FAZIO v. CYPRESS GR HOUSTON GR

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Court of Appeals of Texas,Houston (1st Dist.).

Peter FAZIO, Shari Fazio, and Eric Fazio, Appellants v. CYPRESS/GR HOUSTON I, L.P.; Cypress/GR Houston, Inc.; and Cypress Equities, Inc., Appellees.

Cypress/GR Houston I, L.P.; Cypress/GR Houston, Inc.; and Cypress Equities, Inc., Appellants v. Peter Fazio, Appellee.

No. 01–09–00728–CV.

Decided: January 19, 2012

Panel consists of Justices KEYES, SHARP, and MASSENGALE. J.W. Beverly, Sanford L. Dow, Dow Golub Remels & Beverly, LLP, Houston, TX, for Peter Fazio, Shari Fazio, and Eric Fazio. Alene Ross Levy, Alene Levy Law Firm, PLLC, Houston, TX, Kendyl Taylor Hanks, Haynes and Boone, LLP, New York, NY, Kenneth E. Broughton, Haynes & Boone, LLP, Houston, TX, James Thomas Phillips, Cantey & Hanger LLP, Dallas, TX, Michael S. Hays, Hays, McConn, Rice & Pickering, P.C., Houston, TX, for Cypress/GR Houston I, L.P.; Cypress/GR Houston, Inc.; and Cypress Equities, Inc.

OPINION

This is an appeal from a judgment notwithstanding the verdict. The primary issue in this appeal is whether the contractual disclaimer of reliance in the purchase agreement (the “Purchase Agreement”) for retail property of approximately 9 acres with improvements consisting mainly of a Garden Ridge store (the “Property”) barred appellant's fraud claims in light of Schlumberger and its progeny.1 The jury found that the fraud claims of appellants Peter Fazio, Shari Fazio, and Eric Fazio (collectively “Fazio”) against Cypress/GR Houston I, L.P., Cypress/GR Houston, Inc., and Cypress Equities, Inc. (collectively “Cypress”) were not barred and awarded actual and exemplary damages to Fazio. The trial court entered judgment notwithstanding the verdict (JNOV) and ordered that Fazio take nothing by his claims. The court also denied Cypress/GR Houston, L.P.'s motion for attorneys' fees. Fazio appeals the judgment notwithstanding the verdict, and Cypress/GR Houston, L.P. also appeals, seeking its attorneys' fees.

In five issues, Fazio argues that the trial court erred in disregarding the jury's verdict and granting JNOV because: (1) the evidence was sufficient to establish that Cypress, as sellers of the Property, had a duty as a matter of law to disclose material information to Fazio, as purchaser, Cypress failed to disclose information material to the purchase, Fazio was ignorant that the material information was omitted, Cypress knew Fazio was ignorant of that information, and Cypress's conduct caused harm to Fazio; (2) Fazio's fraudulent inducement claim was not negated by the disclaimer of reliance and the “as is” clause in the Purchase Agreement; (3) the actual damages awarded by the jury were recoverable under either the “out-of-pocket” or “rescission/restitution” measure of damages for fraudulent inducement; (4) the evidence was sufficient to show that Cypress Equities, Inc., Cypress/GR Houston I, L.P. and Cypress/GR Houston, Inc. operated as a single business enterprise and that Cypress Equities, Inc. was 100% responsible for the harm to Fazio; and (5) there was clear and convincing evidence that the harm to Fazio resulted from fraud and that the amount of exemplary damages awarded was within statutory and constitutional limits.

We reverse the trial court's JNOV and remand the cause to the trial court to render judgment on the verdict. We affirm the trial court's denial of Cypress/GR Houston I, L.P.'s motion for attorneys' fees.

Background Facts

Fazio is a real estate investor resident in California who uses brokers to locate single tenant/triple-net properties2 and to conduct due diligence, such as learning about the property's location, ensuring that the tenants are “real” and are paying rent and that taxes have been paid, and investigating lease terms and other problems. In 2003, Fazio's brokers, David Banks and Barry Silver, California real estate salesmen, brought the Property to Fazio's attention. Prior to Fazio's purchase of the Property, Fazio and his agents conducted due diligence. Among other things, they asked Cypress for all information about the Property in Cypress's possession, contacted Garden Ridge's CFO and the local store manager, reviewed the Property's appraisals and conducted internet research on Garden Ridge.

As part of Fazio's due diligence, Banks reviewed Garden Ridge's financial statements, which were provided to him by Cypress. Banks was concerned about the financials, so he and Silver set up a conference call with Garden Ridge's CFO. The CFO explained that the company was going through a reorganization and was restructuring some of its debt, but he was very positive about Garden Ridge's outlook. Banks also contacted Garden Ridge's lender. The banker, a Californian, stated that he knew that Garden Ridge was not “A-plus credit or anything like that,” but he “liked the numbers,” and it was a good investment. Banks also reviewed the title commitment, the appraisals of the Property, the Garden Ridge lease, and all of the documents he was provided.

Silver familiarized himself with Garden Ridge, researched other stores in the area, investigated the lease terms, and looked at financials from the period when Garden Ridge had been a publicly traded company. He also requested “every scrap of paper” that Cypress had regarding the Property. Jason Claro, a Cypress employee and the primary contact person for the transaction, confirmed that Silver did not limit his request. Silver also reviewed Garden Ridge's financials and, like Banks, was concerned.

Silver and Banks called Garden Ridge and also asked Claro for individual store sales. When Claro did not provide that information, they called the store manager. The manager told them it was at least an average store and did not say anything negative about the store or the company. Silver and Banks also contacted Garden Ridge's CFO, who confirmed that there were losses for the period but told them the company had secured a $50 million line of credit from Bank of America to stock its stores for the fourth quarter, that it had “bright prospects,” and that he thought the financials would turn around. Fazio himself testified at trial that he reviewed three appraisals, all with a higher value than the contract price, and was impressed by the appraisals and by Garden Ridge's excellent record of paying rent.

Cypress did not disclose to Silver, Banks, or Fazio that on February 27, 2003, approximately eight months before Fazio purchased the Property, Garden Ridge had retained Keen Realty, LLC (Keen) as its “Special Real Estate Consultant with respect to restructuring and renegotiation of the Company's real estate leases” and that Keen had prepared a letter for Joe Rollins, Garden Ridge's Vice–President of Real Estate, to send to landlords. This letter was sent to Cypress's President, Chris Maguire, on March 5, 2003. It stated that Garden Ridge was “restructuring” and that as “part of that restructuring, we need to reduce our occupancy costs at your premises”; therefore, it had retained Keen, a company with twenty years of experience helping retailers “both in and out of Chapter 11 [bankruptcy proceedings] ․ to restructure their leasehold obligations.” Cypress did not disclose the existence of the form letter to Fazio. Nor did Cypress disclose that it received two such letters regarding specific properties—one for the Property and one for a Garden Ridge store in Conroe, Texas owned by another Cypress entity. Cypress likewise did not disclose that Keen had contacted Cypress's Director of Finance and others at Cypress on at least three other occasions to discuss the proposed rent relief transaction, seeking an annual rent reduction of 30% for the Property in the amount of $241,512.

On August 14, 2003, Cypress's lender, Guaranty Federal Bank, requested that Cypress's President, Maguire, execute a personal guaranty of the $5,704,000 loan secured by the Property because the bank was concerned about the financial condition of Garden Ridge. This request was not disclosed to Fazio.

On September 2, 2003, appellants Peter Fazio, Shari Fazio, and Eric Fazio sent Cypress Equities a Letter of Intent (the “LOI”), signed by Peter Fazio, offering to pay Cypress $7,667,000, “[b]ased on the currently reported absolute net income of $805,040.00.” On September 4, 2003, the LOI was “agreed to and accepted” by Cypress Equities as the seller of the Property.

The LOI provided for a 30–day due diligence period following the receipt of requested documents “to investigate all aspects of the Property to determine, in Buyer's sole judgment, if it is acceptable .” It provided that “Seller will provide Buyer with all information in their [sic ] possession including, but not limited to the following․” There followed a list of documents that included the lease and all amendments, the existing “as built” survey, all environmental and soil reports, a preliminary title report, and a site inspection if desired. The offer was made contingent on Fazio's receipt of acceptable notification from his lender of its willingness to underwrite the transaction. Finally, the LOI provided that “this proposal shall not be binding on both parties until and unless a formal Purchase Agreement is executed and delivered to both parties.”

On September 19, 2003, Fazio signed the Purchase Agreement. Maguire signed the Purchase Agreement as Cypress/GR Houston I, L.P.'s President on September 22, 2003. The LOI became a binding agreement upon the execution of the Purchase Agreement.3

The Purchase Agreement contained a disclaimer clause in Section 5 .2, titled “Document Review.” The disclaimer stated in its entirety:

Section 5.2 Document Review.

(d) No Representation or Warranty by Seller. Purchaser hereby acknowledges that, except as otherwise specifically set forth in this Agreement, Seller has not made and does not make any warranty or representation regarding the truth, accuracy, or completeness of the Documents or the source(s) thereof, and that Seller has not undertaken any independent investigation as to the truth, accuracy, or completeness of the Documents and is providing the Documents solely as an accommodation to Purchaser. Except with respect to any express warranties made in this Agreement, Seller expressly disclaims and Purchaser waives any and all liability for representations and warranties, express or implied, statements of fact, and other matters contained in the Documents, or for any omissions from the Documents, or in any other written or oral communication transmitted or made available to Purchaser. Except with respect to any express warranties made in this Agreement, Purchaser shall rely solely upon its own investigation with respect to the Property, including, without limitation, the Property's physical, environmental, or economic condition, compliance or lack or compliance with any ordinance, order, permit, or regulation or any other attribute or matter relating thereto.

The Documents Cypress undertook to deliver within ten days after the effective date of the Purchase Agreement were defined as:

(i) copies of the Lease and all amendments thereto;

(ii) the Survey;

(iii) copies of any Plans;

(iv) to the extent allowed by the author, copies of all existing soil, engineering, architectural, and environmental reports covering the Property in Seller's possession;

(v) copies of all Service Contracts, if any; and

(vi) copies of all Permits.

The Purchase Agreement also contained an “as is” clause, Section 5.5, “Property Conveyed “AS IS.' “ Subsection 5.5(a) provided that Fazio agreed to accept the property “ ‘as is,’ ․ subject to any physical or environmental condition which may exist, and without the existence of and reliance on any representation or warranty by seller.” The “as is” clause further provided that Fazio acknowledged and agreed that he had “or will have, prior to the end of the inspection period, thoroughly inspected and examined the property to the extent deemed necessary ․ to enable [him] to evaluate the purchase of the property” and that he was “relying solely upon such inspections, examination, and evaluation of the property ․ in purchasing the property on an ‘as is,’ ‘where is' and ‘with all faults' basis, without representations, warranties or covenants, express or implied, of any kind or nature.”4

Finally, the Purchase Agreement contained a merger clause, which provided:

Section 11.1 Entire Agreement.

This Agreement contains the entire agreement of the parties hereto. There are no other agreements, oral or written, and this Agreement can be amended only by written agreement signed by the parties hereto, and by reference, made a part hereof.

On September 23, 2003, four days after the execution of the Purchase Agreement, Cypress's President, Maguire, executed the personal guaranty of the loan secured by the Property that had been demanded by Cypress's lender, Guaranty Bank, on August 14, 2003. This guaranty obligated him to repay the approximately $4,500,000 balance remaining on the $5,704,000 loan on the property if Cypress defaulted. Once Fazio purchased the Property, Maguire's guaranty was extinguished. Maguire's execution of the guaranty after the execution of the LOI and Purchase Agreement was not disclosed to Fazio.

The sale of the Property to Fazio for $7,667,000 closed on October 31, 2003.

Fazio received rental payments from Garden Ridge for November and December 2003, but the rental payment for January 2004 bounced. Fazio never received another rental payment from Garden Ridge. Garden Ridge filed for Chapter 11 bankruptcy protection and ultimately rejected the lease for the Property. After unsuccessful attempts to rent the Property, Fazio sold the empty building in 2007 for $3,750,000.

Fazio sued appellees Cypress/GR Houston I, L.P., Cypress/GR Houston, Inc. (the general partner of Cypress/GR Houston I, L.P.), and Cypress Equities, Inc., which Cypress represented as a real estate advisory firm. The causes of action in Fazio's live pleading were fraud in the inducement, fraud in a real estate transaction, violation of the Texas Real Estate License Act, negligence, breach of fiduciary duty, civil conspiracy to commit fraud, and single business enterprise.

The case was tried to a jury in January 2008. After the trial court granted directed verdicts for Cypress on Fazio's other claims, the case was submitted to the jury solely on fraud on February 1, 2008. Fazio argued that Cypress had a duty to disclose all information concerning the Property under the September 4, 2003 LOI, which included the statement that “[t]he Seller will provide the Buyer with all information in their [sic] possession including, but not limited to the following․” Fazio contended that Cypress made a partial disclosure of financial information concerning the Garden Ridge store but did not disclose the entire truth. He contended that material information not disclosed included the March 5, 2003 request from Garden Ridge for a substantial rent reduction and the indication to Cypress that Garden Ridge was considering bankruptcy. Fazio also contended that Cypress did not disclose the August 14, 2003 request of Guaranty Bank, which held the promissory note and lien on the Property, that Cypress's President, Maguire, provide his personal guaranty on the outstanding balance of the $5,704,000 loan on the property. Fazio claimed, and testified at trial, that had he known of this information, he would not have purchased the property.

In its verdict, the jury found that: (1) Cypress Equities, Inc. committed fraud against Peter Fazio, but Cypress/GR Houston I, L.P. and Cypress/GR Houston, Inc. did not (Question 1); (2) Peter Fazio's actual damages for the fraud were $3,961,524.60, the difference between the price the Fazios paid for the property and what they received when they sold it (Question 2); (3) Cypress Equities, Inc. was 100% responsible for the damages found in Question 2, and Cypress/GR Houston I, L.P., Cypress/GR Houston, Inc., Joe Fazio, Barry Silver, and David Banks had no responsibility for the harm (Question 3); (4) Cypress/GR Houston I, L.P., Cypress/GR Houston, Inc., and Cypress Equities, Inc. were a single business enterprise (Question 4); (5) by clear and convincing evidence, the harm to Fazio resulted from fraud (Question 5); and (6) $667,000.00 in exemplary damages should be assessed against Cypress Equities, Inc. and awarded to Fazio (Question 6).

Cypress moved for JNOV. Cypress argued that the jury's answer to Question 1 (finding fraud based on non-disclosure of material facts) should be set aside. It argued that it owed no duty to disclose any omitted fact to Fazio because the LOI did not create such a duty; the facts were discoverable by Fazio; there was legally insufficient evidence to show that Fazio was ignorant of any omitted fact, that Cypress knew or should have known Fazio was ignorant of any omitted fact, or that Cypress failed to disclose a material fact; the evidence established that Cypress disclosed all material facts, and any facts not disclosed were not material; there was legally insufficient evidence that Cypress's conduct harmed Fazio; and Cypress Equities had no duty to disclose because it was not the Seller. Cypress also argued that the reliance element of Fazio's fraud claim was negated by the merger clause, waiver of reliance, and “as is” language in the Purchase Agreement.

Cypress argued that the jury's answer to Question 2 (assessing actual damages) should be set aside because the measure of damages was not correctly submitted to the jury: Texas law requires the jury to measure fraud damages at the time of the fraudulent transaction, and the evidence was legally and factually insufficient to show that Fazio suffered damages at the time the Property was purchased.

Cypress also argued that the jury's answer to Question 3 (apportioning liability), finding Cypress 100% responsible for Fazio's damages, should be set aside because the evidence established that the damages were caused by Fazio or his agents; the evidence was legally and factually insufficient to establish that Cypress was 100% responsible for Fazio's damages; and Fazio judicially admitted that Silver and Banks contributed to the harm.

Cypress further argued that the jury's answer to Question 5 (finding fraud by clear and convincing evidence) should be set aside because the evidence was legally insufficient to show that Fazio's harm resulted from fraud.

Finally, Cypress argued that the jury's answer to Question 6 (assessing exemplary damages) should be set aside because there was legally insufficient evidence to support the amount of exemplary damages awarded and the award violated the due process and due course of law provisions of the United States Constitution and the Texas Constitution.

On December 22, 2008, the trial court granted Cypress's motion for JNOV on the above stated grounds.5 On February 9, 2009, Cypress moved for rendition of a take-nothing judgment, and Cypress/GR Houston I, L.P. moved for its attorney's fees. On May 14, 2009, the trial court rendered judgment that Fazio take nothing, and it denied the motion for attorney's fees.

Fazio filed a notice of appeal and brings five issues challenging the trial court's rendition of JNOV.6 Cypress/GR Houston I, L.P., Cypress/GR Houston, Inc., and “Cypress Equities, LLC”7 filed a notice of appeal, but only Cypress/GR Houston I, L.P. has filed an appellant's brief, challenging the trial court's denial of its attorney's fees.8

Standard of Review of Judgment Notwithstanding the Verdict

A trial court may grant a motion for JNOV if a directed verdict would have been proper, and it may disregard any jury finding on a question that has no support in the evidence. Tex.R. Civ. P. 301. A trial court may disregard a jury finding and render JNOV if the finding is immaterial or if there is no evidence to support one or more of the jury findings on issues necessary to liability. See Tiller v. McLure, 121 S.W.3d 709, 713 (Tex.2003); Spencer v. Eagle Star Ins. Co., 876 S.W.2d 154, 157 (Tex.1994); Williams v. Briscoe, 137 S.W.3d 120, 124 (Tex.App.-Houston [1st Dist.] 2004, no pet.). A question is immaterial, for the purpose of determining whether a court may disregard a jury finding, when the question should not have been submitted or when it was properly submitted but has been rendered immaterial by other findings. Spencer, 876 S.W.2d at 157.

A trial court properly enters an instructed verdict when: (1) a defect in the opposing party's pleadings makes them insufficient to support a judgment; (2) the evidence conclusively proves a fact that establishes the party's right to judgment as a matter of law; or (3) the evidence offered on a cause of action is insufficient to raise an issue of fact. M.N. Dannenbaum, Inc. v. Brummerhop, 840 S.W.2d 624, 629 (Tex.App.-Houston [14th Dist.] 1992, writ denied). In such a case, the issue should not be submitted to the jury. See Sanchez ex rel. Estate of Galvan v. Brownsville Sports Ctr., Inc., 51 S.W.3d 643, 667 (Tex.App.-Corpus Christi 2001, pet. granted, judgm't vacated w.r.m.) (“Only issues raised by the evidence are to be submitted to the jury. Whether a question is raised by the evidence is to be determined by the same standard that applies to determination of whether an instructed verdict should be given.”) (citing Tex.R. Civ. P. 278 and Blonstein v. Blonstein, 831 S.W.2d 468, 471 (Tex.App.-Houston [14th Dist.] 1992), writ denied, 848 S.W.2d 82 (Tex.1992)).

To sustain a challenge to the legal sufficiency of the evidence to support a jury finding, the reviewing court must find that: (1) there is a complete lack of evidence of a vital fact; (2) the court is barred by rules of evidence or law from giving weight to the only evidence offered to prove a vital fact; (3) there is no more than a mere scintilla of evidence to prove a vital fact; or (4) the evidence conclusively established the opposite of a vital fact. Volkswagen of Am., Inc. v. Ramirez, 159 S.W.3d 897, 903 (Tex.2005).

In reviewing a grant of JNOV, the reviewing court must determine whether there is any evidence upon which the jury could have made the finding. See id. The reviewing court must view the evidence in the light most favorable to the verdict, crediting favorable evidence if reasonable jurors could and disregarding contrary evidence unless reasonable jurors could not. See City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex.2005); Bradford v. Vento, 48 S.W.3d 749, 754 (Tex.2001); see also Tiller, 121 S.W.3d at 713 (holding that, in reviewing “no evidence” point, court views evidence in light that tends to support finding of disputed fact and disregards all evidences and inferences to contrary). If some evidence supports the disregarded finding, the reviewing court must reverse and render judgment on the verdict unless the appellee asserts cross-points showing grounds for a new trial. See M.N. Dannenbaum, Inc., 840 S.W.2d at 628; Basin Operating Co. v. Valley Steel Prods. Co., 620 S.W.2d 773, 776 (Tex.Civ.App.-Dallas 1981, writ ref'd n.r.e.). Where there is no objection to the jury charge, the court reviews the sufficiency of the evidence in light of the charge submitted. See Bradford, 48 S.W.3d at 754.

Fazio's Fraudulent Inducement Claim

Here, Cypress argued in its motion for JNOV that questions on fraud should never have been submitted to the jury because Fazio's fraud claims were barred as a matter of law by the disclaimer of reliance and the “as is” clause in the Purchase Agreement, and, thus, there was no evidence to support the jury's verdict.

In his first and second issues, Fazio argues that the trial court erred in disregarding the jury's answers to Questions 1 and 2, finding that Cypress Equities defrauded Peter Fazio. The jury was instructed that fraud occurs when a party fails to disclose a material fact within its knowledge knowing that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth, it intends to induce the other party to take some action by failing to disclose the fact, and the other party suffers injury as a result of acting without knowledge of the undisclosed fact. The jury was also instructed on materiality. It found that Cypress Equities was liable to Peter Fazio for actual damages and Cypress/GR Houston I, L.P. and Cypress/GR Houston, Inc. were not. Fazio argues that the trial court erred in granting JNOV on the issue of Cypress's fraud because: (1) the evidence was sufficient to establish that Cypress had a duty as a matter of law to disclose material information to Fazio, Cypress failed to disclose material information, Fazio was ignorant that the material information was omitted, Cypress knew Fazio was ignorant of that information, and Cypress's conduct caused harm; and (2) Fazio's fraudulent inducement claim was not negated by the reliance clause in the Purchase Agreement. We address Fazio's first and second issues together.

A. Fraudulent Inducement

A contract is subject to avoidance on the ground that it was induced by fraud. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 331 (Tex.2011); see also Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 46 (Tex.1998) (“As a rule, a party is not bound by a contract procured by fraud.”). Even a written contract containing a merger clause can be avoided for fraud in the inducement, and the parol evidence rule does not stand in the way of proof of such fraud. Italian Cowboy, 341 S.W.3d at 331. Indeed, “the law long ago abandoned the position that a contract must be held sacred regardless of the fraud of one of the parties in procuring it.” Dallas Farm Mach. Co. v. Reeves, 158 Tex. 1, 307 S.W.2d 233, 239 (Tex.1957).

The elements of fraud are: (1) that the speaker made a material misrepresentation (2) that he knew was false when he made it or that he made recklessly without any knowledge of its truth and as a positive assertion (3) with the intent that the other party act upon it and (4) that the other party acted in reliance on the misrepresentation and (5) suffered injury thereby. Italian Cowboy, 341 S.W.3d at 337. A representation is material if “a reasonable person would attach importance to [it] and would be induced to act on the information in determining his choice of actions in the transaction in question.” Italian Cowboy, 341 S.W.3d at 337. 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. Haase v. Glazner, 62 S.W.3d 795, 798 (Tex.2001); Clark v. Power Mktg. Direct, Inc., 192 S.W.3d 796, 799 (Tex.App.-Houston [1st Dist.] 2006, no pet.). That is, with a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties. Haase, 62 S.W.3d at 798–99.

Fraud requires a showing of actual and justifiable reliance. Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex.2010). In evaluating justification, the court considers 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.” Id. (quoting Haralson v. E.F. Hutton Grp., Inc., 919 F.2d 1014, 1026 (5th Cir.1990)). In the commercial context, the Texas Supreme Court has emphasized that “commercial tenants are entitled to rely on the fact that a landlord will not actively conceal material information.” Italian Cowboy, 341 S.W.3d at 339.

Here, Fazio has based his fraudulent inducement claim on the allegation that Cypress actively concealed economic information material to his purchase of the Property. The question for this Court, therefore, is whether, “given [Fazio's] individual characteristics, abilities, and appreciation of facts and circumstances at or before the time of the alleged fraud”—including, in particular, the merger clause, the disclaimer of reliance, and the “as is” clause in the Purchase Agreement—“it is extremely unlikely that there [was] actual reliance on [Fazio's] part” on the accuracy and completeness of the financial information provided to him by Cypress in response to his due diligence inquiries. See id.; Grant Thornton, 314 S.W.2d at 923.

1. Disclaimers of Reliance

The evidence in support of Fazio's fraudulent inducement claim is immaterial and the trial court's JNOV is proper, if, as a matter of law, that claim is barred by the disclaimer of reliance in subsection 5.2(a) of the Purchase Agreement and the “as is” clause in subsection 5.5(a) of the Agreement. Therefore, we first determine whether the disclaimer of reliance bars Fazio's fraudulent inducement claim as a matter of law.

In Schlumberger Technology Corp. v. Swanson, the Texas Supreme Court recognized the conflicting concerns of voluntary settlements and orderly dispute resolution, on the one hand, and the principle that “a release is a contract, and like any other contract, is subject to avoidance on grounds such as fraud or mistake.” 959 S.W.2d 171, 178 (Tex.1997). The court recognized that parties should be able to bargain for and execute a release barring all further disputes, which necessarily contemplates that parties may disclaim reliance on representations. Id. at 179.

In that case each party affirmed that it “expressly warrants and represents ․ that no promise or agreement which is not herein expressed has been made to him or her in executing this release, and that none of us is relying upon any statement or representation of any agent of the parties being released hereby. Each of us is relying on his or her own judgment․” Id. at 180. The court also observed that both parties had employed “highly competent and able legal counsel,” the parties “were dealing at arm's length,” both were “knowledgeable and sophisticated business players,” there was considerable dispute about the value of the commercial project at issue, and the “sole purpose of the release was to end” that dispute by providing, “[i]n this context and in clear language,” for the unequivocal disclaimer of reliance upon the other party's representations about the project's feasibility and value. Id.

The Schlumberger court held that “[t]he contract and the circumstances surrounding its formation determines whether the disclaimer of reliance is binding.” Id. at 179. The supreme court further 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 180. Thus, the court held that the disclaimer of reliance by the Schlumberger plaintiff conclusively negated as a matter of law the other party's representations about the feasibility and value of the project that were needed to support the plaintiff's claim of fraudulent inducement. Id. at 180.

In Forest Oil Corp. v. McAllen, the Texas Supreme Court clarified the factors for the court to consider in determining whether a disclaimer of reliance bars a fraudulent inducement claim:

(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 (5) the release language was clear.

268 S.W.3d 51, 60 (Tex.2008) (holding that waiver-of-reliance provision precluded fraudulent inducement claim with respect to arbitration clause in release).

In that case, the disclaimer, like that in Schlumberger, stated:

Defendants expressly represent and warrant ․ that no promise or agreement which is not herein expressed has been made to them in executing the releases contained in this Agreement, and that they are not relying upon any statement or representation of any of the parties being released hereby. Defendants are relying upon [their] own judgment and each has been represented by its own legal counsel in this matter.

Id. at 54 n. 4.

2. Fraudulent Representation and Concealment of Information

Notably, in addition to recognizing the validity of a disclaimer clause in Schlumberger, the supreme court also stated, “We emphasize that a disclaimer of reliance or merger clause will not always bar a fraudulent inducement claim.” Id. at 181. The court cited Prudential Insurance Co. v. Jefferson Associates, Ltd., 896 S.W.2d 156 (Tex.1995). In Prudential, the supreme court had held that “[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.” Id. at 162. The court explained:

A seller cannot have it both ways: he cannot assure the buyer of the condition of a thing to obtain the buyer's agreement to purchase “as is”, and then disavow the assurance which procured the “as is” agreement. Also, a buyer is not bound by an “as is” agreement if he is entitled to inspect the condition of what is being sold but is impaired by the seller's conduct. A seller cannot obstruct an inspection for defects in his property and still insist that the buyer take it “as is”. In circumstances such as these an “as is” agreement does not bar recovery against the seller.

We also recognize that other aspects of a transaction may make an “as is” agreement unenforceable. The nature of the transaction and the totality of the circumstances surrounding the agreement must be considered. Where the “as is” clause is an important part of the basis of the bargain, not an incidental or “boiler-plate” provision, and is entered into by parties of relatively equal bargaining position, a buyer's affirmation and agreement that he is not relying on representations by the seller should be given effect.

Id.

In agreement with Prudential, Texas courts have long held that a seller of real estate has a duty to disclose material facts that would not be discoverable by the exercise of ordinary care and diligence on the part of a purchaser or which a reasonable investigation and inquiry would not uncover, stating that “where there is a duty to speak, silence may be as misleading as a positive misrepresentation of existing facts.” Smith v. Nat'l Resort Communities, Inc., 585 S.W.2d 655, 658 (Tex.1979). Even in the absence of a duty to disclose, a purchaser is entitled to rescind the transaction if an undisclosed fact is basic and is one the seller knows the purchaser would regard as material. Id. (holding that careful reading by purchaser of twenty-eight page declaration of reservations received at time contract for sale of lot was executed would not have reasonably alerted them to possibility that inundation easement encumbered lot, and, therefore, purchasers were entitled to rescission).

3. Disclaimer of Reliance and Fraudulent Concealment

The Texas Supreme Court recently issued its opinion in Italian Cowboy, which closely mirrors this case. 341 S.W.3d at 328–29. In Italian Cowboy, the plaintiffs, who had successfully owned and operated restaurants for more than twenty years, identified the defendant's property, a Dallas shopping center, as a possible site for a new restaurant, Italian Cowboy. Id. at 328. During the lease negotiations the property management director told the plaintiffs that the building was practically new and had no problems, that she had been there from the beginning, and that it was “in perfect condition ․ [with] no problem whatsoever.” Id. The lease contained a merger clause and a provision stating,

Tenant acknowledges that neither Landlord nor Landlord's agents, employees or contractors have made any representations or promises with respect to the Site, the Shopping Center or this Lease except as expressly set forth herein.

Id.

After signing the lease and beginning to remodel the property, the plaintiffs heard for the first time from a nearby cinema manager about a “very, very bad odor” that had existed in the previous restaurant in the building. Id. at 329. When asked about the odor, the property manager denied having heard about such a problem. Id. Persistent problems with the odor, despite persistent denials by the property manager of any knowledge of the odor in the previous restaurant, eventually led the tenants to discover that the odor was sewer gas, that it had been present in the previous restaurant, and that efforts to correct it had failed. Id. at 330.

The supreme court made two important holdings in Italian Cowboy for purposes of the instant case. First, the court expressly “decline[d] to extend our holdings in Schlumberger and Forest Oil—each of which included clear and unequivocal language expressly disclaiming reliance on representations, and representing reliance on one's own judgment—to the generic merger language contained in the contract at issue in this case.” Id. at 336. It held, “As a matter of law, the lease agreement at issue does not disclaim reliance, and thus does not defeat Italian Cowboy's claim for fraudulent inducement.” Id. at 336–37. Applying ordinary principles of contract construction, the court held that the parties to the lease intended nothing more than a standard merger clause and did not intend to include a disclaimer of reliance on representations. Id. at 334.

The court noted, “Were this a clear and unequivocal disclaimer-of-reliance clause, our analysis would then proceed to ‘the circumstances surrounding [the contract's] formation,’ in order to determine whether such a provision is binding on the parties involved.” Id. at 337 n. 8 (citing Schlumberger, 959 S.W.2d at 179). If the disclaimer does not clearly and unequivocally express an intent to preclude a fraudulent inducement claim, the language is not effective to negate reliance and the courts need not review the circumstances surrounding the agreement, namely the remaining Forest Oil factors. See id. at 336; see also Schlumberger, 959 S.W.2d at 179 (holding that clear and unequivocal language is necessary to bar fraudulent inducement claim).

Second, the court held that superior knowledge of the facts by one party to a contract may provide the occasion for fraud, either by helping to categorize the party's statement as one of fact rather than opinion or by triggering the “special knowledge” exception to the rule that pure opinion is not actionable as fraud. Italian Cowboy, 341 S.W.3d at 338. The court stated that whether a statement is an actionable statement of fact or merely a non-actionable statement of opinion often depends on the circumstances in which the statement is made. Id. “Special or one-sided knowledge may help lead to the conclusion that a statement is one of fact, not opinion.” Id. In this regard, the court held that “commercial tenants are entitled to rely on the fact that a landlord will not actively conceal material information” regarding the condition of the property. Id. at 339. It also held that the landlord's “one-sided knowledge of past facts” made her representations that she had been working with the restaurant site since its inception and that “the building was in perfect condition, never a problem whatsoever,” and there was “nothing wrong with the place at all” actionable under the circumstances of the case. Id. at 328, 339. The court stated, “Firsthand knowledge—like [the landlord's]—concerning material information—like an odor problem in a restaurant site—is exactly the sort of scenario that that demonstrates the sound policy behind the exception allowing an opinion to be actionable under certain circumstances where material information was withheld.” Id. at 339.

4. Application of the Law to the Facts

We apply the Italian Cowboy analysis in this case. We hold that neither the disclaimer in the “document review” section of the Purchase Agreement nor the “as is” clause agreed to by Fazio clearly and unequivocally expressed Fazio's intent to disclaim reliance on Cypress's representations regarding the economic condition of the Property so that the Purchase Agreement might be binding even if induced by fraud. See id. at 336–37 & n. 8. Rather, we conclude that, like Italian Cowboy, Fazio was entitled to rely on the fact that the landowner, Cypress, would not actively conceal information material to the transaction, which Cypress did, in fact, conceal.

A written contract containing a merger clause can be avoided for fraud or fraud in the inducement, and the parol evidence rule does not bar proof of such fraud. Italian Cowboy, 341 S.W.3d at 331. The question whether an adequate disclaimer of reliance exists so as to negate a claim of fraudulent inducement is a matter of law. Id. at 333.

“In construing a contract, a court must ascertain the true intentions of the parties as expressed in the writing itself.” Id. To determine intent, we must examine the entire writing “to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless.” Id. (quoting J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex.2003)). We begin with the contract's express language. Id. “If the written instrument is so worded that it can be given a certain or definite legal meaning or interpretation, then it is not ambiguous and the court will construe the contract as a matter of law.” Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983). Only when a contract is ambiguous may a court consider the parties' interpretation and admit extraneous evidence to determine its true meaning. Italian Cowboy, 341 S.W.3d at 333–34.

(a) The disclaimer, “as is,” and merger clauses in the Purchase Agreement

The LOI, which became binding under its terms when the Purchase Agreement was signed, expressly provided, “Seller will provide Buyer with all information in their [sic] possession including, but not limited to the following.”9 There was no limitation on the information Cypress undertook to provide. In the conduct of his due diligence, Fazio and his agents conducted an extensive investigation into the economic condition of the property. Cypress knew that Fazio was seeking all documents in its possession material to the purchase of the property, that it had promised to provide them, and that Fazio had expressly based his offer of $7,667,000 for the Property in the LOI on Cypress's “currently reported absolute net income of $805,040.00.” Cypress nevertheless withheld and failed to disclose all information in its possession regarding Garden Ridge's hiring of a consultant “with respect to restructuring and renegotiation of the Company's real estate leases”; the letter sent to Cypress's president, Maguire, announcing its restructuring and need to reduce occupancy costs at the Garden Ridge store on the Property; and Garden Ridge's discussions with Cypress over an annual rent reduction of $241,512. Cypress also failed to disclose its lender Guaranty Bank's request for a personal guaranty from its president, Maguire, of the $4,500,000 balance on the $5,704,000 loan secured by the Property, which was received three weeks before the LOI was signed, and Maguire's execution of that guaranty four days after the Purchase Agreement was signed, which Cypress knew would be discharged upon closing of the purchase a little over a month later.

By its own terms, the disclaimer was limited only to a disclaimer of reliance on “the truth, accuracy, or completeness of the Documents” and, “[e]xcept with respect to any express warranties made in this Agreement,” to a disclaimer of reliance and waiver of liability for “representations or warranties, express or implied, statements of fact, and other matters contained in the Documents.” The Documents defined in the Purchase Agreement, to which the disclaimer expressly applied, did not include financial documents. Nor does Fazio base his fraudulent inducement claim on any “omissions from the Documents,” a defined term in the disclaimer, “or in any other written or oral communications transmitted or made available to Purchaser.” Rather, he bases his claim on the intentional omission of financial documents and communications regarding economic matters that were material to the purchase, that were within the exclusive possession and knowledge of Cypress, and that were neither defined as “Documents” as to which reliance was disclaimed nor transmitted or made available to him. Thus, Fazio's claims are based exclusively upon material omissions to which the disclaimer, by its own terms, did not apply. Not only did the specific terms of the disclaimer fail to waive liability for fraudulent inducement caused by Cypress's failure to disclose the information in its possession material to the transaction upon which Fazio's claims are based, but Cypress was bound by a contractual obligation under the LOI that governed during the due diligence period to produce the financial information Fazio had requested, and it was also bound by the common law duty not to actively conceal information it knew to be material to the purchase in the absence of an express disclaimer of that obligation. See Italian Cowboy, 341 S.W.3d at 339 (“[C]ommercial tenants are entitled to rely on the fact that a landlord will not actively conceal material information.”).

Nor does the general statement in the disclaimer that “Purchaser shall rely solely upon its own investigation with respect to the Property, including, without limitation, the Property's physical, environmental, or economic condition, compliance or lack of compliance with any ordinance, order, permit, or regulation or any other attribute or matter relating thereto”—the only place in which the term “economic condition” is mentioned in the Purchase Agreement—preclude Fazio's fraudulent inducement claim. This statement is far too general and generic to be reasonably interpreted as expressing Fazio's intent to waive liability for fraudulent inducement due to the withholding of material information by Cypress that Cypress had contractually bound itself to provide to Fazio in connection with the purchase. Indeed, any such reading of that sentence in the disclaimer would be patently unreasonable.

Likewise, the “as is” clause is expressly limited by its terms to Fazio's agreement “to accept the property ‘as is,’ ‘where is,’ and ‘with all faults', subject to any physical or environmental condition which may exist, and without the existence of and reliance on any representation or warranty by Seller.”

Nor can the merger clause be reasonably interpreted as waiving Fazio's fraudulent inducement claim. See Italian Cowboy, 341 S.W.3d at 334 (holding that when parties have merely recited “the provisions of a standard merger clause,” they have not shown intent to include disclaimer of reliance on representations) (citing 11 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 33.21 (4th ed. 1999) (“Recitations to the effect that a written contract is integrated, that all conditions, promises, or representations are contained in the writing ․ are commonly known as merger or integration clauses.”)).

Because there is only one reasonable reading of the disclaimer and the “as is” clause, and because “[p]ure merger clauses, without an expressed clear and unequivocal intent to disclaim reliance or waive claims for fraudulent inducement, have never had the effect of precluding claims for fraudulent inducement,” we hold that the Purchase Agreement is unambiguous and that it cannot be reasonably interpreted as waiving Fazio's reliance on Cypress's producing all economic information material to the transaction in its possession. See id. at 334.

(b) Fazio's fraudulent inducement claim

We also hold that Fazio's claims clearly fall within the category of claims for which an action for fraudulent inducement lies.

Cypress knew from the express representation in the LOI that Fazio was willing to pay the requested purchase price of $7,667,000 for the Property “[b]ased on the currently reported absolute net income of $805,040.” It further knew that this income was generated by rental income received from Garden Ridge. Fazio agreed in the LOI to conduct due diligence, and, in accepting the LOI, Cypress agreed to “provide Buyer with all information in their [sic] possession including, but not limited to, the following” information specified in the LOI. Fazio, an experienced real estate investor, and his experienced agents conducted reasonable due diligence before Fazio signed the Purchase Agreement, including requesting and reviewing all economic information about the Property in Cypress's possession. When Fazio discovered disturbing information about Garden Ridge in the financial statements provided to him, he conducted further investigations with both Garden Ridge and Cypress. He was repeatedly assured that all was well and that Garden Ridge anticipated strong sales and, for that reason, Garden Ridge had taken out a large inventory loan from Bank of America to finance the Christmas season.

A reasonable person in Fazio's position would clearly have attached importance to the facts that approximately eight months before he purchased the Property in September 2003, Garden Ridge had retained Keen to assist it in restructuring and renegotiating Garden Ridge's real estate leases; Keen had prepared a letter for Garden Ridge to send to landlords; a copy of that letter, stating that Garden Ridge was restructuring and that as part of its restructuring it needed to reduce its occupancy costs at certain stores, including the Garden Ridge store on the Property, was sent to Cypress's President, Maguire, on March 5, 2003; and Keen had contacted Cypress's Director of Finance and others at Cypress on at least three other occasions to discuss the proposed rent relief, seeking an annual rent reduction of 30% for the Property, or $241,512. See Italian Cowboy, 341 S.W.3d at 337 (defining materiality).

A reasonable real estate investor who had signed an LOI to purchase the Property for $7,667,000 on September 2, 2003 would also attach importance to and be induced to act on the information that, on August 14, 2003, Cypress's lender, Guaranty Bank, had requested that Cypress's President execute a personal guaranty of the balance of $4,500,000 on the $5,704,000 loan secured by the Property because the bank was concerned about Garden Ridge's financial condition. And an investor who had executed the Purchase Agreement for the Property on September 19, 2003 would surely have wanted to know that four days later, on September 23, 2003, Maguire signed the guaranty requested by Guaranty Bank, knowing that it would be extinguished by the sale of the Property to Fazio, which closed on October 31, 2003.

We hold that, similar to the facts in Italian Cowboy, Cypress's one-sided knowledge of past facts regarding the financial stability of Garden Ridge—whose income stream was expressly relied on by Fazio to justify the purchase price—made Cypress's suppression of information about Garden Ridge's restructuring, its negotiations with Garden Ridge's representatives over rent reduction, and the personal guaranty required of Maguire by the lender for the Property actionable under the circumstances. See 341 S.W.3d at 339. We further hold that Cypress's active concealment of this material information, which it was under a duty to disclose as financial information material to the real estate transaction in its possession, was fraudulent as a matter of law. See id. at 338–39.

The jury found in response to Questions 1 and 2 that Cypress Equities defrauded Fazio. A trial court may disregard a jury finding and render JNOV only if the finding is immaterial or if there is no evidence to support one or more of the jury findings on issues necessary to liability. See Tiller, 121 S.W.3d at 713; Spencer, 876 S.W.2d at 157. Here, the fraud findings made by the jury in response to Questions 1 and 2 were material and supported by the evidence. Therefore, we hold that the trial court erred in entering JNOV with respect to the jury's finding of fraud.

We sustain Fazio's first and second issues.

B. Damages

In his third issue, Fazio argues that the damages awarded by the jury were recoverable under either the “out-of-pocket” or “rescission/restitution” measure of damages for fraudulent inducement. The jury found, in response to Question 2, that $3,961,524.60, representing the difference between the price the Fazios paid for the Property and the amount they received when they sold the Property, would fairly and reasonably compensate Fazio for the fraud. Fazio contends that the trial court erred in disregarding the jury's answer to Question 2 on the ground that the measure of damages was not correctly submitted to the jury because Texas law requires the jury to measure fraud damages at the time of the fraudulent transaction and the evidence was legally and factually insufficient to show that Fazio suffered damages at the time the Property was purchased.

Cypress responds that the Property was worth exactly what Fazio paid for it in 2003 and that the instruction to calculate damages from the time Fazio resold the Property more than three years later submits an improper out-of-pocket measure of damages. It argues that Fazio “ignores the black-letter principle that a fraud claim requires a showing of damages, and those damages must be assessed at the time the Property was purchased,” citing Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812 (Tex.1997).

Damages for fraud in the sale of real estate include the “out-of-pocket” measure, which is the difference between the value paid and the value received, and the “benefit of the bargain” measure, which is the difference between the value as represented by the seller and the value received as measured by fair market value. See Formosa Plastics, 960 S.W.2d at 49; W.O. Bankston Nissan, Inc. v. Walters, 754 S.W.2d 127, 128 (Tex.1988). The test of fair market value is the price that would in all likelihood be agreed upon by a willing buyer and a willing seller, neither of whom is under any compulsion to buy or sell. ITT Commercial Fin. Corp. v. Riehn, 796 S.W.2d 248, 253 (Tex.App.-Dallas 1990, no writ). Restitution has also been permitted to ensure that the plaintiff is made whole when injured by the defendant's misrepresentations. See Henry S. Miller Co. v. Bynum, 836 S.W.2d 160, 162–63 (Tex.1992) (holding, in DTPA case, that evidence supported award of damages in total amount of plaintiff's capital investment in lease venture for beauty shop, minus amount plaintiff received back from venture, including money received when plaintiff sold beauty shop business, as part of plaintiff's “actual loss” even though plaintiff did not present evidence to support “out-of-pocket” or “benefit-of-the-bargain” measure of damages).

The concurring opinion in Bynum explained the standard of proof for damages for a wrongful act, such as misrepresentation, succinctly:

“Direct damages,” also known as “general damages,” compensate for the loss, damage or injury that is conclusively presumed to have been foreseen or contemplated by the party as a consequence of his breach of contract or wrongful act. For misrepresentation, there are two recognized measures of direct damages. The “out of pocket” measure, which operates on a restitutionary theory, measures the difference between the value of that which was parted with and the value of that which was received. The “benefit of the bargain” measure, which utilizes an expectancy theory, evaluates the difference between the value as represented and the value actually received.

Bynum, 836 S.W.2d at 163 (Phillips, C.J., concurring) (citing Nobility Homes of Tex., Inc. v. Shivers, 557 S.W.2d 77, 78 n. 1 (Tex.1977) and W.O. Bankston Nissan, 754 S.W.2d at 128).

Here, the jury was instructed to determine the sum of money that would fairly and reasonably compensate Fazio for his injuries, measured as “[t]he difference between the price the Fazios paid for the Property and the amount they received when they sold the Property.” This is a proper measure of actual damages for Cypress's fraud on an out-of-pocket theory. See id. The jury awarded Fazio the difference between the price the Fazios paid for the Property and the amount they received when they sold the Property. We hold that there was some evidence to support the jury's finding of damages in response to Question 2, and therefore the trial court erred in granting JNOV on this issue. See Tiller, 121 S.W.3d at 713.

We sustain Fazio's third issue.

C. Apportionment of Liability

In his fourth issue, Fazio argues that the evidence was sufficient to show that Cypress Equities, Inc., Cypress/GR Houston I, L.P. and Cypress/GR Houston, Inc. operated as a single business enterprise and that Cypress Equities, Inc. was the agent for the seller and was 100% responsible for the harm to Fazio, as found by the jury in response to Questions 3 and 4; therefore, the trial court erred in disregarding the jury's answers to these questions and in granting JNOV and a take-nothing judgment.

In Question 3, the jury was asked to find the percentage of responsibility attributable to each of the Cypress defendants, Joe Fazio, Silver, and Banks, in causing or contributing to cause the harm, if any, found in response to Question 2. The jury answered that Cypress Equities, Inc. was 100% responsible for the harm to Fazio.

In Question 4, the jury was instructed that each of the Cypress defendants (Cypress Equities, Inc., Cypress/GR Houston I, L.P. and Cypress/GR Houston, Inc.) was individually responsible for the acts of all of the Cypress entities if they operated as a “single business enterprise” and that “[a] single business enterprise may be found when two or more corporations are not operated as separate entities, but rather integrate their resources to achieve a common business purpose.” The jury was instructed to consider the following factors: whether the Cypress entities had common employees, common offices, common record keeping, centralized accounting, payment of wages by one corporation to another corporation's employees, common business names, services rendered by the employees of one corporation on behalf of another, undocumented transfers of funds between corporations, unclear allocation of profits and losses between the corporations, the same officers, the same shareholders, and/or the same telephone number.

The “single business enterprise” theory “applies whenever two corporations coordinate operations and combine resources in pursuit of the same business purpose.” SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 452 (Tex.2008). Proof of a single business enterprise is not enough, however, to impose joint liability on separate entities. Id. “The corporate form normally insulates shareholders, officers, and directors from liability for corporate obligations․” Castleberry v. Branscum, 721 S.W.2d 270, 271 (Tex.1986). However, the corporate veil may be pierced and one entity held liable for the debts of another when, among other circumstances, “a corporation is organized and operated as a mere tool or business conduit of another .” Id. at 272. “Alter ego applies when there is such unity between corporation and individual that the separateness of the corporation has ceased and holding only the corporation liable would result in injustice.” Id. Alter ego “is shown from the total dealings of the corporation and the individual, including the degree to which corporate formalities have been followed and corporate and individual property have been kept separately, the amount of financial interest, ownership and control the individual maintains over the corporation, and whether the corporation has been used for personal purposes.” Id.

Parties are not jointly liable for a corporation's obligations “merely because they were part of a single business enterprise,” i .e., “merely because of centralized control, mutual purposes, and shared finances.” SSP Partners, 275 S.W.3d. at 452, 455. Rather, “[d]isregarding the corporate structure involves two considerations”: (1) “the relationship between [the] two entities” and (2) “whether the entities' use of limited liability was illegitimate.” Id. at 455. Parties are jointly liable when the corporate structure is shown to be a fraud. See id.10

In Castleberry, the supreme court held that a showing of constructive fraud was enough to show an illegitimate use of the limited liability afforded corporations under a single business enterprise theory of liability. 721 S.W.2d at 273. In SSP Partners, it observed that the Texas Legislature “has since rejected that view in certain cases” and held that “the single business enterprise liability theory is fundamentally inconsistent with the approach taken by the Legislature in [Article 2.21 of the Texas Business Corporations Act].” 275 S.W.3d at 455–56. To pierce the corporate veil and impose liability under an alter ego theory of liability under SSP Partners, a plaintiff must show not only that the persons or entities on whom it seeks to impose liability are alter egos of the debtor, it must show also that the corporate fiction was used for an illegitimate purpose. See id. at 455–56 & n. 57.

To satisfy the first consideration in piercing the corporate veil—whether the persons or entities sought to be charged with liability are alter egos of the primary debtor—the relationship between corporate entities can be assessed using factors such as:

• whether the entities shared a common business name, common offices, common employees, or centralized accounting;

• whether one entity paid the wages of the other entity's employees;

• whether one entity's employees rendered services on behalf of the other entity;

• whether one entity made undocumented transfers of funds to the other entity; and

• whether the allocation of profits and losses between the entities is unclear.

See Asshauer v. Glimcher Realty Trust, 228 S.W.3d 922, 934 (Tex.App.-Dallas 2007, no pet.); Paramount Petroleum Corp. v. Taylor Rental Ctr., 712 S.W.2d 534, 536 (Tex.App.-Houston [14th Dist.] 1986, writ ref'd n.r.e.).

Here, the jury charge in Question 1 (regarding fraud) and Question 3 (regarding piercing the corporate veil) included both prongs of the proof of liability of one business entity for the debts of another under an alter ego theory. The evidence showed that the LOI was negotiated by, “agreed and accepted” by, and signed by Cypress Equities as Seller of the Property. The Purchase Agreement was executed by Cypress/GR Houston I, L.P. as Seller. The evidence further showed that Cypress Equities was solely responsible for developing and marketing the Property. Cypress Equities' owner, Maguire, made the decision to sell the Property; its employees, including Maguire and Claro, communicated with potential buyers and their agents, including Fazio's agents, Silver and Banks; Cypress Equities negotiated and executed the LOI and obtained a confidentiality agreement regarding disclosure of Garden Ridge's financial information; it conducted discussions with Garden Ridge regarding its financial condition; it negotiated the sales price of the Property; it closed the transaction; its employee Claro was the principal contact person for Cypress for the sale to Fazio; and one of its employees was primarily responsible for handling the sale. The Property's owner, Cypress/GR Houston I, L.P., was a single-purpose entity created to own the property. It had no employees and no assets.

We hold that the evidence was sufficient to support the jury's finding, in response to Question 4, that the Cypress entities, including Cypress Equities and Cypress/GR Houston I, L.P., constituted a single business enterprise and that Cypress/GR Houston I, L.P. and Cypress Equities were alter egos of each other. Under the circumstances of this case, we further conclude that the evidence was sufficient to support the jury's response to Question 3, finding that Cypress Equities was 100% liable for the harm to Fazio and that the other Cypress entities, Cypress/GR Houston I, L.P. and Cypress/GR Houston, Inc., Fazio himself, and Fazio's agents Silver and Banks, had no responsibility for causing the harm. Therefore, we hold that the trial court erred in disregarding the jury's answers to Questions 3 and 4 and in granting JNOV on the issue of Cypress Equities' 100% responsibility for the harm the fraud caused Fazio.

We sustain Fazio's fourth issue.

D. Exemplary Damages

In his fifth issue, Fazio argues that there was clear and convincing evidence that the harm to him resulted from Cypress's fraud, justifying the imposition of exemplary damages, and that the amount of exemplary damages awarded him was within statutory and constitutional limits. Cypress responds that exemplary damages are not available where liability is precluded as a matter of law and that Fazio's fraud claim fails as a matter of law. It cites Wright v. Gifford–Hill & Co., 725 S.W.2d 712 (Tex.1987). Cypress also argues that there is no clear and convincing evidence of fraud.

In Question 5, the jury was asked whether it found from clear and convincing evidence that the harm to Fazio resulted from fraud. It was given the same instruction on fraud as in Question 1 and was instructed that ‘ “[c]lear and convincing evidence’ means the measure or degree of proof that produces a firm belief or conviction of the truth of the allegations sought to be established.” It answered “yes.” In Question 6, the jury was instructed that ‘ “exemplary damages' means an amount that you may in your discretion award as a penalty or by way of punishment,” and it was instructed on the factors to be considered, the nature of the wrong, the character of the conduct involved, the degree of culpability of Cypress Equities, the situation and sensibilities of the parties, the extent to which Cypress Equities' conduct offended a public sense of justice and propriety, and the net worth of Cypress Equities. In response to Question 6, asking it for the sum of money in exemplary damages it awarded, the jury answered, “$667,000.00.”

Exemplary damages may be awarded for fraud only if the claimant's evidence of fraud is clear and convincing. Tex. Civ. Prac. & Rem.Code Ann. § 41.003 (Vernon Supp.2011). Clear and convincing evidence is “proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.” Id. § 41.001(2) (Vernon 2008). The finder of fact must consider the nature of the wrong, the character of the conduct involved, the degree of culpability of the defendant, the situation and sensibilities of the parties involved, the extent to which the defendant's conduct offended a public sense of justice and propriety, and the net worth of the defendant. Id. § 41.011(a) (Vernon 2008). Exemplary damages awarded against a defendant may not exceed an amount equal to the greater of either two times the amount of economic damages plus an amount equal to any noneconomic damages found by the jury, not to exceed $750,000, or $200,000. Id. § 41.008 (Vernon Supp.2011).

Here, the exemplary damages awarded ($667,000) were not greater than two times the amount of economic damages found ($3,961,524.60) and did not exceed $750,000. Therefore, the award did not violate statutory and constitutional constraints. See id. § 41.08. Moreover, the evidence recited above is sufficient to support the jury's finding that the evidence of fraud was clear and convincing and that the nature of the wrong, the degree of Cypress's culpability, the situations and sensibilities of the parties, the extent to which Cypress's conduct offended a public sense of justice and propriety, and Cypress's net worth justified the imposition of the $667,000 in exemplary damages awarded to Fazio. See id. § 41.011. Therefore, we hold that the trial court erred in granting JNOV on the issue of exemplary damages.

We sustain Fazio's fifth issue.

Attorney's Fees

After the trial court granted the motion for judgment notwithstanding the verdict, Cypress/GR Houston I, L.P. filed a motion for attorney's fees against Peter Fazio based on the following provision in the purchase agreement:

Section 7.3 Attorney's Fees.

In the event either party hereto is required to employ an attorney in connection with claims by one party against the other arising from the operation of this Agreement, the non-prevailing party shall pay the prevailing party all reasonable fees and expenses, including attorney's fees incurred in connection with such transaction.

The trial court held two hearings. At the first, it heard evidence from Cypress/GR that its attorney's fees through judgment in the trial court were $987,934.64 and expenses were $53,703.58. At the second hearing, the trial court heard legal arguments on whether attorney's fees were recoverable under the agreement, and the court expressed a concern that the phrase “claims ․ arising from the operation of this Agreement” restricted the ability of Cypress/GR to recover for prevailing on the issue of fraudulent inducement.

As a part of the final judgment, the trial court denied the motion for attorney's fees. Cypress/GR appeals the denial of the motion, arguing that the fraudulent inducement claim arises from the operation of the agreement.

We hold that the evidence was sufficient to support the jury's findings that all three Cypress defendants were participants in a single business enterprise that defrauded Fazio and that liability for the actions of any of them could be imputed to the others on an alter ego theory. Thus, Cypress was a not prevailing party, as necessary for the recovery of attorneys' fees under section 7.3 of the Purchase Agreement. We hold, therefore, that the trial court did not err in denying appellant Cypress I, L.P.'s motion for attorney's fees.

We overrule Cypress/GR Houston I, L.P.'s issue on appeal.

Conclusion

We reverse the trial court's rendition of judgment notwithstanding the verdict and remand the cause to the trial court to render judgment on the verdict in favor of appellants Peter Fazio, Sherry Fazio, and Eric Fazio in accordance with this opinion. We affirm the portion of the judgment denying appellee Cypress/GR Houston I, L.P.'s motion for attorney's fees.

DISSENTING OPINION

I respectfully dissent. I would affirm the trial court's ruling that the parties' disclaimer of reliance foreclosed any subsequent claim that the buyer was fraudulently induced to enter into the transaction. My disagreement with the majority's conclusion is primarily based upon my conclusion that the Purchase Agreement clearly and unequivocally expresses an intention to disclaim the buyer's reliance on the seller's representations and omissions from representations with respect to the economic condition of the property.

As a predicate matter, the majority errs by concluding that the due diligence terms of the Letter of Intent, including the provision that “[t]he Seller will provide Buyer with all information in their possession,” “became a binding agreement upon the execution of the Purchase Agreement.” Majority Op. at 7. Instead, as is customary and as the parties expressly contemplated at the time the LOI was executed, the terms of the LOI were displaced by and replaced with the terms of the Purchase Agreement. The LOI itself provided that it was “an expression of understanding and intention only, and if accepted, will provide guidance for drafting a formal Purchase Agreement.” The LOI went on to specify that “Terms and conditions set forth in this proposal shall not be binding on both parties until and unless a formal Purchase Agreement is executed and delivered to both parties.”

When the parties did execute a formal Purchase Agreement, they replaced the due diligence provisions of the LOI with a much more detailed “Inspection” provision, contained in Article V of the Agreement. Consistent with the parties' expectations as expressed in the LOI, the Purchase Agreement also contained a merger clause which provided: “This Agreement contains the entire agreement of the parties hereto. There are no other agreements, oral or written, and this Agreement can be amended only by written agreement signed by the parties hereto, and by reference, made a part hereof.” Thus the parties' express agreement as it pertains to the seller's disclosure obligations is contained in the Purchase Agreement, and not in the LOI.

Divorcing the terms of the LOI from the analysis and focusing solely upon the terms of the Purchase Agreement, that contract includes a clear and unequivocal expression of intent to disclaim the buyer's reliance on the completeness of the documentation provided to it by the seller. Article V of the Purchase Agreement contains the parties' agreement about the parameters of the buyer's opportunity to perform due diligence. Section 5.1 is entitled “Inspection Period,” and it provides for a 30–day period, commencing on the “Effective Date,” during which time the buyer was afforded reasonable opportunities to enter and inspect the property. During the first 10 days of the Inspection Period, the seller was required to deliver a group of “Documents” to the purchaser, as defined in section 5.2, which is devoted to describing and limiting the seller's disclosure obligations. The “Documents” to be disclosed were “copies of the Lease and all amendments thereto,” “the Survey,” “copies of any Plans,” “to the extent allowed by the author, copies of all existing soil, engineering, architectural, and environmental reports covering the Property in Seller's possession,” “copies of all Service Contracts, if any,” and “copies of all Permits.” Section 5.2 included provisions for the treatment of proprietary information within the “Documents” and for the return of all “Documents” in the event the Purchase Agreement was terminated.

Importantly, section 5.2(d) is entitled “No Representation or Warranty by Seller.” In it, the buyer acknowledged:

[E]xcept as otherwise specifically set forth in this Agreement, Seller has not made and does not make any warranty or representation regarding the truth, accuracy, or completeness of, the Documents or the source(s) thereof, and that Seller has not undertaken any independent investigation as to the truth, accuracy, or completeness of the Documents and is providing the Documents solely as an accommodation to Purchaser.

The foregoing language did not affirmatively authorize the seller to misrepresent the truth or to knowingly conceal information, but it could reflect the parties' intention to limit the scope of the seller's obligations to search for and investigate the “Documents” to be provided by the seller. More critically, the following sentence provided:

Except with respect to any express warranties made in this Agreement, Seller expressly disclaims and Purchaser waives any and all liability for representations or warranties, express or implied, statements of fact, and other matters contained in the Documents, or for any omissions from the Documents, or in any other written or oral communications transmitted or made available to Purchaser.

This sentence expressly addressed the seller's “liability” in connection with providing the “Documents.” The sentence clearly and unequivocally provided that the seller “expressly disclaims”—and that the buyer “waives”—“any and all liability” for everything “contained in the Documents.”1 And beyond the information affirmatively provided by disclosing the “Documents,” the express disclaimer and waiver of liability also extended to “any omissions” from information was provided, regardless of whether it should have been disclosed as part of the “Documents.” That same seller's disclaimer of liability and buyer's waiver of liability extended to “any omissions from the Documents, or in any other written or oral communications transmitted or made available to Purchaser.”2 Consistent with these provisions immunizing the seller from liability for errors or omissions in communications to the buyer, section 5.2(d) concluded by affirming that the buyer was accepting responsibility for developing the information necessary to satisfy itself about the property it was buying:

Except with respect to any express warranties made in this Agreement, Purchaser shall rely solely upon its own investigation with respect to the Property, including, without limitation, the Property's physical, environmental, or economic condition, compliance or lack of compliance with any ordinance, order, permit, or regulation or any other attribute or matter relating thereto.

The buyer's specific affirmation that it was relying solely upon its own investigation, and the parties' deliberate intent to foreclose both liability for the seller's affirmative communications to the buyer and omissions therefrom, are further confirmed by the Purchase Agreement's inclusion of an “as-is” provision in section 5.5, which provided, in relevant part:

Property Conveyed “AS IS”.

(a) EXCEPT AS OTHERWISE PROVIDED HEREIN OR IN THE DEED ․ (2) PURCHASER HEREBY EXPRESSLY ACKNOWLEDGES AND AGREES THAT (A) PURCHASER HAS OR WILL HAVE, PRIOR TO THE END OF THE INSPECTION PERIOD, THOROUGHLY INSPECTED AND EXAMINED THE PROPERTY TO THE EXTENT DEEMED NECESSARY BY PURCHASER IN ORDER TO ENABLE PURCHASER TO EVALUATE THE PURCHASE OF THE PROPERTY AND (B) PURCHASER IS RELYING SOLELY UPON SUCH INSPECTIONS, EXAMINATIONS, AND EVALUATION OF THE PROPERTY BY PURCHASER IN PURCHASING THE PROPERTY ON AN “AS IS”, “WHERE IS” AND “WITH ALL FAULTS” BASIS, WITHOUT REPRESENTATIONS, WARRANTIES OR COVENANTS, EXPRESS OR IMPLIED, OF ANY KIND OR NATURE.

Although the majority opinion characterizes the Texas Supreme Court's recent Italian Cowboy opinion as containing a fact pattern that “closely mirrors” this case, see Majority Op. at 25, I disagree with that comparison. The language relied upon in that case as a purported disclaimer of reliance provided: “Tenant acknowledges that neither Landlord nor Landlord's agents, employees, or contractors have made any representations or promises with respect to the Site, the Shopping Center or this Lease except as expressly set forth herein.” Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 328 (Tex.2011). The Court compared this language to the provisions found to be effective disclaimers of reliance in Schlumberger3 and Forest Oil,4 and concluded that lease language at issue in the case did not include clear and unequivocal language expressly disclaiming reliance on representations and affirming reliance on one's own judgment. See id. at 336. Instead, the Italian Cowboy Court found the language at issue to indicate “nothing more than the provisions of a standard merger clause,” which is not sufficient to indicate an intent to disclaim reliance. Id. at 334.

This case is distinguishable from Italian Cowboy in at least two respects. First, the critical language in the Purchase Agreement uses the term “rely” in providing that the “Purchaser shall rely solely upon its own investigation with respect to the Property.” (Emphasis supplied.) “Rely” is also used in the “as-is” clause, where the buyer affirmed it was “RELYING SOLELY UPON SUCH INSPECTIONS, EXAMINATIONS, AND EVALUATION OF THE PROPERTY” as it deemed necessary to enable its evaluation of the transaction. This factor was expressly noted in Italian Cowboy to distinguish that case from Schlumberger and Forest Oil, both of which featured contracts using the term “rely” to clearly and unequivocally indicate a party's intent to rely on its own judgment. See id. at 336 (relying upon language quoted in notes 3 & 4, supra ). Second, the key language at issue cannot be characterized as merely echoing the intent and purpose of a merger clause. Rather, the language specifically references “liability” arising from representations or omissions from documents or other written or oral communications, and it clearly and unequivocally provides that the seller disclaims and that the buyer waives “any and all” liability of that nature.

The buyer-plaintiffs' claims in this case arise from their allegation that the seller-defendants failed to disclose information about economic risks to the property owner, i.e., the financial condition of the property's tenant and the tenant's requests for rent relief, facts which affected the value of the income stream expected from renting the property to that tenant. I would hold that the Purchase Agreement's express disclaimer and waiver of seller liability arising from representations or omissions in the parties' communications leading up to the closing of the transaction, combined with the acknowledgement that “Purchaser shall rely solely upon its own investigation with respect to the Property, including, without limitation, the Property's ․ economic condition,” constitutes clear, specific, and unequivocal disclaimer of reliance sufficient to preclude this subsequent claim of fraudulent inducement. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 61 (Tex.2008); Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 179 (Tex.1997).

The question remains, however, whether the disclaimer is binding in light of the totality of circumstances surrounding this contract. See Forest Oil, 268 S.W.3d at 61; Schlumberger, 959 S.W.2d at 179. This is a legal question which we review de novo. Forest Oil, 268 S.W.3d at 55. The factors that guided the Supreme Court's reasoning in Schlumberger and Forest Oil included:

(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 (5) the release language was clear.

Id. at 60. The Fazios do not dispute that this was an arm's length transaction. As explained above, the language disclaiming reliance and waiving liability based upon seller representations was clear.

The other aspects of this transaction also support enforcing the agreement as written. Fazio is an experienced and sophisticated real estate investor. This was a $7,667,000 commercial transaction. The agreement was not presented to Fazio as non-negotiable boilerplate—in fact, he requested changes, including a change to delete any reference to him having the agreement reviewed by legal counsel. He similarly could have requested deletion of all or part of section 5.2(d) and 5.5.5 Moreover, Fazio's request to remove a reference to his use of counsel demonstrated not only that he had the opportunity to review and negotiate the language of the contract, but also that his choice to forego the assistance of counsel was deliberate. Fazio obviously had ample resources to consult counsel. He routinely employed the professional assistance of real estate brokers, but chose not to employ the professional assistance of legal counsel. Under such circumstances, he assumed the risk of proceeding without counsel, and his choice in that regard should not excuse him from being bound to the terms of his contract.

Unlike Schlumberger and Forest Oil, both of which involved settlement agreements, a final resolution of all disputes among the parties is not a factor informing the overall circumstances of this real estate transaction. And the record does not reflect specific negotiations about the provision at issue. Nevertheless, I would hold that, on balance, these factors are outweighed by the clear language of the contract, the arm's-length nature of the transaction, the experience and sophistication of the parties, the magnitude of the transaction, and the complaining party's deliberate choice to forego the assistance of legal counsel despite manifest opportunity and ability to have the assistance of an attorney.

Accordingly, I would affirm the trial court's rendition of judgment notwithstanding the verdict.

EVELYN V. KEYES, Justice.

Justice SHARP, concurring. Justice MASSENGALE, dissenting.

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