CONSUMER LAW
FALL 2009
Haye v. Elton Porter Marine Ins.,W.L. 542486; LEXIS 1704 (Tex. App.Corpus Christi, 2009) (mem. op.)
Consumer Status: Customer of Insurance Agency was
“Consumer” Even If No Money Changed Hands: The plaintiff’s boat was badly
damaged in an accident. When he made a
claim to his insurance agent with whom he had maintained coverage on multiple
boats for the past 8 years, he learned that the insurance on this particular
boat had lapsed some three months prior.
The boat owner sued the insurance agent for, among other things, DTPA
misrepresentations for allegedly representing that the policy had been renewed.
The insurance agent challenged the
plaintiff’s consumer standing on the basis that he had neither paid for any
insurance nor applied for or “sought”
any insurance policy. The trial court
agreed and granted the defendant insurance agent summary judgment. Held: Reversed. The boat owner was a
consumer as a matter of law. The court
reiterated the DTPA maxim, “It is unnecessary for money to change hands to
establish consumer status.”
Porter v. Countrywide Home Loans, Inc., W.L. 2944670; LEXIS 56494 (S.D. Tex. 2008)
Consumer Status: Home Mortgage Borrowers Were Not
Consumers as to Mortgage Lender Which Misrepresented Flood Zone Status: Countrywide
sent the plaintiff homeowners a letter advising them that the Federal Emergency
Management Agency (“FEMA”) had re-surveyed their property and determined that
it was not in a flood zone, and therefore, flood insurance was no longer
required on the property. Countrywide
advised the plaintiffs that they should cancel their flood insurance, and
naturally, based upon this representation, they allowed their flood insurance
policy to expire. Eight months later,
when their home flooded, the plaintiff homeowners learned that their property
was, in fact, still in a flood zone and that FEMA had not, in fact, removed
their property from a flood insurance requirement. Held: The federal district court
dismissed the homeowners’ claims against Countrywide under the DTPA, concluding
that, as mere borrowers, the plaintiffs lacked consumer standing. The court relied upon the decisions of LaSara
Grain Co. v. First National Bank of Mercedes, 673 S.W.2d 558, 566 (Tex.
1984) and Riverside National Bank v. Lewis, 603 S.W.2d 169, 173,
175-76 (Tex. 1980) for the long-established proposition that the mere
lending of money was neither a good nor a service. Note: Countrywide was not the original
mortgage lender when the plaintiffs purchased the home.
RGOI ASC, Ltd. v. Humana Ins. Co., W.L. 4661517; LEXIS 83427 (S.D. Tex. 2008)
Doctors’ DTPA Claims Against Health Insurer for
Implied Representations Concerning Reimbursement Practices Were Dismissed for
failure to State an Actionable Misrepresentation of Fact: The doctors sued Humana when Humana changed its
reimbursement practices and stopped paying for their ambulatory surgery center
services for arthroscopic operations for knee and shoulder injuries. The doctors were out-of-network providers who
had no contract or agreement with defendant Humana. Nevertheless, Humana had been routinely
reimbursing the doctors for treating Humana patients at the rate of
approximately $16,000.00 per operation.
Humana then abruptly and without notice began reimbursing the plaintiff
doctors for less than $1,000.00 per operation.
The doctors claimed that Humana’s prior reimbursement practices amounted
to a material misrepresentation to the doctors themselves as to the coverage
available under Humana’s policies. No
other affirmative statements or representations were alleged. Held: The court disagreed and granted
Humana summary judgment on the plaintiffs’ DTPA claims, concluding that
Humana’s previous reimbursement decisions were not representations of fact and
Humana had no affirmative duty to disclose the change in its reimbursement rate
to the plaintiff doctors. Note: For a recent non-DTPA case finding of
fraud by silence, see Springs Window Fashions Design, Inc. v. The Blind
Maker, Inc., 184 S.W.3d 840 (Tex. App.Austin 2006,
pet. Granted) without referring to the merits, and it was remanded for
settlement.
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008)
Reliance and Waiver of Reliance: In Non-DTPA Case,
Contractual Waiver of Reliance Clause in Settlement Agreement Was Sufficient to
Bar Fraudulent Inducement Claim: The
Texas Supreme Court, in a non-DTPA case, addressed the effect of a written
statement in a contract specifically disclaiming reliance as a bar to a claim
that the plaintiff was fraudulently induced--by verbal assurances during
settlement negotiations--to enter the settlement contract. There, the waiver-of-reliance provision
stated, among other things, “Each of the Plaintiffs and Intervenors expressly
warrants and represents and does hereby state and represent that no promise or
agreement which is not herein expressed has been made to him, her, or it in
executing the releases contained in this Agreement, and that none of them is
relying upon any statement or any representation of any agent of the parties
being released hereby. . . .” In holding
the waiver-of-reliance provision was a bar to plaintiffs’ fraudulent inducement
claims, the Court identified five factors which justified the result: “(1) the terms of the contract were
negotiated, rather than boilerplate, and during negotiations the parties specifically
discussed the issue which has become the topic of the subsequent dispute; (2)
the complaining party was represented by counsel; (3) the parties dealt with
each other in an arm’s length transaction; (4) the parties were knowledgeable
in business matters; and (5) the release language was clear.” The Court stopped short of stating that all
five of these factors are required to be present for a waiver-of-reliance
clause to bar a fraudulent inducement claim.
Thus, it seems likely that the Court would give similar effect to a
waiver-of-reliance clause where one or more of these factors was absent.
Wuertz v. Nationwide Life Ins. Co., W.L.
1331860; LEXIS 3334 (Tex. App.Houston [1st Dist.] 2009) (mem. op.)
Justifiable Reliance: No Justifiable Reliance On Oral
Representations Specifically Contradicted by Written Insurance Policy and
Application: The plaintiff purchased a variable life insurance
policy with a death benefit of $5,500,000.00 and an annual premium of
$300,000.00. The plaintiff alleged that
the life insurance agent misrepresented that the insurance policy would require
only a single payment of $300,000.00 and that no further premiums would be
required to obtain the stated benefit.
However, both the written application signed by the plaintiff and the
policy itself stated that the $300,000.00 premium was due “annually.” Held: The Court concluded that justifiable
reliance was a necessary element to the plaintiffs’ common law fraud and
fraudulent inducement claims, and that claimed reliance upon an oral
representation that was directly contradicted by the express, unambiguous terms
of a written agreement was not justifiable as a matter of law. Quoting DRC Parts & Accessories, LLC
v. VM Motori, S.P.A., 112 S.W.3d 854, 858 (Tex. App.Houston [14th Dist.] 2003, pet. den’d). The court
threw out the plaintiff’s DTPA claims, finding that the plaintiff waived any
error in dismissing his DTPA claims by failing to brief them on appeal. As such, whether the element of reliance in a
DTPA case must also be “reasonable” or “justifiable” was not addressed by the
Court.
Sierra Assoc. Group, Inc. v. Hardeman, W.L. 416465; LEXIS 1181 (Tex. App.Austin 2009) (mem. op.)
Reliance; Independent Investigation: Element of Reliance in Common Law Fraud
Claims Negated as a Matter of Law Where Buyer Relied Upon His Own Attorney and
Real Estate Agent to Conduct Investigation: The plaintiff bought a lot on
Lake Travis and was soon disappointed when he learned, subsequent to closing,
that he could not build a boat dock where he wanted. The plaintiff sued, claiming common law
fraud, statutory fraud and negligent misrepresentation because the sellers
listed the property as “water front” property and failed to disclose the
restrictions against building a boat dock on the water front. Held: Affirming a summary judgment
granted in favor of the defendants, the Court found that the element of
reliance in the plaintiff’s common law and statutory fraud claims was negated
as a matter of law for at least two reasons: First, the plaintiff testified in
his deposition that he asked his real estate attorney and his real estate agent
to look into the deed restrictions to see if there was anything to prevent a
boat dock and that he relied upon his advice in going forward with the
purchase. On this, the Austin Court
stated, “One cannot secure redress for fraud when he or she has acted in
reliance on his or her own judgment derived from an independent investigation
or the advice of his or her own agents.”
Secondly, the Court observed that the restrictions against the boat dock
desired were a matter of public record and on file with the Travis County deed
records. According to the court, had the
plaintiff exercised reasonable care and diligence, he would have learned of
these restrictions. The court therefore
held that this constructive knowledge likewise negated the element of reliance
as a matter of law. As in Wuertz,
the court disposed of the plaintiff’s DTPA claims on a separate basis: The transaction size was greater than the
$500,000 transactional limit imposed by DTPA § 17.49(g). Thus, the authority of these two cases have
authority for negating the issue of reliance as a matter of law under the DTPA
was limited.
Stack v. Richman, W.L. 659101; LEXIS 1787 (Tex. App.Dallas 2009)
In Lot Size Misrepresentation Case, “As Is” Clause and
“Independent Investigation” Did Not Negate Reliance as a Matter of Law: The plaintiffs
were home buyers who sued the sellers alleging a misrepresentation of the lot
size as being 1.64 acres when in fact it was only 1.165 acres. There was summary judgment evidence that the
plaintiffs obtained a survey and a plat map of the lot prior to closing. The sellers therefore argued that the
plaintiffs’ “independent investigation” into the lot size negated the element
of reliance as a matter of law. Held: While the trial court agreed and
granted summary judgment, the Court of Appeals disagreed, noting that neither
the survey nor the plat map showed the true acreage of the property and any
“investigation” was therefore insufficient to disclose the true facts. The court also held that the “as is” clause
in the standard TREC real estate sales contract did not negate reliance as a
matter of law, citing the fraudulent inducement and concealment exceptions articulated
in Prudential Ins. Co. v. Jefferson Assoc., Ltd., 896 S.W.2d 156, 162
(Tex. 1995).
CA Partners v. Marshall Spears and Citifinancial, Inc., 274 S.W. 3d 51 (Tex. App.Houston [14th Dist.] 2008, pet. den’d)
Debt Buyer Tagged for Mental Anguish and Additional
Damages in DTPA Tie-In of Texas Debt Collection Practices Act Case: The homeowner had contracted for remodeling work in
1990 and executed a promissory note and deed of trust to secure payment for the
remodeling services. However, the deed
of trust misidentified his property as “Lot 84" when in fact the
homeowner’s home was located on Lot 85.
The last payment on the note was due in 2000, but the homeowner had
stopped making regular monthly payments well before then. After acquiring the note in 2005, the
defendant debt collector foreclosed on the plaintiffs’ home on Lot 85 and
commenced eviction proceedings against him.
When the error in the trustee’s deed was discovered, the eviction action
was dismissed, but not until after the plaintiff homeowner had been mentally
traumatized by the debt collector’s wrongful foreclosure and eviction. In a bench trial, the trial court awarded the
homeowner plaintiff $2,500.00 in actual damages, $25,000.00 in mental anguish
damages, $55,000.00 in additional damages and $124,450.00 in attorney’s fees
against a debt buyer in a debt. Held:
While the Court of Appeals remanded the trial court’s determination of
attorney’s fees for failure to segregate, the Court affirmed the awards of
damages to the homeowner plaintiff on his DTPA claim for violation of the
tie-in Texas Debt Collection Practices Act.
The debt collector was unable to show that his actions were “the result
of a bona fide error that occurred notwithstanding the use of reasonable
procedures adopted to avoid the error,” a defense under the Texas Act. See Tex. Finance Code §
392.401. Obviously, neither the trial
court or the Court of Appeals were very sympathetic to the debt collector who
tried to collect a debt otherwise barred by the statute of limitations.
McGee v. Caulfield, W.L. 1161819; LEXIS 2999 (Tex. App.Houston [1st Dist.] 2009) (mem. op.)
Contract-for-Deed Case: 2005 Legislature’s Reduction
in Civil Penalty for Seller’s Failing to Provide Annual Statement to Buyer Was
Retroactive: As enacted in 2001, Property Code 〈5.077 imposed a
penalty of $250.00 for each day after January 31 that the
contract-for-deed seller fails to provide the annual statement with no maximum
amount for the penalty. In 2005, the
Legislature reduced this penalty to only $100.00 per year for sellers who
conducted less than two or more contract for deed transactions in a
twelve-month period, and capped the total penalty at the value of the
house. In McGee, the trial court
entered interlocutory orders on April 7, 2005 and June 15, 2005 awarding daily
statutory civil penalties to the plaintiff totaling $5,789.60, but did not
incorporate those interlocutory orders into a final judgment until December 19,
2006. It appears undisputed that the
seller conducted less than two “contract for deed” transactions in the
applicable twelve-month period, and so, under the 2005 amendment to Section
5.077, her penalty would be only $100.00 per year. Held: The Court of Appeals concluded
that the 2005 legislation, which took effect on September 1, 2005, applied
retroactively to transactions which occurred prior to September 1, 2005. Because the trial court’s interlocutory
orders had not yet been finalized as of September 1, 2005, the Court of Appeals
reduced the civil penalty from $5,789.60 to just $300.00 ($100.00/year x 3
years).
GuideOne Lloyds, Inc., Co. v. First Baptist Church of
Bedford, 268 S.W. 3d 822
(Tex. App.
Ft. Worth 2008)
Insurance Code Chapter 542, Subchapter B (former Art.
21.55) Penalty of 18% Accrued On Difference Between Actual Recovery and Amount
Tendered: This case shows how the 18%
penalty in the Prompt Payment Act is calculated when there was an
unconditional, but late, offer of payment.
The plaintiff church and its property insurer disagreed over the extent
of repairs needed to the church’s roof after it received hail damage. After almost two years, the insurer, for
the first time, made an unconditional tender of $155,000.00 to the church on
its roof claim. At trial, the jury found
the roof claim should have been paid in the amount of $286,596.63. Held: Based upon findings of when the
claim amount should have been paid (75 days after the claim was reported), the
Court of Appeals applied the 18% statutory penalty on the entire amount of the
church’s contract damages ($286,596.63) up to the date that the insurer
unconditionally tendered a payment (approximately 20 months after the payment
was due). The Court also calculated
prejudgment interest at 8.25% on the entire amount until the tendered payment
to be $39,966.26. That left the question of how to calculate the 18% penalty in
light of the tendered payment of $155,000.00.
For that , the court first credited the tendered payment of $155,000
towards prejudgment interest and then towards the amount determined to be due
under the policy, leaving a net difference of $171,562.89 on which the 18%
statutory penalty was applied from the date of tender until the date of the judgment
(approximately 8 more months). In the
end, the total 18% penalty awarded was $153,735.12, more than half of the amount due under the
policy.