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Hong v. Havey

Court of Appeals of Texas, Fourteenth District

May 24, 2018

MANDY HONG AND SHADOW CREEK BAY, INC., Appellants
v.
WILLIAM FRANCES HAVEY, JR. D/B/A UNITED TEXAS REALTORS, Appellee

          On Appeal from the 23rd District Court Brazoria County, Texas Trial Court Cause No. 64417

          Panel consists of Chief Justice Frost and Justices Boyce and Jewell.

          OPINION

          William J. Boyce Justice

         The main issue on appeal addresses Mandy Hong's individual liability for the actions of Shadow Creek Bay, Inc. ("Shadow Creek") in connection with its sale of a 6.24-acre tract.

         After Shadow Creek signed an exclusive listing agreement with United Texas Realtors to sell the 6.24-acre tract, Shadow Creek used a different real estate broker to sell it and refused to pay a commission to United Texas Realtors. United Texas Realtors and its owner, William Frances Havey, Jr., sued Shadow Creek and its owners, including Mandy Hong, [1] to recover the commission due under its exclusive listing agreement with Shadow Creek.

         The jury returned a verdict in favor of Havey on his breach of contract claim against Shadow Creek; the jury also answered "yes" to a question asking whether Mandy was individually liable under an alter ego theory, and "yes" to questions asking whether Mandy was individually liable for common law fraud and conspiracy. The jury awarded $30, 500 in damages for Havey's unpaid commission and $55, 750 in attorney's fees. The trial court signed a final judgment in conformity with the jury's verdict.

         We reverse the trial court's final judgment with respect to Mandy's individual liability in connection with Shadow Creek's exclusive listing agreement with United Texas Realtors. An affirmative answer to the alter ego question required evidence that Mandy used Shadow Creek to perpetrate an actual fraud "primarily for [her] direct personal benefit . . . ." According to Havey, the fraud at issue is a material misrepresentation in the form of Shadow Creek's promise to pay him a commission under the exclusive listing agreement made with an intent not to perform as promised. Because there is no evidence that Shadow Creek's failure to pay Havey's promised commission was conduct done primarily for Mandy's direct personal benefit, we reverse and render judgment in favor of Mandy on alter ego liability. We reverse and render judgment in favor of Mandy on common law fraud and conspiracy because these claims are subject to a statutory bar. See Tex. Bus. Orgs. Code Ann. §§ 21.223, 21.224 (Vernon 2012). With respect to attorney's fees, we conclude that the evidence is legally insufficient to support the attorney's fee award in the trial court's final judgment; we reverse and remand for a redetermination of attorney's fees consistent with this court's opinion.

         We affirm the remainder of the judgment.

         Background

         Shadow Creek is a corporation owned by Mau Hong, his wife Mandy Hong, his niece Thu Ngo, and Thu Ngo's husband An Luu. Mau is Shadow Creek's president.

         Shadow Creek owned a 6.24-acre tract in Pearland, Texas. The corporation financed the purchase of this tract through two loans issued by First International Bank and personally guaranteed by Mau, Mandy, Thu Ngo, and An Luu.

         In 2010, Shadow Creek faced financial difficulties on two fronts. Shadow Creek was behind on its property tax payments and owed approximately $45, 000 to the Shadow Creek Ranch Commercial Association. The corporation also was delinquent on its loan payments and owed approximately $1.728 million to the bank. These financial difficulties prompted efforts to sell the 6.24-acre tract.

         Shadow Creek entered into a listing agreement under which United Texas Realtors would exclusively represent Shadow Creek in the sale of the 6.24-acre tract. The listing agreement provided that United Texas Realtors would earn a four percent commission contingent on the tract's sale.

         Despite its exclusive listing agreement with United Texas Realtors, Shadow Creek sold the 6.24-acre tract to Avnee, L.P. in March 2011, pursuant to a sales contract procured by Henry Fuertes, a real estate agent with PSL Realty Enterprises, LLC, a different broker.

         Havey sued Shadow Creek, PSL Realty, Fuertes, Mau, Mandy, Thu Ngo, An Luu, and Mui Ngo to recover a four percent commission on the tract's sale pursuant to Shadow Creek's exclusive listing agreement with United Texas Realtors. The jury returned a verdict in favor of Havey on the questions regarding his claims for breach of contract, common law fraud, conspiracy, and alter ego liability.

         The facts underlying this dispute are discussed in greater detail below.

         I. Facts

         Mau and Mandy began working with Fuertes and PSL Realty in 2006. In late 2010, Mandy and her sister-in-law Mui Ngo visited Fuertes approximately once a week to discuss selling Shadow Creek's 6.24-acre tract. Fuertes understood that Shadow Creek was behind on its loan payments and property taxes; he testified that Mandy and Mui Ngo were "pretty anxious" to sell the tract.

         Fuertes attended a meeting at First International Bank with Mandy and Mui Ngo in October 2010. Fuertes, Mandy, and Mui Ngo met with loan officer Sally Li to discuss the status of Shadow Creek's loans; Mandy and Mui Ngo hoped Fuertes would "buy [them] more time because foreclosure seemed imminent." After the meeting, Fuertes agreed to help Mandy and Mui Ngo find a buyer for the 6.24-acre tract.

         Havey, a real estate broker and the owner of United Texas Realtors, also was approached in November 2010 by Mandy and Mui Ngo to discuss selling the same 6.24-acre tract on behalf of Shadow Creek.

         Havey testified that Mandy and Mui Ngo told him they "were being pressured by the bank because they were behind on the payments and the bank was threatening to foreclose." Havey agreed to help Mandy and Mui Ngo sell the 6.24-acre tract.

         United Texas Realtors and Shadow Creek entered into a contract identified as a "Commercial Real Estate Listing Agreement Exclusive Right to Sell" in December 2010. The listing agreement provided that United Texas Realtors would represent Shadow Creek exclusively in the sale of the 6.24-acre tract, which would be marketed for $1.7 million. The listing agreement was effective from December 8, 2010, through March 31, 2011.

         The listing agreement entitled United Texas Realtors to a four percent commission on the sales price if the 6.24-acre tract was sold "to anyone at any price on any terms" during the effective period. The listing agreement obligated Shadow Creek to refrain from (1) negotiating with prospective buyers who directly contacted Shadow Creek to purchase the 6.24-acre tract; and (2) entering into a listing agreement with another broker for the sale or exchange of the tract during the effective period.

         Mau, Shadow Creek's president, testified that Mandy signed his name to the listing agreement with United Texas Realtors. Mau testified that he permitted Mandy to "make all the decisions" and "run" Shadow Creek.

         After Mandy signed the listing agreement with United Texas Realtors, Havey began efforts to find a buyer for the 6.24-acre tract. International Assistance Corporation submitted a letter of intent to purchase the tract and proposed a $1.3 million sales price. Havey reviewed the letter of intent with Mau and Mandy; after additional negotiations, the parties agreed on a $1.4 million sales price. Mau and Mandy instructed Havey to go through with the sale.

         Sally Li at First International Bank also reviewed International Assistance Corporation's letter of intent to purchase. In an email, Sally Li told Havey that the bank "want[ed] to move forward" with the sale and instructed Havey to "have the actual contract done and send to me ASAP."

         Shadow Creek and International Assistance Corporation signed a sales contract on January 25, 2011; Mau signed as president of Shadow Creek. Mau testified that he did not read the sales contract before signing it. The sale to International Assistance Corporation was scheduled to close on March 7, 2011.

         Havey continued to communicate with Mandy to facilitate the sale's closing. Havey sent an email to Mandy in early March 2011, addressing a discussion they had at an earlier meeting regarding a separate buyer interested in purchasing the 6.24-acre tract. Havey reminded Mandy of the listing agreement's terms and told her that "[i]f another group is interested in submitting an offer on the property their agent needs to be talking to me and submitting any offer through me." Responding to Havey's email, Mandy said, "I know you will help us to sell with the better price so we don't owe [the] bank too much, " and assured him that "when [the other buyer is] ready [to] make offer with contract then we will let them go through you . . . I will keep you up to date don't worry . . . ."

         Mau and Mandy did not attend the March 7, 2011 closing and the sale was postponed. Havey testified that Mau and Mandy represented that "they were still negotiating with the bank on the remaining balance and how to handle that." In an April 8, 2011 email, Mandy told Havey: "I think the Bank try to sale [sic] [the 6.24-acre tract] by themselve [sic] or foreclose we have not heard anything from them yet . . . I let you know if I receive[] anything from them."

         Havey also communicated with First International Bank regarding the 6.24-acre tract's pending sale. In a March 14, 2011 email sent to bank attorney Misty Coné, Havey encouraged the bank to permit the sale to close instead of seeking to foreclose on the tract. Havey stated that Mandy did not "expect[] the bank to write everything above the $1.4 million off, " and instead was "willing to work with the bank but is very limited on funds available to handle the closing costs and is looking for some help with regard to the remaining balance above the $1.4 million." Coné replied the same day and told Havey that the bank had "not heard any word relative to paying off the deficiency" and "suggest[ed] that efforts to close this deal begin with the sellers."

         Havey did not know that Mandy continued to work with Fuertes to sell the 6.24-acre tract before and after the January 2011 sales contract with International Assistance Corporation was signed. Fuertes procured an offer from Avnee, L.P. to purchase the tract for $1.525 million; Shadow Creek and Avnee, L.P. signed the sales contract on February 11, 2011.

         After the Avnee, L.P. sales contract was signed, Mandy continued to communicate with Fuertes regarding the sale. Mandy asked Fuertes "not to talk to [Havey]" and told him she had the situation "handled." In a March 10, 2011 email, Mandy told Fuertes she informed the bank about the "second buyer" and stated that "we will not sign for the first buyer."

         The sale to Avnee, L.P. closed and the 6.24-acre tract was conveyed on March 23, 2011. Fuertes received a $45, 750 commission on the sale.

         After learning of the sale to Avnee, L.P., Havey emailed Mandy and Sally Li. He said he did "not understand the deceptive manner by which you and 1st International Bank handled the negotiations and the sale of the property when both you and the bank knew of my Exclusive Right To Sell Listing Agreement."

         Avnee, L.P.'s $1.525 million purchase price left approximately $200, 000 remaining due on Shadow Creek's loans with First International Bank. Sally Li testified that, after additional negotiations, the bank agreed to "release its lien" on the 6.24-acre tract in exchange for a $100, 000 note executed by Shadow Creek. Mau personally guaranteed the note.

         II. Procedural History

         Havey sued Shadow Creek, PSL Realty, Fuertes, Mau, and Mandy in August 2011, asserting claims for breach of contract and tortious interference with contract. Havey amended his petition to add Mui Ngo, Thu Ngo, and An Luu as defendants, and to include allegations of common law fraud, statutory fraud, and conspiracy to commit fraud. Havey also sought to hold certain individual defendants individually liable as alter egos of Shadow Creek.

         The parties proceeded to a jury trial on January 26-28, 2016. At the close of trial, the jury answered a series of jury charge questions.

         The jury answered "yes" as to Mau, Mandy, and Shadow Creek in response to Question No. 1, which asked: "Did any of the following persons or entities commit fraud against William Frances Havey, Jr. d/b/a United Texas Realtors?" The fraud finding is predicated on a "material misrepresentation;" in turn, "misrepresentation" is defined in Question No. 1 as "a promise of future performance made with an intent, at the time the promise was made, not to perform as promised." The jury awarded Havey $30, 500 as fraud damages in response to Question No. 2.

         The jury answered "yes" as to Mandy and Mui Ngo in response to Question No. 3, which asked: "Were any of the following people or entities part of a conspiracy that damaged William Frances Havey, Jr. d/b/a United Texas Realtors?" The jury awarded Havey $30, 500 as damages in connection with this claim in response to Question No. 4.

         The jury answered "yes" in response to Question No. 5, which asked whether Shadow Creek "fail[ed] to comply" with the listing agreement it executed with United Texas Realtors. The jury awarded Havey $30, 500 in contract damages in response to Question No. 6.

         The jury answered "no" as to Mau and Mandy in response to Question No. 7 on statutory fraud. The jury answered "no" as to Fuertes and PSL Realty in response to Question No. 10 on tortious interference.

         Question No. 9 is a key charge question for purposes of this appeal. The jury answered "yes" in response to Question No. 9, which reads as follows:

         Question No. 9

Is Mandy Hong responsible for the conduct of Shadow Creek Bay, Inc.?
Mandy Hong is "responsible" for the conduct of Shadow Creek Bay, Inc. if Shadow Creek Bay, Inc. was organized and operates as a mere tool or business conduit of Mandy Hong; there was such unity between Shadow Creek Bay, Inc. and Mandy Hong that the separateness of Shadow Creek Bay, Inc. had ceased and holding only Shadow Creek Bay, Inc. responsible would result in injustice; and Mandy Hong caused Shadow Creek Bay, Inc. to be used for the purpose of perpetrating and did perpetrate an actual fraud on William Frances Havey, Jr. d/b/a United Texas Realtors primarily for the direct personal benefit of Mandy Hong.
In deciding whether there was such unity between Shadow Creek Bay, Inc. and Mandy Hong that the separateness of Shadow Creek Bay, Inc. had ceased, you are to consider the total dealings of Shadow Creek Bay, Inc. and Mandy Hong, including -
1. The degree to which Shadow Creek Bay, Inc.'s property had been kept separate from that of Mandy Hong;
2. The amount of financial interest, ownership, and control Mandy Hong maintained over Shadow Creek Bay, Inc.; and
3. Whether Shadow Creek Bay, Inc. had been used for the personal purposes of Mandy Hong.

         Question No. 9 tracks Texas Pattern Jury Charges 108.1 and 108.2 addressing standards for piercing the corporate veil based on an alter ego theory. See Comm. on Pattern Jury Charges, State Bar of Tex., Texas Pattern Jury Charges: Business PJC 108.1, 108.2 (2016). This question incorporates the statutory standards for imposing liability on individuals under section 21.223 of the Texas Business Organizations Code. See Tex. Bus. Orgs. Code Ann. § 21.223. Havey did not object to Question No. 9 at the charge conference. Shadow Creek and Mandy objected to Question No. 9 at the charge conference on no evidence grounds. No party challenges Question No. 9's wording or the correctness of the legal standards it sets forth.

         The jury awarded Havey $55, 750 as reasonable attorney's fees in response to Question No. 12.

         Havey filed a motion asking the trial court to sign a final judgment against Shadow Creek and Mandy for $30, 500 in actual damages plus attorney's fees and costs. Shadow Creek and Mandy responded to Havey's motion for entry of judgment and asserted that (1) there is no evidence to support the jury's response to Question No. 9, which addressed Mandy's individual liability as Shadow Creek's alter ego; (2) liability for common law fraud and conspiracy is barred by Texas Business Organizations Code sections 21.223 and 21.224 as a matter of law, which makes the jury's responses to Questions No. 1 and 3 immaterial; and (3) Havey's attorney's fee evidence did not comply with itemization requirements.

         The trial court signed a final judgment on August 25, 2016, awarding Havey $30, 500 in actual damages and $55, 750 in attorney's fees. The final judgment holds Shadow Creek and Mandy jointly and severally liable for the damages and attorney's fees.

         Shadow Creek and Mandy filed a motion for new trial, which was overruled by operation of law. See Tex. R. Civ. P. ...


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