Nicholas Van Bavel v. Oasis Design, Inc. David Knapp Constantine Ciocan And C & C Electronics, Ltd.

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-97-00434-CV

Nicholas van Bavel, Appellant

v.

Oasis Design, Inc.; David Knapp; Constantine Ciocan; and

C&C Electronics, Ltd. Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 98TH JUDICIAL DISTRICT

NO. 95-13472, HONORABLE JOSEPH HART, JUDGE PRESIDING

Appellant Nicholas van Bavel, individually and in the right of Oasis Design, Inc.,

as a shareholder and on behalf of other shareholders similarly situated, sued appellees David

Knapp, Constantine (Coco) Ciocan, C&C Electronics, and Oasis Design, Inc. for fraud, breach

of contract, and breach of fiduciary duty. After the jury returned a verdict in favor of van Bavel,

the trial court granted appellees' motion for judgment notwithstanding the verdict and rendered

a take-nothing judgment.

Van Bavel appeals asserting thirty-two points of error that present the following

arguments: (1) there was legally sufficient evidence to support the jury's liability finding and a

judgment based on van Bavel's claim of breach of fiduciary duty; (2) there was evidence of

damages from such breach, van Bavel was not precluded from recovering those damages as a

matter of law, and van Bavel was, as a matter of law, entitled to recover exemplary damages

based on the jury's verdict; (3) van Bavel was entitled to pursue tort remedies for fraud and

breach of fiduciary duty even though his injuries may have been economic and related to his

contract with Oasis; (4) there was legally sufficient evidence to support the jury's findings of

common-law and statutory fraud, conspiracy to commit fraud, and willful conduct supporting

exemplary damages against all appellees; (5) appellees waived any complaint about the measure

of damages for common-law and statutory fraud, there was sufficient evidence to support the

jury's award of actual and exemplary damages for appellees' fraud, and the trial court was

obligated to render judgment for those amounts; (6) van Bavel was entitled, as an alternate basis

for recovery, to the payment of $1,667,700 in return for his delivery of his stock pursuant to his

contract claim; and (7) the evidence supported the jury's findings that Knapp and Ciocan had

breached their fiduciary duty to Oasis and that Oasis had been damaged and was entitled to

exemplary damages. We will affirm in part and reverse in part.

FACTUAL AND PROCEDURAL BACKGROUND

Van Bavel and Knapp had been co-workers at Crystal Semiconductor in Austin

when, in October 1993, they formed their own business, Oasis Design, Inc. Oasis's main

business was computer chip design and development. The enterprise was successful and grew

rapidly. Though much of the work was shared, van Bavel served officially as president of the

corporation while Knapp served as vice-president.

Essentially from Oasis's inception, there was interest in a possible merger between

Oasis and C&C Electronics ("C&C"), a foreign corporation doing business in Texas. The

president, managing director, and 100% voting-share owner of C&C was appellee Coco Ciocan.

The original agreement to work toward a merger foundered as Ciocan failed to generate business

contracts for Oasis, basically a condition precedent for moving toward merger under the original

agreement. By the middle of 1995, merger talks were heating up again as Ciocan was finalizing

a potential fourteen million dollar contract for developing a product for Yazaki, a Japanese

company. Van Bavel, however, was more reluctant to agree to a merger than was Knapp. In

response to his reluctance, van Bavel contends, Ciocan and Knapp began to secretly conspire to

bring about his ouster from Oasis. By late July 1995, Ciocan had expressed to Knapp concerns

about van Bavel remaining in a management position. On July 31, 1995, Knapp met with attorney

Jim Montgomery. Montgomery's billing records indicate the purpose of the meeting was to "meet

with David [Knapp] regarding problem shareholder."

Ciocan came to Austin on August 2, 1995 to present his merger plan to Oasis and

its approximately twelve to fifteen employees. Montgomery's records indicate that on August 2

he had a conference with Knapp, Ciocan, and others "to discuss matter [sic]," and that he drafted

"documents for various actions required to accomplish matters discussed." On August 3, Ciocan

presented his merger plan to the employees of Oasis, predicting a merged company with an

income of $300 million within a few years. A key part of the merger was the fourteen million

dollar contract that Ciocan asserted he had secured with Yazaki. Van Bavel testified that with

Ciocan's assurances that the Yazaki contract was a "done deal," he was willing to proceed with

the merger.

Also on August 3, van Bavel signed documents presented to him by Ciocan that had

been prepared by Montgomery the previous day. Van Bavel asserts he was led to believe these

documents were merely in preparation for the Oasis-C&C merger, when in actuality they were

intended to lay the legal foundation for allowing Knapp and Ciocan to force van Bavel out of the

company. These documents amended Oasis's bylaws to increase the number of directors on the

board of directors from two to three and formally made Ciocan the third director. With van Bavel

having signed these documents, Ciocan told van Bavel that he did not want him to manage the

Yazaki project; a discussion ensued about the management structure of the post-merger Oasis.

Ciocan did not want van Bavel to be president of Oasis any longer. Van Bavel made it clear that

he did not want to be subordinate to Knapp and suggested other possibilities such as his managing

parts of the business not associated with the Yazaki contract. Van Bavel told Ciocan he thought

Knapp would be a poor manager, negotiator, and representative for Oasis, and that Knapp could

not even "manage his own dog."

On August 4, Montgomery's records indicate a meeting with Knapp and others to

discuss "removal of problem employee." Knapp and Ciocan later met with van Bavel and told

him they had considered his ideas about his position with Oasis management and had rejected

them. They offered to allow van Bavel to work for Oasis as a design engineer with no

management duties. Van Bavel said that was unacceptable and that he would resign. Van Bavel

testified he thought his resignation would be effective when the merger was completed. Instead,

Knapp returned to him in a couple of hours with a document entitled "Unanimous Consent

Resolutions of the Board of Directors" (the "Agreement"), which stated that van Bavel had been

removed as an officer of Oasis, and had resigned as an employee effective that day. Van Bavel

refused to sign the Agreement as it was, and he negotiated with Knapp for an immediate $100,000

payment in cash and an agreement to buy out his shares of stock in Oasis. As ultimately signed,

the Agreement provided that Oasis would immediately buy back van Bavel's non-vested shares

for a total of $266.26 and within thirty days would buy back his vested shares for a price to be

determined by a fair market valuation of the company: "[T]he Corporation agrees, within 30 days,

to have a fair market evaluation made of the company as of August 4, 1995, and agrees to purchase

Nicholas R. van Bavel's stock . . . at the fair market value price provided it makes business sense ."

(Emphasis added.)

Within thirty days, Oasis notified van Bavel that its valuation determined the fair

market value of his remaining shares to be $199,500. Believing this value to be extremely low,

van Bavel sent a letter to Oasis and Knapp stating he felt the Agreement had been breached.

Subsequently, van Bavel, individually and in his derivative capacity as a shareholder on behalf

of Oasis, filed suit against appellees. The trial court granted partial summary judgment in favor

of appellees on the issue of breach of the employment contract and wrongful termination of

employment. At trial, the jury was asked whether appellees had committed fraud, breach of

contract, and breach of fiduciary duty. The jury returned a verdict in favor of van Bavel on

nearly all nineteen questions submitted to it. The jury found Knapp, Ciocan, C&C and Oasis

liable for fraud and conspiracy to commit fraud; Knapp liable for breach of a fiduciary duty to van

Bavel; Ciocan and C&C liable for conspiracy to breach Knapp's fiduciary duty to van Bavel;

Oasis liable for breach of contract; and Knapp and Ciocan liable to Oasis for breach of fiduciary

duty to Oasis. The jury found both the fair market value of van Bavel's remaining stock and the

amount of damages caused by the fraud to be $1,667,700. The jury also found $100,000 damages

for the loss of van Bavel's "benefits of employment" and more than two million dollars in

exemplary damages. The trial court granted appellees' motion for judgment notwithstanding the

verdict, however, and rendered judgment that van Bavel take nothing.

DISCUSSION

A trial court may disregard a jury's findings and grant a motion for judgment

notwithstanding the verdict only when there is no evidence upon which the jury could have made

its findings. Tex. R. Civ. P. 301; Mancorp, Inc. v. Culpepper , 802 S.W.2d 226, 227 (Tex.

1990). In reviewing the granting of such a motion, the record is viewed in the light most

favorable to the jury findings, considering only the evidence and inferences that support the

findings and rejecting the evidence and inferences contrary to them. Johnson & Johnson Medical,

Inc. v. Sanchez , 924 S.W.2d 925, 929 (Tex. 1996). If there is more than a scintilla of competent

evidence to support the jury's finding, the judgment notwithstanding the verdict must be reversed.

Mancorp, 802 S.W.2d at 228 .

BREACH OF FIDUCIARY DUTY

Van Bavel contends there is legally sufficient evidence to support the jury's liability

finding on claims of breach of fiduciary duty against Knapp and conspiracy claims against Ciocan

and C&C. The jury was asked if, between July 28, 1995 and August 4, 1995, Knapp and van

Bavel had a fiduciary relationship. The jury answered yes. The jury then found that Knapp

breached the fiduciary duty he owed to van Bavel and that Ciocan and C&C had engaged in a civil

conspiracy with Knapp to breach the fiduciary duty. Finally, the jury determined that the sum of

money that would compensate van Bavel for damages proximately caused to his "benefits of

employment" by Knapp's breach of fiduciary duty was $100,000.

Texas courts have recognized that certain relationships give rise to a fiduciary duty

as a matter of law. See Crim Truck & Tractor Co. v. Navistar Int'l Transp. Corp. , 823 S.W.2d

591, 593 (Tex. 1992) (e.g., partners, principal-agent, attorney-client). Some relationships have

been categorized as "special relationships" giving rise to the tort duty of good faith and fair

dealing, but not necessarily the fiduciary duty that requires a party to place the interest of the

other party before his own. Id . at 594. Texas courts have also recognized that certain informal

relationships may give rise to a fiduciary duty. Id. The existence of such "confidential

relationships" is usually a question of fact, although when the issue is one of no evidence, it

becomes a question of law. Id .

Proof of a fiduciary duty outside the few formally recognized relationships may be

found when the dealings between the parties have continued for so long that one party is justified

in relying on the other to act in the former's best interest. See Consolidated Bearing & Supply

Co. v. First Nat'l Bank , 720 S.W.2d 647, 649 (Tex. App.--Amarillo 1986, no writ); Thomson v.

Norton , 604 S.W.2d 473, 476 (Tex. Civ. App.--Dallas 1980, no writ). The analysis in

Consolidated Bearing is instructive:

Courts have been strict in applying this test, however, emphasizing the

distinction between factual proof of a confidential relationship and mere subjective

assertions by one party. Two cases factually compatible with this case are

illustrative. In Thigpen v. Locke , [ 363 S.W.2d 247 (Tex. 1962),] the Supreme

Court, while recognizing the principle that trust and confidence can arise

informally from purely personal relationships, refused to find a confidential

relationship between two parties to a deed when the grantee was a trust officer at

a local bank. The evidence showed that the Lockes had a long-standing business

and personal relationship with Thigpen, who was a director, officer and

shareholder in their corporation, but the court held that there was no evidence to

show that there existed anything more than a debtor-creditor relationship. Thigpen

v. Locke , 363 S.W.2d at 253 .

In contrast to Thigpen , the transaction in dispute in the present case is a

loan between the bank and another of its customers; it involves Consolidated only

indirectly. The corporation was not a party to the transaction it seeks to set aside.

In Winston v. Lake Jackson Bank, [ 574 S.W.2d 628 (Tex. Civ.

App.--Houston [14th Dist.] 1978, no writ),] the endorsers of a promissory note

failed to prove that a fiduciary relationship existed between them and the bank,

requiring the bank to advise the endorsers of their potential individual liability

before getting their signatures. The endorsers submitted as evidence to support

their claim the following: (1) extensive prior dealings between the endorsers and

the bank; (2) the fact that the bank president had been a financial advisor to one of

the parties; and (3) the existence of prior notes entered into with the understanding

that the liability would be limited. Winston v. Lake Jackson Bank , 574 S.W.2d at

628 . The court concluded that evidence showing the existence of a debtor-creditor

relationship for several years did not justify the endorser's assumption that the

bank would act in their interest.

We reach the same conclusion here.

Consolidated Bearing , 720 S.W.2d at 649-50 .

In the present case, the question is whether the evidence concerning the relationship

between van Bavel and Knapp demonstrated anything more than the normal relationship between

two persons starting a new corporation. To this end, van Bavel points to evidence that he and

Knapp had been co-workers previously, had purchased a boat together with a third person, had

started Oasis together in 1993, had founded the company on a "50/50" basis (i.e., they worked

together the first several months with no salaries, made equal loans to the company, were paid

the same, and trusted each other to manage their respective projects), and had socialized with each

other, although by the time period pertinent to the jury question there was undisputed evidence

that they no longer socialized outside of the office and had not done so for months.

Van Bavel presents three cases to demonstrate that a fiduciary duty may be found

to exist between persons involved in a closely held corporation. These cases do not further his

argument. In Duncan v. Lichtenberger , 671 S.W.2d 948, 951 (Tex. App.--Fort Worth 1984, writ

ref'd n.r.e.), minority shareholders brought suit against the majority shareholder for their

monetary contributions to the corporation after the majority shareholder fired plaintiffs from their

positions. As to the existence of a fiduciary duty, the court simply noted that the relationship of

officers and directors to a corporation is a fiduciary one imposing on them the duty to exercise

their powers as officers and directors solely for the benefit of the corporation and its shareholders.

Id . at 952 (quoting Canion v. Texas Cycle Supply , Inc. , 537 S.W.2d 510, 513 (Tex. Civ.

App.--Austin 1976, writ ref'd n.r.e.)). In the present case, however, the relevant relationship is

not Knapp's formal fiduciary relationship with Oasis (which is addressed below in the discussion

of the derivative action), but rather is the informal relationship with van Bavel as friend and co-director/shareholder/boat owner. Additionally, under this cause of action, van Bavel is not

seeking return of his monetary contribution as a shareholder, but damages for the loss of

employment.

In Dodson v. Kung , 717 S.W.2d 385, 387-88 (Tex. App.--Houston [14th Dist.]

1986, writ ref'd n.r.e.), the two parties met in 1961 and formed a father/son relationship while

Dodson was still a boy. Over the years, Kung had twice turned down requests by Dodson for

financial assistance. In 1980, Kung and Dodson orally agreed to form a new construction

business, which was incorporated in December of that year. By 1983, the relationship had gone

sour. Dodson resigned and sued for breach of fiduciary duty, as well as for fraud and breach of

contract. The court noted that while a fiduciary relationship may arise informally from a purely

personal relationship or a business association not otherwise considered a fiduciary relationship,

the case under consideration was neither; while one party regarded the other as a "son/protégé"

and was in the superior position, there was no evidence that the lesser experienced man was naive

or that the men were not dealing with each other at arm's length and on equal business terms. Id .

at 389. In the present case, too, there is no evidence that Knapp and van Bavel were not dealing

with each other as equals.

In Kaspar v. Thorne , 755 S.W.2d 151, 155 (Tex. App.--Dallas 1988, no writ), one

50% shareholder sued the other 50% shareholder for breach of fiduciary duty. The court

recognized that a fiduciary duty may exist in some circumstances and that whether such a duty

exists is usually a question for the fact finder. Id. However, the court noted that the question of

the existence of a fiduciary duty was not presented to the fact-finder. Id. We agree that a

fiduciary relationship may be found to exist between such parties under sufficient evidence, but

the facts in Kaspar offer no assistance to van Bavel's argument. In Kaspar , the two men had

known each other for thirty years and had been doing business together for several years as an

actual partnership before forming a corporation. Id . at 152. Nonetheless, the court concluded

as a matter of law that no fiduciary relationship existed between them. In the present case, Knapp

and van Bavel's relationship was of shorter duration than was the relationship in Kaspar , and there

is no evidence that van Bavel and Knapp ever conducted business as an actual partnership.

The choice of business form is an important decision. There are advantages and

disadvantages that come with the choice between partnership and corporation. A corporation

offers its shareholders protection from liabilities of the corporation, but partners are jointly and

severally liable for partnership debts. While partners owe a fiduciary duty to each other, directors

and officers of a corporation owe a fiduciary duty to the corporation for the benefit of the

shareholders. See General Dynamics v. Torres , 915 S.W.2d 45, 49 (Tex. App.--El Paso 1995,

writ denied) (directors and officers owe fiduciary duty to corporation). Here, van Bavel and

Knapp were co-shareholders, co-officers and co-directors, not an uncommon situation in closely

held corporations. Finding a fiduciary duty, however, requires considerably more than the normal

circumstances of a closely held corporation. Cf. Schoellkopf v. Pledger , 739 S.W.2d 914, 920

(Tex. App.--Dallas 1987) (fiduciary relationship between stockholders in corporation may, with

sufficient evidence, be shown to exist in some instances), rev'd on other grounds , 762 S.W.2d

145 (Tex. 1988). (1) There must be some evidence on which the jury could rationally conclude that

it was reasonable for van Bavel to expect Knapp to put van Bavel's interests ahead of his own.

The only other evidence of something beyond the typical facts of a closely held corporation was

that they owned a boat together. This is, as a matter of law, not enough. We conclude the

evidence is legally insufficient to demonstrate that a fiduciary relationship existed between van

Bavel and Knapp. The trial court did not err in rendering a take-nothing judgment on the breach

of fiduciary duty cause of action.

FRAUD

Van Bavel contends there is legally sufficient evidence to support the jury's finding

that Knapp, Ciocan, C&C, and Oasis committed both common-law and statutory fraud, as well

as conspiracy to commit fraud, and to support the damages awarded by the jury. Tort damages

are available for fraud irrespective of whether the fraudulent representations are later subsumed

in a contract or whether the plaintiff suffers only economic loss related to the subject matter of

the contract. Formosa Plastics Corp. v. Presidio Eng'rs & Contractors, Inc. , 960 S.W.2d 41,

47 (Tex. 1998).

Common-law fraud consists of a material representation that was false, was made

with the knowledge of the falsity or without knowledge of the truth, was made as a positive

assertion, was made with the intent that it be acted upon by the other party, was acted upon by

the party in reliance on the misrepresentation, and caused injury to the party. Sears, Roebuck &

Co. v. Meadows , 877 S.W.2d 281, 282 (Tex. 1994). Statutory fraud is fraud in a transaction

involving real estate or stock in a corporation, see Tex. Bus. & Com. Code Ann. § 27.01 (a) (West

1987) , and may be shown in two ways. First, statutory fraud consists of a false representation,

of past or existing material fact, made to a person for the purpose of inducing that person to enter

into a contract, and which is relied on by the person entering the contract. Id . § 27.01(a)(1).

Second, statutory fraud may also be shown as a false and material promise to do an act, made with

the intention of not fulfilling it, to a person for the purpose of inducing that person to enter a

contract, and which is relied on by the person entering the contract. Id . § 27.01(a)(2).

In the present case, van Bavel bases his allegations of fraud on two key

representations and the two measures of damages found by the jury. First, van Bavel asserts that

appellees never intended to pay him the fair market value ("FMV") for his stock in Oasis when

they signed the Agreement. (2) Second, van Bavel asserts that when he was asked to sign documents

on August 3 increasing the number of directors on Oasis's board of directors from two to three

and formally making Ciocan the third director, it was falsely represented to him that the purpose

of the documents was merely to facilitate a merger with C&C, when the actual purpose was to

force van Bavel out of the company. The two elements of damages submitted to the jury were the

injury to van Bavel from the loss of his benefits of employment and the injury from the failure to

purchase his vested shares of stock.

First, we consider the evidence of fraud surrounding the two key representations

that van Bavel asserts caused him injury. To demonstrate fraud from the asserted

misrepresentation that Knapp and Ciocan never intended to pay FMV, van Bavel presented the

following evidence: appellees sought to lower the valuation in ways CPA Harvey Corn described

as "inappropriate"; one of the accountants hired by Oasis to perform the valuation was not

independent but had done work for Oasis previously; appellees requested a valuation of van

Bavel's shares of stock (which were discounted for being a minority interest) instead of a valuation

of the company as a whole; van Bavel was never told that a minority discount would be used in

making the valuation; one accountant was asked to refigure his valuation after it produced a value

of more than $600,000 for van Bavel's stock; the sheer size of the discrepancy between appellees'

offer of $199,000 and the actual FMV of $1,667,700 as determined by the jury; and Knapp's

statement when the Agreement was signed that an accountant's valuation could end up being

higher or lower than van Bavel's estimated FMV of $20,000,000, implying it was roughly

correct.

To prove fraud surrounding the asserted misrepresentation that the formal addition

of Ciocan as a director was merely in preparation for the merger, van Bavel introduced evidence

showing that Knapp and later Ciocan met with an attorney to discuss "problem shareholder" and

"removal of problem employee" and that the attorney drafted "documents for various actions

required to accomplish matters discussed," which were the documents van Bavel was asked to

sign. Van Bavel testified that Knapp had inquired about whether Ciocan had formally been made

a director, and van Bavel told him no. When asked why he was making these inquiries, Knapp

responded that it had something to do with the merger. On August 3, Ciocan handed van Bavel

documents to sign, explaining that "this is just stuff in preparation for the merger." Van Bavel

testified that he had no indication this might lead to his ouster. It was just after he signed these

documents that Ciocan first stated he did not want van Bavel in any type of control position or to

be president of Oasis anymore. The fraud asserted here is not merely a failure to disclose the true

intent behind having van Bavel sign the documents but the affirmative misrepresentation that the

only purpose of the documents was to prepare for the merger. (3)

Regardless of whether we find legally sufficient evidence of fraud, however, van

Bavel cannot recover fraud damages as to his vested shares of stock. Appellees point out that the

transaction with respect to the vested shares of stock was never concluded and therefore van Bavel

still owns his shares. (4) Texas law recognizes two measures of direct damages for common-law

fraud: out-of-pocket damages and benefit-of-the-bargain damages. See Formosa Plastics , 960

S.W.2d at 49 . The out-of-pocket measure computes the difference between the value of what the

plaintiff parted with and what he received; it allows the defrauded party to recover the actual

injury suffered. Id . The benefit-of-the-bargain measure computes the difference between the

value as represented and the value received; it allows for recovery of lost profits if such damages

are proved with reasonable certainty. For services fraudulently induced, value as represented may

be computed as actual cost of performance plus profits originally anticipated. Id . at 49-50. Both

measures, however, assume that the fraudulently induced transaction actually went through. In

the present case, no transfer of the stock occurred.

Where, as is commonly the case, the defendant's actionable

misrepresentation or non-disclosure induces a transaction that involves the transfer

of something of value, courts normally resort to a general measure of damages

often referred to as direct damages, and, in addition thereto, will allow such other

damages as special or consequential damages as the plaintiff can prove.

When the defendant's fraudulent conduct does not involve the transfer of

property, the plaintiff necessarily proves his claim by proving special or

consequential damages if he can do so.

W. Page Keeton, et al., Prosser and Keeton on the Law of Torts § 110, at 766-67 (5th ed. 1984);

see Formosa Plastics , 960 S.W.2d at 41 n.1 ("When properly pleaded and proved, consequential

damages that are foreseeable and directly traceable to the fraud and result from it might be

recoverable."); Texas Commerce Bank v. Lebco Constructors, Inc. , 865 S.W.2d 68, 73-74 (Tex.

App.--Corpus Christi 1993, writ denied). Consequential damages to van Bavel regarding

appellees' anticipated purchase of his vested shares of stock were neither pleaded nor proven here.

The evidence is therefore legally insufficient to support the jury's finding as to this element of

fraud damages.

Even if he cannot recover damages relating to his vested stock, however, van Bavel

asserts that appellees' misrepresentations resulted in his resignation and caused him injury through

the loss of benefits of employment. Appellees respond that there is no evidence to support the

finding as to the loss of van Bavel's benefits of employment because there is no evidence that van

Bavel resigned in detrimental reliance on the misrepresentation concerning the Agreement. See

Johnson & Johnson Medical , 924 S.W.2d at 930 (detrimental reliance is essential element of

fraud). At trial, van Bavel testified that he resigned in response to the job offer of design

engineer. He clearly found it unacceptable that he would have no management duties and would

be subordinate to Knapp. He testified that Knapp and Ciocan knew he would resign in response

to this offer. When asked if he thought he would be giving up his ownership in the company

when he stated that he would resign rather than accept the position offered, van Bavel responded:

"Not at that instant, no. If--eventually if I resigned, I was--it kind of struck me, oh, yeah, there's

a buy/sell agreement and that would be part of my leaving, is that stock would get bought back

into the company." Van Bavel did not testify that he would have worked as a design engineer but

for the promise to pay FMV for his vested shares of stock. We conclude that there is no evidence

van Bavel relied on the asserted misrepresentation that appellees intended to pay him FMV in

resigning as an employee of Oasis.

Nonetheless, van Bavel asserts the jury award is otherwise supported by evidence

of detrimental reliance on the misrepresentation concerning the documents signed on August 3.

Van Bavel argues that, based on his own testimony, the jury could have inferred he signed these

documents in reliance on the misrepresentation that the documents were just in preparation for the

merger. He argues that his signing these documents formally making Ciocan a director resulted

in his forced resignation. (5)

Van Bavel's argument is premised on the assertion that it was his fraudulently

induced signature, increasing the number of directors to three and formally making Ciocan a

director, that caused him to be outnumbered as a director, setting the stage for his ouster. Van

Bavel offered into evidence the bylaws of Oasis. At the time in question, the bylaws of Oasis

allowed for only two directors. Although there was evidence that van Bavel had earlier repeatedly

treated Ciocan as a director, (6) under the bylaws Ciocan was not formally a director. Directors are

elected by the shareholders under article III, section 3 of the bylaws. In September 1994, Ciocan

purchased shares of stock in Oasis , albeit very few. Van Bavel does not dispute that Ciocan was

a shareholder in August 1995. Article IX, section 2 of the Oasis bylaws states that unless a bylaw

adopted by the shareholders provides otherwise, either the directors or the shareholders may

amend the bylaws. Indeed, the document van Bavel signed on August 3 was an amendment of

the bylaws and election of an additional director by the shareholders (including Ciocan). Because

Ciocan was already a shareholder when van Bavel signed the August 3 document, van Bavel was

already outnumbered in shares . We conclude, therefore, that the asserted misrepresentation upon

which van Bavel relied in signing the documents did not cause him to be outnumbered in a way

that set the stage for his ouster; he was already outnumbered.

Because van Bavel may not recover damages relating to his stock from the asserted

fraud here , because there is no evidence that he resigned in detrimental reliance on the stock-purchase representation in the Agreement, and because there was no evidence that his allegedly

fraudulently induced signing of the August 3 documents caused his ouster, we conclude the trial

court did not err in rendering a take-nothing judgment on van Bavel's fraud claim.

BREACH OF CONTRACT

Van Bavel next contends there is legally sufficient evidence to support an award

for breach of contract and damages from that breach. The jury found that Oasis had breached

the clause in the Agreement that states, "Resolved, that the Corporation agrees, within 30 days,

to have a fair market evaluation made of the company as of August 4, 1995, and agrees to

purchase Nicholas R. Van Bavel's stock which is not repurchased according to the Shareholders

Buy-Sell agreement dated June 25, 1994, at the fair market value price provided it makes business

sense."

The jury was then asked to determine the fair market value of van Bavel's stock

in Oasis as of August 4, 1995. The jury answered $1,667,700. Van Bavel asserts the trial court

erred in not either granting this amount in damages or granting specific performance. (7) In

reviewing the trial court's judgment that van Bavel take nothing, we engage in a legal-sufficiency

review. See Johnson & Johnson Medical , 924 S.W.2d at 929 . The grant or denial of specific

performance, however, rests in the sound discretion of the trial court. American Apparel Prods.,

Inc. v. Brabs, Inc. , 880 S.W.2d 267, 269 (Tex. App.--Houston [14th Dist.] 1994, no writ).

Appellees assert this clause was not enforceable because the phrase "provided it

makes business sense" renders the provision too indefinite to be enforceable as a contract. We

conclude that even assuming the provision is enforceable and the business-sense clause is not too

indefinite, the trial court did not err in rendering a take-nothing judgment. Even assuming breach

and FMV of $1,667,700, there is no finding on whether it would make business sense for Oasis

to repurchase the stock at that price . (8) We must therefore deem that the trial court found in such

a manner as to support the judgment, i.e., that it did not make business sense for Oasis to buy

back van Bavel's stock for $1,667,700. (9) See Tex. R. Civ. P. 279; Strain v. Gansle , 768 S.W.2d

345, 347 (Tex. App.--Corpus Christi 1989, writ denied); LeBlanc, Inc. v. Gulf Bitulithic Co. , 412

S.W.2d 86, 94 (Tex. Civ. App.--Tyler 1967, writ ref'd n.r.e.) (absence of jury finding on

causation could give rise to deemed finding). The trial court did not err in failing to grant van

Bavel damages or specific performance in his breach of contract claim.

DERIVATIVE ACTION AS A SHAREHOLDER

Finally, van Bavel contends the evidence was legally sufficient to support the jury's

finding that Knapp and Ciocan had breached their fiduciary duty to Oasis Design and that Oasis

Design was entitled to actual and exemplary damages. Both Knapp and Ciocan were directors of

Oasis Design; they owed a fiduciary duty to the corporation as a matter of law. See General

Dynamics, 915 S.W.2d at 49 . The jury was instructed that although officers and directors must

act fairly and in the best interest of the corporation, a director is not liable for his conduct if it

falls within the protection of the "business judgment rule." (10) See International Bankers Life Ins.

Co. v. Holloway , 368 S.W.2d 567, 576-77 (Tex. 1963) (discussing "extreme measure of candor,

unselfishness, and good faith" required by director's fiduciary duty to corporation); Langston v.

Eagle Publishing Co. , 719 S.W.2d 612, 616 (Tex. App.--Waco 1986, writ ref'd n.r.e.) ( under

business-judgment rule, conduct that is merely unwise, inexpedient, or imprudent will not sustain

suit against management of corporation by shareholders ).

The jury found that both Knapp and Ciocan had breached their duty to Oasis by

failing to comply with the standards of a fiduciary. The jury was then asked what sum of money

would compensate Oasis for damages caused by the breach; the jury answered $500,000. The

jury also awarded exemplary damages.

As evidence of a breach of their fiduciary duty to the corporation, van Bavel asserts

that, by forcing him out, Knapp and Ciocan deprived Oasis of its most effective management

member for their own personal reasons. A former key employee testified that van Bavel was a

better negotiator than Knapp. By getting rid of van Bavel, Ciocan was in a better position to

negotiate more favorable terms with Knapp for the merger with his own company, C&C, than

would have been possible with van Bavel. Knapp testified that he was not happy with his

relationship with van Bavel and that van Bavel was a very argumentative and difficult co-worker.

The record contains evidence that Ciocan had plans to demand full control of Oasis, and that

Knapp joined with Ciocan to get rid of van Bavel without exploring Ciocan's plans in detail. Van

Bavel testified that Oasis had a severe financial downturn after his departure. We believe the

foregoing is more than a scintilla of evidence showing Knapp and Ciocan breached their fiduciary

duty to Oasis and is legally sufficient to support the jury finding.

Van Bavel next asserts the evidence is legally sufficient to support the jury's finding

that $500,000 in damages were caused by this breach. The jury was instructed to consider as

elements of damages "loss of profits" Oasis would have made but for the breach and "loss of fair

market value" that Oasis suffered as a result of the breach. Appellees point out that lost profits

must be proven with reasonable certainty. See Holt Atherton Indus., Inc. v. Heine , 835 S.W.2d

80, 84 (Tex. 1992). While recovery of lost profits does not require that the loss be susceptible

to exact calculation, opinions or estimates of lost profits must be based on objective facts, figures,

or data from which the amount of lost profits may be ascertained. See id. ; Szczepanik v. First

Southern Trust Co. , 883 S.W.2d 648, 649 (Tex. 1994). A claimant must quantify the damages

as net loss to the company, not just lost income. Holt Atherton , 835 S.W.2d at 84 .

To show damages here, van Bavel offered into evidence five graphs, which were

prepared by van Bavel and CPA Harvey Corn based on information provided by Oasis. The

graphs were used to show the quarterly financial performance of Oasis from fourth quarter 1993

to third quarter 1996. The first graph showing "sales" and the second graph showing "expenses"

were combined to produce the third graph showing "earnings." The fourth graph shows "cash

balance," while the final graph shows price per share according to van Bavel's fair market value

formula, a formula that had been used during van Bavel's tenure at Oasis in promoting the

company to potential employees and customers. The formula used was twenty times "earnings"

(see graph three), plus the liquidation value of the company and an estimated goodwill value.

These graphs appear to show a clear decrease in the financial performance of the company

beginning with the third quarter of 1995, the quarter in which van Bavel left Oasis.

According to graph three, while Oasis had positive earnings of more than $400,000

each of the three quarters preceding van Bavel's departure, it posted negative earnings totaling

$500,000 in the two quarters beginning with the quarter in which van Bavel left. During closing

argument, counsel for van Bavel asked the jury to look at how Oasis was performing before van

Bavel's departure and the losses in the following six months, and suggested the jury should award

at least $500,000. While there was no evidence presented of what van Bavel estimates Oasis

would have earned had he stayed, the jury could have inferred that since Oasis had positive

earnings before van Bavel left, it would have at least broken even had van Bavel stayed. As a

consequence of the negative earnings and a decreasing cash balance, graph five shows a fair

market value of Oasis's stock at a high of more than $6 per share in the second and third quarters

1995 dropping to a negative value in second quarter 1996. We conclude these graphs provide

more than a scintilla of evidence of the amount of damages to Oasis's financial status found by

the jury.

To find that these damages were proximately caused by the forced exit of van

Bavel, the jury could have rationally inferred causation from the fact that the financial downturn

demonstrated in the graphs roughly coincided with van Bavel's departure. Testimony that van

Bavel was the better negotiator and manager and that he ran the business side of the company

could have led the jury to conclude that his forced departure caused the downturn. We conclude

that the evidence of causation, though meager, is legally sufficient to support the jury's finding

that damage to Oasis's financial status was caused by Knapp's and Ciocan's breaches of fiduciary

duty. We sustain points of error 28 and 29.

Appellees raise a cross-point of error asserting that the evidence is factually

insufficient to support the jury's findings as to the derivative action. We agree.

A factual-sufficiency review requires the court to consider and weigh all of the

evidence and set aside the verdict and remand for a new trial if the court concludes that the

evidence supporting the verdict is so weak, or the evidence to the contrary so overwhelming, as

to make it manifestly unjust. In re King's Estate , 244 S.W.2d 660, 661 (Tex. 1951); West v.

Watkins, 594 S.W.2d 800, 802 (Tex. Civ. App.--San Antonio 1980, writ ref'd n.r.e.).

Appellees presented evidence showing that the accounting method used by van

Bavel in the preparation of his graphs skewed the true financial picture of Oasis's financial

performance. Many of Oasis's contracts with its customers employed a "milestone" basis

whereby Oasis was paid as various milestones were reached even though substantial work

remained to be done. In showing Oasis's income on his graphs at trial, however, van Bavel

reported the income in the quarter it was received (the "cash" method). Appellees presented

evidence that a "percentage of completion" method in which income is reflected as the work

earning the income is actually done is the method that comports with generally accepted

accounting principles. (11) The result is that an inordinately high percentage of income for projects

showed up on the graphs for the periods before van Bavel left while an inordinately high

percentage of expenses for the same projects showed up on the graphs for the periods after he left.

Thus, the use of the cash method by van Bavel appears to create the false appearance of a sudden

disastrous downturn. Appellees point out that at the time of trial Oasis had more employees than

ever. Several of these employees testified at trial that the company was doing well.

The evidence also shows that nearly as much of the decrease in earnings shown in

van Bavel's graph three is attributable to an increase of expenses as to a decrease in sales. Van

Bavel did not present evidence suggesting how his absence caused an increase in expenses.

Additionally, there is evidence that some of the decrease in earnings was simply the result of the

company's efforts during 1995 being directed toward the merger with C&C, rather than the result

of van Bavel's absence. (12) Indeed, once the time period during which the merger was under

consideration had passed, even van Bavel's graphs show that Oasis experienced a strong financial

upturn.

Finally, we note that van Bavel was asked by his attorney what fair market value

was indicated for third quarter 1996 on his graph five. Van Bavel responded he could look at "the

printout" and tell, but that it was hard to tell from the graph. No "printout" was offered into

evidence, leaving the graphs as essentially the only evidence of damages.

Having considered and weighed all of the evidence, we conclude that the evidence

supporting the jury's finding as to damages in the derivative action is so weak, and the evidence

to the contrary so strong, as to render the finding manifestly unjust. See Fleming Mfg. Co., Inc.

v. Capitol Brick, Inc. , 734 S.W.2d 405, 407-08 (Tex. App.--Austin 1987, writ ref'd n.r.e.)

(remanding case for consideration of lost profits due to factually insufficient evidence of the

amount of damages). We sustain appellees' cross-points four and six. We need not consider the

remaining cross-points.

CONCLUSION

Having concluded that the trial court erred in granting judgment notwithstanding

the verdict as to van Bavel's derivative claim, we sustain points of error 28 and 29. Because we

also conclude that the evidence is factually insufficient to support the jury's findings as to the

derivative claim, however, we sustain cross-points four and six and remand that claim to the trial

court for a new trial. (13) In all other respects, we overrule van Bavel's points of error and affirm

the trial court's judgment.

J. Woodfin Jones, Justice

Before Justices Aboussie, Jones and Kidd

Affirmed in Part; Reversed and Remanded in Part

Filed: August 31, 1998

Do Not Publish

1. In Crim Truck, the question was whether a fiduciary relationship existed between the parties

to a franchise agreement. The court acknowledged that finding a fiduciary duty would present

a clash between one's freedom to contract and such a duty. See Crim Truck, 823 S.W.2d at 594 .

In Consolidated Bearing , the court pointed out the potential conflict between fiduciary duties if

the defendant-bank owed one duty to the plaintiff-bank customer and other duties to other bank

customers. See Consolidated Bearing , 720 S.W.2d at 650 . We note that a potential conflict

would exist if a director owed one duty to a single co-director/shareholder and owed a separate

duty to the corporation for the benefit of all shareholders. Though such a potential conflict does

not negate the possibility that two duties may be found, it makes us even more reluctant to impose

a duty based on an informal relationship as friends, especially where a duty based on a formal

relationship already exists for the protection of shareholders.

2. Van Bavel cites appropriate language in discussing appellate review of the first

misrepresentation:

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. While

a party's intent is determined at the time the party made the representation, it may be

inferred from the party's subsequent acts after the representation is made. Intent is a

fact uniquely within the realm of the trier of fact because it so depends upon the

credibility of the witness and the weight to be given their testimony.

Spoljaric v. Percival Tours, Inc ., 708 S.W.2d 432, 434-35 (Tex. 1986) (citations omitted).

3. Where the circumstances impose a duty to speak, silence can act as a false representation.

Fisher Controls Int'l, Inc. v. Gibbons , 911 S.W.2d 135, 140 (Tex. App.--Houston [1st Dist.]

1995, writ denied). We have already concluded that Knapp owed no fiduciary duty to van Bavel

and there is no assertion that Ciocan owed such a duty to van Bavel. However, if a person makes

a partial disclosure, he may assume the duty to tell the whole truth even where there was no duty

to make the partial disclosure. See Trustees of Northwest Laundry & Dry Cleaners Health &

Welfare Trust Fund v. Burzynski , 27 F.3d 153 (5th Cir. 1995); see also Tex. Jur. 3d Fraud and

Deceit § 8 (1998) (cause of action for fraud may be sustained for declarant's knowing failure to

disclose material information necessary to prevent her statement from being misleading).

4. Van Bavel argues that appellees waived this argument because, although appellees asserted

it in their motion for judgment notwithstanding the verdict, they failed to object to the charge to

the jury on this basis and failed to request an instruction using the proper measure of damages in

substantially correct form. Appellees did,

however, object to the relevant jury question on the

basis that there was no evidence to support its submission to the jury. We conclude that the issue

was not waived.

5. Van Bavel also asserts Ciocan made the false representation in early August 1995 that the

Yazaki contract was a "done deal" and that without that assurance he would not have been

cooperative in proceeding with acts in furtherance of the merger, including signing the documents

presented to him on August 3. Appellees presented evidence that an agreement was signed by

Ciocan and Yazaki on June 27, 1995 stating that the parties intended to complete a final contract

by July 27, 1995 and outlining the terms and conditions of the contract. Ciocan testified that

Japanese to English translation problems slowed the process but that the final contract on the deal

was signed on September 5, 1995.

6. On November 19, 1994 and again on March 20, 1995, van Bavel signed documents stating

"We the undersigned, being all the directors of Oasis Design, Inc., a Texas corporation, hereby

waive notice of the meeting of the board of directors of the corporation . . . ." The undersigned

were van Bavel, Knapp, and Ciocan. Additionally, on July 19, 1994, van Bavel sent an e-mail

to a Japanese businessman stating, "We have the greatest respect for Mr. Ciocan; in fact, Mr.

Ciocan is on the Board of Directors of Oasis Design."

7. Van Bavel did not specifically request specific performance in his pleadings, but asserts that

his plea for general relief supports a judgment for specific performance. See Davis v. Alwac Int'l,

Inc. , 369 S.W.2d 797, 802 (Tex. Civ. App.--Beaumont 1963, writ ref'd n.r.e.).

8. The business-sense clause of the Agreement has meaning only in the context of a particular

amount to be paid for van Bavel's shares. Consideration of the business-sense clause was included

in the jury question on breach, but was not included in the jury question asking the jury to

determine the FMV of van Bavel's stock as of August 4, 1995.

9. We find factually sufficient evidence in the record to support such a deemed finding. See

Tex. R. Civ. P. 279.

10. Under the business-judgment rule, the jury was instructed that a director will not be held

liable for an honest mistake of judgment if he acted with due care, in good faith, and in

furtherance of a rational business purpose.

11. There was also evidence that van Bavel himself had used the "percentage of completion"

method at Oasis for tax purposes to delay paying taxes on income.

12. The merger was eventually scuttled when Knapp and key employees at Oasis realized that

Ciocan wanted to have sufficient stock in Oasis, with voting rights, that would essentially give

him ultimate veto power over all Oasis decisions.

13. Because the issue of liability is contested here and the derivative action involves

unliquidated damages, we are precluded from remanding that cause of action only on the issue of

damages. Tex. R. App. P. 44.1(b); see Turner, Collie & Braden, Inc. v. Brookhollow, Inc. , 642

S.W.2d 160, 166 (Tex. 1982); County Management, Inc. v. Butler , 650 S.W.2d 888, 893 (Tex.

App.--Austin 1983, writ dism'd by agr.).

resentation.

Fisher Controls Int'l, Inc. v. Gibbons , 911 S.W.2d 135, 140 (Tex. App.--Houston [1st Dist.]

1995, writ denied). We have already concluded that Knapp owed no fiduciary duty to van Bavel

and there is no assertion that Ciocan owed such a duty to van Bavel. However, if a person makes

a partial disclosure, he may assume the duty to tell the whole truth even where there was no duty

to make the partial disclosure. See Trustees of Northwest Laundry & Dry Cleaners Health &

Welfare Trust Fund v. Burzynski , 27 F.3d 153 (5th Cir. 1995); see also Tex. Jur. 3d Fraud and

Deceit § 8 (1998) (cause of action for fraud may be sustained for declarant's knowing failure to

disclose material information necessary to prevent her statement from being misleading).

4. Van Bavel argues that appellees