At issue in this Texas diversity action is whether escrow account property tax estimates prepared and used by Pulte (based on charts prepared by ICM) in housing sales constitute a "false representation of a past or existing material fact ... made ... for the purpose of inducing" persons to purchase from Pulte, using mortgages from its subsidiary, ICM, in violation of Tex.Bus. & Com.Code Ann. § 27.01 (Vernon 1987); and whether ICM's actions also constitute gross negligence. A jury found that they did; we REVERSE and RENDER.

Six married couples (plaintiffs) bought new houses from Pulte in 1983 and 1984.1 The houses were constructed by Pulte in the greater Houston area, including Harris and Fort Bend Counties. Plaintiffs purchased them with mortgages provided by ICM, Pulte's wholly-owned subsidiary.

When plaintiffs expressed interest in a particular house, a Pulte sales representative prepared a one-page Investment Quotation and provided it to them. In addition to listing the mortgage interest rates and the monthly principal, interest, and insurance payments, it listed the monthly property tax escrow payments. The tax information was derived from tax charts prepared and furnished by Stephen Harshfield, an ICM officer. The charts were used by ICM for loan qualification purposes and to estimate the escrow amounts necessary to pay property taxes on homes it financed. The following statement, set in all capital letters, was included in the Investment Quotation.

INFORMATION IS ESTIMATED AND BASED ON CURRENT PRICES AND INTEREST RATES, WHICH ARE SUBJECT TO CHANGE WITHOUT NOTICE. TAXES AND INSURANCE ARE ESTIMATED.2

Plaintiffs alleged that Pulte and ICM incorrectly calculated the tax estimates, derived by multiplying the appraised value by the tax rate. In support, they maintain that the appraised value is equivalent to the purchase price of the home; and that Texas law provides both that properties should be assessed at one hundred percent of market value and that the property must be appraised at market value. On the other hand, Pulte and ICM contend that appraised value should reflect the discounting of purchase price as was used in mass appraisal techniques at the time the estimates were prepared. Harshfield testified that he used 70 percent of the assessed value, because "in Harris County and Fort Bend County, taxes ran in the range of 50 to 75 percent or 50 to 70 percent of assessed value."

Later, at closing, ICM gave plaintiffs a document entitled ICM IMPORTANT NOTICE CONCERNING FUTURE PROPERTY TAXES & MAINTENANCE FEES. It was signed by plaintiffs and stated in part:

Your monthly payment reflects a deposit in your escrow account on the basis of estimated improved property taxes. At the beginning of next year, your property will be reevaluated and your taxes computed on that reevaluation. Your monthly payments for [the next year] may or may not reflect a tax increase based on that reevaluation.

A comprehensive reappraisal was conducted in the Houston area in the 1980's.3 It took place in Harris County in 1984 and in Fort Bend County in 1985.4 Accordingly, the tax escrow amounts stated in the Investment Quotations were inadequate. As a result, ICM increased the amount of the monthly payments to cover the shortages and to avoid them in the future.5

Plaintiffs sued in state court on behalf of themselves and all others similarly situated, seeking relief under Tex.Bus. & Com.Code Ann. § 27.01 and, alternatively, for negligence, gross negligence, and violations of the Texas Deceptive Trade Practices--Consumer Protection Act (DTPA), Tex.Bus. & Com.Code Ann. § 17.41 et seq. (Vernon 1987). Among other things, the tax increase allegedly caused four couples to lose their houses. See note 5. After removal, the district court denied class certification; and, following a three-week trial, the jury found that both Pulte and ICM had violated § 27.01 and, also, that ICM was negligent and grossly negligent and had violated the DTPA.

The annual difference between the Investment Quotation estimate and the actual taxes was relatively small. For example, for the Allens, it was approximately $550 a year for 1985-1987; for the Rourkes, approximately $400 a year for 1984-1986. Plaintiffs' compensatory damages included this difference, as well as other elements, including mental anguish. Each couple was also awarded exemplary damages of $225,000.6

The district court granted plaintiffs' request that final judgment be entered only under § 27.01 (first cause of action) and for gross negligence (second cause of action), with plaintiffs, within thirty days following the exhaustion of any final appeal, to make an election of remedy. This appeal followed the denial of Pulte and ICM's motion for judgment notwithstanding the verdict or in the alternative for new trial.

Pulte and ICM contend that (1) the tax estimates do not constitute actionable misrepresentations of past or existing material fact under § 27.01; (2) there is insufficient evidence of ICM's knowledge of the falsity of any actionable misrepresentation upon which to base liability against it under § 27.01(d); (3) there is insufficient evidence of gross negligence; (4) the district court erred in several of its evidentiary rulings, constituting reversible error; and (5) it erred in awarding attorneys fees, damages for mental anguish, and exemplary damages. Because we reverse and render based on the first three points, we need not reach the last two.7

" 'The standard for appellate review of a jury's verdict is exacting. The verdict must be upheld unless the facts and inferences point so strongly and so overwhelmingly in favor of one party that reasonable men could not arrive at any verdict to the contrary.' " Granberry v. O'Barr, 866 F.2d 112, 113 (5th Cir.1988) (quoting Western Co. of North Am. v. United States, 699 F.2d 264, 276 (5th Cir.), cert. denied, 464 U.S. 892, 104 S. Ct. 237, 78 L. Ed. 2d 228 (1983)). " 'If there is evidence of such quality and weight that reasonable and fair minded men in the exercise of impartial judgment might reach different conclusions, the jury function may not be invaded.' " Id. (quoting Western Co. of North Am., 699 F.2d at 276).

(a) Fraud in a transaction involving real estate ... consists of a

(1) false representation of a past or existing material fact, when the false representation is

(A) made to a person for the purpose of inducing that person to enter into a contract; and

(B) relied on by that person in entering into that contract; ....

(b) A person who makes a false representation or false promise commits the fraud described in Subsection (a) of this section and is liable to the person defrauded for actual damages.

(c) A person who makes a false representation or false promise with actual awareness of the falsity thereof commits the fraud described in Subsection (a) of this section and is liable to the person defrauded for exemplary damages. Actual awareness may be inferred where objective manifestations indicate that a person acted with actual awareness.

(d) A person who (1) has actual awareness of the falsity of a representation or promise made by another person and (2) fails to disclose the falsity of the representation or promise to the person defrauded, and (3) benefits from the false representation or promise commits the fraud described in Subsection (a) of this section and is liable to the person defrauded for exemplary damages. Actual awareness may be inferred where objective manifestations indicate that a person acted with actual awareness.

(e) Any person who violates the provisions of this section shall be liable to the person defrauded for reasonable and necessary attorney's fees, expert witness fees, costs for copies of depositions, and costs of court.

Tex.Bus. & Com.Code Ann. § 27.01 (Vernon 1987). As noted, although ICM did not present the estimate to plaintiffs, it was found liable under § 27.01(d).

Section 27.01 is penal in nature and must be strictly construed. Ratcliff v. Trenholm, 596 S.W.2d 645, 650 (Tex.Civ.App.--Tyler 1980, writ ref'd n.r.e.). Because it contains the elements of common law fraud, its reliance and materiality elements are the same as those for Texas common law fraud. Haralson v. E.F. Hutton Group, Inc., 919 F.2d 1014, 1025 n. 4 (5th Cir.1990) (citing Richardson v. Salinas, 336 F. Supp. 997, 1000 (N.D.Tex.1972)).

To succeed on a § 27.01 claim, a plaintiff's reliance on "the defendant's fraudulent conduct must be justifiable as well as actual." Id. at 1025. Such "justifiability" is determined by inquiring whether--"given a fraud plaintiff's individual characteristics, abilities, and appreciation of facts and circumstances at or before the time of the alleged fraud--it is extremely unlikely that there is actual reliance on the plaintiff's part." Id. at 1026; see General Motors Corp., Pontiac Motor Div. v. Courtesy Pontiac, Inc., 538 S.W.2d 3, 6 (Tex.Civ.App.--Tyler 1976, no writ) (no justifiable reliance where representations were such that any person of normal intelligence, experience, and education " 'would recognize at once as preposterous ... or which are shown by facts within his observation to be so patently and obviously false that he must have closed his eyes to avoid discovery of the truth' "). In addition to proving (justifiable) reliance, and as provided in § 27.01(a)(1) ("past or existing material fact"), a fraud plaintiff must prove materiality. Haralson, 919 F.2d at 1030. "Only representations of material facts are actionable under [a common law fraud theory]." Id. (citing Trenholm v. Ratcliff, 646 S.W.2d 927, 931).

Pulte and ICM maintain that the estimates (a) referred only to the year in which the Investment Quotation was prepared and as such could not constitute actionable misrepresentations for future years; (b) were not representations of fact, but statements of opinion; (c) were at best opinions of law which are not actionable in Texas; and (d) were based on information equally available to both parties and therefore could not be actionable under Texas Law.

Richman Trusts v. Kutner, 504 S.W.2d 539 (Tex.Civ.App.--Dallas 1973, writ ref'd n.r.e.), addressed the meaning of § 27.01 "past or existing material fact". There, a purchaser of a shopping center sued for fraud. Id. at 540. In connection with the purchase, the vendor had provided a written statement concerning the center, including detailing income and expenses incident to its operation. Id. at 542. Under "Annual Expenses", it listed $297 for insurance. Id. The purchaser contended that following the closing of the sale on March 7, 1969, he discovered that the insurance policy had expired on March 14, 1969. Id. The renewal premium was $1,221. Id. There was no dispute that the cost of the insurance during the three previous years was $297. Id.

The Richman Trusts court affirmed a summary judgment for the vendor, holding: "The only representation of a past or existing material fact made by [the vendor] to [the purchaser] was that the present cost of insurance was $297 per year. This statement or representation was the expression of an existing fact and was not false." Id. at 543 (emphasis in original). The court held there was no misrepresentation of past or existing material fact, even though the vendor "admitted knowing that renewal rates were to be higher in the future and did not communicate this information to [the purchaser]." Id. The court went on to note that "even if [the vendor] had represented that future insurance costs would remain the same such representation of a future fact would not be actionable under that statute." Id. (emphasis in original).

Pulte and ICM maintain that the district court erred in allowing plaintiffs to recover damages resulting from increased taxes paid for post-purchase tax years. As described in notes 5 and 8, plaintiffs recovered, as part of their damages, the difference between the taxes paid for those years and the amount stated in their Investment Quotations for the year of purchase--a year not in issue.

The tax estimates refer only to the year in which they were prepared.8 Moreover, as noted, the Investment Quotation states: "INFORMATION IS ESTIMATED AND BASED ON CURRENT PRICES AND INTEREST RATES, WHICH ARE SUBJECT TO CHANGE WITHOUT NOTICE. TAXES AND INSURANCE ARE ESTIMATED." The Investment Quotation does not make any representation regarding future taxes.

Three couples received their Investment Quotations in 1983; they sought damages incurred as a result of taxes for tax year 1984 and several subsequent. The other three couples received their Investment Quotations in 1984. They sought damages incurred as a result of taxes for several tax years beginning in 1985.9 Because the Investment Quotations stated that they were estimates and were based on current prices and interest rates which were subject to change, it was improper to allow damages based on taxes for years subsequent to the one covered by the Investment Quotation.

As noted, § 27.01 concerns fact, not opinion. In the alternative, Pulte and ICM also contend that the tax estimates were not representations of fact, but statements of opinion. An estimate is defined as "the act of appraising or valuing[;] ... an opinion or judgment of the nature, character, or quality of a person or thing[;] ... a rough or approximate calculation." Websters New Collegiate Dictionary 426 (9th ed. 1989). Under Texas law, an expression of opinion is generally not actionable in fraud. McCollum v. P/S Investments, Ltd., 764 S.W.2d 252, 254 (Tex.App.--Dallas 1988, writ denied). In McCollum, a real estate broker showed the plaintiff a cover letter dated six months earlier from a real estate appraiser, stating the value of an apartment complex. Id. at 253-54. The plaintiff purchased the complex without seeing the complete appraisal or visiting the property. Id. at 254. He sought rescission and damages, alleging fraudulent misrepresentation. Id. at 253.

The McCollum court noted that an exception to the general rule that pure expressions of opinion cannot constitute fraudulent misrepresentations occurs when "the person giving the opinion has knowledge superior to that of the person relying upon the opinion, as, for example, when the facts underlying the opinion are not equally available to both parties." Id. at 254. In McCollum, the real estate appraiser "based his value assessment on his view of the property and information available to the public." Id. at 255. The plaintiff "had the same free access to the property and other information that [the appraiser] had." Id.

One cannot, by blinding himself to facts set before him, render those who choose to look more knowledgeable. "In general, one must rely on his own judgment and investigate before entering into transactions with others. 'The law does not place a premium on negligence or unreasonable credulity. Prudence and diligence should be exercised in the execution of contracts.' "

... "If the parties have equal means of knowledge and no artifice or fraud has prevented the person to whom the representation was made from making an examination and forming a judgment in respect to the matter, the representation is to be regarded as a mere expression of opinion. Statements which frequently come within this rule are those concerning value."Id. (emphasis in McCollum ) (quoting Guitar Trust Estate v. Boyd, 120 S.W.2d 914, 917-18 (Tex.Civ.App.--Eastland 1938, no writ)).

The fact that the McCollum plaintiff was a real estate broker does not distinguish McCollum from this case. The decision turned on equal access to pertinent information, not on the plaintiff's being a broker:

Even assuming that [the appraiser's] ability to value property surpassed [the plaintiff's], the equal access each had to all pertinent information prohibits [the plaintiff] from claiming he was defrauded by [the appraiser's] opinion..... [The plaintiff] could readily have formulated his own opinion as to the value of the property simply by exercising the ordinary diligence expected of a reasonable purchaser in the marketplace.

Id. The McCollum court held that because an essential element of the plaintiff's claim--the making of a fraudulent misrepresentation--had been negated, summary judgment against him was proper. Id. at 254-55.

Even if the plaintiffs had shown damages arising from differences in the taxes paid for the years in which the Investment Quotations were prepared, there was no "false representation of a past or existing material fact" as required by § 27.01. The tax figures in the Investment Quotations were labeled as estimates; the Quotation stated that the prices and rates were subject to change; and, in addition, the plaintiffs were notified at closing by the Important Notice, which they signed, that "[a]t the beginning of next year, [their] property w[ould] be reevaluated and [their] taxes computed on that reevaluation."

Applying the law of Texas and our deferential standard for review of jury verdicts, the facts and inferences contained in this record strongly and overwhelmingly establish that reasonable jurors could not conclude that defendants falsely represented any past or existing material fact. A jury could not reasonably find that anything more than an estimate of taxes was offered by Pulte and ICM. Furthermore, the estimates pertained only to the years in which they were prepared. No damages were sought for those years. The verdict on the § 27.01 claims must be reversed.

ICM also challenges the judgment against it for gross negligence. "To sustain a cause of action for negligence it is necessary to produce evidence of a duty, a breach of that duty, proximate cause and damage." Colvin v. Red Steel Co., 682 S.W.2d 243, 245 (Tex.1984). "What lifts ordinary negligence into gross negligence is the mental attitude of the defendant; that is what justifies the penal nature of the imposition of exemplary damages." Burk Royalty Co. v. Walls, 616 S.W.2d 911, 922 (Tex.1981) (emphasis in original). "In determining whether there is some evidence of the jury's finding of gross negligence, the reviewing court must look to all of the surrounding facts, circumstances, and conditions, not just individual elements or facts." Id.

As for breach of duty, Texas law required tax appraisers, not mortgage companies, to appraise at one hundred percent of market value.10 The evidence showed that mass appraisal techniques in use at the time the Investment Quotations were prepared did not produce appraisals equal to full market value. When Harshfield prepared the tax estimates, his research indicated that the values used were not one hundred percent of market. He determined that "there was a noncompliance with the state statute." As a matter of law and fact, there was no breach of duty by ICM.

Furthermore, the jury's finding of causation cannot stand. There are two elements to proximate cause under Texas Law: cause in fact and foreseeability. See Urbach v. United States, 869 F.2d 829, 831 (5th Cir.1989). Cause in fact is established if the injury would not have occurred "but for" the allegedly wrongful act. In re Air Crash at Dallas/Fort Worth Airport, 720 F. Supp. 1258, 1279 (N.D.Tex.1989), aff'd, 919 F.2d 1079 (5th Cir.), cert. denied, --- U.S. ----, 112 S. Ct. 276, 116 L. Ed. 2d 228 (1991). Foreseeability requires that the injury complained of be of such a general character as might reasonably have been anticipated from the defendant's conduct. Id.

The tax estimates were not the cause in fact of plaintiffs' alleged damages.11 As noted, the tax differentials alleged as damages were differentials that occurred for years subsequent to those for which the Investment Quotations were prepared. As also noted, plaintiffs did not allege injuries for the year in which the estimates were prepared. The reappraisals resulted in the higher taxes. And, plaintiffs had been put on notice that the tax information was subject to change.

ICM made clear at closing, through its Important Notice, that "at the beginning of next year, your property will be reevaluated and your taxes computed on that reevaluation." As described, plaintiffs signed that notice at closing.

Under Texas law and our deferential standard of jury verdict review, no reasonable juror could find the evidence here supported a finding of breach of duty or causation.

Accordingly, we REVERSE and RENDER in favor of Pulte and ICM.