Kent Davis & D. Kent Davis, P.C. v. White

KENT DAVIS AND D. KENT DAVIS, P.C. APPELLANTS AND APPELLEES v. LEDFORD WHITE AND M & M JOINT VENTURE APPELLEES AND APPELLANTS

NO. 02-13-00191-CV

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

December 29, 2014

FROM THE 96TH DISTRICT COURT OF TARRANT COUNTY

TRIAL COURT NO. 096-257264-11

MEMORANDUM OPINION¹

This appeal involves the validity and amount of an exemplary damages award in a suit by one former law partner against another, arising from the failure to properly distribute a firm receivable. In three issues, Kent Davis and D. Kent Davis, P.C. challenge the trial court's allowing Ledford White and M & M JointVenture to amend their answer post-trial to plead the exemplary damages cap in section 41.008 of the civil practice and remedies code and the trial court's subsequent application of the cap to the jury's exemplary damages award. Tex. Civ. Prac. & Rem. Code Ann. § 41.008 (West Supp. 2014). In a cross-appeal, appellees challenge the sufficiency of the evidence to uphold the jury's finding that White's fraud caused Davis harm. We reverse the trial court's reduced award of exemplary damages and render judgment reinstating the jury's exemplary damages award of $2.8 million. We affirm the remainder of the judgment.

Background

White and Davis were partners in a law firm (the Partnership) who had agreed to split profits equally. The Partnership operated a closing office for a title insurance company, prepared loan documents for a mortgage company, and represented individual clients.² One of White's primary clients was Alton Isbell, a real estate investor and developer.

White, who is board certified in real estate law, did not keep time records for any of his clients, including Isbell. Instead, White allowed Isbell to pay the Partnership what he could when he was able. Additionally, the Partnership received fees when Isbell's development entities closed on the sale or purchase of real property.

White and Isbell formed M & M Joint Venture on August 12, 2003 for the purpose of purchasing and owning a piece of real property in Crowley (the Crowley Tract). Each owned fifty percent of the joint venture, but both Isbell and White testified that White's ownership was held for the Partnership. Isbell had given the interest to the Partnership in payment for legal work that White had already completed. On August 13, 2003, Isbell signed a deed from one of his companies, Stone Gate Village, Inc., conveying the Crowley Tract to M & M. The conveyance did not reserve any part of the mineral estate. White did not tell Davis about M & M, but he testified that "the full intention was to split it with" Davis.

Also in August 2003, White and Isbell formed a partnership, Lucky IW, with the same 50/50 ownership, for the purpose of purchasing mineral interests. In contrast to his ownership of M & M, White considered his ownership interest in Lucky IW to be his own property. According to White, he did not pay anything for his interest in Lucky IW because Isbell wanted to take advantage of White's good credit. However, White testified that it was possible that Isbell also gave him at least part of the interest in Lucky IW to satisfy any debt to the Partnership that might have been left over after giving it the M & M interest, but there was no way to know.

When White and Isbell formed Lucky IW, the Barnett Shale development was not as widespread as it later became. White testified that he did not think he would get paid for any mineral interests in 2003 and that he was not eventhinking about mineral interests with respect to the Crowley Tract in 2003. Nevertheless, White testified at trial that at the time he received the interests in M & M and Lucky IW, he considered only the surface estate of the Crowley Tract to be a Partnership receivable. White also did not tell Davis about Lucky IW.

In March 2005, Isbell signed a mineral deed from another of his development companies, Deer Creek Estates, Inc., to Lucky IW, conveying all of the mineral estate in the Crowley Tract³ but specifically reserving the right of ingress and egress on the surface for the purpose of oil and gas development. The County Clerk's registration page lists "White and Davis, LLP," at the Partnership's mailing address.

In 2006, when Davis asked White about what Isbell owed the Partnership, White told Davis: "I exchanged a receivable for an interest in this joint venture property over in Crowley, and they - - he can't sell the property unless I sign off on it, so we're taken care of." White told Davis that he had it covered and Davis did not need to worry about it. However, White did not tell Davis the name of the joint venture. They did not discuss the matter again until after the dissolution of the Partnership, which occurred in early 2007.⁴

The evidence showed that in 2006 White deposited $98,228.31 attributable to M & M into the Partnership's real estate escrow account without telling Davis.⁵ White could not explain what this money was for. White said that he did not give any of that money to Davis because he had no memory of depositing that money; he admitted, however, that if the money really had been paid to M & M, he should have reimbursed Davis his fifty percent.

By 2007 the Barnett Shale was "in big play, big-time" around the Crowley Tract. In March 2007, White, on behalf of M & M as the "surface owner," granted Chesapeake Operating, Inc. the use of the surface of three acres from the Crowley Tract for oil and gas operations. In April 2007, White, on behalf of M & M, and Isbell, on behalf of Stone Gate, signed a document entitled "Lease Ratification," in which M & M and Stone Gate ratified two oil and gas leases dated March 5, 2005 from Deer Creek to FSOC Gas Co., LTD; at least one of the leases appears to involve the Crowley Tract. In August 2007, Isbell, on behalf of M & M, signed a special warranty deed conveying five acres of the Crowley Tract to Chesapeake Exploration, L.L.C. The deed reserved "all oil, gas and other minerals" to M & M as the grantor. At the bottom of the first page of the deed isthe following: "After Recording Return To: White & Davis LLP," at the Partnership's address.

In September 2007, White prepared correction deeds—backdated to be effective March 5, 2005—conveying the Crowley Tract (plus a contiguous 2.545 acres) to M & M from Deer Creek Estates but reserving all of the mineral estate. By that time, the Crowley Tract, specifically the mineral estate, had increased significantly in value. White said that he prepared the correction deeds at Chesapeake Energy's request to clear problems with the title.

In 2008, White traded his fifty percent interest in Lucky IW for Isbell's fifty percent interest in M & M. According to White, Isbell needed to borrow money for a project, and the bank would not let him use Lucky IW's mineral interests as collateral unless Isbell owned one hundred percent of Lucky IW. After the trade, White owned one hundred percent of M & M and Isbell owned one hundred percent of Lucky IW. Shortly thereafter, Davis returned to the former Partnership's building to office, but he and White did not resume the Partnership.

On March 30, 2010, but effective April 1, 2010, White, on behalf of M & M, signed a conveyance of M & M's "right, title and interest in and to the mineral interests, royalty interests and/or overriding royalty interests" of the Crowley Tract to four different entities and one person, in varying percentages. The conveyance stated that it was M & M's "intention . . . to assign and sell all of its interests" in Tarrant County, Texas. The conveyance also included general warranty language.

Additionally, on April 1, 2010, White deposited $180,000 in his personal bank account, also without telling Davis. White also testified that the $180,000 was for the sale of Lucky IW's mineral rights and that it belonged to Isbell, but Isbell told White to keep all of the $180,000 because Deer Creek Estates was in bankruptcy and Isbell had personally guaranteed Deer Creek's debts. However, the date of this deposit corresponds with the date of the assignment of mineral and royalty interests to St. Andrews.

From 2006 to 2010, M & M also received the following, which White did not disclose to Davis or disburse him any proceeds: (1) $20,000 from the surface agreement with Chesapeake; (2) $581,000, along with Deer Creek, from Chesapeake for the two lease ratifications; and (3) royalties from the leases on the Crowley Tract and other tracts, of which M & M's share totaled approximately $160,616.81 (September 2008 through June 2010).⁶ M & M also received $152,000 from the City of Crowley for the sale of about two and one-half acres of the Crowley Tract, but White applied the majority of that money to the payment of back taxes on that small part of the Crowley Tract and on the building that the Partnership still owned.

In contrast, White paid Davis $50,000 from the sale of five acres of the Crowley Tract to Chesapeake in August 2007.

Sometime around spring 2010, Davis again asked White about the Crowley Tract, and White told him that "we" were "still trying to sell it" but that "nothing's going on" and things were still "sluggish." Davis believed he had no reason to doubt what White was telling him. Also in 2010, Davis became concerned about the extent of activity related to the mineral estate of the Crowley Tract after talking to a former client of White's, Mike Parks. Eventually, after receiving numerous calls from Parks telling Davis to look into the situation, Davis asked White about the mineral rights to the Crowley Tract; White told Davis that the minerals were not part of the Partnership's deal. At that time, Davis still trusted White.

Davis finally learned the name of the joint venture when reading Isbell's deposition in Deer Creek's bankruptcy proceeding. Davis did not find out that White owned and controlled one hundred percent of M & M until 2011 when Parks and White had a heated argument in White's office, during...