Jean-Claude Saada CCC PMP M.O.B., Inc. And CCC French M.O.B., Inc. v. Dr. James M. Harrison

11th Court of Appeals Eastland, Texas Opinion Jean-Claude Saada; CCC PMP M.O.B., Inc.; and CCC French M.O.B., Inc. Appellants Vs. No. 11-00-00240-CV -- Appeal from Dallas County Dr. James M. Harrison Appellee Upon finding that appellants breached fiduciary duties owed to Dr. James M. Harrison, the trial court entered a judgment in favor of Dr. Harrison for actual damages of $189,681.44. The trial court also ordered each appellant to pay exemplary damages of $50,000.00. We affirm. Appellants present nine issues for appellate review. In the first and second issues, they contend that the trial court erred in determining that CCC PMP M.O.B., Inc. and CCC French M.O.B., Inc. breached a fiduciary duty. In the third and fourth issues, appellants complain of the trial court=s finding that Jean-Claude Saada knowingly participated in a breach of a fiduciary duty. In the fifth issue, appellants complain of the finding that their breaches were actuated by fraud or malice. In the sixth and seventh issues, appellants contend that the trial court=s calculation of damages was erroneous. In the final two issues, appellants argue that the award of attorney=s fees and interest is erroneous based upon the errors presented in the first seven issues. The background facts in this case are largely undisputed. Dr. Harrison was a limited partner in CCC PMP Medical Plaza M.O.B., Ltd. (PMP, Ltd.) and CCC French Medical Plaza M.O.B., Ltd. (French, Ltd.). Appellants PMP and French were the general partners of the partnerships in which Dr. Harrison was a limited partner. Dr. Harrison sold his partnership interest and a note to Turtle Creek Realty, Inc., an affiliate of appellants PMP and French. Saada owned all of the stock of the corporation that owned all of the stock of PMP, French, and Turtle Creek. As president, Saada also controlled all of these entities. Shortly after Dr. Harrison sold his interests in the partnerships, the real property that constituted the principal asset of each partnership was sold to a third party with whom Saada had begun negotiating prior to the closing of the purchase from Dr. Harrison. Appellants had not disclosed to Dr. Harrison these negotiations or the existence of a potential third-party purchaser. In a partial summary judgment, the trial court determined that appellants PMP and French were liable for breaching a fiduciary duty owed to Dr. Harrison. In the first issue, appellants argue that the trial court erroneously applied Texas law, rather than California law, to the issue of PMP=s and French=s breach of fiduciary duty and that, under California law, Dr. Harrison=s claim fails as a matter of law. In the second issue, appellants contend that there is a genuine issue of material fact Aas to whether such a cause of action exists.@ We disagree. The determination of which state=s law governs an issue is a question of law for the court to decide. Torrington Company v. Stutzman, 46 S.W.3d 829, 848-50 (Tex.2000); Duncan v. Cessna Aircraft Company, 665 S.W.2d 414, 421 (Tex.1984). Texas has adopted the "most significant relationship" test to determine choice‑of‑law issues. Gutierrez v. Collins, 583 S.W.2d 312, 318 (Tex.1979); see RESTATEMENT (SECOND) OF CONFLICT OF LAWS '' 6 & 145 (1971).[1] In a tort case, the relevant contacts include the place where the injury occurred; the place where the conduct causing the injury occurred; the domicile, residence, nationality, place of incorporation, and place of business of the parties; and the place where the relationship, if any, between the parties is centered. Section 145(2); Torrington Company v. Stutzman, supra. The number of contacts with a state is not determinative; rather, the contacts must be evaluated in light of the state policies underlying the particular substantive issue. Torrington Company v. Stutzman, supra; Duncan v. Cessna Aircraft Company, supra. The substantive issue in this case is whether appellants are liable for breaching a fiduciary duty. Dr. Harrison was a resident of California. Saada was a resident of Texas. PMP and French were California corporations with principal places of business in Texas and were controlled by Saada. See Torrington Company v. Stutzman, supra. Turtle Creek Realty, the entity that purchased Dr. Harrison=s interests, was a Texas corporation. Although each partnership=s main asset was real property located in California, much of the conduct that caused Dr. Harrison=s injury occurred in Texas. Saada conducted negotiations from Texas. Furthermore, Texas, as the forum state, has a significant interest in protecting resident defendants; here, appellants are counter-defendants. Saada chose Texas to be the forum state by filing this suit in Texas as a declaratory judgment action against Dr. Harrison. Ease in determining and applying the law is one of the factors to be considered in resolving choice‑of‑law questions under Section 6(2)(g) of the Restatement. Torrington Company v. Stutzman, supra. Considering all of these factors, California does not have an overriding interest in seeing its law applied in this case. Moreover, even if California=s substantive law had been applied, the result in this case would have been the same. In California, the selling partner=s interest and participation in the partnership are terminated Aupon consummation of the sale@ of the partnership interest. Lund v. Albrecht, 936 F.2d 459, 462 (9th Cir. 1991); Stone v. Millstein, 804 F.2d 1434, 1438 (9th Cir. 1986). A partner=s fiduciary duty ends upon consummation when the parties have formed and signed a contract to purchase the partnership interest. Lund v. Albrecht, supra; Stone v. Millstein, supra. Appellants incorrectly assert that the sale was consummated prior to the negotiations with the third-party purchaser. The stipulated evidence shows that Saada sent several letters to Dr. Harrison regarding the sale of his interest in the partnerships and the note. By a letter dated August 11, 1995, Saada set out terms of a potential agreement and stated: AIf this is agreeable to you, please sign below so we can prepare documents accordingly.@ By letter dated September 21, 1995, Saada informed Dr. Harrison that the Aclosing has been delayed@ but that Awe would still be interested in proceeding under the terms discussed.@ Another letter dated November 15, 1995, was written Ato confirm that we have agreed@ that Saada=s company has the option to acquire Dr. Harrison=s interest for $150,000 if the deal is closed by the end of December 1995. It did not close by the specified date. On February 8, 1996, Saada sent a letter offering to purchase Dr. Harrison=s interest for $125,000. Dr. Harrison did not accept the amended offer. On May 21, 1996, Saada informed Dr. Harrison that yet another window of opportunity had arisen to purchase Dr. Harrison=s interests and the note for $150,000. With this letter, Saada sent an agreement which was signed by Dr. Harrison on May 23, 1996. This agreement stated that it superseded all prior oral or written agreements between the parties. The sale of Dr. Harrison=s partnership interests was not Aconsummated@ until May 23, 1996; thus, a fiduciary duty was owed to Dr. Harrison until that date. Saada, on behalf of PMP and French, began negotiating with the third-party purchaser in April of 1996, prior to consummation of the sale of Dr. Harrison=s interests. The first and second issues are overruled. In the third issue, appellants contend that the trial court erred in its application of the Aknowingly participated@ standard. In the fourth issue, they contend that the evidence is legally and factually insufficient to support the trial court=s finding that Saada Aknowingly participated@ in the breach of fiduciary duty. In the fifth issue, appellants argue that the trial court erred in finding by clear and convincing evidence that appellants acted with fraud or malice because the finding was supported by no evidence or, alternatively, was so against the great weight and preponderance of the evidence as to be manifestly unjust. In order to address the fourth and fifth issues, we will apply the well-recognized standards of review. To determine the legal sufficiency of the evidence, we must view the evidence in the record in a light which tends to support the finding of the disputed fact and disregard all evidence and inferences to the contrary. If there is any evidence of probative force to support the finding, the no‑evidence point must be overruled. Weirich v. Weirich, 833 S.W.2d 942, 945 (Tex.1992); In re King's Estate, 244 S.W.2d 660 (Tex.1951); see also Merrell Dow Pharmaceuticals, Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.1997), cert. den=d, 523 U.S. 1119 (1998). In order to determine if the evidence is factually sufficient, we must review all of the evidence and determine whether the challenged finding is so against the great weight and preponderance of the evidence as to be manifestly unjust. Pool v. Ford Motor Company, 715 S.W.2d 629 (Tex.1986); In re King's Estate, supra. In Texas, a third party who knowingly participates in a fiduciary=s breach of duty becomes a joint tortfeasor with the fiduciary and is liable as such. Kinzbach Tool Co. v. Corbett-Wallace Corporation, 160 S.W.2d 509 (Tex.1942); see also City of Fort Worth v. Pippen, 439 S.W.2d 660, 665 (Tex.1969). Rather than finding that Saada himself owed a fiduciary duty to Dr. Harrison, the trial court found that Saada knowingly participated in the breaches of fiduciary duty committed by PMP and French. At trial and on appeal, the parties debated the meaning of Aknowing participation.@ The trial court found, however, that, under either side=s interpretation of that term, Saada knowingly participated in the breaches of fiduciary duty. Appellants assert that the evidence is insufficient to show that Saada knowingly participated because Saada testified regarding his state of mind. Saada testified that there was no legal reason to inform Dr. Harrison about the potential, third-party purchaser because Saada and Dr. Harrison already had a deal. Saada=s knowing participation, however, may be inferred from his actions. See Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex.1986). Saada conducted all of the negotiations with both Dr. Harrison and the third-party purchaser. Saada and Dr. Harrison began negotiating in 1995 but did not sign an agreement until May 23, 1996. Saada had already begun negotiations with the third party before Dr. Harrison signed the agreement. Dr. Harrison=s sale closed on June 28, 1996, and the third party purchased the partnerships= principal assets for over two million dollars in July of 1996. Dr. Harrison testified that Saada Awas pushing me to get things handled@ by the end of June. The trial court, as the trier of fact, was in the position to view the witnesses and determine the weight to be given to their testimony. See Spoljaric v. Percival Tours, Inc., supra. We hold that the finding that Saada knowingly participated is supported by legally and factually sufficient evidence. The third and fourth issues are overruled. Appellants= fifth issue addresses the legal and factual sufficiency of the evidence regarding exemplary damages. TEX. CIV. PRAC. & REM. CODE ANN. ' 41.003 (Vernon 1997) provides in part that exemplary damages may be awarded only if the claimant proves by clear and convincing evidence that the harm for which he seeks recovery of exemplary damages resulted from fraud or malice. A finding of intent to harm or conscious indifference to the rights of others will support an award of exemplary damages. Spoljaric v. Percival Tours, Inc., supra at 436; see also Trenholm v. Ratcliff, 646 S.W.2d 927, 933 (Tex.1983). The evidence in this case shows that appellants breached a fiduciary duty owed to Dr. Harrison, that they were aware of the pending purchase from the third party, that the third-party purchase had been negotiated prior to consummating the deal with Dr. Harrison, that appellants failed to inform Dr. Harrison of the change in value of his partnership interests, that appellants failed to disclose vital information, and that appellants profited from this fraudulent self-dealing. As stated by the court in International Bankers Life Insurance Company v. Holloway, 368 S.W.2d 567, 584 (Tex.1963): We should not say to defaulting fiduciaries that the most for which they can be held accountable in equity are the profits which would have remained theirs had they not been called to account. We hold that the evidence is both legally and factually sufficient to support the award of exemplary damages. The fifth issue is overruled. In the sixth and seventh issues, appellants complain of the trial court=s inclusion of the value of a promissory note in the damages awarded to Dr. Harrison because the note was outside the scope of appellants= fiduciary duties and because Dr. Harrison=s assignment of the note limited his equity therein. The $200,000 note, which included a security agreement, was originally made by Saada on behalf of PMP Medical Office Building, Inc., of which Saada was president and sole shareholder, and was made payable to PMP, Ltd., one of the partnerships in which Dr. Harrison was a limited partner. PMP, Ltd., assigned the note to Dr. Harrison. Similar notes were assigned to the other limited partners. At the insistence of Saada, the note was included in the sale of Dr. Harrison=s partnership interests. Dr. Harrison had collaterally assigned the promissory note to a third party in order to secure obligations owed to the third party. However, at the time of closing between Dr. Harrison and Turtle Creek Realty and upon Dr. Harrison=s payment to the third party of $110,000 out of the $150,000 in proceeds that he received for his interests in the partnerships, the third party released its interest in the note. Thus, Dr. Harrison=s equity in the note was not limited by the previous collateral assignment to the third party. Furthermore, subsequent to the sale of its principal asset to the third-party purchaser, PMP, Ltd. paid off the promissory notes that had been similarly assigned to other limited partners of PMP, Ltd. These notes were paid at face value. We hold that the trial court did not err in including the value of the promissory note in its determination of damages. Appellants breached a fiduciary duty owed to Dr. Harrison. As a result of this breach, Dr. Harrison sold his interest in the two partnerships and the promissory note at a depressed value. The sixth and seventh issues are overruled. In the remaining two issues, appellants complain of the award of attorney=s fees, interest, and costs of court to Dr. Harrison. Appellants= assertions in these issues are based solely Aupon the aforementioned errors.@ Because we have found no error in the first seven issues, we overrule the eighth and ninth issues. The judgment of the trial court is affirmed. W. G. ARNOT, III CHIEF JUSTICE January 17, 2002 Do not publish. See TEX.R.APP.P. 47.3(b). Panel consists of: Arnot, C.J., and Wright, J., and McCall, J. [1]The court in Torrington listed the following general factors from Section 6(2) of the Restatement as factors to be used to decide a choice‑of‑law question: (a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied.