Court Opinion

ID: 4994828
Source: CourtListenerOpinion
Date Created: 2021-09-27 07:19:38.849842+00
Date Added: 2024-06-11T08:16:47.347375
License: Public Domain

In the
                   Court of Appeals
           Second Appellate District of Texas
                    at Fort Worth
                 ___________________________
                      No. 02-20-00116-CV
                 ___________________________

BRAXTON MINERALS II, LLC AND ROBERT SCOTT BAUER, Appellants

                                V.

           PENN INVESTMENT FUNDS, LLC, Appellee

              On Appeal from the 141st District Court
                      Tarrant County, Texas
                  Trial Court No. 141-290089-17

              Before Birdwell, Womack, and Walker, JJ.
              Memorandum Opinion by Justice Birdwell
                           MEMORANDUM OPINION

      Appellee Penn Investment Funds, LLC (PIF) won a summary judgment on its

fraud claim against appellants Robert Scott Bauer and his company Braxton Minerals II,

LLC. On appeal, Bauer and Braxton contend that deficiencies in PIF’s proof of

damages precluded summary judgment. They also maintain that attorney’s fees are not

available on a claim of common law fraud. Because we agree, we reverse and remand.

                                 I.     BACKGROUND

      In June 2015, Bauer wrote a check for $30,000 to his former fraternity brother,

who worked for a contractor hired by Antero Resources Corporation. In exchange,

Bauer’s fraternity brother gave him a hard drive full of Antero title opinions concerning

mineral-rich land in West Virginia that Antero was targeting for energy development.

      In 2016, Bauer used the title opinions as the basis for an investment scheme.

Bauer plotted to cheaply acquire the mineral rights to the West Virginia land before

Antero could get to them and then lease the minerals to Antero for a profit. He began

to solicit potential investors, one of whom was Joe Penn, the owner of appellee PIF.

      To make the proposed venture seem more appealing, Bauer made multiple

grandiose representations via text and email about his capabilities, each of which PIF

now alleges was fraudulent. For one, Bauer told Penn that his company Braxton1 had

      1
        The appellant here, Braxton Minerals II, LLC, is one of several Braxton entities
that were involved in this suit. Because there is nothing of consequence to this appeal
that differentiates these entities, we refer to them simply and collectively as Braxton.

                                           2
developed a sophisticated artificial intelligence platform—the first of its kind—that

could automate the title research process for oil and gas exploration, providing a

competitive advantage.    But Penn introduced evidence that there was no such

technology and that the source of Bauer’s competitive advantage was actually the ill-

gotten title opinions from Antero.

       Another set of alleged misrepresentations concerned Bauer’s relationships with

certain players in the oil and gas industry. Bauer touted his bond with a prominent oil

and gas investor named Paul B. Loyd. Bauer variously claimed that Loyd was his

“mentor” and among his “closest friends,” that Loyd had agreed to be Braxton’s

chairman and CEO, and that Loyd was heavily invested in Braxton’s dealings. Bauer

also represented that he had an inside track with Antero. At one point, Bauer stated

that his “pledge brother” ran “Antero’s title and acquisition department” and had

provided Bauer with private information on Antero’s targets for acquisition. At another

point, Bauer claimed he was meeting with Antero’s CEO to seal a $600 million deal,

saying that Bauer had received inside information because “I now have the strongest

relationship that I’ve had with Antero.” But Penn offered evidence that Bauer’s claims

concerning the strength of his relationships were overstated—and indeed, that Bauer

would soon be embroiled in fraud and trade secret litigation with Loyd and Antero that

would result in a multi-million-dollar judgment against Bauer and Braxton and an

injunction barring them from using or divulging Antero’s trade secrets, including the

title opinions.

                                          3
      Finally, to sweeten the proposed deal with Penn further, Bauer offered to do the

West Virginia transaction “at my cost,” promising that 100% of Penn’s capital infusion

would be used to acquire minerals. But Penn proffered at least some evidence that

there was over $225,000 of hidden profit for Bauer and Braxton built into the

transaction.

      Penn and Bauer discussed various terms for a transaction, but they eventually

settled on a short-term loan of $1,668,000 from PIF to Braxton in order to fund the

acquisition of minerals in West Virginia. According to the loan’s term sheet, Braxton

agreed to repay the principal, along with a fee of 10% of the principal, in sixty business

days. To finance the transaction, Penn borrowed $1,778,000 from his uncle Claude at

10% annual interest. Bauer and Penn agreed that Bauer would deed the minerals to

PIF in order to secure the loan until Bauer could lease the minerals to Braxton or sell

them outright to Loyd. And Bauer led Penn to believe that he could complete the lease

to Braxton or sale to Loyd—and thus repay the loan—within ten days, which he

described as a “conservative[]” projection.

      Sometime around October 12, 2016, Bauer and Penn sealed the loan transaction,

and Penn arranged for PIF to transfer the $1,668,000 to Braxton. Braxton drew up

deeds to transfer the minerals to PIF as agreed. However, it is undisputed that neither

the sale to Loyd nor the lease to Antero ever materialized, so Bauer and Braxton never

repaid the loan. Penn began trying to sell the minerals.

                                              4
      Meanwhile, on January 23, 2017, PIF sued Bauer, Braxton, and others for fraud,

unjust enrichment, breach of contract, and declaratory judgment, among other claims.

      On June 14, 2017, PIF arranged to sell the minerals to an Oklahoma oil company

for $1,900,000, which represented a profit on its initial loan, though with some delay

beyond the loan’s original repayment date.

      PIF moved for summary judgment on its fraud claim. Bauer and Braxton filed

an untimely response, which the trial court struck. The trial court granted summary

judgment and awarded PIF actual damages of $332,230.56, attorney’s fees of

$192,236.48, punitive damages of $524,467.04, court costs, and post-judgment interest.

Bauer and Braxton appeal.

                                 II.    DISCUSSION

      Within their first issue, Bauer and Braxton contend that the trial court erred by

granting summary judgment because there were deficiencies in PIF’s evidence of

damages. They assert that PIF’s proof of damages consists solely of its own discovery

responses and a conclusory affidavit from Penn, neither of which PIF may properly rely

on as summary judgment evidence. Bauer and Braxton also maintain that the award of

attorney’s fees should be reversed because attorney’s fees are not available on a claim

of common law fraud, which was the lone cause of action on which PIF obtained

summary judgment. We agree with Bauer and Braxton on both accounts.

      We review an order granting summary judgment de novo, taking as true all

evidence favorable to the nonmovant and indulging every reasonable inference in the

                                             5
nonmovant’s favor. AEP Tex. Cent. Co. v. Arredondo, 612 S.W.3d 289, 293 (Tex. 2020).

As the party moving for traditional summary judgment, PIF had the burden to prove

that no genuine issue of material fact exists and that it is entitled to judgment as a matter

of law. Id. “When a movant meets that burden of establishing each element of the

claim or defense on which it seeks summary judgment, the burden then shifts to the

non-movant to disprove or raise an issue of fact as to at least one of those elements.”

Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 511 (Tex. 2014). If

the movant does not satisfy its initial burden, the burden does not shift, and the non-

movant need not respond or present any evidence. Id. “This is because summary

judgments must stand or fall on their own merits, and the non-movant’s failure to

answer or respond cannot supply by default the summary judgment proof necessary to

establish the movant’s right to judgment.” Id. at 511–12 (cleaned up). “Thus, a non-

movant who fails to raise any issues in response to a summary judgment motion may

still challenge, on appeal, the legal sufficiency of the grounds presented by the movant.”

Id. at 512 (cleaned up).

       To prevail on a fraud claim, a plaintiff must show: (1) the defendant made a

material representation that was false; (2) the defendant knew the representation was

false or made it recklessly as a positive assertion without any knowledge of its truth;

(3) the defendant intended to induce the plaintiff to act upon the representation; and

(4) the plaintiff actually and justifiably relied upon the representation and suffered injury

as a result. JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648, 653–

                                             6
54 (Tex. 2018). As to injury, “Texas recognizes two measures of direct damages for

common-law fraud:        the out-of-pocket measure and the benefit-of-the-bargain

measure.” Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41,

49 (Tex. 1998) (op. on reh’g). “The former derives from a restitutionary theory while

the latter derives from an expectancy theory.” Zorrilla v. Aypco Constr. II, LLC, 469

S.W.3d 143, 153 (Tex. 2015) (cleaned up).          “Benefit-of-the-bargain damages are

measured by the difference between the value as represented and the value received,

allowing the injured party to recover profits that would have been made had the bargain

been performed as promised.” Id.

       PIF claimed that it was entitled to $349,126.69 in damages in connection with its

loan to Bauer and Braxton and the delay before the loan was repaid. PIF also sought

$93,040.11 in damages for the cost of prolonging its funding agreement with Claude,

who had lent PIF $1,778,000 at 10% annual interest in order to finance PIF’s

transaction with Braxton.

       As factual support for these numbers, PIF relied primarily on its own responses

to requests for disclosure. But a party may not use its own responses to requests for

disclosure as summary judgment proof. Abdo v. Richmond Stop Food Mart, No. 01-20-

00031-CV, 2021 WL 3358017, at *3 (Tex. App.—Houston [1st Dist.] Aug. 3, 2021, no

pet. h.) (mem. op.); Stauder v. Nichols, No. 01-08-00773-CV, 2010 WL 2306385, at *7

(Tex. App.—Houston [1st Dist.] June 10, 2010, no pet.) (mem. op.); see also Yates v.

Fisher, 988 S.W.2d 730, 731 (Tex. 1998) (same as to interrogatory responses).

                                            7
      PIF also relied on an affidavit drafted by Penn. But in his affidavit, Penn made

no effort to quantify PIF’s damages; he simply declared that PIF incurred a variety of

damages without factually explaining his conclusion. “A conclusory statement is one

that does not provide the underlying facts to support the conclusion.” Atmos Energy

Corp. v. Paul, 598 S.W.3d 431, 467 (Tex. App.—Fort Worth 2020, no pet.). “Conclusory

statements are not proper summary judgment proof.” Id. Without any valid numerical

support for its liquidated damages, we cannot say that PIF conclusively proved the

damages element of its case. See, e.g., Sung Uh Kang v. Jin Song, No. 02-15-00148-CV,

2016 WL 4903271, at *3 (Tex. App.—Fort Worth Sept. 15, 2016, no pet.) (mem. op.).

      PIF also claimed that it was entitled to $192,236.48 of attorney’s fees that it

incurred in prosecuting its suit. However, PIF moved for and obtained summary

judgment solely on its fraud claim, and a plaintiff may not recover attorney’s fees in a

common-law fraud action. Alexander v. Kent, 480 S.W.3d 676, 698 (Tex. App.—Fort

Worth 2015, no pet.) (citing MBM Fin. Corp. v. The Woodlands Operating Co., L.P., 292

S.W.3d 660, 667 (Tex. 2009), among others).2

      We therefore conclude that the summary judgment was in error. We sustain

Bauer and Braxton’s first issue. This renders it unnecessary to consider their second

      2
       There are other potential issues with PIF’s evidence of damages, but the
foregoing discussion suffices to demonstrate that PIF has not shown that it is entitled
to judgment as a matter of law.

                                           8
issue and their other arguments attacking the summary judgment, which would afford

them no greater relief.

                                III.   CONCLUSION

      We reverse the trial court’s judgment and remand the case for further

proceedings consistent with this opinion.

                                                  /s/ Wade Birdwell

                                                  Wade Birdwell
                                                  Justice

Delivered: September 23, 2021

                                            9