Court Opinion

ID: 9729387
Source: CourtListenerOpinion
Date Created: 2023-08-26 14:33:32.267988+00
Date Added: 2024-06-11T18:25:57.438050
License: Public Domain

McCLURE, Justice,
concurring.
Creative and inventive theories of recovery abound for economic torts committed *15against the community estate. These range from waste, depletion of assets, the community opportunity doctrine and its inverse partner, the community jeopardy doctrine3 to the generic tort of fraud, which encompasses a number of varieties such as breach of fiduciary duty, fraudulent conveyance, excessive gifts to children, and community funds expended on paramours, just to name a few. The intermediate courts have not been consistent in their determination of whether an independent economic tort is actionable between spouses for damages to the community estate. It now appears that the Supreme Court has not been entirely consistent either.

Fraud as an Economic Tort

Fraud in the divorce context, as in other civil litigation, may be actual or constructive. Actual fraud is predicated upon the intent to deceive. The elements are: (1) that a material representation was made; (2) that it was false; (3) that when the speaker made it, he knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by the party; (5) that the party acted in reliance upon it; and (6) that he suffered thereby. Stone v. Lawyers Title Insurance Corp., 554 S.W.2d 183, 185 (Tex.1977). “[Constructive fraud is the breach of some legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others, to violate confidence, or to injure public interests.” Archer v. Griffith, 390 S.W.2d 735, 740 (Tex.1964). In other words, intent is irrelevant.
Because of the confidential relationship between a husband and wife, the marital partnership is fiduciary in nature. Matthews v. Matthews, 725 S.W.2d 275, 279 (Tex.App. — Houston [1st Dist.] 1986, writ refd n.r.e.). A breach of this fiduciary duty is frequently termed a “fraud on the community.” In re Marriage of Moore, 890 S.W.2d 821, 827 (Tex.App. — Amarillo 1994, no writ). Generally speaking, the allegation is one of constructive rather than actual fraud:
Any such conduct in the marital relationship is termed fraud on the community because, although not actually fraudulent, it has all the consequences and legal effects of actual fraud in that such conduct tends to deceive the other spouse or violate confidences that exist as a result of the marriage.
Id. at 827.
Constructive fraud includes actions of one spouse in unfairly disposing of or encumbering the other spouse’s interest in community property or unfairly incurring community indebtedness without the other spouse’s knowledge or consent. Massey v. Massey, 807 S.W.2d 391, 402 (Tex.App.— Houston [1st Dist.] 1991), writ denied, 867 S.W.2d 766 (Tex.1993). In the absence of fraud, a spouse has the right to control and dispose of community property subject to his sole management.4 Id. at 401, citing *16Mazique v. Mazique, 742 S.W.2d 805, 807 (Tex.App. — Houston [1st Dist.] 1987, no writ). Although the managing spouse need not obtain approval or consent for dispositions made of special community property, the fiduciary relationship between husband and wife requires that a spouse’s disposition of special community property be “fair” to the other spouse. Massey, 807 S.W.2d at 402, citing Horlock v. Horlock, 533 S.W.2d 52, 55 (Tex.Civ. App. — Houston [14th Dist.] 1975, writ dism’d). The managing spouse carries the burden of establishing that the disposition of property was fair. Id.
The Supreme Court has recently reiterated that Texas recognizes the concept of fraud on the community, which it has defined as a wrong committed by one spouse which may be considered by the trial court in its division of the community estate and which may justify a disproportionate division. Schlueter v. Schlueter, 975 S.W.2d 584, 588 (Tex.1998). It is not, however, an independent tort giving rise to a cause of action between spouses. Id. at 586. Nor may it give rise to a recovery for punitive damages, inasmuch as “recovery of punitive damages requires a finding of an independent tort with accompanying actual damages.” Schlueter, 975 S.W.2d at 589, quoting Twin City Fire Ins. Co. v. Davis, 904 S.W.2d 663, 665 (Tex.1995). Instead, the claim of fraud on the community is a means to an end, seeking either to recover specific assets wrongfully conveyed or to obtain a greater share of the community estate upon divorce as compensation for the loss of community property. Schlueter, 975 S.W.2d at 588, quoting Belz v. Belz, 667 S.W.2d 240, 247 (Tex.App. — -Dallas 1984, writ refd n.r.e.). Where the economic tort depletes the community estate so as to leave insufficient property available to the wronged spouse, the courts may impose a money judgment in order to achieve an equitable division. Schlueter, 975 S.W.2d at 588, citing Murff v. Murff, 615 S.W.2d 696, 699 (Tex.1981). The money judgment serves to recoup the value of the wronged spouse’s share of the estate which has been lost through the fraud. Schlueter, 975 S.W.2d at 588, citing Ma-zique v. Mazique, 742 S.W.2d 805, 808 (Tex.App. — Houston [1st Dist.] 1987, no writ). “Because the amount of the judgment is directly referable to a specific value of lost community property, it will never exceed the total value of the community estate.” Schlueter, 975 S.W.2d at 588.
On the heels of Schlueter, the Court was presented with some rather egregious facts in Vickery v. Vickery, 999 S.W.2d 342 (Tex.1999)(J. Hecht, dissenting). The underlying court of appeals’ opinion was unpublished. The Supreme Court denied the petition for review, with Justice Hecht dissenting from the denial in a published opinion which incorporates as an appendix both the intermediate court’s opinion on the merits and Justice Andell’s dissent from that court’s denial of rehearing en banc. At issue was Mrs. Vickery’s recovery in a bill of review proceeding. The jury found Mr. Vickery, himself an attorney, liable for fraud and breach of fiduciary duty and assessed Mrs. Vickery’s damages at $6.7 million for loss of marital property and $1.3 million for mental anguish, together with $1 million in punitive damages. The jury also found that Mrs. Vickery’s attorney breached her fiduciary duty, resulting in damages of $100,000 in lost marital property and $350,000 in mental anguish damages.
As Justice Hecht notes in his dissent, “[a]pplying Schlueter would require that the actual and punitive damages awarded Mrs.- Vickery against her former husband be reversed and the case remanded to the district court to reconsider what division of the community is just and right. The district court may consider Mr. Vickery’s ‘dishonesty of purpose or intent to deceive’ *17and ‘the heightened culpability of actual fraud’ as found by the jury.” The fact that the Supreme Court, by denying review, allowed the actual and punitive damages to stand gives me some concern as to what the current state of the law is for economic torts committed against the community estate.

The Loan from Maurita Johnson

Linda Sprick’s first point of error complains that the loan from Maurita Johnson was fictitious and designed to perpetrate a fraud on the community. She alleges that Michael deliberately concocted the debt to diminish the value of Michael’s business, a sole proprietorship, and in turn to diminish the overall value of the community estate in which she was entitled to share.5 In this instance, Linda is not complaining about fraudulent conveyance, she is complaining of fraudulent encumbrance. The trial court clearly stated on the record that it believed Ms. Johnson’s sworn testimony concerning the validity of the indebtedness. In a swearing match like this one, the demeanor and credibility of the witnesses is crucial to the fact-finding process. Where the evidence is conflicting and of sufficient magnitude such that the decision of the fact finder could have gone either way, I am hard-pressed to conclude that the trial court erred in failing to find a fraud on the community.6
In her second point of error, Linda complains, in effect, that the indebtedness was not a community liability. Instead, she argues that the court should have construed it “to be a gift or simply to the benefit of the Appellee and not the community. ...” I interpret her argument to be that the-indebtedness is an obligation of Michael’s separate estate.
Tex.Fam.Code Ann. § 3.003(a) establishes the community property presumption, that is to say that all property on hand at the dissolution'of marriage is presumed to be community property. The burden of proof falls on the spouse attempting to rebut the presumption and the degree of proof necessary is clear and convincing evidence. Tex.Fam.Code Ann. § 3.003(b). The presumption applies to liabilities as well as assets. Debt acquired by either spouse during marriage is presumed to be procured on the basis of community credit. Wierzchula v. Wierzchula, 623 S.W.2d 730, 732 (Tex.Civ. App. — Houston [1st Dist.] 1981, no writ). Thus, an asset purchased on borrowed funds is presumptively community. Borrowed funds expended for living expenses rather than for purchasing assets should be treated no differently, despite the fact that the community presumption is for the most part intended to maximize, rather than minimize, the community estate. As a result, Linda had to prove by clear and convincing evidence that either the monies were a gift, not a loan, or that Ms. Johnson as a creditor, agreed to look solely to Michael’s separate estate for repayment. Wierzchula, 623 S.W.2d at 732.
As the majority notes, this case presents the unique situation of an appellant complaining of a non-finding on an issue upon which she bore the burden of proof by clear and convincing evidence. While the *18heightened standard which we have announced has thus far only been applied to the review of a finding rather than a non-finding, I do not believe the reverse analysis to be overly complicated. It is best stated as whether the trier of fact could reasonably conclude that it is not highly probable that the debt is Michael’s separate property. In other words, if the evidence is insufficient to produce in the mind of the trier of fact a firm belief or conviction as to the debt’s separate property character, Linda cannot prevail. Based on the record, I cannot conclude that she has met her burden.
With these comments, I concur.

. The community opportunity doctrine derives from the corporate opportunity doctrine and stands for the proposition that a spouse has an obligation to maximize the community estate by taking advantage of an opportunity to invest in a lucrative venture using community, rather than separate, funds. The community jeopardy doctrine operates in the reverse and suggests that a spouse also has an obligation to protect the community estate from risky pursuits by investing separate, rather than community, funds. As might be expected, whether an investment is potentially lucrative or risky is easier to discern in hindsight and is ordinarily fact specific.

. During marriage, each spouse has the sole management, control, and disposition of the community property that the spouse would have owned if single, including personal earnings, revenue from separate property, recoveries for personal injury, and the increase and mutations of, and the revenue from, all property subject to the spouse's sole management, control, and disposition. Tex.Fam.Code Ann. § 3.102(a). Community property subject to a spouse’s sole management and control is sometimes referred to as “special community property,” particularly in older case law. All other community property is subject to the joint management, control and disposition of *16the spouses unless the spouses provide otherwise by power of attorney in writing or other agreement. Tex.Fam.Code Ann. § 3.102(c).

. In her pleadings, Linda sought a disproportionate division of the community estate, alleging, among multiple other claims, the wasting of community assets. She also requested that the court set aside non-marital liabilities to the party incurring them. There was no express pleading of either actual or constructive fraud, but the record duly reflects that because Michael did not file a sworn inventory, Linda was unaware that a debt to Ms. Johnson even existed until the time of trial. Without question, the issue was tried by consent.

. While Linda does not specifically address the issue of which party had the burden on the constructive fraud contention, the structure of her point of error suggests, and the majority so notes without benefit of analysis, that she carried the burden of proof. I am not convinced that is the case. However, regardless of who bore the burden, the evidence is sufficient to support the trial court’s implied finding of a valid loan.