Eric Yollick v. Jjjj Walker, LLC, Dynafab USA, LLC, Renaissance Properties of Texas, LLC, Priya Properties, LLC, Bd Texas, LLC and Kw Hospital Acquisition, Llc ( 2015 )

FILED
14-0974
8/20/2015 7:48:04 PM
tex-6592054
SUPREME COURT OF TEXAS
BLAKE A. HAWTHORNE, CLERK
No. 14-0974
IN THE SUPREME COURT OF TEXAS
Eric Yollick,
Petitioner,
v.
JJJJ Walker, LLC, Dynafab USA, LLC, Renaissance
Properties of Texas, LLC, Priya Properties, LLC, BD
Texas, LLC, and KW Hospital Acquisition, LLC,
Respondents.
________________________________________________
On Review from the
Fourteenth Court of Appeals, Houston, Texas
No. 14-13-00161-CV
________________________________________________
RESPONDENTS’ BRIEF ON THE MERITS
________________________________________________
Marc S. Tabolsky
State Bar No. 24037576
mtabolsky@yettercoleman.com
Dori Kornfeld Goldman
State Bar No. 24041274
dgoldman@yettercoleman.com
YETTER COLEMAN LLP
909 Fannin Street, Suite 3600
Houston, Texas 77010
Tel. 713-632-8000
Fax 713-632-8002
ATTORNEYS FOR RESPONDENTS
R. Michael McCauley Jr.
State Bar No. 00797030
Timothy T. Pridmore
State Bar No. 00788224
MCWHORTER, COBB & JOHNSON, L.L.P.
1722 Broadway
Lubbock, Texas 79408
Tel. 806-762-0214
Fax 806-762-8014
Zona Jones
State Bar No. 10887600
PROVOST UMPHREY LAW FIRM, LLP
P.O. Box 4905
Beaumont, Texas 77704
Tel. 409-835-6000
Fax 409-813-8618
Patrick Zummo
State Bar No. 22293450
LAW OFFICES OF PATRICK ZUMMO
909 Fannin, Suite 3500
Houston, Texas 77010
Tel. 713-651-0590
Fax 713-651-0597
2
IDENTITY OF PARTIES AND COUNSEL
JJJJ Walker, LLC, Dynafab USA, Plaintiff-Appellants
LLC, Renaissance Properties of
Texas, LLC, Priya Properties, LLC,
BD Texas, LLC, and KW Hospital
Acquisition, LLC
Marc S. Tabolsky Trial and Appellate Counsel
Dori Kornfeld Goldman
YETTER COLEMAN LLP
909 Fannin Street, Suite 3600
Houston, Texas 77010
Tel. 713-632-8000
Fax 713-632-8002
R. Michael McCauley Jr.
Timothy T. Pridmore
Andrew R. Seger
MCWHORTER, COBB & JOHNSON,
L.L.P.
1722 Broadway
Lubbock, Texas 79408
Tel. 806-762-0214
Fax 806-762-8014
Zona Jones
PROVOST UMPHREY LAW FIRM, LLP
P.O. Box 4905
Beaumont, Texas 77704
Tel. 409-835-6000
Fax 409-813-8618
Patrick Zummo
LAW OFFICES OF PATRICK ZUMMO
3900 Essex Lane, Suite 800
Houston, Texas 77027
Tel. 713-651-0590
Fax 713-651-0597
3
Eric Yollick Defendant-Appellee
Kristin Bays Trial and Appellate Counsel
J. Randal Bays
BAYS & BAYS
1503 Hailey
Conroe, Texas 77301
Tel. 936-760-7670
Fax 936-760-7671
Roger D. Townsend
Jennifer R. Josephson
ALEXANDER DUBOSE JEFFERSON
& TOWNSEND LLP
1844 Harvard Street
Houston, Texas 77008
Tel. 713-523-2358
Fax 713-522-4553
Eric Yollick Trial Counsel
State Bar No. 22160100
Post Office Box 7571
The Woodlands, Texas 77387-7571
Tel. 281-363-3591
Fax 281-363-0488
4
TABLE OF CONTENTS
PAGE
Identity of Parties and Counsel ..................................................................................3
Index of Authorities ...................................................................................................7
Statement of the Case...............................................................................................11
Statement of Jurisdiction..........................................................................................12
Issues Presented .......................................................................................................13
Introduction ..............................................................................................................14
Statement of Facts ....................................................................................................17
Summary of Argument.............................................................................................42
Argument..................................................................................................................44
I.  THE AFFIRMATIVE DEFENSE OF ATTORNEY IMMUNITY IS NOT BEFORE
THE COURT AND DOES NOT ABSOLVE YOLLICK OF HIS FRAUD. ...................44
A.  Yollick Waived Review Of Attorney Immunity By Failing To Raise
The Issue In His Petition For Review. ............................................... 44
B.  Even If The Issue Of Attorney Immunity Were Before The Court, It
Would Not Absolve Yollick Of His Fraud. ....................................... 47
1.  Yollick did not conclusively establish the affirmative defense of
attorney immunity. ................................................................... 47
2.  Attorney immunity does not apply to Yollick’s fraudulent
conduct. .................................................................................... 48
II.  THE COURT OF APPEALS CORRECTLY HELD THAT SUFFICIENT
EVIDENCE SUPPORTED THE JURY’S VERDICT FINDING YOLLICK LIABLE
FOR FRAUD. ....................................................................................................52
A.  Corporate Agents Are Individually Liable For Fraudulent Acts
Committed In The Service Of Their Principal. .................................. 53
5
B.  There Is Overwhelming Evidence Supporting The Jury’s Fraud
Finding Against Yollick. .................................................................... 57
1.  Yollick made false material representations. ........................... 58
2.  Yollick knew FNB had no intention of honoring the
representations he made on its behalf. ..................................... 60
3.  Investors relied on the misrepresentations. .............................. 66
III.  YOLLICK’S DAMAGES ARGUMENT BEFORE THIS COURT WAS BARELY
MENTIONED BY YOLLICK IN THE COURT OF APPEALS AND IS INCORRECT
BECAUSE THERE IS AMPLE EVIDENCE OF INVESTOR’S DAMAGES. .................69
A.  The Court Should Not Grant Yollick’s Petition to Review His
Damages Argument. ........................................................................... 69
B.  The Court of Appeals Correctly Held That There Was Sufficient
Evidence of Investor’s Damages. ....................................................... 71
IV.  THERE IS LEGALLY SUFFICIENT EVIDENCE TO SUPPORT THE PUNITIVE
DAMAGES AWARD. .........................................................................................77
Conclusion and Prayer .............................................................................................79
Certificate of Compliance Under Appellate Rule 9.4 ..............................................81
Certificate of Service ...............................................................................................82
6
INDEX OF AUTHORITIES
PAGE(S)
Cases
Aquaplex, Inc. v. Rancho La Valencia, Inc.,
297 S.W.3d 768 (Tex. 2009) ........................................................................58, 61
Barclay v. Johnson,
686 S.W.2d 334 (Tex. App.—Houston [1st Dist.] 1985, no writ) .........53, 59, 60
Bennett v. Reynolds,
315 S.W.3d 867 (Tex. 2010) .............................................................................. 79
Bright v. Addison,
171 S.W.3d 588 (Tex. App.—Dallas 2005, pet. denied).................................... 79
Cantey Hanger v. Byrd,
— S.W.3d —, 2015 WL 3976267 (Tex. 2015) ............................................48, 50
Chu v. Hong,
249 S.W.3d 441 (Tex. 2008) ........................................................................54, 55
City of Keller v. Wilson,
168 S.W.3d 802 (Tex. 2005) .............................................................................. 57
Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp.,
823 S.W.2d 591 (Tex. 1992) .............................................................................. 58
Del Lago Partners, Inc. v. Smith,
307 S.W.3d 762 (Tex. 2010) .............................................................................. 44
DeSantis v. Wackenhut Corp.,
793 S.W.2d 670 (Tex. 1990) .............................................................................. 52
Duval County Ranch Co. v. Wooldridge,
667 S.W.2d 887 (Tex. App.—Austin 1984, writ dismissed w.o.j.) ................... 60
Essex Crane Rental Corp. v. Carter,
371 S.W.3d 366 (Tex. App.—Houston [1st Dist.] 2012, pet. denied) ......... 49, 54
7
Estate of Stonecipher v. Estate of Butts,
686 S.W.2d 101 (Tex. 1985) .............................................................................. 49
Formosa Plastics Corp. USA v. Presidio Engineers & Contractors, Inc.,
960 S.W.2d 41 (Tex. 1998)................................................................................. 57
Fortune Prod. Co. v. Conoco, Inc.,
52 S.W.3d 671 (Tex. 2000)................................................................................. 67
Holberg v. Teal Constr. Co.,
879 S.W.2d 358 (Tex. App.—Houston [14th Dist.] 1994, no writ) ................... 53
Holt Atherton Indus., Inc. v. Heine,
835 S.W.2d 80 (Tex. 1992)................................................................................. 77
Houston Unlimited, Inc. Metal Processing v. Mel Acres Ranch,
443 S.W.3d 820 (Tex. 2014) .............................................................................. 73
James J. Flanagan Shipping Corp. v. Del Monte Fresh Produce N.A., Inc.,
403 S.W.3d 360 (Tex. App.—Houston [1st Dist.] 2013, no pet.) ...................... 79
James v. Easton,
368 S.W.3d 799 (Tex. App.—Houston [14th Dist.] 2012, pet. denied) ....... 46, 48
JJJJ Walker, LLC v. Yollick,
447 S.W.3d 453 (Tex. App.—Houston [14th Dist.] 2014, pet. filed) .........passim
Liberty Sign Co. v. Arendale,
433 S.W.2d 23 (Tex. Civ. App.—Fort Worth 1968, no writ) ............................ 71
Likover v. Sunflower Terrace II, Ltd.,
696 S.W.2d 468 (Tex. App.—Houston [1st Dist.] 1985, no writ) ...............49, 50
McKnight v. Riddle & Brown, P.C.,
877 S.W.2d 59 (Tex. App.—Tyler 1994, writ denied)....................................... 50
Mendoza v. Fleming,
41 S.W.3d 781 (Tex. App.—Corpus Christi 2001, no pet.) ............................... 47
Miller v. Keyser,
90 S.W.3d 712 (Tex. 2002)...............................................................13, 54, 56, 57
8
Moore v. Altra Energy Technologies, Inc.,
321 S.W.3d 727 (Tex. App.—Houston [14th Dist.] 2010, pet. denied) ....... 57, 67
Poole v. Houston & T.C. Ry. Co.,
58 Tex. 134 (1882)........................................................................................48, 50
Ramos v. Richardson,
228 S.W.3d 672 (Tex. 2007) .............................................................................. 44
Romero v. KPH Consolidation, Inc.,
166 S.W.3d 212 (Tex. 2005) .............................................................................. 71
Southwestern Bell Telephone Co. v. Marketing on Hold Inc.,
308 S.W.3d 909 (Tex. 2010) ........................................................................68, 69
Spoljaric v. Percival Tours, Inc.,
708 S.W.2d 432 (Tex. 1986) .............................................................................. 61
Tony Gullo Motors I, L.P. v. Chapa,
212 S.W.3d 299 (Tex. 2006) .............................................................................. 58
Trenholm v. Ratcliff,
646 S.W.2d 927 (Tex. 1983) .............................................................................. 66
Whitney Nat’l Bank v. Baker,
122 S.W.3d 204 (Tex. App.—Houston [1st Dist.] 2003, no pet.) ...................... 47
Wright v. Sage Eng’g, Inc.,
137 S.W.3d 238 (Tex. App.—Houston [1st Dist.] 2004, pet. denied) ............... 53
Statutes & Rules
TEX. CIV. PRAC. & REM. CODE §41.001(7) .............................................................. 78
TEX. GOV’T CODE §22.001(a)(6).............................................................................. 70
TEX. R. APP. P. 53.2(f) .......................................................................................44, 45
TEX. R. APP. P. 55.2(f) .......................................................................................44, 45
Other Authorities
RESTATEMENT (SECOND) OF AGENCY §348 (1958) ................................................. 56
9
STATEMENT OF THE CASE
Nature of the Case: JJJJ Walker, LLC; Dynafab USA, LLC;
Renaissance Properties of Texas, LLC; Priya
Properties, LLC; BD Texas, LLC; and KW
Hospital Acquisition, LLC sued First National
Bank, its agent Eric Yollick (“Yollick”), and
Merensky Reef Hospital Corporation
(“Merensky Reef”) for fraud, breach of
fiduciary duty, conversion, and other claims
arising out of the defendants’ wrongful and
tortious conduct related to a loan involving the
purchase of three hospitals worth over $50
million. The bank and its agents, through their
tortious acts, wrongfully seized the plaintiffs’
respective ownership interests in Louisiana
Texas Healthcare Management, LLC, which
owned the hospitals, and then sold off the
hospitals.
Trial Court: The 281st Judicial District Court for Harris
County, Texas. The Honorable Sylvia
Matthews, presiding.
Trial Court’s Disposition: The jury returned a unanimous verdict in favor
of all of the plaintiffs on their claims against
First National Bank, Merensky Reef, and
Yollick. CR.605-656. The jury awarded the
plaintiffs over $19 million in compensatory
damages and $57 million in punitive damages.
CR.611, 648-655. The jury also awarded over
$42 million in profit disgorgement against FNB
and Merensky Reef based on FNB’s breach of
fiduciary duty. CR.616. With respect to Yollick,
the jury found that he was responsible for 10%
of each plaintiff’s harm and that he should pay
$5.7 million in punitive damages to plaintiffs.
CR.610-611, 631-636, 650. Based on the jury’s
verdict and after applying the statutory cap on
punitive damages, the district court entered
10
judgment against First National Bank and
Merensky Reef and in favor of the plaintiffs.
CR.1262-1319. The court, however, granted
judgment notwithstanding the verdict with
respect to plaintiffs’ claims against Yollick on
the ground that there was no evidence to support
the liability findings against Yollick and entered
judgment that plaintiffs take nothing on their
claims against Yollick. CR.1260, 1265.1
Court of Appeals: Court of Appeals for the Fourteenth Judicial
District Court, Houston, Texas.
Court of Appeals Disposition: On September 25, 2014, the court of appeals
reversed and remanded for rendition of
judgment in favor of respondents
Court of Appeals Justices: Justice Christopher wrote the opinion of the
court of appeals; Justices Boyce and Brown
joined.
Court of Appeals opinion: JJJJ Walker, LLC v. Yollick, 447 S.W.3d 453
(Tex. App.—Houston [14th Dist.] 2014, pet.
filed).
1
After the district court entered final judgment, Investors settled with First National Bank and Merensky
Reef. CR.1358-59.
11
STATEMENT OF JURISDICTION
No jurisdiction exists under Texas Government Code §22.001(a)(6). The
case presents no issue of importance to Texas jurisprudence and the court of
appeals did not commit any error of law. Other than Yollick’s argument that he is
immune from liability for committing fraud—in a scheme in which he made false
statements, set up shell entities that he and his wife (who used a pseudonym)
controlled, and had his client pay his wife thousands of dollars for reasons that no
one could explain or justify—based on an affirmative defense that he did not ask to
have submitted to the jury and that was not raised in his petition for review, his
brief presents nothing more than challenges to the sufficiency of the evidence
supporting the jury’s verdict returned after a three-week trial.
12
ISSUES PRESENTED
1. (Responsive to Petitioner’s Issue 1) Whether the court of appeals correctly
held that a corporate agent who commits fraud by stating his principal
intends to perform acts when the agent has actual knowledge the principal
never intends to perform can be held personally liable for fraud under
“Texas’ longstanding rule that a corporate agent is personally liable for his
own fraudulent or tortious acts.” Miller v. Keyser, 90 S.W.3d 712, 717 (Tex.
2002).
2. (Responsive to Petitioner’s Issue 2) Whether the court of appeals correctly
held that there was sufficient evidence to support the jury’s answers
regarding the “value” of Respondents’ respective membership interests in
LTHM where Respondents’ expert testified what the value of the interests
were and how to calculate the value and the jury charge provided no
definition or instruction requiring the jury to use some other method.
3. (Responsive to Petitioner’s Issue 3) Whether the court of appeals correctly
held that there was sufficient evidence to support the jury’s answers to
support an award of exemplary damages.
13
INTRODUCTION
The court of appeals was entirely correct when it reversed the district court’s
judgment nothwithstanding the verdict that absolved Yollick of liability for having
masterminded of a fraudulent scheme to steal Respondents’ ownership interests in
a hospital system that they had purchased and rehabilitated. The court properly
credited three weeks of testimony chronicling Yollick’s fraudulent actions as well
as the jury’s unanimous finding of fraud against Yollick and adhered to black letter
law holding corporate agents like Yollick accountable for their conduct. Under
these circumstances, the review of this Court is not required and Yollick’s petition
should be denied.
Respondent investors purchased a faltering hospital system out of
bankruptcy at First National Bank’s request and diligently pursued its
rehabilitation. Under Investors’ stewardship, accounts receivable increased and the
patient census grew exponentially, but—as all parties knew and expected from the
outset—the hospital system was strapped for working capital in the initial months.
Yollick capitalized on the opportunity to induce Investors into a fraudulent
forbearance agreement through which he would divest them of their ownership,
creating a boon for himself and his client First National Bank (“FNB”).
The forbearance agreement provided that FNB would grant Investors a
bridge loan for a period of at least 30 days and protect their ownership interests
14
while Investors secured financing to cover capital needs. Nevertheless,
unbeknownst to Investors, the very same day Yollick signed the agreement on
behalf of FNB, he convened meetings at his law office for the new straw company
Merensky Reef to facilitate the takeover of Investors’ ownership interest. The
following day, Merensky Reef secretly purchased the hospital system in a
transaction devised by Yollick and financed by FNB. Unaware of Yollick’s
scheme, Investors adhered to the forbearance agreement and secured the requisite
financing, but their efforts were for naught; their ownership had already been
secretly wrested from them. Merensky Reef, under the tutelage of Yollick and
FNB, sold the hospital system to multiple third parties for nearly $56 million
several months later.
Yollick orchestrated the entire coup dé etat: negotiating the deals, drafting
the loan documents, signing the agreements, serving as counsel and adviser to FNB
and Merensky Reef, hand-selecting close contacts—including his wife—to serve
as directors of Merensky Reef. Using the pseudonym “Mara Drake,” his wife
Tamara Yollick became the sole trustee for the trust holding 100% of the shares of
Merensky Reef and received a $10,000 payment for her services.
Yollick waived the primary basis for reversal argued in his merits brief—
attorney immunity—by failing to raise the issue in his petition. Nevertheless,
Texas law is clear that attorney immunity does not extend to fraudulent actions like
15
Yollick’s. While he implores the Court to grant him immunity because he served
as counsel for FNB, he failed to present any evidence during his case-in-chief or
even to submit the immunity defense to the jury, despite his burden of proof. The
jury reviewed extensive evidence and properly found Yollick—as well as FNB, for
which he was an admitted agent, and Merensky Reef, another admitted agent of
FNB—liable for fraud.
Months after the verdict, and contrary to its initial finding when the case was
submitted to the jury, the district court concluded that no evidence supported the
liability findings against Yollick but granted judgment for fraud and other claims
against FNB and Merensky Reef. Yollick served as FNB’s and Merensky Reef’s
counsel, steering their fraudulent actions and signing and drafting fraudulent
documents on their behalf.
On appeal, the court of appeals concluded that the trial court erred in
granting the JNOV. It reversed the trial court and found that there was legally
sufficient evidence supporting the jury’s finding that Yollick committed fraud and
the jury’s assessment of actual damages. It likewise rejected Yollick’s attorney
immunity claim and his challenge to the jury’s assessment of exemplary damages.
Overwhelming evidence supported the jury verdict finding Yollick liable for
the fraudulent scheme he orchestrated. The court of appeals properly applied
longstanding and well settled Texas law, making review by this Court unnecessary.
16
STATEMENT OF FACTS2
Respondents (hereafter, “Investors”) purchased a hospital system out of
bankruptcy in March 2009. Just two months later, Eric Yollick maneuvered a
secret scheme to usurp Investors’ ownership interests and resell the hospitals to
third parties for a substantial profit.
Yollick wore “many hats” in the key transactions, including counsel for the
Bank, 5.RR.151; 6.RR.82-83; 9.RR.195; 13.RR.215; counsel for Merensky Reef,
8.RR.250; 13.RR.192; agent of the Bank, 5.RR.151; CR.608; shareholder of the
Bank, 13.RR.187; the husband of a Merensky Reef director, 13.RR.202; 15.RR.28;
the husband of the trustee of the trust that owned the bank’s shell company,
Merensky Reef, PX3 at 3; 13.RR.184, 209, 211; trial counsel for the Bank; and a
defendant himself. See also 6.RR.18-19; 9.RR.128-29, 195; 10.RR.94, 139-40,
214. As Yollick acknowledged, “I don’t remember who I am sometimes.” 10.RR.
94.
Acting as an attorney and agent, and furthering his own self-interest, Yollick
committed fraud.
2
References to the Clerk’s Record are shown by CR.xxx or Supp.CR.xxx. References to the
Reporters’ Record are as follows. For the Reporters’ Record during trial, references are in the
format [volume].RR.[page number]. For other hearings, references are [date] RR[page number].
Plaintiffs’ exhibits are designated as PX[number], and defendants’ exhibits are designated as
DX[number].
17
The Bank and Yollick Seek a Potential Purchaser to Salvage the Hospital
System
In August 2008, the hospital system was placed into bankruptcy. 4.RR.224.
The system consisted of three Texas hospitals: one located in Houston, one in
Groves, and one in Dallas. 5.RR.155.
By late February 2009, the hospitals “essentially were virtually closed
down” and the financial situation dire. 9.RR.183. No funds were available to run
the hospitals. 14.RR.178. Operations were coming to a close, and patients were
discharged. 9.RR.183-84; 14.RR.178-79. As one witness described, “We’re talking
about literally taking people out, while they’re maybe on a stretcher, and
transporting them to another hospital.” 9.RR.258.
The Bank and Yollick, “looking for someone to act as an expert on hospital
matters, hospital operations,” contacted Greg Walker and Kailee Wong—
principals of Investors JJJJ Walker, LLC, and KW Hospital Acquisitions, LLC,
respectively, 4.RR.220; 10.RR.193-94, about a potential sale. 4.RR.97-100;
5.RR.152; 9.RR.184, 186, 293; 14.RR.175. Investors had experience in purchasing
and rehabilitating faltering hospitals. 4.RR.87-89, 94-95; 13.RR.13-15, 40. Yollick
participated in “virtually all” of the conference calls, and the principals of Investors
joined “on a regular basis.” 11.RR.209.
The Bank and Yollick had been planning to let the hospitals close. 4.RR.97.
But through the discussions, the Bank and Yollick “recognized that if these assets
18
closed, that the value goes to zero.” 4.RR.98-100; 9.RR.183-84. The hospital
licenses would be forfeited, rendering worthless the hospital system and, thus, the
Bank’s long-time collateral. See 4.RR.98-100; 8.RR.27-28; 9.RR.183-84;
10.RR.83; 14.RR.174.
Feverish negotiations ensued over the weekend, 5.RR.73-74; 9.RR.293, as
the Bank and Yollick were desperate to salvage the hospital system and the
associated collateral. Investors determined that, “despite there being a major
setback, there was still a very viable and good business that could be made out
of—out of this, which ultimately would be a good positive to the community and
would be a good thing for us to be able to continue to pursue and—and basically
develop.” 4.RR.95; 9.RR.184-85. The Bank’s vice president and chief lending
officer acknowledged that Investors’ purchase “prevented the hospitals from
shutting down and losing their licenses.” 14.RR.179.
Investors Purchase the Hospital System out of Bankruptcy
At the insistence of the Bank and Yollick, Investors formed seven new
limited liability companies—Louisiana Texas Healthcare Management, LLC
(“LTHM”), and six subsidiaries—to purchase the hospital system out of
bankruptcy. 4.RR.89, 93-94; 5.RR.155; 9.RR.192-94; see also PX35-PX46. Each
subsidiary owned either the real estate or operations of a single hospital. Id.
Investors collectively owned 100% of the interests in LTHM. PX138; 4.RR.90-92.
19
On March 16, 2009, the Bank lent LTHM and its subsidiaries
$37,041,399.32 to purchase the hospitals out of bankruptcy. PX26 at 2; see also
PX27-PX46; 4.RR.152; 5.RR.22; 11.RR.101-02, 103-06; 14.RR.160; 15.RR.17.
Approximately $32 million of the purchase price was allocated to almost all of the
pre- and post-petition debt owed to the Bank, and the remaining $5 million was
allocated to current accrued operating expenses, payroll, past due ad valorem taxes,
and initial working capital. 4.RR.103-04, 123-24; 9.RR.187-88; 13.RR.49-50, 56-
57. No accounts receivable were available. 11.RR.126; 14.RR.178-80. “At the end
of the day, [Investors] got roughly about $3 million to run three empty hospitals for
the next month or two.” 4.RR.103. Yollick prepared the loan documents.
12.RR.121-22.
To collateralize the $37 million indebtedness, the Bank took liens on all real
and personal property, including equipment and future accounts receivable of
LTHM and its subsidiaries, as well as $3.25 million in CDs. 4.RR.126, 198;
11.RR.92, 116, 120-22. The Bank assessed LTHM’s assets at a collateral value of
approximately $56 million on its new loan request forms. PX26-PX34; 11.RR.120-
22; 15.RR.16-17. The collateral value was “an important factor” for the Bank in
approving the loan. 8.RR.35, 86-88.
Curtis Brockman, the Bank’s vice president and chief lending officer,
testified that the Bank had $19 million in equity based on the lending transaction,
20
which “is a substantial amount of equity to have for a bank.” 15.RR.17-18; see also
8.RR.35.
Investors Immediately Strive to Salvage the Hospital System
Investors purchased a hospital system in disarray. Just two to three patients
remained in the system. 9.RR.191; 11.RR.125-26; 13.RR.43. There was “zero
staffing morale.” 13.RR.38-39. “There were not enough supplies,” nor were there
“enough doctors to participate.” 13.RR.69. Accounts receivable were nonexistent.
9.RR.191; 14.RR.179-80. Investors “needed money basically for everything at that
point.” 4.RR.99-100; 13.RR.72; 14.RR.179-80, 182, 186-87.
There was “absolutely zero confidence” from the community. 13.RR.44. The
system had caused “heartache” to “a lot of people, having to move hospitals,
physicians who were practicing medicine or had privileges at the hospital
essentially having to scramble last minute to get privileges somewhere else to
continue their practice.” 10.RR.24. “Everybody was very anxious.” 13.RR.39.
Investors conveyed their concerns to Yollick and other Bank representatives
about having insufficient capital “to essentially start a hospital with two patients
and to get it back up to where we could support it and be cash flow neutral.”
4.RR.105-07; 9.RR.188-91; PX64. Linda Burley, the Bank’s branch president,
knew “there would not be cash coming in.” 11.RR.126; see also 12.RR.133,
14.RR.179-80, 182, 186-87. Brockman likewise recognized that “it would take
21
some amount of time to regenerate the patient count and the accounts receivable
that are derived once the patient count is increased to be able to support the
operations of the hospital.” 14.RR.179-80. However, Brockman represented that
the Bank would work with Investors on short-term capital needs to operate the
hospitals. PX64; 4.RR.105-07; 9.RR.188-91; 14.RR.184-87.
Investors “immediately” strove to salvage the hospital system’s value.
4.RR.131; 9.RR.206; 13.RR.34. Their aim was to “go out into the communities and
partner with practicing physicians” in order to “create a very healthy” hospital
system. 9.RR.206; 13.RR.34, 67, 75. Investors began speaking with “the
physicians, community, and also the staff” on “a regular basis” and developed
initiatives to “streamline their responsibilities.” 4.RR.131; 13.RR.34, 75. They
were also “trying to set the stage for” the recruitment of a specialist doctors team
because patients go to hospitals “for their physicians.” 13.RR.67-68. As Dr. Raj
Talluri, principal of Respondent Priya Properties, LLC, explained: “I invested my
money, my time, my efforts, my contacts, countless number of hours and the travel
and staying with the community and the doctors in the meetings.” 13.RR.47.
Investors diligently marketed the hospital system and searched for outside
investors and capital. They talked to “lenders and AR lenders, really just
everybody in the business.” 4.RR.144-45; 9.RR.204-05, 215, 224.
22
Investors’ efforts proved successful. They increased the accounts receivable,
and the patient census was “reaching upwards to 70’s and sometimes 80’s” within
a month. 13.RR.76; see also 15.RR.24. They were in “constant communication”
with the Bank, whose officials commended Investors’ efforts and the improving
economic outlook. 4.RR.132-33, 146-47; 9.RR.210; 15.RR.21-22, 24. The Bank
representatives “certainly told” Investors “how happy [they] were” and that
Investors “were doing a great job.” 4.RR.132-33. “The general trend was very
positive.” 9.RR.210. Dr. Talluri testified that “we built the hospital from zero
patients, zero morale of the staff to the point” where the hospitals could eventually
“be self-sustaining.” 13.RR.148-49.
The Bank and Investors Amend the Loan Agreement
Collections were growing as a result of Investors’ industrious efforts, but
working capital was still needed to bridge operations in the initial months. Indeed,
the “need for working capital” increased “even more as [the hospitals] got busier.”
13.RR.76-77. Nevertheless, in April 2009, the Bank refused to advance any money
and instead released to LTHM $2.5 million in CDs that Investors had previously
pledged as collateral. 4.RR.139-41; 9.RR.208-09; 11.RR.141-42; 13.RR.78-79;
15.RR.23-24. Burley explained that Investors “had to have working capital so we
gave them back their money.” 11.RR.142; see PX49.
23
The transaction was memorialized in an amended loan agreement, dated
April 14, 2009. DX12. No payments were due at the time the amended agreement
was entered. 4.RR.142, 144; 9.RR.211; 11.RR.140. The amended agreement
provided that payments on the Bank note would be due quarterly, not monthly,
making the first payment due June 16, 2009. 4.RR.143; 9.RR.211; 11.RR.140;
DX12 ¶8.
Investors “spent every single dollar” of their $2.5 million “towards the
operations and working capital.” 4.RR.144; 13.RR.83, 84.
Investors Enter a Forbearance Agreement to Obtain Working Capital from
the Bank
Although the release of the CDs infused Investors’ money into the company,
the hospital system “still” grappled with “serious cash flow issues” in the short
term. 4.RR.150; 9.RR.212-13. Investors “were cash constrained” and needed to
continue building the hospitals to enable the system to become “cash flow neutral.”
9.RR.213. Investors were “trying to find a way to raise outside capital,” but were
strapped for working capital. 4.RR.150, 155; 9.RR.215; see DX4 at 1.
Yollick suggested that Investors consider turning over their voting rights in
LTHM to a trust. 11.RR.207-08. He and other Bank officials participated in a
conference call with Investors to negotiate the terms of a new agreement.
13.RR.89-90. On May 14, 2009, less than 60 days after Investors purchased the
hospitals, Investors and the Bank entered into a forbearance agreement that
24
purportedly would protect Investors’ interests and provide for their receipt of a
bridge loan to cover operating expenses for a period of at least 30 days (the
“forbearance period”).
Relevant provisions of the forbearance agreement include the following:
 Paragraph 1: “FNB shall extend a working capital loan to fund the
ordinary and necessary operating expenses under a loan facility (the
‘FNB Bridge Loan’) to Merensky Reef Hospital Corporation
(‘MRHC’) for a period of at least 30 days from the first date that
funds are advanced by FNB (the ‘Forbearance Period’)”;
 Paragraph 2: “During the Forbearance Period, the members of LTHM
(the ‘Members’) shall continue its efforts to raise additional equity or
alternative funding sources . . . sufficient to retire or satisfy the FNB
Bridge Loan and with the objective of providing for additional
working capital needs that the LTHM Group may require. Regardless
of any other provision herein, the Members shall be permitted to
continue the above described efforts and shall have reasonable access
to the LTHM Group, its personnel and records for those purposes”;
 Paragraph 3: “FNB agrees to permit the LTHM Group to grant second
liens (subordinate to liens held by FNB) on the LTHM Group’s real
and/or property assets owned by the LTHM Group (e.g., the
25
Facilities) to any new lender/investor in connection with obtaining the
Additional Funding”;
 Paragraph 7: “MRHC shall hold the Transfer Documents in trust, but
shall have full and exclusive right to vote the Members’ membership
interests during the Forbearance Period and if the Members fail to
effectuate the satisfaction of the Bridge Loan by the end of the
Forbearance Period, then after the Forbearance Period as well . . .”;
 Paragraph 8: “The obligations of the LTHM Group to the Members
arising under the corporate governance documents shall in no way be
deemed modified, altered, amended or extinguished by the terms
contained herein, including any obligation of the LTHM Group, or
any one of them, to indemnify and hold harmless the Members from
demands claims or actions”;
 Paragraph 9: “During the Forbearance Period i) the LTHM Group
shall not take any action that would result in a material adverse effect
upon the LTHM Group’s value, operations, assets, members,
governance or liabilities and, ii) FNB and the LTHM Group shall
coordinate with the Members any efforts to market the Facilities, the
operations being undertaken at the Facilities”;
26
 Paragraph 10: “If as permitted under the terms hereof, the LTHM
Group does not retire or satisfy the Bridge Loan within the
Forbearance Period and FNB elects to release the Transfer
Documents, the members of LTHM shall use their commercially
reasonable efforts to effectuate the orderly transition . . .”;
 Paragraph 11: “The parties will take all reasonable efforts to cooperate
in connection with operating the Facilities during the Forbearance
Period”; and
 Paragraph 12: “Any and all proposed business expenditures outside
the ordinary course of business in excess of $20,000 to be made by the
LTHM Group during the Forbearance Period shall be subject to prior
approval by the members, such approval not to be unreasonably
withheld.”
PX6.
The forbearance period would begin once the Bank advanced a working
capital loan. PX6 ¶1; see also 9.RR.274. During the forbearance period, the “only
thing that was supposed to go in trust was membership voting rights.” 10.RR.101-
02. The forbearance agreement provided for Investors to execute blank
“Assignments in Lieu of Foreclosure,” which could conditionally be used to
transfer Investors’ membership interests in LTHM to Merensky Reef through an
27
“orderly transition” only if and after both the forbearance period expired with the
bridge loan unsatisfied and the Bank elected to have the assignments released from
trust. PX4 ¶¶4, 7, 10. The assignments were never executed, 4.RR.169-71, 175-76,
187; 9.RR.233, 234-35, and the Bank and Yollick did not furnish any proposed
forms of assignment until after transferring Investors’ ownership interests to
Merensky Reef, 4.RR.194-95; 9.RR.231.
Yollick signed the agreement on behalf of the Bank. DX4 at 4. Investors also
signed the agreement as well, relying on the representations therein to be true.
DX4; 4.RR.177, 185-88, 193-94, 196; 9.RR.230-31; 10.RR.112-13, 190-92, 195-
96; 13.RR.91-94.
Investors Proceed to Secure Investors
Investors complied with the forbearance agreement and “worked very hard”
to secure additional operating capital during the forbearance period. PX135; DX75;
4.RR.163-65, 167, 178-79, 194; 13.RR.100. They also continued meeting with
community members to rebuild confidence in the hospitals. 13.RR.100-01, 104-05.
Investors successfully located investors and presented the Bank multiple
outside funding options, which the Bank itself acknowledged would have fully
satisfied the obligations under the forbearance agreement and provided additional
operating capital. PX56; PX58; PX59; 4.RR.163-65; 167, 179-80, 187; 9.RR.228-
29; 10.RR.106, 193; 12.RR.26, 29, 164; 13.RR.101-03; 15.RR.44-46, 48-49.
28
Nevertheless, the Bank summarily rejected the proposals. 4.RR.165-66, 179-80,
187; 9.RR.228-29; 10.RR.193; 13.RR.103-04; 15.RR.44-45. Investors did not
realize “at the time” that the Bank “couldn’t have accepted” their proposals
because it had transferred their ownership interests. 9.RR.229; 10.RR.162-63, 193.
Investors “went into this with good faith and all the intention in the world to
continue to work to live up to [their] part of the bargain” and “raise more money.”
4.RR.184; 10.RR.161. Investors did not know “that the assets were transferred out
of [their] name to another entity” but instead pursued funding as though they “still
had the ability to satisfy the bridge loan.” 10.RR.160.
Yollick Orchestrates a Secret Meeting to Facilitate Transfer
Unbeknownst to Investors, on May 14, 2009, the same date as the
forbearance agreement, Yollick held a series of meetings at his law office to
convene and appoint the new directors of Merensky Reef, a straw company and
stipulated agent of the Bank. PX3; PX4; PX5; CR.608; 4.RR.161-62; 5.RR.169;
8.RR.240; 9.RR.77-79; 13.RR.213, 216-17.
Yollick recruited the Bank’s paid consultant, Duane Rossman; his long-time
friend and client, Jim Jenkins; and his wife, Tamara Yollick, using the disguised
name “Mara Drake,” to become directors of the new company. 5.RR.155-56, 161;
6.RR.8, 21; 8.RR.221, 228-29; 13.RR.190, 243-44. Jenkins had no background in
the banking or hospital business. 8.RR.224-26. Likewise, Mrs. Yollick had no
29
experience in the banking, financing, or hospital industries and admittedly was
“not qualified” to make decisions about Merensky Reef’s transactions. 13.RR.185,
220-21, 243-44.
In an effort to conceal his wife’s involvement, Yollick instructed his wife to
sign all conveyance and corporate documents with the moniker “Mara Drake,” a
combination of her nickname “Mara” and maiden name “Drake.” See 13.RR.177-
78, 202. Mrs. Yollick explained that she used the “assumed name” because “Eric
[Yollick] asked [me] to do so.” 13.RR.178, 202-03. She acknowledged that the
name “Tamara Yollick” is on her driver’s license and that she has identified herself
as “Tamara Yollick” for at least the last nine years. 13.RR.175-76, 198. Kailee
Wong testified that “the fake name” was especially troubling to him because “it
makes me feel as though you’re actually trying to hide something” and “just really
trying to be deceitful about who” Mrs. Yollick is. 9.RR.230.
An organizational meeting of Merensky Reef’s board of directors convened
at Yollick’s office at 7pm on May 14, 2009. PX3; 5.RR.169. The new directors
unanimously authorized “Mara Drake,” as the trustee of Witwatersrand Trust, to
purchase all the stock of Merensky Reef. See PX3 at 3; 5.RR.167; 13.RR.209. Mrs.
Yollick explained that she served as sole trustee of the sole shareholder of
Merensky Reef “because Eric [Yollick] asked me to.” 13.RR.184, 222, 225-26,
258.
30
Five minutes later, at 7:05pm, another Merensky Reef meeting convened at
Yollick’s office. PX4. The meeting’s purpose, according to the minutes, was to
name Rossman, Jenkins, and “Mara Drake” as the directors of the corporation.
PX4.
Ten minutes later, at 7:15pm, a special meeting of the Merensky Reef board
of directors convened at Yollick’s office. PX5. The meeting minutes contained
resolutions showing that the directors approved “the execution of any and all
necessary loan documents” between the Bank and Merensky Reef for the
“purchase of the Renaissance hospitals and obtain an appropriate working capital
facility.” PX5. The resolutions and accompanying exhibits provided the terms
under which the Bank would provide financing to Merensky Reef, identifying the
collateral to include an “assignment of all stock in LTHM.” PX5. The resolutions
also stated that Merensky Reef would “enter into” the forbearance agreement. PX5.
An unexecuted copy of the forbearance agreement was attached as an exhibit. Exh.
A to PX5.
As confirmed by the minutes, rather than just holding the voting rights of
LTHM as provided in the forbearance agreement, Merensky Reef instead
purchased full ownership of LTHM and the hospital system, without Investors’
knowledge or authority. See PX3, PX5, PX12, PX14.
31
Yollick was at the epicenter of the transactions. He scheduled and attended
the meetings and drafted the minutes. See 8.RR.240, 245-46, 250; 9.RR.81-83, 88,
163-65. He served as counsel for Merensky Reef, 6.RR.18-19; 8.RR.250;
13.RR.192, and provided advice that dictated the directors’ and shareholders’
votes, signatures, and actions, see 8.RR.245, 247, 250; 9.RR.75, 99, 128-31.
Jenkins testified that he relied on Yollick to decide what was best for the company
and that he “sure did” take the direction of Yollick when signing documents and
adopting resolutions. 8.RR.245, 250; 9.RR.75, 83, 99, 124, 128, 130-31. Jenkins
“relied upon [Yollick] to make the right decision for Merensky Reef Hospital
Corporation.” 9.RR.74, 165. Mrs. Yollick acknowledged that she depended on her
husband “to make decisions about the best courses of action” for Merensky Reef.
13.RR.205, 221-24, 226, 241-42, 244-45, 254-55.
Yollick himself, when questioning the principal of KW Hospital
Acquisitions, LLC, emphasized that Mrs. Yollick would naturally follow his
directions:
Q. And you would agree, would you not, that the wife of the
attorney for First National Bank is likely to be someone who would be
under the control of First National Bank, at least as far as what to do
with a trust company?
32
A. Well, especially if -- yeah, if you’re – if it’s your wife, I’m sure
your wife will do virtually anything for you.
Q. Well, Mr. Wong, I mean –
A. I'm just saying from a -- relationshipwise, like they’re going to
–
Q. You don’t know of anything that would make Mara
antagonistic to Eric Yollick, do you, other than just the way I am
generally perhaps?
A. No, no.
Q. You don’t know of anything, do you?
A. I don’t.
Q. You don’t know of anything that would make Mara
antagonistic to First National Bank, do you?
A. I don’t know Mara Drake at all.
9.RR.280-81.
Mrs. Yollick received $10,000 in compensation for her services for
Merensky Reef. 9.RR.131; 13.RR.255-56. Saul Ortega, the Bank’s chief financial
officer, director, and member of loan and discount committee, testified that the
payment to Yollick’s wife was “unusual.” 8.RR.92-93.
33
Merensky Reef Purchases the Hospitals
The following day, on May 15, 2009, without the knowledge or consent of
Investors, Merensky Reef purchased the hospital system in a transaction financed
by the Bank. 4.RR.177, 184-86, 190, 196; 9.RR.230-31; 10.RR.190. Again, the
Bank assigned LTHM’s assets a collateral value of approximately $56 million.
PX51; 11.RR.123-24. Yollick drafted the loan documents. See 9.RR.164;
11.RR.146-47; 12.RR.204, 207; 15.RR.194; PX10, PX11, PX51.
Yollick prepared the assumption promissory note and assumption deed of
trust, pursuant to which Merensky Reef assumed the entire $37,041,399.32 of
LTHM’s outstanding indebtedness to the Bank. PX12; PX14; 15.RR.30, 31-33, 37-
38. The stated purpose of the loan was the “Purchase of the three Renaissance
Hospitals.” PX14 at 2; 15.RR.36-37. The assumed indebtedness was collateralized
by all of the real property of LTHM. PX14; 15.RR.35-36. The ownership rights in
LTHM and the hospital system transferred to Merensky Reef on May 15, 2009.
6.RR.31; 9.RR.168-69; 15.RR.42-43.
Brockman explained that the Bank financed Merensky Reef’s purchase of
the hospitals on May 15, 2009: “The funds went to pay off our existing notes, and
there was a transfer of stock to Merensky Reef.” 15.RR.39. Merensky Reef’s
assumption of debt “was an asset on [the Bank’s] books.” 15.RR.40. Brockman
34
acknowledged that the forbearance agreement did not authorize the Bank to take
ownership of the hospitals. 15.RR.27; see also 10.RR.188, 191.
Also on May 15, 2009, Merensky Reef executed the Renewal, Modification
and Extension Agreement—again prepared by Yollick—under which Merensky
Reef assumed an additional $5,297,950 of the hospital system’s pre-bankruptcy
debt that LTHM had not been obligated to pay and that the Bank was precluded
from recovering and had written off years earlier. PX13; 15.RR.32. The agreement
secured the additional nearly $5.3 million debt with the Houston hospital. PX13;
15.RR.32-34, 36. Brockman acknowledged that adding another $5.3 million in
debt, collateralized by the Houston hospital, and putting the “obligation on its
books as a loan [was] a benefit to FNB.” 15.RR.34-35. He testified that he was
aware of no authority that permitted Merensky Reef to assume the $5.3 million
debt. 15.RR.34; see also 4.RR.190. Rossman acknowledged that he could not think
of “any business purpose that served the interests” of Merensky Reef “by taking on
this additional 5 million dollars’ worth of debt.” 6.RR.29.
The straw company Merensky Reef did not even keep track of any
transactions. Jenkins, who served as chairman and director of Merensky Reef,
never found out what happened to the money that was purportedly sent from the
Bank to Merensky Reef: “We don’t have any bank accounts. It wasn’t sent to us.”
9.RR.115; see also 9.RR.130. He had no reason to worry; he just relied on Yollick
35
to “handle things.” 9.RR.116. Mrs. Yollick similarly testified that she is not aware
of any bank or checking accounts that Merensky Reef might have. 13.RR.191-92.
Mrs. Yollick knew nothing about why Merensky Reef was formed, nor did
she know its purpose. 13.RR.189. And Rossman testified that he does not know
how much Merensky Reef owes the Bank, nor does it matter because Merensky
Reef “doesn’t really have a whole lot of obligation for that.” 6.RR.46.
The Unanimous Consent in Lieu of Meeting of Louisiana Texas Healthcare
Management, LLC, dated May 22, 2009, and drafted by Yollick, declared
Merensky Reef to be the “sole Member” of LTHM. PX18; see also 5.RR.182-83
(agreeing that Merensky Reef became “the sole owner of Louisiana Texas
Healthcare Management, LLC, on May 15, 2009”); 9.RR.167-69 (Merensky Reef
“became the owner of the member interest in LTHM” on May 14 or 15, 2009);
15.RR.36 (agreeing that in order “for the bank to have a valid lien on property,” it
is “necessary for the party that is granting that lien”—here, Merensky Reef—“to
have ownership rights in that property.”)). The Unanimous Consent removed any
previous managers of LTHM and declared Rossman to be LTHM’s “sole
Manager” and “sole officer, Chairman of the Board, Co-Chief Executive Officer,
President, and Secretary.” PX18. The Unanimous Consent also removed “all
existing officers” of each of the LTHM subsidiaries and replaced them with
Rossman “as sole officer, Manager, President, Secretary, and Chief Executive
36
Officer.” PX18. And as Brockman testified, “a transfer of ownership” of the
hospitals to Merensky Reef had been “done by the stock transaction earlier on.”
15.RR.42.
Burley acknowledged that Yollick was responsible for the transactions: “No
question he’s been in control of this.” 12.RR.74.
Merensky Reef Sells the Hospital System in a Transaction Financed by the
Bank
Merensky Reef sold the hospital system to multiple third parties within
months of the unauthorized takeover without ever consulting or even advising
Investors. Brockman explained that “Merensky Reef was the owner of the
hospitals,” and the Bank “needed to find somebody to operate, to own” quickly.
15.RR.58.
On August 27, 2009, the hospital located in Houston was sold for $7.4
million, PX63; 11.RR.131-32; 15.RR.50-52, 53, 56-57, bringing the loan balance
to zero, PX75; PX76; PX77; 8.RR.114-115, 119-20; 11.RR.157-58. On October
29, 2009, the hospital located in Groves was sold for $17 million, PX62;
11.RR.131; 15.RR.53-55, 56, bringing the loan balance to zero, PX78; PX79;
PX80; 8.RR.114-115; 11.RR.156-57. On October 30, 2009, the hospital located in
Dallas was sold for approximately $31 million, PX61; 11.RR.131; 15.RR.55-56,
bringing the loan balance to zero, PX31; PX71; PX72; PX73; 8.RR.114-115;
37
11.RR.153-56. Yollick drafted the loan documents for these transactions as well.
15.RR.52.
Investors were left with nothing. 9.RR.234. As Dr. Talluri explained: “I
invested my money and time into these three hospitals, which required a major
overhaul. . . . We got into this, and we were sincerely trying to get these hospitals
going. And suddenly we were told we no longer owned the hospitals anymore and
the hospitals were taken away from our control.” 13.RR.99.
Kailee Wong explained that Investors were kept in the dark: “we didn’t
know what was going on. . . . there was no transparency . . . we just knew that we
kept continuing to get locked out or said no to.” 9.RR.228; see also 10.RR.164. He
did not expect the Bank to transfer his ownership rights to Merensky Reef the day
after executing the forbearance agreement: “There is no way you would ever sign
something like that.” 9.RR.226; see also 9.RR.230-31; 10.RR.191-92, 195-96. The
“actions were essentially contrary to exactly what they just wrote a day before. . . .
Immediately the next day, the membership interests and assets were taken” from
Investors. 10.RR.195.
Greg Walker explained that Investors’ “understanding was pretty simple”
when entering the forbearance agreement: “They would forebear, they wouldn’t do
anything with our interests. We were giving them our voting trust, only our voting
rights of our company. They were putting that in trust while we went out and
38
raised money.” 4.RR.171. But Investors were blindsided: “Never in a million years
did we expect them to do the things they did at all.” 4.RR.171; see also 4.RR.177,
187-88, 196. And Investors “[a]bsolutely” would “not” have signed the
forbearance agreement had they known of the plans to promptly sell LTHM and its
assets. 4.RR.185-86.
Investors Obtain a Unanimous Jury Verdict Against Yollick, the Bank, and
Merensky Reef
Having lost their membership interests in LTHM because of the fraud the
Bank, Merensky Reef, and Yollick perpetrated, Investors filed suit. CR.187. After
the district court denied the defendants’ various pretrial motions seeking dismissal
of this case, see, e.g., CR.147, 186, the case went to trial in June 2012. Yollick and
his co-defendants moved for directed verdict at the end of Investors’ case. The
district court denied their motion. 17.RR.8. At the charge conference, the Bank,
Merensky Reef, and Yollick challenged the sufficiency of the evidence again.
Supp.CR.674. The district court rejected these challenges again, 17.RR.27, and
submitted the case against Yollick and his co-defendants to the jury.
On July 11, 2012, the jury returned its verdict. 18.RR.8. The jury
unanimously found that the Bank, Merensky Reef, and Yollick each committed
fraud. CR.610. The jury found that Investors suffered compensatory damages of:
JJJJ Walker, LLC — $4,585,512
Dynafab USA, LLC — $382,126
39
Renaissance Properties of Texas — $1,719,567
Priya Properties, LLC — $4,776,575
BD Texas, LLC — $3,439,134
KW Hospital Acquisition, LLC — $4,203,386
CR.611. The jury further found that the Bank was responsible for 80% of each
Investor’s harm, while Merensky Reef and Yollick were each responsible for 10%
of the harm. CR.631-36. The jury further held that Yollick should also pay
exemplary damages to each Investor. CR.650. The jury awarded between $114,000
and $1,425,000 to each Investor against Yollick. Id.3
After the jury was excused, the Bank, Merensky Reef, and Yollick filed a
motion for JNOV. CR.659. The district court heard the motion on August 6, 2012.
8/6/12 RR.11. Almost four months later, the district court entered its final
judgment. CR.1262. In its final judgment, the court held the Bank jointly and
severally liable for all of Investors’ damages (over $19 million total) and further
ordered that the Bank pay Investors approximately $38 million in exemplary
damages. CR.1263-65. The court further ordered Merensky Reef to pay
approximately $1.9 million in compensatory damages and about $5.7 million in
exemplary damages. Id. But even though it had repeatedly rejected Yollick’s
challenges to the sufficiency of the evidence, the court ordered that Investors take
3
The jury awarded each Investor a different amount of exemplary damages against Yollick. CR.650.
40
nothing on their claims against Yollick based solely on insufficiency of the
evidence supporting the jury’s answers regarding Yollick’s liability. CR.1265. It
did not find insufficient evidence regarding Investors’ damages. Id.
The Investors appealed the district court’s judgment in favor of Yollick. The
court of appeals reversed the district court’s take-nothing judgment. The court of
appeals found legally sufficient evidence to support the jury’s finding that Yollick
committed fraud, and that the trial court erred in granting the JNOV on that basis.
Op. at 2. The Court further concluded the jury’s assessment of actual damages was
supported by legally sufficient evidence, that Yollick’s conduct is not protected by
attorney immunity, and that there was sufficient evidence to support the jury’s
award of exemplary damages. Op. at 29-30. The Court reversed the portion of the
judgment in which the trial court ordered that Investors shall take nothing on their
claims against Yollick and remanded to the trial court for rendition of judgment
consistent with the opinion. Id.
41
SUMMARY OF ARGUMENT
Fraud is anathema to the professional responsibilities of an attorney. Texas
law extends attorney immunity to certain lawful conduct undertaken in the
representation of a client but does not countenance fraud. While Yollick clings to
the shield of attorney immunity, the fraudulent scheme he orchestrated merits no
protection. Moreover, he waived his opportunity to make an attorney immunity
argument to this Court by failing to raise the issue in his petition.
Yollick signed a forbearance agreement on FNB’s behalf knowing that
neither he nor FNB had any intention of honoring or performing it. Yollick, as
FNB’s agent, immediately disregarded its provisions and devised a takeover of
Investors’ ownership in the hospital system. The same day Investors and FNB
entered the forbearance agreement, Yollick convened meetings at his law office for
the shell company Merensky Reef and hand-picked its new directors—including
his wife, Tamara Yollick, who used the guise of the assumed name, “Mara Drake.”
The following day, without Investors’ knowledge or consent, Merensky Reef
purchased the hospital system in a transaction financed by FNB. Yollick drafted
the loan documents.
At trial, Yollick came nowhere close to satisfying his burden of proof on
attorney immunity as he presented no evidence during his case-in-chief and failed
to present the defense to the jury. The district court correctly denied Yollick’s
42
motion for a directed verdict at the close of the evidence, after lengthy argument by
defense counsel, and again found sufficient evidence to submit Yollick’s fraud to
the jury when it overruled Yollick’s objections to the charge. Nevertheless, months
after the verdict, the district court found legally insufficient evidence as to the
jury’s finding of fraud liability against Yollick.
Notably, the district court did not grant JNOV based on Yollick’s challenges
to the damages evidence. The jury properly determined the value of Investors’
ownership interests by subtracting liabilities from assets. The value was
corroborated by a sale of the identical assets within a few months of the fraud.
Expert testimony as well as FNB’s own valuations of the same assets further
supported the damages award.
A jury of Yollick’s peers found that he was a knowing and voluntary co-
participant with FNB and Merensky Reef in a fraudulent scheme. Yollick—an
admitted agent of FNB and the architect of Merensky Reef—stood at the helm of
the fraud. Allowing Yollick to evade liability for his fraudulent actions totally
disregards the unanimous verdict of the jury, contravenes well established
principles of Texas law, and erodes the integrity of legal counsel.
43
ARGUMENT
I. THE AFFIRMATIVE DEFENSE OF ATTORNEY IMMUNITY IS NOT BEFORE
THE COURT AND DOES NOT ABSOLVE YOLLICK OF HIS FRAUD.
Yollick begins his merits argument by claiming that attorney immunity
precludes liability for his fraud. But this affirmative defense is not a basis for
reversal for two independent reasons. First, Yollick failed to raise attorney
immunity as an issue in his petition for review. Having waived the issue, it is not
properly before the Court. Second, even if Yollick properly presented the issue, the
defense is inapplicable and does not absolve him of his liability for fraud.
A. Yollick Waived Review Of Attorney Immunity By Failing To
Raise The Issue In His Petition For Review.
Texas Rule of Appellate Procedure 53.2(f) commands that a petitioner
include in a petition for review “all issues or points presented for review.” Further,
Rule 55.2 requires that “petitioner’s brief on the merits must be confined to the
issues or points stated in the petition for review” and prohibits the petitioner from
using the brief on the merits to “raise additional issues or points or change the
substance of the issues or points presented in the petition.” Id. TEX. R. APP. P.
55.2(f). Accordingly, when a petitioner fails to advance an issue in its petition for
review, that issue is waived. See, e.g., Ramos v. Richardson, 228 S.W.3d 672, 673
(Tex. 2007) (citing Rule 55.2 and finding issue not raised in petition to be waived);
Del Lago Partners, Inc. v. Smith, 307 S.W.3d 762, 776 (Tex. 2010) (citing Rules
44
53.2(f) and 55.2(f) and stating that Court “should not stretch for a reason to reverse
that [which] was not raised”).
Yollick’s Petition for Review identifies five issues:
1. When an attorney signs a contract as the agent of his client,
who is disclosed in the contract itself as the principal, can the attorney
be individually liable for fraud if a jury later determines that the client
never intended to perform the contract?
2. Was there legally sufficient evidence that the defendants had
never intended to perform the contract, given that they sold the
hospitals—as permitted by the contract—only after the plaintiffs had
failed to repay the bridge loan?
3. Did the court of appeals err by allowing the plaintiffs to recover
the value of their membership interests in the hospitals, when even
their own expert conceded that value had never been calculated with
all liabilities in one complete calculation?
4. Unbriefed: Is the evidence legally sufficient to prove Yollick
committed fraud?
5. Unbriefed: Is the evidence legally sufficient to prove Yollick
acted with malice?
45
(Pet. 8 (original emphasis)) None of these issues includes the affirmative defense
of attorney immunity.
Yollick may argue that the Court must liberally construe his issues and that
Issue 1 could be stretched to include attorney immunity, even though nowhere in
his entire petition does the word “immunity” or the phrase “attorney immunity”
appear. But to accept such an argument would mean that Rules 53 and 55 are no
constraints at all. Yollick’s Issue 1 raises the issue of agent and principal and the
liability that arises out of that relationship when the agent himself commits a fraud.
A fundamentally different legal issue, attorney immunity is an affirmative defense
that is specific to the unique role that an attorney plays in litigation and provides
that “an attorney generally has immunity from claims by an opposing party based
upon conduct the attorney undertook in the representation of a client, but this
immunity does not apply to alleged torts based upon the attorney’s fraudulent or
malicious conduct.” James v. Easton, 368 S.W.3d 799, 802 (Tex. App.—Houston
[14th Dist.] 2012, pet. denied).
Not even a liberal reading of Yollick’s Issue 1 includes the affirmative
defense of attorney immunity, and therefore he has waived that issue before this
Court. Accordingly, attorney immunity is not before this Court, is not a basis for
granting review, nor is it grounds for reversing the court of appeals’s decision.
46
B. Even If The Issue Of Attorney Immunity Were Before The Court,
It Would Not Absolve Yollick Of His Fraud.
1. Yollick did not conclusively establish the affirmative
defense of attorney immunity.
As an initial matter, it was Yollick’s burden to prove the affirmative defense
of attorney immunity. Mendoza v. Fleming, 41 S.W.3d 781, 788 (Tex. App.—
Corpus Christi 2001, no pet.) (holding that appellees failed to establish affirmative
defense of attorney immunity as a matter of law because material fact issue existed
concerning whether appellees’ actions were within bounds of the law). Because
Yollick presented no evidence during his case-in-chief and the immunity defense
was not submitted to the jury, he was only entitled to JNOV based on this defense
if he conclusively established the defense as a matter of law. Whitney Nat’l Bank v.
Baker, 122 S.W.3d 204, 207 (Tex. App.—Houston [1st Dist.] 2003, no pet.)
(stating that, when affirmative defense was not submitted to jury, court reviews
record to determine whether issue was disputed or whether defense was
conclusively established by evidence). Investors presented substantial evidence
establishing that Yollick not only engaged in fraudulent conduct, as the jury found,
but that Yollick in fact orchestrated the entire scheme. In contrast, and far from
conclusively establishing the defense, all Yollick offers this Court is the claim that
“the allegedly fraudulent conduct was undertaken as part of the discharge of
Yollick’s duties to his clients.” Br. 23.
47
With only the argument that his fraudulent conduct was undertaken as party
of discharging his duties to his client, Yollick tries to hang his entire defense on
this Court’s recent decision in Cantey Hanger v. Byrd, — S.W.3d —, 2015 WL
3976267 (Tex. 2015). Indeed, it is the only case he cites regarding immunity in his
brief.
But Yollick’s reliance on Cantey Hanger is misguided. Based on Cantey
Hanger, Yollick contends that if his wrongful conduct falls within the scope of his
legal representation to his client, then liability to third parties should be barred by
the defense of attorney immunity. Br. 23. But Cantey Hanger made clear that its
analysis did not consider the attorney immunity doctrine’s application outside of
the litigation context. Cantey Hanger, 2015 WL 3976267, at *3 n.6. Thus, any
attempt by Yollick to invoke Cantey Hanger to support his waived defense of
attorney immunity in this case must be rejected.
2. Attorney immunity does not apply to Yollick’s fraudulent
conduct.
Although attorneys are generally immune from claims by opposing parties
for conduct undertaken in the representation of a client, this immunity does not
apply to fraudulent conduct. James, 368 S.W.3d at 802. An attorney’s participation
in fraudulent conduct is “entirely foreign to the duties of an attorney.” Poole v.
Houston & T.C. Ry. Co., 58 Tex. 134, 137 (1882).
48
An attorney is liable for fraud “if he knowingly commits a fraudulent act that
injures a third person, or if he knowingly enters into a conspiracy to defraud a third
person.” Likover v. Sunflower Terrace II, Ltd., 696 S.W.2d 468, 472 (Tex. App.—
Houston [1st Dist.] 1985, no writ) (affirming judgment against attorney for
knowingly assisting client in extorting a payment to which the client had no legal
right); see also Estate of Stonecipher v. Estate of Butts, 686 S.W.2d 101, 103 (Tex.
1985) (affirming judgment against attorney for conspiracy to defraud where
attorney received title to client’s property before judgment and then transferred
title back to client after the judgment creditor ceased trying to collect).
In Essex Crane Rental Corp. v. Carter, 371 S.W.3d 366 (Tex. App.—
Houston [1st Dist.] 2012, pet. denied), the court reversed a summary judgment
ruling in favor of attorneys alleged to have knowingly drafted fraudulent
documents designed to hide their clients’ assets from judgment creditors. The court
explained that attorneys will be held liable for “knowingly drafting fraudulent
documents,” and cannot escape liability “for the loss sustained by reason of their
own wrongful acts on the ground that they are the agents of their clients.” Id. at
382. Quite simply, “no one is justified on that ground in knowingly committing
willful and premeditated frauds for another.” Id. (quoting Poole, 58 Tex. at 137-
38).
49
In Likover, an attorney allegedly assisted his client in a fraudulent business
scheme involving the sale of an apartment complex. Id. at 471. The court rejected
the attorney’s argument that he could not be held liable to non-client third parties
for actions done in the course of representing a client. “[A]n attorney is liable if he
knowingly commits a fraudulent act that injures a third person, or if he knowingly
enters into a conspiracy to defraud a third person.” Id. at 472.
Likover cited this Court’s longstanding rule that “where a lawyer acting for
his client participates in fraudulent activities his action in so doing is ‘foreign to
the duties of an attorney.’” Id. at 472 (quoting Poole, 58 Tex. at 137). See also
McKnight v. Riddle & Brown, P.C., 877 S.W.2d 59, 61 (Tex. App.—Tyler 1994,
writ denied) (“where an attorney acting for his client participates in fraudulent
activities, his action is ‘foreign to the duties of an attorney’”) (citation omitted). An
attorney cannot “shield himself from liability on the ground that he was the agent
of [his client], for no one is justified on that ground in knowingly committing
willful and premeditated frauds for another.” Poole, 58 Tex. at 137-38; Likover,
696 S.W.2d at 472.
Nor does this Court’s recent opinion in Cantey Hanger help Yollick. As
noted above, Cantey Hanger does not apply at all here because the conduct at issue
was unrelated to litigation. 2015 WL 3976267, at *3 n.6 (stating that the Court
“need not consider the attorney-immunity doctrine’s application to an attorney’s
50
conduct that is unrelated to litigation . . . and ‘requires the office, professional
training, skill, and authority of an attorney.’” (citation omitted)).
But even if Cantey Hanger did apply (which it does not), the court of
appeals correctly held that Yollick did not conclusively establish his immunity
defense. This is because the court of appeals held, consistent with Cantey Hanger,
that Yollick’s conduct was outside the scope of his legal representation of FNB.
As the court of appeals explained, “Yollick was not relying on his professional
knowledge and training as an attorney to make a statement in the course of
representing his client in an adversarial context; he was simply signing his name,
acting as the Bank’s agent with actual authority to bind his principal to a promise
of future performance. The problem is that he knew the promise was false.”
Yollick, 447 S.W.3d at 469-70. Thus, even if the Cantey Hanger standard applied
(which it does not), Yollick is still not entitled to immunity.
In short, if the attorney-immunity doctrine shields conduct like Yollick’s—
where an attorney masterminds a fraudulent scheme in which his spouse
participates using a pseudonym and knowingly makes false statements in a
business deal—there will simply be no limit to the immunity doctrine. A license to
practice law will, in effect, be a license to commit fraud.
51
II. THE COURT OF APPEALS CORRECTLY HELD THAT SUFFICIENT EVIDENCE
SUPPORTED THE JURY’S VERDICT FINDING YOLLICK LIABLE FOR FRAUD.
Yollick signed the forbearance agreement on behalf of FNB knowing that
neither he nor the bank had any intention of honoring it. With the ink barely dry,
he orchestrated a stealthy scheme to divest Investors of their ownership of LTHM
and the hospital system, flouting his earlier representations. There can be no
dispute about Yollick’s involvement in FNB’s scheme—Yollick admitted that he
helped FNB take LTHM from Investors. 4.RR.62.
A fraud cause of action requires a “material misrepresentation, which was
false, and which was either known to be false when made or was asserted without
knowledge of the truth, which was intended to be acted upon, which was relied
upon, and which caused injury.” DeSantis v. Wackenhut Corp., 793 S.W.2d 670,
688 (Tex. 1990). The evidence is legally and factually sufficient to support the
jury’s finding of fraud against Yollick.
In the face of overwhelming evidence that he was the ringmaster of the
fraudulent scheme, Yollick claims that his status as FNB’s agent shields him from
liability for fraud he personally committed while serving FNB. Because his
conduct as an agent constituted fraud in its own right, Yollick is liable to Investors
on account of his own fraudulent conduct.
52
A. Corporate Agents Are Individually Liable For Fraudulent Acts
Committed In The Service Of Their Principal.
Yollick’s brief goes to great pains to conflate and confuse the issue of his
role as agent for FNB in the fraudulent scheme. He argues that parties to
transactions “understand that the agent neither promises nor binds itself to any
performance obligations” and that in this case, “no one thought Yollick would
individually lend $3.5 million.” Br. 27. He then goes on to cite various cases for
the proposition that agents are not liable for breaches of contract by their disclosed
principals. (Id.)
While agents are not liable for their principals’ breach of contract, that
standard does not absolve an agent like Yollick from his own fraudulent conduct
that he commits while acting on his principal’s behalf. “It is well-settled that a
corporate agent can be held individually liable for fraudulent statements or
knowing misrepresentations even when they are made in the capacity of a
corporate representative.” Wright v. Sage Eng’g, Inc., 137 S.W.3d 238, 250-51
(Tex. App.—Houston [1st Dist.] 2004, pet. denied); see also, e.g., Holberg v. Teal
Constr. Co., 879 S.W.2d 358, 360 (Tex. App.—Houston [14th Dist.] 1994, no
writ) (affirming fraud judgment against president of electrical subcontractor
because evidence showed that he misrepresented that all suppliers had been paid);
Barclay v. Johnson, 686 S.W.2d 334 (Tex. App.—Houston [1st Dist.] 1985, no
writ) (holding that a corporate contractor’s officer’s signature on a brochure stating
53
that the contractor was a bonded builder and a member of a builders’ association
was a fraudulent statement, sufficient to support judgment against the officer as an
individual); Miller v. Keyser, 90 S.W.3d 712, 717 (Tex. 2002) (observing “Texas’
longstanding rule that a corporate agent is personally liable for his own fraudulent
or tortious acts”).
In this case, Yollick was an admitted agent of FNB, CR.608; 5.RR.151,
which the jury found—along with Yollick—liable for fraud.
The jury found Yollick liable for fraud after reviewing evidence of his
fraudulent representations, in addition to his role in orchestrating the fraudulent
scheme and creating the false documents that allowed the transactions to occur.
And aside from any fraud committed on behalf of his client FNB, Yollick secured
personal gain as his wife acquired control of a company worth more than $19
million, as well as a $10,000 cash payment.
Yollick cites Chu v. Hong, 249 S.W.3d 441 (Tex. 2008), to support his
argument that liability should not be imposed on an attorney/agent like himself
who drafts fraudulent transactional documents. Br. 30. But “Chu did not hold that
attorneys are immune to suit for fraudulent acts undertaken in the representation of
a client; it indicated exactly the opposite.” Essex Crane Rental Corp. v. Carter, 371
S.W.3d 366, 381 (Tex. App.—Houston [1st Dist.] 2012, pet. denied) (citing Chu,
249 S.W.3d at 446 & n.19).
54
In Chu, a third party buyer’s attorney drew up a bill of sale of community
property, a shop, at his client’s request while knowing that one spouse was selling
the shop without the other spouse’s consent. 249 S.W.3d at 446. The seller had
misrepresented to the third party buyer that “money from the sale would be used to
pay off a loan from his parents, and the rest would be shared with” his spouse. Id.
at 447. The spouse “denied there was any such loan, but there was no evidence”
that the third party buyer or his attorney “knew that at that time.” Id. In short, there
was no direct or circumstantial evidence that the attorney agreed to the injury to be
accomplished. Id. at 446-47. The court held that an “attorney who personally steals
goods or tells lies on a client’s behalf may be liable for conversion or fraud . . .
But there are no such allegations here.” Id. at 446 (emphasis added).
Chu thus presents a stark contrast to the facts here. As discussed more fully
in the Statement of Facts and below, Yollick was the ringleader of the fraudulent
scheme to divest Investors of their ownership interests; there was no evidence that
the attorney in Chu had any knowledge of the fraud alleged there. Here, when
Yollick signed transaction documents on behalf of his principal, he knew there was
no intention to perform. In short, Yollick made false representations, even if the
representations concerned the conduct of someone else (here, his principal).
Yollick warns of a parade of horribles where “[c]orporate officers and agents
will be loath to sign contracts for their corporations if every signature exposes
55
them individually to potential tort and punitive-damages liability if the corporation
later fails to perform.” Br. 30. But that is not the circumstance here. In this case
Yollick, a corporate agent, orchestrated a fraudulent scheme with his principal to
steal from Investors, knowing that the representations he and his clients were
making to Investors were false. That is a far cry from an innocent agent merely
signing documents on behalf of a corporation that later fails to perform. As Yollick
himself acknowledges, that agent would not be liable for the later breach of
contract. But an agent that knowingly makes false statements on behalf of his
principal can and is liable for the harm he causes.
As the court of appeals rightly observed, “[b]y signing the agreement on the
Bank’s behalf, Yollick made a material representation that the Bank intended to
adhere to its terms. Because he did so knowing that the Bank did not intend to
perform as promised, he can be held liable for his conduct, just as any other agent
or corporate representative would be.” Op. at 25-26 (citing Miller, 90 S.W.3d at
717 (Tex. 2002) (“[A] corporate agent is personally liable for his own fraudulent or
tortious acts.”); RESTATEMENT (SECOND) OF AGENCY §348 (1958) (“An agent who
fraudulently makes representations, uses duress, or knowingly assists in the
commission of tortious fraud or duress by his principal or by others is subject to
liability in tort to the injured person although the fraud or duress occurs in a
56
transaction on behalf of the principal.”) (cited with approval in Miller, 90 S.W.3d
at 717 n. 29)).
The court of appeals did not, as Yollick contends, treat his signature as “his
personal promise that his principal, the Bank, intended to perform . . . .” Br. 28.
Rather, the court of appeals recognized that Yollick made false representations that
he knew were false when he made them. Because of his individual, fraudulent
conduct, Yollick must face the consequences of his actions.
B. There Is Overwhelming Evidence Supporting The Jury’s Fraud
Finding Against Yollick.
The jury found Yollick individually liable for fraud. Courts “must consider
evidence in the light most favorable to the verdict, and indulge every reasonable
inference that would support it.” City of Keller v. Wilson, 168 S.W.3d 802, 822
(Tex. 2005). Additionally, courts “do not step into the shoes of the fact finder
because the fact finder is the only judge of the witnesses’ credibility.” Moore, 321
S.W.3d 727, 739 (Tex. App.—Houston [14th Dist.] 2010, pet. denied). Extensive
evidence supports the jury’s finding.
“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.” Formosa Plastics Corp. USA v. Presidio Engineers &
Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998). Specifically, “when one party
enters into a contract with no intention of performing, that misrepresentation may
57
give rise to an action in fraud.” Crim Truck & Tractor Co. v. Navistar Int’l Transp.
Corp., 823 S.W.2d 591, 597 (Tex. 1992). A breach of contract “combined with
slight circumstantial evidence of fraud,” is sufficient to support a finding of
fraudulent intent. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 305 (Tex.
2006); see also Aquaplex Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 775
(Tex. 2009).
1. Yollick made false material representations.
The forbearance agreement contained a number of material representations
that Yollick knowingly made on behalf of FNB.
The agreement expressly referred to Investors as “members” of LTHM,
recognizing their continuing ownership. DX4 ¶2 (“the members of LTHM . . . shall
continue its efforts to raise additional equity or alternative funding sources”); see
also 4.RR.183. It defined the forbearance period as lasting for at least 30 days
from the date the funds were advanced. DX4 ¶1. Even after the forbearance period
ended, FNB still had to take additional actions to transfer Investors’ membership
interests if the Investors did not secure financing. See DX4 ¶10.
LTHM’s obligations to its members “arising under corporate governance
documents shall in no way be deemed modified, altered, amended or extinguished
by the terms” of the agreement. DX4 ¶8. The provision regarding an “orderly
58
transition” similarly contemplated that Investors would remain members during the
forbearance period. DX4 ¶10.
Investors’ voting rights were to be held in trust during the forbearance
period. DX4 ¶7. LTHM, under the control of FNB and Merensky Reef, “shall” take
no action “that would result in a material adverse effect upon the LTHM Group’s
value, operations, assets, members, governance or liabilities.” DX4 ¶9 (emphasis
added); see also 4.RR.182-83. And during the forbearance period, prior approval
from “the Members” was required before LTHM made any business expenditure in
excess of $20,000 outside the ordinary course of business. DX4 ¶12.
Yollick signed the forbearance agreement on behalf of FNB and participated
in conference calls with Investors prior to its execution to discuss its provisions.
DX4 at 4; 13.RR.91. As the court of appeals correctly explained, by signing the
agreement on FNB’s behalf, Yollick represented that FNB intended to perform the
agreement. Yollick, 447 S.W.3d at 470.
That a corporate agent can be held personally liable for false statements he
makes on behalf of his principal is nothing new under Texas law. In Barclay v.
Johnson, 686 S.W.2d 334 (Tex. App. —Houston [1st Dist.] 1985, no writ), a
corporate officer was held personally liable for fraud when he signed a brochure
falsely stating that a corporate contractor was a bonded builder and a member of a
builder’s association:
59
Barclay’s signature in the brochure was a false representation of a
material fact, which the appellee relied upon to his detriment in
signing the earnest money contract. This constituted personal
participation in corporate wrongdoing sounding in tort. It was,
therefore, sufficient to support a judgment against Barclay as an
individual.
Id. at 338. Similarly, other courts have found that an agent’s false statements of his
principal’s intent to perform were material misrepresentations that could support a
fraudulent-inducement claim. See Duval County Ranch Co. v. Wooldridge, 667
S.W.2d 887, 894 (Tex. App.—Austin 1984, writ dismissed w.o.j.).
2. Yollick knew FNB had no intention of honoring the
representations he made on its behalf.
As explained clearly in the court of appeals’ opinion, there is ample
evidence that (1) FNB never intended to honor its promises to hold the LTHM
membership interests in trust and to not take actions that would have a materially
adverse on Investors and (2) Yollick knew when he signed the forbearance
agreement on FNB’s behalf that FNB had no intention of abiding by it. Yollick,
447 S.W.3d at 461-62. As the court of appeals explained:
[T]here is evidence that when Yollick represented that the Bank
intended to perform, he knew that this was false because he already
had witnessed Merensky Reef approving the plans to violate the
agreement. Specifically, the record contains more than a scintilla of
evidence that (a) Yollick and the Bank knew the terms of the Letter
Agreement before Merensky Reef’s board meeting on May 14, 2009;
(b) at the same meeting, the board resolved both to execute the
agreement and to take actions prohibited by the agreement; (c) Yollick
was aware of these actions because they were performed in his
presence and at his direction; and (d) Yollick did not represent that the
60
Bank intended to comply with the agreement until after he had seen
that these resolutions were passed.
447 S.W.3d at 462
“Intent is a fact question uniquely within the realm of the trier of fact
because it so depends upon the credibility of the witnesses and the weight to be
given to their testimony.” Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434
(Tex. 1986). Because intent to defraud is not susceptible to direct proof, it
invariably must be proven by circumstantial evidence. Id. at 435 (finding intent
where an employer refused to commit a bonus plan to writing and remained silent
when asked if the plan would be approved after it had already been approved).
A party’s “intent is determined at the time the party made the representation,
[but] it may be inferred from the party’s subsequent acts after the representation is
made.” Id. at 434. Thus, in Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d
768 (Tex. 2009), the timing of a joint venturer’s bankruptcy, filed just after the
execution of a master settlement agreement with the managing venturer,
constituted circumstantial evidence of a lack of intent to perform to support a
finding of fraudulent intent. Id. at 774-75.
Here, the day before Yollick signed the forbearance agreement on FNB’s
behalf, he orchestrated a takeover of Investors’ membership interests, in
contravention of its provisions to hold the membership interests in trust and not
take actions that had a material adverse effect on the Investors. PX3; PX4; PX5;
61
4.RR.161-62; 9.RR.77-79; 13.RR.213. On May 14, Yollick convened meetings for
the newly-formed Merensky Reef at his law office, and, as shown in the minutes
that he drafted, Merensky’s directors promptly approved the execution of
documents for the takeover of the Investors’ ownership interests in LTHM in the
very same meeting where they voted to execute the forbearance agreement that
required them to hold the interests in trust and not take actions that would have a
materially adverse effect on the Investors. PX3; PX4; PX5; 4.RR.161-62; 9.RR.77-
79, 82-83; 13.RR.213, 248-49. The forbearance period had not yet expired; indeed,
Merensky Reef had not yet even executed the forbearance agreement. See DX4;
Exh. A to PX5.
That Yollick knew what Merensky Reef and the bank was up to is beyond
doubt. Yollick invited three close contacts—including his wife who used a
pseudonym and another longtime friend and client, neither of whom had any
banking or hospital experience—to be Merensky Reef directors. 5.RR.155-56, 161;
6.RR.8; 8.RR.228-29; 13.RR.178, 190, 202, 243-44. Merensky Reef’s new
directors promptly approved executing loan documents to buy the hospital system.
PX3; PX4; PX5; 9.RR.82-83; 13.RR.248-49. Yollick was present at the meetings
and drafted the minutes. 8.RR.240, 246, 250; 8/6/12 Tr. at 22.
Despite the obligation of FNB and its agent, Merensky Reef, to hold the
LTHM’s membership interests in trust, the very next day, Merensky Reef
62
purchased the hospital system in a transaction financed by FNB and documented
by Yollick. PX10; PX11; PX12; PX13; PX14; PX51; 11.RR.146-47; 15.RR.36-37;
194.
Yollick structured the loan to cover LTHM’s outstanding indebtedness as
well as an additional approximately $5.3 million of unrelated pre-bankruptcy debt
that LTHM had not been obligated to pay. See PX10; PX11; PX12; PX13; PX14;
PX15; PX51; 11.RR.146-47; 15.RR.32, 36-37, 194. All the real property of LTHM
collateralized the loan. PX14; 15.RR.35-36.
FNB’s vice president and chief lending officer conceded that the forbearance
agreement did not provide FNB the “authority” to “take ownership of the collateral
that was pledged by LTHM and the LTHM subsidiaries, the borrowers to the
March 16, 2009, loan transaction” or to add another $5.3 million in debt,
collateralized by the Houston hospital, as “an asset on [FNB’s] books.” 15.RR.27,
34, 39-40. Rossman, Merensky Reef’s director, acknowledged that he could not
think of “any business purpose that served the interests” of Merensky Reef “by
taking on this additional 5 million dollars’ worth of debt.” 6.RR.29. He also
acknowledged that “if the hospitals were sold during that 30-day forbearance
period, that would be a breach” of the forbearance agreement. 5.RR.182.
Investors testified that Yollick’s and FNB’s actions “were essentially
contrary to exactly what they just wrote a day before, that we go into this
63
agreement in good faith.” 10.RR.195. Further, pursuant to the forbearance
agreement, the voting interests could not be exercised “in a way that would
materially damage our assets or our claims on our assets.” 9.RR.226. Rather, “they
have to hold [the voting rights] in trust and give it back when we come up with the
funding.” 13.RR.90. Nevertheless, “[i]mmediately the next day” after the
forbearance agreement was executed, “the membership interests and the assets
were taken from us.” 10.RR.195; see also 9.RR.230-31.
Cementing the takeover of Investors’ interests in the hospital system,
Yollick drafted a Unanimous Consent, dated May 22, 2009, which expressly
removed Investors from their positions in LTHM and confirmed Merensky Reef to
be LTHM’s “sole Member.” PX18. Yollick served as counsel to Merensky Reef
and advised its directors and shareholder in all their actions. See 8.RR.245, 247,
250; 9.RR.75, 99, 128-31; 13.RR.192, 221-24, 226, 244-45; 254-55. The directors
and shareholder admitted that they did not have the proper knowledge and relied
on Yollick to make their decisions. 8.RR.245, 247, 250; 9.RR.75, 99, 128-31;
13.RR.192, 221-24, 226, 244-45; 254-55.
Investors were blindsided by the transactions. Unbeknownst to them, FNB
and Merensky Reef were “selling all our assets, selling all of our real estate—
membership interests to themselves, and borrowing an extra $5.3 million.”
4.RR.184-85. Investors’ “understanding was they were going to hold our voting
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rights in trust . . . as opposed to transferring our entire hospital and membership
equity.” 4.RR.177; see also 9.RR.230-31.
Investors received no communications regarding any expenditures in excess
of $20,000, much less a sale of the entire hospital system. 4.RR.190. Investors
“[a]bsolutely” did “not” ever have any intention of conveying their ownership in
LTHM to Merensky Reef or FNB. 4.RR.196. Investors “[d]efinitely did not have
any knowledge that this was going to happen.” 10.RR.190; see also 4.RR.184-86;
9.RR.227.
That Yollick knew that FNB and its agent Merensky never intended to honor
the promises in the letter agreement when he signed it is shown by overwhelming
evidence. As noted above, Merensky’s directors did what Yollick told them to do.
Moreover, the fraudulent scheme was already underway. Yollick orchestrated the
entire coup dé etat: signing the forbearance agreement, forming Merensky Reef
and dictating its actions, installing his wife as a Merensky Reef director, and then
directing the Merensky Reef directors to issue all of Merensky Reef’s stock to the
trust controlled by Tamara Yollick a/k/a Mara Drake. DX4 at 4; 4.RR.161-62;
8.RR.245; 9.RR.82-83, 163-65; 13.RR.91.
In fact, Yollick and his wife personally profited from the transactions. Mara
Drake/Tamara Yollick received a $10,000 payment for serving as a Merensky Reef
65
officer or director. 9.RR.131; 13.RR.255-56. The bank’s CFO testified that the
bank’s payment of this director fee to Yollick’s wife was “unusual.” 8.RR.93.
3. Investors relied on the misrepresentations.
Relying on Yollick’s misrepresentations, Investors executed the forbearance
agreement and diligently sought and secured outside funding in accordance with its
provisions.
A party establishes reliance when evidence shows that it would not have
taken a detrimental action but for having received the representation. Trenholm v.
Ratcliff, 646 S.W.2d 927, 931 (Tex. 1983) (“The record is replete with testimony
that the Trenholms would not have purchased lots in Greenhollow if Ratcliff had
not given them a satisfactory answer regarding the trailer park.”).
All the Investors signed the forbearance agreement in reliance on the
statements contained therein. PX6, 4.RR.193-94; 10.RR.112-13, 190-91, 195-96;
13.RR.91-94; see also 13.RR.91 (reliance on the provisions of the forbearance
agreement as well as Yollick’s representations regarding the agreement on the
preceding conference call)).
Testimony showed that the “whole reason why” Investors executed the
forbearance agreement and transferred their voting interests in trust was that they
relied upon “the words that were set forth in that agreement.” 10.RR.195-96. As
the court of appeals recognized, this testimony alone was some evidence of
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reliance of all of the Investors. Yollick, 447 S.W.3d at 463 (quoting the testimony
at 10.RR.195-96 and stating that “testimony is some evidence that all of the
Investors relied on Yollick’s representation”).
But there was additional evidence of reliance as well. Investors “trusted
that” Yollick and FNB “would do what was set up to do in this term sheet.”
10.RR.190-91. They would “[a]bsolutely not” have signed the forbearance
agreement had they known that LTHM and the hospitals were going to be sold.
4.RR.185-86. Indeed, “[t]here is no way you would ever sign something like that.”
9.RR.226-27.
In Moore v. Altra Energy Technologies, Inc., 321 S.W.3d 727 (Tex. App.—
Houston [14th Dist.] 2010, pet. denied), the court found reliance where the
principal of a buyer of a business testified that he would not have signed the sales
agreement with the business owner unless he had believed that the investor would
finance the purchase as promised. Id. at 738-39; see also Fortune Prod. Co. v.
Conoco, Inc., 52 S.W.3d 671, 682 (Tex. 2000) (“In reliance on these
representations, the plaintiffs agreed to accept spot market prices rather than a
price tied in some manner to the Lone Star contract price.”).
Upon executing the forbearance agreement, Investors proceeded to seek, and
in fact did secure, short-term financing that would have fully satisfied the bridge
loan. PX56; PX58; PX59; PX135; DX75; 4.RR.163-67, 178-80, 187, 194;
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9.RR.228-29; 10.RR.193; 13.RR.100, 102-04; 15.RR.44-46, 48-49. That Investors
performed their obligations under the agreement further shows their reliance.
Investors’ “understanding was we were in good faith just going out to raise
more money while they were holding our voting trusts.” 4.RR.184-85; see also
9.RR.225. They reasoned that the forbearance agreement “allowed us to get some
more working capital from the bank to run the hospitals while we, as investors, go
out and bring some more money and—to pay this off and to continue to sustain the
operations of the hospital.” 13.RR.88. “Never in a million years did we expect
them to do the things they did at all.” 4.RR.171.
Investors also continued “talking to the physicians and working on the
syndication efforts and placement of the physicians into the hospitals.” PX135;
DX75; 4.RR.163-64, 167, 178-79, 194; 13.RR.100, 104-05. But their efforts were
for naught. Investors “were sincerely trying to get these hospitals going,” but then,
as Raja Talluri, the principal of appellant Priya Properties, LLC, explained,
“suddenly we were told we no longer owned the hospitals anymore and the
hospitals were taken away from our control.” 13.RR.99; see also 13.RR.48.
In Southwestern Bell Telephone Co. v. Marketing on Hold Inc., 308 S.W.3d
909 (Tex. 2010), this Court affirmed the trial court’s finding that customers’
payment of phone bills established proof of reliance upon the misrepresentations in
the bills. The court explained that they “had no choice but to rely on the
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misrepresentation.” Id. at 922. In paying the amount of the bill, the customers
“must have paid the total amount due, including the municipal fee.” Id. Had they
paid “a different amount, such as one that did not include the amount of the fee,
Southwestern Bell certainly would have taken action, such as cancelling services.”
Id. at 922-23. Here, had Investors realized that their ownership in LTHM would be
wrested in violation of the forbearance agreement, they would not have signed the
agreement or diligently endeavored to secure financing in accordance with its
provisions.
III. YOLLICK’S DAMAGES ARGUMENT BEFORE THIS COURT WAS BARELY
MENTIONED BY YOLLICK IN THE COURT OF APPEALS AND IS INCORRECT
BECAUSE THERE IS AMPLE EVIDENCE OF INVESTOR’S DAMAGES.
In his second issue, Yollick claims that there is insufficient evidence of the
value of Investors’ membership interests because it was never calculated with all
liabilities “in one complete calculation.” Br. 10. Not only is Yollick’s argument
wholly incorrect because Investors’ damages expert’s uncontroverted testimony is
sufficient to support the jury’s finding, but it is almost unrecognizeable when
compared to Yollick’s arguments in the court of appeals.
A. The Court Should Not Grant Yollick’s Petition to Review His
Damages Argument.
As Yollick notes, “[m]ost of the court of appeals opinion on damages
focused on the evidence regarding LTHM’s asset value.” Br. 43. There was a very
good reason for that. In the court of appeals, Yollick’s argument that Investors’
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damages evidence was insufficient focused on three points (1) it did not value the
Investors’ membership interests at all, (2) Investors improperly relied on the
assets-minus-liabilities method, and (3) there was insufficient evidence to support
the value of LTHM’s assets. Yollick Appellee Br. 49-55.
Yollick now concedes that the court of appeals was right when it rejected
points 2 and 3 and that the court of appeals was correct when it concluded that it
was proper for Investors to rely on the assets-minus-liabilities method and there
was sufficient evidence that LTHM’s assets had a market value of $56 million. Br.
42-43. And he does not challenge the court of appeals’s rejection of point 1. Id.
Instead, Yollick asks this court to reverse the court of appeals based on his
incorrect assertion that Investors’ expert failed to account for all of LTHM’s
liabilities in his damages opinion. Br. 10, 43. In the court of appeals, Yollick barely
mentioned this point; his brief devoted only two sentences to this factual argument
that is now his sole damages argument in this Court. Yollick Appellee Br. 53.
Given that Yollick only devoted two sentences to this factual issue in the court of
appeals, it is hard to imagine how the court of appeals committed “an error of law”
that is “of such importance to the jurisprudence of the state” that “it requires
correction.” TEX. GOV’T CODE §22.001(a)(6).
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B. The Court of Appeals Correctly Held That There Was Sufficient
Evidence of Investor’s Damages.
The sole element of damages the jury was asked to find in this case was
“The value of each [Appellant’s] membership interests in LTHM as of May 15,
2009.” CR.611. The district court did not provide any instructions regarding how
“value” was to be determined. Id. Because Yollick did not object to the form of the
question nor did he request any instructions regarding how value was to be
calculated, the sufficiency of the evidence is measured against the charge as given
and the jurors were free to use the method and figures used by Investors’ expert.
Romero v. KPH Consolidation, Inc., 166 S.W.3d 212, 221 & n. 30 (Tex. 2005);
Liberty Sign Co. v. Arendale, 433 S.W.2d 23, 26-27 (Tex. Civ. App.—Fort Worth
1968, no writ) (appellant waived complaint about the method used by jurors to
calculate “reasonable cash market value” where appellant neither requested any
definition or instruction about how it was to be calculated nor objected to the
absence of any definition or instruction, and the only number jurors used that was
not supported by the evidence benefitted the appellant).4
4
Contrary to what Yollick suggests in his brief, Br. 48, he did not make any objection at the
charge conference regarding the evidence of LTHM’s liabilities. The record cite Yollick
provides is to FNB’s and Merensky Reef’s objections. 17.RR.18; see also 17.RR.17 (counsel
noting that she was speaking only for FNB and Merensky Reef). Yollick separately objected to
the charge and just made a general one-sentence no evidence objection without any explanation.
17.RR.28.
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At trial, Investors’ called Gilbert Herrera as their damages expert. Yollick
does not dispute that Herrera’s qualifications. This is unsurprising given his
extensive experience in the operation of regulated financial institutions and
healthcare institutions as well as valuing hospitals and other healthcare businesses.
14.RR.8-11, 13-19. Herrera has worked as a bank loan officer, supervised the
lending activities of Amegy and Sterling Banks, and served as the chair for
Christus Health’s board of directors, which is required by law to value each of the
system’s assets annually. 14.RR.9-10, 13-14, 17-19.
Herrera testified that “that the value of the Investors’ membership interests
was equal to the value of [LTHM’s] assets minus the amount of the lien.” Yollick,
447 S.W.3d at 467; see also 14.RR.35-36. Yollick and his co-defendants did not
call any fact or witness that suggested this method was not correct. In fact, Yollick
and his co-defendants did not call any witnesses at all during the liability/damages
portion of trial. 17.RR.13; 18 RR.36.
As Yollick concedes, there was evidence that LTHM’s assets had a market
value of $56,147,000. This concession is unsurprising given that FNB itself valued
the collateral in that amount and, just a few months after FNB wrongfully took
LTHM from Investors, they sold LTHM’s subsidiaries (i.e., the hospitals) for
$55,400,000. PX26-34, 51, 195; 11.RR.120-124; 14.RR.34. Investors’ expert
further testified that LTHM’s liabilities were $37,041,000. 14.RR.35-36. Thus,
72
Investors’ expert concluded that LTHM’s total membership interests were worth
$19,106,000 and that each member’s interest would be worth the total value of
LTHM multiplied by their percentage ownership interest. 14.RR.35-40.
Nevertheless, despite the fact the court of appeals stated correctly that
Investors’ expert testified about LTHM’s liabilities, Yollick, 447 S.W.3d at 467
n.7, Yollick tries to dress up his quibbles with the evidence of liabilities as an
argument that Investors’ expert, Gilbert Herrera, either failed to consider data
regarding other LTHM liabilities or that he ignored other LTHM liabilities.
Yollick Br. 46. But this is simply not the case.
As this Court explained in Houston Unlimited, Inc. Metal Processing v. Mel
Acres Ranch, 443 S.W.3d 820, 833 (Tex. 2014), when there is conflicting evidence
regarding an expert’s factual assumptions, it is the province of the jury to
determine whether to credit the expert’s opinion and the premises on which it is
based. Id. Only when an expert’s assumptions “are contrary to conclusively proven
facts” or if the assumption is unsupported by any evidence is an expert’s opinion
legally insufficient to support a damages award. Id.
Here, Yollick does not dispute that LTHM owed FNB $37,041,000. Rather,
Yollick claims that there were some other unidentified liabilities that Herrera failed
to take into account. But while Yollick expounds at length about the financial
difficulties LTHM faced in the first three months after it bought the hospitals out
73
of bankruptcy, there is no evidence of any bill or expense that LTHM had failed to
pay or owed as of May 15, 2009 or any other indebtedness. Simply put, there is no
evidence (let alone undisputed evidence) of any LTHM liabilities that Herrera
failed to take into account.
First, contrary to Yollick’s suggestion that Herrera only looked at one
liability among others, Herrera in fact testified that he considered “nine or ten”
different LTHM liabilities. 14.RR.137. And Herrera specifically explained why
certain tax liens were not liabilities of LTHM, but were LTHM assets because
LTHM had bought the liens, and how he had taken this into account in his analysis.
14.RR.44-45.
Second, Yollick is incorrect when he says it is undisputed that LTHM had
liabilities other than what it owed FNB. In fact, Herrera said he was not aware of
any other liabilities beyond the ones he had identified, 14.RR.137, and there is no
evidence of any other LTHM liability.
It is true that from March 16, 2009, when LTHM bought the hospitals until
May 15, 2009, when Yollick and FNB wrongfully took LTHM from the Investors,
that LTHM’s expenses exceeded its operating revenue. 5.RR.126. But what
Yollick leaves out is that LTHM had other means to pay its bills besides operating
revenue. The original $37 million loan included approximately $5 million for
LTHM to use to retire prior tax debts of LTHM’s (which it did) and to provide
74
working capital until LTHM could cover its expenses through operating revenue.
4.RR.102-04. Plus, the Investors themselves put their own money into LTHM to
help it cover its expenses. 10.RR.57. A business can be losing money because its
costs exceed its revenue but still pay its bills on time.
Moreover, when LTHM bought the hospitals in March 2009, it used several
million dollars of the loan proceeds to retire its liabilities. In particular, it used over
$3 million to purchase outright hospital equipment that had previously been leased
and used another $2 million to pay off outstanding tax liabilities. 11.RR.177-79
(equipment leases); 11.RR.179-80 (taxes). Thus, on May 15, 2009, which is the
relevant date for valuing the LTHM membership interests according to the jury
charge, these liabilities no longer existed. They had been paid off with proceeds
from the $37 million in loans from FNB.
While Yollick states that LTHM was burdened with “operational liabilities,”
Br. 47. there is no evidence of any such liabilities and the cites Yollick provides do
not reflect any such liabilities. For example, while Investors were concerned about
their ability to make payroll on May 15 and in the future, 9.RR.215-20, the fact is
that LTHM did make payroll on time up until the day LTHM was taken from them.
9.RR.217. So, contrary to Yollick’s suggestion that LTHM had a $2.5 million
75
payroll liability, Br. 46, the evidence showed that LTHM was able to make
payroll.5
Similarly, LTHM paid the bills submitted by the outside consultant that
Yollick and FNB imposed on them. 6.RR.24. Similarly, Yollick cites the testimony
of Greg Walker at 4.RR.222-24 to suggest the hospitals were losing money. But
Walker’s testimony at these pages referred to the hospitals debts owed before the
bankruptcy by the prior owners. Id.
The only other purported liability Yollick claims that Herrera failed to
consider are additional loans FNB made on May 15, 2009 at the same time as the
forbearance agreement at issue in this case. Br. 45. But what Yollick fails to
mention was that LTHM was not the borrower of these loans. These loans were
made to the bank’s agent, Merensky Reef. PX51; 11.RR.122-23. Thus, there is no
reason why Herrera would consider loans made to Merensky Reef to be liabilities
of LTHM.
Thus, while it is true that finances were tight at LTHM through May 15,
2009 and that Investors were concerned about its ability to cover payroll in the
future, there is not one shred of evidence of that LTHM had any outstanding
liabilities on May 15, 2009 other than what it owed FNB.
5
Yollick also notes that on May 14, 2009, LTHM thought it would need $6-8 million to get through the
next three months. Br. 46. But there is no evidence that this anticipated future need was in any way
related to existing liabilities on May 15 as to possible future obligations. 10.RR.89.
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Finally, Yollick’s brief oddly insists that Investors’ evidence failed to
provide “one complete calculation” of damages. Br. 24. But this requirement is a
rule governing lost-profits calculations, Holt Atherton Indus., Inc. v. Heine, 835
S.W.2d 80, 84 (Tex. 1992), which were not at issue in this case. The “one complete
calculation” requirement is specific to a lost profits calculation and simply
recognizes that in calculating lost profits, it is not enough to use “pieces of several
different methods of calculating lost profits.” Holt, 835 S.W.2d at 85. That did not
occur here. Rather, the jury calculated Investors’ damages by deducting liabilities
from assets, a formula Yollick now concedes is appropriate.
IV. THERE IS LEGALLY SUFFICIENT EVIDENCE TO SUPPORT THE PUNITIVE
DAMAGES AWARD.
Finally, Yollick argues that the evidence was legally insufficient to support
the jury’s unanimous finding that clear and convincing evidence established that
injuries suffered by Investors were due to Yollick’s fraudulent or malicious
conduct.
With respect to fraud, Yollick simply reasserts that he did not commit any
tort at all. He incorrectly asserts that he “has been held liable by the court of
appeals merely for signing [sic] the contract as agent for his principal.” Br. 53. To
the contrary, the court of appeals found the evidence sufficient to conclude that he
committed fraud, finding “Yollick knew the Bank never intended to comply with
the Letter Agreement’s terms”, that “there is evidence that when Yollick
77
represented that the Bank intended to perform, he knew this was false because he
already had witnessed Merensky Reef approving the plans to violate the
agreement”, that “there is more than a scintilla of evidence that Yollick witnessed
the board’s actions and even directed them”, that “[t]he Letter Agreement bearing
his signature is evidence that despite this knowledge, he nevertheless represented
that the Bank intended to be bound by the agreement”, and “the evidence is more
than sufficient to show that when Yollick represented that the Bank intended to
comply with the Letter Agreement, he knew that representation was false.” Op. 12-
14.6 Investors have explained at length in this brief that there was extensive
evidence that supported the jury’s finding that Yollick did commit fraud.
Additionally, there was extensive evidence of Yollick’s malice. As
explained above, Yollick quarterbacked the defendants’ scheme to steal LTHM
from Investors and then strip LTHM of its assets (which FNB did within six
months for over $55 million). This conduct is the epitome of the statutory
definition of malice: a “specific intent by the defendant to cause substantial injury
or harm to the claimant.” TEX. CIV. PRAC. & REM. CODE §41.001(7). And Texas
6
Yollick’s suggestion that Investors’ settlement with FNB and Merensky Reef somehow prevent the
court of appeals from considering the issues of whether they breached the agreement and whether they
never intended to perform is misleading and false. Yollick briefed those very issues in the court of
appeals. Yollick Appellee Br. 36-44; see id. at 33 (“II. There was no evidence of non-performance of the
contract, much less proof of a fraudulent intent not to perform.”); id. at 36 (“B. FNB and [Merensky Reef]
Complied with the Forbearance Agreement.” And the court of appeals devoted an entire section of its
opinion to these very issues. Yollick, 447 S.W.3d at 460 (“2. There is legally sufficient evidence that the
representation was false because the Bank never intended to comply with the agreements’ terms”).
78
law has long held that intentionally taking the property of another through
wrongful means meets this standard. Bennett v. Reynolds, 315 S.W.3d 867, 872
(Tex. 2010); James J. Flanagan Shipping Corp. v. Del Monte Fresh Produce N.A.,
Inc., 403 S.W.3d 360, 369 (Tex. App.—Houston [1st Dist.] 2013, no pet.); Bright
v. Addison, 171 S.W.3d 588, 598 (Tex. App.—Dallas 2005, pet. denied).
CONCLUSION AND PRAYER
For the foregoing reasons, Yollick’s petition for review should be denied.
Should the Court grant Yollick’s petition, the Court should affirm the judgment of
the court of appeals. Respondents pray for all other relief to which they are
entitled.
79
Respectfully submitted,
/s/ Marc S. Tabolsky
R. Michael McCauley Jr. Marc S. Tabolsky
State Bar No. 00797030 State Bar No. 24037576
Timothy T. Pridmore mtabolsky@yettercoleman.com
State Bar No. 00788224 Dori Kornfeld Goldman
MCWHORTER, COBB & JOHNSON, State Bar No. 24041274
L.L.P. dgoldman@yettercoleman.com
1722 Broadway YETTER COLEMAN LLP
Lubbock, Texas 79408 909 Fannin Street, Suite 3600
Tel. 806-762-0214 Houston, Texas 77010
Fax 806-762-8014 Tel. 713-632-8000
Fax 713-632-8002
Zona Jones Patrick Zummo
State Bar No. 10887600 State Bar No. 22293450
PROVOST UMPHREY LAW FIRM, LLP LAW OFFICES OF PATRICK ZUMMO
P.O. Box 4905 909 Fannin, Suite 3500
Beaumont, Texas 77704 Houston, Texas 77027
Tel. 409-835-6000 Tel. 713-651-0590
Fax 409-813-8618 Fax 713-651-0597
ATTORNEYS FOR RESPONDENTS
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CERTIFICATE OF COMPLIANCE UNDER APPELLATE RULE 9.4
I certify that this brief complies with the type-volume limitation of Texas
rule of Appellate Procedure 9.4(i)(2) because it contains 14,702 words, excluding
the parts of the briefs exempted by Texas Rule of Appellate Procedure 9.4(i)(1).
/s/Marc S. Tabolsky
Marc S. Tabolsky
81
CERTIFICATE OF SERVICE
On August 20, 2015, I electronically filed this Respondents’ Brief on the
Merits with the Clerk of Court using the Court’s electronic filing system which
will send notification of such filing to the following lead counsel for Petitioner.
Roger D. Townsend
rtownsend@adjtlaw.com
Jennifer R. Josephson
jjosephson@adjtlaw.com
ALEXANDER DUBOSE JEFFERSON
& TOWNSEND LLP
1844 Harvard Street
Houston, Texas 77008
Telephone: (713) 523-2358
Facsimile: (713) 522-4553
Kristin Bays
kristin@baysandbays.com
J. Randal Bays
randy@baysandbays.com
BAYS & BAYS
1503 Hailey
Conroe, Texas 77301
Telephone: (936) 760-7670
Facsimile: (936) 760-7671
/s/Marc S. Tabolsky
Marc S. Tabolsky
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