Gamble v. Norton

• Decision Date: 19 January 1995
• Docket Number: No. 01-94-00460-CV,01-94-00460-CV
• Citation: 893 S.W.2d 129
• Parties: William R. GAMBLE and John C. Simmons; d/b/a Gamble, Simmons & Company, Appellants, v. James C. NORTON and Texas Real Estate Commission, Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 129

893 S.W.2d 129

William R. GAMBLE and John C. Simmons; d/b/a Gamble Simmons & Company, Appellants, v. James C. NORTON and Texas Real Estate Commission, Appellees.

No. 01-94-00460-CV.

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

Jan. 19, 1995.

G. Riley Hetherington, Katy, for appellants.

Dan Morales, Jorge Vega, Suzanne Formby Marshall and George Warner, Austin, Michael L. Landrum, Houston, for appellees.

Before OLIVER-PARROTT, C.J., and MIRABAL and O'CONNOR, JJ.

OPINION

O'CONNOR, Justice.

This case involves the issue of whether a party can recover from the Real Estate Recovery Fund (the Fund) ¹ for acts committed by a real estate broker while the broker was acting as a manager and principal of an investment venture. We hold the Fund is not liable for damages in this case because the acts of the broker about which the plaintiff complains were committed by the broker in his role as investment manager and investor, not as a licensed real estate dealer. We affirm.

Overview of Facts

James Norton, a real estate broker, sold, managed, and invested in three joint ventures. Two of the investors, William Gamble and John Simmons, d/b/a Gamble, Simmons & Company (collectively, GSC), sued Norton for misrepresentation and breach of fiduciary duty stemming from his actions on behalf of those ventures. After GSC was unable to collect on the $1.6 million judgment, it filed a post-judgment proceeding to recover under the Fund. After a hearing, the trial court held Norton did not act in his capacity as a real estate broker and GSC could not recover from the Fund.

GSC and Norton were partners in three joint ventures known as the Brazoria 328 Joint Venture, the Brazoria 17 Joint Venture, and the Spring Cypress Joint Venture. ² The Brazoria 328 Joint Venture, purchased on August 13, 1975, owned 328 acres in Brazoria County. The Brazoria 17 Joint Venture, purchased on April 20, 1976, owned 17 acres in Brazoria County. The Spring Cypress Joint Venture, purchased on September 29, 1981, owned 42 acres of land in Harris County.

Norton testified that he acted as the managing partner for the joint ventures, marketing the properties for sale. The only joint venture agreement that stated Norton was the manager was the Spring Cypress Joint Venture. Norton, a licensed real estate broker, was to receive a commission not to exceed six percent in the event of a sale of either the Brazoria 17 or Brazoria 328 properties. The Spring Cypress Joint Venture stated that Norton, as manager, would receive 10 percent of the profits if the property sold.

Norton testified that his job included collecting money from the partners in the joint ventures and making payments on the debts owed. Norton testified that he was not paid for his work as a managing partner, but was to receive commissions upon the sale of the properties.

In the mid-1980s, when the real estate market crashed in Texas, the value of the properties in the joint ventures declined and more was owed on the properties than they were worth. The Spring Cypress Joint Venture was the only property that eventually sold. Norton testified that other partners began dropping out of the joint ventures when the market crashed. Norton, who had put title to the properties in his name, testified that he used the properties as collateral to obtain loans. Norton testified the loan money was used to make the payments on the debt on the properties.

GSC sued Norton for poorly managing the investments. After the court struck Norton's pleadings as a sanction for discovery abuse, the court entered a default judgment for GSC in the amount of $1,624,041.97. After GSC was not able to collect, GSC filed a verified claim in the same court that had rendered judgment for it, seeking recovery from the Fund. As required by the Act, GSC notified Norton and the Texas Real Estate Commission (Commission) of the filing of the verified claim. After a hearing attended by all three parties, the trial court denied GSC's application for payment from the Fund. GSC appeals. Three parties filed briefs--GSC, Norton, and the Commission.

Overview of the Fund

The Fund was established as part of the Real Estate License Act (the Act). ³ The purpose of the Act is to eliminate or reduce fraud on the public caused by unlicensed, unscrupulous, on unqualified persons dealing in real estate. Henry S. Miller Co. v. Treo Enter., 585 S.W.2d 674, 675-76 (Tex.1979); Gill v. Smith, 233 S.W.2d 223, 227 (Tex.App.--Galveston 1950, writ ref'd n.r.e.) (originally called the "Real Estate Dealers Act"). Under the Act, a person who has an uncollectible judgment against a licensed real estate broker may file a verified claim in the court in which the judgment was rendered and, upon notice to the commission and the judgment debtor, apply for an order directing payment out of the Fund. TEX.REV.CIV.STAT. art. 6573a, § 8(e); Texas Real Estate Comm'n v. Nagle, 767 S.W.2d 691, 693 (Tex.1989); Josey v. Texas Real Estate Comm'n, 801 S.W.2d 200, 201 (Tex.App.--Houston [1st Dist.] 1990, no writ). The trial court conducts a hearing on the application for reimbursement from the Fund. At the hearing, the claimant must show, among other things, that the underlying judgment is against a licensed real estate broker who caused the claimant's damages by an act that constituted a violation of Section 15(a)(3) or (6) of the Act. TEX.REV.CIV.STAT. art. 6573a, § 8(a),(f); Josey, 801 S.W.2d at 201. The Commission is authorized to attend the hearing to protect the fund from spurious or unjust claims or to ensure compliance with the requirements for recovery. TEX.REV.CIV.STAT. art. 6573a, § 8(k); Nagle, 767 S.W.2d at 693; Josey, 801 S.W.2d at 201.

A. Norton's Standing

In point of error six, GSC contends the district court erred in allowing Norton to intervene in the case against the Fund.

GSC contends the real party in interest in connection with the application for recovery under the Fund is the Commission, not Norton. GSC also argues that, because Norton's pleadings were struck in the underlying cause of action, Norton has no legal or equitable interest in this litigation and should not have been permitted to intervene. Norton contends he had a right to be in the suit because if the court ordered the Fund to pay the claim, his license could be revoked, and he could not regain it without reimbursing the Fund for the claim. TEX.REV.CIV.STAT. art. 6573a, § 8(i) (Vernon Supp.1995). Norton also argues that the Act required that he be notified of an action for an award from the Fund. TEX.REV.CIV.STAT. art. 6573a, § 8(e). The Commission agrees with Norton, that he is a necessary party because the Act requires that he have notice of the proceedings.

The suit to recover from the Fund is not a distinct lawsuit separate from the underlying action against the broker. It is, as the Supreme Court described, a "post-judgment hearing" at which the Commission may appear to defend the Fund against the claim. See Nagle, 767 S.W.2d at 695. The Act presumes that the licensee is part of the suit and will participate in the post-judgment hearing. See TEX.REV.CIV.STAT. art. 6573a, § 8(e) (the licensee must be given notice of the hearing). If the court orders the Fund to reimburse the claimant, the licensee can challenge that decision on appeal. See, e.g., Haney v. Texas Real Estate Comm'n, 789 S.W.2d 304, 305 (Tex.App.--Houston [14th Dist.] 1990, writ denied) (real estate licensee appealed the order directing payment from the Fund).

This issue in this case is not one of intervention; Norton was already in the suit. The issue is whether Norton could participate in the post-judgment proceedings for reimbursement from the Fund after his pleadings were struck. The post-judgment procedure against the Fund is closely analogous to a post-judgment proceeding against a judgment debtor. When a claimant files for reimbursement under the Act, instead of filing against the judgment debtor, the claimant files against the Fund. The Legislature evidenced its desire to have the licensee participate in the proceedings against the Fund when it provided that the claimant must give the licensee notice of the claim.

We hold the licensee is a party who may participate in the claim against the Fund. The trial court did not abuse its discretion in permitting the licensee to participate at the hearing. We overrule point of error six. We now address the substance of the appeal.

B. Sufficiency of the Evidence

In a number of related points of error, GSC argues that the evidence does not support the trial court's findings that Norton was acting as a managing partner and co-adventurer, not as a real estate agent. In points of error one and two, GSC challenges the factual and legal sufficiency of the evidence to support the district court's finding that Norton's acts were not those of a real estate agent or broker. In point of error three, GSC challenges the factual sufficiency of the evidence to support the district court's finding that Norton did not engage in misrepresentations or fraudulent acts when selling, buying, trading, or renting real property in his own name. In point of error four, GSC challenges the factual sufficiency of the district court's finding that Norton caused no damage to GCS. In point of error five, GSC challenges the factual sufficiency of the evidence to support the district court's finding that Norton caused damage to GSC while acting as a co-adventurer. We consider these points of error together.

1.

Standard of Review

The trial court's findings of fact are controlling upon the reviewing court and will not be disturbed as long as they are supported by probative evidence. Ray v. Farmers' State Bank, 576 S.W.2d 607, 609 (Tex.1979); IFG Leasing Co. v. Ellis, 748 S.W.2d 564, 566 (Tex.App.--Houston [1st Dist.] 1988, no writ). We review the evidence to support the trial court's findings of fact by the same standards we use to review the evidence to support jury findings, that is,...