Alfred E. West, Jr. and Maria F. West v. Elizabeth West

Opinion issued February 9, 2012.

In The

Court of Appeals

For The

First District of Texas

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NO. 01-11-00051-CV

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Alfred E. West, Jr. and Maria F. West, Appellant

V.

Elizabeth West, Appellee

On Appeal from the 306th District Court

Galveston County, Texas

Trial Court Case No. 07FD1370

MEMORANDUM OPINION

          Alfred and Maria West appeal from a final judgment after a bench trial on Elizabeth West’s fraud claim against them, brought in connection with her divorce from Greg West, who is Alfred and Maria’s son. In two issues, Alfred and Maria challenge the legal and factual sufficiency of the evidence to support the trial court’s findings on fraud and damages. We affirm.

Background

          In her petition for divorce from Greg West, Elizabeth West also asserted a claim against Greg and his parents, Alfred and Maria, for conspiring to defraud her out of community property. Elizabeth asserted that Greg’s parents purchased property in Kerrville, Texas shortly after she and Greg were married; Greg and his parents led her to believe she and Greg were purchasing an ownership interest in the property; she and Greg made monthly payments on the property out of their community estate and paid to improve the property with a road to the main highway, a fence, and a canopy shed for their travel trailer; she and Greg vacationed and hunted on the property regularly; and Greg’s parents did not inform her that she and Greg had no ownership interest in the property and its improvements until she filed for divorce. Alfred and Maria assert that Elizabeth had no basis for her belief that she and Greg had an interest in the property and that the payments Elizabeth and Greg made were not payments toward the purchase of the property, but instead, rental payments pursuant to a lease entered into between them and Greg.

          After a bench trial, the trial court concluded that Greg and his parents committed a fraud on Elizabeth and Greg’s marital estate with respect to the Kerrville property and that the lease was executed by Greg without Elizabeth’s knowledge. On this basis, the trial court found that the community estate was entitled to reimbursement from Alfred and Maria in the amount of $30,000 and entered judgment accordingly. Alfred and Maria appeal from the trial court’s judgment against them.

Sufficiency of the Evidence

Alfred and Maria assert that there is no evidence or insufficient evidence to support the trial court’s findings on fraud and damages. The trial judge’s findings of fact in a bench trial have the same force and dignity as a jury verdict and are reviewed under the same legal and factual sufficiency standards. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994). As the trier of fact, the trial court was the sole judge of the credibility of the witnesses and the weight to be given their testimony. See Iliff v. Iliff, 339 S.W.3d 74, 83 (Tex. 2011) (citing Montgomery Indep. Sch. Dist. v. Davis, 34 S.W.3d 559, 567 (Tex. 2000)); City of Keller v. Wilson, 168 S.W.3d 802, 819 (Tex. 2005).

In conducting a legal-sufficiency review, we consider whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review. City of Keller, 168 S.W.3d at 827; Wright v. Wright, 280 S.W.3d 901, 908 (Tex. App.—Eastland 2009, no pet.) (applying standards in divorce appeal involving fraud on the community). We credit favorable evidence if a reasonable factfinder could and disregard contrary evidence unless a reasonable factfinder could not. City of Keller, 168 S.W.3d at 827; Wright, 280 S.W.3d at 908. We review the evidence in the light most favorable to the verdict and indulge every reasonable inference that supports it. City of Keller, 168 S.W.3d at 822; Wright, 280 S.W.3d at 908. We will set aside the trial court’s finding under this standard only if the record shows: (1) a complete absence of evidence of a vital fact, (2) rules of law or evidence bar the court 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 scintilla, or (4) the evidence establishes conclusively the opposite of the vital fact. City of Keller, 168 S.W.3d at 810.

In conducting a factual-sufficiency review, we examine the entire record, considering both the evidence in favor of, and contrary to, the challenged finding. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Wright, 280 S.W.3d at 908. Under this standard, we set aside the fact finding only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986); Wright, 280 S.W.3d at 908.

A.      Fraud on the Community

Fraud on the community can be committed through actual or constructive fraud. Strong v. Strong, 350 S.W.3d 759, 771 (Tex. App.—Dallas 2011, pet. filed). To establish actual fraud, Elizabeth had to show that Greg and his parents (1) made a material misrepresentation (2) that they knew to be false or made recklessly without any knowledge of the truth (3) with the intent that she rely on it, (4) and she acted in reliance on the representation, (5) resulting in her injury. See Perez v. DNT Global Star, L.L.C., 339 S.W.3d 692, 705 (Tex. App.—Houston [1st Dist.] 2011, no pet.) (citing Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001)). Constructive fraud, on the other hand, does not require a showing of all of the elements of actual fraud; it “may be shown if one spouse unfairly deprives the other spouse of the benefit of community property.”[1] Strong v. Strong, 350 S.W.3d 759, 771 (Tex. App.—Dallas 2011, pet. filed) (citing Wright v. Wright, 280 S.W.3d 901, 908–09 (Tex. App.—Eastland 2009, no pet.); see also Knight v. Knight, 301 S.W.3d 723, 731 (Tex. App.—Houston [14th Dist.] 2009, no pet.). Courts may consider “fairness” factors in reviewing a spouse’s claim of constructive fraud against the community: the size of the property disposed of in relation to the total size of the community estate, the adequacy of the estate remaining to support the innocent spouse after disposition of the divorce, and the relationship of the parties involved in the transaction. See Knight, 301 S.W.3d at 731; Massey v. Massey, 807 S.W.2d 391, 402 (Tex. App.—Houston [1st Dist.] 1991), writ denied, 867 S.W.2d 766 (Tex. 1993).

Parents who conspire with their children to perpetrate a fraud on the community estate of the children and their spouses may be held liable in a divorce action to the extent of the property wrongfully obtained by the parents. See Schlueter v. Schlueter, 975 S.W.2d 584, 589–90 (Tex. 1998) (holding that claim for fraud on community is not independent cause of action and would not support punitive damages award but could be considered in division of community property in divorce action; affirming monetary award in divorce action against husband’s father based on transfer of community assets to father immediately prior to divorce); Chu v. Hong, 249 S.W.3d 441, 445 (Tex. 2008) (“Hong notes correctly that in Schlueter we did not decide whether torts against the community estate could be alleged against a third-party. As a general matter, they clearly can; if a third party steals community property, surely either spouse or both can seek recovery in tort for it.”). Generally, the remedy available is limited to recovery of the fraudulently obtained property or damages limited to the value of the property transferred. See Chu, 249 S.W.3d at 446 (comparing common law remedies to remedies under Uniform Fraudulent Transfer Act).

          Elizabeth presented evidence at trial to support her contention that Greg and his parents tricked her into making payments out of the community estate toward the purchase and improvement of the Kerrville property by leading her to believe that she and Greg had an ownership interest in the property. She testified that she and Greg and his parents had agreed to be partners in the purchase of the Kerrville property and that the monthly payments she and Greg made to Charles Killebrew, the property’s former owner, were purchase payments. She placed in evidence carbon copies of checks written to Killebrew, many of which indicated that they were payments on a “lot note” or “land note.”

Greg admitted that the funds used to make these payments were community funds. He testified that he and Elizabeth made these payments to Killebrew on behalf of his father because he owed his father money. He further testified that he and Elizabeth made the final payment on the purchase note for the property, at which time Killebrew released the lien on the property. Greg admitted that there was nothing in writing to support his contention that he owed his father money at the times he and Elizabeth made the payments on the property note.

          Alfred testified that Greg and Elizabeth made the payments to Killebrew as lease payments under a lease agreement between Greg and his parents. Elizabeth testified that Greg and his parents did not tell her about the lease agreement until she filed for divorce, when they claimed for the first time that her and Greg’s payments on the property were actually lease payments. The lease agreement is dated November 1, 2000. It obligates Greg to pay his parents $350 per month from November 1, 2000 through November 1, 2001. Alfred testified that he could not recall how many $350 payments he received from Greg during the term of the lease. The checks in the record reflecting payments from Greg and Elizabeth’s community estate to Killebrew are dated between 2002 and 2008—all after the lease expired. None of the checks in the record are in the amount of $350.

Elizabeth testified and provided evidence that she and Greg paid for improvements to the Kerrville property, such as building a road and having electricity and plumbing installed, but that Alfred and Maria did not bear any of the expense for improving the property. She also testified that she had discussed the Kerrville property with Greg, and they had agreed that they were investing in the property. She testified that he never told her that they were leasing the property.

In light of the evidence, the trial court could reasonably have concluded that Greg and his parents “unfairly deprive[d Elizabeth] of the benefit of community property.” Strong, 350 S.W.3d at 771. Her testimony and exhibits at trial are some evidence that Greg and his parents misled her about the ownership of the Kerrville property and that, as a result, she contributed community funds to improve the property and pay off the purchase note on the property. Although Greg, Alfred, and Maria disputed Elizabeth’s recitation of the facts, the trial court, as the factfinder, was the sole judge of the witnesses’ credibility and was free to credit Elizabeth’s testimony and discredit Alfred’s and Maria’s testimony. See Iliff, 339 S.W.3d at 83. Additionally, the amount of the fraudulently obtained property, which the trial court determined to be $30,000, is considerable in relation to the total size of the community estate, which did not include a home or any other real property. See Knight, 301 S.W.3d at 731 (noting that the court may consider the fairness of the transaction in terms of the size of the property disposed of in relation to the total size of the community estate); Massey, 807 S.W.2d at 402 (same).

We hold that the trial court’s fraud finding is supported by more than a scintilla of evidence and is not so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. See City of Keller, 168 S.W.3d at 810; Pool, 715 S.W.2d at 635; Wright, 280 S.W.3d at 908; see also Stevenson v. Koutzarov, 795 S.W.2d 313, 322 (Tex. App.—Houston [1st Dist.] 1990, writ denied) (holding that there was legally sufficient evidence of fraud on estate when friends sought reimbursement from husband for expenditures allegedly for wife but evidence raised question of whether expenditures were actually incurred for wife). We overrule Alfred and Maria’s first issue.

B.      Damages

          The parties do not dispute that the purchase price for the Kerrville property was $30,000, part of which was reflected in a $26,500 purchase note. The check carbons in evidence establish that Elizabeth and Greg made the following payments to Killebrew: $545.08 in November 2002, $272.54 in January 2003, $545.08 in March 2003, $445.00 in August 2003, $408.81 in March 2004, $408.54 on an unknown date (with a check number coming after the March 2004 payment and before the February 2008 payment), and $741.12 in February 2008. But Elizabeth testified that she and Greg paid approximately $24,000 or $25,000 to purchase the property in Kerrville. She testified that the checks in evidence were only examples of the property payments they made because she could not find any other check carbons.

Alfred testified that he and Maria paid for the Kerrville property. As discussed above, he testified that the payments made by Greg and Elizabeth were made on his and Maria’s behalf because Greg owed him for lease payments. Neither Alfred nor Maria testified as to what payments, if any, they made toward the purchase of the property directly.

The record also contains evidence of expenditures on improvements to the Kerrville property paid for out of Greg and Elizabeth’s community estate. Testimony and check carbons in the record demonstrate payments of $200 toward procuring use of a septic tank for the property and $300 for a well permit. Photos in evidence showed the deer blind on the property. There was testimony and photographic evidence regarding a carport Elizabeth and Greg built on the property that they could park a trailer under. There was also evidence that they paid to have electricity installed at the Kerrville property. Elizabeth testified that she and Greg spent more than $25,000 on improvements to the Kerrville property.

As the sole judge of credibility, the trial court was free to believe Elizabeth’s testimony that the community estate made payments of $24,000 to $25,000 on the purchase note for the Kerrville property and to disbelieve Alfred’s testimony that he and Maria paid the purchase price. See Iliff, 339 S.W.3d at 83. While the parties disputed the purpose of the improvements Elizabeth and Greg made to the Kerrville property, it was undisputed that Elizabeth and Greg made improvements to the property. Elizabeth testified that the community expended more than $25,000 in making such improvements, and no party presented evidence contradicting that assertion.

Elizabeth’s testimony and exhibits relating to the amount of the expenditures made by her and Greg’s estate on the Kerrville property and improvements thereto is evidence of the value wrongfully obtained by Alfred and Maria from the community estate. See Chu, 249 S.W.3d at 446 (observing that damages for conspiracy to defraud community estate are generally limited to recovery of wrongfully obtained community property or its value). The trier of fact generally has discretion to award damages within the range of evidence presented at trial. Gulf States Utils. Co. v. Low, 79 S.W.3d 561, 566 (Tex. 2002) (citing Price Pfister, Inc. v. Moore & Kimmey, Inc., 48 S.W.3d 341, 352 (Tex. App.—Houston [14th Dist.] 2001, pet. denied)). The evidence at trial ranged from $0, according to Alfred and Maria’s testimony, to $50,000 according to Elizabeth’s testimony. The trial court’s $30,000 damages finding falls within that range.

We therefore hold that the trial court’s damages award is supported by more than a scintilla of evidence and is not so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. See City of Keller, 168 S.W.3d at 810; Pool, 715 S.W.2d at 635; Wright, 280 S.W.3d at 908; see also Mazique v. Mazique, 742 S.W.2d 805, 807 (Tex. App.—Houston [1st Dist.] 1987, no writ) (holding that there was legally and factually sufficient evidence to support trial court’s $30,000 award of damages based on fraud on community when award was “within the range of the evidence showing the amount of cash that the appellant had taken from the community funds, and for which no accounting was ever made.”). We overrule Alfred and Maria’s second issue.

Conclusion

          We hold that the evidence is sufficient to support the trial court’s findings on fraud and damages. We therefore affirm the trial court’s judgment.

                                                                   Harvey Brown

                                                                   Justice

Panel consists of Chief Justice Radack, Justices Higley and Brown.

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[1]           A fiduciary duty exists between a husband and a wife as to their jointly controlled community estate. Knight v. Knight, 301 S.W.3d 723, 731 (Tex. App.—Houston [14th Dist.] 2009, no pet.) (citing Zieba v. Martin, 928 S.W.2d 782, 7890 (Tex. App.—Houston [14th Dist.] 1996, no pet.)). The breach of this fiduciary relationship constitutes a “fraud on the community”—a judicially created concept based on constructive fraud. Id. Such conduct amounts to a fraud, even when the evidence does not establish the elements of actual fraud, because it violates the marital trust and has the effect of depriving one spouse of an interest in jointly-owned property. Id.