Opinion
NO. 03-19-00401-CV
07-23-2020
Appellant, Laura Hampton // Cross-Appellant, Equity Trust Company v. Appellee, Equity Trust Company // Cross-Appellee, Laura Hampton
FROM THE 353RD DISTRICT COURT OF TRAVIS COUNTY
NO. D-1-GN-13-000747 , THE HONORABLE TIM SULAK, JUDGE PRESIDING OPINION
These cross appeals arise from a dispute over allegedly fraudulent investments that Robert Langguth sold to investors in the Austin area. One of those investors, Laura Hampton, sued Equity Trust Company for aiding and abetting Langguth under several theories. A jury found Equity Trust liable for aiding and abetting violations of the Texas Securities Act (TSA), see Tex. Rev. Civ. Stat. art. 581-33(F)(2) (providing that person who "materially aids" another violation of TSA is jointly and severally liable to same extent as primary violator), and common law fraud. The district court rendered judgment on the common-law claim but set aside the verdict on the statutory claim. We will reverse and render a take-nothing judgment on Hampton's common-law claim and affirm the remainder of the judgment.
BACKGROUND
The basic outline of Langguth's securities fraud scheme is undisputed here. In 2002, Langguth started a business making short-term "bridge loans" to real estate investors. The borrowers used the funds to purchase and improve property with the goal of selling it before the loan matured. Beginning in 2005, Langguth sold participation shares in those loans to third-party investors. For example, an investor could pay $25,000 to purchase a 25% participation share in a $100,000 promissory note. The participation share entitled the investor to 25% of the monthly interest payments and the same percentage of the principal on maturity. Langguth represented to his investors that the promissory notes were "fully secured," by which he meant that he held a first lien on each property underlying the note and the loan never exceeded 80% of the property value set by an independent appraiser. Langguth claimed to be so adept at screening borrowers that he never had to foreclose on a note.
We derive our factual description from the evidence and testimony introduced at trial.
Langguth declared bankruptcy in March 2010, and the bankruptcy trustee retained Stephen Roberts as special counsel to examine Langguth's business dealings. Roberts testified at trial that he discovered Langguth was running a Ponzi scheme. The precise details varied with each participation investor, but the notes underlying the participation agreements were essentially worthless. Langguth collected all the funds he received into a single bank account that he used for both his personal expenses and to pay his investors. In 2012, Langguth pled guilty to federal wire fraud and money laundering charges.
"Generically, a Ponzi scheme is a phony investment plan in which monies paid by later investors are used to pay artificially high returns to the initial investors, with the goal of attracting more investors." Janvey v. Golf Channel, Inc., 487 S.W.3d 560, 562 n.3 (Tex. 2016) (quoting In re Bonham, 229 F.3d 750, 759 n.1 (9th Cir. 2000)).
In 2006, Hampton and her husband, Jack, purchased participation shares in seven promissory notes worth a total of $1,050,000. When the Hamptons expressed interest, Langguth encouraged them to open individual retirement accounts at Equity Trust. Equity Trust is a "passive custodian" of self-directed IRAs. That means Equity Trust invests its customers' funds as they direct but does not perform any due diligence or provide any investment advice. Jack testified at trial that an Equity Trust employee confirmed to him and Laura that many of Langguth's clients invested with him through Equity Trust. Hampton and her husband each opened accounts at Equity Trust, but only Jack used his to invest funds with Langguth. Hampton wired the money to Langguth directly.
Hampton and several other investors sued Langguth and Equity Trust for damages in early 2013. Equity Trust answered the suit but Langguth did not. All the plaintiffs but Hampton took a default judgment against Langguth and settled with Equity Trust, leaving Hampton as the sole plaintiff. Hampton's claims against Langguth and Equity Trust proceeded to trial in January 2019. Hampton asserted causes of action against Langguth for selling a security by means of an untrue statement or material omission of fact, see Tex. Rev. Civ. Stat. art. 581-33(A)(2), and common-law fraud. She asserted that Equity Trust was liable for, as relevant here, aiding and abetting Langguth's violations of the TSA, see id. art. 581-33(F)(2), and his common-law fraud.
After the close of evidence, the district court granted a no-answer default judgment against Langguth and charged the jury on Hampton's claims against Equity Trust. The jury found for Hampton on both theories and determined that Equity Trust was 15% liable for Hampton's damages. Equity Trust timely moved for judgment notwithstanding the verdict. The district court set aside the TSA claim but rendered judgment on the common-law aiding-and-abetting claim and awarded Hampton damages. These cross-appeals ensued.
COMMON-LAW AIDING AND ABETTING
Equity Trust argues that Texas does not recognize a common-law cause of action for aiding and abetting. We begin with this question because "[a]bsent legislative or supreme court recognition of the existence of a cause of action, we, as an intermediate appellate court, will not be the first to do so." Anderson v. Archer, 490 S.W.3d 175, 177 (Tex. App.—Austin 2016), aff'd sub nom Archer v. Anderson, 556 S.W.3d 228 (Tex. 2018). Hampton alleges in her live petition that Equity Trust "knowingly aided and abetted Robert Langguth's fraud" and that, "[t]o the extent necessary, Plaintiff invokes the doctrine set forth in Restatement (Second) of Torts § 876." Hampton stresses the "to the extent necessary" language and argues that we can affirm without deciding whether Texas recognizes section 876. In the alternative, she argues that we should recognize a cause of action based on section 876 of the Restatement of Torts.
Hampton initially argues that "[c]ivil liability for aiding and abetting fraud has been part of Texas jurisprudence since at least 1930." As exemplars, she cites Crisp v. Southwest Bancshares Leasing Co., 586 S.W.2d 610, 614-15 (Tex. App.—Amarillo 1979, writ ref'd n.r.e.), and King v. Shawver, 30 S.W.2d 930, 932 (Tex. App.—Fort Worth 1930, no writ). In both cases, the plaintiff alleged that multiple defendants worked together to carry out the fraud and that one or more defendants "aided and abetted" the actions of another. See Crisp, 586 S.W.2d at 612 (describing allegation that Crisp Equipment knowingly participated in transaction to help co-defendant defraud leasing company); King, 30 S.W.2d at 930-31 (alleging that King aided and abetted another defendant in selling fraudulent bonds by attesting to truth of his codefendant's statements). Despite the terminology employed, there is no mention that the plaintiffs alleged a distinct cause of action against the aiding-and-abetting defendants. Instead, each plaintiff alleged—and each jury found—that the defendants all contributed to the injury and were therefore responsible for the damages. Cf. Sky View at Las Palmas, LLC v. Mendez, 555 S.W.3d 101, 106-07 (Tex. 2018) (discussing law governing liability of multiple tortfeasors who contribute to single injury). Neither case reflects that Texas law recognizes a distinct cause of action for aiding and abetting.
We next consider whether Texas has adopted section 876 of the Restatement of Torts. That section states that a person can be held liable for the conduct of another that causes harm if the defendant:
(a) does a tortious act in concert with the other or pursuant to a common design with him, orRestatement (Second) of Torts § 876 (1979). In 1996, the Supreme Court of Texas declined to adopt section 876 and cautioned that "whether such a theory of liability is recognized in Texas is an open question." Juhl v. Airington, 936 S.W.2d 640, 643 (Tex. 1996). The Court has yet to answer that question. See First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 224 (Tex. 2017) (reiterating that "this Court has not expressly decided whether Texas recognizes a cause of action for aiding and abetting"); Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 930 n.28 (Tex. 2010) (declining to decide whether cause of action exists because plaintiff failed to provide sufficient evidence); Ernst & Young, L.L.P. v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 583 n.7 (Tex. 2001) (same).
(b) knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself, or
(c) gives substantial assistance to the other in accomplishing a tortious result and his own conduct, separately considered, constitutes a breach of duty to the third person.
Hampton concedes that the Supreme Court of Texas has yet to formally recognize a cause of action for aiding and abetting and invites us to do so here. Our precedent dictates that this Court should not recognize a new cause of action "in the first instance." Anderson, 490 S.W.3d at 177. Instead, we defer to the Legislature or the Supreme Court of Texas to determine whether creation of a new cause of action is justified. See Kinsel v. Lindsey, 526 S.W.3d 411, 423 (Tex. 2017) (noting that absent "explicit legislative action, the question of whether [a] tort should exist under Texas law is ours to answer"); Anderson, 490 S.W.3d at 179 (observing that recognizing new cause of action "raise[s] a litany of questions regarding the contours and scope of the cause of action—questions that should properly be resolved by the Legislature or Texas Supreme Court first."). In the absence of recognition by the Supreme Court of Texas or the Legislature, we conclude that a common-law cause of action for aiding and abetting does not exist in Texas. See Anderson, 490 S.W.3d at 177 (declining to recognize new cause of action for interference with inheritance rights); Texas Dep't of Pub. Safety v. Cox Texas Newspapers, 287 S.W.3d 390, 394-95, 398 (Tex. App.—Austin 2009) (declining to recognize proposed expansion of common-law and constitutional privacy exceptions to mandatory disclosure under Public Information Act), rev'd on other grounds, 343 S.W.3d 112, 120 (Tex. 2011) (adopting proposed exceptions).
Hampton does not suggest that the Legislature has codified section 876 into law.
Hampton argues that we would not be the first to recognize this cause of action and directs us to decisions from our sister courts that adjudicated aiding-and-abetting claims. Even though some our sister courts do not share this Court's view that intermediate courts should not recognize new causes of action, they have not recognized one based on section 876. Instead, those courts disposed of such claims on other grounds. E.g. Jessen v. Duvall, No. 14-16-00869-CV, 2018 WL 1004659, at *7-8 (Tex. App.—Houston [14th Dist.] Feb. 22, 2018, no pet.) (mem. op.) (concluding insufficient evidence supported judgment for plaintiff). The only intermediate courts to consider the issue have declined to recognize a cause of action based on section 876 of the Restatement. See AmWins Specialty Auto, Inc. v. Cabral, 582 S.W.3d 602, 611 (Tex. App.—Eastland 2019, no pet.) ("In light of the supreme court cases addressing the subject, we decline to adopt aiding and abetting as an independent cause of action."); Solis v. S.V.Z., 566 S.W.3d 82, 103 (Tex. App.—Houston [14th Dist.] 2018, pet. filed) (concluding "that this case does not warrant an extension of existing law").
We sustain Equity Trust's issue. We do not reach Equity's remaining arguments challenging the aiding-and-abetting finding or Hampton's challenge to the apportionment of liability on that finding. See Tex. R. App. P. 47.1 ("The court of appeals must hand down a written opinion that is as brief as practicable but that addresses every issue raised and necessary to final disposition of the appeal.").
TSA CLAIM
We now consider Hampton's argument that the district court erred by setting aside the jury finding on the TSA claim. A trial court may render judgment notwithstanding the verdict when a directed verdict would have been proper. Tex. R. Civ. P. 301. A directed verdict is proper when the evidence is such that reasonable jurors could reach only one conclusion, Barrow-Shaver Resources Co. v. Carrizo Oil & Gas, 590 S.W.3d 471, 480 (Tex. 2019), or when a legal principle precludes recovery, Zarate v. Rodriguez, 542 S.W.3d 26, 35 (Tex. App.—Houston [14th Dist.] 2017, pet. denied).
Equity Trust moved for judgment notwithstanding the verdict on the grounds of insufficient evidence and that the TSA's statutes of limitations and repose barred Hampton's claim. The district court granted the motion without explaining its reasons. When a court grants judgment notwithstanding the verdict without specifying its reasons, the nonmovant has the burden to show "that the judgment cannot be sustained on any of the grounds stated in the motion." Fort Bend Cty. Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex. 1991). Equity Trust contends that Hampton failed to carry this burden because she did not address Equity's limitations argument until her reply brief filed in this Court. An appellant's opening brief "must state concisely all issues or points presented for review." See Tex. R. App. P. 38.1(f); Rohrmoos Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469, 480-81 (Tex. 2019). Our procedural rules "do not allow an appellant to include in a reply brief a new issue in response to some matter pointed out in the appellee's brief but not raised by appellant's original brief." See In re Commitment of Gipson, 580 S.W.3d 476, 488-89 n.6 (Tex. App.—Austin 2019, no pet.) (quoting Howell v. Texas Workers' Comp. Comm'n, 143 S.W.3d 416, 439 (Tex. App.—Austin 2004, pet. denied)). We conclude that Hampton waived her challenge to the merits of Equity's limitations ground by not including it in her opening brief. See Brooks v. Mass Mktg., Ltd., No. 03-07-00658-CV, 2010 WL 1404739, at *2 & n.2 (Tex. App.—Austin Apr. 6, 2010, pet. denied) (mem. op.) (holding appellant "waived his right to question" two grounds in motion for judgment notwithstanding verdict by failing to address them in opening brief).
Hampton responds that there was no need for her to address Equity Trust's limitations argument because the judgment shows on its face that limitations cannot support the judgment notwithstanding the verdict. In interpreting a judgment, our goal is "to determine not what the trial court should have done but, if possible, what the court actually did." Shanks v. Treadway, 110 S.W.3d 444, 447 (Tex. 2003). We begin with the "text of the judgment as written and, if it is unambiguous, we must give effect to the literal language used." In re Piatt Servs. Int'l, Inc., 493 S.W.3d 276, 281 (Tex. App.—Austin 2016, orig. proceeding [mand. denied]). If the judgment is ambiguous, we may look to the record for aid in interpreting it. Id. In either case, we construe the judgment "to harmonize and give effect to the entire decree." Shanks, 110 S.W.3d at 447.
The judgment here recites: "Judgment for [Hampton] against Langguth for violations of the Texas Securities Act" and "Judgment for Equity Trust on [Hampton's claims against Equity Trust related to the Texas Securities Act." Hampton contends that rendering judgment against Langguth constitutes an implied rejection of Equity Trust's limitations ground. Cf. Lenz v. Lenz, 79 S.W.3d 10, 13 (Tex. 2002) (holding trial court implicitly granted motion to set aside verdict by rendering judgment inconsistent with jury's finding). She reasons that "if the TSA claim was timely as to Langguth (for primary liability), as the trial court obviously concluded, then it was timely as to Equity Trust (for secondary liability)" because both of her TSA claims arose from the same facts. A contrary ruling, she contends, makes the district court's actions irreconcilable.
We disagree. Hampton presumes that the district court could not have rendered judgment for her against Langguth or Equity Trust unless it found that the TSA's statute of limitations does not bar either claim. This argument overlooks that, as an affirmative defense, a party must properly raise the statute of limitations to rely on it. See Tex. R. Civ. P. 94. Specifically, a defendant "bears the initial burden to plead, prove, and secure findings to sustain its plea of limitations." Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 517 (Tex. 1988). A party who fails to properly raise an affirmative defense "cannot rely on the defense as a bar to liability." Zorrilla v. Aypco Constr. II, LLC, 469 S.W.3d 143, 155 (Tex. 2015) (citing MAN Engines & Components, Inc. v. Shows, 434 S.W.3d 132, 136 (Tex. 2014)). Langguth's failure to file a pleading or appear at trial means the statute of limitations was no "bar to liability." See Khoury v. Tomlinson, 518 S.W.3d 568, 583 (Tex. App.—Houston [1st Dist.] 2017, no pet.) ("A party waives the affirmative defense of statute of limitations if it is not pleaded or tried by consent." (quoting Frazier v. Havens, 102 S.W.3d 406, 411 (Tex. App.—Houston [14th Dist.] 2003, no pet.))). On the other hand, Equity Trust pled limitations as an affirmative defense and reasserted it in a timely motion for judgment notwithstanding the verdict. On this record, there is no contradiction in rendering judgment against Langguth but for Equity Trust on Hampton's TSA claim.
This would not necessarily be true if Hampton were required to prove that she filed suit within article 581-33(H)'s time limits. Until oral argument, both parties consistently treated article 581-33(H) as an affirmative defense that Equity Trust had the burden to prove. Cf. Zorrilla, 469 S.W.3d at 156 (explaining that limitations constitutes affirmative defense "because limitations defeats the plaintiff's claim without regard to the truth of the plaintiff's assertions," and "the burden of proof is on the defendant to present sufficient evidence to establish the defense and obtain the requisite jury findings"). For example, Hampton asked the district court to deny Equity Trust summary judgment on limitations because Equity Trust had failed to carry its burden to "conclusively establish all elements of that affirmative defense." (Emphasis added). At oral argument, Hampton asserted for the first time that limitations cannot support the judgment because she had the burden to prove that she filed suit within article 581-33(H)'s time limits. If she is correct, then proving compliance with article 581-33(H) is an element of the statutory cause of action rather than an affirmative defense. See Teal Trading & Dev., LP v. Champee Springs Ranches Prop. Owners Ass'n, 593 S.W.3d 324, 333 (Tex. 2020) ("'The hallmark characteristic' of an affirmative defense 'is that the burden of proof is on the defendant to present sufficient evidence to establish the defense and obtain the requisite . . . findings.'" (quoting Zorrilla, 469 S.W.3d at 156)). This Court has not been entirely consistent in our interpretation of article 581-33(H). Compare Shields v. State, 27 S.W.3d 267, 274-75 (Tex. App.—Austin 2000, no pet.) (construing article 581-33(H)'s time limits as "an element of the statutory cause of action itself" that "is not considered to be a statute of limitations"), with Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc., 559 S.W.3d 537, 553 (Tex. App.—Austin 2011) (enumerating elements of TSA cause of action without mentioning article 581-33(H)'s time limits), judgment withdrawn, appeal dismissed, No. 03-09-00566-CV, 2014 WL 5801862 (Tex. App.—Austin Nov. 5, 2014, no pet.) (mem. op.); Goldstein v. Mortenson, 113 S.W.3d 769, 776 (Tex. App.—Austin 2003, no pet.) (same).
Article 581-33(H) states, in relevant part, that no person may bring suit over a fraudulent sale of securities "more than three years after discovery of the untruth or omission, or after discovery should have been made by the exercise of reasonable diligence." Tex. Rev. Civ. Stat. art. 581-33(H)(2)(a).
Reconciling any conflict in these cases is unnecessary because even if Hampton did bear the burden of proof, the district court's judgment does not necessarily imply a rejection of Equity Trust's limitations argument. The record reflects that Langguth did not file a pleading or appear for trial, which makes the judgment against him a no-answer default judgment. A plaintiff may take a default judgment against the defendant any time after the defendant's deadline to answer "if the defendant has not previously filed an answer and the citation with proof of service has been on file with the clerk of the court for at least ten days." In re J.M.H., 414 S.W.3d 860, 861-62 (Tex. App.—Houston [1st Dist.] 2013, no pet.) (citing Tex. R. Civ. P. 107, 239). That Hampton chose to wait until the close of evidence to take judgment against Langguth does nothing to change the substance of the judgment. Cf. Shanks, 110 S.W.3d at 447 (noting that goal in interpreting judgment is "to determine not what the trial court should have done but, if possible, what the court actually did."). The defendant in a no-answer default "is said to have admitted both the truth of facts set out in the petition and the defendant's liability on any cause of action properly alleged by those facts." Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177, 183 (Tex. 2012); see Dolgencorp of Tex., Inc. v. Lerma, 288 S.W.3d 922, 930 (Tex. 2009) (per curiam) (noting that "[i]n cases of no-answer default . . . a defaulting defendant admits all facts properly pled in the plaintiff's petition except for the amount of unliquidated damages." (citing Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 83 (Tex. 1992))). The judgment thus constitutes an admission by Langguth of the truth of Hampton's allegations and that he is liable on any cause of action properly pled by those facts. However, entering judgment does not mean that the district court necessarily agreed that Hampton timely filed suit within the limitations period. Once a defendant fails to answer, the trial court shall enter a default judgment on the plaintiff's claim unless the petition "affirmatively discloses the invalidity of such claim." See Paramount Pipe & Supply Co. v. Muhr, 749 S.W.2d 491, 494 (Tex. 1988); Stoner v. Thompson, 578 S.W.2d 679, 685 (Tex. 1979). The most we can infer from the judgment is that the district court concluded her pleading does not conclusively demonstrate she filed suit outside the limitations period.
In sum, even if Hampton is correct that she bore the burden to prove limitations, we cannot infer from the judgment that the district court rejected Equity Trust's limitation's ground. Without that inference, we conclude that Hampton failed to carry her burden to show "that the judgment cannot be sustained on any of the grounds stated in the motion." See Fort Bend Cty. Drainage Dist., 818 S.W.2d at 394. We therefore affirm the judgment for Equity Trust on the ground of limitations regardless of whether Hampton or Equity Trust bore the burden of proof. See id.; Brooks, 2010 WL 1404739, at *2 & n.2. We overrule Hampton's appellate issues.
CONCLUSION
For the reasons stated herein, we reverse the judgment on the common-law aiding-and-abetting claim and render judgment that Hampton take nothing. We affirm the remainder of the judgment.
/s/_________
Edward Smith, Justice Before Justices Goodwin, Kelly, and Smith Affirmed in Part; Reversed and Rendered in Part Filed: July 23, 2020