Rick Lovelady Carpets, Inc. v. G.R. Chapman Limited Partnership and George R. Chapman A/K/A G.R. Chapman

In The
Court of Appeals
Seventh District of Texas at Amarillo
No. 07-15-00340-CV
RICK LOVELADY CARPETS, INC., APPELLANT
V.
G.R. CHAPMAN LIMITED PARTNERSHIP AND GEORGE R.
CHAPMAN A/K/A G.R. CHAPMAN, APPELLEES
On Appeal from the 251st District Court
Potter County, Texas
Trial Court No. 101,442-C, Honorable Ana Estevez, Presiding
October 17, 2017
MEMORANDUM OPINION ON REHEARING
Before QUINN, C.J., and CAMPBELL and HANCOCK, JJ.1
Appellee G.R. Chapman Limited Partnership and George R. Chapman a/k/a G.R.
Chapman has filed a motion for rehearing of our opinion and judgment issued April 26,
2017, and at our request appellant Rick Lovelady Carpets, Inc. (“RLCI”) filed a
response. We overrule Chapman’s motion for rehearing. We withdraw our April 26
1
Justice Mackey K. Hancock, retired, not participating.
opinion and judgment, and substitute the following opinion and corresponding judgment
in their place.
RLCI brought suit against Chapman, alleging a false representation of material
fact by Chapman caused RLCI injury under various tort and contract theories.2
Chapman sought and obtained summary judgment against RLCI on the entire case.
Finding on this record the case was not capable of disposition by summary judgment,
we will reverse the judgment of the trial court and remand the case for further
proceedings consistent with this opinion.
Background
The summary judgment record presents starkly different versions of telephone
conversations between Rick Lovelady and George Chapman, conversations that led to
the parties’ agreement and eventually to the present suit. Because we here review a
summary judgment granted on Chapman’s motion, we must take as true all evidence
favorable to the nonmovant, RLCI, and indulge every reasonable inference and resolve
any doubts in RLCI’s favor. Kachina Pipeline Co. v. Lillis, 471 S.W.3d 445, 449 (Tex.
2015); State v. Ninety Thousand Two Hundred Thirty-Five Dollars & No Cents in U.S.
Currency, 390 S.W.3d 289, 292 (Tex. 2013). For our purpose, therefore, we accept
RLCI’s version of the telephone conversations.
2
According to the summary judgment evidence, Rick Lovelady and his wife are
the sole shareholders of RLCI, and the corporation is “controlled” by Rick Lovelady as
its president. Rick Lovelady was the initial plaintiff; RLCI later intervened. The trial
court granted Chapman summary judgment on all claims brought by Rick Lovelady, and
Mr. Lovelady has not appealed that judgment.
2
Lovelady’s deposition testimony describes the initial December 2007
conversation like this: “Mr. Chapman called me on the phone one day and had
mentioned to me that the lot next door might be for sale and wanted to know if I would
be interested in being a partner with him on the deal.” He continued, “He called and
asked me if I’d be interested in being a partner over there on the lot next door to me.
The purchase price was 400,000, and we’re going to split it 200 a piece, 50/50
partners.”
The lot to which Chapman was referring was a vacant lot fronting on the
Interstate 40 service road, adjacent to RLCI’s Amarillo carpet store. In an affidavit,
Lovelady indicated Chapman also referred to the $400,000 price as “very favorable.”
Lovelady asked for time to think about the prospect.
Chapman called Lovelady back about a week later and this time Lovelady
expressed interest in the proposal. When Chapman again called Lovelady in January
2008, Lovelady’s evidence shows, “Chapman said that he had already purchased the
property for $400,000, but he reiterated that he would ‘let me in for half of the property
for $200,000.’” Lovelady agreed to the proposal. According to Lovelady he “decided to
have [his] corporation [RLCI] make the investment with Chapman.”
Chapman and RLCI created a new entity, I-40 Development, LLC, to own the lot.
Each had a 50% interest in the company; Chapman had primary responsibility for
managing its financial affairs and maintaining the books and records. For its interest,
RLCI contributed $200,000 cash. Chapman contributed an undivided half interest in the
lot for its 50% interest; the LLC then purchased the remaining undivided interest in the
3
lot from Chapman for RLCI’s contributed $200,000. The LLC was formed, and its
acquisition of the lot was consummated, in mid-January 2008.
During an early 2013 conversation with Lovelady, George Chapman’s son Justin
told Lovelady that he did not believe his father paid $400,000 for the lot. Lovelady
immediately confronted Chapman with this information. Chapman vehemently denied
the assertion and again represented the purchase price was $400,000. Lovelady asked
to see, and Chapman agreed to show him, the closing documents for his purchase.
The documents were not provided and over the ensuing weeks Lovelady made
at least three requests of Chapman for the documents. Each time Chapman
represented that he paid $400,000 for the lot and would provide the supporting
documentation.
When the documentation was not provided, Lovelady retained counsel who
contacted the entity that sold Chapman the lot. It refused to disclose the sale
information. Lovelady contacted the title company that handled the closing, but it
refused to provide sale documentation without Chapman’s approval.
In March 2013, Chapman told Lovelady that Lovelady did not need to see the
closing documents. Lovelady filed suit in May 2013. Through third-party discovery,
Lovelady’s counsel obtained copies of the title company’s closing documents. This
record indicated Chapman bought the lot in December 2007 for $174,319.3
3
In the motion for summary judgment Chapman stated he “strongly denie[d]
telling Lovelady anything about what he paid for the [lot].” In his deposition, Chapman
was asked how he arrived at the $200,000 asking price for a half-interest in the lot. He
responded that Lovelady “asked me what I wanted for it, and I said I’ll take 200 for half
4
In its live petition, RLCI alleged claims against Chapman for common-law and
statutory fraud,4 fraudulent inducement, breach of fiduciary duty, breach of contract and
unjust enrichment and an action for an accounting. It requested imposition of a
constructive trust on the lot, an award of compensatory and exemplary damages, and
recovery of attorney’s fees. To suspend or toll the statutory limitations periods, RLCI
alleged the discovery rule and fraudulent concealment.
Chapman filed a hybrid motion for summary judgment challenging RLCI’s entire
case on traditional and no-evidence grounds. The trial court granted Chapman’s motion
without specifying a ground for its ruling and rendered a take-nothing judgment in
Chapman’s favor.
Analysis
Through multiple issues RLCI contends the trial court erred in rendering
summary judgment for Chapman.
of it. I didn’t think that was out of line. Not at all. The economy was good. We were
selling stuff up there. That was good back then.” The record indicates there were no
witnesses to the parties’ telephone conversations.
The conflicting testimony regarding the telephone conversations between the two
men mirrors the parties’ overall characterization of their transaction. Chapman
characterizes Lovelady’s “storyline underlying this suit” as “at best, incredulous.” He
asserts RLCI’s fraud claim is built “around a set of contrived and implausible ‘facts.’”
RLCI casts the case as a “brazen hustle,” a “simple scam.”
4
TEX. BUS. & COM. CODE ANN. § 27.01 (West 2015) (fraud in real estate and
stock transactions).
5
Standard and Scope of Review
We review the trial court’s summary judgment de novo. Provident Life &
Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). When the trial court does
not specify the ground for its ruling, the summary judgment must be affirmed if any
ground on which judgment was sought has merit. Ninety Thousand Two Hundred
Thirty-Five Dollars & No Cents in U.S. Currency, 390 S.W.3d at 292.
To be entitled to a summary judgment on a traditional motion, a defendant must
conclusively negate at least one essential element of each of the plaintiff’s causes of
action or conclusively establish each element of an affirmative defense. Sci. Spectrum,
Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). Evidence is conclusive only if
reasonable people could not differ in their conclusions. City of Keller v. Wilson, 168
S.W.3d 802, 816 (Tex. 2005). When summary judgment is sought on a traditional
motion, the burden of proof does not shift to the nonmovant unless the movant has
conclusively established its entitlement to summary judgment. Casso v. Brand, 776
S.W.2d 551, 556 (Tex. 1989). Should the movant prove entitlement to summary
judgment, it is the nonmovant’s burden to raise a genuine issue of material fact. M.D.
Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000).
We review a summary judgment granted on a no-evidence motion under the
same legal sufficiency standard as a directed verdict. King Ranch, Inc. v. Chapman,
118 S.W.3d 742, 750 (Tex. 2003). In response to a no-evidence motion for summary
judgment, it is the nonmovant’s burden to present competent evidence raising a
genuine issue of material fact as to each challenged element of its cause of action.
6
TEX. R. CIV. P. 166a(i); Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 206 (Tex.
2002).
Fraud and Fraudulent Inducement
RLCI’s brief begins with this succinct description of its central allegation:
After paying $174,319 for a piece of land, Defendant George Chapman
immediately lied to Rick Lovelady and convinced him that Chapman had
paid $400,000. Lovelady Carpets was thereby induced to pay $200,000
for a one-half interest in the land and to join a new partnership [5] controlled
by Chapman.
From that description, RLCI proceeds to a discussion why the trial court erred by
granting Chapman’s summary judgment motion on RLCI’s fraud and fraudulent
inducement claims. Against the fraud claim, Chapman’s motion asserted RLCI had no
evidence of its justifiable reliance or damages. The parties have devoted most of their
briefing to these issues, and to the related limitations issues.
“A common-law fraud claim requires a material misrepresentation, which was
false, and which was either known to be false when made or was asserted without
knowledge of its truth, which was intended to be acted upon, which was relied upon,
and which caused injury. . . . Fraudulent inducement is a distinct category of common-
law fraud that shares the same elements but involves a promise of future performance
made with no intention of performing at the time it was made.” Zorrilla v. Aypco Constr.
II, LLC, 469 S.W.3d 143, 153 (Tex. 2015) (internal quotation marks and citations
omitted). “Fraudulent inducement . . . is a particular species of fraud that arises only in
the context of a contract and requires the existence of a contract as part of its proof.
5
It is clear that the brief actually is referring to I-40 Development, LLC.
7
That is, with a fraudulent inducement claim, the elements of fraud must be established
as they relate to an agreement between the parties.” Haase v. Glazner, 62 S.W.3d 795,
798-99 (Tex. 2001).
Justifiable Reliance
To establish fraudulent inducement, the plaintiff must show that it entered into a
contract. Haase, 62 S.W.3d at 798 (“[w]ithout a binding agreement, there is no
detrimental reliance, and thus no fraudulent inducement claim”). To determine the
justifiability of the plaintiff’s reliance on the representation, courts look to whether “given
a fraud plaintiff’s individual characteristics, abilities, and appreciation of facts and
circumstances at or before the time of the alleged fraud[,] it is extremely unlikely that
there is actual reliance on the plaintiff’s part.” Grant Thornton LLP v. Prospect High
Income Fund, 314 S.W.3d 913, 923 (Tex. 2010). A person may not justifiably rely on a
representation in the face of “red flags” indicating reliance is unwarranted. Id.
Chapman’s contentions on this point focus on Lovelady’s business experience
and general familiarity with the values of properties in the area of his place of business
along I-40. In his deposition, for example, Lovelady agreed he had “some idea” of “what
property was buying and selling for” in that area. Based on such statements, Chapman
posits that RLCI has no evidence that any representation on his part changed
Lovelady’s opinions of the value of the lot. But as RLCI emphasizes, its claims focus
not on the value of the lot but on Chapman’s representation that RLCI would pay for its
half interest half of Chapman’s purchase price for the lot. Considering the “extremely
unlikely” standard applicable to the issue, and the requirement that we accept RLCI’s
8
summary judgment evidence in our review, we find the evidence raises an issue of fact
as to RLCI’s justifiable reliance on Chapman’s representation.6 Chapman’s assertions
that red flags precluded justifiable reliance do not demonstrate otherwise.
Damages
Chapman contends RLCI has no evidence of damage caused by its reliance on a
false representation of Chapman’s purchase price.
Generally, the measure of damages in a fraud case is the actual amount of the
plaintiff’s loss directly or proximately resulting from the defendant’s fraudulent conduct.
Tilton v. Marshall, 925 S.W.2d 672, 680 (Tex. 1996) (orig. proceeding) (op. on reh’g).
For its damages theory, RLCI relies primarily on this Court’s early opinion in Garrison v.
Bowman, 183 S.W. 70 (Tex. Civ. App.—Amarillo 1916, no writ) and cases of similar
holdings.7 Garrison cites a rule “that when representations as to the cost of property
6
On rehearing, Chapman contends our conclusion is precluded by case law
holding that a party to a written contract cannot justifiably rely on an oral
misrepresentation inconsistent with the contract’s unambiguous terms. See, e.g., Nat’l
Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 424 (Tex. 2015) (per curiam).
Chapman points to the provisions of the parties’ LLC agreement that define the
members’ capital accounts in terms of the fair market value of their contributions, and
the agreement’s exhibit showing Chapman’s initial capital contribution of $200,000 in
real estate and RLCI’s of $200,000 in cash. RLCI responds that the capital account
provisions are not inconsistent with George Chapman’s representation of his purchase
price. We agree that had the purchase price been $400,000, as Rick Lovelady says
was represented, no inconsistency appears between the representation and the LLC
agreement’s assumption that each member contributed property with a fair market value
of $200,000. The asserted representation in Westergren, 453 S.W.3d at 424-25, by
contrast, was directly contrary to the terms of the release Mr. Westergren signed without
reading.
7
Pickett v. Wren, 174 S.W. 156, 158 (Mo. Ct. App. 1915) (“The rule is of general
acceptation that, where a vendor agrees to sell property, or an interest therein, at what it
cost him, and fraudulently misrepresents the cost, the measure of the purchaser’s
9
are made by a person purchasing jointly for himself and another, or by a person turning
property already acquired over to an association, of which he is a member, such
representations are statements of fact, which may be properly relied upon, and, if false,
will support an action for fraud.” Id. at 73. We went on to find, under the facts of that
case, the measure of the plaintiffs’ damages should be the difference between the price
paid by the plaintiffs, based on the defendant’s misrepresentation, and the defendant’s
actual purchase price. Id. We characterized this result as giving the plaintiffs the
benefit of their contract. Id. (citing Hall v. Grayson Cty. Nat’l Bank, 81 S.W. 762 (Tex.
Civ. App. 1904, no writ)).
Chapman responds by noting our state’s courts’ repeated statements that Texas
recognizes two measures of direct damages for common law fraud: the out-of-pocket
measure and the benefit-of-the-bargain measure. See, e.g., Formosa Plastics Corp.
United States v. Presidio Eng’rs & Contrs., 960 S.W.2d 41, 49 (Tex. 1998). The out-of-
pocket measure computes the difference between the value paid and the value
received, while the benefit-of-the-bargain measure computes the difference between the
value as represented and the value received. Id.; see Baylor Univ. v. Sonnichsen, 221
S.W.3d 632, 636 (Tex. 2007) (benefit-of-the-bargain damages derive from an
“expectancy theory”). Benefit-of-the-bargain damages protect the injured party’s
damages is generally the difference between the actual and the represented value”)
(citing Pendergast v. Reed, 29 Md. 398 (Md. 1868)); Thompson v. Lyons, 220 S.W. 942,
949 (Mo. 1920) (“The measure of damages for misrepresentations inducing the
purchase of land, or other property, depends upon the nature of the misrepresentations.
. . . [W]here one person makes a purchase for another, or where one of two or more
joint purchasers conducts a joint purchase, and falsely represents to the others that the
price is greater than is actually paid for the property, the measure of damages is always
the difference between the amount actually paid by the party defrauded and the true
purchase price of the interest which he acquired” (citing Pickett, 174 S.W. 156));
Johnson v. Gavitt, 114 Iowa 183, 184-85, 86 N.W. 256 (1901) (similar analysis).
10
expectation interest by placing it in the same position it would have occupied had no
misrepresentation occurred. See Bechtel Corp. v. CITGO Prods. Pipeline Co., 271
S.W.3d 898, 927 (Tex. App.—Austin 2008, no pet.) (contract damages).
Chapman contends that without evidence the value of the half-interest in the lot
was less than $200,000,8 RLCI has no evidence to satisfy the benefit-of-the-bargain
measure. We are not persuaded that the “value as represented vs. value received”
formulation is so rigid as to preclude RLCI’s proper reliance on this Court’s holding in
Garrison. See 11-55 Joseph M. Perillo, CORBIN ON CONTRACTS § 55.13 (Matthew
Bender, Lexis 2016) (discussing “What is Meant by ‘Value’” and commenting “[t]he
valuation of a promised performance is far from a simple matter, both because the
concept of value is itself variable and because the performances that may be promised
are capable of endless variety”); RESTATEMENT (SECOND) OF TORTS § 549 (1977)
(outlining measure of damages for fraudulent misrepresentation); Pendergast, 29 Md. at
405 (measure of damages for false representation by seller of “cost price” of boat);
Hinkle v. Rockville Motor Co., 262 Md. 502, 278 A.2d 42, 44 (1971) (characterizing the
rule discussed in Pendergast as a “‘benefit of bargain’” formula). We agree with RLCI
that neither Formosa Plastics nor the cases on which it relied preclude application of the
benefit-of-the-bargain measure to fact patterns like that reflected in Garrison.9 Finally,
8
We note that RLCI’s response to Chapman’s summary judgment motion
contains a paragraph asserting that Chapman’s actual December 2007 purchase price
of $174,319 for the entire lot, as reflected in the summary judgment record, is some
evidence of a market value less than the $200,000 it paid for its half interest. Chapman
contends RLCI waived any contention that it suffered injury based on the value of the
property it purchased. We need not address that assertion.
9
In its discussion of the benefit-of-the-bargain measure of damages for common-
law fraud, the court in Formosa Plastics, 960 S.W.2d at 49, cited Arthur Andersen & Co.
11
we agree that Lovelady’s version of Chapman’s representations to him is such as to
bring it within the rule outlined in Garrison. Chapman points out we stated in Garrison
that a confidential relationship existed between the plaintiffs and defendant. 183 S.W.
at 73. We agree with RLCI, however, that the relationship of the parties in that case
had no bearing on the measure of damages from the misrepresentation. For those
reasons, we will sustain RLCI’s contention that the record contains some evidence of
recoverable damages for fraud.
The Statute of Limitations
The statute of limitations is an affirmative defense on which Chapman relied and,
as traditional summary-judgment movant, bore the burden of conclusively proving when
RLCI’s causes of action accrued. KPMG Peat Marwick v. Harrison Cty. Hous. Fin.
Corp., 988 S.W.2d 746, 748 (Tex. 1999). A claim for fraud must be brought no “later
than four years after the day the cause of action accrues.” TEX. CIV. PRAC. & REM. CODE
ANN. § 16.04(a)(5) (West 2002). A cause of action for fraud does not accrue until it is
discovered or could have been discovered through the exercise of reasonable diligence.
Computer Associates Intern. v. Altai, 918 S.W.2d 453, 455-56 (Tex. 1994) (“limitations
begin to run from the time the fraud is discovered or could have been discovered by the
defrauded party by exercise of reasonable diligence” (internal quotation marks
omitted)). The same accrual-date rule applies if a party claims it was fraudulently
induced into a contract. Hooks v. Samson Lone Star, Ltd. P’ship, 457 S.W.3d 52, 57
(Tex. 2015) (“Fraudulent inducement is a subspecies of fraud . . . . [L]imitations does
v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex. 1997); W.O. Bankston Nissan, Inc. v.
Walters, 754 S.W.2d 127, 128 (Tex. 1988); and Leyendecker & Assocs., Inc. v.
Wechter, 683 S.W.2d 369, 373 (Tex. 1984).
12
not start to run until the fraud with respect to the contract is discovered or the exercise
of reasonable diligence would discover it”).
Reasonable diligence is an issue of fact, but in some circumstances a court can
determine the issue as a matter of law. Hooks, 457 S.W.3d at 57-58. In a discussion of
the discovery rule, Chapman’s brief argues market value of property is not inherently
undiscoverable. But RLCI claims Chapman misrepresented his purchase price, not the
lot’s market value. And elsewhere in his brief Chapman points to Lovelady’s response
to a question in his deposition asking if he exercised “any diligence in this transaction.”
Lovelady responded, “No, sir.” We cannot consider the witness’s response to so broad
a question as conclusive proof of the date that RLCI’s cause of action accrued. KPMG
Peat Marwick, 988 S.W.2d at 748. In sum, on the record before us, and accepting as
we must the truth of RLCI’s summary judgment evidence, Chapman has not met his
burden to establish the efficacy of his limitations defense as to the fraud and fraudulent
inducement claims. Further discussion of the discovery rule or fraudulent concealment
is unnecessary to our disposition of the appeal. TEX. R. APP. P. 47.1.
Additional Grounds for Summary Judgment
Chapman’s motion for summary judgment asserted additional grounds
challenging particular causes of action alleged by RLCI’s pleadings. The parties have
addressed those additional grounds in their briefing. Our original opinion did not
address the additional no-evidence grounds, and Chapman’s motion for rehearing
argues our opinion does not address every issue raised and necessary to final
13
disposition of the appeal.10 Chapman contends, “because summary judgment was
granted on multiple grounds, the Court could not properly reverse the judgment without
conducting an appropriate review of each ground on which judgment was granted.”
We have again reviewed the grounds for summary judgment asserted in
Chapman’s motion11 and the issues raised on appeal. The trial court did not state the
grounds on which it granted summary judgment. By our original opinion and this
opinion on rehearing, we have addressed each of Chapman’s summary judgment
grounds that, as we view them, could support the trial court’s take-nothing judgment on
RLCI’s entire case. “A summary judgment for the defendant disposing of the entire
case is proper only if, as a matter of law, the plaintiff could not succeed on any theories
pleaded.” 6 Roy W. McDonald & Elaine A. Grafton Carlson, TEXAS CIVIL PRACTICE
§ 28:21, at 1068 (2d ed. rev. 2014); Butcher v. Scott, 906 S.W.2d 14, 15 (Tex. 1995)
(per curiam).
Chapman cites the opinion in Sloan v. Law Office of Oscar C. Gonzales, Inc.,
479 S.W.3d 833 (Tex. 2016) (per curiam), which involved the appeal of a judgment
following a jury trial. Rule 47.1 required the court of appeals to address the jury’s joint-
enterprise and joint venture findings in that appeal because they determined the amount
of damages properly assignable by the judgment the court of appeals rendered. Id. at
10
Appellate rule 47.1 provides, “The court of appeals must hand down a written
opinion that is as brief as practicable but that addresses every issue raised and
necessary to final disposition of the appeal.” TEX. R. APP. P. 47.1.
11
Cf. Baker Hughes, Inc. v. Keco R. & D., Inc., 12 S.W.3d 1, 5 (Tex. 1999)
(appellate court must review all summary judgment grounds on which trial court actually
ruled, whether granted or denied, and which are dispositive of the appeal, and may
consider grounds on which trial court did not rule) (emphasis ours) (citing Cincinnati Life
Ins. Co. v. Cates, 927 S.W.2d 623 (Tex. 1996)).
14
834-35. In the case before us, as the result of our review of the grounds supporting the
trial court’s take-nothing judgment, it must be reversed and the cause remanded.
Unlike in Sloan, no review we would undertake of the additional issues Chapman
asserts on appeal would alter our disposition. See Ninety Thousand Two Hundred
Thirty-Five Dollars & No Cents in U.S. Currency, 390 S.W.3d at 294 (rules of appellate
procedure “provide for courts of appeals to hand down opinions that are as brief as
practicable while covering every issue raised and necessary to disposition of the
appeal”).
Conclusion
As discussed, after review of the summary judgment record, we find it presents
genuine issues of material fact incapable of resolution as a matter of law. TEX. R. CIV.
P. 166a(c). Accordingly, we must sustain RLCI’s challenge of the take-nothing
summary judgment. We reverse the trial court’s judgment and remand the case for
further proceedings consistent with this opinion. TEX. R. APP. P. 43.2(d).
James T. Campbell
Justice
15