Springs Window Fashions Divisions, Inc. Springs Window Fashions, L.P. And SWF, Inc. D/B/A SC-SWF, Inc. v. the Blind Maker, Inc. ( 2005 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-03-00376-CV
Springs Window Fashions Division, Inc.; Springs Window Fashions, L.P.; and
SWF, Inc. d/b/a SC-SWF, Inc., Appellants
v.
The Blind Maker, Inc., Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT
NO. GN002888, HONORABLE SUZANNE COVINGTON, JUDGE PRESIDING
OPINION
Appellants, Springs Window Fashions Division, Inc., Springs Window Fashions, L.P.
and SWF, Inc. d/b/a SC-SWF, Inc. (“Springs”), appeal a judgment awarding appellee, The Blind
Maker, Inc., $5,167,240 in actual damages and $2,090,000 in exemplary damages. The sole liability
theory submitted to the jury was fraud, and the sole element of actual damages submitted was lost
profits as consequential damages. Springs asserts that the evidence is legally and factually
insufficient to support either a finding of fraud or the damages award. For reasons we explain below,
we conditionally affirm the judgment of the trial court.
BACKGROUND
The parties and their businesses
Springs manufactures blinds and similar window coverings and sells its products
under the brand names Graber, Nanik, and Bali. The ultimate consumers of Springs’s products are
persons who purchase the blinds for use in their homes or offices.
Springs distributes its products to consumers chiefly through two channels. First,
Springs sells fully assembled blinds directly to large retail outlets like Home Depot or Lowe’s. This
retail channel of distribution, as well as other lower-priced sales channels like 800 numbers and the
Internet, have put significant downward pressure on prices within the blinds industry. Springs’s
second distribution channel is the “distributor/fabricator” channel. Springs sells component parts
of its blinds to blinds fabricators who have business relationships with retail establishments like
paint and hardware stores, or individual interior designers, decorators, and architects. These retail-
level customers of the blind fabricator, in turn, sell to ultimate consumers. Utilizing samples and
other promotional materials, the retail-level customers obtain from consumers color and style
preferences, window measurements and other specifications and transmit them in orders to the blind
fabricator. The blinds fabricator then “fabricates” custom-made blinds by cutting and assembling
the appropriate Springs components in accordance with consumer specifications.1
Blind Maker is a blinds fabricator based in Austin, with facilities also in Dallas and
Houston. It was established in 1981 by Ray Hicks, its president and sole shareholder. Hicks started
1
Springs apparently would also fabricate some brands of its blinds itself and sell them to
blind fabricators for distribution to retail customers and ultimate consumers.
2
the company after earning his M.B.A. The families of both of Hicks’s parents had been involved
in the blinds industry for many years. Blind Maker began fabricating and selling Springs’s Graber
brand in 1983 or 1984. Blind Maker experienced steady growth throughout its history. In its first
year of operation, Blind Maker’s sales totaled $627,656. Ten years later, Blind Maker had over
$11,000,000 in sales. Blind Maker’s annual sales tripled in the 1990s—its 1998 figure exceeded $35
million—ranking it as the largest fabricator of Graber products in the nation. Despite Blind Maker’s
large annual sales figures, the company’s annual net profits during the 1990s averaged around
$37,000, or just over one percent of total sales.2 Blind Maker’s history of small net profits reflects,
among other things, a corporate strategy of financing its rapid and continuous growth through capital
investment and of paying large salaries to its executives, including Hicks, to avoid double taxation.
Hicks testified at trial that, throughout the 1990s, Blind Maker voluntarily chose to
sell almost exclusively Graber products and considered itself the “Graber guys.”3 Blind Maker also
prided itself in being a “full line” Graber fabricator, carrying the components necessary to fabricate
the complete range of Graber products. The company strove to fill and ship orders from its retail-
level customers on the same day they were received. These strategies required Blind Maker to
maintain large inventories—Hicks testified that the company would frequently carry six million
dollars in inventory, which would take roughly two months to turn over through sales. Hicks added
2
The company recorded losses in 1990, 1994, and 1996. In other years of the decade, net
income ranged from $132,594 (on sales of over $ 24 million) in 1995 to $23,405 (on sales of over
$ 11 million) in 1991.
3
Hicks testified that over 97% of Blind Maker’s sales were comprised of Graber products
and that its occasional exceptions typically occurred when it utilized another brand’s product to
complement a Graber product.
3
that Blind Maker took around another month to collect its accounts receivable from sales, meaning
that it could take three months or more to realize cash from the sale of inventory it purchased from
Springs.
Throughout Blind Maker’s seventeen-year relationship with Springs, Hicks expressed
concern that Springs’s business practices in the distributor/fabricator channel reduced Blind Maker’s
profitability. Chief among Hicks’s complaints were Springs’s perceived emphasis on its lower-
priced retail channel at the expense of its fabricators, a lack of “price parity” enabling Blind Maker
to compete with large retailers, and sales incentives that Hicks believed rewarded fabricators who
made small or occasional purchases from Springs while penalizing “full line” fabricators like Blind
Maker. Hicks urged a series of changes in Springs’s business practices that he believed would
enhance profitability for both Springs and “full line” fabricators and revisited them periodically
throughout the parties’ relationship. These proposals, which included special incentives for a
designated class of committed “Full Line Graber Fabricators,” became known to both parties as
“Ray’s Obsessions.”
For many years, Springs and Blind Maker did business without a written
contract—Blind Maker would order Springs’s components as needed, Springs would invoice Blind
Maker, and Blind Maker would pay. Hicks testified that Springs always permitted Blind Maker to
pay later than the due date on the invoice. Furthermore, while the invoices stated that Blind Maker
could take a 2% discount if it paid within fifteen or thirty days, Springs “forever” allowed Blind
Maker to take the discount whenever it paid. Hicks explained that Springs did this in recognition
of Blind Maker’s preeminence as a Graber fabricator and the duration of its cash cycle.
4
In 1997, for the first time, Springs and Blind Maker entered into a formal credit
agreement at Springs’s request. In that agreement, Blind Maker acknowledged that Springs “is not
obligated to sell goods to [Blind Maker] or to grant open account payment terms,” and that “[t]he
decision to sell product and extend credit shall be solely within the exclusive discretion of Springs.”
The agreement further provided that Blind Maker “hereby agrees to make payments as necessary to
keep the account balance within terms established by Springs” and that if Blind Maker failed to do
so, Springs “may immediately suspend all future shipments on other than prompt payment terms
such as cash or cashier’s check and may further demand immediate payment of the full balance.”4
Project Overlord
The overriding theory of Blind Maker’s case at trial was that Springs committed a
variety of fraudulent acts in furtherance of a plan to take over existing fabricators, move the
fabrication process to Mexico, and utilize the prior fabricators as distributors. This plan was termed
Project Overlord. Various Springs executives testified to the existence of Project Overlord, but there
was some disagreement over the extent to which it was implemented.5 However, evidence of the
implementation of the plan was presented at trial, including the purchases of fabricators, debt-for-
4
In such an instance, moreover, Blind Maker agreed to pay Springs reasonable attorney’s
fees and other costs of collection.
Subsequently, in February 1998, Springs loaned Blind Maker $500,000, which the company
used to pay down certain aged accounts payable to Springs. In exchange, Blind Maker granted
Springs a security interest and made a promissory note under which it agreed to pay off the balance
in monthly installments of approximately $56,000. It appears that Blind Maker satisfied this
obligation.
5
Although some witnesses testified that Project Overlord was rejected by Springs
management, others testified that parts of Project Overlord were, in fact, implemented.
5
equity swaps to acquire fabricators having large accounts payable to Springs,6 and the acquisition
of a blinds manufacturing plant in Reynoso, Mexico. There was testimony that Blind Maker was a
target of Project Overlord and that Springs ultimately acquired as many as three other fabricators.
The Fabricator License Agreement
Beginning in 1998, Springs took additional steps to formalize its relationship with
Blind Maker and other blinds fabricators, including the initiation of a “preferred fabricator” program
and the utilization of a licensing contract. Blind Maker characterized these steps as tools used by
Springs to advance Project Overlord. Blind Maker’s fraud claim is based largely on a series of
alleged misrepresentations and failures to disclosure information regarding these new business
initiatives. We accordingly explore this evidence in some detail.
The pilot program
In August 1998, Springs invited Hicks and representatives from a handful of other
Graber fabricators to a meeting at Springs’s Wisconsin headquarters. At the meeting, Springs
unveiled the concept of a “Fabricator Pilot Program,” which it termed a “Joint Partnership.” The
stated goal of the pilot program was to “[s]trengthen our partnership through the design of effective
programs that enhance market position and increase profitability for our fabricating partners and
Springs.” Key components were efforts to build product and brand awareness (through advertising
assistance and incentives), market penetration and sales growth (through new product development
6
In other words, Springs would forgive the fabricator’s debt in exchange for an ownership
stake in the fabricator.
6
and possibly a “value brand” or “fighter brand” to compete with lower-priced private label brands),
margin enhancement (through rebates and a fund that accrues a percentage of purchase totals for use
in certain purchases), and a formal agreement between Springs and each “preferred” fabricator. With
regard to the latter, Springs proposed the concept of a “Fabricator License Agreement” (FLA) that
would grant participating fabricators a limited license to use Graber’s trademarks, provided they
adhered to quality standards and manufacturing specifications to preserve the value of the trademarks
and promote uniformity and interchangeability among Graber products and parts. All Springs
fabricators would be required to sign the FLA.
In addition, Springs introduced the concept of a three-tiered classification of its
“Fabricating Partners”: Preferred, Full Line, and Standard. Standard Fabricators would be those
who fabricated any Graber product. Full Line would be those who agreed to fabricate all available
Graber products. Preferred would be those who agreed to fabricate the full Graber line, plus agreed
to not fabricate or distribute any competitor’s products unless otherwise agreed. Preferred
fabricators would also be required to meet “minimum purchase and growth requirements.” In
exchange, Springs proposed that each preferred fabricator would receive benefits including
participation in the “mega” price plan (a means of competing with generic brands), priority in
introducing new products or components (that new products would be sold through preferred
fabricators before other fabricators or the retail channel), and “[u]pon meeting qualifications, all
marketing and promotional benefits defined in the current year marketing program.” To the latter
benefit, Springs added the caveat “Note: Marketing plans may be modified periodically to reflect
business condition[s].”
7
Hicks responded favorably to the Pilot Program concept, perceiving it to be a
response to “Ray’s Obsessions,” the proposals he had expressed for years. On September 9, Springs
sent Hicks a letter “to confirm the details of our Pilot Partnership Review.” The letter listed various
benefits of the “Joint Improvement Plan”: (1) a margin improvement fund, whereby 2 ½% of Blind
Maker’s total monthly purchases would accrue as a credit that could be applied to purchases of
certain components; (2) a 2% rebate available if Blind Maker maintained its 1997 purchase volume;
(3) issuing 1% of monthly purchases to Blind Maker’s co-op advertising fund; (4) a restricted
marketing fund comprised of ½% of total purchases; (5) allowing Blind Maker to return full boxes
of slow-moving inventory on a one-time basis, provided Blind Maker paid a restocking charge and
purchased replacement inventory at 125% of the returned inventory’s value; and (6) technical
assistance from Springs and “recommendations to improve efficiency.” Finally, the letter explained
that “[o]ur intention is to run the pilot program until year end, and then roll out the new, complete
program on 1-1-99.” Hicks testified that Blind Maker participated in the pilot program and that
Springs provided the promised benefits.
The Orlando meeting and 1999 Marketing Plan
In mid-November, Jim Dudas, then-president of Springs, wrote Hicks, noting that “we
are in the process of resetting our Distributor/Fabricator business,” including “the formalization and
strengthening of our relationship with our partners.” That effort, Dudas wrote, included a
“Distributor/Fabricator agreement,” a draft of which was enclosed, and an upcoming “Let’s Make
Magic” conference in Orlando, Florida, on December 9-12.
8
Twenty-four Graber fabricators attended the conference, including Blind Maker. A
copy of a slide show from the conference, introduced by Blind Maker, states that the purpose of the
conference was “to form a partnership [between Springs and invited fabricators] as we head into
1999.” One of the listed expectations from the conference was to “begin process of formulating a
real win/win partnership.” The slide show indicates that the group discussed “[t]ri-suffocation of
the retail environment” by “price deflation,” “oversaturation,” and “stagnant consumer demand.”
Springs’s proposed response entailed “[c]onsolidation and growth of the strong” and “[s]hakeout of
the weak” through strategies to distinguish and enhance the perception of the Graber brand and better
position it in the retail environment. Aspects of these strategies included eliminating “channel
conflicts” between Springs’s Graber, Nanik and Bali brands; enhanced advertising; and the
“Preferred Fabricator” program.
Springs presented an overview of the “Preferred Fabricator Program.” There would
be three levels of preferred fabricators, Gold, Silver, and Bronze. Under “the benefits of being a
Preferred Fabricator,” Springs listed:
! “Payment terms of 2% 15th, net 60.” The parties agree that this phrase refers
to a 2% early payment discount available if a party pays within fifteen days of
invoice, with the full balance due on the 60th day after invoice.
! “Inventory adjustment program.”
! “Co-op funds” (comprised of 2% for advertising, 1.5% for sales aids, and .5%
for events, the latter being made available only to Gold preferred fabricators).
! Special discounts on pricing of certain components.
! “Margin improvement fund,” whereby preferred fabricators would receive
credits based on monthly purchases that could be applied toward future
9
purchases. Gold preferred fabricators would receive 3%, Silver 2%, and Bronze
1%.
! “Performance growth rebate,” whereby preferred fabricators would receive a
rebate of 2% upon reaching quarterly targets for percentage growth in their
purchases. Gold fabricators obtained the rebate upon meeting a 5% growth
target, Silver 10%, and Bronze 15%.
! “Business productivity consulting,” for Gold preferred fabricators only.
! “Preferred lead program,” for Gold preferred fabricators only.
! “New product priority”—the ability to sell new Graber products before the
products are made available to other fabricators or the retail channel—for Gold
only.
Under “Preferred Fabricator Requirements,” Springs explained that to participate, a fabricator had
to execute, by March 31, the Springs FLA; agree to fabricate exclusively Graber products; and
fabricate or distribute minimum levels of Graber product. Gold preferred fabricators were required
meet minimum purchase requirements of at least $2.5 million and to have at least $25,000 of sales
in each of six Graber product categories; Silver $1.5 million-$2.5 million in purchases and $15,000
in sales in each Graber product category; and Bronze $.5 million-$ 1.5 million in purchases and
$5,000 in sales in each Graber product category.
Springs also reviewed the FLA, which Springs explained was aimed at maintaining
and enhancing the reputation of its Graber trademarks. Springs emphasized that the FLA required
fabricators to use only Graber components with the Graber products they sold and to conform to
Graber technical specifications. The “1999 Distributor/Fabricator Pricing Plan” was also presented,
as was a description of Springs’s planned 1999 training programs.
10
Blind Maker also introduced into evidence a booklet titled Springs’s “1999 Marketing
Program,” which Hicks thought he received after the Orlando conference but before he signed the
FLA. Under “Preferred Requirements” were listed the minimum purchase requirements discussed
in Orlando, the exclusivity requirement (with the caveat that competitive products could be sold
upon prior written approval from Springs), plus a requirement to:
Execute and deliver to Springs . . . the [FLA] and strictly comply with all terms and
conditions of this agreement. Our goal is to have the signed Agreement by January
1, 1999. If you are unable to sign the agreement by March 1, 1999, your company
will be assigned into the Standard Category. In the event that the agreement is not
signed by June 1, 1999, we will be forced to discontinue sales to your company.
Among the “preferred benefits,” the 1999 Marketing Plan included:
! Fabrication and technical support;
! Business productivity consulting;
! Preferred lead program;
! New product priority;
! Payment terms of “2%, 15th, net 60 for all Preferred Fabricators;”
! An “Inventory Adjustment Program,” whereby preferred fabricators could return
certain unused inventory one time per year, contingent upon paying a restocking
fee (lower for Gold preferred fabricators, higher for Silver and Bronze) and
ordering new inventory at 125% of the value of the returned components;
! Co-op advertising, sales and event funds. All preferred fabricators would
receive advertising funds equal to 2% of qualified purchases and sales funds
equal to 1.5% of qualified purchases. Gold preferred fabricators only would
receive event funds equal to .5% of qualified purchases.
11
! A margin improvement fund, or monthly credit based on a percentage of a
fabricator’s volume of qualified purchases. The 1999 Marketing Plan explained
that “[t]he primary objective of the Margin Improvement Fund is to improve
overall profitability.” Gold preferred fabricators would receive a 3% credit,
Silver 2%, and Bronze 1%;
! Special discounts on components; and
! A performance growth rebate, which would reward preferred fabricators with
a 2% rebate upon achieving specified percentage growth relative to prior year
purchases. Gold preferred fabricators obtained the rebate upon achieving 5%
growth, Silver 10%, and Bronze 15%.
Dudas later testified that Springs had “most definitely” intended for the blinds fabricators to rely on
the statements made in the Orlando slide show and 1999 Marketing Plan as true. But, he clarified
that those statements represented only Springs’s “intentions” in its new preferred fabricator program.
Hicks later testified that Springs depicted its new initiatives as a means of reducing
the number of fabricators with whom it dealt from the 60 to 80 it had been utilizing to approximately
twenty. These “fortunate few” would receive “lots of benefits,” including those mentioned above
as well as other benefits that had been discussed during the pilot-program discussions, including new
product development, a “good/better/best” brand positioning effort, a low-priced “fighter brand,”
“mega pricing,” and use of Springs’s equipment.7 Blind Maker also introduced into evidence a
document, prepared by Springs, representing Blind Maker’s projected financial benefits if it
participated in the preferred fabricator program at its 1999 projected volume of purchases. Adding
the projected financial benefits from the new co-op advertising programs, margin enhancement fund,
7
Hicks characterized the benefits discussed in Orlando as essentially the same as those
offered under the pilot program.
12
and the performance growth rebate yielded an estimated financial benefit of over $ 1.5 million. The
document also compared these benefits to those Blind Maker had received under Springs’s 1998
incentive programs, and represented that Springs stood to gain more than $ 1.1 million in additional
benefits.
Evidence of a link to Project Overlord
Following the Orlando conference, an internal Springs operations review analyzed
fabricator feedback from the event. The review listed a number of the fabricators’ concerns
including, (1) questions regarding Springs’s ability to deliver the promises made, (2) quality and
service issues, (3) belief that the FLA was lopsided in Springs’s favor, and (4) concerns about
Springs’s strategy to acquire [distributor/fabricators] and establish wholly owned fabrication
capability. At the end of this list, the review states “*** We will be driven to execute OVERLORD
on an accelerated basis.”
Hicks signs the FLA
Hicks did not sign the FLA at the Orlando conference. Springs mailed a revised
version of the agreement to Blind Maker on January 7, 1999. Springs had made several revisions
based on “the significant comments that were obtained in Orlando” in order to “make the Agreement
completely serviceable to [Springs] and it’s [sic] fabricating partners.” The letter stated “a timetable
for completion of the Agreement”:
January 1999 - March 1999 Signed Agreements are obtained and applicable
benefits (Gold, Silver and Bronze Preferred
13
Fabricators) begin to accrue the month following the
signature.
March 2, 1999 Fabricators not signing the Agreement will be
classified as Standard Fabricators.
June 1, 1999 Fabricators who have not signed the Agreement will
be discontinued by their election of not signing the
Agreement.
After consulting with Blind Maker’s corporate counsel, Hicks signed the revised FLA on January
15, 1999.
The FLA itself made no mention of the Preferred Benefits discussed in Orlando or
in the 1999 Marketing Plan. It did grant Blind Maker a “non-exclusive right and license” to use
certain of Springs’s Graber trademarks listed in an exhibit to the agreement. The license permitted
Blind Maker to use the trademarks within identified territory and distribution channels. Blind Maker
agreed “to devote its best efforts to promote and sell the Licensed Product in the Primary Territory”
and that all Licensed Products would utilize only Springs components and be installed and
constructed in conformity with technical information and specifications provided by Springs.
Springs was also given power to approve any advertising for the Licensed Products.
Springs agreed, during the term of the agreement, to sell to Blind Maker all
components for fabrication of the Licensed Products, subject to its right to decline any order. The
agreement further provides that, “The prices and other terms and conditions of sale for the
components are set forth in Springs’s price lists and standard terms and conditions of sale,” and that
“Springs reserves the right to change prices and standard terms and conditions of sale and the
14
features of its components at any time during the terms of this Agreement.” Additionally, the FLA
provided that “[a]ll orders shall be subject to the approval of Springs’s credit department.” The FLA
also obligated Springs to sell “sufficient quantities of samples and displays of the Licensed Products,
catalogs, and other advertising and promotional aids,” and to make available, from time to time,
fabricator technical information, including finished product specifications, fabrication and assembly
instructions, and repair instructions.
The FLA also permitted either party to terminate the agreement, with or without
cause, upon six months’ advance written notice. Upon termination, Blind Maker’s license to use
Springs’s trademarks and technical information would cease.
The sole reference in the FLA to the Preferred Fabricator program was in section
13.01, which provided:
Springs Fabricators are classified as Preferred (Gold, Silver, or Bronze) or Standard
Distributor/Fabricator. Fabricator agrees to strictly comply with all requirements for
its assigned category . . . . The requirements are subject to quarterly review and
revision. Fabricator shall provide quarterly reports of its compliance status with
respect to all performance targets assigned to Fabricator.
The FLA contained an addendum identifying Blind Maker as a Gold Preferred Fabricator and setting
forth the requirements that Blind Maker purchase a total of at least $2.5 million of qualifying
products and at least $25,000 from each Graber product group; fabricate and distribute only Springs
products unless Blind Maker obtained written approval to do otherwise; and meet a $12.3 million
sales objective. Payment terms were again specified as “2% 15th, Net 60.”
15
The FLA further provided that Springs would have a right of first refusal should
Hicks sell the Blind Maker. However, Hicks handwrote a modification: “Springs shall not have a
right of first refusal if ownership is transferred in accordance with a will to family members.”
Finally, section 15.05 of the FLA provided:
This Agreement contains the entire agreement between the parties hereto in respect
of the subject matter hereof, and supercedes and cancels all previous agreements,
negotiations, commitments and understandings, with respect to the subject matter
hereof, whether made orally or in writing.
After Hicks executed the FLA and forwarded it to Springs, Dudas wrote on January 22 to
acknowledge receipt and “welcome you to our joint partnership.” Dudas added that “[s]ince your
signing date was January, 1999, the Preferred benefits will begin on February 1, 1999. These
benefits will be distributed as per our 1999 Fabricator publication and our discussions in Orlando.”
Hicks later testified that, although the FLA and other Springs documentation had
referenced “Standard Fabricators,” Springs executives had “repeatedly” told him that Blind Maker
had to sign the FLA as a preferred fabricator—i.e., to agree to the exclusivity requirement and
preferred fabricator performance targets—or Springs would discontinue all business with Blind
Maker on June 1, 1999. Hicks later learned that, in fact, Springs had continued to do business with
other fabricators as standard fabricators. He testified that if he had understood that Blind Maker
could have continued to do business with Springs as a standard fabricator, he would not have signed
the FLA as a preferred fabricator. Hicks also testified as to his understanding at the time that the
FLA and the preferred fabricator benefits “went together” and that if he had believed that Springs
16
would not consider itself bound to provide the preferred fabricator benefits, he would not have
signed the FLA as a preferred fabricator.
Springs enforces the terms of the FLA
The dispute that ensued stemmed from Springs’s attempts to enforce FLA terms that
departed from the parties’ past business practices, Springs’s modification of certain preferred
fabricator benefits, and Springs’s failure to deliver certain benefits as originally promised. Initially,
Blind Maker received at least some of the preferred fabricator benefits represented in the 1999
Marketing Plan and prior discussions. Particularly important to Blind Maker was the 3% margin
improvement fund. Also, even though the preferred fabricator requirements explicitly stated
payment terms of “2% 15, net 60,” Blind Maker continued its practice of taking 2% early payment
discounts even when it paid significantly later than fifteen days after invoice. However, Springs was
slower to deliver on other preferred fabricator benefits, raised some component prices, and
eliminated a truckload discount that Blind Maker had received prior to 1999.
In April 1999, Hicks learned that Springs was selling a new type of Graber product
through Home Depot. Hicks faxed a letter to Dudas complaining that the action “speaks volumes”
about Springs’s retail strategy and “it raises serious issues of integrity.”8 Hicks also urged that he
“signed this contract expecting a ‘fighter brand.’ Where is it? Instead we are taking a significant
price increase on our basic components.” He added, “We should not be penalized for signing a
contract or being loyal to Graber. We must have access to competitively priced components on those
8
Hicks added, “Jim, I am not questioning your personal integrity, but your company’s
marketing integrity is certainly in question.”
17
generic, commodity products.” Hicks also expressed concern that, “I also signed the contract
expecting significant savings from your preferred programs. Between the price increase, losing the
truckload discount, and the other perks, The Blind Maker is not doing well.” Hicks later testified that
this was the first time he began to question Springs’s commitment to the promises he believed it had
made in Orlando.
On May 29, 1999, Hicks executed a second revised version of the FLA. This version
included a narrower right of first refusal provision applying only where an owner attempted to sell
a fabricator to one of Springs’s direct or indirect competitors. The agreement was otherwise
identical to the version Hicks had signed in January except for some changes to the exhibits. The
exhibit addressing Blind Maker’s obligations as a Gold preferred fabricator was unchanged.
Beginning in June, Springs’s credit department began to inquire with Blind Maker
regarding its practice of taking the 2% early payment discount even while paying significantly later
that the fifteen days after invoice specified in the FLA. These discussions culminated in a September
29 conference call in which Springs informed Blind Maker that it would strictly enforce the “2%
15th, net 60" payment terms specified in the FLA.9 In Hicks’s view, due to Blind Maker’s cash cycle
on inventory, this step eliminated any possibility it could obtain the 2% discount, effectively adding
what Hicks estimated to be $25,000 or $30,000 per month to the company’s inventory costs.
Relations between the two companies continued to sour thereafter. After a meeting
with a Springs marketing executive that Hicks later recounted “created some animosity,” Dudas
9
Springs also sought reimbursement from Blind Maker for discounts it improperly took
between June 1 and September 29. This aspect of the parties’ dispute, which escalated in the
succeeding months, was ultimately resolved before trial.
18
informed Hicks that, as Hicks recounted, “I basically wasn’t liked at Springs . . was considered to
be leading a charge against them,” and that his “issues were mine and mine alone.” Dudas,
according to Hicks, concluded by suggesting that Hicks “should consider my options, one of which
was for Springs to buy The Blind Maker.” This was the first time that Hicks had heard such an idea
from a Springs executive, and Hicks recounted that he felt “shocked and threatened that they even
would consider a strategy like that.”
Dudas subsequently left Springs some time thereafter, and, on October 22, 1999,
Dudas wrote Hicks thanking him for “your support,” and professing, “I know I have failed to deliver
all that was promised at the outset of my tenure, but I do believe that we have made progress and that
the current business direction is correct.”
The white sale
There is evidence that, during 1999, there was awareness within Springs that Blind
Maker was encountering financial difficulties. An October email from Springs’s credit manager
related an industry rumor that Blind Maker’s bank had begun carefully scrutinizing Blind Maker’s
account balances and sending auditors twice monthly to do inventory verification. The email
concluded that the rumors were only speculation, “but given the concerns we have, I feel it is worth
documenting. We should also be wary of any large orders that may potentially be placed by [Blind
Maker] to make their ‘quotas.’” Other internal documents reflected concern that Blind Maker’s
accounts payable had swelled and had become late since Springs began strictly enforcing the fifteen-
day requirement for the 2% early payment discount. Testimony from Springs employees further
revealed that Springs had an internal “credit limit” for Blind Maker of $3.8 million and that Blind
19
Maker had approached or exceeded this limit for much of the latter half of 1999. Blind Maker was
not informed of any such limit, however, until several months later.
In November, Blind Maker received a Graber “General Sales Bulletin,” addressed to
“Graber Preferred Distributor/Fabricators,” announcing a “First Quarter 2000 White Sale” through
which preferred fabricators could obtain steep discounts on large purchases of certain Graber
components. Hicks testified that, having “lost” its customary 2% early payment discount, Blind
Maker “bought as much as we could”—over $1 million more in inventory than in a typical
month—both to avail itself of the white sale discounts and to meet the 5% growth target for
receiving the preferred fabricator benefits’ 2% performance growth rebate. Blind Maker’s accounts
payable rose to over $ 4.8 million by January 8, 2000.
Hicks testified that Springs thereafter began putting unprecedented pressure on Blind
Maker to pay down its debt. Later in January, Springs reduced Blind Maker’s internal “credit limit”
from $3.85 million to $3.4 million. It did not inform Blind Maker of this reduction or the existence
of a credit limit. Blind Maker ultimately agreed to a repayment schedule.
Changes to the preferred fabricator benefits
In March 2000, Springs held a meeting of its Preferred Fabricators in Chicago, at
which it announced changes in its preferred benefits for 2000. Springs replaced the margin
enhancement fund, which had been based solely on the volume of a fabricator’s purchases, with a
“Business Development Fund,” which provided rebates tied to growth in purchase volume.10 Springs
10
In all classifications, a fabricator had to achieve a minimum of 5% growth. For meeting
this threshold, a Gold fabricator would receive a 3% rebate, a Silver 2%, and a Bronze 1%. For the
20
also modified the performance growth rebate to provide graduated percentages of rebates based not
on fabricator classification, but percentage growth.11 These shifts to growth-based incentives from
volume-based incentives created new difficulties for Blind Maker; because it was already a large
fabricator, it regarded the required growth thresholds as virtually impossible to achieve. However,
Blind Maker apparently did qualify for a new “Platinum” classification of preferred fabricators
applicable to those with at least $ 5 million in annual purchases. These changes took effect on
April 1.
The “customer list”
At the March meeting, Springs also introduced a new promotional program, “Clear
to the TOP,” through which fabricators’ retail-level customers could obtain certain benefits, such as
free merchandise, based on growth in their purchases of Graber products. Blind Maker and other
fabricators were asked to mail “Clear to the TOP” program registration cards to their retail-level
customers. The cards requested confidential past-sales data, including customer identities, addresses,
telephone numbers, social security numbers or employer identification numbers, as well as sales
histories. Blind Maker considered this “very confidential information,” and voiced concern to
Springs. Springs represented that this information would be kept confidential—it would not be used
by Springs but would be forwarded to a third-party administrator; only names, social security
numbers and addresses for IRS purposes would be given to Springs. Springs would not have the
new Platinum classification, discussed above, Springs would pay a 4% rebate.
11
For 5-10% growth, all classifications of preferred fabricators would receive a 1% rebate;
11-14% growth, 2% rebate; and 15% or more growth would yield a 3% rebate.
21
sales history information. Springs also purportedly represented that only the third-party
administrator would have access to the sensitive information and that Springs was using this
arrangement so fabricators would not have to disclose their confidential information to Springs.
Blind Maker gives notice to terminate
On May 19, 2000, Blind Maker sent Springs a letter terminating the FLA effective
six months later, November 19, 2000, as required by that agreement. Hicks later explained that
Springs had eliminated any benefit for Blind Maker to continue as a preferred fabricator.
An internal Springs briefing paper prepared for Springs president Ron Zabel lists
several potential “choices” that “should be presented to Ray Hicks no later than 5/26/00.” Among
these were Springs acquiring an equity position in Blind Maker. However, Hicks later testified that
Springs did not offer that option. Subsequently, on July 6, Springs placed a “credit hold” on Blind
Maker’s purchases for the first time. Springs witnesses later testified that Blind Maker’s termination
notice was a factor in this decision. On July 13, Springs informed Blind Maker for the first time
about its internal credit limit. Hicks testified that credit holds were “constant” thereafter and that
Springs frequently informed Blind Maker that requested components were on back order when,
Hicks maintains, other fabricators were able to purchase the same components. There was also
evidence that Springs refused to complete warranty work submitted by Blind Maker at this time.
Blind Maker and Springs attempted to negotiate the extent to which Blind Maker
could sell products from rival manufacturers during the remaining term of the FLA and whether
Springs could compete for Blind Maker’s retail-level customers. The evidence is disputed as to
whether the parties ever reached any agreement.
22
Project Texas
Also in July, Springs executives began actively developing alternative channels
through which Springs could reach the Texas market. Springs formulated a plan, “Project Texas,”
for pursuing Blind Maker’s customers. An internal Springs memo circulated around this time by
Springs’s new president, Ron Zabel, questioned whether Blind Maker should have a “hard” or “soft”
landing following its notice of termination. Another internal Springs document lists two scenarios
to be presented to Blind Maker. Scenario 1 listed a variety of options for the continued relationship
between the two companies. This included (a) Spring’s buyback of existing inventory and increasing
Blind Maker’s margin, (b) voiding the FLA and allowing Blind Maker to fabricate under its own
brand, or (c) an exchange of debt for equity in which Springs would actively participate in the
operation of Blind Maker. Scenario 2 contemplated Blind Maker’s demise: “SWF will implement
actions to insure payment of the outstanding amount ($4.1M) SWF will take action(s) to maintain
sales of its products in the markets formerly served by TBM.” A document entitled “Ray, we want
you back!!” also reflects the hard or soft landing strategy. This document lays out a number of
inducements for the Blind Maker to return as a Springs fabricator and states that, if Blind Maker does
not agree within 24 hours, Springs will demand repayment of all accounts receivable within 60 days,
cancel all pending and future orders, and “[Springs] will immediately deploy appropriate resources
to enable it to penetrate all markets now being served by Blind Maker.”
There is evidence that, by September, Springs was using the confidential customer
information from the “Clear to the TOP” promotion to compete directly for Blind Maker’s retail-
level customers. There is also evidence that Springs provided this information to rival fabricators
23
to enable them to compete for Blind Maker’s customers. At trial, Springs’s CFO conceded that he
had believed it was wrong for Springs to use the confidential customer information in that manner.
At this point in their relationship, Springs began refusing to accept unopened
inventory that Blind Maker was attempting to return.
The lawsuit
On September 29, 2000, Blind Maker filed suit against Springs in Travis County
district court, claiming fraud, breach of contract, negligence, negligent misrepresentation,
misappropriation of trade secrets, tortious interference with business relations, promissory estoppel,
and claims under the Texas Deceptive Trade Practice Act and the Wisconsin Fair Dealership Act.
Springs counterclaimed under the FLA for $2.3 million, Blind Maker’s remaining credit balance.
Against this counterclaim, Blind Maker asserted various defenses, including that it was fraudulently
induced into the FLA.
The case was tried to a jury. Although the jury heard evidence relevant to all of Blind
Maker’s liability claims, before submission Blind Maker dismissed with prejudice all of its claims
except fraud. As for damages, Blind Maker submitted only past and future “Lost Profits that were
natural, probable, and foreseeable consequence of Springs’s fraud.” The jury found that Springs had
committed fraud, and awarded Blind Maker $5,157,240 in past lost profits; it awarded no future lost
profits. The jury further found by clear and convincing evidence that the harm to Blind Maker
resulted from fraud, and awarded $2,090,000 in exemplary damages. However, the jury also found
that Blind Maker failed to comply with its payment obligations under the FLA and that such failure
was not excused by either of two counterclaim defenses Blind Maker submitted to the
24
jury—fraudulent inducement or anticipatory breach. The jury awarded Springs $2,043,660 in
damages. Only Springs now appeals.
DISCUSSION
Springs raises four primary issues on appeal: (1) the jury’s finding of fraud is not
supported by legally or factually sufficient evidence; (2) the jury’s actual-damage award is not
supported by legally or factually sufficient evidence; (3) because its liability finding and actual-
damage award are not supported by the evidence, the jury’s exemplary-damage predicate finding and
award should likewise be overturned; and (4) in the alternative, the judgment must be reformed to
award post-judgment interest accruing after September 1, 2003, at the rate of 5% rather that 10%.
The jury’s fraud finding
In its first issue, Springs challenges the legal and factual sufficiency of the evidence
to support the jury’s finding of fraud.
Standard of review
In reviewing the legal sufficiency of the evidence, we view the evidence in the light
favorable to the verdict, crediting favorable evidence if reasonable jurors could, and disregarding
contrary evidence unless reasonable jurors could not. City of Keller v. Wilson, No. 02-1012, 2005
Tex. LEXIS 436, at *1-2 (Tex. June 10, 2005). There is legally insufficient evidence or “no
evidence” of a vital fact when (a) there is a complete absence of evidence of a vital fact; (b) the court
is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a
vital fact; (c) the evidence offered to prove a vital fact is no more than a mere scintilla; or (d) the
25
evidence conclusively establishes the opposite of the vital fact. Merrell Dow Pharms., Inc. v.
Havner, 953 S.W.2d 706, 711 (Tex. 1997); Patlyek v. Brittain, 149 S.W.3d 781, 785 (Tex.
App.—Austin 2004, pet. denied). More than a scintilla of evidence exists when the evidence
supporting the finding, as a whole, “rises to a level that would enable reasonable and fair-minded
people to differ in their conclusions.” Havner, 953 S.W.2d at 711 (quoting Burroughs Wellcome Co.
v. Crye, 907 S.W.2d 497, 499 (Tex. 1995)). If the evidence is so weak as to do no more than create
a mere surmise or suspicion of its existence, its legal effect is that it is no evidence. Haynes & Boone
v. Bowser Bouldin, Ltd., 896 S.W.2d 179, 183 (Tex. 1995).
In reviewing a factual insufficiency point, we consider, weigh, and examine all the
evidence presented at trial. Plas-Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989).
We set aside a finding for factual insufficiency only if it is so contrary to the overwhelming weight
of the evidence as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986)
(per curiam).
Overview of the jury charge and evidence
The starting point for our analysis of Springs’s evidentiary sufficiency challenge is
the charge as submitted to the jury. Osterberg v. Peca, 12 S.W.3d 31, 55 (Tex. 2000) (legal
sufficiency); Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 762 (Tex. 2003) (“Before a
court can properly conduct a factual sufficiency review, it must first have a clear understanding of
the evidence that is pertinent to its inquiry. The starting point generally is the charge and instructions
to the jury.”); Ancira Enters., Inc. v. Fischer, No. 03-03-00498-CV, 2005 Tex. App. LEXIS, at *23-
24 (Tex. App.—Austin June 16, 2005, no pet. h.). The focus of our inquiry, then, is Question 1, in
26
which the jury was asked, “Did Springs commit fraud against The Blind Maker?” The jury was
instructed that “fraud can occur through either: (1) misrepresentation; or (2) failure to disclose,” and
then proceeded to list the elements of both forms of fraud:
1. Fraud by misrepresentation occurs when—
a. a party makes a material misrepresentation;
b. the misrepresentation is made with the knowledge of its falsity or made recklessly
without any knowledge of the truth and as a positive assertion;
c. the misrepresentation is made with the intention that it should be acted on by the
other party; and
d. the other party acts in reliance on the misrepresentation and thereby suffers injury.
“Misrepresentation” means:
a. A false statement of fact;
OR
b A promise of future performance made with an intent, at the time the promise was
made, not to perform as promised.12
2. Fraud by failure to disclose occurs when–
a. a party fails to disclose a material fact within the knowledge of that party,
b. the party knows that the other party is ignorant of the fact and does not have an
equal opportunity to discover the truth,
12
Springs does not dispute that this is a proper instruction regarding fraud by
misrepresentation. See Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001).
27
c. the party intends to induce the other party to take some action by failing to disclose
the fact, and
d. the other party suffers injury as a result of acting without knowledge of the
undisclosed fact.13
The jury answered Question 1 in the affirmative.
The gist of Blind Maker’s fraud claim was that Springs committed a series of
independently actionable fraudulent acts to effectuate the “Overlord” plan. Blind Maker alleged the
following specific fraudulent acts:
! Fraudulently inducing Blind Maker to enter into the FLA, which Blind Maker
contends effectively trapped the company in an agreement that required Blind
Maker to sell exclusively Graber products and allowed termination only by six-
months’ advance notice (the “fraudulent-inducement” theory);
! Fraudulently failing to disclose to Blind Maker that it was in danger of
exceeding Springs’s “secret” credit limits before allowing it to make large credit
purchases in connection with the December 1999 white sale promotion (the
“white sale” theory);
! Fraudulently misrepresenting that Blind Maker’s customer list information
collected through the “Clear to the TOP” promotion would be kept confidential,
then using it to compete against Blind Maker a few months later (the “customer
list” theory);
! Fraudulently failing to disclose that, after Blind Maker gave notice to terminate
the FLA, Springs would (1) place a credit hold on its purchases; (2) treat it
“differently” than other preferred fabricators; (3) refuse to do business with it as
a standard fabricator; (4) use the customer information obtained through the
Clear to the TOP promotion to compete against it; and (5) make false statements
13
As discussed below, Springs objected to the submission of an instruction on fraud by
failure to disclose, contending that, as a matter of law, such a claim was foreclosed because it owed
no duty to disclose and because Blind Maker did not obtain a predicate finding on the existence of
such a duty. We address this contention below.
28
to Blind Maker’s customers concerning why Blind Maker was no longer selling
Springs’s products (the “termination” theory).
Fraudulent inducement theory
In support of its fraudulent inducement theory, Blind Maker elicited the following
evidence of representations or nondisclosures by Springs before Hicks signed the FLA:
! Hicks testified that Springs “repeatedly” told him that Blind Maker would have
to sign the FLA as a preferred fabricator by June 1, 1999, or Springs would
cease to do business with Blind Maker. Hicks also testified that Springs never
told him that he could opt to continue doing business as a standard fabricator,
as he later learned that Skandia, one of Blind Maker’s competitors, did;
! Hicks testified that he was never told that the 3% margin development discount
could change or would be changed in March 2000;
! Hicks testified that he was never told that Springs would strictly enforce the 2%
early payment discount for payment within fifteen days of invoice;
! Hicks testified that Springs’s expressed intentions with the FLA and preferred
fabricator program was to eliminate “bottom feeders;”
! Hicks testified that he was never told about “Overlord” or that Blind Maker was
a target;
! Evidence regarding the preferred fabricator benefits represented to Hicks during
the Orlando conference and in the 1999 Marketing Plan. These included (i) new
product development; (ii) new product priority (distributor/fabricators would be
able to sell new products for a year before it went into the retail channel); (iii)
Nanik blinds would not be sold in the retail channel (so as to avoid channel
conflicts); (iv) a lower-priced “fighter brand” would be developed and deployed,
as well as “good-better-best” product positioning; (v) price parity between the
distributor/fabricator channel and the retail channel; (vi) a “mega pricing”
program to combat low-priced generics; (vii) smaller, cheaper samples; and
29
(viii) pull national consumer advertising.14 Blind Maker also claims that Springs
misrepresented that these benefits and FLA “went together as a whole.” Hicks
testified that he wouldn’t have signed the FLA as a preferred fabricator if these
benefits had not been promised and that Springs failed to fulfill each represented
benefit;15 and
! Hicks testified that Springs never told him that it viewed its representations
regarding the preferred fabricator benefits as mere business “intentions” and not
as firm commitments.
Springs contends that none of this evidence can have probative value because of the
operation of various legal rules. See Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334
(Tex. 1998) (legal sufficiency or “no evidence” point will be sustained when court is barred by rules
of law or of evidence from giving weight to only evidence offered to prove a vital fact); Havner, 953
S.W.2d at 711.
The jury’s failure to find fraudulent inducement in Question 6
Springs’s first argument is predicated on the jury’s failure to find in Blind Maker’s
favor on its fraudulent-inducement defense to Springs’s counterclaim under the FLA. Question 6
of the charge, presenting Blind Maker’s affirmative defenses, asked, “Was The Blind Maker’s failure
to comply [with the FLA] excused,” and included an instruction regarding two defenses:
14
Blind Maker also asserts that its “termination claims” are, in part, fraudulent inducement
claims, because Springs should have disclosed, before Blind Maker entered into the FLA, the actions
Springs would ultimately take after Blind Maker gave notice to terminate sixteen months later. We
address this aspect of Blind Maker’s fraudulent inducement claim in our discussion of the
termination theory.
15
We also note that Dudas’s farewell letter to Hicks conceded his failure “to deliver all that
was promised at the outset of my tenure.”
30
[F]ailure to comply by The Blind Maker is excused if any one of the following is
true:
Failure to comply by The Blind Maker is excused by Springs’s previous failure to
comply with a material obligation of the [FLA]; or
Failure to comply by The Blind Maker is excused if The Blind Maker entered into
the [FLA] as a result of fraud, if any, by Springs.
The question then explicitly linked the term “fraud” in Question 6 to the definitions and instructions
accompanying Question 1: “Please refer to Question 1 for instructions on fraud.” The jury answered
“no” to Question 6. Because the two defenses were submitted in the disjunctive, the jury necessarily
failed to find either fraudulent inducement or anticipatory breach.
Springs reasons that because the jury failed to find in Question 6 that Blind Maker
was fraudulently induced into the FLA, the jury necessarily could not have relied on evidence of
fraudulent inducement in finding some fraud in Question 1. It extrapolates that, in our sufficiency
review, we must consider only potential evidence of fraud that is not “inducement-related.” Blind
Maker assails this argument on two chief grounds. It first cites the proposition that a jury’s failure
to find in favor of a party on an issue is not an affirmative finding to the contrary but merely
indicates that the party failed to carry its burden of proving that fact. See C. & R. Transp., Inc. v.
Campbell, 406 S.W.2d 191, 194 (Tex. 1966); Gensco v. Canco Equip. Inc., 737 S.W.2d 345, 347-48
(Tex. App.—Amarillo 1987, no writ).16 Second, Blind Maker suggests that Springs is attempting
16
See VandeStreek v. Hammer, No. 03-99-00355-CV 2000 Tex. App. LEXIS 4588, at *2-3
(Tex. App.—Austin 2000, no pet.) (memorandum opinion); but see Doyle Wilson Homebuilder, Inc.
v. Pickens, 996 S.W.2d 387, 399 (Tex. App.—Austin 1999, pet. dism’d by agr.) (characterizing
jury’s negative answer to breach of contract submission as “an implicit finding that the electrical
wiring used . . . was of good quality and free of defects, since any materials not in conformity were
31
to revive an argument, waived at trial, that the jury’s findings in Questions 1 and 6 fatally conflict.17
We agree that Springs has waived the argument it attempts to assert here.
In the district court, Springs argued that the jury’s responses in Questions 1 and 6
fatally conflicted and rejected the possibility that the responses could be reconciled.18 Blind Maker
maintained that (1) Springs waived its conflict complaint by failing to object before the jury was
discharged; and (2) while conceding “there is some overlap in the facts inquired about,” the two
responses could be reconciled because Question 1 inquired about additional acts of fraud beyond
Blind Maker’s fraudulent inducement into the FLA. On appeal, Springs does not attempt to argue
conflict and does not appear to dispute that it waived that argument; instead, it purports to adopt
Blind Maker’s position at trial that the responses could be reconciled and additionally attempts to
derive implications for our sufficiency review of the Question 1 finding.
considered defective under the contract”; although finding was “not conclusive,” it “indicates that
the jury did not believe that either a manufacturing defect or improper installation . . . caused the
fire.”).
17
Both affirmative jury findings and failures to find may give rise to fatal conflicts under
Texas law. See Bender v. Southern Pac. Transp. Co., 600 S.W.2d 257, 260 (Tex. 1980); Ford Motor
Co. v. Miles, 141 S.W.3d 309, 316-19 (Tex. App.—Dallas 2004, pet. filed) (negative finding on
strict liability issue fatally conflicted with affirmative finding on negligence issue, requiring reversal
and remand for new trial); see generally 4 Roy W. McDonald & Elaine A. Grafton Carlson, Texas
Civil Practice §§ 25:11-:13 (2d ed. 2001) (citing cases involving jury failures to find in discussion
of conflicting findings).
18
In both its motion for new trial and its motion to disregard jury findings and for judgment,
for example, Springs posited that if Blind Maker “had alleged and/or proved a misrepresentation that
it relied upon in some way other than entering into the F&L Agreement, the two answers might not
contradict each other,” but it rejected this possibility because the jury had awarded an amount for
fraud damages in Question 2 that exceeded any amount it believed was attributable to any non-
inducement fraud.
32
The unstated premise underlying Springs’s argument on appeal is that the jury’s
responses in Questions 1 and 6 would conflict unless we reconcile the two by construing the jury’s
Question 1 finding to be based solely upon evidence of fraud other than fraudulent inducement. This
is the type of analysis that Texas courts perform when a conflict complaint is raised. See, e.g,
Bender v. Southern Pac. Transp. Co., 600 S.W.2d 257, 260 (Tex. 1980) (reconciling jury’s liability
findings on certain issues with failures to find on other issues). Absent a conflict complaint, there
is no basis for reconciling the jury’s responses, and the court must give effect to each finding in the
ordinary fashion. See id. A conflict objection can be waived. St. Paul Fire & Marine Ins. Co. v.
Murphree, 357 S.W.2d 744, 748-49 (Tex. 1962) (rendering of judgment on fatally conflicting
findings is not fundamental error and can be waived).19 Especially in the face of general principles
of sufficiency review, which require us to consider all of the evidence in light of the charge actually
submitted, we decline to reconcile the jury’s responses in Questions 1 and 6, much less rely on such
reconciliation to limit our sufficiency review, because Springs did not first preserve a conflict
objection at trial. See Associated Indem. Corp., 964 S.W.2d at 285-86; Plas-Tex, 772 S.W.2d at 445.
To hold otherwise would create an end-run around the modern error preservation requirement that
parties object to conflicting jury findings before the jury is discharged20and the sound policies that
19
Cf. Golden Eagle Archery Co. v. Jackson, 116 S.W.3d 757, 763-70 (Tex. 2003) (absent
contrary instructions in charge or other limitations, jury might award overlapping or duplicative
elements of damages based on same evidence).
20
See Columbia Med. Ctr. of Las Colinas v. Bush, 122 S.W.3d 835, 861 (Tex. App.—Fort
Worth 2003, pet. denied); Norwest Mortgage, Inc. v. Salinas, 999 S.W.2d 846, 865 (Tex.
App.—Corpus Christi 1999, pet. denied); City of Port Isabel v. Shiba, 976 S.W.2d 856, 860 (Tex.
App.—Corpus Christi 1998, pet. denied); Isern v. Watson, 942 S.W.2d 186, 191 (Tex.
App.—Beaumont 1997, writ denied); Ciba-Geigy Corp. v. Stephens, 871 S.W.2d 317, 324 (Tex.
App.—Eastland 1994, writ denied); see also Tex. R. Civ. P. 295 (contemplating that trial court can
33
underlie that requirement. What the jury intended by findings that potentially conflict is best
determined by the jury itself, a procedure made available by timely objection before the jury is
discharged, see Tex. R. Civ. P. 295, rather than by appellate courts drawing “speculative”
conclusions regarding “the jury’s thought processes or of its intentions in giving its answers to the
two issues,” as Springs asks us to do here. C. & R. Transp., 406 S.W.2d at 195.
We accordingly hold that Springs waived its argument that the jury’s failure to find
in Blind Maker’s favor regarding its fraudulent inducement defense limits the scope of our
sufficiency review of the jury’s Question 1 fraud finding.21
“Con-tort” cases
Next, Springs contends that Blind Maker’s fraudulent-inducement claim is, in
substance, a claim for damages from Springs’s failure to perform under the FLA, and thus can be
brought only as a contract claim. See Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494-
95 (Tex. 1991).
In DeLanney, the supreme court held that a cause of action for “negligence” could
not be based on an allegation that a party failed to perform duties subsumed in a contract because
return conflicting verdict to jury with instructions).
We note that, in some of its older decisions, the supreme court addressed issues of conflict
raised for the first time on appeal. C. & R. Transp., Inc. v. Campbell, 406 S.W.2d 191, 195 (Tex.
1966) (addressing conflict “although neither party so contends or has sought a mistrial on that
ground.”). Because Springs does not dispute that it waived its conflict objection at trial, we need not
consider the implications, if any, of these decisions.
21
Because we rely on waiver, we have no occasion to consider whether, assuming we could
properly reconcile the responses in Questions 1 and 6 in the manner Springs suggest, it would have
any implications for our sufficiency review.
34
such an action sounded in contract and not tort. Id. at 494-95; see also Crawford v. Ace Signs, Inc.,
917 S.W.2d 12, 13-14 (Tex. 1996) (extending DeLanney to hold that nonperformance of contract
not actionable under DTPA). Subsequently, in Formosa Plastics Corp., USA v. Presidio Eng. &
Contr., Inc., 960 S.W.2d 41, 46-47 (Tex. 1998), the supreme court rejected the application of
DeLanney to preclude a fraudulent-inducement claim. The court noted that Texas law has long
imposed a tort duty, independent of any contract, to abstain from inducing another to enter into a
contract through the use of fraud. Id. at 46 (citing Prudential Ins. Co. v. Jefferson Assocs., Ltd., 896
S.W.2d 156, 162 (Tex. 1995), and Dallas Farm Mach. Co. v. Reaves, 307 S.W.2d 233, 239 (Tex.
1957)). It likewise noted that it had “repeatedly recognized that a fraud claim could be based on a
promise made with no intention of performing, irrespective of whether the promise is later subsumed
in a contract.” Id. (citing Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d
591, 597 (Tex. 1992)). It also established that tort damages are not precluded simply because a
fraudulent representation causes only an economic loss. Id. at 47. “Accordingly,” the supreme court
held, “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.” Id.
To distinguish Formosa, Springs relies on the jury’s failure to find fraudulent
inducement in Question 6, which it equates to a finding of no fraudulent inducement. “This is a
misinterpretation of the issue and the answer.” C. & R. Transp., 406 S.W.2d at 194. The jury’s
failure to find fraudulent inducement in Question 6 is not an affirmative finding of no fraudulent
inducement. Id. In light of this principle, and Springs’s waiver of any conflict-related complaint
35
relating to the jury’s consideration of fraudulent inducement evidence in finding fraud in Question
1, we must reject Springs’s attempt to use the Question 6 finding to avoid Formosa. Assuming there
is otherwise competent evidence of fraudulent inducement, DeLanney does not stand as a barrier to
our considering that evidence as support for the jury’s Question 1 fraud finding. Formosa, 960
S.W.2d at 47.
Merger clause
In section 15.05 of the FLA, Blind Maker contractually agreed that (1) the FLA
“contains the entire agreement” between it and Springs “with respect to the subject matter hereof”;
and that the FLA (2) “supersedes and cancels all previous agreements, negotiations, commitments
and understandings, with respect to the subject matter hereof, whether made orally or in writing.”
Springs contends that section 15.05 negates, as a matter of law, the reliance element of Blind
Maker’s fraud claim to the extent it arose before Hicks’s entry into the FLA; i.e., its fraudulent
inducement theory. See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 179-80 (Tex. 1997)
(disclaimer provision in settlement agreement defeated fraudulent inducement claim by negating
reliance on pre-contractual representations); Prudential, 896 S.W.2d at 162 (“as is” clause and
disclaimer of reliance negated reliance element of fraud claim predicated on pre-contractual
representations).
Blind Maker attempts to distinguish section 15.05 from the type of contractual
provisions addressed in Schlumberger and Prudential. It points out that Schlumberger involved a
disclaimer of reliance in a settlement release, see Schlumberger, 995 S.W.2d at 177-80, while
Prudential involved a contractual “as is” clause and disclaimer of reliance in a real estate purchase
36
agreement. See Prudential, 896 S.W.2d at 160. Blind Maker observes that section 15.05 is a merger
or integration clause, and maintains that it can only prevent the use of parol evidence to vary the
written terms of the FLA and does not bar tort claims. We reject Blind Maker’s argument.
In general, a “merger clause” is a contractual provision to the effect that the written
terms of the contract may not be varied by prior agreements because all such agreements have been
merged into the written document. IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113, 125 n.6
(Tex. App.—Houston [14th Dist.] 2003, pet. denied) (citing Black’s Law Dictionary 989 (6th ed.
1990)). Such clauses emphasize the parties’ intent to invoke the “merger doctrine.” Fish v. Tandy
Corp., 948 S.W.2d 886, 899 (Tex. App.—Fort Worth 1997, pet. denied) (“A written merger clause
. . . is essentially a memorialization of the merger doctrine.”). Under the merger doctrine, prior or
contemporaneous agreements between the same parties, concerning the same subject matter, are
absorbed into a subsequent agreement. See Texas A & M Univ.-Kingsville v. Lawson, 127 S.W.3d
866, 872 (Tex. App.—Austin 2004, pet. filed); Fish, 948 S.W.2d at 898; see generally Hubacek v.
Ennis State Bank, 317 S.W.2d 30, 31 (Tex. 1958) (explaining merger rule). Whether merger occurs
depends on the intent of the parties. Lawson, 127 S.W.3d at 872; Fish, 948 S.W.2d at 898. The
merger doctrine is an adjunct of the parol-evidence rule. Lawson, 127 S.W.3d at 872. For these
reasons, at least one of our sister courts has suggested that merger clauses operate solely to bar
contract claims based on extra-contractual agreements or representations, and not torts. See
Carousel’s Creamery, L.L.C. v. Marble Slab Creamery, Inc., 134 S.W.3d 385, 395 (Tex.
App.—Houston [1st Dist.] 2004, pet. filed).
37
However, the supreme court in Schlumberger implied that merger clauses could,
under circumstances like those present in that case, operate to negate the reliance element even of
fraudulent-inducement claims arising from the same contract containing the merger clause.
Schlumberger, 959 S.W.2d at 181 (“We emphasize that a disclaimer of reliance or merger clause
will not always bar a fraudulent inducement claim.”) (emphasis added). Moreover, several of our
sister courts and the Fifth Circuit have equated merger clauses similar to section 15.05 with the type
of disclaimers of reliance applied in Schlumberger and Prudential. See, e.g., IKON, 125 S.W.3d at
126-28 (provisions that contract was “entire agreement” and requiring any modifications to be in
writing barred fraudulent-inducement claim under Schlumberger); Yzaguirre v. KCS Res., Inc., 47
S.W.3d 532, 542-43 (Tex. App.—Dallas 2000), aff’d, 53 S.W.3d 368 (Tex. 2001) (merger clause
in settlement agreement containing “entire agreement” provision and statement that “[n]o oral
understandings, statements, promises or inducements contrary to this Settlement Agreement exist”
characterized as “disclaimer” and applying Schlumberger to preclude fraudulent-inducement claim);
see also U.S. Quest Ltd. v. Kimmons, 228 F.3d 399, 403-04 (5th Cir. 2000) (applying Texas law and
concluding that merger clause showed parties “intended to abandon any alleged agreement to enter
a second written contract”); Armstrong v. American Home Shield Corp., 333 F.3d 566, 571 (5th Cir.
2003) (applying Schlumberger to negate fraud claims based on merger clause).
By contractually “cancelling” all pre-FLA “agreements, negotiations, commitments
and understandings” and “supersed[ing]” them with the FLA, a merger clause like section 15.05
amounted to a disclaimer of the existence of pre-contract agreements, promises or representations
and any right of the parties to rely upon them. We conclude that section 15.05 is susceptible to being
38
enforced as a disclaimer of representations or reliance under the Schlumberger or Prudential
analyses.
We next consider the extent to which section 15.05 and the FLA, as a matter of
contract law, encompass the alleged agreements or understandings that were the basis of Blind
Maker’s fraudulent inducement theory of fraud.22 Blind Maker points out that section 15.05 states
that the FLA is the “entire agreement” only “with respect to the subject matter hereof.” It urges that
the FLA’s “subject matter” is “exceedingly narrow,” addressing only licensing issues and not the
credit or benefits issues at the root of its fraud claims. In response, Springs asserts that the FLA’s
subject matter extends to all aspects of the parties’ manufacturer-fabricator relationship. While we
disagree with Blind Maker’s characterization of the FLA as merely a licensing agreement, we agree
that section 15.05 and the FLA do not absorb all of the representation or understandings made the
basis of Blind Maker’s fraudulent-inducement theory of fraud.
A merger clause like section 15.05 memorializes the parties’ intent to integrate or
absorb their prior negotiations, agreements, or understandings concerning the same subject matter
into a subsequent written contract. See, e.g., Fish, 948 S.W.2d at 898-99; Leon Ltd. v. Albuquerque
Commons P’ship., 862 S.W.2d 693, 700 (Tex. App.—El Paso 1993, no writ). Where the parties
22
See Schlumberger, 959 S.W.2d 171, 179-80 (Tex. 1997) (looking to “well-established
rules of contract interpretation” as first step in determining whether release was enforceable to bar
fraudulent inducement claims); Prudential, 896 S.W.2d at 161-62 (“terms of the agreement” among
factors to be considered in determining whether “as is” clause is enforceable).
Section 15.06 of the FLA provides that the agreement is to be construed for all purposes
in accordance with Wisconsin law. Because neither party asserts that Wisconsin law differs from
Texas law in any respect that bears upon our analysis here, we will employ Texas law.
39
have concluded a valid integrated agreement dealing with the subject matter between them, the parol
evidence rule will prevent enforcement of prior or contemporaneous agreements that are inconsistent
with the integrated agreement. Fish, 948 S.W.2d at 898; Leon, 862 S.W.2d at 700; see also Lawson,
127 S.W.3d at 872. However, this bar does not preclude enforcement of prior or contemporaneous
agreements which are collateral to, are not inconsistent with, and do not vary or contradict the
express or implied terms or obligations of the integrated agreement. Hubacek, 317 S.W.2d at 32.
To be collateral, the prior agreement must be such that as the parties might naturally make separately
and would not ordinarily be expected to embody in the integrated agreement; further, the allegedly
collateral agreement must not be so clearly connected with the principal transaction as to be part and
parcel thereof. Fish, 948 S.W.2d at 899; Leon, 862 S.W.2d at 700-01.
The FLA not only addresses but also squarely contradicts Blind Maker’s claim that
Springs fraudulently failed to disclose that it might “take away” the 2% early payment discount by
strictly enforcing it. The FLA explicitly provided, among Blind Maker’s Gold preferred fabricator
requirements, “2% 15, net 60”—that Blind Maker could take the discount only if it paid within
fifteen days of invoice.23
We accordingly conclude that section 15.05 operates to negate the existence of Blind
Maker’s prior understanding regarding the 2% discount. See Fish, 948 S.W.2d at 899; Leon, 862
S.W.2d at 700-01.24 Other pre-FLA representations or understandings, while not flatly contradicting
23
This term was repeated in both the 1999 Marketing Plan brochure and the Orlando slide
show.
24
Some of our sister courts have held that, even without merger clauses or contractual
disclaimers of reliance, fraud claims predicated upon alleged representations squarely contradicted
by the express, unambiguous terms of a written agreement are foreclosed as a matter of law because
40
the agreement, fall within the subject matter of the agreement and are thereby absorbed into it. See
Leon, 862 S.W.2d at 700-01. The FLA addresses fabricator classifications in the following
provision:
Springs Fabricators are classified as Preferred (Gold, Silver, or Bronze) or Standard
Distributor/Fabricator. Fabricator agrees to strictly comply with all requirements for
its assigned category, which are attached . . . . The requirements are subject to
quarterly review and revision.
Any representation or understanding concerning whether Blind Maker could have become a standard
fabricator would fall within the subject matter of this provision.
On the other hand, in light of our earlier review of the negotiations preceding the
FLA, we cannot conclude as a matter of law that the FLA was intended to address the preferred
fabricator benefits that Blind Maker was to receive, the relationship between any promises regarding
these benefits and the FLA, or whether the 3% margin improvement fund benefit could change. See
Hubacek, 317 S.W.2d at 31-32. Although these benefits were discussed before Blind Maker’s entry
reliance is not justifiable. See In re GTE Mobilnet of S. Tex. Ltd. P’ship, 123 S.W.3d 795, 799-800
(Tex. App.—Beaumont 2003, orig. proceeding); DRC Parts & Accessories, L.L.C. v. VM Motori,
S.P.A., 112 S.W.3d 854, 858-59 (Tex. App.—Houston [14th Dist.] 2003, pet. denied); cf. TCA Bldg.
Co. v. Entech, Inc., 86 S.W.3d 667, 674-75 (Tex. App.—Austin 2002, no pet.) (reliance element of
fraud claim negated as matter of law where plaintiff rejected contract containing alleged
misrepresentation). These courts have reasoned that, because a contrary approach “would defeat the
ability of written contracts to provide certainty and avoid dispute, the prevailing rule . . . is instead
that a party who enters into a written contract while relying on a contrary oral agreement does so at
its peril and is not rewarded with a claim for fraudulent inducement when the other party seeks to
invoke its rights under the contract.” DRC, 112 S.W.3d at 859. “Otherwise, contracts would be
‘nothing more than a scrap of paper.’” Fisher Controls Intern., Inc. v. Gibbons, 911 S.W.2d 135,
141-42 (Tex. App.—Houston [1st Dist.] 1995, pet. denied) (quoting Howeth v. Davenport, 311
S.W.2d 480, 482 (Tex. Civ. App.—San Antonio 1958, writ ref’d n.r.e.)).
41
into the FLA, the agreement is entirely silent regarding them.25 Springs’s own correspondence,
moreover, suggests that it viewed the preferred fabricator benefits as distinct from the FLA. In his
letter acknowledging Hicks’s first execution of the FLA in January 1999, Dudas wrote that “the
Preferred benefits will begin on February 1, 1999 [and] will be distributed as per our 1999
Fabricator publication and our discussions in Orlando.” (Emphasis added). Because we hold that
the FLA was not intended to encompass every aspect of the parties’ manufacturer-fabricator
relationship, evidence that Springs misled Blind Maker regarding their “partnership” while
concealing Project Overlord is also not excluded by the merger clause.
We now consider whether section 15.05 is enforceable to negate the reliance element
of Blind Maker’s fraudulent-inducement theory to the extent that theory is predicated on
representations or understandings we have held to be within the FLA’s “subject matter.” As our first
step, we must consider whether Schlumberger or Prudential controls our analysis. Schlumberger
addressed the enforceability of a release to bar a claim that the plaintiff had been fraudulently
induced into the same settlement agreement in which the release was contained. Schlumberger, 959
S.W.2d at 177-81. Prudential, by contrast, addressed the enforceability of an “as is” clause and
25
The FLA does contain a general provision obligating Springs to sell to the fabricator
“sufficient quantities of samples and displays . . . catalogs, and other advertising and promotional
aids to sufficiently service” the fabricator’s territory, as well as a requirement that Springs make
available technical information concerning the licensed products, including finished product
specifications, fabrication and assembly instruction, installation and repair instructions, and similar
information. These provisions do not appear to address the same advertising and consulting benefits
Springs depicted as preferred fabricator benefits. Similarly, while the FLA reserves Springs’s “right
to change prices and standard terms and conditions of sale,” our review of the evidence indicates that
these terms and prices were distinct from the discounts and incentives offered under the preferred
fabricator benefit program.
42
disclaimer of reliance to bar tort claims where the plaintiff did not allege or prove that he had been
fraudulently induced into the contract. Prudential, 896 S.W.2d at 161-62 (“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.”). Blind Maker suggests that
Schlumberger would control our analysis but is unavailable because section 15.05 is not a release
incident to a settlement terminating the parties’ relationship. See Schlumberger, 959 S.W.2d at 179-
80 (sole purpose of release was to end dispute); see also John v. Marshall Health Servs., Inc., 91
S.W.3d 446, 449-50 (Tex. App.—Texarkana 2002, pet. denied); Woodlands Land Dev. Co. v.
Jenkins, 48 S.W.3d 415, 422 (Tex. App.—Beaumont 2001, no pet.); Fletcher v. Edwards, 26 S.W.3d
66, 77 (Tex. App.—Waco 2000, pet. denied).26 Springs contends that Prudential governs because
the jury failed to find that it had fraudulently induced Blind Maker into the FLA. While we
emphasize that the jury’s failure to find fraudulent inducement in Question 6 is not an affirmative
finding of no fraudulent inducement, we agree with Springs that the jury’s rejection of Blind Maker’s
fraudulent inducement defense to the FLA in Question 6 brings this case closer to Prudential than
26
But see IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113,126-28 (Tex.
App.—Houston [14th Dist.] 2003, pet. denied) (applying Schlumberger to bar fraudulent inducement
claim relating to employment contract because agreement was intended to put end to pre-contract
dispute over plaintiff’s job responsibilities following acquisition of his company by defendant);
Armstrong v. American Home Shield Corp., 333 F.3d 566, 571 (5th Cir. 2003) (not considering
whether agreement was settlement agreement or release); see also U.S. Quest Ltd. v. Kimmons, 228
F.3d 399, 403-04 (5th Cir. 2000). Also, in an unreported opinion, we applied Schlumberger to
enforce a merger clause to bar fraudulent-inducement claims relating to an earnest money contract
without considering that the contract was not a settlement agreement. Starlight v. Xarin Austin I,
Ltd., 1999 Tex. App. LEXIS 159, at *22-25 (Tex. App.—Austin Jan. 14, 1999, no pet.) (not
designated for publication).
43
Schlumberger.27 We thus apply Prudential to determine whether, under the unique circumstances
of this case, section 15.05 negates the reliance element of Blind Maker’s fraudulent inducement
theory as a matter of law to the extent that theory is predicated upon representations and
nondisclosures we have held to be within the FLA’s scope. See Prudential, 896 S.W.2d at 161.
In Prudential, the supreme court held that an “as is” clause and disclaimer of reliance
negated the causation element of various tort claims as a matter of law. Id. “By agreeing to purchase
something ‘as is,’” the court explained, “a buyer agrees to make his own appraisal of the bargain and
to accept the risk that he may be wrong. . . . The seller gives no assurances, express or implied,
concerning the value or condition of the thing sold.” Id. As for the disclaimer of reliance, the
supreme court stated simply that it “was an important element of their arm’s length transaction and
is binding . . . unless set aside.” Id. But the court qualified its holding by emphasizing that this type
of agreement would not have “this determinative effect in every circumstance” because “other
aspects of a transaction may make an ‘as is’ agreement unenforceable”:
27
Even if the jury’s fraud finding in Question 1 was based on evidence of fraudulent
inducement—a possibility left open by Springs’ failure to preserve a conflict objection—it would
have no bearing on the effect we give the jury’s failure to find fraudulent inducement in Question
6. Question 1 does not submit Blind Maker’s fraudulent inducement defense; only Question 6 does.
A finding of fraud in Question 1 is not a finding establishing Blind Maker’s fraudulent inducement
defense at least where, as here, Blind Maker purports to rely in Question 1 on evidence of fraud other
than fraudulent inducement. Compare Anderson, Greenwood & Co. v. Martin, 44 S.W.3d 200, 211-
12 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (jury finding of liability on affirmative
fraudulent inducement claim established fraudulent inducement defense even though plaintiff only
pled and did not specifically submit that defense). Fraudulent inducement is only “a particular
species of fraud that arises only in the context of a contract and requires the existence of a contract
as part of its proof.” Haase v. Glazner, 62 S.W.3d 795, 799 (Tex. 2001) (Emphasis added.). Only
Question 6 submits Blind Maker’s fraudulent-inducement defense issue to the jury, and the jury’s
adverse finding alone controls that issue.
44
The nature of the transaction and the totality of the circumstances must be
considered. Where the “as is” clause is an important part of the basis of the bargain,
not an incidental or ‘boiler-plate’ provision, and is entered into by parties of
relatively equal bargaining position, a buyer’s affirmation and agreement that he is
not relying on representations by the seller should be given effect.”
Id.
Recently, we applied Prudential to hold that an “as is” clause and disclaimer of
warranties in a commercial lease barred negligence, fraud, and breach-of-warranty claims arising
from a fire in the leased premises. Gym-N-I Playgrounds, Inc. v. Snider, 2005 Tex. App. LEXIS
852, at *10-11 (Tex. App.—Austin Feb. 3, 2005, pet. filed). We considered five “Prudential
factors”: (1) the sophistication of the parties; (2) the terms of the “as is” agreement; (3) whether the
“as is” agreement was freely negotiated; (4) whether the agreement was an arm’s length transaction;
and (5) whether there was a knowing misrepresentation or concealment of a known fact. Id. at *11-
12 (citing Procter III v. RMC Capital Corp., 47 S.W.3d 828, 833 (Tex. App.—Beaumont 2001, no
pet.)). We also noted that whether a party was represented by counsel is also important in our
assessment of both the party’s relative sophistication and whether the agreement was freely
negotiated. Id. Our overall inquiry was to determine, based on the factors, whether the “as is” clause
met the “letter and spirit of Prudential” and should be held valid. Id. at *12-13. We held that the
“as is” agreement should be enforced, noting in particular the sophistication of the parties, the terms
of the “as is” clause, and admissions of lack of fraudulent inducement. Id. at *14. We also
emphasized that, before signing the lease, the owners of Gym-N-I also had actual knowledge of the
very building conditions later made the basis of the suit, yet signed the “as is” clause with awareness
45
of that provision and its meaning. Id.; cf. Schlumberger, 959 S.W.2d at 180 (release executed in
context of dispute concerning very issues later made basis of suit).
We apply these factors here. First, we note that in Prudential, the supreme court held
that Goldman’s “contractual disavowal of reliance was an important part of their arm’s-length
transaction and is binding on Goldman unless set aside.” Prudential, 896 S.W.2d at 161. Although
Blind Maker asserted fraudulent-inducement and anticipatory-breach defenses to bar enforcement
of the FLA and effectively set it aside, the jury rejected these defenses.
Moreover, there is no dispute that the parties dealt at arms’ length and that Blind
Maker’s principal, Hicks, was a sophisticated businessman. Hicks had earned an M.B.A., as well
as a masters in engineering. He had been in the blinds business since 1981, overseeing a company
with annual sales in the tens of millions of dollars. Hicks, furthermore, had assistance of counsel
to review the FLA and was able to negotiate changes to other provisions. Blind Maker signed not
one but two iterations of the FLA,28 each of which reflected negotiated terms.
We also find it significant that, by May, Hicks had already begun to question
Springs’s “integrity” with regard to the preferred fabricator program, as manifested in his April 19,
28
Springs asserts that Blind Maker executed the FLA a third time, in October 1999, and
characterizes this act as ratifying any earlier fraudulent acts, including Springs’s “change” regarding
the 2% early payment discount. See Meyer v. Cathey, No. 03-0938, 2005 Tex. LEXIS 486, at *9-11
(Tex. 2005); Fortune Prod. Co. v. Conoco, Inc., 52 S.W.2d 671, 676-80 (Tex. 2000). Springs’s sole
evidence to support this assertion pertains to a one-page addendum to the FLA that Hicks executed
on October 5, 1999, amending the exhibit listing the products Blind Maker was permitted to sell.
We reject Springs’s characterization of this one-page amendment as a third execution of the entire
agreement or as a ratification of any prior fraud.
46
1999, letter to Dudas. Despite these concerns, Blind Maker executed the FLA, including section
15.05, a second time in May 2000.
In sum, Blind Maker was a sophisticated party who, with advise of counsel, twice
signed a contract disclaiming the existence of extra-contractual “agreements,” “commitments,” or
“understandings” within the subject matter of the FLA in the face of brewing disputes regarding
some of these “understandings.” Blind Maker now attempts to claim fraud based on alleged
misrepresentations and nondisclosures the subject of which are addressed or even squarely
contradicted by the contract’s clear terms. Under these circumstances, it is within the “letter and
spirit” of Prudential to hold that section 15.05 negates, as a matter of law, the reliance element of
Blind Maker’s fraudulent inducement theory to the extent it is predicated upon evidence of
representations or understandings within the scope of the FLA. Specifically, Blind Maker’s
fraudulent inducement theory is foreclosed to the extent it is based on the following evidence:
! Evidence that Springs misrepresented that Blind Maker had to sign the FLA as
a preferred fabricator or, as of June 1, 1999, it would not be permitted to
purchase Springs products.
! Evidence that Springs failed to disclose that Blind Maker could continue doing
business with Springs as a standard fabricator.
! Evidence that Springs failed to disclose that it would “take away” Blind Maker’s
ability to take 2 percent discounts on payment terms beyond 15 days.
We emphasize that our holding should not be construed as a categorical “roadmap to
future tortfeasors giving them the means to avoid liability merely by including a boilerplate merger
clause in a contract,” as Blind Maker cautions us against. Reaves remains the law of Texas. See 307
47
S.W.2d at 234-39. However, in these circumstances, Prudential compels us to give effect to the
merger clause in the FLA. Compare Prudential, 896 S.W.2d at 161-62, with Plunkett, 27 S.W.2d
at 616 (where jury found fraudulent inducement, merger clause did not bar tort claims). Moreover,
we emphasize again our holding that section 15.05 does not bar Blind Maker’s fraudulent
inducement theory to the extent it is predicated upon representations or understandings we have
determined to be beyond the FLA’s scope.
Duty to disclose
Finally, Springs argues that Blind Maker’s fraudulent-inducement theory fails as a
matter of law to the extent it is predicated upon Springs’s failure to disclose material facts, as
opposed to affirmative misrepresentations. Springs first contends that no evidence supports the
submission of a fraud-by-nondisclosure theory. Springs argues in the alternative that Blind Maker
waived the right to recover on any fraud-by-nondisclosure theory by failing to obtain a predicate
finding that Springs had a duty to disclose the facts in question to Blind Maker.
A failure to disclose information does not constitute fraud unless there is first a duty
to disclose the information. Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001); Insurance Co. of
N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998). Such a duty can arise where there is a fiduciary
or confidential relationship between the parties. Morris, 981 S.W.2d at 674. However, silence may
also be equivalent to a false representation in certain circumstances, but “only when the particular
circumstances impose a duty on the party to speak and he deliberately remains silent.” Bradford,
48 S.W.3d at 755; SmithKline Beecham Corp. v. Doe, 903 S.W.2d 347, 353 (Tex. 1995); Smith v.
48
National Resort Communities, Inc., 585 S.W.2d 655, 658 (Tex.1979). Whether a duty to disclose
exists is a question of law. Bradford, 48 S.W.3d at 755.
Because the existence of a duty to disclose is a question of law, we reject Springs’s
alternative argument that Blind Maker was required to obtain a predicate finding that Springs owed
it a duty to disclose.29 We thus consider whether there is legally and factually sufficient evidence
of “particular circumstances” that would give rise to a duty to disclose on the part of Springs. See
Bradford, 48 S.W.3d at 755.
The jury charge required Blind Maker to show that (1) Springs failed to disclose a
material fact within its knowledge; (2) Springs knew that Blind Maker was ignorant of that fact and
did not have an equal opportunity to discover the truth; and (3) Springs’s failure to disclose the fact
was intended to induce Blind Maker to take some action. Blind Maker contends that Springs had
a duty to disclose the following facts before it entered into the FLA: (1) that Springs viewed its
representations concerning the preferred fabricator benefits it would make available to Blind Maker
as mere “intentions,” not binding commitments; (2) that Springs would eventually change the 3%
29
Springs relies on Choi v. McKenzie, 975 S.W.2d 740, 743 (Tex. App.—Corpus Christi
1998, pet. denied), for the proposition that Blind Maker was required to obtain a predicate finding
of duty to disclose. However, Choi involved the question of whether the “confidential relationship”
exception to the statute of frauds applied, not whether a duty to disclose exists in a fraud cause. Id.
at 743. Moreover, the parties had agreed that the duty-to-disclose issue was one of fact. Id.
Based on its argument that Blind Maker was required to obtain a predicate finding
regarding duty to disclose, Springs contends that we must reverse and remand for new trial under
Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 390 (Tex. 2000), because Blind Maker’s “invalid”
fraud-by-nondisclosure theories were commingled in a single broad-form question with Blind
Maker’s fraudulent misrepresentation theories. We need not address this question because we
conclude above that legally and factually sufficient evidence supports the submission of Blind
Maker’s fraud-by-nondisclosure theory.
49
margin improvement fund benefit, which was based on purchase volume, to a strictly growth-based
incentive; (3) the existence of Project Overlord and that Blind Maker was a target of it; (4) that
Springs would “take away” the 2% early payment discount by strictly enforcing it; (5) that Blind
Maker could continue doing business as a standard fabricator and was not required to sign the FLA
as a preferred fabricator. Blind Maker’s reliance on the latter two facts as a basis for its fraudulent-
inducement theory is foreclosed by section 15.05 of the FLA, as previously explained. Cf.
Schlumberger, 959 S.W.2d at 181-82 (release negated reliance element of both misrepresentation
and nondisclosure-based fraud claims). We also believe that there is no evidence that Springs had
a duty to disclose that it would someday change the 3% margin improvement fund benefit into a
growth-based incentive.
In Bradford v. Vento, the supreme court emphasized that the second element required
by the charge—that Springs knew that Blind Maker was ignorant of the fact and did not have an
equal opportunity to discover the truth—incorporates two requirements: (1) the defendant must be
shown to have known that the plaintiff was ignorant of a material fact, and (2) the fact must be one
that the plaintiff did not have an equal opportunity to discover. See 48 S.W.3d 749.
Bradford involved a fraud claim asserted by Vento, who became embroiled in a
dispute over whether he had purchased a sports memorabilia shop from Taylor. Id. at 752-54. The
shop was located at a mall. Id. at 752. After believing he had purchased the shop from Taylor,
Vento went to Bradford’s office, paid the shop’s rent for the month of October 1994, informed
Bradford that he had purchased the store, and inquired about a long-term lease. Id. Bradford
congratulated Vento on purchasing the store, indicated that he had heard about his purchase,
50
informed him that the monthly rent he had paid was a “decent deal,” suggested that a long-term was
a bad idea, and said he would “take care of” Vento in January. Id. Bradford did not mention that
the store’s lease was non-assignable, that additional rent would be due for December, and that Vento
would be required to apply for a new lease. Id. Sometime after this meeting concluded, Taylor
informed Bradford that he still owned the store and that there could be trouble with Vento. Id. at
752-53. Bradford alerted mall security, an altercation ensued involving Vento, Taylor, Bradford, and
mall security, and Vento was asked by police to leave the mall because he could not prove his
ownership. Id. at 753. Vento sued Bradford, among others. Id.
The trial court submitted theories of both fraudulent misrepresentation and fraudulent
nondisclosure to the jury, which awarded damages to Vento against Bradford. Id. at 753-54. The
supreme court reversed, holding that there was no evidence that Bradford knew Vento was ignorant
of a fact and did not have an equal opportunity to discover the truth. It relied on the fact that even
though Vento claimed to have purchased the store, he never asked Bradford or any other mall
personnel for a copy of the store’s lease, the terms of the lease, or whether any rent was due for the
two months between his meeting and January. Id. at 756. It added that Vento had never asked for
the lease to be assigned to him and that he had only inquired about a long-term lease for himself.
Id. Moreover, the supreme court held, there was “no evidence that Bradford knew that Vento had
not obtained or could not obtain the information from other sources, such as Taylor, from whom
Vento was buying the store.” Id. at 755-56.
In this case, there is no evidence that Springs knew either that Hicks or Blind Maker
had understood that the 3% margin improvement discount (or any other preferred benefit) was a
51
permanent entitlement that could not be changed.30 If anything, the evidence demonstrates that
Springs either disclosed this possibility to Blind Maker before Blind Maker entered into the FLA or
that Blind Maker would have had an equal opportunity to discern it from Springs’s disclosures.
Blind Maker purports to rely on a set of representations encompassed within Springs “1999
Marketing Plan,” a designation that implies limited duration. Moreover, during the discussions
concerning the pilot program, the model for the preferred fabricator benefits program, Blind Maker
was cautioned that “Note: Marketing plans may be modified periodically to reflect business
condition[s].” Hicks or Blind Maker did even less than Vento to inquire whether the preferred
fabricator benefits represented in the 1999 Marketing Plan and Pilot Program were permanent.
Under Bradford, Blind Maker cannot rely purely on such unexpressed, subjective understandings
as a basis for fraud.31
However, we conclude that there is legally and factually sufficient evidence giving
rise to a duty on the part of Springs to disclose that it regarded its representations concerning the
30
Nor is there evidence of any affirmative representations by Springs to the effect that the
preferred benefits could not be changed. Blind Maker appears to suggest that the document
presented to Hicks during the Orlando conference illustrating Blind Maker’s potential 1999 earnings
if it became a preferred fabricator impliedly represented that the benefits would not be changed.
Even if this were an otherwise valid inference, the document refers only to Blind Maker’s
prospective earnings in 1999 and is not evidence of representations concerning benefits or earnings
in any future year.
31
For similar reasons, we also hold that Springs had no duty to disclose that it would enforce
the fifteen-day condition for obtaining the 2% early payment discount. Springs repeatedly disclosed
to Blind Maker that its payment terms for preferred fabricators were “2% 15, net 60” not only in the
express terms of the FLA, but also in the 1999 Marketing Plan brochure, the Orlando slide show, and
even in the discussions concerning the pilot program. The absence of such a duty is an independent
bar to Blind Maker’s assertions that Springs’s enforcement of the early payment discount terms
constituted fraud-by-nondisclosure.
52
preferred fabricator benefits at the Orlando conference and in the 1999 Marketing Plan to be non-
binding “intentions.” As previously discussed, there is evidence that Springs affirmatively
represented that it would provide certain special benefits to fabricators who executed the FLA and
opted for preferred fabricator status, and it made further representations that additional benefits
would be provided to “Gold” preferred fabricators. Blind Maker relied on these representations in
executing the FLA as a Gold preferred fabricator—Hicks testified that he would not have signed the
agreement except to obtain the promised benefits but that Springs ultimately failed to deliver the
benefits. Dudas appeared to confirm that fact. Springs’s actions raise the inference that it knew
Blind Maker was ignorant that Springs’s promised benefits were merely intentions, yet remained
silent with the intent to induce Blind Maker to sign the FLA in reliance on a belief that Springs’s
representations were firm commitments. Similarly, the combination of the representations regarding
Springs’s desire to be partners with its fabricators with the proof regarding the nature of Project
Overlord constitutes evidence Springs knew Blind Maker was ignorant of the plan. Under these
circumstances, we find there is legally and factually sufficient evidence that Springs owed a duty to
disclose Project Overlord and that it regarded its representations concerning preferred fabricator
benefits to be mere expressions of intention, that Blind Maker’s fraud-by-nondisclosure theory was
properly submitted to the jury, and that this evidence is sufficient to support the jury’s finding of
fraud under Blind Maker’s fraudulent inducement theory. See, e.g., Spoljaric v. Percival Tours, Inc.,
708 S.W.2d 432, 435 (Tex. 1986) (silence can be equivalent to false misrepresentation where
particular circumstances impose duty to speak).
53
Conclusion regarding Blind Maker’s fraudulent-inducement theory
We hold that there is legally and factually sufficient evidence of fraudulent
inducement in that: (1) Springs misrepresented that Blind Maker would receive certain preferred
fabricator benefits and Gold preferred fabricator benefits if it signed the FLA as that classification
of fabricator; (2) Springs failed to disclose its view that these representations were mere “intentions”
and not firm commitments, and (3) Springs failed to disclose that Blind Maker was a target of
Project Overlord. However, in light of section 15.05 of the FLA and Texas legal standards regarding
fraud-by-nondisclosure, Blind Maker’s other evidence supporting its fraudulent-inducement theory
cannot have probative value and, thus, is no evidence of fraudulent inducement.
The white sale theory
We turn to Springs’s second legal and factual sufficiency argument—that the
evidence is insufficient to support Blind Maker’s white sale theory. Blind Maker’s “white sale”
theory is also predicated upon a duty on the part of Springs to disclose a fact. As Blind Maker
described it in its initial brief, “Springs not only did not prevent TBM from making its customary
large year-end purchases or even caution or warn TBM not to make it, Springs actually encouraged
TBM to make these purchases” while it was in danger of exceeding the internal limits that Springs
had imposed on Blind Maker’s credit. We hold there is no evidence giving rise to a duty to disclose
on the part of Springs under these circumstances.
As previously noted, there is no general duty to disclose information. Bradford, 48
S.W.3d at 755. Blind Maker does not allege that it has the sort of fiduciary or confidential
relationship that could give rise to such a duty. See Morris, 981 S.W.2d at 674. Nor is there
54
evidence that Springs knowingly failed to disclose a fact that Blind Maker did not have the equal
opportunity to discover. Bradford, 48 S.W.3d at 755-56. Even assuming that Springs had an
internal credit benchmark for Blind Maker of which Blind Maker was unaware, Blind Maker knew
of, and had ready access to, the two contracts that set forth the parties’ respective rights regarding
Blind Maker’s credit purchases—the 1997 credit agreement and the FLA. Under the credit
agreement, Blind Maker acknowledged that Springs “is not obligated to sell goods to [Blind Maker]
or to grant open account payment terms,” and that “[t]he decision to sell product and extend credit
shall be solely within the exclusive discretion of Springs.” The agreement further provided that
Blind Maker “hereby agrees to make payments as necessary to keep the account balance within terms
established by Springs,” and that if Blind Maker failed to do so, Springs “may immediately suspend
all future shipments on other than prompt payment terms such as cash or cashier’s check and may
further demand immediate payment of the full balance.” In the FLA, Blind Maker agreed that all
of its orders “shall be subject to the approval of Springs’s credit department,” and gave Springs
broad power to obtain information regarding Blind Maker’s financial condition. In the face of these
explicit contractual limitations,32 Blind Maker took the risk of assuming significant additional debt
in what Hicks testified was an attempt to meet the 5% threshold necessary to attain the 2%
performance growth fund benefit.33 At most, Blind Maker’s evidence indicates only that Springs
exercised its rights under contracts governing these sophisticated parties’ credit transactions. Texas
32
There was also evidence that Springs had previously expressed concern regarding Blind
Maker’s debt and late payments of accounts payable, as suggested by Springs’s $500,000 loan to
Blind Maker in early 1998 to help it pay down lagging accounts payable.
33
We also observe that Blind Maker also voluntarily had assumed the obligations under the
1997 credit agreement, and does not assert it was fraudulently induced into that agreement.
55
companies do not owe other Texas companies a general duty to provide each other business advice
in their arms’ length credit transactions. Failure to do so is not actionable fraud by failure to disclose
under Texas law. There is thus no evidence to support Blind Maker’s white sale theory of fraud.
The “customer list” theory
Next, we consider Springs’s third sufficiency challenge—that the evidence is legally
and factually insufficient to support Blind Maker’s “customer list” fraud theory. Blind Maker had
alleged that Springs fraudulently obtained confidential information regarding its customers through
the “Clear to the TOP” promotion and used it a few months later to compete for those customers.
On appeal, Springs contends there is insufficient evidence to support the element of intent. The jury
was instructed that it could find fraud by misrepresentation based on “[a] promise of future
performance made with an intent, at the time the promise was made, not to perform as promised.”
A promise to do an act (or refrain from an act) in the future constitutes fraud only
when made with no intention of performing the promise at the time the promise was made.
Formosa, 960 S.W.2d at 48; Spoljaric, 708 S.W.2d at 434; Power Res. Group, Inc. v. Public Util.
Comm’n, 73 S.W.3d 354, 362 (Tex. App.—Austin 2002, pet. denied). Thus, the mere failure to
subsequently perform a promise, standing alone, is not evidence of fraud. Formosa, 960 S.W.2d at
48; Power Res. Group, 73 S.W.3d at 362. Rather, Blind Maker must have presented evidence that
Springs made representations with intent to deceive and with no intention of performing as
represented. See Formosa, 960 S.W.2d at 48. The evidence presented must have been relevant to
Blind Maker’s intent at the time the representation was made. See id.
56
Such fraudulent intent may be established by either direct or circumstantial evidence,
and the subsequent failure to perform the promise, while not alone dispositive, can be considered
with other factors to establish intent. Spoljaric, 708 S.W.2d at 434-45. The supreme court has stated
that “‘[s]light circumstantial evidence’ of fraud, when considered with a breach of promise to
perform, is sufficient to support a finding of fraudulent intent.” Id. at 435 (quoting Maulding v.
Niemeyer, 241 S.W.2d 733, 738 (Tex. Civ. App.—El Paso 1951, orig. proceeding)). Intent tends
to be a fact question uniquely within the realm of the trier of fact because it so depends on the
credibility of witnesses and the weight given to their testimony. Id. at 434. Although circumstantial
evidence may be used to establish any material fact, it must transcend mere suspicion; there must
be a logical bridge between the proffered evidence and the fact. IKON, 125 S.W.3d at 124 (quoting
Lozano v. Lozano, 52 S.W.3d 141, 149, 151 (Tex. 2001) (Phillips, C.J., concurring and dissenting));
see also City of Keller, 2005 Tex. LEXIS 436, at * 12.
A desire to compete against or acquire another business is not alone evidence of
fraudulent intent. However, we must consider, in combination, evidence of: (1) Project Overlord,
(2) Springs’s acts in connection with the FLA and the preferred fabricator benefits, and (3) Springs’s
ultimate violation of its promises that the customer information would be kept confidential. We
conclude that, together, this evidence supports an inference that Springs had implemented a scheme
to induce Blind Maker into the FLA with false promises and to progressively weaken it economically
by fraudulent acts or withholding or eliminating promised benefits, with a goal of ultimately
acquiring it or otherwise taking its customers. Even if we have determined that some of the
component acts are not in themselves actionable fraud, we nonetheless conclude that they may be
57
probative of Springs’s intent at the time it induced Springs to divulge its customer information.34
In so concluding, we are especially mindful that intent tends to be 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 their testimony, Spoljaric, 708 S.W.2d at 435-36, and that the supreme court has
cautioned us that even “slight” circumstantial evidence of fraud, when considered with the breach
of a promise to perform, is sufficient to support a finding of fraudulent intent. Id. at 435. We hold
that there is legally and factually sufficient evidence supporting the intent element of Blind Maker’s
“customer list” fraud theory and, thus, the jury’s finding of fraud in Question 1.35
Termination theory
Finally, we consider Springs’s fourth sufficiency argument—that there is legally
insufficient evidence of Blind Maker’s termination theory. Blind Maker alleged that, at the time it
entered into the FLA, made purchases under it, or decided to terminate the FLA, Springs was
intentionally remaining silent to mislead Blind Maker regarding its intentions to (1) cease treating
34
However, we express no opinion regarding whether the existence of Project Texas, Zabel’s
memorandum, or the mere act of competing for Blind Maker’s customers after it learned that Blind
Maker would terminate and cause Springs to lose its main conduit to the Texas market are, standing
alone, evidence that Springs had fraudulent intent at the time it induced Blind Maker to divulge its
customer information. Compare IKON, 125 S.W.3d at 131-32 (acts by acquiring company after
president of acquired company had proposed consolidating their operations into single marketplace
were no evidence that, when signing acquisition agreement, acquiring company had no intent to
honor its promise to maintain plaintiff’s company as stand-alone company for two years), with
Formosa, 960 S.W.2d at 47-48 (proof that defendant had breached promises subsumed in contract
even before plaintiff signed contract was legally sufficient evidence that defendant had no intent of
performing).
35
The parties dispute whether Blind Maker was required to show intent or merely
recklessness with regard to whether Springs would perform its promise in the future. Because we
find sufficient evidence of intent, we need not address this issue.
58
Blind Maker with the rights of a preferred fabricator during the remaining term of the FLA; (2)
refuse to sell Springs products to Blind Maker after the term expired; (3) consider Blind Maker’s
termination notice a factor in placing a credit hold, thereby withholding product; and (4) make false
representations to Blind Maker’s customers concerning the reasons why Blind Maker was no longer
selling Springs’s products. The evidence was undisputed that Blind Maker was the first preferred
fabricator ever to terminate the FLA. It is pure speculation to posit that, at the time Blind Maker
executed the FLA, Springs would have known that Blind Maker would terminate the FLA sixteen
months later, much less have formulated plans to harm Blind Maker thereafter or have intentionally
remained silent regarding those plans in order to induce Blind Maker into entering the FLA. See
Bradford, 48 S.W.3d at 755. Nor is there evidence to support any inferences of such knowledge and
intent at the time Blind Maker made purchases under the FLA or decided to give notice of
termination.36
As Springs suggests, Blind Maker’s termination theory appears to be a repackaging
of allegations it asserted at trial to support its now-dismissed causes of action for breach of contract,
business defamation, or tortious interference. They are not proof of fraud. Moreover, any fraud-by-
36
Blind Maker also asserts a “termination claim” with respect to Springs’s misuse of its
customer information. It is pure speculation that, at the time Blind Maker signed the FLA, Springs
had already planned to obtain and misuse Blind Maker’s customer information and intentionally
remained silent to induce Blind Maker into the FLA. However, because we have concluded that
there is legally and factually sufficient evidence that Springs fraudulently obtained Blind Maker’s
customer information in March 2000, there likewise may be sufficient evidence that Springs
remained silent concerning its plans to use the information in order to induce Blind Maker’s
subsequent purchases, and may have had a duty to disclose the information before Blind Maker gave
notice to terminate the FLA. We need not address these issue because any damages arising from
such claims would be subsumed within the damages recoverable under Blind Maker’s customer list
claim.
59
nondisclosure theory based on at least two of the allegations would be independently barred because
Springs’s right to take the actions that Blind Maker complains of are explicitly set forth in the 1997
credit agreement and the FLA, to which both parties had equal access. See Bradford, 48 S.W.3d at
755. Blind Maker claims that Springs committed fraud in connection with its placing of credit holds,
yet Blind Maker acknowledged in the 1997 credit agreement that Springs “is not obligated to sell
goods to [Blind Maker] or to grant open account payment terms,” and that “[t]he decision to sell
product and extend credit shall be solely within the exclusive discretion of Springs.” Blind Maker
further agreed to “to make payments as necessary to keep the account balance within terms
established by Springs,” and that if Blind Maker failed to do so, Springs “may immediately suspend
all future shipments on other than prompt payment terms such as cash or cashier’s check and may
further demand immediate payment of the full balance.” In the FLA, moreover, Blind Maker agreed
that all of its orders “shall be subject to the approval of Springs’s credit department.” Similarly,
Blind Maker complains that Springs ceased to do business with it after the FLA terminated, yet the
FLA required Springs to sell goods to Blind Maker only during the term of that agreement. We hold
there is no evidence to support Blind Maker’s termination theory.
Disposition of evidentiary sufficiency challenge to fraud finding
In conclusion, we hold there is legally and factually sufficient evidence to support the
jury’s finding of fraud. Specifically, there is sufficient evidence to support both Blind Maker’s
customer list fraud theory and its fraudulent inducement theory, to the extent the latter is predicated
upon evidence that (1) Springs misrepresented that Blind Maker would receive certain preferred
fabricator benefits and Gold preferred fabricator benefits if it signed the FLA as that classification
60
of fabricator; (2) Springs failed to disclose its view that these representations were mere “intentions”
and not firm commitments; and (3) Springs misrepresented and failed to disclose its intentions
regarding its new “partnership” with Blind Maker, while pursuing Project Overlord.
Actual damages
In its second issue, Springs challenges the legal and factual sufficiency of the jury’s
$5,167,240 award as actual damages. Because Springs is not contesting the form of the actual
damage submission, the starting point for our analysis is again the jury charge as submitted. See
Osterberg, 12 S.W.3d at 55; Jackson, 116 S.W.3d at 762.
The charge
Question 2 inquired of the jury, “What sum of money, if any, if paid now in cash,
would fairly and reasonably compensate The Blind Maker for its damages, if any, that were
proximately caused by Springs’s fraud?” It then provided standard Pattern Jury Charge instructions
regarding damages and proximate cause.37 Following these instructions, the jury was asked to
consider only a single element of damages: “Lost profits that were a natural, probable, and
foreseeable consequence of Springs’s fraud.” The jury was then asked to determine, and state in
separate blanks, the amount of such lost profits that (1) “were sustained in the past by The Blind
Maker”; or (2) “in reasonably probability will be sustained by The Blind Maker in the future.” The
jury awarded $0 for future lost profits but $5,167,240 as past lost profits.
37
See Comm. on Pattern Jury Charges, State Bar of Tex., Pattern Jury Charges: Business,
Consumer, Insurance, Employment (PJC) 100.9, 110.20 (2002).
61
Legal standards
Lost profits may be recovered as fraud damages either as direct damages or
consequential damages. Direct damages are the necessary and usual result of the defendant’s
wrongful act; they flow naturally and necessarily from the wrong. Arthur Andersen & Co v. Perry
Equip. Corp., 945 S.W.2d 812, 816 (Tex. 1997). Direct damages compensate the plaintiff for the
loss that is conclusively presumed to have been foreseen by the defendant from his wrongful act.38
Id. Texas law recognizes two measures of direct damages for fraud: out-of-pocket damages, which
are measured by the difference between the value actually paid and the value actually received; and
benefit-of-bargain damages, which is measured by the difference between the value as represented
and the value actually received. Formosa, 960 S.W.2d at 49. Lost profits can be a component of
benefit-of-the-bargain direct damages; they, like other benefit-of-bargain damage components, are
measured by comparing the anticipated profits under the fraudulently promised bargain with profits
actually received. Id. at 50. They are not available as out-of-pocket damages because that measure
“only compensates for actual injuries a party sustains through parting with something, not loss of
profits fraudulently promised, in a bid not made, and a profit never realized, in a hypothetical bargain
never struck.” Id. at 50-51.
Consequential damages result naturally but not necessarily from a defendant’s
wrongful acts; they must be the foreseeable result of the wrong and must be directly traceable to it.
Arthur Andersen, 945 S.W.2d at 816. “In the proper case, consequential damages could include
38
Thus, the PJC exemplar for lost profits as direct damages from fraud omits the
requirement that the damages be foreseeable and proximately caused by the injury. Id. PJC 110.3,
110.19.
62
foreseeable profits from other business opportunities lost as a result of the fraudulent
misrepresentation” or nondisclosure. Formosa, 960 S.W.2d at 49 n.1.
Blind Maker concedes that it did not seek lost profits as direct, benefit-of-bargain
damages. It is thus not seeking, for example, any profits it might have anticipated under the FLA
and preferred fabricator benefits program had Springs provided the benefits as promised. Instead,
Blind Maker sought lost profits solely as consequential damages; i.e., those arising from business
opportunities it lost because of Springs’s fraud. This choice of damage remedies is reflected in
Question 2, which tracked the Pattern Jury Charge exemplars for consequential damages caused by
fraud39 and lost profits as consequential damages.40 Our inquiry is thus whether there is legally or
factually sufficient evidence of past consequential lost profits damages to support the jury’s
$5,167,240 award.41
When determining whether legally and factually sufficient evidence of past
consequential lost profits damages supports the jury’s award, we are mindful of several important
39
See id. PJC 110.20.
40
Compare id. PJC 110.20, with id. PJC 110.3 (direct damages), and id. PJC 110.4
(consequential damages).
41
As a threshold matter, we reject Blind Maker’s argument that we should consider evidence
(if any) of other elements of damages that were not submitted (such as out-of-pocket damages) as
additional support for the jury’s damage award. Invoking rule of civil procedure 279, Blind Maker
characterizes the submission of consequential lost profits damages as the submission of a single
element of a “ground of recovery”—“actual damages”—such that any omitted elements of actual
damages supported by factually sufficient evidence must be deemed found in a manner supporting
the judgment. See Tex. R. Civ. P. 279. But rule 279 operates only as to liability theories—
“independent grounds of recovery or of defense”—not damages. Moreover, Blind Maker’s
interpretation of rule 279 would contradict and undermine the supreme court’s directive that, when
reviewing the sufficiency of evidence supporting a jury’s damage award, our starting point is the
charge as submitted. See Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 762 (Tex. 2003).
63
standards governing the manner in which lost profits must be proven under Texas law. First, lost
profits, by definition, must be profits, and should not be confused with economic gains or losses that
are a mere component of a lost profits calculation or with other types of economic harm that may be
compensable through different damage elements. See, e.g., Holt Atherton Indus., Inc. v. Heine, 835
S.W.2d 80, 84 (Tex. 1992) (proof of “lost income” is not proof of lost profits). Lost profits are
damages for the loss of net income to a business, Miga v. Jensen, 96 S.W.3d 207, 213 (Tex. 2002),
and, broadly speaking, reflects income from lost business activity less expenses that would have been
attributable to that activity. See generally Capitol Metrop. Transp. Authority v. Central of Tenn. Ry.
& Navigation Co., 114 S.W.3d 573, 581-82 & n.7 (Tex. App.—Austin 2003, pet. denied)
(considering both income projections and specific expenses when evaluating proof of lost profits).
Second, while there is no one correct method for calculating lost profits, once a party
has chosen a particular method, “[r]ecovery of lost profits must be predicated on one complete
calculation.” Holt Atherton, 835 S.W.2d at 85. It is not enough to supply “pieces of several different
methods of calculating lost profits.” Id. In Holt Atherton, the supreme court cited our discussion
in Fleming Mfg. Co. v. Capitol Brick, Inc., 734 S.W.2d 405, 407-08 (Tex. App.—Austin 1987, writ
ref’d n.r.e.), as “demonstrat[ing] a complete calculation of lost profits.” Holt Atherton, 835 S.W.2d
at 85. Fleming illustrates a calculation of lost profits taking into account (1) the number of bricks
that would have been produced while a brick mold was not operational; (2) whether the bricks would
have been sold (as evidenced by existing contracts and sales projections derived from past sales and
market conditions); (3) prevailing market price; and (4) average net profit on bricks sold. Fleming,
734 S.W.2d at 407-08.
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Finally, to recover lost profits, by whatever method calculated, “the amount of the
loss must be shown by competent evidence with reasonable certainty.” Southwest Battery Corp. v.
Owen, 115 S.W.2d 1097, 1098 (Tex. 1938); see Texas Instruments, Inc. v. Teletron Energy Mgt.,
Inc., 877 S.W.2d 276, 279 (Tex. 1994) (“We have consistently reaffirmed the Southwest Battery
decision.”). As this court has previously explained:
The supreme court has consistently held that in order to recover lost profits, the loss
amount must be shown by competent evidence with reasonable certainty. The test
is a flexible one in order to accommodate the myriad circumstances in which claims
for lost profits arise. What constitutes reasonably certain evidence of lost profits is
a fact-intensive determination. However, the injured party must do more than show
it suffered some lost profits. At a minimum, opinions or estimates of lost profits
must be based on objective facts, figures, or data from which the amount of lost
profits may be ascertained.
Capitol Metro. Transp. Auth., 114 S.W.2d at 579 (internal citations omitted). Thus, we have held
that “lost profit” calculations are no evidence of lost profits when our examination reveals them to
be predicated on unfounded, speculative assumptions. Id. at 579-82; Fleming, 734 S.W.2d at 407-08
(“We cannot . . .conclude that lost profits were proven . . .with that degree of reasonable certainty
required when the only evidence offered concerned anticipated or potential production”) (Emphasis
in original.); see also Texas Instruments, 877 S.W.2d at 279.
Blind Maker’s evidence
As proof of consequential past lost profits damages, Blind Maker relied on two sets
of calculations. First, Blind Maker offered the testimony and analysis of its damages expert, Dr.
James R. Vinson, who stated that Blind Maker incurred over $11 million in what he characterized
65
as “lost profits.” Second, Blind Maker entered into evidence a series of calculations prepared by
Blind Maker personnel, titled “Plaintiff’s Compilation of Damages,” that reflected a total damage
amount of over $10 million.42
Vinson’s testimony
Vinson testified that he calculated his “lost profits” figure through what he termed
the “before and after” method—he compared Blind Maker’s financial performance before the
company’s January 1999 execution of the FLA to its performance thereafter. As Vinson put it, the
before and after method “is a very straightforward, simple methodology. . . . What it means is, you
look at the operation of the business as it occurred especially over a long period of time. And then
you look at an event. And then you look at the business after the event before and after.” For his
“before” figures, Vinson relied primarily on Blind Maker balance sheets and income statements
between 1991 to 1998; his “after” figures were derived from those documents for the period between
1999 and August 2002, the time of trial.
Vinson’s concept of measuring lost profits by calculating a business’s overall profit
before and after an event finds support in Texas law, especially where the business has a “track
record” of profitability. Southwest Battery, 115 S.W.2d at 1098-99 (“Where the business is shown
42
Additionally, following submission on appeal, Blind Maker has offered various additional
explanations and characterizations of the evidence in the record in an attempt to demonstrate
evidence of lost profits. In addition to summarizing Vinson’s calculation and various cases, this
exhibit proposes two new calculations of lost profits: (1) “lost profits [as] evidenced by reduction
in net income” of $7,391,612; and (2) “lost profits evidenced by subtracting costs and expenses that
[it] would have incurred from the lost gross revenues” of $5,336,235. Because Blind Maker did not
present these alternative calculations in the trial court, they cannot do so here.
66
to have been already established and making a profit at the time when the contract was breached or
the tort committed, such pre-existing profit, together with other facts and circumstances, may
indicate with reasonable certainty the amount of profits lost. It is permissible to show the amount
of business done by the plaintiff in a corresponding period of time not too remote, and the business
during the time for which recovery is sought.”); see also Fleming, 734 S.W.2d at 407 (same).
Vinson provided a calculation of Blind Maker’s lost profits based on historic
profitability, but this measure falls short of the amount the jury awarded. Vinson acknowledged that
Blind Maker averaged only $37,000 in annual net profits between 1991 and 1998—what Vinson
himself termed “a small amount of net profit”—and actually operated at a loss during two of those
years. Based on this average, Vinson projected “lost average profits” or “normal profits” of
$100,064 between January 1999, when Blind Maker executed the FLA, and August 2002.
However, Vinson then added to this lost profits figure $7,552,490 in total net
operating losses for the same time period (which he termed “lost net operating income”) to yield a
“combined total of lost profits” of $7,654.554. Vinson then added to his “combined total of lost
profits” (1) $650,194 in various charge-offs to equity of unusable assets (e.g., Graber inventory); (2)
$3,523,610 in various other losses not yet charged-off; and (3) $652,583 in various non-operating
losses to achieve “total losses” of $11,173,775.
At the time Vinson presented his damages calculation at trial, Blind Maker had been
asserting several causes of action other than fraud and seeking recovery for a broad range of business
losses other than lost profits. Vinson’s testimony may have been intended to support these other
damage theories; however, Blind Maker ultimately elected to seek only lost-profits damages for
67
fraud, so we must consider whether Vinson’s testimony is legally and factually sufficient evidence
of that single element of damages.
Blind Maker relies on the principle that a business operating at a loss can recover lost
profits from specific lost business opportunities regardless of whether the company is making an
overall profit. Frank B. Hall & Co. v. Beach, 733 S.W.2d 251, 257 (Tex. App.—Corpus Christi
1987, writ ref’d n.r.e.). It also notes that net profits are “what remains in the conduct of a business
after deducting from its total receipts all of the expenses incurred in carrying on the business.”
Turner v. PV Int’l Corp., 765 S.W.2d 455, 465 (Tex. App.—Dallas 1989, writ denied) (quoting R.A.
Corbett Transp., Inc. v. Oden, 678 S.W.2d 172, 176 (Tex. App.—Tyler 1984, no writ)). In Blind
Maker’s view, its losses are thus merely “net profits that have not been achieved,” which “are lost
profits, as a matter of logic and law.”
Blind Maker conceivably could have recovered lost profits from specific lost business
opportunities in an amount that exceeded its overall average net profits. See Frank B. Hall, 733
S.W.2d at 258. However, that is not the “one complete calculation” that Vinson made. Holt
Atherton, 835 S.W.2d at 85. Vinson calculated Blind Maker’s overall “before and after”
performance, not profits from specific lost business opportunities. Having made Blind Maker’s
overall performance the focus of his inquiry, the maximum lost profits that Vinson could have found
were his projected overall net profits of $37,000 per year, or $100,064 past lost profits. Furthermore,
we cannot speculate that any of Vinson’s loss figures are comprised of lost profits from specific lost
sales and business opportunities, as Vinson and Blind Maker made no attempt in the trial court to
distinguish the portion of its losses attributable to lost profit on sales from other damages. See id.
68
(“the bare assertion that contracts were lost does not demonstrate a reasonably certain objective
determination of lost profits.”).43 The failure to demonstrate that these losses were lost profits as that
concept is known to Texas law renders Vinson’s calculation legally and factually insufficient to
support the jury’s award of $5,167,240.
However, Vinson also testified that reduced salaries and benefits to Ray Hicks
represented lost profits. He explained in his report:
The Blind Maker’s profits are, to the larger part, paid out as officer’s salaries and
benefits, this item is actually a part of additional lost profits. The deficiency of this
payment to officers (Ray Hicks) was $137,571.00 in 1999, $113,371.00 in 2000, and
$150,371.00 in 2001. Through July 2002, the current year deficit is $115,133.00.
This represents a total loss of $516,446.00.
In his testimony, Vinson again mentioned $516,000 in salary and benefits had been forgone by Ray
Hicks as part of Blind Maker’s lost profits.
In a closely held corporation such as Blind Maker, evidence of salaries to its
owner/executive is relevant to a determination of lost profits. See Bettius & Sanderson, P.C. v.
National Union Fire Ins. Co., 839 F.2d 1009, 1014 (4th Cir. 1988). In Bettius, the Fourth Circuit
Court of Appeals explained this concept in the context of a professional corporation:
[T]he professional corporation desires to disburse its earnings in order to avoid
having income taxes imposed twice on what is in reality the same group of people.
43
Blind Maker also suggests that the testimony of Springs’s damages expert, Dr. Avera,
independently supports the jury’s award. Responding to Vinson’s calculation of over $11 million
in total business losses, Avera offered an alternative calculation of Blind Maker’s total business
losses as only around $6 million. Avera’s testimony established total business losses, but does not
support $6 million in lost profits.
69
. . . This is accomplished by distributing all or most of its earnings to the principals
as compensation before calculating the professional corporation’s net income. The
result, of course, is that the corporation’s net income for tax purposes is almost
always at or near zero, but it is unrealistic to suggest that the corporation is not
earning a profit. If we were to treat a net income as its net profit for the purpose of
proving loss of profits it would rarely, if ever show a profit even when its
shareholders were earning large incomes. It would never be able to prove damages
for lost profits if the wrongful act of another caused it harm.
Id. at 1013. As in Bettius, a significant portion of Blind Maker’s net income was distributed to its
owner through compensation. Accordingly, a reduction in compensation due to Springs’s fraud is
a valid measure of lost profits. See id. at 1014. Thus, we find that there is evidence in Vinson’s
testimony to support $516,446 in lost profits attributable to lost executive salaries in addition to the
$100,064 lost overall profits, or a total of $616,510 in past lost profits.
Plaintiff’s Compilation of Damages
The “Plaintiff’s Compilation of Damages” is comprised of sixteen line item
categories of business losses calculated by Blind Maker’s employees; supporting documentation is
also supplied regarding each separate calculation. The line item figures are added to equal a total
of $10,625,441. The calculation of this total suffers from the same basic defect as Vinson’s
calculation: it is a compilation of total business losses, not lost profits. Several of the line items
clearly reflect out-of-pocket expenses, such as expenses from unusable inventory, equipment and
samples, and out-of-pocket expenses incurred when Blind Maker claimed it had to purchase Springs
materials from other fabricators. The $10,625,441 calculation is thus legally and factually
insufficient to support the jury’s award of lost profits damages.
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Four of the line item calculations potentially appear to reflect lost profits. Treating
each calculation as a distinct “one complete calculation,” Holt Atherton, 835 S.W.2d at 85, we hold
that one of these items constitute evidence of lost profits.
Line item G purports to reflect $5,703,283 in lost sales revenues attributable to
Springs’s pursuit of Blind Maker’s customers by using information it had fraudulently obtained
through the “Clear to the TOP” promotion, the basis for Blind Maker’s “customer list” fraud theory.
The supporting documentation explains that Blind Maker derived this figure by comparing its 1999
sales to “Clear to the TOP” registrants to its 2000 and 2001 sales to those same customers. Blind
Maker then multiplied this figure by a 21.4% gross margin to yield $1,220,503.44 The supporting
documentation explains that 21.4% was Blind Maker’s 2000 year-to-date gross margin as of May
2000, the month before Springs began using its confidential customer information from the “Clear
to the TOP” promotion to compete against Blind Maker. Ordinarily, the calculation of lost profit
damages must be based on net income, not gross revenue or gross profits. See Edmunds v. Sanders,
2 S.W.3d 697, 705 (Tex. App.—El Paso 1999, pet. denied) (“The correct measure of damages for
lost profits is net profits.”); Turner v. PV Int’l Corp., 765 S.W.2d 455, 465 (Tex. App.—Dallas 1988,
writ denied); Mangham v. Hall, 564 S.W.2d 465 (Tex. App.—Corpus Christi 1978, writ ref’d n.r.e.)
44
The calculation of this figure in the “Plaintiff’s Compilation of Damages” is inconsistent
with that in the supporting materials. This may reflect rounding. In the Compilation, Blind Maker’s
$5,703,283 lost sales figure is multiplied by a 22% gross margin to yield $1,254,722, while the
supporting documentation utilizes the 21.4% gross margin figure to yield $1,220, 503. An additional
$50, 449 was added to reflect purchases made by Blind Maker to replace incentives that were to have
been supplied by Springs as part of the program. The total damages stated in the supporting
documentation is $1,270.952. Because the Compilation appears to reflect a summary or estimate,
we will consider the more precise figure contained in the supporting materials.
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However, Hicks testified that Blind Maker’s net profits could be determined by
subtracting overhead from gross margins. When a defendant’s actions cause a reduction in the extent
of business done by the injured party, but does not create any reasonable opportunity for the injured
party to reduce its expenses, the defendant is entitled to no reduction in the damages awarded against
him with respect to overhead costs. Houston Chronicle Pub. Co. v. McNair Trucklease, Inc., 519
S.W.2d 924, 932 (Tex. App.—Houston [1st Dist.] 1975, writ ref’d n.r.e) (citing 5 Corbin on
Contracts 1038 (1964)); see DP Solutions, Inc. v. Rollins, Inc., 353 F.3d 421, 429 (5th Cir. 2003);
F.S. New Prod., Inc. v. Strong Indus., Inc., 129 S.W.3d 606, 624 (Tex. App.—Houston [1st Dist.]
2004, pet. filed). Here, the jury found that Springs committed fraud, and that fraud left Blind Maker
with no way to reduce its expenses—Blind Maker’s operating costs remained basically the same but
Springs refused to sell Blind Maker more material, to buy back Blind Maker’s unsold inventory, or
to provide Blind Maker with service.45 Under these circumstances, gross profits are an appropriate
measure of lost-profit damages. We find this calculation to be sufficient evidence of $1,220,503 in
lost profit damages.
Line item N reflects $850,000 in “lost profits” from lost sales of Nanik brand
products. The supporting materials explain that Blind Maker was permitted under the FLA to sell
Nanik products (which, like Graber products, were manufactured by Springs) as a distributor rather
than as a fabricator. According to Blind Maker’s calculations, it earned an average of $170,000
“gross profit” annually on its sales of Nanik products in 1999 and 2000. The $850,000 figure
45
Ray Hicks explained, “If I don’t have the sales, I don’t have the gross margin, but I still
have the overhead.”
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represents Blind Maker’s projection of gross profits assuming that it earned this same $170,000
annual average gross profits from Nanik sales for five years following its termination of the FLA.
In other words, this figure assumes that (1) Blind Maker would have continued distributing Nanik
products during this five-year period (and, implicitly, that Springs had a legal obligation to allow it
to do so even after Blind Maker had terminated the FLA); and (2) Blind Maker’s sales of Nanik
products during this five-year period would have remained at the average levels Blind Maker realized
during the two-year span between 1999 and 2000. Blind Maker does not explain the bases for these
assumptions, and its calculations are thus pure speculation and no evidence of lost profits.46 See
Capital Metro. Transp. Auth., 114 S.W.3d at 580-82. In any event, the jury denied Blind Maker
recovery of any future lost profits accruing after August 2002.
Line item O reflects “lost contract sales,” attributes $694,947 in lost gross margins
on lost sales “in the contract market as a direct result of an abrupt transition.” Blind Maker
distributed finished product from Springs for the commercial market. Blind Maker claimed losses
from these contract sales that were discontinued as a result of the termination of the relationship
between Blind Maker and Springs. However, this calculation projects Blind Maker’s damages,
including growth in sales, through December 2002. Because the jury did not award future lost
profits, this calculation does not support the jury’s award of damages. Furthermore, the damage
from lost contract sales, as well as the lost Nanik sales, resulted from Springs’s refusal to sell to
Blind Maker. We have held that there is legally insufficient evidence to support Blind Maker’s
46
It is also unclear whether Blind Maker’s “average gross profits” reflect net profits.
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termination theory. Accordingly, there is also legally insufficient evidence to support damages based
on Springs’s refusal to sell certain products to Blind Maker.
Item R “lost GM $ in wood sales,” purports to reflect $2,489,489 in lost gross
margins from sales of wood products “which resulted from poor quality wood products delivered
by the Graber required and specified supplier, and those losses in gross margin created due to poor
product delivery during the transition.” These figures are based on testimony that Blind Maker was
forced by Springs to purchase its wood from a single supplier in Mexico. Ray Hicks explained that
Springs’s Mexican supplier provided low grade material that did not meet specifications. However,
there is no evidence in the record that the quality problems were the result of any actionable conduct
by Springs. Nothing in the record reflects Blind Maker’s control over the quality of the wood
produced by the supplier, or that the quality problems were intended as a part of Springs’s fraud.
Except for the damages for lost sales to “Clear to the TOP” registrants, the
calculations contained in Blind Maker’s “Plaintiff’s Compilation of Damages” are not sufficient
evidence of lost profits.
Disposition of actual damages issue
We hold that there is legally and factually insufficient evidence to support the jury’s
award of $5,167,240 in consequential lost-profits damages. However, there is sufficient evidence
that Blind Maker incurred lost profits damages based on two measures—$616,510 under Vinson’s
calculations and $1,270,952 for lost sales attributable the customer list claim within the “Plaintiff’s
Compilation of Damages.” The record brought forward by Springs appears to omit the detailed
calculations underlying the lost sales figures and accompanying gross margin ratio. We will presume
74
that this omitted evidence supports the conclusion that these measures do not overlap but could both
be awarded by the jury. Cf. Vickery v. Commission for Lawyer Discipline, 5 S.W.3d 241, 251-52
(Tex. App.—Houston [14th Dist.] 1999, pet. denied). Thus, at most, Blind Maker is entitled to
recover $1,787,398 in actual damages.
An appellate court may suggest a remittitur on its own motion when an appellant
complains that there is insufficient evidence to support an award and the appellate court agrees, but
there is sufficient evidence to support a lesser award. See Tex. R. App. P. 46.3; see also Comstock
Silversmiths, Inc. v. Carey, 894 S.W.2d 56, 57 (Tex. App.—San Antonio 1995, no writ); David
McDavid Pontiac, Inc. v. Nix, 681 S.W.2d 831, 838-39 (Tex. App.—Dallas 1984, writ ref’d n.r.e.).
The party prevailing in the trial court must be given the option of accepting the remittitur or having
the case remanded for a new trial. See Larson v. Cactus Util. Co., 730 S.W.2d 640, 641 (Tex. 1987).
Accordingly, we suggest a remittitur of $3,279,778, the difference between the jury’s award of
$5,167,240 and $1,887,462, the highest amount of actual damages that Blind Maker’s evidence
supports.
Exemplary damages
When suggesting a remittitur regarding actual damages, we must also reevaluate the
jury’s award of exemplary damages. See Bunton v. Bentley, 153 S.W.3d 50, 54 (Tex. 2004). We
review the award de novo to ensure that exemplary damages are not “grossly disproportional” to the
gravity of the defendant’s conduct. Id. (citing Cooper Indus. v. Leatherman Tool Group, Inc., 532
U.S. 424, 434-36 (2001)). We consider (1) the degree of reprehensibility of the defendant’s
misconduct, (2) the disparity between the actual or potential harm suffered by the plaintiff and the
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punitive damages award, and (3) the difference between the punitive damages awarded by the jury
and the civil penalties awarded or imposed in other comparable cases. Id. (citing State Farm Mutual
Auto Ins. v. Campbell, 538 U.S. 408, 418 (2003)). The most important of these considerations is the
degree of reprehensibility of the defendant’s misconduct. Campbell, 538 U.S. at 419. We are guided
in examining a defendant’s conduct and look to whether: the harm caused was physical as opposed
to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or
safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated
actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or
deceit, or mere accident. Id. Finally, because we have sustained some of Blind Maker’s actual
damages, we construe Springs’s arguments about exemplary damages as an attack on the legal
sufficiency of the evidence of exemplary damages. In reviewing a claim that evidence is legally
insufficient under the clear and convincing standard applicable to the punitive damages award in this
case, we look at all the evidence in the light most favorable to the finding to determine whether a
reasonable trier of fact could have formed a firm belief or conviction that its finding was true.
Diamond Shamrock Ref. Co. v. Hall, No. 02-0566, 2005 Tex. LEXIS 49, at *14-15 (Tex. 2005)
(quoting Southwestern Bell Tel. Co. v. Garza, No. 01-1142, 2004 Tex. LEXIS 1424, at *2 (Tex.
2004)); see In re J.F.C., 96 S.W.3d 256, 264-68 (Tex. 2002); see also City of Keller, 2005 Tex.
LEXIS 436, at *34 n.77. We assume that the fact-finder resolved disputed facts in favor of its
finding if a reasonable fact-finder could do so, and disregard all evidence that a reasonable
fact-finder could have disbelieved or found to have been incredible. See Hall, 2005 Tex. LEXIS 49,
at *15 (quoting In re J.F.C., 96 S.W.3d at 266).
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The jury awarded Blind Maker $2,090,000 as exemplary damages based on its finding
of $5,167,240 lost profits. We have suggested a remittitur that would reduce the actual damages to
$1,270,952. Applying the constitutional considerations discussed above, we first note that the Blind
Maker sufficiently proved that Springs implemented Project Overlord and sustained its
implementation over the course of several years. Further, the jury found existence of fraud
concerning the FLA, and the evidence connects that fraud to Project Overlord and Springs’s
subsequent activities. We have also reviewed the evidence concerning Springs’s misrepresentations
about the preferred fabricator benefits. Hicks testified that he would not have signed the FLA had
he known that he could continue as a standard fabricator without it and if he had known that Springs
did not consider itself bound to provide preferred fabricator benefits. Finally, there is evidence of
Springs’s misuse of Blind Makers’s customer list after Springs gave assurances that the information
would be kept confidential and would only be used by a third-party administrator. Together, as we
have already noted, the evidence supports an inference that Springs had implemented a scheme to
induce the Blind Maker into the FLA with false promises and to weaken it financially by fraudulent
acts or by withholding and eliminating promised benefits, with the ultimate goal of either acquiring
ownership of the Blind Maker or taking its customers. We conclude that the jury’s award satisfies
the Bunton-Campbell test and that a reasonable trier of fact could have formed a firm belief or
conviction that its finding was true. We emphasize that it is not Springs’s desire to find alternate
means of competing for Texas customers that forms the basis for our conclusions regarding
“reprehensible conduct.” Rather, it is the means by which that desire was effectuated, the pattern
of behavior over time, and Springs’s undermining of Blind Maker’s financial viability through fraud.
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In considering the disparity between the actual or potential harm suffered by the
plaintiff and the exemplary damages award, we note that the ratio between our suggested damages
and the jury’s award of exemplary damages is little more than 1:1.47 The United States Supreme
Court has indicated that awards of exemplary damages that are less than four times the actual
damages are well below the line of constitutional impropriety. State Farm, 538 U.S. at 425.
Furthermore, we find the award of $2,090,000 to be reasonable in light of the fact that the civil
practices and remedies code would permit an award of exemplary damages of over $3.7 million. See
Tex. Civ. Prac. & Rem. Code Ann. § 41.008(b) (West Supp. 2004-05); Citizen’s Nat’l Bank v. Allen
Rae Invs., Inc., 142 S.W.3d 459, 486 (Tex. App.—Fort Worth 2004, no pet.).
Post-judgment interest
The trial court signed the final judgment in this case on May 29, 2003, and set post-
judgment interest at 10%. In its final issue, Springs argues that, because the legislature amended the
finance code effective September 1, 2003, the post-judgment interest accruing after September 1,
47
The disparity is even smaller when we consider the extensive damages presented by Blind
Maker that were not submitted to the jury through the narrow lost profits issue. Although these
damages did not support the jury’s award of lost profits, they are relevant to exemplary damages
because they represent actual harm suffered by Blind Maker. See Bunton v. Bentley, 153 S.W.3d 50,
54 (Tex. 2004) (citing State Farm Mutual Auto Ins. v. Campbell, 538 U.S. 408, 418 (2003)).
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2003, should be capped at 5%. See Tex. Fin. Code Ann. § 304.003(c)(2) (West Supp. 2004-05).48
We disagree.
The amendments to the finance code at issue in this case provide that they apply “in
any case in which a final judgment is signed or subject to appeal on or after the effective date of this
Act.” Many of our sister courts have confronted the issue of the applicability of the 2003
amendments and have uniformly concluded, based on the statutory language and the legislative
history, that the amendments do not apply to judgments made final before the amendments’ effective
date. See City of Houston v. Fletcher, No. 11-03-00200-CV, 2005 Tex. App. LEXIS 4481, at *35-36
(Tex. App.—Eastland June 9, 2005, no pet. h.); City of Dallas v. Redbird Dev. Corp., 143 S.W.3d
375, 388-89 (Tex. App.—Dallas 2004, no pet.) (quoting Columbia Med. Ctr. of Las Colinas v. Bush,
122 S.W.3d 835, 865-66 (Tex. App.—Fort Worth 2003, pet. denied)) (amendment applied to cases
where judgment is signed on or after effective date of act and “to cases where a judgment becomes
subject to appeal, i.e., capable of being appealed, on or after the effective date of the Act”); In re
Kajima Int’l, Inc., 139 S.W.3d 107, 117 (Tex. App.—Corpus Christi 2004, pet. denied) (amendments
apply only to judgment “that fully and finally disposes of all parties and all issues before the trial
court and therefore is capable of being appealed”). In other words, the amendments apply to cases
that become “capable of being appealed” after the amendments’ effective date; they do not apply to
48
See Act of June 2, 2003, 78th Leg., R.S., ch. 676, § 1, 2003 Tex. Gen. Laws 2096, 2097
(effective June 20, 2003) (codified at Tex. Fin. Code Ann. § 304.003(c) (West Supp. 2004)); Act of
June 2, 2003, 78th Leg., R.S., ch. 204, § 6.01, 2003 Tex. Gen. Laws 847, 862 (effective Sept. 1,
2003) (codified at Tex. Fin. Code Ann. § 304.003(c) (West Supp. 2004)). These two bills were
identical except for their effective dates. Because the judgment in this case was signed before June
20, 2003, we have no need to decide which effective date controls.
79
those “pending appeal” as of the effective date. Bennett v. Cochran, No. 14-00-01160-CV, 2004
Tex. App. LEXIS 3545, at *26-27 (Tex. App.—Houston [14th Dist.] April 22, 2004, no pet.); Cigna
Healthcare of Tex., Inc. v. Pybas, 127 S.W.3d 400, 421 (Tex. App.—Dallas 2004, no pet.).49 In this
case, the judgment was capable of being appealed on May 29, 2003. Thus, the trial court did not err
in applying a 10% post-judgment interest rate. We overrule Springs’s final issue.
CONCLUSION
We hold that while there is legally and factually sufficient evidence that Springs’s
committed fraud against Blind Maker, the evidence is legally and factually insufficient to support
the full amount of actual damages the jury awarded. Although we have concluded that there is no
evidence to support the jury’s actual damages award, there is sufficient evidence that Blind Maker
incurred $1,270,952 in lost-profits damages due to Springs’s fraudulent misuse of the customer
information Spring compiled through the “Clear to the TOP” promotion and $616,510 under
Vinson’s calculations, for a total of $1,887,462. Subtracting $1,887,462 from the jury’s award of
$5,167,240 in actual damages reveals a difference of $3,279,778. Accordingly, we suggest a
remittitur in the amount of $3,279,778. See Tex. R. App. P. 46.3. If the sum is not remitted, the
judgment will be reversed, and the cause will be remanded to the trial court for a new trial. Having
reevaluated the jury’s award of exemplary damages in light of the remittitur, we affirm the jury’s
award. We have also overruled Springs’s argument that concerning the appropriate post-judgment
interest rate.
49
See also Utts v. Short, No. 03-03-00512-CV, 2004 Tex. App. LEXIS 2874, at *18-22
(Tex. App.—Austin April 1, 2004, pet. denied) (mem. op.).
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In sum, we affirm the judgment of the trial court conditioned on the remittitur of
$3,279,778. See Tex. R. App. P. 46.3. If Blind Maker files a remittitur of $3,279,778 with the clerk
of the district court within thirty days of this opinion and judgment and notifies this Court as such,
we will reform the trial court’s judgment and, as reformed, affirm. See id. If the Travis County
District Clerk does not receive Blind Maker’s remittitur within thirty days of this opinion and
judgment, we will reverse the trial court’s judgment and remand the cause to the trial court for a new
trial.
Bob Pemberton, Justice
Before Chief Justice Law, Justices B. A. Smith and Pemberton
Affirmed Conditioned on Remittitur
Filed: July 29, 2005
81