Opinion issued November 24, 2015




                                     In The

                              Court of Appeals
                                     For The

                          First District of Texas
                           ————————————
                              NO. 01-14-00706-CV
                           ———————————
            ACCURATE PRECISION PLATING, LLC, Appellant
                                        V.
 JUAN GUERRERO, GUERRERO PLATING TECHNOLOGY, LLC, AND
              ALLIED PLATING, LLC, Appellees



                   On Appeal from the 215th District Court
                           Harris County, Texas
                     Trial Court Case No. 2013-33528A



                       MEMORANDUM OPINION

      In this commercial litigation case, appellant Accurate Precision Plating,

LLC, sued appellees Juan Guerrero, Guerrero Plating Technology, LLC, and

Allied Plating, LLC, for breach of contract, intentional interference with business
relations, and misappropriation of trade secrets. In two issues, appellant contends

that the trial court abused its discretion in refusing to allow APP’s owner, Alberto

Mani, to testify at trial regarding future lost profits, and that the exclusion of

Mani’s testimony was harmful error. We affirm.

                                   Background

      In 2007, Mani and Juan formed APP. Mani, the majority owner, was the

company’s President, and Juan, the minority owner, its Vice-President. In 2012,

Mani learned that Juan intended to leave APP to form his own plating company.

Thereafter, Mani and Juan executed a release and indemnity agreement under

which Mani agreed to pay Juan $300,000 for his interest in APP and one year’s

salary of more than $100,000.      The agreement also included a non-compete

agreement under which, with the exception of three of APP’s customers, Juan

agreed not to contact, or disclose the identity of, any of APP’s then-existing

customers for a period of ten years. At the time the agreement was executed, Juan

had already formed his own company, Guerrero Plating Technology.

      In May 2013, well after Juan’s departure, APP received two purchase orders

from Sauer Machine, one of its customers.        The order forms, however, were

addressed to Juan’s attention and referenced a company identified as Allied

Plating, LLC. Subsequent investigation revealed that this was a company formed

by Juan’s father, who was an APP employee at the time. APP subsequently filed



                                         2
suit against Juan for breach of contract, and against Juan, Guerrero Plating

Technology, and Allied Plating for misappropriation of trade secrets and tortious

interference with business relations. In its suit, APP sought damages for past and

future lost profits. 1 The case proceeded to trial in January 2014.

      During trial, Mani testified about APP’s claim for lost profits based on the

loss of business from five of its customers—Sauer Machine, Innova Integrated

Solutions, Precision Machined Components, Peridot Corporation, and Precision

Energy Service Weatherford. Mani testified that APP’s combined sales from these

five customers had decreased 76% in the year following Juan’s departure, and that

the only explanation for the loss of sales was Juan’s interference with APP’s

customers.

      When appellees’ counsel took Mani on voir dire, Mani testified that he had

no degree, certification, or experience in accounting, economics, or business

forecasting, and that he did not know what steps an accountant or economist would

take to calculate lost profits for specific customers. To determine APP’s profit

from a particular customer, Mani testified that he adds the cost of a particular

plating job to the cost of labor and, from that figure, is able to determine the profit

margin. Mani testified that APP targets a general profit margin, and that he


1
      APP also sought a temporary restraining order and temporary injunction which the
      trial court granted.



                                          3
“shoot[s] for a minimum of 25 percent.” Later, Mani testified that he calculates

future lost profits by taking a customer’s sales over one year, projecting them over

time without increasing sales, and multiplying that figure by twenty percent. Mani

testified that “[e]ven though the target with some customers can be higher or

lower, I think 20 percent is a fair number.”

      Mani testified that, although market conditions “vary from time to time,” he

does not believe that the plating business is a risky one and he had not seen a large

fluctuation in conditions to date. Mani admitted that he did not know why Innova

and Precision Machined were no longer sending work to APP. He testified that he

did not know whether Peridot, Precision Machined, Innova, and Precision Energy

sent work to companies other than Guerrero Plating Technology and Allied. He

further testified that, of its 426 customers, APP had a contract with only one and

had to bid on projects for the others.

      When asked under what circumstances he has had to calculate lost profits for

customers, he replied that he has done it if the “market change[s].” Mani testified

that he has calculated lost profits for gross sales but he did not understand when

asked whether he had ever calculated lost profits for net sales. Following the voir

dire examination, the trial court sustained appellees’ objection to Mani’s proposed

testimony about APP’s future lost profits.




                                          4
      APP subsequently made a bill of review during which Mani testified as

follows:

      Q: [I]f you were allowed to testify regarding lost future profit, could
      you explain the basis that you would utilize to calculate those lost
      profits?
                                       ....

      A: I will take these sales, project them over time and do the profit of
      20 percent without increasing sales up.

                                          ....

      Q: So you could take those numbers and do what with them to
      calculate your future loss?

      A: Basically, add them up and do a projection of these numbers.

      Q: Okay. And how would you do that?

      A: I will do it over—well, you know, we have a non-compete for ten
      years. So one year has elapsed. So I will do it over nine years.

      When asked about the circumstances under which he had previously

calculated future lost profits, Mani testified that he once performed a calculation in

order to provide a price quote to a potential client and, on another occasion, when

he evaluated a price increase for a current customer. When asked what he used to

calculate the future lost profit for the quote, he testified that he used certain factors

for determining the cost of the plating process but that he would not disclose his

pricing strategies because the information was proprietary.




                                           5
      At the conclusion of trial, the jury rendered a verdict in favor of APP,

awarding $230,112.28 in past lost profits damages. 2 On July 22, 0214, the trial

court signed its final judgment. This appeal followed.

                                Standard of Review

      The admission or exclusion of evidence is within the sound discretion of the

trial court. Tex. Dep’t of Transp. v. Able, 35 S.W.3d 608, 617 (Tex. 2000); Simien

v. Unifund CCR Partners, 321 S.W.3d 235, 239 (Tex. App.—Houston [1st Dist.]

2010, no pet.). A trial court abuses its discretion when it acts without reference to

any guiding rules or principles. City of Brownsville v. Alvarado, 897 S.W.2d 750,

754 (Tex. 1995).

      For the exclusion of evidence to constitute reversible error, the complaining

party must demonstrate that (1) the trial court committed error, and (2) the error

was reasonably calculated to, and probably did, cause rendition of an improper

judgment. TEX. R. APP. P. 44.1(a); Owens–Corning Fiberglas Corp. v. Malone, 72

S.W.2d 35, 43 (Tex. 1998). In determining if the excluded evidence probably

resulted in the rendition of an improper judgment, the appellate court reviews the

entire record. Able, 35 S.W.3d at 617; Hahn v. Love, 394 S.W.3d 14, 35 (Tex.

App.—Houston [1st Dist.] 2012, pet. denied).



2
      The jury found in favor of APP on all of its claims against appellees but it found
      that Allied’s misappropriation was excused.

                                          6
                                    Discussion

      APP first contends that the trial court abused its discretion when it refused to

allow Mani to testify by application of the Property Owner Rule. APP argues that

Mani’s testimony regarding APP’s future lost profits with regard to five of its

customers should have been allowed.           It also asserts that Mani’s proposed

testimony was reliable and based on objective facts, and that its exclusion was

harmful error.

      Rule of Evidence 701 provides that “[i]f a witness is not testifying as an

expert, testimony in the form of an opinion is limited to one that is: (a) rationally

based on the witness’s perception; and (b) helpful to clearly understanding the

witness’s testimony or to determining a fact in issue.” TEX. R. EVID. 701. Rule

701 has been interpreted to include a Property Owner Rule, which holds that a

property owner is qualified to testify to the value of his property even if he is not

an expert and would not be qualified to testify to the value of other property. Reid

Rd. Mun. Util. Dist. No. 2 v. Speedy Stop Food Stores, Ltd., 337 S.W.3d 846, 852–

53 (Tex. 2011); see Del Mar Capital, Inc. v. Prosperity Bank, No. 01-14-00028-

CV, 2014 WL 5780302, at *5 (Tex. App.—Houston [1st Dist.] Nov. 6, 2014, no

pet.) (“The Property Owner Rule, as its name suggests, excepts property owners

from the requirement that an expert testify on the valuation of the property.”) The

rule is based on the presumption that a property owner is familiar with his property



                                          7
and its value. Id. at 853. However, the property owner’s testimony must be based

on market value, not intrinsic value or some speculative value of the property. 3

See Natural Gas Pipeline Co. of Am. v. Justiss, 397 S.W.3d 150, 155 (Tex. 2012)

(citing Porras v. Craig, 675 S.W.2d 503 (Tex. 1984)).

      We are unaware of any case—nor has appellant directed us to any—in

which the Property Owner Rule has been applied to testimony regarding lost

profits, either past or future. Rather, the cases in which courts have considered

application of the Property Owner Rule involve property, real or personal, that has

a market value. See e.g., Justiss, 397 S.W.3d at 155 (applying Property Owner

Rule to property owners’ claims of diminished value to homes and land due to

permanent nuisance); Reid Rd. Mun. Util. Dist., 337 S.W.3d at 846 (concluding

officer of defendant company’s general partner was not qualified to testify to

market value of partnership property under Property Owner Rule); Porras, 675

S.W.2d at 503 (applying Property Owner Rule to property owner’s testimony

regarding valuation of land); DZM, Inc. v. Garren, 467 S.W.3d 700, 705 (Tex.


3
      “Market value is ‘the price the property will bring when offered for sale by one
      who desires to sell, but is not obliged to sell, and is bought by one who desires to
      buy, but is under no necessity of buying.’” City of Harlingen v. Estate of
      Sharboneau, 48 SW.3d 177, 182 (Tex. 2001) (citation omitted); Village Place,
      Ltd. v. VP Shopping, LLC, 404 S.W.3d 115, 133 (Tex. App.—Houston [1st Dist.]
      2013, no pet.). Evidence of price paid, nearby sales, tax valuations, appraisals,
      online resources, and any other relevant factors may be offered to support a
      valuation claim. See Natural Gas Pipeline Co. of Am. v. Justiss, 397 S.W.3d 150,
      159 (Tex. 2012).

                                           8
App.—Houston [14th Dist.] 2015, no pet.) (finding property owner’s testimony

offered under Property Owner Rule regarding fair market value of various items of

leased property was insufficient to establish value of items at time of alleged

conversion); Smirl v. State, No. 01–12–00989–CV, 2014 WL 2507639, at *4–6

(Tex. App.—Houston [1st Dist.] June 3, 2014, no pet.) (mem. op.) (upholding

summary judgment against owner of leasehold because owner’s affidavit testimony

was insufficient evidence of valuation of leasehold interest); City of Emory v. Lusk,

278 S.W.3d 77, Tex. App.—Tyler 2009, no pet.) (applying Property Owner Rule to

easement in inverse condemnation case); Royce Homes v. Humphrey, 244 S.W.3d

570 (Tex. App.—Beaumont 2008, pet. denied) (applying Property Owner Rule to

owner’s claimed damages to home and land); Lefton v. Griffith, 136 S.W.3d 271

(Tex. App.—San Antonio 2004, no pet.) (applying Property Owner Rule to

owner’s valuation of store inventory and home). APP did not argue at trial—nor

does it assert on appeal—that the “property” about which Mani sought to testify

has a market value. The Property Owner Rule does not apply to the facts in this

case.4


4
         APP also asserts that the trial court abused its discretion in excluding Mani’s
         testimony regarding APP’s future lost profits when it erroneously applied Rule of
         Evidence 702. However, the only reference to Rule 702 in the record before us is
         by APP’s counsel. In response to appellees’ objection to Mani’s proposed
         testimony regarding future lost profits, APP’s counsel stated, “As a layman, Judge,
         and as a business owner, he is clearly capable, under Rule 702, of testifying as to
         the value of his property, not only in past but in the future as far as lost profits are

                                                9
      Moreover, Mani’s proposed testimony does not constitute competent

evidence from which his claimed future lost profits could be calculated with

reasonable certainty.     The rule concerning adequate evidence of lost profits

damages is well established:

      Recovery for lost profits does not require that the loss be susceptible
      of exact calculation. However, the injured party must do more than
      show that they suffered some lost profits. The amount of the loss
      must be shown by competent evidence with reasonable certainty.
      What constitutes reasonably certain evidence of lost profits is a fact
      intensive determination. As a minimum, opinions or estimates of lost
      profits must be based on objective facts, figures, or data from which
      the amount of lost profits can be ascertained. Although supporting
      documentation may affect the weight of the evidence, it is not
      necessary to produce in court the documents supporting the opinions
      or estimates.

ERI Consulting Engineers, Inc. v. Swinnea, 318 S.W.3d 867, 878–79 (Tex. 2010)

(quoting Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992)). Lost

profits must be based on net profits, not gross revenues. See Heine, at 83 n.1.5

      Based on the record before us, we conclude that APP did not provide

competent evidence of its future lost profits to a reasonable certainty.              Mani

testified that APP has a general target profit margin of twenty-five percent but did



      concerned.” Given the substance of the statement, however, it appears that
      counsel was attempting to introduce Mani’s testimony under the Property Owner’s
      Rule under Rule 701.
5
      “Net profits” is defined as the difference between a business’s total receipts and all
      of the expenses incurred in carrying on the business. Texaco, Inc. v. Phan, 137
      S.W.3d 763, 771 (Tex. App.—Houston [1st Dist.] 2004, no pet.).

                                            10
not explain the basis for it, and then later stated that he considered twenty percent

to be a “fair number,” but offered no explanation why. In other words, Mani

premised his entire future lost profits analysis on a 20% [or 25%] profit margin but

offered no proof that such a profit margin had a connection to the facts. Mani

offered no evidence of what APP’s profit margin had been historically and thus

failed to connect his future lost profits analysis to objective facts, figures, or data.

See Heine, 835 S.W.2d at 83.

      Mani also failed to demonstrate that the purported damage APP suffered was

connected to appellees’ conduct, or to account for, or even consider other factors

that may have caused APP to lose revenue. Although Mani testified that the only

explanation for the loss of the five customers was appellees’ interference with

APP’s business, he later stated that APP had a contract with only one customer and

had to submit bids to the others, and that he did not know why two of its customers

no longer did business with APP. See Heine, 835 S.W.2d at 85 (“[T]he bare

assertion that contracts were lost does not demonstrate a reasonably certain

objective determination of lost profits.”); Rusty’s Weigh Scales & Serv., Inc. v. N.

Texas Scales, Inc., 314 S.W.3d 105, 111 (Tex. App.—El Paso 2010, no pet.)

(concluding that evidence in support of plaintiff’s claim for lost profits was

insufficient where claim was based in part on assumption that it lost customers

based on competitor’s alleged use of plaintiff’s software despite fact that plaintiff



                                          11
was not under contract with its clients). Further, while he testified that he had

calculated lost profits based on gross sales, he was unable to state whether he had

ever calculated future lost profits based on net sales. See Heine, 835 S.W.2d at 83

n.1 (noting lost profits must be based on net profits rather than gross revenues).

Simply put, Mani’s testimony does not constitute the reasonably certain objective

evidence upon which a calculation of future lost profits may be based. Heine, 835

S.W.2d at 84; Fraud-Tech, Inc. v. Choicepoint, Inc., 102 S.W.3d 366, 381 (Tex.

App.—Dallas (Tex. App. 2003, pet. denied) (noting mere speculation by plaintiff

does not constitute objective information needed to establish lost profits).

Accordingly, we conclude that the trial court did not abuse its discretion in

sustaining appellees’ objection to Mani’s testimony regarding APP’s future lost

profits. We overrule APP’s first issue.6

                                    Conclusion

      We affirm the trial court’s judgment. 7




6
      In light of our disposition, we do not reach APP’s issue regarding whether the
      exclusion of Mani’s testimony was harmful. See TEX. R. APP. P. 44.1, 47.1.
7
      We further grant appellees’ unopposed motions to dismiss their conditional
      cross-appeals.

                                           12
                                             Russell Lloyd
                                             Justice

Panel consists of Justices Higley, Huddle, and Lloyd.




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