Thomas N. Kearns v. Hugh Robertson and Maureen Robertson

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN NO. 03-00-00754-CV Thomas N. Kearns, Appellant v. Hugh Robertson and Maureen Robertson, Appellees FROM THE DISTRICT COURT OF TRAVIS COUNTY, 250TH JUDICIAL DISTRICT NO. 96-08235, HONORABLE DONALD HUMBLE, JUDGE PRESIDING Appellant Thomas N. Kearns ("Kearns") appeals from the district-court order granting judgment notwithstanding the verdict ("JNOV") in favor of appellees Hugh Robertson and Maureen Robertson (together "the Robertsons"). Kearns sued the Robertsons to recover on the guaranty of a loan extended to Vineyard Bay Development Company, Inc. ("Vineyard Bay"), a corporation owned and controlled by Hugh Robertson. We will affirm the district-court judgment. FACTUAL AND PROCEDURAL BACKGROUND The Robertsons were personal friends of Kearns and his wife, Patricia. On December 31, 1987, faced with a shortage of cash to pay taxes, the Robertsons borrowed $800,000 from Kearns. The structure of the loan and terms of repayment were neither finalized nor reduced to writing when the money was transferred. The Robertsons subsequently elected to make Vineyard Bay the recipient of the loan, and Hugh Robertson signed a promissory note on behalf of Vineyard Bay on January 15, 1988. The Robertsons executed a guaranty of the note. The note was originally due on July 15, 1988, but was extended by agreement to July 15, 1989. (1) The note was not paid when it matured, but Kearns did not immediately take legal action. On October 31, 1994, Vineyard Bay filed a petition in bankruptcy pursuant to Chapter 11 of the United States Bankruptcy Code. See 11 U.S.C.A. §§ 301, 1121 (West 1993); Kearns v. Vineyard Bay Dev. Co., 132 F.3d 269, 270 (5th Cir. 1998). The next day Hugh Robertson notified Kearns of Vineyard Bay's bankruptcy. Robertson explained to Kearns, through a letter, that the bankruptcy "was done to protect your collateral and provide a reasonably prompt way to sell the lots with proceeds to go to you." Robertson further stated that he had a contract for the sale of one lot for $400,000 that he would try to close by the end of the year and that "we should be able to move ahead with marketing and sale of the other two lots - hopefully for at least an additional $400,000." At the time Vineyard Bay filed its bankruptcy petition, limitations had run on both the note and guaranty. See Tex. Civ. Prac. & Rem. Code Ann. § 16.004(a)(3) (West Supp. 2001). Kearns filed a proof of claim based on the note in Vineyard Bay's bankruptcy. Vineyard Bay objected, asserting that the statute of limitations barred Kearns's claim. The bankruptcy court, as well as the federal district court, granted summary judgment in favor of Vineyard Bay on limitations grounds and sustained Vineyard Bay's objection to Kearns's proof of claim. Kearns appealed to the United States Court of Appeals for the Fifth Circuit, which affirmed the summary judgment. See Kearns, 132 F.3d at 272. Kearns brought the present action against the Robertsons individually for collection of the guaranty in state district court on July 16, 1996. Presumably to avoid the four-year statute of limitations applicable to actions for collection of debt, Kearns alleged that the Robertsons fraudulently induced him to refrain from taking legal action by making various assurances that the debt would be paid. See Velsicol Chem. Corp. v. Winograd, 956 S.W.2d 529, 531 (Tex. 1997). In a jury trial, the Robertsons moved for a directed verdict. See Tex. R. Civ. P. 268. The district court denied the motion. (2) The Robertsons elected not to put on any new evidence after the close of Kearns's case. The jury found that the assurances made by the Robertsons constituted fraud and assessed damages in favor of Kearns. The district court granted the Robertsons' motion for JNOV. See Tex. R. Civ. P. 301 (stating that court may render judgment non obstante veredicto if directed verdict would have been proper). Kearns now appeals by one issue. DISCUSSION Standard of Review In his only issue on appeal, Kearns contends that "the district court erred and abused its discretion by its mistaken judgment or incorrect belief that there was not any testimony or evidence to support the unanimous jury verdict and findings." Kearns's argument is essentially that the district court erred in granting JNOV because there was sufficient evidence to support the jury's finding of fraud. We will uphold a trial court's JNOV only if we determine there is no evidence supporting the jury's findings. See Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 227 (Tex. 1990); John Paul Mitchell Sys. v. Randalls Food Mkts., Inc., 17 S.W.3d 721, 728 (Tex. App.--Austin 2000, pet. denied). If there is more than a scintilla of evidence supporting the findings, we must reverse the JNOV. See Mancorp, 802 S.W.2d at 228; John Paul Mitchell Sys., 17 S.W.3d at 728. The evidence supporting a finding amounts to more than a mere scintilla if reasonable minds could arrive at the finding given the facts proved in the particular case. See Burroughs Wellcome Co. v. Crye, 907 S.W.2d 497, 499 (Tex. 1995). In reviewing a JNOV, "we evaluate the evidence in the light most favorable to the jury's findings, considering only the evidence and inferences which support those findings and disregarding evidence and inferences contrary to those findings." Johnson & Johnson Med., Inc. v. Sanchez, 924 S.W.2d 925, 929 (Tex. 1996). Fraud Kearns pleaded fraud as an avoidance to the statute of limitations. A suit for collection of debt that is not commenced within four years of the time that the cause of action accrues is barred. Tex. Civ. Prac. & Rem. Code Ann. §16.004(a)(3). Kearns commenced this suit on July 16, 1996, exactly seven years after his cause of action against the Robertsons accrued. Therefore, Kearns's claim is barred unless he is able to show that the Robertsons made fraudulent statements that induced him to refrain from taking legal action until limitations had run. See Velsicol Chem., 956 S.W.2d at 531 ("As with the discovery rule, [the] doctrine [of fraudulent concealment] tolls the statute [of limitations] until the fraud is discovered or could have been discovered with reasonable diligence.") (citing Estate of Stonecipher v. Estate of Butts, 591 S.W.2d 806, 809 (Tex. 1979)). Fraudulent concealment requires proof of the same elements as fraud. See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex. 1997). To establish common-law fraud, the plaintiff must show that (1) a material representation 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 its truth and as a positive assertion, (4) the speaker made the representation with the intent that it should be acted upon by the party, (5) the party acted in reliance upon the representation, and (6) the party thereby suffered injury. DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex. 1990); Trenholm v. Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983); Wilson v. Jones, 45 S.W.2d 572, 573 (Tex. Comm'n App. 1932, holding approved); Carr v. Christie, 970 S.W.2d 620, 624 (Tex. App.--Austin 1998, pet. denied). We will focus on the first and third elements. A. Material Representation The first question before us is whether more than a scintilla of evidence supports the jury's finding that the Robertsons made a material representation concerning the repayment of the loan. See Mancorp, 802 S.W.2d at 228. In order to uphold the district court's JNOV, we must determine that there is no evidence to support at least one element of the jury's findings. See generally Tex. R. Civ. P. 301; Mancorp, 802 S.W.2d at 227-28; Williams v. Bennett, 610 S.W.2d 144, 145-46 (Tex. 1980); Guzman v. Synthes (USA), 20 S.W.3d 717, 720-22 (Tex. App.--San Antonio 1999, pet. denied); Jacobs-Cathey Co. v. Cockrum, 947 S.W.2d 288, 292 (Tex. App.--Waco 1997, writ denied); Streetman v. Benchmark Bank, 890 S.W.2d 212, 215 (Tex. App.--Eastland 1994, writ denied). A representation, to be actionable, must be a representation of material fact. Trenholm, 646 S.W.2d at 930. Generally, fraud cannot arise from pure expressions of opinion or predictions about the future. Fina Supply, Inc. v. Abilene Nat'l Bank, 726 S.W.2d 537, 540 (Tex. 1987); West Anderson Plaza v. Feyznia, 876 S.W.2d 528, 533 (Tex. App.--Austin 1994, no writ). An exception to the general rule is when a prediction about the future is made with present intent to deceive. See Dowling v. NADW Mktg., Inc., 631 S.W.2d 726, 727-28 (Tex. 1982). When the representation is a promise to take future action, the plaintiff must show that the promise was made with a present intent not to perform. T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992); Crim Truck & Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 597 (Tex. 1992); Stanfield v. O'Boyle, 462 S.W.2d 270, 272 (Tex. 1971); Ferguson v. DRG/Colony N., Ltd., 764 S.W2d 874, 888 (Tex. App.--Austin 1989, writ denied). Having carefully reviewed the record, we conclude that there is no evidence of any representation of material fact made by the Robertsons concerning repayment of the loan that would legally justify Kearns's delay in bringing suit on the debt. Both Thomas and Patricia Kearns testified at trial. Patricia Kearns testified that both of the Robertsons assured her that "whatever they had to do, they were going to pay [Thomas Kearns] back," and "every penny was going to be paid back and they were grateful to [Thomas Kearns], and that the debt was going to be fully repaid." She further testified that the Robertsons told her, "We will do everything and pledge everything to pay [the loan] back." Thomas Kearns testified that the Robertsons made assurances during telephone conversations between the parties from the time the note payable came due on July 16, 1989 until the limitations period ran four years later. Thomas Kearns characterized the substance of the telephone conversations as "Hugh [told] me how that, 'This is going around the corner, and we are going to make it,' so forth and so on, 'We're going to take care of you. Don't worry about it.' They were telling me that the business was on the upturn and telling me not to worry." The statements made by the Robertsons amount to no more than predictions about the future or promises to take future action, and nothing in the record suggests that the Robertsons intended to deceive Kearns by making the statements or to dissuade Kearns from taking legal action on either the note or the guaranty. A second exception to the general rule that predictions about the future and promises to take future action cannot give rise to fraud involves concealment of information. Where a speaker purports to have special knowledge of the facts or does have superior knowledge of the facts--for example, when the facts underlying the promise or prediction are not equally available to both parties--a party may maintain a fraud action. See Trenholm, 646 S.W.2d at 930; Paull v. Capital Res. Mgmt., Inc., 987 S.W.2d 214, 219 (Tex. App.--Austin 1998, pet. denied). Kearns argues that the Robertsons had superior knowledge of the financial condition of Vineyard Bay when they made assurances that the loan would be repaid. Kearns asserts that he would have brought suit before the period of limitations had run had he known the true financial status of Vineyard Bay. This argument lacks merit because the facts underlying the promises made by the Robertsons could have been available to Kearns. Kearns never inquired into the business operations of Vineyard Bay before making the $800,000 loan. During the four years after the loan had matured, he never inquired as to Vineyard Bay's ability to repay. Kearns failed to prove this exception to the general rule because he presented no evidence that the Robertsons misrepresented Vineyard Bay's true financial condition. Kearns asserts that there was enough evidence to allow the jury to infer that a material representation had been made. We disagree. We may find the evidence legally insufficient if we are persuaded that a "vital fact may not reasonably be inferred from the meager facts proved in the particular case." Texas Dept. of Mental Health & Mental Retardation v. Petty ex rel. Kauffman, 817 S.W.2d 707, 717 (Tex. App.--Austin 1991), aff'd, 848 S.W.2d 680 (Tex. 1992). Kearns does not point to any specific act or words by the Robertsons that could have been interpreted as being a representation of material fact. Instead, his argument centers on the personal relationship between the parties and the personal wealth of the Robertsons. The loan agreement was not an arm's length transaction. Patricia Kearns and Maureen Robertson had known each other for over thirty years. The two couples had visited each other's homes and vacationed together. The record reflects that Thomas Kearns loaned the money to the Robertsons as a favor to his wife. Because the parties were familiar with each other, Kearns believed that the Robertsons had a significant amount of assets, other than their interest in Vineyard Bay, that could be used to repay the loan in the event Vineyard Bay was unable to do so. Yet the record before us does not disclose that the Robertsons had assets that could be used to assist Vineyard Bay in the repayment of the note, what those assets were, or that the Robertsons refused to liquidate them. The record contains no facts upon which the jury could have inferred that the Robertsons materially misrepresented their intentions with regard to the Vineyard Bay note. Kearns established at trial that he made the loan with the knowledge that the Robertsons had earlier sold their interest in Houston Wire & Cable Company for $6,000,000. However, Kearns failed to show whether, at the time the assurances were made, the Robertsons had retained any of the proceeds from the sale of the wire company. Kearns introduced evidence to show that the Robertsons lived in a large house in Vineyard Bay, but he failed to show whether the house had been mortgaged. Similarly, Kearns argues that the Robertsons' jet could have been used to satisfy the guaranty, yet he failed to establish that the jet had not been completely financed through debt. The inference required to establish a material representation from the Robertsons' statements is too attenuated for recognition. We hold that the jury's finding of a material representation cannot be supported by the "meager facts" proven by Kearns. See id. B. Intent to Deceive Even assuming that the assurances made to Kearns were material representations, nothing in the record suggests that the Robertsons made the assurances with the intent to bar payment of the note. A promisor's failure to perform, standing alone, is no evidence of his intent not to perform. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986). Nothing in the record, other than the fact that the loan was not repaid, suggests that the Robertsons did not intend to fulfill their promises that Vineyard Bay would repay the loan. Furthermore, Kearns presented no evidence to show that the Robertsons broke their promise to use "everything they had" to make sure the loan was repaid. The Robertsons made assurances based on their own predictions as to the future economic health of both the real-estate market and Vineyard Bay. The Robertsons did not carry out their promises to repay the loan, but Kearns failed to show that they did not intend to do so when the promises were made. Kearns asserts that he presented enough evidence to allow the jury to infer at least one of two things: (1) the Robertsons never intended to carry out their promises that the loan to Vineyard Bay would be repaid, or (2) despite their assurances to the contrary, the Robertsons never intended to use their own personal assets to guarantee the loan. We hold that neither inference was permissible. Less than a scintilla of evidence exists when the evidence is "so weak as to do no more than to create a mere surmise or suspicion" of a fact, and the legal effect is that there is no evidence. Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex. 1985). We hold that reasonable minds could not conclude, based on the evidence presented, that the Robertsons intended to deceive Kearns by making the assurances. Based on the record presented to us, we hold that Kearns may not rely on the tolling doctrine of fraudulent concealment and overrule Kearns's issue on appeal. (3) CONCLUSION Having determined that Kearns failed to produce more than a scintilla of evidence on each element necessary to establish common-law fraud, we conclude that Kearns's action to recover on the Robertsons' guaranty of Vineyard Bay's $800,000 promissory note was time-barred. We affirm the district court's JNOV. Lee Yeakel, Justice Before Chief Justice Aboussie, Justices Yeakel and Patterson Affirmed Filed: June 29, 2001 Do Not Publish 1. The renewal and extension agreement increased the debt to $840,000. 2. The district court informed counsel for both parties that if the jury found that the Robertsons had committed fraud, which would enable Kearns to avoid the statute of limitations, he would grant the Robertsons' motion for JNOV. 3. The Robertsons raise two "cross points" on appeal complaining of the district court's charge to the jury. Because we affirm the district court's JNOV, we need not consider the Robertsons' issues. See Tex. R. App. P. 47.1. ge house in Vineyard Bay, but he failed to show whether the house had been mortgaged. Similarly, Kearns argues that the Robertsons' jet could have been used to satisfy the guaranty, yet he failed to establish that the jet had not been completely financed through debt. The inference required to establish a material representation from the Robertsons' statements is too attenuated for recognition. We hold that the jury's finding of a material representation cannot be supported by the "meager facts" proven by Kearns. See id. B. Intent to Deceive Even assuming that the assurances made to Kearns were material representations, nothing in the record suggests that the Robertsons made the assurances with the intent to bar payment of the note. A promisor's failure to perform, standing alone, is no evidence of his intent not to perform. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986). Nothing in the record, other than the fact that the loan was not repaid, suggests that the Robertsons