Reversed and Remanded and Opinion filed June 5, 2014.
In The
Fourteenth Court of Appeals
NO. 14-13-00161-CV
JJJJ WALKER, LLC; DYNAFAB USA, LLC; RENAISSANCE PROPERTIES
OF TEXAS, LLC; PRIYA PROPERTIES, LLC; BD TEXAS, LLC; AND KW
HOSPITAL ACQUISITION, LLC, Appellants
V.
ERIC YOLLICK, Appellee
On Appeal from the 281st District Court
Harris County, Texas
Trial Court Cause No. 2010-41034
OPINION
In this fraud case, the plaintiffs prevailed in their claims against a bank, the
bank’s corporate agent, and the bank’s attorney, but the trial court granted judgment
notwithstanding the verdict on the claim against the bank’s attorney on the ground that
no evidence supported the liability finding. In arguments that we treat as cross-points,
the attorney argues that the economic-loss rule and attorney immunity bar the appellants
from any recovery against him, and that the verdict against him should be set aside due
to improper jury argument by opposing counsel. We conclude that the evidence is
legally sufficient to support the jury’s fraud finding, and the arguments presented in the
attorney’s cross-points do not vitiate the verdict. We therefore reverse the judgment as
to that defendant and remand for rendition of judgment consistent with this opinion.1
I. FACTUAL AND PROCEDURAL BACKGROUND
In early 2009, three hospitals—one in Dallas, one in Houston, and one in
Groves—were among the assets of a hospital system in bankruptcy. The hospitals
formed part of the collateral for a debt owed to First National Bank (“the Bank”). Greg
Walker, Kailee Wong, and their associates were interested in purchasing the hospitals,
but before that was arranged, the hospitals were essentially emptied of patients. At the
beginning of March 2009, the Bank’s branch president Linda Burley and its outside
counsel, appellee Greg Yollick, negotiated a term sheet with Walker and Wong for a
group of investors to purchase the hospitals. The Bank dictated the structure of the
transaction, and the bankruptcy court approved it. The parties agreed that a group of six
limited-liability companies—appellants BD Texas, LLC; JJJJ Walker, LLC;
Renaissance Properties of Texas, LLC; Priya Properties, LLC; Dynafab USA, LLC; and
KW Hospital Acquisition, LLC (collectively, “the Investors”)—would form and own a
seventh limited-liability company, and that together, these entities would purchase the
hospitals. The seventh limited-liability company, Louisiana Texas Healthcare
Management, LLC (“LTHM”), would hold the property through six subsidiary limited-
liability companies. Each subsidiary owned either the real estate or the operations of a
single hospital. The parties further agreed that Wong would be a direct or indirect
principal of LTHM. The Bank was to provide the funds for the purchase and for initial
working capital.
A. The Initial Loan of March 16, 2009
The loan closed on March 16, 2009. To finance the purchase and provide initial
1
The appellants have asked that the case be remanded for the trial court to render judgment
rather than that this court render judgment directly.
2
working capital while the hospitals increased their patient populations, LTHM and its
subsidiaries (“the LTHM Group”) borrowed approximately $37 million from the Bank.
Security for the loan included a lien on all accounts receivable; liens on the real
property; and the Investors’ execution of a pledge agreement granting the Bank a
security interest in their ownership interest in LTHM. Effective as of the date of the
closing, the Bank hired Duane Rossmann to act as a “health care consultant” and
required the LTHM Group to report to him on the development of the hospitals’
business. Less than thirty days after the closing on the hospital purchase, the Bank and
the parties to the loan amended their agreement to make loan payments due quarterly
rather than monthly. The first payment was due on June 15 or June 16, 2009.
B. The Letter Agreement of May 14, 2009
In early May 2009, it became apparent to Walker that additional money was
needed to make payroll. The parties negotiated a complicated arrangement requiring the
creation of a new entity, Merensky Reef Hospital Corporation (“Merensky Reef”),
which would operate under the Bank’s control. Through the execution of a Letter
Agreement dated May 14, 2009, the parties agreed as follows:
1. The parties acknowledged that the LTHM Group needed $2 million to meet
accrued payroll obligations that were payable on May 15, 2009.
2. The Bank would loan the money (“the bridge loan”) to Merensky Reef for thirty
days from the first date that the funds were advanced (“the forbearance period”).
3. The Investors would continue attempting to raise additional funding, and the
LTHM Group could grant second liens on their property to secure such funding.
4. The parties would enter into “Transfer Documents” that (a) gave the Bank an
assignment of the Investors’ membership interests in LTHM to Merensky Reef;
and (b) mutually released all claims between and among the Investors and the
Bank relating to the LTHM Group and the obligations of the LTHM Group and
the Investors to the Bank, except for the obligations under the Loan Agreement of
March 16, 2009.
5. Merensky Reef would hold the Transfer Documents in trust, but would have the
exclusive right to vote the Investors’ membership interests in LTHM during the
3
forbearance period. If the bridge loan were not repaid during the forbearance
period, then Merensky Reef would continue to have the right to vote the
Investors’ membership interests in LTHM. If the bridge loan were timely repaid,
then the Transfer Documents would be deemed extinguished.
6. During the forbearance period, (a) the LTHM Group would take no action
resulting “in a material adverse effect upon the LTHM Group’s value, operations,
assets, members, governance or liabilities,” and (b) the Bank and the LTHM
Group would coordinate with the Investors in efforts to market the hospitals and
their operations.
7. If the LTHM Group did not repay the bridge loan within the forbearance period
and the Bank elected to release the Transfer Documents, then LTHM’s members
would use “commercially reasonable efforts to effectuate the orderly transition of
the LTHM Group’s operations” to the Bank or to the Bank’s assignee or
designee.
8. During the forbearance period, the Investors’ prior approval would be required
for any proposed business expenditure outside the ordinary course of business in
excess of $20,000.
C. Merensky Reef’s Actions
On May 14, 2009—the same date as the Letter Agreement—Yollick formed
Merensky Reef. Yollick also asked his wife, his longtime friend Jim Jenkins, and
Duane Rossmann to serve as Merensky Reef’s board of directors, and all three agreed.
According to Merensky Reef’s minutes and the evidence at trial, Merensky Reef
held three meetings at Yollick’s office that day. At 7:00 p.m., Merensky Reef’s initial
director Jenkins elected Rossmann as Merensky Reef’s president and secretary and
issued all of the corporation’s shares to Mara Drake as trustee of the Witwatersrand
Trust. Mara Drake’s legal name is Tamara Yollick; she is Yollick’s wife. She testified
that Yollick asked her to identify herself as Mara Drake in connection with Merensky
Reef and the Witwatersrand Trust, but he did not tell her why. At 7:05 p.m., Jenkins,
Rossmann, and Drake were elected to Merensky Reef’s board of directors. As relevant
here, Merensky Reef voted at 7:15 p.m. as follows:
1. “[Merensky Reef] approves the execution of any and all necessary loan
documents between [it] and [the Bank] for the purpose of the purchase of the
4
[hospitals] and [to] obtain appropriate working capital facility.”
2. “[Merensky Reef] shall enter into the May 14, 2009 letter agreement” between it,
LTHM, LTHM’s members, and the Bank.
3. It also “shall enter into a loan facility to purchase the [h]ospitals and LTHM
under the terms and conditions of the term sheet annexed hereto . . . , under the
terms of assumption of the obligations of LTHM under the Loan Agreement
dated March 16, 2009, as amended . . . , and under the terms of assumption of
additional indebtedness in the amount of approximately $5.2 million of debt . . . .”
The $5.2 million debt referenced above had been owed to the Bank by a previous owner
of the hospitals, but that debt had not been assumed by the Investors or the LTHM
Group when the hospitals were purchased out of bankruptcy, and the Bank had already
charged it off.
Bank documents dated May 15, 2009 show that on that day, Linda Burley
completed a request for the Bank to loan Merensky Reef $3.5 million for working
capital.2 In addition, Merensky Reef assumed all obligations under the March 16, 2009
Deeds of Trust, together with $5,297,950 in previously charged-off debt. Merensky
Reef secured the debts with liens against the LTHM Group’s property. The Bank
documents state that these debts were assumed “[t]o finance the purchase of the three
[hospitals].” The Investors were not informed of the transactions.
One week later, Rossmann signed a “unanimous consent in lieu of meeting” of
LTHM. Merensky Reef was identified as LTHM’s sole member; Merensky Reef’s sole
shareholder was Drake as trustee of the Witwatersrand Trust; and the trust’s sole
beneficiary was Rossmann. In the consent document, Rossmann elected himself as
LTHM’s sole manager, corporate officer, chairman of the board, president, and
secretary, and he specified that LTHM’s attorneys would report solely to him and take
no action without his express authority. He also removed all existing officers of
LTHM’s subsidiaries and replaced every subsidiary’s officers with himself as sole
2
Although the figure in the Letter Agreement was $2 million, Walker testified that a total of
$3.5 million was needed to cover payroll through the end of the forbearance period.
5
officer, manager, president, secretary, and chief executive officer.
On June 12, 2009, the loan agreement between Merensky Reef and the Bank was
amended, increasing the debt secured by the hospitals still further by raising the amount
of working capital borrowed by Merensky Reef to $4,587,000. Once again, the
Investors were not informed.
Between August and October 2009, the Bank sold the three hospitals for
approximately $55.4 million. LTHM paid Drake and Jenkins $10,000 each for their
service on Merensky Reef’s board of directors. Although the Bank had been paying
Rossmann $750 per day as a consultant before the parties entered the Letter Agreement,
LTHM had paid those bills for the thirty days after the Letter Agreement, then hired him
directly as a full-time employee. The Investors were paid nothing.
D. Trial
The Investors sued Merensky Reef, the Bank, LTHM, Yollick’s law firm, and
Yollick. Some claims were dismissed or nonsuited, and a unanimous jury found that
(1) Merensky Reef breached its fiduciary duty to the Investors; (2) both Merensky Reef
and the Bank failed to comply with the Letter Agreement; and (3) Merensky Reef, the
Bank, and Yollick committed fraud and converted the Investors’ membership interests
in LTHM. As to each liability theory, the jury found that the Investors sustained actual
damages of over $19 million; that the Bank was 80% responsible for each Investors’
actual damages; and that Merensky Reef and Yollick were each 10% responsible. In
connection with the fraud claims, the jury also assessed punitive damages of $45.6
million against the Bank, and $5.7 million each against Merensky Reef and Yollick.
Yollick moved for judgment notwithstanding the verdict (“JNOV”), and the trial
court granted it on the grounds that there was “no evidence to support the jury’s findings
on the issues of . . . individual liability for Eric Yollick, and conversion . . . .” The trial
court denied the portion of the motion in which Yollick sought JNOV on the grounds of
6
attorney immunity, the economic-loss rule, and improper closing arguments.3 The
Investors appealed. Merensky Reef and the Bank settled with the Investors while the
appeal was pending, and at the Investors’ request, we dismissed all defendants other
than Yollick from this appeal.
II. ISSUES PRESENTED
In the Investors’ sole issue, they contend that the trial court erred in granting
Yollick’s motion for JNOV and entering a judgment that the Investors take nothing on
their claims against him. The Investors do not challenge the portion of the order in
which the trial court granted JNOV as to the conversion claim against Yollick; they
challenge the JNOV only to the extent that the trial court disregarded findings that
ultimately were predicated on a finding that Yollick committed fraud.
The trial court granted the JNOV motion on no-evidence grounds, and “[w]hen a
trial court specifies the ground or grounds upon which it grants a JNOV, an appellant
need only challenge those grounds actually relied upon by the trial court.” Holman St.
Baptist Church v. Jefferson, 317 S.W.3d 540, 547 (Tex. App.—Houston [14th Dist.]
2010, pet. denied). The appellee must bring forward by cross-point any issue or point
that would have vitiated the verdict or that would have prevented an affirmance if the
trial court had rendered judgment on the verdict. TEX. R. CIV. P. 324(c); TEX. R. APP. P.
38.2(b)(1). We will consider such cross-points, even when the appellee does not
explicitly refer to them as such. See Holman St. Baptist Church, 317 S.W.3d at 547
(“Although Jefferson did not explicitly term his . . . arguments as ‘cross-points,’ he did
make such arguments in response to [appellant’s] issues. We will therefore consider
these arguments as cross-points and assess the merits of Jefferson’s contentions.”).
Here, Yollick did not expressly raise any cross-points; however, the Investors’
opening brief addressed some of the alternative grounds on which Yollick requested
3
Other grounds addressed in the motion do not pertain to Yollick.
7
JNOV, and Yollick made responsive arguments in his brief. We will therefore treat
those arguments regarding liability as cross-points.4
III. ANALYSIS
We review a judgment notwithstanding the verdict for legal sufficiency of the
evidence. City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005). We “‘credit
evidence favoring the jury verdict if reasonable jurors could, and disregard contrary
evidence unless reasonable jurors could not.’” Tanner v. Nationwide Mut. Fire Ins. Co.,
289 S.W.3d 828, 830 (Tex. 2009) (quoting Cent. Ready Mix Concrete Co. v. Islas, 228
S.W.3d 649, 651 (Tex. 2007)). We will uphold the jury’s finding on issues necessary to
liability if they are supported by more than a scintilla of competent evidence. Wal-Mart
Stores, Inc. v. Miller, 102 S.W.3d 706, 709 (Tex. 2003) (per curiam). “The final test for
legal sufficiency must always be whether the evidence at trial would enable reasonable
and fair-minded people to reach the verdict under review.”
A. The trial court erred in granting the JNOV on the ground that there was no
evidence of fraud.
The jury was charged that fraud occurs (1) when a party makes a material
misrepresentation, and (2) the misrepresentation is known to be false or that is made
recklessly without knowledge of its truth or falsity and as a positive assertion, and (3)
the misrepresentation is made with the intention that the other party should act on it, and
(4) the other party does rely on the misrepresentation and thereby suffers injury. See
DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex. 1990) (op. on reh’g).
“Misrepresentation” was defined in the charge to include “[a] promise of future
performance made with an intent, at the time the promise was made, not to perform as
promised.” The jury was further instructed that “Merensky Reef and Yollick were
agents of [the Bank] and acting within the scope of their agency relationship with
4
Although Yollick also included arguments in his brief concerning damages, his counsel
abandoned those points at oral argument.
8
respect to the matters in this case.” We measure the sufficiency of the evidence against
these instructions, to which there was no objection. See Hirschfeld Steel Co. v. Kellogg
Brown & Root, Inc., 201 S.W.3d 272, 283–84 (Tex. App.—Houston [14th Dist.] 2006,
no pet.).
In his JNOV motion, Yollick argued there was no evidence that (1) he made any
representations related to the Letter Agreement; (2) any representations he made were
false; (3) he knew any such representation was false; and (4) Investors Renaissance,
Dynafab, and BD Texas relied on any misrepresentation. We conclude that legally
sufficient evidence supports the jury’s fraud finding, and thus, the trial court erred in
granting the JNOV on the no-evidence ground asserted.
1. Yollick represented that the Bank intended to abide by the Letter
Agreement.
The evidence establishes that Yollick made a material representation concerning
the Letter Agreement. In arguing to the contrary, Yollick assumes that a representation
must be a statement outside the contract itself, but this is not the case. By entering into
a contract, a corporate party represents that it intends to be bound by the contract’s
terms. See Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960
S.W.2d 41, 48–49 (Tex. 1998) (sub. op.) (evidence that a corporate party entered into a
contract supports the fraud element that the party represented that it intended to abide by
the contract’s terms). Corporations can act only through individuals. Chon Tri v. J.T.T.,
162 S.W.3d 552, 562 (Tex. 2005). Thus, the individual who signs a contract as the
corporation’s agent represents that the corporation intends to perform the contract.
Here, that representation was made by Yollick, who admittedly signed the Letter
Agreement as the Bank’s agent. By doing so, Yollick made the material representation
that the Bank intended to abide by its terms. As discussed further below, however, the
evidence of the Bank’s actions, whether performed directly by Bank employees or
through Yollick and Merensky Reef as the Bank’s agents, supports the jury’s finding
9
that the Bank failed to comply with the Letter Agreement and never intended to do so.
2. There is legally sufficient evidence that the representation was false
because the Bank never intended to comply with the agreement’s terms.
Direct proof of intent to defraud is rare, but breach of the contract coupled with
slight circumstantial evidence of fraud is sufficient to support a fraud finding.
Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 775 (Tex. 2009) (per
curiam); see also Gotham Ins. Co. v. Warren E & P, Inc., 57 Tex. Sup. Ct. J. 336, 2014
WL 1190049, at *5 n.15 (Tex. Mar. 21, 2014) (“Regarding whether the representation
was fraudulent, this is an inquiry typically left to the jury as it often involves proof of
intent by circumstantial evidence.” (citing Quinn v. Dupree, 157 Tex. 441, 303 S.W.2d
769, 774 (1957) (per curiam))). Although intent is determined at the time the
representation is made, it may be inferred from the party’s subsequent acts. Aquaplex,
297 S.W.3d at 775; Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986).
Here, evidence of the actions taken by the Bank and its agents on the date of the Letter
Agreement and immediately thereafter is legally sufficient to support the finding that
the Bank never intended to comply with the agreement’s terms. In the following
examples, we include acts by Merensky Reef, because as the Bank branch president
testified, it was no secret that Merensky Reef “was always completely under the
control” of the Bank. The jury also was instructed that in the matters in this case,
Merensky Reef was acting within the scope of its agency relationship with the Bank.
First, Merensky Reef immediately disregarded the requirement to hold the
Investors’ membership interests in LTHM in trust, and instead acted from the outset as
LTHM’s sole owner with the right to control the sale of the hospitals. Although the
hospitals were owned by LTHM’s subsidiaries, Merensky Reef passed a resolution on
the day the Letter Agreement was drafted to purchase the hospitals, and on the next day,
Merensky Reef and the Bank signed documents putting that plan into effect without
consulting the Investors. The jury reasonably could conclude from this conduct that the
10
Bank never intended to comply with the Letter Agreement’s requirement to hold the
Investors’ membership interests in trust during the forbearance period and to coordinate
any attempts to market the hospitals. The jury additionally could infer that the Bank
never intended to comply with the prohibition against taking actions having a material
adverse effect on the LTHM Group’s members.
Second, Merensky Reef immediately caused the LTHM Group to assume millions
of dollars of debt that the Bank had already charged off—even though no officer,
director, board member, or shareholder of any company in LTHM Group could identify
any business purpose for LTHM Group to do so. Moreover, Merensky Reef secured
that needless debt with a lien in the Bank’s favor on the LTHM Group’s property.
Neither the Bank nor Merensky Reef informed the Investors of these actions.
Reasonable jurors could conclude from this evidence that the Bank never intended to
comply with the prohibition against taking any action resulting in a material adverse
effect upon LTHM Group’s value, assets, or liabilities, or with the requirement to obtain
the Investors’ prior approval for any proposed business expenditure outside the ordinary
course of business in excess of $20,000.
Third, within a week of the Letter Agreement, the Bank’s agents caused the
LTHM Group to oust all of its previous board members and corporate officers who were
not answerable to the Bank, replacing them with a single person—Duane Rossmann—
who did as the Bank instructed him. Specifically, he admitted that because the Bank’s
branch president “controlled the purse strings,” he “took her advice.” The jury
reasonably could conclude from this that the Bank never intended to comply with the
agreement’s prohibition against taking actions having a material adverse effect on the
LTHM Group’s governance.
3. There is legally sufficient evidence that Yollick knew the representation
was false.
There also is legally sufficient evidence that Yollick knew the Bank never
11
intended to comply with the Letter Agreement’s terms. As with intent, knowledge of
falsity can be proved with circumstantial evidence. See Johnson & Higgins of Tex., Inc.
v. Kenneco Energy, Inc., 962 S.W.2d 507, 526 (Tex. 1998) (sub. op.). And here, there
is evidence that when Yollick represented that the Bank intended to perform, he knew
that this was false because he already had witnessed Merensky Reef approving the plans
to violate the agreement. Specifically, the record contains more than a scintilla of
evidence that (a) Yollick and the Bank knew the terms of the Letter Agreement before
Merensky Reef’s board meeting on May 14, 2009; (b) at the same meeting, the board
resolved both to execute the agreement and to take actions prohibited by the agreement;
(c) Yollick was aware of these actions because they were performed in his presence and
at his direction; and (d) Yollick did not represent that the Bank intended to comply with
the agreement until after he had seen that these resolutions were passed.
First, the record shows that Yollick, the Bank, and Merensky Reef all were aware
of the proposed Letter Agreement’s terms by the time of that board meeting. The Letter
Agreement shows on its face that LTHM’s attorney emailed the proposal to Yollick for
the Bank’s approval on May 14, 2009, and Merensky Reef voted at 7:15 p.m. to execute
the agreement; thus, the jury could infer that Yollick and Merensky Reef had read the
Letter Agreement by that time. The jury was instructed that both Yollick and Merensky
Reef were the Bank’s agents, and an agent’s knowledge is imputed to its principal. See
Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 924 (Tex. 2010).
Second, the board’s minutes show that in the course of a single meeting,
Merensky Reef voted both to execute the Letter Agreement and to take actions that
would materially breach it. As previously mentioned, those included plans to
(a) execute loan documents for Merensky Reef to purchase the hospitals, even though
there had been no coordination of marketing efforts as required; and (b) decrease the
LTHG Group’s value, encumber its assets, and increase its liabilities by forcing it to
assume approximately $5.2 million of needless debt.
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Third, there is more than a scintilla of evidence that Yollick witnessed the board’s
actions and even directed them. The address at which the meetings were held is
identified in the minutes, and witnesses testified that the meetings were held at Yollick’s
office and that the address was that of his law firm. Jenkins further testified that Yollick
was present at the meetings and prepared the minutes. Both Jenkins and Drake testified
that they acted in reliance on Yollick’s instructions.
Fourth, there is evidence that Yollick, in his capacity as the Bank’s agent, did not
sign and return the proposed Letter Agreement until at least the day after the board
passed these resolutions. The Letter Agreement stated that if the Bank accepted the
agreement, Yollick was to indicate that by signing it. See Advantage Physical Therapy,
Inc. v. Cruse, 165 S.W.3d 21, 25–26 (Tex. App.—Houston [14th Dist.] 2005, no pet.)
(explaining that to form a binding contract, the offer must be accepted in compliance
with its terms, and the acceptance must be communicated). The evidence supports an
inference that Yollick did not sign and return the agreement on May 14, 2009, because
at 12:08 a.m. on May 15, 2009, LTHM’s attorney wrote in an email to Yollick, “Please
advise when you anticipate obtaining final approval from your side and on getting us the
signature pages for [the Bank] and [Merensky Reef].” By that time, Yollick would have
known that the Bank did not intend to perform the agreement, because he already had
seen the board approve the plans to violate it. The Letter Agreement bearing his
signature is evidence that despite this knowledge, he nevertheless represented that the
Bank intended to be bound by the agreement.
Viewed in the light most favorable to the jury’s finding, the evidence is more than
sufficient to show that when Yollick represented that the Bank intended to comply with
the Letter Agreement, he knew that the representation was false. See Formosa Plastics,
960 S.W.2d at 48 (evidence supported fraud finding where the contract provided that the
plaintiff would control materials delivery and defendant decided before the contract was
signed to take over materials delivery without informing the plaintiff).
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4. There is legally sufficient evidence that all of the Investors relied on the
false representation.
Yollick contends because the principals of three of the Investors did not testify at
trial, there is no evidence that those Investors relied on any statement by him; however,
one witness testified about all of the Investors’ reliance. Kailee Wong was asked, “In
the term sheet of May 14, 2009, what did you and the other plaintiffs -- did you rely
upon the defendants to follow their -- the words that were set forth in that agreement?”
He answered, “Yeah, we did. That’s the whole reason why we went into it. If you’re
going to go into an agreement in good faith, it’s just -- that’s how we operated and that’s
what we were trying to do.” His testimony is some evidence that all of the Investors
relied on Yollick’s representation.
We conclude that the trial court erred in granting Yollick’s JNOV motion on the
ground that there was no evidence to support the jury’s finding on the issue of Yollick’s
individual liability.
B. Yollick failed to conclusively establish that the economic-loss rule bars the
Investors from recovering on their claim against him.
In his appellate brief, Yollick argues that because there is no evidence of fraud,
the claims against him must sound in contract. His only mention of the economic-loss
rule is found in the heading, “Because the claims in this case sound in contract, the
economic[-]loss rule precludes any recovery against Yollick.”5 As previously
discussed, however, there is evidence of fraud, a cause of action for which purely
economic losses are recoverable. See Sharyland Water Supply Corp. v. City of Alton,
354 S.W.3d 407, 418–19 (Tex. 2011); see also Formosa Plastics, 960 S.W.2d at 47
(“[T]ort damages are recoverable for a fraudulent[-]inducement claim irrespective of
whether the fraudulent representations are later subsumed in a contract or whether the
plaintiff only suffers an economic loss related to the subject matter of the contract.”).
5
Capitalization normalized.
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We accordingly reject this argument as an alternative basis for judgment
notwithstanding the verdict.
C. Yollick failed to conclusively establish that he is immune from liability for
the Investors’ claims.
Yollick additionally argues that he is entitled to attorney immunity. Immunity is
an affirmative defense. City of Houston v. Williams, 353 S.W.3d 128, 134 (Tex. 2011)
(addressing immunity generally); Essex Crane Rental Corp. v. Carter, 371 S.W.3d 366,
381 (Tex. App.—Houston [1st Dist.] 2012, pet. denied) (addressing attorney immunity
specifically). Yollick therefore bore the burden to establish his entitlement to immunity.
Yollick says that he is entitled to attorney immunity as a matter of law because
the Investors stipulated that he never represented them but at all times represented the
Bank and/or Merensky Reef. That fact is insufficient to establish immunity, because it
is well established that an attorney can be held liable for his own fraudulent conduct
even though it was performed on a client’s behalf. See Chu v. Chong Hui Hong, 249
S.W.3d 441, 446–47 (Tex. 2008) (“An attorney who personally . . . tells lies on a
client’s behalf may be liable for . . . fraud in some cases.”); Poole v. Hous. & T.C. Ry.
Co., 58 Tex. 134, 137–38 (1882) (holding that an attorney cannot “shield himself from
liability on the ground that he was the agent of [his client], for no one is justified on that
ground in knowingly committing wilful and premeditated frauds for another”); James v.
Easton, 368 S.W.3d 799, 803 (Tex. App.—Houston [14th Dist.] 2012, pet. denied) (“[I]f
an attorney engages in fraudulent or malicious conduct in the course of representing his
client, an opposing party may assert intentional tort claims against the attorney based
upon this conduct.”); Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398, 406 (Tex.
App.—Houston [1st Dist.] 2005, pet. denied) (“A lawyer thus cannot shield his own
willful and premeditated fraudulent actions from liability simply on the ground that he is
an agent of his client.”); see also Essex Crane Rental, 371 S.W.3d at 381 (noting—as
we have just done—that in Chu, the Texas Supreme Court “did not hold that attorneys
15
are immune to suit for fraudulent acts undertaken in the representation of a client; it
indicated exactly the opposite”).
In arguing to the contrary, Yollick relies on statements by courts in the course of
explaining that an attorney is not liable to a non-client for (1) professional negligence in
rendering legal services or (2) statements made in the course of representing the non-
client’s opponent in adversarial proceedings. Both of those circumstances are
distinguishable from the facts presented here.
In the first category of authority, Yollick relies on language used by the authoring
court in explaining that an attorney generally does not independently owe a non-client a
duty of care in the provision of legal services.6 For this reason, an attorney ordinarily is
not liable to a non-client for legal malpractice. The Investors, however, have not sought
to hold Yollick liable for malpractice. They instead alleged—and the jury agreed—that
6
See, e.g., Chu, 249 S.W.3d at 446 n.18 (“At common law, an attorney owes a duty of care
only to his or her client, not to third parties who may have been damaged by the attorney’s negligent
representation of the client.” (quoting Barcelo v. Elliott, 923 S.W.2d 575, 577 (Tex. 1996)));
McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 792 (Tex. 1999)
(“The general rule is that persons who are not in privity with the attorney cannot sue the attorney for
legal malpractice.”); Vinson & Elkins v. Moran, 946 S.W.2d 381, 401 (Tex. App.—Houston [14th
Dist.] 1997, writ dism’d) (“Texas law does not recognize a cause of action for negligence against an
attorney asserted by one not in privity with that attorney. . . . The courts of this state have uniformly
applied the privity barrier in the estate planning context.”); White v. Bayless, 32 S.W.3d 271, 276 (Tex.
App.—San Antonio 2000, pet. denied) (holding that opposing counsel “cannot be held liable for
wrongful litigation conduct” because they owed no duty to the opposing party); Renfroe v. Jones &
Assocs., 947 S.W.2d 285, 287 (Tex. App.—Fort Worth 1997, writ denied) (“An attorney’s duties that
arise from the attorney-client relationship are owed only to the client, not to third persons, such as
adverse parties.”); Bradt v. West, 892 S.W.2d 56, 71–72 (Tex. App.—Houston [1st Dist.] 1994, writ
denied) (“[A]n attorney does not have a right of recovery, under any cause of action, against another
attorney arising from conduct the second attorney engaged in as part of the discharge of his duties in
representing a party in a lawsuit in which the first attorney also represented a party.”); Maynard v.
Caballero, 752 S.W.2d 719, 721 (Tex. App.—El Paso 1988, writ denied) (holding that the defendant
attorney owed a duty to his own client, but owed no duty to his client’s co-defendant); Likover v.
Sunflower Terrace II, Ltd., 696 S.W.2d 468, 472 (Tex. App.—Houston [1st Dist.] 1985, no writ) (“An
attorney has no general duty to the opposing party, but he is liable for injuries to third parties when his
conduct is fraudulent or malicious. He is not liable for breach of a duty to the third party, but he is
liable for fraud.”); Morris v. Bailey, 398 S.W.2d 946, 948 (Tex. Civ. App.—Austin 1966, writ ref’d
n.r.e.) (explaining that opposing counsel had a right to move for a continuance on his client’s behalf
and violated no duty to non-client by doing so).
16
Yollick committed fraud by intentionally or recklessly making a material
misrepresentation with the intention that the Investors would rely on it. The jury was
instructed that “misrepresentation” can mean “[a] promise of future performance made
with an intent, at the time the promise was made, not to perform as promised.” There is
evidence that Yollick, in his capacity as the Bank’s agent, promised that the Bank would
perform in accordance with the terms set forth in the Letter Agreement, and that Yollick
made the representation knowing that the Bank did not intend to perform as promised.
The duty not to intentionally or recklessly make false statements for the purpose of
fraudulently inducing another to enter a contract is not a duty of care that is owed only
by attorneys in the provision of legal services, nor is it a duty owed only to clients; it is
an independent duty that applies to lawyers and non-lawyers alike, and that is owed to
non-clients as well as to clients. See Formosa Plastics, 960 S.W.2d at 46 (“Texas law
has long imposed a duty to abstain from inducing another to enter into a contract
through the use of fraudulent misrepresentations.”).
In the second category of authority, Yollick relies on language used by the
authoring court in explaining that a non-client cannot reasonably rely on statements
made by opposing counsel in an adversarial context.7 But in signing the Letter
Agreement, Yollick was not relying on his professional knowledge and training as an
7
See, e.g., Bosch v. Armstrong, No. 01-08-00847-CV, 2009 WL 1635318, at *3–4 (Tex.
App.—Houston [1st Dist.] June 11, 2009, pet. denied) (mem. op.) (holding attorney immune from
liability to non-client for defamation and negligent or intentional misrepresentations based on
statements made in a pre-suit demand letter, pleadings, and an application for a temporary restraining
order while representing claimant’s opponent); Dixon Fin. Servs., Ltd. v. Greenberg, Peden, Siegmyer
& Oshman, P.C., No. 01-06-00696-CV, 2008 WL 746548, at *8–11 (Tex. App.—Houston [1st Dist.]
Mar. 20, 2008, pet. denied) (mem. op. on reh’g) (holding attorney immune from liability to non-client
for fraud based on the attorney’s signing of a verification in support of a petition for a temporary
restraining order and his communications with opposing counsel allegedly overstating the amount of
stock that was subject to an arbitration award); Alpert, 178 S.W.3d at 408 (holding that attorney was
not liable to non-client for conspiracy to defraud for filing lawsuits and pleadings and providing legal
advice to claimant’s opponent); Chapman Children’s Trust v. Porter & Hedges, L.L.P., 32 S.W.3d
429, 442 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (holding that law firm was not liable to
claimants where “the allegations made by the [claimants] do no more than demonstrate that [opposing
counsel] attempted to negotiate a smaller settlement with the [claimants on their clients’ behalf”).
17
attorney to make a statement in the course of representing his client in an adversarial
context; he was simply signing his name, acting as the Bank’s agent with actual
authority to bind his principal to a promise of future performance. The problem is that
he knew the promise was false.
It is well-established that corporate agents are individually liable for fraudulent or
tortious acts committed while in the service of their corporation. See, e.g., Kingston v.
Helm, 82 S.W.3d 755, 759 (Tex. App.—Corpus Christi 2002, pet. denied); Holberg v.
Teal Constr. Co., 879 S.W.2d 358, 360 (Tex. App.—Houston [14th Dist.] 1994, no
writ); Guilbeau v. Anderson, 841 S.W.2d 517, 519 (Tex. App.—Houston [14th Dist.]
1992, no writ); Grierson v. Parker Energy Partners 1984-I, 737 S.W.2d 375, 377 (Tex.
App.—Houston [14th Dist.] 1987, no writ); Great Am. Homebuilders, Inc. v. Gerhart,
708 S.W.2d 8, 10–11 (Tex. App.—Houston [1st Dist.] 1986, writ ref’d n.r.e.); Barclay
v. Johnson, 686 S.W.2d 334, 336 (Tex. App.—Houston [1st Dist.] 1985, no writ). It is
undisputed that Yollick signed the Letter Agreement as the Bank’s agent, and the jury
was specifically instructed, without objection, that “Merensky Reef and Yollick were
agents of [the Bank] and acting within the scope of their agency relationship with
respect to the matters in this case.” By signing the agreement on the Bank’s behalf,
Yollick made a material representation that the Bank intended to adhere to its terms.
Because he did so knowing that the Bank did not intend to perform as promised, he can
be held liable for his conduct, just as any other agent or corporate representative would
be. See Miller v. Keyser, 90 S.W.3d 712, 717 (Tex. 2002) (“[A] corporate agent is
personally liable for his own fraudulent or tortious acts.”); RESTATEMENT (SECOND) OF
AGENCY § 348 (1958) (“An agent who fraudulently makes representations, uses duress,
or knowingly assists in the commission of tortious fraud or duress by his principal or by
others is subject to liability in tort to the injured person although the fraud or duress
occurs in a transaction on behalf of the principal.”) (cited with approval in Miller, 90
S.W.3d at 717 n.29); cf. Duval Cnty. Ranch Co. v. Wooldridge, 667 S.W.2d 887, 894
18
(Tex. App.—Austin 1984, writ dism’d w.o.j.) (noting that an agent’s false statements of
principal’s intent to perform were material misrepresentations on which to base a
fraudulent-inducement claim). He is not held to a lower standard than any other agent
simply because he also happens to be the principal’s attorney.
Yollick also contends that an attorney is immune from liability for fraud absent
evidence that he sought a personal benefit from the allegedly fraudulent conduct. He
has not cited, and we have not found, any authority that supports this proposition, but
there is authority to the contrary. In Poole v. Houston & T.C. Railway Co., the Texas
Supreme Court addressed an attorney’s fraudulent conduct that apparently was
performed solely in his client’s interest and not on his own behalf. In that case, a
merchant discovered that its customer was insolvent and caused the railroad station
agent to stop a shipment in transit to the customer. 58 Tex. at 135. When the customer
learned of this, it agreed to have the goods shipped back to the merchant, but then
assigned its bill of lading to its attorney, J.L. Scott. The attorney intercepted the goods,
erased the merchant’s name from the shipment, inserted the name of “J.L. Scott & Co.,”
and reshipped the goods on another bill of lading to the customer’s location. Id. When
the goods arrived, Scott presented the bill of lading and had the goods delivered to his
client. Id. The evidence recited in the opinion shows only that the attorney acted in his
client’s interest, not that he acted in his own interest. The court nevertheless stated,
Having assumed the apparent ownership of the goods, for the purpose and
with the intention of consummating the fraud upon appellant [i.e., the
merchant], he will not be heard to deny his liability to appellant for the loss
sustained by reason of his wrongful acts, under the privileges of an attorney
at law, for such acts are entirely foreign to the duties of an attorney; neither
will he be permitted, under such circumstances, to shield himself from
liability on the ground that he was the agent of the [customer], for no one is
justified on that ground in knowingly committing wilful and premeditated
frauds for another.
Id. at 137–38; see also Byrd v. Vick, Carney & Smith LLP, 409 S.W.3d 772, 780–81
(Tex. App.—Fort Worth 2013, pet. filed) (“Although the preparation of a bill of sale to
19
transfer an airplane is not conduct ‘foreign to the duties of an attorney,’ the intentional
and knowing inclusion of false information in a bill of sale to assist a client in avoiding
tax liability is.”); Essex Crane Rental Corp., 371 S.W.3d at 382 (“Attorneys have no
immunity from knowingly drafting fraudulent documents . . . , and they may not deny
their liability . . . for the loss sustained by reason of their own wrongful acts on the
ground that they are the agents of their clients . . . .”).8
Yollick further argues that “the attorney must intend an injury from the personal
acts” before he will be held liable. Although that is an element of a claim for
conspiracy to defraud, it is not an element of the fraud cause of action for which the jury
found Yollick liable. Compare Chu, 249 S.W.3d at 446 (“Chu could only be liable for
conspiracy if he agreed to the injury to be accomplished; agreeing to the conduct
ultimately resulting in injury is not enough.”) and Chon Tri, 162 S.W.3d at 556–57
(explaining that “merely proving a joint ‘intent to engage in the conduct that resulted in
the injury’ is not sufficient to establish a cause of action for civil conspiracy,” because
the conspirators must agree to the intended injury (quoting Triplex Commc’ns, Inc. v.
Riley, 900 S.W.2d 716, 719 (Tex. 1995))) with Italian Cowboy Partners, Ltd. v.
Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011) (listing elements of a
fraud claim).
Yollick additionally contends that a person cannot be held individually liable for
fraudulent statements made while acting as the agent for a disclosed principal. In
support of this argument, Yollick relies on authorities explaining that an agent assumes
no contractual liability by entering into a contract for a disclosed principal.9 The cited
8
Morever, there is evidence from which a jury could reasonably infer that Yollick sought an
indirect personal benefit. The record indicates that he asked his wife to serve on the board of
Merensky Reef Hospital Corporation, a corporation controlled by the Bank, and caused LTHM to pay
her $10,000 for doing no more than following his instructions. The funds, like all property possessed
during a marriage, would be presumed to be community property. See Barnett v. Barnett, 67 S.W.3d
107, 111 & n.13 (Tex. 2001) (citing TEX. FAM. CODE ANN. § 3.003(a) (West 2006)).
9
See, e.g., Lacquement v. Handy, 876 S.W.2d 932, 939 (Tex. App.—Fort Worth 1994, no writ)
20
cases do not stand for the proposition that an agent who discloses his principal’s identity
escapes tort liability for his own fraudulent misrepresentations.
We conclude that Yollick failed to establish that he was entitled to judgment
notwithstanding the verdict on the alternative ground that he is immune from liability.
D. Opposing counsel’s allegedly improper closing argument regarding a
different misrepresentation by a Bank officer does not vitiate the jury’s
verdict as to Yollick.
Yollick argues that the trial court properly granted the JNOV because in closing
argument during the liability portion of trial, the Investors’ counsel stated that in March
2009, the Bank’s chief lending officer misrepresented that the Bank would work with
the Investors. Yollick points out that during an earlier hearing on a motion for directed
verdict, the Investors’ attorney told the court that they were not pursuing a fraud claim
based on that statement. Yollick now argues that “[t]heir change of position alone
justifies the JNOV . . . . Appellants’ argument created havoc which the trial court
resolved by granting the JNOV.” We disagree.
The jury was asked to make separate findings about the fraud liability of the
Bank, Merensky Reef, and Yollick, and it found that all three were liable. The
statement about which Yollick complains concerns an alleged misrepresentation by a
Bank officer, not by Yollick. If opposing counsel’s statement influenced any of the
(“[A]s a general rule, if an agent wishes to avoid personal liability on a contract, he has a duty to
disclose to the third party, not only the fact he is acting in a representative capacity, but also the
identity of his principal.”); City of Houston v. First City, 827 S.W.2d 462, 480 (Tex. App.—Houston
[1st Dist.] 1992, writ denied) (holding that defendant principal’s attorneys were not liable for the
plaintiff’s attorney’s fees incurred as a result of the principal’s breach of contract, and explaining,
“This is not a case where an action will lie against an agent because of a wrong for which the agent is
personally and independently responsible” (citing Briggs v. Rodriguez, 236 S.W.2d 510, 515 (Tex.
Civ. App.—San Antonio 1951, writ ref’d n.r.e.))); Wynne v. Adcock Pipe & Supply, 761 S.W.2d 67,
68–69 (Tex. App.—San Antonio 1988, writ denied) (holding that individual “contractually obligated
himself on the sworn account” by opening the account without disclosing that he was acting as the
agent for a corporation); A to Z Rental Ctr. v. Burris, 714 S.W.2d 433, 435 (Tex. App.—Austin 1986,
writ ref’d n.r.e.) (“Unless the parties have agreed otherwise, a person making or purporting to make a
contract with another as agent for a disclosed principal does not become a party to the contract.”).
21
jury’s fraud-liability findings, it would have been the finding that the Bank committed
fraud, not that Yollick did. We therefore do not address the question of whether there
was anything improper about opposing counsel’s argument, because in any event, it
would not have harmed Yollick. See TEX. R. APP. P. 44.1 (a judgment in a civil case
may not be reversed for an error of law unless the error probably caused the rendition of
an improper judgment or probably prevented the appellant from properly presenting the
case on appeal).10
IV. CONCLUSION
Because there is legally sufficient evidence to support the jury’s finding that
Yollick committed fraud, the trial court erred in granting the JNOV on this basis. The
fraud claim is not barred by the economic-loss rule, and attorney immunity does not
apply to Yollick’s conduct in executing the Letter Agreement as the Bank’s agent
despite his knowledge that the Bank had no intention of performing. Finally, the
statement that Yollick treats as an improper jury argument did not harm him because it
applied only to a different defendant. We therefore reverse the portion of the judgment
in which the trial court ordered “that Plaintiffs shall take nothing on their claims
asserted against Defendant Eric Yollick, individually,” and we remand the case to the
trial court for rendition of judgment consistent with this court’s opinion.
/s/ Tracy Christopher
Justice
Panel consists of Justices Boyce, Christopher, and Brown.
10
We note that even an incurably prejudicial jury argument would not support judgment
notwithstanding the verdict; the proper remedy would be a new trial. See Living Ctrs. of Tex., Inc. v.
Penalver, 256 S.W.3d 678, 679 (Tex. 2008) (per curiam).
22