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Fourteenth Court of Appeals
CHICAGO TITLE INSURANCE COMPANY, Appellant
EXPANDED MORTGAGE CREDIT, Appellee
On Appeal from 215th District Court
Harris County, Texas
O P I N I O N
In this loan closing dispute, Chicago Title Insurance Company (AChicago Title@) appeals a judgment entered in favor of Home Loan Corporation d/b/a Expanded Mortgage Credit (AHome Loan@) on the ground that the evidence was insufficient to prove that it breached any legal duties it owed to Home Loan. We affirm as modified.
Chicago Title acted as the settlement agent in the closing of a residential real estate mortgage loan funded by Home Loan. After Home Loan assigned the note and the borrower made no payments on it, Home Loan was obligated to repurchase the note and suffered a loss on its eventual sale of the property after foreclosure. As relevant to this appeal, Home Loan filed suit against Chicago Title, alleging fraud and breach of fiduciary duty based on Chicago Title=s failure to disclose on the HUD-1 closing settlement statement (the AHUD-1@) that half of the seller=s proceeds would be paid, at the seller=s request, to a third party, Gerald Malone. After trial, judgment was entered in accordance with the jury=s verdict, which found liability for fraud and breach of fiduciary duty and awarded Home Loan compensatory and exemplary damages of $140,606.23 and $100,00.00, respectively.
Standard of Review
In a legal sufficiency review, we determine whether the evidence 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). In conducting this review, we credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not. Id. Where neither party has assigned error to the jury charge, we review the legal and factual sufficiency of the evidence according to the charge submitted. Barker v. Eckman, 213 S.W.3d 306, 313, 314 (Tex. 2006); Romero v. KPH Consol. Inc., 166 S.W.3d 212, 221 (Tex. 2005).
As relevant to our disposition of this issue, Chicago Title=s first issue challenges the legal sufficiency of the evidence to prove that Chicago Title acted with the requisite intent to defraud Home Loan. The charge contained the following question and instruction concerning liability for fraud, which the jury answered affirmatively as to Chicago Title:
Did any of those named below commit fraud that was a proximate cause of damages to Home Loan Corporation?
Fraud occurs when‑
a. a party makes a material misrepresentation
b. the misrepresentation is made with knowledge of its falsity or made recklessly without any knowledge of the truth and as a positive assertion,
c. the misrepresentation is made with the intention that it should be acted on by the other party, and
d. the other party acts in reliance on the misrepresentation and thereby suffers injury.
AMisrepresentation@ means a false statement of fact.
Fraud also occurs when:
a. a party fails to disclose a material fact within the knowledge of that party,
b. the party knows that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth,
c. the party intends to induce the other party to take some action by concealing or failing to disclose the fact, and
d. the other party suffers injury as a result of acting without knowledge of the undisclosed fact.
In support of its legal sufficiency challenge, Chicago Title contends that there is no evidence that its omission of the payment to Malone from the HUD-1 was made with any intent to induce Home Loan in any manner. Home Loan counters that the evidence supporting the finding of intent to induce includes the following: (1) Chicago Title=s closing officer, Ginny Rogers, understood that Home Loan required the completed HUD-1 be faxed to them as a condition of funding the loan and that Home Loan would rely on the HUD-1 being accurate; (2) Home Loan=s Vice President, Terry Likens, testified that it is the normal course for Home Loan to rely on title companies as settlement agents to disburse funds; and (3) Chicago Title=s expert, Charles Jacobus, testified that the addendum to the HUD-1 is a standard closing document used in hundreds of transactions upon which the lender relies in funding loans.
The HUD-1 states that it is furnished to provide Aa statement of actual settlement costs.@ Thus, although it clearly calls for disclosure of any adjustments to, or reductions from, the amount due to the seller in order to arrive at the net amount due to the seller, the HUD-1 does not purport to reflect the disposition of those proceeds, i.e., the manner in which that net amount due to the seller will be disbursed or to whom. Nor does it provide a place on the form for any such information to be entered. Rogers and Jacobus each testified that it is common for sellers to request that their proceeds be disbursed to third parties and that this is done as an accommodation to them. Rogers further testified that, in sending the HUD-1 to Home Loan, she did not even think about the payment to Malone.
After reviewing the entire record in this case, we can find no evidence that, at any time before Home Loan funded the loan, anyone at Chicago Title: (1) knew or suspected that the requested disbursement to Malone was in any way out of the ordinary, let alone indicative of wrongdoing; or (2) considered the disclosure of such a disbursement on the HUD-1 to even be an option, let alone an obligation. We can, thus, find, no evidence that Chicago Title=s failure to disclose the disbursement to Malone on the HUD-1 (or otherwise) was even deliberate, let alone made with any intent to conceal that fact or to otherwise deceive or induce Home Loan to fund the loan under false pretenses. We therefore sustain Chicago Title=s first issue.
Chicago Title=s second issue challenges the sufficiency of the evidence to prove fraud by clear and convincing evidence (to support the trial court=s award of exemplary damages). Because the clear and convincing burden of proof is higher than the preponderance of the evidence burden, the appellate standard of review is likewise higher for the former than the latter. City of Keller, 168 S.W.3d at 817. Therefore, from our conclusion in issue one above that the evidence is legally insufficient to prove fraud by a preponderance of the evidence, it necessarily follows that the evidence is also legally insufficient to prove fraud by clear and convincing evidence.
In addition, recovery of punitive damages requires a finding of an independent tort with accompanying actual damages. Schlueter v. Schlueter, 975 S.W.3d 584, 589 (Tex. 1998). Because the claim for exemplary damages was submitted in the jury charge only with regard to the tort claim for fraud (and not breach of fiduciary duty), the reversal of the award of actual damages for fraud, necessitated by our sustaining of the first issue, also dictates a reversal of the award of exemplary damages. Therefore, Chicago Title=s second issue is sustained.
Chicago Title=s third and fourth issues challenge the jury=s finding of liability for breach of fiduciary duty on the grounds that: (1) the evidence is legally and factually insufficient to show that Home Loan was a party to either the loan or real estate transaction because it was not listed as the lender in the closing documents; and (2) neither the escrow instructions nor the Real Estate Settlement Procedures Act of 1974 (ARESPA@) created a duty to disclose on the HUD-1 settlement statement that it issued a check to Malone for a portion of the seller=s proceeds.
The following questions and instructions were submitted to the jury on fiduciary duty without objection by Chicago Title:
QUESTION NO. 8
Did a fiduciary relationship exist between Home Loan Corporation and Chicago Title Insurance Company?
A fiduciary relationship exists between Home Loan Corporation and Chicago Title Company if you find that Home Loan Corporation was a party to the escrow transaction that is the subject of this lawsuit.
Answer AYes@ or ANo@.
If you have answered AYes@ as to Question No. 8, then answer Question No. 9. Otherwise, do not answer Question No. 9.
QUESTION NO. 9
Did Chicago Title Company fail to comply with its fiduciary duty, if any, to Home Loan Corporation?
Answer AYes@ or ANo@.
With regard to Chicago Title=s third issue, the first instruction, above, conditioned the existence of a fiduciary duty on a finding that Home Loan was a party to the escrow transaction, but did not define that term. The general instructions to the charge state that words used in a sense that varies from the commonly understood meaning would be given a legal definition. Because no such definition was given, it logically follows that the jury was free to apply a commonly understood meaning.
The evidence was undisputed that: (1) Home Loan funded the loan as a wholesale lender and First Premier Lending, who was reflected as the lender in the closing documents, merely brokered the loan; and (2) Chicago Title=s escrow officer, Ginny Rogers, knew that Home Loan was the true lender and had followed the closing instructions Home Loan provided to Chicago Title. Because the transaction could thus not be closed without Home Loan=s participation in funding the loan, its involvement in the escrow transaction as a party was undeniable under any commonly understood meaning of that term, notwithstanding the fact that First Premier Lending was ostensibly reflected in the closing documents as the lender. Therefore, that fact is not probative of whether Home Loan was a true party to the escrow transaction within the meaning of the charge submitted, and Chicago Title=s third issue is overruled.
Regarding Chicago Title=s fourth issue, the charge provides no instruction or definition limiting the scope of either the fiduciary duty or its breach. Because Chicago Title preserved no complaint and has assigned no error regarding the content of these questions and instructions, we cannot review the sufficiency of the evidence to prove fiduciary duty according to other standards, such as duties imposed or not imposed by RESPA, the closing documents, or otherwise where the jury was not instructed to so limit its consideration of the evidence. Therefore, Chicago Title=s fourth issue affords no basis for relief and is overruled.
Chicago Title=s fifth and sixth issues contend that: (1) an escrow agent has no duty to investigate a transaction for fraud; and (2) Home Loan=s assertion that Chicago Title violated the terms of schedule D of the title commitment by failing to list Malone in the HUD-1 is contrary to law. However, because no question or instruction was submitted to the jury based on either of these contentions, it is not apparent how either of them, even if correct, demonstrates error in the trial court=s judgment. Accordingly, they are overruled.
Having sustained Chicago Title=s challenge to the finding of liability, and award of exemplary damages, for fraud, we reverse the portion of the trial court=s judgment awarding that recovery against Chicago Title, render judgment that Home Loan take nothing from
Chicago Title on those claims, and affirm the remainder of the judgment as so modified.
/s/ Richard H. Edelman
Judgment rendered and Opinion filed April 24, 2007.
Panel consists of Justices Fowler, Edelman, and Guzman. (Guzman, J., concurring)
 Because our disposition of the appeal does not require us to address the factual sufficiency challenge on the merits, we do not recite the remainder of the factual sufficiency standard of review.
 Home Loan objected to the first question on the ground that the existence of a fiduciary duty was a question of law for the trial court to determine, but that objection was overruled.
 By contrast, the Texas Pattern Jury Charge question and instruction on breach of fiduciary duty lists specific criteria for a jury to consider, including whether the defendant failed to fully and fairly disclose all important information to the plaintiff concerning the transaction. See Comm. on Pattern Jury Charges, State Bar of Tex., Texas Pattern Jury Charges: Business, Consumer, Insurance & Employment PJC 104.2 (2006). This instruction may be modified to conform to the duties imposed by a particular relationship. See id.
 Because the jury separately awarded the same actual damages for breach of fiduciary duty as for fraud, the award of actual damages in the judgment is not affected by our decision.