Opinion
05-21-01140-CV
01-24-2024
BRYAN LY, WALNUT CREEK CENTER, INC., LENG CHIV LY, AND SAO MINH LY, Appellants and Cross-Appellees v. MAYA WALNUT LLC F/K/A MAYA FOODS, INC, Appellee and Cross-Appellant
On Appeal from the 68th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-19-06309
Before Justices Pedersen, III, Goldstein, and O'Neill
The Hon. Michael J. O'Neill, Justice, Assigned.
MEMORANDUM OPINION
BILL PEDERSEN, III JUSTICE
In this case involving negotiation of a potential commercial lease, appellants bring six issues after trial by jury, and appellee cross-appeals. The trial court judgment awarded appellee $10,855,917 actual damages for fraud and $10,000,000 exemplary damages. We reverse and vacate the trial court's judgment and render judgment that appellee take nothing on its claims against appellants. We overrule appellee's cross-appeal challenging the jury's findings that it breached its contract with appellant Walnut Creek Center, Inc. We remand the case for rendition of a new judgment granting appellant relief.
BACKGROUND
Appellee Maya Walnut, LLC, formerly known as MAYA FOODS, INC. (tenant), is owned and operated by Hamdy Shalabi (Shalabi) and his brothers. Tenant owned and operated a grocery, El Rio Grande Latin Market Number 5 (El Rio). The grocery was situated in Walnut Creek Center. Appellants Bryan Ly, Sao Minh Ly, and Leng Chiv Ly own appellant Walnut Creek Center, Inc. (collectively, landlord).
We refer to Bryan Ly as "Ly." We identify other individual appellants by full name when appropriate.
Tenant purchased the lease for El Rio's premises in 2008. The lease provided it would expire September 30, 2019.
In 2016, landlord and tenant began negotiating a potential new lease of the premises. Tenant retained Syd Hurley as its real estate broker to negotiate on its behalf. Ly negotiated on behalf of landlord.
On May 17, 2017, Hurley emailed to Ly that landlord "moved on rent, so we are getting very close." On May 22, 2017, Ly emailed to Hurley and noted landlord would not agree to $7.50 per square foot and "it looks like we're about .50 cents apart." Ly concluded the email, "Would you be able to push them to agree, since we're nearly finish[ed]?" On June 20, 2017, Hurley emailed to Ly, "I think we are getting very close."
In December 2017, tenant submitted a draft lease agreement to Ly. The draft lowered tenant's proposed base rent. Ly told Hurley via telephone, "[W]e need to take a break, because we're going nowhere."
Shalabi testified negotiations did not progress in spring 2018. He characterized it as a period of delay.
In June 2018, Hurley and Ly met at a coffee shop and discussed the potential lease. Ly subsequently emailed to Hurley on June 27, 2018:
Hi Syd, glad we met at Starbucks last week as it was a productive face to face. I talked with the owners this past Monday and they also agree with our conversation.
As we discussed at Starbucks, we just need to get you the final numbers on the lease and get it moving.
Shalabi testified at trial he had investigated potential alternate locations for El Rio in 2018. He testified El Rio could not serve its existing customers if it moved more than two miles from its then-current location. He testified he identified an available alternate location a block away from El Rio. He testified the alternative site "was viable." But he acknowledged he thought it likely that a new lease would be negotiated for El Rio's current premises. Counsel asked whether the location of El Rio or the alternative site "was a better business deal." Shalabi answered El Rio's then-current location was "a better location." Shalabi testified he neither negotiated with the broker of the alternate property nor inquired about its rent. Hurley testified he "never spoke" to the landlords of the alternate location. The alternative location remained available in fall 2018.
Landlord signed a lease, dated July 9, 2018, for the premises then occupied by El Rio. But landlord did not lease the premises to tenant. Rather, landlord leased the premises to Chihuahua Foods, LLC and Mexico Foods, LLC as guarantor, doing business as El Rancho Supermercado (El Rancho). Landlord had not notified tenant of its negotiations with El Rancho. Nor did it notify tenant of the lease's execution.
On August 1, 2018, Ly sent an email to Hurley. It stated,
I was finally able to speak with the owners recently, and because there is ample time remaining, with the lease expiring September of next year, they unanimously agreed to renegotiate next year.
I know that's not what you or Hamdy wanted to hear, especially as you and I have been in the middle from the start and came frustratingly close to finalizing the terms. However with that being said, the owners informed me we'll continue discussing the final terms in the near future.
Hurley testified he was "in shock" when he read Ly's email. Hurley forwarded Ly's email to Shalabi. Hurley's forwarding email stated, "Not good news." He testified at trial, "It was not good news."
Shalabi testified he learned in summer or fall 2018 that El Rancho Supermercado announced it would reveal a big surprise in June 2019. He testified he placed an "emphasis" on his meeting with landlord after hearing of El Rancho's planned surprise. He acknowledged he "started trying to reach out more frequently" to negotiate with landlord. He acknowledged he was "trying to learn if this store [El Rio's premises] was the surprise that El Rancho had in mind . . . ."
On September 24, 2018, Hurley emailed to Ly, "[W]e are ready to get moving again and finalize the terms of our agreement." He concluded, "Please advise how you would like to get going on this."
Shalabi's testimony characterized negotiations as "continuous stalling, and stalling, and stalling"-so much so that a planned December 2018 meeting "was something for us to celebrate." Hurley testified the December 2018 meeting "occurred after a significant hiatus of several months in the conversations and, you know, we felt like we were very close before, then it kind of flattened out, not much happened." Shalabi testified that at the December meeting Ly gave him and Hurley "an indication" he would talk to the owners of the premises "and come up with an agreement to agree to 7.50 and/or 7.25 [per square foot]." He testified he and Hurley decided after the meeting "we're going to agree" to either price-$7.50 or $7.25- per square foot. He testified, "And we were under the understanding based on what he said, that we'll have a response within a week."
On January 9, 2019, Ly emailed to Hurley,
I received the text message Hamdy had sent and do want to apologize on the late reply. Multiple partners (along with myself) have been in and out of the country the last few months, and it was difficult to come to a consensus agreement among them (holidays didn't help).
With that being said, all parties are back in the states and we have a meeting next week to review many items, including El Rio's renewal.
I'll provide you their final decision next week.
On January 18, 2019, Hurley sent an email to Ly, stating:
I am sure you can understand our anxiousness in getting this wrapped up. We have been in the same holding pattern for a number of months now based on your assurances that you will be getting back to us with your final rent structure requirements. Everything else has been agreed to, and we [are] flat out of time to get this moving on our remodel plans. . . . We are ready to get this phase over . . . .
On January 23, 2019, Ly emailed to Hurley,
Regarding El Rio, I have not had a chance to fully discuss with the owners regarding their thoughts. They've been attending to their own business affairs. What I can say to you, is they have their options laid out in front of them, and due to an NDA, I can't discuss much else. At this point in time, I am not sure of the status on renewal.
However, I know Hamdy has contingency on other sites, as he made it clear to me recently and in the past I heard he has potentially moved forward with them.
On January 28, 2019, Hurley emailed to Ly,
To say that we were caught totally off guard by the new matters you raised in your email would be an understatement. When we met in Hamdy's office last December we agreed on every open term with you and we were ready to finalize the deal. You told us that you need to get the final approval for the rent number, and you subsequently confirmed that we would have that number no later than Friday a week ago. Now it seems to us that you are going in an entirely new direction. You are suggesting for the first time that there are other options being considered by the owners. I assume NDA means non-disclosure agreement-are you in negotiations with another party? If so, how could you meet with us in December and not have told us? I don't know where or what you heard regarding Hamdy's "contingency plans." What you do know is what we have told you repeatedly during this negotiation-that we had surveyed the options in this area, and your deal was and is the only deal we are working on. Why would we have
been considering alternatives, particularly in light of the December meeting where we were ready to sign the lease with you. This makes no sense to me. I think at this point we all need to get back together, with the owners in the room.
Shalabi testified he learned in January 2019 that landlord might have leased the premises to El Rancho. On January 31, 2019, Hurley emailed to Ly,
Hamby just forwarded me the attached screen shot from the El Rancho website. Have you signed a deal with them? You mentioned a NDA, that apparently they don't care about. Please tell me there is still some way for us to get a lease done with you.
On February 27, 2019, landlord sent tenant a notice of non-renewal of the existing lease. Tenant vacated the premises in October 2019 by agreement. Tenant closed its doors without relocating the grocery.
Shalabi testified "we had reached out" concerning the alternate location when he learned of the El Rancho lease in January 2019. He testified it no longer was available. He acknowledged another entity had "just" signed a lease for it.
Shalabi acknowledged there was "a possibility" for tenant to "take over" the El Rancho lease and that negotiations for that purpose with El Rancho occurred. He testified he rejected assuming El Rancho's lease due to El Rancho's proposed terms.
Tenant filed this lawsuit May 2, 2019, almost five months before the El Rio lease was to expire. In its first amended petition, tenant alleged landlord misrepresented its intentions during lease negotiations and failed to disclose the El Rancho negotiations and lease. It alleged,
. . . Defendants' blatantly dishonest negotiations with Plaintiff left it very little opportunity, if any at all, to find an alternate lease on the terms acceptable to Plaintiff. As result of Defendants' intentional and malicious concealment of material facts concerning Defendants' lease negotiations for the same premises with third party at the same time they were negotiating the lease renewal with Plaintiff and the subsequent execution of the lease with the third party, Plaintiff has sustained and will continue to sustain actual loss in the amount of more than $40 million.Tenant alleged fraud, negligent misrepresentation, conspiracy to commit fraud, promissory estoppel, and equitable estoppel. It sought exemplary damages. Landlord answered and Walnut Creek Center, Inc. counterclaimed for breach of contract for unpaid rent and property damage. It sought attorney's fees.
A six-person jury found Ly and Walnut Creek Center, Inc. committed fraud against tenant and that tenant sustained $1,500,000 damages for past lost profits, $3,000,000 for future lost profits, and $12,000,000 for lost business value. Related to its fraud answers, the jury assessed $10,000,000 in exemplary damages against Ly and Walnut Creek Center, Inc. The jury found Sao Minh Ly and Leng Chiv Ly were part of a conspiracy that damaged tenant. It found Ly and Walnut Creek Center, Inc. made a negligent misrepresentation on which tenant justifiably relied and awarded $1,500,000 for past economic loss and $3,000,000 for future economic loss therefor. On the promissory estoppel question, they found tenant substantially and foreseeably relied to its detriment on the promise of Ly and Walnut Creek Center, Inc. but answered "0" for past and future economic loss therefor. Moreover, the jury awarded Walnut Creek Center, Inc. $353,000 for unpaid rent and $100,000 for "diminution in value of the premises" caused by tenant's damage to the premises.
The final judgment recites tenant elected to recover damages for lost business value on its fraud claim. It states, "In accordance with the Court's recommendation to conform with the expert testimony presented at trial, Plaintiff accepts the Court's partial judgment non obstante verdict and is awarded $11,392,000.00 in damages for Lost Business Value" against all defendants (landlord) jointly and severally. The judgment includes an award of post-judgment interest. The judgment offset the award for actual damages by $453,000 for tenant's breach of contract and by $83,083 for landlord's attorney's fees. The judgment ordered that tenant recover $10,855,917 actual damages from all appellants, jointly and severally, and $10,000,000 exemplary damages from Walnut Creek Center, Inc. It awarded tenant total judgment of $20,855,917.
Landlord and tenant filed notices of appeal of the final judgment. This appeal and cross-appeal followed.
JUSTIFIABLE RELIANCE
Landlord contends in its first issue that appellee's fraud claim fails as a matter of law. Sub-issue 1(c) states,
No reliance as a matter of law. Is actual and justifiable reliance negated as a matter of law where (i) the claimed representations and omissions are inherently unreliable and (ii) numerous red flags would have alerted (and actually did alert) a sophisticated owner and broker that their company's lease renewal was in jeopardy?
Tenant specifically identifies landlord's misrepresentations as: (1) Ly emailed to Hurley that the owners had "unanimously agreed to renegotiate next year"- after the premises had been leased to El Rancho and (2) Ly stated at the December 2018 meeting he would obtain approval for the amount of rent and would send the final rent number by a date certain. It argues, "Any negotiations conducted after the lease with El Rancho was signed in July of 2018, including all representations made during the December 2018 meeting, were categorically fraudulent, since Defendants had no intention of leasing the premises to Maya after already leasing to El Rancho." Moreover, tenant argues landlord had a duty to disclose existence of the El Rancho lease. It argues, "Defendants' ongoing partial disclosures and failure to disclose the existence of the El Rancho lease after it was signed clearly made their representations regarding the ongoing and productive nature of the lease negotiations with Maya Walnut misleading and untrue. As such, Defendants owed Maya Walnut a duty to disclose the existence of the lease agreement with El Rancho."
As noted, tenant alleged claims for fraudulent misrepresentation, fraud by nondisclosure, conspiracy to commit fraud, negligent misrepresentation, and promissory estoppel. Reliance is an element of each of those claims. See, e.g., Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998) (fraudulent misrepresentation); Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex. 1997) (fraud by nondisclosure); Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420, 436 (Tex. 1997) (negligent misrepresentation); Ortiz v. Collins, 203 S.W.3d 414, 421 (Tex. App.-Houston [14th Dist.] 2006, no pet.) (promissory estoppel). Regardless of other differences among claims for fraud, fraudulent non-disclosure, negligent misrepresentation, and promissory estoppel, a common principle applies to the shared reliance element: "This reliance must be reasonable and justified." Ortiz, 203 S.W.3d at 421 (reasonable and justified reliance is an element of fraud, negligent misrepresentation, and promissory estoppel); see Envirodigm, Inc. v. Tex. Instruments Inc. No. 05-22-00359-CV, 2023 WL 4101357, at *7 (Tex. App.-Dallas June 21, 2023, no pet. h.) (mem. op.) (fraud, fraud by nondisclosure, negligent misrepresentation, and promissory estoppel require a showing of justifiable reliance). Justifiable and reasonable reliance is not an element of civil conspiracy. See Francis v. Phoenix Cap. Grp. Holdings, LLC, No. 05-22-01260-CV, 2023 WL 5542622, at *5 n.9 (Tex. App.-Dallas Aug. 29, 2023, no pet.) (mem. op.) ("The elements of civil conspiracy are: (1) two or more persons; (2) an object to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as a proximate result.") (citing RTLC AG Prod. Inc. v. Treatment Equip. Co., 195 S.W.3d 824, 833 (Tex. App.-Dallas 2006, no pet.)). But conspiracy is a derivative tort because "a defendant's liability for conspiracy depends on participation in some underlying tort for which the plaintiff seeks to hold at least one of the named defendants liable." W. Fork Advisors, LLC v. SunGard Consulting Servs., LLC, 437 S.W.3d 917, 920 (Tex. App.-Dallas 2014, pet. denied); see id. Accordingly, justifiable reliance is critical to tenant's conspiracy claim because it is an element of the underlying tort of fraud.
Standard of Review
Landlord challenges the legal sufficiency of evidence supporting the jury's finding of justifiable reliance. We consider the evidence in the light most favorable to tenant, crediting evidence a reasonable jury could credit and disregarding contrary evidence and inferences unless a reasonable jury could not. See JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648, 653 (Tex. 2018) (citing Merriman v. XTO Energy, Inc., 407 S.W.3d 244, 248 (Tex. 2013)). Judgment contrary to a jury verdict is proper "only when the law does not allow reasonable jurors to decide otherwise." Id. (quoting City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005)).
Although justifiable reliance usually presents a question of fact, it "can be negated as a matter of law when circumstances exist under which reliance cannot be justified." Id. at 654. The Supreme Court of Texas has identified two circumstances in which a plaintiff's purported reliance upon an oral misrepresentation is unjustifiable: when "red flags" preclude such reliance, id. at 655, and when the representation directly contradicts the parties' written agreement. See id. at 658. Either of these circumstances can alone be sufficient to negate justifiable reliance as a matter of law. See id. at 660 n.2. Landlord argues red flags should have alerted tenant its reliance was unwarranted. Our analysis is rooted in the nature of the parties' relationship and the contract. Id. at 654.
Red Flags
Landlord argues justifiable reliance is negated as a matter of law because numerous red flags would have caused a similarly situated savvy participant to exercise ordinary care for the protection of its own interests rather than blindly trust the other party. In measuring justifiability, we must inquire whether, given a fraud plaintiff's individual characteristics, abilities, and appreciation of facts and circumstances at or before the time of the alleged fraud[,] it is extremely unlikely that there is actual reliance on the plaintiff's part. See Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923, 931 (Tex. 2010) (finding no evidence of justifiable reliance). One may not justifiably rely on a misrepresentation when "red flags" indicate reliance is unwarranted. See id. at 923. In the context of a contractual relationship, this rule speaks to circumstances surrounding a representation that would warn a person of the plaintiff's experience and sophistication that he ought not to place confidence in the representation. See, e.g., JPMorgan Chase Bank, N.A., 546 S.W.3d at 656 (world-savvy participants should be expected to recognize "red flags" that the less experienced may overlook). Landlord argues red flags, addressed below, preclude a finding of justifiable reliance in this case. Sophisticated Parties And Negotiator:
The record contains evidence that tenant and its negotiator, Hurley, are experienced and knowledgeable about commercial leases. Hurley testified he had thirty years of experience in the commercial real estate business and was trained as a lawyer. Tenant assumed the lease at Walnut Creek Center in 2008 and operated El Rio there until 2019. Ly testified he had fifteen or sixteen years of experience negotiating leases. Hurley testified he considered Ly inexperienced but not unsophisticated. See Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 501 (Tex. 2019) (noting presence of sophisticated parties as a red flag and citing JPMorgan Chase Bank, N.A., 546 S.W.3d at 656-57 ("savvy participants" to an arm's-length transaction should be expected to recognize red flags that others who are less experienced may not, and that when a party is "skeptical" or recognizes "substantial risk" it cannot blindly rely on the other party's representations)). We conclude tenant-with assistance of its experienced and legally educated negotiator-was sophisticated in negotiating grocery leases. Moreover, Hurley would not agree that Ly was unsophisticated. See id.
The Lease:
Landlord argues, "Maya does not dispute the terms of its written lease agreement with Walnut Creek, under which Maya knew that its existing lease would expire in September 2019, that it had no right to renew the lease, and that it had no right to any advance notice of non-renewal." The lease did not require landlord to negotiate exclusively with tenant. The lease did not prevent landlord from leasing to anyone other than tenant. We conclude the terms of the existing lease raised a red flag precluding tenant's blind trust in landlord providing notice of the El Rancho lease. Tenant and its experienced negotiator should have been aware landlord was free under the lease to negotiate and enter a lease with another tenant without providing notice to tenant. See Bagwell, 2020 WL 7332845, at *4 ("In effect, thus, [plaintiff] contends that the Bank's authority to sell the loans was subject to a condition [notice by the bank] that exists nowhere in the parties' agreement. Bagwell could not have justifiably relied upon such an interpretation of the contract.").
Arm's-Length Negotiation:
The record demonstrates the parties negotiated at arm's length. See Arm's-Length Transaction, Black's Law Dictionary (6th ed. 1990) ("Said of a transaction negotiated by unrelated parties, each acting in his or her own self-interest."). The fact that negotiations took place at arm's length to create an agreement other than a form agreement, as here, has been held to be a red flag when analyzing justifiable reliance. See Barrow-Shaver Res. Co., 590 S.W.3d at 501. As noted, the parties' back-and-forth negotiation was lengthy and closely negotiated by professionals. Tenant asserts the parties were "trying to create an entirely new lease agreement." We conclude the arm's-length negotiation between sophisticated parties for possible creation of an entirely new commercial lease presented red-flag circumstances precluding blind faith in the other party. See id.
Indefinite and Vague Statements:
"Reliance is justified only when a promise is sufficiently specific and definite that it is reasonable to rely on it as a commitment to the future." Anibus Pictures, LLC v. Selig, No. 05-19-00817-CV, 2021 WL 805214, at *14 (Tex. App.-Dallas Mar. 3, 2021, no pet.); see Barrow-Shaver Res. Co., 590 S.W.3d at 501 (noting existence of a red flag because the substance of the representation was inherently unverifiable because it conveyed a vague intent to do a future act). Neither statements of hope nor expressions of expectations can support reasonable reliance. See Anibus Pictures, LLC v. Selig, 2021 WL 805214, at *14.
None of the complained-of representations and nondisclosures is a specific and definite promise by landlord that a new lease would be executed. These representations and nondisclosures include Ly's statements that (1) the premises owners "unanimously agreed [apparently among themselves] to renegotiate after next year," (2) he would seek approval of a proposed rental amount and transmit a final rent number by a certain date, and (3) negotiations were ongoing and productive. Tenant also argues a "close to final" version of the potential lease agreement was exchanged in December 2017.
Even taken together, the complained-of representations and nondisclosures constitute only discussions that could potentially lead to a signed contract. "Expressed enthusiasm" cannot take the place of a specific and definite promise upon which tenant could have justifiably relied. See Anibus Pictures, LLC, 2021 WL 805214, at *14. Subjective expressions of opinion about the progress of negotiations cannot be relied on. See Simulis, L.L.C. v. Gen. Elec. Cap. Corp., 439 S.W.3d 571, 577 (Tex. App.-Houston [14th Dist.] 2014, no pet.) (relying on a vague, indefinite promises of future business is unreasonable as a matter of law).
We conclude landlord's statements are too indefinite and vague to support justifiable reliance thereon by experienced tenant and its sophisticated negotiator.
The Lease Was in Jeopardy:
Landlord argues the ongoing negotiation contained red flags that signaled lease renewal was in jeopardy. Negotiation was so nonproductive the parties suspended negotiation twice. In December 2017, tenant reduced its rent offer and Ly responded, "I think we need to take a break, because we're going nowhere. It's like, you know, we add one here, you take one there." Shalabi testified that Ly was not responsive in negotiations in spring 2018. Shalabi testified there was a bit of "delay" on Ly's part. As noted, Ly's August 1, 2018 email to Hurley stated the owners "unanimously agreed to renegotiate next year" and "the owners informed me we'll continue discussing the final terms in the near future." Hurley emailed Shalabi that Ly's email was "[n]ot good news." Hurley testified he was "in shock" after reading the email. Hurley, the thirty-year professional, testified, "I had never been in a negotiation like this before."
Moreover, Hurley testified that by June 2018 "negotiations seemed to have lost a bit of momentum in terms of-although they were choppy all along, it just seemed like we'd gone silent with no real understanding why." Shalabi testified that subsequently, "We continued to negotiate. Well stalling, but then we continued to negotiate. . . . When I say negotiate, I've got to be-let me clarify a little bit. We continued to communicate, there wasn't really negotiation. Every time we'll get where we're just getting another excuse, and another excuse, and stalling, and stalling . . . ." He testified about landlord's "continuous stalling, and stalling, and stalling." As noted, Hurley testified fall 2018 was "a significant hiatus of several months in the conversations and . . . it kind of flattened out, not much happened."
Notably, Shalabi testified he was suspicious El Rancho might be negotiating or had negotiated a lease for El Rio's premises. As noted, he testified that after he learned in summer or fall 2018 that El Rancho announced an unspecified big surprise to take place in June 2019, he placed a new emphasis to "start trying to reach out more frequently" to the landlord. In particular, he was "trying to learn if this store was the surprise that El Rancho had in mind." See JPMorgan Chase Bank, N.A., 546 S.W.3d at 656-57 ("Particularly if it remained skeptical about the availability of the tracts, Orca could not 'blindly rely' on JPMorgan's representations-both at the outset of the transaction and at its closing-when its knowledge, experience, and background called for further investigation.").
We conclude the course of negotiations raised red flags that landlord might not agree to or did not intend to agree to terms of an entirely new lease or that landlord might lease or have leased the premises to another tenant.
Protecting Tenant's Interests in the Face of Red Flags:
Our law charges parties with exercising care to protect their own interests, and a failure to do so is not excused by mere confidence in the honesty and integrity of the other party. See Mikob Props., Inc. v. Joachim, 468 S.W.3d 587, 599 (Tex. App.-Dallas 2015, pet. denied). Thus, tenant was required at trial to establish that when it relied upon landlord's alleged representations and non-disclosures it was reasonably protecting its business in the transaction. See BBVA Compass v. Bagwell, No. 05-18-00860-CV, 2020 WL 7332845, at *4 (Tex. App.-Dallas Dec. 14, 2020, pet. denied) (mem. op.).
In response to landlord's red-flag argument, tenant argues it "did attempt to protect its own interests by looking for alternative locations, and any alternatives were either not viable or were not available." In evaluating this assertion, we assess the magnitude of risk to tenant posed by the possibility of not signing a new lease with landlord. See JPMorgan Chase Bank, N.A., 546 S.W.3d at 656-57 (when a party is skeptical or recognizes substantial risk it cannot blindly rely on the other party's representations). Tenant argues,
• It "was desperate to continue operating its store in the Walnut Creek Center space."
• "In the Spring of 2018, negotiations were still ongoing, but Maya Walnut was becoming increasingly desperate to finalize the new lease . . . ."
• "[T]he location of the Walnut Creek Center was ideally suited to Maya Walnut's unique business model, which largely depended on the geographic location of the store."
• It "catered to a specific geographic location in a niche market."
• Its former premises at Walnut Creek Center was "an ideal fit for its unique business model based on the geographic location of the premises."
• "[El Rio] used its unique business model to capitalize on the location of the premises . . . ."
• "In searching for an alternative location, [tenant] could only look within (approximately) a one-mile radius of the Walnut Creek premises because of the unique business model of its El Rio store."
• "Relocating away from that geographic area, even just a few miles, would completely alienate the existing clientele that made El Rio so profitable."
Consequently, tenant recognizes failure to renew its lease posed substantial risk to its business. See id. (when a savvy party recognizes substantial risk it cannot blindly rely on the other party's representations).
Tenant argues further:
Because its business model required the grocery store to be located within a limited geographic area, there was only one suitable alternative store available. Maya Walnut decided not to pursue the alternative space, located at Walnut and Shiloh, because the location at Walnut Creek Center was superior and was the better business decision.(Emphases added.) Similarly, tenant argues it "was acting in its best interest and made the best possible business decision based on the available information, and did not simply place its trust in Defendants."
Landlord argues tenant's "better business interest" argument is unavailing. They argue, "That is not what the justifiable reliance inquiry asks." See Barrow-Shaver Res. Co., 590 S.W.3d at 497 (a plaintiff may not blindly rely on a representation by a defendant when the plaintiff's knowledge, experience, and background alert it to investigate the defendant's representations before acting on those representations). Landlord argues, "[I]t is inconceivable that Maya's 'best possible business decision' was to stake its entire business on the hope that Walnut Creek would only negotiate with and lease to Maya, despite no such requirement in the lease, Maya never being told any such thing, neither seeking nor obtaining any such guarantee, and without even bothering to ask whether that was true." (Record citations omitted). We agree with landlord.
Landlord also argues tenant's assertion of investigating alternative locations was not "a genuine attempt to protect Maya's interests." As noted, Hurley's January 28, 2019 email stated,
I don't know where or what you heard regarding Hamdy's "contingency plans." What you do know is what we have told you repeatedly during this negotiation-that we had surveyed the options in the area, and your deal was and is the only deal that we are working on. Why would we have been considering alternatives, particularly in light of the December meeting where we were ready to sign the lease with you.(Emphasis added.) As noted, Shalabi testified he neither negotiated with owners of the alternative site nor determined its rental amount. Hurley testified he did not speak with owners of the alternate site. Hurley testified he did not negotiate an exclusive right to deal with landlord. We conclude tenant failed to establish it reasonably protected its business in the transaction. See Bagwell, 2020 WL 7332845, at *4.
Conclusion
The appellate record evidences numerous red flags. Tenant placed its entire business in jeopardy while operating under circumstances that a similarly situated and savvy party would have recognized as imminently risky and as requiring self-protection. Tenant, however, failed to act to reasonably protect itself in the face of these red flags. Considering all the evidence of the nature and circumstances of the parties' relationship, we conclude justifiable reliance has been negated as a matter of law.
We sustain landlord's issue 1(c). That conclusion negates tenant's recovery for fraud as well as the derivative claim of conspiracy to commit fraud. In addition, because justifiable reliance is also a necessary element of both negligent misrepresentation and promissory estoppel, its absence also negates landlord's liability and tenant's recovery for those torts. And because tenant cannot prevail on any of its tort claims, it cannot recover either actual or exemplary damages from landlord.
Consequently, we need not and do not address landlord's remaining issues, which include:
1. Does Maya's fraud claim fail as a matter of law and for lack of evidence?
a. No actionable misrepresentation. Did Bryan Ly or Walnut Creek make an actionable affirmative misrepresentation to Maya?
b. No duty as a matter of law. As a matter of law, did Bryan Ly or Walnut Creek owe Maya a duty to disclose Walnut Creek's discussions or lease with another tenant, and to make that disclosure more than eight months before Maya's lease expired?
. . .
d. No causation. Would Maya have incurred its claimed losses regardless of anything Bryan Ly said or didn't say, since Maya refused to offer acceptable renewal terms and its lease would have expired in September 2019 anyway?
2. Are the actual damages awarded in the judgment recoverable?
a. Limited to out-of-pocket damages. Is Maya's recovery limited to out-of-pocket reliance damages under the Statute of Frauds?
b. No lost business value. Is the award of $11,392,000 in "lost business value" supported by legally and factually sufficient, reasonably certain evidence?
c. No lost profits. Are the awards of $4.5 million in past and future "lost profits" supported by legally and factually sufficient, reasonably certain evidence?
3. Is Maya entitled to recover $10 million in exemplary damages against Walnut Creek?
a. Section 41.006 violation. Does the joint-and-several exemplary damages finding, in violation of Tex. Civ. Prac. & Rem. Code Ann. § 41.006, preclude any recovery of exemplary damages or require a new trial?
b. No egregious misconduct. Is there legally and factually sufficient clear-and-convincing evidence to support a $10-million exemplary damages award, and is the award constitutionally excessive or violative of due process?
c. Unrecoverable actual damages. Is the exemplary damages award based on unrecoverable awards of actual damages?
4. Does Maya's conspiracy claim against Mr. and Mrs. Ly fail?
a. No intra-corporate conspiracy. Does the conspiracy claim fail as a matter of law because all alleged co-conspirators were acting at all relevant times as Walnut Creek's agents?
b. No evidence. Are the conspiracy findings against Mr. and Mrs. Ly supported by legally and factually sufficient evidence?
5. Can Maya recover on its alternative theory of negligent misrepresentation?
a. No misrepresentation. Does the negligent misrepresentation claim fail because it is premised on an alleged promise of future conduct and/or a nondisclosure, neither of which is actionable under the tort of negligent misrepresentation?
b. No evidence. Is there legally and factually sufficient evidence to support Maya's negligent misrepresentation claim?
6. Can Maya recover for promissory estoppel, for which the jury awarded no damages?Moreover, due to our resolution of landlord's sub-issue 1(c), we need not and do not address tenant's contention that we "reverse the judgment of the trial court and render judgment assessing $10 million in exemplary damages against Walnut Creek Center, Inc. and $10 million in exemplary damages against Bryan Ly."
TENANT'S CROSS-APPEAL
As cross-appellant, tenant argues there is no evidence and factually insufficient evidence to support Walnut Creek Center, Inc.'s awards for breach of contract. It argues there is no evidence or factually insufficient evidence that it failed to pay landlord the correct amount of rent. It also argues there is no evidence or insufficient evidence to support the award of $100,000 for damage to the premises.
In reviewing the cross-appeal, we refer to Walnut Creek Center, Inc. as "landlord."
Standard Of Review
When, as here, an appellant attacks the legal sufficiency of the evidence to support an adverse finding on an issue on which it did not have the burden of proof, it must demonstrate that no evidence supports the jury's adverse finding. See Exxon Corp. v. Emerald Oil & Gas Co., L.C., 348 S.W.3d 194, 215 (Tex. 2011). In determining whether the evidence is legally sufficient to support a finding, we consider the evidence in the light most favorable to the verdict and indulge every reasonable inference that would support it. See City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). We credit favorable evidence if reasonable jurors could and disregard contrary evidence unless reasonable jurors could not. See id. "The final test for legal sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review." Id. at 827.
A legal sufficiency challenge will be sustained when there is a complete absence of evidence of a vital fact; the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; the evidence offered to prove a vital fact is no more than a mere scintilla; or the evidence conclusively establishes the opposite of the vital fact. See id. at 810; King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003). If there is more than a scintilla of evidence supporting the jury's finding, the legal sufficiency challenge must fail. See King Ranch, Inc., 118 S.W.3d at 751 . There is more than a scintilla of evidence "when the evidence as a whole rises to a level enabling reasonable and fair-minded people to have different conclusions." Waste Mgmt. of Tex., Inc. v. Tex. Disposal Sys. Landfill, Inc., 434 S.W.3d 142, 156 (Tex. 2014). However, if the evidence is so weak that it only creates a mere surmise or suspicion of its existence, it is regarded as no evidence. Id. at 156.
When an appellant challenges the factual sufficiency of the evidence to support an adverse finding on an issue on which it did not have the burden of proof, the appellant must demonstrate there is insufficient evidence to support the adverse finding. See Hoss v. Alardin, 338 S.W.3d 635, 651 (Tex. App.-Dallas 2011, no pet.). The evidence is insufficient for factual sufficiency purposes if, after reviewing all the evidence in the record, we determine the evidence supporting the jury finding is so weak or is so against the overwhelming weight of the evidence that the finding is clearly wrong and unjust. See Weaver & Tidwell, L.L.P. v. Guar. Co. of N. Am. USA, 427 S.W.3d 559, 564-65 (Tex. App.-Dallas 2014, pet. denied) (citing Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986) (per curiam)); Hoss, 338 S.W.3d at 651.
The factfinder is the sole judge of the credibility of the witnesses and the weight to be given their testimony. See City of Keller, 168 S.W.3d at 819 (legal sufficiency review); Golden Eagle Archery, Inc., 116 S.W.3d at 761 (factual sufficiency review). We may not substitute our own judgment for that of the factfinder merely because we might reach a different result. See City of Keller, 168 S.W.3d at 822; Golden Eagle Archery, Inc., 116 S.W.3d at 761.
Payment
First, tenant argues the evidence "conclusively establishes" it paid the correct amount of percentage rent to landlord and did not breach the lease. It argues there is "no evidence" of breach for underpayment. It cites one opinion in support of its argument. See Rowe v. Rowe, 887 S.W.2d 191, 195 (Tex. App.-Fort Worth 1994, writ denied) ("'No evidence' exists and a directed verdict or a judgment n.o.v. should be entered when the record discloses . . . the evidence establishes conclusively the opposite of a vital fact.").
Jury Question 11 asked, "Did Maya Walnut LLC fail to comply with the Lease in its payments of percentage rent?" The jury answered, "Yes." The jury awarded $353,000 for underpaid rent.
The lease provides that tenant pay landlord minimum annual rent of $67,000. It also provides for payment of percentage rent-the amount by which one percent of "total gross sales" exceeds the aggregate of total minimum rent and certain taxes and costs. The lease excluded certain amounts from gross sales, as follows:
(5) the net amount of discounts allowed to any customer pursuant to any customary and reasonable policy adopted by lessee, including in such discounts, but not by way of limitation, the net amount of any discounts allowed by way of or resulting from the issuance to customers of trading stamps or other evidences of purchase for immediate or future exchange for merchandise or other things of value; and
(6) merchandise or other things of value issued in redemption of such trading stamps or other evidences of value, or issued as a premium or otherwise in connection with any sales promotion program of lessee.(Emphasis added.) Importantly, amounts excluded from total gross sales pursuant to sections five and six result in a reduced amount of percentage rent.
Underlying the percentage-rent dispute is "advertising income" and "other income," terms not expressly contained in the quoted lease language. The jury heard testimony that advertising income involves income from sales of items currently advertised in tenant's circulars and that other income is money paid to tenant from distributors to promote particular products.
The parties agree the lease provides an amount of each sale of an advertised item may be excluded from gross sales as advertising income. They differ on the amount of exclusion authorized by lease provisions quoted above. As detailed below, tenant presented evidence that the entire amount of a sale of an advertised item should be excluded from gross revenue and, consequently, from percentage rent. Landlord presented evidence that only the amount by which an item was discounted should be excluded.
Tenant's witness, Ahmad Shalabi, testified how tenant characterized and accounted for "advertising income" and "other income." He testified he kept books for the grocery and calculated percentage rent. He testified advertising income includes sales of "advertisement products"-products currently advertised in circulars. He acknowledged if the grocery sold an item advertised in a current circular, then "those sales" were advertising income and excluded from gross sales. He identified lease provisions on which he relied in calculated gross sales by number-"Point 1 through 6"-and testified he based his calculations "on how I interpreted the lease." Hamdy Shalabi testified tenant excluded the sale of advertised items from gross receipts "in accordance with this lease." Additionally, tenant excluded other income from gross sales.
We refer to Ahmad Shalabi as "Ahmad Shalabi." We continue to refer to Hamdy Shalabi as "Shalabi" when no confusion results.
Landlord relies on the plain language of the lease and on trial testimony of its expert witness, Bruce Leon Blacker, a certified public accountant. The lease was admitted as evidence for the jury's consideration. Moreover, Blacker testified "the language" of the lease's exclusion five, quoted and italicized above, explicitly provides gross sales is "net of discounts." Tenant offered Blacker's testimony, in part, to explain accounting terminology. To explain the term "net of discounts," Blacker testified if a ninety-nine cent item was sold at an advertised price of seventy- nine cents, then seventy-nine cents would be categorized as sales revenue and twenty cents would be excluded from gross sales as advertising income. Tenant also excluded "other income"-advertising dollars from distributors to promote particular produces-from gross sales.
Moreover, the jury heard testimony and saw documentary evidence concerning the amount of underpayment of percentage rent. Shalabi testified tenant paid percentage rent every year based on his "understanding of what the lease terms were." In addition, the jury heard Blacker's testimony and saw landlord's evidence of damages due to underpayment. Blacker identified monetary amounts of advertising income and other income that tenant excluded from gross sales. He explained his methodology and based his testimony largely on tenant's documents and other documents. He testified tenant excluded $33,909,270 of advertising income from gross sales from 2015 to 2019. He testified tenant excluded $554,658.17 of other income from gross sales from 2015 to 2018. He identified a separate nonpayment-unrelated to advertising income and other income-of $8,362 in 2017. Based on those calculations, Blacker testified the amount of unpaid percentage rent for 2015 through 2019 totaled $352,999. As noted, the jury awarded $353,000 in damages for tenant's breach of lease due to underpayment.
Tenant offers two single-sentence assertions concerning Blacker's testimony. First, tenant asserts that Blacker, "hired to calculate the value of Defendants' breach of contract claim for unpaid rent, admitted that one of his assumptions in calculating the value of the claim was that Maya Walnut should have paid percentage rent on the revenues for advertising income and other income." Tenant refers to Blacker's testimony below.
Q. If the jury determines that Maya Walnut should have paid percentage rent on the revenues for advertising income and other income for 2015 and 2019, have you done the calculation of what that would come to?
A. I have calculated the additional percentage rent that would have been paid if that's what you determine.Additionally, tenant asserts that Blacker "also admitted that he was not assigned to determine whether Maya Walnut appropriately booked its advertising and/or other income." Blacker testified,
Q. You-You would agree with me, that you haven't been brought before this jury here today to review the books of Maya and say that they wrongfully booked, that this should have been called something else as far as their finances, right?
A. That was not one of my assignments, no. Tenant offers no argument to support its assertion that Blacker's quoted testimony demonstrates "no evidence" of underpayment or that it "conclusively establishes" it paid correct amounts.
Nonetheless, tenant's authority, Rowe, provides, "There is some evidence when the proof supplies a reasonable basis on which reasonable minds may reach different conclusions about the existence of the vital fact." Id. at 196. The jury considered testimony of Ahmad Shalabi, Hamdy Shalabi, and Blacker as well as documentary evidence, including the lease. The jury was the sole judge of the credibility of these witnesses and the weight to be given their testimony. See City of Keller, 168 S.W.3d at 819 (legal sufficiency review); Golden Eagle Archery, Inc., 116 S.W.3d at 761 (factual sufficiency review). It was free to believe one witness and disbelieve another and to resolve conflicts in the evidence. See Runyan v. Huskey, No. 05-22-00819-CV, 2023 WL 3881115, at *3 (Tex. App.-Dallas June 8, 2023, no pet.) (mem. op.). We assume the jury did so in a manner consistent with its verdict. See id.
We conclude the testimony and evidence, referenced above, is legally and factually sufficient to support the jury's findings that tenant underpaid percentage rent and that $353,000 would fairly and reasonably compensate landlord.
We overrule tenant's first cross-point.
Damage To The Premises
Tenant argues, "There is no evidence to support the award of $100,000 for damage to the premises." First, it argues there is no evidence to support the jury finding that tenant left the premises in disrepair in violation of the lease. Second, it argues there is no evidence to support the jury's award of $100,000 due to the damaged premises.
Physical damage to the premises:
Jury Question 12 asked, "Did Maya Walnut fail to comply with the Lease provision regarding return of the premises?" The jury answered, "yes."
"It is a basic proposition of the law of landlord and tenant that it is the duty of the tenant to exercise due care in the use of the leased premises and not to cause any material or permanent injury." See Flores v. Rizik, 683 S.W.2d 112, 116 (Tex. App.-San Antonio 1984, no writ); see also Gupta v. Manwani, No. 04-03-00152-CV, 2003 WL 23091906, at *2 (Tex. App.-San Antonio Dec. 31, 2003, no pet.) (mem. op.). This obligation is implied whether written into a lease contract or not. See Flores, 683 S.W.2d at 116. Moreover, the lease in this case specifically required tenant to repair "any damage" caused by removal of its fixtures.
The parties do not dispute the premises were undamaged when tenant moved in. Ly testified a representative of tenant handed him keys to the premises after tenant had vacated the premises. He waited until an El Rancho representative arrived and then inspected the premises. He testified,
Q. What did you observe in that walk around?
A. Destruction.He testified about damage he personally witnessed. He described damage to floor tiles, wall tiles, murals, hanging pipes, parts of a ceiling having been ripped out, and other damage. He testified about unrepaired damage caused by removal of fixtures. He testified he took photographs and testified to the contents of the photographs. The jury saw the photographs.
Tenant challenges Jury Question 12 in a single sentence by stating, "[T]he evidence shows that Maya Walnut did not breach the lease agreement or damage the premises, but rather removed its fixtures and protected its brand in accordance with the lease agreement, and was prevented from repairing any damage caused by such removal of fixtures due to the presence of asbestos." In support of its argument, tenant cites nonexistent pages of the reporter's record. The pages to which tenant apparently intended to cite do not provide evidence of asbestos on the premises. Nor does the testimony establish destruction necessary for tenant to have "protected its brand." Tenant cites generally to a thirty-nine page exhibit, possibly for a provision authorizing it to remove fixtures and requiring it to repair damage caused by their removal. However, we cannot search the record and research the law to formulate parties' arguments for them. See Tex. R. App. P. 38.1(i); see also Bolling v. Farmers Branch Indep. Sch. Dist., 315 S.W.3d 893, 895 (Tex. App.-Dallas 2010, no pet.). We are not advocates for any of the parties. See Jones v. Am. Real Estate Inv., No. 05-19-00546-CV, 2020 WL 5834301, at *1 (Tex. App.-Dallas Oct. 1, 2020, no pet.) (mem. op.).
In light of Ly's testimony and other evidence, addressed above, we conclude there is legally and factually sufficient evidence to support the jury's answer to Jury Question 12.
Dollar amount of damages:
Tenant argues there is no evidence to support the jury's award of damages for diminution in value due to physical damage to the premises.
Jury Question 13 asked, "What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Walnut Creek Center, Inc. for its damages, if any, that resulted from Maya Walnut LLC's failure to comply with the Lease?" The charge instructed the jury, "Consider the following elements of damages, if any, and none other. . . . The diminution in value of the Premises, if any, due to damage caused by Maya Walnut LLC, if any." The charge included a definition that "'Diminution in value' means the difference between the condition of the Premises when leased and their condition at the expiration of the Lease, ordinary wear and tear excepted."
Ly testified about the dollar amount of damage caused by physical damage to the premises. He testified he was an owner of Walnut Creek Center. See Flores, 683 S.W.2d at 115 (owner of building is qualified to testify as to the market value of his property). He testified his practice was to determine the dollar amount of damages when a new tenant needed to improve damaged premises and adjusted rent accordingly. He based his determination on his familiarity with the premises as an owner, on his inspection of the premises after tenant's departure, and on his experience in determining damages due to damaged premises. He testified the amount of damage caused in this case by tenant to the premises amounted to at least one year of base rent for the premises.
Tenant has a single complaint concerning the amount of damages the jury awarded for physical damage to the premises. It argues Ly's testimony thereon is "wholly contradicted." It notes Ly testified damages amounted to the equivalent of one year of base rent for the premises, but Shalabi testified El Rancho moved into the premises within four weeks after tenant's departure and, according to Ly's testimony, within eight weeks, i.e., in less than one year.
Nonetheless, Ly testified about damages he observed to the leasehold and about photographs of the damaged premises shown to the jury. He testified to his determination of the amount of damages. He imprecisely described his determination of the amount of damages to the premises relative to base rent-in this case for a year of the lease. Of course, that is not the measure of his damage. However, this manner of explaining damages made sense to Ly in testifying to the amount to which he believed he was entitled for diminution in value of the leasehold. Ly's equating his determined amount of damages to a year of base rent does not change the character or quality of his previous testimony that substantiated landlord's diminution of value damages. He provided testimony of what he observed and described physical damage to the jury and explained how that damage diminished the value of the leasehold. Tenant, however, seizes on Ly's language to raise criticism and suggest it somehow implicates the landlord's duty to mitigate his damage. These are apples and oranges. The property owner's shorthand testimony that the amount of damages equaled at least a year's basic rent of the premises does not contradict his testimony concerning what he observed and determined concerning his own property. See Flores, 683 S.W.2d at 115.
We conclude there is legally and factually sufficient evidence to support the jury's (1) finding appellant breached the lease by physically damaging the premises and (2) awarding damages therefor. We overrule tenant's cross-point complaining of the jury's award for damage to the premises.
CONCLUSION
We sustain landlord's first issue on appeal, reverse and vacate the trial court's judgment in favor of tenant, and render judgment that tenant take nothing on its claims against landlord. We overrule tenant's cross-appeal. We remand the case to the trial court for rendition of a new judgment in favor of Walnut Creek Center, Inc. (1) on its claims for breach of contract in accordance with the jury's answers; (2) for its attorney's fees in amounts offset in the final judgment of November 10, 2021; and (3) for prejudgment interest, postjudgment interest, and costs allowed by law, to be determined and calculated by the trial court.
JUDGMENT
In accordance with this Court's opinion of this date, the judgment of the trial court in favor of appellee/cross-appellant MAYA WALNUT LLC F/K/A MAYA FOODS, INC. is REVERSED and VACATED. Judgment is RENDERED that appellee/cross-appellant MAYA WALNUT LLC F/K/A MAYA FOODS, INC. take nothing. The case is REMANDED to the trial court for rendition of a new judgment in favor of appellant/cross-appellee WALNUT CREEK CENTER, INC. (1) on its claims for breach of contract in accordance with the jury's answers; (2) for its attorney's fees in amounts offset in the final judgment of November 10, 2021; and (3) for prejudgment interest, postjudgment interest, and costs allowed by law, to be determined and calculated by the trial court.
It is ORDERED that appellants/cross-appellee BRYAN LY, WALNUT CREEK CENTER, INC., LENG CHIV LY, AND SAO MINH LY recover their costs of this appeal from appellee/cross-appellant MAYA WALNUT LLC F/K/A MAYA FOODS, INC.