Court Opinion

ID: 9758885
Source: CourtListenerOpinion
Date Created: 2023-08-28 23:54:46.601686+00
Date Added: 2024-06-11T10:01:29.378186
License: Public Domain

SEERDEN, Chief Justice,
dissenting.
The majority concludes that the evidence adduced at trial is sufficient to support a finding of liability against Happy Years. Additionally, without considering the reliability of Richard Cortez’s expert testimony, the majority concludes that the evidence is factually insufficient to support his conclusions. On each of these issues, I respectfully dissent.
I. HAPPY YEARS’LIABILITY
By its first issue, Happy Years complains that the evidence is legally and factually insufficient to support the finding that an agreement existed between it and Cantu. Happy Years specifically contends that it never ratified a pre-incorporation agreement between Rivas and Cantu. Without mentioning the theory of non-ratification, the majority opinion states that “the record does contain evidence that Happy Years’ board of directors agreed to pay Cantu a salary.” The sole basis for this conclusion was Rivas’s testimony that “We had all agreed that once the company, or the entity was operating and producing enough money, we would be glad to give him these $2000. But not until then.” Relying only upon this statement, the majority concludes that Happy Years was bound to pay Cantu $2500 per month for his services.
A. Employment Agreement Between Cantu & Happy Years

1. Counteroffer made by Happy Years and accepted by Cantu

This conclusion fails to account for Cantu’s testimony, which is that he asked several times that Happy Years increase his pay. Upon the opening of Happy Years, Cantu, by decision of the board of directors, was paid $200 per week. This evidence is uncontroverted. By its very *120terms, that decision of the board constitutes a counteroffer made to and accepted by Cantu. See United Concrete Pipe Corp. v. Spin-Line Co., 430 S.W.2d 360, 364 (Tex.1968) (modification of original terms of agreement constitutes counteroffer if the modified terms are material). A modification of the offer from an alleged $2500 per month salary to a $200 per week salary constitutes a modification of a material term of the original offer.
In contractual terms, Cantu offered his services to the corporation and sought payment of $2500 per month in compensation. Happy Years chose to offer Cantu $200 per week instead. Cantu accepted that agreement. There is no controverting evidence in the record on this matter.
By choosing to accept employment with Happy Years under those materially modified terms, Cantu accepted Happy Years’ counteroffer, thereby making that agreement the operative and binding agreement between the parties. See Chapman v. Mitsui Eng’g & Shipbuilding Co., 781 S.W.2d 312, 316 (Tex.App. — Houston [1st Dist.] 1989, writ denied); Arguelles v. Kaplan, 736 S.W.2d 782, 785 (Tex.App.— Corpus Christi 1987, writ refd n.r.e.) (acceptance of counteroffer is sufficient to create a binding agreement between the parties). Thus, as a matter of law, from the outset of the corporation’s existence, the operative agreement between it and Cantu was the agreement that Cantu would be employed as the director of the day care centers and would be paid a salary of $200 per week, notwithstanding any understandings reached between Cantu and Rivas. Moreover, by Cantu’s acceptance of the counteroffer, the original offer was rejected. See Blackstone v. Thalman, 949 S.W.2d 470, 474 n. 4 (Tex.App. — Houston [14th Dist.] 1997, no writ). Once rejected, an original offer cannot be revived. Gasmark, Ltd. v. Kimball Energy Corp., 868 S.W.2d 925, 928 (Tex.App.— Fort Worth 1994, no writ).
Because there is no controverting evidence on this matter, the evidence is legally insufficient to support the conclusion that Happy Years ever entered into an agreement with Cantu to pay him $2500 per month for services rendered. See Formosa Plastics Corp. USA v. Presidio Eng’r & Contractors, Inc., 960 S.W.2d 41, 48 (Tex.1998) (in assessing the legal sufficiency of the evidence, the court must consider all evidence favorable to the party in whose favor the verdict was rendered and determine whether there is more than a mere scintilla of evidence to support the fact finder’s conclusion). Here, because there is no evidence to support the conclusion that Happy Years ever agreed to pay Cantu $2500 per month, there is not even a mere scintilla of evidence which supports the majority’s conclusion.

2. Need for Ratification to Bind Happy Years

An alternate theory to bind Happy Years to the purported $2500 per month agreement is ratification because, to the extent that Cantu is party to such an agreement, that agreement was reached prior to the incorporation of Happy Years
A non-existent corporation cannot have an agent and is not bound by pre-incorpo-ration agreements absent some proof that the corporation adopted or ratified the agreement. See e.g., Fish v. Tandy Corp., 948 S.W.2d 886, 897-98 (Tex.App. — Fort Worth 1997, pet. denied). Here, the un-controverted evidence, straight from Cantu, is that he presented the board of directors with as many as six opportunities to adopt the pre-incorporation agreement and that on each occasion, the board chose not to do so. The only evidence to suggest that any such adoption was even remotely contemplated is the isolated statement by Rivas cited by the majority. However, that statement does not support the fact finder’s conclusion of adoption for two significant reasons: 1) Rivas’s statement itself makes it clear that the board placed conditions on Cantu’s salary increase; and 2) the board, on a consistent basis, expressly chose not to adopt the agreement *121by its vote. There is nothing in this record to suggest that any of the directors were unreasonable in concluding that the corporation had not yet attained sufficient profitability to warrant Cantu’s pay raise. Moreover, Cantu neither pleaded nor proved that the board’s decision was a violation of the business judgment rule or justification for piercing the corporate veil. Thus, as a matter of law, there is nothing in the record which shows that the corporation undertook any acts to bind itself to this pre-incorporation agreement.

3. Actions of the Board of Directors Conclusively Show No Ratification

The testimony cited by the majority is persuasive; however, the conclusion reached by the majority, based on this testimony alone, fails to account for the unfulfilled conditions imposed by Rivas and the other directors as a predicate for increasing Cantu’s salary. Rivas testified that “once the company ... was operating and producing enough money, we would be glad” to pay Cantu an increased salary. This statement, while evidencing some future willingness to increase Cantu’s salary, nevertheless expressly states the board of directors’ requirement that the corporation make sufficient money, in the board’s opinion, to justify that raise. The actions of the board of directors, as illustrated by testimony in the record, demonstrate that the Board had not yet concluded that the corporation was making sufficient money to justify the raise.
Cantu himself testified that at various times during his employment at Happy Years, he proposed to the Board of Directors that his salary be increased. Cantu recalled that the board would meet once a week. During these meetings, Cantu said he felt that the corporation was making money and that he was entitled to a salary increase, and reiterated that he felt he had been promised $2500 per month. The remaining directors called for a vote of the board. Cantu testified that on as many as six different occasions, the board voted three to one against increasing his salary.
The powers of a corporation are exercised by and through its board of directors. Tex. Bus. CoRP. Act. ANN. art. 2.31 (Vernon Supp.2000). The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. Tex. Bus. Corp. Act. Ann. art 2.35 (Vernon Supp. 2000). Thus, when the majority of the board of directors chooses a particular course of action, that decision is deemed to be the act of the corporation. Here, the board of directors, by Cantu’s own recollection, voted six different times to deny his request for a pay raise. That is the unequivocal determination of the board of directors and comports with Rivas’ statement that Cantu would not receive any pay increase until the board believed the corporation was making sufficient money to support such an increase.
Moreover, the record does not support the majority’s conclusion that Happy Years was not bound to follow the statutory corporate formalities because it acted as a closely-held corporation. See generally Tex. Bus. Corp. Act. Ann. art. 12.37(F) (Vernon Supp.2000). In order to qualify as a closely-held corporation, the articles of incorporation must specifically set out that the entity is incorporated as a close corporation. Tex. Bus. Corp. Act Ann. art. 12.11(A) (Vernon Supp.2000).1 Regardless of the wishes of the incorporators, the record here clearly shows that the articles of incorporation denominate Happy Years as a corporation, not a closely-held corporation.
The failure of the Happy Years’ board of directors to formally adopt the agreement between Rivas and Cantu negates any *122claim of ratification. Additionally, the repeated vote of the board to deny Cantu his sought-after pay increase is overwhelming evidence that the corporation did not take any action to ratify any agreements made between Rivas and Cantu.
Because I would conclude that there is no evidence in the record to support the majority’s conclusion regarding a purported agreement between Cantu and Happy Years, I would sustain Happy Years’ first issue.2
B. Stock Agreement Between Cantu & Happy Years
By its second issue, Happy Years contends the evidence is legally and factually insufficient to support the finding that it agreed to award Cantu 25% of its stock if Cantu fulfilled his obligations under the agreement. The majority concludes that there was no dispute that such an agreement existed and that the jury chose to accept Cantu’s assertions that he had fulfilled his obligations under that agreement.

1. Lack of Pleadings

The majority fails to disclose that there are no pleadings in the record requesting that Happy Years issue stock to Cantu. I would conclude that in the absence of pleadings to support the award, the trial court erred by ordering Happy Years to issue stock to Cantu. See Tex. R. Civ. P. 301 (judgment of the trial court shall conform to the pleadings).

2. No Ratification, No Agreement

Furthermore, because I would conclude that Happy Years was not obligated to pay Cantu a salary of $2500 per month, I would likewise conclude that Happy Years was not obligated to issue stock to or repurchase the stock owned by Cantu. The agreement regarding the stock in Happy Years is not an agreement between Happy Years and Cantu; it is an agreement between Rivas and Cantu. As a matter of law, it cannot be anything else, regardless of the conclusion reached by the jury. As noted above, Happy Years did not undertake any actions to expressly or implicitly ratify or otherwise adopt this agreement; in fact, it counteroffered to Cantu with materially different terms and Cantu accepted that counteroffer. Any subsequent corporate decision to give Cantu stock would have to be made by the board of directors. See Tex. Bus. Corp. Act Ann. art. 2.35 (Vernon Supp.2000). There is no evidence in this record which indicates that the board of directors made such a decision. Thus, there is not legally sufficient evidence to support the finding that the corporation agreed to award Cantu any stock.
I would conclude that there is no evidence that Happy Years entered into an agreement with Cantu to award him any stock.3
C. Conclusion as to Happy Years
Because I would conclude that there is no evidence to substantiate any agreements between Happy Years and Cantu, I would reverse the judgment of the trial court, as it relates to Happy Years, and render judgment that Cantu take nothing.
II. RELIABILITY OF RICHARD CORTEZ’S EXPERT TESTIMONY
Although I agree with the majority in its disposition of Rivas’s appeal, I dissent from the majority’s implicit conclusion that Richard Cortez’s testimony is reliable.
Cortez testified that he examined all of Happy Years’ financial reports. He testified that his review of these records indi*123cated that Happy Years’s aggregate profit could have been much greater. Cortez opined that Happy Years had excessive discretionary expenditures, including related-party compensation' and purchases of unnecessary equipment. Cortez also cited what he concluded were non-business related expenses: the purchase of a Lexus automobile and the payment of country club fees. Deducting these unnecessary expenditures, Happy Years’ profit increased to $405,0004 over the relevant, time period. He agreed that his determination was an estimate, made to calculate what he termed a “constructive dividend.” 5
On cross-examination, Cortez acknowledged that his conclusion was rooted in speculation. He agreed that his methodology did not comport with the Generally Accepted Accounting Principles (“GAAP”) and acknowledged that he could not pinpoint the lost dividends on a year-by-year basis. He testified that he had “guessed” about certain figures in his calculation, specifically the amount of director’s fees paid to both Rivas and Guerra between 1991 and 1994. He stated that he had no records available to determine how much time Alvear spent at the day care center during this time, but nevertheless suspected that she had been grossly overpaid during Happy Years’ operation. Cortez acknowledged that there were no records to indicate that Happy Years had purchased the Lexus, and similarly agreed that the records provided no evidence regarding the payment of country club fees out of corporate funds. Cortez acknowledged that in this particular circumstance, the State of Texas requires adult day care centers to maintain an eight-to-one client-to-employee ratio, and agreed that hiring qualified family members to fill those positions would not be unreasonable. Finally, Cortez stated that he could not account for the $820,000 he alleged was misspent.
The reliability of an expert’s opinion is a threshold question of law, particularly when the expert testifies to the extent of lost profits6 associated with a business. See Szczepanik v. First S. Trust Co., 888 S.W.2d 648, 649 (Tex.1994); see generally Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993); Gammill v. Jack Williams Chevrolet, 972 S.W.2d 713, 720 (Tex.1998). Absent the hallmarks of reliability, the expert’s opinion constitutes no evidence. See Merrill Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 712-14 (Tex.1997); E.I. du Pont de Nemours, Inc. v. Robinson, 923 5.W.2d 549, 557 (Tex.1995). Where, as here, lost profits are at issue, the amount of lost profits need not be susceptible to exact calculation. Szczepanik, 883 S.W.2d at 649. However, the loss must nevertheless be shown by competent evidence and with reasonable certainty. Id. Opinions or estimates of lost profitability must, at the very least, be based upon objective facts, figures, or data from which the amount of lost profits may be ascertained. Id. Rank speculation or guesses do not constitute objective information. Frank B. Hall & Co. v. Beach, Inc., 733 S.W.2d 251, *124259 (Tex.App. — Corpus Christi 1987, writ refd n.r.e.) (an award of damages based upon speculation cannot be upheld on appeal). The record must show how the lost profits were calculated. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex.1992). Our review of the record is fact-intensive. Texas Instruments, Inc. v. Teletron Energy Management, Inc., 877 S.W.2d 276, 279 (Tex.1994).
In the instant case, I would conclude that Cortez’s method was insufficient to support his conclusions. Cortez’s methodology did not comport with GAAP. Instead, Cortez relied on conjecture to estimate what Happy Years’ profits should have been. These conclusions stood in stark contrast to the empirical proof of Happy Years’ actual profits. Moreover, Cortez acknowledged that he could not demonstrate where the lost profits could be found and accounted for in any of Happy Years’ financial statements. His conclusions were not the result of any particular calculation. I would conclude that Cortez’s method was unreliable and, thus, constituted no evidence. On that basis, and not the factual insufficiency of evidence, I would sustain Rivas’s seventh issue.
CONCLUSION
For the foregoing reasons, I respectfully dissent from the majority’s opinion. I would reverse and render a judgment that, as to Happy Years, Cantu take nothing.

. A recognized exception to this rule occurs ° when the corporation serves as the alter ego of a shareholder. See Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 228 (Tex.1990). There is no pleading in this record to support an alter ego finding in this case.

. Furthermore, because I am convinced that Happy Years' first issue should be sustained, I would also conclude that we need not reach Happy Years’ issues related to its breach of contract claims. Tex. R. App. P. 47.1.

. I would also conclude that we need not reach Happy Years' fifth issue related to satisfaction of the statute of frauds. Tex. R. App. P. 47.1.

. This number was admittedly wrong and was subsequently corrected by the trial court.

. It is, of course, axiomatic, that ownership of stock in a corporation does not entitle an individual to any share of profits. See generally Tex. Bus. Corp. Act Ann. art. 2.38-1 (Vernon 1998). Instead, stockholders are entitled to a share of dividends declared by the corporation’s board of directors. However, in this case, the instruction and question submitted to the jury concerned, inter alia, Cantu’s entitlement to lost profits. Neither party objected to either the instruction or the question. Because error was not preserved, I would not consider the propriety of either, but would proceed as though the instruction was correct. However, this should not be taken as my approval of using lost profits as a measure of damages in suits by shareholders against directors.

. Cortez explained that his calculations were for the purposes of determining a "constructive dividend” and not lost profits. However, the record indicates that Cortez consistently refers to the $405,000 constructive dividend as lost profits. For current purposes, I will consider these terms to be indistinguishable.