Rancho La Valencia, Inc. and Charles R. Randy Turner v. Aquaplex, Inc. and James Edward Jones, Jr.

Citation: Not availableDocket: 07-06-00157-CV

Court: Court of Appeals of Texas; November 2, 2007; Texas; State Appellate Court

Original Court Document: View Document

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In the case Rancho La Valencia, Inc. and Charles R. Turner v. Aquaplex, Inc. and James Edward Jones, Jr., the appellants, Rancho and Turner, acquired the Tumbleweed property in Travis County in 2000 and began development in 2002, planning to construct 89 condominium units. Financing from OmniBank was secured with the property as collateral, and Turner personally guaranteed the debt. The project faced delays and cost overruns, leading OmniBank to require a new project manager and halt further funding unless additional capital was infused. In 2003, Jones expressed interest in investing, ultimately contributing $400,000 for a 51% stake in a joint venture with Rancho, formalized through a Joint Venture Agreement (JVA) after Jones’s due diligence review. However, tensions arose, including an attempt by Rancho to buy out Aquaplex’s interest and a subsequent cash call by Aquaplex that Rancho and Turner did not fulfill. Litigation began in November 2003, resulting in counterclaims from Aquaplex and Jones. By December 2004, the OmniBank loan defaulted, prompting a mediation that produced a Memorandum of Settlement Agreement (MSA) requiring Rancho and Turner to set up a $100,000 account for interest and taxes, which was never established. Because negotiations for a formal settlement agreement failed, the case proceeded to trial. Just before the trial, the appellants' attorney withdrew, citing fraud, and the trial court denied their request for a continuance.

Rancho filed for bankruptcy in the Dallas division of the Northern District of Texas, resulting in a stay of all state court matters. During the bankruptcy, a third party made a $4,050,000 offer for the JVA property, referred to as the Greenberg contract, which appellants deemed insufficient. A notice of lis pendens was filed regarding the JVA property, linking it to an adversarial action in bankruptcy court. The bankruptcy was dismissed as a "bad faith" filing, leading to the remand of the adversarial action to state court. The Greenberg contract did not close.

Pre-trial hearings were held concerning the examination of appellants' previous counsel, with the trial court ruling the communications were not privileged due to the crime-fraud exception. The court also ruled that appellants breached the MSA as a matter of law. The trial began on November 28, 2005, and by December 1, the court directed a verdict against appellants’ claims. The jury found appellants breached both the JVA and MSA and committed fraud, additionally ruling the lis pendens was wrongfully filed. Damages were awarded to appellees for injuries resulting from appellants' actions.

Following the verdict, the trial court granted appellees actual and punitive damages, declaratory relief, injunctive relief, and attorney fees for Rancho's breach of the JVA. Appellants appealed, raising eight issues, including claims of double recovery, legal insufficiency of the fraud finding, and insufficient evidence for the breach of agreements. Appellees argued against the double recovery claim, asserting distinct injuries were addressed. Texas law permits only one recovery for a single injury, and the inquiry focuses on the nature of the injury for which relief is sought.

Prior to executing the Master Settlement Agreement (MSA), appellees alleged fraud, breach of contract, and negligent misrepresentation related to the Joint Venture Agreement (JVA). They sought declaratory relief and attorney fees. Following the MSA execution and remand from bankruptcy court, they filed an Amended Third Party Petition, reiterating previous claims while adding allegations of breach and fraudulent inducement regarding the MSA. Appellees claimed damages due to appellants' interference with their ability to profit from the joint venture and sell their interest, asserting that their recoveries stemmed from distinct agreements resulting in separate injuries.

Appellees referenced Birchfield v. Texarkana Memorial Hospital to support their claim for multiple recoveries in one lawsuit, but the case established that only one recovery is permitted for one injury, even if multiple actionable causes exist. Initially, appellees' complaints centered on fraudulent inducement into the JVA, followed by their inability to profit due to breaches. After settling through the MSA, they claimed fraudulent inducement and breach of the MSA. They sought damages reflecting the benefits of the bargain due to the fraudulent inducement.

However, since the MSA was a settlement of the JVA-related dispute, it merely reflected damages from the JVA claims. Thus, while multiple recovery theories were presented, appellees could only seek redress for a single injury. The judgment awarded damages for fraud related to the MSA and declaratory and injunctive relief concerning the JVA, constituting multiple recoveries for one injury, violating the single injury doctrine, necessitating reversal.

Additionally, the judgment included $283,624 in attorney fees based on the jury's findings for breach of the MSA. Since appellees chose to proceed on the fraud claim related to the MSA, they could not recover under the breach claim as Texas law prohibits recovery under both theories when one is elected. Appellees' argument for attorney fees based on breach of the JVA and declaratory relief under the JVA also fails, as such recovery would contravene the single injury doctrine.

The judgment portion in question must be reversed due to challenges regarding the sufficiency of the evidence supporting findings of fraud and damages related to the Master Services Agreement (MSA). The appellants argue that the evidence is legally insufficient, and alternatively, if sufficient, factually insufficient. The standard for legal sufficiency requires that reasonable and fair-minded individuals could differ in their conclusions based on trial evidence. A reviewing court must consider evidence in a light favorable to the verdict while acknowledging the jury's role in assessing witness credibility and resolving testimony inconsistencies. For factual sufficiency, the court examines all evidence to determine if the verdict is against the overwhelming weight of evidence, without reweighing it merely for a preferred outcome.

To establish fraud, the appellees needed to prove that a material false representation was made, known to be false or made recklessly, intended to induce reliance, that reliance occurred, and that damages resulted. The court will also evaluate whether the damages claimed by the appellees were due to fraudulent inducement or breach of contract, noting that reliance on the fraud must have caused the injury. Specifically, regarding the Greenberg contract, executed three months after the MSA, there was no evidence presented that the purchaser refused to close the deal due to any fraud in the MSA execution.

Evidence of damages claimed by appellee Jones due to alleged fraud is insufficient. Jones referenced a chart intended to demonstrate damages from the failure to close the Greenberg contract, yet no evidence confirms that the contract's closure failure was a result of appellants' purported fraud. Furthermore, the reasons for the contract's non-closure are not documented, rendering the evidence inadequate to support damages related to this claim.

Regarding the OmniBank Forbearance Agreement, the jury awarded damages equivalent to a two-year forbearance, despite the actual agreement being for one year. Jones's testimony and the chart do not substantiate the value of a one-year loss, thus the evidence fails to support damages claimed for this loss.

For the $35,000 in attorney fees related to appellant Rancho's bankruptcy filing, appellees assert a connection to fraud based on appellants' alleged secret bankruptcy plans. However, the evidence indicates that the decision to file for bankruptcy occurred after the MSA execution, with no direct link established to the MSA, undermining the claim for consequential damages.

Concerning the $100,000 bank account that Rancho was supposed to establish at OmniBank, the MSA did not stipulate that funds be paid to appellees. Appellees needed to prove they incurred damages due to not having the account, which they failed to do.

Consequently, all claims for damages arising from the alleged fraud are deemed legally insufficient, leading to a reversal of the trial court's judgment, which orders that appellees take nothing. As the basis for punitive damages relies on actual damages, the jury's punitive damages award is also set aside. The appellate court does not address remaining issues since the judgment reversal is conclusive. Lastly, the court notes that appellees only pursued fraud claims related to the MSA, dismissing any claims connected to the Joint Venture Agreement (JVA).