Robert H. Shields v. State

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-98-00560-CV

Robert H. Shields, Appellant

v.

The State of Texas, Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 167TH JUDICIAL DISTRICT

NO. 94-01036, HONORABLE MARY PEARL WILLIAMS, JUDGE PRESIDING

The State of Texas sued appellant Robert Shields for an injunction and restitution

based on violations of the Texas Securities Act. See The Securities Act, Tex. Rev. Civ. Stat.

Ann. arts. 581-1--42 (West 1964 & Supp. 2000) (the Act). The State alleged that, while working

as sales manager for Southard Securities Corporation, Shields engaged in fraudulent securities

practices in selling interests in oil and gas wells issued by Southard's parent HLS Energy Co.,

Inc. The cause was tried to a jury, which found for the State. The trial court rendered an order

permanently enjoining Shields from committing fraudulent securities practices and awarding

restitution in the total amount of $977,195.21 to twelve investors. We will affirm the trial court's

order.

The State contends at the outset that six issues Shields raises on appeal should be

resolved against him by applying the law-of-the-case doctrine. In the first appeal of this cause,

this Court reversed the trial court's permanent injunction and remanded the cause on the ground

that the court's injunction exceeded the scope of the Act. See Shields v. State of Tex. , 936

S.W.2d 711, 713-14 (Tex. App.--Austin 1996, no writ). The Court declined to discuss Shields'

remaining points of error, stating that "none of them demonstrate reversible error upon which we

may, as a matter of law, render judgment on appeal." Id. at 714 .

The law-of-the-case doctrine is a principle by which the initial determinations of

questions of law in a case are held to govern throughout subsequent stages of the litigation.

Brown Forman Corp. v. Brune , 893 S.W.2d 640, 648 (Tex. App.--Corpus Christi 1994, writ

denied). The doctrine is applied flexibly according to the circumstances of the particular case,

however, and the determination whether a prior decision in the same case will be reopened is a

matter within the discretion of the appellate court. Id. Having decided in the prior appeal that

the scope of the injunction merited a remand, this Court did not set out the legal reasoning for

resolving Shields' remaining points and determined only that none demonstrated error that

justified, as a matter of law, rendition of judgment; this Court did not determine whether any of

Shields' remaining points would have justified a remand. Under these circumstances, we decline

to apply the law of the case to this appeal.

In his second issue, Shields contends that the injunction against him exceeds the

scope of the Act and the State's pleadings. We first address Shields' argument that the injunction

exceeds the scope of the pleadings. In its fifth amended petition, the State alleged that Shields had

engaged in fraud and fraudulent practices, materially helped other persons to do the same, and

engaged in other violations of the Act, as enumerated. The State then pleaded fourteen specific

acts that Shields had committed, such as misrepresenting to potential investors that previous HLS

investors had received a return of four to five times the amount initially invested, misrepresenting

to investors that an investment with HLS involved little or no risk, failing to disclose that the

securities offered for sale were not registered with the State Securities Board in violation of Texas

law, and receiving sales commissions so excessive as to be unconscionable. The State prayed that

Shields be permanently enjoined from continuing such fraudulent practices or doing any act to

further those practices in violation of the Securities Act.

The court's injunction does not repeat the fourteen acts pleaded by the State, but

is phrased in more general terms. The order first enjoins Shields from committing any fraudulent,

misleading, or deceptive act relating to the issuance, promotion, sale, or distribution of any

security. It then states that fraudulent, misleading, or deceptive acts include, without limitation,

nine enumerated actions; these actions include the employment of any scheme to defraud, any

misrepresentation of a relevant fact, any representation as to the future not made honestly and in

good faith, and gaining an unconscionable underwriting or promotion fee or profit or selling or

management commission or profit. (1)

Persons seeking a permanent injunction must be specific in pleading the relief

sought, and courts are without authority to grant relief beyond that so specified. Hitt v. Mabry ,

687 S.W.2d 791, 795 (Tex. App.--San Antonio 1985, no writ). Yet, an injunction should be broad

enough to prevent a repetition of the evil sought to be corrected. San Antonio Bar Ass'n v.

Guardian Abstract & Title Co. , 291 S.W.2d 697, 702 (Tex. 1956); Hitt , 687 S.W.2d at 795 . The

court can either enjoin acts that are identical to those engaged in before the injunction or, as will

more likely be needed, acts that are in somewhat different form calculated to circumvent the

injunction as written. San Antonio Bar Ass'n , 291 S.W.2d at 702 . The State charged that Shields

engaged in fraudulent practices in violation of the Act, illustrated those practices by alleging

fourteen specific acts, and prayed that the court enjoin Shields from engaging in the fraudulent

acts alleged. The language of the court's order largely tracks that of articles 581-4(F) and 581-32

of the Act, which respectively define and authorize injunctions against fraudulent securities

practices. See Act art. 581-4(F) (West 1964) & art. 581-32 (West Supp. 2000). We find the

injunction here to be in keeping with the tenor of the State's pleading and reject Shields' argument

that the court was limited to enjoining the fourteen specific acts alleged by the State.

Shields also complains that the language of the order is so broad as to be vague and

unenforceable. He argues that the conduct prohibited by the injunction is unclear because the nine

listed acts are not exclusive. We determine, however, that the order sufficiently informs Shields

that he is prohibited from engaging in fraudulent practices when dealing in securities and that the

nine examples provide adequate guidance as to the limits between acceptable and unacceptable

behavior in that regard.

Shields argues that the court exceeded the scope of the Act by purporting to enjoin

his actions conducted wholly outside Texas. Although not part of its decretal language, the court

stated in the order that Shields had engaged in fraudulent practices as defined by the Act and that

the court ordered Shields permanently enjoined from violating the Act. Within this context, the

court then ordered Shields to refrain from committing any fraudulent act when dealing in

securities. We therefore determine that the order enjoins Shields only from fraudulent securities

practices that violate the Act. We overrule issue two.

Shields argues in issues three and four that the injunction is not supported by the

evidence or the jury findings. Within these issues, Shields argues that jury questions one and two

should not have been submitted in broad form. In question one, the court asked, "Did Robert H.

Shields engage in fraud in the sale of securities while he was with Southard Securities?" The

court asked in question two, "Did Robert H. Shields, with intent to deceive or defraud or with

reckless disregard for the truth or the law, materially aid any person in participating in fraudulent

practices in the sale or offer for sale of securities?" The jury found that Shields had engaged in

fraud and had materially aided others in participating in fraudulent practices. Shields argues that

the court should instead have asked the jury to determine whether he engaged in each specific act

alleged by the State. Failing to confine the jury to specific conduct, Shields contends, allowed

the jury to go beyond the violations pleaded and deprived the court of the proper factual basis for

designing injunctive relief.

Although a party to an equitable action has the right to a trial by jury, only ultimate

issues of fact are submitted for jury determination. The jury does not determine the expediency,

necessity, or propriety of equitable relief. State v. Texas Pet Foods, Inc. , 591 S.W.2d 800, 803

(Tex. 1979). The determination whether to grant an injunction based on ultimate issues of fact

found by the jury is for the trial court, exercising chancery powers, and not the jury. Id.

Although in Texas jury findings on issues of fact are binding, equitable principles and the relief

afforded by equity continue to be applied by the court itself. Id. The court therefore did not err

in submitting questions one and two broadly. See Tex. R. Civ. P. 277. We have already

determined that the court was not limited to enjoining only the specific acts pleaded by the State.

And because the court alone fashions equitable relief, it was not confined to the literal findings

of the jury in designing the injunction.

Shields complains that insufficient evidence supports those parts of the injunction

that prohibit him from making fictitious purchases or sales of securities and prohibit him from

gaining an unconscionable underwriting, promotion, selling, or managing fee. Shields also

contends that jury questions should have been submitted regarding these particular acts. Article

581-32 of the Act empowers the court to enjoin a person who has engaged in fraudulent securities

practices from further engaging in them or from doing any act in violation of the Securities Act.

Art. 581-32(A). (2) Shields does not challenge the sufficiency of the evidence to support the

remaining portions of the injunction or the jury's finding that he engaged in fraud in the sale of

securities.

The Act's purpose is to regulate the sale of securities and to protect the public from

fraud. Flowers v. Dempsey-Tegeler & Co. , 472 S.W.2d 112, 115 (Tex. 1971). Courts are to

construe the Act to protect investors. Art. 581-10-1(B) (West Supp. 2000). In view of the Act's

purpose and the broad language of article 581-32(A), the court was authorized to enjoin Shields

from engaging in any act or practice declared fraudulent by the Act. The court did not err in

enjoining Shields from making fictitious sales and gaining unconscionable fees, both of which are

legally prohibited by the Act. Nor did the court err in enjoining Shields from engaging in

fraudulent securities practices without limiting the securities to the oil and gas investments

described at trial. The principle that the court rather than the jury exercises equitable powers

answers Shields' complaint that the court could not include these prohibitions in the order without

submitting specific jury questions thereon. We overrule issues three and four.

In his first issue, Shields contends that the trial court violated Texas Rule of Civil

Procedure 683 by failing to state in the order the reasons for issuing the injunction. Shields did

not raise this contention in the trial court, however, and has waived it for appellate review. Tex.

R. App. P. 33.1(a). In any event, the requirement of Rule 683 that every order of injunction set

forth the reasons supporting its issuance applies only to temporary injunctions, in which the relief

ordered is ancillary to the ultimate relief sought, and not to permanent injunctions. Carrell v.

Richie , 697 S.W.2d 43, 46 (Tex. App.--Austin 1985, writ ref'd n.r.e.); Spinuzzi v. Town of

Corinth , 665 S.W.2d 530, 534 (Tex. App.--Fort Worth 1983, no writ); Texas Liquor Control Bd.

v. Bacon , 443 S.W.2d 312, 317 (Tex. Civ. App.--Austin 1969), rev'd on other grounds , 456

S.W.2d 891 (Tex. 1970). Additionally, Shields has not shown how the court's failure to state the

reasons for issuing the injunction harmed him. See Tex. R. App. P. 44.1(a). We therefore

overrule Shields' first issue.

In his fifth issue, Shields argues that the State presented no evidence of his

securities activities after 1991 and submitted no question to the jury as to the likelihood of future

violations. Shields maintains that article 581-32 of the Act required the trial court to find, based

on the evidence presented, that a reasonable prospect of future violations by Shields exists, such

that injury would occur if the injunction were not issued. Because a specific statute authorizes

the injunction issued here, the court need find only that the statutory provisions are satisfied and

need not otherwise determine future probable injury. Mortgagebanc & Trust, Inc. v. State , 718

S.W.2d 865, 869 (Tex. App.--Austin 1986, no writ); Rio Grande Oil Co. v. State , 539 S.W.2d

917, 921 (Tex. Civ. App.--Houston [1st Dist.] 1976, writ ref'd n.r.e.). Article 581-32 allows the

State to seek an injunction against a person who "has engaged in, is engaged in, or is about to be

engaged in" any practice or transaction declared fraudulent by the Act and authorizes the court

to issue an injunction against such a person. Art. 581-32(A). Because injunctive relief can be

ordered under the Act based on past actions alone, we overrule issue five.

In his sixth issue, Shields argues that the court erroneously ordered restitution to

investors for the net amount of their investment rather than the amount of commissions Shields

received from them. The court ordered Shields to make restitution to twelve individual investors

in the total amount of $977,195.21. The order of restitution was based on the jury's answer to

a question asking how much money Shields obtained from each investor by fraudulent practices,

less the amount the investor received from the investment. Shields' commissions amounted to ten

percent of the sales he personally made and three percent of the sales made by other salespeople.

Shields remitted the funds provided by the investors to HLS and owned no personal stake in HLS.

Assuming a full ten percent commission on each sale, Shields would have earned about $103,450

from the investors in question.

The Act authorizes the court to award restitution to a victim of fraudulent securities

practices: "The court may order the defendant to deliver to the person defrauded the amount of

money or the property that the defendant obtained from the person by the fraudulent practices."

Art. 581-32(B) (West Supp. 2000). Shields argues that by requiring delivery of the amount of

money the defendant obtained, the Act means only the amount of money that he personally

obtained in the form of commissions. The remedial goals of the Act focus on investors, however,

rather than on sellers. To effect the Act's purpose of protecting the public from fraudulent

securities practices, we determine that Shields, despite being only an intermediary in the sales

process, can be held liable for the full amount of each defrauded individual's net investment loss.

See, e.g., Brown v. Cole , 291 S.W.2d 704, 711 (Tex. 1956) (intermediary seller was liable to

buyers for full purchase price of security under article 581-33(A) as it existed before being

amended). We overrule issue six.

In his seventh and eighth issues, Shields argues that he cannot be held liable in

restitution for the conduct of other employees of Southard. Shields asserts that the court

erroneously held him liable for the acts of other employees either by holding him vicariously

liable or by considering him an abettor of the other employees. While the Act authorizes

injunctive relief against any person who has materially aided another to commit a fraudulent

securities practice, restitution, which may be sought in the same action as an injunction, is

authorized for "a victim of fraudulent practices." Art. 581-32(A), (B). Assuming Shields'

argument has merit, however, the court's judgment can be supported on an independent,

unchallenged ground.

The trial court submitted two questions to the jury, which the jury was required to

answer as to eighteen individual investors. In question six, the court asked, "Did Robert H.

Shields engage in fraudulent practices in the sale of securities to the individuals listed below?"

In question seven, the court asked, "Did Robert H. Shields materially aid salespersons to engage

in fraudulent practices in the sale of securities to the individuals listed below, with intent to

deceive or defraud or with reckless disregard for the truth or the law?" Having answered both

questions affirmatively as to each investor, the jury was then asked to determine the net amount

of money Shields obtained from each investor by fraudulent practices. The restitution awarded

investors could rest on the jury's answer to either question six or question seven. Because Shields

does not challenge the jury's answer to question six, we presume that it supports the judgment of

restitution. Johnson v. Coggeshall , 578 S.W.2d 556, 560 (Tex. Civ. App.--Austin 1979, no writ).

Shields also contends that the trial court erred in admitting hearsay statements

attributed to sales representatives of Southard other than Shields. Shields fails to show in the

record where any of these hearsay statements were admitted, and in any event, does not show that

the judgment turns on the particular statements admitted. City of Brownsville v. Alvarado , 897

S.W.2d 750, 753-54 (Tex. 1994). Having failed to show error or harm, Shields is not entitled

to relief on this argument. See Tex. R. App. P. 33.1, 44.1(a). We therefore overrule issues

seven and eight.

In issue nine, Shields argues that the State's claims for restitution are barred by

limitations. Shields reasons that because investors pursuing the private cause of action for

restitution authorized by article 581-33 must sue within the time prescribed by that article, the

same time restriction applies to the State's suit for restitution under article 581-32. See art. 581-33(H) (West Supp. 2000). Because article 581-33 both creates a private right of action and

incorporates a time limit within which the investor must initiate the action, the limitation qualifies

the right and becomes an element of the statutory cause of action itself. See California v. Copus ,

309 S.W.2d 227, 231 (Tex. 1958). This qualification on filing suit is not considered to be a

statute of limitations. See id. The express time limit in article 581-33 being an essential element

of the private cause of action for restitution, we cannot agree that the legislature intended to

require, but omitted to state, the same element in the State's cause of action for restitution in

article 581-32. (3)

Even if Shields were correct that the time limit he advocates constitutes a statute

of limitations, it is well settled that the State in its sovereign capacity is not subject to the defense

of limitations. State v. Durham , 860 S.W.2d 63, 67 (Tex. 1993); see Tex. Civ. Prac. & Rem.

Code Ann. § 16.061 (West Supp. 2000). The rationale for this immunity is to allow a

governmental entity to enforce its laws to protect the general public. Waller v. Sanchez , 618

S.W.2d 407, 409 (Tex. Civ. App.--Corpus Christi 1981, no writ). Article 581-32(B), authorizing

the State to sue for restitution on behalf of individual investors, is an exercise of the legislature's

police power to constrain the conduct of securities dealers for the public's protection. See Atwood

v. State , 121 S.W.2d 353, 355 (Tex. Crim. App. 1938). The fact that the money the State

recovers benefits individual investors does not in any way alter the character of the suit as one to

enforce the state's securities laws. We therefore hold that the State acted in its sovereign capacity

in suing for restitution and was not subject to the time limit that Shields proposes. We overrule

point nine.

In issues ten and eleven, Shields contends that the trial court should have admitted

evidence of a private lawsuit against him for violations of the Act and that his exoneration in that

suit should have precluded restitution in favor of three investors involved in both suits. By bill

of exception, Shields showed that in 1991 numerous individual investors sued Shields, Southard

Securities Corporation, H. L. Southard, and others claiming violations of federal, Texas, and

other state securities acts; three plaintiffs in that lawsuit, Peter Loveall, George Loveall, Jr., and

Arthur Sisson, are also named investors in this suit. (4) The Harris County district court compelled

the parties in the private lawsuit to arbitrate their claims. In their award made in 1993, the

arbitrators denied all claims against Shields.

Arbitration in Texas can be either nonbinding or binding and enforceable as a

contract. Unless the parties stipulate otherwise in advance, any award is not binding and serves

only as a basis for the parties' further settlement negotiations. Tex. Civ. Prac. & Rem. Code

Ann. § 154.027 (West 1997). Peter Loveall testified for the bill of exception that proceedings in

the private lawsuit were still ongoing and that negotiations had been occurring. Assuming that

the State could be bound by the result of a suit to which it was not a party, the record does not

show that the parties have achieved any final result in the private lawsuit. The arbitrators' award

could well have served only to launch further settlement negotiations. See id. Because the private

lawsuit and arbitration never resulted in a final adjudication, the trial court did not err in refusing

to admit evidence about it or to deny restitution to the Lovealls.

In his twelfth issue, Shields asserts that the court erred in awarding restitution to

two individual investors, each of whom invested only on behalf of a separate legal entity. At the

charge conference, however, Shields refused to agree to submit these investors to the jury in a

representative capacity, insisting that they not be submitted at all. Because Shields refused the

State's offer to submit questions in the form he now urges, he has waived any error in the

submission. See Tex. R. App. P. 33(a). We overrule issue twelve.

Having considered and overruled each of Shields' issues, we affirm the order of

the trial court.

Marilyn Aboussie, Chief Justice

Before Chief Justice Aboussie, Justices Kidd and B. A. Smith

Affirmed

Filed: August 31, 2000

Publish

1. The court's injunctive relief follows:

IT IS THEREFORE ORDERED, ADJUDGED and DECREED that Defendant

Shields, his employees, agents, representatives, or any other entity acting for or on

his behalf, are permanently enjoined and commanded to desist and refrain from the

following acts:

A. Committing any fraud or fraudulent acts or practices or false, misleading or

deceptive acts or practices in connection with the issuance, sale, offer to sell,

promotion, negotiations for sale, advertisement, dealing, distribution, or

attempt to dispose for value of any security. Fraud or misleading or deceptive

acts or practices shall include, but not be limited to:

(1) Employing any device, scheme or artifice to defraud;

(2) Any misrepresentation of a relevant fact;

(3) Any promise or representation or prediction as to the future not made

honestly and in good faith;

(4) Any intentional failure to disclose a material fact;

(5) Gaining, directly or indirectly, through the sale of any security of an

underwriting or promotion fee or profit, selling or managing

commission or profit, so gross or exorbitant as to be unconscionable;

(6) Any false pretense, representation or promise;

(7) Making or attempting to make fictitious or pretended purchases or

sales of securities;

(8) Any practice or transaction or course of business relating to the

purchase or sale of securities which is fraudulent or which has

operated or would operate as a fraud upon the purchaser;

(9) Materially aiding any person who in any way is participating in

fraudulent practices.

2. Article 581-32(A) provides that a court can enjoin a person who has engaged in any of the

practices declared fraudulent by the Act "from continuing such fraudulent practices or engaging

therein or doing any act or acts in furtherance thereof or in violation of this Act." Art. 581-32(A)

(West Supp. 2000).

3. Article 581-32(B) states in its entirety:

The Attorney General may, in an action under Subsection A of this section

[authorizing the State to obtain an injunction] or in a separate action in District

Court, seek restitution for a victim of fraudulent practices. The court may order the

defendant to deliver to the person defrauded the amount of money or the property

that the defendant obtained from the person by the fraudulent practices.

Act art. 581-32(B) (West Supp. 2000).

4. Because the jury found that Shields obtained no money from Arthur Sisson by fraudulent

practices, we will consider in this issue only the Lovealls' claims.

and serves

only as a basis for the parties' further settlement negotiations. Tex. Civ. Prac. & Rem. Code

Ann. § 154.027 (West 1997). Peter Loveall testified for the bill of exception that proceedings in

the private lawsuit were still ongoing and that negotiations had been occurring. Assuming that

the State could be bound by the result of a suit to which it was not a party, the record does not

show that the parties have achieved any final result in the private lawsuit. The arbitrators' award

could well have served only to launch further settlement negotiations. See id. Because the private

lawsuit and arbitration never resulted in a final adjudication, the trial court did not err in refusing

to admit evidence about it or to deny restitution to the Lovealls.

In his twelfth issue, Shields asserts that the court erred in awarding restitution to

two individual investors, each of whom invested only on behalf of a separate legal entity. At the

charge conference, however, Shields refused to agree to submit these investors to the jury in a

representative capacity, insisting that they not be submitted at all. Because Shields refused the

State's offer to submit questions in the form he now urges, he has waived any error in the

submission. See Tex. R. App. P. 33(a). We overrule issue twelve.

Having considered and overruled each of Shields' issues, we affirm the order of

the trial court.

Marilyn Aboussie, Chief Justice

Before Chief Justice Aboussie, Justices Kidd and B. A. Smith

Affirmed

Filed: August 31, 2000

Publish

1. The court's injunctive relief follows:

IT IS THEREFORE ORDERED, ADJUDGED and DECREED that Defendant

Shields, his employees, agents, representatives, or any other entity acting for or on

his behalf, are permanently enjoined and commanded to desist and refrain from the

following acts:

A