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Teel v. Sumrow

Court of Appeals of Texas, Fifth District, Dallas

November 13, 2017


         On Appeal from the 439th Judicial District Court Rockwall County, Texas Trial Court Cause No. 1-14-814.

          Before Justices Lang, Evans, and Schenck.



         Ken Teel, Chalon Investments, LLC, and Chalon Development Corporation appeal from the trial court's judgment in favor of Galen Ray Sumrow on his breach-of-fiduciary duty claim. In their first and second issues, appellants challenge the legal and factual sufficiency of the evidence supporting the jury's finding that Sumrow should have discovered Teel's conduct by June 1, 2010, so as to initiate the running of limitations. In their third and fourth issues, appellants challenge the legal and factual sufficiency of the evidence supporting the jury's finding that Teel fraudulently concealed his conduct from Sumrow. We reverse the trial court's judgment and render judgment that Sumrow take nothing on his claims. Because all issues are settled in law, we issue this memorandum opinion. Tex.R.App.P. 47.4.

         Factual and Procedural Background

         In late 2004, Teel approached Sumrow to seek his help in developing a hospital (the "Hospital") in the City of Rockwall. Teel also sought out Texas Health Resources ("THR") to provide financing. Teel then created Chalon Investment, LLC to own approximately 5% of the Hospital.[1] Teel managed and initially owned Chalon Investment and invited five other individuals, including Sumrow, to purchase an interest in Chalon Investment. Sumrow purchased five units at $5, 000 each, for a total of $25, 000. Teel also created Chalon Development Corporation to act as the on-site manager of the Hospital, for which it was paid management fees that Teel agreed to share fees with Sumrow.

         Teel planned for the Hospital to open in mid-2007. However, by late 2006, Sumrow was under investigation for criminal activity. Concerned about how the allegations against Sumrow might negatively affect the Hospital, Teel decided that if the investigation led to an indictment, he, on behalf of Chalon Investment, would repurchase Sumrow's units. In March 2007, Teel sought and obtained authorization from THR for Chalon Investment to repurchase Sumrow's units. Teel also ceased paying Sumrow a portion of the management fees.

         In April 2007, Sumrow was indicted by a grand jury. That same month, Teel, on behalf of Chalon Investment, purchased Sumrow's units by paying $25, 000 towards the $35, 000 loan Sumrow obtained to initially purchase the units. Because Teel's payment left a small amount still due and owing, the bank continued to automatically debit Sumrow's bank account for monthly loan payments of $1, 013.97 through October 2007.

         In March 2008, and again on June 11, 2008, Sumrow was convicted on separate counts of theft by a public servant.[2] In May 2008, Teel sent all of the individual members of Chalon Investment schedule K-1 tax forms indicating each member's interest in the company in the year 2007. In addition to the schedule K-1, Teel sent Sumrow a cover letter that stated as follows: "This is your final year of ownership in Chalon Investments, LLC. Therefore, this will be the last Schedule K-1 that you will receive."

         In June 2008, Sumrow was incarcerated. The following month, he wrote a letter to a friend, Dr. Timothy Bray, in which he stated that he "just never thought [Teel] would screw me out of my money." The money in question was an amount Sumrow had advanced and expected to be repaid when the Hospital opened.[3]

         On January 29, 2010, Sumrow was released from incarceration. In June 2010, he asked Dr. Bray how the Hospital was doing and whether THR had exercised its option to repurchase the units. Dr. Bray responded by telling Sumrow that Teel had in fact repurchased Sumrow's units. That same month, Sumrow contacted his bank and learned that Teel, on behalf of Chalon Investments, had repaid $25, 000 of Sumrow's loan nearly three years earlier. In July 2013, THR purchased all of the ownership units held by Chalon Investments, and because Chalon Investments had already repurchased Sumrow's units, Teel did not distribute any proceeds to Sumrow.

         On March 10, 2014, Sumrow sued Teel, Chalon Investments, and Chalon Development for breach of contract and breach of fiduciary duty. Appellants answered by asserting, among other things, Sumrow's claims were barred by applicable statutes of limitations. Sumrow responded that the discovery rule and Teel's fraudulent concealment operated to toll the limitations periods. The case proceeded to a jury trial, and the jury returned a verdict in Sumrow's favor, finding Teel breached his fiduciary duty with respect to Sumrow's units, fraudulently concealed his wrongful conduct, and that Sumrow could not have reasonably learned of Teel's wrongful conduct until June 1, 2010.[4] Appellants moved for judgment notwithstanding the verdict, arguing the evidence was legally insufficient to support the jury's findings that Teel fraudulently concealed his breach of fiduciary duty from Sumrow and that Sumrow, in the exercise of reasonable diligence, should have discovered any claimed breach of fiduciary duty by June 1, 2010. The trial court denied appellant's motion and entered a judgment in favor of Sumrow on his breach-of-fiduciary-duty claim in accordance with the jury's verdict. Appellants filed a motion for new trial, challenging the factual sufficiency of the evidence to support the same jury's findings previously disputed. The trial court denied appellants' motion for new trial, and appellants appealed the judgment.


         I. Applicable Law & Standard of Review

         A plaintiff must bring a claim of breach of fiduciary duty no later than four years after the day the cause of action accrues. Tex. Civ. Prac. & Rem. Code Ann. § 16.004(a)(5) (West 2002). Generally, a cause of action accrues when a wrongful act causes some legal injury, when facts come into existence that authorize a claimant to seek a judicial remedy, or whenever one person may sue another. Am. Star Energy & Minerals Corp. v. Stowers, 457 S.W.3d 427, 430 (Tex. 2015). Knowledge of injury initiates the accrual of the cause of action and triggers the claimant's duty to exercise reasonable diligence to investigate the problem, even if the claimant does not know the specific cause of the injury, the party responsible for it, or the full extent of it. Exxon Corp. v. Emerald Oil & Gas Co., L.C., 348 S.W.3d 194, 207, 209 (Tex. 2011). Under the discovery rule, a cause of action will not accrue until the plaintiff knew or should have known of the wrongfully caused injury. Baxter v. Gardere Wynne Sewell LLP, 182 ...

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