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Affirmed in=20 Part, Reversed and Remanded in Part and Memorandum Opinion filed November = 6,=20 2007.

 

In The

 

Fourteenth=20 Court of Appeals

____________

 

NO. 14-06-00526-CV

____________

 

SIMPLIFIED=20 DEVELOPMENT CORP. AND JAMES P. CASHIOLA, = Appellants

 

V.

 

JON=20 GARFIELD, = Appellee

 

 

On Appeal from the = 295th District Court

Harris County, = Texas

Trial Court Cause = No. 03-28787

 

 

M E M O R=20 A N D U M   O P I N I O N

This is a=20 case involving a breach of two contracts: an employment contract = and a=20 stock option agreement.  Appellants/cross-appellees, = Simplified=20 Development Corporation (ASimplified@) and=20 James P. Cashiola, appeal a judgment awarding damages and=20 attorneys=3D = fees to=20 appellee/cross-appellant Jon Garfield.  In turn, Garfield = appeals the=20 trial court=3Ds=20 disregarding of the jury=3Ds answer=20 finding that Simplified=3Ds breach=20 of Garfield=3Ds Stock=20 Option Agreement damaged Garfield in the amount of $3 = million.  We=20 affirm in part and reverse and remand in = part.

Factual=20 and Procedural Background

I.       =20 Cashiola and Simplified

Simplified=20 is a software company that produced software to track telephone = calls and=20 simultaneously bill customers.  Simplified was wholly owned = by=20 Cashiola, who was also Simplified=3Ds=20 president, chief executive officer, and, through most of the = relevant time=20 period, its sole director.  Cashiola was also heavily = involved in=20 Simplified=3Ds day to=20 day operations, particularly its sales activities. =20 Cashiola=3Ds primary=20 goal throughout the time period relevant to this appeal was to = take=20 Simplified public.

II.      =20 Simplified Hires Garfield =

In 1998=20 Garfield, a former certified public accountant, was employed as = the=20 Vice-President of Acquisitions for Coach USA,  Inc.  = Beginning=20 in 1998, Cashiola worked for a year recruiting Garfield to join = Simplified=20 as its chief financial officer.  Garfield, who was deeply = involved in=20 Coach USA=3Ds initial=20 public offering, fit into Cashiola=3Ds plan to=20 take Simplified public.  Prior to accepting = Cashiola=3Ds offer,=20 Garfield investigated Simplified=3Ds business=20 and assets.  Garfield learned that Simplified=3Ds most=20 significant asset was its 47.5% ownership interest in Network = Enhanced=20 Telecom, LLP (ANET@). =20 NET was in the pre-paid telephone card business.  NET was = also a=20 customer of Simplified as it used Simplified=3Ds software=20 to track its customers=3D = use of=20 NET telephone cards.  As a result of the nature of its = business, NET=20 generated stable cash flow and was a profitable business.  = Simplified=20 benefitted from NET=3Ds success=20 as it received revenue from NET=3Ds use of=20 Simplified=3Ds software=20 as well as cash when NET distributed profits to its owners.  = Garfield=20 realized that NET was Simplified=3Ds most=20 critical source of funds and was the key to Simplified=3Ds success.=20

Following=20 his due diligence, Garfield agreed to leave Coach USA and become=20 Simplified=3Ds chief=20 financial officer.  Garfield had an Employment Agreement with = Simplified in which Simplified agreed that if Garfield was = terminated=20 without cause, it would pay him one year=3Ds salary=20 as well as any unpaid bonus.  In addition to his Employment=20 Agreement, Garfield had a Stock Option Agreement (ASOA@) in which=20 he received options to purchase 300,000 shares of Simplified stock = at a=20 designated price.  Under the SOA, Garfield received twenty = percent of=20 the options when he signed his Employment Agreement and the = remainder of=20 the options would vest at a rate of twenty percent per year of=20 employment.  However, the SOA also provided that in the event = Garfield was terminated without cause or a AMajor=20 Event,@ = as=20 defined in the SOA, occurred, all options would immediately = vest.[1]

III.     =20 Simplified Experiences Financial Problems

After=20 Garfield joined the company, Simplified began to experience = financial=20 difficulties as a result of problems with its software.  Many = of=20 Simplified=3Ds=20 customers lodged complaints about the performance of the software = and=20 refused to pay for the software.   Many of these = customer=20 complaints grew out of Cashiola=3Ds=20 misrepresentations regarding the software=3Ds=20 capabilities.  These misrepresentations ranged from claiming = the=20 software supported ninety-nine languages when it only supported = three, to=20 promising that customized features could be developed in six weeks = when it=20 would actually take at least a year.  As a result of these = problems,=20 Simplified could not collect its receivables, its revenues were=20 overstated, and it was unable to generate positive cash flow.=20

Simplified=3Ds=20 financial problems became so serious that, in order to keep the = doors open=20 and the company moving toward its goal of an initial public = offering,=20 Simplified had to start searching for outside investors and = loans. =20 Initially, Garfield procured a bridge loan for $4 million from = Silicon=20 Valley Bank (ASVB@) to keep=20 the company operating until an investor was found.  With = regard to=20 the SVB loan, Cashiola instructed Garfield to Ado=20 whatever you have to do to get it done.@ =20 Without the August 2000 SVB loan, Simplified would have been = forced to=20 close its doors as it would have been unable to make its=20 payroll.

Next,=20 Simplified sought out investors willing to infuse money into the = company=20 in exchange for a percentage of the ownership.  Eventually, = Bear=20 Stearnes,  a group of venture capitalists Garfield had = previously=20 dealt with while employed at another company, after some = preliminary=20 discussions and investigation, gave Simplified a term sheet.  = A term=20 sheet was a list of conditions that had to be met before Bear = Stearnes=20 would go forward with the investment.  One of the conditions = included=20 in Bear Stearnes=3D = term=20 sheet required Simplified to divest itself of its ownership = interest in=20 NET.  In addition, Bear Stearnes also called for changes in=20 Simplified=3Ds=20 management.  After sending Simplified its term sheet, Bear = Stearnes=20 conducted its final due diligence of Simplified and decided to = reduce the=20 amount it was willing to invest in Simplified in exchange for a=20 twenty-five percent ownership interest.  At that point,=20 Cashiola  made the decision to reject the Bear Stearnes term=20 sheet. 

IV.     =20 Simplified Spins Off NET

Even=20 though Cashiola had rejected Bear Stearnes as an investor in = Simplified,=20 he  decided to go through with the spinoff of = Simplified=3Ds interest=20 in NET.  Following the collapse of the Bear Stearnes deal, = Cashiola=20 moved Simplified=3Ds interest=20 in NET to Net Holdings, LLC, a company Cashiola had formed = specifically=20 for that purpose.  The transfer of NET from Simplified to Net = Holdings was completed on August 22, 2000.  Cashiola was the = sole=20 owner of Net Holdings.  Prior to the transfer, Garfield = notified=20 Cashiola that, because Simplified=3Ds interest=20 in NET constituted more than fifty percent of = Simplified=3Ds assets,=20 such a move would qualify as a Major Event triggering paragraph 29 = of=20 Garfield=3Ds=20 SOA.  It was undisputed at trial that the aggregate value of=20 Garfield=3Ds stock=20 options was less than $3 million at the time of the transfer; = therefore,=20 pursuant to paragraph 29 of Garfield=3Ds SOA,=20 Simplified had to obtain Garfield=3Ds written=20 consent to the transfer of the NET asset.  To obtain=20 Garfield=3Ds consent=20 to the transfer, Cashiola represented to Garfield that he would = receive=20 stock options[2]=20 in Net Holdings with the same terms and conditions as his stock = options in=20 Simplified.  Based on that representation, Garfield consented = to the=20 transfer of Simplified=3Ds interest=20 in NET to Net Holdings.  Cashiola never followed through on = his=20 promise and Garfield never received the promised stock options in = Net=20 Holdings.  Thus, Cashiola was able to move = Simplified=3Ds most=20 valuable asset from Simplified to a company he owned unencumbered = by any=20 stock options held by another person.

V.     =20 Simplified Terminates Garfield

Within=20 five months after Cashiola moved Simplified=3Ds interest=20 to Net Holdings, Simplified terminated Garfield, ostensibly for=20 cause.  In the letter terminating Garfield,  Simplified = gave two=20 reasons for the termination: (1) Simplified claimed Garfield had = not=20 protected Simplified on the loan from SVB; and (2) Simplified = blamed=20 Garfield for the undisputed fact that Simplified missed its = revenue=20 recognition projections.

VI.     =20 Cashiola Benefits From NET

Cashiola=20 soon personally reaped the benefit of moving NET to Net = Holdings.  On=20 June 7, 2001, Cashiola sold five percent of Net = Holdings=3D = interest=20 in NET to GoCodeBlue for $1 million.  In addition, Cashiola = obtained=20 a release of his personal guaranty of a large loan made to = Simplified by=20 Vector, the investor group that had ultimately invested in = Simplified, by=20 pledging Net Holding=3Ds=20 remaining interest in NET to Vector.

 

 

VII.    =20 Garfield=3Ds Lawsuit=20 Against Simplified and Cashiola

Following=20 his termination, Garfield filed suit against Simplified and=20 Cashiola.  Garfield sued Simplified for breach of his = employment=20 contract, breach of his stock option agreement, and fraud.  = In=20 addition, Garfield asserted Cashiola was responsible for=20 Simplified=3Ds=20 contractual obligations because he used Simplified to perpetrate = an actual=20 fraud on Garfield and personally benefitted from that fraud.  = Following trial, the jury found that Simplified (1) breached=20 Garfield=3Ds=20 employment contract by terminating Garfield without cause and = determined=20 Garfield=3Ds damages=20 caused by that breach to be $155,000; (2) breached = Garfield=3Ds SOA and=20 that Garfield=3Ds damages=20 resulting from that breach were $3 million; and (3) did not commit = fraud.  The jury found that Cashiola was responsible for=20 Simplified=3Ds conduct=20 because he used Simplified to perpetrate an actual fraud on = Garfield=20 primarily for his direct personal benefit.  As previously = agreed,=20 following the jury=3Ds verdict,=20 the parties submitted the issue of Garfield=3Ds=20 attorneys=3D = fees to=20 the trial court.  The trial court then rendered its final = judgment on=20 the jury=3Ds verdict,=20 awarding Garfield $3,155,000 in damages, plus $307,975 in=20 attorney=3Ds fees, as=20 well as pre-judgment and post-judgment interest, and costs of=20 court.

Appellants=20 then filed a Motion to Disregard Certain Jury Findings and for = Judgment=20 Notwithstanding the Verdict arguing, among other things, that = there was=20 legally insufficient evidence supporting the jury=3Ds $3=20 million damage answer.  The trial court subsequently granted=20 appellant=3Ds motion=20 on the damages question only and entered an Amended Final Judgment = in=20 which it reduced Garfield=3Ds damages=20 to $155,000, but left the remainder of the original judgment = intact,=20 including holding Cashiola jointly and severally liable to = Garfield. =20 This appeal followed.

 

 

Discussion

In this=20 appeal, the parties each raise issues challenging the trial=20 court=3Ds amended=20 final judgment.  We initially address those issues raised by=20 appellants and then examine Garfield=3Ds single=20 issue on appeal.[3]

I.       =20 Did the Amended Final Judgment Incorrectly Hold Cashiola = Personally Liable=20 for Simplified=3Ds Breach=20 of Garfield=3Ds=20 Employment Agreement?

In=20 response to Jury Question 12, the jury found that Cashiola was = responsible=20 for Simplified=3Ds conduct=20 because he used Simplified to perpetrate an actual fraud on = Garfield=20 primarily for his own personal benefit.  The trial court = entered=20 judgment against Cashiola based on this finding.  In their = first two=20 issues, appellants contend the judgment must be reversed because = the=20 evidence supporting the jury=3Ds answer=20 to Question 12 is legally and factually insufficient.  We=20 disagree.

A.     =20 Standard of Review

When both=20 legal and factual sufficiency challenges are raised on appeal, we = must=20 first examine the legal sufficiency of the evidence.  City = of=20 Houston v. Cotton, 171 S.W.3d 541, 546 (Tex. App.CHouston=20 [14th Dist.] 2005, pet. denied) (citing Trimble v. Tex.=20 Dep=3Dt of=20 Protective & Regulatory Serv., 981=20 S.W.2d 211, 217 (Tex. App.CHouston=20 [14th Dist.] 1998, no pet.).  In conducting a legal = sufficiency=20 review, we must consider the evidence in the light most favorable = to the=20 verdict and indulge every reasonable inference that supports it.=20  City of Keller v. Wilson, 168 S.W.3d 802, = 821B22 (Tex.=20 2005); Harris County v. Vernagallo, 181 S.W.3d 17, 24 (Tex. = App.CHouston=20 [14th Dist.] 2005, pet. denied); Prairie View A & M Univ. = v.=20 Brooks, 180 S.W.3d 694, 705 (Tex. App.CHouston=20 [14th Dist.] 2005, no pet.).  The evidence is legally = sufficient if=20 it would enable reasonable and fair-minded people to reach the = verdict=20 under review.  Keller, 168 S.W.3d at 827B28;=20 Vernagallo, 181 S.W.3d at 24; Brooks, 180 S.W.3d at=20 705.  This court must credit favorable evidence if reasonable = jurors=20 could, and disregard contrary evidence unless reasonable jurors = could not.=20  Keller, 168 S.W.3d at 827; Vernagallo, 181 = S.W.3d at=20 24; Brooks, 180 S.W.3d at 705.  The trier of fact is = the sole=20 judge of the witnesses=3D = credibility and the weight to be given their testimony. =20 Keller, 168 S.W.3d at 819; Vernagallo, 181 S.W.3d at = 24;=20 Brooks, 180 S.W.3d at 705. This court cannot substitute our = judgment for that of the jury, so long as the evidence falls = within the=20 zone of reasonable disagreement.  Keller, 168 S.W.3d = at 822;=20 Vernagallo, 181 S.W.3d at 24; Brooks, 180 S.W.3d at=20 705.  But if the evidence allows of only one inference, = neither=20 jurors nor the reviewing court may disregard it. =  Keller, 168=20 S.W.3d at 822; Vernagallo, 181 S.W.3d at 25; Brooks, = 180=20 S.W.3d at 705.

This court=20 may sustain a legal sufficiency, or no evidence, point only if the = record=20 reveals one of the following: (1) the complete absence of a vital = fact;=20 (2) the court is barred by rules of law or of evidence from giving = weight=20 to the only evidence offered to prove a vital fact; (3) the = evidence=20 offered to prove a vital fact is no more than a scintilla; or (4) = the=20 evidence established conclusively the opposite of the vital = fact. =20 Keller, 168 S.W.3d at 810; Brooks, 180 S.W.3d at=20 705.

In=20 reviewing factual sufficiency, we must examine the entire record,=20 considering both the evidence in favor of, and contrary to, the = challenged=20 findings.  See Maritime Overseas Corp. v. Ellis, 971 = S.W.2d=20 402, 406B07 (Tex.=20 1998); Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986).  = We may=20 set aside the verdict for factual sufficiency only if it is so = contrary to=20 the overwhelming weight of evidence as to be clearly wrong and = unjust.=20  See Ellis, 971 S.W.2d at 407; Nip v. Checkpoint = Systems,=20 Inc., 154 S.W.3d 767, 769 (Tex. App.CHouston=20 [14th Dist.] 2004, no pet.).  However, we may not substitute = our=20 judgment for that of the jury, even if the evidence would clearly = support=20 a different result.  Nip, 154 S.W.3d at = 769.

B.     =20 The Evidence is Legally and Factually Sufficient = to=20 Support the Judgment

The Texas=20 Business Corporation Act provides that an owner of a corporation = is not=20 liable for the contractual obligations of the corporation unless a = plaintiff establishes that the owner Acaused the=20 corporation to be used for the purpose of perpetrating and did = perpetrate=20 an actual fraud on the obligee primarily for the direct personal = benefit=20 of the . . . owner.@ =20 See Tex. Bus. Corp. Act Ann. art. 2.21(A)(2) (Vernon = 2003). =20 Appellants contend there is legally and factually insufficient = evidence to=20 establish that Cashiola: (1) used Simplified to perpetrate an = actual fraud=20 on Garfield; and (2) directly benefitted from the fraudulent=20 conduct.

Appellants=20 assert that to establish actual fraud as required by the statute, = Garfield=20 had to prove that Cashiola (1) made a material representation that = was=20 false; (2) knew the representation was false when he made it or = made it=20 recklessly as a positive assertion without any knowledge of its = truth; (3)=20 intended to induce Garfield to act on the representation; and (4) = Garfield=20 relied on the representation and suffered damages.[4] =20 Appellants specifically contend there is legally and factually=20 insufficient evidence that Cashiola knowingly or recklessly made a = false=20 representation to Garfield with the intent to induce Garfield to = act on=20 the representation.  Assuming without deciding those are the = elements=20 required to prove Aactual=20 fraud@ = in a case=20 where a plaintiff seeks to make an owner responsible for corporate = debts,=20 there is legally and factually sufficient evidence establishing = each=20 challenged element.  Cf. Solutioneers Consulting, Ltd. v. = Gulf=20 Greyhound Partners, Ltd., C = S.W.3d=20 C, No.=20 14-06-00032-CV, 2007 WL 2386358, at *7 (Tex. App.CHouston=20 [14th Dist.] Aug. 23, 2007, no pet. h.) (stating, in a similar = scenario,=20 that actual fraud involves dishonesty of purpose or intent to=20 deceive).

Garfield=20 testified that when he learned of the planned transfer of=20 Simplified=3Ds interest=20 in NET to another company owned by Cashiola, he informed Cashiola = the=20 transfer constituted a AMajor=20 Event@ = under the=20 terms of his SOA.  Garfield then told Cashiola that = Simplified had to=20 either: (1) obtain his consent to the transfer; or (2) pursuant to = paragraph 29 of his SOA, give him $3 million worth of Simplified = stock=20 options.[5] =20 According to Garfield, Cashiola told him he did not have the $3 = million,=20 but, he would give Garfield stock options in Net Holdings on the = same=20 terms and conditions as his Simplified stock options. Garfield = testified=20 that, based on this representation by Cashiola, he permitted the = transfer=20 to go forward.  Garfield also testified he never received the = Net=20 Holdings stock options as promised by Cashiola and was also = unsuccessful=20 in his efforts to exercise his Simplified stock options in = Simplified=20 prior to his wrongful termination.  Since Cashiola testified = he did=20 not make the representation claimed by Garfield, it was the=20 jury=3Ds=20 responsibility to weigh the credibility of the witnesses and = decide the=20 weight to be assigned to their testimony.  See City of = Keller=20 v. Wilson, 168 S.W.3d 802, 819 (Tex. 2005) (stating the = jurors, as=20 the sole judges of the credibility of the witnesses and the weight = to give=20 their testimony, can choose to believe one witness and disbelieve=20 another).   The jury decided this issue against = Cashiola. =20 The evidence of a false representation is legally and factually=20 sufficient.

While a=20 party=3Ds intent=20 is determined at the time he made the representation, intent may = be=20 inferred from a party=3Ds=20 subsequent acts after the representation was made.  = Weinberger v.=20 Longer, 222 S.W.3d 557, 562 (Tex. App.CHouston=20 [14th Dist.] 2007, pet. denied) (citing Spoljaric v. Percival = Tours,=20 Inc., 708 S.W.2d 432, 434 (Tex. 1986)).  Because intent = to=20 defraud is generally not susceptible to direct proof, it = invariably must=20 be proven by circumstantial evidence.  Id.  = ASlight=20 circumstantial evidence@ = of fraud,=20 when considered with the breach of a promise to perform, is = sufficient to=20 support a finding of fraudulent intent.  Id. at=20 562B63=20 (citing Spoljaric, 708 S.W.2d at 435).

Here, in=20 addition to the evidence that appellants did not perform the = promise to=20 deliver stock options to Garfield, there was evidence that: (1) = Cashiola=20 refused to communicate with Garfield following the promise; (2) = Simplified=20 terminated Garfield without cause when Garfield continued his = efforts to=20 obtain his Simplified and Net Holdings stock options; and (3) Net = Holdings=20 was able to sell five percent of its interest in NET free from any = restrictions that might have been imposed as a result of Garfield = owning=20 stock options in Net Holdings.  This constitutes Aslight=20 circumstantial evidence@ = of=20 Cashiola=3Ds=20 fraudulent intent not to perform his agreement to give Garfield = Net=20 Holdings stock options.  Therefore, the evidence of = fraudulent intent=20 is legally and factually sufficient.      =

There was=20 also legally and factually sufficient evidence that Cashiola = personally=20 benefitted from the actual fraud.  On June 7, 2001 Net = Holdings,=20 which was wholly owned by Cashiola, sold 5% of its Net IP interest = to=20 GoCodeBlue for $1 million.  This constitutes legally and = factually=20 sufficient evidence that Cashiola was the primary beneficiary of = the=20 fraudulent conduct.  Farr v. Sun World Sav. = Ass=3Dn, 810 S.W.2d 294,=20 297B98 (Tex. = App.CEl Paso 1991, no = writ). =20 Appellants attempt to discredit this evidence by contending that = Cashiola=20 received no personal benefit from this transaction as he forgave = loans he=20 had made to Simplified.  Cashiola cites to section 5.9 of the = Forbearance and Restructuring Agreement (the AForbearance=20 Agreement@) between Vector = Capital and=20 other investors in Simplified (the AVector = Group@) on the one hand, = and=20 Simplified and Cashiola on the other, in support of that = claim.  The=20 Forbearance Agreement is dated November 4, 2003, more than two = years after=20 the sale of the Net IP interest to GoCodeBlue.  Because of = this more=20 than two year gap between the sale to GoCodeBlue and the = Forbearance=20 Agreement, as well as credibility issues surrounding Cashiola, the = jury=20 was entitled to discredit appellants=3D assertions that = Cashiola=20 received no personal benefit from the sale.

Cashiola,=20 in exchange for assigning Net Holdings=3Ds interest=20 in NET to Holdco, a company owned by the Vector Group, received a = release=20 on a personal guaranty he had given on a $2.5 million loan made by = the=20 Vector Group to Simplified.  This constitutes additional = evidence=20 that Cashiola received a personal benefit from the transfer of=20 Simplified=3Ds interest=20 in NET to Net Holdings.  See Cass v. Stephens, 156 = S.W.3d 38,=20 60 (Tex. App.CEl Paso=20 2004, pet. denied) (holding that defendant received a personal = benefit=20 when he reallocated oil well operating expenses to oil wells in = which he=20 owned a small percentage and thereby reduced his level of = expenses).=20

Finally,=20 appellants contend the jury=3Ds negative=20 answers to jury questions 6 and 9 conflict with its affirmative = answer to=20 question 12.  In question 6, the jury was asked if Simplified = committed fraud against Garfield A[i]n=20 connection with entering into the Employment and Stock Option=20 Agreements.@  In=20 question 9, the jury was asked whether Simplified committed fraud = against=20 Garfield A[i]n=20 connection with the letter dated September 15, 2000.@[6]  In=20 both questions, the inquiry was not directed at the oral = representation=20 made by Cashiola to induce Garfield to consent to the transfer of=20 Simplified=3Ds=20 ownership interest in NET and therefore they have no impact on the = jury=3Ds answer=20 to question 12.

Because=20 the evidence is legally and factually sufficient that Cashiola = used=20 Simplified to perpetrate an actual fraud on Garfield and directly=20 benefitted from the fraudulent conduct, we overrule = appellants=3D = first and=20 second issues on appeal.

II.      =20 Did the Trial Court Abuse its Discretion in the Admission of = Evidence=20 Regarding Cashiola=3Ds=20 Character and Participation in Events Leading to=20 Simplified=3Ds=20 Financial Problems?

In their=20 third issue, appellants contend the trial court erred in the = admission of=20 testimony by various witnesses regarding their: (1) opinion of=20 Cashiola=3Ds=20 character for untruthfulness; and (2) knowledge of = Cashiola=3Ds=20 involvement in Simplified=3Ds=20 sales  activities and responsibility for = Simplified=3Ds=20 financial difficulties.  We address each contention in=20 turn.

A.     =20 Standard of Review

The=20 admission and exclusion of evidence is committed to the trial=20 court=3Ds sound=20 discretion.  Prestige Ford Co. v. Gilmore, 56 S.W.3d = 73, 78=20 (Tex. App.CHouston=20 [14th Dist.] 2001, pet. denied) (citing City of Brownsville v.=20 Alvarado, 897 S.W.2d 750, 753 (Tex. 1995)).  We will = reverse only=20 if the trial court abused its discretion by acting without = reference to=20 any guiding rules or principals or by acting arbitrarily or=20 unreasonably.  In re R. J. P., 179 S.W.3d 181, 184 = (Tex.=20 App.CHouston=20 [14th Dist.] 2005, no pet.) (citing City of San Benito v. Rio = Grande=20 Valley Gas Co., 109 S.W.3d 750, 757 (Tex. 2003)).  A = party=20 seeking to reverse a judgment based on evidentiary error must = prove that=20 the error probably resulted in an improper judgment, which usually = requires the complaining party to show that the judgment turns on = the=20 particular evidence excluded or admitted.  Prestige = Ford, 56=20 S.W.3d at 78.  We make this determination by reviewing the = entire=20 record.  Id.

B.     =20 The Trial Court Did Not Abuse Its Discretion By Admitting the = Contested=20 Opinion Testimony

 During the=20 trial, Garfield called several witnesses to testify regarding = their=20 opinion of Cashiola=3Ds=20 character for truthfulness or untruthfulness.  Each witness = testified=20 that, in the witness=3Ds opinion,=20 Cashiola is dishonest and untrustworthy.  Appellants contend = the=20 trial court abused its discretion in admitting this opinion = testimony=20 because, according to appellants, the admission of such testimony = violates=20 Rule 404(a) of the Texas Rules of Evidence.

In making=20 this argument, appellants ignore the plain language of Rule = 404(a)(3)=20 which provides: ACharacter=20 Evidence Generally.  Evidence=20 of a person=3Ds=20 character or character trait is not admissible for the purpose of = proving=20 action in conformity therewith on a particular occasion, except: . = . . (3)=20 Character of witness.  Evidence of the character of a = witness,=20 as provided in rules 607, 608 and 609.@ =20 Tex. R. Evid. = 404(a)(3)=20 (emphasis in original).  We therefore look to Rule 608 to = determine=20 if the opinion testimony at issue here complies with the Rules of=20 Evidence.  Rule 608(a)(1) provides: AOpinion=20 and Reputation Evidence of Character.  The=20 credibility of a witness may be attacked or supported by evidence = in the=20 form of opinion or reputation, but subject to these limitations: = (1) the=20 evidence may refer only to character for truthfulness or=20 untruthfulness.@ =20 Tex. R. Evid. = 608(a)(1)=20 (emphasis in original).  Cashiola was a witness in the trial = and=20 therefore his credibility was at issue and could be attacked by = evidence=20 in the form of an opinion regarding his character for truthfulness = or lack=20 thereof.  That is exactly what the testimony did.  As = the Rules=20 of Evidence specifically permit this type of testimony, the trial = court=20 did not abuse its discretion when it admitted the opinion = testimony=20 attacking Cashiola=3Ds=20 reputation for truthfulness.

C.     =20 The Trial Court Did Not Abuse Its Discretion By Admitting = Testimony=20 Regarding Specific Prior Bad Acts By = Cashiola

In their=20 third issue, appellants also contend the trial court abused its = discretion=20 when it allowed numerous witnesses to testify regarding other = alleged=20 misrepresentations made by Cashiola.  These alleged=20 misrepresentations fall into two categories: (1) those made to = Simplified=20 customers regarding the capabilities of Simplified=3Ds=20 software; and (2) those made to Simplified employees.  = Appellants=20 assert the trial court=3Ds decision=20 allowing both categories of testimony violated Rule  608(b) = of the=20 Texas Rules of Evidence.  Garfield responds that the disputed = testimony was admissible under Rule 404(b) of the Texas Rules of=20 Evidence.  We agree with Garfield.

Rule=20 404(b) provides, in relevant part, A[e]vidence=20 of other crimes, wrongs or acts is not admissible to prove the = character=20 of a person in order to show action in conformity therewith.  = It may,=20 however, be admissible for other purposes . . .@ =20 Tex. R. Evid.=20 404(b).   Appellants claimed they terminated = Garfield=20 with cause and this was a defense to Garfield=3Ds claims=20 under both contracts.  Much of the contested testimony = focused on=20 Cashiola=3Ds=20 misrepresentations to Simplified=3Ds clients=20 which resulted in cancelled sales, refusals to pay, and = ultimately, a=20 decline in Simplified=3Ds=20 revenues.  This evidence was not admitted to prove=20 Cashiola=3Ds=20 character or actions in conformity with that character but to = rebut=20 appellants alleged cause for terminating Garfield.  The = evidence=20 demonstrated that Garfield was not responsible for = Simplified=3Ds revenue=20 issues, but Cashiola, at least in part, was, due to his = misrepresentations=20 to customers. The trial court did not abuse its discretion when it = admitted this testimony.  See McLellan v. Benson, 877 = S.W.2d=20 454, 457 (Tex. App.CHouston=20 [1st Dist.] 1994, no writ) (holding that if the proponent of the = evidence=20 persuades the trial court that the evidence is relevant to a  = material issue, the court may rule the evidence admissible). =

Another=20 purpose for which evidence of wrongs or other bad acts is = admissible under=20 Rule 404(b) is to prove intent.  Tex. R. Evid. 404(b).  The = remainder of=20 the contested testimony related to Cashiola fraudulently inducing = other=20 Simplified employees with promises of bonuses, commissions, stock = options,=20 and warrants.  Cashiola=3Ds pattern=20 of defrauding other employees corroborated Garfield=3Ds=20 testimony that Cashiola perpetrated a fraud upon him and thus was=20 admissible under Rule 404(b) to show Cashiola=3Ds=20 fraudulent intent.  Once again, the trial court did not abuse = its=20 discretion when it admitted this testimony.   = Id. =20 We overrule appellants=3D = third=20 issue.

 

III.     =20 Did the Trial Court Err in its Determination of the Amount of=20 Garfield=3Ds=20 Recoverable Attorneys=3D = Fees?=20

In their fourth = issue,=20 appellants contend the trial court erred in its award of=20 attorneys=3D fees because: (1) = Garfield=20 failed to segregate his fees between recoverable and = non-recoverable=20 claims; and (2) the hourly rate sought by Garfield was higher than = the=20 usual and customary fee because Garfield failed to properly employ = the use=20 of legal assistants to reduce  costs.

Texas law does not = allow the=20 recovery of attorneys=3D fees unless they are = authorized by statute or contract.  Tony Gullo Motors I, = L. P. v.=20 Chapa, 212 S.W.3d 299, 310 (Tex. 2006).  Section 38.001 = of the=20 Texas Civil Practices & Remedies Code provides that a = successful party=20 in a breach of contract action may recover reasonable and = necessary=20 attorneys=3D fees.  = Mullins v.=20 Mullins, 889 S.W.2d 550,  554 (Tex. App.CHouston [14th Dist.] = 1994, writ=20 denied) (citing Tex. Civ. Prac. & Rem. Code Ann. ' 38.001 (Vernon = 1997)). =20 Attorneys=3D fees are not = recoverable in an=20 action in tort however.  Knebel v. Capital = Nat=3Dl = Bank, 518 S.W.2d 795,=20 803B04 (Tex. 1974).  = As a=20 result, parties seeking to recover attorneys=3D fees have always = been required=20 to segregate fees between claims where fees are recoverable and = claims=20 where they are not.  Chapa, 212 S.W.3d at 311.  = An=20 exception exists to this general duty to segregate if the claims = are=20 inextricably intertwined.  Id.  To establish that = attorneys=3D fees are = inextricably=20 intertwined, the party seeking the recovery of = attorneys=3D fees must establish = that=20 discrete legal services advanced both a recoverable and an = unrecoverable=20 claim.  Id. at 313B14.

During oral argument, = counsel=20 for Garfield conceded that, because the trial in this case = predated=20 Chapa, the evidence submitted to the trial court did not = meet the=20 requirements set forth in that case to establish that = Garfield=3Ds claims were=20 inextricably intertwined.  Therefore, we sustain=20 appellants=3D = fourth=20 issue.[7]

IV.     =20 Did the Trial Court Correctly Disregard the = Jury=3Ds Answer=20 Finding Garfield Was Damaged in the Amount of $3 Million as a = Result of=20 Simplified=3Ds Breach=20 of the Stock Option Agreement?

Following=20 the trial court=3Ds entry of=20 the initial final judgment in this case, appellants filed their = Motion to=20 Disregard Certain Jury Findings and for Judgment Notwithstanding = the=20 Verdict.  Appellants argued, in part, there was no evidence = to=20 support the jury=3Ds finding=20 that Garfield suffered $3 million damages as a result of=20 Simplified=3Ds breach=20 of the SOA.  The trial court granted that portion of the = motion and=20 removed the $3 million damages from its amended final = judgment.  In=20 his single cross-issue on appeal, Garfield contends the trial = court erred=20 when it partially granted appellants=3D = Motion to=20 Disregard Certain Jury Findings and for Judgment Notwithstanding = the=20 Verdict and reduced his damages by $3 million.

A.     =20 Standard of Review

In order=20 to uphold a trial court=3Ds judgment=20 notwithstanding the verdict, an appellate court must determine = that no=20 evidence supports the jury=3Ds=20 findings.  Apache Corp. v. Dynegy Midstream Services, = Ltd.,=20 214 S.W.3d 554, 558 (Tex. App.CHouston=20 [14th Dist.] 2006, rule 53.7(f) motion granted).  The final = test for=20 legal sufficiency must always be whether the evidence at trial = would=20 enable reasonable and fair-minded people to reach the verdict = under=20 review.  Id.  Under the properly applied scope of = review,=20 appellate courts must review the evidence in the light most = favorable to=20 the verdict, crediting favorable evidence if reasonable jurors = could, and=20 disregarding contrary evidence unless reasonable jurors could not=20 disregard such evidence.  Id. at 558B59.

A judgment=20 notwithstanding the verdict is proper in the following = circumstances: (1)=20 a defect in the opponent=3Ds=20 pleadings makes the pleadings insufficient to support a judgment; = (2) the=20 evidence conclusively proves a fact that establishes a = party=3Ds right to=20 judgment as a matter of law; or (3) the evidence offered on a = cause of=20 action is insufficient to raise an issue of fact.  Id. = at=20 559.  If there is sufficient evidence to support the = jury=3Ds=20 findings, the judgment notwithstanding the verdict should be=20 reversed.  Id.

B.     =20 The Trial Court Did Not Err When it Disregarded the=20 Jury=3Ds $3=20 Million Damage Answer

While=20 Garfield contends in his brief that he Adid not=20 pull the $3 million figure from thin air,@ = the=20 evidence at trial was undisputed that the aggregate value of his = stock=20 options at the time of the transfer of NET to Het Holdings, was = less than=20 $3 million.  Indeed, there was no evidence from any witness = on=20 exactly what the value of Garfield=3Ds stock=20 options was. Instead, Garfield relied entirely on paragraph 29 of = his SOA=20 as the measure of his damages.  Paragraph 29, provides = A[t]he Company agrees = that it=20 will not consummate a Major Event unless the aggregate value of = the Option=20 Shares to Employee is equal to $3,000,000 or greater, without the = prior=20 written consent of Employee.@ = Garfield=3Ds reliance=20 on paragraph 29 to support his damage calculation is=20 misplaced.

Neither=20 party contends that the SOA agreement was ambiguous, and we agree = it is=20 not, therefore, we construe the SOA as a matter of law.  = Material=20 P=3Dships,=20 Inc. v. Ventura, 102=20 S.W.3d 252, 258 (Tex. App.CHouston=20 [14th Dist.] 2003, pet. denied).  Paragraph 29 unambiguously = creates=20 a consent right in favor of Garfield at any time when the value of = his=20 stock options was below the designated value of $3 million.  = There is=20 no language found in paragraph 29 that guaranteed Garfield $3 = million if a=20 AMajor=20 Event@ = occurred=20 or that the value of those stock options would ever reach $3=20 million.  Because the SOA is not ambiguous, = Garfield=3Ds=20 testimony on his understanding of paragraph 29 is not relevant and = therefore constitutes no evidence supporting the jury=3Ds damage=20 finding.  See id. (stating only after a court first = determines=20 a contract is ambiguous may the court consider the = parties=3D = interpretations and admit extraneous evidence to determine the = true=20 meaning of the instrument).  Because there was no evidence = supporting=20 the jury=3Ds $3=20 million damage finding, the trial court correctly granted=20 appellants=3D = Motion to=20 Disregard Certain Jury Findings and for Judgment Notwithstanding = the=20 Verdict.  Accordingly, we overrule Garfield=3Ds single=20 issue on appeal.

Conclusion

Since we sustained=20 appellants=3D fourth issue on = appeal, we=20 reverse that portion of the trial court=3Ds amended final = judgment=20 awarding attorneys=3D fees to Garfield and = remand=20 that issue to the trial court for proceedings consistent with this = opinion. Because we overruled appellants=3D first three issues = on appeal,=20 as well as Garfield=3Ds single cross-issue = on appeal,=20 we affirm the remainder of the trial court=3Ds amended final=20 judgment.

 

 

 

 

 

/s/     =20 John S. Anderson

Justice

 

 

 

 

Judgment=20 rendered and Memorandum Opinion filed November 6, 2007.

Panel=20 consists of Chief Justice Hedges and Justices Anderson and = Seymore. =20


[1]  In relevant part, paragraph 23 of = the SOA=20 defined a AMajor Event@ as occurring if Athe stockholders of [Simplified] shall = approve a=20 plan of complete liquidation of [Simplified] or an agreement for = the sale=20 or disposition by [Simplified] of all or a substantial portion of=20 [Simplified=3Ds] assets (i.e. 50 percent or more of = the total=20 assets of [Simplified]).@  Paragraph 29 of the SOA provides: = AThe Company agrees that it will not = consummate a=20 Major Event unless the aggregate value of the Option Shares to = Employee .=20 . . is equal to $3,000,000 or greater, without the prior written = consent=20 of Employee.@

[2]  We understand that limited = liability=20 companies do not issue stock but instead have membership = interests. =20 See Tex. Rev. Civ. Stat. Ann. art. 1528n, ' 4.01 (Vernon Supp. 2006).  = However, the=20 parties referred to the promised option to purchase an interest in = Net=20 Holdings, LLC as Astock options@ and we follow their lead = here.

[3]  Appellants do not challenge those = portions=20 of the amended final judgment holding Simplified liable for = breaching=20 Garfield=3Ds Employment Agreement. Appellants, in = their Reply=20 Brief, did raise an alternative issue contending that the evidence = supporting the jury=3Ds finding that Simplified breached=20 Garfield=3Ds SOA is legally and factually = insufficient. =20 However, because a party cannot raise a new issue for the first = time in a=20 reply brief, we do not address that issue.  Tex. R. App. P. = 38.3;=20 Dallas Co. v. Gonzales, 183 S.W.3d 94, 104 (Tex. = App.CDallas 2006, pet. = denied).

[4]  Question 12 asked:

 

Is James Cashiola responsible for the = conduct of=20 Simplified?

 

James Cashiola is responsible for the = conduct of=20 Simplified if James Cashiola used Simplified for the purpose of=20 perpetrating and did perpetrate an actual fraud on Jon Garfield = primarily=20 for the direct personal benefit of James Cashiola.

 

Answer AYes@ or ANo@

[5]  We address Garfield=3Ds interpretation of paragraph 29 of his = SOA in=20 part IV below.

[6]  Appellants contend the September = 15, 2000=20 letter is connected with Garfield=3Ds termination.  We disagree with = this=20 contention as Garfield was not terminated until January 22, 2001.=20

[7]  Because we sustain = appellants=3D fourth issue based on = Garfield=3Ds failure to segregate his = attorneys=3D fees, we need not address appellants = other=20 contention that Garfield=3Ds legal fees were too high because of a = failure to=20 use legal assistants.  Tex. R. App. P. 47.1.=20

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