Alpha Omega CHL, Inc. v. Brian P. Min and Min Law Firm, P.C. ( 2016 )

Reversed and Remanded and Opinion Filed June 16, 2016
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-15-00124-CV
ALPHA OMEGA CHL, INC., Appellant
V.
BRIAN P. MIN AND MIN LAW FIRM, P.C., Appellees
On Appeal from the 160th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-12-07799
MEMORANDUM OPINION
Before Justices Lang, Brown, and Whitehill
Opinion by Justice Whitehill
This appeal centers on a business buyer’s argument that the escrow agent who closed the
asset purchase owed it certain fiduciary duties in connection with closing the sale.
Appellant Alpha Omega CHL, Inc. sued appellees Brian P. Min and Min Law Firm, P.C.
for breach of fiduciary duty and other claims. Alpha’s liability theory involved in this appeal is
that appellees breached fiduciary duties they owed Alpha as its escrow agent by (i) disbursing
the funds without ensuring there were no outstanding tax obligations, (ii) disbursing the funds
before the conditions precedent were met, and (iii) misrepresenting that the closing statement
was assembled using the best information available and failing to notify Alpha that Min was not
a title company. After a bench trial, the trial court rendered a take-nothing judgment against
Alpha.
Alpha raises four issues on appeal. The first three issues challenge certain adverse
findings on the fiduciary breach elements. The fourth issue challenges the trial court’s refusal to
amend a fact finding that Alpha’s principal did not give credible testimony.
We conclude that the trial court erred by finding that Alpha failed to prove the existence
of a fiduciary relationship between Alpha and Min. We further conclude that this error was
harmful because the trial court’s findings regarding breach, causation, and damages were
probably influenced by the error. Accordingly, we reverse the trial court’s take nothing
judgment against Alpha and remand the case for further proceedings.
I. BACKGROUND
A. Factual Allegations.
Alpha’s live petition alleged the following:
On or about December 11, 2010, Alpha entered two agreements to buy a business in
Mansfield, Texas, from sellers Rodney, Paul, and Amanda Downs. The business was a
convenience store known as “The Beer Stop.” The two agreements were a Purchase Agreement
and a Management Agreement. The Purchase Agreement contained several conditions
precedent; including an agreement that Alpha would manage the store through the Management
Agreement until Alpha obtained licenses to sell alcohol, tobacco, and lottery products.
The Downses and Alpha met in appellees’ office “to start the paperwork for the proposed
transaction.” Because Min had previously represented Alpha and its principal, Duk Choi, Alpha
“felt that it was represented in this transaction by an attorney who had its interests in mind.”
Alpha put $250,000 into escrow with appellees, who assured Alpha that they would hold the
money until all conditions precedent were met. Appellees also had Alpha and the Downses
execute a postdated closing statement.
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Alpha later learned that (i) appellees had released the escrowed funds to the Downses
even though several conditions precedent had not been met; (ii) the Downses violated the
Management Agreement and tried to cancel their licenses with the Texas Alcoholic Beverage
Commission; and (iii) a notice of a tax lien against Rodney Downs in excess of $260,000 had
been filed in Palo Pinto County, Texas.
B. Procedural History.
Alpha sued appellees. When the case was tried to the bench, Alpha’s live pleading
asserted DTPA, fiduciary breach, negligent misrepresentation, and negligence claims.
After a two-day trial at which Min, Choi, and Choi’s lawyer were the only witnesses, the
trial court rendered a take-nothing judgment against Alpha.
The court signed findings of fact and conclusions of law. Most of the court’s findings
were statements that Alpha had not proven various facts and various elements of its claims by a
preponderance of the credible evidence. The court also found that Choi did not give credible
testimony.
Alpha requested amended findings of fact and conclusions of law, but the trial court did
not act on Alpha’s request.
Alpha timely appealed. Alpha’s appeal concerns only its fiduciary duty claim.
II. ANALYSIS
A. Did the trial court err by finding that Alpha had not proved the existence of a
fiduciary relationship between Alpha and Min?
Alpha’s first three issues attack the adverse determination of Alpha’s fiduciary duty claim
arising from appellees’ status as an escrow agent. As stated in the “issues presented” section of
Alpha’s brief, the first three issues argue that Min breached his duties by (i) not verifying the
sellers’ outstanding tax obligations, (ii) disbursing the escrowed funds before all conditions
precedent were satisfied, and (iii) not disclosing that he was acting only as an escrow agent and
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not as a title company, and falsely representing that the information contained in the closing
statement was assembled “from the best information available from other sources.”
But the argument section of Alpha’s brief is broader than its issues indicate, and Alpha’s
argument includes a contention that the trial court erred by finding that Alpha had not proved the
existence of a fiduciary relationship between it and Min. Alpha goes on to argue that the trial
court’s error in finding 11 caused other findings to be erroneous as well. Giving Alpha’s brief a
liberal construction, we address Alpha’s argument that finding 11 is erroneous. See Perry v.
Cohen, 272 S.W.3d 585, 587 (Tex. 2008) (per curiam) (appellate briefs must be construed
“reasonably, yet liberally, so that the right to appellate review is not lost by waiver”). We
conclude that this argument is dispositive.
1. Standard of Review.
We review the legal and factual sufficiency of the evidence to support a trial court’s
findings of fact under the same standards applicable to a jury’s verdict. See, e.g., Thompson &
Knight LLP v. Patriot Exploration, LLC, 444 S.W.3d 157, 162 (Tex. App.—Dallas 2014, no
pet.).
When a party challenges the legal sufficiency of the evidence supporting an adverse
finding on an issue on which the party had the burden of proof, it must show that the evidence
establishes as a matter of law all vital facts in support of the issue. Dow Chem. Co. v. Francis,
46 S.W.3d 237, 241 (Tex. 2001) (per curiam); PopCap Games, Inc. v. MumboJumbo, LLC, 350
S.W.3d 699, 710 (Tex. App.—Dallas 2011, pet. denied). In our review, we must credit evidence
favorable to the finding if reasonable jurors could and disregard contrary evidence unless
reasonable jurors could not. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005); PopCap
Games, 350 S.W.3d at 710. Undisputed contrary evidence may become conclusive when a party
admits it is true. City of Keller, 168 S.W.3d at 815.
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2. Application of the Law to the Facts.
“The elements of a breach-of-fiduciary-duty claim are: (1) a fiduciary relationship existed
between the plaintiff and defendant; (2) the defendant breached its fiduciary duty to the plaintiff;
and (3) the defendant’s breach resulted in injury to the plaintiff or benefit to the defendant.”
Anderton v. Cawley, 378 S.W.3d 38, 51 (Tex. App.—Dallas 2012, no pet.).
The trial court’s findings arguably rejected every element of Alpha’s fiduciary duty
claim:
7. Alpha Omega, Inc. did not prove by a preponderance of the credible
evidence that Defendants failed to act or failed to not act as a reasonably
prudent escrow officer would under the same or similar circumstances.
8. Alpha Omega, Inc. failed to prove that Defendants failed to comply with
their responsibilities as an escrow agent.
...
11. Alpha Omega, Inc. did not prove by a preponderance of the credible
evidence that a fiduciary relationship existed between it and the
Defendants.
...
15. Alpha Omega, Inc. failed to prove by a preponderance of the credible
evidence that Defendants disbursed funds without the authorization of
Alpha Omega, Inc.
16. Alpha Omega, Inc. failed to prove by a preponderance of the credible
evidence that Defendants failed to follow the instructions of Alpha
Omega, Inc. in disbursing funds.
...
22. Alpha Omega, Inc. failed to prove any damages it suffered as a proximate
cause of the actions of the Defendants or of the failure of the Defendants
to act.
Thus, in finding 11 the trial court declined to find that Alpha and appellees had a fiduciary
relationship, which negates the existence of a fiduciary duty. In findings 8, 15, and 16, it
declined to find that appellees had breached any escrow agent duties owed to Alpha. (The trial
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court may have also done so in finding 7.) And in finding 22, it declined to find that Alpha
suffered any damages that had been proximately caused by appellees’ acts or omissions.1
Alpha argues that the trial court erred in finding 11 because (i) escrow agents owe
fiduciary duties to their principals as a matter of law and (ii) Min admitted that appellees served
as the escrow agent in the transaction. We agree.
It is well-settled that “[a]n escrow agent owes fiduciary duties to both the buyers and the
sellers of the property, including the duty of loyalty, the duty to make full disclosure, and the
duty to exercise a high degree of care to conserve the money placed in escrow and pay it only to
those persons entitled to receive it.” Holder-McDonald v. Chi. Title Ins. Co., 188 S.W.3d 244,
248 (Tex. App.—Dallas 2006, pet. denied); accord Bell v. Safeco Title Ins. Co., 830 S.W.2d 157,
161 (Tex. App.—Dallas 1992, writ denied).
Thus, by finding that Alpha failed to prove it had a fiduciary relationship with appellees,
the trial court either found (erroneously) that appellees did not act as the escrow agent for the
transaction or concluded (erroneously) that escrow agents do not have a fiduciary relationship
with their principals. We conclude, however, that the evidence conclusively established that
appellees were the escrow agent for the transaction, and thus that appellees had a fiduciary
relationship with Alpha and owed Alpha fiduciary duties.
There was no evidence presented at trial that appellees were not the escrow agent for the
transaction. And appellee Min testified that he was the escrow agent for the transaction. Min
testified that he, “[a]s an escrow officer,” explained exhibit 2, the purchaser’s statement, to
Alpha’s representative. Later, Min testified that his law firm (the other appellee in this case) was
the “closing or escrow agent” referred to in the purchaser’s statement. Min also testified that he,
1
The damages element of a fiduciary breach claim can also be established by showing a benefit to the defendant. Anderton, 378 S.W.3d at
51. But Alpha did not plead that appellees had benefited from any fiduciary breach, nor does it argue such a theory on appeal.
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“as the escrow agent,” checked the county records for liens and performed a UCC search for the
equipment. When Alpha’s counsel asked Min if he was acting as an attorney explaining Alpha’s
rights as the purchaser, Min answered, “More of an escrow officer. Escrow officer.” Min
answered, “Yes,” when he was asked, “So Min Law, PC, and Brian Min was [sic] only acting as
an escrow agent when this Plaintiff [Alpha] engaged their services.” Finally, during a colloquy
between the trial court and counsel after the close of evidence, the trial court asked appellees’
counsel, “So your theory is that your client operated only as a[n] escrow agent closing the deal?”
Appellees’ counsel answered, “Yes.”
Given appellees’ trial admissions that they acted as escrow agent in the transaction, and
the absence of any contrary evidence, we conclude that Alpha proved as a matter of law that
appellees had a fiduciary relationship with Alpha and owed Alpha the fiduciary duties owed by
an escrow agent. The trial court’s finding 11, that Alpha failed to prove that Alpha was in a
fiduciary relationship with appellees, is supported by legally insufficient evidence and is
erroneous.
Appellees argue that the parties to the transaction contractually limited the scope of
appellees’ duties as escrow agent. Specifically, they argue that the seller’s statement and the
purchaser’s statement executed by the parties limited appellees’ duties to essentially nothing
more than the duty to disburse the funds as approved by Alpha when it signed the purchaser’s
statement.
We disagree with appellees. Even assuming an escrow agent’s fiduciary duties can be
limited by agreement, we see nothing in the purchaser’s statement (Alpha did not sign the
seller’s statement) that purports to limit appellees’ duties as escrow agent. Appellees rely on the
following provisions in the purchaser’s statement:
Purchaser understand the Closing or Escrow Agent has assembled this
information representing the transaction from the best information available from
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other sources and cannot guarantee the accuracy thereof. The lender involved
may be furnished a copy of this document.
Purchaser understands that tax and insurance prorations and reserves were based
on figures for the preceding year or supplied by others or estimates for the current
year, and in the event of any change for current year, all necessary arrangements
must be made between Purchaser and Seller direct.
But nothing in these provisions contradicts an escrow agent’s common law fiduciary duties. For
example, these provisions neither mention nor purport to limit the escrow agent’s duty to
exercise a high degree of care to conserve the money placed in escrow and pay it only to the
persons entitled to receive it. We conclude thus the purchaser’s statement did not limit
appellees’ duties. Accordingly, we reject appellees’ contention that they did not owe Alpha the
common law fiduciary duties owed by an escrow agent.
B. Was the trial court’s erroneous finding that Alpha did not prove the existence of a
fiduciary relationship between it and appellees harmful error?
An error is harmful and therefore reversible if the error (i) probably caused the rendition
of an improper judgment, or (ii) probably prevented the appellant from properly presenting the
case to the court of appeals. TEX. R. APP. P. 44.1(a)(1)–(2). For the reasons that follow, we
conclude that the trial court’s erroneous finding 11 was harmful error regarding Alpha’s breach
of fiduciary duty claim.
It follows from finding 11 that the trial court evaluated the issues of breach, causation,
and damages under the erroneous assumption that appellees did not owe any fiduciary duties to
Alpha. But appellees did owe Alpha fiduciary duties—the duty of loyalty, the duty to make full
disclosure, and the duty to exercise a high degree of care to conserve the money placed in escrow
and pay it only to the persons entitled to receive it. Holder-McDonald, 188 S.W.3d at 248.
Thus, finding 7, concerning whether appellees acted as a “reasonably prudent escrow officer,”
was not an application of the proper legal standard to the question of fiduciary breach (although
it was a proper finding in light of Alpha’s alternative claim for negligence). And finding 8, that
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Alpha failed to prove that appellees breached their responsibilities as an escrow agent, was
probably erroneous because the trial court, acting under finding 11, did not apply the proper
fiduciary standards of conduct applicable to escrow agents. Had the trial court applied the proper
fiduciary standards of conduct to the trial evidence, it could have reached the conclusion that
appellees breached those heightened duties. In particular, the trial court could have concluded
that appellees’ failure to call the Texas Comptroller to see if any unpaid taxes were outstanding
was a breach of the duty to exercise a high degree of care to conserve the money placed in
escrow.
The trial court’s error in finding 11 was also harmful regarding the trial court’s finding
22, that Alpha failed to prove that its damages proximately resulted from appellees’ actions or
failures to act. For example, it is undisputed that appellees caused $250,000 of Alpha’s money
to be disbursed from escrow without first calling the Texas Comptroller to see if any unpaid
taxes were outstanding. There was also evidence that Alpha became liable for those unpaid
taxes. Had the trial court applied the proper legal standards to appellees’ conduct, particularly
the duty to exercise a high degree of care to conserve the money placed in escrow, it could have
reached the opposite finding on causation and damages.
Because the trial court erroneously found that Alpha did not have a fiduciary relationship
with appellees, it did not evaluate the remaining elements of fiduciary breach under the proper
legal standards. And there was some evidence of the remaining elements of fiduciary breach,
such that the trial court could have reached the opposite result had it not erred in finding 11.
That is sufficient to establish harmful error. Cf. Olympic Arms, Inc. v. Green, 176 S.W.3d 567,
576 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (erroneous refusal to submit comparative
negligence of settling persons was harmful because there was some evidence that settling
persons were partially responsible for claimant’s injuries, so jury could have shifted some of
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defendant’s responsibility to the settling persons); Jochec v. Clayburne, 863 S.W.2d 516, 521–22
(Tex. App.—Austin 1993, writ denied) (error in jury charge definition of trustee’s duties was
harmful because it probably caused improper judgment, at least as to exemplary damages).
III. CONCLUSION
Our conclusion that the trial court committed harmful error in finding 11 entitles Alpha to
reversal of the judgment and remand. None of Alpha’s other issues would entitle it to greater
relief. Accordingly, we do not address those issues. See TEX. R. APP. P. 47.1 (appellate opinion
must address every issue raised and necessary to final disposition of the appeal).
We reverse the trial court’s judgment and remand for further proceedings consistent with
this opinion.
/Bill Whitehill/
BILL WHITEHILL
JUSTICE
150124F.P05
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S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
ALPHA OMEGA CHL, INC., Appellant On Appeal from the 160th Judicial District
Court, Dallas County, Texas
No. 05-15-00124-CV V. Trial Court Cause No. DC-12-07799.
Opinion delivered by Justice Whitehill.
BRIAN P. MIN AND MIN LAW FIRM, Justices Lang and Brown participating.
P.C., Appellees
In accordance with this Court’s opinion of this date, the judgment of the trial court is
REVERSED and this cause is REMANDED to the trial court for further proceedings consistent
with the opinion.
It is ORDERED that appellant Alpha Omega CHL, Inc. recover its costs of this appeal
from appellees Brian P. Min and Min Law Firm, P.C.
Judgment entered June 16, 2016.
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