W. Graeme Roustan v. Michael Sanderson, Wife Ann Gainous, and Ridglea Entertainment, Inc. ( 2011 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-09-00377-CV
W. GRAEME ROUSTAN APPELLANT
V.
MICHAEL SANDERSON, WIFE APPELLEES
ANN GAINOUS, AND RIDGLEA
ENTERTAINMENT, INC.
----------
FROM THE 342ND DISTRICT COURT OF TARRANT COUNTY
----------
MEMORANDUM OPINION1
----------
In six issues, Appellant W. Graeme Roustan appeals from the trial court‘s
judgment awarding damages to Appellees Michael Sanderson, his wife Ann
Gainous, and Ridglea Entertainment, Inc. (collectively S&G) on their breach of
contract and fraud claims against him. Because we hold that the evidence is
insufficient to support an award of damages against Roustan individually on
1
See Tex. R. App. P. 47.4.
S&G‘s breach of contract claim but sufficient to support an award of damages on
S&G‘s statutory fraud claim, we reverse in part and affirm in part.
Background
Sanderson and Gainous wanted to start their own ice rink business, and in
November 2004, Gainous signed a two-year lease for an ice rink in Fort Worth
owned by YDIDI, I LP. The lease contained an option to purchase the property
during the lease term. Sanderson and Gainous formed a corporation, Ridglea
Entertainment, Inc., to operate the business, and they opened for business in
December 2004.
In March 2005, S&G began having equipment problems, which caused
problems with the ice. They finally identified and repaired the source of the
problem at the end of May 2005. Because of the problem with the ice, the rink
had been closed for business from March until the end of June. Meanwhile, in
April 2005, Sanderson contacted Roustan, an investor in and operator of a
number of other ice rinks, about Roustan buying a controlling interest in the
couple‘s business.
In May 2005, Sanderson and Gainous went to Las Vegas to an ice rink
convention and met with Roustan while there. At the meeting, Roustan gave a
presentation about his ice rink business venture in which he told Sanderson and
Gainous about ice rink facilities he currently owned and others that he planned to
acquire in the next few years.
2
The parties signed a purchase agreement on August 1, 2005, in which a
new entity, Roustan Ridglea, LLC (Ridglea LLC) purchased the lease and all of
the assets of the ice rink business, except that Gainous kept the $30,000 security
deposit that she had paid when she signed the lease. Ridglea LLC agreed to
assume the utility contracts for the premises, including the electricity service.
Ridglea LLC also agreed to transfer a twenty-five percent ownership interest in
the entity to Ridglea Entertainment and to pay $75,000, in two installments of
$37,500 each, to Gainous and Ridglea Entertainment. At trial, the parties
disputed whether the second installment was ever paid.
At the same time, Gainous executed an assignment of the lease as well as
an assignment of the purchase option. As part of the consideration for the
agreement, Ridglea LLC agreed to employ Sanderson as general manager of the
ice rink and to employ Gainous as a full-time employee.
Ridglea Entertainment and Roustan Inc. (a company of which Roustan is
the sole stockholder) also executed an operating agreement for Ridglea LLC.
Under the agreement, Roustan Inc. held a sixty-five percent ownership interest in
Ridglea LLC. Ridglea Entertainment owned twenty-five percent, and two trusts
each took a five percent ownership interest.
The agreement called for Roustan Inc. to make a $150,000 capital
contribution to Ridglea LLC, with $20,000 paid prior to formation and the
remaining $130,000 due upon formation. Ridglea Entertainment‘s capital
contribution consisted of its assignment of its interest in the ice rink and its sale
3
of all of the business assets as set out in the purchase agreement. Roustan
made an advance of $20,000 prior to closing on the purchase agreement and
another $55,000 around the time of closing. The parties disputed at trial whether
Roustan Inc. ever satisfied the rest of its capital contribution.
Attached to the agreement as Exhibit 2 was an unexecuted promissory
note, dated July 1, 2005, under which Ridglea LLC promised to pay the
Fernandez Family Trust a sum of $200,000 plus interest over a period of three
years. The operating agreement provided that Roustan, the managing member,
was authorized to pay the note ―as set forth in Exhibit ‗2.‘‖ This trust was not one
of the two trusts that received a five percent membership interest in Ridglea LLC.
By October 2005, Ridglea LLC did not have enough money in its account
to pay all of its bills, and the business was not generating enough income to
cover them. Roustan had not had the utilities transferred out of Gainous‘s name,
and in the spring of 2006, the business began getting shut-off notices from the
utility company for failure to pay the rink‘s bills. S&G paid these bills with their
personal charge cards.
In September 2006, the business continued to have trouble making
money, and Roustan informed S&G that he would not put any more money into
the business. That same month, the electricity was shut off for failure to pay the
bill, and S&G paid $22,000 to have the service turned on again. S&G also
received notice that month that there were insufficient funds to make payroll.
4
Sanderson and Gainous notified Roustan that they would be taking the
revenue from the ice rink and putting it in Ridglea Entertainment‘s account. They
paid the rent for October and November. After accepting that rent, YDIDI notified
S&G that the September rent had not been paid and that the lease was in
default. They sent a check to YDIDI, but the entity held the check and, in
December, evicted S&G. The next day, the rink opened up again for business,
now under the management of Firland Management LLC, a company used by
Roustan to manage other ice rinks in which he invests.
During this time, Roustan‘s lawyer was negotiating with YDIDI for a new
lease and new purchase option, but with a new company instead of with Ridglea
LLC. On November 30, 2006, Roustan sent an email to a YDIDI representative
stating that
[f]rom what I hear, [Sanderson] is having trouble getting an
Insurance Certificate for Ridglea Entertainment, Inc. If your lawyer
demands to see one in 5 days, he might not be able to get one and
would be in default . . . . even though my policy is still in effect. I am
pretty certain he will come up with the September rent and
December rent. Just a thought.
The YDIDI representative responded, ―I have forwarded your message to our
attorney . . . who is working on a specific notice to Sanderson. I am confident we
will be able to prevail in the end.‖ On December 18, 2006, the day after S&G
were locked out of the ice rink, Roustan registered a new corporation, Roustan
Fort Worth, LLC, with the Texas Secretary of State, using the ice rink‘s address
as the registered address.
5
S&G filed suit against Roustan; Ridglea LLC; Roustan Fort Worth, LLC;
YDIDI; and Firland Management, LLC.2 S&G‘s petition contained a seven-
paragraph section with the heading ―Causes of Action Against the Roustan
Defendants.‖ In the first paragraph of that section, they alleged that Roustan had
made false representations ―concerning his business acumen, his financial
strength[,] and his commitment to funding the new company to which [S&G] sold
the business.‖ S&G then stated a claim ―for common law fraud and statutory
fraud pursuant to Tex. Bus. & Com. Code § 27.01.‖
In a separate paragraph in that section, S&G included the following claim:
―Ridglea LLC failed to pay the second [half] of the purchase price and thereby
breached the contract of Purchase and Sale. The breach of contract by [Ridglea
LLC] resulted in damages to [S&G].‖
After a trial, a jury found that Roustan had failed to comply with his
agreement to pay Sanderson and Gainous $75,000 for the transfer of the ice rink
business, and it assessed their damages at $37,500. The jury further found that
Roustan had not failed to make the agreed $150,000 capital contribution and that
he did not agree to contribute the money for payment of Ridglea LLC‘s operating
expenses.
The jury also found that Roustan did not commit common law fraud against
S&G and that he did not ―engage in any false, misleading, or deceptive act or
2
They subsequently dismissed their claims against Firland and YDIDI.
6
practice that [S&G] relied on to their detriment and that was a producing cause of
damages to [S&G].‖ The jury did find that Roustan committed statutory fraud
against S&G, but it awarded statutory fraud damages only to Ridglea
Entertainment, in the amount of $50,000.
Roustan filed a motion for judgment notwithstanding the verdict. The trial
court denied the motion and entered judgment ordering that Sanderson and
Gainous recover from Roustan $37,500 plus prejudgment interest and that
Ridglea Entertainment recover from Roustan $50,000.
Analysis
Roustan‘s first two issues relate to S&G‘s breach of contract claim. His
third, fourth, fifth, and sixth issues relate to S&G‘s statutory fraud claim.
Breach of Contract Claim
In Roustan‘s second issue, he argues that the evidence is legally and
factually insufficient to support the jury‘s verdict on S&G‘s breach of contract
claim because there is no evidence that Roustan made any agreement with them
in his personal capacity. We agree.
The jury found that Roustan had agreed to pay Sanderson and Gainous
$75,000 for the transfer of the ice rink business. The agreement regarding the
transfer of the business was contained in the purchase and sale contract, which
was between S&G and Ridglea LLC, not Roustan individually. Roustan signed
the agreement as president of Roustan, Inc., which signed as the managing
member of Ridglea LLC. Accordingly, Ridglea LLC may be liable for a breach of
7
the contract to which it is a party, but Roustan as an officer may not be held
individually liable.3 Roustan could, through his actions, cause Ridglea LLC to
breach the agreement,4 but because he was not a party to the contract, he could
not personally breach it.5 S&G did not plead any facts or provide sufficient
evidence to support a ground for ignoring the limitation on liability afforded to
limited liability companies and did not allege that the limitation should be
disregarded.6 By statute, a member of a limited liability company is not liable for
3
See Willis v. Donnelly, 199 S.W.3d 262, 271 (Tex. 2006) (―A bedrock
principle of corporate law is that an individual can incorporate a business and
thereby normally shield himself from personal liability for the corporation‘s
contractual obligations.‖).
4
See In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762 (Tex. 2006) (orig.
proceeding) (noting that ―corporations must act through human agents‖).
5
See Bernard Johnson, Inc. v. Cont’l Constructors, Inc., 630 S.W.2d 365,
369 (Tex. App.—Austin 1982, writ ref‘d n.r.e.) (―As a general rule, a suit for
breach of contract may not be maintained against a person who is not a party to
the contract.‖).
6
See Castleberry v. Branscum, 721 S.W.2d 270, 272 (Tex. 1986) (setting
out six grounds on which the corporate form may be disregarded), superseded in
part by Act effective Sept. 1, 1997, 75th Leg., R.S., Ch. 375, § 7, 1997 Tex. Gen.
Laws 1522, 1522–23 (amended 2003 & 2007) (current version at Tex. Bus. Orgs.
Code Ann. § 21.223 (West 2010)); see also SSP Partners v. Gladstrong Inv.
(USA) Corp., 275 S.W.3d 444, 451–52 (Tex. 2008) (stating that the limitation on
corporate liability may be ignored ―only ‗when the corporate form has been used
as part of a basically unfair device to achieve an inequitable result‘‖); McCarthy v.
Wani Venture, A.S., 251 S.W.3d 573, 590 (Tex. App.—Houston [1st Dist.] 2007,
pet. denied) (noting that Texas courts have applied to limited liability corporations
the same state law principles for piercing the corporate veil that they have
applied to corporations).
8
a debt, obligation, or liability of the company.7 Fraud is a ground for disregarding
the corporate form,8 but although S&G pled that Roustan fraudulently induced
them to enter a contract, they did not plead that Roustan used the LLC itself to
perpetrate a fraud and that, consequently, the corporate form should be
disregarded and Roustan held individually liable.9 Nor did they plead any other
ground for disregarding the corporate structure.10
S&G argue in their brief that they ―had always understood that Roustan
would be paying the $75,000 cash portion of the purchase price[,] and it was not
until shortly before closing when they received the purchase agreement that they
understood Roustan had put a provision in the purchase agreement that the new
company would be paying the second half.‖ They then contend that they ―had a
conversation with Roustan about their concerns with capital calls and Roustan
7
Act effective Aug. 26, 1991, 72nd Leg., R.S., Ch. 901, § 46, 1991 Tex.
Gen. Laws 3192, 3203 (now renumbered and codified at Tex. Bus. Orgs. Code
Ann. § 101.114 (West 2010)).
8
See Castleberry, 721 S.W.2d at 272.
9
Cf. Houston-Am. Life Ins. Co. v. Tate, 358 S.W.2d 645, 657 (Tex. Civ.
App.—Waco 1962, no writ) (holding that the corporate fiction was used to
perpetrate a fraud and that adherence to the corporate fiction ―would promote
injustice and lead to a most inequitable result‖).
10
See Castleberry, 721 S.W.2d at 272; see also Blond Lighting Fixture
Supply Co. v. Funk, 392 S.W.2d 586, 591 (Tex. Civ. App.—San Antonio 1965, no
writ) (holding that there was no justification for disregarding the corporate form
when the plaintiffs did not present evidence that the corporation was formed as a
means of perpetrating fraud, that it was operated as a mere tool of another
corporation or as the alter ego of an individual, that the corporate form was being
used as a means of evading existing obligations, or that the corporation was
used to circumvent a statute, protect crime, or justify wrong).
9
had told them that he would personally pay any monetary shortfalls during the
first [twelve] months of the operation of the company,‖ and they therefore ―had
every reason to believe that Roustan was standing by his personal commitment
on the purchase price.‖
S&G may have put on some evidence of statements Roustan made before
or after the contract‘s formation about the source of funding for the $37,000, but
they did not put on evidence of a separate contract with Roustan personally to
pay them the money. The only contract that they pled had been breached was
the purchase agreement, and this was the only agreement that they proved
existed.11 Roustan was not a party to this agreement, and S&G did not put on
evidence to support the disregarding of the corporate form to hold him personally
liable.12 Because they neither pled nor proved a ground for setting aside the
corporate form to hold Roustan personally liable on the purchase agreement, and
because they neither pled nor proved a separate contract with Roustan, he
cannot be held individually liable for breach of contract. 13 Accordingly, applying
the appropriate standard of review,14 we sustain Roustan‘s second issue.
11
See Fieldtech Avionics & Instruments, Inc. v. Component Control.Com,
Inc., 262 S.W.3d 813, 825 (Tex. App.—Fort Worth 2008, no pet.) (stating that the
elements of a breach of contract claim include the existence of a valid contract).
12
See Castleberry, 721 S.W.2d at 272.
13
See Bernard Johnson, Inc., 630 S.W.2d at 369.
14
Cent. Ready Mix Concrete Co. v. Islas, 228 S.W.3d 649, 651 (Tex.
2007); City of Keller v. Wilson, 168 S.W.3d 802, 807, 827 (Tex. 2005); Uniroyal
10
Because S&G failed to establish a basis for holding Roustan personally
liable, we do not need to reach Roustan‘s first issue, in which he argues that the
pleadings did not support a verdict of personal liability on the contract.15
Statutory Fraud
The remainder of Roustan‘s issues relate to the jury‘s verdict of statutory
fraud. In his third issue, he argues that there is no evidence that he made any
representation that was false.
S&G pled a claim for fraud involving real estate or corporate stock under
section 27.01 of the business and commerce code.16 To show fraud under
section 27.01, a plaintiff may prove either (1) a false representation of a material
fact or (2) a false, material promise to do an act.17 If the plaintiff‘s claim is based
on a false representation of fact, the plaintiff must show a ―false representation of
a past or existing material fact, when the false representation is . . . made to [the
plaintiff] for the purpose of inducing [the plaintiff] to enter into a contract; and . . .
relied on by [the plaintiff] in entering into that contract.‖18 If the claim is based on
a false promise to act, the plaintiff must show that the false promise was material,
Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998), cert. denied,
526 U.S. 1040 (1999).
15
See Tex. R. App. P. 47.1.
16
Tex. Bus. & Com. Code Ann. § 27.01(a) (West 2009).
17
Id.
18
Id.
11
made to the plaintiff with the intention of not fulfilling it and for the purpose of
inducing the plaintiff to enter into a contract, and that the plaintiff relied on the
promise in entering into that contract.19
The jury charge tracked section 27.01, instructing the jury that statutory
fraud can occur when either (a) there is a false representation of a past or
existing material fact or (b) a party makes a false promise to do an act. In the
short section of Roustan‘s appellate brief addressing this issue, he asserts that
―[t]here was no evidence of any representation by [him] that was false in any
respect.‖ He does not, however, argue that there is no evidence that he made a
promise to do something with the intention of not fulfilling it.
In his reply brief, however, Roustan does make one argument regarding
the evidence to support a finding of a false promise in a sentence in a footnote of
the brief. He states that testimony suggesting that he failed to perform on any of
his promises cannot support a fraud claim because Texas cases have
consistently held that failure to perform an agreement cannot support a fraud
claim. We agree with the statement that under Texas law, proof of the failure to
perform, without more, does not establish fraud.20 But circumstantial evidence
may be used to establish that, when making the promise, the party had no
19
Id.
20
Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960
S.W.2d 41, 48 (Tex. 1998).
12
intention to perform.21 A party‘s acts after the promise was made, the party‘s
denial that he ever made a promise, and no pretense of performance are all
factors that may be considered to show a lack of intent.22
Roustan makes no argument that the evidence was insufficient to show
that in order to induce S&G to enter into a contract, he made a promise with the
intention of not fulfilling it. Furthermore, Gainous‘s and Sanderson‘s testimony
indicates that Roustan led them to believe that he and his business enterprise
had the financial wherewithal to provide the funding to keep their business going
and that he would in fact provide the funding. The emails from Roustan in the
record do nothing to contradict this testimony. For example, when the parties
were still negotiating the deal, Roustan told Sanderson that he would pay
$20,000 up front and then, after formation of the LLC and the assignment of the
lease, ―[he] would then provide an additional $130,000.‖ [Emphasis added.]
Roustan did nothing to disillusion S&G after they formed the LLC; in February
2006, Sanderson asked Roustan about the second payment of $35,000, and in
response Roustan asked them to wait on payment because ―it would make life
easier on [him].‖ [Emphasis added.] No mention was made of funding the
business by taking out a loan. Neither the operating agreement nor the note
21
See Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986).
22
See id.; see also Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d
768, 775 (Tex. 2009) (―[A] party‘s intent is determined at the time the party made
the representation, [but] it may be inferred from the party‘s subsequent acts after
the representation is made.‖) (quoting Spoljaric, 708 S.W.2d at 434).
13
attached to it indicated that the trust loan was not an additional source of funds
and was instead the primary source of Roustan‘s contribution to the LLC. The
evidence in the record was enough for the jury to conclude that Roustan told
S&G that he could and would provide a capital contribution of $150,000, either
with his own funds or with the financial resources of his business, but that he
actually borrowed money on behalf of the LLC. The record therefore contains
sufficient evidence that Roustan made a promise to S&G that went unfulfilled.
Roustan does not argue that, even if he did not follow through on a
promise, such promise was nevertheless not made with an intention not to fulfill
it. Even if he had so argued, however, our conclusion would be the same. From
Roustan‘s testimony about how he structures business deals, his opinion about
the note‘s satisfaction of his capital obligation, and the operating agreement‘s
provision making repayment of the loan the obligation of the LLC rather than
Roustan, Inc., the jury could have concluded that Roustan never intended to
make a capital contribution from his own funds or the funds of Roustan, Inc. and
that he had always intended to fund the business by way of a debt that the LLC
would have to repay. Accordingly, the jury could have found that Roustan‘s
borrowing money to fund the LLC and making the LLC liable for the repayment
satisfied Roustan‘s obligation to make a capital contribution but at the same time
violated his promise to S&G that he personally could and would fund the
company.
14
Roustan does not argue that the promise to provide funding out of his own
funds or his business‘s funds was not material. Nor does he argue that the
evidence was not sufficient to show that S&G relied on the promise or to show
that the promise was made to induce them to sign the purchase and sale
agreement and the assignments. Accordingly, we do not address the sufficiency
of the evidence as to those elements of S&G‘s claim. We overrule Roustan‘s
third issue.
In his fourth issue, Roustan argues that the judgment does not conform to
the pleadings. The entirety of his argument on this issue is as follows:
[Texas Rule of Civil Procedure] 301 requires a judgment to conform
to the pleadings. As mentioned above, [S&G] assert in the [p]etition
that Roustan made false ―representations concerning his business
acumen, his financial strength and his commitment to funding the
new company.‖ . . . However, as discussed above, such
representations (even if made) cannot support a judgment of fraud
under Texas law[.] See, Stephanz v. Laird, 846 S.W.2d [895,] 903
[(Tex. App.—Houston [1st Dist.] 1993, writ denied)]. Thus, the
[j]udgment against Roustan for statutory fraud does not conform to
the pleadings.
Roustan expands on his argument somewhat in his reply brief, in which he
asserts that as a matter of law, the allegations that he made false
―representations concerning his business acumen, his financial strength and his
commitment to funding the new company‖ cannot support a claim for fraud
because ―the representation complained of must concern a ‗material fact‘ and not
‗a mere matter of opinion, judgment, probability, or expectation.‘‖ Thus, he
argues, the petition failed to plead any grounds that would support a fraud claim.
15
In the case relied on by Roustan, the court looked to see if the evidence
supported a finding of misrepresentation, not a finding of a false promise to do an
act. Roustan does not explain why the pleadings cannot support a judgment that
he committed statutory fraud based on a false promise.
In the paragraph of the pleadings pointed out by Roustan, S&G did state
that Roustan made false representations about his business ability, his finances,
and his commitment to funding the new company. They assert that these
representations were made with knowledge of their falsity with the intent of
inducing them to enter into the purchase and sale agreement, and ―[S&G] assert
an action for common law fraud and statutory fraud pursuant to Tex. Bus. & Com.
Code § 27.01‖ based on the purchase and sale agreement and the assignments.
But S&G did not limit their statutory cause of action to a claim based on false
representations under section 27.01(a)(1). And in their pleadings, S&G alleged
that Roustan misled them about his commitment to funding the new company
and that Roustan had represented to them that he had financial capital to put into
the business and to exercise the purchase option ―so that the new entity he
would form would own the [p]roperty.‖ Although S&G used the term
―representations,‖ a term that generally relates to assertions of fact rather than
promises, these statements were sufficient to put Roustan on notice of a claim
based on statements by him that he would perform acts in the future with respect
16
to funding the new company and purchasing the property.23 Roustan makes no
argument about why, if S&G proved that Roustan made promises about funding
the business, such promises could not serve as the basis of a section 27.01(a)(2)
claim.24 The pleadings can support a judgment for statutory fraud based on a
false promise, and, accordingly, we overrule this issue.
In Roustan‘s fifth issue, he argues that the jury‘s finding that he committed
statutory fraud was inconsistent with its findings as to common law fraud. In
reviewing the jury findings for conflict, a court may not strike down jury answers
as conflicting if there is any reasonable basis upon which they can be
reconciled.25 The question for this court is not whether the findings may
reasonably be viewed as conflicting but whether there is any reasonably possible
basis upon which they may be reconciled.26
In Roustan‘s original brief, he does not explain why the jury‘s findings are
inconsistent and irreconcilable.27 In his reply brief, however, he argues that
23
See Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896–97
(Tex. 2000) (noting that Texas follows a fair notice standard for pleading, that a
petition is sufficient if it gives fair and adequate notice of the facts upon which the
pleader bases his claim, that when a party fails to specially except to a pleading,
a court should construe the pleadings liberally in favor of the pleader, and that ―it
is hard to imagine that [Appellee] was unaware of exactly what [Appellant] was
claiming‖).
24
See Tex. R. App. P. 38.1(i).
25
Bender v. S. Pac. Transp. Co., 600 S.W.2d 257, 260 (Tex. 1980).
26
Id.
27
See Tex. R. App. P. 38.1(i).
17
under the common law fraud question, the jury found that he did not make a false
representation, but the jury‘s answer to statutory fraud requires a finding that he
did make a false representation. Thus, he argues, the findings are in conflict and
are irreconcilable.
We disagree. The jury‘s answers are not irreconcilable. The jury charge
on common law fraud limited liability to the making of misrepresentations, which
the charge defined as a false statement of fact or opinion. The statutory fraud
definition, however, allowed the jury to find that Roustan had committed fraud
either by making a misrepresentation or by making a false promise to do an act.
The jury could have found that Roustan did not make a false statement of fact or
opinion and therefore did not commit common law fraud but that Roustan did
make a false promise to do an act and therefore did commit statutory fraud.
Furthermore, when the jury returned its verdict, Roustan did not object to
the findings as conflicting.28 We overrule this issue.
In his sixth issue, Roustan contends that the trial court submitted an
improper instruction on damages concerning statutory fraud. The jury charge
asked the jury,
What sum of money, if any, if paid now in cash, would fairly and
reasonably compensate [S&G] for their damages, if any, that
resulted from such statutory fraud?
28
See Columbia Med. Ctr. of Las Colinas v. Bush, 122 S.W.3d 835, 861
(Tex. App.—Fort Worth 2003, pet. denied) (holding that the appellants did not
preserve complaint about conflicting jury findings because they failed to object to
the conflict before the jury was discharged).
18
Consider the following elements of damages, if any, and none other:
1. The economic losses, if any, suffered by [S&G]
caused by the [statutory] fraud.
The jury charge instructed the jury to determine ―economic losses‖ but did
not define that term. In Roustan‘s brief on appeal, he argues that the measure of
damages for fraud was discussed by the Supreme Court of Texas in Formosa
Plastics,29 in which that court stated that Texas recognizes two measures of
direct damages for fraud: out-of-pocket and benefit-of-the-bargain. Thus,
Roustan argues, the trial court‘s instruction was contrary to Texas law because
the proper measure of damages for a fraud claim is either out-of-pocket damages
or benefit-of-the bargain damages.
Section 27.01 provides that a plaintiff under that section may recover
―actual damages,‖ and, in some cases, exemplary damages.30 The statute does
not define the term ―actual damages,‖ so we look to the common law for
guidance.31 Under the common law, both out-of-pocket and benefit-of-the-
29
960 S.W.2d at 49.
30
Tex. Bus. & Com. Code Ann. § 27.01(b), (c).
31
Hawkins v. Walker, 233 S.W.3d 380, 391–92 (Tex. App.—Fort Worth
2007, no pet.) (applying without discussion the common law measure of
damages for fraud in a section 27.01 statutory fraud case); see also Swinnea v.
ERI Consulting Eng’rs, Inc., 236 S.W.3d 825, 836 (Tex. App.—Tyler 2007)
(looking to the common law for guidance and stating that ―[t]he measure of
damages recoverable under [s]ection 27.01 is the same as that under a claim of
common law fraud‖), rev’d in part on other grounds, 318 S.W.3d 867 (Tex. 2010).
19
bargain damages are methods of measuring direct actual damages. 32 Economic
damages are measured the same way, and in fact courts often use the terms
―economic damages‖ and ―actual damages‖ interchangeably.33 Thus, the jury
charge set forth the correct kind of damages recoverable on a statutory fraud
claim. To the extent that the terms are not interchangeable, Roustan was not
harmed by the trial court‘s use of the term ―economic damages‖ instead of ―actual
damages‖ because ―actual damages‖ could have allowed for greater recovery in
that ―actual damages‖ can include both economic and non-economic damages.34
In sum, out-of-pocket and benefit-of-the-bargain are both measures of ―actual
damages‖ and of ―economic damages.‖
In his reply brief, Roustan argues that a proper instruction on damages
would have ―set forth‖ the ―out-of-pocket‖ and ―benefit-of-the-bargain‖ measures.
We construe Roustan‘s issue liberally to argue, not that the instruction failed to
32
See Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817
(Tex. 1997) (stating that under the common law, actual damages can be either
direct or consequential and that direct damages for misrepresentation may be
measured as out-of-pocket or as benefit-of-the-bargain damages); Everett v. TK-
Taito, L.L.C., 178 S.W.3d 844, 858 (Tex. App.—Fort Worth 2005, no pet.) (noting
that ―out-of-pocket‖ and ―benefit-of-the-bargain‖ are the two common law
measures of economic damages).
33
See Matheus v. Sasser, 164 S.W.3d 453, 458 (Tex. App.—Fort Worth
2005, no pet.) (noting that current version of the Deceptive Trade Practices Act
provides for ―economic damages,‖ that the prior version called for ―actual
damages,‖ and that we had found no case suggesting that the terms had any
difference in meaning).
34
See, e.g., Latham v. Castillo, 972 S.W.2d 66, 69 (Tex. 1998) (noting that
mental anguish damages are actual damages recoverable at common law for
some torts).
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name the proper measure of damages recoverable, but that it failed to instruct
the jury on how to calculate those damages, that is, that the charge should have
instructed the jury to determine either the difference between the value S&G paid
and the value of what they received (out-of-pocket damages) or the difference
between the value as represented and the value as received (benefit-of-the-
bargain damages).35
In the charge conference, Roustan‘s attorney objected to the damages
question, stating that
the measure of damages stated here is not one of the measures of
damages for fraud recognized by Texas law. It just says the
economic losses. And the proper definitions for fraud would be
benefit of the bargain or out-of-pocket or one of the other recognized
measures, and this is not one of them. [Emphasis added.]
This objection was not sufficient to advise the trial court of Roustan‘s objection
that the charge was defective for failing to instruct the jury how to calculate
benefit-of-the-bargain damages and out-of-pocket damages. Roustan argued
only that economic losses were not a proper measure of fraud damages. Thus,
to the extent that Roustan argues that the trial court should have instructed the
jury on how to calculate the damages, he has not preserved the complaint. 36 To
the extent that Roustan‘s reply brief merely repeats the argument from his
original brief, the argument is overruled because ―economic losses‖ are an
35
See Arthur Andersen, 945 S.W.2d at 817 (defining out-of-pocket and
benefit-of-the-bargain damages).
36
See Tex. R. App. P. 33.1.
21
appropriate measure of damages for the statutory fraud claim alleged. We
overrule Roustan‘s sixth issue.
Conclusion
Having sustained Roustan‘s second issue, we reverse the part of the trial
court‘s judgment awarding S&G damages on their breach of contract claim and
render judgment that they take nothing on the breach of contract claim. We
affirm the remainder of the trial court‘s judgment.
LEE ANN DAUPHINOT
JUSTICE
PANEL: DAUPHINOT, WALKER, and GABRIEL, JJ.
GABRIEL, J. concurs without opinion.
DELIVERED: September 29, 2011
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