The opinion
TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-11-00512-CV
Christopher Zaal, Appellant
v.
Texas Department of Insurance, Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
NO. D-1-GN-10-003682, HONORABLE GISELA D. TRIANA, JUDGE PRESIDING
MEMORANDUM OPINION
Christopher Anthony Zaal appeals from a district court judgment affirming a final
order of the Texas Insurance Commissioner revoking his insurance license. We will affirm the
district court’s judgment.
BACKGROUND
Christopher Anthony Zaal has held a General Life, Health, and Accident license since
1986. Zaal has no previous complaints against him, and he has no criminal history.
On May 7, 2009, the Texas Department of Insurance (TDI) notified Zaal of a public
hearing alleging that he engaged in dishonest or fraudulent acts or practices with respect to his sale
of universal leases and with regard to annuity applications for his clients. The Commissioner has
the authority to revoke an agent’s license if the licensee engages in “fraudulent . . . acts or practices.”
Tex. Ins. Code §§ 4005.101(b)(5), .102.
Following the hearing, the Administrative Law Judge (ALJ) issued a Proposal for
Decision finding that Zaal engaged in dishonest acts or practices with regard to the Robert Weyman
and Edwin Winn annuities and that he engaged in fraudulent acts or practices with regard to his sales
of universal leases. Id. § 4005.101(b)(5). The ALJ recommended that Zaal’s license be revoked.
The Commissioner of Insurance adopted the ALJ’s findings of fact and conclusions of law and
ordered Zaal’s license revoked. Zaal filed a petition for judicial review; the district court affirmed
the Commissioner’s order. Zaal appeals. We will affirm the judgment.
ISSUES ON APPEAL
In two issues, Zaal asserts that we must reverse the district court’s judgment because
the TDI (1) failed to prove that he committed fraud in connection with the sale of universal leases
and (2) failed to prove that he engaged in dishonest or fraudulent conduct in connection with his
clients’ annuity applications or that his clients sustained any damages. We construe these issues as
complaints that the Commissioner’s order is not supported by substantial evidence. Zaal has the
burden to demonstrate that the record lacks substantial evidence.
STANDARD OF REVIEW
Review of the Commisioner’s order is governed by section 2001.174 of the
Administrative Procedures Act (APA), which provides:
A court may not substitute its judgment for the judgment of the state agency on the
weight of the evidence on questions committed to agency discretion, but:
(1) may affirm the agency decision in whole or in part; and
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(2) shall reverse or remand the case for further proceedings if substantial rights of the
appellant have been prejudiced because the administrative findings, inferences,
conclusions, or decisions are:
(A) in violation of a constitutional or statutory provision;
(B) in excess of the agency’s statutory authority;
(C) made through unlawful procedure;
(D) affected by other error of law;
(E) not reasonably supported by substantial evidence considering the
reliable and probative evidence in the record as a whole; or
(F) arbitrary or capricious or characterized by abuse of discretion or
clearly unwarranted exercise of discretion.
Tex. Gov’t Code § 2001.174; see Tex. Ins. Code § 36.203; Meyer v. Texas Dep’t of Ins.,
No. 03-10-00642-CV, 2011 WL 5865240, at *10 (Tex. App.—Austin Nov. 23, 2011, pet. denied)
(mem. op.).
“Substantial evidence,” as used in 2(E) above, is “a reasonableness test or a rational
basis test.” City of El Paso v. Public Util. Comm’n, 883 S.W.2d 179, 185 (Tex. 1993) (citing
Railroad Comm’n v. Pend Oreille Oil & Gas Co., 817 S.W.2d 36, 41 (Tex. 1991)). Although
substantial evidence is more than a mere scintilla, the evidence in the record actually may
preponderate against the decision of the agency and nonetheless amount to substantial evidence.
Texas Health Facilities Comm’n v. Charter Med.-Dallas, Inc., 665 S.W.2d 446, 452 (Tex. 1984).
We consider not whether the agency reached the correct conclusion, but whether some reasonable
basis exists in the record for the action taken by the agency. Id. We may not substitute our judgment
as to the weight of the evidence for that of the agency. City of El Paso, 883 S.W.2d at 185. The
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findings, inferences, conclusions, and decisions of an administrative agency are presumed to be
supported by substantial evidence, and the burden is on the contestant to prove otherwise. Charter
Medical, 665 S.W.2d at 453.1
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Among others, the Commissioner made the following findings:
18. Mr. Weyman had no other communication with [Zaal] or his staff about the
annuity product and did not authorize its purchase.
19. Mr. Weyman did not authorize [Zaal] or his staff to scan Mr. Weyman’s
signature onto the annuity purchase documents.
20. The signature on the annuity purchase documents was not Mr. Weyman’s.
21. [Zaal’s] written explanation to AILIC, in response to Mr. Weyman’s
complaint, was not accurate.
30. Mr. Winn replied to Great American that he had not signed the application
or original form and that they contained a false signature.
31. Mr. Winn did not authorize the purchase of the annuity product or the
withdrawal amount.
32. Mr. Winn did not authorize [Zaal] or his staff to electronically scan his
signature onto the annuity purchase documents.
34. The signature on the annuity purchase documents was not Mr. Winn’s.
36. [Zaal] prepared and submitted false documents in applying for the annuity in
Mr. Winn’s name.
74. [Zaal’s] only meeting with Majesty Travel’s directors was limited
and superficial.
75. [Zaal] relied on the assertion that Majesty Travel was independent and the
fact that it had been selected by Resort Holdings.
76. [Zaal] did virtually no investigation of Majesty Travel or World
Phantasy Tours.
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DISCUSSION
Weyman and Winn Annuities
TDI determined that Zaal engaged in dishonest acts or practices with respect to the
annuity transactions involving his clients Robert Weyman and Edwin Winn, and it asserts on appeal
that the record contains substantial evidence to support the ruling. Zaal argues that the unauthorized
annuity transactions in issue were merely honest mistakes made by another person in his office. Zaal
also asserts that the record contains no evidence of his dishonest conduct, and that the record is
uncontroverted that he did not authorize the changes to his client’s annuities.
Zaal notes that the term “dishonest” is not defined in the Insurance Code. The agency
suggests that dishonest conduct may be given its ordinary dictionary definition as an act
characterized by a lack of truth, honesty, or trustworthiness, and includes an act that is unfair or
deceptive. Mirriam-Webster’s Collegiate Dictionary 359 (2008); see also Brown v. Texas Dep’t of
Ins., 34 S.W.3d 683, 689 (Tex. App.—Austin 2000, no pet.).
Robert Weyman, an assistant public school principal, was Zaal’s client and had been
making $500 regular withdrawals from his pay for some time. Zaal went to Weyman’s office to
discuss a new product, but it was not a convenient time for Weyman to confer. Weyman had no
further communication with Zaal or his office about the matter. The next month, Zaal, or someone
in his employ, submitted an application in Weyman’s name to Annuity Investors Life Insurance
Company, a subsidiary of Great American Financial Resources, to obtain for Weyman a Flex Max
94. [Zaal] materially misled clients concerning the quality and safety of the
universal lease product without knowledge of the truth of his representations.
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12 annuity product that would increase Weyman’s withdrawal to $1000 a month. The application
and disclosure notice purported to be signed by Weyman, but the signatures were not his. Zaal’s
signature appeared on the documents as the agent. Weyman testified that he did not authorize the
purchase, and he did not authorize Zaal or his staff to scan his signature onto the documents.
When Weyman discovered the increase, he stopped payment and did not lose money
on the transaction. Nevertheless, he filed a complaint with Annuity Investors, which questioned Zaal
about the transaction. Zaal’s written explanation to the insurance company claimed that he was
authorized and directed by Weyman to expedite the transaction, and that he had acted with his
client’s full knowledge and approval. This explanation conflicted with his position at the hearing
and on appeal, where he claims that the application must be an honest mistake by someone in his
office. Weyman testified that Zaal’s claims were untrue, and that Weyman never authorized or knew
of the transaction.
Edwin Winn, an air conditioner mechanic for a school district, was another of Zaal’s
clients. Winn had set up an annuity purchase with Zaal years before, in which he had $60 withdrawn
biweekly from his pay. Zaal, or someone in his employ, submitted an application in Winn’s name
to obtain a Commodore Distinction II annuity with a biweekly withdrawal of $700. The application
and disclosure notice purport to be signed by Winn, and Zaal’s signature appear on the application
documents as agent.
Great American Financial Resources wrote Winn a letter, requesting him to submit
the required form to his payroll office. Winn responded that he had not signed the application or
original form and asserted that the documents contained false signatures. Winn filed a complaint.
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Zaal claimed to the company that Winn had agreed to purchase the annuity. His explanation in his
response to Great American was not accurate. Winn did not authorize Zaal or his staff to scan his
signature onto the purchase documents. He had never heard of this type of annuity, and he did not
authorize the purchase of the annuity or the withdrawal of $700. Zaal asserted at the hearing and on
appeal that the unauthorized annuity applications were honest mistakes made by a former colleague,
Henrek Rotem, but the evidence from this witness and others disputes Zaal’s claims.
Rotem, who had worked with Zaal, described the office system whereby files were
controlled by and processed only at the direction of the agent who had obtained the client’s consent.
Rotem stated that he would only process a purchase request after getting the customer’s consent,
after which he would deliver the file to the agent for final processing. He testified that he never
switched a client’s investment from one product to another and never increased the amount of the
investment without permission.
The TDI found that Zaal prepared and submitted false documents in applying for the
annuity in Weyman’s name and in applying for the annuity in Winn’s name.
Universal Leases
During 2000-2004, Zaal was president of Z&Z International.2 Zaal sold various
financial products, including universal leases. Zaal sold about thirteen universal leases between
2000 and 2003, and he also purchased one for himself.
Zaal offered the universal lease as an agent of Yucatan Resorts, S.A. de C.V.
(Yucatan Resorts), a company located in Cancun, Mexico. Yucatan Resorts was also known as
2
Zaal is now a consultant for Z & Z International.
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Resort Holdings International (Resort Holdings). These and other entities were owned by Michael
Kelly. The universal lease entitled the purchaser to vacation accommodations in one of Yucatan
Resorts’ properties in Cancun, Mexico, for a specific unit for a specific week and term, similar to
a timeshare interest in a resort. Zaal received a sixteen percent commission for the sale of each
universal lease.
Owners of a universal lease had three options. They could use their unit themselves,
rent it themselves, or employ a third-party independent management company to rent and manage
their unit. Zaal’s clients elected the third option. Owners could choose their own third-party
management company, but Zaal referred his clients to Majesty Travel, later known as World
Phantasy Tours. These companies were represented to be third-party independent companies
recommended by Resort Holdings, but they were in fact owned by Michael Kelly. Kelly is now in
federal prison.3
The appeal of a universal lease was the high rate of return on the investment. Zaal
promoted universal leases to his clients, including Charles Winkle, Charles Johnson, and
Joan Johnson, a retired school teacher, as a safe and secure long-term investment that would realize
high returns each year. He did not caution them to diversify their investments to secure their
retirement funds. He promoted the lease as a retirement investment that would be safer than
regulated investments such as stocks and mutual funds, and that the clients would receive generous
3
This Court previously affirmed a case based on similar facts in which an insurance agent’s
license was revoked for selling universal leases for these same entities. See Meyer v. Texas Dep’t
of Ins., No. 03-10-00642-CV, 2011 WL 5865240 (Tex. App.—Austin Nov. 23, 2011, pet. denied)
(mem. op.).
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returns on the lease for years. None of these clients have received the returns promised and all have
lost their investment funds.
In order to promote the universal lease as a safe and secure investment, Zaal was
obligated to perform sufficient investigation of Resort Holdings, the universal lease program and the
properties, as well as the management companies and the agreement to pay fixed rates of return on
the investment. The record shows that Zaal adequately investigated Resort Holdings, but he did not
adequately investigate the universal lease, and he did not investigate Majesty Travel or World
Phantasy Tours. He relied on Resort Holdings’ representations concerning the universal lease and
its representation that Majesty Travel was an independent company, and on the fact that it had been
selected by Resort Holdings. He admits that he relied on Resort Holdings’ investigation and
recommendation of the third-party management company and on its representations concerning the
third-party company, and he told his clients that Resort Holdings recommended Majesty Travel.
When questioned by regulators in 2004, Zaal said that he had never met anyone from Majesty Travel.
At the hearing in 2009, he claimed that he had met with the company’s directors, but he also
admitted that the meeting was merely a brief greeting.
The third-party management company, not Resort Holdings, was responsible for
payment of the compensation to the leaseholders. Majesty Travel and World Phantasy agreed to pay
the owner either nine or eleven percent of the purchase price of the unit each year. Five percent was
for an option allowing World Phantasy or Majesty Travel to repurchase the unit after 36 months,
although they had no obligation to do so; four or six percent was for rental compensation.
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Zaal did not tell his clients anything different from the written material in the lease
and promotional documents. The promotional materials promised an “attractive, high rate of return”
and “long-term assurance” up to twenty-five years. He did not mislead his clients about their right
to redeem their investment. He told his clients that Resort Holdings had a right of first refusal but
was not required to buy back the lease. However, he led his clients to believe that the investment
was secure despite inadequate knowledge.
Zaal’s belief that the universal lease was not a security was unfounded and was based
in part upon a law firm’s representation that “[the universal lease] will more likely than not be found
to not constitute the sale of a security.” This questionable assertion did not raise Zaal’s concerns.
A lawyers’s 2001 letter to that effect was based on the assumption that the promotion and marketing
of the lease did not emphasize the economic benefits to be derived from the efforts of a third-party
leasing agent. However, Zaal’s marketing efforts did in fact emphasize the economic benefits to be
derived from the third-party management agent. The manner in which Zaal was marketing the
universal lease program was different from the facts described by the lawyer.
In response to learning about a website raising securities concerns about the product,
Zaal undertook no independent investigation. He reviewed the attorney’s second letter which again
concluded that the universal lease was not a security based on the assumption that the promotion and
marketing efforts did not emphasize the economic benefits derived from a third-party leasing agent,
which was not the case with Zaal.
Zaal was not aware of the cease and desist orders against Kelly issued in several states
to stop the sale of one of Kelly’s previous investment vehicles, known as the promissory note
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program, for failure to register them as securities. Zaal did not attempt to find out what states were
investigating the universal lease as unregistered securities. He relied on Resort Holdings’
assurances. TDI found that Zaal should have investigated the securities concerns before continuing
to sell the universal lease product, and he should have informed purchasers of the securities issue.
Zaal did not inform his clients of any securities issues. He relied on a letter from
Resort Holdings to the leaseholders alleging that a disgruntled employee was attempting to smear
its reputation. However, the letter made no mention of the securities concerns.
The record contains information concerning several of Zaal’s clients who purchased
universal leases. One of Zaal’s clients, Joan Johnson, bought a universal lease in December 2000;
she bought a second lease eight months later, using the maximum available lump sum from her
teacher retirement account. Her husband, Charles Johnson, bought a lease in February 2002, then
purchased a second lease seven months later. Zaal did not inform either of the Johnsons of any
potential securities problems or any other problems regarding the investment, either before or
between purchases. Neither would have bought a universal lease had they known of potential
securities issues. Charles Winkle also testified about his dealings with Zaal in purchasing a
universal lease.
Universal lease owners received statements from Majesty Travel or World Phantasy
reflecting the accumulated value of their universal lease accounts. In fact, any values were being
funded by new investors. In 2006, the universal leaseholders received statements reflecting that their
investments were worthless.
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The Commissioner’s findings of fact and conclusions of law set out in his order
explain the Commissioner’s decision-making process and the result he reached. See State Banking
Board v Allied Bank Marble Falls, 748 S.W.2d 447, 449 (Tex. 1988).
The Commissioner determined that Zaal materially misled his clients concerning the
quality and safety of the universal lease product investment, without knowledge of the truth of his
representations. The Commissioner measured Zaal’s actions against the accepted definition of fraud:
a material misrepresentation, which was false, and which was asserted as a positive assertion without
knowledge of its truth, which was intended to be acted on, which was relied on, and which caused
injury. See Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex.
2011); Brown, 34 S.W.3d at 689. The Commissioner found that Zaal engaged in fraudulent acts or
practices, in violation of Texas Insurance Code section 4005.101(b)(5), with regard to his sale of
universal leases. Substantial evidence in the record supports this finding.
CONCLUSION
We hold that the record contains substantial evidence to support the Commissioner’s
decision revoking Zaal’s license. We overrule Zaal’s issues and affirm the district court’s judgment.
_____________________________________________
Marilyn Aboussie, Justice
Before Justices Goodwin, Field, and Aboussie*
Affirmed
Filed: October 29, 2013
*Before Marilyn Aboussie, Chief Justice (retired), Third Court of Appeals, sitting by
assignment. See Tex. Gov’t Code § 74.003(b)
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