Reversed and Rendered and Opinion filed November 20, 2018.




                                     In The


                    Fourteenth Court of Appeals

                              NO. 14-13-00694-CV


                           FIRST BANK, Appellant

                                        V.
                       RICHARD BRUMITT, Appellee


                   On Appeal from the 334th District Court
                           Harris County, Texas
                     Trial Court Cause No. 2009-64498


                               OPINION
      In this lender-liability case, the owner of a company that sought to sell its
stock to another company sued the would-be buyer’s bank asserting claims for (1)
breach of contract as an alleged third-party beneficiary and (2) negligent
misrepresentation. The trial court rendered judgment in favor of the owner on both
claims. In an earlier appeal, this court concluded as a matter of law that the owner
could not recover under his negligent-misrepresentation claim, but we affirmed the
trial court’s judgment as to the owner’s breach-of-contract claim. The Supreme
Court of Texas reversed this court’s judgment, rendered judgment for the bank on
the owner’s breach-of-contract claim, and remanded the owner’s negligent-
misrepresentation claim to this court. On remand, we conclude that the claim
asserted as a negligent-misrepresentation claim sounds in contract. We reverse the
trial court’s judgment as to the owner’s claims and render judgment that the owner
take nothing.

                   I.      FACTUAL AND PROCEDURAL BACKGROUND

       Don Oprea, President of DTS Group, LLP approached appellant/defendant
First Bank seeking to obtain a United States Small Business Administration (“SBA”)
loan to provide funds to be used to purchase the stock of two companies from
appellee/intervenor Richard Brumitt. Oprea, who had a banking relationship with
First Bank, met with Tim Duffy, who then was the president of First Bank’s SBA
loan group. Later, DTSG1 decided that it would seek to purchase the stock of only
one of these companies—Southway Systems, Inc. According to Oprea, on numerous
occasions, First Bank promised to fund a loan for the purchase of the stock, with the
proposed loan amount varying. According to Oprea, Duffy made the promises in
oral statements, in emails, and in three commitment letters (collectively the
“Letters”). First Bank never funded any loan to DTSG. DTSG did not obtain a loan


1
  DTSG, Ltd., a Texas limited partnership was formed on July 23, 2008, after the occurrence of
many of the events on which this suit is based. Nonetheless, DTSG, Ltd. filed this suit in the trial
court as successor in interest to DTS Group, LLP; and the distinction between these entities is not
material to our analysis in this opinion. So, for ease of reference, in this opinion both DTS Group,
LLP and DTSG, Ltd are referred to as “DTSG.”
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from any other lender nor purchase any of Southway’s stock. And, Brumitt never
sold the Southway stock.

       DTSG sued First Bank asserting various claims, including negligent
misrepresentation and breach of contract. Brumitt intervened and asserted various
claims against First Bank, including negligent misrepresentation and breach of
contract as a third-party beneficiary of the alleged contracts between DTSG and First
Bank. Following a trial, the jury answered liability and damages questions in favor
of DTSG and Brumitt based on each claimant’s breach-of-contract and negligent-
misrepresentation claims.    The jury also found the amount of reasonable and
necessary attorney’s fees for DTSG and Brumitt. After finding that the harm to
DTSG and Brumitt resulted from First Bank’s gross negligence, the jury assessed
exemplary damages against First Bank and in favor of DTSG and Brumitt.

      The trial court denied First Bank’s motion for judgment notwithstanding the
verdict and rendered judgment on the jury’s verdict, awarding each claimant actual
damages and attorney’s fees based upon the breach-of-contract claim, actual
damages based upon the negligent-misrepresentation claim, and exemplary
damages.
      First Bank appealed to this court and asserted various issues challenging the
trial court’s judgment. We looked to the Supreme Court of Texas’s opinion in Basic
Capital Management v. Dynex Commercial for guidance in resolving the third-party-
beneficiary issue. See 348 S.W.3d 894, 899–901 (Tex. 2011); First Bank v. DTSG,
Ltd., 472 S.W.3d 1, 16–20 (Tex. App.—Houston [14th Dist.] 2015), rev’d, 519
S.W.3d 95, 99 (Tex. 2017). In Basic Capital, the supreme court stated that the
written, unambiguous contract “and the undisputed evidence regarding its
negotiation and purpose, establish that [the third parties] were third-party

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beneficiaries.” Basic Capital Management, 348 S.W.3d at 901 (footnote omitted).
We concluded that the Basic Capital decision had changed existing law, under which
courts had been required to consider only the language of a written, unambiguous
contract in determining whether the contracting parties intended a third party to
benefit directly from the contract. See Basic Capital Management, 348 S.W.3d at
899–901; First Bank, 472 S.W.3d at 16–20. Based on the Basic Capital case, we
ruled that the trial court did not err in overruling First Bank’s objection that no third-
party-beneficiary issue should be submitted to the jury because the law limits the
third-party-beneficiary analysis to the four corners of each of the Letters and because
construction of the unambiguous Letters presented a matter of law for the court. See
First Bank, 472 S.W.3d at 16–20.

       We concluded that (1) the trial court abused its discretion by allowing
Brumitt’s lead trial counsel to testify as an expert as to DTSG’s attorney’s fees; (2)
none of First Bank’s other arguments challenging the breach-of-contract claims of
DTSG or Brumitt had merit; and (3) DTSG and Brumitt may not recover under a
negligent-misrepresentation claim because, as a matter of law, neither party showed
an injury independent from economic losses recoverable under a breach-of-contract
claim. We modified the trial court’s judgment to delete the award of (a) attorney’s
fees to DTSG, and (b) negligent-misrepresentation damages and exemplary damages
to DTSG and Brumitt, and we affirmed the trial court’s judgment as modified. See
id. at 4–5.

       First Bank filed a petition for review in the Supreme Court of Texas seeking
review of this court’s judgment as to the claims of both DTSG and Brumitt. Before
the high court ruled on First Bank’s petition, First Bank and DTSG settled all issues
between them. Under this settlement and at the request of First Bank and DTSG,

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the Supreme Court of Texas dismissed with prejudice First Bank’s petition for
review as to DTSG.
      The Supreme Court of Texas granted First Bank’s petition for review as to
Brumitt’s claims against First Bank. The high court stated that in determining
whether the contracting parties intended a third party to benefit directly from the
contract, courts must consider only the contract’s language. See First Bank v.
Brumitt, 519 S.W.3d 95, 102 (Tex. 2017). The Supreme Court of Texas determined
that the Basic Capital court did not change this legal rule and that the Basic Capital
court considered evidence regarding the “attending circumstances” to determine
who the third-party beneficiaries were.       See id. at 108–109.    The high court
concluded that the Basic Capital court had considered evidence of surrounding
circumstances to inform the construction of the unambiguous contract and that the
court had not used this evidence to add to the terms of the contract. See id. at 110.
The supreme court concluded that “the agreement between First Bank and DTSG
does not clearly and fully express the parties’ intent to make Brumitt a third-party
beneficiary, and the trial court erred by submitting that issue to the jury and by
permitting the jury to consider extrinsic evidence to add to the parties’ agreement.”
Id. at 111. The high court reversed this court’s judgment, rendered judgment for
First Bank on Brumitt’s breach-of-contract claim, and remanded the case to this
court to consider the trial court’s award of actual damages to Brumitt based on the
jury’s negligent-misrepresentation findings and the award of exemplary damages to
Brumitt based on the jury’s finding that the harm to Brumitt resulted from First
Bank’s gross negligence. See id. at 112–13.




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                                   II. ANALYSIS

A.      Does Brumitt’s negligent-misrepresentation claim sound in contract?
        In part of its fourth issue, First Bank asserts that Brumitt’s negligent-
misrepresentation claim is subsumed by his breach-of-contract claim. First Bank
preserved error on this complaint in the trial court. By making this argument, First
Bank effectively asserts that Brumitt’s claim sounds in contract and does not sound
in the tort of negligent misrepresentation. See Shioleno Indus. v. Columbia Medical
Center of Arlington Subsidiary, L.P., No. 2-06-016-CV, 2007 WL 805563, at *5
(Tex. App.—Fort Worth Mar. 15, 2007, pet. denied) (stating that if a negligence
claim is subsumed by a contract claim then the action sounds in contract) (mem.
op.).

        In his contract claim, Brumitt sought to recover economic damages that
allegedly resulted from First Bank’s failure to comply with its alleged contractual
obligation to provide a loan to DTSG to be used to fund DTSG’s purchase of
Brumitt’s Southway stock. Through his negligent-misrepresentation claim Brumitt
sought to recover based on evidence of many promises by First Bank that it would
close and fund the Loan to DTSG on a specific date in the future, including a promise
made by Duffy to Brumitt in person that “he was going to get it done” and that
Brumitt and Oprea both would be happy. In his appellate brief, Brumitt states that
the basis for his negligent-misrepresentation claim “is that the bank negligently
misrepresented that the bank would close and fund the loan in a timely fashion on
certain dates.” Brumitt asserts that he justifiably relied on these alleged negligent
misrepresentations to his detriment and that First Bank’s delay caused a “cascade
effect” that harmed Brumitt’s company.

        In proffering evidence regarding the damages he allegedly sustained, Brumitt
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did not differentiate between economic losses suffered as a result of First Bank’s
failure to comply with its alleged contractual obligation to close and fund the loan
and economic losses caused by First Bank’s alleged negligent misrepresentations.
In the closing arguments Brumitt’s counsel did not distinguish between First Bank’s
acts that allegedly constituted breaches of contract and First Bank’s acts that
allegedly constituted negligent misrepresentations, and Brumitt’s counsel urged the
same damage amount for both of Brumitt’s claims.

      A party’s common-law duty not to engage in a negligent misrepresentation
encompasses a duty not to make a representation that supplies false information
about an existing fact under certain circumstances. See Lindsey Construction, Inc.
v. AutoNation Financial Servs., 541 S.W.3d 355, 366 (Tex. App.—Houston [14th
Dist.] 2017, no pet.); Mañon v. Solis, 142 S.W.3d 380, 388 (Tex. App.—Houston
[14th Dist.] 2004, pet. denied). This common-law duty does not encompass a duty
not to make false promises of future conduct. See Lindsey Construction, Inc., 541
S.W.3d at 366; Mañon, 142 S.W.3d at 388.          If Brumitt based his negligent-
misrepresentation claim on a failure to perform a promise of future conduct or on a
representation that certain conduct would occur in the future, the claim sounds in
contract, and Brumitt may not recover under a negligent-misrepresentation claim as
a matter of law. See Lindsey Construction, Inc., 541 S.W.3d at 366; Gay v. City of
Wichita Falls, 457 S.W.3d 499, 508 (Tex. App.—El Paso 2014, no pet.); Mañon,
142 S.W.3d at 388.

      Rather than basing his negligent-misrepresentation claim on an alleged
representation of existing fact, Brumitt based his negligent-misrepresentation claim
on numerous alleged promises or alleged representations by First Bank that it would
close and fund the loan to DTSG on a given date in the future. On appeal, in

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addressing the evidence of First Bank’s alleged representations, Brumitt states that
“[t]he evidence reflects at least nineteen (19) promises by the bank that the bank
would close and fund the loan on a given date.” Because Brumitt based his purported
negligent-misrepresentation claim on First Bank’s alleged failures to perform
promises of future conduct or on alleged representations by First Bank that certain
conduct would occur in the future, the claim sounds in contract, and Brumitt may
not recover under a negligent-misrepresentation claim as a matter of law.         See
Lindsey Construction, Inc., 541 S.W.3d at 366; Gay, 457 S.W.3d at 508; Mañon,
142 S.W.3d at 388.

      Brumitt asserts that, if he cannot recover on his breach-of-contract claim, then
there is no way that his negligent-misrepresentation claim can be subsumed by his
breach-of-contract claim. We disagree. See Lindsey Construction, Inc., 541 S.W.3d
at 362–64, 366 (applying similar analysis of negligent-misrepresentation claims
despite having previously affirmed summary judgment as to breach-of-contract
claims); see also Sterling Chemicals, Inc. v. Texaco, Inc., 259 S.W.3d 793, 799 (Tex.
App.—Houston [1st Dist.] 2007, pet. denied) (concluding that economic-loss rule
negates negligence claims even if the plaintiff is not in privity of contract with the
defendant and cannot maintain a breach-of-contract claim).

      Brumitt relies upon the Supreme Court of Texas’s opinion in Federal Land
Bank Ass’n of Tyler v. Sloane as support for his ability to pursue his negligent-
misrepresentation claim. See 825 S.W.2d 439, 440–43 (Tex. 1991). The Sloane
court addressed whether the prospective borrowers’ negligent-misrepresentation
claims against a bank were barred by the statute-of-frauds requirement in section
26.01 of the Business and Commerce Code and whether the prospective borrowers
could recover for mental anguish or lost profits under these claims. See id. The

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prospective borrowers did not assert breach-of-contract claims or allege that the
bank represented it would close and fund a loan to them in the future. See id. at 442.
Rather, the prospective borrowers alleged that the bank did not agree to loan them
money yet negligently represented an existing fact — that the bank had made such
an agreement. See id. The Sloane case is not on point. See id. at 440–43.

      Brumitt asserts that Texas law allows a plaintiff to recover under a negligent-
misrepresentation claim even if the representations supplying false information are
part of a contract. But, none of the cases Brumitt cites for this proposition address
a negligent-misrepresentation claim. See Tony Gullo Motors I, L.P. v. Chapa, 212
S.W.3d 299, 304–05 (Tex. 2006) (addressing fraudulent-inducement claim);
Formosa Plastics Corp. U.S.A. v. Presidio Engineers & Contractors, Inc., 960
S.W.2d 41, 47 (Tex. 1998) (addressing fraudulent-inducement claim); American
Nat’l Petroleum Co. v. Transcontinental Gas Pipeline Corp., 798 S.W.2d 274, 278–
79 (Tex. 1990) (addressing tortious-interference-with-contract claim). These cases
are not on point.

      Brumitt suggests in part of his appellate brief that First Bank falsely
represented that the SBA had approved the loan by First Bank to DTSG. In each of
the Letters, Duffy stated that the loan was subject to approval by the SBA for a
seventy-five percent guaranty. Oprea testified that First Bank told him that it was
First Bank’s obligation to seek this approval from the SBA. Oprea stated that from
October 2007 forward, Oprea was presuming that Duffy was seeking this approval
because every discussion Oprea had with Duffy was “not basically about approval;
it was about closing and funding.”

      Oprea sent Duffy an email in August 2008, asking Duffy if he had obtained
the SBA approval and stating that the board of directors of DTSG was asking for a
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copy of a document showing that the SBA had approved the loan. A week later
Duffy emailed Oprea stating that Duffy thought they could have an increase in the
loan amount approved by the SBA on August 28, 2008, and that they could close on
August 29, 2008. In this statement Duffy was addressing his conduct in the future;
Duffy did not state that the SBA had approved the loan. The trial evidence showed
that Duffy received an approval letter from the SBA on September 11, 2008. Four
days later, Duffy texted Oprea stating “u r approved.” Oprea emailed this text to
Brumitt. Oprea testified that he understood the text to mean that the SBA had
approved the loan. Shortly thereafter Oprea reviewed the approval letter from the
SBA that provided confirmation that the text message was correct. This letter was
the first SBA approval letter that Oprea had received from First Bank. Brumitt saw
the SBA approval letter, and he testified that he had assumed that the SBA already
had approved the loan before September 11, 2008. There was no evidence at trial
that Duffy or some other agent of First Bank stated before September 11, 2008 that
the SBA had approved the loan. After this date, any statement by Duffy or First
Bank that the SBA had approved the loan would not have been false.

      Because Brumitt based his negligent-misrepresentation claim on a failure to
perform a promise of future conduct or on a representation that certain conduct
would occur in the future, the claim sounds in contract, and Brumitt may not recover
under a negligent-misrepresentation claim as a matter of law. See Lindsey
Construction, Inc., 541 S.W.3d at 366; Gay, 457 S.W.3d at 508; Mañon, 142 S.W.3d
at 388. Therefore, we sustain First Bank’s fourth issue in part, reverse the trial
court’s judgment as to the negligent-misrepresentation claim, and render judgment
that Brumitt take nothing on his negligent-misrepresentation claim.



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B.    May Brumitt recover exemplary damages based on the jury’s finding of
      gross negligence?
      First Bank further argues that, because Brumitt may not recover based on a
tort claim, Brumitt may not recover exemplary damages. Because we already have
ruled that Brumitt may not recover on the only tort claim on which the trial court
based its judgment, Brumitt may not recover exemplary damages. See D.S.A., Inc.
v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662, 663–64 (Tex. 1998). Thus, we
reverse the trial court’s judgment awarding exemplary damages against First Bank
and in favor of Brumitt and render judgment that Brumitt take nothing on his request
for exemplary damages. We need not and do not address First Bank’s other
arguments as to Brumitt’s claims.

                                   III. CONCLUSION

      Because Brumitt’s negligent-misrepresentation claim sounds in contract,
Brumitt may not recover under it as a matter of law. And, because Brumitt may not
recover on the only tort claim on which the trial court based its judgment, Brumitt
may not recover exemplary damages.           Therefore, we reverse the trial court’s
judgment as to Brumitt’s claims against First Bank and render judgment that Brumitt
take nothing against First Bank.




                                       /s/     Kem Thompson Frost
                                               Chief Justice


Panel consists of Chief Justice Frost and Justices Donovan and Brown.


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