Terrence Mann and Evelyn Mann v. Kendall Home Builders Construction Partners I, Ltd.

Opinion

ACCEPTED 14-13-01069-CV FOURTEENTH COURT OF APPEALS HOUSTON, TEXAS 4/17/2015 4:49:04 PM CHRISTOPHER PRINE CLERK

NO. 14-13-01069-CV

FILED IN 14th COURT OF APPEALS In the Fourteenth District Court of Appeals HOUSTON, TEXAS Houston Division 4/17/2015 4:49:04 PM CHRISTOPHER A. PRINE Clerk

TERRANCE MANN and EVELYN MANN Appellants,

v.

KENDALL HOME BUILDERS CONSTRUCTION PARTNERS I, LTD. Appellee.

MOTION FOR REHEARING

TO THE FOURTEENTH COURT OF APPEALS:

Defendant/Appellee Kendall Home Builders Construction Partners I, Ltd.

moves the Court for rehearing. The Court misapplied the correct standard of

review, erroneously evaluating the loan origination fee issue in paragraph

22(a) of the Plaintiff’s Original Petition (a claim of StarTex error) without also

referring to other more relevant paragraphs and relevant testimony in the

sanctions hearing. (CR 4, DX-5, pp. 10-11; Appendix 1, 2). In evaluating the

$5,000 incentive this Court analyzed paragraph 22(b)(also a claim of StarTex

error) without evaluating paragraphs 30(a), 31(b), and the testimony of Mr.

Hooper in the sanctions hearing. (CR 4; DX-5, pp. 10-11, Appendix 1, 3). The trial judge correctly found these claims to be violations of Rule 13. All

other claims were also groundless, frivolous, and filed in bad faith.

The Court makes two incorrect assumptions with regard to Kendall

Homes’ argument relating to the claims for an extra $5,000 in incentives.

These two erroneous assumptions lead the Court to an erroneous conclusion.

The record does contain evidence that the Manns violated Texas Rule of Civil

Procedure 13 and under a correct application of the abuse of discretion

standard the evidence is more than sufficient to sustain the trial judge’s award

of sanctions.

In the concurring opinion Chief Justice Frost contends that “every single

claim” in the petition must have been groundless, that the inquiry is not “is any

claim” groundless but “is every claim” groundless? This is an erroneous

proposition of law as the cited authority does not support the conclusion and

factually erroneous as every claim in our case was groundless.

1. Standard of Review.

The Court correctly cites the standard of review as abuse of discretion,

with the judgment upheld if some evidence supports it. The Court correctly

notes that sanctions can only be awarded for the conscious doing of a wrong,

sanctions are not appropriate in cases of bad judgment, negligence, or when

Page 2 of 14 based merely on surmise or speculation, and a party cannot be sanctioned

for an allegation relating to the amount of damages in a pleadings. But this

case involves the conscious doings of many wrongs (RR 47-48, 54, see

Appendix 4), does not involve surmise or speculation, does not involve

negligence or bad judgment, and is not based on an allegation that the

Plaintiffs’ written demand for damages is sanctionable. The judgment is

supported by evidence.

With respect to the factual issues to be examined, the correct focus of

time is July 30, 2010 when the Plaintiffs’ Original Petition was filed, not a year

earlier on July 31, 2009 when the HUD-1 was executed during the

transaction. (DX-2, p. 3).

2. Overall indicia of groundless, bad faith, and harassment.

The scenery behind the portions of the painting under the appellate

microscope is of some relevance. The trial judge reviewed evidence of the

following:

A. Partial summary judgment was granted on almost all claims. (RR 54, 56).

B. The Plaintiffs filed no required pre-trial materials. (RR 30).

C. The Plaintiffs did not dismiss their claim. (RR 30).

D. The Plaintiffs did not appear for trial. (RR 30).

Page 3 of 14 E. The Plaintiffs gave no indication to Kendall Homes that they intended to abandon their claims. (RR 30).

F. Plaintiff’s counsel failed to give Kendall Homes a valid phone number or address where he could be contacted. (RR 63).

G. Evelyn Mann was repeatedly listed by name as a plaintiff in both pleadings filed, and referred to as a plaintiff numerous times, yet she tried to evade sanctions by claiming she was never a plaintiff. (CR4, 38; RR DX-5, 8, 9; RR pp. 24-29, 46).

The pleading should be evaluated in the context of this backdrop.

3. The $5,000 incentives claim was groundless, in bad faith, and for harassment.

The proposed Addendum A to the contract was internally contradictory

and therefore Kendall Homes never accepted it. (DX-1; RR 8, 9, 14). Kendall

Homes’ intention was to provide a total of $5,000 in incentives. (RR 8-11, 15,

18). Since each page labeled Addendum A was prepared by the Kendall

Homes salesman, in fairness to their customer Kendall Homes fixed his error

by supplying $10,000: not $5,000 and not $8,000. (RR 15).

The opinion analyzes paragraph 22 of the Plaintiffs’ Original Petition

which alleges claims against StarTex Title Company, not Kendall Homes, as

reflected in the document and was emphasized by Mr. Hooper at the hearing.

(CR 4; RR 13). It also falsely alleges, “There is no record of the $5,000

incentive either having been credited to the Manns previously . . .”

Page 4 of 14 The Plaintiffs’ Original Petition refers to the $5,000 cash incentive as

something that could be used for appliances or taken as cash. (CR 4, ¶16).

The petition then falsely claims:

A. The Manns were “fleeced.” (¶18).

B. The incentives were “basically fabrications.” (¶23).

C. The incentives were offered “with no intent to pay them.” (¶30a).

D. The incentives were “not applied.” (¶31b).

The documentary proof conclusively disproved all these claims. (RR; DX-4).

The Manns agreed – in writing – to the payments and specified the recipient

of each check and the amounts. (RR; DX-3). But the Manns alleged that

they should still get another $5,000 because these checks were not “the same

as cash on the HUD.” (RR, p. 37).

The effort to get the same $5,000 twice was groundless and in bad faith.

The Manns took a written document that provides, “Buyer to have a $5,000

incentive,” and after receiving the $5,000 groundlessly tried to transform the

agreement into a requirement that the five checks totaling $5,000 be “the

same as cash on the HUD.” (RR pp. 37-38). But nothing required the $5,000

to be applied on the HUD: the Manns just made up that part of their claim.

The Manns pled the $5,000 incentive was a fabrication offered with no intent

Page 5 of 14 to pay it even though they knew it had been paid. They tried to keep the

$5,000 paid in the form they requested (checks for appliances) and get an

additional $5,000. The trial judge was well within his discretion when he

decided this groundless claim was sanctionable.

The Court’s opinion has several erroneous assumptions. Kendall

Homes never alleged sanctions were appropriate because of a request for an

amount of damages. So the “if it is Kendall’s position” language is an

erroneous assumption. Kendall Homes’ position is that no contractual

language ever required the $5,000 cash incentive to be “paid on the HUD.”

The Manns knew it was paid to their specifications and satisfaction. The

Manns did not have to sign a formal release. The filing of a suit to be paid the

same money twice based on a groundless construction of contractual

language is a bad faith claim.

The Court writes that “Kendall appears to assume” their payment

extinguished claims, but even though no unpaid actual damages exist they

can support punitive damages. But Kendall Homes does not assume that.

Kendall argues the Manns wanted $5,000, received $5,000, and then

distorted their contractual language in a groundless way in a bad faith effort

to recover the $5,000 twice plus punitive damages. There is plenty of

Page 6 of 14 evidence proving Kendall Homes was correct, and under the proper

application of the standard of review the judgment should be affirmed.

The Court’s opinion devotes a paragraph to the non-payment of the

$5,000 on page 16. But the paragraph focuses on the wrong time period (the

closing instead of when suit was filed). When the Manns filed suit there was

no factual basis for the claim that the $5,000 had not been paid: it was a

known lie. There was no legal basis to argue it had to be “paid on the HUD”:

the language only said “Buyer to have $5,000 incentive.” Thus it was always

a bad faith and groundless allegation, especially when expressed against

Kendall Homes as “offering incentives with no intent to pay them” and “$5,000

incentive not applied.”

4. The $1273 loan origination fee claim was groundless, in bad faith, and for harassment.

The Court’s opinion misapplies the standard of review and focuses on

¶ 22(a), another claim against StarTex.

The Mann’s argument is based on an outrageous effort to misapply a

worksheet (DX-10) and falsely claim it formed part of the sales contract. (RR

32-36). The bad faith effort is false: the worksheet is not part of the contract.

(RR 40-41). Their name or lot is not even on it. No witness to events ever

testified that the Manns could stack coupons and get both $5,000 in closing

Page 7 of 14 costs and a $1,273 loan origination fee: the truth was they were to receive

$5,000 total in closing costs including the loan origination fee. (RR 18). The

worksheet itself caps the incentive at $2,200. (DX-10). Kendall Homes

increased it to $5,000 but that was enough for the Manns.

This entire claim is in bad faith because it assumes – with no proof ever

given – all of the following:

A. The Manns used an approved lender,

B. The worksheet (DX-10) was part of the contract, and

C. The Manns could stack a $1,273 loan origination fee and a $5,000 closing cost incentive into a contractual obligation (despite the $2,200 worksheet cap).

Trying to sneak a worksheet that was never part of a contract into the

contract is a classic act of bad faith, taken to support a groundless position,

and the trial judge had every reason to be appalled.

Item 5 of this Court’s “uncontroverted facts” is both controverted and

wrong. No separate addendum existed. Each Addendum A to the contract

(DX-1) says, “Seller will pay up to -0- loan discount points.” Mr. Briggs

testified in his eight years at Kendall Homes the worksheet (DX-10) has never

been a part of the contract. (RR 40-41). In footnote 8 the opinion quotes

portions of testimony where Mr. Briggs was imprecise and failed to catch the

Page 8 of 14 phrases “the contract” and “the addendum” in Mr. Hooper’s questions. (RR

17). But Mr. Briggs’ answers over the totality of his testimony – his words, not

Mr. Hooper’s words in questions – are clear enough and fully support

sanctions when the correct standard of review is applied. Mr. Briggs spoke

of passing any lender discount to the customer (RR 17), paying the origination

fee (RR 17), and then emphasized, “There’s nothing that says it’s additional.

It says that you get a total of $5,000 in closing costs.” (RR 18). When the

witness was focused on the issue of whether the worksheet discussing the

loan origination fee (DX-10) was part of the contract he was clear. It was not

part of the contract and never has been. (RR 40-41).

5. The Real Estate Settlement Procedures Act and Texas Insurance Code claims were groundless, in bad faith, and for harassment.

The RESPA and Insurance Code claims are found at paragraphs 24-28

of the Plaintiffs’ Original Petition (CR 4). They falsely assume, with no proof,

A. Kendall Homes required a particular title company, and

B. StarTex paid a kickback to Kendall Homes pursuant to an agreement.

Presuming this is in good faith stretches the presumption beyond its normal

tensile strength. The Manns paid $732.75 to StarTex, then demanded

Kendall Homes pay them 300%: $2,198.25.

Page 9 of 14 But Kendall Homes has never required any buyer to use any title

company. (RR p. 12). Accusing Kendall Homes of an illegal kickback was

easy, but proving it was impossible since it never happened. Wrongfully and

falsely accusing a company that sells to the public of a kickback, in a publicly

filed document, is a sanctionable action.

6. The DTPA claims are groundless, in bad faith, and for harassment.

The DTPA claims are found at ¶ 29-31. The following allegations were

falsely made as to Kendall Homes:

A. “Offering incentives with no intent to pay them,”

B. “Forcing them to use a particular title company,” and

C. “Ignoring contractual terms that require a payment of an incentive

(loan origination fee) in the preparation of the HUD-1.”

All are false and disproved in testimony and documents discussed previously.

All are in bad faith: they were known lies when written.

7. The civil conspiracy claim was groundless, in bad faith, and for harassment.

This is ¶ 33. A conspiracy is an agreement to commit a crime: it is not

an allegation to be publicly made with no support. Yet the Manns farcically

claimed the homebuilder and title company worked “in concert” to “force an

unsuspecting buyer to buy the home” and “finance it with an inside company.”

Page 10 of 14 There was never a hint of evidence that StarTex had any involvement in the

contractual process or the finance decisions: these claims are too ludicrous

for words. The proof is conclusive that the Manns obtained the house they

selected with $10,000 in incentives. The Manns expressed gratitude more

than a month after closing. (DX-3). Reading the pleading implies Kendall

Homes puts buyers under duress and swindles them at will: the truth known

to the Manns was they wanted to buy their home, they obtained $10,000 in

incentives, they were never forced to do anything, and there is no plausible

theory based in reality under which StarTex Title and Kendall Homes could

possibly unite to benefit themselves by forcing the Manns to buy a home.

8. The fraud claim was groundless, in bad faith, and for harassment.

The fraud allegations are in ¶ 34 and are fully rebutted above.

9. The breach of fiduciary duty claim did not apply to Kendall Homes.

This is ¶ 35 of the suit and only applied to StarTex.

10. The concurring opinion misreads and misapplies Nath.

The trial court, Court of Appeals, and Supreme Court all disapproved of

Dr. Nath’s abuse of Dr. Shenaq’s medical history and records. This clearly

formed the primary reason for the sanctioning of Dr. Nath. The trial court

called it “an abuse of process” and “a form of extortion.” Nath v. Texas

Page 11 of 14 Children’s Hospital, 446 S.W.3d 355, 366 (Tex. 2014). The Supreme Court

agreed that using a legal mechanism to force damaging, irrelevant information

into the public domain “and thereby compel a more favorable settlement”

constitutes an improper purpose. Nath, 366. But the misuse of health

information is not a cause of action or a claim.

The Sixth Amended Petition alleged a cause of action for “intentional

infliction of emotional distress and conspiracy to commit same.” (See

Appendix 5, a true and correct copy of Nath’s Sixth Amended Petition). The

Supreme Court never held the cause of action to be groundless, in bad faith,

or for harassment. Yet the Court did conclude that “all of Nath’s petitions are

sanctionable.” Nath, 371. There is simply no language in Nath that supports

the idea that every claim must be groundless. Rule 13 requires “the

instrument” to be groundless. Not every claim and not every cause of action:

just the instrument.

If fifteen outrageously groundless claims are filed, and one legitimate

cause of action also gets alleged, it cannot be the law that no sanctions are

appropriate. The Texas Supreme Court and our Courts of Appeal have

repeatedly made it clear that there is a remedy for abuse of the pleading

Page 12 of 14 process and nothing in Nath limits those remedies to proof that every claim

is groundless.

Even if Kendall Homes is wrong in this legal analysis, Kendall Homes

is correct that applying the proper standard of review to the facts of our case

results in the conclusion that all of the claims filed were false, unlikely to

receive evidentiary support, based upon efforts to falsify the contract and

distort its meaning, and some evidence supports the trial court’s imposition

of limited sanctions.

Respectfully submitted,

HERZOG & CARP

By: /S/ Harry Herzog Harry Herzog State Bar No. 09548200 P.O. Box 218845 Houston, Texas 77218-8845 713-781-7500 Telephone 713-781-4797 Facsimile Hherzog@hcmlegal.com

ATTORNEY FOR KENDALL HOME BUILDERS CONSTRUCTION PARTNERS I., LTD

Page 13 of 14 CERTIFICATE OF SERVICE

This is to certify that a true and correct copy of the above and foregoing Appellee’s Motion for Rehearing has been sent to the following parties and/or counsel of record listed below via this court’s electronic filing system and in the manner listed below on the 17th day of April, 2015.

Via email: mhooper@hooperlawfirm.net Michael R. Hooper The Hooper Law Firm State Bar No. 24037849 PO Box 2134 Frisco, Texas 75035

/S/Harry Herzog Harry Herzog

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Flied 10 J!-IY so A2;09 LDrtn Jacklon • Dletltcl Clt!k 2010-47169 I Court: 113 HantsCou~ ED101J01~ By: Nelllon Cuero CAUSE N O . - - - - - -

TERRENCE MANN and EVELYN MANN, § IN THE DISTRICT COURT OF § Plaintiffs, § § v. § § HARRIS COUNTY, TEXAS KENDALL HOME BUILDERS § CONSTRUCTION PARTNERS, I. LTD and § STARTEX TITLE COMPANY, L.L.C. § § Defendants. § JUDICIAL DISTRICT

PLAINTIFFS' ORIGINAL PETITION

TO THE HONORABLE JUDGE OF SAID COURT:

NOW COMES, Terrence Mann and Evelyn Mann (collectively "Plaintiffs" or "Manns")

and file this Original Petition complaining of Kendall Home Builders Construction Pattners, I.

LTD. ("Kendall Homes"), and Startex Title Company, L.L.C. ("Stattex") and which would

re~pectfully show the Cou11:

I, DISCOVERY

l. Plaintiffs intend to conduct discovery under Leve12 of TEx. R. CIV. P. 190.

II. PARTIES

2. Plaintiffs are individual residents of Harris County, Texas and may be served through

their counsel of record.

3. Defendant Kendall Home Builders Construction Partners, I. LTD. is a Texas Limited

Partnership and can be served via its Registered Agent for service of process, C/0 Kenneth D.

Wickens, 427 Mason Pao·k Blvd, Katy, Texas 77450.

Pl.AINTIFF'S ORIGINAL PETITION PAGE 1

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4. Defendant, StarTex Title Company, L.L.C. is a Texas Corporatton, and can be served

via its Registered Agent for service of process, Edgar D. Lester, 4700 W. Sam Houston Pkwy N

#145, Houston, Texas 77041.

5. At all times relevant hereto, Defendants acted as agents for and on behalf of one

another and in conspiracy with one anothe1·.

III. JURISDICTION

6. This Court has subject matter jurisdiction over the controversy because the amount in

controversy exceeds the minimum jurisdictional limits of this CoUI1,

IV. VENUE

7. Venue is proper in this county because all or substantially all of the events giving rise

to the causes of action listed below took place in Harris County, Texas. The defendants also

maintain their principal place of business in Harris County.

v. ACTS OF AGENTS

8. Wheneve1· in this Petition it is alleged that any Defendant performed any act 01· thing,

it is meant that the respective Defendant(s) or its agents, servants, employees, or representatives

performed such act or thing and at the time such act or thing was done, it was done with the full

authorization or ratification of said respective Defendant(s) and was done in the normal routine

course and scope of employment as respective Defendant(s) officers, agents, servants,

employees, or representatives, unless otherwise specified.

VI, FACTS

A, Searching For The American Dream

Pl.AINTIFF'S ORIGINAL PETITION PAGE 2

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9. On June 26, 2009, and after a long and exhaustive search, TeiTence and Evelyn Mann

found what they believed was the perfect candidate for their first-ever home. On that day the

Manns, feeling all the typical first-time-buyer emotions: excitement, anxiousness, and

trepidation, met with a Mr. Doug Birdsell, salesperson for Kendall Homes in the Saddle Ridge

Subdivision in Humble, Texas, to go over the terms and conditions that would lead the Manns to

the American Dream of home ownership.

10. It was probably fairly obvious to Mr. Birdsell, who appeared to have extensive

experience selling homes, that the Manns were novice home buyers. He ce1~ainly knew that they

had never purchased a home before as they informed him of the fact that this was their first

pm·chase- spurred on by the generous tax credit offered by the Federal Government.

B. The Bait and SwiU:h

II. Not wanting to waste any time, Mr. Birdsell began by discussing the pl'ice of the

home. Surp1isingly, however, this discussion (as it was ce1~ainly not a negotiation) did not

involve the buyer-salesman haggling that often leads the parties to an agreement where each

believes they got the best deal. Instead, Mr. Birdsell basically presented two price options for

the home. The fu-st option allowed the Manns to purchase the home at the asking price of

$127,000.00. The second option, which Mr. Birdsell labeled "the no closing cost option"

provided for an increase of the sales price of the home to $132,000.00 and then Kendall Homes

would pay $5000.00 towards closing costs.

12. To help drive the point home, Mr. Birdsell provided a graphical aid captioned

"payments/costs" which showed tho Manns tho difference in the total "out of pocket" costs to

buy the home based on which option they chose. There are several remarkable items contained

in this, assumingly standard, fmm. First, in bold letters next to the caption arc the words "FHA

PLAINTIFF'S ORIGINA~ PETITION PAGE 3

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Loan with Comparison." In the middle of the page, between the option one and two

comparisons, is a box containing "Credit Score 580." At the bottom of the form is another box

which promotes the fact that "Seller To Pay For Origination Fee, When Buyer Uses Approved

Lender."

13. What make-~ these items "remarkable" is that this form seems to represent loan

information or terms, and yet has no "Equal Housing Lender" disclosure or Annual Percentage

Rate as required. It was also promulgated by Mr. Birdsall (M his name appears after the "Sales

Representative:" field and he provided the form to the Manns) and yet there is no evidence that

Mr. Birdsell is a licensed or approved FHA loan originator. If he is, there was certainly no

disclosure of that fact, as is also required by the Real Estate Settlement Procedure's Act. FHA

had a published minimum credit standard of 620 at the time, so it is unclear why the number

"580" appears on the form. Finally, there is no furthet definition or clarification of what,

exactly, an "Approved Lender" is; or what the maximum dollar amount or percentage for the

"Origination Fcc" the builder is willing to pay.

14. Additionally, in another document, labeled "Addendum A," and also provided to the

Manns on the same day, Kendall Homes agreed to pay for the Owner's Policy of Title Insurance

if, and only if, the Manns used the builder's "approved lender." 1 However, there is no

designation in the Sales Contract or the Addendum that mentions how a closing agent will be

selected save the following language:

"The sale under this contract shall be closed within three (3) days after the completion date as defined below in this contract and under those Sales Conditions and Closing Practices set forth on page two of this contract and by reference made a part hereof, at such time and place as Selller may designate."

Tho Plllintiffs tire unable to provide lillY facts th~t would rovetllthc business reason for the builder paying for a title 1

policy for the use of nu unreloted and unaffiliated service and therefore relies on the l)efendants to provide the cxphmation.

PLAINTIFF'S OR! GINA. PETITION PAGE4

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15. Perhaps if there were actually a paragraph captioned "Sales Conditions and Closing

Practices on page two (or any page) of the Sales Contract, Plaintiff could provide clarification for

the language quoted above in tenns of the choice of settlement agent, Unfortunately, since no

such paragraph exists anywhere in the Sales Contract, Plaintiff is unable to do so.

16. Presumably to "seal the deal," Mr. Birdsell offered the Manns an additional $5000.00

"incentive" (as it is labeled on Addendum A) to the Manns which he stated could be used for

their closing costs, the purchase of appliances, or that they could just take it in cash at the

closing. While an exciting proposition to the unlearned Manns, the reality of this misleading

promise is that, first, it would cause the Manns to excite the six percent seller contribution cap

imposed by FHA (incentive offe1-ed = $10,000 plus origination fee: incentive allowed =

$7920.00); and, second, FHA (and pretty much every lender) does not allow a bon-ower to

receive cash back at the closing table; unless it is a return of excess earnest money.

17. Up until this point, the Manns had been doing their own research to find a mortgage

company. However, after Mr. Birdsell gave them this document which promises the payment of

large (and impossible) incentives, the approval of a loan for a lower CI'edit score than ally other

FHA lender had offered, and the quite inexplicable payment for the Owner's Policy for the usc

of an "Approved" but not "affiliated" lender, the Manns were sold.

C. The Choice of Settlment Providers

18. After being completely fleeced at the contract signing, the Manns audaciously

infonned the builder that they would like to choose the settlement agent (title company) since

they had shopped and found one in particular that seemed to offer a low fee schedule. First,

Mr. Birdsell informed them that they had no choice in the matter a!ld that Kindall Home.<; would

choose the title company (although this assertion is not entirely clear in the contract). When the

PLAINTiff'S ORIGINAL PETITION PAGES

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MannH provided greater detail in an email exchange with Birdsell, he pushed the question off to

corporate who provided a very interesting response. The builder informed the Manns that they

could not have possibly found a bette1' deal because it was quite impossible for a title company to

accurately quote fees and costs without having the builder's file in front of them.

19. This asse11ion was, of course, l'idiculous. Title premium is regulated in Texas; so if

one knows his purchase price and loan amount (which thanks to the "Cost Comparison" sheet the

Manns certainly did) then a title company can provide a very accurate estimate of fees and costs.

However, being ignorant of this fact, the Manns were an easy target for a builder that deals with

the issue every day.

D. Closina Day Surprises 20. About a month after they signed the Sales Contt·act, the house and the Manns were

ready. On July 31, 2009, the Manns purchased a cashier's check for their closing costs and

headed to Startex for the closing.

21. One of the duties of Startex is to prepare the HUD-1 Settlement Statement; a

~tandardi•ed form promulgated by HUD to show the receipt and then subHequent diHbursement

of all monies in the tt·ansaction. In order for Startex to prepare the HUD·l con-ectly, it must look

at the sales contract to find the correct pm·chase price, party name(~). incentives to be paid, etc.

lt also has to carefully examine the lender's instructions to insure those fees and costs are

accurately stated on the HUD-1.

22. Even a quick examination of the HUD-1 shows Startexs perfo1mance with respect to

those duties here is, to say the least, lacking. The litany of errors and failures of Startex in this

regard are listed as follows:

Pl!IINTIPF'S 0RIGINA~ PETITION PAGE 6

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a. The builder never paid the mOitgage 01igination fee as promised. While Line 801

reflects an origination fee charged to the builder, the markings on the form made

by the closing agent at Startex show that amount to be added into the $5000.00

closing cost incentive which the builder also, and separately from the origination

fee, agreed to pay, Coincidentally, the origination fee that the lender, Open

Mortgage LLC did charge, when added to other lending costs and prepaids added

up to $5000.00 exactly. Given the odd nature of such a charge (.98% origination

fee), it seems clear that the builder had some influence on the lender's pricing.

b. There is no record of the $5000.00 incentive either having been credited to the

Manns pl'eviously or l'eflected on the HUD-1; yet Stattex made no inquiry to the

builder about this. The Manns inquired, to be sure, and then were subsequently

told by Mr. Birdsell that they would get a check from Kendall Homes after the

closing.

c. Startex charged the Manns $25.00 for a title search fee which is not allowed in

Texas by virtue of the Te11as Insurance Code and the regulations promulgated by

the Texas Depat1ment of Insurance.

d. Startex chru·ged the Manns an attorney fee for document prepru·ation; but the

Plaintiffs never requested such preparation or knew about the charge.

e. Startex charged the Manns $275.75 in title premium, However, since the Manns

were required by Kendall Homes to use Startex, RESPA forbids such a charge.

f. Startex charged the Manns an escrow fee of $300.00: but only chru·ged Kendall

Homes $250.00 thereby giving the builder an obvious discount for the refmal of

settlement services which is prohibited by RESPA as well.

PLAINTIFF'S ORIGINAl. PETITION PAGE 7

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g, Sta1tex charged the Manns $65.00 delivery fee but it is unclear what they

delivered that gave rise to such a cost.

h, Sta1'tex charged the Manns $22.00 for a copy of deed restrictions that had already

been given to the Manns by Kendall Homes over a month ago.

i, Sta1'tex charged the Manns $30.00 to record a deed that cost $20.00 to record; and

$40.00 to record a Notice To Purchasers document that cost $20.00 to record.

Such overcharging is specifically disallowed by the Texas Department of

Insurance,

E. The Bottom Line

23, It seems reasona.bly clear how the Defendants wo,'ked together to take advantage of

the Manns. The builder first sells the house by manufacturing a "good deal" with the payment of

closing costs, when really the buyer is paying the closing costs through the inflated sales price of

the home. Next the builder dissuades unsuspecting buyers from shopping for services by

promising them credit guidelines and incentives that are basically fabrications. Finally, the

builder requires the use of the settlement provider so that they can, at the very least, control the

transaction and the money flow. The other players, such as Startex, take the "captured referral"

l1S an opportunity to gouge, overcharge, and basically ignore the fiduciary duties imposed on it

by the law.

CAUSES OF ACTION

A. VIOLATION OF RESPA AND TEXAS INSURANCE CODE

24. Section 9 of Real E~tate Settlement Procedures Act ("RESPA") provides:

No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require dh·ectly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from a particular title company.

Pl.i\INTIFF'S ORIGINAL PETITION PAGES

11 ProDoc Faxservice Page 50 of 106

25. The required use of a particular settlement agent (Strutex) and then subsequent

charges to the Manns of fees and costs charged by that agent, violated RESPA, Section 9(a), and

Regulation X §3500.16.

26. By reason of their aforesaid conduct, and pursuant to Section 7 of RESPA,

Defendants are jointly and sevemlly liable to Plaintiffs for treble the amount of their title

in~urance charges paid in connection with the purchase of a re~idential dwelling from Kendall

Homes together with costs and reasonable attorney's fees. The total damages alleged under this

section (exeusiveofattomey's fees) is therefore: $2198.25.

27. Defendants additionally violated RESPA Section 8 and Section 2502.051 of the

Texas InsUl·ance Code by providing a rebate and/or kickback to Seller, Specifically, in exchange

for the referral by Kendall Homes to their title company, Startex discounted Kendall Homes'

costs by undercharging the escrow fee and charging the title premium to the Manns which they

knew was not allowable under the law. .

28. In accordance with Section 8(a) and S(b), a seller who receives a fee, kickback or

"thing of value" pursuant to any agreement or understanding that business incident to or part of a

settlement service shall be referred to any person, or receives a percentage of any charge made or

received for the rendeling of a settlement service is liable to the person charged for the

settlement service involved in the violation in an amount equal to three times the amount of the

charge paid for such settlement service. The Manns paid a total of $732.75 to Startex and are

therefore entitle to damages in the amo11nt of $2198.25.

Pl.AINTIFF'5 ORIGINAL PETITION PAGB9

12 Proooc Faxservice Page 51 of 106

B. VIOLATION OF TEXAS DECEPTIVE TRADE PRACTICES ACT 29. In addition, with regard to the numerous misrt:presentations made by agents and

employees of both Kendall Homes and St

and (24), which prohibits the:

a. representing of goods or se1·vices as having sponsorship, approval, chamcteristics,

uses, benefits, or quantities which they do not have;

b. advenising of goods or services with intent not to sell them as advertised;

c. representing that an agreement confers or involves lights, remedies, or obligations

which it does not have or involve, or which are prohibited by law; and

d. failing to disclose info,mation concerning goods or se>'Vices which was known at

the time of the transaction when such failure to disclose such information was

intended to induce the consumer into a transaction which the consumer would not

have entered had the information been disclosed.

30. Since both Defendants, directly and indirectly represented that the contract obligated

the Manns to take certain actions which are prohibited by law:

a. Offeling incentives with no intent to pay them and by simply increasing the price

of the home to offset such incentives;

b. Forcing them to use a particular title company and then making them pay title

insurance premium), then both Defendants have committed a deceptive trade

practice within the meaning of the law;

c. lgnoling contractual terms that require a payment of an incentive (loan origination

fee) in the preparation of the HUD-1;

d. Charging for unallowable items (Search and Exam Fee);

PIJ\INTIFF'S ORIGINAL PETITION PAGE 10

13 ProDoc Faxservice Page 52 of 106

e. Overcharging for items (Delivery Fee; Recording Fees)

31. The economic damages suffered by the Manns as a direct result of the defendants

multiple mis>'epresentations are summarized as follows:

a. $1273 not credited for the loan origination fee

b, $5000 incentive not applied

c. $180 in overcharges for title fees (Startex charges)

d. $732.75 in title premium and fees (which includes the $180 above)

Total economic damages: $7005.75.

32. Since the defendants acted knowingly and purposefully in their web of deception, the

law allows the Manns to recove,· u·eble economic damages plus attorney's fees. This brings the

total alleged damage amount under this cause ofaetion to: $21,017.25 (exclusive of attorney's

fees).

C. CIVIL CONSPIRACY

33. It is clear from the facts that the Defendants work in concert to serve a common

purpose. As summariz;ed in paragraph 23 above, both Defendants work in concert to force an

unsuspecting buyer to buy the home, finance it with an "inside" company and close the

transaction with a "friendly" title company who will provide them discounts while at the same

time gouging the consumer. As a result of their concerted and purposeful actions, each

Defendant is liable jointly and severally for all damages to the plaintiffs.

D. FRAUD

34. Defendant Kendall Homes made numerous misrepresentations to Plaintiff during the

course of the sale and closing of the home as have been e~haustively outlined above. The

Manns, like any reasonable people, relied on the statements as to incentives, payments, and loan

PLAINTIFF'S 0RIGINA. PETITION PAUE 11

14 Proooc Faxservice Page 53 o£ 106

terms offered by Kendall Homes. But this reliance came at a price. The Manns did not receive

all of the incentives and they overpaid for their settlement costs. The damages as a result of this

reliance have been previously stated herein.

E. BREACH OF FIDUCIARY DUTY

35. There is no question that a title company owes a fiduciary duty to the buye1· as well

as the seller in its dealings with both. There is absolutely no question that by ignoring contract

terms, illegally charging for non-allowable items, by overcharging and then providing discounts

to Kendall Homes, Startex has breached the fiduciary duty it owed to the Manns. As a result, the

Manns have suffered damages in the amounts previously specified.

DAMAGES

36. As a direct and proximate result of the occu11ences made the basis of this lawsuit,

Plaintiffs were caused to suffer losses and damages as specified herein, which includes

reasonable attorney's fees where allowed by law or vested within the sound discretion of the

court, as the case may be.

EXEMPLARY DAMAGES

37. Pursuant to the Damages Act, Tex. Civ, Prac, & Rem. Code § 41.002(a), (b) and

41.003, to protect unwary consumers, and to discourage similar egregious violations, Plaintiffs

hereby request this Court award exemplary damages to the plaintiffs in an amount to be

determined by the Court.

JURY TRJAL DEMANDED

38. Plaintiffs demand that this case be set for jury Ilia! and tender the appropriate fee

with this filing.

PLAINTIFF'S ORIGINAL PETITION PAGE lZ

15 ProDoc Faxservice Page 54 o£ 106

PRAYER WHEREFORE, PREMISES CONSIDERED, Plaintiffs requests that upon final hearing,

that Defendant~ be cited to appear and an~wer, and, the Court enter judgment in favor of

Plaintiffs as herein plead and award prejudgment interest and post judgment interest as allowed

by law; and grant all other relief, in law and in equity, to which Plaintiffs tnay be entitled,

Respectfully submitted,

THE HOOPER LAW FIRM

lsi Michael R. Hooper Michael Hooper State Bar No. 24037849 2830 Commercial Center Blvd Suite 103 Katy, TexM 77494 (281) 395-0724 (28 I) 395-0720 (Facsimile) ATTORNEY FOR PLAINTIFFS

PLAINTIFF'S ORIGINAL PETITION PAGE 13

16 2 "PAYMENTS I COSTS" FHA Loan with Comparison in Saddle Ridge DOUG BIRDSELL nffice: 446-6666 fu:

Buyer(5)N•me: Plan II :

Address: Model :

City: State: Zip: Lot II : Block/1: _ _

TOTAL MONTHLY INVESTMENT Sales Price ............... $127,000 Sales Price ............. .. $132,000 · Down Payment{%) ........... 3.5% Down Payment(%) ........ . 3.5% Down Payment (S) .......... - $4,450 Down Payment ($) ........ - $4,650 Base Loan Amt ........... $122,550 ,-- - ----.,.Base Loan Amt ......... .. $127,350 Credit Score UMIP (Up Front MIP) ..... + $2,451 SSO UM£P (Up Front MJP) ........ + $1,910 Total Loan Amt ......... , $125,001 Total Loan Amt .......... $129,260 Interest Rate(%) ......... @ 4.5 % Interest Rate(%) .. ....... @ 4.5% Principal & Interest........... .. + $633 Principal & lnterest............. + $655 MlP (Mongage Ins Protection) ... + $56 MIP (Mortgage Ins Protection) ...... + $53 EST Taxes (after Homestead) ... + $251 EST Taxes (after Homestead) ..... + $261 Est. Home Owners Ins .. ..... + $65 Est. Home Owners Ins....... + $65 ('"Ccimptruon .with Closina Cosl ii!d PteP"d.! Rolled Otck tiltG Loto'"J

*Est. Monthly Payment ( $1 1005 ,.10) "'Est. Moutbly Payment ( $1,034 Mo.) TOTAL ''MOYE-lN" INVESTMENT Down Payment ................ $4,450 Down Payment .............. .. S4,650 Closing Costs ................ .. + $2,800 Closing Costs ................. .. + $0

Prepaids .......................... + S2,200 Prepaids ................, ....... .. + so ("'CornpuitOII .wilh Cl..toa COlt tnd PttPtlds Rolllld llt

Seller To Pay for Loan Origination Fee , When Buyer Uses Approved Lender ••seller Paid "Pre Paids" not to exceed $2,200 "All Col

~- DEFENDANT'S ~- EXHIBrr

f@ ~ . 17

1 been admitted before; and I ' d ask the court , as we did in

2 our motion , to take judicial notice of its file .

3 Q. (By Mr . Hooper) The contract actually provided

4 for an incentive if the Manns used your preferred lender .

5 Isn ' t that right?

6 A. Yes .

7 MR . HERZOG : Your Honor , the sales

8 contract is Defense Exhibit 1.

9 MR. HOOPER : That ' s not the whole

10 contract. We ' ve admitted the whole contract back in

11 summary judgment . It ' s part of the record , so

12 Q. (By Mr. Hooper ) There ' s an addendum to it

13 that ' s part of the

14 You offered an additional incentive for

1 5 somebody to use your preferred lender?

16 A. A preferred lender - - they give us -- they will

17 extend a discount . Instead of a 1-percent origination,

18 they ' ll do a half a percent ; and so we pass t hat along to

19 the customer.

20 Q. But that ' s n ot what happened here . What

21 happened her e was that there was actually an addendum

22 that said " Manns , if you use our preferred lender, we ' ll

23 pay 1 pe r cent of the origi nation fee on the HUD" ?

24 A. It says that we ' ll pay the origination fees.

25 Q. " Up to 1 percent ," I believe is what it says . 18

"-------=----~----­ --- 1 A. Normally it ' s half a percent .

2 Q. Okay . We ' ll agree to disagree there . The

3 record will speak for itself.

4 Let ' s do the math . If I and the Manns --

5 and I ' m building a home .

6 For building the home , I get $10,000 .

7 That ' s what this exhibit says. Whether you meant to sign

8 it or not , tha t ' s what this exhibit says. I get 10 , 000

9 just for building the home. This has nothing to do with

10 any lending . Correct?

11 A. No .

12 Q. In other words , I can go use Capital One , Bank

13 o f America , any lender I want t o use and I still get the

14 incentives in this contract . Isn ' t that right?

15 A. Well , it says that you get closing costs for

16 $5 , 000 , yes .

17 Q. Right . For building the home .

18 Now, in exchange for using the preferred

19 lender , I get something additional ; and that was in that

20 addendum. I get up to a half a percent. I believe it

21 says " 1 percent , II bu t whatever.

22 A. The re ' s nothing that says it ' s additional. It

23 says that you get a total of $5 , 000 in c losing costs.

24 Q. But I get that whether I build the house or

25 not . So why would I use your preferred lender? 32

1 MR . HERZOG : No , sir. No , sir . I didn ' t

2 say i t was grounds . I said it was some evidentiary

3 proof . That ' s all .

4 THE COURT : I ' ll sustain the objection .

5 Q. (By Mr. Herzog) Please take a look at Defense

6 Exhibit 5 , the Plaintiffs ' Original Petition that you

7 have in front of you.

8 A. Oh , yes . Okay .

9 Q. Go to Page 11 , Paragraph 31.

10 A. Okay .

11 Q. You ' ve seen Defense Exhibit 2 , the HUD-1 that

12 shows the 1273 loan origi nati on fee was paid by Kendall

13 Homes . Correct?

14 A. I saw t ha t it was on that side of the HUD , yes ,

15 I did.

16 Q. Do you have any evi den ce at all today ,

17 three years - - more than three years after the fi l ing of

18 thi s suit , that the 1273 was not credited for the loan

1 9 origination fee?

20 A. Yes .

21 Q. Wha t evidence do you have t h at it was not

22 credited for the l oan o rigi nation f ee?

23 A. Thank you .

24 MR . HOO PER : Your Honor , I ' d refer you to

25 Exh ibit A of Plaintiffs ' motion for summary judgment in 33

1 the summer of 2011.

2 A. Exhibit A shows the complete contract , not the

3 abbreviated version offered today by the other side ; and

4 it clearly shows that there were two incentives to be

5 credited . One was the builder incentive . One was the

6 incentive for the preferred lender .

7 What they did was : They included the

8 second into the first when they were two separate

9 incentives. So the basis for that claim is " You gave me

10 5 , 000 to build the house " -- that ' s what we already

11 discussed with testimony earlier -- " and you gave me up

12 to 2250 or 1 percent of the mortgage fee ," is how that

13 actua ll y reads , " for using a preferred lender "; two

14 different deals , two different incentives , the total

15 being $6 , 273 , if my math is correct .

16 They only gave them 5,000 . That ' s the

17 evidence right there from their own document .

18 THE COURT : Okay. Let me ask you to guide

19 me a little bit because your Exhibit A to your motion for

20 summary judgment is the same as their exhibit , with one

21 exception . There ' s one different page .

22 MR. HOOPER: That ' s correct , Your Honor.

23 THE COURT : And that document says

24 " Payments/Costs " at the top. Is that the page you ' re

25 talking about? 34

1 MR. HOOPER : No . It ' s the fina n cing

2 addendum . I believe it ' s Page 3 there. It talks about

3 FHA and it ' s got two credit scores on it and it says --

4 at the bottom, there ' s a box that says " If you u se our

5 preferred lender " --

6 THE COURT: Okay . Hang on . 7 MR . HOOPER : Actually Mr . Herzog has it .

8 THE COURT : Al l right. Bring it up .

9 MR . HOOPER : I ' m sorry . I actually tried

10 to go print these duri ng the break , Judge , and wasn ' t

11 able to d o so .

12 MR . HERZ OG : I ' l l o ff er the document that

13 he refers to as Defe n se Exhibit 10 .

14 THE COURT : That ' s the one I wa s talking

1 5 about .

16 MR . HOOPER : Yes , Judge. Tha t ' s exactly 17 right. That ' s it .

18 THE COURT : Do you h ave oth er copies of 19 t his ?

20 MR. HERZOG : That copy is for you .

21 THE COURT : Okay .

22 MR . HERZOG : I ' m going to put this at your

23 counsel table .

24 MR . HOOPER : Okay .

25 Q. (By Mr . Herzog) Is Defense Exhibit 10 t h e 35

1 document that you ' ve been referring to?

2 A. Yes .

3 Q. Okay.

4 MR . HERZOG : We offer Defense Exhibit 10 .

5 THE COURT: Any objection?

6 MR . HOOPER : No objection . We ' ve already

7 admitted it , Judge .

8 THE COURT: Yes , sir . It ' s admitted .

9 (Defendant ' s Exhibit No . 10 admitted)

10 MR . HERZOG: I might have been

11 multi-tasking and missed that , Your Hono r . I apologize .

12 Q. (By Mr. Her zog) Now , what evidence do you have

13 that Defense Exhibit 10 ever became part of a con tract?

' 14 A. This was a l ready adjudicated in the summary

15 judgment hearing.

16 Q. My q uestion is : What evidence do you have that

17 Defense Exhibit 10 ever became part of a contract?

18 A. Wel l, o ne , we alleged it and you didn ' t deny

19 it ; two , this is the evidence because it was attached to

20 the contract as an allonge and , therefore , was

2 1 incorporated in at the time the contract was created .

22 Q. It ' s an allonge?

23 A. It is attached to the contract.

24 Q. By who?

25 A. Wel l , it ' s your contract . That ' s your client . 36

1 I don ' t know how they did their paperwork .

2 Q. You ' r e the one that attached it , aren ' t you ,

3 Mr. Hooper?

4 A. Yes . I went into Kendall Homes and got this

5 thing and then attached it to their own contract somehow . 6 And that was sarcasm, for the record . 7 No. They attached it. How do you think I

8 got it?

9 Q. Well , you can get a document without it being

10 part of a contract , can ' t you?

11 A. I s that what you ' re aski ng me? Did I get this

12 and put it in there?

13 Q. I ' m asking you if you took Defense Exhibit 10 ,

14 which was never part of a contract, and attached it 15 yourself to the contract in your document that you filed

16 with the court and t h at you and only you are the only

17 person that ' s ever claimed that Defense Exhibit 10 is

18 part of the contract . 19 A. No .

20 Q. Isn ' t that true?

21 A. The answer is " no ."

22 Q. Okay. Wha t other human being has ever said

23 that Defense Exhibi t 10 is part of this contract?

24 A. You have .

25 Q. Fair enough . 40

1 absolutely false as wel l . And t hat ' s also based on our

2 required use of the title company claim as wel l as the

3 fraud claim which is laid out in the amended petition.

4 And I t h ink that pretty much covers the

5 evidence f or each claim.

6 THE COURT : All right . Thank you.

7 MR. HERZOG : Re-call Mr. Briggs for just a

8 brief moment , Your Honor.

9 THE COURT : All right .

10 MR. HOOPER : Would you like me to leave

11 these exhibits?

12 MR. HERZOG : PlPAse .

13 ~NN BRIGGS , 14 having been previously duly sworn , testified as follows :

16 QUESTIONS BY MR . HERZOG:

17 Q. I want you to look at Defense Exhibit 1 and

18 Defense Exhibit 10 .

19 A. Yes , sir.

20 Q. Tell the judge if Defense Exhibit 10 is part of

2 1 the contract which is marked as Defense Exhibit 1 .

22 A. No , sir .

23 Q. Tell the judge why it ' s not part of the

24 contract .

25 A. It ' s a worksheet that the salespeople use 41

1 that - - generally the f i rst thing that any buyer wants to

2 know is , " What are my payments going to be ," and -- based

3 on the scenario for buying the house , and tha t ' s what

4 this is . It ' s basical l y a worksheet to try and detail

5 what the final payment is for the customer . That ' s all

6 it is .

7 Generally there ' s many of those that are

8 created , depending on whether the -- what the buyer

9 wants. They may want tile . They may want upgraded

10 carpet or any number of things .

11 Q. You ' ve been with Kenda l l Homes approximately

12 how long?

13 A. Since 2004 .

14 Q. Nine years , give or take?

15 A. Yes .

16 Q. Have you ever seen a document like Defense

17 Exhibit 10 be part of a contract with Kendall Homes?

18 A. No . Never .

19 Q. Never?

20 MR . HERZOG : Pass the witness .

21 Oh , I ' m sorry. I forgot one other thing.

22 Q. (By Mr . Herzog) StarTex , $50. That crept back

23 in at the very end .

24 StarTex charged them $300 for something

25 and Kendal l Homes 250 . You heard that? 3 8

1 A. We did .

2 Q. Look at b . " There is no record of the

3 $5 , 000 . 00 incentive having been credited or reflec t ed on

4 the HUD-1. " Do you see that in the petition, Exhibit 5?

5 A. Yes , sir .

6 Q. Now let ' s go back to Exhibits 1 ' 3 and 4 .

7 Explain just briefly to Judge Landrum how

8 the 5 , 000 incentive worked .

9 A. We l l , it was to pay for the closing costs.

10 Q. On the third page of Exhibit 1 , there ' s an

11 Addendum A . Do you see that?

12 A. Yes , sir .

13 Q. It says , about the middle of the page , " Seller

14 to pay Closing Cost ." And how much is that?

15 A. $5 , 000.

16 Q. Underneath it , it says " Buyer to have 5 , 000

17 incentive " ; and under that , it al so says " 3 , 000 ."

18 Correct?

19 A. Correct .

20 Q. And this was signed by Mr. Birdsell for Kendall

21 Homes - -

22 A. Correct .

23 Q. - - and signed by Mr . Mann?

24 A. Correct .

25 Q. When you saw this document , what did you 9

1 notice? 2 A. I noticed that the math didn ' t add up . 3 Q. The total of 8 , 000 -- was it right or wrong? 4 A. That ' s hard to determine because in one place , 5 it says 5-, the other place it says 3- . That ' s why I 6 rejected it .

7 Q. You rejected this? 8 A. Yes. 9 Q. How much money were the Manns supposed to get 10 as a bonus or incentive or whatever word you want to use , 11 total? 12 A. $5 , 000 . 13 Q. Okay . In the closing , did Kendall Homes 14 provide the Manns with $5 , 000 in closing incentives? 15 A. Yes , sir . 16 Q. Take a look at the last page of Exhibit 1. 17 This has total incentives of $10 , 000 . 18 Correct? 19 A. Yes , sir . 20 Q. Did you ever sign it? 21 A. No , sir . 22 Q. Di d anyone from Kendall Homes ever sign it? 23 A. Not to my knowledge . 24 Q. Tell Judge Landrum why not . 25 A. Because all that was allowed for the 10

1 salesperson to use was $5 , 000. 2 Q. After the closi ng and as reflected in 3 Exhibit 2 , if you add them all up, the incentives of 4 $5 , 000 are in here . Correct? 5 A. Correct . 6 Q. Did the Manns then complain that they didn ' t 7 get another $5 , 000 in buyer incentives? 8 A. Yes , they did . 9 Q. And did they make that complaint to you? 10 A. Eventual ly , yes. 11 Q. And how did you resolve the complaint? 12 A. With the gift cards . 13 Q. So in Exhibit 4 , did you give them another 14 $5 , 000 - - 15 A. Yes , sir . 16 Q. -- for a total of -- 5 , 000 in closing costs and 17 5 , 000 in g i ft ca rds - - 10 , 000? 18 A. That ' s correct. 19 Q. Look at Exhibit 3 , Mr . Mann ' s e - mail of 20 September 3 , 2009 : "Glenn, thank you for your offer to 21 clear up the confusi on and misconception regarding the 22 $5000 incentive. I spoke with my wife and we both agree 23 what you are proposing a fair compromise , and we have put 24 together the specifics regarding the allegation o f 25 funds ." 11

1 When you read this e - mail and when you 2 then delivered the $5 , 000 in the various checks in 3 Exhibit 4 , did you think the problem was solved?

4 A. Yes , sir . 5 Q. Okay . Did you think you had paid 5 , 000 more 6 than you owed them?

7 A. Yes , sir . 8 Q. Did you have a dream that a year later , 9 July 30 , 2010 , suit would b e filed against Kendall Homes 10 for not paying the 5 , 000 in closing costs and not paying 11 the 5 , 000 i n gift - card incentives? 12 A. No , sir . 13 Q. What is your opinion of the merit of that 14 claim? 15 A. I don ' t think it has any merit. 16 Q. When it says there ' s no record -- I ' m bac k in 17 the petition , Exhibit 5 , Page 7 , b -- " There is no record 18 of the 5 , 000 incentive having been credited t o the Ma nns 19 previously ," i s that true or false? 20 A. That ' s false . 21 Q. Now , in 2009 , how were Kendall Homes a nd the 22 rest of the home builders in America doing? 23 A. We were devastated . Our whole industry was on 24 the virtue [sic] of collapse . 25 Q. In the summer of 2010 when the l awsuit was 13

1 Let ' s read a l ong the last sentence of that

2 page , would you?

3 Would you read that out loud, please, the

4 last sentence of Page 6?

5 A. On Item 22?

6 Q. Yes , the last sentence .

7 A. " The litany of errors and fai l ures of Startex

8 in this regard are listed as follows."

9 Q. Okay . And then on Page 7 , we have a, b , c, d ,

10 et cetera, that counsel just had you read.

11 A. Okay.

12 Q. Okay . I ' m sorry. " The li tany of errors and

13 failures of Startex ." Does that say " Kendall Builders "

14 there , or does it say " Startex " ?

15 A. It says " Startex. "

16 Q. The claim seems to be driven towards StarTex ,

17 doesn ' t it , not Kendall Home Builders?

18 It says " Startex. " Right?

19 A. It says " Startex ."

20 Q. Okay. Let's l ook at these checks in this HUD

21 now. We ' ve got Exhibit 1 that c l early showed -- we had

22 it admitted and this Addendum A-- that there ' s a

23 5 ,0 00-dollar buyer incentive a nd a 5,000-dol l ar closing

24 cost incentive. Right?

25 You already testified to that ; Exh ibit 1, 14

1 Page 3 .

2 A. Say that again . What was your question? 3 Q. On Exhibi t 1 , Page 3 , you ' ve already testified 4 that it ' s supposed to be $1 0 , 000 ; 5 , 000 in clos ing costs , 5 5 , 000 for an incentive . That ' s what that says t h ere . 6 Right? 7 A. Well , no . What I testified to was tha t this 8 Addendum A was do ne incorrectly and never accepted .

9 Q. Okay . But what I as ked you is : What does t h is 10 document that you j ust admitted into evidence say? 11 It says 5 , 000 and 5 , 000. Correct? 12 A. Well , on Page 3 , it says 5 , 000 and 3 , 000 . In 13 another place , it says another 5,000 . That ' s why i t was 14 never approved . 15 Q. And these are documents that your company 16 prepared. Ri ght? 17 A. Correct . 18 Q. Okay . Let ' s go back over to Exhibit 2 , the 19 HUD-1 sett l ement statement . 20 You ' re familiar with these. Right? 21 A. Yes. 22 Q. You said you actually wear a lot of hats . Do 23 you ever deal with the lending side and the 24 builders [sic] there? 25 Do you ever deal with mortgage companies? 15

1 A. No.

2 Q. So you ' re not familiar with FHA loans and

3 mortgage lending at all?

4 A. That ' s not my expertise.

5 Q. But are you familiar with it?

6 Have you seen a HUD- 1 before?

7 A. Yes .

8 Q. Okay . So we ' ve got $5 , 000 which are designated

9 by these check marks that you testified earlier to

10 towards closing costs .

11 That ' s correct . Right?

12 A. Right.

13 Q. But we don ' t have any ind ication of this other

14 $5 , 000 that we just saw on Page 3 of that other exhibit?

15 A. Again , the other $5 , 000 was never a part of the

16 approved contract ; but in an effort to have a happy

17 customer and-- we did give them another $5 , 000 in gift

18 cards to satisfy

19 Q. I see .

20 And that ' s reflected by these checks in

2 1 Exhibit 4?

22 A. Correct.

23 Q. You guys went t hrough an awful lot of work with

24 these , having to find different vendors that you could

25 make these payable to. Isn ' t that correct? 18

1 A. Normally it ' s half a percent.

2 Q. Okay . We ' ll agree to disagree there. The

3 record will speak for itself.

4 Let ' s do the math . If I and the Manns --

5 and I ' m building a home . 6 For building the home , I get $10 , 000 .

7 That ' s what this exhibit says . Whether you meant to sign

8 it or not, that ' s what this exhibit says. I get 10 , 000

9 just for building the home. This has nothing to do with

10 any lending . Correct?

11 A. No .

12 Q. In other words , I can go use Capital One , Bank

13 of America , any lender I want to use and I still get the

14 incentives in this contract. Isn ' t that right?

15 A. Well , it says that you get closing costs for

16 $5, 000 , yes.

17 Q. Right . For building the home.

18 Now , in exchange for using the preferred

19 lender , I get something additional ; and that was in that

20 addendum . I get up to a half a percent . I believe it

21 says " 1 percent ," but whatever .

22 A. There ' s nothing that says it ' s additional . It

23 says that you get a total of $5 , 000 in closing costs .

24 Q. But I get that whether I build the house or

25 not . So why would I use your preferred lender? 37

1 Let ' s go back to De f ense Exhibit 5 ,

2 Paragraph 31b , 5 , 000 incentive . Do you agree that

3 Defense Exhibits 3 and 4 accurately and trut hfully

4 reflect the payment of $5 , 000 in incentives that Terrence

5 Mann and Evelyn Mann accepted as sa t isfaction?

6 A. I never saw a release that said that they

7 accepted it and released all claims , No . 1; and No . 2 ,

8 illegal disbursements off the HUD , no , I don ' t accept as

9 being the same as cash on the HUD.

10 Q. So you b elieve that in addition to paying this

11 $5 , 000 in incentives , Kendall Homes shoul d have to pay

12 ano ther $5 , 000 in incentives?

13 A. In t he original petition , that ' s exactly what

14 we alleged . Yes .

15 Q. . . . which would be 5 , 000 in c l os ing costs , 5 , 000

16 in gift cards and payment of bills and another 5 , 000 in

17 cas h , for a tota l of 15 , 000 in incentives . Correct?

18 A. We never said they had t o pay that , what you

1 9 have right t h e re . I never al l eged that in the petition .

20 Wha t I said is what the peti tion specifically says is

21 t h a t there was a 5 , 000 -dollar incentive not appl i ed . And

22 if you look at the HUD- 1 settlement statement , it

23 certainly was not.

24 Q. Do you have any document anywhere where Kendall

25 Homes promised that that 5 , 000 would appear on the HUD-1 38

1 and be applied on the HUD - 1?

2 A. Well , if Kendall Homes wants to go on the

3 record tha t they routinely make dea l s to di sburse off the

4 HUD , t hen I g u ess I won ' t argue with you.

5 Q. I don ' t

6 A. You can put tha t on t h e record .

7 Q. All I want to do i s get a n answer to my

8 q u estion , which is : Do you have a nything that indicates

9 tha t it has to be appl i ed on the HUD- 1 to exist?

10 A. Yes , I d o . One , i t ' s part of t he contract.

11 Two , I ' ve been in mortgage lending since 1 996 ; and I am

12 well aware of the fact t hat it has to be attached to t he

13 HUD and cannot be paid o utside of c l osing. The lenders 14 wil l n ot a l lo w it and neither wi ll FHA .

15 MR. HE RZOG : Pass the witness. 16 THE COURT : Okay . I guess you can give

17 rebuttal testimony .

19 QUESTIONS BY MR . HOOPER :

20 MR. HOOPER: Well , Your Honor , while I ' m

2 1 h ere , I ' ll ask t he court to t ake well , we already got

22 this one in . I ' ll ask the court t o also take judicial

23 notice of - - I bel i eve it was in our response to their

24 mo tion for summary judgment . It a ll was in the summer of

25 20 1 1 . 4 47

1 relevance of this? 2 THE COURT: Counsel, relevancy? 3 MR. BEAN: I want to discuss with 4 Mr. Herzog the reasons that he filed sanctions. 5 THE COURT: As to the question, it's 6 sustained. 7 Q. (By Mr. Bean) Mr. Herzog, can you tell the 8 judge why you've moved for sanctions in this case? 9 A. Sure. 10 MR. HOOPER: Judge, didn't you just 11 sustain that? 12 THE COURT: No. I sustained the question 13 about in other cases, why did he not file motions. 14 MR. HOOPER: All right, Your Honor. Fair 15 enough. 16 A. In this case -- let me just say that every 17 defendant whines the minute they get sued and every 18 defendant always wants the plaintiff sanctioned; and I 19 filter 90, 95, 98 percent of those out and never even 20 consider such a motion. In my opinion, a motion for 21 sanctions is only warranted and was warranted in this 22 case when you have at least two things. 23 First, you have to have a lawsuit that the 24 lawyer and the party knew the moment it was filed, it was 25 false and groundless; and, second, you have to have some 48

1 indication that they had an impure motive to file the 2 false claim. 3 In this suit, there's an additional 4 reason, because there have been continual threats in an 5 effort to -- I hate to use the word "extort" -- but 6 extort or blackmail Kendall Homes into paying something 7 so that it would eliminate a claim for sanctions for what 8 had clearly been wrongfully done. I held off filing a 9 motion for sanctions for three years; but we had to spend 10 thousands of dollars that Kendall Homes doesn't have to 11 spare to comply with court orders, prepare for trial, 12 show up for trial ready for trial, no nonsuit filed, no 13 phone call, no fax, no e-mail, no communication of any 14 kind for over a year that the plaintiffs aren't going to 15 pursue their claim and then no contact by the plaintiffs 16 with even court personnel. 17 And that was so upsetting to the folks at 18 Kendall Homes that we went ahead and filed this motion. 19 Q. (By Mr. Bean) And your firm, Herzog & Carp, 20 was hired to represent Kendall Homes. Correct? 21 A. Yes. We've represented them for more than a 22 decade. We've had 100 percent of their litigation work 23 for more than a decade. 24 Q. And I believe you have what has been marked as 25 Defense Exhibit 6 in front of you. 54

1 sanctions were appropriate? 2 A. No, sir, it's not. I decided sanctions were 3 appropriate very early in this case when I met with 4 Mr. Briggs and with David Wickens and Ken Wickens and 5 obtained the file materials and obtained the documented 6 proof that showed the allegations in the petition were 7 false. 8 I fought the client off. They wanted me 9 to immediately file a motion for sanctions. I fought 10 them off. We did a modicum of work, moved for summary 11 judgment, obtained summary judgment. 12 They then wanted me to move for sanctions 13 again. I fought them off, went to lunch with you in an 14 effort to amicably settle the case. Without saying 15 anything that's been ruled inadmissible, let's just say 16 the lunch didn't work the way it was planned. 17 And at that point, based on your conduct 18 at the lunch, the client went from angry and upset to 19 enraged, which is definitely a good description of their 20 attitude. 21 I then held them off for another two years 22 and did not file a motion for sanctions, hoping that this 23 case would amicably be resolved and time would heal all 24 wounds; and instead, you made it worse. 25 Q. I see.  Filed 10 April14 P4:45 Loren Jackson • District Cler Harris County ED101J015743745 By: candlce d. haynes CASE NO. 2006-10826

RAHUL K. NATH, M.D., § IN THE DISTRICT COURT OF § Plaintiff; § -vs.- § § HARRIS COUNTY, T EX A S BAYLOR COLLEGE § OF MEDICINE; ET AL., § ~ § ··WJJ Defendants. § 215'' JU~~L DISTRICT

PLAINTIFF'S SIXTH AMENDED PETI~' rJ} ~ ended Petition complaining Rahul K. Nath,M.D. ("Dr. Nath" or "Plaintiff") files his Si~

of the wrongful conduct of Baylor College of Medicine ("Ba~") and Texas Children's Hospital ("TCH") (collectively, "Defendants") as follows: ~f;! I. DISCOVERY C~OL PLAN

1. Discovery is being conducted ue~ Rule 190 Level3 Scheduling Order. \0, "0' u:&ARTIES ~ 2. Dr. Nath is an individua~sident of Harris County, Texas. ,~~

3. Defendant Baylor iWorporation organized and existing under the laws of the State

of Texas that has its principa~~ of business in Harris County, Texas. Baylor has been served and has filed an answer~te1h. ar of[d} 4. Def~~t TCH is a corporation organized and existing under the laws of the State ~ of Texas that h~'principal place of business in Harris County, Texas. TCH has been served and

has filed an ~wer herein. Ill. JURISDICTION AND VENUE

5. This suit is brought under the laws of the State of Texas to recover from Defendants

those damages that Plaintiff has sustained as a result of Defendants' wrongful conduct. This Court

has jurisdiction over this action because Plaintiff seeks damages in an amount within the

-1- jurisdictional limits of the Court.

6. This Court has venue over this action pursuant to TEX. CIV. PRAC. & REM. CODE§

15.002(a)(l) because all or a substantial part of the events or omissions giving rise to Plaintiff's

claims occurred, and because Defendants Baylor and TCH reside, in Harris County, Texas.

IV. BACKGROUND FACTS '* @if 7. Dr. Nath is a Board Certified plastic surgeon and periphera~ injury specialist "~ who resides in Harris County, Texas. He has gained a national reput~' as one of the country's ~ foremost experts on surgical treatment of brachial plexus injurie~ch are injuries to the nerves

of children occurring during birth. Dr. Nath previously wor~e~~th several other physicians at the ~ TCH Brachial Plexus Clinic (the "Clinic") in HoustoQ~' including among others, Dr. Saleh Shenaq ("Dr. Shenaq"). TCH is affiliated with Ba~~ollege of Medicine.

8. In December 2003, Dr. Shenaq s,~ned Dr. Nath to his hospital room after he (Dr. 0,..~. Shenaq) had surgery for a detached retina. ~ Nath discussed the implications of this with Drs.

Feigin, Lee, Laurent, Grossman, but tAl._~fused to act. It appears their refusal to ensure patient ~ o~nterests was and is a common theme at Baylor and TCH. .

safety in favor of guarding their

9. Given Feigin e6~ailure to act, in early 2004, Dr. Nath confronted Dr. Shenaq with the implications that, at~~oint, had arisen, because Dr. Shenaq was (I) operating on patients 0~ while visually imp~~(without disclosing his conditions to patients); and (2) allowing Baylor ~ residents to perf~ unsupervised surgeries- necessitated by Shenaq's blindness in one eye. In

response, Sh~~banned Dr. Nath from the Clinic and operating room. 10. On June 2, 2004, Dr. Nath and Baylor had agreed to part ways. Nonetheless, Drs.

Grossman and Brunicardi, on behalf of Baylor, sent Dr. Nath a letter falsely alleging that there had

been complaints about Dr. Nath's billing practices, ethics, and professional conduct. Thus, in July

2004, circumstances and conscience prevailed, and thus, Dr. Nath left the Clinic to open his own

-2- practice, unaware that a vendetta had been initiated against him. Dr. Nath soon perceived, at least,

the tip of the iceberg.'

II. In June 2004, Baylor and TCH employee and agent, Dr. Rita Lee, Chief of the

Brachial Plexus Program at TCH, falsely published on the public UBPN message board that Dr.

Nath had three months earlier, without notification to TCH staff or faculty, "s~y disappeared ·PJ from our clinic with no forwarding address or the mere fact he had left." Sh~surprisingly, also stated that children would "continue to receive state of the art "~ the TCH team." c~rom ~ Defendants' pattern of malicious and wrongful conduct agai~~· Nath apparently had the

involvement and agreement of Defendants' top management -~~ecision makers. ~~'U 12. Following Dr. Lee's false posting, Drqreceived emails from patients and

prospective patients stating they were "angry ,"o ~t Dr. Lee's post was "unprofessional," ~ "unconscionable," "very hurtful," "ungrateful," ~arrassing," "shameful," a "low blow," and even '(,

asking "are you real?" Dr. Nath was advise~readers of the post that "a lot of people are jumping w to conclusions," "speculating," and th&~"te were "many stories floating around." Dr. Nath also ~ learned that, not unexpectedly, "n~ patients are becoming apprehensive." 13. In late 2004/e~OS, Dr. Nath was precluded from performing surgery on minor ·G 1 Dr. Brunicardi ho~~ked directly with Dr. Nath on several patients that Dr. Brunicardi had injured surgically and had asked Dr. N ~;rect. On one occasion, Dr. Brunicardi had scheduled a patient, "CF," for hernia repair during a coincident p e surgery by another physician. When the time came for Dr. Brunicardi to perform his part of the surgery, the ·~repair, he reportedly refused to return to the operating room and instead went to a meeting with Dr. Feigin. Re o y, when the other physician expressed concern about the unconscious patient having specifically requested Dr. B tcardi to perform the hernia repair and for which he consented to have Dr. Brunicardi and no one else perform the repair, Dr. Brunicardi hung up the phone. Dr. Brunicardi did not return to the operating room. Rather than allow the patient to bleed further, the other physician undertook to repair the hernia himself. During repair of the hernia, the other physician placed a suture through the patient's femoral nerve, causing a paralysis of the leg. The paralysis of the leg was discovered days after the surgery, and at that point the other physician and Dr. Brunicardi pleaded with Dr. Nath to rescue CF's leg function. Dr. Nath, in conjunction with Dr. Brunicardi, explored the wound, and Dr. Nath removed the offending stitch, relieving the patient's nerve injury. Today, the patient appears oblivious to the fact that his repair was performed by a urologist and not by Dr. Brunicardi, and unaware that Dr. Brunicardi's absence from the operating room due to Dr. Feigin's insistence on attending an administrative meeting resulted in the injury to his femoral nerve. There appears to be a falsification of medical records regarding Dr. Brunicardi's absence from surgery on the patient.

-3- patient "IM" because of false and misleading statements and interference by Defendants. Dr. Feigin

blocked the child from being transferred to TCH under Dr. Nath's care after a California physician

had contacted Dr. Nath, who accepted the child in transfer for treatment of a severe brachial plexus

injury. 1M's breathing nerve was affected and the child was on a ventilator. However, Dr. Feigin

personally prevented the child from receiving treatment by Dr. Nath at TCH. ~ ?~o/i; 14. In late 2004, Dr. Nath learned that Dr. Feigin had prevented ~ormance oftriangle

tilt surgeries at TCH reportedly based on a brief internet search that .~~ ~~\formed on the topic in .~"0 2004. Many of Dr. Nath's patients thus were denied the opportu~ receive this peer-reviewed

and published operation to mend their brachial plexus injur~e-~e to Dr. Feigin's decision. ~If 15. In 2005, Dr. Nath was informed by "JBQ~rent of a minor patient of Dr. Nath, that JB had recently learned that Dr. Shenaq hado~ated on his child, although JB had been

deceived by Defendants into believing that the,#y was to be, and had been, performed by Dr. (,.~' Nth a . .~ Q •?!» 16. In 2006, Dr. Nath wa~"'~~oached by the medical publication "UpToDate," the premier journal for pediatricians ~ t~d about scientific developments in pediatric medicine. Dr. Nath was contacted by UpTo~o IQ author an article on management of obstetric brachial plexus

injuries due to his reput~~s a leader in the field. Dr. Nath agreed and authored the article with oW Dr. Forrest Roth, ~~lor surgical resident. Shortly after sending in the completed article to ,~~ UpToDate, Dr.~~n took over as editor of UpToDate and quashed publication of the article. Dr.

Feigin used~position as editor to inappropriately suppress Dr. Nath's co-authored article and information that would potentially be used by thousands of pediatricians to treat children with

brachial plexus injuries. Tellingly, Dr. Feigin reportedly had never treated a patient with a brachial

plexus injury.

17. In 2005,patient "BR" was brought to see Dr. Nath by his parents, who previously had

-4- been told by TCH that Dr. Nath had disappeared. BR was evaluated by Dr. Nath as needing a

triangle tilt surgery due to a dislocated shoulder that had gone untreated by Defendants' physicians.

BR's parents told Dr. Nath they would schedule a triangle tilt surgery with Dr. Nath but needed to

go to TCH to retrieve medical records. TCH, however, subsequently gave the child and parents false

information about Dr. Nath. Consequently, BR's parents never scheduled a foll~p visit for BR ~@ and Dr. Nath never was able to perform BR's necessary surgery. () }:~ 18. Also, in 2005, Dr. Nath learned from a another patient th~fendants had published .~ and caused to be published false and misleading statements abou~:21'hese false statements were

made to Dr. Nath's current and prospective patients and tq ~essionals and others within the ,;}tP" medical community and elsewhere. These false and Q . n g statements include, but were not

limited to, that Dr. Nath (i) was fired from Baylor,~ttPerformed unnecessary surgeries, (iii) was

unqualified, (iv) lacked professional ethics and~ity, (v) left TCH without any notification, (vi) (,~!

had simply disappeared from TCH withou~'l!ving any contact information, (vii) was no longer @I performing surgeries, and (viii) had /R~~rito research. ~ 19. Consequently, in 2QQ:6, Dr. Nath then filed the instant lawsuit in an attempt to

forestall any adverse effects o~"1alsity without any idea ofthe depth of professional malice, spite, F ~"" professional jealousy, a~eer hatred that lay below the surface. of@? 20. As t~"mant lawsuit progressed, Dr. Nath learned of the basis of the initial fear and

dishonesty tha~;~t all but impossible for him, as a matter of circumstance and conscience, to continue his~ployment at Baylor: (i) In December 2002, Dr. Simpson, Chairman of the Ob/Gyn Department at Baylor

and a Baylor employee, made false and derogatory statements concerning Dr.

Nath and his medical practice to Dr. Feigin, also a Baylor employee, in an

attempt to silence Dr. Nath from testifying about the medical treatment he

-5- provided his patients suffering from obstetric brachial plexus injuries. Dr. Nath

had been subpoenaed to provide testimony regarding his medical treatment of

these patients, one of whom was a patient delivered by Baylor physicians under

the chairmanship of Dr. Simpson. Dr. Simpson subsequently threatened Dr.

Feigin and TCH with loss of referrals from his practice a~ll as from the ~:@ Ob/Gyn Department at Baylor. Dr. Simpson also threate~'Dr. Feigin with loss

of referral from community pediatricians. Dr. Feigi~others republished the ·~ false statements Dr. Simpson had made cone~ Dr. Nath.

(ii) Following Dr. Simpson's statements, DefeJl~s apparently reasoned that if they .~ could rid themselves of Dr. Nath, tQ~orscould perform the surgeries Dr.

Nath otherwise would have perforw, and they would reap the financial benefit. c~ Defendants thought they n~ the right opportunity to force Dr. Nath out, 0. ~·

unaware that his conscie'(~~as several steps ahead of them. In February 2004, ~ that opportunity t~~rcise futility came. Defendants sought to lessen the \~ credibility of D~th's scientific findings regarding the utility of nerve-grafting

of obstetr~"'\hial plexus patients, which Dr. Nath maintained was being super~Q by simpler and cheaper surgeries that he had developed. Defendants oi?Ji' ~~ted to discredit Dr. Nath's findings because the loss of revenue by their \<)~ \Q>~ysicians that would result from fewer nerve-grafting surgeries would ~ ~ significantly reduce their profitability.

(iii) While an employee of Baylor and in furtherance of Defendants' scheme to

discredit Dr. Nath, Dr. Shenaq wrote one or more letters falsely complaining of

Dr. Nath and having others sign the letters as their own, or exerted undue

pressure and duress to have them written and/or signed. For example, Dr. Arturo

-6- Armenta reportedly performed multiple surgeries for Dr. Shenaq when Dr.

Shenaq was not in the operating room. These surgeries were performed at First

Street Surgical Hospital in Houston and Cornerstone Hospital in the Rio Grande

Valley. On information and belief, at that time Dr. Armenta had limited training

and supervision, and yet was allowed to perform independent ~ations on these ~:@ patients as an agent of Defendants. Dr. Armenta appare~ would perform the

surgeries and Dr. Shenaq would bill as if he had {lb p~.med the surgeries. Dr. ~ Armenta apparently would receive payment d~from Dr. Shenaq for his role

in performing these unsupervised operatio~ With this financial relationship :iff' with Dr. Armenta ongoing, Dr. SheQ~ed a false document purporting to be a complaint by Dr. Armenta agaj!l§'bnr. Nath. Reportedly, on information and ~(!r

belief, Dr. Armenta refused~n this document and it was either later forged 1, ~-

or signed under duress. i:J~ (0 (iv) Drs. Grossman an~fjJilicardi, along with Baylor and TCH, knew that Dr. Nath

was concerned ~ut and knowledgeable of Dr. Shenaq's condition and were

fearful thaJ;fjt~ath Q~ would make Dr. Shenaq's condition public. Baylor and

TCH ~Yquently prevented Dr. Nath from having access to patients and patient o@j ~~·and continued to refer his patients to Dr. Shenaq. In an apparent attempt -~ iQb further conceal Dr. Shenaq's compromised medical condition even after his ~ . ""'~ death, Baylor reportedly settled a lawsuit brought by Dr. Shenaq's estate for several million dollars.

(v) On March 23, 2004, Dr. Shenaq operated on minor patient "JK" after falsely

telling the child's mother that Dr. Nath had disappeared from Baylor. The child's

mother had initially consulted Dr. Nath to take care of her child's brachial plexus

-7- InJury. (Ultimately, JK's mother allowed Dr. Shenaq to operate on her child).

At that operation, Dr. Shenaq petformed a phrenic to biceps nerve transfer,

resulting in paralysis of JK's diaphragm and permanent breathing difficulties.

(vi) In 2004, TCH scheduled "DS," the parent of a minor patient of Dr. Nath, for an

appointment, without informing her that Dr. Nath would no ~er be working ~@ at TCH. DS first discovered Dr. Nath was not there whe~':~%enaq entered the ~ exam room. At that time, Dr. Shenaq and TCH em ee Lisa Thompson told "~ DS that Dr. Nath had simply left TCH and Ba~d they did not know where he had gone. Given these representations0 ~·~ent forward with the exam with ~'W

Dr. Shenaq. Thus, Dr. Shenaq aQ~ndants deceived DS for their own financial gain. o~"dJ ~ (vii) Also, in 2004, TCH, throuat<~ployees Lisa Davis and Lisa Thompson, on "cr.. separate occasions told "~'another parent of one of Dr. Nath's minor patients, . ~lll» that among other t~ Dr. Nath had left Baylor and no one knew where he had ~~ gone-that he h~i:st disappeared. When, as a result of these false statements,

SW agreecl~ . Q• examined by Dr. Shenaq, he falsely told her that Dr. Nath had

been~~ming unauthorized surgeries and the surgery Dr. Nath had petformed of/jY ~~·daughter was experimental and had been disproved on adults. He also {i~ ~~formed her that any positive effect from the surgery would not be longstanding. ~· TCH also refused SW's request to timely transfer her records to Dr. Nath. Thus,

Defendants deceived SW for their own financial gain.

(viii) On June 14,2004, "AD," a parent of a minor patient of Dr. Nath, had contacted

Dr. Nath and stated that she would have gone to him had either TCH and Dr.

Shenaq advised her that Dr. Nath was no longer at the Clinic. The litigation

-8- revealed that Defendants' failure to inform AD that Dr. Nath was no longer at the

Clinic was intended to and did deceive her for their own financial gain. The

litigation further revealed that apparently Dr. Shenaq performed an inappropriate

surgery on her child, leaving scarring for no justified medical reason. When the

child was taken to Dr. Shenaq's office for follow-up care foll~g surgery, Dr. •q)i ""''@ Shenaq initially refused to see the child, instead sending r~nts to perform this ~ duty. Reportedly, when the mother insisted that ~henaq see the child, he .:;,~ verbally berated the child in front of the hor~·mother and ancillary office

staff when the child expressed pain duri~g. Shenaq's rough handling of her immediate postoperative wound. AD,~ Q(!? a letter of complaint to Defendants regarding this incident, notifying ~m that she was very unhappy because she ~ would not have allowed Dr. ~q to operate on her child if she had known Dr. "~- Nath was no longer wor~)with him. "® (ix) In 2004, "CB ," ano~~rent of a minor patient of Dr. Nath, understood that she --~ had scheduled a~dical examination with Dr. Nath and TCH, but instead, when

she reporte

time~ad met Dr. Shenaq. As the surgery on her child had already been of!Q> ~e~d in the past, she allowed Dr. Shenaq to perform the surgery. Dr. Shenaq's :p~ ·y~d Defendants' deception for their own financial gain again denied the patient's ~~wishes. (x) In 2004, Lisa Thompson told "JA," another parent of a minor patient of Dr. Nath,

that she had not seen Dr. Nath in weeks, that Dr. Nath was a "terrible doctor,"

and that TCH was conducting inquiries regarding him.

(xi) In 2004, Lisa Thompson and Dr. Shenaq told "SD" and "BD," parents of another

-9- minor patient of Dr. Nath, that Dr. Nath was no longer performing surgeries, but

instead had retreated to solely conducting research. As a result, SO and BD

allowed Dr. Shenaq to perform surgery on their child. Dr. Shenaq and Ms.

Thompson again deceived another of Dr. Nath's patients for Defendants' financial

(xii) gam. ·~· * . .!f;, In late 2004/early 2005, TCH published a false letter st~g that Dr. Nath had

left TCH and gone into private research. ~~~ ·~ \"'~ 21. In late 2009, TCH has, on information and belief~ affirmative action to cause the Texas Medical Board (TMB) to prosecute Plaintiff. TC~ used at least one document that ~ it received in its credentialing capacity in an intentioQ~t, together with Baylor, to advance what is now clearly a professional vendetta against ~~th for having "blown-the-whistle" on their

reckless exposure of children to a half-blind ~~on. TCH apparently notified TMB attorney, U' Roger Calhoun, of certain depositions in th~se and caused Mr. Calhoun to be present at them. :®! During the deposition of Brenda Dre:_~.'"Dr. Nath's former assistant, she repeated outlandish

allegations against Dr. Nath ~ whic~re furnished to her by TCH lead counsel in a meeting a few weeks prior to the deposition.~er, TCH's counsel, Mr. Mizell, was observed actively conferring with Mr. Calhoun who ~Qd notes to Mizell during the deposition, and conferred at deposition o c?fY breaks with both T~nd Baylor's counsel outside the presence of Plaintiff's counsel. Following ~ the deposition of~. Devaul, although there are several reasons to doubt her credibility, TMB filed ~ a complaint ~inst Dr. Nath, parroting almost verbatim certain of the same allegations that were furnished to and repeated by Ms. Devaul.

22. The most recent events in this litigation reveal that, the day after meeting with Dr.

Nath in January 2004 regarding Shenaq's blindness, Dr. Shenaq called a meeting of the Baylor

Plastic Surgery Faculty. At the meeting were several physicians, including but not limited to Dr.

-10- Samuel Stal, Dr. Larry Hollier, Dr. Michael Klebuc, Dr. Jeffrey Friedman, and Dr. Aldona Spigel,

who were present together in a conference room. Dr. Shenaq stated to those assembled that Dr.

Nath was "a cancer that needed to be cut out." Later, after conspiring with Drs. Brunicardi and

Grossman to create the false letter of June 2004, Shenaq stated to these doctors and others that "Nath

would never work again." Dr. Shenaq further stated that he, Dr. Brunicardi, m:irnr. Grossman ~:@ would jointly benefit by increases in Baylor and TCH patient volume as·~e;ult of Nath being ."~ "fired." This deep hatred of Dr. Nath by these defendants was reveale>i.£Ja deposition of Dr. Stal "~~· on March 3, 2010. This awful revelation by Dr. Stal correspond~~at Dr. Nath now knows was

and is a vendetta against him by these Defendants as evideJl~by the previously unknown and ~ undiscoverable outrageous comments. Q:i/f/" 23. Dr. Nath is now suffering from extreJIL~motional distress that is the direct result of ~ the intentional vendetta aimed at him person~~Among other facets of Dr. Nath's emotional G~) distress is the fact that he, a world-class .~eon, a healer of children who has never had a ·~ malpractice lawsuit filed against him~~bas to absorb being characterized as a "cancer that needs

to be cut out." Additionally, TC~d Baylor have caused Dr. Nath's excellent care of injured children to be considered sub-;;~"'\rd by the TMB. This has exacerbated the emotional injury. Dr . .f'~ Nath and his wife live i~eatof the daily mail delivery for new accusations "under investigation" os?iY by the TMB? e,~Cif <:i,~J 24. D~ath now understands that many patients were operated on or treated by Dr. Shenaq at B~~and TCH after Dr. Shenaq had become partially or completely blind in one eye after suffering a detached retina in November 2003, including patient JK (such patients are referred

to herein as "Eyesight Affected Patients"). Although Dr. Nath subsequently learned of Dr. Shenaq's

' Ironically, in his 14 years of practice, no claims or lawsuits have ever been leveled against Dr. Nath.

-11- emergency surgery for repair of his detached retina and thereafter had suspected that Dr. Shenaq's

eyesight was severely impaired, he possessed no information at the time that could confirm the

lasting impact the surgery had on Dr. Shenaq's eyesight. However, as stated above, Dr. Nath

repeatedly raised the issues with individuals in leadership positions at both Baylor and TCH. Dr.

Nath also had knowledge that others repeatedly raised this issue with Baylor an~H. However, ~'@ apparently no action to remedy or address this serious issue was taken by eit~Baylor or TCH, and ~~ Dr. Shenaq not only continued to perform surgeries on minor patients~"'~e BP Clinic beginning ~~· .. in early 2004, Baylor and TCH encouraged Dr. Shenaq to do so ~tinuous referrals of patients to him. Even after Dr. Shenaq was fired from his position at0~.~ ,r in June 2005, both Baylor and ~ TCH continued to refer patients to him for treatment a~~ery. Q V. CAUSE OF ACTION: INTEN,;{I~?NAL INFLICTION OF "'~ EMOTIONAL DISTRESS AND PIRACY TO COMMIT SAME " . 25. Plaintiff incorporates herein ~@";reference the allegations set forth in paragraphs 15, @! 45, 46, and 47 as though fully set fort~~rein. ~ 26. At time of trial, D(Nath will prove that these defendants, acting singly or in

combination, engaged in ou~us Q! conduct as part of a small-minded, professional vendetta

designed to intentionall~JC:J\ct severe emotional distress upon him. As a proximate result of o/ff Defendants' intentig~ wrongful conduct, Plaintiff has suffered and continues to suffer severe {i~~ emotional distr~iir which he is entitle to damages in an amount to be determined by the trier of fact. Defen~ts' conduct also constitutes malice as defined in TEX. CIV. PRAC. & REM. CODE§ 41.001(7) for which he is entitled to exemplary damages under§ 41.003(a)(2).

VI. DISCOVERY RULE

27. Plaintiff pleads the discovery rule as to the cause of action.

-12- VI. DEMAND FOR JURY TRIAL

28. Plaintiff demands a trial by jury and has previously tendered the appropriate fee.

VII. REQUEST FOR RELIEF

WHEREFORE, PREMISES CONSIDERED, Plaintiff respectfully prays that upon final

hearing or trial, Plaintiff have and recover from Defendants (a) actual, consequ~ffil, and punitive ~V!j: damages as proven at trial; (b) costs of Court; (c) Pre-judgment and post-~ent interest at the ."~ highest lawful rates; and (d) all other relief, general and special, at l~d in equity, to which he o@j may show himself to be justly entitled. :t;J~

Respec!~ submitted, ~'l ~ DQ®JiJ. SHEA, P.C.

~: ~ ·.~ Di\NiELiSHEA,Le Counsel ,c, ~· State BarNo. 18163850 rg~ 1928 West Bell Street @:! Houston, TX 77019-4814 t:: :(t (713) 942-7500 Telephone . \~ (713) 942-7507 Telecopier (] Djs7500@aol.com

.~~ ,?9 -and-

~· MICHAEL A. LOGAN ~ oi!fj? State BarNo. 12497500 ·~ BRUCE M. FLOWERS

~ t~ State Bar No. 07175480 '~ KARIN M. ZANER Q• ~~ State Bar No. 00791183 C. JEFFREY NOVEL State BarNo. 24037198 KANE RUSSELL COLEMAN & LOGAN, P.C. 1601 Elm St., Suite 3700 Dallas, TX 75201 (214) 777-4200 (214) 777-4299- Facsimile

-and

-13- CHARLA ALDOUS State Bar No. 20545235 ALDOUS LAW FIRM 2305 Cedar Springs Rd., Suite 200 Dallas, TX, 7520 I (214) 526-5595 (214) 526-5525- Facsimile

ATTORNEYS FOR PLA~F, RAHUL K. NATH, ~2['

CERTIFICATE OF SERVICE .J'~ 0~ The undersigned hereby certifies th~t a true ~d co.rrect c~py oft~e~gr.document has been served upon the counsel of record VIa electromc fihng notice on~ I 2010:

Ms. Shauna Johnson Clark FULBRIGHT & JAWORSKI, L.L.P. o ~/ ·W 1301 McKinney, Suite 5100 ;F!J?lf Houston, TX 77010-3095 ~ ATTORNEYS FOR DEFENDANT, o ~ BAYLOR COLLEGE OF MEDICIN~

Mr. Patrick W. Mizell t (j VINSON & ELKINS, L.L.P. i()~ I 00 I Fannin St., Suite 2300 ·w""'~ ~~ Houston, TX 77002-6736~Q ATTORNEYS FOR DEF ANT, TEXAS CHILDRENS ~ !TAL

cg~ ~~ :(J ~ bANIELiSHEA :~© t,~' ,<:("' ro~ ~/ ~.

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