Opinion
No. 07-18-00338-CV
07-21-2020
SOURCE 4 VALUE, APPELLANT v. JONATHAN HOELZER AND SETH LOWERY D/B/A INTERLOCK EVENTS, APPELLEES
On Appeal from the 237th District Court Lubbock County, Texas
Trial Court No. 2016-520,798; Honorable Mackey K. Hancock, Presiding
Senior Justice, retired, sitting by assignment.
MEMORANDUM OPINION
Before PIRTLE, PARKER and DOSS, JJ.
Appellant, Source 4 Value, appeals from the trial court's final judgment rendered in favor of Appellees, Jonathan Hoelzer and Seth Lowery, d/b/a Interlock Events, in their underlying suit for fraud. By a sole issue, Source 4 Value contends there is no evidence to prove it had prior knowledge of the fraud and should not be held liable as a beneficiary of the fraud. (Emphasis added). We affirm the judgment of the trial court.
BACKGROUND
In 2015, college business student Jonathan Hoelzer and his friend Seth Lowery created Interlock Events to promote concerts. They had successfully promoted several events in the Lubbock area. On August 14, 2015, they began email communications with bookraesremmurd@gmail.com <bookreasremmurd@gmail.com> to negotiate booking a concert in Lubbock for Rae Sremmurd, a hip-hop duo. They believed they were communicating with Jeremy "Migo the Plug" Ellis, the duo's business manager. After several email communications, on August 18, 2015, the parties agreed to a concert date on September 25, 2015, for a fee of $30,000, with $15,000 immediately due as a down payment. The contract provided the following bank information for the deposit of the down payment:
Rae Sremmurd is drummer's ear spelled backwards.
The second email address transposes the "ae" in rae to "ea." Hoelzer testified that he obtained the email address from the duo's website and from Instagram.
BANK INFORMATION
Bank Name: Bank of America
Account Name: Libra Ventures Inc.
Account Number: 004465575147
Routing Number: 026009593
On August 20, 2015, Lowery received an email that asked, "[w]hen is the payment being made?" The next email on the chain dated August 24, 2015, modifies the contract regarding payment of the deposit as follows:
New bank information for cash deposit.The bank and routing number remained the same; however, the account number was different, and the beneficiary changed from Libra Ventures Inc. to Source 4 Value.
Bank Name: Bank of America
Beneficiary Name: Source 4 Value
Account Number: 003811560079
Routing Number: 026009593
On August 25, 2015, Hoelzer received a text message requesting that he send a photograph of the deposit slip "[a]s soon as deposit is made." That same day, Hoelzer transferred $15,000 from his Bank of America account into Source 4 Value's Bank of America account, as instructed. Immediately after making the transfer of funds, Hoelzer placed the deposit slip on the console of his car and photographed it. He sent the photograph to the sender of the text message with a request for a receipt to confirm the money had been received. Lowery simultaneously sent an email to the duo's email address also confirming the deposit and requesting a receipt. No confirmation of payment was ever received.
A few days after the transfer of funds, Hoelzer sent a text message to inquire about marketing and promotions for the concert. His message went unanswered and efforts to contact Rae Sremmurd's business manager were unsuccessful. Hoelzer and Lowery then checked Rae Sremmurd's website for its tour calendar and discovered the impending Lubbock concert had not been posted. Hoelzer found contact information for Source 4 Value and then contacted Feeroz Maqsudi, vice president of the company. According to Hoelzer, they engaged in a brief conversation in which Hoelzer asked for the return of the $15,000 deposit. He also sent Source 4 Value emails asking that the the money be returned. Despite his requests, the money was never returned. Hoelzer then contacted a detective with the Lubbock Police Department who suggested he seek legal advice. Hoelzer next reached out to the legal clinic at his university and a demand letter was drafted and sent to Source 4 Value.
Several months passed without any communication and Hoelzer retained an attorney to pursue the matter. By this time, Maqsudi was requesting that Hoelzer prepare and send him a release of any legal obligation. Hoelzer interpreted that request as an offer to have his money returned. A Conditional Waiver and Release Upon Final Payment was drafted and sent to Maqsudi, but it was never signed and returned. According to Maqsudi, he did request "paperwork" from Hoelzer, but never agreed to return the $15,000. A subsequent demand letter was sent to Source 4 Value on February 16, 2016.
Hoelzer and Lowery did not pursue criminal charges. They merely wanted the money returned. When the demand letters and the release did not resolve the matter, Hoelzer and Lowery sued Source 4 Value for fraud, beneficiary of the fraud, conversion, and breach of contract. They sought monetary damages as well as exemplary damages for intentional unjust enrichment. Trial was to a jury. The only witnesses to testify on the merits of the case were Hoelzer and Maqsudi.
Question 1 in the Charge of the Court, which was not objected to, asked the jury to determine the following:
Is Source 4 Value vicariously liable as a beneficiary of the fraud committed against Jonathan Hoelzer and Seth Lowery, doing business as Interlock Events?(Emphasis added). The jury answered, "Yes."
A party may be vicariously liable for the fraudulent act of another if the party benefitted from a fraudulent transaction and had knowledge of the fraud.
"Vicariously liable" means a party may be held legally responsible for the harm caused by another's fraud, even though the party did not directly cause that harm.
Question 2 in the Charge of the Court, asked the jury to determine the following:
Did Source 4 Value commit conversion of the money to the detriment of Interlock Events?Following instructions regarding the definition of "special chattel" and the elements of conversion, the jury again answered, "Yes."
Based on the jury's answers, Source 4 Value filed a Motion for Judgment Non Obstante Veredicto. The trial court granted the motion, in part, as to Question 2 regarding whether Source 4 Value had committed conversion of the money. A Final Judgment on Jury Verdict was then granted, awarding Hoelzer and Lowery $35,000 in actual damages and $40,000 in exemplary damages.
On appeal, Source 4 Value challenges the legal sufficiency of the evidence to support the jury's finding that it had prior knowledge of the fraud. Hoelzer and Lowery posit that Source 4 Value failed to preserve its complaint because the word "prior" was not a part of Question 1 and no objection on that basis was made during the charge conference. They also assert that "prior" knowledge is not required to hold a party vicariously liable as beneficiary of the fraud and neither is active participation in the fraud.
Source 4 Value does not contest the award of exemplary damages.
By its reply brief, Source 4 Value disagrees that it failed to preserve its error because it was not objecting to the omission of a definition of "knowledge." It also argues that knowledge of fraud must necessarily be "gained either prior to or at least during the commission of the fraud" and not after the fraud. We conclude that Source 4 Value preserved its legal sufficiency complaint via its Motion for Judgment Non Obstante Veredicto in which it argued that it had no knowledge of the fraud. See T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 220-221 (Tex. 1992); In re D.J.J., 178 S.W.3d 424, 426-27 (Tex. App.—Fort Worth 2005, no pet.).
STANDARD OF REVIEW
In conducting a legal sufficiency review, we must consider the evidence in the light most favorable to the verdict and indulge every reasonable inference that supports the verdict. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). Evidence will be found to be legally sufficient if it would enable reasonable and fair-minded people to reach the verdict under review. Id. at 827. This test also applies to a complaint that a judgment non obstante veredicto was erroneously denied. Id. at 823. In conducting a legal sufficiency analysis, this court must credit favorable evidence if reasonable jurors could and disregard contrary evidence unless reasonable jurors could not. Id. at 827. The trier of fact is the sole judge of the credibility of the witnesses and of the weight to be given to their testimony. Id. at 819. But if the evidence allows only one inference, neither the trier of fact nor the reviewing court may disregard it. Id. A legal sufficiency challenge may only be sustained when the record discloses (a) a complete absence of evidence of a vital fact, (b) the court is barred by rules of law or of 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 of evidence, or (d) the evidence conclusively establishes the opposite of the vital fact in question. Id. at 810. More than a scintilla of evidence exists when the evidence "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). Evidence does not exceed a scintilla if it is so weak as to do no more than to create a mere surmise or suspicion that the fact exists. Id.
When reviewing the evidence for legal sufficiency, we assume that jurors decided questions of credibility or conflicting evidence in favor of the finding if they reasonably could do so. City of Keller, 168 S.W.3d at 819. We do not substitute our judgment for that of the fact finder if the evidence falls within this zone of reasonable disagreement. Id. at 822.
APPLICABLE LAW
Actionable fraud requires the following elements: (1) that a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. See Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 774 (Tex. 2009) (citing In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001)). However, not all "fraud" is comprehended within the elements of the traditional test. McEwin v. Allstate Tex. Lloyds, 118 S.W.3d 811, 815-16 (Tex. App.—Amarillo 2003, no pet.). The gist of fraud is successfully using cunning, deception, or artifice to cheat another to the other's injury. Id. Fraud is "synonymous with bad-faith overreaching and dishonesty." First State Bank v. Fatheree, 847 S.W.2d 391, 396 (Tex. App.—Amarillo 1993, writ denied) (citing Garcia v. Rutledge, 649 S.W.2d 307, 312 (Tex. App.—Amarillo 1982, no writ)).
Relevant to this proceeding, a third party can be held liable for the misrepresentation of another if the third party benefits from the fraudulent transaction and had knowledge of the fraud. Fatheree, 847 S.W.2d at 396. "It is settled that 'the partaking of benefits of a fraudulent transaction makes the participants principals and liable as such.'" Id. (citations omitted). A third party may also be liable as a beneficiary of fraud by mere silent acquiescence when he benefits from the fraud. In re Arthur Andersen LLP, 121 S.W.3d 471, 481 (Tex. App.—Houston [14th Dist.] 2003, orig. proceeding). Additionally, a third party need not have made representations directly to the defrauded party to be held liable for fraud if that third party reaped the benefits. Id.
ANALYSIS
By its issue sole issue, Source 4 Value disputes that it had prior knowledge of the fraud committed against Hoelzer and Lowery. (Emphasis added). The question presented to the jury was whether Source 4 Value was vicariously liable as a beneficiary of fraud, and the definition of vicarious liability provided included knowledge of the fraud as one of the components of vicarious liability. The word "prior" does not precede knowledge and no objection was made to the question or the definition as presented in the charge.
Maqsudi was called as an adverse witness to testify as a representative for Source 4 Value. He explained that Source 4 Value is a small family-run Delaware corporation that conducts its business in New York and New Jersey and has never been in the business of booking entertainers. The company distributes health, beauty, and personal care products. At one point, its distribution area was in the northeastern United States. More recently, it had ceased its operations in the United States to distribute its products overseas through a smaller business known as Source 4 Africa.
Maqsudi described the company's operations as being similar to bridge financing. The company operates on credit with its customers. Products are shipped overseas from the United States and payment for the shipment is expected within sixty days. If payment is not made, the products are not released to the customer. Maqsudi explained that he depends on an Export-Import Bank of the United States in his business. That bank allows specific customers to pay a $75,000 deposit to guarantee balances on accounts up to that amount with payment expected in sixty days. According to Maqsudi, if one of Source 4 Africa's customers does not pay its balance, the Export-Import Bank pays ninety to ninety-five percent of the balance.
One of Source 4 Africa's regular customers, Radiance C.T. Cosmetics, Ltd. in Lagos, Nigeria, purchased products in July 2015. The shipment was directed to Jika, the likely perpetrator of the fraud. According to an invoice dated July 20, 2015, Jika's account balance was $85,859.16. On August 25, 2015, within hours of Hoelzer's depositing $15,000 into Source 4 Value's account, Maqsudi received an email from Jika. Jika wrote "[p]lease confirm this payment, all in 100 dollars ball [sic]." The photograph of Hoelzer's deposit slip was attached to Jika's email. Maqsudi accepted Hoelzer's $15,000 deposit as payment on Jika's July 20, 2015 invoice.
Jika was sued by Source 4 Value as a third-party defendant but was later dismissed from the case for jurisdictional issues. During trial, the trial court permitted the use of the customer's name but ruled that he could not be referred to in the jury's presence as a third-party defendant because of the dismissal. Evidence established that Jika and Maqsudi were personally acquainted and socialized together.
The photo of the deposit slip was identifiable because it showed the deposit slip was placed on the console of Hoelzer's vehicle.
During his testimony, Maqsudi did not dispute that Hoelzer and Lowery were defrauded. He admitted he kept their money, that a demand for return of the money had been made, and that he refused to return it. In a redacted email introduced into evidence, Maqsudi wrote Hoelzer, "I'm trying to do the best that I can in order to square everyone up . . . At this point I think it's a long shot that one of us doesn't stand to lose money . . . ." His reasoning for keeping the money was that at the time he received the deposit, he believed it was a payment from Jika on his Source 4 Africa account.
The Bank of America deposit slip photographed by Hoelzer showed "Entity NTX" which indicated the transaction occurred in Texas. Maqsudi, who was in charge of all invoices and payments related to Source 4 Value and Source 4 Africa, testified he did not have any customers in Texas and did not conduct business in Texas. He insisted that Hoelzer's deposit was a payment on account from his customer in Nigeria and refused to return it.
During his testimony, Hoelzer reviewed and was questioned about Source 4 Value's financial documents, and other than his deposit slip, no other deposits had been made into Source 4 Value's bank account from a Texas bank. Considering Jika's July 2015 balance of $85,859.16, if Maqsudi had not applied the $15,000 taken from Hoelzer and Lowery, he would not have been able to release the products to Jika because there would have been a balance in excess of the $75,000 credit limit guaranteed by the Export-Import Bank. After Maqsudi applied the $15,000 to Jika's balance, the remainder was paid through the Export-Import Bank.
Maqsudi denied any knowledge of fraud by offering various email addresses used by Source 4 Value. He also denied any association with the email address associated with Rae Sremmurd. He subpoenaed records from Google to support his argument. The origin of the email addresses, however, is irrelevant as Source 4 Value was found liable as a third party beneficiary and not as the direct perpetrator of the emails and the subsequent fraud.
As a beneficiary of fraud, Source 4 Value was not required to directly make a false misrepresentation to be held vicariously liable as a beneficiary of fraud. Source 4 Value acted in bad-faith overreaching by accepting a $15,000 deposit from a Texas branch of Bank of America when it did not have customers in Texas and did not conduct business in Texas. There was no evidence to support that Jika, a Nigerian businessman, would have made a payment on his account from a Texas bank. Maqsudi did not offer any evidence on Jika's past methods of payment. He testified he kept the $15,000 as a payment on Jika's account with Source 4 Value to release the products that had been shipped to Jika's business in Nigeria. According to Maqsudi, without the $15,000 payment, Jika's account balance would have been "far in excess" of the amount secured by the Export-Import Bank and Source 4 Value would not have been able to release its products which would have resulted in a financial loss.
After the incident with Hoelzer and Lowery, in 2016, Maqsudi noticed suspicious deposits were being made into Source 4 Value's account. He contacted the Internet Division of the FBI, which opened an investigation. One deposit that piqued Maqsudi's curiosity was a cash deposit from North Dakota, a state in which he did not conduct business. He also received a $10,000 deposit from a person he did not know that originated from an Amarillo Branch of Wells Fargo Bank. Based on the suspicious deposits, Bank of America closed Source 4 Value's bank account and opened another account. The FBI asked Maqsudi to look at a photographic lineup and he identified his Nigerian customer and decided "[t]his is someone we should avoid" even though there was no proof at the time that the customer had committed fraud. Source 4 Value then ceased doing business with Jika.
Maqsudi testified that he did not keep any of the money from the suspicious deposits because the depositors of those funds contacted him immediately to voice their concerns. Hoelzer testified that when he realized the Rae Sremmurd Lubbock concert had not been posted on its website, he contacted Source 4 Value to express his concern that his deposit had been kept and he received no benefit in exchange. Maqsudi testified that he might have returned the money if Hoelzer "had contacted me like the day of or something and said, 'Hey, I accidentally made a deposit into your account. I think I made it erroneously.'" So, based on Hoelzer's timing of his communication with Source 4 Value, Maqsudi made a conscious choice to keep the funds and emailed Hoelzer that one of them stood "to lose money." Source 4 Value, through Maqsudi's conduct, reaped the benefits of the fraud perpetrated, more than likely, by one of its customers.
There is more than a scintilla of evidence to show that Source 4 Value had knowledge of the fraud committed against Hoelzer and Lowery and that it benefitted financially from the fraud. Although Maqsudi denied he had any prior knowledge of the fraud, as the person in charge of the company's invoices and payments, a reasonable juror could have found that he either knew or should have known to question a deposit from a Texas bank on an account from a customer in Nigeria. See Compton v. Sesso, No. 03-04-00625-CV, 2006 Tex. App. LEXIS 6322, at *18-19 (Tex. App.—Austin July 21, 2006, no pet.) (mem. op.) (finding a third party liable after he silently acquiesced and accepted benefits of a fraud for months). Despite this, Maqsudi did not offer any history of Jika's usual method of payment other than to suggest that Jika would not have personally made deposits because he is a foreign national.
Relying on section 2.403(a)(4) of the Texas Business and Commerce Code and NXCESS Motor Cars, Inc. v. JPMorgan Chase Bank, N.A., 317 S.W.3d 462, 468 (Tex. App.—Houston [1st Dist.] 2010, pet. denied), Source 4 Value asserts it was entitled to keep the $15,000 and was not liable as a beneficiary of fraud because it acquired knowledge of the fraud after its commission. Section 2.403(a)(2) applies to purchasers of goods and Source 4 Value was not a buyer in the ordinary course of business who purchased any goods from Hoelzer and Lowery. TEX. BUS. & COM. CODE ANN. § 2.403(a)(2) (West 2009). We find Source 4 Value's argument inapposite.
The jury was asked to determine whether Source 4 Value was vicariously liable as a beneficiary of fraud committed against Interlock Events, and part of the definition of vicarious liability provided in the charge was whether the party who benefitted "had knowledge of the fraud." Measuring the sufficiency of the evidence on Question 1, as submitted to the jury, and declining to substitute our judgment for that of the jury, we find the evidence presented enabled reasonable and fair-minded people to conclude Interlock Events was defrauded, that Source 4 value benefitted from that fraud, and that Source 4 Value had knowledge of the fraud. Thus, because more than a scintilla of evidence supports a finding that Source 4 Value had knowledge of the fraud, we conclude the evidence is legally sufficient to support the jury's answer to Question 1. Accordingly, Source 4 Value's sole issue is overruled.
CONCLUSION
The trial court's judgment is affirmed.
Patrick A. Pirtle
Justice