Zaidi v. Shah

• Decision Date: 08 September 2016
• Docket Number: NO. 14-14-00855-CV,14-14-00855-CV
• Citation: 502 S.W.3d 434
• Parties: Adeel Zaidi, A. K. Chagla, Prestige Consulting, Inc., and Apex Katy Physicians–TMG, L.L.C., Appellants v. Pankaj K. Shah and Apex Katy Physicians, LLC, Appellees
• Court: Texas Court of Appeals

502 S.W.3d 434

Adeel Zaidi, A. K. Chagla, Prestige Consulting, Inc., and Apex Katy Physicians–TMG, L.L.C., Appellants

v.Pankaj K. Shah and Apex Katy Physicians, LLC, Appellees

NO. 14-14-00855-CV

Court of Appeals of Texas, Houston (14th Dist.).

Opinion and Dissenting Opinion filed September 8, 2016

Andrew K. Meade, Fred Wahrlich, Houston, TX, for Appellees

Robin L. Harrison, Douglas R. Little, Houston, TX, for Appellants

Panel consists of Chief Justice Frost and Justices Christopher and Donovan.

OPINION

Tracy Christopher, Justice

This is an appeal from the judgment rendered after a bench trial on the plaintiffs' claims arising from the purchase and lease of real property for the operation of a hospital, and from the financial management of the business entities involved. The trial court rendered judgment holding the defendants and one non-party jointly and severally liable to two plaintiffs for more than $13.4 million in actual damages, together with pre- and post-judgment interest and $350,000 in attorney's fees. The trial court further ordered two of the defendants to pay more than $33.5 million in punitive damages, bringing the total judgment to more than $50 million.

Although the appellants have presented more than twenty issues and sub-issues for our review, the dispositive arguments are subsumed within a single question: given that they objected in the trial court that the proposed factual findings included invalid theories of liability for which there was no evidence, did the trial court reversibly err in refusing their request for specific findings identifying the damages that the trial court awarded for each cause of action? Because we conclude that at least one theory of liability is insupportable, we answer that question in the affirmative. That answer is sufficient for us to grant all the relief that the appellants have requested, which is that we reverse the trial court's judgment and remand the case for a new trial on all issues of liability and damages.

I. BACKGROUND

This case arises from the dealings among the companies, managers, and investors involved in the purchase of real property and an unsuccessful attempt to operate a hospital.

Medistar Corporation owned real property referred to as Katy Pin Oak Hospital ("Pin Oak"), and Prestige Consulting, Inc. d/b/a Turnaround Management Group¹ ("Prestige") believed it could interest investors in purchasing the property and operating a hospital there. Of Prestige's two co-owners, Adeel Zaidi assumed the more active role, while A.K. Chagla was primarily concerned with reviewing contracts and notarizing documents. Eventually, Prestige formed Apex Katy Physicians, LLC ("the Landlord") to purchase the property; Apex Long Term Acute Care–Katy, L.P. ("the Tenant") to lease the property for use as a hospital; and Apex Katy Physicians—TMG, LLC ("the General Partner") to act as the general partner in the limited partnership that was the Tenant.² Prestige was to staff and manage the Tenant pursuant to a written contract.

Zaidi recruited a number of investors, nearly all of whom were physicians. Dr. Pankaj K. Shah ("Shah") was among the investors in the project. Like the other investors, he was a limited partner in the Tenant, and owned a membership interest in the Tenant's General Partner. Shah and his wife Bharati also owned Indus Associates, LLC ("Indus"), and Indus owned the majority of the membership interests in the Landlord. Shah and Zaidi were co-managers of the Landlord. The General Partner was co-managed by Zaidi and one of three other investors—including Shah—who acted as co-managers on a rotating basis.

In January 2007, the Landlord agreed to buy the Pin Oak property from Medistar and lease it to the Tenant. The Landlord borrowed $9 million of the property's $13.5 million purchase price from MetroBank, and Shah personally guaranteed over $6 million of the loan. We therefore refer to the Landlord and Shah collectively as "the Borrowers."

The enterprise was not a success, and the Tenant never paid the full amount of each month's rent. Under the lease agreement, the Tenant's obligation to pay rent was secured by a lien on its accounts receivable, and in August 2009, an attorney hired by Shah to represent the Landlord attempted to foreclose on the lien. Shah then learned that more than a year earlier the Landlord's co-manager Zaidi had signed a waiver of all of the Landlord's interests in the Tenant's personal property. The month after the failed foreclosure attempt, the Tenant filed for bankruptcy.

In this consolidated civil suit, many claims, counterclaims, and cross-claims were asserted among the companies, managers, investors, and affiliated entities and individuals connected to the purchase and operation of the Pin Oak property. The record before us shows that at the time of trial, the plaintiffs and cross-plaintiffs included the Landlord, Shah, Shah's wife Bharati, and the Shahs' company Indus; of these parties, however, Shah and the Landlord were the only ones to appear at trial and the only ones to prevail on their claims. The defendants were Zaidi, Chagla, Prestige, the General Partner (collectively "the Turnaround Parties") and US TMG, LLC, which is another company affiliated with Prestige. The trial court, however, rendered judgment not only against all of these defendants but also against the Tenant, which was no longer a party to the case by the time of trial.

The trial court held the Turnaround Parties, US TMG, LLC and the Tenant jointly and severally liable to the Landlord for actual damages of $4,071,584, and held them liable to Shah for actual damages of $9,336,920. The trial court also held Zaidi liable for exemplary damages of $18,673,840 to Shah and $8,143,168 to the Landlord, and held Chagla liable for exemplary damages of $4,668,460 to Shah and $2,035,792 to the Landlord.

The trial court issued findings of fact and conclusions of law in which the damages were neither identified nor linked to any cause of action. The Turnaround Parties timely requested additional findings, but the trial court issued nothing further, and the Turnaround Parties appealed.

II. ISSUE ADDRESSED

Of the many issues presented, we address only a portion of the Turnaround Parties' second issue. The Turnaround Parties contend that the evidence is legally insufficient to support some theories of liability, but the trial court prevented them from properly presenting their case on appeal by awarding the Borrowers cumulative sums without linking the damages to specific causes of action. Because this argument is dispositive, we address only this legal-sufficiency question.

III. STANDARD OF REVIEW

When a complete reporter's record is filed, we review the trial court's factual findings for legal sufficiency under the same standard we apply to jury verdicts. See Green v. Alford , 274 S.W.3d 5, 23 (Tex.App.–Houston [14th Dist.] 2008, pet. denied) (op. on reh'g en banc) (citing Ortiz v. Jones , 917 S.W.2d 770, 772 (Tex.1996) (per curiam)). When analyzing the legal sufficiency of the evidence, we review the record in the light most favorable to the challenged finding, crediting favorable evidence if a reasonable factfinder could and disregarding contrary evidence unless a reasonable factfinder could not. See City of Keller v. Wilson , 168 S.W.3d 802, 827 (Tex.2005). Evidence is legally sufficient if it "rises to a level that would enable reasonable and fair-minded people to differ in their conclusions." Ford Motor Co. v. Ridgway , 135 S.W.3d 598, 601 (Tex.2004) (quoting Merrell Dow Pharm., Inc. v. Havner , 953 S.W.2d 706, 711 (Tex.1997) ). We will conclude that the evidence is legally insufficient to support the finding only if (a) there is a complete absence of evidence of a vital fact, (b) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact, (c) the evidence offered to prove a vital fact is no more than a mere scintilla, or (d) the evidence conclusively establishes the opposite of the vital fact. City of Keller , 168 S.W.3d at 810.

IV. CASTEEL ANALYSIS

A judgment is reversible if the trial court made an error of law that probably prevented the appellant from properly presenting the case to the appellate court. TEX. R. APP. P. 44.1(a)(2). One such error occurs when, over a party's objection, the trial court submits to the jury a broad-form liability question incorporating multiple theories of liability, at least one of which is invalid. See Crown Life Ins. Co. v. Casteel , 22 S.W.3d 378, 388 (Tex.2000) (op. on reh'g). The Texas Supreme Court explained why this error can prevent a party from presenting its case on appeal:

It is fundamental to our system of justice that parties have the right to be judged by a jury properly instructed in the law. Yet, when a jury bases a finding of liability on a single broad-form question that commingles invalid theories of liability with valid theories, the appellate court is often unable to determine the effect of this error. The best the court can do is determine that some evidence could have supported the jury's conclusion on a legally valid theory. To hold this error harmless would allow a defendant to be held liable without a judicial determination that a factfinder actually found that the defendant should be held liable on proper, legal grounds.

Id. (citations omitted).

The Texas Supreme Court later expanded the doctrine, applying it to a jury's assessment of damages when the jury was asked to consider damage elements for which there was no support. See Harris County v. Smith , 96 S.W.3d 230, 233 (Tex.2002). As the court explained, "A trial court's error in instructing a jury to consider erroneous matters, whether an invalid liability theory or an unsupported element of damage, prevents the appellant from demonstrating the consequences of the error on appeal." Id.

Although the Casteel line of cases arose in the context of jury trials, the parties have assumed that the same...