JSC Neftegas-Impex v. Transcontinental Products and Services, Inc. and Citibank, N.A. ( 2011 )

Opinion issued February 10, 2011

In The

Court of Appeals

For The

First District of Texas

____________

NO. 01-07-00397-CV

____________

JSC NEFTEGAS-IMPEX, Appellant

V.

CITIBANK, N.A., Appellee

* * *

CITIBANK, N.A., Appellant

V.

JSC NEFTEGAS-IMPEX, Appellee

On Appeal from the 152nd District Court

Harris County, Texas

Trial Court Cause No. 1998-37793

OPINION DISSENTING ON REHEARING

          I join the panel’s opinion except for those portions affirming the judgment notwithstanding the verdict (“JNOV”) on JSCNI’s (1) request for exemplary damages and (2) claims based on the unfair structure of Phase III, specifically, those for conspiracy and knowing participation in breach of fiduciary duty.  To the extent that the Court’s judgment is based upon these portions of the opinion, I respectfully dissent.

A.      Exemplary Damages

          The majority opinion thoroughly discusses the evidence supporting the jury’s finding of fraud under the theory that Citibank misrepresented the $550,000’s use as a security deposit—evidence showing, for example, Kermath’s representations to JSCNI that the funds would be held as any other security deposit, his communications to others before and after those representations instructing that the funds be used differently, and his advice that TPS use the funds to benefit Citibank and its important client.  I agree with our holding that the cited evidence was some evidence to support this theory of fraud under a preponderance-of-the-evidence burden.

          But unlike the majority, I would further hold that this same evidence was also sufficient for a reasonable trier of fact to have formed a firm belief or conviction that fraud had occurred—including that Kermath intended at the time of his representations that at least some of the $550,000 would not be used as he said. 

          The jury could simply have disbelieved Kermath’s and the TPS representatives’ stated belief, which was contradicted by other credible evidence or the Phase III contracts themselves, that their actions comported with the Phase III contracts.  For the same reasons, the jury could also have discredited Kermath’s testimony that he never advised TPS how to use the funds or discussed the security-deposit schedules at the August 15 closing.[1]  The jury’s ability to believe or to disbelieve any witness does not evaporate just because the burden of proof is heightened.  See In re J.F.C., 96 S.W.3d 256, 264 (Tex. 2002) (noting that, even under heightened standard of review, “[A] court should disregard all evidence that a reasonable fact‑finder could have disbelieved or found to have been incredible.”).

          Neither does the jury’s ability to draw reasonable inferences from the evidence evaporate.  See City of Keller v. Wilson, 168 S.W.3d 802, 821 (Tex. 2005) (“Even if the evidence is undisputed, it is the province of the jury to draw from it whatever inferences they wish, so long as more than one is possible and the jury must not simply guess.”); In re T.N., 180 S.W.3d 376, 382 (Tex. App.—Amarillo 2005, no pet.) (concerning appellate review of judgment rendered on clear‑and-convincing proof, providing, “The reviewing court must recall that the trier of fact has the authority to weigh the evidence, draw reasonable inferences therefrom, and choose between conflicting inferences.”).  The evidence here—whether disputed or not—allows for several reasonable inferences concerning Kermath’s intent, e.g., (1) intent to defraud extant at the time of his representations, (2) intent to defraud arising later, and (3) mistake and no intent to defraud at any time.  The inference that the jury drew here was one of those, and the evidence underlying it, albeit circumstantial, was sufficient for a reasonable trier of fact to have formed a firm belief or conviction of Kermath’s fraudulent intent.  See Hubicki v. Festina, 156 S.W.3d 897, 904 (Tex. App.—Dallas 2005) (under heightened standard of review, holding that sufficient evidence supported fraud finding underlying exemplary damages award when finding was based on circumstantial evidence that defendant intended not to perform at time of representation: testimony was that plaintiff believed that defendant never intended to fulfill promise based on long-standing relationship between parties, plaintiff’s knowledge of defendant’s business practices, and statements made by defendant when refusing to fulfill promise), rev’d on other grounds, 226 S.W.3d 405 (Tex. 2007).  As the Hubicki court noted in holding that the circumstantial evidence in that case met the clear-and-convincing burden, fraudulent intent is virtually always proved by circumstantial evidence because it simply is not susceptible to direct proof.  Id.; see Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986) (“Since intent to defraud is not susceptible to direct proof, it invariably must be proven by circumstantial evidence.”).  If the circumstantial evidence in Hubicki sufficed, then I fail to see why the evidence produced here does not.

          For these reasons, I would hold that that the same evidence supporting the fraud‑liability finding was also sufficient for the jury to form a firm belief or conviction that fraud had occurred.  I would thus further hold that the trial court erred in granting Citibank’s JNOV motion on the jury’s exemplary damages finding.  To the extent that the majority’s judgment does not do so, I respectfully dissent.

B.      Civil Conspiracy and Knowing Participation in Breach of Fiduciary Duty Based on Unfairness of Phase III’s Structure

          I further dissent from the majority’s judgment to the extent that it affirms the JNOV rendered on JSCNI’s claims that were predicated upon the unfairness of Phase III’s structure to JSCNI: civil conspiracy and knowing participation in breach of fiduciary duty.

          What the evidence viewed in the light most favorable to JSCNI showed is that Citibank and TPS were taking almost no risk—except the “risk” of not making hundreds of thousands of dollars in fees if the deal failed to close—in financing the Project.  Citibank’s own words are the best evidence of its intent: in its internal documents, Citibank admitted that TPS and Citibank negotiated the unusual term that JSCNI would “prepay[] a large part of the equipment purchase” (i.e., the full‑cash‑collateral requirement) exactly because they sought “to reduce TPS/Santos family risk in the transaction.”

          This is important for three reasons.  First, Manuel Santos was a co-owner of TPS, and the Santos family members were important Citibank clients apart from this transaction.  Second, Citibank knew that TPS was JSCNI’s agent for the Project and for obtaining funding, that is, Citibank should have known that TPS had a fiduciary duty to JSCNI.  Third, even as they negotiated this risk-minimizing structure for themselves, TPS and Citibank knew that JSCNI and its affiliate guarantors would be the ones putting up all initial collateral for the Project, since TPS had a negative net worth at the time.

          All that JSCNI had to produce in support of its claims was some evidence that would allow reasonable and fair-minded people to reach the verdict that these jurors did.  See City of Keller, 168 S.W.3d at 827.  This is not a high burden, and I believe the above evidence met it.  First and foremost, it is some evidence that Citibank and TPS had a meeting of the minds to establish a structure that shifted all of the risk onto JSCNI in order to minimize their own (or their important client’s) risk, even though TPS was JSCNI’s agent.  See Gary E. Patterson & Assocs., P.C. v. Holub, 264 S.W.3d 180, 204 (Tex. App.—Houston [1st Dist.] 2008, pet. denied) (setting out elements of claim for civil conspiracy).  It is also is some evidence that Citibank knowingly helped TPS to breach its fiduciary duty as JSCNI’s agent in order to minimize Citibank’s own risks in the potentially lucrative transaction.  See Kastner v. Jenkens & Gilchrist, P.C., 231 S.W.3d 571, 580 (Tex. App.—Dallas 2007, no pet.) (explaining liability for knowing participation in breach of another’s fiduciary duty).

          For these reasons, I would hold that sufficient evidence supported the jury’s findings that Citibank and TPS conspired to structure a transaction that was unfair to JSCNI and that Citibank knowingly participated in TPS’s breach of fiduciary duty arising from such a structuring.  I would thus further hold that the trial court erred in granting Citibank’s JNOV motion on the jury’s affirmative answers to Jury Questions 18 and 19 and would reach Citibank’s relevant cross-points.  To the extent that the majority judgment on rehearing does not do so, I respectfully dissent.

                                                                      Jim Sharp

                                                                      Justice

Panel consists of Chief Justice Radack and Justices Sharp and Taft.

Justice Sharp, dissenting in part.

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[1]              For example, three witnesses directly contradicted Kermath’s testimony that he did not discuss the security-deposit schedules at the August 15 closing.  Moreover, even if the jury could not reasonably have believed these witnesses’ testimony that Kermath agreed at the August 15 closing to the minimum security‑deposit schedule memorialized by Abji’s August 27, 1997 letter—because, for example, such a schedule would have delayed collateral build-up under the full-cash-collateral requirement that Kermath consistently advised TPS was needed—the jury could nonetheless have believed their testimony that Kermath represented that the $550,000 was a security deposit, as an internal Citibank document described it and as Kermath indicated by the Commitment Letter’s later reference to the funds’ placement in an Investment Account.  The jury could furthermore have reasonably believed Abji’s and Karber’s testimony that Kermath advised them on how to use the $550,000, including in ways that the Phase III contracts did not then allow, for the benefit of Citibank and its important client, and discredited Kermath’s contrary testimony.