No Exemplary Damages as a result of Fraudulent Financing Statement Filing
In the case of Abuzaid v. Anani, LLC, No. 05–16–00667–CV, 2017 WL 5590194, 2017 Tex. App. LEXIS 10936 (Tex. App—Dallas Nov. 21, 2017), the Court of Appeals of Texas (the “Court“) reviewed the trial court’s judgment in a case involving alleged fraudulent filing of UCC financing statements. Four plaintiffs – Anani, LLC (“Anani, LLC”), Big D Concrete, Inc. (“Big D”), Muamar Anani and Hanadi Anani (the “Ananis” and, together with Anani, LLC and Big D, the “Appellees”) – brought suit against Joseph Abuzaid (“Abuzaid”) after Abuzaid filed all-assets UCC financing statements against each of them. Anani, LLC and Big D alleged that, although there was a pending lawsuit between them and Abuzaid, the lawsuit had not been reduced to judgment, and neither Anani, LLC nor Big D had ever executed a security agreement authorizing the filing by Abuzaid of the financing statements. Without an executed security agreement, Anani, LLC and Big D asserted that any financing statement filed with the Secretary of State was based on a groundless and ineffective lien. The trial court granted Anani, LLC’s and Big D’s motion for partial traditional summary judgment, at which point the Ananis intervened and alleged that the financing statements filed against them were similarly fraudulent. The trial court granted the Ananis’ petition for traditional summary judgment as well. The trial court signed a final order in which it ordered the termination of the UCC financing statements and awarded $15,000 in statutory damages and $50,000 in exemplary damages to all four Appellees.
On appeal, the Court vacated the award of exemplary damages with respect to Big D and Anani, LLC, but affirmed the trial court’s judgment in all other respects. In reaching its decision to overturn the award of exemplary damages to Big D and Anani, LLC, the Court noted that, under the civil practice and remedies code, “exemplary damages may be awarded only if the claimant proves by clear and convincing evidence that the damages resulted from the specified circumstances or culpable mental state.”
The Court further noted that, pursuant to the Texas Civil Practice and Remedies Code, in determining exemplary damages, the trier of fact is obligated to consider evidence relating to: (1) the nature of the wrong; (2) the character of the conduct involved; (3) the degree of culpability of the wrongdoer; (4) the situation and sensibilities of the parties concerned; (5) the extent to which such conduct offends a public sense of justice and propriety; and (6) the net worth of the defendant. (TEX. CIV. PRAC. & REM. CODE ANN. §§ 12.002(b)(4), 41.011). The Court stated that, although Big D and Anani, LLC asserted that the facts of the case supported an award of exemplary damages, they did not provide specific evidence in line with the enumerated considerations which was sufficient to support the trial court’s award of exemplary damages.
The Ananis, in contrast, provided affidavits as to Abuzaid’s conduct evidencing factors necessary to support the trial court’s determination of exemplary damages, and therefore the Court affirmed the trial court’s award of exemplary damages as to the Ananis.