Appeals from the United States District Court for the
Northern District of Texas
BARKSDALE, SOUTHWICK, and HAYNES, Circuit Judges.
HAYNES, CIRCUIT JUDGE.
appeal involves two competing versions of the history and
purpose of Latitude Solutions, Inc. ("LSI"). Howard
Appel, Earnest Bartlett, Matthew Cohen, and John Paul DeJoria
("Appellants") characterize LSI as a publicly
traded company which sought to commercialize technology that
could remediate contaminated water but was unsuccessful as a
speculative venture. On the other hand, LSI's bankruptcy
trustee, Carey Ebert, characterizes LSI as a fraud from its
inception-used only as a mechanism for Appellants to
participate in and profit from a securities fraud scheme.
Ebert sued several of LSI's corporate officers,
directors, and investors for breaches of fiduciary duty. By
the end of trial, her case focused primarily on a contract
LSI entered into with Jabil Inc., one of LSI's bankruptcy
creditors. The jury found Appellants liable and assessed
millions of dollars in compensatory and exemplary damages.
Appellants present various arguments for why we should
overturn the jury verdict and reduce damages, including
whether Ebert has Article III standing and whether there was
legally sufficient evidence for the jury to find as it did.
We AFFIRM in part, REVERSE and RENDER in part, VACATE in
part, and REMAND for further consideration consistent with
appeal stems from a jury verdict and final judgment
adjudicating Matthew Cohen and John Paul DeJoria liable for
breaches of fiduciary duty to LSI and finding Howard Appel
and Earnest Bartlett liable for aiding and abetting those
breaches. The final judgment awards Ebert compensatory
damages against (i) Appel, Bartlett, Cohen, and DeJoria for
$6.9 million, jointly and severally, for Cohen's breach
of fiduciary duty; (ii) Appel and Bartlett for $2.5 million
each for aiding and abetting Cohen's breach of fiduciary
duty; (iii) DeJoria for $1.5 million for his breach of
fiduciary duty; and (iv) Appel for $5 million, Cohen for $2
million, and DeJoria for $1 million in exemplary damages.
parties disagree on the basic premise of LSI's formation.
Ebert asserts LSI was a sham company set up to fail from the
outset, and a vehicle for Appellants to participate in a
securities fraud scheme known as "pump-and-dump,"
while Appellants claim LSI was legitimately founded to
develop and commercialize technology capable of remediating
contaminated water. LSI was a publicly traded company that
began operating in 2009 and developed patented technology for
treatment of wastewater in the oil and gas industry. LSI was
a speculative venture that eventually filed for bankruptcy in
was one of the founding members of LSI and served as an
officer and director of LSI from March 2009 through June
2012. Cohen was the Chief Financial Officer of LSI from June
2011 to June 2012.
was a business consultant to and raised capital for LSI. In
2004, before LSI existed, Appel pled guilty to conspiracy to
commit securities fraud as well as conspiracy to commit money
laundering and served twenty-one months in prison. The
parties vehemently disagree whether this is relevant to LSI.
The trustee uses Appel's conviction as evidence of a
pattern of nefarious behavior, while Appellants argue
Appel's past is the only reason for the trustee's
lawsuit, despite no evidence that Appel engaged in any
criminal conduct related to LSI. An LSI board member
introduced Appel to the company in 2010, which eventually led
to Appel's family and friends investing in LSI beginning
in February 2011. Appel was responsible for raising at least
$12 million in capital for LSI through outside investors.
Appel did not purchase or sell any shares of LSI stock.
is a friend and business associate of Appel. Appel introduced
Bartlett to LSI. A company affiliated with Bartlett, FEQ
Realty, invested in LSI beginning in December 2010. In April
2011, FEQ Realty entered into a consulting agreement with
LSI. Appel provided his consulting services to LSI as an
outside consultant under FEQ Realty's consulting
agreement. Bartlett never purchased or sold any LSI stock.
John Paul DeJoria
is an entrepreneur and philanthropist with an interest in
developing clean-water solutions. He invested and lost over
$11 million in LSI beginning in March 2011. For most of 2012,
DeJoria was LSI's primary source of funding. DeJoria
served on LSI's board of directors from October 2011 to
Inc., is not a party to the case but plays a crucial role
here. In May 2011, Jabil entered into an agreement with LSI
to manufacture remediation equipment. The parties dispute
whether the deal was done for legitimate purposes. Jabil is a
creditor in LSI's bankruptcy, with a claim for $9.55
million. By the end of evidence at trial, the trustee
conceded the only damages the estate could recover were 1)
the amount of the Jabil debt and 2) the amount of any gains
to the defendants that the trustee could specifically link to
LSI's Bankruptcy and the District ...