matlock-place-apartments-lp-jr-tx-1-llc-hagop-kofdarali ( 2012 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-09-00130-CV
MATLOCK PLACE APARTMENTS, APPELLANTS
L.P., JR TX 1, LLC, HAGOP
KOFDARALI, INDIVIDUALLY, AND
ROBBIE L. SEBERN BURNS,
INDIVIDUALLY
V.
JEFFRY DRUCE, INDIVIDUALLY, APPELLEES
AND AS TRUSTEE OF THE DRUCE
FAMILY LIVING TRUST, AND
JEFFRY DRUCE PROPERTIES,
LLC
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FROM THE 96TH DISTRICT COURT OF TARRANT COUNTY
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OPINION
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I. Introduction
Appellants Matlock Place Apartments, L.P., JR TX 1, LLC, Hagop
Kofdarali, Individually, and Robbie L. Sebern Burns, Individually appeal the trial
court‘s judgment rendered on a jury‘s verdict in favor of Appellee Jeffry Druce
Properties, LLC (Druce Properties).1 Appellants contend in four issues and
numerous sub-issues that the evidence is legally and factually insufficient to
support the judgment, that the trial court erred by submitting two jury instructions,
that the trial court abused its discretion by excluding relevant evidence
concerning Druce Properties‘s damages, and that Druce Properties failed to
properly segregate its attorney‘s fees. We reverse and render in part and
reverse and remand in part.
II. Background
A. Parties
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
1
Jeffry Druce, Individually, and as Trustee of the Druce Family Living Trust,
was also a plaintiff in the trial court, but the trial court granted a directed verdict
against Druce in both capacities. Druce has not appealed the trial court‘s
directed verdict but was listed by the parties as an appellee in this court.
2
foreclosure for approximately $1.3 million,2 and he retained Legend Asset
Management Company (Legend) to manage the day-to-day tasks at the
property.3 Appellant Robbie Burns is the owner and president of Legend.
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.
B. Matlock Place’s History
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
2
Kofdarali testified that his sister purchased the property because the
selling bank required a quick closing with all cash.
3
Legend was also a defendant in the trial court. However, the trial court
severed the claims against Legend after Legend filed for bankruptcy. Legend is
therefore not a party to this appeal.
3
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.
Between October 2002 and August 2003, Kofdarali spent more than
$500,000 rehabilitating the property by installing new exterior siding and
replacing interior countertops, carpet, and appliances. In October 2003, Matlock
Place obtained a loan for $1.8 million, and Kofdarali signed a personal guaranty
for the loan. Kofdarali used the loan proceeds to pay his sister the $1.3 million
purchase price and to reimburse himself $500,000 for rehabilitation costs and
cash flow shortfalls. Kofdarali testified that he initially intended to completely
rehabilitate the property but decided to sell it after learning how much a complete
rehabilitation would cost.
Kofdarali decided in August 2003 to list the property for sale, and he
retained Jeff Dowdle of the Marcus and Millichap firm as broker.4 He knew that
the broker would prepare, based on the information he provided, a marketing
brochure to solicit interested buyers. Burns and Legend provided operating
income and other information to Dowdle for preparation of the marketing
brochure. Kofdarali testified that he expected readers to believe the brochure to
be accurate as of the time it was created, and he agreed that the occupancy rate
4
Kofdarali testified that he personally made the decision to sell even
though his sister still owned the property at that time.
4
and the accuracy of the rent rolls, rental income, and property condition were
important factors for a buyer. Kofdarali also testified that he approved the
marketing brochure before Dowdle presented it to the public.
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.
5
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 diligence clause
in the sale contract itself, he began using letters of intent with a twenty-one day
due diligence period.
C. Letter of Intent and Due Diligence Period
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.
6
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
7
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 more important than the
information in the brochure. He testified that a limitation of the seller‘s
representations in a marketing brochure or sale contract does not cause him
concern and that, in his opinion, the limitation of the seller‘s representations does
not mean the buyer cannot trust the information the seller provides. Druce
agreed that the buyer should independently investigate the property, and he
acknowledged that he walked the property and received documentation. Druce
also agreed that the occupancy rates shown on the rent rolls he received showed
that the occupancy rate was no longer ninety-three percent as represented in the
marketing brochure.
8
D. Sale Contract and Closing
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
9
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.5 Kofdarali
acknowledged, however, that he did not personally verify the information
provided to Druce, and he agreed that a buyer would want to know if twelve to
fifteen percent of the units were uninhabitable. Kofdarali denied making any
representations to Druce about the number of down units and testified that he did
not know the number of down units at closing or how Druce defined a down unit.6
5
Druce did not dispute receiving and having an opportunity to review the
documents exchanged at closing.
6
Kofdarali testified that a down unit is uninhabitable and ―requires just
about everything: carpet, appliances, cabinets, plumbing, doors.‖ Druce testified
that a down unit is one that cannot be lived in and requires more than relatively
minor repairs.
10
E. Accuracy of Documentation
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.7 When she left, she called Morrison and
asked for a job with Legend at another property. When asked why she would
have worked for Legend again if they had allegedly falsified documents, she
7
There was a murder on the property five months after Druce purchased it.
11
testified that she did not realize what Legend had done until she was contacted
by lawyers several years later.
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
12
November 2003 rent roll listed ten vacant units while a November 2003
manager‘s report listed eighteen vacant units. Morrison admitted that these
delinquency reports, rent rolls, and manager‘s reports were among the
documents Druce received during due diligence.
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.8 Kofdarali similarly testified
that it is ―stupid‖ to not take tenants off the rent roll as they move out because it
shows up as money or rent owed but not collected, and he testified that he never
instructed anyone to falsify any documents.
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
8
Burns testified that Legend was paid a percentage of actual collections,
not a percentage of forecasted income, for serving as property manager and that
Legend received more money if the property collected more rent. She also
testified that Legend did not receive any compensation from the sale to Druce.
13
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.
F. Druce Properties’s Ownership
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.
14
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 property could be suffering financially to that degree. Druce
defaulted on the mortgage in November or December 2004 and eventually
worked out the problems with the mortgage company, but he testified that he had
personally lived at the property for the three and one-half years before trial,
aggressively managing and trying to turn around the property.
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.
G. Damages and Attorney’s Fees
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
15
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.9
H. Jury Verdict
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
9
Druce‘s broker, Clifford Stratton, testified that Druce reviewed, edited, and
approved the brochure before it was shown to the public.
16
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.
III. Sufficiency of the Evidence
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.
A. Standards of Review
1. Legal Sufficiency
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 (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
17
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).
2. Factual Sufficiency
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)
18
(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).
B. Damages
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, that
the brochure was a representation about how to calculate the property‘s value,
and that the ―numbers were intended to represent that the 2.5 million dollar
asking price was a fair price.‖ From this evidence, the jury could have
reasonably determined that the property‘s value as represented was $2.5 million.
19
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
20
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
21
presented at trial on legal and factual sufficiency grounds). We overrule this
portion of Appellant‘s first issue.
C. Disclaimer of Reliance
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.10
1. Applicable Law
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. 1987). ―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
10
Appellants preserved this issue by motion for directed verdict and motion
for judgment notwithstanding the verdict, both of which were denied by the trial
court.
22
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:
(1) the terms of the contract were negotiated, rather than boilerplate,
and during negotiations, the parties specifically discussed the issue
which has become the topic of the subsequent dispute;
(2) the complaining party was represented by counsel;
(3) the parties dealt with each other in an arm‘s length transaction;
(4) the parties were knowledgeable in business matters; and
23
(5) the release language was clear.
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.
Subsequently, in Italian Cowboy, the court restated the factors and
indicated that if a clear and unequivocal disclaimer of reliance clause is
determined to exist, the analysis then proceeds to the factors that consider the
circumstances surrounding the contract‘s formation to determine whether the
provision is binding. See 341 S.W.3d at 337 n.8. The clause at issue in Italian
Cowboy stated, ―Tenant acknowledges that neither Landlord nor Landlord‘s
agents, employees or contractors have made any representations or promises
. . . except as expressly set forth herein.‖ Id. at 336. The court held that the
clause was actually nothing more than a standard merger clause and that if the
parties had actually intended to disclaim reliance, they did not do so by clear and
unequivocal contractual language. See 341 S.W.3d at 333–34, 336. The court
held that the contractual clause did not bar Italian Cowboy‘s claim for fraudulent
inducement because the clause did not meet the elevated requirement of
disclaiming reliance on representations in ―clear and unequivocal language.‖
See id. at 336. And because the parties‘ contract did not clearly and
24
unequivocally disclaim reliance, the court did not consider the remaining Forest
Oil factors. See id. at 337 n.8.
2. Discussion
The disclaimer of reliance clause at issue here stated in bold and capital
type:
9. LIMITATIONS OF SELLER‘S REPRESENTATIONS AND
WARRANTIES
EXCEPT AS OTHERWISE SPECIFICALLY STATED IN THIS
CONTRACT, SELLER HEREBY SPECIFICALLY DISCLAIMS ANY
WARRANTY, GUARANTY OR REPRESENTATION, ORAL OR
WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, OR
CONCERNING (I) THE NATURE AND CONDITION OF THE
PROPERTY, INCLUDING WITHOUT LIMITATION, THE WATER,
SOIL AND GEOLOGY, AND THE SUITABILITY THEREOF AND OF
THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES
WHICH BUYER MAY ELECT TO CONDUCT THEREON, AND THE
EXISTENCE OF ANY ENVIRONMENTAL HAZARDS OR
CONDITIONS THEREON (INCLUDING THE PRESENCE OF
ASBESTOS) OR COMPLIANCE WITH ALL APPLICABLE LAWS,
RULES OR REGULATIONS; (II) EXCEPT FOR ANY WARRANTIES
CONTAINED IN THE DEED TO BE DELIVERED BY SELLER AT
THE CLOSING, THE NATURE AND EXTENT OF ANY RIGHT-OF-
WAY, LEASE, POSSESSION, LIEN, ENCUMBRANCE, LICENSE,
RESERVATION, CONDITION OR OTHERWISE; AND (III) THE
COMPLIANCE OF THE PROPERTY OR ITS OPERATION WITH
ANY LAWS, ORDINANCES OR REGULATIONS OF ANY
GOVERNMENT OR OTHER BODY.[11] BUYER ACKNOWLEDGES
THAT IT WILL INSPECT THE PROPERTY AND BUYER WILL
RELY SOLELY ON ITS OWN INVESTIGATION OF THE
PROPERTY AND NOT ON ANY INFORMATION PROVIDED OR
TO BE PROVIDED BY SELLER. BUYER FURTHER
11
Druce Properties argues there is a comma rather than a period after
―other body,‖ but a review of the best available copy and a comparison to Matlock
Place‘s contract with a previous potential buyer confirm that the punctuation mark
is actually a period.
25
ACKNOWLEDGES THAT THE INFORMATION PROVIDED AND
TO BE PROVIDED WITH RESPECT TO THE PROPERTY WAS
OBTAINED FROM A VARIETY OF SOURCES AND SELLER (I)
HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION; AND (II) DOES NOT
MAKE ANY REPRESENTATIONS AS TO THE ACCURACY OR
COMPLETENESS OF SUCH INFORMATION. THE SALE OF THE
PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN ―AS IS‖
BASIS, AND BUYER EXPRESSLY ACKNOWLEDGES THAT, IN
CONSIDERATION OF THE AGREEMENTS OF SELLER HEREIN,
EXCEPT AS OTHERWISE SPECIFIED HEREIN, SELLER MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
OR ARISING BY OPERATION OF LAW, INCLUDING, BUT NOT
LIMITED TO, ANY WARRANTY OF CONDITION, HABITABILITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, IN RESPECT OF THE PROPERTY. [Emphasis added.]
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
26
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.] July 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
closing and agreed to split the cost of a new roof, and Kofdarali‘s share of the
roof cost was deducted from the final sale price. Moreover, the letter of intent set
27
forth a $100,000 credit at closing for ―repairs and maintenance,‖ and Kofdarali
testified that Druce negotiated for the $100,000 credit ―because he knew that
there was work to be done on this property.‖12 Thus, although some of the
evidence is conflicting, the parties specifically discussed and negotiated the issue
of the property‘s need for repairs and maintenance when arranging for the sale of
the property. Thus, on balance, the first Forest Oil factor favors enforcement.
Compare Baker v. City of Robinson, 305 S.W.3d 783, 796 (Tex. App.—Waco
2009, pet. denied) (declining to enforce disclaimer of reliance clause and noting
that only purchase price was negotiated in parties‘ contract), with Worldwide
Asset Purchasing, L.L.C. v. Rent-A-Center East, Inc., 290 S.W.3d 554, 567–68
(Tex. App.—Dallas 2009, no pet.) (enforcing disclaimer of reliance clause and
noting summary judgment evidence reflected parties exchanged proposed
drafts).
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
12
As set forth in the factual background section, Kofdarali and Druce gave
conflicting testimony about negotiating the maintenance and repair credit in the
letter of intent.
28
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
29
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 nondisclosure, statutory fraud, and negligent
misrepresentation claims against Matlock Place as a matter of law.13 See Forest
Oil, 268 S.W.3d at 60–61; see also Schlumberger, 959 S.W.2d at 181 (holding
statutory fraud and fraud by nondisclosure claims barred by disclaimer of reliance
clause); RAS Group, Inc., 335 S.W.3d at 640 (holding negligent
misrepresentation claim barred by disclaimer of reliance clause). We sustain this
portion of Appellants‘ first issue.
D. Justifiable Reliance
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
13
By our holding, we necessarily disagree with Druce Properties‘s
implication that a disclaimer of reliance clause is enforceable only if it is
contained in a settlement agreement. In Italian Cowboy, the Supreme Court
addressed the disclaimer of reliance clause argument as it related to a restaurant
lease agreement. See 341 S.W.3d at 331–37. Moreover, courts of appeal have
not limited the application of disclaimer of reliance clauses to settlement
agreements. See RAS Group, Inc., 335 S.W.3d at 633 (contract for purchase of
delinquent credit accounts); Baker, 305 S.W.3d at 786 (contract for sale of real
property); Worldwide Asset Purchasing, L.L.C., 290 S.W.3d at 567–69 (contract
for purchase of delinquent credit accounts); see also Allen, 2011 WL 3208234, at
*2–4 (stock redemption agreement).
30
and complained-of documents.‖14 Reliance is a necessary element of Druce
Properties‘s statutory fraud claim against Appellants. See Tex. Bus. & Com.
Code Ann. § 27.01(a)(1)(B), (2)(D) (West 2009) (listing reliance as element of
statutory fraud). We assume without deciding that Druce Properties‘s reliance
must have been justifiable. See Tex. First Nat’l Bank v. Ng, 167 S.W.3d 842,
856 n.24 (Tex. App.—Houston [14th Dist.] 2005, pet. granted, judgm‘t vacated
w.r.m.) (noting ―disagreement among Texas courts as to whether reliance on
fraudulent misrepresentation must be justifiable‖).
―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)).
14
Appellants do not challenge Druce Properties‘s reliance on factual
sufficiency grounds. Furthermore, because we have held that the disclaimer of
reliance clause is enforceable in favor of Matlock Place, the following discussion
of Druce Properties‘s misrepresentation claims relates only to Kofdarali and
Burns.
31
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 jury also received evidence that the rent rolls given to Druce
showed occupancy rates of ninety-three, seventy-three, eighty-six, and eighty-six
percent; that the occupancy rates were intentionally inflated because tenants had
not been removed from the rent roll when they had moved out; that Druce
believed at the time of closing, based on the inaccurate information provided to
him, that the occupancy rate was eighty-seven percent; that Druce was satisfied
with an eighty-seven percent occupancy rate; but that the actual occupancy rate
at closing (of which Druce was not aware) was between seventy and seventy-five
percent, with almost half of the vacant units uninhabitable. The jury could have
reasonably determined that Druce Properties justifiably relied on Appellants‘
representations concerning the occupancy rate.
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
32
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.15 They first point to
evidence that the due diligence documents disclosed crime issues on the
property.16 However, the due diligence documents were described at trial as
being 1,500 to 2,000 pages of documents. Of those 1,500 to 2,000 pages, a
15
Druce testified that no one told him about the crime problem, and Dowdle
testified that Burns told Druce during the due diligence period that the crime
issues were nothing more than loud noise that is typical of apartment complexes.
16
There is some question whether the trial exhibit representing the due
diligence documents accurately reflects the information provided to Druce.
Druce testified that the trial exhibit contained internal Legend documents that had
not been provided to him.
33
mere seven pages contained short descriptions of potential crime problems
spread over several months and involving only four of the ninety-nine units. One
weekly manager‘s report stated: ―Resident Problems: Prostitutes‖; two weekly
manager‘s reports stated that a resident of apartment 212-06 was stealing from a
nearby business and dealing drugs; two weekly manager‘s reports stated that too
many people were hanging out at the end of building 204; and two delinquency
reports stated that the resident of apartment 208-04 was ―in jail should be here
12-28-[03].‖ In addition, Druce‘s knowledge of the crime problem must be viewed
in context with Appellants‘ representations about the income stream, which led
Druce to believe that the income stream would increase once the crime problem
was resolved. See generally City of Keller, 168 S.W.3d at 811 (discussing
contextual evidence). Thus, even if the trial exhibit accurately represented the
documents Druce received during due diligence, the crime issues noted in the
documents were not so prevalent as to negate justifiable reliance as a matter of
law. See Allen, 2011 WL 3208234, at *17, 20 (holding lack of justifiable reliance
not conclusively proved despite, among other things, plaintiff‘s knowledge of
increased prices before closing).
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;
34
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.17 Thus, Druce‘s knowledge before closing does not conclusively negate
Druce Properties‘s justifiable reliance. See id. at *17–20.
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
17
The contract, signed in March, gave Druce the right to terminate the
contract if he knew that Matlock Place had made a false representation or
warranty concerning Matlock Place‘s ―right, power and authority to sell and
convey the Property‖; Matlock Place‘s payment of ―taxes, charges, debts, and
other assessments‖ through 2004; or the existence of unrecorded liens that
would not be satisfied by the sale. None of these relates to the representations
at issue in this case.
35
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.
E. Scienter
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.
1. Kofdarali
The jury found that Kofdarali committed statutory fraud. The court‘s
charge defined statutory fraud as follows:
A party commits statutory fraud if:
a. there is a false representation of a past or existing material fact,
b. the false representation is made to a person for the purpose of
inducing that person to enter into a contract, and
c. the false representation is relied on by that person in entering into
that contract.
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
36
the jury.18 See Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 715 (Tex.
2001); City of Fort Worth v. Zimlich, 29 S.W.3d 62, 71 (Tex. 2000).
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.
2. Burns
The jury similarly found that Burns committed statutory fraud. Appellants
argue that Burns cannot be individually liable because she did not forward any
18
The statutory fraud question included a second instruction defining
statutory fraud in the context of a false promise to do an act. We do not address
the sufficiency of the evidence based on that instruction in light of our conclusion
as to the instruction quoted above. See generally Tex. R. App. P. 47.1.
37
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 (Tex. 1986) (―Intent is a fact question uniquely within the realm of the
trier of fact because it so depends upon the credibility of the witnesses and the
weight to be given to their testimony.‖); Hannon, Inc. v. Scott, No. 02-10-00012-
38
CV, 2011 WL 1833106, at *6 (Tex. App.—Fort Worth May 12, 2011, pet. denied)
(mem. op.) (―Intent may be inferred from a party‘s actions before and after the
fraudulent conduct.‖). Furthermore, the spoliation instruction in the jury charge
permitted an inference that the destroyed data would have been unfavorable to
Burns. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 306 (Tex.
2006) (―Spoliation of evidence normally supports an inference only that the
evidence was unfavorable, not that it was created ab initio with fraudulent intent.
But as the evidence here was part of the original contracting process, it provides
some circumstantial evidence of fraud in that process.‖).
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.19
F. Economic Loss Rule
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.
19
Because we have affirmed the sufficiency of the evidence supporting the
jury‘s statutory fraud findings against Kofdarali and Burns, we need not address
Druce Properties‘s claims for fraud by nondisclosure and negligent
misrepresentation. See Tex. R. App. P. 47.1.
39
As we stated in Heil Co. v. Polar Corp.,
Although a party‘s actions may breach duties in tort, contract,
or both, Texas has long recognized that ―mere nonfeasance under a
contract creates liability only for breach of contract.‖ Crawford v.
Ace Sign, Inc., 917 S.W.2d 12, 13 (Tex. 1996); Jim Walter Homes,
Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). ―When the injury is
only the economic loss to the subject of a contract itself, the action
sounds in contract alone.‖ Reed, 711 S.W.2d at 618. Thus, tort
damages are generally not recoverable unless the plaintiff suffers an
injury that is independent and separate from the economic losses
recoverable under a breach of contract claim. See Formosa Plastics
Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41,
45–47 (Tex. 1998); Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493,
494 (Tex. 1991) (analyzing both the source of the duty and the
nature of the remedy in determining a claim‘s characterization as
sounding either in contract or tort); see also Fed. Land Bank Ass’n v.
Sloane, 825 S.W.2d 439, 442–43 (Tex. 1991) (adopting independent
injury requirement of section 552B of the Restatement (Second) of
Torts). The supreme court in Formosa, however, declined to apply
the independent injury requirement to a fraudulent inducement
claim. Formosa, 960 S.W.2d at 47.
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 fraudulent inducement. Instead, they mistakenly argue that Druce
Properties did not assert a fraudulent inducement claim. Contrary to Appellants‘
contention, Druce Properties‘s pleading included an allegation that Appellants
made ―representations with the intent of inducing Druce to enter into and close
the sale of‖ the property, and the jury found in response to the statutory fraud
question that Appellants had made false representations ―for the purpose of
inducing [Druce Properties] to enter into a contract.‖ Druce Properties‘s statutory
fraud claim was therefore based on fraudulent inducement, and the economic
40
loss rule does not bar Druce Properties‘s statutory fraud tort damages. See id.;
see also Formosa, 960 S.W.2d at 47; Reservoir Sys., Inc. v. TGS-NOPEC
Geophysical Co., L.P., 335 S.W.3d 297, 308 (Tex. App.—Houston [14th Dist.]
2010, pet. denied) (―Tort damages are recoverable for a fraudulent-inducement
claim irrespective of whether the fraudulent representations are later subsumed
in a contract or whether the plaintiff only suffers an economic loss related to the
subject matter of the contract.‖). We overrule this part of Appellant‘s first issue.
G. Breach of Contract
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:
7. SUBMISSION MATTERS: Buyer acknowledges receipt of
the following materials and waives any contingency attached to
these documents.
...
(f) a rent roll of a recent date;
...
Seller makes no representation or warranty, expressed or
implied, as to the accuracy or completeness of the information
contained in the Submission Matters except that Seller has delivered
all such items in Seller‘s actual possession.
41
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); see also Montgomery Ward & Co. v.
Scharrenbeck, 146 Tex. 153, 157, 204 S.W.2d 508, 510 (1947) (recognizing
42
implied contractual duty to perform services contract without negligence); Jones
v. Star Houston, Inc., 45 S.W.3d 350, 355 (Tex. App.—Houston [1st Dist.] 2001,
no pet.) (acknowledging implied duty to perform services contract with ordinary
care).
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
43
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.
IV. Jury Charge Instructions
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.
A. Spoliation Instruction
Appellants argue that the trial court erred by submitting a spoliation
instruction because there was no evidence to support it.20
1. Applicable Law
―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.
20
To the extent Appellants argue that the spoliation instruction was an
incorrect statement of law, they did not present that contention to the trial court
by objecting to the jury charge. Appellants therefore failed to preserve that
argument for appellate review. See Tex. R. App. P. 33.1(a); Tex. R. Civ. P. 272;
see also Wackenhut Corp. v. Gutierrez, No. 04-10-00661-CV, 2011 WL 3915630,
at *2 (Tex. App.—San Antonio Sept. 7, 2011, no pet. h.) (mem. op.) (holding
spoliation complaint not preserved due to failure to object to charge instruction).
44
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 is presumed to have done so because the
evidence was unfavorable to its case. Id. at 721–22 (citing Williford Energy Co.
v. Submergible Cable Servs., Inc., 895 S.W.2d 379, 389–90 (Tex. App.—Amarillo
1994, no writ), and Brewer, 862 S.W.2d at 159). Under the second
circumstance, the presumption arises because the party controlling the missing
evidence cannot explain its failure to produce it. Id. at 722 (citing Watson v.
Brazos Elec. Power Coop., Inc., 918 S.W.2d 639, 643 (Tex. App.—Waco 1996,
writ denied)).
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.).
45
2. Discussion
The instruction at issue stated:
Spoliation of evidence occurs in two circumstances when a
party knew or should have known that certain evidence is relevant:
(1) the deliberate destruction of the relevant evidence or (2) the
failure of a party to produce the relevant evidence or to explain its
non-production. In either situation, a presumption arises that the
evidence was unfavorable to the party who committed spoliation.
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
46
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:
My records for this time period are no longer in existence.
These records would have been kept on computers and were stored
at my offices in Arlington. Those offices burned in June 2007,
causing a loss of all data. However, the records were provided
previously to Marcus & Millichap and have been produced to
Plaintiffs in that litigation. I would refer Plaintiffs to the documents,
which reflect these numbers.
Kofdarali and Matlock Place‘s response was virtually identical but also
stated: ―To the extent the documents were previously provided to me, those
records were not maintained after the sale of the property, as is our standard.‖
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
47
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
48
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 missing evidence and the
availability of other evidence to take the place of the missing information. See
Trevino, 969 S.W.2d at 958 (Baker, J., concurring). Ocampo testified that
Morrison told her not to remove tenants from the rent roll when they moved out,
and the rent rolls and internal reports, which showed significantly different
occupancy rates only days apart, arguably supported Ocampo‘s testimony. Had
the data at issue not been destroyed, it could have further confirmed Ocampo‘s
testimony. Although this on first blush suggests that any destroyed data would
have merely been cumulative of other evidence in the record, we note that the
case was hotly contested on all liability issues. The existence of additional
evidence showing that income and occupancy rates had been intentionally
49
altered could have significantly aided the presentation of Druce Properties‘s
case. And to the extent that we cannot determine with certainty what else the
data might have shown, we are unable to do so because Appellants destroyed it.
See Brookshire Bros., Ltd. v. Aldridge, No. 12-08-00368-CV, 2010 WL 2982902,
at *7–8 (Tex. App.—Tyler July 30, 2010, pet. filed) (mem. op.) (holding spoliation
prejudiced plaintiff because remaining portion of video showed only part of
events relevant to plaintiff‘s accident). We therefore hold the trial court did not
abuse its discretion by determining that the missing evidence prejudiced Druce
Properties‘s ability to present its case. We overrule this part of Appellants‘
second issue.
B. “As Is” Instruction
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.
1. Applicable Law
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
50
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).
2. Discussion
The trial court submitted the following instruction to the jury:
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.
Appellants first argue that this instruction is legally incorrect.21 Appellants
do not dispute that the instruction as given correctly states the rule as set forth in
Prudential Insurance Co. of America v. Jefferson Associates., Ltd., 896 S.W.2d
156, 162 (Tex. 1995) (―A buyer is not bound by an agreement to purchase
something ‗as is‘ that he is induced to make because of a fraudulent
representation or concealment of information by the seller.‖). Instead, Appellants
cite Forest Oil and contend that the instruction was legally incorrect because it
―completely leaves out necessary and corresponding language from the Texas
Supreme Court that the waiver language in the ‗as is‘ clause can be enforceable
and can negate reliance.‖
21
Appellants preserved this complaint for appellate review by objecting to
the submission of the instruction before it was submitted to the jury. See Ford
Motor Co. v. Ledesma, 242 S.W.3d 32, 43–44 (Tex. 2007); State Dep’t of
Highways & Pub. Transp. v. Payne, 838 S.W.2d 235, 241 (Tex. 1992) (op. on
reh‘g); see also Tex. R. Civ. P. 274.
51
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.
3. Harmful Error
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
52
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.22
V. Conclusion
Having sustained in part and overruled in part Appellants‘ first issue,
having sustained in part and overruled in part Appellants‘ second issue, and
22
Because we sustain this portion of Appellants‘ second issue and must
therefore remand for a new trial, we do not address Appellants‘ third issue (in
which they contend that the trial court erred by excluding evidence of Druce
Properties‘s damages) or Appellants‘ fourth issue concerning attorney‘s fees.
See Tex. R. App. P. 47.1.
53
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.
ANNE GARDNER
JUSTICE
PANEL: DAUPHINOT, GARDNER, and WALKER, JJ.
DAUPHINOT, J. dissents without opinion.
DELIVERED: January 12, 2012
54