Appeal from the 61st District Court Harris County, Texas
Trial Court Cause No. 2013-06274
consists of Justices Wise, Hassan, and Poissant.
as moot the motion for en banc reconsideration filed by
Appellant, Jang Won Cho, and the motion for en banc
reconsideration filed by Appellees, Kun Sik Kim and Veronica
Young Lee, legal heir to Patrick Hiy Chang Lee. We withdraw
our opinion dated December 28, 2018, and issue the following
Won Cho appeals from a judgment against him and in favor of
Appellees Kun Sik Kim and Veronica Young Lee in connection
with claims for breach of fiduciary duty and fraud arising
from an unsuccessful real estate project.
appeal stems from a project to acquire land along Homestead
Road in Houston; build a retail strip shopping center called
"Pandel Plaza;" and lease storefronts in the center
to commercial tenants.
center was built but failed to generate enough rental income
to cover property taxes and other expenses. Two of the three
investors in the project sued the third investor alleging
that the shopping center's failure is attributable to
tortious conduct by the third investor.
the project's investors pursued business and professional
activities in Houston after coming to the city from South
Korea. One of the investors was Mr. Patrick Hiy Chang Lee, a
CPA. His wife is Veronica Young Lee, who is referred to as
"Veronica" Lee in this litigation. She took over
her husband's participation and interest in the project
after his health began to decline in 2005; he died in
2013. The other investors are Kun Sik Kim and
Jang Won Cho, a businessman with experience in the
investors created two entities to accomplish this project.
One entity is "Pandel, Inc.," which was
incorporated in 2000. Kim, Lee, and Cho each own one third of
the corporation. Cho signed the corporation's bylaws as a
director and "secretary of Pandel, Inc." with an
effective date of November 20, 2000.
other entity is a limited partnership called "Pandel
Holdings, L.P." The limited partnership's general
partner is Pandel, Inc., which has a one percent interest in
the limited partnership; Kim, Lee, and Cho are limited
partners, each with a 33 percent interest in the limited
partnership. The parties planned to transfer ownership of
Pandel Plaza from the corporation to the limited partnership,
but the transfer did not occur.
three investors contributed capital to buy the land in 2001,
followed by construction of a 9, 000-square-foot building.
Pandel, Inc. borrowed $500, 000 from American First National
Bank in 2004 as a construction loan. The investors also made
subsequent individual capital contributions.
project generated revenue from rent paid by tenants.
Additional revenue resulted from selling an easement covering
a portion of the land to the City of Houston; however, the
city later constructed a ramp that impeded access to the
shopping center and hid it from view.
shopping center's occupancy and rent revenue dwindled
over time, and relations between the three investors became
strained to the point where Kim and Lee sued Cho, the limited
partnership, and the corporation in 2009. In July 2012, all
parties filed a Rule 11 agreement under which they agreed to
file a joint motion to dismiss the 2009 suit without
prejudice. The dismissal order was signed on August 30, 2012,
but acrimony among the investors continued unabated.
parties offer sharply different explanations for the shopping
to appellant Cho, appellees Kim and Lee refused to contribute
any funds to the business after 2008; refused to participate
in managing the property or addressing its problems; and
thereby put the burden entirely on Cho to manage the property
and make further contributions from his personal funds to
keep the business afloat as he struggled to reverse the
shopping center's sagging fortunes. Acting as Pandel,
Inc.'s president, Cho took out a short term loan in
October 2012 for $161, 071.88 from Apex Star Properties, Inc.
at an 18 percent annual interest rate. Cho contends Pandel,
Inc. needed to borrow this sum to keep the property out of
foreclosure because Kim and Lee refused to contribute
contrast, Kim and Lee contend that Cho "abused their
trust and confidence by secretly gaining personal benefits at
their expense and driving the business off of a financial
cliff." According to Kim and Lee, Cho did so by
• refusing "to contribute his fair share of
capital, opting instead to freeride on the resources others
• awarding Pandel Plaza's construction contract to a
company he owned;
• promising "that building construction costs would
amount to no more than $423, 000," which equates to $47
per square foot multiplied by the shopping center's 9,
000 square foot capacity, and then charging $67 per square
foot for a total construction cost of $629, 630;
• constructing the shopping center badly, which made
finding and keeping tenants more difficult;
• entering a subsequent construction contract without
• paying excessive monthly management fees to a company
owned by Cho;
• refusing to "disclose critical financial
information about what the business was doing and why;"
• failing to explain why Kim and Lee needed to make
• failing to notify Kim and Lee of the easement sale to
the City of Houston, or to obtain their approval; and
• using the shopping center's accounts to pay for
his own attorney's fees incurred in the ongoing legal
disputes with Kim and Lee.
Lee contend that Cho's mismanagement and self-dealing
caused the shopping center to lose tenants, fall into
disrepair, and become "unmarketable at present."
Lee sued Cho again in February 2013; among other things, they
asserted claims for breach of fiduciary duty, fraud, breach
of contract, negligent misrepresentation, and conversion. Kim
and Lee removed Cho as an officer and director of Pandel,
Inc. in 2015, after which the shopping center "became
vacant, fell to ruin, and has been subjected to fines from
the City of Houston."
case proceeded to trial in 2016. The trial court submitted
the claims against Cho to the jury, which answered a series
of charge questions in favor of Kim and Lee.
• The jury answered "No" in response to
Question 1, which asked: "Did Jang Won Cho comply with
his fiduciary duty to Kun Sik Kim and Veronica Young
Lee?" Question 1 identified five requirements for the
jury to consider in deciding whether Cho complied with his
• The jury answered "Yes" in response to
Question 4, which asked: "Did Jang Won Cho fail to
comply with the agreement to create a partnership owned
equally by Jang Won Cho, Kun Sik Kim and Veronica Young Lee
for the purpose of holding the real estate located at 8213
Homestead Road, Houston, Texas 77028?"
• The jury answered "Yes" in response to
Question 7, which asked: "Did Jang Won Cho commit fraud
against Kun Sik Kim and Veronica Young Lee?" This
question was accompanied by instructions defining fraud in
two ways - once as the making of an affirmative
"material misrepresentation," and then as a
"failure to disclose a material fact."
• The jury answered "Yes" to Question 10,
which asked: "Did Jang Won Cho make a negligent
misrepresentation on which Kun Sik Kim and Veronica Young Lee
• The jury answered "Yes" to Question 13,
which asked: "Did Jang Won Cho convert property
belonging to Kun Sik Kim and Veronica Young Lee?"
• The jury answered "Yes" to Question 16,
which asked: "Do you find by clear and convincing
evidence that the harm to Kun Sik Kim and Veronica Young Lee
resulted from malice, fraud, or gross negligence?"
• The jury answered "Yes" to Question 18,
which asked: "Do you find by clear and convincing
evidence that Jang Won Cho knowingly or intentionally
misapplied fiduciary property?"
jury awarded damages in answers to a series of identical
questions predicated on the "Yes" answers to
Questions 1, 4, 7, 10, and 13. Based on its liability
findings with respect to breach of fiduciary duty, breach of
contract, fraud, negligent misrepresentation, and conversion,
the jury awarded identical dollar amounts for each of the
• "Construction Costs" totaling $129, 630;
• "Misapplication of initial investment"
totaling $352, 600;
• "Management Fees" totaling $120, 110;
• "Interest paid to Apex Star Properties,
Inc." totaling $86, 978;
• "Attorney's fees for Mr. Cho's
defense" totaling $44, 195; and
• "Undistributed profits" totaling $394, 770.
jury also awarded exemplary damages totaling $6, 769, 698
predicated on the unanimous "Yes" answer to
trial court signed a final judgment against Cho, and in favor
of Kim and Lee, awarding $1, 128, 283 as actual damages for
the "fraud and fiduciary duty claims;" $6, 769, 698
as exemplary damages; and $354, 713.63 as prejudgment
interest. Cho timely appealed.
challenges the trial court's final judgment in eight
issues and asserts as follows.
1. Kim and Lee cannot "recover for breach of fiduciary
duty where no fiduciary duty was owed as a matter of law . .
2. The evidence is legally and factually insufficient to
support the jury's finding that Cho committed fraud, and
that Kim and Lee suffered damages caused by fraud.
3. Kim and Lee must "elect between recovering
out-of-pocket reliance damages and benefit-of-the-bargain
expectancy damages for fraud . . . ."
4. The evidence is legally and factually insufficient to
support the jury's finding that Kim's and Lee's
conduct caused damages in the amounts found by the jury.
5. A new trial should be granted based upon cumulative error
because "the trial court repeatedly commented on the
weight of the evidence and [Cho's] . . . credibility, and
. . . the record contains numerous translation errors that
undermined the reliability of the record . . . ."
6. Exemplary damages are not available in the absence of
legally and factually sufficient evidence of fraud, malice,
or gross negligence.
7. The exemplary damages awarded in the judgment are
8. The trial court erred in computing prejudgment interest.
address these issues in turn, but not in the order in which
they are raised.
Liability and Damages
on the jury's answers and the trial court's final
judgment, Kim and Lee have two legal routes to a recovery
against Cho in connection with their failed shopping center
project. One route is based on breach of fiduciary duty; the
other is based on fraud. See Hatfield v. Solomon,
316 S.W.3d 50, 59 (Tex. App.-Houston [14th Dist.] 2010, no
pet.) ("[I]f a party receives favorable findings on two
or more theories of recovery that are consistent with each
other and result in the same damages, then the trial court
may render judgment awarding a single recovery of these
damages and this judgment may be based on all of these
Lee contend that both the breach of fiduciary duty and fraud
routes to recovery are legally viable on this record and
support the final judgment. They do not argue that other
alternative bases exist for the judgment, and they do not
rely on the additional findings regarding breach of contract,
negligent misrepresentation, or conversion to support the
judgment. Like the parties, we too focus our liability
analysis on breach of fiduciary duty and fraud.
Breach of Fiduciary Duty
first issue challenges the submission of Question 1 to the
jury asking whether he complied with his fiduciary duties.
Cho contends that he owed no fiduciary duties to Kim and Lee
as a matter of law because (1) "the parties entered into
formalized business relationships that do not give rise to
such duties;" and (2) informal fiduciary duties cannot
arise from "assertions of trust and confidence that did
not precede the formal, written duties."
appellate arguments challenge only the existence of a
fiduciary duty; Cho does not attack the sufficiency of the
evidence underlying the jury's "No" answer to
Question 1 asking whether he complied with the elevated
standards of conduct imposed on a fiduciary. According to
Cho, no informal fiduciary relationship existed here because
"the parties did not have a previous fiduciary
relationship . . . before the transaction made the basis of
this suit." Cho asserts as follows: "These were
experienced businessmen, but they had no fiduciary
relationship prior to and apart from the agreement made the
basis of this suit."
Lee contend that both a formal and an informal fiduciary
relationship were established on this record. Kim and Lee
argue that a formal fiduciary relationship existed among Kim,
Lee, and Cho "because they were partners." Kim and
Lee argue further that an informal fiduciary relationship
existed among Kim, Lee, and Cho based on a relationship of
trust and confidence. They also argue that Cho's counsel
conceded the existence of a relationship of trust and
confidence in an exchange with the trial court during the
hearing on motions for directed verdict at the close of the
Overview of fiduciary relationships
have recognized the difficulty of formulating a definition of
the term 'fiduciary' that is comprehensive enough to
cover all cases." Crim Truck & Tractor Co. v.
Navistar Int'l Transp. Corp., 823 S.W.2d 591, 593
n.3 (Tex. 1992), superseded by statute on other grounds
as noted in Subaru of Am., Inc. v. David McDavid Nissan,
Inc., 84 S.W.3d 212, 225-26 (Tex. 2002)); see also
Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d
509, 512 (Tex. 1942).
certain formal relationships, such as those involving
partners, trustees, or an attorney-client relationship, a
fiduciary duty arises as a matter of law. Johnson v.
Brewer & Pritchard, P.C., 73 S.W.3d 193, 199
(Tex. 2002); see also Ins. Co. of N.
Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998);
Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962).
from formal relationships in which fiduciary duties arise as
a matter of law, fiduciary duties also can arise based on an
informal fiduciary relationship predicated on "a moral,
social, domestic or purely personal relationship of trust and
confidence." Associated Indem. Corp. v. CAT
Contracting, Inc., 964 S.W.2d 276, 287 (Tex. 1998);
see also Schlumberger Tech. Corp. v.
Swanson, 959 S.W.2d 171, 176-77 (Tex. 1997). "But
not every relationship involving a high degree of trust and
confidence rises to the stature of a fiduciary
relationship." Schlumberger Tech. Corp., 959
S.W.2d at 176-77. "In order to give full force
to contracts, we do not create such a relationship
lightly." Id. at 177. "To impose an
informal fiduciary duty in a business transaction, the
special relationship of trust and confidence must exist prior
to, and apart from, the agreement made the basis of the
suit." Associated Indem. Corp., 964 S.W.2d at
288; see also Schlumberger Tech. Corp., 959
S.W.2d at 177.
existence of a formal fiduciary relationship is disputed,
then a question should be submitted in the jury charge
inquiring whether the formal fiduciary relationship existed
at the time of the transaction at issue, or with respect to
the transaction at issue, or both. See Nat'l Plan
Adm'rs., Inc. v Nat'l Health Ins. Co., 235
S.W.3d 695, 700-04 (Tex. 2007); Johnson, 73 S.W.3d
existence of an informal relationship of trust and confidence
usually is a question of fact. Crim Truck & Tractor
Co., 823 S.W.2d at 594. "Although we recognize that
the existence of a confidential relationship is ordinarily a
question of fact, when the issue is one of no evidence, it
becomes a question of law." Id. (citing
Thigpen, 363 S.W.2d at 253).
jury charge did not submit a threshold question asking
whether a formal or informal fiduciary relationship existed
among Kim, Lee, and Cho. Instead, Question 1 assumed the
existence of an informal fiduciary relationship and
instructed the jury that "[b]ecause a relationship of
trust and confidence existed between them, Jang Won Cho owed
Kun Sik Kim and Veronica Young Lee a fiduciary duty."
not object during the charge conference to this instruction
accompanying Question 1, or to the absence of a threshold
question asking the jury to determine whether a formal or
informal fiduciary duty relationship existed. He did not
tender a requested jury charge question asking whether a
fiduciary relationship existed. Therefore, a threshold
finding necessary for recovery is deemed to have been made
under Texas Rule of Civil Procedure 279 in conformity with
the jury's verdict provided that factually sufficient
evidence supports the deemed finding. See, e.g., Republic
Petroleum LLC v. Dynamic Offshore Res. NS LLC, 474
S.W.3d 424, 432 (Tex. App.-Houston [1st Dist.] 2015, pet.
denied) (threshold finding of plaintiff's capacity to
recover damages on behalf of working interest owners was
deemed to have been made consistent with jury's verdict
when capacity issue was omitted from charge without objection
or tender); Tex.R.Civ.P. 279.
court may disregard a jury finding under Texas Rule of Civil
Procedure 301 when it is immaterial or is not supported by
legally sufficient evidence. Spencer v. Eagle Star Ins.
Co. of Am., 876 S.W.2d 154, 157 (Tex. 1994);
Graves v. Tomlinson, 329 S.W.3d 128, 147 (Tex.
App.-Houston [14th Dist.] 2010, pet. denied). Cho filed
a motion for judgment notwithstanding the verdict under Rule
301 and asserted, among other things, that the answer to
Question 1 should be disregarded because (1) the jury's
"No" answer is not supported by legally sufficient
evidence; and (2) "as a matter of law, there was no
fiduciary relationship between the parties." Cho's
Rule 301 motion was overruled by implication. See
Chilkewitz v. Hyson, 22 S.W.3d 825, 831 (Tex. 1999);
reviewing a legal sufficiency challenge to the evidence, we
view the evidence in the light most favorable to the finding,
crediting favorable evidence if a reasonable fact finder
could do so, and disregarding contrary evidence unless a
reasonable fact finder could not do so. City of Keller v.
Wilson, 168 S.W.3d 802, 827 (Tex. 2005). We may
not sustain a legal sufficiency challenge unless the record
demonstrates that: (1) there is a complete absence of a vital
fact; (2) the court is barred by the rules of law or of
evidence from giving weight to the only evidence offered to
prove a vital fact; (3) the evidence to prove a vital fact is
no more than a scintilla; or (4) the evidence established
conclusively the opposite of the vital fact. Id. at
810 (quoting Robert W. Calvert, "No
Evidence" and "Insufficient Evidence" Points
of Error, 38 Tex. L. Rev. 361, 362-63 (1960)). The fact
finder is the sole judge of the witnesses' credibility
and the weight to give their testimony. Id. at 819.
apply these standards in relation to the existence of a
formal or an informal fiduciary relationship.
Formal fiduciary relationship
contends that no formal fiduciary relationship exists with
Kim and Lee because "the parties entered into two
separate agreements that formally established their
relationship as arm's length, contracting parties, and
not as fiduciaries. ...