## Facts

- Chong Hui Hong and Gyu Chul Kim married and acquired a donut shop in Texas as community property.
- After marital conflict, Hong and Gyu signed a contract to sell the shop to Myong Nam Kim and Kyon S. Kim for $180,000, but the transaction initially stalled when the buyers stopped payment on a $20,000 check.
- Hong drafted a demand letter signed only by Gyu; the buyers hired attorney William Chu, who demanded performance and threatened civil litigation.
- Gyu appeared alone at Chu’s office to close; in a bill of sale prepared by Chu, Gyu represented he was the lawful owner with full authority to sell.
- The buyers paid the purchase price through cash/checks, a promissory note, and assumption of a debt; they later paid off the notes.
- After closing, Gyu wired the sale proceeds to his parents in Korea and filed for divorce.
- In the divorce, Hong alleged Gyu committed fraud on the community by diverting the proceeds and also sued the buyers and Chu for conversion and conspiracy.

## Issues

1. Whether a spouse alleging fraud on the community may recover substantial damages from third parties and opposing counsel without first recovering the community property or its value from the spouse who diverted it.
2. Whether fraud on the community is an independent tort supporting damages, or a divorce-court equity matter addressed through a “just and right” division of community property.
3. Whether the buyers’ lawyer could be liable for conversion or conspiracy based on preparing closing documents where he did not receive or control the sale proceeds.

## Decision

- The Supreme Court of Texas reversed the judgment against Chu and rendered a take-nothing judgment in his favor.
- The Court held it was error to allow recovery of damages against third parties without first pursuing recovery of the community property (or its value) from the spouse who took it.
- The Court rejected treating fraud on the community as an independent tort that supports a large damages award enlarging the community estate.
- The Court concluded the record did not support imposing conversion-type liability on Chu where he did not possess or exercise dominion over the sale proceeds.

## Legal Principles

- Fraud on the community is a wrong between spouses addressed in divorce through the court’s equitable powers, including ordering return of property or accounting for the fraud in a “just and right” division of the community estate.
- A divorce court should not create a windfall by awarding the innocent spouse both the transferred asset (or its return) and additional large damages from third parties while the wrongdoing spouse retains the consideration.
- Claims against third parties cannot be used to bypass the divorce remedy structure for fraud on the community.
- Conversion liability requires wrongful dominion or control over property; drafting transactional documents, without possession or control of the disputed funds, is insufficient.

## Conclusion

The Texas Supreme Court held that fraud on the community is remedied within divorce through return of property or equitable division, not through an independent tort-style damages recovery against third parties and the buyers’ attorney, and it reversed and rendered judgment for the attorney.


Chu v. Hong, 249 S.W.3d 441 (Tex. 2008)