Osman Mustafa, D/B/A Sam's General Trading, Inc. and Shell Rabbit Lube and Shell Rapid Lube v. Karim Matrut ( 2010 )

Opinion issued April 15, 2010                                                                      

In The

Court of Appeals

For The

First District of Texas

NO. 01-08-00985-CV

Osman Mustafa, d/b/a Sam’s General Trading, Inc. and Shell Rabbit Lube and Shell Rapid Lube, Appellant

V.

Karim Matrut, Appellee

On Appeal from the 334th District Court

 Harris County, Texas

Trial Court Cause No. 2006-41985

MEMORANDUM OPINION

          A jury found that appellant, Osman Mustafa (“Mustafa”), committed fraud and awarded appellee, Karim Matrut (“Matrut”), $10,600 in actual damages.  Additionally, the jury found by clear and convincing evidence that the harm to Matrut was the result of Mustafa’s fraud and awarded Matrut $75,000 in exemplary damages.  On appeal, Mustafa argues that (1) the trial court erred in submitting the fraud liability question in broad form; (2) the trial court erred in awarding damages for fraud relating to failure to pay wages, which was not pled; (3) the evidence is legally and factually insufficient to support the finding of liability for the underlying fraud cause of action; (4) there was not clear and convincing evidence to prove fraud; and (5) there was not clear and convincing evidence to prove exemplary damages.  We suggest a remittitur of the exemplary damage award and otherwise affirm.

Background

Matrut testified that he first met Mustafa at an Arabic coffee shop.  The two would see each other frequently at the coffee shop and became friends, referring to one another as “brother.” They were friends for several years prior to working together.  In 2005, Mustafa hired Matrut to work as a manager in his body shop and perform various jobs such as selling cars and buying parts.  Under the employment agreement, Matrut testified that he was to be paid a monthly salary of $2,000 and a commission of $200 for every car he sold. Matrut worked for Mustafa for about a year-and-a-half and earned about $2,500 each month.  Matrut testified that, several times during his employment, Mustafa requested Matrut loan him money by allowing him to pay the salary and commission that Matrut had earned at a later date.  Matrut agreed to make the loan because he believed that Mustafa would keep his promise to repay the loan and he felt that he might lose his job if he refused. Matrut testified that he loaned Mustafa more than $10,600 that was never repaid.  Matrut brought suit to recover $10,600 because he had evidence of three checks from Mustafa totaling that amount that were never paid.  Matrut did not seek to recover for additional cash loans he made to Mustafa because he believed he did not have sufficient proof.

Matrut testified that on February 7, 2006, two checks (numbers 2131 and 2138) were issued to him by Mustafa to repay the loan.  Each check was written for $2,500.  Matrut also testified that at the time Mustafa gave him the two checks, Mustafa represented that he had sufficient funds to cover the checks.  Nevertheless both checks were returned for insufficient funds.  Matrut gave Mustafa the checks which had been stamped “returned/not paid.”  Matrut testified that Mustafa assured Matrut that he had enough money to repay the loan and that he should not worry.

Despite the returned checks, Matrut testified that he continued to work for Mustafa because he trusted him to repay the loan promised.  Mustafa left the country for a period of two months and asked Matrut to look after his family and business. Matrut testified that prior to Mustafa’s departure he again assured Matrut that he would repay the loan. Four months later Mustafa issued Matrut a check for $5,600.  Matrut testified that Mustafa assured him that there were sufficient funds in the account and the check would be paid.  Matrut took the check directly to the bank that day but was unable to cash the check because of insufficient funds.  Matrut testified that when he approached Mustafa about the unpaid $5,600 check, Mustafa told him he had many accounts and maybe it was a mistake.  Matrut also testified that Mustafa told him to wait a few days and then Matrut would be able to get the money.  A few days later, Matrut took this check back to the bank for payment.   Again, the bank refused to pay the check due to insufficient funds.

Matrut testified that although Mustafa said he would issue a check from another account, after three checks had been rejected, Matrut no longer trusted Mustafa to keep his promise to repay the loan.  Matrut quit his job and demanded that Mustafa repay the money because he needed it to take care of himself and pay rent on his apartment. Matrut testified that Mustafa told him to wait.  After waiting four months, Matrut still had not received payment for any of the checks. Matrut testified that he again approached Mustafa about repayment of the loan. Matrut testified that Mustafa again promised to give him the money but said he had problems with his business and the bank.  Subsequently, Matrut brought this suit for fraud to recover the $10,600 owed to him by Mustafa. 

When questioned on cross-examination about what proof he had of the $10,600 loan, Matrut pointed to the three unpaid checks.  Matrut asked rhetorically why Mustafa would write him checks if he was not owed anything.  Matrut admitted he did not have any pay stubs or records of employment to support his claim but explained he never insisted their agreements be reduced to writing because he trusted Mustafa as a brother.  Matrut testified that Mustafa never intended to go through with his promise to repay the money loaned, as evidenced by, among other things, the insufficient funds in Mustafa’s accounts when checks were issued to Matrut. Mustafa’s bank records, which were admitted at trial, showed that he did not have sufficient funds at the times the three checks were written. 

At trial, Mustafa offered several different and somewhat inconsistent explanations of whether he owed any money to Matrut and why.  First, he denied owing Matrut $5,000 for the first two checks of $2,500 each.  Mustafa admitted he signed the first two checks in February 2006 but testified that he signed blank checks so that Matrut could buy parts for the business, and he denied these checks were repayment of a loan.  Mustafa testified that he had several different accounts and would transfer money to cover checks, but at the time he signed the two checks in February, he was not sure if he had sufficient funds to cover the amounts.

Next, regarding the check for $5,600, Mustafa testified that he signed the check after his secretary wrote it out.  He further testified that he did not remember whether he had sufficient funds to cover the check on the date it was written.  Mustafa testified that he owned three businesses and had six different accounts and that he would normally transfer money from the various accounts to cover checks.

Mustafa testified that he fired Matrut on the same day this check was signed because Matrut’s English was not very good, he was shouting with a customer, and he smoked cigarettes.  Mustafa testified that the check was made out for $5,600 because that was the amount Matrut demanded that he be paid, and Mustafa testified that he “need[ed] to finish with him completely[.]”  He testified that although he gave Matrut the check so that Matrut would leave the business, he needed to check his accounts to make sure that was the amount Matrut was truly owed.  Specifically, Mustafa stated that he needed to account for “how much money he [Matrut] has took from me.”  Mustafa testified that after he reviewed his accounts, he asked Matrut to give him back the check for $5,600 and all other checks he had in his possession.  Mustafa testified that in exchange he planned to give Matrut $650 because that is what he determined Matrut was owed.  Mustafa testified that Matrut did not bring the checks. Mustafa testified that, by the time of trial, he had determined that he did not owe Matrut anything.  Despite Mustafa’s allegations that Matrut embezzled money from the company and claim that his records showed he actually owed Matrut nothing, Mustafa offered no witnesses or evidence at trial to substantiate these allegations. 

Mustafa also testified that the checks were never paid by the bank because it was not rightfully Matrut’s money.  Mustafa testified that usually when his account had no funds it is because he “t[ook] the money out for [a] reason because I know he [is] not supposed to receive this much money, and I don’t transfer.”  

Discussion

A.      Broad Form Submission

In his third issue, Mustafa argues that the trial court erred by submitting the fraud liability question in broad form because it allowed the jury to consider unpled theories of liability.

1.       Allegations in Matrut’s Petition

Matrut’s original petition simply alleged, “Defendant committed fraud against Plaintiff, which caused Plaintiff damages.”  Mustafa made a special exception and Matrut voluntarily filed Plaintiff’s First Amended Petition, alleging fraud with greater specificity. Plaintiff’s First Amended Petition alleged, in part:

Defendant, who employed Plaintiff, asked Plaintiff if he could borrow some money.  Plaintiff believed he needed to loan Defendant the money; otherwise, Plaintiff would loose [sic] his job.  Thereafter, based on Defendant’s promise that he would pay Plaintiff back, Plaintiff loaned $10,600 to Defendant.  On information and belief, Defendant did not intend to pay Plaintiff back at the time he made the representation that he would.  Despite notice and demand, Defendant has refused to pay Plaintiff the $10,600 he owes Plaintiff.  As a result of Defendant conduct, Plaintiff has been damaged.

Mustafa did not make a special exception to the amended pleading.

Mustafa argues that the trial court committed harmful error by submitting a broad-form question on liability for fraud in Question 1, which allowed the jury to consider both the pled theory (failure to repay a loan) and unpled theories (failure to pay wages and writing bad checks).[1]

2.       Evidence Presented at Trial

Mustafa argues that the following testimony by Matrut is evidence of an unpled theory of fraud based on Mustafa’s failure to pay wages:

[MUSTAFA’S COUNSEL]:    So you are saying this 10,600 represents wages that he owed you? Is that what you are trying to say, that you had done work for him and he didn’t pay you your full salary?

[MATRUT]:         Yes.

Mustafa also argues that Matrut’s testimony regarding the checks and the admission of the checks into evidence at trial is evidence of an unpled theory of fraud based on the writing of bad checks.  Thus, Mustafa argues that the trial court should have submitted separate questions of fraud regarding these alleged unpled theories and not submitted the question in broad form. We disagree. 

3.       Applicable Law

The Texas Supreme Court has held that a trial court commits harmful error requiring a new trial when, after proper objection from the appellant, it “submits a single broad-form liability question incorporating multiple theories of liability” and, as a result, “the appellate court cannot determine whether the jury based its verdict on an improperly submitted invalid theory.”  Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 388–89 (Tex. 2000); see Tex. R. App. P. 44.1(a)(2).  In Casteel, the trial court submitted a single broad-form question combining thirteen theories of liability, four of which were invalid because the plaintiff did not have the “consumer” status required for standing under the Deceptive Trade Practices Act (DTPA).  See generally 22 S.W.3d 378.  Because the broad-form question combined valid and invalid theories, the appellate court was unable to determine whether the jury based its finding of liability on a valid or invalid theory.  Id. at 389.  While the complained of theories in Casteel were invalid because of a lack of standing, the same rule applies to theories that are invalid due to defects in pleading.  Id. (citing Lancaster v. Fitch, 112 Tex. 293, 297–98, 246 S.W. 1015, 1016 (1923) (where trial court submitted single general negligence issue with instructions regarding three distinct theories of negligence liability, one of which was not properly pled)). 

A trial court is required to submit a charge on only the issues raised by the written pleadings and evidence.  Tex. R. Civ. P. 278.  “If there is a variance between the pleadings and the proof . . . upon proper request, the trial court should limit a broad issue to those acts or omissions which are included within the pleadings and supported by some evidence.”  Scott v. Atchison, Topeka & Santa Fe Ry. Co., 572 S.W.2d 273, 282 (Tex. 1978).   Assuming the appellant properly objects to the unpled theory, a trial court’s broad-form question commingling valid theories with unpled theories would be error.  See Casteel, 22 S.W.3d at 389.

4.       Analysis

Matrut’s evidence did not present any unpled theories of fraud for the jury to consider in Question 1.  The pleadings and the evidence presented at trial clearly establish that Matrut’s fraud theory of recovery is the failure to repay a loan. 

A review of the entire record on appeal reflects that Matrut’s evidence of Mustafa’s failure to pay his salary and writing bad checks was evidence to support his claim that Mustafa failed to perform his promise to pay on a loan and Matrut’s reliance on this promise to his detriment. This evidence did not present a separate unpled theory of fraud.  At trial, Matrut testified that, during his employment, Mustafa asked Matrut to loan him money by allowing him to pay the salary that Matrut had earned at a later date, and that he loaned Mustafa over $10,600.  Matrut testified that Mustafa promised to repay the loan at a later date.  Matrut testified that Mustafa never repaid him as promised. Matrut testified that, instead, Mustafa continued to give him checks on accounts with insufficient funds.

On appeal, Mustafa states that the testimony was “nearly indecipherable,” “perhaps due to language barriers.”  Mustafa argues that from Matrut’s trial testimony “it is completely unclear . . . whether Mustafa’s alleged indebtedness to Matrut stemmed from a loan that Mustafa did not repay to Matrut . . . or failure by Mustafa to pay wages owed to Matrut.”  Contrary to Mustafa’s arguments, Matrut’s testimony that the $10,600 claimed as fraud damages came from his unpaid salary from Mustafa does not constitute evidence of an unplead failure to pay wages theory of fraud.  It is undisputed that Matrut also testified that he agreed to allow Mustafa to keep the salary that Matrut had earned as a loan, in exchange for Mustafa’s promise to repay the amount.  The source of the loaned funds does not change the character of the claim. This dispute arises from Mustafa’s failure to keep his promise to pay on a loan and Matrut’s reliance on this promise to his detriment.

Likewise, we also conclude that Matrut’s evidence of Mustafa’s writing checks with insufficient funds is not evidence of an unpled theory of fraud, but rather evidence indicating Mustafa’s intent to defraud Matrut because he had no intention of repaying the loan.  The promise underlying his fraud claim was Mustafa’s promise to repay the loan and the unpaid checks were evidence of Mustafa’s intent not to perform as promised.

Finally, contrary to Mustafa’s arguments on appeal, the pretrial discovery in this case reflects that he was not “ambushed” by the presentation of the unpaid checks at trial as evidence of his intent not to pay the loans.  Instead, bank records were a central issue to the case. In fact, Mustafa produced bank records for several of his accounts during discovery.  Accordingly, we overrule Mustafa’s third issue.

B.      Unpled Basis for Damages

In his fourth issue, Mustafa argues that, since the “trial court erred in submitting jury question number one in broad form over [Mustafa’s] objection,” it also erred by not submitting a separate damage question for Matrut’s failure to pay wages theory of fraud.  As we held above, the trial court did not err in submitting a broad form question in this case because Matrut did not advance an unplead theory of fraud based on Mustafa’s failure to pay Matrut’s wages.  Instead, he pled and recovered upon a claim that Mustafa committed fraud by inducing Matrut to loan him money when he had no intention of repaying the money. Accordingly, we hold that the trial court was not required to submit a separate damage question on a theory of fraud based on the failure to pay wages.  Accordingly, we overrule Mustafa’s fourth issue.

C.      Sufficiency of the Evidence

In his first and second issues on appeal, Mustafa challenges the legal and factual sufficiency of the evidence to support the finding of fraud. Specifically, he contends that the evidence is legally and factually insufficient to show that, at the time he promised to repay Matrut, he did not intend to fulfill his promise.

1.       Elements of Fraud

The elements of fraud are: (1) a material misrepresentation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made the statement recklessly without any knowledge of the truth; (4) the speaker made the representation with the intent that the other party should act on it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury.  Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998).  In his first and second issue, Mustafa argues the evidence is legally and factually insufficient to prove that the third element of fraud listed above.

“A promise of future performance constitutes an actionable misrepresentation if the promise was made with no intention of performing at the time it was made.”  Id. at 48 (citing Schindler v. Austwell Farmers Coop., 841 S.W.2d 853, 854 (Tex. 1992)).  Intent to defraud is “not usually susceptible to direct proof.”   Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 305 (Tex. 2006).  Evidence of a party’s failure to perform a promise and the denial of making the promise are factors that may be considered as establishing fraudulent intent but, without more, such evidence is not legally sufficient to establish that the promise was made with no intention of performing at the time it was made.  Id.  

However, while breach of a promise alone is not evidence of fraudulent intent, such a breach combined with even “slight circumstantial evidence” of fraud is enough to establish fraudulent intent.  Id. at 305 n.18 (concluding that  evidence, including defendant’s spoliation of evidence, altering terms and forging signatures on contract in question, and misrepresentation in refusing to provide plaintiff with a refund, showed more than mere breach of contract and supported finding of fraudulent intent).  Acts subsequent to the making of a promise may be considered as factors in determining whether intent not to perform existed at the time the promise was made.   See id. at 305–06; see also Weinberger v. Longer, 222 S.W.3d 557, 562 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) (“While a party’s intent is determined at the time he made the representation, intent may be inferred from his subsequent acts after the representation was made”). 

Applying this guidance to the present case, we must determine whether sufficient evidence existed to prove more than mere breach of contract and support a finding of fraudulent intent.

2.       Standards of Review

When a party who does not have the burden of proof at trial challenges the legal sufficiency of the evidence, we consider all of the evidence in the light most favorable to the prevailing party, indulging every reasonable inference in that party’s favor and disregarding contrary evidence unless a reasonable fact-finder could not.  City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005); City of Houston v. Hildebrandt, 265 S.W.3d 22, 27 (Tex. App.—Houston [1st Dist.] 2008, pet. denied) (citing Assoc. Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 285–86 (Tex. 1998)).  “If there is any evidence of probative force to support the finding, i.e., more than a mere scintilla, we will overrule the issue.”  Hilderbrandt, 265 S.W.3d at 27 (citing Haggar Clothing Co. v. Hernandez, 164 S.W.3d 386, 388 (Tex. 2005)).

In reviewing a factual sufficiency complaint, we must first examine all of the evidence.  Lofton v. Texas Brine Corp., 720 S.W.2d 804, 805 (Tex. 1986).  Having considered and weighed all the evidence, we should set aside the verdict only if the evidence is so weak, or the finding is so against the great weight and preponderance of the evidence, that it is clearly wrong and unjust.  Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986).  We cannot merely substitute our opinion for that of the trier of fact and determine that we would reach a different conclusion.  Hollander v. Capon, 853 S.W.2d 723, 726 (Tex. App.—Houston [1st Dist.] 1993, writ denied).

“The jury is the exclusive judge of the facts proved, the credibility of the witnesses and the weight to be given to their testimony.”   Dyson v. Olin Corp., 692 S.W.2d 456, 458 (Tex. 1985) (quoting Benoit v. Wilson, 150 Tex. 273, 281, 239 S.W.2d 792, 796 (1951)). When the trier of fact is presented with conflicting evidence, it may believe one witness and disbelieve others. McGalliard v. Kuhlmann, 722 S.W.2d 694, 697 (Tex. 1986) (citing Ford v. Panhandle & Santa Fe Ry. Co., 151 Tex. 538, 542, 252 S.W.2d 561, 563 (1952)).  The trier of fact is permitted to resolve inconsistencies in the testimony of any witness.  Id. (citing Benoit, 150 Tex. at 281–82, 239 S.W.2d at 797–98 (1951)).  The jury, as the trier of fact, may also draw inferences from the facts and choose between conflicting inferences.   Ramo, Inc. v. English, 500 S.W.2d 461, 467 (Tex. 1973).  We cannot overturn the fact finder’s ruling unless only one inference can be drawn from the evidence.  Havner v. E-Z Mart Stores, Inc., 825 S.W.2d 456, 461 (Tex. 1992).  

3.       Analysis

 Mustafa argues that there is no evidence that he did not intend to perform any promise to pay Matrut at the time the promise was made. The crux of this argument is Mustafa’s continued assertion that Matrut’s theory of fraud is not the failure on a promise to repay a loan; as clearly set forth in Matrut’s pleadings but, rather, the “failure by Mustafa to pay wages owed to Matrut.”  He argues that “given there is no evidence as to when the wages were supposedly withheld from Matrut, there likewise is no evidence as to any promises made by Mustafa at the time the wages were withheld” and, therefore, “nothing from which any inference can be made that he did not intend to pay Matrut when he promised him whatever salary was agreed upon.”  Mustafa’s arguments misconstrue Matrut’s pleadings and are contrary to the evidence presented at trial.

As we have held, Matrut’s theory of fraud is Mustafa’s failure to keep his promise to pay on a loan and not, as argued by Mustafa, the “failure by Mustafa to pay wages owed to Matrut.”   In other words, Matrut is not asserting that Mustafa “did not intend to pay Matrut when he promised him whatever salary was agreed upon” but, rather, he is arguing that Mustafa did not intend to pay Matrut when he asked to keep money to which Matrut was entitled and promised to pay him back. 

Here, we hold that there is sufficient evidence, in addition to Mustafa’s failure to repay the loan, establishing that Mustafa did not intend to repay the loan at the time he made the promise to repay.  First, there is evidence that, despite promising to repay Matrut, Mustafa prevented Matrut from ever receiving this money.  There is evidence that Mustafa not only wrote the checks to Matrut knowing that there were insufficient funds in the account to pay the checks, but he also (1) took money out of the account for the express purpose of preventing Matrut from being able to cash the checks, and (2) avoided using his available line of credit to honor Matrut’s checks as he had done with other checks.

Mustafa’s bank records, which were admitted at trial, established that he did not have sufficient funds at the times the three checks were written. There is evidence that the existence of insufficient funds was not a mistake or oversight by Mustafa but the result of his efforts to keep Matrut from being repaid.

 At trial, Mustafa initially testified that he did not owe Matrut $10,600 because Matrut had already received the checks for that amount.  Mustafa testified, “He received account for 10,600.  Do you see that?  He come with the check.”  However, when Matrut’s counsel pointed out that the three checks were never paid, Mustafa changed his testimony, explaining the bank did not pay for a reason.  When asked for the reason, Mustafa explained that the bank did not pay the checks because it was not rightfully Matrut’s money. Mustafa testified that, when his account had insufficient funds, it was usually because he transferred funds out of the account so that Matrut could not receive payment on the checks.  Mustafa testified that he knew Matrut was “not supposed to receive this much money” so he “d[id]n’t transfer” sufficient funds into the account.

In addition, there is evidence that, to prevent Matrut from being repaid, Mustafa did not order a “forced pay check” to transfer money from his lines of credit into his checking account to pay on the checks to Matrut as he was able to do and he had done with respect to other checks written when there were insufficient funds in the account. There was also testimony that Mustafa had up to six other accounts with funds he could have transferred to the account he used to write the check to Matrut.

Next, there is evidence that despite making the promise to repay, Mustafa attempted to destroy all evidence of the loan.  Matrut testified that he gave the first two returned checks in the amount of $5,600 to Mustafa after making photocopies of them without Matrut’s knowledge. Matrut testified that, after Mustafa continually assured him that the all of the loan would be repaid, Mustafa called Matrut and “t[old] him [to] bring the check [for] the $5,600” and all the other checks he had in his possession.  In exchange for bringing the checks to the shop, Mustafa told Matrut, “I will give you your money.”  However Mustafa testified that he had determined that he owed Matrut only $650 and after receiving the checks he planned to only pay Matrut $650 and not $10,600 that Matrut testified that he was owed.  Matrut did not return the check to him.  At trial, the only original check presented into evidence was the check for $5,600 that Matrut refused to return to Mustafa.  Mustafa did not have the originals of the first two checks and only the photocopies offered by Matrut where available. Mustafa did not offer any testimony at trial as to the whereabouts of the original two checks he received back from Matrut.  See Chapa, 212 S.W.3d at 306 (noting testimony that car dealer “snatched” contract after obtaining signature and must have later destroyed it, and holding that spoliation of evidence provides some circumstantial evidence of fraud).

Finally, we find Mustafa’s inconsistent trial testimony as to the very existence of the loan to be some circumstantial evidence of this fraudulent intent.  At trial, Mustafa offered multiple, often conflicting, accounts of whether he owed money to Matrut and why.  Through most of the trial Mustafa denied owed Matrut any money at all.  However, Mustafa also testified that at some point he determined that he did in fact owe Matrut money.  He testified that, after reviewing his accounts, he determined that he only owed Matrut $650, not $10,600.  When cross examined on this testimony, in light of his testimony that he did not owe Matrut any money at all, Mustafa then testified that he believed that Matrut had stolen money from the company and he had to offset this from any monies that he owed Matrut.  Based on this “offset,” Mustafa testified that he had determined that he did not owe any money after all to Matrut by the time of trial.  However, Mustafa offered no documentation whatsoever to support this accusation of theft.

At another point during the trial, Mustafa contended that no money was owed because Matrut already received checks in the amount claimed owed.  When it was pointed out to him that these checks went unpaid, he then testified that he took money from these accounts because Matrut was not owed the amounts of money indicated on the checks.  He also testified, with regard to two of the three checks, that although it was his signatures on the checks, the checks were given to Matrut to buy auto parts for Mustafa’s business, not to repay monies he owed to Matrut.

We conclude that this evidence, coupled with evidence of Mustafa’s promise to repay the loan, continued assurances to Matrut that he would in fact pay the loan, and failure to honor this promise supports an inference that Mustafa had the requisite fraudulent intent at the time he promised to repay Matrut. See Chapa, 212 S.W.3d at 305–06; see also Weinberger, 222 S.W.3d at 562.  Accordingly, we hold that the evidence is legally sufficient to support the jury’s finding of fraud as presented in Question 1. 

In support of his factual sufficiency argument, Mustafa argues that the testimony in this case was “nearly indecipherable” and “non-responsive answers seemed to be the rule on both sides.”  While there were apparent language difficulties during the trial and there were apparent inconsistent answers given by both parties, the jury is permitted to assess the credibility of the witnesses and resolve the conflicting testimony.  Thus, inconsistencies in the testimony do not make the evidence supporting the jury’s finding of fraud factually insufficient.  See McGalliard, 722 S.W.2d at 697 (jury is permitted to resolve inconsistencies in witness’s testimony); see also Dillard Dep’t Stores, Inc. v. Silva, 148 S.W.3d 370, 372 (Tex. 2004) (“when testimony is contradictory, credibility is for the fact finder to decide”). 

After considering and weighing all the evidence, we cannot conclude that the evidence is so weak, or the finding is so against the great weight and preponderance of the evidence, that it is clearly wrong and unjust.  See Cain, 709 S.W.2d at 176.  We hold that the evidence in support of the fraud finding is factually sufficient.  We overrule Mustafa’s first and second issues.

D.      Sufficiency of Evidence under the Clear and Convincing Standard

In his fifth issue, Mustafa argues that there was not clear and convincing evidence to support the jury’s finding in Question 3 that Mustafa committed fraud. “Clear and convincing evidence” is defined as “the measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.”   Foley v. Parlier, 68 S.W.3d 870, 880 (Tex. App.—Fort Worth 2002, no pet.). The clear and convincing standard is an intermediate burden of proof, less than “beyond reasonable doubt” but greater than the usual standard in civil cases of “preponderance of the evidence.” Id.

The entirety of Mustafa’s argument in this regard is as follows: 

First without repeating the arguments made under Issues One and Two, supra, Appellant would point out that even if this Court were to determine that the evidence was legally and factually sufficient to prove the elements of fraud under a preponderance standard, the higher burden of proof clear and convincing evidence, has clearly not been met in this case, for the reasons stated under such arguments. 

Under issues one and two, Mustafa argues that there is no evidence that, at the time he made a promise to Matrut, he did not intend to perform the promise. He also argues that the evidence presented at trial was so “indecipherable,” due in part to language barriers, that there was no evidence from which the jury could find that Mustafa did not intend to perform the promise at the time it was made. As we held above, contrary to Mustafa’s arguments, there is legally and factually sufficient evidence to support each of the requisite elements of a fraud claim in this case and, despite the language difficulties of the parties, a jury could understand this evidence.  Reviewing the record as a whole, we also hold that this evidence is clear and convincing as to each element of Matrut’s fraud claim. See Foley, 68 S.W.3d at 880.  Accordingly, we overrule Mustafa’s fifth issue.

E.      Amount of Exemplary Damages Awarded

In his sixth issue, Mustafa argues that the jury’s award of exemplary damages in the amount of $75,000 “is not supported by factually sufficient evidence” and it violates his substantive due process right to protection from “grossly excessive” punitive damages.

1.       Kraus Factors

We review an award of exemplary damages with careful scrutiny to ensure it is supported by the evidence, and we may vacate the award or suggest a remittitur “only if the award is ‘so factually insufficient or so against the great weight and preponderance of the evidence as to be manifestly unjust.’” Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 30 (Tex. 1994) (citing Pope v. Moore, 711 S.W.2d 622, 624 (Tex. 1986)).  Exemplary damages must be reasonably proportioned to actual damages. Alamo Nat’l Bank v. Kraus, 616 S.W.2d 908, 910 (Tex. 1981).  There is no set rule or ratio between the amount of actual and exemplary damages which will be considered reasonable; this determination must depend upon the facts of each particular case.  Id.

The factors set forth in Kraus provide the framework for our review of whether an award of exemplary damages is excessive.  Id; see Moriel, 879 S.W.2d at 31 (when conducting factual sufficiency review of punitive damage award, court of appeals must detail relevant evidence and explain why evidence does or does not support award in light of Kraus factors).  The factors to be considered include:  “(1) the nature of the wrong, (2) the character of the conduct involved, (3) the degree of the 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. The Civil Practice and Remedies Code also adds that evidence, if any, relating to the defendant’s net worth can be considered as a factor.  Tex. Civ. Prac. & Rem. Code Ann. § 41.011 (Vernon 2008).  The jury charge on the exemplary damages question instructed the jury to consider these factors.

First, Mustafa argues that there was factually insufficient evidence to support the exemplary damages award under Kraus because the testimony was unclear.  Specifically, he argues:

The first three [Kraus] factors, “the nature of the wrong,” “the character of the conduct involved” and “the degree of culpability of Osman Mustafa,” are muddled in this case. It is unclear form the testimony exactly what specific “wrong,” “conduct,” or “culpability” was involved. Did Mustafa fail to pay back a loan or did he fail to pay wages? 

We disagree.  As we held above, the record establishes that this dispute arises from Mustafa’s failure to keep his promise to pay back a loan and Matrut’s continued reliance on this promise to his detriment.  Further, we have held that there is factually and legally sufficient evidence to establish each element of a fraud claim against Mustafa for this wrongful conduct.

Next, regarding the fourth and fifth Kraus factors, Mustafa argues that the award is excessive because:

As for the fourth Kraus factor, “the situation and sensibilities of the parties concerned,” there is no suggestion of Matrut's being in an uneven or vulnerable position vis-a-vis Mustafa. Did Mustafa's conduct (whatever his precise conduct was found to be) “offend a public sense of justice and propriety” Even if this Court determines that Mustafa did not repay a loan, or withheld wages, such does not offend a public sense of justice to the tune of $75,000.00.

We also disagree.  Contrary to Mustafa’s assertion, there is factually sufficient evidence in the record establishing that Matrut was in a vulnerable position and Mustafa, as his boss and purported friend, unfairly took advantage of him.  Because we give due deference to the jury’s resolutions of conflicts in testimony, we conclude that, although Matrut and Mustafa gave different accounts of their relationship, the testimony regarding this issue is not unclear.  See In re J.F.C., 96 S.W.3d 256, 266 (Tex. 2002).

The evidence establishes  a situation of disparate bargaining power, in which Mustafa used his superiority and special relationship as the employer, their shared cultural heritage and Matrut’s relatively recent arrival to this country to coerce Matrut into agreeing to a loan that Mustafa did not intend to repay.  In this case, Matrut testified that he loaned his employer and friend, Mustafa, $10,600 in exchange for his promise to repay the money.  Matrut testified that he loaned the money by agreeing to forgo his earned wages from Mustafa.  This was a large sum to Matrut because Matrut made around $24,000 a year in salary.  Mustafa was Matrut’s boss and Matrut testified that he believed that might lose his job if he did not agree to the loan.  Mustafa’s special relationship as Matrut’s employer gave him the upper hand, unique from the usual position of a debtor.

Matrut testified that Mustafa repeatedly assured Matrut to trust him to repay the loan and referred to him as “brother.”  Because of Matrut’s trust for Mustafa, Matrut testified that he never got Mustafa’s promise in writing.  Matrut testified that he did not expect Mustafa to pay him back with interest and also said he did not try to pursue criminal action against Mustafa because he was his friend. Matrut explained that in their culture, people could be trusted on their word.  Matrut testified that when Mustafa failed to pay him as promised, he demaned repayment, telling Mustafa that he needed the money to take care of himself and pay for his apartment.  However, instead of repaying the loan, there is evidence establishing that Mustafa continued to (1) issue bad checks to Matrut, (2) prevent  payment on these checks by money transfers out of the account, and (3) insist that Matrut trust Mustafa.  Matrut testified that because of Mustafa’s fraudulent conduct and coercion, Matrut quit his only job.

At trial, Mustafa did not show remorse regarding his conduct, as he insisted he owed Matrut nothing and offered different and sometimes inconsistent explanations to explain as to why he would have written three checks to Matrut. Despite the three unpaid checks totaling $10,600 that were written to Matrut and Mustafa’s testimony that at one time he had determined that he owed Matrut $650, Mustafa testified that after reviewing his account records he determined that he owed Matrut nothing. Mustafa testified that he based this determination in part on his belief that Matrut had embezzled money from his company.  However at trial Mustafa offered no evidence of this alleged theft.  Accordingly, we conclude that this evidence is factually sufficient to establish the fourth and fifth Kraus factors.

Finally, Mustafa argues that the evidence was factually insufficient to support the award because Matrut offered no evidence of Mustafa’s net worth.  We disagree.  The lack of evidence of defendant’s net worth does not affect the factual sufficiency of the jury’s assessment of punitive damages.  As Texas courts have held, nothing in Chapter 41 of the Texas Civil Practice and Remedies Code or Texas case law indicates that evidence of defendant’s net worth is necessary for the jury to award exemplary damages.  Durban v. Guajardo, 79 S.W.3d 198, 210–11 (Tex. App.—Dallas 2002, no pet.); see Tex. Civ. Prac. & Rem. Code Ann. § 41.011 (“trier of fact shall consider evidence, if any, relating to: . . . (6) the net worth of the defendant.”) (emphasis added).  “Instead, it is merely a relevant issue, as relevant to the defendant to prove his low net worth as to the plaintiff to prove the defendant's high net worth.”  Durban, 79 S.W.3d at 211. Accordingly we conclude that there is factually sufficient evidence under state law to support an award of exemplary damages in this case.

2.       Substantive Due Process

Even if an assessment of exemplary damages is not deemed excessive under governing state law, it may violate a party’s substantive due process right to protection from “grossly excessive” exemplary-damage awards.  Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 45 (Tex. 1998) (citing BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 568, 116 S. Ct. 1589, 1595 (1996)); see also U.S. Const. amend. XIV, § 1 (“[N]or shall any State deprive any person of life, liberty, or property, without due process of law”).  “Punitive damages may properly be imposed to further a State's legitimate interests in punishing unlawful conduct and deterring its repetition.”  Gore, 517 U.S. at 568, 116 S. Ct. at 1595.  “Only when an award can fairly be categorized as ‘grossly excessive’ in relation to these interests does it enter the zone of arbitrariness that violates the Due Process Clause of the Fourteenth Amendment.”  Id. 

The United States Supreme Court in Gore established three guideposts for determining whether the amount of an exemplary-damage award is unconstitutionally excessive:  (1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between actual and punitive damages; and (3) a comparison of the punitive damages awarded and other civil or criminal penalties that could be imposed for similar misconduct.  Chapa, 212 S.W.3d at 308 (citing Gore, 517 U.S. at 574–75, 116 S. Ct. at 1598). Whether a punitive damage award passes constitutional muster under this standard is a question of law that we review de novo.  Id. at 307.

Mustafa argues that under the second guidepost in Gore – the disparity between actual and punitive damages –“punitive damage awards of more than seven times the compensatory damages exceeds the line of constitutional impropriety” and, accordingly, we must reverse Matrut’s award of $75,000.  The United States Supreme Court’s holding in Campbell provides guidance in our analysis of this argument:

We decline again to impose a bright-line ratio which a punitive damages award cannot exceed. Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. In Haslip, in upholding a punitive damages award, we concluded that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety. 499 U.S., at 23-24, 111 S. Ct. 1032. We cited that 4-to-1 ratio again in Gore. 517 U.S., at 581, 116 S. Ct. 1589.

538 U.S. at 425, 123 S. Ct. at 1524.

Comparing the record regarding the defendants’ conduct in Campbell and Gore to the record of Mustafa’s conduct and applying the three guideposts in Gore, we conclude that the jury’s award of $75,000 in exemplary damages, while supported by some evidence, was grossly excessive.  See Signal Peak Enters. of Tex., Inc. v. Bettina Invs., Inc., 138 S.W.3d 915, 928 (Tex. App.—Dallas 2004, pet. struck). Considering that Matrut suffered only economic harm, an award of $75,000 is substantially greater than that amount which could reasonably be assessed to punish the defendant for his conduct.  See Fairfield v. Stephens, 246 S.W.3d 653, 666 (Tex. 2008) (recognizing that exemplary damage awards serve to punish the wrongdoer and set a public example). Although a precise figure of net worth was not presented at trial, Mustafa’s bank statements indicate probable financial hardship from a damage award of $75,000.  See, e.g., id. 

However, under the factors set forth in Kraus we also conclude that a rational jury could have found that the nature of the wrong, the character of the conduct, the degree of culpability, the situation and sensibilities of the parties, and the public’s sense of justice and propriety required Mustafa to pay some amount of exemplary damages in this case.  See Khorshid, Inc. v. Christian, 257 S.W.3d 748, 769 (Tex. App.—Dallas 2008, no pet.). Thus, we hold that the evidence is factually sufficient to support a lesser award of exemplary damages.  See Tex. R. App. P. 46.3. 

Pursuant to Rule 46.3 and the due process clause of the U.S. Constitution, we suggest a remittitur to $31,800 in exemplary damages, three times the amount of compensatory damages found by the jury.  See Tex. R. App. P. 46.3; Chapa, 212 S.W.3d at 308 (“four times the amount of compensatory damages might be close to the line of constitutional impropriety”). Accordingly, if Matrut files in this Court, within twenty-one days from the date of this opinion, a remittitur to $31,800 with respect to exemplary damages, the trial court’s judgment will be thus reformed and will be affirmed as modified.  See Tex. R. App. P. 46.3.  If the suggested remittitur is not timely filed, this cause will be reversed and remanded to the trial court for a new trial on all issues.  See id.; Tex. R. App. P. 44.1(b) (appellate court may not order a separate trial solely on unliquidated damages if liability is contested).  Accordingly we sustain Mustafa’s sixth issue.

Conclusion

          We suggest remittitur as to the award of exemplary damages, and otherwise affirm the trial court’s judgment as modified.  In the event a remittitur is not timely filed, we will reverse the judgment and remand the case for a new trial.

                                                          George C. Hanks, Jr.                                                                                           Justice

Panel consists of Justices Jennings, Hanks, and Bland.

Justice Jennings, concurring in judgment only.

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[1] Mustafa’s trial counsel initially objected to evidence coming in on unpled claims of failure to repay wages.  However, during the charge conference, Mustafa’s trial counsel and the court’s comments appear to be directed at the inclusion of the unpled theory of fraud for writing of bad checks.  During the charge conference, Mustafa’s attorney made his objection by asking the court to consider everything he said earlier and requesting that his proposed question be used that asked: “Did the Defendant Mustafa commit fraud against the Plaintiff Matrut by refusing to pay to Matrut the loan of 10,600?”  It is unclear which of the two unpled theories Mustafa is asserting on appeal because he quotes sections of the record discussing both the failure to pay wages and writing bad checks. Accordingly, we will address both of these issues.