Varel International Industries, L.P. v. PetroDrillBits International, Inc.

Citation: Not availableDocket: 05-14-01556-CV

Court: Court of Appeals of Texas; August 30, 2016; Texas; State Appellate Court

Original Court Document: View Document

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The Court of Appeals for the Fifth District of Texas affirmed the trial court's judgment awarding PetroDrillBits International, Inc. $214,421.32 in damages for breach of contract against Varel International Industries, L.P. and Varel Europe, S.A.S. Varel International and Varel Europe raised two main issues on appeal: they contended that the trial court erred in overruling their objection to the jury charge and denying their motions for directed verdict, judgment notwithstanding the verdict, and new trial due to insufficient evidence supporting the jury’s damages award. The court concluded that the trial court acted correctly in these rulings, thereby affirming the judgment.

The background of the case involves a Sales Technical Service Representation Agreement established in August 2006 between PetroDrillBits and Varel International, where PetroDrillBits was designated as an authorized sales representative for Varel's products in Eastern Europe. The agreement specified commission payments based on the net selling price of drill bit products and included terms for renewal unless terminated with appropriate notice. Varel Europe, a subsidiary of Varel International, later became involved in the reporting structure related to PetroDrillBits.

The factual context reveals that discussions regarding sales opportunities began in April 2009, leading to meetings between PetroDrillBits and potential buyers in Houston, Texas, including a planned sale of Varel drill bits to a new company, MMS Holdings Group, L.L.C., formed by Mark Sadykhov. Leslie Schreiber from PetroDrillBits communicated the anticipated sales figures for the new venture, projecting significant revenue growth.

In June 2009, Leslie and David Schreiber met with Sadykhov in Houston, leading to a subsequent meeting with Sadykhov's operations team in Moscow, arranged and funded by PetroDrillBits. The Schreibers invited Pontneau to this meeting, but he declined. PetroDrillBits also organized a meeting in Amsterdam to introduce Sadykhov to Pontneau, covering all associated costs. Throughout the summer, discussions continued regarding MMS’s interest in Varel bits and technical services. 

In late July, while traveling to Pau for a scheduled meeting with Pontneau, Leslie Schreiber was informed via email that Pontneau could not meet. In August, Schreiber facilitated a Dallas meeting to introduce Sadykhov to Nixon. However, communication difficulties arose with Pontneau, who subsequently announced on September 10, 2009, the termination of Varel International's agreement with PetroDrillBits, effective July 31, 2010, due to automatic renewal. 

On September 17, 2009, a new agreement was executed between Varel Europe SAS and MMS, signed by Nixon. A letter from Nixon to PetroDrillBits on September 22 clarified the termination, stating PetroDrillBits would not receive commissions on sales made to MMS. By December 2009, MMS began purchasing directly from Varel, with sales totaling $2,170,221 before the termination date, for which PetroDrillBits claimed approximately $214,000 in commissions. 

PetroDrillBits filed suit against Varel International and Varel Europe for breach of contract, later nonsuiting its fraud and conspiracy claims. In its fourth amended petition, PetroDrillBits sought damages based on the commission owed under the contract. Varel International and Varel Europe denied the claims and countered with their own lawsuit against PetroDrillBits for breach of contract and misappropriation of trade secrets, leading to case consolidation. 

During the trial, Varel International and Varel Europe requested a directed verdict due to insufficient evidence of damages, which the court denied. The jury ultimately ruled in favor of PetroDrillBits, awarding $214,421.32 in damages and attorneys' fees for the breach-of-contract claim.

The jury ruled against Varel International and Varel Europe on their claims of breach of contract and misappropriation of trade secrets. They subsequently filed a motion for judgment notwithstanding the verdict, arguing insufficient evidence supported the jury's damages award and that PetroDrillBits could not recover attorneys' fees as a matter of law. The trial court finalized the judgment, implicitly denying their motion. Varel International and Varel Europe also sought a new trial on the grounds of insufficient evidence for the damages award, which was overruled by operation of law.

In addressing the sufficiency of evidence, Varel International and Varel Europe contended that the trial court erred by denying their objections to the jury charge and their motions for directed verdict, judgment notwithstanding the verdict, and new trial due to alleged legal insufficiency supporting the jury's damages award to PetroDrillBits. They claimed that while it was acknowledged that costs would have been incurred had PetroDrillBits performed services post-sale, the company failed to present evidence of those costs. PetroDrillBits countered that sufficient evidence existed for the jury to determine that it had provided necessary sales and technical services, leading to sales to MMS during the agreement's term, and that it was entitled to commissions without incurring additional expenses. 

The document outlines the standards of review for jury charge rulings, directed verdict motions, judgment notwithstanding the verdict, and motions for new trial, emphasizing that an appellate court reviews these for abuse of discretion or as a question of law.

PetroDrillBits asserts that it has already incurred expenses that Varel International and Varel Europe claim would have arisen if the contract had been executed. For a breach of contract claim to succeed, it must demonstrate: 1) a valid contract; 2) performance or attempted performance by the plaintiff; 3) a breach by the defendant; and 4) damages due to the breach. Damages must be quantified by a legal standard aimed at compensating the injured party, protecting restitution, reliance, and expectation interests. 

In the current case, the jury determined that Varel International and Varel Europe breached the contract, and the jury subsequently awarded PetroDrillBits $214,421.32 in damages, reflecting unpaid commissions. The appeal revolves around whether PetroDrillBits would have incurred additional costs if the contract remained active. Varel International and Varel Europe do not dispute the commission amount but argue that PetroDrillBits did not demonstrate the costs it would have incurred for technical services post-sale, despite admitting such services were required by the agreement.

Conversely, PetroDrillBits claims it was not obligated to incur further costs after sales to MMS and argues it had already covered the expenses suggested by Varel International and Varel Europe. Testimony revealed that PetroDrillBits' agreement allowed but did not obligate them to provide technical services, aligning with Leslie Schreiber's assertion that they offered such services. Additionally, the agreement specified that PetroDrillBits would pay its own expenses and receive commissions solely on sales, with Varel International reporting sales of drill bits to MMS totaling $2,170,221.45.

The contract between Varel International and PetroDrillBits included a commission calculation schedule, which was not contested at trial. The jury's decision to award damages to PetroDrillBits was supported by sufficient evidence, leading to the trial court's rejection of Varel International and Varel Europe’s challenges regarding the jury instructions and motions for a directed verdict, judgment notwithstanding the verdict, and new trial. 

In a separate issue, Varel International and Varel Europe contended that the trial court improperly denied their motion against the jury's determination regarding attorneys’ fees under Texas Civil Practice and Remedies Code section 38.001. They argued that this section does not permit recovery of attorneys’ fees from limited partnerships (L.P.) or sociétés par actions simplifiées (S.A.S.) and stated that their entities fall under these classifications. In contrast, PetroDrillBits maintained that there was insufficient evidence to prove Varel International's status as a limited partnership and argued that Varel Europe is a French corporation (S.A.S.). They contended that attorneys’ fees could be recovered from partnerships and limited liability companies, opposing the narrower interpretations of section 38.001 seen in some appellate decisions.

Texas adheres to the American Rule, allowing recovery of attorneys’ fees only when statute or contract provides for it. Section 38.001 specifies that attorneys’ fees can only be awarded against individuals or corporations, excluding L.L.P.s, L.L.C.s, or L.P.s. The documentation in the case identified Varel International as a limited partnership and Varel Europe as an S.A.S. PetroDrillBits’ petition and trial evidence referred to these entities as such. Despite the jury charge defining Varel International as Varel International Industries, L.P., PetroDrillBits did not object to this definition. Testimonies indicated that Varel International has its corporate headquarters in Texas, while Varel Europe is headquartered in France, with key individuals identified as holding positions within both entities.

The agreement between Varel Europe and MMS identifies Varel Europe SAS as a subsidiary of Varel International, Inc., with its principal place of business in Pau, France, and it was signed by Nixon as an officer of Varel International, Inc. Varel International and Varel Europe contended that a legal principle barred PetroDrillBits from recovering attorneys’ fees; however, conflicting evidence regarding their legal status arose during the trial. This led to a factual issue, necessitating the application of a legal sufficiency standard of review. The court concluded there was sufficient evidence to classify Varel International and Varel Europe as corporations eligible for an attorneys’ fee award, affirming the trial court’s denial of their motion for judgment notwithstanding the verdict concerning the jury’s award of attorneys’ fees to PetroDrillBits.

The trial court also did not err in overruling objections to the jury charge or in denying motions for directed verdict, judgment notwithstanding the verdict, and new trial, as there was sufficient evidence supporting the jury's award of damages to PetroDrillBits. Consequently, the trial court’s judgment was affirmed, ordering Varel International and Varel Europe to cover the costs of the appeal and the full amount of the trial court’s judgment, with Federal Insurance Company as surety on the supersedeas bond. Judgment was entered on August 30, 2016.