Affirmed as Modified and Opinion filed =
November=20
20, 2007.
In The
Fourteenth=20
Court of Appeals
_______________
NO. 14-06-00580-CV
_______________
ANGLO-DUTCH PETROLEUM INTERNATIONAL,=20
INC.,
ANGLO-DUTCH (TENGE) LLC, and SCOTT VAN =
DYKE,=20
Appellants
V.
FOREST HUNTER =
SMITH,=20
Appellee
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On Appeal from the 133rd District=20
Court
Harris County, Texas
Trial Court Cause No.=20
04-48332
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O P I N I O N
Anglo-Dutch Petroleum =
International, Inc., Anglo-Dutch (Tenge) LLC, and Scott Van Dyke =
appeal a=20
judgment entered in favor of Forest Hunter Smith on the grounds =
that: (1)=20
the evidence is legally and factually insufficient to support the =
trial=20
court=3Ds findings of fraud,=20
conversion, and breach of fiduciary duty; (2) any recovery for =
conversion=20
or breach of fiduciary duty is barred by the economic loss rule; =
(3) the=20
agreement between the parties was unenforceable because it =
violated usury=20
and securities laws and was against public policy; (4) the award =
of=20
exemplary damages and attorney=3Ds fees was an =
improper double=20
recovery; and (5) the trial court erred in failing to file =
additional=20
findings of fact and conclusions of law. We affirm as=20
modified.
Background
Van Dyke is the =
majority=20
shareholder in Anglo-Dutch Petroleum and Anglo-Dutch (Tenge)=20
(collectively, AAnglo-Dutch@). Van Dyke =
formed=20
Anglo-Dutch for the purpose of developing the Tenge oil and gas =
field in=20
Kazakhastan. In 1997, Halliburton considered joining =
Anglo-Dutch in=20
the exploration of the Tenge field, and entered into a =
letter of=20
intent with Anglo-Dutch. However, in 2000, Anglo-Dutch filed =
suit=20
against Halliburton (the AHalliburton =
lawsuit@) over their dealings =
on this=20
project.
Needing money to =
finance the=20
Halliburton lawsuit and operate its business, Anglo-Dutch entered =
into=20
several Claims Investment Agreements (the AAgreements@) in which investors =
put up=20
funds in return for a portion of Anglo-Dutch=3Ds recovery, if any, =
from the=20
Halliburton lawsuit. Smith was one of these investors and =
signed two=20
Agreements in which he agreed to invest a total of $50,000. =
From its=20
cash recovery in the Halliburton lawsuit, Anglo-Dutch was to pay =
Smith his=20
initial $50,000, eighty-five percent of $50,000, and then an =
additional=20
eighty-five percent for each year that passed from the date of the =
agreement to the time of Anglo-Dutch=3Ds =
recovery.
The trial of the =
Halliburton=20
lawsuit resulted in an award of $106 million to Anglo-Dutch, and=20
Anglo-Dutch and Halliburton subsequently entered into a =
confidential=20
settlement agreement. However, before the settlement, =
Anglo-Dutch=20
contacted its litigation investors, seeking to negotiate a reduced =
payment=20
on the Agreements. Although some of the investors agreed, =
others,=20
including Smith, refused, and Smith filed this lawsuit against=20
Anglo-Dutch. After a bench trial, the trial court: (1) =
entered=20
judgment awarding Smith actual damages of $151,876, exemplary =
damages of=20
$303,752, and attorney=3Ds fees of $60,000; =
and (2)=20
issued findings of fact and conclusions of law, finding =
Anglo-Dutch and=20
Van Dyke liable on Smith=3Ds claims for fraud, =
breach of=20
fiduciary duty, conversion, and breach of contract.
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Standard of Review
A trial =
court=3Ds findings of fact =
are=20
reviewable for legal and factual sufficiency of the evidence by =
the same=20
standards as are applied in reviewing the evidence supporting jury =
findings. Catalina v. Blasdel, 881 S.W.2d 295, 297 =
(Tex.=20
1994). In reviewing legal sufficiency, we credit evidence =
favorable=20
to the verdict if reasonable jurors could and disregard evidence =
contrary=20
to the verdict unless reasonable jurors could not. City =
of Keller=20
v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005).
Fraudulent=20
Inducement
The trial court based =
its=20
finding of liability for fraud on its findings of fact that: (1) =
Van Dyke=20
always considered the funds advanced by investors to be loans; (2) =
Van=20
Dyke represented the transaction as a legitimate investment with =
risk; (3)=20
Van Dyke did not disclose to the investors, including Smith, his =
opinion=20
and belief that the transaction was a loan; (4) Van =
Dyke=3Ds representation that =
the=20
transaction was a legitimate investment when he actually =
considered it to=20
be a usurious loan was a false, material representation that Van =
Dyke made=20
with knowledge of its falsity and with the intent that Smith rely =
on and=20
act on the misrepresentation; (5) Smith did not know that Van Dyke =
considered the monies that he advanced to Anglo-Dutch to be loans; =
(6)=20
Smith relied and acted on Van Dyke=3Ds representation that =
Smith=3Ds transaction with =
Anglo-Dutch=20
was not a loan but a legitimate investment and entered into the=20
contracts.
Appellants=3D first issue =
challenges the=20
legal and factual insufficiency of the evidence to prove =
fraudulent=20
inducement, among other things, on the ground that any =
representation that=20
the Agreements were investments rather than loans was not false, =
as=20
reflected by the trial court=3Ds findings of fact =
and=20
conclusions of law. We agree. The trial =
court=3Ds findings and =
conclusions=20
state that Anglo-Dutch solicited an investment from Smith and that =
the=20
Agreements were not loans or usurious loans, apparently based on =
the=20
finding that the Agreements contain no absolute obligation on the =
part of=20
Anglo-Dutch to repay any amount of money. Therefore, any=20
representation that the transaction was an investment was not =
false and=20
could not support a finding of fraud.
Appellants also =
contend that=20
the trial court=3Ds findings and =
conclusions do=20
not support a finding of fraud liability based on a theory that =
appellants=20
made a false promise of future performance =
because=20
that theory was not pleaded and the evidence is legally and =
factually=20
insufficient to support such a finding. Although =
Smith=3Ds brief does not =
appear to rely=20
on this theory, the trial court=3Ds finding of fact =
number 48,=20
referring to Van Dyke=3Ds representation that =
the=20
transaction was a legitimate investment when he actually =
considered them=20
to be usurious loans, could be read to suggest such a =
theory.
Appellees have cited, =
and we=20
have found, no evidence that Van Dyke made any promise in the =
Agreements=20
with an intent not to perform. Moreover, even if he believed =
at the=20
time of entering the Agreements that they would not be enforceable =
as=20
loans due to usury laws, he did not structure them as loans, =
and there=20
is no evidence that he did not intend to pay the specified amounts =
as=20
returns on the investments. Therefore, the trial =
court=3Ds finding of =
liability for=20
fraud is not supported by the evidence, and appellant=3Ds first issue is=20
sustained
.
Conversion
Appellants=3D second issue =
challenges the=20
finding of liability for conversion, in part, on the ground that =
Smith=20
sought only to recover money, not a specific item of property. =20
Smith responds that his conversion claim sought a specific, =
identifiable=20
sum of money, and thus a property interest, rather than mere =
repayment of=20
indebtedness, because Smith had been assigned, and was seeking to =
recover,=20
an actual ownership interest in his proportionate share of the =
Halliburton=20
recovery.
We disagree with=20
Smith=3Ds contention in this =
regard for=20
two reasons. First, the assignment agreements on which he =
relies do=20
not purport to convey an outright ownership interest, but merely =
assign=20
the interests in the recovery as collateral security for payment =
of the=20
obligations that are due under the Agreements. Second, and, =
more=20
importantly, the trial court=3Ds judgment does not =
award=20
Smith=3Ds conversion recovery =
out of=20
any specific or identifiable proceeds of the Halliburton =
settlement or=20
otherwise, =
but=20
simply awards a single actual damage amount against appellants for =
all of=20
the claims Smith asserted. Therefore, we can find no basis =
to affirm=20
an award for conversion, and appellants=3D second issue is=20
sustained.
Breach of=20
Fiduciary Duty
Appellants=3D third issue =
challenges the=20
trial court=3Ds finding of =
liability for=20
breach of fiduciary duty, in part, on the ground that the evidence =
is=20
legally and factually insufficient to show that the necessary =
relationship=20
of trust and confidence existed between appellants and=20
Smith.
A fiduciary =
relationship can be=20
either formal and informal. A formal fiduciary relationship =
arises=20
as a matter of law in certain relationships, such as =
attorney-client,=20
partnership, and trustee relationships. Meyer v. =
Cathey, 167=20
S.W.3d 327, 330 (Tex. 2005); Insurance Co. of N. Am. v.=20
Morris, 981 S.W.2d 667, 674 (Tex. 1998). An informal =
fiduciary=20
relationship can arise from a moral, social, domestic or purely =
personal=20
relationship of trust and confidence, but to impose an informal =
fiduciary=20
duty in a business transaction, the special relationship of trust =
and=20
confidence must exist prior to and apart from the agreement made =
the basis=20
of the suit. Meyer, 167 S.W.3d at 331. Not =
every=20
relationship involving a high degree of trust and confidence rises =
to a=20
fiduciary relationship. Id. at 330. Where, as =
here, the=20
underlying facts are undisputed, the determination of the =
existence of a=20
fiduciary duty is a question of law. Id.
In this case, Smith =
contends=20
that an informal fiduciary relationship was created by the=20
parties=3D execution of a =
confidentiality=20
agreement that prohibited disclosure of information regarding the=20
Agreements and required Smith to trust and rely upon appellants to =
protect=20
the property interests assigned to him because he could not =
disclose his=20
interest to Halliburton=3Ds counsel, and any =
settlement=20
proceeds would be paid to Anglo-Dutch or their attorneys. To =
the=20
extent Smith=3Ds position equates a=20
confidentiality agreement to a relationship of trust and =
confidence giving=20
rise to a fiduciary duty, he has cited, and we have found, no =
authority=20
supporting the notion that confidentiality agreements can create =
fiduciary=20
relationships. Similarly, although every arms-length =
contractual=20
arrangement entails a degree of trust that the other parties will =
perform=20
their obligations, few create fiduciary duties. Because =
Smith has=20
cited and we have found no authority that would support the =
existence of a=20
fiduciary duty in the relationship that existed between appellants =
and=20
Smith, we sustain appellants=3D third =
issue.
Breach of=20
Contract
Appellants=3D fourth issue =
challenges the=20
finding of liability for breach of contract on the grounds that: =
(1) the=20
Agreements were usurious loans, (2) alternatively, if the =
Agreements were=20
not loans, they were void, unregistered securities, and (3) the =
Agreements=20
were unenforceable because they violated public policy. =
In=20
Haskell, the First Court of Appeals addressed these same =
challenges=20
that Anglo-Dutch asserted in a case against another =
investor. See=20
Anglo-Dutch Petroleum Int=3Dl, Inc. v.=20
Haskell, 193=20
S.W.3d 87 (Tex. 2006). The opinion in that case concluded =
that: (1)=20
the agreements did not meet the definition of a Aloan@ and were thus not =
usurious=20
transactions; =
(2) even=20
if the investment agreements could be considered securities, =
appellants,=20
as sellers rather than purchasers of the securities, have no =
standing to=20
bring a claim based on the securities being unregistered; =
and (3)=20
the agreements did not violate public policy because they did not =
vest=20
control over the litigation in uninterested third parties. =20
Id. at 103B05. Although we =
are not=20
bound by that decision of the First Court, this court has elected =
to=20
follow it, =
and we do=20
so again in this case. =20
Accordingly, appellants=3D fourth issue is=20
overruled.
Remaining=20
Issues
Appellants=3D fifth and sixth =
issues=20
challenge the award of exemplary damages as: (1) being an improper =
double=20
recovery with the award of attorney=3Ds fees; and (2) =
improperly=20
imposing exemplary damages collectively against appellants without =
making=20
specific findings with respect to each defendant. Appellants =
seventh=20
issue contends the trial court erred in not making additional =
findings of=20
fact on Smith=3Ds claims for =
conversion, breach=20
of contract, and exemplary damages. However, because our =
sustaining=20
of appellants=3D first three issues =
requires=20
reversal of the award of exemplary damages and=20
render appellants=3D complaint on the =
findings of=20
fact immaterial, we need not address the fifth, sixth, or seventh=20
issues.
Therefore, we reverse =
the=20
portion of the trial court=3Ds judgment awarding =
exemplary=20
damages, render judgment that Smith take nothing on his claim for=20
exemplary damages, and affirm the remainder of the =
judgment.
/s/ =20
Richard H. Edelman
Senior Justice
Judgment rendered and =
Opinion=20
filed November 20, 2007.
Panel consists of =
Chief Justice=20
Hedges and Justices Fowler and Edelman.
=20
Because appellants=3D factual sufficiency challenges do not =
affect our=20
disposition, we do not recite the factual sufficiency standard of=20
review.
=20
See, e.g., In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 =
(Tex.=20
2001) (reciting elements of fraud, including the making of a false =
representation).
=20
A promise of future performance constitutes an actionable=20
misrepresentation if the promise was made with no intention of =
performing=20
at the time it was made. Formosa Plastics Corp. v. =
Presidio=20
Engineers & Contractors, Inc., 960 S.W.2d 41, 48 (Tex.=20
1998). However, to support such a misrepresentation, =
evidence must=20
be relevant to the defendant=3Ds intent at the time the =
misrepresentation was=20
made. Id.
=20
Nor does it logically follow that a belief that an agreement is=20
unenforceable equates to an intent not to perform =
it.
=20
See, e.g., Exxon Mobil Corp. v. Kinder Morgan Operating =
L.P., 192=20
S.W.3d 120, 128 (Tex. App.BHouston [14th Dist.] 2006, no pet.=20
h.).
=20
Although the trial court found that appellants exercised dominion =
over a=20
specific and identifiable sum of money belonging to Smith, it did =
not=20
identify that sum other than by amount.
=20
See Anglo-Dutch Petroleum Int=3Dl, Inc. v. Littlemill =
Ltd., No. 14-06-00921-CV, 2007 WL 2826900 =
at * 2-3=20
(Tex. App.CHouston [14th Dist.] Oct. 2, 2007, no =
pet.=20
h.).
=20
Although the trial court found that appellants were collaterally =
estopped=20
from asserting these claims by the decision in Haskell, we =
need not=20
address that issue.
=20
See, e.g., Schlueter v. Schlueter, 975 S.W.2d 584, 589 =
(Tex. 1998)=20
(noting that recovery of punitive damages requires a finding of an =
independent tort with accompanying actual =
damages).
=20
Senior Justice Richard H. Edelman sitting by=20
=
assignment. |