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Vallakalil v. Texas Real Estate Commission

Court of Appeals of Texas, Fifth District, Dallas

May 24, 2019


          On Appeal from the 193rd Judicial District Court Dallas County, Texas Trial Court Cause No. DC-17-10734

          Before Justices Whitehill, Partida-Kipness, and Pedersen, III.



         This is an appeal from a trial court's order denying appellants' recovery from the Real Estate Recovery Trust Account maintained by the Texas Real Estate Commission. We affirm.


         Appellants, Philips Jacob Vallakalil and Reeja Susan Philips, owned a plot of land on which they wanted to build a house. In early 2016, appellants met Jeremy Eric Larsen (Larsen). According to appellants, Larsen introduced himself as a real estate agent with experience in planning, designing, estimating, bidding, financing, and constructing homes. In April 2016, appellants entered into a contract with Jeremy Larsen Homes, L.L.C. (LLC) for the construction of a new house on their property. The contract is titled New Home Construction Contract, Fixed Price. The contract names Larsen as the contractor's representative; Larsen signed the contract as Managing Member of LLC.

         The construction project experienced numerous problems and delays. Finally, on August 27, 2017, appellants filed suit against LLC for breach of contract, breach of the duty of good faith and fair dealing, negligence, and violations of the Deceptive Trade Practices Act (DTPA). Two days later, LLC filed its petition for Chapter 7 bankruptcy protection. In November 2017, appellants amended their petition to add Larsen individually as a defendant, alleging that Larsen was personally liable for the conduct of LLC that caused appellants' damages. They asserted additional claims, including claims for fraudulent inducement/statutory fraud, civil conspiracy, and unjust enrichment. They also filed a partial nonsuit, dismissing their claims against LLC only. When Larsen failed to file an answer to appellants' amended petition, they filed a motion for default judgment against Larsen only. On December 28, 2017, the trial court signed a final default judgment against Larsen, awarding appellants $603, 453.00 in actual damages, $7, 500.00 in attorneys' fees, costs and expenses of $2, 726.00, and post-judgment interest. On January 12, 2018, Larsen filed his petition for Chapter 7 bankruptcy protection.

         Appellants filed a proof of claim in Larsen's bankruptcy proceedings. Unable to collect on their judgment, they filed an application for an order directing payment from the Real Estate Recovery Trust Account (RTA). The Texas Real Estate Commission (Commission) opposed appellants' request for relief on the basis that Larsen was not acting in his capacity as a real estate licensee when he committed the acts made the basis of appellants' claims. Following a hearing of appellants' application, the trial court found in favor of the Commission and denied appellants' application. Appellants now appeal the trial court's order.


         Appellants raise two issues on appeal, arguing that the trial court erred by (1) denying their application for payment from the RTA, and (2) refusing to find that appellants were entitled to the statutory maximum of $100, 000 from the RTA.

         The Commission is charged with administration and enforcement of the Real Estate License Act. Tex. Occ. Code Ann. § 1101.151(a)(1). Subchapter M of the act directs the Commission to establish a fund, the RTA, to reimburse aggrieved persons who suffer actual damages caused by an act described in § 1101.652(a-1)(1) or (b), committed by a real estate license holder. See Tex. Occ. Code Ann. §§ 1101.601(a)(1), 1101.652(a-1), (b); see also Tex. Real Estate Comm'n v. Nagle, 767 S.W.2d 691, 693 (Tex. 1989). Section 1101.652 contains a long list of actions for which real estate licensees may be disciplined or have their license suspended or revoked. The RTA compensates persons who are unable to collect from a real estate licensee for judgment awards based on these specified types of wrongdoing. Tex. Occ. Code Ann. § 1101.606(a); see also Nagle, 767 S.W.2d at 693 ("A person who has a judgment against a real estate broker which is uncollectable may file a verified claim in the court in which the judgment was rendered and, upon notice to the commission and the judgment debtor, apply for an order directing payment out of the fund."). Generally, the claimant's damages must relate to the licensee's dishonest conduct. Nagle, 767 S.W.2d at 693.

         If the Commission does not agree that a claimant's application meets these statutory requirements, a hearing may be scheduled. Tex. Occ. Code Ann. § 1101.608. The Commission may appear to protect the RTA from spurious or unjust claims or to ensure compliance with statutory requirements for recovery. Id. § 1101.608(b). At the hearing, the claimant must show, among other things, that its prior judgment is against a licensed real estate broker who caused claimant's damages while acting as a broker. Id. §§ 1101.601(a), 1101.607(1). Here, the parties agree that Larsen maintained a real estate license during the relevant time period. They do not agree that Larsen's individual actions caused appellants to suffer damages or that Larsen was acting in the capacity of a real estate broker when he committed the complained-of acts.

         This presents a question of statutory construction, which we review de novo. Tex. Health Presbyterian Hosp. of Denton v. D.A., 569 S.W.3d 126, 131 (Tex. 2018); see Wilson v. Bloys, 169 S.W.3d 364, 368 (Tex. App.-Austin 2005, pet. denied). When interpreting a statute, our primary task is to ascertain and effectuate the intent of the legislature. Tex. Gov't Code Ann. § 312.005; Youngkin v. Hines, 546 S.W.3d 675, 680 (Tex. 2018). When a statute is clear and unambiguous, we are to enforce the plain meaning of the statute. Wilson, 169 S.W.3d at 368. Further, we read every word, phrase, and expression in a statute as if it were deliberately chosen and presume the words excluded from the statute are done so purposefully. Tex. Real Estate Comm'n v. Bucurenciu, 352 S.W.3d 828, 831 (Tex. App.-San Antonio 2011, no pet.).

         The mere fact that Larsen had a real estate license does not entitle appellants to reimbursement from the RTA. Appellants were required to show that Larsen caused their damages while acting as a real estate broker. See Bucurenciu, 352 S.W.3d at 831-32 (real estate licensee engaged in financing or mortgage brokering was not engaged in real estate brokerage services so aggrieved client could not recover from RTA). In their first amended application for reimbursement, appellants asserted that their judgment against Larsen was based on facts showing that he engaged in fraud or misrepresentation in violation of Sections 1101.652(a-1)(1) or 1101.652(b) of the Texas Occupations Code. During the hearing, appellants argued that Larsen engaged in this fraud and misrepresentation in his capacity as a real estate broker and not as a contractor, stating "in addition to being a constructor or constructing the home itself, he did planning, designing, estimating, bidding, financing, and constructing the home." The court questioned this assertion, noting that appellants' pleadings alleged improper construction, not wrongful activities as a broker. Indeed, appellants' motion for default judgment alleged that "[p]er the terms of the contract, Larsen was obligated to reimburse Plaintiff these costs as a consequence of Larsen's construction mistakes, ...

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