American Dream Team, Inc. v. Citizens State Bank ( 2015 )

NO. 12-14-00117-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
AMERICAN DREAM TEAM, INC., § APPEAL FROM THE 173RD
APPELLANT
V. § JUDICIAL DISTRICT COURT
CITIZENS STATE BANK,
APPELLEE § HENDERSON COUNTY, TEXAS
OPINION
American Dream Team, Inc. filed a motion for rehearing of our September 16, 2015
opinion. We overrule the motion for rehearing, withdraw our opinion and judgment of
September 16, 2015, and substitute the following opinion and corresponding judgment in their
place.
American Dream Team, Inc. (ADT) filed suit against Citizens State Bank alleging the
Bank had improperly charged back $30,000.00 against its account for a provisional credit
extended on a counterfeit check. The trial court granted the Bank’s motion for traditional and no
evidence summary judgment, rendering a take nothing judgment on all of ADT’s claims, and
awarding attorney’s fees to the Bank. In six issues, ADT contends the trial court reversibly
erred. We affirm.
BACKGROUND
ADT is a real estate brokerage firm specializing in selling properties in the Cedar Creek
Lake area of Henderson County, Texas. On January 23, 2010, it received the following system
wide email sent by the marketer Point2 Real Estate:
23-Jan-2010
Prospect Email
You are receiving this email because Mr. Yang Hua Lopez has emailed you from your website.
Email: yanghl@informaticos.com
Dear Sir/Madam, I am Mr. Yang Hua Lopez currently the Chief Financial Officer (CFO)
Hangzhou Iron & Steel Group Company (HISGC) Website: http://www.hazsteel.com I am retiring
soon will be relocating to Texas for Good, after searching the Internet for a reliable real estate
agent I found your firm have decided to choose your firm to buy my permanent home. The home
will be a cash buy and I will fly to your city for viewing the property but before that I would like
my stock broker in America to send the money to your firm via a lawyer/solicitor to keep in a trust
account upon arrival. I need a 4 bed rooms/5 bed room’s home of $300,000.00USD -
$1,200,000.00USD In nice neighborhood in your city and state. Email is better than telephone due
to my accent and english. Regards, Mr. Yang Hua Lopez Chief Financial Officer, Email;
yanghl@informaticos.com
Manage Prospect – Mr. Yang Hua Lopez
The following day, Trena Davis, a real estate agent with ADT, responded to Lopez by
email stating that she would be happy to assist him in his home search. Upon his request, she
sent him more than ten prospective properties meeting his stated requirements. Within an hour
and a half, Lopez chose what he described as his “dream home” in Lewisville, Texas, more than
eighty miles away from Cedar Creek Lake. Davis then sent Lopez a buyer’s representation
agreement, which she requested he sign and return to her. On January 27, Lopez sent Davis the
following email:
Dear Trena,
I would like to inform you that my stock broker has sent you a payment of $105,000.00USD
($500,000.00USD) will be down payment of the property the rest will be completed upon my
arrival and ($98,000.00USD) will be for the purchacse [sic] of Chinese home style furniture,
Chinese style home entertainment, Chinese home decoration and Chinese kitchen appliance in
China.
Please update me once you receive the payment.
Regards,
Mr. Yang Hua Lopez
Chief Financial Officer
Hangzhou Iron & Steel Group Company
Banshan County, Gongshu Dct,
Hangzhou Zhejiang 310022 China.
Tel: +86 10868 99249
Email: yanghua@ejecutivos.com
Website: http://www.hazsteel.com
2
On February 8, Davis emailed Lopez that she had not received the funds that had
purportedly been sent January 27. Nor had she received the buyer’s representation agreement
from Lopez. In response, Lopez sent Davis the following email:
From: yanghl@informaticos.com
Sent: Wednesday, February 10, 2010 8:13 AM
To: trena.davis@coldwellbankeradr.com
Subject: Dear Trena (update)
Dear Trena
I would like to inform you that my stock broker firm has sent you a new payment of $35,000 via
UPS ($5000.00USD) will be the down payment of the property the balance will be completed
upon my arrival and ($30,000.00USD) will be for the purchacse [sic] of Chinese home style
furniture, Chinese home style entertainment, Chinese home decoration and Chinese kitchen
appliance in China.
You will receive it today via ups, update me once you receive it, have a nice day.
Regards,
Mr. Yang Hua Lopez
Chief Financial Officer.
On the same day, ADT received a check from a “Mr. Green Sound,” identifying himself
as Mr. Lopez’s account manager. The check had two different amounts on its face. In numerals,
it stated “$35,000.00USD,” and in writing, it stated “THIRTY THOUSAND AND 00/100 US
DOLLARS.” The check’s drawer was AXA Insurance Company of Canada with the payer bank
being the Bank of Montreal in Toronto, Ontario.
Jan Payne, ADT’s president, filled out a deposit slip in the amount of $35,000.00 for
deposit into ADT’s escrow account at the Bank. On February 11, ADT’s vice president, Robert
Blaase, was told by the branch manager, Leland Pitts, and a Bank employee, Heather
McDougald, that because the check was drawn on a foreign bank, it could take between one and
two months for the funds to be collected. McDougald prepared a “foreign check transmittal
form.” It showed that following Blaase’s instructions, ADT was given a provisional credit for
the check, pending collection. Blaase had been given a second option to send the check for
collection with a minimum $75.00 fee plus possible additional fees from the paying bank, the
Bank of Montreal. Taking the second option would have meant that ADT would not receive the
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provisional credit. But because Blaase chose the option to receive the provisional credit, the
funds were immediately available for ADT’s use under its deposit and related agreements with
the Bank.
On March 1, Payne was told by McDougald, after she had looked on her computer, that
“the funds were there” and “it looks like they’re good.” On March 2, Blaase told Bank teller
Laura Hill at the Bank’s Mabank branch that he wanted to wire $30,000.00 to a bank in Japan.
Before sending the wire, he told Hill that he wanted to make sure that the AXA Insurance
Company check had cleared. He testified that she looked at her computer screen and said “yes.”
The money was wired to Tokyo that day.
On March 15, the Bank and ADT were notified the check was counterfeit. Attempts
were made to recover the $30,000.00 wired to the Tokyo bank, but to no avail. The Bank then
made a chargeback against ADT’s escrow account for $30,000.00.
ADT later filed suit against the Bank to recover the $30,000.00 chargeback based on the
following legal theories:
1. Negligent misrepresentation and conversion;
2. Violations of the Deceptive Trade Practices Act (DTPA);
3. Common law fraud;
4. Breach of contract (the deposit agreement), equitable estoppel, and failure to return
check;
5. Money had and received; and
6. Promissory estoppel.
The Bank counterclaimed against ADT for its breach of transfer warranties on the
counterfeit check and for its attorney’s fees pursuant to the deposit agreement. The Bank filed a
motion for traditional and no evidence summary judgment asserting that certain claims are
barred by limitations, that ADT’s fraud claim is preempted by the Uniform Commercial Code
(UCC), and that there is no evidence to support ADT’s common law causes of action. The Bank
also moved for summary judgment on its counterclaim for breach of warranties under the UCC
and for attorney’s fees. The court rendered judgment that ADT take nothing on its claims
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against the Bank and awarded the Bank $72,938.00 in attorney’s fees against ADT. This appeal
followed.
VOLUMINOUS RECORDS
In its first issue, ADT contends that the trial court erred in striking much of the deposition
testimony of Janet Payne, Robert Blaase, Leland Pitts, and Heather McDougald. In response to
the Bank’s objection, the trial court struck all deposition testimony that was not specifically
referenced in ADT’s response to the Bank’s motion for summary judgment. ADT argues that the
depositions were not voluminous and, in light of today’s technology, searching for words can be
done electronically.
Rulings concerning the admission or exclusion of summary judgment evidence are
reviewed under an abuse of discretion standard. Barraza v. Eureka Co., 25 S.W.3d 225, 228
(Tex. App.—El Paso 2000, pet. denied). A trial court abuses its discretion if it acts without any
reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701
S.W.2d 238, 241 (Tex. 1985).
A general reference to a voluminous summary judgment record is inadequate to meet the
evidentiary burden in a summary judgment. Ramirez v. Colonial Freight Warehouse Co., 434
S.W.3d 244, 250 (Tex. App.—Houston [1st Dist.] 2014, pet. denied). An appellant has a duty to
show that the record supports its contentions. Blake v. Intco Invs. of Tex., Inc., 123 S.W.3d
521, 525 (Tex. App.—San Antonio 2003, no pet.). Here, ADT made reference to portions of
three of the four depositions to support its position on the summary judgment. ADT did not, in
its response, specify any page or line of Blaase’s deposition that it was relying on. However, it
attached each of the four depositions in its entirety. The trial court should not be compelled to
sift through hundreds of pages of depositions to search for evidence supporting a summary
judgment contestant’s contentions. Guthrie v. Suiter, 934 S.W.2d 820, 826 (Tex. App.—
Houston [1st Dist.] 1996, no writ.). Therefore, the trial court did not abuse its discretion by
refusing to allow ADT to rely on Blaase’s deposition testimony or the portions of the depositions
of Payne, McDougald, and Pitts that were not specifically cited to it in ADT’s summary
judgment response. We overrule ADT’s first issue.
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TRADITIONAL MOTION FOR SUMMARY JUDGMENT
The Bank filed a combined traditional and no evidence motion for summary judgment. It
argued entitlement to judgment as a matter of law on each of ADT’s causes of action as well as
the Bank’s counterclaim.
Standard of Review
A party moving for traditional summary judgment bears the burden of showing that no
genuine issue of material fact exists and that it is entitled to judgment as a matter of law. TEX. R.
CIV. P. 166a(c). A defendant who conclusively negates at least one of the essential elements of
the cause of action or conclusively establishes an affirmative defense is entitled to summary
judgment. Frost Nat’l Bank v. Fernandez, 315 S.W.3d 494, 508 (Tex. 2010). Once the
defendant establishes its right to summary judgment as a matter of law, the burden shifts to the
plaintiff to present evidence raising a genuine issue of material fact. Simulis, L.L.C. v. Gen.
Elec. Capital Corp., 439 S.W.3d 571, 575 (Tex. App.—Houston [14th Dist.] 2014, no pet.). To
determine if there is a fact issue, we review the evidence in the light most favorable to the
nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors could do so, and
disregarding contrary evidence unless reasonable jurors could not. Mann Frankfort Stein &
Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). The evidence raises a
genuine issue of fact if reasonable and fair minded jurors could differ in their conclusions in light
of all the summary judgment evidence. Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d
754, 755 (Tex. 2007).
Propriety of Traditional Summary Judgment
In its fifth issue, addressing its numerous theories, ADT contends that the bank
improperly charged back its provisional credit for the counterfeit check in the amount of
$30,000.00. Therefore, it contends, the trial court erred in granting the Bank’s motion for
traditional summary judgment. ADT further asserts that the trial court erred in granting
summary judgment in favor of the Bank on its counterclaim for ADT’s breach of UCC
warranties.
Breach of Contract
ADT alleged that the Bank’s withdrawal of funds from ADT’s account was a breach of
the deposit agreement and the Bank breached its common law duty to perform. The relationship
6
of a bank to a general depositor is contractual, that of debtor-creditor arising from the depository
contract. Trevino & Assocs. Mech., L.P. v. Frost Nat’l Bank, 400 S.W.3d 139, 148 (Tex.
App.—Dallas 2013, no pet.). The laws of this state govern a deposit contract between a bank
and a consumer account holder if the branch or separate office of the bank that accepts the
deposit contract is located in Texas. TEX. BUS. & COM. CODE ANN. § 4.102(c) (West Supp.
2015). Under the laws of this state, the UCC regulates a bank’s handling of deposits and
collections for its customers. TEX. BUS. & COM. CODE ANN. §§ 4.101-.504 (West 2002 & Supp.
2015). The relationship may also be governed in part by agreements between the bank and its
customer. Contractors Source, Inc. v. Amegy Bank Nat’l Ass’n, 462 S.W.3d 128, 133 (Tex.
App.—Houston [1st Dist.] 2015, no pet.). The UCC, in these relationships, contains a
comprehensive and carefully considered allocation of responsibility among parties to banking
relationships. Sw. Bank v. Info. Support, 149 S.W.3d 104, 107 (Tex. 2004); Am. Airlines
Emps. Fed. Credit Union v. Martin, 29 S.W.3d 86, 91 (Tex. 2000). Where the UCC applies,
common law rules regarding breach of contract do not apply. Plano Lincoln Mercury, Inc. v.
Roberts, 167 S.W.3d 616, 624 (Tex. App.−Dallas 2005, no pet.). Further, when the UCC
applies, common law claims that conflict with the UCC are precluded. See Contractors Source,
Inc., 462 S.W.3d at 138.
In a chargeback such as happened here, Section 4.214 of the UCC applies. TEX. BUS. &
COM. CODE ANN. § 4.214(a). Any cause of action that ADT had for breach of contract was
preempted by the UCC. Roberts, 167 S.W.3d at 624. When the Canadian check was determined
to be counterfeit, the Bank was authorized by the UCC to effectuate a chargeback. TEX. BUS. &
COM. CODE ANN. § 4.214(a). The chargeback would have also been allowed by the deposit
agreement. The trial court did not err by granting the Bank a summary judgment on ADT’s
breach of contract claim. See Fernandez, 315 S.W.3d at 508.
Equitable Estoppel
ADT asserted that the Bank is estopped to deny that ADT was informed the check had
cleared or was good. The doctrine of equitable estoppel requires (1) a false representation or
concealment of material facts; (2) made with knowledge, actual or constructive, of those facts;
(3) with the intention that it should be acted upon; (4) to a party without knowledge or means of
obtaining knowledge of the facts; (5) who detrimentally relies on the representations. Johnson
& Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 515-16 (Tex. 1998).
7
The first element of equitable estoppel required a false statement to ADT by McDougald
or Hill. As explained more fully below, when McDougald and Hill respectively spoke to Payne
and Blaase, they reported information on ADT’s account as provided by the Bank’s computer
system. The uncontroverted evidence is that the funds were in ADT’s account due to the
provisional credit Blaase had opted for. Neither McDougald nor Hill made a false statement.
Therefore, this defense fails. See Merriman v. XTO Energy, Inc., 407 S.W.3d 244, 248 (Tex.
2013).
Failure to Return Check
In its petition, ADT complained that its claim against the maker of the check is precluded
due to the Bank’s failure to return the alleged counterfeit check. In its brief, ADT has not argued
and analyzed its position on the Bank’s failure to return the check. Further, it has not cited any
authority to support its position. Rule 38 of the Rules of Appellate Procedure provides that a
brief to the court of appeals shall contain, among other things, “a clear and concise argument for
the contentions made, with appropriate citations to authorities in the record.” TEX. R. APP. P.
38.1(i); In re B.A.B., 124 S.W.3d 417, 420 (Tex. App.—Dallas 2004, no pet.). The failure to
adequately brief an issue, either by failing to specifically argue and analyze one’s position or
provide citations to authorities, waives any error on appeal. Id. Therefore, ADT has waived any
error regarding this cause of action.
Promissory Estoppel
ADT alleged that the Bank consented to inform ADT if the check was not good and was
damaged when it relied on Bank employees’ statements that the check was good. The requisites
of promissory estoppel are (1) a promise, (2) foreseeability of reliance thereon by the promisor,
and (3) substantial reliance by the promisee to his detriment. Henry Schein, Inc. v. Stromboe,
102 S.W.3d 675, 686 n.25 (Tex. 2002). If an alleged promise is part of a valid contract, the
promisee cannot disregard the contract and sue for reliance damages under the doctrine of
promissory estoppel. BP Am. Prod. Co. v. Zaffirini, 419 S.W.3d 485, 507 (Tex. App.—San
Antonio 2013, pet. denied). Promissory estoppel is not applicable to a promise covered by a
valid contract between the parties. Id.
As explained above, there was a valid contract between the Bank and ADT with regard to
deposits and collections. Therefore, even if this contract was not preempted by the provisions of
the UCC related to chargeback on provisional credits, a promissory estoppel cause of action
8
would not have been available to ADT in this case. See id. The trial court did not err in granting
the Bank’s motion for summary judgment on ADT’s claim for promissory estoppel. See
Fernandez, 315 S.W.3d at 508.
Money Had and Received
ADT alleged that the Bank wrongfully withdrew $30,000.00 from ADT’s account and it
would be unconscionable for the Bank to retain it. To recover in a cause of action for money had
and received, all a plaintiff need show is that the defendant holds money that in equity and good
conscience belongs to the plaintiff. Staats v. Miller, 243 S.W.2d 686, 687 (Tex. 1951). This
cause of action “looks solely to the inquiry, whether the defendant holds money which belongs to
the plaintiff.” Id. at 687-88. Money had and received is a common law claim.1 It is not listed as
a cause of action that supplements the UCC. See TEX. BUS. & COM. CODE ANN. § 1.103(b).
Furthermore, the Bank withdrew the $30,000.00 pursuant to Section 4.214 of the UCC, which
gives the Bank the right to charge back the amount previously given for a dishonored item. TEX.
BUS. & COM. CODE ANN. § 4.214. Therefore, the common law cause of action for money had
and received has been supplanted by Chapter 4 of the UCC. The trial court properly granted
summary judgment in favor of the Bank on ADT’s claim for money had and received. See
Fernandez, 315 S.W.3d at 508.
Negligent Misrepresentation and Conversion
ADT alleged that the Bank’s actions constituted negligent misrepresentation and
conversion. Causes of action for negligent misrepresentation and conversion must be filed
within two years from the date that they occur. If not, the claim is barred by the statute of
limitations. TEX. CIV. PRAC. & REM. CODE ANN. § 16.003 (West Supp. 2015); Tex. Am. Corp. v.
Woodbridge Joint Venture, 809 S.W.2d 299, 303 (Tex. App.—Fort Worth 1991, writ denied).
Here, the alleged negligent misrepresentation and conversion would have occurred in
March 2010. ADT filed its first original petition against the Bank in September 2012. This was
more than two years after ADT’s cause of action would have accrued, and the negligent
misrepresentation and conversion causes of action are therefore barred by the statute of
limitations. The trial court did not err in granting summary judgment in favor of the Bank on
ADT’s negligent misrepresentation and conversion claims. See Fernandez, 315 S.W.3d at 508.
1
At common law, this cause of action was known as assumpsit. Michol O’Connor, O’CONNOR’S TEXAS
CAUSES OF ACTION 131 (2015).
9
Deceptive Trade Practices Act
Any cause of action filed under the DTPA must be brought within two years after
discovery of the deceptive act complained of. TEX. BUS. & COM. CODE ANN. § 17.565 (West
2011). Again, this cause of action would have accrued in March 2010 and suit was not filed until
September 2012. ADT’s DTPA cause of action is barred by the statute of limitations. Id. The
trial court did not err in granting summary judgment in favor of the Bank on ADT’s DTPA cause
of action. See Fernandez, 315 S.W.3d at 508.
The Bank’s Counterclaim
The Bank counterclaimed for ADT’s breach of warranties under UCC Sections 3.416 and
4.207. See TEX. BUS. & COM. CODE ANN. §§ 3.416, 4.207 (West Supp. 2015). Pursuant to those
sections, ADT warranted that it was entitled to enforce the check sent by Lopez and that the
signature on the check was authentic. Id.
ADT argues that the warranties apply only to checks that are deposited, not those sent for
collection. The UCC does not make that distinction regarding warranties. The UCC provides
that when a person transfers an instrument for consideration, he provides certain warranties. Id.
An instrument is transferred when it is delivered by a person other than its issuer for the purpose
of giving to the person receiving delivery the right to enforce the instrument. TEX. BUS. & COM.
CODE ANN. § 3.203 (West 2002).
ADT further asserts that Sections 3.416 and 4.207 apply to negotiable instruments and a
counterfeit check is not negotiable, but only a facsimile of a negotiable instrument. Again, this is
not an accurate distinction. Classification of an item as a negotiable instrument is based on form.
TEX. BUS. & COM. CODE ANN. § 3.104(f) (West Supp. 2015). The evidence shows that the check
at issue was counterfeit. Therefore, ADT breached its warranty that all signatures on the
instrument are authentic and that it was entitled to enforce the check. See TEX. BUS. & COM.
CODE ANN. §§ 3.416, 4.207. Accordingly, the trial court did not err in granting summary
judgment in favor of the Bank on its counterclaim for breach of warranties under the UCC. See
TEX. R. CIV. P. 166a(c).
Summation
ADT has not shown error in the trial court’s determination that the Bank is entitled to
summary judgment on each of these specified causes of action, ADT’s defense of equitable
estoppel, or on the Bank’s counterclaim. Accordingly, we overrule ADT’s fifth issue.
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Chapter 4 Preemption
In its second issue, ADT contends that the trial court erred in granting summary judgment
on the Bank’s preemption defense. ADT asserts that its fraud claim, which was based on the
statements made by the Bank’s two employees during the check settlement process, was not
preempted by the Uniform Commercial Code.
Chapter 4 of the UCC establishes the rights and duties between banks and their customers
regarding deposits and collections. TEX. BUS. & COM. CODE ANN. §§ 4.101-.504; Martin, 29
S.W.3d at 91. Whether Chapter 4 applies is a question of law, which we review de novo. Id. To
the extent they do not conflict with the UCC’s provisions, common law principles complement
the UCC. Roberts, 167 S.W.3d at 624. Principles of law and equity, including fraud and
misrepresentation, supplement the provisions of the UCC unless displaced by particular UCC
provisions. See TEX. BUS. & COM. CODE ANN. § 1.103(b) (West 2009). Additionally, Official
Comment 2, Section 1.103 provides further guidance as follows:
The Uniform Commercial Code was drafted against the backdrop of existing bodies of law,
including the common law and equity, and relies on those bodies of law to supplement it [sic]
provisions in many important ways. At the same time, the Uniform Commercial Code is the
primary source of commercial law rules in areas that it governs, and its rules represent choices
made by its drafters and the enacting legislatures about the appropriate policies to be furthered in
the transactions it covers. Therefore, while principles of common law and equity may supplement
provisions of the Uniform Commercial Code, they may not be used to supplant its provisions, or
the purposes and policies those provisions reflect, unless a specific provision of the Uniform
Commercial Code provides otherwise.
TEX. BUS. & COM. CODE ANN. § 1.103 cmt. 2. Thus, a common law cause of action can continue
in a commercial law context in Texas when it does not conflict with provisions of the UCC. See
Bryan v. Citizens Nat’l Bank in Abilene, 628 S.W.2d 761, 764 (Tex. 1982).
Relevant to the facts of this case, Section 4.214(a) of the UCC states in pertinent part that
(a) [i]f a collecting bank has made provisional settlement with its customer for an item and fails
by reason of dishonor, suspension of payments by a bank, or otherwise to receive settlement
for the item that is or becomes final, the bank may revoke the settlement given by it, charge
back the amount of any credit given for the item to its customer’s account, or obtain refund
from its customer, whether or not it is able to return the item, if by its midnight deadline or
within a longer reasonable time after it learns the facts it returns the item or sends notification
of the facts.
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TEX. BUS. & COM. CODE ANN. § 4.214(a). Customers who are victims of fraudulent transactions
often pursue common law causes of action to avoid the bank’s right of chargeback as provided
by the code. Melissa Waite, Check Fraud and the Common Law: At the Intersection of
Negligence and the Uniform Commercial Code, 54 Barb. C. L. Rev. 2205, 2224 (Nov. 2013). “[The
UCC] is not clear as to whether and under what contexts common law claims should be allowed
in check fraud scenarios because Articles 3 and 4 have no explicit preemption provision.” Id.
When construing a statute, we are to consider, among other things, the object to be
obtained by the legislature and the circumstances under which the statute was enacted. TEX.
GOV’T CODE ANN. § 311.023 (1), (2) (West 2013). The UCC contains a comprehensive and
carefully considered allocation of responsibility among parties to a banking relationship in
Texas. Sw. Bank, 149 S.W.3d at 107. Chapter 4 of the UCC specifies duties and responsibilities
for a bank in the actual check processing procedure. But, it is silent about the bank’s
communications with the customer during the check processing procedure. The Montana
Supreme Court, in an opinion involving a similar fact pattern, determined that common law
principles apply when a bank communicates with a depositor who has inquired about the check
processing procedure. See Valley Bank of Ronan v. Hughes, 147 P.3d 185, 191 (Sup. Ct. Mont.
2006).
In that case, the customer alleged that the bank had made misrepresentations about the
check settlement process. He then sued the bank claiming that it had inappropriately charged
back his account after the dishonor of the deposited checks. The Montana Supreme Court
reasoned that because such communications are not addressed with specificity by the UCC,
common law and equitable principles supplement the UCC and govern the legal rights and
responsibilities that applied to the bank’s representations to the customer, upon which the
customer allegedly relied. Id. The Montana Supreme Court thus held that common law
principles apply to bank communications to a depositor inquiring about the processing of checks.
Id. at 192.
We are mindful that a uniform act included in a code shall be construed to effect its
general purpose to make uniform the law of those states that enact it. TEX. GOV’T CODE ANN.
§ 311.028 (West 2013). The UCC itself specifically describes fraud as a cause of action that can
be used to supplement its provisions. TEX. BUS. & COM. CODE ANN. § 1.103. We therefore
agree with the Montana Supreme Court’s holding in Valley Bank of Ronan v. Hughes that
12
common law fraud principles apply to bank communications during the check processing
procedure. Accordingly, the trial court erred in granting summary judgment on the Bank’s
affirmative defense of preemption as asserted against ADT’s fraud claim. See Fernandez, 315
S.W.3d at 508. We sustain ADT’s second issue.
NO EVIDENCE MOTION FOR SUMMARY JUDGMENT
The Bank moved for summary judgment on ADT’s common law fraud cause of action on
traditional and no evidence grounds, which ADT attacks in its third and sixth issues respectively.
Under these circumstances, we first review the propriety of the summary judgment under the no
evidence standard. See Merriman, 407 S.W.3d at 248. In its no evidence motion, the Bank
contended that there is no evidence that it made a false representation or that any representation
was made with knowledge of its falsity or recklessly, and no evidence that ADT could
reasonably or justifiably rely on the alleged representation. In its sixth issue, ADT contends that
it produced more than a scintilla of evidence related to its fraud claim, thereby defeating the
Bank’s motion for a no evidence summary judgment on that claim. ADT claims it produced
more than a scintilla of evidence raising fact questions as to whether false representations were
made intentionally and without knowledge of the truth, and whether ADT reasonably relied on a
representation by the Bank.
Standard of Review
We review the trial court’s decision to grant summary judgment de novo. Tex. Mun.
Power Agency v. Pub. Util. Comm’n, 253 S.W.3d 184, 192 (Tex. 2007). After adequate time
for discovery, a party without the burden of proof at trial may move for summary judgment on
the ground that there is no evidence of one or more essential elements of a claim or defense.
TEX. R. CIV. P. 166a(i). Once a no evidence motion has been filed in accordance with Rule
166a(i), the burden shifts to the nonmovant to bring forth evidence that raises a fact issue on the
challenged element. See Macias v. Fiesta Mart, Inc., 988 S.W.2d 316, 317 (Tex. App.—
Houston [1st Dist.] 1999, no pet.). A no evidence summary judgment is essentially a pretrial
directed verdict and is therefore reviewed by the same legal sufficiency standard applicable to a
directed verdict. Timpte Indus., Inc. v. Gish, 286 S.W.3d 306, 310 (Tex. 2009). The entire
record must be reviewed in the light most favorable to the nonmovant, crediting evidence
favorable to that party if reasonable jurors could, and disregarding contrary evidence and
13
inferences unless reasonable jurors could not. Ramirez v. Gonzalez, 463 S.W.3d 499, 504 (Tex.
2015); Merriman, 407 S.W.3d at 248. A no evidence challenge will be sustained 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 evidence conclusively
establishes the opposite of the vital fact.
Merriman, 407 S.W.3d at 248. More than a scintilla of evidence exists when the evidence rises
to a level that would enable reasonable and fair minded jurors to differ in their conclusions.
Wal-Mart Stores, Inc. v. Spates, 186 S.W.3d 566, 568 (Tex. 2006); Forbes Inc. v. Granada
Biosciences, Inc., 124 S.W.3d 167, 172 (Tex. 2003). The motion must specifically state the
elements for which there is no evidence. Salazar v. Ramos, 361 S.W.3d 739, 745 (Tex. App.—
El Paso 2012, pet. denied).
Elements of Fraud
A plaintiff, such as ADT, seeking to prevail on a fraud claim must prove that (1) the
defendant made a material misrepresentation; (2) the defendant knew the representation was
false or made the representation recklessly without any knowledge of its truth; (3) the defendant
made the representation with the intent that the other party would act on that representation or
intended to induce the party’s reliance on the representation; and (4) the plaintiff suffered an
injury by actively and justifiably relying on that representation. Exxon Corp. v. Emerald Oil &
Gas Co., L.C., 348 S.W.3d 194, 217 (Tex. 2011).
Material Misrepresentation
ADT claims that the summary judgment evidence raises a fact issue regarding whether
Bank employees Heather McDougald and Laura Hill made material misrepresentations or false
statements to Payne and Blaase. ADT asserts that both tellers indicated that the check had
cleared although it was later determined that the check was counterfeit. Early in her deposition
testimony, Payne stated that, on March 1, McDougald told her “that the check had cleared.”
Later in the deposition, she again recounted that conversation more specifically:
A. I asked her when I was in. I made deposits on the 1st of March. I had three deposits that
day, and so - - and that was a Monday, and I asked Heather, and she said, Let me look on
the computer, and she told me then that the funds were there, and she said, it looks like
they’re good.
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Q. Did she say anything other than that?
A. I don’t remember.
Q. Tell me as close as you can precisely what she said. The funds were there?
A. I did ask her, I said, Then can I disburse the funds? And she said, Yes. That was the
other thing.
Q. You asked her, Can I disburse the funds?
A. Yes.
Q. And then she said yes. And what else - - what else did she say besides yes to that
question?
A. Nothing, that I can - -
Q. So the only thing that she said in response to your question, Can I disburse the funds, and
she said yes?
A. Said yes.
Q. And that’s all she said?
A. Yes, as far as my recollection, that’s what she said.
Q. Okay. And do you now believe that she was in error when she said that?
A. I think she believed it, but evidently it wasn’t correct.
Q. She obviously wasn’t trying to deceive you in some way, was she?
A. No, I don’t think she was trying to deceive me.
Similarly, ADT contends Hill also misrepresented the status of the check when Blaase
inquired. According to Blaase’s deposition testimony, he told her he wanted to make sure “this
check” had cleared. He testified that she briefly looked at her computer screen “and said yes.”
Reviewing this evidence in the light most favorable to ADT, and in isolation, the
evidence appears to raise a fact question as to whether McDougald and Hill made false
statements that the check had cleared when it had not. However, we are to review the entire
record and, at times, consider “contrary evidence.” See City of Keller v. Wilson, 168 S.W.3d
802, 811-12 (Tex. 2005). Here, it is essential to consider the comments in light of the context
surrounding what each teller read on her computer screen. To clarify her testimony that
McDougald said the check had cleared, Payne explained that McDougald told Payne “the funds
were there.” Then McDougald said, “It looks like they are good.” Payne further testified that
McDougald told her that she could disburse the funds.
As a customer of the Bank, ADT was subject to the terms of a deposit agreement. The
deposit agreement provides that, in accepting items for deposit, the Bank assumes no
responsibilities beyond the exercise of ordinary care. Further, the agreement provides that all
checks credited to an account are subject to receipt of the proceeds of final payment by the Bank.
The Bank’s policy is to make funds from the depositor’s cash and check deposits available to the
depositor on the first business day after the day it receives the deposit.
15
Leland Pitts, in his deposition testimony, clarified that the check was not deposited in
ADT’s account. It was sent for collection to Texas Independent Bank for further presentation to
the Montreal bank for final settlement. The Bank’s money was deposited in ADT’s account as a
provisional credit pending final settlement of the check. The tellers’ computer screen would
have shown the provisional credit that ADT had received pursuant to the deposit agreement and
the Bank’s funds availability policy. The tellers’ answers were based on what they saw on their
computer screen. The Bank’s computer showed the availability of the funds and this was
reported to Payne and Blaase. Thus, under the deposit agreement and funds availability policy,
the statements made by McDougald and Hill were true. Funds were in the account, they were
good, and ADT could immediately disburse the funds. Accordingly, the Bank’s contextual
evidence transformed ADT’s proof, which if viewed in isolation and in a light most favorable to
ADT would appear to raise a fact issue, into no evidence. The Bank’s proof supplied the context
negating the probative force of ADT’s proof. See Timothy Patton, SUMMARY JUDGMENTS IN
TEXAS, PRACTICE, PROCEDURE AND REVIEW § 8.06[5][d] (3d ed. 2015). Accordingly, there is no
evidence of the false representation element of ADT’s cause of action for fraudulent
misrepresentation.
Knowing or Reckless Misrepresentation
ADT contends that there is evidence raising a fact question on whether McDougald and
Hill knew their statements were false or if the statements were made recklessly without
knowledge of the truth. As explained above, there is no evidence that the tellers’ statements
were false. It follows that there can be no evidence that they knew their statements were false.
Moreover, contextual evidence shows that the check was not determined to be counterfeit until
two weeks after McDougald and Hill made their complained-of comments. Therefore, they did
not knowingly represent that a counterfeit check had cleared. Furthermore, Payne testified that
she did not think that anyone at the bank intended to deceive or mislead her. Payne thought they
just made a mistake. Likewise, Blaase testified that he did not think that Hill was lying or trying
to deceive him. This constitutes an admission that the tellers did not knowingly make a false
statement. Thus, there is no evidence that the Bank knowingly made a false statement. See City
of Keller, 168 S.W.3d at 815.
A speaker acts recklessly if she makes representations “without any knowledge of the
truth and as a positive assertion.” Kenneco Energy, Inc., 962 S.W.2d. at 527. A representation
16
is recklessly made if the speaker knows that he does not have sufficient information or basis to
support it. Id. Here, McDougald, based on ADT’s account records as accessed through the
Bank’s computer, truthfully stated that funds were available. Although it was later determined
that the check was counterfeit, to raise a question of recklessness, there must be more evidence
than merely that the person making the representation turned out to be wrong. See Landers v.
Aurora Loan Servs., LLC, 434 S.W.3d 291, 297 (Tex. App.—Texarkana 2014, no pet.).
Furthermore, Blaase testified that he did not explain to Hill that he wanted to make sure a check
drawn on an account in a foreign country had cleared. He gave her no background information
so she had no information suggesting the need to further investigate. Fraud requires proof of an
affirmative misrepresentation, not simply a misunderstanding. See Mumphord v. First Victoria
Nat’l Bank, 605 S.W.2d 701, 704 (Tex. App.—Corpus Christi 1980, no writ). Accordingly,
there is no evidence that the Bank’s representatives made any representation recklessly.
Justifiable Reliance
In its motion, the Bank asserted that there is no evidence that ADT reasonably relied on
the claimed representation. ADT’s response to the motion does not identify summary judgment
evidence raising a fact issue on justifiable reliance. In its brief, ADT contends “[t]here was no
justifiable reason for [it] not to rely on the representations by the Bank’s tellers, the most logical
and best choice available to it.” Thus, it appears that ADT asserts that the Bank failed to show
entitlement to a summary judgment denying ADT’s fraud claim. We consider the entire record,
disregarding evidence that is not favorable to ADT unless a reasonable juror could not disregard
it. See Gish, 286 S.W.3d at 310.
Blaase asserted that he was relying on what Hill viewed on her computer screen to
determine that the check had cleared. The record shows that he had asked the Bank’s vice
president and branch manager in Gun Barrel City, Leland Pitts, on five separate occasions
whether the check had cleared. He was told each time by Pitts that it had not. He had never
dealt with Hill, who was a teller at the Mabank branch of the Bank, regarding this deposit. At
the time of his inquiry, he did not explain the circumstances to Hill. A reasonable juror would
rely on this contextual evidence to determine that expecting Hill to know the background of this
transaction, and then relying on her statements, was not justifiable.
Payne asserted that she relied on what McDougald said after looking at her computer
screen. McDougald handled the transaction for ADT when the check was brought to the Bank.
17
Therefore, she was aware of the fact that it was drawn on a foreign bank. She was also aware
that ADT did not want to disburse the proceeds from the check until it had cleared. Considering
this evidence in isolation, this evidence appears to be some evidence that ADT justifiably relied
on McDougald’s affirmative response to Payne’s question about the status of the check.
However, we must also consider the context. See City of Keller, 168 S.W.3d at 812. As
explained above, McDougald’s response was truthful, based on what she read on her computer
screen. A deposit had been made and the funds were available for ADT’s use. Additionally,
there is even more compelling contextual evidence.
Our supreme court has stated that a person may not justifiably rely upon a representation
if there are “red flags” indicating reliance is unwarranted. Grant Thornton LLP v. Prospect
High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010). Here, the communications with Lopez
raised numerous red flags.
Lopez identified himself as a chief financial officer of a Chinese company. Yet, his
numbers in his communications with ADT were never consistent. He said his “stock broker”
was sending “a payment of $105,000.00USD ($500,000.00USD).” He had his “account
manager,” Mr. Green Sound, send a check for $35,000.00. The check that was sent showed a
numerical amount of $35,000.00 while the amount shown in writing was only $30,000.00.
Lopez initially said he needed “$98,000.00 for the purchase of Chinese home style
furniture, Chinese home style entertainment, Chinese home decorations, and Chinese kitchen
appliances.” But then, he asked that only $30,000.00 be wired for the purchase of these items.
The name of the Chinese chief financial officer, Yang Hua Lopez, was unusual. “Lopez”
is not of Chinese origin. Lopez said the money would be sent by his “stockbroker in America.”
The check, however, was sent from Canada by a “Mr. Green Sound,” who identified himself as
an “account manager.” Further, the counterfeit check was drawn on the Bank of Montreal by a
Canadian insurance company with the name of “AXA.”
Lopez first told ADT that he wanted a house located in its city. But, when sent a list of
prospective properties, he chose a house eighty miles away. He made this choice only one and a
half hours after he had been presented a list of the properties by ADT.
Lopez never signed a buyer’s representation agreement with ADT although he was asked
on numerous occasions to do so. Further, he never signed an earnest money contract for the
property he had selected. Finally, Lopez requested that the funds, which had been paid by a
18
Canadian insurance company and drawn on a Canadian bank, be wired to a bank in Tokyo, Japan
so that he could purchase furnishings in China for the Texas property.
ADT appeared to accept all of these implausible names, conflicting messages,
inconsistent numbers, contradictory instructions, unusual circumstances, and absence of key
documents at face value, rather than probing further into these red flags to determine if this was a
legitimate transaction. A fraud plaintiff cannot recover if he blindly relies upon a
misrepresentation, the falsity of which would be patent to him if he had utilized his opportunity
to make a cursory examination or investigation. Field v. Mans, 516 U.S. 59, 71, 116 S. Ct. 437,
444, 139 L. Ed. 2d 351 (1995). A reasonable juror would determine that these numerous red
flags should not be disregarded. See City of Keller, 168 S.W.3d at 812.
Further, a reasonable juror would determine that the red flags show, if ADT relied on the
Bank employees’ statements as information concerning whether the check had cleared, that
reliance was unjustified. Considering the context, we hold that the evidence that Payne
justifiably relied on McDougald’s statement is no more than a scintilla. See Merriman, 407
S.W.3d at 248. Accordingly, there is no evidence that ADT justifiably relied on the tellers’
statements. See Grant Thornton, 314 S.W.3d at 923.
The record indicates there is no evidence of a material misrepresentation by the Bank, a
knowing or reckless misrepresentation by the Bank, or justifiable reliance on the Bank’s
representation. Therefore, the trial court correctly granted a summary judgment in favor of the
Bank on ADT’s fraud claim. See Merriman, 407 S.W.3d at 248; Exxon Corp., 348 S.W.3d at
217. We overrule ADT’s sixth issue. We need not address ADT’s third issue. TEX. R. APP. P.
47.1; Merriman, 407 S.W.3d at 248.
ATTORNEY’S FEES
Finally, in its fourth issue, ADT challenges the trial court’s award of attorney’s fees to
the Bank on its counterclaim. ADT contends that attorney’s fees are not warranted because no
actual damages were awarded to the Bank, the Bank presented no claims for affirmative relief,
and the services of the Bank’s attorneys were only defensive to ADT’s claim.
The issue of whether a party is entitled to recover attorney’s fees is a question of law for
the court to determine. Jackson Law Office, P.C. v. Chappell, 37 S.W.3d 15, 23 (Tex. App.—
Tyler 2000, pet. denied). A party may recover attorney’s fees only as provided by contract or
19
statute. Woodhaven Partners, LTD v. Shamoun & Norman, L.L.P., 422 S.W.3d 821, 837 (Tex.
App.—Dallas 2014, no pet.). Parties are free to contract for a fee recovery standard either more
or less strict than Chapter 38 of the Civil Practice and Remedies Code. Intercontinental Group
P’ship v. K.B. Home Lone Star L.P., 295 S.W.3d 650, 653 (Tex. 2009). When parties include
an attorney’s fee provision in a contract, the language of the contract controls over the language
of the statute. Peterson Group, Inc. v. PLTQ Lotus Group, L.P., 417 S.W.3d 46, 88 (Tex.
App.—Houston [1st Dist.] 2013, pet. denied) (Keyes, J., dissenting). Whether a party is a
prevailing party is based on success on the merits, not the award or denial of damages. Robbins
v. Capozzi, 100 S.W.3d 18, 27 (Tex. App.—Tyler 2002, no pet.). A prevailing party is one who
is vindicated by the trial court’s judgment. Id.
The deposit agreement between the Bank and ADT included the following clause:
You also agree to pay all attorney’s fees, costs and expenses that financial institution may incur as
a result of any claim or action made against financial institution by you or on your behalf related
to your account where financial institution is found not to be liable for such claim.
The Bank sought attorney’s fees pursuant to this clause in the deposit agreement. The
parties’ agreement specifically stated that the Bank would be entitled to its attorney’s fees if it
was found not to be liable on any claim made by ADT. Although the Bank received no damages
or affirmative relief, it was the prevailing party in this litigation due to the fact that it was found
not to be liable on the claims made against it by ADT. Id. The trial court properly awarded the
Bank its attorney’s fees. See Woodhaven Partners, LTD, 422 S.W.3d at 837. We overrule
ADT’s fourth issue.
DISPOSITION
We affirm the trial court’s judgment.
JAMES T. WORTHEN
Chief Justice
Opinion delivered December 30, 2015.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(PUBLISH)
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COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
DECEMBER 30, 2015
NO. 12-14-00117-CV
AMERICAN DREAM TEAM, INC.,
Appellant
V.
CITIZENS STATE BANK,
Appellee
Appeal from the 173rd District Court
of Henderson County, Texas (Tr.Ct.No. 2012A-0911)
THIS CAUSE came to be heard on the oral arguments, appellate record,
and briefs filed herein, and the same being considered, it is the opinion of this court that there
was no error in the judgment.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment
of the court below be in all things affirmed, and that all costs of this appeal are hereby adjudged
against the appellant, AMERICAN DREAM TEAM, INC., for which execution may issue, and
that this decision be certified to the court below for observance.
James T. Worthen, Chief Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.