Ron Carter, Inc., Ron-Carter Ford Inc., and Wilson-Hall Imports, Inc. v. Robert Kane

Opinion issued October 27, 2011

In The

Court of

Appeals

For The

First District

of Texas

————————————

NO. 01-10-00815-CV

———————————

Ron Carter, Inc., Ron-Carter Ford, Inc., and Wilson-Hall Imports,

Inc. , Appellants

V.

Robert Kane , Appellee

On Appeal from the 412th District Court

Brazoria County, Texas

Trial Court Case No. 56412

MEMORANDUM OPINION

Ron Carter, Inc.,

Ron-Carter Ford, Inc., and Wilson-Hall Imports, Inc. (collectively

“Ron-Carter”) appeal the grant of summary judgment in favor of Robert Kane in a

lawsuit arising out of a joint promotional contest offered by Ron-Carter and a

company that Kane reportedly represented, Carlisle Homes. Ron-Carter contends that the trial court

erred in granting Kane’s motion for summary judgment on Ron-Carter’s fraudulent

inducement claim against Kane. We

reverse the trial court’s grant of summary judgment for Kane and remand for

further proceedings consistent with this opinion.

Background

In

early 2007, Carl Mitchell, a representative of the auto dealership, Ron-Carter,

approached his longtime friend Robert Kane, who purportedly was a

representative of homebuilder Carlisle Homes, to gauge Carlisle Homes’ interest

in participating in a promotional contest with Ron-Carter. Kane at the time was employed by a local bank

that had a financial relationship with Carlisle Homes. Representatives from Carlisle Homes were

interested; Perry Thomas, the president of Carlisle Homes, and Kane both sent

e-mails to Mitchell expressing excitement and gratitude for Ron-Carter’s

consideration of Carlisle Homes for the contest. Mitchell, Kane, Thomas, other representatives

of Ron-Carter and Carlisle Homes, and counsel representing Ron-Carter and

Carlisle Homes then had two meetings in March 2007 to discuss and negotiate the

joint promotional contest. In the

contest, people visiting Ron-Carter to look at cars could enter into a drawing

(which Ron-Carter would promote), and the winner of the drawing would receive a

home constructed by Carlisle Homes.

In response to Kane’s

motion for summary judgment, Mitchell signed an affidavit stating that before

signing the agreement, Kane told Mitchell that Carlisle Homes would be able to

perform under the agreement and that Kane was a 25% owner of and had personally

invested $250,000 in Carlisle Homes.

However, Ron-Carter has also presented evidence that Kane was only a 25%

owner of a subsidiary company of Carlisle Homes and had never invested $250,000

in the company. In April 2007, Ron-Carter

and Carlisle Homes entered into a written agreement to hold the contest.

Carlisle

Homes completed construction of the house, and Ron-Carter promoted and

conducted the drawing for the contest.

Carlisle Homes was scheduled to transfer title of the house to the

contest winner, but Ron-Carter then learned the house was subject to a deed of

trust of approximately $188,000 and various mechanics’ and materialmen’s liens

of at least $6,400. Carlisle Homes later

informed Ron-Carter that it did not have the money to pay off the deed of trust

and other liens and therefore could not transfer title to the contest

winner. Ron-Carter and the contest

winner filed suit against Carlisle Homes for breach of contract and obtained a default

judgment for $250,000. [1]

Ron-Carter

filed suit against Kane alleging fraudulent inducement and statutory fraud,

eventually dropping the statutory fraud claim.

Kane promulgated interrogatories asking, inter alia, for Ron-Carter to

state “exactly” the representations made by Kane as described in Ron-Carter’s

original petition. Ron-Carter responded

by describing the “exact statements” as contained in e-mails between Ron-Carter

representatives and Kane, which Ron-Carter attached.

Kane moved for summary

judgment on the fraudulent inducement claim on one of two alternative grounds:

(1) Kane did not make any misrepresentation and (2) Ron-Carter could not, as a

matter of law, have reasonably and justifiably relied on any representation

made during the “adversarial” contract negotiation process. Ron-Carter filed an amendment to its responses

to Kane’s interrogatories, which stated that during the March 2007 meetings

Kane represented to Mitchell, inter alia, that Carlisle Homes would be able to

perform under the agreement and that Kane was a 25% owner of and had personally

invested $250,000 in Carlisle Homes.

Ron-Carter also pointed to deposition testimony that Kane was only a 25%

owner of a subsidiary company of Carlisle Homes and that Kane never personally

invested $250,000 in the company. On the

same day they served amended responses to interrogatories, Ron-Carter also

filed an affidavit from Mitchell in which Mitchell described the same

representations by Kane as the amended responses to interrogatories described.

Kane moved to strike

Ron-Carter’s amended responses to interrogatories and to strike the Mitchell

affidavit, arguing that it and the amended responses to interrogatories had

been filed to create a fact issue to avoid summary judgment. The trial court denied Kane’s motion to

strike but granted Kane’s motion for summary judgment. The trial court did not state the grounds on

which it granted summary judgment. Kane does

appeal the denial of his motion to strike the amended responses to

interrogatories and the Mitchell affidavit.

Ron-Carter now appeals

the grant of summary judgment, raising two issues: (1) there is a genuine issue

of material fact regarding whether Kane made false representations to

Ron-Carter, and (2) there is a genuine issue of material fact regarding whether

Ron-Carter reasonably relied upon Kane’s false representations.

Standard

of Review

We review de

novo the trial court’s grant of summary judgment. Hahn v.

Love , 321 S.W.3d 517, 523 (Tex. App.—Houston [1st Dist.] 2009, pet.

denied). Traditional summary judgment is

properly granted only when the movant establishes that there are no genuine

issues of material fact and that he is entitled to judgment as a matter of law. Tex.

R. Civ. P. 166a(c); Hahn , 321

S.W.3d at 523 . Summary judgment is

proper on claims for which the movant is the defendant only when the movant

negates at least one element of each of the plaintiff’s causes of action or

when the movant conclusively establishes each element of an affirmative

defense. Hahn , 321 S.W.3d at 523 . If

the movant conclusively negates an element of each of the plaintiff’s causes of

action or conclusively establishes its own cause of action, the burden then

shifts to the non-movant to respond with evidence raising a genuine issue of

material fact that would preclude summary judgment. Id . In deciding whether there is a disputed

material fact precluding summary judgment, evidence favorable to the non-movant

will be taken as true, every reasonable inference must be indulged in favor of

the non-movant, and any doubts must be resolved in favor of the non-movant. Id.

As in this case, when

a trial court order does not state the grounds on which it granted summary

judgment, we may reverse summary judgment only if the nonmovant on appeal shows

that each of the grounds in the movant’s summary judgment motion is

insufficient to support summary judgment. See Fed.

Deposit Ins. Corp. v. Attayi, 745 S.W.2d 939, 942 (Tex. App.—Houston [1st

Dist.] 1988, no writ). Conversely, we

may affirm summary judgment only based on grounds presented specifically in

movant’s motion for summary judgment. See State Farm Lloyds v. Page , 315

S.W.3d 525, 532 (Tex. 2010).

Fraudulent

Inducement

Fraudulent inducement

is a particular species of fraud in which the elements of fraud must be

established as they relate to an agreement between the parties. See

Coastal Bank SSB v. Chase Bank of Texas, N.A. , 135 S.W.3d 840, 843 (Tex.

App.—Houston [1st Dist.] 2004, no pet.).

The elements of fraud are: (1) a material misrepresentation was made;

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

false or the statement was recklessly asserted without any knowledge of its

truth; (4) the speaker made the false representation with the intent that it be

acted on by the other party; (5) the other party acted in reliance on the

misrepresentation; and (6) the party suffered injury as a result. See

DeSantis v. Wackenhut Corp. , 793 S.W.2d 670, 688 (Tex. 1990). Reliance on a party’s misrepresentation must be

justifiable and reasonable. See Atl. Lloyds Ins. Co. v. Butler , 137 S.W.3d 199, 226 (Tex. App.—Houston

[1st Dist.] 2004, pet. denied) (citing Restatement

(Second) of Torts § 531 (1977)).

A.

Misrepresentation

Ron-Carter’s first

issue is that that the trial court erred in granting summary judgment on the

ground that there is no genuine issue of material fact as to whether Kane made

a false statement. Ron-Carter alleges

Kane made two false statements to Ron-Carter: (1) that Carlisle Homes was able

to perform on the agreement, and (2)

that Kane was a 25% owner of and had personally invested $250,000 in Carlisle

Homes. Because we hold there is a

genuine issue of material fact regarding this second alleged false statement,

we sustain Ron-Carter’s first issue.

Ron-Carter

contends that (1) Mitchell’s affidavit in which Mitchell said that Kane told

him he was a 25% owner of Carlisle Homes and that he had personally invested

$250,000 in the company, and (2) deposition testimony stating that Kane was

only a 25% owner of a subsidiary of Carlisle Homes and that Kane never invested

$250,000 of his personal funds in the company, create a genuine issue of

material fact about whether Kane made a misrepresentation to Mitchell about

Kane’s ownership stake and investment in Carlisle Homes. Kane does not specifically dispute that this

evidence would create a genuine issue of material fact but argues that the Mitchell

affidavit should be disregarded under the sham affidavit doctrine.

In reviewing a summary

judgment motion, we must take all of this evidence favorable to Ron-Carter as

true. Hahn , 321 S.W.3d at 523 . However, under the sham affidavit doctrine, a

party cannot file an affidavit to contradict his own deposition testimony

without any explanation for the change in testimony. Farroux

v. Denny’s Rests. , Inc. , 962

S.W.2d 108, 111 (Tex. App.—Houston [1st Dist.] 1997, no pet.) (adopting sham

affidavit doctrine from Bank of Ill. v.

Allied Signal Safety Restraint Sys. , 75 F.3d 1162 , 1168–69 (7th Cir.

1996)). The basic rationale behind the

sham affidavit doctrine is that the whole purpose of summary judgment—to weed

out unfounded claims, specious denials, and sham defenses—would be undercut if

a party could fabricate a sham issue of fact and mechanically defeat summary judgment

simply by filing another affidavit, even if that affidavit contradicted

previous deposition testimony. See Bank of Ill. , 75 F.3d at 1168–69. Unless a party explains why he has filed an

affidavit that contradicts his previous deposition (for example, because he was

confused or has discovered additional materials), we will assume that the party

has filed the affidavit solely to defeat summary judgment and will therefore

disregard the affidavit. Farroux , 962 S.W.2d at 111 .

Kane argues that the

Mitchell affidavit contradicts Ron-Carter’s initial response to Kane’s

interrogatories, in which Ron-Carter described the “exact statements” of Kane’s

representations as contained in several e-mails from Kane, which say nothing

about any ownership stake or personal investment by Kane in Carlisle

Homes. However, Ron-Carter amended its

responses to interrogatories to include Mitchell’s statement that Kane had repeated

that he was a 25% owner of Carlisle Homes and had personally invested $250,000

in the company. On the same day,

Ron-Carter filed the Mitchell affidavit.

Therefore, there was no contradiction between the responses to

interrogatories and the affidavit.

Kane

argued to the trial court, and argues here that Ron-Carter was simply amending

its responses to interrogatories to create a fact issue to avoid summary

judgment. The trial judge, however, explicitly

denied Kane’s motion to strike, and Kane has not appealed the denial of his

motion. Therefore, the responses to

interrogatories at the time of the summary judgment are the amended responses,

which the Mitchell affidavit does not contradict. See

State Farm Fire & Cas. Co. v. Morua ,

979 S.W.2d 616 , 618–19 (Tex. 1998) (stating that party should be able to

rely on opponent’s supplemental interrogatory answers to develop case before

and at trial). We can and should affirm

summary judgment on any grounds properly stated in a motion for summary

judgment, see State Farm Lloyds , 315

S.W.3d at 532 , but we cannot affirm summary judgment by overruling the denial

of a motion to strike when no one has appealed that denial and therefore it is

not before us for review. See Tex.

R. App. P. 47.1 ; Tex. Integrated

Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc. , 300 S.W.3d 348,

373 (Tex. App.—Dallas 2009, pet. denied) (refusing on appeal to disregard affidavit

because motion at trial to disregard affidavit under sham affidavit doctrine

was denied and not appealed).

Since the Mitchell

affidavit presents no contradiction with the amended responses to interrogatories

and therefore cannot be disregarded under the sham affidavit doctrine, we hold

that Ron-Carter presented evidence to establish a genuine issue of material

fact as to whether Kane made a misrepresentation to Mitchell about his

ownership interest and personal investment in Carlisle Homes. Therefore, summary judgment was inappropriate

on the ground that Kane did not make a misrepresentation. We sustain Ron-Carter’s first issue.

B.

Justifiable

Reliance on the Misrepresentation

Ron-Carter cannot

prevail by simply establishing a genuine issue of material fact as to whether Kane

made a misrepresentation; it must also demonstrate that the trial court erred

in granting summary judgment on the ground that there is no genuine issue of

material fact regarding whether Ron-Carter justifiably relied on Kane’s false

representations. Because we hold there

is a genuine issue of material fact as to whether Ron-Carter justifiably relied

on Kane’s false representations, we sustain Ron-Carter’s second issue.

Fraudulent inducement

requires a showing that the plaintiff reasonably and justifiably relied on the defendant’s

misrepresentation. DeSantis , 793 S.W.2d at 688 ; Butler , 137 S.W.3d at 226 . Generally, reliance on representations made

in a business or commercial transaction is not justified when the

representation takes place in an adversarial context or relationship. Coastal

Bank SSB , 135 S.W.3d at 843

(citing McCamish, Martin, Brown &

Loeffler v. F.E. Appling Interests , 991 S.W.2d 787, 794 (Tex. 1999)). In McCamish ,

the Texas Supreme Court articulated the test for determining if a relationship

is adversarial:

In determining

whether [the] justifiable reliance element is met, one must consider the nature

of the relationship between the [parties] . . . . Because not every situation

is clearly defined as “adversarial” or “nonadversarial,” the characterization

of the inter-party relationship should be guided, at least in part, by “the

extent to which the interests of the [parties] are consistent with each other.”

991 S.W.2d at 794

(citing Jay M. Feinman, Attorney

Liability to Nonclients , 31 Tort & Ins. L.J. 735 , 750 (1996)).

This test originated in a case alleging

negligent misrepresentation by an attorney to a third party, McCamish , 991 S.W.2d at 794 , which, like

fraudulent inducement, requires a showing of justifiable reliance. See

Grant Thornton LLP v. Prospect High Income Fund , 314 S.W.3d 913, 923 (Tex.

2010). The basic rationale for the McCamish test is that an attorney, hired

by a client for the benefit and protection of the client’s interests, must

pursue those interests with undivided loyalty (within the confines of the Texas

Disciplinary Rules of Professional Conduct), without the imposition of a

conflicting duty to a nonclient whose interests are adverse to the client. Id. Even though its origins are in litigation,

the McCamish test may apply in

non-litigation contexts such as “adversarial” business or commercial

transactions. Id .

Kane cites to several

cases for the proposition that all business relationships are adversarial in

nature, but these cases are distinguishable. [2] More importantly, the McCamish test for determining if a relationship is adversarial (and

therefore reliance is not reasonable) is not categorical, but

fact-specific. For example, in a case

applying the McCamish test, this Court

held that a relationship of two sophisticated parties who were both represented

by counsel is not, standing alone, dispositive of the issue of whether reliance

is reasonable, but only a factor to be considered. See

Coastal Bank SSB , 135 S.W.3d at

843 . Otherwise, any two people who are

sophisticated and have hired lawyers could knowingly make misrepresentations in

business transactions, however friendly or cooperative their joint venture

might appear, without ever being held accountable for their fraud.

Ron-Carter points to McMahan v. Greenwood , 108 S.W.3d 467

(Tex. App.—Houston [14th Dist.] 2003, pet. denied) as a case more strongly

on-point with this case. In McMahan , the plaintiff and a business

partner established a business selling and refurbishing classic cars. Id. at

476 . In creating the business, the

parties signed a stock option agreement drafted by the defendant, an attorney. Id . Contemporaneously (the plaintiff later

alleged), the defendant told the plaintiff that the plaintiff was a shareholder

in the business. Id. The relationship between

the plaintiff and his business partner eventually soured, and the parties

signed a settlement agreement to wind down the business. Id . at 477.

A few years later, the plaintiff asked the former business partner for

documents to allow him to take tax credits on losses in their business, but the

former business partner claimed the plaintiff had never owned stock in their

business and therefore was not entitled to the necessary tax documents to claim

the tax credits. Id. The plaintiff sued the

defendant for fraudulent inducement. Id . at 494–95. The defendant moved for summary judgment,

claiming that the plaintiff could not have justifiably relied on any statements

the defendant made about the plaintiff’s stock ownership because those

statements would have been made in an adversarial context of negotiating,

drafting, and executing the settlement agreement. Id .

at 497.

The McMahan court held that while statements

made during the settlement negotiations were likely made in an adversarial

context, the statements made during the formation and operation of the business

likely were not. Id. at 497 . Applying the

test of McCamish , the court noted

that the plaintiff and his business partner were ostensibly working towards the

same goal of a successful business venture. Id. Whether their relationship was adversarial

was not established as a matter of law but would be a fact question; therefore

summary judgment was inappropriate as to whether the plaintiff justifiably

relied on the defendant’s statements. Id .

McMahan

is on-point to this case. Like McMahan , Ron-Carter and Carlisle Homes

were working towards the same goal of a successful business venture in which

Carlisle Homes contributed a house in exchange for the promotional benefits of

being associated with Ron-Carter’s auto dealership. The McCamish

test requires us to consider the nature of the relationship between the

parties and the extent to which their interests were consistent. Aside

from the fact that the parties had lawyers (like McMahan ) and were sophisticated businessmen, Kane points to no

evidence suggesting that the interests of the parties were not aligned or

inconsistent. In contrast, Ron-Carter points

to several e-mails in which the parties expressed gratitude and excitement that

they were working with each other, as well as the fact that Kane and Mitchell

were long-time personal friends. We hold

that it is a fact question as to whether the relationship between the parties

was adversarial and summary judgment was inappropriate on the ground that

Ron-Carter could not have reasonably relied on Kane’s statements. [3] We therefore sustain Ron-Carter’s second

issue.

Conclusion

Ron-Carter has

established that there is a genuine issue of material fact as to (1) whether

Kane made a false representation and (2) whether Ron-Carter justifiably relied

on Kane’s false representation. These

were the only grounds raised by Kane in his motion for summary judgment. Therefore Ron-Carter has satisfied its burden

to defeat summary judgment and require reversal. See Hahn ,

321 S.W.3d at 523 ; Attayi , 745 S.W.2d at 942 .

Accordingly,

we reverse the grant of summary judgment for appellee Robert Kane and remand

for proceedings consistent with this opinion.

Jim

Sharp

Justice

Panel consists of Justices Jennings, Sharp and

Brown.

[1] Carlisle

Homes has since ceased operations.

Franklin Bank, the holder of the deed of trust, eventually foreclosed on

the house in question. Franklin Bank

later went into receivership and the FDIC now controls the property.

[2] See McCamish,

Martin, Brown & Loeffler v. F.E. Appling Interests , 991

S.W.2d 787, 794 (Tex. 1999) (involving representations made by attorney in

litigation context); Spethmann v. Anderson , 171 S.W.3d 680, 690 (Tex. App.—Dallas 2005,

no pet.) (concluding that there was no evidence that parties were adversaries

in merger; noting that at time of misrepresentation, the two companies

had worked as partners on projects for

over a year, and their corporate offices and functions had been combined for

over eight months); Coastal

Bank SSB v. Chase Bank of Texas, N.A. , 135 S.W.3d 840, 843 (Tex.

App.—Houston [1st Dist.] 2004, no pet.) (concluding party could not prove it

justifiably relied on other party’s representation or silence when the two

parties’ contract contained express waiver of reliance); Swank v. Sverdkin , 121 S.W.3d 785, 803 (Tex. App.—Houston [1st

Dist.] 2003, pet. denied) (holding trial court did not err in disregarding jury’s

finding of negligent misrepresentation because representations, which were made

in context of contract negotiations, conflicted with contract; “The fact that

Sverdlin failed to read the contracts and simply chose to sign them does not

amount to a ground of recovery for negligent misrepresentation.”).

[3] Kane

also argues that Ron-Carter’s admitted failure to exercise reasonable diligence

and investigate the truthfulness of Kane’s representations negates the element

of reasonable reliance on Kane’s statements.

However, we have only articulated the rule that a party cannot

reasonably rely on a representation when that representation “with reasonable

diligence, could easily have been refuted .” Butler ,

137 S.W.3d at 226 (emphasis added). Kane

has not identified any evidence that, had Ron-Carter been more diligent and

investigated Kane’s statements, Ron-Carter would have discovered they were

false. Since Kane has the burden to

produce such evidence to negate the element of reasonable reliance on a motion

for summary judgment, Hahn , 321

S.W.3d at 523 , we cannot affirm summary judgment on this ground.