ERI CONSULTING ENGINEERS, INC. AND LARRY G. SNODGRASS v. J. MARK SWINNEA, BRADY ENVIRONMENTAL, INC., AND MALMEBA COMPANY, LTD. (Majority)

SUPREME COURT CASES

Laws-info.com » Cases » Texas » Supreme Court » 2010 » ERI CONSULTING ENGINEERS, INC. AND LARRY G. SNODGRASS v. J. MARK SWINNEA, BRADY ENVIRONMENTAL, INC., AND MALMEBA COMPANY, LTD. (Majority)

State: Texas

Court: Supreme Court

Docket No: 07-1042

Case Date: 05/07/2010

Judge: Paul W. Green

Plaintiff: ERI CONSULTING ENGINEERS, INC. AND LARRY G. SNODGRASS

Defendant: J. MARK SWINNEA, BRADY ENVIRONMENTAL, INC., AND MALMEBA COMPANY, LTD. (Majority)

Preview:ERI CONSULTING ENGINEERS, INC. AND LARRY
G. SNODGRASS v. J. MARK SWINNEA, BRADY
ENVIRONMENTAL, INC., AND MALMEBA
COMPANY, LTD. (Majority)
IN THE SUPREME COURT OF TEXAS
No. 07-1042
ERI Consulting Engineers, Inc. and Larry G. Snodgrass, Petitioners,
v.
J. Mark Swinnea, Brady Environmental, Inc.,
and Malmeba Company, Ltd., Respondents
On Petition for Review from the
Court of Appeals for the Twelfth District of Texas
Argued December 17, 2009
Justice Green delivered the opinion of the Court.
The principal question in this case is whether consideration received for the sale of a business interest is subject to
equitable forfeiture as a remedy for breach of fiduciary duty. We hold that when a partner in a business breached his
fiduciary duty by fraudulently inducing another partner to buy out his interest, the consideration received by the
breaching party for his interest in the business is subject to forfeiture as a remedy for the breach, in addition to other
damages that result from the tortious conduct. Here, the trial court ordered equitable forfeiture, but the court of appeals
reversed, concluding that forfeiture was not an available remedy. We reverse the court of appeals judgment in part and
remand the case to that court for further proceedings consistent with this opinion.
I. Facts
Larry G. Snodgrass and J. Mark Swinnea owned equal interests in two business entities, ERI Consulting Engineers,
Inc., and Malmeba Company, Ltd., which they operated together for approximately ten years. ERI is a small
consulting company that manages asbestos abatement projects for contractors. It leased office space from Malmeba, a
partnership that owned the building.
Snodgrass and ERI purchased Swinnea s interest in ERI in 2001. ERI paid Swinnea $497,500 to redeem Swinnea s
ERI stock, and Snodgrass transferred his half-interest in Malmeba to Swinnea. ERI agreed to employ Swinnea for six
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years, and Swinnea agreed not to compete with ERI. At the same time, ERI agreed to continue leasing from Malmeba
for six years.1
Unknown to Snodgrass, the wives of Swinnea and Chris Power, an ERI employee, had created a new company called
Air Quality Associates a month before Swinnea and Snodgrass executed the buyout agreement. Air Quality Associates
was created to perform mold abatement, but later engaged in asbestos abatement as a contractor even though neither
wife had experience in the asbestos abatement field. Swinnea did not disclose the existence of Air Quality Associates
to Snodgrass during the ERI buyout negotiations. In fact, because Swinnea believed Snodgrass would run [ERI] into
the ground, Swinnea told Power to [b]e patient because we can buy this company back 50 cents on the dollar. The trial
court found that Swinnea s placement of his wife, Dawn Swinnea, and Tracy Power as principals of Air Quality
Associates, Inc. was deceptive, a sham and constituted fraud.
After the buyout, Swinnea s revenue production as an ERI employee dropped 30% 50%. Snodgrass testified that
although Swinnea s supervisory responsibilities were to cease under their agreement, Swinnea s revenue production
was to remain the same, if not increase. Soon thereafter, Snodgrass learned about Swinnea s relationship with Air
Quality Associates from one of ERI s asbestos contractors, Merico, with which Air Quality Associates was competing.
Because of the personal relationship between the individuals involved with ERI and Air Quality Associates, Merico
told Snodgrass that Merico would no longer work with ERI if ERI were to accept bids from Air Quality Associates on
asbestos abatement projects. ERI had been accepting bids from Air Quality Associates without Snodgrass knowing of
Swinnea s or Power s relationship with Air Quality Associates.
Power and his wife later bought out the Swinneas interest in Air Quality Associates. ERI subsequently worked with
Air Quality Associates, while its work with Merico declined. Meanwhile, Swinnea and his wife formed a new
company, Brady Environmental. The Swinneas told Snodgrass that Brady Environmental was going to clean homes
and air ducts. However, Brady Environmental began performing asbestos abatement using the Resilient Floor Covering
Institute method. Evidence suggests that ERI s clients use of this method impacted ERI s business because RFCI does
not require a consultant like ERI. Although he was employed by ERI, Swinnea encouraged ERI s clients to use RFCI
instead, contrary to ERI s interest and policy. After the relationship between Swinnea and ERI deteriorated, Snodgrass
ultimately fired Swinnea, releasing him from his non-compete obligations. Swinnea obtained a license to perform
asbestos consulting work the next day and began working for Brady Environmental as a consultant. Snodgrass moved
ERI out of Malmeba s building and pursued this lawsuit with ERI against Swinnea, Malmeba, and Brady
Environmental.
After a bench trial, the trial court found for Snodgrass and ERI on their claims for statutory fraud in a real estate and
stock transaction, common law fraud, breach of the non-compete clause in the contract, as well as for breach of
fiduciary duty. It rendered judgment awarding ERI and Snodgrass combined damages of $1,020,700, and $1 million in
exemplary damages. The non-exemplary damages awarded by the trial court consisted of both equitable forfeiture and
actual damages: forfeiture of $437,500, a portion of the $497,500 paid to Swinnea by ERI; forfeiture of $150,000, the
value of Snodgrass s one-half interest in Malmeba transferred to Swinnea; forfeiture of $133,200, constituting the sum
of the lease payments from ERI to Malmeba after the buyout; and $300,000 as ERI s lost profits from its business
relationship with Merico. The trial court found that a civil conspiracy existed between Swinnea and Brady
Environmental, and held Brady Environmental jointly and severally liable with Swinnea for the damages.
The court of appeals reversed and rendered judgment in favor of Swinnea because it found the evidence legally
insufficient to support the damage awards. 236 S.W.3d 825, 832 (Tex. App. Tyler 2007). In particular, the court of
appeals found that ERI failed to prove any actual damages. Id. at 841. It found that the equitable remedy of forfeiture
was unavailable because there was no fee paid to Swinnea to be forfeited. Id. It concluded further that ERI failed to
prove that Swinnea obtained any ill-gotten gains subject to disgorgement. Id. It determined that the lease payments
were not recoverable because the evidence that the lease payments were intended as consideration for the buyout was
incompetent parol evidence. Id. at 835. Finally, the court of appeals concluded that there was no basis for joint liability
as to Brady Environmental because there was no evidence of a conspiracy between Swinnea and Brady
Environmental. Id. at 841 42.
Swinnea does not dispute his liability for fraud, breach of contract, or breach of fiduciary duty. Rather, he disputes the
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damages the trial court awarded. He asserts that the forfeiture award is unsupported by law. He also asserts that the lost
profits award is unsupported by legally sufficient evidence. Brady Environmental primarily disputes whether it can be
jointly liable for any of the particular damages awarded by the trial court regardless of whether it later conspired in
certain wrongful acts.
II. Equitable Forfeiture
The primary question we must address is whether forfeiture of contractual consideration is available as a remedy
against Swinnea. We have previously upheld equitable remedies for breach of fiduciary duty. E.g., Burrow v. Arce,
997 S.W.2d 229, 237 45 (Tex. 1999) (upholding remedy of forfeiture upon attorney s breach of fiduciary duty). In
Kinzbach Tool Co. v. Corbett-Wallace Corp., we stated the principle behind such remedies:
It is beside the point for [Defendant] to say that [Plaintiff] suffered no damages because it received full value for what
it has paid and agreed to pay. . .                                                                                             . It would be a dangerous precedent for us to say that unless some affirmative loss can
be shown, the person who has violated his fiduciary relationship with another may hold on to any secret gain or benefit
he may have thereby acquired. It is the law that in such instances if the fiduciary takes any gift, gratuity, or benefit in
violation of his duty, or acquires any interest adverse to his principal, without a full disclosure, it is a betrayal of his
trust and a breach of confidence, and he must account to his principal for all he has received.
160 S.W.2d 509, 514 (Tex. 1942) (quoting United States v. Carter, 217 U.S. 286, 306 (1910)). We later reiterated that a
fiduciary may be punished for breaching his duty: The main purpose of forfeiture is not to compensate an injured
principal . . .                                                                                                                . Rather, the central purpose . . . is to protect relationships of trust by discouraging agents disloyalty.
Burrow, 997 S.W.2d at 238.
Accordingly, courts may fashion equitable remedies such as profit disgorgement and fee forfeiture to remedy a breach
of fiduciary duty. For instance, courts may disgorge all ill-gotten profits from a fiduciary when a fiduciary agent
usurps an opportunity properly belonging to a principal, or competes with a principal. See, e.g., Johnson v. Brewer &
Pritchard, P.C., 73 S.W.3d 193, 200 (Tex. 2002) (stating the rule that courts may disgorge any profit where an agent
diverted an opportunity from the principal or engaged in competition with the principal, [and] the agent or an entity
controlled by the agent profited or benefitted in some way ). Similarly, even if a fiduciary does not obtain a benefit
from a third party by violating his duty, a fiduciary may be required to forfeit the right to compensation for the
fiduciary s work. See, e.g., Burrow, 997 S.W.2d at 237 ( [A] person who renders service to another in a relationship of
trust may be denied compensation for his service if he breaches that trust. ). The difficulty comes in categorizing the
damages awarded in this case. Here, the damages awarded by the trial court were not ill-gotten profits from an outside
opportunity or external competition, or compensation for work done by the fiduciary. Rather, the trial court returned a
significant part of the contractual consideration paid by ERI and Snodgrass to Swinnea as part of the buyout
agreement. The situation arises because here the contracting party, Swinnea, was a fiduciary, such that we must
consider whether under the circumstances an equitable remedy may cross the line from actual damages for breach of
contract or fraud (redressing specific harm) to further, equitable return of contractual consideration.
The trial court found Swinnea liable for fraudulent inducement as to the buyout agreement, and Swinnea does not
challenge this liability. The trial court also found that Swinnea owed fiduciary duties both to ERI and to Snodgrass. It
follows that Swinnea s actions in fraudulently inducing the buyout agreement contracts were willful breaches of his
fiduciary duty. We hold that where willful actions constituting breach of fiduciary duty also amount to fraudulent
inducement, the contractual consideration received by the fiduciary is recoverable in equity regardless of whether
actual damages are proven, subject to certain limiting principles set out below.
The situation in this case is akin in many respects to the fee forfeiture scenario between a principal and agent, which
we discussed at length in Burrow, 997 S.W.2d at 237 45. In that case, former clients sued their attorneys alleging
breach of fiduciary duty arising from settlement negotiations in a previous lawsuit. Id. at 232 33. We held that a client
need not prove actual damages in order to obtain forfeiture of an attorney s fee for the attorney s breach of fiduciary
duty to the client. Id. at 240. We repeated that the central purpose of the remedy is to protect relationships of trust from
an agent s disloyalty or other misconduct. Id. That policy applies equally to the relationship of trust at issue here and
the duties Swinnea owed to ERI and Snodgrass. We cited section 469 of the Restatement (Second) of Agency, which
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states that if conduct [that is a breach of his duty of loyalty] constitutes a wilful and deliberate breach of his contract of
service, he is not entitled to compensation even for properly performed services for which no compensation is
apportioned. Id. at 237. We also stated:
[T]he possibility of forfeiture of compensation discourages an agent from taking personal advantage of his position of
trust in every situation no matter the circumstances, whether the principal may be injured or not. The remedy of
forfeiture removes any incentive for an agent to stray from his duty of loyalty based on the possibility that the
principal will be unharmed or may have difficulty proving the existence or amount of damages.
Id. at 238. The same principles apply to circumstances where a fiduciary takes advantage of his position of trust to
induce a principal to enter into a contract. The remedy of forfeiture is necessary to prevent such abuses of trust,
regardless of proof of actual damages.
Although forfeiture of contractual consideration may have a punitive effect like forfeiture of compensation, id. at 240,
it may nevertheless be necessary to protect fiduciary relationships. As we said in the attorney-client context:
An attorney who has clearly and seriously breached his fiduciary duty to his client should not be insulated from fee
forfeiture by his client s ignorance of the matter. Nor should an attorney who has deliberately engaged in professional
misconduct be allowed to put his client to the choice of terminating the relationship and risking that the outcome of the
litigation may be adversely affected, or continuing the relationship despite the misconduct.
Id. at 244. The same reasoning applies here: a fiduciary who breaches his duty should not be insulated from forfeiture
if the party whom he fraudulently induced into contract is ignorant about the fraud, or fails to suffer harm. Likewise,
the innocent party should not be put into a difficult choice regarding termination of the contract upon discovering the
breach of duty.
Where equitable remedies exist, however, the remedy of forfeiture must fit the circumstances presented. Id. at 241. In
Burrow, we listed several factors for consideration when fashioning a particular equitable forfeiture remedy in the
context of attorney-client relationships:
[T]he gravity and timing of the violation, its wilfulness, its effect on the value of the lawyer s work for the client, any
other threatened or actual harm to the client, and the adequacy of other remedies. These factors are to be considered in
determining whether a violation is clear and serious, whether forfeiture of any fee should be required, and if so, what
amount. The list is not exclusive. The several factors embrace broad considerations which must be weighed together
and not mechanically applied. For example, the wilfulness factor requires consideration of the attorney s culpability
generally; it does not simply limit forfeiture to situations in which the attorney s breach of duty was intentional. The
adequacy-of-other-remedies factor does not preclude forfeiture when a client can be fully compensated by damages.
Even though the main purpose of the remedy is not to compensate the client, if other remedies do not afford the client
full compensation for his damages, forfeiture may be considered for that purpose.
Id. at 243 44 (quoting Restatement (Third) of the Law Governing Lawyers 49 (Proposed Final Draft No. 1, 1996)). We
also cited comment c to section 243 of the Restatement (Second) of Trusts:
It is within the discretion of the court whether the trustee who has committed a breach of trust shall receive full
compensation or whether his compensation shall be reduced or denied. In the exercise of the court s discretion the
following factors are considered: (1) whether the trustee acted in good faith or not; (2) whether the breach of trust was
intentional or negligent or without fault; (3) whether the breach of trust related to the management of the whole trust or
related only to a part of the trust property; (4) whether or not the breach of trust occasioned any loss and whether if
there has been a loss it has been made good by the trustee; (5) whether the trustee s services were of value to the trust.
Id. at 243. Several of these factors are also relevant in this context. The gravity and timing of the breach of duty, the
level of intent or fault, whether the principal received any benefit from the fiduciary despite the breach, the centrality
of the breach to the scope of the fiduciary relationship, and any threatened or actual harm to the principal are relevant.
Likewise, the adequacy of other remedies including any punitive damages award is also relevant. Above all, the
remedy must fit the circumstances and work to serve the ultimate goal of protecting relationships of trust.
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There is no indication the trial court followed these principles in fashioning its award. Accordingly, we direct the court
of appeals to remand the case to the trial court for consideration of these factors upon resolution of the issues
remaining for the court of appeals.2
III. Evidence of Contractual Consideration
We next consider whether the trial court properly admitted undisputed testimony offered to show that the lease
agreement was intended to be consideration for the buyout agreement, and thus subject to potential forfeiture under our
analysis above. The court of appeals concluded that such testimony was incompetent parol evidence. 236 S.W.3d at
835. We disagree.
The general rule for an unambiguous contract is that evidence of prior or contemporaneous agreements is inadmissible
as parol evidence. David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450 (Tex. 2008) (per curiam). However, an
exception exists for consistent collateral agreements. As we stated over half a century ago in Hubacek v. Ennis State
Bank, the parol evidence rule does not preclude enforcement of prior or contemporaneous agreements which are
collateral to an integrated agreement and which are not inconsistent with and do not vary or contradict the express or
implied terms or obligations thereof. 317 S.W.2d 30, 32 (Tex. 1958); accord Haden, 266 S.W.3d at 451 ( Under the
exception, parol evidence can be used to demonstrate a prior or contemporaneous agreement that is both collateral to
and consistent with a binding agreement, and that does not vary or contradict the agreement s express or implied terms
or obligations. ). A collateral agreement between parties concerning the relationship of several distinct obligations
between them falls within the exception. See, e.g., Hubacek, 317 S.W.2d at 34 ( A and B in an integrated contract
respectively promise to sell and to buy Blackacre for $3,000.00. A contemporaneous oral agreement between them that
the price shall be paid partly by discharge of a judgment which B has against A is operative. (quoting with approval
Restatement (First) of Contracts section 240 cmt. d (1939))). Here, if the parties agreed that the lease obligation was to
be additional consideration for the buyout, then such an agreement was a consistent collateral agreement. Nothing in
such an agreement would contradict the written contracts. See id. at 32 ( If . . . the parol evidence rule precludes
enforcement of the oral agreement, it is because the agreement varies or contradicts the terms or obligations of the
[written contracts]. ). Accordingly, Swinnea s testimony conceding this fact was properly admitted under this long-
standing exception to the parol evidence rule. The fact that the lease agreement was consideration for the buyout
agreement as a whole is thus established by legally sufficient evidence.
Therefore, as contractual consideration, the lease payments from ERI to Malmeba are subject to forfeiture for Swinnea
s breach of fiduciary duty. The trial court should consider whether to include them in fashioning an appropriate
equitable forfeiture.
IV. Lost Profit Damages
We turn next to the question of actual damages. Here, where the only actual damages that the trial court awarded were
lost profit damages, the issue is whether ERI provided legally sufficient evidence of those lost profits.3
The rule concerning adequate evidence of lost profit damages is well established:
Recovery for lost profits does not require that the loss be susceptible of exact calculation. However, the injured party
must do more than show that they suffered some lost profits. The amount of the loss must be shown by competent
evidence with reasonable certainty. What constitutes reasonably certain evidence of lost profits is a fact intensive
determination. As a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data
from which the amount of lost profits can be ascertained. Although supporting documentation may affect the weight of
the evidence, it is not necessary to produce in court the documents supporting the opinions or estimates.
Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992) (citations omitted).
The trial court awarded $300,000 in lost profits constituting the loss of income from [ERI s and Snodgrass s] business
relationship with Merico. Our legal sufficiency analysis thus reviews whether competent evidence establishes this
amount with reasonable certainty. See id.
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Snodgrass testified that based on information from his in-house accountant, ERI s net profit margin on revenue from
Merico was approximately 25% 30%.4 As a long-time co-owner and then sole owner of ERI a small, profitable
company Snodgrass was competent to testify as to ERI s estimated profit margin on the Merico account. Cf. Bowen v.
Robinson, 227 S.W.3d 86, 97 (Tex. App. Houston [1st Dist.] 2006, pet. denied) ( Competent evidence of lost profits
relating to property can be proved by the testimony of an expert or the owner of the property. ). Swinnea directs us to
no evidence contradicting this testimony concerning ERI s profit margin.5 ERI also introduced evidence including
dozens of detailed invoices indicating that from January 2000 through August 2001 (20 months), ERI averaged
$19,833.10 in revenue per month from Merico. Later, from September 2001 through May 2004 (33 months), average
revenue dropped to $1,792.59 per month.6 Contrasting revenue from a time period immediately before the period at
issue is an established method of proving revenue for a lost profit damages calculation. See Tex. Instruments, Inc. v.
Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994) ( It is permissible to show the amount of business done
by the plaintiff in a corresponding period of time not too remote, and the business during the time for which recovery
is sought. (quoting Sw. Battery Corp. v. Owen, 115 S.W.2d 1097, 1098 99 (Tex. 1938))). Thus, ERI s method for
proving its lost profits in a reasonably certain amount establishing its lost revenue with comparative evidence from a
recent time period, and establishing its profit margin on that revenue by competent testimony of its owner was legally
adequate under Holt Atherton.
However, ERI s method does not support a calculation yielding the amount of damages awarded by the trial court.
Even assuming a 30% profit margin on the work from Merico, Snodgrass s maximum profit margin estimate, the
damages award would be only $178,601.05 for the 33-month period at issue when ERI s profits from Merico
declined.7 ERI s evidence thus fails to meet the minimum requirements for legal sufficiency that we set out in Holt
Atherton regarding reasonable certainty as to the amount awarded by the trial court here, $300,000. Up to this point,
the court of appeals reached the same conclusions that we have. See 236 S.W.3d at 838 39 (reciting the same evidence
and reaching the same conclusion regarding whether such evidence is legally sufficient to prove $300,000 of lost profit
damages with reasonable certainty).
Still, while the evidence does not prove $300,000 in lost profits, ERI s evidence is legally sufficient evidence to prove
a lesser, ascertainable amount of lost profits with reasonable certainty. In this situation, such a discrepancy between
two reasonably certain amounts will not defeat recovery by ERI. See Sw. Battery, 115 S.W.2d at 1099 ( [U]ncertainty
as to the fact of legal damages is fatal to recovery, but uncertainty as to the amount will not defeat recovery. ); Tex.
Instruments, 877 S.W.2d at 279 (explaining that Southwest Battery and subsequent cases required reasonable certainty
as to the amount of lost profit damages); cf. Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat l Dev. & Research
Corp., 299 S.W.3d 106, 109 (Tex. 2009) (remanding to the court of appeals where there was some evidence of
damages, but not enough to support the full amount awarded by the trial court). ERI proved lost profit damages; its
entitlement to recover them survives the trial court s error in awarding too much. Accordingly, the appropriate remedy
is to remand the case to the court of appeals to consider the possibility for remittitur on lost profit damages. See Tex.
R. App. P. 46.3, 46.5 (providing procedures for remittitur by courts of appeals).
Swinnea argues that ERI s lost profits calculation is inadequate because it fails to apply certain credits or deduct
certain expenses. First, Swinnea asserts that because ERI s lost profits were on the Merico account, which were in turn
lost because of Swinnea s involvement with Air Quality Associates, we must offset any amount that ERI gained by
doing business with Air Quality Associates. That is, where the two accounts were mutually exclusive, loss from one
must be offset by gain from the other. This argument is unpersuasive in part because the exclusivity arose out of
Merico s ultimatum to ERI about Air Quality Associates us or them not because it was otherwise impossible for ERI to
pursue both business relationships simultaneously. The evidence shows that Merico came to give ERI its ultimatum
because of Swinnea. Merico did not object to ERI s work with Air Quality Associates a competitor of Merico s in
asbestos abatement until it discovered that Swinnea and Power were involved with Air Quality Associates. Nothing
suggests that ERI could not have profited from working both with Air Quality Associates (apart from Swinnea) and
Merico.8 Accordingly, because nothing indicates that ERI could not work with both companies, any profits from ERI s
work with Air Quality Associates need not be offset against the lost profits from Merico caused by Swinnea s position
with Air Quality Associates.
Even assuming that Swinnea is correct that profits from Air Quality Associates must be credited against the lost profits
figure, he can point to no evidence to support his assertion that ERI profited from work with Air Quality Associates as
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a substitute for Merico. The plaintiff bears the burden of providing evidence supporting a single complete calculation
of lost profits, which may often require certain credits and expenses. See Holt Atherton, 835 S.W.2d at 85 ( Recovery
of lost profits must be predicated on one complete calculation. ). However, the defendant properly bears the burden of
providing at least some evidence suggesting that an otherwise complete lost profits calculation is in fact missing
relevant credits. Cf. Brown v. Am. Transfer & Storage Co., 601 S.W.2d 931, 936 (Tex. 1980) ( The right of offset is an
affirmative defense. The burden of pleading offset and of proving facts necessary to support it are on the party making
the assertion. ). Were this not so, every facially adequate calculation of lost profits would be susceptible to an
unsubstantiated challenge that something is missing. That subtle distinction is crucial here because Swinnea directs us
to nothing in the record proving that ERI profited in any amount from working with Air Quality Associates as a
substitute for Merico in asbestos abatement; and we can find none.9 Rather, he simply asserts that ERI does not
dispute that it developed a mutually successful relationship with Air Quality Associates. The only evidence in the
record indicates that ERI continued to show an overall profit despite the decline in revenue from Merico, and that ERI
worked with Air Quality Associates. No evidence shows whether any profits from working with Air Quality
Associates contributed to ERI s overall profits, as a substitute for Merico or otherwise.10
Swinnea also contests that overhead costs and other unspecified expenses were not included in ERI s evidence or
calculation. However, it is not necessarily the case that a company will incur increased expense or overhead, especially
where as evidence here suggests a corporation was already profitable at the time damages began, and evidence
supports an inference that it could have performed profitable services using only its existing resources. See Tex.
Instruments, 877 S.W.2d at 279 ( [P]re-existing profit, together with other facts and circumstances, may indicate with
reasonable certainty the amount of profits lost. (quoting Sw. Battery, 115 S.W.2d at 1099)). This is not a
manufacturing scenario, where production costs necessarily exist. Rather, ERI was a consulting company, which wrote
plans and specifications, solicited bids for projects, and completed surveys. Evidence suggests that ERI would have
been able to perform all of this service work using its existing employees. Power, for instance, testified that he put in
whatever hours it takes to get jobs done. Swinnea himself had begun contributing much less work to ERI, despite
having been one of its most productive workers before. Had Swinnea continued to contribute at his prior level, that
productivity would only have helped ERI complete additional projects. Furthermore, after Snodgrass fired Swinnea,
ERI began to work with Merico again, while still working with Air Quality Associates, without expansion to ERI s
staff. Accordingly, Swinnea has not met his burden to provide at least some evidence that ERI s otherwise complete
lost profit damages calculation was actually inadequate because of a necessary credit or additional expense.
Swinnea also challenges causation as to ERI s lost profit damages. However, evidence showed that at the end of
October 2001, upon concluding a series of conversations about Swinnea s involvement with Air Quality Associates,
Merico specifically indicated that it would no longer be working with ERI because of Swinnea s involvement.11
Swinnea himself testified that his involvement with Air Quality Associates could harm the Merico relationship, and
that a severance of ERI s relationship with Merico would negatively affect ERI s revenues. This evidence is legally
sufficient to establish a straightforward link between Swinnea s breach of duty and the loss of profits to ERI.
In sum, legally sufficient evidence does not exist to prove the trial court s lost profit damages award under the
minimum requirements of Holt Atherton. However, this insufficiency does not extend to reasonable certainty as to any
amount. Rather, competent evidence exists to establish some reasonably certain amount of lost profits just not the
particular amount awarded by the trial court. Unlike a situation where no evidence establishes any amount of lost profit
damages with reasonable certainty, the situation here requires a potential reduction, not a take-nothing judgment
against the plaintiff. Therefore, we reverse the court of appeals judgment that ERI recover no lost profit damages and
remand the case to that court for further proceedings. Should the court of appeals fail to arrive at a disposition
concerning remittitur, it may remand for a new trial on lost profit damages, as we might have if the evidence did not
seem conducive to remittitur. See Formosa Plastics Corp. USA v. Presidio Eng rs & Contractors, Inc., 960 S.W.2d 41,
51 (Tex. 1998) ( [B]ecause there is no legally sufficient evidence to support the entire amount of damages, but there is
some evidence of the correct measure of damages, we reverse the judgment of the court of appeals and remand the
cause for a new trial. ).
Two additional collateral issues remain: punitive damages and factual sufficiency. The trial court found clear and
convincing evidence establishing that Swinnea willfully, maliciously, and intentionally caused injury to ERI and
Snodgrass in committing fraud. Accordingly, exemplary damages may be recoverable. See Tex. Civ. Prac. & Rem.
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Code 41.003 (providing that exemplary damages are recoverable if clear and convincing evidence shows harm from
fraud or malice). Thus, upon resolution of the actual damages (lost profits) question, it is now proper for the courts
below to consider any remaining issues concerning the trial court s initial award of $1 million in punitive damages,
which Swinnea has continued to contest.
As for factual sufficiency of the lost profits award, however, we observe that there may be a question of whether
Swinnea adequately briefed the issue to the court of appeals. The Texas Rules of Appellate Procedure require adequate
briefing. See Tex. R. App. P. 38.1(i) ( The [Appellant s] brief must contain a clear and concise argument for the
contentions made, with appropriate citations to authorities and to the record. ); accord Redmon v. Griffith, 202 S.W.3d
225, 241 (Tex. App. Tyler 2006, pet. denied) ( In their brief, the [cross-appellants] have not presented much in the way
of cogent argument, nor have they cited to any authority in support of their sole issue. . .                                 . We hold that the [cross-
appellants] have waived their sole issue by their failure to adequately brief it. ); Murchison v. State, 93 S.W.3d 239,
254 (Tex. App. Houston [14th Dist.] 2002, pet. ref d) (holding that factual sufficiency point concerning criminal trial
was waived because appellants argument, record citations, and authorities do not address the point); Smith v. Tilton, 3
S.W.3d 77, 84 (Tex. App. Dallas 1999, no pet.) ( Points of error asserted on appeal but not briefed are waived. ). On
remand, the court of appeals should consider whether Swinnea adequately raised a factual sufficiency challenge.
V. Liability for Conspiracy
Having found that legally sufficient evidence established lost profit damages in some amount, and that Swinnea may
also be liable for punitive damages as well as forfeiture of contractual consideration, we must next address whether
Brady Environmental may be jointly liable for these damages as a conspirator.
An actionable civil conspiracy requires specific intent to agree to accomplish an unlawful purpose or a lawful purpose
by unlawful means. Juhl v. Airington, 936 S.W.2d 640, 644 (Tex. 1996). One of the elements of conspiracy is a
meeting of the minds on the object or course of action. Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex. 1983).
Another element is actual damages as the proximate result of the conspiracy. Id.
In its live pleading at trial, ERI asserted that Brady Environmental conspired in Swinnea s ongoing fraudulent
misrepresentations as well as Swinnea s ongoing breach of fiduciary duty, which among other things damaged existing
ERI client relationships. The trial court found that Swinnea s wrongful conduct continued after the buy-out, including
but not limited to his formation of Brady Environmental, Inc. It also found that Brady Environmental participated in
and knowingly accepted the benefits of . . . Swinnea s wrongful conduct, and that Brady Environmental had actual
awareness of the wrongful conduct.
Even assuming those findings are true, there is no evidence that any of the damages awarded by the trial court occurred
as the proximate result of any involvement by Brady Environmental. Moreover, no meeting of the minds between
Swinnea and Brady Environmental could have occurred involving the actions causing ERI actual harm lost profits
because Brady Environmental did not yet exist, having been formed approximately six months after Swinnea left Air
Quality Associates. Accordingly, Brady Environmental cannot be jointly and severally liable for any lost profit
damages discussed above, or any potential punitive damages that follow from them.
Furthermore, while Brady Environmental may have participated in the abuse of trust in Swinnea s ongoing breaches of
fiduciary duty and Swinnea s ongoing fraudulent misrepresentations, Brady Environmental had no part in inducing the
buyout agreement. As discussed above, the forfeiture of contractual consideration is available as an equitable remedy
against a fiduciary who fraudulently induces the contract, regardless of actual harm. Contractual consideration is
subject to forfeiture because it was fraudulently bargained for by a fiduciary. Certainly the rule allowing such equitable
remedies to protect relationships of trust encompasses the ability to fashion such remedies against those who would
conspire to abuse such relationships. See Kinzbach, 160 S.W.2d at 514 ( It is settled as the law of this State that where
a third party knowingly participates in the breach of duty of a fiduciary, such third party becomes a joint tortfeasor
with the fiduciary and is liable as such. ). Yet, the remedy of forfeiture must fit the circumstances presented. Burrow,
997 S.W.2d at 241. The trial court s award included no equitable remedy tied to conduct in which Brady
Environmental participated. Rather, the only equitable award forfeiture of contractual consideration arose from a
transaction that occurred approximately a year before Brady Environmental existed. Under the circumstances of this
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particular case, we believe that even if Brady Environmental conspired in later breaches of fiduciary duty or fraud,
Brady Environmental is not subject to liability for any particular equitable forfeiture amount from the return of
contractual consideration given in the specific transaction at issue. Accordingly, we affirm the court of appeals
judgment that ERI take nothing on its conspiracy claim against Brady Environmental.
VI. Conclusion
We hold that when a fiduciary fraudulently induced a contract, such a breach of fiduciary duty may give rise to
equitable forfeiture of contractual consideration. We therefore reverse the portion of the court of appeals judgment that
ERI take nothing in equity. Because trial courts are required to consider certain factors when fashioning a forfeiture
remedy, which we have set out, we direct the court of appeals to remand the case to the trial court, in turn, for review
of its forfeiture award in light of these principles. Additionally, we conclude that the court of appeals erred in
excluding evidence that certain lease payments were contractual consideration subject to forfeiture because testimony
proving this fact was properly admitted under the consistent collateral agreement exception to the parol evidence rule.
We also hold that while legally sufficient evidence does not exist to prove the lost profits awarded by the trial court,
legally sufficient evidence does exist to prove some reasonably certain amount of lost profits. We therefore also
reverse the portion of the court of appeals judgment that ERI take nothing on its claims for lost profit damages and
punitive damages and remand the case to the court of appeals to consider a remittitur, as well as any other remaining
issues, before remanding the case to the trial court.
Finally, we affirm the portion of the court of appeals judgment that ERI and Snodgrass take nothing on their civil
conspiracy claims against Brady Environmental because the actual damages awarded by the trial court were not caused
by Brady Environmental s wrongful conduct, and the equitable forfeiture awarded by the trial court arose from a
transaction too remote from Brady Environmental s involvement to support liability in equity.
Paul W. Green
Justice
OPINION DELIVERED: May 7, 2010
1 The parties dispute whether the lease agreement was intended to be consideration for the buyout. None of the
documents in the buyout agreement expressly addressed this, but Snodgrass testified that he and Swinnea had agreed
to the lease as part of the comprehensive buyout.
2 As we discuss below, certain issues that remain as a result of our holdings in this case are properly before the court
of appeals on remand, precluding us from remanding the case directly to the trial court.
3 We need not distinguish here between ERI s causes of action common-law and statutory fraud, breach of contract,
and breach of fiduciary duty because ERI s lost profit damages are recoverable for any one of those claims. See Waite
Hill Servs., Inc. v. World Class Metal Works, Inc., 959 S.W.2d 182, 184 85 (Tex. 1998) (per curiam) (observing that
lost profits are recoverable both as tort and contract damages, subject to the rule precluding double recovery for a
single injury).
4 Swinnea did not raise a hearsay objection at trial.
5 We note that Swinnea s counsel stated on cross-examination of Snodgrass that if we looked at [ERI s] financials, we
could pretty well figure [the profit margin on the Merico account] out. Indeed, Swinnea had the opportunity to attempt
to negate Snodgrass s testimony on profit margin with conclusive contrary evidence, if such evidence existed. Yet,
Swinnea directs us to no such evidence from which we could determine whether Snodgrass s estimate was mistaken.
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6 ERI points us to testimony from another ERI employee that its revenue from Merico was $300,000                             $400,000 per
year, but the accounting statements introduced by ERI as a trial exhibit conclusively establish otherwise. See City of
Keller v. Wilson, 168 S.W.3d 802, 820 (Tex. 2005) ( [Fact-finders] are not free to believe testimony that is
conclusively negated by undisputed facts. )
7 At trial, ERI put on evidence that its estimated lost revenue over the 33-month period was $595,336.83. Thirty
percent of this figure is $178,601.05.
8 Swinnea elsewhere points out to us that Air Quality Associates was also doing profitable mold treatment work, while
Merico focused on asbestos removal. This suggests that ERI might have had separate consulting opportunities with Air
Quality Associates that were unavailable from Merico, meaning it could have consistently worked with both without
overlap, as ERI also performed mold assessments. Indeed, ERI began to work with both Merico and Air Quality
Associates some time after the period in question.
9 Swinnea asserts in his brief that where ERI chose the relationship with AQA [instead of Merico, such] conduct of
itself is evidence of ERI s belief that the AQA relationship was the more profitable one. At most, this suggests that ERI
might have believed that the Air Quality Associates relationship would be the more profitable one, which says nothing
about whether it was actually profitable. Swinnea also asserts in his brief that the AQA relationship was demonstrably .
. . lucrative to ERI, as the corporate financial records proved. But Swinnea does not direct us to any such financial
records in the record. Further, having reviewed hundreds of ERI s invoices (the majority of which were issued to
Merico), as well as other financial records introduced as evidence, we could not find a single piece of evidence in the
record proving any profit to ERI from Air Quality Associates.
10 Indeed, we are left to wonder further whether any such alleged profits were in turn for asbestos projects that Merico
might have worked on rather than for mold projects.
11 We reiterate that Swinnea does not contest liability. The trial court entered specific findings of fact and conclusions
of law concerning the impropriety of Swinnea s involvement with Air Quality Associates. Thus, Swinnea s liability
extends to any damage caused by his involvement with Air Quality Associates.
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