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 10/8/2015 10:52:32 AM Pam Estes CLERK

NO. 12-14-00323-CV

IN THE FILED IN 12th COURT OF APPEALS TWELFTH COURT OF APPEALS TYLER, TEXAS 10/8/2015 10:52:32 AM TYLER, TEXAS PAM ESTES __________________________________________________________________ Clerk

DAVID TUBB, ET AL. APPELLANTS FILED IN 12th COURT OF APPEALS V. TYLER, TEXAS 10/8/2015 10:52:32 AM ASPECT INTERNATIONAL, INC., ET AL. PAM ESTES APPELLEES Clerk

__________________________________________________________________

BRIEF OF APPELLEES

__________________________________________________________________

Keith Dollahite State Bar No. 05958550 M. Keith Dollahite, P.C. 5457 Donnybrook Avenue Tyler, Texas 75703

Trey Yarbrough State Bar No. 22133500 Yarbrough Wilcox, PLLC 100 E. Ferguson, Suite 1015 Tyler, Texas 75702

ORAL ARGUMENT REQUESTED

-i- TABLE OF CONTENTS

Index of Authorities.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi

Issues Presented.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

Standard of Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Objection to Statement of Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

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

1. James Sterling is a capable, honest, and ethical professional who provided valuable consulting services to David Tubb and Superior before this dispute arose.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. James Sterling (on behalf of Aspect) and David Tubb (on behalf of Superior) entered into an oral agreement to manufacture and sell ammunition.. . . . . . 4

3. David Tubb was litigation-savvy when he entered into the oral Agreement with James Sterling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4. From November 2011 through September 2012, James Sterling worked diligently with FillPro to design, assemble, and manufacture the equipment to produce ammunition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

5. James Sterling prepared the facility in Tyler for Aspect to manufacture ammunition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

6. In July 2012, James Sterling expressed his frustration that David Tubb had not finalized the written contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

7. In September 2012, James Sterling again attempted to get David Tubb to set up a corporation or limited liability company to carry out the terms of the Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

-ii- 8. In October 2012, FillPro delivered the equipment to Aspect’s facility in Tyler, which was fully functional and ready to produce ammunition. . . . . . . . . . 12

9. James Sterling also performed substantial work to market the ammunition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

10. In November 2012, David Tubb started down a destructive path that ended in his repudiation of the Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

11. In December 2012, David Tubb continued down his destructive path by refusing to sign a written contract.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

12. In January 2013, David Tubb repudiated the Agreement by refusing to sign a written contract and by refusing to deliver the materials that Sterling needed to produce the ammunition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

13. In February 2013, Sterling’s attorney sent a letter to Tubb acknowledging that Tubb had repudiated the Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Summary of the Argument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Argument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

I. Tubb and Superior failed to present a complete reporter’s record; therefore, the Court must overrule their insufficiency of the evidence complaints. . . . . . 37

II. Legally sufficient evidence supports the trial court’s finding that Tubb and Superior repudiated the Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

A. Tubb and Superior exaggerate the standard for proving repudiation .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

B. The evidence supports the trial court’s finding of repudiation. . . . . 43

1. The trial court made a broad finding of repudiation. . . . . . . . 43

-iii- 2. Tubb’s destructive conduct in November 2012 evidenced Superior’s repudiation of the Agreement.. . . . . . . . . . . . . . . . 43

3. Superior’s refusal to supply the materials necessary to produce ammunition evidenced its repudiation of the Agreement. . . . 44

4. Superior’s refusal to enter into a written contract was a repudiation of the Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . 45

5. Sterling acknowledged Tubb’s repudiation of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

6. The Court should disregard the trial court’s mistaken finding that Aspect did not have a license to manufacture ammunition. . . 47

III. Legally sufficient evidence supports the trial court’s award of restitution to Aspect.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

A. Well-settled legal principles support the trial court’s award of restitution to Aspect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

B. The evidence supports the trial court’s award of restitution. . . . . . . 48

1. The evidence supports restitution based upon the value of the services provided to Superior.. . . . . . . . . . . . . . . . . . . . . . . . . 48

2. The evidence also supports restitution based upon the value of the benefits conferred on Superior. . . . . . . . . . . . . . . . . . . . . . . . . 52

3. Tubb and Superior did not prove and obtain findings on their defense of failure to mitigate damages.. . . . . . . . . . . . . . . . . . 54

4. Superior’s request for a remittitur is likewise without merit. 55

5. The Court should affirm the award of restitution. . . . . . . . . . 55

-iv- IV. Superior cannot prove it had a partnership with Aspect as a matter of law. 56

V. Superior cannot prove it is entitled to attorney’s fees as a matter of law. . 58

A. The trial court found and concluded that Aspect did not breach the contract and that Superior is not entitled to attorney’s fees.. . . . . . . 58

B. Superior has not challenged the findings that Aspect did not breach the Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

C. Superior has not challenged the implied findings that its attorney’s fees were neither reasonable nor necessary. . . . . . . . . . . . . . . . . . . . . . . . 61

Prayer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Certificate of Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Certificate of Service.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

-v- INDEX OF AUTHORITIES

Cases

Abraxas Pet. Corp. v. Hornburg, 20 S.W.3d 741 (Tex. App. – El Paso 2000, no pet.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Alamo Cmty. Coll. Dist. v. Miller, 274 S.W.3d 779 (Tex. App. – San Antonio 2008, no pet.).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Cal-Tex Lumber Co. v. Owens Handle Co., 989 S.W.2d 802 (Tex. App. – Tyler 1999, no writ). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

City of Harker Heights v. Sun Meadows Land, Ltd., 830 S.W.2d 313 (Tex. App. – Austin 1992, no writ). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52, 60

Coon v. Schoeneman, 476 S.W.2d 439 (Tex. App. – Dallas 1972, writ ref'd n.r.e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Crounse v. State Farm Mut. Auto. Ins. Co., 336 S.W.3d 717 (Tex. App. – Dallas 2010, pet. denied). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Englander Co. v. Kennedy, 428 S.W.2d 806 (1968).. . . . . . . . . . . . . . . . . . . . 37, 38

Great Am. Ins. v. North Austin MUD, 908 S.W.2d 415 (Tex.1995).. . . . . . . . . . . 54

Horner v. Heather, 397 S.W.3d 321 (Tex. App. – Tyler 2013, no pet.). . . . . . . . . 1

In re Estate of Arrendell, 213 S.W.3d 496 (Tex. App. – Texarkana 2006, no pet.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38-39

Ingram v. Deere, 288 S.W.3d 886 (Tex. 2009).. . . . . . . . . . . . . . . . . . . . . . . . 56, 57

Jordan v. Lyles, 455 S.W.3d 785 (Tex. App. – Tyler 2015, __ ). . . . . . . . . . . . . . . 2

Mancorp, Inc. v. Culpepper, 802 S.W.2d 226 (Tex. 1990). . . . . . . . . . . . . . . 51-52

-vi- Mar-Len of Louisiana, Inc. v. Gorman-Rupp Co., 795 S.W.2d 880 (Tex. App. – Beaumont 1990, writ denied). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41-42

Murray v. Crest Const., Inc., 900 S.W.2d 342 (Tex. 1995). . . . . . . . . . . . . . . 40-41

Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195 (Tex. 2004).. . . 59, 60-61

Patton v. Loancare, LLC, 2015 WL 5158396 (Tex. App. – Tyler 2015, ___).. . . 37

Sw. Battery Corp. v. Owen, 115 S.W.2d 1097 (Tex. 1938). . . . . . . . . . . . . . . . . . 55

Taveau v. Brenden, 174 S.W.3d 873 (Tex. App. – Eastland 2005, pet. denied) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Wal-Mart Stores, Inc. v. McKenzie, 22 S.W.3d 566 (Tex. App. – Eastland 2000, pet. denied). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Wheeler v. Greene, 194 S.W.3d 1 (Tex. App. – Tyler 2006, no pet.). . . . . . . . . . 37

Statutes

TEX. BUS. ORG. ACT §152.052, et seq. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56-58

TEX. BUS. ORG. CODE §152.203(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 56, 57

TEX. CIV. PRAC. & REM. CODE §38.001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Rules

TEX. R. APP. P. 9.4(i). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

TEX. R. EVID. 803(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

TEX. R. EVID. 1006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

-vii- Other

49 DAVID R. DOW & CRAIG SMYSER, TEXAS PRACTICE: CONTRACT LAW § 9.11 (2015).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

6 ROY W. MCDONALD AND ELAINE A. GRAFTON CARLSON, TEXAS APPELLATE PRACTICE § 18:12, 33:16 (2d ed. 2015). . . . . . . . . . . . . . . . . . . . . . . 1, 55, 60

-viii- ISSUES PRESENTED

I. Must the Court overrule Tubb and Superior’s insufficiency of the evidence complaints because of their failure to present a complete reporter's record?

II. Is the evidence legally sufficient to support the trial court's finding that Tubb and Superior repudiated the Agreement?

III. Is the evidence legally sufficient to support the trial court's award of restitution to Aspect?

IV. Can Superior prove it had a partnership with Aspect as a matter of law?

V. Can Superior prove it is entitled to attorney's fees as a matter of law?

-ix- STANDARD OF REVIEW

Because the trial was non-jury, the following principles govern this appeal:

• “When considering a legal sufficiency challenge after a bench trial, we view the evidence in the light most favorable to the trial court's findings, crediting favorable evidence if reasonable fact finders could, and disregarding contrary evidence unless reasonable fact finders could not.”

• “We must indulge every reasonable inference that would support the trial court's findings.”

Horner v. Heather, 397 S.W.3d 321, 324-325 (Tex. App. – Tyler 2013, no pet.).1

At the conclusion of the trial, the district court made 62 findings of fact, some

of which contain multiple subparts (4 CR 452-467). In their appellate brief, Tubb and

Superior challenge only 13 findings and do so by legal insufficiency complaints:

findings #11-#18, #33-#35, and #40-#41 (Appellants’ Brief at pgs. 10, 35, 37, 39, 44).

As a result, the remaining unchallenged findings are now binding in this appeal. 6

ROY W. MCDONALD AND ELAINE A. GRAFTON CARLSON, TEXAS APPELLATE

PRACTICE § 18:12 (2d ed. 2015).2 These unchallenged findings are presented in the

statement of facts below.

1 Internal quotations and citations are omitted throughout this brief. 2 Emphasis is added throughout unless indicated otherwise.

1 OBJECTION TO STATEMENT OF FACTS

In considering Tubb and Superior’s legal insufficiency complaints, the Court

must consider only the evidence and inferences that support the trial court’s findings

and must disregard all other evidence and inferences. Jordan v. Lyles, 455 S.W.3d

785, 791 (Tex. App. – Tyler 2015, __ ). But Tubb and Superior’s statement of facts

turns this rule upside down. They present only their version of the story that does not

support the trial court’s challenged findings – the same story the trial court rejected

in making those findings. In effect, Tubb and Superior ask the Court to try the case

a second time, which of course it cannot do. As shown below, Tubb and Superior also

ignore evidence that amply supports the challenged findings, including indisputable

emails and transcripts of recorded telephone calls. For these reasons, Sterling and

Aspect object to Tubb and Superior’s statement of facts in its entirety and submit the

following one so the Court can perform its duty to consider only the evidence that

supports the challenged findings and to disregard all contrary evidence and

inferences.

2 STATEMENT OF FACTS

1. James Sterling is a capable, honest, and ethical professional who provided valuable consulting services to David Tubb and Superior before this dispute arose.

Before Aspect and Superior entered into the oral agreement that is the subject

of this case, James Sterling provided valuable information technology consulting

services to Superior. In finding #7, the trial court found:

Sterling was hired in 2006 by Tubb and Superior and over the next three to five years computerized Superior's sales operation and provided other IT consulting services, including the creation or upgrade of the company's website. Tubb testified that Sterling's services enhanced the overall operation of Superior and made the company more efficient. Tubb acknowledged that Sterling made Superior better than it was before and that he was “real helpful.”

(4 CR 453). This finding is unchallenged and is therefore binding. All the witnesses

agreed to this fact in their testimony (4 RR 60-81; 6 RR 162-164; 7 RR 168; 8 RR 18,

44). In fact, the evidence proved that between the time Sterling set up Superior’s

website and the trial, Superior had already made about $4 million in product sales (4

RR 83, 118).

James Sterling was honest, ethical, and trustworthy in his dealings with David

Tubb and Superior. In finding #8, the trial court found:

3 Sterling had access to Superior's computer network and the company's books, and was entrusted with a company credit card while performing the foregoing services. Tubb was not aware of Sterling ever engaging in any unethical conduct or doing anything detrimental to the company during that period, and Sterling demonstrated competency in computers and information technology.

(4 CR 453-454). This finding is also unchallenged and binding. The evidence

supports this finding (4 RR 60-81; 6 RR 165-166; 7 RR 77; 8 RR 108-109).

Consequently, the Court must disregard Tubb and Superior’s groundless personal

attacks against James Sterling and their deplorable name-calling (Appellants’ Brief

at pgs. 7-8, 44).

2. James Sterling (on behalf of Aspect) and David Tubb (on behalf of Superior) entered into an oral agreement to manufacture and sell ammunition.

In finding #9, the trial court found:

In the latter part of 2011, Sterling and Tubb discussed collaborating together to manufacture and sell small arms ammunition. As a result of those discussions, [Aspect] and Superior ... entered into an agreement to manufacture and sell small arms ammunition (the “Agreement”).

(4 CR 453-454). In finding #10, the trial court found these were the material terms

of the Agreement:

a. Superior's agreement to contribute the equipment and materials necessary for the enterprise's viability and success;

4 b. Tubb's name ... would be used by the business for marketing purposes and Superior would market the products through its existing distributors;

c. Aspect ... would be entrusted with the manufacturing operation of the business, and perform the labor and work necessary to bring the product to market; more specifically, [Aspect], through Sterling, would use its computer and business skills to procure a manufacturing solution, coordinate the overall design and assembly of the loading equipment and operation, initially provide the location for the manufacturing operation and storage of materials, and ... the sale of the finished product;

d. Tyler, Texas would serve as the original location for the manufacturing operation;

e. The parties would share equally in the profits of the enterprise.

f. Tubb and Superior would assist with input in the design of the system and accuracy details for the high precision ammunition; and

g. Sterling would contribute his IT receivable owed to him by Superior in the amount of $35,019.00 to the venture.

(4 CR 454-455). These finding are unchallenged, binding, and supported by the

record (4 RR 85-89; 6 RR 168-173).

5 Tubb and Superior now say in their brief that “Judge Russell found the parties

had a contract (which was uncontested) ...” (Appellants’ Brief at pg. x). But they

have not always told the truth about the Agreement. Earlier in the case, in answers to

interrogatories, David Tubb swore eight times under oath that the parties “were not

able to reach an agreement on the terms of the joint venture ... and did not enter into

a joint venture ...” and that “the parties did not reach any agreements ...” (PX-59 at

pgs. 5-10; 4 RR 57).

Thereafter, Tubb and Superior fired their lawyer and hired new ones. The new

lawyers then served amended answers to interrogatories, which erased all of Tubb’s

prior sworn statements that Superior never entered into an agreement with Aspect

(PX 60; 4 RR 57). The new attorneys also filed an amended answer in which Tubb

and Superior changed their story: they finally admitted that Superior did in fact enter

into an oral agreement with Aspect, but claimed for the first time that the agreement

created a general partnership (1 CR 141).

Why did Tubb change his sworn answers to interrogatories? Because TEX. BUS.

ORG. CODE §152.203(c) provides that a “partner is not entitled to receive

compensation for services performed for a partnership....” Thus, Tubb changed his

sworn answers to manufacture a defense to Sterling and Aspect’s claim for restitution

(2 CR 240). Tubb testified at trial that when he swore eight times under oath that he

6 never entered into an agreement with Sterling, he “was mistaken at that point ...

[a]ccording to my current counsel” (6 RR 182). Tubb testified: “I didn't understand

what I was talking about” and when he hired new counsel, they “educated me and

directed me on the sort of arrangement that we had” (7 RR 71).

3. David Tubb was litigation-savvy when he entered into the oral Agreement with James Sterling.

When David Tubb made the Agreement, his company Superior was the

plaintiff in a pending federal lawsuit against Brand Cole, Superior’s former employee.

In its lawsuit against Cole, Superior alleged that Tubb had invented an improved rifle

scope; that Tubb had assigned his rights to the invention to Superior; and that Brand

Cole was trying to steal the rights to the invention (PX-74-78; 4 RR 57; 6 RR 160).

Tubb testified in this case that he ended up with the better end of the deal with Cole

because he “owned the equipment and the facility” (6 RR 161). In the federal case,

Brand Cole had alleged a counterclaim against Superior for breach of contract, to

which Superior had raised a number of affirmative defenses (PX-77 at pg. 4; 4 RR

57). From this evidence, the trial court in this case could have reasonably inferred that

before he entered into the Agreement with James Sterling, David Tubb had already

received an education on contract law – e.g., if you never sign a written contract, you

may never have to honor your oral agreement with someone.

7 4. From November 2011 through September 2012, James Sterling worked diligently with FillPro to design, assemble, and manufacture the equipment to produce ammunition.

Aspect agreed to do everything from finding the right equipment and

manufacturing the ammunition to designing the packaging and getting the product to

market (4 RR 92-93). This was “an enormous task” and “[n]ormally, you'd have to

hire a firm and spend a lot of money to have a professional do it” (4 RR 93). After

researching sources for the equipment, Sterling identified and began working with

FillPro, Inc., in Golden, Colorado, to design and build equipment that would load

both precision and non-precision ammo (4 RR 91-92). James Sterling and David

Tubb flew to FillPro's office in Colorado and met with the company's owner, sales

manager, and a number of engineers (4 RR 94). The plan was to make a commercial

line for non-precision ammunition and a contract line for precision ammunition (4 RR

97).

Sterling was intrigued with the idea of using a model 1050 machine – an

off-the-shelf product – and then modifying it to make it computer-controlled. FillPro

understood the equipment had to operate fast and at a high volume to make it viable,

so they proceeded to design a machine that would do that. One model 1050 would not

be fast enough, so Sterling came up with the idea of having one industrial computer

control two model 1050 machines. The design “pretty much required [Sterling’s]

8 input almost every day ...” (4 RR 95-97). Sterling was on the phone every day, either

talking with FillPro, talking with Tubb, or talking with others about getting the

product to market. He worked full time on the project (4 RR 98-99).

The record contains 75 pages of FillPro quotations, component descriptions

and photographs, specifications, technical drawings, contract terms, and revisions for

the sophisticated equipment to make ammunition. The first quotation is dated

November 19, 2011, and the last is dated September 11, 2012 (PX-52; 4 RR 57).

These documents evidence the tremendous amount of work that Sterling performed

in moving the project from its initial conceptual stage to its final stage – the

installation of the unique and highly-sophisticated equipment that was ready to

produce ammunition in a manner superior to that of competitors.

Rue Marshall was FillPro's manager of customer service and quality assurance

at the time (4 RR 144). Marshall testified at trial that FillPro's primary contact for the

project was James Sterling and that FillPro had minimal contact with David Tubb.

Marshall also testified that this type of equipment is typically purchased by a large

company, which would have an entire committee of engineers, technicians, and

production employees perform the work that James Sterling performed alone on this

project (4 RR 149-150). Marshall testified that Sterling's investment of time and

effort in the project was substantial (4 RR 152-153).

9 5. James Sterling prepared the facility in Tyler for Aspect to manufacture ammunition.

Aspect prepared the manufacturing facility on Sterling's property by converting

his detached garage into a lab and production facility. He installed the electrical,

including computer wiring and an alarm system. The FillPro equipment required a

temperature-stable environment, so heating and air conditioning equipment was

installed. The equipment would be air-driven, so Sterling installed custom air lines

into the walls to operate the equipment. A contractor did the sheetrock and painting;

Sterling and his neighbor did the rest of the work. To avoid a safety problem from

static electricity, he put down a polymer floor like the ones used in aircraft hangers,

which required special floor preparation. Sterling installed a computer system in the

office, integrated with his network for the company, and an IP phone system with a

company phone line. The system was tied to security cameras on the property (4 RR

100-103). Photographs depict the work performed to prepare the facility for the

production equipment (PX-3 to PX-22; 4 RR 101-103). Sterling worked constantly

to make the facility ready for FillPro to deliver the equipment at the end of October

2012 (4 RR 103). A federal ATF agent inspected the facility and approved Aspect's

application for the license that authorized Aspect to manufacture and sell ammunition

there (4 RR 67).

10 6. In July 2012, James Sterling expressed his frustration that David Tubb had not finalized the written contract.

Sterling had asked Tubb on “numerous occasions” for them to sign a written

contract confirming the Agreement, without success (4 RR 120). Sterling sent a draft

of a written contract to Tubb. On July 13 – eight months after Sterling entered into

and began performing under the oral Agreement with Tubb – Tubb’s lawyer proposed

fundamental changes to the oral Agreement. Tubb’s lawyer suggested that “Superior

simply lease the equipment and sell the supplies to Aspect,” and for Aspect to then

load the ammunition and sell it back to Superior (PX-82; 4 RR 57). Tubb sent his

lawyer’s proposed changes to Sterling (PX-82; 4 RR 57). In response, Sterling

expressed his frustration that “we’re approaching legal agreements very late in the

game,” asked to “keep good lines of communication open,” and expressed his attitude

of cooperation, despite Tubb’s attempt to change the Agreement under which

Sterling had been performing for the prior eight months (PX-82; 4 RR 57).

7. In September 2012, James Sterling again attempted to get David Tubb to set up a corporation or limited liability company to carry out the terms of the Agreement.

On September 14, Sterling emailed a revised draft of his proposed written

contract to Tubb (DX-2; 4 RR 57). In the blank for the name of the company, Sterling

inserted the words “CORP OR LLC TO BE DETERMINED,” thereby indicating the

11 entity would not be a partnership (PX-1 at pg. 1; 4 RR 57, 120-121). Sterling

testified: “From the beginning, we talked about this being an LLC or a C corp,” and

“that this was going to be held in some kind of corporate structure” (4 RR 117; PX-

88; 4 RR 57).

8. In October 2012, FillPro delivered the equipment to Aspect’s facility in Tyler, which was fully functional and ready to produce ammunition.

FillPro delivered the production equipment to Aspect’s facility in Tyler in late

October of 2012. Rue Marshall from FillPro came to Aspect’s facility to install and

certify the equipment (4 RR 144). Marshall stayed in Tyler for several days to train

Sterling and to work out any bugs (4 RR 116). Marshall noted that Aspect's facility

“was incredibly stable,” as required to operate the equipment (4 RR 114). A

photograph depicts the unpacking of the two large crates containing the equipment

(PX-25; 4 RR 111). Photographs also show the assembling of the equipment and the

completion of the installation, when the equipment was ready to go (PX-26, 27, 47;

4 RR 112, 145). The equipment included a control unit for the computer, a touch

screen monitor, a keypad, pressure regulators, pressure gauges, an emergency stop

button, two Dillon model 1050s (loading machines), and scales. The industry standard

for scales for ammo loading is plus or minus half a gram, and this equipment could

measure powder down to 1/100th of a gram (4 RR 113-114).

12 The equipment was distinctive because of its abilities to easily change calibers

very quickly, to simultaneously load one caliber on one side and a different caliber

on the other side with different specifications, and to sort ammunition through

pressure sensors. Sterling was not aware of any other ammunition loading equipment

of this nature (4 RR 115-116). Rue Marshall testified the equipment was distinctive:

it was only “the second configuration manufactured in the weigh dump with the

Dillon interface,” and was a “[u]nique configuration” involving “a very complex

process” (4 RR 148-149, 166-167).

A video shows the equipment operating (PX-54; 4 RR 123). Sterling tested the

equipment, which produced 1,200 rounds per hour. The equipment was designed to

run 24 hours per day. During the prior year, the major companies – such as Black

Hills, Federal, and Winchester – had been running their production facilities 24/7 and

were not able to keep up with the skyrocketing demand for ammunition. Sterling

calculated the revenue that the equipment could generate based upon the following

factors: (1) the cost of the component materials in a round of ammunition; (2) the

number of rounds the machine could make based upon testing; and (3) running the

machine 260 days a year instead of the industry standard of 365 days a year (or 8

hours a day instead of the industry standard 24 hours per day). At 1,200 rounds an

hour on an 8 hour day production, with a gross profit of $1.67 per round, the machine

13 would produce $4.1 million in gross revenue (4 RR 127-129). Marshall agreed that

the tested production rates in this calculation were “well within the capabilities of the

equipment” (4 RR 155-156; Finding #38, 4 CR 460). In fact, David Tubb himself

gave a YouTube interview and said the equipment could make a million rounds

annually (6 RR 222).

In training Sterling on the equipment, Marshall found him “to be as bright as,

certainly, anyone that I've ever trained,” and “over the course of the months following

installation, he definitely became an expert in this particular powder filling system

configuration” (4 RR 151). When Rue Marshall left Aspect’s facility, the equipment

was installed, functional, and ready to load ammunition (4 RR 117; 8 RR 99; Finding

#27, 4 CR 457). Marshall testified that when he left Tyler, the equipment was

“absolutely production ready” (4 RR 162-163). Sterling testified that at that point,

Aspect and Superior had still not entered into a written contract, “[b]ut not for [his]

lack of trying” (4 RR 117).

9. James Sterling also performed substantial work to market the ammunition.

Sterling did a great deal of work and research on packaging, which resulted in

designs for packaging that was ready for selling ammunition (4 RR 104-105). Sterling

also talked to Tubb's distributors about using bar codes. The distributors were having

difficulty dealing with companies the size of Superior because they did not use bar

14 codes. Up until then, Tubb’s company “was taking what little ammunition he was

making and putting it in a generic 50-round box and putting a sticker on top of it and

selling it from his website. And you can't be competitive, nationally, unless you have

something that looks like everybody else's grade of products” (4 RR 106).

Sterling designed two boxes: one for regular supersonic ammunition and the

other for subsonic ammunition for government contracts, since state governments

were buying millions and millions of rounds of subsonic ammunition (4 RR 106-107).

Texas passed a law making it legal to hunt feral hogs with suppressors or silencers,

which increased the demand for subsonic ammunition (4 RR 107). Sterling's wife

came up with the idea for the trademark “Absolute” and Tubb's attorney secured the

trademark for the brand “Absolute” for Tubb (4 RR 107-108).

Sterling followed the prices for the cost of goods to make sure the prices for

their ammunition would be competitive. With the FillPro equipment, Aspect would

be able to produce a higher quality product at competitive prices (4 RR 109). Sterling

determined that it would only cost $0.46 to $0.47 to manufacture a .308 cartridge,

which they could sell for $2.00 a round (4 RR 110). The design of the FillPro

equipment made it easy to change calibers so there was “really no reason for that

machine to ever stop running. We can always be producing something” (4 RR 107).

15 Between early 2012, when the agreement was made with FillPro, to October

2012, when FillPro delivered the equipment, Sterling worked 10 hours a day, 7 days

a week. “[Y]ou're thinking about your business from the time your feet hit the floor

in the morning until you close your eyes at night. And then sometimes you get up at

3 in the morning with some more ideas and work a little bit more” (4 RR 110).

10. In November 2012, David Tubb started down a destructive path that ended in his repudiation of the Agreement.

Tubb and his wife planned to visit Sterling and his wife at their home in Tyler

for the first time to see the operation of the equipment. Before their visit, Tubb left

Sterling a telephone message saying he wanted to talk about the amount of money he

had invested (4 RR 188-189). This gave Sterling “a little bit of trepidation” that

“something might be wrong,” so he sent Tubb an email saying “if you're thinking of

dropping a bombshell surprise on me by attempting to change our agreement at the

last minute, you've mistaken me for someone else. Surely that is not the case” (PX-

120; 4 RR 57, 187). Within 15 minutes, Tubb called him “laughing” and said “Oh,

no. We're not changing the deal. You're doing all the work” (4 RR 189). The Tubbs

arrived in the evening, and Sterling and Tubb spent the next day working in the lab

with the equipment (4 RR 190).

16 Sue Tubb – the wife of David Tubb – testified that the Sterlings welcomed

them into their home, where they stayed for two or three nights (8 RR 25-26). Sue

Tubb also testified she was “at odds” with her husband over his Agreement with

Sterling (8 RR 21). She testified: “I'm married 32 years to David ... and when you're

arguing and arguing ... I was absolutely galled [David Tubb] did not listen to me,

multiple times. I was furious .... It got to the point where I thought James was David's

mistress” (8 RR 43).

While staying with the Sterlings, Sue Tubb exchanged emails with her friend

Marilyn Ault, who was Tubb’s bookkeeper at the time. These emails made unfounded

personal attacks against James Sterling and undermined the Agreement. In an email

to Sue Tubb, Marilyn Ault raised concerns about the terms of the Agreement that

Tubb had made with Sterling more than a year before and wrongfully attacked

Sterling’s integrity. Ault wrote Sue Tubb:

This is such a big deal that I feel like I need to write almost a book... Perhaps the best thing we can do [is] for you and David to learn as much as you can while you're there, particularly addressing the most critical issues, and then maybe we can meet and discuss it ....

I'm concerned most of all about the part of the agreement that says that Superior's duty is to provide capitalization for the venture as needed while Aspect will own 50% of the venture....

17 I'm also particularly concerned about that Aspect International website ... It looks like it's setting David up for what I think you have rightly identified as a repeat of the Brandon Cole situation [the pending lawsuit discussed above].... And that smells of trying to wrest the entire project away from Tubb / Superior as soon as possible....

I'm also concerned that Sterling has a homestead outside of Tyler ... with all of that equipment you've paid for and shipped down there ... That would certainly complicate repossession if it comes to that....

Sterling seemed to be very determined to push you in the direction of [other accountants who used the QuickBooks accounting software] and one of the reasons could be that he's wanting you to buy into some of other services that this conglomerate has to offer, collecting unknown rewards for your doing so .... With your income tax return in hand, and a joint venture agreement as well, Sterling would be in a position to finance ... the "facilities" that he's going to put up based on your credit....

(PX-104; 4 RR 57). Why would Ault make such defamatory statements about

Sterling? The trial court could have reasonably inferred that Ault had an ax to grind

because James Sterling had suggested using another bookkeeper who knew how to

use the QuickBooks software that Sterling recommended, whereas Ault did not know

how to use QuickBooks (4 RR 119). Sue Tubb testified that Sterling wanted her

husband to use a different bookkeeper than Ault, and ultimately David Tubb did so

(8 RR 25).

18 The next morning, Sue Tubb forwarded Ault’s defamatory email to David

Tubb’s out-of-state patent attorney (8 RR 31). She told her husband’s attorney:

Our accountant Marilyn Ault (20 years) sent this email to me. David has read it. My protective fear is my loving passionate husband may again have someone “taking advantage of him.”

(PX-110, 121; 4 RR 57). While in Tyler, David Tubb showed James Sterling this

email on his wife's laptop (6 RR 219). Sterling “got a brief look at some of the parts

of it. And it confused me and further upset me” (4 RR 195). There was no basis for

her to say he would take advantage of Tubb (4 RR 195). Sterling knew that Tubb was

in litigation with Brand Cole and asked Tubb, “Did Mr. Cole ever get any profits

from the ammunition?” Tubb “just kind of smiled” and said “There never was any

profit to share” (4 RR 197).

Unbeknownst to Sterling, in response to Sue Tubb’s email, on November 15,

Tubb’s patent attorney recommended that David Tubb repudiate the oral Agreement

under which Sterling had already been performing for over a year. The attorney told

David Tubb that he shared Ault’s “concerns,” that any written contract should change

the “existing handshake agreement,” and that Tubb should “keep ownership of all

[intellectual property rights], and license the Joint Venture” with Sterling so that

Tubb could later terminate the license and keep the rights to produce the ammunition

19 for himself (PX 110; 4 RR 57). Of course, that is exactly how Tubb got the best end

of his business deal with Brand Cole (6 RR 161).

That evening, the Sterlings had a dinner in their home for the Tubbs and invited

some friends, two of whom were law enforcement officers (4 RR 190-191). At one

point, David Tubb “leaned back in his chair with his arms crossed” and said “[m]y

felon son should be the one running this operation” (4 RR 191; 8 RR 61; 8 RR 105-

108). David Tubb admitted at trial that he did this (6 RR 189; 7 RR 31). One of the

police officers who was at the dinner testified he “was a little taken aback” and “a lot

of eyes got wider ...” (8 RR 107). James Sterling testified he “was embarrassed. And

then I started to feel really insulted because I'd spent over a year of my life working

on this thing. And I couldn't understand where this was coming from. It was just a

complete shock” (4 RR 191). “It was an extremely awkward moment” (4 RR 192).

The next morning, Sterling was the first one in the lab. Tubb walked in and

said “[y]ou know, we're going to move this to Canadian [where Superior is located].

We'll move all this to Canadian” (4 RR 192; 6 RR 193). Tubb also said "You're a

smoker, and you're going to be dead in two years. Number two, everything's going to

break on the machine and you don't have any way to fix it" (4 RR 194; 8 RR 63).

Sterling was “shocked and angry” and told him “[i]f you're going to do that, then

you're going to need to at least pay me for my time that I've put in this thing” (4 RR

20 192-193). Sterling walked out to get some air, but later went back and worked on the

equipment with Tubb. It “was pretty quiet and awkward” (4 RR 193).

Before Tubb left, they had a final conversation in which Tubb said “All this can

stay here for now, but I want everybody to understand that everything in that garage

belongs to me” (4 RR 201). In a follow up conversation, however, Tubb said the

equipment must go to Canadian (4 RR 201; 6 RR 18). After the visit, Sterling “was

in a state of trying to get my bearings ... and the realization that he wasn't going to do

this deal, after all my work – and I wanted to try to salvage the deal” (4 RR 200-201).

At that point, they were attacking Sterling's character and talking about taking

possession of the equipment. “And they had already made up their mind, from what

I saw” (4 RR 202). This made it even more important to Sterling to get Tubb to sign

a written contract (4 RR 202-203).

11. In December 2012, David Tubb continued down his destructive path by refusing to sign a written contract.

On December 24, David Tubb emailed his Texas attorney and asked for his

help with a written contract. Tubb finally forwarded his attorney in Texas an email

– now a month old – from his out-of-state patent attorney, who had indicated Tubb

needed to have an attorney in Texas prepare either a partnership agreement, a

corporate operating agreement, or a limited liability company agreement to carry out

21 the terms of his oral Agreement with Sterling (PX-108; 4 RR 57). Later that day,

James Sterling emailed David Tubb, expressing concerns about Tubb’s “outbursts,”

personal and professional “insults,” and “disparaging remarks:”

Since you commented recently that “communication” was key in avoid conflict, I want to take the opportunity to contribute. I don't know where these outbursts from your end are originating, but it happened on 12/19/12 and on your visit to Tyler on 11/14/12.

You've been insulting me personally and professionally even while staying as a guest in my own home. On 11/14/12, you stated your intention to break your agreement. Within 24 hours you reversed your decision. Since then there have been numerous outbursts. This is very destructive to our friendship and professional relationship. Please, it must stop. I have done so much for you over the years and for whatever reason that I cannot fathom, you won't acknowledge or appreciate it. And somehow, starting in November, you've made it very clear that I'm suddenly someone who cannot be trusted. I don't know where this came from.... You showed me an email from your accountant to you, whereby you obviously asked her to investigate my company. I was stunned.... Every decision you've made since has delayed production....

Since 11/14/12, I also hear disparaging remarks you repeat, made by others that do not know me or my history with you.... I don't understand this and it really disappoints me.... From this side it appears that you may deem it necessary to portray me as a bad guy in order to justify any actions you may take....

(PX-99, 4 RR 57).

22 Sterling then indicated he intended for Aspect to abide by the Agreement and

he expected Tubb and Superior to do the same:

Let me be clear about this. Absolutely nothing has changed on my end or my intentions. I abide by our agreement and I expect you to do the same. Anything else could cause both of us to lose our investments and future profits. I want this venture to be successful and profitable.

Finally, Sterling confirmed that despite the delays caused by Tubb, Aspect was

ready to produce ammunition if Superior would supply the materials as Tubb had

promised to do under their Agreement:

We are almost at a point whereby we can at long last get a product to market and you can recoup much of your expense.... I brought this idea to you over a year ago and have been working on it full time since. Rather than trying to collect unpaid consulting fees I told you that I would set those aside as equity in the joint venture. ...

It has been difficult to wait through delays that may have been avoided. Any materials you can send me I will load and ship out for sale. We will divide the profits. Right now there is a tremendous demand and I've pointed out that even remanufactured ammunition in 223 of “any” kind could be profitable.

23 Two days later, on December 26, Tubb emailed his lawyer’s comments about

the written contract to Sterling. The lawyer’s comments clearly revealed three things

to Sterling:

• Tubb had failed to make any effort to finalize a written contract during the prior six months.

• It was possible to carry out the terms of the Agreement through the creation of a limited liability company, just as Sterling had originally suggested to Tubb, which Tubb had previously denied, claiming his attorney had told him a “joint venture is illegal in the State of Texas” (4 RR 120-121, 217).

• Tubb had actually known this for the last ten months – since his lawyer had sent him a limited liability company agreement in February 2012 – but Tubb had never disclosed this fact to Sterling (4 RR 217).

The email from Tubb’s attorney to Tubb stated:

When we last communicated on this (July) the plan was for a leasing arrangement so as to minimize the risk to each party and maintain the separate nature....

What I see now appears to be a completely different transaction.... This bring us back to what we discussed initially in February of 2012, a limited liability company (LLC). An LLC can accomplish what you are wanting to do with the proposal Joint Venture, but from the safety of the joint transaction being conducted as a separate business entity with limited liability (at least to the extent that the law permits) for both your company and Mr. Sterling's....

To give you a better idea of what we are looking at, I am attaching the draft Company Agreement that we prepared back in February....

24 (PX-100; 4 RR 57).

Three days later, on the morning of December 29, James Sterling sent an email

to his own attorney, David Griffith. Sterling intended for the email to be a privileged

communication with his attorney, but inadvertently sent a copy of the email to David

Tubb. Despite the fact that the email was obviously not intended for him, Tubb did

not inform Sterling of this mistake (6 RR 22, 125-126). Sterling’s email, however,

provides evidence of Tubb’s continuing game of stringing along Sterling by refusing

to sign a written contract. Sterling wrote his attorney:

My first thoughts after our meeting are that I wish the conflict had never happened and we had gone ahead to a profitable enterprise as agreed. I think that his email today indicates that he wants to continue but now there are too many unresolved issues and I've been strung along like this from the beginning. If I want out of it, my option is simply to send him a bill and then pursue it. I don't know what will happen with the machine and materials on hand, unless I could attach it. ...

(DX-11; 4 RR 57).

Later that day, on December 29, Sterling asked Tubb to meet and try to salvage

the Agreement by entering into a written contract. In his email, copied to his own

attorney, Sterling wrote:

I've been candid in what the options may be on both your side and mine. I think what we are arguing about is senseless as we both risk losing our investments and the

25 profits we are about to realize. I think you would like to continue to do business and I would like to do whatever I can to save this deal. My attorney thinks we should meet face to face at a neutral location to construct a proper contract. I'll wait for your reply.

(PX-109; 4 RR 57).

Two days later, on December 31, James Sterling had a telephone conversation

with David Tubb, which he recorded. A transcript of the call was admitted into

evidence (PX-55; 12/31/12; 4 RR 57). The conversation reflects Tubb’s continual

delay and refusal to sign a written contract:

Tubb: As far a meeting face-to-face, I think that's a great plan ... I"m planning to go to [a gun] show for a day or two ... in Dallas (PX-55; 12/31/12 at pg. 2).

Sterling: [I’ll] get my attorney over there and try to hammer something out and, you know, move on with this deal (PX-55; 12/31/12 at pg. 3).

Tubb: ... I sent you an agreement .... (PX-55; 12/31/12 at pg. 7).

[I]f you are bringing your attorney ... I don't know if that's good or bad.

Sterling: ... I think that probably you should have your attorney there too ....

Tubb: I know that won't work ... (PX-55; 12/31/12 at pg. 8).

Sterling: .... my attorney here is the same attorney that I tried to have you meet with at the shot show last year. ... That's how long this has been going on .... (PX-55; 12/31/12 at pg. 9).

Tubb: ... we need to get an agreement if we're going to move forward on this .... (PX-55; 12/31/12 at pg. 10).

26 12. In January 2013, David Tubb repudiated the Agreement by refusing to sign a written contract and by refusing to deliver the materials that Sterling needed to produce the ammunition.

James Sterling had another telephone conversation with David Tubb on

January 4, which he again recorded (PX-55; 01/04/13; 4 RR 57). The conversation

indicates that if Tubb continued to refuse to sign a written contract, Sterling would

treat his refusal as a repudiation of the Agreement:

Tubb: ... I'm down here for the [gun] show....

Sterling: ... the purpose of me trying to get together with you face-to-face is try to ... get my attorney over there and maybe draw up some kind of agreement. But if we can't do that, then there's no sense in me coming over (PX-55; 01/04/13 at pg. 2).

Sterling: ... I think that something has happened somewhere along the way and ... I don't think you're really happy and I don't want you to be unhappy...

Tubb: Sure, yeah.

Sterling: So whatever we got to do here, we got to do (PX-55; 01/04/13 at pg. 3).

Three days later, on January 7, James Sterling had another telephone

conversation with David Tubb, which he again recorded (PX-55; 01/07/13; 4 RR 57).

The conversation reflects that Tubb repudiated the Agreement by refusing to enter

into a written contract. It also reflects Tubb’s acknowledgment that Sterling’s time

on the project had value:

Tubb: ... [A]re you recording this?

27 Sterling: Yes, I am.

Tubb: ... I thought we ought to visit ... you've invested a lot of time in this ...

Sterling: I sure have (PX-55; 01/07/13 at pg. 2).

Sterling: My agreement was that I deferred all my time and expense as equity in the joint venture and so I was expecting to manufacture the ammunition per agreed for 50 percent of the net profit.

Tubb: Absolutely ... (PX-55; 01/07/13 at pg. 3).

Sterling: ... And if there is no joint venture then that doesn't apply...(PX-55; 01/07/13 at pg. 4).

Tubb: So what is your time at this point? What's the value of your time at this point in time?

Sterling: ... I would have to total all of the time that I've invested in this, this year, but it's a high number.

Tubb: What's your hourly – what's your hourly rate, James?

Sterling: It's $140 an hour ... (PX-55; 01/07/3 at pg. 5).

Sterling: I guess you need to decide what you want to do.... I'm the manufacturer. So if the machine goes to Canadian, then I'm no longer the manufacturer ... (PX-55; 01/07/13 at pg. 11)

Tubb: Understood. I don't know, James, about that.... (PX-55; 01/07/13 at pg. 11).

Sterling: ... [W]hat I wanted to hear is, James, how can I help you and what can I do to get us to get this product out the door and I haven't heard any of that. And it seems to be more of a conflict about where the machine is than anything else (PX-55; 01/07/13 at pgs. 11-12).

28 Tubb: I just don't know if I can afford you, James (PX-55; 01/07/13 at pg. 13).

Sterling: So there's a lot of ... money that could be made right now if we had the materials .... There's a lot of different things we could be doing because the machine should not be sitting idle in any way, shape, or form (PX-55; 01/07/13 at pg. 14).

Tubb: I understand that. ... Never been an argument on my side at all. ... Well, let me give it some thought, James....(PX-55; 01/07/13 at pg. 15).

Sterling: And I've been trying over and over again to get some agreement in writing so that we don't ... have these conflicts.... you can't have it both ways. Either we have ... an agreement or I'm just an hourly paid employee ... You can't have it anywhere in between because I don't work for free... (PX-55; 01/07/13 at pg. 16).

Tubb: Well, I'll give it some thought ... (PX-55; 01/07/13 at pg. 17).

Later that day, on January 7, Sterling sent an email to Tubb, with copies to his

own attorney and Tubb’s attorney. The email reflects Tubb’s destructive actions to

repudiate the Agreement. First, Sterling emphasized the urgency of Tubb signing a

written contract – and if he refused to do so – that Sterling expected Tubb to pay him

his prior invoice in the amount of $35,019, for Sterling’s earlier work on Tubb’s San

Diego Media project (PX-106, 4 RR 57).

Second, Sterling made it clear that if Tubb continued to refuse to sign a written

contract confirming the Agreement, Sterling would treat it as a repudiation:

Without a contract, I will not spend any further time on this matter other than the time required to accept delivery of the

29 packaging already in process. The only way forward at this point is to formalize our agreement in a signed contract. I've emphasized the important of this as a good business practice for over a year now.

(PX-106, 4 RR 57).

The next day, on January 8, Sterling had another telephone conversation with

Tubb (PX-55; 01/08/13; 4 RR 57). In the conversation, Tubb agreed he had an

obligation to pay Sterling for the time he spent on the project if Tubb did not enter

into a written contract.

Sterling: ... [M]y time has been applied to this joint venture as equity. You agreed to that. If we're going to have a falling out, then it's going to get addressed because I work for a living. And I can't just set up an entire operation for you and then say ... you don't owe me anything....

Tubb: I understand that. I agree, James.

Sterling: ... [T]he only way we can move forward and you not pay me for my time this year is with a signed contract.... If that doesn't happen, then we're going to have a parting of the ways... (PX-55; 01/08/13 at pg. 7).

Tubb: ... [Y]ou're worth 140 bucks an hour, 120 bucks an hour working on these QuickBooks and working on San Diego Media and all that stuff ....

Sterling: I have literally thousands of hours of my time into this project. ... [I]f you want to have a parting of the ways, then you can get your equipment out of here and ... we can move on. ...

Tubb: What would you prefer? (PX-55; 01/08/13 at pg. 8).

30 Sterling: I keep my word, David. ... Even if ... we've had some real problems ... I'm willing to move forward but I’m not going to do it without some kind of written contract with you and we should have done that from the beginning (PX-55; 01/08/13 at pgs. 8-9).

Tubb: Yeah, we really should have.

Sterling: I've said that over and over and over again ... (PX-55; 01/08/13 at pg. 9).

Tubb: ... [D]id you read that LLC, the one I sent you that came from Ruben?

Sterling: Yeah, it was blank so none of your agreement was in there. So, yeah, an LLC would be fine but our agreement as we have documented it over the period of this last year would have to be put in there and agreed to by both sides.

Tubb: That's right. And that may be very hard for us to do. I don't know. (PX-55; 01/08/13 at pg. 10).

Sterling: ... Obviously my time is worth something. All right?

Tubb: I agree. There's no doubt about that, James, I agree (PX-55; 01/08/13 at pg. 11).

Sterling: ... I'm not going to put myself in a position to where you hold all the assets and then I end up being some kind of employee even though I'm not. ... Because ... my time ... does have value.

Tubb: It does (PX-55; 01/08/13 at pg. 12).

Sterling: ... I've always recommended C corp or an LLC and when you were here in Tyler, I told you that there's a reason you have a separate legal entity that holds the assets of the agreement....

Tubb: ... [N]ext week I'm going to visit with several people. ... we can't make any money if we don't have product so ...

31 Sterling: ... it's pretty much a golden opportunity if you can get the materials. ... whatever your time is worth, my time is worth, or your investment ... that's really pretty small change in the money that can be made here.

Tubb: I would agree ... (PX-55; 01/08/13 at pg. 13).

Sterling: ... I don't want to fight with you, David. ... it upsets me ....

Tubb: Okay. Well, I'll ring you tomorrow. Okay? (PX-55; 01/08/13 at pg. 14).

Sterling testified that Tubb resisted signing a written agreement and “knew what he

was doing.” “It was real obvious that they had made up their mind that they were

going to end it” (4 RR 122).

Two weeks later, on January 24, Sterling had another telephone conversation

with Tubb, which he recorded (PX-55; 01/08/13; 4 RR 57). In the conversation,

Sterling caught Tubb in his lie about his purported efforts to get a supplier to ship

materials to Sterling (PX-55; 01/24/13 at pgs. 4-6). Tubb had assured Sterling

repeatedly, “Don't you worry about materials. I have no problem getting materials,”

but Tubb never delivered the materials to make the cartridges (4 RR 205; 6 RR 12;

8 RR 74-75, 99). Tubb later said some brass showed up at the Superior facility in

Canadian to make .223 caliber cartridges, but Tubb did not send it to Sterling. He

refused to let Sterling be involved in product procurement and purposely shipped

material to his Canadian address where he planned to move the equipment, while at

the same time purposely frustrating Sterling (4 RR 210-211).

32 Sterling had managed to have a small quantity of bullets shipped to Aspect’s

facility in Tyler to use in making cartridges to sell. When he found out, Tubb used the

ruse of wanting to modify those .308 bullets for subsonic use and had someone pick

them up at Aspect and take them to Superior. Instead of returning the modified bullets

to Aspect so it could manufacture cartridges, Tubb used the bullets to load cartridges

himself on manual machines, packaged them in boxes, and sent them to his friend in

Amarillo, Texas, who had a website called “Silenced America,” so Tubb could sell

them through his own company. Photos depict Tubb’s sale of this product on the

Silenced America website (PX-30, 31, 32; 4 RR 57, 208-214). This was a clear

repudiation of the Agreement with Sterling.

Tubb admitted at trial that he did not deliver the materials for the bullets and

packaging to Sterling until after the lawsuit was filed (7 RR 34, 55-58). Tubb and

Superior judicially admit in their brief that “Superior failed to have all the raw

materials to Tyler when Aspect finally was in position to go forward with commercial

production” (Appellants’ Brief at pg. 3). In addition, Tubb agreed to provide a bullet

feeder for the equipment, then told Sterling one was not available from the supplier.

Sterling himself ordered the bullet feeder from the supplier and had it delivered in

two days (4 RR 204-205).

33 Tubb never signed a written contract, as Sterling had requested many times

during the prior year. On January 29, Sterling sent an email to Superior’s new IT

consultant – with a copy to Tubb – confirming that Tubb had terminated Sterling’s

involvement in “all existing projects” (PX-102; 4 RR 57). Tubb’s termination of

Sterling’s access to Superior's computer system told Sterling “I don't trust you

anymore. You're out” (4 RR 203).

Later that day, James Sterling exchanged emails with Rue Marshall at FillPro,

with whom he had worked diligently for the last year on the equipment. The day

before, Marshall had emailed Sterling, indicating he assumed Aspect had already

started producing ammunition (PX-113; 4 RR 57). Responding to the email, Sterling

expressed his disappointment and indicated David Tubb had repudiated the

Agreement by failing to supply materials (PX 113; 4 RR 57). Having worked closely

with James Sterling on the project for more than a year, Rue Marshall knew first-hand

the quality of Sterling’s character and the tremendous effort he had put into the

project. Marshall wrote back:

In the short time I have known you there is no question that you are a man of honor. I too can be counted on when needed. It is unfortunate that you have not been able to make the progress you so deserve given the effort expended.

34 (PX 113; 4 RR 57). Marshall testified he understood that “things had gotten to the

point where it didn't look like they were going to be able to work it out" (4 RR 177).

13. In February 2013, Sterling’s attorney sent a letter to Tubb acknowledging that Tubb had repudiated the Agreement.

On February 5, the attorney for Sterling and Aspect wrote a demand letter to

Tubb and Superior. At trial, Tubb and Superior themselves asked for the admission

of the letter into evidence without any limitation on its probative use (DX-24; 4 RR

57). The letter states in relevant part:

[Aspect] has at all times fully performed its obligations and agreements with respect to the joint venture. On the other hand, [Superior] has engaged in actions, or failed to act in such a way as to breach its obligations and agreements to [Aspect]. Your actions, or failure to act, and those of [Superior] amount to a repudiation of the venture and make it clear that you have no intention of abiding by the original agreement....

In reliance upon the original promises and representations made by you and [Superior], Mr. Sterling and [Aspect] have expended an extraordinary amount of time and labor in this venture, working often from eight to twelve hours a day over more than a year. As a result of [Superior’s] breach and repudiation of the agreements, [Aspect] has suffered damages in the amount of at least $315,984.20 in reasonable reliance on the subject representations and promises. Those damages comprise the amount of time expended, taking into account a reasonable and customary charge for the professional services furnished.

(DX-24; 4 RR 57).

35 SUMMARY OF THE ARGUMENT

Two procedural problems doom Tubb and Superior’s appeal. First, they rely

on a reporter’s record that omits testimony presented at trial by video deposition.

Because of the incomplete record, the Court must overrule their complaints regarding

the sufficiency of the evidence. Second, Tubb and Superior elected not to challenge

a number of the trial court’s findings of fact in their brief. Those unchallenged

findings are now binding and support the final judgment.

Even if Tubb and Superior could overcome these procedural obstacles, they

cannot prevail in their appeal. They must prove there is no evidence that (1) they

repudiated the Agreement with Aspect and (2) Sterling provided valuable services in

working in the business full-time for more than a year. They must also prove there no

evidence (1) contrary to their claim that a partnership existed between Aspect and

Superior and (2) contrary to their claim for attorney’s fees. As explained below, the

record contains substantial evidence that defeats their no evidence contentions, most

of which they ignored in their brief. Considering only the evidence and inferences

that support the trial court's findings, and disregarding all other evidence and

inferences, the Court should affirm the trial court’s judgment.

36 ARGUMENT

I. Tubb and Superior failed to present a complete reporter’s record; therefore, the Court must overrule their insufficiency of the evidence complaints.

Eighteen times during the trial, counsel for Tubb and Superior played portions

of a video deposition in open court, and in each instance, failed to have the court

reporter record the testimony. Each time the court reporter wrote only the following

in the record: “(Video deposition played.)” (5 RR 7, 8, 10, 37, 38, 46, 49-50, 58, 61;

6 RR 12, 20, 41, 42, 81). In Englander Co. v. Kennedy, 428 S.W.2d 806 (1968), after

a nonjury trial, the trial court made findings of fact and conclusions of law in support

of its judgment. The appellants appealed, but filed a partial reporter’s record. In their

brief, the appellants challenged the sufficiency of the evidence to support the trial

court’s findings. The Supreme Court held:

The burden is upon a party appealing from a trial court judgment to show that the judgment is erroneous in order to obtain a reversal. When the complaint is that the evidence is factually or legally insufficient to support vital findings of fact, or that the evidence conclusively refutes vital findings, this burden cannot be discharged in the absence of a complete or an agreed statement of facts.

Id. at 806. This Court applies this rule. Patton v. Loancare, LLC, 2015 WL 5158396

(Tex. App. – Tyler 2015, ___); Wheeler v. Greene, 194 S.W.3d 1 (Tex. App. – Tyler

2006, no pet.).

37 The same defect of missing video deposition testimony also occurred in three

other cases. In each case, the Court of Appeals held:

• The appellant has a duty to object at trial if the court reporter is not transcribing the testimony presented by video deposition.

• The appellant’s failure to object at trial waives any complaint about the court reporter’s not transcribing the testimony.

• As a result of the missing testimony, under Englander Co. v. Kennedy, the Court must overrule the appellant’s legal and factual insufficiency complaints.

In re Estate of Arrendell, 213 S.W.3d 496 (Tex. App. – Texarkana 2006, no pet.);

Taveau v. Brenden, 174 S.W.3d 873 (Tex. App. – Eastland 2005, pet. denied);

Wal-Mart Stores, Inc. v. McKenzie, 22 S.W.3d 566 (Tex. App. – Eastland 2000, pet.

denied).

Tubb and Superior did not offer the written transcript of the video deposition

into evidence. The trial court did not admit the written transcript into evidence.

Before trial, however, Sterling and Aspect attached part of the written transcript of

the deposition to their designation of experts filed in the clerk’s record (3 CR 51-91).

Do the rules allow Tubb and Superior to cure their failure to have the court reporter

transcribe the video deposition testimony at trial by (1) matching the page and line

references for the video deposition in the reporter’s record to (2) the page and line

references to the part of the written deposition transcript previously filed in the

38 clerk’s record but not offered into evidence? The answer is not clear. See In re Estate

of Arrendell, 213 S.W.3d 496 (Tex. App. – Texarkana 2006, no pet).

Even if the rules allowed it, however, Tubb and Superior cannot use this

method to cure their failure to have the court reporter transcribe the video deposition

testimony. Only five of the eighteen references to the video deposition in the

reporter’s record are contained in the part of the written transcript of the deposition

in the clerk’s record (5 RR 37, 38, 46, 49-50, and 58). There are thirteen instances

where video deposition testimony was played and the testimony does not otherwise

appear in the record (5 RR 7, 8, 10, 61; 6 RR 12, 20, 41, 42, 81). Thus, most of the

testimony they offered via video deposition is not found anywhere in the record.

In summary, Tubb and Superior did not object to the court reporter’s failure to

transcribe the testimony in the video deposition. They have failed to present a

complete reporter’s record. As a result, the Court must presume that the missing

testimony supports the trial court’s findings and overrule their sufficiency of the

evidence complaints. This issue is dispositive of the entire appeal, since Tubb and

Superior only present complaints regarding the sufficiency of the evidence.

Nonetheless, the following sections of this brief present Sterling and Aspect’s

responses to the points raised by Tubb and Superior.

39 II. Legally sufficient evidence supports the trial court’s finding that Tubb and Superior repudiated the Agreement.

A. Tubb and Superior exaggerate the standard for proving repudiation.

In their brief, Tubb and Superior argue that repudiation “requires exacting

circumstances” and presents “an especially difficult hurdle” (Appellants’ Brief at pgs.

11-12). Their strategy is to make the legal standard for repudiation so impossibly high

that no party could ever satisfy it. But the legal standard is not as high as they

imagine. “To give rise to an anticipatory breach, a repudiation must be clear and

unequivocal and must apply to the entire contract.” 49 DAVID R. DOW & CRAIG

SMYSER, TEXAS PRACTICE: CONTRACT LAW § 9.11 (2015). “No bright line test exists

for establishing when a party has repudiated a contract.” Id. Ordinarily, this is simply

a question for the trier of fact. Id. For example, in Murray v. Crest Const., Inc., 900

S.W.2d 342 (Tex. 1995), a contractor hired a subcontractor to work on three

construction projects. A dispute arose between them over payment on one project,

which they resolved by the contractor executing a promissory note to pay the

subcontractor on that project in exchange for the subcontractor’s lien release.

Thereafter, the contractor completed all three projects, but told the subcontractor it

would not pay the note on the first project when it became due because the

subcontractor had failed to perform on the other two projects.

40 The Supreme Court held that the contractor repudiated the agreement by

informing the subcontractor that “it would not perform on the promissory note when

its performance became due.” The Court stated: “We have long recognized the rule

of anticipatory breach: the repudiation of a contract before the time of performance

has arrived amounts to a tender of breach of the entire contract and allows the injured

party to immediately pursue an action for damages.” Id. at 344.

Similarly, in Mar-Len of Louisiana, Inc. v. Gorman-Rupp Co., 795 S.W.2d 880

(Tex. App.– Beaumont 1990, writ denied), a contractor agreed to build a facility for

a third party. The plans required the contractor to install certain equipment in the

facility. The contractor ordered the equipment from a supplier, who agreed to

manufacture the required equipment. Thereafter, a dispute arose, and the supplier

contended the contractor repudiated their contract. The Court first noted the

governing principles regarding repudiation:

When one party repudiates the agreement and refuses to be bound by material obligations, the other party may accept such repudiation as final and is not required to further regard the obligations imposed on him. Anticipatory repudiation of a contract may consist of either words or actions that indicate that a party is not going to perform the contract according to its terms in the future. Repudiation of a contract is a breach of contract.

Id. at 887.

41 At trial, the jury found the contractor breached the contract with the supplier.

The Court of Appeals held that the evidence was sufficient to support the finding of

repudiation. The contractor repudiated when it told the supplier that the contractor

had stopped work on the project because of its dispute with the project owner, and

that it expected the supplier to stop making the equipment it had ordered. When the

supplier heard that the contractor was about to resolve its dispute with the owner, the

supplier asked the contractor to confirm that it should continue making the equipment

for the project, but the contractor never provided confirmation. In addition, the

supplier sent a letter to the contractor stating that it considered the contractor to have

repudiated the contract. Id. at 887-888. The Court held this was “certainly sufficient

evidence upon which the jury could find that [the contractor] breached its contract

with [the supplier] by repudiating it.” Id. at 888.

In short, the legal standard for proving repudiation is not as high as imagined

by Tubb and Superior: it simply requires evidence of “words or actions that indicate

that a party is not going to perform the contract according to its terms in the future.”

Mar-Len of Louisiana, Inc. v. Gorman-Rupp Co., 795 S.W.2d at 887.

42 B. The evidence supports the trial court’s finding of repudiation.

1. The trial court made a broad finding of repudiation.

In finding #11, the Court stated: “There was a considerable amount of evidence

that [Aspect] substantially performed its obligations under the Agreement and would

have fully performed but for the breach and repudiation of the Agreement of Superior

...” (4 CR 455). In finding #30, the Court found: “Beginning shortly prior to the trip

to Tyler and continuing thereafter, a series of actions and events occurred, when

considered together, constitute a breach and repudiation of the agreement by

Superior” (4 CR 458). As explained below, the Court made specific findings

regarding those events, and the evidence supports the court’s findings.

2. Tubb’s destructive conduct in November 2012 evidenced Superior’s repudiation of the Agreement.

The trial court found –

• Just before the Tyler visit, Tubb complained about the amount of money he had spent on the equipment for the business.

• During the visit, Tubb said his son should run the manufacturing operation instead of Sterling, which “was contrary to a material term of the Agreement.”

• During the visit, Tubb said the equipment needed to be moved to Canadian, “a position in conflict with the parties’ Agreement ... as it would remove [Aspect] as manufacturer.”

43 • During the visit, Sue Tubb and Marilyn Ault questioned Sterling's integrity and the material terms of the Agreement, and Tubb communicated that information to Sterling.

(Findings #31-#34; 4 CR 458-459). The evidence supports these findings (see pages

16-21 above, which are incorporated herein by reference). Rue Marshall testified that

when he left Aspect’s facility in late October 2012, the equipment was “absolutely

production ready” (4 RR 117, 162-163; 8 RR 99). Tubb’s conduct two weeks later –

when the business was ready to start producing ammunition – was a clear indication

of his intent to repudiate the Agreement.

3. Superior’s refusal to supply the materials necessary to produce ammunition evidenced its repudiation of the Agreement.

The trial court also found that –

• Tubb and Superior refused to obtain and provide the materials necessary for Aspect to produce ammunition.

• Tubb claimed he could not get additional bullet feeders for the operation, but they were readily available from the supplier.

• Tubb told Sterling he would ask a supplier at the next trade show for additional materials, but then told the supplier that no materials were needed.

• Superior and Tubb “would not provide the bullets needed to bring the final product to market.”

• Superior removed 18,000 bullets at Aspect’s facility and moved them to Superior’s facility in Canadian. Tubb's other company, DTAC, later sold those bullets.

44 (Findings #35-#36; 4 CR 459). The evidence also supports these findings (see pages

32-33 above, which are incorporated herein by reference). Despite the fact that the

equipment was ready to produce ammunition in late October 2012, Superior refused

to deliver the materials required to produce ammunition until more than three months

later, after the lawsuit was filed (7 RR 34, 55-58). Superior’s refusal to supply the

materials to produce ammunition for more than three months – and its removal of

materials from Aspect so Tubb’s other company could use the materials to produce

and sell ammunition without Aspect – was a clear repudiation of the Agreement.

4. Superior’s refusal to enter into a written contract was a repudiation of the Agreement.

The trial court found that “Tubb’s resistance to memorialize the Agreement in

writing” constituted “a breach and confirmed Superior’s repudiation of the parties’

Agreement” (Finding #35, 4 CR 459). The evidence supports this finding (see pages

10-11 and 21-32 above, which are incorporated herein by reference). During their

telephone conversation on January 8, 2013, James Sterling said they should have had

a written contract “from the beginning.” David Tubb agreed: “Yeah, we really should

have” (PX-55; 01/08/13 at pgs. 8-9). Sterling repeatedly urged Tubb to sign a written

contract, from before July 2012 through January 2013. On July 13 – eight months

after Sterling entered into and began performing under the oral Agreement – Tubb

45 sent Sterling the email from Tubb’s lawyer, which proposed scrapping the Agreement

and replacing it with one in which Superior leased the equipment and sold supplies

to Aspect, and Aspect loaded the ammunition and re-sold it to Superior (PX-82; 4 RR

57). Proposing a new contract with different terms to replace the original contract is

a repudiation of the original contract. Cal-Tex Lumber Co. v. Owens Handle Co., 989

S.W.2d 802, 813-14 (Tex. App. – Tyler 1999, no writ). In their telephone call on

December 31, 2012, David Tubb himself said: “we need to get an agreement if we're

going to move forward on this ...” (PX-55; 12/31/12 at pg. 10). The undisputed fact

that Tubb then refused to enter into a contract establishes Superior’s repudiation of

the Agreement.

5. Sterling acknowledged Tubb’s repudiation of the Agreement.

Tubb and Superior argue in their brief that even if they repudiated the

Agreement, they are not liable for damages because Sterling and Aspect never

“accepted” their repudiation (Appellants’ Brief at pgs. 20-22). As shown above, on

December 31, 2012, David Tubb himself said “we need to get an agreement if we're

going to move forward on this” (PX-55; 12/31/12 at pg. 10). A week later, on January

7, Sterling sent an email to Tubb stating: “Without a contract, I will not spend any

further time on this matter .... The only way forward at this point is to formalize our

agreement in a signed contract” (PX-106, 4 RR 57).

46 Three weeks later – after Tubb refused to enter into a written contract – on

January 29, Sterling sent an email to Superior's new consultant, with a copy to Tubb,

confirming that Tubb had terminated Sterling's involvement in “all existing projects”

(PX-102; 4 RR 57). A week later, on February 5, the attorney for Sterling and Aspect

sent a letter to Tubb and Superior stating that their actions “amount to a repudiation

of the venture and make it clear that you have no intention of abiding by the original

agreement...,” and demanding damages as a result of such repudiation (DX-24; 4 RR

57). Superior’s argument that Aspect never “accepted” Superior’s repudiation is

without merit.

6. The Court should disregard the trial court’s mistaken finding that Aspect did not have a license to manufacture ammunition.

The trial court made a finding of fact that Sterling and Aspect “lacked the

necessary federal firearms license to manufacture ammunition” (Finding #56(e); 4 RR

465). The finding is not material in light of the court’s other findings regarding the

existence of the Agreement and its repudiation. Nonetheless, Sterling and Aspect

challenge this finding on the ground that the record proves conclusively that Aspect

was licensed to manufacture and sell ammunition (4 RR 66-67, 92; 6 RR 187). There

is no evidence to the contrary.

47 III. Legally sufficient evidence supports the trial court’s award of restitution to Aspect.

A. Well-settled legal principles support the trial court’s award of restitution to Aspect.

Damages for contractual injuries are designed to protect three interests: an

expectation interest, a reliance interest, and a restitution interest. Abraxas Pet. Corp.

v. Hornburg, 20 S.W.3d 741, 760 (Tex. App. - El Paso 2000, no pet.). Restitution is

available as a remedy for the breach of an express contract when the plaintiff has

partially performed the contract but the defendant prevented the plaintiff’s remaining

performance. Coon v. Schoeneman, 476 S.W.2d 439, 442 (Tex. App. – Dallas 1972,

writ ref'd n.r.e). In finding #37, the trial court found that Aspect fully or substantially

performed the Agreement, and to the extent Aspect was unable to produce and sell

ammunition, such inability was caused by Tubb and Superior (4 CR 460). This

binding, unchallenged finding establishes the basis for restitution.

B. The evidence supports the trial court’s award of restitution.

1. The evidence supports restitution based upon the value of the services provided to Superior.

Restitution is measured by the reasonable value of the services rendered. Coon,

476 S.W.2d at 442. To prove restitution damages, the plaintiff can offer his own

testimony about the reasonable value of the services rendered. Id. The trial court

48 found that Aspect “sustained restitution damages in the amount of $175,000.00"

based upon the reasonable value of the services that James Sterling provided through

Aspect (Finding #40; 4 CR 460-461). The evidence supports this award for four

reasons.

First, during their telephone conversations, David Tubb agreed that Sterling

had contributed a tremendous amount of time to the project; that Sterling’s time had

value; and that Sterling should be paid if Tubb ended their business:

Tubb: ... I thought we ought to visit ... you've invested a lot of time in this ...

Tubb: ... So what is your time at this point? What's the value of your time at this point in time?

Sterling: ... I would have to total all of the time that I've invested in this, this year, but it's a high number.

Tubb: What's your hourly – what's your hourly rate, James?

Sterling: It's $140 an hour ... (PX-55; 01/07/3 at pg. 5).

... [M]y time has been applied to this joint venture as equity. You agreed to that. If we're going to have a falling out, then it's going to get addressed because I work for a living. And I can't just set up an entire operation for you and then say ... you don't owe me anything....

49 Sterling: ... [T]he only way we can move forward and you not pay me for my time this year is with a signed contract.... If that doesn't happen, then we're going to have a parting of the ways... (PX-55; 01/08/13 at pg. 7).

Tubb: ... [Y]ou're worth 140 bucks an hour, 120 bucks an hour working on these QuickBooks and working on San Diego Media and all that stuff ....

Sterling: ... Obviously my time is worth something. All right?

Tubb: I agree. There's no doubt about that, James, I agree (PX-55; 01/08/13 at pg. 11).

Sterling: ... I'm not going to put myself in a position to where you hold all the assets and then I end up being some kind of employee even though I'm not. ... Because ... my time ... does have value. Tubb: It does (PX-55; 01/08/13 at pg. 12).

Second, there was substantial testimony and numerous exhibits regarding

Sterling’s work from November 2011 through September 2012 with FillPro to design,

assemble, and manufacture the equipment to produce ammunition; his work preparing

the facility in Tyler for Aspect to manufacture ammunition; and his work designing

the packaging to market the ammunition (see pages 8-16 above, which are

incorporated herein by reference). Tubb and Superior have not specifically challenged

the court’s multiple findings regarding the services performed (Findings #19-#25, 4

CR 456-457).

Third, the testimony of other witnesses proved his substantial efforts for the

business. Rue Marshall testified that the equipment in question was typically

50 purchased by a large company, which would have an entire committee of engineers,

technicians, and production employees perform the work that James Sterling

performed alone on this project (4 RR 150). Marshall testified that Sterling's

investment of time and effort in the project was substantial (4 RR 152-153). Elizabeth

Sterling testified that “James worked constantly;” “from the time he got up until the

time he went to bed;” sometimes “he'd get up in the middle of the night” and work on

the project; and he worked more than 40 hours a week on the business (8 RR 52-55).

Fourth, as a summary of his work, James Sterling prepared invoices for his

services from October 1, 2011, through January 19, 2013 (PX-57; 4 RR 57; 6 RR 40).

Tubb and Superior objected to the invoices on the grounds of lack of authentication,

hearsay, and relevancy, which the court overruled (2 CR 218, 270). The invoices were

summaries of Sterling’s business records, including his calendar, notes, emails, and

telephone records (6 RR 41). In fact, 58 pages of telephone bills reflecting calls

between Sterling and Tubb during the time period were also admitted into evidence

(PX-53; 4 RR 57). The paper copies of the emails generated for the project were 2 ½

to 3 feet high (4 RR 110-111). Thus, the invoices were admissible as summaries of

voluminous business records under TEX. R. EVID. 803(6) and 1006.

Any alleged error in admitting the invoices was harmless anyway because the

invoices were merely cumulative of the testimony admitted into evidence. Mancorp,

51 Inc. v. Culpepper, 802 S.W.2d 226, 230 (Tex. 1990). James Sterling testified, without

objection, that he worked at least 40 hours per week and the reasonable rate for his

services was $140 per hour, which totals $22,400 per month, or $326,974.20 for the

period in question. Superior had previously paid him $120 per hour on an earlier

project, and he knew of a comparable service provider who charged $140 per hour.

He testified that this rate was reasonable in the industry (4 RR 237-238). The

transcript of a telephone conversations shown above proved the same facts (PX-55;

01/07/3 at pgs. 2-5, 01/08/3 at pgs 7-12). Also, as to restitution, Sterling testified as

a service provider about the value of his own services, not as an expert witness about

lost profits. Thus, Tubb and Superior’s Daubert arguments on appeal about Sterling

testifying as an expert on lost profits are irrelevant because the trial court did not

award any lost profits (Appellants’ Brief at pgs. 40-42).

2. The evidence also supports restitution based upon the value of the benefits conferred on Superior.

Restitution damages are also awarded to require the breaching defendant to

give up the benefits it would be unjust for the defendant to keep. City of Harker

Heights v. Sun Meadows Land, Ltd., 830 S.W.2d 313, 317 (Tex. App. – Austin 1992,

no writ). The evidence also supports the award of restitution on this basis for three

52 First, the trial court found that “the equipment had greater value when it was

relinquished to [Tubb and Superior] than the sum total of the parts purchased as

[Sterling and Aspect] had the equipment ‘production ready’ waiting on the

component ammunition parts” (Finding #62; 4 CR 467). This finding is unchallenged,

binding, and supported by the evidence (4 RR 117, 157-160, 163-164; see pages 8-9

and 12-16 above, which are incorporated herein by reference).

Second, James Sterling testified that his invoices totaling $326,974.20 were

“actually pretty low, considering that Mr. Tubb has a piece of equipment and

packaging and a year's worth of my time, which he can go and load ammunition now

and make a lot more money than what I've asked him for in these invoices” (4 RR

239).

Third, the testimony of James Davis, the expert witness for Tubb and Superior,

proved that the services of Sterling and Aspect conferred a benefit on Superior.

During trial, Superior pursued a counterclaim against Aspect on a theory of

conversion because Aspect did not immediately release the equipment to Superior

after the lawsuit was filed. The trial court rejected Superior’s counterclaim for

conversion and Superior has not appealed that ruling (Finding #60, 4 CR 467).

During the trial, however, Superior itself offered evidence of the value of the

equipment to Superior. James Davis, Superior’s own expert, testified that Tubb told

53 him the equipment had “a utilitarian business purpose;” that Tubb could put it to use

in his ammunition manufacturing business; and that Tubb felt like he lost the use of

the equipment (8 RR 166-167). During closing argument, Tubb’s own attorney

argued that benefits “could come from the use of that equipment in his business ...”

(8 RR 209).

3. Tubb and Superior did not prove and obtain findings on their defense of failure to mitigate damages.

Tubb and Superior also assert in their brief that “Aspect produced no evidence

of any attempt to mitigate its damages by actually ordering the bullets” (Appellants’

Brief at pg. 42). It is true that a plaintiff must exercise reasonable care to minimize

damages if the damages can be avoided with only slight expense and reasonable

effort. Great Am. Ins. v. North Austin MUD, 908 S.W.2d 415, 426 (Tex.1995).

However, failure to mitigate damages is an affirmative defense. Tubb and Superior

had the burden of introducing evidence and obtaining findings of fact on this

affirmative defense. Alamo Cmty. Coll. Dist. v. Miller, 274 S.W.3d 779, 788 (Tex.

App. – San Antonio 2008, no pet.). As to mitigation, the trial court found that when

Aspect obtained bullets on its own to make cartridges, the “18,000 bullets that were

at [Aspect’s] facility were removed by Superior personnel, transported to Canadian

and never returned,” and that Tubb's other company, DTAC, sold the bullets (Finding

54 #36, 4 CR 459). This finding is unchallenged, binding, and shows that any effort by

Aspect to obtain the materials that Superior agreed to supply would have been futile.

In short, Tubb and Superior failed to prove and obtain findings on their affirmative

defense of failure to mitigate damages.

4. Superior’s request for a remittitur is likewise without merit.

For the reasons explained above, the evidence is legally and factually sufficient

to support the trial court’s award of restitution. Thus, a remittitur is not proper. 6 ROY

W. MCDONALD & ELAINE A. GRAFTON CARLSON, TEXAS CIVIL PRACTICE §33:16 (2d

ed. 2015). Furthermore, Tubb and Superior’s assertion that “the maximum sustainable

recovery” would not exceed “$70/hour for twelve 40-hour work weeks,” has no basis

in the record. They acknowledge as much by not citing the record for this ridiculous

assertion (Appellants’ Brief at pg. 46).

5. The Court should affirm the award of restitution.

“A party who breaks his contract cannot escape liability because it is

impossible to state or prove a perfect measure of damages.” Sw. Battery Corp. v.

Owen, 115 S.W.2d 1097, 1099 (Tex. 1938). There is no question that Superior’s

repudiation of the Agreement caused damages to Aspect. The evidence actually

supports an award of $326,974.20 (4 RR 237-238). The trial court’s award is very

conservative: in awarding $175,000, the court awarded only 54% of what the

55 evidence would support. Consequently, the Court should affirm the trial court’s

award of restitution.

IV. Superior cannot prove it had a partnership with Aspect as a matter of law.

Desperate to avoid its responsibility for destroying the business, Superior

contends it proved the existence of a partnership “as a matter of law” and therefore

can use the rule that a “partner is not entitled to receive compensation for services

performed for a partnership...” to escape liability for the trial court’s restitution award

to Aspect (Appellants’ Brief at pg. 37). See TEX. BUS. ORG. CODE § 152.203(c). The

limited evidence regarding the existence of a partnership was at best conflicting; thus,

Superior cannot establish the existence of a partnership as a matter of law.

One factor indicating that persons have created a partnership is the “expression

of an intent to be partners in the business.” Id. § 152.052. “Evidence of expressions

of intent could include, for example, the parties' statements that they are partners, one

party holding the other party out as a partner on the business's letterhead or name

plate, or in a signed partnership agreement.” Ingram v. Deere, 288 S.W.3d 886, 900

(Tex. 2009). There is no evidence of this factor. Sterling testified he did not intend

to create a partnership and never called their business a “partnership” (5 RR 7-8). As

shown above, Sterling always wanted to carry out the terms of their Agreement in a

corporation or limited liability company; that is what his draft contract indicated (PX-

56 1 at pg. 1; 4 RR 57, 120-121). Likewise, Tubb’s own draft of a contract was for a

limited liability company, not for a partnership (PX-100; 4 RR 57).

Another factor indicating that persons have created a partnership is the

“participation or right to participate in control of the business.” Id. § 152.052. “The

right to control a business is the right to make executive decisions.” Ingram v. Deere,

288 S.W.3d at 901. Sterling testified he did not have equal control of the business

with Tubb because “he controlled the resources. He controlled the equipment. He

controlled the money. And he set up the specifications and everything else, and I

didn't have any control over that” (4 RR 256).

A third factor is whether Superior and Aspect contributed property to a

“partnership.” TEX. BUS. ORG. ACT § 152.052. Superior did not prove the existence

of any partnership property. Under the entity theory of partnership in Texas,

“[p]artnership property is not property of the partners.” Id. § 152.101. In other words,

for there to be a partnership, the partnership itself must own the property involved in

the enterprise. It is undisputed that James Sterling owned the production facility used

by Aspect (Finding #26, 4 CR 457; 4 RR 101-103). David Tubb repeatedly testified

that Superior owned the equipment and would always own the equipment (6 RR

174-175, 177-178, 183). The court found that Superior used its own funds to pay for

the equipment and did not take title in the name of any partnership or in the name of

57 Superior as a partner of any partnership (Finding #26, 4 CR 457; 7 RR 21). In this

situation, the law presumes the property was not partnership property. TEX. BUS.

ORG. ACT § 152.102(c).

For these reasons, the trial court properly found that the Agreement between

Aspect and Superior was not a partnership for several reasons (Findings #12-#18;

#26; #41-46; 4 CR 455, 457, 461). Superior cannot prove the existence of a

partnership as a matter of law based upon the record in this case.

V. Superior cannot prove it is entitled to attorney’s fees as a matter of law.

A. The trial court found and concluded that Aspect did not breach the contract and that Superior is not entitled to attorney’s fees.

The trial court found that –

• Aspect “substantially performed its obligations under the Agreement and would have fully performed but for the breach and repudiation of the Agreement of Superior ....”

• “On or about January 7, 2013, Sterling made demand upon Superior for payment of the $35,019.00 in account receivables he had contributed to the venture and [Tubb and Superior] paid same.”

(Findings #11 and #48, 4 CR 452, 462).

The court concluded that –

• Tubb and Superior “take nothing” on their claim for “breach of contract.”

58 • “Superior is entitled to offset on [Aspect’s] damages in the amount of $35,019.00" for its payment of the prior invoice in question.

• Tubb and Superior “are not entitled to attorney’s fees.”

(Conclusions #6-#8, 4 CR 467-468).

These rulings reflect the principles applied in Mustang Pipeline Co. v. Driver

Pipeline Co., 134 S.W.3d 195 (Tex. 2004). A contractor entered into a contract to

build a pipeline for the owner of the pipeline. The jury found that both parties

breached the contract and awarded damages to both parties. The Supreme Court held

that “when one party to a contract commits a material breach of that contract, the

other party is discharged or excused from further performance.” Id. at 196. A party’s

material breach releases the other party “from further obligation under the contract.”

Id. at 198. Materiality is a question of fact. Id. As a result of the contractor’s material

first breach of the contract, the trial court was required to disregard the jury’s finding

that the owner breached the contract and the jury’s award of damages to the

contractor. Id. at 200.

Applying these principles to this case, the trial court impliedly found that

Superior’s first material breach of the Agreement released Aspect from its obligation

under the Agreement to forego payment of the prior invoice in the amount of

$35,019.00. The trial court correctly held that because of Superior’s first material

59 breach, the fact that thereafter “Sterling made demand upon Superior for payment of

the $35,019.00 in account receivables he had contributed to the venture and [Tubb

and Superior] paid same” (Finding #48, 4 CR 462), did not constitute a breach of

contract (Conclusion #6, 4 CR 467). The remedy of restitution has its roots in equity.

City of Harker Heights, 830 S.W.2d at 317. In giving Superior a credit for its payment

of $35,019.00 against the damages awarded to Aspect (Conclusion #7, 4 CR 468), the

trial court was simply fashioning its equitable remedy of restitution and was not

awarding damages to Superior for breach of contract.

B. Superior has not challenged the findings that Aspect did not breach the Agreement.

In its brief, Superior claims the trial court’s award of the $35,019.00 credit

“establishes Aspect’s contract breach and Superior’s right to an attorney’s fee award

as a matter of law” (Appellants’ Brief at pg. 47). To the contrary, as explained above,

the trial court impliedly found that because of Superior’s first material breach, Aspect

did not breach the Agreement. Superior has not challenged that implied finding or any

other findings on this issue by specific legal or factual insufficiency complaints.

Those findings are therefore now binding. 6 ROY W. MCDONALD AND ELAINE A.

GRAFTON CARLSON, TEXAS APPELLATE PRACTICE § 18:12 (2d ed. 2015). Without a

finding that Aspect breached the Agreement and an award of damages based upon a

60 breach of contract, Superior cannot recover any attorney’s fees. Mustang Pipeline

Co., 134 S.W.3d at 201.

C. Superior has not challenged the implied findings that its attorney’s fees were neither reasonable nor necessary.

Even if Superior could prove as a matter of law that Aspect breached the

Agreement and that it recovered damages based upon such breach, to recover

attorney’s fees under TEX. CIV. PRAC. & REM. CODE §38.001, Superior was also

required to obtain findings of fact that its fees were both reasonable and necessary.

Crounse v. State Farm Mut. Auto. Ins. Co., 336 S.W.3d 717, 720 (Tex. App. – Dallas

2010, pet. denied).

The parties stipulated that if the court “determines after the bench trial on the

merits that a party is entitled to attorney’s fees, said fees will be submitted on motion

papers and affidavits” (2 CR 244). Pursuant to the stipulation, after the trial, Aspect

filed a motion for attorney’s fees with a supporting affidavit and billing records (4

CR 502). By contrast, the record does not contain any motion for attorney’s fees or

proof submitted by Superior. In concluding that Tubb and Superior “are not entitled

to attorney's fees” (Conclusion #8, 4 CR 468), the trial court impliedly found there

was no evidence that Superior’s attorney’s fees were reasonable and necessary.

Having failed to submit any evidence to the court below of the reasonableness and

61 necessity of its attorney’s fees, Superior cannot establish now as a matter of law that

it is entitled to recover attorney’s fees from Aspect.

PRAYER

For these reasons, Sterling and Aspect request the Court to affirm the judgment

of the trial court and to tax all costs against Tubb and Superior. They also request the

general and special relief at law and in equity they are entitled to receive.

Respectfully submitted,

M. KEITH DOLLAHITE, P.C. 5457 Donnybrook Avenue Tyler, Texas 75703 (903) 581-2110 (903) 581-2113 (Facsimile) keith@mkdlaw.us

/s/ Keith Dollahite By:___________________________________ M. Keith Dollahite State Bar No. 05958550

62 TREY YARBROUGH State Bar No. 22133500 YARBROUGH WILCOX, PLLC 100 E. Ferguson, Suite 1015 Tyler, Texas 75702 903-595-3111 office 903-595-0191 fax Trey@yw-lawfirm.com

CERTIFICATE OF COMPLIANCE

Pursuant to TEX. R. APP. P. 9.4(i)(3), I certify that this document contains 14,728 words based on the word count of the computer program used to prepare the document, excluding the sections not counted under TEX. R. APP. P. 9.4(i)(1), which is below the maximum of 15,000 words in TEX. R. APP. P. 9.4(i)(2).

/s/ Keith Dollahite ______________________________________

CERTIFICATE OF SERVICE

A copy of this document was filed and served electronically on Gregory D. Smith, Ramey & Flock, P.C., 100 East Ferguson, Suite 500, Tyler, Texas 75702, gsmith@rameyflock.com and Wesley Hill, P.O. Box 1231, Longview, Texas 75606, wh@swfirm.com on October 8, 2015.

© M. Keith Dollahite, P.C. 2015