Chu v. Hong

• Citation: 185 S.W.3d 507
• Decision Date: 20 October 2005
• Docket Number: No. 2-04-279-CV.,2-04-279-CV.
• Parties: William CHU, Appellant, v. Chong Hui HONG, Appellee.
• Court: Texas Court of Appeals

185 S.W.3d 507

William CHU, Appellant, v. Chong Hui HONG, Appellee.

No. 2-04-279-CV.

Court of Appeals of Texas, Fort Worth.

October 20, 2005.

Rehearing Overruled January 5, 2006.

COPYRIGHT MATERIAL OMITTED

Lively, Padfield & Stout, David F. Farris, Fort Worth, for Appellant.

Cramb & Marling, L.L.P., G. Stanley Cramb, Bedford, for Appellee.

Panel B: LIVINGSTON, HOLMAN, and GARDNER, JJ.

OPINION

DIXON W. HOLMAN, Justice.

This appeal concerns a lawyer, Appellant, who conspired with Appellee's husband for the purpose, and with the effect, of cheating Appellee out of her share of the family business, a donut shop. The jury found Appellant's conduct was conspiratorial, fraudulent, malicious, and violated the Texas Uniform Fraudulent Transfer Act.¹

The State Bar's rules of professional conduct forbid a lawyer to commit any act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer, or to engage in conduct that involves dishonesty, fraud, deceit, or misrepresentation. See TEX. DISCIPLINARY R. PROF'L CONDUCT 8.04(a)(1), (2), and (3) reprinted in TEX. GOV'T CODE ANN., tit. 2, subtit. G app. A (Vernon 2005) (TEX. STATE BAR R. art. X, § 9). For Appellant to engage in such conduct and, in this appeal, to attempt to explain it as merely negligence on his part conflicts with the jury's findings that Appellant's actions were conspiratorial, fraudulent, and malicious. Negligence may occur when the actor fails to exercise the standard of care that the law would require of a reasonable man in the circumstances. Here, however, the jury found Appellant's conduct was wilful and fraudulent. It was not negligent. After considering the five issues raised by Appellant, we affirm.

Background

Appellee, Chong Hui Hong, and her husband, Gyu Chul Kim (Gyu), were married from 1996 until 1999, when they separated, stopped living together as husband and wife, and eventually divorced. While married, they jointly purchased, owned, and operated a donut shop, for which they filed an Assumed Name Certificate in the records of the Tarrant County Clerk. In 1998, they both signed an agreement to sell the donut shop to buyers whose attorney was Appellant, William Chu.

The original agreement required the buyers to pay Appellee and her husband, Gyu, a total price of $210,000 for the donut shop, including a $20,000 down payment. On November 6, 1998, the buyers gave Appellee and her husband a check for the $20,000 down payment. On November 18, 1998, before Appellee and her husband, Gyu, cashed the check, the agreement was modified in writing to reduce the total sales price to $180,000. The modification specified the down payment as the $20,000 already paid to Appellee and her husband, Gyu. Finally, the buyers ordered payment of the $20,000 check stopped and refused to pay anything.

Appellee notified both the buyers and her husband, Gyu, that Appellee would not close the sale of the donut shop because she considered their agreement had become void. In response, the buyers' attorney, Appellant, William Chu, wrote a letter to Appellee and her husband, Gyu, demanding that either they close under the terms of the modified agreement or face litigation. Appellee still refused to close.

Without Appellee's knowledge, authority, or consent, her husband, Gyu, went to Appellant's office and, with Appellant's knowledge of the circumstances, signed another amendment to the agreement stating for the first time that Gyu was sole owner of the donut shop. Gyu then signed documents prepared by Appellant's office staff pursuant to Appellant's instruction that purported to convey the entire title and possession of the donut shop to the buyers. Appellant testified that when Gyu was in his office, Appellant was aware that Appellee had an ownership interest in the donut shop. Appellant's only explanation for not contacting Appellee and asking that she furnish him her power of attorney (that could have authorized Gyu to act for her in the sale) was: "I wasn't requested to get one." Appellee first learned of the sale from Gyu to the buyers when she went to work at the donut shop on February 24, 1999, discovered the buyers in possession, and was ordered to leave the premises. After the sale of the donut shop, Gyu sent the proceeds by wire transfer to Korea. Soon thereafter, Gyu returned to Korea.

Appellee's suit was filed March 16, 1999, only against Gyu and one of the buyers of the donut shop seeking a declaratory judgment finding that the agreement between Gyu and the buyers was void. See TEX. CIV. PRAC. & REM.CODE ANN. § 37.004 (Vernon 2002). Appellee also sought damages for conversion and Gyu's fraudulent conveyance of Appellee's property. On March 18, 1999, Gyu filed his original petition seeking a divorce from Appellee. Appellee's final pleading before trial asked that she be divorced from Gyu and that she be awarded a division of community property. Appellee also sued Appellant for fraudulently transferring the donut shop and for conspiring with Gyu to convert the business to the buyers. The suits were consolidated on March 31, 1999. Appellee's pleading alleged that she sought the remedies and relief authorized by section 24.008 of the business and commerce code.

The jury found that: (a) Gyu fraudulently transferred the donut shop to the buyers; (b) Appellant, Gyu, and the buyers converted the donut shop that belonged to Appellee; (c) Gyu did not comply with his fiduciary duties to Appellee; (d) Appellant and the buyers were part of a conspiracy that damaged Appellee; and (e) clear and convincing evidence established that the harm to Appellee resulted from the malice or fraud of Appellant, Gyu, and the buyers.

Further, the jury found that Appellee suffered actual damages of $140,000 as the value of the donut shop, plus $190,000 for lost profits during the time she was denied access to, possession, and ownership of the donut shop. The jury also found that Appellant acted toward Appellee with malice or fraud and awarded Appellee $1,500,000 punitive damages for Appellant's conduct.

The jury awarded Appellee attorney's fees of $65,000 through trial, $10,000 for appeal, and another $10,000 for appeal, if any, to the supreme court. The trial court's judgment does not condition the award of appellate attorney's fees upon Appellee's success on appeal, and Appellant does not complain of that feature.

The trial court's judgment grants a divorce to Appellee and recites that Appellee is entitled to judgment against Appellant based on the jury's verdict. The jury found that Appellant, Gyu, and the buyers conspired to fraudulently transfer the donut shop to the buyers, which constituted fraud and malice against Appellee. The judgment awards damages in accordance with the jury's verdict. The trial court found that the purported sale of the donut shop was void and ordered the buyers divested of ownership and possession. The court awarded possession of the donut shop to Appellee, effective at 1:30 p.m. on March 13, 2004. Finally, the judgment awarded Appellee authority to levy against the assets of the donut shop to enforce the judgment and recover assets. Only Appellant appeals the trial court's judgment.

Appellant's First Issue

Appellant's first issue asks whether the Uniform Fraudulent Transfer Act creates personal liability for Appellant's conduct. We are convinced that it does.

The question of whether a debtor has conveyed property with the intent to defraud creditors is ordinarily a question for the trier of fact. Flores v. Robinson Roofing & Constr. Co., 161 S.W.3d 750, 754-55 (Tex.App.-Fort Worth 2005, pet. denied) (op. on reh'g). A fraudulent transfer occurs when a debtor makes a transfer with intent to hinder, delay, or defraud his creditors by placing the debtor's property beyond the creditor's reach. Nobles v. Marcus, 533 S.W.2d 923, 925 (Tex.1976). The purpose of the Uniform Fraudulent Transfer Act is to prevent transfers of property with intent to defraud creditors. Flores, 161 S.W.3d at 754. Intent is a fact question uniquely within the realm of the trier of fact because it depends upon the credibility of the witnesses and the weight to be given to their testimony. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex.1986).

The relationship between a husband and wife creates a fiduciary relationship so that the spouses are bound by a fiduciary duty when dealing with the community estate. Southwest Tex. Pathology Assocs. v. Roosth, 27 S.W.3d 204, 208 (Tex. App.-San Antonio 2000, pet. dism'd w.o.j.); Connell v. Connell, 889 S.W.2d 534, 541 (Tex.App.-San Antonio 1994, writ denied). Moreover, unfairly disposing of the other spouse's community property results in the presumption of constructive fraud and may impose liability on a third party, such as Appellant, who knowingly participates in the breach of the fiduciary duty. See Connell, 889 S.W.2d at 541. Whether the conveyance was made with intent to defraud creditors or whether the third party had knowledge or notice of such intent are fact questions for the jury. See id. at 542.

For purposes of the Uniform Fraudulent Transfer Act, an "insider" is an entity (Appellant) whose close relationship with the debtor (Gyu) subjects any transactions made between the debtor and the insider to heavy scrutiny. Tel. Equip. Network, Inc. v. TA/Westchase Place, Ltd., 80 S.W.3d 601, 609 (Tex.App.-Houston [1st Dist.] 2002, no pet.).

First, we turn to the definitions contained in the Uniform Fraudulent Transfer Act. "Creditor" means "a person . . . who has a claim," such as Appellee. "Claim" means a "right to property." "Debtor" means "a person who is liable on a claim," such as Appellant. "Transfer" means "every mode of parting with an interest in an asset," such as the conveyance of Appellee's share of community property under the guise that Appellee has no ownership rights in it, or that it is exclusively owned by someone else. "Property" means "anything that may be the subject...