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

• Court: Court of Appeals of Texas
• Decided: April 26, 2017
• Docket: 07-15-00340-CV
• Status: Published

Opinion

In The Court of Appeals Seventh District of Texas at Amarillo

No. 07-15-00340-CV

RICK LOVELADY CARPETS, INC., APPELLANT

V.

G.R. CHAPMAN LIMITED PARTNERSHIP AND GEORGE R. CHAPMAN A/K/A G.R. CHAPMAN, APPELLEES

On Appeal from the 251st District Court Potter County, Texas Trial Court No. 101,442-C, Honorable Ana Estevez, Presiding

April 26, 2017

MEMORANDUM OPINION Before QUINN, C.J., and CAMPBELL and HANCOCK1, JJ.

Appellant Rick Lovelady Carpets, Inc. (“RLCI”) sued appellee G.R. Chapman

Limited Partnership and George R. Chapman a/k/a G.R. Chapman, alleging a false

representation of material fact by Chapman caused RLCI injury under various tort and

1 Justice Mackey K. Hancock, retired, not participating. contract theories.2 Chapman sought and obtained summary judgment against RLCI on

the entire case. Finding on this record the case was not capable of disposition by

summary judgment, we will reverse the judgment of the trial court and remand the case

for further proceedings consistent with this opinion.

Background

The summary judgment record presents starkly different versions of telephone

conversations between Rick Lovelady and George Chapman, conversations that led to

the parties’ agreement and eventually to the present suit. Because we here review a

summary judgment granted on Chapman’s motion, we must take as true all evidence

favorable to the nonmovant, Lovelady, and indulge every reasonable inference and

resolve any doubts in Lovelady’s favor. Kachina Pipeline Co. v. Lillis, 471 S.W.3d 445,

449 (Tex. 2015); State v. Ninety Thousand Two Hundred Thirty-Five Dollars & No Cents

in U.S. Currency, 390 S.W.3d 289, 292 (Tex. 2013). For our purpose, therefore, we

accept Lovelady’s version of the telephone conversations.

Lovelady’s deposition testimony describes the initial December 2007

conversation like this: “Mr. Chapman called me on the phone one day and had

mentioned to me that the lot next door might be for sale and wanted to know if I would

be interested in being a partner with him on the deal.” He continued, “He called and

asked me if I’d be interested in being a partner over there on the lot next door to me.

2 According to the summary judgment evidence, Rick Lovelady and his wife are the sole shareholders of RLCI, and the corporation is “controlled” by Rick Lovelady as its president. Rick Lovelady was the initial plaintiff; RLCI later intervened. The trial court granted Chapman summary judgment on all claims brought by Rick Lovelady, and Mr. Lovelady has not appealed that judgment.

2 The purchase price was 400,000, and we’re going to split it 200 a piece, 50/50

partners.”

The lot to which Chapman was referring was a vacant lot fronting on the

Interstate 40 service road, adjacent to RLCI’s Amarillo carpet store. In an affidavit,

Lovelady indicated Chapman also referred to the $400,000 price as “very favorable.”

Lovelady asked for time to think about the prospect.

Chapman called Lovelady back about a week later and this time Lovelady

expressed interest in the proposal. When Chapman again called Lovelady in January

2008, Lovelady’s evidence shows, “Chapman said that he had already purchased the

property for $400,000, but he reiterated that he would ‘let me in for half of the property

for $200,000.’” Lovelady agreed to the proposal. According to Lovelady he “decided to

have [his] corporation [RLCI] make the investment with Chapman.”

Chapman and RLCI created a new entity, I-40 Development, LLC, to own the lot.

Each had a 50% interest in the company; Chapman had primary responsibility for

managing its financial affairs and maintaining the books and records. For its interest,

RLCI contributed $200,000 cash. Chapman contributed an undivided half interest in the

lot for its 50% interest; the LLC then purchased the remaining undivided interest in the

lot from Chapman for RLCI’s contributed $200,000. The LLC was formed, and its

acquisition of the lot was consummated, in mid-January 2008.

During an early 2013 conversation with Lovelady, George Chapman’s son Justin

told Lovelady that he did not believe his father paid $400,000 for the lot. Lovelady

immediately confronted Chapman with this information. Chapman vehemently denied

3 the assertion and again represented the purchase price was $400,000. Lovelady asked

to see, and Chapman agreed to show him, the closing documents for his purchase.

The documents were not provided and over the ensuing weeks Lovelady made

at least three requests of Chapman for the documents. Each time Chapman

represented that he paid $400,000 for the lot and would provide the supporting

documentation.

When the documentation was not provided, Lovelady retained counsel who

contacted the entity that sold Chapman the lot. It refused to disclose the sale

information. Lovelady contacted the title company that handled the closing, but it

refused to provide sale documentation without Chapman’s approval.

In March 2013, Chapman told Lovelady that Lovelady did not need to see the

closing documents. Lovelady filed suit in May 2013. Through third-party discovery,

Lovelady’s counsel obtained copies of the title company’s closing documents. This

record indicated Chapman bought the lot in December 2007 for $174,319.

In its live petition, RLCI alleged claims against Chapman for common-law and

statutory fraud,3 fraudulent inducement, breach of fiduciary duty, breach of contract and

unjust enrichment and an action for an accounting. It requested imposition of a

constructive trust on the lot, an award of compensatory and exemplary damages, and

recovery of attorney’s fees. To suspend or toll the statutory limitations periods, RLCI

alleged the discovery rule and fraudulent concealment.

3 TEX. BUS. & COM. CODE ANN. § 27.01 (West 2015) (fraud in real estate and stock transactions).

4 Chapman filed a hybrid motion for summary judgment challenging RLCI’s entire

case on traditional and no-evidence grounds. The trial court granted Chapman’s motion

without specifying a ground for its ruling and rendered a take-nothing judgment in

Chapman’s favor.

Analysis

Through multiple issues RLCI contends the trial court erred in rendering

summary judgment for Chapman.

Standard and Scope of Review

We review the trial court’s summary judgment de novo. Provident Life &

Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). When the trial court does

not specify the ground for its ruling, the summary judgment must be affirmed if any

ground on which judgment was sought has merit. Ninety Thousand Two Hundred

Thirty-Five Dollars & No Cents in U.S. Currency, 390 S.W.3d at 292.

To be entitled to a summary judgment on a traditional motion, a defendant must

conclusively negate at least one essential element of each of the plaintiff’s causes of

action or conclusively establish each element of an affirmative defense. Sci. Spectrum,

Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). Evidence is conclusive only if

reasonable people could not differ in their conclusions. City of Keller v. Wilson, 168

S.W.3d 802, 816 (Tex. 2005). When summary judgment is sought on a traditional

motion, the burden of proof does not shift to the nonmovant unless the movant has

conclusively established its entitlement to summary judgment. Casso v. Brand, 776

S.W.2d 551, 556 (Tex. 1989). Should the movant prove entitlement to summary

5 judgment, it is the nonmovant’s burden to raise a genuine issue of material fact. M.D.

Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000).

We review a summary judgment granted on a no-evidence motion under the

same legal sufficiency standard as a directed verdict. King Ranch, Inc. v. Chapman,

118 S.W.3d 742, 750 (Tex. 2003). In response to a no-evidence motion for summary

judgment, it is the nonmovant’s burden to present competent evidence raising a

genuine issue of material fact as to each challenged element of its cause of action.

TEX. R. CIV. P. 166a(i); Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 206 (Tex.

2002).

Fraud and Fraudulent Inducement

RLCI’s brief begins with this succinct description of his central allegation:

After paying $174,319 for a piece of land, Defendant George Chapman immediately lied to Rick Lovelady and convinced him that Chapman had paid $400,000. Lovelady Carpets was thereby induced to pay $200,000 for a one-half interest in the land and to join a new partnership[ 4] controlled by Chapman.

From that description, RLCI proceeds to a discussion why the trial court erred by

granting Chapman’s summary judgment motion on RLCI’s fraud and fraudulent

inducement claims. Against the fraud claim, Chapman’s motion asserted RLCI had no

evidence of its justifiable reliance or damages. The parties have devoted most of their

briefing to these issues, and to the related limitations issues.

4 It is clear that the brief actually is referring to I-40 Development, LLC.

6 “A common-law fraud claim requires a material misrepresentation, which was

false, and which was either known to be false when made or was asserted without

knowledge of its truth, which was intended to be acted upon, which was relied upon,

and which caused injury. . . . Fraudulent inducement is a distinct category of common-

law fraud that shares the same elements but involves a promise of future performance

made with no intention of performing at the time it was made.” Zorrilla v. Aypco Constr.

II, LLC, 469 S.W.3d 143 (Tex. 2015) (internal quotation marks and citations omitted).

“Fraudulent inducement . . . is a particular species of fraud that arises only in the

context of a contract and requires the existence of a contract as part of its proof. That

is, with a fraudulent inducement claim, the elements of fraud must be established as

they relate to an agreement between the parties.” Haase v. Glazner, 62 S.W.3d 795,

798-99 (Tex. 2001).

Justifiable Reliance

To establish fraudulent inducement, the plaintiff must show that it entered into a

contract. Haase, 62 S.W.3d at 798 (“[w]ithout a binding agreement, there is no

detrimental reliance, and thus no fraudulent inducement claim”). To determine the

justifiability of the plaintiff’s reliance on the representation, courts look to whether “given

a fraud plaintiff’s individual characteristics, abilities, and appreciation of facts and

circumstances at or before the time of the alleged fraud[,] it is extremely unlikely that

there is actual reliance on the plaintiff's part.” Grant Thornton LLP v. Prospect High

Income Fund, 314 S.W.3d 913, 923 (Tex. 2010). A person may not justifiably rely on a

representation in the face of “red flags” indicating reliance is unwarranted. Id.

7 Chapman’s contentions on this point focus on Lovelady’s business experience

and general familiarity with the values of properties in the area of his place of business

along I-40. In his deposition, for example, Lovelady agreed he had “some idea” of “what

property was buying and selling for” in that area. Based on such statements, Chapman

posits that RLCI has no evidence that any representation on his part changed

Lovelady’s opinions of the value of the lot. But as RLCI emphasizes, its claims focus

not on the value of the lot but on Chapman’s representation that it would pay for its half

interest half of Chapman’s purchase price for the lot. Considering the “extremely

unlikely” standard applicable to the issue, and the requirement that we accept RLCI’s

summary judgment evidence in our review, we find the evidence raises an issue of fact

as to RLCI’s justifiable reliance on Chapman’s representation. Chapman’s assertions

that red flags precluded justifiable reliance do not demonstrate otherwise.

Damages

Chapman contends RLCI has no evidence of damage caused by its reliance on a

false representation of Chapman’s purchase price.

Generally, the measure of damages in a fraud case is the actual amount of the

plaintiff’s loss directly or proximately resulting from the defendant’s fraudulent conduct.

Tilton v. Marshall, 925 S.W.2d 672, 680 (Tex. 1996) (orig. proceeding) (op. on reh’g).

For its damages theory, RLCI relies primarily on this Court’s early opinion in Garrison v.

Bowman, 183 S.W. 70 (Tex. Civ. App.—Amarillo 1916, no writ) and cases of similar

8 holdings.5 Garrison cites a rule “that when representations as to the cost of property

are made by a person purchasing jointly for himself and another, or by a person turning

property already acquired over to an association, of which he is a member, such

representations are statements of fact, which may be properly relied upon, and, if false,

will support an action for fraud.” Id. at 73. We went on to find, under the facts of that

case, the measure of the plaintiffs’ damages should be the difference between the price

paid by the plaintiffs, based on the defendant’s misrepresentation, and the defendant’s

actual purchase price. Id. We characterized this result as giving the plaintiffs the

benefit of their contract. Id. (citing Hall v. Grayson Cty. Nat’l Bank, 81 S.W. 762 (Tex.

Civ. App. 1904, no writ)).

Chapman responds by noting our state’s courts’ repeated statements that Texas

recognizes two measures of direct damages for common law fraud: the out-of-pocket

measure and the benefit-of-the-bargain measure. See, e.g., Formosa Plastics Corp.

United States v. Presidio Eng’rs & Contrs., 960 S.W.2d 41, 49 (Tex. 1998). The out-of-

pocket measure computes the difference between the value paid and the value

received, while the benefit-of-the-bargain measure computes the difference between the

5 Pickett v. Wren, 174 S.W. 156, 158 (Mo. Ct. App. 1915) (“The rule is of general acceptation that, where a vendor agrees to sell property, or an interest therein, at what it cost him, and fraudulently misrepresents the cost, the measure of the purchaser’s damages is generally the difference between the actual and the represented value”) (citing Pendergast v. Reed, 29 Md. 398 (Md. 1868)); Thompson v. Lyons, 220 S.W. 942, 949 (Mo. 1920) (“The measure of damages for misrepresentations inducing the purchase of land, or other property, depends upon the nature of the misrepresentations. . . . [W]here one person makes a purchase for another, or where one of two or more joint purchasers conducts a joint purchase, and falsely represents to the others that the price is greater than is actually paid for the property, the measure of damages is always the difference between the amount actually paid by the party defrauded and the true purchase price of the interest which he acquired” (citing Pickett, 174 S.W. 156)); Johnson v. Gavitt, 114 Iowa 183, 184-85, 86 N.W. 256 (1901) (similar analysis).

9 value as represented and the value received. Id.; see Baylor Univ. v. Sonnichsen, 221

S.W.3d 632, 636 (Tex. 2007) (benefit-of-the-bargain damages derive from an

“expectancy theory”). Benefit-of-the-bargain damages protect the injured party’s

expectation interest by placing it in the same position it would have occupied had no

misrepresentation occurred. See Bechtel Corp. v. CITGO Prods. Pipeline Co., 271

S.W.3d 898, 927 (Tex. App.—Austin 2008, no pet.) (contract damages).

Chapman contends that without evidence the value of the half-interest in the lot

was less than $200,000,6 RLCI has no evidence to satisfy the benefit-of-the-bargain

measure. We are not persuaded that the “value as represented vs. value received”

formulation is so rigid as to preclude RLCI’s proper reliance on this Court’s holding in

Garrison. See 11-55 Joseph M. Perillo, CORBIN ON CONTRACTS § 55.13 (Matthew

Bender, Lexis 2016) (discussing “What is Meant by ‘Value’” and commenting “[t]he

valuation of a promised performance is far from a simple matter, both because the

concept of value is itself variable and because the performances that may be promised

are capable of endless variety”); RESTATEMENT (SECOND) OF TORTS § 549 (1977)

(outlining measure of damages for fraudulent misrepresentation); Pendergast, 29 Md. at

405 (measure of damages for false representation by seller of “cost price” of boat);

Hinkle v. Rockville Motor Co., 262 Md. 502, 278 A.2d 42, 44 (1971) (characterizing the

rule discussed in Pendergast as a ‘“benefit of bargain’” formula). We agree with RLCI

that neither Formosa Plastics nor the cases on which it relied preclude application of the

6 We note that RLCI’s response to Chapman’s summary judgment motion contains a paragraph asserting that Chapman’s actual December 2007 purchase price of $174,319 for the entire lot, as reflected in the summary judgment record, is some evidence of a market value less than the $200,000 it paid for its half interest. Chapman contends RLCI waived any contention that it suffered injury based on the value of the property it purchased. We need not address that assertion.

10 benefit-of-the-bargain measure to fact patterns like that reflected in Garrison.7 Finally,

we agree that Lovelady’s version of Chapman’s representations to him is such as to

bring it within the rule outlined in Garrison. Chapman points out we stated in Garrison

that a confidential relationship existed between the plaintiffs and defendant. 183 S.W.

at 73. We agree with RLCI, however, that the relationship of the parties in that case

had no bearing on the measure of damages from the misrepresentation. For those

reasons, we will sustain RLCI’s contention that the record contains some evidence of

recoverable damages for fraud.

The Statute of Limitations

The statute of limitations is an affirmative defense on which Chapman relied and,

as traditional summary-judgment movant, bore the burden of conclusively proving when

RLCI’s causes of action accrued. KPMG Peat Marwick v. Harrison Cty. Hous. Fin.

Corp., 988 S.W.2d 746, 748 (Tex. 1999). A claim for fraud must be brought no “later

than four years after the day the cause of action accrues.” TEX. CIV. PRAC. & REM. CODE

ANN. § 16.04(a)(5) (West 2002). A cause of action for fraud does not accrue until it is

discovered or could have been discovered through the exercise of reasonable diligence.

Computer Associates Intern. v. Altai, 918 S.W.2d 453, 455-56 (Tex. 1994) (“limitations

begin to run from the time the fraud is discovered or could have been discovered by the

defrauded party by exercise of reasonable diligence” (quotation marks omitted)). The

same accrual-date rule applies if a party claims it was fraudulently induced into a

7 In its discussion of the benefit-of-the-bargain measure of damages for common- law fraud, the court in Formosa Plastics, 960 S.W.2d at 49, cited Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex. 1997); W.O. Bankston Nissan, Inc. v. Walters, 754 S.W.2d 127, 128 (Tex. 1988); and Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 373 (Tex. 1984).

11 contract. Hooks v. Samson Lone Star, Ltd. P’ship, 457 S.W.3d 52, 57 (Tex. 2015)

(“Fraudulent inducement is a subspecies of fraud . . . . [L]imitations does not start to run

until the fraud with respect to the contract is discovered or the exercise of reasonable

diligence would discover it”).

Reasonable diligence is an issue of fact, but in some circumstances a court can

determine the issue as a matter of law. Hooks, 457 S.W.3d at 57-58. In a discussion of

the discovery rule, Chapman’s brief argues market value of property is not inherently

discoverable. But RLCI claims Chapman misrepresented his purchase price, not the

lot’s market value. And elsewhere in his brief Chapman points to Lovelady’s response

to a question in his deposition asking if he exercised “any diligence in this transaction.”

Lovelady responded, “No, sir.” We cannot consider the witness’s response to so broad

a question as conclusive proof of the date that RLCI’s cause of action accrued. KPMG

Peat Marwick, 988 S.W.2d at 748. In sum, on the record before us, and accepting as

we must the truth of RLCI’s summary judgment evidence, Chapman has not met his

burden to establish the efficacy of his limitations defense as to the fraud and fraudulent

inducement claims. Further discussion of the discovery rule or fraudulent concealment

is unnecessary to our disposition of the appeal. TEX. R. APP. P. 47.1.

The Merits of RLCI’s Claims

By the remainder of his motion for summary judgment, Chapman challenged the

merits of each of RLCI’s causes of action, asserting the non-existence of evidence of at

least one specified element. But the ultimate success or failure of the parties’ claims

and defenses hinges, in the first instance, on whether a trier of fact accepts Chapman’s,

12 or Lovelady’s, memory of their conversations. In his motion for summary judgment

Chapman stated he “strongly denie[d] telling Lovelady anything about what he paid for

the [lot].” In his deposition, Chapman was asked how he arrived at the $200,000 asking

price for a half-interest in the lot. He responded that Lovelady “asked me what I wanted

for it, and I said I’ll take 200 for half of it. I didn’t think that was out of line. Not at all.

The economy was good. We were selling stuff up there. That was good back then.”

The record indicates there were no witnesses to the parties’ telephone conversations.

Chapman characterizes Lovelady’s “storyline underlying this suit” as “at best,

incredulous.” He asserts RLCI’s fraud claim is built “around a set of contrived and

implausible ‘facts.’” RLCI casts the case as a “brazen hustle,” a “simple scam.”

In sum, after review of the summary judgment record, we find it presents genuine

issues of material fact incapable of resolution as a matter of law. TEX. R. CIV. P.

166a(c). Accordingly, we must sustain Lovelady’s challenge of the summary judgment.

Conclusion

Because this record does not permit disposition of RLCI’s entire case as a matter

of law, we reverse the trial court’s judgment and remand the case for further

proceedings consistent with this opinion. TEX. R. APP. P. 43.2(d). Nothing we have

stated is intended to guide or constrain the trial court and the parties in future trial court

proceedings. We say only that on this record summary judgment was not proper.

James T. Campbell Justice