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Khoury v. Tomlinson

Court of Appeals of Texas, First District

March 30, 2017

JOHN KHOURY, Appellant
v.
PRENTIS B. TOMLINSON, JR., Appellee

         On Appeal from the 281st District Court Harris County, Texas Trial Court Case No. 2012-61491

          Panel consists of Justices Keyes, Higley, and Lloyd.

          OPINION ON REHEARING

          Laura Carter Higley Justice

         John Khoury sued Prentis B. Tomlinson, Jr., alleging securities violations under the Texas Securities Act, common-law fraud, and breach of contract. The jury found in favor of Khoury on all three claims. In response to Tomlinson's motion for judgment notwithstanding the verdict, the trial court disregarded the jury's findings of liability on Khoury's securities violations and breach of contract claims. In three issues on appeal, Khoury argues that the trial court erred by disregarding the jury's findings on his securities and breach of contract claims and that, as a result, he is entitled to judgment recovering his attorneys' fees. In seven issues on cross-appeal, Tomlinson argues the trial court erred by denying his motion for judgment notwithstanding the verdict on Khoury's fraud claim.

         Tomlinson filed a motion for rehearing for our December 22, 2016 opinion. We grant the motion for rehearing, withdraw our prior opinion and judgment, and issue this opinion and a new judgment in their place. We deny the motion for en banc reconsideration as moot.

         We reverse and remand.

         Background

         Tomlinson is the president and CEO of PetroGulf, Ltd., a company "formed in August 2008 to be a physical trader of fuel oil and crude oil from Iraq into selective markets in the region." On December 9, 2008, Tomlinson met with Khoury and presented him with an 11-page business plan, seeking investment in PetroGulf. The business plan offered to pay investors 14% interest on their investment along with sharing 10% of net profits. The business plan identified its initial goal was "to build an ongoing business to purchase, transport and sell fuel oil from Iraq initially to Syria and Kurdistan." After that, the goal was to expand into other markets.

          The business plan makes repeated reference to a contract in Syria and sale of fuel oil within Syria. It states PetroGulf's business plan begins with "purchas[ing], transport[ing] and sell[ing] fuel oil from Iraq initially to Syria and Kurdistan. The business plan stated, "We intend to complete delivery of 15, 000 metric tons [of fuel oil] to Kurdistan by the end of December 2008 and to complete the delivery under our contract to Syria by the end of February 2009." The business plan reported on known needs for oil in Syria. It explicitly asserted PetroGulf had a contract for oil sale in Syria and offered investors 10% of the profits obtained from that contract. It stated that the purpose of the proposed arrangement with investors was to "implement an initial contract for the export of Fuel Oil from Iraq into Syria."

         As a result of the meeting and the investment document, Khoury invested $400, 000 in PetroGulf. Khoury obtained the money by taking out a loan from Garantia Financiera Vital y Accidentes S.A. When he was asked to whom PetroGulf should send its interest payments, Khoury said to send the payments to Garantia.

         As part of the investment, the parties signed a note, and Khoury signed a subscription agreement. In the subscription agreement, Khoury acknowledged that PetroGulf had "made available to him . . . the opportunity to obtain the information necessary to evaluate the merits and risks of the investment." He also represented in the subscription agreement that all of his questions had been satisfactorily answered and that he had "carefully evaluated . . . the risks associated with this investment."

         Khoury ultimately became dissatisfied with his investment and the lack of disclosures of PetroGulf's financial information. As a result, Khoury met with Tomlinson on January 9, 2012. During that meeting, Tomlinson agreed to personally repay Khoury the amount loaned to PetroGulf. They agreed that Tomlinson would repay the debt over a four or five year period. Khoury testified at trial that they had agreed that Tomlinson would elect whether to pay over four or five years. A week later, Khoury sent an email to Tomlinson summarizing what agreements they had made. Tomlinson replied, writing, "We are in agreement."

         Tomlinson did not make any of the payments he had agreed to make. Khoury brought suit alleging breach of contract, securities violations under the Texas Securities Act, [1] and common-law fraud. In his live answer, Tomlinson asserted that any recovery for breach of contract was barred by the Statute of Frauds.

         At trial, Tomlinson was asked about the Syrian contract discussed in the business plan. He admitted that he had declined the Syrian contract before he met with Khoury to solicit his investment. He also admitted that the representations about the Syrian contract "should not have been in" the business plan.

          Tomlinson also acknowledged at trial that he had sent the email responding to Khoury's summary of their January 9 meeting. He claimed that his statement in the email of his being in agreement with Khoury referred to an agreement entirely different from the terms identified in the email to which he responded.

         The jury found in favor of Khoury on all of his claims, awarding the same amount ($400, 000) for each claim. The jury also awarded attorneys' fees. For the breach of contract claim, the jury found that Tomlinson had obligated himself to repay the investment amount to Khoury. It also found that Tomlinson breached that agreement.

         After trial, Tomlinson filed a motion for judgment notwithstanding the verdict, seeking to overturn the jury's findings in favor of Khoury on each of Khoury's claims. For Khoury's breach of contract claim, Tomlinson argued that the jury's findings of liability should be overturned because the contract was barred by the Statute of Frauds and because the contract was too indefinite to be enforceable.

         For his Statute of Frauds argument, Tomlinson acknowledged his email constituted a writing but argued the email was not signed. Tomlinson attached a copy of his email[2] to his motion.

         Image Omitted

          For the Texas Securities Act claim, Tomlinson argued the trial court should disregard the jury's finding of liability and damages because the note in question was not a security, any misrepresentations he made were not material, the claim was barred by the limitations period, and there was insufficient proof of damages. The trial court granted the motion for the Texas Securities Act claim and breach of contract claim. It denied the motion for the fraud claim.

          Standard of Review

         When a motion for judgment notwithstanding the verdict is premised on the legal sufficiency of the evidence to support a claim, rulings on a motion for JNOV and directed verdict are reviewed under the same legal-sufficiency test as are appellate no-evidence challenges. JSC Neftegas-Impex v. Citibank, N.A., 365 S.W.3d 387, 395 (Tex. App.-Houston [1st Dist.] 2011, pet. denied); see also In re Humphreys, 880 S.W.2d 402, 404 (Tex. 1994) ("[Q]uestions of law are always subject to de novo review."). Such a no-evidence challenge "'will be sustained 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.'" King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003) (quoting Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997)).

         In our legal-sufficiency review, "we must view the evidence in a light that tends to support the finding of disputed fact and disregard all evidence and inferences to the contrary." Wal-Mart Stores, Inc. v. Miller, 102 S.W.3d 706, 709 (Tex. 2003). With that evidence, we review "whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review. . . . [L]egal-sufficiency review in the proper light must credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not." City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005).

         This case also involves questions of statutory interpretation and contract construction. We review those questions de novo. See Molinet v. Kimbrell, 356 S.W.3d 407, 411 (Tex. 2011) (statutory interpretation); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003) (contract construction).

         Breach of Contract

         In his second issue, Khoury argues the trial court erred by granting the judgment notwithstanding the verdict on his breach of contract claim. Tomlinson presented two grounds for why the jury's finding on liability should have been overturned. First, Tomlinson argued that the contract was barred by the Statute of Frauds. Second, Tomlinson argued that the contract was too indefinite to be enforceable.

         A. Statute of Frauds

         "[A] promise by one person to answer for the debt . . . of another person" "is not enforceable unless the promise or agreement, or a memorandum of it, is (1) in writing; and (2) signed by the person to be charged with the promise or agreement . . . ." Tex. Bus. & Com. Code Ann. § 26.01(a)(1)-(2), (b)(2) (Vernon 2015).

         The parties agreed at trial that they met on January 9, 2012, and that they entered into an agreement. The evidence shows that, a week later, Khoury sent Tomlinson an email listing the terms of their agreement and requesting Tomlinson's confirmation of those terms. Tomlinson acknowledged at trial that he received the email and sent the responding email, writing, "We are in agreement."

         The email shows that Tomlinson's name does not appear in the body of the email that he wrote. His name and email address do appear, however, in the "from" field for the email. The question before us is whether the name or email address in the "from" field constitutes a signature for purposes of the Statute of Frauds. See id. § 26.01(a)(2).

         It is undisputed by the parties that their email correspondence is governed by the Texas Uniform Electronic Transactions Act ("UETA"). See Tex. Bus. & Com. Code Ann. §§ 322.001-.021 (Vernon 2015). Subject to exceptions not applicable to this case, UETA "applies to electronic records and signatures relating to a transaction." Id. § 322.003(a). "A record or signature may not be denied legal effect or enforceability solely because it is in electronic form." Id. § 322.007(a). "If a law requires a signature, an electronic signature satisfies the law." Id. ยง 322.007(d). We must construe and apply UETA in a manner "to be consistent with ...


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