Court Opinion

ID: 4688073
Source: CourtListenerOpinion
Date Created: 2021-05-19 06:16:50.717966+00
Date Added: 2024-06-11T08:04:45.536074
License: Public Domain

CONDITIONALLY GRANT and Opinion Filed May 11, 2021

                                   S   In The
                            Court of Appeals
                     Fifth District of Texas at Dallas
                               No. 05-21-00115-CV

       IN RE COMMERCIAL CREDIT GROUP INC. AND ARTHUR
                     CASTANON, Relators

          Original Proceeding from the 429th Judicial District Court
                            Collin County, Texas
                    Trial Court Cause No. 429-05562-2020

                        MEMORANDUM OPINION
                   Before Justices Schenck, Nowell, and Garcia
                            Opinion by Justice Garcia
      In this original proceeding, relators seek a writ of mandamus asking this Court

to vacate the trial court’s order denying their Rule 91a motion to dismiss. After

reviewing the petition, the real party in interest’s response, and the mandamus

record, we conditionally grant the writ.

                                   BACKGROUND

      The underlying suit arises out of the purchase and financing of a trailer that

was subsequently discovered to be a different type of trailer than originally

advertised. The purchaser and real party in interest, Heavy Haul XS (“Heavy Haul”)

sued relators Commercial Credit Group, Inc. (“CCG”) and Arthur Castanon
(“Castanon”) for, inter alia, fraud and breach of contract. Relators responded that the

claims had been released and the transactions ratified and moved to dismiss. The

trial court’s denial of that motion is at issue here.

A.    The Purchase

      In 2018, Castanon, a CCG employee, assisted Heavy Haul with the purchase

of a trailer that had been advertised as a 2010 Cozad. Heavy Haul financed the

purchase through CCG, executing a promissory note and security agreement (the

“Purchase Note”).

      On April 12, 2019, after having the trailer weighed to obtain DOT permits,

Heavy Haul discovered that the trailer was a Joshua trailer, not a 2010 Cozad. Heavy

Haul subsequently met with Castanon to discuss the costs of converting the trailer

and refinancing the loan to cover the conversion cost.

      The parties reached an agreement and on July 25, 2019, Heavy Haul entered

into another promissory note and security agreement with CCG (the “Refinance

Note”). Under the Refinance Note, Heavy Haul “waive[d] any claim(s) whatsoever

[it] may have had against [CCG].” Heavy Haul also executed a stand-alone release

in connection with the Refinance Note (the “Refinance Release”).

B.    The Refinance Release

      The Refinance Release, dated July 25, 2019, provides for a complete release

of any existing or potential claims:

                                           –2–
      [Heavy Haul] hereby FOREVER, FINALLY, FULLY AND
      COMPLETELY RELEASES, RELIEVES, ACQUITS, REMISES,
      AND DISCHARGES CCG and its successors, predecessors and
      assigns, affiliated companies, subsidiary companies, parent companies,
      past and present employees, agents, partners, representatives, attorneys,
      accountants, directors, shareholders, officers, and any other person
      acting in his or her individual or representative capacities (the
      “Releasees”) from any and all liens, losses, claims, debts, liabilities,
      demands, obligations, acts, agreements, litigation, reports, costs
      and expenses (including, without limitation, attorneys’ fees),
      damages, injuries, suits, actions or causes of action of whatever
      kind or nature, whether known or unknown, suspected or
      unsuspected, contingent or fixed, from the beginning of time until
      the date of this Release.
(Emphasis added).

C.    The Amendment
      In April 2020, Heavy Haul allegedly received further confirmation that the

trailer was not a Cozad. Consequently, it negotiated an amendment to the Refinance

Note (the “Amendment”).

      The Amendment, executed on June 24, 2020, states that the Refinance Note

and Release “are ratified and confirmed and shall remain in full force and effect.”

Heavy Haul also “acknowledges, warrants and agrees [its] indebtedness [to CCG] is

a valid and enforceable obligation . . . without any defense, offset, or counterclaim

whatsoever . . . .”

      The Amendment also includes another comprehensive release of any potential

claims Heavy Haul had or might have had against CCG:

      [Heavy Haul] hereby FOREVER, FINALLY, FULLY AND
      COMPLETELY RELEASES, RELIEVES, ACQUITS, REMISES,
      AND DISCHARGES CCG and its successors, predecessors and
                                        –3–
           assigns, affiliated companies, subsidiary companies, parent companies,
           past and present employees, agents, partners, representatives, attorneys,
           accountants, directors, shareholders, officers, and any other person
           action in his or her individual or representative capacities (the
           “Releasees”), from any and all liens, losses, claims, debts, liabilities,
           demands, obligations, acts, agreements, litigation, reports, costs
           and expenses (including, without limitation, attorneys’ fees),
           damages, injuries, suits, actions or causes of action of whatever
           kind or nature, whether known or unknown, suspected or
           unsuspected, contingent or fixed, from the beginning of time until
           the date of this Release.
(Emphasis added).
D.         The Lawsuit
           Several months after it executed the Amendment, Heavy Haul sued CCG and

Texhoma Commercial Titles, LLC.1 Heavy Haul’s petition seeks recovery for

CCG’s alleged conduct before Heavy Haul entered into the releases, including:

           1) Fraud and Fraudulent Inducement: Defendants allegedly made “false
           and material representations about the Trailer’s year, make, weight, and
           vehicle identification number.”
           2) Fraud by Nondisclosure: Defendants allegedly “concealed or failed
           to disclose material facts related to the Trailer, including but not limited
           to its year, make, weight, and other aspects of its history.”

           3) Negligent Misrepresentation: Defendants allegedly misrepresented
           “the Trailer was a 2010 Cozad and properly titled.”
           4) Money Had and Received and Conversion: CCG is allegedly not
           entitled to money paid under the contracts related to the Trailer.

           5) Civil Conspiracy: Defendants allegedly conspired to conceal the
           nature and character of the Trailer.
           6) Breach of Contract: CCG allegedly breached the Purchase Note,
           Refinance Note, and Amendment by misrepresenting material terms of

     1
         Texhoma is not a party to this original proceeding.

                                                      –4–
      those contracts—all of which concerned the nature and character of the
      Trailer.
      CCG answered and asserted several affirmative defenses, including release,

waiver, laches, and ratification. CCG also counterclaimed for breach of contract and

asserted third-party claims against the two individuals who incorporated and operate

Heavy Haul.

E.    CCG’s Motion to Dismiss
      CCG also moved to dismiss Heavy Haul’s claims pursuant to Rule 91a. See

TEX. R. CIV. P. 91a. The motion challenged Heavy Haul’s claims for fraud and

fraudulent inducement, fraud by nondisclosure, negligent misrepresentation, money

had and received, conversion, conspiracy, and breach of contract. CCG asserted that

all these claims relate to the alleged fraud concerning the make and model of the

trailer that Heavy Haul admitted that it discovered on April 12, 2019. According to

CCG, Heavy Haul released these claims.

      CCG’s motion notes that Heavy Haul’s petition affirmatively pleads that the

contracts containing the releases are valid and enforceable contracts. The motion

further argues that Heavy Haul ratified and waived any alleged misrepresentation by

modifying the first promissory note and continuing to make payments after the

alleged fraud. Consequently, CCG argued that Heavy Haul’s claims have no basis

in law and should be dismissed.

      Heavy Haul opposed the motion, arguing: (i) the petition provided fair notice

of the claims which “implicate fact questions about intent” and (ii) the “contract that
                                         –5–
contains the general release was procured by fraud.” Heavy Haul’s petition,

however, does not allege that the releases were procured by fraud.

        The trial court conducted a hearing on the motion. After the hearing, Heavy

Haul sought leave to amend its petition to allege fraudulent inducement to the

Refinance Note. 2 The trial court denied CCG’s motion to dismiss without specifying

its reasoning and awarded Heavy Haul its attorney’s fees.

                                             ANALYSIS

        To obtain mandamus relief, relators must show both that the trial court has

clearly abused its discretion and that they have no adequate appellate remedy. In re

Prudential Ins. Co., 148 S.W.3d 124, 135–36 (Tex. 2004) (orig. proceeding).

Mandamus review is available when a trial court’s misapplication of the law results

in the denial of a motion to dismiss under Rule 91a. See In re Hous. Specialty Ins.

Co., 569 S.W.3d 138, 139 (Tex. 2019) (orig. proceeding); In re Essex Ins. Co., 450
S.W.3d 524, 528 (Tex. 2014) (orig. proceeding). In such a case, “mandamus relief

is appropriate to spare private parties and the public the time and money utterly

wasted enduring eventual reversal of improperly conducted proceedings.” Hous.

Specialty Ins., 569 S.W.3d at 142.

    2
      Specifically, the hearing occurred on January 14, 2021 and the motion for leave to amend was filed
on January 21. On January 28, the same day as the court’s order denying the motion, Heavy Haul filed
supplemental briefing and argued that the “third note,” defined collectively as “a writing and amendment”
was procured by fraud. The requested pleading amendment and related arguments, however, were untimely
and not properly before the court. See TEX. R. CIV. P. 91a.5 (b)–(c) (court must not consider amendment
not filed at least 3 days before the hearing).

                                                  –6–
      A trial court should dismiss a claim based on the pleadings if “it has no basis

in law or fact.” TEX. R. CIV. P. 91a.1 “A cause of action has no basis in law if the

allegations, taken as true, together with inferences reasonably drawn from them, do

not entitle the claimant to the relief sought.” Id. This determination is “based solely

on the pleading of the cause of action, together with any pleading exhibits” the

plaintiff attaches to the petition. TEX. R. CIV. P. 91a.6.

      Rule 91a “permits motions to dismiss based on affirmative defenses if the

allegations, taken as true, together with the inferences reasonably drawn from them,

do not entitle the claimant to the relief sought.” Bethel v. Quilling, Selander, Lownds,

Winslett & Moser, P.C., 595 S.W.3d 651, 656 (Tex. 2020). In other words, if a “trial

court [does] not need to look outside [the] pleadings to determine whether [a pleaded

defense] applied to the alleged facts,” then a Rule 91a motion is proper to seek a

prompt legal determination about whether the defense bars recovery. Id.; see also

Sabre Travel Int’l, Ltd. v. Deutsche Lufthansa AG, 567 S.W.3d 725, 736–41 (Tex.

2019) (considering federal preemption affirmative defense in the context of a Rule

91a motion); Estate of Mathis, 543 S.W.3d 927, 931–32 (Tex. App.—Eastland 2018,

no pet.) (holding that “[w]ithout a claim asking the trial court to revoke the [release

in the] settlement agreement,” the petition “did not have a basis in law.”).

      The Purchase Note, the Refinance Note, and Amendment all contain

Delaware choice of law provisions. In applying a contractual choice-of-law

provision, Texas courts apply the substantive law of the choice-of-law provision but

                                          –7–
apply Texas law to matters of remedy and procedure. McAffee, Inc. v. Agilysys, Inc.,

316 S.W.3d 820, 824 (Tex. App.—Dallas 2010, no pet.); CMA-CGM (America), Inc.

v. Empire Truck Lines, Inc., 416 S.W.3d 495, 507 (Tex. App.—Houston [1st Dist.]

2013, no pet.). Therefore, Delaware law applies to the release, but Texas law governs

the motion to dismiss.

      Delaware courts recognize general releases. Deuley v. DynCorp. Int’l, Inc., 8
A.3d 1156, 1163 (Del. 2010). Under Delaware law, a general release is one which is

intended to cover everything—what the parties have in mind, as well as what they

do not have in mind. Corporate Prop. Assocs. 6 v. Hallwood Grp. Inc., 817 A.2d
777, 779 (Del. 2003). “In construing a release, the intent of the parties as to its scope

and effect are controlling, and the court will attempt to ascertain their intent from

the overall language of the document.” Adams v. Jankouskas, 452 A.2d 148, 156

(Del. 1982). If the language of the release is clear, it will be given effect. Corporate

Prop., 817 A.2d at 789.

       A valid release operates as a complete bar to any later action based upon

matters covered in the release. Seven Invs. LLC v. AD Capital, LLC, 32 A.3d 391,

396 (Del. Ch. 2011). Such releases “are an important tool for settling disputes

precisely because they are designed to provide ‘complete peace’ among the parties

and allow them to move on with certainty about the resolution of released matters.”
Id. at 397. Therefore, if a claim falls within the plain language of the release, the

                                          –8–
claim should be dismissed. See, e.g., Deuley, 8 A.3d at 1163–65 (affirming Rule

12(b)(6) dismissal based on release).

        When a plaintiff asserts that the release itself was induced by the defendant’s

fraud, “the party seeking enforcement of the release bears the burden of proving that

the released fraud claim was within the contemplation of the releasing party.” 3 E.I.

DuPont de Nemours & Co. v. Fla. Evergreen Foliage, 744 A.2d 457, 461 (Del.

1999). In E.I. Dupont, the Delaware Supreme Court considered whether a general

release of all claims, whether known or unknown, in a settlement agreement,

following a preamble alluding to the action being settled, prevented a future claim

for fraudulent inducement. Focusing on whether a releasee should be held to “release

a claim for fraud in the execution of the release itself,” the court decided it should

not. Id. 460. To this end, the court held that “if one party is to be held to release a

claim for fraud in the execution of the release itself, the release should include a

specific statement of exculpatory language referencing the fraud.” Id. at 461.

        In Seven Investments, LLC v. AD Capital, LLC, the court discussed the E.I.

Dupont general rule, and clarified that, as with other circumstances where the

defendant has the burden of proof, a fraud allegation does not preclude the granting

of a motion to dismiss based on release. See Seven Investments, LLC, 32 A.3d at

    3
       Fraudulent inducement in Delaware requires proof of: “1) a false statement or misrepresentation; 2)
that the defendant knew was false or made with reckless indifference to the truth; 3) the statement induced
the plaintiff to enter the agreement; 4) the plaintiff's reliance was reasonable; and 5) the plaintiff was injured
as a result.” Lord v. Sander, 748 A.2d 393, 402 (Del. 2000).
                                                      –9–
396–97 (discussing in the context of a 12(b)(6) motion to dismiss). The court noted

that the DuPont case does not require that “the Court credit a bare allegation that a

release was induced by fraud and therefore deny a motion to dismiss in the face of

(i) the plain language of the release or (ii) allegations in the complaint that establish

the defense or rule out any other reasonably conceivable inference.” Id. at 397.

Instead, when a motion to dismiss relies upon affirmative defenses, such as waiver

and release, “the Court may dismiss a claim if the plaintiff includes in its pleadings

facts that incontrovertibly constitute an affirmative defense to a claim.” Id. The court

then concluded that the fraud claim at issue was included in the general release. Id.

at 398.

      Here, the pleadings include facts that incontrovertibly constitute a defense to

Heavy Haul’s claims. The petition alleges that “the contract that contains the release

was procured by fraud.” The alleged fraud is based on Heavy Haul’s April 12, 2019

discovery that the trailer was a Joshua and not a Cozad. This discovery was the

impetus for the Refinance Agreement and then the Amendment in which Heavy Haul

released all claims arising out of the alleged fraud. Because Heavy Haul sought and

negotiated refinancing of its indebtedness based on the fact that the trailer was not a

Cozad, the released claims were clearly within Heavy Haul’s contemplation as the

releasing party. See E.I. Dupont, 744 A.2d at 461. Moreover, the plain language of

the releases clearly encompasses and bars Heavy Haul’s claims related to its initial

                                         –10–
purchase of the trailer. See Adams, 452 A.2d at 156; Seven Investments, 32 A.3d at

396.

        Heavy Haul argues that the issue is moot because it filed an amended petition

prior to the petition for mandamus. As previously noted, the amended petition was

not properly before the court at the time of the hearing. Further, it is axiomatic that

if the dismissal motion had been granted, there would be no amended petition. 4

        In addition, Heavy Haul argues that there are fact questions concerning “the

requisite intent for ratification . . . fraud and duress in relators’ inducement of the

purported release . . . [and] the enforceability of the purported release.” The

pleadings demonstrate otherwise.

        It is undisputed that Heavy Haul’s claims are predicated on its April 2019

discovery that the trailer was not a Cozad. The pleadings further demonstrate that

Heavy Haul subsequently released all claims arising out of this discovery and did so

in two successive transactions. The releases are comprehensive, covering all claims

from the beginning of time until the date of the release. In the Amendment, Heavy

Haul acknowledges that its indebtedness is a valid and enforceable obligation

“without any defense offset, or counterclaim whatsoever.” The trial court need not

    4
      Our record includes the motion for leave to amend and the amended petition but does not include an
order granting leave to amend. But even if we consider the untimely filed amendment, it does not affect our
analysis. The amended petition claims Heavy Haul was induced to enter the first and third notes on March
26, 2020. But the alleged fraud is still predicated on Heavy Haul’s April 2019 discovery that the trailer was
not a Cozad. The pleading also references (and thereby acknowledges) the Amendment (executed on June
24, 2020) but does not allege fraud in connection with the Amendment. The release in the Amendment, as
with all prior releases, encompasses all of Heavy Haul’s claims.
                                                   –11–
look outside the pleadings to conclude that relators’ affirmative defense of release

bars Heavy Haul’s recovery. See Bethel, 595 S.W.3d at 656.

        Finally, Heavy Haul insists that relators have not demonstrated that they lack

an adequate appellate remedy because they have at least four more opportunities to

re-urge their affirmative defenses in the trial court, in addition to traditional appellate

remedies thereafter. This argument is not persuasive. Requiring relators to engage

in extensive litigation over claims that have no basis in law or fact would result in

the unnecessary expenditure of time and other resources and contravenes the purpose

of Rule 91a. Such senseless expenditure does not constitute an adequate remedy on

appeal. See Hous. Specialty Ins., 569 S.W.3d at 142.

        Heavy Haul’s claims are within the scope of the releases and have no basis in

law or fact. See TEX. R. CIV. P. 91a. There is no adequate remedy on appeal.

Therefore, the trial court abused its discretion in denying the motion to dismiss and

relators are entitled to mandamus relief. See Prudential, 148 S.W.3d at 135–36.

        Relators may also be entitled to attorney’s fees. Rule 91a.7 provides that “the

court may award the prevailing party . . . all costs and necessary attorney fees . . . .” 5

See TEX. R. CIV. P. 91a.7. Therefore, the trial court should convene a hearing to

5
  The Rule previously provided that an attorney’s fees award to the prevailing party was mandatory. See
Weizhong Zheng v. Vacation Network, Inc., 468 S.W.3d 180, 187 (Tex. App.—Houston [14th Dist.] 2015,
pet. denied). But the Rule was amended for cases commenced after September 1, 2019 to say that the court
“may” award fees, rather than the court “must” award fees as required under the former version of the Rule.
See TEX. CIV. PRAC. & REM. CODE ANN. § 30.021; Tex. Sup. Ct. Order, Misc. Docket No. 19-9108 (eff.
Sept. 1, 2019); TEX. R. CIV. P. 91a.7.
                                                  –12–
consider evidence regarding costs and fees to determine the amount, if any, to award

relators as the prevailing parties. See TEX. R. CIV. P. 91a.7.

                                     CONCLUSION

      We conclude the trial court abused its discretion by denying relators’ motion

to dismiss. We conditionally grant relators’ petition for writ of mandamus and direct

the trial court to issue a written order, within fifteen (15) days of the date of this

opinion (i) vacating its January 28, 2021 order denying relators’ motion to dismiss,

(ii) granting relators’ motion to dismiss and dismissing the claims of the real party

in interest, and (iii) setting a hearing to determine the amount, if any, of costs and

reasonable attorney’s fees relators are entitled to recover. We are confident the trial

court will comply, and the writ will issue only if it fails to do so.

                                             /Dennise Garcia/
                                             DENNISE GARCIA
                                             JUSTICE

210115F.P05

                                          –13–