                        COURT OF APPEALS
                        SECOND DISTRICT OF TEXAS
                             FORT WORTH

                             NO. 02-13-00439-CV


WISE ELECTRIC COOPERATIVE,                            APPELLANT/APPELLEE
INC.

                                      V.

AMERICAN HAT COMPANY                                  APPELLEE/APPELLANT


                                   ----------

       FROM THE 97TH DISTRICT COURT OF MONTAGUE COUNTY
                TRIAL COURT NO. 2007-0000383M-CV

                                   ----------

                                  OPINION

                                   ----------

                               I. INTRODUCTION

      Appellee and Cross-Appellant American Hat Company (AHC) sued

Appellant and Cross-Appellee Wise Electric Cooperative, Inc., for negligence

following a catastrophic grass fire that consumed roughly 1,200 acres and was

caused by an overhead service wire becoming disconnected at a Wise Electric

utility pole. Thick smoke from the fire damaged AHC’s inventory of 490,092 hats
and “hat bodies”; much of this inventory was stored in twelve forty-foot sea

containers parked outside AHC’s western-hat manufacturing plant in Bowie,

Texas. Following a five-day bench trial, the trial court issued sixty-four findings of

fact and seventeen conclusions of law1 and signed a judgment awarding AHC

$13,385,969.37 in personal property damages and $5,100,379.00 for past lost-

profits damages. The judgment also awarded Wise Electric a $49,188.31 credit

and an offset of $2,578,067.00. AHC and Wise Electric both perfected appeals.2

         Wise Electric raises seven issues on appeal; six issues challenge various

aspects of the trial court’s damage findings, and one issue challenges the trial

court’s finding that Wise Electric was negligent.3 AHC appeals the $2,578,067.00

offset. We will affirm the trial court’s judgment on negligence and damages, and

we will reverse the judgment’s offset award and remand that claim to the trial

court.

         1
       A copy of the trial court’s findings of fact and conclusions of law is
attached to this opinion as Appendix A.
         2
        We note at the outset that this case was previously tried and appealed.
See Am. Hat Co. v. Wise Elec. Coop., Inc., No. 02-09-00368-CV, 2010 WL
4028098, at *8–9 (Tex. App.—Fort Worth Oct. 14, 2010, pet. denied) (mem. op.).
In the first appeal, we reversed the trial court’s judgment and remanded the case
for a new trial. Id.
         3
        The arguments and authorities section of Wise Electric’s brief is not
tethered to the specific issues raised by Wise Electric; some of the headings in
the arguments and authorities section raise arguments not subsumed within any
issue, and some issues raise arguments not discussed in the arguments and
authorities section. We liberally construe Wise Electric’s issues and address
every argument fairly subsumed in them. See Tex. R. App. P. 38.1(f) (providing
that issue will be treated as covering every subsidiary question fairly included).

                                          2
                      II. OVERVIEW OF FACTUAL BACKGROUND4

      The fire giving rise to this lawsuit originated at Wise Electric pole meter

number 04610 located on Charles Anderson’s property in Wise County. In 1998,

Wise Electric had installed an overhead service line at the pole utilizing a Burndy

Insulink connector.       The electrically-charged overhead service line became

disconnected from one end of the Insulink connector, and the disconnected line

contacted the ground wire on the pole, which caused electrical arcing.         The

arcing melted the ends of the metal wires in the disconnected line, and molten

metal fell to the underlying dry grass. It was a dry, windy day, and the grass

ignited, resulting in the fire.5 In addition to approximately 900 to 1,200 acres of

native grass, several structures, vehicles, and campers were consumed. Thirty-

three fire trucks, an EMS vehicle, twenty other types of vehicles, and over one

hundred fire-fighting personnel responded to          assist in containing and

extinguishing the fire.

      The fire burned past the back of AHC’s western-hat manufacturing plant,

burning barrels of lacquer located behind the factory and generating heat


      4
        A more detailed review of the evidence pertinent to Wise Electric’s
sufficiency challenges is set forth in connection with our disposition of those
issues.
      5
        The Fire Chief for the Bowie Fire Department—Doug Page, Wise
Electric’s assistant manager—Kelly Myers, AHC’s electrical engineer and
certified fire and explosion experts—John Stewart and Freeman Reisner all
testified that they had investigated the fire and that the above sequence was how
the fire started.

                                         3
sufficient to cause bricks to pop from the building. Heavy smoke from the fire

engulfed the plant, which housed machinery, some hat inventory, and some

completed hats awaiting shipping. The smoke was so dense around the plant

that visibility in that area was limited to ten feet and surrounding roads were

blocked off. The smoke, soot, and ash penetrated AHC’s plant, entering through

the ventilation system and from under the doors and sullying the plant’s walls,

floors, and machinery.    The smoke also penetrated the twelve forty-foot sea

containers that were filled with additional hat inventory.6 A strong smoke stench

saturated AHC’s entire inventory of 490,092 western hats that were in various

stages of completion and were stored either in the plant or in the sea containers.

Photos were introduced into evidence showing the devastation wrought by the

fire at and around AHC’s plant. An outside company was hired to clean the

plant, and AHC had to stop its manufacturing processes until the plant and

equipment had been cleaned and until it had obtained new hat inventory.

                         III. ATTACK ON PRIOR JUDGMENT

      In its seventh issue, Wise Electric requests that we reinstate the jury’s

damages findings from the first trial. Wise Electric asserts that this court erred in

      6
       AHC’s commercial property and casualty insurer—Traveler’s Lloyds
Insurance Company—later rented five additional sea containers to store the hat
inventory from AHC’s plant while the plant and equipment were cleaned after the
fire. Traveler’s Lloyds Insurance Company merged with Saint Paul Fire and
Marine Insurance Company in 2004 to become Saint Paul Lloyds.
Consequently, in the record, AHC’s insurer is referred to both as The Travelers
Lloyds Insurance Company and Saint Paul Travelers. For purposes of this
opinion, we refer to AHC’s insurer as Travelers.

                                         4
the reverse-and-remand judgment we issued after the first appeal in this case. 7

But Wise Electric petitioned the Texas Supreme Court to review that judgment,

the Texas Supreme Court denied Wise Electric’s petition, our mandate issued,

and the case was remanded to the trial court and retried. Thus, our plenary

jurisdiction over our judgment in the first appeal has expired. See Tex. R. App.

18.1, 19.1; Tex. Gov’t Code Ann. § 22.225 (West Supp. 2014).                We lack

jurisdiction to reinstate the jury’s damage findings from the first trial. See Tex. R.

App. P. 19.3 (listing limited actions appellate court may take after expiration of

plenary power over judgment), 43.2 (listing types of judgment an appellate court

can render); see also Browning v. Prostok, 165 S.W.3d 336, 345–47 (Tex. 2005)

(recognizing that only void judgments are subject to collateral attack and that a

judgment is void only when court had “no jurisdiction of the parties or property,

no jurisdiction of the subject matter, no jurisdiction to enter the particular

judgment, or no capacity to act”). We overrule Wise Electric’s seventh issue.

           IV. WISE ELECTRIC’S EVIDENTIARY-SUFFICIENCY CHALLENGES

      Wise Electric’s first, second, third, and fifth issues challenge the legal and

factual sufficiency of the evidence to support the trial court’s findings of fact

concerning Wise Electric’s negligence and AHC’s damages.




      7
       See Am. Hat Co., 2010 WL 4028098, at *8–9.

                                          5
                            A. Standards of Review

      A trial court’s findings of fact have the same force and dignity as a jury’s

answers to jury questions and are reviewable for legal and factual sufficiency of

the evidence to support them by the same standards. Catalina v. Blasdel, 881

S.W.2d 295, 297 (Tex. 1994); Anderson v. City of Seven Points, 806 S.W.2d

791, 794 (Tex. 1991); see also MBM Fin. Corp. v. Woodlands Operating Co., 292

S.W.3d 660, 663 n.3 (Tex. 2009). We defer to unchallenged findings of fact that

are supported by some evidence.        Tenaska Energy, Inc. v. Ponderosa Pine

Energy, LLC, 437 S.W.3d 518, 523 (Tex. 2014).            We review de novo the

conclusions of law drawn by the trial court from the facts to determine their

correctness. See BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794

(Tex. 2002). Because a trial court’s conclusions of law are not binding on us, we

will not reverse a trial court’s judgment based on an incorrect conclusion of law

when the controlling findings of fact support the judgment on a correct legal

theory. See, e.g., Karns v. Jalapeno Tree Holdings, L.L.C., 459 S.W.3d 683, 690

(Tex. App.—El Paso 2015, pet. denied) (citing Quick v. City of Austin, 7 S.W.3d

109, 116 (Tex. 1998)).

      We may sustain a legal-sufficiency challenge only when (1) the record

discloses a complete absence of evidence of a vital fact, (2) the court is barred

by rules of law or of evidence from giving weight to the only evidence offered to

prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a

mere scintilla, or (4) the evidence establishes conclusively the opposite of a vital

                                         6
fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998),

cert. denied, 526 U.S. 1040 (1999); Robert W. Calvert, “No Evidence” and

“Insufficient Evidence” Points of Error, 38 Tex. L. Rev. 361, 362–63 (1960). In

determining whether there is legally-sufficient evidence to support the finding

under review, we must consider evidence favorable to the finding if a reasonable

factfinder could and disregard evidence contrary to the finding unless a

reasonable factfinder could not. Cent. Ready Mix Concrete Co. v. Islas, 228

S.W.3d 649, 651 (Tex. 2007); City of Keller v. Wilson, 168 S.W.3d 802, 807, 827

(Tex. 2005).

      Anything more than a scintilla of evidence is legally sufficient to support the

finding. Cont’l Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 450 (Tex. 1996);

Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex. 1996). When the evidence offered

to prove a vital fact is so weak as to do no more than create a mere surmise or

suspicion of its existence, the evidence is no more than a scintilla and, in legal

effect, is no evidence. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex.

2003), cert. denied, 541 U.S. 1030 (2004) (citing Kindred v. Con/Chem, Inc., 650

S.W.2d 61, 63 (Tex. 1983)).      More than a scintilla of evidence exists if the

evidence furnishes some reasonable basis for differing conclusions by

reasonable minds about the existence of a vital fact. Rocor Int’l, Inc. v. Nat’l

Union Fire Ins. Co., 77 S.W.3d 253, 262 (Tex. 2002).

      When reviewing an assertion that the evidence is factually insufficient to

support a finding, we set aside the finding only if, after considering and weighing

                                         7
all of the evidence in the record pertinent to that finding, we determine that the

credible evidence supporting the finding is so weak, or so contrary to the

overwhelming weight of all the evidence, that the answer should be set aside and

a new trial ordered. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986)

(op. on reh’g); Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Garza v. Alviar,

395 S.W.2d 821, 823 (Tex. 1965).

                                  B. Negligence

      In a portion of its fifth issue, Wise Electric argues that the evidence is

legally and factually insufficient to prove that it was negligent and that its

negligence was the proximate cause of the fire.         Wise Electric’s fifth issue

indicates that it challenges findings of fact 12, 13, 15(2), 19, 20 through 25, and

39 and conclusions of law 1, 2, 3, 5, 7, and 8. 8

                         1. The Elements of Negligence

      To sustain a negligence action, the plaintiff must produce evidence of a

legal duty owed by the defendant to the plaintiff, a breach of that duty, and

damages proximately caused by that breach. See, e.g., Lee Lewis Constr., Inc.

v. Harrison, 70 S.W.3d 778, 782 (Tex. 2001). The components of proximate

cause are cause in fact and foreseeability. See, e.g., Doe v. Boys Clubs of

      8
        Wise Electric’s brief fails to include any discussion of most of the findings
of fact and conclusions of law that Wise Electric purports to challenge by listing
them parenthetically after its issues. Despite this absence of a discussion of
evidence, we nonetheless liberally construe Wise Electric’s brief as challenging
the sufficiency of the evidence to support the findings listed parenthetically after
each of Wise Electric’s issues. See Tex. R. App. P. 38.1(f).

                                          8
Greater Dallas, Inc., 907 S.W.2d 472, 477 (Tex. 1995). The test for cause in fact

is whether the negligent “act or omission was a substantial factor in bringing

about injury,” without which the harm would not have occurred.                  Id.

Foreseeability requires that a person of ordinary intelligence should have

anticipated the danger created by a negligent act or omission. Id. (citing Nixon v.

Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 549–50 (Tex. 1985)). The danger of

injury is foreseeable if its “general character . . . might reasonably have been

anticipated.” Nixon, 690 S.W.2d at 551 (quoting Carey v. Pure Distrib. Corp.,

124 S.W.2d 847, 849 (Tex. 1939)).

                      2. Evidence of Breach and Causation

      The evidence conclusively established that the fire started when an

overhead service line at a Wise Electric utility pole located on the Anderson

property (pole number 04610) became disconnected from one end of a Burndy

Insulink connector. The dispute at trial centered on why the service line became

detached from the connector.          AHC asserted that the service line became

detached because a Wise Electric lineman had negligently installed the service

line into the Burndy Insulink connector by failing to crimp one end of the

connector––the end from which the wire became disconnected—and by failing to

perform a tug test on the line. Wise Electric, on the other hand, asserted that

several possibilities could not be eliminated, including that the service line had

become disconnected by high winds or by someone intentionally disconnecting it

or that the service line had failed prior to the fire.

                                            9
                           a. Testimony of Doug Page

      Doug Page is the Fire Chief for the City of Bowie, Texas. He responded to

the November 27, 2005 fire that started around noon that day; he finally cleared

the fire scene at approximately 10 p.m. that night. Page investigated the cause

and origin of the fire and generated a report that was admitted into evidence. He

testified that the fire started at Wise Electric utility pole number 04610; at the top

of that pole, he “could see a connector that was loose from an electrical line.”

The loose line grounded and started the fire. He had no doubt how the fire

started; the proximate cause of the fire was the electrical short at the utility pole.

The resultant fire was a wildland fire; wildland fires generate “a lot of ash.” Page

said that wind gusts reached sixty miles per hour that day.

                          b. Testimony of Kelly Myers

      Wise Electric’s assistant manager Kelly Myers testified that he had worked

at Wise Electric for thirty-one years; he said that he was the person at Wise

Electric most knowledgeable about the November 27, 2005 fire that started

around noon at utility pole number 04610 on the Anderson property in Wise

County. Myers explained how a Wise Electric lineman attaches a service line to

a utility pole using a Burndy Insulink connector, as was used to connect the

overhead service wire at Wise Electric pole number 04610 when it was installed

in 1998. The Insulink is an insulated metal barrel containing a conducting gel, its

two ends have caps, and it is used for “end-to-end” connections.               Myers

explained that Wise Electric’s linemen strip the insulation from the ends of the

                                         10
service line and insert the uninsulated ends of the lines through the cap into each

end of the Insulink and then “crimp” the Insulink on both sides with a tool to

ensure a good connection and to ensure that the service line does not

disconnect.

      Two crimping tools were available in 1998—a ratchet masher and a black-

handle Kearney tool.    A ratchet masher is a special tool that is designed to

mechanically ratchet down to apply a certain amount of compression pressure,

and it does not release until the crimp is complete; Myers explained that “[e]ach

time you squeeze that handle, it [the ratchet masher] moves a segment to crimp

and it holds that.” The ratchet masher makes one large crimp. The black-handle

Kearney tool is more like pliers and has smaller jaws, and a lineman using it must

make three individual crimps with it on each side of the Insulink.          Myers

explained that a Wise Electric lineman installing a service line on a pole in 1998

would have used the ratchet masher for crimping.

      During his testimony, Myers identified various photos of the wires on pole

number 04610 after the fire, as well as photos of the actual Insulink from which

the overhead service wire had become detached. Myers testified repeatedly that

although the photos showed visible crimping on the left-hand side of the Insulink,

there was no crimping visible on the right-hand side of the Insulink—the side

from which the service wire had become disconnected.

      A plastic bag containing the actual service wire, which had been cut from

pole number 04610 with the Insulink still attached to one side, was introduced

                                        11
into evidence. Myers was asked to try to pull the wire out of the Insulink, and

although he pulled––and was asked to pull harder––he was unable to pull the

wire out of the Insulink. He again agreed that the other side of the Insulink, the

side from which the service wire had become disconnected, did not have any

markings showing that a ratchet masher or any other type of instrument that

would crimp that side had been applied to it. The trial court, acting as the finder

of fact in this bench trial, requested that this exhibit be handed to him to look at.

      Myers then conducted an in-court demonstration of how a Wise Electric

lineman would have connected the service line to the Insulink in 1998 at pole

number 04610. First, utilizing a knife, Myers peeled back the plastic coating on

two pieces of service wire, exposing about three-quarters of an inch of bare wire

on each. He inserted the exposed ends of the service wires through the caps

into the ends of the Insulink. After inserting the two wires into the ends of the

Insulink, Myers explained that the Insulink then needed to be crimped to make

sure the wires did not come out of the Insulink. Before performing the crimping,

Myers was asked to pull one of the wires out of the Insulink and was able to

easily pull out the wire. Myers then utilized a ratchet masher to crimp both sides

of the Insulink. He thereafter performed a “tug test,” tugging on the service wire

to be sure it was securely crimped in the connector; he was unable to pull the

service wires out of the Insulink.         Myers explained that a proper crimp

permanently attaches a service line to the connecter. Once a service line has



                                          12
been inserted into an Insulink and properly crimped, it can never be removed; the

wire must be cut to separate it from the connector.

      Myers agreed that Wise Electric’s policies required linemen to crimp both

ends of a crushable connector like the Insulink every time, no exceptions; that a

lineman using ordinary care was required to crimp both sides of an Insulink

connector; and that the failure to do so would be the failure to use ordinary care.

Myers also agreed that Wise Electric’s linemen were taught to perform a tug test

after crimping a line into a connector. Myers agreed that a Wise Electric lineman

using ordinary care would perform a tug test on the line on each side of a

connector to ensure a proper connection and that the failure to perform the tug

test would be a failure to use ordinary care. Finally, Myers agreed that it would

be foreseeable to a lineman installing a service line in 1998 that the failure to

crimp one side of a Burndy Insulink could result in the service line becoming

disconnected from the Insulink.

      Upon questioning by Wise Electric’s counsel, Myers testified that the

Burndy Insulink installation instructions do not mention a tug test; the tug test is a

safety practice taught to linemen. Myers said that Wise Electric no longer uses

the Burndy Insulink connectors because the linemen cannot view the connection

inside the barrel of the Insulink, as they can in some other types of crushable

connectors.9 And finally, when asked whether there was “any external evidence


      9
      Myers also testified that Wise Electric no longer used Burndy Insulink
connectors because of slippage within the barrel of the Insulink, but Myers
                                         13
on the sleeve of the Insulink that would indicate either an attempted or partial

crimp on the end of the Insulink” that the service wire became disconnected from,

Myers testified, “I’m not sure what that is, but that could be where a crimp may

have been made.”      He explained that “it’s possible there could have been a

partial crimp” and that the conductive gel inside the Insulink “helped hold it [the

wire] in there.”

       On redirect, Myers was impeached with his testimony from the first trial in

which he unequivocally testified that Wise Electric has standards concerning the

work performed by lineman and that crimping both ends of a connector and

performing the tug test were two such standards. He was also impeached with

his prior trial testimony that when asked whether he had observed evidence of

crimping on the end of the Insulink that the service wire became disconnected

from, he answered, “No, sir.”

                     c. Testimony of Dennis Dale Waugh

       Dennis Dale Waugh testified as an expert for AHC. Waugh had worked

forty-two years for a utility company; he was a ground man, a first year through

fourth year apprentice, a journeyman lineman, a lead journeyman lineman, and a

troubleshooter. Waugh testified that the service wire that had become detached


admitted that there was “no material slippage shown by the photograph of the
Insulink” at issue here. Myers also performed a second in-court demonstration
of inserting exposed service wires into an Insulink in an effort to demonstrate the
slippage he had testified sometimes occurred. Despite his efforts, he was unable
to generate slippage during the demonstration.

                                        14
from the Insulink at pole number 04610 became disconnected because there

was no crimp on the side of the Insulink that the service wire became

disconnected from. He said that the disconnected service wire showed signs of

arcing because portions of the wire had melted and that two of the internal

strands of the wire were shorter, indicating that they had burned off.

      Waugh said that he had used a Burndy Insulink connector thousands of

times, had utilized the ratchet masher thousands of times, and had used the

black-handle Kearney tool thousands of times. When asked “what is the proper

procedure a lineman must follow to properly install an Insulink connector,”

Waugh responded:

             Well, first, he measures his wire, skins the insulation of it off,
      and makes sure that he doesn’t have more insulation off than what
      the sleeve will accept. And as I said, I usually put in one end, crimp
      it, and then install the other end, crimp it. And then do a tug test to
      make sure that it’s a good connection, and then usually go to the
      meter base or some facility that’s handy and check voltage.

Waugh performed an in-court demonstration of the proper procedure for a

lineman to follow to install an Insulink connector, and he utilized the black-handle

Kearney tool to perform the crimps.    After performing the crimps with the black-

handle Kearney tool, Waugh pointed out that three jaw marks of the black-handle

Kearney tool were visible on the exterior of the Insulink connector.          Waugh

explained that after crimping both sides of the Insulink, the next step is

performance of a tug test and then a voltage check. Waugh testified that a

voltage check will not let the lineman know if the connector has been properly


                                         15
crimped because voltage may still pass through a service line connected with an

Insulink, even if it is not crimped at all. This is because the conducting gel inside

the Insulink is tacky and permits conduction even in the absence of a crimp.

      Waugh explained that a lineman performing crimps with either the black-

handle Kearney tool or the ratchet masher knows whether they have performed

the crimp in the proper place on the barrel of the Insulink because if a crimp is

performed in the wrong place on the Insulink, “you’re crimping air. You’re not

crimping any metal. There’s no resistance to the connector tool.” Waugh said

that a properly-crimped Insulink should be able to support a man hanging from it;

he had seen a service wire connected with an Insulink “hold up poles that are off

the ground, also large tree limbs laying across services.” Waugh further stated

that a properly-crimped Insulink is a permanent connection that will not be blown

apart by wind, even sixty-mile-per-hour wind.

      Waugh testified that the foreseeable consequence of the failure to crimp

one side of an Insulink connector is that the electrically-charged service wire will

come out of the connector, come into contact with something, and cause a fire.

He opined that no tug test had been performed on the service line that became

disconnected from the Insulink. And he explained how the service wire had not

become disconnected earlier, despite the lack of a crimp:

              Well, I think the cap on the end of this sleeve had something
      to do with it. It’s going to hold the wire. Especially if they get a little
      bit of insulation in there with it, it’s going to hold that wire. When that
      cap gets hot or weather-cracked, a piece of it fell off, that allowed the


                                          16
      wire to be in the connector free.         We don’t know when that
      happened.

                         d. Testimony of John Stewart

      AHC’s expert John Stewart is an electrical engineer, a licensed

professional engineer, and a certified fire and explosion investigator.    Stewart’s

testimony from the first trial was admitted as an exhibit during the second trial.

Stewart investigated the November 27, 2005 fire that started at pole number

04610. In addition to offering an opinion on the cause and origin of the fire,

Stewart opined that the energized overhead service line became disconnected

from the Burndy Insulink connector because the connector had not been crimped

on the side from which the wire became disconnected. Stewart reviewed photos

of the Insulink in question and pointed out visible crimping on one side, while the

other side contained no crimping marks whatsoever. Stewart testified that to

properly install an Insulink––using ordinary care in installing the Insulink, that is

the care that a reasonable, prudent electric utility company would use––a

lineman for an electric utility company should follow the manufacturer’s

instructions for installation, which included properly trimming the insulation on the

wires, inserting the wires into the connector to the proper point, crimping both

sides with a proper tool, and then pulling on the wires to ensure that a good

crimp had occurred and that the wires would not pull out of the connector.

Stewart opined that the failure to perform any one of these steps, including




                                         17
crimping both sides of the connector or failing to perform the tug test, would be a

failure to exercise ordinary care.

      Finally, Stewart testified that he routinely relied on National Weather

Service reports in conducting fire investigations and did so here; the report for

November 27, 2005 for Decatur, Texas, was introduced into evidence and

showed that the average wind speed at approximately 11:45 a.m. was 20.7 miles

per hour with gusts to 31.1 miles per hour. Stewart opined that wind, no matter

how strong, would not be capable of detaching a service line that had been

properly crimped into a connector.

                       e. Testimony of Freeman Reisner

      AHC’s expert Freeman Reisner testified that he worked as a consulting

engineer for Haag Engineering where he performed failure analysis. Previously,

he had worked for thirteen years for San Angelo Electric Service Company

repairing distribution transformers and motors and other types of electric

equipment.     At Haag Engineering, he had performed at least 1,000 fire

investigations. Reisner’s testimony from the first trial was admitted as an exhibit

in the second trial. When asked how a Burndy Insulink connector works, Reisner

explained,

      The connector comes with a plastic cover and little caps on each
      end. And when two wires need to be connected, the connector,
      whoever is doing the connecting, strips the end of the wire so they’re
      bare and they insert them one in each end -- typically, one at a time,
      and you insert them and then crimp in an area on the connector and
      check it; and then put another wire in the other end and crimp it and
      then check it. The ends are puncturable real easily by the wire so

                                        18
      you don’t have to poke a hole in it or anything. You just poke the
      wires in either end.

Reisner testified that to properly join two wires, the connector attaching them

must be crimped on both sides. He said that the Burndy Insulink connector at

issue here showed no evidence that it was crimped on the side from which the

service wire became disconnected. Finally, Reisner opined that the service wire

became detached from the Burndy Insulink connector because it was not

crimped on the side where it detached. According to Reisner, if an Insulink is

properly crimped, it will hold a service line “indefinitely.”

                           f. Testimony of Forest Smith

      Wise Electric’s expert Forest Smith is an electrical engineer who works for

“a company that does investigations primarily for insurance companies but

sometimes other companies as well.” He performed his investigation of the fire

four days after it occurred. He testified that the Insulink that is the subject of the

lawsuit was installed by Wise Electric but also noted that the utility pole had

“Romex”10 installed on it that was not installed by Wise Electric. He opined that

the Romex “possibly could have” played a role in the fire because the person

who installed the Romex would have had to stand on a ladder and therefore

could have reached the overhead service wire and could have forcibly pulled the

service wire from the Insulink in question.


      10
        Romex is a wire used primarily for residential applications; these
applications are usually not installed by electrical companies.

                                           19
      Smith testified that his investigation of the fire followed NFPA 921, which is

a set of guidelines by a national consensus committee outlining the way to

conduct a forensic investigation. Smith said that the investigations are to follow

scientific method, which he described as follows:

      The scientific method is something that is taken from academia. It’s
      common in classrooms.              It’s been adapted for forensic
      investigations. It begins by defining a situation, recognizing a need,
      then collecting data, and then analyzing the data. And then there’s a
      process called inductive reasoning in which hypotheses are
      developed, and then there’s a process called deductive reasoning in
      which hypotheses are eliminated. And then, finally, there is the stage
      in which a hypothesis, if it passed the test, becomes a theory, and
      then the theory becomes the basis for perhaps making a call on the
      cause of and the origin of a fire.

Applying the scientific method, Smith was unable to make a determination

regarding the cause of the fire because he said an origin had not been

determined. He did not determine that the area of origin was at pole number

04610; that was not in the scope of his investigation. Smith explained that, using

the scientific method, he could not eliminate several hypotheses as possible

causes for the service line becoming disconnected from the Insulink; he could not

eliminate the possibility that the Insulink had failed prior to the fire, that the wind

had caused it to disconnect, or that someone—“a party perhaps putting up this

piece of Romex”—had forcibly pulled the service line out of the Insulink.

      Smith testified that the construction of the Wise Electric utility pole

complied with required regulations.       He determined that Wise Electric used

ordinary care in the construction of the pole. Although Smith testified in the first


                                          20
trial that the service line disconnected because a lineman had failed to crimp the

Insulink on that side, he asserted in the second trial that, after he had magnified

a photo of the approximately two-inch Insulink into an eight-by-ten photo that was

admitted as Defendant’s Exhibit 1B, he had observed evidence of crimping on

both sides of the Insulink.11 He said that there was one “small indentation” made

by a black-handled Kearney tool on the side of the Insulink where the service

wire had disconnected. Smith was impeached with his prior testimony that the

right side of the Burndy Insulink was not crimped and that it is reasonably

foreseeable to a lineman that if he fails to crimp one side of a connector, the wire

will come out.12

                   3. The Evidence of Breach and Causation
                       Is Legally and Factually Sufficient

      In its findings of fact and conclusions of law, the trial court found that a

service line will not become disconnected from an Insulink when it is properly

crimped, that the Insulink in question at pole number 04610 was not properly


      11
        At the trial court’s request, Smith drew black arrows on Defendant’s
Exhibit 1B to point to the places where he purportedly saw evidence of crimping;
no indentations are visible on the copy of the photo in the record.
      12
        On appeal, Wise Electric proposes that the Insulink’s defective design
caused the fire. In support of this assertion, Wise Electric directs us to Smith’s
testimony that some electric companies have discontinued using the Insulink.
But Smith also testified that many electric companies still use them. And
although there is evidence (set forth in Smith’s report) that other connectors may
provide greater visibility of a crimp within the connector, no evidence exists in the
record before us that the Burndy Insulink is defectively designed or incapable of
proper installation.

                                         21
crimped on both sides, and that Wise Electric had failed to use ordinary care

when it failed to crimp both sides of the Insulink. The trial court found that if a

lineman fails to crimp one side of an Insulink, it is reasonably foreseeable that the

electrically-charged line inserted into the non-crimped end of the connector will

come loose and that an injury of the kind suffered by AHC will occur. The trial

court concluded that Wise Electric was negligent in its installation of the Insulink

and that Wise Electric’s negligence had caused the fire and the damages

sustained by AHC.

      Summarizing the evidence concerning these findings, neither Myers,

Waugh, Reisner, nor Stewart could see any indication that the Insulink had been

crimped on the side where the service line disconnected.            Although Smith

disagreed, not only with these witnesses but also with his testimony in the

previous trial, the magnified, enlarged photographs of the Insulink show crimp

marks on only the connected side. Moreover, the “slight indentation” that Smith

testified in the second trial was observable on the uncrimped side of the Insulink

could, according to Smith, only have been made by the black-handled Kearney

tool; Myers testified that in 1998 when the Insulink was installed, Wise Electric

linemen were using the ratchet masher. The crimped end of the Insulink in

question was crimped with the ratchet masher, and no explanation was provided

for why one end of the Insulink would be crimped with the ratchet masher while

the other end of the same Insulink would not be crimped with the same tool but

would instead be crimped with the black-handled Kearney tool.           And finally,

                                         22
although the black-handled Kearney tool requires three separate crimps, even

Smith purportedly observed only one slight indentation on the uncrimped end of

the Insulink.

      Although Smith speculated that the service line could have become

disconnected from the Insulink by someone climbing up a ladder to the overhead

service line and forcibly yanking the service line out of the Insulink, Myers’s in-

court demonstration, during which he attempted to do exactly that from the

witness stand, showed the impossibility of forcibly disconnecting a service line

from a properly-crimped Insulink; it can be disconnected only by cutting the wire

loose from the Insulink. According to Waugh, a service wire connected with a

properly-crimped Insulink will support a man hanging from it, as well as

ungrounded utility poles and tree limbs. Despite Smith’s testimony that possibly

the wind caused the service line to become disconnected, Stewart and Waugh

opined that wind, no matter how strong, would not be capable of detaching a

service line that had been properly crimped into a connector.

      Viewing the evidence of the breach and causation elements of negligence

in the light most favorable to the trial court’s fact findings and disregarding the

contrary evidence that a reasonable factfinder could, the evidence is legally

sufficient to support the trial court’s findings of fact 12, 13, 15(2), 19, 20 through

25, and 39. See Rocor Int’l, 77 S.W.3d at 262; Cont’l Coffee Prods. Co., 937

S.W.2d at 450; Leitch, 935 S.W.2d at 118; see also Cmty. Pub. Serv. Co. v.

Dugger, 430 S.W.2d 713, 715–18 (Tex. Civ. App.––Texarkana 1968, no writ).

                                         23
Considering and weighing all of the evidence in the record pertinent to these

findings, the credible evidence supporting the findings is not so weak, nor so

contrary to the overwhelming weight of all the evidence, that the findings should

be set aside and a new trial ordered. See Pool, 715 S.W.2d at 635; Cain, 709

S.W.2d at 176; Garza, 395 S.W.2d at 823. We overrule Wise Electric’s legal and

factual sufficiency challenges to the breach and causation elements of

negligence challenged in Wise Electric’s fifth issue, and we hold that the trial

court’s conclusions of law 1, 2, 3, 5, 7, and 8 are legally correct concerning

breach and causation based on the trial court’s fact findings.

      We overrule this portion of Wise Electric’s fifth issue.

                             C. Inventory Damages

      Wise Electric’s first, second, and the remainder of its fifth issue challenge

the legal and factual sufficiency of the evidence to support the trial court’s

findings of fact and conclusions of law concerning AHC’s personal property

inventory damages. Wise Electric challenges findings of fact 36 through 41, 53,

55 through 58, 63, and 64 and the legal correctness of conclusions of law 6, 7,

and 10. The trial court found that AHC’s entire inventory of 490,092 hats and hat

bodies was smoke damaged, that the hats and hat bodies could not be cleaned,

and that that the replacement value of the inventory was $13,385,969.37—the

amount awarded in the judgment. Wise Electric questions the legal correctness

of the trial court’s conclusion of law that the replacement-value measure of

damages applies, challenges the testimony of AHC’s owner Keith Maddox and of

                                         24
AHC’s expert Steven Startz concerning the inventory’s fair market value, and

contends that the evidence is insufficient to support the amount of the inventory

damages award and to establish that the fire was the only cause of damage to

the inventory.

             1. No Evidence of Preexisting Damage to Inventory

      In the final portion of its fifth issue, Wise Electric argues that the evidence

is insufficient to support the trial court’s findings supporting conclusions of law 2

and 3 that the damage to AHC’s inventory was caused solely or only by the fire.

Wise Electric argues that because AHC had previously stored its large inventory

of hats and hat bodies in a non-air-conditioned facility and because AHC had

kept most of its inventory in sea containers outside its plant at the time of the fire,

AHC’s inventory of hats and hat bodies was already damaged by heat and

moisture before the fire. But Wise Electric points to no evidence, and we have

located none in the record, supporting this contention.

      Instead, Maddox testified that, prior to the fire, employees at the AHC plant

in Bowie used the inventory stored in the sea containers on a daily basis and that

although the sea containers had breathe holes, nothing had ever entered the sea

containers prior to the smoke and ash from the fire. Maddox testified that air and

smoke could enter the holes but not moisture or water.13


      13
       Maddox was not asked any questions about the design of the breathe
holes—where they were located on the containers or whether they were hooded,
screened, or louvered.

                                          25
      No witness testified that the inventory contained signs of damage from

exposure to heat or moisture—only that after the fire, the inventory had suffered

smoke damage.      Moreover, actual hats and hat bodies from AHC’s smoke-

damaged inventory were introduced into evidence at trial, and the trial court as

the finder of fact had the opportunity to observe the type of damage sustained by

the inventory; no questions were asked at trial of any witness concerning any

heat or moisture damage suffered by the inventory, and no such damage was

pointed out as present on the hats and hat bodies introduced into evidence.

      Viewing the evidence in the light most favorable to both the trial court’s

implied finding that no prior damage existed to AHC’s inventory and its express

findings that smoke particles from the fire penetrated AHC’s plant and its storage

containers, as well as the contents of the plant and storage containers, damaging

the inventory contained therein, and disregarding the contrary evidence that a

reasonable factfinder could, the evidence is legally sufficient to support the trial

court’s implied finding and express findings that AHC’s inventory was not

damaged by heat or moisture prior to the fire. See Rocor Int’l, 77 S.W.3d at 262;

Cont’l Coffee Prods. Co., 937 S.W.2d at 450; Leitch, 935 S.W.2d at 118.

Considering and weighing all of the evidence in the record pertinent to these

findings, the credible evidence supporting the findings is not so weak, nor so

contrary to the overwhelming weight of all the evidence, that the findings should

be set aside and a new trial ordered. See Pool, 715 S.W.2d at 635; Cain, 709

S.W.2d at 176; Garza, 395 S.W.2d at 823. Consequently, we hold that the trial

                                        26
court correctly applied the law to these facts in conclusions of law 2 and 3 by

concluding that the fire alone was the proximate cause of damage to AHC’s

inventory. See, e.g., BMC Software Belg., N.V., 83 S.W.3d at 794 (“Appellate

courts review a trial court’s conclusions of law as a legal question”).

      We overrule the remainder of Wise Electric’s fifth issue.

             2. Evidence Regarding the Value of AHC’s Inventory

                         a. Testimony of Keith Maddox

      Keith Maddox, the owner of AHC, testified that he had been in the western-

wear business for forty years and had been making and selling hats for nineteen

years. He sold boots and hats and then owned and operated The Best Hat

Store, a hat-manufacturing plant and retail hat store. The Best Hat Store sold

cowboy hats manufactured by Stetson, Resistol, Bailey, and American Hat, as

well as by The Best Hat Store. About fifty percent of hats sold by The Best Hat

Store were manufactured by American Hat. The Best Hat Store manufactured

only felt hats—pure beaver and fifty-percent beaver western and dress hats;

these hats sold for between $450 and $800. Maddox purchased the hat bodies

for these hats primarily from Winchester Hat Company.

      Maddox purchased AHC in March 2003, but he had previously tried to

purchase it in 1995 before he opened The Best Hat Store. In 1995, he had

called the then-owners of AHC to see if they would consider selling the plant,

inventory, and machinery of AHC. He toured the factory and obtained investors

to fund the asking-price of $10,000,000, but the owners then raised the asking

                                         27
price to $20,000,000, which Maddox knew he could not raise. In 2003, Maddox

learned from a store in Houston that a one-half interest in AHC could be

purchased for $2,700,000; he believed that “was a steal” and called an AHC

salesman. He learned that Compass Bank owned AHC, so he called Compass

Bank. Compass Bank had foreclosed on AHC and told Maddox that AHC would

be sold within the week. Maddox immediately traveled to Conroe to tour the

AHC facility; he was told at that time that he could purchase AHC, including all of

its equipment and inventory, for $350,000 cash, payable within two days.

Maddox borrowed the money, made the purchase, and characterized getting

“$13 million worth of equipment for 300 – and inventory for 350,000 [as] an

excellent deal.” Maddox testified that the day after he purchased AHC in 2003,

the fair market value of the inventory, equipment, and name was $13.5 million

dollars. After operating AHC for about a year in Conroe, Maddox moved AHC’s

plant to Bowie, Texas. The interior of the Bowie facility was smaller, forcing

Maddox to purchase twelve sea containers and place them in the plant’s parking

lot for storage of the majority of AHC’s inventory of hats and hat bodies.

      Maddox explained that AHC makes hats from felt or straw. The process of

manufacturing each material is different, but all hats progress from a raw hat

body, which is a stage-one hat; to a stage-two hat; and finally to a stage-three

hat, which is a completed hat.      Actual straw and felt hats at each stage of

manufacturing were admitted into evidence.



                                        28
      Straw hats are made from rice paper, which is then hand-braided. Stage-

one straw hats are dampened, pressed, lacquered with a petroleum-based

lacquer, spun, baked, and lacquered again before an AHC employee trims the

hat, sews a wire in it, and then bakes and lacquers the hat again to make it a

stage-two hat. According to Maddox, the process of making a stage-one straw

hat into a stage-two straw hat involves “twenty something” steps, about two

hours of labor, and two days of drying time. To make the stage-two straw hat

into a stage-three hat, workers add “trim” to the outside of the hat and sew a

sweatband inside the hat. For straw hats, the transition from stage two to three

requires about one hour of labor.

      Manufacturing felt hats is more time consuming.         On receiving the

unshaped felt hat body from a manufacturer, AHC shapes the crown using a

manual machine that stretches the crown over a round wooden block.           The

machine steams the hat and then blasts it with cold air, which “sets it.” AHC

dampens and irons the brim and the crown and then lets the hat dry for a day.

Next, a trained employee sands the crown with a sander, while the hat is

spinning, feeling the hat to ensure a consistent sanding.      If necessary, the

employee represses the hat and restarts the sanding. An employee then hand

sands both sides of the brim. At this point, the felt hat is a “stage[-]two, open

crown.” If a customer prefers a “creased crown,” AHC creases the crown with a

machine. Stage-three felt hats have hand-cut and hand-sewn leather “buckle



                                       29
sets” on them and sweatbands14 and liners sewed inside the hats. An average of

three to four hours of labor is required to transition a stage-two felt hat into a

stage-three felt hat. Some felt hats, however, demand much more labor time; as

an example, Maddox testified that a mink felt hat requires seventeen steps and

twenty-four hours of labor.

      The price of a hat and the quality of a hat are partially dependent on the

quality of the raw hat body used.   Some types of felt hat bodies have more hair

than others, giving them a better quality and value.         Maddox testified that

Belgium and Germany had previously, but no longer, provided felt inventory and

that it was the best quality. At the time of the fire, AHC’s inventory included felt

hat bodies from Belgium and Germany. Maddox also testified that Taiwan had

produced the best straw hat bodies, that AHC had “a big selection” of Taiwanese

hat bodies at the time of the fire, but that Taiwan had stopped producing straw

hat bodies. Since Taiwan’s cessation of straw-hat production, AHC had acquired

straw inventory from China, which Maddox considered inferior in quality to the

Taiwanese hat bodies.

      Maddox testified that historically, AHC had made the best hats because

AHC had utilized the finest raw materials and had the best workmanship; AHC

targeted “the more knowledgeable hat wearer[s]” as customers. AHC sold hats

to independent hat stores, department and chain retail stores, as well as to


      14
        Retailers sometimes request that the sweatband bear their logo or name.

                                        30
individuals. Maddox explained that when one of these department or chain retail

stores placed an order for hats, the hats must ship within about forty-eight hours,

or the order would be cancelled. Consequently, because of the front-end labor

time required to generate a stage-three, ready-to-ship hat, a hat-manufacturing

plant must have a “gigantic inventory” of various types of felt and straw hats

completed up to a stage-two or stage-three level in order to successfully do

business with “the majors”15 and to timely fill incoming orders.

      Maddox testified that AHC’s entire inventory was destroyed by the fire; all

of the hats and hat bodies that were inside the plant and that were stored in the

twelve sea containers reeked of smoke. He said that “you can never get the

smoke smell out of a smoke[-]damaged hat.” Maddox testified that “[n]o one

would buy [smoke-damaged hats] and [that] no one with any reputation would

sell them.” Maddox explained that when a hat is cleaned, it then has to be

reshaped with steam and that when the steam hits the hat, the smoke smell

intensifies. He performed an in-court demonstration of how to shape one of

AHC’s smoke-damaged hats with steam, and a smoke smell arose in the

courtroom.

      Maddox testified that approximately five years after the fire, the owner of

Outback Traders in Australia was at the AHC factory in Bowie, “and he wanted to

know what was in all of those [sea] containers. We opened one of them up[,] and

      15
       A major retailer, according to Maddox, was a retailer such as Cavenders
or Baskins that had over ten stores that were stocking AHC hats.

                                         31
it was smoky.” When Maddox was asked what he intended to do with all of the

smoky hats and hat bodies in the containers, Maddox responded, “[T]hey’re

going to the landfill.” The gentleman said that he would take some to Australia to

sell because it is smoky in the outback. Maddox said that he did not think the

smoky hats would sell, but the gentleman said that he was going to try. So

Outback Traders purchased 1,330 of the completed, stage-three smoke-

damaged hats at a “heavily discounted” price of $49,188.31. AHC generated

four invoices to ship the smoky hats to Outback Traders, listing the items being

sold as “inventory written off” followed by the type of hat. The invoices totaled

the prices of the hats, then indicated “minus the total price in the place for

payments or credits,” and stated a balance owed as zero.

      Maddox testified that Outback Traders was unable to sell the smoky hats

and had not ordered any more smoky hats although it continued to order regular

hats, as it had in the past. Two years after the sale of the smoky hats, an

individual in Montague paid AHC for Outback Traders’s purchase of the 1,330

smoky hats; Maddox testified that the individual made the payment out of

friendship because the owner of Outback Traders felt bad that he had never paid

for the hats.   Maddox testified that AHC was not attempting to be awarded

damages at trial for the inventory Outback Traders had tried to sell.16


      16
       Consequently, the judgment awards Wise Electric a $49,188.31 credit for
these hats because they were included in AHC’s expert Steven Startz’s inventory
damage calculations.

                                        32
                         b. Testimony of Steven Startz

      After the fire, Travelers hired Steven Startz to document, evaluate, and

liquidate AHC’s damaged hat inventory. Startz owns Startz Insurance Salvage,

and he is a licensed and experienced salvor, which he defined as a

documentation, evaluation, and liquidation specialist.    Startz had prior salvor

experience with smoke-damaged clothing. In Startz’s experience, smoke odor

cannot be removed from clothing.

      On behalf of Travelers, Startz commissioned a national inventory crew. He

and the inventory crew spent “two or three weeks” counting each and every hat

and hat body that was visibly damaged and those that had a smoke odor. Startz

reported that all 490,092 hats and hat bodies in AHC’s inventory at the time of

the fire had been damaged.

      As part of the counting, Startz and his crew classified the damaged hats

into their three stages of production: stage one, stage two, or stage three. They

also categorized the damaged hats by their location at the time of the fire: either

inside the plant or outside in the sea containers. Startz generated a 114-page

spreadsheet itemizing each of the 490,092 hats and hat bodies by stage of

manufacture, type, color, and location; he provided his report and the

spreadsheet to Travelers and to AHC in 2005 after the fire.

      Startz testified that while he was at AHC cataloguing AHC’s smoke-

damaged inventory, Servpro was also there; Servpro had been hired by



                                        33
Travelers to attempt to clean the hats. But Servpro reported to Startz that they

were having difficulty getting the smoke smell out of the hats.

      In 2008, AHC hired Startz to assess the inventory’s value. Utilizing the

spreadsheet he had previously generated for Travelers that individually

documented each of the 490,092 hats in AHC’s inventory at the time of the fire,

Startz requested invoices for the purchase of the various hat bodies. Purchase

invoices did not exist for most of AHC’s hat inventory because Maddox had

purchased AHC out of foreclosure more than two and one-half years before the

fire and had acquired its inventory without accompanying invoices. To determine

a value for the inventory lacking invoices, Startz “utilized like-similar invoicing to

come up with the values,” which Startz said was standard practice in the salvor

business.

      To compile like-similar invoices, Startz compared the specific type of hat

body catalogued in the spreadsheet (but lacking an invoice) to similar hat bodies

offered for sale at the time of the fire by companies from whom AHC had

purchased hat bodies for production. Startz’s report explains that “[i]nvoices of

purchases and price lists were utilized to accumulate values of the hundreds of

types and styles of merchandise affected in your existing inventory.”17 Startz


      17
         The record reflects that an almost infinite number of types of hat bodies
exist. While the hat bodies are only straw or felt, the variations of hat bodies
within those two categories is innumerable. For example, straw hat bodies are
different sizes and can be made of a variety of types of paper (Chinese glazed or
unglazed, Japanese glazed or unglazed, Collit yarn/paper, and twisted paper to
name a few) and can be a variety of colors (wheat, ivory, ivory/tan, ivory/wheat,
                                         34
averaged the invoice values for all felt hat bodies and for all straw hat bodies to

arrive at an average cost for felt hat bodies of $40.25 each and for straw hat

bodies of $5.43 each.

      Then, as reflected in his report, Startz evaluated AHC’s operating

expenses, which he testified salvors commonly rely on in assessing value. He

totaled AHC’s yearly operating expenses, determined the average number of

hats AHC manufactured per day for the calendar year preceding the fire, and

came up with a cost per hat of $29.22 in operating expenses attached to each

hat. He added this $29.22 cost-per-hat figure in computing the value of hats that

had been manufactured into stage-two and stage-three hats but did not add it in

computing the value of stage-one, raw hat bodies.

      Next, Startz calculated the average labor costs associated with each stage

of production. He determined that a stage-one hat, whether felt or straw, would

have $0 labor costs added in assessing its value because no labor had yet been

exerted on the raw hat body. Stage-two felt hats had an average labor cost of

$54.11 per hat, and stage-two straw hats had an average labor cost of $4.60 per




natural, and space dyed wheat to name a few). Felt hats are different sizes (the
hat body can only be made up or down one size) and vary by the fur used to
make the felt (for example, rabbit, hare, beaver, and mink), by the amount of the
animal hair that is actually in the felt (10X, 20X, 100X, 500X, or other amounts),
and by color (for example, black, silver belly, and brown).



                                        35
hat. Stage-three felt hats had accrued an average total labor cost of $67.64, and

stage-three straw hats had accrued an average total labor cost of $5.75.

      Based on these computations, Startz calculated the average replacement

cost for each of the categories of hats in AHC’s inventory––felt and straw hats at

manufacturing stages one, two, and three––by totaling the average purchase-

price cost of the hat body, the $29.22 operating expense per hat, and the

average labor cost per hat, depending on its stage of completion. Startz arrived

at the following 2005 replacement cost values:

            Felt hats stage 1         $40.25
            Felt hats stage 2         $123.58
            Felt hats stage 3         $137.11
            Straw hats stage 1        $5.43
            Straw hats stage 2        $39.25
            Straw hats stage 3        $40.40

Finally, to arrive at the total replacement value for AHC’s entire inventory, Startz

multiplied the number of hats in each of the above categories by the replacement

value calculated for that category.     AHC’s inventory on the date of the fire

included: 38,670 stage-one felt hats; 63,381 stage-two felt hats; 4,574 stage-

three felt hats; 345,870 stage-one straw hats; 23,701 stage-two straw hats; and

13,896 stage-three straw hats. Performing the math, the total cost to replace the

inventory AHC had on hand at the time of the fire is $13,385,969.37.       The trial

court admitted Startz’s entire report, which included several invoices and

documented his methodology.




                                        36
      Startz said that in 2005, as part of his duties for Travelers, he had

attempted to “liquidate” AHC’s inventory of completed hats; he put the

completed, stage-three smoke-damaged hats on the market.           But due to the

amount of smoke damage sustained by the hats, interest in the finished hats

waned quickly. Concerning the hat bodies and stage-two hats, Startz said that

“[t]he hats that had not been finished had no market value due to their damage

and their state of manufacture.” Consequently, Startz opined at trial that in this

case, the replacement cost as well as the pre-fire fair market value of all 490,092

hats was the same––$13,385,969.37.

                         c. Testimony of Gary Moore

      Gary Moore testified that he had worked in the western-wear business for

Hat Co. for over twenty-six years.     Hat Co. sold a variety of western hats,

including Resistol and Stetson brand hats; during Moore’s last few years at Hat

Co., Hat Co. had about fifty percent of the western-hat market. Moore himself

generated over $2,000,000 in sales for Hat Co. during each of his last few years

of employment by selling new hats to retailers. Moore’s duties with Hat Co. had

also included quality control; he had experience with customers bringing in

smoke-damaged hats to see if anything could be done to restore them.

      Travelers had contacted Moore to examine AHC’s inventory of hats that

were smoke damaged by the fire and to express an opinion as to the condition of

the hats, the marketability of the hats, and the refurbishing of the hats. Moore

went to AHC’s plant in Bowie.      Moore testified, “Boy, you could smell those

                                        37
trailers. . . . I was standing back from the trailers when they opened them, you

know, roughly, ten feet. And when they opened the doors, it was just, you could

smell that smoke just reeking out of there.” Moore said the hats “were very

smoked.”

      Moore explained that from 2005 through trial, there was no process in

existence that would remove the smoke smell from a hat. He explained that heat

“really brings out” the smoke smell from a smoke-damaged hat. Moore said that

“[a]s long as you have that [smoke-damaged] hat, you’re going to have that

smell. Some days less; some days more, but you’re always going to have a

smoke smell.” Moore reported his findings to Travelers: all 490,092 hats were

smoke damaged and could never be effectively cleaned of the smoke smell. A

copy of Moore’s report to Traveler’s was admitted into evidence.

      Moore said that no market existed for the 490,092 hats he had inspected

at AHC. He testified that there is no market for smoke-damaged hats; they are

“not re-sellable. I mean, it wouldn’t be reputable to sell them as new hats when

they’re damaged hats.” Moore said that no retailer would be willing to stock

smoke-damaged hats and further stated, “People will pick it up, smell the smoke,

and, you know, that’s it, they’re going to go somewhere else.” Moore testified:

           Q. Now, as a result of your observation and investigation
      when you went to the American Hat Company at the bequest or
      behest of Travelers, did you form an opinion as to what should be
      done with those hats?

            A. Well, yeah, I did.


                                       38
            Q. What was that opinion?

            A. Dig a hole and put them in it and cover them up.

                          d. Testimony of John Corn

      John Corn is a retired forensic environmental chemist.       He worked for

Armstrong Forensic Laboratory for twenty-three years.             Travelers hired

Armstrong Laboratories to analyze AHC’s hats to “determine if there was

damage to these -- to the hats from a grass fire.” Corn testified that Armstrong

Laboratories had purchased two new AHC hats to be used as a control group

and had received forty-two hats from thee different sources: a set of AHC hats

that Blackmon Mooring had attempted to clean by vacuuming and wiping with a

clean sponge; a set of AHC hats that Servpro had attempted to clean by

vacuuming, steaming, and brushing; and a set of AHC hats that had not been

cleaned and had visible dust, smoke residue, and smoke odor. Corn selected

three to four hats from each source to test.

      Corn explained that the testing for physical particles present on the hats

was conducted as follows. A three-by-one-half inch rectangle was cut from the

brim of the hats.    Some of the brim-cut rectangles were analyzed under a

microscope, some were subjected to a chemical analysis using a gas

chromatograph with a mass spectrometer detector, and some were “desorbed

with a solvent” and “injected a portion of that solvent into a gas chromatograph

mass spectrometer.” Corn explained that “we would analyze the VOC’s [volatile

organic compounds] first with a set of common chemicals. And then the semi

                                        39
volatiles, we injected those into the mass spec again for another composite list of

chemicals that are common to -- in the environment and fire products.” Based on

this analysis, two hats “show[ed] evidence of particulates with a morphology of

soot,” and one of the new hats showed a “one percent level of carbon

particulates.”

      Concerning his testing for smoke odor, Corn testified that of the hats

tested, only “one hat [] had a smoke odor but no detectable level of soot or

carbon particulates,” and “[n]one of the other hats had a detectable odor of

smoke.” Corn testified that, to determine whether the hats had a smoke odor,

testing was conducted as follows:

      [Y]ou establish the odor you’re looking for, which in this case would
      be an odor from burned grass. We gave the panel a couple of other
      soot odors like a match or burning wood, and then you -- you get a
      panel of five people. And from that panel, you -- they smell the soot
      that -- your known soot, and then they clean their nose so their
      olfactory won’t have olfactory fatigue. And then they smell each of
      the products in a -- in a bag. And so we would use an odorless type
      of bag.

            Q. Does the -- does the -- does the group consist of people
      selected by you?

            A. Yes. We have -- we had several employees that were
      trained in this particular method[,] and we used people that were
      nonsmokers and who had experience doing this.

             Q. Did you find evidence in your review of smoke?

             A. Yeah, we found it in one.

      Corn’s report to Travelers was admitted into evidence; it indicated that

none of the volatile organic compounds found on AHC’s hats were associated

                                        40
with a grass fire and that only one hat had a smoke smell. Corn opined that the

hats he analyzed could be “easily cleaned by brushing with an appropriate

material and [by] vacuuming with a HEPA filtered or remote vacuum.” Corn’s

report stated that “hats with a discernible odor can be treated by placing a hat in

a chamber that can be purged with heated filtered air.”

      On cross-examination, Corn conceded that he could not offer an opinion

concerning any of AHC’s 490,092 hats and hat bodies, other than the few he

had analyzed.     Corn was asked to open Plaintiff’s Exhibit 95E—the bag

containing AHC stage-three felt hats manufactured before the fire; he did so

and testified that he smelled smoke. Corn agreed that he could not testify about

the market value of anything because he was “not that expert.” And when

asked about the smoke removal process mentioned in his report, Corn

explained that the hats would need to be unstacked and placed in a container

and that

      all you’re doing is you’ll have fans with filters on them at one end.
      And you’ll either -- you can either blow air into it or you can pull air
      out the other end through filters at this end. And just move air
      through it, so it’s not a vacuum. It’s just an air movement. And
      then you heat up the air inside the -- inside the container. These
      containers have been as big as boxcars and as small as a hat box.

            Q. So how long would it take 490,000 hats to go through that
      process? Hours? Days? Weeks? Months?

            A. Usually, we would recommend they do it for seven to
      fourteen days.

            Q. For each batch?


                                         41
            A. Yes.

            Q. So two weeks, a boxcar full you say?

             A. Yeah. You can -- that’s -- that’s -- you could actually go
      with a bigger chamber than that.

            Q. Where is a bigger chamber than that?

            A. Well, you would construct it.

      3. Applicable Law on Valuing Negligently-Damaged Inventory18

      The primary principle to be applied in awarding damages for negligent

injuries to property is that the owner shall have actual pecuniary compensation

for the loss sustained. See Int’l-Great N. R.R. Co. v. Casey, 46 S.W.2d 669, 670

(Tex. Comm’n App. 1932, holding approved). When the property negligently

injured is personal property, the general rule in determining the amount of

compensation due for the damage to the personal property is the difference

between its reasonable market value immediately before and immediately after

the damage at the place where the damage occurred. See Thomas v. Oldham,

895 S.W.2d 352, 359 (Tex. 1995); Celanese Ltd. v. Chem. Waste Mgmt., Inc., 75

S.W.3d 593, 598 (Tex. App.—Texarkana 2002, pet. denied). Market value is

defined as the price property would bring when it is offered for sale by one who


      18
         The cases cited by Wise Electric for the proposition that a fair-market-
value damage model is the only appropriate measure of damages are not
negligent-damage-to-personal-property cases; they are conversion, eminent
domain, or other types of cases. Our discussion and our holdings here are
limited to negligent-damage-to-personal-property cases, so we need not discuss
the other types of cases cited by Wise Electric.

                                       42
desires to sell, but is not bound to do so, and is bought by one under no

necessity to purchase it. See Yzaguirre v. KCS Res., Inc., 53 S.W.3d 368, 374

(Tex. 2001).

      Although negligent damage to personal property is usually measured by

the diminishment in the property’s fair market value attributable to the

negligently-inflicted damage, different factual situations may dictate the

application of a different valuation of the damage to the property. See Pasadena

State Bank v. Isaac, 149 Tex. 47, 50, 228 S.W.2d 127, 128 (Tex. 1950);

Celanese Ltd., 75 S.W.3d at 598. For example, the personal property might be

totally destroyed or may have no fair market value, requiring application of a fair-

market-value-at-time-of-destruction valuation, replacement valuation, or repair

valuation. Pasadena State Bank, 149 Tex. at 50, 228 S.W.2d at 128; see also

Waples-Platter Co. v. Comm’l Standard Ins. Co., 156 Tex. 234, 236, 294 S.W.2d

375, 376–77 (1956) (holding that damage to building and personal property as a

result of fire negligently caused by defendant was to be measured by reasonable

cash market value of the property at the time it was destroyed by the fire, or if it

was not totally destroyed, by the diminution in its fair market value before and

after the fire); Hartford Ins. Co. v. Jiminez, 814 S.W.2d 551, 552 (Tex. App.—

Houston [1st Dist.] 1991, no writ) (recognizing that “[t]he measure of damages to

[personal] property that is totally destroyed [by another’s negligence] is its

reasonable market value when destroyed”); Shaw Tank Cleaning Co. v. Tex.

Pipeline Co., 442 S.W.2d 851, 854 (Tex. App.––Amarillo 1969, writ ref’d n.r.e.)

                                        43
(upholding replacement damages awarded by jury for destruction of crude oil

storage tank by fire negligently caused by defendant).       When the damaged

property “has neither a market value nor a real value, but it is shown what it

would cost to replace or reproduce the article, then such cost is the measure of

recovery.” Int’l-Great N. R.R. Co., 46 S.W.2d at 670; Pringle v. Nowlin, 629

S.W.2d 154, 157 (Tex. App.––Fort Worth 1982, writ ref’d n.r.e.) (holding plaintiff

entitled to replacement value of gold leaf professional sign located in the window

of his leased law office when defendants intentionally destroyed it). It is the

plaintiff’s burden to show which method of valuation, other than market value, is

appropriate. See Moran Corp. v. Murray, 381 S.W.2d 324, 328 (Tex. Civ. App.––

Texarkana 1964, no writ) (reversing damage award for intrinsic value of trees

because plaintiff failed to establish inapplicability of fair market value and

replacement measure of damages); Smith v. Dye, 294 S.W.2d 452, 465 (Tex.

Civ. App.—Galveston 1956, no writ) (same).

  4. The Trial Court’s Conclusion of Law that Replacement Value Was the
               Proper Measure of Damages Is Legally Correct

         Wise Electric asserts that replacement value is not the proper measure of

damages; Wise Electric insists that fair market value is the only allowable

measure of damages, arguing that AHC’s inventory had an ascertainable market

value after the fire so that the replacement-value measure of damages does not

apply.     AHC, on the other hand, characterizes its damages evidence as

supporting the trial court’s award of $13,385,969.37 in replacement-value


                                         44
damages to its personal property (inventory) and, alternatively, diminution-in-

market-value damages from a pre-fire market value of $13,385,969.37 to a post-

fire market value of $0.19

      It was AHC’s burden to prove the applicability of a damage valuation other

than the general rule of diminishment-in-market-value-before-and-after-the-

damage valuation. See Pasadena State Bank, 149 Tex. at 52, 228 S.W.2d at

129 (recognizing plaintiff met this burden); Moran Corp., 381 S.W.2d at 328

(stating rule).   The trial court found that AHC had met that burden here by

establishing that no post-fire market existed for AHC’s 490,092 smoke-damaged

hats and hat bodies, that the smoke-damaged hats and hat bodies could not be

cleaned to permit their use or sale as cowboy hats, and that the smoke-damaged

hats and hat bodies had a post-fire market value of $0. Wise Electric asserts that

“no evidence” supports these findings—findings of fact 36 through 41, 53, 55

through 58, 63, and 64. Because Wise Electric’s sufficiency challenges impact

the correctness of the trial court’s conclusion of law 6—that AHC’s inventory had

no post-fire market value—and conclusion of law 10—that the replacement-value

damage model is applicable, we address Wise Electric’s sufficiency challenges in

connection with its challenges to the correctness of these conclusions of law.

      Wise Electric argues that AHC’s inventory has a post-fire market value

because inventory, “by its very nature, exists to be sold by a seller to a

      19
      AHC informed the trial court that it was asserting both measures of
damages, in the alternative, out of an abundance of caution.

                                        45
purchaser” and also argues that a post-fire market value exists because Outback

Traders purchased 1,330 smoky hats after the fire. Wise Electric’s arguments,

however, fail to take into account the fact that, as testified to by Startz and

Maddox, AHC’s inventory was comprised predominately of raw hat bodies; “only

a small percentage of the hats had been completed.” The final page of Startz’s

114-page hat-by-hat inventory spreadsheet, which is attached to his report,

shows that of the 490,092 hats and hat bodies in AHC’s inventory at the time of

the fire, 13,896 completed straw hats existed (2.8% of the inventory); 4,574

completed felt hats existed (0.9% of the inventory); 23,701 stage-two straw hats

existed (4.8% of the inventory); 63,381 stage-two felt hats existed (12.9% of the

inventory); 345,870 straw raw hat bodies––stage-one hats––existed (70.6% of

the inventory); and 38,670 felt raw hat bodies––stage-one hats––existed (7.9%

of the inventory).20   Thus, 78.5% of AHC’s inventory at the time of the fire

consisted of raw hat bodies, 17.7% of AHC’s inventory at the time of the fire

consisted of stage-two hats, and only 3.7% of AHC’s inventory at the time of the

fire consisted of completed, stage-three hats.21




      20
       In finding of fact 53, the trial court found that “[e]ach of the 490,092 hats
in American Hat’s Inventory on the date of the fire was inspected and valued by
Steve Star[t]z.”
      21
        Because the percentages were rounded to the nearest tenth, instead of
using the exact number calculated by dividing the inventory item into the total
inventory, the total of the percentages equals 99.9% rather than 100.0%.

                                        46
                         a. No Post-Fire Market Exists
                    for AHC’s Stage-One or Stage-Two Hats

      As a matter of law, no post-fire market existed in Montague County, Texas,

for 96.2% of AHC’s inventory (all but the 3.7% of AHC’s inventory consisting of

completed hats) for four reasons. First, juxtaposing the definition of fair market

value––the price a willing buyer, who desires to buy but is under no obligation to

buy, would pay to a willing seller, who desires to sell but is under no obligation to

sell22––with the above facts concerning AHC’s inventory after the fire, it is

obvious that if the smoke-damaged stage-one raw hat bodies and the partially-

manufactured stage-two hats are sellable, the “willing buyer” of 96.2% of AHC’s

inventory (all but the 3.7% of the inventory consisting of completed hats) is

necessarily limited to hat-manufacturing companies. That is, only one of AHC’s

competitors––a hat-manufacturing company––could ever be a “willing buyer” of

raw straw hat bodies; raw felt hat bodies; partially-completed, stage-two straw

hats; and partially-completed, stage-two felt hats. If AHC as a hat-manufacturing

plant is unwilling to manufacture hats from smoke-damaged hat bodies and to

complete partially-manufactured, smoke-damaged stage-two hats, then why

would one of its competitors be willing to buy smoke-damaged inventory to do

so? Any notion that AHC’s competitors could constitute a market for AHC’s

smoke-damaged stage-one and stage-two hats is wholly unsupported by the


      22
        See, e.g., City of Pearland v. Alexander, 483 S.W.2d 244, 247 (Tex.
1972) (setting forth definition of fair market value).

                                         47
record. And no evidence exists that raw hat bodies or partially-manufactured

hats can be used for or manufactured into anything but hats.

      Second, a fair-market-value damage model is based on the property’s

price on the open market at the place where the damage occurred; we have

located no cases supporting the proposition that a small market limited to a

company’s competitors is a satisfactory market for determination of fair market

value of unmanufactured or partially-manufactured property.

      Third, a fair-market-value damage model is based on the difference in the

property’s fair market value before and after the damage “at the place where the

damage occurred.” See Thomas, 895 S.W.2d at 359 (requiring fair market value

to be established at the place where the damage occurred); Bass v. McClung

Roofing Co., 575 S.W.2d 342, 344 (Tex. Civ. App.—Fort Worth 1978, no writ)

(same).   AHC is the only hat-manufacturing company in Montague County,

Texas; there is no market in Montague County, Texas, besides AHC for raw hat

bodies and stage-two hats.

      Fourth, and most importantly, the only evidence Wise Electric points to as

establishing that a post-fire market exists for AHC’s stage-one and stage-two

hats is the sale of 1,330 smoke-damaged stage-three hats to Outback Traders.

But the sale of a small number of completed, stage-three smoky hats is no

evidence of a post-fire market for smoky, raw hat bodies or for smoky, partially-

manufactured, stage-two hats.     AHC cannot be forced to manufacture the

smoke-damaged raw hat bodies into completed hats and to finish manufacturing

                                       48
the smoke-damaged stage-two hats into completed hats in order to enter the

“market” that Wise Electric contends exists. See, e.g., Wicker v. Hoppock, 73

U.S. 94, 99 (1867) (“The general rule is, that when a wrong has been done, and

the law gives a remedy, the compensation shall be equal to the injury. . . . The

injured party is to be placed, as near as may be, in the situation he would have

occupied if the wrong had not been committed.”). Basing AHC’s damages on its

future consummation of the finished manufacturing of 96.2% of its inventory into

stage-three hats for purported sale in the Australian Outback does not return

AHC to the position it occupied before the fire.

         b. No Post-Fire Market Exists for AHC’s Stage-Three Hats

      Concerning the 3.7% of AHC’s inventory consisting of completed, stage-

three hats, Maddox testified that at the time of the fire, AHC had $1.2 million of

completed hat inventory ready to ship to fill orders that had already been placed.

The evidence concerning whether a post-fire market existed for the stage-three

hats included the following.     Maddox testified, “No one would buy [smoke-

damaged hats,] and no one with any reputation would sell them.” When asked

whether he had discussed with his customers the possibility of purchasing the

smoke-damaged hats, Maddox testified that “I had customers assuring me that

they didn’t want smoke-damaged hats.” After the fire, AHC even changed the

color of the hat boxes their hats were sold in because customers were adamant

that they did not want smoke-damaged inventory. Moore testified that the AHC’s

post-fire inventory in the sea containers reeked of smoke; he said that at the time

                                         49
of trial, there was no process in existence to remove the smoke smell from a

smoke-damaged hat. He testified that no market existed for smoke-damaged

hats; they should be put in a hole in the ground and covered with dirt.

      Maddox explained that after a hat is cleaned, it must be reshaped with

steam; he conducted an in-court demonstration of how to put a crown in a hat by

steaming it. As he was applying steam to the hat in the courtroom, a smoke

smell emanated from the hat, intensifying as more steam was applied. Maddox

testified that the smoke smell of a smoke-damaged hat will intensify as its wearer

sweats and becomes hot. Likewise, Moore testified concerning the smoke smell

of a smoke-damaged hat, “You’re going to smell it any day, but you’re going to

smell it more when it is hot.”

      Corn testified about debris and microscopic particles on one-half-inch by

three-inch rectangles that he had cut from the brims of eleven to fourteen hats.

His conclusion was that particles associated with a grass fire were not present on

the rectangles of these hats, but he agreed that he could not offer an opinion or

conclusions concerning any untested hats. Concerning smoke damage, Corn

testified that utilizing his panel of five Armstrong Lab employees sniffing the hats

that had been placed in individual bags in a procedure performed in the air-

conditioned laboratory, only one hat registered a smoke smell. He said that the

smoke smell could be eradicated from all 490,092 hat bodies and hats by

separating them from the stacked, nested position they were stored in; placing

them in a yet-to-be-built, large warehouse-sized chamber in a position where air

                                        50
surrounded all sides of the hats; heating air and pulling it or pushing it from end-

to-end through the chamber; and leaving the batches of hats in the chamber for

ten to fourteen days per batch.

      Wise Electric argues that AHC’s sale of 1,330 completed, stage-three

smoke-damaged hats to Outback Traders in Australia for attempted sale in

Australia is evidence that a post-fire market exists for AHC’s smoke-damaged

stage-three hat inventory. But Maddox testified this sale was a one-time trial

sale; Outback Traders thought it could sell smoke-damaged hats in the

Australian Outback because it was smoky there and because Maddox was willing

to let them try. But the hats did not sell. Although Outback Traders continued to

order new, non-smoke-damaged hats from AHC, it never again ordered any

more smoke-damaged hats.          And Startz testified that back in 2005 when he

placed AHC’s smoke-damaged stage-three hats on the market, interest in them

waned when buyers learned they were smoke damaged.

           c. Replacement Value Is a Proper Measure of Damages

      Because, as a matter of law, no post-fire market value existed in Montague

County, Texas, for 96.2% of AHC’s inventory (all but the 3.7% of AHC’s inventory

consisting of completed, stage-three hats), we overrule the portions of Wise

Electric’s first and second issues challenging the sufficiency of the evidence to

support the trial court’s fact finding that no post-fire market value existed for any

of AHC’s smoke-damaged inventory to the extent this finding includes the 96.2%

of AHC’s inventory consisting of stage-one and stage-two hats.               Having

                                         51
determined that as a matter of law no post-fire market existed in Montague

County, Texas, for the 96.2% of AHC’s inventory consisting of hat bodies and

stage-two hats, we need not address Wise Electric’s challenge to the factual

sufficiency concerning this finding.

      Viewing all of the evidence in the light most favorable to the trial court’s

fact findings that no post-fire market existed for any of AHC’s smoke-damaged

inventory and that the post-fire fair market value of AHC’s smoke-damaged

inventory was $0, to the extent these findings include the 3.7% of AHC’s

inventory consisting of completed, stage-three hats, and disregarding the

contrary evidence because a reasonable factfinder could, we hold that the

evidence is legally sufficient to support the trial court’s finding of fact that no post-

fire market existed for any of AHC’s inventory to the extent it includes this 3.7%

of AHC’s inventory.23 See Cent. Ready Mix Concrete Co., 228 S.W.3d at 651;

City of Keller, 168 S.W.3d at 807, 827; see also Rocor Int’l, 77 S.W.3d at 262

(explaining that a mere scintilla of evidence constitutes legally sufficient evidence

and defining scintilla). Considering and weighing all of the evidence in the record


      23
        If AHC’s single sale––five years after the fire––of 1,330 stage-three
smoky hats to Outback Traders can somehow be construed as establishing a
market for all of AHC’s remaining 17,140 completed, stage-three smoke-
damaged hats, the trial court’s judgment could be modified by lowering AHC’s
inventory damage award by $1,139,351.23. This figure is computed as follows:
by taking the total value of all stage-three smoke-damaged hats––$1,188,539.54,
and subtracting the credit already given to Wise Electric to exclude the 1,330
smoky hats sold to Outback Traders from AHC’s inventory damage award––
$49,188.31, the total equals $1,139,351.23.

                                           52
pertinent to the trial court’s finding that no post-fire market existed for any of

AHC’s smoke-damaged inventory and that the post-fire fair market value of

AHC’s smoke-damaged inventory was $0, to the extent these findings include the

3.7% of AHC’s inventory consisting of completed, stage-three hats, the credible

evidence supporting the finding is not so weak, nor is the contrary evidence so

overwhelming, that the finding should be set aside and a new trial ordered. See

Pool, 715 S.W.2d at 635; Cain, 709 S.W.2d at 176. We overrule the potions

Wise Electric’s first and second issues challenging the legal and factual

sufficiency of the evidence to support the trial court’s findings of fact 36 through

41, 53, 55 through 58, 63, and 64.24

      Because AHC met its burden of establishing that no post-fire market exists

for any of its smoke-damaged inventory, the general rule for measuring

negligently-inflicted damages to personal property––that being the difference

between its market value immediately after the injury at the place where the

damage occurred––does not apply here. See Pasadena State Bank, 149 Tex. at

50, 228 S.W.2d at 128 (recognizing “that the personal property destroyed might

not have a market value” triggering “variations in the way in which the method of

determining damages may be stated” to achieve proper compensation for the


      24
         For these same reasons, we reject Wise Electric’s free-standing
argument (not asserted in connection with any issue) that a distinction exists in
this case between proof that AHC’s smoke-damaged inventory had a post-fire
market value of $0 and proof that AHC’s smoke-damaged inventory had “no
[post-fire] ascertainable market.”

                                        53
injury inflicted as a proximate result of the wrongful act complained of); Int’l-Great

N. R.R. Co., 46 S.W.2d at 670 (recognizing that replacement valuation is proper

to compensate an owner for damage to personal property when no market value

exists for the personal property damaged); Pringle, 629 S.W.2d at 157 (same).

AHC elected application of the replacement-value damage model, and the trial

court correctly concluded in conclusion of law number 10 that a replacement

valuation applied to AHC’s smoke-damaged inventory.            See, e.g., Pasadena

State Bank, 149 Tex. at 50, 228 S.W.2d at 128; Int’l-Great N. R.R. Co., 46

S.W.2d at 670; Celanese Ltd., 75 S.W.3d at 598 (recognizing different factual

situations may dictate application of a different valuation [i.e., other than fair

market value] of the damage to the property); Pringle, 629 S.W.2d at 157 (same).

We overrule the portions of Wise Electric’s first and second issues challenging

the legal correctness of the trial court’s conclusion of law number 6—that AHC’s

inventory had no post-fire market value—and conclusions of law 10—that “the

proper measure of damages [for all of AHC’s inventory] is the replacement value

of the inventory.”

                    5. Wise Electric’s Challenges to
  Maddox’s and Startz’s Fair-Market-Value-at-the-Time-of-Fire Testimony

      In a portion of its first issue and in a portion of its second issue, Wise

Electric challenges Maddox’s testimony that the fair market value of AHC’s




                                         54
inventory at the time of the fire was $13.5 million dollars25 and Startz’s market-

value testimony about AHC’s inventory at the time of the fire.26        Concerning

Startz’s testimony, Wise Electric asserts that “(1) Startz’s testimony lacked any

reliable foundation, (2) Startz was never properly designated to testify as to the

market value of American Hat’s inventory, and (3) Startz was not qualified to

testify on the market value of American Hat’s inventory.”       But, as discussed

above, as a matter of law no post-fire market value exists for AHC’s inventory of

stage-one and stage-two hats, and legally and factually sufficient evidence exists

to support the trial court’s finding that no post-fire market value exists for AHC’s

stage-three hat inventory; therefore, the trial court correctly concluded that the

replacement-value damage model applied. In the absence of a post-fire market

value and applying a replacement-value damage model, a challenge to the


      25
        In one sentence, Wise Electric also challenges Maddox’s testimony that
the post-fire market value of AHC’s inventory was $0. Because Moore––an
expert with a background similar to Maddox’s––testified without objection that
there was no post-fire market for AHC’s inventory of hats, if the trial court did
somehow err by permitting Maddox to testify that AHC’s inventory had a post-fire
market value of $0, any such error was harmless. See Mancorp, Inc. v.
Culpepper, 802 S.W.2d 226, 230 (Tex. 1990) (holding any error in admitting
testimony of expert witness was harmless because it was cumulative of same
testimony given by six other expert witnesses who testified at trial); McKinney v.
Nat’l Union Fire Ins. Co., 772 S.W.2d 72, 76 (Tex. 1989) (holding any error in
admitting testimony of witness describing chemical pump was harmless because
it was cumulative of admitted exhibit displaying pump and trial testimony of other
witness about pump’s function).
      26
        Wise Electric does not challenge Startz’s replacement-value testimony;
instead, as set forth and addressed above, Wise Electric claims that replacement
value is an incorrect measure of damages.

                                        55
testimony concerning the pre-fire market value of AHC’s inventory is

meaningless.     That is, the general rule of diminishment in fair market value

before and after the damage cannot be applied if there is no post-injury fair

market value. See, e.g., Pasadena State Bank, 149 Tex. at 50, 228 S.W.2d at

128; Int’l-Great N. R.R. Co., 46 S.W.2d at 670; Pringle, 629 S.W.2d at 157.

      Likewise, because the trial court correctly applied the replacement-value

damage model, a challenge to Startz’s qualifications to offer alternative fair-

market-value opinion testimony is meaningless; Startz’s qualifications to offer

replacement-value testimony are not challenged on appeal.              Consequently,

because no post-fire market value exists for AHC’s inventory of 490,092 hats and

hat bodies, we need not address the portions of Wise Electric’s first and second

issues     challenging   the   alternatively-presented,   pre-fire   fair-market-value

testimony of Maddox and Startz or the qualifications of Startz to offer

replacement-value testimony.27 See Tex. R. App. P. 48.1 (requiring appellate

court to address issues necessary for final disposition of appeal).



      27
         In the interest of judicial economy and because this case has been tried
and appealed twice, we alternatively construe Wise Electric’s brief as challenging
Startz’s qualifications to offer replacement-value testimony. The determination of
whether a witness is qualified to testify as an expert is left largely to the trial
court’s discretion. See Tex. R. Evid. 702; Broders v. Heise, 924 S.W.2d 148, 151
(Tex. 1996). We will not disturb the trial court’s determination that an expert is
qualified unless the trial court abuses its discretion. See Broders, 924 S.W.2d at
151. A trial court abuses its discretion when it acts “without reference to any
guiding rules or principles.” Id. (quoting E.I. du Pont de Nemours & Co. v.
Robinson, 923 S.W.2d 549, 558 (Tex. 1995)); see Larson v. Downing, 197
S.W.3d 303, 304–05 (Tex. 2006). In close cases, we defer to the trial court’s
                                          56
      To the extent that Wise Electric’s complaint—that “Startz’s testimony

lacked any reliable foundation”—can be liberally construed to encompass a

challenge to Startz’s replacement-value testimony, we address it next.28         In

determining the admissibility of expert testimony, the trial court has broad

discretion, and accordingly, we review its ruling for an abuse of discretion. Mack

Trucks, Inc. v. Tamez, 206 S.W.3d 572, 578 (Tex. 2006).             In its role as



resolution of expert qualifications and will not reverse its judgment. See Larson,
197 S.W.3d at 304.

       Here, Startz’s testimony and résumé, which was admitted into evidence,
establish that he possessed over twenty years’ experience acting as a
documentation, evaluation, and liquidation specialist—called a salvor—for
insurance companies and large corporations concerning a variety of types of
industries, including manufacturing, retail, food, and industrial. He has performed
salvor work for insurance companies such as Travelers, Hanover, Zurich, AIG,
Lloyds of London, and others and for companies such as Walmart, Coca-Cola,
and Walt Disney. He has previously worked as a salvor concerning smoke-
damaged clothing.

        Based on Startz’s testimony concerning his qualifications and his résumé
chronicling his extensive experience as a salvor, we alternatively hold that the
trial court did not abuse its discretion by determining that Startz’s knowledge,
skill, experience, and training concerning the documentation, evaluation, and
liquidation of a variety of types of damaged goods qualified Startz to give an
opinion that would be helpful to the finder of fact on that subject––his
documentation, replacement valuation, and attempt to liquidate AHC’s inventory
of smoke-damaged hats. We overrule the portion of Wise Electric’s second issue
to the extent that it may be construed as complaining of Startz’s qualifications to
offer replacement-value testimony. See, e.g., Helena Chem. Co. v. Wilkins, 47
S.W.3d 486, 500 (Tex. 2001) (holding that trial court did not abuse its discretion
by determining expert witness was qualified to testify).
      28
        Wise Electric states that “Startz’s report and testimony are based on
calculations that, even if supported by evidence, would only be probative of
replacement value or lost profits, but not fair market value.”

                                        57
gatekeeper, the trial court is required to ensure only that the expert testimony is

based on a reliable foundation and is relevant to the issues in the case. Gammill

v. Jack Williams Chevrolet, Inc., 972 S.W.2d 713, 728 (Tex. 1998). The trial

court does not determine whether the expert’s opinion is correct but only whether

the analysis used to reach the expert’s conclusion is reliable. Id.; Exxon Pipeline

Co. v. Zwahr, 88 S.W.3d 623, 629 (Tex. 2002).

      Under rule of evidence 703, an expert’s replacement-value opinion may be

based on facts or data “perceived by, reviewed by, or made known to the expert

at or before the hearing.” Tex. R. Evid. 703. Such facts or data need not be

admissible in evidence if they are “of a type reasonably relied upon by experts in

the particular field.” Id. Personal knowledge of the underlying facts or data is not

required. See Tex. R. Evid. 602, 703; Henderson v. State, 14 S.W.3d 409, 412

(Tex. App.—Austin 2000, no pet.); 2 Steven Goode et al., Guide to the Texas

Rules of Evidence § 703.3 (3d ed. 2002).

      After Travelers hired Startz, for approximately three weeks Startz and his

inventory crew painstakingly counted and categorized each and every hat body

and hat in AHC’s inventory of 490,092 hat bodies and hats. When AHC hired

Startz to value this inventory, Startz familiarized himself with AHC’s

manufacturing process, and he requested information from AHC of the type that

an expert in his field would customarily use and rely upon.        The information

consisted of his prior documentation of each item in AHC’s hat inventory,

invoices, like-similar invoices for invoice-lacking items transferred to Maddox with

                                        58
the purchase of AHC, and average operating costs and labor costs incurred by

AHC per-hat to manufacture the 87,082 stage-two hats and the 18,480 stage-

three hats that were included, along with 384,540 stage-one hats, in AHC’s total

smoke-damaged inventory of 490,092 hats and hat bodies.              In its role as

gatekeeper, the trial court was required to ensure only that Startz’s expert

testimony was based on a reliable foundation and was relevant to the inventory

damage issue in the case. See Gammill, 972 S.W.2d at 728. The trial court’s

role was not to determine whether Startz’s opinion was correct but only whether

the analysis used to reach his conclusion was reliable. See id.; see also Zwahr,

88 S.W.3d at 629.      For the reasons detailed above, we hold that Startz’s

replacement-cost analysis was sufficiently reliable. See Gulley v. State Farm

Lloyds, 461 S.W.3d 563, 576 (Tex. App.—San Antonio 2014, pet. denied)

(holding opinion testimony of civil engineer expert that movement of foundation

was caused by seasonal moisture, not plumbing leak, was sufficiently reliable).

We overrule the portions of Wise Electric’s first and second issues to the extent

they assert that Startz “did not use reliable foundational data” and that his

methodology is a “simple summation of numbers without any factual basis.”

6. The Evidence Is Legally and Factually Sufficient to Support the Amount
      of the Replacement-Value Damages Found by the Trial Court

      In portions of its first and second issues, Wise Electric complains that

legally and factually insufficient evidence exists to support the amount of the trial

court’s inventory damage award––$13,385,969.37—as set forth in finding of fact


                                         59
58 and conclusion of law 7. Wise Electric’s sufficiency analysis is premised

solely on two facts that it contends render the amount of the trial court’s damage

award against the great weight and preponderance of the evidence: (1) Maddox

purchased AHC’s equipment and inventory out of foreclosure in 2003 for only

$350,000, and (2) Montague County Appraisal District’s 2005 personal property

appraisal of AHC’s personal property was $200,000.29 We review the evidence

concerning the amount of the inventory damage award, and we address Wise

Electric’s two contentions in turn.

      In 1995, eight years before he successfully purchased AHC out of

foreclosure, Maddox raised $10,000,000 to purchase AHC, but the owner then

raised the price to $20,000,000. In 2003, Maddox was told a one-half share in

AHC could be purchased for $2,700,000 and believed this “was a good deal.”

When Maddox learned that AHC had been foreclosed on by Compass Bank, as

AHC’s landlord, he purchased AHC out of foreclosure by Compass Bank for

$350,000 in a two-day, cash-only transaction.

      Jeff Biggars, AHC’s plant manager, testified by deposition at the first trial,

and his deposition testimony was offered by Wise Electric as Defendant’s Exhibit


      29
        Wise Electric presented no expert testimony on the value of AHC’s
smoke-damaged hat inventory controverting Startz’s valuation; it presented only
Corn’s testimony that no particles associated with a grass fire were present on
the hats he had examined, that the five-person-smell-test revealed only one of
the tested hats smelled like smoke, and that the smoke smell could be removed
from the hats by the hot-air-being-forced-through-a-warehouse-for-seven-to-
fourteen-days method.

                                        60
127 at the second trial. Biggars testified that Maddox had purchased AHC out of

foreclosure and agreed that AHC was a foreclosed entity no longer doing

business at the time Maddox had purchased it.

      Maddox characterized his purchase of AHC as “an excellent deal.” He

testified that at the time he purchased AHC, its inventory was worth $13,000,000

dollars. Moore testified that he did not know what Maddox had paid for AHC, but

that if he had purchased it for $350,000, he had gotten a good deal; “I would

have guessed he would have paid more than that.”

      Startz’s testimony and report documented the replacement value of AHC’s

490,092 hat bodies and hats through invoice prices and “like-similar invoice”

prices of various types of AHC’s hat bodies: invoice number 00607006—dated

March 29, 2004, from Bollman Hat Company—for the purchase of 236 dozen hat

bodies of three different types; invoice number 00638634—dated June 22, 2004,

from Bollman Hat Company—for the purchase of 423 dozen hat bodies; invoice

number SO-05302—dated August 5, 2005, from Sunflower Mercantile H.K.

Limited in Hong Kong—for the purchase of 950 dozen straw hat bodies of

assorted types; a July 25, 2005 faxed letter to AHC showing an increase in the

purchase price of thirteen types of hat bodies of which AHC had ordered a total

of 1,500 dozen from Sunflower Mercantile for the months of December 2004 and

January 2005; invoice number AM 007-08—dated January 18, 2007, from Japan

Braid Hat Mfg. Co., Ltd. in Japan—for the purchase of 700 dozen Bangkok paper

hat bodies; and invoice number 01046893—dated March 11, 2008, from Bollman

                                      61
Hat company—for 155 dozen wool felt hat bodies. The record also contains

numerous pictures showing the enormous quantity of hats and hat bodies in

AHC’s inventory.     And Startz’s report details his hat-by-hat counting and

cataloging of each of AHC’s 490,092 hat bodies and hats, as well as his

calculations (set forth above), to arrive at a total replacement value of

$13,385,969.37.

      Wise Electric asserts that the price at which Maddox purchased AHC is

evidence of the inventory’s fair market value––the amount at which the property

(American Hat’s inventory) was offered for sale by a willing seller (Compass

Bank) and purchased by a willing buyer (Maddox). That is, Wise Electric claims

the inventory cannot be worth $13,385,969.37 because Maddox paid only

$350,000 for it. But a foreclosure purchase price is, as a matter of law, not “fair

market value.” See BFP v. Resolution Trust Corp., 511 U.S. 531, 537, 114 S. Ct.

1757, 1761 (1994). In BFP, the United States Supreme Court explained,

      Market value, as it is commonly understood, has no applicability in
      the forced-sale context; indeed, it is the very antithesis of forced-sale
      value. “The market value of . . . a piece of property is the price
      which it might be expected to bring if offered for sale in a fair market;
      not the price which might be obtained on a sale at public auction or a
      sale forced by the necessities of the owner, but such a price as
      would be fixed by negotiation and mutual agreement, after ample
      time to find a purchaser, as between a vendor who is willing (but not
      compelled) to sell and a purchaser who desires to buy but is not
      compelled to take the particular . . . piece of property.”

Id. at 537–38, 114 S. Ct. at 1761. Thus, we hold that the evidence of Maddox’s

purchase price of AHC after Compass Bank’s foreclosure is not evidence of the


                                         62
fair market value or of the replacement value of AHC’s inventory at the time of

the fire. Although Wise Electric argues that if AHC, “which is wholly owned by

Keith Maddox, is able to collect on the judgment entered below, he will have

turned his $350,000 investment into a windfall,” the record reflects that the

windfall occurred when Maddox purchased AHC out of foreclosure.

      Concerning the Montague County Appraisal District’s personal property

valuation for purposes of ad valorem taxes, Maddox testified that it was his

understanding he could elect to report his personal property on either a fair-

market-value basis or on a cost basis. He elected to report under the cost basis,

which he testified was based on the portion of the $350,000 purchase price he

attributed to the inventory––$200,000 for the inventory and $150,000 for the

equipment and name.        Shannon Shipp, a sales, marketing, and business

professor at Texas Christian University and founding member and partner for a

firm that specializes in damages calculations, explained that it is proper to report

business personal property value at the “[l]ower of cost or market” for county tax

appraisals.   Shipp also testified that he had consulted the Montague County

Appraisal District’s office and was told that business personal property could be

properly valued at the lower of cost or market value.30 Thus, in light of the


      30
        At Wise Electric’s request, the trial court took judicial notice of sections
23.01 and 23.12 of the Texas Tax Code, governing, respectively, appraisals
generally and appraisals of inventory by the chief appraiser and stating the
general rule that appraisals are set at market value. See Tex. Tax Code Ann.
§§ 23.01, .12 (West 2015). Rendition statements made by a business owner on
the business’s personal property, however, are made pursuant to section 22.01,
                                        63
evidence––which the trial court was free to believe––that the appraised value of

AHC’s business personal property in the 2005 statement from the Montague

County Appraisal District was based on cost, not on fair market value, the

statements do not constitute evidence that the fair market value or the

replacement value of AHC’s inventory at the time of the fire was less than

$13,385,969.37. And no testimony or evidence exists valuing the damage to

AHC’s hat inventory at a dollar amount lower than $13,385,969.37.

      Viewing all of the evidence in the light most favorable to the trial court’s

award of $13,385,969.37 replacement-value damages for AHC’s inventory of

490,092 hat bodies and hats, and disregarding any contrary evidence because a

reasonable factfinder could, we hold that the award is supported by more than a

scintilla of evidence. See Rocor Int’l, 77 S.W.3d at 262; Cont’l Coffee Prods. Co.,

937 S.W.2d at 450; Leitch, 935 S.W.2d at 118. Considering and weighing all of

the evidence in the record pertinent to the trial court’s finding that the

replacement value of AHC’s smoke-damaged inventory of 490,092 hat and hat

bodies is $13,385,969.37, the credible evidence supporting the finding is not so

weak, nor is the contrary evidence so overwhelming, that the finding should be

set aside and a new trial ordered. See Pool, 715 S.W.2d at 635; Cain, 709

S.W.2d at 176. We overrule the portions of Wise Electric’s first and second


which authorizes a “good faith estimate of the market value of the property
(including inventory), or at the option of the owner, the historical cost when new.”
Id. § 22.01(5) (West 2015).

                                        64
issues challenging the legal and factual sufficiency of the evidence to support the

trial court’s finding of fact 58 and challenging the legal correctness of conclusion

of law 7 determining that the replacement value of AHC’s inventory is

$13,385,969.37.

                            D. Lost-Profits Damages

      In its third issue, Wise Electric argues that the evidence is legally and

factually insufficient to support the trial court’s award of lost profits, challenging

findings of fact 42 through 52 and the legal correctness of conclusions of law 8

and 11.    Having already determined that replacement value was a proper

measure for the personal-property damages awarded, we need not address Wise

Electric’s contentions that lost profits are not available in cases in which fair-

market-value damages are awarded.31

                           1. Evidence of Lost Profits

                         a. Testimony of Keith Maddox

      The fire required AHC to stop manufacturing until the plant and machines

were cleaned and AHC had received new inventory.              The fire occurred on

November 27, 2005.       After the fire, according to Maddox and AHC’s plant

      31
          The cases relied upon by Wise Electric preclude a recovery of lost profits
only to the extent lost-profits damages are encompassed in a fair-market-value
damage recovery; the cases do not preclude the recovery of future, unaccounted
for lost profits if such are necessary for fair compensation to an injured party.
And the lost-profits summary, which is set forth in Exhibit F in the report of AHC’s
lost-profits expert Shipp, explicitly states that inventory value is not included in
the lost-profits analysis; it states, “This analysis assumes that a separate claim
will be filed for the value of the inventory.”

                                         65
manager, AHC ceased manufacturing altogether for several months following the

fire. Production did not recommence until January 2006 and then only partially.

Maddox quantified AHC’s January 2006 operational capacity to have been only

fifteen percent. In contrast to that low capacity, Maddox testified that AHC had

been operating at eighty percent capacity immediately before the fire, and he

asserted that AHC did not regain that capacity until late 2010 because it lacked

adequate inventory.

      Maddox testified that hat sales are seasonal and that AHC’s best sales

months are December, January, and February, as demonstrated by the $1.2

million worth of completed, stage-three hats that AHC had ready to ship at the

time of the fire on November 27, 2005.

      Maddox explained that it takes three to six months to receive new felt hat

bodies and six months to a year, sometimes even two years, to receive new

straw hat bodies. Because the major retailers require prompt delivery of hat

orders; because the major retailers often place large hat orders; and because of

the time required to perform the multiple, labor-intensive manufacturing steps

involved in transforming the hat bodies into completed, stage-three hats ready for

shipment, AHC must maintain a large inventory of stage-one and stage-two hats

on hand. As an example, Maddox said that if a major retailer places an order for

hats on a Monday, it expects AHC to ship the order by Wednesday. If AHC

misses that deadline, the retailer cancels the order and does not return for

business.

                                         66
      Maddox stated that before the fire, AHC had never failed to meet an

order’s deadline.    But because the ordered, ready-to-ship stage-three hats in

AHC’s plant were smoke damaged, they were never shipped. Customers told

Maddox that they did not want the smoke-damaged hats, and because AHC had

no inventory that was not smoke damaged, it could not fill orders.

      After the fire, when AHC ordered inventory, it was forced to order the

inventory in smaller quantities because AHC’s income from hat sales had ceased

and because inventory is expensive; AHC was also forced to pay extra to have

the smaller inventory quantities air-freighted to minimize the typical three- to six-

month delivery time associated with shipping by sea container. Consequently,

after the fire, AHC received and manufactured inventory haltingly; it would make

hats for about five or six days but then have to stop and wait for a week or two

until new inventory arrived. Because AHC lacked adequate inventory to timely fill

orders, it lost all of its major-retailer customers and the weekly orders that the

major retailers had placed.       It took five years for AHC to regain most of its

customers and to regain its pre-fire level of production. At the time of the second

trial, AHC had an inventory of 50,000 hat bodies, and Maddox considered even

that to be a limited inventory.




                                          67
                       b. Testimony of Shannon Shipp32

      Shipp calculated AHC’s total profits lost as a result of the fire to be

$5,100,379; Shipp’s fifteen-page report, with thirteen exhibits totaling an

additional twenty-one pages, was admitted into evidence. Shipp’s testimony and

report explain that his analysis of AHC’s lost profits for each year “includes the

following elements: the duration of the future lost profits, but-for sales, but-for

expenses, and but-for net income[;] mitigating sales, mitigating expenses, and

mitigating net income[;] lost profits[;] and discount to present value.” A narrative

portion of the report explains the meaning of each of these terms and the

methodology Shipp utilized to arrive at the number associated with each term for

each year that AHC’s lost profits continued. Shipp noted in his report that “[a]s of

the date of this report, AHC has seven years of sales data since the fire.”

      The thirteen exhibits attached to Shipp’s report detail the mathematical

calculations he utilized and contain charts documenting the supporting data for

each underlying calculation.     In addition to setting forth Shipp’s valuation

methodology and result, Shipp’s report lists ninety-nine documents that Shipp

reviewed in conducting his lost-profits analysis.    Shipp calculated AHC’s lost

profits for 2005 and for the five years following the fire up through December 31,


      32
       Wise Electric challenges discrete aspects of Shipp’s testimony and
computations. Our factual recitation of Shipp’s testimony and the computations
in his lengthy report is not exhaustive; we focus on providing a factual
background concerning the specific areas of Shipp’s testimony challenged by
Wise Electric.

                                        68
2010, when AHC regained its pre-fire manufacturing capacity; the results of his

computations are set forth in Exhibit F of his report, the final page of the report.33

Exhibit F of Shipp’s report shows that for each year from 2005 through 2010,

Shipp calculated figures for twelve categories of data; he calculated but-for

figures and mitigating/actual figures for the twelve categories and subtracted the

mitigating/actual figures from the but-for figures to arrive at the lost-profits

figures.    Shipp’s final lost-profits computations correlate with the trial court’s

findings of fact concerning the yearly lost profits suffered by AHC for the years

2005 through 2010.

      Shipp testified that the standard in his field is to calculate the losses

sustained until the company is able to accomplish what it would have

accomplished as of the date of the loss. Shipp originally determined the duration

would last through 2011, but before the second trial, he modified his assessment

downward because AHC had, in fact, rebounded quicker than he had expected.

Shipp and Maddox agreed that by December 2010, AHC was operating at a pre-

fire level and was no longer suffering lost profits.

      Shipp explained how he had computed the elements of his lost profits

analysis. For example, in calculating AHC’s December 2005 but-for sales, Shipp

included the loss of sales of the completed, stage-three hats that had been

ordered and were ready to be shipped on November 27, 2005, when the fire


      33
           A copy of Exhibit F from Shipp’s report is attached hereto as Appendix B.

                                          69
occurred. Shipp added to that number an estimated sale of one-third of the

stage-two hats that AHC had stored inside the plant, which he projected would

sell based on his analysis of AHC’s January 2005 and February 2005 high-

season sales pattern.          The methodology, assumptions, and calculations

performed by Shipp to determine 2005 but-for sales are set forth in Exhibits A

and A-1 attached to his report.      Shipp projected AHC’s but-for sales for 2005 to

be $1,150,377. As a “reality check” to test the validity of his 2005 forecast, Shipp

compared his 2005 but-for sales projection to the actual sales achieved by AHC

in 2006 despite the fire; the actual sales that AHC was able to achieve in 2006

during its significantly-reduced manufacturing capability established that Shipp’s

2005 but-for sales figure was accurate.34

      To calculate but-for sales for the years 2006 through 2010, Shipp talked

with Maddox and the employees in AHC’s finance department and reviewed

AHC’s financial statements; Startz’s report; and “the sales break out that [AHC’s

finance department] prepared showing sales to independents, individuals, and

the chain retailers.” Shipp verified information that he had received from AHC by

consulting     books,   articles,   relevant    seminar   materials,   and   competitor

information.    Because sales to individuals were random and too difficult to


      34
         Shipp testified that but-for sales for 2005 were calculated differently than
but-for sales for the years 2006 through 2010 because the 2005 lost profits were
concrete, constituting the already-ordered completed, stage-three hats awaiting
shipping and approximately one-third of the stage-two hats stored inside AHC’s
plant.

                                           70
predict, Shipp omitted them from his calculus. He testified that his lost-profits

analysis was understated to the extent that it does not include AHC’s lost sales to

individuals. Shipp calculated a sales average for the remaining two markets––

chain retailers and independent stores––by analyzing AHC’s 2005 sales. Shipp

explained that analyzing a whole year took into account seasonal sales.

      Next, Shipp calculated a sales growth rate for each of the two markets for

2006 through 2010. Shipp found the growth rate in sales for independent stores

by reviewing AHC’s growth in that market before the fire. AHC had added fifty-

two independent stores since mid-2004.35 Shipp incorporated that rate of growth

because the market supported it; according to Shipp, there are many

independent stores, “a lot of smaller stores.” Shipp calculated the estimated

future growth in sales for the chain-retailer market to be ten percent, which

reflected a growth in the number of hats and the styles of hats sent to each store

as well as a growth in the number of stores within each chain to stock the hats.

The methodology, assumptions, and calculations that Shipp specifically utilized

to arrive at AHC’s but-for sales for the years 2006 through 2010 are set forth in

Exhibit B attached to his report.

      Shipp then determined AHC’s but-for expenses for the years 2005 through

2010—the expenses AHC would have incurred had the fire not occurred. In


      35
      Shipp counted the number of independent stores added from the time
AHC had relocated to Bowie, Texas, in March or April 2004 until the fire in
November 2005.

                                        71
computing but-for expenses for December 2005, Shipp considered the actual

expenses AHC had incurred from January through November 2005.                 Shipp’s

calculations, methodology, and assumptions to determine but-for expenses for

the years 2006 through 2010 are set forth in Exhibits C and C-1 attached to his

report. Shipp estimated AHC’s gross margin for 2005 and for the years 2006

through 2011 and calculated AHC’s actual gross margin for the year 2011; these

calculations are set forth in Exhibit E attached to his report. As a “reality check”

on his but-for expense model and his gross-margin analysis, Shipp reviewed

financial statements that existed for AHC before Maddox had purchased it two

and one-half years earlier; Shipp examined the expenses, cost of goods sold,

and gross margin for the company for that time period because the company had

used the same production equipment and had many of the same customers and

hat styles. He then compared the numbers from AHC’s predecessor company

with AHC’s current numbers as a reality check that the current numbers were in

line with the prior numbers.

      After calculating the but-for expenses, Shipp subtracted them from the but-

for sales to calculate but-for profits. Shipp subtracted from the but-for profits

AHC’s mitigating/actual profits for each year to reach the yearly lost-profits total.

      Shipp explained that prior to the present suit by AHC against Wise Electric,

AHC had sued Travelers to recoup fire damages covered by AHC’s commercial

property and casualty insurance policy with Travelers. Pursuant to the terms of

AHC’s insurance policy, each party selected an appraiser, and the trial court

                                          72
appointed Frank Douthitt as an umpire to appraise AHC’s damages.            Shipp

appraised for AHC.    The coverage page of AHC’s policy with Travelers was

introduced into evidence, and it shows limits of $1,500,000 on the building AHC

rented for its manufacturing plant; $2,000,000 for business personal property;

and $500,000 for business income and extra expense.          Shipp and Douthitt

agreed that as of February 28, 2007, AHC’s “business profit loss”—which

Douthitt also characterized as payment for “business interruption”—computed

according to the terms of, and the coverage provided by, AHC’s policy was

$332,921.80, and the trial court’s judgment in AHC’s suit against Travelers

awarded that amount. During this trial, Shipp explained that the $332,921.80

figure was calculated in the context of the terms and coverage of AHC’s

commercial property and casualty insurance policy with Travelers.           Shipp

testified that the actual lost profits suffered by AHC during the “business

interruption” loss period covered by its policy exceeded $332,921.80 and referred

to his report as including a correct computation of AHC’s lost profits during that

period.

                     c. Testimony of Dennis Ray McBay

      Dennis Ray McBay—a retired partner emeritus with an international

accounting firm and certified public accountant, certified valuation analyst, and

certified financial forensics analyst—disagreed with Shipp. McBay testified that

he was hired by Travelers and stated that “my charge was to calculate lost

earnings due to the partial interruption of business as a result of the smoke

                                       73
damage.” McBay worked with Scott Dau of Travelers in assessing this loss;

McBay prepared a report for Travelers dated February 27, 2006, and it was

introduced into evidence.

      McBay concluded that AHC had suffered a partial business interruption for

only three months. McBay determined that AHC’s “business income loss” was

$101,934.50 for the three-month period following the fire. McBay expressed his

opinion that AHC was able to return to pre-fire sales and production in March

2006—three months after the fire, but he conceded that he had not seen or

reviewed any March 2006 numbers.36 According to McBay, Shipp’s calculations

were wrong because “the driver for his [Shipp’s] calculation is the lost inventory”

and the time and expense required to replace it. In performing his calculations,

McBay assumed that “raw material that’s already in-house is not the only raw

material available.”

      McBay testified that he did not analyze the fire’s long-term effect on AHC’s

profits. McBay authored his report for Travelers on February 27, 2006, and he

acknowledged during cross-examination that he had not returned to AHC’s plant

since February 2006 and had no personal knowledge of its level of productivity

after February 2006.    On cross-examination, McBay’s testimony that he had

      36
        McBay agreed that in February 2005, AHC had total sales receipts of
$114,531 and that in February 2006, that number was $53,487, but he insisted
that by February 2006, AHC was operating at pre-fire capacity and sales. He
admitted that he was using low sales months to compute average sales for the
seasonal high-sales months of December, January, and February. He conceded
that he did not take into account seasonal sales whatsoever.

                                        74
determined AHC’s three-month business interruption period was impeached;

McBay admitted that he had testified at the first trial that the three-month time

period had been dictated to him by Travelers. And subsequently in the second

trial, he reverted to his prior testimony and agreed that “partial suspension for

three months” was a term dictated to him by Travelers.

      McBay admitted that his calculations did not account for seasonal sales,

and unlike Shipp, who had reviewed sales for all of 2005, McBay’s computations

of lost sales––for the three-month business interruption period covered in his

report––averaged sales based only on sales during the eighty-seven days

preceding the fire. McBay admitted that his report expressly states that it is not

to be used for any other purpose other than evaluating AHC’s insurance claim for

three months of business-interruption coverage; he agreed that the report was

never intended to be used at trial. Also unlike Shipp, McBay did not factor into

his calculation the $1.2 million worth of completed, stage-three hat inventory

ready for shipment at the time of the fire; McBay testified that he was unaware

that this inventory existed until he reviewed Shipp’s report. Neither did McBay

account for different market types.

      McBay acknowledged that his lost-profits assessment assumed two things:

(1) AHC did not lose any customers, and (2) AHC could timely obtain new

inventory. McBay did not know how long it actually took for new inventory to

arrive; he was unaware of the testimony that it took months or years to obtain



                                       75
inventory. He agreed that his numbers “might” change if these two assumptions

were incorrect.

                             d. Testimony of Scott Dau

      Scott Dau’s testimony from the first trial was admitted as an exhibit in the

second trial.      As part of his duties for Travelers, Dau was to collect facts

concerning “what [AHC]’s business or lost-business claim was from the period

after the fire.”     Dau observed that in February 2006, AHC’s plant was in

operation. Dau worked with McBay and utilized McBay’s business-interruption

loss calculation in the statement of loss he prepared. On cross-examination, Dau

explained that the $101,934.80 business-interruption loss on his statement of

loss was for three months of business interruption. When asked what business-

interruption loss described, Dau said, “Business interruption is a downtime after

the loss.”   According to Dau, the loss is the net loss of income during that

downtime.

                       2. Applicable Law on Past Lost Profits

      “[W]here it is shown that a loss of profits is the natural and probable

consequence of the act or omission complained of, and their amount is shown

with sufficient certainty, there may be a recovery therefor.” Sw. Battery Corp. v.

Owen, 131 Tex. 423, 426, 115 S.W.2d 1097, 1098 (1938). “Recovery for lost

profits does not require that the loss be susceptible to exact calculation.

However, the injured party must do more than show that it suffered some lost

profits. The loss amount must be shown by competent evidence with reasonable

                                         76
certainty.”     Helena Chem. Co., 47 S.W.3d at 504 (citations omitted).

“Reasonable certainty” in the proof of lost damages “is intended to be flexible

enough to accommodate the myriad circumstances in which claims for lost profits

arise.” Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276,

279 (Tex. 1994). It is a fact-intensive determination. Helena Chem. Co., 47

S.W.3d at 504; Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex.

1992).   At a minimum, opinions or lost-profits estimates must be based on

objective facts, figures, or data from which the lost-profits amount may be

ascertained. Helena Chem. Co., 47 S.W.3d at 504; Holt Atherton Indus., Inc.,

835 S.W.2d at 84.      It is not necessary, however, to produce in court the

documents underlying the opinions or estimates. Holt Atherton Indus., Inc., 835

S.W.2d at 84.

      “Profits which are largely speculative, as from an activity dependent on

uncertain or changing market conditions, or on chancy business opportunities, or

on promotion of untested products or entry into unknown or unviable markets, or

on the success of a new and unproven enterprise, cannot be recovered.” Tex.

Instruments, Inc., 877 S.W.2d at 279; see Sw. Battery Corp., 131 Tex. at 426,

115 S.W.2d at 1098. “Enterprise” does not mean business entity; it refers to the

activity that is alleged to have been damaged.        Tex. Instruments, Inc., 877

S.W.2d at 280. “The focus is on the experience of the persons involved in the

enterprise and the nature of the business activity[] and the relevant market.” Id.



                                        77
       Proof of lost damages can be accomplished with evidence of profit history.

Helena Chem. Co., 47 S.W.3d at 504. The Texas Supreme Court has explained

that

       [p]re-existing profit, together with other facts and circumstances,
       may indicate with reasonable certainty the amount of profits lost. It
       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.

Tex. Instruments, Inc., 877 S.W.2d at 279 (quoting Sw. Battery Corp., 131 Tex.

at 426, 115 S.W.2d at 1099). “Furthermore, in calculating the plaintiff’s loss, it is

proper to consider the normal increase in business which might have been

expected in the light of past development and existing conditions.” Id.

                   3. Legally and Factually Sufficient Evidence
                        Supports the Lost-Profits Award

       Wise Electric’s sufficiency challenge focuses on Shipp’s report and

testimony.     Wise Electric asserts that Shipp’s calculus is flawed because he

relied upon Startz’s report’s tabulation of AHC’s inventory. Because we have

already determined that Startz’s report was not unreliable, and because Shipp

testified that a damages analyst typically relies on such data and information

provided by others, the tabulations of inventory in Startz’s report was not an

improper source for Shipp to have used. See Tex. R. Evid. 703 (authorizing

expert to base opinion on facts or data in the case that the expert has been made

aware of or has reviewed if experts in his field would rely on the facts in forming

an opinion).


                                         78
      Wise Electric challenges Shipp’s computation of a particular element of his

lost-profits analysis—AHC’s 2005 “but-for” sales. To calculate AHC’s 2005 but-

for sales, Shipp totaled the sales of the completed, stage-three hats in the plant

and the sales of one-third of the stage-two hats in the plant. Wise Electric argues

that Shipp merely speculated that AHC would sell all of the stage-three hats

stored in AHC’s plant at the time of the fire. But Maddox testified that the stage-

three hats in the plant awaiting shipping had been manufactured in response to

orders. And Shipp’s and Maddox’s testimony established that AHC converted

stage-two hats to stage-three hats only to fill orders; the sweat bands sewn into

the hats frequently bore the label of the retailer purchasing the hat, which would

not be known until the retailer placed an order for the hats. Therefore, it was not

speculative that AHC would sell the completed, stage-three hats that Maddox

testified had been ordered and were awaiting shipping.        And although Wise

Electric faults Shipp for not supporting his December 2005 valuation with

purchase orders, it is not necessary that such documents be produced in court to

establish lost profits with reasonable certainty. See Holt Atherton Indus., Inc.,

835 S.W.2d at 84 (explaining that “[a]lthough supporting documentation may

affect the weight of the [lost-profits] evidence, it is not necessary to produce in

court the documents supporting the opinions or estimates”).




                                        79
      Wise Electric also faults Shipp’s determination in computing the element of

2005 but-for sales that AHC would sell one-third of the 15,78637 stage-two hats

that were stored in the factory (approximately 5,262 hats). But that determination

came from Shipp’s assessment of the market for the peak season of December

through February. Given that from January 2005 through November 27, 2005,

AHC had sales of $938,333 and was manufacturing 360 hats per day at the time

of the fire, the projected completed manufacture and sale of 5,262 stage-two hats

(263 per day assuming only twenty work days in December) during a peak sales

month is in line with past production. And to ensure the overall reasonableness

of his 2005 December “but-for” sales figure, Shipp compared his projected 2005

sales to AHC’s actual 2006 sales, accounting for AHC’s then-diminished

operational capacity, and concluded that his 2005 assessment, including

December, was accurate. Shipp’s use of AHC’s past profits to forecast future

ones was appropriate. See Helena Chem. Co., 47 S.W.3d at 504 (holding past

profits, coupled with other facts and circumstances, may establish lost profits);

Tex. Instruments, Inc., 877 S.W.2d at 279 (same).

      Wise Electric next asserts that Shipp’s report and testimony are devoid of

facts, figures, or data. Shipp listed the numerous sources of information and


      37
        As previously mentioned, Startz’s spreadsheet detailed for each of AHC’s
490,092 hats and hat bodies whether it was stored inside AHC’s plant or in a sea
container outside at the time of the fire. Shipp’s report indicates that 15,786
stage-two hats were stored inside AHC’s plant at the time of the fire; one-third of
15,786 is 5,262.

                                        80
data that he had utilized in reaching his conclusions; he listed ninety-nine

documents that he had reviewed in reaching a lost-profits computation. In his

report and in the exhibits attached to it, he explained his calculus and the steps

he took to ensure its reasonableness. Shipp’s report, including back-up figures

and data, was admitted into evidence. We cannot agree that Shipp’s report and

testimony are devoid of facts, figures, or data. Compare Helena Chem. Co., 47

S.W.3d at 504 (explaining proper calculation of lost profits), with Holt Atherton

Indus., Inc., 835 S.W.2d at 84 (explaining that plaintiff’s mere statement that he

“lost out on” $200,200 in income coupled with a statement as to profits shown on

an income tax return constituted insufficient evidence of lost profits), and Capital

Metro. Transp. Auth. v. Cent. of Tenn. Ry. & Navigation Co., 114 S.W.3d 573,

581 (Tex. App.––Austin 2003, pet. denied) (holding evidence insufficient to

support jury’s $1.5 million lost-profits award when expert’s computations were not

based on facts, figures, or data because computations ignored reality that plaintiff

company “had a history of losses and had never made a profit on its operations”).

      Wise Electric also challenges Shipp’s computation of the 2006 to 2010

“but-for” sales element of his lost-profits analysis, claiming that Shipp’s numbers

are overly speculative, especially regarding AHC’s estimated growth rates for the

chain retailer market and the independent store market. But Shipp’s proffered

growth rates stemmed from AHC’s prior increases in sales in these two markets,

and Shipp detailed the differences between the growth rates for the two markets

and the method he had used to accommodate them.              Shipp’s growth rates

                                        81
accorded with AHC’s trending sales and the overall hat market. See White v.

Sw. Bell Tel. Co., 651 S.W.2d 260, 262 (Tex. 1983) (stating that “in calculating

the loss in profits, the normal increase in the business which might have been

expected in the light of past developments and existing conditions may be

considered”); Sw. Battery Corp., 131 Tex. at 427, 115 S.W.2d at 1099 (same);

see also Fleming Mfg. Co. v. Capitol Brick, Inc., 734 S.W.2d 405, 407–08 (Tex.

App.––Austin 1987, writ ref’d n.r.e.) (including analysis of sales projections

derived from past sales in lost-profits analysis).    Moreover, no controverting

evidence exists in the record showing any other growth rate should be applied or

undermining the data utilized or the computations performed by Shipp to arrive at

the growth rates he utilized.

      Additionally, the western-hat market is neither new nor uncertain, and

cowboy hats are not untested products. Compare White, 651 S.W.2d at 262

(holding that evidence showed Hewlett-White florist shop had been an

established business for thirty-three years and that the sale of flowers was not an

uncertain or speculative business so as to preclude lost-profits award), with Tex.

Instruments, Inc., 877 S.W.2d at 279 (holding lost-profits award based on

projected sales of a product not yet developed to the point of a working model

too speculative because no evidence existed that the product had been sold to

anyone). To the contrary, Maddox testified that AHC had been making hats

since he was a child and that the first cowboy hat he had owned was an AHC

hat. Maddox also testified that the materials and processes for manufacturing

                                        82
cowboy hats had not changed in a hundred years. AHC’s hat-manufacturing

business falls squarely within the line of cases for which lost profits may be

proved with reasonable certainty. See, e.g., White, 651 S.W.2d at 262 (flower

sales); Sw. Battery Corp., 131 Tex. at 426, 115 S.W.2d at 1098 (battery sales).

       In summary, Shipp’s testimony and report demonstrate that his

calculations of AHC’s lost profits are damages for the loss of net income to AHC.

See Miga v. Jensen, 96 S.W.3d 207, 213 (Tex. 2002).                  His calculations

appropriately reduce AHC’s lost profits by the but-for expenses AHC would have

incurred to attain those profits. See generally Capital Metro. Transp. Auth., 114

S.W.3d at 581–82 & n.7 (considering both income projections and specific

expenses when evaluating proof of lost profits).            And Shipp’s lost-profits

computations––as reflected in Exhibit F of his report, which pulls forward figures

calculated in detail on other Exhibits attached to his report––constitute one

complete lost-profits calculation. See Holt Atherton Indus., Inc., 835 S.W.2d at

85 (stating that “[r]ecovery of lost profits must be predicated on one complete

calculation”). And finally, Shipp’s fact-intensive lost-profit analysis shows AHC’s

lost profits for the years of 2005 through 2010 with reasonable certainty. See,

e.g., Helena Chem. Co., 47 S.W.3d at 504.

      Viewing all of the lost-profits evidence in the light most favorable to the trial

court’s judgment and disregarding the contrary evidence that a reasonable

factfinder could, we hold that the trial court’s yearly lost-profit awards are

supported by more than a scintilla of evidence. See Rocor Int’l, 77 S.W.3d at

                                         83
262; Cont’l Coffee Prods. Co., 937 S.W.2d at 450; Leitch, 935 S.W.2d at 118.

Considering and weighing all of the evidence in the record pertinent to the lost-

profits award, the credible evidence supporting the finding is not so weak, nor is

the contrary evidence so overwhelming, that the finding should be set aside and

a new trial ordered. See Pool, 715 S.W.2d at 635; Cain, 709 S.W.2d at 176.

Accordingly, we overrule Wise Electric’s third issue challenging the legal and

factual sufficiency of the evidence to support findings of fact 42 through 52 and to

the legal correctness of conclusions of law 8 and 11.38

                            V. COLLATERAL ESTOPPEL

      Wise Electric’s sixth issue argues that AHC is collaterally estopped from

recovering lost profits because AHC already recovered them—specifically the

$332,921.80 business-interruption loss awarded in AHC’s suit against Travelers.

The trial court found in conclusions of law 12 and 13 that the evidence was

insufficient to support applying collateral estoppel. Whether collateral estoppel

bars AHC’s recovery is a question of law that we review de novo.39             See


      38
        Because we have held that the evidence is legally and factually sufficient
to support the trial court’s inventory and lost-profits damages, we need not
address Wise Electric’s fourth issue, arguing that the evidence is insufficient to
support damages exceeding $2.6 million. See Tex. R. App. P. 47.1 (requiring
appellate court to address issues necessary for final disposition of appeal).
      39
         Because whether or not collateral estoppel applies is a question of law,
we disagree with Wise Electric’s assertion that AHC judicially admitted––in a
motion for partial summary judgment––that collateral estoppel applied to lost-
profit damages; even if AHC’s motion could be so construed, judicial admissions
are statements of fact rather than law. See, e.g., H2O Solutions, Ltd. v. PM
Realty Grp., LP, 438 S.W.3d 606, 617 (Tex. App.—Houston [1st Dist.] 2014, pet.
                                        84
Quanaim v. Frasco Rest. & Catering, 17 S.W.3d 30, 44–45 (Tex. App.—Houston

[14th Dist.] 2000, pet. denied).

      Collateral estoppel is an affirmative defense, giving defendants the burden

of pleading and proving it. See Sysco Food Servs. v. Trapnell, 890 S.W.2d 796,

802 (Tex. 1994). To carry that burden, a party must establish that (1) the facts

sought to be litigated in the second action were fully and fairly litigated in the first

action, (2) those facts were essential to the judgment in the first action, and (3)

the parties were cast as adversaries in the first action. See Allen v. McCurry,

449 U.S. 90, 94–95, 101 S. Ct. 411, 414–45 (1980); Sysco Food Servs., 890

S.W.2d at 801; Am. Hat Co., 2010 WL 4028098, at *7. “Full and fair litigation”

means actual litigation in the previous suit of the same fact issues. See Puga v.

Donna Fruit Co., 634 S.W.2d 677, 680 (Tex. 1982).

      The record shows that Douthitt’s appraisal award was calculated pursuant

to the provisions in AHC’s commercial property and casualty insurance policy.

Shipp explained that the appraisal award did not reflect AHC’s actual lost profits,

even for the period it covered. Because the fact issue of AHC’s lost profits

caused by the fire (as opposed to the amount of the business-interruption loss

denied); see also Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562,
568 (Tex. 2001) (defining judicial admissions as factual statements). Moreover,
Wise Electric did not object to AHC’s evidence of greater lost-profits evidence,
waiving any judicial-admission argument. See, e.g., Marshall v. Vise, 767
S.W.2d 699, 700 (Tex. 1989) (“[A] party relying upon an opponent’s pleadings as
judicial admissions of fact must protect the record by objecting to the introduction
of controverting evidence and to the submission of any issue bearing on the facts
admitted.”).

                                          85
covered under the terms of AHC’s commercial property and casualty policy with

Travelers) was not fully litigated in AHC’s prior lawsuit against Travelers,

collateral estoppel does not apply to this element of damages. See Allen, 449

U.S. at 94–95, 101 S. Ct. at 414–45; Sysco Food Servs., 890 S.W.2d at 801;

Puga, 634 S.W.2d at 680. We overrule Wise Electric’s sixth issue.

                                         VI. OFFSET

       AHC perfected its own appeal and raises a single issue. AHC asserts that

the judgment erroneously awards Wise Electric an offset of $2,578,067.00. AHC

argues that Wise Electric did not plead offset and did not put on evidence

establishing its right to an offset.40

                       A. Facts and Law Relating to Offset

       After AHC sued Wise Electric, Travelers intervened and asserted a

subrogation claim against Wise Electric for $2,578,067.00.          Subsequently,

Travelers and Wise Electric entered a mediated settlement agreement whereby

Wise Electric paid $1,900,000.00 to settle Travelers’s claims in intervention, and

Travelers assigned its “entire priority claim interest” in the amount of

$2,578,067.00 from any recovery by AHC in the present suit. Immediately prior

to resting its case, Wise Electric offered the one-page mediated settlement

agreement into evidence and read it in toto to the trial court.



       40
        AHC challenges finding of fact 61 and conclusions of law 14 and 15 to
the extent they may also be construed as findings of fact.

                                            86
                    B. The Law Concerning Pleading Offset

      Courts are to construe pleadings so as to do substantial justice. Tex. R.

Civ. P. 45. The purpose of pleadings is to give adversaries notice of each party’s

claims and defenses, as well as notice of the relief sought. Perez v. Briercroft

Serv. Corp., 809 S.W.2d 216, 218 (Tex. 1991). Generally, courts will construe

pleadings as favorably as possible to the pleader. Gulf, Colo. & S.F. Ry. v. Bliss,

368 S.W.2d 594, 599 (Tex. 1963); Henderson v. Henderson, 694 S.W.2d 31, 36

(Tex. App.—Corpus Christi 1985, writ ref’d n.r.e.). If pleadings fairly notify the

other party of the basis of the pleader’s claims, they are sufficient. Tex. R. Civ.

P. 45, 47; Schoellkopf v. Pledger, 778 S.W.2d 897, 899 (Tex. App.—Dallas 1989,

writ denied).   “The right of offset is an affirmative defense. The burden of

pleading offset and of proving facts necessary to support it are on the party

making the assertion.” Brown v. Am. Transfer & Storage Co., 601 S.W.2d 931,

936 (Tex.), cert. denied, 449 U.S. 1015 (1980).

        C. Wise Electric’s Pleadings Are Sufficient to Support Offset

      In the list of affirmative defenses asserted in its Third Amended Original

Answer, Wise Electric pleaded:

             Defendant affirmatively asserts its rights pursuant to Chapters
      32 and 33 of the Texas Civil Practice and Remedies Code with
      regard to contribution and/or a settlement credit election in the event
      either the Plaintiff or the Plaintiff/Intervenor settles with any individual
      or entity for damages arising out of the incident made the basis of
      this suit.




                                          87
At least one court has held that this type of pleading, liberally construed,

constitutes a claim for an offset. See Hartnett v. Hampton Inns, Inc., 870 S.W.2d

162, 167 n.6 (Tex. App.––San Antonio 1993, writ denied) (liberally construing

pleading for settlement credit that cited civil practice and remedies code section

33.014 as pleading affirmative defense of offset). Because we are to liberally

construe pleadings to do substantial justice and because the record establishes

that AHC was on notice of Wise Electric’s claim for a discount on the judgment

based on its mediated settlement agreement with Travelers, we hold that Wise

Electric sufficiently pleaded offset.41 See Tex. R. Civ. P. 45; Perez, 809 S.W.2d

at 218; Bliss, 368 S.W.2d at 599; Hartnett, 870 S.W.2d at 167 n.6.

  D. Factually Insufficient Evidence Exists Concerning Amount of Offset

      The evidence relating to the amount of offset comes from the one-page

memorialization of the confidential mediated settlement between Wise Electric

and Travelers,42 limited testimony by Maddox, and one statement by Shipp. The

settlement agreement simply states that Travelers paid AHC $2,578,067.00. It

does not contain attachments, explanations, or breakdowns of Travelers’s

payments. Maddox testified that Travelers had paid “nearly $2.7 million” total on

AHC’s claim under its policy. It is clear that Travelers paid AHC the policy’s $2-


      41
       Because offset was sufficiently pleaded, we need not address the issue
of whether offset was tried by consent.
      42
        Travelers’s plea in intervention is in the record, but it provides no details
or attachments showing how the alleged $2,578,067.00 number was reached.

                                         88
million-dollar limit for AHC’s “business personal property” damages, but AHC’s

business-personal-property damages included equipment and items other than

inventory. And the total monies paid by Travelers included cleaning expenses,

building loss, business-personal-property damages, and business-interruption

damages. Payments were also made for fence repair, trailer rentals, and air-

conditioning work. Wise Electric asked Shipp if he knew that AHC had received

$2.7 million from its insurer, and Shipp responded, “[T]he exact number, I didn’t

know, but it was over $2 million.” The number $2,578,067.00 was not mentioned

at trial except when Wise Electric read the settlement agreement as it moved to

admit it.

       We recognize that an insurance policy may provide contractual, first-

priority, dollar-for-dollar subrogation rights. See, e.g., Fortis Benefits v. Cantu,

234 S.W.3d 642, 648 (Tex. 2007) (holding subrogation clause that granted

insurer a right of recovery against “any and all” third-party settlements authorized

insurer     to   recoup   first-priority,   dollar-for-dollar   recovery   from   plaintiff’s

settlement); Hartnett, 870 S.W.2d at 167 (construing similar policy language

similarly); see also Gotham Ins. Co. v. Warren E & P, Inc., 455 S.W.3d 558, 563–

64 (Tex. 2014) (limiting intervenor insurer’s recovery from third party sued by

insured to contractual provisions of insurance policy). But here, only a few pages

of AHC’s commercial property and casualty policy with Travelers were offered

into evidence, and those pages do not include whatever contractual subrogation

provisions may exist in the policy. So we are not able to discern the terms of the

                                              89
subrogation rights that Travelers assigned to Wise Electric by virtue of the

mediated settlement agreement or to determine the propriety of the amount of

the offset awarded under the controlling terms of AHC’s policy.

      Under these circumstances, viewing the evidence in the light most

favorable to the trial court’s findings, Wise Electric established its entitlement to

some amount of offset. But given that the evidence does not show how the

intervenor or Wise Electric arrived at the $2,578,067.00 number; its relation to

the alleged $2.7 million briefly referenced at trial; the fact that this number

included payments under the policy for damages other than those at issue in the

trial—the only personal-property damages sought at trial were for inventory; and

the fact that AHC’s insurance policy was not introduced into evidence,

considering and weighing all of the evidence concerning the amount of the offset

Wise Electric is entitled to, we hold that the evidence concerning the proper

amount of an offset is so weak that the trial court’s finding of an offset amount of

$2,578,067.00 must be set aside and a new trial ordered on Wise Electric’s offset

counterclaim. See Pool, 715 S.W.2d at 635; Cain, 709 S.W.2d at 176; see also

Edlund v. Bounds, 842 S.W.2d 719, 732 (Tex. App.––Dallas 1992, writ denied)

(affirming judgment for plaintiff but reversing and remanding defendant’s

counterclaim for conversion). Because the evidence is factually insufficient to

support an offset in the amount of $2,578,067.00, we sustain AHC’s sole issue in

its appeal.



                                         90
                                VII. CONCLUSION

      Having overruled Wise Electric’s seven issues, we affirm the trial court’s

judgment as to liability, personal property damages, and lost-profits damages.

      Having sustained AHC’s sole issue in its appeal, we reverse the trial

court’s $2,578,067.00 awarded to Wise Electric on its counterclaim for offset, we

sever the counterclaim, and we remand it to the trial court for further

proceedings.43

                                                  /s/ Sue Walker
                                                  SUE WALKER
                                                  JUSTICE

PANEL: GARDNER and WALKER, JJ.44

DELIVERED: September 17, 2015




      43
        See, e.g., 7979 Airport Garage, L.L.C. v. Dollar Rent A Car Sys., Inc.,
245 S.W.3d 488, 493 (Tex. App.—Houston [14th Dist.] 2007, pets. denied) (op.
on reh’g) (affirming judgment on jury verdict as to liability and damages but
reversing, severing from judgment, and remanding claim for attorney’s fees);
Rogers v. Gen. Motors Acceptance Corp., 567 S.W.2d 576, 577 (Tex. Civ.
App.—Beaumont 1978, no writ) (“We sever Rogers and Ward’s counterclaim,
and reverse this portion of the judgment for further proceedings.”).
      44
       Justice McCoy was a member of the original panel but has retired.

                                       91
APPENDIX A




    92
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7
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APPENDIX B




    10
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