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Nwokedi v. Unlimited Restoration Specialists, Inc.

Court of Appeals of Texas, First District, Houston

January 23, 2014


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On Appeal from the 113th Judicial District Court, Harris County, Texas. Trial Court Case No. 2009-09890.

For APPELLANT: Eric Lipper, Joe G. Roady, Whitney Rawlinson, HIRSCH & WESTHEIMER, P.C., Houston, TX.

For APPELLEE: Kevin Jewell, Ryan O. Cantrell, Christine Kirchner, CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY, Houston, TX.

Panel consists of Justices Keyes, Sharp, and Huddle.


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Rebeca Huddle, Justice

Appellants Edward Nwokedi and 1002 Gemini Interests, LLC appeal a judgment entered against them in favor of appellee Unlimited Restoration Specialists, Inc., trading as Unlimited Restoration, Inc. (URI), a company that provided restoration services to Gemini's property after it was damaged during Hurricane Ike. After Gemini refused to pay URI for its services, URI sued Nwokedi and Gemini for fraud, breach of contract, quantum meruit, theft of services, promissory estoppel, and fraudulent transfer. A jury found in favor of URI on all theories, and the trial court entered judgment awarding URI compensatory and exemplary damages and attorney's fees. The judgment also voided four fraudulent transfers by Nwokedi and Gemini, imposed a constructive trust on fraudulently transferred insurance proceeds, and enjoined Nwokedi and Gemini from transferring any assets that are or could be subject to execution.

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In nine issues, Nwokedi and Gemini contend that the judgment should be reversed. We modify the trial court's judgment to reduce the amount of fraudulently transferred funds to which the constructive trust applies and affirm the judgment of the trial court as modified.


Gemini, a limited liability company in which Nwokedi owns a controlling interest, owned a commercial property in Clear Lake that was damaged in September 2008 during Hurricane Ike. The property was managed by Boxer Property Management Corporation and was insured by Travelers Lloyd's Insurance Company. On September 19, 2008, Boxer's director of operations contacted URI about repairing the damage. At Boxer's request, two URI representatives, a Boxer representative, and Russell Joseph, a Travelers adjuster, inspected the damage. URI informed Boxer that one-third of the building's roof had been compromised and 35 percent of the building had been affected by major water intrusions. Based on the inspection, URI recommended shrink-wrapping the roof, extracting excess water, drying the structure, removing the wet carpet, demolishing certain ceiling tiles and sheetrock, and treating the walls, floors, and ceiling with an antimicrobial solution. For this work, URI proposed an estimated budget of $220,000.

The next day, URI met with Boxer's representatives to discuss a contract for restoration services between URI and Gemini. URI usually billed its clients on a time-and-materials basis and required payment by the client directly to URI. In this case, however, URI agreed, at Boxer's request, to a modification of URI's standard payment terms: Gemini would " pay up to their deductible amount, [but] for any amount above [Gemini's] deductible [Gemini] agrees to endorse all Travelers payment[s] made to URI and [Gemini] over to URI." The parties' handwritten notation on the contract stated that Travelers would disburse insurance proceeds paid on the claim by two-party checks, made out to both Gemini and URI.

The parties signed the contract on September 20 and agreed to the first work order. It provided that URI would complete " roof repair and remediation work per the attached URI contract" and that the cost for that work was not to exceed $220,000. The contract's initial scope of services included: restorative dry out; selective demolition and debris removal; removal of contents, storage, cleaning, and deodorizing; provision of temporary power and temperature control; and general cleaning. It is undisputed that URI's initial scope of work did not include any mold remediation. Travelers' adjuster approved the proposed first work order in an email in which he noted, consistent with the contract between URI and Gemini, that " any amount above the deductible up to the budget of $220,000 will be paid as a joint check to URI and [Gemini] as you requested."

URI began the work on September 21 and soon discovered that there was more wet material that needed to be removed than initially anticipated. On September 26, Travelers' adjuster approved the removal of vinyl wallpaper due to moisture. The following day, the adjuster informed Nwokedi by email that further inspection revealed additional wet and compromised drywall that needed to be removed. The adjuster also noted that he saw significant mold or fungal growth in some areas and recommended that Nwokedi contact a certified industrial hygienist to evaluate the situation. URI's project manager had also seen the mold, and recommended that

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Gemini contact a certified industrial hygienist.

In a letter dated October 2, URI informed Boxer that it would exceed the initial estimated budget of $220,000 by approximately $110,000 " due to additional necessary demolition of wet material." The next day, Travelers' adjuster informed URI, Boxer, and Nwokedi that Travelers had approved the additional demolition, stating " [t]he budget is approved subject to normal review of supporting documentation with URI. We would like to see a budget on the direct damage from mold. We will tender our limit on mold providing it exceeds the $15,000 limit in the policy." That same day, Boxer generated a second work order for the " additional remediation work approved by Russ Joseph of Travelers e-mail attached 10/03/08." URI's project manager signed this second work order 12 days later, on October 15.

Meanwhile, Boxer hired Astex Environmental Services to evaluate whether mold remediation work was required. Astex prepared a Mold Remediation Protocol detailing the steps URI would take to remediate the mold, and gave it to URI on October 1, 2008.

URI performed the work outlined in the Astex protocol between October 2 and October 24, at which point Gemini released URI from the property. Four days later, URI submitted its invoice totaling $619,010.18 to Boxer, who forwarded the invoice to Gemini's independent claims consultant. On November 7, Gemini's claims consultant submitted the invoice to Joseph and requested that Travelers " submit payment to the insured at your earliest convenience."

On November 13, Boxer requested that Gemini pay Boxer's management fee. The management agreement between Boxer and Gemini provided that Boxer's fee would be a percentage of the total cost of URI's services, $619,010.18. Nwokedi's email response warned: " Be very careful with this information. We are still working through the settlement with Travelers and they expect URI to be doing the repairs. Let's not discuss details of our plans with [Joseph]." Boxer responded: " Understood."

At Travelers' request, URI revised the amount of its original invoice downward by $20,390.27 and submitted a new invoice in the amount of $598,619.91. It also submitted new invoices for debris removal in the amount of $24,522.62, bringing the amount of all URI's submitted invoices to $623,142.53. Gemini's claims consultant emailed URI and Nwokedi, expressing irritation at Travelers' requested changes and instructing URI to resist reducing the value of Gemini's claim and apply normal invoicing and pricing standards. He wrote:

[Joseph] is simply trying to beat down the price of [the] claim. May I suggest you apply your normal invoicing & pricing standards. If he wants to discuss price changes send him to me to discuss price changes. He is communicating with everyone but me & the insured on the final value for the claim looking for ways to decrease the value, which I think is completely unethical. The insured has a replacement cost policy how he elects to put his building back together is his decision as defined in his policy, not the price [Joseph] thinks it should be.
Thanks for cooperating with him, but for pricing changes, send him to us.

In December 2008, Travelers issued two checks totaling $996,881.71 to Gemini. Despite Gemini's agreement with URI, Nwokedi instructed Travelers not to put URI's name on the checks. Gemini did not endorse the checks to URI, did not pay

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URI's invoices, and did not inform URI that it would not do so. Instead, Nwokedi deposited these two checks into Gemini's bank account ending in 2056. After making several payments to contractors other than URI, Nwokedi closed the 2056 account and deposited the remaining insurance proceeds, $714,428.58, in another Gemini bank account ending in 0589.

In January 2009, URI sent Gemini a letter demanding payment of its outstanding invoices which totaled $623,142.53. Gemini's claims consultant responded that Gemini was waiting for Travelers to settle the claim and that Nwokedi would contact URI to resolve URI's claim after Gemini settled with Travelers. The following day, Nwokedi emailed URI to say that Gemini would pay its deductible, $88,935, which it eventually did pay.

On February 18, 2009, URI sued Gemini for the unpaid balance of $534,207.53. Gemini and Nwokedi defended on the theory that the work done pursuant to the Astex protocol was within the scope of the second work order and therefore subject to the $110,000 cap. URI disagreed, and asserted that the Astex protocol covered a separate and distinct scope of work, for which Gemini represented that URI would be paid on a time-and-materials basis in accordance with the rate schedule attached to the services contract.

While the suit was pending, Nwokedi made a series of transfers from Gemini's account number 0589 to other various accounts. URI amended its petition to add a claim under the Uniform Fraudulent Transfer Act, alleging that Nwokedi transferred these assets with the intent to hinder, delay, and defraud URI.

After a two week jury trial, the jury found for URI on all claims and awarded compensatory damages, punitive damages, and attorney's fees. The trial court entered judgment in URI's favor, which, among other things, enjoined Nwokedi and Gemini from " disposing of, or transferring title to, any assets or properties that are or could be subject to execution under this Judgment."

Two months after judgment was entered, URI filed an Emergency Motion for Contempt and Request for Show Cause Hearing and an Application to Appoint a Receiver. Following an evidentiary hearing, the trial court found that Nwokedi transferred non-exempt assets, including $500,175.40 in cash, in violation of the final judgment. The trial court sanctioned Nwokedi, fined him $3,000, and ordered him to pay URI's attorney's fees and costs associated with the motion. The trial court also appointed a receiver over Nwokedi's nonexempt assets and property interests.

Gemini and Nwokedi appealed, challenging: (1) the sufficiency of the evidence to support several jury findings; (2) the imposition of a constructive trust; and (3) the post-judgment sanctions. They argue the case should be reversed and remanded with instructions for the trial court to award attorney's fees in their favor.

Sufficiency of the Evidence

In their first point of error, Nwokedi and Gemini argue that there is legally and factually insufficient evidence of fraud because: (1) the only evidence of intent to induce action is circumstantial evidence occurring after contract formation; and (2) there is insufficient evidence that Nwokedi or any agent of Gemini made any misrepresentations or withheld any material information from URI.

A. Standard of Review

In a legal sufficiency, or no-evidence review, we determine whether the evidence would enable reasonable and fair-

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minded people to reach the verdict under review. See City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). In conducting this review, we credit favorable evidence if a reasonable factfinder could, and we disregard contrary evidence unless a reasonable factfinder could not. Id. We consider the evidence in the light most favorable to the finding and indulge every reasonable inference that would support it. Id. at 822. " If there is any evidence of probative force to support the finding, i.e., more than a mere scintilla, we will overrule the issue." City of Houston v. Hildebrandt, 265 S.W.3d 22, 27 (Tex. App.--Houston [1st Dist.] 2008, pet. denied) (citing Haggar Clothing Co. v. Hernandez, 164 S.W.3d 386, 388 (Tex. 2005)).

In reviewing a challenge to the factual sufficiency of the evidence, we consider and weigh all of the evidence, and should set aside the verdict only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). The factfinder is the sole judge of the credibility of witnesses and it may choose to believe one witness over another. City of Keller, 168 S.W.3d at 819. Because it is the factfinder's province to resolve conflicting evidence, we must assume that it resolved all conflicts in accordance with the verdict if reasonable people could do so. Id.

B. Applicable Law

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 made recklessly as a positive assertion without knowledge of its truth, (4) which the speaker made with intent that it be acted upon, (5) the other party took action in reliance upon the misrepresentation, and (6) thereby suffered injury. Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). A promise of future performance constitutes an actionable misrepresentation if the promise was made with no intention of performing at the time the promise was made. Formosa, 960 S.W.2d at 48; Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434-35 (Tex. 1986). Evidence must be presented that a representation was made with the intent to deceive, and with no intention of performing as represented, at the time the representation was made. Formosa, 960 S.W.2d at 48; Spoljaric, 708 S.W.2d at 434. The speaker's intent at the time of the representation may be inferred from the speaker's acts after the representation was made. Spoljaric, 708 S.W.2d at 434.

Intent is a fact question within the realm of the trier of fact because it is dependent upon the credibility of witnesses and the weight to be given to their testimony. Id. " Since intent to defraud is not susceptible to direct proof, it invariably must be proven by circumstantial evidence." Id. at 435. Mere failure to perform as promised does not constitute evidence that the party did not intend to perform. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 305 (Tex. 2006). However, breach of a promise to perform combined with " slight circumstantial evidence" of fraud constitutes some evidence of fraudulent intent and is legally sufficient to support a verdict. Id.; Spoljaric, 708 S.W.2d at 435.

C. Analysis

1. Intent

Question 5 of the charge asked, " Did Nwokedi and/or Gemini commit fraud against URI?" URI's theory of liability was that, at ...

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