Opinion by Justice MOSELEY.
We overrule appellees' motion for rehearing. On our own motion, we withdraw our opinion of August 21, 2013, and vacate the judgment of August 21, 2013. The following is now the opinion of the Court.
Appellants Timothy Barton, JMJ Hospitality, L.L.C. and JMJ Holdings, L.L.C. appeal an adverse judgment in favor of appellees Resort Development Latin America, Inc. (f/k/a JMJ Development
Barton, Aliber, and Eliud formed JMJ Development Mexico to develop real estate projects in Mexico. The parties' focus was on developing high-end resorts. In April 2006, Aliber and Eliud identified two properties on the Riviera Maya for possible development: the "Shabshab Property" where they sought to develop a resort under the W Hotel brand, and the "Preciado Property" where they sought to develop a resort under the St. Regis Hotel brand. It was intended that each resort development would include a hotel as well as villas and apartments.
As discussed in more detail below, over the next several months the Garcias entered into a non-binding proposal with an entity concerning the possible purchase of the Shabshab Property and a non-binding letter of intent (LOI) with an investor who was interested in investing part of the equity needed to develop the W Hotel project. They also received non-binding letters of interest from the entity that owned both the W Hotel and the St. Regis Hotel brands, Starwood Hotels & Resorts Worldwide, Inc. (Starwood).
In the spring of 2006, several months after Aliber and Eliud began working to pursue opportunities for JMJ Development Mexico, Barton formed a new company, appellee JMJ Hospitality. There is some evidence that on or about July 15, 2006, Barton and JMJ Hospitality contacted Mexican landowners and instructed them not to deal with Aliber and Eliud anymore; instead, the landowners should deal with Barton and JMJ Hospitality. Aliber and Eliud presented evidence that two Mexican landowners then suspended negotiations with JMJ Development Mexico and a third ceased negotiations. Neither the Garcias nor JMJ Development Mexico ever acquired the properties they had considered developing as resorts.
Appellees sued appellants for breach of fiduciary duty, breach of contract, tortious interference with existing and prospective contracts, and conspiracy. They alleged that appellants' actions caused them to lose the opportunities to develop the Shabshab and Preciado Properties. Appellees presented expert testimony from Bruce Goodwin to support their request for damages.
The jury found that Barton breached his fiduciary duty to JMJ Development Mexico; that at least one appellant interfered with JMJ Development Mexico's contract to buy real estate in Mexico; and that at least one appellant intentionally interfered with a prospective contractual or business relationship of JMJ Development Mexico. The jury awarded JMJ Development Mexico $7 million for lost profits sustained in the past and $0 for lost profits it would sustain in the future.
In their ninth issue, appellants assert that appellees failed to present legally sufficient evidence related to the issue of causation and the trial court erred by submitting damages questions to the jury. In their tenth issue, appellants assert the evidence is legally and factually insufficient to support the jury's damages awards. They argue the only testimony and evidence offered by appellees regarding damages was based on and the result of pure speculation and conjecture. Because these two issues are closely related, we discuss them together. In doing so, we reject appellees' argument that appellants failed to preserve their ninth issue for appeal.
When, as here, appellants attack the legal sufficiency of an adverse finding on an issue on which they did not have the burden of proof, they must demonstrate that no evidence supports the finding. Doyle v. Kontemporary Builders, Inc., 370 S.W.3d 448, 453 (Tex.App.-Dallas 2012, pet. denied) (citing Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex.1983)). There is "no evidence" when (a) there is a complete absence of evidence of a vital fact, (b) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact, (c) the evidence offered to prove a vital fact is no more than a mere scintilla, or (d) the evidence conclusively establishes the opposite of the vital fact. See City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex.2005). "The final test for legal sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review." Id. at 827. We review the evidence in the light most favorable to the verdict, crediting favorable evidence if reasonable jurors could and disregarding contrary evidence unless reasonable jurors could not. See id. at 820-21.
Lost profits are damages for the loss of net income to a business, reflecting
If no evidence is presented to prove lost profits with reasonable certainty, the trial court must render a take-nothing judgment as to lost-profits damages. See, e.g., Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 281 (Tex.1994) (concluding there was no evidence to prove lost profits with reasonable certainty and affirming trial court's order granting judgment notwithstanding the verdict as to the lost-profits damages); Examination Mgmt. Servs., Inc., 367 S.W.3d at 847-48.
Appellees' alleged damages arise from the failure to develop two projects: a W Hotel and resort on the Shabshab Property and a St. Regis Hotel and resort on the Preciado Property. We begin with the development of a proposed W Hotel project on the Shabshab Property.
Our review of the evidence as to the likelihood that the underlying transactions necessary for the development of a W Hotel to have taken place, evidence of changing economic factors during the relevant time period, and evidence of damages resulting from the failure to develop a W Hotel and resort on the Shabshab Property—even when viewed in the light most favorable to the jury's verdict—makes it clear appellees did not prove the existence or amount of lost profits with reasonable certainty and that the "opinions or estimates of lost profits" upon which appellees rely are not based on "objective facts, figures, or data from which the amount of lost profits can be ascertained." Swinnea, 318 S.W.3d at 876; Exel Transp. Servs., Inc., 323 S.W.3d at 232.
In December 2004, Shabshab contracted to sell the property to Inland Immobiliaria, S.A. for $7.7 million, to be paid by August 30, 2005, at the latest. The contract also provided for a "final contract for sale and purchase must be executed . . . by August 30, 2005, at the latest, provided that the [seller] deems the purchase price to be paid satisfactorily." The contract required a portion—$200,000—of the purchase price to be paid in January 2005; the contract stated that "in the event the final contract
The Shabshab-Inland contract also provided for Shabshab to provide clear title to the property "free of all liens, limitations of ownership . . . ." Indeed, by signing the contract Shabshab declared that the property was "free of all liens, charges or limitations of ownership, guarantees in favor of third parties, or disputes of any nature. . . ." The only evidence in the record indicates this declaration was not true; the Shabshab Property had title problems and was the subject of title litigation with a Spanish or Mexican company referred to in the record as OHL, as well as title litigation with an American corporation, The Kor Group.
It is undisputed that the "final contract for sale" referenced by the Shabshab— Inland contract was never executed; that the purchase price was never paid; and that Inland never obtained title—clear or otherwise-to the Shabshab Property. There is some evidence the contract expired on August 30, 2005, according to its terms, and no evidence it did not do so.
Nevertheless, some eight months later, on April 4, 2006, JMJ Development Mexico proposed to acquire the Shabshab Property from Inland for $12.5 million. The proposal, which Inland "accepted," provided for execution of a final contract "[w]ithin a maximum time period of thirty days. . . ." Under the proposal, JMJ Development Mexico promised to pay $2.5 million within ninety days, after conducting its due diligence, "if no issues arise therefrom." The remaining $10 million would, at Inland's option, either be paid at closing or Inland would contribute that receivable to the development and become an investor in the project for that amount. The proposal also specified that the date of payment "will be subject to the resolution of the lawsuit that the property is involved in with the U.S. corporation, The Kor Group."
It is undisputed that a final contract was not executed within thirty days of April 4, 2006, that JMJ Development Mexico did not pay $2.5 million to Inland within ninety days of that date, that the litigation with The Kor Group was not resolved, and that JMJ Development Mexico did not acquire the Shabshab Property. There is some evidence this proposal expired according to its terms on July 3, 2006, and no evidence it did not.
Nevertheless, the Garcias, on behalf of JMJ Development Mexico, sent a proposed LOI dated July 5, 2006, to Andrea Vezzani, a potential investor who was interested in developing a W Hotel project. In the LOI, JMJ Development Mexico stated it had "reached an agreement" to acquire the Shabshab Property for $3.5 million in cash and a $10 million investor's share in the development, and that it was "preparing the definitive agreements." JMJ Development Mexico also stated it "is also currently in negotiations with the Starwood Hotels and Resorts Worldwide for The Project to be a W Hotel and Villa resort." Vezzani signed the LOI on or about July 14, 2006. The LOI stated it was not binding and was only an expression of the parties' interests.
Upon receipt of the signed LOI from Vezzani, Aliber e-mailed Barton stating, in part, that when agreements with the seller of the Shabshab Property are signed, "the
In June 2006, the Garcias obtained a letter from Starwood expressing an interest in evaluating a management agreement for a W Hotel on the Shabshab Property, if JMJ Development Mexico acquired the property. The letter stated it was only an "expression of our interests to further evaluate these opportunities, and does not create any legally binding obligation on Starwood. You should not rely on this letter. . . ."
Taken together and viewed in the light most favorable to the jury's verdict, the evidence does not show with any reasonable certainty that a W Hotel would have been built on the Shabshab Property. Awarding lost profit damages based on these facts would be to impermissibly allow appellees to collect damages for a speculative transaction.
To conclude JMJ Development Mexico would ever have developed a W Hotel resort on the Shabshab property, we would be required to stack assumption upon assumption, which we will not do. See Glattly v. Air Starter Components, Inc., 332 S.W.3d 620, 633-35 (Tex.App.-Houston [1st Dist.] 2010, pet. denied) (citing Holt Atherton, 835 S.W.2d at 85-86; Atlas Copco Tools, Inc. v. Air Power Tool & Hoist, Inc., 131 S.W.3d 203, 208-09 (Tex.App.-Fort Worth 2004, pet. denied); Capital Metro. Transp. Auth. v. Cent. of Tenn. Ry. & Navigation Co., Inc., 114 S.W.3d 573, 581-82 (Tex.App.-Austin 2003, pet. denied)) (assumptions without supporting evidence insufficient for lost profit damages); see also Teleresource Corp. v. Frontier Computer Corp., No. 05-99-01134-CV, 2000 WL 799074, at *11 (Tex.App.-Dallas June 22, 2000, pet. denied) (not designated for publication) ("Despite the mathematical precision with which [witness] calculated Frontier's damages, we conclude there is little, if any, factual basis for the assumptions underlying many of his figures."). We would have to assume that, among other things, (1) despite the expiration of the Shabshab-Inland contract, Inland would still have acquired the property from Shabshab; (2) despite the expiration of the non-binding proposal, Inland would have sold the Shabshab Property to JMJ Development Mexico; (3) the title disputes on the Shabshab Property would have been resolved and JMJ Development Mexico would have obtained clear title; (4) Vezzani would have provided equity funding along the lines of the non-binding LOI; (5) Vezzani would have agreed to provide the remainder of the needed equity funding, or JMJ Development Mexico would have found another equity investor; (6) JMJ Development Mexico would have found a lender willing to provide the debt funding needed for the project; and (7) Starwood would have agreed to put a W Hotel on the Shabshab Property and the terms on which it would have done so. In addition, we would have to assume that the terms of each of these transactions were such as would allow the development— including the other transactions involved— to go forward. None of these assumptions are supported by facts in the record and, therefore, they cannot form the basis for
Even Goodwin, appellees' expert, acknowledged he assumed the speculative W Hotel project would have been completed when he performed his damages analysis. He testified: "the land transaction was moving effectively down the trajectory toward completion, that the impediments that might exist should be able to be resolved, that the market conditions at that time were exceedingly strong, that the brand and the management fit the concept and the location, that the occupancies and the average room rates projected were consistent with other luxury hotels in Mexico. . . ."
We conclude the evidence concerning the underlying transactions necessary for the development of a W Hotel—even when viewed in the light most favorable to the jury's verdict—does not prove with reasonable certainty that JMJ Development Mexico would ever have completed such a development, and thus does not prove the existence or amounts of lost profits with reasonable certainty. See Swinnea, 318 S.W.3d at 876; Exel Transp. Servs., Inc., 323 S.W.3d at 232. Rather, appellants' projection that they suffered lost-profit damages is "without any evidentiary foundation and therefore, is purely speculative and conclusory." Szczepanik, 883 S.W.2d at 650; Total Clean, L.L.C. v. Cox Smith Matthews, Inc., 330 S.W.3d 657, 667 (Tex. App.-San Antonio 2010, pet. denied).
In addition to appellees' failure to present any evidence showing the W Hotel project would have been constructed in the absence of appellants' actions, appellees failed to account for the changing economic conditions—the recession—that occurred during the time they projected to develop the W Hotel. Appellees' expert, Goodwin, acknowledged in his testimony that Mexico was not spared from the economic recession, and by "the end of the first quarter of 2008, pretty much everything had stopped." At the time the recession occurred, because the W Hotel project "would have been just starting out, in all likelihood the project would be suspended and-and put on hold for a period of time, which I would assume now in hindsight is probably three to five years." The project would have been mothballed. Goodwin believed the project could have resumed "at the end of 2011 or beginning of 2012, I'm not—I'm not prepared to say."
Profits are largely speculative, not reasonably certain, and cannot be recovered, if they result "from an activity dependent on uncertain or changing market conditions." Tex. Instruments, Inc., 877 S.W.2d at 279. The successful development of the W Hotel project was dependent on, among other things, the economic climate remaining favorable to such a development, as the market apparently was when JMJ Development Mexico first began working on the development in 2006. However, the undisputed evidence in the
Even if we were to assume that appellees showed the W Hotel likely would have been developed and developed on the time-frame they originally projected, appellees' evidence of the amount of their "lost profit" damages resulting from their failure to develop the W Hotel project is legally insufficient.
Appellees' evidence as to the amount of its damages consists of two exhibits, Plaintiffs' Exhibits 94 and 93 (PX 94 and PX 93), and the testimony of Aliber and Goodwin.
PX 94 is a financial projection, as of October 15, 2006, of the income anticipated from the development, operation, and eventual sale of the W Hotel. In response to his attorney's inquiry as to who prepared the financial projections, Aliber testified "I personally did a lot of work." Aliber gave this financial projection—less the front page—to Vezzani, the possible investor in the project, before Vezzani signed the letter of intent dated July 5, 2006.
The front page of PX 94—the page Aliber did not give to Vezzani—is entitled "SUMMARY INCOME TO JMJ DEVELOPMENT MEXICO, INC. FROM `W' HOTEL PROJECT ON THE RIVIERA MAYA." It is a spreadsheet setting forth various sources of income projected to flow to JMJ Development Mexico from the project. Portions of the spreadsheet appear to be based on information on the other pages of PX 94. According to the first page of PX 94, JMJ Development Mexico projected that if it built, held, and ultimately sold the W Hotel project on the Shabshab Property, it would receive income of over $73 million over a ten and one-half year of time. Using a discount rate of ten percent, it computed the present value of that income to be almost $34.5 million as of October 15, 2006.
PX 93, prepared by appellees' expert Goodwin, is also an income projection for the W Hotel project. It consists of two pages; the first page is the same spreadsheet as the first page of Aliber's PX 94, along with some handwritten notes by Goodwin. Goodwin said that Aliber told him the projections were created by Aliber and people in Barton's Dallas office. Goodwin had no other knowledge of the basis or accuracy of the information in PX 94. The second page of PX 93, entitled "BG
Based mostly on the second page of PX 93, Goodwin's testimony was that JMJ Development Mexico would have received income of over $33 million from developing, holding, and selling the W Hotel project. Using the same ten percent discount factor as was used in PX 94, the present value of that income stream as of October 15, 2006, was $18,640,737.79. After accounting for JMJ Development Mexico's payment of 30 percent of that amount pursuant to a license
However, both PX 94 and PX 93 projected that JMJ Development Mexico would have received $2,964,000 from the W Hotel development in October 2006, as follows:
In addition to the speculative nature of the transactions and terms of the agreements that are the basis for PX 94 and PX 93, the amounts included in both projections for the land brokerage fee, the equity funding fee, and the debt funding fee are all income, not profits. There is no indication of the expenses that would be involved in accomplishing—if they were accomplished—the transactions giving rise to those income items.
The two spreadsheets also project receipt of the four additional fees, paid in monthly portions during 2007 and 2008:
As shown above, these fees are also payments to cover costs and operations related to the development—not profits.
There also is no evidence that PX 93 accounts for expenses associated with developing and operating the W Hotel. See, e.g., Holt Atherton Indus., 835 S.W.2d at 84 (proof of "lost income" is not proof of lost profits); Examination Mgmt. Servs., Inc., 367 S.W.3d at 841; Exel Transp. Servs., Inc., 323 S.W.3d at 232 (correct measure of damages are net profits, "what remains in the conduct of business after deducting from its total receipts all of the expenses incurred in carrying on the business."). Although PX 94 included some information about expenses (although it certainly did not include all expenses associated with the W Hotel project), there is no indication PX 93 includes any of that information. Further, PX 93's title, "BG SUMMARY INCOME TO JMJ DEVELOPMENT MEXICO, INC. FROM "W" HOTEL PROJECT ON THE RIVIERA MAYA," indicates it only includes projected income figures—not profits.
Thus, even when viewed in the light most favorable to the jury's verdict, appellees' PX 94, PX 93, and the testimony surrounding them does not prove the existence or amount of lost profits with reasonable certainty; the "opinions or estimates of lost profits" upon which appellees rely are not based on "objective facts, figures, or data from which the amount of lost profits can be ascertained." Swinnea, 318 S.W.3d at 876; Exel Transp. Servs., Inc., 323 S.W.3d at 232.
There are two entries in both PX 94 and PX 93 that specifically relate to "profits." Both projections indicate JMJ Development Mexico would have received "Profit Shares" with respect to both the villas and apartments portion and the hotel portion of the development. Aliber's testimony provided the clearest description of what "Profit Shares" meant:
In other words, the projected "profit share" for each portion of the development was calculated by taking the total projected income of that portion, subtracting the amount of the investors' original investment in that portion of the development as well as an agreed minimum return on that investment, and multiplying the remainder by a percentage amount agreed to by the investors and the developer as being payable to the developer, with the rest going to the investor.
Both PX 94 and PX 93 projected receiving a "Profit Share" of $5,791,031 in April 2009 for the villas and apartments portion of the development. With respect to the amount of projected profit share for the hotel portion of the development, however, the two exhibits and their sponsoring witnesses differ significantly. Aliber's PX 94 projected that amount to be $58,541,176. PX 93, prepared by Goodwin, projected that amount to be $18,161,531, or about $40 million less.
With respect to the calculations of "all the income source" from the hotel portion of the project, there is no evidence as to what numbers Aliber used in his PX 94 for occupancy rates, average room rates, or the "prices per square meter on some of the residential real estate." There is no evidence as to what numbers Goodwin used instead of Aliber's numbers. And there is no evidence as to the rationale for the numbers used by either, except for Goodwin's statements that he "felt [he] wanted to take a more conservative approach" but that the "occupancies and the average room rates projected were consistent with other luxury hotels in Mexico. . . .'"
The "profit share" components of appellees' damage calculations hinge on the terms of agreements with investors; it must account for the amount of investors' investments, their agreed minimum return on investment, and an agreement as to the division between the developer and the investor(s) of any income received in excess
For these reasons, we conclude the estimates and opinions as to any projected profits from the W Hotel development that would have been shared by JMJ Development Mexico are not based on objective facts, figures, or data from which the amount of lost profits can be ascertained. See Swinnea, 318 S.W.3d at 876.
We conclude the evidence concerning the underlying transactions necessary for the development of a W Hotel—even when viewed in the light most favorable to the jury's verdict—does not prove with reasonable certainty that JMJ Development Mexico would ever have completed such a development or on what terms such a development would have been completed; thus, the evidence does not prove the existence or amounts of lost profits with reasonable certainty. See Swinnea, 318 S.W.3d at 876; Exel Transp. Servs., Inc., 323 S.W.3d at 232. Rather, appellants' projection that they suffered lost-profit damages is "without any evidentiary foundation and therefore, is purely speculative and conclusory." Szczepanik, 883 S.W.2d at 650; Total Clean, L.L.C., 330 S.W.3d at 667.
Further, the "opinions or estimates of lost profits" upon which appellees rely are not based on "objective facts, figures, or data from which the amount of lost profits can be ascertained." Swinnea, 318 S.W.3d at 876; Exel Transp. Servs., Inc., 323 S.W.3d at 232. Moreover, the calculations and opinions based on those calculations mix purported "profit" numbers with numbers that undisputedly constitute "income." And the calculations do not take into account the expenses involved in earning that income, including (at least as to part of the income) the effect of the thirty percent royalty agreement.
Therefore, we conclude appellees presented no reliable, non-speculative evidence of their lost-profit damages for the W Hotel project.
We next turn to the other transaction that forms the basis for appellees' alleged damages—the development of a St. Regis Hotel project on the Preciado Property.
Appellees presented even less evidence supporting their request for damages associated with the St. Regis Hotel project than they did for the W Hotel. In June 2006, the Garcias obtained a non-binding letter from Starwood Hotels expressing an interest in a St. Regis Hotel on the Preciado Property, if JMJ Development Mexico acquired the property.
JMJ Development Mexico failed to prove with reasonable certainty that it ever would have obtained clear title to the Preciado Property, and on what terms such title would have been obtained; that it would have found investors to fund the project and on what terms those investors would have participated; or that it ever would have obtained an agreement with Starwood to operate a St. Regis Hotel on the Preciado Property, or on what the terms Starwood would have agreed to such an operation. Further, JMJ Development Mexico again assumed that the economic recession would not have impacted its development plans.
Even if we assumed the transaction would have occurred and the St. Regis Hotel would have been built and operated, appellees presented no financial evidence of lost-profits for the St. Regis Hotel project. Rather, Goodwin simply testified that he thought JMJ Development Mexico damages arising from the failure to develop the St. Regis resort were fifty percent of its damages arising from the W Hotel development.
Viewing the evidence in the light most favorable to the jury's verdict, we conclude appellees failed to provide any competent evidence showing lost profits for the St. Regis Hotel project. There is no evidence the hotel ever would have been built and Goodwin's "conservative estimate" that JMJ Development Mexico was damaged "at least to the 50-percent level that they would be damaged on the" W Hotel project is not "based on objective facts, figures or data" and does not constitute reasonably certain evidence of lost profits. See Swinnea, 318 S.W.3d at 876.
Because there was no reliable, non-speculative evidence of appellees' lost profits for either the W Hotel or St. Regis Hotel project, we conclude the jury's findings that JMJ Development Mexico sustained $7 million for lost profits in the past and the Garcias would sustain $3 million for lost profits in the future is not supported by legally sufficient evidence. We sustain appellants' ninth and tenth issues.
We reverse the trial court's judgment awarding damages against appellants for lost profits and render judgment that appellees take nothing on their claims
We conclude appellants' motion was sufficiently specific to make the trial court aware of their complaint. See TEX.R.APP. P. 33.1(a).