Byron A. Donzis v. Immudyne, Inc., a Delaware Corporation

No. 04-00-00685-CV Byron DONZIS, Appellant v. IMMUDYNE, INC., a Delaware Corporation, Appellee From the 285th Judicial District Court, Bexar County, Texas Trial Court No. 1999-CI-02381 Honorable David A. Berchelmann, Jr., Judge Presiding Opinion by: Phil Hardberger, Chief Justice Sitting: Phil Hardberger, Chief Justice Paul W. Green, Justice Karen Angelini, Justice Delivered and Filed: August 15, 2001 AFFIRMED Background Mark McLaughlin ("McLaughlin") and Tom McCarvill ("McCarvill") brought a shareholder derivative suit against Byron Donzis ("Donzis"), ImmuDyne, Inc. ("ImmuDyne"), and James Woods ("Woods"), resulting in a Rule 11 settlement agreement. The settlement agreement received judicial approval and was circulated to the parties for their signatures. Donzis refused to sign the agreement on the grounds that it did not accurately incorporate the terms of the Rule 11 agreement. McLaughlin and McCarvill filed a motion for summary judgment. The motion was granted and the trial court subsequently entered an order incorporating the terms of the settlement agreement. Donzis appealed the summary judgment order, specifically claiming that portions of the Rule 11 agreement were omitted. Donzis did not, however, contest that the agreement required that he use his best efforts to make ImmuDyne a profitable venture. During the pendency of Donzis's appeal, he acted in violation of both the Rule 11 agreement and the summary judgment order through his involvement with Nutrition Supply Corporation ("NSC"), a competitor. Donzis was both directly and indirectly involved in the management, operations, and development of NSC. In response, McLaughlin and McCarvill filed an emergency motion, asking the court to hold Donzis in contempt for violating the summary judgment order. Because the order was on appeal to this court, we requested that the trial court hold an evidentiary hearing on the contempt allegations and make findings of fact upon the completion of the hearing. The trial court's findings of fact showed that through specific acts and his conduct, Donzis had directly competed with and harmed ImmuDyne. The findings of fact found that in addition to Donzis's competitive business practices, Donzis had failed to use his best efforts to make ImmuDyne profitable, and was instead acting in an effort to decrease ImmuDyne's profitability. This court reversed the summary judgment order, remanding the case to the trial court. We remanded the cause not because the Rule 11 agreement was ambiguous, but because the trial judge added terms not originally included in the agreement. The opinion made clear that the best efforts provision would not be affected by Donzis's appeal, and he would still be required to comply with its terms. After revising its judgment to incorporate the Rule 11 agreement language verbatim, ImmuDyne sued Donzis for breach of contract for failing to comply with the agreement, and moved for a summary judgment. Using evidence primarily established during the earlier contempt hearing, ImmuDyne was granted summary judgment. Donzis appeals. Issues Presented Donzis appeals based on ImmuDyne's reliance on the findings of fact stemming from the contempt hearing. Donzis maintains that using the findings of fact as evidence to support ImmuDyne's motion for summary judgment is not permissible under the doctrine of collateral estoppel. He alleges that ImmuDyne failed to establish the requisite elements for the breach of contract claim. Donzis further claims that because the evidence presented was not newly adduced, but was evidence gleaned instead from the contempt hearing's findings of fact, ImmuDyne failed to establish their damages. The trial court's order granting summary judgment in favor of ImmuDyne was an inconclusive judgment, Donzis argues, and should be reversed. Standard of Review When reviewing a trial court's grant of summary judgment, we must consider the following: (1) the movant bears the burden of demonstrating that there is no genuine issue of material fact, therefore, it is entitled to summary judgment as a matter of law; (2) evidence favorable to the non-movant will be taken as true; and (3) all reasonable inferences must be indulged in favor of the non-movant, with any doubts resolved in its favor. Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222 (Tex. 1999); Nixon v. Mr. Property Management, 690 S.W.2d 546, 548-49 (Tex. 1985). Collateral Estoppel In order to invoke the doctrine of collateral estoppel, ImmuDyne must establish that: (1) the facts sought to be litigated were fully and fairly litigated in the prior action; (2) those facts were essential to the judgment; and (3) the parties were cast as adversaries in the prior action. Eagle Properties, Ltd. v. Scharbauer, 807 S.W.2d 714, 721 (Tex. 1990); Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 818 (Tex. 1984). An issue that has been actually litigated is conclusively established for the purpose of any subsequent actions between the original parties, or persons in privity with them, even if future suits are not based on the original cause of action. Van Dyke v. Boswell, O'Toole, Davis & Pickering, 667 S.W.2d 381, 384 (Tex. 1985). Generally, a judgment in an action by or against a corporation is res judicata in a subsequent suit by or against a stockholder. Western Inn Corp. v. Heyl, 452 S.W.2d 752, 760 (Tex. Civ. App.-Fort Worth 1970, writ ref. n.r.e.); see Paine v. Sealey, 956 S.W.2d 803, 807 (Tex. App.-Houston [1st Dist.] 1997, no pet.). Shareholders of a corporation are in privity with the corporation as to all corporate matters and are bound by a decree against the corporation, and vice versa. Id; see Paine v. Sealey, 956 S.W.2d 803, 807 (Tex. App.-Houston [1st Dist.] 1997, no pet.). The first requirement of full and fair litigation is established through the examination of the evidence presented at the contempt hearing. Each party was represented by counsel, and all parties had adequate notice and participated fully in the proceedings. The subsequent findings of fact detail Donzis's violation of the Rule 11 agreement and the initial summary judgment. These facts provide the foundation for the judgment. While the original suit was brought by ImmuDyne's shareholders against Donzis, ImmuDyne is considered a party by virtue of privity to the original proceedings. Donzis and ImmuDyne were adversaries in the first proceeding. We hold all three collateral estoppel requirements were met. Because the issue of finality is an important one under the doctrine of collateral estoppel, we must determine whether the trial court's determination that Donzis violated the Rule 11 agreement is procedurally definitive. Van Dyke, 667 S.W.2d at 385. The test for procedural definiteness requires that: (1) the parties be fully heard; (2) the trial court' decision be based upon a reasoned opinion; and (3) the trial court's decision was reviewed on appeal. Id. In this case, the trial court held an evidentiary hearing which conclusively established that Donzis had engaged in wrongful conduct and violated the Rule 11 agreement. Evidence was introduced and arguments were presented at the hearing. The parties were each allowed a full and fair opportunity to litigate the issue of Donzis's alleged violations. The trial court then issued a decision, supported by its findings of fact. Those same findings of fact were subject to review by this court. Donzis did not object to the trial court's findings. We find that the trial court's findings of fact comply with the finality requirements of collateral estoppel. Breach of Contract The elements required to prevail on a breach of contract claim are: (1) the existence of a valid contract; (2) the plaintiff performed under the contract; (3) the defendant breached the contract; and (4) the plaintiff was damaged as a result of the defendant's breach. Southwell v. Univ. of Incarnate Word, 974 S.W.2d 351, 354-55 (Tex. App.-San Antonio 1998, pet. denied); Wright v. Christian & Smith, 950 S.W.2d 411, 412 (Tex. App.-Houston [1st Dist.] 1997, no pet.). As this court stated in its earlier decision, the Rule 11 agreement is a valid and unambiguous contract. In re T.M., 33 S.W.3d 341, 347 (Tex. App.-Amarillo 2000, no pet.). All conditions precedent to the Rule 11 agreement have been met, and ImmuDyne has performed under the agreement. The trial court's findings of fact consist of several violations Donzis had committed, along with a finding that ImmuDyne was forced to spend $600,000 on legal fees as a result of Donzis's willful violation of the do not compete clause. These findings of fact establish Donzis's contractual breach and ImmuDyne's consequent damages. Donzis does not contest the validity of the findings of fact. He cannot, therefore, assert that ImmuDyne failed to establish the requirements for summary judgment when it used those findings as evidence in support of its motion. We find that because Donzis is collaterally estopped from relitigating the trial court's findings of fact, ImmuDyne met the requirements for a summary judgment and successfully proved the existence of its damages. Donzis's first and second points of error are overruled. Conclusion The trial court's judgment is affirmed. Phil Hardberger, Chief Justice DO NOT PUBLISH