Opinion
No. 01-07-00792-CV
Opinion issued September 10, 2009.
On Appeal from the 239th District Court Brazoria County, Texas, Trial Court Cause No. 17668JG.
Panel consists of Justices JENNINGS, KEYES, and HIGLEY.
MEMORANDUM OPINION
Appellant Morris Andress appeals from a trial court judgment holding him personally liable for various corporate acts committed while he served as president and director of DesignCare, Inc. In five issues, Andress argues that: (1) the trial court erred in holding him personally liable to appellee, Meah Investments No. 2, Ltd. ("Meah Investments"), for the acts of DesignCare because there is no evidence that he acted outside his corporate capacity; (2) the trial court erred as a matter of law in holding that he was personally liable for breach of contract damages on a contract between DesignCare and Meah Investments; (3) the evidence presented at trial was insufficient to support the trial court's conclusion of law holding that he committed fraud against Meah Investments; (4) the trial court erred as a matter of law in awarding Meah Investments exemplary damages because there was no evidence or insufficient evidence to prove Andress committed fraud against it; and (5) the trial court erred as a matter of law in failing to specify the amount of damages assessed for each of the defendants at trial.
We affirm in part, reverse in part, and remand the case for further proceedings.
Background
DesignCare is a Texas corporation specializing in designing healthcare and assisted living facilities. Nizam Meah, a gastroenterologist practicing in Lake Jackson, Texas, was a partial owner and manager of Meah Investments. Meah Investments, a Texas limited partnership, served as an investor behind Dr. Meah's commercial real estate acquisitions.
Dr. Meah sought an architectural firm to design a 10,000 square foot ambulatory service center and medical office located at 109 Parking Way in Lake Jackson, Texas ("Meah Project"). After receiving a recommendation from a contractor, Dr. Meah contacted Andress to inquire about using DesignCare's services to design the Meah Project. After several preliminary conversations, DesignCare agreed to design the ambulatory service center.
On September 18, 2000, Meah Investments and DesignCare executed a contract, using a form contract written by the American Institute of Architects and attaching an addendum clarifying certain clauses in the contract. In the contract, Meah Investments was named as the owner of the Meah Project and DesignCare was named as the architect of the Meah Project. The contract also named Michael Horan, a licensed architect employed by DesignCare, as the "Architect's Designated Representative" for the Meah Project. In the contract, Meah Investments agreed to timely pay all monthly invoices and reimbursable expenses presented by DesignCare.
The parties signed the contract as follows: Dr. Meah signed over a signature block entitled "Owner." Below this signature block, the words "Meah Management No. 2, Ltd. by Meah Investments, LLC, Manager" were handwritten and the words "Nizam M. Meah, M.D." were typewritten. Andress signed over a signature block entitled "Architect." Below this signature block, the words "Morris Andress, President" were typewritten.
On September 22, 2000, the parties signed a letter addendum to the contract entitled "Revised-Fee Proposal for Ambulatory Service Center." Andress signed above a signature block reading "Morris Andress, President." Dr. Meah signed below a signature block reading "Agreed and Accepted, Meah Investments No. 2 by Meah Investments, LLC."
On October 6, 2000, DesignCare billed Meah Investments $11,205.00 for asbestos abatement coordination, a field survey, a building background drawing, and a preliminary floor plan. On November 10, 2000, DesignCare billed Meah Investments $15,787.50 for construction documents and architectural and computer-aided drafting work. On December 1, 2000, DesignCare billed Meah Investments $5,445.00 for construction documents and architectural and computer-aided drafting work. On December 29, 2000, DesignCare billed Meah Investments $29,311.76 for construction documents, third-party services, and various reimbursable expenses. Meah Investments timely paid all invoices as required under the contract terms. The sum of the billed invoices through December 29, 2000 totaled $61,749.26. According to DesignCare's records, DesignCare had completed work valued at $10,169.11 by December 29, 2000 that had already been invoiced.
On January 19, 2001, Dr. Meah and Andress engaged in an e-mail exchange concerning the slow progress of the Meah Project. In the exchange, Dr. Meah repeatedly asked about various timelines for completing the architectural work. Dr. Meah also wrote, "I was told that since this is not a multi-speciality surgical center, things are simple and straight forward and things could go a little faster." Andress replied that because DesignCare did not receive information from Meah Investments in a timely fashion, DesignCare's completion of the architectural work was delayed. Andress stated that DesignCare was "working very hard to get this done and we are very close to being completed. Try to understand these project[s] take time because all of [ sic] the individuals and firms that are involved."
On May 24, 2001, DesignCare billed Meah Investments $22,865.92 for construction documents and reimbursable expenses. Dr. Meah disputed the invoice because of the construction delays on the Meah Project. DesignCare and Meah Investments agreed that Meah Investments would pay one-half of the invoiced amount. On June 12, 2001, Meah Investments paid $11,432.96 to DesignCare, as required under the terms of the payment arrangement agreement.
Between August 1, 2001 and September 1, 2001, DesignCare billed Meah Investments $12,305.05 for construction documents. Meah Investments did not pay these expenses and hired counsel to give notice to DesignCare that Meah Investments intended to terminate the contract due to DesignCare's "failure to substantially perform in accordance with the terms" of the contract. On October 21, 2001, Meah Investments filed suit against DesignCare, Andress, Melinda Andress, and Michael Horan. In its amended petition, Meah Investments alleged breach of contract, fraud, misrepresentation, negligence, professional malpractice, DTPA violations, and denudation of the corporation.
On November 13, 2001, DesignCare filed a mechanic's and materialman's lien against the property of the Meah Project to collect unpaid invoices then totaling $12,305.05. On December 14, 2001, DesignCare filed its answer and pled a counterclaim against Meah Investments for its failure to pay those unpaid invoices. Trial to the bench began on August 1, 2006. At trial, Meah Investments' counsel questioned Andress about his architectural qualifications. Andress testified that he was not an architect, did not have an architectural degree, and had never been licensed as an architect. Andress also denied that he told Dr. Meah that he was an architect at any time during their business relationship. He testified that he did not manage DesignCare's invoices and was uncertain as to whether the billing to Meah Investments was done prior to or after the billed work was completed. He also testified that when he wrote to Dr. Meah that the architectural work was "close to being completed," he was using the best information he had at the time of the statement.
Horan, the designated architect for the Meah Project in the contract between Meah Investments and DesignCare, testified in response to Meah Investment's counsel's questions that he had no knowledge that Andress held himself out as an architect to Dr. Meah. Horan also testified that he had previously made an affidavit stating that he "was the architect on the project and performed or supervised all aspects of contract negotiations and client contact with Dr. Meah of [Meah Investments]." He also testified that he did not have any role in the contract negotiations between DesignCare and Meah Investments. Horan testified that he did the architectural work on the Meah Project and Andress did no architectural work on the Meah Project.
Dr. Meah testified that, during their first conversation, Andress said that he was a licensed architect. Dr. Meah also testified that Andress encouraged him to do internet research on his background and experience. Dr. Meah testified that he used the internet to research Andress's background and experience and discovered several articles written by Andress that represented that Andress was a licensed architect with a degree from the University of Houston. Dr. Meah testified that he relied on Andress's experience throughout the course of the Meah Project because Andress had made a strong impression on him during their first conversation.
He testified that he and Andress negotiated the Meah Project contract and that he never knew that Horan was involved with the Meah Project until after the contract was terminated. Dr. Meah testified that he sent an e-mail to Andress on January 19, 2001 to document his conversations with Andress because DesignCare was delaying its work and sent another e-mail on February 16, 2001 because he was "getting really concerned that things [were] not being done." Dr. Meah testified that DesignCare never delivered a set of construction documents for the Meah Project. He hired another architect to complete the Meah Project and terminated the contract with DesignCare.
On cross-examination, Dr. Meah testified that he did not receive any invoice or make any payment to Andress individually. All invoices were sent from DesignCare and all payments were made to DesignCare. He also testified that "Morris Andress is DesignCare to me."
On June 11, 2007, the trial court issued a judgment in favor of Meah Investments that reads, in relevant part:
After hearing all of the evidence and considering all of the evidence and the argument of counsel on behalf of the parties, the Court was [ sic] of the opinion that Final Judgment in favor of the Plaintiff was proper. The Court finds that Plaintiff, Meah Investments No. 2 Ltd., prevails against the Defendants, DesignCare, Inc. and Morris Andress, jointly and severally, on its claims against the Defendants, DesignCare, Inc. and Morris Andress, for breach of contract. The Court also finds that the Defendants, DesignCare, Inc. and Morris Andress, committed fraud against the Plaintiff, Meah Investments No. 2 Ltd., and that Plaintiff is entitled to judgment against the Defendants, DesignCare, Inc. and Morris Andress, jointly and severally, on its claims against the Defendants, DesignCare, Inc. and Morris Andress, for fraud.
The trial court assessed $42,500 in compensatory damages; $25,000 in exemplary damages; prejudgment interest; postjudgment interest; and $25,000 in attorneys' fees against Andress and DesignCare. The trial court also issued a take-nothing judgment in favor of Michael Horan.
On July 2, 2007, Andress requested that the trial court issue findings of fact and conclusions of law. On August 13, 2007, the trial court issued findings of fact, that stated in relevant part:
3. A Defendant is [DesignCare, Inc.], a Texas Corporation ("[DesignCare]").
4. A Defendant is Morris Andress, an individual ("Andress").
5. At all relevant times, Morris Andress was president of [DesignCare].
. . . .
11. Prior to entering the Agreement, Andress represented to Meah and Nizam Meah that he was a professional registered architect.
12. Prior to entering the Agreement, Andress represented to Meah and Nizam Meah that he was qualified to perform the professional architectural services required by the Agreement.
13. Prior to entering the Agreement, Andress and [DesignCare] represented to Meah and Nizam Meah that [DesignCare] was a registered architectural firm.
14. Prior to entering the Agreement, Andress and [DesignCare] represented to Meah and Nizam Meah that [DesignCare] was a professional architectural firm that was qualified and capable of performing the services called for by the Agreement in a timely fashion.
15. Prior to entering the Agreement, Andress directed Meah and Nizam Meah to read and review published information about [DesignCare] and Andress which represented that Andress had an architectural bachelor's degree from the University of Houston and that Andress had prior experience as a professional staff architect with St. Joseph's Hospital in Houston.
16. Andress requested that Meah rely upon the information and representations set forth in findings 11, 12, 13, 14 and 15 above in its consideration of whether to enter into the Agreement.
17. Meah relied upon the information and representations set forth in findings 11, 12, 13, 14 and 15 above in its consideration of whether to enter into the Agreement.
18. The information and representations set forth in findings 11, 12, 13, 14 and 15 above were material as they relate to the Agreement.
19. Meah was reasonable in its reliance upon the information and representations set forth in findings 11, 12, 13, 14 and 15 above in its consideration of whether to enter into the Agreement.
20. Meah entered into the Agreement in reliance upon the information and representations set forth in findings 11, 12, 13, 14 and 15 above.
21. Had Meah known that the information and representations set forth in findings 11, 12, 13, 14 and 15 above were untrue, Meah would not have entered into the Agreement.
22. The information and representations set forth in findings 11, 12, 13, 14, and 15 above were not true.
23. Andress and [DesignCare] knew that the information and representations set forth in findings 11, 12, 13 14, and 15 above were not true at the time they were made and at the time information was transmitted to Meah and Nizam Meah.
24. Andress and [DesignCare] intended that Meah rely upon the information and representations set forth in findings 11, 12, 13, 14 and 15.
25. Had Meah or Nizam Meah known that Andress was not a degreed and registered architect prior to entering into the Agreement, Meah would not have entered into the Agreement.
26. The Agreement was improper in that it was not signed on behalf of [DesignCare] by an architect.
27. Meah timely performed all of its obligations pursuant to the Agreement.
28. Meah timely paid [DesignCare] $80,536.53 pursuant to the Agreement for the services of Designcare and Andress.
. . . .
33. Andress and [DesignCare] represented to Meah on January 19, 2001 that Andress and [DesignCare] were very close to being completed with the project pursuant to the Agreement was false.
34. The representation to Meah on January 19, 2001 by Andress and [DesignCare] that they were very close to being completed with the project pursuant to the Agreement was false.
35. When Andress and [DesignCare] made the representations in findings 33 and 34 they knew that they were false.
36. When Andress and [DesignCare] made the representations in findings 33 and 34 they intended that Meah rely upon those false representations.
37. The representation[s] in findings 33 and 34 were material and were reasonably relied upon by Meah.
38. Andress and [DesignCare] represented to Meah on January 19, 2001 that the Texas Department of Health had no problem with the preliminary plan for the building renovation.
39. The representation to Meah on January 19, 2001 by Andress and [DesignCare] that the Texas Department of Health had no problem with the preliminary plan for the building renovation was false.
40. When Andress and [DesignCare] made the representation in findings 38 and 39 they knew that they were false.
41. When Andress and [DesginCare] made the representations in findings 38 and 39 they intended that Meah rely upon those representations.
42. The representation in findings 38 and 39 were material and were reasonably relied upon by Meah.
43. Andress and [DesignCare] represented to Meah on March 20, 2001 that drawings and plans had been completed.
44. The representation to Meah on March 20, 2001 by Andress and [DesignCare] that drawings and plans had been completed was false.
45. When Andress and [DesignCare] made the representations in findings 43 and 44 they knew that they were false.
46. When Andress and [DesignCare] made the representations in findings 43 and 44 they intended that Meah rely upon those false representations.
47. The representation in findings 43 and 44 were material and were reasonably relied upon by Meah.
. . . .
51. [DesignCare] and Andress failed to provide the professional services required in the Agreement for the remodeling of an approximately 10,000 square foot building located at 109 Parking Way in Lake Jackson, Texas (the "Building").
The trial court also issued conclusions of law, which stated in relevant part:
3. Defendants, [DesignCare] and Andress, committed actionable fraud against the Plaintiff, Meah.
4. Defendants, [DesignCare] and Andress, breached the Agreement with Plaintiff, Meah.
5. Plaintiff, Meah, is entitled to judgment against Andress and [DesignCare], jointly and severally, for its damages in the amount of $42,750.00 as a result of the fraud committed by Defendants, [DesignCare] and Andress.
6. Plaintiff, Meah, is entitled to judgment against Andress and [DesignCare], jointly and severally, for its damages in the amount of $42,750.00 as a result of the breach of contract by Defendants, [DesignCare] and Andress.
7. Plaintiff, Meah, is entitled to judgment against Andress and [DesignCare], jointly and severally, for its damages in the amount of $25,000.00 as a result of Andress's and [DesignCare's] conduct found by the Court.
. . . .
9. Plaintiff, Meah, is entitled to judgment against Andress and [DesignCare], jointly and severally, for attorneys fees in the amount of $25,000.00.
. . . .
11. Plaintiff, Meah, is entitled to judgment against Andress and [DesignCare], jointly and severally, for pre-judgment interest on damages of $42,750.00 from November 1, 2001 to date of judgment.
12. Plaintiff, Meah, is entitled to judgment against Andress and [DesignCare], jointly and severally, for post-judgment interest on the entire amount of the judgment from the date of judgment until paid in full.
Personal Liability for Corporate Fraud
In his third issue, Andress argues that there is legally insufficient evidence to support the trial court's conclusion of law that he committed fraud against Meah Investments.
Standard of Review
A trial court's findings of fact are reviewable for legal sufficiency of the evidence by the same standards that are applied in reviewing evidence supporting a jury's answer. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994); DeClaire v. G B McIntosh Family Ltd. P'ship, 260 S.W.3d 34, 43 (Tex. App.-Houston [1st Dist.] 2008, no pet.). When challenged, findings of fact are not conclusive if, as here, there is a complete reporter's record. DeClaire, 260 S.W.3d at 43; In re K.R.P., 80 S.W.3d 669, 673 (Tex. App.-Houston [1st Dist.] 2002, pet. denied). When there is a reporter's record, the trial court's findings of fact are binding only if supported by the evidence. In re K.R.P., 80 S.W.3d at 673. In analyzing legal sufficiency, we consider only the evidence and inferences tending to support the challenged finding and disregard all inferences to the contrary. Min v. Avila, 991 S.W.2d 495, 500 (Tex. App.-Houston [1st Dist.] 1999, no pet.).
Fraud
Elements of common-law fraud are that (1) a material representation was made; (2) the representation was false; (3) when the speaker made it he knew it was false or made it recklessly without any knowledge of its truth and as a positive assertion; (4) the speaker made it with the intention that it should be acted upon by the party; (5) the party acted in reliance on it; and (6) he thereby suffered injury. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 759 (Tex. 2001). To establish the element of causation in a fraud claim, a plaintiff must show that the defendant's acts or omissions were a cause-in-fact of foreseeable losses. Prospect High Income Fund, ML CBO IV v. Grant Thorton, LLP, 203 S.W.3d 602, 618 (Tex. App.-Dallas 2006, pet. denied) (citing Marathon Corp. v. Pitzner, 106 S.W.3d 724, 727 (Tex. 2003)). The defendant's acts or omissions are a cause-in-fact if the plaintiff can show, beyond mere conjecture, guess, or speculation, that an act or omission was a substantial factor in bringing about an injury which would not otherwise have occurred. Id. A plaintiff establishes reliance in a fraud claim by showing that the defendant's acts and representations induced it to either act or refrain from acting, to its detriment. Id.
Fraudulent inducement is a particular species of fraud that arises only in the context of a contract and requires the existence of a contract as part of its proof. Haase v. Glazner, 62 S.W.3d 795, 798 (Tex. 2001); Clark v. Power Mktg. Direct, Inc., 192 S.W.3d 796, 799 (Tex. App.-Houston [1st Dist.] 2006, no pet.). That is, with a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties. Haase, 62 S.W.3d at 798-99.
Here, Meah Investments presented testimony from Dr. Meah stating that Andress represented himself as a licensed architect with a degree from the University of Houston. Dr. Meah also testified that Andress told him to do internet research to verify Andress's claims about his background. Dr. Meah testified that he did internet research and discovered several articles written by Andress representing that Andress was a licensed architect with a degree from the University of Houston. He relied on the information given to him by Andress to make his decision to sign a contract with DesignCare.
Meah Investments also presented testimony from Dr. Meah stating that he paid for work that Andress and DesignCare never completed. Dr. Meah also testified that Andress told him that the work was near completion in January 2001 and continued to represent that the work was either near completion or at completion until the termination of the contract. Meah Investments also presented invoices from DesignCare, of which Andress was president, showing that the company billed Meah Investments for $61,749.26 in completed architectural work by January 2001, which Meah Investments timely paid, as required under the contract terms. Meah Investments presented a job detail report showing that DesignCare had completed only $10,169.11 worth of work by January 2001. Considering only the evidence and inferences tending to support the trial court's conclusion that Andress committed actionable fraud based on its finding, we hold that the evidence is legally sufficient to support the trial court's finding. See DeClaire, 260 S.W.3d at 43; see also Min, 991 S.W.2d at 500.
We overrule Andress's third issue.
Breach of Contract
In his second issue, Andress argues that the trial court erred as a matter of law in finding and concluding that he was personally liable for breach of the contract between DesignCare and Meah Investments because he was not in privity of contract with Meah Investments. Specifically, Dr. Meah argues that Andress breached the contract by failing to provide the architectural services required under the contract. Because we have already held that the evidence was legally sufficient to support the judgment against Andress for fraud, we need not consider whether he was liable for breach of contract.
We overrule Andress's second issue.
Capacity
In his first issue, Andress argues that the trial court erred in finding him personally liable for the acts of DesignCare because there was no evidence that he was acting outside his capacity as an employee of DesignCare. We construe his argument as contending there is no evidence, i.e., legally insufficient evidence, to support the trial court's findings of fact numbers 11, 12, 13, 14, 15, 16, 18, 19, 22, 23, 24, 25, 33, 34, 35, 36, 38, 39, 40, 41, 43, 44, 45, 46, 51 and conclusions of law numbers 3 and 4 that Andress personally committed actionable fraud against Meah Investments and breached the Agreement with Meah Investments.
Because we have held that the evidence is legally sufficient to support the trial court's conclusion of law number 3 that Andress committed actionable fraud against Meah Investments, we need not address this issue. See DeClaire, 260 S.W.3d at 43; see also Min, 991 S.W.2d at 500.
We overrule Andress's first issue.
Proof of Exemplary Damages
In his fourth issue, Andress argues that the trial court erred as a matter of law in awarding Meah Investments exemplary damages because there was no evidence or insufficient evidence that Andress committed fraud.
Exemplary damages are "levied against a defendant to punish the defendant for outrageous, malicious, or otherwise morally culpable conduct." Tex. Civ. Prac. Rem. Code Ann. § 41.001(5) (Vernon 2008); Transportation Ins. Co v. Moriel, 879 S.W.2d 10, 16 (Tex. 1994). Unless otherwise provided by statute, exemplary damages may be awarded only if the claimant proves by clear and convincing evidence that the harm with respect to which the claimant seeks recovery of exemplary damages results from (1) fraud; (2) malice; or (3) gross negligence. Tex. Civ. Prac. Rem. Code Ann. § 41.003(a) (Vernon 2008); see also In re Barnes, 369 B.R. 298 (Bankr. W.D. Tex. 2007).
Whenever the standard of proof at trial is elevated, the standard of appellate review must likewise be elevated. S.W. Bell Tel. Co. v. Garza, 164 S.W.3d 607, 627 (Tex. 2004) (citing In re J.F.C., 96 S.W.3d 256, 266 (Tex. 2002)). In reviewing the evidence for legal sufficiency to support a finding that must be proved by clear and convincing evidence, we must look at all the evidence in the light most favorable to the finding to determine whether a reasonable trier of fact could have formed a firm belief or conviction that its finding was true. Diamond Shamrock Ref. Co v. Hall, 168 S.W.3d 164, 170 (Tex. 2005); Garza, 164 S.W.3d at 627. To give appropriate deference to the fact-finder's conclusions and the role of a court conducting a legal sufficiency review, we must assume that the fact-finder resolved any disputed facts in favor of its finding if a reasonable fact-finder could have done so. Hall, 168 S.W.3d at 170.
We must also disregard all evidence that a reasonable fact-finder could have disbelieved or found to be incredible. Hall, 168 S.W.3d at 170; Garza, 164 S.W.3d at 627. If we determine that no reasonable fact-finder could form a firm belief or conviction that its finding was true, then we must conclude that the evidence is legally insufficient. Hall, 168 S.W.3d at 170; Garza, 164 S.W.3d at 627.
We have previously held that there was legally sufficient evidence to prove that Andress committed fraud against Meah Investments. Based on the record before us, we conclude that the trial court could have reasonably formed a firm belief that the harm suffered by Meah Investments resulted from Andress's fraud. See Hall, 168 S.W.3d at 170; Garza, 164 S.W.3d at 627. Therefore, we hold that the trial court's findings of fact satisfied the clear and convincing standard necessary to impose exemplary damages upon Andress. Tex. Civ. Prac. Rem. Code Ann. § 41.003(a); Hall, 168 S.W.3d at 170; Garza, 164 S.W.3d at 627.
We overrule Andress's fourth issue.
Exemplary Damages Specific to Defendant
In his fifth issue, Andress argues that the trial court erred as a matter of law in failing to specify the amount of exemplary damages assessed for each of the defendants at trial.
"In any action in which there are two or more defendants, an award of exemplary damages must be specific as to a defendant, and each defendant is liable only for the amount of the award made against that defendant." Tex. Civ. Prac. Rem. Code Ann. § 41.006 (Vernon 2008); Computek Computer Office Supplies, Inc. v. Walton, 156 S.W.3d 217, 224 (Tex. App.-Dallas 2005, no pet.) (statute prohibited trial court from awarding exemplary damages jointly and severally against former employee and his company in former employer's action for misappropriation of trade secrets and other claims, even if former employee and his company were closely related).
Here, the trial court made the following conclusion of law regarding exemplary damages:
7. Plaintiff, Meah, is entitled to judgment against Andress and DesignCare, jointly and severally, for its damages in the amount of $25,000.00 as a result of Andress's and Designcare's conduct found by the Court.
The trial court failed to assess exemplary damages to Andress and DesignCare separately, as required by the Texas Civil Practices and Remedies Code. See Tex. Civ. Prac. Rem. Code Ann. § 41.006; Computek, 156 S.W.3d at 224. Rather, the trial court erred as a matter of law by improperly assessing exemplary damages against Andress and DesignCare jointly and severally.
We sustain Andress's fifth issue, reverse the judgment on this issue and remand the case to the trial court to determine the exemplary damages, if any, assessed against Andress individually.
Conclusion
We affirm in part, reverse in part, and remand the case to the trial court for further proceedings consistent with this opinion.