Opinion ID: 1665709
Heading Depth: 3
Heading Rank: 1

Heading: Common Law and Statutory Fraud

Text: Eagle's first cause of action against the Directors is for common law fraud. The elements of actionable fraud are that: (1) a material representation was made; (2) the representation was false; (3) when the representation was made the speaker knew it was false or made it recklessly without any knowledge of its truth and as a positive assertion; (4) the speaker made the representation with the intent that it should be acted upon by the party; (5) the party acted in reliance upon the representation; and (6) the party thereby suffered injury. Trenholm v. Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983); Stone v. Lawyers Title Ins. Corp., 554 S.W.2d 183, 185 (Tex.1977). Eagle bases its actions for common law and statutory fraud [7] on the grounds that the Directors made false representations or material omissions with the intent of inducing Eagle to enter into the salesleaseback transaction and agree to early funding of the letters of credit. First, Eagle alleges that the Directors misrepresented the bank's financial condition. The court in FDIC v. Eagle found that a fiduciary relationship did not exist between Charles Fraser and the individual defendants, that Fraser's disclosures and representations were adequate to inform Eagle and its partners of the bank's financial position and the reasons for selling the building, that Fraser had represented to each Eagle partner that an unfavorable financial report had been received from bank examiners, and that each defendant knew the bank had definite financial problems. FDIC v. Eagle , 664 F.Supp. at 1043-44. Second, Eagle alleges that the Directors misrepresented that Eagle could depreciate the property and that the completed sale would occur in 1982. The federal court found that these representations were only expressions of opinion with legal implications. Generally, misrepresentations as to matters of law are not actionable fraud. Sawyer v. Pierce, 580 S.W.2d 117, 125 (Tex.Civ.App.Corpus Christi 1979, writ ref'd n.r.e.). Such misrepresentations may be actionable between fiduciaries or where the representor has superior knowledge or information and uses it unfairly. The court found, however, that there was no fiduciary relationship between Fraser and First Midland and the individual defendants and that Fraser did not have a decided advantage over them. FDIC v. Eagle , 664 F.Supp. at 1042. Eagle also alleges that the Directors misrepresented the fair market value of the property and the existence of an appraisal in the amount of $75 million. The federal court found that the representation of such an appraisal was false and material, but that none of the defendants who heard the representation relied upon it, in that they did not request to view the appraisal and did not condition their participation on reviewing the appraisal. Furthermore, the court found that the defendants should have taken the precaution of reviewing an appraisal and informing themselves of the value of the properties. FDIC v. Eagle , 664 F.Supp. at 1042-43. Finally, Eagle alleges that the Directors failed to inform them that the SEC and the Office of the Comptroller of the Currency had concerns about the validity of the original transaction. The federal court found, however, that Fraser accurately represented that the OCC viewed the sale as a positive step for the bank. FDIC v. Eagle , 664 F.Supp. at 1044. The court in FDIC v. Eagle held, following its extensive review of the facts surrounding the transaction, that neither Fraser nor First Midland fraudulently induced the defendants to enter into the sale-leaseback transaction, execute the promissory notes, or agree to early funding of the letters of credit. FDIC v. Eagle , 664 F.Supp. at 1045, 1048. We hold that the findings of the federal court collaterally estop Eagle's actions for common law and statutory fraud in Mays.