Law School Case Brief
Bruce v. Cauthen - 515 S.W.3d 495 (Tex. App. 2017)
A trial court may disregard a jury's verdict and render a judgment notwithstanding the verdict if no evidence supports one or more of the jury's findings or if a directed verdict would have been proper. An appellate court reviews directed verdicts under the same legal-sufficiency standard that applies to no evidence summary judgments. Evidence is legally sufficient if it would enable reasonable and fairminded people to reach the verdict under review.
In 2002, David Bruce founded Alliance Recruiting Resources, Inc. (Alliance), a medical staffing company. That same year, Bruce hired Misty Cauthen as a recruiter. In 2006, Cauthen was promoted to Vice-President and awarded 20% of the shares of stock in Alliance. Cauthen's ownership of the stock was governed by a Buy-Sell Agreement between Alliance and its shareholders, Bruce and Cauthen. Over time, Cauthen was awarded additional shares of stock and eventually became President of Alliance. By 2010, Cauthen had been given an additional 20% of the stock, increasing her ownership to 40% of the company. In 2007, Bruce and Cauthen also formed Kingwood Place Investments #1, LP (the Partnership) wherein Bruce owned 60.4% and Cauthen owned 39.6%. By the fall of 2012, business disagreements arose between Bruce and Cauthen, and ultimately Cauthen resigned from Alliance in February 2013. Based on the terms of the Buy-Sell Agreement, Cauthen was entitled to $158,000.00 for her shares in Alliance, payable by an initial down payment of 20% in cash and a note to be paid in quarterly installments over five years. Cauthen launched her own staffing company, DirectHire.com LLC, that same year. Although Cauthen had resigned from Alliance, she was still a limited partner in the Partnership. Alliance continued to make lease payments to the Partnership, and Bruce began invoicing Cauthen for her share of the Partnership's monthly mortgage payments and other operating expenses. Cauthen made no payments, however, and the Partnership eventually declared her to be in default. In February 2014, Bruce notified Cauthen that her interest in the Partnership would be sold at a foreclosure sale. On March 6, 2014, a private foreclosure sale was held at which Bruce was the only bidder. Bruce acquired Cauthen's interest in the Partnership for the amount of her alleged indebtedness, then totaling $51,234.02. Shortly after, Cauthen and DirectHire.com sued Bruce and Alliance for declaratory judgment. Cauthen sought declarations that she owed no contractual or other duties to Bruce and Alliance, she and DirectHire.com were free to compete in the staffing industry, and no trade secrets had been appropriated from Alliance. Bruce and Alliance filed answers, and Alliance asserted counterclaims for breach of contract and tortious interference with existing contracts and prospective contractual relations. After summary proceedings and a jury trial, the trial court signed a judgment awarding the Cauthen in excess of $2 million in actual damages, exemplary damages, and attorney's fees. On appeal, Bruce and Alliance contended that the trial court erred by granting Cauthen a partial summary judgment on her claim that Bruce wrongfully foreclosed on Cauthen’s 39.6% interest in the Partnership in violation of section 9.625 of the Uniform Commercial Code (UCC).
Did the trial court err by granting Cauthen a partial summary judgment on her claim that Bruce wrongfully foreclosed on Cauthen’s 39.6% interest in the Partnership in violation of section 9.625 of the UCC?
According to the Court, Tex. Bus. & Com. Code Ann. § 9.610, titled "Disposition of Collateral After Default," provided that after a default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral. Tex. Bus. & Com. Code Ann. § 9.610(a). If the secured party undertook to dispose of the collateral, every aspect of the disposition must be commercially reasonable, including the method, manner, time, place, and other terms. If commercially reasonable, a secured party may dispose of collateral by public or private proceedings and at any time and place and on any terms. However, the secured party may not purchase the collateral at a private sale if the collateral was not of a kind that was customarily sold on a recognized market or the subject of widely distributed standard price quotations. As such, the Court held that Cauthen was entitled to summary judgment on a Tex. Bus. & Com. Code Ann. § 9.625 wrongful foreclosure claim against Bruce because the company did not modify Tex. Bus. & Com. Code Ann. § 9.610(c) to let Bruce acquire Cauthen’s interest in a private sale.
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