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Spencer & Associates, P.C. v. Harper

Court of Appeals of Texas, First District

August 6, 2019

SPENCER & ASSOCIATES, P.C. D/B/A THE SPENCER LAW FIRM, Appellant
v.
STEPHEN HARPER, VICKI HARPER AND ZO ENERGY, INC., Appellees

          On Appeal from the 189th District Court Harris County, Texas Trial Court Case No. 2016-88479

          Panel consists of Justices Keyes, Higley, and Landau.

          OPINION

          Evelyn V. Keyes Justice.

         This case arises out of attempts by appellant Spencer & Associates, P.C. d/b/a the Spencer Law Firm (the Firm) to execute on a 1999 judgment rendered in its favor against appellee Stephen Harper. After the Firm propounded post-judgment discovery requests to Harper and appellees Vicki Harper and ZO Energy, Inc. (collectively, the Harper parties) and received interrogatory responses, the Firm sued the Harper parties for common-law fraud, fraud by nondisclosure, violation of the Texas Uniform Fraudulent Transfer Act (TUFTA), and conspiracy to commit fraud. The Harper parties moved for no-evidence summary judgment on all of the Firm's claims. The trial court granted summary judgment in favor of the Harper parties, rendering a take-nothing judgment against the Firm. On appeal, the Firm argues that the trial court erred in granting summary judgment because it raised a genuine issue of material fact on each element of its causes of action.

         We reverse and remand.

         Background

         More than two decades ago, an entity related to Stephen Harper retained the Firm for legal representation. After the representation concluded, the Firm sued Harper for unpaid legal fees in the Harris County Civil Court at Law Number One. In 1999, the county court rendered judgment in favor of the Firm, awarding the Firm $33, 237.28 in damages and $5, 000 in attorney's fees, and it ruled that post-judgment interest would accrue on this amount at a rate of 10% per year. Harper did not appeal, and this judgment became final. In the twenty years since the county court rendered its judgment, Harper has resisted all attempts to execute on the judgment, and the Firm has been unable to obtain satisfaction of the judgment from Harper.[1]

         As part of its efforts to collect upon the county court judgment awarded to it, the Firm engaged in extensive post-judgment discovery and litigation. The Firm sought information concerning the existence of Harper's nonexempt assets from Harper himself, his wife Vicki Harper, and ZO Energy, an oil and gas company for which Vicki owns 100% of the stock, among other entities that are not parties to the underlying proceeding or this appeal. During the course of this discovery, the Firm issued requests for production and interrogatories to all of the Harper parties, and it took the depositions of Harper and Vicki.

         In December 2016, the Firm sued Harper, Vicki, and ZO Energy. The Firm asserted causes of action for common-law fraud, fraud by nondisclosure, negligent misrepresentation, violations of TUFTA, conspiracy to commit fraud, and aiding and abetting.[2] The Firm alleged that Harper had "consistently and purposefully evaded collection efforts," serving as the president and director of ZO Energy but reporting that he "has no income or money and no non-exempt assets." The Firm also alleged that Vicki had conspired with Harper to thwart the Firm's efforts to collect its debt, claiming that she runs ZO Energy while, in actuality, Harper "has significant involvement in running ZO Energy but receives no compensation for his services" and "ZO Energy and/or Mrs. Harper pay for Mr. Harper's personal expenses and therefore can claim that Mr. Harper has no income."

         The Firm alleged that the Harper parties "lied under oath [and] made misrepresentations and omissions of material fact in order to mislead Spencer and encumber its debt collection efforts." The Firm alleged that, when responding to post-judgment discovery requests, the Harper parties "had a duty to provide truthful, complete and accurate information" concerning Harper's financial situation, but instead the Harper parties failed to provide material information and purposefully misled the Firm. The Firm also alleged that the Harper parties violated TUFTA by making "several transfers . . . between the parties, wherein Mr. Harper received little or no value for such transfer" in an effort to place Harper's assets beyond the reach of the Firm.

         The Harper parties moved for no-evidence summary judgment, challenging each element of each cause of action asserted by the Firm. The Harper parties characterized the Firm's suit as "the next effort in a long line of harassing legal proceedings aimed at Mr. Harper and every entity or person with which he has any connection," and it noted that a receiver had been appointed in the county court case to assist in collection of the Firm's judgment against Harper. The Harper parties argued that, throughout the years, they had produced thousands of documents to the Firm, "including income tax returns, bank statements, corporate documents, and credit card statements," but the Firm had been unable to produce any evidence that Harper possesses assets to satisfy the judgment against him. The Harper parties pointed out that the Firm did not allege any specific misrepresentation or fraudulent transfer in its petition.

         In response to the Harper parties' summary-judgment motion, the Firm identified several misrepresentations allegedly made by the Harper parties during the course of post-judgment discovery that served as the basis for the Firm's fraud claims. The Firm argued that, in sworn interrogatory answers dated May 24, 2013, Harper misrepresented that he had only one bank account with Broadway Bank that had a balance of less than $1.00. However, Harper also had an account with USAA Federal Savings Bank that "held non-exempt securities and cash with a value of over $12, 000," but Harper never identified this account during post-judgment discovery or supplemented his interrogatory answers. As summary judgment evidence, the Firm attached Harper's interrogatory answers as well as bank statements from USAA Federal Savings Bank indicating that, as of September 30, 2013, an account in the name of "Steve J Harper and Vicki D Harper Com Prop" held "Small cap stocks/funds" and "Cash/money market funds" and had a portfolio value of $12, 117.52. The bank statement included a graph depicting "Portfolio performance" that displayed activity starting in late 2011. The Firm also attached a bank statement indicating that, as of March 31, 2014, the value of the portfolio was $8, 079.54, a withdrawal of $8, 079.39 then occurred, and, thus, as of June 30, 2014, the value of the portfolio was $0.15.

         The Firm pointed to Harper's interrogatory answer that he earned no income in 2012 or 2013 as an additional misrepresentation. According to the Firm, Harper received $7, 355.68 in royalty income in 2012, and, in 2013, he reported income of $799, 441 from a sole proprietorship and $130, 943 in royalty income. As evidence, the Firm attached a Form 1099 issued by Forest Oil Corporation to Harper, reflecting the payment of $7, 355.68 in royalties during the 2012 tax year. The Firm also attached the Harpers' 2013 tax return, in which they reported receiving $109, 395 for "Rental real estate, royalties, partnerships, S corporations, trusts, etc." Their 2013 tax return also included a Schedule C for "Profit or Loss from Business (Sole Proprietorship)." This scheduled listed "Stephen J Harper" as the proprietor, listed "working interest" as the "Principal business or profession," and listed $799, 441 for gross income. With respect to the question "Did you 'materially participate' in the operation of this business during 2013?" Harper checked the box for "Yes."

         Finally, the Firm alleged that Vicki made misrepresentations during a March 2015 deposition. Specifically, she represented that Harper made no money, that he rarely consults with ZO Energy, and that he is not affiliated with ZO Energy. As evidence that these representations were false, the Firm pointed to documents relevant to Harper's income taxes, as well as evidence that Harper was the sole officer and director of ZO Energy in 2015, and testimony from Vicki's 2018 deposition that both she and Harper run ZO Energy and that Harper can withdraw money from ZO Energy at his discretion.

         The Firm argued that each of these misrepresentations was material because Harper's financial status was "important and would be relied upon by a judgment creditor when deciding how to enforce and collect its judgment." The Firm argued that if this information about Harper's finances had been disclosed, it "could and would have attached Stephen Harper's hidden, nonexempt property to satisfy its judgment." It further argued that Harper "knew, or had reason to believe, that if he did not identify the existence and source of his assets-especially easy-to-hide assets like cash-that it would be virtually impossible for [the Firm] to locate and execute upon those assets." The Firm argued that Vicki Harper knew

that if she did not identify the existence and source of her husband's income-especially in light of her 2015 testimony that her husband "makes no money" and "is not affiliated with" her company ZO Energy-that it would be virtually impossible for [the Firm] to discover that Stephen Harper was in fact performing substantial amounts of work for ZO Energy, was diverting all of his income to his wife and ZO Energy, and was also earning money to the tune of half-a-million-dollars per year at times.

         The Firm argued that it actually relied on these misrepresentations "by failing to act toward attaching Stephen Harper's nonexempt assets, by losing the opportunity to so act, and by losing the opportunity to obtain satisfaction of its judgment had the Defendants spoken truthfully and disclosed the assets."

         As summary judgment evidence, the Firm attached the affidavit of Bonnie Spencer, the principal of the Firm. She averred:

The Law Firm has a judgment against Stephen Harper. Over the last two decades, The Law Firm has continuously attempted to collect its judgment. The Law Firm sent post judgment discovery requests to Stephen Harper and received answers dated May 24, 2013, a true and correct copy of which is attached to the Response at Exhibit D. The Law Firm also took the deposition of Vicki Harper on March 23, 2015. The Law Firm relied upon the statements made under oath in Stephen Harper's answers to post-judgment Interrogatories and relied upon Vicki Harper's testimony under oath. The Law Firm remained unaware of the assets and, given Stephen and Vicki Harper's statements and the nature of the assets, the existence and location of these assets were virtually unknowable.
However, the Law Firm later discovered that Stephen Harper provided partial, false, and misleading answers in his Interrogatories as described in the Response. Vicki Harper provided partial, false, and misleading answers in her deposition as described in the Response. The Harpers' resistance to comply with discovery and their legal duties to speak truthfully, have damaged the Law Firm. Specifically, these false answers increased the time and effort the Law Firm's attorneys have had to spend to locate nonexempt assets of Stephen Harper. As a result of the Harpers' deception, [the Firm] lost the opportunity to attach nonexempt assets owned by Stephen Harper including, but not limited to, the cash and stock in the USAA bank account.
Had Stephen Harper been honest in his Interrogatory answers, [the Firm] could and would have obtained at least some satisfaction of its judgment. Had Vicki Harper been honest in her [2015] deposition testimony, [the Firm] could and would have taken the necessary steps to discover and attach Stephen Harper's nonexempt assets to credit toward this judgment.
I have reviewed the hours worked by the Law Firm's attorneys to collect the judgment. The value of the hours worked at the time they were expended is $166, 194.18. These hours were expended from June 1, 2013 (which is after the Defendants' misrepresentations described herein) to December 20, 2017 (which is the date a receiver was appointed to aid in collecting the judgment against Harper). These fees are reasonable given the circumstances of the case as described above and within the Response.

         With respect to its claim for violation of TUFTA, the Firm argued that the Harper parties violated Business and Commerce Code sections 24.005(a) and 24.006. The Firm argued that the relevant assets that Harper transferred were his income from ZO Energy, his community property interest in ZO Energy, and cash. It argued that Harper earned income from services he performed for ZO Energy, but, instead of collecting that income and depositing it in his own bank account, he allowed ZO Energy to retain those funds. The Firm presented excerpts from Harper's and Vicki's depositions in which both testified that Harper does not maintain his own bank account but instead pays his bills directly out of ZO Energy's bank account. The Firm also presented records reflecting that ZO Energy paid over $200, 000 of Harper's credit card bills and his expenses. The Firm also presented evidence that ZO Energy was wholly owned by Vicki and was formed after her marriage, and therefore Harper had a community property interest in ZO Energy, resulting in any shares or distributions from ZO Energy being jointly-managed community property. The Firm argued that Harper's act of allowing ZO Energy and Vicki to retain his income constituted a "transfer" under the terms of TUFTA, that Harper intentionally kept his income in ZO Energy's bank account instead of his own bank account, and that his actions were intended to hinder, delay, or defraud the Firm in the collection of its judgment against Harper.

         On March 19, 2018, the trial court granted the Harper parties' no-evidence motion for summary judgment and issued a take-nothing judgment against the Firm. This appeal followed.

         Summary Judgment

         The Firm argues that the trial court erred in granting Harper's motion for no-evidence summary judgment because the Firm raised a fact issue on its causes of action for common-law fraud, fraud by nondisclosure, violation of TUFTA, and conspiracy to commit fraud.

         A. Standard of Review

         We review a trial court's ruling on a summary judgment motion de novo. City of Richardson v. Oncor Elec. Delivery Co., 539 S.W.3d 252, 258 (Tex. 2018). After adequate time for discovery has passed, a party may move for summary judgment on the basis that there is no evidence of one or more essential elements of a claim on which the adverse party would have the burden of proof at trial. Tex.R.Civ.P. 166a(i). The burden then shifts to the nonmovant to present evidence raising a genuine issue of material fact on each of the challenged elements. Tex.R.Civ.P. 166a(i); Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006).

         A genuine issue of material fact exists if the evidence rises to a level that enables reasonable and fair-minded people to differ in their conclusions. First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 220 (Tex. 2017) (quoting Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997)); Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004) ("A genuine issue of material fact exists if more than a scintilla of evidence establishing the existence of the challenged element is produced."). Evidence does not create a fact issue when it is so weak as to do no more than create a mere surmise or suspicion that the fact exists. Parker, 514 S.W.3d at 220 (quoting Kia Motors Corp. v. Ruiz, 432 S.W.3d 865, 875 (Tex. 2014)). We review the evidence presented in the motion and response in the light most favorable to the nonmovant, crediting favorable evidence if reasonable jurors could and disregarding contrary evidence unless reasonable jurors could not. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009) (citing City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005)). We indulge every reasonable inference and resolve any doubts in the nonmovant's favor. Helix Energy Sols. Grp., Inc. v. Gold, 522 S.W.3d 427, 431 (Tex. 2017).

          B. Analysis

         1. The Firm's Fraud Claims

The elements of common-law fraud are:
(1) that a material misrepresentation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury.

Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011); see Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 217 (Tex. 2011). "Material means a reasonable person would attach importance to and would be induced to act on the information in determining his choice of actions in the transaction in question." Italian Cowboy Partners, 341 S.W.3d at 337. Common-law fraud requires a showing of "actual and justifiable reliance" on the misrepresentation at issue. Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010) (noting that courts must consider whether, given plaintiff's individual characteristics, abilities, and appreciation of facts and circumstances at or before time of alleged fraud, it is extremely unlikely that there is actual reliance and that person may not justifiably rely on representation if "red flags" exist indicating such reliance is unwarranted).

         Fraud by nondisclosure is considered a subcategory of fraud. Blankinship v. Brown, 399 S.W.3d 303, 308 (Tex. App.-Dallas 2013, pet. denied) (citing Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex. 1997)). To establish fraud by nondisclosure, the plaintiff must prove:

(1) the defendant failed to disclose facts to the plaintiff, (2) the defendant had a duty to disclose those facts, (3) the facts were material, (4) the defendant knew the plaintiff was ignorant of the facts and the plaintiff did not have an equal opportunity to discover the facts, (5) the defendant was deliberately silent when it had a duty to speak, (6) by failing to disclose the facts, the defendant intended to induce the plaintiff to take some action or refrain from acting, (7) the plaintiff ...

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