Edward Nwokedi & 1002 Gemini Interests, LLC v. Unlimited Restoration Specialists, Inc.

• Decision Date: 23 January 2014
• Docket Number: No. 01–12–00011–CV.,01–12–00011–CV.
• Citation: 428 S.W.3d 191
• Court: Texas Court of Appeals
• Parties: Edward NWOKEDI & 1002 Gemini Interests, LLC, Appellants v. UNLIMITED RESTORATION SPECIALISTS, INC., Appellee.

428 S.W.3d 191

Edward NWOKEDI & 1002 Gemini Interests, LLC, Appellants

v.UNLIMITED RESTORATION SPECIALISTS, INC., Appellee.

No. 01–12–00011–CV.

Court of Appeals of Texas, Houston (1st Dist.).

Jan. 23, 2014.

Eric Lipper, Joe G. Roady, Whitney Rawlinson, Hirsch & Westheimer, P.C., Houston, TX, for Appellants.

Kevin Jewell, Ryan O. Cantrell, Christine Kirchner, Chamberlain, Hrdlicka, White, Williams & Aughtry, Houston, TX, for Appellee.

Panel consists of Justices KEYES, SHARP, and HUDDLE.

OPINION

REBECA HUDDLE, Justice.

Appellants Edward Nwokedi and 1002 Gemini Interests, LLC appeal a judgment entered against them in favor of appellee Unlimited Restoration Specialists, Inc., trading as Unlimited Restoration, Inc.(URI), a company that provided restoration services to Gemini's property after it was damaged during Hurricane Ike. After Gemini refused to pay URI for its services, URI sued Nwokedi and Gemini for fraud, breach of contract, quantum meruit, theft of services, promissory estoppel, and fraudulent transfer. A jury found in favor of URI on all theories, and the trial court entered judgment awarding URI compensatory and exemplary damages and attorney's fees. The judgment also voided four fraudulent transfers by Nwokedi and Gemini, imposed a constructive trust on fraudulently transferred insurance proceeds, and enjoined Nwokedi and Gemini from transferring any assets that are or could be subject to execution.

In nine issues, Nwokedi and Gemini contend that the judgment should be reversed. We modify the trial court's judgment to reduce the amount of fraudulently transferred funds to which the constructive trust applies and affirm the judgment of the trial court as modified.

Background

Gemini, a limited liability company in which Nwokedi owns a controlling interest, owned a commercial property in Clear Lake that was damaged in September 2008 during Hurricane Ike. The property was managed by Boxer Property Management Corporation and was insured by Travelers Lloyd's Insurance Company. On September 19, 2008, Boxer's director of operations contacted URI about repairing the damage. At Boxer's request, two URI representatives, a Boxer representative, and Russell Joseph, a Travelers adjuster, inspected the damage. URI informed Boxer that one-third of the building's roof had been compromised and 35 percent of the building had been affected by major water intrusions. Based on the inspection, URI recommended shrink-wrapping the roof, extracting excess water, drying the structure, removing the wet carpet, demolishing certain ceiling tiles and sheetrock, and treating the walls, floors, and ceiling with an antimicrobial solution. For this work, URI proposed an estimated budget of $220,000.

The next day, URI met with Boxer's representatives to discuss a contract for restoration services between URI and Gemini. URI usually billed its clients on a time-and-materials basis and required payment by the client directly to URI. In this case, however, URI agreed, at Boxer's request, to a modification of URI's standard payment terms: Gemini would “pay up to their deductible amount, [but] for any amount above [Gemini's] deductible [Gemini] agrees to endorse all Travelers payment[s] made to URI and [Gemini] over to URI.” The parties' handwritten notation on the contract stated that Travelers would disburse insurance proceeds paid on the claim by two-party checks, made out to both Gemini and URI.

The parties signed the contract on September 20 and agreed to the first work order. It provided that URI would complete “roof repair and remediation work per the attached URI contract” and that the cost for that work was not to exceed $220,000. The contract's initial scope of services included: restorative dry out; selective demolition and debris removal; removal of contents, storage, cleaning, and deodorizing; provision of temporary power and temperature control; and general cleaning. It is undisputed that URI's initial scope of work did not include any mold remediation. Travelers' adjuster approved the proposed first work order in an email in which he noted, consistent with the contract between URI and Gemini, that “any amount above the deductible up to the budget of $220,000 will be paid as a joint check to URI and [Gemini] as you requested.”

URI began the work on September 21 and soon discovered that there was more wet material that needed to be removed than initially anticipated. On September 26, Travelers' adjuster approved the removal of vinyl wallpaper due to moisture. The following day, the adjuster informed Nwokedi by email that further inspection revealed additional wet and compromised drywall that needed to be removed. The adjuster also noted that he saw significant mold or fungal growth in some areas and recommended that Nwokedi contact a certified industrial hygienist to evaluate the situation. URI's project manager had also seen the mold, and recommended that Gemini contact a certified industrial hygienist.

In a letter dated October 2, URI informed Boxer that it would exceed the initial estimated budget of $220,000 by approximately $110,000 “due to additional necessary demolition of wet material.” The next day, Travelers' adjuster informed URI, Boxer, and Nwokedi that Travelers had approved the additional demolition, stating “[t]he budget is approved subject to normal review of supporting documentation with URI. We would like to see a budget on the direct damage from mold. We will tender our limit on mold providing it exceeds the $15,000 limit in the policy.” That same day, Boxer generated a second work order for the “additional remediation work approved by Russ Joseph of Travelers e-mail attached 10/03/08.” URI's project manager signed this second work order 12 days later, on October 15.

Meanwhile, Boxer hired Astex Environmental Services to evaluate whether mold remediation work was required. Astex prepared a Mold Remediation Protocol detailing the steps URI would take to remediate the mold, and gave it to URI on October 1, 2008.

URI performed the work outlined in the Astex protocol between October 2 and October 24, at which point Gemini released URI from the property. Four days later, URI submitted its invoice totaling $619,010.18 to Boxer, who forwarded the invoice to Gemini's independent claims consultant. On November 7, Gemini's claims consultant submitted the invoice to Joseph and requested that Travelers “submit payment to the insured at your earliest convenience.”

On November 13, Boxer requested that Gemini pay Boxer's management fee. The management agreement between Boxer and Gemini provided that Boxer's fee would be a percentage of the total cost of URI's services, $619,010.18. Nwokedi's email response warned: “Be very careful with this information. We are still working through the settlement with Travelers and they expect URI to be doing the repairs. Let's not discuss details of our plans with [Joseph].” Boxer responded: “Understood.”

At Travelers' request, URI revised the amount of its original invoice downward by $20,390.27 and submitted a new invoice in the amount of $598,619.91. It also submitted new invoices for debris removal in the amount of $24,522.62, bringing the amount of all URI's submitted invoices to $623,142.53. Gemini's claims consultant emailed URI and Nwokedi, expressing irritation at Travelers' requested changes and instructing URI to resist reducing the value of Gemini's claim and apply normal invoicing and pricing standards. He wrote:

[Joseph] is simply trying to beat down the price of [the] claim. May I suggest you apply your normal invoicing & pricing standards. If he wants to discuss price changes send him to me to discuss price changes. He is communicating with everyone but me & the insured on the final value for the claim looking for ways to decrease the value, which I think is completely unethical. The insured has a replacement cost policy how he elects to put his building back together is his decision as defined in his policy, not the price [Joseph] thinks it should be.

Thanks for cooperating with him, but for pricing changes, send him to us.

In December 2008, Travelers issued two checks totaling $996,881.71 to Gemini. Despite Gemini's agreement with URI, Nwokedi instructed Travelers not to put URI's name on the checks. Gemini did not endorse the checks to URI, did not pay URI's invoices, and did not inform URI that it would not do so. Instead, Nwokedi deposited these two checks into Gemini's bank account ending in 2056. After making several payments to contractors other than URI, Nwokedi closed the 2056 account and deposited the remaining insurance proceeds, $714,428.58, in another Gemini bank account ending in 0589.

In January 2009, URI sent Gemini a letter demanding payment of its outstanding invoices which totaled $623,142.53. Gemini's claims consultant responded that Gemini was waiting for Travelers to settle the claim and that Nwokedi would contact URI to resolve URI's claim after Gemini settled with Travelers. The following day, Nwokedi emailed URI to say that Gemini would pay its deductible, $88,935, which it eventually did pay.

On February 18, 2009, URI sued Gemini for the unpaid balance of $534,207.53. Gemini and Nwokedi defended on the theory that the work done pursuant to the Astex protocol was within the scope of the second work order and therefore subject to the $110,000 cap. URI disagreed, and asserted that the Astex protocol covered a separate and distinct scope of work, for which Gemini represented that URI would be paid on a time-and-materials basis in accordance with the rate schedule attached to the services contract.

While the suit was pending, Nwokedi made a series of transfers from Gemini's account number 0589 to other various accounts. URI amended its petition to add a claim under the Uniform Fraudulent Transfer Act, alleging that Nwokedi transferred these assets with the intent to hinder, delay, and defraud URI.

After a two week jury trial, the...