

Opinion issued March 9, 2012.


In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-09-00643-CV
———————————
ROBERT B. ALLEN, Appellant
V.
DEVON ENERGY HOLDINGS, L.L.C. F/K/A CHIEF HOLDINGS,
L.L.C. AND TREVOR REES-JONES, Appellees

 

 
On Appeal from the 190th District
Court 
Harris County, Texas

Trial Court Case No.
2007-39183A
 

 
Opinion On rehearing[1]
In this securities action, Robert
Allen appeals from the trial court’s summary judgment in favor of Devon Energy
Holdings, L.L.C. formerly known as Chief Holdings, L.L.C. (Chief)[2]
and its manager and majority owner, Trevor Rees-Jones. 
Introduction
Two years after Allen redeemed
his minority interest in Chief, Chief sold for almost twenty times the value
used to calculation the redemption price. Alleging that Rees-Jones fraudulently
induced him to redeem his shares, Allen sued Chief and Rees-Jones for violation
of the Texas Securities Act (TSA), statutory and common law fraud, breach of
fiduciary duty, and shareholder oppression. Allen asserts that Rees-Jones
induced him to sell his ownership interest in Chief by making representations
in a November 2003 letter and failing to disclose material changes that
rendered those representations untrue or misleading in the intervening eight
months between the date of the letter and his June 2004 redemption. He
primarily claims that Rees-Jones withheld information concerning technological
advances in horizontal drilling and Chief’s significant lease acquisitions in
an expanded area of an existing natural gas field, the Barnett Shale, both of
which occurred after the redemption offer but before the redemption. Allen
asserts that these undisclosed facts directly impacted Chief’s future business
prospects and would have caused him to reject Chief’s redemption offer.
Rees-Jones and Chief contend
that, cognizant of the fast-changing nature of Chief’s uncertain oil and gas
investments, the parties contractually allocated to Allen the risk for any
changes in Chief’s value for the months between the redemption offer and the
sale. They assert that, when Allen cashed in his modest investment in Chief for
a lottery-size windfall of over $8 million, he voluntarily assumed all
responsibility for investigating and evaluating his decision to redeem his
shares—therefore he cannot claim now that he based his decision on Rees-Jones’s
analysis rather than his own. They further maintain that Rees-Jones’s
statements constituted opinion statements, which are not actionable in fraud,
and  that Allen’s damages model is an
impermissibly speculative attempt to recover the maximum payoff on a gamble
Allen declined to take. They moved for summary judgment on these grounds, which
the trial court granted. Allen appealed.
With respect to Allen’s fraud
claims, we hold that several, but not all, of the statements in Rees-Jones’s November
2003 letter are actionable and that the redemption agreement does not bar
Allen’s fraud claims based on those statements. We decline to recognize a
shareholder oppression claim but hold that Rees-Jones did not negate fiduciary
duty claim. We hold that Chief conclusively established that Allen had certain
knowledge that bars his TSA, common law, and statutory fraud claims based on
misrepresentation of the value of Chief or its assets at the time of the
redemption or the appropriateness of the redemption price, but Chief did not
otherwise disprove justified reliance or establish its “knowledge” defense
under the TSA. Nor did Chief prove that Allen’s TSA claims are barred by
limitations or that Allen has no recoverable damages. We affirm in part,
reverse in part, and remand for further proceedings consistent with this
opinion. 
Factual Background
Allen and Rees-Jones became
acquainted as partners at a law firm. Two years after they met, Rees-Jones left
the firm to be an entrepreneur in the oil and gas industry. Ten years later,
Rees-Jones solicited Allen to invest in a new oil and gas company, which
eventually became Chief. Allen became an 8% equity owner in return for investing
$700 and pledging a $34,300 certificate of deposit as collateral for a line of
credit. Rees-Jones invested $6,000 and his “sweat equity” as the sole manager
in return for a 60% ownership interest. Chief experienced phenomenal growth,
due largely to its success in the Barnett Shale. By July 2001, Chief’s fair
market value had grown to an estimated $8.5 million. Chief offered a partial
buyout of its members to facilitate an ownership incentive plan for two key
employees. Allen accepted the offer, reducing his interest to 7.2%. 
Chief continued to have success,
and its value continued to increase. By Fall 2003, Chief was preparing to shift
its resources toward production in the “expansion” area of the Barnett Shale,
where prospects were less certain than they had been in the “core” area. Rees-Jones
decided to offer to redeem the other investors’ remaining interests. Chief
hired Haas Petroleum Engineering Services to perform an appraisal of Chief’s oil
and gas reserves, and it hired Phalon George Capital Advisors to assess Chief’s
market value based on the Haas reserve report. The Phalon report estimated Chief’s
net asset value at $138.3 million, after subtracting liabilities, and the
minority members’ interests at approximately $1.13 million per 1% interest
after discounts for the sale of a minority interest and for lack of
marketability. 
In November 2003, Rees-Jones
sent Chief’s members a letter regarding his intent to make a redemption offer
and attaching the Haas and Phalon reports. The letter contained Rees-Jones’s
pessimistic assessment of a number of facts and events that could negatively
impact Chief’s value in the future, including its shift from proven production
in the Barnett Shale’s core area to less-certain production in the expansion area.
Rees-Jones also stated that Chief’s first horizontal well appeared to be a dry
hole drilled at a cost of $1.4 million, the approximately dozen wells drilled
by other companies in the expansion area “would show to be non-economic,” and “further
technological advancement needs to be made in order for the Barnett Shale in
the ‘expansion’ area to become economic.” 
The closing was delayed until
June 2004. According to Allen, a number of events occurred in the eight months
between Rees-Jones’s November 2003 letter and the June 2004 closing that
rendered some of Rees-Jones’s statements in the letter misleading or no longer
true. Among these events were: reports of successes in the development of
horizontal drilling—a technology perceived as vital to profitable development
of the expansion area of the Barnett Shale; considerable acquisitions by Chief
and its competitors in the expansion area; optimistic statements by industry
insiders about the expansion area’s potential profitability; and an estimated
increase in Chief’s value. In his affidavit, Allen asserts that he asked Rees-Jones
whether the valuations needed to be updated and Rees-Jones responded that it
“was not necessary.” 
Chief did not update
the Haas or Phalon report after the initial redemption offer. Instead, Chief
based the redemption price on the Haas and Phalon reports and included in the
redemption agreement an “Independent Investigation” clause under which the
seller recognized that the reports were not up-to-date and might not accurately
reflect Chief’s current value. The redemption agreement also contained a
“Mutual Releases” clause and a general merger clause. Three of Chief’s owners
decided to redeem their interests; four owners retained their interests. Allen
was among the sellers; Rees-Jones was among the remaining owners. Allen
redeemed his interest in Chief for approximately $8.2 million. 
Approximately one and a half
years after the redemption, Chief’s management put Chief on the market. Six
months later, Devon purchased Chief for $2.6 billion—nearly twenty times the
value used to determine the redemption price. Rees-Jones told Allen after the
2006 sale that “the change in value was attributable to the advent of
horizontal drilling,” that horizontal drilling was the key that “unlocked” the
expansion area, and that horizontal drilling had made the expansion area “worth
more than he ever conceived.” Allen denied knowledge of the advancements in
horizontal drilling or the extent of Chief’s post-November 2003 leasehold
acquisitions. 
Allen sued Chief and Rees-Jones.
After some limited discovery, Chief and Rees-Jones moved for traditional
summary judgment, which the trial court granted. 
Standard of Review
We review a trial court’s summary judgment de novo. Travelers
Ins. Co. v. Joachim, 315 S.W.3d
860, 862 (Tex. 2010). Under the standard for traditional summary
judgment, the movant has the burden to show that no genuine issue of material
fact exists and that it is entitled to judgment as a matter of law. See Tex.
R. Civ. P. 166a(c); KPMG Peat Marwick v. Harrison Cnty. Hous. Fin.
Corp., 988 S.W.2d 746, 748
(Tex. 1999). A defendant moving for traditional summary judgment must negate at
least one essential element of each of the plaintiff’s causes of action or
conclusively establish each element of an affirmative defense. Sci.
Spectrum, Inc. v. Martinez,
941 S.W.2d 910, 911 (Tex. 1997).

Release 
          Chief[3]
sought summary judgment on the affirmative
defense of “release,” based on the provisions of the redemption agreement. The
redemption agreement contains mutual releases under which Allen and Chief
“fully and finally and forever settle, release and discharge each other” from
“any and all claims, demands, rights, liabilities and causes of action of any
kind or nature” relating to the redemption agreement, excluding breach of
contract claims. Additionally, under the “Independent Investigation” clause,
they released each other from “any claims that might arise as a result of any
determination that the value of [Allen’s] Interest at the [redemption] Closing
was more or less than the Redemption Price.” Allen does not deny that these
releases bar all of his claims against Chief if they are enforceable. Instead,
he asserts that (1) the releases are not enforceable because the redemption
agreement was fraudulently induced and (2) even if otherwise enforceable, the
releases are void with respect to Allen’s TSA claims.
A.      Enforceability
of the releases in the redemption agreement
 “[F]raud vitiates whatever it touches[.]” Estate of Stonecipher v. Estate of Butts, 591 S.W.2d 806, 809 (Tex. 1979).
Thus, a contractual release may be avoided by proof that it was fraudulently
induced, and the parol evidence rule does not bar evidence of such fraud. Italian Cowboy Partners, Ltd.
v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 331 (Tex. 2011); see also Schlumberger Tech.
Corp. v. Swanson, 959 S.W.2d 171, 178 (Tex. 1997). Though a valid
fraudulent inducement claim generally precludes parties from relying on a
contract’s terms, including its releases, the contract itself may preclude a
valid fraudulent inducement claim if it (1) “clearly expresses the parties’
intent to waive fraudulent inducement claims” or (2) “disclaims reliance on representations
about specific matters in dispute.” Schlumberger, 959 S.W.2d at 181; see also Italian Cowboy, 341 S.W.3d at
332; Forest Oil Corp. v. McAllen, 268
S.W.3d 51, 61 (Tex. 2008).
Allen’s redemption agreement does not waive fraudulent
inducement claims specifically, and the general release of all claims arising
out of the redemption agreement does not amount to a “clear[] express[ion of]
the parties’ intent to waive fraudulent inducement claims.” Schlumberger, 959 S.W.2d at 181.
Otherwise, all general releases would be immune to fraud. Cf. Residencial Santa Rita, Inc. v. Colnia Santa Rita, Inc.,
No. 04-06-00778-CV, 2007 WL 2608564, at *3 (Tex. App.—San Antonio 2007, no
pet.) (mem. op.) (reversing summary judgment on contractual release when
plaintiff raised fact issue on fraudulent inducement); Fletcher v. Edwards,
26 S.W.3d 66, 75−77 (Tex. App.—Waco 2000, pet. denied) (reversing summary
judgment on contractual release and “as is” clause when plaintiff raised issue
of fact on fraudulent inducement); Dunbar
Med. Sys. Inc. v. Gammex Inc., 216 F.3d 441 (5th Cir. 2000) (applying Schlumberger to hold that release
containing “as is” and “merger” clauses could be avoided on basis of fraudulent
inducement). Chief contends, however, that the redemption agreement’s “Independent
Investigation” and “Finality”
clauses, taken together, “disclaim[] reliance on representations about specific
matters in dispute.” Schlumberger, 959 S.W.2d at 181. We
address this argument, along with Chief’s other arguments for defeating the
reliance element of Allen’s fraud claims, in the “Fraud” section below. Because
we hold below that Chief has not conclusively defeated Allen’s fraudulent
inducement claims as a matter of law, Chief has necessarily failed to establish
conclusively the enforceability of the redemption agreement’s releases.
B.      Enforceability of the releases under the
TSA
Because Chief has not conclusively established an
enforceable release, the trial court erred to the extent it granted summary on
the basis of Chief’s affirmative defense of “release.” Because we reverse the
trial court’s summary judgment on this ground, we need not reach the issue of
whether section 33L of the TSA would also require reversal as to Allen’s TSA
claims.[4] See Tex. Rev. Civ.
Stat. Ann. art. 581–33L (West 2010) (prohibiting waiver of compliance
with TSA provisions).
Fraud
Allen’s fraud[5]
claims against Chief include common law fraud and statutory fraud under the TSA[6]
and the Business and Commerce Code.[7]
Chief moved for summary judgment on the grounds that two elements of these claims
fail as a matter of law: (1) the existence of an actionable statement and (2)
reliance.[8]
A.      Actionable
v. non-actionable statements
The first element of a fraud claim is that there is a
statement concerning a material fact. Transp.
Ins. Co. v. Faircloth, 898 S.W.2d 269, 276 (Tex. 1995); Trenholm v.
Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983). A pure expression of
opinion is not a representation of material fact and thus is not an actionable basis
for a fraud claim. Italian Cowboy,
341 S.W.3d at 337–38; Faircloth, 898
S.W.2d at 276. “Whether
a statement is an actionable statement of ‘fact’ or merely one of ‘opinion’
often depends on the circumstances in which a statement is made.” Italian Cowboy, 341 S.W.3d at 338 (quoting Faircloth, 898 S.W.2d at 276). Courts
consider circumstances like the statement’s specificity, the speaker’s
knowledge, the comparative levels of the speaker’s and hearer’s knowledge, and
whether the statement relates to the present or future. Faircloth, 898 S.W.2d at 276. 
There are exceptions to the general
rule that opinions are not actionable in fraud. Statements of opinion may be
actionable when (1) the speaker expresses the opinion with knowledge that it is
false, (2) the speaker has superior knowledge and should have known that the
other party was justifiably relying on the speaker’s superior knowledge, or (3)
the statement of opinion is so intertwined with other misstatements of fact
that the representation as a whole amounts to a false representation of fact. Id. at 276−77. 
Statements regarding future events
generally fall into two categories: predictions and promises to perform.
Because the future is generally unascertainable, these statements are typically
non-actionable in fraud. See, e.g., Trenholm, 646 S.W.2d at 930. There are
exceptions to this rule as well. Predictions are actionable if the speaker
purports to have special knowledge of facts that will occur or exist in the
future. Trenholm, 646 S.W.2d at 930; cf. Anglo-Dutch Petroleum Int’l, Inc. v. Shore Harbour Capital
Mgmt. Corp.,
No. 01-09-00417-CV, 2011 WL 862117, at *5 (Tex. App.—Houston [1st Dist.] Mar.
10, 2011, no pet.) (mem. op.) (holding that company president lacked specialized
knowledge necessary to render prediction actionable). Statements
promising future performance are actionable in fraud if the speaker has no intention of performing when
he makes the statement. Formosa Plastics Corp. USA v. Presidio Eng’rs &
Contractors, 960 S.W.2d 41,
48 (Tex. 1998). 
An actionable statement is necessary to all of Allen’s fraud
claims.[9] See Faircloth, 898
S.W.2d at 276 (common law fraud); Jericho Graphics Corp. v. Haynes, No.
01-03-00987-CV, 2004 WL 2538677, at *3 (Tex. App.—Houston [1st Dist.] Nov. 10,
2004, no pet.) (mem. op.) (fraud under section 27.01); Tex. Capital Sec., Inc. v.
Sandefer, 58
S.W.3d 760, 776 (Tex. App.—Houston [1st Dist.] 2001, pet. denied) (TSA); Paull
v. Capital Res. Mgmt., 987
S.W.2d 214, 218–19 (Tex. App.—Austin 1999, writ denied) (TSA). Likewise, when a
fraud by non-disclosure claim is founded upon a statement by the defendant, the
statement must be actionable; a non-actionable statement of opinion will not
support a fraudulent non-disclosure claim.[10] See Oliver v. Rogers,
976 S.W.2d 792, 803–04 (Tex. App.—Houston [1st Dist.] 1998, pet. denied)
(affirming summary judgment on claim that defendants had duty to disclose
alleged intent not to perform arising after
transaction closed, because promise of future performance is actionable
only if there was no intent to perform at time of contracting); Stephanz v.
Laird, 846 S.W.2d 895, 904 (Tex. App.—Houston [1st Dist.] 1993, writ
denied) (rejecting claim for failure to disclose information inconsistent with
representation that, even if made, “would merely be opinion, in which case there
would be no actionable fraud”); Walton Pond Joint Venture v. Hiawatha Sav.
& Loan Ass’n, No. 01-88-00719-CV, 1990 WL 19083, at *9 (Tex. App.—Houston
[1st Dist.] Mar. 1, 1990, writ denied) (not designated for publication) (“failure
to disclose another development in the vicinity is not actionable as fraud
here, because the only evidence on whether that project would indeed compete
for the same market or was more easily marketed than the Walton Pond project
was also a matter of opinion and speculation”); cf. Citizens Nat’l Bank v. Allen
Rae Invs., Inc., 142 S.W.3d 459, 478 (Tex. App.—Fort Worth 2004, no
pet.) (holding that statements regarding frustration and loss of enthusiasm for
franchisor were statements of fact, rather than opinion, and supported fraud by
non-disclosure claim). 
1.       Actionable statements
alleged by Allen
Allen asserts that eight
statements in Rees-Jones’s November 2003 letter are actionable, either because
they are statements of fact or because they are statements of opinion that fall
within exceptions to the general rule that statements of opinion are not
actionable in fraud.[11]
          a.       Statements of fact
Allen contends that the
following three statements from Rees-Jones’s November 2003 letter are
statements of fact, rather than opinion, and are therefore actionable. We
address each statement in turn.
·       
“Chief now has
approximately $400,000 per month of overhead, so making a profit of $5 million
per year simply brings us to break even.” 
 
Allen contends that this is a
statement of fact, and we agree. Chief’s monthly overhead on the date of
Rees-Jones’s letter is a readily ascertainable fact.[12]
We therefore hold that
the trial court could not properly have granted summary judgment with respect
to this statement on the ground that it is not actionable.
·       
“You should be
aware that Chief’s relationship with Mr. Bob Millard . . . has recently become
very strained. Conflicts of a substantial nature have developed that may result
in protracted litigation that will be very expensive, with the outcome unknown
at this time.” 
 
Allen contends that this is a
statement of fact. Chief contends that it is a non-actionable statement of
opinion. We hold that it is a mixed statement of fact and opinion: whether a
strain in Chief’s relationship with Mr. Millard actually existed is factual in
nature, while Rees-Jones’s assessment of the strain’s severity and the risk of
potential litigation are in the nature of an opinion. We therefore hold that Rees-Jones’s representation as to the
existence of a strain in Chief’s relationship with Millard was actionable, and
the trial court could not have properly granted summary judgment with respect
to this representation on that basis.[13] Rees-Jones’s representation
as to the severity of the conflict and potential future litigation are
non-actionable, and the trial court correctly granted summary judgment with
respect to those representations on that basis.
·       
“Our first
horizontal ‘stepout’ well . . . appears at this stage of completion to be a dry
hole . . . . With respect to the ‘expansion’ area, the approximately dozen
Barnett Shale wells on production . . . would show to be non-economic,
indicating that further technological advancement needs to be made in order for
the Barnett Shale in the ‘expansion area’ to become economic.”
 
Allen contends that Rees-Jones’s
statements regarding Chief’s dry hole, other companies’ non-economic wells, and
the need for technological advancement are statements of fact, and are
therefore actionable. Chief contends that these statements constitute non-actionable
predictions. Focusing on the phrase “would show,” Chief argues that the
“conditional verb tense is future-oriented—in other words, a prediction.” Chief
further argues that fraud “rarely can be based on a prediction.” Citing Arkoma Basin Exploration Co. v. FMF Assocs.
1990-A, Ltd., Chief asserts that oilfield projections for new fields—as
opposed to mature fields with a meaningful production track record—are
inherently non-actionable opinion. 249 S.W.3d 380, 385–86 (Tex. 2008). As Chief
says, “Everybody knows that nobody knows future mineral prospects
with any certainty” and therefore statements about future prospects of an
unproven oilfield are not actionable “no matter how superior the knowledge of
the speaker or how specific the predictions.”
Allen’s complaint, however,
centers not on any alleged misrepresentation or non-disclosure relating to the
reserves in the expansion area. Instead, Allen complains that Rees-Jones’s
pessimistic predictions about Chief’s future prospects in the expansion area
were largely predicated on two represented facts: the lack of success drilling
in the expansion area and the absence of certain drilling technology essential
to profitable production in the expansion area. According to Allen, those facts
changed, Rees-Jones knew those facts changed, and Rees-Jones did not disclose
the change to Allen. 
Rees-Jones’s representation that the drilling technology
necessary to successful production in the expansion area of the Barnett Shale
did not exist is a statement of fact. Thus, even if we were to assume that
Rees-Jones’s statement that the wells in the expansion area of the Barnett
Shale “would show to be non-economic” is a prediction, it is one that is “based
on or buttressed with” his factual representation regarding the state of
drilling technology and Chief’s and other companies’ experience on approximately
a dozen expansion-area wells. See Faircloth,
898 S.W.2d at 276 (observing that opinion is actionable when based on or
buttressed with false facts); see also
Trenholm, 646 S.W.2d at 930 (“when an opinion is based on past or present
facts, an action for fraud may be maintained”). We therefore hold that the trial court could not properly
have granted summary judgment with respect to this statement on the ground that
it is not actionable.
                    b.      Statements of opinion
Allen concedes that the
following five statements are statements of opinion but contends that Chief has
not established as a matter of law that they are non-actionable opinions.
Specifically, Allen contends that Chief failed to prove conclusively that
Rees-Jones (1) did not have superior knowledge [14] or (2) actually held
the stated belief or intent at the time he made the statement. We address each
statement in turn.
·       
“You should be
aware that Chief will be taking a lot more risk moving forward from here. . . .
I do not expect ‘step-out’ or ‘expansion area’ wells to carry anywhere near the
value of the ‘core area’ wells, and the end result of this drilling could be a
decline in the value of our company.”
 
Allen contends that this opinion
is actionable because (1) Chief has not conclusively proved that “Rees-Jones
actually believed the expansion area posed any significant risk” and (2)
Rees-Jones bolstered his opinion on this issue with factual statements about
Chief’s first expansion well and other developers’ non-economic expansion-area
wells. We agree that this statement is related to, and intertwined with,
Rees-Jones’s representations regarding the state of drilling technology and Chief’s
and other companies’ expansion-area endeavors. See Trenholm, 646 S.W.2d at 931 (holding
that representations of present facts were so intertwined with future
prediction that whole statement amounted to factual representation). According
to Allen, these interrelated representations, taken as a whole, amounted to a
factual representation about the state of drilling technology and its effect on
the profitability of drilling in the expansion area which, by the time of the
June 2004 closing, was no longer accurate. Chief has not conclusively disproven
these allegations. We
therefore hold that the trial court could not properly have granted summary
judgment with respect to this statement on the ground that it is not actionable.
·       
“I intend to work
over the next ten years at a much more relaxed pace, perhaps taking a good bit
of time off.” 
 
Allen contends that “[w]hether
Rees-Jones really intended to slow down and take time off” is a matter of fact.
Chief asserts that this is a statement of Rees-Jones’s intent, and statements
of intent to act or refrain from some act in the future are not actionable. See Stone v. Enstam, 541 S.W.2d 473,
480–81 (Tex. Civ. App.—Dallas 1976, no writ). But statements of intent are
actionable if the speaker does not in fact have such an intent at the time. See Formosa Plastics, 960 S.W.2d at 48; Beverick v. Koch Power, Inc., 186
S.W.3d 145, 153 (Tex. App.—Houston [1st Dist.] 2005, pet. denied); Stone, 541 S.W.2d at 480–81. Chief, having
the burden of proof, failed to offer evidence that Rees-Jones actually intended
to work less in the coming years when he wrote this letter. See Sci.
Spectrum, Inc., 941
S.W.2d at 911. We
therefore hold that the trial court could not properly have granted summary
judgment with respect to this statement on the ground that it is not actionable.
·       
“I don’t expect
our growth to continue at this pace, which has been nothing short of
phenomenal.”
 
Allen contends that “[w]hether
Rees-Jones truly expected Chief’s growth rate to slow down or reverse” is a
matter of fact. Chief contends that this statement is non-actionable opinion,
and we agree. Predictions regarding the future profitability or value of a
business enterprise are quintessential non-actionable opinions. See Sandefer, 58 S.W.3d at 776 (“Statements of opinion, including
opinions regarding value are generally not actionable under TSA.”); Paull,
987 S.W.2d at 218–19 (holding that principal’s guarantee that investment in
company’s waterflood project was “very low risk” and would fit investor’s needs
were non-actionable opinions); Maness v. Reese, 489 S.W.2d 660, 663 (Tex. Civ. App.—Beaumont 1972, writ ref’d
n.r.e.) (holding that shareholder’s statements regarding effect of redeeming
shares on business were non-actionable opinions); Fry v. Farm & Ranch
Healthcare, Inc., No. 07-05-0221-CV, 2007 WL 4355055, at *3 (Tex.
App.—Amarillo Dec. 13, 2007, no pet.) (mem. op.) (“Predictions and opinions
regarding the future profitability of a business generally cannot form a basis
for a claim of fraud.”). Although predictions may be actionable if the
speaker purports to have special knowledge of facts that will occur in the
future, see Trenholm, 646 S.W.2d at
930, it is generally accepted that no
one can predict future economic conditions or the behavior of the market with
certainty. See Lloyd v. Junkin, 75 S.W.2d 712, 714 (Tex.
Civ. App.—Dallas 1934, no writ) (holding that because “that which lies in the
future cannot be a matter of certain knowledge,” representations as to future
value, productiveness, efficiency, or expected earnings or profits “must be
taken and understood as mere expressions of opinion, and therefore their non-fulfillment
cannot be treated as fraud”); Garza v. C.L. Thomas Petroleum, Inc., No. 04-94-00374-CV, 1995 WL 522788, at *5
(Tex. App.—San Antonio Sept. 6, 1995, writ denied) (not designated for
publication) (holding that gasoline wholesaler’s representations to retailer regarding
future profits were non-actionable because profits depended on future economic
conditions); see also Zar v. Omni Indus., Inc., 813
F.2d 689, 693 (5th Cir. 1987) (“future predictions and opinions, especially
those regarding the future profitability of a business, cannot form a basis for
fraud as a matter of law”). Rees-Jones did not directly tie this
prediction to a specific representation of existing fact, as he tied his
statements about the profitability of expansion-area wells to the state of
drilling technology. We
hold that the trial court properly granted summary judgment with respect to
this statement on the ground that it is not actionable.[15] 
·       
“I frankly consider
creating new value of $5 million per year consistently in the oil and gas
business to be very difficult.”
 
Allen contends that whether “Chief
really had difficulty making a yearly profit of $5 million” is a matter of
fact. But this statement is not about whether Chief in the past “had”
difficulty creating value; it is a statement about whether Chief in the future
will have difficulty creating new
value. Additionally, Rees-Jones’s assessment of how “difficult” he
“consider[ed]” a task is a statement of opinion. It is thus a prediction and an
opinion. 
The opinion does not fall within
any of the exceptions for actionable statements. It is not directly tied to any
allegedly fraudulent statement of existing fact, is not a statement of intent,
and does not promise future performance. Although Allen argues that Rees-Jones
has “special knowledge of what was happening at Chief and in the Barnett
Shale,” the statement purports to convey only Rees-Jones’s own assessment of the
task’s difficulty. See Duperier v. Tex.
State Bank, 28 S.W.3d 740, 749 (Tex. App.—Corpus Christi 2000, pet. dism’d
by agr.) (holding that broker’s statement of assessment of safety and
suitability of investment was non-actionable opinion). The difficulty of
success in the oil and gas industry is not measured by Chief’s success; where
it succeeded, many others failed. Additionally, as noted above, predictions
regarding the future profitability of a business enterprise are quintessential
non-actionable opinions. We
therefore hold that the trial court properly granted summary judgment with
respect to this statement on the ground that it is not actionable.[16] 
·       
“Having made the
decision not to sell the company . . . .”[17]
 
Allen contends that “[w]hether
Rees-Jones had truly decided not to sell the company” is a matter of fact. As
noted above, statements of intent are actionable if the speaker does not in
fact have such an intent at the time, and Chief failed to present evidence that
Rees-Jones did not intend to sell Chief to a third party when he wrote the
letter. We therefore
hold that the trial court could not properly have granted summary judgment with
respect to this statement on the ground that it is not actionable.
3.       Conclusion
We hold that Chief failed to establish that the following
statements are non-actionable as a matter of law:
·       
Chief now has
approximately $400,000 per month of overhead, so making a profit of $5 million
per year simply brings us to break even.”
 
·       
“Our first
horizontal ‘stepout’ well . . . appears at this stage of completion to be a dry
hole . . . . With respect to the ‘expansion’ area, the approximately dozen
Barnett Shale wells on production . . . would show to be non-economic,
indicating that further technological advancement needs to be made in order for
the Barnett Shale in the ‘expansion area’ to become economic.”
 
·       
“I do not expect
‘step-out’ or ‘expansion area’ wells to carry anywhere near the value of the ‘core
area’ wells, and the end result of this drilling could be a decline in the
value of our company.”
 
·       
“I intend to work
over the next ten years at a much more relaxed pace, perhaps taking a good bit
of time off.”
 
·       
“You should be
aware that Chief’s relationship with Mr. Bob Millard . . . has recently become
very strained. Conflicts of a substantial nature have developed that may result
in protracted litigation that will be very expensive, with the outcome unknown
at this time.” 
 
·       
Having made the
decision not to sell the company . . . .”
 
But we hold that
the trial court properly granted summary judgment with respect to all other
statements relied on by Allen as supporting a fraud claim.
 B.     Reliance
Reliance is generally a
necessary element of a fraud claim. Schlumberger, 959 S.W.2d at 181. Chief sought summary judgment on
the ground that reliance was negated as a matter of law by (1) the terms of the
redemption agreement and (2) Allen’s knowledge of the changes in Chief’s value
between the redemption offer and its closing. 
1.       Contractual disclaimer of
reliance
          Because
reliance is essential to a fraudulent inducement claim, parties to an agreement
can prevent a future claim that the agreement was fraudulently induced by
including contract language clearly and unequivocally disclaiming reliance. See Italian Cowboy, 341 S.W.3d at
332–33; see also Schlumberger, 959
S.W.2d at 179–80. Chief asserts that the redemption agreement’s “Finality” and “Independent
Investigation” clauses amount to such a disclaimer of reliance. The “Finality” clause
provides that the redemption agreement “is the complete and final
integration” of the parties’ undertakings and “supersedes all prior agreements
and undertakings . . . between the parties with respect to the subject matter
hereof.” The “Independent Investigation” clause states that the redemption price was calculated and
agreed to by the parties based on the Phalon appraisal and the Haas reserve report
and recognizes that intervening events may have increased or decreased the value
of Allen’s interest, that Allen had the opportunity to obtain any additional
information about such intervening events necessary to permit him to evaluate
the redemption offer, and that Allen had an opportunity to discuss and obtain
answers regarding any information relating to the redemption from Chief,
Phalon, Haas, and his own advisors and consultants.[18] In this clause, Allen
represents that he “has based his decision to sell” on (1) his own independent
due diligence investigation, (2) his own expertise and judgment, and (3) the
advice and counsel of his own advisors and consultants. 
Allen responds that these
provisions do not amount to a clear and unequivocal disclaimer of reliance and,
even if they did, such a disclaimer would not be enforceable under Forest Oil. 268 S.W.3d at 60. 
                    a.       Clear
and unequivocal language
The threshold requirement for an
effective disclaimer of reliance is that the contract language be “clear and
unequivocal” in its expression of the parties’ intent to disclaim reliance. Italian Cowboy, 341 S.W.3d at 331, 336, 337
n.8 (stating need “to protect parties from
unintentionally waiving a claim for fraud,” that clarity of the disclaimer is a
“requirement” for its enforceability, and that only when disclaimer is “clear and
unequivocal” does analysis “then proceed” to contract’s
circumstances); see Schlumberger, 959 S.W.2d at 179 (holding that disclaimer-of-reliance clause had “requisite clear
and unequivocal expression of intent necessary
to disclaim reliance”) (emphasis added).[19] In imposing this
requirement, the Texas Supreme Court has balanced three competing concerns.
First, a victim of fraud should not be able to surrender its fraud claims unintentionally.
See Italian Cowboy, 341 S.W.3d at 332
(expressing “a clear desire to protect parties from
unintentionally waiving a claim for fraud”); Dallas Farm Mach. Co. v. Reaves, 307 S.W.2d 233, 238–39 (Tex. 1957)
(stating that enforcing contracts that “contain[] somewhere within their four
corners exculpatory clauses in one form or another” invalidating fraud claims
“circumvent[s]” the policy protected by outlawing fraud and would open “the
door to a multitude of frauds”); see also
Forest Oil, 268 S.W.3d at 664
(Jefferson, J., dissenting) (stating that Schlumberger
“balanced parties’ need to settle disputes against our strong aversion to
fraud”). Second, the law favors granting parties the freedom to contract
knowing that courts will enforce their contracts’ terms, as well as the ability
to contractually resolve disputes between themselves fully and finally. Italian Cowboy, 341 S.W.3d at 332; Gym-N-I
Playgrounds, Inc. v. Snider, 220 S.W.3d 905, 912 (Tex. 2007); Forest Oil, 268 S.W.3d at 58. Third, a
party should not be permitted to claim fraud when he represented in the parties’
contract that he did not rely on a representation:
After-the-fact protests of misrepresentation
are easily lodged, and parties who contractually promise not to rely on
extra-contractual statements—more than that, promise that they have in fact
not relied upon such statements—should be held to their word. Parties
should not sign contracts while crossing their fingers behind their backs.
 
Forest Oil, 268 S.W.3d at 60.[20]
                             i.        “Finality”
clause
While the determination of
whether a particular contract is sufficiently clear to disclaim reliance hinges
on each contract’s chosen words and structure, a “pure merger clause[]” is not
sufficient. Italian Cowboy, 341
S.W.3d at 334 (“Pure merger clauses, without an expressed clear and unequivocal
intent to disclaim reliance or waive claims for fraudulent inducement, have
never had the effect of precluding claims for fraudulent inducement”). The
redemption agreement’s “Finality” provision is such a pure merger clause.[21]
See 11 Samuel Williston & Richard A. Lord, A Treatise on the
Law of Contracts § 33.21 (4th ed. 1999) (“Recitations to the effect that a
written contract is integrated, that all conditions, promises, or
representations are contained in the writing . . . are commonly known as merger
or integration clauses.”); Tellepsen Builders, L.P. v. Kendall/Heaton
Assocs., Inc., 325 S.W.3d
692, 699 (Tex. App.—Houston [1st Dist.] 2010, pet. denied). It makes no
reference to reliance or fraudulent inducement, nor does it disavow oral representations
between the parties. This generic merger provision does not amount to a clear and unequivocal expression of the
parties’ intent to disclaim reliance on each other’s representations; it
amounts to an expression of the parties’ intent to merge prior negotiations
into the final written agreement and supersede terms not ultimately
incorporated into the final writing. See Italian Cowboy, 341 S.W.3d at 334
(holding that merger provision established that parties “intended nothing more
than the provisions of a standard merger clause”); see also Springs Window Fashions Div., Inc. v. Blind Maker, Inc.,
184 S.W.3d 840, 870 (Tex. App.—Austin 2006, pet. granted, jdmt vacated w.r.m.)
(“A merger clause . .
.  memorializes the parties’ intent to
integrate or absorb their prior negotiations, agreements, or understandings
concerning the same subject matter into a subsequent written contract.”). Read
in conjunction with the “Independent Investigation” clause, this provision does
nothing to clarify or settle the parties’ intentions regarding reliance.  
                   ii.       “Independent
Investigation” clause
The “Independent Investigation” clause
does not contain the kind of absolute and all-encompassing language that
satisfies the clarity requirement as to any fraudulent inducement claim. Cf. Forest Oil, 268 S.W.3d at 58; Schlumberger,
959 S.W.2d at 180.[22] Nor does the statement that
Allen’s decision to sell was based on his own investigation clearly and
unequivocally negate the possibility that Allen’s decision was also based on
information provided by Chief. Consistent with the terms of the redemption
agreement, Allen could have relied on both. The clause in fact invites Allen to
ask questions of Chief employees, implying that Allen not only could, but
should, rely on information from Chief. To make it clear that Allen did not
rely on any facts other than his own investigation, the disclaimer needed limiting
language making it clear that Allen relied “only,” “exclusively,” or “solely” on
his own investigation. Cf. Matlock Place Apartments,
L.P. v. Druce,
No. 02-09-00130-CR, 2012 WL 117838, at *13 (Tex. App.—Fort Worth 2012, no pet.
h.) (enforcing disclaimer provision in which complaining party promised to rely
“solely on its own investigation,” along with other disclaimer language); RAS
Group, Inc. v. Rent-A-Ctr. E., Inc., 335 S.W.3d 630, 639 (Tex. App.—Dallas
2010, no pet.) (same); but see Fazio
v. Cypress/GR Houston I, L.P., No. 01-09-00728-CV, 2012 WL 159929, at *14
(Tex. App.—Houston [1st Dist.] Jan. 19, 2012, no. pet. h.) (holding that
party’s promise to rely “solely” on his own investigation was not effective to
disclaim reliance with respect to non-disclosure of information that other
party had contractual obligation to provide). Or, the clause could include a
broad and absolute abjuration of reliance on any oral representations by any
other party, as was the case in Forest
Oil and Schlumberger. Forest Oil, 268 S.W.3d at 54 n.4; Schlumberger, 959 S.W.2d at 180. The
omission of language limiting Allen’s reliance to his own investigation
exclusively and the absence of a promise not to rely on
any statement or representation by Chief are fatal to Chief’s global disclaimer of reliance
argument. 
Chief further contends that a
refusal to enforce this clause “prevents parties from contractually agreeing”
to bar future fraud claims. Not so. The redemption agreement lacks a number of
provisions that would provide greater clarity. It lacks: (1) an all-embracing
disclaimer that Allen had not relied on any representations or omissions by
Chief; (2) a specific “no liability” clause stating
that the party providing certain information will not be liable for any other
person’s use of the information; and (3) a specific waiver of any claim for fraudulent
inducement based on misrepresentations or omissions.[23]
See Italian Cowboy, 341 S.W.3d at 334 (concluding that merger clause did
not include “an expressed clear and unequivocal intent to disclaim reliance or
waive claims for fraudulent inducement”); Forest Oil, 268 S.W.3d at 58 (stating
that “an all-embracing disclaimer of any and all representations . . . shows
the parties’ clear intent”); Schlumberger, 959 S.W.2d at 181 (“a release
that clearly expresses the parties’ intent to waive fraudulent inducement
claims, or one that disclaims
reliance on representations about specific matters in dispute, can preclude a
claim of fraudulent inducement”); see
also Coastal Bank SSB v. Chase Bank of
Tex., N.A., 135 S.W.3d 840, 843 (Tex. App.—Houston [1st Dist.] 2004,
no pet.) (finding that “the nature of the disclaimers” demonstrated that
plaintiff could not rely on other party’s representation or silence when
disclaimers stated that plaintiff had not relied on defendant’s representations
and that defendant would not have any liability “for any representations . . . or
for any omissions”). The redemption agreement does none of these.[24]
The
“Independent Investigation” clause
does, however, embody a clear and unequivocal intent to bar some reliance by Allen: it clearly disclaims
reliance on representations concerning the redemption price, the bases for that
price (the Phalon appraisal and the Haas reserve report), and whether those
documents accurately reflected the value of Chief or its assets. 
iii.      Application of disclaimer to actionable
statements
 
We next apply the redemption
agreement’s limited disclaimer of reliance to each of the actionable statements
asserted by Allen.
·       
 “Our first horizontal ‘stepout’ well . . .
appears at this stage of completion to be a dry hole . . . . With respect to
the ‘expansion’ area, the approximately dozen Barnett Shale wells on production
. . . would show to be non-economic, indicating that further technological
advancement needs to be made in order for the Barnett Shale in the ‘expansion
area’ to become economic.”
 
·       
“I do not expect
‘step-out’ or ‘expansion area’ wells to carry anywhere near the value of the ‘core
area’ wells, and the end result of this drilling could be a decline in the
value of our company.”
 
Chief contends that these
statements go to the value of Chief and its assets, an issue on which Allen has
clearly disclaimed reliance. Allen responds that his complaint is not that the redemption price did not
represent the true value of his shares but that he would not have sold his
interest in June 2004 if he had known all material facts about Chief’s future
prospects, such as the state of the relevant drilling technology and the status
of competitors’ expansion-area ventures. 
To the extent these statements relate exclusively to Chief’s
value, we agree with Chief that the redemption agreement expressly
negates any reliance by Allen. Such reliance is disclaimed by (1) Allen’s
recognition that 
[e]vents subsequent to the dates of the Appraisal and
Reserve Report may have a positive or negative impact on the value of the
Interest but [Allen] and [Chief] agree that the redemption of the Interest
shall be consummated at the Redemption Price in recognition of the fact that
such price was the price on the basis of which [Allen] agreed to sell, [Chief]
agreed to buy, and [Chief] agreed to undertake to raise the required capital to
facilitate the Closing” 
 
and (2) his contractual
promise that 
the Redemption Price [herein] shall be the price at which
the Interest shall be redeemed regardless of any difference in opinion on
whether the Appraisal or Reserve Report are reflective of actual values or
reserves and regardless of any change in value of the Interest that may occur
subsequent to the dates of the Appraisal and Reserve Report, and each party
hereby releases the other from any claims that might arise as a result of any
determination that the value of the Interest at the Closing was more or less
than the Redemption Price.
 
See McLernon v. Dynegy, Inc., 347 S.W.3d 315, 331–32 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (holding
that employee’s reliance on alleged misrepresentation that other executives had
signed similar agreements was barred by contract provision in which employee
represented that he had not relied on any representations regarding agreement);
see also Schlumberger,
959 S.W.2d at 181. 
But we have held that these statements are actionable
because they are buttressed by or intertwined with Rees-Jones’s representations
regarding the state of drilling technology and Chief’s and other companies’
expansion-area endeavors. The redemption agreement does not address these
existing facts, which Allen asserts are material not only to Chief’s value at
the time of the redemption and the price at which he was willing to redeem in
2004, but also to Chief’s future prospects and whether 2004 was the right time
to redeem his interest. Chief did not conclusively prove that these issues
would not have been material to a reasonable investor’s decision of whether to
redeem his interest.[25]
Thus, we hold that the redemption agreement clearly and unequivocally disclaims reliance on Rees-Jones’s representations
to the extent they convey information about Chief’s value and the suitability
of the redemption price, but it does not clearly
and unambiguously disclaim reliance on Rees-Jones’s representations to
the extent they convey information about Chief’s future prospects in light of the
state of drilling technology and Chief’s and other companies’ expansion-area
endeavors.
·       
Chief now has
approximately $400,000 per month of overhead, so making a profit of $5 million
per year simply brings us to break even.”
 
·       
“I intend to work
over the next ten years at a much more relaxed pace”
 
·       
“You should be
aware that Chief’s relationship with Mr. Bob Millard . . . has recently become
very strained. Conflicts of a substantial nature have developed that may result
in protracted litigation that will be very expensive, with the outcome unknown
at this time.” 
 
·       
“Having made the
decision not to sell the company . . . .”
 
The redemption agreement does not broadly disclaim reliance on any
statements by Rees-Jones and it does not specifically address Chief’s overhead
and profits, Rees-Jones’s work habits, Chief’s relationship with Millard, or
Rees-Jones’s decision not to sell Chief to outside investors. It therefore does
not clearly and unequivocally disclaim reliance on these statements.
b.      Remaining
Forest Oil factors
The clarity requirement is a threshold hurdle that must be
passed for a disclaimer to be enforceable; when the disclaimer lacks a clear
and unequivocal expression of intent to disclaim reliance, it will not preclude
a fraudulent inducement claim regardless of the circumstances surrounding the
agreement. Italian Cowboy,
341 S.W.3d at 331, 336, 337 n.8. Because we have concluded that the redemption
agreement does not clearly and unequivocally disclaim reliance with respect to
Rees-Jones’s representations about Chief’s overhead and relationship with
Millard, Rees-Jones’s future work habits, drilling technology, or Chief and
other companies’ expansion-area endeavors, the redemption agreement does not
bar Allen’s fraudulent inducement claim with respect to those statements as a
matter of law. Because we have concluded that the redemption agreement is
sufficiently clear and unequivocal to bar Allen’s reliance on Rees-Jones’s representation
with respect to the value of Chief and its assets or the redemption price, we
must look to the remaining Forest Oil factors
to determine whether the redemption agreement’s disclaimer of such reliance is
enforceable.
i.        Three of the five Forest
Oil factors favor enforcement 
 
The Forest Oil
Court identified four extrinsic factors that courts must consider in evaluating
the validity of a contractual disclaimer of reliance: whether (1) the terms of
the contract were negotiated or boilerplate, (2) the complaining party was
represented by counsel, (3) the parties dealt with each other at arm’s length,
and (4) the parties were knowledgeable in business matters. Forest Oil, 268 S.W.3d at 60–61; see
Schlumberger, 959 S.W.2d at
179–81.[26] 
The second and fourth factors weigh in favor of Chief. Allen
is an attorney who specializes in oil and gas transactions and represented
himself in the sale of his interest to Chief. Allen even offered to represent
Chief in the sale of the company two years after the redemption. An attorney
who represents himself in a legal matter in which he has particular expertise
cannot claim in hindsight to lack the benefit of counsel. As an oil and gas
attorney, Allen was also knowledgeable in business matters specific to the oil
and gas industry. Thus, in our consideration of the second and fourth factors,
we cannot say that Allen lacked representation or was not sophisticated and
knowledgeable about oil and gas transactions.
With respect to the third factor, Allen argues that
“securities transactions are never arm’s length when a company is buying a
shareholder’s stock.” Allen, however, does not cite any supporting authority
for this broad proposition except for a case involving fiduciary relationships.
In the absence of such authority, we reject this wide-sweeping rule. But Allen’s
uncontroverted evidence demonstrated that he relied heavily on Rees-Jones for
advice on his investment and acted as a passive investor, and Rees-Jones
exercised control over Chief’s daily affairs.[27]
Additionally, we determine below that Chief has not negated Allen’s claim that
Rees-Jones owed him a formal fiduciary duty in this transaction.[28]
Chief has not shown that this
factor weighs in its favor.
Chief has also not shown that the first factor—whether the
parties negotiated the terms of the redemption agreement—weighs in its favor.
Allen states in his affidavit that Rees-Jones gave him only three days to
review and sign the redemption agreement after receiving it. Chief responds
that Allen negotiated the agreement because he asked if the valuation needed to
be updated. Allen, however, offered evidence that he relied on Rees-Jones’s
oral representation that a new valuation “was not necessary.” Chief provided no
other evidence to show that the contract was negotiated. Additionally, despite Chief’s
argument that the “Independent Investigation” clause “make[s] up the core of the agreement,” there is no
summary judgment evidence that the parties expressly negotiated the “Independent
Investigation” clause,
that Rees-Jones informed Allen of the clause’s importance, or that Rees-Jones
stressed the importance of Allen reviewing information available from Chief. Cf.
Forest Oil, 268 S.W.3d at 60
(identifying the consideration as whether “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”); Prudential Ins. Co. of Am. v. Jefferson Assocs., Ltd.,
896 S.W.2d 156, 162 (Tex. 1995) (noting that clause was important part of basis
of bargain).
In sum, we conclude that Chief established only the second
and fourth extrinsic factors from Forest Oil. We next determine whether
these factors are sufficient to establish the disclaimer’s enforceability with
respect to those representations that we have found were clearly and
unequivocally disclaimed.
ii.       A disclaimer is not enforceable when only
these three Forest Oil factors are present
 
All four extrinsic factors were satisfied in Forest Oil
and Schlumberger. Forest
Oil, 268 S.W.3d at 60; Schlumberger, 959 S.W.2d at 179–80. The Forest
Oil Court described these four factual inquiries as “factors,” suggesting
that they are not absolute requirements. Forest Oil, 268 S.W.3d at 60. And this Court
has previously held that an agreement between two parties barred fraud claims
as a matter of law even when all of the Forest Oil factors were not present.
See Atlantic Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 216–17 (Tex. App.—Houston [1st Dist.] 2004,
pet denied) (holding disclaimer of reliance barred fraudulent inducement claim
when all factors later identified in Forest Oil were satisfied except sophistication
of parties); see also McLernon, 347
S.W.3d at 333 (noting that Forest Oil considerations are “‘facts . . .
that guide[ ] our reasoning’ and ‘factors’—not elements that all must be
established”) (quoting Forest Oil,
268 S.W.3d at 60). Therefore, it is unnecessary to satisfy each factor when the
parties’ intent to preclude a fraud claim is clear and unequivocal and a
sufficient number of factors are satisfied to meet the public policy concerns
expressed in Schlumberger and its progeny.
          But
which factors must be satisfied and how are we to weigh the factors? Or more
precisely here, is it sufficient that this is a commercial transaction between
sophisticated parties represented by counsel with a disclaimer that, at least
in some respects, is clear? Neither Forest Oil nor Schlumberger answers
these questions. We hold that the totality of the circumstances does not
support enforcing the disclaimer when the only factors that are present are
clarity, sophistication, and representation by counsel because all three focus
on the public policy concern that the party may be unable to understand the terms
of the disclaimer but not the concern that the party may be unable to alter the
terms of the disclaimer. Cf. Forest Oil, 268 S.W.3d at 58 (enforcing “freely
negotiated” agreement to bar claims); Schlumberger,
959 S.W.2d at 179 (stating that parties should be able to “bargain for”
agreement that precludes further disputes between them). Something more is required—either negotiated terms or an
arm’s length transaction—both of which focus on the party’s ability to alter the
disclaimer’s terms so that a party voluntarily surrenders its rights to a fraud
claim.[29] One of these two factors can
be satisfied by demonstrating that the party who agrees to the disclaimer
either (1) did in fact negotiate the contract terms or (2) had the ability to
negotiate terms because the parties dealt with each other at arm’s length.[30]
See Kane v. Nxcess Motorcars, Inc.,
No. 01-04-00547-CV, 2005 WL 497484, at *6 (Tex. App.—Houston [1st Dist.]
Mar. 3, 2005, no pet.) (mem. op.) (reviewing enforceability of “as is”
clause in pre-Forest Oil case based
in part on whether parties had “disparity in bargaining power” and whether agreement
was “freely negotiated”).
Considering the cases that provided the foundation for the Forest
Oil factors supports our conclusion that it is insufficient to establish
only that the parties are sophisticated and represented by counsel. In Jefferson
Associates, the Court
held that an “as is” clause will be enforceable only in an arm’s-length
transaction involving sophisticated parties who are in “relatively equal
bargaining position.” 896 S.W.2d at 162. Additionally, the Court stressed that
when the parties engage in negotiations over the contract’s terms, the
provision in question is “an important part of the basis of the bargain.” Id.
In Schlumberger, the Court
stated that it is not enough for a sophisticated party to be represented by
counsel; the parties in that case also negotiated at arm’s-length. 959 S.W.2d
at 180.[31]
We hold that, although the redemption agreement is
sufficiently clear and unequivocal to disclaim Allen’s reliance with respect to
Rees-Jones’s representations about the value of Chief and its wells, the
disclaimer is not enforceable because the totality of the circumstances
surrounding the redemption agreement do not satisfy the test set forth in Forest Oil for disclaimers of reliance.
          2.       Justifiable reliance
Allen contends that “reliance is
not an element of fraud by omission,” and even if it were, Chief did not conclusively
negate reliance. Chief asserts that reliance is a necessary element of all
fraud claims, it must be actual and justifiable, and the facts of this case
make any alleged reliance by Allen unjustifiable. 
a.       Justifiable reliance is not an element of
Allen’s TSA claim but is an element of his other fraud claims
 
In Schlumberger, the Texas Supreme Court rejected an argument that
reliance is not an element of fraud by omission. Schlumberger, 959 S.W.2d at 181 (rejecting argument in context of fraud
claims under common law and Business and Commerce Code); see also PAS, Inc. v. Engel,
350 S.W.3d 602, 612 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (stating
that justifiable reliance is element of both common law fraud and fraudulent
inducement). In Grant Thornton
L.L.P., v. Prospect High Income Fund, the Court reiterated that reliance
must be both actual and justifiable to support a fraud claim. 314 S.W.3d 913,
923 (Tex. 2010). Thus,
justifiable reliance is a necessary element of Allen’s claims for common law
fraud and statutory fraud under the Business and Commerce Code. See Am. Tobacco Co., Inc. v. Grinnell,
951 S.W.2d 420, 436 (Tex. 1997) (stating that plaintiff claiming fraud by non-disclosure
“must have reasonably relied upon the silence to his detriment”). 
Reliance is not, on the other
hand, a necessary element of Allen’s fraud claim under the TSA.[32]
See Tex.
Rev. Civ. Stat. Ann. art. 581-33B (West 2010); Summers v. WellTech, Inc., 935 S.W.2d 228, 234 (Tex.
App.—Houston [1st Dist.] 1996, no writ) (stating that TSA does not
require proof of reliance).
b.      Chief did not prove Allen’s reliance was
unjustified
 
Chief contends that Allen’s
reliance is not justifiable because Allen admitted that, at the time of the
redemption, he believed (1) “Chief had increased in value between November and
June by at least 50% from the Phalon valuation,” and (2) “Rees-Jones was
committing securities fraud by not re-valuing his interest and updating him on
the increase in value.” Chief also points to the language of the redemption
agreement and a 2005 email in which Allen stated that the value of his interest
in Chief had been established by the October 2003 valuation, but “the closing
didn’t take place until 8 months later. We knew that the value of the
enterprise would be significantly greater then, but in light of the home run
the investment had been, chose not to raise the issue.”[33]
Allen responds that a fact issue exists on justifiable reliance because he
“presented uncontroverted evidence that he sold his interest in Chief in
reliance upon Rees-Jones’s representations, omissions, and advice, and that if
he had known the truth about what was happening at Chief and in the non-core
area of the Barnett Shale, he would not have sold his interest.” 
          The issue of justifiable reliance is
generally a question of fact. Prize
Energy Res., L.P. v. Cliff Hoskins, Inc., 345 S.W.3d 537, 584 (Tex. App.—San Antonio 2011, no pet.);
1001 McKinney Ltd. v. Credit Suisse First Boston Mortg. Capital, 192 S.W.3d 20, 30 (Tex. App.—Houston
[14th Dist.] 2005, pet. denied). The issue becomes a question of law, however,
when the undisputed or conclusively proven facts demonstrate circumstances
under which reliance cannot be justified. For example, a party’s
reliance on a representation is not justified when the party has actual
knowledge of the representation’s falsity at the time of alleged reliance. E.g.,
JSC Neftegas-Impex v. Citibank, N.A., No. 01-07-00397-CV, 2011 WL 480931,
at *15–16 (Tex. App.—Houston [1st Dist.] Feb. 10, 2011, pet. denied) (op. on
reh’g). Additionally, a party cannot justifiably rely on a statement that
directly contradictors the express terms of the parties’ written agreement. DeClaire v. G & B
Mcintosh Family Ltd. P’ship, 260 S.W.3d 34, 46–47 (Tex. App.—Houston [1st Dist.] 2008, no pet.); DRC
Parts & Accessories, L.L.C. v. VM Motori, S.P.A., 112 S.W.3d 854, 858 (Tex. App.—Houston [14th Dist.] 2003, pet.
denied).
As we did with disclaimer of
reliance, we must look at the parties’ justifiable reliance arguments in the
context of the remaining representations identified by Allen that we have held
to be actionable, if proven fraudulent.
·       
 “Our first horizontal ‘stepout’ well . . .
appears at this stage of completion to be a dry hole . . . . With respect to
the ‘expansion’ area, the approximately dozen Barnett Shale wells on production
. . . would show to be non-economic, indicating that further technological
advancement needs to be made in order for the  Barnett Shale in the ‘expansion area’ to
become economic.”
 
·       
“I do not expect
‘step-out’ or ‘expansion area’ wells to carry anywhere near the value of the ‘core
area’ wells, and the end result of this drilling could be a decline in the
value of our company.”
 
Allen’s knowledge regarding the
change in Chief’s value from October 2003 to June 2004 has an import similar to
that of the disclaimer language—with this knowledge, Allen could not have
justifiably relied on these statements in assessing Chief’s value or the
redemption price.[34]
But Chief has not conclusively established that Allen had knowledge that
prevented him from justifiably relying on these statements in assessing Chief’s
future prospects in light of the state of drilling technology and Chief’s and
other companies’ drilling ventures. 
·       
Chief now has
approximately $400,000 per month of overhead, so making a profit of $5 million
per year simply brings us to break even.”
 
·       
“I intend to work
over the next ten years at a much more relaxed pace, perhaps taking a good bit
of time off.”
 
·       
“You should be
aware that Chief’s relationship with Mr. Bob Millard . . . has recently become
very strained. Conflicts of a substantial nature have developed that may result
in protracted litigation that will be very expensive, with the outcome unknown
at this time.” 
 
·       
“Having
made the decision not to sell the company . . . .”
The knowledge Chief attributes to
Allen has no bearing on the amount of Chief’s overhead or revenue necessary to
“break even,” Rees-Jones’s future work habits, Chief’s relationship with
Millard, or Rees-Jones’s intentions for selling Chief. Chief therefore failed
to prove that Allen did not justifiably rely on these statements as a matter of
law. 
3.       Conclusion on reliance
We hold that Chief conclusively proved
that Allen could not have justifiably relied on Rees-Jones’s statements
regarding expansion-area drilling to the extent those representations
purportedly conveyed information about Chief’s value or the redemption price,
and the trial court’s judgment is proper in that respect. Chief did not,
however, conclusively prove that Allen could not have justifiably relied on
these statements to the extent they conveyed information about the state of
drilling technology and Chief’s and other companies’ expansion-area ventures;
nor did Chief conclusively prove that Allen could not have justifiably relied
on any of Rees-Jones’s other actionable statements. We therefore hold that the
trial court erred to the extent it relied on a lack of reliance in granting
summary judgment on Allen’s fraud claims based on those statements. 
Fiduciary Duty
Rees-Jones moved for
summary judgment on Allen’s breach of fiduciary duty claim on the ground that
Allen could not show the existence of a fiduciary relationship. See Meyer v. Cathey, 167 S.W.3d 327,
330–31 (Tex. 2005) (discussing existence of fiduciary relationship as element
of fiduciary duty claim); Gregan v. Kelly,
355 S.W.3d 223, 227–28 (Tex. App.—Houston [1st Dist.] 2011, no pet.) (same). Allen
contends that the trial court erred in granting summary judgment on his breach
of fiduciary duty claim because formal and informal fiduciary relationships
existed. We hold that Rees-Jones failed to establish conclusively that he did
not owe Allen a formal fiduciary duty in connection with the redemption, and,
therefore, do not reach the issue of whether an informal fiduciary relationship
may have existed. See Tex. R. App. P. 47.1.
A.      Formal Fiduciary Relationship
The special nature of certain types of relationships
establishes a fiduciary duty between the parties as a matter of law. E.g., Envtl. Procedures, 282 S.W.3d at 628 (observing that, when a formal
fiduciary relationship exists, “questions of whether one party relied on or
confided in the other are immaterial”). Examples include
attorney-client, principal-agent, and partnership relationships. Gregan, 335 S.W.3d at 227–28. Chief was
a closely-held limited liability company (LLC), and Rees-Jones was its sole
manager and majority owner. Allen asserts that Texas law recognizes two formal
fiduciary duties owed by Rees-Jones: (1) one owed by a majority shareholder who
dominates control over the business to minority shareholders and (2) one owed
by a closely-held company’s officers and shareholders to a shareholder who is
redeeming stock.
1.       Texas
law does not recognize a general fiduciary duty between majority and minority
shareholders in a closely-held corporation
 
Chief was an LLC, not
a corporation. Nevertheless, we begin by looking at cases involving
closely-held corporations because Allen relies on these cases and Chief, as a
closely-held LLC, operated much like a closely-held corporation.[35]
Neither the Texas Supreme Court nor this Court has addressed whether a majority
shareholder in a closely-held corporation owes a fiduciary duty to a minority
shareholder in a redemption of shares. See
generally Willis v. Donnelly, 199 S.W.3d 262, 277 (Tex. 2006) (declining to
decide and assuming that fiduciary duty can exist from majority shareholder to
minority shareholder in claim arising out of majority shareholder’s loan to
corporation). Many courts in other jurisdictions have recognized a fiduciary
duty by a majority shareholder in a closely-held corporation to a minority shareholder
in the context of a stock redemption,[36]
while others have recognized it more generally, even outside the context of a
redemption.[37] They have done so
partly based on the rationale that shareholders
in a closely-held corporation “are more realistically viewed as partners” and
therefore “owe each other duties analogous to partners in a partnership.”[38] Additionally, some courts
have focused on the majority shareholder’s domination or control of the
corporation’s affairs, which is ameliorated by the protections created by
fiduciary duties.[39] Others have focused on the
majority shareholder’s access to insider information.[40] But many other courts
have refused to recognize a fiduciary duty from a majority shareholder to a
minority shareholder in a closely-held corporation.[41]

In
the only binding precedent from this Court, we held that a majority shareholder
and chief executive officer had
a fiduciary duty, as a matter of law, to deal fairly with the corporation’s minority
shareholder in connection with profits on the sale of a corporate asset. Thywissen
v. Cron, 781 S.W.2d 682, 686 (Tex. App.—Houston [1st Dist.] 1989, writ
denied). But we reached a different result in two subsequent unpublished
opinions dealing with employment and management issues. See Scherrer v. Haynes & Boone, L.L.P., No. 01-99-01164-CV,
2002 WL 188825, at * 2 (Tex. App.—Houston [1st Dist.] Feb. 7, 2002, no pet.)
(not designated for publication); Aitlqaid v. Soussan, No.
01-98-01017-CV, 2001 WL 301430, at *3 (Tex. App.—Houston [1st Dist.] Mar. 29,
2001, no pet.) (not designated for publication). Neither Scherrer nor Aitlqaid
discussed Thywissen.[42] 
The vast majority of
other intermediate appellate courts of this state have declined to recognize a
formal fiduciary duty by a majority shareholder to a minority shareholder in a
closely-held corporation while recognizing that an informal fiduciary duty could exist depending on the
circumstances of the case.[43] Given this overwhelming weight of authority, we do
not agree with Allen that Texas recognizes a broad formal fiduciary
relationship between majority and minority shareholders in closely-held
companies that would apply to every transaction among them. We therefore
decline to recognize such a fiduciary duty between members of an LLC on this
basis.
2.       We recognize a formal fiduciary
duty owed by a majority owner and sole manager of an LLC in the context of a
redemption
 
Allen further contends that
Rees-Jones’s position as an insider, with not only a majority ownership
interest but also dominant control over the business as the sole
managing-member, is sufficient to create a formal fiduciary duty from Rees-Jones
to Allen here. We therefore address whether such facts are sufficient to create
a formal fiduciary duty in the context of a redemption. 
a.       Rees-Jones
has essentially the powers and responsibilities of a general partner, a role
for which the law imposes fiduciary obligations
 
Partners in a general partnership owe each other a fiduciary
duty. M.R. Champion v. Mizell, 904
S.W.2d 617, 618 (Tex. 1995); Gregan,
335 S.W.3d at 227–28.  Similarly, a general partner in a limited
partnership owes a fiduciary duty to the limited partners because of its
control over the entity. Crenshaw v. Swenson, 611 S.W.2d 886, 890 (Tex. App.—Austin 1980, writ ref’d
n.r.e.); Johnson v. J. Hiram Moore, Ltd., 763 S.W.2d 496, 499
(Tex. App.—Austin 1988, writ denied); McBeth v Carpenter, 565 F.3d 171, 177 (5th Cir. 2009); see also In re Harwood, 637 F.3d 615, 621 (5th Cir.
2011) (“under Texas law, ‘the issue of control has always been the critical
fact looked to by the courts’ in determining whether to impose fiduciary
responsibilities on individuals . . .”) (quoting Matter of Bennett, 989
F.2d 779, 789 (5th Cir. 1993), opinion amended on reh’g, No. 91-1059, 1993 WL 268299 (5th
Cir. July 15, 1993)). And we recently concluded that when a limited partner
exercises control over the entity’s operating affairs, he will also owe a
fiduciary duty to the other limited partners. Strebel v. Wimberly, No. 01-10-00227-CV, 2012 WL 112253, at *10–11
(Tex. App.—Houston [1st Dist.] January 12, 2012). While a limited partner does not normally owe a
fiduciary duty, such a duty “spring[s] into existence when a limited partner .
. . wearing a different hat, exerts operating control over the affairs of the
limited partnership.” Id. at *12.[44] 
LLCs have a number of characteristics similar to partnerships,[45] and courts in many
jurisdictions have recognized a fiduciary duty between members of an LLC on
that basis.[46] An LLC may be run by its
members collectively, like a general partnership, or it may be run by one or
more manager-members, like a limited partnership. See Tex. Bus. Org.
Code Ann. § 101.251. As the sole member-manager of
Chief with a high degree of control, Rees-Jones’s position with Chief is
similar to that of a general partner in a limited partnership.[47] 
Rees-Jones was in charge of Chief’s day-to-day operations. Articles five and six of Chief’s articles of organization
and article six of Chief’s regulations gave Rees-Jones, as manager, control of
its operations, other than certain significant actions like the sale of the
company. His position also gave him intimate knowledge of Chief’s daily affairs
and plans. See Miller v.
Miller, 700 S.W.2d 941, 945–46 (Tex. App.—Dallas 1985, writ ref’d
n.r.e.) (stating that majority shareholders’ intimate knowledge of company’s
affairs supported finding fiduciary relationship); Adickes v. Andreoli, 600 S.W.2d 939, 945 (Tex. Civ. App.—Houston
[1st Dist.] 1980, writ dism’d) (holding that defendant’s superior ability and expertise
supported court’s fact finding of confidential relationship); Tuck v. Miller, 483 S.W.2d 898, 905
(Tex. Civ. App.—Austin 1972, writ ref’d n.r.e.) (holding superior business
expertise, among
other factors, supported finding of confidential
relationship). There is no evidence
that Allen had such extensive knowledge of Chief’s operations. To the contrary,
in his deposition, Allen testified that he was
a passive investor who “rarely if ever received any kind of ‘status update’ or financial
information” regarding Chief’s status and that Rees-Jones was his sole
source of information on Chief’s status over the years of his involvement with
the company.
Thus, the relationship between Rees-Jones, as the majority
owner and sole manager of Chief, and Allen, as a non-participating minority
owner, is substantially similar to the relationship between the general partner
and a limited partner in a limited partnership. The nature of this relationship
supports recognizing a fiduciary duty between Rees-Jones and Allen with respect
to Rees-Jones’s operation and management of Chief.  


 
b.      Redemptions are company actions in which insiders may have
special knowledge and a personal interest
 
An additional reason to recognize
a formal fiduciary relationship here is the specific type of transaction in
question: a purchase of a minority owner’s interest in the LLC. Cf. Nat’l Plan Adm’rs, Inc. v. Nat’l Health Ins. Co., 235 S.W.3d 695, 700 (Tex. 2007) (observing that courts
consider all aspects of parties’ relationship when determining nature and scope
of any fiduciary duties). The nature of this particular transaction has resulted
in many courts creating an exception to the general rule that a shareholder
does not owe a fiduciary duty to co-shareholders. Under the so-called majority
rule,[48]
a director or officer who purchases another shareholder’s stock does not have a
fiduciary relationship with that shareholder and therefore has no disclosure obligation.
3A William M. Fletcher,
FLETCHER CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 18 at 272–73
(perm. ed., rev. vol. 2002). Under the so-called minority rule, directors and
officers have a fiduciary duty to the corporation and to individual
shareholders and therefore must disclose information related to the stock’s
value that they obtain through their position. Id. at 273, § 1168.10 at 276, 1168.20 at 279. Under the middle
ground, the so-called “special facts” test, an officer or director has a
limited fiduciary duty when purchasing stock from a shareholder. The fiduciary
duty is limited to require disclosure of “those matters of which the officer
has knowledge and about which the shareholder has a right to know, so that the
latter may have the benefit of the information in judging the advantages of the
deal. Information is material if there is a substantial likelihood that, under
all the circumstances, the omitted fact would have assumed actual significance
in the deliberations of the reasonable shareholder and would have been viewed
by the reasonable investor as having significantly altered the total mix of
information available.” Id. § 1171 at
284–85. Numerous courts have found that the special facts existing when an
officer or director purchases a minority shareholder’s stock in a closely-held
corporation justify recognizing a formal fiduciary duty.[49]
The “special facts” test was adopted by the Dallas Court of
Appeals in Miller, 700 S.W.2d at 946. Applying
the test, the Miller court held that
the jury’s finding of a confidential relationship between the parties, together
with the insider information the defendant-shareholder had about the value of
the company’s stock by virtue of his office, imposed a duty of disclosure on
the defendant in a share-related transaction with his wife. 700 S.W.2d
at 945−46. We agree with Miller that a shareholder and officer’s material
insider knowledge about corporate affairs may constitute “special facts” giving
rise to a fiduciary duty of disclosure when purchasing shares from a passive
shareholder, and we extend that holding to a member-manager’s offer to redeem a
minority member’s interest in an LLC when that redemption will increase the member-manager’s
ownership.[50] While the Miller court relied on the doctrine to
recognize a fact issue on whether an informal fiduciary relationship exists,
the doctrine is a recognition of a formal fiduciary duty, as reflected in
authorities cited by Miller[51] and numerous other courts.[52] Recognizing a formal
fiduciary relationship, rather than a jury issue on whether an informal
fiduciary relationship exists, creates the certainty and predictability needed
for companies to manage prudently their affairs. Thus, we conclude that the “special
facts” doctrine supports recognizing a formal fiduciary relationship when an
LLC’s member-manager communicates a redemption offer to the minority members
that may benefit the member-manager individually.
The “special facts” are
particularly acute when a majority owner and member-manager who controls the
company’s daily affairs, and therefore possesses inside information, communicates
a  redemption offer that will increase
his ownership of the company to minority members who do not participate in the
company’s daily affairs. Such an offer necessarily requires an evaluation of
both the company’s present value and its future prospects, an evaluation that
the member-manager has a unique capacity to perform. Thus, Texas appellate
courts have relied upon the unique nature of a redemption as part of the
factors that may create an informal fiduciary duty. See In re Estate of Fawcett, 55 S.W.3d 214, 220 (Tex. App.—Eastland 2001, pet. denied) (holding
that summary judgment evidence raised fact issue on informal fiduciary relationship
and stating that officer or shareholder of
closely-held company “may become” fiduciary to individual shareholders
when company repurchases shareholder’s stock or in shareholder transaction
involving company officer or majority shareholder with dominant control over
company’s business and insider information about company); Redmon v. Griffith, 202 S.W.3d 225, 237–40
(Tex. App.—Tyler 2006, pet. denied) (holding that contract for repurchase of
shareholder’s stock in closely-held corporation may create fiduciary
relationship when majority shareholder dominates control over business or
shareholders operate more as partners than in strict compliance with corporate
formalities); see also Willis v. Donnelly, 118
S.W.3d 10, 31–32 (Tex. App.—Houston [14th Dist.] 2003) (stating that fiduciary
relationship may be created “through the repurchase
of a shareholder’s stock in a closely held corporation” or “in certain circumstances in which a majority
shareholder in a closely held corporation dominates control over the business”),
aff’d in part and rev’d in part on other
grounds, 199 S.W.3d 262 (Tex. 2006); Hoggett
v. Brown, 971 S.W.2d 472, 488
n.13 (Tex. App.—Houston [14th Dist.] 1997, pet. denied) (“in certain limited circumstances, a majority
shareholder who dominates control over the business may owe such a duty to the
minority shareholder”). But Rees-Jones rightly contends that an informal
fiduciary relationship cannot be based on the nature of a redemption because
“the relationship must pre-exist the deal, not rest on it.” Rather than holding
that the nature of the transaction, therefore, is “irrelevant,” as Rees-Jones
contends, we hold that it is part of the basis for recognizing a formal
fiduciary relationship. 
Rees-Jones
further maintains that the nature of a redemption  cannot support a fiduciary duty because the
recognition of such a duty would result in few Texas companies exercising their
redemption rights out of fear of breach of fiduciary duty claims. We note that the
duty we recognize is owed by Rees-Jones, a majority owner and manager with
virtually unmitigated control over an LLC, not Chief itself—whether Chief owed
Allen any fiduciary duties is not before this Court. 
c.        Conclusion on formal fiduciary duty
 
We conclude that there is a
formal fiduciary duty[53] when (1) the alleged-fiduciary has a legal right of
control and exercises that control by virtue of his status as the majority
owner and sole member-manager of a closely-held LLC and (2) either purchases a
minority shareholder’s interest or causes the LLC to do so through a redemption
when the result of the redemption is an increased ownership interest for
the majority owner and sole manager.[54]

 
3.       Rees-Jones’s fiduciary duty of loyalty
under the articles
 
Under section 7.001 of the
Business Organizations Code (BOC), corporations and most other business
organizations may, in their corporate documents, limit or eliminate the
liability of their governing persons except that they may not eliminate
liability for four specific categories of conduct, including breaches of the
duty of loyalty, certain conduct not taken in good faith, transactions
resulting in an improper benefit to the controlling person, and conduct for
which liability is expressly provided by an applicable statute. Tex. Bus. Org. Code Ann. § 7.001(b),
(c). Chief, however, was an LLC. LLCs are expressly excluded from section
7.001’s statutory restriction on the limitation or elimination of liability for
governing persons. Id. § 7.001(a)(1).
Chief’s members were thus free to expand or eliminate, as between themselves, any
and all potential liability of Chief’s manager, Rees-Jones, as they saw fit. See id. §§ 7.001(d)(3), § 101.401. 
In the articles, Chief’s members
chose not to completely eliminate Rees-Jones’s potential liability to Chief or
its members, but instead, limited it to the same extent that corporations may
limit the duties of their officers and directors. Largely tracking the language
in section 7.001(c) of the BOC, Chief eliminated Rees-Jones’s managerial
liability except for: 
(i)         
a breach of [Rees-Jones’s]
duty of loyalty to [Chief] or its members;
(ii)       an act or omission not in good faith that constitutes
a breach of [Rees-Jones’s duty] to [Chief] or an act or omission that involves
intentional misconduct or a knowing violation of the law;
(iii)     a transaction from which [Rees-Jones] received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of [his] office; or
(iv)     an act or omission for which the liability of a
manager is expressly provided by an applicable statute.[55]
Allen relies on Rees-Jones’s
“duty of loyalty to the Company or its members” in arguing that Rees-Jones owed
him a fiduciary duty. The duty of loyalty is a fiduciary duty, though one with
a particular scope. See Bohatch v. Butler & Binion, 977 S.W.2d 543, 545 (Tex. 1998); Pride Int’l, Inc. v. Bragg, 259 S.W.3d
839, 849 (Tex. App.—Houston [1st Dist.] 2008, no pet.); Loy v. Harter, 128 S.W.3d 397, 407 (Tex.
App.—Texarkana 2004, pet. denied); Landon v. S & H Mktg. Group, Inc.,
82 S.W.3d 666, 672 (Tex. App.—Eastland 2002, no pet.).[56]

In
his summary judgment motion, Rees-Jones contended that Chief’s articles “do not
impose a fiduciary duty on Rees-Jones that would run personally to Allen.” He
asserted that Chief’s articles “list the exact duties Rees-Jones held as
Manager” and “create[d] duties,” but the duties ran “to Chief and the [members]
collectively,” rather than to Allen
and the other members individually.[57]
Allen, in his summary judgment response, contended that the articles created a
duty not merely to Chief but to him as well. Corporate officers may assume
fiduciary duties to the company’s shareholders through a contract. See Somers v. Crane, 295 S.W.3d 5, 11
(Tex. App.—Houston [1st Dist.] 2009, pet. denied); Grinnell v. Munson, 137 S.W.3d 706, 718 (Tex. App.—San Antonio
2004, no pet.); Fawcett, 55 S.W.3d at
220. Because the parties assume that the articles created a fiduciary duty and
limit their contentions to the identity of that duty’s beneficiary, we do the
same. 
We
disagree with Chief’s contention that Rees-Jones’s “duty of loyalty to
[Chief] or its members” runs to Chief’s members collectively but not
individually.[58]
“Plural words may be
reasonably interpreted to include the singular.” Hill v. Boully, No. 11-08-00289-CV,
2010 WL 2477868, at *3 (Tex. App.—Eastland June 17, 2010, no pet.) (mem. op.); cf. Tex.
Gov’t Code Ann. § 311.012(b) (West 2005) (providing that, in statutory
construction, “[t]he singular includes the plural and the plural includes the singular”).
Nothing in the language of Chief’s articles indicates that the word “members”
is intended to refer only to the members as a whole and not to include members
individually or in groups of less than all. We will not narrow the
interpretation of the word “members” to less than its plain and ordinary
meaning absent some basis for doing so in the contract. See Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex.
2005) (“Contract terms are given their plain, ordinary, and generally accepted
meanings unless the contract itself shows them to be used in a technical or
different sense.”); see also Strebel, 2012 WL 112253, at *10 (citing
prior version of this opinion and interpreting provision in LLC agreement that
“Managers shall have fiduciary duties to the Company and the Members” as
including individual members).
Moreover, even if we were to conclude that the phrase “to
[Chief] or its members” could reasonably refer to Chief’s members collectively,
to the exclusion of the individual members, the provision would be ambiguous at
best, creating a question of fact for the jury. See Italian Cowboy, 341 S.W.3d at 333. 
Rees-Jones thus has not conclusively proven that he did not
owe a duty of loyalty to Allen under Chief’s articles. Nor did Rees-Jones
conclusively prove that his duty of loyalty was not implicated by Chief’s
redemption of Allen’s ownership interest. To the contrary, Allen asserts, and
Rees-Jones has not denied, that Chief’s 2004 redemptions resulted in an
increase of Rees-Jones’s ownership interest in Chief from 57.84% to 77.19%.
Because the duty of loyalty places restrictions on a governing person’s ability
to participate in transactions on behalf of the company when the person has a personal
interest in the transaction, Rees-Jones’s involvement in the redemption
implicates his duty of loyalty. See, e.g., Int’l Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 576 (Tex.
1963) (describing when recovery is allowed against corporate fiduciary who
realizes personal profits in matters of corporate interest); Loy, 128 S.W.3d at 407 (“The duty of loyalty dictates
that a corporate officer or director must act in good faith and must not allow
his or her personal interest to prevail over the interest of the corporation.”);
Landon, 82 S.W.3d 672 (same); see also Gearhart
Indus., Inc. v. Smith Int’l, Inc., 741 F.2d 707, 722 (5th Cir. 1984) (addressing allegations
that directors had personal pecuniary interest in issuance of debentures under
fiduciary duty of loyalty); Ruth v. Mims,
298 B.R. 272, 288 (N.D. Tex. 2003) (observing that duty of loyalty restricts transactions
“in which directors personally profit from the transaction or those which
deprive the corporation of a profit opportunity”). Chief therefore failed to prove that Rees-Jones
did not owe Allen a fiduciary duty of loyalty with respect to the redemption of
his interest in Chief. 
4.       Conclusion
Because Chief has not conclusively proven that Rees-Jones
did not owe Allen any fiduciary duty, the trial court erred to the extent it
granted summary judgment on Allen’s breach of fiduciary duty claim on this
ground. 
Shareholder
Oppression
Chief argues that it did not
engage in oppressive conduct because it treated all members alike, made no
effort “to push Allen out with some oppressive conduct,” and was willing “to
provide all members with all the information they would need to decide whether
to redeem” so they could make their own “independent business decision.” Allen
responds that his shareholder oppression claim is based on other “wrongful
conduct” represented by his fraud claims. 
“The doctrine of shareholder
oppression protects the close corporation minority stockholder from the
improper exercise of majority control.” Douglas Moll, Majority Rule Isn’t
What It Used To Be: Shareholder Oppression In Texas Close Corporations, 63 Tex. B.J. 434, 435 (2000). This
court defines shareholder oppression as:
(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.
 
Willis v. Bydalek, 997 S.W.2d 798, 801
(Tex. App.—Houston [1st Dist.] 1999, pet. denied); see also
Ritchie v. Rupe,
339 S.W.3d 275, 289 (Tex. App.—Dallas 2011, pet. denied); Redmon, 202 S.W.3d at 234. “In
deciding whether conduct rises to the level of oppression, courts must exercise
caution, balancing the minority shareholder’s reasonable expectations against
the corporation’s need to exercise its business judgment and run its business
efficiently.” Ritchie, 339 S.W.3d at
289. As we observed in Davis
v. Sheerin,
“Courts take an especially broad view of the application of oppressive conduct
to a closely-held corporation, where oppression may more easily be found.” 754
S.W.2d 375, 381 (Tex. App.—Houston [1st Dist.] 1988, writ denied). “The jury
determines what acts occurred (assuming those facts are in dispute), but
whether those acts constitute shareholder oppression is a question of law for
the court.” Ritchie, 339 S.W.3d at 289.
The conduct alleged in this case
is not the typical wrongdoing in shareholder oppression cases: Allen was not a
terminated employee; he was not denied access to company books or records; and
there was no allegation that Rees-Jones wrongfully
withheld dividends, wasted corporate funds, paid himself excessive compensation,
or locked Allen out of the corporate offices. Cf. Willis, 997 S.W.2d at 802 (describing fact patterns in various
shareholder oppression cases). Likewise, Allen presented no evidence that he
was “squeezed-out” of the company. Cf.
Redmon, 202 S.W.3d at 235. 
Allen focuses on the “wrongful
conduct” of fraud by misrepresentations and omissions and breach of fiduciary
duty. While Allen successfully raised a fact issue as to his fraud and
fiduciary duty claims, he cites no case, nor can we find one, that extends
shareholder oppression to include these causes of action. In addition, there is
little necessity for this cause of action when the minority shareholder has
non-disclosure and fiduciary duty claims. Cf.
Hyundai Motor Co. v. Rodriguez, 995 S.W.2d 661, 665 (Tex. 1999) (holding
that when negligent design and strict liability design claims are functionally
identical, “a trial court is not required to, and should not, confuse the jury
by submitting differently worded questions that call for the same factual
finding”). Because the complained-of actions by Chief are not similar to the
previously recognized examples of shareholder oppression and Allen cites no
case allowing conduct that is fraudulent or in breach of a fiduciary duty to be
the basis of a shareholder oppression claim, we hold the trial court properly granted
summary judgment on this claim.[59] 
Texas Securities
Act
Chief sought summary judgment on
Allen’s TSA claims on the grounds that they are barred by the TSA’s
knowledge-based affirmative defense and by the statute of limitations. Allen
challenges both grounds. 
A.      Knowledge
of the untruth or omission
          Under
the TSA, a defendant-buyer is not liable if it “sustains the burden of proof
that . . . the seller knew of the untruth or omission.” Tex. Rev. Civ. Stat. Ann. art. 581-33B (West 2010).
Rees-Jones and Allen sought summary judgment on this affirmative defense,
relying on Allen’s knowledge that (1) natural gas prices had increased and
therefore he believed Chief’s value had increased during the eight months
between the representations and the redemption and (2) the redemption agreement
specifically provided that the redemption price reflected Chief’s October 2003
value. We conclude that Allen’s knowledge about the change in Chief’s value has
the same effect on Allen’s TSA claims as it had on Allen’s other fraud claims
under the “justifiable reliance” requirement: it does not bar Allen’s TSA claims
except to the extent Allen alleges that Rees-Jones’s representations communicated
information about the suitability of the redemption price and the value of
Chief and its assets at the time of the redemption.[60]
Thus, as we did with Allen’s other fraud claims, we hold that the trial court
erred to the extent it relied on this defense to grant summary judgment on
Allen’s TSA claims, except that Allen may not assert that he was misled by
Rees-Jones’s statements as to Chief’s value at the time of redemption, changes
in Chief’s value between October 2003 and the redemption, or the suitability of
the redemption price.
B.      Statute
of limitations
Under the TSA, a defrauded
seller must bring suit within “five
years after the purchase,” and within “three years after discovery of the untruth or omission,
or after discovery should have been made by the exercise of reasonable
diligence.” Tex. Rev. Civ. Stat.
Ann. art. 581-33H(3)(a), (b) (West 2010). Allen filed suit just under
three years after the redemption.[61]
But Chief contends that Allen discovered or should have discovered the alleged
fraud several months before the redemption, making his suit untimely.[62]
1.       When limitations began to
run
Chief contends that limitations
ran from the date Allen discovered or should have discovered its alleged fraud,
which it contends was months before the redemption. Allen contends that the date
of the fraudulent sale is the earliest date from which limitations may run. We
give the statute its plain meaning and hold that subsection (a)’s five-year
repose period runs from the date of the redemption and subsection (b)’s
three-year limitations period runs from the date Allen discovered or should
have discovered the alleged “untruth[s] or omission[s],” without reference to
the timing of injury or damages.[63]
Id. art. 581-33H(3)(b); see Fresh Coat, Inc. v. K-2, Inc., 318
S.W.3d 893, 901 (Tex. 2010) (“we begin with the
statute’s text, relying whenever possible on the plain meaning of the words
chosen.”) (citations and quotations omitted). 
Allen
argues that we should not give section 33H(3)(b) this plain meaning because,
under that interpretation, limitations could begin to run before a claimant has
a legal injury, contrary to “sound logic and public policy.” See Span Enters. v. Wood, 274
S.W.3d 854, 859 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (stating
general rule that cause of action accrues when wrongful act causes legal
injury). He asserts
that beginning limitations before the sale, and therefore before his injury,
“turns the discovery rule on its head” by shortening the limitations period.[64] But Allen conflates the
common law discovery rule and the TSA’s statutory discovery rule. The former is
a judicially-crafted doctrine that tolls an otherwise applicable limitations
period when the Legislature has been silent as to when a cause of action
accrues. See Moreno v. Sterling Drug,
Inc., 787 S.W.2d 348, 353 (Tex. 1990). The latter is a statute in which the
Legislature has specifically defined the date from which limitations will run. See Tex. Rev. Civ. Stat. Ann. art. 581-33H(3)(b). By enacting
subsection (b), the Legislature displaced the common law discovery rule,
replacing it with a discovery rule of its own crafting. See Moreno, 787 S.W.2d at 353 & n.3 (noting that, when
Legislature prescribes specific event as commencing limitations, the courts
have no need and no authority to alter that date with common law discovery
rule).[65]
The rule crafted by the Legislature here ties limitations to discovery of the
untruth or omission, without regard to whether that discovery occurred or
should have occurred before the sale.
See Tex. Rev. Civ. Stat. Ann. art. 581-33H(3)(b). We will not
interject such a distinction.
Allen’s insistence that we tie
the limitations provision in subsection (b) to the date of sale also ignores
the Legislature’s choice of language. Subsection (b) is immediately preceded by
another subsection, subsection (a), which is
tied to the date of sale. Id. When the legislature uses
certain language in one part of the statute and different language in another, we
presume different meanings were intended. See Galveston Indep. Sch.
Dist. v. Jaco, 331 S.W.3d 182, 185–86 (Tex. App.—Houston [14th Dist.] 2011,
pet. denied) (quoting Sosa
v. Alvarez–Machain, 542
U.S. 692, 712 n.9, 124 S. Ct. 2739, 2754 n.9 (2004)). 
Allen nevertheless maintains
“that literal construction is contrary” to Baxter
v. Gardere Wynne Sewell LLP, 182 S.W.3d 460 (Tex. App.—Dallas 2006, pet.
denied). We disagree. The issue there was not whether the TSA’s discovery rule
began upon the discovery of the wrongful act; the defendant’s contention was
that limitations barred the plaintiffs’ claim because they had discovered their
injury more than three years before the lawsuit even though they did not know
the identity of the wrongdoer. Id. at
463–64. The court agreed that it was unnecessary for the plaintiff to have
discovered the wrongdoer’s identity before limitations commences. Id. That holding is not inconsistent
with our analysis here.[66]
And the Baxter court
specifically observed that the TSA “expressly establishes the relevant
inquiry for discovery rule purposes, i.e. discovery of the ‘untruth or
omission.’” Id. at 463. Moreover, the
language in Baxter quoted by Allen
(stating that the rule delays accrual of a cause of action until the plaintiff
knew or should have known of the “injury”) is in a discussion of the common law
discovery rule, which the Baxter court
recognizes is replaced by the TSA’s “‘built-in’ discovery rule.” Id.
Giving the statute its plain
meaning, we conclude that Allen was required to file his suit within five years
after the redemption, which he did, and within “three years after discovery of the untruth or omission,
or after discovery should have been made by the exercise of reasonable
diligence,” which Chief contends he did not. Id. art. 581-33H(3)(a),
(b).
2.       When Allen should have discovered the untruth
or omission
 
Chief contends that Allen should
have discovered the alleged misrepresentations and omissions more than three
years before he filed suit. In its summary judgment motion, Chief supported
this contention with evidence of Allen’s actual knowledge, addressed above,[67]
and also argued that its “summary judgment evidence shows that Allen was on
inquiry notice well before” three years before the suit because “he had formed
a subjective belief that the value of Chief had increased” and “[t]his
subjective belief is a storm warning placing Allen on inquiry notice.” We have
already held that Allen’s actual knowledge of Chief’s increased value bars him
from asserting a TSA claim based on Rees-Jones’s statement regarding an
expected decline in Chief’s value; for the same reasons we held that knowledge
did not bar Allen’s remaining TSA claims, we hold that it does not commence
limitations on those claims. 
Chief also maintains that the
“public record” contained facts that Allen should have discovered in the
exercise of reasonable diligence. Specifically, Chief pointed to these public sources
of information in its motion for summary judgment: (a) Texas Railroad Commission
records, (b) an April 16, 2004 report on the Barnett Shale from Morgan Stanley,
(c) an email sent by Raymond James, Allen’s investment advisors, and a Goldman
Sachs meeting preview, and (d) the DrillingInfo.com website and news stories in
the Fort Worth Star Telegram and Weatherford Democrat. Even if we were to assume
that Allen was aware or should have been aware of these information sources,
Chief has not met its burden of proof on limitations.[68]
          a.       Railroad
commission records
Citing to Allen’s deposition, Chief
asserted that Allen admitted that “Railroad Commission information is public,”
that he knew the commission’s location, and that he could have gotten
information from the Commission’s website. But Chief failed to identify or cite
to any specific information in the commission’s publicly available records that
it claimed would have revealed to Allen any of the alleged untruths or
omissions. Nor did it include the unspecified railroad commission records in its
summary judgment evidence or ask the trial court to take judicial notice of
such records. Chief thus failed to prove conclusively the date on which Allen
should have been aware of information in the railroad commission’s public
records that revealed one or more of the untruths or omissions underlying his
TSA claims. See Diversicare Gen. Partner,
Inc. v. Rubio,
185 S.W.3d 842, 846 (Tex. 2005) (“A defendant moving for summary judgment on
the affirmative defense of limitations has the burden to establish conclusively
that defense, including the accrual date of the cause of action.”); Villarreal
v. Wells Fargo Brokerage Servs., LLC, 315 S.W.3d 109, 118 (Tex. App.—Houston
[1st Dist.] 2010, no pet.) (stating that, when claimant discovery rule is pled,
moving defendant has “dual burden” of conclusively proving date of accrual and date
when the plaintiff discovered, or in the exercise of reasonable diligence
should have discovered, the wrongful act and resulting injury). 
b.      April
16, 2004 Morgan Stanley report 
In its summary judgment motion, Chief
pointed out that Allen admitted that an April 16, 2004 report on the Barnett
Shale from Morgan Stanley was available to him. Here too, Chief did not
identify or cite any specific information in this report that it contended
would have revealed to Allen one or more of the alleged untruths or omissions.[69]
Chief thus failed to establish, as a matter of law, the date on which Allen
should have been aware of information in the Morgan Stanley report that
revealed one or more of the untruths or omissions underlying his TSA claims. See Rubio,
185 S.W.3d at 846; Villarreal, 315 S.W.3d at 118.
c.       Raymond James email and Goldman Sachs
meeting preview
 
Chief stated in its summary
judgment motion, “By the Spring/Summer of 2004 other analysts had publicly
published their opinions on the Barnett Shale to Goldman Sachs and J.P.
Morgan,” citing to an email from Raymond James Energy Group containing its
“stat of the week” and a preview for an analyst meeting prepared by Goldman
Sachs. Chief did not assert or attempt to prove that Allen received or should
have obtained either the email or the meeting preview. Chief did not identify
or discuss any specific information in the Goldman Sachs document that it
contended would have revealed to Allen one or more of the alleged untruths or
omissions.[70] The only
information in the Raymond James email Chief discusses is this statement near
the end of the email: “If you have further questions, please contact any of the
following members of the Raymond James Energy Team at . . . .” Chief does not
attempt to show what information Allen would have or should have discovered if
he had contacted the Raymond James team or how that information would have
revealed one or more alleged untruths or omissions. Chief thus failed to establish,
as a matter of law, the date on which Allen should have been aware of
information in the Raymond James email or Goldman Sachs meeting preview that
revealed one or more of the untruths or omissions underlying his TSA claims. See Rubio,
185 S.W.3d at 846; Villarreal, 315 S.W.3d at 118.
d.      News stories and the DrillingInfo.com
website
Finally, Chief asserted in its
motion for summary judgment: “In addition, public newspapers such as the Fort Worth Star Telegram and Weatherford Democrat carried stories on
the Barnett Shale and operators during the same period. And websites such as
DrillingInfo.com were available with detailed summaries of well information.”
Again, Chief did not identify or discuss any specific information contained in
these sources that it contended would have revealed to Allen one or more of the
alleged untruths or omissions. Chief thus failed to establish, as a matter of
law, the date on which Allen should have been aware of information in the news
stories or on the DrillingInfo.com website that revealed one or more of the
untruths or omissions underlying his TSA claims. See Rubio, 185 S.W.3d at 846; Villarreal,
315 S.W.3d at 118.[71]

C.      Conclusion
Chief failed to prove
conclusively that Allen “knew of the untruth[s] or omission[s]” that are the
basis of his TSA claims or that the statute of limitations had expired on those
claims, except that Allen may not assert that he was misled by Rees-Jones’s
statements as to Chief’s value at the time of redemption, changes in Chief’s
value between October 2003 and the time of redemption, or the suitability of the
redemption price. The trial court therefore erred to the extent it granted
summary judgment on Allen’s TSA claims on this ground, except as to any TSA
claim in which Allen alleges he was misled as to the value of Chief and its
assets at the time of redemption or the redemption price.
Damages
 Chief moved for summary judgment on the ground
that Allen had no recoverable damages as a matter of law. It argued that Allen
cannot recover damages based on the difference between what his shares were
worth at the time of redemption and the subsequent sale of the company in 2006 because
(1) those damages are too speculative as a matter of law and (2) the TSA limits
his damages to the value of his shares “as of the date of the sale.” [72]
Allen responded that he is entitled to such recover damages based on
disgorgement of the increased value received by Rees-Jones, that they are not
too speculative, and that they are recoverable under the TSA as “income.” 
A.      Equitable
remedy of disgorgement
As an initial matter, Chief’s summary
judgment motion challenged Allen’s claim for actual damages and not whether he
could recover the equitable remedy of disgorgement. See Robertson
v. ADJ P'ship, Ltd.,
204 S.W.3d 484, 494 (Tex. App.—Beaumont 2006, pet. denied)
(stating that “disgorgement of profits has long been recognized as an
appropriate remedy for fraud”); see also
Daniel v. Falcon Interest Realty Corp., 190 S.W.3d 177, 187 (Tex.
App.—Houston [1st Dist.] 2005, no pet.). But
Allen’s common law fraud and breach of fiduciary duty claims do not require him
to show that he suffered actual damages. See
Italian Cowboy, 341 S.W.3d at 337 (listing “injury” among elements of fraud
claim, but not “damages”); Plotkin
v. Joekel,
304 S.W.3d 455, 479 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) (listing
“injury to the plaintiff, or benefit to the defendant” among elements of breach
of fiduciary duty claim, but not “damages”); see also ERI Consulting Eng’rs,
Inc. v. Swinnea, 318 S.W.3d 867, 874 (Tex. 2010) (noting that
disgorgement and fee forfeiture are equitable remedies intended to prevent
abuses of trust, “regardless of proof of actual damages”); Bonanza Rests. v. Uncle Pete’s, Inc., 757 S.W.2d 445, 448 (Tex.
App.—Dallas 1988, writ denied) (holding that jury’s answer of $0 in damages
caused by fraud did not preclude claimant from recovering rescission of
franchise agreement induced by defendant’s fraud). Thus, Chief’s
challenge to Allen’s damage models is not, alone, sufficient to defeat Allen’s
right to any recovery on those claims. See
Burrow v. Arce, 997 S.W.2d 229, 237–45 (Tex. 1999) (holding that trial
court erred in granting summary judgment against breach of fiduciary duty
claimants on ground that there were no actual damages). Regardless, we
conclude that Chief did not establish that Allen has no recoverable actual
damages as a matter of law.
B.      Damages
based on value accrued after the date of sale
1.       Damages under the common
law: speculativeness[73]
Chief contends that Allen’s
damages claim based on Chief’s value two years after he sold his interest is an
attempt to “‘ride’ the market risk-free, suffering no loss if the market goes
down, but participating in gains in hindsight if the market goes up” and to “rewrite
the deal so he can receive all of the upside from Chief’s post-2004 market
increase without ever having shared any of the post-June 2004 risk.” It asserts
that “Texas law does not allow this sort of speculative remedy,” citing Miga v. Jensen, 96 S.W.3d 207, 216–17
(Tex. 2002) and Reardon v. LightPath
Tech., 183 S.W.3d 429, 441–42 (Tex. App.—Houston [14th Dist.] 2005, pet.
denied). Allen challenges these arguments.
a.       Miga
and Reardon
In Miga, an employer granted an employee, Miga, an option to purchase
stock in a privately-held corporation but refused to honor the option after the
employee was discharged. 96 S.W.3d at 209–10. The trial court rendered judgment
for Miga on his breach of contract claim and awarded him lost profits based on
the value of the stock at the time of trial—three years later, during which
time the company had gone public and undertaken a stock split. Id. 
The Texas Supreme Court held
that Miga could not recover the “lost profits” awarded under his breach of
contract claim:
[Miga’s] only evidence of “lost profits” was the increased market value of [the
company’s] stock, and the jury’s award coincided with the stock’s market value
at the time of trial. But an increase in the market value of goods never
delivered under a contract is not the same as lost profits. Lost profits are
damages for the loss of net income to a business measured by reasonable
certainty. Here, there was no evidence before the jury that Miga
suffered reasonably certain business losses resulting from Jensen’s breach. . .
. Miga did not testify about what particular profit he expected, or that the
parties contemplated a particular resale of the stock; in fact, Miga testified
that he would not have sold it. 
 
Id. at 213. The Court stated that “the
rule in Texas has long
been that contract damages are measured at the time of breach, and not by the
bargained-for goods’ market gain as of the time of trial.” Id. at 214.
The Court rejected Miga’s
argument that not allowing him to recover the increase in the stock’s value
effectively rewarded the employer for his breach, noting that the employer
might benefit from the post-breach increase in the stock’s value but had also
assumed the risk of any decrease in the stock’s value. Id. at 216. Awarding Miga damages based on the appreciated value of
the stock, on the other hand, would have “ma[d]e him better off than he would have been had the agreement been
honored by giving him an investment free of the risks other shareholders
undertook.” Id. “More importantly,”
the Court stated, “trying to determine what part of the stock’s appreciation
Miga would have realized had he obtained the stock in December 1994 is too
speculative.” Id. at 216–17.
In Reardon, the Fourteenth Court of Appeals relied on Miga to reject the “highest intermediate
value” theory of damages in a securities fraud action. 183 S.W.3d at 441.[74]
After concluding that the shareholder-plaintiffs had not presented any evidence
of “rescissory damages” because they failed to account for the purchase price
they received for their shares, the Reardon
court also noted that the testimony of the plaintiffs’ expert relied on an
unsupported assumption that the shareholders would have converted their shares
on the date of the shares’ highest value. Id.
at 440. In light of the Supreme Court’s analysis in Miga, the Reardon court
held that this damages theory, which adopted the “highest intermediate value”
of the shares without evidence that the shareholders would have actually sold
at that value, was too speculative and would give the shareholders a “windfall
yielded from a riskless investment in a high-risk field.” Id. at 441–42.
b.      Allen’s
damages claim
Miga and Reardon do not preclude
Allen’s damages claims for two reasons—one procedural and one substantive. Procedurally,
unlike Miga and Reardon, where the plaintiffs had been put to their burden of producing
evidence to raise a fact issue on damages, this is an appeal from a traditional
summary judgment in which Allen bore no evidentiary burden on damages. See Miga, 96 S.W.3d at 209; Reardon, 183 S.W.3d at 431. The missing
evidence necessary to provide reasonable certainty in Miga and Reardon may yet
be forthcoming here. Cf. Miga, 96
S.W.3d at 213 (noting that there was no evidence that Miga “suffered reasonably
certain business losses” when he “did not testify about what particular profit
he expected, or that the parties contemplated a particular resale of the
stock”); Reardon, 183 S.W.3d at
439–40 (noting that claimants’ damages expert “pile[d] speculation upon
speculation” by assuming what shareholders would have done with their shares,
without ever having talked to a single investor). While the courts in Miga and Reardon rightfully held the claimants accountable for their failure
to support their damage models with evidence, we may not hold Allen accountable
for failing to present supporting evidence when he had no burden to do so. Cf. Miga, 96 S.W.3d at 209; Reardon, 183 S.W.3d at 431.[75]

Ultimately, the speculativeness
of Allen’s damages model is, at this point, itself speculative. Although Chief
asserts that Allen seeks to recover under the “highest intermediate value”
damages model rejected in Reardon,
neither Allen’s pleadings nor the summary judgment evidence limit Allen to that
damages model. If the evidence at trial established how many shares Allen would
have kept but for Rees-Jones’s allegedly fraudulent statements and the date on
which he would have subsequently sold those shares, the mere fact that the
shares had a high, or even their highest, value on that date does not convert
Allen’s damage theory into a speculative theory that simply assumes a date of
sale or conversion. Cf. Reardon, 183 S.W.3d at 441–42
(noting that federal courts do not apply “highest intermediate value” theory,
but instead, allow the jury to determine a reasonable time in the future when
claimants would have sold their stock).[76]

Miga does not preclude Allen’s damages for a second, substantive reason—it
does not address damages recoverable under Allen’s causes of action: fraud,
breach of fiduciary duty, and the TSA. As the Court described it, “This is a
classic breach of contract case; Miga
has no cause of action for fraud.” Id.
at 211. This is not a breach of contract case, and it is not limited to breach
of contract damages models.[77]
Chief’s reliance on Miga is thus misplaced.
Chief also relies on Allen’s testimony
in which he stated that he was unable to say how many shares of his stock he would
have declined to redeem if Rees-Jones had disclosed specific information to him,
repeatedly referring to his answers as “speculation.” We agree that if Allen is
unable to present legally and factually sufficient evidence at trial as to the
number of shares he would have kept but for the alleged fraud, his damages may
be too speculative to submit to the jury. But we are not persuaded that his use
of the term “speculation” constitutes a magic word that renders Allen’s damage
claims speculative as a matter of law. We look to the substance of Allen’s
answers to determine their import. See State Farm Fire & Cas. Co. v. Rodriguez,
88 S.W.3d 313, 319 (Tex. App.—San Antonio 2002, pet. denied) (although expert testified that his opinion was a “wild ass guess,”
a court must nevertheless look at context in which term was used to determine
its reliability), abrogated by Don’s Bldg. Supply, Inc. v.
OneBeacon Ins. Co., 267 S.W.3d 20 (Tex. 2008). Allen
was asked what he would have done if certain, specific pieces of
information had been disclosed to him and repeatedly answered that his actions
would have depended on the context as a whole. He testified as to what he
believed he would have done under some circumstances, what he “would have presumably done” under other circumstances,
and that his previous conduct could be used as an indicator of what he would
have done. This testimony neither renders Allen’s damages speculative as a
matter of law nor precludes him from presenting more specific evidence at trial
of what interest he would have retained and when he would have sold that
interest but for Chief’s alleged fraud.
Finally, we note that the
damages that Chief challenges as too speculative to be recovered as actual
damages[78]
may be available in disgorgement, an equitable remedy it has not contested. See ERI Consulting, 318 S.W.3d at 873 (“courts may fashion equitable remedies such as profit
disgorgement and . . . may disgorge
all ill-gotten profits from a fiduciary when a fiduciary agent usurps an
opportunity properly belonging to a principal”). The uncertainties (at this
stage of the proceeding) as to how many shares Allen would have kept absent the
alleged fraudulent inducement and when he would have sold those shares do not pose
an obstacle to a potential disgorgement remedy because there is no dispute over
what Devon paid to acquire Chief. Cf. Ritchie, 339 S.W.3d at 299–300 (rejecting argument that
award should have been calculated according to value of the stock on date of
injury because trial court’s judgment reflected “award of equitable relief—not
damages”).[79]
2.       Damages under the TSA
Section 33D(4) of the TSA entitles
a defrauded seller to recover “(a) the value of the security at the time of
sale plus the amount of any income the buyer received on the security, less (b)
the consideration paid
the seller for the security plus interest thereon at the legal rate from the
date of payment to the seller.” See
Tex. Rev. Civ. Stat. Ann.
art. 581-33D(4). Relying on this provision, Chief asserts that “the TSA
statutorily limits damages to a difference in value ‘as of the date of the
sale.’” See id. Allen responds that “income”
includes a defrauding buyer’s profits on a subsequent sale of the wrongfully
obtained shares. Neither party has unearthed authority that directly addresses
this issue. 
We conclude that “income” does not include the defrauding
buyer’s proceeds[80] on a subsequent sale. A holding
to the contrary would result in the defrauded seller recovering the value of
the shares as of the date of the fraudulent sale twice—once for “the value of
the security at the time of the sale” and then again as part of the income from
the fraudfeasor’s resale, which would include the original value of the shares
plus any increase in value after the date of the fraudulent sale.[81] See id. Also, the interpretation of “income” proposed by Allen has
illogical consequences when applied to other subsections of section 33D. For
example, if “income” includes the income from a subsequent sale of the stock,
section 33D(3) would under-compensate a defrauded buyer who subsequently sold
his stock.[82] Interpreting the term
“income” to include dividends and other such typically periodic payments, but
not profits on a subsequent sale, is more consistent with the plain meaning of
the word and the compensatory purpose of the statute in light of the manner in
which the term “income” is used throughout the statute. See Black’s
Law Dictionary 778 (9th ed. 2009) (defining “income” as “[t]he money or
form of payment one receives, usu[ally] periodically, from employment,
business, investments, royalties, gifts, and the like”); Tex. Gov’t Code Ann. § 311.011(a)
(“Words . . . shall be read in context and construed according to the rules of
grammar and common usage.”); id. §
311.023 (“In construing a statute . . . a court may consider . . . [the] object
to be obtained . . . [and the] consequences of a particular construction”).
Thus, we hold that Allen may not recover the amount paid by Devon to acquire
the ownership interest in Chief previously owned by Allen as “income” under the
TSA. Chief has not proven, however, that Allen did not have other damages under
the TSA, such as distribution income.[83]
C.      Conclusion
on damages
We hold that Chief has not established its right to
judgment as a matter of law on any of Allen’s claims on the ground that Allen
has no damages. 
Conclusion
Chief did not prove that the terms
of the redemption agreement bar Allen’s statutory and common law fraud claims
as a matter of law, and because there is an issue of fact on Allen’s fraudulent
inducement claims, there is necessarily an issue of fact on the enforceability
of the agreement’s releases. Nor did Chief conclusively prove that Rees-Jones
did not owe Allen a fiduciary duty, that Allen’s claims fail for lack of damages,
or that limitations had run on Allen’s TSA claims. 
Chief did conclusively prove
that Allen cannot prevail on his shareholder oppression claim and that the Rees-Jones’s
statements about the difficulty of creating new value in the oil and gas
business and his expectations for Chief’s continued growth are opinion
statements that are not actionable in fraud. With respect to Rees-Jones’s
written statements regarding the expansion area of the Barnett Shale, drilling
technology, and the expected impact of these considerations on Chief’s value,
Chief has not established that Allen cannot rely on these statements to the
extent Allen alleges that these statements misled him about Chief’s future
prospects and induced him to redeem his interest in June 2004 when he otherwise
would not have done so; Chief has, however, established that Allen could not
justifiably rely on these statements—and, with respect to his TSA claims, is
barred by his actual knowledge from asserting a claim—to the extent Allen
alleges that these statements misled him about Chief’s value at the time of the
redemption, the change in Chief’s value between October 2003 and the time of
redemption, or the suitability of the redemption price.
We therefore affirm the trial
court’s summary judgment with respect to:
·        
shareholder
oppression
·        
common law and
statutory fraud (including TSA) arising out of oral representations by
Rees-Jones and the following written representations:
o  
“I frankly
consider creating new value of $5 million per year consistently in the oil and
gas business to be very difficult.”
 
o  
“I don’t expect
our growth to continue at this pace, which has been nothing short of
phenomenal.”
 
·       
common law and
statutory fraud (including TSA) arising out of Rees-Jones’s written statements to
the extent they allegedly misled Allen about the value of Chief or its assets
at the time of redemption, the change in that value between October 2003 and
the time of redemption, or the suitability of the redemption price.
 
We reverse the
remainder of the judgment and remand for further proceedings consistent with
this opinion.
Harvey Brown
Justice
 
Panel consists of Justices Higley,
Brown, and Halbach.[84]




[1]
          We issued an opinion on July 28,
2011. Both parties moved for rehearing, and appellees moved for en banc
reconsideration. We grant rehearing, withdraw our previous opinion and
judgment, and substitute this opinion and judgment in their place. We deny the
motion for en banc reconsideration as moot. See Brookshire Brothers, Inc. v. Smith, 176 S.W.3d 30, 33 (Tex.
App.—Houston [1st Dist.] 2004, pet. denied) (op. on reh’g).


[2]
          Devon Energy Production Company,
L.P. bought Chief Holdings, L.L.C. in June 2006 and renamed the company Devon
Energy Holdings, L.L.C. Allen brought suit against Rees-Jones and “Devon Energy
Holdings, L.L.C. formerly known as Chief Holdings, L.L.C.” Both parties treat
Devon Energy Holdings as Chief’s successor-in-interest. 


[3]
          In the legal analysis, we refer
to Chief and Rees-Jones, collectively, as “Chief” and to the summary judgment motions
as “Chief’s” summary judgment motion.


[4]
          We recognize that if, Allen
otherwise proves his TSA claim, but does not prove his fraudulent inducement
claims, the trial court will face the issue of whether the releases in the
redemption agreement are enforceable under the TSA. That issue is not necessary
to our disposition of this appeal. See Tex. R. App. P. 47.1.


[5]
          While Allen’s claims are
denominated as fraud claims, they are fraudulent inducement claims. Fraudulent
inducement “is a particular species of fraud” that requires proof of the common
law elements of fraud and a contract between the parties. Haase v. Glazner, 62 S.W.3d 795, 798–99 (Tex. 2001). 


[6]
          See Tex. Rev. Civ. Stat. Ann.
art. 581-33B.


[7]
          See Tex. Bus. & Com.
Code Ann. § 27.01.


[8]           In its
summary judgment motion, Chief argued that it was entitled to summary judgment
on the element of “material misrepresentation or omission” because (1)
Rees-Jones’s statements in his 2003 letter were non-actionable opinions and (2)
Rees-Jones’s other material communications to Allen—the Phalon and Haas
reports—were not misleading, particularly in light of the redemption agreement’s
“Independent Investigation” clause. We address the first argument here. We do
not address the second argument—except to the extent it relates to the effect
of the “Independent Investigation” clause, which we address separately—because,
in his appeal, Allen does not rely on the content of the Phalon or Haas reports
as containing misrepresentations or omissions that give rise to his fraud
claims. Similarly, we do not address Chief’s contentions that Rees-Jones’s
statements were not material because, essentially, only information relating to
Chief’s value at the time of redemption could be material to Allen’s decision
to redeem his interest. This was not a ground on which Chief requested summary
judgment. Chief’s summary judgment argument was that the statements were not
statements of fact—they were statements of opinion; Chief’s contention was not
that any  statements of fact were nevertheless not actionable because they
were immaterial. Nor did Chief offer summary judgment evidence establishing
that a “reasonable person” would not “attach importance to” and “be induced to
act on” information regarding Chief’s future prospects “in determining his
choice of actions in the transaction in question.” Italian Cowboy, 341 S.W.3d at 338. We limit our opinion to the
grounds for summary judgment presented to the trial court on which a party has
raised a point of error. See Tex. R. Civ. P. 166a(c) (“The motion
for summary judgment shall state the specific grounds therefor.”); Tex.
R. App. P. 33.1, 47.1. 


[9]           An
actionable statement is not necessary to Allen’s fiduciary duty claims, which
we do not address in this section. See Fossier v. Morgan, 474 S.W.2d 801, 803 (Tex. Civ.
App.—Houston [1st Dist.] 1972, no writ); Stokes v. Stokes, 48 S.W.2d 724, 727 (Tex. Civ.
App.—Eastland 1932, no writ).


[10]
        A fraud by non-disclosure claim
may arise out of (1) a fiduciary relationship, which encompasses a broad duty
of disclosure, or (2) a voluntary statement by the defendant, for which Texas
courts of appeals have imposed specific, narrow duties of disclosure. See JSC
Neftegas-Impex v. Citibank, N.A., No. 01-07-00397-CV, 2011 WL
480931, at *16 (Tex. App.—Houston [1st Dist.] 2011, pet. denied); Citizens
Nat’l Bank v. Allen Rae Invs. Inc., 142 S.W.3d 459, 477 (Tex. App.—Fort
Worth 2004, no pet.); Anderson, Greenwood & Co. v. Martin, 44 S.W.3d
200, 212–13 (Tex. App.—Houston [14th Dist.] 2001, pet. denied); see also RESTATEMENT (SECOND) OF TORTS § 551
(1977); but see Bradford v. Vento, 48 S.W.3d 749,
755 (Tex. 2001) (noting that the Texas Supreme Court has never recognized
duties of disclosure in § 551 of Restatement). Chief did not challenge the
duty-to-disclose element of Allen’s fraud claims—except in connection with the
effect of the terms of the redemption agreement, which we address separately.
We therefore assume, for purposes of this section, that Chief had a duty to
disclose information rendering any of Rees-Jones’s actionable statements
misleading or incomplete. Our holding in this section precludes Allen from
relying on specific non-disclosures—such as developments in drilling
technology, Chief’s expansion-area acquisitions, and achievements in expansion-area
production—in his fraud claims only if and to the extent that the undisclosed
information relates exclusively to a non-actionable statement. Our holding here
does not affect Allen’s fiduciary duty claims.


[11]
        Allen pled oral representations by
Rees-Jones, but the only statements on which he presents an “actionable”
argument are those contained in Rees-Jones’s letter. We therefore only consider
whether the trial court’s summary judgment on this ground should be reversed
with respect to those written statements. To the extent Allen’s brief frames
his “duty to disclose” argument as an “actionable” argument, we have already
recognized that Chief did not seek summary judgment on this ground and we
therefore presume a duty to disclose with respect to any actionable statements.

The principal oral statement
Allen attributes to Rees-Jones is a representation that the Phalon and Haas
reports did not need updating. Even if we held this representation to be
actionable, Allen’s reliance on the statement would not be justifiable in light
of the explicit terms of the redemption agreement, and his actual knowledge regarding
changes in Chief’s value would preclude a TSA claim.


[12]
        Rees-Jones expressly links the
statement of overhead and profit to the time of the letter—i.e., “now.”


[13]
        The parties do not appear to
dispute that there was, in fact, a strain in Chief’s relationship with Millard,
resulting in litigation, but Chief did not seek summary judgment on the ground
that it conclusively proved the truth of this statement.


[14]         Chief
argues that Allen had “equal access to knowledge” through publicly-filed
documents and therefore Rees-Jones did not have superior knowledge. We do not
reach this contention because we do not apply the superior knowledge exception
to any of Rees-Jones’s statements. To the extent Allen has asserted that a
statement is actionable on the basis of Rees-Jones’s superior knowledge, we
have held the statement to be either (a) actionable under another exception or
(b) not actionable on other grounds. 


[15]
        Because this statement is non-actionable,
it cannot create a duty to speak.


[16]
        Because this statement is non-actionable,
it cannot create a duty to speak.


[17]
        The introduction to the November
2003 letter likewise refers to Rees-Jones having made a “decision . . . to not sell the
company.”


[18]         For
context and greater detail, the paragraph reads as follows: 
Independent Investigation. The Redemption Price has been calculated and agreed
to by [Allen] and [Chief] on the basis of an appraisal by Phalon [] dated
October 1, 2003 (the “Appraisal”), which in turn was based on a reserve report prepared
by Haas Petroleum Engineering Services, Inc. dated October 1, 2003 (the
“Reserve Report”). [Allen] acknowledges and agrees that he has received and
read the Appraisal and the Reserve Report and has had the opportunity to obtain
any additional information (including information concerning events occurring
after the dates of the Appraisal and Reserve Report) necessary to permit him to
evaluate the Company’s proposal to acquire the Interest, and he has had an
opportunity to discuss the Appraisal, the Reserve Report and such additional
information with representatives of [Chief], the preparers of those reports and
his own advisors and consultants and obtain answers to any questions that he
may have had. [Allen] further acknowledges and agrees that the Appraisal and
the Reserve Report are estimates of value and reserves only and could differ
from the value and reserves that might be determined in some other context by
some other appraiser, engineer or other party. [Allen] has based his decision
to sell the Interest on (i) his own independent due diligence investigation,
(ii) his own expertise and judgment, and (iii) the advice and counsel of his
own legal, tax, economic, engineering, geological and geophysical advisors and
consultants. Events subsequent to the dates of the Appraisal and Reserve Report
may have a positive or negative impact on the value of the Interest but [Allen]
and [Chief] agree that the redemption of the Interest shall be consummated at
the Redemption Price in recognition of the fact that such price was the price
on the basis of which [Allen] agreed to sell, [Chief] agreed to buy, and
[Chief] agreed to undertake to raise the required capital to facilitate the
Closing . . . . Therefore, the parties hereto agree that the Redemption Price [herein]
shall be the price at which the Interest shall be redeemed regardless of any
difference in opinion on whether the Appraisal or Reserve Report are reflective
of actual values or reserves and regardless of any change in value of the
Interest that may occur subsequent to the dates of the Appraisal and Reserve
Report, and each party hereby releases the other from any claims that might
arise as a result of any determination that the value of the Interest at the
Closing was more or less than the Redemption Price.


[19]
        Forest Oil identified five factors as part of the totality of the
circumstances courts consider in determining the validity of a contractual
disclaimer: whether the disclaimer is “clear and unequivocal” and four extrinsic
factors. 268 S.W.3d at 60–61. Italian
Cowboy emphasized that this first factor is a “requirement” and therefore,
if not satisfied, it is dispositive of the disclaimer’s enforceability.


[20]         Similar
to the concerns expressed in Forest Oil,
the Delaware Court of Chancery has stated that non-reliance clauses should
generally be enforced because a contrary rule would countenance “a lie made by one contracting party in writing—the lie
that it was relying only on contractual representations and that no other
representations had been made—to enable it to prove that another party lied
orally or in a writing outside the contract’s four corners.” Abry Partners V., L.P. v. F & W
Acquisition L.L.C., 891 A.2d 1032, 1058 (Del. 2006). This has been
described as “a ‘double liar’ scenario.” Id.;
see also Steven M. Haas, Contracting
Around Fraud Under Delaware Law, 10 Del. L. Rev. 49, 52 (2008) (explaining
that in double liar scenario “the plaintiff—who claims to be a victim of a
lie—was itself a liar when it promised not to rely on the alleged misrepresentation.”).
Justice Easterbrook has identified two other
rationales for enforcing anti-reliance clauses: (1) “it ensures that
both the transaction and any subsequent litigation proceed on the basis of the
parties’ writings, which are less subject to the vagaries of memory and the
risks of fabrication” and (2) anti-reliance clauses have economic value for market participants. Rissman v. Rissman,
213 F.3d 381, 384 (7th Cir. 2000); see also Extra
Equipamentos E Exportacao Ltda. v. Case Corp., 541 F.3d 719, 724 (7th Cir.
2008) (stating that
anti-reliance clauses serve legitimate purpose because “a suit for fraud can be
device for trying to get around limitations that the parol evidence rule and
contract integration clauses place on efforts to vary a written contract on the
basis of oral statements made in the negotiation phase”). Enforcement of clear
anti-reliance clauses also “furthers the broader goal of certainty.” Haas, 10 Del. L. Rev. at 69.


[21]         The “Finality” clause states: “This
Agreement is the complete and final integration of the undertakings of the
parties hereto and supersedes all prior agreements and undertakings, whether
oral or written, between the parties with respect to the subject matter
hereof.”


[22]
        In Forest Oil, the parties represented that “none of them is relying
upon any statement or any representation of any agent of the parties” and
“[e]ach of [them] is relying on his, her, or its own judgment and each has been
represented by his, her, or its own legal counsel.” 268 S.W.3d at 54 n.4. In Schlumberger, the parties represented
that “none of us is relying upon any statement or representation of any agent
of the parties” and “[e]ach of us  is
relying on his or her own judgment and each has been represented by . . . legal
counsel[.]” 959 S.W.2d at 180.


[23]
        A clause that specifically waives
any claim for fraud is more clear than an independent investigation or
anti-reliance clause because while the purpose of an anti-reliance clause “is
to head off a suit for fraud,” such a clause “doesn’t say that; it uses the
anodyne term ‘reliance,’” the significance of which may not be understood by
the buyer. Extra Equipamentos E Exportacao, 541 F.3d at 724.


[24]         We offer
these merely for illustrative purposes. We do not hold that any particular
words must be stated in order for a disclaimer to preclude a fraudulent
inducement claim or that each one of these issues must be addressed in every
disclaimer. 
 


[25]         Chief
contends on appeal that Allen is “[s]eeking to wordsmith around the explicit
terms of his release” by contending that “the facts on which he now bases his
fraud claim are not facts that would have affected the value of Chief.” Allen
responds that a reasonable investor may decide whether to sell based not only
on the price but on the company’s future prospects. We agree with Allen. We do
not think it is axiomatic that a reasonable investor will always sell an
investment upon receipt of an offer of its fair market value. If that were
true, investors of publicly-traded stock would never hold onto a stock in anticipation
of future growth because the public market generally provides a willing buyer
who will pay the stock’s fair market value. A reasonable investor may consider
the totality of the circumstances in deciding whether to sell an investment,
including whether the offer reflects the investment’s value as well the
investor’s personal financial position and risk tolerance, the company and
management’s past performance, any anticipated changes in management, the
company’s future business prospects, and general economic conditions. The
price a reasonable investor will accept for the sale of stock may turn on the
market, but the decision of whether to sell may not.


[26]
        Italian Cowboy does not answer whether the clarity “factor” (Forest Oil’s term) or “requirement” (Italian Cowboy’s term) remains part of
the “totality of the circumstances” that is examined in determining a
disclaimer’s enforceability. Forest Oil,
268 S.W.2d at 60 (holding that court must examine the totality of the
circumstances”). Because a “totality of the circumstances” test by definition
examines all the circumstances, we conclude that clarity requirement is also a
factor for determining the enforceability of a disclaimer that is sufficiently
clear. 


[27]
        Allen presented evidence that he
and Rees-Jones were personal friends for over twenty years before the
redemption and that he had invested in Rees-Jones’s oil and gas ventures for
more than fifteen years. According to Allen’s affidavit, Rees-Jones “asked me
to place my ‘confidence and trust’ in him” when he offered Allen an ownership
interest in Chief. In a letter, Rees-Jones described each of the original
investors in Chief as “long-time friends.” Allen also testified that they had a
“close” and “long-term” relationship and that he had attended Rees-Jones’s
wedding. Allen stated that Rees-Jones “encouraged” him to place his trust and
confidence in Rees-Jones in making and protecting various investments over the
course of their relationship. In his
deposition, Allen testified that he subjectively relied on Rees-Jones, had
invested in several of Rees-Jones’s projects, and was “conditioned” to trust
Rees-Jones.


[28]
        A transaction between a fiduciary
and the party to whom the fiduciary duty is owed is not conducted at arm’s
length; rather, a heightened standard applies to the fiduciary’s part of the
transaction. See S.V. v. R.V., 933 S.W.2d 1, 34 (Tex. 1996); Arce v.
Burrow, 958 S.W.2d 239, 246 (Tex. App.—Houston [14th Dist.] 1997), aff'd
in part, rev'd in part on other grounds, 997 S.W.2d 229 (Tex. 1999).


[29]         We
resist finding the disclaimer effective merely because the majority of the
factors weigh in Chief’s favor. Courts must guard against becoming so
preoccupied with analyzing the number or details of the individual factors that
they lose focus on the essential question the factors are an aid in resolving.
In this case, the five factors suggest at least two broad areas of inquiry must
be met, areas of inquiry that are based in part on the concerns that courts
balance in creating these factors. 


[30]         For
similar reasons, bargaining power or actual bargaining has been required for
waivers of fraud under the DTPA and for waivers of jury trials. See Tex.
Bus. & Com. Code Ann. § 17.42 (West 2011) (providing that written
waiver of remedies is enforceable only when plaintiff does not have
significantly less bargaining power than other party); In re Prudential Ins.
Co. of Am., 148 S.W.3d 124, 132 (Tex. 2004) (stating that contractual jury
waivers are not enforceable if they are obtained by party taking unfair
advantage of others or using its “bargaining position, sophistication, or other
leverage to extract waivers from the reluctant or unwitting”); see also Abry Partners, 891 A.2d at 1056 (enforcing disclaimers of reliance
when contract is “the product of give-and-take between commercial parties who
have the ability to walk away freely”).


[31]         We
therefore cannot agree with Chief’s contention that Allen’s expertise and
sophistication make the redemption agreement an arm’s length transaction as a
matter of law. That interpretation would cause the arm’s length transaction
requirement to collapse into and be redundant of the sophistication factor. 


[32]         Nor is
reliance an element of Allen’s fiduciary claims. PAS, 350 S.W.3d at 610.


[33]
        Chief also asserts that the
redemption agreement imposed a “duty to investigate” on Allen, that Allen is
therefore charged with all knowledge that would have been revealed in a
“reasonably thorough review” of Chief’s records and personnel, and that Allen’s
reliance is unjustified in light of this access to information. Chief’s summary
judgment argument on reliance contains a single reference to this issue: “Allen
admitted he had unfettered access to Chief personnel and any questions he might
have about Chief.” Chief did not identify, or cite to evidence of, what
information Allen would have discovered in a “reasonably thorough review.” 
On appeal, Chief also contends
that information available to Allen through public records bars Allen’s TSA
claims. In its summary judgment motion, Chief argued that the same information
negated any justifiable reliance. We reject both contentions for the reasons
discussed in the TSA section below.


[34]
        Chief also contends that Allen’s
reliance on these statements is unjustified in light of the express language of
the redemption agreement, relying on the disclaimer provisions addressed above.
See JSC Neftegas-Impex, 2011 WL
480931, at *15–16; DeClaire, 260 S.W.3d at 46–48; DRC Parts, 112
S.W.3d at 858–59. We reject Chief’s reliance on the disclaimer provisions
because we have held that the  disclaimer
is unenforceable under Forest Oil. To
the extent Chief relies on Declaire
and DRC Parts to avoid the burden of Forest Oil’s enforceability test, that
reliance is misplaced. Those cases address express contract terms that were not
part of disclaimer or release provisions. DeClaire, 260 S.W.3d at 47–48
(holding that party could not avoid “sole recourse” language in contract on
basis of alleged prior oral agreement); DRC Parts, 112 S.W.3d at 858–59
(holding that party could not assert that he was fraudulently induced to enter
contract by oral representation that contract would be “exclusive” when
contract expressly stated that it was non-exclusive); cf. Forest Oil, 268 S.W.3d at 58–60 (applying test to language in
release and disclaimer clauses that contradicted allegations of oral
representations); Matlock Place Apartments, 2012 WL 117838, at *12–13
(same); McLernon, 347 S.W.3d at 330–33 (same). A disclaimer that is
unenforceable under Forest Oil does
not nevertheless bar justifiable reliance—otherwise, the enforceability test
would serve no purpose.


[35]         Texas law
applies the same qualifications for closely-held status to both corporations
and LLCs. Compare Tex. Bus. Orgs. Code Ann. § 101.463(a)
(defining closely-held LLC as LLC with fewer than 35 members that has no
membership interests listed on national securities exchange or regularly quoted
in over-the-counter market), with id. §
21.563 (defining closely-held corporation as corporation with fewer than 35
shareholders that has no shares listed on national securities exchange or
regularly quoted in over-the-counter market).


[36]         D & J
Tire, Inc. v. Hercules Tire & Rubber Co., 598 F.3d 200, 206 (5th Cir.
2010) (concluding that directors and officers owe minority shareholders
fiduciary duties when acquiring stock on corporation’s behalf); Centro
Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 952 N.E.2d 995,
1001 (N.Y. 2011) (noting that majority shareholder in closely-held LLC owed
fiduciary duty of full disclosure to minority shareholders in context of sale
of interest and release); Salm v. Feldstein, 799 N.Y.S.2d 104, 105 (N.Y.
App. Div. 2005) (stating that managing member of LLC owed fiduciary duty of
full disclosure to other member in purchase of member’s interest); Lazenby v. Godwin, 253 S.E.2d 489 (N.C. Ct. App. 1979) (holding that “special circumstances”
existed to establish fact question on whether fiduciary duty was owed by
president, manager, and majority shareholder of corporation to minority
shareholders in purchasing minority shareholders’ shares when minority
shareholders did not have equal access to information); Donahue v. Rodd Electrotype Co., 328
N.E.2d 505, 592–93
& n.17 (Mass. 1975) (holding that “stockholders in the close corporation owe
one another substantially the same fiduciary duty in the operation of the
enterprise that partners owe to one another” in context of dispute over
corporation’s repurchase of shares); see also Hollis v.
Hill, 232 F.3d 460, 468 (5th Cir. 2000) (noting that Donahue’s “recognition of special rules of
fiduciary duty applicable to close corporations has gained widespread
acceptance”); but see Adelson v. Adelson,
806 N.E.2d 108, 120 (Mass. App. Ct. 2004) (holding that fiduciary duty between
shareholders imposed by Donahue is
limited to matters of corporate governance and does not extend to majority shareholder’s
purchase of minority shareholder’s stock). 


[37]
        See Fiederlein v. Boutselis,
952 N.E.2d 847, 860 (Ind. Ct. App. 2011); U.S. Bank N.A. v. Cold Spring
Granite Co., 802 N.W.2d 363, 381 (Minn. 2011); McLaughlin v. Schenck,
220 P.3d 146, 155 (Utah 2009); Walta v. Gallegos Law Firm, P.C., 40 P.3d
449, 456–57 (N.M. 2001).


[38]
        G & N Aircraft, Inc. v.
Boehm, 743 N.E.2d 227, 236, 241 (Ind. 2001); see also Pointer v. Castellani,
918 N.E.2d 805, 808 (Mass. 2009); Patmon v. Hobbs, 280 S.W.3d 589, 594
(Ky. Ct. App. 2009); Purcell v. S. Hills Invs., LLC, 847 N.E.2d 991, 996–97 (Ind. Ct.
App. 2006); Walta, 40 P.3d at 456–57; Crosby v. Beam, 548 N.E.2d 217, 220 (Ohio 1989); Donahue, 328 N.E.2d at 592–93 & n.17; see generally Johnson v. Peckham, 132 Tex. 148, 151, 120
S.W.2d 786, 787 (1938) (recognizing duty of full disclosure when one partner
sells his interest to another). 


[39]
        See McLaughlin, 220 P.3d at 156 (noting, as one
justification for imposing fiduciary duty on majority shareholders in
closely-held corporation, increased likelihood that majority shareholders
control board of directors); Tully v.
McLean, 948 N.E.2d 714, 740 (Ill. App. Ct. 2011) (“[t]he essence of a
fiduciary relationship is that one party is dominated by another; the presence
of a significant degree of dominance and superiority”); see also Heaton v. Rohl,
954 N.E.2d 165, 175 (Ohio Ap. 2011) appeal not allowed, 954 N.E.2d 663
(Ohio 2011) (noting that, in closely-held corporations, heightened fiduciary
duty applies to shareholder who “so dominated the corporation that he or she
can be said to have been in control to the exclusion of the other”).


[40]
        See Jordan v. Duff & Phelps, Inc., 815 F.2d 429, 435 (7th Cir.
1987); Gerrard, 285 F.Supp.2d at 1344
n.17; Haussler v. Wilson, 330 P.2d 670, 674 (Cal. Ct. App. 1958).


[41]
        See Kaplan v. O.K. Techs.,
L.L.C., 675 S.E.2d 133, 137–40 (N.C. Ct. App. 2009), review
denied, 690 S.E.2d 699 (2010); Clearwater Trust v. Bunting, 626
S.E.2d 334, 337 (S.C. 2006); Merner v. Merner, 129 Fed. Appx. 342, 344
(9th Cir. 2005); Simmons v. Miller, 544 S.E.2d 666, 675 (Va. 2001); Olsen
v. Seifert, No. 976456, 1998 WL 1181710, at *4–6 (Mass. Super. Aug. 28,
1998); Nixon v. Blackwell, 626 A.2d
1366, 1380–81 (Del. 1993).


[42]
        Thywissen is distinguishable from Scherrer and Aitlqaid, as
well as the cases generally holding that shareholders in a closely-held
corporation do not owe each other a formal fiduciary duty. The duty imposed on
the shareholder-officer in Thywissen—the
duty to deal fairly with corporate assets—is one typically owed by corporate
officers. Although that duty is generally owed to the corporation and not individual
shareholders, the plaintiff-shareholder essentially stood in the shoes of the
corporation, which the two shareholders had sold to a third party as part of
the transaction in question. See
Thywissen, 781 S.W.2d at 682–85. 


[43]         See, e.g., Willis, 118 S.W.3d at 31 (holding that shareholder in closely-held
corporation does not owe formal fiduciary duty to co-shareholders but could owe
informal fiduciary duty under certain circumstances); Pabich v. Kellar,
71 S.W.3d 500, 504–05 (Tex. App.—Fort Worth 2002, pet. denied) (same); Hoggett
v. Brown, 971 S.W.2d 472, 487–88 (Tex. App.—Houston [14th Dist.] 1997, pet.
denied) (same); Kaspar v. Thorne,
755 S.W.2d 151, 155 (Tex. App.—Dallas 1988, no writ) (reversing judgment for
plaintiff because shareholder in closely-held corporation did not owe
co-shareholder fiduciary duty as matter of law and jury was not asked to find
informal fiduciary duty); but see Fisher v. Yates,
953 S.W.2d 370, 379 (Tex. App.—Texarkana 1997, pet. denied) (stating that if
company director had inside information that company was “about to be acquired,
he stood in a fiduciary relationship” to minority shareholders with duty to
disclose such information); Gaither v. Moody, 528 S.W.2d 875, 876 (Tex.
App.—Houston [14th Dist.] 1975, writ ref’d n.r.e.) (holding that director and
majority shareholder of corporation that solicited proxies for merger had
fiduciary relationship with minority shareholders).   


[44]         In
pre-existing relationships outside the business context, dominance is a reason
that courts recognize informal fiduciary relationships. See generally R.R. St. & Co., Inc. v.
Pilgrim Enters., Inc., 81 S.W.3d 276, 306 (Tex. App.—Houston [1st Dist.]
2001), rev’d in part,
166 S.W.3d 232 (Tex. 2005); see also Assoc. Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d
276, 287 (Tex. 1998) (stating that law recognizes confidential relationships
when influence has been acquired and abused and confidence has been reposed and
betrayed); Pope v. Darcey, 667 S.W.2d
270, 275 (Tex. App.—Houston [14th Dist.] 1984, writ ref’d n.r.e.) (“A confidential relationship exists where one person has
a special confidence in another to the extent that the parties do not deal with
each other equally, either because of dominance on one side or weakness,
dependence, or justifiable trust on the other.”). In
closely-held corporations, a key factor for determining whether an informal
fiduciary relationship exists is whether the majority owner exercises dominant
control over the company. Redmon v.
Griffith, 202 S.W.3d 225, 237 (Tex. App.—Tyler 2006, pet. denied); Hoggett, 971 S.W.2d at 488 n.13.


[45]
        See Texas Practice: Business Organizations § 18.3; Debra Hatter
& Rikiya Thomas, Swimming in
Unsettled Waters: Fiduciary Duties and Limited Liability Companies, 49-Aug.
Hous. Law. 22, 23 (2011) [herein, “Hatter & Thomas”]. 


[46]         See, e.g., 51 Am. Jur.
2d Limited Liability Companies § 11 (2012); Patmon,
280 S.W.3d at 596; Pointer, 918
N.E.2d at 808; Bushi v. Sage Health Care,
PLLC, 203 P.3d 694, 699 (Idaho 2009);
Purcell, 847 N.E.2d at 996; McConnell v. Hunt Sports Ent., 725
N.E.2d 1193, 1214 (Ohio Ct. App. 1999); Salm, 799 N.Y.S.2d at 105; see also Hatter & Thomas, at 24
(stating that most jurisdictions recognize that “fiduciary duties are owed by
managers in a manager-managed LLC and members in a member-managed LLC”). 
We have located only one Texas case that addresses whether formal
fiduciary duties exist in the LLC context. See
Suntech Processing Sys., LLC. v. Sun Commc’ns. Inc., 2000 WL 1780236, at *6
(Tex. App.—Dallas 2000, pet. denied); see
also Pinnacle Data Services, Inc. v. Gillen, 104 S.W.3d 188 (Tex.
App.—Texarkana 2003, no pet.) (addressing informal fiduciary relationship in
LLC context). In Suntech, the Dallas
Court of Appeals declined to recognize a formal fiduciary relationship between
members of an LLC. Id. The assertion
of fiduciary duty in Suntech was
based solely on the defendant-member’s 80% ownership of the LLC. Id. at 5. It did not involve any
allegations relating to control, nor did it discuss whether the
defendant-member was a manager of the LLC. Id.


[47]         Rees-Jones
was also the only Chief employee who communicated with Allen about the
redemption.


[48]         Some
courts question whether this is in fact the majority rule. See Van Schaack Holdings, Ltd. v. Van Schaack, 867 P.2d
892, 901 (Colo. 1994); see also Bailey
v. Vaughan, 359 S.E.2d 599,
603−04 (W. Va. 1987). 


[49]         See e.g.,
Lawton v. Nyman, 327 F.3d 30, 39–40 (1st Cir. 2003); Jordan, 815
F.2d at 435; Van Schaack Holdings, 867 P.2d at 899; Ajetlix Inc. v. Raub, 804 N.Y.S.2d 580, 587−88 (N.Y. Sup. Ct. 2005); Haussler v.
Wilson,
330 P.2d 670, 674 (Cal. Ct. App. 1958); Gibbs v. Dodson, 492 S.E.2d 923,
925–26 (Ga. Ct. App. 1997); Mansfield Hardwood Lumber Co. v. Johnson,
268 F.2d 317, 318–19 (5th Cir. 1959); Blakesley v. Johnson, 608 P.2d
908, 914 (Kan. 1980); Cf. Chiarella
v. United States, 445 U.S. 222, 227–29, 100 S. Ct. 1108, 1114−15
(1980). 


[50]
        Chief observes that the special
facts doctrine has not been adopted by the Texas Supreme Court and contends
that an intermediate court should not adopt this rule. But an intermediate
court—the Dallas Court of Appeals in Miller—has
already adopted this rule; the Texas Supreme Court elected not to disturb that
holding; and numerous other courts have adopted this rule. See n. 50, supra. 


[51]         See Strong v.
Repide, 213 U.S. 419, 433−34, 29 S. Ct. 521, 525−26 (1909)
(applying special facts test and recognizing, as matter of law, fiduciary duty
of disclosure when shareholder and principal officer with insider information
about value of the shares purchases shares from another shareholder); Hobart v. Hobart Estate Co., 159 P.2d
958, 432−33 (Cal. 1945) (endorsing “the rule that where an officer or a
director of a corporation has knowledge of special facts affecting the value of
its stock, he cannot deal with a stockholder at arm’s length but is under a
duty to disclose such facts before making a 
purchase or sale of the stock”).


[52]
        See. e.g., n. 50, supra.


[53]
        The scope of this fiduciary duty
is not necessarily the same as for other fiduciary duties. One court has found
that a director or officer who purchases shares from another shareholder has “a
type of limited fiduciary duty” of disclosure of material facts but does not
have a “comprehensive” fiduciary obligation “to
prove to the jury that the sale was . . . fair and reasonable to the seller.” Jernberg v.
Mann, 358 F.3d 131, 136–37 (1st Cir. 2004); see also Haussler v. Wilson, 330 P.2d 670, 674 (Cal. Ct.
App. 1958) (“‘Under the ‘special facts’ doctrine a corporate officer owes a
limited fiduciary duty in transactions with a shareholder involving the
transfer of stock’”); Van Schaack Holdings, 867 P.2d at 897 (holding
that officers or directors of closely-held corporations have fiduciary duty to
disclose material facts affecting value of corporate stock in purchasing stock
of minority shareholder under “special facts” doctrine). We do not decide the
scope of Rees-Jones’s fiduciary duty, as that issue was not before the trial
court and is not before this Court. 


[54]         See Lawton, 327 F.3d at 39–40
(following special facts rule in recognizing fiduciary duty as a matter of law
for officers who are majority owners to disclose material facts when insiders
in closely-held firm buy stock from outsiders in person-to-person transactions
or “causing the corporation to do so”).
 


[55]
        In its company regulations,
Chief’s members also chose to define the standard of care applicable to
Rees-Jones’s management of company affairs, requiring his “reasonable and best
effort” to conduct Chief’s business in a “good and businesslike manner” and
eliminating liability for any breach of the duty of care not arising to “gross
negligence or willful misconduct.”


[56]
        Chief did not define or limit
Rees-Jones’s duty of loyalty in its company documents, nor does the BOC define
the duty of loyalty in the LLC context. Typically, when our statutes are
silent, we look to the common law for guidance. See Austin Hill Country
Realty, Inc. v. Palisades Plaza, Inc., 948 S.W.2d 293, 295 (Tex.
1997) (“Because there is no statute addressing this issue, we look to the
common law.”); see also Belt v. Oppenheimer, Blend, Harrison &
Tate, Inc., 192
S.W.3d 780, 784 (Tex. 2006); PPG Indus., Inc. v. JMB/Houston Centers
Partners Ltd. P’ship, 146 S.W.3d 79, 87 (Tex. 2004).


[57]         In his
reply, Rees-Jones re-asserted that “the only duty created by Chief’s articles
is the duty of loyalty.”


[58]         Rees-Jones
argues that the phrase “or its members” refers to the owners collectively, and
therefore is only describing the duty to Chief itself. But if the phrase “or
its members” is only another way to refer to Chief, as Rees-Jones contends, the
phrase is superfluous because the duty to the company is stated in the same
sentence. A court should interpret contractual provisions, when possible, to
avoid making a provision meaningless. Lenape
Res. Corp. v. Tenn. Gas Pipeline Co., 925 S.W.2d 565, 574 (Tex. 1996); SP Terrace, L.P. v. Meritage Homes of Tex.,
L.L.C., 334 S.W.3d 275, 281 (Tex. App.—Houston [1st Dist.] 2010, no pet.).


[59]         We express
no opinion on whether a member of an LLC may assert a claim for shareholder
oppression.
 


[60]         Chief
does not allege that Allen had actual knowledge of Chief’s increased activity
in the expansion area, the advancements in horizontal drilling, the success of
competitors’ wells in the area, or Chief’s future prospects. 


[61]
        Allen filed suit on June 29, 2007.
The redemption agreement is dated June 30, 2004.


[62]         Chief
uses the term “inquiry notice,” taken from federal case law interpreting the
limitations period applicable to claims under the Securities Exchange Act of
1934. See 28 U.S.C. § 1658(b)(1) (providing
that securities fraud claim under federal law must be brought within two years
“after the discovery of the facts constituting the violation”). We decline to
use that term and the federal case law applying that standard because of
important differences between the language of the federal act and Texas’s act. See
Anheuser-Busch Cos., Inc. v. Summit Coffee Co., 934 S.W.2d
705, 708 (Tex. App.—Dallas 1996, writ dism’d by agr.) (noting that TSA
contained language “broader than that used in its federal counterpart” and
therefore federal law interpreting the federal act “does not control our
interpretation of” the TSA). Specifically,
limitations under the federal act run from discovery of the “facts constituting
the violation,” while limitations under the Texas act run from discovery of the “untruth or omission” or
the date on which such discovery “should have been made by the exercise of
reasonable diligence.” Compare 28 U.S.C. § 1658(b)(1), with Tex.
Rev. Civ. Stat. Ann. art. 581-33H(3)(b). Additionally, the United States
Supreme Court has recently interpreted the federal act’s “discovery of the
facts constituting the violation” as including scienter facts—i.e., a defendant
asserting the affirmative defense of limitations is required to prove the date
on which the claimant discovered not only that a material misrepresentation was
made but also that it was made with an intent to deceive. Merck & Co.,
Inc. v. Reynolds, --- U.S. ---, ---, 130 S. Ct. 1784, 1796–98 (2010). The
TSA, on the other hand, requires discovery of the “untruth or omission,” rather
the “violation,” and intent-to-defraud is not an element of Allen’s TSA claim. Tex. Rev. Civ. Stat. Ann. art. 581-33B,
F(1), H(3)(b); cf. id. art.
581-33F(2) (requiring intent for aider and abetter liability). In light of the
differences in the language of the statutes’ limitations provisions, we decline
to find guidance in federal case law applying limitations under the federal
securities act. We also note that the Supreme Court indicated in Reynolds that the “inquiry notice”
standard could not be used to replace an actual showing of when a
hypothetically reasonably diligent claimant would have discovered the facts
constituting a violation, though it could “be useful to the extent [it]
identif[ies] a time when the facts would have prompted a reasonably diligent
plaintiff to begin investigating.” --- U.S. at ---, 130 S. Ct. at 1798.


[63]
        A different limitations period may
apply if the buyer has made a rescission offer under the TSA. See Tex.
Rev. Civ. Stat. Ann. art. 581-33H(3)(c), (d). 


[64]
        We see no reason that the
Legislature must afford more time to a claimant who discovered or should have
discovered an untruth before a sale than to a claimant who discovered or should
have discovered an untruth after a sale. Allen contends that applying the same
time limit unfairly penalizes investors who discover or should have discovered
an untruth or omission before the sale because such investors “cannot sue
before the transaction because an essential element of his claim — a sale — had
not occurred.” In other words, an investor who discovered or should have
discovered the untruth or omission more than three years before the sale could
never timely file suit. But an investor who has knowledge of the fraud before
the sale may choose not to participate in the sale and if he chooses to
participate in the sale despite his knowledge, his claim is barred by TSA’s
knowledge defense. See Tex. Rev. Civ. Stat. Ann. art.
581-33A(2), B. An investor who is not aware of the fraud but should be has
three years to discover his claim, regardless of when the sale occurred. 


[65]
        It is the Legislature’s
prerogative to weigh the underlying policy considerations to determine when, if
ever, an otherwise valid claim may no longer be asserted. We have neither the
authority nor the inclination to override the Legislature’s decision. See Iliff
v. Iliff, 339 S.W.3d 74, 79 (Tex. 2011) (stating that role of courts
“is not to second-guess the policy choices that inform our statutes or to weigh
the effectiveness of their results” but to “interpret those statutes in a
manner that effectuates the Legislature’s intent.”) (quoting McIntyre v.
Ramirez, 109 S.W.3d 741, 748 (Tex. 2003)). 


[66]
        We are also unpersuaded by Allen’s analogy to the DTPA’s
statute of limitations. The DTPA’s discovery rule commences limitations after
the date the consumer “discovered or in the exercise of reasonable diligence
should have discovered the occurrence of the false, misleading or deceptive act
or practices.” Tex. Bus. Com. Code Ann.
§ 17.565. In Cal Fed Mortgage Co. v. Street, the Austin Court of Appeals
rejected an argument similar to Allen’s argument here. 824 S.W.2d 622,
625 (Tex. App.—Austin 1991, writ denied). The claimant admitted that he knew of the defendant’s alleged
deceptive practices on the dates when they occurred—all more than three years
before he filed suit—but argued that limitations did not begin to run until
years later, when he suffered damages. Id. The Austin court accorded the
statute its plain meaning and held that limitations on the claimant’s DTPA suit
ran from the date he discovered the defendant’s alleged deceptive acts. Id.
This Court has twice agreed with the Austin court’s holding. See
Holmes v. P.K. Pipe & Tubing, Inc., 856 S.W.2d 530, 537 (Tex. App.—Houston [1st Dist.] 1993, no
writ); Montgomery v. Ford Motor Credit Co., No. 01-09-00581-CV, 2010 WL
2431894, at *3 (Tex. App.—Houston [1st Dist.] June 17, 2010, no pet.) (mem.
op.). Allen argues the
Texas Supreme Court implicitly overruled these cases in KPMG Peat Marwick,
988 S.W.2d at 749. But the issue in KPMG
was not whether DTPA limitations ran from a date other than the date the
claimant discovered or should have discovered the deceptive act when that date
comes before the claimant suffers an injury; the issue in KPMG was whether the Texas Supreme Court had, in a prior case,
created a “new formulation” of the common law discovery rule that delayed
accrual until the claimant knew not only of the injury but of the “specific
nature of each wrongful act that may have caused the injury.” Id. The Court rejected this
misinterpretation of its prior jurisprudence, holding that limitations under
the DTPA had accrued when the claimant had suffered an injury that imposed a
duty to investigate, investigated, and should have discovered the alleged
wrongful conduct. Id. at 750.
Moreover, even if KPMG implicitly
overruled Cal Fed Mortgage and its
progeny, the language adopted in the TSA’s statute of limitations materially
differs from that of the TSA.


[67]
        Because we have already addressed
the effect of Allen’s actual knowledge under the TSA’s knowledge-based
affirmative defense, we need not address it again here. We address here Chief’s
argument based on information it claims Allen should have discovered by the
exercise of reasonable diligence.


[68]
        On appeal, Chief attempts to rely
on additional information available to Allen, particularly information in its
records, to which it asserts Allen had a right of access. It contends that it
preserved this argument in the trial court with statements in other sections of
the summary judgment motion in which it asserted that Allen had access to
Chief’s books and records but chose not to review them. These statements do not
identify any specific information in those records and are not sufficient to
allow the trial court to conclude that, as a matter of law, Rees-Jones and
Chief were entitled to summary judgment on the ground that there was
information in Chief’s records that Allen reasonably should have discovered
before June 29, 2004 that would have revealed the untruthfulness of one or more
of the actionable statements in Rees-Jones’s October 2003 letter. 
Similarly, while Chief has
consistently taken the position that Texas law imputes to Allen all information
available in public records, we look only to the specific information
identified by Chief in its summary judgment motion as commencing limitations,
as these were the only grounds before the trial court. 


[69]
        Chief included the Morgan Stanley
report in the summary judgment record and cited to the report once, in the
factual section of its motion: “Bottom-line: the jury is still out on whether
horizontal drilling can be successful across the entire non-core area.” Chief
made no argument tying this statement to its limitations defense.


[70]
        Chief did cite to the twenty-six page,
partially-illegible exhibit as a whole.


[71]
        Chief argues in its sur-reply that
limitations began to run when Allen signed the redemption agreement on June 22,
2004, rather than when the agreement became effective on June 30. Having
reviewed the motion for summary judgment, we agree with Allen that Chief did
not raise that issue before the trial court. We therefore do not address it. See Tex.
R. Civ. P. 166a(c); McConnell v.
Southside Indep. Sch. Dist., 858 S.W.2d 337, 341 (Tex. 1993) (“A [summary
judgment] motion must stand or fall on the grounds expressly presented in the
motion.”).


[72]         Chief
also argued that Allen cannot recover damages based on the difference between
what he received for his shares and what his shares were worth at the time of
redemption because he expressly contracted for the October 2003 price instead
of the time-of-redemption price. Because we conclude that Chief has not
established conclusively that Allen has no recoverable damages under the
measure of damages discussed above, we need not reach the issue of whether
Allen could also recover damages under this measure of damages.


[73]         The parties do not argue a distinction
between the damages available under the common law and those available under
section 27.01 of the Business and Commerce Code. See Tex. Bus. & Com. Code Ann. § 27.01. We therefore treat them
the same.


[74]
        Contrary to Chief’s assertion,
there is no evidence that the Devon sale “occurred at the height of the Barnett
Shale market.” 


[75]
        We note that some of the
circumstances of this case may make it easier for Allen to meet his evidentiary
burden on damages, when he is put to that burden, than it was for the claimants
in Reardon. First, Reardon involved forty-five claimants.
It might have been difficult to establish the date on which each of those
claimants would have sold their shares (or exercised their warrants) but for
the alleged fraud; instead of trying, the claimants employed a damages model
that simply assumed a single date—the date that maximized the damages claim—for
all claimants. Allen is only one claimant, and he may present evidence tending
to show the date on which he would have sold his interest in Chief if he had
not redeemed it in 2004. Second, unlike the company in Reardon, which went public at the time of the alleged fraud, Chief
remained a closely-held company at least until the sale to Devon in 2006. Thus,
Allen’s opportunities to sell his interests were severely limited—there may, in
fact, have been no opportunities before the 2006 sale to Devon. Finally, while Reardon involved a complicated scheme of
updating stock based on a company’s performance, this case involves a only
stock redemption and subsequent sale. The same is true for Miga. In Miga, nothing
indicated when or if the injured employee would have sold the stock if he had
acquired it. 96 S.W.3d at 213, 216. Allen, in contrast, asserts the 2006 sale
provides a clear date on which all ownership interests in Chief were sold.
Chief asserts that the 2006 sale is too attenuated from Allen’s 2004 redemption
decision because a factfinder must speculate that Allen would have kept his
entire interest for the two years between the redemption and the 2006 sale. But
nothing in the record indicates Allen could have sold his interest during this
intervening two years.


[76]          Chief also relies on other cases in which a
damages theory is rejected as too speculative because it is based on too many
assumptions. See Szczepanik v. First S.
Trust Co., 883 S.W.2d 648, 650 (Tex. 1994); Ramco Oil & Gas Ltd. v. Anglo-Dutch (Tenge) L.L.C., 207 S.W.3d
801, 824–25 (Tex. App.—Houston [14th Dist.] 2006, pet. denied). Those cases
involved, respectively, an instructed verdict and a final judgment. See Szczepanik, 883 S.W.2d at 649; Ramco Oil & Gas Ltd., 207 S.W.3d at
807. Thus, these cases are subject to the same distinction—the assumptions that
made the plaintiff’s damages theory too speculative there ultimately may be
proven, rather than assumed, here.


[77]         Unlike a
contract case, the law favors granting the benefit of the delay to the victim
of the fraud. See Janigan, 344 F.2d at 786 (noting that even
though unforeseeable increases in value after security sold to fraudulent party
are speculative, “[i]t is more appropriate to give the defrauded party the
benefit even of windfalls than to let the fraudulent party keep them.”); Jordan, 815 F.2d
at 441 (stating that courts award damages “based on defendants’ gain [to] make
the fraud unprofitable and therefore deter wrongdoing.”). 
 


[78]
        In his petition, Allen requested
as damages for common law fraud “a rescissionary quantum of damages measured by
the value of the interests on the date of the redemption, plus the gain
realized by Chief attributable to Allen’s interests with the sale of Chief, as
reflected by the price at which Devon agreed and purchased all outstanding
membership interests in Chief.”


[79]         On
rehearing, Chief characterizes the damages sought by Allen as direct damages
and contends that Miga and Arthur Anderson & Co v. Perry Equip.
Corp., 945 S.W.2d 812, 817 (Tex. 1997), recognize “a per se rule” that
direct damages in a fraud claim are measured as of the time of the sale or
fraud. We disagree. First, Chief’s contention does not address Allen’s claim
for disgorgement. Second, Allen specifically pleaded that he was seeking
consequential damages—to the extent that Allen seeks damages measured by the
loss he allegedly sustained by not retaining his interest, those damages are
consequential in nature. 


[80]
        We note that Allen substitutes the
term “profit” for “income,” arguing that he may recover Rees-Jones’s “profit” on
the subsequent sale. Using “profit,” rather than “income,” to calculate damages
lessens, but does not eliminate, the double recovery issue: the defrauded
seller recovers the difference between what he was paid and the actual value of
the shares at the time of sale twice, instead of recovering the entire value of
the shares at the time of sale twice. And, the statute uses the word “income,”
not “profit.” These two terms have different meanings—one accounts for
expenditures and the other does not. See,
e.g., Black’s Law Dictionary
778 (9th ed. 2009) (defining “income” and “profit” accordingly).


[81]
        For example, if a shareholder was
defrauded into selling his shares for $5 when they were actually worth $10, and
the fraudfeasor later re-sold those shares for $15, the defrauded seller would
recover $20: the difference between the value of his shares at the time of the
fraudulent sale and the price he received ($5) plus the income from the re-sale
($15): $5 + $15 = $20. But the shares were never worth $20—the seller’s
recovery exceeds the defrauder’s profits and any profit he reasonably could
have expected on the shares if he had kept them.


[82]
        Section 33D(3) entitles a
defrauded buyer to recover the consideration he paid for the shares with
interest, less either (i) the value of the security at the time he later sold
it plus the amount of any “income” he
received on the security or (ii) the actual consideration received for the
security when he later sold it plus
the amount of any “income” he received on the security. Tex. Rev. Civ. Stat. Ann. art. 581-33D(3). If income includes
the income from a subsequent sale, a defrauded buyer who pays $10 for shares
that are worth only $5 at the time he bought them, and who later sold those
shares for $2 (the value of the shares at the time of that sale), would recover
only $6 (exclusive of interest): the price he paid ($10) less the value/price
of the stock when he disposed of it plus any income ($2 + $2 = $4): $10 - $4 =
$6. Essentially, the price of the stock at the time he disposed of it ($2) is counted
against the defrauded buyer twice.


[83]         Section 5.2 of Chief’s regulations
expressly provides for distributions to members.


[84]
        The Honorable Joseph “Tad”
Halbach, Judge of the 333rd District Court of Harris County, participating by
assignment. 


