Matlock Place Apartments, L.P., JR TX 1, LLC, Hagop Kofdarali, Individually, and Robbie L. Sebern Burns, Individually v. Jeffry Druce, Individually, and as Trustee of the Druce Family Living Trust, and Jeffry Druce Properties, LLC

• Court: Court of Appeals of Texas
• Decided: January 12, 2012
• Docket: 02-09-00130-CV
• Status: Published

Opinion

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

NO. 02-09-00130-CV

MATLOCK PLACE APARTMENTS, APPELLANTS L.P., JR TX 1, LLC, HAGOP KOFDARALI, INDIVIDUALLY, AND ROBBIE L. SEBERN BURNS, INDIVIDUALLY

V.

JEFFRY DRUCE, INDIVIDUALLY, APPELLEES AND AS TRUSTEE OF THE DRUCE FAMILY LIVING TRUST, AND JEFFRY DRUCE PROPERTIES, LLC

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FROM THE 96TH DISTRICT COURT OF TARRANT COUNTY

OPINION ----------

I. Introduction

Appellants Matlock Place Apartments, L.P., JR TX 1, LLC, Hagop

Kofdarali, Individually, and Robbie L. Sebern Burns, Individually appeal the trial court‘s judgment rendered on a jury‘s verdict in favor of Appellee Jeffry Druce

Properties, LLC (Druce Properties).1 Appellants contend in four issues and

numerous sub-issues that the evidence is legally and factually insufficient to

support the judgment, that the trial court erred by submitting two jury instructions,

that the trial court abused its discretion by excluding relevant evidence

concerning Druce Properties‘s damages, and that Druce Properties failed to

properly segregate its attorney‘s fees. We reverse and render in part and

reverse and remand in part.

II. Background

A. Parties

This appeal involves the Matlock Place Apartments in Arlington, Texas (the

property). Appellant Matlock Place is a single-asset, Texas limited partnership

controlled by Appellant Hagop ―Jack‖ Kofdarali. Appellant JR TX 1, LLC is the

general partner of Matlock Place. Appellee Druce Properties purchased the

property from Matlock Place in July 2004.

Kofdarali testified at trial that he had been buying, operating, and selling

apartment complexes since 1993. He assumed ownership responsibilities for the

property in October 2002 when his sister purchased the property out of

1 Jeffry Druce, Individually, and as Trustee of the Druce Family Living Trust, was also a plaintiff in the trial court, but the trial court granted a directed verdict against Druce in both capacities. Druce has not appealed the trial court‘s directed verdict but was listed by the parties as an appellee in this court.

2 foreclosure for approximately $1.3 million,2 and he retained Legend Asset

Management Company (Legend) to manage the day-to-day tasks at the

property.3 Appellant Robbie Burns is the owner and president of Legend.

Jeffry Druce is the principal of Druce Properties. By the time Druce

Properties purchased the property, Druce had been an actor, real estate agent,

and real estate investor in California. Druce had owned or did own at the time of

trial two rent houses, a home that he rehabilitated and sold, a sixteen-unit

apartment complex, and a thirty-five-unit apartment complex. He also owned a

large self-storage facility in south Texas. However, Druce testified that he had

lived at the property during the three and one-half years before trial, managing

the property himself and trying to turn it around.

B. Matlock Place’s History

When Kofdarali‘s sister purchased the property, the occupancy rate was

between forty and fifty percent. Kofdarali testified that the property needed an

occupancy rate in the eightieth percentile to sustain itself financially and that he

believed bad management and lack of funds had caused the low occupancy rate.

He also testified that apartment complexes of this type are challenging because

tenant income is not as high, there is a lot of tenant turnover, and departing

2 Kofdarali testified that his sister purchased the property because the selling bank required a quick closing with all cash. 3 Legend was also a defendant in the trial court. However, the trial court severed the claims against Legend after Legend filed for bankruptcy. Legend is therefore not a party to this appeal.

3 tenants often leave the units damaged. Kofdarali testified that the property was

in a high crime area, that the property was a ―Class D‖ property or worse when

he started looking at it, but that he was still interested because he might be able

to clean it up and make it profitable.

Between October 2002 and August 2003, Kofdarali spent more than

$500,000 rehabilitating the property by installing new exterior siding and

replacing interior countertops, carpet, and appliances. In October 2003, Matlock

Place obtained a loan for $1.8 million, and Kofdarali signed a personal guaranty

for the loan. Kofdarali used the loan proceeds to pay his sister the $1.3 million

purchase price and to reimburse himself $500,000 for rehabilitation costs and

cash flow shortfalls. Kofdarali testified that he initially intended to completely

rehabilitate the property but decided to sell it after learning how much a complete

rehabilitation would cost.

Kofdarali decided in August 2003 to list the property for sale, and he

retained Jeff Dowdle of the Marcus and Millichap firm as broker.4 He knew that

the broker would prepare, based on the information he provided, a marketing

brochure to solicit interested buyers. Burns and Legend provided operating

income and other information to Dowdle for preparation of the marketing

brochure. Kofdarali testified that he expected readers to believe the brochure to

be accurate as of the time it was created, and he agreed that the occupancy rate

4 Kofdarali testified that he personally made the decision to sell even though his sister still owned the property at that time.

4 and the accuracy of the rent rolls, rental income, and property condition were

important factors for a buyer. Kofdarali also testified that he approved the

marketing brochure before Dowdle presented it to the public.

The brochure listed a ninety-three percent occupancy rate, and it stated

that there was ―very little deferred maintenance‖ and that ―Major Rehab Just

Completed.‖ The brochure also included a disclaimer that stated, ―The

information contained herein is not a substitute for a thorough due diligence

investigation.‖ Kofdarali testified that occupancy rates fluctuate monthly and

could go from ninety-three to eighty percent within one month. He also testified

that rehabilitation was not complete at the time, and he denied that the brochure

represented that all major rehabilitation was complete. Major rehabilitation other

than the roof had been done, but a lot of interior units still needed work.

Kofdarali also testified that he would never make a purchase decision based on a

marketing brochure because they contain ―fluff‖ intended to make the property

look attractive to potential buyers. Referring to the marketing brochure, he said,

―No one I know buys off of this.‖

Druce agreed that marketing brochures are advertising tools and contain

exaggerations, but he testified that he still expected it to be truthful. He testified

that the marketing brochure contained three materially false representations:

that there was a ninety-three percent occupancy rate, that major rehabilitation

was complete, and that only minimal deferred maintenance was required.

5 Druce was not the first prospective buyer to express interest in the

property. Two other prospective buyers had signed contracts before Druce, but

neither contract closed. Kofdarali testified that he assumed the buyers did not

like what they saw upon conducting their due diligence inspections. Both

contracts contained a due diligence clause, and Kofdarali testified that he

removed the due diligence clause from the contract with Druce because the legal

fees for negotiating a contract were too expensive since the buyer could back out

after the due diligence period. He testified that instead of a due diligence clause

in the sale contract itself, he began using letters of intent with a twenty-one day

due diligence period.

C. Letter of Intent and Due Diligence Period

Druce and Kofdarali signed a letter of intent on March 12, 2004. The

purchase price in the letter of intent was $2.4 million, and the letter of intent

included a twenty-one-day inspection period and a $100,000 credit at closing for

―repairs and maintenance.‖

Druce testified that he personally inspected the property for about four

hours after he had signed the letter of intent. Present at the inspection were

Marcus and Millichap brokers Dowdle and John Barker and two female Legend

employees. Burns arrived later. Druce testified that he asked to see a

representative sample of the units and that he inspected approximately ten of the

ninety-nine units. He testified that of the ten units he inspected, most were

occupied, the vacant units had only minor damage, and none were uninhabitable.

6 Druce testified that he did not walk each of the ninety-nine units because the

brochure represented that major rehabilitation had just been completed, because

he thought the other units would look like those he had been shown, and

because he was getting tired and bored. Druce admitted that he stopped the

inspection and that Dowdle and the Legend employees would have shown him

more units if he had wanted to see them, but he testified that he believed he was

being shown a representative sample of the property.

Druce testified that he asked Dowdle at the inspection if there were any

negatives that he needed to know about the property, that Dowdle told him there

were not, and that he relied on that representation. He testified that no one

disclosed to him that, contrary to the marketing brochure, rehabilitation was not

complete, and he said he would have asked to see more units if that had been

disclosed. Druce also testified that he relied on the statement in the marketing

brochure about deferred maintenance and that he would not have purchased the

property if its true condition had been disclosed; he said that it had been a major

undertaking to make the property livable after he purchased it. But Druce

acknowledged seeing problems with the foundation, roof, fence, and landscaping

upon inspection and having received documents during due diligence that

disclosed foundation and lighting problems.

The documents Druce received during the due diligence period were

generated by Legend, and Kofdarali agreed that they were presented to Druce as

complete and accurate. Druce acknowledged receiving 1,500 to 2,000 pages of

7 documents, but he testified that he did not notice the crime and delinquent rent

problems revealed by the documents and that were pointed out to him at trial.

Druce testified that he would have been concerned about the high delinquent

rent and prostitution problems pointed out to him at trial, and he agreed that no

one had refused any request for information or access to a unit and that he would

have been aware of this information had he completely reviewed the due

diligence documents. Druce testified, however, that the information was ―buried‖

in the stack of paper and that he did not consider that to be full disclosure. He

testified that he should have been provided a single document containing

negative disclosures on it. Druce also testified that it is ―worthless‖ to receive

documentation with inaccurate income and occupancy numbers.

Druce acknowledged that a buyer must conduct due diligence before

purchasing a property and testified that due diligence is more important than the

information in the brochure. He testified that a limitation of the seller‘s

representations in a marketing brochure or sale contract does not cause him

concern and that, in his opinion, the limitation of the seller‘s representations does

not mean the buyer cannot trust the information the seller provides. Druce

agreed that the buyer should independently investigate the property, and he

acknowledged that he walked the property and received documentation. Druce

also agreed that the occupancy rates shown on the rent rolls he received showed

that the occupancy rate was no longer ninety-three percent as represented in the

marketing brochure.

8 D. Sale Contract and Closing

Druce and Kofdarali entered into the ―Contract of Sale‖ (the contract) on

March 24, 2004. Although the letter of intent provided for a twenty-one day due

diligence period, Druce signed the contract twelve days after signing the letter of

intent. Druce insisted that the roof be repaired before closing, and Druce and

Kofdarali agreed to split the cost of the new roof with Kofdarali paying his half of

the new roof cost by lowering the purchase price. Thus, Druce purchased the

property for $2.273 million. According to Kofdarali, this amount reflected a

purchase price of $2.4 million, a $100,000 credit for maintenance and repairs,

and a $27,000 credit for half of the cost of the new roof. Kofdarali testified that

Druce negotiated for the $100,000 credit ―because he knew that there was work

to be done on this property.‖ Druce, however, testified that he made a $2.3

million offer that Kofdarali accepted without negotiation and that he did not know

where the $100,000 credit came from. Kofdarali received $365,484.94 from the

sale at closing but testified that he made no profit on the sale to Druce.

Druce closed on the property in late July 2004. He testified that he visited

the property four or five days before closing and that the property looked

deserted. During that visit, he learned from an Arlington police officer that the

property was well known in the area for its crime problem and that the property

was full of drug dealers, addicts, and prostitutes. Druce testified that no one had

disclosed the crime problem to him but testified that he closed on the property

anyway because he was financially and emotionally invested in it. Druce testified

9 that he was still excited about the property because the income stream as

represented was ―gigantic‖ and that he thought the income stream would be even

higher once he cleaned up the crime problem.

Druce acknowledged receiving documents just before closing that showed

the occupancy rate at eighty-seven rather than ninety-three percent, but he

testified that he still believed the marketing brochure to be ―substantially true‖

because the income stream would have still been significant. He testified that he

would not have closed had he believed the updated information was not true, but

he admitted that he did not go inside any units to verify the occupancy rate when

he visited the property just before closing.

Kofdarali testified that Druce received documents at closing, including rent

rolls and operating reports, that reflected $12,000 in delinquent rent.5 Kofdarali

acknowledged, however, that he did not personally verify the information

provided to Druce, and he agreed that a buyer would want to know if twelve to

fifteen percent of the units were uninhabitable. Kofdarali denied making any

representations to Druce about the number of down units and testified that he did

not know the number of down units at closing or how Druce defined a down unit.6

5 Druce did not dispute receiving and having an opportunity to review the documents exchanged at closing. 6 Kofdarali testified that a down unit is uninhabitable and ―requires just about everything: carpet, appliances, cabinets, plumbing, doors.‖ Druce testified that a down unit is one that cannot be lived in and requires more than relatively minor repairs.

10 E. Accuracy of Documentation

Rosemary Ocampo began working at the property for Legend shortly

before Druce offered to buy it, and she testified that she was the property

manager when Druce Properties purchased the property. Ocampo testified that

Legend employee Christina Morrison told her not to remove tenants from the

computer system when they moved out and to only add tenants to the computer

system because the property was for sale. Ocampo testified on cross-

examination, however, that she did not know how to use the rent roll program

and could not have changed the tenant numbers if she had wanted to. Ocampo

also testified that Morrison told her to accept every tenant application at the

property without conducting criminal or credit checks because, according to

Morrison, they could not show any vacant units due to the pending sale.

Ocampo testified, ―We needed to fill the property up, so any application that

came to the door, we had to move them in.‖

Ocampo testified that she was aware of the crime problem at the property

before Druce purchased it and that she ultimately stopped working at the

property because of the crime problem.7 When she left, she called Morrison and

asked for a job with Legend at another property. When asked why she would

have worked for Legend again if they had allegedly falsified documents, she

7 There was a murder on the property five months after Druce purchased it.

11 testified that she did not realize what Legend had done until she was contacted

by lawyers several years later.

Morrison testified that Ocampo was in fact trained to run the rent roll

computer program and knew how to add and remove tenants from the rent roll.

Morrison also testified that there is a difference between accepting all

applications and moving in all applicants. Apartment complexes cannot

discriminate, so they accept all applications that are given to them but exercise

discretion on which tenants to lease to after verifying the information on the rental

application. Morrison denied telling Ocampo to falsify documentation, to fill the

property with tenants without conducting background checks, or to not remove

tenants from the rent roll when they moved out, and she testified that not

removing tenants from the rent roll creates a high delinquency rate and causes

the income numbers to look bad. Morrison also denied being told to not remove

tenants from rent rolls and said she would have quit working for Legend if she

had been so instructed.

Morrison acknowledged, however, that a comparison of the rent rolls,

delinquency reports, and manager‘s reports from September through November

2003 revealed drastic inconsistencies within the same month. For example, the

September 2003 rent roll listed twelve units as occupied when the September

2003 delinquency report showed that none of those twelve units was occupied

and that some of those tenants had moved out five months earlier. Many of the

same inconsistencies existed in the October and November 2003 reports. The

12 November 2003 rent roll listed ten vacant units while a November 2003

manager‘s report listed eighteen vacant units. Morrison admitted that these

delinquency reports, rent rolls, and manager‘s reports were among the

documents Druce received during due diligence.

Burns, Legend‘s president, testified that Legend‘s policy was to conduct

criminal and credit background checks and that she did not instruct anyone not to

check tenant backgrounds. Burns also testified that tenants are automatically

added or taken off of the rent rolls by the computer system when they move in or

out and that no one asked her or Legend to falsify documentation or to run the

property differently after Druce signed the contract.8 Kofdarali similarly testified

that it is ―stupid‖ to not take tenants off the rent roll as they move out because it

shows up as money or rent owed but not collected, and he testified that he never

instructed anyone to falsify any documents.

Druce testified that he would not have purchased the property had he

known that the rent rolls were inaccurate or that tenants had been allowed to live

on the property without any background checks. He testified that the only reason

to allow bad tenants onto the property is to raise the occupancy rate to sell it and

that he would not do that to someone else. Druce said that inaccurate

documents prevent prospective buyers from making an informed, intelligent

8 Burns testified that Legend was paid a percentage of actual collections, not a percentage of forecasted income, for serving as property manager and that Legend received more money if the property collected more rent. She also testified that Legend did not receive any compensation from the sale to Druce.

13 purchase decision and that Legend‘s actions made the property worthless by

representing that the property was making money when it was not. Druce

testified that he believes the documents he received had been falsified because

of Ocampo‘s testimony and because he had not been able during his ownership

to duplicate the income levels represented to him before closing. Druce also

believed that it was a breach of the contract to provide him with false documents

at closing.

F. Druce Properties’s Ownership

Ocampo stayed at the property after Druce Properties purchased it to

serve as property manager for Majestic Realty Management, Druce Properties‘s

new management company. She testified that she walked the entire property

with her supervisor within a week of closing, that there were twelve down units

and a total of twenty-five to thirty vacant units, and that the rent roll Druce

received at closing did not match what they saw. Burns denied there were that

many down units when Druce Properties purchased the property, but she

acknowledged that it had been a long time since she had walked all of the units.

Dowdle, the Marcus and Millichap broker who represented Kofdarali, testified that

he had walked all but four or five of the units with another prospective buyer just

before Druce decided to buy it, that there were not twelve to fifteen down units at

that time, and that Ocampo‘s testimony could not be correct because there could

not have been that much change in only a few months.

14 Druce testified that he learned from his property manager that there were

sixteen uninhabitable units at closing. He also testified that his first two property

management companies quit and that he was continually asked to send money

to cover operating expense shortfalls. Druce testified that he did not initially send

all the money requested by his management companies because he did not

believe that the property could be suffering financially to that degree. Druce

defaulted on the mortgage in November or December 2004 and eventually

worked out the problems with the mortgage company, but he testified that he had

personally lived at the property for the three and one-half years before trial,

aggressively managing and trying to turn around the property.

Druce testified that the occupancy rates during his ownership have

fluctuated between seventy-eight and fifty-eight percent. He also testified that

the physical condition of the property was much better at the time of trial but that

the property was still losing money. The crime problem had improved through

diligently investigating tenants before they lease and seeking eviction when they

default. Druce testified that he had spent approximately $800,000 rehabilitating

the property, all in an effort to get the property to at least break even and that he

would not have purchased the property had he known its true condition.

G. Damages and Attorney’s Fees

James Ryfell, a commercial real estate investor and developer, testified as

an expert witness for Druce Properties. Ryfell testified that the property had a

market value in 2004 between $1 and $1.1 million. Druce testified without

15 objection that the property was worth approximately $1 million when he

purchased it. He based his opinion on the amount of deferred maintenance

required and deducted that number from Kofdarali‘s $1.3 million purchase price

from 2002. Druce later said that the property was worth $1 million when he

purchased it because Kofdarali had filled it with criminals after purchasing it for

$1.3 million. Druce admitted on cross-examination, however, that his $1 million

estimated value was actually based on his expert‘s opinion and that he had not

protested the significantly higher tax appraisal by Tarrant County.

There was also evidence that Druce Properties listed the property for sale

in 2007 for $2.75 million and that Druce received multiple offers at $2.4 or $2.5

million. Druce testified, however, that the offers were based on creative financing

arrangements he was not comfortable with and that he fired his broker based on

misrepresentations contained in the marketing brochure.9

H. Jury Verdict

At the close of all evidence, the jury returned a verdict for Druce

Properties, finding that Kofdarali, Matlock Place, Legend, and Burns committed

fraud by nondisclosure and statutory fraud; that Kofdarali, Matlock Place,

Legend, and Burns made a negligent misrepresentation upon which Druce

Properties relied; and that Matlock Place breached the contract. The jury found

that Druce Properties sustained damages of $973,900 and that Druce Properties

9 Druce‘s broker, Clifford Stratton, testified that Druce reviewed, edited, and approved the brochure before it was shown to the public.

16 should recover $146,153 in trial attorney‘s fees. The jury also assessed punitive

damages of $1.3 million against Legend. The trial court subsequently signed a

judgment in accordance with the jury‘s verdict.

III. Sufficiency of the Evidence

Appellants globally contend in their first issue that the evidence is legally

and factually insufficient to support the trial court‘s judgment. We address each

of Appellants‘ sub-issues in turn.

A. Standards of Review

1. Legal Sufficiency

We may sustain a legal sufficiency challenge only when (1) the record

discloses a complete absence of evidence of a vital fact; (2) the court is barred

by rules of law or of evidence from giving weight to the only evidence offered to

prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a

mere scintilla; or (4) the evidence establishes conclusively the opposite of a vital

fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998),

cert. denied, 526 U.S. 1040 (1999); Robert W. Calvert, “No Evidence” and

“Insufficient Evidence” Points of Error, 38 Tex. L. Rev. 361, 362–63 (1960). In

determining whether there is legally sufficient evidence to support the finding

under review, we must consider evidence favorable to the finding if a reasonable

factfinder could and disregard evidence contrary to the finding unless a

reasonable factfinder could not. Cent. Ready Mix Concrete Co. v. Islas, 228

17 S.W.3d 649, 651 (Tex. 2007); City of Keller v. Wilson, 168 S.W.3d 802, 807, 827

(Tex. 2005).

Anything more than a scintilla of evidence is legally sufficient to support the

finding. Cont’l Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 450 (Tex. 1996);

Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex. 1996). More than a scintilla of

evidence exists if the evidence furnishes some reasonable basis for differing

conclusions by reasonable minds about the existence of a vital fact. Rocor Int’l,

Inc. v. Nat’l Union Fire Ins. Co., 77 S.W.3d 253, 262 (Tex. 2002). Any ultimate

fact may be proved by circumstantial evidence. Russell v. Russell, 865 S.W.2d

929, 933 (Tex. 1993). A fact is established by circumstantial evidence when the

fact may be fairly and reasonably inferred from other facts proved in the case. Id.

However, to withstand a legal sufficiency challenge, circumstantial evidence still

must consist of more than a scintilla. Blount v. Bordens, Inc., 910 S.W.2d 931,

933 (Tex. 1995).

2. Factual Sufficiency

When reviewing an assertion that the evidence is factually insufficient to

support a finding, we set aside the finding only if, after considering and weighing

all of the evidence in the record pertinent to that finding, we determine that the

credible evidence supporting the finding is so weak, or so contrary to the

overwhelming weight of all the evidence, that the answer should be set aside and

a new trial ordered. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986)

18 (op. on reh‘g); Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Garza v. Alviar,

395 S.W.2d 821, 823 (Tex. 1965).

B. Damages

Appellants argue in part of their first issue that the evidence of Druce

Properties‘s damages is insufficient because it is conclusory and not supported

by any calculation or methodology. The jury charge asked the jury to find the

difference between the value of the property as represented and the value of the

property as received, and the jury found the difference to be $973,900.

Appellants challenge both the evidence of value as represented and the

evidence of value as received.

Appellants first argue that there is no evidence or factually insufficient

evidence they represented the property had a particular market value and that

the ―only evidence was that Matlock [Place] merely sought a particular price.‖

However, the August 2003 marketing brochure listed an asking price of $2.5

million, and it further represented that the property had a ninety-three percent

occupancy rate, annual income of $624,120, and an annual total return before

taxes of $155,597. Dowdle testified that the numbers in the brochure were

intended to advise a potential buyer how to determine the property‘s value, that

the brochure was a representation about how to calculate the property‘s value,

and that the ―numbers were intended to represent that the 2.5 million dollar

asking price was a fair price.‖ From this evidence, the jury could have

reasonably determined that the property‘s value as represented was $2.5 million.

19 Appellants also argue there is no evidence or factually insufficient

evidence of the property‘s market value as received by Druce Properties in 2004

because the only evidence offered was conclusory ipse dixit testimony. Ryfell

testified that he has purchased and sold twenty-five to thirty apartment

complexes. He first identified several items that he evaluates when considering

the purchase of a Class C property: whether the roof is flat or pitched, whether

the units have individual electricity meters and water heaters, whether the

stairways are covered or exposed, and whether the air conditioning units are

installed in a way that makes them subject to theft. Ryfell testified that he next

reviews the income-expense and rent roll documentation to compare against his

initial assessment of the property.

Ryfell testified that, in his opinion, the property had a market value

between $1 and $1.1 million in 2004, depending on the integrity of the roof and

whether the air conditioning units were all working. To support his opinion, Ryfell

testified that he reviewed the operating numbers and rent roll after the sale date

and applied ―basic fundamental assumptions of valuation analysis.‖ Ryfell

explained that by ―basic fundamental assumptions,‖ he meant (1) determining

gross rent; (2) deducting (a) twenty percent for maintenance; (b) twelve percent

for funds in reserve; and (c) actual expenses such as insurance, employee

salaries, and utilities; and (3) applying a reasonable capitalization rate to the

resulting number. Ryfell testified that he used Druce Properties‘s operating

statements from after the sale to determine the income and expenses and that

20 he calculated the property‘s value to be $1 million. Thus, Ryfell identified for the

jury the physical and financial aspects of the property that he considered

important in determining its value, and he provided the jury with his calculation,

the source of the numbers inputted into his calculation, and the result of his

calculation. We hold that Ryfell‘s testimony concerning property value as

received is not conclusory. See Plunkett v. Conn. Gen. Life Ins. Co., 285 S.W.3d

106, 120 (Tex. App.—Dallas 2009, pet. denied) (―‗A conclusory statement is one

that does not provide the underlying facts to support the conclusion.‘‖) (quoting

Brown v. Brown, 145 S.W.3d 745, 751 (Tex. App.—Dallas 2004, pet. denied)).

And to the extent that Appellants contend that Ryfell‘s testimony is no evidence

of damages because it was based on assumed facts that differed from actual,

undisputed facts, Ryfell testified that his calculations and market value

determination were based on the actual documentation generated by Druce

Properties shortly after it purchased the property from Matlock Place. His

testimony was not based on assumed facts. After applying the appropriate

standards of review, we hold that legally and factually sufficient evidence

supports the jury‘s damage award. See Gulf States Util. Co. v. Low, 79 S.W.3d

561, 566 (Tex. 2002) (stating that the fact finder ―has discretion to award

damages within the range of evidence presented at trial‖); Norris v. Jackson, No.

02-09-00265-CV, 2010 WL 4261541, at *5–6 (Tex. App.—Fort Worth Oct. 28,

2010, no pet.) (mem. op.) (affirming damage award within range of evidence

21 presented at trial on legal and factual sufficiency grounds). We overrule this

portion of Appellant‘s first issue.

C. Disclaimer of Reliance

Appellants contend in part of their first issue that the evidence is legally

insufficient to support Druce Properties‘s fraud, statutory fraud, and negligent

misrepresentation claims because the disclaimer of reliance clause in the

contract negated Druce Properties‘s reliance as a matter of law, thereby

conclusively negating reliance as an essential element of each cause of action.10

1. Applicable Law

The Texas Supreme Court has addressed the enforceability of disclaimer

of reliance clauses on at least three occasions. See Italian Cowboy Partners,

Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (Tex. 2011); Forest Oil Corp.

v. McAllen, 268 S.W.3d 51 (Tex. 2008); Schlumberger Tech. Corp. v. Swanson,

959 S.W.2d 171 (Tex. 1987). ―The question of whether an adequate disclaimer

of reliance exists is a matter of law.‖ Italian Cowboy, 341 S.W.3d at 333 (citing

Schlumberger, 959 S.W.2d at 181).

The Schlumberger court upheld a disclaimer of reliance clause and

determined that there was a clear intent to disclaim reliance where the contract

provided, ―[N]one of us is relying upon any statement or representation by any

10 Appellants preserved this issue by motion for directed verdict and motion for judgment notwithstanding the verdict, both of which were denied by the trial court.

22 agent of the parties being released hereby. Each of us is relying on his or her

own judgment.‖ 959 S.W.2d at 180. The court emphasized that the principle that

fraud vitiates a contract must be weighed against the competing concern that

parties should be able to fully and finally resolve their disputes by bargaining for

and executing a release barring all further disputes. Id. at 179. Based on this

latter concern, the court held that ―a release that clearly expresses the parties‘

intent to waive fraudulent inducement claims, or one that disclaims reliance on

representations about specific matters in dispute, can preclude a claim of

fraudulent inducement.‖ Id. at 181. The court further remarked, however, that a

disclaimer will not always preclude a fraudulent inducement claim. Id.

Later, in Forest Oil, the court upheld a similar disclaimer of reliance clause

that stated in part, ―[N]one of [the Plaintiffs and Intervenors] is relying upon any

statement or any representation of any agent of the parties being released

hereby. Each of the Plaintiffs and Intervenors is relying on his, her, or its own

judgment.‖ See 268 S.W.3d at 54 n.4. The court identified five facts that it had

considered most relevant in Schlumberger and that were also present in Forest

Oil, and the Court listed those facts as:

(1) the terms of the contract were negotiated, rather than boilerplate, and during negotiations, the parties specifically discussed the issue which has become the topic of the subsequent dispute;

(2) the complaining party was represented by counsel;

(3) the parties dealt with each other in an arm‘s length transaction;

(4) the parties were knowledgeable in business matters; and

23 (5) the release language was clear.

Id. at 60.

The Forest Oil court, however, expressly declined to adopt ―a per se rule

that a disclaimer automatically precludes a fraudulent-inducement claim‖ and

stated that its holding ―should not be construed to mean that a mere disclaimer

standing alone will forgive intentional lies regardless of context.‖ Id. at 61.

Subsequently, in Italian Cowboy, the court restated the factors and

indicated that if a clear and unequivocal disclaimer of reliance clause is

determined to exist, the analysis then proceeds to the factors that consider the

circumstances surrounding the contract‘s formation to determine whether the

provision is binding. See 341 S.W.3d at 337 n.8. The clause at issue in Italian

Cowboy stated, ―Tenant acknowledges that neither Landlord nor Landlord‘s

agents, employees or contractors have made any representations or promises

. . . except as expressly set forth herein.‖ Id. at 336. The court held that the

clause was actually nothing more than a standard merger clause and that if the

parties had actually intended to disclaim reliance, they did not do so by clear and

unequivocal contractual language. See 341 S.W.3d at 333–34, 336. The court

held that the contractual clause did not bar Italian Cowboy‘s claim for fraudulent

inducement because the clause did not meet the elevated requirement of

disclaiming reliance on representations in ―clear and unequivocal language.‖

See id. at 336. And because the parties‘ contract did not clearly and

24 unequivocally disclaim reliance, the court did not consider the remaining Forest

Oil factors. See id. at 337 n.8.

2. Discussion

The disclaimer of reliance clause at issue here stated in bold and capital

type:

9. LIMITATIONS OF SELLER‘S REPRESENTATIONS AND WARRANTIES

EXCEPT AS OTHERWISE SPECIFICALLY STATED IN THIS CONTRACT, SELLER HEREBY SPECIFICALLY DISCLAIMS ANY WARRANTY, GUARANTY OR REPRESENTATION, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, OR CONCERNING (I) THE NATURE AND CONDITION OF THE PROPERTY, INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY, AND THE SUITABILITY THEREOF AND OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH BUYER MAY ELECT TO CONDUCT THEREON, AND THE EXISTENCE OF ANY ENVIRONMENTAL HAZARDS OR CONDITIONS THEREON (INCLUDING THE PRESENCE OF ASBESTOS) OR COMPLIANCE WITH ALL APPLICABLE LAWS, RULES OR REGULATIONS; (II) EXCEPT FOR ANY WARRANTIES CONTAINED IN THE DEED TO BE DELIVERED BY SELLER AT THE CLOSING, THE NATURE AND EXTENT OF ANY RIGHT-OF- WAY, LEASE, POSSESSION, LIEN, ENCUMBRANCE, LICENSE, RESERVATION, CONDITION OR OTHERWISE; AND (III) THE COMPLIANCE OF THE PROPERTY OR ITS OPERATION WITH ANY LAWS, ORDINANCES OR REGULATIONS OF ANY GOVERNMENT OR OTHER BODY.[11] BUYER ACKNOWLEDGES THAT IT WILL INSPECT THE PROPERTY AND BUYER WILL RELY SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER. BUYER FURTHER

11 Druce Properties argues there is a comma rather than a period after ―other body,‖ but a review of the best available copy and a comparison to Matlock Place‘s contract with a previous potential buyer confirm that the punctuation mark is actually a period.

25 ACKNOWLEDGES THAT THE INFORMATION PROVIDED AND TO BE PROVIDED WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND SELLER (I) HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION; AND (II) DOES NOT MAKE ANY REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THE SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN ―AS IS‖ BASIS, AND BUYER EXPRESSLY ACKNOWLEDGES THAT, IN CONSIDERATION OF THE AGREEMENTS OF SELLER HEREIN, EXCEPT AS OTHERWISE SPECIFIED HEREIN, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF CONDITION, HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IN RESPECT OF THE PROPERTY. [Emphasis added.]

Because the disclaimer of reliance clause must clearly and unequivocally

disclaim reliance, we begin with the fifth Forest Oil factor. See id. (listing

remaining factors that become relevant if the contract clearly and unequivocally

disclaims reliance).

The clause at issue in Forest Oil stated in part that the parties were not

―relying upon any statement or any representation of any agent of the parties

being released‖ and that they were each ―relying on his, her, or its own

judgment.‖ See 268 S.W.3d at 54 n.4. The clause at issue in Schlumberger

stated in part that ―none of us is relying upon any statement or representation by

any agent of the parties being released hereby‖ and that ―[e]ach of us is relying

on his or her own judgment.‖ 959 S.W.2d at 180. The clause at issue here

disclaimed any representations concerning the condition of the property or the

accuracy or completeness of any information provided to Druce Properties, and

26 the clause expressly provided that Druce Properties would ―inspect the property‖

and would ―rely solely on its own investigation of the property and not on any

information provided or to be provided by seller.‖ We hold that the language of

the clause clearly and unequivocally disclaimed Druce Properties‘s reliance. See

Forest Oil, 268 S.W.3d at 60, 62; Schlumberger, 959 S.W.2d at 179, 180–81; cf.

Allen v. Devon Energy Holdings, L.L.C., No. 01-09-00643-CV, 2011 WL

3208234, at *7–9 (Tex. App.—Houston [1st Dist.] July 28, 2011, no pet. h.)

(holding fraudulent inducement claim not precluded because contract did not

negate reliance on information provided by other party).

We now consider the remaining Forest Oil factors. The first factor inquires

whether the terms of the contract were negotiated and whether the parties

specifically discussed the issues that later became the topic of the dispute. See

Forest Oil, 268 S.W.3d at 60. Druce Properties argues that the contract

language was boilerplate and not negotiated because it appeared in a previous

Matlock Place contract and that there was not a dispute between the parties at

the time of contract formation. While Matlock Place‘s contract with the prior

interested buyer did contain an identical disclaimer of reliance clause, there is

evidence that the parties specifically discussed and negotiated contractual terms

to address one of the primary topics disputed at trial: the required maintenance

and repair of the property. Druce and Kofdarali spoke on the telephone before

closing and agreed to split the cost of a new roof, and Kofdarali‘s share of the

roof cost was deducted from the final sale price. Moreover, the letter of intent set

27 forth a $100,000 credit at closing for ―repairs and maintenance,‖ and Kofdarali

testified that Druce negotiated for the $100,000 credit ―because he knew that

there was work to be done on this property.‖12 Thus, although some of the

evidence is conflicting, the parties specifically discussed and negotiated the issue

of the property‘s need for repairs and maintenance when arranging for the sale of

the property. Thus, on balance, the first Forest Oil factor favors enforcement.

Compare Baker v. City of Robinson, 305 S.W.3d 783, 796 (Tex. App.—Waco

2009, pet. denied) (declining to enforce disclaimer of reliance clause and noting

that only purchase price was negotiated in parties‘ contract), with Worldwide

Asset Purchasing, L.L.C. v. Rent-A-Center East, Inc., 290 S.W.3d 554, 567–68

(Tex. App.—Dallas 2009, no pet.) (enforcing disclaimer of reliance clause and

noting summary judgment evidence reflected parties exchanged proposed

drafts).

Concerning representation by counsel, it does not appear that Druce had

an attorney assist with the negotiation of the letter of intent or the contract, but

Druce did obtain, four months after signing the contract, an attorney‘s opinion

letter concerning the loan for the property. Thus, there is conflicting evidence

concerning Druce‘s representation by counsel. Compare Baker, 305 S.W.3d at

796 (declining to enforce disclaimer of reliance clause and noting plaintiff‘s

12 As set forth in the factual background section, Kofdarali and Druce gave conflicting testimony about negotiating the maintenance and repair credit in the letter of intent.

28 testimony that ―he was not represented by counsel during the bidding process or

at closing‖), with RAS Group, Inc. v. Rent-A-Center East, Inc., 335 S.W.3d 630,

640 (Tex. App.—Dallas 2010, no pet.) (enforcing disclaimer of reliance clause

and noting testimony that parties had attorneys available to review contract).

Druce Properties concedes the third factor, which inquires whether the

parties dealt with one another in an arm‘s length transaction, and the fourth

factor, the parties‘ knowledge in business matters, favors enforcement. Druce

had been a real estate agent for twenty years and had closed over one hundred

properties for clients, he took a fee for serving as an agent in this transaction,

and he owned two small apartment complexes and a large storage facility when

he entered into the contract. Although Druce did not have experience with large

apartment complexes equivalent to Kofdarali‘s, he did have experience sufficient

to be considered knowledgeable in business matters, particularly those involving

real estate.

Considering the Forest Oil factors and the policy reasons for the holdings

in Forest Oil and Schlumberger, we hold that the disclaimer of reliance clause in

the purchase and sale contract precludes Druce Properties‘s reliance as a matter

of law. The contract provides that Druce Properties would rely solely upon its

own investigation and that Matlock Place had not verified any of the information

provided, and at least three of the other four factors weigh in favor of enforcing

the disclaimer of reliance clause. See McLernon v. Dynegy, Inc., 347 S.W.3d

315, 332–33 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (enforcing

29 disclaimer of reliance clause with only ―scant‖ evidence of extent of

representation by counsel and stating that the Forest Oil considerations are

factors rather than elements). Under the facts of this case, we hold that the

disclaimer of reliance clause is enforceable and that it precludes Druce

Properties‘s fraud by nondisclosure, statutory fraud, and negligent

misrepresentation claims against Matlock Place as a matter of law.13 See Forest

Oil, 268 S.W.3d at 60–61; see also Schlumberger, 959 S.W.2d at 181 (holding

statutory fraud and fraud by nondisclosure claims barred by disclaimer of reliance

clause); RAS Group, Inc., 335 S.W.3d at 640 (holding negligent

misrepresentation claim barred by disclaimer of reliance clause). We sustain this

portion of Appellants‘ first issue.

D. Justifiable Reliance

Appellants next argue there is legally insufficient evidence of Druce

Properties‘s reliance because ―Druce knew sufficient information before signing

the contract and closing to not justifiably rely on the information in the brochure

13 By our holding, we necessarily disagree with Druce Properties‘s implication that a disclaimer of reliance clause is enforceable only if it is contained in a settlement agreement. In Italian Cowboy, the Supreme Court addressed the disclaimer of reliance clause argument as it related to a restaurant lease agreement. See 341 S.W.3d at 331–37. Moreover, courts of appeal have not limited the application of disclaimer of reliance clauses to settlement agreements. See RAS Group, Inc., 335 S.W.3d at 633 (contract for purchase of delinquent credit accounts); Baker, 305 S.W.3d at 786 (contract for sale of real property); Worldwide Asset Purchasing, L.L.C., 290 S.W.3d at 567–69 (contract for purchase of delinquent credit accounts); see also Allen, 2011 WL 3208234, at *2–4 (stock redemption agreement).

30 and complained-of documents.‖14 Reliance is a necessary element of Druce

Properties‘s statutory fraud claim against Appellants. See Tex. Bus. & Com.

Code Ann. § 27.01(a)(1)(B), (2)(D) (West 2009) (listing reliance as element of

statutory fraud). We assume without deciding that Druce Properties‘s reliance

must have been justifiable. See Tex. First Nat’l Bank v. Ng, 167 S.W.3d 842,

856 n.24 (Tex. App.—Houston [14th Dist.] 2005, pet. granted, judgm‘t vacated

w.r.m.) (noting ―disagreement among Texas courts as to whether reliance on

fraudulent misrepresentation must be justifiable‖).

―In measuring justifiability, we must inquire 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) (quoting Haralson

v. E.F. Hutton Group, Inc., 919 F.2d 1014, 1026 (5th Cir. 1990)). In other words,

a person may not justifiably rely on a representation if there are ―red flags‖

indicating such reliance is unwarranted. Id. (quoting Lewis v. Bank of Am. NA,

343 F.3d 540, 546 (5th Cir. 2003)).

14 Appellants do not challenge Druce Properties‘s reliance on factual sufficiency grounds. Furthermore, because we have held that the disclaimer of reliance clause is enforceable in favor of Matlock Place, the following discussion of Druce Properties‘s misrepresentation claims relates only to Kofdarali and Burns.

31 Appellants point to several representations that Druce Properties contends

were false, and they also identify evidence suggesting that Druce was aware of

the falsity before closing. For example, Appellants note that the marketing

brochure and September 2003 rent roll showed a ninety-three percent occupancy

rate. They also point to the documents Druce received during due diligence that

showed occupancy rates in the mid-seventies, Druce‘s testimony that he knew

the brochure would have exaggerations in it, and Druce‘s admission that he knew

from walking the property that a ninety-three percent occupancy rate was too

high. However, the jury also received evidence that the rent rolls given to Druce

showed occupancy rates of ninety-three, seventy-three, eighty-six, and eighty-six

percent; that the occupancy rates were intentionally inflated because tenants had

not been removed from the rent roll when they had moved out; that Druce

believed at the time of closing, based on the inaccurate information provided to

him, that the occupancy rate was eighty-seven percent; that Druce was satisfied

with an eighty-seven percent occupancy rate; but that the actual occupancy rate

at closing (of which Druce was not aware) was between seventy and seventy-five

percent, with almost half of the vacant units uninhabitable. The jury could have

reasonably determined that Druce Properties justifiably relied on Appellants‘

representations concerning the occupancy rate.

Appellants also attempt to refute the representation in the marketing

brochure that said, ―Major Rehab Just Completed.‖ In doing so, Appellants point

to evidence that Druce was aware that the property had issues with erosion and

32 needed new paint and that there were problems with the foundation, roof,

lighting, and fence. But these items relate to deferred maintenance, not a major

rehabilitation. For example, Druce testified that when he inspected the property,

he asked to see a representative sample of the units; that he inspected

approximately ten of the ninety-nine units; that of the ten units he inspected, most

were occupied, the vacant units had only minor damage, and none was

uninhabitable; and that his inspection seemed consistent with the representation

that major rehabilitation had just been completed. Druce also testified that no

one disclosed to him that rehabilitation was not complete and that he would have

asked to see more units if that had been disclosed. The jury could have

reasonably determined that Druce Properties justifiably relied on Appellants‘

representations concerning rehabilitation of the property.

Appellants also challenge Druce Properties‘s reliance on any

representations about crime problems at the property.15 They first point to

evidence that the due diligence documents disclosed crime issues on the

property.16 However, the due diligence documents were described at trial as

being 1,500 to 2,000 pages of documents. Of those 1,500 to 2,000 pages, a

15 Druce testified that no one told him about the crime problem, and Dowdle testified that Burns told Druce during the due diligence period that the crime issues were nothing more than loud noise that is typical of apartment complexes. 16 There is some question whether the trial exhibit representing the due diligence documents accurately reflects the information provided to Druce. Druce testified that the trial exhibit contained internal Legend documents that had not been provided to him.

33 mere seven pages contained short descriptions of potential crime problems

spread over several months and involving only four of the ninety-nine units. One

weekly manager‘s report stated: ―Resident Problems: Prostitutes‖; two weekly

manager‘s reports stated that a resident of apartment 212-06 was stealing from a

nearby business and dealing drugs; two weekly manager‘s reports stated that too

many people were hanging out at the end of building 204; and two delinquency

reports stated that the resident of apartment 208-04 was ―in jail should be here

12-28-[03].‖ In addition, Druce‘s knowledge of the crime problem must be viewed

in context with Appellants‘ representations about the income stream, which led

Druce to believe that the income stream would increase once the crime problem

was resolved. See generally City of Keller, 168 S.W.3d at 811 (discussing

contextual evidence). Thus, even if the trial exhibit accurately represented the

documents Druce received during due diligence, the crime issues noted in the

documents were not so prevalent as to negate justifiable reliance as a matter of

law. See Allen, 2011 WL 3208234, at *17, 20 (holding lack of justifiable reliance

not conclusively proved despite, among other things, plaintiff‘s knowledge of

increased prices before closing).

Appellants also point to evidence that all Class C properties have some

issues with crime, that Druce spoke with Morrison about the crime issues before

closing, and that Druce discussed the crime problem with an Arlington police

officer four days before closing and decided to close anyway. But there is no

evidence that Druce knew crime was a potential problem with Class C properties;

34 in fact, Druce did know about the necessity of criminal background checks before

he bought the property in 2004. Furthermore, Druce‘s conversation with

Morrison occurred at the same time Druce was speaking with the police officer.

Finally, the conversation with the police officer occurred four days before closing

in July, a time when Druce no longer had an unconditional right to terminate the

contract.17 Thus, Druce‘s knowledge before closing does not conclusively negate

Druce Properties‘s justifiable reliance. See id. at *17–20.

There is no question that the jury in this case heard conflicting evidence.

As a reviewing court, we defer to the jury on issues concerning the credibility of

witnesses, the weight to be given to witness testimony, and the resolution of

conflicts in the evidence. See City of Keller, 168 S.W.3d at 819. Applying the

appropriate standard of review, we hold that, given Druce‘s individual

characteristics, abilities, and appreciation of the facts and circumstances at or

before the time of Appellants‘ misrepresentations, legally sufficient evidence

supports the jury‘s finding that Druce Properties justifiably relied on Appellants‘

representations. See Grant Thornton L.L.P., 314 S.W.3d at 923; Cent. Ready

17 The contract, signed in March, gave Druce the right to terminate the contract if he knew that Matlock Place had made a false representation or warranty concerning Matlock Place‘s ―right, power and authority to sell and convey the Property‖; Matlock Place‘s payment of ―taxes, charges, debts, and other assessments‖ through 2004; or the existence of unrecorded liens that would not be satisfied by the sale. None of these relates to the representations at issue in this case.

35 Mix Concrete Co., 228 S.W.3d at 651; City of Keller, 168 S.W.3d at 807, 827.

We overrule this portion of Appellants‘ first issue.

E. Scienter

Appellants also contend in their first issue that the evidence supporting

Kofdarali‘s and Burns‘s individual liability is legally and factually insufficient.

Specifically, Appellants argue there is ―no evidence that Kofdarali or Burns

communicated any false statement on which Druce Properties relied or that

[Kofdarali and Burns] had any scienter making such statements.‖ Appellants do

not contest that Kofdarali and Burns would be personally liable for their own

fraudulent or tortious acts. See Miller v. Keyser, 90 S.W.3d 712, 717 (Tex.

2002). Instead, they argue the evidence is insufficient to sustain that individual

liability.

1. Kofdarali

The jury found that Kofdarali committed statutory fraud. The court‘s

charge defined statutory fraud as follows:

A party commits statutory fraud if:

a. there is a false representation of a past or existing material fact,

b. the false representation is made to a person for the purpose of inducing that person to enter into a contract, and

c. the false representation is relied on by that person in entering into that contract.

Because Appellants did not object to the language of this instruction, we

measure the sufficiency of the evidence based on this instruction as submitted to

36 the jury.18 See Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 715 (Tex.

2001); City of Fort Worth v. Zimlich, 29 S.W.3d 62, 71 (Tex. 2000).

Appellants argue that Kofdarali did not correspond with Druce, personally

spoke with Druce only one time concerning the roof, and did not have knowledge

that any representations to Druce were false. But Appellants ignore evidence

favorable to the jury‘s statutory fraud finding against Kofdarali. For example, the

evidence reflects that Kofdarali decided to sell the property upon determining that

the cost to rehabilitate it was too great. Kofdarali admitted that the rehabilitation

was not complete, and other evidence reflected that the property required

substantial deferred maintenance after Druce purchased it. Furthermore,

Kofdarali personally approved the marketing brochure, a document that he knew

buyers would believe to be accurate and that represented that the property

required ―very little deferred maintenance‖ and stated, ―Major Rehab Just

Completed.‖ Applying the appropriate standards of review, we hold that legally

and factually sufficient evidence supports the jury‘s finding that Kofdarali

committed statutory fraud, and we overrule this part of Appellant‘s first issue.

2. Burns

The jury similarly found that Burns committed statutory fraud. Appellants

argue that Burns cannot be individually liable because she did not forward any

18 The statutory fraud question included a second instruction defining statutory fraud in the context of a false promise to do an act. We do not address the sufficiency of the evidence based on that instruction in light of our conclusion as to the instruction quoted above. See generally Tex. R. App. P. 47.1.

37 documents directly to Druce and did not perform the data entry that led to the

inflated occupancy rates. Appellants also point out that Druce described Burns

as being very helpful when he spoke with her and that Druce testified that he did

not remember relying on anything Burns told him when purchasing the property.

However, there is evidence that Burns specifically told Druce during the due

diligence period that the crime was ―your standard loud noise . . . which you get

in almost all apartment complexes.‖ But Burns testified at trial that crime is a

problem at the property. Furthermore, although Druce testified that he did not

recall anything from Burns that he relied on when purchasing the property, he

also testified that no one told him about the crime problem before he spoke with

the police officer four days before closing and that the crime problem was so bad

that there was a murder on the property five months after he bought it. Given

that Burns made the false representation concerning the crime problem during

the due diligence period, it can be inferred from the circumstances that she made

the representation with the intent that Druce Properties rely on it and enter into

the contract. See Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962

S.W.2d 507, 526 (Tex. 1998) (―Proof that a defendant made a statement knowing

of its falsity or without knowledge of its truth may be proved by direct or

circumstantial evidence.‖); Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432,

434–35 (Tex. 1986) (―Intent is a fact question uniquely within the realm of the

trier of fact because it so depends upon the credibility of the witnesses and the

weight to be given to their testimony.‖); Hannon, Inc. v. Scott, No. 02-10-00012-

38 CV, 2011 WL 1833106, at *6 (Tex. App.—Fort Worth May 12, 2011, pet. denied)

(mem. op.) (―Intent may be inferred from a party‘s actions before and after the

fraudulent conduct.‖). Furthermore, the spoliation instruction in the jury charge

permitted an inference that the destroyed data would have been unfavorable to

Burns. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 306 (Tex.

2006) (―Spoliation of evidence normally supports an inference only that the

evidence was unfavorable, not that it was created ab initio with fraudulent intent.

But as the evidence here was part of the original contracting process, it provides

some circumstantial evidence of fraud in that process.‖).

Again, the jury in this case clearly heard conflicting evidence. But we must

as a reviewing court defer to the jury‘s determinations of credibility, weight, and

conflicts in the evidence. See City of Keller, 168 S.W.3d at 819. Therefore,

applying the appropriate standards of review, we hold that legally and factually

sufficient evidence supports the jury‘s finding that Burns committed statutory

fraud, and we overrule this part of Appellant‘s first issue.19

F. Economic Loss Rule

Appellants also argue in their first issue that Druce Properties‘s only

alleged damages arise from a contract and that Druce Properties therefore

cannot maintain a tort cause of action for the same damages.

19 Because we have affirmed the sufficiency of the evidence supporting the jury‘s statutory fraud findings against Kofdarali and Burns, we need not address Druce Properties‘s claims for fraud by nondisclosure and negligent misrepresentation. See Tex. R. App. P. 47.1.

39 As we stated in Heil Co. v. Polar Corp.,

Although a party‘s actions may breach duties in tort, contract, or both, Texas has long recognized that ―mere nonfeasance under a contract creates liability only for breach of contract.‖ Crawford v. Ace Sign, Inc., 917 S.W.2d 12, 13 (Tex. 1996); Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). ―When the injury is only the economic loss to the subject of a contract itself, the action sounds in contract alone.‖ Reed, 711 S.W.2d at 618. Thus, tort damages are generally not recoverable unless the plaintiff suffers an injury that is independent and separate from the economic losses recoverable under a breach of contract claim. See Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 45–47 (Tex. 1998); Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991) (analyzing both the source of the duty and the nature of the remedy in determining a claim‘s characterization as sounding either in contract or tort); see also Fed. Land Bank Ass’n v. Sloane, 825 S.W.2d 439, 442–43 (Tex. 1991) (adopting independent injury requirement of section 552B of the Restatement (Second) of Torts). The supreme court in Formosa, however, declined to apply the independent injury requirement to a fraudulent inducement claim. Formosa, 960 S.W.2d at 47.

191 S.W.3d 805, 815–16 (Tex. App.—Fort Worth 2006, pet. denied).

Appellants do not dispute that the economic loss rule does not apply to

claims for fraudulent inducement. Instead, they mistakenly argue that Druce

Properties did not assert a fraudulent inducement claim. Contrary to Appellants‘

contention, Druce Properties‘s pleading included an allegation that Appellants

made ―representations with the intent of inducing Druce to enter into and close

the sale of‖ the property, and the jury found in response to the statutory fraud

question that Appellants had made false representations ―for the purpose of

inducing [Druce Properties] to enter into a contract.‖ Druce Properties‘s statutory

fraud claim was therefore based on fraudulent inducement, and the economic

40 loss rule does not bar Druce Properties‘s statutory fraud tort damages. See id.;

see also Formosa, 960 S.W.2d at 47; Reservoir Sys., Inc. v. TGS-NOPEC

Geophysical Co., L.P., 335 S.W.3d 297, 308 (Tex. App.—Houston [14th Dist.]

2010, pet. denied) (―Tort damages are recoverable for a fraudulent-inducement

claim irrespective of whether the fraudulent representations are later subsumed

in a contract or whether the plaintiff only suffers an economic loss related to the

subject matter of the contract.‖). We overrule this part of Appellant‘s first issue.

G. Breach of Contract

In the final part of their first issue, Appellants argue that the evidence is

legally and factually insufficient to support Druce Properties‘s claim for breach of

contract against Matlock Place.

Druce Properties contended at trial and argues on appeal that Matlock

Place breached the contract by providing falsified rent rolls. The contractual

provision at issue provided as follows:

7. SUBMISSION MATTERS: Buyer acknowledges receipt of the following materials and waives any contingency attached to these documents.

...

(f) a rent roll of a recent date;

Seller makes no representation or warranty, expressed or implied, as to the accuracy or completeness of the information contained in the Submission Matters except that Seller has delivered all such items in Seller‘s actual possession.

41 Appellants interpret this provision as a mere acknowledgement of a past

act that could not be breached. Druce Properties responds that the letter of

intent allowed Druce twenty-one days ―to inspect the subject property and

perform due diligence on all records‖ and that Appellants continued providing

Druce with documents after the contract was signed. Thus, Druce Properties

argues that this triggered an implied contractual obligation of cooperation. But

the contract contained a merger clause providing that it superseded all ―prior

understandings or written or oral agreements between the parties.‖ See, e.g.,

Springs Window Fashions Div., Inc. v. Blind Maker, Inc., 184 S.W.3d 840, 870

(Tex. App.—Austin 2006, pet. granted, judgm‘t vacated w.r.m.) (―A merger clause

. . . memorializes the parties‘ intent to integrate or absorb their prior negotiations,

agreements, or understandings concerning the same subject matter into a

subsequent written contract.‖). Thus, Druce Properties cannot rely on the letter

of intent to support an obligation by Matlock Place to provide an accurate rent

roll.

Druce Properties also argues that the contract included an implied duty to

perform the contract with care, skill, reasonable expedience, and faithfulness.

But the cases upon which Druce Properties relies do not support its contention.

See Bank One, Tex. N.A. v. Stewart, 967 S.W.2d 419, 434 (Tex. App.—Houston

[14th Dist.] 1998, pet. denied) (declining to interpret implied covenant to

cooperate into bailment agreement); see also Montgomery Ward & Co. v.

Scharrenbeck, 146 Tex. 153, 157, 204 S.W.2d 508, 510 (1947) (recognizing

42 implied contractual duty to perform services contract without negligence); Jones

v. Star Houston, Inc., 45 S.W.3d 350, 355 (Tex. App.—Houston [1st Dist.] 2001,

no pet.) (acknowledging implied duty to perform services contract with ordinary

care).

Moreover, Texas courts look ―beyond the written agreement to imply a

covenant only if necessary to effectuate the intention of the parties as disclosed

by the contract as a whole, but not to make the contract fair, wise, or just.‖

Stewart, 967 S.W.2d at 434 (citing Nalle v. Taco Bell Corp., 914 S.W.2d 685, 687

(Tex. App.—Austin 1996, writ denied)). ―An implied covenant is necessary to

effectuate the parties‘ intentions only if the obligation is ‗so clearly within the

contemplation of the parties that they deemed it unnecessary to express it.‘‖ Id.

(quoting Nalle, 914 S.W.2d at 687). Furthermore, ―‗[t]here can be no implied

covenant as to a matter specifically covered by the written terms of the contract.‘‖

Id. at 434–35 (quoting Texstar N.A., Inc. v. Ladd Petroleum Corp., 809 S.W.2d

672, 678 (Tex. App.—Corpus Christi 1991, writ denied)). Here, the contract

provision upon which Druce Properties relies merely acknowledges that Druce

received the documentation, and the provision expressly disclaimed any

representation or warranty concerning the accuracy or completeness of the

information. Druce Properties does not dispute that Druce received a rent roll

and contends only that the rent roll was not accurate. In this scenario, we are not

free to imply a covenant into the contract to make it fair or just. See id. We hold

43 that there is legally insufficient evidence to support the jury‘s finding that Matlock

Place breached the contract, and we sustain this portion of Appellant‘s first issue.

IV. Jury Charge Instructions

Appellants contend in their second issue that the trial court erred by

submitting two jury instructions. The first instruction concerned spoliation of

evidence, and the second concerned the ―as is‖ clause in the contract.

A. Spoliation Instruction

Appellants argue that the trial court erred by submitting a spoliation

instruction because there was no evidence to support it.20

―A spoliation instruction is an instruction given to the jury outlining

permissible inferences they may make against a party who has lost, altered, or

destroyed evidence.‖ Tex. Elec. Coop. v. Dillard, 171 S.W.3d 201, 208 (Tex.

App.—Tyler 2005, no pet.); Brewer v. Dowling, 862 S.W.2d 156, 159 (Tex.

App.—Fort Worth 1993, writ denied). The use of a spoliation instruction is

generally limited to two circumstances: (1) the deliberate destruction of relevant

evidence; and (2) the failure of a party to produce relevant evidence or to explain

its non-production. Wal-Mart Stores, Inc. v. Johnson, 106 S.W.3d 718, 721 (Tex. 20 To the extent Appellants argue that the spoliation instruction was an incorrect statement of law, they did not present that contention to the trial court by objecting to the jury charge. Appellants therefore failed to preserve that argument for appellate review. See Tex. R. App. P. 33.1(a); Tex. R. Civ. P. 272; see also Wackenhut Corp. v. Gutierrez, No. 04-10-00661-CV, 2011 WL 3915630, at *2 (Tex. App.—San Antonio Sept. 7, 2011, no pet. h.) (mem. op.) (holding spoliation complaint not preserved due to failure to object to charge instruction).

44 2003) (citing Anderson v. Taylor Publ’g Co., 13 S.W.3d 56, 61 (Tex. App.—

Dallas 2000, pet. denied)). Under the first circumstance, a party who has

deliberately destroyed evidence is presumed to have done so because the

evidence was unfavorable to its case. Id. at 721–22 (citing Williford Energy Co.

v. Submergible Cable Servs., Inc., 895 S.W.2d 379, 389–90 (Tex. App.—Amarillo

1994, no writ), and Brewer, 862 S.W.2d at 159). Under the second

circumstance, the presumption arises because the party controlling the missing

evidence cannot explain its failure to produce it. Id. at 722 (citing Watson v.

Brazos Elec. Power Coop., Inc., 918 S.W.2d 639, 643 (Tex. App.—Waco 1996,

writ denied)).

A trial court may be guided by the following three factors in determining

whether a spoliation presumption is justified: (1) whether there was a duty to

preserve evidence; (2) whether the alleged spoliator either negligently or

intentionally spoliated evidence; and (3) whether the spoliation prejudiced the

nonspoliator‘s ability to present its case or defense. Trevino v. Ortega, 969

S.W.2d 950, 954–55 (Tex. 1998) (Baker, J., concurring).

We review the submission of a spoliation instruction under an abuse of

discretion standard. Crescendo Invs., Inc. v. Brice, 61 S.W.3d 465, 479 (Tex.

App.—San Antonio 2001, pet. denied); see Johnson, 106 S.W.3d at 722–23;

Conditt v. Morato, No. 02-06-00214-CV, 2007 WL 2693968, at *3 (Tex. App.—

Fort Worth Sept. 13, 2007, pet. denied) (mem. op.).

45 2. Discussion

The instruction at issue stated:

Spoliation of evidence occurs in two circumstances when a party knew or should have known that certain evidence is relevant: (1) the deliberate destruction of the relevant evidence or (2) the failure of a party to produce the relevant evidence or to explain its non-production. In either situation, a presumption arises that the evidence was unfavorable to the party who committed spoliation.

Appellants first argue that they did not have a duty to preserve evidence

because they were not on notice of Druce Properties‘s claim when the

documents were destroyed. Before any failure to produce material evidence may

be viewed as discovery abuse, the opposing party must establish that the

nonproducing party had a duty to preserve the evidence in question. Dillard, 171

S.W.3d at 209 (citing Johnson, 106 S.W.3d at 722). There must be a sufficient

foundational showing that the party who destroyed the evidence had notice both

of the potential claim and of the evidence‘s potential relevance thereto. Dillard,

171 S.W.3d at 209 (citing Johnson, 106 S.W.3d at 722).

Druce Properties filed this lawsuit in March 2006, and Appellants filed their

answer in April 2006. Druce Properties, in September 2006, requested that

Appellants produce documents and data, including that in electronic form,

relating to the occupancy, management, and improvement of the property. In

November and December 2006, Druce Properties sent notices for the

depositions of Kofdarali and Burns, both of which included requests for

production of the same type of documents and data. Despite these document

46 requests, Appellants did not respond to the requests for production until late-

December 2007. In their December 28, 2007 request for production response,

Burns and Legend responded as follows:

My records for this time period are no longer in existence. These records would have been kept on computers and were stored at my offices in Arlington. Those offices burned in June 2007, causing a loss of all data. However, the records were provided previously to Marcus & Millichap and have been produced to Plaintiffs in that litigation. I would refer Plaintiffs to the documents, which reflect these numbers.

Kofdarali and Matlock Place‘s response was virtually identical but also

stated: ―To the extent the documents were previously provided to me, those

records were not maintained after the sale of the property, as is our standard.‖

At trial, Kofdarali testified that it is his standard practice to destroy all paper

copies relating to a property once the tax return has been completed. Thus,

because the property sold in 2004, he destroyed any remaining paper copies

after completing the 2004 taxes during the year 2005. But Kofdarali also testified

that he was aware in 2006 of Druce Properties‘s document request and that he

knew the document request sought both paper and electronic copies. And

Kofdarali confirmed that he and the other appellants did not respond to the pre-

fire discovery requests for more than a year and until well after the June 2007

fire. However, Kofdarali also testified that he and Burns discussed the spoliation

issue the night before he testified and discovered that there would not have been

any data about the property on Legend‘s computers at the time of the fire

because Legend stopped paying the software company for access to the

47 electronic data relating to the property shortly after Druce Properties purchased

the property. Burns testified similarly and added that Legend would have ―boxed

up‖ any paper documents in its possession after the sale and sent them to

Kofdarali within ninety days of the sale. However, Burns testified both that after a

sale, Legend ―delete[s] a lot of stuff off of our system simply to free up space‖

and that the data ―stays on that computer‖ but is inaccessible once the software

license is not renewed.

On appeal, Appellants maintain they had no duty to preserve evidence

because the paper copies were destroyed in 2005 before they had notice of a

claim and that the electronic copies were inaccessible in 2004 once Legend

stopped paying the software licensing fee. But Appellants ignore the

inconsistencies in their pretrial and trial positions. Druce Properties requested

documents, paper or electronic, from Appellants in September 2006, and

Appellants did not respond to Druce Properties‘s document request until

December 28, 2007. In the meantime, according to Kofdarali and Burns, a fire

destroyed the computers stored at Legend‘s corporate office. However, Druce

Properties could have inspected the actual computers had Appellants not

delayed in responding to the document requests, and the June 2007 fire would

not have been an issue. Further, if Legend in fact deleted electronic files shortly

after the sale, Appellants could have said as much in their initial discovery

response, and neither the fire nor the decision not to maintain the software

license would have been an issue. Appellants instead chose to initially rely on

48 the fire without mentioning the inconsistent explanations of deleting electronic

files and not maintaining the software license. Because of Appellant‘s

inconsistent and changing explanations, we cannot say the trial court abused its

discretion by determining that Appellants had a duty to preserve relevant

evidence. See generally Cresthaven Nursing Residence v. Freeman, 134

S.W.3d 214, 228 (Tex. App.—Amarillo 2003, no pet.) (holding that

inconsistencies in testimony and paper records, among other things, provided

more than a scintilla of evidence to support submission of spoliation instruction).

Appellants also argue that there is no evidence that the destroyed

documents would have helped Druce Properties‘s case. To determine whether

the spoliation hindered Druce Properties‘s ability to present its case, we look to a

variety of circumstances such as the relevancy of the missing evidence and the

availability of other evidence to take the place of the missing information. See

Trevino, 969 S.W.2d at 958 (Baker, J., concurring). Ocampo testified that

Morrison told her not to remove tenants from the rent roll when they moved out,

and the rent rolls and internal reports, which showed significantly different

occupancy rates only days apart, arguably supported Ocampo‘s testimony. Had

the data at issue not been destroyed, it could have further confirmed Ocampo‘s

testimony. Although this on first blush suggests that any destroyed data would

have merely been cumulative of other evidence in the record, we note that the

case was hotly contested on all liability issues. The existence of additional

evidence showing that income and occupancy rates had been intentionally

49 altered could have significantly aided the presentation of Druce Properties‘s

case. And to the extent that we cannot determine with certainty what else the

data might have shown, we are unable to do so because Appellants destroyed it.

See Brookshire Bros., Ltd. v. Aldridge, No. 12-08-00368-CV, 2010 WL 2982902,

at *7–8 (Tex. App.—Tyler July 30, 2010, pet. filed) (mem. op.) (holding spoliation

prejudiced plaintiff because remaining portion of video showed only part of

events relevant to plaintiff‘s accident). We therefore hold the trial court did not

abuse its discretion by determining that the missing evidence prejudiced Druce

Properties‘s ability to present its case. We overrule this part of Appellants‘

second issue.

B. “As Is” Instruction

Appellants argue in the remainder of their second issue that the trial court

erred by submitting a jury instruction concerning the ―as is‖ clause in the contract.

The trial court ―shall submit such instructions and definitions as shall be

proper to enable the jury to render a verdict.‖ Tex. R. Civ. P. 277. An instruction

is proper if it (1) assists the jury, (2) accurately states the law, and (3) finds

support in the pleadings and evidence. Transcon. Ins. Co. v. Crump, 330 S.W.3d

211, 221 (Tex. 2010) (quoting Union Pac. R.R. Co. v. Williams, 85 S.W.3d 162,

166 (Tex. 2002)). Generally, we review the trial court‘s decisions on how to

charge the jury for an abuse of discretion; however, when the appellant

challenges an instruction or definition as legally incorrect, we review the

50 instruction or definition de novo. Id.; St. Joseph Hosp. v. Wolff, 94 S.W.3d 513,

525 (Tex. 2002). If the charge is legally correct, the trial court has broad

discretion regarding the submission of questions, definitions, and instructions.

Hyundai Motor Co. v. Rodriguez, 995 S.W.2d 661, 664 (Tex. 1999).

The trial court submitted the following instruction to the jury:

A buyer is not bound by an agreement to purchase something ―as is‖ if he has been induced to enter into an agreement because of a fraudulent representation or concealment of information by the seller.

Appellants first argue that this instruction is legally incorrect.21 Appellants

do not dispute that the instruction as given correctly states the rule as set forth in

Prudential Insurance Co. of America v. Jefferson Associates., Ltd., 896 S.W.2d

156, 162 (Tex. 1995) (―A buyer is not bound by an agreement to purchase

something ‗as is‘ that he is induced to make because of a fraudulent

representation or concealment of information by the seller.‖). Instead, Appellants

cite Forest Oil and contend that the instruction was legally incorrect because it

―completely leaves out necessary and corresponding language from the Texas

Supreme Court that the waiver language in the ‗as is‘ clause can be enforceable

and can negate reliance.‖

21 Appellants preserved this complaint for appellate review by objecting to the submission of the instruction before it was submitted to the jury. See Ford Motor Co. v. Ledesma, 242 S.W.3d 32, 43–44 (Tex. 2007); State Dep’t of Highways & Pub. Transp. v. Payne, 838 S.W.2d 235, 241 (Tex. 1992) (op. on reh‘g); see also Tex. R. Civ. P. 274.

51 We held above that the disclaimer of reliance clause in the contract is

enforceable. In light of that holding, we agree with Appellants that the ―as is‖

instruction is an incorrect statement of the law. In Forest Oil and Schlumberger,

the supreme court held that a disclaimer of reliance clause is enforceable if the

disclaimer clause‘s language clearly and unequivocally disclaims reliance on the

other party‘s representations and if other circumstances are present. Forest Oil,

268 S.W.3d at 60–61; Schlumberger, 959 S.W.2d at 179–81. If the clear and

unequivocal language appears in the parties‘ agreement, as it does in this case,

and the other circumstances are present, as they are in this case, it is not legally

correct to instruct the jury that a ―buyer is not bound by an agreement to

purchase something ‗as is‘ if he has been induced to enter into an agreement

because of a fraudulent representation or concealment of information by the

seller.‖ See Forest Oil, 268 S.W.3d at 60–61; Schlumberger, 959 S.W.2d at

179–81; see also Halmos v. Bombardier Aerospace Corp., 314 S.W.3d 606, 617

(Tex. App.—Dallas 2010, no pet.) (―An instruction that misstates the law as

applicable to the facts or misleads the jury is improper.‖). The trial court

therefore erred by submitting a legally incorrect instruction to the jury.

3. Harmful Error

To obtain reversal of a judgment based upon an error in the trial court, the

appellant must show that the error occurred and that it probably caused rendition

of an improper judgment or probably prevented the appellant from properly

presenting the case to this court. Tex. R. App. P. 44.1(a); Romero v. KPH

52 Consolidation, Inc., 166 S.W.3d 212, 225 (Tex. 2005). ―‗Charge error is generally

considered harmful if it relates to a contested, critical issue.‘‖ Crump, 330

S.W.3d at 225 (quoting Columbia Rio Grande Healthcare, L.P. v. Hawley, 284

S.W.3d 851, 856 (Tex. 2009)). Unless the appellate court is reasonably certain

that the jury was not significantly influenced by issues erroneously submitted to it,

the error is reversible. Romero, 166 S.W.3d at 227–28.

Here, all issues in the case were hotly contested, especially liability for

fraud, and the evidence presented a close case that the jury could have

legitimately decided in favor of either Druce Properties or Appellants.

Furthermore, we have held that Druce Properties‘s claims against Matlock Place

are either barred by the disclaimer of reliance clause or not supported by legally

sufficient evidence. Therefore, we cannot be reasonably certain that the jury was

not significantly influenced by the trial court‘s submission of this legally incorrect

instruction. Thus, the trial court‘s error was harmful, and we sustain this portion

of Appellants‘ second issue.22

V. Conclusion

Having sustained in part and overruled in part Appellants‘ first issue,

having sustained in part and overruled in part Appellants‘ second issue, and

22 Because we sustain this portion of Appellants‘ second issue and must therefore remand for a new trial, we do not address Appellants‘ third issue (in which they contend that the trial court erred by excluding evidence of Druce Properties‘s damages) or Appellants‘ fourth issue concerning attorney‘s fees. See Tex. R. App. P. 47.1.

53 having not reached the remainder of Appellants‘ issues, we reverse the portion of

the trial court‘s judgment relating to Druce Properties‘s claims against Matlock

Place and render judgment that Druce Properties take nothing against Matlock

Place. We also reverse the remainder of the trial court‘s judgment and remand

this case for a new trial consistent with this opinion.

ANNE GARDNER JUSTICE

PANEL: DAUPHINOT, GARDNER, and WALKER, JJ.

DAUPHINOT, J. dissents without opinion.

DELIVERED: January 12, 2012