Court Opinion

ID: 9755570
Source: CourtListenerOpinion
Date Created: 2023-08-28 20:43:02.276467+00
Date Added: 2024-06-11T07:28:09.197251
License: Public Domain

NUCHIA, Justice,
concurring and dissenting.
I concur with the majority opinion regarding standing (issue one), breach of contract (issue two), and waiver (issue four). However, I must dissent to the majority’s holding on the issues of fraud (issues five, six, and seven) and damages (issue three).
FRAUD
Of all the statements made in the majority opinion regarding the issue of fraud, only two relate to representations by or on behalf of defendant: (1) that TWC would report profits accurately, and (2) that Fair-child had a “proven track record” that would give plaintiff the opportunity to make a handsome return. The record contains only two references that can be considered evidence of Fairchild’s “track record.” The first was Fairchild’s testimony that he had managed night clubs and sexually oriented businesses from 1980 to the time he made the representations. Plaintiff did not inquire of him whether, under his management, these clubs and businesses were successful. Plaintiff also did not present any evidence that they were not.
The other reference in the record relating to Fairchild’s past involvement with clubs and sexually oriented businesses was his testimony acknowledging that he pleaded guilty to participating in the un-derreporting of the income of several clubs in order to reduce the clubs’ income tax liability. Plaintiff made no inquiry as to whether this underreporting negatively affected the success of these clubs and did not present any evidence that it did. Plaintiff presented no evidence showing that the clubs Fairchild managed were unsuccessful or unprofitable. Therefore, plaintiff did not carry its burden to establish, by a preponderance of the evidence, that the representation that Fairchild had a proven track record was false. The representation cannot be the basis for a finding of fraud.
*28The question then becomes, whether TWC’s assurance that it would report profits accurately was a misrepresentation as defined in the jury charge.

Reporting of profits

The jury charge defined “misrepresentation” as “a false statement of fact or a promise of future performance with an intent not to perform as promised.” Defendant’s representation — that it would report profits truly and accurately, without surcharge, hidden or add on costs — -was related to future performance. Therefore, plaintiffs were required to produce some evidence that defendant, at the time the promise was made, intended not to perform that promise. The majority finds evidence of such intent in a memorandum written by Fairchild. That memorandum referred to diverting “more revenue out of’ the nightclub. Plaintiff claims, and the majority agrees, that this memorandum is evidence that Fairchild’s intent, from the beginning, was to divert revenue from TWC to TRG Management Consultants for his benefit.
In actuality, this five-page, hand-written memorandum relates to the relationship between the partnership and Fairchild. The words “divert more revenue out of’ cited by the majority are contained in one sentence of the memo. That one sentence, taken out of context, was also referenced frequently throughout the trial as evidence that Fairchild never intended to honor his agreement with the partnership, and was, thus, evidence of fraud in the inducement.
The memorandum begins with notations regarding square footage, rent, and taxes. It then provides, in pertinent part:
Existing partnership retains 20% stock in new corporation until old partnership has return of 500,000. An additional 13% bonus of net will be paid until existing partnership receives 500,000. At which time full title of all equipment will be delivered to new corporation.
TRC Management Consultants will enter in a management contract with the new entity to operate the club for a set fee or % of gross. This will allow us to divert more revenue out of the new entity.
Existing debt is approx. 80,000. We should be able to negotiate this down to say 40,000. and recoup that 40,000 from the existing partnerships 1/3 of initial profits. Possibility have current partnership sign a note to new entity for the 40K.
We would be responsible for all interior refinishing and updates, and initial operating capital.
The existing partnership would have no control on operations and would be considered “silent” partners.
(Emphasis added.) The memorandum continues with notes on improvements to be made, surrounding businesses and other establishments, parking, and what appears to be some preliminary projections of profits. Page three of the memo contains calculations of anticipated profits over a five-year period and the division of the profits between Fairchild and the partnership. This is what the majority calls a “detailed plan to divert more revenue out of the nightclub to one of Fairchild’s other corporations.”
During trial, the partnership emphasized the highlighted sentence to the jury, arguing it showed Fairchild planned from the beginning to set up a separate company to divert funds out of the club to the detriment of the partnership. However, read in context, the phrase “divert more revenue out of the new entity” is not evidence that Fairchild made any promise to the partnership with the intent not to perform as promised. Any speculation that the reference, “divert more revenue,” *29shows intent not to pay a share of profits to the partnership is negated by the calculations of anticipated payment of the profits. I would hold that this memorandum is not evidence that defendant intended not to perform his promise.

Credibility

The majority also assails the credibility of Fairchild in connection with his testimony regarding the payment of $400,000 to TRC Management for reimbursement for TWC’s payroll expenses. TWC did not produce copies of the reverse sides of the checks drawn on TWC’s account for this $400,000, and the majority notes that the jury may not have believed Fairchild’s explanation of the use of the checks.
I do not dispute that the jury did not believe, and was entitled not to believe, Fairchild. However, plaintiff had the burden of proof at trial. The record does not indicate that plaintiff filed a motion to compel production of copies of the reverse sides of the checks or that plaintiff subpoenaed these documents from defendant’s bank. On October 17,1996,11 days before trial, plaintiff filed a motion for sanctions arguing that defendant had not complied with an April 1994 order compelling production of documents. The record does not contain an order granting plaintiffs motion. Plaintiff produced no evidence to show that the $400,000 was not used to properly reimburse TRC Management for payroll expenses.
That “the jury may well have disbelieved Fairchild’s assurance” regarding the use of the $400,000 is not evidence of any misrepresentation made by defendant to plaintiff. The jury’s disbelief of Fairchild’s explanation is not evidence of fraud. See Casso v. Brand, 776 S.W.2d 551, 558 (Tex.1989); see also Louisiana Pac. Corp. v. Andrade, 19 S.W.3d 245, 247 (Tex.1999). Regardless of Fairchild’s credibility, or lack thereof, the burden remained on plaintiff to produce some evidence of fraud.
I would hold that plaintiff produced no evidence to support the jury’s finding of fraud. Without proof of fraud, the award of exemplary damages cannot stand. I would sustain appellant’s fifth, sixth, and seventh issues.

Damages

The jury question on damages was predicated on an affirmative finding to the question on breach of contract or the question on fraud. The partnership argues in its brief that it “paid or parted with a $800,000 investment” because of TWC’s misrepresentation. This argument relates to damages resulting from fraud rather than breach of contract.
I disagree with the majority’s conclusion that plaintiffs loss of its initial capital investment of $600,000 and the fact that there was no distribution of profits supports the jury’s award of $464,963.83 in damages for out-of-pocket losses as a result of TWC’s fraud.
At trial, Siam testified that the partners made an initial investment of $600,000 and an additional $100,000 each. They opened as Humphrey’s in late 1989, operated at a loss, and knew by January 1990 that the club would not be profitable. They changed the name and format to open as 101 Café, but this club, too, operated at a loss. The evidence is clear that the partnership sustained significant losses before it met Fairchild and, at the time it was negotiating with Fairchild, was in debt for at least $114,000.
Even if there were some evidence to support a finding of fraud, there is no evidence to support an award of $464,-*30963,83 in damages.1 There was no evidence to establish the value of the assets of the partnership at the time they were assumed by TWO, and, thus, no basis on which to measure out-of-pocket damages.
An award of $464,963.83 in damages for breach of contract is also not supported by the evidence. Plaintiff argues, and the majority agrees, that the jury’s award is within the “range of credible evidence,” citing New Process Steel Corp. v. Steel Corp. of Texas, 703 S.W.2d 209 (Tex.App.—Houston [1st Dist.] 1985, writ ref'd, n.r.e.). In New Process, this Court held there was legally and factually sufficient evidence to support the jury’s finding on damages because three different elements of damages, when added, totaled slightly more than the amount the jury awarded. Id. at 215.
The partnership argues that, in this case, like New Process, when three separate elements of damage are added, the sum is more than the jury award, and, therefore, the award is supported by legally and factually sufficient evidence. These three elements, according to the partnership, consist of (1) $346,068.07, which, according to plaintiffs expert, Victor Moore, they are entitled to under the profit participation agreement; (2) $118,313.79 in losses “which the jury could have reasonably believed constituted capital expenditures that belonged to TWO”; and (3) “damages in excess of $5,000” resulting from TWC’s failure to “comply with other provisions of the agreement.” The total of these figures is $469,381,86, which is over $4,000 more than the jury award.
A review of the record reveals that the $346,068.07 in profits is a number arrived at by Moore by disallowing over $400,000 in checks written on TWC’s accounts, although the partnership produced no evidence that any of these checks were written for an improper purpose.2 Moore testified he did not know what they were used for or where they were deposited because he did not have copies of the backs of the checks. Moore’s testimony is not evidence of any improper use of the $400,000.
Moore testified that, according to his calculations, the club had a negative balance in October 1990 of $118,313.79. This figure included $110,000 advanced to the partnership by Fairchild for the payment of their debts and the offset made by Moore for the checks written to TRC for consulting.3 This negative $118,313.79 was a part of Moore’s calculation of the $346,068.07 in profits owed to the partnership. Thus, the $118,313.79 cannot be added to Moore’s calculation to support the damage award.
I am unable to determine any arguable damage figure in the record, in addition to those already discussed, in the range of $5,000. This miscellaneous $5,000 cannot be used to support a damage award.
*31The profit sharing agreement provided for a detei'mination of profits on a monthly basis. There was evidence that the nightclub operated at a profit in some months. This evidence, and the evidence of the improper offset of excess rent is some evidence that the partnership incurred damages as a result of TWC’s breach of contract. However, the evidence is factually insufficient to support the amount of damages awarded by the jury. I would sustain appellant’s third issue.
CONCLUSION
I would reverse the judgment of the trial court awarding exemplary damages and render judgment that the partnership take nothing on their claim for fraud. I would also reverse the judgment’s award of actual damages and remand the cause for a new trial on the partnership’s claim for breach of contract.

. Likewise, the suggestion that the operators of one of the other two clubs that approached Siam (Dream Streets and Rick's Cabaret) would have been more successful and that the partnership would have recouped its loss is merely speculation and cannot be the basis of an award for damages.

. Checks in the amount of approximately $400,000 were written to TRC Management Company, a corporation formed for the purpose of employing management personnel that were shared by The Men’s Club and Baby'O. Payroll records of TRC Management Company, admitted as evidence, cover payroll for Cutter Bill’s and The Men's Club up to March 24, 1991, and for Baby’O and The Men’s Club after March 25, 1991.

.The partnership agreed, in the profit participation agreement, that the advanced money would be charged against their profit distribution account. Moore properly credited TWC with this amount.