Rick Dhanani, Amirali Zakirall and Software Consulting Group, Inc. v. Ms. Russell Giles and Waco Games and Amusements, Inc.--Appeal from 170th District Court of McLennan County

IN THE

TENTH COURT OF APPEALS

No. 10-07-00144-CV

Rick Dhanani, Amirali ZakiralI, and

Software Consulting Group, Inc.,

Appellants

v.

Russell Giles and Waco Games

and Amusements, Inc.,

Appellees

From the 170th District Court

McLennan County, Texas

Trial Court No. 2007-4366-4

MEMORANDUM Opinion

Russell Giles and Waco Games and Amusements, Inc. sued Rick Dhanani, Amirali Zakirali, and Software Consulting Group, Inc. for breach of contract, fraud, and conversion. After a bench trial, the trial court found in Giles s favor and awarded damages. On appeal, Dhanani and Zakirali challenge: (1) Giles s entitlement to damages; (2) the legal and factually sufficiency of the evidence (three issues); and (3) the denial of their motion for new trial (two issues). We affirm.

FACTUAL BACKGROUND

Giles, sole shareholder and president of Waco Games, owned the Lucky Lady and Western Touch game rooms. When she decided to sell the game rooms, Dhanani and Zakirali approached her about purchasing the business.[1] Several telephone conversations followed. Giles and one of her then employees, Lucille Anderson, met with Dhanani and Zakirali at a local restaurant to discuss a sale. According to Giles, Dhanani and Zakirali introduced themselves as partners and agreed to purchase the business and assets for $65,000. Anderson confirmed this agreement. The parties agreed that attorney Fred Brown would draft the purchase documents.

Giles testified that Dhanani and Zakirali later visited the game rooms to inspect the gaming machines. Dhanani told Giles that they were get[ting] the money together. Zakirali delivered a $10,000 cashier s check to Giles and promised to sign the purchase documents. Zakirali assumed operations of the businesses.

Brown prepared a purchase agreement, bill of sale, and personal guarantees to be signed by Dhanani and Zakirali. He prepared the documents in accordance with what he thought Giles wanted. At some point, however, Dhanani indicated to Giles that he and Zakirali did not intend to sign any documents or make further payments. He told Giles that he and Zakirali were in business together. Although the purchase agreement was drafted with Software Consulting as the purchaser, Giles believed that Dhanani and Zakirali were the purchasers. Until she saw the contract, Giles was unaware that Software Consulting existed. When these documents were never signed and no further payments were made, Giles filed suit.

LEGAL AND FACTUAL SUFFICIENCY

Dhanani, Zakirali, and Software Consulting bring several legal and factual sufficiency challenges to the trial court s award of damages for breach of contract.

Standard of Review

Under a legal sufficiency challenge, we consider whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). We must credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not. Id. This standard also applies to a court s findings made in a bench trial. See Bank of Am. v. Hubler, 211 S.W.3d 859, 862 (Tex. App Waco 2006, pet. granted, judgm t vacated w.r.m.); see also Ludwig v. Encore Med., L.P., 191 S.W.3d 285, 294 (Tex. App. Austin 2006, pet. denied); Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994).

A factual sufficiency challenge to issues on which the appellant did not bear the burden of proof requires us to consider and weigh all of the evidence. Checker Bag Co. v. Washington, 27 S.W.3d 625, 633 (Tex. App. Waco 2000, pet. denied). We may not pass upon the witnesses credibility or substitute our judgment for that of the jury, even if the evidence would clearly support a different result. Id. We will reverse the verdict only if it is so contrary to the overwhelming weight of the evidence that the verdict is clearly wrong and unjust. Id. Reversal can occur because the finding was based on weak or insufficient evidence or because the proponent s proof, although adequate if taken alone, is overwhelmed by the opponent s contrary proof. Id.

Analysis

In issues two and three, Dhanani, Zakirali, and Software Consulting contend that the evidence is legally and factually insufficient because Dhanani was not identified as a purchaser in the written agreement, which cannot now be modified and so did not enter an enforceable agreement with Giles and Waco Games. Thus, in issue four, they challenge the denial of their motion for new trial, alleging that there is no evidence that Dhanani breached an enforceable agreement with Giles and Waco Games.

As a general rule, contract damages may not be obtained from a person who was not a party to the contract. Cox Tex. Newspapers L.P. v. Wootten, 59 S.W.3d 717, 723 (Tex. App. Austin 2001, pet. denied) (citing Bernard Johnson, Inc. v. Cont l Constructors, Inc., 630 S.W.2d 365, 369 (Tex. App. Austin 1982, writ ref d n.r.e.)); see C & A Invs. v. Bonnet Res. Corp., 959 S.W.2d 258, 262 (Tex. App. Dallas 1997, writ denied).

Zakirali and Dhanani testified that Dhanani was not part of the transaction and did not intend to be involved. According to Zakirali, Dhanani had purchased gaming machines in the past and attended the meeting to help Zakirali make a decision. He denied representing that Dhanani would be buying the business. Dhanani testified that he attended the meeting as a reference for Zakirali. Although he has done business with Zakirali both before and after the transaction, Dhanani has not operated any game rooms either with or without Zakirali. He has bought and sold gaming machines.

Zakirali inspected the machines at Lucky Lady and Western Touch, but Dhanani denied visiting either game room, meeting with employees of either game room, or reviewing inventories prepared by Giles and Anderson. He admitted writing the check for the down payment, but testified that, as a condition of community supervision, Zakirali was not allowed to write checks and asked Dhanani to write the check on his behalf. He did not see the agreement until after suit was filed, was unaware of the need to review any documents, and did not expect to sign any documents; thus, he never consulted his attorney. Zakirali also testified that he did not see the agreement until after suit was filed and that the agreement is not accurate.

Giles s trial counsel testified that he sent a letter to Dhanani and Zakirali on Giles s behalf. Dhanani came to his office and claimed that some of the gaming machines needed repairs. He and Zakirali offered $35,000 to satisfy the balance owed. Dhanani did not deny being part of the transaction. Dhanani testified that he was at the office for reasons unrelated to the law suit. However, because Zakirali was having problems with Giles, Dhanani offered to help resolve the problems. He never represented himself as Zakirali s partner or as owner of the business.

Zakirali admitted that his responses to Giles s request for disclosure, stating that neither Dhanani nor Zakirali gave a personal guarantee, indicate that Dhanani had some involvement in the transaction. Moreover, he was recently charged with engaging in organized criminal activity after one of his game rooms, not Lucky Lady or Western Touch, was raided. Dhanani also admitted being charged with and pleading to a similar charge of engaging in organized criminal activity. He claimed that he had leased some gaming machines to Zakirali and that Zakirali would have gone to jail had Dhanani not pleaded.

The record contains conflicting evidence as to whether Dhanani was a party to the agreement. Nevertheless, [i]n a bench trial, it is for the court, as trier of fact, to judge the witnesses, to assign the weight to be given their testimony, and to resolve any conflicts or inconsistencies in the testimony. LaCroix v. Simpson, 148 S.W.3d 731, 734 (Tex. App. Dallas 2004, no pet.). Because the record contains some evidence that Dhanani was a party to the agreement to purchase the business and assets of Lucky Lady and Western Touch from Giles, we cannot say that the evidence is legally and factually insufficient. For this reason, the trial court did not abuse its discretion by denying Dhanani s, Zakirali s, and Software Consulting s motion for new trial. See Dir., State Employees Workers Comp. Div. v. Evans, 889 S.W.2d 266, 268 (Tex. 1994) (denial of motion for new trial is reviewed for abuse of discretion).

Because Dhanani is liable as a party to the contract, we need not discuss either his fifth issue addressing whether he is liable as a guarantor or his sixth issue challenging the denial of his motion for new trial on this basis. See Tex. R. App. P. 47.1.

DAMAGES

In issue one, Dhanani, Zakirali, and Software Consulting contend that Giles and Waco Games were not entitled to recover damages for fraud and conversion because the only evidence of damages arises out of the alleged contract.

Under the [independent injury] rule, if the defendant s conduct would give rise to liability independent of the fact that a contract exists between the parties, the plaintiff s claim may sound in both tort and contract, but if the defendant s conduct would give rise to liability only because it breaches the parties agreement, the plaintiff s claim ordinarily sounds only in contract. Exxon Mobil Corp. v. Kinder Morgan Operating L.P., 192 S.W.3d 120, 126-27 (Tex. App. Houston [14th Dist.] 2006, no pet.) (citing Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991)). The nature of the injury most often determines which duty or duties are breached. Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). We look to the substance of the cause of action and not necessarily the manner in which it was pleaded. Id. at 617-18.

Fraud

With regard to her fraud claim, Giles alleged:

Additionally, the acts and omissions of Defendants Dhanani and Zakirali, individually and on behalf of Defendant Software, in representing to Plaintiffs that they would personally guarantee the agreements and fulfill their obligations under the agreements when they, in fact, had no intention of doing so, constituted fraud upon Plaintiffs. Defendants made false, material representations to Plaintiffs with the intent that Plaintiffs rely on said representations and enter into the agreements, which Plaintiffs did.

Giles appears to have pleaded a claim for fraudulent inducement. See Haase v. Glazner, 62 S.W.3d 795, 798-99 (Tex. 2001) ( with a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties ); see also Fletcher v. Edwards, 26 S.W.3d 66, 77 (Tex. App. Waco 2000, pet. denied) (fraudulent inducement is established by: (1) a material misrepresentation; (2) which was false; (3) which was known to be false when made or was made recklessly as a positive assertion without knowledge of its truth; (4) which was intended to be acted upon; (5) which was relied upon; and (5) which caused injury).

The independent injury requirement does not apply to a fraudulent inducement claim. See Formosa Plastics Corp. USA v. Presidio Eng rs. & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998) ( tort damages are recoverable for a fraudulent inducement claim irrespective of whether the fraudulent representations are later subsumed in a contract or whether the plaintiff only suffers an economic loss related to the subject matter of the contract ).

Conversion

Giles s breach of contract and conversion claims are based on the same factual scenario, namely Dhanani s and Zakirali s failure to sign the purchase agreement and failure to make payments. Cessna Aircraft Co. v. Aircraft Network, L.L.C., 213 S.W.3d 455, 467 (Tex. App. Dallas 2006, pet. denied). Giles alleged that Dhanani and Zakirali unlawfully and without proper authority assumed dominion and control over Plaintiffs property to the exclusion of Plaintiffs rights in said property. However, these assertions amount to nothing more than a complaint regarding Dhanani s and Zakirali sfailure to comply with the agreement and their actions contrary to these representations result only in a breach of contract. Frost Nat l Bank v. Heafner, 12 S.W.3d 104, 111-12 (Tex. App. Houston [1st Dist.] 1999, pet. denied). Had documents been signed and payments been made in accordance with the agreement, there would be no breach of contract and, consequently, no dispute. See Agillion, Inc. v. Oliver, 114 S.W.3d 86, 91 (Tex. App. Austin 2003, no pet.).

Accordingly, Giles s conversion claim sounds in contract alone and establishes no injury independent of her contract claim. See Exxon Mobil, 192 S.W.3d at 128-29; see also Tarrant County Hosp. Dist. v. GE Automation Servs., 156 S.W.3d 885, 896 (Tex. App. Fort Worth 2005, no pet.).

However, the trial court awarded $55,000 in actual damages to Giles and Waco Games. This amount signifies the difference between the $65,000 purchase price and the $10,000 down payment, placing Giles and Waco Games in the same position as they would have been had the agreement not been breached. See Bowen v. Robinson, 227 S.W.3d 86, 96 (Tex. App. Houston [1st Dist.] 2006, pet. denied) ( the normal measure of damages is just compensation for the loss or damage actually sustained, commonly referred to as the benefit of the bargain ). Accordingly, there is no indication of a double recovery in this case. See Waite Hill Servs. v. World Class Metal Works, 959 S.W.2d 182, 184 (Tex. 1998) (per curiam) ( A double recovery exists when a plaintiff obtains more than one recovery for the same injury ). We overrule issue one.

The judgment is affirmed.

FELIPE REYNA

Justice

Before Chief Justice Gray,

Justice Vance, and

Justice Reyna

Affirmed

Opinion delivered and filed May 28, 2008

[CV06]

[1] Dhanani and Zakirali are brothers.