Philips Jacob Vallakalil, and Reeja Susan Philips v. Texas Real Estate Commission

AFFIRM; and Opinion Filed May 24, 2019.
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-18-00702-CV
PHILIPS JACOB VALLAKALIL AND REEJA SUSAN PHILIPS, Appellants
V.
TEXAS REAL ESTATE COMMISSION, Appellee
On Appeal from the 193rd Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-17-10734
MEMORANDUM OPINION
Before Justices Whitehill, Partida-Kipness, and Pedersen, III
Opinion by Justice Pedersen, III
This is an appeal from a trial court’s order denying appellants’ recovery from the Real
Estate Recovery Trust Account maintained by the Texas Real Estate Commission. We affirm.
Background
Appellants, Philips Jacob Vallakalil and Reeja Susan Philips, owned a plot of land on
which they wanted to build a house. In early 2016, appellants met Jeremy Eric Larsen (Larsen).
According to appellants, Larsen introduced himself as a real estate agent with experience in
planning, designing, estimating, bidding, financing, and constructing homes. In April 2016,
appellants entered into a contract with Jeremy Larsen Homes, L.L.C. (LLC) for the construction
of a new house on their property. The contract is titled New Home Construction Contract, Fixed
Price. The contract names Larsen as the contractor’s representative; Larsen signed the contract as
Managing Member of LLC.
The construction project experienced numerous problems and delays. Finally, on August
27, 2017, appellants filed suit against LLC for breach of contract, breach of the duty of good faith
and fair dealing, negligence, and violations of the Deceptive Trade Practices Act (DTPA). Two
days later, LLC filed its petition for Chapter 7 bankruptcy protection. In November 2017,
appellants amended their petition to add Larsen individually as a defendant, alleging that Larsen
was personally liable for the conduct of LLC that caused appellants’ damages. They asserted
additional claims, including claims for fraudulent inducement/statutory fraud, civil conspiracy,
and unjust enrichment. They also filed a partial nonsuit, dismissing their claims against LLC only.
When Larsen failed to file an answer to appellants’ amended petition, they filed a motion for
default judgment against Larsen only. On December 28, 2017, the trial court signed a final default
judgment against Larsen, awarding appellants $603,453.00 in actual damages, $7,500.00 in
attorneys’ fees, costs and expenses of $2,726.00, and post-judgment interest. On January 12, 2018,
Larsen filed his petition for Chapter 7 bankruptcy protection.
Appellants filed a proof of claim in Larsen’s bankruptcy proceedings. Unable to collect
on their judgment, they filed an application for an order directing payment from the Real Estate
Recovery Trust Account (RTA). The Texas Real Estate Commission (Commission) opposed
appellants’ request for relief on the basis that Larsen was not acting in his capacity as a real estate
licensee when he committed the acts made the basis of appellants’ claims. Following a hearing of
appellants’ application, the trial court found in favor of the Commission and denied appellants’
application. Appellants now appeal the trial court’s order.
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Discussion
Appellants raise two issues on appeal, arguing that the trial court erred by (1) denying their
application for payment from the RTA, and (2) refusing to find that appellants were entitled to the
statutory maximum of $100,000 from the RTA.
The Commission is charged with administration and enforcement of the Real Estate
License Act. TEX. OCC. CODE ANN. § 1101.151(a)(1). Subchapter M of the act directs the
Commission to establish a fund, the RTA, to reimburse aggrieved persons who suffer actual
damages caused by an act described in § 1101.652(a–1)(1) or (b), committed by a real estate license
holder. See TEX. OCC. CODE ANN. §§ 1101.601(a)(1), 1101.652(a–1), (b); see also Tex. Real
Estate Comm’n v. Nagle, 767 S.W.2d 691, 693 (Tex. 1989). Section 1101.652 contains a long list
of actions for which real estate licensees may be disciplined or have their license suspended or
revoked. The RTA compensates persons who are unable to collect from a real estate licensee for
judgment awards based on these specified types of wrongdoing. TEX. OCC. CODE ANN. §
1101.606(a); see also Nagle, 767 S.W.2d at 693 (“A person who has a judgment against a real
estate broker which is uncollectable may file a verified claim in the court in which the judgment
was rendered and, upon notice to the commission and the judgment debtor, apply for an order
directing payment out of the fund.”). Generally, the claimant’s damages must relate to the
licensee’s dishonest conduct. Nagle, 767 S.W.2d at 693.
If the Commission does not agree that a claimant’s application meets these statutory
requirements, a hearing may be scheduled. TEX. OCC. CODE ANN. § 1101.608. The Commission
may appear to protect the RTA from spurious or unjust claims or to ensure compliance with
statutory requirements for recovery. Id. § 1101.608(b). At the hearing, the claimant must show,
among other things, that its prior judgment is against a licensed real estate broker who caused
claimant’s damages while acting as a broker. Id. §§ 1101.601(a), 1101.607(1). Here, the parties
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agree that Larsen maintained a real estate license during the relevant time period. They do not
agree that Larsen’s individual actions caused appellants to suffer damages or that Larsen was
acting in the capacity of a real estate broker when he committed the complained-of acts.
This presents a question of statutory construction, which we review de novo. Tex. Health
Presbyterian Hosp. of Denton v. D.A., 569 S.W.3d 126, 131 (Tex. 2018); see Wilson v. Bloys, 169
S.W.3d 364, 368 (Tex. App.—Austin 2005, pet. denied). When interpreting a statute, our primary
task is to ascertain and effectuate the intent of the legislature. TEX. GOV’T CODE ANN. § 312.005;
Youngkin v. Hines, 546 S.W.3d 675, 680 (Tex. 2018). When a statute is clear and unambiguous,
we are to enforce the plain meaning of the statute. Wilson, 169 S.W.3d at 368. Further, we read
every word, phrase, and expression in a statute as if it were deliberately chosen and presume the
words excluded from the statute are done so purposefully. Tex. Real Estate Comm’n v.
Bucurenciu, 352 S.W.3d 828, 831 (Tex. App.—San Antonio 2011, no pet.).
The mere fact that Larsen had a real estate license does not entitle appellants to
reimbursement from the RTA. Appellants were required to show that Larsen caused their damages
while acting as a real estate broker. See Bucurenciu, 352 S.W.3d at 831–32 (real estate licensee
engaged in financing or mortgage brokering was not engaged in real estate brokerage services so
aggrieved client could not recover from RTA). In their first amended application for
reimbursement, appellants asserted that their judgment against Larsen was based on facts showing
that he engaged in fraud or misrepresentation in violation of Sections 1101.652(a-1)(1) or
1101.652(b) of the Texas Occupations Code. During the hearing, appellants argued that Larsen
engaged in this fraud and misrepresentation in his capacity as a real estate broker and not as a
contractor, stating “in addition to being a constructor or constructing the home itself, he did
planning, designing, estimating, bidding, financing, and constructing the home.” The court
questioned this assertion, noting that appellants’ pleadings alleged improper construction, not
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wrongful activities as a broker. Indeed, appellants’ motion for default judgment alleged that “[p]er
the terms of the contract, Larsen was obligated to reimburse Plaintiff these costs as a consequence
of Larsen’s construction mistakes, delays, failure and refusal to perform his obligation to complete
the construction under the contract.” The trial court then asked appellants what factual
circumstances gave rise to their claim that Larsen was acting in his capacity as a real estate broker.
They repeated that it was because Larsen represented himself as a real estate agent.
Appellants argued that the facts in their case were similar to the facts in Texas Real Estate
Commission v. Rodriguez, No. 04-09-00681-CV, 2010 WL 2403721 (Tex. App.—San Antonio
June 16, 2010, pet. denied), in which the Rodriguezes already owned the plot of land on which
they wanted to build a house. The Rodriguezes met Carol Kilby, a real estate agent, who found a
builder, negotiated the price to build the home, arranged for financing and handled the closing.
Reasoning that “real estate” included not only the land but also any improvement erected upon it,
the Rodriguez court determined that Kilby was involved in the sale and her activities “aided . . . in
locating or obtaining for purchase . . . real estate.” Rodriguez, 2010 WL 2403721, at *2. The court
concluded that Kilby’s actions fell within statutory parameters and held the RTA liable. Id. at *3.
In Rodriguez, the licensee was engaged in acts defined as real estate brokerage. Here, in
contrast to the Rodriguez case, there are no allegations and no evidence to support a claim that
Larsen ever acted as a real estate broker in any of his dealings with the appellants. Appellants
contend that all actions taken by Larsen were taken pursuant to the contract, but the only contract
between the parties was the new home construction contract. At the hearing, appellants argued
that according to the construction contract, Larsen’s activities in planning, designing, estimating,
bidding, financing, and constructing the home were all activities performed in his capacity as a
real estate agent. However, the statement that Larsen was acting as a real estate broker is a
conclusory statement unsupported by the evidence, and in fact, is contradicted by the evidence.
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The construction contract designates LLC as “Builder” or “Contractor,” and Larsen as the
Contractor’s representative, and describes the tasks that will be performed by the Builder or
Contractor. The contract specifically refers to some of these activities, i.e., designing, constructing
and selling the completed house, as duties to be performed by the Builder. The contract contains
no mention of any tasks to be performed by a real estate agent or broker.
The legislature has made it clear that construction activities are not included in the
definition of real estate brokerage services. Section 1101.004(b) provides: “[a] person is not
engaged in real estate brokerage, regardless of whether the person is licensed under this chapter,
based solely on engaging in the following activities: (1) constructing, remodeling, or repairing a
home or other building.” TEX. OCC. CODE ANN. § 1101.004(b)(1). Although appellants urge that
some of Larsen’s activities were not construction activities, they do not provide any evidence or
authority to support their argument that such activities were real estate brokerage services.
Accordingly, we conclude that Larsen was not acting in the capacity of a real estate broker. See
Bucurenciu, 352 S.W.3d at 831–32.
Because appellants were not aggrieved by the actions of someone acting in the capacity of
a real estate broker, they are not entitled to recovery from RTA. Appellants’ first issue is overruled.
In their second issue, appellants assert that the trial court erred by refusing to find that
appellants were entitled to the statutory maximum of $100,000 from the RTA. In light of our
conclusion that appellants are not entitled to recovery from the RTA, we need not reach their
second issue.
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Conclusion
We affirm the judgment of the trial court.
/Bill Pedersen, III/
BILL PEDERSEN, III
JUSTICE
180702F.P05
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Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
PHILIPS JACOB VALLAKALIL AND On Appeal from the 193rd Judicial District
REEJA SUSAN PHILIPS, Appellants Court, Dallas County, Texas
Trial Court Cause No. DC-17-10734.
No. 05-18-00702-CV V. Opinion delivered by Justice Pedersen, III.
Justices Whitehill and Partida-Kipness
TEXAS REAL ESTATE COMMISSION, participating.
Appellee
In accordance with this Court’s opinion of this date, the judgment of the trial court is
AFFIRMED.
It is ORDERED that appellee TEXAS REAL ESTATE COMMISSION recover its costs
of this appeal from appellants PHILIPS JACOB VALLAKALIL AND REEJA SUSAN
PHILIPS.
Judgment entered this 24th day of May, 2019.
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