Opinion ID: 372942
Heading Depth: 1
Heading Rank: 2

Heading: Texas law fraud claim

Text: 10 The state law 2 fraud claim by itself supports all of the damages assessed for the plaintiffs as a group, both actual and exemplary, including attorneys' fees. If this claim is upheld it will be unnecessary to reach the breach of escrow contract or federal securities law claims. Bauman's claim for breach of his employment contract is considered separately below.
11 An initial question is whether the Texas law fraud claim is barred by limitations. Federal jurisdiction in this case was invoked by the federal securities law claim. We are able to consider the state claims only under pendent jurisdiction. While there has been no definitive holding on the issue, federal courts often apply state law to pendent claims. See Cameron v. Outdoor Resorts of America, Inc., 608 F.2d 187 (5th Cir. 1979); Roberts v. Williams, 456 F.2d 819 (5th Cir.), Cert. denied, 404 U.S. 866, 92 S.Ct. 83, 30 L.Ed.2d 110 (1971); Smith v. Spina, 477 F.2d 1140 (3d Cir. 1973). Such result is clearly appropriate when, as here, the issue is statute of limitations and no federal statute exists. Cf. McNeal v. Paine, Webber, Jackson & Curtis, Inc., 598 F.2d 888, 891 (5th Cir. 1979). Texas law fixes the limitation period for actions based upon fraud at two years. L.C.L. Theatres v. Columbia Pictures Indust., 566 F.2d 494, 496 (5th Cir. 1978); Ryan v. Collins, 496 S.W.2d 205 (Tex.Civ.App.1973); Quinn v. Press, 135 Tex. 60, 140 S.W.2d 438 (1940). 12 The second question is when plaintiffs' cause of action accrued so as to trigger the running of the two year limitations period. The general rule is that a tort cause of action accrues when the tort is committed. This rule is followed despite difficulty in ascertaining damages until a later date. Quinn v. Press, supra ; Atkins v. Crosland, 417 S.W.2d 150 (Tex.1967). 13 The Texas Supreme Court has, however, stated an exception to this general rule. In Atkins v. Crosland, supra, it was held that a cause of action against an accountant for negligently preparing a tax return did not begin to run until the I.R.S. assessed a tax deficiency. The court outlined the following inquiry to be made: 14 A legal injury must be sustained, of course, before a cause of action arises. It is said in 34 Am.Jur. Limitations of Actions § 160, p. 126: 15 As regards the running of the statute of limitations applicable to torts, a cause of action accrues only when the force wrongfully put in motion produces the injury, the invasion of personal or property rights accruing at that time. (citing the Quinn Case, supra.) 16 And see Houston-American Finance Corp. v. Travis, 343 S.W.2d 323 (Tex.Civ.App.1960, writ ref'd n. r. e.). A helpful and often quoted test for determining when the cause of action accrues is found in 54 C.J.S. Limitations of Actions § 168, pp. 122-123: 17 The test to determine when the statute of limitations begins to run against an action sounding in tort is whether the act causing the damage does or does not of itself constitute a legal injury, that is, an injury giving rise to a cause of action because it is an invasion of some right of plaintiff. If the act is of itself not unlawful in this sense, and plaintiff sues to recover damages subsequently accruing from, and consequent on, the act, the cause of action accrues, and the statute begins to run, when, and only when, the damages are sustained; and this is true although at the time the act is done it is apparent that injury will inevitably result. 18 If, however, the act of which the injury is the natural sequence is of itself a legal injury to plaintiff, a completed wrong, the cause of action accrues and the statute begins to run from the time the act is committed, even where little, if any, actual damage occurs immediately on commission of the tort   . See Tennessee Gas Transmission Co. v. Fromme, 153 Tex. 352, 269 S.W.2d 336 (1954). 19 Id. at 153. 20 Another analogous case is Linkenhoger v. American Fidelity & Cas. Co., 152 Tex. 534, 260 S.W.2d 884 (1953), in which the Texas Supreme Court held that a cause of action for negligent failure of an insurance company to settle within policy limits did not accrue until a judgment was awarded in excess of the policy. The court quoted the Restatement (First) of Torts, § 899 as follows: 21 A tort is ordinarily not complete until there has been an invasion of a legally protected interest of the plaintiff. Thus where one makes a fraudulent misrepresentation to another, the tort is not complete until the other acts thereon to his detriment. 22 Id. at 886. The Quinn case was thus distinguished by the Texas Supreme Court as not reaching the issue of whether plaintiffs were injured by the false statements. Id. 23 In the present case the plaintiffs knew of the misrepresentations more than two years before suit was filed. Until the escrow agreement expired and the stock reverted to Centex there was no legal injury, however, since it was possible the earnout would be made in spite of any misrepresentations by defendants. Misrepresentation in itself is not a completed wrong until there is an invasion of some right of the plaintiff. Texas courts have held that (a) false statement, alone, does not create a cause of action for fraud . . . there must be reliance by the complainant to his detriment. Finger v. Morris, 468 S.W.2d 572, 577 (Tex.Civ.App.1971). Furthermore, (t)he general rule is that there can be no legal or actionable fraud unless the act Resulted in injury to the person defrauded. Travelers Ins. Co. v. Delta Air Lines, Inc., 498 S.W.2d 443, 447 (Tex.Civ.App.1973) (emphasis original). Thus until the escrow agreement expired and the stock was lost, plaintiffs had sustained no injury, and the misrepresentations had not become a legal injury. Consequently, plaintiffs' cause of action did not accrue until two and one half months before suit was filed.
24 Following the standard set out in Boeing Co. v. Shipman, 3 our sole function as an appellate court is to ascertain whether there is a rational basis in the record for the jury's verdict; we are forbidden to usurp the function of the jury by weighing the conflicting evidence and inferences and then reaching our own conclusion. Reyes v. Wyeth Laboratories, 498 F.2d 1264, 1288 (5th Cir. 1974). 25 There was conflicting testimony on all of the claimed misrepresentations. In answer to interrogatories the jury found that defendant made a false representation of a past or existing material fact and made a material false promise to do an act with the intention of not fulfilling it. Essentially defendant complains that the jury credited the testimony of plaintiffs and plaintiffs' witnesses rather than evidence offered by defendant. Plaintiffs' evidence was not inherently insubstantial or incredible. 26 Faced with conflicting credible evidence it was within the jury's province to resolve the conflict in favor of plaintiffs. While the evidence for Centex was persuasive, the evidence for plaintiffs was substantial and also persuasive. Denial by the trial court of defendant's motions for a directed verdict and judgment n. o. v. was not error. Similarly, given the conflicting evidence, denial of defendant's motion for a new trial was not abuse of discretion. Davis v. Yellow Cab Co., 220 F.2d 790, 791 (5th Cir. 1955). 27 Since the jury's award of actual and exemplary damages can be upheld by the Texas law fraud claim we need not reach defendant's contentions regarding the breach of escrow contract and federal securities law claims.III. Breach of employment contract 28 Bauman's claim for breach of his employment contract was based on the theory that Centex's actions kept CCI's net income below $60,000 per year. Under the terms of the employment contract Bauman would have received $5,000 additional salary for each year CCI earned $60,000 or more. The jury found for Bauman and awarded $10,000 damages. 29 Defendant challenges the sufficiency of the evidence to uphold this portion of the jury's verdict. Once again there is conflicting evidence in the record, which the jury resolved in favor of Bauman. The evidence presented by plaintiffs and their expert on CCI's potential earnings, absent defendant's actions, was not unduly speculative. Bauman's damages were based on the bonus amount specified in his employment contract and were determinable with reasonable certainty. Fredonia Broadcasting Corp., Inc. v. RCA Corp., 481 F.2d 781, 804 (5th Cir. 1973).