In E.L. & Associates v. Pabon, a company sued two former directors and their son for breaching fiduciary duties when the company lost a lease for a restaurant it operated and the directors’ son opened a nearly identical restaurant in the same location.  No. 14-15-00631-CV, 2017 Tex. App. LEXIS 4547 (Tex. App.—Houston [14th Dist.] May 18, 2017, no pet. history). A jury found that the directors breached their fiduciary duties and that their son assisted in the breaches of fiduciary duty, but awarded no damages to the company. The company appealed and complained that the trial court should not have submitted a mitigation instruction in the damages question. The instruction stated: “Do not include in your answer any amount that you find E.L. & Associates, Inc. could have avoided by the exercise of reasonable care.” Id. at *7.

The court of appeals first discussed the concept of the duty to mitigate damages:

The doctrine of mitigation of damages, sometimes referred to as the doctrine of avoidable consequences, requires an injured party to use reasonable efforts to avoid or prevent losses. In the context of a breach of contract case, the doctrine has been stated as follows: “‘Where a party is entitled to the benefits of a contract and can save himself from the damages resulting from its breach at a trifling expense or with reasonable exertions, it is his duty to incur such expense and make such exertions.’” The doctrine has been applied in breach of contract and tort cases.

Id. at *9 (internal citations omitted).

The company argued that it could not have a duty to mitigate before it incurred damages, and the court of appeals disagreed: “It is not the damages themselves that trigger the duty to mitigate, but knowledge by the non-breaching party of the breach that ultimately causes the damages. The question before us, then, is what the breach of fiduciary duty was, and when EL&A had knowledge of the breach.” Id. at *13.

The court then found that the company had knowledge of the defendant’s breaches before any damages occurred and that it could have done something to mitigate the harm:

[T]he jury properly could have considered evidence of Efrain or George’s failure to mitigate by signing a new lease if there was evidence that they were aware of the breach before the Pabons’ lease was signed on March 15, 2011. To that end, the record contains evidence that EL&A repeatedly was made aware throughout 2009 and 2010 that the Pabons were refusing to renew and provide a guaranty for the lease on EL&A’s behalf. The record also contains evidence that EL&A was made aware at least as early as January 2011 that the Pabons had disclosed Efrain’s status as the majority shareholder of EL&A. Based on this evidence, the record before us could support a jury finding that EL&A failed to reasonably mitigate its damages — its loss of the restaurant location — by having Efrain sign and become guarantor of a lease after learning of the Pabons’ breaches but before (1) the month-to-month lease was terminated in February 2011; or (2) Solis signed the new lease for the same location on March 15, 2011.

The court then held that the trial court did not err by including a mitigation instruction in the damages question and affirmed the judgment.

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Photo of David Fowler Johnson David Fowler Johnson

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David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary…

[email protected]

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. Read More

David’s financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class action, RICO actions, usury, various tort causes of action, breach of fiduciary duty claims, and preference and other related claims raised by receivers.

David also has experience in estate and trust disputes including will contests, mental competency issues, undue influence, trust modification/clarification, breach of fiduciary duty and related claims, and accountings. David’s recent trial experience includes:

  • Representing a bank in federal class action suit where trust beneficiaries challenged whether the bank was the authorized trustee of over 220 trusts;
  • Representing a bank in state court regarding claims that it mismanaged oil and gas assets;
  • Representing a bank who filed suit in probate court to modify three trusts to remove a charitable beneficiary that had substantially changed operations;
  • Represented an individual executor of an estate against claims raised by a beneficiary for breach of fiduciary duty and an accounting; and
  • Represented an individual trustee against claims raised by a beneficiary for breach of fiduciary duty, mental competence of the settlor, and undue influence.

David is one of twenty attorneys in the state (of the 84,000 licensed) that has the triple Board Certification in Civil Trial Law, Civil Appellate and Personal Injury Trial Law by the Texas Board of Legal Specialization.

Additionally, David is a member of the Civil Trial Law Commission of the Texas Board of Legal Specialization. This commission writes and grades the exam for new applicants for civil trial law certification.

David maintains an active appellate practice, which includes:

  • Appeals from final judgments after pre-trial orders such as summary judgments or after jury trials;
  • Interlocutory appeals dealing with temporary injunctions, arbitration, special appearances, sealing the record, and receiverships;
  • Original proceedings such as seeking and defending against mandamus relief; and
  • Seeking emergency relief staying trial court’s orders pending appeal or mandamus.

For example, David was the lead appellate lawyer in the Texas Supreme Court in In re Weekley Homes, LP, 295 S.W.3d 309 (Tex. 2009). The Court issued a ground-breaking opinion in favor of David’s client regarding the standards that a trial court should follow in ordering the production of computers in discovery.

David previously taught Appellate Advocacy at Texas Wesleyan University School of Law located in Fort Worth. David is licensed and has practiced in the U.S. Supreme Court; the Fifth, Seventh, and Eleventh Federal Circuits; the Federal District Courts for the Northern, Eastern, and Western Districts of Texas; the Texas Supreme Court and various Texas intermediate appellate courts. David also served as an adjunct professor at Baylor University Law School, where he taught products liability and portions of health law. He has authored many legal articles and spoken at numerous legal education courses on both trial and appellate issues. His articles have been cited as authority by the Texas Supreme Court (twice) and the Texas Courts of Appeals located in Waco, Texarkana, Beaumont, Tyler and Houston (Fourteenth District), and a federal district court in Pennsylvania. David’s articles also have been cited by McDonald and Carlson in their Texas Civil Practice treatise, William v. Dorsaneo in the Texas Litigation Guide, and various authors in the Baylor Law ReviewSt. Mary’s Law JournalSouth Texas Law Review and Tennessee Law Review.

Representative Experience

  • Civil Litigation and Appellate Law