Ajaz R. Siddiqui, Najeeb Siddiqui and Suncoat Environmental and Construction, Inc. v. Fancy Bites, L.L.C., Quick Eats L.L.C., Farhan S. Qureshi and Syed Khalid Ali ( 2015 )

ACCEPTED
14-14-00384-cv
FOURTEENTH COURT OF APPEALS
HOUSTON, TEXAS
6/26/2015 8:35:53 PM
CHRISTOPHER PRINE
CLERK
No. 14-14-00384-CV
FILED IN
14th COURT OF APPEALS
HOUSTON, TEXAS
In the Fourteenth Court of Appeals
6/26/2015 8:35:53 PM
Houston, Texas
CHRISTOPHER A. PRINE
Clerk
AJAZ R. SIDDIQUI, NAJEEB SIDDIQUI AND
SUNCOAST ENVIRONMENTAL AND CONSTRUCTION, INC.,
Appellants,
v.
FARHAN S. QURESHI AND SYED KHALID ALI,
Appellees.
On Appeal from the 80th Judicial District Court
Harris County, Texas
Trial Court Cause No. 2010-66787
APPELLEES’ BRIEF
Peter M. Kelly
State Bar No. 00791011
KELLY, DURHAM & PITTARD, L.L.P.
1005 Heights Boulevard
Houston, Texas 77008
Telephone: 713.529.0048
Facsimile: 713.529.2498
Email: pkelly@texasappeals.com
COUNSEL FOR APPELLEES - Oral Argument Requested
TABLE OF CONTENTS
TABLE OF CONTENTS .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
INDEX OF AUTHORITIES .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
STATEMENT OF FACTS .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY OF ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
STANDARD OF REVIEW.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
A. Findings of fact--legal and factual sufficiency.. . . . . . . . . . . . . . . . . 11
B. Conclusions of law--de novo... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARGUMENT AND AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
I. The trial court’s fraud finding is supported by legally
sufficient evidence (Response to Siddiqui Issue No. 2).. . . . . . . . . . 14
A. There is no need for the trial court to make
particularized fact findings.. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
B. The Siddiquis owed Qureshi and Ali a duty to
disclose material facts, and breached that duty. . . . . . . . . . . . 17
C. The Siddiquis made multiple misrepresentations or
nondisclosures to Qureshi and Ali, causing damages
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
D. Qureshi and Ali established the Siddiquis’ scienter
with circumstantial evidence. . . . . . . . . . . . . . . . . . . . . . . . . . 20
II. The trial court’s finding of a breach of fiduciary duties is
supported by more than a scintilla of evidence (Response
to Siddiqui Issue No. 1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-ii-
A. The Siddiquis and Qureshi and Ali were in an
informal fiduciary relationship.. . . . . . . . . . . . . . . . . . . . . . . . 22
B. Suncoast, too, is liable for the breach of the
Siddiquis’ fiduciary duties (Response to Siddiqui
Issue No. 5).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
C. The damages flowing from the breach of fiduciary
duty have not been separately challenged. . . . . . . . . . . . . . . . 25
III. Qureshi and Ali introduced legally sufficient evidence to
support an award of restitution damages for the Siddiquis’
fraud (Response to Siddiqui Issue No. 3).. . . . . . . . . . . . . . . . . . . . . 25
IV. Exemplary damages were properly awarded (Response to
Siddiqui Issue No. 6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
V. The Siddiquis are not entitled to a judgment in their favor
(Response to Siddiqui Issue No. 7). . . . . . . . . . . . . . . . . . . . . . . . . . 29
CONCLUSION AND PRAYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
CERTIFICATE OF COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
-iii-
TABLE OF AUTHORITIES
Case page
Allen v. Devon Energy Holdings, L.L.C.,
367 S.W.3d 355 (Tex. App.--Houston [1st Dist.] 2012,
pet. granted, j’ment set aside, remanded by agmt.). . . . . . . . . . . . . . . . 23, 29
Am. Med. Int’l, Inc. v. Giurintano,
821 S.W.2d 331 (Tex. App.--Houston [14th Dist.] 1991, no writ). . . . . . . 18
Anderson v. City of Seven Points,
806 S.W.2d 791 (Tex. 1991).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Arias v. Brookstone, L.P.,
265 S.W.3d 459 (Tex. App.--Houston [1st Dist.] 2007, pet. denied). . . . . 12
Associated Indem. Corp. v. CAT Contracting, Inc.,
964 S.W.2d 276 (Tex. 1998).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Barrientos v. Nava,
94 S.W.3d 270 (Tex. App.--Houston [14th Dist.] 2002, no pet.).. . . . . . . . 12
Behee v. Mo. Pac. Ry. Co.,
71 Tex. 424, 9 S.W. 449 (1888). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Bentley v. Bunton,
94 S.W.3d 561 (Tex. 2002).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Black v. Dallas Cnty. Welfare Unit,
835 S.W.2d 626 (Tex. 1992).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (Tex. 2002).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Bradf. v. Vento,
48 S.W.3d 749 (Tex. 2001).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-iv-
Brown v. Brown,
236 S.W.3d 343 (Tex. App.--Houston [1st Dist.] 2007, no pet.). . . . . . 17-18
Burrow v. Arce,
997 S.W.2d 229 (Tex. 1999).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Citizens Nat’l Bank v. Allen Rae Invs., Inc.,
142 S.W.3d 459 (Tex. App.--Fort Worth 2004, no pet.). . . . . . . . . . . . . . . 18
City of Harker Heights v. Sun Meadows Land, Ltd.,
830 S.W.2d 313 (Tex. App.--Austin 1992, no writ).. . . . . . . . . . . . . . . . . . 27
City of Keller v. Wilson,
168 S.W.3d 802 (Tex. 2005).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12
Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp.,
823 S.W.2d 591 (Tex. 1992).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Cruz v. Andrews Restoration, Inc.,
364 S.W.3d 817 (Tex. 2012).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Digby v. Texas Bank,
943 S.W.2d 914 (Tex. App.--El Paso 1997, writ denied).. . . . . . . . . . . . . . 21
Estate of Stonecipher v. Estate of Butts,
591 S.W.2d 806 (Tex. 1979).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Finch v. Finch,
825 S.W.2d 218 (Tex. App.--Houston [1st Dist.] 1992, no writ).. . . . . . . . 15
Flanary v. Mills,
150 S.W.3d 785 (Tex. App.--Austin 2004, pet. denied).. . . . . . . . . . . . . . . 15
French v. French,
385 S.W.3d 61 (Tex. App.--Waco 2012, pet. denied). . . . . . . . . . . . . . . . . 21
Greater Hous. German Shepherd Dog Rescue, Inc. v. Lira,
447 S.W.3d 365 (Tex. App.--Houston [14th Dist.] 2014, pet. filed). . . . . . 13
-v-
Guevara v. Lackner,
447 S.W.3d 566 (Tex. App.--Corpus Christi 2014, no pet.). . . . . . . . . . . . 24
Henry S. Miller Co. v. Bynum,
836 S.W.2d 160 (Tex. 1992).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
In re J.R.,
907 S.W.2d 107 (Tex. App.--Austin 1995, no writ).. . . . . . . . . . . . . . . . . . 27
In re Marriage of Morris,
12 S.W.3d 877 (Tex. App.--Texarkana 2000, no pet.). . . . . . . . . . . . . . . . . 15
In re Marriage of Jameson,
No. 07–02–00476–CV, 2004 WL 237829 (Tex. App.--Amarillo 2004,
pet. denied). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-16
In re L.A.F.,
270 S.W.3d 735 (Tex. App.--Dallas 2008, pet. denied). . . . . . . . . . . . . . . . 11
In re M.M.M.,
229 S.W.3d 821 (Tex. App.--Fort Worth 2007, no pet.). . . . . . . . . . . . 15-16
Ins. Co. of N. Am. v. Morris,
981 S.W.2d 667 (Tex. 1998).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am.,
341 S.W.3d 323 (Tex. 2011).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 28
James J. Flanagan Shipping Corp. v. Del Monte Fresh Produce N.A., Inc.,
403 S.W.3d 360 (Tex. App.--Houston [1 Dist.] 2013, no pet.). . . . . . . . . . 21
Kinzbach Tool Co. v. Corbett–Wallace Corp.,
160 S.W.2d 509 (Tex. 1942).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Leonard v. Eskew,
731 S.W.2d 124 (Tex. App.--Austin 1987, writ ref d n.r.e.). . . . . . . . . 10-11
Lundy v. Masson,
260 S.W.3d 482 (Tex. App.-Houston [14th Dist.] 2008, pet. denied). . . . . 22
-vi-
Matter of Marriage of Merrikh,
14-14-00024-CV, 2015 WL 2438770 (Tex. App.--Houston [14th Dist.]
May 19, 2015, n.p.h.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-13
Meyer v. Cathey,
167 S.W.3d 327 (Tex. 2005).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Miller v. Miller,
700 S.W.2d 941 (Tex. App.--Dallas 1985, writ ref’d n.r.e.). . . . . . . . . . . . 23
Nelson v. Najm,
127 S.W.3d 170 (Tex. App.--Houston [1st Dist.] 2003, pet. denied). . . . . 28
Quigley v. Bennett,
227 S.W.3d 51 (Tex. 2007).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Rivers v. Charlie Thomas Ford, Ltd.,
289 S.W.3d 353 (Tex. App.--Houston [14th Dist.] 2009, no pet.).. . . . . . . 17
Schlumberger Tech. Corp. v. Swanson,
959 S.W.2d 171 (Tex. 1997).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Sears, Roebuck and Co. v. Nichols,
819 S.W.2d 900 (Tex. App.--Houston [14th Dist.] 1991, writ denied). . . . 13
Solutioneers Consulting, Ltd. v. Gulf Greyhound Partners, Ltd.,
237 S.W.3d 379 (Tex. App.--Houston [14th Dist.] 2007, no pet.).. . . . . . . 18
Texas Bank & Trust Co. v. Moore,
595 S.W.2d 502 (Tex. 1980).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Transp. Ins. Co. v. Moriel,
879 S.W.2d 10 (Tex. 1994).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Tuck v. Miller,
483 S.W.2d 898 (Tex. Civ. App.--Austin 1972, writ ref’d n.r.e.). . . . . . . . 23
Turner v. Franklin,
325 S.W.3d 771 (Tex. App.--Dallas 2010, pet. denied). . . . . . . . . . . . . . . . 20
-vii-
Vejara v. Levior lnt’l LLC,
No. 04–11–00595–CV, 2012 WL 5354681 (Tex. App.--San Antonio
Oct. 31, 2012, pet. denied). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Vickery v. Comm’n for Lawyer Discipline,
5 S.W.3d 241 (Tex. App.--Houston [14th Dist.] 1999, pet. denied). . . . . . 10
Village Place, Ltd. v. VP Shopping, LLC,
404 S.W.3d 115 (Tex. App.--Houston [1st Dist.] 2013, no pet.). . . . . . 11-12
Volume Millwork, Inc. v. West Houston Airport Corp.,
218 S.W.3d 722 (Tex. App.--Houston [1st Dist.] 2006,
pet. denied). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
White v. Zhou Pei,
452 S.W.3d 527 (Tex. App.--Houston [14th Dist.] 2014, no pet.).. . . . . . . 18
Willis v. Donnelly,
199 S.W.3d 262 (Tex. 2006).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Statutes and Rules
RESTATEMENT (FIRST) OF RESTITUTION § 152 (1937). . . . . . . . . . . . . . . . . . . . . . 26
RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 37.. . . . . . 27
-viii-
STATEMENT OF FACTS
The appellants have accurately stated the chronology of events; this Statement
of Facts is largely taken from the appellants’ brief. Supplemental facts--in particular,
those relating to the Siddiquis’ nondisclosures and misrepresentations--are recounted
in the sections of this brief to which they are relevant.
Brothers Ajaz Siddiqui and Najeeb Siddiqui jointly and equally own Suncoast
Construction, Inc. 2 RR 52-53 2 RR 52; 4 RR 90. Suncoast and the Siddiquis have
built a variety of projects, including gas stations, shopping centers, travel centers,
outside fuel systems, multifamily townhomes, and garden apartments. 2 RR 53, 138-
139; 4 RR 90-91. In 2003, the Siddiquis purchased a 4.26 acre tract from the Klein
ISD and developed it as Champions Valley Subdivision, which included 36
townhomes, a Texaco station, and a retail building. 2 RR 54; 3 RR 4-5, 2 RR 55-56;
4 RR 91 2 RR 55. The retail building house a Hartz Chicken Restaurant, which was
owned and operated by Blueline Real Estate L.P. – 12011 Bammel North Houston,
Houston, TX 77066 (“Bammel”). The general and limited partners of Blueline were
two entities owned by the Siddiquis, Fancy Bites, LLC and Quick Eats, LLC.
On January 8, 2007, in separate agreements, the Siddiquis sold to Farhan
Qureshi and Syed Ali each a 25% membership interest in Quick Eats and Fancy Bites,
the general and limited partners of Blueline, for a combined 50% interest. 2 RR 63-
64, 66; PX 5, PX 6, 6A RR. Qureshi and Ali each paid $212,500.00 for the 25%
-1-
interests. Id. Ajaz Siddiqui prepared the Sale and Purchase Agreements. 2 RR 64;
PX 5, PX 6, 6A RR. There is a written representation in the Sale and Purchase
Agreements that it “contains a complete and accurate legal description of each parcel
of real property owned by, leased to, or leased by Company.” The Sale and Purchase
Agreement between Qureshi and the Siddiquis contains an Exhibit A, which is a plat
of the Bammel tract where Blueline built the first Hartz Chicken restaurant. 2 RR 65;
PX 5, page 00348, 6A RR. The Sale and Purchase Agreement between Ali and the
Siddiquis contains no attached exhibit with any real property description or real
property plat. PX 6, 6A RR. Ali testified that the Siddiquis verbally represented to
him that the Bammel tract was owned by Blueline, Fancy Bites or Quick Eats. 4 RR
178.
On the date of the sales to Qureshi and Ali, the Bammel property was titled in
the name of Sunnyland Development, Inc., a holding company owned solely by Ajaz
Siddiqui. 2 RR 64-66. Title to the Bammel property was conveyed to Blueline, at no
cost, on May 12, 2008, in connection with the loan to Blueline from Southwestern
National Bank for construction of the restaurant on Antoine Drive. See 2 RR 64-66,
98; 1 CR 827; PX 37, 6E RR.
Following Qureshi’s and Ali’s purchases, the Siddiquis, Qureshi and Ali were
each 25% members and owners of Fancy Bites and Quick Eats. All four individuals
were managers of Fancy Bites and Quick Eats and had, on paper at least, equal voting
-2-
power and ownership. 2 RR 71-73; 4 RR 100, 128; 5 RR 26, 97-98, 121. On October
24, 2007, certificates of amendment were filed with the Secretary of State to identify
the Siddiquis, Qureshi and Ali as managers of Fancy Bites and Quick Eats. PX 16,
PX 18, 6A RR.
Effective January 23 and January 24, 2008, the Siddiquis, Qureshi and Ali
executed Restated Agreements for Blueline, Fancy Bites and Quick Eats. PX 19, 20,
6B RR; PX 21 6C RR. The Restated Agreements each contain a provision which
states that the entity may contract with any of the partners, managers, members or
their affiliates for the purchase of goods and services for the benefit of the entity. 4
RR 185-186; PX 19, pages 00433-34, §3.3(b), PX 20, p. 00166, § 6.03, 6B RR; PX
21, p. 00920, § 6.03; 6C RR. The Blueline Agreement identifies Fancy Bites as the
general partner with a 1% ownership interest and Quick Eats as the limited partner
with a 99% ownership interest. PX 19, page 00470, 6B RR.
On February 20, 2007, Qureshi completed a Confidential Franchise Application
on behalf of Blueline for the Hartz Chicken Restaurant on Bammel. 2 RR 67; PX 7,
6A RR. The Siddiquis had no involvement in applying for the franchise. 2 RR 67.
On December 07, 2007, January 11, 2008, and April 30, 2008, Ali signed and filed
Assumed Name Records on behalf of Blueline and Fancy Bites for the Bammel
restaurant. 2 RR 69, 82- 83; PX 10, PX 11, 6A RR; PX 28, PX 29, 6C RR. The
Bammel restaurant opened in March of 2008. 2 RR 83. Ali hired the first manager
-3-
for the Bammel restaurant. 2 RR 84-85; 4 RR 101, 131. Ali fired the first manager
in July of 2008. 2 RR 88-89; 4 RR 101, 132. Between March 2008 to November
2008, the Bammel location never had a net profit, except for April of 2008, when it
had a net profit of $260.28. 2 RR 87-88, PX 30, 6C RR.
An appraisal of the Bammel location as of March 5, 2008, was prepared for
Southwestern National Bank. 2 RR 140; PX 105; 60-1, 60-2 RR. Using a
replacement cost approach, the independent appraiser valued the restaurant at
$780,000.00, $625,143.00 for costs of construction and $154,000.00 for land costs.
4 RR 76-77; PX 105, p. V, 60-1 RR; pp. 47-55, 60-2 RR. Ajaz Siddiqui testified that
on March 5, 2008, the market value of the Bammel restaurant and real estate was
$850,000.00 and that the reasonable and necessary cost to construct the restaurant
was $850,000.00. 2 RR 95, 148-149. Ajaz Siddiqui prepared a compilation of the
costs to develop and construct the Bammel tract between 2003 and the completion of
construction in 2008. 2 RR 90-94; PX 32, 6D-1-6D-3 RR. The total costs were
$841,682.46. PX 32, page 2380, 6D-1 RR.
Qureshi owned a tract of land on Antoine Drive and had a Conoco station
across the street. 2 RR 75, 97; 4 RR 108. After Qureshi and Ali purchased their 25%
interests each in Fancy Bites and Quick Eats, Qureshi contracted with Suncoast to
build a retail center. See 3 RR 106-107; DX 8, 6T RR; 9-26-2007 contract to
construct retail center. The Siddiquis constructed a pad site on this location. 2 RR
-4-
74. The Siddiquis, Qureshi and Ali decided this would be a good location for
Blueline to open a second Hartz restaurant. 2 RR 74-76. Blueline agreed to buy the
pad site from Qureshi for $150,000.00. 2 RR 75-76, 97; PX 35, PX 36, 6E RR. The
pad site for the restaurant purchased by Blueline from Qureshi for $150,000.00
represented 10 to 15 percent of the property owned by Qureshi. 2 RR 76. Qureshi
had purchased the entire property for around $300,000.00. 2 RR 76.
In January of 2008, Blueline submitted a loan application to Southwestern
National Bank to obtain a construction loan for the Antoine Hartz Chicken
Restaurant. PX 22, 6C RR. The Siddiquis, Qureshi and Ali all signed the loan
application. The amount sought was $839,000.00 for “land acquisition, new
construction/expansion/repair.” Id.
On January 28, 2008, Southwestern National Bank sent separate loan
commitments approving a Construction Loan and Commercial Loan for Blueline for
the Antoine restaurant. PX 25, PX 26, 6C RR. The Construction Loan is in the
amount of $645,000.00 “to provide land and construction financing on Hartz Krispy
Chicken and Rolls located at Antoine and West Mt. Houston, Houston, Texas.” PX
25. The Commercial Loan is in the amount of $194,000.00 “to purchase FF & E
[Furniture, Fixtures and Equipment]” for this Antoine location. PX 26. The two loan
commitments are executed by Blueline, Fancy Bites and all of the individuals as
guarantors. PX 25, PX 26. Southwestern National Bank did not loan Blueline any
-5-
money for working capital. 2 RR 79-80; 4 RR 106, 163, 167; 5 RR 163. There was
never any discussion between the Siddiquis and Qureshi and Ali that any of the loans
from Southwestern National Bank would be used for working capital for Blueline.
Id.
Fancy Bites filed Assumed Name Records for the Antoine Hartz Chicken
Restaurant on April 16, 2008. 2 RR 82-83; PX 27, 6C RR. The document was signed
by Ali. Id. In connection with the development of the Hartz Chicken restaurant
located at Antoine Drive, the partnership, Blueline, and the four individuals executed
and delivered to Southwestern National Bank two (2) promissory notes PX 38, 44,
45, 48, 6E RR, deeds of trust PX 43, PX 46, PX 47, 6E RR, and guaranty agreements
pursuant to which the Siddiquis, Qureshi and Ali individually guaranteed Blueline’s
debt. 2 RR 98-100; 5 RR 4-5; PX 39, 40, 41 and 42, 6E RR. On July 21, 2008, and
July 23, 2008, Blueline filed Assumed Name Certificates with the Secretary of State
for the Hartz restaurants at the Bammel and Antoine locations. PX 13, PX 14, 6A
RR. Both documents are signed by the Siddiquis, Qureshi and Ali as managers of
Fancy Bites. Id.
Construction on the Antoine Drive restaurant commenced on May 27, 2008.
2 RR 103-104; PX 51, 6F RR. As construction on Antoine Drive progressed,
Suncoast submitted draw requests to Southwestern National Bank, which sent an
inspector to the site to file a report on the construction and to approve each draw. 2
-6-
RR 104-107; 4 RR 79; PX 53-58, 6G RR; PX 59, 6H RR. The Siddiquis, Qureshi and
Ali, on behalf of Blueline, executed an Affidavit of Completion, stating that the
Antoine restaurant was completed on July 28, 2009. DX 47, 6W RR. The Antoine
Drive store opened in November of 2009. 2 RR 108. Qureshi and Ali later fired the
manager of the Antoine Drive store and operated it themselves for three months. 5
RR 16, 125, 151. They then shut the store down. Id.
The cost to complete construction of the Antoine Drive restaurant was
$728,927.00. 2 RR 120-121; PX 73, 6I-1, 6I-2 RR. Southwestern National Bank
disbursed $689,000 for construction and equipment. 3 RR 8; 4 RR 77. An
independent appraisal of the Antoine Drive restaurant as built, valued as of March
2008, was prepared for Southwestern National Bank. PX 106; 6P- 1, P-2 RR. Using
a replacement cost approach, the independent appraiser valued the restaurant at
$785,000.00, $636,137.00 for construction costs and $150,000.00 for land costs. 4
RR 77; PX 106, p. V; 6P-1 RR; pp. 47-55, 6P- 2 RR.
The two restaurants did not generate sufficient revenues to pay for insurance,
debt and property taxes and certain vendors. 2 RR 110-112, 122-123; 4 RR 107-108;
PX 74, PX 76, 6J RR. The Siddiquis paid the property taxes in 2009, 2010 and 2011.
2 RR 110. For 2008, 2009, and 2010, Blueline had negative income for each year as
follows: $152,169, $199,132 and $134,350. 2 RR 128-129; PX 81, 6J RR. Ajaz
Siddiqui and Najeeb Siddiqui paid $297,947.08 in expenses for Blueline because of
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insufficient revenue. 2 RR 130-132; PX 88, 6K RR; PX 98, 6L RR Of that amount,
$191,170.47 was for loan payments and $4,579.12 was for insurance. 2 RR 132-136;
PX 98, 6L RR; PX 100, 6M RR. Qureshi and Ali began paying one-half of the note
payments in July of 2010. 2 RR 132. The various payments for Blueline made by
Ajaz Siddiqui and Najeeb Siddiqui were made by companies that Ajaz Siddiqui
owned 100% or owned 50/50 by the Siddiquis. 2 RR 132-133, 135-136, 138; 4 RR
110. These payments were treated as taxable distributions from the companies to the
Siddiquis, making the payments by the Siddiquis individually. 2 RR 133, 135-136,
138; 4 RR 110.
Hartz sent repeated notices of default to Blueline and the individuals stating
that Blueline had defaulted on required franchise payments and note obligations. 2
RR 110-111, 119-120; PX 61, PX 72, 6H RR; PX 78, 6J RR; PX 82, 6K RR. The
Siddiquis met with Qureshi and Ali in July of 2008, December of 2008, and February
of 2009 to discuss the negative cash flow of the Bammel restaurant. 2 RR 112-118;
4 RR 82-83, 102-106, 120, 148-149, 170-171. Qureshi and Ali each agreed to
contribute 25% toward the negative cash flow of Blueline. Id.; 2 RR 131. Qureshi
and Ali made payments each time for the shortages. Id.; PX 63, 64, 65, 66, 6H RR.
On July 1, 2010, October 4, 2010, and October 21, 2010, Southwestern
National Bank sent notice that Blueline was past due on loan payments and
requesting income tax returns and financial statements for Blueline, Fancy Bites and
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the individuals. 2 RR 124-126; PX 77, 6J RR. On March 11, 2011, counsel for
Southwestern National Bank wrote to lawyers for the Siddiquis and Qureshi and Ali
stating that the bank intended to post the properties for foreclosure unless various
financial documentation was provided and a payment of $11,445.57 was made by
March 21, 2011. 2 RR 127-128; PX 80, 6J RR.
The loan payments to Southwestern National Bank were current, but financials
and tax returns were not provided. 3 RR 9. The bank agreed to a reinstatement
agreement that Ajaz Siddiqui and Najeeb Siddiqui signed. 3 RR 9; PX 109, PX 110,
6Q RR. Qureshi and Ali did not agree to the form of reinstatement agreement, so the
bank accelerated the notes and posted the properties for foreclosure. 3 RR 9-10; 5 RR
122-123; PX 107, 108, 111, 6Q RR. Blueline filed for bankruptcy on February 7,
2012. 3 RR 10-11; 5 RR 123; PX 113, 6Q RR. The properties were purchased by the
bank in foreclosure on July 3, 2012. 3 RR 9; PX 116, 6R RR. Qureshi then
repurchased the Antoine tract (that he previously owned) from the bank. 5 RR 124.
The bankruptcy was converted to a Chapter 7 on July 19, 2012. PX 115, 6R RR.
At the time of trial, Blueline, Fancy Bites and Quick Eats had no assets. 3 RR
8-9.
SUMMARY OF ARGUMENT
The Siddiquis routinely made partial disclosures to Qureshi and Ali--telling
them of some of the costs, showing them some of the records, only telling them half
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the truth about the ownership of some real property. This triggered the duty for full
disclosure; and when the Siddiquis knowingly failed to provide those full disclosures,
they defrauded Qureshi and Ali. And even though the Siddiquis and Qureshi and Ali
did not have a preexisting relationship, the Siddiquis conduct during the course of
their business venture--exerting complete control of the management and operations
of the venture, to the point of self-dealing with another company owned by the
Siddiquis--gave rise to an informal fiduciary relationship. Those same nondisclosures
and misrepresentations were a breach of the fiduciary duties owed by the Siddiquis
to Qureshi and Ali.
Under Texas law, Qureshi and Ali are entitled to restitution for the losses they
suffered as a result of the fraud, to be put back in the position they were in before the
fraud occurred. Accordingly, they are entitled to be reimbursed $425,000 (their initial
investment), plus the $89,482.68 in loan payments they made to the bank in an effort
to keep the venture afloat. That is exactly what the trial court awarded them.
STANDARDS OF REVIEW
This court is bound to assume the validity of the trial court’s judgment.
Leonard v. Eskew, 731 S.W.2d 124, 131 (Tex. App.--Austin 1987, writ ref’d n.r.e.);
see Vickery v. Comm’n for Lawyer Discipline, 5 S.W.3d 241, 251–52 (Tex. App.--
Houston [14th Dist.] 1999, pet. denied). This court must construe the judgment and
any attendant findings of fact and conclusions of law in a way that sustains the
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judgment in nay way that does not do violence to the language used by the trial court.
In re L.A.F., 270 S.W.3d 735, 739 (Tex. App.--Dallas 2008, pet. denied); Leonard,
731 S.W.2d at 132. Accordingly, the court must assume the trial court determined
favorably to the judgment any omitted findings of fact or conclusions of law
necessary to the relief ordered. Leonard, 731 S.W.2d at 132; see Vickery, 5 S.W.3d
at 252.
A. Findings of fact--legal and factual sufficiency
Findings of fact in a bench trial have the same “force and dignity as a jury’s
verdict upon questions.” Village Place, Ltd. v. VP Shopping, LLC, 404 S.W.3d 115,
124 (Tex. App.--Houston [1st Dist.] 2013, no pet.) (quoting Anderson v. City of Seven
Points, 806 S.W.2d 791, 794 (Tex. 1991)). As a result, the trial court’s findings of
fact are subject to sufficiency challenges under the same standards that a reviewing
court uses in evaluating the sufficiency of evidence to support a jury verdict. Id.
Unchallenged findings of fact are binding on the parties and on this court. Id.
To determine whether legally sufficient evidence supports a challenged finding
of fact, the reviewing court considers evidence favorable to the finding if a reasonable
fact-finder could consider it, and disregards evidence contrary to the challenged
finding unless a reasonable fact-finder could not disregard it. City of Keller v.
Wilson, 168 S.W.3d 802, 827 (Tex. 2005); Village Place, 404 S.W.3d at 124. A legal
sufficiency challenge is sustained only if the record demonstrates: (1) a complete
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absence of evidence of a vital fact; (2) the court is barred by the rules of law or of
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, 168
S.W.3d at 810; Village Place, 404 S.W.3d at 124.
In determining whether factually sufficient evidence supports a challenged
finding, the reviewing court considers and weighs all of the evidence and set aside
the judgment only if it is so contrary to the overwhelming weight of the evidence as
to be clearly wrong and unjust. Village Place, 404 S.W.3d at 124 (citing Arias v.
Brookstone, L.P., 265 S.W.3d 459, 468 (Tex. App.--Houston [1st Dist.] 2007, pet.
denied)). None of the Siddiqui’s issues assail the factual sufficiency of the evidence
supporting the trial court’s findings, except for the Siddiqui’s attack on the scienter
element of the fraud findings.
The trial court is the sole judge of the credibility of the witnesses and the
weight to be given their testimony. Matter of Marriage of Merrikh, 14-14-00024-CV,
2015 WL 2438770, at *5 (Tex. App.--Houston [14th Dist.] May 19, 2015, n.p.h.)
(mem. op.); Barrientos v. Nava, 94 S.W.3d 270, 288 (Tex. App.--Houston [14th Dist.]
2002, no pet.). Because there is a complete reporter’s record in this case, the trial
court’s findings will not be disturbed if there is any evidence of probative force to
support them. Id. This court must give effect to the intended findings of the trial
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court and affirm the judgment if it can be upheld on any legal theory that finds
support in the evidence; this is based upon well-settled Texas law that in a nonjury
trial every reasonable inference and intendment supported by the record will be drawn
in favor of the trial court’s judgment. Black v. Dallas Cnty. Welfare Unit, 835
S.W.2d 626, 630 n.10 (Tex. 1992); Merrikh, 2015 WL 2438770, at *5. An omitted
finding, supported by the evidence, may be supplied by a presumption that it supports
the judgment. Black, 835 S.W.2d at 630 n.10; Merrikh, 2015 WL 2438770, at *5.
B. Conclusions of law--de novo.
The trial court’s conclusions of law are reviewed de novo. See BMC Software
Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002). The court must uphold
conclusions of law if the judgment can be sustained on any legal theory supported by
the evidence. Greater Hous. German Shepherd Dog Rescue, Inc. v. Lira, 447 S.W.3d
365, 370 (Tex. App.--Houston [14th Dist.] 2014, pet. filed). Incorrect conclusions
of law will not require a reversal if the controlling findings of fact will support a
correct legal theory. Sears, Roebuck and Co. v. Nichols, 819 S.W.2d 900, 903 (Tex.
App.--Houston [14th Dist.] 1991, writ denied). Conclusions of law are not subject
to challenge for factual insufficiency, but the court may review the legal conclusions
drawn from the facts to determine their correctness. Id. (citing Brown v. Brown, 236
S.W.3d 343, 348 (Tex. App.--Houston [1st Dist.] 2007, no pet.)).
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ARGUMENT AND AUTHORITY
The Siddiquis argue that there is legally insufficient evidence to support any
element of any of the causes of action adjudged against them--no evidence of duties,
no evidence of breaches, and no evidence of damages. Qureshi and Ali will
demonstrate that, contained in the four days of trial testimony and hundreds of pages
of trial exhibits, there is far more than a scintilla of evidence to sustain the damages
assessed against the Siddiquis.
Certain matters raised by the Siddiquis are not addressed because they have no
affect on the propriety of the judgment. For instance, the Siddiquis question whether
Qureshi and Ali have standing to seeks compensation for the gross overcharges
Suncoast (the Siddiquis’ construction company) made to Blueline. Because the
judgment does not award damages for the overcharges, even if the Siddiquis are
correct they judgment will still stand. Similarly, though the trial court found that the
Siddiquis were unjustly enriched, no damages were awarded for that cause of action--
whether the trial court’s finding was correct will have no effect on the propriety of
the judgment (Response to Siddiqui Issue No. 4).
I. The trial court’s fraud finding is supported by legally sufficient evidence
(Response to Siddiqui Issue No. 2).
A. There is no need for the trial court to make particularized fact
findings.
The Siddiquis state that the trial court issued only “global, generic findings”
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about the Siddiquis’ fraudulent conduct, and that they requested the court “render
additional findings identifying and explaining the misrepresentations and non-
disclosures.” Siddiqui Br. at 71. It is unclear whether the Siddiquis are claiming that
the court’s refusal to enter the requested additional findings was error. The court was
under no duty to issue evidentiary findings; in other words, it is permissible for the
trial court to make findings of fact that are identical to broad-form jury submissions.
Additional findings are not required if the original findings of fact and
conclusions of law “properly and succinctly relate the ultimate findings of fact and
law necessary to apprise [the party] of adequate information for the preparation of his
or her appeal.” Flanary v. Mills, 150 S.W.3d 785, 792 (Tex. App.--Austin 2004, pet.
denied), quoting In re Marriage of Morris, 12 S.W.3d 877, 886 (Tex. App.--
Texarkana 2000, no pet.) (quoting Finch v. Finch, 825 S.W.2d 218, 221 (Tex. App.--
Houston [1st Dist.] 1992, no writ)). A trial court’s duty to enter additional findings
of fact and conclusions of law is finite; that is, it need only enter additional findings
and conclusions on ultimate or controlling issues. In re M.M.M., 229 S.W.3d 821,
823 (Tex. App.--Fort Worth 2007, no pet.); In re Marriage of Jameson, No.
07–02–00476–CV, 2004 WL 237829, at *1 (Tex. App.--Amarillo 2004, pet. denied).
Findings that are evidentiary in nature do not fall within that scope. In re M.M.M.,
229 S.W.3d at 823; In re Marriage of Jameson, 2004 WL 237829, at *1. Thus,
ultimate or controlling issues or facts are those essential to the cause of action or
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defense. In re M.M.M., 229 S.W.3d at 823; In re Marriage of Jameson, 2004 WL
237829, at *1. If the fact is necessary to form the basis of the judgment, then it is an
ultimate or controlling one. In re M.M.M., 229 S.W.3d at 823; In re Marriage of
Jameson, 2004 WL 237829, at *1.
In contrast, an evidentiary fact is one that may be considered by the factfinder
in deciding the controlling issue and is necessarily embraced in the determination of
the ultimate issue. In re M.M.M., 229 S.W.3d at 823; In re Marriage of Jameson,
2004 WL 237829, at *1. For example, requests that, in essence, ask the court to
explain what it relied on or how it arrived at a particular finding are evidentiary and
need not be addressed by the trial court. In re M.M.M., 229 S.W.3d at 823; In re
Marriage of Jameson, 2004 WL 237829, at *1. The ultimate or controlling issue or
fact here is whether fraud was committed. The trial court in its findings did address
the ultimate or controlling issue or fact. See In re M.M.M., 229 S.W.3d at 823; In re
Marriage of Jameson, 2004 WL 237829, at *1. In contrast, the Siddiquis’ proposed
findings, which address how or why the trial court resolved the ultimate or controlling
fact issue in a particular way, are merely evidentiary and need not be entered by the
trial court. See In re M.M.M., 229 S.W.3d at 824 (holding that father’s proposed
additional findings addressing why the trial court found that termination of mother’s
rights was not in the children’s best interest was merely evidentiary and thus, the trial
court had no duty to enter them); In re Marriage of Jameson, 2004 WL 237829, at *2
-16-
(holding that mother’s proposed finding that simply addressed how or why the trial
court concluded that it was in the child’s best interest for the father to designate the
primary residence of the child was merely evidentiary and need not be entered by the
trial court).
B. The Siddiquis owed Qureshi and Ali a duty to disclose material
facts, and breached that duty.
A failure to disclose information will not support a fraud finding in the absence
of evidence of a duty to disclose. Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674
(Tex. 1998). The existence of a duty to disclose is a matter of law for the court to
decide. Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001); Rivers v. Charlie
Thomas Ford, Ltd., 289 S.W.3d 353, 359 (Tex. App.--Houston [14th Dist.] 2009, no
pet.). A duty to disclose may arise
(1) when the parties have a confidential or fiduciary relationship;
(2) when one party voluntarily discloses information, which gives rise to the
duty to disclose the whole truth;
(3) when one party makes a representation, which gives rise to the duty to
disclose new information that the party is aware makes the earlier
representation misleading or untrue; or
(4) when one party makes a partial disclosure and conveys a false
impression, which gives rise to a duty to speak.
-17-
White v. Zhou Pei, 452 S.W.3d 527, 538 (Tex. App.--Houston [14th Dist.] 2014, no
pet.), citing Solutioneers Consulting, Ltd. v. Gulf Greyhound Partners, Ltd., 237
S.W.3d 379, 385 (Tex. App.--Houston [14th Dist.] 2007, no pet.). To support an
action for fraud by nondisclosure, the concealed information must be material.
Bradford, 48 S.W.3d at 754-55. Information is considered “material” if it is such that
a reasonable person would attach importance to it and would be induced to act on it
in determining his choice of actions in the matter. White, 452 S.W.3d at 538; Citizens
Nat’l Bank v. Allen Rae Invs., Inc., 142 S.W.3d 459, 478-79 (Tex. App.--Fort Worth
2004, no pet.) (citing Am. Med. Int’l, Inc. v. Giurintano, 821 S.W.2d 331, 338 (Tex.
App.--Houston [14th Dist.] 1991, no writ)).
As discussed below, the Siddiquis owed Qureshi and Ali fiduciary duties. See
infra § II(A). That alone is enough to trigger a duty to disclose. But that duty was
also triggered by the Siddiquis’ partial disclosures, and their learning of new
information related to earlier disclosures. Take, for instance, the Siddiquis’
discussion of whether they misrepresented the ownership of the Bammel tract. See
Siddiqui Br. at 76-80. The Siddiquis claim they represented only that they “owned”
the property, and did not represent that they had title to it. The disclosure of the
general ownership of the property is just a partial disclosure, which triggered the duty
to disclose the rest of the story--who held legal title, and how it might be transferred
into an entity in which Qureshi and Ali were participating. So, while the statement
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that the Siddiquis “owned” the property technically may not have been a
misrepresentation, it did trigger the duty to disclose other material facts relating to the
title. The Siddiquis breached that duty, to the detriment of Qureshi and Ali.
C. The Siddiquis made multiple misrepresentations or nondisclosures
to Qureshi and Ali, causing damages.
During the entire course of their business relationship, the Siddiquis’ behavior
toward Qureshi and Ali was shot through with misrepresentations, nondisclosures,
and generally oppressive and hostile conduct. Any small sample of would be
sufficient to defeat the Siddiquis’ multifarious legal sufficiency challenges; this is a
digest of some of the more notable examples:
- misrepresentation or nondisclosure of title ownership of the Bammel
property. Siddiqui Br. at 79-80, RR 2:65, RR 3:47; RR 4:175-78.
- misrepresentation or nondisclosure of the costs of finishing construction
on the Bammel property. RR 3:54-106; RR 4:178-82; RR 5:132-33.
- misrepresentation or nondisclosure of the cost of construction at the
Antoine location. RR 3:106-150, 178-90 (particular misrepresentations
in lien waivers, signed by subcontractors who never worked on the job);
RR 4:4-66 (particular misrepresentations on spreadsheets--entries did
not have corresponding checks), 195-97; RR 5:138-46 (FF&E
misrepresentations).
- misrepresentation or nondisclosure of the size of the Antoine building.
RR 3:111-27; RR 5:150-51.
- misrepresentation or nondisclosure regarding progress payments to
Southwestern Bank and false statements on “bills paid” affidavits. RR
3:147-77.
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- misrepresentation or nondisclosure regarding bank payment being made
to Najeeb Siddiqui on behalf of Blueline, then transferred to Suncoast
or Ajaz Siddiqui to pay Suncoast invoices, none of which were provided
to Qureshi or Ali. RR 5:137-38, 153-55.
D. Qureshi and Ali established the Siddiquis’ scienter with
circumstantial evidence.
It is well-established that a plaintiff required to prove the state of mind of a
defendant need not adduce direct evidence; it may instead rely upon circumstantial
evidence. See Bentley v. Bunton, 94 S.W.3d 561, 596 (Tex. 2002) (discussing
“malice” in a defamation case: “The defendant's state of mind can--indeed, must
usually--be proved by circumstantial evidence.”); Transp. Ins. Co. v. Moriel, 879
S.W.2d 10, 22–23 (Tex. 1994) (discussing evidence of gross negligence as predicate
for exemplary damages and stating, “We hereby reaffirm our holding that the
defendant’s subjective mental state can be proven by direct or circumstantial
evidence.”); Behee v. Mo. Pac. Ry. Co., 71 Tex. 424, 429, 9 S.W. 449 (1888)
(“Malice is rarely ever shown by direct evidence. It is commonly a state of mind
indicated and inferable from other facts proved,--from language used, or acts, or both
together. We infer a bad motive when an injurious act is intentionally done without
legal excuse. The motive is not a bare fact of itself, susceptible of proof like any
other fact; it is a conclusion deduced from acts or words.”); Turner v. Franklin, 325
S.W.3d 771, 783 (Tex. App.--Dallas 2010, pet. denied) (noting issues of state of mind
“are not susceptible to being readily controverted and are best left to the
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determination of the trier of fact”); French v. French, 385 S.W.3d 61, 69 (Tex. App.--
Waco 2012, pet. denied) (citing Digby v. Texas Bank, 943 S.W.2d 914, 922 (Tex.
App.--El Paso 1997, writ denied) (“[Malice] is proved by direct or (usually)
circumstantial evidence.”).
Part of the determination of a defendant’s state of mind is an assessment of the
defendant’s credibility; this determination is left to the trial court as the fact-finder.
See Volume Millwork, Inc. v. West Houston Airport Corp., 218 S.W.3d 722, 730 (Tex.
App.--Houston [1st Dist.] 2006, pet. denied). The trial court can combine that
assessment with the circumstantial evidence adduced by the claimant to find a
particular state of mind or scienter. James J. Flanagan Shipping Corp. v. Del Monte
Fresh Produce N.A., Inc., 403 S.W.3d 360, 369-70 (Tex. App.--Houston [1st Dist.]
2013, no pet.).
The trial court was able to assess the Siddiquis’ credibility and demeanor. That
assessment, couple with the litany of misrepresentations and nondisclosures described
above in section I(C), led the trial court to find scienter as an element of fraud--that
the sheer volume and consistency of the Siddiquis’ misrepresentations and
nondisclosures demonstrates that they were intentional. There is thus legally and
factually sufficient to support the trial court’s finding.
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II. The trial court’s finding of a breach of fiduciary duties is supported by
more than a scintilla of evidence (Response to Siddiqui Issue No. 1).
The trial court found that the Siddiquis breached the fiduciary duties they owed
Qureshi and Ali. CR 2:1172. This was based on the parties’ informal fiduciary
relationship. Id. The elements of a breach-of-fiduciary-duty claim are: (1) a fiduciary
relationship between the plaintiff and defendant; (2) a breach of the duty by the
defendant; and (3) injury to the plaintiff or benefit to the defendant because of the
defendant's breach. See Burrow v. Arce, 997 S.W.2d 229, 237 (Tex. 1999); Lundy v.
Masson, 260 S.W.3d 482, 501 (Tex. App.-Houston [14th Dist.] 2008, pet. denied).
A. The Siddiquis and Qureshi and Ali were in an informal fiduciary
relationship.
Texas courts recognize an informal fiduciary duty that arises from “a moral,
social, domestic or purely personal relationship of trust and confidence.” Meyer v.
Cathey, 167 S.W.3d 327, 331 (Tex. 2005); Associated Indem. Corp. v. CAT
Contracting, Inc., 964 S.W.2d 276, 287 (Tex. 1998); see also Schlumberger Tech.
Corp. v. Swanson, 959 S.W.2d 171, 176 (Tex. 1997). “[T]he law recognizes the
existence of confidential relationships in those cases ‘in which influence has been
acquired and abused, in which confidence has been reposed and betrayed.’” Crim
Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 594 (Tex.
1992) (quoting Texas Bank & Trust Co. v. Moore, 595 S.W.2d 502, 507 (Tex. 1980))
-22-
Though generally informal fiduciary relationships require that the relationship
pre-exist the parties’ business relationship, Texas courts have, however, recognized
that an informal fiduciary duty may exist between the shareholders in a closely held
corporation, depending on the circumstances. See generally Willis v. Donnelly, 199
S.W.3d 262, 277 (Tex. 2006); Miller v. Miller, 700 S.W.2d 941, 945–46 (Tex. App.--
Dallas 1985, writ ref’d n.r.e.) (stating that shareholders’ intimate knowledge of
company’s affairs supported finding a fiduciary relationship); Tuck v. Miller, 483
S.W.2d 898, 905 (Tex. Civ. App.--Austin 1972, writ ref’d n.r.e.) (op. on reh’g)
(holding that superior business expertise, among other factors, supported a finding
of a confidential relationship); see also Allen v. Devon Energy Holdings, L.L.C., 367
S.W.3d 355, 391 (Tex. App.--Houston [1st Dist.] 2012, judgm’t set aside by agr.) (op.
on reh’g) (recognizing a formal fiduciary duty between co-shareholders of an LLC
in the context of a redemption where the majority ownership interest had dominant
control over the operation and management of the business); Vejara v. Levior lnt’l
LLC, No. 04–11–00595–CV, 2012 WL 5354681, at *5 (Tex. App.--San Antonio Oct.
31, 2012, pet. denied) (mem. op.) (holding that “Vejara’s control and intimate
knowledge of the company’s affairs and plans gave rise to the existence of an
informal fiduciary duty to Levior”). In particular, when certain shareholders retain
“ sole and exclusive control of the management, business and affairs” of the
company, they owe fiduciary obligations to the shareholders excluded from that
-23-
control. Guevara v. Lackner, 447 S.W.3d 566, 581 (Tex. App.--Corpus Christi 2014,
no pet.).
And that is precisely what happened here--the Siddiquis retained sole and
exclusive control of Blueline, so that they could hide critical information from
Qureshi and Ali. RR 5:15-18, 151-153. This oppressive behavior included self-
dealing--the Siddiquis prepared the construction invoices on behalf of Suncoast, then
approved them on behalf of Blueline, without ever letting Qureshi and Ali see them..
RR 5:137-38, 153-55. The Siddiquis’ challenge to the existence of the fiduciary
relationship, and their liability for the breach of that duty, should be overruled.
B. Suncoast, too, is liable for the breach of the Siddiquis’ fiduciary
duties (Response to Siddiqui Issue No. 5).
The trial court expressly found that “[t]he Siddiquis and Suncoast were
engaged in a conspiracy against Qureshi and Ali.” CR 1174. “[When] a third party
knowingly participates in the breach of a duty of a fiduciary, such party becomes a
joint tortfeasor with the fiduciary and is liable as such.” Kinzbach Tool Co. v.
Corbett–Wallace Corp., 160 S.W.2d 509, 514 (Tex. 1942). Kinzbach holds that
liability for breach of fiduciary duty may be imposed even in the absence of a
fiduciary relationship when a nonfiduciary is knowingly complicit in aiding or
inducing a breach of trust. Thus, Suncoast’s liability for breach of fiduciary duty is
independent of whether Suncoast itself owed a fiduciary duty.
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The Siddiquis challenge the trial court’s conspiracy finding solely on the basis
that conspiracy requires an underlying wrongful act, and “[b]ecause there was no
fraud or breach of fiduciary duty by the Siddiquis or Suncoast, there is no underlying
tort and the conspiracy claim fails as a matter of law.” Siddiqui Br. at 100-01. The
Siddiquis challenge to the conspiracy finding is thus wholly dependent on its liability
challenges, and thus need not be addressed separately.
C. The damages flowing from the breach of fiduciary duty have not
been separately challenged.
The Siddiquis’ challenge to the damages arising from their breach of the
fiduciary duty they owed to Qureshi and Ali is premised entirely on their challenge
to the existence of the duty. See Siddiqui Br. at 64. Therefore, Qureshi and Ali will
not address it separately.
III. Qureshi and Ali introduced legally sufficient evidence to support an award
of restitution damages for the Siddiquis’ fraud (Response to Siddiqui Issue
No. 3).
Under Texas law, one who is induced by fraud to enter into a contract may
elect an equitable remedy of restitution or rescission that would restore him to the
position he would have been in had he not been the victim of fraud. See Italian
Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 346 (Tex.
2011) (“When rescission of a lease is appropriate for breach of the implied warranty
of suitability, a tenant is entitled to be restored to the position it would have been in
-25-
had it not leased the premises that turned out to contain a latent defect rendering the
premises commercially unsuitable.”); see also Quigley v. Bennett, 227 S.W.3d 51, 56-
57 (Tex. 2007) (Brister, J., concurring and dissenting) (discussing restitution damages
in context of fraud and stating that “restitution can be recovered in fraud cases” but
it “is generally not listed, perhaps because it is an equitable rather than a legal
remedy, or because it is available even without a showing of fraud”); Henry S. Miller
Co. v. Bynum, 836 S.W.2d 160, 162-63 (Tex. 1992) (holding, in DTPA case, that
evidence supported award of damages in total amount of plaintiff's capital investment
in lease venture for beauty shop, minus amount plaintiff received back from venture,
including money received when plaintiff sold beauty shop business, as part of
plaintiff's “actual loss” even though plaintiff did not present evidence to support “out-
of-pocket” or “benefit-of-the-bargain” measure of damages); RESTATEMENT (FIRST)
OF RESTITUTION § 152 (1937) (“Where a person is entitled to restitution from another
because the other has obtained his services, or services to which he is entitled, by
fraud, duress or undue influence, the measure of recovery for the benefit received by
the other is the market value of such services irrespective of their benefit to the
recipient.”) (quoted in Quigley, 227 S.W.3d at 56 n.8 (Brister, J., concurring and
dissenting)).
“‘[R]estitution’ . . . means the act of restoring or a condition of being restored.”
Cruz v. Andrews Restoration, Inc., 364 S.W.3d 817, 825 (Tex. 2012). Restitution is
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generally defined as an equitable remedy under which a person is restored to his or
her original position before the loss or injury. In re J.R., 907 S.W.2d 107, 109 (Tex.
App.--Austin 1995, no writ). Restitution “involves restoring property or money taken
from the plaintiff,” and, “[u]nlike other contractual damages, restitution focuses on
forcing the defendant to disgorge benefits that it would be unjust to keep, rather than
on compensating the plaintiff.” City of Harker Heights v. Sun Meadows Land, Ltd.,
830 S.W.2d 313, 317 (Tex. App.--Austin 1992, no writ). “‘[R]escission is one of the
principal asset-based remedies in restitution,’ and it ‘restore[s] the parties to the status
quo ante by unwinding the contractual exchange instead of pressing it forward.’”
Cruz, 364 S.W.3d at 825 (quoting RESTATEMENT (THIRD) OF RESTITUTION AND
UNJUST ENRICHMENT § 37, cmt. a). “Rescission is a form of restitution that applies
if the transaction may still be unwound; if it cannot, a plaintiff may sue for damages.”
Id.
The First Court of Appeals once framed its discussion of this restitutional
measure of damages in the context of an election of remedies
In addition to these alternative measures of damages, [the out-of-pocket
measure and the benefit-of-the-bargain measure], Texas courts have
long held under general principles of common-law fraud that one who
is induced by fraud to enter into a contract has a choice of remedies: he
may either recover the monetary damages flowing from the fraud or he
may elect the equitable remedy of rescission in lieu of damages and
demand a return of any amount paid. This election of remedies
recognizes that, depending on the circumstances, a defrauded party may
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not be made w hole by a recovery of actual damages, but instead may
need an equitable remedy such as rescission.
Nelson v. Najm, 127 S.W.3d 170, 176 (Tex. App.--Houston [1st Dist.] 2003, pet.
denied) (internal citations omitted). Recently, the Texas Supreme Court has
reaffirmed that “[r]escission is an equitable remedy and, as a general rule, the measure
of damage is the return of the consideration paid, together with such further special
damage or expense as may have been reasonably incurred by the party wronged on
account of the contract.” Italian Cowboy, 341 S.W.3d at 345.
As a result of the Siddiquis’ fraudulent conduct, Qureshi and Ali were induced
to invest $212,500 apiece in a venture that turned out to be worthless. They also
made another $89,482.68 in payments they would not have made absent the initial
fraud. RR 4:155-56; RR 5:6, 18-19. Under Texas law, they are entitled to be placed
in the position they would have been had the fraud not occurred, so they are entitled
to $514,482.68 in restitution damages. The Siddiquis’ challenge to the damage award
should thus be overruled.
IV. Exemplary damages were properly awarded (Response to Siddiqui Issue
No. 6).
The Siddiquis’ challenge to the trial court’s award of exemplary damages is
premised entirely on their challenge to the underlying liability findings. Siddiqui Br.
at 101-02. Accordingly, Qureshi and Ali will not address it separately.
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V. The Siddiquis are not entitled to a judgment in their favor (Response to
Siddiqui Issue No. 7).
“[F]raud vitiates whatever it touches[.]” Estate of Stonecipher v. Estate of
Butts, 591 S.W.2d 806, 809 (Tex. 1979); Allen v. Devon Energy Holdings, L.L.C., 367
S.W.3d 355, 368 (Tex. App.--Houston [1st Dist.] 2012, pet. granted, j’ment set aside,
remanded by agmt.). The Siddiquis lost money on the venture they fraudulently
induced Qureshi and Ali to join; the Siddiquis’ fraud vitiates the Siddiquis’ purported
right to transfer some of their losses to Qureshi and Ali. The Siddiquis’ issue on the
trial court’s refusal to award them damages should thus be overruled.
CONCLUSION AND PRAYER
The Siddiquis’ scattershot attack on the trial court’s judgment has failed to hit
its mark. Qureshi and Ali adduced legally (and factually) sufficient evidence of the
duties owed by the Siddiquis, the Siddiquis’ repeated breaches of those duties, and
of the restitution damages to which Qureshi and Ali are entitled. Qureshi and Ali
therefore pray this court affirm the judgment of the trial court, and for such other and
further relief to which they may be entitled.
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Respectfully submitted,
KELLY, DURHAM & PITTARD, L.L.P.
BY: /s/ Peter M. Kelly
Peter M. Kelly (Lead Counsel)
State Bar No. 00791011
1005 Heights Boulevard
Houston, Texas 77008
Telephone: 713.529.0048
Facsimile: 713.529.2498
Email: pkelly@texasappeals.com
Counsel for Appellees
CERTIFICATE OF COMPLIANCE
This document complies with the typeface requirement of TEX. R. APP. P.
9.4(e) because it has been prepared in conventional typeface no smaller than 14-point
for text and 13-point for footnotes. This document also complies with the word-count
limitations of TEX. R. APP. P. 9.4(i) because it contains 7,320 words, excluding any
parts exempted by TEX. R. APP. P. 9.4(i)(1).
/s/ Peter M. Kelly
Peter M. Kelly
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CERTIFICATE OF SERVICE
A true and correct copy of this Appellees’ Brief has been forwarded to all
counsel of record on June 26, 2015, as follows:
Vincent L. Marable III Via Facsimile: 979.532.5331
PAUL WEBB, P.C.
221 N. Houston
Wharton, Texas 77488
trippmarable@sbcglobal.net
Ted A. Cox
TED A. COX, P.C.
1225 W. 34th Street
Houston, Texas 77018
ted@tedacox.com
James E. Bradley
BRADLEY LAW FIRM
5718 Westheimer, Ste 1525
Houston, Texas 77057
/s/ Peter M. Kelly
Peter M. Kelly
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