Opinion
03-22-00034-CV
07-27-2023
James W. Thompson, Jamie L. Thompson, and Rubicon Communications, LLC d/b/a Netgate, Christopher M. Buechler, Individually and Derivatively on Behalf of Nominal Defendant Electric Sheep Fencing, LLC Appellants//Cross-Appellant v. Christopher M. Buechler, Individually and Derivatively on behalf of Nominal Defendant Electric Sheep Fencing LLC, James W. Thompson, Jamie L. Thompson, and Rubicon Communications, LLC d/b/a Netgate Appellee,//Cross-Appellees
FROM THE 459TH DISTRICT COURT OF TRAVIS COUNTY NO. D-1-GN-17-005884, THE HONORABLE MAYA GUERRA GAMBLE, JUDGE PRESIDING
Before Justices Baker, Kelly, and Theofanis
MEMORANDUM OPINION
Rosa Lopez Theofanis, Justice
In this business dispute among members of Electric Sheep Fencing, LLC, the parties appeal from the trial court's final judgment following a jury trial. The jury found in favor of cross-appellant Christopher Buechler on his claims of breach of contract and breach of fiduciary duty against appellants Jamie Thompson (Ms. Thompson) and James Thompson (Mr. Thompson). The trial court granted a judgment notwithstanding the verdict (JNOV) in part in favor of appellants, reducing the compensatory damages awarded to Buechler to $1,000. In the final judgment, the total amount awarded to Buechler is $2,930.58, which reflects the damages award and offsetting attorney's fees and costs. The parties' issues challenge the trial court's JNOV, and appellants challenge the awards of attorney's fees. For the following reasons, we affirm in part and reverse and render in part.
BACKGROUND
In 2004, Rubicon Communications, LLC d/b/a Netgate was formed and is wholly owned by Mr. and Ms. Thompson. In 2006, BSD Perimeter, LLC (BSD) was formed by Buechler (49% ownership interest) and another individual (51% ownership interest), and they assigned BSD their rights to pfSense, a free and open-source firewall and router software program that they had created and developed. After BSD acquired the rights to pfSense, Netgate paid BSD $1,000 a month for a "reseller subscription" that included the right to use the pfSense logo for commercial purposes and to be promoted as a recommended hardware vendor on the pfSense website.
Rubicon Communications was formed as a limited partnership in 2004 but converted to a limited liability corporation in 2014.
A third individual had an ownership interest in BSD, but BSD redeemed that interest. After BSD redeemed that interest, Buechler owned 49%, and the other individual owned 51%. Although third parties could use the pfSense software for free, Buechler testified at trial that people were required to obtain BSD's consent and pay BSD "to use the [pfSense] logo in a commercial sense of promoting and selling their pfSense appliances."
The exhibits at trial included correspondence with other third parties from around the world about BSD's reseller subscriptions, the requirement to pay for "logo usage rights," and BSD's efforts to stop the misuse of its intellectual property, including its trademarks.
In 2012, Ms. Thompson purchased the other individual's 51% ownership interest in BSD for approximately $225,000, and in February 2013, Electric Sheep Fencing, LLC (ESF) was formed and acquired BSD's tangible assets and intellectual property, including the rights, title, and interests in pfSense and related trademarks and other marks (the pfSense assets). ESF's members are Ms. Thompson (51% ownership interest), Buechler (48% ownership interest), and Mr. Thompson (1% ownership interest). Initially, all three members were managers of ESF, but in April 2014, the Thompsons removed Buechler as a manager.
The exhibits at trial included the Assignment of Tangible Assets, Patent Rights, Trademarks, Copyrights, Goodwill, Intellectual Property and Software from BSD to ESF. BSD also assigned ESF rights in the book titled pfSense: The Definitive Guide, which was authored by Buechler and another BSD employee during their course of employment, and the website www.pfsense.com and associated domain name.
The releases of pfSense software were originally managed by BSD, followed by ESF, and then Netgate. In November 2014, ESF entered into a Trademark License Agreement with Netgate that granted Netgate
an exclusive, worldwide, royalty-free right and license, including the right to grant sublicenses, for use of the Marks in connection with the import, export, advertising, marketing, offering for sale and sale of Licensed Products, and [Netgate] accepts the license subject to the terms and conditions herein.
The agreement identifies the pfSense trademarks as PFSENSE CERTIFIED, U.S. Reg. No. 4324672; PFSENSE, U.S. Reg. No. 3571276; PFSENSE, U.S. Reg. No. 4414546; and PFSENSE, International Reg. No. 1176766; and a covered common law usage. Consistent with the plain language of the agreement, Buechler testified at trial that it granted Netgate "an exclusive worldwide royalty-free right and license, including the right to grant sublicenses for use of the mark in connection with the import, export, advertising, marketing, offering for sale and sale of licensed products."
BSD continued to own the pfSense assets and related goodwill, but the agreement authorized Netgate to use the pfSense assets for commercial purposes, to enforce and defend the pfSense assets from trademark infringements, and to enter into reseller and trademark sublicense agreements with third parties concerning the pfSense assets. Ms. Thompson signed the agreement on behalf of ESF, and Mr. Thompson signed the agreement on behalf of Netgate. From 2015 to 2018, Netgate spent approximately $150,000 related to trademark enforcement concerning the pfSense assets.
Around the time that the Thompsons executed the Trademark License Agreement, they decided to wind down ESF's operations and transferred ESF employees except for Buechler to Netgate. Starting in 2013, ESF had begun to sell "pfSense branded hardware" on its online stores through a "dropship relationship" with Netgate, in which the order was taken by ESF and then Netgate fulfilled and shipped the order to the purchaser. But the credit card processing on ESF's websites was changed from ESF to Netgate, and after the change, ESF's revenues from its online sales were sent directly to Netgate. Buechler testified at trial about how this change left ESF with no business:
Mr. Thompson testified at trial that he and Ms. Thompson could not contribute more money to ESF's operations and that ESF was losing money.
Ms. Thompson testified at trial about the reason that ESF had a "dropship relationship" with Netgate,
Netgate already had all of the infrastructure and all of the people and all of the wherewithal to basically take the, um, hardware that we were already selling and marketing as Netgate hardware and apply the pfSense logo and sell that.
[T]he credit card processing [was] on the back end of those, the entire site stayed the same, it was not visible to anyone browsing online looking at [ESF's] websites, but [the Thompsons] changed the credit card processing on the back end. So all of a sudden in the snap of a finger ESF had absolutely no business left and Netgate had it all.
Buechler remained employed by ESF until 2016 when he left ESF and accepted a position with a different company. Around that time, Buechler offered to sell his ownership interest in ESF, but the Thompsons did not accept his offer.
In September 2016, the Thompsons through counsel sent a letter to Buechler's new employer raising concerns that Buechler was violating duties that he allegedly owed to Netgate, and in June 2017, Buechler through counsel sent an offer of settlement to appellants to settle all disputes among the parties. The letter asserted that the Thompsons had breached duties owed to Buechler and ESF, including that their actions violated ESF's Company Agreement, and Buechler offered to settle the parties' disputes by transferring his membership in ESF in exchange for $500,000 and other conditions, including that appellants would immediately cease associating Buechler's name with them, that they would cease making any false or disparaging remarks about him, that they would cease contact with Buechler, and that the parties would execute a mutual release and non-disparagement agreement concerning their disputes. Appellants did not accept the settlement offer, and it expired by its own terms.
In October 2017, Buechler, individually and derivatively on behalf of ESF, filed suit against appellants. In his verified amended petition, he asserted multiple claims, including breach of fiduciary duties, breach of contract, and violations of the Texas Theft Liability Act. See Tex. Civ. Prac. & Rem. Code §§ 134.001-.005. His factual allegations supporting his breach of contract claim included that the Thompsons breached ESF's Company Agreement by transferring ESF assets, ceasing its day-to-day operations, and entering into the Trademark License Agreement without his consent. Buechler also asserted a claim for attorney's fees pursuant to Section 38.001(8) of the Texas Civil Practice and Remedies Code. See id. § 38.001(8) (authorizing recovery of attorney's fees in addition to "valid claim and costs" if claim is for oral or written contract). Buechler attached the Company Agreement to his petition. The Company Agreement expressly prohibits its managers from assigning "rights in Company property, other than for Company purpose" or, subject to certain exceptions, entering into unfair contracts with entities in which one or more of ESF's managers or members had a financial interest.
Appellants moved for summary judgment on Buechler's claims, and in September 2019, the trial court granted appellants' motion in part, dismissing Buechler's claims except his claims of breach of contract and breach of fiduciary duties. Because the trial court dismissed Buechler's claims brought under the Texas Theft Liability Act, the trial court awarded appellants attorney's fees and costs, which awards were incorporated into the final judgment. See id. § 134.005(b) ("Each person who prevails in a suit under the chapter shall be awarded court costs and reasonable and necessary attorney's fees."). The trial court awarded attorney's fees of $118,987.50 and costs of $5,549.22.
Buechler moved for and was granted trial continuances in October 2019 and February 2020. He also sought a continuance from the August 2021 setting, but the trial court denied that request and proceeded with the jury trial. Buechler sought more than $2.5 million in damages based on his claims that the Thompsons breached ESF's Company Agreement and their fiduciary duties in their roles at ESF. He calculated his damages by applying a 15% royalty to revenues earned by Netgate on certain pfSense products from 2015 to 2018, deducting incurred legal costs to enforce and defend the pfSense assets, and then applying Buechler's 48% membership interest in ESF. Among appellants' defenses, they presented evidence that Netgate had not received royalty payments based on the Trademark License Agreement, that the primary purpose of the agreement was to authorize Netgate to police trademark infringements, and that Netgate's commercial use of the pfSense assets did not require a license from ESF because the pfSense software was free.
There were other trial settings that were continued because of the pandemic.
The witnesses were the parties; Netgate's director of finance and operations; its vice president of service delivery, who managed Buechler; and the trademark lawyer who drafted the Trademark License Agreement. Relevant to this appeal, Netgate's director of finance and operations testified about charts that she prepared compiling financial information with calculations of Netgate's net income and expenses with "Break Out of pfSense Unit Sales to Other Items" from 2015 to 2018. The trial exhibits included: (i) the director's charts; (ii) financial reports; (iii) tax returns; (iv) ESF's Company Agreement; (v) the Trademark License Agreement; (vi) BSD's operating agreement; (vii) correspondence in October 2014 between Mr. Thompson and ToDoo S.a.r.l., a French Company, negotiating a license agreement with copies of drafts of a proposed agreement between ESF and ToDoo S.a.r.l. that included a 15% royalty fee; (viii) a form reseller and trademark sublicense agreement between Netgate and third parties that included a 15% royalty fee; and (ix) website screenshots of Netgate.com showing that it offers pfSense Plus as a "secure networking solution," markets appliances "with pfSense+," incorporates "pfSense" in the name of some of its products, and lists authorized resellers and premier partners with their contact information around the world.
Mr. Thompson testified that Netgate had entered into sublicense agreements with a 15% royalty for use of the pfSense assets under "certain conditions." Evidence at trial showed that when resellers purchase pfSense branded hardware from Netgate, they pay Netgate a royalty equal to 15% of the purchase price of the product as a pre-paid portion of the sales price. Mr. Thompson testified that a "pre-paid royalty" meant that the "royalty was basically already included in the sale," but he also testified that Netgate had not received any royalty payments based on the Trademark License Agreement.
The jury found that Mr. and Ms. Thompson each had failed to comply with ESF's Company Agreement and that $25,102.44 would compensate Buechler for their respective failures to comply. The jury was instructed to consider the following elements of damages as to this claim:
Lost profits that were a natural, probable, and foreseeable consequence of [Mr. Thompson's] or [Ms. Thompson's] failure to comply with the Company Agreement of Electric Sheep Fencing, LLC.
The jury also found in favor of Buechler on his breach-of-fiduciary-duty claims. The jury found in answer to separate questions that Mr. and Ms. Thompson failed to comply with the following duties:
A. The duty not to cause Electric Sheep Fencing, LLC to assign rights in Electric Sheep Fencing, LLC property, other than for a company purpose.
B. The duty to ensure that any contract or transaction between Electric Sheep Fencing, LLC and Netgate was fair to Electric Sheep Fencing, LLC at the time it was authorized, approved, or ratified.
The jury further found that $52,296.75 was the amount of Mr. and Ms. Thompson's respective profit in causing ESF to execute the unfair contract or transaction.
Appellants moved for JNOV, and the trial court granted their motion in part, reducing the compensatory damages awarded to Buechler to $1,000. The trial court, however, also awarded Buechler $118,987.50 in attorney's fees, which offset the award of attorney's fees to appellants, and $7,479.80 in court costs. The net of the amounts awarded in the final judgment was a recovery in favor of Buechler for $2,930.58. The parties' appeals followed.
ANALYSIS
Buechler's Cross-Appeal
In his sole issue, Buechler challenges the trial court's JNOV, arguing that the trial court erred in finding that there was insufficient evidence to support the jury's verdict on damages. In granting appellants' motion for JNOV in part, the trial court disregarded the jury's findings that the amount of $25,102.44 would fairly compensate Buechler for his damages that resulted from the Thompsons' failure to comply with ESF's Company Agreement and that $52,296.75 was the amount of the Thompsons' profit when they caused ESF to execute the unfair contract or transaction.
Waiver
As a threshold matter, we address appellants' argument that Buechler has waived his issue because he has not addressed all the independent grounds that they raised in their motion for JNOV, in particular their argument that there was no evidence of causation between the Thompsons' alleged bad acts and the profits that Buechler allegedly lost or that the Thompsons allegedly made. Buechler's issue, however, expressly challenging the trial court's finding that the evidence was not sufficient to support the jury's verdict on damages is broad enough to cover appellants' asserted grounds in their motion for JNOV.
In its final judgment, the trial court expressly stated that it was granting appellants' motion for JNOV in part because there was insufficient evidence to sustain the jury's damages verdict:
Because it appeared to the Court that there is insufficient evidence to sustain the damages verdict of the jury, judgment notwithstanding the verdict should be rendered in part in favor of Defendants and against Plaintiff on the question of damages. The jury's verdict on liability remains.
And in Buechler's issue challenging the trial court's finding that the evidence was insufficient, Buechler discusses and relies on the evidence that connected the Thompsons' breach-which finding the Thompsons do not challenge-to the resulting damages. For example, Buechler's conclusion argues that he presented "uncontroverted, clear and direct evidence to support a reasonably certain calculation of lost profits arising from Defendants'-Appellees' breaches of contract and fiduciary duty."
In this context, we conclude that Buechler has not waived his issue on appeal and turn to our analysis of it. See Garza v. Cantu, 431 S.W.3d 96, 101-02, n.3 (Tex. App.-Houston [14th Dist.] 2013, pet. denied) (rejecting argument that appellant's brief failed to address causation ground for granting JNOV and concluding based on substance of appellant's argument that it addressed damages and causation); cf. Brooks v. Mass. Mktg., Ltd., No. 03-07-00658-CV, 2010 Tex.App. LEXIS 2529, at *5-7 (Tex. App.-Austin Apr. 6, 2010, pet. denied) (mem. op.) (holding that when trial court did not specify reason for granting JNOV, appellant waived right to question two grounds in motion for JNOV by failing to address them in opening brief and affirming JNOV).
Further, we conclude that the evidence discussed in this opinion supports the jury's finding that Buechler's damages resulted from the Thompsons' breach of ESF's Company Agreement. See Garza v. Cantu, 431 S.W.3d 96, 101-02, n.3 (Tex. App.-Houston [14th Dist.] 2013, pet. denied) (concluding that evidence discussed in opinion supported jury's finding that appellant's damages resulted from appellee's failure to comply).
Standard of Review
"A JNOV is proper when the evidence is conclusive and one party is entitled to prevail as a matter of law, or when a legal principle precludes recovery." Zarate v. Rodriguez, 542 S.W.3d 26, 35 (Tex. App.-Houston [14th Dist.] 2017, pet. denied) (citing Houston Med. Testing Servs., Inc. v. Mintzer, 417 S.W.3d 691, 695 (Tex. App.-Houston [14th Dist.] 2013, no pet.)). Among the proper grounds for a trial court to grant a motion for JNOV is when there is no evidence to support the jury's finding. Komet v. Graves, 40 S.W.3d 596, 603 (Tex. App.- San Antonio 2001, no pet.) (citing Tex.R.Civ.P. 301; Brown v. Bank of Galveston, 963 S.W.2d 511, 513 (Tex. 1998)); see Tex. R. Civ. P. 301 (addressing trial court's judgments and authorizing trial court upon motion and notice to "disregard any jury finding on a question that has no support in the evidence").
"We review a party's challenge to the trial court's grant or denial of a motion for judgment notwithstanding the verdict under the standard for legal sufficiency." Hunter v. PriceKubecka, PLLC, 339 S.W.3d 795, 806-07 (Tex. App-Dallas 2011, no pet.) (citing City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005)). "In determining whether there is no evidence to support a jury verdict, we consider the evidence favorable to the jury's verdict and reasonable inferences that tend to support it." Komet, 40 S.W.3d at 603 (citing Brown, 963 S.W.2d at 513). "No evidence exists when the record discloses a complete absence of evidence that supports a vital fact." Id. (citing Juliette Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660, 666 n. 9 (Tex. 1990)). If there is more than a scintilla of evidence to support the jury's finding, then the JNOV should be reversed. Id. (citing Southern States Transp., Inc. v. State, 774 S.W.2d 639, 640 (Tex. 1989)).
Did the trial court err in granting JNOV in part?
Buechler argues that the trial court erred in granting JNOV in part because he "presented more than sufficient evidence to calculate lost profits according to the 'reasonable certainty' standard." See Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992) (requiring that amount of loss for recovery of lost profits "be shown by competent evidence with reasonable certainty"). Generally, profits are the "net of income or revenues from business activity less expenses incurred in that activity." Mid Continent Lift & Equip., LLC v. J. McNeill Pilot Car Serv., 537 S.W.3d 660, 665 (Tex. App-Austin 2017, no pet.). "What constitutes reasonably certain evidence of lost profits is a fact intensive determination. At 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." Heine, 835 S.W.2d at 84.
"'[T]he common thread running through [the] cases' applying this standard 'is the necessity that the claim of lost profits not be hypothetical or hopeful but substantial in the circumstances.'" Mid Continent Lift & Equip., 537 S.W.3d at 665 (quoting Phillips v. Carlton Energy Grp., LLC, 475 S.W.3d 265, 279 (Tex. 2015)). "The plaintiff bears the burden of providing evidence supporting a single complete calculation of lost profits, which may often require certain credits and expenses." ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867, 878 (Tex. 2010) (citing Heine, 835 S.W.2d at 85). But "[t]here is no one proper method for determining lost profits as damages," DaimlerChrysler Motors Co. v. Manuel, 362 S.W.3d 160, 190 (Tex. App -Fort Worth 2012, no pet.); a party is not mandated to follow "any specific accounting or mathematical methodology for determining lost profits with a reasonable certainty," Mid Continent Lift & Equip., 537 S.W.3d at 665; and such losses need not be "susceptible to exact calculations," id. at 664 (quoting Heine, 835 S.W.2d at 84).
Here the evidence included testimony and exhibits showing Netgate's annual sales revenues and expenses related to the pfSense assets from 2015 to 2018, including Netgate's legal expenses to protect the pfSense assets, and Buechler's calculation of his damages was based on his 48% membership interest in ESF and a royalty of 15% on Netgate's sales revenues of the "pfSense units" minus the legal fees that Netgate incurred to protect the assets.Although Buechler was seeking damages over $2.5 million and the jury awarded significantly lower amounts, he presented evidence containing objective facts, figures, and data from which lost profits could be ascertained and provided a "single complete calculation of lost profits," which included deductions for associated expenses. See Swinnea, 318 S.W.3d at 878; Heine, 835 S.W.2d at 84.
From 2015 to 2018, the evidence established that Netgate's revenues and resulting profits from its use of the pfSense assets significantly increased.
Appellants do not challenge the jury's findings that the Thompsons breached ESF's Company Agreement, and the jury was instructed to consider lost profits that were a natural, probable, and foreseeable consequence of the Thompsons' breach of the agreement. Under the agreement's terms, the Thompsons were prohibited from assigning "rights in Company property, other than for Company purpose" or, subject to certain exceptions, entering into unfair contracts with entities in which one or more of its managers had a financial interest. The Thompsons wholly owned Netgate, and around the time that they executed the Trademark Licensing Agreement in 2014, the Thompsons wound down ESF's operations and transferred its employees to Netgate, except for Buechler. The Thompsons also changed the credit card processing on ESF's online stores so that, according to Buechler's testimony, "all of a sudden in the snap of a finger ESF had absolutely no business left and Netgate had it all."
Considering the evidence in the light most favorable to the jury's findings on damages and reasonable inferences that tend to support the findings, we cannot conclude that there was a complete absence of evidence to support the jury's findings of damages. See Komet, 40 S.W.3d at 603; see also Mid Continent Lift & Equip., 537 S.W.3d at 665 (explaining that claimant is not required to follow "specific accounting or mathematical methodology for determining lost profits with a reasonable certainty"). Considering all the evidence in the record and indulging every reasonable inference in favor of the jury's findings, Buechler presented "competent evidence with reasonable certainty" about his lost profits that were a "natural, probable, and foreseeable consequence" of appellants' breach of the Company Agreement. See Heine, 835 S.W.2d at 84. Therefore more than a scintilla of evidence supports the jury's award. See id. Thus, we conclude that the trial court erred in granting appellants' motion for JNOV in part and sustain Buechler's issue to the extent he challenges the trial court's JNOV.
Buechler also asks this Court to remand for a new trial, but we do not grant this relief. When an appellate court reverses a trial court's judgment disregarding jury findings, it "must render judgment in harmony with the jury's verdict, unless the opposing party presents grounds sufficient to 'vitiate[] the jury's verdict' or 'prevent[] an affirmance of the judgment had one been rendered by the trial court in harmony with the verdict.'" See Southwest Galvanizing, Inc. v. Eagle Fabricators, Inc., 383 S.W.3d 677, 681 (Tex. App-Houston [14th Dist] 2012, no pet.) (citing Tex.R.Civ.P. 324(c)); see also Tex. R. App. P. 38.2(b)(1). Although appellants challenge the jury's verdict in one of their issues, for the reasons stated below, we overrule that issue and conclude that there was more than a scintilla of evidence to support the jury's findings of damages. In this context, the proper remedy in this case is to reverse the trial court's JNOV in part and render judgment as to damages of $25,102.44, the amount that the jury found would fairly compensate Buechler for his damages that resulted from the Thompsons' failure to comply with ESF's Company Agreement.
This amount conforms with the jury's findings of damages as to the Thompsons' breaches of their fiduciary duties. The jury found that $52,296.75 was the amount of the Thompsons' profit in causing ESF to execute the unfair contract or transaction. $25,102.44 is 48% of $52,296.75, and 48% is Buechler's ownership interest in ESF.
Appellants' Appeal
In their four issues, appellants argue that: (i) the trial court abused its discretion in overruling their objection to untimely disclosed evidence of Buechler's damages model, (ii) the trial court erred in finding legally sufficient evidence of $1,000 in lost profits, (iii) the trial court abused its discretion in awarding attorney's fees to Buechler, and (iv) the trial court abused its discretion in denying their motion to modify the judgment pursuant to Texas Rule of Civil Procedure 167. We address their issues in turn.
Evidence of Buechler's Damages Model
In their first issue, the Thompsons argue that the trial court abused its discretion in overruling their objection to evidence of Buechler's damages model because the evidence was not disclosed until one day before the August 2021 trial, which was the fifth trial setting and almost four years after Buechler filed suit. See Tex. R. Civ. P. 193.6 (addressing failures to timely respond to discovery requests), 194.2(b)(4) (requiring party to provide amount and method of calculating economic damages). In Buechler's initial disclosure, which he served in 2017, Buechler disclosed that he was seeking damages in an amount over $1 million and that he would "supplement this response as discovery in this matter progresses." He, however, did not amend or supplement this response until the afternoon of August 10, 2021, the day before trial.
A party who fails to amend or supplement "a discovery response, including a required disclosure, in a timely manner may not introduce in evidence the material or information that was not timely disclosed" unless the court finds that there was "good cause" for the failure to timely amend or supplement the discovery response or that the failure to amend or supplement "will not unfairly surprise or unfairly prejudice the other parties." Id. R. 193.6(a). The burden to establish that an exception applies is on the party seeking to introduce the evidence. See id. R. 193.6(b). The trial court, however, can grant a continuance or temporarily postpone trial to allow a response to be amended or supplemented and opposing parties to conduct discovery regarding any new information presented by the response "[e]ven if the party seeking to introduce the evidence" does not carry its burden under subsection (b). See id. R. 193.6(c).
We review a trial court's decision to admit or deny evidence under Rule 193.6(a) for an abuse of discretion. See Robinson v. Lubbering, No. 03-09-00655-CV, 2011 Tex.App. LEXIS 1592, at *8-9 (Tex. App-Austin Mar. 2, 2011, no pet.) (mem. op). "The general test for abuse of discretion is whether the trial court acted without regard to any guiding rules or principles." See id. (citing Cire v. Cummings, 134 S.W.3d 835, 838-39 (Tex. 2004)).
At a hearing on August 5, 2021, Buechler requested a trial continuance, but the trial court denied this request, explaining, "It is not so simple to reset you on another jury setting, because every jury week we have for about a year is already at hundreds of pages." On August 10, the trial court held a pre-trial hearing and heard the parties' motions in limine. Appellants' motion sought to exclude any damages evidence offered by Buechler because he had not disclosed the amount and method of calculating damages. Buechler's counsel responded that the failure to update the disclosures with a damages model was "on me," that he understood that "it's not fair for [opposing counsel] to get a new damage model right now," but he thought that they had disclosed their damages theory and only became aware that they had not done so fifteen minutes before the hearing. During a break in the hearing, Buechler served amended responses that disclosed that he sought over $2.5 million in damages, which were based on royalty damages from Netgate's sales of pfSense appliances; provided the method for calculating damages; and attached to his amended disclosure a chart showing the calculations. The trial court sanctioned Buechler's attorney for the late disclosure concerning his damages model but overruled appellants' objections to the evidence. The trial court also offered to grant a continuance to allow appellants more time to prepare, but they declined this offer, and the trial started the following day.
In his response, he stated that he sought royalty damages of $2,548,022.60:
The damages are based on applying a 15% royalty (as contemplated in P-226, 227) to Defendants' sales of pfSense appliances as disclosed by Defendants. From this, Plaintiff subtracts the pfSense related legal expenses disclosed by Defendants to determine damages to ESF. Damages to Plaintiff Buechler are 48%, reflecting Plaintiff's ownership of ESF. Total amount is $2,548,022.60.Plantiff's exhibits 226 and 227 were admitted at trial. They are the correspondence in October 2014 between Mr. Thompson and ToDoo S.a.r.l., a French company, and proposed versions of a trademark license agreement between ESF and ToDoo S.a.r.l. The agreement ultimately was not executed, but its terms included a 15% royalty to ESF for ToDoo S.a.r.l's sales of pfSense products.
Appellants argue that the trial court's "offer to continue trial again did not cure the unfair surprise and prejudice to [them] from Mr. Buechler's untimely disclosure." They rely on the trial court's representation to the parties during the August 5th hearing that the jury trial settings were already full for the next year and the length of time that the case had already been pending. But, even when a party fails to carry its burden of establishing the grounds for the exceptions in Rule 193.6, it is within the trial court's discretion under subsection (c) to grant a continuance or postpone trial to allow a party to make a discovery response and to allow the opponent to conduct discovery regarding new information presented in the discovery response. See Tex. R. Civ. P. 193.6(c); Hilburn v. Providian Holdings, Inc., No. 01-06-00961-CV, 2008 Tex.App. LEXIS 8443, at *22-23, *31-32 (Tex. App-Houston [1st Dist] Nov. 6, 2008, no pet.) (mem. op.) (discussing rule 193.6 and explaining that "relief under rule 193.6(c) is available if the burden of rule 193.6(a) and (b) are not met"). That is what the trial court offered to appellants here, but they declined this offer.
On this record, we cannot conclude that the trial court abused its discretion in overruling appellants' objection to Buechler's evidence of his damages model. We overrule their first issue.
Damages
In their second issue, appellants argue that the trial court improperly awarded lost profit damages because Buechler's evidence of alleged lost profits was not legally sufficient. They argue that there was no evidence connecting the Thompsons' actions with lost profits for Buechler or profits earned by the Thompsons. "When the appellant is challenging the legal sufficiency of the evidence to support a finding on which it did not have the burden of proof at trial, the appellant must demonstrate on appeal that no evidence exists to support the adverse finding." See City of Emory v. Lusk, 278 S.W.3d 77, 86-87 (Tex. App-Tyler 2009, no pet.) (citing Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983)).
To support their position of no connection between their actions and Buechler's damages, the Thompsons point to evidence that they allege conclusively established that Netgate and its resellers' use of the pfSense assets constituted "nominative fair use," which did not require a license. Mr. Thompson and the attorney who drafted the Trademark License Agreement testified that a license to use a trademark is not required if the trademark is used to describe the genuine item itself. Because no license was required for Netgate and its resellers to market or advertise a product that they sold containing pre-loaded pfSense software, appellants argue, the evidence of Netgate's sales did not connect the Thompsons' actions in executing the Trademark License Agreement to profits Netgate earned. Appellants also argue that even if there would have been some improper marketing or advertising of products without the Trademark License Agreement, Buechler did not present evidence differentiating between sales of products that required the existence of the Trademark License Agreement to be compliant and sales that did not.
It was within the province of the jury, however, to weigh the credibility of the witnesses and resolve evidentiary conflicts. See City of Keller, 168 S.W.3d at 819-20; Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003) (observing that "familiar principle that the jury is the sole judge of the credibility of witnesses and the weight to be given to their testimony"); McGalliard v. Kuhlmann, 722 S.W.2d 694, 697 (Tex. 1986) (explaining that jury can choose to believe one witness over other witnesses or resolve inconsistencies in their testimony when presented with conflicting evidence). Here, the jury could have found that Mr. Thompson's and the attorney's testimony was not credible that the Trademark License Agreement was unnecessary except for the purpose of enforcing trademark infringements and credited other evidence, including the reseller agreements between Netgate and third parties with 15% royalties, the director's testimony about Netgate's significant increase in revenues and profits from the sales of pfSense units, the screenshots from Netgate's websites marketing pfSense products, and exhibits that differentiated between "pfSense Unit Sales" and other sales, with corresponding costs, gross profits and net income. The trademark attorney agreed that incorporating pfSense in a product's name would be an improper use of the trademark without permission or a license from the trademark holder.
The exhibits showing the breakdown of Netgate's revenue, expenses, and net income were admitted under seal. They show that Netgate lost money in 2015, 2016, and 2017 on its sales of pfSense units but then made significant profits on sales of pfSense units in 2018. Although Mr. Thompson testified, "No royalties have ever been paid" to Netgate by resellers or sublicensees, the jury could have discredited this testimony because of his testimony that Netgate had entered into sublicenses with royalties of 15% and that pre-paid royalties meant that they were included in the sales price of the product.
For example, the trademark attorney admitted that "Netgate 1100 pfSense Plus Security Gateway" would have been an improper use without consent or without the Trademark License Agreement.
Appellants further argue that Buechler did not offer evidence of customers or contracts from which he and ESF would have earned profits or that he or ESF "had the opportunity or ability to earn the profits allegedly lost." They focus on the evidence that ESF was losing money in 2013 and 2014 and that the Thompsons could no longer subsidize ESF. But the jury reasonably could have credited the evidence that the Thompsons changed the credit card information to direct payment to Netgate for sales from ESF's online stores in 2013 such that "ESF had absolutely no business left and Netgate had it all." Further, in addition to the evidence referenced above in our analysis of Buechler's issue challenging the trial court's JNOV, there was evidence that prior to BSD's transfer of the pfSense assets to ESF, Netgate paid a monthly amount of $1,000 to BSD for a "reseller subscription" that included the non-exclusive right to use the pfSense logo for commercial purposes and to be promoted as a recommended hardware vendor on the pfSense website. In contrast to BSD's reseller subscription to Netgate, under the terms of the Trademark Licensing Agreement, ESF transferred the exclusive right to use the pfSense assets to Netgate and did not require Netgate, which was wholly owned by the Thompsons, to make any payments to ESF in exchange for this exclusive right, which included the right to enter into reseller agreements and sublicenses with third parties. The jury could have credited this evidence to reasonably infer that Buechler, through his membership interest in ESF, would have profited from Netgate's sales of pfSense products if the Thompsons had not breached ESF's Company Agreement by entering into the Trademark License Agreement.
Thus, Netgate's previous agreement to pay BSD for a reseller subscription; the Trademark License Agreement, which did not require Netgate to make any payments to ESF for the exclusive use of the pfSense assets on a worldwide basis; the form reseller agreements that included a 15% royalty fee to Netgate; and the Thompsons' actions in 2013 and 2014 to cease ESF's operations are some evidence that connects the Thompsons' breach of ESF's Company Agreement to the jury's damages awards. See Heine, 835 S.W.2d at 84 (explaining that recovery for lost profits does not require that "loss be susceptible of exact calculation"); Powell Elec. Sys. v. Hewlett Packard Co., 356 S.W.3d 113, 126 (Tex. App-Houston [1st Dist] 2011, no pet.) (observing that "trier of fact is given broad discretion to award damages within the range of evidence presented at trial" and that "[evidence corresponding to the exact amount found by the trier of fact is not essential").
For these reasons and the reasons stated in our analysis of Buechler's issue challenging the trial court's JNOV, we overrule appellants' second issue.
Attorney's Fees
In their third issue, appellants contend that the trial court abused its discretion in awarding $118,987.50 in attorney's fees to Buechler, directly offsetting its award of attorney's fees to appellants. See Dandachli v. Active Motorwerks, Inc., No. 03-19-00494-CV, 2021 Tex.App. LEXIS 5878, *10 (Tex. App-Austin July 23, 2021, no pet.) (mem. op.) (stating that appellate court reviews trial court's decision on attorney's fees under Section 38.001(8) of Texas Civil Practice and Remedies Code for abuse of discretion (citing Ridge Oil Co. v. Guinn Invs., Inc., 148 S.W.3d 143, 163 (Tex. 2004))); International Med. Ctr. Enters., Inc. v. ScoNet, Inc., No. 01-16-00357-CV, 2017 Tex.App. LEXIS 10066, at *40 (Tex. App -Houston [1st Dist] Oct. 26, 2017, no pet.) (mem. op.) (same).
Buechler requested attorney's fees under Section 38.001(b)(8) of the Texas Civil Practice and Remedies Code related to his breach of contract claim. See Tex. Civ. Prac. & Rem. Code § 38.001(b)(8) (authorizing award of reasonable attorney's fees in addition to amount of valid claim and costs if claim is for oral or written contract). Among the requirements for recovering attorney's fees under Chapter 38, the claimant must present the claim to the opposing party or to a duly authorized agent of the opposing party, see id. § 38.002(2), and the claimant "must prevail on the underlying claim and recover damages," see Ventling v. Johnson, 466 S.W.3d 143, 154 (Tex. 2015) (citing Intercontinental Grp. P'ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 653 (Tex. 2009)). "Generally, the party seeking to recover attorney's fees carries the burden of proof." Smith v. Patrick W.Y. Tam Tr., 296 S.W.3d 545, 547 (Tex. 2009) (citing Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 10 (Tex. 1991)).
Appellants contend that the trial court's award of attorney's fees to Buechler was an abuse of discretion because Buechler did not carry his burden to show that he presented a contract claim to appellants in a manner that complied with Section 38.002(2). Appellants rely on Buechler's notice of filing attorney's fees evidence, which was filed after the jury trial in support of an amount of $221,407.50 in attorney's fees. Appellants contend that the notice did not allege or include evidence of presentment of his breach of contract claim and that Buechler's June 2017 settlement offer, which Buechler relied on during the post-trial hearing on his request for attorney's fees was not admitted as an exhibit at the hearing and, in any case, did not comply with the presentment requirement because it "included a buy-out demand" and did not give appellants an opportunity to settle Buechler's contract claim alone but as a "package deal."
As to Buechler's alleged failure to present evidence of presentment in his notice of filing attorney's fees evidence post-trial, he was not required to do so. Buechler verified his pleadings, which stated that all conditions precedent had been performed or had been waived as required by Texas Rule of Civil Procedure 54. See Shin-Con Dev. Corp. v. I.P. Invs., Ltd., 270 S.W.3d 759, 768 (Tex. App-Dallas 2008, pet. denied) ("[W]hen a claimant avers in its petition that all conditions precedent to recovery have occurred or have been performed, it is required to prove only those conditions precedent that have specifically been denied by the opposing party." (citing Tex.R.Civ.P. 54)). Although appellants challenged Buechler's evidence to support presentment post-trial, they did not specifically deny that Buechler had presented his claim to be entitled to attorney's fees. See id. ("By failing to specifically deny that appellee failed to present its contract claim as required by statute, they have waived their right to complain of such failure on appeal.").
Further, "[presentment does not require a party to follow a particular form," and "[a] claimant is not required to make a demand of the exact amount it is entitled to recover." West Beach Marina, Ltd. v. Erdeljac, 94 S.W.3d 248, 269 (Tex. App-Austin 2002, no pet.). "The purpose of presentment is to allow the opposing party to pay a claim within 30 days, before becoming liable for attorney's fees." Id; see Tex. Civ. Prac. & Rem. Code § 38.005 (stating that "chapter shall be liberally construed to promote its underlying purposes"). In the June 2017 letter, which was included in the appellate record, Buechler offered to settle his claims against appellants by entering into a mutual release and non-disparagement agreement and transferring his ownership interest in ESF in exchange for $500,000. Thus, appellants had an opportunity to pay Buechler's claim for breach of contract before becoming liable for attorney's fees.
Appellants also contend that the June 2017 letter did not qualify as a presentment of a contract claim because the $500,000 demand was "excessive." But, even if we assume without deciding that the excessive demand doctrine would apply here, appellants did not plead excessive demand as an affirmative defense or establish that Buechler acted in bad faith or unreasonably when he made the settlement offer. See Beauty Elite Grp., Inc. v. Palchick, No. 14-07-00058-CV, 2008 Tex.App. LEXIS 1918, *12 (Tex. App-Houston [14th Dist] 2008, no pet.) (mem. op.) ("Excessive demand is an affirmative defense that must be pleaded, and the evidence must demonstrate unreasonableness or bad faith."); see also Tex. R. Civ. P. 94; Hameed Agencies (pvt) Ltd. v. J.C. Penney Purchasing Corp., No. 11-05-00140-CV, 2007 Tex.App. LEXIS 942, at *20 (Tex. App-Eastland Feb. 8, 2007, pet. denied) (mem. op.) (observing that several intermediate courts have found excessive demand doctrine to apply to Section 38.001 even though statute's terms do not expressly address excessive demands). In their response in opposition to Buechler's request for attorney's fees, appellants argued that Buechler failed to present a claim that was not excessive, but that response was filed after the jury trial and, thus, was insufficient to preserve this argument on appeal. See Hameed Agencies, 2007 Tex.App. LEXIS 942, at *22 (concluding that memorandum filed after jury trial referencing excessive demand doctrine was insufficient to preserve issue on appeal). Thus, we conclude that appellants have waived this argument and do not further address it. See Kurtz v. Kurtz, 158 S.W.3d 12, 21 (Tex. App-Houston [14th Dist.] 2004, pet. denied) (stating that excessive demand is affirmative defense that is waived if not pleaded or tried by consent). On this record, we conclude that Buechler satisfied the presentment requirement to recover attorney's fees.
In their reply brief, appellants argue that the trial court's award of attorney's fees to Buechler should be reversed because Buechler on appeal failed to respond to appellants' arguments concerning presentment and, thus, that this Court should deem his arguments waived. Although it was Buechler's burden to prove presentment at the trial court, it is appellants' burden to establish reversible error on appeal. See Gonzalez v. Gonzalez, No. 04-20-00226-CV, 2021 Tex.App. LEXIS 10159, at *6 n.3 (Tex. App.-San Antonio Dec. 29, 2021, no pet.) (mem. op.) ("Appellees are not required to file a brief and do not concede the validity of appellant's points of error by waiving a brief; appellant still bears the burden of establishing reversible error."); Spencer v. Gilbert, No. 03-09-00207-CV, 2010 Tex.App. LEXIS 6353, at *5 n.2 (Tex. App-Austin Aug. 4, 2010, pet. dism'd w.o.j.) (mem. op.) (stating that "appellee's failure to contradict issues presented does not lead to concession of error through some sort of appellate default judgment").
Appellants further argue that even if the June 2017 letter satisfied the presentment requirement to recover attorney's fees, Buechler did not carry his burden to show that the amount of attorney's fees awarded was "'reasonable and necessary,' given the degree of Mr. Buechler's success on his claim." Appellants rely on the Texas Supreme Court's directive to consider the "results obtained" in the determination of whether attorney's fees are reasonable. See Smith, 296 S.W.3d at 548 (stating that court should consider "the results obtained" (citing Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997))). The Texas Supreme Court, however, has identified other factors that the courts should consider in awarding attorney's fees, including
the nature and complexity of the case; the nature of the services provided by counsel; the time required for trial; the amount of money involved; the client's interest that is at stake; the responsibility imposed upon counsel; and the skill and expertise required.Id. at 547 (quoting Ragsdale v. Progressive Voters League, 801 S.W.2d 880, 881 (Tex. 1990)); see also Rohrmoos Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469, 497-502 (Tex. 2019) (describing lodestar method for calculating reasonable and necessary attorney's fees).
Appellants do not challenge the jury's liability findings, and Buechler submitted evidence to the trial court to support $221,407.50 in attorney's fees, including an affidavit by counsel with attached detailed records of the incurred attorney's fees. The amount of money involved in the parties' dispute also was significant, the subject matter of the litigation was a lengthy and complex business dispute, and the case involved extensive and voluminous discovery, summary judgment motions, a jury trial, and post-verdict and post-judgment motions and filings. Considering the relevant factors, we cannot conclude that the trial court's award of attorney's fees to Buechler was unreasonable or unnecessary. See Smith, 296 S.W.3d at 547 ("The reasonableness of attorney's fees is ordinarily left to the factfinder, and a reviewing court may not substitute its judgment for the [factfinder's]."). For these reasons, we overrule appellants' third issue.
Rule 167In their fourth issue, appellants argue that the trial court abused its discretion in denying their motion to modify the judgment pursuant to Rule 167 of the Texas Rules of Civil Procedure. See Tex. R. Civ. P. 167; see also Tex. Civ. Prac. & Rem. Code §§ 42.001-.005 (providing for shifting of litigation costs based on settlement offers and authorizing Texas Supreme Court to promulgate rules implementing Chapter 42); Wagner v. Edlund, 229 S.W.3d 870, 879 (Tex. App-Dallas 2007, pet. denied) (reviewing trial court's denial of motion to modify final judgment for abuse of discretion).
Rule 167 allows a trial court to award certain litigation costs against a party who rejects an offer to settle a claim for monetary damages that is made substantially in accordance with the Rule's requirements. See Tex. R. Civ. P. 167.1; see also Tex. Civ. Prac. & Rem. Code §§ 42.001-.005; In re CompleteRx, Ltd., 366 S.W.3d 318, 321-23 (Tex. App-Tyler 2012, orig. proceeding) (recounting history of Rule 167). If a settlement offer under Rule 167 is rejected and "the judgment to be awarded on the monetary claims covered by the offer is significantly less favorable to the offeree than was the offer," the court must award litigation costs against the offeree from the time the offer was rejected to the time of judgment. See Tex. R. Civ. P. 167.4(a); see id. R. 167.4(b) (stating when "judgment award on monetary claims is significantly less favorable").
To fall within the parameters of a settlement offer under Rule 167, the offer must comply with certain requirements, id. R. 167.2, including that it "must not include non-monetary claims and other claims to which this rule does not apply," id. R. 167.2(d); Orix Cap. Mkts., LLC v. La Villita Motor Inns, J.V., 329 S.W.3d 30, 50 (Tex. App.-San Antonio 2010, pet. denied) (stating that Rule 167 provides that non-monetary claims may not be included in settlement offer). Although conditions of an offer are presumed reasonable if the offeree does not object, "[r]ejection of an offer made subject to a condition determined by the trial court to have been unreasonable cannot be the basis for an award of litigation costs under this rule." Tex.R.Civ.P. 167.2(c).
In December 2020, appellants filed a declaration that they were invoking Rule 167 and then made an offer of settlement to Buechler. The Thompsons offered to resolve the parties' disputes by paying $150,000 to Buechler in exchange for his transferring his membership in ESF to them and agreeing to a mutual release of all claims by all parties. Buechler did not object to the offer or accept it. After the final judgment was signed, appellants filed a motion to modify the judgment to apply Rule 167. Although the trial court held a hearing on the motion, the motion was overruled by operation of law. See Tex. R. Civ. P. 329b(c) (stating that motion to modify judgment is overruled by operation of law 75 days after judgment is signed).
Appellants submit that this Court should conclude either that both Buechler's June 2017 settlement offer and the Thompsons' December 2020 settlement offer were effective or that neither was. Appellants argue that Chapter 38 of the Texas Civil Practice and Remedies Code and Rule 167 are an "apples-to-apples comparison" because "the purpose of those laws is the same: to prevent unnecessary litigation and attorney's fees," and they rely on their contention that the Thompsons' offer to Buechler had the same terms as Buechler's June 2017 offer, except for the amount that the Thompsons were willing to pay to settle all claims. Chapter 38, however, does not contain a comparable requirement prohibiting the offer from including a non-monetary claim or a provision authorizing the trial court to reject an offer with an unreasonable condition. See Tex. Civ. Prac. & Rem. Code § 38.002 (stating procedure for recovery of attorney's fees under chapter). Here, the express terms of the Thompsons' settlement offer included the condition that Buechler transfer his membership in ESF to resolve the parties' dispute. The trial court reasonably could have determined that this condition was unreasonable or that it sought recovery on an unpleaded non-monetary claim. See Tex. R. Civ. P. 167.2(c). The record establishes that in 2012, Ms. Thompson paid $225,000 to purchase 51% of BSD, the predecessor company to ESF; the judgment did not impact ESF's ownership of the pfSense assets; and Buechler's ownership in ESF was not at issue in the litigation. On this record, we cannot conclude that the trial court would have abused its discretion by determining that appellants were not entitled to litigation costs pursuant to Rule 167. Thus, we overrule appellants' fourth issue.
CONCLUSION
For these reasons, we reverse the trial court's damages award of $1,000 and render judgment on the jury's verdict as to damages in the amount of $25,102.44. We affirm the remainder of the trial court's final judgment.
Affirmed in Part; Reversed and Rendered in Part.