412 S.W.3d 749
Tex. App.2013Background
- Pawan Grover (and his companies PAV Entertainment and 87 Minutes) wrote and owned a screenplay for the film "97 Minutes" and obtained key talent commitments (including William Hurt).
- Grover and Sutapa Ghosh (Cinemawalla, which had a contract with San Luis Cine in Argentina) formed an LLC, Cinemawalla 97 Minutes, to produce the film; they made an oral agreement about capital contributions and use of $4 million in escrow held by San Luis Cine.
- Under the oral deal, Grover/87 Minutes would contribute screenplay rights, talent commitments, and $1,000,000 (cash and credits); Ghosh/Cinemawalla would cause San Luis Cine to release ~$4 million for production.
- Money from 87 Minutes was deposited into the LLC account and spent on preproduction (plane, payments to director/DP, portion of Hurt’s fee); Ghosh wrote checks to herself ($50,200 and $2,000) from the LLC account.
- Appellees sued for breach of contract, conversion, and fraud; a jury awarded damages on all claims and exemplary damages; on appeal the court reviewed statute-of-frauds, conversion standing, reliance, and damages measures.
Issues
| Issue | Plaintiff's Argument (Grover/PAV/87) | Defendant's Argument (Ghosh/Cinemawalla) | Held |
|---|---|---|---|
| Whether statute of frauds bars enforcement of oral promise to contribute funds to LLC | Oral promise did not directly promise contribution to the LLC; appellants were to cause release of escrow to Cinemawalla, not directly to LLC | Promise required by Tex. Bus. Org. Code §101.151 to be in writing if it was a contribution to the LLC | Reversed for breach: agreement was a promise to contribute to the LLC and is unenforceable under statute of frauds; judgment rendered that plaintiffs take nothing on breach claim |
| Sufficiency of evidence for conversion (ownership/entitlement to funds taken from LLC account) | Money originated from Grover; he retained right to possession and could rescind because of fraud | Funds were deposited into 87 Minutes then LLC; plaintiffs no longer had title/possession once deposited | Reversed for conversion: plaintiffs lacked legal possession/entitlement when funds were taken; judgment rendered that plaintiffs take nothing on conversion claim |
| Whether fraud judgment should be reversed for failure to prove justifiable reliance | Grover argues his reliance was unjustifiable as a matter of law | Appellees note no charge required justifiable reliance and no objection made at trial | Overruled as to reliance: because no requirement of justifiable reliance was submitted/ objected to, the appellate sufficiency review did not consider that defense; fraud claim stands in part |
| Proper measure and sufficiency of damages for fraud (benefit-of-bargain, out-of-pocket/expenses, lost profits) | Seek benefit-of-the-bargain, expenses ($825,000), and lost profits ($188,500) | Statute of frauds bars benefit-of-the-bargain (including lost profits); some past expenses predated the alleged fraud and are not recoverable | Partly reversed/remanded: benefit-of-the-bargain and lost-profits damages barred by statute of frauds; $825,000 for past expenses not supported (some expenses predated fraud), but some out-of-pocket damages shown—fraud claims remanded for new trial on liability and damages |
Key Cases Cited
- XCO Prod. Co. v. Jamison, 194 S.W.3d 622 (Tex. App.—Houston [14th Dist.] 2006) (failure to request jury instruction on affirmative defense results in waiver unless issue is conclusively established)
- Sullivan v. Barnett, 471 S.W.2d 39 (Tex. 1971) (conclusive trial evidence can preserve an unrequested affirmative defense)
- Osterberg v. Peca, 12 S.W.3d 31 (Tex. 2000) (appellate sufficiency review measured by the charge given when parties did not object)
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (standards for legal-sufficiency review of evidence)
- Houston Nat’l Bank v. Biber, 613 S.W.2d 771 (Tex. App.—Houston [14th Dist.] 1981) (discussing conversion of money and conditions when action lies)
- Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41 (Tex. 1998) (distinguishes benefit-of-the-bargain and out-of-pocket measures for fraud damages)
- Haase v. Glazner, 62 S.W.3d 795 (Tex. 2001) (statute of frauds bars recovery of benefit-of-the-bargain damages in fraud when contract unenforceable)
- Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913 (Tex. 2010) (expenses predating fraud cannot be recovered as reliance/out-of-pocket damages)