Kaheel Properties, LLC and Abdullah Kaheel v. Azteca Entertainment Enterprises, Inc. and Arturo Neri, Jr.

Opinion filed June 14, 2018
In The
Eleventh Court of Appeals
__________
No. 11-16-00137-CV
__________
KAHEEL PROPERTIES, LLC AND ABDULLAH KAHEEL,
Appellants
V.
AZTECA ENTERTAINMENT ENTERPRISES, INC. AND
ARTURO NERI, JR., Appellees
On Appeal from the 32nd District Court
Nolan County, Texas
Trial Court Cause No. 19,451
MEMORANDUM OPINION
Azteca Entertainment Enterprises, Inc. and Arturo Neri, Jr. sued Kaheel
Properties, LLC and Abdullah Kaheel (Kaheel)1 for breach of duty of ordinary care,
common law fraud, and statutory fraud that arose out of a purported agreement in
1
We collectively refer to both Kaheel Properties and Kaheel as “Kaheel,” unless otherwise
specified.
which Neri agreed to convey certain properties to Kaheel in exchange for Kaheel’s
commitment to form a partnership with Neri. The jury found that both Kaheel and
Kaheel Properties committed common law fraud and statutory fraud and awarded
Neri actual damages and attorney’s fees. On appeal, Kaheel presents four issues.
We reverse and remand for a new trial.
I. Evidence at Trial
Arturo Neri, Jr. lived in Sweetwater and operated Azteca. Neri’s father
operated a business in California, Neri Runway International, which sold evening
dresses wholesale to clients all over the world. In 2009, after Neri’s father suffered
various health ailments, Neri traveled to California to help his father operate Neri
Runway International. Once Neri arrived in California, Kaheel, who had done
business with Neri’s father, made a proposition to buy out Neri’s father’s business
partner, Veronica Bodarth, whose relationship with Neri’s father had deteriorated.
Kaheel suggested that he and Neri Runway International each give $50,000 to
Bodarth to buy her out, which they did. Neri Runway International also owed a debt
of almost $600,000 to Kaheel, which it was repaying. In May 2009, to provide
security to Kaheel for the debt, Neri signed two deeds of trust to Kaheel for two
California properties that the Neri Family Living Trust owned. Neri was the trustee
of the Trust.
Neri testified that, in 2012, Kaheel began to talk to him about the possibility
of the two of them forming a partnership. Neri believed that Kaheel “was a wealthy
and powerful man” and that Kaheel’s offer of a partnership was therefore a good
offer. Neri testified that Kaheel told him that, in exchange for entering into a
partnership, Kaheel “would need security on the properties or deeds on the
properties.” On August 22, 2012, Neri, as trustee of the Neri Family Living Trust,
signed a warranty deed in which he conveyed the property in Sweetwater, out of
2
which Azteca operated, to Kaheel Properties. Neri testified that he conveyed the
Sweetwater property “solely based on that promise” to form a partnership.
Neri said that after he conveyed the Sweetwater property, Kaheel never
formed a partnership with him. Neri said that when he asked Kaheel about the
partnership, Kaheel would tell him that he “w[ould] take care of everything as [he]
promised [him].” Neri said that, eventually, Kaheel told him that he needed to sign
a settlement and reaffirmation agreement before Kaheel would form the partnership.
On April 26, 2013, Neri signed the settlement and reaffirmation agreement for
himself, as trustee of the Trust; for his father, as president of Neri Runway
International; and for his father a second time, as the guarantor. Kaheel signed the
settlement and reaffirmation agreement the same day, in his capacity as the president
of Kaheel Properties. The document contained the following:
WHEREAS, since NERI has failed to make payments to KAHEEL on
the debt secured by the Deeds of Trust with Assignment of Rents on the
two [California] real properties, NERI has agreed to voluntarily transfer
title and ownership interest in both real properties to KAHEEL in lieu
of foreclosure by KAHEEL.
Neri said that Kaheel never entered into a partnership agreement with him,
gave him a line of credit, or gave him any money for the properties. Neri then sued
Kaheel for, among other claims, common law fraud and statutory fraud. The case
was tried to a jury. The jury charge defined “Neri” to include both Neri, individually,
and the Neri Family Living Trust. The jury found that Kaheel and Kaheel Properties
had committed common law fraud and statutory fraud against Neri.2 With respect
to Kaheel, the jury awarded Neri $294,460 in actual damages plus interest, in
addition to $197,784 in attorney’s fees. With respect to Kaheel Properties, the jury
2
Kaheel states on appeal, and the record reflects, that Neri elected to recover under his statutory
fraud cause of action.
3
awarded Neri $430,460 in actual damages plus interest, in addition to $197,784 in
attorney’s fees.
II. Analysis
In Kaheel’s first issue on appeal, he contends that the trial court erred when it
did not “act on its own volition to declare a mistrial” in response to a portion of
Neri’s counsel’s closing argument. In his second and third issues, Kaheel argues
that the evidence is legally and factually insufficient, respectively, to support the
jury’s findings of common law fraud and statutory fraud, damages, and attorney’s
fees. In Kaheel’s fourth issue, he argues that the trial court erred when it denied his
motion for new trial. We will address Kaheel’s second and third issues.
A. Issue Two: Neri adduced legally sufficient evidence that Kaheel and
Kaheel Properties committed statutory fraud and common law
fraud.
In his second issue, Kaheel asserts that the evidence was legally insufficient
to support the jury’s findings that Kaheel committed common law fraud and
statutory fraud against Neri. As we explain below, we disagree.
1. Standard of Review
We will sustain a legal sufficiency challenge only when (1) the record
discloses a complete absence of evidence of a vital fact, (2) the court is barred by
rules of law or of evidence from giving weight to the only evidence offered to prove
a vital fact, (3) the evidence offered to prove a vital fact is no more than a mere
scintilla, or (4) the evidence establishes conclusively the opposite of a vital fact.
Ford Motor Co. v. Castillo, 444 S.W.3d 616, 620 (Tex. 2014); Uniroyal Goodrich
Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998). In determining whether
there is legally sufficient evidence to support the finding under review, we must
consider evidence favorable to the finding if a reasonable factfinder could and
disregard evidence contrary to the finding unless a reasonable factfinder could not.
4
Cent. Ready Mix Concrete Co. v. Islas, 228 S.W.3d 649, 651 (Tex. 2007); City of
Keller v. Wilson, 168 S.W.3d 802, 807 (Tex. 2005).
Anything more than a scintilla of evidence is legally sufficient to support the
finding. Cont’l Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 450 (Tex. 1996);
Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex. 1996). More than a scintilla of
evidence exists if the evidence furnishes some reasonable basis for differing
conclusions by reasonable minds about the existence of a vital fact. Rocor Int’l,
Inc. v. Nat’l Union Fire Ins. Co., 77 S.W.3d 253, 262 (Tex. 2002).
2. Elements of common law fraud and statutory fraud
The elements of common law fraud are as follows: (1) a material
representation was made; (2) the representation was false; (3) when the
representation was made, the person who made it knew it was false or made it
recklessly without any knowledge of the truth and as a positive assertion; (4) the
speaker made the representation with the intent that the other party should act upon
it; (5) the party did act upon it; and (6) the party thereby suffered injury. Fraser v.
Purnell, No. 05-13-01269-CV, 2015 WL 4481702, at *3 (Tex. App.—Dallas July
23, 2015, pet. denied) (mem. op.).
The elements of statutory fraud are as follows: (1) a transaction that involves
real estate or stock; (2) the defendant made a false representation of a past or existing
material fact or made a promise to do an act with the intention of not fulfilling it; (3)
the defendant made the false representation or promise for the purpose of inducing
the claimant to enter into a contract; and (4) the plaintiff relied on the false
representation or promise in entering into the contract. Id. at *4; see TEX. BUS. &
COM. CODE ANN. § 27.01(a)(1) (West 2015).
5
3. Neri’s testimony that Kaheel promised to form a partnership
with Neri if Neri conveyed the three properties to Kaheel was
legally sufficient evidence that Kaheel committed fraud.
Neri testified that Kaheel told him that Kaheel would enter into a business
partnership with him if he conveyed the Sweetwater property to Kaheel and if he
signed the settlement and reaffirmation agreement, in which Neri would also convey
to Kaheel the two California properties. Neri testified that he relied on this promise
when he signed those documents.
Neri testified that Kaheel never entered into a partnership with him or gave
him any money in return for the properties. Kaheel argues on appeal that Neri’s
testimony that concerned Kaheel’s verbal representations to him violated the parol
evidence rule and the statute of frauds and is not evidence that a contract existed.
However, we note that such evidence may be introduced into evidence in order to
prove that Kaheel fraudulently induced Neri to sign the contracts. See ISG State
Operations, Inc. v. Nat’l Heritage Ins. Co., 234 S.W.3d 711, 719 n.11 (Tex. App.—
Eastland 2007, pet. denied) (“Extrinsic evidence is admissible to show . . . the
execution of a written document was procured by fraud.”); see also Burleson State
Bank v. Plunkett, 27 S.W.3d 605, 615–16 (Tex. App.—Waco 2000, pet. denied)
(holding that jury could properly consider evidence of bank’s verbal statements as
evidence it fraudulently obtained individuals’ signatures on documents because “the
parol evidence rule was never intended to exclude proof of . . . fraud” (quoting Roy
Klossner Co. v. McIntire, 301 S.W.2d 197, 200 (Tex. Civ. App.—San Antonio 1957,
writ ref’d n.r.e.))). Therefore, we hold that Neri produced more than a scintilla of
evidence that Kaheel and Kaheel Properties committed common law fraud and
statutory fraud against Neri.
6
4. Neri adduced legally sufficient evidence that Kaheel
committed fraud against Neri and the Trust.
Kaheel argues that Neri and the Trust alleged that Kaheel misrepresented his
intention to become partners with Neri, individually. Kaheel also argues that,
because the properties conveyed in this matter were owned by the Trust and not by
Neri, individually, any damages award belonged to the Trust. The jury charge
included the following definition: “Arturo Neri Jr. as used in this charge includes
Arturo Neri, Jr., Individually, and the Neri Family Living Trust.” Kaheel did not
object to that definition. Therefore, we analyze the charge based on that instruction.
As we noted earlier, Neri adduced evidence that Kaheel made misrepresentations
about forming a partnership in return for deeds to properties owned by the Trust. In
addition, Neri was the trustee for the Trust. We disagree with Kaheel’s arguments
that the evidence was legally insufficient to prove the elements of fraud or statutory
fraud with regard to both Neri and the Trust.
5. Neri adduced legally sufficient evidence that Kaheel and
Kaheel Properties committed fraud against Neri and the
Trust.
Kaheel argues that “Appellees failed to present evidence . . . showing that
Kaheel was the agent for Kaheel Properties, was the alter ego of Kaheel Properties,
that Kaheel Properties ratified the conduct of Kaheel, or that Kaheel and Kaheel
Properties were co-conspirators,” and that Neri therefore failed to produce legally
sufficient evidence of fraud or statutory fraud.
“As a general rule, the actions of a corporate agent on behalf of the corporation
are deemed the corporation’s acts.” Pabich v. Kellar, 71 S.W.3d 500, 507 (Tex.
App.—Fort Worth 2002, pet. denied) (citing Holloway v. Skinner, 898 S.W.2d 793,
795 (Tex. 1995)). “A corporation is a separate legal entity that normally insulates
its owners or shareholders from personal liability.” Id. (citing Castleberry v.
Branscum, 721 S.W.2d 270, 271 (Tex. 1986)), superseded on other grounds by
7
statute, TEX. BUS. ORGS. CODE ANN. § 21.223 (West 2012); In re Morris, 12 S.W.3d
877, 885 (Tex. App.—Texarkana 2000, no pet.)). “The courts will not hold
individual officers, directors, or stockholders liable on the obligations of a
corporation except where it appears the individuals are using the corporate entity as
a sham to perpetrate a fraud, avoid personal liability, avoid the effect of a statute, or
in a few other exceptional situations.” Id. (citing Bell Oil & Gas Co. v. Allied Chem.
Corp., 431 S.W.2d 336, 339 (Tex. 1968)).
Kaheel signed the settlement and reaffirmation agreement in a corporate
capacity, and the terms of the agreement specified that it was between Neri “and
KAHEEL PROPERTY, LLC, under assignment from KAHEEL
INTERNATIONAL, INC.” Similarly, in the warranty deed for the Sweetwater
property, Neri conveyed the property to Kaheel Properties. Normally, “[t]he
signature of a corporate officer on a contract does not render it his personal contract,
where in the body of the contract, it is purported to be a corporation contract.” Star
Supply Co. v. Jones, 665 S.W.2d 194, 198 (Tex. App.—San Antonio 1984, no writ).
Additionally, the fact that an individual is the “president of [a] corporation does not
necessarily make him liable under the contracts he signs on its behalf or the injuries
resulting to others as a result of those contracts.” Pabich, 71 S.W.3d at 508.
However, because Neri asserted that Kaheel used his corporate entity to perpetrate
a fraud, we hold that Kaheel and Kaheel Properties could be considered the same
party in this case. See Pabich, 71 S.W.3d at 507. Therefore, we hold that Neri
produced legally sufficient evidence for common law and statutory fraud as to both
Kaheel Properties and Kaheel.
8
6. Neri adduced legally sufficient evidence of the damages that
were awarded, and when those damages were incorporated
into the judgment, the damages did not violate the one-
satisfaction rule.
Kaheel contends that Neri’s recovery against both Kaheel and Kaheel
Properties was not supported by the evidence and violated the one-satisfaction rule.
Because we have already held that Kaheel and Kaheel Properties may be considered
the same entity in this case, Neri only needed to produce sufficient evidence of injury
to support the total amount of actual damages of $724,920 that the jury awarded.
Neri adduced evidence that Kaheel promised that Neri would make enough money
to pay the debt of $966,979.43 in the first year of the partnership, that the two
properties in California were worth $1.5 million and $500,000, and that the
California house had a mortgage of $550,000. The Sweetwater property, which was
not encumbered, was worth over $250,000, according to the local appraisal district.
The Azteca business and property were valued at $750,000 to one million dollars.
We hold that Neri adduced legally sufficient evidence to support the jury’s damage
awards. We now address Kaheel’s double recovery argument.
Kaheel asserts that the judgment violated the one-satisfaction rule and allowed
a double recovery. A plaintiff is entitled to one recovery for any damages suffered
because of a particular injury. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d
299, 303 (Tex. 2006); Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 8 (Tex.
1991). A double recovery happens when a judgment awards a plaintiff more than
one recovery for the same injury. Halliburton Energy Servs., Inc. v. Axis Techs.,
LLC, 444 S.W.3d 251, 263 (Tex. App.—Dallas 2014, no pet.) (citing Waite Hill
Servs., Inc. v. World Class Metal Works, Inc., 959 S.W.2d 182, 184 (Tex. 1998) (per
curiam)). A party may seek damages based on alternative theories, but it is not
entitled to a double recovery. See Waite Hill Servs., 959 S.W.2d at 184; Peterson
Grp., Inc. v. PLTQ Lotus Grp., L.P., 417 S.W.3d 46, 64 (Tex. App.—Houston [1st
9
Dist.] 2013, pet. denied); Madison v. Williamson, 241 S.W.3d 145, 158 (Tex. App.—
Houston [1st Dist.] 2007, pet. denied). When a remedy compensates for a separate
and distinct injury, however, then it is not duplicative of another remedy. Madison,
241 S.W.3d at 158; accord Birchfield v. Texarkana Mem’l Hosp., 747 S.W.2d 361,
367 (Tex. 1987). For example, a damages award that compensates a plaintiff for
past damages combined with relief to prevent future damages does not constitute a
double recovery. Halliburton Energy Servs., 444 S.W.3d at 263; accord Marin Real
Estate Partners, L.P. v. Vogt, 373 S.W.3d 57, 76–77 (Tex. App.—San Antonio 2011,
no pet.). We hold that the judgment does not violate the one-satisfaction rule. We
overrule Kaheel’s second issue.
B. Issue Three: Neri adduced evidence that is factually insufficient to
support the verdict and the judgment.
In his third issue, Kaheel argues that Neri produced factually insufficient
evidence to support the jury’s findings that Kaheel committed common law fraud
and statutory fraud and adduced factually insufficient evidence of damages and
attorney’s fees. We address the factual insufficiency arguments on common law
fraud and statutory fraud first.
1. Standard of Review
When we review an assertion that the evidence is factually insufficient to
support a finding, we set aside the finding only if, after considering and weighing all
the evidence in the record pertinent to that finding, we determine that the credible
evidence supporting the finding is so weak, or so contrary to the overwhelming
weight of all the evidence, that the answer should be set aside and a new trial ordered.
Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986); Cain v. Bain, 709 S.W.2d
175, 176 (Tex. 1986); Garza v. Alviar, 395 S.W.2d 821, 823 (Tex. 1965).
10
2. Neri’s own exhibits do not support his testimony that Kaheel
formed a partnership with him or that he relied on such
representations to do so.
At trial, Neri testified that he conveyed the Sweetwater property to Kaheel in
2012 and deeded the two California properties to Kaheel in 2013 in exchange for
Kaheel’s promise to form a partnership with him. Neri testified that Kaheel made
those representations to him as far back as 2012, before Neri deeded him the
Sweetwater property, and continued up until Neri and Kaheel signed the settlement
and reaffirmation agreement on April 26, 2013.
Neri testified that the only reason that he signed the documents in which he
deeded the three properties to Kaheel was because Kaheel promised to form a
partnership with him. However, there was no mention of a partnership in any of the
conveyance documents that Neri signed. In fact, the settlement and reaffirmation
agreement explicitly stated that Neri was conveying the California properties to
Kaheel “in lieu of foreclosure” because Neri had failed to make payments on Neri
Runway International’s debt to Kaheel. Neri also claimed that two pieces of
documentary evidence proved that Kaheel fraudulently induced him to convey the
properties and that he relied on Kaheel’s representations for two reasons.
First, Neri introduced into evidence an account statement that Kaheel’s
company sent to Neri Runway International. The statement shows that for May 7,
2012, Neri Runway International owed $863,459.43. For the next—and last—date
on the statement, September 10, 2012, Neri Runway International owed
$966,979.43. The statement did not reflect that Neri Runway International had made
any payments to Kaheel between those two dates. Neri testified at trial that the
statement does not “reflect anything about any credit for [the Sweetwater] property.”
However, the statement was dated August 13, 2012, nine days before Neri conveyed
the Sweetwater property to Kaheel. Neri did not introduce into evidence another
11
later statement to show that Kaheel did not give Neri any credit for the Sweetwater
property.
Second, Neri introduced into evidence an e-mail that Kaheel sent to Neri on
May 13, 2013, in which Kaheel offered various terms to which Neri would have to
comply in order for Kaheel not to file the two deeds in lieu of foreclosure for the
California properties. After Kaheel outlined his proposed terms in the e-mail,
Kaheel wrote the following:
This agreement is for a three year period, and after the three year period,
if you pay off our debt with interest you have with me, I will return the
properties to your name without taking any additional profit.
If you feel the above conditions are not of any convenience for you, you
can start to sell the properties in the upcoming six month period and
pay off the debt. It is for you to take the decision, and reply me [sic]
with an answer.
If you agree to accept the above offer, I will establish a new company
selling evening dresses. From this new company, you will get 40% of
the net profit in hold to help you pay off part of your debt within the
three year period.
In his testimony, Neri cited the last paragraph as proof that Kaheel had offered
Neri a partnership. Intent to induce reliance, most often, must be proven by
circumstantial evidence. Samson Lone Star Ltd. P’ship v. Hooks, 497 S.W.3d 1, 15
(Tex. App.—Houston [1st Dist.] 2016, pet. denied) (citing Spoljaric v. Percival
Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986)). “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, 708 S.W.2d at
434. However, Kaheel does not reference a past partnership offer; Kaheel says that
he “will establish a new company” if Neri “accept[s] the . . . offer” in the e-mail. He
does not say that “we” will establish a new company; he also does not mention
establishing a partnership in any of the documents. Therefore, the e-mail—sent after
12
all of the documents, including the settlement and reaffirmation agreement, were
signed—is not evidence that Kaheel offered to form a partnership with Neri in
exchange for the three properties that Neri conveyed to Kaheel.
We note that an actionable false misrepresentation cannot be the promise of
future rents or income, as they are generally statements of opinion rather than fact.
See Tukua Investments, LLC v. Spenst, 413 S.W.3d 786, 800 (Tex. App.—El Paso
2013, pet. denied) (citing Starnes v. Motsinger, 278 S.W. 496, 498 (Tex. Civ. App.—
El Paso 1925, no writ)). In addition, “[i]n measuring justifiability, we must inquire
whether, ‘given a fraud plaintiff’s individual characteristics, abilities, and
appreciation of facts and circumstances at or before the time of the alleged fraud[,]
it is extremely unlikely that there is actual reliance on the plaintiff’s part.’” Matlock
Place Apartments, L.P. v. Druce, 369 S.W.3d 355, 373 (Tex. App.—Fort Worth
2012, pet. denied) (alteration in original) (quoting Grant Thornton LLP v. Prospect
High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010)). “In other words, a person
may not justifiably rely on a representation if there are ‘red flags’ indicating such
reliance is unwarranted.” Druce, 369 S.W.3d at 373 (citing Grant Thornton LLP,
314 S.W.3d at 923).
In this case, Neri’s two pieces of written evidence do not mention any
partnership and cannot be used to factually support the reliance element of common
law and statutory fraud where the transfer of property for preexisting debt had
occurred before the e-mail with the alleged promise of a new company. Cf. Druce,
369 S.W.3d at 373 (holding jury could have found from adduced evidence that
purchaser justifiably relied on inflated rent rolls and entered into purchase contract
based on those misrepresentations). Based upon this court’s review of all the
evidence in this case, we hold that the evidence is too weak to support the jury’s
finding that Kaheel committed common law fraud and statutory fraud. Accordingly,
we sustain Kaheel’s third issue on appeal.
13
III. Conclusion
We hold that the evidence is factually insufficient to support the verdict of the
jury and the judgment of the trial court. We need not address Kaheel’s first and
fourth issues. See TEX. R. APP. P. 47.1. We also do not need to address whether
there was factually sufficient evidence as to damages or attorney’s fees. See id.
IV. This Court’s Ruling
We reverse the judgment of the trial court and remand this cause to the trial
court for a new trial.
MIKE WILLSON
JUSTICE
June 14, 2018
Panel consists of: Willson, J.,
Bailey, J., and Wright, S.C.J.3
3
Jim R. Wright, Senior Chief Justice (Retired), Court of Appeals, 11th District of Texas at Eastland,
sitting by assignment.
14