Richard Alan Haase v. GIM Resources, Inc., and Mr. Chris Bloch

Opinion issued August 19, 2010

In The

Court of Appeals

For The

First District of Texas

NO. 01-09-00696-CV

RICHARD ALAN HAASE, Appellant

V.

GIM RESOURCES, INC. AND CHRIS BLOCH, Appellees

On Appeal from the 240th District Court

Fort Bend County, Texas

Trial Court Cause No. 08-DCV-165688

MEMORANDUM OPINION ON REHEARING

In

this suit for fraud, negligent misrepresentation and professional malpractice,

the trial court denied Richard Haase’s motion to compel production of documents

and granted summary judgment in favor of Chris Bloch and GIM Resources, Inc.

(collectively, GIM). On appeal, Haase

contends that (1) fact issues exist, and (2) the trial court should have

granted Haase’s motion to compel and performed an in camera review of any responsive

documents. We withdraw our opinion and

judgment dated May 6, 2010 and issue this opinion in its stead to address an

argument GIM advances in its motion for rehearing. Our disposition of the case is unchanged. We hold that Haase failed to demonstrate that

the trial court’s discovery ruling probably caused the rendition of an improper

judgment. We uphold the summary judgment

on Haase’s negligence, negligent misrepresentation, and professional

malpractice claims because Haase did not raise any evidence showing that GIM

owes him a legal duty. However, because legal

duty is not an element of fraud and GIM did not present additional summary

judgment grounds to rebut Haase’s fraud claim, we reverse that part of the

judgment and remand that claim to the trial court for further proceedings.

Background

In January 2008, Haase, the president

and CEO of Clear Value, Inc., met with Element Markets and Chris Bloch,

president of GIM, to discuss the possibility of Element Markets investing in the

development and production of Haase’s water combustion technology. Element Markets hired Bloch as a “consulting

expert” to evaluate Haase’s technology and provide a recommendation regarding

investment. At this meeting, Bloch

represented that he was an “expert in the art of combustion and of combustion

science” and agreed to provide documentation of his expertise prior to reviewing

Haase’s technology. Bloch also agreed

that if he had any questions about the technology he would confer with Haase

and his technical staff. Bloch never

provided Haase with any documentation regarding his expertise.

In arriving at his conclusions and

recommendation, Bloch reviewed Haase’s United States patent application for the

technology. Bloch’s report to Element

Markets described Haase’s technology, the problems with the technology, and the

non-feasibility of combining the technology with current engine designs. Bloch recommended to Element Markets that it

not invest in the technology. After

Element Markets ended investment negotiations with Haase and Clear Value, Haase

sued GIM for fraud and negligence. Haase

alleged that Bloch’s report (1) made disparaging remarks about the technology,

(2) did not contain confirmation of Bloch’s expertise in combustion and

combustion science, and (3) did not “fully reference” Haase’s patent

application. As a result, Haase alleged

that he could not determine if Bloch had properly reviewed the patent application

to form his opinions about the technology.

In addition to the loss of Element Markets’ investment, Haase contended

that if Bloch had “properly referenced” the report, he would have been able to

present Bloch’s report to the Patent and Trademark Office (PTO) as “very good

evidence of non-obviousness of the inventions.” [1]

Haase alleged that GIM committed

common-law fraud by misrepresenting Bloch’s skill in the field of combustion

and combustion science. Haase also alleged

that GIM was negligent by not (1) properly reviewing Haase’s patent

application, (2) properly interpreting the application, (3) referencing the application

in the report, and (4) referencing Block’s skill in combustion in the

report. With his original petition,

Haase also served requests for disclosure and production of documents. GIM did not produce any documents in response

to the requests for production. Haase

initially requested production of twenty-three categories of documents. In response, GIM raised the attorney-client

privilege as grounds for objection to nine categories, and the work product

privilege as grounds for objection to two categories. For thirteen categories, GIM objected on the

grounds that Haase’s requests were overbroad, unduly burdensome, and not

reasonably calculated to lead to the discovery of admissible evidence.

Haase moved to compel production of

nine categories of documents. [2] In his motion to compel, Haase stated GIM’s

objections to each request and his contentions for why each request was

proper. Haase repeatedly stated that he

was not seeking any documents protected by the attorney-client or work product

privileges, and he only sought documents within GIM’s control and that would

not be overly broad or burdensome to produce.

Haase prefaced six of his responses with the statement that “[t]his is a

negligence lawsuit.” The trial court

denied Haase’s motion to compel.

GIM moved for traditional and

no-evidence summary judgment. GIM

contended that, although Haase sued for both negligence and common law fraud,

Haase judicially admitted that his suit was only for negligence by stating in

his motion to compel that “[t]his is a negligence lawsuit.” According to GIM, Haase’s negligence claim

failed because GIM and Haase were not in privity of contract and GIM owed Haase

no legal duty. Aside from contending

that Haase’s statements in his motion to compel constituted judicial admissions

that the suit was only for negligence, GIM did not address Haase’s fraud claim.

After GIM moved for summary judgment,

Haase amended his petition to add claims for negligent misrepresentation and

professional malpractice. In his summary

judgment response, Haase contended that the most important factor in

determining whether a defendant owes a legal duty is foreseeability of the harm,

and it was foreseeable that GIM’s false information and misrepresentations in

the report to Element Markets would affect Haase’s business dealings and the

likelihood that the PTO would issue a patent for Haase’s technology. Haase attached his own affidavit, plus

declarations made by Chester Vaughan and Colin Walker, an expert and one of

ordinary skill in combustion science, respectively, who opined for the purpose

of Haase’s patent application that the technology “answers a long felt need of

humanity” to raise a fact issue on whether GIM acted in a reasonably prudent

manner in reviewing and reporting on Haase’s technology.

In reply, GIM contended that Haase

lacked standing to file suit in his individual capacity because the injuries

that Haase alleged were suffered by his corporation, Clear Value, and not by Haase

individually. GIM argued that only the

corporation can sue for damage to its property, and Haase, as a shareholder of

Clear Value, cannot bring an independent cause of action for harm suffered by

the corporation.

In response, Haase contended that the

technology at issue was owned by Haase himself and not Clear Value. Haase pointed to the patent application and a

previous patent issued by Great Britain, neither of which indicates an

assignment of ownership in the technology from Haase to Clear Value or any

other corporation. Haase also contended

that he was a necessary part of any business discussions between Clear Value

and Element Markets, and Clear Value “would only have been a commercialization

vehicle for Plaintiff’s [t]echnology.”

The trial court granted GIM’s summary

judgment motion “on all claims asserted by [Haase].”

Discussion

Standard of Review

We review de novo the trial court’s

ruling on a motion for summary judgment.

Mann Frankfort Stein & Lipp

Advisors, Inc. v. Fielding , 289 S.W.3d 844, 848 (Tex. 2009). In a traditional motion for summary judgment,

the movant must establish that no genuine issue of material fact exists and the

movant is thus entitled to judgment as a matter of law. Tex.

R. Civ. P. 166a(c). A genuine

issue of material fact exists if the non-movant produces more than a scintilla

of probative evidence regarding the challenged element. See

Ford Motor Co. v. Ridgway , 135 S.W.3d 598, 600 (Tex. 2004); see also Forbes Inc. v. Granada Biosciences,

Inc. , 124 S.W.3d 167, 172 (Tex. 2003) (“More than a scintilla of evidence

exists if it would allow reasonable and fair minded people to differ in their

conclusions.”). We examine the evidence

in the light most favorable to the non-movant and we indulge all reasonable

inferences and resolve all doubts in the non-movant’s favor. See

Goodyear Tire & Rubber Co. v. Mayes , 236 S.W.3d 754, 756 (Tex. 2007)

(per curiam).

Capacity to Sue

GIM

contends that Haase’s summary judgment evidence conclusively establishes that Haase

was acting in his capacity as president and CEO of Clear Value when he negotiated

with Element Markets, and thus he lacks standing to sue in his individual

capacity. Standing and capacity to sue

are related but distinct legal concepts:

“[a] plaintiff has standing

when it is personally aggrieved, regardless of whether it is acting with legal

authority; a party has capacity when

it has the legal authority to act, regardless of whether it has a justiciable

interest in the controversy.” Nootsie, Ltd. v. Williamson County Appraisal

Dist. , 925 S.W.2d 659, 661 (Tex. 1996).

Standing is a component of subject matter jurisdiction and can never be

waived. Tex. Ass’n of Bus. v. Tex. Air Control Bd. , 852 S.W.2d 440, 443,

446 (Tex. 1993). In contrast, “an

argument that an opposing party does not have the capacity to participate in a

suit can be waived.” Nootsie, Ltd. , 925 S.W.2d at 662 . A challenge to who owns a particular claim

raises the issue of capacity, not standing.

Prostok v. Browning , 112

S.W.3d 876, 921 (Tex. App.—Dallas 2003), rev’d

in part on other grounds , 165 S.W.3d 336 (Tex. 2005). Although GIM frames its contention as a lack

of standing, the basis of its complaint is that Haase, in negotiations with

Element Markets, was acting in his capacity as president and CEO of Clear

Value, and Clear Value owned the technology at issue. GIM contends that Haase, as a shareholder of

Clear Value, cannot personally recover damages for wrongs done to the

corporation, and therefore lacks the authority to bring this suit. GIM challenges Haase’s authority to sue in

his individual capacity, it does not challenge whether he has been personally

aggrieved by GIM’s alleged conduct. This

challenge, therefore, is appropriately one of capacity, not standing. See

Mackie v. Guthrie , 78 S.W.3d 462 , 465–66 (Tex. App.—Tyler 2001, pet.

denied) (“In other words, Mackie argues that Guthrie, as an individual

shareholder, was without authority to act, irrespective of whether he was

aggrieved. . . . [T]he underlying facts upon which Mackie

bases his contention are inescapably related to the issue of capacity.”).

Rule

93 of the Texas Rules of Civil Procedure requires that pleadings asserting

certain defenses be verified by affidavit “unless the truth of such matters

appear[s] of record.” Tex. R. Civ. P. 93. A party must file a verified pleading when

arguing that the plaintiff does not have the legal capacity to sue or that the

plaintiff cannot recover in the capacity in which he sues. Id.

93(1)–(2); Sixth RMA Partners, LP v.

Sibley , 111 S.W.3d 46, 56 (Tex. 2003) (“When capacity is contested, Rule 93

requires that a verified plea be filed unless the truth of the matter appears

of record.”); Pledger v. Schoellkopf ,

762 S.W.2d 145, 146 (Tex. 1988) (per curiam) (“Rule 93(2) requires that a

verified plea be filed anytime the record does not affirmatively demonstrate

the plaintiff’s or defendant’s right to bring suit or be sued in whatever capacity he is suing.”). The Texas Supreme Court has “not hesitated in

previous cases to hold that parties who do not follow Rule 93’s mandate waive

any right to complain about the matter on appeal.” Nootsie,

Ltd. , 925 S.W.2d at 662 ; see also

Nine Greenway Ltd. v. Heard, Goggan, Blair & Williams , 875 S.W.2d 784,

787 (Tex. App.—Houston [1st Dist.] 1994, writ denied) (“A party who fails to

raise the issue of capacity through a verified plea waives that issue at trial

and on appeal.”).

Here, GIM raised the issue of Haase’s

capacity to sue in its unverified summary judgment reply. A party may properly raise the issue of

capacity in an unverified pleading if “the truth of such matters appear[s] of

record.” Tex. R. Civ. P. 93. For

example, the Dallas Court of Appeals recently held that an unverified

supplemental answer properly raised the question of a party’s individual

liability when the “unambiguous language” of a settlement agreement included in

the summary judgment record demonstrated that the party did not assume personal

liability. Investin.com Corp. v. Europa Int’l, Ltd. , 293 S.W.3d 819, 825 (Tex.

App.—Dallas 2009, pet. denied). Because

the “matter of Brigg’s capacity appears of record in the summary judgment

evidence,” the Dallas Court did not require verification of the supplemental

answer as a prerequisite to addressing the capacity question on appeal. Id. ;

see also Cantu v. Holiday Inns, Inc. ,

910 S.W.2d 113, 117 (Tex. App.—Corpus Christi 1995, writ denied) (“[We] hold

that if the asserted defect in parties appears of record in the summary

judgment evidence in the case at bar, no verification is necessary.”).

In contrast to both Investin.com and Cantu , the summary judgment record here does not contain

uncontroverted evidence that Clear Value owned Haase’s technology or that GIM’s

actions solely injured Clear Value and not Haase individually. In response to GIM’s summary judgment reply,

in which it first raised the issue of capacity, Haase stated that he was not

suing in the capacity of a shareholder of Clear Value, and he contended that

he, and not Clear Value, owned the technology.

Haase attached excerpts from his International and United States patent

applications and his Great Britain patent, none of which reflected an

assignment of the ownership of the technology from Haase to Clear Value. In his affidavit, Haase averred that Clear

Value had no ownership interest in the technology, and because Haase solely

owns the technology, all “business arrangements” and negotiations involving the

use of and investments in the technology must involve Haase. We hold that the summary judgment record does

not establish that Haase lacks capacity. As a result, we do not consider GIM’s capacity

argument on appeal. See Nootsie, Ltd. , 925 S.W.2d at 662 .

Legal Duty

Haase contends that GIM owed him a legal

duty in its reporting on his technology for Element Markets; GIM breached this

duty by (1) misrepresenting information about the technology in its report

to Element Markets, (2) not adequately reviewing Haase’s technology, and

(3) failing to demonstrate Bloch’s skill in the field of combustion. Although Haase labeled his causes of action

as separate claims for negligence and negligent misrepresentation, he complains

solely of GIM’s conduct in preparing a report on Haase’s technology at the

request and for the benefit of a third party, Element Markets. Haase therefore alleges a claim for negligent

misrepresentation. See Farmers Tex. County Mut. Ins. Co. v. Griffin , 955 S.W.2d 81, 83

(Tex. 1997).

A party may be liable for negligent

misrepresentation if: (1) the defendant

makes the representation in the course of his business, or in a transaction in

which he has a pecuniary interest; (2) the defendant supplies “false

information” for the guidance of others in their business; (3) the defendant

did not exercise reasonable care or competence in obtaining or communicating

the information; and (4) the plaintiff suffers pecuniary loss by justifiably

relying on the representation. Fed. Land Bank Ass’n of Tyler v. Sloane ,

825 S.W.2d 439, 442 (Tex. 1991); see also

Restatement (Second) of Torts

§ 552 (1977); McCamish, Martin,

Brown & Loeffler v. F.E. Appling Interests , 991 S.W.2d 787, 791 (Tex.

1999) (acknowledging the application of section 552 to other professionals and

extending the application to attorneys).

Liability for negligent misrepresentation is “based upon the professional’s

manifest awareness of the nonclient’s reliance on the misrepresentation and the

professional’s intention that the nonclient so rely.” McCamish ,

991 S.W.2d at 792, 794 (“This formulation limits liability to situations in

which the attorney who provides the information is aware of the nonclient and

intends that the nonclient rely on the information.”).

Here, Element Markets hired GIM to

evaluate Haase’s technology and recommend whether Element Markets should invest

in the technology. GIM conducted the

review and report solely for Element Markets’ benefit to provide guidance on

investing. Haase does not contend that

GIM intended for him to rely on the report or knew that Element Markets would

supply the information to Haase for his benefit or guidance. In this circumstance, we hold that Haase fails

to raise a fact issue whether GIM owed Haase any legal duty. See id.

On appeal, Haase further contends

that he and GIM were in privity due to a verbal agreement formed at their

meeting with Element Markets, but does not describe its terms. In his trial court affidavit, Haase averred

that at the meeting, “Mr. Bloch represented to [Haase] that he was one of

expert skill in the art of combustion and of combustion science and that he

would provide [Haase] documentation as to his level of skill.” Haase also stated that Bloch agreed “that if

he had any issue with or understanding of the technology within [Haase’s patent

application] that he would conference with technical personnel with whom

[Haase] works.” These statements do not

establish that an enforceable verbal contract existed between the parties. See

Williams v. Unifund CCR Partners , 264 S.W.3d 231, 236 (Tex. App.—Houston

[1st Dist.] 2008, no pet.) (stating necessary elements to form a binding

contract). Because Haase does not

establish that an enforceable contract existed between the parties, no contractual

duty to Haase arose in evaluating the technology.

Fraud

The trial court granted final summary

judgment on all of Haase’s claims. A

summary judgment motion must “stand or fall on the grounds expressly presented

in the motion.” McConnell v. Southside Indep. Sch. Dist. , 858 S.W.2d 337, 341 (Tex.

1993); Tex. R. Civ. P. 166a(c)

(“The motion for summary judgment shall state the specific grounds therefor.”). If summary judgment on one claim is proper,

but the summary judgment order grants more relief than the movant requests, we

must remand the claims not addressed in the summary judgment motion. See

Bandera Elec. Coop. v. Gilchrist , 946 S.W.2d 336, 336 (Tex. 1997) (per

curiam); Postive Feed, Inc. v. Guthmann ,

4 S.W.3d 879, 881 (Tex. App.—Houston [1st Dist.] 1999, no pet.) (“When, as

here, a trial court grants more relief by summary judgment than requested, by

disposing of issues never presented to it, the interests of judicial economy

demand that we reverse and remand as to those issues, but address the merits of

the properly presented claims.”).

Although the motion for summary

judgment mentions fraud in the introduction, it does not list the elements of

fraud or move for summary judgment on one of them. See Tex. R. Civ. P. 166a(i) (“The motion

must state the elements as to which there is no evidence.”); Thomas v. Omar Invs., Inc. , 156 S.W.3d

681, 685 (Tex. App.—Dallas 2005, no pet.) (“In a no-evidence motion for summary

judgment, the movant must specifically state which elements of the nonmovant’s

claims lack supporting evidence.”). On

rehearing, GIM argues that summary judgment is proper on the fraud claim for

the same reason it was granted on the negligence claim—that GIM had no duty to

Haase. But legal duty is not an element

of fraud based on intentional misrepresentation. See

Aquaplex, Inc. v. Rancho La Valencia, Inc. , 297 S.W.3d 768, 774 (Tex. 2009)

(“The elements of fraud are: (1) that a

material misrepresentation was made; (2) the representation was false;

(3) when the representation was made, the speaker knew it was false or

made it recklessly without any knowledge of the truth and as a positive

assertion; (4) the speaker made the representation with the intent that the

other party should act upon it; (5) the party acted in reliance on the

representation; and (6) the party thereby suffered injury.” (quoting In re FirstMerit Bank, N.A. , 52 S.W.3d

749, 758 (Tex. 2001))). To the extent

GIM contends that legal duty is subsumed within the justifiable reliance

element of fraud, GIM did not present this argument to the trial court in its

summary judgment motion, and thus cannot raise it for the first time on rehearing. See

Tex. R. Civ. P. 166a(c) (“The

motion for summary judgment shall state the specific grounds therefor.”). We therefore remand the fraud claim. See

Bandera Elec. Coop. , 946 S.W.2d at 336 .

GIM responds that Haase judicially

admitted that this lawsuit is only for negligence because he stated “[t]his is

a negligence lawsuit” in six responses in his motion to compel and by repeated

it in his appellate brief. Yet, Haase

pleaded fraud, negligent misrepresentation, and professional malpractice claims

in his first amended petition.

In his summary judgment response,

Haase disputes GIM’s contention that this is only a suit for negligence,

pointing out that his original petition included claims for negligence and

fraud, and his amended petition added claims for negligent misrepresentation

and professional malpractice. Although,

in his appellate brief, Haase included the responses from his motion to compel,

he also contended that the trial court improperly granted summary judgment

because GIM’s summary judgment motion did not address his fraud and negligent

misrepresentation claims. Haase did not

unequivocally state that this is a negligence suit only; rather, he continually

has asserted causes of action in addition to negligence. Mendoza

v. Fid. & Guar. Ins. Underwriters, Inc. , 606 S.W.2d 692, 694 (Tex.

1980) (stating that a judicial admission is a “formal waiver of proof usually

found in pleadings or the stipulations of the

parties. . . . [It] is conclusive upon the party making it,

and it relieves the opposing party’s burden of proving the admitted fact, and bars

the admitting party from disputing it.”); Regency

Advantage Ltd. v. Bingo Idea-Watauga , 936 S.W.2d 275, 278 (Tex. 1996) (per

curiam) (“A judicial admission must be a clear, deliberate, and unequivocal

statement.”). Accordingly, we conclude

that Haase’s statements that “this is a negligence suit” do not constitute

judicial admissions limiting his causes of action solely to negligence.

Motion to Compel Discovery

Finally,

Haase contends that the trial court erred by (1) denying his motion to compel

and (2) failing to review in camera any responsive documents. We review a trial court’s discovery rulings

for abuse of discretion. Austin v. Countrywide Homes Loans , 261

S.W.3d 68, 75 (Tex. App.—Houston [1st Dist.] 2008, pet. denied); In re Colonial Pipeline Co. , 968 S.W.2d

938, 941 (Tex. 1998) (orig. proceeding).

A trial court abuses its discretion if it “issues a discovery order that

is arbitrary and unreasonable, or without reference to guiding rules and

principles.” In re BP Prods. N. Am., Inc. , 263 S.W.3d 106, 111 (Tex. App.—Houston

[1st Dist.] 2006, orig. proceeding). To

reverse a trial court’s ruling on a motion to compel, the appellant must

demonstrate not only that the trial court abused its discretion, but that the

erroneous discovery order probably caused the rendition of an improper

judgment. See Tex. R. App. P.

44.1(a); Austin , 261 S.W.3d at 75 .

Haase

moved to compel production of nine categories of documents. GIM objected to eight of those requests on

the grounds that the requests were overbroad, unreasonably burdensome, not

reasonably calculated to lead to admissible evidence, and sought information

outside the permissible scope of discovery.

GIM also objected to Haase’s request for any books, documents, or other

tangible things that may be introduced at trial on work product grounds, and

objected to Haase’s request for documents or tangible evidence of conversations

with Haase on attorney-client privilege grounds. GIM objected to Haase’s request for published

treatises, periodicals, or pamphlets claimed by GIM to be reliable authority

solely on attorney-client and work product grounds. In response to the requests for documentation

regarding conversations with Haase and for treatises or periodicals, GIM

responded that no responsive documents existed.

Although Haase requested a hearing on GIM’s objections, he did not

request a “privilege log” or an in camera inspection of all withheld

documents. See Tex. R. Civ. P.

193.3(b). In its order denying Haase’s

motion to compel, the trial court denied the motion “upon the express findings

that the responses of Defendants are adequate” and sustained all of GIM’s

objections.

On

appeal, Haase does not contend that GIM possessed specific responsive documents

and yet failed to disclose these documents.

See Austin , 261 S.W.3d at 75

(upholding denial of motion to compel when movant did not specify undisclosed

responsive documents or how these documents were relevant). In its summary judgment motion and reply, GIM

presented two grounds for granting summary judgment: lack of duty and lack of capacity to

sue. Haase does not contend that the

documents sought in his motion to compel are relevant to the determination of

either of these two issues. Thus, Haase

fails to demonstrate that the trial court’s denial of the motion to compel

probably caused the court to improperly grant summary judgment in favor of GIM. See

Tex. R. App. P. 44.1(a); Austin , 261 S.W.3d at 75 .

Conclusion

Haase’s inability to sue GIM in his

individual capacity was not raised in a verified pleading, nor established in

the summary judgment evidence; thus, we do not address it on appeal. We hold that Haase did not produce evidence that

GIM owed him a legal duty in its review of Haase’s technology for Element

Markets. Further, Haase did not

establish that the trial court’s denial of his motion to compel production

probably caused the rendition of an improper judgment. The trial court therefore correctly granted

summary judgment on Haase’s claims for negligence, negligent misrepresentation,

and professional malpractice. Because

GIM only asserted capacity and lack of a legal duty as grounds for summary

judgment, and legal duty is not an element of fraud, we reverse the part of the

judgment on that claim and remand to the trial court for further proceedings.

Jane Bland

Justice

Panel consists of Justices Jennings,

Hanks, and Bland.

[1] The PTO subsequently denied Haase’s patent

application for the water combustion technology, primarily on grounds that the

technology was “obvious.” See 35 U.S.C. § 103 (a) (2006).

[2] Specifically, Haase sought to compel

production of: (1) all diaries, logs,

calendars, or other notes concerning the intellectual property that is the

basis of the suit; (2) all correspondence, communications, or transactions

relating to the intellectual property; (3) all books, documents, or tangible

things that have a bearing on the suit and may be introduced at trial; (4) all

published treatises, periodicals, and pamphlets claimed to be reliable

authority; (5) all documents and tangible evidence of any conversations with

Haase; (6) transcript showing Block’s secondary education and degree; (7) a

complete work history; (8) any and all publications; and (9) Block’s up-to-date

resumé and curriculum vitae.