Preview
FILED
DALLAS COUNTY
12/1 0/2019 3:58 PM
FELICIA PITRE
DISTRICT CLERK
CAUSE NO. DC-17-10592 Cassandra Walker
MARTY MURPHY, IN THE DISTRICT COURT
0mm
Plaintiff and Counterclaim-
Defendant
V.
PAVECON HOLDING 00., INC.,
PAVECON LTD. CO., 192nd JUDICIAL DISTRICT
PAVECON PUBLIC WORKS LP, mmmmmmmmmmmmmm
PAVECON PUBLIC WORKS GP
LLC, LABCON, INC., DAVID
WALKER,
Defendants and Counterclaim-
Plaintiffs, DALLAS COUNTY, TEXAS
DEFENDANTS’ MOTION FOR DIRECTED VERDICT
At the close 0f Plaintiff’s evidence, the Court permitted Defendants to assert
their motion for directed verdict at the conclusion 0f Defendants’ case Without
prejudice 0r waiver 0f Defendants’ right t0 assert such grounds. Defendants’ therefore
file and urge this motion for directed verdict against all of Murphy’s claims for all of
the following reasons:
I. Murphy’s case premised entirely on an unpleaded theory and
is
set 0f facts that Defendants had a contractual obligation t0
(1.9.,
use partnership/LLC assets to purchase Murphy stock in a
separate entity) and Defendants Will not try that issue by consent.
II. Assuming Murphy’s present theory of the case was pleaded,
Murphy introduced no evidence of damages under the applicable
mgasure 0f damages—the value 0f the stock at the time 0f the
1n]ury.
III. Assuming Murphy’s present theory of the case was pleaded,
Murphy released Defendants from his present theory of the case
when he signed the Stock Purchase Agreement.
IV. Assuming Murphy’s present theory of the case was pleaded,
Murphy failed to satisfy the necessary conditions precedent t0
obtain any rights t0 the value 0f the capital accounts noted on the
K-ls of either Pavecon Public Works, LP 0r Pavecon Ltd. C0.
DEFS.’ MOT. FOR DIRECTED VERDICT Page 1
V. Assuming Murphy’s present theory of the case was pleaded,
Defendants have conclusively disproven or there is legally
insufficient evidence t0 support Murphy’ s breach of contract claim
against the Pavecon companies because the alleged terms 0f
Murphy’ s modified employment agreement are too indefinite t0
form an enforceable contract.
VI. Assuming Murphy’s present theory of the case was pleaded,
Defendants have conclusively proven that Murphy—an at- will
employee—received unequivocal notice that the conditions of any
stock 0r equity bonus program had changed and no longer
included Pavecon Holding C0. stock.
VII. Murphy’s fraud claims are based on insufficient evidence 0r have
been conclusively disproven and are barred by the independent
injury rule.
VIII. Defendants have conclusively disproven 0r there is legally
insufficientevidence t0 support Murphy’ s conversion claim
because Murphy cannot establish the ownership over the capital
accounts he Claims should have been used to purchase stock in
Pavecon Holding Co.
IX. Defendants have conclusively disproven 0r there is legally
insufficientevidence to support Murphy’s quasi-contract or
implied contract claims fail because the express contracts in
evidence cover the same subject matter.
X. Defendants have conclusively disproven 0r there is legally
insufficient evidence to support Murphy’s claims for derivative
liability, such as conspiracy or aiding- and- abetting liability,
because no underlying torts exist to support such claims.
ARGUMENT
I. Murphy’s case is premised entirely on an unpleaded theory and set of
facts that Defendants had a contractual obligation to use
(i.e.,
partnership/LLC assets to purchase Murphy stock in a separate
entity) and Defendants will not try that issue by consent.
As Defendants made clear in their Motion to Strike Plaintiff’s Fourth Amended
petition,1 until February 27, 2019 (When Murphy filed his Fourth Amended Petition),
the only facts Murphy pleaded to entitle him t0 relief concerned his erroneous
contention that he was entitled to compensation as a profit-sharing partner 0r
member 0f the entities at issue. 2
Murphy then abandoned that theory and
1 Defs.’ Mot. t0 Strike P1.’s Fourth Am. Pet. (filed March 4, 2019).
2 Pl.’s Third Am. Pet. (Sept. 21, 2018).
DEFS.’ MOT. FOR DIRECTED VERDICT Page 2
substantially repleaded his entire case When he alleged in his now stricken Fourth
Amended Petition that the reason he was entitled to compensation was because
Pavecon Public Works and Pavecon Ltd. were required t0 use partnership and
company assets allocated in capital accounts—accounts that all parties agree were
mistakenly given t0 Murphy—and purchase stock in Pavecon Holding Co. This theory
is not properly pleaded in Murphy’s only live pleading (the Third Amended Petition),
and Defendants have not tried that claim by consent because they have continuously
objected during trial t0 the introduction 0f evidence intended t0 support that legally
untenable theory. Accordingly, because Murphy’s entire case is built on this
unpleaded theory, the Court should direct a verdict in Defendants’ favor.
II. Assuming Murphy’s present theory of the case was pleaded, Murphy
introduced no evidence of damages under the applicable measure of
damages—the value of the stock at the time of the injury.
Even if Murphy’s new theory of the case were properly pleaded, Defendants
remain entitled to a directed verdict 0n that claim because Murphy’s expert conceded
0n the stand that Murphy has no evidence 0f damages under that new theory. The
gravamen of Murphy’s new theory is that he is owed stock in Pavecon Holding Co.,
Which the evidence shows undisputedly is a closely held corporation. Regardless 0f
the Murphy may assert under these facts—breach 0f contract, fraud, conversion,
etC.—Murphy’s recovery now hinges exclusively 0n Whether Murphy has proven the
value 0f the stock at the time of the alleged injury.
In a breach 0f contract action for failure t0 transfer shares of a closely held
corporation, the proper measure 0f damages is the fair market value of the stock at
the time 0f injury. See, e.g., Willis v. Donnelly, 118 S.W.3d 10, 40—41 (TeX. App.—
Houston [14th Dist] 2003), aff’d in relevant part, 199 S.W.3d 262, 2’75 11.24 (TeX.
2006). A fraud claim like Murphy’s that seeks benefit-of—the-bargain damages is
likewise measured by the value 0f the bargain at the time of the transaction at issue.
DEFS.’ MOT. FOR DIRECTED VERDICT Page 3
See, e.g., Siddiqui v. Fancy Bites, LLC, 504 S.W.3d 349, 374 (TeX. App.—H0ust0n
[14th Dist.] 2016, pet. denied) (holding that benefit-of—the bargain damages for fraud
are measured by the value 0f the transaction at the time of the sale 0r transaction);
see also Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 775 (TeX. 2009)
(benefit of the bargain damages for fraud). So too are damages for conversion.
See, e.g., Wise v. SR Dallas, LLC, 436 S.W.3d 402, 412 (TeX. App.—Dallas 2014, n0
pet.) (“[T]he measure of damages for conversion is the fair market value 0f the
property at the time and place of the conversion”).
The fair market value 0f closed-corporate stock, like that 0f Pavecon Holding
Co., is What a Willing purchaser would pay t0 a Willing seller under n0 compulsion t0
sell. Willis, 118 S.W.3d at 40—41 (collecting cases). Book value is entitled to little, if
any, weight in determining the value 0f a corporation's stock, and many other factors
must be taken into consideration, such as “[t]he nature of the business and the history
of the enterprise from its inception,” “[t]he economic outlook in general and the
condition and outlook of the specific industry in particular,” “[t]he earning capacity
0f the company,” among several others. Id. When, as here, there is n0 evidence 0f
fair market value, the value of stock in a closely held corporation is predicated upon
the market value of the assets of the company after deducting its liabilities. Id. What
is more, “the calculation must reflect the value 0f the stock at the time 0f injury.” Id.
(emphasis added and collecting cases).
Here, 0n cross—examination, Murphy’s expert conceded that his entire opinion
was based 0n legally insufficient evidence under Willis: the book value 0f Pavecon
Holding Co. stock. Murphy’s expert also conceded that he had n0 idea as t0 what
Pavecon Holding C0. stock may have been worth 0n any given day: Whether the date
Murphy was terminated (May 9, 2017), the date Murphy filed suit (August 23, 2017),
or the date Murphy sent his demand letter (August 30, 2017). In short, Murphy has
DEFS.’ MOT. FOR DIRECTED VERDICT Page 4
no evidence 0f damage t0 support any of his claims. Defendants are therefore entitled
to a directed verdict on all 0f Murphy’s claims.
III. Assuming Murphy’s present theory of the case was pleaded, Murphy
released Defendants from his present theory of the case when he
signed the Stock Purchase Agreement.
The undisputed evidence at trial is this: in exchange for a substantial payment
from Pavecon Holdings Co., Murphy signed the Stock Purchase Agreement. That
Agreement contains the following unambiguous release (“the Release”):
FOR THE PURPOSES AND CONSIDERATION SET FORTH HEREIN,
THE SELLING STOCKHOLDER, FOR ITSELF AND ITS AGENTS,
ATTORNEYS, SUCCESSORS, BENEFICIARIES, AND ASSIGNS,
DOES HEREBY WAIVE, RELEASE AND DISCHARGE THE
COMPANY, THE COMPANY'S AFFILIATES, EACH OF THE
OTHER SHAREHOLDERS OF THE COMPANY, AND EACH OF
THEIR DIRECTORS, OFFICERS, MANAGERS, PARTNERS,
MEMBERS, AGENTS, SUCCESSORS, ATTORNEYS,
ADMINISTRATORS, REPRESENTATIVES, HEIRS, AFFILIATES
AND ASSIGNS (COLLECTIVELY, THE "COMPANY RELEASED
PARTIES") OF AND FROM ANY AND ALL CHARGES,
COMPLAINTS, LIABILITIES, OBLIGATIONS, PROMISES,
AGREEMENTS, CONTROVERSIES, DAMAGES, ACTIONS,
LOSSES, EXPENSES (INCLUDING ATTORNEYS' FEES AND
COSTS), CLAIMS, RIGHTS, DEMANDS, CAUSES OF ACTION AND
SUITS IN EQUITY, OF ANY AND EVERY KIND OR CHARACTER, IN
CONTRACT OR TORT, WHETHER KNOWN OR UNKNOWN,
ARISING UNDER, RELATING TO OR IN CONNECTION WITH
THE RELATIONSHIP OR DEALINGS BETWEEN THE
COMPANY, THE COMPANY'S AFFILIATES, EACH OF THE
OTHER SHAREHOLDERS OF THE COMPANY, AND THE
SELLING STOCKHOLDER, WITH RESPECT TO THE
COMPANY OR ITS MERGER PREDECESSOR ENTITIES, THE
COMPANY'S AFFILIATES, AND EACH OF THE OTHER
SHAREHOLDERS OF THE COMPANY, UP TO AND THROUGH
THE CLOSING DATE, INCLUDING, WITHOUT LIMITATION,
CLAIMS FOR BREACH OF CONTRACT, BREACH OF ONE OR
MORE FIDUCIARY DUTIES, MINORITY MEMBER OPPRESSION,
USURPATION OF CORPORATE OPPORTUNITIES, VIOLATION OF
THE TEXAS BUSINESS ORGANIZATIONS CODE OR ANY
SUCCESSOR TO SUCH ACT, VIOLATIONS OF FEDERAL OR STATE
SECURITIES LAWS OR REGULATIONS, ACCOUNTING, AUDIT,
CONSPIRACY, FRAUD, NEGLIGENT MISREPRESENTATION,
OMISSION, FRAUD INTHE INDUCEMENT AND DECEPTIVE
TRADE PRACTICES OR FOR ANY OTHER LOSS, EXPENSE
AND/OR DETRIMENT, OF ANY KIND OR CHARACTER
WHATSOEVER, GROWING OUT OF OR IN ANY WAY
CONNECTED WITH OR IN ANY WAY RESULTING FROM THE
ACTS, ACTIONS OR OMISSIONS OF THE COMPANY
DEFS.’ MOT. FOR DIRECTED VERDICT Page 5
RELEASED PARTIES, WITH RESPECT TO THE COMPANY OR ITS
MERGER PREDECESSOR ENTITIES, THE COMPANY'S
AFFILIATES AND EACH OF THE OTHER SHAREHOLDERS OF
THE COMPANY. SELLING STOCKHOLDER FURTHER AGREES
NOT TO FILE A LAWSUIT TO ASSERT SUCH CLAIMS.
THE INTENT OF THE SELLING STOCKHOLDER THAT THE
IT IS
FOREGOING GENERAL RELEASE SHALL BE EFFECTIVE AS A
BAR TO ALL ACTIONS, CAUSES OF ACTION, SUITS IN EQUITY,
OBLIGATIONS, COSTS, EXPENSES, ATTORNEYS‘ FEES,
DAMAGES, LOSSES, CLAIMS OR LIABILITIES, KNOWN OR
UNKNOWN, TO THE EXTENT SET FORTH ABOVE, AND IN
FURTHERANCE OF THIS INTENTION, THE SELLING
STOCKHOLDER EXPRESSLY WAIVES ANY AND ALL RIGHTS AND
BENEFITS CONFERRED UPON IT BY APPLICABLE STATUTORY
OR COMMON LAW.
Notably, however, the Release in the Stock Purchase Agreement did not extend to the
“RESPECTIVE REPRESENTATIONS, WARRANTIES, COVENANTS AND OTHER
OBLIGATIONS UNDER THIS [STOCK PURCHASE] AGREEMENT OR ANY
ATTACHMENTS HERETO.”
“[A] valid release may encompass unknown claims and damages that develop
in the future.” Keck, Mahin & Cate v. Nat’l Union Fire Ins., 20 S.W.3d 692, 698 (TeX.
2000). More importantly, “[W]hen parties Specifically agree that they intend t0 release
both ‘known and unknown’ claims, [Texas courts] are required t0 honor and give effect
t0 their agreement.” Anheuser-Busch v Summit Coffee Co., 858 S.W.2d 928, 934 (TeX.
App.—Da11as 1993, writ refd), vacated on other grounds, 514 U.S. 1001, 115 S. Ct.
1309 (1995).
Unlike the last time the parties argued the meaning 0f release during a
February 2019 hearing on Defendants’ motion for partial summary judgment, the
Court does not need to concern itself with the fringes 0f the Release provision.
Murphy’s (unpleaded) theory 0f the case now falls squarely Within the confines of the
Stock Purchase Agreement.
The undisputed evidence at trial is that the Stock Purchase Agreement had
one purpose: t0 facilitate the sale 0f shares in Pavecon Holding Stock C0. from
DEFS.’ MOT. FOR DIRECTED VERDICT Page 6
shareholders like Murphy back t0 Pavecon Holding C0. PXGO at MM8—21.
Accordingly, if Murphy thought in December 0f 2016 that he was owed additional
shares 0f stock in Pavecon Holding Co.—a fact of Which there is no evidence—he
released all such claims When he signed the Stock Purchase Agreement. And that
release extends to all Defendants since the undisputed evidence—most 0f it elicited
by Murphy—shows that Pavecon Holding C0.’s co-defendants are all “affiliates,”
“shareholders,” 0r “officers” 0f Pavecon Holding Co.,3 Which are unambiguously
included in Murphy’s release. Any contrary conclusion would nullify the Release that
Pavecon Holding C0. paid nearly $300,000 to obtain, Which is legally impermissible.
See, e.g., Calpine Producer Servs., LP v. Wiser Oil C0., 169 S.W.3d 783, 787 (TeX.
App.—Dallas 2005, no pet.) (“[A] court Will not change the contract merely because it
or one 0f the parties comes to dislike its provisions 0r thinks that something else is
needed”).
IV. Assuming Murphy’s present theory of the case was pleaded, Murphy
failed to satisfy the necessary conditions precedent to obtain any
rights to the value of the capital accounts noted on the K—1s of either
Pavecon Public Works, LP or Pavecon Ltd. Co.
Murphy’s new theory of the case is predicated entirely 0n the premise that he
was entitled t0 the value 0f two “capital accounts” that all agree were allocated t0 him
by mistake. The problem, however, is that Murphy’s theory presupposes What
Murphy has not proved: that Murphy has a right t0 receive the value 0f those capital
accounts. He doesn’t because he failed t0 produce any evidence that he satisfied the
“conditions precedent” upon which rights to such capital accounts are predicated.
3Although the Stock Purchase Agreement does not define “affiliate,” the term’s meaning is easily
discerned from its plain and ordinary meaning. “Affiliate” is a common term that refers simply t0 “a
company effectively controlled by another 0r associated With others under common ownership 0r
control,” Webster's Third New International Dictionary 35 (2002), and includes “a subsidiary, parent,
0r sibling corporation.” Black’s Law Dictionary 66 (9th ed.); see also Eckland Consultants, Inc. v. Ryder,
Stilwell Ina, 176 S.W.3d 80, 88 (Tex. App.—Houst0n [lst Dist] 2004, no pet.) (construing “affiliates”
and Citing Webster’s Third New International Dictionary).B
DEFS.’ MOT. FOR DIRECTED VERDICT Page 7
“A condition precedent is an event that must happen 0r be performed before a
right can accrue t0 enforce an obligation.” Solar Applications Eng‘g, Inc. V. T.A.
Operating C0rp., 327 S.W.3d 104, 108 (TeX. 2010) (citing Restatement (Second) 0f
Contracts § 224 (1981) (“A condition is an event, not certain t0 occur, Which must
occur, unless its non-occurrence is excused, before performance under a contract
becomes due.”)). Here, the undisputed evidence shows that under his own theory 0f
the case, Murphy could not obtain any right t0 require Defendants t0 use the value
allocated in two capital accounts and purchase additional shares 0f stock in Pavecon
Holding Co. until Murphy met the preconditions for obtaining rights t0 those
accounts—signing the Profit/Loss Sharing Agreements and the company agreements.
The failure t0 meet conditions precedent can lead t0 disappointing results for
a plaintiff but the consequences 0f a plaintiffs inaction cannot create rights or avoid
the conditions that would create rights. Recently, for example, Fifth District Court of
Appeals vacated a verdict and judgment worth hundreds of millions 0f dollars and
rendered a judgment for the defendant because the plaintiff failed t0 show at trial
that it had satisfied conditions precedent (e.g., t0 obtain approval by its board of the
transaction at issue 0r the delivery and execution 0f definitive agreements governing
the transaction). Enter. Prods. Partners, L.P. v. Energy Transfer Partners, L.P., 529
S.W.3d 531, 538—45 (TeX. App.—Dallas 2017, pet. granted). Under Enterprise, and
given Murphy’s failure t0 establish he satisfied all conditions precedent, the Court
should render judgment for Defendants.
V. Assuming Murphy’s present theory of the case was pleaded,
Defendants have conclusively disproven or there is legally
insufficient evidence to supportMurphy’s breach of contract claim
against the Pavecon companies because the alleged terms of Murphy’s
modified employment agreement are too indefinite to form an
enforceable contract.
Murphy’s theory that he has some agreement With some number 0f the
Pavecon companies that requires them t0 use partnership/company assets t0
DEFS.’ MOT. FOR DIRECTED VERDICT Page 8
purchase him more stock in Pavecon Holding C0. (despite the Stock Purchase
Agreement’s provisions to the contrary) fails as a matter of law because Murphy has
not proven that such an agreement had sufficiently definite terms t0 be enforceable.
“Whether an agreement fails for indefiniteness is a question 0f law t0 be determined
by the court.” Fiduciary Fin. Services 0f Sw., Inc. v. Corilant Fin., L.P., 376 S.W.3d
253, 256-57 (TeX. App.—Dallas 2012, pet. denied). Contracts are legally binding only
when their “terms are sufficiently definite t0 enable a court t0 understand the parties’
legal obligations.” Id. “If the essential terms are so uncertain that there is no basis
for deciding Whether the agreement has been kept 0r broken, there is no contract.”
Id. (internal quotation marks omitted). “Fatal indefiniteness in an agreement
may concern the time of performance, the price to be paid, the work to be
done, the service to be rendered or the property to be transferred.” COC
Servs., Ltd. v. Comp USA, Ina, 150 S.W.3d 654, 664—65 (TeX. App.—Dallas 2004, pet.
dism’d).
Here, the agreement Murphy claims existed for Pavecon Public Works and
Pavecon Ltd. C0. t0 use non-cash allocations made in capital accounts t0 purchase
shares in Pavecon Holding C0. lacks several essential terms that necessary t0 enable
Defendants or the Court t0 understand the parties’ legal obligations: (1) the time at
Which t0 value the capital account allocations; (2) the manner in which such
allocations would be valued (e.g., fair market value, accrual value, eta); (3) the
number 0f shares 0r the value 0f shares to purchase from Pavecon Holding Co.; (4) the
timing 0f that subsequent purchase from Pavecon Holding C0; (5) the manner in
which those newly acquired stocks in Pavecon Holding C0. would be liquidated
(among others). A11 0f these are essential terms under Murphy’s theory.
As the undisputed evidence and testimony has shown, the time at Which a
company conducts a valuation on a capital account is vitally important because,
under Murphy’s theory, that valuation is What determines how much money Pavecon
DEFS.’ MOT. FOR DIRECTED VERDICT Page 9
Public Works and Pavecon Ltd. C0. Will have t0 purchase Pavecon Holding Stock. But
what if that valuation is sufficient to purchase only one share of Pavecon Holding
Stock because the cost of that stock has increased While the value 0f the capital
accounts has decreased? Would such a purchase constitute a breach of Murphy’s
(invented) agreement to purchase Pavecon Holding stock? N0 one knows because
none of those terms are reflected in Murphy’s 2012 two-page “employment
agreement,” and Murphy’s expert conceded he knew none 0f those terms and had not
seen anything t0 prove up such terms.
Moreover, although Murphy claims to have had a conversation With
Mr. Walker about continuing his equity options beyond the 2015 company
reorganization, Murphy never testified as to these missing and essential terms.
Accordingly, there is n0 enforceable agreement to purchase stock in Pavecon Holding
Co. as alleged in Murphy’s current theory 0f his case. See, e.g., Fiduciary Fin. Servs.
of Sw., Inc. v. Corilant Fin., L.P., 376 S.W.3d 253, 256—57 (TeX. App.—Da11as 2012,
pet. denied) (rendering judgment in the defendant’s favor because the stock purchase
agreement at issue was unenforceable Where it lacked essential terms as t0 how earn-
out payments would be structured); COC Servs., 150 S.W.8d at 664—65 (holding that
failure t0 establish a minimum revenue requirement in a franchise agreement made
the agreement unenforceable). Defendants are therefore entitled t0 judgment 0n all
of Murphy’s claims because all of them are premised on the existence 0f such an
agreement.
VI. Assuming Murphy’s present theory of the case was pleaded,
Defendants have conclusively proven that Murphy—an at—will
employee—received unequivocal notice that the conditions of any
stock or equity bonus program had changed and no longer included
Pavecon Holding Co. stock.
Murphy’s breach 0f contract claim founders on the rocks of well-established
Texas law. As a threshold matter, Murphy cannot claim the benefit alleged—
DEFS.’ MOT. FOR DIRECTED VERDICT Page 10
continued participation in a program awarding him stock in Pavecon Holding C0.—
given his signing 0f the Stock Purchase Agreement and the plain meaning 0f its
terms. Nor may he pursue such a theory given the undisputed evidence that he had
unequivocal notice that Pavecon Changed the conditions under Which Murphy’s—and
all other stakeholders’ interests—percentage-interests would be allocated (i.e., Via
partnership allocations instead of stock).
A. The Unambiguous Terms of the Stock Purchase Agreement Deprive
Murphy of Any Claim to Future Purchases of Pavecon Holding Stock.
Murphy admitted at trial that he signed the Stock Purchase Agreement and
received substantial compensation as a result. This concession is fatal to any claim
Murphy has to Pavecon Holding stock because the Stock Purchase Agreement
expressly bound Murphy t0 disclaim all rights t0 any future purchases 0f Pavecon
Holding stock. The express purpose 0f the Stock Purchase Agreement was “to
purchase all of the capital stock owned and held by minority shareholders
Who are employees of the Company or its affiliates (the ‘Stock Purchase P1an’)[.]”
PX60.
This purpose pervades that signed agreement. From the very first page,
Murphy knew that he, as “the Selling StockholderL] will not own any capital stock
of the Company and . . . will no longer be a shareholder of the Company.”
Through his signature, Murphy agreed that he “shall n0 longer be a stockholder
of the Company or have any rights as a holder of the Common Stock,
including any rights that the Selling Stockholder may have had under the Certificate
of Incorporation of the Company or otherwise.” Through his signature, Murphy
expressly “acknowledge[d] that [he] will have no future participation in any
future Company gains, losses, profits or distributions with respect to the
Common Stock.” Indeed, if it weren’t already clear, paragraph 9.3 of the signed
Stock Purchase Agreement—entitled “Final Distribution”—removed all doubt on this
DEFS.’ MOT. FOR DIRECTED VERDICT Page 11
score: “The Purchase Payment represents the final payment and distribution
that the Company Will make to the Selling Stockholder.”4
“A contracting party cannot accept the benefits of a contract and
disclaim its obligations.” Excess Underwriters at Lloyd’s, London v. Frank’s
Casing Crew & Rental Tools, Ina, 246 S.W.3d 42, 74 (TeX. 2008). But that is exactly
What Murphy is trying t0 d0 in this case. The Court should give Murphy no quarter.
Murphy admits that he received a substantial sum in exchange for his agreement
that he would never again receive a distribution 0f common stock from Pavecon
Holding. Murphy should be held t0 that bargain. Defendants are therefore entitled t0
judgment as a matter 0f all 0n all 0f Murphy’s claims, including his claim for breach
of contract, since all of them hang 0n Murphy’s erroneous legal conclusions about his
entitlement to Pavecon Holding stock.
B. Because It Is Undisputed that Murphy Continued Working for
Pavecon After the New Equity Bonus Program Was Instituted,
Murphy Relinquished His Claim to the 2012 Stock Bonus Plan By
Operation of At—Will Employment Law.
Murphy’s focus on semantics does nothing t0 blunt the legal reality that the
terms of his employment were modified not by his subjective Willingness to consent
but by operation of law. Murphy concedes that he knew as early as March of 2015
that the equity bonus plan was changing and that, despite this knowledge, he
continued working at Pavecon. “When an employee continues working With
knowledge of Changes t0 the employment relationship, he 0r she accepts the modified
terms as a matter of law.” City of Odessa v. Barton, 967 S.W.2d 834, 835 (TeX. 1998)
(emphasis added). That is the end of the matter.
Murphy’s theory is that When Pavecon restructured and changed the equity
bonus plan, he had the option 0f rejecting the new terms and electing t0 continue
under the 01d deal. He has n0 such right. Murphy was an at-Will employee.
4 P1.’s Omnibus Resp, Ex. 9, Stock Purchase Agreement, 1] 9.3.
DEFS.’ MOT. FOR DIRECTED VERDICT Page 12
In employment-at-Will situations, either party may impose modifications t0 the
employment terms as a condition of continued employment. Hathaway v. Gen. Mills,
Inc., 711 S.W.2d 227, 229 (TeX. 1986); White v. Aguirre, Inc., No. 05-00-00593-CV,
2002 WL 987930 (TeX. App.—Dallas May 15, 2002, no pet.); Allamon v. Acuity
Specialty Products, Inc., 877 F. Supp. 2d 498, 518 (E.D. TeX. 2012). Generally, when
the employer notifies the employee 0f changes in employment terms, the employee
must accept the new terms 0r quit. Hathaway, 711 S.W.2d at 229; In re Frank Kent
Motors C0., 386 S.W.3d 374, 379 (TeX. App.—F0rt Worth 2001) (orig. proceeding);
Frost v. American Lung Assoc. 0f Central States, N0. H-09-310, 2009 WL 10693216 at
*5 (S.D. TeX. Nov. 5, 2009). Presenting the employee With new terms 0n a “take it 0r
leave it” basis is within the employer’s rights in the at-will employment situation.
Frank Kent Motors, 336 S.W.3d at 380. If the employee continues working With
knowledge 0f the Changes, he has accepted the changes as a matter of law. In re
Dillard Dept. Stores, Inc., 198 S.W.8d 778, 780 (TeX. 2006); Hathaway, 711 S.W.Zd at
229; Frost, 2009 WL 10693216 at *5.
Because an employer has a general right under Texas law to discharge an at-
will employee, it cannot be unconscionable merely t0 premise continued employment
on acceptance 0f new or additional employment terms. Carter v. Countrywide Credit
Industries, Inc., 362 F.3d 294, 301 (5th Cir. 2004) (quoting In re Halliburton C0., 80
S.W.3d 566, 577 (TeX. 2002)). If the employee continues working, he has accepted the
Changes as a matter of law even if he does not like the changes and continues working
“under protest.” See Perkins v. Ulrich, N0. 14-05-00992-CV, 2007 WL 1191903 at *3
(TeX. App.—Houston [14th Dist] Apr. 24, 2007, n0 pet.).
Thus, t0 prove a modification of an at-will employment contract, the party
asserting the modification must prove: (1) notice 0f the change, and (2) acceptance 0f
the change—including acceptance by operation of law. Hathaway, 7 11 S.W.Zd at 229;
Jones v. Fujitsu Network Commcns., Inc., 81 F. Supp. 2d 688, 691 (N.D. TeX. 1999).
DEFS.’ MOT. FOR DIRECTED VERDICT Page 13
If the employer proves that he has unequivocally notified the employee of the
changes, the employee’s continuing employment Will constitute acceptance as a
matter 0f law. Hathaway, 711 S.W.2d at 229; Allamon, 877 F. Supp. 2d at 519; Jones,
81 F. Supp. 2d at 692.
Requiring Murphy t0 sign the Partnership Agreement and Company
Agreement as a condition 0f continuing employment cannot be wrongful because he
was an at-Will employee. See Duran v. Intex Aviation Servs., Inc., 93 F.3d 1339 at *3
(5th Cir. 1996) (unpublished). Murphy was confronted With two validly imposed
alternatives—sign the agreements and participate in the new profit-sharing plan, or
not. See Duran, 93 F.3d 1339 at *3. Once Murphy knew about the changes in the
“equity bonus” and that Pavecon insisted that he sign the documents, he could not
continue to work under the 01d arrangement—his choice was t0 accept the new terms
0r quit. See Lindsey v. DynCorp Int’l, LLC, N0. H-09-O700, 2010 WL 376327 at *5
(S.D. TeX. Jan. 25, 2010), aff’d, 385 Fed. Apr. 414 (5th Cir. 2010).
In White v. Aguirre, the plaintiff was an at-Will employee for an architectural,
engineering, and construction firm, initially as a project manager and subsequently
as a Vice-president. White, 2002 WL 987930 at *1. When the plaintiff was hired, the
employer had a sales incentive plan, Which it replaced during the plaintiff’s
employment With an officer cash incentive plan. Id. The employer fired the plaintiff
for disruptive behavior and the plaintiff sued for, among other things, sales incentives
and profit-sharing bonuses under the original sales incentive plan because, according
t0 the plaintiff, the subsequent plan was not accepted and agreed upon. Id. at *2, *3.
The plaintiff, however, had continued to work for the employer for more than eight
months after the new plan became effective. Id. at *2. Relying 0n the principle that
an employee’s continuing employment after unequivocal notification 0f a change in
employment terms constitutes acceptance of the change as a matter 0f law, the Dallas
DEFS.’ MOT. FOR DIRECTED VERDICT Page 14
Court 0f Appeals affirmed summary judgment against the plaintiff on his breach of
contract claim.5 Id. at *3, *4.
Here, Pavecon gave Murphy unequivocal notice 0f a change in the employment
terms—the equity bonus would no longer be made by awards 0f stock in Pavecon
Holdings and, instead, t0 receive equity bonuses Murphy had t0 become a member 0f
Pavecon Ltd. and a partner in Pavecon Public Works by signing the Company
Agreement and the Partnership Agreement and related Profit/Loss Sharing
Agreements. Murphy acknowledged the change by signing the Stock Purchase
Agreement and selling his stock in Pavecon Holding back to Pavecon Holding.
Murphy concedes that before and after he signed the Stock Purchase Agreement
Walker and Heierman told him he needed to sign the other documents. By continuing
to work With unequivocal notice 0f the change, Murphy accepted the change. Murphy
did not have the option t0 continue to work under the 01d terms and his breach 0f
contract claim based upon the 2012 employment agreement fails as a matter 0f law.
VII. Murphy’s fraud claims are based 0n insufficient evidence or have been
conclusively disproven and are barred by the independent injury rule.
Murphy’s fraudulent inducement, fraud, and fraudulent concealment claims
fails as a matter 0f law for multiple reasons. First, Texas law generally precludes
recovery in tort if the parties’ alleged tort injuries are the subject 0f a contract 0r
warranty. See, e.g., Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 12
(TeX. 2007) (citing SWBell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494—95 (TeX. 1991)).
This rule is known as the “independent injury rule.” Heil Co. v. Polar Corp, 191
S.W.3d 805, 816 (TeX. App.—Fort Worth 2006, pet. denied); see also Slocum v. U.S.
Bank Nat'l Ass'n for Credit Suisse First Boston Mortgage Sec. Corp, N0. 16-CV-
5
The plaintiff in White also claimed a right t0 additional payments based 0n an alleged agreement t0
treat him as a shareholder 0r partner. Id. at *5. The Dallas Court of Appeals rejected this argument
because the evidence showed that the plaintiff had rejected a stock offering and never signed a
partnership agreement. Id. (affirming judgment).
DEFS.’ MOT. FOR DIRECTED VERDICT Page 15
00955, 2017 WL 2629147, at *3 (E.D. TeX. May 23, 2017) (citing Heil with approval
before dismissing common-law fraud claim). The rule’s focus “is 0n determining
Whether the injury is t0 the subject 0f the contract itself.” Lamar Homes, 242 S.W.3d
at 12—13. If the injury is not independent 0f the contract, the claim is barred. See, e.g.,
Heil C0., 191 S.W.3d at 816.
Here the injury claimed by Murphy (failure to pay equity bonuses) is the
subject 0f multiple contracts—the 2012 employment agreement, the Partnership
Agreement and associated Profit/Loss Sharing Agreement, and the Company
Agreement and its associated Profit/Loss Sharing Agreement. The undisputed
evidence shows that Murphy was, in fact, awarded equity bonuses under the 2012
employment agreement, Which he subsequently sold back t0 Pavecon Holding for
$285,000. Murphy never signed the Partnership Agreement and the Company
Agreement, but that does not change the fact that those contracts governed the
awarding 0f equity bonuses. Because the alleged injury is the subject of contract, the
independent injury rule bars Murphy’s fraudulent inducement claim.
The Texas Supreme Court carved out a narrow exception t0 the independent
injury rule in Formosa Plastics Corp. v. Presidio Engineers and Contractors, Ina, 960
S.W.2d 41, 47 (TeX. 1998), for fraudulently inducing a party t0 enter into a contract.
In subsequent decisions, the Court has drawn a distinction between fraudulent
inducement to enter a contract and other species of fraud and has not extended the
exception beyond fraudulent inducement t0 enter into a contract. See Haase v.
Glazner, 62 S.W.3d 795, 798-99 (TeX. 2001); D.S.A., Inc. v. Hillsboro Ind. Sch. Dist.,
973 S.W.2d 662, 663 (TeX. 1998). Murphy has not pled and has n0 evidence that he
was fraudulently induced t0 enter into any contract. Instead, Murphy contends that
he was fraudulently induced t0 continue t0 perform as an employee by alleged
promises that he would continue t0 be paid equity bonuses. Under Texas law,
however, the independent injury rule precludes fraud claims predicated 0n “stringing
DEFS.’ MOT. FOR DIRECTED VERDICT Page 16
along” the plaintiff by promising t0 perform contract obligations. Lake v. Cravens,
488 S.W.3d 867, 900 (TeX. App.—Fort Worth 2016, n0 pet.); Heil C0., 191 S.W.3d at
816-17.
Moreover, Murphy’s own testimony defeats his Claim. Murphy conceded that
Walker never told him that he did not have t0 sign the agreements. Murphy also
testified that Walker and Heierman continued t0 ask him to sign the agreements,
both before and after Murphy signed the Stock Purchase Agreement. The
Partnership Agreement and Company Agreement unambiguously state that in order
to be a partner or member the individual must sign those agreements and the
profit/loss sharing agreements. This testimony conclusively refutes the notion that
Pavecon represented to Murphy that he would be given the benefits of a partner 0r
member Without taking the necessary step of signing the agreements.
Further, Murphy has n0 evidence 0n the element ofjustifiable reliance; indeed,
the evidence conclusively negates this element. To prevail on a fraud claim, a plaintiff
must show actual and justifiable reliance. Grant Thornton LLP v. Prospect High
Income Fund, 314 S.W.3d 913, 923 (TeX. 2010). This element may be negated as a
matter of law When circumstances exist under which reliance cannot be justified.
Nat’l Property Holdings, L.P. v. Westergren, 453 S.W.3d 419, 424 (TeX. 1015). The
Texas Supreme Court has recently reaffirmed the principle that a party cannot rely
on misrepresentations that directly conflicts With the terms of a written contract.
Mercedes-Benz USA, LLC v. Carduco, Ina, _ S.W.3d _, 2019 WL 847845 at *5 (TeX.
Feb. 22, 2019); see also JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., 546
S.W.3d 648, 659 (TeX. 2018). The rationale behind the principle is that to d0
otherwise would defeat the ability 0f written contracts t0 provide certainty and avoid
disputes. Carduco, 2019 WL 847845 at *5 (quoting DRC Parts & Accessories, L.L.C.
v. VMMotori, S.P.A., 112 S.W.3d 854, 859 (TeX. App.—Houston [14th Dist] 2003, pet
denied».
DEFS.’ MOT. FOR DIRECTED VERDICT Page 17
Here, Murphy conceded that Walker never told him that he did not have t0
sign the agreements. Murphy also testified that Walker and Heierman continued t0
ask him to sign the agreements, both before and after Murphy signed the stock
purchase agreement. The Partnership Agreement and Company Agreement
unambiguously state that in order to be a partner or member the individual must
sign those agreements and the Profit/Loss Sharing Agreements. The Stock Purchase
Agreement unequivocally informed Murphy he would never receive another
distribution, and the final K-l from Pavecon Holding Co. that Murphy introduced
into evidence proves that final distribution turned out t0 be true. This testimony
conclusively negates the element of justifiable reliance and thus Murphy’s fraud
claims.
Additionally, to the extent Murphy has raised a claim of fraudulent omission,
Murphy has proven n0 facts that would give rise t0 any duty of disclosure 0r that such
a duty has been breached. See, e.g., In re Int’l Profit Assocs., Inc., 274 S.W.3d 672, 678
(Tex. 2009) (“Failing to disclose information is equivalent t0 a false representation
only When particular circumstances impose a duty 0n a party t0 speak, and the party
deliberately remains silent”). A11 of the purported misrepresentations concerned
purported affirmative representations about “the stock equity bonus.” There is simply
no evidence 0f any omissions 0f material fact by any Defendant.
Furthermore, there is