Citing three recent Texas Supreme Court decisions declaring the sanctity of written contracts and the deficiency of extra contractual statements, a three-judge panel of the Fifth District Court of Appeals in Dallas late Monday reversed a $98 million fraud judgment against BBVA Compass Bank and one of its executives.
The unanimous ruling is a significant victory for Haynes and Boone’s appellate team who BBVA hired to handle the appeal.
Lawyers for the plaintiff say they plan to appeal.
Three years ago this week, a Dallas jury ruled that BBVA and loan officer Sam Meade committed fraud against real estate developer David Bagwell by misleading him about the bank’s intentions to sell notes to $11 million in delinquent loans.
During trial, Bagwell agreed that he was delinquent on payment of his loans, but he claimed he relied on misleading statements by Meade regarding the status of his bank notes. He said Meade made representations to him that the bank would not sell the loans without giving him notice.
The bank’s lawyers contended that those statements by Meade are irrelevant because there was a written contract in place that allowed them to sell the notes. The written contract by two well informed parties, they argued, superseded any subsequent oral statements.
The jury awarded Bagwell $90 million in damages, including $40 million in exemplary damages. Dallas District Judge Staci Williams later added $8 million in prejudgment interest.
On appeal, the arguments focused on whether there is insufficient evidence to support the fraud elements of causation and justified reliance.
In a 12-page opinion authored by Justice Bill Pedersen III, the court stated that Bagwell’s contention that BBVA’s authority to sell the loans “exists nowhere in the parties’ agreement.”
Lawyers for BBVA argued that two of Bagwell’s friends told him that the bank was trying to sell his loans, which should have been red flags for Bagwell.
“The bank’s argument centers on the presence of a trio of red flags that – it contends – should have alerted Bagwell that his reliance was unwarranted,” Justice Pedersen wrote. “Our analysis, rooted in the nature of the parties’ relationship and the contract leads us to agree.”
“Our common law protects a plaintiff from deceit when the plaintiff can prove fraud,” the Fifth Court panel ruled. “But fraud has well-defined elements, which include justifiable reliance upon the deceitful representation. Given the red flags evidenced in this record, we conclude Bagwell has failed to prove that element of his fraud claim.”
Haynes and Boone partner Anne Johnson, who represents BBVA, said that her client “is very pleased with this result and that the appeals court “delivered a well-reasoned opinion supported by settled Texas Supreme Court precedent.”
Derrick Boyd, who represents Bagwell, said they “plan to seek further review of this panel’s opinion.”
“We are disappointed in the three-judge panel’s decision to reverse the jury’s unanimous fraud verdict based on its opinion that Mr. Bagwell could not have ‘justifiably relied’ on a banker’s ‘outright misrepresentations’ that were blatantly false,” Boyd said. “While the panel claims it does not condone the bank’s conduct, its decision does exactly that by creating a right never before recognized in Texas law – a post contract ‘right to lie’ to anyone who is ‘sophisticated.’”