Keith B. Alexander v. Eddie Kent , 2015 Tex. App. LEXIS 11521 ( 2015 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-13-00469-CV
KEITH B. ALEXANDER APPELLANT
V.
EDDIE KENT APPELLEE
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FROM THE 141ST DISTRICT COURT OF TARRANT COUNTY
TRIAL COURT NO. 141-225394-07
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OPINION
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Eddie Kent sued K.B. Alexander Co. of Texas, Inc. (KBA) and Keith B.
Alexander (Alexander), individually, for breach of contract and fraud in the course
of performance by KBA of a contract for construction of a car lot. Kent alleged
KBA and Alexander obtained progress payments from Kent based upon false
payment applications misrepresenting that subcontractors had been paid for their
work on the project when they had not. When KBA declared bankruptcy, Kent
nonsuited KBA and proceeded on his fraud claim against Alexander, individually.
After a bench trial, the trial court rendered judgment in favor of Kent for fraud
against Alexander, awarded Kent $20,061.32 in actual damages and $25,249.97
in attorney’s fees, and made findings of fact and conclusions of law to support
the judgment. Alexander appeals from the judgment against him.
Alexander presents seven issues, contending that (1) the pay applications’
verbiage did not constitute fraudulent representations; (2) Kent’s equal access to
subcontractor information is fatal to his claim; (3) Kent did not justifiably rely on
the pay applications; (4) Kent produced no evidence that Alexander intended at
the outset of the contract not to perform; (5) the pay applications were not signed
by Alexander, individually, precluding individual fraud liability; (6) there is legally
and factually insufficient evidence to support the attorney’s fees awarded to Kent;
and (7) there is factually insufficient evidence to support the damages award.
We affirm in part and reverse and render in part.
BACKGROUND
Alexander was president and sole stockholder of KBA, a construction
company. In 2006, Kent obtained bids from several contractors and chose KBA
as general contractor to construct a car lot and an office building for his used car
business, “Easy Ed’s Autos.” KBA agreed to build a 20,000-square-foot fenced
concrete lot and an 800-square-foot building with a storefront.
2
The Construction Contract
By a written standard form construction contract entered into between the
parties, KBA agreed to act as general contractor on the project and to provide all
labor, materials, equipment, and services necessary to complete the work.1
Whatever work KBA did not perform itself would be performed by subcontractors.
The parties agreed on a “lump sum” contract price for the project of $383,871,
which Kent would pay through a series of monthly progress payments. Article 9
of the contract set out the specific provisions regarding payment. KBA was to
prepare a schedule of values apportioned to the various categories of the work,
with the total of all values to equal the contract price. The schedule of values for
Kent’s project contained seventeen separate categories of work to be performed.
Each month, KBA was to submit an “application for payment” to Kent for
payment of an amount that would be itemized and supported by KBA’s schedule
of values and any other substantiating data required by the contract. The total of
the payments would equal the lump sum contract price. Kent agreed to pay the
amount due on each payment application, less retainage, within ten days of
receipt.
Under the terms of the contract, Kent had the right to require partial lien
and claim waivers from KBA in the amount of the payment applications and
1
The printed contract stated on the front page that it was produced from
software under a grant of a license to subscribers of AGC Docubuilder software,
was headed “The Associated General Contractors of America, AGC Document
No. 200,” and was entitled “Standard Form of Agreement and General Conditions
Between Owner and Contractor (Where the Contract Price is a Lump Sum).”
3
affidavits from subcontractors and material suppliers for work that had been
completed at that time as a prerequisite to payment. He also had the right to
adjust or reject a payment application or nullify a previously approved application
for any failure of KBA to properly pay subcontractors or material suppliers. If
Kent made timely payments but a subcontractor filed a lien against Kent’s
property, KBA had thirty days to remove the lien, and if it failed to do so, Kent
could remove the lien himself and recover his costs and expenses directly from
KBA.
The Applications for Payment
Beginning in September 2006 and continuing during the course of
construction, KBA presented monthly applications for payment to Kent, each
entitled “APPLICATION AND CERTIFICATE FOR PAYMENT,” requesting
payment for work completed at the time each application was presented.
Alexander signed and swore to each application as “President” of KBA. Only the
last three applications for payment are at issue in this case.2 The first of the
three applications at issue was dated November 20, 2006, represented that work
had been completed totaling $228,563, less previous certificates of payment by
Kent of $96,787, and requested payment from Kent of $120,346. The second
application at issue, dated December 20, 2006, stated that work had been
completed totaling $359,719, less previous certificates of payment by Kent
2
While previous applications for payment were presented to and paid by
Kent, those are not at issue.
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totaling $217,133, and requested payment from Kent of $129,307. The third and
final application for payment at issue was dated January 19, 2007, reflected that
all work was 100 percent completed, and requested Kent to pay the balance of
the contract price.
Each application submitted by KBA to Kent for payment was supported by
an itemized schedule of values showing the percentage of work completed to
that date for each of the categories of work listed on the schedule, the dollar
amounts previously paid by KBA to subcontractors for their work completed, the
total dollar amount of previous payment applications presented to and paid by
Kent, and the dollar amount being charged to Kent for progress on the job since
the previous payment application. Each application contained this certification:
The undersigned Contractor certifies that to the best of the
Contractor’s knowledge, information and belief the Work covered by
this Application for Payment has been completed in accordance with
the Contract Documents, that all amounts have been paid by the
Contractor for Work for which previous Certificates of Payment were
issued and payments received from Owner, and that current
payment shown herein is now due.
Shari Riddle, KBA’s project coordinator, kept the books and prepared the
applications for payment. She would receive information about the work
completed to date from pay applications (similar to the payment applications
submitted by KBA to Kent) filled out by the subcontractors and submitted to KBA
as to what work they had completed each month, as verified by KBA’s project
manager. She would input the information and create a payment application to
be submitted by KBA to Kent. The payment applications were presented to the
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architect to verify the percentage of work completed. She would then present the
payment applications to Alexander, who would sign each payment application as
“President” of KBA, and Riddle would notarize his signature on each application
as “subscribed and sworn to” before her. Each application for payment would
then be sent by KBA to Kent by fax or by delivery by a project manager for
payment.
When Kent received each payment application, he took it to his bank and
drew against his loan for the project and then wrote a check to KBA. He would
take the check to KBA’s office and go over the pay application with Riddle. He
would ask her if it was correct and whether the subcontractors had been paid for
work completed to the date of each application; Kent’s testimony was undisputed
that Riddle informed him on each occasion that the subcontractors had been
paid. Kent made checks out to KBA, which were deposited into KBA’s corporate
operating account. Alexander did not dispute that Kent paid the amounts
requested by each application for payment. Kent was satisfied with KBA’s work
on the project, and other than a screen and a crash gate, he had no complaints
about the construction. He acknowledged that KBA and its subcontractors
successfully completed the work with the exception of a few punch list items.
Kent moved onto the newly constructed property after it was completed in
January 2007.
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Unpaid Subcontractors
Shortly after Kent moved onto the property and opened for business, one
of the subcontractors came to Kent’s place of business and asked him if he had
paid KBA. The subcontractor explained that he had not been paid for his work
and said that Alexander had told him that he could not pay the subcontractor
because Kent had not paid him. Concerned that a subcontractor had not been
paid, Kent contacted Alexander and demanded identification of any
subcontractors who were still owed payment by KBA for work on the project.
Alexander responded, sending Kent a list of subcontractors to whom KBA still
owed payment, to which Kent added two more, for a total of between $119,000
and $120,000 still owed to subcontractors on the project.
A total of nine subcontractors were still owed money at the end of the job,
eight of which filed liens against Kent’s property. Some of the unpaid
subcontractors made claims against Kent. One subcontractor, who had been
paid nothing, filed a civil suit against Kent and KBA, which Kent settled for fifty
cents on the dollar. Kent settled with three other subcontractors who had not
been paid by KBA or at least not paid in full, giving them cashier’s checks and
obtaining assignments and releases of their liens. Specifically, Kent paid
$6,271.67 to Business Flooring Specialists, $9,413.65 to Ajax Glass, and $4,376
to Jerry’s Cabinetry. Other liens were filed against Kent’s property for
nonpayment by KBA for subcontractors’ work or materials, but he did not pursue
them in this suit. The only actual damages that he sought to recover were the
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amounts of the three cashier’s checks to Business Flooring Specialists, Ajax
Glass, and Jerry’s Cabinetry, which totaled $20,061.32.
THIS SUIT
Kent sued both KBA and Alexander, individually, for breach of contract and
fraud. KBA filed for bankruptcy, and Kent nonsuited the company but continued
his suit against Alexander, individually, based only on his cause of action for
fraud. During trial, counsel for Kent argued in his opening statement and
proceeded to put on evidence to show that the representations made by
Alexander in the payment applications that subcontractors had been paid were
false; that the false representations were made intentionally; that Kent justifiably
relied on those misrepresentations, as well as Alexander’s experience in the
construction industry, in making the payments requested by the payment
applications; and that he was damaged as a result by having to settle with and
obtain releases of mechanic’s and materialmen’s liens filed against his property
by subcontractors who had not been paid.
In his opening statement, counsel for Alexander stipulated that
subcontractors were left unpaid but contended that KBA had other projects that
just stopped and that other clients of KBA “went under,” causing KBA to fail as
the result of the economic downturn occurring during the period of Kent’s
construction project. He argued that the suit was a simple breach of contract
case that Kent had turned into a vendetta against Alexander.
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Eddie Kent
Kent testified it was his understanding that each payment application
presented to him for payment each month certified that subcontractors had been
paid in full for the work they had completed the previous month. He testified he
relied upon those certifications in making payments and would not have made
the payments to KBA as requested by the last three applications for payment had
he known that subcontractors were not being paid. When he took a payment
check to KBA, he would talk to Riddle and ask her if the amounts were correct
and if the subcontractors had been paid, and she would assure Kent they had
been paid. Kent further said when he learned that the architect offered a service
to verify that payments had been made to the subcontractors, he consulted
Alexander about it, but Alexander told him that the architect’s service would be a
waste of money, that Alexander himself “would see that everybody got paid,” and
that Kent need not have that sort of due diligence done.
As an example of how the schedules showing the work completed and
payments made to subcontractors attached to the payment applications were
false, Kent testified the figures in the schedule attached to the November 2006
pay application misrepresented that Jimmy Sanders, who owned General
Building and Erections, had been paid $12,610, misrepresented that $23,066 had
been paid for plumbing and storm drainage, and misrepresented that $27,072
had been paid for electrical work. Kent testified he hired and paid attorneys to
consider putting KBA in bankruptcy in an effort to get the subcontractors’ unpaid
9
bills paid, but the owner of Ajax Glass persuaded him not to. Instead, Kent
settled with the unpaid subcontractors for fifty cents on the dollar and obtained
assignments of their liens against his property.
Shari Riddle
Riddle, who no longer worked for KBA, testified and explained that every
subcontractor filled out a form for the work they had completed during each
month, which was verified by the project manager and given to her for invoicing.
She did not check to see if the information was correct. Her job in preparing
payment applications did not include checking to see who had been paid; she
said that was Alexander’s duty. She explained that the amounts shown each
month in the column entitled “Previous Applications” in the schedule of values
attached to each payment application were not necessarily the amounts KBA
paid to each subcontractor for their work because those amounts included
overhead and profit. She would input the data she was given and the software
program would “spit out” the applications for payment owed by the owner based
on the percentage of work completed. She further testified that Alexander was
the only person authorized to write checks for KBA.
Keith Alexander
Called as an adverse witness, Alexander acknowledged that he
represented that he had paid the subcontractors as stated in each of the
certifications in the payment applications presented to Kent. He further
acknowledged that the construction contract put the responsibility for payment of
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liens on KBA, that liens were filed against Kent’s property on the project, and that
KBA was not able to satisfy all of them.
As to who at KBA specifically had responsibility to see that payments to
subcontractors were made, Alexander testified that at the time of Kent’s project,
his company had a bookkeeper and project managers who would approve the
subcontractor payouts. But they would not necessarily report to him that payouts
had been made because their focus was on the percentage of completion of the
job. Likewise, the architect would verify that the amount of work completed
matched up with the percentage of completion but verifying that payments to
subcontractors had been made for their work was not the architect’s
responsibility; it was KBA’s office’s duty.
Alexander admitted that he did not review anything before signing the
December 20, 2006 payment application but relied on “the folks at the office.” He
had no idea whether the information was true and correct. They had multiple
projects going at one time. His main job at the corporation was to try to get new
business and crisis management. If Riddle put a document in front of him to
sign, he “just signed it.”
Alexander agreed the final payment application dated January 19, 2007,
represented that the job was done, except for the five percent retainage, and it
requested payment by Kent of the balance owed under the contract of $38,210,
which Kent paid. Alexander acknowledged that, as with the previous applications
for payment submitted to Kent, Riddle just handed the application to Alexander,
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he signed it, and she notarized it. He explained that KBA’s procedure for the end
of a month was to gather up all of the payouts to be submitted to the owners and
give them to him for his signature. Nevertheless, it was his belief that when he
signed each pay application, each was true and correct.
As to how applications for progress payments were presented to owners,
Alexander recalled that payment applications were first sent to the architect for
his review and verification of percentage of completion and then delivered to the
owner by fax, by a project manager, or sometimes by himself. He did not
remember exactly. When Alexander was asked whether he explained to Kent at
any time that all of the subcontractors had not been paid, he acknowledged that
he thought that discussion about subcontractors being owed “was later on in the
job” when Kent requested the list of subcontractors to whom balances were still
owed. That answer was consistent with Kent’s testimony that he did not learn of
any subcontractor not having been paid until one of them came to see him after
the project was completed, after he had made his last payment of the balance
owed on the contract, and after he had moved onto the property and opened for
business. Alexander did not recall when Kent knew that subcontractors were
owed or on what timeline.
Alexander knew generally that subcontractors had only a limited amount of
time—ten to fifteen days after their work was done—to send notification of any
nonpayment by the general contractor to the property owner and thirty days after
that to file a lien and that material suppliers had a similarly limited period of time
12
after delivery of materials to give notification and then file a lien. He knew that it
was important for a subcontractor to file a lien quickly and that if a lien was not
timely filed, the subcontractor could not collect on his lien.
Subcontractors’ claims
Kent offered into evidence a copy of a petition filed in a suit by Jerry’s
Cabinetry against him and KBA for work Jerry’s Cabinetry had done on Kent’s
construction project. Alexander admitted Jerry’s Cabinetry had not been paid.
Counsel for Alexander objected to the admission of the petition into evidence,
stating that Alexander was stipulating that there were unpaid invoices to
subcontractors and was admitting that Kent suffered injury as a result of KBA not
paying some subcontractors. In response to an observation by the trial court that
Kent still needed to prove the damages alleged in his petition, Kent’s counsel
stated he believed that they would prove about $20,000 in damages from paying
certain subcontractors to release the liens, plus additional damages incurred
because of the liens filed against Kent’s property, such as Kent’s inability to get
loans and having to release the liens, and that the evidence was also relevant to
show not only a failure of Alexander to pay attention to his business but also the
way Alexander did business. The trial court overruled Alexander’s objection.
Upon further questioning about the Jerry’s Cabinetry’s claim and suit,
Alexander admitted that to his knowledge, KBA did not pay the claim, that the
claim arose out KBA’s failure to pay Jerry’s Cabinetry for work done on Kent’s
project, and that Jerry’s Cabinetry had filed a lien against Kent’s property and
13
sued, claiming it was owed $8,752. Alexander finally admitted: “I don’t know
exactly who was paid and who was not paid.” Yet Alexander continued to insist
that, to the best of his knowledge, his company had paid the subcontractors on
Kent’s project. When asked what he did to satisfy that to-the-best-of-his-
knowledge requirement, Alexander could say only that he would inquire and get
“different reports back and forth,” that he would ask his office what had been paid
and what had not been paid, and that he “tried [his] best to assume what the
information was.” The information would vary from job to job, from month to
month. But he did not have an exact recollection.
Kent introduced a letter to Feris Electric & Lighting signed by Alexander
and dated September 7, 2007, that stated, “Dear Mitch, we are working very hard
to resolve the mess of the Easy Ed’s project and remedy the remaining balance
owed on your contract for this project.” Alexander could not recall exactly what
he was referring to back then as “resolve the mess” but assumed it was the
close-out of the project—paying the subcontractors the money they were owed
and completing the punch list and the close out documents. Alexander admitted
that after September 7, 2007, KBA did not directly pay any subcontractors on
Kent’s project. Instead, Alexander said he had an ongoing relationship with
several subcontractors and was able to pay them indirectly by giving them
additional work on other projects to make up some of the money not paid to them
on Kent’s project. He did not dispute that Kent paid the full contract price for the
14
project. He insisted that the money went to payments to the subcontractors per
the terms of the contract.
A fax Alexander sent to Feris Electric & Lighting on March 27, 2007, said:
“We are experiencing some un[fore]seen delays in issuing payment for invoices
that are currently due.” Alexander explained at trial that the “un[fore]seen delays”
were caused by his clients on several projects filing for bankruptcy. He named
Coastal Trucking Company and the Family Partnership as clients who had filed
for bankruptcy and mentioned that several other jobs had some contract
disputes. But he could not remember which ones.
Alexander could not give a specific reason why he did not have enough
money to pay the subcontractors when Kent had paid him the full contract price.
He could not recall, he said, why he did not fully pay Feris Electric & Lighting. He
suggested only that, at that time, they may have been doing some warranty work,
or alternatively, there were some close-out items. He could not remember. He
acknowledged that the November 2006 payment application represented to Kent
that previous payments of $27,072 had been made to Feris Electric & Lighting for
its work on the project. But Alexander could not recall if that amount had actually
been paid to Feris Electric & Lighting then or if it was paid at a later date. Nor
could he recall how much he paid Feris Electric & Lighting. On the January 2007
payment application, previous applications paid to Feris Electric & Lighting were
shown as $39,020. But Alexander acknowledged that in September 2007, he
15
offered Feris Electric & Lighting a promissory note for $25,219.50, which he was
willing to sign individually, and Feris Electric & Lighting refused to accept it.
Alexander denied he represented to Kent that Feris Electric & Lighting had
been paid in the November 2006 and January 2007 payment applications.
Alexander insisted that the payment application form was not meant to show how
much the subcontractors had been paid but was primarily used to show progress
on the job and for the architect to show percentage of completion of the project.
But he admitted that the application for payment form was entitled “Application
and Certificate for Payment,” that he used it to present to Kent to obtain payment
of funds from him, and that as of the January 2007 application for payment,
Alexander had already received payment from Kent of $346,000 “plus.” And he
admitted that he had represented in the payment application that “all payments
have been paid by the contractor for which previous certificate for payment were
issued.” He admitted that a balance was still owed to Feris Electric & Lighting at
the time and that he did not tell Kent that. He admitted that he did not tell Kent
that he was not paying the subcontractors as represented. Had Kent known that
there was over $100,000 that the subcontractors on his project had not been paid
as represented, Alexander agreed that Kent probably would have had the right
not to continue paying KBA. But Alexander did not tell Kent there were unpaid
balances owed at the end of the project.
Alexander insisted he did notify Kent that there were some balances still
owed on the project and stated that he was in the process of getting them paid.
16
But he informed Kent of this in the correspondence that went “back and forth”
between them after Kent had paid in full for the construction and had moved into
the building. Specifically, Alexander said, he sent a subcontractor audit update
to Kent. Alexander admitted that the update showed that KBA owed more than
$80,000 to the subcontractors listed on the audit update. As to what happened
to the $80,000 that was not paid to those subcontractors for their work,
Alexander said it went to complete other construction projects; there were
several going on while KBA was in the process of trying to complete Kent’s
project.
All funds paid by Kent and by owners on other projects went into KBA’s
single corporate operating account. Alexander was head and sole owner of KBA.
Alexander made his living by construction projects. KBA did not pay him a salary
but paid him on draws at certain points. He did not recall how much he was paid
by KBA; it could have been anywhere from $2,000 to $50,000. KBA paid $4,000
per month to rent space in a building that was owned by Alex Partners, a
partnership owned by Alexander and his father.
Alexander recognized a full waiver and release affidavit and release of lien
filed by CBS Mechanical Services, Inc. in October 2007. He admitted KBA did
not pay CBS Mechanical for its plumbing work. Alexander said KBA had reached
an agreement to settle that account and signed a promissory note to CBS
Mechanical for $26,290, but he admitted that KBA was unable to honor it
although he thought they made payments toward it. CBS Mechanical’s proof of
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claim filed in KBA’s bankruptcy proceeding stated it was owed $26,974, which
included interest. Alexander admitted that he had represented in the final
payment application for payment submitted to Kent that the scheduled value for
CBS Mechanical’s services was $24,635 and that CBS Mechanical had been
paid when, in fact, it had received nothing. Alexander insisted that KBA made
some payments under its settlement agreement with CBS Mechanical but had no
documents to substantiate any amounts of additional payments. It was possible,
he said, that some of the work was done by another company under the heading
of drainage work or excavation, which had a budget of $9,000, and which he
represented had been paid.
Alexander admitted that when he certified that all amounts had been paid
to subcontractors for work completed, it would be reasonable for someone in
Kent’s position to rely on that representation. Alexander qualified this admission
by stating that “most every client asks for back up,” meaning that clients could
take advantage of provisions in the construction contract to insist on partial lien
waivers but denied that he was urging that because Kent did not ask for back up,
he was giving KBA an open door not to pay the subcontractors. He also argued
that a customer in most instances, if they had a question, would ask for specific
progress lien releases from each subcontractor and that was an option available
to Kent under the contract, but Alexander denied that because Kent did not do
that, it somehow relieved KBA from paying its subcontractors.
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Alexander was aware that KBA also still owed S&S Concrete Contractors,
Inc., that KBA was probably notified of S&S Concrete’s demand for payment, and
that S&S Concrete filed a lien against Kent’s property. S&S Concrete supplied
the concrete and also did the paving on the job. The final payment application
presented to Kent for payment represented that S&S Concrete had been paid in
full, but S&S Concrete filed a claim for $8,274 after completion of the project.
Alexander admitted KBA did not pay S&S Concrete in full, contrary to the final
application for payment presented to Kent.
CND Construction provided the drywall work on the project. KBA received
a bill from that company for $4,138. Alexander did not recall how much CND
Construction was paid. They would normally have been included under the
category of interior finishes, which was listed as fully paid, but Alexander did not
recall whether everyone was paid on the interior finishes on that job.
Business Flooring Specialists also did work on the project. The final
payment application listed the company as having completed its work and that it
was paid in full. Alexander also initially testified that it was paid in full. However,
he then admitted Business Flooring Specialists had filed an affidavit and
mechanic’s lien against Kent’s property, which he assumed his office was aware
of. He knew they sued and got a judgment against KBA and thought they
received payment from one of KBA’s other projects.
Peterson’s Landscape was also a subcontractor on the job. Alexander
admitted that it also was not paid in full. It sued KBA and got a judgment for
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$6,271.67. Peterson’s Landscape filed a claim in KBA’s bankruptcy proceeding
for $4,012.31; thus, it appeared that KBA paid about $2,000 toward satisfying the
judgment.
Lambert Ornamental Iron put fencing around Kent’s project. During the
same period, Lambert built a fence at Alexander’s personal home. Alexander did
not believe he used any of the funds from the project to pay for his home’s
fencing. But he did not know what Lambert would say about it. The final
payment request stated that $29,700 had been paid to Lambert for its work.
By a letter of May 7, 2007, Alexander wrote Kent that it was “our full
understanding that we owe balances to some of the subcontractors that
performed work on your project and it is also our full intention to satisfy the
balances owed and obtain full releases of liens for your project.” Alexander
testified that he assumed that at that time, he had a full understanding that KBA
still owed money on the project and that, between January and May of 2007, he
was being informed by his office that KBA had not paid some of the
subcontractors’ bills. After May 7, 2007, the only payments he recalled making
were to Peterson’s Landscape and to S&S General Building; he gave more work
on another project to S&S General Building to help resolve some of the balance
owed to it.
Alexander did not know why the twenty-three page summary of schedules
of unsecured creditors in KBA’s bankruptcy proceeding showed Business
Flooring Specialists as “not disputed,” CBS Mechanical Services as owed
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nothing, Peterson’s Landscape as owed one dollar, and Easy Ed’s as owed one
dollar. Alexander knew that Kent’s suit against KBA was filed before KBA filed
for bankruptcy, and Kent was regularly letting him know what he claimed KBA
owed him for the expense of settling and getting the subcontractors’ liens
released from his property. Alexander acknowledged he had another dispute
going on with another owner over a construction contract at the time he filed for
bankruptcy on behalf of KBA, University Church of Christ, but he did not list them
as a creditor; he did not know why. Alexander said the figures were put in by his
attorneys. During the time frame he was working on Kent’s project, he was also
working on other projects, including the Education Service Center, the Fort Worth
Christian School, some churches, Coastal Transportation, Market Street Village,
and a property in Cleburne. Liens were filed in the Fort Worth Christian School
project that he thought were satisfied, and a suit had been filed against him by
Spence Interior Trim with which he entered into an agreed judgment.
On cross-examination by his own counsel, Alexander testified he signed
the construction contract and pay applications as president of KBA on behalf of
KBA, the undersigned contractor, not individually. As to the bankruptcy
schedules of creditors, Alexander said that the listings for payments owed to
CBS Mechanical and to Peterson’s Landscape for work on Kent’s property were
stated to be “zero” and one dollar because of his belief that, since he had
settlement agreements with each, they were not owed anything. Easy Ed’s claim
was listed as one dollar because Alexander did not know how much Kent
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claimed he was actually due. Alexander further testified (after scolding by the
trial court to not just make up stuff or to keep saying simply that he did not know)
that counsel prepared the schedules in the bankruptcy proceedings based on
documents he furnished and that any incorrect numbers were simply a mistake
on his part and not intentional. Alexander said that the schedules for KBA’s
bankruptcy were based on information he gave to his attorneys and that the
information was accurate to the best of his knowledge at the time; he understood
those schedules to be correct based on his attorneys’ recommendation.
Alexander said that he signed the pay applications in reliance upon the
information provided to him by his office staff, understanding that the
subcontractors had been paid. He never intended for any subcontractor or
supplier working for KBA not to be paid or for any project to go unfinished. He
attempted to get the subcontractors paid through settlement agreements,
promissory notes, promising other work, and offering to be personally liable on
notes for some of the debts to make sure the subcontractors understood that he
was sincere and intent on trying to get the debts paid.
Alexander testified he did not personally benefit directly from his work for
Kent; instead, he lost everything. He lost his building, which he sold in a short
sale after it was posted for foreclosure. He was left with a deficiency of
$34,185.20, for which he had to guarantee a note to the bank. He testified that
over the past five years, he had personally paid over $100,000 to satisfy some of
the claims against the business. While the Kent construction job was ongoing,
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he was already facing legal issues. The Market Street project was in litigation;
the developer placed $475,000 into the registry of the court, and KBA never
received those funds.
Alexander explained that he had jobs with bad estimates that he ended up
losing money on, and Easy Ed’s Autos was one of those jobs. He testified that
decisions about paying subcontractors were made by him based upon “managing
the cash flow of the business.” There was never any intent not to pay anybody;
he thought KBA went to great lengths to pay everybody.
Alexander admitted he realized KBA was in serious financial distress when
it was trying to wrap up the Market Street project in 2005. He identified a
materialman’s lien from that project for $156,000 that was signed March 20,
2005. He did not enter into the contract for Kent’s project until over a year later.
Alexander said he was not involved in day-to-day operations and was not paying
attention to the bills, and he thought everything was being done the way it was
supposed to be done. He admitted that, at the time he entered into the contract
with Kent, he was having financial problems. At that juncture, he was spending a
lot of time trying to collect the $485,000 owed to KBA on the Market Street
project, and he had several lawsuits pending against a developer.
In answer to questions by the trial court, Alexander admitted he had
access to KBA’s bank statements but did not recall doing any due diligence to
make sure they were accurate. He admitted that the $4,000 that came out of
KBA’s operating account every month was for the rent on the building occupied
23
by KBA. In other words, Alexander admitted, even when subcontractors were
not being paid, he managed to pay the rent for the building he owned with his
father.
Testimony of Subcontractors
Joe Peterson, president of Peterson’s Landscape, testified he was
“partially” paid but had to take action to enforce the payment. For the first three
months or so, every week or every other week, Peterson would stop by KBA’s
offices or call Alexander, who would tell him that he had never been paid by Kent
and could not send Peterson his money until he got paid. After a few months of
being told the same thing, Peterson was angry and called Kent to ask him why
he had not paid KBA. Kent told him he had paid and showed him proof.
Peterson then sued KBA in small claims court and entered into an agreed
judgment with KBA. Alexander made a few payments but then stopped three or
four months prior to KBA declaring bankruptcy.
Arthur Moses, owner of Ajax Glass and Mirror, testified he contacted
Alexander multiple times in June or July 2008 about the money owed to Ajax
Glass as a subcontractor. Alexander never told Moses why he could not pay
Ajax Glass. Moses said he received only $800 in payment from KBA. He filed a
lien against Kent’s property for the balance of $18,827.30.
Jerry Eberly, owner of Jerry’s Cabinetry, Inc., testified he provided
cabinetry services on the project and was not paid. Alexander gave him multiple
answers for why he was not being paid, including that he had not been paid by
24
Kent. But Kent showed him documentation that he had paid KBA. KBA finally
gave Eberly partial payment.
Sanders’s company, General Building and Erections, provided the building
portion of the roof units and canopies and was not paid. Sanders testified that
Alexander told him KBA did not have the money to pay General Building and
Erections but did not tell him why. Alexander agreed to a note with monthly
installment payments. General Building and Erections did not file a lien on Kent’s
property. Sanders stated that he had been in business forty-one years and had
yet to file a lien on anyone’s property. Alexander paid half of the note before
KBA filed for bankruptcy. He still owes about half of it. Sanders was still working
with Alexander at the time of trial.
Sanders testified that there were times when either Alexander did not get
paid or could not pay, and in those situations, Sanders agreed to give KBA a bid
on the next job in which Sanders would be paid a higher amount to pay the one
on which KBA still owed him. At the time of trial, Sanders was working on a job
in Grand Prairie for Alexander as general contractor. In 2012, he had worked on
several jobs with Alexander as general contractor, including some Goodwill
stores, Service Masters in Euless, CMC Trailers, and Lone Star Forklifts.
Sanders testified he had also done work as a subcontractor for Alexander under
the names of three different corporations in addition to KBA. He said he would
bid a job for Alexander today and work for him, provided the contracts are drawn
for joint check agreements.
25
Chris Guensfelder testified he owns Lambert Ornamental Iron, which
fabricates and installs ornamental iron, fences, gates, and stairs. He provided a
fence and manual slide gate on Kent’s project. He also did work on a fence for
Alexander’s father’s home. He did not recall whether he was paid for that work
from corporate funds. He invoiced Alexander in November 2006 for the work
done on Kent’s project and received payment after seven months. KBA’s
payment was in three or four installments. He recalled making repeated calls to
be paid.
Judgment
Following the trial, as relevant to this appeal, the trial court entered written
findings of fact and conclusions of law, finding and concluding as follows:
(3) The subcontractors completed the work on the project and a
final draw was presented to Plaintiff on or about January 19, 2007.
(4) The final draw certified all subcontractors were paid in full and
was signed by Keith Alexander and certified by Keith Alexander.
(5) Plaintiff paid all amounts due under the contract and as
provided in the draw applications.
(6) All checks were paid to Keith Alexander.
(7) All subcontractors were not paid as represented by Keith
Alexander.
(8) The representations that all subcontractors were paid
were . . . false statement[s] made by Keith Alexander.
(9) Based on the false statements[,] Plaintiff Eddie Kent paid K.B.
Alexander Co. of Texas, Inc. all sums due and owing under the
contract.
26
(10) Plaintiff[,] after final payment was made to Keith Alexander[,]
discovered all subcontractors on his project were not paid as
represented by Keith Alexander.
....
(12) The representations made to Plaintiff by Keith Alexander were
material and relied upon by Plaintiff.
(13) Keith Alexander knew the representations about
subcontractors being paid in full were false when made to plaintiff.
(14) Plaintiff was damaged by Keith Alexander’s false statements.
(15) Plaintiff was required to defend lawsuits, settle lawsuits, pay
mechanic’s liens[,] and incur legal expenses that but for Keith
Alexander’s false statements would not have been expenses the
Plaintiff would have incurred.
(16) Keith Alexander has been involved in a number of projects
where project funds were not properly applied to the projects[’]
expenses. Keith Alexander has been involved in a number of
lawsuits and had mechanics [liens] filed on his company’s building
projects in the past.
(17) In other building projects[,] the land owners were subject to
paying mechanic’s liens and [were] involved in lawsuits over
payment of subcontractors by Keith Alexander or a company he
control[l]ed.
....
(21) Keith Alexander’s actions in filing a mechanic’s lien were done
to harm the Plaintiff.
(22) Keith Alexander’s failure to pay subcontractors on the
Plaintiff’s project were a part of planned way of doing business by
Keith Alexander and were done to defraud the Plaintiff.
(23) Plaintiff has incurred actual damages in the amount of
$20,061.32.
27
(24) Plaintiff has incurred legal fees and expenses with the office of
David L. Pritchard as of August 1, 2013[,] in the amount $22,249.97.
(25) Plaintiff [has] incurred legal fees with special bankruptcy
counsel in the amount of $3[,]000.00[.]
....
(27) Keith Alexander committed fraud by representing to Plaintiffs
[that] subcontractors had been paid, when Keith Alexander knew all
of said subcontractors had not been paid.
(28) Plaintiff’s reliance on said fraudulent representations resulted
in the Plaintiff being damaged.
(29) Keith Alexander[’s] lien claim was done with the intent to harm
the Plaintiff.
(30) Keith Alexander[’s] actions were done knowingly with the
intent to harm the Plaintiff and subject Keith Alexander to exemplary
damages.
ANALYSIS
Although his issues, as worded, do not expressly challenge the legal and
factual sufficiency of the evidence, Alexander’s summary of his arguments at the
outset of his brief, as well as the substance of his arguments, reveal that he is
challenging the legal and factual sufficiency of the evidence to support the trial
court’s findings. On close scrutiny, all but one of his arguments (that one being
his challenge to the verbiage of the pay applications) under his issues are
essentially legal and factual insufficiency complaints that we read as “fairly
included” in his issues. See Tex. R. App. P. 38.1(f) (“The statement of an issue
or point will be treated as covering every subsidiary question that is fairly
included.”), 38.9 (stating that briefing rules should be construed liberally and “are
28
meant to acquaint the court with the issues in a case and to present argument
that will enable the court to decide the case”). Consequently, we will consider
Alexander’s issues under the usual legal and factual sufficiency standards of
review.
STANDARD OF REVIEW
A trial court’s findings of fact have the same force and dignity as a jury’s
answers to jury questions and are reviewable for legal and factual sufficiency of
the evidence to support them by the same standards. Catalina v. Blasdel, 881
S.W.2d 295, 297 (Tex. 1994); Anderson v. City of Seven Points, 806 S.W.2d
791, 794 (Tex. 1991); see also MBM Fin. Corp. v. Woodlands Operating Co., 292
S.W.3d 660, 663 n.3 (Tex. 2009). We defer to unchallenged findings of fact that
are supported by some evidence. Tenaska Energy, Inc. v. Ponderosa Pine
Energy, LLC, 437 S.W.3d 518, 523 (Tex. 2014).
When a party challenges the legal sufficiency of the evidence to support an
adverse finding on which he did not have the burden of proof at trial, the party
must demonstrate that there is no evidence to support the adverse finding.
Thornton v. Dobbs, 355 S.W.3d 312, 316 (Tex. App.—Dallas 2011, no pet.). In
determining whether there is legally sufficient evidence to support the finding
under review, we must consider evidence favorable to the finding if a reasonable
factfinder could and disregard evidence contrary to the finding unless a
reasonable factfinder could not. Cent. Ready Mix Concrete Co. v. Islas, 228
S.W.3d 649, 651 (Tex. 2007); City of Keller v. Wilson, 168 S.W.3d 802, 807, 827
29
(Tex. 2005). Anything more than a scintilla of evidence is legally sufficient to
support the finding. Cont’l Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 450
(Tex. 1996); Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex. 1996). More than a
scintilla of evidence exists if the evidence furnishes some reasonable basis for
differing conclusions by reasonable minds about the existence of a vital fact.
Rocor Int’l, Inc. v. Nat’l Union Fire Ins. Co., 77 S.W.3d 253, 262 (Tex. 2002).
When reviewing an assertion that the evidence is factually insufficient to
support a finding, we set aside the finding only if, after considering and weighing
all of the evidence in the record pertinent to that finding, we determine that the
credible evidence supporting the finding is so weak, or so contrary to the
overwhelming weight of all the evidence, that the answer should be set aside and
a new trial ordered. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986)
(op. on reh’g); Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Garza v. Alviar,
395 S.W.2d 821, 823 (Tex. 1965). The trial court, as factfinder in a bench trial, is
the sole judge of the credibility of the witnesses. Thornton, 355 S.W.3d at 315.
We review a trial court’s conclusions of law de novo to determine whether the
trial court correctly drew the legal conclusions from the facts. Id. at 316.
APPLICABLE LAW
“The elements of fraud are a material misrepresentation, which was false,
and which was either known to be false when made or was asserted without
knowledge of its truth, which was intended to be acted upon, which was relied
upon, and which caused injury.” Sears, Roebuck & Co. v. Meadows, 877 S.W.2d
30
281, 282 (Tex. 1994) (quoting DeSantis v. Wackenhut Corp., 793 S.W.2d 670,
688 (Tex. 1990), cert. denied, 498 U.S. 1048 (1991)); see also Formosa Plastics
Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47–48 (Tex.
1998).
APPLICATION OF LAW TO ISSUES
“Verbiage” of the pay applications
As part of his first issue, Alexander challenges findings of fact 4, 7, 8, 9,
13, 14, 15, and 22, contending that the language of the pay applications
submitted by KBA to Kent—certifying that to the best of KBA’s “knowledge,
information, and belief . . . all amounts have been paid by the Contractor for
Work for which previous Certificates of Payment were issued”—was not the type
of affirmative statement of fact actionable for fraud. Alexander places his
reliance on a criminal case in which the court of criminal appeals rejected an
attorney’s affidavit containing the same language in support of a motion for new
trial based on jury misconduct because the affidavit stated no positive material
fact, did not reveal what information the affiant had or relied upon or its source,
and did not state that the affiant had any knowledge of the subject matter.3
Alexander argues KBA’s certification is likewise devoid of substance because it
did not assert that KBA had any knowledge on the subject, did not state that KBA
had conducted any inquiry, reviewed documents, or completed an audit, and did
3
Calyon v. State, 174 S.W. 591, 600 (Tex. Crim. App. 1915), overruled in
part by Means v. State, 271 S.W. 613, 614–15 (Tex. Crim. App. 1925).
31
not provide a context from which Kent could deduce KBA’s knowledge or
information. In essence, he contends, it fails to meet the criteria for an affidavit.
Therefore, Alexander asserts that the certification does not constitute an
actionable statement for fraud.
The issue is not whether Alexander’s certification in the applications met all
the criteria for an affidavit as required for a motion for new trial or even for a
motion for summary judgment but whether, under all of the circumstances viewed
most favorably in the light of the trial court’s findings and judgment, it constituted
a representation that, if false, would constitute an actionable misrepresentation
that “all amounts have been paid by the Contractor for Work for which previous
Certificates of Payment were issued.” There is far more to the payment
applications than a general statement with no context from which to determine
the affiant’s personal knowledge such as in Calyon, in which an attorney averred
that he had information from an unknown source about jury misconduct. 174
S.W. at 598. Each pay application, signed and sworn to by Alexander as
representative of KBA, was supported by a schedule of values specifically listing
each category on which work had been done to the date of the application and
the percentage of completion of that work to date, as well as the amounts
purported to have been previously paid to the subcontractors for each such
category. The trial court reasonably could have concluded from the
circumstances surrounding the certifications as known to Kent that Alexander, as
sole owner of KBA and with over twenty years of experience, was certainly in a
32
position to have personal knowledge of whether he had paid his own
subcontractors for the work that previously had been completed. Kent even
followed up with KBA’s office manager to reassure himself that the
subcontractors had been paid before making each of the progress payments.
Significantly, Kent’s testimony was undisputed that when he approached
Alexander about obtaining verification of payment to subcontractors through the
architect’s optional service provided for that very purpose, Alexander verbally
reassured him that it would be a waste of time and told him that Alexander
himself would “see that everybody got paid.”
It was undisputed and even stipulated by Alexander at trial that, contrary to
the representations in the pay applications of November and December 2006,
and January 2007, Alexander had not paid subcontractors for work completed in
the last three months of the project to the extent of over $100,000, which was not
revealed to Kent by Alexander and not discovered by Kent until after Kent paid
for completion of the job and after he had moved onto the premises and opened
for business. The trial court could also have reasonably concluded that by at
least November 2006, Alexander knew KBA could not meet its obligations to its
subcontractors for other projects as well as Kent’s and had ceased being able to
pay the subcontractors. We hold that the trial court did not err in finding that the
pay applications misrepresented that all subcontractors had been paid for work
completed by them during the previous month.
33
Accordingly, we hold that legally and factually sufficient evidence supports
the trial court’s findings of misrepresentation and that such misrepresentations
constituted fraud in findings of fact numbers 4, 7, 8, 9, 13, 14, 15, and 22,
particularly when considered in the light of the surrounding circumstances,
including the verbal reassurance to Kent by Alexander that he would see that the
subcontractors got paid.4 We overrule this portion of Alexander’s first issue.
Kent’s “equal access” to knowledge
In his second issue, Alexander contends that Kent possessed equal
access to knowledge of KBA’s payments to its subcontractors by the terms of
Kent’s construction contract with KBA. Alexander relies upon Paull v. Capital
Resource Management, Inc., 987 S.W.2d 214 (Tex. App.—Austin 1999, pet.
denied), a case in which investors in working interests in an oil and gas
waterflood project sued an oil and gas development corporation and its principals
for, among other causes of action, fraud for allegedly misrepresenting that the
investment was the “lowest risk” that the sellers had seen and for alleged
misrepresentations in a field summary that analyzed economic forecasts,
projected productivity, and predicted large revenues and profits from production
in an analogous field. Id. at 218–19. Affirming a summary judgment in favor of
the sellers on the investors’ fraud claim, the appellate court held that, because
4
In his statement of issues, Kent states he is challenging findings 3–10,
12–17, and 21–25, but he does not revisit his challenges to findings 3, 5, 6, 10,
12, 16, 17, 21, 24, or 25 in any of his issues. We address his challenge to finding
23 later in this opinion.
34
the investors were provided all information requested and the field summary was
based upon publicly available records of prior oil and gas production history in
analogous fields to which the investors had equal access, the investors were
prevented from claiming they were defrauded by the company’s statements or
opinions. Id. at 221.
We disagree that Paull is analogous. Alexander claims Kent had equal
access to subcontractor information and points to the provisions of the contract
under which Kent had rights entitling him to lien waivers, claim waivers, and
affidavits from the subcontractors on demand as a prerequisite to payment, as
well as the right to adjust or reject payment applications or even nullify previously
approved applications if KBA failed to properly pay the subcontractors following
receipt of payment from Kent. But unlike the records available to the public from
analogous oil and gas fields in Paull, there were no records accessible to Kent by
which he could have learned whether the subcontractors on his job were being
paid by KBA. We find no provision in the contract giving Kent any access, much
less equal access, to the bookkeeping or other internal records of KBA that
would indicate whether or when subcontractors were being paid. Kent testified
that when he went to KBA’s office each month with a check from the bank to
make his progress payment, he would specifically inquire of Riddle whether the
subcontractors were paid for their completed work before making his payment to
KBA, and Riddle would assure him that they had been paid. And when Kent
approached Alexander about the architect’s offer of a service to audit whether
35
the subcontractors were properly being paid for completed work, Alexander
reassured Kent that he would see that the subcontractors were paid and that
Kent did not need to waste money on an audit by the architect to make sure that
they were, in fact, paid.
Moreover, it was undisputed that the only person with check-writing
authority in the company was Alexander. Thus, the only person who knew
whether the subcontractors were paid each month for work completed was
Alexander. Alexander certified to Kent under oath in each pay application that
the subcontractors had been paid for work completed at the time of each
application. The one fact that Kent needed to know—that the subcontractors had
been paid—was misrepresented in the pay applications, and thus, Kent had no
knowledge, much less equal access to knowledge, that might have alerted him to
exercise any of his contractual rights based upon KBA’s failure to pay the
subcontractors. Once he obtained the knowledge that the subcontractors had
not been paid and liens had been filed against his property, and after KBA failed
within thirty days, as required by the contract, to remove the liens filed against
Kent’s property by the subcontractors who had not been paid, Kent exercised his
post hoc contractual remedy of negotiating and settling the claims for KBA’s
nonpayment of subcontractors with his own funds, obtained releases of the liens
placed against his property, and filed this suit against Alexander and KBA for
recovery of his costs, expenses, and attorney’s fees. Accordingly, we overrule
Alexander’s second issue.
36
Kent’s Reliance was “Justifiable”
Alexander argues by his third issue that the evidence is factually
insufficient to establish that Kent’s reliance on the pay applications was
“justifiable” in light of Kent’s awareness of the risk that KBA would not pay the
subcontractors and because Kent failed to exercise due diligence in asserting his
negotiated contractual rights, which, Alexander says, would have protected his
interests. Assuming that Kent had the burden to establish that his reliance on the
pay applications was justifiable, Kent’s contractual rights gave Kent no protection
absent knowledge that the subcontractors had not been paid by KBA. Instead,
the contract expressly conditioned any right Kent would have to receive partial
lien waivers and affidavits from subcontractors on his payment of amounts due to
KBA on the pay applications. Likewise, although Kent had the right, upon written
notice to KBA to “adjust” or “nullify” any previously approved payment application
and to withhold payment to the extent KBA was responsible for failure to pay
subcontractors, that right could do him no good when Alexander misrepresented
in the pay applications that subcontractors had been paid. Alexander cites no
evidence that Kent had reason to suspect otherwise. And Kent expressly
inquired and was reassured both by the office manager and by Alexander that
the subcontractors had been paid before making his three final payments. We
overrule Alexander’s third issue.
37
Intent Not to Perform
By his fourth issue, Alexander contends there is no evidence that he had
no intent to pay the subcontractors before the contract was executed, arguing
that a plaintiff must show that a defendant had no intention to perform when it
made a promise or entered into the contract in order to support a claim of fraud.
Alexander points out that KBA completed the project, that Kent was happy with
the work, and that KBA partially performed by paying some of the subcontractors.
Alexander contends that his failure to pay all of the subcontractors was, at most,
a breach of the contract that, standing alone, is not evidence of intent not to
perform when the contract was made.
This argument might have merit if Kent had alleged and attempted to prove
a claim of fraud in the inducement of the contract when the contract was
executed on August 25, 2006. See Haase v. Glazner, 62 S.W.3d 795, 798–99
(Tex. 2001) (stating that 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. That is, with a fraudulent inducement claim, the
elements of fraud must be established as they relate to an agreement between
the parties.”). But Kent did not allege or attempt to prove fraud in the inducement
of the contract. In his original petition, which was Kent’s live pleading at trial,
Kent alleged that “Defendants induced Plaintiff to make payments under the
agreement by presenting Plaintiff with statements signed by Defendant Keith B.
Alexander that claimed all the subcontractors had been paid in full.” Kent further
38
alleged that the statements were false and were relied upon by him to his
detriment, proximately resulting in damages of having liens placed on his
property, a reduced credit rating, liability to subcontractors, and an inability to get
the remainder of the contract completed. In conformity with his pleadings, Kent
never contended at trial that he was fraudulently induced into the contract but put
on evidence that the misrepresentations in the last three pay applications of
November and December 2006 and January 2007 certifying that subcontractors
had been paid caused him to make the final three progress payments to KBA on
the contract when he would not have done so otherwise and could have avoided
the mechanic’s and materialmen’s liens being placed on his property and the
expense of paying the subcontractors himself and getting the liens released. We
overrule Alexander’s fourth issue.
Individual Liability of Alexander
By his fifth issue, Alexander asserts that he cannot be individually liable
because he was not a party to the contract and signed the contract and the pay
applications only in his corporate capacity as president of KBA. First, he
contends there is no evidence that he acted in his individual capacity in
representing “that all amounts have been paid by the Contractor for work for
which previous Certificates of Payment were issued and payments received from
Owner.” Alexander argues that this statement contained in each application for
payment presented to Kent shows on its face that it is the statement of the
corporation, not Alexander, individually. Secondly, Alexander contends that he
39
cannot be held individually liable because a corporate officer cannot be held
liable for inducing the corporation to violate a contractual obligation as long as he
acted in good faith, and Kent failed to produce any evidence that Alexander
acted in a manner so contrary to the best interest of the corporation that his
actions could only be motivated by personal interest. Alexander did not argue
these theories in the trial court. Because legal insufficiency of the evidence may
be raised for the first time on appeal from a judgment after a nonjury trial,
however, these theories are properly raised in that context, and we will consider
them. See Tex. R. App. P. 33.1(d).
Alexander relies upon Leitch v. Hornsby for the proposition that a
corporate officer’s acts taken on the corporation’s behalf are deemed corporate
acts. 935 S.W.3d at 117. In Leitch, the Texas Supreme Court held that officers
and directors of the plaintiff’s corporate employer could not be held liable for
negligence in failing to furnish the plaintiff with safety equipment that could have
prevented his work-related injuries. Id. at 120. This was because the employer
corporation, but not the individual corporate officers, owed a nondelegable duty
to provide an employee of the corporation a safe workplace. Id. at 117–18.
Leitch has no application to this case because that case involved liability of a
corporate agent to an employee of the corporation, not liability to a third party.
See id.; see also PWS Food, Inc. v. Taco Bell Corp., No. 05-01-01211-CV, 2002
WL 523697, at *7 n.3 (Tex. App.—Dallas Apr. 9, 2002, no pet.) (not designated
for publication).
40
The general rule in Texas has always been that “[a] corporation’s
employee is personally liable for tortious acts which he directs or participates in
during his employment.” Gore v. Scotland Golf, Inc., 136 S.W.3d 26, 32 (Tex.
App.—San Antonio 2003, pet. denied); see Graham Land & Cattle Co. v. Indep.
Bankers Bank, 205 S.W.3d 21, 32 (Tex. App.—Corpus Christi 2006, no pet.)
(“[A]n employee who commits, directs[,] or participates in a tortious act while
acting within the scope of his employment is personally liable for those acts.”);
Morris v. Kohls–York, 164 S.W.3d 686, 695 (Tex. App.—Austin 2005, pet.
dism’d) (“Corporate agents are individually liable for fraudulent or tortious acts
committed while in the service of their corporation.”); Cimarron Hydrocarbons
Corp. v. Carpenter, 143 S.W.3d 560, 564 (Tex. App.—Dallas 2004, pet. denied)
(“It is a longstanding rule in Texas that a corporate agent is personally liable for
his own fraudulent or tortious acts, even when acting within the course and scope
of his employment.”).
In a footnote, Alexander cites Karl & Kelly Co., Inc. v. McLerran, 646
S.W.2d 174, 175 (Tex. 1983), to suggest that individual liability against him is
impossible without piercing KBA’s corporate veil, which Kent never alleged nor
sought to prove. McLerran was implicitly overruled by the supreme court in Light
v. Wilson, 663 S.W.2d 813, 814–15 (Tex. 1983). See Miller v. Keyser, 90
S.W.3d 712, 717 (Tex. 2002) (agreeing with concurring opinion in Light, which
stated that Light implicitly overruled McLerran). In the same vein, Alexander also
argues that an officer is insulated from individual liability for his own actions if
41
they are taken in his capacity as an agent of the corporation and on its behalf.
To the contrary, this argument merely brings us full circle back to “the
longstanding rule in Texas . . . that ‘[a] corporation’s employee is personally liable
for tortious acts which he directs or participates in during his employment.’”
Kingston v. Helm, 82 S.W.3d 755, 758 (Tex. App.—Corpus Christi 2002, pet.
denied) (quoting Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 375
(Tex. 1984)). “The law is well-settled that a corporate agent can be held
individually liable for fraudulent statements or knowing misrepresentations even
when they are made in the capacity of a representative of the corporation.”
Kingston, 82 S.W.3d at 759 (emphasis added); see Sanchez v. Mulvaney, 274
S.W.3d 708, 712 (Tex. App.—San Antonio 2008, no pet.) (holding corporate
agents liable for their own fraudulent and tortious acts even when acting within
the course and scope of their employment); see also Shapolsky v. Brewton, 56
S.W.3d 120, 133 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (“It is the
general rule in Texas that corporate agents are individually liable for fraudulent or
tortious acts committed while in the service of their corporation.”), disapproved of
on other grounds by Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d
777, 788–89 (Tex. 2005). In an action seeking to hold an officer liable for his
own fraudulent statements, the corporate veil is not required to be pierced.
Sanchez, 274 S.W.3d at 712; Kingston, 82 S.W.3d at 766.5 We overrule
Alexander’s fifth issue.
5
Alexander’s argument that there is no evidence that Alexander acted in a
42
Attorney’s Fees
By his sixth issue, Alexander asserts that the trial court’s award of
$22,249.97 for attorney’s fees and $3,000 for additional bankruptcy counsel fees
is supported by neither the law nor the evidence. We agree. A plaintiff may not
recover attorney’s fees in a common-law fraud action. See MBM Fin. Corp. v.
The Woodlands Operating Co., L.P., 292 S.W.3d 660, 667 (Tex. 2009) (holding
attorney’s fees not recoverable for fraud even if fraud claim arose from breach of
contract); Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 311–12 (Tex.
2006) (same). Because Kent’s action against Alexander was based on fraud
alone, he is not entitled to recover attorney’s fees for prosecuting this action.
Additionally, Kent is precluded from recovering the $3,000 the trial court
awarded as special bankruptcy fees. He testified he retained legal counsel to
attempt to place KBA into involuntary bankruptcy in order to collect from KBA the
amounts he paid to subcontractors. He was later convinced by Arthur Moses of
Ajax Glass to abandon the idea of putting Alexander into bankruptcy. Those fees
were not reliance damages, nor were they shown to have been caused by the
fraud. They also were not proved up by expert testimony or any other evidence
that they were reasonable or necessary. We sustain Alexander’s sixth issue.
manner so contrary to the best interest of the corporation that his actions could
only be motivated by personal interest, is likewise inapplicable to this case.
Alexander cites Holloway v. Skinner, 898 S.W.2d 793, 795 (Tex. 1995), for the
test for individual liability of a corporate officer. But Holloway involved a cause of
action against a corporate officer in his individual capacity for tortious
interference with a contract between the corporation and a third party. Id. at 794.
Kent did not assert a claim for tortious interference with contract.
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Damages
In the remaining part of his first issue, Alexander contends Kent failed to
produce even a scintilla of evidence that the payment applications admitted at
trial “were tied to his actual damages” found by the trial court. We will liberally
construe this contention as a complaint of no evidence to support the trial court’s
findings that Kent was damaged by Alexander’s false statements (finding no. 14);
that Kent was required to defend and settle lawsuits, to pay mechanic’s liens,
and to incur legal expenses that he would not have incurred but for Alexander’s
false statements (finding no. 15); and that Kent incurred actual damages of
$20,061.32 (finding no. 23).
As we related in summarizing the evidence, Kent testified he understood
that each payment application Alexander presented to him certified that
subcontractors had been paid in full for the work they had completed the
previous month. And Kent said that he relied upon those certifications in making
payments and would not have made the payments to KBA as requested in the
last three applications for payment had he known that subcontractors were not
being paid.
Alexander admitted that he had represented that he had paid the
subcontractors as he had certified in the payment applications he presented to
Kent. He further acknowledged that the construction contract put the
responsibility for payment of liens on KBA, that liens were filed against Kent’s
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property on the project by unpaid subcontractors, and that KBA was not able to
satisfy all of them.
As to his damages for payment to release the lien of Business Flooring
Specialists, Kent testified that the final payment application dated January 2007
listed that subcontractor as having completed its work and that it was paid in full.
Alexander also testified he had paid that subcontractor in full. But he later
acknowledged that Business Flooring Specialists filed an affidavit and
mechanic’s lien against Kent’s property for unpaid amounts due, which he
assumed his office was aware of, and knew that the subcontractor sued and got
a judgment against KBA. Kent testified he paid Business Flooring Specialists
$6,271.67, fifty percent of its claim, to settle with it and obtained an assignment
of its lien.
Alexander also admitted that Ajax Glass, another subcontractor on Kent’s
project, was never paid “in full.” There was a payment shown as having been
made to Ajax Glass by KBA for $18,510. But the lien affidavit filed by Ajax Glass
in support of its lien against Kent’s property showed an amount unpaid and owing
of $18,827.30. Alexander admitted KBA paid Ajax Glass less than $1,000. The
lien affidavit filed by Ajax Glass against Kent’s property stated KBA had paid Ajax
Glass only $800. Kent testified he paid Ajax Glass $9,413.65.
Alexander admitted that, to his knowledge, KBA did not pay Jerry’s
Cabinetry for its work as a subcontractor, that Jerry’s Cabinetry’s claim against
Kent arose out of KBA’s failure to pay Jerry’s Cabinetry for its work on Kent’s
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project, and that Jerry’s Cabinetry filed a lien against Kent’s property and sued
Kent, claiming it was owed $8,752. Kent settled with Jerry’s Cabinetry and
obtained an assignment of its lien for $4,376.
As to each of those liens filed against Kent’s property for amounts not paid
by KBA to those subcontractors, and contrary to the representations made by
Alexander in the payment applications, Kent testified:
Q. All right. And each one of these pay applications, after you
had the opportunity to do what review you could, you paid him; is
that correct?
A. Yes, sir.
Q. And as a result of the pay applications not being -- or all of
the subcontractors not being paid, you have heard testimony, you’ve
heard that -- you’ve settled with several people; is that correct?
A. Yes, sir.
Q. Okay. And who did you settle with, sir?
A. I settled with Mr. Moses of Ajax Glass, and Mr. Eberly [of
Jerry’s Cabinetry], and Jeff Bennett . . . [of] . . . Business Flooring
Special[ists], [which] were the three that there’s cashier’s checks in
the exhibits where they were all paid, and they all assigned me the
lien.
Even though the cashier’s checks themselves were not admitted (the trial
court sustained Alexander’s hearsay objection to them), Kent testified to the
amounts he paid to each of those three subcontractors to settle with them and
obtain assignments of their liens against his property, which totaled precisely the
amount of damages awarded to him of $20,061.32, as the trial court found.
Alexander did not dispute that Kent settled with the three subcontractors for that
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amount. Accordingly, we hold that legally sufficient evidence supports the trial
court’s findings that Kent incurred damages of $20,061.32 as a result of his
reliance on Alexander’s misrepresentations. We overrule the remainder of
Alexander’s first issue.
By his seventh issue, Alexander contends that the evidence is factually
insufficient to support the damages of $20,061.32 that the trial court found were
sustained by Kent and awarded to him in the judgment against Alexander. It is
undisputed and Alexander acknowledges that Kent testified that he settled with
the three subcontractors who had filed liens on his property by paying them the
following sums in exchange for an assignment of their liens: $6,271.67 paid to
Business Flooring Specialists; $9,413.65 paid to Ajax Glass; and $4,376 paid to
Jerry’s Cabinetry, for a total as found by the trial court of $20,061.32.
Alexander contends that Kent admitted that he did not pay the last pay
application presented to him by KBA of $6,637. Alexander contends that when
that amount is subtracted from the total amount of $20,061.32 paid to the
subcontractors, Kent’s damages total no more than $13,424.32. But Kent
testified that he paid the contract in full. His last payment to KBA supported by a
pay application from KBA was $38,210. We have found no pay application in the
record for $6,637. KBA did file a lien in 2009 on Kent’s property with an
unsigned application for payment (dated July 5, 2007) for a balance Alexander
claimed Kent still owed of $4,637, plus eighteen percent interest. But Alexander
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acknowledged he did not recall such an application for payment ever being
presented to Kent.
The amount of any such balance owed on the contract by Kent, assuming
such to be true, is apparently intended by Alexander to be in the nature of an
offset. But Alexander is not entitled to an offset in the amount he now claims.
Any such amount owed by Kent on the contract would have been owed only to
KBA, the corporation with whom Kent contracted for the construction and which
he agreed to pay, not to Alexander, individually. This suit is against Alexander,
individually, for the damages to Kent resulting from Alexander’s fraud.
Moreover, Alexander is making this claim for the first time on appeal. The
right of offset, setoff, or reimbursement is an affirmative defense that must be
pled and proved by the party asserting it. See Smith v. Davis, 462 S.W.3d 604,
614 (Tex. App.—Tyler 2015, pet. denied) (op. on reh’g); Tenet Health Sys.
Hosps. Dallas, Inc. v. N. Tex. Hosp. Physicians Grp., P.A., 438 S.W.3d 190, 204
(Tex. App.—Dallas 2014, no pet.) (citing Brown v. Am. Transfer & Storage Co.,
601 S.W.2d 931, 936 (Tex. 1980)). Generally, an affirmative defense must be
pled in a responsive pleading, or the defense is waived. See Tex. R. Civ. P. 94;
MAN Engines & Components, Inc. v. Shows, 434 S.W.3d 132, 136–37 (Tex.
2014) (stating Rule 94 makes clear that affirmative defenses must be raised in
pretrial pleadings); Shoemake v. Fogel, Ltd., 826 S.W.2d 933, 937 (Tex. 1992)
(stating affirmative defense waived if not pled). Alexander filed only a general
denial in response to Kent’s original petition and never amended his answer to
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assert offset or any other affirmative defense or counterclaim for the amount he
now claims Kent owes. There is also no indication in the record that the parties
tried such a claim for an offset by consent. See Smith, 462 S.W.3d at 614; see
also Hartford Fire Ins. Co. v. C. Springs 300, Ltd., 287 S.W.3d 771, 779–80 (Tex.
App.—Houston [1st Dist.] 2009, pet. denied) (noting trial by consent is reserved
for exceptional cases, and we review the record not for admission of relevant
evidence on the issue, but rather for evidence of trial of the issue).
Because Alexander is not entitled to assert any balance owed on the
contract to KBA as an offset to the damages awarded against him individually for
fraud and because any such right to an offset is waived because it was never
pled or tried by consent, we overrule Alexander’s seventh issue.
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CONCLUSION
Having sustained Alexander’s sixth issue complaining that Kent is not
entitled to attorney’s fees for this suit or to special bankruptcy fees, we reverse
the trial court’s judgment as to those fees in the total amount of $25,249.97 and
render judgment that Kent take nothing on his claim for attorney’s fees. Having
overruled Alexander’s first through fifth issues and his seventh issue, we affirm
the judgment in favor of Kent and against Alexander for damages in the amount
of $20,061.32, plus prejudgment and postjudgment interest and costs of court as
awarded by the trial court.
/s/ Anne Gardner
ANNE GARDNER
JUSTICE
PANEL: DAUPHINOT, GARDNER, and WALKER, JJ.
DELIVERED: November 5, 2015
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