February 17, 2017 | By Elissa Rex
Texas Court Affirms $1M Award In Drill Co.’s Oral Agreement for Clients of McCathern attorneys Farbod Farnia and Isaac Villarreal
By Michelle Casady
Law360, Houston (February 16, 2017, 8:49 PM EST) — Texas’ Fourteenth Court of Appeals on Thursday sided with Dynomax Drilling Tools Inc. in its dispute with Duradril LLC over an oral asset purchase agreement, affirming a lower court’s ruling awarding $1 million to Dynomax.
The case stems from a $4 million oral asset purchase agreement between drilling equipment provider Duradril, its owner Greg Ward and drilling motor manufacturer Dynomax. A jury found that Duradril and Ward had breached the agreement by not transferring some of the assets “free and clear” of debt.
Appealing a November 2014 trial court judgment affirming a jury award of $1 million to Dynomax, Duradril argued to the appeals court that Dynomax couldn’t bring suit against it in Texas because it never registered in Texas, pursuant to section 9.051(b) of the Texas Business Organizations Code. But the court held Thursday that issue had been waived, because it wasn’t raised “in a verified motion to abate or plea in abatement.”
Duradril also challenged the trial court’s finding that there was even an agreement they had failed to comply with, but the panel noted in its opinion that many cases Duradril relied on in arguing that point do not apply here because they involve oral agreements involving the sale of real property.
“The jury as fact finder was free to believe Dynomax’s version of events related to the July 1, 2013, APA and resolve any inconsistencies in the testimony,” the opinion reads. “Viewing the evidence in the light most favorable to the verdict, we conclude a reasonable jury could have found that Dynomax (or, for that matter, Duradril or Ward) partially performed and such performance had no other design than to fulfill the July 1, 2013, APA. Therefore, the jury’s finding that Dynomax met the partial-performance exception to the statute of frauds was supported by legally sufficient evidence.”
The court also rejected Duradril’s argument that there wasn’t enough evidence to support the jury’s finding that there was an asset purchase agreement, writing it had failed to preserve that issue in a motion for a trial.
Duradril wrote in its December 2015 brief seeking appellate review that despite the fact that there was not a written agreement or contract in its dispute with Dynomax, Dynomax sought throughout the trial to enforce “very detailed and changing terms” of the complex transaction that involved an asset sale. Dynomax had contended, Duradril wrote, that the dispute involved the oral sale of $3.5 million in assets.
But Texas law stipulates that asset purchase agreements involving assets more than $500 require a written and signed agreement. Because there was no written asset purchase agreement in this case, it was an error on the trial court’s part to find Duradril and Greg Ward hadn’t complied with it.
“All 16 versions of the alleged agreement lacked a writing which Duradril or Ward signed,” the petition said. “The only version of the alleged agreement in writing was the alleged drafts which appellees’ attorney sent to Duradril and Ward for review and discussion in late August and early September 2013. Those drafts remained unsigned and contained numerous blanks.”
According to the opinion, in April 2009, Duradril and Dynomax entered a distribution agreement whereby Duradril became the exclusive U.S. distributor of drilling motors and parts manufactured by Dynomax. But in the years that followed, Duradril failed to meet minimum purchase requirements under the agreement.
In discussions between the companies on how to resolve the arrearage, it was determined that an exchange of Duradril’s assets for its debts was the best solution, according to the opinion. The parties discussed the deal in June 2013, and as of July 1, 2013, when the asset purchase agreement became effective, Duradril owed Dynomax $4 million. Per the agreement, Duradril would transfer $701,000 of accounts receivable and $2.8 million in fixed assets, free and clear of debt, and Dynomax would clear the payables owed by Duradril. For the $454,000 in debt remaining, Ward would issue a personal note.
But by August 2013, Dynomax discovered Duradril hadn’t transferred all the assets free and clear, and some were encumbered by liens. Attempts at resolution had failed by September 2013. According to the opinion, Dynomax sued Duradril and Ward for breach of contract in November 2013. Duradril filed counterclaims alleging fraud, tortious interference, conversion, unreasonable debt collection and economic duress.
A jury found that Dynomax and Duradril had agreed to the terms of and entered into an asset purchase agreement effective July 1, 2013. The panel also found Duradril and Ward breached the agreement, and rejected an argument from Duradril and Ward that Dynomax had converted its property or committed fraud in connection with the asset purchase.
The jury awarded damages of $1,004,000 to Dynomax, and the trial court issued a final judgment that Dynomax recover the damages from Duradril and Ward jointly and severally. This appeal followed.
The parties were not immediately available to comment Thursday evening.
Duradril and Ward are represented by Eric Yollick of Yollick Law Firm PC.
The case is Duradril LLC and Greg Ward v. Dynomax Drilling Tools Inc. and Dynomax Drilling Tools USA Inc., case number 14-14-00945-cv, in the Fourteenth Court of Appeals of the State of Texas.
–Editing by Breda Lund. Read the original article on Law360.