### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

444 444 444 444 444 444 444 444 444 ON MOTION F OR REHEARING

444 444 444 444 444 444 444 444 444
NO. 03-03-00376- CV

Spr ing s W indo w F as hio ns D ivi sio n, I nc .; Spr ing s W indo w F as hio ns, L.P .; and

SWF, Inc. d/b/a S C-SWF , Inc., Appellan ts

v. The Bli nd Maker, Inc., Appellee

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 126TH JUDICIAL DISTRICT NO. GN002888 , HO NORAB LE SUZ ANNE COVINGTO N, JUDGE PRESIDI NG

O P I N I O N We grant the motion for

rehe aringof appe llants, Springs Window Fashions Division, I nc., Spring s Wi ndow Fa shions, L .P. and SW F, Inc. d/b/ a SC-SW F, Inc. (“ Springs” ), withdraw our opinion and judgme nt of J uly 29, 2005, and substitute the following in its pl ace . Springs a ppeals a judgme nt awar ding a

ppellee, T he B lind Maker, Inc., $5,167,240 in actual damag es and $2,090,000 in e x emplary damag es. The sole liability theory submitt ed to the jury was fr aud, and the sole element of actua l da mag es submitt ed wa s lost profits as conseque ntial damag es. Spring s asserts t h at t h e evidence is leg ally and fa ctually

insufficient to support either aSpr ing s a pp are ntl y wo uld a lso fa bri cat e so me br and s o f i ts b lin ds its e lf and se ll the m to 1 blind fabricators for distribution to retail customers a nd ultimate consumers. 2 finding of fr aud or the damag es aw ard. F or re asons we e x plain below, we conditionally aff irm the jud g me nt o f t

he tr ia l c ourt
. BACK GR OUND The parties and their bu sinesses

Spr ing s ma

nu fa c tur e s b lin ds and

sim ila r w ind owc ov e ri ng s and

se lls its pr od

uc ts under the brand na

mes Gra ber, N anik, and B ali. The ultimate consumer s of Springs’ s products ar e pe rs on s w ho purc ha se the bli nd s f or us e in t he ir ho me s o r o ff

ic e s. Spr ing s d istri bute s it s p ro du c ts t o c on sume rs c hie fl y thr ou g h tw o chan ne ls. F ir st, Spr ing s se lls fu lly

a sse mbl e d b lin ds dir e c tly to l arg e re ta il o utl e ts l ike Ho me De po t or L ow e ’s
. Th is reta il channel of distribution, as well as ot her lower-pr iced sales channe ls like 800 numbers and the I nterne t, have put sig nificant downw ard pr es s u re o n p ri ces w ithin the blinds industry . Springs’ s
se c on d d istri butio n c ha

nn e l is the “ dis tr ibutor

/f a br ic a tor ” c ha

nn e l. S pr ing s se lls c omp on e nt p art s of its blinds t o blinds fabricators who h av e busi ness re lationships with retail establishments like pa int and ha rd wa re sto re s, or ind ivi du a l int e ri or de sig ne rs , de c or a tor s, and arc hit e c ts. Th e se re ta illevel customer s of the blind fabr icator, in turn, se ll to ult imate c o n s umers. Utilizi ng samples and oth e r pr omo tio na l mate ri a ls, the re ta il- le ve l c us tom e rs ob ta in fr om c on sume rs c olor and st y le pref ere nces, w indow measure ments and other spe cifications and transmit them in orders to the blind fabr icator. The blinds fabricator then “f abric ates” custom-made blinds by cutting a nd assembling the a pp ro pr iate Spr ing s c omp on e nts in a c c or da nc e wi th c on sume r s pe c if ic a tio ns . 1The c ompany rec orded losses in 1990, 1994, and 1996. In other y ear s of the dec ade, ne t 2 income ra ng ed fr om $132,594 (on sales of over $24 million) in 1995 to $23,405 (on sales of ove r $11 milli on) in 1991. Hi c ks te sti fi e d that ov e r 97 % of B lin d Make r’ s sa le s w e re c omp ri se d o f G ra be r p ro du c ts 3 and that it s o c c a sio na l e xce pti on s ty pic a lly oc c ur re d w he n it

uti lize d a

no the r b ra

nd ’s pr od uc t to c omp le me nt a

Gr a be r p ro du c t. 3 Blind Make r is a blinds fa bricator based in Austin, with fac iliti es also in Dallas a nd Houston. I t was established in 1981 by Ray Hicks, i ts president and sole share holder. Hic ks started the company

afte r ea rning his M.B.A. The families of both of Hic ks’s pare nts had bee n involved in the blinds industry for many y ear s. Blind Make r beg an fa bricating a

nd selling Spring s’s Gra

ber br and in 1 98 3 o r 1 98 4. B lin d M ake r e xpe ri e nc e d ste a dy g ro wth thr ou g ho ut its his tor y . I n it s f ir st y ear of oper ation, Blind Make r’s sale s totaled $627,656. Ten y ea rs l ater , Blind Make r had ove r $11,000,000 in sales. B lind Maker’ s annual sale s tripled in the 1990s—its 1998 fig ure exceede d $35 milli on—rankingit as the larg est fabr icator of Gra ber pr oducts in the nation. Despite B lind Maker’ s larg e annual sales fig ures, the company ’s annual net profits during the 1990s av er age d around $3 7, 00 0, or

jus t ov e r o ne pe rc e nt of tot a l sal e s. B lin d Mak e r’ s hist or y of sma ll ne t pr of

its re fl e c ts, 2 amongother thing s, a cor

porate strateg y

of financ ing its ra

pid and continuous g rowth throug h capital investment and of pa

ying la rg e sala ries to its ex ecutives, inc luding Hic ks, to avoid double taxation. Hi c ks te sti fi e d at tria l tha t, t hr ou g ho ut t

he 19 90 s, B lin d M a ke r v olu nta ri ly c ho se to
se ll a lmo st e xclu siv e ly

Gr a be r p ro du c ts and c on sid e re d its e lf the “ Gr a be r guy s. ” B lin d M a ke r a lso

3 pr ide d it se lf

in b e inga

“ fu ll l ine ” Gr a

be r f a br ic a tor , c arr

yingthe c omp on e nts ne c e ssa ry to f a br ic a te the c omp le te ra

ng e of Gr a

be r pr od uc ts. Th e c omp any

str ov e to f

ill and sh ip o rd e rs fr om i ts r e ta ille ve l c us tom ers on the s ame da y the y we re re c e ive d. Th e se str a te g ie s r e qu ir e d B lin d M a ke r t o4

maintain larg e inventorie s—Hicks testified that the c ompany would fre quently

car ry six milli on dollars in inve ntory , which would take roug hly two months to t urn over

throug h sales. Hicks a dded that Blind Maker t ook around another month to collect its acc ounts rec eivable from sales, mea ning that it could take thre e months or more to re alize cash f rom the sale of

inventory

it purchase d from Spr ing s. T hr o u gh o ut B li n d M a k e r ’ s s e v e nte e n - ye a

r r e la ti o n s h ip with Springs, Hicks e x presse d
conce rn that Spring s’s business p r a c ti c e s in the distributor/fabric ator c hannel r educe d Blind Make r’s pro f it a b il it y . Ch ie f amo n g H ic k s ’ s c o mp la ints w e r e Sp r in g s ’ s p e r c e iv e d e mp h a s is o nit s lowerprice d reta il channe l at t he expense of its fa bricators, a lac k of “pr ice pa rity ” ena bling B lind Maker to compete with lar g e re tailers, and sa les incentives that Hicks believed rew arde d fabr icators who made small or oc casiona l purcha ses from Spring s while pena liz ing “full line” fa bricators like Blind Ma ke r. H i c k s u r g e d

a s e r i e s o f c h an g e s i nS p r i n g s ’ s b u s i n e s s p r a c t i c e s t h a th e b e l i e v e d w o u ld
e nh anc e pr of

ita bil ity fo r b oth Spr ing s a

nd “ fu ll l ine ” fa

br ic a to rs and re vis ite d th e m pe ri od ic a lly throug hout the parties’ relationship. These proposals, which inc luded spec ial incentives for a desig n at ed class of c ommitt ed “F ull L ine Gra ber F abric ators,” be came known to both parties as “Ray ’s Obsessions.”

For many y ear s, Springs a

nd Blind Make r di d b u s i n ess without a written contra ct—B lind Maker would order Springs’ s components as ne eded, Spring s would invoice B lind Make r, and

B lin d M ake r w ou ld p ay . Hic ks te sti fi e d th a t Sp ri ng s a lw ay s p e rm itt e d B lin d M a ke r t o pay later tha n the due date on the invoice. F urthermor e, while the invoices stated that B lind Maker could take a 2% discount if it pa id w ithin fifte en or thirty day s, Springs “for ever ” allo we d Bl indI n such an instanc e, more over, Bl ind Maker a g ree d to pay Springs r easona

ble attorne y ’s 4 fee s and other c osts of collection. Subs eq u en t l y , i nFe b ru ary 1 9 9 8 , S p ri n gs loaned B lind Maker $500,000, whic h the company used to pay

down ce rtain age d ac co u n t s pay able to Spring s. I n exchang e, B lind Maker g rante d Springs a secur ity interest and made a promissory note under which it ag ree d to pay

off the ba lance in m on thl y in st allme nts of a pp ro xima te ly

$5 6, 00 0. I t a

pp e ars that B lin d M a ke r s a tis fi e d th is obligation. 5 Maker to take the discount whene ver it paid. Hic ks expl ained that Spring s did this i n rec og nition of B lind Maker’ s pree minence a s a Gra ber f abric ator a

nd the dura

tion of its cash cycle. I n 1 99 7, fo r t

he fi rs t ti me , Sp ri ng s and B lin d M a ke r entere d in to a fo rm a l c re dit ag ree ment at S pring s’s reque st. I n that ag ree ment, Blind Maker acknowledg ed that Spring s “is not obligated to sell g oods to [ Blind Make r] or to gr ant open a ccount pay ment terms,” a

nd that “[t] he decision to sell product and extend cre dit shall be sol ely within the ex clusive di scre tion of Spring s.” Th e a g re e me nt f

ur the r p ro vid e d th a t B lin d Make r “ he re by a g re e s to m a ke pa y me nts a s n e c e ssa

ry to keep the acc ount balance within terms established by Springs” and that if Blind Make r fa iled to do
so , Sp ri ng s “ may

imm edi ate ly su spen d a ll f utu re sh ipm e nts on

oth e r t ha n p ro mpt pa y me nt t e rm s such as c ash or c ashier’ s chec k and may further demand immediate pa

y ment of the full bala

nce.” 4
P roje ct Ove rlord

The ove rridingtheory

of B li n d Maker ’s ca se at trial wa s that Springs c ommitt ed a varie ty of fr audulent ac ts in furthera nce of a plan to take over e x isting fa bricators, move the fabr ication proc ess to Mexi co, and utiliz e the prior fabricators as di stributors. This plan was terme d Project Ove rlord. Var ious Springs ex ecutives testified to the exist ence of Project Ove rlord, but thereAl t h o u ghs o m e w i t n es s es t es t i fi edt h at P ro j ec tOv er l o rdwa s r e

j e c t edb y

S p ri n gs 5 manag ement, other s testified that parts of Proje ct Over lord wer e, in fa ct, implemented. I n o the r wo rd s, Spr ing s wo uld fo rg ive the fa br ic a tor ’s de bt i n e xch ang e fo r a n o wn e rs hip 6 stake in the fa

bricator. 6 was some disag ree ment o v er t h e extent to which it was implemented. Howeve r, evide nce of the 5 implementation of the plan was prese nted at trial, including the purcha ses of fa bricators, debt-for

equity swaps to ac q u i re fabric ators havinglarg e ac counts pay able to Spring s, and the a cquisition 6 of a bli nd s ma

nu fa c tur ingpla

nt in Rey no so , Mexic o. Th e re wa s te sti mony that B lin d M a ke r w a s a targ e t of Pr oje c t O ve rl or d a

nd tha t Sp ri ng s u lti mate ly a c qu ir e d a s ma ny a s thre e oth e r f

a br ic a tor s.
The F abr ic at orLic e nse Ag r e e m e nt

B e g inn ing in 19 98 , Spr ing s too k a dd iti on a l ste ps to fo rm a lize its re latio ns hi p wi th Blind Make r and other blinds fabric ators, including the initiation of a “pre fer red f abric ator” prog ram and the utilization of a licensing contra ct. B lind Maker char acte rized these steps as tools used by Springs to adva

nce Proje ct Over lord. Blind Make r’s fr aud cla im is based largel y on a ser ies of
a lle g e d mi sr e pr e se ntatio ns and fa ilure s to dis c los ur e inf or matio n r e gardi ng the se ne w b us ine ss ini tiativ e s. We a c c or din g ly e xplor e thi s e vid e nc e in s ome de ta il. The pilot program

I n Aug ust 1998, Springs invited Hicks and r epres en t atives fr om a handf ul of other Gr ab er fab ri ca t o rs t o a m ee t i n g atS p ri n gs ’s W i s co n s i n h e a d qu ar t er s . At t h e m ee t i n g, S p ri n gs unveiled the c oncept of

a “F abric ator Pilot P rog ram,” which it termed a “Joi n t P ar t n er s hip.” The stated g oal of the pilot prog ram was to “[s] treng then our pa rtnership throug h the desig n of ef fec tive7

p r o g r ams th a t e n h an c e ma r k e t p o s it io n an d in c r e a s e p r o f it a b il it y f o r o u r f a b r ic a ti n g p artne rs and Springs.” Key

components wer e ef

forts to build product and br and aw are ness (throug h adver tising assistance and ince ntives), marke t pe netration and sales g rowth (throug h new pr oduct deve lopment and possibly a “value brand” or “fig hter brand” to compete with lower-pr iced pr ivate labe l brands),
marg in e nh anc e me nt ( thr ou g h re bate s and a fu nd tha t a c c ru e s a

pe rc e nta g e of

purc ha se tot a ls f

or us e in c e rt a in p ur c ha se s) , a

n d a f o r ma l a g re e me nt b e tw e e n Sp ri ng s and e a c h “ pr e fe rr e d” fa

br ic a tor . With reg ard to the latter, S pring s proposed the c oncept of a “F abric ator L icense Ag ree ment” (F L A) that would g rant pa

rticipating fabr icators a

limit ed license to use Gra ber’ s tradema

rks, provided the y
a d h e r e d to q u a li ty standards a

nd manufa cturingspecific ations to preser ve the va lue of the tra demar ks
an d p ro m o t e u n i fo rm i t y a n d i n t er ch an geab i l i t y

am o n g Gr ab er

p ro d u ct s an d p ar t s . Al l S p ri n gs fabr icators would be require d to sign the F L A.

I n a dd iti on , Sp ri ng s in tr od uc e d th e c on c e pt o f a

thr e e -t ier ed c la ssi fi c a tio n o f i ts

“ F a br ic a ti ng P art ne rs ” : Pr e fe rr e d, F ull L ine , a nd Stand ard . St and ard

F a br ic a tor s w ou ld b e tho se wh o fa br ic a te d any Gr a

be r pr od uc t. F ull L ine wo uld

be tho se wh o a g re e d to fa br ic a te a ll ava ila

ble Gra ber pr oducts. Prefe rre d would be those who ag ree d to fabr icate the full Grabe r line, plus ag ree d to not fabricate o r d i s t ri bute any competitor’s produc ts unless otherwise a g ree d. Prefe rre d f ab r i c a t o r s w o u l d

a l s o b e r e qu i r e d

t o m e e t“ m i n i m ump u r c h a s e an d g r o w t hr e qu i r e m e n t s . ” In exchang e, Spring s proposed that e ach pr efe rre d fabr icator wo u ld rec eive be nefits including pa rt ic ipatio n in

the “ me g a ” pr ic e pla

n ( a me ans of

c om pet in g wi th g e ne ri c br and s) , p ri or ity in introducing new pr oducts or compone nts (that new pr oduct s wo uld be sold throug h pref err ed fa br ic a tor s b e fo re oth e r f

a br ic a tor s o r t

he re ta il c ha

nn e l) , a nd “[ u] po n me e tin g qu a lif ic a tio ns , a ll8

marke ting a

nd promotional benef

its defined in the cur

rent y ear marke ting pr og ram.” To the latter be ne fi t, S pr ing s a dd e d th e c ave a t “ Not e : Marketing p l an s m ay be modified pe riodically to refle ct business condition[ s].”

H ic k s r e s p o n d e d

f av o r a b ly to th e Pi lo t P r o g r a m c o n c e p t, p e r c e iv in g it to be a
re s p o n s e t o “R ay ’s Ob s es s i o n s , ” th e pr o p o s al s h e ha d ex p re s s edfo r y ea rs . On S ep t em b er 9 , S p ri n gs sent Hicks a le tter “to c onfirm the details of our Pilot Partnership Review.” The letter listed various benef its of the “Joi nt I mprovement Plan”: (1) a mar g in improvement fund, where by 2 1⁄2% of B lind Maker ’ s to ta l mo n th ly p u r c h a s e s w o u ld a c c r u e a s a c r e d it th a t c o u ld b e a p p li e d to p u r c h a ses of
cer tain components; (2) a 2% reba te available if Blind Make r maintained its 1997 purc hase volume; (3) issuing 1% of monthly purcha ses t o Bl i n d M aker’s co- op adver tising fund; (4) a re stricted marke ting f

und comprised of 1⁄2% of total purcha ses; (5) allowing B lind Maker to re turn full box es of slow-moving inventory on a one- time basis, provided Blind Maker pa id a re stocking char g e and purcha sed re place ment inventory at 125% of the returne d inventory ’s value; a nd (6) tec hnical assistance from Springs and “re commendations to improve eff iciency .” Finally , the letter e x plained that “ [o]ur int e nti on is to run the pil ot pr og ra m unti l y e ar en d, and the n rol l out th e ne w, c omp le te prog ram on 1-1-99.” Hicks testified that Blind Maker participated in the pilot prog ram an d t hat Spr ing s p ro vid e d th e pr omi se d b e ne fi ts.
The Orlando m eeting and 1999 Marketin g Plan

I n mid-November , J im Dudas, then-pr esident of S p ri n gs , wr o t e H i ck s , n o t i n g t h at “we
are in the proce ss of rese tting our Distributor/Fabr icator business,” including “the formalization and
s t re n gt heningof our r elationship with our partne rs.” That effor t, Dudas wrote , included a9

“Distributor/Fa

bricator ag ree ment,” a dr aft of which was e nclosed, a nd an upcoming“L et’s Make Mag ic” c onfer ence in Orlando, F lorida, on De cembe r 9-12.

Twenty -four

Gra ber f abric ators attende d the conf ere nce, inc luding B lind Maker. A copy of a slide show f

rom the conf

ere nce, introduc ed by Blind Make r, states that the pur pose of the
c on fe re nc e wa s “to for m a part ne rs hip [be tw e e n Sp ri ng s and inv ite d f a br ic a tor s] a s w e he a d in to 1 9 9 9
. ” On e of t h e l i s t edex p ec t at i o n s fr o mt h e c o n fe re n ce wa s t o “b egi np ro ce s s o f f o rm u l at i n g a
rea l win/win partnership.” The slide show indicates that the g roup discussed “ [t ]ri-suffo ca tion of the re tail environment” by “pric e def

lation,” “ove rsaturat i on,” and “ stag nant consumer demand.” Springs’ s proposed response entailed “[c]onsol idation and grow th of t he strong ” and “ [s] hakeout of the wea k” throug h strateg ies to distinguish and enha nce the perc eption of t he Graber brand a nd better position i t in the reta i l en v i ro nment. Aspec ts of these strateg ies included e liminating “c hannel conflicts” be tween Spring s’s Gra ber, Nanik and B ali brands; enha nced a dvertising ; and the

“ Pr e fe rr e d F a

br ic a tor ” pr og ra

m. Spr ing s p re se nte d a

n ov e rv ie w of the “ Pr e fe rr e d F a br ic a tor Pr og ra m.” Th e re wo uld be three levels of pref

err ed fabr icators, Gold, Silver, and Br onze. Under “the benef its of being a Prefe rre d Fa

bricator,” Spring s listed:

! “Pay ment terms of 2% 15t h , n et 6 0.” The parties a g ree that this phrase re fer s to a 2% e arly

pay ment discount available if a party pay s within fiftee n day s of invoice, with the full bala nce due on the 60th day

afte r invoice.
! “Inventory

adjustment prog ram.”
! “Co-op funds” (comprise d of 2% f or adve rtising, 1.5% for sa les aids, and .5% for e vents, the latter be ing ma de ava ilable only to Gold prefe rre d fabr icators)
.10

! Spe c ia l di sc ounts on

pr ic ingof

c e rt a in c omp on e nts
. ! “Mar g in improvement fu nd,” whe reby pref err ed fa bricators would rec eive cre dits based on monthly purcha ses that could be applied towar d future p u r c h a s e s . G o ld p r e f

e r r e d f a b r ic a to r s w o u ld

r e c e iv e 3 % , Si lv e r

2 % , an d B r o n ze 1%.
! “Perf ormanc e g rowth re bate,” wher eby pref err ed fa bricat o rs wo uld rec eive a re bate of 2% up on

re a c hin g q uarte rl y

ta rg e ts f or pe rc e nta g e g ro wth in

the ir pu rcha se s. Go ld f

a br ic a tor s o bta ine d th e re bate up on me e tin g a

5% g ro wth targ et, Silver 10%, and B ronze 15%.
! “ B u s i n e s s p r o d

u c t i v i t y c o n s u l t i n g , ” f

o r G o l d p r e f e r r e d f a b r i c a t o r s o n l y.
! “Pref

err ed lea d prog ram,” for Gold pr efe rre d fabr icators only
. ! “Ne w produc t priority ”—the a bility to sell new Gra

ber products befor e the pr od uc ts a re ma de ava ila

ble to oth e r fa

br ic a tor s or the re ta il ch ann e l—f or Go ld o n l y.
Under “Pref err ed F abric ator Require ments,” Spring s expl ained that to pa rticipate, a fa

bricator had to execute, by

Marc h 31, the Spring s FLA; ag ree to fabric ate e x clus i v el y Graber pr oducts; and fabr icate or distribute minimum le vels of Gra ber product. Gold pref

err ed fa bricators wer e re quired meet minimum purchase r equire ments of at least $2.5 million and to have at lea st $25,000 of sales in eac h of six Gra

ber product categ ories; S ilver $1.5 m illion-$2.5 mi llion in purchases a nd $15,000 in sales in eac h Gra

ber pr o d u ct ca t ego ry ; and B ronze $.5 milli on-$1.5 million i n purcha ses and $ 5 , 0 0 0 i ns a l e s i ne a c hG r a b e r p r o d u c tc a t e g o r

y. Springs a lso reviewe d the FLA, which Springs explained was aimed at maintaining and enhanc ing the reputation of its Graber trade marks. Spring s emphasized that the FLA re quired fa br ic a tor s to us e on ly

Gr a be r c omp on e nts wi th t

he Gr a be r p ro du c ts the y

so ld a nd to c on fo rm

to11

Gra ber te chnica l specifications. The “1999 Distributor/Fabr icator Pricing Plan” was a lso presente d,
a s w a s a de sc ri pti on

of Spr ing s’ s p lann e d 1 99 9 tr a ini ngpr og ra ms. Blind Make r also introdu ce d i n t o ev i d en ce a b o o k l et t i t l edS p ri n gs ’s “1999 Mar keting Prog ram,” which Hicks thoug ht he re ceive d afte r the Or lando conf ere nce but be fore he sig ned the FLA. Under “Pref

err ed Requirements” wer e listed the minimum purcha se re quirements discussed in O rl and o, the e xclu siv ity re qu ir eme nt ( wi th t

he c a ve a t th a t c omp e tit ive pr od uc ts c ou ld b e so ld upon prior wr itten approva l from Spring s), plus a re quirement to:
Ex ecute and deliver

to Springs . . . the [FLA] and strictly comply with a ll ter ms and conditions of t his ag ree ment. Our goa l is to have the sig ned Ag ree ment by J anuar y 1, 1999. I f y ou are unable to sig n the ag ree ment by Marc h 1, 1999, y ou r c o m pany will be assig ned into the Standard Cate g ory . I n the eve nt that the ag ree ment is not signe d by J une 1, 1999, we will be forc ed to discontinue sales to your compa ny . Among the “pr efe rre d benef its,” the 1999 Marke ting Plan included:

! F a br ic a tio n a

nd te c hn ic a l su

pp or t;
! Bu s i n es s p ro d

u ct i v i t y co n s u l t i n g;
! Pr e fe rr e d le a d p ro g ra m;
! N e w p r o d

u c tp r i o r i t y;
! Pay me nt t e rm s o f “ 2% , 1 5th , n e t 60 fo r a ll Pr e fe rr e d F a br ic a tor s;”
! An “Inventory

Adjustment P r o gr a

m, ” wh e r e b y

p r e f e r r ed fa bricators could re turn cer tain unused inventory

one time per

y ear , conting ent upon pay ing a restocking fee (lower for Gold pref

err ed fabr icators, highe r for Silver and Br o n z e) and or de ri ngne w i nv e nto ry

a t 12 5% of

the va lue of

the re tur ne d c omp on e nts ;
! Co- op a dv e rt isi ng , s a le s and event f un ds . A ll p re fe rr e d f

a br ic a tor s w ou ld rec eive adver

tising funds e qual to 2% of qua lified purcha ses and sa les fundsHi c ks c ha ra c te ri zed the be ne fi ts d isc us se d in Or lan do as e sse nti a lly

the same a s th os e 7 offe red unde r the pilot prog ram. 12

e qu a l to 1. 5% of

qu a lif ie d p ur c has es. Gold pr e fe rr e d f a br ic a tor s o nly

wo uld re c e ive e ve nt f

un ds e qu a l to .5 % o f q

ua lif ie d p ur c ha se s.
! A marg in improvement fund, or monthly cre d i t based on a

perc entag e of a fabr icator’ s volume of qualified purchase s. The 1999 Mar keting Plan expl ained that “[ t ]he primary

objective of

the Marg in I mprovement F und is to im prove ov e ra ll pr of

ita bil ity .” Go ld pr e fe rr e d fa br ic a tor s wo uld re c e ive a 3% cr e dit , Silver 2%, and B ronze 1%;
! Special discounts on components; and
! A p e rf

or man ce gr ow th r e bate , w hic h w ou ld r e wa rd pr e fe rr e d f

a br ic a tor s w ith a 2% r ebate upon achie ving spe cified p er ce n t age growth re lative to prior y ear purcha ses. Gold pre fer

red f abric ators obtained t h e rebate upon a chieving5% g rowth, Silver 10%, a

nd Br onze 15%.
Dudas later testified that Springs had “most definitely” intended for the blinds fa bricators to r ely

on the statements made in the Orlando slide show and 1999 Marke ting Pl an as true. But, he cla rified that th os e state me nts re pr e se nte d o nly Spr ing s’ s “ i nt e nt ion s” in i ts n e w p re fe rr e d f a br ic a tor pr og ra m. Hicks later

testified that Spring s depicted its new init iatives as a means of r educing the numbe r o f fa

br ic a tor s wi th wh om it de a lt fr om the 60 to 8 0 it ha d b e e n util izin g to a

pp ro xima te ly twenty . These “fortunate few” would rec eive “ lots of benef its,” including those me ntioned above
as we ll as other benefits that had been di scussed duringthe pilot-prog ram discussions, including new product de velopment, a “ g ood/better/best” br and positioning ef fort, a low-price d “fig hter bra nd,” “meg a pric ing,” and u s e of Spring s’s equipment. Blind Make r also introduce d into evidence a 7 do c ume nt, pr e pa

re d b y Spr ing s, re pr e se nti ngB lin d M a ke r’s pr oje c te d f ina nc ia l be ne fi ts i f i t participated in the pref

err ed fabr icator prog ram at its 1999 projected volume of pur chase s. Adding13

the projec ted financ ial benef its from the new c o-op adve rtising pr og rams, ma r g in enhanc ement fund, and the perf

ormanc e g rowth rebate yielded an estimated financ ial benef it of over $1.5 million. The document also c ompare d these be nefits to those Blind Make r had r ece ived under S p ri n gs ’s 1998 incentive pr og rams, and repr esente d that Springs stood to g ain m ore than $1.1 mill ion in additional be ne fi ts.
Ev idenc eof

a li nk t o P ro je c t O v e rlo rd Followingthe Or l ando conf ere nce, a n internal Spring s operations review a naly zed fabr ic a to r f

e e d b a c k f r o m th e e v e n t. T h e r e v ie w li s te d a nu mb e r o f th e f a b r ic a to r s ’ conc erns including, ( 1) que s tions reg ardingSprings’ s ability to deliver the pr omises made, (2) quality and service issues, (3) be lief that the F L A was lopsided in Spring s’s favor , an d (4 ) concerns a bout Springs’ s strateg y

to acquire [di stributor/fabric ators] and establ ish wholly owned f abric ation
c a pa bil ity . A t th e e nd

of thi s li st, the re vie w s tate s “** * We will be dr ive n to e xec ute OV ERL ORD
on an ac cele rate d basis.”
Hic ks s ign s t he F LA

Hicks d i d n o t s ign the FLA at the Or lando conf ere nce. Spring s mailed a re vised version of the agr eeme nt to Blind Maker on J anuar y 7, 1999. Springs ha d made se vera l revisions based on “ the sig nificant c omments that were obtained in O rlando” in or der to “ make the A g ree ment
c omp le te ly

se rv ic e a ble to [Sp ri ng s] and it’ s [sic ] f a br ic a tin g pa

rt ne rs .” Th e le tte r s tate d “ a tim e ta ble for c ompletion of the Ag ree ment”:14

J anu ar y 1 9 9 9

- M ar c h 1 9 9 9 Sig n e d A g r e e m e n t s a re ob ta ine d a nd a pp lic a ble

benef its (Gold, Sil ver a

nd Br onze Prefer

red Fa bricators) beg in to accr

ue the month following the signature. M ar c h 2 , 1 9 9 9 Fa brica tors not signing t h e Agr eeme nt will be c la ssi fi e d a s Sta

nd ard F a br ic a tor s. June 1, 19 99 F a br ic a tors wh o have no t sig ne d the Ag re e me nt w ill be discontinued by their ele ction of not signingthe Ag ree ment.
After consulting w ith Blind Maker ’s cor porate counsel, Hic ks signe d the re vised FLA on J anuary 15, 1999. The F L A itself made no me ntion of the Prefe rre d Be nefits discussed in Orla ndo or in t he 19 99 Mark e tin g Plan. I t di d g ra nt B lin d M a ke r a

“ no n- e x clusiv e ri g ht a

nd lic e ns e ” to u se
cer tain of Spring s’s Gra

ber tra demar

ks listed in an e x hibit to the ag ree ment. The lice nse per mitted Blind Make r t o use t he trademarks within identified t err itory and distribution channels. B lind Maker
a g r e e d “ t o d e v o t e i t s b e s t e f

f o rt s t o p r o m o t e an d s e l l t h e L i c e n s e d P r o d u c ti nt h e P r i m ar

y T e r r i t o r y” and that all L icense d Products woul d utiliz e only Springs c omponents and be installed a nd
c on str uc te d in c on for mi ty

wi th t e c hn ic a l in fo rm a tio n a nd sp e c if ic a tio ns pr ov ide d b y

Spr ing s. Spr ing s w a s a lso g ive n p ow e r t o a pp ro ve any

a dv e rt isi ngfo r t

he L ic e ns e d Pr od

uc ts. Spr ing s a g re e d, duri ngthe te rm of the a g re e me nt, to s e ll t o B li nd Mak er a ll components for

fabr ication of the L icense d Products, subject to its rig ht to decline any order . The ag ree ment further p ro v ides that, “The price s and other te rms and conditions of sale for the components ar e set forth in Springs’ s price lists and standard ter ms and conditions of sale,” and that15

“Spring s rese rves the r ight to cha ng e pric es and standa

rd term s an d condit ions of sale a nd the f e a tu r e s o f i t s c o mp o n e n t s a tan y

t i m e d u r i n g th e t e r

m s o f t h i s A g r e e m e n t
. ” A d d i t i o n a l l y , t h e F LA p r o v i d e d t h a t“ [ a ] l l o r d e r s s h a l l b e s u b j e c tt o t h e a

p p r o v a l o f

S p r i n g s ’ s c r e d i td e p art m e n t
. ” T h e F LA
a lso ob lig a te d Sp ri ng s to se ll “ su ff ic ie nt q ua nti tie s o f s a mpl e s and

dis pla y s o f t he L ic e ns e d Pr od

uc ts, cata logs, a

nd o t h er ad v ertisi ng and promotional aids,” a nd to make ava ilable, from time to time, fa br ic a tor te c hn ic a l in fo rm a tio n, inc lud ingfi nis he d p ro du c t sp e c if ic a tio ns , f a br ic a tio n a

nd a sse mbl y instructions, and repa ir instructions.

The F L A also per

mitted either par

ty to terminate the a g ree m en t , with or without
c a us e , u po n s ix mon ths ’ a dv anc e writte n n oti c e . Upo n te rm inatio n, B lin d M a ke r’ s li c e ns e to u se Springs’ s tradema

rks and tec hnical information would cease
. The so l e re fer ence in the FLA to the Prefe rre d Fa bricator prog ram wa s in section 13.01, which provide d: Springs F abric ators ar e cla ssified as Pref err ed (G old, Silver, or B ronze) or Standa rd Distributor/Fabr icator. Fa bricator ag ree s to strictly

comply with all require ments for its a s s ign e d c a te g o r

y . . . . T h e r e qu ir e me n ts ar e s u b je c t to qu arte r ly

revie w and re vis ion . F a

br ic a tor sh all pro vid e qu art e rl y

re po rt s o f i ts c omp lia

nc e status wi th respe ct to all perf

ormanc e tar g ets assig ned to Fa bricator.
The F L A containe d an addendum identifying Blind Maker as a G old Prefer

red F abric ator a

nd setting forth the r equire ments that Blind Make r purc hase a total of at lea s t $ 2
. 5 milli on of qualify ing p ro d u ct s an d at l ea s t$ 2 5 , 0 0 0 fr o mea ch Gr ab er p ro d u ct gro u p ; fab ri ca t e a n d

d i s t ri b u t e o n l y

S p ri n gs products unless Blind Maker obt ained written approva l to do otherwise; and me et a $12.3 million sales objec tive. Pay

ment terms wer e ag ain spec ified as “ 2% 15th, Net 60.”16 Th e FL A fur th er p ro vid e d th a t Sp ri ng s w ou ld h a ve a ri g ht o f f

ir st r e fu sa l sh ou ld Hicks sell the Blind Make r. Howe ver, H icks handwr ote a modification: “Springs shall not have a rig ht of first re fusal if owne rship is transfer red in a ccor dance with a will to family members.” F ina lly , s e c tio n 1 5. 05 of

the F L A p ro vid e d: This Ag ree ment contains the entire ag ree ment betwee n the parties here to in r espec t of the subj ect matte r h e re of , a nd su pe rc e de s and

c anc e ls a ll p re vio us a g re e me nts , negotiations, commitments and understanding s, with respec t to the subject matter h er eo f, wh et h er

m ad e o ra l l y

o r i nwr i t i n g.
Af te r H ic ks e xec ute d th e F L A a nd for wa rd e d it to S pr ing s, Du da s w ro te on Janu ary 22 to acknow ledg e re ceipt and “ welcome y ou to our joint partne rship.” Dudas added t hat “[s] ince your sig nin g date wa s Jan

ua ry , 1 99 9, the Pr e fe rr e d b e ne fi ts w ill begin on F e br ua ry 1, 19 99 . T he se benef its will be distributed a s per our 1999 Fa bricator publication and our discussions in Or lando.” Hic k s late r

te s ti f ie d th a t, a lt h o u g hth e F L A an d

o th e r Sp r in g s d o c u me n tati o nh ad ref ere nced “ Standard F abric ators,” Spring s executives had “re peate dly ” told him that B lind Maker had to sig n the FLA as a preferred fabricator

— i.e. , to ag ree to the exclusivi ty require ment and pref err ed fa bricator perf

ormance targ ets—or Spring s would discontinue all business with Blind Make r o n Jun e 1, 19 99 . H ic ks late r l e arn e d that, in fa c t, Spr ing s ha d c on tin ue d to do bu sin e ss w ith other fa b r ic a to r s a s s ta

n d ar d f a b r ic a to r s . H e te s ti f

ie d th a t if h e h a d u n d e r s to o d th a t B li nd Maker could have continued to do business with Springs as a standard fabr icator, he would not have sig ned the FLA as a

pref err ed fa bricator. Hicks also testified a s to his understanding at the time that the FLA an d t h e p re fe rr ed fab ri ca t o r b en ef i t s “w en t t o get h er ” an d t h at i f h e h ad b el i ev edt h at S p ri n gsHicks adde d, “Ji m, Iam not questioning your per sonal integ rity , but y our company ’s 8 marke ting integ rity

is certa inly

in question.” 17 would not consider its elf bound to provide the pref err ed fa bricator bene fits, he would not have signe d the FLA as a

pref err ed fa bricator. Spr ing s e nfor c e s t he te r m s o f the F LA

The dispute that ensued stemmed from Springs’ s attempts to enforc e F L A terms that depar ted from the pa

rties’ pa st busin es s p rac tices, Spring s’s modification of c erta in prefe rre d f a b r i c a t o r b e n e f i t s , an d S p r i n g s ’ s f

a i l u r e t o d e l i v e r

c e rt a i nb e n e f

i t s a s o r i g i n a l l y p r o m i s e d
. In i t i a l l y, Blind Make r re ceive d at least some o f t h e prefer red f abric ator be nefits re prese nted in the 1999 Mark e tin g Plan a

nd pri or disc us sio ns . Pa

rt ic ula rl y imp or tant t o B lin d M a ke r w a s th e 3% marg in improvement fund. Also, e ven thoug h the pre ferre d fabr icator r equire ments expl icitly stated pay ment terms of “2% 15, net 60,” Blind Maker continued its prac tice of taking 2% ear ly pay ment discounts even whe n it paid significa ntly later tha n fiftee n day s after

invoice. Howe ver, Spring s was slower to deliver

on other pre fer

red f abric ator be nefits, ra ised s o m e component prices, a nd eliminated a truc kload discount that Blind Make r had r ece ived prior to 1999.

I n April 1999, Hicks lea

rned that Springs wa s selling a new ty pe of G rabe r produc t thr ou g h H ome De po t. H ic ks faxed a le tte r t o D ud a s c omp la ini ngthat th e a c tio n “ sp e a ks vo lum e s” about Spring s’s reta il strateg y and “it ra ises serious issues of integ rity .” Hicks also urg ed that he 8 “sig ned this contrac t expecting a ‘fig hter bra

nd.’ Where is it? Instead we are taking a sig nificant p ri ce i n cr ea s e o no u r b as i c c o mp o n en t s . ” H e a d d ed , “W e s h o u l d n o tb e p en al i z edfo r s i gn i n g a
c on tr a c t or

be ing loya l to Gr a

be r. We m

us t ha ve a c c e ss t o c omp e tit ive ly pr ic e d c omp on e nts on

tho seSprings a lso sought re imbursement from B lind Ma k er for discounts it improperly took 9 betwee n J un e 1 an d September 29. This a spect of the parties’ dispute, which esc alated in the su c c e e din g months , w a s u lti mate ly re so lve d b e fo re tr ia l.

18 g ener ic, commodity

products.” H icks also expressed co n cer n that, “I also signe d the contra ct expecting sig nificant saving s from y our pref err ed prog rams. Be tween the price incre ase, losing the truckload discount, a

nd the other pe rks, The B lind Maker is not doing well.” Hic ks later testified that this was the first time he be g an to question Springs’ s commitment to the promises he believe d it had made in Or lando.

On M ay 29, 1999, Hicks ex ecute d a second revised version of the FL A. This version inc lud e d a na

rr ow e r ri g ht of fi rs t re fu sa l pro vis ion a pp lying on ly wh e re an o wn e r atte mpt e d to se ll
a fa br ic a tor to o ne of

Spr ings’s dir e c t or

ind ir e c t c omp e tit or s. Th e a g re e me nt w a s o the rw ise identical to the version Hicks had signe d in J anuar y except for some c hang es to the exhibit s. The exhibi t addre ssing B lind Maker’ s obligations as a Gold pre fer red f abric ator wa s unchang ed. Be g inning in June, Springs’s c redit depa rtment beg an to inquire with B lind Maker reg ardingits practice of takingthe 2% early pay ment discount even while paying sig nificantly later that the fiftee n day s after invoice specifie d in the FLA. These discussions culminated in a September 29 confe renc e ca ll in which Springs informe d Blin d M ak er t h at it would strictly enfor ce the “2% 15 th, ne t 60 " pa

y me nt t e rm s sp e c if

ie d in the F L A. I n H ic ks ’s vie w, du e to B lin d M a ke r’ s c a shc y c le

9
on inventory , this step eliminated any possibili ty it c ould obta in the 2% discount, ef fec tively adding what Hicks e stimated to be $25,000 or $30,000 per month to the company ’s inventory costs. Relations betwee n the two companie s continued to sour t here afte r. Afte r a me eting with a Spring s market i ng executive that Hicks late r re counted “ cre ated some a nimosit y ,” Duda s19

inf or me d H ic ks that, a s H ic ks re c ounte d, “ Iba sic a lly wa sn ’t lik e d at Spr ing s . . . wa s con sid e re d to be le a din g a

c ha rg e a g a ins t th e m,” and

that hi s “ iss ue s w e re mine and min e a lon e .” Du da s,
acc ording to Hicks, concluded by sug g esting that Hicks “should consider my options, one of w hich was for Springs to buy The Blind Maker .” This was the first time that Hicks had he ard suc h an idea from a Spring s executive, and Hicks rec ounted that he felt “shocke d and threatened that they even would consider a

strateg y like that.” Dudas subseque ntl y

left Spring s some time therea fter, a nd, on October

22, 1999, Dudas wr ote Hicks thankinghim for “your support,” and profe ssing, “ Iknow I have f ailed to deliver all that was promised at the outset of my tenure , but I

do believe that we have made pr og ress a nd that the cur rent business dire ction is corre ct.”
The w hite sale

There is evidence that, during 1999, there was a war eness within Spring s that Blind Maker was e ncounter ing f

inancial diff

iculties. An Octobe r ema il from S p ri n g s’s cre dit manag er related an industry rumor that Blind Maker ’s bank had begun car efully scrutinizing B lind Maker’ s
a c c o u n t b a l an c e s an d s e n d i n g a u d i t o r s t w i c e m o n t h l y t o d o i n v e n t o r y v e r i f i c a t i o n . Th e e ma il
c on c lud e d th a t th e rumor s we re on ly sp e c ulatio n, “ but g ive n th e c on c e rn s w e have , I fe e l it is w or th documenting
. We should also be war y of any larg e order s that may potentially be place d by [Blind Maker ] t o make their

‘quotas.’ ” Ot h er internal doc uments ref lected c oncer

n that Blind Make r’s
acc ounts pa

y able had swelled a

nd had bec ome late since Springs be g an strictly enfor cingthe fiftee nday require ment for the 2% ear ly pay ment discount. Testimony from S p ri n gs employ ees f urther
reve aled that Spring s had an inter nal “c redit limit” for B lind Maker of $3.8 milli on and that B lindI n all classifications, a fabr icator had to a chieve a minimum of 5% g rowth. For meeting 10 this threshold, a Gold fabr icator would rec eive a 3% rebate, a Silver 2%, and a Br onze 1%. For the 20 Maker had approac hed or exceede d this li mit for much of the latter half of 1999. Blind Make r wa s not informed of a

ny such limit, however, until sever al months later. I n N ov e mbe r, B lin d Make r re c e ive d a Gr a be r “ Ge ne ra l Sa le s B ull e tin ,” a dd re sse d to “G rab er P re fe rr edDi s t ri b u t o r/ Fab ri ca t o rs , ” an n o u n ci n g a “Fi rs t Qu ar t er 2 0 0 0 W h i t e S al e” t h ro u gh which pre fer

red f abric ators could obtain stee p discounts on large p u rc h as es of c erta in Grabe r components. Hicks testified that, having “lost” its customa ry 2% ea rly pay ment discount, Blind Maker “boug ht as much as we co u l d ”—over $1 milli on more in inventory than in a ty

pical
mon t h

— b o t h t o av ail itself of the white sa le discounts and to meet the 5% g rowth targ et for
re c e ivi ngthe pr e fe rr e d f

a br ic a tor be ne fi ts’ 2% pe rf

or manc e g ro wth re bate . B lin d M a ke r’ s a c c ounts pay able r ose to over $4.8 million by J anuar y 8, 2000. Hicks t estified that Springs therea fter be g an putting unpr ece dented pr essure on Blind Make r t o p ay

do wn its de bt. L a te r i n Jan

ua ry , Sp ri ng s r e du c e d B lin d M a ke r’ s in te rn a l “ c re dit lim it” from $3.85 million to $3.4 m illion. I t did not inform B lind Maker of this re duction or the e x istence of a c redit limit. Blind Maker ultimately ag ree d to a re pay

ment schedule
. Changes to the preferr ed fab ricat or benefits

I n M ar ch 2 0 00, Springs he ld a meetingof its Prefer red F abric ators in Chicag o, at wh ic h it ann ounc e d c ha

ng e s in its pr e fe rr e d b e ne fi ts f

or 20 00. S prin g s r e pla c e d th e marg in enhanc ement fund, which had be en base d solely on the volume of a fabricator’s purchases, with a “B u s i n es s De v el o p m en tFu n d , ” w h i ch p ro v i d edre b at es t i edt o gro wt hi n purcha se volume. Sp ri n gs 10new Platinum classification, discussed above, Spring s would pay a 4% r ebate
. For 5-10% gr owth, all classifications of prefer red fabric ators would rec eive a 1% re bate; 11 11-14% g rowth, 2% r ebate ; and 15% or mor e g rowth would yield a 3% r ebate
. 21 also modified the perf

ormanc e g rowth rebate to pr ovide g raduated perc entag es of re bates ba sed not
on fabr icator classification, but perce ntag e g rowth. These shifts to g rowth-ba sed ince ntives from 11

v o l u m e- b as edi n ce n t i v es cr ea t edn ew d i ff i cu l t i es fo r B l i n d

M ak er ; b ec au s e i twa s al re ad y a l a rge fabr icator, it re g arde d the re quired g rowth t hresholds as virtually impossibl e to ac hieve. How ever , Blind Make r app ar en t l y

did qualify

for a new “ Platinum” classification of pr efe rre d fabr icators applicable to those with at least $5 million i n annual pur cha s es . T h ese c hang es took eff ect on April 1.
The “custom er list”

At the Marc h meeting , Springs also introduced a new pr omotional prog ram, “ Clear to the TOP,” throug h which fa bricators’ re tail-level c ustomers could obtain cer tain benef its, such a s fre e mer chandise , based on gro wt h in their purcha ses of Gr aber products. B lind Maker a nd other fabr icators we re a sked to mail “Clear to th e T OP ” prog ram re g istration car ds to their reta il-level
c us tom e rs . T he car ds requ est ed co nfi den ti al p ast -sa les dat a, i ncl ud ing c us tom e r i de nti tie s, a dd

re sse s, telephone numbe rs, social sec urity numbers or e mploy er ide ntification n u mbers, as w ell as sales his tor ie s. B lin d M ake r c on sid e re d th is “ ve ry c on fi de nti a l in fo rm a tio n, ” and voic e d c on c e rn to Springs. Spring s repr esente d that this information w ould be kept conf idential—it would not be used by Spr ing s b ut w ou ld b e fo rw ard e d to a thi rd -p art y a dmi nis tr a tor ; on ly

name s, so c ia l se c ur ity numb e r s an d a d dr e s s e s f

o r I RS p u r

p o s e s w o u ld b e g iv e n to Sp r in g s . Sp r in g s w o u ld n o t h a ve the22

sa le s hi sto ry

inf or matio n. Spr ing s a lso purp or te dly re pr e se nte d th a t on ly

the thi rd -p art

y
a dmi nis tr a tor

wo uld have access to the se ns iti ve inf or matio n a nd that Sp ri ng s w a s u sin g thi s
arr ang ement so fa

bricators would not have to disclose their confide ntial information to Springs.
Blin d Maker gives notice to te rm inate

On May 19, 2000, Blind Maker sent Springs a letter terminating the FLA ef fec tive six mont h s late r , N o v e mb e r 1 9 , 2 0 0 0 , a s r e qu ir e d b y th a t a g r e e me n t. H ic k s late r e xp la ined that Springs ha d eliminated any benef it for B lind Maker to continue a s a pre fer red f abric ator. An int e rn a l Sp ri ng s b ri e fi ngpa pe r p re pa re d f or Spr ing s p re side nt R on

Z a be l li sts
sever al potential “c hoices” that “should be prese nted to Ra y Hicks no later than 5/26/00.” Among these we re Spring s acquiringan equity position i n Blind Make r. Howe ver, H icks later te stified that Springs did not offe r t hat opt ion. Subsequently , on J uly 6, Springs placed a “cr edit hold” on Blind Maker ’s purc hases f

or the fir st time. Springs witnesse s later testified that Blind Maker ’s termination
no tic e w a s a f

a c t o r i n t h i s d e c i s i o n . O n Ju l y 1 3 , S p r i n g s i n f o r m e d B l i n d M a k e r f

o r t h e fi rs t ti me ab o u t i ts internal cr edit limit . Hicks testified that c redit holds wer e “c onstant” there afte r and that Springs f req u en t l y informed B lind Maker that r equeste d components we re on ba ck orde r whe n, Hi c ks ma int a ins , o the r f

a br ic a tor s w e re a

ble to p ur c ha se the same c omp on e nts . T he re wa s a lso evidenc e that Spring s ref

used to complete w arr anty work submitted by

Blind Make r at this time. Blind Make r and Spring s attempted to neg o tiate the extent to which Blind Make r could sell products fr om rival manufa cture rs durin g the re maining te rm of the F L A and whe ther Spr ing s c ou ld c omp e te fo r B lin d M ake r’ s r e ta il- le ve l c us tom e rs . The evi de nc e is d isp ute d a s to whether the par ties ever rea ched a

ny ag ree ment.23

P roje ct Texas Al so in Jul y , Sp ri ng s ex e c uti ve s b e g an a c tiv e ly de ve lop inga lte rn a tiv e c ha nn e ls throug h which Spring s could rea ch the Te x as marke t. Springs for mulated a plan, “ Project Texas,” for pur suing B lind Maker’ s customers. An inter nal Spring s memo circulated ar ound thi s time by Spr ing s’ s n e w p re sid e nt, Ron Z a be l, q ue sti on e d whe the r B lin d Mak e r s ho uld have a “ ha rd ” or “ so ft ” landing following its noti ce of termination. Another internal S pring s document li sts two scenar ios to b e pr e se nte d to B lin d Make r. Sc e na ri o 1 lis te d a va

ri e ty of op tio ns fo r the c on tin ue d r e latio ns hip betwee n the two companie s. T h is included (a ) Spring ’s buy back of exis ting inventor

y and incr easing Blind Make r’s mar g in, (b) voiding the FLA and a llowing B lind Maker to fa bricat e u n d er i ts own brand, or (c) an exchang e of de bt for equity in which S p ri n gs wo u ld actively participate in the operation of Blind Make r. Scena rio 2 contemplate d Blind Maker ’s demise: “SWF will impl ement
a c tio ns to i ns ur e pa

y me nt o f t he outst and inga mou

nt ( $4 .1 M) SWF wi ll t a ke a c tio n( s) to m a int a in sales of its produc ts in the markets formerly serve d by TBM.” A document e ntitled “Ray , we wa nt y o u b ac k !! ” al s o ref

lects the ha

rd or soft landingstrateg y . This document lay s out a number of inducements for

the B lind Maker to return as a Springs f abric ator a

nd states that, if B lind Maker doe s
no t a g re e wi thi n 24 hours , Sp ri ng s w ill de mand re pa y me nt o f a ll a c c ounts re c e iva ble wi thi n 6 0 d ay s,
canc el all pending and future order s, and “[Springs] will immediately deploy appropr iate re source s to enable it to pene trate a ll markets now beingserve d by Blind Make r.” There is e vidence that, by September, Spring s was using the conf idential customer inf or matio n f ro m th e “ Cle ar t o th e TO P” pro mo ti on to c omp e te dir e c tly fo r B lin d M a ke r’ s r e ta illevel customer s. There is a lso e vidence that Springs pr ovided this information to rival fabr icators24

to enable the m to compete f or B lind Maker’ s customers. At trial, Spring s’s CFO c oncede d that he had believed it wa s wrong for Springs to use the confide ntial c ustomer information in that manner.

At this point in their relationship, S pring s b ega n refusing to a cce pt unopened inventory that Blind Make r wa s attempting to re turn.
The laws uit On

Se pte mbe r 29 , 20 00 , B lin d M a ke r f ile d s uit a g a ins t Sp ri ng s in

Tr a vis County district court, cla iming fr aud, breac h of contra ct, neg lige nce, ne g lige nt misreprese ntation, mis a pp ro pr iatio n o f t

ra de se c re ts, tor

tio us int e rf

e re nc e wi th bu sin e ss r e latio ns , p ro mis so ry e sto pp e l,
and c la ims un de r t

he Te xas D e c e pti ve Tr a de Pr a c tic e Ac t and the Wisc on sin F a ir De a le rs hip Ac t. Springs c ounterc laimed under the FLA for $2.3 million, Blind Maker ’s re maining c redit bala nce. Ag a ins t th is c ounte rc la im, B lin d Mak e r as se rt e d vari ou s def e ns e s, inc lud ing that it wa s f ra ud ule ntl y induced into the F L A.

The c ase w as t ried to a jury
. Although the jury hear d evidenc e re levant to all of B lind Make r’ s li a

bil ity c la ims , be fo re su

bmi ssi on B lin d Make r dis mis se d wi th pr e jud ic e a ll of

its c la ims except fra ud. As for damag es, Blind Maker submitt ed only

past and futur e “L ost Profits that were natura l, probable, a

nd fore seea

ble conse quence of Spring s’s fra ud.” The jury

found that Spring s had
c omm itt e d f

ra ud , a nd awa rd e d B lin d M a ke r $ 5, 15 7, 24 0 in pa st los t pro fi ts; it aw ard e d no f utu re los t profits. The jury

further found by clea r and c onvincing evidenc e that the ha rm to Blind Make r resulted from fra

ud, and awa

rded $2,090,000 in e x emplary damag es. Howe ver, the jury also found that Blind Make r fa iled to comply with its pay

ment obligations under the F L A and that suc h failure was not excused by

either of

two counter claim def

enses B li n d Maker

submitt ed to the25

jur y —fr aud ulen t in du c e me nt o r a nti c ipator y br e a c h. Th e jur

y awa rd e d Sp ri ng s $ 2, 04 3, 66 0 in dama g e s. On ly

Spr ing s n owa

pp e a ls.
DI SCU SSIO N Spr i n gs ra i s es four pr imary issues on appea l: (1) the jury ’s finding of fr aud is not supported by l ega l l y o r fa ctually sufficie nt evidence ; (2) the jury ’s ac tual-dama g e aw ard is not
su pp or te d b y le g a lly or fa c tua lly su ff ic ie nt evi den ce; (3 ) b e c a us e its lia bil ity fi nd ingand

a c tua ldamag e aw ard are not suppor ted by the evidenc e, the jury ’s exemplary -dama g e predic ate finding and
awa rd sh ou ld l ike wi se be ov e rt

ur ne d; and (4 ) in the a lte rn a tiv e , the jud g me nt mus t be re fo rm e d to
awa rd post-judg ment interest ac cruingafte r September 1, 2003 at the rate of 5% r ather that 10%.
The ju r y’ s fr aud fin ding

I n its first issue, Springs cha lleng es the leg al and f actua l sufficienc y of the evidenc e to support the jury ’s finding of fr aud.
Stan dard of rev iew

I n revie wing the leg al suffic iency of the evidenc e, we view the evidenc e in the light favor able to the ve rdict, cr editing f avora ble evide n ce if rea sonable juror s could, and disre g arding contra ry evidenc e unless reasonable jurors could not. City of Keller v. W ilson , 168 S.W .3d 802, 807 (Tex. 2005). Ther e is leg ally insufficient e vidence or “no e vidence ” of a v ital fac t when (a ) there is a complete absence of evidence of a vit al fact; (b) the c ourt is barre d by rules of la

w or of e vidence fr om g ivi ngwe ig ht t o th e on ly e vid e nc e of

fe re d to pr ov e a

vit a l f a c t; ( c ) t he e vid e nc e of

fe re d to prove a vital f

act is no more than a mer e scintilla; or (d) the evidenc e conc lusively establishes the26

opposite of the vital fac t. Merre ll Dow Pharms., Inc. v. Havne r , 953 S.W .2d 706, 711 (Tex. 1997); Pa tly e k v . B rit tai n , 149 S.W .3d 781, 785 (Te x . App.—Austin 2004, pet. denied) . More than a scintilla of evide n ce ex ists when the evidenc e supportingthe finding , as a whole, “r ises to a level that would enable rea sonable a nd fair- minded people to dif fer in the ir conc lusions.” Havne r , 953 S.W .2d at 711 (quoting Burroughs W ellcomeCo. v. Crye , 907 S.W .2d 497, 499 (Tex. 1995)). I f the
e vid e nc e is s o w e ak a s to do no mor e tha n c re a te a me re surm ise or

su sp ic ion of it s existe nc e , it s leg al ef fec t is that it is no evidence
. Hayne s & Boone v . Bowser Bouldin, Lt d. , 896 S.W .2d 179, 183 (Tex. 1995). I n revie wing a fac tual insufficienc y point, we consider, weig h, and examine all the evidenc e pre sented at trial. Plas-Tex, In c. v. U.S. Steel Corp. , 772 S.W .2d 442, 445 (Tex. 1989). We set aside a finding for factual ins ufficie ncy only if it is so contra ry to the overwhelming w eig ht of the e vidence as to be c lear ly wrongand unjust. Cai n v. Ba in , 709 S.W .2d 175, 176 (Tex. 1986) (per curiam).
Ove rview of the jury charge and evide nce

Th e sta rt ingpo int

fo r o ur ana ly sis of Spr ing s’ s e vid e nti ary su ff ic ie nc y c ha lle ng e is the cha rg e as submitted to the jury
. Osterb er g v. P eca , 12 S.W .3d 31, 55 (Tex. 2000) (leg al
su ff ic ie nc y ); Golden Eagle Archery

, Inc. v . Jack

son, 116 S.W .3d 757, 762 (Tex. 2003) (“B efor e a court c an prope rly

conduct a

fac tual sufficie ncy

revie w, it must first have a clea r understandingof the evidenc e that is pertinent to its inquiry
. The starting point g ener ally is the char g e and instruc tions to t he jur y .” ); Ancira Enters., Inc . v. Fische r , No. 03-03-00498- CV, 2005 Tex. App. L EXI S 4708, at *23-24 (Tex. A

pp.—Austin June 16, 2005, no pet. h.). The focus of our inquiry , then, is QuestionSprings doe s not dispute that this is a proper instruction reg ardingfra ud by 12 misrepre sentation. Se e Do w Ch e m. Co. v . F ra nc is , 46 S.W .3d 237, 242 (Tex. 2001). 27 1, in which the jury

was a sked, “D id Springs commit fra ud ag ainst The B lind Maker? ” The jury was instructed that “f

raud c an occ ur throug h either: (1) misrepre sentation; or (2) f ailure to disclose,” and then proc eede d to list the eleme nts of both forms of fr aud:
1. Fr aud by

misrepre sentation occ urs when—
a. a par ty makes a materia l misreprese ntation; b. the mis re pr e se ntatio n is ma de wi th t he kn ow le dg e of

its fa lsi ty or ma de re c kle ssl y without any

knowledg e of the truth and as a positive assertion;
c. the misrepre sentation is ma de with the intention that it should be acted on by the other pa rty ; and d
. t h e o t h e r

p art y a c t s i n r e l i an c e o nt h e m i s r e p r e s e n t a t i o nan d t h e r e b y s u f

f e r s i n j u r y.

“ Mis re pr e se ntatio n” me ans :

a . A f a lse state me nt o f f

a c t; OR b A promise of future perf ormanc e made with an intent, at the time the promise was made, not to per form as pr omised. 12 2. Fr aud by

failure to disclose occur s when–
a . a p art y f a i l s t o d i s c l o s e a

m a t e r i a l f

a c tw i t h i nt h e kn o w l e d g e o f t h a tp art y, b. the par t y k n ows that the other pa rty is ignora nt of the fa ct and doe s not have a n equal oppor

tunity to discover the tr

uth,As discussed below, Spring s objected to the submission of an i n s t ruction on fr aud by 13 failure to disclose, contendingthat, as a matter of law , such a c laim was for eclose d beca use it owed no duty to disc lose and beca

use Blind Make r did not obtain a pre dicate f inding on the e x istence of such a duty . We addre ss this contention below. 28

c . the pa

rt y int e nd s to ind

uc e the oth e r p art

y to t a ke so me a c tio n b y

fa ili ngto dis c los e the fa ct, and d. the other pa

rty suffe rs i n

j u ry as a re s u l t o f ac ting without knowledg e of the un dis c los e d f

a c t. 13 The jury answe red Q uestion 1 in the aff irmative. The gis t o f

B li n d M ak e r ’ s f

r a u d c la im w a s th a t S p r in g s c o mm itte d a s e r ie s of independe ntly

actionable fra

udulent acts to ef

fec tuate the “ Over lord” plan. B lind Maker a lleg ed the fo llo wi ngsp e c if

ic fr a ud ule nt a c ts:

! Fr audulently

inducing Blind Maker t o enter into the FL A, which Blind Make r contends e ffe ctively

trappe d the company

in an ag ree ment that require d Blind M ak e r to s e ll e xc lu s iv e ly

G r a b e r p r o d u c ts an d a ll o w e d te r

mi n a ti o no n ly

b y s ixmonths’ advanc e notice ( the “f raudule nt-induceme nt” theory );
! Fr audulently

failing to disclose to Blind Maker t h at it was in dang er of e xce e din g Spr ing s’ s “ se c re t” c re dit lim its be fo re a llo wi ngit t o ma ke larg e c re dit purcha ses in connec tion with the Dece m b er 1 999 white sale pr omotion (the “white sa le” theor

y );
! Fr audulently

misrepre senting that Blind Make r’s c ustomer list inform at ion c oll e c te d thro ug h th e “ Cle ar to the TO P” pr omo tio n w ou ld b e ke pt c on fi de nti a l, then using it to compete ag ainst Blind Make r a f ew months later (the “ customer list” theory

);
! F ra ud ule ntl y fa ili ngto d isc los e that, a ft e r B lin d M a ke r g a ve no tic e to t e rm inate the F L A, S pri ngs woul d ( 1) pla c e a c re dit ho ld o n it s p ur c ha se s; ( 2) tr e a t it “diffe rently” than other pref err ed fabricators; (3) r efuse to do business with it as a standa rd fa bri cator ; (4) use the customer infor mation obtained throug h the Cle ar t o the TO P pr omo tio n to c omp e te a g a ins t it ; and (5 ) m a ke fa lse state me nts29 to Blind Maker ’s customers c oncer ning why Blind Maker

was no long er se lling Springs’ s products (the “ termination” theor y ).
Fra udul e nt ind uc e ment t

he or y I n support of its fr audulent inducement theory , Blind Make r elicited the following evidenc e of r epre sentations or nondisclosures by Springs be fore Hicks sig ned the F L A:

! Hicks testified that S pring s “re peate dly ” told him that Blind Maker would have to s ig n th e F L A a s a

pr e fe rr e d f

a br ic ator by June 1, 19 99 , o r S pr ing s w ou ld cea se to do business with B lind Maker. Hicks also testified that Springs ne ver told him t hat he c ould op t t o continue doing business as a standa rd fa bricator, as he later lea

rned that Skandia, one of B lind Maker’ s competitors, did;
! Hicks testified that he was ne ver told that the 3% ma rg in development discount could cha ng e or w ould be cha

ng ed in Marc h 2000;
! Hicks testified that he was never told that Spring s would strictly enfor ce the 2% ear ly pay ment discount for pa

y ment within fifteen da

y s of invoice;
! Hicks testified that Spring s’s expressed intentions with the F L A and pr efe rre d fa br ic a tor pr og ra m w a s to e lim inate “ bo tto m f e e de rs ;”
! Hicks testified that he was never told about “Overlord” or t hat Blind Maker wa s a targ e t;
! Evidence reg ardingthe pre fer red f abric ator be nefits repr esente d to Hicks during the Orla ndo confe renc e and in the 1999 Marke ting Plan. The se included ( i) new product de velopment; (ii) new pr oduct priority (distributor/fabric ators would be a ble to s e ll n e w pr od

uc ts fo r a y e ar be fo re it we nt int o the re ta il c ha nn e l) ; ( iii ) Nanik blinds would not be sold in the retail ch an n el (so as to avoid c hannel conflicts); (iv) a l o w e r -price d “fig hter bra nd” would be de veloped a nd deploy ed, as we ll as “g ood-better -best” pr oduct positioning; (v) pr ice parity betwee n the d i s t ri b u t o r/ fab ri ca t o r c h an n el an d t h e r et ai l ch an n el ; (v i ) a“m egap ri ci n g” progra m to combat low-pric ed g ener ics; (vii) smaller, c heape r samples; andBlind Make r also asse rts that its “ter mination claims” a

re, in pa rt, fra udulent inducement 14 claims, bec ause Spring s should have dis closed, before Blind Maker entered into the FL A, t he ac tions Sp r in g s w o u ld

u lt im a te ly

ta k e a f te r B li n d M a k e r g a v e n o ti c e to te r

mi n a te s ixt e e n mo n th s late r . We addre ss this aspect of B lind Mak er’s fra udulent inducement c laim in our discussion of the termination theory
.

We also note that Dudas’s far ewe ll letter to Hicks conc eded his fa ilure “to de liver all that 15 was promised at the outset of my tenure .” 30 (viii ) p u l l n at i o n al co n s u m er ad v er t i s i n g. Bl i n d

M ak er al s o cl ai m s t h at S p ri n gs 14 misrepre sented that these benef its and FL A “went toge ther as a whole.” Hicks te sti fi e d th a t he wo uld

n’ t ha ve sig ne d th e F L A a s a

pr e fe rr e d f

a br ic a tor if the se benef its had not been promised a nd that Springs f

ailed to fulfill eac h repr esente d benef it; and 15
! Hicks testified that Spring s never t o ld him that it viewed its re prese ntations reg ardingthe pre fer

red f abric ator be nefits as mer e business “intentions” and not a s f ir m c omm itm e nts
. Springs c ontends that none of this evide nce c an have probative va lue because of the operation of various leg al rules. See Uniroyal Goodrich Tire Co. v. M artinez , 977 S.W .2d 328, 334 (Tex. 1998) (leg al s ufficie ncy or “no evidenc e” point will be sust ained when court is barr ed by rules of law o r o f e vid e nc e fr om g ivi ngwe ig ht to onl y e vid e nc e of fe re d to pr ov e a

vit a l f a c t) ; Havne r , 953 S.W .2d at 711. The jury’s failure to find fr audulent induceme nt in Question 6 Springs’ s first argument is predic ated on the j ury ’s failure t o find in Blind Make r’s favor on its fra udulent-induce ment defe nse t o Springs’ s counter claim under the FL A. Question 6 of the c harge, p re s en t i n g Bl i n d M ak er ’s af

fi rm at i v e d ef

en s es , as k ed , “W as T h e B l i n d M ak er ’s fa i lure to c omp ly [wit h th e F L A] e xcu se d, ” and inc lud e d a

n in str uc tio n r e g ard ingtw o d e fe ns e s:See V andeStree k v. H

ammer , No. 03-99-00355-CV, 2000 Tex. App. L EXI S 4588, at *2-3 16 (T e x. Ap p. —Aus tin 20 00 , no pe t.) (m e mor and um o pin ion ); but se e Doy le W ilson Homebuilder, Inc

. v. Pick ens , 996 S.W .2d 387, 399 (Tex. App.—Austin 19 9 9 , p et
. d ism’d by ag r.) ( char acte rizing jury ’s neg ative answ er to bre ach of contra ct submission as “an implicit finding that the e lectric al wiring used .
. . was of g ood quality and free of defe cts, since a ny materia ls not in conformity wer e 31 [F ]ai lur e to c omp ly

by Th e B lin d M a ke r i s e xcu se d if any on e of th e fol lo wi ngis true: F a ilure to c omp ly

by Th e B lin d M a ke r i s e xcu se d b y Spr ing s’ s p re vio us fa ilure to comply with a mater ial obligation of the [FL A]; or F a ilu re to comp ly

by Th e B lin d M a ke r i s e xcu se d if Th e B lin d M a ke r e nte re d into the [F L A] a s a

re su lt o f f

ra ud , if any , b y Spr ing s. The que stion then ex plicitly linked the term “ fra

ud” in Question 6 to the definiti ons and instructions
acc ompanying Q uestion 1: “Please r efe r to Question 1 for instructions on fra ud.” The jury

answe red

“ no ” to Qu e sti on 6. B e c a

us e the tw o de fe ns e s w e re su bmi tte d in

the dis jun c tiv e , th e jur

y ne c e ssa ri ly failed to find e ither fr audulent induce ment or anticipatory brea ch. Springs r easons that be cause the jury failed to find in Que stion 6 that Blind Maker was fr audulently

induced into the F L A, the jury nece ssarily

co u l d n o t h av e re lied on evidenc e of fr au d u l en ti n d u ce m en ti nfi n d i n g some fra ud in Question 1. I t ext rapolates that, in our suffic iency revie w, we must consider only potential evidenc e of fra

ud that is not “inducement-r elated.” Blind Maker assails this argument on two chief g rounds. I t first cites the proposition that a jury ’s fa ilure to f ind in f avo r o f a pa rt y on an is su e is n ot an affi rm ati ve fi nd ingto t he c on tr ary

but me re ly indicates that the pa

rty failed to c arr

y i t s b u rd en of provingthat fac t. See C. & R. Transp., Inc. v. Cam pb e ll , 4 06 S.W. 2d

19 1, 19 4 ( Te x. 19 66 ); Gensc o v. Canco Equip. Inc

. , 737 S.W .2d 345, 347-48 (Tex. App.—Amarillo 1987, no writ). Second, B lind Maker sug g ests that Springs is attempting 16considere d defe ctive under the contract”; although finding was “not conclusive,” it “indicate s that

the jury did not believe that either a manuf actur ing de fec t or i m p ro p er i nstallation . . . caused the fire.” ). Both a ffirmative jury finding s and fa ilures to find may g ive rise to fatal co n fl i ct s under 17 Texas law. See Bende r v. Southern Pac. Transp. Co. , 600 S.W. 2d 25 7, 26 0 (T e x. 19 80 ); Ford Motor Co. v. Miles , 141 S.W .3d 309, 316-19 (Te x . App.—Dallas 2004, pet. filed) (ne g ative findingon strict liability issue fata lly conflicte d with a ffirmative finding on neg lige nce issue, r equiringreve rsal and remand for new tria l); see ge nerally 4 Roy W. McDonald & Elaine A. G raf ton Carlson, Texas Civil Practice §§ 25:11-:13 (2d ed. 2001) (citing case s involving jury failure s to f ind in discussion of conf licting f indings). I n b oth its mot ion

fo r n e w tri a l and

its mot ion

to d isr e g ard

jur y fi nd ing s and

fo r j ud g me nt, 18 for e x ample, Spring s posited that if Blind Make r “had alleg ed and/or proved a misrepre sentation that it relied upon in some way other than e nteringinto the F& LAg ree ment, the two answe rs might not contra dict eac h other,” but it rejecte d this possi bility beca use the jury

had aw arde d an am o u n t for fra ud damages i n Question 2 that exceede d any amount it believed wa s attributable to anynoninducement f

raud. 32 to re viv e an ar g ume nt, wa ive d at tri a l, that the jur y ’s fi nd ing s in Que sti on s 1 a nd 6 fata lly

c on fl ic t. 17 We ag ree that Springs ha s waived the argument it attempts to assert here
.

I n the district court, Spring s argued that the jury ’s re sponses in Qu es t i o n s 1 and 6 fata lly conflicte d and re

jected the possibili ty

that the re sponses could be reconc iled. Blind Make r 18 maintained that (1) Springs wa ived it s co n fl i ct complaint by failing to object bef

ore the jury

was discharg ed; and ( 2) while c oncedin g “t h er e is some overlap in the f acts inquired a

bout,” the two response s co u l d b e reconciled be cause Question 1 inquired about a dditional acts of fr aud beyond Blind Make r’s fr audulent induce ment into the FLA. On appe al, Spring s does not attempt to argue conflict a nd does not appe ar to dispute that it waived that argumen t ; i n s t ea d , i t purports to adopt B lin d M ake r’ s p os iti on

a t tr ia l th a t th e re sp on se s c ou ld b e re c on c ile d a nd a dd iti on a lly

a tte mpt s to d er i v e i mp l i ca t i o n s fo r o u r s u ff i ci en cy re v i ew o f t h e Q u es t i o n1 fi n d i n g.Cf. Golde n Eagle Archery Co. v. Jac kson , 116 S.W .3d 757, 763-70 (Tex . 2003) (a bsent 19 con t ra ry i n s tructions in char g e or othe r limitations, j ury might aw ard ove rlappingor duplicative elements of da

mag es base d on same e vidence ). Se e Colum bia Me d. Ctr . o f La s Co lin as v . B us h , 122 S.W .3d 835, 861 (Tex. App.—For t 20 Wor th 2 00 3, pe t. d e nie d) ; Norwest Mortga g e, In c. v. Sali nas , 9 9 9 S. W. 2 d 8 4 6 , 8 6 5 ( T e x. App.—Corpus Christi 1999, pet. de nied); City of Port Isabel v. Shiba , 9 7 6 S. W. 2 d 8 5 6 , 8 6 0 ( T e x. Ap p. —Co rp us Chr ist i 19 98 , p e t. d e nie d) ; Isern v . W atson , 942 S.W .2d

1 8 6 , 1 9 1 ( T e x. Ap p. —B e a

umo nt 19 97 , wr it d e nie d) ; Ciba-Geigy Corp. v. Stephe ns , 8 7 1 S. W. 2 d 3 1 7 , 3 2 4 ( T e x. Ap p. —E a stl and

19 94 , w ri t de nie d) ; se e als o Tex. R. C iv. P. 295 (conte mplating that trial court c an 33 The unstated pr emise under ly ing Spring s’s argument on appea l is that the jury ’s response s in Q uestions 1 and 6 would conflict unless we rec oncile the two by construingthe jury ’s Qu e sti on 1 f ind ingto b e ba se d sole ly up on e vid e nc e of fr a ud oth e r tha

n f ra ud ule nt i nd uc e me nt. Th is is the ty pe of a naly s i s that Texas courts per form whe n a conf lict complaint is raised. See , e.g, Bende r v. Southern Pac . Transp. Co. , 600 S.W. 2d 25 7, 26 0 ( Te x. 19 80 ) ( re c on c ili ngjur y ’s lia bil ity finding s on cer

tain issues with f

ailures to f

ind on other issues). Absent a c onflict complaint, there is no basis for reconc iling the jury ’s responses, and the court must g ive effec t to eac h finding in the ordinary fashion. Se e id
. A conf

lict objection can be waived. St. Paul Fire & Marine Ins. Co. v. M u rphree , 357 S.W .2d 744, 748-49 (Te x . 1962) (r ender ing of judgme nt on fatally

conflicting finding s is not fundame ntal err or and can be waived)
. Especia lly in the fac e of g ener al principles 19 of sufficie ncy revie w, which re quire us to consider all of t he evidence in light of the char g e ac tua lly submitted , we de cline to re concile the jury ’s responses in Questions 1 and 6, much less r ely on such
rec oncili at i o n t o limit our suffic iency revie w, bec ause Spring s did not first preser ve a c onflict objection at trial. See A ssociated Inde m. Corp. , 9 64 S.W. 2d a t 28 5- 86 ; Plas-Tex , 772 S.W .2d at 445. To hold otherwise w ould c reate an end- run ar ound the modern e rror prese rvation re quirement that parties object to c onflicting jury finding s befor e the jury is discha rg ed and the sound policies that 20return c onflicting verdic t to jury with instructions). We note that, in some of its older decisions, the supreme c ourt addre ssed issues of conf lict raised for the first time on appea l. C. &R. Tra ns p. , I nc . v . Ca mp be ll , 4 0 6 S. W. 2 d 1 9 1 , 1 9 5 ( T e x. 1966) (a ddressingconflict “ althoug h neither pa rty so contends or has soug ht a mistrial on that g round.”) . Be cause Springs doe s not dispute that it waived its c onflict objection at trial, we ne ed not consider the implications, if any , of these de cisions.

B e c a us e we re ly

on wa ive r, we have no oc c a sio n to c on sid e r whe the r, a ssumin g we c ou ld 21 proper ly rec oncile the response s in Q uestions 1 a nd 6 in the manner

Springs sug g est, it would have any implications for our suff iciency revie w. 34 un de rl ie th at req

uir e me nt. What th e jur

y int e nd e d b y

fi nd ing s th a t po te nti a lly c on fl ic t is be st de te rm ine d b y

the jur y its e lf , a pr oc e dure ma de avai lab le by tim e ly ob je c tio n b e fo re the jur

y is discharg ed, see Tex. R. C iv. P. 295, rather than by appellate courts dra

wing “spec ulative” conclusions re g arding“the jury ’s thoug ht proce sses or of its i ntentions in giving its answers to the two issues,” as Spring s asks us to do here
. C. & R. Transp. , 406 S.W .2d at 195.

We acc ording ly

hold that Springs wa ived its argument that the j ury ’s failure to find in Blind Maker ’s fa

vor re g ardingits fraudulent induce ment defe nse limi t s t h e s co pe of our
s u ff i ci en cy re v i ew o f t h e j u ry ’s Qu es t i o n1 fr au d fi n d i n g. 21
“Con-tort ” cases Ne xt, Sp ri ng s c on te nd s th a t B lin d M a ke r’s fr a ud ule nt- ind uc e me nt c la im i s, in substance, a

claim for da

mages fr o m Springs’ s failure to perfor m under the F L A, and thus ca n be broug ht only

as a c ontrac t claim. See Southwestern Bell Tel. Co. v. DeLanney , 809 S.W .2d 493, 494- 95 (Tex. 1991).

I n DeLanney , the su prem e co ur t he ld t hat a c a us e of a c tio n f or “ ne g lig e nc e ” c ou ld
no t be ba se d o n a

n a lle g a tio n th a t a

pa rt y fa ile d to pe rf

or m duties su

bs ume d in

a c on tr a c t be c a

us e35

such an a ction sounded in contra ct and not tort. Id . at 49 4- 95 ; see also Craw ford v. AceSigns, Inc. , 9 1 7 S
. W
. 2 d

1 2 , 1 3 -1 4 (T ex . 1 9 9 6 ) ( ex t en d i n g DeLanney to hold that nonperfor

mance of contra ct not actionable unde r DTPA). Subseque ntly , in Formosa Plastics Corp., USA v. Presidio Eng. & Contr., Inc. , 9 6 0 S
. W
. 2 d 41, 46-47 (Te x . 1998), the supre me cour t rejec ted the application of DeLanney

to p r e c lu d e a

f r a u d u le n t- in d u c e me n t c la im
. T h e c o u rt n o te d th a t T e xa s la

w h a s long imposed a tort duty , independe nt of any contra ct, to abstain fr om inducing a n o t h er t o enter

into a contra ct throug h the use of f raud. Id
. at 4 6 (c i t i n g Prudential Ins. Co. v. Jefferson Assocs., Ltd. , 896 S.W .2d 156, 162 (Tex. 1995), and Dallas Farm Mach. Co. v. R eave s , 3 0 7 S. W. 2 d

2 3 3 , 2 3 9 ( T e x. 1957)). It likew ise noted that it ha d “re peate dly rec og nized that a fra ud claim could be ba sed on a promise made w ith no intention of performing , irrespe ctive of whether the promi se i s later subsumed in a contra ct.” Id . (c i t i n g Cr im T ruck & Tra c tor

Co. v . Na v ist

ar In t’ l Tra ns

p. Cor p ., 823 S.W .2d 591, 597 (Tex . 1992)). It also established that tort damag es ar e not pre cluded simply beca use a fra udulent repr esentation causes only an ec onomic loss. Id . at 47. “Ac cording ly ,” the supre me cour t held, “tort damag es ar e re cover able f or a f raudule nt inducement cla im irrespec tive of whe ther the fra udulent repr esentations are later subs umed i n a contract or whether the plaintiff only

suffe rs an economic loss re lated to the subjec t matter of the c ontrac t.” Id
.

T o d is tinguish Fo rm os a , Springs r elies on the jury ’s fa ilure to find fra udulent ind uc e me nt i n Q ue sti on

6, wh ic h it

e qu a te s to a

fi nd ingof

no fr a ud ule nt i nd uc e ment . “ Th is i s a misint erpr etation of the issue and the answer.” C. & R. Transp. , 406 S.W .2d at 194. The jury ’s failure to fi nd fra

udulent inducement in Que stion 6 is not an aff irmative finding of no fra udulent inducement. Id . I n light of this principle, a nd Springs’ s waiver o f an y co n fl ict-re lated complaint36

relating to the jury ’s consider ation of fr audulent induce ment evidenc e in finding fra ud in Question 1, we must re

ject Springs’ s attempt to use the Question 6 finding to avoid Fo rm os a . Assuming ther e is othe rwise competent evidenc e of f raudule nt inducement, DeLanney do e s not sta nd a s a ba rr ie r t o our consider ing that evidence as support for the jury ’s Question 1 fr au d fi nding. Fo rm os a , 960 S.W .2d at 47.
Me rge r c lau se Ins e c t i o n1 5
. 0 5 o f

t h e F LA , B l i n d

M a k e r c o n t r a c tu a l l y

a g r e e d t h a t( 1 ) t h e F LA “conta ins the entire a g ree ment” betwe en it and S pring s “with re spect to the subjec t matter her eof” ;
and that th e F L A ( 2) “ su

pe rs e de s and

c anc e ls a ll p re vio us a g re e me nts , n e g oti a tio ns , c omm itm e nts and under standing s, with respec t to the subject matter he reof, whether made or ally

or in writing .” Springs c ontends that section 15.05 neg ates, a s a matter of law, the r el i an ce el ement of B lind Make r’ s f ra ud c la im t o th e e xten t it

aro se befo re Hi c ks ’s e ntr y int o th e F L A; i.e. , its fraudulent inducement theor

y . See S c h lu m b erger Tec h. Corp. v. Swanson , 959 S.W .2d 171, 179-80 (Te x . 1997) (disclaimer

provision in s et t l ement agree ment defe ated f raudule nt inducement cla im by neg ating
re lia nc e on pr e -c on tr act ual re pr e se ntatio ns ); Prudential , 896 S.W .2d at 162 (“ as is” cla use and disclaimer of

relianc e neg ated r eliance elem en t o f fr aud cla im predicated on pre -contra ctual repr esentations).

Blind Make r attempts to distinguish s ec tion 15.05 from the ty pe of c ontrac tual provisions addresse d in Sc hlu mb e rge r and Prudential . It po int s o ut t hat Schlumberge r involved a di s cl ai mer of r eliance in a settlement re lease , see Sc hlumberger , 9 95 S.W. 2d a t 17 7- 80 , w hil e Prudential

inv olv e d a

c on tr a c tua l “ a s is” c la

us e and dis c la ime r of re lia nc e in a r e a l e state purc ha se37

ag ree ment. See Prudential , 896 S.W .2d at 160. B lind Maker obse rves that se ction 15.05 is a mer g er or i nteg rati o nc la

u s e , an d ma inta in s th a t i t c ano n ly p r e v e n t t h e u s e o f p ar o l e v id e n c e to v ar

y the
wr itt e n te rm s o f t

he F LA a nd do e s n ot b ar t or

t c la ims . We re

je c t B lin d M a ke r’ s a

rgume nt. I n g ener al, a “ merg er c lause” is a contractua l provision to the ef fec t that the written terms of the c ontrac t may not be varie d by prior ag ree ments beca use all such ag ree ments have be en merg ed into the written document. IK ON Of fic e So lut ion s, In c . v . E ife rt , 125 S.W .3d 113, 125 n.6 (Tex. App.—Houston [14t h Dist.] 2003, pet. d en i ed ) (citing B lack’ s L aw Dic tionary 989 (6th ed. 1990)). Such clause s emphasize the parties’ intent to invoke the “mer g er doc trine.” Fish v. Tandy Corp. , 94 8 S.W. 2d 88 6, 89 9 (T e x. Ap p. —F or t Wor th 1 99 7, pe t. d e nie d) (“ A wri tte n me rg e r c la us e . . . is essentially

a memorializ ation of t he merg er doctrine.”)
. Under the m erg er doctrine, prior or contempora

neous ag ree ments between t h e s am e par ties, conce rning the same subjec t matter, ar e absorbe d into a subsequent agree ment. See Texas A & M Univ.-Kingsville v. Lawson , 127 S.W .3d 86 6, 87 2 ( Te x. Ap p. —Aus tin 20 04 , p e t. f

ile d) ; Fi sh , 9 48 S.W. 2d

a t 89 8; see ge nerally Hubac ek v

. Ennis State Bank , 317 S.W .2d 30, 31 (Tex. 1958) (explaining mer g er r ule). Whether me rg er oc curs depends on the intent of the par ties. Lawson , 1 27 S.W. 3d a t 87 2; Fi

sh , 9 4 8 S. W. 2 d

a t 8 9 8
. T he merg er doc trine is an adjunc t of the par ol-evidenc e rule
. Lawson , 12 7 S.W. 3d a t 87 2. F or t hese
rea sons, at least one of

our sister cour

ts has sug g ested that mer g er c lauses oper ate solely to bar contra ct claims base d on extra-contra ctual agree ments or re prese n t at i o n s, and not torts. See Carousel’s Creamery, L.L.C. v. Marble Slab Creame ry, Inc

. , 1 3 4 S.W.3 d 3 8 5 , 3 9 5 ( T e x. App.—Houston [1st Dist.] 2004, pet. filed).38 Howeve r, the supre me cour t in Sc hlu mb e rge r implied that mer ger clause s could, under circumstanc es l ike t hose present in that case , operate to neg ate the r eliance element e ven of fra udulent-induce ment claims arisingfrom the sam e co n t ract containing the merg er c lause. Schlumberge r , 959 S.W .2d at 181 (“ We emphasize that a disclaimer of re liance or

me rge r c lau se wi ll n ot always bar a

fra udulent inducement c laim.”) (e mphasis added) . Moreove r, seve ral of our sister courts and the Fifth Circuit ha ve equate d merg er clause s simil ar to se ction 15.05 with the ty pe of disclaimer s of re liance a pplied in Sc hlu mb e rge r and Prudential
. See , e.g. , IKON , 125 S.W .3d at 12 6- 28 (p ro vis ion s th at cont ract was “ e nti re a g re e me nt” and re qu ir ingany

mod if ic a tio ns to b e in writing barr ed fr audulent-induc ement cla im under Schlumberge r ); Y zaguirre v. KCS Res., Inc. , 47 S.W .3d 532, 542-43 (T ex . App.—Dallas 2000) , aff’d , 5 3 S. W.3 d 3 68 (T e x. 20 01 ) ( me rg e r c la us e in se ttlement a g ree ment containing “entire ag ree ment” provision a nd statement that “[ n ] o o ral
un de rs tand ing s, state me nts , p ro mis e s o r i nd uc e me nts c on tr ary

to t his Se ttl e me nt A g re e me nt e xist” ch ar ac t eriz ed as “ disclaimer ” a n d ap p l yi n g Sc hlu mb e rge r to prec lude fra udulent-induce ment claim);

see also U.S. Quest Ltd. v. Kimmons , 228 F.3d 399, 403- 04 (5th Cir. 2000) (a pply ing T exas law and concludingthat merg er c lause showed parties “intended to a bandon any

alleg ed agree ment to enter
a se c on d wr itt e n c on tr a c t” ); Ar ms tro ng v . A me ric an Ho meSh ie ld C or p ., 333 F.3d 566, 571 ( 5th Cir. 2 0 0 3 ) ( ap p l yi n g Schlumberge r to neg ate f

raud c laims based on mer g er c lause). B y c on tr a c tua lly

“ c anc e lli ng ” a ll pr e -F L A “ a g re e me nts , n e g oti a tio ns , c omm itm e nts and under standing s” a n d “s u p er s ed[ing]” them with the FLA, a mer g er c lause like sec tion 15.05 amounted to a disclaimer of the e x istence of pre- contra ct ag ree ments, promises or re prese ntations and any rig ht of the par

ties to rely

upon them. We c onclude that section 15.05 is susceptible to beingSee Sc hlumberger , 959 S.W .2d 171, 179-80 (Te x . 1997) (lookingto “well-e stablished 22 rules of c ontrac t interpretation” as first step in dete rmining whether rele ase was e nforc eable to bar fr a ud ule nt i nd uc e me nt c la ims ); Prudential , 896 S.W .2d at 161-62 (“te rms of the a g ree ment” among fac tors to be consider ed in deter mining whe ther “ as is” cla use is enfor cea

ble). Section 15.06 of the FLA provides that the a g ree ment is to be construed f or all purpose s in acc ordanc e with Wisconsin law. B eca use neither party asser

ts that Wisconsin law diffe rs from Texas law in any

respe ct that bea

rs upon our a

naly sis here, w e will employ Texas law. 39 enfor ced a s a disclaimer of re prese ntations or relianc e under the Sc hlu mb e rge r or Prudential analy ses. We next consider the extent to which section 15.05 and the F L A, as a matter of contra ct law, e n co m p as s the alleg ed agree ments or under standing s that were the basis of B lind Maker ’s fra

udulent inducement theor y of fraud. Blind Maker points out that section 15.05 states

22 t h a t t h e F L A i s t h e “ e n t i r e a g r e e m e n t ” o n l y “ with respect to the subject matter he reof .” I t urg es that the FLA’s “subje ct matter” is “exceeding ly narr ow,” a ddressingonly licensing i s s u es and not the
cre dit or benef

its iss ues at the r oot of its fraud c laims. I n response , Springs a sserts that the F L A’s subject m atter ex tends to all aspec ts of the par ties’ manufa cture r-f

abric ator re lationship. W hile we disag ree with Blind Maker ’s cha rac terization of the FLA as mer ely a licensingag ree ment, we a g ree that section 15.05 and the FLA do not absorb a ll of the repr esentation or under standing s made the basis of B lind Maker’ s fra udulent-induce ment theory of fr aud. A merg er c lause like sec tion 15.05 memoriali z es t h e par ties’ intent to integr ate or absorb their

prior neg otiations, a g ree ments, or under standing s conce rning the same subjec t matter into a subsequent wr itten contrac t. See , e.g. , Fi sh , 9 48 S.W. 2d

a t 89 8- 99 ; Leon Ltd. v. Albuquerque Commons P’ship. , 862 S.W .2d 693, 70 0 (T ex . App.—El Paso 1993, no writ). Where the par tiesThis term was r epeated in both the 1999 Marke ting Plan br ochure and the Orlando slide 23 show. Some o f

o u r s is te r c o u rts h a v e h e ld

th a t, e v e nw it

h o u t m e r g e r

c la u s e s o r c o ntrac tual 24 disclaimers of relianc e, fra ud claims predic ated upon a lleg ed re prese ntations squarely contra dicted by the e xpre ss, un ambi g uo us te rm s o f a wr itt e n a g re e me nt are fo re c los e d a s a matte r of law b e c a us e 40 have c oncluded a valid integ rate d ag ree ment dealing with the subject matter be tween the m, the parol evidence r u l e w i l l p re v en ten fo rc em en to f p ri o r o r c o n t em p o ran eo u s agr ee m en t s t h at ar e i n co n s i s t ent with the integ rate d ag ree ment. Fi sh , 9 48 S.W. 2d

a t 89 8; Leon , 862 S.W. 2d a t 70 0; see also Law son , 127 S.W .3d at 872. Howeve r, t his bar doe s not preclude enfor ceme nt of prior or c ontemporane ous ag ree ments which ar e collate ral to, ar e not inconsistent with, and do not vary or cont radict the express or implied terms or obligat ions of the integ rate d ag ree ment. Hubace k , 317 S.W .2d at 32. To be c oll a te ra l, t

he pr ior a g re e me nt m

us t be su c h th a t a s the pa

rt ie s mi g ht n a tur a lly

make se pa

rate ly
and wo uld no t or din ari ly

be e xpe c te d to e mbo dy

in t he int e g ra te d a g re e me nt; fu

rt he r, the a lle g e dly collater al ag ree ment must not be so cle arly connec ted with the principa l transac tion as to be part a nd parc el there of. Fi

sh , 9 48 S.W. 2d

a t 89 9; Leon , 862 S.W .2d at 700-01. The FLA not only

addre sses but also square ly contra dicts Blind Make r’s c laim that Springs f raudule ntly

failed to disclose that it might “take awa y ” the 2% e arly

pay ment discount by strictly enfor cingit. The FLA explicitl y provided, among Blind Maker ’s Gold pref err ed fa bricator
re qu ir e me nts , “ 2% 15 , n e t 60 ” —th a t B lin d M a ke r c ou ld take the dis c ount o nly if it p a id w ith in fiftee n day s of invoice. 23

We acc ording ly conclude that section 15.05 oper ates to neg ate the e x istence of Blind Maker ’s prior unde rstandingreg ardingthe 2% discoun t
. Se e Fi sh , 9 48 S.W. 2d

a t 89 9; Leon , 862 S.W .2d at 700-01. Other pre-F L A represe ntations or understanding s, while not flatly contra dicting 24relianc e is not justifiable. Se e In re GTE Mo bil ne t of S. Te

x . Lt d. P’ sh ip , 123 S.W .3d 795, 799-800 (Tex. App.—Be aumont 2003, orig . proce eding ); DR C Pa rts & Ac c esso rie s, L.L. C. v . V

M M oto ri, S.P.A. , 1 12 S.W. 3d

85 4, 85 8- 59 (T e x. Ap p. —H ou sto n [14 th D ist .] 20 03 , p e t. d e nie d) ; cf. T CA Bldg. Co. v
. Entech, I

nc. , 86 S.W .3d 667, 674-75 (Tex. A pp.—Austin 2002, no pet.) (r eliance element of fra ud claim neg ated a s matter of la w wher e plaintiff r ejec ted contra ct containing alleg ed misrepre sentation). The se cour ts have re asoned that, beca use a c ontrary

approa ch “w ould defe at the ability of written c ontrac ts to provide cer tainty and avoid dispute, the preva iling rule . . . is instead that a par ty who enters into a written contra ct whil e re ly ing on a contra ry oral a g ree ment does so at its pe ri l and is no t re wa

rd e d w itha

c la im f or fr a ud ule nt i nd uc e me nt whe n th e oth e r p art y se e ks to invoke its rights unde r t h e co n t ract.” DRC , 112 S.W .3d at 859. “Othe rwise, c ontrac ts would be ‘nothing more than a scr ap of pa per.’ ” Fisher Controls Intern., Inc. v . Gibbons , 911 S.W .2d 135, 1 4 1 -4 2 (T ex . Ap p . — Ho u s t o n[ 1 s tD i s t
. ] 1 9 9 5 , p et
. d en i ed ) ( qu o t i n g Ho we th v . D av e np or t , 311 S.W .2d 480, 482 (Tex. Civ. App.—S an Antonio 1958, writ re f’d n.r .e.))
. 41 the ag ree ment, fall within the subject matter of the ag ree ment and are there by absorbe d into it. See Leon , 862 S.W .2d at 700-01. The FLA addr esses fa bricator clas s i fi ca tions in t he following provision: Springs F abric ators ar e cla ssified as Pref err ed (G old, Silver, or B ronze) or Standa rd Distributor/Fabr icator. F abric ator a g ree s to strictly comply with all require ments for its a ssi g ne d c a te g ory , w hic h a re a tta c he d .
. . . T he re qu ir e me nts are su bje c t to quarte rly revie w and r evision. Any repr esentation or understandin g c o n c e r n ing whether

Blind Make r could have bec ome a standa rd fabr icator w ould fall within the subject matter of this provision. On the other

hand, in light of

our ea rlier r eview of the ne g otiations prece ding the FLA, we c annot conc lude as a matter of la

w that the F L A was i n t en d ed to address the pre fer red fabr icator be nefits that B lind Maker wa s to rec eive, the relationship between a ny promises reg arding these benefits and the FLA, or whether the 3% marg in improvement fund benef it could chang e. See Hubace k, 317 S.W .2d at 31-32. Althoug h these be nefits were discussed befor e Blind Maker’ s entryThe F L A does c ontain a g ener al provision obligating Spring s to sell to the fabricator 25 “suff icient quantit ies of samples a nd display s . . . cata logs, a nd other a dvertising and promotional aids to sufficiently

service ” the f

ab ri ca t o r’ s territory , as we ll as a re quirement that Spring s make available technica l information conce rni n g the license d products, includingfinished produc t specific ations, fabr ication and a ssembly instruction, installation and repa ir instructions, and similar inf or matio n. Th e se pr ov isi on s d o n ot a pp e ar t o a dd

re ss the same a dv e rt isi ng and c on su lti ngbe ne fi ts Springs de picted as pr efe rre d fabr icator be nefits. Simil arly , while the F L A re serve s Springs’ s “rig ht to chang e pric es and standa rd t erms and conditions of sale,” our revie w of the e vidence indicates that these ter ms and price s were distinct from the discounts a nd incentives offe red unde r the pre fer red fa br ic a tor be ne fi t pr og ra

m. 42 into the FLA, the agree ment is entirely silent reg arding

them. Springs’ s own corr es p o n d en ce,

25
mor e ov e r, su g g e sts tha

t it vie we d the pr e fe rr e d fa br ic a tor be ne fi ts a s dis tin c t fr om the F L A. I n h is letter a cknowledg ing H icks’s first ex ec u t i o n o f the FLA in J anuar y 1999, Dudas wr ote that “the Prefe rre d benef

its will beg in on Fe bruar y 1, 1999 [and] will b e d i s t ri buted as per our 1999 Fabricator publication and our dis cussions in Orlando .” (Emphasis added). B eca use we hold that the FLA was not i n t en d ed to encompass e very aspec t of the par

ties’ manufa cture r-f

abric ator
re latio ns hip , e vid e nc e that Sp ri ng s mi sle d B lin d M a ke r r e g ard ingthe ir “par tne rs hip ” wh ile
conce aling Project Ove rlord is also not excluded by the merg er c lause. We now consider whether section 15.05 is enfor cea

ble to neg ate the relianc e ele ment of B lind Maker’ s fra

udulent-induce ment theory to the extent that theory is predicated on
re pr e se ntatio ns or

un de rs tand ing s w e have he ld t o b e wi thi n th e F L A’ s “ su bje c t matte r. ” As our f

ir st
s tep, we must consider

whether Sc hlu mb e rge r or Prudential controls our a

naly sis. S

c h lu m b e r g er
a dd re sse d th e enforc e a

bil ity of a re le a se to b ar a

c la im that th e pla int if

f h a d b e e n f

ra ud ule ntl y induced into the same settlement ag ree ment in which the re lease was c ontained. Schlumberge r , 959 S.W .2d at 177-81. Prudential , b y c o n tr a s t, a d dr e s s e d th e e n f o r c e a b il it y o f an “ a s is ” c la

u s e andBu t se e IK ON Of fic e So lut ion s, In c . v . E ife rt , 1 2 5 S. W.3d 1 1 3 , 1 2 6

- 2 8 ( T e x. 26 Ap p . — Ho u s t o n[ 1 4 t h Dist.] 2003, pet. denied) (apply in g Sc hlu mb e rge r to bar fr audulent induce ment cl aim relating to employ

ment contra ct bec ause a g ree ment was intende d to put end to pre-c ontrac t dispu t e over

plaintiff’s job re sponsibili ties following a cquisition of his company by defe ndant); Ar ms tro ng v. Amer ican Ho meSh ie ld C or p ., 333 F.3d 566, 571 ( 5th Cir. 2003) (not considering wh e the r ag re e me nt w a s se ttl e me nt a g re e me nt o r r e le a se ); see also U .S. Quest Ltd. v. Kimmons , 228 F.3d 399, 403- 04 (5th Cir. 20 0 0 ). Al s o , in an unre ported opinion, we a pplied Sc hlu mb e rg e r to enfor ce a merg er c lause to bar

fra udulent-induce ment claims relating to an earne st money contra ct without consideringthat the contra ct was not a settlement ag ree ment. Starlight v. Xa r i n A ustin I, Ltd. , 1999 Tex. App. L EXI S 159, at *22-25 (Te x . App.—Austin J an. 14, 1999, no pet.) (not desig nated f

or publication). 43 disclaimer of

relianc e to bar tort claims where the plaintiff did not alleg e or pr ove that he ha d been fra udulently induced into the contr act. P r u d e n tial , 8 9 6 S.W .2d at 161-62 (“ A buy er is not bound by an agr eeme n t t o p u r c h a s e s o me th in g ‘ a s is ’ th a t h e is in d u c e d to ma k e b e c a u s e o f a f r a u d u lent repr esentation or conce alment of infor mation by

the seller.” ). Blind Make r sug g ests that Sc hlu mb e rge r wo uld

c on tr ol o ur

ana ly sis but is un a va ila

ble be c a us e se c tio n 1 5. 05 is n ot a re le a se incident to a settlement ter minating the pa

rties’ re lationship. See Sc hlumberger , 959 S.W .2d at 179- 80 (s ole purp os e of r ele a se wa s to e nd dis pute ); see also John v . Marshall Health Servs., Inc

. , 91 S .W .3d 4 46 , 4 49 -5 0 ( Te x. Ap p. —T e xar ka na 20 02 , p e t. d e nie d) ; W

oodlands Land Dev. Co. v. Jenk ins , 4 8 S. W.3 d 4 15 , 4 22 (T e x. Ap p. —B e a u m o nt 2 00 1, no pe t.) ; Fletche r v. Edwards , 26 S.W .3d 66 , 77 (T e x. Ap p. —Wa c o 200 0, pe t. de nie d)
. Spr ing s c on te nd s th a t Prudential g ov e rn s b e c a

us e 26 the jury failed to find that it ha d fr au dulently induced B lind Maker into the F L A. While we emphasize that the jury ’s fa ilure to find fra udulent inducement in Question 6 is not an aff irmative finding of no fra

udulent inducement, we ag ree with Spring s that the jury ’s reje ction of Blind Make r’s fra udulent inducement de fense to the FLA in Question 6 bring s this case closer to Pr ud e nti al thanE v e n if th e ju r y ’ s f r a u d f in d in g in Q u e s ti o n 1 w a s b a s e d o n e v id e n c e of f raudule nt 27 ind uc e me nt— a

po ssi bil ity

le ft op e n b y Spr ing s’ fa ilure to p re se rv e a c on fl ic t ob

je c tio n— it w ou ld have no be aring on the eff ect we g ive the jury ’s fa ilure to find fra udulent inducement in Que stion 6. Qu e sti on 1 doe s n ot s ub mit B lin d M a ke r’ s f

ra ud ule nt i nd uc e me nt d e fe ns e ; on ly

Qu e sti on 6 d oe s. A finding of fra

ud in Q uestion 1 is not a

finding establishing B lind Maker’ s fra udulent inducement defe nse at lea st where , as her e, B lind Maker pur ports to rely

in Question 1 on evidenc e of f raud othe r than fra udulent inducement. Com pa re An de rso n, Gr e e nwo od & Co. v . M ar tin , 44 S.W .3d 200, 211- 12 (Tex. App.—Houston [14t h Dist.] 2001, pet. de n i ed ) (j u ry finding of liability

on aff irmative fr a ud ule nt i nd uc e me nt c la im e sta

bli sh e d fr a

ud ule nt ind uc e me nt de fe ns e e ve n thou g h pla int if f o nly p l e d an d d i d n o ts p e c i f

i c a l l y s u b m i t t h a t d e f

e n s e )
. F r a

u d u l e n ti n d u c e m e n ti s o n l y “ a particular sp e c ie s of fr aud that ar ises only

in the context of a contra ct and r equire s the exist ence of a c ontrac t as par t of its proof.” Haase v . Glazner , 6 2 S. W.3 d 7 95 , 7 99 (T e x. 20 01 ) ( Em ph a sis a dd e d. ). On ly Question 6 submits Blind Maker’s fraudulent-induc ement defense issue to the jury , and the jury ’s adver se findingalone c ontrols that issue. 44 Schlumberge r . W e t h u s a p p l y Prudential to de termine whether , under the unique circ umstances 27 of this case , section 15.05 neg ates the r eliance element of Blind Maker’s fr audulent induce ment theory as a matter of law

t o t h e ex t en t that theory is predicated upon re prese ntations and nondisclosures we have he ld to be within the FLA’s scope
. See P rudential , 896 S.W .2d at 161. I n Prudential , the supreme court he ld that an “as is” clause and disclaimer of re liance neg ated the causation element of va rious tort claims as a matter of law
. Id
. “ B y a g re e ingto p ur c ha se something ‘ as is,’” the court explained, “ a buy er a g ree s to make his own appr aisal of the ba rg ain and to acc ept the risk that he ma y b e wr ong . . . . The seller g ives no assura

nces, e x press or implied, concerningthe value or

condition of the thing sold.” Id . As for the disclaimer of relianc e, the supreme c ourt stated si mply that it “wa s an im portant element of t heir arm’s l eng th transac tion and is binding . .
. unless set aside.” Id . But the c ourt qualified its holding by emphasizing that this ty

pe of ag r e e me n t w o u ld n o t h av e “ th is d e te r mi n a ti v e e f

f e c t in e v e r

y c ir c u ms ta

n c e ” b e c a u s e “othe r aspec ts of a tra

nsaction may

make a n ‘as is’ a g ree ment unenfor cea ble”:45

The nature of the tr an s ac t i o n and the totality of the c ircumstance s must be considere d. Where the “ as is” cla use is a n important part of the basis of the ba rg ain, not an incidental or

‘boiler- plate’ pr ovision, and is entere d into by parties of re lativ e ly e qu a l ba rg a ini ng po sit ion , a buy e r’ s a ff ir matio n and a g re e me nt t

hat he is not relying on r epre sentations by the seller should be g iven ef fec t.”
Id
. Rece ntly , we a pplied Pr ud

e nti al to hold that an “as is” c lause a nd disclaimer of
war ranties in a c ommercia l lease ba rre d neg lige nce, f

raud, a nd brea ch-of

-wa rra nty claims arising from a fire in the leased pr emises. Gym- N-I Playgrounds, Inc . v. Snider , 1 5 8 S. W. 3 d 7 8 , 8 4

- 8 5 ( T e x. App.—Austin 2005, pet. fil ed). We c onsidered f ive “ Prudential fac tors”: (1) the sophistication of the pa rt ie s; ( 2) the te rm s o f t

he “ a s is ” a g re e me nt; (3 ) whe the r t he “ a s is ” a g re e me nt w a s f re e ly neg otiated; (4) whe ther the a g ree ment was an arm’s leng th transac tion; and (5) whether there was
a knowing misrepre sentation or conce alment of a known fa ct. Id
. at 8 5 (c i t i n g Procter II I v. RM C Capital Corp. , 47 S
. W
. 3 d 8 2 8 , 833 (Tex. App.—Be aumont 2001, no pet.)). We a lso noted that whether a par ty was re prese nted by

counsel is also important in our assessment of both the pa rty ’s relative sophistication and whether the ag ree ment was fr eely

neg otiated. Id
. Our ove rall inquiry was to determine, ba sed on the fac tors, whether the “as is” clause met the “letter and spirit of Prudential ”
an d s h o u ld b e held valid. Id
. We h e ld t hat th e “ a s is ” a g re e me nt s ho uld be e nf or c e d, no tin g in particula r the sophistication of the parties, the terms of the “as is” clause , and admissions of lack of fra udulent inducement. Id . at 85-86. We a lso e mphasized that, be fore signing the lease , the owner s of Gy m-N-I also had a ctual knowledg e of the very bu i l d i n g conditions later made the basis of the suit, y et sig ned the “ as is” cla use with awa

rene ss of that prov i s i o n and its meaning
. Id .; c f.Springs a sserts that B lind Maker e x ecut ed t he F L A a third time, in Octobe r 1999, and 28 char acte rizes this act as ratifying a ny ear lier fr audulent acts, including Springs’s “chang e” r eg arding the 2% e arly

pay ment discount. See M

eye r v. Cathey , 167 S.W .3d 327, 331-32 (Te x . 2005); Fortune Prod. Co. v. Conoco, Inc

. , 52 S.W .2d 671, 676-80 (Tex
. 2000). Springs’ s sole evidenc e to s upport this assertion perta ins to a one-pa g e adde ndum to the FLA that Hicks e x ecute d on October 5, 1999, amendingthe ex hibit li sting the pr oducts Blind Make r wa s permitted to sell. We rejec t Springs’s c hara cte ri zat ion

of thi s o ne -p a g e ame ndme nt a s a thi rd e xec uti on

of the e nti re a g re e me nt o r a s a ratifica tion of any

prior fr aud. 46 Schlumberge r , 959 S.W .2d at 180 (re lease exec ute d in c o ntext of dispute conc erningvery issues later made ba sis of suit).

We apply these fa ctors her e. F irst, we note that in Prudential , th e su pr e me c ourt

he ld that G old man’ s “cont

ra c tua l di savo wa l of

re lia nc e wa s an im

po rt ant p art

of the ir arm ’s -l e ng th transac tion and is binding on Goldman unless set aside.” Prudential , 8 9 6 S
. W
. 2 d at 1 6 1
. Al t h o u gh Blind Make r asse rted fr audulent-induc ement and a nticipatory -bre ach defe nses to bar e nforc ement of the F L A a

nd e ff e c tiv e ly se t it a sid e , th e jur

y re je c te d th e se de fe ns e s. Moreove r, there is no disp u t e t h at t he par ties dealt at a

rms’ leng th and that B lind Make r’ s pri nc ipa l, Hic ks , wa s a soph ist ic a te d b us ine ssm an. Hi c ks ha d e arn e d a n M .B .A ., a s w e ll
as a ma sters in eng ineer ing. H e had be en in the bli nds business since 1981, overse einga compa ny with an nual sales in the tens of milli ons of dollars. Hicks, f urthermor e, had a ssistance of c ounsel to reviewthe FLA and wa s able to neg otiate cha ng es to other provisions. Blind Maker signe d not
on e but tw o it e ratio ns of

the F L A, e a c h o f whic h r e fl e c te d n e g oti a te d te rm s.

28 We also find it significa nt that, by

May , Hicks h ad al re ad y begun to question Springs’ s “integ rity ” with reg ard to the pref err ed fa bricator prog ram, a s manifested in his April 19,47

1999, letter to Dudas. Despite these c oncer ns, Blind Make r executed the FLA, including section 15.05, a sec ond time in May 2000. I n sum, Bl in d

M ak e r w a s a s o p h is ti c a te d

p arty w h o , w it ha dv is e o f

c o u n s e l, tw ice signe d a contr act disclaiming the exis tence of extra-c ontrac tual “agree ments,” “c ommitm ents,” or “under standings ” wi t h i n t h e subjec t matter of the F L A in the fa ce of brew ing disputes r eg arding some of these “under standing s.” B lind Maker n o w att empts to claim fra ud based on a lleg ed mis re pr e se ntatio ns and

no nd isc los ur e s th e su

bje c t of wh ic h a re a dd re sse d o r e ve n s qu are ly contra dict e d b y th e c o n tr a c t’ s c le ar te r ms . U n d e r th e s e c ir c u ms ta n c e s , it is w it

h in th e “ le tt e r

and spirit” of Prudential to hold that section 15.05 negates, as a matter of law , the re liance e lement of Blind Make r’s fr audulent induce ment theory to the extent it is predicated upon evidenc e of repr esentations or understanding s within the scope of the FLA. Specific all y , Bl ind Maker’ s fr a ud ule nt i nd uc e me nt t he or y is f or e c los e d to the e xten t it

is b a se d o n th e fo llo wi nge vid e nc e :

! Evidence that Springs misrepre sented that Blind Maker had to sig n the FLA as a pr e fe rr e d f

a br ic a tor or , a s o f Jun e 1, 19 99 , it wou ld no t be pe rm itt e d to purc ha se Spr ing s p ro du c ts.
! Evidence that Springs f ailed to disclose t hat Blind Maker c ould continue doing business with Springs as a standard f

abric ator.
! Evidence that Springs failed to disclose that it would “take aw ay” B lind Maker’ s a bil ity to t ake 2 p e rc e nt d isc ounts on pa y me nt t e rm s b e y on d 1 5 d ay s.
We e mph a size that ou

r h old ingsh ou ld n ot be c on str ue d as a cate g or ic a l “ ro a dma p to future tor tfea sors g iving them the me ans to avoid liability mere ly by including a boilerplate me rg er clause in a contra ct,” a s Blind Maker cautions us ag ainst. Re av es rema ins the law of Te x as. See 30748

S.W .2d at 234-39. Ho we v er , i n these c ircumstance s, Pr ud e nti al compels us to g ive ef fec t to the merg er c lause in the F L A. Compare Prudential , 896 S.W .2d at 161-62, with Plun k e tt , 27 S.W .2d at 616 (whe re jury

found fr audulent inducement, merg er clause did not bar tort c laims). Moreove r,
we e mphasize ag ain our holding that section 15.05 does not bar Bli n d M ak er ’s fra

udulent inducement theory

to the extent it is predicated upon re prese ntations or understanding s we have deter mined to be beyond the FLA’s scope
. Du ty to d isc los e F ina lly , Sp ri ng s ar gues tha t B lin d M a ke r’ s f ra ud ule nt- ind uc e me nt t he or y fa ils a s a matter of la

w to the e x t en t i t i s p redic ated upon Spring s’s failure to disclose materia l fac ts, as opposed to aff

irmative misrepre sentatio n s. Springs fir st contends that no evidenc e supports the submissi on of a f

raud- by -nondisclosure the ory . Springs a rgues in the alter

native that B lind Maker
wa ive d the ri g ht to re c ov e r on any fr a ud -b y -n on dis c los ur e the or y by fa ili ng to ob ta in a pre dic a te finding that Springs ha d a duty to disclose the fa cts in question to Blind Maker
. A fa ilure to dis c los e inf

or matio n doe s not co ns tit

ute fr a ud un le ss the re is f

ir st a du ty to disclose the information. Brad for d v . V e nto , 4 8 S. W.3 d 7 49 , 7 55 (T e x. 20 01 ); InsuranceCo. of N. Am . v. Mo rri

s , 981 S.W .2d 667, 674 (Tex. 1998). Such a duty can a rise whe re the re is a f

iduciary or conf idential relationship between the pa rties. Mo rri

s , 981 S.W .2d at 674. However, silenc e may also be e quivalent to a

false r epre sentation in cer tain circ umstances, but “only when the pa

rticular circ umstances impose a

duty on the par

ty to speak a

nd he deliber ately

rema ins silent.” Br ad

for d , 48 S.W. 3d

a t 75 5; SmithKli ne Be echam Corp. v. Doe , 9 03 S.W. 2d 34 7, 35 3 ( Te x. 19 95 ); Smith v.Spr i n gs relies on Cho i v . M c Ke nz ie , 9 75 S.W. 2d

74 0, 74 3 ( Te x. Ap p. —Co rp us Chr ist i 29 1998, pet. denied), for the proposition that Blind Make r wa s require d to obtain a pre dicate f inding of duty to disclose. Howeve r, Cho i involved the questi on of whether the “conf idential relationship” exception to the statute of fra uds applied, not whethe r a duty to disclose exis ts in a fra

ud cause . Id
. at 743. Moreove r, the pa rties had a g ree d that the duty -to-disclose issue wa s one of f act. Id
. Ba sed on its argument that Blind Make r wa s require d to obtain a p re d i ca t e finding reg arding d u t y t o disclose, Spring s contends that we must rever se and r emand f or newtrial under Crown L ife Ins. Co. v. Casteel , 22 S.W .3d 378, 390 (Tex. 2000) , beca use B lind Maker’ s “invalid” fra ud-by -nondisclosure the ories we re c ommingled in a sing le broa d-form question with Blind Maker ’s fra

udulent misrepre sentation theories. We ne ed n ot addre ss this question because w e conclude above that leg ally and fa ctual ly

sufficie nt evidence supports the submission of Blind M ak e r ’ s f r a u d

- b y- n o n d i s c l o s u r e t h e o r y. 49 National Resort Communities, Inc. , 58 5 S.W. 2d 65 5, 65 8 ( Te x.19 79 ). Whe the r a duty to d isc los e exis ts is a question of law. Brad for d , 48 S.W .3d at 755. Be cause the exist ence of a duty to disclose is a question of law, we reje ct Spring s’s alternative argument that Blind Maker was require d to obtain a predicate finding that Springs owe d it a duty to disclos e. We thus consider whe ther ther e is leg ally and fa ctually

sufficie nt evidence 29 of “pa rticular c ircumstance s” that would give rise to a duty to disclose on the part of Springs. See Brad for d , 48 S.W .3d at 755. The jury char g e re quired B lind Maker to show that (1) Springs f ailed to disclose a materia l fac t within it s knowledg e; (2) Springs knew that Blind Maker was ignor ant of that fac t and did not have an e qual opportunity to discover the tr

uth; and (3) Spring s’s failure to disclose the fa ct was intende d to induce B lind Maker to take some ac tion. Blind Maker contends that Spring s had
a duty to d isc los e the fol lo wingfa c ts b e fo re it e nte re d into t he F L A: (1 ) t

hat Sp ri ng s v ie we d it s repr esentations concer

ning the pref

err ed fa bricator benef

its it would make available to Blind Maker
as mere “intentions,” not binding commitm ents; (2) that Springs would eventua lly chang e the 3%50

marg in improvement fund benef it, whic h was ba sed on purc hase volume, to a strictly g rowth-ba sed incentive; (3) t h e ex i s tence of Project Ove rlord and that Blind Maker was a targ et of it; (4) that Spring s w o u ld

“ ta k e aw ay ” th e 2 % e ar ly

p ay me n t d is c o u n t b y

s tr ic tl y e n f o r c in g it ; ( 5 ) th a t B lind M ak e r c o u l d c o n t i nu e d o i n g b u s i n e s s a s a s t an d ar d f a b r i c a t o r an d w a s n o t r e qu i r e d t o s i g n t h e F LA
a s a pr e fe rr e d f

a br ic a tor . B lin d M ake r’ s r e lia nc e on the latte r two fa c ts a s a ba sis fo r i ts f

ra ud ule ntinducement theor y i s fo re cl osed by section 15.05 of the F L A, as pre viously explained. Cf. Schlumberge r , 959 S.W .2d at 181-82 (r eleas e nega ted re liance e lement of both misrepre sentation and nondisclosure -base d fra ud claims). We also believe that there is no e vidence that Springs ha d
a d u ty to d is c lo s e th a t i t w o u ld

s o me d ay c h an g e th e 3 % ma

r g in im p r o v e me n t f

u n d benef

it into a g rowth-ba sed ince ntive.

I n Brad for d v . V e nto , the supreme court e mphasized that the second e lement re quired by the cha rg e—that Spring s knew that B lind M ak er wa s i gn orant of the fac t and did not have a n equal oppor

tunity to discover the truth—incorporates two require ments: ( 1) the defe ndant must be shown to have know n that the pl aintiff was ignor ant of a material f act, and (2) the f act must be one that the plaintiff did not have a n equal oppor

tunity to discover. See48 S.W .3d 749. Brad for d involved a fr aud cla im asserted by Ve n t o , wh o beca

me embroiled in a dispute over whether he had purcha sed a sports memora bilia shop from Taylor. Id . at 752-54. The shop was located at a ma ll. Id . at 752. Afte r believinghe had pur chase d the sh o p fr o m Taylor, Vento we nt to Bra dfor d’s offic e, paid the shop’ s rent for the month of Octobe r 1994, informe d Br adford t h at he ha d purcha sed the store , and inquired a bout a long -term lea se. Id . Br adfor d
co n gra t u l ated Vento on purcha sing the store, indicate d that he had he ard a bout his purchase ,51

informed him t hat t he mont hly rent he had paid was a “dec ent deal,” s ug g ested that a long-ter m was a bad ide a, and sa id he would “take car e of” Vento in J anuar y . Id . Br adfor d did not mention that the sto re ’s le a se wa s n on -a ssi g na ble , th a t a dd iti on a l r e nt w ou ld b e du e fo r De c e mbe r, and that V e nto would be re quired to apply for a new lea se. Id . Sometime after t h i s meetingconclude d, Taylor informed B radf

o rd t h at he still owned the store a nd that there could be trouble with Vento. Id . at 752-53. B ra d fo rdal er t edm al l s ec u ri t y , an al t er ca t i o nen s u edi n v o l v i n g Ve n t o , T ay l o r, Br ad fo rd , and
ma ll s e c ur ity , a

nd Ve nto wa s a sk e d b y

po lic e to l e a ve the ma ll b e c a us e he c ou ld n ot p ro ve his
owner ship. Id . at 753. Vento sue d Br adfor d, amongothers. Id
.

The trial c ourt submitted theories of both fr audulent misrepr esen ta ti o n a n d f r a u d u le nt nondisclosure to the jury , which aw arde d damag es to Vento a g ainst Br adfor d. Id . at 753-54. The supreme court reverse d, holding that there was no evidenc e that Br adfor d knew Ve nto was ig norant of a f act a nd did not have an e qual opportunity to disc over the truth. I t r elied on the fa ct that eve n th oug h V e nto c la ime d to have purc ha se d th e sto re , h e ne ve r a sk e d B ra df or d o r a ny oth e r m a ll personne l for a c opy

of the store ’s lease , the terms of the lease , or whether any rent wa s due for the two months between his mee ting a nd J anuar y . Id
. at 756. I t added that Vento had never asked f or the lease to be assig ned to him and that he ha d only inquired about a

long- term lea se fo r hi mself. Id . Moreove r, the supre me court held, there was “ no evidenc e that B radf ord knewthat Vento had not o b t ai n ed o r could not obtain the infor mation from other sour ces, suc h as Tay lor, from whom Vento wa s buying the store.” Id . at 755-56.

I n this case, ther e is no evidenc e that Spring s knew e ither that Hicks or Blind Make r ha d und e rs too d th a t th e 3% mar gin im prove me nt d isc ount ( or any oth e r p re fe rr e d b e ne fi t) wa s aNor is t here evidenc e of any aff irmative represe ntations by Springs to the e ffe ct that the 30 pref err ed bene fits could not be cha ng ed. B lind Maker a

ppear s to sugg est t h at the document p re s en t edt o Hi ck s d

u ri n g t h e O rl an d o co n fe re n ce i l l u s t ra t i n g Bl i n d M ak er ’s p o t en t i al 1 9 9 9 ea rn i n gs if it became a pr efe rre d fabr icator i m p l i ed ly repr esente d that the bene fits would not be chang ed. Even if this wer e an othe rwise va lid i n fe re n ce , the document r efe rs only to Blind Maker ’s prospec tive ear

nings in 1999 an d i s n o t ev i d en ce o f re p re s en t at i o n s co n ce rn i n g b en ef i t s o r e arn i n gs in any future year . For simil ar r easons, we also hold that Spring s had no duty to disclose that it would enforc e 31 the fiftee n-day

condition for obtaining t he 2% ear ly pay ment discount. Springs r epeatedly disclosed to Blind Maker that its pa

y ment terms for pref

err ed fabr icators wer e “2% 15, net 60” not only in the express terms of the F L A, but a lso in the 1999 Marke ting Plan broc hure, the Orlando slide show, a nd even in the discussions concer ning the pilot progr am. The a bsence of such a

duty is an independe nt ba r t o B lin d M ake r’ s a sse rt ion s th a t Sp ring s’ s e nf or c e me nt o f t

he e arl y pa y me nt d isc ount t e rm s constituted fra

ud-by -nondisclosure. 52 perma nent entitlement that could not be c hang ed. I f any thing, the e vidence demonst rates that 30 Springs e ither disclosed this possibili ty to Blind Maker

befor e B lind Maker e ntere d into the FLA or that B lin d M ake r w ou ld h ave ha d a n e qu a l op po rt

un ity to d isc e rn

it f ro m Sp ri ng s’ s d isc los ur e s. B lin d M ake r p ur

port s to r e ly

on a se t of re pr e se ntatio ns e nc omp a sse d w ith in S pr ing s “ 1999 Marke ting Plan, ” a d esig nation that implies li mited duration. Moreove r, duringthe discussions
conce rning the pilot prog ram, the model for the pref err ed fabricator benef

its prog ram, B lind Maker
wa s c a uti on e d th a t “

Note : Ma rk e tin g pla

ns ma y be mod if

ie d p e ri od ic a lly to refl ect bu sin e ss condition[ s].” Hicks or B lind Maker did eve n less than Vento to inquire whether the pre fe rred fa br ic a tor be ne fi ts repres ent e d in

the 19 99 Mark e tin g Plan a nd Pilo t Pr og ra

m w e re pe rm ane nt. Under Brad

for d , Bl i n d M ak er ca n n o t r e l y p u r e l y

o ns u ch u n ex p re s s ed , s u

b j ec t i v e u n d er s t an d i n gs as a ba sis for fra

ud. 31 Howeve r, we conclude that there is leg ally and fa ctually

sufficie nt evidence g iving rise to a duty

on the par

t of Sprin gs to disclose that it reg arde d its repre sentations conce rning the53

pref err ed fa bricator bene fits at the Orlando confe renc e and in the 1999 Marke ting Pl an to be nonbin din g “ int e nti on s. ” As prev iou sly dis c us se d, the re is e vid e nc e tha t Sp ri ng s a ff

ir mativ e ly repr esente d that it would provide certain special benefits to fabr icators who executed the FL A and op te d f or pr e fe rr e d f

a br ic a tor status , a nd it m a de fu

rt he r r e pr e se ntatio ns th at a dd iti on a l be ne fi ts
wo uld be pr ov ide d to “ Go ld” pr e fe rr e d f a br ic a tor s. B lin d M a ke r r e lie d o n th e se re pr e se ntatio ns in executing the FLA as a

Gold pref

err ed fabricator—Hicks testi fied that he would not have signe d the ag ree ment except to o b t ain the promised be nefits but that Springs ultimately failed to de liver the benef its. Dudas appea

red to confirm that fac t. Springs’s a ctions raise the infere nce that it knew Blind Make r wa s ignor ant that Spring s’s prom i sed bene fits were mere ly intentions, y et re mained silent with the intent to i nduce B lind Maker to sig n the FLA in relianc e on a be lief that Spring s’s repr esentations were f

irm commitments. S imi la r ly , th e combination of the repr esentations reg arding Springs’ s desire to be partne rs with its fabricators with the proof r eg ardingthe n at u re o f Project Ov e rl o r d c o n s t i tu t e s e v i d e n c e S p r i n g s kn e w B l i n d M a k e r w a s i g n o r an to f

t h e p l an . U n d e r

t h e se
c ir c ums tanc e s, we fi nd the re is le g a lly and fa c tua lly su ff ic ie nt ev ide nc e that Spri ng s owe d a duty to disclose Project Ove rlord and that it reg arded i t s repr esentations concer ning pr efe rre d fabr icator benef its to be mere ex pressions of intention, that Blind Make r’s fr aud-by -nondisclosure the ory was proper ly submitt ed to the jury , and that this evidenc e is sufficie nt t o support the jury ’s finding of fra ud under Blind Maker ’s fra udulent inducement theory
. See , e.g. , Spoljaric v. Perc ival Tours, Inc. , 708 S.W .2d 432, 435 (Tex. 1986) (silence can be equi v al ent t o false misre prese ntation where particula r circ umstances impose duty to speak).54

Con c lus ion re

ga rd ing Bl ind Ma k e r’ s frau du le nt- ind

uc e me nt t he or y We hold that there is leg ally and fa ctually

sufficie nt evidence o f fr audulent inducement in that: (1) Springs misrepr esente d that Blind Make r would re ceive cer tain pref err ed fabr icator be nefits and Gold pr efe rre d fabr icator benefits i f i t signe d the FLA as that c lassification of fa br ic a tor ; (2) Spr ing s fa ile d to disc los e its vie w that th e se re pr e se ntatio ns we re me re “ int e nti on s” and not firm commitmen t s , an d (3) Spring s failed to disclose that B lind Maker wa s a targ et of Project Ove rlord. However , in light of section 15.05 of t he FL A and Tex as leg al standar ds reg arding fra ud-by -nondisclosure, Blind Make r’s other evidenc e supportingits fraudulent-induc ement theor y
c ann ot h ave pr ob a tiv e va lue and , th us , is no e vid e nc e of

fr a ud ule nt i nd uc e me nt.
The whit esa le the or y We turn to Springs’s second le g al and f actua l sufficienc y

argument—that the evidenc e is insufficient to s u p p o rt Bl i nd Maker ’s white sale theory . Blind Make r’s “ white sale” theory is also predicated upon a duty on the par

t of Springs to disclose a fa ct. As B lind Maker descr ibed it in its i n itial brief, “Spring s not only did not prevent TB M from makingits customary larg e y ear -end pur chase s or even caution or war n TBM not to make it, Springs ac tually encour ag ed T BM t o m ak e t h es e p u rc h as es ” w h i l e i twa s i nd an ger o f e x ce ed i n g t h e i n t ern al l i m i t s t h at S p ri n gs ha d im po se d o n B lin d M ake r’ s c re dit . We ho ld t he re is n o e vid e nc e g ivi ngri se to a duty to d isc los e
on the pa rt of Spr ing s und e r t

he se c ir c ums tanc e s. As previously

noted, there is no ge nera l duty to disclose information. Brad for d , 48 S.W .3d at 755. B li n d

M ak e r d o e s n o t a ll e g e th a t i t h a s th e s o rt o f f id u c ia r y o r c o n f id e n tia l relations h i p t h at could give rise to suc h a duty
. Se e Mo rri s , 981 S.W .2d at 674. Nor is ther eThere was also evidenc e that Springs had previously expressed conc ern r eg ardingBlind 32 Make r’ s d e bt a

nd late pa y me nts of a c c ounts pa

y a ble , a s su g g e ste d b y

Spr ing s’ s $ 50 0, 00 0 lo an to Blind Make r in ea

rly 1998 to help it pay

down lag g ing a ccounts pa y able. We also observe that Blind Make r also voluntarily had assumed the obligations under the 33 19 97 c re dit

a g re e me nt, and

do e s n ot a sse rt

it w a s f ra ud ule ntl y ind uc e d into t

hat a g re e me nt. 55 evidenc e that Spring s knowing ly failed to disclose a

fac t that Blind Maker

did not have the equal opportunity

to discover. Brad

for d , 48 S.W
. 3 d at 755-56. Even a ssuming that Spring s had an internal c redit benc hmark for Blind Maker of which Blind Maker was unaware , Blind Make r knew of, and ha d rea dy acc ess to, the two contra cts that set forth the pa rties’ re spective r ights re g arding B lin d M ake r’ s c re dit

purc ha se s—

the 19 97 cred it a g re e me nt a nd the F L A. Un de r t

he c re dit ag ree ment, Blind Make r acknowledg ed that Springs “is not obli g ated to sell g oods to [ Blind Make r]
or to gra nt ope n ac c ount pay

me nt te rm s, ” and that “[t]he de c isi on to se ll p ro du c t and e xten d c re dit sha ll b e s o le ly w it

h in th e e xc lu s iv e d is c r e ti o n o f Sp r in g s . ” T h e a g r e e me n t f u rth e r p r o v ide d that B lin d M ake r “ he re by a g re e s to make pa y me nts a s ne c e ssa

ry to ke e p th e a c c ount b a lanc e wi thi n te rm s established by

Springs,” and that if B lind Maker failed to do so, Springs “may immediately

suspend all future shipments on other than prompt pay

ment terms such a s cash or cashie r’s check a nd may fu rt he r d e mand

imm e diate pa

y me nt o f t he fu ll b a lance.” I n th e F L A, B lin d M a ke r a g re e d th a t a ll
o f i t s o r d e r s “ s h al l b e s u b j ec tt o t h e ap p ro v al o f S p ri n gs ’s cr ed i td ep ar t m en t , ” a n d gav e S p ri n gs br oa d pow e r to obt a in inf

or matio n re g ard ing B lin d Mak e r’ s fin anc ia l con dit ion
. I n the fa c e of the se expli cit contra ctual limitations, Blind Maker t ook the risk of assuming signific ant additional debt 32 in what Hicks testified w as an atte m p t t o m ee t t he 5% thre shold nece ssary to attain the 2% p er fo rm an ce gro wt hfu n d b en ef i t
. At m o s t , Bl i n d

M ak er ’s ev i d en ce i n d i ca t es o n l y t h at S p ri n gs 33 exercised its rig hts under contr acts g overningthese sophisticated parties’ c redit transa ctions. Texas56

companies do not owe other Texas c ompanies a g ener al duty to provide ea ch other

business advice in t he ir arm s’ le ng th c re dit

tr ans a c tio ns . F a ilure to do so is no t a c tio na ble fr a ud by fa ilure to d isc los e under Te x as law. The re is thus no evidenc e to support B lind Maker’ s white sale theor y of fr aud.
The “c usto mer l

ist ” th e or y Ne xt, w e c on sid e r Spr ing s’ s thi rd su ff ic ie nc y c ha lle ng e —th a t th e e vid e nc e is l e g a lly and fa ctually

insufficient to support B lind Maker’ s “customer list” f raud theory
. Blind Make r had al l ege d t h at S p ri n gs fr au d

u l en t l y o b t ai n edco n fi d en t i al i n fo rm at i o nre gar d i n g i t s cu s t o m er s t h ro u gh the “ Cle ar t o th e TO P” pr omo tio n a nd us e d it a fe w m on ths late r t o c omp e te for those c us tom e rs . On appe al, S pring s contends there is insufficient e vidence to support the element of intent. The jury
was i nstructed that it could find fr aud by misrepre sentation based on “ [a] promise of futur e perf ormanc e made with an intent, at t he ti me t he promise was made, not to perf orm as promised.” A p ro mis e to d o a

n a c t ( or re fr a in f ro m an a c t) in t

he futur e c on sti tut e s f

ra ud on ly when made with no intention of perfor ming the promise at the time the pr omise was made
. Fo rm os a , 960 S.W. 2d

a t 48 ; Sp olj ar ic , 7 08 S.W. 2d a t 43 4; Po we r Re

s. Gr ou p, In c . v . P ub lic Ut il. Comm’n , 7 3 S. W.3 d 3 54 , 3 62 (T e x. Ap p. —Aus ti n 20 02 , pe t. d e nie d) . T hu s, the me re fa ilure to subsequently

perf orm a promise, standingalone, is not evidenc e of f raud. Fo rm os a , 960 S.W .2d at 48 ; Power Res. Group , 73 S.W .3d at 362. Rather, B lind Maker must have prese nted evidenc e that Spr in g s ma d e r e p r e s e n tati o n s w it h inte n t to d e c e iv e an d w it h n o inte n ti o n o f p e r forming as repr esente d. Se e Fo rm os a , 9 60 S.W. 2d a t 48 . T he e vid e nc e pr e se nte d mu st h a ve be e n re le va nt t o Springs’ s intent at the time the repr esentation was made. Se e id
.57 Such fra udulent intent may

be esta blished by

either dire ct or c ircumstantial evidenc e, and the subseque nt failure to perf o rm t h e promise, while not a lone dispositive, can be c onsidered with other fa ctors to establish intent. Sp olj ar ic , 708 S.W .2d at 434-45. The supre me cour t has stated that “ ‘[s ]lig ht c ir c ums tanti a l e vid e nc e ’ o f f ra ud , w he n c on sid e re d w itha br e a c h o f p ro mis e to perf orm, is s u ff

icient to support a findingof fr audulent intent.” Id
. at 4 3 5 (q u o t i n g Maulding v. Niemey er , 241 S.W .2d 7 3 3 , 7 3 8 (Tex. Civ. App.—El P aso 1951, orig . proce eding )). Intent tends to be a f act que stion uniquely

within the rea lm o f t he trier of fa ct bec ause it so depe nds on the
cre dibilit y

of witnesses a

nd the weight given to their testimony
. Id . at 434. Althoug h circ umstantial
e vid e nc e may

be us e d to e sta

bli shany mat eri a l f

a c t, i t mu st t

ra ns c e nd me re su sp ic ion ; th e re mus t be a log ical bridg e betwe en the pr offe red e vidence and the f act. IKON

, 125 S.W .3d at 124 (quoting Lozano v . Lozano , 52 S.W .3d 141, 149, 151 (Tex. 2001) (Phi llips, C .J ., concur ring and dissenting )); see also City of Keller , 168 S.W .3d at 810-11.

A desire to compete a g ainst or ac quir e anothe r business is not alone evide nce of fra udulent intent. Howeve r, we must consider, in combination, evidenc e of: (1) Project Ove rlord, (2) Spring s’s ac ts in connection with the F L A and the pr efe rre d fabr icator be nefits, and ( 3) Spring s’s
u lt im a te v io lati o no f

it s p r o mi s e s th a t t

h e c u s to me r

in f o r mati o nw o u ld

b e k e p t c o n f

id e n tia l. We
c on c lud e that, t og e the r, thi s e vid e nc e su pp or ts a n inf e re nc e that Sp ri ng s h a d im ple me nte d a

sc he me to i nd uc e B lin d M ake r i nto the F L A with fa lse pr omi se s and to p ro g re ssi ve ly we a ke n it e c on omi c a lly by fr a ud ule nt a c ts or wi th ho ldi ngor e lim inatin g pr omi se d b e ne fi ts, wi th a g oa l of ult imate ly acquir ing it or othe rwise takingits cust o m er s . E v en if we ha ve dete rmined that some of the component ac ts a

re not in themse lves ac tionable fra ud, we none theless conc lude that they may beHowever, we ex p re s s n o o p i n i o nre gar d i n g wh et h er t h e e x i s t en ce of Project Te x as, Z abel’ s 34 memorandum, or the mere act of competingfor B lind Maker’ s customers after it lear ned that B lind Maker would terminate and cause Springs to lose its main conduit to the Texas market a re, standing a lon e , e vid e nc e tha

t Sp ri ng s h a d f

ra ud ule nt int e nt at

the tim e it i nd

uc e d B lin d M a ke r t o d ivu lg e its customer infor

mation. Compare IKON , 125 S.W .3d at 131-32 (a cts by ac q u i ri n g co mpany

afte r president of

acquir ed company had proposed c onsolidating their ope rations into single ma rketplac e we re no e vid e nc e that, whe n s ig nin g a c quis it io n agre e me nt, a c qu ir ingc omp any ha d n o inte nt t o honor its promise to maintain plaintiff’s company as stand-a lone company for two y ear s), with Fo rm os a , 960 S.W .2d at 47-48 (proof that defe ndant had brea ched promises subsumed in contrac t even be fore plaintiff sig ned contr act wa s leg ally sufficie nt e vidence that defe ndant had no intent of perf orming ). Th e pa rt ie s d isp ute wh e the r B lin d M a ke r was r e qu ir e d to sh owint e nt o r m e re ly 35 rec klessness with reg ard to whe ther Spring s would perf orm its promise in the future. B eca use we find sufficie nt evidence of intent, we ne ed not addr ess this issue. 58 probative of

Springs’ s intent a t t h e t i m e i t induced Spring s to divulge its customer inf ormation. 34 I n s o c on c lud ing , w e are e sp e c ia lly min df ul t hat in te nt t e nd s to be a

fa c t qu e sti on

un iqu e ly wi thi n the re alm of the trier

of fa ct bec ause it so depe nds up on the cr edibility of the witnesse s and the weig ht to be g iven their testimony , Sp olj ar ic , 708 S.W .2d at 435-36, a nd that the supreme court ha s cautioned us that even “ slight” c ircumstantial evidenc e of f raud, when considere d with the brea ch of a pr omise to perfor

m, is sufficie nt to support a findingof fr audulent intent. Id . at 43 5. We h old that there is leg ally

and fac tually

sufficie nt evidence supporting the intent element of B lind Maker’ s “customer

list” fraud the ory

and, thus, the jury ’s finding of fr aud in Question 1. 35
Te rminat ion the or y F inal ly , w e c on sid e r S pr ing s’ s f ourt h s uf fi c ie nc y argume nt—

that th e re is l e g a lly ins uf fi c ie nt e vid e nc e of

B lin d Make r’ s te rm inatio n th e or y . B lin d M a ke r a lle g e d th a t, at th e tim e it enter ed into the FLA, made pur chase s under it, or de cided to t er minate the F L A, Spring s was intentionally

rema ining silent to mislead B lind Maker r eg ardingits int entions to ( 1) cea se treatingB lin d M ake r a lso a sse rt s a “te rmin a tio n c la im” wi th r e sp e c t to Spr ing s’ s mi su se of its 36 cu s t o m er i n fo rm at i o n . I ti s p u re s p ec u l at i o nt h at , at t h e t i m e B l i n d M ak er s i gn edt h e F L A, S p ri n gs ha d a lr e a dy

pla nn e d to ob ta in a

nd mis us e B lin d M a ke r’ s c us tom e r i nf or matio n a nd int e nti on a lly rema ined silen t t o i n duce B lind Maker into the F LA. Howe ver, be cause we have conc luded that there is leg ally

and fa ctually

sufficie nt evidence that Springs fra udulently obtained Blind Make r’s cu s t o m er i n fo rm at i o ni nM ar ch 2 0 0 0 , t h er e l i k ew i s e m ay b e s u ff i ci en tev i d en ce t h at S p ri n gs re m ai n ed s i l ent conc erningits plans to use the information in order to induce B lind Maker’ s subsequent purc hases, a

nd may have had a duty

to disclose the information bef ore B lind Maker g ave notice to termi n at e t he F L A. We need not a ddress these issue beca use any damag es ar ising fr om su c h c la ims wo uld be su

bs ume d wi thi n the dama g e s re c ov e ra ble un de r B lin d M a ke r’ s c us tom e r l ist claim. 59 Blind Make r with the ri gh t s o f a prefer red f abric ator during

the re maining te rm of the F L A; (2) ref use to sell Springs pr oducts t o Blind Make r af ter the te rm expired; (3) conside r B lind Maker’ s te rm inatio n n oti c e a

fa c tor in p la c inga

c re dit ho ld, the re by

wi thh old ingpr od

uc t; and (4 ) m a ke fa lse repr esentations to Blind Maker’ s customers conc erning the reasons why Blind Make r wa s no longe r selling Spring s’s products. The evidenc e wa s undisputed that Blind Make r wa s the first pre fer red fabr icator e ver to ter

min at e t h e FL A. I t is pure spec ulation to posit that, at the time B lind Maker executed the F L A, Spring s would have known that Blind Make r would terminate the FLA six teen
months late r, muc h le ss have fo rm ulate d pla ns to ha rm B lin d M a ke r t

he re a ft e r o r h a ve int e nti on a lly
rema ined silent reg ardingthose plans in order to induce B lind Maker i n t o en t er ing the FLA. See Brad for d , 48 S.W .3d at 755. Nor is ther e evide nce to support any infere nces of such knowledg e and intent at the time Blind Maker made purcha ses under the FLA or de cided to g ive notice of termination. 36 As Springs sugg ests, Blind Maker’s termination theory appea rs t o be a r epac kag ing of a lle g a tio ns it a sse rt e d a t tr ia l to su pp or t its no w- dis mis se d c a

us e s of a c tio n fo r br e a c h of c on tr a c t, b u s i n e s s d e f

am a t i o n , o r

t o rt i o u s i n t e r f

e r e n c e . T h e y ar e n o t p r o o f o f f r a u d
. M o r e o v e r , an y f

r a u d

- b y-60

no nd isc los ur e the or

y ba se d on a t le a st tw o o f t

he a lle g a tio ns wo uld

be ind e pe nd e ntl y

ba rr e d b e c a us e Springs’ s rig ht to take the ac tions that Blind Maker c omplains of are expli citly set forth in the 1997
cre dit ag ree ment and the F L A, to which both par ties had equa l acc ess. Se e Brad for d , 48 S.W .3d at 75 5. B lin d M ake r c la ims that Sp ri ng s c omm itt e d f ra ud in c onne c tio n w ithits pla c ingof c re dit ho lds , y e t B l i n d M ak e r a c kn o w l e d g e d i n t h e 1 9 9 7 c r e d i t a g r e e m e n t t h a t S p r i n g s “ i s n o t o b l i g a te d to se ll g oo ds to [B lin d M ake r] o r t o g ra nt op en ac c ount p ay

me nt t e rm s, ” and

that “ [t]he de c isi on

to s e ll product a nd extend credit shall be solely within the ex clusive di scre tion of Springs.” Blind Make r fu rt he r a g re e d to “ to m ake pa y me nts a s n e c e ssa

ry to k e e p th e a c c ount b ala nce with in t e rm s established by

Springs,” and that if Blind Maker failed to do so, Spring s “may immediately

suspend all future shipments on other than prompt pay ment terms such a s cash or cashie r’s c heck a

nd may further demand immediate pa

y ment of the full bala

nce.” I n the FLA, moreove r, Blind Make r ag ree d t h a ta l l o f i t s o r d e r s “ s h a l l b e s u

b j e c tt o t h e a

p p r o v a l o f

S p r i n g s ’ s c r e d i td e p art m e n t
. ” S i m i l ar l y, Blind Make r complains that S pring s cea sed to do business with it after the F L A terminate d, y et the F L A r e qu ir e d Sp ri ng s to se ll g oo ds to B lin d Mak e r onl y duri ng the te rm of tha t a g re e me nt. We h old t h e r e i s n o e v i d e n c e t o s u p p o rtB l i n d

M a k e r ’ s t e r

m i n a t i o nt h e o r

y.
Di sp os ition o

f e v identia ry

suf fic ie nc y c hal le nge to f ra ud f ind ing I n conclusion, we hold there is leg ally and fa ctually

sufficie nt evidence to support the jury ’s finding of fra

ud. Specifica lly , there is suf ficient evidenc e to suppor t both Bl i n d M aker ’s customer list fra

ud theory and its fr audulent inducement theory , to the extent the latter is pre dicated upon evidenc e that (1) Spri n gs m i srepr esente d that Blind Make r would re ceive cer tain pref err ed fabr icator be nefits and Gold pref err ed fabricator benef

its if it s igne d the FLA as that c lassificationSee Comm. on Pattern J ury Charg es, State Ba r of Tex., Pa tte rn J

ur yCha rges: Bu sin ess, 37 Con su me r, In su ra nc e, E

mp loy me nt (PJ C) 100.9, 110.20 (2002).

61 of fa br ic a tor ; ( 2) Spr ing s fa ile d to dis c los e its vie w that th e se re pr e se ntatio ns we re me re “ int e nti on s”
an d n o t f ir m c o mm itme n ts ; an d ( 3 ) Sp r in g s mi s r e p r e s e n te d an d f a il e d to d is c lo s e it s intentions reg ardingits new “pa

rtnership” with Blind Maker , while pursuingProject Ove rlord.
Act ual d am ages

I n its second issue, Spring s challeng es t he lega l and factual sufficiency of the jury ’s $5,167,240 awa

rd as a ctual dama g es. B eca use S p ri ng s is not contesting the f orm of the a ctual damag e submission, the starting point fo r o ur ana ly sis is aga in the jury char g e as submitted. See Os te rb e rg , 1 2 S. W.3 d at 55 ; Jack son, 116 S.W .3d at 762. The charge

Question 2 inquired of the jury , “What sum of money , if any , if paid now in cash, would fairly

and re asonably

compensa

te The B lind Maker f

or its damag es, if any , that wer e proxi mately cause d by Springs’ s fra ud? ” I t then provided standard Pattern Jury Charge instructions
re g ard ingdama g e s and

pr oximate c a

us e . F oll ow ingthe se ins tr uc tio ns , th e jur

y wa s a sk e d to 37 consider only a s i n gl e element of damag es: “L ost profits that were a natur al, proba ble, and fo re se e a ble c on se qu e nc e of

Spr ing s’ s f

ra ud .” Th e jur

y wa s th e n a sk e d to de te rm ine , and stat e in separ ate blanks, the amo u n t o f such lost profits that (1) “ wer e sustained in the pa st by The B lind Maker ”; or (2) “in re asonably probability will be sust ained by The Blind Maker in the future.” The jur y awa rd e d $ 0 f or futur e los t pr of

its bu t $5 ,1 67 ,2 40 a s p a st l os t pr of its
.Thus, the PJ C ex emplar f or lost profits as direc t damag es fr om fraud omits the 38 require ment that the damag es be f orese eable and proximately cause d by

the injury
. Id
. PJ C 110.3, 110.19. 62 Legal standards

L ost profits may

be re cover ed as f

raud da mag es eit h er as d i rec t damag es or conseque ntial damag es. Dire ct damag es ar e the ne cessa ry and usual re sult of the defe ndant’s wrong ful act; they flow naturally and nec essar ily

from the wr ong . Ar thu r A nd e rse n &Co v . P e rry Equip. Corp. , 945 S.W .2d 812, 816 (Tex. 1997)
. Direc t da mag es compensate the plaintiff for the los s th a t is c on c lus ive ly

pr e sume d to have be e n f

or e se e n b y

the de fe nd ant fr om his wr on g fu l a c t. 38 Id
. Texas law recog nizes two measure s of direc t damag es for fra ud: out-of-poc ket damag es, which
are measure d by

the diffe renc e betwe en the va lue ac tually paid and the va lue ac tually rec eived; and benef it-of-ba rg ain damag es, which is mea sured by the diffe renc e betwe en the va lue as re prese nted and the va lue actually

rec eived. Fo rm os a , 960 S.W .2d at 49. L ost profits can be a compone nt of benef it-of-the- barg ain direc t damag es; they , like other be nefit-of -bar g ain damag e compone nts, are
me a sure d b y c omp ari ng the anti c ipate d p ro fi ts und e r t he fr a ud ule ntl y pr omi se d b arg a in w ithpr of its actua lly rec eived. Id
. at 50. They are not a vailable as out-of-poc ket damag es beca use that mea sure “o n l y co m p en sates for

actua l injuries a par

ty sustains through pa

rting with something, not loss of pr of its fr a ud ule ntl y pr omi se d, in a

bid no t ma de , a

nd a pr of it n e ve r r e a lize d, in a

hy po the tic a l ba

rg a in
never struck.” Id . at 50-51. Consequential damag es re sult naturally but not necessa

rily from a de fenda

nt’s
wr on g fu l a c ts; the y mus t be the fo re se e a ble re su lt of the wr on g and mus t be dir e c tly tr a c e a ble to i t. Arthur Andersen , 9 4 5 S
. W
. 2 d at 816. “In the prope r ca se, conse quential damag es could includeSe e id
. PJ C 110.20. 39 C o m p a r e id
. P JC 110.20, with id
. P JC 110.3 (direc t damag es), an d id . PJ C 110.4 40 (conse quential damag es).

As a thre shold matter, we r ejec t Blind Maker ’s ar g ument that we should consi d e r e v idence 41 (if any ) of other elements of damag es t hat were not submitt ed (such as out -of- pocket damag es) a s additional support for the jury ’s damag e aw ard. I nvoking r ule of c ivil procedure 279, Blind Make r c ha ra c te ri zes the su

bmi ssi on of c on se qu e nti a l lo st p ro fi ts d a mages as the s ub mis sio n o f a sin g le element of a “ground of

rec overy”—“a ctual dama g es”—suc h that any omitted elements of ac tual damag es supported by

fac tually sufficie nt evidence must be deemed found in a manner supporting the judg ment. See Te x. R. C iv
. P
. 27 9. B ut r ule 27 9 o pe rate s o nly

a s to lia bil ity the or ie s— “indepe ndent g rounds of re cover y or of de fense ”—not damages . Moreove r, B lind Maker’ s interpre tation of rule 279 would contra dict and undermine the supreme c ourt’s direc tive that, when revie wing the suffic iency of eviden ce s upporting a jury ’s damag e aw ard, our starting point is t he char g e as submitted. See Golden Eagl e Archery, Inc . v. Jac kson, 116 S.W .3d 757, 762 (Tex. 2003). 63 fore seea ble profits fr om other busines s o p p ortunities lost as a result of the f raudule nt misrepre sentation” or nondisc losure. Fo rm os a , 960 S.W .2d at 49 n.1.

B lin d M ake r c on c e de s th a t it did no t se e k lo st p ro fi ts a s d ir e c t, b e nef it- of -b arg a in d am age s . I t i s t h u s n o t s ee k i n g, fo r ex am p l e, an y p ro fi t s i t m i gh t h av e an t i ci p at ed u n d er t h e F LA and pre fer

red f abric ator benefits prog ram had Springs provided the benefits as promised. Instead, B lin d M ake r s ou g ht l os t pr of its so le ly a s c on se qu e nti a l da

ma g e s; i.e. , th os e ari sin g fr om b us ine ss op po rt un iti e s it los t be c a us e of Spr ing s’ s f

ra ud. Th is cho ice of

dama g e re me die s is re fl e c te d in Question 2, which tra cked the Pattern Jury Charge exemplars for c onsequential damag es ca used by fra ud and lost profits as consequential damage s. Our inquiry is thus whether ther e is leg ally or 39 40 fac tu a ll y s u f f ic ie n t e v id e n c e o f

p a s t c o n s e qu e n ti a l l o s t p r o f it s d a ma g e s to s u

p p o rt t h e ju ry ’s $5,167,240 awa

rd. 41 Whe n d e te rm ini ngwh e the r l e g a lly and fa c tua lly su ff

ic ie nt e vid e nc e of

pa st conseque ntial lost profits damag es supports the jury ’s awa rd, we are mindful of sever al important64

sta nd ard s g ov e rn ingthe mann e r i n w hic h lo st p ro fi ts m us t be pr ov e n u

nd e r T e xas l aw. Fir st, los t profits, by definition, must be pr ofi ts , and should not be conf used with ec onomic g ains or losses that
are a mer e compone nt of a lost profits ca lculation or with other ty pes of e conomic har

m that may

be compensa ble throug h differ ent damag e ele ments. See , e.g. , Holt Atherton Indus., Inc . v. He ine , 835 S.W .2d 80, 84 (Tex. 1992) (proof of “l o s t i n co m e” is not proof of lost profits). L ost profits are damag es for

the loss of net

income to a business, Miga v. Je nsen, 96 S.W .3d 207, 213 (Tex. 2002), and, broa dly

speaking , ref

lects i n c o mef

r o m lost busi ness ac tivity

less expenses that would have be en attributable to that ac tivity
. See ge nerally Capitol Metrop. Transp. Authority v. Central of Tenn. Ry. & Na v ig a ti o n Co. , 114 S.W .3d 573, 581-82 & n.7 (Tex. App.—Austin 2003, pet. denied) (consider ing both income projec tions and spec ific expenses whe n evaluating pr oof of lost profits).

Se c on d, wh ile the re is n o o ne c or re c t me tho d for c a lc ulatin g los t pr of its , o nc e a pa rt y ha s c h o s e na

p ar t i c u l ar m e t h o d , “ [r ]e c o v e r

y o f l o s tp r o f i t s m u s tb e p r e d i c a t e d

o no n e c o mp l e te calc ulation.” Holt Atherton , 835 S.W .2d at 85. I t is not enoug h to supply “piec es of se vera l differ ent methods of ca lculating lost profits.” Id
. I n Holt Atherton , the s upreme court cited our discussion in Fleming Mfg. Co. v. Capitol Brick, Inc

. , 7 34 S.W. 2d 40 5, 40 7- 08 (T e x. Ap p. —Aus tin 19 87 , w ri t ref ’d n.r.e.) , as “demonstrat[ ing] a complete calc ulation of lost prof its.” Holt Atherton , 835 S.W .2d at 85. Fleming

illust rate s a ca lculation of lost profits taking into account ( 1) the number of bricks that wo uld have be e n pr od uc e d wh ile a br ic k mol d wa s n ot o pe ratio na l; ( 2) wh e the r t he br ic ks wo uld have be en sold (as evidence d by exis ting contrac ts and sales proje ctions derived f rom past sales a

nd marke t conditions); (3) pre vailing ma rket pric e; and ( 4) ave rag e net pr ofit on bricks sold. Fleming , 734 S.W .2d at 407-08.65 Finally , to rec over lost profits, b y whateve r method ca lculated, “ the amount of the loss must be shown by

competent e vidence with rea sonable c erta inty .” Southwest Battery Corp. v. Owen , 1 15 S.W. 2d

10 97 , 1 09 8 ( Te x. 19 38 ); see Tex as Instru me n t s , In c. v. Teletron Energy Mgt., Inc. , 877 S.W
. 2 d 276, 279 (Tex. 1994) (“We have consistently rea ffirme d the So uth west B atte ry decision.”) . As this court has pre viously explained:
Th e su pr e me c ourt

ha s c on sis te ntl y he ld that in or de r to re c ov e r los t pr of its , the los s amount mus t be sh ow n b y

c omp e te nt e vid e nc e wi th r e a so na ble c e rt a int

y . T he te st is a fl e xible on e in or de r to a c c omm od a te the my ri a d c ir c ums ta

nc e s in wh ic h c la ims fo r l os t pr of

its ari se . What c on sti tut e s r e a so na bly c e rt a in e vid e nc e of

los t pr of its is a fa ct-intensive de termination. Howe ver, the injured par ty must do more than show it s uf fe re d s ome los t pr of

its . A t a min imum, o pin ion s o r e sti mates of los t pr of its mus t be ba se d o n o bje c tiv e fa c ts, fi g ur e s, or data fr om whic h th e amou

nt of lost profits may

be asc erta ined. Capitol Metro. Transp. Auth. , 114 S.W. 2d a t 579 ( int e rn a l c itatio ns omi tte d) . T hu s, we have he ld that “ los t pr of

it” c a lc ulatio ns are no e vid e nc e of los t pr of its wh e n our e xami natio n re ve a ls the m to be pre dicated on unf

ounded, spec ulative assumptions. Id . at 579-82; Fleming , 734 S.W .2d at 407-08 (“ We c ann ot .
. . c on c lud e that los t profi ts we re pr ov e n . . .wi th that deg re e of re a so na ble c e rt a int

y require d when the only evidenc e off ere d conce rned anticipated or potential production ” ) ( Em ph a sis in o ri g ina l.) ; se e als o Te

x as In str um e nts , 877 S.W .2d at 279.
Blin d Maker’s ev idence

As pr oo f of c on se qu e nti a l pas t lost pr of its dama g e s, B lin d M a ke r r e lie d o n tw o s e ts of ca lculations. First, B lind Maker of fer ed t h e t es t i mony

and ana ly sis of its damag es expert, Dr. J ames R. Vinson, who stated that Blind Maker i ncurr ed over $11 milli on in what he c hara cter izedAdditionally , follow in g s u b mi s sion on appea l, Blind Maker has off ere d various additional 42 e xplan a tio ns and

c ha ra c te ri zat ion s o f t

he e vid e nc e in t

he re c or d in

a n atte mpt to d e mon str a te e vid e nc e of

los t pr of its . In a dd iti on

to s umm ari zingVi ns on ’s c a lc ulatio n a nd va ri ou s c a se s, thi s exhibi t proposes two newcalc ulations of lost profits: (1) “lost profits [as] evidenc ed by reduc tion in net income” of $7,391,612; a nd (2) “lost profits evidenc ed by subtractingcosts and expenses that [i t] would have incurre d from the lost g ross reve nues” of $5,336,235. Be cause Blind Make r did not prese nt these alter

native ca lculations in the trial court, they cannot do so he re. 66 as “lost profits.” Sec ond, Blind Make r ente red into evide nce a series of ca l cu l at i o n s prepa red by Bl i n d M ak er p er s o n n el , t i t l ed“P l ai n t i ff ’s C o mp i l at i o no f D am age s , ” t h at re fl ec t eda t o t al d am age amount of over

$10 milli on. 42 Vinson’s testimony Vinson testified that he c alculate d his “lost profits” fig ure through wh at h e ter med the “be fore and after” method—he compa red B lind Maker’ s financia l perfor mance befor e the company ’s J anuar

y 1999 execution of the FLA to its performa nce the rea fter. A s Vinson put it, t he befor e and a fter me thod “is a ver y straig htforwa

rd, simple methodology
. . . . What it m eans is, y ou look at the oper ation of the business as it occur red especia lly over a

long pe riod of time. And then y ou loo k at an e ve nt. An d th e n y ou loo k a t the bu sin e ss a ft e r t he e ve nt b e fo re and

a ft e r. ” F or

his

“ be fo re ” fi g ur e s, Vi ns on rel ie d p ri mari ly on B lin d M a ke r b a lanc e sh e e ts a nd inc ome state me nts betwee n 1991 to 1998; his “af ter” fig ures wer e derive d from those documents for the period be tween 19 99 and Au g us t 20 02 , th e tim e of tr ia l. Vi ns on ’s c on c e pt o f m e a suri nglos t pro fi ts by c a lc ulatin g a bu sin e ss’ s ove ra ll p ro fi t befor e and a fter a

n event f inds support in Tex as law, e specia lly whe re t h e busi ness has a “tra ck
rec ord” of

profitability
. So uth west B atte ry , 115 S.W .2d at 1098-99 (“ Where the business is shown67

to have be en alr eady

established and making a profit at the time whe n the contra ct was breac hed or th e to rt c o mm itte d , s u c h p r e - e xis ti n g p r o f it , to g e th e r w it

h o th e r f a c ts an d c ir c u msta nces, ma y indicate with re asonable cer tainty the amount of prof

its lost . I t is permissible to show the amount of bu sin e ss d on e by

the pla int if

f i n a c or re sp on din g pe ri od

of tim e no t to o r e mot e , a

nd the bu sin e ss duri ngthe tim e fo r whic h r e c ov e ry is s ou g ht. ” ); see also Flem ing , 734 S.W .2d at 407 (same ). Vi ns on pro vi ded a

c a lc ulatio n o f B lin d M a ke r’ s lo st p ro fi ts b a se d o n h ist or ic profitability , but this m easur e falls short of t he amount the j ury awa rded. V inson acknowle dg ed that Blind Make r ave rag ed only $37,000 in annual net pr ofits betwee n 1991 and 1 9 9 8

— wh at Vinson him se lf te rm e d “a sma ll amo un t of ne t pr of it” —a nd a c tua lly op e ra te d at a los s d ur ingtw o o f t

ho se y ear s. Ba sed on this aver ag e, Vinso n p ro j ec t ed “lost aver ag e prof its” or “nor

mal profits” of $100,064 betwee n J anuar y 1999, when B lind Maker e x ecute d the FLA, and August 2002. Howeve r, Vinson then adde d to this l ost profits fig ure $7,552,490 in tot al net operating losses for

the same time pe riod (which he termed “ lost net operatingincome”) to y ield a

“ c omb ine d to ta l of

los t pr of its ” of $7 ,6 54 .5 54 . V in so n then a dd e d to his “ c omb ine d to ta l of los t pr of its ” (1 ) $ 65 0, 19 4 in va

ri ou s c ha rg e -o ff s to e qu ity of unus a ble a sse ts ( e.g. , Gra

ber inve ntory

); (2) $3,523,610 in various other losses not y et charg ed-of f; and (3) $652,583 in various non-ope rating losses to achieve “total losses” of $11,173,775.

At the time Vinson prese nted hi s damag es calculation at t rial, B lind Maker ha d been
a sse rt ing se ve ra l ca

us e s of ac tio n othe r tha

n fr a ud and se e kin g re c ov e ry fo r a b ro a d r ang e of bu sin e ss losses other t han lost profits. Vinson’s testimony may have be en intended to support these other damag e theor ies; howeve r, B lind Maker ultimately elec ted t o s eek only

lost-profits damag es for68

fra ud, so we must consider whe ther Vinson’s testimony is leg ally and fa ctually

sufficie nt evidence of that si ng le e le me nt o f d ama g e s.

B lin d M ake r r e lie s o n the pr inc ipl e that a busi ne ss ope ratin g a t a lo ss c an r e c ov e r l os t profits from spec ific lost business oppor t u n i t i es re g ardle ss of whethe r the c ompany is making a

n
o v er al l p rofit. Frank B. Hall &Co. v. Beac h , 7 3 3 S
. W
. 2 d 2 5 1 , 2 5 7 ( T e x. Ap p . — C o r p u s C h r ist i 19 87 , w ri t r e f’ d n. r. e .)
. I t a lso no te s that ne t pr of its are “ wh a t re ma ins in the c on du c t of a bu sin e ss afte r deduc ting f

rom i ts total rece ipts all of the expenses incurre d in car rying on the business.” Turner v. PV Int’l Corp. , 765 S.W .2d 455, 465 (Tex. A pp.—Dallas 1989, writ denied) ( quoting R.A. Corbett Tr ansp., Inc. v . Oden , 678 S.W .2d 1 7 2, 176 (Tex. App.—Tyler 1984, no wr it)). In Blind Make r’ s vie w, its los se s are thu s me re ly “ ne t pr of its that ha ve no t be e n a c hie ve d, ” wh ic h “ are los t profits, as a matter of log ic and law .”

B lin d M ake r c on c e iva

bly c ou ld h a ve re c ov e re d l o s t p r o f i t s f r o m s p e c i f i c los t bu sin e ss opportuni t i es in an amount that exceede d its overall ave rag e net pr ofits. Se e Fran k B. Ha ll , 733 S.W .2d at 258. Howe ver, that is not t he “one complete ca l cu l ati on” that Vinson made
. Ho lt Atherton , 83 5 S.W. 2d a t 85
. Vi ns on c a lc ulate d B lind Ma ke r’ s ov e ra ll “bef ore a nd afte r” perf o rm an ce, not pr ofits from spec ific lost business opportunities. Having made B lind Maker’ s
overa ll pe rfor

mance the foc us of his inquiry , the maxim um lost profits that Vinson could have found
wer e his pr ojected overa ll ne t pr ofits of $37,000 per y ear , or $100,064 past lost prof its. Further

more,
we c ann ot s pe c ulate that any of Vi ns on ’s los s f

igur e s a re c omp ri se d o f los t pr of

its fr om s pe c if

ic los t
sa le s and bu sin e ss o pp or

tun iti e s, a s Vi ns on and B lin d Make r m a de no a tte mpt in t he tr ia l c ourt

to distinguish the portion of its losses attributable to lost profit on sales fr om other dama g es. Se e id
.Blind Make r also sug g ests that t h e t es t i mony of Spring s’s damag es expert, Dr. A vera , 43 independe ntly supports the j ury ’s award. Responding to Vinson’s calc ulation of over $11 milli on in t ota l bu sin e ss l os se s, Av e ra of fe re d a n a lte rnativ e c a lc ulatio n o f B lin d M a ke r’ s to ta l bu sin e ss losses as only around $6 milli on. Aver a’s testimony established total business losses, but does not su pp or t $6 mil lio n in

los t pr ofi ts . 69 (“the bare asser

tion that contra cts wer e lost doe s not de monstrate a rea sonably cer tain objective deter mination of lost prof

its.”). The failure to de monstrate that these losses we re lost profits as that 43
c o n c e p t i s kn o w n t o T e xa s l aw r e n d e r s V i n s o n ’ s c a l c u l a t i o n l e g a l l y an d f a c tu a l l y i n s u f

f i c i e n t to support the jury ’s awa

rd of $5,167,240. Howeve r, Vinson also testified that re duced sa lari es and bene fits to Ray Hicks
re pr e se nte d lo st p ro fi ts. He e xpla ine d in his re po rt :
The B lind Maker’ s profits are , to the larg er pa rt , p aid out as off

icer ’s salar ies and be ne fi ts, thi s it e m is a c tua lly a pa rt of a dd iti on a l lo st p ro fi ts. Th e de fi c ie nc y of thi s pay ment to office rs (Ray

Hicks) wa s $137,571.00 in 1999, $113,371.00 in 2000, a nd $150,371.00 in 2001. Throug h J uly 2002, the curr ent y ear defic it is $1 1 5 , 1 3 3 .00. This repre sents a total loss of $516,446.00.
I n his testimony , Vinson ag ain mentioned $516,000 in salar y and bene fits had bee n forg one by Ray Hi c ks a s p art

of B lin d M ake r’ s lo st p ro fi ts. I n a c los e ly he ld c or po ratio n s uc h a s B lin d M a ke r, e vid e nc e of salari es to its
owner /executive is releva

nt to a deter

mination of l o s t p ro fi t s . See B ettius & Sanderson, P.C. v. National Union Fire Ins. Co. , 839 F.2d 1009, 1014 ( 4th Cir. 1988). I n Bettius , the F ourt h Ci rc uit Court of Appea ls ex plained this conce pt in the context of a profe ssional corporation: [T]he pr of

e ssi on a l c or

po ratio n d e sir e s to dis burs e its e arn ing s in or de r t o avo id havingincome taxes imposed twice on what is in reality the same g roup of pe ople.70

. . . Th is is a c c omp lis he d by dis tr ibutin g a ll or mos t of its e arn ing s to t he pr inc ipa ls as compe nsation befor e calc ulating the profe ssional c orporation’s ne t inc ome. The re su lt, of c ou rs e , is tha

t th e c or po ratio n’ s n e t in c ome fo r t a x pur po se s is a lmo st alway s a t o r

n e ar ze r o , b u t i t i s u n r e a li s ti c to s u g g e s t t h a t t h e c o r p o r a ti o nis n ot ear ning a profit. I f we wer e to treat a net income as its net profit for the purpose of pr ov inglos s o f p ro fi ts i t w ou ld r are ly , if e ve r s ho w a p rof

it e ve n w he n it s share holders we re earning larg e incomes. I t would never be able to prove damag es fo r l os t pr of

its if the wr on g fu l a c t of

ano the r c a

us e d it ha rm . Id . at 1013. As in Bettius , a sig nif ic ant por tio n of B lin d Mak e r’ s net inc ome wa s d istri bute d to its
ow ne r thr ou g h c omp e ns a tio n. Ac c or din g ly , a re du c tio n in

c omp e ns a tio n d

ue to S pr ing s’ s f

ra ud is a valid mea sure of

lost profits. Se e id . at 1014. Thus, we f ind that there is evide nce in Vinson’s testimony to support $516,446 in lost profits attributable to lost executive salarie s in addition to the $1 00 ,0 64 los t ov e ra ll p ro fi ts, or a tot a l of $6 16 ,5 10 in p a st l os t pr of its
. Plaintif f’s Compilati on of Damages The “ Plaintiff’ s C o mpilation of Damag es” is compr ised of six teen line item
c a te g or ie s o f b us ine ss l os se s c a lc ulate d b y B lin d M a ke r’ s e mpl oy e e s; s up po rt ingdo c ume ntatio n is also supplied reg ardingeac h separ ate c alculation. The line item figures a re a dded to equa l a total of $10,625,441. The c alculation o f t h i s total suffer s from the same basic de fec t as Vinson’s
c a lc ulatio n: i t is a

c omp ilatio n o f t ota l bu sin e ss l os ses, no t lo st p ro fi ts. Se ve ra l of the lin e ite ms clea rly ref lect out- o f- pocket e x penses, suc h as expenses fr om unusable inventory , equipment and
s am p l es , an d

o u t -o f- p o ck et ex p en s es i n cu rr edwh en Bl i n d M ak er cl ai m edi t h adt o p u rc h as e S p ri n gs
mate ri a ls f

ro m o th er fabr ic a tor s. Th e $1 0, 62 5, 44 1 c a lc ulatio n is thu s le g a lly and fa c tua lly insufficient to support the jury ’s awa rd of lost profits damag es.The calculation of this fig ure in the “ Plaintiff’s Compil ation of Damag es” is inconsistent 44 with that in the suppor

ting materia ls. This may

ref lect rounding . I n the Compilation, Blind Maker’ s $5,703,283 lost sales fig ure is multiplied by a 22% g ross marg in to y i el d $1,254,722, while the supporting doc umentation utiliz es the 21.4% gross marg in fig ure to yield $1,220, 503. An additional $50, 449 was a dded to ref

lect purcha ses made by Blind Maker to replac e ince ntives that were to have been supplied by

Springs a s part of the prog ram. The total damag es stated in the supporting documentation is $1,270.952. Be cause the Compil ation appea rs to ref lect a summar

y or estimate, we will consider

the more pr ecise fig ure c ontained in the supportingmateria ls. 71 Four of the line item ca lculations potentially appea r to ref lect lost profits. Treating
eac h calc ulation as a distinct “one c omplete ca lculation,” Holt Atherton , 83 5 S.W. 2d a t 85 , w e ho ld that on e of

the se ite ms c on sti tut e e vid e nc e of los t pr of its
. L ine ite m G purp or

ts t o r e fl e c t $5 ,7 03 ,2 83 in los t sale s r e ve nu e s attr ibuta ble to Springs’ s pursuit of Blind Make r’s c ust o m er s by using infor

mation it had fraudule ntly obtained t h r o u g ht h e “ C l e ar

t o t h e T O P ” p r o m o t i o n , t h e b a s i s f o r B l i n d M a k e r ’ s “ c u s t o m e r l i s t ” f r a u d t h e o r y. The supporting doc umentation explains t hat B lind Maker de rived this fig ure by compar ing its 1999 sales to “Clear to the TOP ” reg istrants to its 2000 and 2001 sales to t hose same c ustomers. Blind M aker then multipli ed this fig ure by a 21.4% g ross marg in to y ield $1,220,503. The supporting 44 documentation explains that 21.4% was B lind Maker’ s 2000 y ear -to-date g ross marg in as of May 2000, the month before Springs be g an using its confidential customer inf ormation from the “ Clear to t he TO P” pr omo tio n to c omp e te a g a ins t B lin d M a ke r. Or din ari ly , th e ca lc ulatio n o f l os t pr of it damag es must be base d on net income, not g ross reve nue or g ross profits. Se e Ed mu nd s v . S an de rs , 2 S.W .3d 697, 705 (Tex. App.—El Paso 1999, pet. denied) (“The corr ect mea sure of damag es for los t pr of its is n e t pr of

its .” ); Turner v. PV Int’l Corp. , 765 S.W .2d 455, 465 (Tex. App.—Dallas 1988,
wr it d e nie d) ; Ma ng

ha m v . H all , 564 S.W .2d 465 (Tex. App.—Corpus Christi 1978, writ ref’d n.r .e.)Ray Hi c ks e xpla ine d, “ I f I

do n’ t ha ve the sa le s, Ido n’ t ha

ve the g ro ss m arg in, but I sti ll 45 have the overhe ad.” 72

Howeve r, Hicks testified that Blind Maker’s n et p rofits could be de termined by subtractingoverhe ad fr om gr oss marg ins. W hen a de fenda nt’s actions ca

use a r edu ction in the extent of business done by

the injured party , but does not cre ate any rea sonable opportunity for the injure d pa rt y to r e du c e its e xpe ns e s, the de fe nd ant i s e nti tle d to no re du c tio n in the dama g e s awa

rd e d a g a ins t him with respe ct to overhe ad costs. Houston Chronicle Pub. Co. v. McNair Trucklease , Inc. , 519 S.W .2d 924, 932 (T ex . Ap p.—Houston [1s t Dist.] 1975, writ ref ’d n.r.e ) (c iting 5 Corbin on Con tr a c ts 10 38 (1 96 4) ); see DP Solutions, Inc. v. Rollins, Inc. , 353 F.3d 421, 429 (5th Cir. 2003); F.S. New Prod., Inc. v. Strong Indus., Inc

. , 129 S.W .3d 606, 624 (Tex. App.—Houston [1s t Dist.] 2004, pet. filed). Her e, the jury found that Spring s committed fraud, a nd that fra ud left B lind Maker with no way

to reduc e its expenses—Blind Make r’s ope ratingcosts rema ined basica lly the same but Springs refuse d to sell Blind Maker m ore material, to buy back B lind Maker’ s unsold inventory , or to p ro vid e B lin d M ake r w ithse rv ic e . Un de r t he se c ir c ums tanc e s, g ro ss p ro fi ts a re an a pp ro pr iate 45
me a sure of

los t- pr of it d ama g e s. We f

ind thi s c a lc ulatio n to be su ff ic ie nt e vid e nc e of

$1 ,2 20 ,5 03 in los t pr of it d ama g e s. L in e it e m N r e f

le c ts $ 8 5 0 , 0 0 0 in “ lo s t p r o f it s ” f r o m lo s t s a le s o f N anik bra nd pr od uc ts. Th e su

pp or tin g mate ri a ls e xpla in that B lin d Ma ke r wa s pe rm itt e d un de r the F L A t o s e ll Nanik produc ts (which, like Gr aber products, were manufac tured by Springs) as a distributor rather than as a fabr icator. A ccor ding to B lind Maker’ s calc ulations, it earned a n average of $170,000 “g ross profit” a

nnual l y on its sales of Nanik pr oducts in 1999 and 2000. The $850,000 f igur eI t is a lso un c le ar whe the r B lin d M a ke r’ s “ a ve ra g e g ro ss p ro fi ts” re fl e c t ne t pr of its
. 46 73 repr esents B lind Mak er ’s p rojec tion of g ross profits assuming that it earne d this same $170,000 annual avera g e gross profits from Nanik sales for five y ear s following its termination of the FLA. I n o the r w or ds , th is figur e a ssume s that (1) B lin d Mak e r wo uld have c on tin ue d d istri butin g Na

nik pr od uc ts d ur ingthi s f

ive -ye ar p e ri od

(a nd , im pli c itl y , th a t Spr ing s h a d a le g a l ob lig a tio n to a llo w i t to d o s o e ve n a ft e r B lin d M ake r h a d te rm inate d th e F L A) ; and (2 ) Bli nd Mak er’s sa le s o f N anik products duringthis five

- ye a r p e r io d would have r emained at the aver ag e leve ls Blind Maker rea liz ed duri ngthe tw o- y e ar s pa

n b e tw e e n 19 99 and 20 00
. B lin d M a ke r d oe s n ot e xpla in t he ba se s f or the se
a ssumpt ion s, and

its c a lc ulatio ns are thu s p ur e sp e c ulatio n a nd no evi den ce of lost p ro fi ts. See 46 Capital Metro. Transp. Auth. , 114 S.W .3d at 5 8 0 -8 2
. I n any event, the jur

y denied B lind Maker
rec overy of any future lost prof

its accr uing a fter Aug ust 2002. L ine i tem O re flec ts “lost contrac t sales,” attributes $694,947 in lost g ross marg ins on lost sales “in the contra ct marke t as a dire ct re sult of an abr upt transition.” Blind Make r distributed finished product from S pring s for the commerc ial marke t. Blind Maker claimed losses fr om t he se c on tr a c t sa le s th a t w e re dis c on tin ue d a s a re sult of th e te rm inatio n o f t he re latio ns hip be tw e e n B lin d M ake r a

nd Spr ing s. Ho we ve r, thi s c a lc ulatio n p ro je c ts B lin d M a ke r’ s d a ma g e s, inc lud ingg ro wth in

sa le s, thr ou g h D e c e mbe r 2 00 2. B e c a us e th e ju ry

did no t awa rd futur e los t p ro fi t s , t h i s ca l cu l at i o nd o es n o ts u p p o r t t h e j u ry ’s aw ar d o f d am age s . Fu rt h erm o re , t h e d am age fr om lo st c on tr a c t sa le s, a s w e ll a s th e los t N anik sa le s, re su lte d f

ro m Sp ri ng s’ s r e fu sa l to se ll t o Blind Maker
. We ha

ve held that there is le g ally insufficient evidenc e to suppor t B lind M ak er’ s74

termination theor

y . A c c o r d ing ly , there is also leg ally insufficient e vidence to support damag es base d on Springs’ s ref

usal to sell cer

tain products to B lind Maker. I te m R “ los t G M $ in w oo d s a le s, ” purp or ts t o refl ect $2 ,4 89 ,4 89 in l os t g ro ss marg ins from s al es o f wo od products “which re sulted from poor qua lity wood produc ts delivered by the Gra ber r equire d and specifie d supplier, and those losses in g ross marg in cre ated due to poor product de livery

during the transition.” The se figures a re ba sed on testimony

that Blind Maker wa s forc ed by Springs to purchase its wood fr om a sing le supplier in Mexico. Ray Hicks explained that Springs’ s Mexi can supplier provided low g rade materia l that did not meet specifica tions. However , there is no evidenc e in the re cord that the quality problems wer e the r esult of any actionable conduct by Springs. Nothingin the rec ord re flec ts Blind Maker ’s control ove r the qua lity of the wood produce d by

the supplier, or that the quality problems wer e intended a s a par t of Springs’ s fra

ud. Ex cept f or th e d am age s for lost sales to “Clea r to the TOP” r eg istrants, the cal cu l ations contained in B lind Maker’ s “Plaintiff’s Compilation of Damag es” a re not suff

icient evidenc e of lost profits.
Di sp os ition o

f a c tua l da mage

s is sue We hold that ther e is le g ally and fa ctually

insufficient e vidence to support the jury ’s
awa rd of $5,167,240 in conse quential lost-profits damag es. Howeve r, there is sufficient evide nce that Blind Make r incurre d lost prof its damag es based on two me asure s—$616,510 under Vinson’s calc ulations and $1,270,952 for lost s ales attributable the custom er list claim within the “Plaintiff’s Compil ation of Damag es.” The rec ord now before us indicates that these two measures of damag es overla p, as lost profits attributable to the customer list cla im would nece ssarily have been f actor ed75

into Vinson’s calc ulation of overa ll lost profits. Thus, at most, Blind Maker is entitled to recove r $1 ,2 70 ,9 52 in a c tua l da

ma g e s, the larg e r o f t

he tw o me a sure s. An appe llate cour

t ma y s u ggest a re mitti tur on its own motion when an appe llant complains that there is insufficient evidenc e to support an awa rd and the a

ppellate c ourt ag ree s, but there is suf

ficient e vidence to support a lesser awa rd. See Te x. R. A

pp . P. 46 .3 ; see also Comstock Silversmiths, Inc. v . Carey , 894 S.W .2d 56, 57 (Tex. A pp.—San Antonio 1995, n o wr i t); Da v id Mc Da v id P on tia c, I

nc . v . Ni x , 681 S.W .2d 831, 838-39 (Te x . App.—Dallas 1984, writ ref ’d n.r.e .). The pa rty preva iling in the trial court must be g iven the option of ac ceptingthe re mitti tur or having the ca se re manded f

or a ne w trial. See Larson v. Cactus U til. Co. , 730 S.W .2d 640, 641 (Tex. 1987). Acc ordi n g ly , w e s u g g e s t a r e mi tt it u r o f $ 3 , 8 9 6 , 2 8 8 , th e d if f e r e n c e b e tw e e n th e ju

r y ’ s aw ar d of $5,167,240 and $1,270,952, the highe st a mount of actua l da

mag es that Blind M ak er ’s evidenc e
su pp or ts.
Exem plary damage s

When sugg esting a re mitti tur reg ardingactua l damag es, we must also reeva luate the jury ’s awa

rd of exemplary damag es. S ee B unton v. Bentley , 1 5 3 S. W. 3 d 5 0 , 5 4 ( T e x. 2 0 0 4 )
. We revie w the aw ard de novo to ensure that exemplary damag es ar e not “g rossly disproportional” to the g ravity of t he def

endant’ s conduct. Id
. (c i t i n g Cooper Indus. v. Leatherm an Tool Group, Inc. , 532 U.S. 424, 434-36 (2001)) . We consider ( 1) the de g ree of rep re h en s i b ility of the de fenda

nt’s misconduct, (2) the disparity betwee n the actual or pot ential harm suffer ed by the plaintiff and the punitive damag es aw ard, and (3) the differ ence betwee n the punitive da mag es awa

rded by the jury and the civil pe nalties awa rded or imposed in other compar able c ases. Id
. (c i t i n g State Farm Mutual76

Au to I ns . v . Ca mp be ll , 538 U.S. 408, 418 (2003)). The most important of t hese considerations is the deg ree of repr ehensibility of the de fenda nt’s misconduct. Cam

pb e ll , 538 U.S. at 419. We are g uided in examini ng a def

endant’ s conduct a

nd look to whether: the ha rm ca used was phy sical as opposed to economic; the tortious conduc t evinced a n indiffer ence to or a rec kless disreg ard of the hea lth or safe ty of ot hers; the targ et of the conduct had fina ncial vulner ability ; the conduct involved r epeated actions or wa s an isolated i n cident; and the ha rm was the r esult of intentional malice, tric kery , or dece it, or m er e ac ci d ent. Id . Finally , beca use we have sustaine d some of B lind Maker’ s actua l damag es, we construe Spring s’s argumen t s ab out exemplary damag es as a

n attack on the leg al
su ff ic ie nc y of the e vid e nc e of

e xemp lary

dama g e s. I n r e vie wi nga c laim th at e vid e nc e is l e g a lly ins uf fi c ie nt u nd e r t he c le ar a nd c on vin c ingsta

nd ard a pp lic a ble to t he punit ive dama g e s aw ard in t his
case , we look at a ll the evidence in the li gh t m o s t favor able to the f inding to dete rmine whe ther a
rea sonable trier

of fa ct could have formed a firm belief

or convi ction that its finding wa s true. Di am on d Sh am ro c k Re

f. Co. v . H

all , 1 6 8 S
. W
. 3 d

1 6 4 , 1 7 0 (T ex . 2 0 0 5 ) ( qu o t i n g So uth weste rn Be ll Te l. C o. v . G ar za , 1 64 S.W. 3d

60 7, 63 6 ( Te x. 20 04 )) ; se e In reJ .F .C. , 9 6 S. W. 3 d

2 5 6 , 2 6 4

- 6 8 ( T e x. 20 02 ); see also City of Keller , 168 S.W .3d at 817. We assume that the f act- finder r esolved disputed fa c ts i n f avo r o f its fi nd ing if a re a so na ble fa c t- fi nd e r co uld do so , an d disr e g ard a ll ev ide nc e that a
rea sonable fa ct-finde r could have disbelieve d or found to have been inc redible. Se e Ha ll , 168 S
. W
. 3 d at 1 7 0 (q u o t i n g In reJ

.F .C. , 96 S.W .3d at 266). The jury awa rded B lind Ma

k e r $ 2 , 0 9 0 , 0 0 0 a s e xe mp lary

damag es base d on its finding of $5 ,1 67 ,2 40 los t pro fi ts. We have su g g e ste d a r e mittit ur that w ou ld r e du c e the a c tua l da ma g e s to $1,270,952. Applying the constitutional c onsiderations discussed a bove, we first note that the B lind77

Make r s uf

fi c ie ntl y pr ov e d th a t Sp ri ng s im ple me nte d Pr oje c t O ve rl or d a nd su sta ine d it s implementation over the co u rse of sever al y ear s. Furthe r, the jury found existence of f

raud
conce rning the FLA, and the ev i d en ce c onnects that fr aud to Project Ove rlord and Spring s’s subsequent ac tiviti es. We have also revie wed the evidenc e conce rning Springs’ s misreprese ntations about the prefer

red fabric ator benefits. Hicks testified that he would not have sig ned the F L A had h e kn o wn t h at h e c o u l d

co n t i nu e a s a s t an d ar d

fab ri ca t o r w i t h o u ti tan d

i f h e ha d kn o wn t h at S p ri n gs did not consider itself bound to provide pr efe rre d fabr icator be nefits. Finally , there is evidence of Springs’ s misuse of B lind Makers’s c ustomer list after Spring s g ave a ssuranc es that the infor mation would be kept confide ntial and would only be used by

a third-pa

rty administrator. Tog ether , as we have a lr e a dy

no te d, the e vid e nc e su

pp or ts an inf e re nc e that Spr ing s ha d imp le me nte d a sc he me to induce the B lind Maker into the F L A wit h false promises and to weaken it financ ially by fra udulent acts or by withholding and eliminating promised benef its, with the ultimate goa l of either a cquiring
owner ship of the B lind Maker or taking its c ustomers. We c onclude that the jury ’s awa rd satisfies the Bunton
- Cam

pb e ll test and that a r easona

ble t ri er o f fa ct could have formed a firm belief

or
c on vi cti on that it s f

ind ingwa s tr

ue . We e mph a size that it is n ot S pr ing s’ s d e sir e to f ind a lte rn a te
m ea ns of competingfor Te x as customer s that forms the basis for our conc lusions reg arding “re prehe nsible conduct.” Rather, it is the means by which that desire was eff ectuated, the patter

n of beha vior over time, a

nd Springs’ s undermining of B lind Maker’ s financia l viability throug h fra

ud. I n consideringthe disp arity betwee n the ac tual or potential har m suffer ed by

the plainti ff and the ex emplary damag es aw ard, w e note that the r atio betwee n our sug g ested a ctualThe dispar ity is even smaller

when we consider the extensive damag es pre sented by Blind 47 Make r t hat w e re no t su bmi tte d to the jur y thr ou g h th e na

rr owlos t pr of

its iss ue . A lth ou g h th e se damag es did not support the jury ’s aw ar d o f l o st profits, they are rele vant to exemplary damag es beca use they repr esent a ctual har

m suffer ed by

Blind Make r. See B unton v. Bentley , 153 S.W .3d 50, 5 4 (T ex . 2 0 0 4 ) ( ci t i n g Sta te Fa rm Mu tua l A uto In s. v . Ca mp be ll , 538 U.S. 408, 418 (2003)).

See Act of June 2, 2003, 78th L eg ., R.S., ch. 676, § 1, 2003 Tex. Gen. L aws 2096, 2097 48 (ef fec tive J une 20, 2003) ( codified at Tex. Fin. Code Ann. § 304.003(c) (West Supp. 2004)); Act of J une 2, 2003, 78th L eg ., R.S., ch. 204, § 6.01, 2003 T ex . Gen. L aws 847, 862 (e ffe ctive Sept. 1, 2003) (c odified at Te x . Fin. Code Ann. § 304.003( c) ( West S upp. 2004)). The se t wo b i l ls were identical except for their eff ective dates. Be cause the judgme nt in this c ase w as sig ned bef ore June 20 , 2 00 3, we have no ne e d to de c ide wh ic h e ff e c tiv e date c on tr ols
. 78 damag es and the jury ’s awa rd of e x emplary

damag es is littl e more than 1: 1.6. The United St ates 47 Supreme Court has indicated that awa rds of e x emplary

damag es that ar e less than f ou r times the actua l da mag es are well below the line of constitutional im propriety
. Sta te Fa rm , 538 U.S. at 425. F ur the rm or e , w e fi nd th e award of $2 ,0 90 ,0 00 to b e re a so na ble in l ig ht o f t

he fa c t th a t th e c ivi l prac tices and r emedies c ode would permit an awa rd of exemplary

damag es of ove r $2.5 million. See Te x. Civ
. Pr a c . & Re m. Cod e Ann. § 41 .0 08 (b ) ( Wes t Su pp . 2 00 4- 05 ); Citi

zen’s Nat’l Bank v . Allen Rae Inv s., Inc. , 142 S.W .3d 459, 486 (Tex. App.—For t Worth 2004, no pet.).
P os t- ju dgm e ntint e r e st Th e tr ia l c ourt

sig ne d th e fi na l ju dg me nt i n th is c a se on Ma y 29 , 2 00 3 a

nd se t po stjudgme nt interest at 10%. I n its final issue, Springs ar g ues that, bec ause the leg islature ame nded the financ e code eff

ective Septe mber 1, 2003, the post-judg ment interest ac cruingafte r S eptember 1, 2003 should be ca

pped at 5%
. See Tex. Fin. Code Ann. § 304.003(c )(2) (Wes t S upp. 2004-05). 48 We disag ree .Se e als o U tts v . S ho rt , No. 03-03-00512- CV, 2 0 0 4 T ex . App. L EXI S 2874, at *18-22 49 (Tex. App.—Austin April 1, 2004, pet. denied) (mem. op.). 79 Th e ame ndme nts to t

he fi na nc e c od e a t is su e in t

his c a se pr ov ide that th e y

a pp ly “ in
any c a se in wh ic h a fi na l jud g me nt is sig ne d or su bje c t to a pp e a l on or a ft e r the e ff

e c tiv e date of

thi s Act.” Many

of our sister c ourts have c onfronted the issue of the a pplicability

of the 2003 amendments a

nd have unif

ormly conclude d , based on the statutory lang uag e and the leg islative history , that the amendme nts do not apply to judgments made final befor e the amendments’ ef fec tive date. See City of Hou s t o n v. F l et cher , 1 66 S.W. 3d

47 9, 49 3- 94 (T e x. Ap p. —E a stl and 20 05 , p e t. fi le d) ; City of Dallas v. Redbird Dev. Corp. , 143 S.W .3d 375, 388-89 (Tex. A pp.—Dallas 2004, no p e t
. ) ( qu o t i n g Colum bia Me d. Ctr . o f La s Co lin as v . B us h , 1 2 2 S. W. 3 d 8 3 5 , 8 6 5
- 6 6 ( T e x. App.—For

t Worth 2003, pet. denied)) ( amendment a pplied to ca s es wh ere judg ment is signed on
or afte r eff

ective date of a ct and “ to case s where a judg ment become s subject to appea l, i.e. , c a pa ble of being app e a le d, on

or a ft e r t he e ff e c tiv e date of

the Ac t” ); In re Kajima Int’l, Inc

. , 139 S.W .3d 107, 117 (Tex. App.—Corpus Christi 2004, pet. denied) (amendments apply only to judgment “ that fu lly and fi na lly dis po se s o f a ll p art ie s a

nd a ll i ssu e s b e fo re the tr ia l c ourt and the re fo re is c a

pa ble of being appea led”)
. I n other words, the amendments apply to c ases that become “ca pable of being appea led” a fter the amendments’ e ffe ctive date ; they do not apply to those “pe nding a ppeal” as of the ef fec tive date. Benne tt v. Cochran , No. 14-00-01160- CV, 2004 Tex. App. L EXI S 3545, at *26- 27 (T e x. Ap p. —H ou sto n [14t h Di st. ] A

pr il 22 , 20 04 , no p et.) ; Cigna Healthcare of Tex., I nc. v. Pybas , 127 S.W .3d 400, 421 (Tex. App.—Dallas 2004, no pe t.). I n this case, th e j u d g ment was 49I n o u r J u l y 29, 2005 opinion, we sug g ested a remittitur of $3,279,778. We have be en 50 informed by

the B lind Maker that it filed a remittitur in that amount while the motion for re hear ing was pe nding. T o comply with this opi nio n , the B lind Maker must file an a dditional remittit ur of $616,51 0 w it

h th e c le r k o f th e d is tr ic t c o u rt w it h in th ir ty d ay s o f th is o p in io n an d ju d g me n t a nd notify this Court as such. 80 c a pa ble of be inga pp e a le d o n M ay

29 , 2 00 3. Thus , th e tr ia l c ourt did no t e rr in a

pp lyinga 10 % p os tjudgme nt interest rate. We overr ule Spring s’s final issue.
CO NC LU SION We hold that while there is leg ally and fa ctually

sufficie n t evidenc e that Spring s’s committed fraud a g ainst Blind M aker , the evidenc e is leg ally and fa ctually

insufficient to support the full amount of ac tual damag es the jury awa rded. Although we have conclude d that there is no evidenc e to support the jury ’s ac tual damag es aw ard, the re is suf ficient evidenc e that B lind Maker incurre d $1,270,952 in l ost-profits damag es. Subtracting$1,270,952 from the jury ’s awa rd of $5 ,1 67 ,2 40 in a c tua l da

ma g e s r e ve a ls a

dif fe re nc e of

$3,8 96 ,2 88 . A c c or din g ly , w e su g g e st a remit titur in the amount of $3,896,288. See T e x. R. Ap p . P. 4 6
. 3
. I f th e s u m is n o t r e mi tt ed, the judgme nt will be reve rsed, a nd the cause wil l be remanded to the t rial court for a new tria l. Having
ree valuated th e j ury ’s awa rd of e x emplary

damag es in light of the remittitur, we af firm the jury ’s
awa rd. We have also overr

uled Spring s’s argument that conce rning the appr opriate post-judg ment interest rate. I n s u m, w e a f f ir m t h e ju d g me n t o f

th e tr ia l c o u rt c o n d it io n e d o nth e r e mi tt it

u r of $3,896,288. SeeTex. R. App. P . 46.3. I f B lind Maker f iles a re mitti tur of $3,896,288 with the cler k of the district cour

t within thirty day s of this opinion and judgme nt a nd notifies this Court as such,
we wi ll r e fo rm

the tr ia l c ourt ’s jud gmen t and , a s r e fo rm e d, a ff ir m. Se e id . I f t

he Tr a vis County 5081

District Clerk does n ot rec eive B lind Maker’ s remittitur within t hirty day s of this opinion and judgme nt, we will reve rse the tr ial court’s judg ment and re mand the ca use to the trial cour

t for a ne w tr ia l.

Bob Pembe rton, J ustice Be fore Chief J ustice L aw, Justi ces B . A. Smith and Pemberton Affir med Conditioned on Remitt itur Filed: January

20, 2006