                                                                             ACCEPTED
                                                                         03-15-00088-CV
                                                                                 5696947
                                                              THIRD COURT OF APPEALS
                                                                         AUSTIN, TEXAS
                                                                    6/16/2015 2:29:17 PM
                                                                       JEFFREY D. KYLE
                                                                                  CLERK
                       No. 03-15-00088-CV

                                                      FILED IN
                                               3rd COURT OF APPEALS
              IN THE THIRD COURT OF      APPEALS AUSTIN, TEXAS
                                               6/16/2015 2:29:17 PM
                      AUSTIN, TEXAS
                                                 JEFFREY D. KYLE
                                                       Clerk


         GRAYCO TOWN LAKE INVESTMENT 2007, LP
                                Appellant,

                                v.

                  COINMACH CORPORATION
                                         Appellee.


        On Appeal from the County Court at Law Number 1
  of Travis County, Texas, Trial Court Case No. C-1-CV-08-09655,
                  Hon. Eric Shepperd, Presiding


                 REPLY BRIEF OF APPELLANT


                              Dobrowski, Larkin & Johnson LLP
                                 Frederick T. Johnson
                                 SBN 00785429
                                 Cody W. Stafford
                                 SBN 24068238
                                 Akilah F. Craig
                                 SBN 24076194
                              4601 Washington Ave, Suite 300
                              Houston, Texas 77007
                              Counsel for Appellant


ORAL ARGUMENT REQUESTED                               June 16, 2015
                                   TABLE OF CONTENTS


                                                                                                     Page

ARGUMENT IN REPLY ............................................................................ 1 

  A.      GRAYCO HAD NO NOTICE OF THE 2002 LEASE. .................................. 1 

    1.        The Memorandum of Lease is insufficient to identify
              the 2002 Lease. ............................................................................ 2 

    2.        The presence of laundry machines at Regatta did not
              provide notice of the 2002 Lease. ............................................. 10 

  B.      COINMACH’S ARGUMENT THAT GRAYCO BREACHED THE
          2002 LEASE IS CONTRARY TO ITS OWN ADMISSIONS. ....................... 12 

  C.      COINMACH PRESENTED NO COMPETENT EVIDENCE OF DAMAGES. ... 14 

    1.        Coinmach’s “lost profits” are too speculative. .......................... 14 

    2.        Kemmerer’s testimony was flawed, unreliable, and
              no evidence of damages. ............................................................ 17 

        a.      Kemmerer based all of his opinions on an incorrect
                date of breach. ........................................................................ 18 

        b.      Kemmerer incorrectly calculated the net present
                value of the alleged lost profits.............................................. 20 

        c.      The trial court acknowledged that Kemmerer’s
                calculation was wrong. ........................................................... 21 

        d.      Kemmerer’s damages calculation is premised on an
                unsupportable “average daily collection rate.” ..................... 22 



                                                     i
  D.       COINMACH FAILED TO PROVIDE ONE, COMPLETE CALCULATION OF
           LOST PROFITS, WHICH REQUIRES REVERSAL AND RENDITION........... 23 


PRAYER .................................................................................................... 25 




                                                      ii
                                 INDEX OF AUTHORITIES


Cases 

Atlas Copco Tools, Inc. v. Air Power Tool & Hoist, Inc.,
 131 S.W.3d 203 (Tex. App.—Fort Worth 2004, pet. denied) ............... 16

Beutell v. United Coin Meter Co.,
 462 S.W.2d 334 (Tex. Civ. App.—Waco 1970, writ ref’d n.r.e.) ..... 10, 11

Cadle Co. v. Caamano,
 930 S.W.2d 917 (Tex. App.—Houston [14th Dist.] 1996, no writ) ........ 8

Holt Atherton Indus., Inc. v. Heine,
 835 S.W.2d 80 (Tex. 1992)..................................................................... 15

Hue Nguy. Chapa,
 305 S.W.3d 316 (Tex. App.—Houston [14th Dist.] 2009,
 pet. denied) .............................................................................................. 8

Kellmann v. Workstation Integrations, Inc.,
 332 S.W.3d 679 (Tex. App.—Houston [14th Dist.] 2010, no pet.) ....... 26

Merrell Dow Pharms., Inc. v. Havner,
 953 S.W.2d 706 (Tex. 1997) ................................................................... 19

Sandoval v. Guzman,
 2002 WL 31412529 (Tex. App.—Corpus Christ Oct. 24, 2002,
 no pet.) ................................................................................................. 6, 7

State v. Cent. Expressway Sign Assocs.,
 302 S.W.3d 866 (Tex. 2009) ................................................................... 18

Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc.,
 877 S.W.2d 276 (Tex. 1994) ................................................................... 16

Univ. Gen. Hosp., LP v. Prexus Health Consultants, LLC,
 403 S.W.3d 547 (Tex. App.—Houston [14th Dist.] 2013, no pet.) ....... 25




                                                     iii
Vista Chevrolet, Inc. v. Lewis,
  709 S.W.2d 176, 177 (Tex. 1986) ........................................................... 26

Waggoner v. Morrow,
  932 S.W.2d 627 (Tex. App.—Houston [14th Dist.] 1996, no pet.) ......... 5

Wells Fargo Bank Nw., N.A. v. RPK Capital XVI, L.L.C.,
  360 S.W.3d 691 (Tex. App.—Dallas 2012, no pet.) .............................. 19

Wiley-Reiter Corp. v. Groce,
  693 S.W.2d 701 (Tex. App.—Houston [14th Dist.] 1985, no writ) ...... 14

Rules 

TEX. R. EVID. 703....................................................................................... 18




                                                    iv
                        ARGUMENT IN REPLY

     Coinmach’s response brief is grounded on at least three distinct

errors: (1) it misleadingly argues that Grayco’s awareness that a

laundry lease existed necessarily binds it to the undisclosed 2002 Lease;

(2) it assumes that because Coinmach had made profits on its machines

at times, that it was entitled to similar revenue in the future, despite

the absence of any contractual guarantee of revenue; and (3) it defends

its expert’s calculation of lost profits, despite the fact that the

calculations are hopelessly flawed, a fact the trial court tacitly

admitted.

     As a result, the trial court’s judgment against Grayco is erroneous

and must be reversed.

A.   GRAYCO HAD NO NOTICE OF THE 2002 LEASE.

     Coinmach attempts to retroactively impose the 2002 Lease on

Grayco by arguing that Grayco’s knowledge that a laundry lease existed

meant that it was automatically charged with constructive notice of the

unrecorded 2002 Lease. But Coinmach’s argument is legally untenable.

If accepted, Coinmach’s argument would bind purchasers to any

unrecorded encumbrances that could ever conceivably be found through



                                   1
an exhaustive search. That is not the standard, nor should it be. If

accepted, every real estate purchaser’s due diligence would be subjected

to a post-hoc review in which the reasonableness of its due diligence

would be judged based on the accuracy of its due diligence. But such a

standard would introduce tremendous uncertainty into all real estate

transactions. That is why the standard Coinmach advocates is

unworkable, unacceptable, and a departure from Texas law.

     The injustice in such a standard is on full display in this case.

Here, Grayco conducted its due diligence and did not discover the 2002

Lease. 2 RR 83:17-24. This is unsurprising since the 2002 Lease was

never recorded. 2 RR 23:24 – 24:1. Coinmach does not argue otherwise.

Rather, Coinmach claims that (1) the Memorandum of Lease (which

never mentions the 2002 Lease) was sufficient to put Grayco on notice

of the terms of the 2002 Lease or (2) the presence of laundry machines

at Regatta put Grayco on notice of the 2002 Lease. Neither is correct.

     1.    The Memorandum of Lease is insufficient to identify the
           2002 Lease.

     To fully appreciate the inadequacy of the Memorandum of Lease

to put Grayco on notice of the 2002 Lease, the Court need only consider

the facts as Grayco knew them. When Grayco decided to buy Regatta, it


                                   2
conducted a due diligence search related to the property. 2 RR 83:2-4.

That search revealed the only laundry lease that had been recorded: the

1992 Lease.1 2 RR 83:17-24. That search also revealed the recorded

Memorandum of Lease on which Coinmach now hangs its hat. Id. But

the Memorandum of Lease only vaguely references a “written Lease

Agreement” related to “laundry rooms.” Tab C.

      The most logical “written Lease Agreement” related to “laundry

rooms” to which the Memorandum of Lease referred was the recorded

1992 Lease. And, as Grayco continued to reasonably pursue all facts of

which it was aware, all of the available evidence confirmed that logic.

For instance, Regatta’s seller, Foley, affirmatively represented to

Grayco that Coinmach was the “successor-in-interest” to the 1992

Lease. Tab D, at GP 000064. Moreover, Coinmach itself never informed

Grayco of the 2002 Lease, despite discussions between Grayco’s agent

(Greystar) and Coinmach at the time of purchase. See, e.g., Ex. D-9.



1 Coinmach contends that recording a memorandum of lease instead of the lease
itself is “common practice” in the leasing industry. Coinmach Br. at 16, n.14.
Indisputably, however, Coinmach could have recorded the 2002 Lease in the same
manner that the 1992 Lease had been recorded. By deciding not to record the 2002
Lease, Coinmach ran the risk of an innocent purchaser failing to learn of its laundry
lease; thus, this litigation. (Coinmach also claims—without citation to authority—
that a memorandum of lease places the unrecorded lease within the chain of title.)


                                         3
Indeed, as late as August 4, 2008, nearly a year after Regatta closed,

Coinmach’s Ed Greene wrote to Grayco:

     For your inspection and review, I am enclosing the following:

     A copy of the lease agreement dated January 30, 2002 for the
     Regatta Apartments. This lease was for a ten year period.

     ...

     A copy of the Supplemental Agreement showing that
     Coinmach paid $14,000.00 for the lease.

Ex. D-21. Mr. Greene’s letter is the first written evidence of the 2002

Lease being supplied to Grayco, nearly 15 months after Grayco acquired

Regatta.

     Coinmach claims the Memorandum of Lease refers to the 2002

Lease on its face because it is between two different entities than the

1992 Lease. But that argument misses the mark (and completely

ignores Grayco’s brief). Indeed, Grayco reasonably concluded that the

Memorandum of Lease memorialized a renewal and extension of the

1992 Lease by new parties. Grayco Br. at 6. Thus, the very fact that

new parties filed the Memorandum of Lease, which ostensibly referred

to the already-recorded 1992 Lease, led to the reasonable conclusion

that the new parties were adopting and renewing the 1992 Lease, which



                                   4
was to renew automatically in 2002. Coinmach argues that the

Memorandum of Lease made no mention of the parties to the 1992

Lease—De Narde and McNair—but neither did it refer to the 2002

Lease. If anything, Coinmach’s argument only underscores the flaw

inherent in the Memorandum of Lease and Coinmach’s questionable

decision to rely on it rather than record the 2002 Lease.

     Coinmach’s sole legal authority for its proposition is Waggoner v.

Morrow, 932 S.W.2d 627 (Tex. App.—Houston [14th Dist.] 1996, no

pet.). But Waggoner is inapposite. Indeed, Waggoner stands for the

unremarkable proposition that a purchaser can be bound by an

unrecorded encumbrance. Grayco does not argue otherwise. In

Waggoner, however, the unrecorded partition was plainly referenced by

the owner’s deed, and the owner did not contend that she had been

unable to find a copy upon diligent search and inquiry. Id. at 632. In

this case, however, the issue is unique. There is no question that Grayco

was on notice that a laundry lease existed; the question is whether

Grayco can be bound by a second, unrecorded lease of which it had no

knowledge or notice.




                                    5
     Grayco was aware of the recorded 1992 Lease. But, unlike the

reference to the specific partitions in Waggoner, the Memorandum of

Lease in this case refers generally to a “written Lease Agreement” that

it fails to identify. And, unlike the partitions in Waggoner, in this case

there were two laundry “lease agreements”—one recorded and one

unrecorded, a fact unknown to Grayco but well known to Coinmach.

Though the due diligence in Waggoner was bound to find the correct

partition, there was no assurance that reasonable due diligence in this

case would find the unrecorded laundry lease agreement; indeed,

Grayco’s reasonable due diligence only discovered the recorded 1992

Lease.

     If anything, this case is similar to Sandoval v. Guzman, 2002 WL

31412529 (Tex. App.—Corpus Christ Oct. 24, 2002, no pet.) (not

designated for publication). In Sandoval, a party (Sandoval) tried to

enforce an unrecorded easement against a subsequent purchaser

(Guzman). Like Coinmach here, Sandoval relied on Waggoner to argue

that an unrecorded partition constitutes notice. Id. at *4. However, the

court of appeals summarily rejected that argument, noting that one is

only bound by recitals contained in recorded instruments that are an



                                    6
essential link in the purchaser’s chain of title: “A purchaser is bound by

every recital, reference, and reservation contained in or disclosed by an

instrument which forms an essential link in the chain of title under

which he claims.” Id.       The Sandoval court indicated that no such

constructive notice arises for instruments that are not an essential link

in the purchaser’s title:

     However, in [Waggoner], the partition created the easement,
     thereby making the partition an “essential link in the chain
     of title.” In the case at bar, the Easement Agreement is not
     an essential link in the chain of title because it did not create
     Guzman's property. Also, Mendietta agreed to convey the
     property to Guzman on November 18, 1992, five days before
     the execution of the Easement Agreement. Guzman could
     not have inspected the grant of easement even with an
     extensive search. Furthermore, the Lueras did not record the
     Easement Agreement until after Guzman purchased the
     property. Therefore, neither Mendietta nor Guzman had
     constructive notice of the Easement Agreement.

Id. (internal citations omitted).

     This comports with well-established principles of Texas property

law. It has long been the law that one is only charged with constructive

knowledge of the contents of a recorded instrument if that instrument is

in the buyer’s chain of title. “A purchaser of land is only charged with

information contained in instruments of record which are in his chain of

title at the time he purchases the property.” Cadle Co. v. Caamano, 930


                                    7
S.W.2d 917, 920 (Tex. App.—Houston [14th Dist.] 1996, no writ)

(emphasis added); see also Hue Nguy. Chapa, 305 S.W.3d 316, 324 (Tex.

App.—Houston [14th Dist.] 2009, pet. denied) (“It is a well-established

rule that a deed or instrument lying outside of his chain of title imports

no notice.”) (emphasis added).    The instrument on which Coinmach

relies does not provide notice of the terms or existence of the 2002

Lease. At most, the recorded instrument provides notice only of the

existence of an unspecified laundry lease. That does not suffice to

charge Grayco with knowledge of either the terms or existence of the

unrecorded 2002 Lease, especially when, as here, a diligent records

search uncovered the recorded 1992 Lease,

     Moreover, as in Sandoval, Coinmach’s unrecorded 2002 Lease did

not create Grayco’s property; thus, the 2002 Lease was not an essential

link in the chain of title. Coinmach also failed to record the 2002 Lease,

which prevented Grayco from finding it and inspecting its terms during

due diligence. Therefore, Grayco had no constructive notice of the 2002

Lease.

     In the end, the only evidence demonstrates that Grayco

reasonably pursued all facts of which it became aware regarding the



                                    8
laundry lease. Those facts led it to reasonably conclude that the 1992

Lease governed the relationship between the parties. Coinmach argues,

with the benefit of hindsight of course, that Grayco could have done

more in its due diligence to discover the 2002 Lease. But that is not the

standard. Purchasers of real property are not required to conduct a

search in every potentially conceivable place an encumbrance might

hide; rather, they must reasonably pursue facts of which they are

aware. Grayco did that. Texas law requires nothing more.

      Coinmach does not contend that it provided the 2002 Lease to

Grayco prior to its purchase of Regatta. Nor is there any dispute that

Coinmach failed to record the 2002 Lease. And the record affirmatively

establishes that Foley (Regatta’s seller) failed to provide the 2002 Lease

to Grayco, and affirmatively led Grayco to believe the 1992 Lease had

been renewed.2 Consequently, the Memorandum of Lease did not

provide Grayco constructive notice of the 2002 Lease.




2Coinmach makes much of the fact that Grayco did not sue Foley. But Grayco’s
decision not to sue another party has no bearing on its ability to defend itself from
Coinmach’s claims or on its bona fide purchaser status.


                                         9
     2.    The presence of laundry machines at Regatta did not provide
           notice of the 2002 Lease.

     Coinmach next argues that Grayco was aware of the 2002 Lease

because Coinmach had possession of the laundry rooms at Regatta. But

Coinmach’s possession was equally consistent with the recorded 1992

Lease and the unrecorded 2002 Lease.

     Coinmach’s sole legal support for its argument is Beutell v. United

Coin Meter Co., 462 S.W.2d 334 (Tex. Civ. App.—Waco 1970, writ ref’d

n.r.e.). In Beutell, the purchaser of an apartment building was charged

with knowledge of an unrecorded laundry lease after it accepted

payments under that lease for at least 15 months. Id. at 336. The court

of appeals held that the presence of the lessee’s laundry equipment in

the laundry room, together with the acceptance of rentals, provided

notice to the lessor of the laundry lease. Id. Coinmach tries to persuade

the Court that Beutell is directly on point. But Beutell is of little value

to the facts here because, like the other cases cited by Coinmach, it only

concerns a purchaser being charged with a duty to find one lease. For

the purchaser in Beutell, the laundry machines pointed them to the

only laundry lease for the property. That is quite unlike the situation




                                    10
in this case, where a diligent search revealed a recorded laundry lease,

but failed to reveal an unrecorded laundry lease.

     Grayco does not contend that it was unaware that Coinmach had

a laundry lease at Regatta. Rather, Grayco contends that it had no

notice, specifically, of the 2002 Lease. The mere presence of laundry

machines in Regatta’s laundry room might have provided Grayco with

inquiry notice of a laundry lease, but it did not provide Grayco with

notice of a specific unrecorded laundry lease. The laundry machines

only imposed on Grayco a duty to conduct a reasonably diligent inquiry

for a laundry lease, which Grayco did. Because the 2002 Lease was

never recorded by Coinmach, however, Grayco did not discover that

lease. Instead, Grayco discovered the 1992 Lease and the vague

Memorandum of Lease, which confirmed the terms of the 1992 Lease

among   new    parties.   Grayco’s   reasonable     search   confirmed   its

understanding that the 1992 Lease governed its relationship with

Coinmach. No other parties provided a different lease, nor did

Coinmach alert Grayco to the 2002 Lease.

     Coinmach finally argues that Grayco must have known about the

2002 Lease because Grayco’s agent, Savanna Sharpe-Bogardus of



                                     11
Greystar, allegedly made some notes on an email. Coinmach Br. at 18.

But that argument fails for at least two reasons. First, the only

evidence at trial is that Ms. Sharpe-Bogardus did not make the

handwritten notes on the exhibit. Ex. C-1, Depo. of Savanna Sharpe-

Bogardus, 49:20-50:7. No one testified otherwise. Second, the vague,

mostly-undecipherable notes apparently refer to “2/2012”—which is

approximately when the 1992 Lease would be expected to either renew

or expire for the second time on its own terms. Thus, the email and the

notes on it are consistent with Grayco’s understanding that the 1992

Lease renewed in 2002 and would expire in 2012.

     Consequently, there was no evidence, or factually insufficient

evidence, that Grayco had notice of the 2002 Lease.        Rather, the

evidence established that Grayco was a bona fide purchaser of Regatta

and not subject to the 2002 Lease.

B.   COINMACH’S ARGUMENT THAT GRAYCO BREACHED THE 2002 LEASE IS
     CONTRARY TO ITS OWN ADMISSIONS.


     Of course, even if Grayco were bound by the 2002 Lease,

Coinmach’s claims still fail. See Grayco Br. at 24-27. In its brief,

Coinmach fails to explain how Grayco’s complete closure of Regatta is a

breach, yet a decision to not renew tenant leases would not have been.


                                     12
Coinmach admitted that Grayco could have renewed or not renewed as

many or as few tenant leases as it wanted without breaching the 2002

Lease. See, e.g., 2 RR 26:8-11, 35:21-36:2, 36:17-22.3 Of course, that

would necessarily have decreased—or even negated—Coinmach’s

revenue. Coinmach’s argument then is a distinction without a

difference: Grayco was empowered to effectively close Regatta by not

renewing tenant leases, but Grayco had to keep the building “open” for

the remainder of the laundry lease. That is the epitome of the tail

wagging the dog, and it makes no sense.

      Additionally, Coinmach now, for the first time, comes up with

completely new alleged breaches of the 2002 Lease. Coinmach argues

that Grayco failed to keep the laundry room clean and failed to

“cooperate” with Coinmach under the 2002 Lease. Coinmach Br. at 20-

22. Even if Coinmach had properly presented these arguments to the




3 This admission also guts Coinmach’s new argument that Grayco breached the
2002 Lease because the Real Estate Contract between Foley and Grayco Partners,
LLC provided that no tenant leases of more than six months would be entered into.
Coinmach Br. at 10, n.11. Not only does that argument make no sense on its face,
Coinmach admits the 2002 Lease did not require renewal of any set number of
tenant leases or any minimum occupancy.


                                       13
trial court for consideration, Coinmach never tied any of its alleged

damages to these supposed breaches. Thus, they fail as a matter of law.4

C.    COINMACH PRESENTED NO COMPETENT EVIDENCE OF DAMAGES.

      Simply put, it was Coinmach’s burden at trial to provide

competent evidence of its damages. It failed to do so.

      1.    Coinmach’s “lost profits” are too speculative.

      Assuming, arguendo, the 2002 Lease bound Grayco, nothing in the

2002 Lease guaranteed any income to Coinmach. In its brief, Coinmach

assumes that the mere fact that it had made profits at times in the past

necessarily entitled it to profits in the future. Of course, Coinmach fails

to buttress this argument with any legal authority and, indeed, it is

inconsistent with Texas law on recovery of lost profits.

      The rule concerning adequate evidence of lost profit 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
4 With the exception of passing references to Grayco’s supposed duty to maintain
the laundry room, Coinmach never advanced these arguments until now. Coinmach
did not rely on these supposed breaches as a basis for its causes of action. CR 213-
16; 409-10. Because these theories were not pleaded or tried, they are waived on
appeal. Wiley-Reiter Corp. v. Groce, 693 S.W.2d 701, 704 (Tex. App.—Houston
[14th Dist.] 1985, no writ).


                                        14
     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.

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

(citations omitted) (emphasis added). “Reasonable certainty” is not

demonstrated when the profits claimed to be lost are largely

speculative, as from an activity dependent on uncertain or changing

market condition, on chancy business opportunities, or on promotion of

untested products or entry into unknown markets or unproven

enterprises. Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877

S.W.2d 276, 279 (Tex. 1994); Atlas Copco Tools, Inc. v. Air Power Tool &

Hoist, Inc., 131 S.W.3d 203, 206–07 (Tex. App.—Fort Worth 2004, pet.

denied).

     At trial, Coinmach was unable to meet the bar of “reasonable

certainty.” Rather, Coinmach’s own collections inquiries established

that the revenues from the laundry machines at Regatta began

declining in 2006, and that trend continued into 2007. Ex. D-25 at GP

000008 – GP 000011. Coinmach blames Grayco for this decline and

argues that “Grayco’s actions in not keeping the laundry rooms clean



                                   15
and maintained and in not renewing leases at the Apartments caused

the laundry income to decline.” Coinmach Br. at 23. But there are three

problems with this: (1) Coinmach admitted that Grayco’s decision not to

renew tenant leases was not a breach of the 2002 Lease; (2) there is no

evidence as to how many leases Grayco renewed or did not renew; and

(3) Grayco did not own Regatta when the declines in revenue began—

thus, the trial court could not possibly have found that the non-renewal

of leases caused a decline in laundry income.

     In any event, given Grayco’s ability to renew or not renew tenant

leases in the face of the crime and vandalism at Regatta, the market

conditions for 2007 and beyond were not only entirely uncertain, they

were also changing. Given that Coinmach’s profits were entirely

dependent on Regatta’s occupancy and the tenants’ voluntary use of the

laundry machines, there is no way to accurately predict what

Coinmach’s profits would have been beyond 2007, regardless of whether

Grayco bought the property. This is especially true given the increasing

crime at Regatta and the failure of the previous owners to effectively

manage the property.      See, e.g., Exs. D-9 and D-14. Coinmach’s

uncertainty as to its future profits—it admits it could not force Grayco



                                   16
to make tenants use the machines—makes its lost profits award too

speculative to sustain. 2 RR 26:15-18.

     2.    Kemmerer’s testimony was flawed, unreliable, and no
           evidence of damages.

     Coinmach’s sole evidence related to the calculation of its alleged

lost profits was Jon Kemmerer. His testimony and calculations,

however, were fraught with incorrect assumptions and numerical

sleights of hand—all of which had the undeniable effect of overinflating

the damages calculation.

     To be relevant, an expert’s opinion must be based on the facts; to

be reliable, the opinion must be based on sound reasoning and

methodology. State v. Cent. Expressway Sign Assocs., 302 S.W.3d 866,

870 (Tex. 2009). Rule 703 allows an expert to rely upon facts or data of a

type reasonably relied upon by experts in the field, even if the facts or

data are inadmissible in evidence. TEX. R. EVID. 703. However, “if the

foundational data underlying opinion testimony are unreliable, an

expert will not be permitted to base an opinion on that data because

any opinion drawn from that data is likewise unreliable.” Merrell Dow

Pharms., Inc. v. Havner, 953 S.W.2d 706, 714 (Tex. 1997). When the

expert “brings to court little more than his credentials and a subjective


                                   17
opinion,” this is not evidence that would support a judgment. Havner,

953 S.W.2d at 714; see also Wells Fargo Bank Nw., N.A. v. RPK Capital

XVI, L.L.C., 360 S.W.3d 691, 710-11 (Tex. App.—Dallas 2012, no pet.).

     Here, Kemmerer provided an opinion founded on unreliable data

and assumptions. Thus, Kemmerer’s opinions and calculations are

irrelevant and no evidence of Coinmach’s alleged lost profits.

           a.    Kemmerer based all of his opinions on an incorrect
                 date of breach.

     Contrary    to   Coinmach’s    argument,    Kemmerer        improperly

concluded that Coinmach’s damages began to accrue in March 2006,

more than 18 months before Grayco’s alleged breach (and one year

before Grayco even owned Regatta). This error infects all of Kemmerer’s

calculations.

     In essence, Kemmerer decided that Grayco was responsible for the

decline in revenues beginning in 2006 at Regatta because it supposedly

began to lease-down Regatta at that time. He admitted, however, that

he did not know if Grayco owned Regatta at that time, nor was he ever

aware of how many tenant leases Grayco chose to renew or not renew.

2 RR 47:3-25, 50:6-14. The decline in revenue at Regatta could have

been due to any number of factors, none of which Kemmerer


                                   18
considered.5 Thus, Kemmerer had no basis to use only the period from

December 22, 2004, through March 1, 2006, as his basis for the

“normal” income from the machines. And Kemmerer’s arbitrary decision

to ignore the decline in revenue after March 1, 2006, undeniably

resulted in overinflated “lost profits” that the trial court accepted.

      For instance, in his report Kemmerer states that “Grayco made a

decision to change the use of [Regatta] at some time prior to March 7,

2006. Pursuant to that decision, Grayco did not renew tenant leases at

[Regatta] nor did it enter into any new tenant leases at [Regatta] . . . .”

Ex. P-7 at p. 3 (¶ 5). As previously discussed, there is no evidence that

Grayco had any ability to “change the use” of Regatta in 2006, because

it did not own Regatta at that time. 2 RR 82:9-15. Moreover, Kemmerer

admitted that, despite the statement in his report, he had no

information regarding how many leases came up for renewal or were

renewed. 2 RR 47:3-25; 50:11-51:1. So Kemmerer’s testimony revealed

not only that his underlying assumptions and supposed factual data


5 For example, tenants could have chosen, on their own, not to renew their leases
due to the conditions at Regatta. Or tenants may have simply stopped using the
laundry rooms because the machines were in poor condition. Or perhaps tenants
chose not to renew their leases and live elsewhere because they were upset with the
previous owners. Though Kemmerer repeatedly states that he “took all differences
into account” to provide his opinion, that was not true.


                                        19
were unsupported by any competent evidence but were also complete

misstatements.

     Moreover, Kemmerer’s report and testimony are at odds with

Coinmach’s own admissions. Coinmach admitted that Grayco’s decision

to lease-down Regatta—which would likely reduce laundry revenue—

was not a breach of the 2002 Lease. See, e.g., 2 RR 26:8-11, 35:21 – 36:2,

36:17-22. Kemmerer, on the other hand, made the lease-down a central

component of Coinmach’s supposed damages. Ex. P-7 at p. 5 (¶ 11).

           b.    Kemmerer incorrectly calculated the net present value
                 of the alleged lost profits.

     Additionally, an essential part of Kemmerer’s lost profits

calculation was to discount five years of future lost profits to net

present value. 2 RR 45:1-12; see also Ex. P-7 at p. 5 (¶ 12). Though

unclear in his report, Kemmerer’s testimony revealed that he

discounted the present value back to March 2006, the date Grayco’s

supposed change of Regatta’s use was made known to Coinmach. 2 RR

45:13-16. But that methodology is incorrect. Kemmerer’s decision to

discount the future lost profits to March 2006 is based on his

underlying—yet incorrect—assumption that Grayco breached the 2002




                                   20
Lease in 2006. 2 RR 43:1-44:3; Ex. P-1 at p. 5 (¶ 11). Again, this error

resulted in erroneous damages figures.

              c.     The trial court acknowledged        that   Kemmerer’s
                     calculation was wrong.

     Coinmach attempts to argue its way out of this self-imposed

conundrum by claiming that the trial court did not accept all of

Kemmerer’s calculations—those prior to Grayco’s alleged breach—so

“no harm, no foul.” But, in making this argument, Coinmach all but

admits—as it must—that Kemmerer’s calculation is inherently flawed.

In the end, then, Coinmach recognizes that its own expert miscalculated

the damages, yet attempts to persuade the Court to ignore that

discrepancy.

     And, indeed, the trial court appears not to have included any lost

profits prior to October 31, 2007, the alleged date of breach. So the trial

court understood that Kemmerer’s decision to include damages prior to

the alleged breach was wholly unsupportable. What the trial court

failed to understand, however, is that Kemmerer’s decision to begin

calculating        damages   in   2006    also   undermined—and   rendered

unsupportable—his “average daily collection rate” upon which he




                                         21
calculated all of the alleged lost profits, including the ones after October

31, 2007. The vagaries of that calculation are discussed next.

           d.    Kemmerer’s damages calculation is premised on an
                 unsupportable “average daily collection rate.”

     Finally, Coinmach meets itself coming and going when it tries to

defend Kemmerer’s average daily collection rate of $99.81, which he

used to calculate the supposed lost future profits. As discussed earlier,

this daily rate is necessarily inflated because Kemmerer intentionally

excluded approximately 18 months of data that showed lower revenues.

     To create his daily rate, Kemmerer calculated average collections

from December 22, 2004 until March 1, 2006. Ex. P-7 at p. 4 (¶ 9).

Kemmerer then assumed Coinmach would make at least that much

every day from March 2006 through March 2012. See, e.g., Ex. P-7 at p.

7 (JEK-2). Coinmach defends this daily rate by saying Kemmerer was

justified in not using any data after March 1, 2006, because Regatta’s

owner at the time—not Grayco—“was preparing to sell the property to

Grayco’s agent . . . .” Coinmach Br. at 26. But, as discussed above,

Grayco had no control over Regatta in 2006. Even worse, Coinmach

admitted at trial that even if Grayco had decided to not renew tenant

leases, that would not be a breach of the 2002 Lease. Thus, it is illogical


                                    22
to exclude revenues from the daily rate during a period in which Grayco

had done nothing wrong.

     Consequently, Kemmerer’s damages calculation is inherently

flawed from start to finish. The trial court even tacitly acknowledged

that Kemmerer’s calculation was inherently flawed when it excluded

any lost profits prior to October 31, 2007. But excluding those lost

profits does not remedy Kemmerer’s calculation because, as discussed

above, all of Kemmerer’s calculations for lost profits are premised on a

flawed daily rate that Kemmerer calculated using an incorrect date of

breach, as well as other unjustifiable assumptions. Despite those flaws,

the trial court entered judgment for speculative and incorrectly-

calculated “lost profits.” And now Coinmach invites this Court to affirm

Kemmerer’s flawed math based on flawed assumptions. The Court

should decline the invitation.

D.   COINMACH FAILED TO PROVIDE ONE, COMPLETE CALCULATION OF LOST
     PROFITS, WHICH REQUIRES REVERSAL AND RENDITION.


     A party seeking lost profit damages must demonstrate one

complete calculation of lost profits. Univ. Gen. Hosp., LP v. Prexus

Health Consultants, LLC, 403 S.W.3d 547, 551 (Tex. App.—Houston

[14th Dist.] 2013, no pet.) (citing cases). As discussed above,


                                  23
Kemmerer’s calculation—upon which Coinmach entirely relies—did not

provide the trial court with one complete calculation of alleged lost

profits. Thus, Coinmach presented legally insufficient evidence of its

alleged lost profits.6

      Generally, the proper legal remedy for legal insufficiency of the

evidence is rendition of judgment for the appellant. Vista Chevrolet,

Inc. v. Lewis, 709 S.W.2d 176, 177 (Tex. 1986). That same rule applies

when the evidence of lost profits is insufficient. Kellmann v.

Workstation Integrations, Inc., 332 S.W.3d 679, 686-87 (Tex. App.—

Houston [14th Dist.] 2010, no pet.). As a result, the Court should

reverse the trial court’s award of damages and render judgment that

Coinmach take nothing.7




6As further discussed in Grayco’s Brief, the evidence is also factually insufficient to
support Coinmach’s damages.
7The only damages Coinmach was awarded besides lost profits were attorney’s fees.
Because the award of attorney’s fees was premised on Coinmach prevailing on its
breach of contract claim, a reversal of the lost profits award necessarily requires
reversal of the attorney’s fees award.


                                          24
                              PRAYER

     The judgment should be reversed and rendered. Alternatively, the

judgment should be reversed and remanded for a new trial on damages.

                                Respectfully submitted,

                                DOBROWSKI, LARKIN & JOHNSON LLP

                                By:/s/ Cody W. Stafford
                                  Frederick T. Johnson
                                  SBN 00785429
                                  Cody W. Stafford
                                  SBN 24068238
                                  Akilah F. Craig
                                  SBN 24076194
                                  4601 Washington Ave, Suite 300
                                  Houston, Texas 77007
                                  713.659.2900 – Telephone
                                  713.659.2908 – Facsimile

                                COUNSEL FOR APPELLANT GRAYCO
                                TOWN LAKE INVESTMENT 2007, LP


                  CERTIFICATE OF COMPLIANCE

      I hereby certify that the computer program used to prepare the
foregoing Reply Brief of Appellant shows that 5,002 words are in the
Reply Brief of Appellant. This word count does not include those words
that TEX. R. APP. P. 9.4(i)(1) excludes from such word count. I further
certify that the Reply Brief of Appellant was prepared using l4-point
font with footnotes typed in l2-point font.



                                /s/ Cody W. Stafford
                                Cody W. Stafford

                                  25
                    CERTIFICATE OF SERVICE

      I hereby certify that a true and correct copy of Reply Brief of
Appellant Grayco Town Lake Investment 2007, LP has been served on
this 16th day of June, 2015 as follows:

     VIA CERTIFIED MAIL RETURN RECEIPT REQUEST
     AND E-FILING
     R. Kemp Kasling
     Kasling, Hemphill, Dolezal & Atwell, L.L.P.
     301 Congress Avenue, Suite 300
     Austin, TX 78701

     J. Bruce Bennett
     Cardwell, Hart & Bennett, LLP
     807 Brazos, Suite 1001
     Austin, Texas 78701

                               /s/ Cody W. Stafford
                               Cody W. Stafford




                                 26
