SUITE 1650

AUSTIN, TX 78701


FACSIMILE: 512.481.0130



what's happening in our world

What I Learned from a Recently Settled Case

Modesett Williams - Monday, June 20, 2016

We recently settled a business dispute involving claims for breach of contract, breach of fiduciary duty and fraud. We quickly realized that an insurance policy would likely cover the claims, but its limits were about one-third of our damages. It was also a "declining" policy, meaning the limits declined as attorney's fees were paid. The defendants were likely judgment proof.

The plan was straight-forward: gather all of the evidence we could find and give it to the defendants. Within 30 days of the case being filed, we had our persons with knowledge of facts, a decent (but not perfect) damage model and most of the facts understood. We sent responses to request for disclosure before a request was sent. We produced about 1000 pages of documents we had identified. We answered interrogatories within a few days. Then we spent hours interviewing the important witnesses and got detailed affidavits from two of them.

Then we sent a detailed Stowers demand for policy limits. Rejecting our demand would mean the insurance company risked being on the hook for the entirety of a judgment. The time for the demand expired. We gave defendants an extension. Then defendants wanted to mediate and we agreed. Then we filed a summary judgment motion on one of our claims - as a plaintiff. I had even written a preliminary opening statement to test the logic of our position.

We prepared mightily for mediation and had a great presentation. Nevertheless, mediation was unproductive because we argued over what the facts were, rather than what the numbers should be. We adjourned the mediation. Then we provided additional declarations, designated experts on damages and liability issues, which were all issues the defendants had with our case. Having fixed the "problems" with our case, our mediator went to work. We settled for policy limits.

Insurance makes a case much easier to settle. It is designed to pay claims. It also removes some of the emotion defendants feel when they get sued. It also changes your audience. Insurance companies like to "build" a file, so the more information you give them, the easier it is to justify payment of significant sum. There is nothing more intimidating to a defendant than having a plaintiff with all the facts available and understood early in the case. PowerPoint presentations are helpful, but not as big a deal as you think they will be. The Stowers doctrine is a powerful bargaining chip, but has its limitations.

Proving Economic Damages: Client, Expert or Both?

Modesett Williams - Friday, February 12, 2016

Jury trials in commercial litigation offer business owners the opportunity not only to tell their story, but also to describe their damages. Because owners know more about their business and market than anyone else, they are well-suited to make this calculation and support it with historic information and future projections based on their experience in the real world. With proper preparation, this can be compelling testimony.

But should you hire a damage expert as well? Probably so, for at least three reasons. First, jurors like to create their own damage models and reach their own conclusions on a plaintiff's damages. Multiple damage options give jurors the formulas and raw data they need to calculate their own number and still survive a JOV. Second, having a bit of tension between the expert's typically lower number and the owner's more optimistic figure makes both witnesses' calculation truly independent. Third, multiple calculations could give you additional support on appeal.

In one case, this strategy worked out well. The jury heard both the owner's number and the expert's. The numbers were about 30 percent different. The jury went with the expert, with a small twist in our client's favor. We were fine with that. In fact, I suspect the defendants used the expert's appraisal to get a loan to pay our judgment! Our takeaway: Empower the jury by giving them options on damages. They are going to make their own calculation anyway.

Focus Groups: How We Use Them

Modesett Williams - Monday, February 01, 2016

Our firm conducts focus groups on every significant case in our office. But we typically do not hire outside trial consultants and instead conduct the focus groups ourselves. We have a pretty deep database on juror attitudes on common litigation issues.

Over the past year, we have disclosed the data from focus groups in two cases, resulting in the successful resolution of both cases. Colleagues warn we are giving away a significant strategic advantage. Maybe so, but the positive results from the two recent cases inspired us to go a step further. Depending on the case, we now invite opposing counsel to our focus group sessions. The risk is opposing counsel sees too much of your case and picks up helpful hints on how to attack. The reward may be the other side sees a balanced presentation, as well as risks of a large verdict. If we do it right, our credibility is established as is some good will. After all, the point of the focus group isn't to win the case, but to see where the pitfalls are and to discover the communities' attitude and language about your case. If all sides see this before too much blood has spilled and positions have hardened, maybe a fair resolution can be had.

Deposition Preparation - "The" Question

Modesett Williams - Monday, November 02, 2015

Years ago, we represented a landlord that had built a 40,000 addition to its downtown office building especially for a single tenant, who had signed a 10 year lease. The tenant never occupied the space and then claimed the entity signing the lease had no assets. Collecting on any judgment depended on piercing the corporate veil to get to the well-financed parent company. When it came time to take the CEO's deposition, we spent a lot of time thinking of "the" question to help our piercing claim. The question needed to be one where the answer didn't matter. The answer either made our point or would be shown to be a fabrication. The question: "Who do you work for?" The answer: "I don't know. There's not a simple answer." Remarkably, at trial, he still did not know! We spoke to our juror after a favorable verdict, who said, "They should have funded their shell companies."

Our take-away: Establishing important facts indirectly through an apex deposition can have a game-changing effect.

Winning Before Trial - Plaintiff's Dispositive Motions

Modesett Williams - Wednesday, October 21, 2015

We recently received a partial summary judgment, as a plaintiff, on a breach of fiduciary duty claim in a hotly contested case involving borrowers, lenders, lawyers and title companies. We accepted the burden of proof, even though it probably wasn't ours, so we could manage the evidence and presentation during the hearing.

We filed the motion because we thought we had a shot. If we prevailed, we knew the focus of the case would change from liability to damages. It worked.

Defendants later filed motions challenging some of our damage model, which we anticipated, but the conversation changed from whether the defendants did it to how much it was going to cost them. Fortunately, a year earlier we had upgraded previous counsel's damage model of less than $100,000 to over $2,000,000 and had some room to negotiate. Ultimately, defendants got into a range acceptable to our clients and we resolved the case 45 days from our trial date for well over our direct damages calculation.

Our take away from this experience: don't be afraid to be aggressive in your dispositive motion practice as a plaintiff. Defendants freely file dispositive motions with little hope of prevailing, but are sometimes less adept at fending off a plaintiff's efforts. Any time you can narrow the issues and tell a jury you've already won, it's a good place to be.

Disclaimer of Reliance

Walter Williams - Thursday, May 22, 2014

In commercial real estate sales contracts, particularly for income producing properties like apartment complexes and office buildings, the buyer will frequently rely on the seller’s disclosures regarding historic operations, such as income, expenses and occupancy. Sometimes, though, the seller fills the building with less than desirable tenants or fudges the income numbers to justify a higher sales price. Relying on a seller’s information can cause problems for all sides of the transaction. That’s because the sales contract may have a merger clause, an As-Is clause and/or a disclaimer of reliance provision. Each of these provisions could limit or exclude a buyer’s right to rely on the accuracy of the seller’s information and seek damages for those misrepresentations. In particular, these provisions could have the effect of cutting off a fraudulent inducement claim. 

A fraud claim is particularly important in a real estate sales context because the seller is usually a single purpose entity that distributes  the sales proceeds after the close of the sale and has no other assets, making collection on a judgment that much more difficult.

A.   The Evolution of Fraudulent Inducement and As-Is, Merger and Disclaimer of Reliance Clauses

Until the end of the 1990’s, there was no more absolute rule under Texas jurisprudence than fraud vitiates whatever it touches.  Stonecipher v. Butts, 591 S.W.2d 806, 809 (Tex. 1979); Gulf, Colorado & Santa Fe Ry. v. Jones, 17 S.W. 534, 536 (Tex. 1891) (“Fraud, of course, would vitiate any transaction, however solemnly it may have been executed.”)  The Texas Supreme Court made the point in Dallas Farm Machinery Co. v. Reeves, 307 S.W.2d 233, 239 (Tex. 1957), that as a matter of principle it is necessary to weigh the advantages of certainty in contractual relations against the harm and injustice that result from fraud.  The Court went on to hold “The same public policy that in general sanctions the avoidance of a promise obtained by deceit strikes down all attempts to circumvent that policy by means of contractual devices.” Dallas Farm Machinery Co., 307 S.W.2d at 239.

As recently as 1995, in Prudential Ins. V. Jefferson Assoc., Ltd. 896 S.W.2d 156 (Tex.1995), Justice Hecht wrote for the court that an as-is clause in a contract negotiated at arms-length by sophisticated parties can establish the absence of reliance unless the seller made fraudulent representations or concealed information.   

That changed with Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997), which for the first time held that a merger clause in a post-dispute settlement agreement sufficiently negated reliance so as to preclude a claim that the settlement was induced by fraud, where it specified that no party was relying on any statement or representation of any other party.

Thirteen years later, again in the settlement agreement context, in Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex.2008), the Court expanded the scope of earlier decisions, abrogated the Dallas Farm Machinery ruling and held the following facts were most relevant in determining whether a disclaimer of reliance provision was enforceable at all:  (1) the terms of the contract were negotiated, rather than boilerplate, and during negotiations the parties specifically discussed the issue which has become the topic of the subsequent dispute; (2) the complaining party was represented by counsel; (3) the parties dealt with each other in an arm’s length transaction; (4) the parties were knowledgeable in business matters; and (5) the release language was clear. 

The court held out some hope for plaintiffs by noting that a disclaimer of reliance “will not always bar a fraudulent inducement claim,” because situations exist where the disclaimer provision lacks “the requisite clear and unequivocal expression of intent necessary to disclaim reliance” on the “specific representations at issue.”  Id. at 60.

Left open by the Texas Supreme Court was the application of Forest Oil and Schlumberger to pre-dispute agreements containing merger, As-Is or disclaimer of reliance clauses.  Although several appellate courts had applied these cases to pre-dispute agreements, in 2011, the Texas Supreme Court visited the issue again in Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of America, 341 S.W.3d 323 (Tex. 2011). The Court held that a lease provision did not cut off a fraudulent inducement claim because the language was boiler-plate and the language was not “clear and unequivocal”—the standard set in Schlumberger. Italian Cowboy Partners, Ltd., 341 S.W.3d at 336.  Italian Cowboy is significant, because it did not hold that disclaimer of reliance is only effective in settlement agreements, where the parties wish to finally resolve their disputes and end their dealings.

In 2012, the San Antonio court of Appeals applied the Schlumberger, Forest Oil and Italian Cowboy cases to affirm summary judgment against five tenants alleging a landlord had mislead them to get them to sign leases in a commercial development.  In that case, the court held that a properly worded merger clause barred the fraudulent inducement claims arising out of a pre-dispute agreement. Dragon Fish LLC v. Santikos Legacy Ltd., 383 S.W.3d 175, (Tex. App. --San Antonio 2012, no pet. h.). The Court found the following clause in the lease negated reliance and barred the claim:

Landlord and Tenant hereby acknowledge that they are not relying upon any brochure, rendering, information, representation or promise of the other, or an agent or broker, if any, except as may be expressly set forth in this lease.Dragon Fish LLC, 383 S.W.3d at 179.

Months earlier, in Allen v. Devon Energy Holdings, LLC, 367 S.W.3d 355  (Tex. App. –Houston [1st Dist.] 2012,  pet. granted, judgm't vacated w.r.m.), one owner sold his interest in a company to the other owner, who later sold the whole company for 20 times the amount purchased from his former partner.  The Houston Court of Appeals reversed the summary judgment and remanded the case because, the release language in the contract did not (1) "clearly express[es] the parties' intent to waive fraudulent inducement claims" or (2) "disclaims reliance on representations about specific matters in dispute."  Indeed, the defendant relied on a general release, which is typically insufficient to bar fraud claims. Allen, 367 S.W.3d at 368. 

B.  Additional Arguments When Faced with Merger, As-Is and Disclaimer Provisions

1.  “As-Is” Provisions Limited to Physical Condition of the Property


As-Is contractual provisions typically apply only to the physical condition of the property.  Gym N-I Playground v. Snider, 158 S. W. 3d 78, 85 (Tex. App. –Austin 2005, pet. filed)(As-is clause relates to claims associated with the physical condition of the property); Wellwood v. Cypress Creek, 205 S. W. 3d 722, 726  (Tex. App. –Dallas 2006, no pet.). 

The court in Coldwell Banker Whiteside Assoc. v. Ryan Equity Partners, Ltd., 181 S. W. 3d 879, 886-86 (Tex. App. –Dallas 2005, no pet.) helpfully interpreted the legal import of the term “defect” in a real estate sales contract and limited that definition to “some irregularity in “a surface or a structure” of the Property that mars its appearance or causes some aspect of the Property to weaken or fail. “ 

2.  Fraudulent Representations Contained In Contract

In IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113, 128 (Tex. App. – Houston [14th Dist.] 2003, pet. denied), the court distinguished between fraud claims based on extra contractual statements, which it held were barred by the merger doctrine (related to As-Is and disclaimer of reliance provisions) and claims based on representations that were ultimately included in the contract.

3. Interpretation of Agreement Would Render Contractual Representations Meaningless

Similar to situations where the misrepresentation is in the agreement itself, sometimes, the As-Is or disclaimer of reliance language would render earlier and more specific contract language meaningless, making a narrow interpretation of these provisions more consistent with the parties’ intent when they signed the contract.  In that instance, the plaintiff may want to argue that the As-Is or disclaimer language should be limited, depending on the structure of the agreement. 

In construing parties’ obligations under a contract, the court’s primary concern is to ascertain and give effect to the intentions of the parties as expressed in their agreement. Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex.1998). To ascertain the parties' true intentions, courts must examine the entire agreement in an effort to harmonize and give effect to all of the provisions of the contract so that none will be rendered meaningless. MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 652 (Tex.1999).

In the commercial real estate sales context, as-is, merger and disclaimer of reliance provisions could be as important as having good title.  If you are relying on the seller’s disclosures and they turn out to be wrong, your options may be limited. 

New Definitions of Shareholder Abuse on the Horizon

Walter Williams - Tuesday, May 20, 2014

Once a company is owned by more than one person, there are a series of rights and responsibilities that go along with that shared ownership. Under Texas law, shareholders who do not control a company have the right to be treated fairly by the majority shareholder or controlling group of shareholders. 

As one might expect given the growing economy and the broad definition, shareholder oppression litigation has exploded in Texas. 

In Ritchie v. Rupe, 339 S.W.3d 275, 289 (Tex. App.--Dallas 2011, pet. granted), the Dallas Court of Appeals used the well-known definition of minority shareholder oppression:

“The term is expansive and covers a multitude of situations dealing with improper conduct; thus a narrow definition would be inappropriate.Texas courts have generally recognized two non-exclusive definitions for shareholder oppression:

1. majority shareholders' conduct that substantially defeats the minority's expectations that, objectively viewed, were both reasonable under the circumstances and central to the minority shareholder's decision to join the venture; or

2. burdensome, harsh, or wrongful conduct; a lack of probity and fair dealing in the company's affairs to the prejudice of some members; or a visible departure from the standards of fair dealing and a violation of fair play on which each shareholder is entitled to rely.”

This scrutiny is heightened when the company is a small or closely held corporation. In that case, "Courts take an especially broad view of the application of oppressive conduct to a closely [ ]held corporation, where oppression may more easily be found." Id. at 290; citing Davis 754 S.W.2d at 381.

The Texas Supreme Court granted the petition last year and heard argument earlier this year. Two other shareholder oppression cases from the Dallas Court of Appeals will likely be decided at the same time. 

The decisions are expected to come down this summer. The Court will have the opportunity to further define the scope of a minority shareholder oppression claim, decide if shareholder oppression is a fact question or a legal question for the court. 

Given the conservative makeup of the Court and the relatively weak facts supporting oppression in the Ritchie v. Rupe case, we can expect that the Court will reverse the lower courts and perhaps render a decision in favor to the defendant and to narrow the scope of shareholder oppression claims.

However the Court decides, don’t expect the number of shareholder oppression cases filed in Texas to taper off any time soon.  

Recent Posts



    © 2014 Modesett Williams, PLLC - Business Trial Lawyers - Austin Texas | All Rights Reserved | Privacy Policy                                                                                         512.472.6097