Bear Ranch, LLC v. Heartbrand Beef, Inc. et al

Filing 240

MEMORANDUM AND ORDER granting in part 193 MOTION for Entry of Order re: Final Judgment(Signed by Judge Gregg Costa) Parties notified.(arrivera, 4)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
VICTORIA DIVISION
BEAR RANCH, LLC, et al,
Plaintiffs,
VS.
HEARTBRAND BEEF, INC., et al,
Defendants.

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CIVIL ACTION NO. 6:12-CV-00014

MEMORANDUM AND ORDER
I.

INTRODUCTION
This is the latest—and hopefully near final—chapter in this saga involving

Akaushi specialty cattle.

HeartBrand Beef, a Texas cattle ranching and beef

production company, acquired Akaushi breeding cattle from Japan in the early
1990s and has continued to grow its herd over the years. HeartBrand sells some of
its Akaushi cattle to third parties, including Bear Ranch. These transactions are
typically governed by contracts with restrictions designed to maintain the breed’s
purity.

The restrictions forbid purchasers from selling cattle to third parties

without HeartBrand’s permission; require purchasers to register all offspring with
the American Akaushi Association (AAA), making them subject to the AAA’s
regulations; prohibit purchasers from collecting or selling semen from the
purchased cattle or its offspring; and prevent purchasers, for fifty years following
the contract’s termination, from selling the beef under the name “Akaushi,” or
1

marketing the beef as having the health benefits of Akaushi. See Docket Entry No.
59 ¶ 22. The purchasers may, however, slaughter the Akaushi and sell the beef
under a different name.
The value of these restrictions was thought to be significant enough to
prompt Bear Ranch to file this lawsuit seeking to invalidate them. And enough
was at stake for both sides to hire some of the best lawyers in Texas. Indeed, for
much of this litigation, the parties agreed that the value of Bear Ranch’s Akaushi
would greatly increase if they were not subject to the tight restrictions. Bear Ranch
originally focused on antitrust claims, seeking to invalidate the restrictions as
unlawful restraints on trade. HeartBrand vigorously defended against any attempts
to invalidate the restrictions, asserting counterclaims also premised on the notion
that allowing Bear Ranch to maintain unrestricted cattle—which would essentially
allow Bear Ranch to be HeartBrand’s full competitor, breeding and selling its own
line of Akaushi—would undermine the integrity of the Akaushi genetics it had
spent two decades maintaining. That concern animated HeartBrand’s final plea at
trial, which was to get its cattle back, “to get back what was taken.” See Docket
Entry No. 188-5, at 25-26.
The jury’s verdict—rejecting Bear Ranch’s claims and finding in favor of
HeartBrand on some of its counterclaims—has changed things. Now, the premium
Bear Ranch placed on unrestricted Akaushi when it pursued its rejected claims is
2

gone, as it argues that allowing it to maintain unrestricted cattle would not confer a
significant economic benefit. For HeartBrand, the desire to get the cattle back is
now secondary to a request for a large monetary judgment based on either its
expert’s or the advisory jury’s valuation.
HeartBrand and Bear Ranch have debated the proper equitable remedy—and
the Court has considered the issue—until the cows come home. And finally, they
are about to do just that. In this opinion, the Court will explain why it concludes
that the original premises of this lawsuit still hold true: the restrictions have value,
but the most equitable way to prevent Bear Ranch from obtaining any benefit from
their erosion is to give the cattle back to HeartBrand before Bear Ranch realizes
any unjust enrichment from unrestricted use of the cattle.
II.

BACKGROUND
The protean nature of this litigation requires further explanation.

Bear

Ranch’s allegations stemmed from a series of Akaushi cattle purchases it made in
2010 and 2011. Bear Ranch, which is located in Colorado, first purchased 424
Akaushi cattle from HeartBrand in July 2010 pursuant to a written contract (the
Full-Blood Contract1) restricting Bear Ranch’s sale and use of the cattle.2 Docket
1

The Full-Blood Contract and a contemporaneous agreement between Bear Ranch and
HeartBrand, the F1 Program Contract, will be referred to in this memorandum and order as the
2010 Agreements.
2
As the Court explained at the summary judgment stage: “In order to preserve ‘HeartBrand’s
preeminent position as the owner of Akaushi genetics outside of Japan,’ Docket Entry No. 73-2
at 2, the contract restricts Bear Ranch’s sale and use of the cattle and their offspring through

3

Entry No. 59 ¶ 27. Bear Ranch later made three other purchases in “handshake”
deals:3 in December 2010, Bear Ranch purchased 50 cattle from Tony Spears; in
June 2011, it purchased about 500 cattle from Ronald Beeman, the owner of
Beeman Ranch and HeartBrand’s chairman; and in July and September 2011 Bear
Ranch purchased another 195 cattle from Twinwood Cattle, another HeartBrand
producer. Id. ¶ 26.
Although the lawsuit originally focused on antitrust claims, after Bear Ranch
amended its complaint and dropped those claims (apparently it was unable to prove
a separate market for this type of specialty beef), it was left relying on its fraud and
contract claims.

See Docket Entry No. 59.

The fraud claim alleged that

HeartBrand induced it into entering the restrictive contract by falsely representing
that HeartBrand controlled all Akaushi cattle and genetics outside of Japan. It
sought a declaration that this fraudulent inducement rendered the restrictions
unenforceable.

The Court held, however, that even if this fraud occurred, a

declaration invalidating part of the contract was not a permissible remedy;
rescinding the entire contract was. See Bear Ranch, LLC v. HeartBrand Beef, Inc.,
2013 WL 6190253, at *4-*6 (S.D. Tex. Nov. 26, 2013). Bear Ranch also sought

provisions governing: the sale of breeding stock, id. § I; registration with the [AAA], id. § V;
restrictions on sale of full-blood offspring, id. § VII; liens, id. § XIV; and marketing, id. § XV.”
Bear Ranch LLC v. HeartBrand Beef Inc., 2014 WL 1052515, at *1 (S.D. Tex. Mar. 18, 2014).
3
The only documents governing those transaction were invoices and emails. See Bear Ranch,
2014 WL 1052515, at *2. The testimony painted different pictures of their oral agreements and
expectations governing the sales.

4

two declarations related to its breach of contract claim. First, it sought a ruling that
the Beeman, Twinwood, and Spears cattle (those obtained in the handshake deals),
as well as their progeny, were not subject to the contractual restrictions that
governed the cattle purchased directly from HeartBrand. See Docket Entry No. 59
¶ 52. Second, it requested a ruling that any offspring of offspring (the grandcalves)
and later generations of the cattle purchased directly from HeartBrand were not
subject to the contractual restrictions. Id. ¶ 56.
HeartBrand and Beeman (also named as a defendant in the lawsuit)
answered Bear Ranch’s amended complaint and asserted as counterclaims their
own allegations of fraudulent inducement, common law fraud, and breach of
contract. See Docket Entry No. 61. HeartBrand’s theory of fraudulent inducement
was that Bear Ranch had represented that it only intended to produce beef for
personal use and that it would comply with the 2010 contractual obligations.
Instead, according to HeartBrand, Bear Ranch knew from the beginning that it
wanted to become a rival marketer of specialty beef and never intended to abide by
the restrictions. Id. at 16. Beeman alleged that his sale of Akaushi to Bear Ranch
was also fraudulently induced by oral representations that the contractual
restrictions governing the HeartBrand cattle would apply to the Beeman cattle and
that Bear Ranch would sell back 30% of the full-blood Akaushi calves to
HeartBrand. Id. at 17-18. According to HeartBrand, these and similar empty
5

promises by Bear Ranch—which formed the basis of HeartBrand’s common law
fraud claims—induced its assent4 to the Beeman sale, id. at 18-19; to the
Twinwood sale, id. at 19-20; and forestalled any enforcement of the 2010 contract,
id. at 21-22. Finally, HeartBrand alleged breach of contract for Bear Ranch’s
noncompliance with the 2010 contract terms, pointing to multiple alleged breaches
including failure to register cattle and offspring with the AAA. Id. at 22-23.
HeartBrand sought to recover possession of the cattle, their offspring, and the
related genetic material, as well as actual damages. Id. at 23-24.
Both parties moved for partial summary judgment. Bear Ranch sought
judgment on its declaratory claim that most of the contract obligations governing
the HeartBrand cattle were not applicable to the cattle from the Beeman,
Twinwood, and Spears purchases. Bear Ranch LLC v. HeartBrand Beef Inc., 2014
WL 1052515, at *3 (S.D. Tex. Mar. 18, 2014). The Court agreed, finding that the
contract restrictions governing the original HeartBrand sale did not extend to the
other Akaushi cattle that Bear Ranch subsequently purchased. See id. at *5. Nor
was Bear Ranch’s alleged oral promise that it would extend the contract
restrictions to the Beeman sale enforceable because a written contract was required
pursuant to the Texas statute of frauds. See id. at *6-*7 (explaining that a writing

4

HeartBrand’s assent was required because the terms of its contracts with producers (such as
Bear Ranch and Beeman) restricted producers’ abilities to sell Akaushi purchased from
HeartBrand, including offspring. See Docket Entry No. 211-8 §§ I, VII.

6

is required under the statute of frauds if “any part of an oral agreement cannot be
performed within one year” and finding that the written contract between
HeartBrand and Bear Ranch contemplated a fifty-year obligation). Thus, none of
the contract restrictions governing the HeartBrand purchase, other than those
prohibiting Bear Ranch from marketing the beef as Akaushi and requiring Bear
Ranch to register the cattle with the AAA,5 were applicable to the cattle purchased
from Spears, Beeman, and Twinwood. Id. at *7.
This summary judgment ruling changed the complexion of the case. It left
Defendants with only their fraud-based counterclaims as a basis for any relief
related to the three subsequent sales that the Court had found left Bear Ranch with
unrestricted cattle. Given this major shift in the landscape of the case, the Court
granted a continuance and allowed HeartBrand to revise its expert’s report to value
the equitable remedy of unjust enrichment on its fraud claims rather than the much
less significant out-of-pocket damages. See Docket Entry No. 110 at 1-2; Docket
Entry No. 150-1 (Supplemental Expert Report of Jeffrey S. Andrien, May 1, 2014).
The revised expert report asserted that unrestricted Beeman, Twinwood, and
Spears cattle would provide Bear Ranch with a benefit worth $89.8 million more

5

The Court construed the terms of the Full-Blood Contract at summary judgment and
determined that the marketing clause and possibly the registration clause in the contract were
broadly applicable to all of Bear Ranch’s Akaushi cattle, whereas the remaining contract
restrictions applied only to the 424 cattle originally acquired from HeartBrand in 2010. See Bear
Ranch, 2014 WL 1052515, at *5.

7

than it paid for what were believed to be restricted cattle; unrestricted Beeman
cattle accounted for the bulk of this figure—$76.7 million.6
That value assessed for the Beeman cattle would become the focus based on
the verdict the jury returned after an eight-day trial. The jury rejected all of Bear
Ranch’s claims and some of HeartBrand’s counterclaims, including the one that
argued its entire relationship with Bear Ranch was tainted with fraud from the
beginning.7 But the jury found for HeartBrand on two counterclaims, finding that
(1) Bear Ranch fraudulently induced HeartBrand’s approval of the Beeman
purchase and (2) Bear Ranch failed to comply with the 2010 Agreements.8 See
Docket Entry No. 172 at 18, 22. With regard to the fraud related to the Beeman
purchase, the jury advised that Bear Ranch was unjustly enriched by
$23,199,000.000 and that HeartBrand should also be awarded $1,825,000.00 in
exemplary damages due to the harm resulting from that fraud, which it found was
6

Andrien’s report calculated the “fair market value” of the Beeman, Twinwood, and Spears
cattle and then subtracted Bear Ranch’s cost to acquire and raise the cattle as of March 31, 2014.
See Docket Entry No. 150-1 at 25-26. “Fair market value” was derived using an income
approach, which “involves forecasting cash flows that Bear Ranch can generate from the subject
cattle.” Id. at 29. Andrien determined that the fair market value of the Beeman, Twinwood, and
Spears cattle was $96.1 million, less Bear Ranch’s purchase amount and raising costs, which
resulted in the valuation of $89.8 million. Id. at 30. The Beeman cattle accounted for $76.7
million of the total $89.8 million valuation. Id. at 31.
7
The jury made the following findings: (1) HeartBrand did not fraudulently induce Bear Ranch
to enter into the 2010 Agreements by misrepresenting how rare Akaushi is, Docket Entry No.
172 at 15; (2) Bear Ranch did not fraudulently induce HeartBrand to enter into the 2010
Agreements by misrepresenting its intent to comply with the contractual restrictions, id. at 17;
and (3) Bear Ranch did not fraudulently induce HeartBrand’s approval of the Twinwood
purchase, id. at 19.
8
The jury found that Bear Ranch’s failure to comply with the 2010 Agreements was not
excused. Docket Entry 172 at 23.

8

proved by clear and convincing evidence. Id. at 20-21. The jury also calculated
Bear Ranch’s costs of acquiring, producing, and maintaining the cattle from the
various purchases in the event that the Court was to “award possession of the cattle
. . . to HeartBrand” (the contractual remedy for the breach claim), thus requiring
HeartBrand to “compensate Bear Ranch for the reasonable amount Bear Ranch
spent.” Id. at 24. For the Beeman cattle, this figure was $6,832,000. Id. at 25.
In oral rulings at a post-trial hearing, the Court denied Bear Ranch’s Rule
50(b) motion for judgment as a matter of law as to the jury’s liability findings. See
Hearing Transcript Sept. 24, 2014 at 62 (Docket Entry No. 225). The Court
reserved ruling on HeartBrand’s motion for entry of judgment (Docket Entry No.
193) to allow for review of post-trial evidence that was admitted and the parties’
briefing and argument.
III.

ANALYSIS

A. The Equitable Remedy for Unjust Enrichment
Defendants now move for entry of final judgment, requesting the Court to
defer to the jury’s advisory finding that Bear Ranch was unjustly enriched by
$23,199,000, or if “the Court is inclined to consider its own remedy,” to follow
their expert’s $76.7 million valuation of unjust enrichment.
Because the award of an equitable remedy falls squarely within the Court’s
discretion, neither of these valuations is binding on the Court. See Enserch Corp.
9

v. Shand Morahan & Co., Inc., 952 F.2d 1485, 1502 (5th Cir. 1992). And although
the Court “may determine the amount of [an] award with the assistance of an
advisory jury,” see Julian v. City of Houston, Tex., 314 F.3d 721, 728 n.25 (5th
Cir. 2002), “it is in [the trial court’s] discretion entirely whether to accept or reject,
in whole or in part, the verdict or findings of the advisory jury.” Charles Alan
Wright & Arthur R. Miller, FED. PRAC. & PROC. § 2335 (3d ed.). At trial, the
advisory nature of the jury’s finding on unjust enrichment was made abundantly
clear, see, e.g., Docket Entry No. 187-4 at 28 (“[I]t would be just a – an advisory
number.”); 187-10 at 10 (“[T]here’s not going to be any award unless I find it’s
appropriate because it’s an equitable remedy. . . . I view it as an advisory
instruction.”), and HeartBrand agreed it sought “just an advisory” damages figure.
Docket Entry No. 187-4 at 28. In light of that understanding, the Court allowed
ample post-trial briefing and held two hearings—at one of which new testimony
was admitted—to address how the Court should exercise its equitable discretion in
fashioning a remedy for any unjust enrichment.
That discretion is considerable. “Under the system of blended law and
equity prevailing in the State of Texas, a district judge presides in the same
capacity as a chancellor under the English equity procedure with full power and
authority as such in all proceedings wherein equity is properly invoked.” 34 TEX.
JUR. 3d Equity § 3 (2015); see also Penick v. Penick, 783 S.W.2d 194, 198 (Tex.
10

1988) (explaining in the context of a claim for reimbursement that “great latitude
must be given to the trial court in applying equitable principles”). Any judgment
must capture the unjust enrichment that resulted from Bear Ranch’s fraud against
HeartBrand, measured by the benefit conferred on Bear Ranch, not any injury to
HeartBrand.9 See Restatement (Third) of Restitution and Unjust Enrichment § 13,
cmt. e (2010) [hereinafter Restatement] (pointing out that the “standard condition
of unjust enrichment” is “that the transferee has realized a benefit at the
transferor’s expense” unlike the “requirement in tort” that the “transferor has
suffered economic injury” (emphasis added)).10
What is the benefit conferred on Bear Ranch that allegedly causes it to be
“unjustly enriched” from its fraud? By misrepresenting that it would abide by the
contractual restrictions from the original purchase when it obtained HeartBrand’s
approval for the subsequent “handshake” deal with Beeman, Bear Ranch obtained
restriction-free Akaushi.11 So the unjust enrichment is the difference between the
9

This difference was the reason HeartBrand sought a continuance to allow its expert to amend
his report to reflect the greater value of the benefit conferred on Bear Ranch.
10
Twice in recent years, the Supreme Court of Texas drew upon the guidance of the
Restatement. See Neese v. Lyon, --- S.W.3d ----, 2015 WL 4600046, at *7 (Tex. App.—Dallas
July 31, 2015, no pet. h.) (describing Morton v. Nguyen, 412 S.W.3d 506 (Tex. 2013) and Cruz
v. Andrews Restoration, Inc., 364 S.W.3d 817 (Tex. 2012), as cases in which the court “relied
heavily on common-law rescission and restitution as explained in the Restatement (Third) of
Restitution and Unjust Enrichment” in its interpretation of “statutes that make rescission-like
remedies available”); see also Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew
& Rental Tools, Inc., 246 S.W.3d 42, 55 (Tex. 2008) (Hecht, J., dissenting) (explaining that the
Restatement “provides a balanced, practical, and principled rule for resolving the issue presented
by this case”).
11
The other misrepresentation at issue in the fraud claim on which HeartBrand prevailed—that

11

value of the unrestricted cattle received and the restricted cattle that were orally
promised, as illustrated by the following simple formula:

The parties devote much of their briefing to attacking or defending the
methodology that HeartBrand’s expert applied in trying to calculate this difference.
He contends that the unrestricted cattle are worth more than $75 million above the
price Bear Ranch paid based on Beeman’s mistaken belief that he was selling
restricted cattle. At the hearing on this motion, most of the testimony pertained to
the proper method for valuing the cattle in dollars. See, e.g., Hearing Transcript
Sept. 11, 2014 at 12-13 (Docket Entry No. 223) (valuation testimony of William
Koch, owner of Bear Ranch); id. at 102 (valuation testimony of McGrann, Bear
Ranch’s expert); id. at 199 (valuation testimony of Andrien, HeartBrand’s expert).
Both parties’ experts acknowledge, however, that a nontrivial number of sales of
Bear Ranch would sell back 30% of the cattle—is not the basis for the expert valuation or any
other evidence presented at trial to establish an unjust enrichment award. In any event, the
Court’s remedy of returning the Beeman cattle addresses any unjust enrichment caused by this
fraud because HeartBrand will be able to buy back all of the cattle, not just 30%.

12

unrestricted Akaushi cattle—which would offer meaningful comparables, a
commonly used source for calculating value12—do not exist. See, e.g., Docket
Entry No. 150-1 at 29 (Andrien report for HeartBrand) (“Because there is no
information on sales of comparable cattle, I have not used the market approach to
value the cattle, but have relied on sales of other breeds of full-blood cattle as a
reasonableness check on my valuation.”); Docket Entry No. 185-1 at 12 (Tr.
Transcript May 22, 2014) (testimony of Scott Bayley for Bear Ranch) (“I
attempted to obtain information about sales of a herd the size of the one that Bear
Ranch acquired from HeartBrand, and I didn’t find any transaction data on that. In
other words, . . . there was no information available about another large herd of
Akaushi that had been sold, other than the ones that had been involved with
HeartBrand.”). There is thus a significant degree of speculation in any of the
methodologies the parties suggest—some more esoteric than others—to value the
unjust enrichment resulting from the fraud. For that reason, awarding the advisory
jury’s $23 million figure may overvalue the unrestricted cattle, as Bear Ranch
argues, see Docket Entry No. 199 at 40 (characterizing the jury’s advisory finding
12

“If the goal of an appraisal is to ascertain market value, then logically there can be no better
guide than the prices that willing buyers and sellers actually negotiate in the relevant market.
Under a comparable sales analysis, the appraiser finds data for sales of similar property, then
makes upward or downward adjustments to these sales prices based on differences in the subject
property.” City of Harlingen v. Estate of Sharboneau, 48 S.W.3d 177, 182 (Tex. 2001); see also
State v. Cent. Expressway Sign Assocs., 302 S.W.3d 866, 871 (Tex. 2009) (explaining in the
context of real property that of the three methods of valuing property—the comparable sales
method, the cost method, and the income method—“[t]he comparable sales method is the
favored approach”).

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as “astronomical”); Hearing Transcript Sept. 11, 2014 at 102 (McGrann describing
the jury’s $23 million value as “completely unrealistic”), or it may undervalue the
unrestricted cattle to the tune of $50 million, as HeartBrand’s expert suggests, see
Docket Entry No. 193 at 6-7; Hearing Transcript Sept. 11, 2014 at 227 (Andrien
stating that he “stand[s] behind [his] valuation, absolutely”).
The Court need not resolve this debate. Even assuming that Andrien’s
testimony on valuation passes muster under Daubert and could support a jury
verdict, the Court’s duty is to fashion the most equitable remedy, not to decide
whether another possible remedy might be supported by the evidence.

In

determining that appropriate equitable remedy, the Court considers the “two
principal kinds” of remedies available for unjust enrichment: money judgments in
the amount of the unjust enrichment or “asset-based” equitable remedies that
permit the “claimant to obtain restitution via rights in specifically identifiable
property in the hands of the defendant” through, for example, a constructive trust
or rescission. Restatement ch. 7, intro. note.
There are two main reasons why the Court concludes that the latter “assetbased” remedy is appropriate in this case.

First is the uncertainty, discussed

previously, as to any valuation because of the essentially nonexistent market for
unrestricted Akaushi. A nonmonetary remedy removes that speculation and risk of
misvaluation. See Restatement ch. 7, topic 2, intro. note (“Asset-based remedies
14

are often simpler to administer, because they avoid the need to litigate valuations
and other issues pertaining to the measure of the defendant’s enrichment.”); see
also id. ch.7, intro. note (“If the case is one in which the defendant’s enrichment is
more easily encompassed by specific restitution than valued in money . . . the same
restitution claim will find a more effective remedy if the claimant can identify
particular property representing the unjust enrichment in the hands of the
defendant.”).
Second is another unusual feature of this case: although in theory Bear
Ranch has been unjustly enriched because it has the right to do as it wishes with
the Beeman cattle in light of the Court’s ruling that they are unrestricted, it has not
yet exercised any of those rights. Despite strenuously fighting for the right to do
so in this litigation, Bear Ranch has never sold the unrestricted Akaushi cattle or
their genetics.

Bear Ranch has not acted on the Court’s summary judgment

ruling—and with good reason as that summary judgment ruling is subject to
appeal. It has neither bred nor sold any unrestricted cattle. See Hearing Transcript
Sept. 24, 2014 at 139-40 (“[A]s we said before, we have abided by every
restriction. We’ve never sold any live animals. We’ve never marketed them.”).
That Bear Ranch has not yet realized any of the gains from its theoretical
unjust enrichment presents a sharp contrast with the classic cases of unjust
enrichment. In cases such as a painter mistakenly painting the wrong house or a
15

homebuilder building a home on the wrong plot of land, see Restatement § 10, cmt.
a, the benefit conferred cannot be undone, leaving monetary compensation to the
party providing the benefit as the only means of redress. See Restatement § 49,
cmt. f (“Liability in restitution for the market value of goods or services . . . is the
usual measurement of enrichment in cases where nonreturnable benefits have been
furnished at the defendant’s request, but where the parties made no enforceable
agreement as to price.” (emphasis added)). In contrast, this is an ideal case for a
property-based solution as the Beeman cattle are readily identifiable and have been
maintained in good condition. The Court therefore concludes that the surefire way
to prevent Bear Ranch from being unjustly enriched as a result of obtaining the
unrestricted use of the cattle under false pretenses is to keep that unjust enrichment
from happening in the first place.13
What remedy will accomplish that? As described below, the Court believes
that a constructive trust, along with limited injunctive relief, is sufficient and
appropriate in these circumstances.14

13

A useful analogy to this case is a situation in which a defendant fraudulently obtains an
interest in a privately held business. Without a sale of those shares, the defendant’s gain is not
yet realized.
14
The relief fashioned by the Court tracks what HeartBrand requested in its amended answer:
“Return or transfer the cattle purchased from Ronald Beeman, [Spears], and Twinwood (along
with their offspring and any other cattle Bear Ranch obtained or produced as a result of those
purchases), subject to any payment or refund that may be adjudged required under the terms of
the [2010 Agreements] or by the Court as a matter of equity,” and “such other and further relief
. . . legal or equitable, to which HeartBrand and Beeman may show themselves to be justly
entitled.” See Docket Entry No. 111 at 24-25 (First Amended Answer).

16

1.

Constructive Trust

One-half of the Court’s proposed remedy is the imposition of a constructive
trust over the Beeman cattle.15 See Burrow v. Arce, 997 S.W.2d 229, 245 (Tex.
1999) (“[W]hether a constructive trust should be imposed must be determined by a
court based on the equity of the circumstances.”); see also KCM Fin. LLC v.
Bradshaw, 457 S.W.3d 70, 87 (Tex. 2015) (“A constructive trust is an equitable,
court-created remedy designed to prevent unjust enrichment.”); Meadows v.
Bierschwale, 516 S.W.2d 125, 128 (Tex. 1974) (“Actual fraud . . . justifies the
imposition of a constructive trust.”); Restatement § 55(1) (“If a defendant is
unjustly enriched by the acquisition of title to identifiable property at the expense
of the claimant or in violation of the claimant’s rights, the defendant may be
declared a constructive trustee, for the benefit of the claimant, of the property in
question and its traceable product.”). To obtain a constructive trust, Texas law
requires: “(1) . . . actual or constructive fraud; (2) unjust enrichment of the
wrongdoer; and (3) an identifiable res that can be traced back to the original

15

Although the Court has termed the remedy a constructive trust, “‘rescission’ may also be used
to describe the avoidance of a transfer when there is no contract to be set aside.” See
Restatement § 54, cmt. a. Although the availability of the rescission remedy in Texas is not as
clear as the Restatement suggests absent an enforceable contract, see Southern Methodist Univ. v.
Evans, 115 S.W.2d 622, 624 (Tex. 1938), the Court nonetheless fashions the constructive trust
remedy similarly to a rescission remedy. “Neither the underlying theory of liability, the
availability of defenses, nor the outcome of a particular case should depend on the language used
to describe the remedy.” Restatement § 54, cmt. a. The Court thus prioritizes substance over
form.

17

property.” See KCM Fin., 457 S.W.3d at 87. Each of these elements is established
in this case.16
Thus, Bear Ranch will hold the Beeman cattle in constructive trust for
HeartBrand: HeartBrand will have an equitable claim to the cattle, and Bear Ranch
must surrender those cattle to HeartBrand upon receipt of payment for Bear
Ranch’s costs as described below.

See Restatement § 55, cmt. b; Ward

Farnsworth, RESTITUTION: CIVIL LIABILITY

FOR

UNJUST ENRICHMENT 119 (2014)

(“A constructive trust is an order stating that property to which the defendant holds
title should and does belong to the plaintiff and must be delivered to him. It can be
used simply to recover property to which the defendant obtained title wrongfully,
as by fraud[.]” (emphasis in original)). This remedy of allowing HeartBrand to
take possession of the cattle has the added benefit of being identical to the one the
parties agreed to in their original contract,17 and the remedy that would apply if the

16

It is irrelevant that the Beeman cattle were not transferred directly from HeartBrand to Bear
Ranch. “In general, whenever the legal title to property, real or personal, has been obtained
through actual fraud, misrepresentations, [or] concealments . . . which render it unconscientious
for the holder of the legal title to retain and enjoy the beneficial interest, equity impresses a
constructive trust on the property thus acquired in favor of the one who is truly and equitably
entitled to the same, although he may never perhaps have had any legal estate therein[.]” 4 S.
Symons, Pomeroy’s Equity Jurisprudence § 1053 (5th ed. 1941) (emphasis added).
17
The Full-Blood Contract includes a provision setting out remedies in the event of breach. It
states:
In the event of a breach of any of the provisions of this Agreement by [Bear
Ranch], HEARTBRAND shall be allowed to entitled to [sic] obtain injunctive
relief to insure that it obtains possession of all cattle described in this agreement
and to prevent [Bear Ranch] from delivering any data obtained under this
agreement to any party and to enforce all other provisions of this agreement.
[Bear Ranch] understands and agrees that the data and genetics of this agreement

18

appellate court agrees with HeartBrand that either (1) the original contract applies
to subsequent sales, or (2) the oral promise that the Beeman transaction would be
governed by the original contract is enforceable. The parties’ choice of remedy in
a similar—and perhaps, depending on what happens on appeal, exact—situation is
entitled to weight in the Court’s consideration of the equities.
As with that contractual remedy, HeartBrand cannot claim the cattle without
first reimbursing Bear Ranch for its acquisition, production, and maintenance
costs.18 See Restatement § 55, cmt. l (“A constructive trustee who has improved
the constructive trust property or defrayed necessary expenses in good faith has a
claim in unjust enrichment against the equitable owner by the rule of § 27
[Claimant’s Expectation of Ownership], remediable where appropriate via

are confidential trade secrets which can only be protected by injunctive relief. In
addition, [Bear Ranch] understands that the unique nature of the Akaushi cattle
and their reputation in the community is an essential element in the value of the
cattle and the business of HEARTBRAND.
Docket Entry No. 211-8 § XVI.
18
The Court recognizes that a lack of liquidity or financing may prevent HeartBrand from
buying back all of the Beeman cattle, especially at one time. It is already facing the prospect of
expending a lot of money in a short time period based on its contractual right to buy back the
cattle from the original 2010 purchase because of Bear Ranch’s breach of the contract. Thus, to
the extent HeartBrand has a liquidity issue, the Court will consider ordering a judicial sale or
auction in which the cattle will be sold directly, without first requiring HeartBrand to acquire
them. Such an auction or sale, conducted under the right conditions, should reflect the true
market value of the unrestricted cattle, and HeartBrand would benefit from any value above the
$6,832,000 required to “pay back” Bear Ranch. See Hearing Transcript Sept. 11, 2014 at 24
(testimony of Koch stating that “the best way” to value an asset is to “sell it so you find out what
the real market price is, and the best way to do that is put it up for an auction”); see also id. at
188 (testimony of Christina Wing-O’Donnell, CEO of Bear Ranch 7X (the ranch and cattle
operation business owned by Koch) explaining that although Bear Ranch’s “first choice would
be to sell back,” they also believe in “fair market value” and “would be fine taking them to
auction at a mutually agreed upon way.”).

19

equitable lien.”). The jury’s determination provides a basis for those costs. See
Docket Entry No. 172 at 24-25. This will prevent HeartBrand from receiving a
windfall and ensure that the remedy is limited to preventing Bear Ranch’s unjust
enrichment, that is, its enrichment attributable to the fraud.
The constructive trust ensures that any increased value once Bear Ranch’s
purchase price and costs of maintenance are taken into account would flow to
HeartBrand, as equitable owner, rather than to Bear Ranch. Cf. Restatement § 55,
cmt. i (“The practical advantages of asset-based restitution are particularly
apparent when the claimant obtains restoration of appreciated property without the
need to prove its value.”). Indeed, if HeartBrand chooses to take possession of the
cattle, it can resell them with or without restrictions to other buyers. Assuming
that its expert’s valuation is correct, the market should allow it to sell the
unrestricted cattle for hefty sums, including up to $50,000 for full-blood bulls and
$35,000 for full-blood cows. See Docket Entry no. 150-1 at 55 (Andrien report).
2.

Injunctive Relief for Remaining Cattle

The constructive trust remedy ensures that no unjust enrichment occurs,
avoids valuation difficulties, and is consistent with the parties’ desire that the deal
be undone if their relationship spoiled, which it undoubtedly has. It does not,
however, address one problem. Imposing a constructive trust over the Beeman
cattle does not prevent Bear Ranch from selling unrestricted cattle from the
20

Twinwood and Spears sales. There was no finding of fraud specifically related to
these two later sales. But any such unrestricted sales undermine the integrity of the
Akaushi program and run the risk, given the possibility of intermingling, that Bear
Ranch would be unjustly enriched on all the cattle it has obtained, including the
Beeman cattle it obtained under fraudulent pretenses.
When the Court inquired at the post-trial hearing about its authority over
these non-Beeman cattle, Bear Ranch responded that the Court’s “equitable powers
are broad.” See Hearing Transcript Sept. 24, 2014 at 102; see also id. at 103
(“[W]e think you have the power to say use those cattle for beef.”). Bear Ranch
also expressed its willingness to comply with an equitable remedy that imposed the
contractual restrictions on all Akaushi that Bear Ranch obtained from any of these
sales.19 Taking these statements as a concession about the scope of the Court’s
equitable powers, and finding even without such a concession that equity requires
ensuring that Bear Ranch not be able to sell any of the Akaushi (or their offspring)
that are at issue in this suit, the Court will issue an injunction requiring Bear Ranch
to abide by the 2010 contract restrictions for any Akaushi that remain. The Court

19

At the hearing, Bear Ranch suggested that “there might be” a possibility that it would stipulate
to including the Twinwood and Spears cattle in the equitable remedy the Court fashioned. See
Hearing Transcript Sept. 24, 2014 at 103; see also id. at 139 (stating that Bear Ranch is
“prepared to restrict [the last 200 cattle] so that we don’t sell them for breeding purposes or they
can buy them back, if they want to buy them back, at the same per animal price”). And in the
post-hearing supplemental briefing, Bear Ranch indicated it “is willing to sell back all of its
cattle, including those bought from Spears and Twinwood,” Docket Entry No. 220 at 2, or to
agree “not to sell its remaining cattle for breeding,” id. at 5.

21

notes that it views this aspect of the remedy as critical to its overall attempt to craft
an equitable remedy that prevents unjust enrichment and a windfall to any party.
To the extent this aspect of the remedy is later deemed to be error, the Court views
it as nonseverable from the other aspects of the remedy; its invalidation would thus
prompt the Court to reconsider in full the exercise of its equitable discretion
reflected in this Order.
To recap, the Court is willing to impose a constructive trust over the cattle
from the Beeman sale, requiring Bear Ranch to surrender those cattle to
HeartBrand if HeartBrand elects to buy them back on the same terms as the
contractual remedy.

Alternatively, the Court will consider a judicial sale or

auction of the Beeman cattle upon HeartBrand’s request. No matter which of these
remedies HeartBrand elects, the Court will also issue an injunction requiring Bear
Ranch to abide by the 2010 contractual obligations as to any remaining Akaushi
cattle.
B. Breach of Contract
Aside from its victory on the fraud claim, HeartBrand also obtained a
favorable jury verdict on its breach of contract claim. The jury found that Bear
Ranch “fail[ed] to comply with the [2010 Agreements]” and that its failure was not
excused.

See Docket Entry No. 172 at 22-23.

HeartBrand now seeks final

judgment on the jury’s verdict and enforcement of the contractual remedy that
22

entitles HeartBrand to repossess the cattle from the 2010 sale. See Docket Entry
No. 211-8 § XVI (Full-Blood Contract).
Bear Ranch objects that it attempted to comply with the AAA requirements
by sending the required payment to the AAA but was locked out of the registry and
thus could not perform its contractual obligations.

HeartBrand points out,

however, that Bear Ranch in fact tendered payment only after the lawsuit was filed
in 2012. See Docket Entry No. 178-94 at 1-2 (Sept. 27, 2013 letter from Bear
Ranch to AAA regarding March 2012 payment). And Robert Gill agreed at trial
that the AAA had not locked Bear Ranch out of the reporting portal nor had it
threatened to suspend Bear Ranch at any point before Bear Ranch filed its lawsuit
in March 2012. See Docket Entry No. 184 at 19-20 (Tr. Transcript May 21, 2014).
This issue was aired before the jury, and the Court finds no basis for undoing its
determination that this tender does not excuse Bear Ranch’s failure to perform its
contractual duties.
Bear Ranch’s main contention in its post-trial briefing is that it was not
provided sufficient notice and opportunity to cure and should thus receive the
contractually provided thirty-day opportunity to comply. The notice and cure
language is found in HeartBrand’s termination clause:
HEARTBRAND may terminate this Agreement, with cause, upon six
(6) months advance written notice to PRODUCER in the event that
PRODUCER violates the rules of the [AAA] or the terms of this
agreement. Upon receipt of the written notice, PRODUCER may
23

avoid the termination if PRODUCER is able to bring its position into
compliance within thirty (30) days of receipt of the written notice.
Docket Entry No. 211-8 § XVII. Bear Ranch did not raise the issue of notice and
opportunity to cure in its Answer to HeartBrand’s Amended Answer, at trial, in its
Rule 50(a) or (b) Motions for Judgment as a Matter of Law, nor at any other time
in this long-running lawsuit. The Court thus finds that the issue is forfeited.20
Even if the argument had been timely raised, however, the Court finds that
the HeartBrand termination clause does not apply. An entirely separate provision,
entitled “Remedies for Breach,” lists the remedies available to HeartBrand “[i]n
the event of a breach of any provisions of this Agreement by [Bear Ranch].”
Docket Entry no. 211-8 § XVI. The remedies provision does not itself require
notice or an opportunity to cure. Id. Nor does it invoke, reference, or incorporate
the notice and opportunity to cure requirements in the HeartBrand termination
clause which immediately follows. See id. That is not unusual. A termination
clause, unless it states that it is exclusive, is generally considered a cumulative
remedy that does not bar other breach of contract rights and remedies. See Olin v.
Central Indus., 576 F.2d 642, 647 (5th Cir. 1978) (citing Williston, A Treatise on
the Law of Contracts, sec. 842, 165 n. 1 (3d ed. 1962)). And HeartBrand had little
20

To the extent that the contract entitled Bear Ranch to notice and an opportunity to cure, and to
the extent that that a fact issue existed as to notice and opportunity to cure, Bear Ranch’s delay in
raising the argument prevented its submission to the jury. It also prevented HeartBrand from
seeking an instruction on exceptions that might apply like futility. This demonstrates the
prejudice that resulted from Bear Ranch’s late raising of this issue.

24

reason to try and terminate the contract which benefits the terminating party by
relieving it of the obligation of further performance.

HeartBrand had no

substantial obligations remaining under the contract to avoid and had been sued by
Bear Ranch for breach of contract. The Court thus concludes that the HeartBrand
termination clause was not intended to supersede the breach clause or establish
prerequisites for asserting a counterclaim for breach of contract. The contract as
written entitles Bear Ranch to notice and opportunity to cure only when
HeartBrand attempts to terminate the agreement, but not when HeartBrand seeks
injunctive relief for a breach.
Finally, the Court notes the substantial evidence that notice and opportunity
to cure was either provided to Bear Ranch, or would have been futile. AAA
correspondence from 2011 cited Bear Ranch’s noncompliance with the contract
requirements. See Docket Entry No. 211-30 (November 4, 2011 letter from AAA
Executive Director Bubba Bain notifying Bear Ranch of its failure to timely pay its
Whole Herd Reporting Invoice); see also Docket Entry No. 184 at 7-11 (Tr.
Transcript May 21, 2014) (testimony by Robert Gill delineating numerous
reminders Bain sent Bear Ranch regarding its failure to comply with the AAA
rules before January 2012).

And Bear Ranch was certainly on notice when

HeartBrand filed its counterclaim for breach of contract on May 7, 2012. See
Docket Entry No. 7. HeartBrand asserted its breach claim only after Bear Ranch
25

initiated this lawsuit seeking to invalidate key portions of a contract that the jury,
by its verdict, enforced.21 In that context, it makes little sense to say that Bear
Ranch lacked notice of its alleged noncompliance with the contract’s terms. For
all these reasons, the Court finds that Bear Ranch was not denied notice nor was it
denied an opportunity to cure its noncompliance.
As for the liability finding, the Court found when it ruled on Bear Ranch’s
Rule 50(b) motion that there is sufficient evidence to support HeartBrand’s claims
of breach of contract based on any of the provisions HeartBrand cited to the jury,
and that evidence supports the jury’s finding to that effect. See Hearing Transcript
Sept. 24, 2014 at 61-62; see also Docket Entry No. 192 at 35-45 (Defendants’
Response to Bear Ranch’s Renewed Motion for Judgment as a Matter of Law)
(detailing ample evidence supporting jury’s verdict of breach including Bear
Ranch’s failure to register offspring of its Akaushi cattle with the AAA, failure to
participate in the AAA Whole Herd Reporting System, and failure to submit
required DNA test results). Therefore, the Court enters judgment on the breach of
contract claim and turns now to the remedy.
It is black-letter contracts law that parties to a contract “are free to limit or
modify the remedies available for breach of their agreement.” See Weaver v.
21

Although the Court ended up agreeing with Bear Ranch that the contract restrictions did not
apply to subsequent sales of the cattle, recall that Bear Ranch through its antitrust and fraudulent
inducement claims sought to invalidate the restrictions even with respect to the cattle obtained in
the original sale.

26

Jamar, 383 S.W.3d 805, 812 (Tex. App.—Houston [14th Dist.] 2012, no pet.); see
also Tex. Bus. & Comm. Code § 2.719(a)(1) (allowing parties to a contract in
goods to provide for remedies in addition or in place of statutory contract
remedies). “If the parties agree to a contractual remedy, that remedy will be
enforced unless it is illegal or against public policy.” SAVA gumarska in kemijska
industria d.d. v. Adv. Polymer Sciences, Inc., 128 S.W.3d 304, 317 (Tex. App.—
Dallas 2004, no pet.). The parties agreed in their 2010 arms-length bargain that
“[i]n the event of a breach . . . by [Bear Ranch], HEARTBRAND shall be allowed
to entitled to [sic] obtain injunctive relief to insure that it obtains possession of all
cattle described in this agreement and to prevent [Bear Ranch] from delivering any
data obtained under this agreement to any party and to enforce all other provisions
of this agreement.” See Docket Entry 211-8 § XVI.
There is no allegation that this remedy is either illegal or against public
policy.

Rather, Bear Ranch concedes that if this Court enters judgment for

HeartBrand on its breach of contract claim “then Bear Ranch is prepared to accept
termination of the contract upon an appropriate buy-back of cattle.” See Docket
Entry No. 199 at 52. And Bear Ranch agreed at the post-trial hearing that it was
prepared to sell the cattle back to HeartBrand, including offspring related to the
original HeartBrand sale, at the jury’s price.22 See Hearing Transcript Sept. 24,

22

The jury found that Bear Ranch spent $6,034,000 acquiring, producing, and maintaining the

27

2014 at 24. The Court thus grants HeartBrand’s request for the contractual remedy
of repossession of the 1,548 head of cattle from the 2010 sale accounted for at the
time of trial for $6,034,000, the price determined by the jury. The Court further
finds that for any HeartBrand progeny that have come into existence since the
evidence was presented at trial, the Court will require HeartBrand to pay $3,898
per head, the average price for each cattle extrapolated from the jury’s verdict. The
Court will allow the parties time to agree on what Bear Ranch should be
compensated for its reasonable maintenance costs since the verdict.
C. Exemplary Damages
Issues concerning the jury’s award of exemplary damages remain. The jury
found by clear and convincing evidence that Bear Ranch’s fraud harmed
HeartBrand, the showing required under Texas Civil Practice and Remedies Code
section 41.003 to obtain exemplary damages. The jury then awarded $1,825,000 to
HeartBrand as exemplary damages. See Docket Entry No. 172 at 20-21. Bear
Ranch contends that the exemplary damages law bars this award.
HeartBrand asserts that Bear Ranch forfeited this argument because it did
not object to the jury questions on exemplary damages or raise the issue in its Rule

cattle it acquired from HeartBrand in 2010. See Docket Entry No. 172 at 24-25. At the time of
trial, that number covered 1,548 cattle. Bear Ranch and HeartBrand now disagree about how
much “extra” HeartBrand must pay to repossess the later-born cattle (between the time of trial
until now). At the September 24 hearing, counsel for Bear Ranch indicated that there could be at
least 300 to 500 more cattle that were at least partially part of the HeartBrand group. See
Hearing Transcript Sept. 24, 2014 at 26.

28

50(a) motion for judgment as a matter of law. See Docket Entry No. 208 at 32. To
the extent that Bear Ranch’s problem with the exemplary damages award is that it
exceeds the statutory cap, HeartBrand’s forfeiture argument is foreclosed by a
recent Supreme Court of Texas opinion. In Zorrilla v. Aypco Construction II, LLC,
the Court held that “the exemplary damages cap is not a ‘matter constituting an
avoidance or affirmative defense’ and need not be affirmatively pleaded because it
applies automatically when invoked and does not require proof of additional
facts.”23 — S.W.3d —, 2015 WL 3641299, at *1 (Tex. June 12, 2015). And to
invoke the cap in a Rule 50(a) motion prior to the verdict would have made little
sense as there is no predicate award to cap until a verdict has been returned. The
Court thus concludes that Bear Ranch did not waive the application of the statutory
cap to the exemplary damages award.
But Bear Ranch raises a more fundamental objection to the exemplary
damages award that is not answered by Zorrilla: it contends, based on arguments
that will soon be described more fully, that an equitable remedy cannot support any
award of exemplary damages. This objection could and should have been raised at
the charge conference, as the proposed verdict form made clear that the jury would
be asked to award exemplary damages on a claim for which no legal damages had
been requested. See Docket Entry No. 18, 20. To the extent an exemplary award
23

“In a diversity case, substantive state law determines what constitutes an affirmative defense.”
LSREF2 Baron, L.L.C. v. Tauch, 751 F.3d 394, 398 (5th Cir. 2014).

29

based on an equitable predicate remedy required additional findings, raising the
issue prior to the jury charge would have allowed for further instructions. The
Court thus finds that Bear Ranch’s lack of objection in either its Rule 50(a) motion
or at the charge conference forfeited this argument.
The Court will nonetheless address the meat of all the exemplary damages
issues. Two questions must be addressed: (1) whether, as a matter of Texas
common law, a nonmonetary equitable remedy can support an award of exemplary
damages and, if so, (2) whether and how the exemplary damages statute applies to
such an award.24
The Supreme Court of Texas answered the first question long ago.

It

explained that when “equity requires the return of property, this ‘recovery of the
consideration paid as a result of fraud constitutes actual damages and will serve as
a basis for the recovery of exemplary damages.’” Nabours v. Longview Savings &
Loan Assoc., 700 S.W.2d 901, 904 (Tex. 1985) (quoting Int’l Bankers Life Ins. Co.
v. Holloway, 368 S.W.2d 567, 583 (Tex. 1963)).25 In such a situation, Texas law
requires “findings of the fair market value of the property returned to the plaintiff”

24

It is only the latter part of the second issue—how the cap applies to the award in this case—
that the Court finds is preserved. Both the common law and statutory questions about whether
an exemplary damages award can apply in any case with an equitable remedy was not preserved
for the reasons discussed above.
25
Nabours approvingly cited Fillion v. Troy, 656 S.W.2d 912, 915 (Tex. App.—Houston [1st
Dist.] 1983, writ ref’d n.r.e.), which had held that “[a]lthough there is authority to the contrary,
the greater Texas authority supports the awarding of exemplary damages when rescission is
allowed, even though no actual damages are awarded.”

30

to allow a reviewing court to assess whether “punitive damages [] bear a
reasonable proportion to actual damages.” Id. at 904-05. Nabours thus treats a
return of property via an equitable remedy such as rescission or a constructive trust
as a form of “actual damages” for purposes of an exemplary damages award, even
though “damages” traditionally refers to a legal rather than equitable remedy. Id.
Does Texas’s exemplary damages statute, which was first enacted in 1987 a
couple years after Nabours and then substantially amended in 1995, override
Nabours and permit exemplary damages only when a legal remedy of damages has
been awarded? Bear Ranch contends that it does, citing the following language:
“exemplary damages may be awarded only if damages other than nominal damages
are awarded.” Tex. Civ. Prac. & Rem. Code § 41.004(a). HeartBrand counters
that Bear Ranch’s argument proves too much.

HeartBrand focuses on the

provision “appl[ying]” the exemplary damages statute “to any action in which a
clamant seeks damages relating to a cause of action.” Id. § 41.002(a) (emphasis
added). HeartBrand thus argues that the statutory scheme, by its own terms, has no
application to an exemplary award supported by an underlying equitable remedy as
permitted by Nabours.26 See Docket Entry No. 208 at 33-34.

26

The Fifth Circuit recently certified a related, but not controlling, question to the Supreme
Court of Texas that implicates the scope of the “applicability” provision in section 41.002(a):
does the phrase “action in which a claimant seeks damages relating to a cause of action”
encompass an action for statutory civil penalties? See Forte v. Wal-Mart Stores, Inc., 780 F.3d
272, 283 (5th Cir. 2015) (Question 1).

31

Both parties’ arguments have some textual force. A leading commentator
agrees with Bear Ranch’s view that “[e]quitable relief is apparently insufficient to
support an award of exemplary damages under the exemplary damages statutes,
although under common-law principles, equitable relief that requires the tortfeasor
to return property to the injured party will support an exemplary damage award.”
See William V. Dorsaneo III, Texas Litigation Guide § 20.01[2][c][i] (2015)
(citations to statute and Nabours omitted). The treatise cites no cases supporting
that view, however, and it is the interpretation that Texas courts have given the
exemplary damages statute that matters most for this Erie question. See Fidelity
Union Trust Co. v. Field, 311 U.S. 169, 177 (1940) (“An intermediate state court
in declaring and applying the state law is acting as an organ of the State and its
determination, in the absence of more convincing evidence of what the state law is,
should be followed by a federal court in deciding a state question.”). In the
absence of guidance from the Supreme Court of Texas, federal courts must defer to
the prevailing view of the state intermediate courts, even more so if that view is
uniform, “unless convinced by other persuasive data that the highest court of the
state would decide otherwise.” Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 229
(5th Cir. 2010) (internal quotation marks and citation omitted).

32

Texas intermediate courts have consistently confirmed Nabours’s vitality
since the enactment of the exemplary damages statute.27 See Van Voris v. Team
Chop Shop, LLC, 402 S.W.3d 915, 925 (Tex. App.—Dallas 2013, no pet.)
(confirming that the “requirement of proof [of actual damages] . . . does not equate
in all cases with entitlement to actual damages” and recognizing that “the Texas
Supreme Court acknowledged in Nabours there may be instances in which actual
damages are not recoverable; yet in those instances, the claimant still must secure a
finding on the existence and amount of actual damages to support the punitive
damages award”); Kelley v. Kelley, 2004 WL 2359986, at *4 (Tex. App.—Eastland
2004, no pet.) (finding that “[w]hile appellee did not recover monetary damages
against appellant, he obtained an equitable recovery based upon appellant’s fraud
by virtue of the trial court rescinding the challenged conveyances,” and because the
statutory fraud statute allows equitable remedies recoverable as “actual damages,”
the rescission was sufficient to support exemplary damages); Lesikar v. Rappeport,
33 S.W.3d 282, 310 (Tex. App.—Texarkana 2000, pet. denied) (citing Nabours,
700 S.W.2d at 904 n.3, for the proposition that “the Supreme Court has authorized
the recovery of punitive damages in actions sounding in equity, even where there is
no award of typical actual damages” and finding that the recovery of a property
27

The 1987 statutes included the language Bear Ranch relies on—“exemplary damages may be
awarded only if damages other than nominal damages are awarded,” 1987 Tex. Sess. Law 1st
C.S. ch. 2 (S.B. No. 5) —so decisions since then are relevant to this inquiry. In any event, all of
the cases relied upon in this opinion postdate 1995, the year that the exemplary damages statutes
were amended.

33

interest supported a punitive damages award); Procom Energy, L.L.A. v. Roach, 16
S.W.3d 377, 385 (Tex. App. —Tyler 2000, pet. denied) (holding that “punitive
damages may be recoverable where equitable relief is granted [even when] the
promised interest has not been conveyed, despite the absence of jury findings of
actual damages”);28 Scott v. Sebree, 986 S.W.2d 364, 369 n.5 (Tex. App. —Austin
1999, pet. denied) (noting that since 1963 Texas courts have “often award[ed]
exemplary damages in cases involving willful torts when a party elects equitable
relief instead of actual damages” and citing cases including Nabours). The issues
in all of these cases are not identical to the issue in this case; only Kelley, Lesikar,
and Procom involved review of an exemplary damages award with an underlying
equitable remedy. Nor did the defendants in all of these cases raise the same
statutory arguments Bear Ranch asserts here. But the uniform view of five Texas
courts of appeals that Nabours continues to govern the availability of an award of
exemplary damages when the underlying remedy is of a nonmonetary equitable
nature is strong evidence of the current state of Texas law on this subject. See
Howe ex rel. Howe v. Scottsdale Ins. Co., 204 F.3d 624, 628 (5th Cir. 2000)

28

The Procom court found that the Texas Supreme Court’s reference to a “return of property” in
Nabours was not a requirement that an equitable remedy involve return of property in order to
support an exemplary damages award. See 16 S.W.3d at 385. The Court considers this
interpretation of Nabours significant, as the Beeman cattle were not conveyed directly from
HeartBrand to Bear Ranch and thus are not strictly being “returned.” In addition, the unique
arrangement in which HeartBrand had to agree to the Beeman sale, and owned the cattle until a
last-minute sale to Beeman, does make this case functionally equivalent to a return.

34

(following the view taken by four of five Louisiana intermediate courts that had
addressed an issue).
Without any Texas decision lending support to its view,29 Bear Ranch faces
a difficult task in convincing this Court that Texas’s highest court would disagree
with the courts of appeals. See Howe, 204 F.3d at 627 (noting that decisions of
intermediate state courts are “datum for ascertaining state law which is not to be
disregarded by a federal court unless it is convinced by other persuasive data that
the highest court of the state would decide otherwise” (internal quotation marks
and citation omitted)). As previously noted, Bear Ranch’s view does have some
textual support (though so does HeartBrand’s view that the “applicability”
provision does not apply to a claim seeking equitable relief). Yet some commonly
accepted principles of statutory construction validate the unanimous view of the
courts of appeals that have considered the issue.

Texas courts have long

recognized a “presum[ption] that the Legislature acted with knowledge of the
common law and court decisions.” Phillips v. Beaber, 995 S.W.2d 655, 658 (Tex.
1999) (citing McBride v. Clayton, 166 S.W.2d 125, 128 (1942)); Koy v. Schneider,

29

The only case Bear Ranch supports for its position, Mullins v. TestAmerica, Inc., 564 F.3d 386
(5th Cir. 2009), stands only for the well accepted principle that some underlying remedy for a
cause of action must support an award of exemplary damages. Mullins cited the statutory
language in section 41.004 about “damages other than nominal damages” on which Bear Ranch
relies, but was a situation in which no predicate for an exemplary award existed because the
plaintiffs did not ask for any remedy on their fraud claim, either legal or equitable. Because
Mullins did not involve an award of equitable relief, it did not address Nabours or the Texas
courts of appeals cases applying it since the enactment of section 41.004.

35

221 S.W. 880, 889 (1920). The language invoked by Bear Ranch was enacted in
1987, against the backdrop of the Supreme Court of Texas having recently
reaffirmed that “damages” for purposes of the predicate remedy supporting an
exemplary damages award can include an equitable return of property. Nabours,
700 S.W.2d at 904-05 & n.3; see also Mack v. Newton, 737 F.2d 1343, 1363 (5th
Cir. 1984) (observing before Nabours that Texas, “contrary to what appears to be
the majority rule, will not deny exemplary damages simply because an action is
equitable, rather than legal”) (citation omitted). There is not clear language in the
exemplary damages statute indicating that the legislature intended to change
Texas’s common law position traced back to 1855 that an equitable “recovery of
the consideration paid as a result of fraud constitutes actual damages, and will
serve as a basis for the recovery of exemplary damages.” See Holloway, 368
S.W.2d at 583 (emphasis added, internal quotation marks omitted) (tracing this
view back to Oliver v. Chapman, 15 Tex. 400 (1855)); see also Antonin Scalia &
Bryan Garner, READING

LAW:

THE INTERPRETATION

OF

LEGAL TEXTS 318 (2012)

(“The better view is that statutes will not be interpreted as changing the common
law unless they effect the change with clarity.”). And Texas courts have long
recognized that, so long as there is a valuation of the equitable remedy that allows
for proportionality review, an equitable remedy may implicate the deterrence
rationale of exemplary damages just as much as a legal one. See Holloway, 368
36

S.W.2d at 584 (“The remedy elected by plaintiff should not preclude the recovery
of exemplary damages . . . . It is consistent with equitable principles for equity to
exact . . . not only the profits rightfully belonging to the [plaintiff] but an additional
exaction for unconscionable conduct. There should be a deterrent to conduct which
equity condemns and for which it will grant relief.”). The Court thus finds that the
uniform view of all Texas courts of appeals that have considered the issue is the
best predictor of the current state of Texas law: the Court’s equitable remedy is a
predicate form of “damages” that can support an exemplary award under section
41.004(a).
The Court now turns to the proportionality review that the statute requires.
Exemplary damages cannot exceed “two times the amount of economic damages.”
See Tex. Civ. Prac. & Rem. Code § 41.008(b)(1)(A). The jury awarded $1.825
million in exemplary damages to HeartBrand.30 It thus takes an equitable award
transferring or auctioning property with a fair market value of only $912,500 to
support the exemplary award.

See Nabours, 700 S.W.2d at 904-05 (finding

significant that the jury in Fillion “made findings of the fair market value of the
property returned to the plaintiff”). The jury, of course, determined that Bear
Ranch was unjustly enriched by over $23 million, meaning that it assessed the

30

“[T]he determination of whether to award exemplary damages and the amount of exemplary
damages to be awarded is within the discretion of the trier of fact.” Tex. Civ. Prac. & Rem.
Code § 41.010(b).

37

value of the restrictions at that amount. Only four percent of the $23 million
assessment need be supported by the evidence to support the exemplary award.
The Court concludes that that the record easily supports a valuation of the
returned property of at least $912,500. The Beeman cattle were purchased for a
total of $2,494,000 ($4,750 per head for cows and $8,500 per head for bulls).
Docket Entry No. 72-13. That sale was made with the understanding that the cows
would be restricted. Review of the record in this case leaves little doubt that a
premium exceeding 36% (the $912,500) would have been charged if this were the
first sale of a sizeable number of HeartBrand-bred Akaushi without restrictions.
Among other factors, this value is clear from the limited pricing date that does
exist, the testimony concerning how an unrestricted herd of this size would enable
Bear Ranch to quickly breed a competing line of Akaushi, and the fact that the
restrictions were significant enough for Bear Ranch to file this lawsuit and incur
hundreds of thousands of dollars in expenses in an effort to invalidate the
restrictions.
The Court thus will enter a judgement reflecting the jury’s exemplary
damage award against Bear Ranch in the amount of $1,825,000.

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IV.

CONCLUSION

For these reasons, the Court GRANTS IN PART and MODIFIES IN
PART HeartBrand’s Motion for Entry of Final Judgment (Docket Entry No. 193).
The Court will enter judgment in favor of HeartBrand on its fraud and breach of
contract claims with the relief described above. Within ten days of the issuance of
this order, the parties shall jointly file a proposed final judgment reflecting this
ruling as well as the previous rulings on the claims for declaratory relief. If the
parties cannot agree on the substance of certain aspects of that final judgment, the
joint submission shall identify the parties’ different positions. Within thirty days
of the issuance of this order, any request for costs or attorneys fees shall be filed.
SIGNED this 4th day of September, 2015.

_________________________________
Gregg Costa
United States Circuit Judge
(Sitting by Designation)

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