breach of fiduciary duty are not barred by the applicable statute of limitations.  Defendants’ argument to the contrary relies on a misstatement of the facts and a misapplication of the law.  As to the facts, Defendants’ Motion alleges that Harber “allegedly breached his promise” to sign an agreement containing the 5% equity interest by “refusing to sign such an agreement” and that “Harber allegedly would only sign the one pager, which did not include all the terms of the claimed prior oral agreement.”  Motion at p. 97.  The evidence, however, conclusively establishes that Harber was presented with a lengthy employment agreement during a meeting with Scott Smith and Robert Dill in March 1995.  RD190.  It was in that meeting that he both refused to sign the lengthy agreement and promised to sign a shorter, simpler agreement containing the same terms.  RD92, 113, 121, 186, 190.  However, the evidence shows, he was never presented with such an agreement following the meeting. RD218-19.  For some reason, the matter was essentially dropped.  TH31, 37-8.  As a result, the only agreements he was asked to sign were the “one-pager,” which he signed on March 12, 1995, and, years later, the “Going to Africa” letter, which he also signed.  The notion that he “refused” to sign a written contract and “only signed” the “one-pager” simply misstates the record as well as the basis of Plaintiff’s fraud claim.

As for the law, Defendants’ argument ignores the fact that a cause of action does not accrue until a defendant’s wrongful acts cause some legal injury.  See, e.g., Murphy v. Campbell, 964 S.W.2d 265, 270 (Tex. 1997).  Even if Harber refused to sign a written agreement as he had promised to, such event would not trigger the running of the statute of limitations for the simple reason that it would cause Smith no discernible or legally cognizable damages.  Harber’s alleged refusal to sign a complete employment agreement did not cause Smith any legal injury.  Until Defendants indicated their refusal to pay Smith’s estate the amounts due under the contracts at issue, Smith had suffered no legal injury.

Finally, Defendants have failed to negate the application of the discovery rule or the doctrine of fraudulent concealment.  Under Texas law, “when the discovery rule applies, the accrual of a cause of action is deferred until “the plaintiff knew or in the exercise of reasonable diligence should have known of the wrongful act and resulting injury.”  HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998).  As the Texas Supreme Court has stated:

A defendant moving for summary judgment on the affirmative defense of limitations has the burden to conclusively establish that defense. Thus, the defendant must (1) conclusively prove when the cause of action accrued, and (2) negate the discovery rule, if it applies and has been pleaded or otherwise raised, by proving as a matter of law that there is no genuine issue of material fact about when the plaintiff discovered, or in the exercise of reasonable diligence should have discovered the nature of its injury.

KPMG Peat Marwick v. Harrison County Housing Finance Corp., 988 S.W.2d 746, 748 (Tex. 1999). Defendants have clearly failed to demonstrate that there is no genuine issue of material fact as to when Smith and/or Utter discovered their fraud claim.  While they argue that Harber’s refusal to sign some undefined document provided Smith with knowledge that Harber did not intend to honor the 5% equity agreement, this argument is belied by the facts.  The only agreement Harber “refused” to sign was the lengthy employment agreement drafted by Robert Dill and Tom Hurtekant.  At the time he refused to sign the agreement, he explained that he did not want to sign a lengthy, complicated document, but would sign a shorter document along the same terms.   RD92, 113, 121, 186, 190.   Thus, Harber’s mere refusal to sign the lengthy employment agreement would have given Smith no reason to suspect that he was reneging on the oral 5% equity agreement.[8] Defendants’ limitations argument is simply nonsensical in light of the uncontroverted summary judgment evidence.

IV.      The Motion should be denied as to Utter’s claims for quantum meruit and unjust enrichment .

 

A.        Utter properly alleged these claims in the alternative to her contract claims .

Defendants argue that Utter’s claims for quantum meruit and unjust enrichment should be dismissed because such claims “are predicated on the absence of an express contract.”  Motion at p. 99.  What Defendants ignore is that under the Texas Rules, “[a] party may set forth two or more statements of a claim or defense alternatively or hypothetically, either in one count or defense or in separate counts or defenses.”  Tex. R. Civ. P. 48.  Such pleading in the alternative is frequently done with claims of breach of contract and quantum meruit.  See, e.g., Allison v. Douglas, 531 S.W.2d 445, 447 (Tex. Civ. App.—Waco 1975, no writ) (“Plaintiff’s suit against defendant was for breach of 4 contracts, and in the alternative on quantum meruit.  The trial court was authorized to submit both theories to the jury.”).  As one court explained:

We next consider Fone Factory’s argument that the admission into evidence, without limitation, of Angroson’s contract with Fone Factory, Inc. precludes a recovery in quantum meruit. Fone Factory concedes that, under Rule 48 of the Texas Rules of Civil Procedure, a plaintiff can plead breach of contract and quantum meruit alternatively. Nevertheless, Fone Factory maintains that the admission into evidence of Angroson’s contract with Fone Factory, Inc. automatically established its validity and thus barred its quantum meruit claim. We disagree. Under this argument, if a litigant introduces evidence in support of a claim, his alternative claims are barred. Consequently, to adhere to Fone Factory’s argument would be to undermine the right to plead alternatively under Rule 48.

Angroson, Inc. v. Independent Communications, Inc., 711 S.W.2d 268, 272 (Tex.App.—Dallas 1986, writ ref’d n.r.e.).  The mere fact that Utter has pled contract claims does not prevent her from asserting claims in the alternative for unjust enrichment and quantum meruit.  Moreover, even when a contract is found to exist, when the contract was procured by fraud, as Utter has alleged herein, a claim of unjust enrichment may lie.  See Atlantic Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 227 (Tex.App.—Houston [1st Dist.] 2004, pet denied) (op. on reh’g) (holding unjust enrichment claim precluded by existence of valid contract when party asserting unjust enrichment presented insufficient evidence of fraudulent inducement); City of Harker Heights v. Sun Meadows Land, Ltd., 830 S.W.2d 313, 319 (Tex.App.–Austin 1992, no writ) (“the principle of unjust enrichment suggests that restitution is an appropriate remedy in circumstances where the agreement contemplated is unenforceable, impossible, not fully performed, thwarted by mutual mistake, or void for other legal reasons.”).

B.        Defendants’ assertion that Smith was “adequately compensated” has absolutely no bearing on Utter’s claims for unjust enrichment and quantum meruit .

 

Defendants’ assertion that Smith was “adequately compensated” has absolutely no bearing on Utter’s claims for unjust enrichment and quantum meruit.  Inadequate compensation is simply not an element of either claim.  The issue of what compensation is “fair” or “adequate” has no bearing whatsoever on a claim of unjust enrichment:

However, unjust enrichment is not a proper remedy merely because it might appear expedient or generally fair that some recompense be afforded for an unfortunate loss to the claimant, or because the benefits to the party sought to be charged amount to a windfall.  The doctrine of unjust enrichment does not operate to rescue a party from the consequences of a bad bargain, and the enrichment of one party at the expense of the other is not unjust where it is permissible under the terms of an express contract.

First Union National Bank v. Richmont Capital Partners I, L.P., 168 S.W.3d 917, 931 (Tex. App.—Dallas 2005, no pet.).  Rather, the doctrine of unjust enrichment is based on quasi-contract.  Id. (“The doctrine of unjust enrichment belongs to the measure of damages known as quasi-contract or restitution.”).  Where, as here, a benefit has been promised in exchange for the services of another, unjust enrichment and quantum meruit provide an appropriate remedy.  If, as Utter alleges (an allegation that must be taken as true for purposes of Defendants’ Motion), Harber promised to provide Smith with a 5% equity interest in NABI and subsequently failed to do so, then, as a matter of law he was not “fairly compensated” because he was not paid what he was promised.  The fact that others think he made plenty of money is totally irrelevant.

V.        The Motion should be denied as to Utter’s claim for a constructive trust .

 

The sole basis for Defendants’ argument that it is entitled to judgment on Utter’s claim for a constructive trust is that such a remedy is ancillary to claims for unjust enrichment and quantum meruit and such claims should themselves be dismissed.  As set forth above in Section IV, Defendants are not entitled to judgment as a matter of law on Utter’s claims for unjust enrichment and quantum meruit.  For this reason, Defendants are similarly not entitled to judgment on her request for a constructive trust.

VI.      The Motion should be denied as to Utter’s claims for declaratory relief .

 

Finally, Defendants assert that they are entitled to judgment as a matter of law on Utter’s claim for declaratory relief.  The sole basis for this assertion is Defendants’ citation to cases holding that the Declaratory Judgments Act is not available to settle disputes already pending before a court.  However, the cases cited by Defendants merely stand for the proposition that a party may not use the Declaratory Judgments Act as means of obtaining attorneys’ fees when they have no real need for declaratory relief.  See, e.g., Adams v. First Nat’l Bank, 154 S.W.3d 859,871 (Tex. App.—Dallas 2005, no writ) (“But when Adams filed her amended pleading, she had no need for declaratory relief because she had already filed her original petition, which placed the same issues before the trial court”); BHP Petroleum Co. Inc. v. Millard, 800 S.W.2d 838, 841 (Tex. 1990) (court permitted counterclaim for declaratory relief because “ANR’s counterclaim is more than the mere denial of BHP’s causes of action and has stated a ‘cause of action’ on which ANR could recover benefits, compensation or relief if BHP abandoned its causes of action or failed to establish them.”); Heritage Life v. Heritage Group Holding, 751 S.W.2d 229, 235 (Tex. App. – Dallas 1988, writ denied) (“This counterclaim merely restates Seller’s defenses to issues already raised under Buyer’s action for return of the earnest money. Thus, Seller is not entitled to relief under the Declaratory Judgment Act in the form of a counterclaim.”); Tucker v. Graham, 878 S.W.2d 681, 683 (Tex. App. – Eastland 1994, no writ) (Plaintiffs’ declaratory judgment action involved the same parties and the same issues as in the statutory cause of action and was not appropriate. Absent the declaratory judgment action, no statutory authority was pled to support an award of attorney’s fees.”); Hartford Cas. Ins. Co. v. Budget Rent-A-Car Systems, Inc., 796 S.W.2d 763, 772 (Tex. App. – Dallas 1990, writ denied) (“At the time that it filed its amended pleading, the only petition in the record, Budget had no need for declaratory relief whatever”); Kenneth Leventhal & Co. v. Reeves, 978 S.W.2d 253, 259 (Tex. App. – Houston [14th Dist.] 1998, no pet.) (“Inasmuch as Reeves presented no evidence of damages in connection with his breach of contract claim, he cannot now use declaratory relief, identical to his breach of contract claim, simply to pave the way to recover attorney’s fees not otherwise available.”).

The Motion should be denied as to Utter’s claims for declaratory relief because the declaratory relief sought is necessary to afford Utter complete relief in light of the Defendants’ own defenses.  Specifically, if the Court holds that Defendants have not breached the COC Agreement because there has been no change of control of the bank, the issue of whether the COC Agreement survived Smith’s death will not be addressed absent the declaratory relief Utter seeks.  If declaratory relief is denied, this important issue, properly raised by Utter in her live pleading, will be left unanswered and will lead to further litigation when a change of control occurs.  See, e.g., Guilliams v. Koonsman, 154 Tex. 401, 279 S.W.2d 579, 583 (Tex. 1955) (“In this case there was a present justiciable controversy with respect to the nature of the estate devised by paragraph four to Alvin Koonsman, and we think a liberal interpretation of the Act entitled the parties to have the remaining language of the paragraph construed in order to prevent a multiplicity of suits”).  Moreover, the precise relief Utter seeks — a declaration of the rights and liabilities of parties to a contract – is clearly available under the plain language of the Declaratory Judgments Act:

a) A person interested under a deed, will, written contract, or other writings constituting a contract or whose rights, status, or other legal relations are affected by a statute, municipal ordinance, contract, or franchise may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract, or franchise and obtain a declaration of rights, status, or other legal relations thereunder.

(b) A contract may be construed either before or after there has been a breach.

Tex. Civ. Prac. & Rem. Code § 37.004 (Vernon 2004) (emphasis added); Sylvester, 538 S.W.2d at 831 (“the office of a declaratory judgment is the speedy determination of the rights of the parties when a real controversy has arisen and even before the wrong has actually been committed.”).  There is simply no defensible basis to deny Utter the declaratory relief she seeks.

RESPONSE TO NO-EVIDENCE MOTION FOR SUMMARY JUDGMENT

STANDARDS FOR NO-EVIDENCE SUMMARY JUDGMENT

A no evidence summary judgment is essentially a pretrial directed verdict, and courts apply the same legal sufficiency standard in reviewing a no evidence summary judgment as they apply in reviewing a directed verdict.  Marsaglia v. University of Texas, El Paso, 22 S.W.3d 1, 3 (Tex.App.–El Paso 1999, pet. denied); Frazier v. Yu, 987 S.W.2d 607, 610 (Tex.App.–Fort Worth 1999, pet. denied).  A no evidence summary judgment is properly granted only when the nonmovant fails to bring forth more than a scintilla of probative evidence to raise a genuine issue of material fact as to an essential element on which the nonmovant would have the burden at trial.  See Tex. R. Civ. P. 166a(i); Merrell Dow Pharmaceuticals, Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.1997), cert. denied, 523 U.S. 1119 (1998). If the evidence supporting a finding rises to a level that would enable reasonable, fair-minded persons to differ in their conclusions, then more than a scintilla of evidence exists and the motion must be denied. Havner, 953 S.W.2d at 711; General Mills Rests., Inc. v. Tex. Wings, Inc., 12 S.W.3d 827, 833 (Tex. App.–Dallas 2000, no pet.).

A plaintiff is not required to “marshal their evidence” in order to defeat a no-evidence motion.  Rather, they need only point out evidence raising a fact issue on the challenged elements.  See, e.g., Stewart v. Transit Mix Concrete & Materials Co., 988 S.W. 2d 252, 255 (Tex. App.–Texarkana 1998, pet. denied) (“To defeat a motion made under paragraph (i), the respondent is not required to marshal its proof; its response need only point out evidence that raises a fact issue on the challenged elements.”); Cobb v. Dallas Fort Worth Medical Center – Grand Prairie, 48 S.W.3d 820, 824  (Tex. App.–Waco 2001, pet. denied) (“To defeat a no-evidence summary judgment motion, a party need not ‘marshal its proof;’ its response need only point out evidence that raises a fact issue on the challenged elements.”).  As set forth more fully below, much more than a scintilla of evidence supports the challenged elements of Utter’s various causes of action. Defendants’ no-evidence Motion should therefore be denied.

ARGUMENT AND AUTHORITIES

I. The Motion should be denied as to Utter’s breach of contract claim as there is ample evidence to support each element of her claim .

 

A.        There is ample evidence of a valid contract granting Smith a 5% equity interest in NABI payable upon his death .

 

In late 1994, after Smith had been employed by NABI since Lacy Harber bought the bank in 1991, the bank hired several outside consultants to draft a formal written employment agreement between NABI and Smith.  Up to that point, Smith had worked for the bank without any formal written agreement. LH43, 49.  Because they were charged with drafting a written employment agreement documenting the then-existing terms of Smith’s employment, the consultants hired by the bank first had to gain an understanding of what those terms were.  They did so by talking with both Scott Smith and Lacy Harber.  Numerous witnesses specifically testified that they spoke with Lacy Harber and Scott Smith about the conditions under which Scott was then employed as CEO of NABI.  For example, Tom Hurtekant, the attorney hired by NABI to document the terms of Smith’s employment in a more formal written agreement, stated as follows:

Q.   (BY MR. PEARSON)  And let me back up.  You

3  said that you believe that Scott had an understanding

4  with respect to his employment with the bank, correct?

5      A.   Yes.

6      Q.   Tell me about that.

7      A.   Roughly the same terms as Deposition Exhibit

8  3.

9      Q.   And how did you come to be aware of that

10  understanding?

11      A.   Well, as we were going forward with these

12  compensation planning documents, you have to — you

13  have to say is there anything that they are supposed to

14  capture.  So I asked that.

15      Q.   Who did — who did you ask that question of?

16      A.   Scott.

17      Q.   What did he tell you?

18      A.   Basically the terms of Deposition Exhibit

19  Number 3.

20      Q.   Can you recall how he articulated those terms?

21      A.   That he was to get a — an annual bonus of

22  five percent of basically profits of the bank and in

23  his kind of layman’s words that he had five percent of

24  the gain from the day Lacy invested going forward.

25      Q.   What did you understand the word “gain” to

1  mean?

2      A.   The value of the bank over the value that Lacy

3  invested at.

4      Q.   What was your understanding as to what Lacy’s

5  investment was?

6      A.   I don’t recall that.

7      Q.   Did you confirm with Mr. Harber or another

8  representative of the bank the existence of that

9  understanding?

10      A.   At some point, yes.

 

TH17-18.

KPMG compensation expert Bob Dill was also hired by NABI to document the existing terms of Smith’s employment.  He repeatedly testified that he was not charged with negotiating a new employment agreement, but simply with documenting the agreement under which Smith had already been employed by the bank for many years:

Q      What was the purpose of that initial meeting

9  between you, Mr. Harber and Mr. Smith?

10       A      The purpose of the meeting was to document and

11  determine what the parties had verbally agreed upon and put

12  that in writing.

13       Q      Did you have an understanding at the time of that

14  initial meeting in the fall of 1994 whether Scott Smith was

15  currently an employee at bank?

16       A      Yes.

17       Q      And what was your understanding?

18       A      That he was not — not only a employee, but he was

19  also the president and CEO of the bank.

20       Q      And how long had he been in that position to your

21  knowledge?

22       A      Four to five years, I mean somewhere in that time

23  frame.  It was — it was a situation where he was already in

24  place, it wasn’t a situation of negotiating a deal for him

25  coming in from another bank.

1       Q      Right.

2       A      Yeah.

3       Q      And because of that, because he had been working

4  for the bank for several years your first goal was to find out

5  what was the arrangement that he had been working under all

6  these years.

7       A      Correct.

8       Q      Because what you were charged with doing was

9  taking whatever that arrangement was and putting it into a

10  more formal document.

11       A      Correct.

 

* * * * *

 

Q      And isn’t it true that with respect to the

25  specific item of the five percent equity interest, that at the

1  initial meeting that you attended with Scott Smith and Lacy

2  Harber they told you about the agreement they had already

3  reached and had been operating under for several years.

4       A      Correct.

5       Q      It wasn’t a matter of we want you to go negotiate

6  the five percent equity interest, it was go document in

7  writing what we’ve already agreed to.

8       A      Correct.

 

* * * * *

 

11       Q      And this five percent equity interest that you

12  discussed in that initial meeting, this was something you

13  understood had been in place for many years.

14       A      It had been in place for at least several —

15  several years verbally.  Not — there’s — five percent equity

16  interest had been in place or discussed, and it may have

17  been — to be honest with you, I don’t know if it was part of

18  the hiring process whenever he — he brought Scott in to run

19  the bank, whether it was mentioned at that time or it came

20  later, that I don’t know.

21       Q      But just to be clear, this wasn’t something where

22  Scott and Lacy said, hey, we have this great new idea where we

23  want to give Scott this five percent equity interest.

24       A      It did not come up during that meeting or shortly

25  before that meeting, it’s something that had always been there

1  that just needed to be documented.

2       Q      And that was the clear statements made by

3  Mr. Harber and Mr. Smith at this meeting.

4       A      Right.

5       Q      Was it your understanding that Mr. Smith had been

6  performing as an executive for the bank under this gentleman’s

7  agreement for some period of time?

8       A      My understanding was at least a couple of years.

 

RD168-69, 286-87, 176-77.

In Defendants’ Motion, they distort the record to try to convince the Court that the material terms of Smith’s employment agreement “were merely the subject of preliminary negotiations and discussions and were never intended to be the final manifestation of the parties agreement.”  Motion at p. 61.  In fact, Defendants cite Bob Dill’s deposition as “conclusively establishing” this allegation.  Id. In truth, as set forth above, Dill repeatedly testified that the 5% equity agreement he put into his draft employment agreement was based on his understanding of the terms under which Smith was already employed by NABI:

5       Q      And so was it your understanding as you were

6  drafting the initial employment agreement that Mr. Smith and

7  Mr. Harbor as discussed with you in that initial meeting had

8  already reached agreement on the structure of the five percent

9  equity interest?

10       A      They had verbally agreed to it.

 

RD181.  And Dill resisted the efforts of Defendants’ attorney to portray Dill’s draft employment agreements as “proposals:”

16       Q      But we’ve gone over this 100 times.  You have told

17  us that all of these were proposals and that you expected Ted

18  this to be negotiations subject to change.  Correct?

19       A      Basically what I did was documented what everyone

20  agreed upon, not necessarily I just went off and proposed this

21  in a vacuum.  All these terms and conditions were what was

22  verbalized between Lacy and Scott Smith.

23      Q      What — what they had discussed.

24      A      What they had discussed.

25      Q      Correct?

1       A      Right.

2       Q      And to make sure that everyone had a meeting of

3  the minds, you tried to reduce what you thought they intended

4  to paper. Correct?

5       A      Which is a document, not a proposal.

 

RD145.  He also explained that while some of the terms in the written agreement were subject to negotiation, the 5% equity interest was not, as it had already been agreed to by the parties:

Q      So during the line of questioning Mr. Stagner was

6  asking you, that the employment agreement you were drafting

7  was subject to negotiation and approval by the parties.  Is

8  that — do you remember those questions?

9       A      Yes, sir.

10       Q      Is it fair to say that with respect to just the

11  five percent equity interest, based on your conversations at

12  that meeting and the prior history of the parties, that

13  component of Scott Smith’s employment agreement had already

14  been negotiated and agreed to by the parties?

15              MR. STAGNER:  Objection as to form.

16       A      (By the Witness)  It had been agreed to by the

17  parties.

18       Q      (By Mr. Pearson)  And when you say it had been

19  agreed to by the parties, you mean the five percent equity

20  interest?

21       A      Yes.

22              MR. STAGNER:  Objection as to form.

23       Q      (By Mr. Pearson)  What — when to your

24  understanding had the five percent equity interest been agreed

25  to by the parties?

1       A      Within the last, you know, the two years prior to

2  my involvement.  As I indicated it was — it had been there

3  for a period of time, whether it’s been there two years, five

4  years, I don’t know.

5       Q      And so was it your understanding as you were

6  drafting the initial employment agreement that Mr. Smith and

7 Mr. Harbor as discussed with you in that initial meeting had

8 already reached agreement on the structure of the five percent

9 equity interest?

10       A      They had verbally agreed to it.

 

RD180-81.

The entire reason for a more formal, written agreement, Dill explained, was not to create a new agreement or proposal.  It was to put into writing the then-existing terms of Smith’s employment in order to satisfy the parties’ concerns that Scottish Rite, to whom Lacy intended to leave his estate, might not honor the verbal agreement already in existence:

22       At that point in time it had all been verbal,

23  gentleman’s agreement, handshake-type situation.  They wanted

24  to move it from a informal gentleman’s agreement into a more

25  formalized agreement.  The purpose of that being as long as

1  Scott and Lacy, nothing happened to either one of the two of

2  them, no issue at all.  If anything — and really the — the

3  thrust behind it was if anything were to happen to Lacy and it

4  was conveyed at that meeting that for all practical purposes

5  my understanding was everything that Lacy owned or had access

6  to would go to Scottish Rite Hospital.  And as a result of

7  that if there’s not anything written, that it would be Scott’s

8  word with Scottish Rites that there was a five percent equity

9  interest in the bank.  And they wanted to be sure that

10  everything was documented.

 

RD35-36.

In order to fully understand the terms of the 5% equity agreement then in existence – and the circumstances under which Smith would or would not be entitled to the value of his 5% interest – Bob Dill walked Lacy Harber and Scott Smith through various factual scenarios to determine which would trigger the 5% payment and which would void it.

13       Q      Now you testified that there was no discussion in

14  your meeting with Mr. Harber and Mr. Smith about what would

15  happen if Scott Smith died before Mr. Harber.  Correct?

16       A      No, I said in the first meeting I basically said

17  death would pay out the five percent.  I went through each of

18  those items in that first meeting.

19       Q      Right.  So the — the event of Mr. Smith’s death

20  and what effect that would have on his entitlement to the five

21  percent equity interest was discussed in the first meeting

22  that you attended with Mr. Harber and Mr. Smith.

23       A      Correct.

24       Q      And you expressed — and they agreed at that

25  meeting that Mr. Smith’s death would be a triggering event

1  that would actually entitle him to the five percent equity

2  interest.

3       A      Correct.

 

RD286-88.   As a result of this understanding and agreement, Dill put into the written employment agreements he drafted certain provisions regarding the 5% equity interest.  For example, the initial draft employment agreement referenced “an equity position of 5%” and subsequent drafts contained a 5% equity interest payable upon Smith’s “death, mandatory retirement or total disability.”  Appendix at Tabs 7, 9-12 at par. 3(b).  The employment agreements also contained a clause indicting that they inured to the benefit of Smith’s heirs.  Appendix at Tabs 7-12 at par. 19.

After drafting the employment agreement, Dill met with Smith and Harber in March 1995 to discuss its terms.  During his conversation with Harber, Dill walked through each of the possible contingencies and explained which would entitle Scott Smith to the 5% equity interest payment and which would not.   He specifically explained that Smith’s death would trigger the 5% equity payment and that the only circumstances under which he would not be entitled to the payment would be if he quit or was terminated for cause:

18       Q      (By Mr. Pearson)  During the March, 1995 meeting

19  that you attended with Mr. Harber, did you discuss with him

20  the specific provision of the — of the draft employment

21  agreement that was then existing?

22       A      Yes.

23       Q      And did you — did that discussion include a

24  discussion of the five percent equity agreement?

25       A      Yes.

1       Q      Did that discussion include what would happen in

2  the event of Scott Smith’s death, retirement or total

3  disability?

4       A      Yes.

5       Q      And did you explain that those events would

6  trigger Mr. Smith’s five percent equity interest payment?

7       A      Yes.

8       Q      And did you explain during that March, 1995

9  meeting that the only events which would void or terminate

10  Mr. Smith’s five percent equity interest were his quitting, or

11  terminating himself, or his termination by the bank for good

12  cause?

13       A      Correct.

 

RD295-96.  Not only was Mr. Harber present and attentive at the meeting, but he affirmatively indicated that he understood and accepted these terms and would sign a written agreement encompassing them if the long employment agreement were synthesized down to a one or two page summary sheet:

14       Q      And Mr. Harber was there.

15       A      Correct.

16       Q      Paying attention.

17       A      Correct.

18              MR. STAGNER:  Objection as to form.

19       Q      (By Mr. Pearson)  Did Mr. Harber seem to be paying

20  attention to you?

21              MR. STAGNER:  Objection as to form.

22       Q      (By Mr. Pearson)  I’m sorry, I didn’t hear your

23  answer.

24       A      Yes.

25       Q      And Mr. Harber never disagreed at that meeting

1  with the terms of the employment agreement as you recited

2  them, correct?

3       A      Correct.

4       Q      In fact, he said the terms were acceptable.  If

5  you would put them in a summary form he would sign the

6  document; is that right?

7       A      True.

8       Q      I’m sorry?

9       A      Correct.

10      Q      And that’s what your understanding was, that

11  someone was going to take the employment agreement that you

12  drafted, take its terms, put them in a shorter summary style

13  document and Mr. Harber as he had said he would do, would sign

14  the document.

15       A      Correct.  It would be summarized and that Scott

16  and then Lacy Harber would sign the agreement.

 

RD296-97.  As the above evidence clearly demonstrates, there was an oral agreement between Scott Smith on the one hand and the Harbers and NABI on the other whereby Smith had a 5% equity interest in NABI that was payable upon his death, retirement or total disability.

Under Texas law, oral agreement such as the 5% equity agreement discussed above may be proven by circumstantial evidence. Harris v. Balderas, 27 S.W.3d 71, 77 (Tex. App.—San Antonio 2000, pet. denied) (“The existence of an oral contract may be proved by circumstantial as well as direct evidence.”); PGP Gas Prods. v. Reserve Equip., Inc., 667 S.W.2d 604, 607 (Tex.App.–Austin 1984, writ ref’d n.r.e.) (“The existence of an oral contract may be proved by circumstantial evidence as well as by direct evidence.”).  They may also be proven by evidence of a course of conduct such as employment along certain terms for a length of time. Ishin Speed Sport, Inc. v. Rutherford, 933 S.W.2d 343, 348 (Tex. App.—Fort Worth 1996, no writ) (“the parties’ conduct may convey an objective assent to the terms of an agreement, and whether their conduct evidences their agreement is a question to be resolved by the finder of fact.”).  Under these authorities and the facts outlined above, there is clearly more than a scintilla of evidence of an offer, acceptance, meeting of the minds and mutual assent on the terms of the 5% equity interest.  Defendants’ Motion should therefore be denied.

B.        There is ample evidence that Scott Smith performed the contract through his employment with NABI .

There is ample evidence that Scott Smith performed the contract by working diligently and successfully as the CEO of NABI until his untimely death in January 2002.  As set forth above, the contract called for Smith to act as NABI’s CEO.  It is unquestioned that he did so up until his death in early 2002.  Not only did he act as CEO, but all concerned have testified that Smith did an excellent job and helped NABI grow in strength.  In a Sherman Herald Democrat article published on January 18, 2002, shortly after Scott’s death, Lacy Harber stated that “[t]he success of American Bank is due to Scott’s efforts.”  Appendix at Tab 6.  Harber’s friend John Massey, a long-time banking executive, similarly testified that Smith was largely responsible for the bank’s success:

Q.   And you say “Mr. Smith was an asset to

20  Mr. Harber and the bank.”

21  A.   That is correct.

22  Q.   And you believe that to be true.

23  A.   That is correct.

24  Q.   Who do you believe is most responsible for the

25  growth of American Bank?

1  A.   Scott Smith.  You know, Lacy was able to bring a

2  lot of loans to the bank because of his clientele on the

3  lake.  Scott Smith had a lot of contacts and he — they

4  both — Lacy brought a lot of loans, but Scott was there

5  every day and doing the management of the bank.  The bank

6  would not be the size it is without Scott Smith.

 

JM54-55.  Simply put, the only performance called for by Scott Smith under the oral agreement was for Scott to continue to work as the CEO of NABI.  He not only did this up until the time of his death, he did it well, and in the process greatly enriched NABI and the Harbers.

C.        There is ample evidence that Defendants breached the contract at issue .

 

There is ample evidence that the Defendants’ breached their oral agreement to pay Smith or his estate 5% of the value of the Bank upon Scott’s death, retirement or total disability.  As set forth above, Smith’s death triggered his estate’s entitlement to the 5% equity interest.  Despite lawful demand, Appendix at Tab 27, Defendants have not paid Plaintiff the value of a 5% equity interest.

D.        There is ample evidence that Defendants’ breach of contract caused Scott Smith actual damages .

It is unquestioned that Defendants’ breach of contract caused Scott Smith to incur substantial damages, specifically the loss of 5% of the value of NABI over and above what the Harber’s paid for the bank.  As set forth in the expert report of Jeffrey Balcombe, the value of NABI at the time of the breach was $166,383,000.  Appendix at Tab 28 at p. 20.  According to Lacy Harber, he and his wife paid $4 million to buy the bank.  LH17.  Including amounts paid to buy additional banks purchased by NABI, Harber claims to have invested $10.8 million in the bank.  LH84.  Subtracting $10.8 million from the $166,383,000 value of the bank yields an equity amount of $155,583,000.  A 5% interest was therefore worth 5% of this amount, or $7,779,150.00.   The foregoing evidence clearly raises an issue of fact on the element of damages that mandates denial of the Motion.

II.        The Motion should be denied as to Utter’s claim for anticipatory repudiation of the COC Agreement .

 

While it is not entirely clear whether Defendants have moved for summary judgment on this claim, out of an abundance of caution, Utter will address this claim.  As set forth below, there is ample evidence of each element of Utter’s claim for breach of the COC Agreement.

A.           There is ample evidence of a valid, binding COC Agreement .

 

It is without question that Defendants and Scott Smith signed the COC Agreement.  Appendix at Tab 13.  Lacy Harber has testified that he signed the contract on behalf of NABI.  LH83.  On its face, the contract establishes certain obligations on the part of Defendants.  There really can be no question but that the COC Agreement existed and was a contract between Smith and Defendants.

B.        There is ample evidence that Scott Smith performed the contract through his employment with NABI .

There is ample evidence that Scott Smith performed the contract by working diligently and successfully as the CEO of NABI until his untimely death in January 2002.  As set forth above, the contract called for Smith to act as NABI’s CEO.  It is unquestioned that he did so up until his death in early 2002.  Not only did he act as CEO, but all concerned have testified that smith did an excellent job and helped NABI grow in strength.  Lacy Harber stated that “[t]he success of American Bank is due to Scott’s efforts.”  Appendix at Tab 6.  John Massey testified that Smith was largely responsible for the bank’s success.  JM54-55.  Simply put, the only performance called for by Scott Smith under the oral agreement was for Scott to continue to work as the CEO of NABI.  He not only did this up until the time of his death, he did it well, and in the process greatly enriched NABI and the Harbers.

C.        There is ample evidence that Defendants anticipatorily breached the COC Agreement .

 

There is ample evidence that the Defendants’ anticipatorily repudiated the COC Agreement.  Repudiation may be proven by words or actions by a contracting party that indicate he is not going to perform his contract in the future. Chavez v. Chavez, 577 S.W.2d 306, 307 (Tex.Civ.App.–El Paso 1979, writ ref’d n.r.e.). It is conduct that shows a fixed intention to abandon, renounce, and refuse to perform the contract. Hubble v. Lone Star Contracting Corp., 883 S.W.2d 379, 382 (Tex.App.–Fort Worth 1994, writ denied).  The effect of an anticipatory repudiation “is to give the nonrepudiating party the option of treating the repudiation as a breach or ignoring the repudiation and awaiting the agreed upon time of performance.”  Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 211 (Tex. 1997).  As the Texas Supreme Court has stated, “[w]e have long recognized the rule of anticipatory breach: the repudiation of a contract before the time of performance has arrived amounts to a tender of breach of the entire contract and allows the injured party to immediately pursue an action for damages.”  Murray v. Crest Constr., Inc., 900 S.W.2d 342, 344 (Tex.1995).

Following the meeting between Gail Utter and Lacy Harber in March 2002, Lacy Harber asked his friend David Hooper to write an opinion letter regarding the “one-pager.”  Hooper’s letter was then sent by Lacy Harber to Gail Utter.  That letter unequivocally stated that Scott Smith’s death terminated his rights under the “one-pager” and that no money was then due to Smith’s or would ever become due, even if there were a change of control.  Specifically, the letter stated:

The event of Mr. Smith’s death before a change of control is to be treated the same as the provision of the letter agreement Paragraph 3, which provides no compensation in event Mr. Smith quits his employment before the change of control.  Mr. Smith’s heirs and/or estate are not entitled to any compensation.

Compensation under the letter agreement is conditioned upon a sale of your shares to a third party and a change of control of the Bank.  To be entitled to compensation, Mr. Smith would have to survive such a sale.  There is no compensation to Mr. Smith’s heirs or estate provided for in the letter agreement.

Appendix at Tab 19 at pars. 6, 7.  Witnesses have confirmed that the letter’s conclusion was that no money would ever be due Smith’s estate, even if the bank sold:

6  Q.   You have — you understand that Mr. Hooper’s

7  position in this letter is that after — as a result of

8  Scott’s death neither you nor the bank owe Scott or his

9  family anything.  Do you understand that?

10  A.   Yes, I do.

11  Q.   And do agree with that position?

12  A.   Yes, I do.  I think I paid Scott well while he

13  worked for me, and there’s nothing that makes me think

14  I should pay anybody anything now that he died.

 

* * * * *

 

11      Q.   And maybe my question — based on — and I am

12  trying to keep away from the conversations you had with

13  Lacy after Scott’s death, but based upon the letter

14  that Mr. Hooper wrote that you’ve seen a copy of, —

15      A.   Uh-huh.

16      Q.   — isn’t the position articulated in that

17  letter that the five percent agreement does not survive

18  Scott’s death?

19      A.   Yes.

20      Q.   So that regardless of timing, that Scott’s

21  estate is not due any money now or in the future?

22      A.   I think Scott — if your question is, would

23  Scott have expressed amazement that that was Lacy’s

24  position, yes.  That’s — that’s — yes.

25      Q.   Are you amazed?

1                MR. STAGNER:  We are going to object as

2  to form.

3      A.   I am amazed only because it is inconsistent

4  with what I would have expected, inconsistent with

5  standard practice, and not consistent with Lacy’s

6  intention of generally incentivizing someone.

LH120; TH90-91.  The foregoing evidence clearly raises a fact question on the issue of anticipatory repudiation that precludes summary judgment.[9]

D.        There is ample evidence that Defendants’ anticipatory breach of contract caused Scott Smith actual damages .

It is unquestioned that Defendants’ anticipatory breach of contract caused Scott Smith to incur substantial damages, specifically the loss of 5% of the value of NABI over and above what the Harber’s paid for the bank.  As set forth in the expert report of Jeffrey Balcombe, the value of NABI at the time of the breach was $166,383,000.  Appendix at Tab 28 at p. 20.  According to Lacy Harber, he and his wife paid $4 million to buy the bank.  LH17.  Including amounts paid to buy additional banks purchased by NABI, Harber claims to have invested $10.8 million in the bank.  LH84.  Subtracting $10.8 million from the $166,383,000 value of the bank yields an equity amount of $155,583,000.  A 5% interest was therefore worth 5% of this amount, or $7,779,150.00.  The foregoing evidence clearly raises an issue of fact on the element of damages that mandates denial of the Motion.

III.                  The Motion should be denied as to Utter’s Quantum Meruit and Unjust Enrichment Claims .

 

A.        There is ample evidence of each of the elements of Utter’s quantum meruit claim .

 

To recover under quantum meruit a claimant must prove that:

  1. valuable services were rendered or materials furnished;
  2. for the person sought to be charged;
  3. which services and materials were accepted by the person sought to be charged, used and enjoyed by him; and
  4. under such circumstances as reasonably notified the person sought to be charged that the plaintiff in performing such services was expecting to be paid by the person sought to be charged.

Vortt Exploration Co. v. Chevron USA, Inc., 787 S.W.2d 942, 944 (Tex.1990); see also Bashara v. Baptist Memorial Hospital System, 685 S.W.2d 307, 310 (Tex.1985).[10] There really can be no dispute as to the first three elements of this claim.  The uncontroverted facts are that Scott Smith acted as the CEO of NABI from the time Lacy Harber bought the bank in 1991.  LH22-24.  He continued to work as the CEO of NABI until his death in 2002.  JM57-58, 74-75.  During his years as CEO, Scott performed valuable services for the bank and was largely responsible for its remarkable growth.  JM54-55.  As Lacy Harber told the Sherman newspaper after Scott died, “[t]he success of American Bank is due to Scott’s efforts.”  Appendix at Tab 6.

As for the final element, the same evidence that demonstrates the existence of the 5% equity agreement demonstrates the existence of this element. See pages 98-106 above.  Such evidence demonstrates that Lacy Harber was aware that Scott Smith expected to be paid a 5% equity interest in NABI upon his death, retirement or total disability as compensation for his work on behalf of NABI and the Harbers.  With knowledge of this expectation, Defendants continued to accept the benefits of Smith’s labor.  Because more than a scintilla of evidence exists on each element of Utter’s quantum meruit claim, summary judgment should be denied.

B.        There is ample evidence of each of the elements of Utter’s unjust enrichment claim .

 

A party may recover under an unjust enrichment theory when another party has obtained a benefit from it by fraud, duress, or the taking of an undue advantage.  Heldenfels Brothers, Inc. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992).  The party seeking to recover under an unjust enrichment theory must show that the benefit or profit to the other party was “unjust” under principles of equity.  Zapata Corporation v. Zapata Gulf Marine Corporation, 986 S.W.2d 785, 788 (Tex. App. – Houston [1st Dist.] 1999, no pet.).  In the instant case, there is more than a scintilla of evidence to support these elements.

As set forth above, there is ample evidence that Defendants agreed to pay Smith a 5% equity interest upon his death, retirement or total disability.  See, e.g., RD283, 287-88, 298-300.  There is also ample evidence that Smith and Harber intended Smith’s rights under the COC Agreement to survive his death.  See, e.g., TH43-48, 68-69, 72, 263.  Finally, there is ample evidence that Smith relied on his oral and written agreements with Defendants in continuing to work for NABI.  John Massey, a friend of Lacy Harber and a well-respected banker in Oklahoma, testified that the 5% equity agreement was “something to keep Scott there.”  JM55-56.  Attorney Tom Hurtekant testified that Smith continued to work for NABI and Harber in reliance on the 5% equity agreement.  TH39.  He also testified that Smith believed that his estate would be entitled to compensation under the agreement with Defendants in the event of his death.  TH46-48, 68-69, 72, 89, 219-20, 263.  Hurtekant further explained that Smith viewed the 5% equity interest agreement as a valuable asset:

21      Q.   (BY MR. PEARSON)  Do you recall Scott telling

22  you or anyone else that he thought that his family was

23  protected in some measure by the existence of Exhibit

24  3?

25      A.   I know he thought it was a material asset.

1                MR. STAGNER:  Object to the answer as

2  nonresponsive.

3      Q.   (BY MR. PEARSON)  And how do you — what’s

4  that based on?

5      A.   Just conversations with him about it.  He

6  regarded it as a valuable right.  He told me at some

7  point when he was ill that the letter was in a certain

8  place in his desk, and remind his secretary of that, or

9  something like that, when she was pulling his stuff

10  together.

 

TH47-48.  Gail Utter testified that Scott told her that if anything happened to him, she would need the COC Agreement to verify that his estate was entitled to a 5% equity interest:

Q.   (By Mr. Stagner)  Okay.  Did you and — and your

9  husband talk about what he — what his concerns were, if

10  any, relating to the change of control agreement?

11  A.   He simply said, as he handed it to me, that if

12  anything happened to him, that I needed to have a copy of

13  that to prove that he had the 5-percent profit.

 

* * * * *

 

17  Q.   Okay.  Well, I — I guess what I’m trying to

18  figure out is, he told you that you need to keep this

19  because you’d need it if somebody happened to him.

20  Right?

21  A.   Yes, sir.

22  Q.   And what did you understand that to mean if —

23  if something happened to him.

24  A.   That the estate would be entitled to that

25  5-percent profit.

1  Q.   If he died.

2  A.   Right.

 

GU24, 42-43.  Despite their agreements, and Smith’s reliance on those agreements, Defendants have failed and refused to pay Smith or his estate the 5% equity interest.  Moreover, the Hooper letter Harber sent to Utter unequivocally stated that the COC Agreement did not survive Smith’s death.  Appendix at Tab 19.  Such actions provide more than a scintilla of evidence of unjust conduct giving rise to a claim for unjust enrichment.

IV.      The Motion should be denied as to Utter’s claim for fraudulent inducement .

Defendants challenge each of the elements of a cause of action for fraudulent inducement.  According to Defendants, those elements are:

  1. that a material representation was made;
  2. the representation was false;
  3. when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and a positive assertion;
  4. the speaker made the representation with the intent that the other party should act upon it;
  5. the party acted in reliance on the representation;
  6. the party thereby suffered injury; and
  7. additionally, an element of fraudulent inducement is that when the representations were made the speaker had no intention of performing it.

Motion at p. 4.  As set forth below, there is ample evidence of each of these elements.  Defendants’ no evidence Motion should therefore be denied.

 

A.        There is ample evidence of a misrepresentation and the intent to induce reliance .

Elements 1-3 and 7 above essentially require that a plaintiff demonstrate that the defendant made a misrepresentation.  Under Texas law, “misrepresentation means a false statement of fact or a promise of future performance made with an intent, at the time the promise was made, not to perform as promised.”  Case Corp. v. Hi-Class Business Systems of America, Inc., No. 05-02-00103-CV, 2005 WL 3485470 at *15 (Tex. App.—Dallas Dec. 21, 2005, no pet. h.).  In other words, a promise of future performance “constitutes an actionable misrepresentation if the promise is made with no intention of performing at the time it was made.”  Formosa Plastics Corp. v. Presidio Engineers and Contractors, 960 S.W.2d 41, 48 (Tex. 1997).   In their Motion, Defendants argue that there is no evidence of an intent not to perform the 5% equity interest agreement.  As set forth below, however, there is ample circumstantial evidence from which such an intent can be inferred.

Because intent to defraud is difficult to prove with direct proof, “it invariably must be proven by circumstantial evidence.”  Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986); Ikon Office Solutions, Inc. v. Eifert, 125 S.W.3d 113, 124 (Tex. App.–Houston [14th Dist.] 2003, pet. filed) (same).  Such circumstantial evidence is not limited to actions taking place prior to or at the time the promise was made.  Rather, fraudulent intent “may be inferred from the party’s subsequent acts after the representation is made.”  Spoljaric, 708 S.W.2d at 434; see also Stuart v. Bayless, 945 S.W.2d 131, 136 (Tex. App.–Houston [1st. Dist.] 1996), rev’d in part on other grounds, 41 Tex. Sup. Ct. J. 546 (Tex. 1998) (“while a party’s intent is determined at the time the party made the promise, it may be inferred from the party’s acts occurring after the making of the promise”); Beijing Metals and Minerals Import/Export Corp. v. American Business Center, Inc., 993 F.2d 1178, 1185 (5th Cir. 1993) (“Intent not to perform a promise at the time it was made may be shown by circumstantial evidence, including the subsequent conduct of the promisor.”).

One example of such post-promise circumstantial evidence is the party’s subsequent failure to perform its promise; such a failure is “a circumstance to be considered with other factors to establish intent” at the time the promise was made.  Schindler v. Austwell Farmers Cooperative, 841 S.W.2d 853, 854 (Tex. 1992); Spoljaric, 708 S.W.2d at 435 (failure to perform “is a circumstance to be considered with other facts to establish intent”); Stuart, 945 S.W.2d at 136 (failure to perform “is a circumstance to be considered with other facts to establish intent”).  Here, it is unquestioned that Defendants have refused to honor the 5% equity interest agreement and have taken the position, through the Hooper letter, that the COC Agreement did not survive Smith’s death.

In addition to a party’s failure to perform its promise, circumstantial evidence of fraud is also established by the party’s subsequent denial that it ever made the promise at issue.  See, e.g., Spoljaric, 708 S.W.2d at 435 (“courts have held a party’s denial that he ever made a promise is a factor showing no intent to perform when he made the promise”); Hoeschst Celanese Corp. v. Arthur Bros., Inc., 882 S.W.2d 917, 925 (Tex. App.–Corpus Christi 1994, writ denied) (“denial that a promise was made is a factor in showing no intent to perform the promise”); T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992) (“Denying that a promise has been made is a factor showing no intent to perform when the promise was made.”).  In the instant case, Lacy Harber has denied promising to pay Smith or his estate a 5% equity interest upon Smith’s death, retirement or total disability.  LH79, 144.  This denial of the promise at issue provides additional evidence of Defendants’ intent not to perform that promise at the time it was made.

When a party fails to perform its promise, a plaintiff need only show slight circumstantial evidence of fraud in order to establish a fraud claim based on non-performance.  As the Texas Supreme Court has stated, “slight circumstantial evidence of fraud, when considered with the breach of promise to perform, is sufficient to support a finding of fraudulent intent.”  Spoljaric, 708 S.W.2d at 435; see also Stuart, 945 S.W.2d at 136 (“slight circumstantial evidence of fraud, when considered with proof of non-performance, is sufficient to support a finding of fraudulent intent”); Yeldell v. Goren, 80 S.W.3d 634, 637 (Tex. App.—Dallas 2002, no pet.) (“Because intent to defraud is not susceptible to direct proof, it invariably must be proven by circumstantial evidence.  Slight circumstantial evidence of fraud, when considered with the breach of a promise to perform, is sufficient to support a finding of fraudulent intent.”).

In the final analysis, the issue of fraudulent intent is an issue which is ill-suited for summary judgment.  As numerous courts have held, “intent is a fact question uniquely within the realm of the trier of fact because it so depends on the credibility of the witnesses and the weight to be given their testimony.”  Spoljaric, 708 S.W.2d at 434; see also Stuart, 945 S.W.2d at 136 (same).  Because issues of intent depend on the credibility of witnesses, “a jury is entitled to consider the circumstantial evidence, weigh witnesses’ credibility, and make reasonable inferences from the evidence it chooses to believe.”   Beal Bank, S.S.B. v. Schleider, 124 S.W.3d 640, 648 (Tex. App.–Houston [14th dist.] 2003, pet. filed).  As one court has stated:

Needless to say, intent is a fact question uniquely within the realm of the trier of fact because it so depends on the credibility of the witnesses and the weight to be given their testimony; thus, summary judgment is rarely proper.

Beijing Metals, 993 F.2d at 1185; see also Taylor v. Bonilla, 801 S.W.2d 553, 557 (Tex. App.–Austin 1990, writ denied) (“Summary judgment is rarely proper when the case involves an issue inherently for the fact-finder, such as intent.”).  Defendants’ Motion should be denied.

B.        There is ample evidence of intent to induce reliance .

“While it is true that Texas courts have not used the words ‘reason to expect’ when discussing fraud’s intent element, a defendant who acts with knowledge that a result will follow is considered to intend the result.”  Ernst & Young, LLP v. Pacific Mutual Life Ins. Co., 51 S.W.3d 573, 579 (Tex. 2002).  Here, the evidence is that Defendants made the promises at issue in order to induce Smith to continue working as the CEO of NABI.  John Massey testified that the COC agreement was “something to keep Scott there” at the bank.  JM55-56.  Tom Hurtekant testified that the 5% equity agreement was to “incentivize” Smith to perform on behalf of the bank.  TH84-85, 260-61.  Randy Staff similarly testified that the 5% equity agreement was offered to Scott “as an inducement for him to work for Lacy.”  RS231.  Bob Dill testified that the 5% equity agreement was “to motivate [Scott] to enhance shareholder value of the corporation.”  RD193-95.   These uncontroverted facts clearly raise a fact issue on the element of reliance.

C.      There is ample evidence of reliance and resulting damages .

Finally, there is ample evidence that Smith relied on Defendants’ promises to his detriment and was damaged thereby.  Dill testified that Smith trusted Lacy Harber, a fact Harber himself admitted.  RD187; LH39-40, 43-45.  As set forth above, Massey testified that the COC agreement kept Smith at the bank.  JM56.  Tom Hurtekant testified that Smith relied on Harber’s promises and took a below-market salary in exchange for the 5% equity interest.  TH19, 26, 86-87, 112-13.  These facts clearly raise an issue of fact on the remaining elements of Utter’s fraud claim, mandating denial of the summary judgment motion.

CONCLUSION AND PRAYER

WHEREFORE, PREMISES CONSIDERED, Plaintiff, Gail Utter as the Independent Executrix/Administratrix and Personal Representative of the Estate of Scott Smith, Deceased, prays that the Court deny Lacy Harber, Dorothy Harber and North America Bancshares, Inc.’s Traditional and No-Evidence Motions for Summary Judgment and award her such other and further relief to which she 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] SS refers to the deposition of Steve Smith, included in the Appendix filed herewith. References to each deposition are to the deponent and the page on which the testimony may be found.  Other deposition abbreviations are “LH” for Lacy Harber, “GU” for Gail Utter, “JM” for John Massey, “RD” for Robert Dill, “TH” for Thomas Hurtekant, and “RS” for Randy Staff.  Full copies of each of these depositions are included in a separate Deposition Appendix.

[2] The case of Connally v. Brinker, No.05-97-02143-CV, 2000 WL 1848606 (Tex. App.—Dallas Dec. 19, 2000, pet. denied) (not designated for publication), does not hold to the contrary.  In that case, the court of appeals upheld an award of sanctions based on the fact that the plaintiff had avoided summary judgment by claiming he was given a 10% interest in Brinker’s investments as part of their original agreement in 1978 and then at trial admitted that the 10% agreement had “evolved over time.”  The fact that Connally had not listed the 10% interest on his tax returns was not cited to prove no such interest existed, but was cited as evidence that Connally’s summary judgment affidavit, which he had since contradicted at trial, was made in “bad faith” for purposes of assessing sanctions.

[3] As stated above, an agreement does not violate the statute of frauds “if the contract, from its terms, could possibly be performed within a year–however improbable performance within one year may be.” Iacono, 16 S.W.3d at 95.  Because Smith could have retired within one year of the agreement, the statute of frauds does not apply.

[4] In Utter’s Sixth Amended Petition, filed on or about February 13, 2006, she more clearly raised the existence of a confidential or fiduciary relationship as a defense to the statute of frauds.  See Utter’s Sixth Amended Petition, Appendix at Tab 21 at par. 41(d).

[5] The Going to Africa letter had a three-year non-compete clause.  Also, unlike the oral agreement Utter seeks to enforce, the Going to Africa letter guaranteed Smith’s employment until the age of 60 (“We agree that we will cause NAB to continue your employment as its chief executive officer until you reach age 60”).  Appendix at Tab 17.  Such a contract is unquestionably subject to the statute of frauds.

[6] On that same page of their Motion, in a footnote lacking any citation to the record, Defendants state that “Hurtekant was acting as counsel for Scott Smith.”  Motion at p. 79, n12.  This statement is flatly contradicted by Hurtekant’s testimony, which is that he represented the bank and that Scott Smith had no legal counsel.  TH4 (“That’s not the issue here, but I don’t think I did represent Scott individually.”); TH280 (Q:  “Who was representing Scott Smith? A: Nobody.”); TH13-14 (Hurtekant told Smith that “to the extent we talked about things, I hope he understood that the bank was my client, bank and Lacy.”); TH12 (Q: “In providing advice regarding Scott Smith’s employment agreements, who did you view your client to be?  A: North American Bancshares or American Bank.”).

[7] Defendants must make this argument since the uncontroverted evidence is that neither the NABI Board of Directors nor Lacy Harber ever terminated Scott Smith’s employment.   LH87-8 (“Q.   The part here that says “if Scott Smith’s employment is terminated by the board of directors or Lacy Harber,” has that happened?  Has that occurred? A.   No, sir, he died.  He wasn’t terminated.  He died.”); RS367; JM57-8.

[8] As for Harber’s handwritten note, see Motion at p. 97, Utter objects to the note as hearsay.  Moreover, in Haber’s sworn deposition testimony, he testified that Smith never asked him to give or sell him stock in NABI.  LH61-62.  Finally, even had Harber refused to give or sell Smith stock in NABI, this would have given Smith no reason to think Harber was reneging on the 5% equity agreement since that agreement was not based on any ownership or possession of NABI stock.  RD223.

[9] According to the terms of the COC Agreement, the only circumstances under which Smith would not be entitled to payment were if he “quit” or if he was “terminated by the NABI Board of Directors or Lacy Harber.  Numerous witnesses have testified that neither of these terms was intended to encompass Smith’s death. TH40, 52; RD230-34; RS355.  Moreover, Lacy Harber and others testified that Scott Smith was never terminated.   LH87-88; RS367; JM57-8.  And other witnesses testified that Smith never quit his employment either.  RS367; JM57.

[10] Defendants assert that Utter must prove that no written contract existed in order to sustain her causes of action for quantum meruit and unjust enrichment.  The existence of a contract that would preclude equitable remedies such as unjust enrichment and quantum meruit is, however, an affirmative defense on which Defendants bear the burden of proof (and on which they have moved for summary judgment in their traditional motion).  As the Texas Supreme Court has stated:

When the existence of or the terms of a contract are in doubt, and there is a claim for unjust enrichment, it is incumbent on the party disputing that claim to secure findings from the trial court that an express contract exists that covers the subject matter of the dispute. Conoco therefore failed to establish its affirmative defense with regard to any part of Cox’s claim for unjust enrichment . . . .

Fortune Production Co. v. Conoco, Inc., 52 S.W.3d 671, 685 (Tex. 2000).