Opinion issued August 24, 2023
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-21-00331-CV
———————————
IN THE ESTATE OF LARRY WAYNE EWERS, DECEASED
On Appeal from the Probate Court No. 2
Harris County, Texas
Trial Court Case No. 483323
O P I N I O N
The trial court found that Larry Ewers committed fraud and unjust enrichment
against Joseph Fauth, III and Prentice Cooper. Larry’s widow and the independent
administrator of his estate, Janice Barr Ewers, appeals. For the reasons discussed
below, we affirm the trial court’s judgment.
BACKGROUND
In May of 2010, Cooper’s accountant called him and asked if he would be
interested in meeting someone who had some interesting investment opportunities.
Cooper met with Larry and instantly liked him. As Cooper described, Larry’s
“demeanor was very, very good. He was friendly to everyone. He was always just
being very courteous to people. He would be a wonderful friend.” Cooper initially
invested $200,000 in Larry’s company.
Fauth knew Cooper from church. Cooper told Fauth that Larry was looking
for investors and introduced them to each other. Fauth soon after invested $420,000
with Larry’s company. Both Fauth and Cooper understood that they were investing
in Larry’s company, EPD Management Company, LLC (“EPD”), and that they were
buying an ownership interest in the company and would be entitled to proceeds of
any future business deals that EPD made. Larry represented that EPD was involved
in oil and gas speculation, something with which neither Fauth nor Cooper had any
experience. Fauth had worked for Baker Hughes in its human resources department,
and he later worked as a private consultant who trained managers and supervisors.
Cooper owned a construction company.
The Dewbre Deal and the Citadel Contracts
In early 2011, Larry approached Fauth and Cooper with a business prospect:
if Larry could get the financing in place, his company, Citadel Exploration, LLC
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(“Citadel”), could purchase a portion of Dewbre Production, an oil and gas
production company. The proposed deal with Dewbre Production was for Citadel to
purchase a $52 million asset and pay it off in monthly installments over five years.
During that time, Citadel would earn profits from the oil and gas that Dewbre
Production sold, but most of those profits would go toward paying off the $52
million note. After five years, Citadel would own the asset outright and receive all
of the profits, which Larry expected to be extremely lucrative.
Larry represented that he was struggling to get the financing in place,
however. Enticed by the prospect of profiting from the deal, Fauth and Cooper
agreed to loan Larry’s company the needed money to make the initial down payment
to fund the Dewbre deal. Both Fauth and Cooper signed nearly identical contracts in
March of 2011 memorializing this agreement—the Citadel contracts. In those
contracts, Fauth and Cooper agreed to “roll over” their existing interest in EPD to
Citadel in exchange for a six percent interest in the company and to loan Citadel an
additional amount: $220,000 from Cooper and $400,000 from Fauth. Fauth cashed
out his 401k to provide the money for the loan. Cooper also withdrew from his
retirement savings. The Citadel contracts stated that Citadel would repay the loan
amounts to Fauth and Cooper within 59 days.
The 59 days passed, but Citadel did not repay the loans to either Fauth or
Cooper. Around that time, though, Larry invited Fauth and Cooper and their wives
3
to a celebratory dinner in Corpus Christi because the Dewbre deal was closing. Fauth
and Cooper believed they were set up to earn millions, and they were not concerned
that their loans had not been repaid. As Fauth testified:
[W]hen this [Dewbre] asset is paid off, it’s worth $52 million. My 6
percent was worth over $3 million. On top of that, when the deal is paid
off, now we’re not making this $700,000 monthly note. I’m going to
get 6 percent of that note, which is about $40,000 a month to the tune
of over $500,000 a year. That was going to be my retirement income.
Within a few months, Larry began sending Fauth and Cooper monthly checks
for their earnings from the Dewbre deal. The checks, written from EPD, were
typically for a few thousand dollars and were sent with income statements detailing
the money earned from production, less production expenses, and divided by the
appellees’ ownership percentage. This continued for several years. Cooper saved the
income statements because, as he put it, these were his “eagle eggs,” meaning “here
we’ve got something that’s really good.”
In 2014, the payments stopped. When the appellees asked why, Larry
explained that the oil and gas market was down, so profits were reduced. Fauth
testified, as he understood the situation:
[T]he market had gotten soft on natural gas. And where we were having
3-dollar gas, the market was below $2; and I knew that that would be
cutting into our revenue, our, you know, our sale of product. We still
had an obligation to make our monthly note because the Dewbre deal
was a 52-million-dollar asset. . . . [M]y investment was still solid
because we were making enough production to pay the monthly note.
We just—and whatever we did have left over, it was being placed into
an escrow account, so I was told.
4
Cooper explained he was not concerned at the time:
[O]nce we got this thing paid for, if it—if we only got what Larry—
what was supposed to be being paid as a note, if that’s all we got, and
divided it by 6 percent, we’re still doing great. So I had no problem with
Larry taking the money and not giving us any at that time because I
knew within five years it was going to be paid for and then we would
have something that was worth right at $52 million.
I considered Larry a friend. And he was going to do everything that he
could to get back enough to where he was giving us our—or not giving
us—but giving us—sending us our partnership percentage. I trusted
him. . . . I trusted him because he was kind. He was considerate of other
people.
Cooper understood that the note had been refinanced and was now going to take ten
years to fully pay off. Fauth, like Cooper, was unconcerned:
The reason I didn’t do anything at that point is because [as] I understood
the situation, our investment was still good. And we had already been
paying, to my knowledge, on a 52-million-dollar asset and we were
getting close—closer to paying it off and starting all over.
They were still earning enough money to pay off the installments on the note for the
Dewbre deal, Larry assured them, and any amount leftover he was placing into an
escrow account to fund new business ventures. The appellees never received another
payment from the Dewbre deal.
New Business Ventures
Over the next six years, Larry approached Fauth and Cooper with numerous
new business ventures that were each “a potentially huge deal.” These included some
additional oil and gas ventures like purchasing depressed oil wells to “rework them
and put them back online,” but also ventures that involved some exciting new,
5
confidential technology: mining rare earth minerals in Mongolia, refining
contaminated drilling water into drinking water, filtering salt water into drinking
water for “deprived areas around the world,” eliminating brain cancer from
excessive use of cell phones, and mining rare earth salts in Nebraska. Larry and
Cooper took meetings with companies that were looking for investors, and in 2016,
Larry invited Cooper to fly with him on a private jet to look at a potential mining
opportunity in Nebraska and tour the mining facility. Also on that flight were Donald
Weise and Robert Painter, two of Larry’s business associates.
These new ventures were “a continuation of [Fauth and Cooper’s] business
dealings” with Larry, Fauth testified. As he understood it, Citadel had not used up
his initial investment, and that money together with the earnings from the Dewbre
deal provided the “seed money” for new “business opportunities that were generated
from that investment.” Cooper also understood that these new opportunities were a
continuation of their business dealings with Larry; Larry told them about new
opportunities to let them know “that he was looking at other things, which was what
[they] expected him to do.”
Larry constantly emphasized the need for secrecy. In an email about a
potential “mine to metal” deal, Larry wrote, “I ask this not be shared with ANYONE.
If word leaked out it could cost us two deals.” “[I]n all of our dealings,” Fauth
testified, “we were constantly told to keep it to ourselves, keep it close to the chest.
6
If others find out about what we’re doing, we would lose our advantage. The price
would go down or they would get the project and we wouldn’t.” He, Cooper, and
Larry had a “very tight circle of communication” and did not talk to anyone else
about their potential deals.
Both Fauth and Cooper testified that they never invested money in any of
these new business ventures.
GEM and HELA
The last of these business ventures involved a startup company called HELA
Novel Metals, LLC (“HELA”). Cooper testified that he understood HELA to be a
company in its early stages that takes rare earth products and purifies them for use
in the automobile industry and by the Department of Defense. Larry purported to be
one of the principals of HELA. Larry told Fauth and Cooper about the company
because they were “partners, endeavoring to make more money,” and HELA “was
supposed to make millions . . . down the road.” Larry claimed to have invested
millions of dollars in HELA, purchasing laboratory equipment and paying rent for
its laboratory. Larry sent Fauth and Cooper emails with photos of the equipment he
purchased and an email with a “cashflow analysis” of the company, showing that it
was going to make millions.
Larry did not invest directly in HELA. He and another person, Donald Weise,
each agreed to contribute 50 percent of the capital in a new company, Green Energy
7
Minerals LLC (“GEM”). Both Larry and Weise were co-managers of GEM. GEM
in turn invested in HELA.
In an email to Fauth and Cooper providing updates about HELA, Larry again
emphasized the need for secrecy:
There are a lot of things discussed that I am not comfortable
sending in a[n] e-mail. Tonight, most important thing we need to
recognize is Secrecy [sic] is our best friend. My 3 am wake up call
always includes a prayer that we recognize the importance of secrecy. .
. . [M]y biggest fear is loose tongues. Like in the book of James, “small
but powerful is the tongue, like a bit, a rudder, and a small fire[.”] Don’t
mean to imply or insult anyone, but the tongue is our enemy. Enough
of my preaching.
In December of 2019, Cooper, hoping to clarify some of his business dealings
with Larry, recorded a meeting between himself and Larry. In the meeting, Larry
kept using the term “we”: “Jesus, we’ve got a lot of money invested in these
companies,” and “We’ve got $11 million invested.” Cooper testified he understood
this to mean that Larry, Fauth, and himself through their joint business ventures had
$11 million invested in HELA. The recording indicated that Larry tried to sell
Cooper on the importance of taking a risk like investing in HELA:
MR. EWERS: My father-in-law used to tell me all the time, “If you’re ever
going to make it, you’ve got to take a leap of faith.”
MR. COOPER: Oh, yeah.
MR. EWERS: If you don’t take that leap of faith, you’re just going to be
working for another man.
MR. COOPER: That—I total—yeah. Because—because you’re going to be
working for wholesale prices—
8
MR. EWERS: That’s it.
MR. COOPER: —for somebody else. And they’re the ones that are going to
make the money.
MR. EWERS: Uh-huh.
MR. COOPER: You’ve got to be willing.
MR. EWERS: You’ve got to be willing to take that leap—leap of faith. And
this is a big leap, usually.
Cooper testified that statements like this meant a lot to him personally,
because he was “a person of faith, and Larry was a person of faith. I think it’s
wonderful to be able to be with people of the same ideas and of the same feelings
about God. And this man seemed to have a very good relationship with God[,] . . .
and I appreciated it.” And the HELA investment was going to pay off soon, Larry
said. “Ten tons a month is going to make us an unbelievable amount of money,
unbelievable. It’s—it’s almost Monopoly money.”
But around the same time as this meeting, Larry, who had been diagnosed
with brain cancer, transferred his interest in GEM to his wife, Janice. Janice admitted
that she paid no consideration for this transfer. She said she believed Larry was
concerned for his health and wanted to provide for her in case something happened
to him. She acknowledged the interest had no value at the time of his death or at the
time of trial, but Larry wanted her to have it in case it did become valuable. If HELA
does ever make a profit, she will be entitled to receive a distribution from the profits
by virtue of this interest in GEM.
9
Larry’s Death and Court Proceedings
Larry died in January of 2020. Janice was appointed the independent
administrator of his estate. Only after Larry’s death did Fauth and Cooper learn that
the Dewbre deal had never closed. Fauth and Cooper each submitted claims against
his estate in the amount of their total investments with Larry, minus the total amounts
they had already received as payments from the purported Dewbre deal: $752,523.13
for Fauth and $572,573.13 for Cooper.
Janice, as independent administrator, denied these claims based on the statute
of limitations. Fauth and Cooper filed an application to remove Janice as
independent administrator. They also filed a lawsuit against Janice, individually and
as administrator of Larry’s estate, for fraud and unjust enrichment. The case was
tried to the bench. The trial court rendered judgment in favor of Fauth and Cooper
against Larry’s estate in the amounts of $752,523.13 and $572,573.13, respectively.
The trial court ruled that Fauth and Cooper take nothing against Janice individually.
The trial court filed findings of fact and conclusions of law. Specifically, the Court
found:
• Fauth and Cooper invested a total of $820,000 and $640,000, respectively,
with Larry’s companies;
• Larry represented that their combined total investment of $1,460,000 was
for the purchase of certain oil and gas leases from Dewbre Production;
10
• Larry never closed on the deal for the purchase of oil and gas leases from
Dewbre, but he represented to Fauth and Cooper that the purchase of the
Dewbre assets closed;
• From December 2011 through April of 2014, Larry sent Fauth and Cooper
a combined total of $67,476.87 each in checks ostensibly for their share of
the production from Dewbre along with itemized statements showing the
alleged income and expenses from the Dewbre wells, but the checks were
written from EPD, not Citadel;
• Larry represented to Fauth and Cooper that the payments from Dewbre
stopped because of a depression in the price of oil and gas, and that the
income from the Dewbre wells was instead going to building equity in the
company;
• in order to prevent Fauth and Cooper from learning the Dewbre deal did
not close, Larry represented to them that they were partners in his
businesses and presented them with a series of investment opportunities he
was considering investing their money and his money in;
• Larry presented these potential deals to Fauth and Cooper in order to
prevent them from discovering the theft of their combined total investment
of $1,460,000;
• Larry shared confidential information regarding GEM’s investment with
HELA as though they were parties with him in that investment;
• Larry sought to prevent Fauth and Cooper from investigating the alleged
Dewbre production as well as their alleged interests in Larry’s entities by
telling them that confidentiality was of paramount importance, and Larry
frequently cited scripture when stressing the importance of this
confidentiality;
• in December of 2019, Larry transferred his interest in GEM to Janice, and
no consideration was given in exchange for this transfer;
• Larry’s interest in GEM has substantial value, and the holder of that
interest will be entitled to reimbursement should HELA make a profit;
• Fauth and Cooper did not learn until after Larry’s death that the Dewbre
deal never actually closed;
11
• Janice had been appointed independent administrator of Larry’s estate;
• Fauth and Cooper filed claims for $752,523.13 and $572,573.13,
respectively, and Janice rejected both claims without comment;
• Janice’s Inventory, Appraisement, and List of Claims showed the value of
Larry’s estate as $64,364.30; and
• Janice did not disclose the transfer of the GEM interest to the court.
The trial court concluded:
• Fauth and Cooper established a claim against Larry for fraud in the
amounts of $752,523.13 and $572,573.13, respectively;
• Fauth and Cooper established a claim against Larry for unjust enrichment
in the amounts of $752,523.13 and $572,573.13, respectively, because he
represented their combined total investment was for the purchase of certain
oil and gas leases from Dewbre but he used the money for the payment of
his personal bills and expenses;
• Fauth and Cooper established they are entitled to a declaratory judgment
the Citadel contracts were void, as they were part of a scheme to perpetrate
fraud;
• the statute of limitations was tolled by fraudulent concealment and the
continuing-tort doctrine;
• Janice was incapable of performing her duties as independent
administrator due to a material conflict of interest: her claim of ownership
of Larry’s interest in GEM; and
• Larry’s transfer of his interest in GEM was a fraudulent transfer and
therefore void.
The amended final judgment awarded $752,523.13 and $572,573.13 to Fauth and
Cooper, respectively, in damages. The amended final judgment also ordered that
Janice be removed from serving as independent administrator due to a material
12
conflict of interest and that Larry’s interest in GEM remain in Larry’s estate as a
result of the fraudulent transfer.
Janice now appeals.
DISCUSSION
Standard of Review
Janice has raised both legal and factual sufficiency challenges to the trial
court’s findings.
When a party challenges the legal sufficiency of an adverse finding on an issue
for which it had the burden of proof at trial, that party must demonstrate on appeal
that the evidence establishes, as a matter of law, all vital facts in support of the issue.
Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001) (per curiam). In
reviewing such a matter-of-law challenge, we employ a two-part test. We first
examine the record for evidence that supports the finding, while ignoring all
evidence to the contrary. Id. If there is no evidence to support the finding, we then
examine the entire record to determine if the contrary proposition is established as a
matter of law. Id. The issue should be sustained only if the contrary proposition is
conclusively established. Id.
When a party challenges the legal sufficiency of an adverse finding on an issue
for which it did not have the burden of proof at trial, that party must demonstrate
there is no evidence to support the adverse finding. Exxon Corp. v. Emerald Oil &
13
Gas Co., L.C., 348 S.W.3d 194, 215 (Tex. 2011). We will sustain a no-evidence
challenge if: (1) there is a complete absence of evidence of a vital fact; (2) the court
is barred by rules of law or evidence from giving weight to the only evidence offered
to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a
mere scintilla; or (4) the evidence conclusively establishes the opposite of the vital
fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005). “Less than a scintilla
of evidence exists when the evidence is ‘so weak as to do no more than create a mere
surmise or suspicion’ of a fact.” King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751
(Tex. 2003) (quoting Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex. 1983)).
“More than a scintilla of evidence exists when the evidence ‘rises to a level that
would enable reasonable and fair-minded people to differ in their conclusions.’” Id.
(quoting Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997)).
“Evidence is conclusive only if reasonable people could not differ in their
conclusions . . . .” Wilson, 168 S.W.3d at 816.
In reviewing the legal sufficiency of the evidence, we consider the evidence
in the light most favorable to the factfinder’s decision and indulge every reasonable
inference that would support it. Id. at 822. The factfinder is the sole judge of the
credibility of the witnesses and the weight to give their testimony, and it may choose
to believe one witness and disbelieve another. See id. at 819. We may not impose
our own opinion to the contrary. Id. “The final test for legal sufficiency must always
14
be whether the evidence at trial would enable reasonable and fair-minded people to
reach the verdict under review.” Id. at 827.
When a party challenges the factual sufficiency of an adverse finding on an
issue for which it did not have the burden of proof at trial, we consider and weigh
all of the evidence and set aside the judgment only if the evidence that supports the
finding is so weak as to make the judgment clearly wrong and manifestly unjust.
Figueroa v. Davis, 318 S.W.3d 53, 59 (Tex. App.—Houston [1st Dist.] 2010, no
pet.). Again, the factfinder is the sole judge of witnesses’ credibility and the weight
to give their testimony; we may not impose our own opinion to the contrary. See
Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003).
A. Actual Knowledge
Janice first argues that the appellees’ fraud and unjust-enrichment claims are
barred by the statute of limitations as a matter of law because she conclusively
established that appellees had actual knowledge of the “wrongful act and their
injury” by 2014 at the latest, but they did not sue until 2020.
1. Applicable Law
The statute of limitations for a fraud claim is four years. TEX. CIV. PRAC. &
REM. CODE § 16.004(a). The statute of limitations for an unjust-enrichment claim is
two years. Id. § 16.003(a); Elledge v. Friberg-Cooper Water Supply Corp., 240
S.W.3d 869, 871 (Tex. 2007) (per curiam) (holding Section 16.003’s limitations for
15
cause of action for “taking or detaining the personal property of another” applies to
unjust-enrichment claims).
Generally, a cause of action accrues and limitations begin to run “when a
wrongful act causes some legal injury, even if the fact of injury is not discovered
until later, and even if all resulting damages have not yet occurred.” Valdez v.
Hollenbeck, 465 S.W.3d 217, 229 (Tex. 2015). But fraud and fraudulent
concealment defer accrual of the cause of action and prevent limitations from
running. S.V. v. R.V., 933 S.W.2d 1, 4, 6 (Tex. 1996). Once a claimant has “actual
knowledge” of the injury or injury-causing conduct, though, regardless of the
potential deferring effect of fraud or fraudulent concealment, limitations begin to
run. Emerald Oil, 348 S.W.3d at 209.
The statute of limitations is an affirmative defense, and a party alleging this
defense bears the burden of proof. Burns v. Rochon, 190 S.W.3d 263, 271 (Tex.
App.—Houston [1st Dist.] 2006, no pet.). When a cause of action accrues, and thus
whether a claim is barred by limitations, is a question of law we review de novo.
Emerald Oil, 348 S.W.3d at 202; Pitts & Collard, L.L.P. v. Schechter, 369 S.W.3d
301, 320 (Tex. App.—Houston [1st Dist.] 2011, no pet.).
2. Analysis
Janice argues the appellees had actual knowledge of the injury-causing
conduct no later than 2014, when purported payments from the Dewbre deal stopped.
16
She relies on the fact that the purported payments from the Dewbre deal stopped,
and the appellees knew this. She compares this case to the facts in Exxon Corp. v.
Emerald Oil & Gas Co., L.C., in which the Texas Supreme Court determined the
statute of limitations had run because conclusive evidence established the plaintiffs
“had actual knowledge of [the] alleged injury-causing conduct” years before they
filed suit. See 348 S.W.3d at 209; see also id. at 203.
This case is distinguishable from Emerald Oil because there is no conclusive
evidence establishing the appellees’ actual knowledge of the injury-causing conduct.
In Emerald Oil, the plaintiffs sent letters and reports that without a doubt indicated
they knew about the wrongful activity for which they would later sue—they asked
the defendant to stop putting “junk” in their oil wells and plugging the wells, they
knew at least some wells had been clogged, and they later sued the defendant for
improperly plugging the wells. Id. at 203–07.
There is no such conclusive evidence in this case. The stopping of payments
does not conclusively establish that the appellees had actual knowledge of Larry’s
injury-causing conduct: fraud. Though the appellees knew that purported payments
from the Dewbre deal stopped in 2014, they did not know the payments stopped
because Larry had committed fraud, which was the injury-causing conduct for which
they would later sue.
17
When the appellees eventually filed suit, their causes of action—fraud and
unjust enrichment—were based on the fact that Larry never closed the Dewbre deal
and concealed that from them for years, not because he stopped making payments
from the Dewbre deal. Thus, their knowledge that the payments stopped does not
establish, conclusively or otherwise, that they knew of the injury-causing conduct
for which they would later sue—Larry’s fraud. Rather, the record contains evidence
that in the ten years between their initial investments with Larry and their lawsuit,
they believed they were friends with Larry and that he was helping them grow their
retirement savings.
Further, the record contains evidence that the payments themselves were
fraudulent. The payments were simply a tool Larry used to conceal the fact that the
Dewbre deal never closed. The fraudulent payments that the appellees believed to
be payments from the Dewbre deal cannot serve as evidence of their actual
knowledge of Larry’s fraud.
Janice argues the stopping of payments should have raised a red flag for the
appellees that something was wrong, but any red flags that might have been raised
by the stopping of payments were concealed by Larry’s fraud. Larry represented to
the appellees that the payments stopped because the oil and gas market was down
and the sale price of natural gas was low, which was cutting into their revenue, so
the proceeds Fauth and Cooper would have received were being used to pay off their
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monthly note on the Dewbre deal, which they believed was a deal to purchase a $52
million asset. Fauth testified he believed their investment was “still solid” at that
point, because the deal was producing enough money to pay off the monthly note,
and any money left over was being placed in an escrow account.1 The trial court was
entitled to credit the testimony that Fauth and Cooper would not discover that there
was no Dewbre deal, no proceeds, no monthly note, and no escrow account until
many years after 2014.
The appellees presented evidence that Larry continued to assure the appellees
their investment in the Dewbre deal was sound for years after the payments stopped
by presenting them with new investment opportunities. He led the appellees to
believe the Dewbre deal was successful because the money they were earning from
it could be used to pursue these new opportunities. These new opportunities, Fauth
testified, were a “continuation of [their] business dealings” with Larry. Fauth
believed the Dewbre deal provided the “seed money” so they could “continue[] to
have business opportunities that were generated from that investment.”
1
Fauth explained he was not alarmed when the payments stopped:
[M]y investment was still solid because we were making enough production
to pay the monthly note. We just—and whatever we did have left over, it was being
placed into an escrow account, so I was told. . . . The reason I didn’t do anything at
that point is because [as] I understood the situation, our investment was still good.
And we had already been paying, to my knowledge, on a 52-million-dollar asset and
we were getting close—closer to paying it off and starting all over.
19
Far from yielding conclusive proof that appellees were aware of Larry’s fraud
in 2014, the record contains evidence that Larry prevented the appellees from
learning the truth with yet more fraud: he took the appellees’ money purportedly for
the Dewbre deal but never closed the Dewbre deal; he never told the appellees that
the deal failed but sent them fabricated checks to conceal the deal’s failure, and when
he could no longer afford to do that, he told them the payments stopped because of
fluctuations in the oil and gas market but presented them with other opportunities in
which they could invest their proceeds from the Dewbre deal. The stopping of the
payments, which was covered up with more fraud, is one link in a chain of fraudulent
acts and does not establish the appellees had actual knowledge of Larry’s wrongful
conduct.
Janice further argues that she conclusively proved that, even if appellees were
not aware of the wrongful conduct, they had actual knowledge of their injuries back
in 2011—when Citadel breached its void contracts with the appellees by not
repaying their $620,000 in loans within 59 days.2
We disagree. The legal injury in this case is the loss (through fraud) of
appellees’ investment capital—an injury that was obscured when Larry represented
that he had put their capital toward ventures with potential for future profit.
2
The trial court declared the Citadel contracts void based on fraudulent inducement,
and Janice has not challenged this ruling.
20
When Citadel failed to repay the $620,000 in loans by May 2011 as
contemplated in the void contracts, Fauth and Cooper still believed the Dewbre deal
had closed or was about to close. Fauth testified that he did not take any action
against Larry then because “the Dewbre deal was so good, at that point I was willing
to maintain my six-percent ownership in that deal.” While he knew he had not timely
been repaid, he also believed that he was going to receive huge returns from the
Dewbre deal. Essentially, Larry enticed the appellees not to sue by promising a much
bigger payout in the future. Around that same time, also in May 2011, Larry invited
Fauth and Cooper and their wives to a celebratory dinner in Corpus Christi, which
was “a celebration that . . . the Dewbre deal had closed and—or was in the process
of getting ready to close and things were going our way,” as Fauth described it. There
is no direct evidence that the appellees had any knowledge at that time that their
$620,000 was gone and never going to be repaid. Rather than alerting the appellees
to injury, Larry’s representations led them to believe their investment was doing well
and they were going to receive huge returns.
Janice nevertheless argues that the Texas Supreme Court’s recent decision in
Marcus & Millichap Real Estate Investment Services of Nevada, Inc. v. Triex Texas
Holdings, LLC compels reversal. 659 S.W.3d 456, 460 (Tex. 2023) (per curiam)
(holding that where it was “undisputed” that plaintiff had actual knowledge of its
injury, discovery rule did not defer accrual of plaintiff’s cause of action until it knew
21
that defendant caused its injury). We disagree. Marcus & Millichap is inapposite for
three reasons. First and most significantly, in Marcus & Millichap, it was
“undisputed” that the plaintiff “knew it was injured in December 2012”—a date that
was beyond the limitations period. Id. The remainder of the Texas Supreme Court’s
reasoning in Marcus & Millichap flows from the uncontested knowledge of injury.
This active knowledge triggered the necessity for the plaintiff to conduct a diligent
inquiry. Id. at 462. Here, appellees vigorously disputed having known that their
money had been stolen—as opposed to invested—in either 2011 or 2014. Indeed,
the trial court made specific findings supported by ample evidence that Larry’s
unabated decade-long string of false representations prevented the appellees from
learning about their actual injury until 2020 following his death.
Second, Marcus & Millichap involved the application of the discovery rule,
which the court distinguished from the doctrine of fraudulent concealment. The
Texas Supreme Court expressly found that the “[plaintiff] did not plead fraudulent
concealment, nor did it raise the issue in its response to [the defendant’s] amended
motion for summary judgment or at any point before the trial court.” Id. at 463. Here,
the appellees pleaded fraudulent concealment and obtained factual findings and
conclusions of law in their favor on the question.
Finally, in Marcus & Millichap, the Court found that the plaintiff’s undisputed
knowledge of a breached lease started the running of the statute of limitations on the
22
plaintiff’s claim against its broker for overvaluing the property to inflate its
commission on the sale of the property by a third party to the plaintiff. No party in
Marcus & Millichap suggested that the lease contract was invalid. Here, the Citadel
contracts were nullities. Because “fraud vitiates whatever it touches,” Morris v.
House, 32 Tex. 492, 495 (1870), the trial court declared the Citadel contracts void
based on fraudulent inducement, and Janice has not challenged this ruling. With no
valid contract, there was nothing to breach. See Bannum, Inc. v. Mees, No. 07-12-
00458-CV, 2014 WL 2918436, at *1 (Tex. App.—Amarillo June 24, 2014, no pet.)
(mem. op.) (noting that void contract “is something that never occurred,” and thus
after contract at issue was rendered null and void, party could not sue for breach of
contract because there was no contract susceptible to breach); see also Pathfinder
Oil & Gas, Inc. v. Great W. Drilling, Ltd., 574 S.W.3d 882, 890 (Tex. 2019) (stating
one element of breach-of-contract claim is existence of valid contract). Thus, a
contract breach cannot be the basis for concluding the appellees here had actual
knowledge of the injury-causing conduct, because the contracts were nullities and
because the appellees were suing for the fraudulent theft of their funds as opposed
to a breach of contract.
The dissent argues the Citadel contracts are indispensable to our analysis here
and analyzes the specific terms of the contracts, asserting that whether the contracts
are valid has nothing to do with whether their terms would have caused a reasonably
23
prudent person to make inquiry. We disagree because whether the contracts are valid
does affect our analysis—the parties are not bound by the terms of a void contract.
See Bannum, 2014 WL 2918436, at *2 (“Simply put, one cannot legally enforce
rights under an agreement that never was.”). Any doubts the appellees may have had
about whether they suffered some legal injury were quickly assuaged by Larry’s
fraudulent assurances and, within a few months, by fraudulent payments that seemed
to confirm they had made a solid investment.
The dissent also argues that we have conflated knowledge of a legal injury
with knowledge of a theory of recovery because we distinguish between the claims
for which the appellees actually sued and those for which they did not. The dissent
argues the appellees did not need to know of Larry’s fraud to know they had been
injured because the void contracts were breached. But a void contract is a nullity and
is not subject to breach. See id. at *1. Thus, Larry’s failure to comply with the terms
of the void contract does not establish the appellees’ actual knowledge of a legal
injury in this case. The appellees did not know they had lost their investment capital
until after Larry’s death in 2020; thus, they did not know of the legal injury for which
they would later sue until at least 2020.
In KPMG Peat Marwick v. Harrison County Housing Finance Corp., 988
S.W.2d 746, 749 (Tex. 1999), on which the dissent relies, the plaintiff in the case
conclusively had actual knowledge of the specific legal injury for which it would
24
later sue though it did not know the extent of the defendant’s involvement. That is
not the case here. The appellees did not have actual knowledge of any legal injury
because Larry fraudulently concealed it from them.
Finally, Janice resorts to the policy reasons behind statutes of limitations: to
prevent litigation of “stale claims” where the “search for truth” is “impaired by the
loss of evidence, whether by death or disappearance of witnesses, fading memories,
disappearance of documents[,] or otherwise.” Kerlin v. Sauceda, 263 S.W.3d 920,
925 (Tex. 2008). While true, there are also policy reasons for allowing fraud to defer
accrual of a cause of action:
Texas courts have long adhered to the view that fraud vitiates whatever
it touches, and have consistently held that a party will not be permitted
to avail himself of the protection of a limitations statute when by his
own fraud he has prevented the other party from seeking redress within
the period of limitations. To reward a wrongdoer for his own fraudulent
contrivance would make the statute a means of encouraging rather than
preventing fraud.
Borderlon v. Peck, 661 S.W.2d 907, 908–09 (Tex. 1983).
***
The evidence does not conclusively establish the appellees had actual
knowledge of the wrongful conduct or injury in 2011, when Citadel failed to repay
its loan, or in 2014, when Larry stopped sending payments. See Dow Chem. Co., 46
S.W.3d at 241 (explaining that party raising legal sufficiency challenge must
25
conclusively establish all vital facts in support of issue). We overrule Janice’s first
issue.
B. Tolling Doctrines: Fraudulent Concealment and Continuing Tort
Janice next argues that the trial court erred in applying tolling doctrines to the
appellees’ claims because the evidence conclusively disproves that either fraudulent
concealment or the continuing-tort doctrine applied to the appellees’ claims.
1. Applicable Law
In most cases, a cause of action accrues and limitations begin to run “when a
wrongful act causes some legal injury, even if the fact of injury is not discovered
until later, and even if all resulting damages have not yet occurred.” Valdez, 465
S.W.3d at 229. But the doctrine of fraudulent concealment, when it applies, tolls
limitations “because a person cannot be permitted to avoid liability for his actions
by deceitfully concealing wrongdoing until limitations has run.” Shell Oil Co. v.
Ross, 356 S.W.3d 924, 927 (Tex. 2011) (quoting S.V., 933 S.W.2d at 6). Fraudulent
concealment is an equitable, fact-specific doctrine. Id. It resembles equitable
estoppel because it estops the defendant from relying on the statute of limitations as
an affirmative defense. Comput. Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453,
456 (Tex. 1996). But the estoppel effect ends when “the fraud is discovered or could
have been discovered with reasonable diligence.” Valdez, 465 S.W.3d at 229.
26
Reasonable diligence is usually a question of fact, but in some circumstances,
a court can determine as a matter of law that reasonable diligence would have
uncovered the fraud. Hooks v. Samson Lone Star, Ltd. P’ship, 457 S.W.3d 52, 58
(Tex. 2015). In cases where reasonable diligence can be determined as a matter of
law, usually a court determines that “readily accessible and publicly available”
information, like court records, land title records, and probate proceedings, would
have uncovered the wrong. Id. at 59 (quoting Ross, 356 S.W.3d at 929).
“[S]ophisticated” plaintiffs familiar with the oil and gas industry may also be
required to “acquaint themselves” with publicly available records from the Railroad
Commission, like price indexes, well logs, plugging reports, and plats describing
well locations, to demonstrate reasonable diligence as a matter of law. Id. at 57–59;
see, e.g., BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 69 (Tex. 2011) (holding
sophisticated oil and gas lessor would have been able to discover fraud through
reasonable diligence, as matter of law, by comparing Railroad Commission’s well
log and plugging report, which were publicly available).
2. Analysis
Janice argues the evidence conclusively disproves the applicability of the
fraudulent-concealment and continuing-tort doctrines.
27
a. Larry’s Concealment of Fraud
First, Janice argues the evidence conclusively disproves the trial court’s
finding that Larry concealed fraud and prevented the appellees from learning the
Dewbre deal never closed. She argues this is because the evidence conclusively
proves the appellees had actual knowledge, or with reasonable diligence could have
known, that Larry was committing fraud no later than 2014, when the purported
payments from the Dewbre deal stopped.
As for actual knowledge, we have already held that the appellees did not have
actual knowledge of fraud in 2014 when the payments stopped because Larry
concealed the reason for the payments stopping with more fraud. Specifically, he
told them the purported payments from the Dewbre deal stopped because of
fluctuations in the oil and gas market, not because the Dewbre deal never closed.
As for reasonable diligence, contrary to Janice’s assertion, the evidence does
not conclusively establish that the appellees could have discovered Larry’s
wrongdoing through the exercise of reasonable diligence. Unlike the cases in which
reasonable diligence can be determined as a matter of law, here, the record does not
contain any “readily accessible and publicly available” information that would have
uncovered the wrong. See Hooks, 457 S.W.3d at 59 (quoting Ross, 356 S.W.3d at
929) (publicly available information can establish as matter of law that reasonable
diligence would uncover wrongful act); see also Marshall, 342 S.W.3d at 69 (two
28
specific publicly available documents filed with Railroad Commission would have
uncovered fraud); Kerlin, 263 S.W.3d at 926 (certain land title records and court
records relating to disputed land were publicly available and could have been
discovered through reasonable diligence).
Janice has failed to identify in the record any public information that would
have uncovered Larry’s fraud—the appellees’ investment in Citadel was a private
transaction between friends and not the subject of public records, unlike oil and gas
operations or land title proceedings. Further, appellees presented significant
evidence that Larry was secretive in his operations. Indeed, even his wife did not
know the details of his business dealings, and with the appellees, he repeatedly
emphasized the need for secrecy.
Furthermore, unlike the claimants in cases where reasonable diligence as a
matter of law requires “sophisticated [oil and gas] lessors to acquaint themselves
with ‘readily accessible and publicly available information’ from Railroad
Commission records,” Fauth and Cooper were not sophisticated oil and gas investors
who understood the oil and gas industry. See Hooks, 457 S.W.3d at 57 (quoting Ross,
356 S.W.3d at 929). Neither appellee in this case claimed to have any prior
experience investing in, or any understanding of, the oil and gas industry.
Because this is not the type of case in which reasonable diligence can be
determined as a matter of law, whether reasonable diligence would have uncovered
29
Larry’s fraud is a question of fact. See id. at 61 (concluding fraudulent Railroad
Commission filings could not establish lack of reasonable diligence as matter of law,
so reasonable diligence was fact question). Here, the factfinder determined the
appellees acted reasonably in light of all the circumstances and reasonable diligence
would not have uncovered the fraud.
Finally, contrary to Janice’s claim that the evidence conclusively disproves
that Larry concealed fraud, there is overwhelming evidence to support that finding.
Larry invited the appellees and their wives to Corpus Christi for a celebratory dinner
because the Dewbre deal was closing. He mailed the appellees checks with financial
statements identifying production costs and expenses, to make the appellees believe
they were receiving returns from their investment in the Dewbre deal. When he could
no longer keep making payments, he told the appellees that oil and gas prices were
down, but he was keeping what was left of their returns in escrow, and he kept
presenting them with new investment opportunities in which they could invest their
Dewbre returns to lead them to believe their investment was doing well and to string
them along for years.
The evidence does not conclusively prove the appellees knew or with
reasonable diligence could have discovered Larry’s fraud in 2014. And, contrary to
Janice’s claim, there is overwhelming evidence to support the trial court’s finding
30
that Larry concealed fraud to prevent the appellees from learning the Dewbre deal
never closed.
b. Red Flags
Janice next argues the evidence conclusively proves the appellees saw red
flags but chose to ignore them and deliberately made no inquiry for years on end,
which shows a lack of reasonable diligence. She argues the appellees chose not to
sue in 2011 after their $620,000 in loans was not repaid, they never hired a lawyer
or CPA to look into their investment, they never contacted Jerry Dewbre, Robert
Painter, or Donald Wiese about their investment, and they never contacted the
Railroad Commission to determine if the oil and gas interests in connection with the
Dewbre deal were active. But the only potential red flag she identifies here is Larry’s
failure to repay their loans—the rest of her argument is based on additional steps the
appellees could have taken, which she claims they should have taken in the exercise
of reasonable diligence. We disagree that failing to take any of these additional steps
conclusively proves a lack of reasonable diligence because the appellees were not
on notice that they needed to further investigate.
If failure to repay the loans was a red flag as to Larry’s fraud, Larry concealed
that fact by assuring the appellees the Dewbre deal had closed and by sending them
payments to make them believe the deal was successful. At that point, because of
Larry’s fraudulent promises, the appellees believed the Dewbre deal was good and
31
that they would be receiving repayment of their loans and much more in the future.
The appellees’ decision not to sue at that point is not conclusive proof of a lack of
reasonable diligence when the potential red flag was covered up with more fraud—
Larry’s assurances that the deal had closed, a celebratory dinner to commemorate
the deal closing, and, within a few months, payments purportedly from the proceeds
of the deal.
Concealing the only potential red flag with fraud makes the additional steps
Janice cites unnecessary: she argues the appellees could have exercised reasonable
diligence by hiring outside consultants or asking others about the deal, but, because
of Larry’s assurances, the appellees had no reason to question the status of the deal.
Whether these additional steps were necessary in the exercise of reasonable
diligence was a question for the factfinder, and the factfinder determined they were
not. See id. (reasonable diligence is fact question where fraudulent records cannot
establish lack of reasonable diligence as matter of law).
Janice argues that if the appellees had hired an outside consultant, they could
have discovered the fraud. She points out that neither Fauth nor Cooper ever hired a
lawyer, CPA, or oil and gas consultant to look into their investment. Both Fauth and
Cooper openly admitted they did not do so when they could have. But as Fauth
explained when asked if there was anything preventing him from contacting
someone to determine the status of the Dewbre deal, “there was no need.” Larry
32
assured them that the deal had closed and their investment was sound, and they were
purportedly receiving returns from the deal for a few years. Failing to hire an outside
consultant to investigate the status of a deal that, due to another’s fraud, appeared to
be doing well, is not conclusive proof of the lack of reasonable diligence.
In the same vein, the dissent argues that the appellees could have inspected
Citadel’s business records because they held membership interests in Citadel. See
TEX. BUS. ORGS. CODE § 101.109(a)(3), (4). But even though they could have, due
to Larry’s fraud, they had no reason to think they needed to further investigate.
The same reasoning applies to Janice’s argument that neither Fauth nor
Cooper ever contacted Jerry Dewbre, Robert Painter, or Donald Wiese about the
Dewbre deal. Larry’s fraud led Fauth and Cooper to believe the deal was going well,
and there was no need to contact outsiders. Though the appellees admitted they could
have contacted Jerry Dewbre, there is no evidence that they knew him personally. In
any event, they did not invest with Jerry Dewbre personally; they invested in Larry’s
company which then purportedly invested in Dewbre’s company. The appellees
would have had no reason to personally contact the owner of a company with which
they had no personal connection when they believed their investment was doing
well. There is also no evidence that Robert Painter and Donald Wiese, two of Larry’s
business associates, were even involved in the Dewbre deal, so the appellees’ failure
33
to contact them about an investment that seemed to be doing well is not conclusive
proof of their lack of reasonable diligence.
Janice also argues the appellees should have contacted the Railroad
Commission, but she does not identify what information the Commission would
have provided that would have uncovered the fraud. Dewbre Production was an
active oil and gas production company and would have filed records with the
Commission, and the appellees believed they had been receiving profits from
Dewbre Production.
We note again that the appellees’ investment in Citadel was a private deal
between friends; Janice has not identified any public records detailing Citadel’s
financial dealings, and Larry himself was the appellees’ only source of information
regarding the deal. But Larry was also the source of the fraud. See Hooks, 457
S.W.3d at 61 (concluding as matter of law no lack of reasonable diligence when
source of information—public records—tainted by fraud). Janice’s suggestion that
the appellees could have contacted Larry to uncover the status of the Dewbre deal is
not reasonable, given that Larry committed the fraudulent acts that kept the appellees
from discovering the truth about the Dewbre deal.
Larry’s fraudulent concealment also distinguishes this case from HECI
Exploration Co. v. Neel, where the Texas Supreme Court stated that “[r]oyalty
owners cannot be oblivious” to certain facts, 982 S.W.2d 881, 886 (Tex. 1998),
34
“make[] no inquiry for years on end[,] then sue for breaches of contract that could
have been discovered within the limitations period if reasonable diligence had been
exercised,” id. at 887–88. In that case, oil and gas royalty owners sued their lessee
for failing to notify them that a neighboring, competitor lessee was overproducing
oil from a common reservoir. Id. at 884. The claim was time-barred, but the royalty
owners asserted that the discovery rule tolled limitations. Id. at 885. The Court
concluded the claim was not undiscoverable because, among other reasons, the
royalty owners’ lessee, their main source of information, was always forthcoming
with information when asked. Id. at 886. Had the lessees simply asked for more
information, they could have discovered the truth. The Court acknowledged that if
someone had fraudulently concealed information from the royalty owners, as Larry
did here, then limitations could be tolled. See id. (“Of course, if an operator
fraudulently concealed information from a lessee, decisions of this and other courts
indicate that limitations may be tolled.”).
Furthermore, as in other cases in which a sophisticated oil and gas royalty
owner was found not to have exercised reasonable diligence as a matter of law, the
Court noted that records about operations that would have revealed the wrongdoing
in that case are “generally available” from the Railroad Commission. Id. at 886. But
the Court stopped short of holding that all Railroad Commission records constitute
constructive notice of their content, id. at 886, instead stating only “some records of
35
the Railroad Commission in some circumstances may provide constructive notice,”
id. at 887. Records from the Railroad Commission “are a ready source of
information,” so a claim based on the failure to provide that information—the claim
in that case—is not tolled by the discovery rule. Id. Here, the appellees’ claims are
not based on Larry’s failure to provide publicly available information, but for theft
of their money and fraudulently concealing the theft for years.
As such, Janice has not conclusively established that the appellees were not
reasonably diligent. See Hooks, 457 S.W.3d at 59 (reasonable diligence can be
determined as matter of law when readily accessible and publicly available
information would uncover fraud). Janice has not identified any information in the
public record that would have uncovered Larry’s fraud. And, when, as here,
reasonable diligence cannot be decided as a matter of law, it is for the factfinder to
determine whether the appellees acted with reasonable diligence and whether
reasonable diligence would have uncovered the fraud. Id. at 61. Here, the trial court
properly found that the action they took was reasonable and reasonable diligence
would not have uncovered Larry’s fraud because he concealed it and actively misled
them for years.
c. Reliance on Larry’s Representations
Next, Janice argues that the appellees were not reasonably diligent in relying
on Larry’s representations alone. Citing BP America Production Co. v. Marshall,
36
she argues that “reasonable diligence obliges owners of property interests to make
themselves aware of pertinent information available in the public record.” See 342
S.W.3d at 67. Once again, Janice has not identified documents in the public record
that would have uncovered Larry’s fraud, so she cannot establish conclusively that
the appellees were not reasonably diligent for failing to consider documents in the
public record. See Hooks, 457 S.W.3d at 59 (reasonable diligence can be determined
as matter of law when readily accessible and publicly available information would
uncover fraud).
In Marshall, another case in which oil and gas mineral owners sued their
lessee for fraud, a member of the owning family “testified that he was a sophisticated
lessor who subscribed to industry publications, worked as a driller when he was
younger, and thus understood the oil and gas industry.” 342 S.W.3d at 69. The Texas
Supreme Court held, as a matter of law, he would have been able to uncover the
lessee’s fraud by comparing its well log with its plugging report, both documents
that were filed with the Railroad Commission, because when read together, these
publicly available documents would have led him to discover the lessee was not
producing oil, contrary to its representations. Id.
Unlike Marshall, the record here does not disclose any publicly available
documents that would have led the appellees to discover Larry’s fraud. Again, the
appellees’ investment in Citadel was a private deal among friends, and Citadel never
37
actually invested in Dewbre Production, so there were no public records relating to
the deal. Cases holding sophisticated oil and gas lessors were not reasonably diligent
in failing to utilize publicly available documents are inapposite. See, e.g., Ross, 356
S.W.3d at 929 (plaintiffs could have discovered fraud through reasonable diligence
by studying public price indexes); Marshall, 342 S.W.3d at 69 (plaintiffs could have
discovered fraud through reasonable diligence by comparing public Railroad
Commission documents).
Finally, we disagree with Janice’s contention that the appellees relied on
Larry’s representations alone. They received checks from Larry’s company, EPD,
along with financial statements that appeared to be returns from their investment in
the Dewbre deal. The appellees presented evidence, beyond Larry’s representations
alone, that led them to reasonably believe the Dewbre deal had closed, and their
investment was doing well.
When the payments stopped in 2014, the appellees relied on Larry’s
representations that the oil and gas market was down so any leftover money they had
after paying off the monthly note was being held in escrow for future investments.
But at that point, the appellees already had good reason to believe that the Dewbre
deal had closed, and their investment was doing well enough not to question it.
Janice emphasizes that the appellees admitted they could produce no
document, no check, no receipt specifically stating they owned an interest in the
38
Dewbre deal; they could only refer to their understanding from Larry that they had
invested in Citadel, Larry’s company, which then invested in the Dewbre deal.
Rather than highlight any kind of unreasonableness on the appellees’ part, we view
this as only highlighting the extent of Larry’s fraud, especially in light of the fact
that Larry sent them checks that were purportedly their returns from the Dewbre deal
to keep them from finding out the Dewbre deal never closed.
It is also significant that appellees themselves never personally invested in
Dewbre Production or claimed an ownership interest in it; they invested in Larry’s
company which then purportedly invested in Dewbre Production, and so Larry alone
would have been in possession of any documents identifying his company’s interest
in Dewbre Production—if it had one. This speaks to the intricacy of Larry’s fraud
and the lengths he went to ensure the appellees did not learn the truth.
Finally, Janice asserts again that the appellees did not pursue legal action
“when they knew they had suffered injuries” from the stopped payments of the
purported Dewbre returns and the failure to repay the $620,000 in loans, but we
disagree that the appellees knew they were injured after either of those instances
because Larry’s fraud prevented them from learning the truth, as we have already
discussed.
Janice’s argument that the appellees were not reasonably diligent in relying
on Larry’s representations alone is unavailing because they did not rely on his
39
representations alone. Instead, they received actual checks and financial statements
that appeared to be returns on their investment. This does not conclusively establish
that they were not reasonably diligent.
d. Typed Calculations
Janice next argues that the typed calculations in the financial statements Larry
sent to the appellees along with their checks purportedly from the Dewbre deal
conclusively establish there was no fraudulent concealment because the appellees
could not have reasonably relied on these statements as evidence of the Dewbre deal.
For a period of about three years, Larry sent the appellees checks along with
“income statements” bearing calculations showing income per person after
deductions for expenses:
Janice argues the appellees’ reliance on these checks and income statements
as evidence of the Dewbre deal was not reasonable because they do not mention the
Dewbre deal or resemble legitimate financial statements. First, we again note that
these checks and statements are not “readily accessible and publicly available”
40
information that would have uncovered the wrong, and Janice has not cited any
public records that would have revealed these checks were fraudulent, so this is not
a case in which reasonable diligence can be determined as a matter of law. See
Hooks, 457 S.W.3d at 59 (quoting Ross, 356 S.W.3d at 929). Whether the appellees
were reasonably diligent in relying on these checks and statements as evidence of
the Dewbre deal is a question of fact for the factfinder, see id. at 61, and here, the
factfinder determined that they were.
The checks and statements are consistent with a return on the investment the
appellees believed they made, even though they do not reference Dewbre Production
specifically. The appellees invested in Larry’s company, EPD, which then rolled
over into Citadel. Citadel, they believed, entered into an agreement with Dewbre
Production to purchase, with monthly payments over 60 months, several oil wells
that were already producing oil. The checks are from Larry’s company, EPD, and
signed by Larry. The statements reference a 60-month note, income, taxes, and
LOE—meaning a “list of expenses,” which were expenses taken out of the gross
profits for things like “cleaning out a well, repairing a well or things that make the
well produce,” as Fauth testified. Thus, the checks and statements appear to be part
of the Dewbre deal. The fact that the statements do not resemble legitimate financial
statements, even if true, speaks to the level of the appellees’ sophistication as
41
investors and does not conclusively prove the appellees were not reasonably diligent
in relying on them.
Rather than serve as evidence of a lack of reasonable diligence as Janice
argues, the checks and income statements provide strong evidence of Larry’s efforts
to fraudulently conceal that the Dewbre deal never closed. As there was no deal and
no income or expenses, it is evident that these numbers detailing income and
expenses are entirely fabricated. Thus, we disagree that the checks and income
statements conclusively prove there was no fraudulent concealment.
e. Larry’s Emails
Next, Janice argues that the trial court relied on Larry’s emails as evidence of
fraudulent concealment, but she argues the trial court erred because the emails
conclusively prove there was no fraudulent concealment.
Over the course of their ten-year friendship, Larry sent the appellees numerous
emails about potential investment opportunities. Janice correctly notes that these
emails, at least some of which were introduced into evidence, do not reference the
appellees’ investment or a specific connection to the Dewbre deal, and the appellees
agreed that Larry never represented that any of these potential deals closed.
Standing alone, the emails do not conclusively prove or disprove fraud or
fraudulent concealment. But when coupled with the appellees’ testimony, the emails
support their claim that Larry led them to believe their investment was doing well—
42
and kept them from questioning the investment—by presenting new opportunities in
which they could invest their Dewbre returns. Fauth testified that after the purported
payments from the Dewbre deal stopped, Larry told him the investment was “still
solid” because it was earning enough from production to pay the monthly note, but
whatever money was left over was being placed in an escrow account. This money,
Fauth testified, was the “seed money” for Larry and the appellees to “continue[] to
have business opportunities that were generated from that investment.” These new
opportunities were a “continuation of [their] business dealings” with Larry.
The emails provide some evidence of Larry’s fraud; they do not conclusively
disprove fraudulent concealment.
f. No Partnership
Janice argues that the trial court rejected a finding that the appellees and Larry
formed a partnership. She notes that the trial court purposely struck out references
to partners and partnerships in its original findings of fact. Yet the trial court’s
amended findings of fact include a finding that Larry “represented to [the appellees]
that they were partners in [Larry’s] businesses and presented [the appellees] with a
series of investment opportunities.” Even assuming the trial court intended to reject
a partnership finding, the lack of a legal partnership does not conclusively establish
Larry did not fraudulently conceal information or continue to commit fraud over the
course of years.
43
***
The evidence does not conclusively disprove that fraudulent concealment
applies to the appellees’ claims, as Janice argues, but there is ample evidence to
support the trial court’s conclusion that fraudulent concealment tolled the statute of
limitations. Cf. Wilson, 168 S.W.3d at 810 (court will sustain no-evidence challenge
if there is complete absence of evidence of vital fact or if evidence conclusively
establishes opposite of vital fact). We find no error in the trial court’s conclusion.
g. Continuing-Tort Doctrine
Lastly, Janice argues that the evidence conclusively negates the application of
the continuing-tort doctrine because the appellees knew or through reasonable
inquiry had the ability to know the status of their investments. The trial court
concluded that the continuing-tort doctrine applied as an additional means by which
to toll the statute of limitations.
Because we have already held that there was no error in the trial court’s
conclusion that the doctrine of fraudulent concealment tolled the running of the
statute of limitations, we need not reach the issue of the continuing-tort doctrine’s
application. See TEX. R. APP. P. 47.1 (appellate court’s written opinion need not
address issues unnecessary to final disposition of appeal).
We therefore overrule Janice’s second issue.
44
C. Evidence of Justifiable Reliance, Damages, and Unjust Enrichment
In her third issue, Janice claims there is no evidence to support the trial court’s
findings of justifiable reliance, damages, or unjust enrichment.
1. Justifiable Reliance
a. Applicable Law
Justifiable reliance is an element of a fraud claim. JPMorgan Chase Bank,
N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648, 653 (Tex. 2018). To establish
justifiable reliance, a plaintiff must show that he actually relied on the defendant’s
false representations and that his reliance was justifiable. Id. Janice disputes that the
appellees’ reliance on Larry’s representations was justifiable.
Ordinarily, justifiable reliance is a question of fact, but under some
circumstances, a court may determine as a matter of law that reliance is not
justifiable. Id. at 654. In making this determination, we view the entirety of the
circumstances “while accounting for the parties’ relative levels of sophistication.”
Id. at 656. In an arm’s-length transaction, each party must exercise reasonable
diligence to protect his own interests; a party may not justifiably rely on “mere
confidence in the honesty and integrity of the other party.” Id. at 654 (quoting Nat’l
Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 425 (Tex. 2015) (per curiam)).
A party may not justifiably rely on an oral representation that is directly
contradicted by a written contract. Id. at 658.
45
A party also may not rely on another’s representation when there are “red
flags” indicating further investigation is needed. Id. at 655. A party cannot “blindly
rely” on a defendant’s representation when the party’s “knowledge, experience, and
background warrant investigation into any representation[]” before relying on it. Id.
at 654 (quoting Shafipour v. Rischon Dev. Corp., No. 11-13-00212-CV, 2015 WL
3454219, at *8 (Tex. App.—Eastland May 29, 2015, pet. denied) (mem. op.)). We
take into consideration a party’s “individual characteristics, abilities, and
appreciation of facts and circumstances” at the time the representation is made. Id.
at 656 (quoting Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d
913, 923 (Tex. 2010)). “[W]orld-savvy participants entering into a complicated,
multi-million-dollar transaction should be expected to recognize ‘red flags’ that the
less experienced may overlook.” Id.
b. Analysis
Janice argues that the appellees’ fraud claim must fail because the appellees’
reliance on Larry’s representations was not justifiable as a matter of law.
The trial court identified two representations upon which the appellees
justifiably relied:
(1) Larry represented that the appellees’ combined total investment of $1.46
million was for the purchase of certain oil and gas leases from Dewbre; and
(2) Larry represented that Citadel purchased the Dewbre petroleum assets.
46
The trial court found numerous other fraudulent representations by Larry but
specifically based its finding of fraud on these two representations.
Janice argues the appellees’ reliance on these representations was not
justifiable as a matter of law for several reasons. We consider each in turn.
Contract Contradiction
Janice argues that the appellees’ reliance on Larry’s representations is not
justifiable as a matter of law because his representations directly contradict the
Citadel contracts, citing Barrow-Shaver Resources Co. v. Carrizo Oil & Gas, Inc.
See 590 S.W.3d 471, 500 (Tex. 2019) (sophisticated oil and gas company could not
reasonably rely on oral representation contrary to written contract provision).
We disagree. The trial court’s uncontested finding that the Citadel contracts
are void distinguish this case from Barrow-Shaver and other cases holding reliance
on an oral representation that contradicts a written contract is not justifiable as a
matter of law. See, e.g., id.; Orca Assets, 546 S.W.3d at 660; Westergren, 453
S.W.3d at 424. Those cases all involve valid contracts, negotiated in arms-length
transactions between sophisticated companies. See Barrow-Shaver, 590 S.W.3d at
475; Orca Assets, 546 S.W.3d at 651; Westergren, 453 S.W.3d at 422. None of those
cases involves a fraudulently induced, void contract or a businessman with
experience in multimillion-dollar deals taking advantage of two unsophisticated
investors.
47
Here, Janice has not challenged the trial court’s finding that the Citadel
contracts are void for fraud, so they are nullities. Consequently, Janice has not
established that the appellees’ reliance on Larry’s representations was unjustifiable
as a matter of law based on directly contradictory terms of a valid, written contract.
See Orca Assets, 546 S.W.3d at 658. Instead, these facts demonstrate there is some
evidence to support the trial court’s finding that the appellees’ reliance was
justifiable: Larry represented that they were investing with his company that was
going to invest in an oil and gas deal; the contracts they signed that they believed to
be valid contemplated an oil and gas deal, and they began receiving checks from one
of Larry’s companies that appeared to be investment returns on the oil and gas deal.
Red Flags
Janice next argues there were red flags that should have alerted the appellees
their reliance was unjustifiable, and these red flags negate justifiable reliance as a
matter of law. See Barrow-Shaver, 590 S.W.3d at 501 (noting there were red flags
alerting plaintiff its reliance on oral representation was not justifiable, like direct
contradiction between oral representation and unambiguous contract provision,
plaintiff’s sophistication and knowledge that oral representation had no bearing on
contract’s express language, plaintiff’s extensive experience in oil and gas industry,
and arm’s-length negotiations that resulted in non-standard agreement); see also
Orca Assets, 546 S.W.3d at 656–58 (discussing red flags that should have alerted
48
plaintiff that tract it was about to lease had already been leased, like lessor’s
equivocal representations, landman’s doubts that tracts of land were not already
leased, letter of intent with no assurances as to title of tracts, contract language never
seen before in any lease by sophisticated oil and gas company, and plaintiff’s willful
decision to stop checking public title records before signing lease contract).
We first note that neither appellee was a sophisticated oil and gas investor,
unlike the experienced companies involved in the cases on which Janice relies. See
Barrow-Shaver, 590 S.W.3d at 484 (“The parties are sophisticated oil and gas
entities that had representatives with extensive experience in the oil and gas
industry.”); Orca Assets, 546 S.W.3d at 656 (noting plaintiff was newly founded
company but “its key players” were “sophisticated oil-and-gas businesspeople” and
company was “sophisticated business entit[y], composed of knowledgeable, skilled,
and experienced people”). Fauth worked as a forklift operator, then foreman, for
Hughes Tool, which became Baker Hughes, and he later moved into the company’s
human resources department. He was never involved in the company’s oil and gas
operations and admitted that he has no experience with oil and gas investing. Cooper
owns a commercial construction company and has no experience with oil and gas
investing.
We have not found, nor has Janice identified, any red flags in the record
indicating that reliance on Larry’s first fraudulent statement, that the appellees’
49
investment money was for the Dewbre deal, was unwarranted. In fact, there is some
evidence that Larry tried to pursue the Dewbre deal. Jerry Dewbre’s declaration
states that Citadel contracted with Dewbre Production in 2011 to purchase “certain
oil and gas leases and other related lease hold interests,” and that Citadel as part of
the contract was to make a $1.25 million nonrefundable deposit as earnest money.
Citadel paid on several occasions for extensions of time to obtain funding for the
earnest-money deposit—these payments for extensions of time totaled $374,192.55.
But the funding period eventually expired, and the earnest money was forfeited. The
record does not indicate how much of this the appellees knew at the time.
Janice points out that the appellees are not named in the contract between
Citadel and Dewbre or in the extension contracts. That does not raise a red flag
indicating the appellees should have further investigated, however, because the
appellees were not personally involved in the transactions; they invested in Citadel,
which was in turn supposed to invest in Dewbre Production. Janice also points out
that none of the contracts the appellees signed mentioned Dewbre, but again, this
does not raise a red flag because the contracts were an acknowledgment of the
appellees’ investment in Larry’s company, Citadel, which he told them would then
invest in Dewbre Production.
There are also no red flags in the record indicating that reliance on Larry’s
second fraudulent statement, that Citadel purchased the Dewbre assets, was
50
unwarranted. Janice points out that there never was a signed contract for the $52
million Dewbre deal. But again, the appellees were not personally involved in the
Dewbre deal; they invested in Citadel which was supposed to invest in Dewbre
Production. As minority investors in Citadel, they are not reasonably expected to
demand to see every business contract Citadel signed, particularly when the
appellees had ample reason to believe the deal had closed: Larry told them the deal
had closed, he invited them and their wives to a celebratory dinner to commemorate
the deal closing, and they began receiving purported returns from the deal. Given
their level of experience with investing, nothing about this raises a red flag indicating
they should have investigated further. See Orca Assets, 546 S.W.3d at 654 (party
cannot blindly rely on defendant’s representation when that party’s knowledge,
experience, and background warrant investigation into representation).
Janice characterizes Larry’s actions as a simple failure to procure financing
and close the deal, which is not fraud, she argues, and the appellees could have
learned the deal did not close through a simple phone call to Jerry Dewbre. While
Larry’s failure to close the deal may not constitute fraud, his representation that the
deal closed when it had not is fraudulent. The appellees, who believed Larry’s
representation and had no red flags or other reason to question it, had no reason to
call Jerry Dewbre—if they even knew him—to inquire about the deal.
51
Janice has not identified any red flags that would indicate as a matter of law
the appellees’ reliance on Larry’s representations was not justifiable. Cf. Orca
Assets, 546 S.W.3d at 660 (concluding no justifiable reliance as matter of law given
numerous red flags, company’s sophistication in oil and gas industry, and direct
contract contradiction).
Reasonable Diligence
Next, Janice argues that the appellees’ reliance was not justifiable as a matter
of law because they had a duty to use reasonable diligence in protecting their own
interests. See Barrow-Shaver, 590 S.W.3d at 497 (recognizing “long-standing
principle” that party claiming fraud has duty to use reasonable diligence to protect
his own affairs). She recites the same arguments discussed above: the appellees did
not check the Railroad Commission’s website and they did not ask a lawyer or CPA
to review their contracts. She also notes that the appellees did not check the Secretary
of State’s website to determine what legal entities Larry had established, but she
does not explain how doing so was necessary to protect their interests or how that
would have uncovered Larry’s fraud regarding the Dewbre deal.
For the reasons we have given previously, Janice has not established that
reasonable diligence would have uncovered the fraud as a matter of law, so it was
for the factfinder to determine whether the appellees acted with reasonable diligence
and whether reasonable diligence would have uncovered the fraud. Hooks, 457
52
S.W.3d at 61. Here, the trial court found the action the appellees took was reasonable
and reasonable diligence would not have uncovered Larry’s fraud because he
concealed that the deal failed and actively misled them for years. The trial court
heard the appellees’ testimony that they did not contact attorneys or CPAs or the
Railroad Commission, even though they could have, but the trial court also heard
their testimony that Larry represented the Dewbre deal had closed, was doing well,
and was generating returns.
Janice points out that the contracts the appellees signed were missing exhibits,
but that factor alone does not necessarily negate justifiable reliance as a matter of
law. See O’Brien v. Daboval, 388 S.W.3d 826, 843 (Tex. App.—Houston [1st Dist.]
2012, no pet.) (plaintiff could justifiably rely on financial statement that referenced
other documents, without seeing other documents, in light of all circumstances). She
also notes that the appellees never received any deeds of oil and gas interests or
commissions, but we note once again that the appellees did not personally invest in
Dewbre Production and would not have expected to receive these personally. They
did receive, from Larry’s company, what they believed to be investment returns.
Janice also argues that the contracts the appellees signed describe specific oil
wells and provide enough information that a simple search on the Secretary of State’s
or Railroad Commission’s website would have protected their affairs. She
introduced into evidence several earlier contracts the appellees signed with one of
53
Larry’s companies before rolling over their interest to Citadel. These contracts refer
to specific wells, such as “the #1 Meitezn, #1 Janak[,] and #1 Paul” and “the #1 Paul,
#1 Wells[,] and #2 Wells.” The contracts do not describe the wells in any more detail.
We disagree that this information would have yielded any fruitful search results on
the Secretary of State’s or Railroad Commission’s websites that would have
protected the appellees’ interests and uncovered Larry’s fraud. Further, the appellees
had no reason to search these websites for information about the wells because Larry
told them, and they had evidence to believe, their investment interests were doing
well.
Janice has not demonstrated that the appellees did not act with reasonable
diligence to protect their own affairs, and thus she has not demonstrated that a lack
of reasonable diligence negates their justifiable reliance as a matter of law. Cf. Orca
Assets, 546 S.W.3d at 660 (concluding no justifiable reliance as matter of law
because company did not exercise reasonable diligence in light of numerous red
flags, company’s sophistication in oil and gas industry, and direct contract
contradiction).
Confidence in the Other Party
Next, citing Barrow-Shaver, Janice argues that the appellees’ reliance was not
justifiable because their “failure to exercise reasonable diligence is not excused by
mere confidence in the honesty and integrity of the other party.” See Barrow-Shaver,
54
590 S.W.3d at 497 (quoting Thigpen v. Locke, 363 S.W.2d 247, 251 (Tex. 1962));
see also Orca Assets, 546 S.W.3d at 654. She cites appellees’ testimony in which
they stated that they trusted Larry and considered him a friend. These facts alone do
not negate justifiable reliance. Here, there is evidence that appellees relied on more
than their friendship with Larry in believing the Dewbre deal had closed: they signed
contracts that appeared to be buying a small ownership interest in one of Larry’s
companies that was supposed to be closing the Dewbre deal, Larry invited them and
their wives to a celebratory dinner to commemorate the Dewbre deal closing, and
they began receiving purported returns from Citadel’s investment in the Dewbre
deal.
Again, Janice has not demonstrated that the appellees did not act with
reasonable diligence to protect their own affairs, and thus she has not demonstrated
that a lack of reasonable diligence negates their justifiable reliance as a matter of
law, even though they considered Larry a friend. Cf. Barrow-Shaver, 590 S.W.3d at
501 (concluding no justifiable reliance as matter of law because “savvy participant”
should have recognized red flags and contract contradiction instead of “rely[ing]
blindly” on oral representations); Orca Assets, 546 S.W.3d at 660 (concluding no
justifiable reliance as matter of law because company did not exercise reasonable
diligence in light of numerous red flags, company’s sophistication in oil and gas
industry, and direct contract contradiction).
55
Reliance on Larry’s Representations Despite Alarming Facts
Lastly, similar to the other arguments she has already raised, Janice argues the
appellees’ reliance was not justifiable because they relied on Larry’s representations
when the facts should have alarmed them, again citing Barrow-Shaver. See Barrow-
Shaver, 590 S.W.3d at 497–98 (describing Orca Assets, in which Supreme Court
concluded there was no justifiable reliance because plaintiff “should have been
alarmed” by non-standard contract provision and contradictory oral representations).
Though Janice relies on Barrow-Shaver, in that case the Texas Supreme Court
explained that a plaintiff “may not ‘blindly rely on a representation by a defendant’
when the plaintiff’s knowledge, experience, and background alert it to investigate
the defendant’s representations before acting in reliance on those representations.”
Id. at 497 (quoting Orca Assets, 546 S.W.3d at 654) (emphasis added). Janice has
not identified anything specifically about the appellees’ knowledge, experience, or
background that should have alerted them to investigate Larry’s representations.
We have already addressed and dismissed the majority of Janice’s arguments
here: that the appellees relied on Larry’s representations despite red flags, that the
appellees could have inquired about Larry from other sources, that Larry’s
representations directly contradict the void contracts, and that the income statements
sent with the purported checks from the Dewbre deal do not mention the Dewbre
deal.
56
Janice cites in particular one email Larry sent in April 2011, in which he
wrote, “[A]ll you really want to hear is the closing date on Dewbre. [I c]annot give
it to you until the lender has reviewed and approved the two items mentioned above.”
The email shows that, as of April 2011, the Dewbre deal had not yet closed, but it is
far from conclusive proof that the appellees knew the Dewbre deal never closed or
that their reliance on Larry’s representations was unjustifiable.
***
In sum, Janice has failed to prove that the appellees’ reliance on Larry’s
representations was not justifiable as a matter of law. Except for the damages
element, discussed below, Janice has not challenged any other elements of the
appellees’ fraud claim.
2. Damages
Janice next argues there is no evidence of damages for the appellees’ fraud
claim. There is no evidence, she argues, to support the out-of-pocket damages the
trial court awarded because the appellees were seeking the amount they hoped to
receive if their investment had been successful.
a. Applicable Law
Damages are another element of fraud a plaintiff must establish to prevail. See
id. at 496 (to establish fraud, plaintiff must show among other things that plaintiff
57
justifiably relied on defendant’s false representation, “which caused the plaintiff
injury”).
There are two measures of direct damages for fraud: the out-of-pocket
measure and the benefit-of-the-bargain measure. Formosa Plastics Corp. USA v.
Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 49 (Tex. 1998). The out-of-
pocket measure is based on the “difference between the value paid and the value
received,” while the benefit-of-the-bargain measure is based on “the difference
between the value as represented and the value received.” Id.
b. Analysis
We disagree with Janice’s characterization of the appellees’ damages. She
asserts that the appellees sought the value of what their investment would have
earned if it had succeeded (benefit-of-the-bargain damages), but the appellees only
ever sought the return of the money they gave to Larry, less the money that Larry
had already paid them (out-of-pocket damages). The appellees did not seek the value
of what the Dewbre deal would have earned over ten years if it had closed. And they
provided more than sufficient proof of their out-of-pocket damages, at least enough
evidence to support the trial court’s award.
The appellees provided copies of checks and wire transfers to establish that
Fauth transferred $820,000 to Larry and Cooper transferred $640,000 to Larry. Larry
returned $67,476.87 to each Fauth and Cooper through the checks purportedly from
58
the Dewbre deal. Fauth and Cooper sought the difference between those two
amounts: $752,523.13 for Fauth and $572,523.13 for Cooper.3 Thus, the appellees
provided at least some evidence to establish their out-of-pocket damages, the
difference between the amount they paid Larry and the amount they received. See
Formosa Plastics, 960 S.W.2d at 49 (out-of-pocket damages are difference between
value paid and value received). Thus, there is legally sufficient evidence. See Wilson,
168 S.W.3d at 810 (stating court will sustain no-evidence challenge if there is
complete absence of evidence of vital fact or less than scintilla of evidence); King
Ranch, 118 S.W.3d at 751 (stating more than scintilla of evidence exists when
evidence rises to level enabling reasonable people to differ in their conclusions).
3. Unjust Enrichment
Next, Janice argues the appellees’ unjust enrichment claim sounds in fraud
and fails for the same reasons as their fraud claim. But we have already concluded
3
The trial court’s amended final judgment awarded Cooper $572,573.13. The record
does not indicate why this amount is slightly different from the calculated amount,
but no party has raised this issue.
In the initial application for removal of Janice as independent administrator, Cooper
claimed his interest in the estate was in the amount of $572,523.13. A few pages
later in that same document, however, he states he filed a claim against the estate in
the amount of $572,573.13, which may have been a simple typographical error. The
appellees’ original petition also states that Cooper’s claim against the estate was in
the amount of $572,573.13. The trial court’s amended final judgment awarded
Cooper this amount. Because there is some evidence to support the trial court’s
award of damages and no party has raised this issue, it does not affect our
disposition.
59
the record supports the trial court’s judgment on the appellees’ fraud claim. When,
as here, a judgment rests on multiple theories of recovery, we need not address each
cause of action if any one theory is valid. EMC Mortg. Corp. v. Jones, 252 S.W.3d
857, 870 (Tex. App.—Dallas 2008, no pet.); see also TEX. R. APP. P. 47.1 (appellate
court’s written opinion need not address issues unnecessary to final disposition of
appeal).
***
In sum, we conclude the appellees’ reliance on Larry’s representations was
not unjustifiable as a matter of law, and there is more than a scintilla of evidence to
support the appellees’ claim for damages. Because the record supports the trial
court’s judgment on the appellees’ fraud claim, we need not address their unjust-
enrichment claim. We overrule Janice’s third issue.
D. Fraudulent Transfer of GEM Interest
Janice argues there is no evidence, or factually insufficient evidence, that
Larry intended to defraud his creditors when he transferred his interest in GEM to
Janice before he died. She also asserts that the appellees were not Larry’s creditors
because any claims they had were barred by limitations.
1. Applicable Law
The Uniform Fraudulent Transfer Act prevents debtors from defrauding
creditors by placing assets beyond the creditors’ reach. Janvey v. Golf Channel, Inc.,
60
487 S.W.3d 560, 566 (Tex. 2016); see TEX. BUS. & COM. CODE §§ 24.001–.013. A
creditor may sue to void a fraudulent transfer to the extent necessary to satisfy the
creditor’s claim. TEX. BUS. & COM. CODE § 24.008(a)(1).
To prove a transfer was fraudulent and void the transfer under the Act, a
claimant must show: (1) he is a creditor, meaning he has a claim against the debtor;
(2) the creditor’s claim arose before or within a reasonable time after the debtor
transferred the assets; and (3) the transfer was made with the “actual intent to hinder,
delay, or defraud the creditor.” See Nwokedi v. Unlimited Restoration Specialists,
Inc., 428 S.W.3d 191, 204–05 (Tex. App.—Houston [1st Dist.] 2014, pet. denied);
see also TEX. BUS. & COM. CODE § 24.005(a)(1) (transfer by debtor is fraudulent as
to creditor, whether creditor’s claim arose before or within reasonable time after
transfer was made, if debtor made transfer “with actual intent to hinder, delay, or
defraud” creditor).
Under the Act, a “creditor” is any person who has a “claim.” TEX. BUS. &
COM. CODE § 24.002(4). A “claim” is the “right to payment or property.” Id.
§ 24.002(3). An “asset” is the debtor’s “property,” which is “anything that may be
the subject of ownership.” Id. § 24.002(2), (10).
In determining whether a debtor made a transfer with actual intent to hinder,
delay, or defraud a creditor, we consider whether certain “badges of fraud” are
present, including whether the transfer was to an “insider,” meaning a spouse or
61
relative; whether the transfer was of substantially all the debtor’s assets; and whether
the value of the consideration received by the debtor was reasonably equivalent to
the value of the asset transferred. Id. § 24.002(7), (11) (defining “insider” and
“relative”); id. § 24.005(b)(1), (5), (8) (listing factors to consider in determining
actual intent); Nwokedi, 428 S.W.3d at 203 (describing Section 24.005(b) factors as
“badges of fraud”).
The existence of actual intent is a question of fact. Hahn v. Love, 321 S.W.3d
517, 525–26 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). Often, direct proof
of actual intent is not available, so the factfinder may consider circumstantial
evidence, including the badges of fraud listed in the Act. Mladenka v. Mladenka,
130 S.W.3d 397, 405 (Tex. App.—Houston [14th Dist.] 2004, no pet.); see TEX.
BUS. & COM. CODE § 24.005(b). The presence of several badges of fraud can support
a finding of actual intent. Wohlstein v. Aliezer, 321 S.W.3d 765, 777 (Tex. App.—
Houston [14th Dist.] 2010, no pet.).
2. Analysis
The trial court found that Larry transferred his interest in GEM, “his most
valuable asset,” to Janice weeks before his death knowing that his creditors would
soon discover his fraud, and he received no consideration for the transfer. The trial
court found the transfer was “essentially a transfer of the substantial majority of
[Larry’s] assets in exchange for nothing.” Thus, the trial court found Larry had an
62
intent to defraud, and the trial court voided Larry’s transfer of his interest in GEM
and brought the interest back into Larry’s estate.
a. Creditors
Janice first argues that the appellees are not creditors of Larry’s estate because
they do not have a valid claim against it—their claim is barred by limitations. As we
have already discussed, the appellees’ claim is not barred by limitations, and they
are creditors of Larry’s estate because they have a claim against the estate. See TEX.
BUS. & COM. CODE § 24.002(3), (4) (defining “creditor” as person with claim and
“claim” as right to payment or property).
b. Claim Arose Before or Reasonable Time After Transfer
Janice next argues that the transfer could only be fraudulent if the creditor’s
claim arose within a reasonable time after the transfer was made, and the appellees’
claim for their 2011 investments did not arise within a reasonable time before or
after the transfer. See TEX. BUS. & COM. CODE § 24.005(a). But Section 24.005(a)
says that a transfer can be fraudulent “whether the creditor’s claim arose before or
within a reasonable time after the transfer was made.” Id. (emphasis added).
Whether the appellees’ claim arose in 2011, as Janice argues, or in 2020, when they
actually learned of Larry’s fraud, the appellees can satisfy the statute. Larry
transferred his interest in December of 2019. If their claim arose in 2011, then the
claim arose before Larry made the transfer. If their claim arose in 2020, then it arose
63
within a reasonable time after Larry made the transfer. Either way, the appellees’
claim arose before or a few weeks after Larry made the transfer, as described by
Section 24.005(a).
c. Actual Intent to Hinder, Delay, or Defraud
Next, Janice argues there is no evidence that Larry had actual intent to hinder,
delay, or defraud. We disagree. While direct proof of actual intent is usually not
available, the badges of fraud listed in the Act can serve as circumstantial evidence
to support a finding of actual intent. Wohlstein, 321 S.W.3d at 777; Mladenka, 130
S.W.3d at 405; see TEX. BUS. & COM. CODE § 24.005(b) (listing badges of fraud to
consider in determining actual intent).
There is evidence of at least three badges of fraud. First, Larry’s transfer of
his interest in GEM was to his spouse, who is an “insider” under the statute. See
TEX. BUS. & COM. CODE § 24.005(b)(1) (consideration given to whether transfer was
to “insider”); id. § 24.002(7), (11) (defining “insider” to include relative and
defining “relative” to include spouse, respectively). Second, the transfer was of
Larry’s most valuable asset. The appellees and Janice agree Larry claimed to have
invested millions of dollars in HELA, which is GEM’s primary investment. The rest
of his estate is small in comparison—Janice testified the total value of Larry’s estate
is $64,364.30, and there are no assets of value left in the estate to pay creditors. Thus,
the millions Larry claimed to have invested in GEM and HELA compared to the
64
value of the rest of his estate show he transferred nearly all of his assets to his wife.
See id. § 24.005(b)(5) (consideration given to whether transfer was of substantially
all of debtor’s assets). Third, Larry received no consideration for the transfer. See id.
§ 24.005(b)(8) (consideration given to whether value received by debtor was
reasonably equivalent to value of asset transferred). Thus, there is at least some
evidence of several badges of fraud, which are indicators of actual intent to defraud
a creditor. See Wohlstein, 321 S.W.3d at 777; Mladenka, 130 S.W.3d at 405.
There is more than a scintilla of evidence that the appellees are creditors of
Larry’s; that their claim arose before or a reasonable time after he transferred assets;
and that he made the transfer with actual intent to hinder, delay, or defraud the
creditors. See TEX. BUS. & COM. CODE § 24.005(a)(1); Nwokedi, 428 S.W.3d at 204–
05. Therefore, there is legally sufficient evidence to support the trial court’s finding
that the transfer was fraudulent. See Wilson, 168 S.W.3d at 810 (stating court will
sustain no-evidence challenge if there is complete absence of evidence of vital fact
or less than scintilla of evidence); King Ranch, 118 S.W.3d at 751 (stating more than
scintilla of evidence exists when evidence rises to level enabling reasonable people
to differ in their conclusions).
Regarding the factual sufficiency of the evidence, there is at least some
evidence that Larry’s transfer of his interest in GEM was fraudulent, and the only
evidence to the contrary is Janice’s testimony that Larry’s transfer was to provide
65
for her in case something happened to him. The evidence supporting the trial court’s
finding that the transfer was fraudulent is not so weak as to make the judgment
clearly wrong and unjust. See Figueroa, 318 S.W.3d at 59 (in factual sufficiency
challenge we consider and weigh all evidence and set aside judgment only if
evidence supporting finding is so weak as to make judgment clearly wrong and
manifestly unjust).
d. Unperfected Interest
Lastly, Janice argues that Larry could only transfer what he owned, and he
owned an unperfected interest in GEM. She asserts that after Larry’s death, she
returned that interest to GEM, and, in a separate conveyance, GEM gave her a
minority, non-voting, non-capital contributing interest. She argues the trial court had
no authority to void this separate interest.
Robert Painter, Larry’s business associate and GEM’s attorney, testified that
Donald Wiese, another business associate of Larry’s, and Larry each agreed to fund
50 percent of the capital contributions for GEM’s business activities. But Larry
never funded his capital contribution, so GEM claimed Larry only had an
“unperfected interest” in GEM. Painter testified:
[I]t was GEM’s position that Larry Ewers left to Ms. Ewers an
unperfected interest in GEM because Mr. Ewers had not funded his
significant—any part of his significant capital contribution that he had
promised.
As a result, the company, GEM, and Ms. Ewers entered into an
agreement whereby the—and I’m going to just describe it generally—
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Mr. Ewers’ voting and capital-contributing shares were returned to the
company and Ms. Ewers was assigned separate non-voting—a small
minority or a smaller minority interest that are non-voting, non-capital
contributing shares.
Janice asserts that the interest in GEM she owns now is unrelated to the
interest Larry transferred to her, which she returned to the company. She asserts that,
in a separate agreement, for no consideration, she was given a small minority interest
in GEM. Painter confirmed that Janice never made a capital contribution to,
purchased shares in, or purchased an ownership interest in GEM or HELA. Yet she
was given a minority interest based on non-voting, non-capital contributing shares
that, if HELA makes a profit, would entitle her to a portion of the profits. Painter
testified:
It’s GEM’s position that [Janice’s] interest did not originate with
[Larry] because [Larry] had not perfected his interest. It’s GEM’s
position that the shares, the non-voting, non-capital contributing shares
that—sorry—the non-voting, non-contributing interest that Ms. Ewers
now holds did not originate with the Ewers’—the Larry Ewers’ shares.
They’re just a separate conveyance.
But the trial court, as factfinder, was entitled to disbelieve Painter’s testimony
that GEM, for no payment or consideration, gave Janice a profit-bearing interest in
the company. Wilson, 168 S.W.3d at 819 (factfinder is sole judge of credibility of
witnesses and weight to give their testimony and may choose to disbelieve witness).
From the evidence presented, the trial court could conclude that Janice’s current
interest originated from Larry’s interest in GEM, which he transferred to her before
his death. The trial court did not err in voiding Larry’s fraudulent transfer of his
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interest in GEM and Janice’s subsequent interest and returning that asset to Larry’s
estate.
***
We conclude there was both legally and factually sufficient evidence to
support the trial court’s finding that Larry’s transfer of his interest in GEM to Janice
was fraudulent as to his creditors. We overrule this issue.
E. Removing Janice as Independent Administrator
In her next issue, Janice argues the trial court erred in finding she had a
material conflict of interest as the independent administrator of Larry’s estate and in
removing her as independent administrator.
1. Applicable Law
Generally, an independent administrator may administer the assets of an estate
with minimal court supervision. See, e.g., Eastland v. Eastland, 273 S.W.3d 815,
821 (Tex. App.—Houston [14th Dist.] 2008, no pet.) (discussing purposes of
independent administration under former Probate Code, now Estates Code). Section
404.0035 of the Estates Code lists certain factors for which a court may remove an
independent administrator after her appointment.
A court may remove an independent administrator if she “becomes incapable
of properly performing [her] fiduciary duties due to a material conflict of interest.”
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TEX. EST. CODE § 404.0035(b)(4).4 A conflict of interest is “material” if it is “[o]f
such a nature that knowledge of the item would affect a person’s decision-making;
significant; essential.” Material, BLACK’S LAW DICTIONARY (11th ed. 2019).
In a different context, this court has decided an administrator’s claims to the
decedent’s property, to the exclusion of the estate, can present such a conflict of
interest as to render that person unsuitable to serve as administrator as a matter of
law. Pine v. deBlieux, 360 S.W.3d 45, 51 (Tex. App.—Houston [1st Dist.] 2011, pet.
denied). “[W]hen an administrator or executor claims title to property owned by the
testator at the time of death, the interest of the estate and that administrator or
executor are too adverse for that one person to advocate effectively for both sides.”
Id. at 49. But the issue in Pine v. deBlieux was a potential administrator’s
unsuitability, which is a “more expansive disqualification standard” than the
enumerated factors in Section 404.0035 for the removal of an administrator post-
appointment.5 See id. at 51. Still, Pine’s conflict-of-interest discussion is relevant to
our analysis.
4
Section 404.0035 of the Estates Code refers to an “independent executor,” but the
term “independent executor” includes an independent administrator. TEX. EST.
CODE § 22.017 (“‘Independent executor’ . . . includes an independent
administrator.”).
5
As the Texas Supreme Court has explained:
[T]he grounds to remove an independent executor post-appointment are
different from those to disqualify an executor pre-appointment. [Section
304.003 of the Estates Code] sets out five different bases for
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The party seeking removal of an independent administrator—here, the
appellees—has the burden to establish a violation of Section 404.0035 of the Estates
Code. See Kappus v. Kappus, 284 S.W.3d 831, 835 (Tex. 2009) (referring to Section
404.0035’s predecessor statute in former Probate Code). Once the violation has been
proven, the trial court has discretion to determine whether that violation warrants
removal. Id. We review the trial court’s order removing an independent
administrator for abuse of discretion. In re Estate of Collins, 638 S.W.3d 814, 819
(Tex. App.—Tyler 2021, no pet.). A trial court abuses its discretion when it acts
arbitrarily, unreasonably, or without reference to any guiding rules or principles. Id.
2. Analysis
Janice asserts there is no evidence, or factually insufficient evidence, that she
has a material conflict of interest that affects her ability to fairly administer Larry’s
estate.
In its findings of fact and conclusions of law, the trial court found Janice was
incapable of performing her duties as independent administrator because she had a
material conflict of interest: she claimed ownership of Larry’s interest in GEM, and
disqualification of a would-be executor, including ‘[a] person whom the
court finds unsuitable.’ In contrast to this catch-all standard that confers
broad trial-court discretion, [Section 404.0035] lists . . . specific grounds
for removal, none quite as expansive as unsuitability.
Kappus v. Kappus, 284 S.W.3d 831, 835 (Tex. 2009) (third alteration in original)
(footnote omitted) (references to former Probate Code updated to Estates Code).
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she did not list or disclose to the trial court Larry’s transfer of his interest in GEM
to her. The trial court concluded that Janice should be removed as independent
administrator.
Janice asserts that she did not list or disclose the transfer of GEM in the estate
inventory because Larry transferred his interest to her before he died, so she in good
faith did not believe it to be an estate asset.6 She argues that estate assets do not
include property the decedent sold or transferred before death. Even though Janice
may have acted in good faith at the time, and there is no evidence to the contrary,
the trial court has since voided the transfer of GEM, as discussed above. Janice
directly claims ownership of an estate asset, an interest that is “too adverse for that
one person to advocate effectively for both sides.” See Pine, 360 S.W.3d at 49. Thus,
Janice’s ownership claim in GEM is evidence of a conflict of interest.
There is also evidence to support the finding that this conflict of interest is
material. Both Janice and Robert Painter testified that GEM could become profitable
in the future, and the trial court found that GEM “may have substantial value and
may generate income” once HELA becomes profitable. Janice also testified that
there were no other assets of value in the estate to pay creditors’ claims. Thus, this
6
Janice also argues that she, in good faith, denied the appellees’ claims against the
estate based on limitations. Their claims may have appeared to have been barred by
limitations on their face, so we do not dispute that Janice initially denied the claims
in good faith. However, we have already discussed why appellees’ claims are not
barred by limitations, so we do not repeat the issue here.
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conflict of interest is enough to be significant and essential, meaning it is a material
conflict of interest. See Material, BLACK’S LAW DICTIONARY (11th ed. 2019)
(defining “material” as “[o]f such a nature that knowledge of the item would affect
a person’s decision-making; significant; essential.”).
Janice cites the factors the Texas Supreme Court discussed in Kappus v.
Kappus to argue she does not have a conflict of interest. See Kappus, 284 S.W.3d at
837–38 (in deciding whether administrator’s conflict of interest amounts to “gross
misconduct or gross mismanagement,” courts should consider size of estate, degree
of actual harm to estate, administrator’s good faith in asserting claim for estate
property, decedent’s knowledge of conflict, and administrator’s disclosure of
conflict). But the issue before the Court in Kappus was whether the administrator’s
conflict of interest necessarily rose to the level of “gross misconduct or gross
mismanagement” because at that time, the independent administrator removal statute
did not include a material conflict of interest provision.7 Thus, the Kappus factors
are inapposite.
There is more than a scintilla of evidence to support the trial court’s finding
that Janice had a material conflict of interest as independent administrator; thus,
7
The legislature added the material conflict of interest provision in 2011, two years
after the Court decided Kappus. Act of May 29, 2011, 82nd Leg., R.S., ch. 1338
(S.B. 1198), § 1.25, sec. 149C(a)(7), 2011 Tex. Gen. Laws 3882, 3897 (adding
“material conflict of interest” to grounds for removal of independent executor).
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there is legally sufficient evidence. See Wilson, 168 S.W.3d at 810 (stating court will
sustain no-evidence challenge if there is complete absence of evidence of vital fact
or less than scintilla of evidence); King Ranch, 118 S.W.3d at 751 (stating more than
scintilla of evidence exists when evidence rises to level enabling reasonable people
to differ in their conclusions).
Regarding the factual sufficiency of the evidence, the only contrary evidence
Janice cites is the fact that her interest in GEM has no value presently, so she claims
she does not have a material conflict of interest. Janice and Robert Painter testified
that the fair market value of Larry’s interest in GEM was zero at the time of his
death. Janice argues that, although the interest in GEM has the potential to be
profitable in the future, a potential conflict of interest is not a material conflict. We
disagree that the asset’s present value makes her conflict of interest less significant
when there is evidence that the asset is worth millions and could be extremely
profitable in the future. Janice herself testified that if HELA makes a profit, her
interest in GEM would entitle her to receive a portion of the profits, and Painter
agreed, although he was reluctant to state the percentage of her interest or the amount
she would receive. The evidence supporting the trial court’s finding that Janice had
a material conflict of interest is not so weak as to make the judgment clearly wrong
and unjust. See Figueroa, 318 S.W.3d at 59 (in factual sufficiency challenge we
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consider and weigh all evidence and set aside judgment only if evidence supporting
finding is so weak as to make judgment clearly wrong and manifestly unjust).
The trial court, having found legally and factually sufficient evidence of a
material conflict of interest, did not abuse its discretion in removing Janice as
independent administrator. See Kappus, 284 S.W.3d at 835 (stating that once
violation of removal statute is proven, trial court has discretion to determine whether
violation warrants administrator’s removal). We overrule this issue.
F. GEM as Larry’s Alter Ego
In her sixth issue, Janice argues there was no evidence to support the trial
court’s finding that GEM was Larry’s alter ego. She asks us to modify the final
judgment to delete this finding.
The appellees have not disputed this point. Whereas the trial court made
multiple findings of fact regarding Larry’s use of Citadel and EPD as his alter egos,
the trial court made no such findings of fact regarding GEM. Larry was a co-owner
of GEM, not the sole owner. There is some evidence that he used GEM funds
improperly,8 but there was no other evidence that he used GEM as his alter ego. Alter
8
Robert Painter testified that Larry made significant transfers—about $50,000 a
month in 2019—from GEM’s checking account into a bank account Larry used for
both personal and business expenses, but those transactions were unauthorized. He
explained:
These were unauthorized transfers that Mr. Ewers made from the
GEM checking account that the GEM members and manager, Mr.
Wiese, and I discovered after his passing. . . . Mr. Ewers had authority
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ego is a theory by which a corporation’s owner may be held personally liable for the
corporation’s liabilities—also known as piercing the corporate veil—if the claimant
can show the owner used the corporation “as a mere tool or business conduit” for
illegitimate purposes. See, e.g., Durham v. Accardi, 587 S.W.3d 179, 185 (Tex.
App.—Houston [14th Dist.] 2019, no pet.).
We therefore sustain Janice’s sixth issue and modify the trial court’s amended
final judgment to delete the language finding “Green Energy Minerals LLC” to be
Larry’s alter ego.9 See, e.g., Stauffacher v. Coadum Cap. Fund 1, LLC, 344 S.W.3d
584, 592 (Tex. App.—Houston [14th Dist.] 2011, pet. denied) (modifying trial
court’s judgment to delete award based on claim for which there was no evidence
and affirming as modified); Bennett v. Cochran, No. 14-00-01160-CV, 2004 WL
852298, at *7 (Tex. App.—Houston [14th Dist.] Apr. 22, 2004, no pet.) (mem. op.)
(same); see also TEX. R. APP. P. 43.2(b) (court of appeals may modify trial court’s
judgment and affirm as modified).
to withdraw from the GEM checking account for expenses that were
paid to Aqua [Dulce] or HELA and for no other purpose. He did not
have authority, which was required per the agreements of the
members of GEM, to withdraw any funds from the GEM checking
account for deposit into his personal account . . . .
9
We therefore do not reach the second part of Janice’s argument, that the alter ego
finding as to GEM must be vacated because the appellees did not sue GEM.
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CONCLUSION
We modify the trial court’s judgment by deleting the language stating Green
Energy Minerals LLC was an alter ego of Larry Ewers.
We affirm the judgment as modified.
Gordon Goodman
Justice
Panel consists of Justices Goodman, Countiss, and Farris.
Justice Countiss, dissenting.
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Janice Barr Ewers as Independent Administrator, and in Her Individual Capacity v. Joseph Fauth, III, & Prentice Cooper
Combined Opinion