William J. Gebhard, III v. Laxmi-Vishnu Enterprises, Inc. and Pravin Ghael

• Court: Court of Appeals of Texas
• Decided: January 18, 2012
• Docket: 04-11-00086-CV
• Status: Published

Opinion

MEMORANDUM OPINION No. 04-11-00086-CV

William J. GEBHARD III, Appellant

v.

LAXMI–VISHNU ENTERPRISES, INC. and Pravin Ghael, Appellees

From the 285th Judicial District Court, Bexar County, Texas Trial Court No. 2008-CI-08674 Honorable Michael Peden, Judge Presiding

Opinion by: Karen Angelini, Justice

Sitting: Karen Angelini, Justice Sandee Bryan Marion, Justice Steven C. Hilbig, Justice

Delivered and Filed: January 18, 2012

AFFIRMED

William J. Gebhard III appeals a judgment against him based on claims of breach of

fiduciary duty, fraud, and statutory fraud arising out of a real estate transaction. On appeal,

Gebhard argues the evidence was legally and factually insufficient to support the judgment, and

the trial court erred in submitting certain instructions to the jury. We affirm.

BACKGROUND

In June 2006, Gebhard, a real estate agent, entered into a listing agreement to market and

sell a hotel owned by appellee Laxmi-Vishnu Enterprises, Inc. Laxmi-Vishu’s president and sole 04-11-00086-CV

shareholder was appellee Pravin Ghael. Ghael instructed Gebhard about the type of offer he was

willing to accept. Although Ghael was willing to provide seller financing, he required a

minimum purchase price of $4.5 million and a minimum down payment of $1.25 million. There

were two reasons for the $1.25 million down payment requirement: (1) Ghael needed the

proceeds of the down payment to pay off two outstanding notes on the property, and (2) Ghael

wanted to ensure that it would not be easy for a buyer to default and walk away from its

obligation.

Gebhard brought Ghael an offer from Pacific Hotel Group, LLC. Ghael rejected the offer

because it did not meet his $1.25 million down payment requirement. In October 2006, Gebhard

brought Ghael another offer from Pacific that met both of Ghael’s requirements. This offer was

accepted by Ghael. Ghael and Pacific signed a sales contract calling for a purchase price of $4.75

million and a down payment of approximately $1.25 million1 to be paid at closing. Because it

was likely that Ghael would be out of the country when the transaction closed, Gebhard

suggested Ghael give someone power of attorney to act on his behalf. Following this advice,

Ghael appointed one of his friends, Paresh Raja, to serve as his attorney-in-fact.

Ghael left the country in November 2006, before the transaction closed. Ghael planned to

travel to India and Burma for several months, and was not due back until late January 2007.

During this time period, Ghael and Gebhard kept in contact by email.

While Ghael was out of the country, Gebhard prepared an amended sales contract, which

changed the terms of the transaction. Among other things, the amended sales contract

significantly reduced the amount of money Pacific would be required to pay at closing. The

amended contract included “wraparound” provisions, which allowed Pacific to delay paying

most of its down payment until several months after closing. Specifically, the wraparound 1 The actual amount was slightly higher.

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provisions required Pacific to make payments on the two notes on the property for several

months, then make two large payments to Ghael. In turn, Ghael would use these funds to pay off

the notes. Both of the notes were to be paid off in full by May 2007. In addition to the

wraparound provisions, Pacific was required to make monthly mortgage payments to Ghael.

The amended contract was signed by Pacific. Thereafter, Gebhard presented Raja with

the amended sales contract. Gebhard told Raja he had spoken to Ghael about the changes to the

terms of the transaction, and Ghael had consented to the changes. Based on these representations,

Raja signed the amended sales contract. On January 24, 2007, just days before Ghael returned

home, the transaction closed with Raja signing the closing documents on Ghael’s behalf.

Gebhard’s commission on the sale was about $190,000.00.

Upon returning home, Ghael was surprised to learn of the changes made to the

transaction, and advised Gebhard that he was not satisfied with terms in the amended sales

contract. Ghael was concerned about Pacific defaulting on the contract because it had paid such a

small amount at closing. Ghael asked Gebhard to place his sales commission in an escrow fund

until after Pacific paid the down payment in full. Gebhard complied with this request. Gebhard

also told Ghael that Pacific would obtain a performance bond to protect Ghael from any losses in

the event of a default, but this performance bond was never obtained.

Thereafter, Pacific defaulted on its obligations. Pacific failed to make the large payments

that Ghael was planning to use to pay off the notes on the property. By September 2007, Pacific

had stopped making its monthly mortgage payments. Ghael eventually instituted foreclosure

proceedings, and recovered the property.

Laxmi-Vishnu and Ghael sued Gebhard for breach of fiduciary duty, fraud, and statutory

fraud based on Gebhard’s actions during the sales transaction. In their petition, Laxmi-Vishnu

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and Ghael alleged, among other things, that Gebhard falsely represented to Raja that Ghael had

approved the terms of the amended sales contract.

The case was tried to a jury, which found in favor of Laxmi-Vishnu and Ghael on all of

the liability issues and awarded actual and exemplary damages. In accordance with the jury’s

verdict, the trial court rendered judgment against Gebhard in the amount of $139,023.84 for

actual damages, and in the amount of $69,285.08 for exemplary damages. Gebhard appealed. 2

SUFFICIENCY OF THE EVIDENCE

On appeal, Gebhard challenges the legal and factual sufficiency of the evidence to

support the judgment as to liability and exemplary damages. As to liability, Gebhard argues there

was insufficient evidence that he engaged in any of the devious activities attributed to him, and

therefore, Laxmi-Vishnu failed to carry its burden of proof. As to exemplary damages, Gebhard

argues the meager evidence of fraud presented by Laxmi-Vishnu wholly failed to meet the clear

and convincing standard of proof as required.

The Trial Evidence

At trial, the primary witnesses to testify were Raja, Gebhard, and Ghael. Raja testified

Gebhard met with him about the amended sales contract. At this meeting, Gebhard told him he

had talked to Ghael on the phone, and Ghael had approved the terms in the amended contract.

Raja further testified he signed the amended sales contract based on Gebhard’s representations

that Ghael had approved its terms.

Consistent with Raja’s testimony, Gebhard testified he told Raja that Ghael had approved

the terms of the amended contract. But Gebhard insisted he had talked to Ghael on the phone,

and Ghael had in fact approved the terms of the amended contract. Gebhard acknowledged,

however, that he had no phone records to corroborate his testimony that he had spoken to Ghael 2 Capitol Area Realty, Inc., was also a defendant in the suit, but is not a party to this appeal.

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by phone. Gebhard also admitted this phone conversation with Ghael was never confirmed in

any writing.

Ghael testified he and Gebhard never had a phone conversation about changing the terms

of the initial sales contract, or about the terms in the amended sales contract. Ghael stated he

never consented to changing the terms of the initial sales contract. Additionally, the closing

statement indicated Pacific paid $150,000.00 cash at closing; however, Ghael later learned that

most of the $150,000.00 was loaned to Pacific by Gebhard’s broker, Capitol Area Realty, Inc.,

which made the loan from the proceeds of the sales commission on this transaction.

Various documents were also admitted into evidence at trial. These documents included

the initial sales contract, and the amended sales contract. Numerous emails between Ghael and

Gebhard were also admitted into evidence. These emails show Ghael and Gebhard remained in

frequent contact and discussed various details concerning the transaction, even while Ghael was

out of the country.

Finally, the president of Capitol Area Realty, Inc., Jimmy Dean Johnson III, testified.

Gebhard was affiliated with Capitol Area Realty. Johnson testified that real estate agents do not

“vet” buyers, but they are obligated to follow the instructions of their clients. He further

explained that real estate agents owe a fiduciary duty to their clients. As to the present case,

Johnson stated that if Gebhard changed the terms of the contract without Ghael’s knowledge or

consent when Ghael was asking to be kept informed, then Gebhard breached his fiduciary duty to

Ghael. Johnson also stated that loaning sales commission funds to Pacific was ethical if Ghael

was made aware of this arrangement in advance, but was unethical if Ghael was not made aware

of this arrangement in advance.

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Standards of Review

When reviewing a legal sufficiency or “no evidence” challenge, we determine “whether

the evidence at trial would enable reasonable and fair-minded people to reach the verdict under

review.” City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). We view the evidence in the

light most favorable to the verdict, crediting favorable evidence if reasonable jurors could and

disregarding contrary evidence unless reasonable jurors could not. Id. Appellate courts will

sustain a legal sufficiency or “no evidence” challenge when: (a) there is a complete absence of

evidence of a vital fact; (b) the court is barred by rules of law or of evidence from giving weight

to the only evidence offered to prove a vital fact; (c) the evidence offered to prove a vital fact is

no more than a mere scintilla; or (d) the evidence conclusively establishes the opposite of the

vital fact. Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997).

When reviewing a factual sufficiency challenge, we consider all the evidence supporting

and contradicting the verdict. Plas–Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex.

1989). We set aside the verdict only if the evidence is so weak or the finding is so against the

great weight and preponderance of the evidence that it is clearly wrong and unjust. Dow Chem.

Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001).

Liability

To establish a breach of fiduciary duty cause of action, a plaintiff must prove (1) a

fiduciary relationship between the plaintiff and defendant, (2) a breach by the defendant of his

fiduciary duty to the plaintiff, and (3) an injury to the plaintiff or a benefit to the defendant as a

result of the defendant’s breach. PAS, Inc. v. Engel, 350 S.W.3d 602, 610 (Tex. App.—Houston

[14th Dist.] 2011, no pet.); Lindley v. McKnight, 349 S.W.3d 113, 124 (Tex. App.—Fort Worth

2011, no pet.).

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To establish a common law fraud cause of action, a plaintiff must prove (1) a material

representation was made, (2) which was false, (3) which was either known to be false when

made or which was recklessly made as a positive assertion without knowledge of its truth, (4)

which the speaker made with intent that it be acted upon, and (5) the other party took action in

reliance upon the misrepresentation, and (6) thereby suffered injury. In re FirstMerit Bank, N.A.,

52 S.W.3d 749, 758 (Tex. 2001) (orig. proceeding); Dynegy, Inc. v. Yates, 345 S.W.3d 516, 529

(Tex. App.—San Antonio 2011, pet. filed). The elements of statutory fraud are nearly identical

to the elements of common law fraud, except that statutory fraud does not require proof of

knowledge or recklessness as a prerequisite for recovery of actual damages. TEX. BUS. & COM.

CODE ANN. § 27.01 (West 2009); Lindley, 349 S.W.3d at 128.

On appeal, Gebhard acknowledges the trial revolved around whether the jury believed his

testimony that he advised Ghael in a phone conversation that a wraparound arrangement was

necessary to make the transaction work. As the reviewing court, we must assume the jury

decided credibility questions in favor of the verdict if reasonable human beings could do so.

Wilson, 168 S.W.3d at 819. Jurors are the sole judges of the credibility of the witnesses and the

weight to give their testimony. Id. Jurors may choose to believe one witness and disbelieve

another. Id. Thus, the jury was free to disbelieve Gebhard’s testimony that Ghael was advised of

the changes in the amended sales contract, and was free to believe Ghael’s testimony that he was

not advised of the changes in the amended sales contract.

Gebhard also challenges Raja’s credibility. Again, it was within the jury’s province to

believe or disbelieve Raja’s testimony.

Gebhard asserts the emails between he and Ghael show that when Ghael left the country

the transaction was not finalized and would still require “significant tweaking.” Gebhard further

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asserts the emails demonstrate that Ghael should have anticipated that aspects of the transaction

would change over the course of months. Although a jury could have drawn these inferences

from the emails, it was not required to do so. See id. at 821 (“Even if evidence is undisputed, it is

the province of the jury to draw from it whatever inferences they wish, so long as more than one

is possible and the jury must not simply guess.”).

The jury could have drawn other inferences from the emails as well. With a few

exceptions, the emails show that while Ghael was out of the country, Ghael and Gebhard

communicated about two or three times per week. The emails also show Ghael repeatedly

inquired about various aspects of the transaction. In one email, Ghael asked Gebhard to forward

him a copy of the closing statement, either by email or by courier. There was some evidence that

the closing statement would have revealed the changes in the amended contract. However,

Gebhard never forwarded Ghael a copy of the closing statement as requested. In other emails,

Gebhard provides Ghael information about the franchise approval, the transfer of hotel

management, and the preparation of the closing documents. Despite the detailed nature of the

emails, the changes in the amended contract were never mentioned, either directly or indirectly.

Thus, the emails tend to support an inference that Ghael was not told about the changes in the

amended contract prior to closing.

We conclude there was legally and factually sufficient evidence to establish that Gebhard

breached his fiduciary duty to Ghael. The evidence showed Gebhard had a fiduciary relationship

with Ghael. Gebhard was well aware of Ghael’s requirement that the buyer make a $1.25 million

down payment, and the reasons behind it. Ghael told Gebhard he wanted a $1.25 million down

payment to pay off the two notes on the property and to minimize the risk that the buyer would

default. Nevertheless, when Ghael was out of the country, Gebhard had Raja sign an amended

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contract that dramatically altered the terms of the transaction. The amended contract included

terms, particularly the wraparound provisions, that conflicted with Ghael’s instructions. Thus,

the evidence showed Gebhard breached his fiduciary duty to Ghael. Finally, the evidence

showed Ghael was injured by the breach of fiduciary duty. Ghael testified he suffered financial

losses from the sale, including the sales commission paid to Gebhard and other fees related to the

closing. Ghael further testified he suffered financial losses from the default, including

foreclosure fees.

We further conclude there was legally and factually sufficient evidence to establish that

Gebhard engaged in fraud. The evidence showed Gebhard represented to Raja that Ghael had

consented to the terms of the amended contract. There was some evidence that Gebhard’s

representation to Raja was false, that Gebhard knew the representation was false, that Gebhard

made the representation with the intent that Raja would act on it, that Raja in fact acted on it, and

that as a result Ghael suffered injuries.

We conclude the evidence at trial would enable reasonable and fair-minded people to

reach the verdict that the jury reached in this case. We further conclude the evidence was not so

weak or the verdict was not so against the great weight and preponderance of the evidence that it

was clearly wrong and unjust.

Exemplary Damages

The Civil Practice and Remedies Code requires a plaintiff seeking recovery of exemplary

damages resulting from fraud to establish the elements of fraud by clear and convincing

evidence. TEX. CIV. PRAC. & REM. CODE ANN. § 41.003(a)(1) (West Supp. 2011). This higher

standard of proof does not change the appellate standard of review; rather, it merely changes the

weight of the evidence to support the verdict. Foley v. Parlier, 68 S.W.3d 870, 880 (Tex. App.—

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Fort Worth 2002, no pet.). For exemplary damages purposes, clear and convincing evidence is

defined as that measure or degree of proof that will produce in the mind of the trier of fact a firm

belief or conviction as to the truth of the allegations sought to be established. Gore v. Scotland

Golf, Inc., 136 S.W.3d 26, 34 (Tex. App.—San Antonio 2003, pet. denied).

Gebhard contends the evidence of fraud was meager in this case and, therefore, does not

support the award of exemplary damages. We disagree with Gebhard’s assessment of the

evidence. The evidence showed Gebhard represented to Raja that he had obtained Ghael’s

consent to change a key term of the transaction. There was no dispute that Gebhard made these

representations to Raja; the only dispute was whether Gebhard in fact obtained consent from

Ghael. The evidence also showed Raja acted on Gebhard’s representations, and this was

detrimental to Ghael. There was also evidence that Gebhard represented to Ghael in his emails

that the transaction was going according to plan when it was not, and that Gebhard failed to

advise Ghael of some important developments in the transaction. We conclude the evidence in

this case could have produced in the minds of the jurors a firm belief or conviction that Gebhard

engaged in fraud.

JURY INSTRUCTIONS

Next, Gebhard complains about the jury instructions as to breach of fiduciary duty. The

record shows that when the trial court asked Gebhard if he had any objections to the jury charge,

he affirmatively stated that he had none. The trial court then read the charge to the jury.

In order to preserve error on appeal, a party must timely object to the jury charge, plainly

make the trial court aware of the nature of the complaint, and obtain a ruling. Ford Motor Co. v.

Ledesma, 242 S.W.3d 32, 43 (Tex. 2007); Faust v. BNSF Railway Co., 337 S.W.3d 325, 330

(Tex. App.—Fort Worth 2011, pet. filed). As to jury instructions, failure to object before the

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charge is read to the jury waives the complaint. Mo. Pac. R.R. Co. v. Cross, 501 S.W.2d 868, 873

(Tex. 1973); TEX. R. CIV. P. 272, 274.

Because Gebhard did not raise his complaints about the jury instructions in the trial court,

they are not preserved for appellate review.

CONCLUSION

The judgment of the trial court is affirmed.

Karen Angelini, Justice

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