ROY HARBER v. CTI PETROLEUM INC AND CAPITAL TECHNOLOGIES INC (2011)

MEMORANDUM OPINION

Opinion By Justice Francis

Roy Harber appeals the trial court's judgment rendered after a bench trial.   Harber sued his former employers, CTI Petroleum, Inc. and Capital Technologies, Inc. (collectively CTI), for damages for breach of contract and to compel CTI to issue stock to Harber under his employment agreement.   The trial court rendered judgment ordering CTI to issue the shares of stock to Harber and that Harber take nothing on his claim for damages.   Harber appeals arguing the evidence was legally and factually insufficient to support the trial court's denial of his claim for damages, his termination was without cause as a matter of law, and the evidence of the amount of damages and attorney's fees was uncontested and he is entitled to rendition of a judgment for these amounts.   We affirm the trial court's judgment.

Harber entered into a written employment agreement with CTI for a term of three years.   The agreement provided Harber would earn a specified number of shares in each of the companies if his employment continued for the entire term.   Fifty percent of those shares would vest on the first anniversary date of the agreement;  twenty-five percent of the shares on the second anniversary date;  and twenty-five percent on the third anniversary date.   If Harber's employment was terminated for cause as defined in the agreement before the end of the three-year term, “all unvested stock options and other incentive compensation [would] be forfeited.”   However, if he was terminated without cause before the end of the term, Harber would be entitled to all amounts due under the agreement through the end of the term and “all unvested incentive options or other such employee awards [would] immediately become vested.”   The agreement defined cause in part as:  “Employee's failure to comply with any directive of the CEO ․ that continues for 30 days after written notice thereof is given to Employee.”

After the first anniversary of the agreement, CTI did not issue Harber's vested shares because the parties were unsure how to value the stock for purposes of federal income tax withholding.   Part of this uncertainty occurred because of a substantial investment by Merrill Lynch in CTI Petroleum in September that equated to a value of over $15,000 per share.   Discussions between Harber and CTI's CEO, Richard Jackson, and general counsel, Richard Wilensky, involved how the valuation and tax withholding issue would be resolved and who would be involved in that process.   Harber disputed whether any tax withholding was required and made inquiries and demands of various people within and outside of CTI about when his stock would be issued.

CTI terminated Harber on April 1, 2008, about two months before the second anniversary of the agreement.   The dispute concerns whether this termination was with or without cause.   Harber filed this suit in November 2008 alleging his termination was without cause.   He sought to recover all the stock and compensation due through the end of the term of the agreement.   CTI answered asserting Harber was terminated for cause for his failure to follow company directives about the chain of communication for resolving the tax withholding issue.   The trial court rendered judgment awarding Harber declaratory relief that CTI issue the shares of stock earned before the date of termination—fifty percent of the total shares—and that Harber take nothing on his claims for additional shares and compensation after his termination.   The trial court did not award attorney's fees.   The trial court made written findings of fact and conclusions of law.

Findings of fact in a nonjury trial have the force and effect as a jury's verdict and are reviewed under the same standards applied in reviewing evidence to support a jury's verdict.   See Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex.1994).   In evaluating the legal sufficiency of the evidence to support a finding, we credit favorable evidence if a reasonable factfinder could, and disregard contrary evidence unless a reasonable factfinder could not.  City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex.2005).   The ultimate test is whether the evidence allows reasonable minds to reach the finding under review.   See id.   Anything more than a scintilla of evidence is legally sufficient to support a challenged finding.  Catalina, 881 S.W.2d at 297.   In reviewing the factual sufficiency of evidence, we review all the evidence in support of and against the trial court's finding and will set aside the finding only if the evidence is so weak or if the finding is so against the great weight and preponderance of the evidence that it is clearly wrong and unjust.   See Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex.2001).   In a bench trial, the trial court is the sole judge of the credibility of the witnesses and may believe one witness over another and resolve any conflicts or inconsistencies in the testimony.  Shaw v. County of Dallas, 251 S.W.3d 165, 169 (Tex.App.—Dallas 2008, pet. denied).   A party appealing from a nonjury trial in which the trial court made findings of fact and conclusions of law should direct his attack on the sufficiency of the evidence at specific findings of facts, rather than at the judgment as a whole.   See Shaw, 251 S.W.3d at 169.   Unless challenged by point of error on appeal, findings of fact are binding on the parties and the appellate court.   See Employers Cas. Co. v. Henager, 852 S.W.2d 655, 658 (Tex.App.—Dallas 1993, writ denied).

Harber's first and second issues assert the evidence was legally and factually insufficient to support at least one element of CTI's affirmative defense based on termination for cause.   Harber's sufficiency arguments are based on his interpretation of the definition of cause in the agreement.   He then argues the record shows no evidence of notice of a violation, that a violation continued for thirty days after such notice, and that he violated the directive not to discuss the tax withholding issue with anyone other than Jackson, Wilensky, or CTI's tax counsel.   In his brief, Harber does not challenge specific findings of fact.   However, at oral argument, his counsel stated he was challenging findings 14, 15, and 16.¹

Both parties on appeal argue the agreement is unambiguous and the record indicates the trial court was never asked to determine whether the agreement was ambiguous.   Section 4(b)(iii) of the agreement defines termination for cause as, “Employee's failure to comply with any directive of the CEO ․ that continues for 30 days after written notice thereof is given to Employee.”   Harber contends this definition of cause requires there be a failure to comply with a directive that continues for thirty days after written notice of such failure to comply is given to the employee.

CTI argues that Harber's interpretation is an improper attempt to rewrite the agreement.   CTI contends that “written notice thereof” in section 4(b)(iii) refers to the directive, not the failure to comply.   If the parties had intended the definition to refer to notice of the failure to comply, the agreement would have said so, as it does in section 4(b)(ii) of the agreement, which defines cause as the employee's continued breach of the agreement for thirty days “after written notice of such breach is given.”

Looking at the agreement as whole, we agree with CTI. Harber's interpretation rewrites section 4(b)(iii) to read like section 4(b)(ii), but that is not what the section says.   We will not rewrite the parties' agreement or add to its language.   See Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 162 (Tex.2003) (a court “may neither rewrite the parties' contract nor add to its language.”);  Calpine Producer Servs., L.P. v. Wiser Oil Co., 169 S.W.3d 783, 787 (Tex.App.—Dallas 2005, no pet.) (“a court will not change the contract merely because it or one of the parties comes to dislike its provisions or thinks that something else is needed”).   Even so, we conclude the evidence is sufficient to support the findings of fact under either interpretation of the agreement.

The record reflects that in a November 14, 2007 letter to Harber, Wilensky stated, “I was disappointed to hear that you attempted to contact Merrill Lynch after we specifically instructed you not to communicate with them.”   The letter also said CTI had asked Harber to follow a simple procedure of having his tax counsel contact CTI's tax advisor to work out the tax issues.   The letter states, “Not only have you not followed that procedure, but you have disregarded every attempt we have made to work this out without disruption to our employees and partners.”

The evidence shows that during a conference call in early November 2007, Jackson directed Harber not to contact Merrill Lynch about valuing the shares.   Although Jackson did not remember telling Harber not to contact Merrill Lynch in that conference call, Wilensky testified Jackson did so and the first sentence of Wilensky's November 14, 2007 letter also refers to the instruction not to contact Merrill Lynch.   Harber admitted he contacted Merrill Lynch after the conference call, but said Wilensky told him to contact other shareholders, including Merrill Lynch, to determine a value for the stock and to see if they were interested in buying enough of the shares to pay the tax withholding.   The trial court found that in November 2007, Jackson and Wilensky directed Harber to have his tax counsel contact CTI's tax counsel to resolve the tax withholding issue, and Harber did not comply with that direction, “but instead contacted CTI employees as well as Merrill Lynch employees about the matter.”

In addition, the November 14, 2007 letter advised Harber that Jackson directed that the only communication regarding the tax issue would be between Harber's tax advisor and CTI's tax advisor.   The letter warned, “Any discussion by you with anyone outside this channel will be cause for termination.”   Harber testified he received this letter and understood what it said.

Jackson told the court that Harber contacted several people connected with CTI about the tax withholding issue after the November 14, 2007 letter.   On December 21, 2007, in response to Harber's e-mail, Jackson agreed CTI would pay Harber's legal fees related to the tax withholding issue.   Jackson then stated:  “However, to move forward from here, you must not interact with anyone regarding this matter other than Richard Wilensky or myself.”   Jackson testified he gave this direction because, despite previous instructions about how to resolve the issue, Harber insisted on talking to employees who could not solve the issue.   He said Harber's conduct was “disruptive, unproductive, and in no way contributed to resolving the issue.”   Although Harber denied the existence of the conversations with CTI employees or that they involved the tax withholding issue, the trial court could reasonably reject Harber's testimony and believe Jackson's.

On January 28, 2008, Wilensky wrote to Harber's counsel about the tax withholding issues and a proposed shareholders agreement regarding Harber's stock.   The letter stated in part, “You are further instructed that Mr. Harber may have no further discussions regarding this matter with any persons connected with CTI, and specifically including employees of Merrill Lynch.”   Jackson testified he directed Wilensky to give this instruction because of Harber's continued discussions with CTI employees.   Jackson wanted to make clear that resolving the tax issue would require experienced legal counsel who could identify what the tax liability was.

In March of 2008, Harber called Nicholas Manolis, who was the chief financial officer of CTI Biochemicals, a CTI subsidiary.   Manolis had never met Harber or spoken with him before the call.   Harber asked Manolis for information, including a list of shareholders of record, Harber said was necessary for an IRS claim he was working on.   Manolis did not know anything about these matters.   Manolis thought it unusual for an employee to ask for sensitive information regarding the capitalization table and stock certificates, so he called Wilensky.   Wilensky asked Manolis to document the conversation with Harber.   Manolis sent Wilensky and Jackson an e-mail about the call from Harber, and stated Harber asked about the status of the stock certificates CTI was to issue under Harber's employment agreement and “the requirement [Harber] claimed to have to file the stock certificate papers with the IRS and a potentially large tax liability.”

Harber denied he discussed the status of his stock certificates or the income tax issue with Manolis, but admitted if he had contacted Manolis to discuss those items, it would have been a violation of the directions Jackson had given him about limiting his communications.   Jackson testified Harber had no reason to contact Manolis and after talking to Manolis, Jackson understood the purpose of Harber's call was to inquire about the stock and tax issues.

On April 1, 2008, CTI's outside counsel wrote to Harber and terminated his employment for cause based on section 4(b) of the agreement.   This letter referenced Wilensky's November 14, 2007 letter warning Harber that any discussion outside the channel of communication would be cause for termination and Wilensky's January 28, 2008 letter to Harber's attorney where Harber was instructed to “have no further discussions regarding this matter with any persons connected with CTI.” The letter stated that despite these repeated notices, Harber contacted Manolis on March 27, 2008 to discuss the issuance of the shares and confirm tax issues.   According to the letter, Harber's failure to follow company directives was not limited to the incidents described in the letter.   Harber was advised CTI remained committed to resolving the tax issues relating to the issuance of his vested shares and offered to communicate with his tax lawyer on those issues.

Harber argues no evidence shows he was given notice of a violation of a directive.   He states the reasons for the repeated directives that he not communicate with others about the tax withholding issue are not explained in the record.   We disagree.   Jackson testified the directives were given because Harber continued to contact employees about the issue.   The November 14, 2007 letter referred to Harber's communication with Merrill Lynch after being instructed not to communicate with them and his failure to follow the procedure to work out the tax issue.   The January 28, 2008 letter again directed that Harber have no further communication about the tax withholding matter outside the established channel.   Evidence exists showing the violation continued for more than thirty days after these notices were given.   Harber was not terminated until April 1, 2008 after his communication with Manolis in March.   The termination occurred more than two months after the last directive that he have no further communication with any persons connected with CTI. Finally, Harber contends no evidence reflects he violated any directive by contacting Manolis because he did not discuss the tax withholding issue.   Again, the record does not support this contention.   Based on Manolis's testimony, his e-mail to Wilensky and Jackson, and Jackson's testimony, the trial court could reasonably conclude the communication concerned the tax withholding issue.

The trial court concluded that CTI had cause to terminate Harber's employment under paragraph 4(b)(iii) of the agreement because Harber's actions constituted “failure to comply with any directive of the CEO or Board of Directors of [CTI] (“Board”) that continues for 30 days after written notice thereof is given to Employee.”

Viewing the evidence in the record in favor of the findings, we conclude more than a scintilla of evidence exists to support the challenged findings of fact.   Accordingly, the evidence is legally sufficient to support those findings.   See Catalina, 881 S.W.2d at 297.   Viewing all the evidence both for and against the findings, we conclude the evidence is not so weak or the challenged findings so against the great weight and preponderance of the evidence as to be clearly wrong or unjust.   Thus, the evidence is factually sufficient to support the challenged findings.   See Dow Chem., 46 S.W.3d at 242.   We overrule Harber's first and second issues.

In his third and fourth issues, Harber argues his termination was without cause as a matter of law because the directive he allegedly violated was unreasonable and the violation was not a material breach of the employment agreement.   Harber contends this is true even if he violated a directive that continued for thirty days after he received notice.

Harber contends the directive was unreasonable because he was entitled to protect his own interest, the directive was not within the scope of his employment, and it was over broad and illogical.   We conclude some evidence exists that the directive that Harber limit his discussion of the tax withholding issue regarding his shares was reasonable and served a legitimate business purpose by preventing morale problems for other employees and preventing unnecessary distractions from their work for the business.   Jackson testified CTI is a closely-held company and Harber was the only employee with a contract giving him significant shares in the company.   He also stated Harber's conduct was disruptive and caused morale issues.   Harber does not explain how his interest was harmed by restricting communication on the tax withholding issue to the company's CEO, general counsel, and tax advisor.   The scope of employment argument is not persuasive because the agreement expressly provides that failure to comply with directives of the CEO is cause for termination of employment.   Finally, the evidence supports the finding that the directives were understood by Harber and he admitted that if he called Manolis to discuss the tax withholding issue, he would be violating Jackson's directives.   We conclude the directive was not unreasonable as a matter of law.   We overrule Harber's third issue.

Harber's argument that the violation of the directive was not material is misplaced because section 4(b)(iii) does not require that a failure to comply with a directive of the CEO be material.   The agreement in this case defines what constitutes cause for termination, and we will not rewrite the contract.   See Schaefer, 124 S.W.3d at 162.   Even so, the evidence shows Harber's discussion of the tax withholding issue with other employees was disruptive and could cause morale problems.   CTI expected employees to follow instructions in part to protect its intellectual property while working on joint ventures with other companies.   A reasonable trier of fact could conclude from the evidence that Harber's failure to follow the directive was a material breach of the agreement.   We overrule Harber's fourth issue.

Harber's fifth issue argues the evidence of his breach of contract damages and attorney's fees was not contested and he is entitled to a judgment for those damages and fees.   Because we conclude the trial court did not err be rendering judgment against Harber's claims, we need not address this issue.   See Tex.R.App. P. 47.1.

We conclude the evidence was legally and factually sufficient to support the elements of CTI's affirmative defense and that Harber was terminated with cause.   We affirm the trial court's judgment.

100432F.P05

FOOTNOTES

FN1. These findings state:14.  On March 27, 2008, in disregard of CTI=s repeated instructions to him to limit the persons with whom he communicated about the tax withholding issue, Plaintiff telephoned CTI Biochemicals Chief Financial Officer Nicholas Manolis about the matter.   Manolis had never met Plaintiff and knew nothing about the tax withholding issues concerning the stock to be issued to him.   Manolis advised CTI=s counsel Wilensky of the communication, and memorialized it in a March 28, 2008, e-mail to Wilensky.15. On April 1, 2008, CTI=s outside counsel Walter Cowger wrote to Plaintiff advising him that his employment with CTI and CTI Petroleum was terminated with Acause@ under the Employment Agreement because of his repeated disregard of CTI=s instructions concerning channels of communication.   Cowger=s letter also advised Plaintiff that CTI remained committed to resolving tax issues relating to the issuance of his vested shares, and that the Company would continue to communicate with Plaintiff=s tax lawyer on those issues.16. On September 9, 2008, CTI=s counsel Cowger proposed on behalf of CTI and CTI Petroleum to value the shares to be issued to Harber based on his having still been employed by CTI on June 5, 2007 (75 shares of CTI and 225 shares of CTI Petroleum) at $4,000 per share and proposed that CTI would purchase from Plaintiff the approximately 25–30% of those shares necessary to satisfy the federal income tax withholding obligation.   Neither Plaintiff nor his counsel ever responded to that proposal.The challenge to finding of fact 14 goes to whether the evidence shows that Harber contacted Manolis about the tax withholding matter and whether this contact was in disregard of a directive from the CEO. The challenge to finding of fact 15 focuses on whether the evidence establishes Harber=s repeated disregard of CTI=s instructions concerning channels of communication.   Finding of fact 16 is not briefed by Harber but appears undisputed and is not material to the trial court=s judgment..  FN1. These findings state:14.  On March 27, 2008, in disregard of CTI=s repeated instructions to him to limit the persons with whom he communicated about the tax withholding issue, Plaintiff telephoned CTI Biochemicals Chief Financial Officer Nicholas Manolis about the matter.   Manolis had never met Plaintiff and knew nothing about the tax withholding issues concerning the stock to be issued to him.   Manolis advised CTI=s counsel Wilensky of the communication, and memorialized it in a March 28, 2008, e-mail to Wilensky.15. On April 1, 2008, CTI=s outside counsel Walter Cowger wrote to Plaintiff advising him that his employment with CTI and CTI Petroleum was terminated with Acause@ under the Employment Agreement because of his repeated disregard of CTI=s instructions concerning channels of communication.   Cowger=s letter also advised Plaintiff that CTI remained committed to resolving tax issues relating to the issuance of his vested shares, and that the Company would continue to communicate with Plaintiff=s tax lawyer on those issues.16. On September 9, 2008, CTI=s counsel Cowger proposed on behalf of CTI and CTI Petroleum to value the shares to be issued to Harber based on his having still been employed by CTI on June 5, 2007 (75 shares of CTI and 225 shares of CTI Petroleum) at $4,000 per share and proposed that CTI would purchase from Plaintiff the approximately 25–30% of those shares necessary to satisfy the federal income tax withholding obligation.   Neither Plaintiff nor his counsel ever responded to that proposal.The challenge to finding of fact 14 goes to whether the evidence shows that Harber contacted Manolis about the tax withholding matter and whether this contact was in disregard of a directive from the CEO. The challenge to finding of fact 15 focuses on whether the evidence establishes Harber=s repeated disregard of CTI=s instructions concerning channels of communication.   Finding of fact 16 is not briefed by Harber but appears undisputed and is not material to the trial court=s judgment.

MOLLY FRANCIS JUSTICE