Advanced Nano Coatings, Inc., et al v. Joseph Hanafin

Filing

UNPUBLISHED OPINION FILED. [13-20109 Affirmed] Judge: FPB , Judge: EBC , Judge: JEG. Mandate pull date is 03/12/2014 [13-20109]

Case: 13-20109

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Date Filed: 02/19/2014

IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit

FILED
No. 13-20109

February 19, 2014
Lyle W. Cayce
Clerk

ADVANCED NANO COATINGS, INCORPORATED; INTUMESCENTS
ASSOCIATES GROUP; VADO AG,
Plaintiffs - Appellees

v.
JOSEPH HANAFIN,

Defendant - Appellant

Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:09-CV-1243
Before BENAVIDES, CLEMENT, and GRAVES, Circuit Judges.
JAMES E. GRAVES, JR., Circuit Judge: ∗
This case arises from a dispute over an employment contract. Joseph
Hanafin, the defendant-appellant, is a former employee of the plaintiffappellees, Vado AG (“Vado”), its wholly-owned subsidiary Advanced Nano
Coatings, Inc., (“ANC”), and an affiliated Texas informal partnership,
Intumescents Associates Group (“IAG”). After a bench trial, the district court
found that Hanafin breached his employment contract with Vado and ANC and

∗Pursuant

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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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

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breached his fiduciary duties as an officer of these companies. The district
court awarded the plaintiffs damages and attorney’s fees, which Hanafin
contested on appeal. Finding no clear error or abuse of discretion in the district
court’s opinion, we AFFIRM the district court’s awards of both damages and
attorney’s fees.
FACTS AND PROCEDURAL HISTORY
On or about November 15, 2005, Hanafin entered into an employment
agreement with Vado in which Hanafin agreed to devote 100% of his
professional time and effort to Vado or its subsidiary, ANC.

During his

employment, Hanafin was to use his knowledge, skill and research to develop
water-based and epoxy intumescent fire-productive coating products for Vado
and ANC. On February 2, 2009, Hanafin ended his employment by resigning
his positions as president and director of ANC, employee and director of Vado,
and director of technology at IAG.
When the plaintiffs discovered that Hanafin was engaging in self-dealing
with the plaintiffs’ customers during the period of his employment, they filed
suit against Hanafin in the United States District Court for the Southern
District of Texas in April 2009. 1

Vado and ANC asserted claims against

Hanafin for breach of contract, breach of fiduciary duty, and tortious
interference with prospective relations, seeking both damages and injunctive
relief. On August 30, 2010, Hanafin filed a motion for summary judgment in
the district court arguing that the breach of contract claim was meritless and
that the parties did not have standing to bring suit. See Advanced Nano

The plaintiffs also filed a separate lawsuit in the Superior Court of Massachusetts
in 2010 against Hanafin and two industry competitors with whom Hanafin had been selfdealing, Cafco and Promat. Advanced Nano Coatings, Inc. v. Hanafin, SUCV201004066,
2011 WL 6975983, at *3 (Mass. Super. Nov. 2, 2011). The Massachusetts court dismissed the
suit on the grounds of res judicata, finding that plaintiffs’ claims had already been litigated
in the Southern District of Texas. Id. at *5.
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Coatings, Inc. v. Hanafin, 478 F. App’x 838, 840 (5th Cir. 2012). The district
court granted Hanafin’s motion.

Id. at 841–42.

The plaintiffs appealed,

arguing that they did have standing and that there were genuine issues of
material fact regarding whether Hanafin breached his employment contract or
tortiously interfered with the plaintiffs’ prospective business contracts. Id. In
May 2012, a panel of this Court agreed, vacated the district court’s summary
judgment ruling and remanded the case for further proceedings. Id. at 848.
No portion of this Court’s previous opinion was at issue in the instant appeal.
Upon remand, the parties conducted a bench trial. The district court
found, inter alia, that Hanafin breached his employment contract with Vado
and ANC and breached his fiduciary duties as an officer of these companies.
The district court awarded the plaintiffs damages for Hanafin’s breach of
contract and for the plaintiffs’ lost profits. The parties’ employment agreement
also included a provision for prevailing party attorney’s fees. The district court
awarded the plaintiffs $417,688.44 in attorney’s fees incurred by Vado and
ANC through trial, and $57,000 in appellate attorney’s fees in the event they
are the prevailing party in an appeal. Hanafin filed a timely appeal to this
Court, challenging only the amount of damages and attorney’s fees awarded by
the district court.
STANDARD OF REVIEW
“In the appeal of a bench trial, we review findings of fact for clear error
and conclusions of law and mixed questions of law and fact de novo.” Dickerson
v. Lexington Ins. Co., 556 F.3d 290, 294 (5th Cir. 2009) (citations omitted).
Pursuant to Federal Rule of Civil Procedure 52, the district court’s findings of
fact following a non-jury trial will “not be set aside unless clearly erroneous.”
Fed. R. Civ. P. 52(a)(6).

We review “fact findings in determining the

reasonableness of an attorney fee award for clear error,” and “the ultimate
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award of fees is reviewed for abuse of discretion.” Coffel v. Stryker Corp., 284
F.3d 625, 640 (5th Cir. 2002) (internal citations and quotations omitted).
DISCUSSION
A. Damages
Under Texas law, to prevail on a breach of contract claim the plaintiff
must prove, inter alia, that “the plaintiff sustained damages.” Bayway Servs.,
Inc. v. Ameri-Build Const., L.C., 106 S.W.3d 156, 160 (Tex. App. 2003). The
district court awarded plaintiffs contractual damages in the amount of
$342,116.80, which is the amount that Hanafin received in salary and benefits
during his employment with Vado and ANC. During Hanafin’s testimony at
trial, Hanafin acknowledged that he received $342,116.80 in payments from
Vado and ANC under his employment contract.
The district court also found that Hanafin breached his fiduciary
obligations to Vado and ANC, a finding Hanafin does not dispute on appeal.
The Texas Supreme Court recently stated that “if the fiduciary . . . acquires
any interest adverse to his principal, without a full disclosure, it is a betrayal
of his trust and a breach of confidence, and he must account to his principal for
all he has received.” ERI Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867,
872 (Tex. 2010) (internal citations and quotation marks omitted). Accordingly,
Hanafin’s breach of fiduciary duties obligates him to repay everything he
gained by virtue of his position, including payments for his salary and any
expenses he may have incurred.
The district court also found that Hanafin caused plaintiffs damages in
the form of lost profits. On appeal, Hanafin challenges the district court’s
calculation of the amount of lost profits on two grounds.

First, Hanafin

contends that he was not given a fair opportunity to explain his postresignation business dealings with Vado and ANC’s customers. Hanafin’s
arguments are without merit. The record evidence shows that during the
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bench trial Hanafin was given notice that the district court would be
considering his business dealings with Vado and ANC’s customers, such as
Aquis and Cafco/Promat, and that Hanafin had an opportunity to present
testimony on this issue.
Second, Hanafin objects to the district court’s calculation of the amount
of plaintiffs’ lost profits. Under Texas law, a reviewing court must determine
“whether competent evidence establishe[d] th[e] amount [of lost profits] with
reasonable certainty.” Swinnea, 318 S.W.3d at 876. The Texas Supreme Court
has held that “[c]ontrasting revenue from a time period immediately before the
period at issue is an established method of proving revenue for a lost profit
damages calculation.” Id. at 877; see also Texas Instruments, Inc. v. Teletron
Energy Mgmt., 877 S.W.2d 276, 279 (Tex. 1994) (“In order that a recovery may
be had on account of loss of profits . . . . [i]t is permissible to show the amount
of business done by the plaintiff in a corresponding period of time not too
remote, and the business during the time for which recovery is sought.”).
In the instant case, the district court based its lost profit calculations on
record evidence that showed ANC’s profits before and after Hanafin’s
resignation.

Hanafin himself testified about the amount of profit ANC

generated from its sales before his resignation. Craig Scott, who took over as
President of ANC after Hanafin’s departure, also testified about ANC’s sales
to Aquis before Hanafin’s resignation and the drop in sales after he resigned.
See Meaux Surface Prot., Inc. v. Fogleman, 607 F.3d 161, 168 (5th Cir. 2010)
(recognizing that a “corporate officer who provides projections or opinions
about changes in profits” is qualified to testify about such matters as a lay
witness) (internal citation omitted). The district court relied on competent
evidence provided by two officers of ANC, Hanafin himself and Craig Scott, to
make a calculation regarding lost profits with reasonable certainty.

The

district court also used a permissible method for calculating lost profit
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damages under Texas law. Therefore, we find no clear error in the district
court’s damages award.
B. Attorney’s Fees
“A fee award is governed by the same law that serves as the rule of
decision for the substantive issues in the case.” Mathis v. Exxon Corp., 302
F.3d 448, 461 (5th Cir. 2002). “Under Texas law, when a prevailing party in a
breach of contract suit seeks fees, an award of reasonable fees is mandatory,
as long as there is proof of reasonable fees.” Id. at 462. This Court reviews a
district court’s award of attorney’s fees for abuse of discretion. Am. Rice, Inc.
v. Producers Rice Mill, Inc., 518 F.3d 321, 341 (5th Cir. 2008). “However,
findings of fact regarding the reasonableness of attorney’s fee awards are
reviewed for clear error.” Id.
In the instant case, the parties’ employment contract included a
provision for attorney’s fees to be awarded to the prevailing party.

The

plaintiffs filed a motion for attorney’s fees on December 6, 2012, requesting a
total of $417,688.44 for fees and expenses generated during the trial. 2 The
panel has reviewed the motions and the record and finds no abuse of discretion

In their briefing before this Court, Appellees asserted that “the [district] Court’s
[attorney’s fee] award reflects a reduction of the total fees by $125,210.81.” Also, at oral
argument Appellees’ counsel stated that the difference in the amount of attorney’s fees
requested and the amount the district court awarded shows that “Judge Hoyt has subtracted
off $125,210 in attorney’s fees.” Both the assertion in the brief and counsel’s statement at
oral argument are different from and inconsistent with the evidence in the record. In their
motion for attorney’s fees before the district court, Appellees only requested a total of
$417,688.44 in fees and expenses. In an affidavit attached to their motion, Appellees asserted
that the total amount of fees and expenses they incurred during litigation was actually
$542,899.55, but that the Appellees themselves had voluntarily reduced their request by
$125,210.81 in order to account for any doubling of efforts and to segregate any work done on
unsuccessful claims in the case. The district court, therefore, awarded $417,688.44 in fees,
which is the exact amount they requested. Accordingly, the record shows that it was the
Appellees―and not the district court itself―who engaged in any mathematical reduction of
fees in this case. Because we find no abuse of discretion in the district court’s fee award, we
affirm the award despite counsel’s misrepresentation of the facts.
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in the district court’s award of fees. See Stewart Title Guar. Co. v. Sterling,
822 S.W.2d 1, 10 (Tex. 1991) (noting that a “trial court may award those fees
that are ‘reasonable and necessary’ for the prosecution of the suit”).
The plaintiffs also requested $57,000 in attorney’s fees in the event they
are the prevailing party in an appeal. Under Texas law, the “trier of fact, in
its discretion, may allow a fee to an attorney for an appeal, but is not required
to do so.” Hachar v. Hachar, 153 S.W.3d 138, 144 (Tex. App. 2004). An
appellate court “review[s] a trial court’s award of appellate attorney’s fees
under an abuse of discretion standard.” Id. In the instant case, the plaintiffs
are the prevailing party in this appeal, and we find no abuse of discretion in
the district court’s award of appellate attorney’s fees.
CONCLUSION
Hanafin has not shown that the district court’s damages award was
clearly erroneous, nor that the district court abused its discretion in awarding
the plaintiffs’ attorney’s fees. Accordingly, we AFFIRM the judgment of the
district court.

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