Court Opinion

ID: 4644881
Source: CourtListenerOpinion
Date Created: 2020-12-21 08:16:43.526111+00
Date Added: 2024-06-11T08:42:09.414465
License: Public Domain

IN THE SUPREME COURT OF TEXAS
                                         ══════════
                                           NO. 19-0343
                                         ══════════

                     LION COPOLYMER HOLDINGS, LLC, PETITIONER,

                                                 v.

                            LION POLYMERS, LLC, RESPONDENT
            ══════════════════════════════════════════
                         ON PETITION FOR REVIEW FROM THE
                  COURT OF APPEALS FOR THE FIRST DISTRICT OF TEXAS
            ══════════════════════════════════════════

                                          PER CURIAM

       JUSTICE GUZMAN did not participate in the decision.

       In this appeal, Petitioner complains that the court of appeals erred in sustaining the

admission of certain deposition testimony that prejudiced its case and in concluding that its

briefing was inadequate to raise an issue about the record’s factual sufficiency. While we agree

that the trial court did not abuse its discretion in admitting the deposition testimony at issue, we

do not agree that Petitioner’s briefing in the court of appeals failed to preserve its complaint about

the factual sufficiency of the evidence. Although the court of appeals held that Petitioner waived

its factual sufficiency complaint through bare assertions unsupported by argument, ___ S.W.3d

___, ___ (Tex. App.—Houston [1st Dist.] 2019), we conclude that the issue was adequately briefed

and argued and should have been considered. We accordingly reverse the judgment below and

remand the Petitioner’s factual sufficiency complaint to the court of appeals for its consideration.
       Petitioner, Lion Copolymer Holdings, LLC (Company), is a synthetic rubber and rubber

chemical manufacturer in Louisiana. Company entered into an Amended and Restated Limited

Liability Agreement (LLC Agreement) with Respondent Lion Polymers, LLC (LP), one of

Company’s members. The LLC Agreement sets forth the terms of Company’s formation and its

management structure. The Agreement creates membership interests, which it identifies as “units.”

When it was admitted as a member, LP received two classes of units: Class 1 Preferred Units and

Class 3 Common Units. This membership arrangement creates a waterfall structure whereby taxes

pass through Company and are paid by its members, including LP.

       Under the Agreement, members share in Company’s profits and losses. Company’s Board

of Managers determines whether and when Company distributes profits and losses to its members.

Before profit distributions are made, however, a member may incur tax liability proportionate to

its membership interest. To account for this asymmetry, the Agreement commits to advancing

members cash sufficient to satisfy their estimated tax liability. Specifically, under section 6.01(d)

       On each Tax Distribution Date, the Company shall, to the extent the Board
       determines such amounts to be available for distribution, make distributions to the
       Members in such amounts as the Board determines are sufficient to satisfy the
       Members’ projected estimated income tax liability with respect to the Company’s
       income allocable to their Units for such period, including any reallocation of
       amounts of income to a Member which may occur due to the allocations provided
       in Section 6.05(a) . . . . Any distribution made to a Member pursuant to this Section
       6.0l(d) shall be treated as an advanced distribution of, and shall reduce, the amounts
       next distributable to such Member pursuant to Section 6.01 or 6.02.

This tax advance prevents members from paying out of pocket for tax liabilities. If Company

provides members with a tax advance, the Agreement allows Company to recoup that amount by

reducing a later, non-tax distribution by the amount advanced. The underlying suit addresses

whether Company improperly deducted a tax advance twice from member distributions.

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       LP first filed a breach of contract claim against Company in February 2014, asserting that

Company improperly withheld certain sums in recapitalization distributions. LP amended its

petition in October 2015 to include a double-deduction claim, asserting that Company had

inappropriately deducted twice a tax advance for the third and fourth quarters of 2011. According

to LP, Company improperly reached into the future to deduct $361,295 in tax advances as part of

a 2011 distribution, as shown in a February 2012 spreadsheet. LP asserts that as part of a 2013

distribution, Company again deducted the same 2011 third and fourth quarter tax distribution.

Company does not dispute that the February 2012 spreadsheet was inaccurate but rather contends

that it did not properly represent prior tax withholdings. According to Company, after LP alerted

it to inaccuracies contained in the February 2012 spreadsheet, it and LP continued communicating

and exchanged new calculations, represented by new spreadsheets. This dialogue culminated in an

August 2012 spreadsheet, which represented the proper calculations and removed the inaccuracies

contained in the February 2012 spreadsheet. Company contends it then distributed capital

consistent with the August spreadsheet. LP contends that the February 2012 spreadsheet and

ultimate 2013 distribution reveal that Company double deducted the 2011 third and fourth quarter

tax advance. The trial court agreed with LP and a jury awarded LP actual damages totaling

$361,295, the amount corresponding to the February 2012 spreadsheet.

       The court of appeals affirmed. ___ S.W.3d at ___. In its appeal, Company argued that the

evidence was legally and factually insufficient to support the jury’s verdict and that the trial court

abused its discretion in admitting the deposition testimony of Richard Furlin, the Company

accountant that prepared the February 2012 spreadsheet. Id. at ___, ___. After holding the evidence

legally sufficient to support the trial court’s judgment, the court declined to consider Company’s

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factual sufficiency complaint because the “issue has been inadequately briefed and that

error . . . waived.” Id. at ___ (citing Lowry v. Tarbox, 537 S.W.3d 599, 614 (Tex. App.—San

Antonio 2017, pet. denied); City of Houston v. Levingston, 221 S.W.3d 204, 217 n.9 (Tex. App.—

Houston [1st Dist.] 2006, no pet.)). Notwithstanding its holding, the court of appeals noted that

Company challenged factual sufficiency by three “bare assertions”:

      •   “Alternatively, for these same reasons, the evidence is so weak that it is factually
          insufficient to support a finding that the Company owed [LP] any money; reversal and a
          new trial are therefore warranted.”
      •   “Alternatively, the evidence of a double deduction and the amount owed is so weak that it
          is factually insufficient; reversal and a new trial are therefore warranted.”
      •   “Alternatively, the evidence supporting the jury’s findings is so weak and so contrary to
          the overwhelming weight of all the evidence that the jury’s verdict should be set aside and
          a new trial ordered because it is factually insufficient.”

Id.

          The court of appeals also held that the admission of the deposition testimony was not an

abuse of discretion because “the probative value of the complained-of portions of Furlin’s

deposition testimony was not substantially outweighed by the danger of unfair prejudice or a

tendency to confuse or mislead the jury.” Id. at ___ (citing TEX. R. EVID. 403). Company appealed

both issues.

          Our briefing rules instruct that a brief “contain a clear and concise argument for the

contentions made, with appropriate citations to authorities.” TEX. R. APP. P 38.1(i). However,

briefs must also “be liberally, but reasonably, construed so that the right to appeal is not lost by

waiver.” Horton v. Stovall, 591 S.W.3d 567, 569 (Tex. 2019) (per curiam) (citing TEX. R. APP. P.

38.9; Perry v. Cohen, 272 S.W.3d 585, 587 (Tex. 2008) (per curiam)). Indeed, courts should

hesitate to resolve cases based on procedural defects and instead endeavor to resolve cases on the

merits. See St. John Missionary Baptist Church v. Flakes, 595 S.W.3d 211, 213–14 (Tex. 2020)

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(per curiam). To determine whether an issue was waived, a court looks not only to the wording of

the issue but the argument under each heading to assess the intent of the parties. Holley v. Watts,

629 S.W.2d 694, 696 (Tex. 1982). While it is preferred that parties independently brief distinct

legal theories, see La Sara Grain Co. v. First Nat’l Bank of Mercedes, 673 S.W.2d 558, 568 (Tex.

1984), certain claims and theories can be “inextricably entwined,” St. John Missionary Baptist

Church, 595 S.W.3d at 216, or the evidence and nature of claims may contain overlapping legal

theories, see Pool v. Ford Motor Co., 715 S.W.2d 629, 631, 633 (Tex. 1986). Thus, it is essential

for courts to look not simply at the wording of parties’ issues, but also the arguments, evidence,

and citations relied on by those parties to determine which issues the parties intended to and

actually briefed. See St. John Missionary Baptist Church, 595 S.W.3d at 214; Pool, 715 S.W.2d at

633.

       Company adequately briefed its factual sufficiency complaint in the court of appeals. One

of Company’s issues in the court of appeals was whether “evidence was legally or factually

sufficient to support” a finding that Company owed $361,295 to LP. Company argued that the only

basis for the jury’s verdict came from LP’s suggestion that the February 2012 spreadsheet reflected

that the same tax advance had been previously deducted in 2011. Company then listed the evidence

that LP relied on to support its claim that Company used the February 2012 spreadsheet to make

its calculations: Furlin’s deposition testimony about the February 2012 spreadsheet, the February

2012 spreadsheet itself and an accompanying email, and Furlin’s testimony regarding prior tax

advances made to LP by September 2011. Although Company asserted that these pieces of

evidence constituted “no more than a scintilla of evidence”—the standard for legal insufficiency,

see Formosa Plastics Corp. USA v. Presidio Eng’rs Contractors, Inc., 960 S.W.2d 41, 48 (Tex.

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1998)—Company subsequently weighed each of these pieces of evidence against countervailing

evidence. It identified evidence (1) that Furlin, as well as other witnesses, disputed whether the

February 2012 spreadsheet was used for the distribution and that an LP executive admitted on

cross examination that later-dated calculations existed, (2) that later correspondences revealed the

parties may have exchanged communications and accountings after the February 2012 spreadsheet

that allegedly resulted in a different “final” readjustment, and (3) that suggested the 2013

distribution was consistent with the August 2012 spreadsheet rather than the February 2012. This

comparative analysis is a quintessential factual insufficiency challenge.

         A party attacking the factual sufficiency of a finding on appeal must “demonstrate on

appeal that the adverse finding is against the great weight and preponderance of the evidence.”

Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001) (per curiam). This is what Company

did, even though it intertwined its analysis with a legal sufficiency complaint. Company identified

the damages award, $361,295; evidence that would support that award; and countervailing

evidence to argue that “the evidence is so weak that it is factually insufficient to support a finding

that the Company owed [LP] any money.” We therefore conclude that the court of appeals erred

in holding that Company waived its factual sufficiency complaint by inadequately briefing the

issue.

         Company also argues that the court of appeals erred in sustaining the trial court’s admission

of the following portion of Furlin’s deposition testimony. ___ S.W.3d at ___.

         Q: ... I’m going to hand you [the February 2012 Spreadsheet]. Do you know what this is?

         Furlin: Yes.

         Q: What is it?

                                                  6
Furlin: I can’t validate this is the final because I don’t—you know, if this matches exactly

what was the final distribution, but this is the calculation of the September 2011

distribution following the waterfall as it was intended and comparing it to what we actually

did in 2011.

Q:.... You can see the file name at the bottom .... And then the file name I believe is Lion

2011 Distribution Final Reallocation February 2012.XLXS. Is that—is this the final

spreadsheet you did?

Furlin: I would say it probably is because that’s how I would have named it.

Q: Would there have been one you did after February of 2012?

Furlin: I don’t recall. Of course, sometimes final is final version 1, version ...

Q: I totally understand. I’ve been looking at this as if it was the final, but I want to make

sure it is the final. This is the—I’ll represent to you that in the spreadsheets that have been

produced to us, this is the final dated spreadsheet we have.

Furlin: Then okay.

Q: But again, I want to make sure this is the final because I want to make sure I have your

numbers that form the basis of everything you’ve done here.

Furlin: Okay.

Q: So if this is the final, this should tie to what was actually distributed to all of the unit

holders, right?

Furlin: No.

Q: Why not.

                                           7
Furlin: There were two parts. One was the 2010 recalculation and the 2011 recalculation.

It was the sum of those. It’s a zero sum gain [sic]. So some people were overpaid, some

people were underpaid. We did 2010 and 2011 and summed up the amounts and said okay.

But the sum, who was overpaid, who was underpaid.

Q: Fair enough. So for [LP’s] Class 3 units, because they only received a distribution in

the 2011 distribution, this would show the amount that they received in the 2011

distribution only, right?

Furlin: This would show what they were—should have received and compared to what

they did receive.

Q: Right. This is the ultimate amount. I know there was some after-the-fact changes that

were made to make sure the ultimate cash flow movements were correct. But this is the

ultimate amount of their distribution. Is that fair to say?

Furlin: Yes.

....

Q: At the time the 2011 distribution was calculated, 1.964 million was deducted from [LP]

as [an] applied article 6.01(d) distribution, right?

Furlin: Correct.

Q: In reality, less than that had actually been distributed under 6.01(d) as tax advances to

[LP], right?

Furlin: Right, but you can’t look at one side of it....

Q: But the answer to my question is yes, right?

Furlin: The answer is yes, but you’re—yes.

                                           8
       ....

       Q: And you did withhold the 1 million 964?

       Furlin: That’s correct.

       (Emphasis added.)

       Company contends that the trial court abused its discretion in admitting the italicized

portions of the deposition testimony and the error likely caused the rendition of an improper

judgment. According to Company, LP’s counsel misrepresented to Furlin during his deposition

that the February 2012 spreadsheet was the final dated spreadsheet it had, despite contrary

evidence. This, Company concludes, allowed LP to procure Furlin’s testimony by

misrepresentation and should therefore be excluded because Furlin’s testimony confused and

misled the jury. See TEX. R. EVID. 402, 403.

       “Relevant evidence is admissible unless” “its probative value is substantially outweighed

by a danger of . . . unfair prejudice, confusing the issues, misleading the jury, undue delay, or

needlessly presenting cumulative evidence.” Id. 402, 403. “Evidence is relevant if: (a) it has any

tendency to make a fact more or less probable than it would be without the evidence; and (b) the

fact is of consequence in determining the action.” Id. 401. Furlin’s testimony is inherently relevant.

As the court of appeals noted, Furlin’s testimony would tend to make a fact of consequence—

whether Company deducted $361,295 in multiple distributions—more or less probable. ___

S.W.3d at ___; see TEX. R. EVID. 401, 402. And, even as Company implies in its briefing, Furlin’s

testimony has probative value because LP used it as evidence that the third and fourth quarter 2011

tax advances may have been double deducted based on the February 2012 spreadsheet. TEX. R.

EVID. 403. Company contends that the statement has no probative value because any reliance

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during trial came from a misrepresentation that it was the final dated spreadsheet Company had.

However, Company snips the alleged misrepresentation from its context. Rather, it is reasonable

to conclude that LP was not attempting to procure a statement by misrepresentation but instead to

determine whether the February 2012 spreadsheet was the last spreadsheet that Furlin compiled,

given that he was the accountant generally in charge of calculating these distributions. 1 Although

this likely worked against Company, such adversarial evidence is expected at trial. See Bay Area

Healthcare Grp., Ltd. v. McShane, 239 S.W.3d 231, 234 (Tex. 2007) (per curiam) (“[T]estimony

is not inadmissible on the sole ground that it is ‘prejudicial’ because in our adversarial system,

much of a proponent's evidence is legitimately intended to wound the opponent.”). Furlin’s

deposition testimony addresses the heart of the dispute—whether this was the final spreadsheet he

compiled, which shows the tax as previously deducted—thus it did not have a tendency to confuse

or mislead the jury because it addressed the exact wrong LP complained of. TEX. R. EVID. 403.

Nor is this unfairly prejudicial because his testimony would encourage a decision on a relevant

circumstance rather than an improper basis or irrelevant appeal. See Diamond Offshore Servs. Ltd

v. Williams, 542 S.W.3d 539, 549 n.37 (Tex. 2018) (collecting cases). Thus, the trial court did not

abuse its discretion when it admitted Furlin’s deposition testimony.

1
       Q:.... You can see the file name at the bottom .... And then the file name I believe is Lion 2011 Distribution
       Final Reallocation February 2012.XLXS. Is that—is this the final spreadsheet you did?
       Furlin: I would say it probably is because that’s how I would have named it.
       Q: Would there have been one you did after February of 2012?
       Furlin: I don’t recall. Of course, sometimes final is final version 1, version ...
       Q: I totally understand. I’ve been looking at this as if it was the final, but I want to make sure it is the
       final. This is the—I’ll represent to you that in the spreadsheets that have been produced to us, this is the final
       dated spreadsheet we have.
(Emphasis added)

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       Without hearing oral argument, see TEX. R. APP. P. 59.1, we grant Company’s petition for

review, reverse the court of appeals’ judgment, and remand the case for the appellate court to

consider Company’s factual sufficiency complaint and its effect, if any, on its judgment.

OPINION DELIVERED: December 18, 2020

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