ITT Consumer Financial Corp. v. Tovar

• Decision Date: 11 June 1996
• Docket Number: No. 08-95-00385-CV,08-95-00385-CV
• Citation: 932 S.W.2d 147
• Parties: ITT CONSUMER FINANCIAL CORPORATION d/b/a ITT Financial Services, Appellant, v. Daniel TOVAR, Appellee.
• Court: Texas Court of Appeals

Page 147

932 S.W.2d 147

ITT CONSUMER FINANCIAL CORPORATION d/b/a ITT Financial

Services, Appellant, v. Daniel TOVAR, Appellee.

No. 08-95-00385-CV.

Court of Appeals of Texas,

El Paso.

June 11, 1996.

Rehearing Overruled Oct. 16, 1996.

Cynthia S. Anderson, Kemp, Smith, Duncan & Hammond, P.C., El Paso, for appellant.

Steven C. James, El Paso, Mara Asya Blatt, El Paso, for appellee.

Before BARAJAS, C.J., and McCLURE and CHEW, JJ.

OPINION

BARAJAS, Chief Justice.

This is an appeal from a judgment on a jury verdict awarding Appellee actual and punitive damages for negligence, gross negligence and intentional infliction of emotional distress. We reverse and render.

I. SUMMARY OF THE EVIDENCE

Appellee holds a degree in criminal justice and works as a paralegal specialist for the United States Customs Service. In late 1987, Appellee bought a home and invited his best friend from high school, Frank Chavira, who was working at Appellant's consumer loan office as an assistant manager, ¹ to share the house. Chavira paid for a room of his own and a half share of the utilities. Appellee, however, had problems getting Chavira to pay his rent and bills in a timely fashion. Therefore, beginning in 1988, Appellee allowed Chavira to deposit checks into his personal bank account. When Chavira needed money, Appellee would either write him a check, withdraw money from an ATM, or give Chavira his ATM card to withdraw a specific amount.

Appellant is engaged in the business of consumer lending nationwide and had several branches in El Paso. Appellant employed approximately a dozen auditors who conducted periodic branch audits pursuant to a program encompassing 250 areas of office operation. The El Paso Number One Branch ("the Branch"), where Chavira worked, was audited (the "250-point audit") in December 1987, and it received an above average "C+" rating, meaning that the Branch was running generally within company guidelines. ² It is undisputed that this auditing program was not designed to detect fraud.

The Branch was not audited again until 1992. According to Appellant's former audit supervisor, a branch receiving a "C" grade would generally be audited again within approximately two years after the previous audit. ³

In addition to the 250-point audits, Appellant employed regional managers, each responsible for eight to twelve branches, who were required to audit the branches in their region every 120 days by taking a statistical sampling of loans made since the previous 120 day audit. The sample loans were reviewed pursuant to a twenty point check system to determine whether they complied with company policy.

On December 29, 1989, Rose Santana, a Branch employee, discovered irregularities in six accounts. Neither the aforementioned 250-point audit nor the 120 day audit had uncovered these irregularities. This finding launched a lengthy investigation by Regional Manager Ray Chavez and Director of Security and Special Investigations Jim Klein. On January 4, 1990, Chavira confessed to embezzling through eighteen fraudulent accounts. Appellant immediately suspended him without pay and turned him over to the El Paso Police.

It was eventually revealed that Chavira, between May 1987 and January 1990, embezzled $59,178 from Appellant by creating twenty-nine fictitious loans. Chavira created files to make the fictitious loans appear legitimate, then later destroyed the files for twenty-seven of the twenty-nine accounts. Chavira would prepare a loan application and then instruct other branch employees to do the required pre-loan verifications, explaining that the customer would come to the office after hours to close the loans with him. Chavira also made entries into the computer system indicating that a check was received. Thus, employees, believing that a post-dated check had been received, would not follow up with the customer. Beginning in October 1989, Chavira kept control of all post-dated checks received by the Branch, making it more difficult for employees to know what checks had been received. Eventually, he used one month deferments to make the delinquent accounts appear current. Although Appellant allowed customers two deferments a year, some accounts had as many as nineteen deferments.

For the first twelve months of the fraud, Chavira passed the fraudulent checks through his own MBank checking account. Thereafter, Chavira closed his account and began using Appellee's El Paso Teacher's Credit Union checking account to clear the checks and obtain the cash proceeds. Chavira eventually deposited seventeen embezzled checks totaling $34,523.66 into Appellee's account. Although Appellee had two accounts with Appellant, neither account was affected by Chavira's embezzling and money laundering schemes. Regarding the money deposited into Appellee's account and the fact that he was unaware of the deposits, Appellee testified as follows:

Q. Did they (Chavez and Klein) ask you if you were balancing--or how you balanced your checking account?

A. Yes, sir, they did.

Q. And what did you tell them about that?

A. I told them that I do receive statements and that I do look at them. However, my main method of balancing my checkbook was to call the bank and they give you the information, if you want the last five checks, or the last three checks, the last deposits, and I would--I personally preferred doing it that way.

On March 27, 1990, Jim Klein and Appellee had a telephone conversation regarding the seventeen embezzled checks deposited into his account. Klein explained that each of the checks bore a first endorsement in the customer's name and a second endorsement in the name of Appellee. Appellee declared that he had no knowledge of the checks.

The following day, Appellee went to Appellant's offices to examine the checks. Klein asked Appellee if he knew Chavira, but at no time informed him about the underlying fraudulent loans. Appellee examined twelve of the embezzled checks and confirmed his account number which appeared on each of the checks below the endorsement in Appellee's name. Appellee again denied knowledge of the checks and stated that the endorsements in his name were forgeries. Appellee stated that he did not have any roommates who might have access to his account without his knowledge. ⁴

Chavira was arrested on December 29, 1991. Appellee bailed him out of jail the next day and took him to see an attorney. At this point, Appellee was informed about the fraud and the money being laundered through his account.

On May 15, 1990, Chavez and Klein gave the El Paso Police Department their investigative report entitled "Statement Regarding Embezzlement." This report provided, in pertinent part to Appellee:

PURPOSE OF THIS STATEMENT

This statement provides information relating to the admitted embezzlement of over $20,000 by an ITT Financial Services employee, Frank Chavira.

ITT Financial Services requests the information presented herein be reviewed and further investigated by law enforcement officials for the purpose of filing criminal charges, on Frank Chavira and other co-conspirators, as appropriate.

* * * * * *

DISPOSITION OF DIVERTED CHECKS

* * * * * *

Seventeen (17) checks, totaling $34,523.66, appear to have been deposited to account # 38179 at the El Paso Teachers Credit Union. All the checks have a (fraudulent) first endorsement in the alleged customer's name followed by a second endorsement in the name of Daniel Tovar and account # 38179.

J.M. Klein and I interviewed Daniel Tovar on March 28, 1990, at the El Paso # 1 branch office (Exhibit 6). Tovar confirmed that account # 38179 was his account, however he denied having any knowledge of the ITT checks being deposited to the account. Tovar examined the purported endorsements in his name and stated that they were forgeries. Tovar said that no one else had authority to sign on his account. Tovar acted as if someone must be using his account without his knowledge. Tovar said he probably did not detect the activity in the account because he never looked at his monthly account statement. Tovar refused to provide a written affidavit concerning the forgeries. Exhibits 6 and 7 are notes of J.M. Klein's telephone conversations with Tovar on March 28, 1990 and March 29, 1990.

* * * * * *

Delacruz (whose name Chavira used on a fraudulent account) said that he also knows Daniel Tovar and that Chavira and Tovar are also friends.

Several ITT Financial Services branch employees stated that Chavira received many calls from a "Danny." Chavira told employees that Danny was his brother. (This has not been confirmed).

ITTFS employee Francis Trejo recalls that in January or February, 1990, Daniel Tovar came into the branch and made a payment on his account. While he was in the office, Tovar asked about what happened to Chavira. Tovar said that Chavira told him that he left ITTFS because he was being forced to transfer.

CONCLUSION

The evidence presented above supports that Frank Chavira knowingly and willfully engaged in fraudulent deceptive acts designed to embezzle monies from his employer, ITT Financial Services. Chavira's actions, supported by his admissions, indicate that he acted intentionally, fully understanding the outcome of his acts and knowing that he had no legal basis for engaging in these fraudulent activities. His deceptive actions were accomplished without the effective knowledge or consent of ITT Financial Services.

The case was assigned to Dempsey Gunaca, Chief Investigator of the District Attorney's White Collar Crime Unit. Gunaca subpoenaed bank records in an effort to determine the disposition of the embezzled funds. He also hired a handwriting expert to determine whether the endorsements in Tovar's name were forgeries. Regarding the prosecution of Appellee, Gunaca testified as follows:

Q. Who made the decision to indict Daniel Tovar?

A. I made that--to indict him? The grand jury did. To present it to the grand jury, I did.

Q. Okay.

A. I--when I got the...