Court Opinion

ID: 9400717
Source: CourtListenerOpinion
Date Created: 2023-06-09 00:00:38.38409+00
Date Added: 2024-06-11T17:19:15.148359
License: Public Domain

Case: 22-20026         Document: 00516779540             Page: 1      Date Filed: 06/08/2023

              United States Court of Appeals
                   for the Fifth Circuit
                                                                                  United States Court of Appeals
                                                                                           Fifth Circuit

                                      ____________                                       FILED
                                                                                      June 8, 2023
                                       No. 22-20026                                   Lyle W. Cayce
                                      ____________                                         Clerk

   Hui Ye,

                                                                     Plaintiff—Appellant,

                                             versus

   Xiang Zhang; Wing Lau,

                                               Defendants—Appellees.
                      ______________________________

                      Appeal from the United States District Court
                          for the Southern District of Texas
                               USDC No. 4:18-CV-4729
                      ______________________________

   Before Wiener, Southwick, and Duncan, Circuit Judges.
   Per Curiam: *
          Hui Ye and Xiang Zhang are former business partners who, along with
   Zhang’s wife, Wing Lau, became embroiled in disputes over dividing up their
   co-owned businesses. Following a bench trial, the district court ruled in favor
   of Zhang and Lau’s unjust enrichment claim and granted them declaratory
   judgment concerning the distribution of proceeds from the sale of a
   warehouse. The court also awarded them attorney’s fees and costs under the

          _____________________
          *
              This opinion is not designated for publication. See 5th Cir. R. 47.5.
Case: 22-20026       Document: 00516779540        Page: 2     Date Filed: 06/08/2023

                                   No. 22-20026

   governing Texas statute. We AFFIRM the district court’s judgment and fee
   award, and REMAND to allow the district court to determine whether
   Zhang and Lau are entitled to appellate attorney’s fees.
                                         I.
          Ye and Zhang, joint owners of six companies in the water-filtration
   and logistics industries, decided to part ways and divide up their businesses.
   Zhang would retain the logistics companies, while Ye would retain the water-
   filtration companies. As they disentangled their businesses, however,
   disputes arose.
          Ye sued Zhang and his wife, Wing Lau, alleging they had mismanaged
   the companies and converted various assets. He asserted claims for
   fraudulent misrepresentation, breach of fiduciary duty, fraudulent
   concealment, and conversion as well as a claim under the Texas Theft
   Liability Act (“TTLA”). He also sought a declaratory judgment on his rights
   to inspect and audit the companies. Zhang and Lau countersued. They
   asserted claims for unjust enrichment based on their personal payments to
   the companies, and they also sought a declaratory judgment concerning the
   distribution of proceeds from the sale of a company-owned warehouse. The
   six companies were named as “Nominal Defendants,” as the parties
   requested liquidation of the companies following resolution of their claims.
          The district court first dismissed all claims against Lau. After Ye
   presented his case-in-chief at a bench trial, the court granted Zhang’s motion
   for judgment on partial findings, dismissing all of Ye’s remaining claims
   except for his declaratory judgment claim. After hearing Zhang and Lau’s
   counterclaims, the court ruled in favor of their unjust enrichment claim,
   awarding them $153,433.78. The court also entered a declaratory judgment
   that the parties had orally agreed to distribute the warehouse proceeds
   proportionally between Ye and Zhang.

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          Zhang and Lau moved for attorney’s fees and costs incurred in
   defending against Ye’s TTLA claim. The court awarded Zhang and Lau
   $341,359.16 in fees and $4,194.08 in costs, representing roughly 80% of what
   they claimed.
          Ye now appeals.
                                          II.
          “The standard of review for a bench trial is well established: findings
   of fact are reviewed for clear error and legal issues are reviewed de novo.”
   Luwisch v. Am. Marine Corp., 956 F.3d 320, 326 (5th Cir. 2020) (quoting Barto
   v. Shore Constr., LLC, 801 F.3d 465, 471 (5th Cir. 2015)). We review an award
   of attorney’s fees for abuse of discretion. Merritt Hawkins & Assocs., L.L.C.
   v. Gresham, 861 F.3d 143, 155 (5th Cir. 2017). “That means clear error review
   of fact findings and de novo review of legal conclusions.” ATOM Instrument
   Co. v. Petroleum Analyzer Co., L.P., 969 F.3d 210, 216 (5th Cir. 2020). Texas
   law applies in this diversity case. Ferrer & Poirot, GP v. Cincinnati Ins. Co., 36
   F.4th 656, 658 (5th Cir. 2022) (per curiam); Tex. Com. Bank Nat’l Ass’n v.
   Cap. Bancshares, Inc., 907 F.2d 1571, 1575 (5th Cir. 1990).
                                         III.
          On appeal, Ye argues the district court: (1) should have awarded him
   100% of the warehouse sale proceeds; (2) should have denied Zhang and
   Lau’s unjust enrichment claim as a matter of law; and (3) erred by awarding
   attorney’s fees. We address each argument in turn.
                                          A.
          First, Ye contends the district court erred by distributing the
   warehouse proceeds proportionally between him and Zhang. He claims he is
   entitled to all the proceeds because the parties agreed Ye would take 100%
   ownership of DeltaFill, Inc., which owned the warehouse. We disagree. The

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   district court found that Ye and Zhang entered an enforceable oral agreement
   to divide the sale proceeds proportionally between them following the
   separation of their businesses.
          Under Texas law, to determine the “existence of an oral contract,”
   courts look to “the communications between the parties and to the acts and
   circumstances surrounding those communications.” Prime Prods., Inc. v.
   S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.—Houston [1st Dist.]
   2002, pet. denied). The agreement’s terms “must be expressed with
   sufficient certainty so that there will be no doubt as to what the parties
   intended.” Copeland v. Alsobrook, 3 S.W.3d 598, 605 (Tex. App.—San
   Antonio 1999, pet. denied). Courts may rely on the parties’ testimony to
   determine the existence of an agreement. Ibid.
          The district court concluded that the parties orally agreed to distribute
   60% of the warehouse proceeds to Ye and 40% to Zhang, representing the
   proportion of their respective equity interests in the Nominal Defendants.
   The court credited Zhang’s account that such an agreement existed. It also
   found his testimony corroborated by the parties’ subsequent written
   agreement that referenced the “60/40 split,” specifying that proceeds would
   first apply to company debt before being distributed to the parties. See, e.g.,
   Copeland, 3 S.W.3d at 606 (affirming finding of oral contract, in part, because
   “the contract was later confirmed in writing”).
          Additionally, the court found the parties’ agreement to allocate the
   warehouse proceeds was distinct from their agreement to divide the business
   entities. This finding is contrary to Ye’s argument that he was entitled to the
   proceeds merely because the parties agreed he would retain ownership of
   DeltaFill. Moreover, although DeltaFill held the warehouse’s legal title, the
   district court found that the Nominal Defendants held the warehouse as a

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   shared asset, providing further evidence of the parties’ intention to distribute
   the proceeds proportionally following their separation.
          Having reviewed the record, we find no legal or factual error in the
   district court’s conclusion that the parties orally agreed to distribute the
   warehouse sale proceeds proportionally.
                                          B.
          Ye next argues that the district court erred by granting Zhang and
   Lau’s unjust enrichment claim against the Nominal Defendants. The court
   found that Zhang and Lau personally paid $53,433.78 to DeltaFill so it could
   pay its property taxes, allowing the warehouse sale to proceed. Additionally,
   Lau paid $100,000 to the Nominal Defendants for the entities to cover two-
   to-three months of operating expenses. She testified that this payment was
   intended to be a short-term loan because the companies themselves could not
   qualify for financing. Finding these payments were not made with gratuitous
   intent, the district court concluded it would be unjust for the Nominal
   Defendants to retain them.
          Ye does not challenge the district court’s findings. He instead argues
   that, to support an unjust enrichment claim, Zhang and Lau must prove that
   the Nominal Defendants obtained the payments through fraud, duress, or
   undue advantage. We disagree. Texas law recognizes two theories of unjust
   enrichment. See Matter of KP Eng’g, L.P., 63 F.4th 452, 457 (5th Cir. 2023)
   (quoting Dig. Drilling Data Sys., L.L.C. v. Petrolink Servs., Inc., 965 F.3d 365,
   379–380 (5th Cir. 2020)). One theory—“active” unjust enrichment—
   requires showing “that one party ‘has obtained a benefit from another by
   fraud, duress, or the taking of an undue advantage.’” Dig. Drilling Data Sys.,
   965 F.3d at 379 (quoting Heldenfels Bros., Inc. v. City of Corpus Christi, 832
   S.W.2d 39, 41 (Tex. 1992)). Under the second theory, however, a plaintiff
   need not “plead or prove that the defendant acted wrongfully” if his unjust

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   enrichment claim is based on the “passive receipt of a benefit that would be
   unconscionable [for the defendant] to retain.” Matter of KP Eng’g, L.P., 63
   F.4th at 457; see, e.g., Richardson Hosp. Auth. v. Duru, 387 S.W.3d 109, 114
   (Tex. App.—Dallas 2012, no pet.). The district court proceeded under this
   second theory. Ye’s argument that Zhang and Lau must show the Nominal
   Defendants engaged in misconduct thus fails. 1
                                                C.
           Finally, Ye challenges the award of attorney’s fees to Zhang and Lau
   under the TTLA. That statute permits awarding prevailing parties
   reasonable attorney’s fees and costs. Tex. Civ. Prac. & Rem. Code
   § 134.005(b); see Civelli v. J.P. Morgan Sec., L.L.C., 57 F.4th 484, 492 (5th
   Cir. 2023). The district court awarded Zhang and Lau $341,359.16 in fees and
   $4,194.08 in costs. Ye argues this was error because Zhang and Lau failed to
   segregate their attorneys’ recoverable fees in defending against the TTLA
   claim from unrecoverable fees in defending against Ye’s other claims. 2 We
   disagree.
           Because attorney’s fees are recoverable only if authorized by statute
   or contract, prevailing parties must usually “segregate fees between claims

           _____________________
           1
              Ye alternatively argues that Zhang and Lau were foreclosed from asserting an
   unjust enrichment claim because they also alleged the dispute was governed by an express
   contract. See McAfee, Inc. v. Agilysys, Inc., 316 S.W.3d 820, 828 (Tex. App.—Dallas 2010,
   no pet.). But Ye forfeited this argument by “failing to raise it in the first instance in the
   district court.” Rollins v. Home Depot USA, 8 F.4th 393, 397 (5th Cir. 2021).
           2
             Ye also argues that (1) insufficient evidence supports the fee award; (2) the award
   was excessive; and (3) defense counsel failed to exercise billing judgment. Ye waived these
   arguments by failing to raise them before the district court. Rollins, 8 F.4th at 397. But even
   had he not waived them, these arguments would fail. Trial counsel submitted, and the
   district court reviewed, 185 pages of billing invoices with accompanying declarations
   explaining the rates and services provided. Ye fails to explain why the district court clearly
   erred in finding these records sufficient to support Zhang and Lau’s fee request.

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   for which they are recoverable,” from “claims for which they are not.” Tony
   Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006) (citations
   omitted). Segregation is not required, however, “when the fees are based on
   claims arising out of the same transaction that are so intertwined and
   inseparable as to make segregation impossible.” Transverse, L.L.C. v. Iowa
   Wireless Servs., L.L.C., 992 F.3d 336, 344 (5th Cir. 2021) (quotation omitted).
   This exception applies “only when discrete legal services advance both a
   recoverable and unrecoverable claim.” Chapa, 212 S.W. at 313–14.
          Zhang and Lau’s attorneys submitted detailed invoices, affidavits, and
   charts in support of their claim that 80% of their TTLA-related fees could not
   be segregated from fees defending against Ye’s other claims. The district
   court agreed. Because Ye’s suit primarily involved allegations of theft, the
   court concluded that the services necessary to defeat the TTLA claim largely
   overlapped with services necessary to defend against Ye’s other theft-related
   claims (e.g., for fraudulent misrepresentation, breach of fiduciary duty,
   fraudulent concealment, and conversion).
          Ye contends the attorneys’ evidence was inadequate to show that fee
   segregation was impossible. He claims they were required to provide billing
   records with line-item entries describing how each TTLA-related task could
   not be segregated from a non-recoverable task. We disagree. Under Texas
   law, “[a]ttorneys are not required to keep separate records documenting the
   exact amount of time working on one recoverable claim versus an
   unrecoverable claim.” Alief Indep. Sch. Dist. v. Perry, 440 S.W.3d 228, 246
   (Tex. App.—Houston [14th Dist.] 2013, pet. denied) (citing Chapa, 212 S.W.
   at 314). Instead, prevailing parties can prove inability to segregate fees
   through attorney testimony, like that here, estimating the percentage of
   hours devoted to non-recoverable claims. ATOM Instrument Co. 969 F.3d at
   217. Ye identifies no legal or factual error in the district court’s fee award.

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          Additionally, Zhang and Lau seek remand for the district court to
   award them appellate attorney fees. We agree. “Under Texas law, if a party
   is entitled to recover attorneys’ fees in the trial court, the party is also entitled
   to attorneys’ fees after successfully defending on appeal.” Id. at 218 (citing
   DP Sols., Inc. v. Rollins, Inc., 353 F.3d 421, 436 (5th Cir. 2003)).
                                           IV.
          The district court’s judgment is AFFIRMED. The case is
   REMANDED to allow the district court to determine whether Zhang and
   Lau are entitled to appellate attorney’s fees.

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