Kamal Alavi v. MCI Worldcom Network Services, Inc. and Bryan L. Engle ( 2007 )

In The

Court of Appeals

Ninth District of Texas at Beaumont

______________________ NO. 09-05-364 CV ______________________ KAMAL ALAVI, Appellant

V.

MCI WORLDCOM NETWORK SERVICES, INC. AND BRYAN L. ENGLE, Appellees

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On Appeal from the 221st District Court Montgomery County, Texas Trial Cause No. 05-03124 CV

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  MEMORANDUM OPINION

Kamal Alavi appeals a take-nothing judgment on a breach of fiduciary duty claim against Bryan Engle and a claim for conspiracy to breach fiduciary duty against MCI WorldCom Network Services, Inc. ⁽¹⁾ In two issues, he asserts jury charge error requires a new trial as to these two claims. We find no reversible error. The trial court's judgment is affirmed.

Kamal Alavi was the founder, a shareholder, a director, and the Chief Executive Officer of Twister Communications Network, Inc., a telecommunications corporation that sold pre-paid telephone cards in convenience stores. WorldCom provided wholesale telephone services to Twister, and Twister resold those services to its customers. Twister accumulated millions of dollars of debt to WorldCom. To resolve the debt, Twister issued to WorldCom a promissory note, secured by Twister's assets. Alavi pledged his voting stock in Twister to WorldCom and agreed to guarantee and act as surety for Twister's financial obligations to WorldCom. Twister and WorldCom entered into a "Workout Agreement," ⁽²⁾ which detailed several additional agreements that were executed in connection with the parties' efforts to resolve the debt.

During this "work out" period, Twister's shareholders executed a voting trust agreement and designated Bryan Engle as the voting trustee of Twister's voting stock. Engle was the president of Asset Recovery Services, Inc., a consultant WorldCom hired to evaluate Twister's financial condition. ⁽³⁾

Ultimately, Twister defaulted on the workout agreement, and WorldCom filed a breach of contract suit against Twister to collect the unpaid invoices. Twister counterclaimed against WorldCom, asserting fraud and conspiracy predicated upon WorldCom's conduct in its attempt to work out Twister's debt. WorldCom's and Twister's claims against each other were resolved, and Twister was dismissed before trial.

Kamal Alavi, individually, and the Alavi Interests, Twister's shareholders, intervened in the case and asserted, among other claims, a claim of conspiracy to breach fiduciary duty against WorldCom and Engle, and a claim of breach of fiduciary duty against Engle. The claims were based on Engle's conduct while he acted as voting trustee, and his business dealings and relationship with WorldCom. Alavi and the Alavi Interests sought monetary damages based on the alleged decline in the value of Twister's stock. The court realigned the parties, and made Alavi and the Alavi Interests the plaintiffs and WorldCom and Engle the defendants.

Question eight of the jury charge asked if Engle and Alavi had a relationship of confidence and trust. Question nine of the charge asked if Engle breached his fiduciary duty to Alavi. The breach of fiduciary duty question was conditioned on the jury finding that Engle and Alavi had a relationship of confidence and trust. Because the jury found that Engle and Alavi did not have a relationship of confidence and trust, the jury did not answer question nine. The jury found against Alavi on all counts, including on his claim that WorldCom conspired with Engle to breach a fiduciary duty. The trial court signed a take-nothing judgment. ⁽⁴⁾

   The two issues Kamal Alavi presents in his brief on appeal are stated as follows:

1. Did the trial court improperly condition the submission of Alavi's fiduciary-duty-breach question against Engle?

2. Did the trial court's improper conditioning of the fiduciary-duty-breach question mislead the jury on Alavi's conspiracy-to-breach-fiduciary-duty claims against WorldCom?

WorldCom and Engle argue Alavi waived any complaint that the trial court erred in conditioning the question, because Alavi only objected at trial that the question improperly placed the burden of proof on Alavi. Alavi contends that he objected to the conditioning of the breach of fiduciary duty question by arguing to the court that a fiduciary duty existed as a matter of law. Alavi argues Engle was Alavi's trustee under the voting trust agreement as a matter of law. Alavi contends he presented evidence that Engle breached his duty. Alavi further argues that because he tendered a proposed breach of fiduciary duty question that was not conditioned on the jury's finding of a confidential relationship, the trial court was made aware of his complaint.

To preserve a complaint of error in the jury charge, a party must make the trial court aware of its complaint, timely and plainly, and must obtain a ruling. See State Dept. of Highways & Pub. Transp. v. Payne, 838 S.W.2d 235, 241 (Tex. 1992); Tex. R. Civ. P. 274; Tex. R. App. P. 33.1(a)(1). Although Alavi complained that question nine misplaced the burden of proof, Alavi objected to question eight on the grounds that the court should find that a fiduciary duty existed as a matter of law. ⁽⁵⁾ The trial court denied the submission of Alavi's requested jury question, which did not condition a finding of breach of fiduciary duty on the finding of a relationship of confidence and trust.

Alavi's objection to question number eight at the charge conference and his submission of a proposed unconditioned breach of duty question made the trial court aware of his complaint that the breach of duty question should not have been conditioned on the jury's finding of a relationship of confidence and trust. We conclude Alavi preserved for appellate review the complaint concerning the conditioning of the breach question.

WorldCom and Engle argue that even if the complaint was preserved for review, the error was harmless. Appellees argue Alavi presented no evidence of the damages caused by a breach of fiduciary duty, and therefore the trial court's judgment was proper regardless of the asserted charge error.

Alavi argues appellees are mistaken about the elements of a breach of fiduciary duty cause of action. He contends a plaintiff does not have to prove damages were caused to recover on a breach of fiduciary duty claim. He argues a plaintiff must prove only that the fiduciary benefited from the breach. Engle testified WorldCom paid him to represent its interests. Alavi asserts entitlement to disgorgement of Engle's fees. Alavi concedes, however, that he did not plead for disgorgement of Engle's fees in the trial court. Alavi claims he is entitled to disgorgement of any benefit that Engle gained as a result of his breach of fiduciary duty because Alavi's pleadings included a general prayer. He contends a plaintiff need not specifically pray for a certain type of relief in his pleadings to be entitled to it.

The Supreme Court has held that in a breach of fiduciary duty claim brought against an attorney, the client need not prove actual damages to obtain forfeiture of an attorney's fee. Burrow v. Arce, 997 S.W.2d 229, 240 (Tex. 1999). The Fourteenth Court of Appeals has held that the Arce ruling "applies to any breach of fiduciary duty case where the plaintiff pleads the equitable remedy of fee forfeiture." Lee v. Lee, 47 S.W.3d 767, 780 (Tex. App.--Houston [14th Dist.] 2001, pet. denied). A party must plead forfeiture to be entitled to that equitable remedy. See id. at 780-81 (explaining that Arce's holding does not apply when a party fails to plead for forfeiture); see also Longaker v. Evans, 32 S.W.3d 725, 733 n.2 (Tex. App.--San Antonio 2000, pet. withdrawn) (noting that Arce was inapplicable because plaintiff did not seek fee forfeiture, but rather sought actual damages resulting from the fiduciary's misconduct).

Even if we were to consider specific relief not sought in Alavi's pleadings, a complaint must be presented to the trial court to be preserved for appellate review. See Tex. R. App. P. 33.1(a)(1). Alavi's brief does not include any record cite that shows he brought a fee forfeiture or benefit disgorgement remedy to the attention of the trial court. See Tex. R. App. P. 38.1(h); Tex. R. App. P. 33.1(a)(1). Alavi sought damages as his remedy. Therefore, he was required to prove a compensable injury resulted from the breach. See Home Loan Corp. v. Tex. Am. Title Co., 191 S.W.3d 728, 735 n.22 (Tex. App.--Houston [14th Dist.] 2006, pet. filed) (noting that because plaintiff's claim for breach of fiduciary duty sought only actual and punitive damages and not fee forfeiture, the lack of causation in the case was dispositive).

Alavi claimed Engle breached his duty by not informing Alavi of WorldCom's alleged plans to sell Twister if Twister could not be "rehabilitated." Engle breached his duty of loyalty, Alavi argues, because Engle said that as a voting trustee his first duty was to Twister's creditors. Alavi also relies on Engle's testimony that while Engle acted as voting trustee, he wore "two hats" in that he was a trustee to Twister and a consultant to WorldCom.

Alavi acknowledged that Engle never exercised his voting rights with regard to the shares. As voting trustee, Engle had the sole discretion to vote, to refrain from voting, or to give or withhold consent with regard to Twister's shares for the election of the board of directors. A corporation acts through its board of directors. Rivas v. Cantu, 37 S.W.3d 101, 114 (Tex. App.--Corpus Christi 2000, pet. denied). Twister's board of directors, including Alavi, had the power to manage Twister.   Alavi has not identified how Engle's actions in refraining from voting the shares resulted in a decrease in value of Twister's stock or other injury to Alavi personally.

Furthermore, a corporate shareholder has no individual cause of action for personal damages caused solely by a wrong done to the corporation. Wingate v. Hajdik, 795 S.W.2d 717, 719 (Tex. 1990). To recover individually, a shareholder "must prove a personal cause of action and personal injury." Id. This case, brought by Alavi individually, is an action to recover for the depreciation in stock value. At trial, Alavi sought the fair market value of his Twister stock when he transferred his voting stock to Engle. Generally, an individual shareholder has no separate and independent right of action for wrongs to the corporation that merely result in the depreciation in the value of his stock. Id. To recover for wrongs done to the corporation, suit is generally brought in the name of the corporation so that each shareholder will be made whole if the corporation obtains compensation from the wrongdoer. Faour v. Faour, 789 S.W.2d 620, 622 (Tex. App.--Texarkana 1990, writ denied). Alavi did not assert a derivative cause of action on behalf of Twister, and Twister's claims were resolved before trial.

A court of appeals may not reverse a trial court's judgment on the ground that a trial court made an error of law unless the error probably caused the rendition of an improper judgment or probably prevented the appellant from presenting the case to the court of appeals. See Tex. R. App. P. 44.1(a). Alavi failed to prove a separate, individually compensable injury resulted from the alleged misconduct. Alavi contends that conditioning the breach of duty question also misled the jury into concluding that WorldCom could not conspire with Engle unless there was a confidential relationship. In the absence of evidence Engle's conduct resulted in a compensable injury to Alavi, conditioning the breach of duty question was not reversible error because the remedy sought here was damages. Under the circumstances, the same take-nothing judgment denying the damage claims would have been proper if the jury question had been submitted as Alavi requested.

We find no reversible error in the jury charge submission in this case. Appellant's two issues are overruled. The judgment of the trial court is affirmed.

AFFIRMED.

___________________________

DAVID GAULTNEY

Justice

Submitted on November 16, 2006

Opinion Delivered February 1, 2007

Before McKeithen, C.J., Gaultney and Horton, J.J.

1. Alavi does not present any arguments regarding the trial court's ruling on his causes of action for fraud, statutory fraud, economic duress, conversion, joint enterprise, conspiracy to defraud, conspiracy to commit economic duress, or conspiracy to commit conversion.

2. Twister's newly elected CEO, David Michael Smith, signed the agreement on Twister's behalf.

3. The jury found, and Alavi concedes, that when Alavi signed the voting trust agreement, he had full knowledge of the relationship between WorldCom and Engle.

4. All members of the Alavi Interests, except Kamal Alavi, have dismissed their appeal. See Alavi v. MCI WorldCom Network Servs., Inc., Cause No. 09-05-364-CV, 2006 WL 2436613 (Tex. App.--Beaumont August 24, 2006, no pet.).

5. Question number eight states, "Did a relationship of trust and confidence exist between Bryan L. Engle, on the one hand, and Kamal Alavi and/or the Alavi Interests, on the other hand?" Jury question number nine provides, "If you answered 'yes' to Question 8 as to Kamal Alavi, then answer the following question. Otherwise, do not answer the following question. . . . Did Bryan L. Engle fail to comply with his fiduciary duty to Kamal Alavi?"