Opinion
Civil Action No. 3:99-CV-1966-M.
September 28, 2001.
MEMORANDUM OPINION AND ORDER
On this day came before the Court Defendant Fidelity National Title Insurance Company's Motion for Summary Judgment, filed on September 20, 2000. Having considered the parties' arguments and proffered evidence, as well as the Report and Recommendation of the Magistrate Judge dated April 4, 2001 ("Report"), this Court is of the opinion that it should DENY in part and GRANT in part Fidelity's Motion for Summary Judgment, for the reasons stated below.
I. Background
Plaintiffs in this action are Mid States Development ("Mid States"); its predecessor, Trans Texas Realty; Starplex Cinemas; Amarillo Theatre Venture ("ATV"); Waco Theatre Venture ("WTV"); Wichita Falls Theatre Venture ("WFTV"); and J.C. Mitchell, who is a part or complete owner of the above entities. The only remaining Defendant in this case is Fidelity National Title Insurance Company ("Fidelity"). Plaintiff Mid States develops and operates theater projects. This case arises from one set of theater development projects that went sour. In late 1996 and early 1997, Mid States attempted to acquire land in Waco, Wichita Falls, and Amarillo in order to construct three movie theaters. Mid States and J.C. Mitchell formed ATV, WTV, and WFTV to further these plans. In October or November of 1996, Mid States began to pursue funding sources for the projects. Mid States was referred to Alliance Mining, Inc. ("AMI") as such a source. Plaintiffs eventually chose AMI to be the "back-end" lender for the projects. Plaintiffs contend that they chose AMI in large part because of the favorable reference letters written by Michael Lunde, who at that time held the title of Vice President of Special Projects at Fidelity, but who was actually a sales representative at one of Fidelity's offices. Plaintiffs contend that they continued their relationship with AMI because of later letters sent by Lunde. In July 1997, AMI failed to come through with the financing, and Plaintiffs realized that AMI would not honor its commitment to them. As a result, Plaintiffs contend that they suffered damages in the form of the lost deposit given to AMI, expenses in procuring alternative funding, and other outlays attributable to AMI's default.
Construction projects such as the one involved in this case typically have two sources of funding: the interim lender and the "back-end" lender.
Plaintiffs brought suit against Fidelity alleging common law fraud, statutory fraud, constructive fraud, negligent misrepresentation, conspiracy, aiding and abetting, and knowing participation. The basis for Plaintiff's claims against Fidelity was Lunde's reference letters, which had originally been addressed to certain banks which act as underwriters for borrowers searching for back-end funding for their construction projects. Although the evidence presented by the parties conflicts, at least some of the testimony provided shows that two of the banks which were addressees on Lunde's letters had been involved in Plaintiffs' attempts to procure funds for the theater projects at issue here (U.S. Bank and the Bank of Oklahoma). Lunde wrote the letters at the request of Glen Groos, a Vice President at AMI who had done business with Lunde and Fidelity in the past. Lunde apparently did not actually write the letters. Someone at AMI wrote them, then AMI forwarded the letters to Lunde, who signed them. Plaintiffs allege that they received, through various sources, four of Lunde's letters. Plaintiffs claim that the letters contain several misrepresentations, the effect of which was to make AMI seem like a more solid and reliable funding source than it really was.
Plaintiffs also alleged that Defendant violated the Texas Deceptive Trade Practices Act, but later dismissed that claim. See Order of February 20, 2001.
The evidence proffered conflicts on whether Lunde reviewed the letters before signing them.
Defendant Fidelity filed a Motion for Summary Judgment in this case on September 20, 2000. The Court referred the Motion to Magistrate Judge William F. Sanderson for a report and recommendation pursuant to 28 U.S.C. § 636(b) and Rule 2(c)(3) of Miscellaneous Order No. 6 of this District. The Magistrate Judge issued his findings on April 4, 2001, recommending that the Court grant summary judgment in favor of Fidelity on all of the claims. Plaintiffs filed Objections to the findings on April 16, 2001. This Court now conducts an independent review of the issues presented in Fidelity's Motion.
Fidelity filed its Response to Plaintiffs' Objections on May 1, 2001. Plaintiffs submitted their Supplemental Brief on Summary Judgment on May 11, 2001, and Fidelity filed its Response to Plaintiffs' Supplemental Brief on May 21, 2001.
II. Summary Judgment Standard
Summary judgment is warranted in cases in which no genuine issue of material fact exists. See Smith v. Brenoettsy, 158 F.3d 908, 911 (5th Cir. 1998). To prevail on such a motion, the moving party must "show that the evidence in the record would not permit the non-movant to carry its burden of proof at trial." Id. If the movant meets this burden of production, "the non-movant seeking denial of the motion must set forth specific facts showing a genuine issue for trial." Id. Such an issue is genuine if, based on the evidence presented, a reasonable jury would be able to find for the non-movant on the claim. A fact is material if it "might affect the outcome of the suit under the governing law." Id. (internal quotation marks omitted). In conducting this determination, the Court is not empowered to make credibility determinations in reference to the evidence, but must instead view the evidence in a light most favorable to the non-moving party. See Lindsey v. Prive Corp., 987 F.2d 324, 327 n. 14 (5th Cir. 1993).
III. Agency
Fidelity argues that Plaintiffs cannot assert any of their causes of action against Fidelity because Lunde was not Fidelity's agent. The Magistrate Judge did not expressly address this issue in his Report, presumably because he found this Court should grant summary judgment on other grounds. In deciding whether agency can be determined on summary judgment, this Court finds that a fact question exists as to whether Lunde had actual authority to provide such reference letters. Although Fidelity points to the testimony of Lunde's manager, Jay Gaskill, who stated in his affidavit that Mr. Lunde was not authorized to issue such letters, Plaintiffs offer Lunde's own testimony that he believed he was authorized to send out the letters, and that other sales representatives at Fidelity also sent out such letters. See Defendant's Appendix [hereinafter "App."] Exhibit Q at 3-4; Plaintiffs' App. at 1052. Thus, this Court cannot address the agency question at this stage because the facts relating to it are controverted. See Ross v. Tex. One P'ship, 796 S.W.2d 206, 210 (Tex.App.-Dallas 1990, writ ref'd n.r.e.) (holding that whether an agency relationship existed becomes a question of law for the court only if the facts are uncontroverted). Due to the existence of the fact issue, the Court cannot grant summary judgment in favor of Fidelity on its agency argument.
IV. Common Law Fraud
Common law fraud requires that (1) Defendant or its agent made a material representation that was false; (2) it knew the representation was false or made it recklessly as a positive assertion without any knowledge of its truth; (3) Defendant intended to induce Plaintiffs to act upon the representation; and (4) Plaintiffs actually and justifiably relied upon the representation and thereby suffered injury. See Ernst Young, L.L.P. v. Pac. Mut. Life Ins. Co., ___ S.W.3d ___, 2001 WL 690390, *2 (Tex. June 21, 2001). Defendant argues that Plaintiffs have no evidence to show that Fidelity made a representation to Plaintiffs, that Fidelity intended to deceive Plaintiffs, or that Plaintiffs relied on any of Lunde's letters. See Defendant's Brief in Support of Motion for Summary Judgment (hereinafter "Defendant's Brief") at 10.
A. Did Fidelity Make a Representation to Plaintiffs?
In addition to Fidelity's contention that it made no representation to Plaintiffs because Lunde was not Fidelity's agent, Defendant argues that Plaintiffs have not shown that any of the letters actually reached Plaintiffs. In response, however, Plaintiffs correctly note that they submitted proof of receipt by Plaintiffs of the letters. Ken Menard, vice president of each of the Plaintiffs, stated in his affidavit that Mid States "procured . . . several Lunde reference letters," and states specifically that Plaintiffs' agent, Mr. Sanders, received a copy of the July 1996 letter "in or around October or November of 1996." Plaintiffs App. at 2321-22. When viewed in a light most favorable to Plaintiffs, this evidence creates a fact question as to whether Plaintiffs received at least some of the letters.
See supra Part III.
B. Did Fidelity Intend the Representations to Reach Plaintiffs and Did Plaintiffs Justifiably Rely on the Representations?
Additionally, Plaintiffs have shown that a genuine issue of material fact exists as to whether Lunde intended the representations to reach them and induce action on their part and that Plaintiffs reasonably and justifiably relied on the representations. Magistrate Judge Sanderson found that this Court should grant summary judgment for Fidelity on the fraud claim because "none of the three Lunde letters was addressed to any Plaintiff or its representative [so that] [n]one of the Plaintiffs had a legally enforceable right to rely on any representations contained in the letters. Additionally, "given the fact that neither Michael Lunde . . . 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." Report at 5.
This Court finds that it cannot accept this Recommendation because the basis for the conclusion is Kanon v. Methodist Hospital, 9 S.W.3d 161, 164 (Tex.App.-Hous. [14th Dist.] 1990, no writ), a case recently disapproved of by the Texas Supreme Court. See Ernst Young, L.L.P. v. Pac. Mut. Life Ins. Co., ___ S.W.3d ___, 2001 WL 690390, *6 (Tex. June 21, 2001). The Kanon court had held that, "[f]or a misrepresentation to be actionable, the maker must intend to influence the very person to whom he makes the representation." 9 S.W.3d at 372. In other words, the court held that, for a valid fraud claim to arise, privity must exist between the maker of the statement and the person who relied on it. See id. In Ernst Young, the Texas Supreme Court explained, contrary to Kanon's statements, that "[o]ur fraud jurisprudence has traditionally focused not on whether a misrepresentation is directly transmitted to a known person alleged to be in privity with the fraudfeasor, but on whether the misrepresentation was intended to reach a third person and induce reliance." Ernst Young, 2001 WL 690390 at *6. The Ernst Young court instituted a new test for courts to apply in determining whether a defendant possessed the requisite mental state for a fraud claim to succeed, focusing "on what the defendant knew and could therefore have intended, not on whether the parties were in privity." Id. at *4. It adopted a standard consistent with that in section 531 of the Restatement (Second) of Torts. The Restatement provides:
One who makes a fraudulent misrepresentation is subject to liability to the persons or class of persons who he intends or has reason to expect to act or to refrain from action in reliance upon the misrepresentation, for pecuniary loss suffered by them through their justifiable reliance in the type of transaction in which he intends or has reason to expect their conduct to be influenced.
RESTATEMENT (SECOND) OF TORTS § 531 (1977), quoted in Ernst Young, 2001 WL 690390 at *3. Under this standard, "[e]ven an obvious risk that a misrepresentation might be repeated to a third party is not enough to satisfy the reason-to-expect standard; rather, the alleged fraudfeasor must `have information that would lead a reasonable man to conclude that there is an especial likelihood that it will reach those persons and will influence their conduct.'" Ernst Young, 2001 WL 690390 at *5 (quoting RESTATEMENT (SECOND) OF TORTS § 531 cmt. d (1977)).
After applying the "reason-to-expect" test, this Court finds that the evidence, when viewed in a light most favorable to the non-movant, reveals that a genuine issue of material fact exists as to whether Lunde intended his alleged misrepresentations to reach borrowers such as Plaintiffs. The evidence presented by the parties is clearly contradictory on this point. Fidelity met its burden of production on the summary judgment issue by offering numerous statements in which Lunde explained that he only intended the information to go to the banks, and not to any of AMI's borrowers. For instance, Mr. Lunde testified in his affidavit that
I never intended any AMI letter to be received by anyone other than the intended addressee on the face of the letter. . . . I never knew and I had no reason to believe that any AMI referral letter would be disseminated to anyone other than the actual intended addressee on the fact of the letter. . . . To the best of my recollection, I was told by Mr. Groos that the letters would only be sent to people who contacted me for information on AMI.
Defendant's App. at 703.
Fidelity's presentation of this evidence caused the burden to shift to Plaintiffs to offer evidence to support their contention that Lunde had reason to expect that the statements within his letters would reach borrowers such as AMI. To meet this requirement, Plaintiffs point to the following statements given by Lunde during one of his depositions:
Q. Did you state under oath that the purpose of the November 1996 letter and the April 1997 letter was for AMI to provide it to the borrowers, sir?
A. I had to presume that the borrowers were directly associated with these entities requesting the information, so that going to the addressee would subsequently get that information to the borrower. The borrowers were working with these banks, so the intent was for these letters to go to the addressees.
Plaintiffs' App. at 1167. Additionally, Plaintiffs cite to Lunde's response to the question, "And that's why you sent out those letters, was [sic] to provide that confirmation to those borrowers?" To that, Lunde stated, "Well, yeah. I was giving a reference on the company. . . ." Plaintiff's App. at 589. Plaintiffs proffered other statements by Lunde in which he states that the letters were intended as a reference to AMI's potential customers, the borrowers. The evidence presented by the parties reveals a genuine issue of material fact as to whether Lunde intended, or at least had reason to expect, the information to reach borrowers such as Plaintiffs, or whether he instead believed the information would stay with the banks to whom he sent the letters.
The following statements serve as examples: (1) "[T]he letters were sent as a reference to the potential customer in relation to AMI." Plaintiff's App. at 588. (2) In response to the question "So it's — it is a true statement that when you signed the November `96 letter and the April `97 letter, you knew that the borrowers were seeking information on A.M.I. in connection with forward commitments to make sure that A.M.I. really had the assets at that time, right?" Lunde answered, "As I testified, they were seeking to verify that A.M.I. had the ability to fund a forward commitment. . . ." Plaintiff's App. at 1136.
The evidence, when viewed in a light most favorable to Plaintiffs, also shows that U.S. Bank and/or the Bank of Oklahoma may have been an agent for Plaintiffs so that the letter to Mr. Meyocks of U.S. Bank or to Ms. Leenstra of the Bank of Oklahoma would constitute letters to Plaintiffs' agent. However, the Court finds that it is not necessary to determine this issue because the evidence shows that Lunde had reason to expect that the information would be received by borrowers such as Plaintiffs, rather than just by the banks to whom the letters were addressed.
The Magistrate Judge also found that Plaintiffs failed to establish the reliance element of their fraud claim. This Court finds, however, that Plaintiffs submitted sufficient evidence to produce a material question as to whether Plaintiffs relied on the misrepresentation. Magistrate Judge Sanderson explained that "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." Report at 5. However, Plaintiffs proffered evidence that they relied on the November 13, 1996 letter before entering into the Lake Jackson Project on November 18, 1996. Ken Menard, Vice President of each of the Plaintiff corporations, testified in his affidavit that "[b]ased in part upon the fraud and misrepresentations in Mr. Lunde's November 13 letter, Plaintiffs committed the Lake Jackson back-end (permanent) financing to AMI." Plaintiffs App. at 2324. In addition, Mr. Menard also stated that, in general, "Mr. Lunde's letters . . . were the linchpin to Plaintiffs' dealings with AMI. Those letters were a material and important reason Plaintiffs did business with AMI." Plaintiffs App. at 2325. Thus, Plaintiffs have presented sufficient evidence of reliance, as well as the other elements of common law fraud, to survive summary judgment on this claim.
The Court is not convinced, however, that Plaintiffs could have justifiably relied on the 1994 letter when they did not receive it until 1996, or that they can show reliance on the April 1997 letter since Plaintiffs had already entered into their agreements with AMI by that time. Although Mr. Lebor, an employee of the underwriter company hired by Plaintiffs in conjunction with the projects, testified that the April 1997 kept Plaintiffs from "giv[ing] up on AMI," Plaintiffs offered no evidence that it induced them to make any new commitments to AMI. Plaintiff's App. at 1261.
V. Statutory Fraud
The elements of statutory fraud "in a transaction involving real estate" under Texas Business and Commerce Code § 27.01 are: (1) a "false representation of a past or existing material fact, when the false representation is" (2) "made to a person for the purpose of inducing that person to enter into a contract" and (3) "relied on by that person in entering into that contract." TEX. Bus. COM. CODE § 27.01 (Vernon 1997). Fidelity satisfied its burden of production on this claim by presenting the exact same arguments and producing the same evidence as it did for the common law fraud claim. See Fidelity's Motion at 18. As to those issues, the Court finds that Plaintiffs have demonstrated that material questions of fact exist with the statutory fraud cause of action just as they do with the common law fraud claim.
The Magistrate Judge recommended that this Court grant summary judgment in favor of Fidelity on this claim because "there were no contractual negotiations between Plaintiffs and Defendant[s], nor did they enter into any contractual relationship." Report at 6. However, § 27.01 does not require that the operative contract be between Plaintiffs and Fidelity. For instance, Texas courts have found real estate agents liable for statutory fraud, when the contract itself was made between the seller and the buyer of the house. See, e.g., Century 21 Page One Realty v. Naghad, 760 S.W.2d 305 (Tex.App.-Texarkana 1988, no writ); Hughes v. Halliday, 471 S.W.2d 88 (Tex.App.-Waco 1971, no writ). Thus, contractual privity between the litigating parties is not a requirement of statutory fraud, and the Court finds that it cannot grant summary judgment on this claim.
VI. Constructive Fraud
"Constructive fraud is the breach of a legal or equitable duty which the law declares fraudulent because it violates a fiduciary relationship." Carnes v. Meador, 533 S.W.2d 365, 370 (Tex. Cir. App. 1976, writ ref'd n.r.e.). The Magistrate Judge recommended that this Court grant summary judgment for Fidelity on this cause of action because no fiduciary relationship — either formal or informal — inhered between Plaintiffs and Fidelity. The Court agrees with the Magistrate Judge's recommendations on this claim. The Court finds that Texas law unequivocally requires the existence of a fiduciary duty for this claim to be viable. See, e.g., Connell v. Connell, 889 S.W.2d 534, 542 (Tex.App.-San Antonio 1994, writ denied) ("To prove constructive fraud appellants must introduce evidence that [Defendant] breached a legal or equitable duty, which the law declares fraudulent because it violated a fiduciary relationship."); Bado Equip. Co., Inc. v. Bethlehem Steel Corp., 814 S.W.2d 464, 902 (Tex.App.-Hous. [14th Dist.] 1991, no writ) (repeating same statement); Shwiff v. Priest, 650 S.W.2d 894, 902 (Tex.App.-San Antonio 1983, writ ref'd n.r.e.) (same). Additionally, the Court concludes that no fiduciary duty existed on the part of Fidelity to Plaintiffs. Plaintiffs' argument that Mr. Lunde's attempts "to secure title and escrow business in the Plaintiffs' transactions and from the Plaintiffs imposed upon Fidelity a duty" is unpersuasive. Plaintiffs' Objections to the Report at 36. Plaintiffs admit that these dealings resulted in no business relationship between the parties and the Court finds that the evidence does not, even viewed in a light most favorable to the nonmovants, create a question as to whether a fiduciary duty existed on the part of Fidelity toward Plaintiffs.
VII. Negligent Misrepresentations
Texas courts have adopted the approach to negligent misrepresentation embodied in section 552 of the Restatement (Second) of Torts. See Geosearch, Inc. v. Howell Petroleum Corp., 819 F.2d 521, 523 (5th Cir. 1987). Section 552(1) reads,
One who, in the course of his business, profession[,] or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
RESTATEMENT (SECOND) OF TORTS § 552(1) (1976). The Magistrate Judge recommended that this Court grant summary judgment on this claim in favor of Fidelity, ultimately resting his decision on the finding that Plaintiffs failed to "establish the existence of a genuine issue of fact demonstrating that they were in that class of persons entitled to hold Defendant liable." Report at 7. This Court finds, however, that Plaintiffs have shown that they were within the class of individuals the defendant intended or had reason to expect would act upon such representations, as the Plaintiffs were borrowers. See, e.g., Plaintiffs App. at 588.
Fidelity also argues that the negligent misrepresentation claim must fail because Plaintiffs cannot show that Fidelity was in the business of giving these reference letters or that it had a pecuniary interest in the transaction. The Court finds, however, that a genuine issue of material fact exists as to whether this is true. Plaintiffs have offered evidence that sales representatives at Fidelity considered it a part of their jobs to give these reference letters. See Plaintiff's App. at 1052. Comment (d) to section 552 explains that "[t]he fact that the information is given in the course of the defendant's business, profession or employment is a sufficient indication that he has a pecuniary interest in it, even though he receives no consideration for it at the time." Additionally, even if it were not a part of Fidelity sales representatives' ordinary business to send out such letters, a genuine issue of material fact exists as to whether Fidelity had a pecuniary interest in the transaction in which it sent out the letters. Plaintiffs offer testimony from Lunde in which he admitted that one of his purposes in sending out the AMI referral letters was to "try and get some initial business" for Fidelity out of the transaction if the borrowers ultimately chose AMI as their back-end lender. Plaintiff's App. at 817; see also id. at 826. This is sufficient to constitute a pecuniary interest in the transaction under section 552. Comment (d) to section 552 provides that
defendant's pecuniary interest in supplying the information will normally lie in a consideration paid to him for it or paid in a transaction in the course of and as a part of which it is supplied. It may, however, be of a more indirect character. Thus the officers of a corporation, although they receive no personal consideration for giving information concerning its affairs, may have a pecuniary interest in its transactions, since they stand to profit indirectly from them, and an agent who expects to receive a commission on a sale may have such an interest in it although he sells nothing.
Thus, the Court concludes that the evidence, when viewed in a light most favorable to the nonmovants, shows that a genuine issue of material fact exists as to whether Fidelity had a pecuniary interest in sending out the reference letters. The Court therefore declines to grant summary judgment on this cause of action.
VIII. Conspiracy
A civil conspiracy consists of "a combination by two or more persons" who come together "to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means." Triplex Comm., Inc. v. Riley, 900 S.W.2d 716, 720 (Tex. 1995). Specific intent is required — two individuals cannot conspire to be negligent. See id. One "cannot agree, either expressly or tacitly, to the commission of a wrong which he knows not of." Id. n. 2 (internal quotation marks omitted). The Magistrate Judge found that Lunde had no specific intent to commit any of the wrongful acts claimed by Plaintiffs because Plaintiffs did not offer evidence to show that "Lunde knew 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." Report at 8. This Court finds, however, that Plaintiffs did proffer evidence sufficient to create a genuine issue of material fact as to whether Lunde agreed to send out letters he knew were false to induce borrowers to contract with AMI.
Although Fidelity urges that Lunde, at most, negligently failed to read the letters, Lunde himself testified at one point that he reviewed the letters, openly questioned their accuracy, and yet went ahead and signed them. This evidence, when viewed in a light most favorable to Plaintiffs, suggests the possibility that Lunde recognized the letters' falsity and executed them nonetheless. See Plaintiff's App. at 611-12. Additionally, this Court has already found that a fact question exists as to whether Lunde knew the letters would eventually make their way to borrowers such as Plaintiffs. Therefore, this Court finds that a genuine issue of material fact exists as to the conspiracy claim.
IX. Knowing Participation and Aiding and Abetting
Defendant Fidelity did not address these claims in its Motion for Summary Judgment, but instead first raised them in its Reply to Plaintiff's Response, in which Fidelity stated, "because `knowing participation' and `aiding and abetting' also require Fidelity and Lunde to have known of the alleged fraud, these claims also fail." Defendant's Reply at 22. Nevertheless, Magistrate Judge Sanderson recommended that the Court grant summary judgment on the aiding and abetting claim if it agreed that it should grant summary judgment on the other claims. However, the Court is not granting summary judgment as to the other claims, and has found that a genuine issue of material fact exists as to whether Lunde knew of the alleged fraud. See supra Part VIII. Thus, the knowing participation and aiding and abetting claims will stand.
X. Statute of Limitations
Fidelity argues that Plaintiffs cannot assert reliance on the 1994 Lunde letter in reference to Plaintiffs' common law, statutory, and constructive fraud claims because the statute of limitations for these claims is four years, and the 1994 letter was written more than four years prior to Plaintiffs' filing of this suit on June 25, 1999. See Defendant's Brief at 8-9. Additionally, Fidelity urges that this Court must grant summary judgment on the negligent misrepresentation and conspiracy claims because the applicable statute of limitations for these causes of action is two years, and all of the Lunde letters were received by Fidelity more than two years before Plaintiffs filed suit. Id. at 9. In response to these arguments, Plaintiffs contend that (a) the statute of limitations for fraud claims does not begin to run until the putative plaintiff discovered or should have discovered the fraud, and (b) the "discovery rule" applies to the other, non-fraud causes of action to toll the limitations period "where the nature of the injury incurred is inherently undiscoverable and the evidence of injury is objectively verifiable." Plaintiff's Response at 40.
A. Fraud
The limitations period for Plaintiffs' common law, statutory, and constructive fraud claims is four years. TEX. CIV. PRAC. REM. CODE § 16.004 (Vernon 1997). "Generally, in a case of fraud[,] the statute of limitations does not commence to run until the fraud is discovered or until it might have been discovered by the exercise of reasonable diligence." Little v. Smith, 943 S.W.2d 414, 420 (Tex. 1997). Plaintiffs have shown that the fraud was not discovered until July 7, 1997, when Plaintiffs' underwriter sent Plaintiffs a letter revealing that it could not verify AMI's ability to fund the loans. See Plaintiffs App. at 2329-30. Plaintiffs did not receive any of the Lunde letters until Fall 1996, so they could not have discovered the fraud before that time. Thus, Plaintiffs filed suit within the applicable limitations period for fraud.
B. Negligent Misrepresentation and Conspiracy
This Court additionally finds that Plaintiffs filed these claims within the two-year statute of limitations for the negligent misrepresentation and conspiracy causes of action. See Coppock Teltschik v. Mayor, Day Caldwell, 857 S.W.2d 631, 640 (Tex.App. — Hous. [1st Dist.] 1993, writ denied) ("The statute of limitations for civil conspiracy is two years."); Coleman v. Rotana, Inc., 778 S.W.2d 867, 873 (Tex.App. — Dallas 1989, writ denied) (holding that the limitations period for negligent misrepresentation is two years). Plaintiffs contend that the discovery rule applies to toll the statute of limitations in this case. Texas courts have explicitly held that the discovery rule can apply to negligent misrepresentation and conspiracy to defraud. See Sabine Towing Trans. Co. v. Holliday Ins. Agency, Inc., 2001 WL 761435 (Tex.App. — Texarkana, June 13, 2001) ("[T]he discovery rule is applicable to negligent misrepresentation causes of action."); In re Estate of Herring, 970 S.W.2d 583, 586 (Tex.App. — Corpus Christi 1998, no pet.) ("[T]he discovery rule applies to conspiracy to commit fraud."). The discovery rule applies to a cause of action if the alleged injury is inherently undiscoverable and the evidence of injury is objectively verifiable. See S. V. v. R. V., 933 S.W.2d 1, 6 (Tex. 1996). An injury is inherently undiscoverable if "the wrong and the injury were unknown to the plaintiff because of their very nature and not because of any fault of the plaintiff." Id. at 7. This does not mean that an injury need be "absolutely impossible to discover, else suit would never be filed. . . ." Id. at 7. This Court finds that the injury in this case was inherently undiscoverable, at least until AMI defaulted on its commitments to Plaintiffs in July 1997. See Plaintiffs' App. at 2330. Additionally, the evidence of injury in this case is objectively verifiable — Plaintiffs have submitted testimony by Ken Menard that, after AMI defaulted, Plaintiffs had to sell some of their construction projections and lost a substantial sum of money. See id. at 2330. Thus, the discovery rule applies in this case. "[W]hen the discovery rule applies, accrual is tolled until a claimant discovers or in the exercise of reasonable diligence should have discovered the injury and that it was likely caused by the wrongful acts of another." Childs v. Haussecker, 974 S.W.2d 31, 40 (Tex. 1998). Because the injury did not even occur to Plaintiffs until AMI defaulted on its commitments in July 1997, Plaintiffs' filing suit in June 1999 was within the statute of limitations for negligent misrepresentation. See Plaintiffs' App. at 2330. Plaintiffs additionally had no suspicion that AMI could not finance the loan until it received the underwriter's July 7, 1999 letter, which explained that "the interim financers could not verify AMI's ability to fund the loans." Id. at 2329-30. Thus, application of the discovery rule tolled the running of the statute of limitations for negligent misrepresentations until July 1997, so that it had not run by the time Plaintiffs filed suit on June 25, 1999.
IX. ATV's and WFTV's Failure to Pay Franchise Taxes
Fidelity last argues that the Court should dismiss ATV and WFTV as Plaintiffs because they failed to pay their franchise taxes and therefore have lost their rights to proceed in this suit. See Defendant's Brief at 37. Although Plaintiffs concede that, at least for a time, ATV and WFTV lacked good standing, they provide evidence that both were restored to good standing in September 2000. See Plaintiff's App. at 2332. Thus, ATV and WFTV regained their right to sue and be sued in Texas, and they can continue to act as parties in this litigation, even though they had previously lacked good standing. See G. Richard Goins Constr. Co. v. S.B. McLaughlin Assoc., Inc., 930 S.W.2d 124, 128 (Tex.App.-Tyler 1996, writ denied) (holding, in substantially similar case, that corporate entity restored to good standing could continue on in litigation even if it was not in good standing at start of litigation).
In conclusion, this Court is of the opinion that it should GRANT Fidelity's Motion for Summary Judgment on the constructive fraud claim, but DENY the Motion as to all other claims. The parties are directed to confer and submit a proposed Scheduling Order to the Court by October 22, 2001. They are to include in it a proposed deadline for mediation and a proposed mediator. If they cannot agree, they shall state separate proposals. The Court will send this case to mediation.
SO ORDERED.