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Integ Corp. v. Hidalgo County Drainage District No. 1

Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg

November 21, 2019


          On appeal from the 275th District Court of Hidalgo County, Texas.

          Before Chief Justice Contreras and Justices Rodriguez and Benavides. [1]



         Integ Corporation, which was wholly owned by Godfrey Garza, Jr., was hired by Hidalgo County Drainage District No. 1 (HCDD), to serve as HCDD's manager in 2000 and it held the position until 2014. In 2017, HCDD sued Integ and Garza based on events arising out of that relationship and also sued Valley Data Collection Specialists, Inc. (Valley Data), Annie Q. Garza, Godfrey Garza, III, and Jonathon Garza (the individual defendants). Integ and Garza counterclaimed. The trial court granted a plea to the jurisdiction filed by HCDD and dismissed the counterclaim. The trial court also granted summary judgment dismissing HCDD's claims.

         By a single issue, Integ/Garza, appellants and cross-appellees, appeal from the grant of HCDD's plea to the jurisdiction. Cross-appellant and appellee HCDD appeals from the dismissal of its claims against Integ/Garza, Valley Data and the individual defendants for breach of fiduciary duty, fraud, breach of contract, civil conspiracy, unjust enrichment, and constructive trust.[2]

         Because resolution of Integ/Garza's plea to the jurisdiction depends in part on whether any of HCDD's claims against Integ/Garza remain viable, we address HCDD's issues first. By four issues and multiple sub-issues, HCDD challenges the trial court's grant of the motions for no-evidence and traditional summary judgment against it and argues that the trial court abused its discretion by denying its motions to continue the summary judgment hearings and trial date. Cross-appellees Valley Data, and the individual defendants responded to HCDD's challenge to the trial court's grant of summary judgment but seek no affirmative relief. We reverse and remand in part and affirm in part.

         I. Background

         HCDD is a division of local government that is operated by the Hidalgo County Commissioners' Court, which sits as its Board of Directors. See Tex. Water Code Ann. §§ 49.001, 49.051, 49.054. Beginning in approximately 1995, HCDD hired Garza as an employee manager of HCDD, a position he held for four or five years. After that time, Garza planned to leave because he wanted to make more money in the private sector. Alternatively, he proposed to the Commissioners' Court that they hire Integ to become the manager and allow the company to take on outside work. The Commissioners' Court agreed and simultaneously accepted Garza's resignation and approved a management consulting agreement (MCA) with Integ on October 3, 2000. See id. § 49.057(a). Integ was paid a flat fee on a monthly basis. That fee increased annually and came to include a car and telephone allowance. In 2007, Garza approached the Commissioners' Court with the idea of increasing his work and pay to include construction management for a project arising from a bond issue of approximately $100, 000, 000 approved by the voters, the Phase II drainage project. In exchange for the extra work, Garza proposed that he be paid a fee of one and a half percent based upon "actual construction costs," excluding land acquisition involved in the project. After a discussion that included safeguards for HCDD finances, the Commissioners' Court approved the new contract for a three-year period.

         Garza continued to maintain his office at HCDD, his name remained on HCDD's letterhead as District Manager, and Garza continued to use HCDD's email address as before but Integ was not mentioned. Integ's responsibilities for HCDD, as enumerated in the MCA, included: to "perform the services herein contemplated faithfully, diligently, to the best of Integ's ability, consistent with all applicable laws, and all applicable local, state and federal regulations," to "perform management and compliance of the programs as specified by local, state and federal regulations," to "establish and maintain necessary standards of performance to assure activities and projects of the District comply with plans, applicable laws and regulations," to "exercise discretion and judgment in matters not covered by this Agreement and/or policies of the District," and to "communicate with the District's attorney on matters in litigation or potential litigation except as otherwise directed by the Board of Directors." Notably, the MCA was personal to Garza. HCDD was entitled to terminate the MCA on the death of Garza or injury or illness that would be reasonably likely to lead to the inability of Integ to perform services for a period in excess of thirty days. Three items were added to Integ's list of duties in 2007 to encompass the broadened MCA.

         Integ employed only Garza and his wife Annie Garza who performed office work for Integ intermittently. According to the terms of the MCA, Integ was an independent contractor, not an employee of HCDD. The MCA obligated HCDD to purchase general liability and errors and omissions insurance to cover Integ. Although the MCA permitted Integ to handle outside work, it included a conflict of interest provision that required Integ to advise the Board of the nature of Integ's outside work and required Integ to turn down work if a majority of the Board deemed it to be a conflict of interest and also required that any outside work "not impair the fulfillment of Integ's obligations under the [MCA]."

         Garza has two sons, Godfrey Garza, III (Trey) and Jonathon Garza, who formed Valley Data in 2004. Although Valley Data did not employ any licensed surveyors or licensed engineers, Valley Data provided surveying, geotechnical, and field engineering work for engineering companies that were doing work on drainage projects. Beginning in approximately 2006, Valley Data began doing large amounts of work for Tedsi Infrastructure Group (Tedsi), a local engineering firm, as a subcontractor for HCDD projects. Over time, Valley Data performed the same kind of work for other engineering firms, including Dannenbaum Engineering, who also held prime contracts with HCDD. In 2012, Annie Garza acquired Valley Data. Although Valley Data was not paid by HCDD, Valley Data was paid by companies who were paid by HCDD.

         Lora Briones became the chief financial officer of HCDD in 2003. She reported to Garza. Briones testified that the 2007 contract concerned her, especially since she was required to compute the construction management fee.

         Briones also learned informally from a Dannenbaum employee in 2008 that Valley Data was subcontracted to Dannenbaum on a HCDD contract but she did not know the extent of the work that Valley Data was performing. In 2014, Briones came across documentation of payments to Valley Data on HCDD contracts. At that time, she brought the information to the attention of county judge, Ramon Garcia. She also took the information to the FBI and to the Texas Attorney General because she was concerned about the undisclosed conflict of interest.

         Between 2007 and 2014, Integ and Valley Data were paid millions of dollars from HCDD tax dollars. In October 2014, HCDD hired the Lee Firm in Corpus Christi to investigate whether it had claims against Integ/Garza. During the investigation, Michael Lee interviewed Briones, Ray Eufracio, and Steve Crain (HCDD's attorney). Lee gave a written report to the Commissioners in 2015. In his report, Lee discussed a project in which the federal Department of Homeland Security (DHS) planned to build a border wall on top of levees that were improved to protect Hidalgo County from flooding. Lee concluded that in February 2007 when the Commissioners' Court approved the MCA for construction management with Integ, it did not contemplate the federal wall/levee project which did not occur until later that year. As a result, according to Lee, there could have been no meeting of the minds that the federal project was part of the Phase II drainage project. The federal government put up $178 million for the DHS project. HCDD contributed an initial $28 million from the HCDD bond issue that was approved by the Commissioners' Court.[3] Later on, according to the Lee report, HCDD contributed another $30 million. Lee also concluded that "actual construction costs" in the MCA meant something less than "total construction costs" as defined by the General Accounting Standards Boards Statement 34 which includes land acquisition and all preliminary engineering work. From the context of the discussion between the parties at the February 2007 Commissioners' Court meeting and other research, Lee determined that the term "actual construction costs" meant "direct construction costs for labor, material, equipment, services, contractors overhead and profit, not including compensation to the architect, and engineer and consultants, the cost of land, right-of-way, or other costs." Lee noted that Crain disagreed and took the broader view that "actual construction costs" included everything except land acquisition costs. Crain also took the view that the 2007 to 2013 MCAs included construction management on the DHS project.

         In 2017, HCDD filed suit against Integ, Garza, Valley Data and the individual defendants. HCDD's original petition alleged: breach of fiduciary duty, fraud, negligent misrepresentation, breach of contract, civil conspiracy, unjust enrichment, and constructive trust. Integ/Garza filed a general denial, raised affirmative defenses of limitations, estoppel, ratification, unclean hands, waiver, laches, circuity of action doctrine, failure to exhaust administrative procedures, and brought a counterclaim for breach of contract for failure to carry insurance as required. Valley Data and the individual defendants filed a general denial to HCDD's claims and asserted the affirmative defenses of limitations and estoppel.

         After two years of contentious discovery, Integ/Garza, Valley Data, and the other defendants filed their motions for summary judgment and HCDD filed its plea to the jurisdiction. HCDD filed its fourth amended petition on January 24, 2018, in which it first asserted civil claims under the federal Racketeer Influenced and Corrupt Organizations Act (RICO). See 18 U.S.C. § 1964(c). Ostensibly, as a result of the civil RICO claims, the individual defendants refused to appear for depositions that were scheduled for January 26, 2018. Thus, HCDD had not taken the depositions of the individual defendants at the time of the summary judgment hearing on January 31, 2018.

         The trial court denied HCDD's motion to continue the summary judgment hearing and the trial date and granted all of the summary judgment motions and the plea to the jurisdiction on February 5, 2018. HCDD nonsuited its civil RICO claims on February 5, 2018, and the judgment became final. Integ/Garza filed a notice of appeal from the grant of the plea to the jurisdiction and HCDD filed a notice of appeal from the grant of the motions for summary judgment.

         II. Summary Judgments Against HCDD

         Integ/Garza, Valley Data, and the individual defendants filed no-evidence motions for summary judgment against HCDD seeking dismissal of all of the claims[4] against them on multiple grounds. Integ/Garza also filed a traditional motion for summary judgment on its affirmative defenses of collateral attack on judgments, laches, and lack of fiduciary relationship.

         A. Standard of Review and Applicable Law

         We review the trial court's granting of a motion for summary judgment de novo. Cantey Hanger, LLP v. Boyd, 467 S.W.3d 477, 481 (Tex. 2015); Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). By a no-evidence motion, the movant alleges that no evidence exists for one or more essential elements of a claim on which the respondent bears the burden of proof at trial. See Tex. R. Civ. P. 166a(i); Hamilton v. Wilson, 249 S.W.3d 425, 426 (Tex. 2008) (per curiam). The trial court must grant the motion unless the respondent produces more than a scintilla of evidence for each of the challenged elements of the claim. Hamilton, 249 S.W.3d at 426; Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006). Evidence is more than a scintilla where it "would enable reasonable and fair-minded jurors to differ in their conclusions." Hamilton, 249 S.W.3d at 426; see King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003).

         When reviewing a traditional motion for summary judgment, we must determine whether the movant met its burden to establish that no genuine issue of material fact exists, and that the movant is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); Cantey Hanger, LLP, 467 S.W.3d at 481. The movant bears the burden of proof, and all doubts about the existence of a genuine issue of material fact are resolved against the movant. See Nalle Plastics Fam. Ltd. P'ship v. Porter, Rogers, Dahlman & Gordon, P.C., 406 S.W.3d 186, 200 (Tex. App.-Corpus Christi-Edinburg 2013, pet. denied). In reviewing the grant of summary judgment under either traditional or no-evidence, we must credit evidence favoring the non-movant, indulging every reasonable inference and resolving all doubts in his or her favor. Cantey Hanger, LLP, 467 S.W.3d at 481; Randall's Food Markets, Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex. 1995).

         When a trial court's order granting summary judgment does not specify the ground or grounds relied on for the ruling, summary judgment will be affirmed on appeal if any of the theories advanced are meritorious. Carr v. Brashear, 776 S.W.2d 567, 569 (Tex. 1989); Garcia v. Tex. Cable Partners, L.P., 114 S.W.3d 561, 567 (Tex. App.-Corpus Christi-Edinburg 2003, no pet.).

         B. No-Evidence Motions

         Integ, Valley Data, and the individual defendants moved for no-evidence summary judgment on the following grounds: (1) breach of fiduciary duty, (2) fraud, (3) negligent misrepresentation, [5] (4) breach of contract, and (5) civil conspiracy. HCDD responded with evidence and filed a supplemental response.[6] By its second issue, HCDD globally challenges the trial court's grant of Garza and Integ's motions for no-evidence summary judgment. By its fourth issue, HCDD globally challenges the trial court's grant of Valley Data and the individual defendants' motions for no-evidence summary judgment.

         1. Fiduciary Duty

         HCDD alleged that Integ/Garza breached their fiduciary duty to HCDD. Integ/Garza argue that because they were an independent contractor for HCDD, as a matter of law, there could be no fiduciary relationship between them and HCDD.

         The MCA from 2007 through 2013 recites that Integ "shall perform the duties of the manager of [HCDD]" and lists eighteen specific functions. The MCA permitted Integ "to perform consulting and other services for other firms, individuals or local governments when such work does not impair the fulfillment of Integ's obligations under this Agreement." The MCA further provides that "Integ, at all times will act as an independent contractor managing and supervising [HCDD]'s operations and will not act or hold itself out to third parties as an employee or agent of [HCDD]."

         a. Elements of Fiduciary Duty

         "The elements of a breach of fiduciary duty claim are: (1) a fiduciary relationship between the plaintiff and defendant, (2) a breach by the defendant of his fiduciary duty to the plaintiff, and (3) an injury to the plaintiff or benefit to the defendant as a result of the defendant's breach." Lundy v. Masson, 260 S.W.3d 482, 501 (Tex. App.- Houston [14th Dist.] 2008, pet. denied); see also Wells Fargo Bank, N.A. v. Crocker, No. 13-07-00732-CV, 2009 WL 5135176, at *3 (Tex. App.-Corpus Christi-Edinburg Dec. 29, 2009, pet. denied) (mem. op.).

         Texas law recognizes two types of fiduciary relationships. Meyer v. Cathey, 167 S.W.3d 327, 330-31 (Tex. 2005) (per curiam); Salas v. Total Air Servs, LLC, 550 S.W.3d 683, 689 (Tex. App.-El Paso 2018, no pet.) "The first is a formal fiduciary relationship, which arises as a matter of law and includes the relationships between attorney and client, principal and agent, partners, and joint venturers." Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 508 (Tex. App.-Houston [1st Dist.] 2003, no pet.) (citing Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998)). "The second is an informal fiduciary relationship, which may arise from 'a moral, social, domestic or purely personal relationship of trust and confidence, generally called a confidential relationship.'" Id.; Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997). Although "a fiduciary or confidential relationship may arise from the circumstances of a particular case, to impose such a relationship in a business transaction, the relationship must exist prior to, and apart from, the agreement made the basis of the suit." Id. "[W]hile the existence of an informal fiduciary relationship 'is ordinarily a question of fact, when the issue is one of no evidence, it becomes a question of law.'" Crim Truck & Tractor Co. v. Navistar Int'l Transp. Co., 823 S.W.2d 591, 594 (Tex. 1992). A fiduciary relationship imposes a duty on the fiduciary to render full and fair disclosure of facts material to the relationship giving rise to the duty. Willis v. Maverick, 760 S.W.2d 642, 645 & n.2 (Tex. 1988).

         b. Evidence of Fiduciary Duty

         Garza was employed by HCDD for four years as its manager before HCDD hired Integ pursuant to the MCA. The MCA stated that it "recognize[d] the benefits of contracting with a party who will employ the former manager of [HCDD]." The evidence conclusively establishes that Garza had a longstanding relationship with HCDD before the parties executed the MCA. Garza's previous relationship with HCDD was that of employee/employer, which is "a species of the formal principal-agent relationship." Salas, 550 S.W.3d at 690. "An agent generally has a fiduciary duty to act for the benefit of his principal in all matters connected with the agency." Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 200 (Tex. 2002). An "agent" is one who is authorized by another to transact business or manage some affair for him. See Neeley v. Intercity Mgmt. Corp., 732 S.W.2d 644, 646 (Tex. App.-Corpus Christi-Edinburg 1987, no writ); Jorgensen v. Stuart Place Water Supply Corp., 676 S.W.2d 191, 194 (Tex. App.-Corpus Christi- Edinburg 1984, no writ). The agency relationship does not depend upon express appointment or agreement by the principal; but may be implied from the conduct of the parties under the circumstances. See Gibson v. Bostick Roofing & Sheet Metal Co., 148 S.W.3d 482, 492 (Tex. App.-El Paso 2004, no pet.); Jorgensen, 676 S.W.2d at 194.

         During Integ's tenure as manager of HCDD, Garza's name was listed on HCDD's letterhead as District Manager; Integ was not mentioned. Garza's emails use HCDD's system and are signed the same way. Garza continued to interact with the Commissioners' Court in the same way that he had before he left HCDD's employ. There is more than a scintilla of evidence that Garza held himself out as HCDD's agent based upon the manner in which HCDD allowed the use of its letterhead and email. There is also more than a scintilla of evidence of a relationship of trust between Garza and HCDD that preexisted Integ/Garza's and HCDD's contractual relationship.

         Although the MCA specified that the relationship was that of an independent contractor, the MCA does not conclusively establish that no fiduciary relationship was formed. An independent contractor may serve as a fiduciary. See Abetter Trucking Co., 113 S.W.3d at 507-08. When a contract specifying an independent contractor relationship exists and there is also evidence that the written contract has been modified by a subsequent implied agreement, such as Garza's apparent holding himself out as an agent of HCDD, there is a fact issue on the existence of a fiduciary relationship that precludes summary judgment. See Weidner v. Sanchez, 14 S.W.3d 353, 374 (Tex. App.-Houston [14th Dist.] 2000, no pet.); see also Perez v. Greater Houston Transp. Co., No. 01-17-00689-CV, 2019 WL 3819517, at *4 (Tex. App.-Houston [1st Dist.] Aug. 15, 2019, pet. filed) (mem. op.).

         There was more than a scintilla of evidence to support a finding that Integ breached a fiduciary relationship by being less than candid with HCDD. A prime example is Garza's instruction that Integ's invoices be placed on the consent agenda and not sent through the auditor, thus avoiding any scrutiny that Integ construction management fees for preliminary engineering work rather than "actual construction costs" or against DHS projects. See Willis, 760 S.W.2d at 645 & n.2 (holding that a fiduciary owes a duty of full and fair disclosure). There was competing expert opinion as to whether the DHS project was part of the Phase II Drainage project and thereby part of the MCA on which Integ was authorized to charge construction management fees.

         We conclude HCDD produced more than a scintilla of evidence on every element of breach of fiduciary duty. Accordingly, the trial court erred by granting the motions for no-evidence summary judgment on breach of fiduciary duty.

         2. Fraud

         HCDD argues that when Garza made his pitch to HCDD to pay him for construction management of the Phase II drainage project that he intentionally misrepresented the following material facts: (1) that his fee would be based on actual construction costs, (2) there would be checks and balances in processing the amounts through the use of an outside auditor, and (3) Garza would be paid only for that which was actually built. HCDD allegedly relied on those misrepresentations by agreeing to the 2007 MCA including construction management fees.

         Integ/Garza, Valley Data, and the individual defendants moved for no-evidence summary judgment on HCDD's fraud claim. The record includes a transcript of the Commissioners' Court meeting on February 6, 2007 in which the Commissioners' Court approved the 2007 MCA. Commissioner Garza (unrelated to Integ/Garza) commented that he was looking for checks and balances on the financials so that someone other than Garza would be involved. Integ/Garza represented that Briones, the HCDD chief financial officer, would be handling the financial end on behalf of the district. Integ/Garza then added,

One of the things [HCDD is] looking at, that's coming before the board is hiring an independent auditor, to be looking at all the bond issues . . . to provide the transparency, per se, of the district itself, not monitoring itself, even though we have an independent auditor, is to hiring an auditing company that does the overview of all the bond issue money that comes in place. That is the checks and balances.

         Commissioner Garza responded, "By hiring an outside auditing firm."

         Garza estimated that his eventual payout over a ten year period would be $150, 000. He represented that he would be paid only on what was actually built while Integ was HCDD's manager. The Board adopted the 2007 MCA with the percentage for construction management after that discussion.

         a. Elements of Fraud

         "A common-law fraud claim requires a material misrepresentation, which was false, and which was either known to be false when made or was asserted without knowledge of its truth, which was intended to be acted upon, which was relied upon, and which caused injury." Zorrilla v. Aypco Constr. II, LLC, 469 S.W.3d 143, 153 (Tex. 2015) (internal quotations omitted) (citing Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998)).

         b. Evidence of Fraud

         One of the misrepresentations HCDD complained of was Garza's statements to the Commissioners' that all of the construction management payments would go through the auditors, perhaps even bond money auditors. Yet after the MCA was executed, Garza specifically directed that all of Integ's payments be placed on the consent agenda and never go to the auditors. Because Garza supervised the district employees, he controlled the preparation of the Commissioners' Court agenda the flow of paperwork. His instructions regarding his first and all subsequent payments not going through the auditors is more than a scintilla of evidence that his statement to the Commissioners' Court was false when it was made and was designed to be acted upon. See Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986).

         In addition, HCDD challenges Integ's right to recover construction management fees on engineering work and contends that Garza fraudulently misrepresented the contract to HCDD. Integ's first invoice for construction management fees submitted in April 2008 for over $100, 000, included fees on preliminary engineering work for projects that were not yet built including:

(1) preliminary engineering services, hydrology and hydraulic analysis, final design, and preliminary engineering for the Raymondville Drain project;
(2) construction and inspection of sluice gates at the Mission inlet;
(3) preliminary engineering and right of way for Monte Christo Outfall;
(4) preliminary engineering and topographic, right of way, preliminary engineering, control BMs for La Villa Drain;
(5) engineering and surveying, Geotech services, Penitas drain PO for Penitas Drain Basin;
(6) preliminary engineering, field surveying, preliminary engineering & schematics, topographic data & maps, funding liaison, additional preliminary engineering, field surveying, cultural resources, special services, on call services, Penitas common levee, Penitas to common levee for the Levee system;
(7) geotechnical engineering, preliminary engineering and final design, channel final design, channel final ...

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