Pabich v. Kellar

• Decision Date: 28 February 2002
• Docket Number: No. 2-00-105-CV.,2-00-105-CV.
• Citation: 71 S.W.3d 500
• Parties: Gregory L. PABICH, Appellant and Appellee, v. Randy KELLAR, Appellee and Appellant.
• Court: Texas Court of Appeals

71 S.W.3d 500

Gregory L. PABICH, Appellant and Appellee, v. Randy KELLAR, Appellee and Appellant.

No. 2-00-105-CV.

Court of Appeals of Texas, Fort Worth.

February 28, 2002.

Bourland, Kirkman, Seidler & Evans, L.L.P.; David L. Evans and Thomas M. Michel, Fort Worth, Texas, Attorney for Appellant.

Miller & Brown, L.L.P.; J. Robert Miller and M. Jason Ankele, Dallas, Texas, Attorney for Appellee.

Panel A: DAY and HOLMAN, JJ.; and DAVID L. RICHARDS, J. (Sitting by Assignment).

OPINION ON REHEARING

DAVID L. RICHARDS, Justice (Assigned).

I. INTRODUCTION

We withdraw our opinion and judgment issued on October 11, 2001, and substitute the following in their place. We deny appellant's motion for rehearing.

Appellee Randy Kellar brought suit against appellant Gregory Pabich for tortious interference with a business relationship, breach of fiduciary duty, and fraud. The jury found for Kellar on all issues, and the judgment awarded him $3,083,273.97 in actual and exemplary damages, as well as $433,273.97 in prejudgment interest. Pabich challenges the jury's findings that he breached his fiduciary duty to Kellar and tortiously interfered with Kellar's business relationships, the finding of damages for those causes of action and Kellar's fraud action, and the trial court's failure to grant a new trial for juror misconduct. Kellar also cross appeals arguing the trial court erred in not setting up a constructive trust in the judgment. We reverse and render.

II. FACTUAL AND PROCEDURAL BACKGROUND

Sometime in 1987, Pabich formed Preview Video Sales, Inc. Through this business Pabich bought used videos that were no longer rentable, reconditioned them, and resold them to stores. Preview began as a small business, but grew steadily. Kellar went to work for Preview and eventually was sold a 25% interest in it. In 1990 or 1991, Kellar and Pabich sued a potential buyer of Preview for breach of contract. The case settled for $400,000. Pabich received 75% of the proceeds, and Kellar received 25%. Shortly afterward, Preview ceased to do business.

Later, Pabich formed a new business, Movies 4 Sale, Inc. This business was involved in the buying, reconditioning, and selling of used video games. Kellar was hired by Movies 4 Sale to handle the administrative functions and was involved in setting up the computerization of the accounting programs and inventory tracking programs. When the business was setup, Pabich offered Kellar a 25% interest in it as long as Kellar paid a $250 subscription price. Kellar never paid the subscription price, but he was still treated as a shareholder.

Around January or February 1995, Pabich began to suspect that Kellar was embezzling money from Movies 4 Sale. He initiated an investigation before confronting Kellar and found that Kellar had falsified transactions by making fictitious payees. Kellar allegedly embezzled in excess of $750,000 from Movies 4 Sale.

Pabich confronted Kellar on March 20, 1995. Kellar admitted that he had been taking money from the company since October 1994 and that he knew the consequences of his actions. Pabich told Kellar that he had spoken to his attorneys and the district attorney's office and that he would not press charges, file a civil suit, or turn Kellar over to the IRS if Kellar signed an agreement relinquishing his interest in the company and agreed to enter into a noncompetition agreement. Kellar asked if he would lose his interest in the stock, and Pabich told Kellar that he had no interest because he had never paid the subscription price. When the meeting concluded, Kellar and Pabich entered into a severance agreement and release of claims. Kellar was terminated for cause pursuant to his employment agreement and was entitled to no compensation beyond March 20, 1995. Kellar also unconditionally released the company from any claims and any money or equity due to him by the company, including any stock interest.

Shortly after his termination, Kellar entered into a business arrangement with Entertainment Options, Inc., a business that had represented Movies 4 Sale. Kellar along with Charlie McLaughlin and Willie Veldekamp formed Take 2 Enterprises, Inc. Movies 4 Sale, now a limited partnership, brought suit for violation of the severance agreement against Kellar and Take 2 Enterprises in Dallas County. Kellar and his wife filed suit in Tarrant County, and Entertainment Options filed suit in Michigan against Movies 4 Sale, Preview, Pabich, and other corporate entities. A counter-suit was filed in Michigan by Movies 4 Sale and others against Entertainment Options, McLaughlin, and Take 2.

The Dallas County and Michigan lawsuits settled in July 1998. One of the terms of the settlement agreement required that Entertainment Options, Take 2, McLaughlin, and Veldekamp disassociate themselves from Kellar and his affiliated entities. After the settlement, McLaughlin, Veldekamp, and Take 2 bought Kellar's interest in Take 2 for over $80,000. Criminal charges were also filed against Kellar in Dallas for unlawfully appropriating money from Preview and Movies 4 Sale. He was found guilty of theft over $20,000.

In the trial of this case, Kellar sought to obtain the value of his interest in Take 2 and the value of his ownership interest in Movies 4 Sale. Kellar alleged that Pabich breached his fiduciary duty to him by inducing him to sign the severance agreement and release; that he tortiously interfered with his business relationship with McLaughlin and Veldekamp by entering the settlement agreement in Michigan; and that he fraudulently misrepresented information that was material to the "fiduciary duty he occupied with" Pabich. The jury found for Kellar on the breach of fiduciary duty, fraud, and tortious interference with business relationship causes of action and awarded Kellar $3,083,273.97 in actual and exemplary damages.

III. FIDUCIARY DUTY

In Pabich's first issue, he challenges the legal and factual sufficiency of the evidence to support the jury's finding that he breached his fiduciary duty to Kellar. He also argues that the trial court erred in instructing the jury that Pabich owed Kellar a fiduciary duty as a matter of law because they were shareholders of Movies 4 Sale, a closely held corporation.

A co-shareholder in a closely held corporation does not as a matter of law owe a fiduciary duty to his co-shareholder. Hoggett v. Brown, 971 S.W.2d 472, 488 (Tex.App.-Houston [14th Dist.] 1997, pet. denied); Kaspar v. Thorne, 755 S.W.2d 151, 155 (Tex.App.-Dallas 1988, no writ); Schoellkopf v. Pledger, 739 S.W.2d 914, 920 (Tex.App.-Dallas 1987), rev'd on other grounds, 762 S.W.2d 145 (Tex.1988). Instead, whether such a duty exists depends on the circumstances, e.g., if a confidential relationship exists. Kaspar, 755 S.W.2d at 155; Schoellkopf, 739 S.W.2d at 920.

A confidential relationship exists where influence has been acquired and abused, and confidence has been reposed and betrayed. Crim Truck & Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 594 (Tex.1992). A person is justified in placing confidence in the belief that another party will act in his or her best interest only where he or she is accustomed to being guided by the judgment or advice of the other party, and there exists a long association in a business relationship, as well as personal friendship. Dominguez v. Brackey Enters., Inc., 756 S.W.2d 788, 791-92 (Tex.App.-El Paso 1988, writ denied). However, the fact that the relationship has been a cordial one and of long duration does not necessarily constitute a confidential relationship. Crim Truck, 823 S.W.2d at 594; Hallmark v. Port/Cooper T. Smith Stevedoring Co., 907 S.W.2d 586, 592 (Tex.App.-Corpus Christi 1995, no writ). A fiduciary relationship is an extraordinary one and will not be lightly created; the mere fact that one subjectively trusts another does not alone indicate that confidence is placed in another in the sense demanded by fiduciary relationships because something apart from the transaction between the parties is required. Kline v. O'Quinn, 874 S.W.2d 776, 786 (Tex.App.-Houston [14th Dist.] 1994, writ denied), cert. denied, 515 U.S. 1142, 115 S.Ct. 2579, 132 L.Ed.2d 829 (1995). Whether a fiduciary relationship exists in any particular situation is usually a question for the fact finder. Kaspar, 755 S.W.2d at 155; Schoellkopf, 739 S.W.2d at 920.

On the issue of fiduciary duty, the trial court charged the jury as follows:

Did Gregory L. Pabich comply with his fiduciary duty to Randy Kellar?

If they were shareholders of a corporation, Gregory L. Pabich owed Randy Kellar a fiduciary duty. To prove he complied with his duty, Gregory L. Pabich must show:

a. The transactions in question were fair and equitable to Randy Kellar;

b. Gregory L. Pabich made reasonable use of the confidence that Randy Kellar placed in him;

c. Gregory L. Pabich acted in the utmost good faith and exercised the most scrupulous honesty toward Randy Kellar;

d. Gregory L. Pabich did not use the advantage of his position to gain any benefit for himself at the expense of Randy Kellar, and did not place himself in any position where his self-interest might conflict with his obligations as a fiduciary; and

e. Gregory L. Pabich fully and fairly disclosed all important information to Randy Kellar concerning the transactions. [Emphasis added.]

No issue was submitted to the jury inquiring whether Pabich owed a fiduciary duty to Kellar; rather, the trial court defined Pabich as a fiduciary as a matter of law and assumed the existence of a duty of acting with faithfulness and loyalty to Kellar. This instruction was erroneous. See Kaspar, 755 S.W.2d at 155; Schoellkopf, 739 S.W.2d at 920.

Further, the record in this case does not support a finding that a fiduciary duty existed between Kellar and Pabich as a matter of law. Although the evidence shows that Kellar and Pabich worked together in several business ventures and that at one time they were also close...