Shawn Brooks v. Auros Partners, Inc.

• Court: Court of Appeals of Texas
• Decided: April 22, 2020
• Docket: 07-18-00354-CV
• Status: Published

Opinion

In The Court of Appeals Seventh District of Texas at Amarillo

No. 07-18-00354-CV

SHAWN BROOKS, APPELLANT

V.

AUROS PARTNERS, INC., APPELLEE

On Appeal from the 352nd District Court Tarrant County, Texas1 Trial Court No. 352-290635-17, Honorable Josh Burgess, Presiding

April 22, 2020

MEMORANDUM OPINION Before QUINN, C.J., and PIRTLE and DOSS, JJ.

Appellant Shawn Brooks, appearing pro se, challenges an adverse judgment

rendered by the trial court in favor of Appellee Auros Partners, Inc. Based on the following

analysis of Brooks’s five issues, we affirm the judgment of the trial court.

1 Originally appealed to the Second Court of Appeals, this case was transferred to this Court by the Texas Supreme Court pursuant to its docket equalization efforts. See TEX. GOV’T CODE ANN. § 73.001 (West 2013). Background

Beginning in 2012, Brooks had contact with investor Ramiro Pericon concerning a

repair system for asphalt roofs which Brooks claimed to have invented and patented. By

2016, Pericon’s investment partners -- Lance Lang, Daniel Lam, and Runhe “James”

Zhen -- were sufficiently interested in Brooks’s roofing repair system that they formed

Auros to work with Brooks in a roofing repair business.

Brooks formed the entity, Shingle Restore, Inc., to implement and market the

roofing repair system. The initial directors of Shingle Restore were Brooks, Pericon,

Lang, and Lam. The parties agreed that Auros would receive fifty-six percent of the

outstanding stock in Shingle Restore in consideration for $950,000 capital funding.

Brooks would receive forty-four percent of the stock in consideration for Shingle Restore

having the exclusive right and control to market the patented shingle restoration product.

According to Auros, “[a]s soon as [Shingle Restore] was created and Auros

tendered its initial capital funding . . . Auros began realizing that Brooks misrepresented

his capabilities and the effectiveness of his Shingle Restore product.” Auros ceased

providing capitalization funding of Shingle Restore and the directors removed Brooks as

president-secretary of Shingle Restore. At the time Auros ceased capital funding, it had

paid some $728,000 into the company.

Brooks filed suit against Auros, Pericon, Lang, Lam, Zhen, and Shingle Restore.

Auros filed counterclaims against Brooks, seeking damages for common law fraud, fraud

by non-disclosure, statutory fraud, and negligent misrepresentation. Over the course of

the litigation, Brooks’s claims against Auros, the individual defendants, and Shingle

2 Restore were disposed against him by partial summary judgment or grant of a motion to

dismiss under Texas Rule of Civil Proceedure 91a. See TEX. R. CIV. P. 91a. In its final

judgment, the trial court awarded to Auros, among other things: (1) $528,000 actual

damages for its four theories of affirmative relief; (2) $300,000 for exemplary damages

based on the four theories of affirmative relief; and, (3) $303,339.50 for attorney’s fees

through trial. Conditional awards of appellate attorney’s fees were also made. The trial

court found Brooks purchased a house with funds acquired by actual fraud and

accordingly impressed the property with a constructive trust in favor of Auros.

Brooks filed a motion for new trial which was overruled by operation of law. This

appeal followed.

Analysis

First Issue

In Brooks’s first issue, he contends that Auros was not entitled to recover summary

judgment or damages for fraud, statutory fraud, and negligent misrepresentation claims

because Brooks and Auros did not have a signed, written agreement conforming to the

statute of frauds. See TEX. BUS. & COMM CODE ANN. § 26.01(a) (West 2015).2 Brooks

argues a signed writing was required because the parties’ agreement concerned “a

promise by one person to answer for the debt, default, or miscarriage of another person,”

was “an agreement which is not to be performed within one year from the date of making

2 Brooks also suggests his transactions with Auros constitute the sale of a security. He provides

no support for his position and directs the Court to no authority supporting the conclusion that Auros’s claims of fraud and misrepresentation depend on a written contract for sale of a security. Accordingly, to the extent Brooks intends for this reference to constitute a basis for reversal, it is waived due to inadequate briefing. TEX. R. APP. P. 38.1(i).

3 the agreement,” and was “a contract for the sale of real estate.” See TEX. BUS. & COMM

CODE ANN. § 26.01(b)(2),(4),(6).

Without analysis, Brooks directs us to Haase v. Glazner, 62 S.W.3d 795, 798 (Tex.

2001). Concerning fraud in the inducement, the court in Haase stated, “[w]ithout a binding

agreement, there is no detrimental reliance, and thus no fraudulent inducement claim.

That is, when a party has not incurred a contractual obligation, it has not been induced to

do anything.” While “the Statute of Frauds,” the court held, “bars a fraud claim to the

extent the plaintiff seeks to recover as damages the benefit of a bargain that cannot

otherwise be enforced because it fails to comply with the Statute of Frauds” a plaintiff’s

claim for out-of-pocket damages stemming from reliance on alleged misrepresentations

may nevertheless be pursued. Haase, 62 S.W.3d at 799-800.

The statute of frauds is an affirmative defense that Brooks did not urge in the trial

court. Brooks may not raise the statute of frauds as an affirmative defense for the first

time on appeal. See Praeger v. Wilson, 721 S.W.2d 597, 602 (Tex. App.—Fort Worth

1986, writ ref’d n.r.e.) (stating “[a] statute of frauds defense must be affirmatively pleaded

or it is waived.”). Moreover, the judgment recites that Auros was awarded actual damages

for its out-of-pocket loss, not the benefit of its bargain.

In a sub-issue, Brooks asserts Auros “perjured themselves” and had unclean

hands. No discussion is supported by any citation to the record or authority. An appellate

court is not obligated to review the record, research the law, and fashion a legal argument

for an appellant who has not done so. Guajardo v. Hitt, 562 S.W.3d 768, 781 (Tex. App.—

Houston [14th Dist.] 2018, pet. denied) (citing Canton-Carter v. Baylor Coll. of Med., 271

4 S.W.3d 928, 931-32 (Tex. App.—Houston [14th Dist.] 2008, no pet.)). This is true even

though the appellant appears pro se. See Baish v. Allen, No. 02-17-00146-CV, 2019 Tex.

App. LEXIS 2229, at *2 (Tex. App.—Fort Worth Mar. 21, 2019, no pet.) (mem. op.) (“Pro

se litigants are held to the same standards as licensed attorneys and must comply with

applicable laws and procedural rules.”). Waiver for inadequate briefing occurs when a

party fails to sufficiently cite to the record and authority or provide any substantive legal

analysis. See TEX. R. APP. 38.1(i); Lowry v. Tarbox, 537 S.W.3d 599, 611-12 (Tex. App.—

San Antonio 2017, pet. denied) (finding appellants waived their sufficiency argument

because their brief on the issue provided no argument or analysis supporting their

contention and thus afforded the appellate court no basis to analyze and determine the

issue). We find Brooks’s “perjury” and unclean hands sub-issue is inadequately briefed

and therefore waived. Brooks’s first issue is overruled.

Second Issue

By his second issue, Brooks argues the trial court’s imposition of a constructive

trust against his home was in error. First, he argues Auros “did not prove any evidence

to the courts for any Real estate contract for Statutory Fraud.” Auros counters that Brooks

has confused its cause of action for statutory fraud with constructive trust because its

statutory fraud claim was not based on a real estate contract but on an agreement related

to stock in a corporation. Regardless, the judgment imposes a constructive trust because

of the court’s finding in the judgment that the house was purchased with funds Brooks

fraudulently obtained. Aside from the waived statute of frauds argument, Brooks does

not challenge on appeal the sufficiency of evidence proving Auros’s common law fraud

claim.

5 Brooks next states his wages were paid by Shingle Restore and not Auros but

provides no analysis or authority for the significance of the proposition. Otherwise, he

does not challenge the sufficiency of evidence tracing fraudulent receipts into the house.

Finally, Brooks argues the trial court erred because his house was conveyed to a

revocable living trust of which his wife, Connie Brooks, is trustee; yet, she was not made

a party to the lawsuit and is not mentioned in the judgment. In impressing the property

with a constructive trust, the trial court stated in the judgment that the house was

“purportedly owned by the ‘Brooks Shawn & Connie Revocable Living Trust.’” (emphasis

supplied). Even if Brooks presented his defect-of-parties issue to the trial court, the record

does not contain the trust instrument, nor does it include a deed evidencing the

conveyance of the property to a trust. Furthermore, the property became subject to the

constructive trust the moment Brooks unlawfully acquired it. Fitz-Gerald v. Hull, 150 Tex.

39, 237 S.W.2d 256, 264 (1951); SEC v. Ramirez, No. 7:13-CV-531, 2016 U.S. Dist.

LEXIS 178332, at *8 (S.D. Tex. 2016) (ordering under Texas law constructive trust

attached to assets the moment legal title was transferred). Brooks’s spouse does not

possess different interests in Brooks’s fraudulently-obtained funds, or property purchased

therefrom, than Brooks does.

Illustrative is First State Bank v. Zelesky, 262 S.W. 190 (Tex. Civ. App.—Galveston

1924, no writ). There, the husband embezzled funds from his employer and used them

to purchase property he declared to be homestead. The wife was unaware of her

husband’s wrongdoing. The court of civil appeals explained the husband held the

property for the benefit of the bank as its constructive trustee. As such, “[a] wife can never

acquire homestead rights in property held in trust by her husband which defeat or impair

6 the rights of the beneficiary of the trust.” 262 S.W. at 192; Byrom v. Penn, No. 12-15-

00033-CV, 2016 Tex. App. LEXIS 9209, at *6 (Tex. App.—Tyler Aug. 24, 2016, pet.

denied) (mem. op.); cf. Smith v. Green, 243 S.W. 1006, 1008 (Tex. Civ. App.—Amarillo

1922, writ ref’d)3 (“Under the doctrine of constructive trusts a court of equity follows the

trust property through its mutations into its changed form, declares that this new form of

property is the trust property, in whole or in part as the circumstances may be, and

restores it to its rightful owner”). Once Appellees traced the funds to the purchase of the

property, the burden of proof shifted to proving that the trust’s alleged ownership interests

originated in funds that were not fraudulently obtained. See Marineau v. Gen. Am. Life

Ins. Co., 898 S.W.2d 397, 400 (Tex. App.—Fort Worth 1995, writ denied); Meyers v.

Baylor Univ., 6 S.W.2d 393, 395 (Tex. Civ. App.—Dallas 1928, writ ref'd). There is no

evidence in the record that any of the home’s property was purchased with funds other

than those the trial court found to be fraudulently obtained. Brooks’s second issue is

overruled.

Third Issue

By his third issue Brooks argues the trial court erred by signing the final judgment

without first conducting a hearing. We do not find this complaint was presented to the

trial court and an adverse ruling obtained. Accordingly, it is waived. TEX. R. APP. P.

33.1(a).

3 In Hyundai Motor Co. v. Vasquez, 189 S.W.3d 743, 754 n.52 (Tex. 2006), the Supreme Court of

Texas held that its notation of “writ refused” in cases after 1927 that the judgment of the court of civil appeals is correct, with “[s]uch cases hav[ing] equal precedential value with the Texas Supreme Court’s own opinions.”

7 Moreover, we find no merit to the various reasons Brooks presents on appeal,

without citation, supporting his complaint. As an example, Brooks points to Rule of Civil

Procedure 167 to claim that the trial court erred in failing to conduct a hearing. But this

rule concerns the procedure for shifting litigation costs following a rejected settlement

offer. In particular, the rule provides, “If a settlement offer made under this rule is rejected,

and the judgment to be awarded on the monetary claims covered by the offer is

significantly less favorable to the offeree than was the offer, the court must award the

offeror litigation costs against the offeree from the time the offer was rejected to the time

of judgment.” TEX. R. CIV. P. 167.4(a). Because this case does not involve a rejected

settlement offer, there was no reason for the trial court to conduct a hearing under Rule

167.5(c).

Brooks next presents several short retorts concerning the amount of revenue he

received from Shingle Restore, the percentages of ownership in Shingle Restore, and the

amount of payments from Auros to Shingle Restore. Based on these statements, Brooks

summarily concludes Auros actually owes him $232,760. There is no indication that

Brooks objected to the procedure the trial court followed for awarding damages. Finally,

nothing in Brooks’s argument indicates because the trial court rendered a written

judgment without first conducting a hearing an improper judgment was probably rendered

or Brooks is probably prevented from properly presenting his case on appeal. TEX. R.

APP. P. 44.1(a). Even had error occurred and been preserved, harmful error does not

appear in the record. Brooks’s third issue is overruled.

8 Fourth Issue

Brooks next argues the trial court erred by awarding attorney’s fees and excessive

actual and punitive damages because Rule 169(b) caps a prevailing party’s recovery at

$100,000. See TEX. R. CIV. P. 169(b). The expedited actions process created by Rule

169 “applies to a suit in which all claimants, other than counter-claimants, affirmatively

plead that they seek only monetary relief aggregating $100,000 or less, including

damages of any kind, penalties, costs, expenses, pre-judgment interest, and attorney

fees.” TEX. R. CIV. P. 169(a)(1). A party who prosecutes a suit under Rule 169 may not

recover judgment in excess of $100,000, excluding post-judgment interest. TEX. R. CIV.

P. 169(b).

In the present case, no party seeking relief affirmatively pled the damage limitation

of Rule 169(a)(1). For example, in his live petition Brooks alleged, “[p]ursuant to Rule

47(c) of the Texas Rules of Civil Procedure, Plaintiff hereby gives notice to Defendants

that the maximum amount Plaintiff seeks is twenty-five million dollars ($25,000,000).”

This was not a suit brought under Rule 169; hence, the damage cap of that rule’s subpart

(b) has no application. Brooks’s fourth issue is overruled.

Fifth Issue

By his fifth issue, Brooks argues the trial court erred in granting summary judgment

because the “directors of Auros . . . have unclean hands during litigation; committed

perjury, spoilage of evidence, abuse of the justice system to try and [steal] my intellectual

9 property,4 investor fraud.” As for whether Brooks’s claims of unclean hands, perjury,

spoliation of evidence, and “abuse of the justice system,” if properly pled and presented

to the trial court, might have had viability we do not say. Brooks failed to raise these

defensive theories in the trial court and they may therefore not be asserted for the first

time on appeal as grounds for reversal. See TEX. R. CIV. P. 94; Watson v. Tipton, 274

S.W.3d 791, 800-01 (Tex. App.—Fort Worth 2008, pet. denied) (holding that an

affirmative defense not pled at the trial court level cannot be raised for the first time on

appeal) (citing City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex.

1979) (holding that nonmovant may raise sufficiency of the evidence for the first time on

appeal but any other grounds for reversal must have been raised in the trial court)).

To the extent that Brooks attempts to invoke allegations of fraud against the

Appellees, his argument likewise fails. Brooks alleged in his fourth amended original

petition that Lang, Pericon, Lam, and Zhen defrauded him, and not Shingle Restore, by

transferring Shingle Restore funds, transferring corporate property, “diverting” corporate

funds, and using corporate funds for their personal expense. On October 23, 2017, the

trial court signed an “amended order” that in part granted Auros, Lang, Pericon, Lam, and

Zhen’s Rule 91a motion to dismiss Brooks’s claims of breach of fiduciary duty and fraud.

A court of appeals reviews a ruling under Rule 91a “de novo because the

availability of a remedy under the facts alleged is a question of law and the rule’s factual

plausibility standard is akin to a legal-sufficiency review.” City of Dallas v. Sanchez, 494

S.W.3d 722, 724 (Tex. 2016) (per curiam). Rule 91a provides a procedure for dismissal

4 Brooks directs this accusation against Auros’s attorneys for questions asked Brooks during his deposition.

10 of a case that has no basis in law or fact. TEX. R. CIV. P. 91a. 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. TEX. R. CIV. P. 91a.1. A cause

of action has no basis in fact if no reasonable person could believe the facts pleaded.

TEX. R. CIV. P. 91a.1.

“A cause of action against one who has injured a corporation belongs to the

corporation and not to the shareholders.” Swank v. Cunningham, 258 S.W.3d 647, 661

(Tex. App.—Eastland 2008, pet. denied). Thus a shareholder seeking redress for wrongs

done to the corporation must bring suit derivatively in the name of the corporation. Id.

“Without breach of a legal right belonging to the plaintiff no cause of action can accrue to

his benefit.” Nobles v. Marcus, 533 S.W.2d 923, 927 (Tex. 1976); cf. Cadle Co. v.

Lobingier, 50 S.W.3d 662, 666, 669-70 (Tex. App.—Fort Worth 2001, pet. denied) (en

banc) (finding in case where judgment debtors were held in contempt for failing to comply

with turnover orders judgment creditor had no standing to seek recovery of contempt fine

from judgment debtors); Brunson v. Woolsey, 63 S.W.3d 583, 587-90 (Tex. App.—Fort

Worth 2001, no pet.) (finding landowners had no standing to seek revision of the plat of

their lot when the Legislature granted that right only to the original developer).

Brooks did not allege the individual defendants breached a tort duty owed directly

to him. Swank, 258 S.W.3d at 661. Rather, he sought to recover damages individually

on a cause of action that belonged to Shingle Restore.5 Under Texas law, Brooks lacked

standing to individually seek such relief. See id., 258 S.W.3d at 662 (finding “[b]ecause

5 Nor does Brooks complain that the trial court reversibly erred by implicitly refusing to allow him to recover the corporation’s damages directly. See Guajardo, 562 S.W.3d at 780-81, 780 n.6.

11 [appellants’] claims depend on an injury to [the corporation], their claims are derivative in

nature” and they therefore “lack standing to seek redress in their individual capacities”).

Accordingly, Brooks’s fraud claim against the individual defendants had no basis in law

and was correctly dismissed under Rule 91a. Brooks’s fifth issue is overruled.

Conclusion

Having overruled each of Brooks’s appellate issues, we affirm the judgment of the

trial court.

Lawrence M. Doss Justice