Weizhong Zheng v. Vacation Network, Inc. and Linh C. Dinh

Affirmed, in Part; Reversed and Remanded, in Part; and Opinion filed May
28, 2015.
In The
Fourteenth Court of Appeals
NO. 14-13-01136-CV
WEIZHONG ZHENG, Appellant
V.
VACATION NETWORK, INC. AND LINH C. DINH, Appellees
On Appeal from the 165th District Court
Harris County, Texas
Trial Court Cause No. 2013-33555
OPINION
Appellant, Weizhong Zheng, appeals the trial court’s judgment, dismissing,
under Texas Rule of Civil Procedure 91a, Zheng’s claims against appellees,
Vacation Network, Inc. and Linh C. Dinh, and awarding attorney’s fees to
appellees. We reverse the portion of the judgment dismissing Zheng’s claim under
the Texas Timeshare Act against Vacation Network. We affirm the portion of the
judgment dismissing Zheng’s fraud claim against Vacation Network and all of
Zheng’s claims against Dinh. We remand for further proceedings, including a
determination of the appropriate awards of attorney’s fees.
I. BACKGROUND
Zheng alleges the following facts in his petition: On June 6, 2009, in
response to solicitations from Vacation Network and after attending a presentation,
Zheng entered into a timeshare contract with Vacation Network. Dinh is the
president of Vacation Network. Zheng paid the full contractual price of $7,299.
Appellees failed to provide the services they verbally promised and made
materially false representations or concealed or failed to disclose material facts to
secure Zheng’s endorsement of the contract. Three days after execution, Zheng
requested cancellation and a full refund. He has not used any contractual benefits.
Appellees offered a modification, which Zheng declined. Appellees refused to
honor Zheng’s request for cancellation and retained his payment. The contract
contained a waiver-of-rescission clause in violation of the Texas Timeshare Act,
and appellees were not licensed to promote timeshares.
Zheng asserts two causes of action: (1) violations of the Timeshare Act; and
(2) common law fraud. As we construe the petition, he seeks damages equal to the
contractual price or rescission of the contract and a refund of the price.
Appellees filed a motion to dismiss each claim pursuant to Texas Rule of
Civil Procedure 91a, to which Zheng responded. The trial court conducted a
hearing on the motion. On September 23, 2013, the trial court signed an order
granting the motion, dismissing all of Zheng’s claims with prejudice, and ordering
that appellees are entitled to recover their costs and attorney’s fees associated with
the motion. Appellees then filed a motion for award of its attorney’s fees and entry
of final judgment, with evidence attached to prove the amount of attorney’s fees.
On February 3, 2014, the trial court signed a final judgment, dismissing appellant’s
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claims with prejudice and awarding appellees $9,806.81 in attorney’s fees. After
the trial court signed the dismissal order but before it signed the final judgment,
Zheng filed a motion for new trial, which was overruled.
II. DISMISSAL OF ZHENG’S CLAIMS
Rule 91a, entitled “Dismissal of Baseless Causes of Action,” provides in
pertinent part:
91a.1 Motion and Grounds. Except in a case brought under the
Family Code or a case governed by Chapter 14 of the Texas Civil
Practice and Remedies Code, a party may move to dismiss a cause of
action on the grounds that it has no basis in law or fact. A cause of
action has no basis in law if the allegations, taken as true, together
with inferences reasonably drawn from them, do not entitle the
claimant to the relief sought. A cause of action has no basis in fact if
no reasonable person could believe the facts pleaded.
91a.2 Contents of Motion. A motion to dismiss must state that it
is made pursuant to this rule, must identify each cause of action to
which it is addressed, and must state specifically the reasons the cause
of action has no basis in law, no basis in fact, or both.
...
91a.5 Effect of Nonsuit or Amendment; Withdrawal of Motion.
(a) The court may not rule on a motion to dismiss if, at least
3 days before the date of the hearing, the respondent files a
nonsuit of the challenged cause of action, or the movant files a
withdrawal of the motion.
(b) If the respondent amends the challenged cause of action
at least 3 days before the date of the hearing, the movant may,
before the date of the hearing, file a withdrawal of the motion
or an amended motion directed to the amended cause of action.
(c) Except by agreement of the parties, the court must rule on
a motion unless it has been withdrawn or the cause of action
has been nonsuited in accordance with (a) or (b). In ruling on
the motion, the court must not consider a nonsuit or amendment
not filed as permitted by paragraphs (a) or (b).
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claims with prejudice and awarding appellees $9,806.81 in attorney’s fees. After
the trial court signed the dismissal order but before it signed the final judgment,
Zheng filed a motion for new trial, which was overruled.
II. DISMISSAL OF ZHENG’S CLAIMS
Rule 91a, entitled “Dismissal of Baseless Causes of Action,” provides in
pertinent part:
91a.1 Motion and Grounds. Except in a case brought under the
Family Code or a case governed by Chapter 14 of the Texas Civil
Practice and Remedies Code, a party may move to dismiss a cause of
action on the grounds that it has no basis in law or fact. A cause of
action has no basis in law if the allegations, taken as true, together
with inferences reasonably drawn from them, do not entitle the
claimant to the relief sought. A cause of action has no basis in fact if
no reasonable person could believe the facts pleaded.
91a.2 Contents of Motion. A motion to dismiss must state that it
is made pursuant to this rule, must identify each cause of action to
which it is addressed, and must state specifically the reasons the cause
of action has no basis in law, no basis in fact, or both.
...
91a.5 Effect of Nonsuit or Amendment; Withdrawal of Motion.
(a) The court may not rule on a motion to dismiss if, at least
3 days before the date of the hearing, the respondent files a
nonsuit of the challenged cause of action, or the movant files a
withdrawal of the motion.
(b) If the respondent amends the challenged cause of action
at least 3 days before the date of the hearing, the movant may,
before the date of the hearing, file a withdrawal of the motion
or an amended motion directed to the amended cause of action.
(c) Except by agreement of the parties, the court must rule on
a motion unless it has been withdrawn or the cause of action
has been nonsuited in accordance with (a) or (b). In ruling on
the motion, the court must not consider a nonsuit or amendment
not filed as permitted by paragraphs (a) or (b).
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of the pleadings and erred by dismissing both claims. We will address separately
the claims against each defendant because our analysis differs somewhat for each
defendant.
A. Claims against Vacation Network
1. Violations of Timeshare Act
Zheng characterizes his first claim as based on violations of the Texas
Timeshare Act (“the Act”). See generally Tex. Prop. Code Ann. §§ 221.001–.090
(West, Westlaw through 2013 3d C.S.) (“the Texas Timeshare Act”). Liberally
construing the petition, we glean that Zheng seeks recovery of his purchase price
as actual damages or rescission of the contract and refund of the purchase price for
two separate reasons: (1) appellees were not licensed by the Texas Real Estate
Commission to promote timeshares; see id. § 221.021 (generally requiring that
timeshare plan be registered with the commission); and (2) the contract contained a
rescission-waiver clause which is invalid under the Act, and Vacation Network
refused Zheng’s timely request for cancellation. See id. § 221.041 (providing
purchaser may cancel timeshare contract within certain timeframes, purchaser may
not waive right of cancellation, and contract containing a waiver is voidable by
purchaser).
In the motion to dismiss, Vacation Network asserted Zheng’s claim has no
basis in law or fact because the contract is not a timeshare agreement. In support,
Vacation Network cited various portions of the Act and attached the contract,
which was not an exhibit to Zheng’s petition. Vacation Network stated the
contract demonstrates Zheng purchased a right to buy, at a later time,
accommodations at a discounted price and did not purchase an ownership right in
property or right to use accommodations. According to Vacation Network, this
distinction means the contract is not a timeshare agreement. Vacation Network
5
of the pleadings and erred by dismissing both claims. We will address separately
the claims against each defendant because our analysis differs somewhat for each
defendant.
A. Claims against Vacation Network
1. Violations of Timeshare Act
Zheng characterizes his first claim as based on violations of the Texas
Timeshare Act (“the Act”). See generally Tex. Prop. Code Ann. §§ 221.001–.090
(West, Westlaw through 2013 3d C.S.) (“the Texas Timeshare Act”). Liberally
construing the petition, we glean that Zheng seeks recovery of his purchase price
as actual damages or rescission of the contract and refund of the purchase price for
two separate reasons: (1) appellees were not licensed by the Texas Real Estate
Commission to promote timeshares; see id. § 221.021 (generally requiring that
timeshare plan be registered with the commission); and (2) the contract contained a
rescission-waiver clause which is invalid under the Act, and Vacation Network
refused Zheng’s timely request for cancellation. See id. § 221.041 (providing
purchaser may cancel timeshare contract within certain timeframes, purchaser may
not waive right of cancellation, and contract containing a waiver is voidable by
purchaser).
In the motion to dismiss, Vacation Network asserted Zheng’s claim has no
basis in law or fact because the contract is not a timeshare agreement. In support,
Vacation Network cited various portions of the Act and attached the contract,
which was not an exhibit to Zheng’s petition. Vacation Network stated the
contract demonstrates Zheng purchased a right to buy, at a later time,
accommodations at a discounted price and did not purchase an ownership right in
property or right to use accommodations. According to Vacation Network, this
distinction means the contract is not a timeshare agreement. Vacation Network
5
these issues extend beyond a mere determination of whether the claim as pleaded is
baseless under the Rule 91a standards. This is not a situation in which a court can
determine based on the pleadings that “no reasonable person” could believe the
contract is a timeshare agreement, as required for the claim to have no basis in fact.
See R. 91a.1. And, determining the claim has no basis in law would be contrary to
the Rule 91a standard and our court’s precedent that we take as true Zheng’s
allegation that the contract is a timeshare agreement.3 See id.; Wooley, 447 S.W.3d
at 76.4 Instead, Vacation Network’s contention seems to be a summary-judgment
ground because it asserted that the evidence and authority negates the pleaded
facts—which, upon proper motion, Zheng is entitled to have evaluated under
summary-judgment standards. See generally Tex. R. Civ. P. 166a. Accordingly,
the trial court erred by dismissing the claim against Vacation Network based on the
Act.
2. Fraudulent Inducement
We construe the pleading as alleging Vacation Network fraudulently
induced Zheng into executing the contract. The elements of fraud are (1) the
speaker made a material representation, (2) it was false, (3) the speaker knew the
representation was false when he made it or he made it recklessly without any
knowledge of its truth and as a positive assertion, (4) the speaker made the
representation with intent that the other party act upon it, (5) the other party acted
in reliance on the misrepresentation, and (6) that party suffered injury thereby.
Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337
3
As Vacation Network points out, Zheng does not explicitly state in his petition that the
contract is a timeshare agreement, but liberally construing the petition, we construe the crux as
alleging the contract is a timeshare agreement.
4
In its motion, Vacation Network did not assert that even if the contract were a timeshare
agreement, the Act does not authorize a private cause of action for damages based on violations
of the Act or Zheng has no grounds for rescinding the contract and obtaining a refund.
7
(Tex. 2011). For fraudulent inducement, the elements of fraud must be established
as they relate to an inducement to enter into a contract between the parties. See
Haase v. Glazner, 62 S.W.3d 795, 798–99 (Tex. 2001).
In the motion to dismiss, Vacation Network challenged the fraud claim for
several reasons. We conclude the trial court properly dismissed the fraud claim on
the first ground raised by Vacation Network and thus we need not consider its
remaining grounds.
In its first ground, Vacation Network contended the fraud claim has no basis
in law or fact because Zheng fails to identify what false representations were
allegedly made, or what material facts were allegedly concealed or undisclosed, by
Vacation Network. As Vacation Network correctly asserted, Zheng recites the
elements of a fraud claim but includes no supporting facts; he fails to allege any
misrepresentations that were made or any facts that were concealed or undisclosed
in order to induce him into executing the contract. After Vacation Network
specifically raised this deficiency in its motion to dismiss, Zheng failed to amend
his petition to identify any facts supporting the fraud claim, as permitted to avoid
dismissal of the claim as originally pleaded. See Tex. R. Civ. P. 91a.5(b), (c).
In this regard, our court recently likened the standard for addressing a Rule
91a motion to the standard for addressing a motion under Federal Rule of Civil
Procedure 12(b)(6), which allows dismissal if a plaintiff fails “to state a claim upon
which relief can be granted.” See Wooley, 447 S.W.3d at 75–76; Fed. R. Civ. P.
12(b)(6). We emphasized that for a claim to survive a Rule 12(b)(6) motion, it
must contain “‘enough facts to state a claim to relief that is plausible on its face.’”
Id. at 76 (quoting GoDaddy.com, LLC v. Toups, 429 S.W.3d 752, 754 (Tex.
App.—Beaumont 2014, pet. denied), which quoted Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). Although a federal complaint is liberally construed in the
8
plaintiff’s favor and all well-pleaded facts are taken as true, “‘[t]hreadbare recitals
of the elements of a cause of action, supported by mere conclusory statements, do
not suffice.’” Id. (quoting GoDaddy, 429 S.W.3d at 754, which quoted Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)).
In the present case, Zheng’s pleading contains merely a “threadbare
recital[]” of the elements of a fraudulent inducement claim without any alleged
facts. Accordingly, the trial court did not err by determining the claim has no basis
in law or fact. See id.
B. Claims against Dinh
In the motion to dismiss, Dinh asserted that Zheng fails to plead any causes
of action against Dinh personally. We agree. Zheng pleads that Vacation Network
is a corporation and Dinh is its president. Although Zheng refers to the
“Defendants” collectively in the petition, it is undisputed he contracted only with
Vacation Network. Consequently, Zheng essentially pleads that it is Vacation
Network who fraudulently induced Zheng to execute the contract, violated the Act,
and holds the purchase price that Zheng seeks either as damages or as a refund if
the contract is rescinded.
Zheng pleads no basis whatsoever for imposing liability against Dinh
individually. In particular, Zheng alleges no theory for disregarding the corporate
form and holding Dihn personally liable for the actions of Vacation Network.
Zheng’s only argument on appeal for retaining Dinh as a defendant is that Zheng
was not required to “marshal” all his evidence in the petition. However, this is not
merely a failure to “marshal” evidence but a failure to state any basis for a claim
against Dinh individually. Additionally, we may uphold dismissal of the fraud
claim against Dinh for the same reason we uphold dismissal of that claim against
Vacation Network—Zheng pleads only a “threadbare recital[]” of the elements
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these issues extend beyond a mere determination of whether the claim as pleaded is
baseless under the Rule 91a standards. This is not a situation in which a court can
determine based on the pleadings that “no reasonable person” could believe the
contract is a timeshare agreement, as required for the claim to have no basis in fact.
See R. 91a.1. And, determining the claim has no basis in law would be contrary to
the Rule 91a standard and our court’s precedent that we take as true Zheng’s
allegation that the contract is a timeshare agreement.3 See id.; Wooley, 447 S.W.3d
at 76.4 Instead, Vacation Network’s contention seems to be a summary-judgment
ground because it asserted that the evidence and authority negates the pleaded
facts—which, upon proper motion, Zheng is entitled to have evaluated under
summary-judgment standards. See generally Tex. R. Civ. P. 166a. Accordingly,
the trial court erred by dismissing the claim against Vacation Network based on the
Act.
2. Fraudulent Inducement
We construe the pleading as alleging Vacation Network fraudulently
induced Zheng into executing the contract. The elements of fraud are (1) the
speaker made a material representation, (2) it was false, (3) the speaker knew the
representation was false when he made it or he made it recklessly without any
knowledge of its truth and as a positive assertion, (4) the speaker made the
representation with intent that the other party act upon it, (5) the other party acted
in reliance on the misrepresentation, and (6) that party suffered injury thereby.
Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337
3
As Vacation Network points out, Zheng does not explicitly state in his petition that the
contract is a timeshare agreement, but liberally construing the petition, we construe the crux as
alleging the contract is a timeshare agreement.
4
In its motion, Vacation Network did not assert that even if the contract were a timeshare
agreement, the Act does not authorize a private cause of action for damages based on violations
of the Act or Zheng has no grounds for rescinding the contract and obtaining a refund.
7
incurred to obtain dismissal of the claim against Vacation Network under the Act
or demonstrate why segregation is not required. See CA Partners v. Spears, 274
S.W.3d 51, 81–82 (Tex. App.—Houston [14th Dist.] 2008, pet. denied)
(recognizing that, if any attorney’s fees relate solely to claims for which fees are
unrecoverable, party seeking fees must segregate recoverable from unrecoverable
fees, except when discrete legal services relate to both recoverable claims and
unrecoverable claims, they are so “intertwined” that segregation is not required;
and party seeking fees bears burden to show segregation is not required).
With respect to Zheng’s request for appellate fees, appellees assert that a
prevailing party on a Rule 91a motion is entitled to recover only the attorney’s fees
incurred in the trial court.5 Appellees focus on the phrase “in the trial court” in
Rule 91a.7, contending it means the prevailing party may recover only the fees it
incurred at the trial court level. We disagree.
We note this issue is one of first impression because Rule 91a is fairly new.
The parties do not cite, and we have not found, any authority addressing whether a
prevailing party on a Rule 91a motion is entitled to recover appellate attorney’s
fees. When construing rules of procedure, we apply the same rules of construction
that govern the interpretation of statutes. Ford Motor Co. v. Garcia, 363 S.W.3d
573, 579 (Tex. 2012). We first look to the plain language of the rule and construe
it according to its plain or literal meaning. Id.
Applying this principle, our disposition hinges on the placement of the
phrase “in the trial court” within Rule 91a.7. The phrase is not placed directly after
the word “incurred.” See Tex. R. Civ. P. 91a.7. In other words, the rule does not
state that the trial court must award the prevailing party “all costs and reasonable
5
There is no issue on whether Zheng may recover attorney’s fees incurred in the trial
court because he appeared pro se at that stage and first obtained counsel to prosecute his appeal.
11
(Tex. 2011). For fraudulent inducement, the elements of fraud must be established
as they relate to an inducement to enter into a contract between the parties. See
Haase v. Glazner, 62 S.W.3d 795, 798–99 (Tex. 2001).
In the motion to dismiss, Vacation Network challenged the fraud claim for
several reasons. We conclude the trial court properly dismissed the fraud claim on
the first ground raised by Vacation Network and thus we need not consider its
remaining grounds.
In its first ground, Vacation Network contended the fraud claim has no basis
in law or fact because Zheng fails to identify what false representations were
allegedly made, or what material facts were allegedly concealed or undisclosed, by
Vacation Network. As Vacation Network correctly asserted, Zheng recites the
elements of a fraud claim but includes no supporting facts; he fails to allege any
misrepresentations that were made or any facts that were concealed or undisclosed
in order to induce him into executing the contract. After Vacation Network
specifically raised this deficiency in its motion to dismiss, Zheng failed to amend
his petition to identify any facts supporting the fraud claim, as permitted to avoid
dismissal of the claim as originally pleaded. See Tex. R. Civ. P. 91a.5(b), (c).
In this regard, our court recently likened the standard for addressing a Rule
91a motion to the standard for addressing a motion under Federal Rule of Civil
Procedure 12(b)(6), which allows dismissal if a plaintiff fails “to state a claim upon
which relief can be granted.” See Wooley, 447 S.W.3d at 75–76; Fed. R. Civ. P.
12(b)(6). We emphasized that for a claim to survive a Rule 12(b)(6) motion, it
must contain “‘enough facts to state a claim to relief that is plausible on its face.’”
Id. at 76 (quoting GoDaddy.com, LLC v. Toups, 429 S.W.3d 752, 754 (Tex.
App.—Beaumont 2014, pet. denied), which quoted Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). Although a federal complaint is liberally construed in the
8
Code § 22.004(g) (West, Westlaw through 2013 3d C.S.). Section 30.021 provides
that subject to the same exceptions set forth in Rule 91a.7, the trial court, when
granting or denying a motion to dismiss, in whole or part, “shall award costs and
reasonable and necessary attorney’s fees to the prevailing party.” Id. This section
does not restrict such costs and attorney’s fees to those incurred in the trial court.
See id.
Therefore, we conclude Zheng is entitled to recover reasonable and
necessary appellate attorney’s fees, but not necessarily all of his appellate fees
because he is the prevailing party only relative to his claim against Vacation
Network under the Act. Accordingly, on remand, Zheng must segregate his fees
incurred to appeal dismissal of that claim from those incurred to appeal dismissal
of his fraud claim against Vacation Network and all claims against Dinh or
demonstrate why segregation is not required. See CA Partners, 274 S.W.3d at 81–
82.
In summary, we reverse the portion of the trial court’s judgment dismissing
Zheng’s claim against Vacation Network under the Act. We affirm the portion of
the judgment dismissing Zheng’s fraud claim against Vacation Network and all of
Zheng’s claims against Dinh. We remand for further proceedings consistent with
this opinion.
/s/ John Donovan
Justice
Panel consists of Justices Christopher, Donovan, and Wise.
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