Court Opinion

ID: 2867821
Source: CourtListenerOpinion
Date Created: 2015-09-06 02:18:56.211655+00
Date Added: 2024-06-11T11:34:56.785631
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                       NO. 03-03-00184-CV

           Randall K. Flanary d/b/a Easyliving Homes and Easyliving Homes, Inc.;
                     and San Angelo Easyliving Homes Inc., Appellants

                                                  v.

                 Roy Mills d/b/a Roy Mills Construction & Roofing, Appellee

   FROM THE DISTRICT COURT OF TOM GREEN COUNTY, 51ST JUDICIAL DISTRICT
      NO. A-01-0309-C, HONORABLE THOMAS J. GOSSETT, JUDGE PRESIDING

                                           OPINION

               Randall K. Flanary, doing business as Easyliving Homes and Easyliving Homes, Inc.

(“Flanary”)1, and San Angelo Easyliving Homes Inc. appeal a judgment favoring Roy Mills. After

a trial to the court, the district court found that Flanary breached a fiduciary duty and committed

fraud. The court awarded Mills $207,467.66 in damages and attorney’s fees. Although all appellants

joined in the notice of appeal, Flanary alone filed the only brief by an appellant. He complains that

the district court failed to file adequate findings of fact and conclusions of law. He also contends

that the judgment is erroneous because he had no duty to Mills, and complains that the evidence

supporting the damage award was insufficient. We will affirm the judgment.

       1
         Flanary’s wife, Lona, and son, Steve, also play a part in this case. We will refer to Randall
K. Flanary as “Flanary,” and use the first and last names of the other Flanarys.
                                        BACKGROUND

               Testimony in this case came from Mills, Flanary, Flanary’s wife, financial experts,

and San Angelo-area homebuilders.

               Mills testified that, although Flanary is his uncle (his mother’s brother), they grew

up like brothers because Flanary is only six or seven years older. Mills testified that they have

always been close; he said that he has always trusted and looked up to Flanary. After working in

construction for more than a decade, Mills worked for Flanary in his oil-industry business until a

fellow employee died on location; Flanary moved Mills into another, safer position to protect him,

but Mills felt he was not qualified for the job and relinquished it to someone more qualified who

would give his uncle more value for the money.

               Mills returned to construction and built a house for Flanary. In 1995, Mills formed

Roy Mills Roofing and Construction with Flanary’s financial support. Mills said that they agreed

to an even split of the company, that they would pay their own expenses, and that profits would stay

in the company as capital. There was not a written agreement establishing the partnership. Mills

testified that Flanary provided the initial capital, but that the company repaid that money. Flanary

and his wife maintained the checkbook for the company.

               In 1996, Flanary gave his share of the roofing company to his son, Steve Flanary,2 and

started Easyliving Homes with Mills. Mills said that he contributed $15,000 to Easyliving and that

       2
          Mills left the roofing company in 1997 after a dispute with Flanary’s son, Steve Flanary—a
dispute that made Flanary’s wife, Lona Flanary, so angry that she reportedly demanded that Flanary
stop working with Mills.

                                                 2
Flanary contributed $62,000; Mills brought to the company his lengthy experience in homebuilding.

Mills testified that, like the roofing company, he and Flanary had equal ownership and were entitled

to an equal share of profit and loss. Mills testified that they agreed to pay their own personal

expenses—e.g., cell phone, car payments, gasoline, insurance—to accelerate the capitalization of

the company. They began building their first Easyliving home in February 1996. Although the

company was not incorporated, its bank accounts were opened in the name of “Easyliving Homes,

Inc.” Mills’s framing company provided framing services for Easyliving. Flanary provided

cabinetry services. Both held themselves out as general contractors for Easyliving.

               The company was incorporated as San Angelo Easyliving Homes, Inc. in 1996,

although Mills testified that it never did business under that name; he said it used Easyliving Homes

or Easyliving Homes, Inc. Mills did not see the articles of incorporation until he filed this lawsuit.

Mills testified that the incorporation did not change the equal sharing of the business. He testified

that, as with the roofing company, he trusted Flanary to handle the company checkbook.

               Mills testified that, after their first house netted a profit of $3000, they started

building larger houses for bigger profit margins. Mills said that the only representation Flanary made

about the business is that it was doing fine—until Mills inquired about withdrawing some of his

share of the profits to help build his own house. Flanary then told him that the business had actually

been losing money. Flanary asserted that Mills had only contributed $5000 to the company, but later

acknowledged that Mills had invested $15,000. Flanary eventually gave Mills a check from

Easyliving for $7,254.86 as his share of the proceeds from the four years of the company’s existence.

Mills said he told Flanary he would need to see the company’s books before he would accept that

                                                  3
amount as settling his interest; he said Flanary responded, “You’ll never see the books,” and drove

away. Mills never saw the books, even after suing Flanary and making discovery requests. Flanary

supplied some checks and asserted that Mills owed Easyliving various amounts, but Mills testified

that Flanary never supplied supporting documentation. Mills testified that he did not use company

funds for personal expenses, but that checks drawn on Easyliving’s account showed that Flanary had

used the company’s accounts to pay personal utility bills and income tax and to provide personal

loans. Mills testified that he had not heard Flanary say that Mills did not own a share of the company

until Flanary’s deposition.

               Mills testified that he expected Easyliving to make about $20,000 profit per house.

He testified that Easyliving’s profit margins should have been higher than other builders’ margins

because he and Flanary were supposedly giving much of their labor to the company. Mills testified

that Prestonwood Homes, the construction company he formed in 2000 with his son, had an average

profit of $22,000 per house for the six homes they had built. He testified that these houses are

comparable to the ones he built for Easyliving, that home prices are about the same, and that he uses

many of the same subcontractors as before.

               Tony Jones and Rocky Templin own construction companies that build houses in the

same general area as Easyliving did. They testified that Mills was an equal partner in Easyliving

Homes, although Templin conceded that he did not know the specifics of the corporate form or the

shareholders’ contributions to the company. Templin testified that neither Mills nor Flanary told him

that their Easyliving business had ended before 2000. Templin’s goal was a 15 percent profit per

house. Jones said he tried to make between ten and fifteen percent profit per home.

                                                  4
               Lona Flanary testified that the roofing company was an equal partnership between

Mills and Flanary from which they agreed to take profits and invest them in the new construction

company, leaving the roofing company to Steve Flanary. She testified that Mills and Flanary owned

equal shares of the construction company. She said that, after a dispute between Mills and Steve

Flanary over the roofing company, she did not want Flanary to be partners with Mills any more. She

believed that the relationship terminated, although she never spoke to Mills about business again.

She testified that she and her husband did not believe that Mills continued to have any ownership

interest in the corporation. No stock certificates were ever issued, nor were any minutes or

resolutions kept. The corporation was dissolved effective December 27, 2000.

               Lona Flanary testified regarding a large number of checks she had signed on the

Easyliving account making loans to Flanary and her, and paying such things as their personal credit

card debts, utilities, insurance, income tax, and wages for bookkeeping services. She testified,

however, that their accountant sorted out their personal expenses from business expenses, and

deducted from their personal capital the amounts spent on personal expenses.

               Karen Coates, a certified public accountant and business appraiser, testified that she

reviewed many documents to form an opinion about the size of Mills’s rightful share of the

company’s profits. She reviewed Easyliving’s bank statements, deposit slips, and check stubs that

were provided, the tax returns of the individuals and Easyliving, the general ledgers and financial

statements, the articles of incorporation and related documentation, and depositions. She based her

calculations regarding personal items on Mills’s testimony that he and Flanary had agreed not to take

out personal expenditures from the corporation. She examined the checks bearing in mind Flanary’s

                                                 5
deposition testimony that, when an expenditure related to a particular house, he wrote the address

of the house on the check.

               Coates concluded that, between 1996 and 2000, Easyliving Homes realized net cash

proceeds of $1.8 million from the sale of houses. She noted that Easyliving’s corporate tax return

for 2000 was erroneous because the new accountant, Delbert Kleppe, failed to credit Mills with his

$15,000 capital contribution ($1000 in stock and a $14,000 loan), crediting that to Flanary instead.

She also examined the records of another bank account Flanary opened in December 1999 through

which he funneled funds relating to an Easyliving construction job on a street named Avondale. She

estimated that Flanary was paid a $25,005 management fee for the Avondale job that never went into

Easyliving’s account.

               When calculating Mills’s undistributed share of the profits, Coates started with the

corporate income tax returns which Flanary signed. She subtracted the federal income tax, gave

credit for nondeductible items that were nevertheless expenses of the corporation, added the

Avondale fee, and corrected mistakes regarding characterization of certain payments. This indicated

a total income of $59,749 after taxes and not considering wrongly paid personal items. Coates

testified that, unlike Mills, Flanary and Lona Flanary took substantial sums from the corporation,

including cell phone bills, personal credit card bills, fuel expenses, insurance premiums, loans and

fee overpayments for bookkeeping and cabinet-making service, and various other expenses like

medical expenses, traffic tickets, hunting and fishing licenses, boat expenses, equipment purchases,

vehicle maintenance, and home utilities. These various expenses totaled $252,123. Coates

calculated that income for Easyliving during its existence totaled $311,872—the amount she also

                                                 6
calculated in exhibit 32 as Easyliving’s income.         She then subtracted $5000 based on a

mischaracterization of loan proceeds she had recently learned about, leaving undistributed income

of $306,872. She calculated that Mills’s half of the undistributed income was $153,437. She then

added $15,000 for the return of Mills’s $1000 in stock and $14,000 loan to the company, arriving

at her final recommended damage award of $168,437. On cross-examination, Coates admitted she

did not know for certain the source of some deposits or the use of some checks, but said that she was

confident that she correctly characterized the deposits and expenses based on notations on the checks

and other witnesses’ testimony.

               Flanary testified that the plan from the inception of the roofing business was for him

and Mills to earn enough money to start a construction company and to pass the roofing business

along to Steve Flanary. Flanary’s testimony about the inception of the construction company

essentially agreed with Mills’s version except that Flanary testified that Mills agreed Flanary would

control 51 percent of the company. Flanary also testified that Mills agreed to draft house plans for

him in exchange for a drafting table. He later testified that Mills had basically three plans that he

would adjust slightly, but that Flanary never asked for the variations and never used them.

               Flanary testified that he did not know anything about the division of Easyliving’s

common stock and said that stock certificates were never issued. He admitted that the corporation

had no annual meetings, minutes, or resolutions authorizing him to spend corporate funds other than

one authorizing him to sell houses. He also admitted that he would on occasion withdraw cash when

making a deposit from a home sale; one particular occasion he took $2500. He testified that he may

have used the money to pay down a loan.

                                                 7
               Flanary testified that, after the dispute betwen Mills and Steve Flanary, Mills agreed

to step out of Easyliving because of Lona Flanary’s anger. Flanary said Mills understood that Lona

Flanary was so angry that she would divorce Flanary if he continued to work with Mills. Thus,

Flanary testified, Mills shared only in the proceeds of the first house.

               Flanary testified that he bought a truck with funds he invested in the company and

reaped a tax deduction because he used it for work purposes; however, he also testified that he felt

he had bought the truck himself. He testified that Easyliving built all but two of the houses for

which he built cabinets during this period; the funds from the two outside projects went into

Easyliving’s account. He conceded that he used Easyliving accounts, including letters of credit, to

work on his own property, but said he reimbursed those amounts with personal funds. Flanary

testified that the uncredited management fee Coates estimated at $25,005 was only a $19,000 fee.

               Flanary testified that Mills’s deposits to Easyliving’s account were not all capital

contributions and that Mills’s withdrawals were not all for company purposes. Flanary testified that

the first $5000 was essentially a way to finance construction at Mills’s home; Mills used about $3700

of that amount on the project. Flanary also testified that Mills bought a stove and billed it to the

company as a Christmas present.

               Kleppe, Easyliving’s accountant, testified that he was hired in late 1999 to help ensure

that Easyliving’s books were in order for the dissolution at the end of 2000. Despite this role,

Kleppe did not learn of the second company bank account that Flanary opened until trial. Kleppe

disagreed with Coates’s characterization of many expenses as personal, opining that they were

                                                  8
business expenses under Internal Revenue Service rules. Kleppe calculated that Mills’s share of the

undistributed profits was $22,204.44.

               The court chose to credit Mills’s version for the most part, and used Coates’s

calculations with some adjustments. The court subtracted $6000 from Coates’s estimate of the

undistributed profits to reflect the actual amount of the $19,000 construction management fee

(instead of the $25,005 Coates estimated), leaving an award of $147,437. The court stated on the

record that this amount included Mills’s $15,000 capital contribution, which further departs from

Coates’s calculation that added those amounts to the undistributed profit.

               Flanary requested findings of fact and conclusions of law, and the court filed some.

The court did not separate the findings and conclusions, simply listing five findings and conclusions.

Flanary objected to the nature and form of the findings and conclusions, contending that they were

only conclusions and lacked supporting findings of fact. He requested amended or additional

findings and conclusions, but the court did not file any more findings and conclusions.

                                           DISCUSSION

               Flanary raises procedural and evidentiary issues on appeal. He complains that the

district court filed deficient findings of fact and conclusions of law, and then refused his request to

amend them. He also asserts that the findings of breach of fiduciary duty and fraud were erroneous

because he had no duty to Mills and did not conceal any company records from him. Flanary also

contends that the evidence was not factually sufficient to support the damages awarded Mills.

                                                  9
Adequacy of Findings of Fact and Conclusions of Law

               Flanary contends that the district court’s findings of fact and conclusions of law were

deficient because the court made only conclusions that did not contain the facts on which the court

based its judgment. He asserts that the district court’s findings “do not identify to whom the fraud

was committed, nor do they contain the facts by which the trial court arrived at the damages in the

cause.” He requests that we abate this proceeding, order additional findings and conclusions, then

reverse the cause for a new trial.

               Upon a party’s timely request for additional findings, the trial court “shall file any

additional or amended findings and conclusions that are appropriate.” Tex. R. Civ. P. 298

(emphasis added). 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.” 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)). In general, the failure

to make additional findings of fact and conclusions of law after a timely request requires reversal

unless the record affirmatively shows the complaining party has not suffered an injury. Tillery &

Tillery v. Zurich Ins. Co., 54 S.W.3d 356, 360 (Tex. App.—Dallas 2001, pet. denied). If the record

indicates that a party did not suffer injury, the failure to make additional findings does not require

a reversal. Johnston v. McKinney Am., Inc., 9 S.W.3d 271, 277 (Tex. App.—Houston [14th Dist.]

1999, pet. denied). If the refusal to file additional findings does not prevent a party from adequately

presenting an argument on appeal, there is no reversible error. See ASAI v. Vanco Insulation

                                                  10
Abatement, Inc., 932 S.W.2d 118, 122 (Tex. App.—El Paso 1996, no writ). Furthermore, if the

requested findings will not result in a different judgment, those findings need not be made.

Johnston, 9 S.W.3d at 277.

                The trial court need only enter findings, or additional findings, on ultimate or

controlling issues, rather than on mere evidentiary issues. See Lifshutz v. Lifshutz, 61 S.W.3d 511,

515 (Tex. App.—San Antonio 2001, pet. denied). An ultimate fact issue is one that is essential to

the cause of action and would have a direct effect on the judgment. Clear Lake City Water Auth. v.

Winograd, 695 S.W.2d 632, 639 (Tex. App.—Houston [1st Dist.] 1985, writ ref’d n.r.e.). An

evidentiary issue is one the trial court may consider in deciding the controlling issue, but is not a

controlling issue itself. See id.

                Although the district court did not differentiate between findings of fact and

conclusions of law, some of its statements are by their nature findings on ultimate facts. The court

stated in its judgment that Flanary breached a fiduciary duty and committed fraud, and stated in its

findings of fact and conclusions of law that he committed fraud. The court found an amount of

damages. Whether fraud occurred has long been considered a fact question. Graham v. Roder, 5
Tex. 141, 148 (1849). Likewise, the existence of a confidential relationship is a question of fact,

see Crim Truck & Tractor Co. v. Navistar Intern. Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992),

as is whether that relationship was breached, Brewer & Pritchard, P.C. v. Johnson, 7 S.W.3d 862,

867 (Tex. App.—Houston [1st Dist.] 1999), aff’d, 73 S.W.3d 193 (2002). The amount of damages

is also an issue of fact. See Murphy v. Waldrip, 692 S.W.2d 584, 587 (Tex. App.—Fort Worth 1985,

writ ref’d n.r.e.). Thus, the court made findings of fact upon which it based its judgment.

                                                 11
               The record reveals no error in or harm from the court’s failure to make an additional

finding or conclusion specifying the party defrauded. The district court found that “[d]efendant

Randall K. Flanary d/b/a Easyliving Homes and San Angelo Easyliving Homes, Inc. has committed

fraud against plaintiff.” In response, Flanary requested an additional finding or conclusion clarifying

“whether the fraud found to be committed was against the plaintiff or against San Angelo Easyliving

Homes, Inc.” But the court found that fraud was committed against “plaintiff,” and the record shows

that there is only one plaintiff, Roy Mills. Even in the original petition filed by “Roy Mills d/b/a Roy

Mills Construction and Roofing,” Mills used the singular term “plaintiff” because he was the sole

plaintiff, albeit doing business as the construction and roofing company. More important, Mills filed

the first amended petition in his own name only. As there is only one plaintiff, the court adequately

identified the defrauded party by using the word “plaintiff.”

               The record does not reveal harm from the court’s failure to make additional findings

regarding the elements of damages. The court found that Mills was entitled to damages of $147,437.

Flanary does not explain what specific findings are lacking. Even if appellant were entitled to more

detailed findings, the record reveals that the court’s failure to provide them has not impaired

appellant’s ability to appeal. The court plainly stated on the record that it awarded as damages the

undistributed net profits described in Mills’s exhibit 32, $155,947, reduced by $2500 as conceded

by Coates, who had prepared the exhibit, and less an additional $6000 as explained by the court for

the difference between an estimated, but unreported fee, and the actual fee reported at trial.

Although exhibit 32 added $15,000 in unreimbursed investments and loans to the profits figure, the

court stated on the record that its $147,437 award included the unreimbursed investments and loans.

                                                  12
These departures from exhibit 32 reduced Flanary’s liability. The court’s reference to exhibit 32,

plus the evidence in the record, provides sufficient detail regarding the underlying facts to allow

Flanary to appeal the damage award. We find no harm in the failure to make additional findings or

conclusions.

Error in finding fraud and breach of fiduciary duty

                Flanary contends that the court erred in finding that he breached a fiduciary duty and

committed fraud against Mills. Flanary argues that he committed no acts as a shareholder for which

Mills could recover. Alternatively, he contends that any breach or fraud was committed against the

corporation and, as such, Mills could recover only his one-half share of the judgment.

                Flanary’s argument regarding the existence of a duty is legally accurate, but

incomplete. He contends that he had no duty to Mills, his fellow shareholder. See Hoggett v. Brown,

971 S.W.2d 472, 488 (Tex. App.—Houston [14th Dist.] 1997, pet. denied). While shareholders

generally do not owe each other a fiduciary duty, they may in some circumstances, such as when a

confidential relationship exists. See id. A confidential relationship exists where influence has been

acquired and confidence has been justifiably reposed. Id. “A person is justified in placing

confidence in the belief that another party will act in his or her best interest only where he or she is

accustomed to being guided by the judgment or advice of the other party, and there exists a long

association in a business relationship, as well as personal friendship.” Id. Partners owe each other

fiduciary duties as a matter of law. Insurance Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex.

1998). We must therefore examine the record to discern whether a fiduciary relationship existed.

                                                  13
               Because Flanary does not specify the level of scrutiny he wants applied to the record,

we will review both the legal and factual sufficiency of the evidence supporting the judgment. In

considering the legal sufficiency of the evidence, an appellate court considers only the evidence that

supports the trial court’s findings and disregards all evidence and inferences to the contrary. Garza

v. Alviar, 395 S.W.2d 821, 823 (Tex. 1965). If any probative evidence supports the factfinder’s

determination, it must be upheld. See In re King’s Estate, 244 S.W.2d 660, 661 (Tex. 1951). In

reviewing factual sufficiency, we examine all the evidence and reverse only if the trial court’s

finding is so against the great weight and preponderance of the evidence as to be manifestly unjust.

Id. In an appeal from a bench trial, findings of fact are the equivalent of jury answers to special

issues. Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex. 1991).

               Ample evidence supports the finding that a fiduciary relationship existed. Flanary

is Mills’s uncle. Flanary is only six or seven years older than Mills; as they grew up, Flanary was

more like a big brother than an uncle. Mills testified that he had always had faith in Flanary, looked

up to him, and trusted him. Mills worked for Flanary in the oil fields in the 1980s. They were

partners in a roofing business before they formed Easyliving Homes. Mills depended on Flanary to

handle the finances of the roofing company and, later, Easyliving Homes. The evidence shows the

requisite personal and professional relationships. Flanary told him not to worry about the

profitability of the business. This evidence provides factually and legally sufficient evidence to show

a confidential relationship.

               The record also contains sufficient evidence that Flanary breached that fiduciary

relationship. Mills and Flanary agreed to share the profits of the business equally (the most unequal

                                                  14
division alleged was the 51-49 split Flanary mentioned), and Mills entrusted Flanary with the

finances of the company. Although the Flanarys testified that Mills was only part of the business

for the first house, there was competing evidence from Mills, other builders, and some documents

that Mills remained an equal shareholder for the corporation’s four-year existence. Flanary spent

thousands of dollars from Easyliving’s account; some witnesses argued that these were business

expenses, but other witnesses contended that these expenditures were for personal expenses that

were not authorized. Although evidence showed that the company had an after-tax profit of more

than $300,000, Flanary told Mills that the business was not profitable and wrote him a check for

$7254.86, alleging that the amount was Mills’s $15,000 investment, less expenses Mills owed.

Legally and factually sufficient evidence supports the court’s finding that Flanary violated the

fiduciary duty arising from the confidential relationship he had with Mills.

                This evidence also supports the finding of fraud. Breach of a fiduciary relationship

can constitute fraud because the fiduciary relationship imputes higher duties, such as duties of good

faith, candor, and “full disclosure respecting matters affecting the principal’s interests and a general

prohibition against the fiduciary’s using the relationship to benefit his personal interest, except with

the full knowledge and consent of the principal.” Chien v. Chen, 759 S.W.2d 484, 495 (Tex.

App.—Austin 1988, no pet.). At common law, the term “fraud” means an act, omission, or

concealment in breach of a legal duty, trust, or confidence justly imposed, when the breach causes

injury to another or the taking of an undue and unconscientious advantage. Id.; Russell v. Industrial

Transp. Co., 258 S.W. 462 (Tex. 1924); Kellum v. Smith, 18 Tex. 835 (1857). Common-law fraud

includes both actual and constructive fraud. “Actual fraud” usually involves dishonesty of purpose

                                                  15
or intent to deceive. Archer v. Griffith, 390 S.W.2d 735, 740 (Tex. 1964). “Constructive fraud”

encompasses those breaches that the law condemns as “fraudulent” merely because they tend to

deceive others, violate confidences, or cause injury to public interests, regardless of the actor’s

mental state. Id. When one has a duty to speak the truth, a false representation of a past or present

material fact is fraudulent when another relies thereon to his detriment. See Chien, 759 S.W.2d at

495. The evidence that showed the breach of fiduciary duty supports a finding of constructive fraud.

               The record also supports a finding of actual fraud. There is evidence that Flanary

deliberately deceived Mills. Flanary initially told Mills that the business was doing fine, but when

Mills wanted to withdraw money from the company, Flanary told him it was losing money when it

earned more than $300,000 in after-tax profits. Flanary altered the 1999 corporate tax return to

delete references to Mills’s ownership interest despite the original accountant’s records showing

Mills’s investment persisting into 2000. A new accountant carried Mills’s stock as Flanary’s stock.

Flanary’s wife, at his direction, gave the accountant end-of-year summaries without supporting

documentation to try to make the expenditure of corporate funds on personal expenses deductible.

Flanary refused to let Mills examine the books before the lawsuit and refused during discovery to

produce invoices and receipts documenting the personal expenses. Even accepting the Flanarys’

version of events that they considered Mills no longer part of the corporation after his 1997 falling-

out with their son, they never dissolved the corporation or returned his initial investment. The

testimony showed that they never told Mills that he was no longer part of the corporation.

Regardless of whether the ownership was 50-50 or 51-49, there is no indication in the record that

the Flanarys could have excluded Mills without buying him out or voting him out. Nevertheless, the

                                                 16
record indicates that they used the corporate account as their own personal account. These actions,

which are inconsistent with the agreement to share ownership, to defer distribution of profits, and

to not seek reimbursement for out-of-pocket expenses, are evidence of fraud—particularly because

the Flanarys’ payment of personal expenses began early on in the company’s existence. The court

was forced to choose between Mills’s evidence and Flanary’s contentions that he had terminated

Mills’s interest in the corporation and did not try to conceal company records from Mills; the records

from the district court do not provide a basis on which to reject the court’s choice to credit Mills’s

evidence. In Mills’s version of events, Flanary made promises he did not keep, and the inception

and duration of his failure indicate he never intended to keep them; these broken promises cost Mills

money.

               Flanary alternatively contends that any fraud could only have been committed against

the corporation. There is evidence that the promises, duties, and breaches arose before the company

incorporated. Although the corporation may also have been injured, we conclude that there is

evidence that the injury was personal as well. Further, Flanary’s argument is that Mills is only

entitled to half of the corporation’s damages. As we discuss below, the district court only awarded

Mills half of the undistributed profits. Flanary’s alternative argument shows no error or harm.

               There is legally and factually sufficient evidence of fraud.

Evidence of damages

               Flanary contends that the evidence was insufficient to support the damage award

because Mills’s expert, Karen Coates, derived the amounts she used to calculate the damages from

witness testimony, such as the testimony of other builders about their average profit on houses they

                                                 17
built. He contrasts that evidentiary support with his expert’s testimony, which he contends was more

compelling because it was based on the complete records of the corporation. Kleppe calculated that

Mills’s share of the profits was $22,204.44.

               The record does not support Flanary’s argument. The record reflects that Coates

reviewed bank statements, deposit slips, checks and check stubs that were provided, the tax returns

of the individuals and Easyliving, the company’s general ledgers and financial statements, the

articles of incorporation and related documentation, and depositions. The biggest difference between

her testimony and Kleppe’s is that she deemed the Flanarys’ personal expenditures undistributed

profits based on the agreement, asserted by Mills, that the corporation would not pay for personal

expenses like cell phones and gasoline. There is no showing that Kleppe examined any documents

casting a different light on these expenses, their characterization, or the existence of the agreement.

The court faced a choice between two versions of the permissible uses of company funds and two

experts’ opinions based on those divergent versions. Factually and legally sufficient evidence

support the court’s damage award.

                                          CONCLUSION

               Having resolved all issues in favor of the judgment, we affirm the judgment.

                                               Mack Kidd, Justice

Before Chief Justice Law, Justices Kidd and Puryear

Affirmed

Filed: September 30, 2004

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