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UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 97-11191
LOUIS M. DYLL, JOYCE DYLL, EDWARD JAMES DYLL,
MICHAEL ANDREW DYLL, KATHERINE ROSE DYLL,
Plaintiffs - Appellees,
VERSUS
PAUL W. ADAMS, ET AL,
Defendants,
ROBERT B. MILLIGAN, JR., MONTAGUE AND COMPANY,
Defendants - Appellants.
-----------------------------------
LOUIS M. DYLL,
Plaintiff-Appellee,
VERSUS
MONTAGUE AND COMPANY,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Texas
March 3, 1999
Before SMITH, DUHÉ, and WIENER, Circuit Judges.
DUHÉ, Circuit Judge:
Robert Milligan and Montague & Company ("Appellants") appeal
from a judgment for actual damages, interest, punitive damages, and

a constructive trust against them. For the following reasons, we
affirm in part and reverse in part.
BACKGROUND
This appeal involves a complex business transaction in which
the Appellants agreed to market medical technology owned by the
Plaintiff, Dr. Louis M. Dyll ("Dyll").1
Dyll owned a 51 percent interest in Texas Bio-Research
Laboratories, Inc. ("TBRL"), a Texas corporation that held the
patent rights to certain HIV detection technology ("Technology").
Kurt Osther ("Osther"), the designer of the Technology, held the
remaining TBRL stock. After several meetings with Dyll, the
Defendants, Robert J. Milligan ("Milligan") and Paul Adams
("Adams"), developed a plan ("Plan") to market the Technology.2
TBRL transferred the Technology to three unitrusts. The unitrusts
then transferred the Technology to Bio-Research Laboratories
("BRL"), a newly formed Delaware corporation, in exchange for a $10
million note ("Note") and a security interest in the Technology.
Stock trusts created for Dyll and Osther owned BRL. Milligan
served as co-trustee of the stock trusts.
Of the three unitrusts, one named the Dyll family as income
1Dyll refers to Louis M. Dyll individually and, when the
context is in reference to the plaintiffs, to Louis M. Dyll, Joyce
Dyll, Edward James Dyll, Michael Andrew Dyll, and Katherine Rose
Dyll, collectively.
2The term Defendants refers to Adams, Milligan, and Montague
& Company. The term Appellants refers only to Milligan and
Montague & Company because Adams did not appeal.
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beneficiaries, one named the Osther family as income beneficiaries,
and one named BRL as the 20-year income beneficiary. Adams served
as trustee for all three unitrusts.
After the execution of the Note, the Defendants unsuccessfully
attempted to market the Technology. Then they sought to raise
capital for BRL through debt or equity financing. According to the
Defendants, the Note was a major obstacle in their efforts to raise
capital; therefore, Milligan asked Adams to cancel the Note based
on failure of consideration. Adams agreed to cancel the note and
the security interest in exchange for a 2.5 percent royalty on all
sales of the Technology's product.3
Dyll sued Milligan, Adams, and Montague & Company, claiming
that they improperly canceled the Note and that their failure to
immediately disclose the cancellation damaged him.4 Dyll's claims
included fraud, negligent misrepresentation, gross negligence,
breach of fiduciary duty, breach of contract, civil conspiracy, and
violation of the Texas Deceptive Trade Practices Act ("DTPA"). The
jury found in Dyll's favor on all liability theories. The district
court's judgment awarded Dyll $4.2 million in actual damages,
prejudgment interest compounded daily, $4.2 million in punitive
damages against each of the three Defendants, post-judgment
3The Technology's product was a test for detecting the AIDS
virus.
4Dyll alleges that Milligan and Adams acted individually and
through their company, Montague and Company.
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interest, court costs, and an equitable lien on the stock options
and other interests in BRL (hereinafter "Verigen") held by Milligan
and Montague & Company. Milligan and Montague & Company appeal.
DISCUSSION
I.
Actual Damages
Texas law requires that damages be established with a
reasonable degree of certainty. See Richter, S.A. v. Bank of
America National Trust and Savings Association, 939 F.2d 1176, 1188
(5th Cir. 1991); Texas Instruments v. Teletron Energy Management,
877 S.W.2d 276, 278-79 (Tex. 1994). Although damages need not be
established with mathematical precision, the evidence must provide
a basis for reasonable inferences. See Richter, 939 F.2d at 1188.
Further, there is a distinction between uncertainty about the fact
of damages and uncertainty about the amount of damages.
"Uncertainty as to the fact of legal damages is fatal to recovery,
but uncertainty as to the amount will not defeat recovery."
McKnight v. Hill & Hill Exterminators, 689 S.W.2d 206, 207 (Tex.
1985) (quoting Southwest Battery Corp. v. Owen, 115 S.W.2d 1097,
1099 (Tex. 1938)). Thus, we review the evidence to determine
whether a reasonable person could find that the damages were proven
with a reasonable degree of certainty considering the evidence in
the light most favorable to Dyll. See DSC Communications v. Next
Level Communications, 107 F.3d 322, 329 (5th Cir. 1997).
The Appellants contend that Dyll's evidence of actual damages
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is insufficient. In response, Dyll maintains that he was damaged
by (1) the cancellation of the Note and (2) the nondisclosure of
the Note's cancellation, which prevented him from recovering and
marketing the Technology himself. There is no evidence that the
Note's cancellation injured Dyll because he failed to prove that
the Note was collectible. See Capital Title v. Mahone, 619 S.W.2d
204, 207 (Tex.Civ.App.--Houston [1st Dist.] 1981, no writ)
(holding, in a suit against an escrow agent for failing to cash an
earnest money check, that the plaintiff had to prove that the check
was collectible); see also Federal Savings & Loan v. Texas Real
Estate Counselors, 955 F.2d 261, 269 (5th Cir. 1992).
Dyll argues that the Appellants are estopped from asserting
that the Note was worthless because they failed to return the
technology to him. See Stokley v. Hanratty, 809 S.W.2d 924, 926-27
(Tex.App.--Houston [14th Dist.] 1991, no writ). Further, he claims
that according to Windham v. Alexander, Weston, & Poehner, 887
S.W.2d 182, 184 (Tex.App.--Texarkana 1994, writ denied), a note is
not worthless as long as anything of real value is exchanged for
it. We are not persuaded by Dyll's argument. Stokley and Windham
limit a notemaker's ability to avoid responsibility for a note by
alleging failure of consideration. Stokley and Windham are
inapplicable to this case because Dyll is not suing on the Note and
the Appellants are not notemakers.5
5Although the Appellants canceled the Note based on failure of
consideration, they are not asserting the defense of failure of
5

Dyll also maintains that the Appellants' failure to disclose
the Note's cancellation deprived him of the opportunity to recover
the Technology and market it himself. Dyll cites the following
evidence as establishing the value of the Technology with
reasonable certainty: (1) the face value of the Note; (2) the
Appellants' failure to return the Technology; (3) the Technology,
together with other patented technology, was used as collateral for
a $500,000 loan;6 (4) Verigen's "boasts" to its shareholders about
the progress on the Technology; (5) Verigen's estimates about the
market for the Technology; (6) newspaper and journal articles
indicating a desire for a product such as the Technology; and (7)
Randal Laboratories' $200,000 payment to TBRL in 1987 for an option
to purchase the Technology for $8.5 million. Considering this
evidence in the light most favorable to the verdict, we conclude
that Dyll's evidence concerning the Technology's value is
speculative at best and is, therefore, insufficient to prove lost
profits. See Teletron Energy Management, 877 S.W.2d at 279
(stating that "[p]rofits 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
consideration on appeal.
6Dyll's brief alleges that the Technology was used as
collateral for a $3 million loan. A careful review of the record
proves otherwise. The Technology, together with other patented
technology, was used as security for a $500,000 loan. Although the
loan tends to establish the collective value of the collateral, it
does not establish the value of the Technology by itself.
6

products or entry into unknown or unviable markets, or on the
success of a new and unproven enterprise, cannot be recovered.");
see also Richter, 939 F.2d at 1188 (stating that the plaintiff's
belief that he could have sold his interest in a winery for $1.6
million was insufficient evidence of damages because there was no
proof of an offer to purchase).
Dyll's reliance on our decision in DSC Communications v. Next
Level Communications, 107 F.3d 322, 329-30 (5th Cir. 1997), is
unavailing. In DSC, we stated that "[e]ven if a product is not
fully developed, a plaintiff is not prevented from recovering
future lost profits if it was hindered in developing that product,
and the evidence shows the eventual completion and success of that
product is probable." Id. at 329. Based on the plaintiff's
history of producing successful telecommunications products, we
held that the plaintiff established lost profits with reasonable
certainty. See id. In contrast, Dyll has not demonstrated that he
has a history of producing and marketing medical technology. Thus,
unlike DSC, a reasonable jury could not find that it was probable
that Dyll could have successfully marketed the Technology.
II.
Constructive Trust
"Actual fraud, as well as breach of a confidential
relationship, justifies the imposition of a constructive trust."
Meadows v. Bierchwale, 516 S.W.2d 125, 128 (Tex. 1974). A
constructive trust is imposed because the person holding the title
7

to property would be unjustly enriched if he were allowed to retain
it. See Omohundro v. Matthews, 341 S.W.2d 401, 405 (Tex. 1960).
"[T]here is no unyielding formula to which a court of equity is
bound in decreeing a constructive trust, since the equity of the
transaction will shape the measure of the relief granted."
Meadows, 516 S.W.2d at 131.
The Appellants maintain that the district court erred in
imposing a constructive trust on their Verigen stock options
because they did not obtain the options through their wrongful
conduct. Noting that they received their initial options ("1988
Options") before the cancellation of the Note, they argue that they
received the 1988 Options in exchange for their involvement in the
Plan. Further, they insist that the options Milligan received in
1994 ("1994 Options") were authorized by Verigen's board of
directors and, therefore, legitimate.
Although the Appellants did not acquire legal title to the
1988 Options improperly, they enhanced the value of the options by
improperly canceling the Note and failing to notify Dyll of the
cancellation. By their own admission, the Note prevented Verigen
from raising the debt or equity financing it needed to survive. If
we accept the Appellants' logic, the 1988 Options would have been
worthless if they had not canceled the Note. Similarly, if Verigen
had not survived, Milligan would not have received the 1994
Options. Thus, the jury did not err in finding that the Appellants
were unjustly enriched by their improper conduct. Accordingly, we
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affirm the imposition of the constructive trust with respect to
both the 1988 and 1994 Options.
In a footnote, the Appellants contend that the judgment should
be reformed to clarify that the constructive trust does not extend
to stock or options held by Montague & Company as a trust agent for
innocent third parties. We disagree. Under Texas law, courts may
"impose[] a constructive trust on totally innocent beneficiaries of
[a] wrongful act." Ginther v. Taub, 675 S.W.2d 724, 728 (Tex.
1984); Pope v. Garrett, 211 S.W.2d 559, 562 (Tex. 1948) (upholding
a constructive trust on property that innocent beneficiaries
inherited because of the wrongful acts of others). If the
Appellants had not wrongfully canceled the Note, the stock and
options that Montague & Company is allegedly holding for innocent
third parties would be worthless. Because these third parties are
beneficiaries of the Appellants' wrongful acts, the constructive
trust was properly imposed.
III. Punitive Damages
"Although Texas courts have allowed the award of exemplary
damages in cases . . . where the only relief granted is equitable,
they have required the plaintiff to prove that it has also suffered
actual damages." 1488, Inc. v. Philsec Investment Corp., 939 F.2d
1281, 1291 n.4 (5th Cir. 1991). Without evidence of actual
damages, our affirmance of the constructive trust will not support
the award of punitive damages. Accordingly, we reverse the award
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of punitive damages.
CONCLUSION
We reverse and vacate the award of actual damages, punitive
damages, and interest against Milligan and Montague & Company. We
affirm the imposition of the constructive trust. The district
court's judgment against Adams is unaffected because he did not
appeal.
AFFIRMED in part; REVERSED and VACATED in part, and RENDERED.
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