ANNE GARDNER, Justice.
Appellants Matlock Place Apartments, L.P., JR TX 1, LLC, Hagop Kofdarali,
This appeal involves the Matlock Place Apartments in Arlington, Texas (the property). Appellant Matlock Place is a single-asset, Texas limited partnership controlled by Appellant Hagop "Jack" Kofdarali. Appellant JR TX 1, LLC is the general partner of Matlock Place. Appellee Druce Properties purchased the property from Matlock Place in July 2004.
Kofdarali testified at trial that he had been buying, operating, and selling apartment complexes since 1993. He assumed ownership responsibilities for the property in October 2002 when his sister purchased the property out of foreclosure for approximately $1.3 million,
Jeffry Druce is the principal of Druce Properties. By the time Druce Properties purchased the property, Druce had been an actor, real estate agent, and real estate investor in California. Druce had owned or did own at the time of trial two rent houses, a home that he rehabilitated and sold, a sixteen-unit apartment complex, and a thirty-five-unit apartment complex. He also owned a large self-storage facility in south Texas. However, Druce testified that he had lived at the property during the three and one-half years before trial, managing the property himself and trying to turn it around.
When Kofdarali's sister purchased the property, the occupancy rate was between forty and fifty percent. Kofdarali testified that the property needed an occupancy rate in the eightieth percentile to sustain itself financially and that he believed bad management and lack of funds had caused the low occupancy rate. He also testified that apartment complexes of this type are challenging because tenant income is not as high, there is a lot of tenant turnover, and departing tenants often leave the units damaged. Kofdarali testified that the property was in a high crime area, that the property was a "Class D" property or worse when he started looking at it, but that he was still interested because he might be able to clean it up and make it profitable.
Kofdarali decided in August 2003 to list the property for sale, and he retained Jeff Dowdle of the Marcus and Millichap firm as broker.
The brochure listed a ninety-three percent occupancy rate, and it stated that there was "very little deferred maintenance" and that "Major Rehab Just Completed." The brochure also included a disclaimer that stated, "The information contained herein is not a substitute for a thorough due diligence investigation." Kofdarali testified that occupancy rates fluctuate monthly and could go from ninety-three to eighty percent within one month. He also testified that rehabilitation was not complete at the time, and he denied that the brochure represented that all major rehabilitation was complete. Major rehabilitation other than the roof had been done, but a lot of interior units still needed work. Kofdarali also testified that he would never make a purchase decision based on a marketing brochure because they contain "fluff" intended to make the property look attractive to potential buyers. Referring to the marketing brochure, he said, "No one I know buys off of this."
Druce agreed that marketing brochures are advertising tools and contain exaggerations, but he testified that he still expected it to be truthful. He testified that the marketing brochure contained three materially false representations: that there was a ninety-three percent occupancy rate, that major rehabilitation was complete, and that only minimal deferred maintenance was required.
Druce was not the first prospective buyer to express interest in the property. Two other prospective buyers had signed contracts before Druce, but neither contract closed. Kofdarali testified that he assumed the buyers did not like what they saw upon conducting their due diligence inspections. Both contracts contained a due diligence clause, and Kofdarali testified that he removed the due diligence clause from the contract with Druce because the legal fees for negotiating a contract were too expensive since the buyer could back out after the due diligence period. He testified that instead of a due
Druce and Kofdarali signed a letter of intent on March 12, 2004. The purchase price in the letter of intent was $2.4 million, and the letter of intent included a twenty-one-day inspection period and a $100,000 credit at closing for "repairs and maintenance."
Druce testified that he personally inspected the property for about four hours after he had signed the letter of intent. Present at the inspection were Marcus and Millichap brokers Dowdle and John Barker and two female Legend employees. Burns arrived later. Druce testified that he asked to see a representative sample of the units and that he inspected approximately ten of the ninety-nine units. He testified that of the ten units he inspected, most were occupied, the vacant units had only minor damage, and none were uninhabitable. Druce testified that he did not walk each of the ninety-nine units because the brochure represented that major rehabilitation had just been completed, because he thought the other units would look like those he had been shown, and because he was getting tired and bored. Druce admitted that he stopped the inspection and that Dowdle and the Legend employees would have shown him more units if he had wanted to see them, but he testified that he believed he was being shown a representative sample of the property.
Druce testified that he asked Dowdle at the inspection if there were any negatives that he needed to know about the property, that Dowdle told him there were not, and that he relied on that representation. He testified that no one disclosed to him that, contrary to the marketing brochure, rehabilitation was not complete, and he said he would have asked to see more units if that had been disclosed. Druce also testified that he relied on the statement in the marketing brochure about deferred maintenance and that he would not have purchased the property if its true condition had been disclosed; he said that it had been a major undertaking to make the property livable after he purchased it. But Druce acknowledged seeing problems with the foundation, roof, fence, and landscaping upon inspection and having received documents during due diligence that disclosed foundation and lighting problems.
The documents Druce received during the due diligence period were generated by Legend, and Kofdarali agreed that they were presented to Druce as complete and accurate. Druce acknowledged receiving 1,500 to 2,000 pages of documents, but he testified that he did not notice the crime and delinquent rent problems revealed by the documents and that were pointed out to him at trial. Druce testified that he would have been concerned about the high delinquent rent and prostitution problems pointed out to him at trial, and he agreed that no one had refused any request for information or access to a unit and that he would have been aware of this information had he completely reviewed the due diligence documents. Druce testified, however, that the information was "buried" in the stack of paper and that he did not consider that to be full disclosure. He testified that he should have been provided a single document containing negative disclosures on it. Druce also testified that it is "worthless" to receive documentation with inaccurate income and occupancy numbers.
Druce acknowledged that a buyer must conduct due diligence before purchasing a property and testified that due diligence is
Druce and Kofdarali entered into the "Contract of Sale" (the contract) on March 24, 2004. Although the letter of intent provided for a twenty-one day due diligence period, Druce signed the contract twelve days after signing the letter of intent. Druce insisted that the roof be repaired before closing, and Druce and Kofdarali agreed to split the cost of the new roof with Kofdarali paying his half of the new roof cost by lowering the purchase price. Thus, Druce purchased the property for $2.273 million. According to Kofdarali, this amount reflected a purchase price of $2.4 million, a $100,000 credit for maintenance and repairs, and a $27,000 credit for half of the cost of the new roof. Kofdarali testified that Druce negotiated for the $100,000 credit "because he knew that there was work to be done on this property." Druce, however, testified that he made a $2.3 million offer that Kofdarali accepted without negotiation and that he did not know where the $100,000 credit came from. Kofdarali received $365,484.94 from the sale at closing but testified that he made no profit on the sale to Druce.
Druce closed on the property in late July 2004. He testified that he visited the property four or five days before closing and that the property looked deserted. During that visit, he learned from an Arlington police officer that the property was well known in the area for its crime problem and that the property was full of drug dealers, addicts, and prostitutes. Druce testified that no one had disclosed the crime problem to him but testified that he closed on the property anyway because he was financially and emotionally invested in it. Druce testified that he was still excited about the property because the income stream as represented was "gigantic" and that he thought the income stream would be even higher once he cleaned up the crime problem.
Druce acknowledged receiving documents just before closing that showed the occupancy rate at eighty-seven rather than ninety-three percent, but he testified that he still believed the marketing brochure to be "substantially true" because the income stream would have still been significant. He testified that he would not have closed had he believed the updated information was not true, but he admitted that he did not go inside any units to verify the occupancy rate when he visited the property just before closing.
Kofdarali testified that Druce received documents at closing, including rent rolls and operating reports, that reflected $12,000 in delinquent rent.
Rosemary Ocampo began working at the property for Legend shortly before Druce offered to buy it, and she testified that she was the property manager when Druce Properties purchased the property. Ocampo testified that Legend employee Christina Morrison told her not to remove tenants from the computer system when they moved out and to only add tenants to the computer system because the property was for sale. Ocampo testified on cross-examination, however, that she did not know how to use the rent roll program and could not have changed the tenant numbers if she had wanted to. Ocampo also testified that Morrison told her to accept every tenant application at the property without conducting criminal or credit checks because, according to Morrison, they could not show any vacant units due to the pending sale. Ocampo testified, "We needed to fill the property up, so any application that came to the door, we had to move them in."
Ocampo testified that she was aware of the crime problem at the property before Druce purchased it and that she ultimately stopped working at the property because of the crime problem.
Morrison testified that Ocampo was in fact trained to run the rent roll computer program and knew how to add and remove tenants from the rent roll. Morrison also testified that there is a difference between accepting all applications and moving in all applicants. Apartment complexes cannot discriminate, so they accept all applications that are given to them but exercise discretion on which tenants to lease to after verifying the information on the rental application. Morrison denied telling Ocampo to falsify documentation, to fill the property with tenants without conducting background checks, or to not remove tenants from the rent roll when they moved out, and she testified that not removing tenants from the rent roll creates a high delinquency rate and causes the income numbers to look bad. Morrison also denied being told to not remove tenants from rent rolls and said she would have quit working for Legend if she had been so instructed.
Morrison acknowledged, however, that a comparison of the rent rolls, delinquency reports, and manager's reports from September through November 2003 revealed drastic inconsistencies within the same month. For example, the September 2003 rent roll listed twelve units as occupied when the September 2003 delinquency report showed that none of those twelve units was occupied and that some of those tenants had moved out five months earlier. Many of the same inconsistencies existed in the October and November 2003 reports. The November 2003 rent roll listed
Burns, Legend's president, testified that Legend's policy was to conduct criminal and credit background checks and that she did not instruct anyone not to check tenant backgrounds. Burns also testified that tenants are automatically added or taken off of the rent rolls by the computer system when they move in or out and that no one asked her or Legend to falsify documentation or to run the property differently after Druce signed the contract.
Druce testified that he would not have purchased the property had he known that the rent rolls were inaccurate or that tenants had been allowed to live on the property without any background checks. He testified that the only reason to allow bad tenants onto the property is to raise the occupancy rate to sell it and that he would not do that to someone else. Druce said that inaccurate documents prevent prospective buyers from making an informed, intelligent purchase decision and that Legend's actions made the property worthless by representing that the property was making money when it was not. Druce testified that he believes the documents he received had been falsified because of Ocampo's testimony and because he had not been able during his ownership to duplicate the income levels represented to him before closing. Druce also believed that it was a breach of the contract to provide him with false documents at closing.
Ocampo stayed at the property after Druce Properties purchased it to serve as property manager for Majestic Realty Management, Druce Properties's new management company. She testified that she walked the entire property with her supervisor within a week of closing, that there were twelve down units and a total of twenty-five to thirty vacant units, and that the rent roll Druce received at closing did not match what they saw. Burns denied there were that many down units when Druce Properties purchased the property, but she acknowledged that it had been a long time since she had walked all of the units. Dowdle, the Marcus and Millichap broker who represented Kofdarali, testified that he had walked all but four or five of the units with another prospective buyer just before Druce decided to buy it, that there were not twelve to fifteen down units at that time, and that Ocampo's testimony could not be correct because there could not have been that much change in only a few months.
Druce testified that he learned from his property manager that there were sixteen uninhabitable units at closing. He also testified that his first two property management companies quit and that he was continually asked to send money to cover operating expense shortfalls. Druce testified that he did not initially send all the money requested by his management companies because he did not believe that the
Druce testified that the occupancy rates during his ownership have fluctuated between seventy-eight and fifty-eight percent. He also testified that the physical condition of the property was much better at the time of trial but that the property was still losing money. The crime problem had improved through diligently investigating tenants before they lease and seeking eviction when they default. Druce testified that he had spent approximately $800,000 rehabilitating the property, all in an effort to get the property to at least break even and that he would not have purchased the property had he known its true condition.
James Ryfell, a commercial real estate investor and developer, testified as an expert witness for Druce Properties. Ryfell testified that the property had a market value in 2004 between $1 and $1.1 million. Druce testified without objection that the property was worth approximately $1 million when he purchased it. He based his opinion on the amount of deferred maintenance required and deducted that number from Kofdarali's $1.3 million purchase price from 2002. Druce later said that the property was worth $1 million when he purchased it because Kofdarali had filled it with criminals after purchasing it for $1.3 million. Druce admitted on cross-examination, however, that his $1 million estimated value was actually based on his expert's opinion and that he had not protested the significantly higher tax appraisal by Tarrant County.
There was also evidence that Druce Properties listed the property for sale in 2007 for $2.75 million and that Druce received multiple offers at $2.4 or $2.5 million. Druce testified, however, that the offers were based on creative financing arrangements he was not comfortable with and that he fired his broker based on misrepresentations contained in the marketing brochure.
At the close of all evidence, the jury returned a verdict for Druce Properties, finding that Kofdarali, Matlock Place, Legend, and Burns committed fraud by nondisclosure and statutory fraud; that Kofdarali, Matlock Place, Legend, and Burns made a negligent misrepresentation upon which Druce Properties relied; and that Matlock Place breached the contract. The jury found that Druce Properties sustained damages of $973,900 and that Druce Properties should recover $146,153 in trial attorney's fees. The jury also assessed punitive damages of $1.3 million against Legend. The trial court subsequently signed a judgment in accordance with the jury's verdict.
Appellants globally contend in their first issue that the evidence is legally and factually insufficient to support the trial court's judgment. We address each of Appellants' sub-issues in turn.
We may sustain a legal sufficiency challenge only when (1) the record discloses a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence establishes conclusively the opposite of a vital fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex.1998), cert. denied, 526 U.S. 1040, 119 S.Ct. 1336, 143 L.Ed.2d 500 (1999); Robert W. Calvert, "No Evidence" and "Insufficient Evidence" Points of Error, 38 Tex. L. Rev. 361, 362-63 (1960). In determining whether there is legally sufficient evidence to support the finding under review, we must consider evidence favorable to the finding if a reasonable factfinder could and disregard evidence contrary to the finding unless a reasonable factfinder could not. Cent. Ready Mix Concrete Co. v. Islas, 228 S.W.3d 649, 651 (Tex. 2007); City of Keller v. Wilson, 168 S.W.3d 802, 807, 827 (Tex.2005).
Anything more than a scintilla of evidence is legally sufficient to support the finding. Cont'l Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 450 (Tex.1996); Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex. 1996). More than a scintilla of evidence exists if the evidence furnishes some reasonable basis for differing conclusions by reasonable minds about the existence of a vital fact. Rocor Int'l, Inc. v. Nat'l Union Fire Ins. Co., 77 S.W.3d 253, 262 (Tex. 2002). Any ultimate fact may be proved by circumstantial evidence. Russell v. Russell, 865 S.W.2d 929, 933 (Tex.1993). A fact is established by circumstantial evidence when the fact may be fairly and reasonably inferred from other facts proved in the case. Id. However, to withstand a legal sufficiency challenge, circumstantial evidence still must consist of more than a scintilla. Blount v. Bordens, Inc., 910 S.W.2d 931, 933 (Tex.1995).
When reviewing an assertion that the evidence is factually insufficient to support a finding, we set aside the finding only if, after considering and weighing all of the evidence in the record pertinent to that finding, we determine that the credible evidence supporting the finding is so weak, or so contrary to the overwhelming weight of all the evidence, that the answer should be set aside and a new trial ordered. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986) (op. on reh'g); Cain v. Bain, 709 S.W.2d 175, 176 (Tex.1986); Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965).
Appellants argue in part of their first issue that the evidence of Druce Properties's damages is insufficient because it is conclusory and not supported by any calculation or methodology. The jury charge asked the jury to find the difference between the value of the property as represented and the value of the property as received, and the jury found the difference to be $973,900. Appellants challenge both the evidence of value as represented and the evidence of value as received.
Appellants first argue that there is no evidence or factually insufficient evidence they represented the property had a particular market value and that the "only evidence was that Matlock [Place] merely sought a particular price." However, the August 2003 marketing brochure listed an asking price of $2.5 million, and it further represented that the property had a ninety-three percent occupancy rate, annual income of $624,120, and an annual total return before taxes of $155,597. Dowdle testified that the numbers in the brochure were intended to advise a potential buyer how to determine the property's value,
Appellants also argue there is no evidence or factually insufficient evidence of the property's market value as received by Druce Properties in 2004 because the only evidence offered was conclusory ipse dixit testimony. Ryfell testified that he has purchased and sold twenty-five to thirty apartment complexes. He first identified several items that he evaluates when considering the purchase of a Class C property: whether the roof is flat or pitched, whether the units have individual electricity meters and water heaters, whether the stairways are covered or exposed, and whether the air conditioning units are installed in a way that makes them subject to theft. Ryfell testified that he next reviews the income-expense and rent roll documentation to compare against his initial assessment of the property.
Ryfell testified that, in his opinion, the property had a market value between $1 and $1.1 million in 2004, depending on the integrity of the roof and whether the air conditioning units were all working. To support his opinion, Ryfell testified that he reviewed the operating numbers and rent roll after the sale date and applied "basic fundamental assumptions of valuation analysis." Ryfell explained that by "basic fundamental assumptions," he meant (1) determining gross rent; (2) deducting (a) twenty percent for maintenance; (b) twelve percent for funds in reserve; and (c) actual expenses such as insurance, employee salaries, and utilities; and (3) applying a reasonable capitalization rate to the resulting number. Ryfell testified that he used Druce Properties's operating statements from after the sale to determine the income and expenses and that he calculated the property's value to be $1 million. Thus, Ryfell identified for the jury the physical and financial aspects of the property that he considered important in determining its value, and he provided the jury with his calculation, the source of the numbers inputted into his calculation, and the result of his calculation. We hold that Ryfell's testimony concerning property value as received is not conclusory. See Plunkett v. Conn. Gen. Life Ins. Co., 285 S.W.3d 106, 120 (Tex.App.-Dallas 2009, pet. denied) ("`A conclusory statement is one that does not provide the underlying facts to support the conclusion.'") (quoting Brown v. Brown, 145 S.W.3d 745, 751 (Tex.App.-Dallas 2004, pet. denied)). And to the extent that Appellants contend that Ryfell's testimony is no evidence of damages because it was based on assumed facts that differed from actual, undisputed facts, Ryfell testified that his calculations and market value determination were based on the actual documentation generated by Druce Properties shortly after it purchased the property from Matlock Place. His testimony was not based on assumed facts. After applying the appropriate standards of review, we hold that legally and factually sufficient evidence supports the jury's damage award. See Gulf States Util. Co. v. Low, 79 S.W.3d 561, 566 (Tex.2002) (stating that the fact finder "has discretion to award damages within the range of evidence presented at trial"); Norris v. Jackson, No. 02-09-00265-CV, 2010 WL 4261541, at *5-6 (Tex. App.-Fort Worth Oct. 28, 2010, no pet.) (mem. op.) (affirming damage award within range of evidence presented at trial on legal and factual sufficiency grounds). We overrule this portion of Appellant's first issue.
Appellants contend in part of their first issue that the evidence is legally insufficient to support Druce Properties's fraud, statutory fraud, and negligent misrepresentation claims because the disclaimer of reliance clause in the contract negated Druce Properties's reliance as a matter of law, thereby conclusively negating reliance as an essential element of each cause of action.
The Texas Supreme Court has addressed the enforceability of disclaimer of reliance clauses on at least three occasions. See Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (Tex.2011); Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex.2008); Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171 (Tex.1997). "The question of whether an adequate disclaimer of reliance exists is a matter of law." Italian Cowboy, 341 S.W.3d at 333 (citing Schlumberger, 959 S.W.2d at 181).
The Schlumberger court upheld a disclaimer of reliance clause and determined that there was a clear intent to disclaim reliance where the contract provided, "[N]one of us is relying upon any statement or representation by any agent of the parties being released hereby. Each of us is relying on his or her own judgment." 959 S.W.2d at 180. The court emphasized that the principle that fraud vitiates a contract must be weighed against the competing concern that parties should be able to fully and finally resolve their disputes by bargaining for and executing a release barring all further disputes. Id. at 179. Based on this latter concern, the court held that "a release that clearly expresses the parties' intent to waive fraudulent inducement claims, or one that disclaims reliance on representations about specific matters in dispute, can preclude a claim of fraudulent inducement." Id. at 181. The court further remarked, however, that a disclaimer will not always preclude a fraudulent inducement claim. Id.
Later, in Forest Oil, the court upheld a similar disclaimer of reliance clause that stated in part, "[N]one of [the Plaintiffs and Intervenors] is relying upon any statement or any representation of any agent of the parties being released hereby. Each of the Plaintiffs and Intervenors is relying on his, her, or its own judgment." See 268 S.W.3d at 54 n. 4. The court identified five facts that it had considered most relevant in Schlumberger and that were also present in Forest Oil, and the Court listed those facts as:
Id. at 60.
The Forest Oil court, however, expressly declined to adopt "a per se rule that a disclaimer automatically precludes a fraudulent-inducement claim" and stated that its holding "should not be construed to mean that a mere disclaimer standing alone will forgive intentional lies regardless of context." Id. at 61.
The disclaimer of reliance clause at issue here stated in bold and capital type:
Because the disclaimer of reliance clause must clearly and unequivocally disclaim reliance, we begin with the fifth Forest Oil factor. See id. (listing remaining factors that become relevant if the contract clearly and unequivocally disclaims reliance).
The clause at issue in Forest Oil stated in part that the parties were not "relying upon any statement or any representation of any agent of the parties being released" and that they were each "relying on his, her, or its own judgment." See 268 S.W.3d at 54 n. 4. The clause at issue in Schlumberger stated in part that "none of us is relying upon any statement or representation by any agent of the parties being released hereby" and that "[e]ach of us is relying on his or her own judgment." 959 S.W.2d at 180. The clause at issue here disclaimed any representations concerning the condition of the property or the accuracy or completeness of any information provided to Druce Properties, and the clause expressly provided that Druce Properties would "inspect the property" and would "rely solely on its own investigation of the property and not on any information provided or to be provided by seller." We hold that the language of the clause clearly and unequivocally disclaimed Druce Properties's reliance. See Forest Oil, 268 S.W.3d at 60, 62; Schlumberger, 959 S.W.2d at 179, 180-81; cf. Allen v. Devon Energy Holdings, L.L.C., No. 01-09-00643-CV, 2011 WL 3208234, at *7-9 (Tex.App.-Houston [1st Dist.] Jul. 28, 2011, no pet. h.) (holding fraudulent inducement claim not precluded because contract did not negate reliance on information provided by other party).
We now consider the remaining Forest Oil factors. The first factor inquires whether the terms of the contract were negotiated and whether the parties specifically discussed the issues that later became the topic of the dispute. See Forest Oil, 268 S.W.3d at 60. Druce Properties argues that the contract language was boilerplate and not negotiated because it appeared in a previous Matlock Place contract and that there was not a dispute between the parties at the time of contract formation. While Matlock Place's contract with the prior interested buyer did contain an identical disclaimer of reliance clause, there is evidence that the parties specifically discussed and negotiated contractual terms to address one of the primary topics disputed at trial: the required maintenance and repair of the property. Druce and Kofdarali spoke on the telephone before
Concerning representation by counsel, it does not appear that Druce had an attorney assist with the negotiation of the letter of intent or the contract, but Druce did obtain, four months after signing the contract, an attorney's opinion letter concerning the loan for the property. Thus, there is conflicting evidence concerning Druce's representation by counsel. Compare Baker, 305 S.W.3d at 796 (declining to enforce disclaimer of reliance clause and noting plaintiff's testimony that "he was not represented by counsel during the bidding process or at closing"), with RAS Group, Inc. v. Rent-A-Center East, Inc., 335 S.W.3d 630, 640 (Tex.App.-Dallas 2010, no pet.) (enforcing disclaimer of reliance clause and noting testimony that parties had attorneys available to review contract).
Druce Properties concedes the third factor, which inquires whether the parties dealt with one another in an arm's length transaction, and the fourth factor, the parties' knowledge in business matters, favors enforcement. Druce had been a real estate agent for twenty years and had closed over one hundred properties for clients, he took a fee for serving as an agent in this transaction, and he owned two small apartment complexes and a large storage facility when he entered into the contract. Although Druce did not have experience with large apartment complexes equivalent to Kofdarali's, he did have experience sufficient to be considered knowledgeable in business matters, particularly those involving real estate.
Considering the Forest Oil factors and the policy reasons for the holdings in Forest Oil and Schlumberger, we hold that the disclaimer of reliance clause in the purchase and sale contract precludes Druce Properties's reliance as a matter of law. The contract provides that Druce Properties would rely solely upon its own investigation and that Matlock Place had not verified any of the information provided, and at least three of the other four factors weigh in favor of enforcing the disclaimer of reliance clause. See McLernon v. Dynegy, Inc., 347 S.W.3d 315, 332-33 (Tex. App.-Houston [14th Dist.] 2011, no pet.) (enforcing disclaimer of reliance clause with only "scant" evidence of extent of representation by counsel and stating that the Forest Oil considerations are factors rather than elements). Under the facts of this case, we hold that the disclaimer of reliance clause is enforceable and that it precludes Druce Properties's fraud by
Appellants next argue there is legally insufficient evidence of Druce Properties's reliance because "Druce knew sufficient information before signing the contract and closing to not justifiably rely on the information in the brochure and complained-of documents."
"In measuring justifiability, we must inquire 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.'" Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010) (quoting Haralson v. E.F. Hutton Group, Inc., 919 F.2d 1014, 1026 (5th Cir. 1990)). In other words, a person may not justifiably rely on a representation if there are "red flags" indicating such reliance is unwarranted. Id. (quoting Lewis v. Bank of Am. NA, 343 F.3d 540, 546 (5th Cir. 2003)).
Appellants point to several representations that Druce Properties contends were false, and they also identify evidence suggesting that Druce was aware of the falsity before closing. For example, Appellants note that the marketing brochure and September 2003 rent roll showed a ninety-three percent occupancy rate. They also point to the documents Druce received during due diligence that showed occupancy rates in the mid-seventies, Druce's testimony that he knew the brochure would have exaggerations in it, and Druce's admission that he knew from walking the property that a ninety-three percent occupancy rate was too high. However, the
Appellants also attempt to refute the representation in the marketing brochure that said, "Major Rehab Just Completed." In doing so, Appellants point to evidence that Druce was aware that the property had issues with erosion and needed new paint and that there were problems with the foundation, roof, lighting, and fence. But these items relate to deferred maintenance, not a major rehabilitation. For example, Druce testified that when he inspected the property, he asked to see a representative sample of the units; that he inspected approximately ten of the ninety-nine units; that of the ten units he inspected, most were occupied, the vacant units had only minor damage, and none was uninhabitable; and that his inspection seemed consistent with the representation that major rehabilitation had just been completed. Druce also testified that no one disclosed to him that rehabilitation was not complete and that he would have asked to see more units if that had been disclosed. The jury could have reasonably determined that Druce Properties justifiably relied on Appellants' representations concerning rehabilitation of the property.
Appellants also challenge Druce Properties's reliance on any representations about crime problems at the property.
Appellants also point to evidence that all Class C properties have some issues with crime, that Druce spoke with Morrison about the crime issues before closing, and that Druce discussed the crime problem with an Arlington police officer four days before closing and decided to close anyway. But there is no evidence that Druce knew crime was a potential problem with Class C properties; in fact, Druce did know about the necessity of criminal background checks before he bought the property in 2004. Furthermore, Druce's conversation with Morrison occurred at the same time Druce was speaking with the police officer. Finally, the conversation with the police officer occurred four days before closing in July, a time when Druce no longer had an unconditional right to terminate the contract.
There is no question that the jury in this case heard conflicting evidence. As a reviewing court, we defer to the jury on issues concerning the credibility of witnesses, the weight to be given to witness testimony, and the resolution of conflicts in the evidence. See City of Keller, 168 S.W.3d at 819. Applying the appropriate standard of review, we hold that, given Druce's individual characteristics, abilities, and appreciation of the facts and circumstances at or before the time of Appellants' misrepresentations, legally sufficient evidence supports the jury's finding that Druce Properties justifiably relied on Appellants' representations. See Grant Thornton L.L.P., 314 S.W.3d at 923; Cent. Ready Mix Concrete Co., 228 S.W.3d at 651; City of Keller, 168 S.W.3d at 807, 827. We overrule this portion of Appellants' first issue.
Appellants also contend in their first issue that the evidence supporting Kofdarali's and Burns's individual liability is legally and factually insufficient. Specifically, Appellants argue there is "no evidence that Kofdarali or Burns communicated any false statement on which Druce Properties relied or that [Kofdarali and Burns] had any scienter making such statements." Appellants do not contest that Kofdarali and Burns would be personally liable for their own fraudulent or tortious acts. See Miller v. Keyser, 90 S.W.3d 712, 717 (Tex. 2002). Instead, they argue the evidence is insufficient to sustain that individual liability.
The jury found that Kofdarali committed statutory fraud. The court's charge defined statutory fraud as follows:
Because Appellants did not object to the language of this instruction, we measure the sufficiency of the evidence based on this instruction as submitted to the jury.
Appellants argue that Kofdarali did not correspond with Druce, personally spoke with Druce only one time concerning the roof, and did not have knowledge that any representations to Druce were false. But Appellants ignore evidence favorable to the jury's statutory fraud finding against Kofdarali. For example, the evidence reflects that Kofdarali decided to sell the property upon determining that the cost to rehabilitate it was too great. Kofdarali admitted that the rehabilitation was not complete, and other evidence reflected that the property required substantial deferred maintenance after Druce purchased it. Furthermore, Kofdarali personally approved the marketing brochure, a document that he knew buyers would believe to be accurate and that represented that the property required "very little deferred maintenance" and stated, "Major Rehab Just Completed." Applying the appropriate standards of review, we hold that legally and factually sufficient evidence supports the jury's finding that Kofdarali committed statutory fraud, and we overrule this part of Appellant's first issue.
The jury similarly found that Burns committed statutory fraud. Appellants argue that Burns cannot be individually liable because she did not forward any documents directly to Druce and did not perform the data entry that led to the inflated occupancy rates. Appellants also point out that Druce described Burns as being very helpful when he spoke with her and that Druce testified that he did not remember relying on anything Burns told him when purchasing the property. However, there is evidence that Burns specifically told Druce during the due diligence period that the crime was "your standard loud noise ... which you get in almost all apartment complexes." But Burns testified at trial that crime is a problem at the property. Furthermore, although Druce testified that he did not recall anything from Burns that he relied on when purchasing the property, he also testified that no one told him about the crime problem before he spoke with the police officer four days before closing and that the crime problem was so bad that there was a murder on the property five months after he bought it. Given that Burns made the false representation concerning the crime problem during the due diligence period, it can be inferred from the circumstances that she made the representation with the intent that Druce Properties rely on it and enter into the contract. See Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 526 (Tex.1998) ("Proof that a defendant made a statement knowing of its falsity or without knowledge of its truth may be proved by direct or circumstantial evidence."); Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434-35
Again, the jury in this case clearly heard conflicting evidence. But we must as a reviewing court defer to the jury's determinations of credibility, weight, and conflicts in the evidence. See City of Keller, 168 S.W.3d at 819. Therefore, applying the appropriate standards of review, we hold that legally and factually sufficient evidence supports the jury's finding that Burns committed statutory fraud, and we overrule this part of Appellant's first issue.
Appellants also argue in their first issue that Druce Properties's only alleged damages arise from a contract and that Druce Properties therefore cannot maintain a tort cause of action for the same damages.
As we stated in Heil Co. v. Polar Corp.,
191 S.W.3d 805, 815-16 (Tex.App.-Fort Worth 2006, pet. denied).
Appellants do not dispute that the economic loss rule does not apply to claims for
In the final part of their first issue, Appellants argue that the evidence is legally and factually insufficient to support Druce Properties's claim for breach of contract against Matlock Place.
Druce Properties contended at trial and argues on appeal that Matlock Place breached the contract by providing falsified rent rolls. The contractual provision at issue provided as follows:
Appellants interpret this provision as a mere acknowledgement of a past act that could not be breached. Druce Properties responds that the letter of intent allowed Druce twenty-one days "to inspect the subject property and perform due diligence on all records" and that Appellants continued providing Druce with documents after the contract was signed. Thus, Druce Properties argues that this triggered an implied contractual obligation of cooperation. But the contract contained a merger clause providing that it superseded all "prior understandings or written or oral agreements between the parties." See, e.g., Springs Window Fashions Div., Inc. v. Blind Maker, Inc., 184 S.W.3d 840, 870 (Tex.App.-Austin 2006, pet. granted, judgm't vacated w.r.m.) ("A merger clause... memorializes the parties' intent to integrate or absorb their prior negotiations, agreements, or understandings concerning the same subject matter into a subsequent written contract."). Thus, Druce Properties cannot rely on the letter of intent to support an obligation by Matlock Place to provide an accurate rent roll.
Druce Properties also argues that the contract included an implied duty to perform the contract with care, skill, reasonable expedience, and faithfulness. But the cases upon which Druce Properties relies do not support its contention. See Bank One, Tex. N.A. v. Stewart, 967 S.W.2d 419, 434 (Tex.App.-Houston [14th Dist.] 1998, pet. denied) (declining to interpret implied covenant to cooperate into bailment agreement);
Moreover, Texas courts look "beyond the written agreement to imply a covenant only if necessary to effectuate the intention of the parties as disclosed by the contract as a whole, but not to make the contract fair, wise, or just." Stewart, 967 S.W.2d at 434 (citing Nalle v. Taco Bell Corp., 914 S.W.2d 685, 687 (Tex.App.-Austin 1996, writ denied)). "An implied covenant is necessary to effectuate the parties' intentions only if the obligation is `so clearly within the contemplation of the parties that they deemed it unnecessary to express it.'" Id. (quoting Nalle, 914 S.W.2d at 687). Furthermore, "`[t]here can be no implied covenant as to a matter specifically covered by the written terms of the contract.'" Id. at 434-35 (quoting Texstar N.A., Inc. v. Ladd Petroleum Corp., 809 S.W.2d 672, 678 (Tex.App.-Corpus Christi 1991, writ denied)). Here, the contract provision upon which Druce Properties relies merely acknowledges that Druce received the documentation, and the provision expressly disclaimed any representation or warranty concerning the accuracy or completeness of the information. Druce Properties does not dispute that Druce received a rent roll and contends only that the rent roll was not accurate. In this scenario, we are not free to imply a covenant into the contract to make it fair or just. See id. We hold that there is legally insufficient evidence to support the jury's finding that Matlock Place breached the contract, and we sustain this portion of Appellant's first issue.
Appellants contend in their second issue that the trial court erred by submitting two jury instructions. The first instruction concerned spoliation of evidence, and the second concerned the "as is" clause in the contract.
Appellants argue that the trial court erred by submitting a spoliation instruction because there was no evidence to support it.
"A spoliation instruction is an instruction given to the jury outlining permissible inferences they may make against a party who has lost, altered, or destroyed evidence." Tex. Elec. Coop. v. Dillard, 171 S.W.3d 201, 208 (Tex.App.-Tyler 2005, no pet.); Brewer v. Dowling, 862 S.W.2d 156, 159 (Tex.App.-Fort Worth 1993, writ denied). The use of a spoliation instruction is generally limited to two circumstances: (1) the deliberate destruction of relevant evidence; and (2) the failure of a party to produce relevant evidence or to explain its non-production. Wal-Mart Stores, Inc. v. Johnson, 106 S.W.3d 718, 721 (Tex.2003) (citing Anderson v. Taylor Publ'g Co., 13 S.W.3d 56, 61 (Tex.App.-Dallas 2000, pet. denied)). Under the first circumstance, a party who has deliberately destroyed evidence
A trial court may be guided by the following three factors in determining whether a spoliation presumption is justified: (1) whether there was a duty to preserve evidence; (2) whether the alleged spoliator either negligently or intentionally spoliated evidence; and (3) whether the spoliation prejudiced the nonspoliator's ability to present its case or defense. Trevino v. Ortega, 969 S.W.2d 950, 954-55 (Tex.1998) (Baker, J., concurring).
We review the submission of a spoliation instruction under an abuse of discretion standard. Crescendo Invs., Inc. v. Brice, 61 S.W.3d 465, 479 (Tex.App.-San Antonio 2001, pet. denied); see Johnson, 106 S.W.3d at 722-23; Conditt v. Morato, No. 02-06-00214-CV, 2007 WL 2693968, at *3 (Tex.App.-Fort Worth Sept. 13, 2007, pet. denied) (mem. op.).
The instruction at issue stated:
Appellants first argue that they did not have a duty to preserve evidence because they were not on notice of Druce Properties's claim when the documents were destroyed. Before any failure to produce material evidence may be viewed as discovery abuse, the opposing party must establish that the nonproducing party had a duty to preserve the evidence in question. Dillard, 171 S.W.3d at 209 (citing Johnson, 106 S.W.3d at 722). There must be a sufficient foundational showing that the party who destroyed the evidence had notice both of the potential claim and of the evidence's potential relevance thereto. Dillard, 171 S.W.3d at 209 (citing Johnson, 106 S.W.3d at 722).
Druce Properties filed this lawsuit in March 2006, and Appellants filed their answer in April 2006. Druce Properties, in September 2006, requested that Appellants produce documents and data, including that in electronic form, relating to the occupancy, management, and improvement of the property. In November and December 2006, Druce Properties sent notices for the depositions of Kofdarali and Burns, both of which included requests for production of the same type of documents and data. Despite these document requests, Appellants did not respond to the requests for production until late-December 2007. In their December 28, 2007 request for production response, Burns and Legend responded as follows:
At trial, Kofdarali testified that it is his standard practice to destroy all paper copies relating to a property once the tax return has been completed. Thus, because the property sold in 2004, he destroyed any remaining paper copies after completing the 2004 taxes during the year 2005. But Kofdarali also testified that he was aware in 2006 of Druce Properties's document request and that he knew the document request sought both paper and electronic copies. And Kofdarali confirmed that he and the other appellants did not respond to the pre-fire discovery requests for more than a year and until well after the June 2007 fire. However, Kofdarali also testified that he and Burns discussed the spoliation issue the night before he testified and discovered that there would not have been any data about the property on Legend's computers at the time of the fire because Legend stopped paying the software company for access to the electronic data relating to the property shortly after Druce Properties purchased the property. Burns testified similarly and added that Legend would have "boxed up" any paper documents in its possession after the sale and sent them to Kofdarali within ninety days of the sale. However, Burns testified both that after a sale, Legend "delete[s] a lot of stuff off of our system simply to free up space" and that the data "stays on that computer" but is inaccessible once the software license is not renewed.
On appeal, Appellants maintain they had no duty to preserve evidence because the paper copies were destroyed in 2005 before they had notice of a claim and that the electronic copies were inaccessible in 2004 once Legend stopped paying the software licensing fee. But Appellants ignore the inconsistencies in their pretrial and trial positions. Druce Properties requested documents, paper or electronic, from Appellants in September 2006, and Appellants did not respond to Druce Properties's document request until December 28, 2007. In the meantime, according to Kofdarali and Burns, a fire destroyed the computers stored at Legend's corporate office. However, Druce Properties could have inspected the actual computers had Appellants not delayed in responding to the document requests, and the June 2007 fire would not have been an issue. Further, if Legend in fact deleted electronic files shortly after the sale, Appellants could have said as much in their initial discovery response, and neither the fire nor the decision not to maintain the software license would have been an issue. Appellants instead chose to initially rely on the fire without mentioning the inconsistent explanations of deleting electronic files and not maintaining the software license. Because of Appellant's inconsistent and changing explanations, we cannot say the trial court abused its discretion by determining that Appellants had a duty to preserve relevant evidence. See generally Cresthaven Nursing Residence v. Freeman, 134 S.W.3d 214, 228 (Tex.App.-Amarillo 2003, no pet.) (holding that inconsistencies in testimony and paper records, among other things, provided more than a scintilla of evidence to support submission of spoliation instruction).
Appellants also argue that there is no evidence that the destroyed documents would have helped Druce Properties's case. To determine whether the spoliation hindered Druce Properties's ability to present its case, we look to a variety of circumstances such as the relevancy of the
Appellants argue in the remainder of their second issue that the trial court erred by submitting a jury instruction concerning the "as is" clause in the contract.
The trial court "shall submit such instructions and definitions as shall be proper to enable the jury to render a verdict." Tex.R. Civ. P. 277. An instruction is proper if it (1) assists the jury, (2) accurately states the law, and (3) finds support in the pleadings and evidence. Transcon. Ins. Co. v. Crump, 330 S.W.3d 211, 221 (Tex.2010) (quoting Union Pac. R.R. Co. v. Williams, 85 S.W.3d 162, 166 (Tex.2002)). Generally, we review the trial court's decisions on how to charge the jury for an abuse of discretion; however, when the appellant challenges an instruction or definition as legally incorrect, we review the instruction or definition de novo. Id.; St. Joseph Hosp. v. Wolff, 94 S.W.3d 513, 525 (Tex.2002). If the charge is legally correct, the trial court has broad discretion regarding the submission of questions, definitions, and instructions. Hyundai Motor Co. v. Rodriguez, 995 S.W.2d 661, 664 (Tex.1999).
The trial court submitted the following instruction to the jury:
Appellants first argue that this instruction is legally incorrect.
We held above that the disclaimer of reliance clause in the contract is enforceable. In light of that holding, we agree with Appellants that the "as is" instruction is an incorrect statement of the law. In Forest Oil and Schlumberger, the supreme court held that a disclaimer of reliance clause is enforceable if the disclaimer clause's language clearly and unequivocally disclaims reliance on the other party's representations and if other circumstances are present. Forest Oil, 268 S.W.3d at 60-61; Schlumberger, 959 S.W.2d at 179-81. If the clear and unequivocal language appears in the parties' agreement, as it does in this case, and the other circumstances are present, as they are in this case, it is not legally correct to instruct the jury that a "buyer is not bound by an agreement to purchase something `as is' if he has been induced to enter into an agreement because of a fraudulent representation or concealment of information by the seller." See Forest Oil, 268 S.W.3d at 60-61; Schlumberger, 959 S.W.2d at 179-81; see also Halmos v. Bombardier Aerospace Corp., 314 S.W.3d 606, 617 (Tex.App.-Dallas 2010, no pet.) ("An instruction that misstates the law as applicable to the facts or misleads the jury is improper."). The trial court therefore erred by submitting a legally incorrect instruction to the jury.
To obtain reversal of a judgment based upon an error in the trial court, the appellant must show that the error occurred and that it probably caused rendition of an improper judgment or probably prevented the appellant from properly presenting the case to this court. Tex.R.App. P. 44.1(a); Romero v. KPH Consolidation, Inc., 166 S.W.3d 212, 225 (Tex.2005). "`Charge error is generally considered harmful if it relates to a contested, critical issue.'" Crump, 330 S.W.3d at 225 (quoting Columbia Rio Grande Healthcare, L.P. v. Hawley, 284 S.W.3d 851, 856 (Tex.2009)). Unless the appellate court is reasonably certain that the jury was not significantly influenced by issues erroneously submitted to it, the error is reversible. Romero, 166 S.W.3d at 227-28.
Here, all issues in the case were hotly contested, especially liability for fraud, and the evidence presented a close case that the jury could have legitimately decided in favor of either Druce Properties or Appellants. Furthermore, we have held that Druce Properties's claims against Matlock Place are either barred by the disclaimer of reliance clause or not supported by legally sufficient evidence. Therefore, we cannot be reasonably certain that the jury was not significantly influenced by the trial court's submission of this legally incorrect instruction. Thus, the trial court's error was harmful, and we sustain this portion of Appellants' second issue.
Having sustained in part and overruled in part Appellants' first issue, having sustained in part and overruled in part Appellants' second issue, and having not reached the remainder of Appellants' issues, we reverse the portion of the trial court's judgment relating to Druce Properties's claims against Matlock Place and render judgment that Druce Properties take nothing against Matlock Place. We also reverse the remainder of the trial court's judgment and remand this case for a new trial consistent with this opinion.
DAUPHINOT, J. dissents without opinion.
