Court Opinion

ID: 4064966
Source: CourtListenerOpinion
Date Created: 2016-09-29 21:43:07.904366+00
Date Added: 2024-06-11T14:27:29.044244
License: Public Domain

ACCEPTED
                                                                                       03-13-00336-CV
                                                                                               5018120
                                                                            THIRD COURT OF APPEALS
                                                                                       AUSTIN, TEXAS
                                                                                  4/24/2015 9:35:22 AM
                                                                                     JEFFREY D. KYLE
                                                                                                CLERK
                          CASE NO. 03-13-00336-CV

                      IN THE COURT OF APPEALS          FILED IN
                                                3rd COURT OF APPEALS
                  THIRD COURT OF APPEALS DISTRICT AUSTIN, TEXAS
                           AUSTIN, TEXAS        4/24/2015 9:35:22 AM
                                                                 JEFFREY D. KYLE
                                                                      Clerk

                                R.D. TIPS, INC.,
                                   Appellant

                                        v.

                                VIRGINIA JETT,
                                   Appellee

           Appeal from the 419th District Court, Travis County, Texas
                    Trial Court Cause No. D-1-GN-11-003799
                     Hon. Rhonda Hurley, Judge Presiding

                         MOTION FOR REHEARING

TO THE HONORABLE COURT OF APPEALS:

      Appellant, R.D. Tips, Inc., as its Motion For Rehearing pursuant to Texas

Rule of Appellate Procedure 49, respectfully states the following:

      1.      The Court's opinion allows Appellee Jett to submit materially

misleading financial statements to the Texas Department of Insurance, engage in a

transaction in which she benefitted financially while she had reason to know that

R.D. Tips, Inc. was relying on those financial statements, and escape any

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consequence for her actions. Instead, if this Court's opinion stands, Ms. Jett will

reap a multi-million dollar benefit from her conduct. That result is wrong.

              2.   R.D. Tips, Inc. alleged below that Jett's claim under the guaranty

agreement it signed was barred by fraud, an affirmative defense. Memorandum

Opinion at 2-3 (hereafter, "Mem. Op. at __"). R.D. Tips, Inc. also alleged that

Ms. Jett's claim was barred because she committed fraud in a transaction involving

corporate stock in violation of section 27.01 of the Texas Business & Commerce

Code. !d.

              3.   If a guarantor is     induced   to   execute   a guaranty through

misrepresentations, the guaranty is invalid. Sw. Sur. Ins. Co. v. Hico Oil Mill, 203
S.W. 137, 139 (Tex. Civ. App.-Fort Worth 1918), aff'd, 229 S.W. 479 (Tex.

Comm'n App. 1921, judgm't adopted) ("It is a general rule that, if one is induced

to become a surety or guarantor for another through material misrepresentations of

fact, such contract of the surety or guarantor will thereby be rendered invalid and

the obligor will be discharged from liability thereon; and this is true even though

such misrepresentations are honestly made with no intention to deceive or

defraud.").

              4.   Put differently, if a creditor knows or has reason to believe that a

guarantor is being deceived or induced to execute a guaranty "in ignorance of facts

materially increasing the risks," and fails to inform the guarantor of those facts

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despite an opportunity to do so, "good faith and fair dealing demand that he should

make such disclosures to him; and, if the creditor accepts the contract of suretyship

without doing so, the surety may afterward avoid it." Goodwin v. Abilene State

Bank, 294 S.W. 883, 886-87 (Tex. Civ. App.-Eastland 1927, writ ref d).

              5.   These principles undercut the result reached in this case.      The

misrepresentations in North America Life's financial statements materially

increased the risk inherent in the merger, of which the guaranty was a part. The

matters that were misrepresented led to more than ten million dollars in losses for

the post-merger company. See Brief for Appellant at 5-10. Jett should not be

permitted to benefit from the guaranty despite those misrepresentations. Indeed,

under the cases cited above, this is true even if Ms. Jett did not intend to defraud

R.D. Tips, Inc. See supra, paragraph 3.

              6.   In its opinion in the case at hand, the Court focused on whether Ms.

Jett intended to induce R.D. Tips, Inc. to enter into the guaranty at the time she

filed North America Life's misleading financial statements with the Department of

Insurance. Mem. Op. at 8-10. The focus on that temporal aspect of her conduct

stemmed from the Court's reading of Exxon Corp. v. Emerald Oil & Gas Co., 348
S.W.3d 194 (Tex. 2007). That case, however, did not concern fraud as a defense to

the liability of a guarantor. It therefore did not address the principles set out above.

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              7.   The idea that the "reason to expect" standard requires knowledge of a

particular party's potential future reliance on a filing at the time it makes the filing

makes sense if the filer had no subsequent knowledge of such reliance.                 For

example, the Court relied extensively on Ernst & Young, L.L.P. v. Pac. Mut. Life

Ins. Co., which concerned a claim against an audit firm based on an audit of the

maker of certain promissory notes. 51 S.W.3d 573, 575 (Tex. 2001). There is no

indication in the decision that the auditor, Ernst & Young, had any involvement

with the maker subsequent to the audit in question. Accordingly, the only question

that could be asked was whether Ernst & Young had a "reason to expect" the buyer

of the notes would rely on its audit when it was performed.

              8.   Here, in contrast, R.D. Tips, Inc. alleges that Ms. Jett had a reason to

expect that R.D. Tips, Inc. would rely on North America's financial statements in

entering into the merger and executing the guaranty. Even if Jett did not know that

R.D. Tips, Inc. would rely on the financial statements when she signed them, this

subsequent knowledge should not be of no consequence for Ms. Jett's personal

responsibility. To hold otherwise would mean that a party can file misleading

financial statements, later learn that someone intends to rely on them in a

transaction from which the party will benefit, and remain silent with no

consequence.

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              9.    Nonetheless, the Court determined that "[t]he fact that Jett later

became aware that [R.D. Tips, Inc.] was contemplating the merger transaction is of

no consequence." Mem. Op. at 11. Particularly in light of the cases cited in

paragraphs 3 and 4 hereof, that conclusion should not stand. Texas law should not

permit Ms. Jett to take advantage of misleading financial statements that induced

R.D. Tips, Inc. to enter into the merger transaction with North America and the

guaranty.           This particularly should not happen on summary judgment because

"[i]ssues of intent and knowledge are not susceptible to being readily controverted

and are inappropriate for summary judgment." Allied Chern. Corp. v. DeHaven,

752 S.W.2d 155, 158 (Tex. App.-Houston [14th Dist.] 1988, writ denied).

Questions about Ms. Jett's knowledge and intent should be submitted to a jury, not

dismissed based on her self-serving affidavit.

              10.    Further, in its opinion, the Court expressed the view that the relevant

sort of misrepresentation would have concerned Jett's unwillingness to agree to the

merger without the guaranty. Mem. Op. at 6, n. 3. This overlooks the fact that but

for the merger there would have been no guaranty.

              11.    In other words, if R.D. Tips, Inc. had not been induced to enter into

the merger, it would not have executed the guaranty. The representation that Jett

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would not approve the merger absent the guaranty is only a part of the picture. 1 It

cannot be viewed in isolation as the only inducement for the execution of the

guaranty because the guaranty was a part of the overall transaction and the

supposed value of North America Life (presumably as reflected in its financial

statements) was the economic motive for the transaction.

              For the reasons stated, R.D. Tips, Inc. respectfully requests that the Court

grant this Motion For Rehearing and reverse the district court's decision.

                                             Respectfully submitted,

                                             ROSENTHAL PAUERSTEIN
                                             SANDOLOSKI AGA THER LLP
                                             755 E. Mulberry, Suite 200
                                             San Antonio, Texas 78212
                                             Telephone: (210) 225-5000
                                             Facsimile: (210) 354-4034
                                             jpauerstein@rpsalaw.com

                                             ATTORNEYS FOR APPELLANT,
                                             R.D. TIPS, INC.

       R.D. Tips, Inc. recognizes that the Court did not base its decision on this issue, but has
addressed it out of a concern that it may have affected the Court's analysis of the case.
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                     CERTIFICATE OF COMPLIANCE

       The undersigned counsel certifies that this document contains 1,294 words
(counting all parts of the document) as determined by MS Word. The body text is
in 14 point font, and the footnote text is in 12 point font.

                        CERTIFICATE OF SERVICE

      The undersigned counsel hereby certifies that a true and correct copy of the
foregoing Motion For Rehearing was served via United States Mail on this 24th
day of April, 2015, upon the following counsel of record:

                         Eric J. Taube
                         100 Congress Avenue, 18th Floor
                         Austin, Texas 78701

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