Fred Glazener and James Slagle v. John M. Jansing, Jr. ( 2003 )


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  •       TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
    NO. 03-02-00796-CV
    Fred Glazener and James Slagle, Appellants
    v.
    John M. Jansing, Jr., Appellee
    FROM THE DISTRICT COURT OF TRAVIS COUNTY, 98TH JUDICIAL DISTRICT
    NO. GN202629, HONORABLE SUZANNE COVINGTON, JUDGE PRESIDING
    MEMORANDUM OPINION
    Fred Glazener and James Slagle appeal from the default judgment rendered against
    them and in favor of John M. Jansing, Jr. Appellants complain that Jansing failed to serve his
    motion for default judgment on all parties as required by the Texas Rules of Civil Procedure.
    Glazener contends that service on him was defective because the signature of the recipient of service
    was illegible. By six other issues, appellants contend that Jansing’s pleadings and proof are
    inadequate to support the judgment rendered. We will affirm the judgment.
    BACKGROUND
    The following factual summary is taken from the record submitted in the default-
    judgment proceedings. This summary is included to present a context for the discussion in this
    opinion, but should not be construed as binding other parties in related pending cases.
    John Rader operated a stock day-trading company called Bayside Trading.1 Jansing
    loaned money to Rader as evidenced by a $50,000 promissory note made in July 1999 and a $58,000
    promissory note made in January 2000; the latter note comprised $8,000 of interest on the first note
    and an additional loan of $50,000. Rader represented that Jansing’s funds would be deposited into
    a margin control account used to make margin calls for the day-traders. He represented that this was
    a low-risk investment, and the notes guaranteed an interest rate of between nine and eighteen percent.
    The first note also indicated that Jansing would receive a ten-percent ownership interest in the
    company; this page of the agreement in the record is signed only by Jansing. Although Rader was
    not able to repay the first note when it came due in December 1999, he persuaded Jansing that the
    money was safe and earning interest, and that additional money would be treated similarly. In the
    second note, Rader represented that Jansing would receive an additional fifteen-percent ownership
    interest in the company making his total ownership share 25 percent of the company; this page of
    the agreement in the record is signed only by Rader.
    Jansing alleged that Rader held himself out as the owner of the company with full
    authority to execute notes, make contracts, and transfer stock. Although Rader managed the daily
    business of the company—such as recruiting, training, and clearing traders—he never owned any
    shares of stock in Bayside Trading, Inc. Instead, appellants Glazener and Slagle were the only
    1
    Appellants urge that the distinction between Bayside Trading and Bayside Trading, Inc.
    is crucial, but the allegations that they admitted by defaulting do not make that distinction. Under
    the petition, Rader alleged that he wholly owned “Bayside,” which is the term Jansing uses for the
    corporation owned by appellants.
    2
    shareholders. Jansing alleged that appellants relied on Rader to manage the company, knew that he
    was holding himself out as the owner, and allowed him to conduct business as if he were the only
    shareholder.
    When Rader defaulted on the notes, Jansing sued Rader, individually and doing
    business as Bayside Trading, and Bayside Trading, Inc. Jansing obtained a partial summary
    judgment in March 2002 against Rader2 for $131,613.75 plus $5,000 in attorney’s fees. After
    learning of the ownership structure of Bayside Trading, Inc., Jansing amended his petition in May
    2002 to add Glazener and Slagle, each individually and doing business as Bayside Trading (but not
    as a corporation). Service of citation on appellants was returned on June 18, 2002.
    Jansing filed a motion for default judgment against Glazener and Slagle on July 18,
    2002. The district court granted judgment against appellants in their individual capacities that same
    day. The court found that appellants committed fraud because (1) they were actually aware that
    Rader was making false representations of material facts to induce Jansing to enter a contract,
    (2) Jansing relied on the representations, (3) the representations were material and false and made
    with actual awareness of their falsity, (4) the representations were made with the intent that Jansing
    rely on them, (5) Jansing did rely on them, (6) appellants’ conduct proximately caused actual
    damages to Jansing, and (7) appellants violated the Penal Code by securing execution of contract
    2
    The judgment does not make clear if, in addition to judgment being rendered against Rader
    in his individual capacity, it is also rendered against him doing business as “Bayside Trading.”
    Judgment is not rendered against “Bayside Trading, Inc.”
    3
    documents by deception. The court awarded Jansing $100,000 in actual damages against appellants
    jointly and severally, $150,000 in punitive damages against each appellant, and $8,000 in attorney’s
    fees from appellants jointly and severally, plus additional fees in the event of appeal. The judgment
    does not mention Jansing’s claims on the notes and allegations of negligence, but the July 29, 2002
    order severing Jansing’s claims against appellants from the remaining claims states that the judgment
    against appellants disposes of all issues between them and Jansing and therefore is final.
    Appellants filed their notice of restricted appeal on December 16, 2002.
    DISCUSSION
    This is a restricted appeal. See Tex. R. App. P. 30. A restricted appeal replaces the
    writ of error practice. See 
    id. Review by
    restricted appeal affords the appellant a review of the entire
    case, just as in an ordinary appeal, with the restriction that any error must appear on the face of the
    record. Conseco Fin. Servicing v. Klein Indep. Sch. Dist., 
    78 S.W.3d 666
    , 670 (Tex. App.—Houston
    [14th Dist.] 2002, no pet.); Norman Communications v. Texas Eastman Co., 
    955 S.W.2d 269
    , 270
    (Tex. 1997) (setting out writ of error standards). The face of the record for purposes of a restricted
    appeal consists of all the papers on file before the judgment as well as the reporter’s record. See
    
    Conseco, 78 S.W.3d at 670
    ; 
    Norman, 955 S.W.2d at 270
    .
    Appellants present four procedural and four substantive issues. The procedural
    complaints concern the sufficiency of service, the necessary recipients of the motion for default
    judgment, and the necessity of a hearing on damages. The substantive complaints include whether
    the statutes allegedly apply to this case, whether mere awareness of misrepresentations is sufficient
    4
    to prove common-law and statutory fraud, and whether conclusory statements are sufficient evidence
    to support a fraud judgment.
    Service of process
    Glazener contends that the return of service on him is insufficient because the process
    server’s signature is illegible. There are no presumptions in favor of a valid issuance, service, and
    return of citation in the face of an attack on a default judgment by restricted appeal. Primate Constr.,
    Inc. v. Silver, 
    884 S.W.2d 151
    , 152 (Tex. 1994); TAC Ams., Inc. v. Boothe, 
    94 S.W.3d 315
    , 319
    (Tex. App.—Austin 2002, no pet.). For a default judgment to withstand direct attack, the record
    must show strict compliance with the Texas Rules of Civil Procedure governing citation and return
    of service. 
    Boothe, 94 S.W.3d at 319
    . The rule at issue provides, in relevant part, as follows:
    The return of the officer or authorized person executing the citation shall be endorsed
    on or attached to the same; it shall state when the citation was served and the manner
    of service and be signed by the officer officially or by the authorized person. The
    return of citation by an authorized person shall be verified.
    Tex. R. Civ. P. 107. Glazener argues that the illegibility of the signature means that the return of
    service neither shows that it was signed by an officer nor verifies the authority of any non-officer as
    required. See 
    id. We conclude,
    however, that the fact that the return was signed and a mark made
    indicating that the server was a constable satisfies the requirements of the rule. See 
    id. There is
    no
    basis on the face of the record to believe that the person who signed the return was not a constable,
    nor is there any requirement in the rule regarding legibility of the signature.
    5
    Service of motion
    Appellants complain that the motion for default judgment was not served on all
    parties and therefore is deficient. See Tex. R. Civ. P. 21 (“Every pleading, plea, motion or
    application to the court . . . shall be served on all other parties . . . .”). Appellants cite an opinion
    reversing a default judgment taken against an obligor because the surety, who was not the target of
    the motion, was not served with notice. See Trinity Universal Ins. Co. v. Briarcrest Country Club
    Corp., 
    831 S.W.2d 453
    (Tex. App.—Houston [14th Dist.] 1992, writ denied). The court held that
    Rule 21 means what it says—that motions must be served on all parties. 
    Id. at 455-56.
    The court’s
    opinion rests on the harm to the appellant surety caused by the failure to serve the motion on the
    surety; when the obligor defaulted, the surety was obligated to pay without having the opportunity
    to defend on the merits as a result of the lack of notice. 
    Id. The reasoning
    in the Trinity opinion does not apply to the facts of this case.
    Appellants here are not seeking to enforce their own right to notice. Indeed, parties served with
    citation and a petition are not entitled to additional notice of the intention to take a default judgment
    against them. See Continental Carbon Co. v. Sea-Land Serv., Inc., 
    27 S.W.3d 184
    , 188-89 (Tex.
    App.—Dallas 2000, pet. denied). Appellants present no basis on which they can enforce the rights
    of others to receive notice. Further, appellants do not make the necessary showing that they were
    harmed by the failure to serve others with notice. See Tex. R. App. P. 44.1. Even if appellants could
    enforce the rights of others to notice, there is no showing that the others were harmed by the lack of
    notice. Unlike the surety in Trinity, who was liable once the obligor defaulted, there is no indication
    that appellants’ default imposes any liability on others.
    6
    Sufficiency of pleadings
    Appellants raise several issues on which they assert that Jansing’s pleadings are
    insufficient. They contend that Jansing’s allegations are conclusory, that appellants cannot be held
    liable for Jansing’s losses under either common-law or statutory fraud theories if they were simply
    aware of misrepresentations made by Rader, and that a statutory fraud claim cannot stand without
    an allegation that the transaction involved stock or real estate.
    Even if Jansing’s allegations are conclusory, they can support a default judgment.
    A default judgment must be based on the pleadings. See Stoner v. Thompson, 
    578 S.W.2d 679
    ,
    684-85 (Tex. 1979). Plaintiffs must use plain and concise language in asserting a cause of action in
    their petitions. Tex. R. Civ. P. 45(b). The fact that an allegation is a legal conclusion, however, is
    not grounds for objection when the allegations as a whole give fair notice to the opponent of the
    claims made. Id.; Paramount Pipe & Supply Co. v. Muhr, 
    749 S.W.2d 491
    , 494 (Tex. 1988); see
    also Westcliffe, Inc. v. Bear Creek Const., Ltd., 
    105 S.W.3d 286
    , 291-92 (Tex. App.—Dallas 2003,
    no pet.). A petition is sufficient if a cause of action may reasonably be inferred from what is
    specifically stated in the petition, even if an element of the action is not specifically alleged.
    Wal-Mart Stores, Inc. v. Itz, 
    21 S.W.3d 456
    , 470-71 (Tex. App.—Austin 2000, pet. denied); Spiers
    v. Maples, 
    970 S.W.2d 166
    , 169 (Tex. App.—Fort Worth 1998, no pet.).
    The elements of a cause of action for fraud are that (1) a material representation was
    made; (2) the representation was false; (3) when the representation was made, the speaker knew it
    was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the
    speaker made the representation with the intent that the other party should act upon it; (5) the party
    7
    acted in reliance on the representation; and (6) the party thereby suffered injury. In re FirstMerit
    Bank, N.A., 
    52 S.W.3d 749
    , 758 (Tex. 2001). The elements of statutory fraud with respect to a
    corporate stock transaction are similar. See Tex. Bus. & Com. Code Ann. § 27.01(d) (West 2002).3
    3
    The statute defining fraud in real-estate or corporate-stock transactions provides as follows:
    (a) Fraud in a transaction involving real estate or stock in a corporation or joint
    stock company consists of a
    (1) false representation of a past or existing material fact, when the false
    representation is
    (A) made to a person for the purpose of inducing that person to enter
    into a contract; and
    (B) relied on by that person in entering into that contract; or
    (2) false promise to do an act, when the false promise is
    (A) material;
    (B) made with the intention of not fulfilling it;
    (C) made to a person for the purpose of inducing that person to enter
    into a contract; and
    (D) relied on by that person in entering into that contract.
    (b) A person who makes a false representation or false promise commits the
    fraud described in Subsection (a) of this section and is liable to the person
    defrauded for actual damages.
    (c) A person who makes a false representation or false promise with actual
    awareness of the falsity thereof commits the fraud described in Subsection
    (a) of this section and is liable to the person defrauded for exemplary
    damages. Actual awareness may be inferred where objective manifestations
    indicate that a person acted with actual awareness.
    8
    Because the only person Jansing alleges made representations to him is Rader,
    Jansing’s claim is that appellants are responsible for Rader’s statements. One seeking to charge a
    principal through the apparent authority of its agent must establish conduct by the principal that
    would lead a reasonably prudent person to believe that the agent has the authority that it purports to
    exercise. NationsBank, N.A. v. Dilling, 
    922 S.W.2d 950
    , 953 (Tex. 1996). The principal must have
    affirmatively held out the agent as possessing the authority or must have knowingly and voluntarily
    permitted the agent to act in an unauthorized manner. 
    Id. Contrary to
    appellants’ assertion, Jansing did not allege that appellants were merely
    aware of Rader’s misrepresentations. He alleged, “At all times, Glazener and Slagle knew that Rader
    was holding himself out as the owner of Bayside and they allowed Rader to conduct business for
    Bayside as if he were the only shareholder by cloaking him with full authorization or ratification of
    his actions.” Jansing thus alleged that appellants not only were aware of Rader’s misrepresentations
    but approved of them and made them their own.
    Jansing also alleged that stock was involved in the transaction sufficiently to bring
    his claims within the scope of the statutory fraud provisions. See Tex. Bus. & Com. Code Ann.
    (d) A person who (1) has actual awareness of the falsity of a representation or promise
    made by another person and (2) fails to disclose the falsity of the representation or
    promise to the person defrauded, and (3) benefits from the false representation or
    promise commits the fraud described in Subsection (a) of this section and is liable to
    the person defrauded for exemplary damages. Actual awareness may be inferred
    where objective manifestations indicate that a person acted with actual awareness.
    Tex. Bus. & Com. Code Ann. § 27.01 (West 2002).
    9
    § 27.01. He alleged that Rader represented that he wholly owned Bayside4 and that, in exchange for
    Jansing loaning $100,000, one-quarter of the ownership would be transferred to Jansing. Jansing
    alleged that Rader made these representations under authority from appellants and intending to
    induce Jansing to loan the money. Jansing loaned the money, but was not repaid. Jansing’s petition
    indicates that the ownership interest that was to be transferred to him was in the form of shares of
    stock. Although Jansing did not use the term “stock” in his petition, he alleged that “Glazener and
    Slagle were legally the only shareholders of the corporation of Bayside.” Section 27.01 does not
    define “stock,” but the terms “shares” and “stock” seem to be related or interchangeable. See Tex.
    Rev. Civ. Stat. Ann. art. 1302-1.02(A)(3), (6) (West 2003). Jansing thus alleged that appellants used
    fraud to induce him to participate in a transaction involving stock; it is thus within the statutory fraud
    provision. See Tex. Bus. & Com. Code Ann. § 27.01.
    Jansing’s allegations are also sufficient to support the fraud finding. While many of
    the statements he alleges Rader made regarding the function of Bayside’s business are not shown to
    be false, some crucial ones are. The most critical to Jansing appears to have been Rader’s assertion
    that he was the sole owner of the business; instead, appellants—a roofer and a dentist, not licensed
    security dealers—owned the day-trading company, and Rader had no ownership stake in the
    business. Jansing alleged that he did not know the representation about ownership was false, that
    4
    As discussed in footnote one, the allegations appellants admitted by defaulting do not make
    a distinction between “Bayside” and “Bayside Trading, Inc.”
    10
    he did rely on it when entering the loan transactions, and that he lost the loaned money because of
    that reliance. Jansing alleged that appellants knew of this representation, knew it was false, and
    nevertheless did not correct the misrepresentation.
    Damages
    Appellants contend that the damage awards cannot stand because the court failed to
    hold evidentiary hearings on either the actual or exemplary damages. They also complain that the
    statutory fraud provision does not apply.
    Appellants contend that the court erred by failing to hold evidentiary hearings in order
    to assess unliquidated actual damages. No default-judgment hearing is necessary if the claim is
    liquidated and proved by an instrument in writing. See Tex. R. Civ. P. 241. If the claim is
    unliquidated or not proved by a written instrument, the court must hold a hearing. See 
    id. 243. Jansing
    complains that the fraud induced him to provide the loans, which were not repaid. His actual
    damages are based on the notes; they are thus proved by a written instrument and are liquidated.
    Further, although a hearing is required on unliquidated damages, the supreme court has held that
    affidavits—even those containing unobjected-to hearsay—satisfy the requirement that the court hear
    evidence and can support an award of unliquidated damages in a default judgment. See id.; Texas
    Commerce Bank, Nat’l Ass’n v. New, 
    3 S.W.3d 515
    , 516-17 (Tex. 1999).
    Appellants argue that they cannot be held liable for actual damages under the fraud
    statute because it expressly provides only for exemplary damages against a person who knows of,
    fails to correct, and benefits from another’s misrepresentation. See Tex. Bus. & Com. Code Ann.
    11
    § 27.01(d). The statute, however, expressly states that a person who knows of the other’s
    misrepresentation commits the fraud described in subsection (a). See 
    id. § 27.01(a).
    The statute
    provides that a person who commits the fraud described in subsection (a) is liable for actual
    damages. See 
    id. § 27.01(b).
    Thus, a person who knows of another’s misrepresentation can be held
    liable for actual and exemplary damages under the statute.
    Jansing concedes that the exemplary damages were unliquidated. Affidavit testimony
    satisfies the requirement that the court hear evidence of unliquidated damages with regard to
    exemplary damages as well. See 
    New, 3 S.W.3d at 516-17
    . Where claims of legal or factual
    sufficiency concern damages in a default judgment, the appellant is entitled to review of the evidence
    produced. Transport Concepts, Inc. v. Reeves, 
    748 S.W.2d 302
    , 304 (Tex. App.—Dallas 1988, no
    writ) (citing Rogers v. Rogers, 
    561 S.W.2d 172
    , 173-74 (Tex. 1978)). To sustain an award of
    exemplary damages in a default judgment, appellees must both plead knowing conduct and present
    evidence that the extent of appellant’s knowledge warrants additional damages. See Sunrizon
    Homes, Inc. v. Fuller, 
    747 S.W.2d 530
    , 534 (Tex. App.—San Antonio 1988, writ denied) (punitive
    damages not admitted by default in DTPA case). In addition, an exemplary damages award must
    be reasonably proportioned to actual damages. Alamo Nat’l Bank v. Kraus, 
    616 S.W.2d 908
    , 910
    (Tex. 1981). The nature of Jansing’s claims required him to prove by clear and convincing evidence
    that the harm for which he seeks exemplary damages resulted from fraud or malice on the part of the
    defendants. See Tex. Civ. Prac. & Rem. Code Ann. § 41.003(a) (West 1997). The trial court must
    consider several factors to determine whether an award of exemplary damages is reasonable, such
    12
    as (1) the nature of the wrong, (2) the character of the conduct involved, (3) the degree of culpability
    of the wrongdoer, (4) the situation and sensibilities of the parties concerned, and (5) the extent to
    which such conduct offends a public sense of justice and propriety. 
    Kraus, 616 S.W.2d at 910
    . We
    may reverse an exemplary damage award only if the evidence supporting the award is so weak or so
    against the great weight and preponderance of the evidence as to be manifestly unjust. Lubbock
    County v. Strube, 
    953 S.W.2d 847
    , 860 (Tex. App.—Austin 1997, pet. denied).
    There is no additional evidence that is applicable to the exemplary damage award.
    The previously discussed evidence shows that the nature of the wrong is appellants’ knowing
    acceptance of benefits through complicity in Rader’s deceit. Jansing does not allege anything further
    than that appellants authorized or ratified Rader’s misrepresentations of the nature of their business
    and his procurement of loans based on those misrepresentations, thus benefitting their business.
    There is no showing that Jansing was anything other than a competent, if trusting, individual. The
    aggregate punitive damage award against appellants is $300,000—three times the principal amount
    of actual damages awarded. However, the $150,000 award against each appellant is less than twice
    the $100,000 in actual damages awarded against appellants jointly and severally. The amount is
    within the statutory limits. See Tex. Civ. Prac. & Rem. Code Ann. § 41.008(b), (c) (West Supp.
    2003).
    We cannot conclude that this evidence is so weak or against the great weight and
    preponderance of evidence as to be manifestly unjust.
    13
    CONCLUSION
    Having resolved all issues presented in favor of the judgment, we affirm.
    Mack Kidd, Justice
    Before Chief Justice Law, Justices Kidd and Patterson
    Affirmed
    Filed: September 25, 2003
    14