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          IN THE UNITED STATES COURT OF APPEALS
                   FOR THE FIFTH CIRCUIT

                                                                         United States Court of Appeals

                                            No. 17-40059
                                                                                  Fifth Circuit

                                                                                FILED
                                                                         February 15, 2018

In the matter of: EDWARD MANDEL                                            Lyle W. Cayce
                                                                                Clerk
                Debtor

EDWARD MANDEL,

                 Appellant

v.

STEVEN THRASHER; JASON COLEMAN,

                 Appellees

----------------------------------------------------
In the matter of: EDWARD MANDEL

                Debtor

STEVEN THRASHER; LAW OFFICES OF MITCHELL MADDEN,
MADDENSEWELL, L.L.P., JASON SCOTT COLEMAN,

                 Appellees

v.

EDWARD MANDEL,

                 Appellant
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                                      No. 17-40059



                   Appeal from the United States District Court
                        for the Eastern District of Texas
                             USDC No. 4:15-CV-715
                             USDC No. 4:15-CV-743


Before KING, JONES, and ELROD, Circuit Judges.
PER CURIAM:*
        Debtor-Appellant Mandel challenges the compensatory damage awards
of the bankruptcy and district courts following remand by this court. Mandel
also argues that the attorneys’ fees awards should be vacated. We find no
reversible error and AFFIRM.
   I.       BACKGROUND
        This case involves several disputes between co-founders of the company
White Nile. The facts underlying these disputes are laid out in this Court’s
first opinion in this matter. See In re Mandel (Mandel I), 13-40751, 578 Fed.
Appx. 376 (5th Cir. Aug. 15, 2014). Mandel and Thrasher initially created
White Nile to develop Thrasher’s invention. White Nile then hired Coleman
as the chief creative officer.       Mandel misappropriated White Nile’s trade
secrets and formed a new company, NeXplore. As explained in Mandel I, the
bankruptcy court had held “Mandel liable for liable for (1) theft or
misappropriation of trade secrets; (2) breach of contract; (3) breach of fiduciary
duty; (4) fraud and fraudulent inducement; (5) oppression of shareholder
rights; and (6) conspiracy.” 

It had awarded “$400,000 in damages
to Coleman; $1,000,000 to Thrasher; and $300,000 to White Nile.”                        

5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.

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Mandel I affirmed the liability holdings but remanded to the bankruptcy court
so it could “either conduct an additional evidentiary hearing on the issue of
damages or explain its award of damages on the basis of the evidence in the
present record.” 

391.
      A. THE BANKRUPTCY COURT’S OPINIONS
           a. Thrasher’s Damages
        On remand, the bankruptcy court again awarded Thrasher $1,000,000
for Mandel’s trade secret misappropriation. In re Mandel, 10-40219, 

, at *9 (Bankr. E.D. Tex. Sept. 30, 2015). This time, the court described
four different theories that could support the damage award to Thrasher.
        First, the court assessed what a reasonable royalty for the trade secrets
would have been based upon the settlement agreement that was announced,
but never finalized, in the state court case between Mandel, Thrasher and
Coleman. 

This agreement provided for a $900,000 judgment to
Thrasher and Coleman as well as a minimum royalty fee of $2,500 quarterly
for five years. 

court reasoned as follows:
        [T]he announced settlement agreement suggests an appropriate
        damages award would be $1,010,000, consisting of the $900,000
        agreed judgment, a royalty fee of $30,000 for three years of
        minimum quarterly payments of $2,500 per quarter, and a royalty
        fee of $80,000 arising from a two-year license Mandel testified
        NeXplore signed in October 2010.

court assessed damages under a lost asset theory. 

At trial, Thrasher and Coleman had presented expert evidence of Brad Taylor,
who testified that companies comparable to White Nile were worth between $1
million and $344 million. 

court held that “White Nile’s
value is closest to the lowest valued company on Taylor’s list of companies,
which is $1 million.” 

court came to this conclusion because
it took “into account the significant rate of failures [of comparable companies],
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the dysfunctional executive team [of White Nile], the lack of a functional
product, NeXplore’s abandonment of its efforts to create its own search engine,
and the lack of profits by White Nile and NeXplore.” 

court assessed damages by determining the benefit that
Mandel received from his misappropriation. 

Again, the court relied
on the opinion of Coleman and Thrasher’s expert Taylor:
      According to the claimants’ expert, Brad Taylor, the market
      capitalization of NeXplore was $47.17 million at the high end and
      $1.67 million at the low end – thus indicating a value range of
      $25.9 million to $920,000 for the value of Mandel’s 55% interest.
      White Nile was a nascent search market company with no
      financing, no usable product, no customers, no profit, and a
      dysfunctional executive team who engaged in litigation over
      control of White Nile and its intellectual property. This Court,
      therefore, again looks to the low end of the market capitalization
      spectrum     for   NeXplore     in   calculating   damages     for
      misappropriation, which is $920,000.

noted that it did not take Mandel’s salary and other benefits into
account because “the trial record did not establish that Mandel received his
salary or benefits on account of misappropriation.” 

n.9.
      Fourth, the court stated that it “also considered the amount of
investments NeXplore secured using ideas and materials very similar to those
prepared for White Nile.” 

The court reasoned that “NeXplore raised
approximately $2.5 million from investors before abandoning its attempt to
create its own search engine.     This would indicate a value of $1,375,000
attributable to Mandel's 55% interest in NeXplore.” 

of this evidence into account, the court awarded $1 million
dollars to Thrasher for misappropriation of trade secrets. 

also
found that Thrasher should be awarded $300,000 for Mandel’s fraudulent
misrepresentation “that he would invest $300,000 in White Nile in order to
induce Thrasher to do business with him.” 

However, the court
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awarded Thrasher $1 million in total because it held that Thrasher’s
misappropriation damages “are co-extensive with and subsume the damages
he incurred on account of his other compensable claims against Mandel.” 

            b. Coleman’s Damages
         The bankruptcy court awarded Coleman $400,000 in damages for
misappropriation, which the court held were “subsumed by and co-extensive
with his fraudulent inducement damages.” 

arrived at this
number by examining Coleman’s consulting agreement with White Nile, which
would have provided him with $133,000 each year for three years as well as
“an approximately 0.5% equity interest in White Nile.” 

found
that “[b]ased on the Court’s valuation of White Nile, the value of a 0.5% of an
equity interest in White Nile is approximately equal to the amount White Nile
paid Coleman.” 

Fees
         The bankruptcy court held that Mandel I did not vacate the court’s initial
award of attorneys’ fees and therefore declined to alter its initial award. 

            d. Damages to White Nile
         After a motion for reconsideration, the bankruptcy court held that
Mandel I did not vacate the court’s initial award of $300,000 in compensatory
damages to White Nile. In re Mandel, 10-40219, 

, at *7
(Bankr. E.D. Tex. March 23, 2016). However, the court described what it would
do if the damages award had been vacated. The court explained that it initially
awarded $300,000 in damages for Mandel’s “breach of his non-disclosure
agreement with White Nile, breach of his fiduciary duty to White Nile, and
fraud.” 

If the award were vacated, the bankruptcy court would award
an additional $197,000 to White Nile, which is the amount that Mandel
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diverted from White Nile’s bank account to NeXplore.            

   The
bankruptcy court rejected White Nile’s arguments that it was entitled to the
salary Mandel received from NeXplore or other investments received by
NeXplore. 

   B. THE DISTRICT COURT’S OPINION
      The district court affirmed the bankruptcy court’s orders on all damage
determinations other than the damages for White Nile. Mandel v. Thrasher,
4:15-cv-715, 

(E.D. Tex. Dec. 20, 2016).           On Thrasher’s
damages, the district court’s analysis differed in a couple of respects. First, it
held that the bankruptcy court had not awarded damages based on the failed
state court settlement, but had merely “pointed out that Thrasher argued in
closing that the [settlement] was some evidence of a reasonable royalty rate
and that the ultimate amount of damages that the bankruptcy court awarded
to Thrasher was similar to the agreed upon sum in the [settlement].” 

(internal citations omitted). Second, the court held that the bankruptcy
court had not actually accepted the benefit of misappropriation theory, since it
stated that “the trial record did not establish that Mandel received his salary
or benefits on account of misappropriation.” 

The district court
upheld the bankruptcy court’s assessment of damages under the lost asset
theory. 

.
      As for Coleman’s damages, the district court clarified the bankruptcy
court’s order by providing a rationale for using Coleman’s contract to assess
his misappropriation damages:
      . . . Coleman assigned his intellectual property rights to White Nile
      in exchange for a $133,000 annual salary for three years, plus a
      0.5% equity interest in White Nile. The agreement between
      Coleman and White Nile is some evidence of the value of Coleman’s
      intellectual property rights, and thus, evidence of the value of
      White Nile’s trade secrets, to Mandel. Three years of Coleman’s
      annual salary of $133,000 would have totaled $399,000. The
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         bankruptcy court valued White Nile at $1 million. 0.5 percent of
         $1 million is $5,000. In sum, the value of Coleman’s salary plus the
         value of his equity interest in White Nile, as promised under the
         contract, is roughly $400,000. When measured against the peculiar
         facts and circumstances of this case, valuing the damages to
         Coleman for Mandel’s misappropriation of Coleman’s trade secrets
         by determining the value of Coleman’s initial contract with White
         Nile fits within the flexible and imaginative approach used to
         calculate damages in a case like this one, as condoned by the Fifth
         Circuit in Wellogix.

(footnote and citation omitted).
         The district court held that Mandel I had vacated White Nile’s damages
award because “(1) Thrasher brought claims both individually and derivatively
on behalf of White Nile; (2) the Fifth Circuit affirmed the findings of the
bankruptcy court regarding the claims on which White Nile prevailed; and
(3) the Fifth Circuit vacated the entire compensatory damages award.” 

. The district court increased the award to White Nile by $197,000 for the
reasons given in the bankruptcy court’s opinion. 

         The district court affirmed the bankruptcy court’s award of attorney’s
fees. 

.
   II.      STANDARD OF REVIEW
         This Court applies the same standards of review to the bankruptcy
court’s order as those employed by the district court.           Matter of Hawk,

, 290 (5th Cir. 2017). Therefore, it reviews “questions of fact for
clear error and conclusions of law de novo.” Matter of Cowin, 

, 349
(5th Cir. 2017).
   III.     ANALYSIS
         As noted above, Mandel I remanded the compensatory damages awards
to the bankruptcy court. Mandel I explained:
         Damages need not be proved with great specificity. A flexible
         approach is applied to the calculation of damages in a
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                                No. 17-40059
     misappropriation of trade secrets case. “Where the damages are
     uncertain ... we do not feel that the uncertainty should preclude
     recovery; the plaintiff should be afforded every opportunity to
     prove damages once the misappropriation is shown.” It is sufficient
     that the plaintiff demonstrates “the extent of damages as a matter
     of just and reasonable inference” even if the extent is only an
     approximation.

     In the present case the bankruptcy court did not make clear the
     theory upon which it was relying to award damages nor did it
     explain the evidence supporting the amount of damages. While it
     is true that uncertainty should not preclude recovery in a trade
     secrets misappropriation case, Thrasher and Coleman were
     required to produce enough credible evidence to show “the extent
     of the damages as a matter of just and reasonable inference,” even
     if the “result be only approximate.” From the bankruptcy court's
     opinion we do not see an approximation—only numbers chosen by
     the court.
                                   ...

     Because neither the bankruptcy court nor the district court
     explained the evidentiary and legal basis for the damages
     awarded, we are unable to review the damages adequately.
     Because, however, Thrasher and Coleman did suffer some damage,
     we vacate the award of compensatory damages and remand to the
     bankruptcy court so that it may either conduct an additional
     evidentiary hearing on the issue of damages or explain its award
     of damages on the basis of the evidence in the present record.

578 Fed. Appx. at 390-91 (footnotes omitted).
     Mandel I quoted from Wellogix, Inc. v. Accenture, L.L.P., 

(5th Cir. 2013), which gives some examples of ways to assess trade secret
misappropriation damages:
     Damages in misappropriation cases can take several forms: the
     value of plaintiff's lost profits; the defendant's actual profits from
     the use of the secret, the value that a reasonably prudent investor
     would have paid for the trade secret; the development costs the
     defendant avoided incurring through misappropriation; and a
     reasonable royalty.

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578 Fed. Appx. at 390 (quoting 

).          This flexible
approach has been approved by the Texas Supreme Court, which has held that
“[a] ‘flexible and imaginative’ approach is applied to the calculation of damages
in misappropriation-of-trade-secrets cases.” Sw. Energy Prod. Co. v. Berry-
Helfand, 

, 710 (Tex. 2016) (quoting Univ. Computing Co. v.
Lykes–Youngstown Corp., 

, 538 (5th Cir.1974)). Texas requires
“reasonable certainty” to establish lost profits, but not for other methods of
assessing damages. See 

(“[L]ack of certainty does not preclude
recovery.”).
   A. THRASHER’S DAMAGES
        Mandel challenges all four of the methodologies employed by the
bankruptcy court to assess Thrasher’s damages.        Mandel argues that the
bankruptcy court violated the law of the case doctrine by crediting damage
models and expert testimony it had previously rejected. However, as explained
by the district court, the bankruptcy court did not violate the law of the case
doctrine because Mandel I vacated the bankruptcy court’s opinion regarding
compensatory damages. See Mandel v. Thrasher, 

at *11;
Mandel I, 578 Fed. Appx. at 391. Thus, “anything that the bankruptcy court
decided regarding compensatory damages in its initial Findings of Fact and
Conclusions of Law is not the law of the case.” Mandel, 

, at
*11.
        Mandel challenges the damages award based on the lost asset theory
because it relies on Taylor’s testimony. Mandel argues this was improper
because “Taylor did not include failed companies in his valuation—and the vast
majority of Internet search engine startups fail.”        Furthermore, Mandel
criticizes the bankruptcy court for merely picking a number within a range
provided by the expert, rather than accepting the value proposed by the expert.
However, as outlined above, the bankruptcy court did not merely pick a
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number within a range but gave a reasonable explanation for choosing a
number at the lower end of the expert’s testimony. The bankruptcy court also
accounted for the “significant rate of failures” of comparable companies in its
analysis. In re Mandel, 

, at *8. Furthermore, under Texas
law, a “jury generally has discretion to award damages within the range of
evidence presented at trial.” Sw. Energy Prod. 

. The
bankruptcy court sitting as factfinder is entitled to the same amount of
deference.
      Mandel also argues that the use of the lost asset theory is not suitable to
value the misappropriation. Mandel argues this is the case because he did not
destroy or otherwise prevent Thrasher from using those trade secrets. Under
Wellogix, however, the correct inquiry is what the misappropriation did to the
market value of the company, not whether or not the trade secret was
destroyed.   In Wellogix, this Court upheld a judgment of compensatory
damages for trade secret misappropriation that was equal to the value of the
company (after deducting licensing fees) before the misappropriation.

. This was because the “misappropriation created a
competitive disadvantage” that “caused Wellogix's value to drop to ‘zero.’” 

Therefore, because White Nile’s value dropped to zero after the trade
secrets were misappropriated, the bankruptcy court did not clearly err or
violate this Court’s mandate by assessing damages on this theory.
      Mandel argues it was improper for the bankruptcy court to rely on the
failed state court settlement. Thrasher and Coleman appear to agree, because
instead of responding to this argument they state that “the bankruptcy court
clearly did not seek to support its damages award on remand for
misappropriation based upon the failed state court settlement.” Because this




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Court finds the award was supported under the lost asset theory, it need not
address this issue. 1
      Mandel also challenges the award to Thrasher for fraud, breach of
contract, and breach of fiduciary duty. These damages are subsumed within
the misappropriation damages. Therefore, because this Court upholds the
misappropriation damages, there is no need to address these other arguments.
      Without having cross-appealed, but in further response to Mandel’s
contentions, the Appellees argue that, “if the bankruptcy court erred with
respect to its re-evaluation of [their] expert’s testimony it[] only did so by
woefully undervaluing the IP and the damages awarded.” They also argue that
the bankruptcy court could have awarded much larger sums using NeXplore’s
value or investments. Given the bankruptcy court’s compelling reasons for
choosing numbers at the lower end of Taylor’s testimony, the bankruptcy court
did not clearly err or violate this Court’s mandate by awarding claimants much
less than they asked for.
   B. COLEMAN’S DAMAGES
      Mandel argues that the award to Coleman is improperly based upon
Coleman’s void contract with White Nile. However, as explained by the district
court, this contract merely provides some evidence of a reasonable royalty for
Coleman’s intellectual property that was misappropriated by Mandel. Mandel
I held that “the damages awarded must have some rational relationship to the
evidence presented.” Mandel I, 578 Fed. Appx. at 391. The district court has




      1  Mandel also challenges the other two damage theories that were discussed by the
bankruptcy court: the interest of NeXplore Mandel received as a result of the
misappropriation or the investments NeXplore acquired using “ideas and materials very
similar to those prepared for White Nile.” 

, at *9. This Court need not
address these arguments in detail because Thrasher’s damages may be upheld on the lost
asset theory. However, these theories do provide further evidence that the bankruptcy court
had reasonable justifications for the $1,000,000 award to Thrasher.
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                                 No. 17-40059
adequately explained how the value of Coleman’s contract has a rational
relationship to the value of his misappropriated intellectual property.
      Mandel also challenges the award to Coleman for fraudulent inducement
and conspiracy.      However, these damages were subsumed by the
misappropriation damages.       Therefore, because this Court upholds the
misappropriation damages, there is no need to address these other arguments.
   C. WHITE NILE’S DAMAGES
      Mandel and the appellees agree that Mandel I vacated the bankruptcy
court’s initial award of $300,000 to White Nile. Mandel challenges both awards
to White Nile. First, Mandel correctly points out that the bankruptcy court and
district court failed to provide an explanation for the $300,000 award. If
Mandel’s representation to Thrasher that he would invest $300,000 in White
Nile can support this award, then the award may be upheld on this basis.
Mandel argues this would be improper because Texas law does not allow
benefit-of-the-bargain damages for fraud. He cites a Texas Supreme Court
case that holds “[w]hat the plaintiff might have gained is not the question, but
what he had lost by being deceived into the purchase.”         George v. Hesse,

, 108 (Tex. 1906). However, it appears that the Texas Supreme
Court has held the opposite more recently: “Texas recognizes two measures of
direct damages for common-law fraud: the out-of-pocket measure and the
benefit-of-the-bargain measure.”    Formosa Plastics Corp. USA v. Presidio
Engineers and Contractors, Inc., 

, 49 (Tex. 1998). No matter the
resolution of this possible conflict, however, both the loss and benefit-of-the-
bargain to White Nile were the same, $300,000.
      Second, Mandel argues that White Nile is not entitled to the $197,000
award because Mandel didn’t divert these funds. Rather, he argues that he
“refunded the funds to the Laynes . . . . [and] the Laynes later invested those
same funds in NeXplore.” Mandel argues that it was proper for him to “refund”
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the investment to the Laynes because he defrauded the Laynes into making
the investment in the first place. However, as stated by the bankruptcy court,
he breached his fiduciary duty to White Nile by releasing these funds.
   D. ATTORNEY’S FEES
      Mandel argues that Mandel I vacated the attorney’s fees awards because
actual damages must be found in order to award attorneys’ fees. He also
argues that Mandel I must have vacated attorneys’ fees because he argued in
Mandel I that the award should be vacated if the actual damages were vacated.
However, Mandel I explicitly found that Claimants “suffered some damage”
and affirmed the attorneys’ fees to Coleman. Mandel I, 578 Fed. Appx. At 391.
Mandel I also only explicitly vacated the compensatory damages award. 

Therefore Mandel’s appeal on this ground is meritless.
   IV.   CONCLUSION
      For the foregoing reasons, we conclude that the bankruptcy and district
courts fulfilled this court’s mandate on remand. Neither clear error nor legal
error occurred on remand. The judgment of the district court is AFFIRMED.




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JENNIFER WALKER ELROD, Circuit Judge, dissenting:
      I agree with the majority opinion that it was permissible for the
bankruptcy court and district court to reconsider the evidence on remand
without running afoul of the mandate rule or violating the law of the case
doctrine. Indeed, we specifically instructed the bankruptcy court that “it may
either conduct an additional evidentiary hearing on the issue of damages or
explain its award of damages on the basis of the evidence in the present
record.” In re Mandel, 578 F. App’x 376, 391 (5th Cir. 2014) (Mandel I).
However, the majority opinion errs in holding that the revised method used,
which the bankruptcy court had previously rejected, provides a just and
reasoned basis for awarding damages. While we allow flexible and creative
approaches for approximating damages in misappropriation cases, that
flexibility can only stretch so far before it snaps. That is what happened here.
Therefore, I respectfully dissent.
                                       I.
      Our caselaw cannot be bent to support the award of unproven damages.
A holistic view of our cases shows that there are limits to how far our flexible
and creative standard can be stretched. We recognize that damages can be
uncertain in trade secret cases and “do not feel that uncertainty should
preclude recovery,” which is why we allow flexibility in calculating damages.
Wellogix, Inc. v. Accenture, L.L.P., 

, 879 (5th Cir. 2013).
“[P]laintiffs are entitled to adapt their damages theory to fit within the
particular facts of the case” and should be afforded every opportunity to prove
damages once misappropriation is shown. Id.; Carbo Ceramics, Inc. v. Keefe,
166 F. App’x 714, 724 (5th Cir. 2006). Even when approximating a damages
award, however, the evidence must show “the extent of damages as a matter
of just and reasonable inference.” 

. But Wellogix is
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not a magic incantation that can be used to obviate the limits of that flexible
approach, which are expressed in the caselaw on which Wellogix directly relies.
See 

Computing Co. v. Lyke-Youngstown Corp., 

(5th Cir. 1974) and Carbo Ceramics, Inc. v. Keefe, 166 F. App’x 714 (5th
Cir. 2006)).
       In Carbo, we held that damages were too speculative because there was
no evidence of: (1) lost profits; (2) actual sales by the defendant; (3)
development costs saved; (4) what a reasonably prudent investor would have
paid for the trade secret; or (5) a reasonable royalty. 166 F. App’x at 724–25.
We stated that “any damage model built on speculative revenues and operating
profit from an unbuilt plant, is in an[d] of itself, inherently speculative.” 

       In University Computing, we stated that while “every case requires a
flexible and imaginative approach to the problem of damages . . . [c]ertain
standards do emerge from the 

–39.       These
standards primarily require that the defendant “must have actually put the
trade secret to some commercial use.” 

approach is to measure
the value of the secret to the defendant through lost profits, a reasonable
royalty, or development costs, or the value of the secret to the plaintiff if a
specific injury can be proven. 

see also James Pooley, Trade
Secrets § 12.04(2)(f) (2017) (stating a plaintiff may establish the value of its
secret “through the amount of effort or money invested in its development, the
willingness of others to pay for securing access to it, and the various ways in
which using the information improved the efficiency or success of the plaintiff’s
business”). In most cases, “the proper measure is to calculate what the parties
would have agreed to as a fair price for licensing the defendant to put the trade


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                                  No. 17-40059
secret to the use defendant intended at the time the misappropriation took
place.” 

        In sum, our caselaw allows for flexibility and imagination in awarding
damages but also mandates that any such award still be tethered to a non-
speculative evidentiary anchor and based upon a theory appropriate to the
harm in the case. See also James Pooley, Trade Secrets § 7.03(2)(a) (2017)
(“Which [theory], alone or in combination, should be pursued depends upon the
facts of the case.”). As detailed below, that standard was not met here.
                                       II.
        In Mandel I, we determined that the award of compensatory damages to
Thrasher, Coleman, and White Nile could not be supported on a record where
the bankruptcy court had rejected all proposed damages models. 

91.    The error was not with the bankruptcy court’s carefully reasoned
explanation of why it rejected the various models as not suited to the facts of
the case. See 

The error was that, even having rejected the
damages models, the bankruptcy court proceeded to award damages, and we
could not evaluate whether that award was correctly calculated without
knowing the model the bankruptcy court used. 

(“Because neither
the bankruptcy court nor the district court explained the evidentiary and legal
basis for the damages awarded, we are unable to review the damages
adequately.”).
        Importantly, we discussed in detail the bankruptcy court’s rejection of
the “lost asset” theory and the evidentiary deficiencies with that damages
model. 

Mandel I was a cross-appeal and whether the bankruptcy
court properly rejected the “lost asset” damage model was a question expressly
before the court. Thrasher and Coleman had explicitly argued that Wellogix
supported the award of damages, and even greater damages, based on the
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evidence at trial. 

If the lost asset theory was viable based on the
evidence from the original trial, we could have affirmed the award of damages
on that basis. Instead, we held that without knowing which damages model
was used, we could not review whether the model was appropriate to the case
or the evidence was sufficient to support the amount awarded under that
model. 

We explained that “Thrasher and Coleman were required
to produce enough credible evidence to show ‘the extent of the damages as a
matter of just and reasonable inference,’ even if the ‘result be only
approximate.’” 

(emphasis added).
      On remand, without an evidentiary hearing, the bankruptcy court
awarded $1,000,000 to Thrasher based on the lost asset theory, $400,000 to
Coleman based on the value of his consulting contract, and it also determined
that the initial $300,000 award to White Nile had not been vacated by Mandel
I. In re Mandel, No. 10-40219, 

, at *1 n.1, *9 (Bankr. E.D.
Tex. Sept. 30, 2015). The district court affirmed the award of compensatory
damages to Thrasher and Coleman, and determined that, White Nile’s
damages were vacated in Mandel I, but that White Nile was entitled to
$497,000 in damages. Mandel v. Thrasher, Civil Action No. 4:15-cv-715, 

, at *11–15 (E.D. Tex. Dec. 20, 2016)
                                     III.
      I turn first to the award of damages to Thrasher based on the lost asset
theory. The bankruptcy court awarded Thrasher damages based on a theory
that it had characterized in its first opinion as “not helpful for determining
damages based on the facts of this case.” In re Mandel, No. 10-40219, 

, at *28 (Bankr. E.D. Tex. Sep. 30, 2011); Mandel v. Thrasher, Civil
Action No. 4-11-cv-774, 

, at *10 (E.D. Tex. July 3, 2013)
(same). We did not disagree with that characterization of the lost asset theory
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                                 No. 17-40059
in Mandel I. See 578 F. App’x at 389. The initial explanation of the evidentiary
deficiencies with the lost asset theory bears repeating: (1) the valuation of
White Nile by expert Brad Taylor “fail[ed] to adequately account for the
extremely high failure rate of companies like White Nile”; (2) expert Dr. Gilbert
F. Amelio testified that any potential profitability in White Nile would not
become bankable for years, if ever, and that 80% of similar companies fail to
become profitable; (3) Dr. Amelio testified he had done no due diligence on
White Nile specifically and was unsure whether he would invest; (4) the
“evidence of NeXplore’s fair market value [was], at best, fuzzy”; (5) Mandel’s
salary from NeXplore was not an indication of the company’s value; and (6) the
Laynes’ investment in White Nile was not credible evidence of value because
it was made based on false information. In re Mandel, 

at
*27.   The bankruptcy court’s initial observations about the flaws in this
evidence were correct, and it should not have second-guessed itself on remand.
       The majority opinion dodges the inconsistency in the bankruptcy court’s
evaluation of the lost asset theory on remand by explaining that Mandel I
vacated the compensatory damage award and did not bind the bankruptcy
court to its prior findings under the law of the case doctrine. Simply because
the bankruptcy court was not bound by that prior finding does not mean that
any evidentiary defects that led the court to reject the lost asset theory were
suddenly remedied. The fact that we held that Thrasher and Coleman suffered
some damages did not transform a theory for which there was no rational
relation to the evidence into a basis for the award of damages. See Mandel I,
578 F. App’x at 391. The lost asset theory is not an appropriate damages model
here where the technology is not yet functional and the potential profitability
of the company is purely speculative. See Carbo, 166 F. App’x at 724.


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                                 No. 17-40059
      The majority opinion contents itself with the bankruptcy court’s about-
face by stating there was a “reasonable explanation for choosing a number at
the lower end of the expert’s testimony” and that the failure rate of comparable
companies was accounted for in that analysis. Even assuming, arguendo, that
the lost asset damages model is appropriate to use here, this logic fails to
account for the inherently speculative nature of selecting a value for White
Nile anywhere within Taylor’s range. Taylor’s valuation range only relied on
data for successful companies and did not account for the specific risks of White
Nile failing. See Mandel v. Thrasher, 

7 at *10. That risk
cannot be factored into the analysis on the back-end simply by picking a
number at the low end of the range. These risk factors, as the bankruptcy
court recognized, were significant: there was “the dysfunctional executive
team, the lack of a functional product, NeXplore’s abandonment of its efforts
to create its own search engine, and the lack of profits by White Nile and
NeXplore.” In re Mandel, No. 10-40219, 

at *8. Simply
because an expert creates a value range of technology companies does not
necessitate that the value of the company at issue falls within that range.
      White Nile, based on its specific risk factors, could have been valueless.
Taylor’s model assumes the ability to get a product to market and secure the
backing of investors. The evidence presented at trial makes it doubtful that
White Nile would do so.        Puzzlingly, the bankruptcy court seemed to
acknowledge this, even on remand, stating that: White Nile’s executive team
was not “capable of transforming an idea into a viable business” and “even
before the misappropriation occurred, White Nile was having difficulty raising
the funds necessary for development costs in sufficient time to beat
competitors.” 

here did not support an award of damages


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                                 No. 17-40059
anywhere within Taylor’s value range as a matter of just and reasonable
inference. This was speculation all the way down.
      The majority opinion further claims that because “White Nile’s value
dropped to zero after the trade secrets were misappropriated,” the holding in
Wellogix supports the award of damages. Far from supporting the majority
opinion, the evidence supporting the damages award in Wellogix only further
illustrates the speculative nature of the evidence here.         In Wellogix, the
damage expert’s valuation of the company at $27.8 million was based on: (1)
the decision by venture capital groups to invest $8.5 million for a 31% equity
stake; (2) that an employee of the misappropriating company believed one
application of the intellectual property alone could generate $20 million in
annual fees; (3) other companies viewed the technology as valuable; (4) no
other company had the technology at issue for a period of five years; and (5)
the venture capital groups had done significant auditing of the company’s
financials before 

–80. An expert had testified that
“based on his knowledge of the software industry, ‘the total value of Wellogix
went to zero’ after the alleged misappropriation.” 

      Unlike in Wellogix, where there was a company-specific valuation based
on credible evidence, here the expert never specifically valued White Nile based
on its particular characteristics.     White Nile had one investor whose
investment was eventually returned, there was no indication that other
companies found the technology valuable—even NeXplore failed to bring it to
market—nor was there any indication that the technology (if ever actually
developed) would be sufficiently unique to carve out a market share. The
majority errs in comparing the evidence of White Nile’s value in this case to
Wellogix. A square peg cannot fit in a round hole.


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                                 No. 17-40059
                                      IV.
      The award of damages to Coleman fares no better. The majority opinion
without further analysis accepts the district court’s conclusion that Coleman’s
consulting contract provides some evidence of a reasonable royalty. Further
examination shows that this too is an inappropriate basis on which to award
damages. The district court relied on the flexibility afforded by Wellogix,
adopting a reasonable royalty standard as the measure of damages in
expanding upon the bankruptcy court’s finding of damages based on the
contract. Mandel v. Thrasher, 

at *12–13; In re Mandel, 

at *9. The reasonable royalty standard is used to measure the
value of the intellectual property to the misappropriating party. University

.       Even Coleman’s attorney admitted at oral
argument that the contract likely was not the best basis for awarding damages
but argued we should defer to the bankruptcy court as a factfinder.
      A salary contract is not an appropriate basis to use to calculate the value
of misappropriated intellectual property here. See 

(stating the
reasonable royalty standard measures the value of the intellectual property to
person who misappropriated it); cf. Carbo, 166 F. App’x at 725 (holding that
the value of the salary supported an award for breach of contract but not for a
breach of fiduciary duty based on the misappropriation of a trade secret).
Coleman’s consulting contract does not measure the value of the intellectual
property in this case to Mandel, who misappropriated the technology. It only
measures the value of Coleman’s services. Coleman bears the burden to show
that the value of his salary is co-extensive with the value of any intellectual
property created. See Carbo, 166 F. App’x at 725. Showing that intellectual
property rights were assigned in exchange for that salary does not prove the
value of any intellectual property that Coleman actually created or what
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                                 No. 17-40059
intellectual property Mandel misappropriated. Moreover, we held in Mandel I
that the assignment of Coleman’s intellectual property rights to White Nile
was void. 578 F. App’x at 385.
      In addition, Mandel was not able to monetize any intellectual property
that he misappropriated from Coleman. The SAQQARA project that Coleman
created was not a working prototype. In re Mandel, 

at *4.
The evidence also shows that NeXplore decided not to create a search engine
from scratch. 

Coleman’s salary does not reflect the value of his
final work product or the value to Mandel from any use of Coleman’s work
product. Our case law allows flexibility, but the reasonable royalty method
cannot be bent to fit that scenario.
                                       V.
      The majority opinion also does not support its conclusion that the award
of damages to White Nile of $497,000 was proper. Both the bankruptcy court
and district court failed to explain the basis for $300,000 of the award. The
majority opinion concludes, however, that “[i]f Mandel’s representation to
Thrasher that he would invest $300,000 in White Nile can support this award,
then the award may be upheld on this basis.” However, the majority opinion
never undertakes the analysis to make that determination; it only refutes
Mandel’s argument that benefit of the bargain damages are not available for
fraud under Texas law. See Formosa Plastics Corp. USA v. Presidio Engineers
and Contractors, Inc., 

, 49 (Tex.1998). The availability of a
remedy does not equate to the entitlement to that remedy. Benefit of the
bargain damages for fraud claims are only available in limited circumstances.
See, e.g., Haase v. Glazer, 

, 799 (Tex. 2001) (holding benefit of
the bargain damages are not available if the claim is barred by the statute of
frauds); D.S.A., Inc. v. Hillsboro ISD, 

, 663 (Tex. 1998) (stating
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                                   No. 17-40059
benefit    of   the   bargain   damages      are   not   available   for   negligent
misrepresentation claims).      The majority opinion never explains whether
Mandel’s representation supports a claim for which benefit of the bargain
damages are available, and if available, whether that claim supports an award
of damages to White Nile.
                                       VI.
      Today, we affirm an award of damages that uses damages models that
cannot be justified by any reasonable inference from the evidence in this case.
We give deference to the bankruptcy court as the fact-finder.              But that
deference only extends as far the credible evidence can support its findings.
Here, there was no reasoned basis for the award that would merit deference.
These models do not have credible evidence supporting them as a reasonable
approximation of the intellectual property’s value. The evidence of White
Nile’s value was too speculative to use as a reasonable approximation of the
technology misappropriated. If anything, given the pre-existing management
and capital-raising issues, the evidence indicated the company was valueless
when the technology was misappropriated. Indeed, in the twelve years that
the parties have been litigating over White Nile, no party has actually been
able to monetize the technology.
      Valuing intellectual property is hard, and the misappropriation of that
technology is potentially as easy as a download to a flashdrive. The difficulty
of determining a correct valuation methodology, however, does not excuse the
burden to show that the technology’s value rises above mere speculation and
is based on just and reasonable inferences from the credible evidence. Our
flexible and creative standard is not a license for pie-in-the-sky damages;
rather, damages must be grounded both in theory and fact. Respectfully, I
dissent.
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