Court Opinion

ID: 9954826
Source: CourtListenerOpinion
Date Created: 2024-03-27 06:13:52.712697+00
Date Added: 2024-06-11T08:15:03.595618
License: Public Domain

AFFIRMED and Opinion Filed March 20, 2024

                                    S In The
                             Court of Appeals
                      Fifth District of Texas at Dallas
                               No. 05-23-00125-CV

               PAUL RUDNICKI, Appellant
                         V.
THOMPSON PETROLEUM CORPORATION, J. CLEO THOMPSON AND
  JAMES CLEO THOMPSON, JR., L.P., AND J. CLEO THOMPSON
         PETROLEUM MANAGEMENT, LLC, Appellees

               On Appeal from the 298th Judicial District Court
                            Dallas County, Texas
                    Trial Court Cause No. DC-17-16848

                        MEMORANDUM OPINION
                   Before Justices Molberg, Reichek, and Smith
                            Opinion by Justice Smith

      Appellant Paul Rudnicki appeals the trial court’s summary judgment in favor

of appellees Thompson Petroleum Corporation (TPC), J. Cleo Thompson and James

Cleo Thompson, Jr., L.P. (the Partnership), and J. Cleo Thompson Petroleum

Management,     LLC    (Petroleum    Management)      on   Rudnicki’s   claim    for

indemnification. In one issue Rudnicki argues that the trial court erred in granting

appellees’ motion for summary judgment and denying his motion because he

established as a matter of law that he was entitled to indemnification under the
Partnership’s limited partnership agreement, TPC’s articles of incorporation, and

section 8.052 of the business organizations code. Because we conclude that the trial

court did not err in granting summary judgment in favor of appellees, we affirm.

                      Factual and Procedural Background

      Appellant Rudnicki is the former Chief Financial Officer and Vice President

of TPC and Vice President – Finance of Petroleum Management. Appellees are

family-owned entities formed by the J. Cleo Thompson, Jr. family. TPC oversaw

and managed the other Thompson entities. Specifically, TPC provided employees

to the Partnership. The Partnership owned, operated, and managed oil and natural

gas interests in the Permian Basin. Petroleum Management was the General Partner

of the Partnership and was responsible for managing its assets, including the

employees provided by TPC. Thus, although they were separate entities, the day-

to-day operations of the entities overlapped.

      William J. Clarke, who was previously General Counsel, Vice-President, and

Secretary of TPC, brought suit against appellees TPC and the Partnership for failing

to pay him a $10 million bonus he alleged he was promised by TPC, specifically

Rudnicki, for work that he did for the Partnership. Both Clarke’s and Rudnicki’s

employment with appellees ended prior to the lawsuit. TPC and the Partnership

subpoenaed Rudnicki to take a deposition as a non-party, and Rudnicki notified the

companies of his right to indemnification and advancement of costs in having to

defend and respond to the deposition notice. The companies did not respond. Clarke

                                        –2–
later added Rudnicki as a defendant in the lawsuit.1 Rudnicki filed cross-claims

against TPC and the Partnership and a third-party petition against Petroleum

Management seeking indemnification and advancement of costs from appellees for

his expenses, including attorney’s fees, in defending against the suit. TPC and the

Partnership settled their suit with Clarke and Clarke filed a notice of nonsuit of his

claims against TPC, the Partnership, and Rudnicki.2 The trial court granted the

nonsuit and ordered dismissal of all claims, thereby rendering Rudnicki’s

indemnification claim as the only claim before the court.

         Prior to the dismissal order, Rudnicki moved for partial summary judgment

on his indemnification and advancement claim. After the dismissal order, Rudnicki

filed a second amended motion for partial summary judgment and appellees filed a

cross-motion. The parties filed responses and replies to the opposing party’s motion,

and the trial court held a hearing. The trial court granted appellees’ motion for

summary judgment and denied Rudnicki’s motion for partial summary judgment.

The trial court entered a final judgment ordering Rudnicki’s claims dismissed with

prejudice and that Rudnicki take nothing on his indemnification claim. This appeal

followed.

   1
     Clarke also added TLT Petroleum II, LLC, a Thompson entity created to house and distribute bonuses
or “profit interests” to members. TLT is not a party to this appeal.
   2
       TLT also settled with Clarke and was nonsuited.
                                                  –3–
                    Summary Judgment Standard of Review

      We review a summary judgment de novo. Trial v. Dragon, 593 S.W.3d 313,

316 (Tex. 2019). A traditional motion for summary judgment requires the moving

party to show that no genuine issue of material fact exists and that it is entitled to

judgment as a matter of law. TEX. R. CIV. P. 166a(c); Lujan v. Navistar, Inc., 555

S.W.3d 79, 84 (Tex. 2018). If the movant carries this burden, the burden shifts to

the nonmovant to raise a genuine issue of material fact. Lujan, 555 S.W.3d at 84.

We take evidence favorable to the nonmovant as true, and we indulge every

reasonable inference and resolve any doubts in the nonmovant’s favor. Ortiz v. State

Farm Lloyds, 589 S.W.3d 127, 131 (Tex. 2019). However, when both parties move

for summary judgment on the same issue and the trial court grants one motion and

denies the other, as the court did here, we consider both parties’ summary judgment

evidence, determine the question presented, and render the judgment the trial court

should have rendered if we determine it erred. Valence Operating Co. v. Dorsett,

164 S.W.3d 656, 661 (Tex. 2005).

             Parties’ Competing Motions for Summary Judgment

      In his second amended motion for partial summary judgment, Rudnicki

argued that he was entitled to judgment as a matter of law on his claim for

indemnification against appellees. Specifically, Rudnicki contended that he was

entitled to indemnification from the Partnership and from Petroleum Management

under section 5.13 of the limited partnership agreement and from TPC under Article

                                         –4–
Eleven of its Articles of Incorporation. Rudnicki included the limited partnership

agreement and articles of incorporation as evidence in his motion for summary

judgment.

      The Agreement of Limited Partnership provides, in relevant part, as follows:

             5.13 Indemnification of General Partner. To the fullest extent
      permitted by law, and subject to the procedures in Article 11 of the
      Partnership Act, on request by the Person indemnified the Partnership
      shall indemnify each General Partner and its Affiliates and their
      respective officers, directors, partners, employees, and agents and hold
      them harmless from and against all losses, costs, liabilities, damages,
      and expenses (including, without limitation, fees and disbursements of
      counsel) any of them may incur as a General Partner in the Partnership
      or in performing the obligations of the General Partner with respect to
      the     Partnership,      SPECIFICALLY          INCLUDING          THE
      INDEMNIFIED             PERSON’S          SOLE,      PARTIAL,        OR
      CONCURRENT NEGLIGENCE, but excluding any such items
      incurred as a result of something for which the General Partner is liable
      under Section 5.8, and on request by the Person indemnified the
      Partnership shall advance expenses associated with the defense of any
      related action.

“General Partner” is defined as Petroleum Management or “any other Person

admitted pursuant to this Agreement in the capacity of general partner in the

Partnership.”

      Rudnicki asserted that he was one of the people to be indemnified under

section 5.13, as he was Vice President – Finance of the General Partner, Petroleum

Management, and Chief Financial Officer and Vice President of the General

Partner’s Affiliate, TPC. Rudnicki also asserted that he was acting on behalf of the

General Partner, Petroleum Management, which managed the Partnership, with

                                        –5–
regard to the allegations made by Clarke concerning his bonus compensation for

work he did on behalf of the Partnership. Rudnicki emphasized that TPC conducted

no business of its own except to supply employees to the Partnership and that

appellees had consistently disregarded formal corporate distinctions between the

entities.

       Appellees asserted in their motion for summary judgment that Rudnicki’s

expenses did not fall within the parameters of the indemnification provision because

“[h]is legal fees defending against [] Clarke’s claims were neither incurred as a

General Partner nor in performing the obligations of the General Partner.” Instead,

“they were incurred years after Rudnicki ceased working for” appellees and “could

not have been incurred ‘as a General Partner,’ nor ‘in performing any obligations of

the General Partner.’” Appellees emphasized that section 5.13 did not contain broad

indemnification language such as “arise out of” or “are related to” as was at issue in

the cases relied on by Rudnicki.

       Rudnicki responded that indemnity would be a hollow promise if it did not

extend to former employees for actions arising during their employment, especially

if an employer could simply terminate an employee to avoid its contractual

obligation to indemnify. Rudnicki further argued that appellees misinterpreted “as”

to require a “present tense timing of actions,” when the proper interpretation is

“actions taken as a General Partner, not the timing of a lawsuit brought pertaining to

                                         –6–
such actions.” Rudnicki asserted the same was true for actions taken in performing

the obligations of the General Partner.

      Rudnicki also argued he was entitled to indemnification from TPC under

Article Eleven of the Articles of Incorporation, which provides, in relevant part, as

follows:

             The corporation may indemnify any director, officer or
      employee, or former director, officer or employee of the corporation,
      or any person who may have served at its request as a director, officer
      or employee of another corporation in which it owns shares of stock, or
      of which it is a creditor, against expenses actually and necessarily
      incurred by him and any amount paid in satisfaction of judgments in
      connection with any action, suit or proceeding, whether civil or
      criminal in nature, and which he is made a party by reason of being or
      having been such a director, employee or officer (whether or not a
      director, employee, or officer at the time such costs or expenses are
      incurred by or imposed by him[)]. The corporation may also reimburse
      to any director, officer or employee the reasonable costs of settlement
      of any such action, suit or proceeding. Such rights of indemnification
      and reimbursement shall not be deemed exclusive of any other rights to
      which such director, officer or employee may be entitled by law or
      under any by-law, agreement, vote of shareholders, or otherwise.

Although Rudnicki acknowledged that the language under Article Eleven was

permissive, he asserted that public policy, specifically the perceived benefit

corporations obtain through indemnifying their officers and directors, favored the

broad application of indemnification and reimbursement provisions so that

indemnified persons received the broadest possible protection. Rudnicki also argued

that the last sentence of Article Eleven—“Such rights of indemnification and

reimbursement shall not be deemed exclusive of any other rights to which such

                                          –7–
director, officer or employee may be entitled by law or under any by-law, agreement,

vote of shareholders, or otherwise”—authorized his rights of indemnification and

reimbursement through other avenues such as section 8.052 of the business

organizations code, which provides as follows:

      On application of a governing person, former governing person, or
      delegate and after notice is provided as required by the court, a court
      may order an enterprise to indemnify the person to the extent the court
      determines that the person is fairly and reasonably entitled to
      indemnification in view of all the relevant circumstances.

TEX. BUS. ORGS. CODE ANN. § 8.052(a).

      Appellees argued in their motion for summary judgment that these provisions

are permissive, not mandatory, and thus Rudnicki had no contractual right to

indemnification from TPC.

                               Contract Construction

      We review the construction of a contract, including whether it is ambiguous,

de novo. Kachina Pipeline Co. v. Lillis, 471 S.W.3d 445, 449 (Tex. 2015). We must

ascertain the true intentions of the parties as expressed in the agreement itself.

Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333

(Tex. 2011). Generally, “the instrument alone will be deemed to express the

intention of the parties for it is objective, not subjective, intent that controls.”

Matagorda Cnty. Hosp. Dist. v. Burwell, 189 S.W.3d 738, 740 (Tex. 2006) (per

curiam) (citation omitted). “We therefore ‘presume parties intend what the words

of their contract say’ and interpret contract language according to its ‘plain, ordinary,

                                          –8–
and generally accepted meaning’ unless the instrument directs otherwise.” URI, Inc.

v. Kleberg Cnty., 543 S.W.3d 755, 764 (Tex. 2018) (first quoting Gilbert Tex.

Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 126 (Tex. 2010);

and then quoting Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex.

1996)). Ambiguity does not exist simply because the parties disagree over a term’s

meaning and present different interpretations of the agreement. Dynegy Midstream

Servs., Ltd. P’ship v. Apache Corp., 294 S.W.3d 164, 168 (Tex. 2009); DeWitt Cnty.

Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 100 (Tex. 1999).

                  Construction of Indemnification Provisions

      We first begin with Rudnicki’s argument that he is entitled to indemnification

under section 5.13 of the Partnership agreement. Rudnicki relies on several cases

for the proposition that indemnification provisions should be applied broadly and

that he is not excluded from indemnification simply because he was sued

individually or no longer an officer or employee of the Thompson companies when

he was brought into the lawsuit.

      Three of the cases on which he relies examine indemnification provisions that

contain “by reason of” language. In United States v. Lowe, the court rejected the

corporation’s argument that the former officer was per se precluded from being

indemnified because he was sued individually when the bylaws provided that the

corporation shall indemnify “[e]ach director and each officer or former director or

officer of this corporation” for “liabilities imposed upon him and expenses

                                       –9–
reasonably incurred by him in connection with any claim made against him . . . by

reason of his being or having been such director or officer . . . .” 29 F.3d 1005, 1007

n.3, 1009–1010 (5th Cir. 1994) (emphasis added). The court recognized “the breadth

with which many courts have interpreted language such as ‘by reason of’” and noted

that the “factual inquiry should be on the ‘connection between the complaint and

[Lowe’s] corporate status.”           Id. at 1010–1011 (alteration in original; citation

omitted). In Homestore, Inc. v. Tafeen, the Supreme Court of Delaware3 explained

that the test for determining whether a corporate official was sued “by reason of the

fact” of their corporate position is whether “there is a nexus or causal connection

between any of the underlying proceedings . . . and one’s official corporate

capacity.” 888 A.2d 204, 214 (Del. 2005). But the language in the corporation’s

bylaws, which was also language contained in the Delaware General Corporation

Law, provided: “Each person who was or is . . . involved in any action, suit or

proceeding, . . . by reason of the fact that such person . . . is or was a director or

officer of the Corporation . . . shall be indemnified . . . .” Id. at 211, 213 (emphasis

in original). And, in In re DeMattia, an opinion out of this Court, the indemnification

provision contained similar language: “the Company shall indemnify each Member

who was, is, or is threatened to be made a party to any . . . suit . . . by reason of the

fact that he or she is or was a Member.” 644 S.W.3d at 230 (emphasis in original).

   3
     “[C]ourts throughout the United States, including Texas, look to Delaware on matters of corporate
law.” In re DeMattia, 644 S.W.3d 225, 230 (Tex. App.—Dallas 2022, orig. proceeding).
                                               –10–
But the question at issue in DeMattia was whether the advancement provision linked

back to the indemnification provision so that advancement was required for both

current and former members; there was no question that indemnification was

required for both current and former members because the language expressly stated

“is or was a Member.” Id. at 228–29, 232–33 (emphasis added).

      Rudnicki also relies on RSR Corp. v. Siegmund, in which this Court noted that

the phrase “any action or proceeding arising out of or relating to this Agreement”

(in a consent to jurisdiction clause) was “broad and encompass[ed] all claims that

have some possible relationship with the agreement, including those claims that may

only ‘relate to’ the agreement.” 309 S.W.3d 686, 701 (Tex. App.—Dallas 2010, no

pet.) (emphasis added).

      Relying on the broad language in these cases, Rudnicki asserts that Clarke’s

dispute over his bonus, which was allegedly promised to him by Rudnicki, as an

authorized agent and corporate officer of TPC and the Partnership, has more than

“some possible relationship” and “nexus or causal connection” to Rudnicki

“performing the obligations of the General Partner with respect to the Partnership.”

But regardless of whether the evidence supports Rudnicki’s argument that he was

performing the obligations of General Partner at the time he allegedly authorized

                                       –11–
Clarke’s bonus,4 the question we must answer is whether section 5.13 provides for

broad indemnification like the cases on which Rudnicki relies.

        Our disposition turns on the following language in section 5.13: “all losses,

costs, liabilities, damages, and expenses . . . any of them may incur as a General

Partner in the Partnership or in performing the obligations of the General Partner

with respect to the Partnership” (emphasis added). Specifically, our focus is on the

words “incur as” and “incur . . . in.” As set out above, the cases Rudnicki cites to

for support do not address this language. Nor does section 5.13 contain broad

language such as “by reason of,” “arising out of,” or “relating to,” like the cases

above.

        Appellees assert on appeal that the “[Partnership’s] Agreement could have

provided for indemnification of expenses incurred ‘based on,’ ‘arising from,’ or

similarly ‘related to’ a covered person’s performance of the obligations of the GP

with respect to [the Partnership]. But that simply is not what it says.” We agree.

We “are obliged to enforce the parties’ bargain according to its terms and may not

rewrite a contract under the guise of interpretation.” In re DeMattia, 644 S.W.3d at

234. Although indemnification provisions may generally be drafted broadly as in

the examples above, this one was not.

    4
     The parties dispute whether Rudnicki was authorized to promise Clarke a bonus and whether, even if
he was authorized, such would have been an obligation of the General Partner of the Partnership versus an
obligation of TPC.
                                                 –12–
      The parties have not directed us to any case, and we have not found one, in

which a court has construed the phrase at issue here. In his reply brief, Rudnicki

sets out several meanings of “incur” and urges us to adopt the second definition in

the American Heritage Dictionary—“to become subject to as a result of one’s

actions.” See Incur, THE AMERICAN HERITAGE DICTIONARY (5th ed. 2022) (defining

“incur” as “[t]o acquire or come into (something usually undesirable); sustain” or

“[t]o become liable or subject to as a result of one’s action; bring upon oneself”); see

also Aviles v. Aguirre, 292 S.W.3d 648, 649 n.2 (Tex. 2009) (per curiam) (setting

out definitions of “incur,” including as “[t]o become liable or subject to” and “[t]o

suffer or bring on oneself (a liability or expense)” (first quoting BLACK’S LAW

DICTIONARY 768 (6th ed. 1990); and then quoting BLACK’S LAW DICTIONARY 782

(8th ed. 2004))); Vill. Place, Ltd. v. VP Shopping, LLC, 404 S.W.3d 115, 127 (Tex.

App.—Houston [1st Dist.] 2013, no pet.) (setting out multiple meanings of incur:

“brought on,” “occasioned,” “caused,” and “to become liable to pay”). He did not

present this specific definition or argument to the trial court in his motion for

summary judgment. However, he maintains that to construe “incur” as appellees

suggest “would completely nullify the purpose of agreeing to indemnify Rudnicki

‘to the fullest extent permitted by law’ as it is difficult to imagine a scenario when a

General Partner or affiliate would ever incur attorneys’ fees while simultaneously .

. . performing duties as a General Partner.”

                                         –13–
      But the meaning of the word “incur” by itself is not what is at issue here; the

meaning of “incur as” or “incur in performing” is. Rudnicki’s attempt to substitute

the American Heritage Dictionary’s definition in the place of “incur,” which

includes the additional words “as a result of one’s actions,” broadens the provision

in the partnership agreement because it essentially adds in the words that are missing,

like “relates to,” “arises out of,” or “by reason of.” We decline Rudnicki’s invitation

to add words to the agreement under the guise of applying a dictionary definition to

construe the phrase’s common meaning.

      Rudnicki’s affidavit testimony provided, “From the time I received the

Discovery Subpoena commanding my deposition from TPC and the J. Cleo

Partnership, I have incurred and continue to incur expenses in defense of this action,

which include reasonable and necessary attorney’s fees and costs.” Rudnicki did not

incur the litigation expenses “as” a General Partner or “in performing” its duties. By

the time he began participating and defending himself in the suit, he was no longer

employed by the Thompson entities and, thus, was no longer performing the

obligations of Petroleum Management. Had the language in section 5.13 provided

for broad indemnification such as for expenses incurred by reason of performing the

obligations of the General Partner, or for expenses incurred arising out of the

person’s role as director or officer of the General Partner, or for expenses based on

the person’s performance of the obligations of the General Partner, our analysis

might be different. But that is not the language before us, and we cannot write in

                                        –14–
that language in construing the word “incur.”         To do so, would expand the

partnership agreement’s limited indemnification provision to one that is much

broader. Therefore, we conclude that Rudnicki was not entitled to indemnification

under section 5.13.

      We next turn to the articles of incorporation. Although Article Eleven

contains broad indemnification language—“by reason of being or having been such

a director, employee or officer (whether or not a director, employee, or officer at the

time such costs or expenses are incurred by or imposed by him[)]”—Article Eleven

also expressly provides, “The corporation may indemnify any director, officer or

employee, or former director, officer or employee of the corporation . . . against

expenses actually and necessarily incurred by him and any amount paid in

satisfaction of judgments . . . .” The word “may” in this context is permissive, not

mandatory. See Thiagarajan v. Tadepalli, 430 S.W.3d 589, 596–97 (Tex. App.—

Houston [14th Dist.] 2014, pet. denied) (noting similar phrase in articles of

incorporation was permissive, not mandatory); see also TEX. BUS. ORGS. CODE §

8.0003 (“A governing document of an enterprise may restrict the circumstances

under which the enterprise must or may indemnify or may advance expenses to a

person under this chapter.”).     Thus, TPC was permitted under its articles of

incorporation to indemnify Rudnicki, but it was not required to.

      For the same reason, we reject Rudnicki’s argument that section 8.052 of the

business organizations code entitled him to indemnification, as it also contains

                                        –15–
permissive language. See TEX. BUS. ORGS. CODE § 8.052(a) (“a court may order an

enterprise to indemnify the person to the extent the court determines that the person

is fairly and reasonably entitled to indemnification in view of all the relevant

circumstances” (emphasis added)); see also TEX. GOV’T. CODE ANN. § 311.016

(Code Construction Act provides that “‘[m]ay’ creates discretionary authority or

grants permission or a power,” whereas “‘[s]hall’ imposes a duty”). Rudnicki did

not plead or argue that he was entitled to indemnification under the code’s mandatory

indemnification provision. See id. § 8.051(a).

      In reaching this conclusion, we acknowledge the cases interpreting “may” as

mandatory in certain contexts. For example, when the language provides that a party

“may recover” attorney’s fees, “may” is not discretionary, just as when the language

provides the party “shall be awarded” or “is entitled to” fees. Bocquet v. Herring,

972 S.W.2d 19, 20 (Tex. 1998). However, the difference in the context of this and

similar language is that the language relates back to the party seeking or requesting

the benefit or right (“the party may recover”), not the party from whom the benefit

or right is being sought, such as the corporation or trial court here (“the corporation

may indemnify” or “the court may order”). Here, “may” is used as permissive, or

discretionary language. See id.

      We are also mindful of Rudnicki’s position that the broad policy goal of

indemnification is to protect officers and directors from litigation expenses resulting

from their duties as officer or directors. See In re DeMattia, 644 S.W.3d at 230

                                        –16–
(“Indemnification encourages corporate service by protecting an official’s personal

financial resources from depletion by the expenses incurred during litigation that

results from the official’s service.”). However, we are required to construe and

enforce the language before us, not interpret the provision by rewriting it to fit public

policy. Id. at 234.

      We conclude that Rudnicki is not entitled to indemnification under section

5.13 of the partnership agreement, Article Eleven of the articles of incorporation, or

section 8.052 of the business organizations code. Therefore, the trial court did not

err in granting appellees’ motion for summary judgment and denying Rudnicki’s

motion for partial summary judgment.

                                      Conclusion

      We affirm the judgment of the trial court.

                                             /Craig Smith/
                                             CRAIG SMITH
230125F.P05                                  JUSTICE

                                         –17–
                                    S
                            Court of Appeals
                     Fifth District of Texas at Dallas
                                  JUDGMENT

PAUL RUDNICKI, Appellant                       On Appeal from the 298th Judicial
                                               District Court, Dallas County, Texas
No. 05-23-00125-CV           V.                Trial Court Cause No. DC-17-16848.
                                               Opinion delivered by Justice Smith.
THOMPSON PETROLEUM                             Justices Molberg and Reichek
CORPORATION, J. CLEO                           participating.
THOMPSON AND JAMES CLEO
THOMPSON, JR., L.P., AND J.
CLEO THOMPSON PETROLEUM
MANAGEMENT, LLC., Appellees

       In accordance with this Court’s opinion of this date, the judgment of the trial
court is AFFIRMED.

       It is ORDERED that appellees THOMPSON PETROLEUM
CORPORATION, J. CLEO THOMPSON AND JAMES CLEO THOMPSON, JR.,
L.P., and J. CLEO THOMPSON PETROLEUM MANAGEMENT, LLC recover
their costs of this appeal from appellant PAUL RUDNICKI.

Judgment entered this 20th day of March 2024.

                                        –18–