Coast Energy Management, Inc. v. Richard J. Segal, Craig S. Newhouse, Trustee, and Transamerica Marketing Corporation--Appeal from 37th Judicial District Court of Bexar County

MEMORANDUM OPINION
No. 04-02-00550-CV
COAST ENERGY MANAGEMENT, INC.,
Appellant
v.
Richard J. SEGAL, Craig S. Newhouse, Trustee, and

Transamerica Marketing Corporation,

Appellees
From the 37th Judicial District Court, Bexar County, Texas
Trial Court No. 99-CI-04529
Honorable Frank Montalvo, Judge Presiding

Opinion by: Catherine Stone, Justice

Sitting: Alma L. L pez, Chief Justice

Catherine Stone, Justice

Sarah B. Duncan, Justice (concurring in the judgment only)

Delivered and Filed: April 30, 2003

REVERSED AND REMANDED

This is a restricted appeal from a post-answer default judgment. Appellant Coast Energy Management Corporation ("Coast") raises eight issues on appeal challenging the trial court's subject matter jurisdiction, asserting lack of sufficient notice of trial, and complaining that the evidence was legally insufficient and factually insufficient to support the judgment. Because we conclude the evidence is legally insufficient to support appellees' claims against Coast, we reverse the judgment of the trial court and remand for a new trial.

Factual and Procedural Background

In March 1999, appellees Richard Segal, Craig Newhouse, as Trustee, and Transamerica Marketing Corporation ("Transamerica") sued Coast, Larry Bach, Dan Bach, Energy Smart of Texas ("Energy Smart") and Austin Innovations, Inc. ("Austin"). By their original petition, appellees alleged that Larry Bach, representing Energy Smart, contracted with Newhouse and Transamerica to locate investors for the sale of power plugs. In exchange for locating capital, Newhouse would receive ten percent of the total funds raised and paid to Energy Smart by investors. In December 1997, Bach entered into an agreement with Coast providing him with the exclusive rights to market power plugs to Home Depot. (1) Under this agreement, Segal advanced Bach $400,000.00 to purchase 19,047 power plugs. Segal, in return, would receive his investment and an additional $100,000.00 from the first proceeds of sales to Home Depot. Thereafter, Segal would receive the greater of $1.00 per plug sold or one-third gross profits of the power plugs sold to Home Depot. A note for the $400,000.00 advance to Bach was drafted as security.

In February 1998, Bach entered into two written agreements regarding the marketing of power plugs to Home Depot. The first agreement was with Coast. Under this agreement, Bach was granted the exclusive right to sell and market Coast's products to national retailers. Bach was to pay Coast $500,000.00. Shortly thereafter, Bach entered into an agreement with Austin under which Austin would have the exclusive rights to market power plugs to the top 100 national retailers, including Home Depot. Under this agreement, Austin's consideration would be $500,000.00. According to appellees, Bach used the $500,000.00 obtained from his agreement with Austin to fulfill his obligation under his agreement with Coast. In March 1998, Segal and Bach entered into supplemental agreements as a result of Bach's agreements executed the previous month. Under the new agreements, Segal's investment return increased from $100,000.00 to $120,000.00 after the repayment of the initial $400,000.00 advanced to Bach. Additionally, Segal's interest would extend to the top 100 national retailers. As in their original agreement, Segal would subsequently receive the greater of $1.00 per power plug or a one-third of the gross sales on all future sales of power plugs.

In July 1998, Bach defaulted on the note. Bach and Segal renegotiated the agreement and extended the time for repayment. According to appellees' petition, Bach, Coast, and Austin revised their agreements to the detriment of Segal. Specifically, Segal alleged that Bach was granted the exclusive dealership rights for all power plugs for Home Depot's Southwest Region. Austin was granted the exclusive dealership rights to all areas outside the Southwest Region. Segal also alleged that as part of these new agreements, Austin began to purchase power plugs directly from Coast.

Appellees sued Coast asserting claims for intentional interference with contract, fraud, conversion, and civil conspiracy. Coast moved for summary judgment on all claims. The trial court denied the motion after Coast failed to appear for a hearing on the motion. Trial was subsequently set for February 4, 2002. Coast failed to appear. In a trial before the bench, appellees' only evidence consisted of the testimony of Richard Segal and Craig Newhouse.

Segal testified that he was introduced to Bach by Newhouse, who was working for Transamerica. In exchange for an investment of $500,000.00, Segal was to introduce Bach and Coast to Home Depot in order to sell their product. According to Segal, he was able to establish contracts between Home Depot. Under his agreement with Bach, Segal was to receive $400,000.00 from the sale of power plugs to Home Depot and an additional $120,000.00. Thereafter, he was to receive $1.00 per power planner sold through retailers. Segal testified that in the first year, Home Depot sold $596,277.73 in merchandise. Based upon this amount, he should have received $520,000.00 in proceeds. He testified he only received $72,560.00. He further testified that he believed Home Depot would sell approximately 22,000 power plugs a year. Considering that his agreement covered all national retailers, he projected that 36,000 power plugs a year would be sold. He projected this amount over a twenty-year span. Based on his calculations, Segal concluded that he would have received a total of $720,000.00 under his final agreement with Bach and Energy Smart. Segal testified he was asking the court for $442,000.00 owed under the contract and the projected sales of $720,000.00.

Segal provided some testimony as to Coast's involvement. According to Segal, Coast was owned by Dan Bach, Larry Bach's brother, and held the patent to the power plug. Segal testified that Coast was involved in his agreements with Bach. Coast controlled the price, delivery, and "in effect ended up with all the money in the transaction." According to Segal, Coast used Bach and Energy Smart as a conduit for merchandising. Segal testified that under his agreement with Bach, everything would have to be approved by Coast because it had the authority to grant a franchise in certain areas. According to Segal, Coast granted Bach a nationwide exclusive franchise. On this basis, Segal advanced Bach $500,000.00. Segal testified that Coast subsequently eliminated "their exclusivity agreement" and entered in agreements with "others," resulting in a substantial reduction of his market share.

Newhouse testified that he introduced Segal to Larry Bach and Dan Bach. According to Newhouse, the Bachs were looking for someone to invest $500,000.00. In exchange for finding an investor, he was to receive $50,000.00. He testified that he obtained the investors for Bach, but had not been paid his fee. According to Newhouse, "Coast interfered with his ability to collect money."

The trial court entered a final judgment in the sum $1,167,440.00 against Coast in favor of Segal. The trial court also entered a judgment for $50,000.00 in favor of Newhouse. Coast subsequently filed a timely notice of restricted appeal.

Standard of Review

The standards governing no-answer default judgments differ vastly from the standards governing post-answer default judgments. If a no-answer default judgment is entered, the non-answering party is deemed to have "admitted" the facts properly pled and the justice of the opponent's claim. See Stoner v. Thompson, 578 S.W.2d 679, 682 (Tex. 1979). Contrastingly, a post-answer default judgment constitutes neither an abandonment of the defendant's answer or an implied confession of any issues. Id. In a post-answer default judgment case, judgment cannot be entered on the pleadings. Rather, the plaintiff in such a case must offer evidence and prove his case as in a judgment upon a trial. Id. Because this is a restricted appeal, the error complained of must be apparent from the face of the record. See Norman Communications v. Tex. Eastman Co., 955 S.W.2d 269, 270 (Tex. 1997). The face of the record consists of all the papers on file in the appeal, including the statement of facts. Id. Therefore, we can review Coast's assertions that the evidence was legally and factually insufficient. Id. We review this matter under the well-known standard for legal sufficiency first, considering only the evidence and inferences in support of the judgment. See Wal-Mart Stores v. Gonzalez, 968 S.W.2d 934, 936 (Tex. 1998); Flores v. Brimex Ltd. P'ship, 5 S.W.3d 816, 819 (Tex. App.--San Antonio, 1999, no pet.). Then, if necessary, we determine whether the finding was so against the great weight and preponderance of the evidence to be manifestly unjust. Flores, 5 S.W.3d at 819.

Analysis

In its fourth issue, Coast contends that there was no evidence to support any of the required elements of appellees' cause of action for tortious interference with contract. To win on this claim, appellees had to prove: (1) an existing contract subject to interference, (2) a willful and intentional act of interference with the contract, (3) that proximately caused injury, and (4) caused actual damages or loss. See Prudential Ins. Co. v. Fin. Review Servs., 29 S.W.3d 74, 77-78 (Tex. 2000). We agree with Coast's assertion that there is no evidence to support that Coast intentionally and willfully interfered with the contract between Segal and Larry Bach.

Interference with contract is tortious only when it is intentional. ACS Investors Inc. v. McLaughlin, 913 S.W.2d 664, 673 (Tex. App.--Dallas 1995), rev'd on other grounds, 943 S.W.2d 426 (Tex. 1997). There must be some direct evidence of a willful act of interference by a party. Browning Ferris, Inc. v. Reyna, 865 S.W.2d 925, 927 (Tex. 1993). A party must be more than a willing participant; it must knowingly induce one of the contracting parties to breach its obligations. See id. Thus, appellees had to show that Coast took an active part in persuading Bach and Energy Smart to breach their contracts with appellees. See John Paul Mitchell Sys. v. Randalls Food Markets, Inc., 17 S.W.3d 721, 731 (Tex. App.--Austin 2000, pet. denied). Merely contracting with a party with the knowledge of that party's contractual obligations to someone else is not the same as inducing breach. See id.

In the instant matter, Segal testified as to the agreement he entered into with Energy Smart and the terms of that agreement. He also testified that there was a condition that on each of the agreements, everything had to be approved by Coast. Coast held the patent on the power plugs and controlled who could market the plugs. It was after Coast gave a nationwide exclusive franchise to Bach and Energy Smart that Segal then advanced the $500,000.00. Coast then eliminated that exclusivity agreement and entered into agreements with "others," reducing Segal's interest. This evidence is legally insufficient to establish a willful and intentional interference by Coast. Arguably, at most, the evidence establishes the existence of a contract between Segal and Energy Smart and Coast's awareness of those contracts. However, there is no evidence that Coast induced Bach and Energy Smart to breach its agreement with Segal. Additionally, Segal's testimony is conclusory in that he merely testified that Coast eliminated the exclusivity contract he had with Bach and Energy Smart. While there is evidence that Coast subsequently entered into agreements with unidentified "others," there is no evidence as to whether these agreements were with Bach and Energy Smart and that Coast induced Bach and Energy Smart to enter into these agreements and breach their agreement with Segal.

Additionally, there is no evidence to support this cause of action by Newhouse against Coast. Newhouse testified that he was to receive $50,000.00 in exchange for helping Dan Bach and Larry Bach locate investors. He obtained an investor for them and never received his commission. Newhouse testified that Coast interfered with his ability to get paid. However, there is no evidence that Coast acted willfully and intentionally. Because there is no evidence to support that Coast's interference with any contract was willful and intentional, we sustain Coast's fourth issue.

In its fifth issue, Coast contends that there was no evidence in support of appellees' cause of action for conversion. On appeal, appellees admit that no such evidence was adduced at trial. Upon review of the record, the parties are correct. Therefore, we sustain Coast's fifth issue.

In its sixth issue, Coast contends that the evidence was legally insufficient to support appellees' cause of action for fraud. We agree. A fraud cause of action requires that appellees had to prove that: (1) a material representation was made; (2) which was either known to be false when made or was asserted without knowledge of its truth; (3) was intended to be acted upon; (4) was relied upon; and (5) caused injury. See Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001). Appellees admit that they do not allege that Coast made misrepresentations or directly perpetrated fraud. Instead, they premise their claim on representations made by Bach and, as we understand, that Coast was aware of those representations. (2)

Appellees argue that Bach represented he had entered into agreements with Coast and that he would be the exclusive distributor of power plugs to Home Depot in the United States and that Coast would be required to supply the power plugs ordered by Home Depot. Bach represented that he had a vendor number for Home Depot and that he would begin an aggressive marketing campaign with the retailer. According to appellees, Bach further represented that in order to obtain the exclusive rights from Coast, he needed to obtain funding in the amount of $400,000.00. This evidence of Bach's representations, however, is based upon Segal's affidavit and documents filed in support of the affidavit by appellees in response to Coast's motion for summary judgment before trial. This evidence was not offered and admitted at trial. Instead, at trial, Segal testified as to the terms of his agreement with Bach and Energy Smart. That agreement was later expanded to include the top 100 national retailers, thus expanding Segal's investment return. Segal entered into the agreements after Coast granted Bach and Energy Smart exclusive rights to sell planners nationwide. We hold that this evidence constitutes less than a scintilla of evidence to establish that Bach made a material representation and that Coast was aware of such representation. Accordingly, we sustain Coast's sixth issue.

In its seventh issue, Coast argues that there is no evidence to support the necessary elements of appellees' claim for civil conspiracy. We agree. Appellees must prove the following elements on a cause of action for civil conspiracy: (1) two or more persons; (2) an object to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as a proximate result. Operation Rescue-Nat'l v. Planned Parenthood of Houston and Southeast Tex., Inc., 975 S.W.2d 546, 553 (Tex. 1998). Because civil conspiracy is a derivative tort, appellees must prove an underlying tort to prevail on their claim. See Trammell Crow Co. 60 v. Harkinson, 944 S.W.2d 631, 635 (Tex. 1997); Hunt v. Baldwin, 68 S.W.3d 117, 133 (Tex. App.--Houston [14th Dist.] 2001, no pet.). As noted above, the evidence in support of appellees' tort claims are legally insufficient. Accordingly, there is no factual or legal basis for appellees' civil conspiracy cause of action. We sustain Coast's seventh issue.

Conclusion

Because we sustain Coast's fourth, fifth, sixth, and seventh issues regarding legal sufficiency, we need not address appellant's others issues. We reverse the judgment of the trial court. When a legal sufficiency issue is sustained, the reviewing court generally renders judgment in favor of the party bringing the point of error. Flores, 5 S.W.3d at 821. However, a case can be remanded when the interests of justice require a new trial for further development of the facts. Id. Given the procedural history of this case, we conclude the interests of justice are better served by remanding this case for further proceedings consistent with this opinion.

Catherine Stone, Justice

1. At trial, the evidence reflected that power plugs were energy converting units that when attached to electrical devices would allow those devices to reduce the amount of electricity or energy being consumed.

2. Appellees alleged a cause of action for civil conspiracy against Coast in their original petition. On appeal, they contend they have a claim for conspiracy to defraud against Coast as opposed to direct fraud. We address this cause of action as one for civil conspiracy. See Trostle v. Trostle, 77 S.W.3d 908, 915 (Tex. App.--Amarillo 2002, no pet.).