Land Rush Leads to Double-Leasing and a Viable Fraud Claim

JPMorgan, as Trustee of the Red Crest Trust, signed a letter of intent for Orca Assets to lease oil and gas properties in the Eagle Ford Shale. Unfortunately, JPMorgan had leased those same properties to GeoSouthern Energy six months earlier. GeoSouthern recorded its lease three days after Orca signed the letter of intent with JPMorgan, but Orca did not conduct any forward-looking title searches after the letter of intent. Orca proceeded to sign the leases a month later and promptly recorded them. GeoSouthern then contacted JPMorgan about the duplicate leases, and the bank promptly offered to refund Orca’s $3.2 million lease payment. Instead, Orca sued for $400 million in lost profits. At a Rule 166 pretrial conference, the trial court dismissed all of Orca’s claims, ruling that the leases unambiguously disclaimed any warranties, and that Orca could not establish justifiable reliance as a matter of law. The Dallas Court of Appeals reversed in part, holding that the disclaimers in the leases foreclosed Orca’s breach of contract claim, but not fraud and negligent misrepresentation.

Under the express language of the contractual disclaimer, Orca was to be “without recourse” under the lease if title to the oil and gas interests failed. That was sufficient to negate contract liability for JPMorgan’s failure to convey good title, but not fraud and negligent misrepresentation. Noting that the leases did not also include any provisions disclaiming reliance on any extra-contractual representations, the Court held that Orca could proceed with claims based on an oral representation that the properties in question were “open” for lease. In the course of that holding, the Court analyzes a number of other recent fraudulent inducement cases, leaving the distinct impression that courts are going to continue drawing some pretty narrow distinctions in the wake of the Texas Supreme Court’s Italian Cowboy opinion.

Orca Assets, G.P., LLC v. JPMorgan Chase Bank, N.A., No. 05-13-01700-CV

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On Certificates of Merit

An investor in an office building sued the building’s architect and engineering consulting firm for fraud, negligent misrepresentation, aiding and abetting, and conspiracy. The investor did not file a certificate of merit with the original petition, so the defendants moved to dismiss. The claims against the engineering firm were dismissed without prejudice, and the plaintiff refiled with a new complaint that included a certificate of merit. After consolidating the old and new cases, the trial court granted a motion to dismiss as to all claims against the engineering firm, but only as to the negligent misrepresentation claim for the architects. An interlocutory appeal ensured, and the Court of Appeals ended up siding with the plaintiff. As to the plaintiff’s claim against the engineering firm, the Court held that dismissal without prejudice did not prevent the plaintiff from refiling a new lawsuit — the one under appeal — that included a certificate of merit. As to the claims against the architecture firm, no certificate of merit was required because the plaintiff’s case was based on the allegation that the firm knew of defects in the building due to its occupancy in the building, not in connection with any professional services that the firm had provided. Accordingly, no certificate of merit was necessary, and all of the plaintiff’s claims against the architecture firm were also remanded for further proceedings.

TIC N. Central Dallas 3, LLC v. Envirobusiness, Inc., No. 05-13-01021-CV

No Misrepresentation Where Sale Papers Identified the Floodplain

In this negligent misrepresentation and fraud case, the Court of Appeals has affirmed summary judgment for the defendant based on the statute of limitations. Collective Asset Partners LLC sued Michael Schaumburg and his architectural firm after Schaumburg informed CAP about a property for sale in Tarrant County and took a $1 million fee in the resulting sale. Half of the property turned out to be located on a floodplain, which allegedly caused CAP to be unable to develop it. Schaumburg sought and obtained summary judgment that there had been no misrepresentation because the paperwork for the sale included disclosures that identified the floodlplain. Nor could CAP show a misrepresentation based on a $10.25 million appraisal on the property, as that appraisal was only intended for use by the bank that commissioned it and could not be justifiably relied upon by third parties.

Collective Asset Partners LLC v. Schaumburg, No. 05-13-00040-CV

Here’s Some Advice: Your Cause of Action Accrues Now….

In this negligent misrepresentation case, Guarantee Company of North America sued Weaver and Tidwell LLP for issuing negligent audit reports on which Guarantee relied when issuing performance bonds.  The central issue on appeal was whether the two-year statute of limitations for negligent misrepresentation actions barred Guarantee’s claim.  The Court held that “a person suffers legal injury from faulty professional advice when the advice is taken.”  Thus, the claim in this suit accrued as soon as Weaver’s alleged misrepresentation induced Guarantee to act; that is, when Guarantee issued its first bond in reliance on the faulty audit, which was more than two years before it filed suit.  While Guarantee argued that the discovery rule applied to toll the statute of limitations, the Court refused to apply the discovery rule here because Guarantee did not obtain findings on when it knew or should have known of the facts that gave rise to its cause of action.

Weaver and Tidlwell v. Guaranty Co. of N. Am.

Negate and Disclaim

Miller Global Properties worked with Marriott International to build a resort and golf club in the Hill Country outside San Antonio. They entered into a series of agreements for planning and budgeting the resort, but the final contract by which Miller purchased the report included an “as-is” sale provision. In that clause, Miller acknowledged and agreed that Marriott had not made any representations, and went on to “specifically negate and disclaim any representations.” A related contract regarding the construction of the property also contained a merger clause. The cost to build the resort proved to be $90 million higher than the budget, and Miller sued Marriott on con-tort claims, alleging that Marriott had misrepresented that the plans and specifications for the resort were essentially complete and that the budget would be adequate to complete construction.

The trial court granted summary judgment for Marriott, which argued that the contracts negated the element of reliance necessary to support Miller’s tort claims. The Court of Appeals affirmed, holding that the as-is provision negated and disclaimed the extrinsic representations Marriott was alleged to have made to Miller. That met the standard set by Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., 341 S.W.3d 323 (Tex. 2011), which had permitted a misrepresentation case to proceed where the parties’ contract only disclaimed the existence of representations about the subject matter of the contract, without also disclaiming reliance on any representations made outside the contract. Because the contracts negotiated between Miller and Marriott disclaimed both the existence of additional representations and any reliance on them, Miller’s claims were barred.

Miller Global Props., LLC v. Marriott Int’l, Inc., No. 05-12-0822-CV

To Whom It May Concern

Three months ago, the court of appeals affirmed summary judgment in favor of an attorney who was alleged to have signed a fraudulent verification of deposit form on behalf of the borrower in a $1.9 million loan. In another appeal arising out of that same loan, Bank of Texas has managed to reverse summary judgment in favor of another attorney alleged to have issued letters “To Whom It May Concern” confirming the borrower’s employment and access to the same two trust accounts. The witnesses all told different stories about who prepared and signed the letters and who they had been provided to. Based on that conflicting evidence, the court of appeals concluded that the bank had submitted sufficient evidence to defeat the attorney’s no-evidence motion. Testimony of the law office’s business practices was sufficient to show that it was within the scope of his employees’ duties to sign the attorney’s name to various documents, and that the representations were made in the course of his business as an attorney. The court also rejected the defendant’s attempt to invoke the economic loss rule, reiterating the Supreme Court’s recent holding that the doctrine only applies to the parties to a contract, not between strangers to the contract. See Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 418 (Tex. 2011). The court went on to reverse the trial court’s grant of traditional summary judgment in favor of the attorney, holding that the attorney had not conclusively negated the authority of his employees to have prepared and signed the letters. And unlike the earlier case, where Bank of Texas could not show justifiable reliance because the verification form was not addressed to the bank, the letters here were addressed “To Whom It May Concern,” raising the inference that it was reasonable for anyone, including the bank, to rely on them.

Bank of Texas, N.A. v. Glenny, No. 05-11-01478

No Reliance Without Reading the Contract

Timothy Brown, a professional golfer, started a company and then sold it to Golf & Tennis Pro Shop, Inc. (“GTPS”).  Brown then worked for GTPS for a while, but the relationship deteriorated and he left the company shortly thereafter.  Brown, however, remained bound by a non-compete agreement with GTPS.  Still, he entered into discussions with Jeff Blankinship to pursue a similar idea to his former company, but this time apart from GTPS.  As Brown negotiated a contract with Blankinship, Brown had his lawyer, Gary Blanscet, review the agreement.  Blanscet required changes to the agreement to reflect Brown’s prior dealings with GTPS.  Blankinship signed the revised agreement without reading it and, a week later, found out about GTPS.  Blankinship sued Brown and Blanscet for, among other things, fraud and negligent misrepresentation.  The trial court granted Blanscet’s no evidence summary judgment motion.  Later, the jury found in favor of Blankinship as against Brown.  Blankinship appealed the trial court’s summary judgment decision concerning Blanscet.

On appeal, the Court found that Blankinship could not establish the reliance element of his causes of action because, among other things, Blankinship admitted at trial that he never read the contract before he signed it.  Blankinship tried to argue that Blanscet had a duty to him under the Texas Rules of Professional Conduct not to make any misrepresentations, but the Court of Appeals found that a non-client cannot rely on an attorney’s representation unless the attorney invites that reliance, such as when the attorney issues an opinion letter or some other type of evaluation.  Because that was not the case here, the Court upheld the trial court’s grant of summary judgment in favor of Blanscet.

Blankinship v. Brown

Professional Verification Is Not Transferrable

To hold a professional liable for negligent misrepresentation, the plaintiff has to prove that the defendant provided the information “to a known party for a known purpose.” McCamish, Martin, Brown & Loeffler v. FE. Appling Interests, 991 S.W.2d 787, 794 (Tex, 1999). The “known party” requirement is satisfied where the professional is “aware of the nonclient and intends that the nonclient rely on the information.” Id. In this case, attorney William Ravkind allegedly filled out a “Verification of Deposit” form stating that he was the depository of two trust accounts belonging to his client. (Ravkind claimed his signature was forged.) Bank of Texas claimed that information was false, and that it relied upon it deciding to make a $2 million loan to the client, who later defaulted. But Ravkind had not provided the verification form to Bank of Texas. Instead, the form was addressed to an individual at Bright Mortgage, and it was apparently packaged and presented to Bank of Texas by yet another mortgage company. The trial court granted Ravkind’s no-evidence motion for summary judgment, and the court of appeals affirmed, holding that the bank could not demonstrate Ravkind made a representation to it by proof that it was the practice of the lending industry to receive and rely on documents submitted to other financial institutions in connection with the loan.

Bank of Texas, N.A. v. Ravkind, No. 05-11-01123-CV