Bay Colony, Ltd. v. Trendmaker, Inc. ( 1997 )

United States Court of Appeals,
Fifth Circuit.
No. 96-20297.
BAY COLONY, LTD., Plaintiff-Appellant,
v.
TRENDMAKER, INC., Midlands Associates, & Weyerhaeuser Real Estate
Company, Defendants-Appellees,
and
Federal Deposit Insurance Corporation, as Receiver for
Commonwealth Federal Savings Association, Intervenor Defendant-
Appellee.
Sept. 17, 1997.
Appeals from the United States District Court for the Southern
District of Texas.
Before KING and PARKER, Circuit Judges, and ROSENTHAL*, District
Judge.
PER CURIAM:
The Appellant, Bay Colony, Ltd. appeals from the district
court's grant of judgment as a matter of law for the Appellees,
Trendmaker, Inc., Midlands Associates, and Weyerhaeuser Real Estate
Company, following the jury's verdict for Bay Colony. Finding no
error, we affirm.
FACTUAL BACKGROUND
Bay Colony, Ltd. ("Bay Colony") was formed in 1985 as a
limited partnership by Robert Brackman ("Brackman") for the purpose
*
District Judge of the Southern District of Texas, sitting by
designation.
1
of purchasing certain real estate which forms the basis of this
suit. Brackman is an attorney and an experienced real estate
investor who had organized and served as general partner for
several Texas real estate partnerships.
Trendmaker, Inc. ("Trendmaker") was an entity involved in real
estate development. Weyerhaeuser Real Estate Company ("WRECO") was
the parent company of Trendmaker. In March 1985, Trendmaker and
Commonwealth Realty Development, Inc. ("Commonwealth Realty")
formed Midlands Associates ("Midlands"), a Texas joint venture.
Commonwealth Realty is a wholly-owned subsidiary of Commonwealth
Federal Savings Association ("Commonwealth Savings") which is in
receivership with the Resolution Trust Corporation.
On March 25, 1985, Midlands purchased approximately 883 acres
of property located in Galveston County, Texas. The property,
known as the Bay Colony Property, was purchased for the purpose of
developing a master planned community. The idea was that
Commonwealth Savings would provide the financing and Trendmaker
would contribute its real estate expertise toward development of
the property. Midlands purchased the raw land for a total price of
over $13 million, partially financed by the sellers. Midlands
borrowed another $25.3 million from Commonwealth Savings which
funded the construction obligations undertaken on the residential
areas as well as the commercial reserves.1 These loans were
1
A commercial reserve is land reserved for commercial use.
2
secured by the property and the guarantees of Trendmaker,
Commonwealth Realty, and Midlands.
In the summer of 1985, Brackman was approached by two real
estate brokers about investing in the Bay Colony master-planned
community which was in the initial stages of development. Brackman
met with Trendmaker officials several times during that summer
concerning the project and his interest in purchasing the
commercial reserves of the planned community.
According to Brackman, Trendmaker's representatives stated
that they were a subsidiary of WRECO, a six-billion dollar
corporation, and that Trendmaker was committed to the project and
was going to fully develop the master-planned community. Brackman
also stated that Trendmaker's representatives told him that
Trendmaker would be there from start to finish, "cradle to grave,"
and that if there were any problems in development Trendmaker would
be the builder if necessary, and finally that WRECO was committed
to the deal. There are no written documents corroborating
Brackman's testimony. Although Brackman dealt with representatives
of Trendmaker, he understood that the transaction would be made
through Midlands.
In October, 1985, Bay Colony (acting through Mr. Brackman, its
general partner) and Midlands executed an earnest money contract
for the purchase of thirteen tracts (consisting of 74 acres) of
commercial reserves in the master-planned community. The earnest
money contract gave Brackman a 90-day "Feasibility Study" time
3
period in which Brackman could evaluate the deal, terminate the
deal and demand the return of his earnest money. The earnest money
contract also contained an entirety clause, which stated, "This
Contract is the entire Contract between the Seller and Purchaser
... and no modification hereof or subsequent agreement ... shall be
binding on either party unless reduced to writing and signed by
both parties." On December 13, 1985, Bay Colony and Midlands
closed the transaction. Bay Colony made a cash payment of over one
million dollars and executed thirteen separate promissory notes and
Deeds of Trust for the balance of the purchase price which was
slightly over four million dollars.
As part of the transaction, Midlands agreed to perform various
"construction obligations" on the thirteen tracts of land purchased
by Bay Colony. Pursuant to these construction obligations,
Midlands agreed to substantially complete certain streets,
landscaping and irrigation, install pump lines for storm sewer and
surface drainage, and remove any of the thirteen tracts which were
in the flood plain from the flood plain. Three contracts contained
these construction obligations: (1) the earnest money contract;
(2) the escrow agreement; (3) the thirteen Deeds of Trust. Both
the escrow agreement and the earnest money contract afforded Bay
Colony limited options if Midlands failed to perform the
construction obligations.
Brackman testified that he had no quarrel with the efforts
Trendmaker was putting into the master-planned community during
4
1986. Trendmaker was performing the construction obligations on
the commercial reserves, it was installing sewer and water lines,
underground utilities, detention ditches, streets, and other
grading and landscaping for the proposed residential tracts. By
the end of 1987, Midlands had an outstanding debt of over $37
million with Commonwealth Savings.
However, during 1986, several disasters occurred. In January
1986, the space shuttle Challenger exploded (the Bay Colony project
was located near NASA's Johnson Space Center). The price of oil
fell by over 50%, and the Tax Reform Act of 1986 severely
restricted the use of real estate tax shelters, thus drying up
investment money. Moreover, with the crash of the real estate
market, financial troubles developed on both sides. Bay Colony
failed to make its first payment on the notes as scheduled, on
December 13, 1986. On December 19, 1986, Bay Colony made a payment
of $379,745.55, and the parties modified the due dates of the 1986
and 1987 payments and certain performance dates of Midlands.
According to the amended agreement, the 1988 payments were to be
made as provided in the original notes. Subsequently, Bay Colony
failed to make its next set of payments due on June 13, 1987.
Trendmaker/Midlands did not give notice of the default because they
were behind schedule on their construction obligations, and they
were waiting to see if Brackman's group would pay the arrears on
the contract before completing additional work pursuant to the
construction obligations.
5
With financial difficulties on both sides, the parties entered
into further negotiations to modify the note and liens. On March
11, 1988, the parties executed the Second Modification of Real
Estate Note and Liens, which was to be effective retroactive to
June 13, 1987, the date the payment was first due. On this date,
Bay Colony also paid $420,465.32 to Midlands for the June 13, 1987
and the December 13, 1987 payments on the Notes. The March 1988
payment was the last payment Bay Colony made on its contractual
obligation.
Brackman testified that soon after making the payment on March
11, 1988 to Midlands, he heard a rumor that Trendmaker might be
withdrawing from the Bay Colony development project. Brackman
stated that he contacted Mr. William Dalton, Jr., Vice President of
Trendmaker, and was told that Trendmaker had not withdrawn from the
project, but if it did withdraw, Trendmaker would be replaced in
the joint venture by a developer which was at least the equal of
Trendmaker.
However, the relationship between the joint venturers of
Midlands was deteriorating. Commonwealth Savings was in severe
financial difficulty, and Trendmaker had become unhappy dealing
with the "decision by committee" management style of its joint
venturer Commonwealth Realty. Thus, on December 29, 1987,
Trendmaker proposed that it and Commonwealth Realty split up the
two joint ventures in which they were involved and go their
separate ways. Commonwealth Realty failed to respond to this
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proposal until March 18, 1988, one week after Brackman had paid the
June and December, 1987 contract installments. Discussions ensued
between Trendmaker and Commonwealth Realty on dividing up their
holdings. Brackman was not involved in, or informed of, these
discussions. On May 18, 1988, Trendmaker transferred all of its
interest in the Bay Colony master-planned community to Commonwealth
Realty in exchange for Commonwealth Realty's interest in another
project. Trendmaker remained on-site at the Bay Colony development
as the contract manager until June, 1989.
Bay Colony failed to make its December 1988 payment. Although
Brackman had not raised the entire amount due under the contract,
he testified that he did not make the payment because he became
aware between March and December 1988, that Commonwealth Realty and
its parent Commonwealth Savings were in a precarious financial
condition, and that Commonwealth Savings could not loan additional
monies to the development. Midlands eventually foreclosed on all
thirteen tracts and Bay Colony was left with nothing to show for
its investment of over two million dollars.
Bay Colony filed suit in state court and the Resolution Trust
Corporation removed to federal court. The district court granted
summary judgment in favor of Trendmaker on Bay Colony's breach of
contract, negligence, breach of good faith and fair dealing, and
statutory and common law fraud claims. Bay Colony proceeded to
trial on its Deceptive Trade Practices Act and fraud by omission
claims against Trendmaker, and its alter ego theory of liability
7
against WRECO.
Following the close of Bay Colony's case-in-chief, the
district court granted WRECO's motion for a directed verdict on Bay
Colony's alter ego theory as a basis to pierce the corporate veil
between WRECO and Trendmaker. Trendmaker and Midlands also moved
for a directed verdict on Bay Colony's fraud by omission and
deceptive trade practices act claims, arguing that Bay Colony
failed to present any evidence necessary to establish its claims.
However, the district court took this motion under advisement.
Thereafter, Trendmaker and Midlands presented their evidence. Bay
Colony presented no rebuttal evidence. Trendmaker and Midlands did
not reurge their motion for directed verdict at the close of all
the evidence, although they did timely object to the proposed jury
charge based on no evidence or insufficient evidence for the case
to proceed to the jury. These objections were overruled.
The jury found for Bay Colony on its fraud and DTPA claims,
and awarded Bay Colony attorneys' fees under the DTPA. Following
the verdict, Trendmaker and Midlands moved for judgment as a matter
of law under Rule 50(b) arguing that there was no evidence or
insufficient evidence to support the jury's verdict. The district
court entered judgment as a matter of law for Trendmaker and
Midlands, concluding that the jury's verdict was based on
speculation and conjecture, and could not be sustained. Bay Colony
timely appealed to this Court.
8
DISCUSSION
On appeal, Bay Colony asserts six issues for this Court's
consideration. However, because we affirm the lower court's
judgment with respect to its granting judgment as a matter of law
on Bay Colony's fraud by omission and DTPA claims against
Trendmaker and Midlands, we conclude that the remaining issues are
moot.
A. Motion for Judgment as a Matter of Law
Bay Colony asserts that the district court erred in granting
judgment as a matter of law in favor of Trendmaker and Midlands
because Trendmaker and Midlands did not satisfy Fed.R.Civ.P. 50(b).
In particular, Bay Colony argues that at the close of all the
evidence in the case, no party made a motion for judgment as a
matter of law under Rule 50(b). Thus, Bay Colony argues that under
Rule 50(b), the proper evidentiary review standard is whether there
was any evidence to support the verdict. Bay Colony also contends
that even a timely motion for directed verdict could not support a
judgment as a matter of law unless the motion specifically pointed
out how the evidence was insufficient on its claims. Trendmaker
and Midlands counter that their motion for directed verdict under
Rule 50(a) and their objections to the jury charge satisfied the
requirements for Rule 50(b).
Generally, a party who fails to renew his motion for directed
verdict at the close of all the evidence waives his right to
9
challenge the sufficiency of the evidence. Scottish Heritable
Trust v. Peat Marwick Main & Co., 81 F.3d 606, 610 (5th Cir.),
cert. denied, --- U.S. ----, 117 S. Ct. 182, 136 L. Ed. 2d 121 (1996).
However, "[t]his Court has repeatedly emphasized that the
application of Rule 50(b) should be examined in the light of the
accomplishment of [its] particular purpose[s] as well as in the
general context of securing a fair trial for all concerned in the
quest for truth." McCann v. Texas, 984 F.2d 667, 671 (5th
Cir.1993) (quoting Bohrer v. Hanes Corp., 715 F.2d 213, 217 (5th
Cir.1983)). Thus, this Court has not required strict compliance
with Rule 50(b) and has excused technical noncompliance where the
purposes of the requirements have been satisfied. Scottish
Heritable Trust, 81 F.3d at 610; Adjusters Replace-A-Car, Inc. v.
Agency Rent-A-Car, Inc., 735 F.2d 884 (5th Cir.1984); Villanueva
v. McInnis, 723 F.2d 414 (5th Cir.1984). The two basic purposes of
Rule 50(b) are "to enable the trial court to re-examine the
question of evidentiary insufficiency as a matter of law if the
jury returns a verdict contrary to the movant, and to alert the
opposing party to the insufficiency before the case is submitted to
the jury." MacArthur v. University of Texas Health Ctr. at Tyler,
45 F.3d 890, 896-97 (5th Cir.1995). However, a party may not base
a motion for judgment [as a matter of law] on a ground that was not
included in a prior motion for directed verdict. Jones v. Benefit
Trust Life Ins. Co., 800 F.2d 1397, 1401 (5th Cir.1986); McCann v.
10
Texas City Refining, Inc., 984 F.2d 667, 672 (5th Cir.1993);
Guilbeau v. W.W. Henry Co., 85 F.3d 1149, 1160-61 (5th Cir.1996)
(holding that although defendant's motion under Rule 50 could have
been more specific, it was adequate to preserve the issue of
sufficiency of the evidence).
Where, however, the defendant failed to move at the close of
all the evidence for judgment as a matter of law, this Court has
concluded that if a defendant has made a motion for directed
verdict at the close of the plaintiff's case for no evidence or
insufficient evidence on specified grounds, and objects on those
same grounds to the jury charge, this suffices to support a motion
for judgment as a matter of law under Rule 50(b) on those grounds.
Purcell v. Seguin State Bank & Trust Co., 999 F.2d 950, 956 (5th
Cir.1993) (citing Villanueva, 723 F.2d at 417-18); Scottish
Heritable Trust v. Peat Marwick Main & Co., 81 F.3d 606 (5th
Cir.1996) (a defendant's objections to proposed jury charge on
grounds pertaining to the sufficiency of evidence issues satisfies
the requirements for a Rule 50(b) motion); Hinojosa v. City of
Terrell, 834 F.2d 1223, 1228 (5th Cir.1988) (court may grant
judgment as a matter of law where defendant made motion for
directed verdict and objected to the court's jury instructions on
grounds that there was no evidence to support a claim). Based on
Trendmaker's motion for directed verdict at the close of Bay
Colony's case-in-chief and Trendmaker's objections to the proposed
11
jury charge, we are convinced that the purposes of Rule 50(b) have
been satisfied. Trendmaker's motion for directed verdict on Bay
Colony's DTPA and fraud claims asserted that there was no evidence
or insufficient evidence for the issue to go to the jury.
Likewise, Trendmaker's objections to the jury charge contended that
there was not any evidence to support submitting any part of Bay
Colony's DTPA or fraud claim to the jury. Accordingly, we
concluded that Trendmaker's objections to the jury charge were a
sufficient approximation of its motion for directed verdict to
support its later motion for judgment as a matter of law following
the jury's verdict. See, e.g., Villanueva v. McInnis, 723 F.2d
414, 418 (5th Cir.1984).
B. The Fraud by Nondisclosure & Deceptive Trade Practices Claims
1. Fraud by Nondisclosure
The district court concluded that, as a matter of law,
Trendmaker did not have a duty to disclose the negotiations between
it and Commonwealth Realty prior to the time Bay Colony made its
payment of $420,465.32 on March 11, 1988 to Trendmaker. On appeal,
Bay Colony contends that Trendmaker had a duty to disclose its
current intention to withdraw from the joint venture and that if
Bay Colony knew of this intention, it would not have made the
payment. Bay Colony asserts that the parties' past business
conduct required the disclosure of such negotiations. We disagree.
Under Texas law, to assert a claim of fraud by nondisclosure,
12
the complaining party must prove, inter alia, a duty to disclose.
Chemetron Corp. v. Business Funds, Inc., 682 F.2d 1149, 1171-72
(5th Cir.1982), judgment vacated on other grounds, 460 U.S. 1007,
103 S. Ct. 1245, 75 L. Ed. 2d 476 (1983).
Texas law recognizes a duty to disclose only where a
fiduciary or confidential relationship exists. Bernstein v.
Portland Sav. & Loan Assn., 850 S.W.2d 694, 701 (Tex.App.—Corpus
Christi 1993, writ denied) (citing Tempo Tamers, Inc. v. Crow-
Houston Four, Ltd., 715 S.W.2d 658, 669 (Tex.App.—Dallas 1986, writ
ref'd n.r.e.)); Southwest E & T Suppliers, Inc. v. American Enka
Corp., 463 F.2d 1165, 1166 (5th Cir.1972) ("Texas law is clear that
if there is no confidential or fiduciary relation between the
parties [creating a duty to disclose], mere silence does not amount
to fraud or misrepresentation.") There was no confidential or
fiduciary relationship between the parties. Bay Colony did not act
on behalf of Trendmaker or Midlands, nor did it have the authority
to do so. Instead, Trendmaker and Bay Colony entered into an
arms-length transaction for the sale of the commercial reserves and
the later modifications of the real estate notes. The fact that
parties have entered into a contract does not create a confidential
relationship. Crim Truck & Tractor Co. v. Navistar Int'l Transp.
Corp., 823 S.W.2d 591, 594 (Tex.1992). We conclude that under
Texas law the contract between Bay Colony and Trendmaker does not
constitute the type of special relationship necessary to create a
13
duty to disclose. See, e.g., Lee v. Wal-Mart Stores, Inc., 34 F.3d
285, 290 n. 5 (5th Cir.1994) (the fact that people have had prior
dealing with each other ... does not establish a confidential
relationship).
2. Deceptive Trade Practices Violation
At trial, Bay Colony asserted three theories of liability
under the Deceptive Trade Practices Act ("DTPA"), specifically,
unconscionability, breach of warranty, and laundry list violations.
In granting the judgment as a matter of law, the district court
found that Bay Colony presented nothing more than possible breaches
of contract or non-actionable puffing. We agree.
Bay Colony first contends that Trendmaker violated the DTPA
by engaging in an unconscionable action or course of conduct. See
Tex. Bus. & Com.Code § 17.45(5). Unconscionability can be premised
on either of two types of conduct: (1) taking advantage of the
lack of knowledge, ability, experience, or capacity of a person to
a grossly unfair degree; or (2) an act or practice resulting in a
gross disparity between the value received and consideration paid
in a transaction involving transfer of consideration. Id. Bay
Colony's claim is based on the second ground. According to Bay
Colony's expert testimony, the value of the commercial reserves was
only $750,000 compared to the $5 million Bay Colony paid. Thus,
there was a gross disparity in the consideration paid and the value
received. However, Bay Colony ignores a basic tenet it must prove
14
in order to recover under the "gross disparity" unconscionability
provision. Specifically, "the time for evaluating the disparity in
value is the time of sale. Diminution in value caused by later
events cannot support a claim of unconscionability." Parkway Co.
v. Woodruff, 901 S.W.2d 434, 441 (Tex.1995) (emphasis added). The
record before us discloses that in January of 1986, Bay Colony
obtained an appraisal of the property it had purchased the previous
month. The appraisal estimated the value of the property at $9
million, over $4 million more than the purchase price. The fact
that the appraisal was based in part on the assumption that the
construction obligations would be fulfilled does not render the
price paid unconscionable. Thus, we conclude that Bay Colony's
purchase price was at market value in December 1985, and that there
was no gross disparity in the consideration paid and value
received.
Bay Colony next contends that Trendmaker is liable under the
DTPA based on breach of warranty. In particular, Bay Colony
asserts that the alleged statements made by Trendmaker and Midlands
about their future conduct, i.e., Trendmaker would be the developer
from start to finish; that the project would be developed in a
timely fashion; that Trendmaker would complete the construction
obligations; and that Trendmaker would remain involved in the
project through completion, gave rise to an express warranty. We
disagree.
15
Under the DTPA, a consumer may maintain an action for breach
of an express warranty. See TEX. BUS. & COM.CODE § 17.50(a)(2).
However, the DTPA does not create warranties; instead, to be
actionable under the DTPA, warranties must be recognized by the
common law or created by statute. See La Sara Grain Co. v. First
Nat'l Bank, 673 S.W.2d 558, 565 (Tex.1984). Thus, in order for Bay
Colony to prevail on its breach of warranty claim, it must show
that during the course of its dealings with Trendmaker, Trendmaker
represented express warranties and breached them.
First, the statements relied on by Bay Colony are not specific
enough to allow judicial enforcement. Vague representations that
a seller will help solve any problems that arise in the future have
been held not actionable under the DTPA. Charles E. Beard, Inc. v.
McDonnell Douglas Corp., 939 F.2d 280 (5th Cir.1991). Second, Bay
Colony expressly waived any warranties and representations not in
the contract itself. The evidence of statements made during
negotiations but not embodied in the contract cannot serve as the
basis of a DTPA warranty claim, given that disavowal.
Finally, Bay Colony contends that Appellees committed "false
misleading or deceptive" acts or practices, referred to as the
"laundry list violations" under the DTPA. See Tex. Bus. & Com.Code
§ 17.46(b). The trial court submitted six of the twenty-five
possible statutory bases for DTPA laundry list violations to the
jury:
16
a. Causing confusion or misunderstanding as to the
sponsorship, affiliation, connection or association of the
real estate purchased; [§ 17.46(b)(2) ]
b. Causing confusion or misleading as to the affiliation,
connection or association with another; [§ 17.46(b)(3) ]
c. Representing that the real property or related development
services had the sponsorship, approval, characteristics, uses
or benefits which it did not have; [§ 17.46(b)(5)]
d. Representing that the real estate or related development
services were of a particular standard or quality when they
were of another; [§ 17.46(b)(7) ]
e. Advertising real property with an intent not to sell it as
advertised; [§ 17.46(b)(9) ]
f. Failing to disclose information concerning real property
which was known at the time of a transaction, if such failure
to disclose was intended to induce the purchaser into a
transaction which the purchaser would not have entered had the
information been disclosed. [§ 17.46(b)(23) ]
Bay Colony relies on essentially the same evidence as above,
that is, Trendmaker's representations to Brackman during
negotiations that Trendmaker would be the developer of the project
from start to finish, that, with the backing of WRECO, it was
committed to solving any problems that arose and that it would stay
with the deal through the ups and downs of the market. Bay Colony
argues that the evidence showed that Trendmaker never intended to
put its own money into the project and that its commitment was
conditioned on a minimum level of market stability, which
reservations were never communicated to Bay Colony in violation of
its obligations created under the DTPA. The evidence does not
support Bay Colony's theory of DTPA laundry list liability. In
fact, Appellees incurred obligations on notes totaling $37 million
17
in connection with the development before they were forced by the
depressed economy to sacrifice the project. Even assuming that the
jury could have inferred that the defendants should have put even
more money into the project, the evidence would still not support
a DTPA laundry list violation. The mere failure to perform a
promise does not constitute a misrepresentation actionable under
the DTPA unless it can be shown that at the time the promise was
made, the promisor had no intentions of fulfilling the promise.
Kuehnhoefer v. Welch, 893 S.W.2d 689, 693 (Tex.App.—Texarkana 1995,
writ denied). The $37 million investment over three years
forecloses a finding that Appellees misled Bay Colony as to their
commitment to the project during negotiations.
CONCLUSION
Based on the foregoing, the judgment of the district court is
AFFIRMED.
AFFIRMED.
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