John M. Young, M.D. and Maranatha, Inc. v. Carlos Leach and Gulf Coast Marketing Corp. D/B/A Jay Bettis & Co. Yacht Sales

Affirmed in Part; Reversed and Remanded in Part; and Memorandum Opinion filed August 31, 2004

Affirmed in Part; Reversed and Remanded in Part; and Memorandum Opinion filed August 31, 2004.

In The

Fourteenth Court of Appeals

____________

NO. 14-03-00071-CV

____________

JOHN M. YOUNG, M.D., AND MARANATHA, INC., Appellants

V.

CARLOS LEACH AND GULF COAST MARKETING CORP.

D/B/A JAY BETTIS & CO. YACHT SALES, Appellees

On Appeal from the 212th District Court

Galveston County, Texas

Trial Court Cause No. 99CV0572

M E M O R A N D U M   O P I N I O N

This case involves a dispute over the purchase of a yacht.  Appellants John Young, M.D., and Maranatha, Inc. sued appellees Carlos Leach and Gulf Coast Marketing Corp. d/b/a Jay Bettis & Co. Yacht Sales (ABettis@) for fraud, breach of warranty, and violations of the Texas Deceptive Trade Practices Act (ADTPA@).  Appellants sued Leach additionally for breach of contract.  Appellees counterclaimed for attorneys= fees. The trial court granted appellees= no-evidence motion for summary judgment as to all of appellants= claims.  After a bench trial on appellees= counterclaim for attorneys= fees, the trial court found that appellants= DTPA claims were without merit and awarded attorneys= fees to Leach and Bettis.  We affirm the trial court=s summary judgment except as to (1) Maranatha=s breach-of-contract claim against Leach; (2) Maranatha=s breach-of-warranty claim against Leach; and (3) Maranatha=s DTPA claims under sections 17.46(b)(5) and 17.46(b)(7) of the Business and Commerce Code against Leach and Bettis.  We find Maranatha produced more than a scintilla of evidence regarding these claims, and we reverse and remand in part on these issues.  Regarding appellees= counterclaim for attorneys= fees, we affirm the trial court=s judgment assessing attorneys= fees against Young under the DTPA.  However, because we remand two of Maranatha=s DTPA claims, we reverse and remand the trial court=s judgment assessing attorneys= fees against Maranatha.

I. Background

In May of 1997, Young executed a Brokerage Purchase Agreement to buy a Choey Lee yacht named the C-Rose.  For tax purposes, he formed a Delaware corporation, Maranatha, to complete the purchase of the vessel.  Young assigned all of his rights and obligations under the purchase agreement to the corporation.

The agreement provided for Young to conduct a sea-trial survey of the vessel prior to closing. After reviewing two surveys, Young negotiated for a reduction in the price to account for defects and damage found in the surveys.  He then signed an acceptance of the vessel on behalf of Maranatha.

II. The Motion for Summary Judgment

In their first issue, appellants contend the trial court erred in granting Leach and Bettis=s no-evidence motion for summary judgment.  We review a no‑evidence motion for summary judgment by ascertaining whether the non‑movant produced more than a scintilla of probative evidence to raise a genuine issue of material fact as to the essential elements attacked in the no‑evidence motion.  Dolcefino v. Randolph, 19 S.W.3d 906, 916 (Tex. App.CHouston [14th Dist.] 2000, pet. denied).  More than a scintilla of evidence exists when the evidence Arises to a level that would enable reasonable and fair‑minded people to differ in their conclusions.@  Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997).  We take as true all evidence favorable to the non‑movant, and we make all reasonable inferences therefrom in the non‑movant=s favor.  Dolcefino, 19 S.W.3d at 916.  A no‑evidence motion for summary judgment must be granted if the party opposing the motion does not respond with competent summary‑judgment evidence that raises a genuine issue of material fact.  Id. at 917.  Because the trial court did not specify the grounds for its ruling, we will affirm if any of the grounds advanced in the motion has merit.  See Carr v. Brasher, 776 S.W.2d 567, 569 (Tex. 1989).

A.      Young

We first address Young=s arguments regarding why the trial court erred in granting the no-evidence summary judgment.  In the motion, Leach and Bettis argued that Young did not have standing to sue.  Young concedes he assigned all of his rights and responsibilities under and causes of action arising from or relating to the purchase of the C-Rose to Maranatha. While they assert a general point of error on appeal, appellants present argument only concerning Maranatha=s standing to sue.  Because the trial court could have dismissed Young=s claims on the basis that he lacked standing to sue, we overrule Young=s first issue and affirm the trial court=s grant of summary judgment with regard to all of Young=s claims. Evans v. First Nat=l Bank of Bellville, 946 S.W.2d 367, 377 (Tex. App.CHouston [14th Dist.] 1997, pet. denied) (finding that where a judgment may rest upon more than one ground, the party aggrieved by the judgment must present argument to each ground or the judgment will be affirmed on the ground to which no complaint is made).

B.      Maranatha

We now turn to Maranatha=s claims against Leach and Bettis.  Maranatha contends two misrepresentations were made to Young during the purchase of the vessel.  First, Leach, the previous owner of the C-Rose, told Young prior to closing that the vessel=s Naiad stabilizers functioned properly.  Second, Bettis, the broker for the sale, told Young that the hull and fuel tanks were sound.  These two alleged statements form the basis of Maranatha=s fraud, breach-of-warranty, and DTPA claims.  Maranatha also claims Leach did not perform all of his obligations under the purchase agreement.

1.       Fraud

To recover for common-law fraud, Maranatha was required to prove that (1) a material representation was made to it; (2) the representation was false; (3) the misrepresentation was made with knowledge of its falsity or made recklessly without any knowledge of the truth and as a positive assertion; (4) the misrepresentation was made with the intent that it should be acted on by Maranatha; and (5) Maranatha acted in reliance on the misrepresentation and thus suffered injury. Beal Bank, S.S.B. v. Schleider, 124 S.W.3d 640, 647 (Tex. App.CHouston [14th Dist.] 2003, pet. denied).  We find Maranatha produced no evidence to show that knowing or reckless misrepresentations were made to Young.

Maranatha contends that, although Leach told Young before the sale that the stabilizers functioned properly, Leach knew the stabilizers did not work and affirmatively concealed the defect by prohibiting Maranatha=s surveyor from testing the stabilizers.  Maranatha submitted testimony from a repairman, Craig Calkins, who looked at the C-Rose prior to the sale.  He recommended to someone on the vessel, not Leach, that an obsolete valve be replaced.  Calkins said he probably also recommended that Asome seals@ be replaced because they should be replaced every two to three years.  Calkins could not recall whether he told Leach about the valve or seals.  Maranatha points to this testimony as evidence, but it does not explain how this evidence supports its claim regarding the purported defects in the stabilizers.  Moreover, although Young=s surveyor said he did not test the stabilizers on the day of the inspection, he was not sure who did not want them tested that dayCit could have been Leach or it could have been someone else. Notably, the sea-trial survey was to be conducted to the buyer=s satisfaction.  However, there is no evidence to suggest that Young, after learning the stabilizers had not been tested, requested they be tested or that such a request was denied by Leach.  Thus, Maranatha produced no evidence that Leach knew of a defect with the stabilizers and attempted to conceal it.

Maranatha argues Bettis=s statement that the vessel=s hull and fuel tanks were sound was made recklessly.  Here, Maranatha had the ultimate burden to prove that the statement was made without knowledge of the truth and as a positive assertion.  Beal Bank, 124 S.W.3d at 647.  In order for the statement to be made as a positive assertion, Maranatha had to show Bettis took responsibility for the truth of the statement.  See J. L. Williams & Co. v. Robert McKee, Inc., 612 S.W.2d 649, 651B52 (Tex. Civ. App.CDallas 1981, writ ref=d n.r.e.).  Maranatha relies on the testimony of another broker and a repairman to support this claim. The broker testified that it was generally understood by some people in the industry that an EPA regulation weakened the structure of U.S. resins, resulting in more osmosis blistering.^[1]  The repairman said that all the Cheoy Lees he has inspected have had problems with the hull due to insufficient resin in the hull=s laminate and that everyone he knows is aware of the problem. This evidence does not address the vessel=s fuel tanks at all.  And, while this testimony may provide some evidence that Bettis, as a broker in the industry, perhaps should have been aware of the Cheoy Lees= purported hull problems, it provides no evidence that Bettis=s statement was made as a positive assertion.  Because Maranatha provides no context to the alleged misrepresentation and Young does not contend Bettis assumed any responsibility for the truth of the statement, there is no evidence to show that Bettis made a reckless misrepresentation to Young.  We find the trial court properly dismissed Maranatha=s common-law fraud claim.

2.         Breach of Warranty

Maranatha also contends Bettis=s and Leach=s statements are warranties under section 2.313 of the Business and Commerce Code.  The Code provides that an express warranty is created when A[a]ny affirmation of fact or promise [is] made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain.@ Tex. Bus. & Com. Code Ann. ' 2.313(a)(1) (Vernon 2003).  ABasis of the bargain@ loosely reflects the common‑law express warranty requirement of reliance. Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420, 436 (Tex. 1997). 

However, with regard to Bettis=s alleged statement about the hull and fuel tanks, Maranatha failed to produce any evidence to show the statement became the basis of the bargain.  The purchase agreement provided: AThe Broker offers details of the Vessel in good faith but cannot guarantee the accuracy of the this information nor warrant the condition of the Vessel.@ In light of the contract language, Young=s mere conclusory assertion that he Arelied on@ the representation without providing additional context or evidence is not enough to show that the alleged statement became the basis of the bargain.

Regarding Leach=s purported statement prior to closing that the stabilizers worked, Young said he relied on the representation in purchasing the C-Rose and would not have purchased the vessel had he known the representation was false.  The contract does not disclaim warranties made by the seller.  Having alleged such a representation was made and relied upon, we find Maranatha produced at least a scintilla of evidence to support its claim and raised a fact issue as to whether Leach made an express warranty to Young.  See Tex. Bus. & Com. Code ' 2.313, UCC cmt. 3 (Vernon 2003) (Aany [attempt] to take such affirmations, once made, out of the agreement requires clear affirmative proof@).

Hence, we find the trial court properly dismissed Maranatha=s breach-of-warranty claim against Bettis but erred in dismissing Maranatha=s breach-of-warranty claim against Leach.

3.       DTPA

We turn to Maranatha=s DTPA causes of action.  Maranatha sought relief under sections 17.50(a)(2) and 17.46(b)(2), (5), (7), and (13) of the Business and Commerce Code.  Maranatha also sought additional damages under section 17.50(b)(1) for a knowing violation of the statute.  Section 17.50(a)(2) permits a consumer to obtain DTPA damages for a breach of warranty.  Tex. Bus. & Com. Code Ann. ' 17.50(a)(2) (Vernon 2003).  Because we have found Maranatha=s breach-of-warranty claim against Bettis was properly dismissed, we  uphold the trial court=s dismissal of its DTPA claim against Bettis under section 17.50(a)(2) of the Business and Commerce Code.  Humble Nat=l Bank v. DVC, Inc., 933 S.W.2d 224, 231 (Tex. App.CHouston [14th Dist.] 1996, writ denied) (explaining that, because the DTPA does not create warranties, a warranty must be established independently of the act).  However, having determined Maranatha produced at least of scintilla of evidence to support its section 2.313 breach-of-warranty claim against Leach, we necessarily find the trial court erred in dismissing its claim against Leach under 17.50(a)(2). 

Maranatha also failed to present argument to the trial court in response to the motion for summary judgment as to how the alleged statements made by Leach and Bettis were actionable under sections 17.46(b)(2) and 17.46(b)(13). Accordingly, we affirm the trial court=s judgment with respect to those claims.  See Dubose v. Workers= Medical, P.A., 117 S.W.3d 916, 920 (Tex. App.CHouston [14th Dist.] 2003, no pet.) (explaining that failing to properly present issue to trial court waives issue on appeal). 

Further, Maranatha offered no evidence to support its request for additional damages under section 17.50(b)(1).  Here, Maranatha relies on the same testimony it relied upon to argue knowing or reckless misrepresentations were made to Young.  For the reasons previously discussed, we find this testimony offers no evidence that the alleged statements made by Leach or Bettis were made with actual knowledge of their falsity.  We affirm the trial court=s dismissal of Maranatha=s claim for additional damages under section 17.50(b)(1) of the Business and Commerce Code. 

We are left with Maranatha=s claims under sections 17.46(b)(5) and 17.46(b)(7).  Section 17.46(b)(5) prohibits a person from making a representation that goods or services have characteristics that they do not.  Tex. Bus. & Com. Code Ann. ' 17.46(b)(5) (Vernon 2003).  Section 17.46(b)(7) prohibits a person from representing that goods are of a particular standard, quality, or grade, when they are not.  Tex. Bus. & Com. Code Ann. ' 17.46(b)(7) (Vernon 2003).  These provisions have been interpreted to include false statements about a good=s mechanical condition.  Pennington v. Singleton, 606 S.W.2d 682, 687B88 (Tex. 1980).  To recover under the DTPA, a plaintiff must establish: (1) he was a consumer of the defendant=s good or services; (2) the defendant committed false, misleading, or deceptive acts in connection with the lease or sale of the goods or services; and (3) such acts were a producing cause of actual damages to the plaintiff.  Dagley v. Haag Eng=g Co., 18 S.W.3d 787, 791B92 (Tex. App.CHouston [14th Dist.] 2000, no pet.).  In response to the no-evidence motion for summary judgment, Maranatha was required to offer more than a scintilla of evidence to demonstrate that the complained-of acts were a producing cause of its economic damages.  Trinity Universal Ins. Co. v. Bleeker, 966 S.W.2d 489, 491 (Tex. 1998) (finding that a Aproducing cause@ is Aan act that is a substantial factor that brings about injury and without which the injury would not have occurred@). 

An injury can have more than one producing cause, and Texas courts have found that a seller=s misrepresentations can be a producing cause of a buyer=s injury even when the buyer conducted an independent investigation.  See, e.g., Kessler v. Fanning, 953 S.W.2d 515, 519 (Tex. App.CFort Worth 1997, no pet.) (holding that independent investigation that might have uncovered fraud does not preclude recovery of damages for misrepresentations); O=Hern v. Hogard, 841 S.W.2d 135, 137B38 (Tex. App.CHouston [14th Dist.] 1992, no writ) (finding inspection did not constitute new and independent cause of buyers= damages and determining that appropriate inquiry is whether seller=s act was a producing cause of the buyers= damages).  The rationale behind doing so is that, although the buyer may have conducted an independent investigation, he may have also relied on representations made by the seller and the seller=s agent.  Kessler, 953 S.W.2d at 519.  Thus, without evidence to show that a buyer relied exclusively on his inspector=s report or had actual and complete knowledge of the alleged defect, false information provided by the seller may be a producing cause of the buyer=s damages.  Blackstock v. Dudley, 12 S.W.3d 131, 133B34 (Tex. App.CAmarillo 1999, no pet.). 

In responding to the no-evidence motion for summary judgment, Maranatha relied on Young=s affidavit.  According to the affidavit, Leach told Young the stabilizers worked and Bettis told Young that the hull and full tanks were sound.^[2]  Young found out only after closing that the stabilizers did not work, water had permeated the hull, and the full tanks leaked.  Young said he would not have purchased the vessel had he known the representations were false.  The affidavit provides at least a scintilla of evidence that creates a fact question as to whether the alleged misrepresentations may have been a producing cause of Maranatha=s purported damages.  We find the trial court erred in dismissing Maranatha=s claim under section 17.50(a)(2) of the Business and Commerce Code against Leach and its claims under sections 17.46(b)(5) and 17.46(b)(7) against Leach and Bettis. 

3.       Breach of Contract

We now address Maranatha=s breach-of-contract claim against Leach. On this issue, Maranatha also relied on Young=s affidavit in its response to the motion for summary judgment. Attached to the affidavit were the purchase agreement and the acceptance of the vessel.  The acceptance indicates Young agreed to purchase the C-Rose on the condition that the shaft log be repaired and the port engine be aligned. Young claimed Leach did not make the repair and also claimed Leach kept the aft deck enclosure, which was a part of the vessel.

The evidence establishes that the parties entered into a contract and that, under the terms of the agreement, Leach was obligated to repair the shaft log, align the port engine, and convey the items contained on the listing sheet with the vessel. Young produced more than a scintilla of evidence that Leach may not have fulfilled all his obligations under the contract.  Although testimony and evidence at the subsequent bench trial on appellees= counterclaim for attorneys= fees addressed some of these issues, that evidence was not before the trial court when it ruled on the no-evidence motion for summary judgment.  Accordingly, we find the trial court erred in granting summary judgment on Maranatha=s breach-of-contract claim against Leach.  

In conclusion, we sustain Maranatha=s first issue as to its breach-of-contract claim and its DTPA claims under sections 17.46(b)(5) and 17.46(b)(7) of the Business and Commerce Code.  We also sustain its complaint regarding the trial court=s dismissal of its DTPA claim against Leach under section 17.50(a)(2).   We overrule the remainder of Maranatha=s first issue.

III. Attorneys= Fees

In their second through fifth issues, Young and Maranatha attack the trial court=s award of attorneys= fees to Leach and Bettis.  These fees were recoverable under the DTPA if the trial court found that Young and Maranatha=s DTPA claims were groundless in fact or in law and brought in bad faith or for the purposes of harassment.  Tex. Bus. & Com. Code Ann. ' 17.50(c) (Vernon 2003).

A.      Maranatha

We have found Maranatha produced more than a scintilla of evidence at the summary-judgment stage to support its DTPA claims under sections 17.46(b)(5) and 17.46(b)(7) of the Business and Commerce Code.  Because we cannot resolve the issue of whether the trial court erred in assessing attorneys= fees against Maranatha absent a final determination on the merits of its DTPA claims, we sustain Maranatha=s second through fifth issues regarding attorneys= fees.

B.      Young

1.       Pleadings

In his fifth issue, Young contends the trial court erred in awarding Leach attorneys= fees under section 17.50(c) of the Business and Commerce Code because he did not plead for such relief.  Leach did not list this provision in his counterclaim as a basis to recover attorneys= fees.  We find, however, the issue was tried by consent.  At the bench trial, Leach=s counsel opened argument by stating that the bench trial was being conducted solely to consider appellees= counterclaims under section 17.50(c) of the DTPA.  He closed with a similar remark.  Young did not object to these contentions.  Rather, his counsel asked the trial court in opening arguments to Arender judgment that [Leach and Bettis] take nothing by their counter-claim under the DTPA, Section 17.50(c),@ and said in closing arguments, AWell, Your Honor, as the Court knows, this is a 17.50(c) counterclaim of attorneys= fees.@  Moreover, Young does not challenge the trial court=s finding of fact, which states AAll parties having announced ready and appearing in person, by counsel or both, the Court proceeded with a non-Jury trial on the counterclaim of Leach and [Bettis] against Young and Maranatha, Inc. under Tex. Bus. Comm. Code ' 17.50(c).@   Because the record clearly indicates Leach=s counterclaim for attorneys= fees was tried by consent under section 17.50(c), we overrule appellants= fifth issue.  Frazier v. Havens, 102 S.W.3d 406, 411 (Tex. App.CHouston [14th Dist.] 2003, no pet.).

2.       Motion for Judgment

In his third issue, Young claims the trial court erred in denying his motion for directed judgment on appellees= counterclaims.  After appellees presented evidence on their counterclaims, Young made a motion for directed judgment, which the trial court denied.  The parties proceeded to try the counterclaims before the court.  Although the motion was mentioned by Young=s counsel during closing argument, counsel did not re-urge it. Because Young did not re-urge his motion, he has not preserved this issue for appeal.  Cliffs Drilling Co. v. Burrows, 930 S.W.2d 709, 712 (Tex. App.CHouston [1st Dist.] 1996, no writ); Wenk v. City Nat=l Bank, 613 S.W.2d 345, 348 (Tex. Civ. App.CTyler 1981, no writ).  Accordingly, we overrule Young=s third issue.

3.       Testimony Regarding Attorneys= Fees

In his second issue, Young contends the trial court erred in admitting expert testimony regarding appellees= attorneys= fees.^[3]  Young argues that neither party was entitled to expert testimony because, in violation of rule 194.2(f) of the Texas Rules of Civil Procedure, Bettis did not designate an expert to testify on the subject of attorneys= fees, and although Leach designated one of his attorneys as an expert on attorneys= fees, he did not produce any documents regarding those fees.

At the hearing, the trial court permitted Bettis=s counsel to testify only as a fact witness.  The trial court restricted his testimony to issues of fact because he had not been designated as an expert witness.  Bettis=s counsel testified to the amount of time he had spent on the case up to the first day of the bench trial and to his hourly rate.^[4]

The trial court permitted two attorneys to testify regarding Leach=s attorneys= fees.  One attorney was allowed to testify only as a fact witness because he had not been designated to testify as an expert.  The other, Bernard Chanon, had been designated as an expert witness and was permitted to testify as both a fact and expert witness.^[5]  Young argues that, because Chanon did not producing billing records in response to discovery requests, the trial court was required to exclude his testimony unless he demonstrated good cause, lack of surprise, or lack of prejudice. 

A party who fails to properly respond to discovery requests may not introduce material or information that was not timely disclosed or offer testimony of a witness who was not identified unless the party shows good cause, lack of surprise, or lack of prejudice.  Tex. R. Civ. P. 193.6.  Here, however, the trial court did not admit the billing records or any information that was not disclosed during discovery.  The trial court merely permitted Chanon to testify. Because Chanon was properly identified as an expert, the trial court did not err in permitting him to testify.  See Schlager v. Clements, 939 S.W.2d 183, 193 (Tex. App.CHouston [14th Dist.] 1996, writ denied) (finding that an attorney=s failure to produce billing statements did not affect the admissibility of his testimony, merely the credibility of his testimony).

We find the trial court did not admit expert testimony regarding Bettis=s attorneys= fees and it did not err in allowing Chanon to testify regarding Leach=s attorneys= fees.  We overrule Young=s second issue.

4.       Findings of Fact and Conclusions of Law

In his fourth issue, Young contends the evidence is legally and factually insufficient to support the trial court=s finding that his DTPA claims were groundless in fact or in law and brought in bad faith or for the purposes of harassment.  However, Young presents no reasoning in his two-sentence argument to support this position.  Additionally, although the trial court heard three days of evidence and testimony concerning the validity of his claims, Young does not provide a single record cite to bolster his argument on appeal.  Thus, Young has waived this issue.  Casteel-Diebolt v. Diebolt, 912 S.W.2d 302, 304B05 (Tex. App.CHouston [14th Dist.] 1995, no writ).  We overrule his fourth issue.

IV.   Conclusion

Because Maranatha produced more than a scintilla of evidence regarding its breach-of-contract and breach-of-warranty claims against Leach and its DTPA claims under sections 17.46(b)(5) and 17.46(b)(7) of the Business and Commerce Code, we find the trial court erred in granting summary judgment in favor of Leach on the breach-of-contract, breach-of-warranty, and section 17.50(a)(2) claims and in favor of Leach and Bettis on the DTPA claims under sections 17.46(b)(5) and 17.46(b)(7). We reverse and remand in part on these issues.  We also reverse the trial court=s assessment of attorneys= fees against Maranatha.  We affirm the remainder of the trial court=s judgment.

/s/      Leslie Brock Yates

Justice

Judgment rendered and Memorandum Opinion filed August 31, 2004.

Panel consists of Justices Yates, Hudson, and Fowler.

---

^[1]  Contrary to appellees= assertion, we cannot find that the trial court implicitly granted their motion to strike portions of Young and Maranatha=s summary-judgment evidence.  Harris v. Spires Council of Co-Owners, 981 S.W.2d 842, 897 (Tex. App.CHouston [1st Dist.] 1998, no pet.) (finding that, by not obtaining a written ruling, a party waives objection to hearsay evidence in the summary-judgment record).

^[2]  Although the disclaimer in the purchase agreement limits the broker=s warranties, the Texas Supreme Court has determined that written disclaimers cannot waive a consumer=s right to pursue non-warranty representations under the DTPA.  Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 505 (Tex. 2001).

^[3]  Young does not make a general argument regarding the reasonableness of the attorneys= fees awarded to Leach and Bettis under the DTPA.  Young argues only that the trial court erred in admitting expert testimony regarding appellees= attorneys= fees. Accordingly, we limit our discussion to that issue.

^[4]  Notably, Young=s counsel told the trial court that Bettis=s fees were reasonable.

^[5]  Chanon testified only to the reasonableness of the fees billed to Leach.