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A Texas court has considered an appeal of a large award by a jury against a real estate brokerage, including a $2 million punitive damage award.
G.J. Palmer Jr. of Palmer Enterprises (“Developer”) is a developer of commercial properties. The Developer discussed the possible development of a property known as the Jackson Palmer Crossing (“Crossing”) with Stanley J. Williams and Stanley Jay Williams Jr. of SJW Property Commerce, Inc. (“Brokerage”). The Brokerage represents “big box” clients such as Best Buy and The Home Depot that often serve as anchor tenants for large commercial developments.
The Developer retained the Brokerage to serve as the broker in charge of sales and leasing for the Crossing. The parties signed a listing agreement setting forth the terms of the agreement. The agreement expired on June 30, 2001, although there was evidence that the parties sought to extend the agreement.
Meanwhile, the Developer and the Brokerage began discussing a second development project located at 10th Street and Trenton (“Trenton”). Because this project would require purchasing land from a number of different owners, the Developer retained a second broker to begin that process. The Brokerage contacted a number of big box tenants to see if they would be interested in serving as the anchor tenant in the proposed development.
Eventually, the Brokerage secured Target’s interest in developing the property. In order to proceed with the Trenton development, the Developer needed to complete the acquisition of the properties from the existing owners. The Developer would then sell the properties to the Brokerage’s holding company (paying the Brokerage a commission), and the Brokerage would then sell the tract to Target.
The Developer had tentative agreements to purchase all of the needed properties, except for one parcel owned by an individual named Dr. Kilgore. Dr. Kilgore had entered into a secret purchase agreement with a company related to the Brokerage. Because the Developer could not acquire the final property, the Trenton development plan began to collapse.
A number of owners sent the Developer identical letters canceling their sale contracts. The Brokerage also terminated the development arrangement with the Developer, stating that the Brokerage may begin contacting the property owners directly because the Developer had not obtained title to the properties as required in their agreement.
The Developer began suspecting that he had been betrayed by the Brokerage, and so he sent a letter accusing the Brokerage of tortuously interfering with his contracts and damaging his reputation. The Developer also began withholding the Brokerage’s commissions from the Crossing, believing it was unfair to pay commissions to the company that had betrayed him.
The Developer and the Brokerage made one attempt to salvage the Trenton project, where the Developer would receive an easement through the property in exchange for the properties he had under contract. This would allow the Developer to develop an adjoining property. However, the Developer claimed that this deal was undermined when he was outbid for the adjoining property by the Brokerage. Eventually, Target developed the Trenton project and acquired the land for less than had originally been offered.
The Brokerage filed a lawsuit against the Developer for the unpaid commissions. In response, the Developer filed a counterclaim alleging tortious interference with a contract, fraud, breach of contract, and breach of fiduciary duty. The jury awarded the Brokerage approximately $165,000 in lost commissions from the Crossing project, and awarded the Developer approximately $700,000 in damages from the Trenton project and another $2 million in punitive damages. Both parties appealed the jury verdict.
The Court of Appeals of Texas affirmed most of the trial court’s rulings and jury’s verdict. The court considered whether the evidence supported the jury’s verdict. First, the Brokerage argued that the evidence failed to support the tortious interference with a contract claims.
The court upheld the jury’s ruling. The Developer argued that the Brokerage had interfered with the Developer’s attempts to enter into contracts with all of the property owners for the Trenton project by secretly contacting with Dr. Kilgore. The Brokerage argued that none of the Developer’s purchase contracts were valid because the earnest money checks were never deposited with the title company. The court ruled that even unenforceable contracts can serve as the basis for tortious interference with a contract claim, and in any event the contracts may have been enforceable regardless. Since the evidence supported the allegations, the court rejected the Brokerage’s argument.
Next, the court considered the breach of fiduciary duty allegations. The Brokerage argued that it did not represent the Developer in the Trenton project and therefore did not owe a fiduciary duty to the Developer. Instead, the Brokerage argued that it was a competitor of the Brokerage.
However, the evidence could support the jury’s conclusion, as the Developer had testified that he asked the Brokerage to represent him in the Trenton project and there were also many meetings that included the Developer and the Brokerage discussing confidential aspects of the Trenton project. In addition, multiple witnesses testified that they thought the Brokerage was representing the Developer in the project. Based on the evidence, the court affirmed the finding that the Brokerage had breached its fiduciary duty to the Developer.
Finally, the court reviewed the damage awards made by the jury. In order to award punitive damages, the jury must find malice by a party and this finding must be supported by clear and convincing evidence. “Malice” occurs when one party has a specific intent to cause another party harm. The Brokerage argued the evidence did not support the award and the damages exceeded a punitive damage cap in Texas law.
The court ruled that the evidence could support a finding of malice and the Brokerage had failed to properly plead the damage cap limit. The evidence showed that while the Developer thought the Brokerage was working as his representative, the Brokerage was secretly trying to undermine his efforts through actions such as contracting with Dr. Kilgore. The court also affirmed the trial court’s ruling that the Brokerage had not raised the damage cap until it was too late and so the damage cap did not apply to the jury’s verdict. Therefore, the court affirmed the awards to the Developer.
SJW Prop.Commerce, Inc. v. Southwest Pinnacle Properties, Inc., 328 S.W.3d 121 (Tex. App. 2010).