David Tubb and Superior Shooting System, Inc., Appellants/Cross-Appellees v. Aspect International, Inc. and James Sterling, Appellees/Cross-Appellants

Opinion

ACCEPTED 12-14-00323-CV TWELFTH COURT OF APPEALS TYLER, TEXAS 6/8/2015 8:38:00 PM CATHY LUSK CLERK

FILED IN 12th COURT OF APPEALS No. 12-14-00323-CV TYLER, TEXAS 6/8/2015 8:38:00 PM __________________________________ CATHY S. LUSK Clerk

In the Twelfth Court of Appeals Tyler, Texas __________________________________

David Tubb and Superior Shooting System, Inc., Appellants

v.

Aspect International, Inc. and James Sterling Appellees ___________________________________

Appellants’ Brief ___________________________________

Wesley Hill Greg Smith Bar No. 24032294 Bar No. 18600600 Ward, Smith & Hill, PLLC Ramey & Flock, P. C. P. O. Box 1231 100 E. Ferguson, Suite 500 Longview, Texas 75606 Tyler, Texas 75702 Telephone: 903-757-6400 Telephone: 903-597-3301 Facsimile: 903-757-2323 Facsimile: 903-507-2413

Attorneys for Appellants

Oral Argument Requested Statement Regarding Oral Argument

Oral argument is appropriate. The outcome below is novel, indeed

surprising. On liability, the trial court found that Superior repudiated the

parties’ venture despite its consistently voiced intent to perform and

notwithstanding Aspect’s confession that Superior’s intent appeared genuine.

As relief, Aspect has been granted a substantial sum in “restitution” even

though there is no evidence it is any worse off—or Superior is any better

off—than before the venture. The Court would benefit from the chance to ask

questions probing this outcome.

i The Parties and Their Counsel

I. Appellants:

David Tubb Superior Shooting System, Inc.

II. Appellees:

Aspect International, Inc. James Sterling

III. Counsel for Appellants:

Gregory D. Smith Nolan Smith RAMEY & FLOCK, P.C. 100 E. Ferguson, Suite 500 Tyler, TX 75702 Telephone: (903) 597-3301 Facsimile: (903) 597-2413 gregs@rameyflock.com nolans@rameyflock.com

Wesley Hill Texas Bar No. 24032294 Ward, Smith & Hill, PLLC P. O. Box 1231 Longview, Texas 75606 Telephone: 903-757-6400 Facsimile: 903-757-2323 wh@wsfirm.com

ii IV. Counsel for Appellees:

M. Keith Dollahite M. Keith Dollahite, P.C. 5457 Donnybrook Ave. Tyler, Texas 75703 Telephone: 903-581-2110 Facsimile: 903-581-2113 keith@mkdlaw.us

Trey Yarbrough Yarbrough Wilcox, PLLC 100 E. Ferguson, Suite 1015 Tyler, Texas 75702 Telephone: 903-595-3111 Facsimile: 903-595-0191 trey@yw-lawfirm.com

/s/ Gregory D. Smith GREGORY D. SMITH

iii CONTENTS

Statement Regarding Oral Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Identity of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Statement of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x

Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Statement of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Summary of Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

I. There is no evidence Superior repudiated the executory contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

A. In Texas, repudiation requires a contract’s fixed and unequivocal renunciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

B. Superior didn’t make any fixed and unequivocal renunciation of the venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

1. Aspect relied on speculative conclusions . . . . . . . . . . . . . 13

2. Superior’s actions were the opposite of repudiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

a. Tubb’s comments about moving the manufacturing location were no repudiation . . . . . . 15

iv b. Superior never intentionally withheld supplies . . . . 22

3. Both parties were negotiating towards a written contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

C. It was Aspect that chose to get out of the contract . . . . . . . . . . 32

II. There is no evidence supporting Aspect’s damage recovery . . . . . 35

A. Aspect has no basis to recover for Sterling’s time . . . . . . . . . . 35

1. Because the venture was a partnership, Sterling’s time is not compensable . . . . . . . . . . . . . . . . . . . . . . . . . . 35

2. There was no probative evidence quantifying any benefit to be restored . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

B. Sterling’s damage proof was inadmissible, was not probative, and did not show a complete damage calculation . . 39

C. Aspect could have mitigated any damage . . . . . . . . . . . . . . . . 42

D. When Aspect left the venture, it was no worse off than when it began . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

E. The recovery is excessive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

III. Aspect owes attorney’s fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Conclusion and Prayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Certificate of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Certificate of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

v Appendices:

A. Findings of Fact and Conclusions of Law B. Final Judgment

vi AUTHORITIES

CASES:

Coastal Transp. Co. v. Crown Cent. Petroleum Corp., 136 S.W.3d 227 (Tex. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Davis v. Canyon Creek Estates HOA, 350 S.W.3d 301 (Tex.App.–San Antonio 2011, pet. denied) . . . . . . . . . . . . . . . . . . 12

Dora v. Mullick, 2000 WL 33322942, (Tex.App.-- Texarkana 2001, no pet.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Dudley v. Born, 710 S.W.2d 638 (Tex.App.–Beaumont 1986, writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Ennis Business Forms, Inc. v. Gehrig, 534 S.W.2d 183 (Tex.Civ.App.–Waco 1976, writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . 11

Glass v. Anderson, 596 S.W.2d 507 (Tex. 1980) . . . . . . . . . . . . . . . . . . . 18

G.R.A.V.I.T.Y. Enters., Inc. v. Reece Supply Co., 177 S.W.3d 537 (Tex.App.–Dallas 2005, no pet.) . . . . . . . . . . . . . . . . . . . . . . . 48

Green Int’l v. Solis, 951 S.W.2d 384 (Tex. 1997) . . . . . . . . . . . . . . . . . . . 47

Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d 707 (Tex. 1982) . . . . . . . . . 21

Houston Unlimited, Inc. Metal Processing v. Mel Acres Ranch, 443 S.W.3d 820 (Tex. 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Ingram v. Deere, 288 S.W.3d 886 (Tex. 2009) . . . . . . . . . . . . . . . . . . . . . 37

Kaiser v. Northwest Shopping Center, Inc., 587 S.W.2d 454 (Tex.Civ.App.–Dallas 1979, writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . 20

vii Kilgore v. Northwest Texas Baptist Educational Society, 37 S.W. 598 (Tex. 1896) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Litton Indus. Prods. v. Gammage, 668 S.W.2d 319 (Tex. 1984) . . . . . . . 23

McKenzie v. Farr, 541 S.W.2d 879 (Tex.Civ.App.–Beaumont 1976, writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

McKinley v. Drozd, 685 S.W.2d 7 (Tex. 1985) . . . . . . . . . . . . . . . . . . . . . 47

Preston v. Love, 240 S.W.2d 486 (Tex.Civ.App.–Austin 1951, no writ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Ravkind v. Ravkind, 1995 WL 458856 (Tex.App.–Houston [14th Dist.] Aug. 3, 1995, writ denied) . . . . . . . . . . . . . . . . . . . . . . 19

Rhodes v. Amarillo Hosp. Dist., 654 F.2d 1148 (5th Cir. 1981) . . . . . 11, 28

Smith v. Patrick W. Y. Tam Trust, 296 S.W.3d 545 (Tex. 2009) . . . . . . . 48

Stanley Manly Boys’ Clothes, Inc. v. Hickey, 259 S.W. 160 (Tex. 1924) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Thomas v. Bobby D. Assoc., 2008 WL 3020339 (Tex.App.–Tyler 2008, no pet.(mem.op.) . . . . . . . . . . . . . . . . . . . . 47

Townewest HOA v. Warner Communications, Inc., 826 S.W.2d 638 (Tex.App.–Houston [14th Dist.] 1992, no pet.) . . . . . . . . . . . . 20

Whirlpool Corp. v. Camacho, 298 S.W.3d 631 (Tex. 2009) . . . . . . . . . . . 41

RULES, STATUTES AND OTHER AUTHORITIES:

Calvert, No Evidence and Insufficient Evidence Points of Error, 38 TEX. L. REV. 359 (1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

viii RESTATEMENT OF CONTRACTS § 317(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 20

RESTATEMENT (SECOND) OF CONTRACTS § 278(1) . . . . . . . . . . . . . . . . . . 18

RESTATEMENT (SECOND) OF CONTRACTS § 344 . . . . . . . . . . . . . . . . . . . . 38

TEX. BUS. ORG. CODE § 152.203(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 35, 38

TEX. BUS. ORG. CODE ANN. § 152.051(b) . . . . . . . . . . . . . . . . . . . . . . . . . 36

TEX. BUS. ORG. CODE ANN. § 152.202 . . . . . . . . . . . . . . . . . . . . . . . . 35, 36

TEX. CIV. PRAC. & REM. CODE § 38.001 . . . . . . . . . . . . . . . . . . . . . . . . . . 47

TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8) . . . . . . . . . . . . . . . . . . . 48

24 WILLISTON ON CONTRACTS § 64:2 (4th ed., updated May 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

ix The Case

Nature of the case Aspect and Superior joined in a speculative venture for manufacturing precision small-arms ammunition. Both sides performed for about a year, but the effort—to build a competition-beating precision-ammunition operation from scratch—progressed slower than Aspect anticipated.

Just as the venture was on the cusp of commercial production, Aspect stopped work, demanded payment for invoices it was to have contribute as venture capital, and filed this suit. It said this was required because the parties hadn’t signed a written venture contract. And it now says Superior repudiated the deal. But there was no deadline for a venture document. And Superior repeatedly reaffirmed the venture, which Aspect easily could have salvaged.

Trial court Hon. Kerry Russell, 7th District Court of Smith County

Course of proceedings Bench trial. Judge Russell found the parties had a contract (which was uncontested), but concluded the agreement did not create a partnership. He also concluded that Superior repudiated the venture. 4 CR 452-68 (Appendix Tab A).

Aspect alleged lost profits of $4.1 million—just in the venture’s first year. Judge Russell properly denied this relief as speculative. But he granted Aspect—a previously inactive corporation with no expertise in commercial munitions manufacture—$175,000 as “restitution” for the alleged value of its input on the project. With attorney’s fees exceeding $110,000, costs and interest, the judgment liability approaches $300,000. 5 CR 668-70 (Appendix Tab B).

x Issues Supporting Reversal

1. Does the evidence support the determination that Superior repudiated the

parties’ venture?

2. Does the evidence support a recovery of $175,000 as restitution?

3. Was Aspect’s damage proof–principally James Sterling’s conclusory

opinion testimony and his litigation-driven, hearsay invoices—even admissible in

evidence?

4. Was it actually Aspect that breached or repudiated the venture agreement?

5. Did Aspect fail to mitigate its damages?

6. Did the trial court err in not awarding Superior its attorney’s fees incurred

in successfully pursuing a contractual offset?

xi Introduction

This case arises out of a joint-venture, for profit, between two

corporations. Plaintiff Aspect had never before conducted business of any

kind. 6 RR 21. Its protagonist, James Sterling, had been retired since 2000,

living on his wife’s earnings and his own disability-insurance benefits. 6 RR

22. The year was 2011 and the United States was in a panic-driven run on

small-arms ammunition. Along with David Tubb and his company, Superior

Shooting Systems, Aspect and Sterling set out on a venture to make the best

quality precision small-arms ammunition, through Aspect, initially from

Sterling’s garage. The plan was to leverage Tubb’s munitions expertise and

celebrity in the firearms community.

The project proceeded for about a year, in which both parties devoted

time to planning and implementation and Superior spent $240,000 on

production equipment and supplies. Then, in January 2013, Aspect withdrew.

It blamed Superior, claiming it had lost interest in the venture. Yet at every

turn, Tubb affirmed Superior’s intent to see the venture through, and Superior

was continuing to perform, procuring supplies, even as Aspect withdrew and

sued.

1 Aspect claims Mr. Sterling worked full time on the project, and that his

work was worth a princely $140 per hour. But there is no admissible,

probative evidence quantifying the level of Sterling’s time commitment or

setting any basis on which to determine the value of that time. Rather, Aspect

relies on Sterling’s inadmissible say so, “corroborated” by the cryptic,

conclusory and hearsay invoices Sterling prepared after filing suit. These

items should have been excluded pursuant to Superior’s Daubert/Robinson

challenge and its hearsay objection.

Sterling had utterly no expertise in the manufacture of munitions—or

in manufacturing anything else. All Sterling could point to was that he had

sometimes loaded his own ammunition, manually, as a hobbyist. Most evern

manufacturing start up would present a substantial learning curve. This one

certainly did.

Sterling seems not to have comprehended this: throughout trial, he

expressed repeated exasperation over each modification, improvement, and

refinement Tubb had made in the equipment or proposed manufacturing

protocol. Sterling saw these as delaying production. Yet such tweaks are an

unavoidable part of the process with any manufacturing start-up. Indeed, they

are essential to ultimate success.

2 Aspect made much of the fact that Tubb at a dinner conversation said

he thought the manufacturing operation should be moved to Superior’s

location in the Panhandle. But Sterling himself conceded that the suggestion

was retracted almost immediately and, so, was not any proper basis for a claim

of repudiation. Yet it is an express basis of the trial court’s decision.

Superior failed to have all the raw materials to Tyler when Aspect

finally was in position to go forward with commercial production. Aspect said

this proved Superior wanted to repudiate the contract. 4 RR 37. But that is not

possible. In fact, the case for repudiation is outlandish. Superior had invested

$240,000 of hard cash and numerous man hours into the venture. And Tubb

repeatedly confirmed Superior’s commitment to the venture. When the trial

court agreed with Aspect, its ruling was the first of several clear errors.

Statement of Facts

The Agreement. In late 2011, James Sterling approached David Tubb,

a renowned marksman, about entering a venture to produce high-quality

small-arms ammunition at a high volume. 4RR109; 7RR17-18; 7RR44-45;

8RR41. The two men soon agreed to start such a business, through their

respective companies---Aspect International (an inactive corporation owned

3 by Sterling’s wife) and Superior Shooting Systems, through which Tubb

produced and marketed rifle-related products. 7RR158.

Both companies would participate in control of the business and they

would split the profits 50/50. 5RR11-12; 6RR6; 6RR167. Superior agreed to

also (a) fund the purchase of production equipment and materials, 6RR169-70,

7RR18; (b) lend Tubb’s name to the venture, 6RR169; and (c) provide access

to Tubb’s distributorship network. 4RR87-88. Aspect would (a) contribute the

invoices from some IT work Sterling had performed for Superior; (b) refit

Sterling’s garage as an initial manufacturing facility; (c) obtain retail

packaging for the ammunition products; and (d) run the venture’s

manufacturing operation. 7RR46-48; 4RR100.

The Machine. To facilitate the venture plan for mass-producing

precision ammunition of unparalleled quality, the venture needed a loading

machine capable of both high volume and extreme accuracy. To design and

make such a machine, the venture hired FillPro, a company that had

manufactured powder-filling machines for the Army, Navy, and Department

of Defense. 4RR91, 4RR96; 4RR144-45; 6RR166-67.

Over the next eight to nine months, FillPro developed and built the

machine, 4RR145; 4RR166-67, which Superior bought, 6RR50; 6RR177, and

4 Fill-Pro installed in Sterling’s remodeled garage, in late October 2012.1 The

machine’s digital infrastructure then remained incomplete and Sterling was

still several months away from being capable of the machine’s commercial

operation. 4RR162, 168-69. Over the following months, Sterling worked at

mastering the machine’s commercial operation, understanding its Windows

platform, and addressing IT issues. 4RR150-51. In the same period, various

bugs and deficiencies with the machine and the surrounding manufacturing

process had to be worked through with FillPro’s designers. 4RR117. Sterling

felt the machine was ready for production on January 1, 2013. 4RR236. But

even he agreed that the necessary retail packaging was (which he was

responsible for procuring) was not available until mid- to late January.

7RR34; 6RR12.

While Sterling was Fill-Pro’s primary contact following the machine’s

installation, 4RR149, Tubb’s involvement was strong on both the project’s

development side (where he initiated numerous improvements to the machine

and the manufacturing process, e.g., 4RR115; 7RR17-18) and its mechanical

1 While the machine had some unique characteristics, 4RR148, FillPro had manufactured the same configuration before, 4RR148-49, and there were at least a few other machines like this one in operation. 4RR148-49.

5 aspect. 4RR152; 4RR115; 6RR13-15. Sterling disagreed, 4RR199-200, but

Tubb felt he had as much time in the business as Sterling did. 7RR51.

The Venture’s End. Sterling had been impatient with the venture’s

progress from virtually the start, complaining every time Tubb would make

a process or machine improvement. Ultimately, Sterling pulled Aspect out of

the deal---just before he would have had to bring the machine into commercial

production. At this time, in January of 2013, Sterling (a) accused Tubb–the

man who had invested $240,000 in the project–with trumped up charges of not

intending to perform the venture, (b) demanded payment on the IT invoices

Aspect was supposed to have contributed to the venture as capital, and (c)

threatened to withhold the administrative credentials to Superior’s customer

website, which he alone controlled.

Tubb, who thought the business could be profitable and so wanted it to

go forward, 7RR34, never once told Sterling he wanted out of the venture. He

instead said he wanted to move forward. Superior even paid the IT invoices.

But Sterling never returned to work on the project, and Aspect sued. In the

suit, it demanded compensation of $300,000, DX58; 6RR129, and for a year

refused to release Superior’s equipment. 6RR51, 129. It turns out the suit was

a designed exit strategy.

6 Sterling sent Tubb an email that was meant to go to his attorney. DX11;

7RR39-40. In it, Sterling revealed his own desire to leave the venture

(consistent with his history as a workplace vagabond) and his plan for doing

so, stating: “if I want out of it, my option is simply to send him a bill [for prior

IT work] and then pursue it. . . . If he sues me and Aspect, then my only

option, it appears, would be a countersuit out of Tyler. This further gives

weight to the bill him and walk away option.” 7RR39-40.

Today, after Superior has invested $240,000 in the machine and

supplies, 6RR7-8, the machine gathers dust in Tubb’s warehouse and is not

expected to ever be put into production. 6RR223; 7RR26.

The damage model. Aspect’s primary damage model, seeking lost

profits, was rejected at trial and so is not relevant. Its alternative damage

model sought compensation for Sterling’s time on the ammunition project.

Aspect claims Sterling---who had been retired and drawing insurance

disability checks for over a decade, e.g., 5RR22---somehow worked time

worth over $300,000 on the project. 6RR95. But there was no evidence that

Sterling’s services had cost Aspect anything or ever would. 6RR95. Nor was

there no probative evidence valuing the services that Sterling---a drop out

7 from 4 colleges, with no manufacturing or munitions-industry experience and

a history as a serial job hopper2---claims to have performed.

To estimate the quantity of his services, Sterling relied on old calendars

and a phone log. 4RR237-38; 6RR40-41; PX57. He and his wife never said

what all he had done on the project, aside from talking on the phone and

“research.” They simply alleged he had worked at least 40 hours each week,

for months. And Sterling assumed a value of $140 per hour for all of this time,

4RR238; PX57, even though he could recall only one instance of ever having

been paid even $120 per hour (this was by Superior, on a prior IT project).

4RR238. In the end, Sterling valued his time at over $300,000, PX57; 6RR40-

41, based on a series of litigation-motivated invoices lacking even a basic

account of the underlying services or time increments. 6RR43, 48.

2 Sterling, a workaday vagabond, had held about 12 jobs, each lasting a couple of years or much less. PX56; 4RR61-65. At trial, Sterling burnished his resume beyond recognition, painting a highly flattering but disingenuous picture of his responsibilities and accomplishments. Aspect’s skilled trial counsel, in contrast, would say only that Sterling’s resume was “interesting.” 4 RR 31-32. That is more than charitable. Judge Russell, who saw Sterling’s puffery for what it was, called it out in the court’s findings. See 4 CR 163-64 (FOF 56).

8 Summary of the Argument

The trial court determined that Superior repudiated the parties’ venture

by a combination of actions. This decision cannot be sustained. The alleged

proof falls far short of the necessary showing of a fixed and definite, absolute

renunciation of the contract. Rather, Superior consistently announced its

intention to perform and it at all relevant times continued in its efforts to do

so. If anyone repudiated the venture, it would be Aspect, which quit work and

insisted that it would not resume the work unless Superior first paid invoices

that the parties had agreed were a part of Aspect’s contribution to the venture.

Because the determination of Superior’s repudiation is insupportable,

so also is the determination to award Aspect $175,000 in restitution for the

alleged value of Sterling’s time in the venture. By Aspect’s reasoning, it was

entitled to recover the value of Sterling’s time, so as to be placed back “in the

position it would have” occupied had Superior not breached. 4 RR 39-40. But

that recovery was unsustainable even apart from the lack of a Superior

repudiation, for many reasons. For instance: Aspect sustained no out-of-

pocket loss and Superior reaped no quantifiable benefit from this time. Aspect

didn’t otherwise begin to prove a complete factual basis for restitutionary

relief. And while according to Aspect’s proof it had the clear opportunity to

9 mitigate any loss, it chose not to do so, thus forfeiting its right to recover.

Finally, the trial court erred in failing to award Superior a recovery of

attorney’s fees. Once that court determined that Superior was entitled to a

$35,019 contractual offset refunding its payment on invoices, Superior was in

its own right a prevailing party entitled to recovery its contract attorney’s fees

under Section 38.001 of the Texas Civil Practice and Remedies Code.

Argument

1. There is no evidence Superior repudiated the executory contract.

The trial court found a repudiation. 4 CR 455, 458-59 (FOF 11, 33-35).

But there is no evidence supporting that finding. And evidence of an ordinary,

partial breach of the ongoing contract would never allow Aspect to recover

the value of what it had input into the venture. When the trial court rested its

decision on such a determination, it abandoned over 100 years of settled law.

A. In Texas, repudiation requires a contract’s absolute renunciation.

The law does not generally allow one to claim repudiation of contract

unless the circumstances indicate a clear and unmistakable intention to

abandon it. Conduct that merely falls short of the agreed performance is an

10 ordinary breach—especially not when, as here, the defendant consistently

states an intention to continue under the contract and the counter-party

believes that intent is genuine.

The law of Texas respecting repudiation (also called anticipatory

breach) is clear. At the turn of the last century, in Kilgore v. Northwest Texas

Baptist Educational Society, the Texas Supreme Court already had held that

to repudiate a contract, the intention to abandon the agreement must have been

“declared in positive terms and unconditionally.” Kilgore v. Northwest Texas

Baptist Educational Soc., 37 S.W. 598, 600 (Tex. 1896). Today, all Texas

appellate courts agree that repudiation requires exacting circumstances—acts

or words unconditionally declaring “a distinct and unequivocal absolute

refusal to perform” the contract. McKenzie v. Farr, 541 S.W.2d 879, 882

(Tex. Civ. App.–Beaumont 1976, writ ref’d n.r.e.)(reversing because the

record contained no evidence of any “distinct and unequivocal absolute

refusal to perform the promise”).3 The defendant’s words or conduct must

3 See also Preston v. Love, 240 S.W.2d 486, 487 (Tex. Civ. App.–Austin 1951, no writ)(declaration of intent to abandon “must be in positive and unconditional terms”); Ennis Business Forms, Inc. v. Gehrig, 534 S.W.2d 183, 189 (Tex. Civ. App.–Waco 1976, writ ref’d n.r.e.) (Declaration must constitute an “unequivocal renunciation of the contract”); accord Rhodes v. Amarillo Hosp. Dist., 654 F.2d 1148, 1151-52 (5th Cir. 1981)(diversity; applying Texas law)(“Typically, ‘anticipatory repudiation’ arises when a party unequivocally renounces his duties under a contract prior to the time fixed for his performance.”).

11 clearly announce “a distinct, positive, unequivocal, and absolute refusal”

projecting “a fixed intention to abandon, renounce, and refuse to perform the

contract.” Davis v. Canyon Creek Estates HOA, 350 S.W.3d 301, 313 (Tex.

App.–San Antonio 2011, pet. denied).

Understandably, the cases in which trial-court findings of repudiation

are reversed on appeal are legion. E.g., Davis, 350 S.W.3d at 313 (finding no

evidence of the necessary “distinct, positive, unequivocal, and absolute

refusal’ to perform). When the claim is that repudiation should be inferred

from conduct, the burden to show an absolute repudiation is an especially

difficult hurdle. And rightfully so. Otherwise, there would simply be too much

confusion as to what constituted repudiation and when it had occurred.

B. Superior didn’t make any fixed and unequivocal renunciation of the venture.

Superior is alleged to have worked a repudiation by (1) not acting

aggressively enough to negotiate a written venture agreement, (2) not having

sufficient raw materials on site when Aspect was finally ready for commercial

production, and (3) suggesting that the manufacturing operation might

someday need to move from Tyler (where James Sterling, Aspect’s principal,

lives) to Superior’s Panhandle headquarters. The case holds no water.

12 This venture was a manufacturing start up. They don’t occur without

hiccups—delays, setbacks, and revisions to even the most carefully hatched

plan. Matters in this case played out mostly according to this norm. They

didn’t establish the necessary absolute, fixed intent to renounce the venture.

1. Aspect relied on speculative conclusions.

At trial Sterling opined that “Tubb was done, 6 RR 21, and claimed that

in the venture’s last days he hadn’t been “getting an indication that [Tubb]

wanted to continue.” 6 RR 29. But Sterling’s subjective impression and self-

serving opinions aren’t a sufficient basis for a repudiation finding. Instead, a

viable repudiation finding must be built on evidence of Superior’s actual

words and conduct. This doesn’t exist here.

The agreement, reached late in 2011, 4 RR 93, was quite general. The

venture would make and sell small-arms ammunition. Superior would provide

the materials, fund the purchase of production equipment, and allow the

venture to use Tubb’s celebrity and Superior’s distributor network. 4 RR 215;

6 RR 50, 169-70; 7 RR 18. Aspect would provide the initial manufacturing

facility and supervise the manufacturing process—“load the ammunition,

package it, and distribute it to the distributor or directly to the end user. 4 RR

89-90; 6 RR 172-73. It would contribute as capital about $35,000 in past

13 invoices, from a website project undertaken for Superior. 7 RR 47-48. And

just as Superior contributed capital, equipment and materials, Aspect was to

contribute what Tubb understood to be Sterling’s knowledge of running multi-

level companies, securing military contracts, and IT experience. 7 RR 24-25.

Any profits would be divided equally. 4 RR 87-88.

There were no further specifics: No time periods or deadlines, 6 RR

152, no specific schedule as to which calibers to produce at what times, and

nothing in particular about the timing of the materials purchases, or quantities,

or exactly what would be furnished.

The goal was to produce a product that was higher quality than the

competition but at an equivalent price. 4 RR 109. Sterling expected that

Tubb’s reputation and a “really accurate” product would bring success. 4 RR

221-22. This of course required an ammunition loading machine that could

make precision ammunition of no equal, in several calibers. 7 RR 17-18, 43-

44.

As it turned out, Sterling had never run any multi-level company, or

secured any military contract, or sold ammunition before. 7 RR 61.

14 2. Superior’s actions were the opposite of repudiation.

a. Tubb’s comments about moving the manufacturing location were no repudiation.

Sterling has said Superior repudiated the agreement on November 14,

when Tubb proposed to move the equipment to Canadian, Texas, where

Superior is located. 6 RR 17. But this was no evidence of a repudiation.

• That manufacturing operations might move in the future is not inconsistent with the parties’ agreement, which was that the manufacturing operations initially would be in Tyler.

• There is no reason why an eventual move of operations from Tyler would oust Aspect from control of or supervision over the manufacturing operation.

• A statement that an action may be considered in the future ordinarily is not a present breach, let alone a repudiation of the entire contract.

• Tubb never attempted to move the equipment while the agreement remained in force. 6 RR 141-42.

i. Tubb’s comments were not inconsistent with the agreement.

There was no agreement to remain in Tyler forever. The initial

manufacturing location was to be Tyler. 6 RR 172-73. Sterling’s own draft of

the proposed joint-venture agreement stated “Venture parties agree that

Aspect International will ‘initially provide facilities for the operation.’” 6 RR

15 142; PX1. Mrs. Sterling, Aspect’s sole shareholder, agreed that the deal was

for manufacturing to be in Tyler “to start.” 8 RR 52. Thus, even Sterling

conceded that the agreement contemplated that the facility might move at

some point. 6 RR 142.

Nor did the thought of an eventual move threaten Aspect’s role as

manufacturing supervisor. Sterling claimed a move of the equipment would

take the manufacturing out of Aspect’s control. 4 RR 194. But how is that?

The where of the manufacturing and the who (as in who supervises or controls

the manufacturing process) are different matters. Businesses move

manufacturing operations all the time, with key supervisory personnel moving

along with them. Aspect, which had no other operations holding it back, could

relocate with the operations.

And, in any event, Tubb’s statement clearly implied Superior’s

intention that the parties would in the future still be in their venture. There was

no intention to void the contract.

ii. The comments were excused by Sterling’s prior misrepresentation.

The context of Tubb’s statements is critical. The machine had been

located in Tyler and not in Canadian largely because Tubb’s location was

16 close to railroad tracks. The thought was that vibration from passing trains

could impair the equipment’s accurate performance. 7 RR 25. Tubb had made

a big deal of this. Yet Sterling had for months avoided telling Tubb that his

own Tyler location also was close to a railroad—closer than Tubb’s. 7 RR 25-

27. Tubb learned this after the $200,000 machine was installed, upon his visit

to Sterling’s home. When Tubb saw the abutting train tracks, he felt wronged

and hurt. 7 RR 60.

According to Tubb, he commented about a potential move while the

men were trying to work out the fact that Sterling’s garage was located close

to train tracks. 7 RR 25-27. But after a thorough discussion about the garage’s

proximity to train tracks, Tubb relented and allowed the equipment to sta in

Tyler, for Sterling’s convenience. 6 RR 195. Ultimately, Tubb got over the

train issue. 6 RR 196.

iii. Any statement about initially moving operations was retracted.

An otherwise repudiating statement will not count as a breach if it is

retracted before the repudiation is accepted. As the Restatement (Second) of

Contracts states: an anticipatory breach “is nullified by a retraction of the

statement if notification of the retraction comes to the attention of the injured

17 party before he materially changes his position in reliance on the repudiation

or indicates to the other that he considers the repudiation final.”

RESTATEMENT (SECOND) OF CONTRACTS § 278(1); see Glass v. Anderson, 596

S.W.2d 507, 512-13 (Tex. 1980) (“Anderson could ahve retracted his

repudiation under the circumstances described in section 278(1) . . .")(citing

Section 278(1) with approval). That is what happened here.

As Sterling conceded, before the Tubbs’ Tyler visit was over, Tubb

agreed that the equipment could remain in Tyler initially, where Sterling

would try to “work the bugs out.” 6 RR 192-93; see also 4 RR 201. Sterling

even memorialized this in an email. DX 3 (Sterling’s email states “on

November 14, 2012, you stated your intention to break your agreement.

Within 24 hours you reversed your decision.”)(emphasis added); accord 6 RR

139. Sterling then confirmed that the venture was ongoing, stating that “[a]ny

materials you can send me I will load and ship out for sale.” PX99, p. 2. Thus,

as of December 24, Sterling did not take anything arising from Tubb’s Tyler

visit as a repudiation. PX99.

18 iv. Superior continued to perform.

Even when one breaches a contract, if he later resumes performance,

there is no anticipatory or total breach, but only a partial one. E.g., Ravkind v.

Ravkind, 1995 WL 458856, *1 (Tex.App.–Houston [14th Dist.] Aug. 3, 1995,

writ denied). Well after the Tubbs’ November visit to Tyler, as Sterling

conceded, Tubb’s position was to move the deal forward. 4 RR 203. As is

undisputed, Tubb then continued investing time and money towards the

machine’s ultimate commercial operation. 4 RR 116. And when Sterling

complained about the lack of .223 bullets, Tubb pledged to check into it and

step up the process of getting materials. 4 RR 206. As Sterling conceded Tubb

had ordered bullets for subsonic ammunition. In fact, he had bought all the

supplier had. 4 RR 209. And Tubb had obtained quite a lot of “brass.” 4 RR

210-12.

Tubb was committed to the project, otherwise he wouldn’t have

pumped $240,000 into it. 6RR7-9. Superior bought the equipment, paying a

quarter million dollars for it. There is no dispute about that. There is no

allegation that Superior ever denied the venture the use of his name. The

venture didn’t make it that far–but only because Aspect chose to end it

19 prematurely, consistent with Sterling’s unbroken string of fleeting jobs and

business opportunities.

v. The alleged “repudiation” was never accepted.

Even an absolute renunciation “merely gives the innocent party . . . the

option to also consider the agreement to be at an end.” Townewest HOA v.

Warner Communication, Inc., 826 S.W.2d 638, 640 (Tex. App.–Houston [14th

Dist.] 1992, no pet.). If the claimant instead treats the contract as continuing,

the sole remedy is for any partial breach. RESTATEMENT OF CONTRACTS §

317(2); Kaiser v. Northwest Shopping Center, Inc., 587 S.W.2d 454, 457

(Tex. Civ. App.–Dallas 1979, writ ref’d n.r.e.). The intention to repudiate, if

it is to have effect, “must be accepted by the other party as a complete and

binding repudiation and termination of the contract. . . . [D]eclarations

concerning future matters must be unconditional and must be promptly acted

upon by the other party.” Dudley v. Born, 710 S.W.2d 638, 644 (Tex.

App.–Beaumont, 1986, writ ref’d n.r.e.) (emphasis ours).4 Moreover, if, as

4 In Dudley, the defendant had come to the plaintiff in August or September, while their construction project was ongoing, and suggested that Born start looking somewhere else to finance the project. This was no evidence of repudiation, both because it didn’t meet the exacting requirements for a declaration of repudiation, id. at 643 (“Even under Born’s version of the conversation, Dudley’s statements were not of a nature so as to constitute an anticipatory repudiation”), and also because Born “did not act upon” the statement but made subsequent requests for advances of funds. Id. at 643-44. This case is no different.

20 Aspect did, a party elects to treat a contract as continuing even after learning

the facts allegedly constituting the other party’s breach, the plaintiff loses any

excuse for its own subsequent non-performance. Hanks v. GAB Bus. Servs.,

Inc., 644 S.W.2d 707, 708 (Tex. 1982). Performance constituting an election

to treat the contract as ongoing need not be long, but may be brief. See Dora

v. Mullick, 2000 WL 33322942, *6 (Tex. App.–Texarkana 2001, no

pet.)(where plaintiff learned of defendant’s breach in January 1993 but

continued performance of the contract for another month afterwards, the

subsequent performance conclusively waived any right to use the opponent’s

breach as an excuse not to perform his own further contractual obligations).

Sterling has admitted facts constituting continued performance: As

Sterling admitted, after Tubb’s comment he and Tubb worked the remainder

of the day on the equipment and the Tubbs stayed over at the Sterling home.

4 RR 193-94. Sterling and his wife also agreed that they continued to perform,

working on both the equipment and the packaging afterwards. 8 RR 74-75.

And in this suit, Aspect has invoiced Superior $22,400 for Sterling’s further

work for the entire month of December 2012. PX 57.

Tubb’s statements were not repudiations. And Aspect in any event treated the contract as continuing.

21 What is more, on January 7, 2013, Sterling confirmed that the parties

had reaffirmed their agreement to manufacture ammunition and split the

profits 50/50 “of the net profits coming from our manufacture of an

ammunition product line for your company.” PX 106. This means, of course,

that nothing occurring beforehand could be taken by Aspect as a Superior

repudiation because there was never any acceptance of it.

b. Superior never intentionally withheld supplies.

Aspect argues that Superior didn’t get the necessary component

materials to Tyler when, finally, Aspect was in a position to begin commercial

operations. There are several problems with that allegation.

i. The materials that weren’t present were on order.

Sterling’s contention that Superior withheld supplies was a ruse, and

certainly was not supported by legally or factually sufficient evidence. Tubb

had bullets on order. He kept Sterling informed about their status. 7 RR 34.

And while all the bullets Tubb sought weren’t in Tyler when Aspect quit the

contract, the bullets, which were being shipped, in fact could have been there

if Aspect would have waited just a couple weeks more, until a week beyond

when it filed suit. 7 RR 34, 58. Tubb was having difficulty getting bullets. But

22 he was working on the problem. On December 14, 2013, Sterling and Tubb

were exchanging emails about a “lot” of subsonic bullets Tubb had located.

PX95. On January 29, 2013, just days before Aspect sued, Tubb emailed

Sterling to confirm that a full pallet of “223 brass” had arrived while Tubb

was at a firearms show, including brass for the venture’s “absolute” brand

ammunition. PX101.

At trial, Aspect held up Sterling’s assertion that he had located a

distributor with access to the same caliber bullets Tubb was waiting on. Based

on this, Sterling speculated that “the materials were never ordered.” 4 RR 205.

The premise—Sterling’s claim that he was able to locate bullets—does not

compel the Sterling’s conclusion.

Even if Sterling were able to order the materials from a distributor,

Tubb’s contact was with the president of the manufacturer. 4 RR 204-05. That

a distributor has bullets is not evidence that Tubb’s direct order with the

manufacturer wasn’t genuine. When demand exceeds supply, there is nothing

unusual about a manufacturer giving priority to its distributors over direct

customers like Tubb. Sterling’s contrary speculative conclusion is no

evidence. See, e.g., Litton Indus. Prods. v. Gammage, 668 S.W.2d 319, 324

(Tex. 1984) (proof that is subject to equally plausible and opposing inferences

23 is no evidence of either one); Calvert, “No Evidence and Insufficient Evidence

Points of Error,” 38 TEX. L. REV. 359 (1963). The proof is simply too weak

to support any probative inference that bullets had not been ordered, let alone

that Superior had formed a fixed and absolute intention to repudiate the deal.

ii. Any material shortage was easily cured.

There is no allegation that Superior refused to order or pay for the

requested materials. This is critical, because Aspect claims that it was able to

source the materials. If that is so, where is any repudiation? If Aspect had

located the materials, it could have sourced them and had Superior pay the

bill. This is what anyone committed to the venture would have done. A matter

so easily mitigated, at no cost to the claimant, is no basis for a repudiation

finding—especially not where, as here, Aspect conceded knowing that

Superior wanted to continue on in the venture.

iii. Any minimal delay in getting materials reflects the venture’s start-up nature and external constraints.

No delay in getting some supplies could reasonably be taken as a

repudiation by Superior. Indeed, until mid-January of 2013, right before

Aspect sued, there would have been no need to have the component materials

24 on site because the venture wasn’t otherwise ready to launch into commercial

production.

As even Sterling agreed, the steps predicating the actual commercial

production of ammunition were formidable. 4 RR 89-90 (“a myriad” of things

had to be done). Many of them still required modifications throughout

November and December of 2012 and into January: The loading machine

required adjustments, Sterling still needed to work on the proficiency for

commercially operating the machine, and Aspect needed to follow through on

its own commitment to get the necessary packaging.

To be sure, Sterling at trial opined that the machine, delivered in late

October, 2012, 6 RR 9, could have been used to manufacture ammunition

right away. 6 RR 12. But that wouldn’t have been apparent to one in Tubb’s

position. In fact, it wasn’t a possibility but was negated, by undisputed proof

that:

• The expertise necessary to successfully operate the machine on a commercial scale would have taken a considerable period of time to develop. 4 RR 151. As Tubb understood and Rue Marshall testified without contradiction, when the machine was set up, Sterling, who had no experience making commercial ammunition, 4 RR 172, was two or three months away from the necessary proficiency for commercial production. 4 RR 90-91, 168-69.

25 • It also was impossible to commercially produce any product because there wasn’t any packaging, which didn’t show up until mid- to late January. 7 RR 34; 8 RR 81-83. Sterling had been in charge of ordering the boxes. 6 RR 12-13.

• The venture was launched at the height of a frenzy in the demand for ammunition that invariably squeezed the supply of component materials such as bullets.

• Well after the machine was installed, the parties and Rue Marshall were finding “quite a few” issues with the equipment’s operation, including software deficiencies and “digital infrastructure issues” that FillPro’s software designer had to work through. 4 RR 117, 151, 162.

There was a cornucopia of changes still to be made to toolheads, sorting

routines, pressure adjustments, and innumerable other critical items. 6 RR 14-

15. As of November 21, for example, Aspect was addressing outside

consultants about ongoing software issues, and issues regarding “sensor

adjustment/design.” PX112. Sterling’s email of that date notes the need of a

“setup procedure” respecting “set up fills, press forces and inseriton depth/part

height.,” and notes a serious “shortfall” and “impractical[ity]” preventing

“long runs” and limiting any production to short, “lot runs,” after which “a lot

must be started, examined and tested,” and rounds not within specifications

must be manually identified and discarded. PX112. In response, the consultant

had proposed “an add on to the system,” to be preceded by “discuss[ion]” as

to “how you want this to work exactly.” PX112. But Sterling disagreed,

26 arguing that the problem was instead “software related,” and confessing that

“[i]n retrospect I should have made sure that this capability was put in from

the beginning.” PX112.

Yet another issue discussed in the November 21 email concerned the

“primer tube blast shields,” which had to be “taken back to [Tubb’s] shop for

design modification.” PX112. The same email states that Tubb and Sterling

would “decide on a sorting algorithm” that will in turn “require software

changes and testing time.” PX112. But this algorithm could not even “be truly

considered until we see substantial production to determine primarily where

rounds are consistently dropped by pressure settings.” PX112. The issues

continued. PX 112. And this is just from one of Aspect’s trial exhibits.

Even in December, Rue Marshall was quoting costs for yet-to-be-made

“software modification[s]” and Sterling was exploring “anything that

improves the production output.” PX92.

Just as Sterling was inquiring about inputs like bullets and brass, Tubb

was monitoring Sterling’s progress towards getting production boxes. 7 RR

55. So, the delays precluding commercial operations were mutual. Aspect

wasn’t ready to distribute any product commercially before, at the earliest,

mid-January, 2013—just a few weeks before it sued. Tight up until Aspect

27 sued, there was simply no need, acute or otherwise, for commercial quantities

of raw materials. The fact of a delay in obtaining bullets or brass is, in these

circumstances, not evidence of the necessary absolute renunciation of the

venture. See Rhodes v. Amarillo Hosp. Dist., 654 F.2d 1148, 1150 (5th Cir.

1981)(applying Texas law).5

iv. The agreement had not imposed any particular deadline for provisioning materials.

Sterling was impatient. But his impatience needs to be distinguished

from the contractual promises. This was a start-up manufacturing operation,

seeking to best the competition for quality. The parties were learning as they

went. The agreement didn’t provide any template: it stated no internal

milestones or deadlines for completing them. These were instead matters for

good-faith efforts, and basic trial and error.

5 In Rhodes, the defendant’s failure to have promptly obtained the necessary Texas medical licensure was not a basis for finding repudiation when at the time several weeks of “formal orientation” were still ahead before the defendant doctor would have been in a position to treat patients even if he had promptly secured a Texas license; thus, the delay in licensure “was not then acute.” 654 F.2d at 1150. Here, the lack of commercial quantities of materials would not have delayed production at all in 2012, because Aspect for its own reasons then was in no position to attempt commercial production.

28 v. Aspect knew Superior intended to proceed.

As Sterling conceded and Tubb testified, Tubb never once said he was

ending the partnership. 6 RR 21. In an email intended for his counsel, Sterling

confessed to believing that Tubb “wants to continue,” and “wants a contract.”

DX 11; 6 RR 25-26. In a later, December 29, email to Tubb, Sterling likewise

admitted he believed Tubb still “would like to continue to do business.”

PX109. This was with full knowledge of Tubb’s acts and statements (and

without the distorting effects of litigation influences). And Tubb did want the

business to go forward, with Aspect managing the operation, because he

believed it would be profitable. And he had no intention of loading

ammunition. 7 RR 34, 45-46. Tubb told Sterling as much several times,

including on January 7, 2013, as reflected in a recorded phone transcript. 7 RR

39.

3. Both parties were negotiating towards a written contract.

The district court’s third and final basis for finding repudiation was

Superior’s alleged failure to commit to a written contract. Yet, as with other

aspects of the deal, there had never been a timetable specified for such a

29 document. In fact, the parties’ agreement had not specified any requirement

that there even be a written contract document.

The fact is that both parties were moving steadily, if deliberately,

toward a written document.

The first evidence of any proposed written agreement from Aspect–a

mere “sample” fill-the-blanks form of a Joint Venture Agreement, PX 1—was

not passed to Superior until mid-September 2014. 4 RR 120. Tubb’s counsel

initially had recommended an equipment lease arrangement, 4 RR 217, then

recognized that a lease was inappropriate for the situation, causing some

confusion. 4 RR 217. But it is clear he was actively working on the matter, at

Tubb’s direction.

On November 15, for instance, counsel was advising Tubb as to several

concerns he had respecting Aspect’s proposed form document including

“especially . . . the termination provisions . . . .” PX 110. He recommended

that a “business counsel” “oversee” the drafting of a new, clean document

because in his view the existing draft’s problems could not “be fixed by

simply removing the objectionable termination provisions.” PX110. Two

weeks later, on November 30, Superior’s attorney was actively working on a

“Joint Venture Agreement,” but had gotten “stuck on a couple things” and was

30 thus recommending the involvement of an additional “Texas business

attorney” to help get the contract drafted “in a manner which is right for

Texas.” PX108. Moreover, Tubb and Sterling were having “numerous” phone

discussions and email exchanges. In that time, not once did Tubb say he

would not sign a written document. Meanwhile, the parties had been

performing within the venture for about a year without a written contract to

absolutely no adverse effect. None of this sounds like a repudiation was in the

works.

At trial, Sterling contended he had “observed” Tubb’s reluctance to

entering a written agreement and claimed Tubb appeared to have his mind

made up to end the deal. 4 RR 121. But Sterling’s own contemporaneous

communications, in December 2012 and January 2013, show otherwise. Then,

even Sterling took Tubb to indicate that he, too, was trying to salvage the deal.

6 RR 15-16. Then—before his perspective was colored by the

litigation—Sterling conceded the relationship required “some back and forth”

and time for exploring “other ideas,” PX82, and he confessed to believing that

Tubb also truly wanted a contract. DX11; 6RR25-26. How could he honestly

think anything else? Sterling certainly had no alternate explanation for the

concrete proof of Superior’s efforts toward a written document.

31 The progress towards a written document may have come more slowly

than Sterling would have wished. But that reflects nothing more than the

simple fact the parties had not settled on the venture’s precise legal structure.

The district court took an ordinary negotiation over a venture’s legal

form as proof of repudiation. This was error.

C. It was Aspect that chose to get out of the contract.

Having never persevered in any job of business beyond a couple yers,

8RR83-85, Sterling just didn’t appear to understand that manufacturing start

ups don’t always work like you want them to, 7 RR 41, regardless of the

parties’ best intentions. Instead, by December 14, 2012, DX11, Sterling had

formulated an exit strategy and was seeking counsel’s blessing for it, saying

“if I want out of it, my option is simply to send him a bill and then pursue it.”

DX11; 7 RR 39-40. This email concluded that other factors gave “further

weight to the bill him and walk away option.” 7 RR 40. (Incidentally, in this

same email Sterling admitted to knowing Tubb wanted to go forward on the

deal.)

So what did Sterling do? He promptly dunned Tubb for the IT invoices

that Aspect was supposed to have contributed as capital for the venture. And

32 he announced he was stopping work—that he “will not spend any further time

on this matter other than the time required to accept delivery of the packaging

already in process” until a signed contract was created. PX106, p. 2. Sterling

followed this with a lawsuit then more invoices, allegedly accounting for his

time spent on the partnership. 6 RR 38. In the process, Sterling announced

Aspect’s intent to leave the venture loud and clear. 7 RR 39-40. And he did

so upon an ostensible basis (the absence of a signed venture agreement) that

is as a matter of law not a Superior repudiation. PX106 (“Since we don’t have

a signed contract on the ammunition project, you need to pay me for my time

on the SMD project.”). There was nothing about the venture that would have

made forgiveness of these invoices depend on when or even whether the

parties signed a written document.

If anything in the case were a repudiation, this would be it. It was not

excused. It explicitly renounced an express contract term, and it did so

unequivocally. It was not retracted, but was implicitly accepted when Superior

paid the $35,019 billed, albeit under duress to reclaim the administrative rights

to its retail website. DX27. Aspect never resumed work.6 Its decision to quit

the venture, made before Aspect was capable of performing its duty to

6 Sterling’s total work for January 2013 was for 1.5 hours, or $210. 6 RR 48.

33 produce commercial quantities of ammunition, thus relieved Superior of any

subsequent duty to perform and certainly thwarted Aspect’s recovery of

substantial restitution damages.

When the trial court denied that Aspect’s act of commercial ransom was

a breach of contract, that was clear and reversible error.

In summary, Just because Sterling, not being otherwise employed and

being innately restless, chose to complain of Tubb’s tweaks and refinements,

that doesn’t mean Superior worked any repudiation. Rather, Superior

committed to the deal in both word and act. It plowed nearly a quarter million

dollars into specialized equipment and materials. It had arrangements pending

for shipping additional materials. It never refused to provide materials.

Through Tubb, it reassured Aspect of its commitment. And any delay in

procuring bullets was only slightly longer than Aspect’s own delay in getting

packaging. There was never any reasonable case for saying that Superior

expressed any fixed and absolute intention to avoid the contract.

If anyone repudiated the venture, it was Aspect.

34 II. There is no evidence supporting Aspect’s damage recovery.

The district court rejected a lost-profit recovery, as it was entitled to do.

But it awarded an indefensible recovery allegedly compensating Sterling’s

input of time into the venture. The record does not sustain any such recovery.

Other than its request for the rejected lost profit, Aspect’s only alternative

claim at trial was to “be placed back in the position it occupied before

contracting.” But Aspect never proved it is any worse off than before the

parties contracted. Rather, it entered the agreement as an inactive company,

with no assets and no other prospective business dealings, and is none the

worse off today.

A. Aspect has no basis to recovery for Sterling’s time.

1. Because the venture was a partnership, Sterling’s time is not compensable.

In this case, the Texas Business Organizations Code provides both the

framework for determining whether a partnership exists and the rules

governing the consequence of the venture’s legal form. Under this

Code–specifically, its section 152.203(c), a partner is not entitled to receive

compensation from the other partners for services rendered to the partnership.

Upon a partnership’s dissolution, the parties are entitled to return of their hard

35 capital. But, recognizing that all partners contribute time, no partner is

entitled to compensation for services rendered to the partnership. TEX. BUS.

ORG. CODE ANN. § 152.202. Such investments of time do not add to the

partner’s capital account.

When it comes to identifying a venture’s form, the Business

Organizations Code displaces the old rigid rules of the common law, under

which a failure to meet all the partnership factors required the courts to reject

a partnership. Now, the approach is less formalistic and more practical. Now,

under the Code, any “association of . . . persons to carry on a business for

profit as owners creates a partnership” unless an association or organization

actually has been created under a different statute providing for a different

business form. TEX. BUS. ORG. CODE ANN. § 152.051(b).7 In other words,

unless the parties clearly have opted to create a business under another

recognized business form, the default position is a partnership. In determining

this, the Courts must consider the totality of circumstances. As Ingram v.

Deere makes clear, existence of a partnership is determined from the totality

7 “(b) Except as provided by Subsection (c) and Section 152.053(a), an association of two or more persons to carry on a business for profit as owners creates a partnership, regardless of whether: (1) the persons intend to create a partnership; or (2) the association is called a “partnership,” “joint venture,” or other name.” TEX. BUS. ORG. CODE ANN. §152.051(b).

36 of circumstances considering the statutory factors. Unlike the common law,

proof of every relevant factor is not required. Ingram, 288 S.W.3d 886, 898

(Tex. 2009). And yet there is such proof in this case.

Here, the proof establishes each partnership factor:

• Receipt or right to receive a share of profits. Aspect has admitted an agreement to split profits equally.

• Expression of an intent to be partners. Sterling admitted multiple times that he intended to create a partnership, and was impeached at trial by his deposition testimony to this effect. See Ex. DX7, DX18a, DX24.

• Participation in control of the business or the right to do so. Aspect had the right to set up the manufacturing facility and it did so. Aspect likely had the right to run the manufacturing facility, to handle packaging issues, and otherwise to participate in the venture’s control.

• Agreement to share losses. Implicit in the splitting of net profits is an accounting of expenses and losses. As in any partnership, Aspect and Superior as well stood to lose their investments –there was no provision for Superior to reimburse Aspect for its labor–if the venture proved unsuccessful.

• Agreement to contribute money or property to the business. Both parties agreed to and did contribute money and property. Superior contributed a quarter million dollars in specially procured equipment and supplies, while Aspect contributed expenses to set up an initial manufacturing location, and it agreed to contribute an accounts- receivable balance exceeding $35,000. DX24.

So as a matter of law and despite the district court’s contrary

determinations, 4 CR 455 (FOF 12 - 18),467 (COL 2), the parties in this case

37 created a joint-venture partnership. Consequently, Aspect is not entitled to

compensation for its time. TEX. BUS. ORG. CODE 152.203(c). This is only fair,

as both sides have invested considerable time into the deal. Superior in

addition happens to have invested about a quarter million dollars, most of it

in a machine that today sits, gathering dust, representing an additional, huge

hard-dollar loss. And Aspect—which repeatedly told the trial court it just

wanted to be put back where it was before the agreement—is no worse off

today than when entering the deal.

2. There was no probative evidence quantifying any benefit to be restored.

There is nothing to be restored. The restitution interest is the interest in

having restored the “benefit conferred on the other party.” RESTATEMENT

(SECOND) OF CONTRACTS § 344; quoted in 24 WILLISTON ON CONTRACTS

§64:2 (4th ed., updated May 2014). Sterling’s time was contributed to the

venture. But this does not mean Superior received any benefit to be disgorged.

The benefit, if any, conferred on Superior was embodied in the equipment–the

only thing Superior got out of the deal. Stering’s time thus would not have

provided Superior a disgorgeable benefit except if it enhanced the

equipment’s value beyond what FillPro provided. There is no evidence of any

38 such enhancement and certainly no attempt to value it. Consequently, there is

no legally (or factually) sufficient basis for the lower court’s damage award.

Cf. 4 CR 461 (FOF 40).

B. Sterling’s damage proof was inadmissible, no evidence, and did not show a complete damage calculation.

The district court erred in overruling Superior’s motion to exclude

Sterling’s opinion testimony on Aspect’s damages, as unreliable per Robinson.

See 1 CR 38.

Sterling offered his bald conclusion that the charges for his time were

the reasonable and customary hourly compensation for a project manager. 6

RR 136. But there was no evidence Sterling was qualified as an expert to

testify to the value of time spent in making preparation for the venture. As the

district court noted, Sterling was not qualified as an expert on such matters as

marketing, economics, accounting, lost-profits calculations, business, or any

“other relevant commercial endeavors.” 4 CR 466 (FOF 56(g)). There is no

reason to think he was any better qualified to value the time he spent

attempting to set up a scratch manufacturing operation in the munitions

industry. Rather, the evidence, fairly characterized, is merely that Sterling

once might have been paid $120/hour by Superior in connection with setting

39 up an internet website. 4RR238.8 This does not make Sterling an expert on

damages in this case, which does not concern any website.

Superior bought production equipment from FillPro, a commercial

vendor of such equipment. Superior rightly owns the equipment, having paid

for it and taken title in its name. There is no probative evidence that Sterling’s

time, as opposed to Tubb’s substantive inputs, enhanced the equipment’s

value and no evidence quantifying any such alleged enhancement. Indeed,

there is no evidence of what exactly Sterling actually did respecting the

machine. He did not design it, or manufacture it, or install it.

The attempted valuation proof—Sterling’s speculative say so and a set

of cryptic and litigation-driven hearsay “invoices” that merely memorialize

Sterling’s ipse dixit—was clearly inadmissible over Superior’s objection (and

would in law be no evidence in any event). Indeed, Sterling, with his self-

serving and speculative valuation opinions, is a poster child for why the courts

are to act as gatekeepers against such testimony. As the Texas Supreme Court

holds:

• “[T]he evidentiary value of expert testimony is derived from its basis, not from the mere fact that the expert has said it.” Houston Unlimited, 8 Sterling also purported to know that the project manager for San Diego Media, on its web site build, was paid $140 per hour. 4 RR 238-29. But what a website build might have to do with this case (nothing) was never addressed.

40 Inc. Metal Processing v. Mel Acres Ranch, 443 S.W.3d 820, 829 (Tex. 2014).

• Regarding that basis, “[i]t is incumbent on an expert to connect the data relied on and his or her opinion and to show how that data is valid support for the opinion reached.” Whirlpool Corp. v. Camacho, 298 S.W.3d 631, 642 (Tex. 2009).

• “Opinion testimony that is conclusory or speculative is not relevant evidence, because it does not tend to make the existence of a material fact ‘more probable or less probable.’” Coastal Transp. Co. v. Crown Cent. Petroleum Corp., 136 S.W.3d 227, 232 (Tex. 2004).

• Conclusory, naked and unsupported opinion testimony “cannot support a judgment even when no objection” to it is lodged at trial. Id.

Sterling’s bald, unexplained and speculative opinions are not exempt from

these rules, even if he is a party. They are unreliable and inadmissible, and

would lack any probative value even if they would never have been attacked

in a Daubert/Robinson motion. Id.9

9 Aspect’s remaining proof–mostly vague assertions that Sterling was always “busy” “making phone calls” and “researching” for the venture, e.g., 8RR52-53–is insufficient, both legally and factually, to prove $175,000 in compensable services. The evidence is that the venturers’ tweaks to FillPro’s design and to the manufacturing process were primarily driven by Tubb’s detailed knowledge and his substantive inputs. E.g., 4RR152-53. Indeed, Sterling, who lacked the perspective of prior expertise in the commercial munitions industry and apparently sought mostly to pocket a quick buck during a temporary supply shortage, complained throughout trial of seemingly every such tweak, viewing these necessary inputs as mere delays, never mind that the goal was to produce a superior product.

41 At bottom, if any tangible benefit from Sterling’s inputs survived his

decision to pull the plug on the parties’ venture, there is no evidence

identifying it or attempting to quantify its value, let alone any non-speculative

proof that this would have cost $175,000 on the open market. This is fatal to

Aspect’s recovery.

Because Aspect presented no other expert testimony capable of

establishing the existence or amount of recoverable damages, the proper

remedy is a take-nothing judgment.

C. Aspect could have mitigated any damage.

It is a contract claimant’s duty to undertake reasonable steps to mitigate

damages or act at its peril. Stanley Manly Boys’ Clothes, Inc. v. Hickey, 259

S.W. 160 (Tex. 1924). This logically includes ordering available supplies

when that will avert a larger loss. Here, Aspect says Tubb’s inability to

promptly secure bullets was a sham because Sterling claimed to have located

similar materials, at a distributor. Yet Aspect produced no evidence of any

attempt to mitigate its damages by actually ordering the bullets. There is no

evidence Aspect was not capable of such action, or that it could not have

accomplished the equivalent merely by ordering the materials, with the bill

42 forwarded to Superior for payment. There is no evidence Superior would not

have paid any such effort.

In any event, the failure to have provided raw materials would at most

have sustained a recovery for the profit lost owing to the temporary inability

to produce. For example, if while the venture was up, running, and operating

at a profit, production would have halted for 3 weeks because Superior didn’t

pay for raw materials, Superior might then have been liable to pay Aspect

damages measured as 50% of 3 weeks’ proven lost profits. But the record

doesn’t sustain even this recovery because the evidence was that Aspect

located the necessary materials and presumably it could have obtained them

before it was otherwise ready to proceed with commercial production.

D. When Aspect left the venture, it was no worse off than when it began.

Aside from the failed request for speculative lost profits, Aspect asked

to be put in its pre-contracting position. Yet there is no evidence Aspect was

any worse off when it exited the venture than when it entered it as an inactive,

penniless company that had never before done any business. 5 RR 21.10

10 According to Sterling, he formed Aspect in 1997 just in case he might ever want to do something in the firearms industry. 5 RR 21.

43 Nor is there any finding that Aspect was any worse off because of the

deal. Rather, without considering Aspect’s lack of any changed condition and

without evidence quantifying any benefit to Superior, the district court simply

found that “AII sustained restitution damages in the amount of $175,000.00.”

(FOF 40.) Aspect’s proof was clearly not probative of this.

Aspect, solely owned by Sterling’s wife, never was out of pocket

anything for Sterling’s time.

E. The recovery is excessive.

$175,000 just isn’t a reasonable recovery in this case, given that:

• Aspect was an inactive company that had never conducted business.

• Sterling, a former workplace vagabond with an implausible account of his workplace exploits, was 13-years retired, with no experience commercially producing ammunition.

• The amount awarded rivals the entire amount spent on production equipment and manufacturing materials.

• FillPro, which had made essentially the same machine before, did the design, manufacture, and install.

• Just because Sterling called FillPro frequently doesn’t mean so many calls were necessary or always helpful. Even FillPro’s Rue Marshall–whose favor Sterling had curried–called Sterling’s involvement “excessive” and implied it had gummed up the manufacturing process.

44 • The machine —which Superior bought—is mothballed, with issues, and may never be brought into production.

Sterling never documented any truly relevant prior expertise, certainly

not as a project manager on the start-up of a manufacturing business. Rue

Marshall, Sterling’s contribution to the project was mostly in ironing out little

subtleties. 4 RR 152-53.

Tubb, in contrast, was the one with the relevant expertise in the

munitions business. He appears to have done the bulk of the work on the

product specifications and he also participated in the equipment preparation.

4 RR 98. 7 RR 51 (I have as much time invested as he does); 7 RR 67-68 (We

both put in time). According to Rue Marshall, Tubb’s involvement was

“strong” on the development side of the project and also later on, respecting

the mechanical side, to ensure the machine would be a versatile one and

capable of handling different munitions types. 4 RR 152.

Even Sterling conceded Tubb’s hands-on involvement, 4RR199-200,

which didn’t stop when the equipment was installed, but continued afterwards,

when Tubb was fitting toolheads, refining the machine’s sorting routine, and

making pressure adjustments to the machine. 6 RR 14-15.

45 What is more, neither Sterling nor his wife could ever really say what

it was Sterling did that allegedly took so many hours or quantify any concrete

benefits he had created. Contractors did the real work on Sterling’s garage

conversion (primarily sheet rocking, insulating, electrical, and painting). 4 RR

100-01. The two-loader/one-controller concept which Sterling claims as his

innovation was a tweak; it was not revolutionary. There doesn’t appear any

reason why the same production results could not have been accomplished

with two independent loader/controllers. Nor is there any concrete evidence

that it ushered any material savings in equipment, time, or otherwise.

Superior submits that the maximum sustainable recovery, if Sterling is

to be awarded anything for his time, would not exceed $70/hour for twelve

40-hour work weeks—less than the $25,019 Sterling extorted through the

payment of invoices.

III. Aspect owes attorney’s fees.

The district court has adjudicated Superior’s right to the $35,019 paid

on the prior invoices. But it has denied Superior the coordinate recovery of

any attorney’s fees. This is legal error.

46 Here, the parties’ agreement called on Aspect to contribute its service

invoices as capital. Everyone agrees on this. In breach of this agreement,

Aspect required Superior to pay those invoices or else Sterling would not

relinquish administrative rights over Superior’s website. The district court has

agreed Aspect had no basis for this conduct, and has awarded the $35,019 to

Superior as an offset. 4 CR 468 (COL 7); 5 CR 168. This establishes Aspect’s

contract breach and Superior’s right to an attorney’s fee award as a matter of

law.

Under Section 38.001 of the Texas Civil Practice and Remedies Code,

a party is entitled to recover attorney’s fees upon satisfying two requirements.

It must (1) prevail on a fee-bearing claim (such as a claim for breach of a

contract), and (2) recover damages. See Green Int’l v. Solis, 951 S.W.2d 384,

390 (Tex. 1997). Superior met both requirements.

To satisfy Section 38.001, it is not necessary to be the “net winner” or

even to obtain a “net recovery.” See McKinley v. Drozd, 685 s.W.2d 7, 10-11

(Tex. 1985). Nothing more is required than to recover an “amount of a valid

claim” under a fee-bearing cause of action—even if that amount is entirely

offset by the opponent’s recoveries on other claims. Id.; Thomas v. Bobby D.

Assoc., 2008 WL 3020339, *2 (Tex. App.–Tyler 2008, no pet.)(mem.op.)

47 (claimant who recovers damages on a fee-bearing claim is a prevailing party

entitled to an award of attorney’s fees whether or not he obtains a net

recovery); G.R.A.V.I.T.Y. Enters., Inc. v. Reece Supply Co., 177 S.W.3d 537,

548 (Tex. App.–Dallas 2005, no pet.)(same).

This fee recovery was mandatory. “If attorney’s fees are proper under

§ 38.001(8), the trial court has no discretion to deny them.” Smith v. Patrick

W. Y. Tam Trust, 296 S.W.3d 545, 547 (Tex. 2009). Under Section 38.001,

every successful contract claimant is entitled to recover the reasonable and

necessary attorney’s fees expended on the fee-bearing claim. TEX. CIV. PRAC.

& REM. CODE ANN. § 38.001(8).

Conclusion and Prayer

For all the reasons stated above, the judgment below should be

reversed, in part, and (a) judgment should be rendered in part that Aspect take

nothing on its claims, (b) Superior’s recovery of a refund for $35,019,

constituting the previous payment of invoices, should be affirmed, and (c) the

cause otherwise should be remanded for entry of an appropriate attorney’s fee

award in Superior’s favor. Alternatively, the judgment should be reversed and

48 a remittitur suggested or, failing remittitur, a new trial granted. Superior of

course also prays for all additional relief it may be entitled to receive.

Respectfully submitted,

/s/ Greg Smith Greg Smith State Bar No. 18600600 RAMEY & FLOCK, P.C. 100 East Ferguson, Suite 500 Tyler, TX 75702 Telephone: (903) 597-3301 Facsimile: (903) 597-2413 gsmith@rameyflock.com

Wesley Hill State Bar No. 24032294 WARD, SMITH & HILL, PLLC P. O. Box 1231 Longview, TX 75606 Telephone: (903) 757-6400 Facsimile: (903) 757-2323 wh@wsfirm.com

COUNSEL FOR APPELLANTS

49 Certificate of Service

The undersigned certifies that a copy of the above and foregoing

document was served upon counsel for Appellees in accordance with the

applicable Texas Rules of Civil Procedure on this the 8th day of June, 2015,

on the following:

keith@mkdlaw.us Keith Dollahite M. Keith Dollahite, P.C. 5457 Donnybrook Ave. Tyler, Texas 75703

trey@yw-lawfirm.com Trey Yarbrough Yarbrough Wilcox, PLLC 100 E. Ferguson, Suite 1015 Tyler, Texas 75702

/s/ Greg Smith Greg Smith

50 Certificate of Compliance 1. This brief complies with the type-volume limitation of TEX. R. APP. P. 9.4 because it contains 10,106 words, excluding the parts of the brief exempted by TEX. R. APP. P. 9.4(i)(2)(B). 2. This brief complies with the typeface requirements of TEX. R. APP. P. 9.4(e) because it has been prepared in the proportionally spaced typeface using Word Perfect X5 in 14 point Times New Roman font. Dated: June 8, 2015.

51 No. 12-14-00323-CV

In the Twelfth Court of Appeals Tyler, Texas

DAVID TUBB AND SUPERIOR SHOOTING SYSTEM, INC. Appellants

ASPECT INTERNATIONAL, INC. AND JAMES STERLING Appellees

Appealed from the 7th Judicial District Court Smith County, Texas

APPENDICES

A. Findings of Fact and Conclusions of Law (4 CR 452-68)

B. Final Judgment (5 CR 168-70) 2