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Mike A. Hatchell

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mahatchell@lockelord.com

December 31, 2015 

The Hon. Pam Estes, Clerk 

Twelfth Court of Appeals 

1517 West Front Street, Suite 354 

Tyler, Texas 75702 

Re: No. 12-14-00288-CV; J. Mark Swinnea v. ERI Consulting Engineers, Inc. 

and Larry Snodgrass; In the Twelfth Court of Appeals 

Dear Ms. Estes: 

Subject to the accompanying motion for leave to file this post-argument 

letter brief, the Appellees appreciate your forwarding the following to the Court: 

At the oral argument of this case on November 17, 2015, the Court asked if 

there was further authority on the issue of whether sums disgorged in equity for 

breach of fiduciary duty can be characterized as punitive damages and then, in this 

case, combined with the specific award of punitive damages for purposes of 

analyzing the “proportionality” element under a United States Constitution “due 

process” analysis. 

After the argument, Appellees researched the issue further nationwide and in 

Texas. Additional authorities identified from that research and elsewhere are 

supplied in the following charts: 
The Hon. Pam Estes, Clerk 

December 31, 2015 

Page 2

NON-TEXAS AUTHORITIES: 

§43, Restatement (Second) of Torts, cmt. “When the compensation of the trustee 

is reduced or denied, the reduction or 

denial is not in the nature of an 

additional penalty for the breach of trust 

but is based upon the fact that the 

trustee has not rendered or has not 

properly rendered the services for which 

compensation is given,” as quoted in 

Burrow v. Arce, 997 S.W.2d 229, 238 

(Tex. 1999). 

Turnbow v. Life Partners, Inc., No. 

3:11-CV-1030-M, 2013 WL 3479884, 

at *18 (N.D. Tex. July 9, 2013). 

“Disgorgement wrests ill-gotten gains 

from the hands of the wrong-doer” and 

is intended to be “remedial and not 

punitive.” 

S.E.C. v. Koenig, 532 F. Supp. 2d 987, 

994 (N.D. Ill. 2007), aff'd in part and 

remanded, 557 F.3d 736 (7th Cir. 2009). 

“The SEC has also established by a 

preponderance of the evidence that it is 

entitled to disgorgement. Disgorgement 

is an equitable, not a punitive remedy 

and should be fashioned so as to deprive 

Koenig of the unjust enrichment he 

derived from his securities violations. 

Lipson, 278 F.3d at 664. The 

disgorgement figure calculation is 

discretionary and need not be exact. 

SEC v. First Jersey Secs. Inc., 101 F.3d 

1450, 1474-75 (2d Cir. 1996). 

Ambiguity relating to the calculation 

should be resolved against Koenig. SEC 

v. Lorin, 76 F.3d 458, 462 (2d 

Cir.1996). 
The Hon. Pam Estes, Clerk 

December 31, 2015 

Page 3

U.S. S.E.C. v. Blackwell, 477 F. Supp. 

2d 891, 915 (S.D. Ohio 2007). 

“Defendants argue that this court may 

offset a criminal fine against a 

disgorgement order if it finds that the 

criminal fine either served the same 

purpose as the requested disgorgement, 

or that the criminal fine was intended to 

be, at least in part, restitutionary in 

nature. In support of these propositions, 

Defendants rely on SEC v. Monarch 

Funding Corp., 1996 WL 348209 at 

*10, 1996 U.S. Dist. LEXIS 8756 at *35 

(S.D.N.Y. June 24, 1996). In Monarch, 

the SEC sought disgorgement in the 

amount of $1,566,000 against defendant 

Bertoli (“Bertoli”) even though in a 

prior criminal action, Bertoli was 

assessed a $100,000 criminal fine. The 

court rejected Bertoli’s contention that 

disgorgement would violate the 

constitution’s prohibition against double 

jeopardy because disgorgement is not 

punitive in nature. Id. at 1996 WL 

348209 at *10, 1996 U.S. Dist. LEXIS 

8756 at *34. 

F.T.C. v. Febre, 128 F.3d 530, 537 (7th 

Cir. 1997).

“[D]isgorgement is designed to be 

remedial and not punitive. Rowe v. 

Maremont Corp., 850 F.2d 1226, 1241 

(7th Cir. 1988). “[D]isgorgement does 

not penalize, but merely deprives 

wrongdoers of ill-gotten gains.” CFTC 

v. Hunt, 591 F.2d 1211, 1222 (7th Cir. 

1979). As an equitable remedy, 

disgorgement is meant to place the 

deceived consumer in the same position 

he would have occupied had the seller 
The Hon. Pam Estes, Clerk 

December 31, 2015 

Page 4

not induced him to enter into the 

transaction. Disgorgement also prevents 

the defendant from being unjustly 

enriched by his fraud. Randall v. 

Loftsgaarden, 478 U.S. 647, 671–72, 

106 S.Ct. 3143, 3157–58, 92 L.Ed.2d 

525 (1986). 

TEXAS AUTHORITIES: 

International Bankers Life Ins. Co. v. 

Holloway, 368 S.W.2d 567, 584 (Tex. 

1963).

 “[A] recovery of the consideration 

paid as a result of fraud constitutes 

actual damages, and will serve as a 

basis for recovery of exemplary 

damages.” Id. at 583 (quoting Briggs 

v. Rodriguez, 236 S.W.2d 510 (Tex. 

Civ. App.—San Antonio 1951, writ 

ref’d n.r.e.) (emphasis added). 

 “It is consistent with equitable 

principles for equity to exact of a 

defaulting corporate fiduciary not 

only the profits rightfully belonging to 

the corporation but an additional 

exaction for unconscionable conduct.” 

(Emphasis added). 

Nabours v. Longview Savs. & Loan 

Ass’n, 700 S.W.2d 901 (Tex. 1985).

“[W]here equity requires the return of 

property, this ‘recovery of consideration 

paid as a result of fraud constitutes 

actual damages and will serve as a basis 

for the recovery of exemplary 

damages.’” Id. (quoting Holloway, 368 

S.W.2d at 568). 
The Hon. Pam Estes, Clerk 

December 31, 2015 

Page 5

In the Estate of Preston, 346 S.W.3d 

137 (Tex. App.—Fort Worth 2011, no 

pet.).

“While the mere grant of injunctive 

relief will not support an award of 

punitive damages, the supreme court has 

recognized a ‘recovery of property’

exception to the rule requiring the 

recovery of actual damages, noting that 

‘where equity requires the return of 

property, this ‘recovery of the 

consideration paid as a result of fraud 

constitutes actual damages and will 

serve as a basis for the recovery of 

exemplary damages.’” Id. at 169-770 

(quoting Nabours, 700 S.W.2d at 904-

05). (Emphasis added.) 

Scott v. Sebree, 986 S.W.2d 364, 368 

(Tex. App.—Austin 1999, pet. denied). 

“We do not believe that by using the 

term ‘actual damages’ in [the statutory 

fraud context] the legislature intended to 

preclude a defrauded party from 

utilizing an appropriate equitable 

substitute for out-of-pocket or benefitof-the-bargain damages.” (Emphasis 

added) 

Lesikar v. Rappeport, 33 S.W.3d 282 

(Tex. App.—Texarkana 2000, pet. 

denied). 

“[T]he Supreme Court has authorized 

the recovery of punitive damages in 

actions sounding in equity, even where 

there is no award of typical actual 

damages.” Id. at 310 (citing Nabours; 

later discussing and quoting from 

Holloway, 368 S.W.2d at 584). 

(Emphasis added.) 
The Hon. Pam Estes, Clerk 

December 31, 2015 

Page 6

Procom Energy, L.L.A. v. Roach, 16 

S.W.3d 377, 385 (Tex. App.—Tyler 

2000, pet. denied). 

Rejecting an argument that “the 

recovery of actual damages is a 

prerequisite to an award of exemplary 

damages: “Note 3 of the Nabours

opinion authorizes punitive damages 

where these damages are incident to 

equitable relief when it involves the 

return of property.” Id. “The ‘return of 

property’ exception, however, is not as 

narrow as Nabours seems to imply. In 

International Bankers Life v. Holloway, 

368 S.W.2d 567, 584 (Tex. 1963), the 

court sanctioned the recovery of 

punitive damages in an equitable action 

in which the plaintiff sought to recover 

usurped corporate profits.” Id. “Thus, 

under the Holloway opinion, we 

conclude that punitive damages may be 

recoverable where equitable relief is 

granted and the promised interest has 

not been conveyed, despite the absence 

of jury findings of actual damages.” Id. 

In re Longview Energy Co., 464 S.W.3d 

353, 361 (Tex. 2015). 

Quoting Burrow v. Arce for the 

proposition that “equitable forfeiture ‘is 

not mainly compensatory ... nor is it 

mainly punitive’ and ‘cannot ... be 

measured by ... actual damages’” and 

also holding: “[d]isgorgement is 

compensatory in the same sense 

attorney fees, interest, and costs are, but 

it is not damages.” 
The Hon. Pam Estes, Clerk 

December 31, 2015 

Page 7

Ex parte Ward, 964 S.W.2d 617 (Tex. 

Crim. App. 1998) (en banc).

“Until recently, the federal courts were 

at odds as to whether federal forfeiture 

under the civil statutes constituted 

‘punishment’ as to which the Double 

Jeopardy Clause of the Fifth 

Amendment applied. However, the 

United States Supreme Court recently 

resolved this confusion by concluding 

federal civil forfeitures do not constitute 

‘punishment’ for purposes of the Double 

Jeopardy Clause because they are civil 

in rem proceedings which are neither 

punitive nor criminal in nature.” Id. at 

625-26 (citing United States v. Usery, 

518 U.S. 267 (1996)). 

2007 Infiniti G35X Motor Vehicle, VIN 

JNKBV61E17M708556 v. State, No. 06-

13-00057-CV, 2014 WL 991970, at *1 

n.1 (Tex. App.—Texarkana Mar. 13, 

2014, no pet.). 

“Traditional civil forfeitures, in rem 

proceedings, are not considered 

punishment or fines and thus are not 

subject to the Eight Amendment’s 

prohibition against excessive fines.” 
The Hon. Pam Estes, Clerk 

December 31, 2015 

Page 8

These additional authorities confirm that disgorgement is a remedy, not 

punishment, with the disgorged sums acting as an “additional exaction” for actual 

damages that are difficult to prove because of the nature of the wrong. As such, 

disgorged sums cannot be moved to the other side of the equation for a “due 

process” analysis under the proportionality criterion adopted in the United States 

Supreme Court cases 

Respectfully submitted, 

LOCKE LORD LLP 

/s/ Mike A. Hatchell 

Michael Austin Hatchell 

 
The Hon. Pam Estes, Clerk 

December 31, 2015 

Page 9

CERTIFICATE OF SERVICE

I certify that on December 31, 2015, a true and correct copy of the foregoing 

was e-served via EFileTx.gov upon the following counsel of record: 

Gregory D. Smith 

Nolan Smith 

gsmith@rameyflock.com 

nolans@rameyflock.com

Ramey & Flock, P.C. 

100 E. Ferguson, Suite 500 

Tyler, TX 75702 

Michael E. Gazette 

megazette@suddenlink.com

Law Office of Michael E. Gazette 

100 E. Ferguson, Suite 1000 

Tyler, TX 75702 

 /s/ Mike Hatchell 

Mike Hatchell