Opinion
3-99-CV-1966-M.
April 4, 2001.
REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Pursuant to the District Court's order of reference filed on December 28, 2000, Defendant Fidelity National Title Insurance Co. (Fidelity National)'s Motion for Summary Judgment has been referred to the undersigned magistrate judge for report and recommendation in accordance with the provisions of 28 U.S.C. § 636(b)(1)(B) and (C). Upon review of Defendant's motion, briefs and appendices and Plaintiffs' response, their briefs and appendices, the magistrate judge finds and recommends as follows: SUMMARY JUDGMENT STANDARDS:
On this date the magistrate judge has also filed orders with respect to the materials to be considered in addressing the summary judgment issues raised, that is, the magistrate judge's order addressing Plaintiffs' Motion to Partially Strike Fidelity National's Reply filed on January 8, 2001, and Plaintiffs' Motion for Leave to File Supplemental Affidavits, also filed on January 8, 2001.
Summary judgment is proper when pleadings and the evidence on file, along with any affidavits, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Rule 56(c), Federal Rules of Civil Procedure. The party moving for summary judgment bears the burden of producing evidence to establish that there is no genuine issue of material fact with regard to an essential element of the nonmovant's case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). Once the movant produces such evidence, the burden shifts to the nonmovant to produce evidence establishing each of the challenged elements of his case for which he will have the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552 (1986). Although the summary judgment evidence presented must be viewed in the light most favorable to the party opposing summary judgment, the nonmovant must nonetheless set forth particular facts demonstrating the existence of genuine issues of fact. If the evidence presented by a nonmovant is such that no reasonable juror could find in favor of the nonmovant, summaryjudgment should be granted.Anderson v. Liberty Lobby, Inc., supra, 477 U.S. at 253, 106 S.Ct. at 2512.
Defendant contends that Plaintiffs' claims are barred by limitations. See Defendant's brief at Part B, pages 8-9. However, as made clear by Plaintiffs' response, they rely only on letters dated in July and November 1996 and a letter written in April 1997. See Plaintiffs' response at page 5. Plaintiffs also raise issues with respect to the application of limitations to cases involving fraud and tolling under the "discovery rule."Id. at pages 40-46. In my opinion these matters raise issue which are not easily susceptible to summary judgment analysis. Further, for the reasons set out hereinafter the limitations issue need not be decided.
A plaintiff seeking recovery under common law fraud in Texas must prove the following elements: (1) the defendant made a material representation to the plaintiff; (2) the representation was false; (3) the defendant either knew the representation was false when made or made it recklessly without any knowledge of its truth and as a positive assertion; (4) the defendant made the representation with the intention that it be acted upon; (5) the representation was in fact relied upon by the plaintiff; (6) which resulted in damages. See DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex. 1990) cert. denied 498 U.S. 1048, ___ S.Ct. ___ (1991); see also Trenholm v. Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983).
In its motion for summary judgment Defendant asserts that Plaintiffs cannot demonstrate the existence of genuine issues of fact with respect to elements (1), (4) and (5). See Defendant's summary judgment brief at pages 10-18.
Plaintiffs claim that they relied on three letters, allegedly authored by Michael Lunde. See Affidavit of Ray Sanders, executed on January 8, 2001, at paragraphs 8, 9, 11 and 15 and Exhibit 2-G; See also Plaintiffs' Appendix at 02356-57 and 02435-36.
Viewed in the light most favorable to the Plaintiffs, the non-movants, the summary judgment evidence shows the following:
Michael Lunde, an employee of Defendant in Keen County, California, began a business relationship in the early 1980s with Glenn Groos, who was then employed as a loan originator for Westland Bank. As a result of this relationship Westwood Bank acted as a lender on several transactions that Defendant closed. In the succeeding years this relationship resulted in a number of transactions funded by Westland Bank, Landmark Bank and Alliance Mining, Inc. (AMI) that were closed by Fidelity National. From 1984 forward Lunde was employed at Defendant's Orange County, California, office as a sales representative. Prior to the dates of the letters which are at issue in this suit Mr. Groos became employed at AMI as its vice-president.
Before writing each letter Mr. Lunde was contacted by an employee of a lending institution requesting referrals and financial information on AMI. Lunde in turn contacted Mr. Groos who confirmed that AMI had identified Defendant as a reference. On each occasion Lunde asked Groos to have AMI prepare a referral letter which Lunde in turn signed and mailed to the individual who had requested the reference. See Affidavit of Michael Lunde, Defendant's Appendix, Exhibit P. A copy of each letter was sent to Marciele D. (Marcie) Spann, AMI's Director of Operations.
Two of the Lunde letters, See Plaintiffs' Appendix at pages 02356-57 and 02435-36, are wholly unrelated to the Plaintiffs.See Deposition testimony of Todd Clayton Graham, Defendant's Appendix Exhibit R; Affidavit of Mark Meyocks, Defendant's Appendix Exhibit 5.
Plaintiffs do not identify the source that provided the Graham letter (Plaintiffs' Appendix 02356-57) other than to note that Sanders received it sometime in October or November 1996. See Ray Sanders' affidavit at paragraph 8. The source of the Meyocks letter (Plaintiffs' Appendix 02435-36) is also unidentified. Sanders believes he received a copy in April 1997. Sanders affidavit at paragraph 15.
The third Lunde letter — "the Leenstra letter" — was delivered to Bridget E. Leenstra by Glen Groos in a packet of documents, designated in her deposition as Exhibit 23. (Plaintiffs' Appendix J at pages 1279; 1280-82 — Exhibit 23-G).
When Ms. Leenstra received this letter, dated November 13, 1996, she was an employee of the Bank of Oklahoma. At that time Ms. Leenstra had had contacts with J. C. Mitchell on behalf of Trans Texas Realty with reference to a loan for the construction of a theater in Lake Jackson, Texas (Id. at 1271); Defendant's Appendix Exhibit T at pages 21-22. Although the Bank of Oklahoma had had prior dealings with Trans Texas Realty, in those prior dealings in which the bank had provided interim financing the permanent lender had been ATT (Id.) In discussions relating to the Lake Jackson project, she learned that Trans Texas Realty had decided to use AMI as the permanent lender on the loan.Id.
On November 13, 1996, Glenn Groos of AMI sent a copy of the "Leenstra letter" to Mr. Sanders as part of a five page FAX transmission. Affidavit of Ray Sanders, Exhibit 2-G.
Under the summary judgment evidence before the court and the issues on which Defendant's motion for summary judgment is predicated, Defendant is entitled to summary judgment on Plaintiffs' common law fraud claim. It is undisputed that none of the three Lunde letters was addressed to any Plaintiff or its representative. None of the Plaintiffs had a legally enforceable right to rely on any representations contained in the letters.Westcliff Co. v. Wall, 267 S.W.2d 544, 545 (Tex. 1954); Kanon v. Methodist Hospital 9 S.W.3d 161, 164 (Tex.App.-Houston [14th Dist.] 1990, no writ). Further, given the fact that neither Michael Lunde, located in California, nor Defendant Fidelity National was ever aware of Plaintiffs' existence, no reasonable fact finder could hold that Fidelity National, through Mr. Lunde, made any representations with respect to AMI with the intent that such representations be acted upon by Plaintiffs or their representatives. Finally, the fact that Trans Texas Realty had already chosen to use AMI as a permanent (take out) lender — albeit unrelated to the subsequent construction projects involved in the present case — forecloses Plaintiffs ability to show actionable reliance.
Plaintiffs seek to rely on the Fifth Court of Appeals' decision in Pacific Mutual Life Insurance Co. v. Ernst Young Co., 10 S.W.2d 798 (Tex.App.-Dallas 2000, writ granted). The case has been argued before the Texas supreme court, but no decision has been rendered. However, even if that court were to affirm the holding of the intermediate appellate court, the salient facts in that case are readily distinguishable from the summary judgment evidence presented in this case.
In Pacific Mutual Life the alleged false representations attributed to the defendant were contained in its 1986 audit report of Republic Bank Corporation. Subsequent to the issuance of the audit report, the defendant consented to having its report being filed with the S.E.C. Finally, there was expert testimony that it was a commonly accepted practice for potential investors, such as the plaintiff, to rely on audited financial statements filed with the S.E.C.
PLAINTIFFS' STATUTORY FRAUD CLAIM (§ 27.01, Tex.Bus.Comm.Code).
This statutory provision closely parallels the elements of common law fraud, i.e. a plaintiff must prove (1) the existence of a false representation made to the plaintiff; (2) for the purpose of inducing the plaintiff to enter into a contract; and (3) that the plaintiff relied on the false representation in entering into the contract. Here there were no contract negotiations between Plaintiffs and Defendant, nor did they enter into any contractual relationship. Therefore, Plaintiffs' contractual fraud claim should be summarily dismissed.
PLAINTIFFS' CONSTRUCTIVE FRAUD CLAIM.
A claim predicated on "constructive fraud" is distinct from an action based on actual fraud in that the former involves the breach of some legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others, to violate confidence, or to injure public interest. Archer v. Griffith, 390 S.W.2d 735, 740 (Tex. 1964). The hallmark and sine qua non of an action based on constructive fraud is the existence of a fiduciary relationship. E.g. See Carnes v. Meador, 533 S.W.2d 365, 370 (Tex.Civ.App. — Dallas 1975, writ ref'd n.r.e.); Schwiff v. Priest, 650 S.W.2d 894, 902 (Tex.App.-San Antonio 1983, writ ref'd n.r.e.).
"A fiduciary relationship exists when the parties are under a duty to act for or give advice for another upon matters within the scope of the relationship." Stephanz v. Laird, 846 S.W.2d 895, 901 (Tex.App.-Houston [1st Dist.] 1993, writ denied). "The term fiduciary relationship means legal relations created by law or by the nature of the contract between them." Thompson v. Vinson Elkins, 859 S.W.2d 617, 612 (Tex.App.-Houston [1st Dist.] 1993, writ denied).
Under the summary judgment in this case there was no relationship at all between Plaintiffs and Fidelity National, let alone one which could form the basis of any fiduciary duty owed by Fidelity National to the Plaintiffs. Therefore, summary judgment in Defendant's favor on this claim should be granted.
PLAINTIFFS' CLAIM BASED UPON NEGLIGENT MISREPRESENTATIONS:
The elements which a plaintiff must prove in a claim predicated on negligent misrepresentations parallel, but are not identical to, the elements required to be proven in a common law fraud claim. The principal distinction is that under the former cause of action a plaintiff need only prove that the defendant provided false information, while in the latter the plaintiff is required to prove that the defendant knew at the time that the representation was made that it was false, or that the representation was made recklessly without any knowledge of its truth and was made as a positive assertion of fact. See Allied Vista, Inc. v. Holt, 987 S.W.2d 138, 141 (Tex.App.-Houston [14th Dist.] 1999, pet. denied). Thus, as the term implies, a defendant's negligent representations rather than knowingly false representations on the defendant's part are what give rise to a claim on this theory of recovery.
On the other hand a plaintiff must show that a defendant made the alleged actionable representation to the plaintiff in the course of the Defendant's business, or in a transaction in which the defendant had a pecuniary interest for the guidance of the plaintiff in its business. See Allied Vista, Inc., supra, which requires that a plaintiff show that it received the representations either directly from the defendant or that the plaintiff was within the class of persons which the defendant intends or has reason to expect will act upon such representations. For the reasons stated above, at page 5,supra, Plaintiffs cannot establish the existence of a genuine issue of fact demonstrating that they were in that class of persons entitled to hold Defendant liable.
PLAINTIFFS' CONSPIRACY CLAIM:
Plaintiffs seek recovery against Defendant based upon an alleged conspiracy between it and AMI. A conspiracy as defined by the Texas supreme court is "a combination by two or more persons to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means. Massey v. Armco Steel Co, 652 S.W.2d 392, 394 (Tex. 1983). Once a conspiracy is proven, each co-conspirator is responsible for acts committed by a co-conspirator in furtherance of the conspiracy. Carroll v. Timmers Chevrolet. Inc., 592 S.W.2d 922, 926 (Tex. 1979).
However, before a person can be held civilly liable as a member of a conspiracy to defraud there must be proof of a common purpose and specific intent on the part of each alleged co-conspirator to accomplish the object of the conspiracy. See Schumberger Well Surveying Corp., v. Nortex Oil and Gas Corp., 435 S.W.2d 854, 857 (Tex. 1968); see also Triplex Communications. Inc. v. Riley, 900 S.W.2d 716, 720 (Tex. 1995).
Plaintiffs' conspiracy theory is based upon their claim that Lunde on behalf of Defendant and AMI entered in a conspiracy to defraud the Plaintiffs and other prospective borrowers by representing that AMI was capable of underwriting long-term debt. Plaintiffs further allege that the representations with respect to AMI's capabilities were false. In furtherance of this conspiracy, according to Plaintiffs' theory, AMI caused the Lunde letters to be sent to prospective borrowers. Plaintiffs have failed to demonstrate the existence of genuine issues of fact from which a jury could find the existence of an actionable conspiracy.
As noted above Texas law requires specific intent on the part of a person alleged to have entered into a conspiracy. Specifically Plaintiffs must prove by direct or circumstantial evidence that at the time the Lunde letters were generated, Lunde knew that the representations contained therein were false and that the letters would be disseminated to prospective borrowers in order to induce them to seek long-term financing through AMI. The summary judgment evidence shows that the letters were prepared by AMI and sent to Mr. Lunde for his signature, that Lunde failed to review the letters for accuracy and that to the extent that the letters purported to contain financial information with respect to AMI that he relied on AMI's representations for its accuracy. Thus to the extent that Lunde's conduct and intent are in issue, at most Plaintiffs can establish only that he was negligent in signing the letters without reading them or independently verifying the accuracy of the statements contained therein. Evidence of specific intent to engage in wrongful conduct is lacking.
The remaining piece of the conspiracy theory advanced by Plaintiffs is that Lunde knew at the time he signed the letters that AMI would disseminate them widely to prospective long-term borrowers. The evidence to support this claim is even more lacking than evidence of a specific intent to engage in a fraudulent scheme to make knowingly false representations of fact.
Each of the letters is addressed to an employee of a bank from which interim financining was sought. As previously noted none of the projects for which interim financing was sought is related to the construction projects which form the basis of Plaintiffs' complaint. Lunde's assumption that AMI might send copies of the letters to the prospective borrowers seeking interim financing from the banks to whom the letters were sent fails to create a genuine issue of fact that Lunde agreed that copies of these letters would be sent by AMI to all future potential borrowers seeking permanent financing through AMI. Further, there is no evidence, except for "the Leenstra letter" (Plaintiffs' Appendix 1280-82, supra) that AMI sent any copy of Lunde's letters to potential borrowers. As observed by the Texas Supreme Court in Triplex Communications, Inc., surpa, 900 S.W.2d at 720, citing the Schumberger case: "One `cannot agree, either expressly or tacitly, to the commission of a wrong which he knows not of'." Defendant is entitled to summary judgment on Plaintiffs' conspiracy claim.
See Ray Sanders' affidavit, supra, which fails to identify the source(s) from which the letters to Todd Clayton Graham and Mark Meyocks was obtained.
PALINTIFFS' AIDING AND ABETTING CLAIM:
The evidence in opposition to Defendant's motion for summary judgment on Plaintiffs' "aiding and abetting" theory of liability is even more deficient. In Stein v. Meachum, 748 S.W.2d 516, 518-19 (Tex.App.-Dallas 1988, no writ) the court stated that liability can be based upon a party's assistance in wrongful conduct when the party ". . . commands, directs, advises, encourages, procures, controls, aids or abets a wrongful act by another . . ." (Emphasis added). To be liable under such a theory there must be evidence that Defendant knowingly engaged in conduct directed toward these Plaintiffs in particular, in addition to entering into a general conspiracy. As noted above, neither Defendant nor Mr. Lunde knew of the Plaintiffs' existence. The fact that two of the Lunde letters came into Mr. Sanders's possession from unknown sources precludes any liability predicated on these letters and the record is devoid of any evidence from which a jury could find that Defendant was knowingly responsible in any way for the transmission of the Leenstra letter by AMI to Mr. Sanders.
PLAINTIFFS' DECEPTIVE TRADE PRACTICES ACT CLAIM:
This portion of Defendant's motion for summary judgment has been rendered moot by the District Court's order filed on February 20, 2001, which — in part — dismissed Plaintiffs' DPTA claims.
RECOMMENDATION:
For the foregoing reasons it is recommended that the District Court grant Defendant Fidelity National's motion for summary judgment and that it enter judgment dismissing Plaintiffs' claims against this Defendant with prejudice.
A copy of this recommendation shall be transmitted to counsel for the parties. SIGNED this 4th day of April, 2001.
NOTICE
In the event that you wish to object to this recommendation, you are hereby notified that you must file your written objections within ten days after being served with a copy of this recommendation. Pursuant to Douglass v. United Servs. Auto Ass'n, 79 F.3d 1415 (5th Cir. 1996) (en banc), a party's failure to file written objections to these proposed findings of fact and conclusions of law within such ten-day period may bar ade novo determination by the district judge of any finding of fact or conclusion of law and shall bar such party, except upon grounds of plain error, from attacking on appeal the unobjected to proposed findings of fact and conclusions of law accepted by the district court.