Russell D. Miller and Juliet Investments, Inc. v. Darlene Argumaniz, Individually and on Behalf of Argmil, Inc. , 2015 Tex. App. LEXIS 1274 ( 2015 )

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
§
RUSSELL D. MILLER AND
JULIET INVESTMENTS, INC., § No. 08-13-00091-CV
Appellants, § Appeal from
v. § 168th District Court
DARLENE ARGUMANIZ, § of El Paso County, Texas
INDIVIDUALLY AND ON BEHALF OF
ARGMIL, INC., § (TC # 2013DCV1031)
Appellees. §
OPINION
Russell D. Miller and Juliet Investments, Inc. (collectively Miller) appeal a judgment
entered against them following a jury trial in a fraud and breach of fiduciary duty case. We
affirm in part and reverse and render in part.
BACKGROUND AND PROCEDURAL HISTORY
This tort case concerns an oral agreement between shareholders to transfer a parcel of
real estate to a corporation. Darlene Argumaniz brought the case on behalf of herself and the
corporation, ARGMIL, Inc. (collectively Argumaniz). Russell and Darlene were the officers,
directors, and sole shareholders of ARGMIL. The property that was to be transferred was
warehouse property, first purchased by Darlene’s spouse, Danny Gray, and another gentleman,
Rodolfo Gonzalez. Gray and Gonzalez owned the property as tenants-in-common. Gray and
Darlene subsequently divorced, and Darlene was awarded an interest in the property. She began
collecting the property’s rentals, which were not sufficient to cover the note. Darlene then
looked to Russell for assistance.
ARGMIL was formed for the purpose of acquiring the property from Darlene and
Gonzalez.1 According to Darlene, Russell orally agreed to finance the purchase and transfer the
property to ARGMIL, and Darlene and Allen would then repay him. Instead of complying with
this oral agreement, Russell purchased the note on the property and subsequently foreclosed,
never tendering the property to ARGMIL.
The case was tried before a jury in November of 2012. The jury found that Russell’s
failure to tender the property to ARGMIL constituted fraud against Darlene and a breach of the
fiduciary duty he owed to ARGMIL. The jury further found that Darlene sustained
$378,200 in past economic damages as a result of Russell’s fraud, as well as $400,000 in
mental anguish damages. On the breach of fiduciary duty claim, the jury awarded
ARGMIL $378,200 for past lost profits, and $50,000 for future lost profits. The trial court then
entered judgment confirming these jury awards. The trial court also awarded attorneys’ fees in
Darlene’s favor: $165,831.25 for the trial work, and a combined $162,500 for work stemming
from the various stages of any appeal.
RUSSELL’S POINTS OF ERROR
Russell challenges the judgment in seven points of error. In his first two points, he
argues that the oral agreement to transfer the property to ARGMIL violated the statute of frauds,
thus altogether barring Darlene’s claims. In his third point, he challenges the legal sufficiency of
1
Allen Miller and Argumaniz originally made up the officers, directors, and sole shareholders of ARGMIL, but
when Allen’s ex-wife threatened certain legal action that he feared might affect the corporation, Allen’s father,
Russell, agreed to take Allen’s place in ARGMIL.
2
the evidence supporting the jury’s awards for lost profits, economic damages, and mental
anguish. Issue Four challenges the jury’s awards for lost profits and economic damages as
constituting a double recovery. In his fifth and sixth points of error, Russell challenges the
breach of fiduciary duty claim, arguing that he did not owe a fiduciary duty to convey the
property to ARGMIL and that there is no evidence establishing that ARGMIL suffered
damages.2 Finally, Russell challenges the trial court’s award of attorneys’ fees in his seventh
point of error.
STATUTE OF FRAUDS
Darlene contends that Russell has failed to preserve error with regard to his statute of
frauds defense. We agree. The statute of frauds is an affirmative defense, and it is waived if not
pled. TEX.R.CIV.P. 94; Phillips v. Phillips, 820 S.W.2d 785, 791 (Tex. 1991). Because a
judgment must conform to the pleadings, a trial court cannot grant judgment notwithstanding the
verdict based on an unpled statute of frauds defense. TEX.R.CIV.P. 301; Hays Consol. ISD v.
Valero Transmission Co., 645 S.W.2d 542, 545-46 (Tex.App.--Austin 1982, writ ref’d n.r.e.).
Russell alleged the statute of frauds as a defense against a breach of contract claim previously
asserted by Darlene and indeed obtained a partial summary judgment. He did not pled the statute
of frauds as a defense against either the fraud claim or the breach of fiduciary duty claim.
Russell counters that he triggered the statute of frauds by specifically referencing the oral
agreement that is the basis of the defense. He did so, however, only by asserting the statute of
frauds as a defense against the breach of contract claim. This is distinct from the procedural
circumstances present in the cases upon which he relies. In Simmons v. Compania Financiera
Libano, a party’s pleading failed to explicitly raise the statute of frauds, but nonetheless asserted
that “no oral agreements [were] binding” against the party. Simmons v. Compania Financiera
2
Russell does not challenge the jury’s finding that he committed fraud, however.
3
Libano, S.A., 830 S.W.2d 789, 793 (Tex.App.--Houston [1st Dist.] 1992, writ denied). This
language, although imprecise, was sufficient to invoke the defense. Id. Russell’s pleading is
different. It contains no imprecise or global reference to the statute of frauds, but instead makes
a single, very specific reference expressly limiting the defense to Darlene’s breach of contract
claim: “Plaintiffs did not provide proof of satisfying the statute of frauds on their alleged breach
of contract claim wherein Plaintiff alleges that Defendant Russell D. Miller promised that he
would personally pay off the outstanding note and convey the Property to ARGMIL, INC.”
[Emphasis added]. As such, Simmons does not support Russell’s argument. Nor does McGraw,
which reaches essentially the same conclusion as Simmons although on a different affirmative
defense. See McGraw v. Brown Realty Co., 195 S.W.3d 271, 275 (Tex.App.--Dallas 2006, no
pet.)(holding same regarding pleading of implied warranty defense).
Russell further argues that he triggered the statute of frauds by raising it in his summary
judgment motions. A motion for summary judgment is not a pleading and it cannot not invoke
an otherwise unpled affirmative defense. In the Interest of S.A.P., 156 S.W.3d 574, 576 n.3
(Tex. 2005); TEX.R.CIV.P. 45(a). We thus conclude that Russell waived any statute of frauds
defense to the fraud and breach of fiduciary duty claims. We overrule the first and second points
of error.
LEGAL SUFFICIENCY OF THE EVIDENCE SUPPORTING THE DAMAGE AWARDS
In his third point of error, Russell challenges the legal sufficiency of the evidence
supporting the jury’s damage awards. When considering the legal sufficiency of a finding, we
must credit evidence favorable to the judgment if a reasonable fact finder could, disregard
contrary evidence unless a reasonable fact finder could not, and reverse the fact finder’s
determination only if the evidence presented in the trial court would not enable a reasonable and
4
fair-minded fact finder to reach the judgment under review. City of Keller v. Wilson, 168 S.W.3d
802, 827 (Tex. 2005). We sustain legal sufficiency challenges if the record reveals: (1) the
complete absence of evidence of a vital fact; (2) that the court is barred by rules of law or
evidence from giving weight to the only evidence offered to prove a vital fact; (3) that the
evidence offered to prove a vital fact is no more than a scintilla; or (4) that the evidence
conclusively establishes the opposite of a vital fact. Id. at 810. More than a scintilla of evidence
exists if the evidence rises to a level that would enable reasonable and fair-minded people to
differ in their conclusions. Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004).
Past and Future Lost Profits
Russell first challenges the legal sufficiency of the evidence supporting the jury’s awards
for past and future lost profits, which Darlene sought on behalf of ARGMIL in connection with
the breach of fiduciary duty claim. Lost profits are recoverable for a breach of fiduciary duty
when it is shown that the loss is the natural and probable consequence of the complained of act.
Texas Instruments, Inc. v. Teletron Energy Management, Inc., 877 S.W.2d 276, 279 (Tex. 1994).
In reviewing the legal sufficiency of a lost profits award, we must determine whether the amount
awarded was established with reasonable certainty through competent evidence. Formosa
Plastics Corp. USA v. Presidio Engineers and Contractors, Inc. 960 S.W.2d 41, 50 n.3 (Tex.
1998). “When a review of the surrounding circumstances establishes that the profits are not
reasonably certain, there is no evidence to support the lost profits award.” Id., citing Texas
Instruments, 877 S.W.2d at 279-81. At a minimum, opinions or estimates of lost profits must be
based on objective facts, figures, or data from which the amount of lost profits can be
ascertained, although the loss need not be susceptible to exact calculation. Holt Atherton
5
Industries, Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992). A review of the record here reveals no
such evidence.
Darlene offered evidence demonstrating that ARGMIL had never conducted any profit-
generating business activity, or that it had plans to do so in the future. In the absence of such
evidence, her counsel maintained during closing arguments that the property’s market value
equated to lost profits. This is an improper measure of damages. Lost profits are damages for
the loss of income to a business, not the value of property promised but not delivered.3 See Miga
v. Jensen, 96 S.W.3d 207, 213 (Tex. 2002)(holding that an “increase in the market value of
goods never delivered under a contract is not the same as lost profits”).
Although Darlene also relied on rentals she and Russell collected from leasing the
property in support of the lost profits claim, this evidence likewise fails to support the award.
First, her coalesced reliance on rentals and market value is problematic in and of itself.
Recovery of lost profits must be predicated on one complete calculation. Heine, 835 S.W.2d at
85 (holding that evidence of several differing methods of calculating lost profits failed to
establish one complete calculation). Second, even when Darlene’s reliance on market value is
overlooked, the evidence regarding the rentals is legally insufficient to support the award. Lost
profits damages must be based on net profits, not gross revenue. Id. at 83 n.1; see also Miga, 96
S.W.3d at 213. Russell’s unrefuted testimony was that the rentals were barely sufficient to cover
the property taxes. Darlene similarly testified that the rent was insufficient to satisfy the note on
the property. Far from supporting the jury’s awards, the rentals were insufficient to cover even
the property’s most basic expenses.
3
The market value of the property was also the basis of Darlene’s claim for economic damages resulting from
fraud. As she readily concedes, the recovery of both economic damages and lost profits was an impermissible
double recovery. See State v. Whataburger, Inc., 60 S.W.3d 256, 262 (Tex.App.--Houston [14th Dist.] 2001, pet.
denied)(awards for lost profits and change in market value constituted a double recovery).
6
We sustain the portion of Russell’s third point of error pertaining to the award of past and
future lost profits. Because these were the only damage awards stemming from the breach of
fiduciary duty claim, we overrule Russell’s fourth, fifth, and sixth points (regarding double
recovery, the existence of a fiduciary duty, and whether ARGMIL was damaged by any such
breach) as moot.
Past Economic Damages Resulting from Fraud
Russell next challenges the legal sufficiency of the evidence supporting the jury’s award
of past economic damages on Darlene’s fraud claim.4 He contends that the only conceivable
economic injury that Darlene suffered was the loss of her interest in the property itself. Russell
does not suggest that the loss of this interest was an improper measure of damages, but argues
instead that there is no evidence to support the award because Darlene failed to establish: (a) the
market value of the property, and (b) the extent of her ownership interest in it. We conclude that
Darlene presented sufficient evidence regarding the property’s market value, and that the extent
of her ownership interest goes to the amount, not the existence of damages, which is beyond the
scope of what Russell preserved for appeal.
Darlene testified that the market value of the property was, in her opinion, $375,000.5
The “property owner rule,” which falls under Texas Rule of Evidence 701, permits a property
owner to give opinion testimony about the value of his or her property. Natural Gas Pipeline
Co. of America v. Justiss, 397 S.W.3d 150, 155 (Tex. 2012); TEX.R.EVID. 701. Such testimony
may not be based solely upon the property owner’s ipse dixit, or mere “say-so,” but is instead
subject to the same requirements as other opinion testimony. Id. at 155-56. Under Rule 701, lay
4
The jury did not award any recovery for future economic damages resulting from fraud.
5
The jury’s award for past economic damages, $378,200, exceeded Darlene’s opinion of the property’s market
value by $3,200.
7
opinion testimony is “limited to those opinions or inferences which are (a) rationally based on
the perception of the witness and (b) helpful to a clear understanding of the witness’ testimony or
the determination of a fact in issue.” TEX.R.EVID. 701. In line with these principles, the Texas
Supreme Court has determined that a property owner’s valuation testimony must have a basis in
fact, such as evidence of price paid, nearby sales, tax valuations, or appraisals. Justiss, 397
S.W.3d at 159. Russell argues that Darlene failed these requisites because her valuation opinion
was based solely on an appraisal of the property that was hearsay and irrelevant. We disagree.
The appraisal Darlene relied upon was completed in 1998 by a certified appraiser,
Gonzalo Laje, who was not called as a witness at trial. Laje’s appraisal puts the market value of
the property at $375,000. This became the basis of Darlene’s own valuation opinion.6 Russell is
correct that the appraisal constituted hearsay, but Darlene was entitled to base her opinion on it
nonetheless. Like expert testimony, “landowner valuation testimony may be based on hearsay.”
Justiss, 397 S.W.3d at 158. Russell’s relevancy argument is based on the fact that the appraisal
was completed in 1998, almost thirteen years prior to the date of the trial. But as Darlene argues
in response, the appraisal was only four years old at the time of the foreclosure that is the basis of
the claims. Relevant evidence is simply that which tends to make the make the existence of any
consequential fact more or less probable. TEX.R.EVID. 401. While an appraisal of the property
performed closer in time to the foreclosure would perhaps be entitled to more weight, we cannot
say that one completed four years prior is irrelevant. The appraisal provided a proper factual
basis for Darlene’s valuation testimony pursuant to Rule 701 and the property owner rule. See
Justiss, 397 S.W.3d at 155; and TEX.R.EVID. 701.
6
Laje’s appraisal was subject to his assumption that several anticipated renovations had been completed at the
property. Russell argues that there was insufficient evidence establishing that these renovations had indeed been
completed, but this argument fails. It was Darlene’s unrefuted trial testimony that her former husband had
completed $75,000 worth of renovations after he acquired the property in 1998.
8
Russell next alleges that there is no evidence to support the economic damages award
because Darlene failed to establish the extent of her interest in the property. More specifically,
he argues that she owned only one-half of the property, as she owned it as a tenant-in-common
with Gonzalez prior to the foreclosure, and that the divorce decree between Darlene and Gray
awarded her only two of the four parcels constituting the property. Russell also claims that
Darlene failed to establish what amount of the property’s note had been satisfied, making it
uncertain how much equity Darlene had. These matters go to the amount, rather than the
existence of damages.
Unlike a legal sufficiency review of a lost profits award, which entails an analysis of the
reasonable certainty of the evidence in support of the amount of the award, we are aware of no
such requisite in reviewing the legal sufficiency of an award compensating a fraud claimant for
the difference of value as represented and the actual value received. See Formosa Plastics, 960
S.W.2d at 50 n.3 (establishing that the reasonable certainty requisite of a lost profits award falls
under legal sufficiency). Russell has not directed us to any authority establishing such a
requirement outside of lost profits. Further, the standard of review for an excessive damages
complaint is factual sufficiency of the evidence, not legal sufficiency. See, e.g., Maritime
Overseas Corp. v. Ellis, 971 S.W.2d 402, 406-07 (Tex. 1998); Pope v. Moore, 711 S.W.2d 622,
624 (Tex. 1986). Russell has not raised any factual sufficiency points. He did not file a motion
for new trial, which is required to preserve a complaint concerning the excessiveness of damages
found by a jury. See TEX.R.CIV.P. 324(b)(4). We overrule the portion of the third point of error
pertaining to the legal sufficiency of the fraud-based economic damages award.
9
Past Mental Anguish Award
The final portion of Russell’s third point of error is a legal sufficiency challenge to the
jury’s award of past mental anguish damages.7 An award for mental anguish will survive a legal
sufficiency challenge when the plaintiff has introduced direct evidence of the nature, duration,
and severity of his or her mental anguish, thereby establishing a substantial disruption in his or
her daily routine. Parkway Co. v. Woodruff, 901 S.W.2d 434, 444-45 (Tex. 1995). But
“generalized, conclusory descriptions of how an event affected a person are insufficient evidence
on which to base mental anguish damages.” Hancock v. Variyam, 400 S.W.3d 59, 69 (Tex.
2013), quoting Service Corp. Intern. v. Guerra, 348 S.W.3d 221, 232 (Tex. 2011). In Guerra,
for instance, a decedent’s daughters sued a cemetery for moving the decedent’s body against
their wishes. Guerra, 348 S.W.3d at 226. None of the daughters identified a specific “high
degree of mental pain and distress,” or a substantial disruption of their daily routine. Id. at 232.
Descriptions to the effect that they were “devastated,” “not at peace,” were “always wondering,”
and that “[i]t was hard to hear how [the cemetery] stole [the decedent] from his grave and moved
him” were too generalized, and failed to demonstrate that the daughters suffered a substantial
disruption of their daily routines. Id.
Here, Darlene testified that she was “very depressed,” “scared,” “concerned,” “nervous,”
“very angry,” and “kind of lost.” She cried quite a bit, could not sleep, cried herself to sleep
frequently, and it was hard to concentrate during the day. Yet she continued to be employed
throughout the ordeal, and navigated through her days by being strong for her daughter.
Darlene’s current husband testified that he saw her cry for a duration of ten to fifteen minutes as
frequently as three or four days a week. Although Darlene cried in front of her husband, she was
7
The jury awarded Argumaniz $400,000 for past mental anguish on her fraud claim, but awarded her nothing for
future mental anguish.
10
“as strong as possible” in front of her children. Her son testified that Darlene gained weight
during these events, and that the loss of the property affected her for “probably a solid year.” In
sum, while this witness testimony constituted some evidence of the nature and duration of the
emotional pain experienced, it failed to demonstrate that Darlene suffered a substantial
disruption of her daily routine as a result. See Parkway Co., 901 S.W.2d at 444. Because the
jury’s award of past mental anguish damages is not supported by legally sufficient evidence, we
sustain this portion of Russell’s third point of error.
ATTORNEYS’ FEES
Russell’s final point of error challenges the trial court’s award of attorneys’ fees. A trial
court’s assessment of attorney fees is reviewed for an abuse of discretion. Dillard Dept. Stores,
Inc. v. Gonzales, 72 S.W.3d 398, 412 (Tex.App.--El Paso 2002, pet. denied). Russell presents
several arguments, including that Darlene did not prevail on the only cause of action under which
fees were recoverable--breach of fiduciary duty. Attorney fees are generally not recoverable for
common law fraud. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 304 (Tex. 2006).
Darlene responds by asserting that there were two fraud grounds alleged in her pleadings:
common law fraud and statutory fraud on a transaction involving stock in a corporation, pursuant
to Section 27.01 of the Texas Business and Commerce Code.8 See TEX.BUS.&COM. CODE ANN.
§ 27.01 (West 2009). Reasonable and necessary attorneys’ fees are recoverable under Section
27.01 when a person makes a false representation or promise for the purpose of inducing another
to enter into a contract involving stock in a corporation. Id. But this is not the species of fraud
on which the jury was charged.
8
Statutory fraud under Section 27.01 includes fraud in both real estate and corporate stock transactions, but the trial
court granted partial summary judgment against Darlene’s statutory real estate claim. See TEX.BUS.&COM.CODE
ANN. § 27.01 (West 2009).
11
The elements of statutory fraud under Section 27.01(a) are essentially the same as the
elements of common law fraud, except that Section 27.01(a) does not require proof of knowledge
or recklessness as a prerequisite to the recovery of actual damages. See Henning v. OneWest
Bank FSB, 405 S.W.3d 950, 963 (Tex.App.--Dallas 2013, no pet.); Trinity Indus., Inc. v.
Ashland, Inc., 53 S.W.3d 852, 867 (Tex.App.--Austin 2001, pet. denied); and TEX.BUS.&COM.
CODE ANN. § 27.01(a). This is reflected in the pattern jury charges for common law fraud and
statutory fraud under Section 27.01. See State Bar of Tex., Texas Pattern Jury Charges:
Business, Consumer, Ins. & Emp’t §§ 105.1-105.3; and 105.7-105.10 (2012).
Here, the jury was specifically instructed that fraud occurs when a “misrepresentation is
made with knowledge of its falsity or made recklessly without any knowledge of the truth and as
a positive assertion,” tracking identically the language of PJC 105.2, which is the instruction for
common law fraud. See PJC § 105.2. Indeed, the entirety of the fraud question presented to the
jury (question number three) tracks nearly identically the entirety of the PJC’s common law
fraud questions and instructions. See PJC §§ 105.1, 105.2, and 105.3A, 105.3B, and 105.3E. On
the other hand, certain language that is particular to the pattern instructions for statutory fraud is
not present. For instance, the PJC’s 27.01-specific instruction that the false representation or
promise be “made to a person for the purpose of inducing that person to enter into a contract” is
absent. See PJC §§ 105.8 and 105.9. Further, no portion of the jury charge referenced that
Darlene’s fraud claim related to or concerned stock in a corporation, which is the express
statutory purpose of Section 27.01.9 See TEX.BUS.&COM.CODE ANN. § 27.01(a).
9
It is also worth noting that the exemplary damages question relating to fraud (which the jury answered
affirmatively, but which did not result in the rendering of damages because the verdict was not unanimous) tracked
PJC Section 115.37B, which is the PJC’s exemplary damages question for common law fraud. See PJC § 115.37B.
Conversely, the question did not include any language tracking the PJC’s statutory fraud exemplary damages
counterpart, PJC Section 105.11, which recites Section 27.01’s requisite for exemplary damages: that the
misrepresenting party have “actual awareness” of the falsity of the representation. See PJC §§ 105.11;
TEX.BUS.&COM.CODE ANN. § 27.01(c).
12
These circumstances, coupled with the fact that the judgment awarding fees does not in
any way mention statutory fraud, corporate stock, or Section 27.01, make it clear that the jury
was charged with determining Darlene’s common law fraud claim, not her Section 27.01 claim.
Attorney’s fees were not recoverable and the trial court abused its discretion by awarding them.
See Chapa, 212 S.W.3d at 304. We sustain Russell’s seventh point of error.
We affirm the trial court’s judgment with respect to the award of past economic damages
for fraud, and reverse and render judgment in Russell’s favor on the awards for past and future
lost profits on the breach of fiduciary duty claim. We likewise reverse and render judgment in
Russell’s favor on the award of attorneys’ fees.
February 11, 2015
ANN CRAWFORD McCLURE, Chief Justice
Before McClure, C.J., Rodriguez, J., and Barajas, C.J., (Senior Judge)
(Barajas, C.J., Senior Judge, sitting by assignment)
13