BBVA Compass and Sam Meade v. David Bagwell, Individually and as Trustee of the David S. Bagwell Trust, Broughton Limited Partnership, Old Grove Limited Partnership and Broadland Limited Partnership and Marilyn D. Garner, Chapter 7 Trustee of the Estate Of the David Bagwell Company and the Estate of Evermore Communities, Ltd. ( 2020 )

Reversed and Rendered and Opinion Filed December 14, 2020
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-18-00860-CV
BBVA COMPASS AND SAM MEADE, Appellants
V.
DAVID BAGWELL, INDIVIDUALLY AND AS TRUSTEE OF THE DAVID
S. BAGWELL TRUST, BROUGHTON LIMITED PARTNERSHIP, OLD
GROVE LIMITED PARTNERSHIP, AND BROADLAND LIMITED
PARTNERSHIP, AND MARILYN D. GARNER, CHAPTER 7 TRUSTEE
OF THE ESTATE, AND DAVID BAGWELL COMPANY, EVERMORE
COMMUNITIES, LTD., AND THE OXFORD CORPORATION, Appellees
On Appeal from the 101st Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-14-00991
MEMORANDUM OPINION
Before Justices Myers, Whitehill, and Pedersen, III
Opinion by Justice Pedersen, III
BBVA Compass and Sam Meade (together, the Bank) appeal the trial court’s
judgment finding the Bank liable for fraud and awarding appellees approximately
$50.5 million in actual damages, $40 million in exemplary damages, plus
prejudgment and postjudgment interest. In this Court, the Bank contends that (1)
appellees’ claims are barred by the statute of frauds, (2) insufficient evidence
supports the fraud elements of causation and justified reliance, (3) appellees’ claims
are barred by the statute of limitations, (4) appellees are not entitled to recover any
of the actual damages awarded, and (5) appellees are not entitled to recover
exemplary damages in this case. We reverse the trial court’s judgment and render
judgment that appellees take nothing on their claims.
BACKGROUND
David Bagwell, a residential land developer with over forty years of
experience in that business, planned three luxury subdivisions in Colleyville Texas.
He raised money from investors and—working through three limited partnerships
(appellees Broughton L.P., Broadland L.P., and Old Grove L.P.)—acquired and
began to develop the subdivisions. In all, Bagwell’s plan anticipated the sale of 264
lots for an average price of approximately $160,000 each. In 2006, after selling just
more than half of the lots, the three limited partnerships borrowed $11 million from
Texas State Bank. The notes were guaranteed by Bagwell individually and by
appellees the David S. Bagwell Trust, the David Bagwell Company, and Evermore
Communities, Ltd.1 When BBVA acquired first Texas State Bank and then Compass
Bank, BBVA Compass became the owner of the partnerships’ notes and guarantees.
The terms of the loans are not in dispute. Each note was secured by the
partnership’s underlying real estate. The Bank had the right to sell or assign the loans
1
The trial court made separate awards to the corporate guarantors, who intervened in the lawsuit below,
and they have filed a separate brief in this Court. That brief, however, addresses only issues of the timing
of their intervention in the suit and the damages awards. For purposes of the Bank’s liability for fraud, the
same analysis applies to all appellees.
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to a third party without notice to the borrower and without the borrower’s
permission. The notes specifically stated that their terms could not be “contradicted
by evidence of prior, contemporaneous or subsequent oral agreement of borrower
and lender” and that no term could be modified except by written amendment.
The loans became due on February 1, 2008. The Bank agreed in written
modification agreements to extend the maturity date to May 1, 2008, but Bagwell
was still unable to make the required payments on that date. In July, Bagwell was
notified that the loans were being sent to the Bank’s Special Assets Group for
collection. Late that year, Bagwell and the Bank signed a second modification
agreement that included (a) assignment of the partnerships’ proceeds from mineral
lease bonuses (approximately $1.6 million) to the Bank, and (b) an extension of the
notes’ maturity until December 1, 2009.
By June 2009, Bagwell was already beginning efforts to obtain a third
extension. He sent Gary Noble, a Compass loan officer, a number of proposals.2 In
August, Compass acquired Guaranty Bank, and a new loan officer, appellant Meade,
was assigned the Bagwell loans. Meade first spoke to Bagwell on November 6, 2009.
At that time Bagwell restated his proposals from June; Meade testified he told
Bagwell then that he did not believe the proposals were workable. Nevertheless, he
2
Bagwell’s proposals included: limited lot price discounts for cash purchases, vendor financing,
advertising to reach prospective buyers about favorable sale terms, and speculative homebuilding ventures
with local luxury home builders.
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emailed Bagwell, saying: “I want to go in and extend the loans for at least 60 days
while we see if one of the discussed proposals will work.” Bagwell contends that he
believed the Bank was going to do this short extension and then follow it with a
longer one. But the Bank never offered Bagwell a written extension on the maturity
date for the Notes.
Early in 2010, Bagwell received calls from two business colleagues reporting
information that suggested the Notes were being offered for sale by the Bank. Paul
Kramer, a local homebuilder and customer of Bagwell, informed Bagwell that he
had heard a rumor the partnerships’ lots were being sold. Bagwell testified that he
sought and received a meeting with Meade on January 4 and that he asked Meade
whether the Notes had been sold or were in the process of being sold; Meade told
him no. Bagwell testified that he asked Meade to check around and determine if
anyone else at the Bank was working on selling the Notes; Meade said that he would.
Days later, Bagwell received a second call, this time from a local retired
homebuilder, Terry Horton. Horton said Bagwell should know his Notes were being
offered for sale. He told Bagwell that he had been contacted by a “money fund” and
asked to visit and evaluate the real estate involved in Bagwell’s development.
Bagwell was concerned about the continuing rumor. He met with Meade again on
January 11, and he “pressed” Meade for information. He testified that Meade told
him he checked—as Bagwell had requested—and found no one working on selling
the Notes. According to Bagwell, Meade said “if the bank were working on selling
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your notes, I would know about it and I don’t know about it.” Bagwell related further
that Meade thought that if the Bank were going to sell the partnerships’ loans that it
would have to have the partnerships’ permission to do that. Then Meade closed the
meeting by saying “as for me, I’m working on getting your loans extended.”
Meade testified that Bagwell told him in November, the first time they met,
that he had no wherewithal to pay what he owed on the notes. Meade testified further
that Bagwell never came to him and offered information about “any investor or
friend or acquaintance or anyone who was going to help him refinance or pay off or
restructure the notes.” Indeed, Bagwell testified that, faced with this debt he could
not pay, what he did was wait to see if the Bank would offer some way to work it
out. It did not. Instead, the Bank sold Bagwell’s loans to Toll Brothers, a national
homebuilder, which foreclosed upon the property securing the Notes.
Bagwell sued the Bank and Meade for fraud based on Meade’s alleged oral
representations. The trial court awarded summary judgment to the Bank, and
Bagwell appealed. We concluded that the statute of frauds barred Bagwell’s claim
for benefit-of-the-bargain damages. Bagwell v. BBVA Compass, No. 05-14-01579-
CV, 2016 WL 3660403, at *12 (Tex. App.—Dallas July 7, 2016, no pet.) (mem. op.)
[hereinafter Bagwell I]. We affirmed the summary judgment in all respects save one:
we reversed “to the extent appellants [sought] to recover out-of-pocket damages for
fraud.” Id. And we remanded for that limited purpose.
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On remand, the case proceeded to trial, and the jury found in favor of Bagwell
on the fraud claim and awarded him more than $98 million. The Bank appeals.
DISCUSSION
The Bank raises five issues for our review.
Statute of Frauds
In its first issue, the Bank argues that the statute of frauds—on which
Bagwell I was premised—allows Bagwell to recover only out-of-pocket
expenditures incurred in reliance on Meade’s representations. Bagwell contends that
the Bank misunderstands Bagwell I and that the statute of frauds prohibits only
benefit-of-the bargain damages; he argues that consequential damages are not based
on the benefit of an unenforceable bargain, so neither the statute of frauds nor
Bagwell I prohibits their recovery. Bagwell argues further that mental anguish and
exemplary damages are appropriate fraud recoveries that are not based on the benefit
of his admittedly unenforceable oral bargain.
We need not determine whether the damages Bagwell claims were properly
recoverable in this case. Any damages he claims as a fraud plaintiff require proof of
the elements of fraud, and we conclude that Bagwell cannot establish all of those
elements.
Justifiable Reliance
To prevail on a fraud claim, a plaintiff must establish that: (1) the defendant
made a material representation that was false; (2) the defendant knew the
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representation was false, or he made it recklessly as a positive assertion without any
knowledge of its truth; (3) the defendant intended to induce the plaintiff to act upon
the representation; and (4) the plaintiff actually and justifiably relied upon the
representation and suffered injury as a result. JPMorgan Chase Bank, N.A. v. Orca
Assets G.P., L.L.C., 546 S.W.3d 648, 653 (Tex. 2018). In its second issue, the Bank
contends that Bagwell cannot establish the fourth element, i.e., actual justified
reliance on the purported representation.3 The challenge, in essence, is to the legal
sufficiency of the evidence supporting justifiable reliance, see id., so we consider
the evidence in the light most favorable to appellees, crediting evidence a reasonable
jury could credit and disregarding contrary evidence and inferences unless a
reasonable jury could not, id. (citing Merriman v. XTO Energy, Inc., 407 S.W.3d
244, 248 (Tex. 2013)). Judgment contrary to a jury verdict is proper “only when the
law does not allow reasonable jurors to decide otherwise.” Id. (citing City of Keller
v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005)).
Although justifiable reliance usually presents a question of fact, it “can be
negated as a matter of law when circumstances exist under which reliance cannot be
justified.” Id. at 654. The Supreme Court of Texas has recently identified two
circumstances in which a plaintiff’s purported reliance upon an oral
misrepresentation is unjustifiable: when “red flags” preclude such reliance, id. at
3
The Bank’s second issue also challenges Bagwell’s proof that the purported misrepresentation
proximately caused him injury. We do not reach that portion of the issue.
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655, and when the representation directly contradicts the parties’ written agreement,
id. at 658. Either of these circumstances can alone be sufficient to negate justifiable
reliance as a matter of law. Id. at 660, n.2.4 The Bank’s argument centers on the
presence of a trio of red flags that—it contends—should have alerted Bagwell that
his reliance was unwarranted. Our analysis, rooted in the nature of the parties’
relationship and the contract, id. at 654, leads us to agree.
One may not justifiably rely on a representation when red flags indicate that
reliance is unwarranted. Grant Thornton LLP v. Prospect High Income Fund, 314
S.W.3d 913, 923 (Tex. 2010). In the context of a contractual relationship, this rule
speaks to circumstances surrounding an oral representation that would warn a person
of the plaintiff’s experience and sophistication that he ought not to place confidence
in that representation. See, e.g., Orca Assets, 546 S.W.3d at 656 (“[W]orld-savvy
participants entering into a complicated, multi-million-dollar transaction should be
expected to recognize ‘red flags’ that the less experienced may overlook.”).
4
The supreme court has subsequently confirmed that either the presence of red flags or a representation
directly contradicting the parties’ agreement can serve to negate justifiable reliance:
Although Orca Assets discusses both direct contradiction and other red flags, it does not
require them both to negate justifiable reliance. In fact, we noted just the opposite, stating
that either could be sufficient to preclude justifiable reliance. Id. at 660 n.2. In truth, when
a plaintiff asserts reliance on a misrepresentation that the written contract directly and
unambiguously contradicts, both are present because the existence of such a conflict is
itself a large red flag. See id. at 658 (stating that written contract’s direct contradiction was
“another alarm Orca disregarded”).
Mercedes-Benz USA, LLC v. Carduco, Inc., 583 S.W.3d 553, 559 (Tex. 2019).
–8–
Neither party in this case pretends to be less than experienced and
sophisticated in commercial real estate transactions. The transaction at issue began
with a loan for $11 million that Bagwell asserts would have led to profits of many
times that amount. Our law charges these parties with exercising care to protect their
own interests, and a failure to do so is not excused by mere confidence in the honesty
and integrity of the other party. See Mikob Props., Inc. v. Joachim, 468 S.W.3d 587,
599 (Tex. App.—Dallas 2015, pet. denied). Thus, Bagwell—as an experienced
businessman, and borrower, in this field—was required to establish that when he
relied upon Meade’s oral representations, he was reasonably protecting his multi-
million-dollar interest in the transaction.
The Bank contends that at least three red flags would have sufficiently warned
someone in Bagwell’s position that his reliance on Meade’s representations could
not be justified.
The Loan Documents:
First, the loan documents themselves provided that the parties’ agreement
could not be amended except in writing. The earlier extensions granted by the Bank
had been put in writing, but no third written extension was ever put in writing and
signed by the parties. Accordingly, Bagwell was not justified in relying on any
representation that the Bank would grant him another extension.
Likewise, the loan documents gave the Bank the authority to sell Bagwell’s
loans at any time, without notice to him. That authority was not revoked in writing.
–9–
Thus, Bagwell could not justifiably rely on a contrary representation by Meade. See
Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 499 (Tex.
2019) (oil and gas production company’s oral representation that it would not
exercise its authority to prevent assignment of its interest by well driller “directly
contradicted” contract giving production company right to prevent assignment,
foreclosing justifiable reliance). In Bagwell’s case, the contract gave the Bank the
right to sell the loans, but if Meade’s alleged oral representations were to be believed,
the Bank would not exercise that right—at least, Bagwell suggests, not without
giving him notice. Bagwell contends that if had he known the Bank was considering
selling the loans, he would have moved them to some unnamed lender that was not
interested in foreclosing upon his properties. In effect, thus, he contends that the
Bank’s authority to sell the loans was subject to a condition that exists nowhere in
the parties’ agreement. Bagwell could not have justifiably relied upon such an
interpretation of the contract. See id.A representation that contradicts the parties’ agreement is both a red flag that
should be heeded and is—on its own—a basis for negating justified reliance as a
matter of law. Carduco, 583 S.W.3d at 559 (“In truth, when a plaintiff asserts
reliance on a misrepresentation that the written contract directly and unambiguously
contradicts, both are present because the existence of such a conflict is itself a large
red flag.”). This ground alone, then, negates justified reliance.
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Specific Warnings:
The Bank relies as well on the fact that two of Bagwell’s friends and
colleagues in the development business told him that the Bank was trying to sell his
loans. Bagwell acknowledges that these warnings caused him to go to Meade to
follow up. The reports were significant red flags that a sophisticated borrower would
have heeded. Indeed, according to Bagwell, he questioned Meade after receiving
both of these reports, indicating that he “harbored doubts” about the status of the
loans. See Orca Assets, 546 S.W.3d at 656.
Knowledge of Unreliability:
The Bank also points to another of Meade’s alleged representations: that the
Bank would require Bagwell’s approval to sell the loans. Bagwell knew that
representation was untrue, and he asserts that he did not rely on it specifically. But
knowing that Meade had made one such unreliable statement regarding selling the
loans was yet another red flag for Bagwell.
Bagwell responds to the Bank’s arguments by conceding that it had a right to
sell the loans but not a “right to lie” about its intentions. We are unaware of any legal
concept embracing—or rejecting—a so-called “right to lie.” Our common law
protects a plaintiff from deceit when the plaintiff can prove fraud. But fraud has
well-defined elements, which include justifiable reliance upon the deceitful
–11–
representation. Given the red flags evidenced in this record, we conclude Bagwell
has failed to prove that element of his fraud claim.5
Considering all the evidence of the nature and circumstances of the parties’
relationship as well as their agreement, we conclude that justifiable reliance has been
negated as a matter of law. Carduco, 583 S.W.3d at 563; Orca Assets, 546 S.W.3d
at 654. The law would not allow reasonable jurors to decide otherwise. Orca Assets,
546 S.W.3d at 653. We sustain the Bank’s second issue challenging the justifiable-
reliance element of Bagwell’s fraud claim. In the absence of justifiable reliance,
appellees’ fraud claim fails. We need not reach the Bank’s remaining issues.
CONCLUSION
We reverse the trial court’s judgment and render judgment that Bagwell take
nothing on his claim.
/Bill Pedersen, III//
BILL PEDERSEN, III
180860f.p05 JUSTICE
5
We are not to be understood as condoning the Bank’s conduct in this case. Counsel for the Bank referred
to “side whispers” when addressing oral representations among those doing business. If Meade made the
representations as Bagwell alleges, they were not side whispers; they were outright misrepresentations. As
a matter of policy, businesses should deal with their customers in a more straightforward manner.
–12–
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
BBVA COMPASS AND SAM On Appeal from the 101st Judicial
MEADE, Appellants District Court, Dallas County, Texas
Trial Court Cause No. DC-14-00991.
No. 05-18-00860-CV V. Opinion delivered by Justice
Pedersen, III. Justices Myers and
DAVID BAGWELL, Whitehill participating.
INDIVIDUALLY AND AS
TRUSTEE OF THE DAVID S.
BAGWELL TRUST, BROUGHTON
LIMITED PARTNERSHIP, OLD
GROVE LIMITED PARTNERSHIP,
AND BROADLAND LIMITED
PARTNERSHIP, AND MARILYN
D. GARNER, CHAPTER 7
TRUSTEE OF THE ESTATE, AND
DAVID BAGWELL COMPANY,
EVERMORE COMMUNITIES,
LTD., AND THE OXFORD
CORPORATION, Appellees
In accordance with this Court’s opinion of this date, the judgment of the trial
court is REVERSED and judgment is RENDERED that appellees David Bagwell,
individually and as Trustee of the David S. Bagwell Trust, Broughton Limited
Partnership, Old Grove Limited Partnership, and Broadland Limited Partnership,
and Marilyn D. Garner, Chapter 7 Trustee of the Estate, and David Bagwell
Company, Evermore Communities, and The Oxford Corporation: take nothing.
It is ORDERED that appellants BBVA Compass and Sam Meade recover
their costs of this appeal from appellees David Bagwell, individually and as
Trustee of the David S. Bagwell Trust, Broughton Limited Partnership, Old Grove
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Limited Partnership, and Broadland Limited Partnership, and Marilyn D. Garner,
Chapter 7 Trustee of the Estate, and David Bagwell Company, Evermore
Communities, and The Oxford Corporation.
Judgment entered this 14th day of December, 2020.
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