Date: 07-28-2011

Case Style: Robert B. Allen v. Devon Energy Holdings, L.L.C.

Case Number: 01-09-00643-CV

Judge: Harvey Brown

Court: Texas Court of Appeals, First District on appeal from the 190th District Court of Harris County

Plaintiff's Attorney: Gregg C. Laswell, J. Stephen Barrick and Justin Brett Busby

Defendant's Attorney: Wallis M. Hampton and Charles W. Schwartz for Devon Energy Holdings, L.L.C. Formerly known as Cheif Holdings, LLC

Scott P. Stolley, Craig A. Haynes, Michael Stockham and Carrie T. Carter for Trevor D. Rees-Jones

Description: This appeal is from a traditional summary judgment in a securities fraud lawsuit. The dispute arises out of the redemption of a minority interest owned by Robert Allen in a closely-held natural gas exploration and development company, Chief Holdings, LLC. Allen claims that Chief and Trevor Rees-Jones, Chief’s manager and majority owner, fraudulently induced him to redeem his interest two years before the company sold for almost 20 times the redemption sales price. Allen also sued Devon Energy Holdings, L.L.C.[1] In addition to his claims for fraud, Allen brought claims for breach of fiduciary duty, violations of the Texas Securities Act, and shareholder oppression.

Rees-Jones and Devon filed traditional motions for summary judgment asserting a variety of defenses. Their motions attacked both Allen’s liability theories and his claimed damages. On the liability issues, Rees-Jones and Devon focused their defense on disclaimers and other provisions in the redemption agreement, and contended that the agreement barred Allen’s fraud claims by negating reliance or materiality as a matter of law. They further contended that no fraud occurred and that no fiduciary relationship existed between the parties. On the damages issues, Rees-Jones contended that Allen’s damage claims were impermissibly speculative. The trial court granted the motions, and Allen appealed.

We hold that the redemption agreement does not bar Allen’s claims, a fact issue exists as to fraud and the existence of a fiduciary relationship, and the damages are not impermissibly speculative. We also hold the trial court properly granted summary judgment on Allen’s shareholder oppression claim and on three specific alleged misrepresentations discussed below. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

Factual Background

Chief experienced phenomenal growth from its start-up to its sale for $2.6 billion. Both Rees-Jones and Allen became millionaires as a result of that growth.

Allen asserts that Rees-Jones, his former law partner and Chief’s manager and majority owner, induced him to sell his ownership interest in Chief by making misrepresentations and failing to disclose material information. He primarily claims that Rees-Jones withheld information concerning technological advances in horizontal drilling and Chief’s significant lease acquisitions in an expanded area of an existing field. This technology increased the likelihood of successful drilling in the expansion area. Allen asserts that these undisclosed facts directly impacted Chief’s future business prospects and would have caused him to reject Chief’s redemption offer. If he had not sold his interest at the redemption price and had held it until Chief was purchased by Devon Energy in 2006, his interest would have been worth over $100 million more than he was paid.

Rees-Jones asserts that Chief’s success was a result of his efforts. He built Chief from scratch and assumed all the risks when he left the practice of law to seek his fortune in the oil and gas industry. According to Rees-Jones, the sale price two years after the redemption reflects changing market conditions and improvements in technology that were speculative at the time of the redemption. Allen, as a sophisticated investor and oil and gas lawyer, knew these changes were possible and was given the opportunity to obtain any additional information he needed to make an informed decision. Rees-Jones further asserts Allen preferred not to assume these risks and instead cashed in his modest investment in Chief into a lottery-size windfall that paid him over $8 million.

Allen and Rees-Jones first became acquainted while they were partners at a law firm. Allen is an oil and gas transactions lawyer and Rees-Jones formerly practiced as a bankruptcy lawyer. They were casual friends. In 1984, approximately two years after Allen and Rees-Jones first met, Rees-Jones left his legal practice and went into the oil and gas industry.

A. The Development of Chief

In 1994, Rees-Jones formed a predecessor to Chief to pursue natural gas exploration and production in North Texas. He solicited Allen to invest in the company. Allen became an 8% equity owner in return for an investment of $700 and putting-up a $34,300 certificate of deposit as collateral for a line of credit. It was the single largest investment he had ever made. Three other individuals also invested in Chief. Rees-Jones invested $6,000 and his “sweat equity” as the sole manager in return for an ownership interest of over 50%.

Chief became successful under Rees-Jones’s management due to its success in the Barnett Shale, a geological formation near Fort Worth. Chief drilled over 100 wells in the area and become the second largest operator in the field based on daily gas production. By July 2001, its fair market value had grown to an estimated $8.5 million. Chief offered its investors the opportunity for a partial buyout of their membership interests so two key employees could participate in a stock ownership incentive plan. Allen accepted the company’s offer to redeem 10% of his investment, reducing his interest to 7.2% in exchange for over $62,000.

B. The Redemption Offer and Agreement

In November 2003, Rees-Jones called Allen to inform him that Chief was offering to redeem the investors’ remaining stock. In a follow-up letter dated November 20, 2003, Rees-Jones, on behalf of Chief, explained the reasons for and terms of the redemption offer. Rees-Jones attached two documents to his letter: (1) a letter by Phalon George Capital Advisors opining on Chief’s market value and (2) an appraisal of Chief’s existing gas reserves and future drilling prospects by Haas Petroleum Engineering Services, Inc., effective as of October 1, 2003. The Phalon report included discounts for the sale of a minority interest and for lack of marketability. Phalon estimated that Chief had a net asset value of $138.3 million, after subtracting liabilities, and the minority members’ interests were worth approximately $1.13 million per 1% interest after discounts. The Haas reserve analysis included a table of Chief’s undeveloped acreage, including leases located in the expansion area outside the Barnett Shale’s main core, but did not assign a value to reserves in the expansion area because production was considered too speculative.

Based on these evaluations, Chief offered Allen approximately $8.2 million for his 7.2% interest in the company. The November 2003 letter also included Rees-Jones’s pessimistic assessment of a number of facts and events that could negatively impact Chief’s value in the future, including its shift from known production in the Barnett Shale’s “core” area to less-certain production in the outer boundaries of the core in the “expansion” or “non-core” areas.

Rees-Jones also stated that Chief’s first “expansion-area” well appeared to be a dry hole drilled at a cost of $1.4 million. The dozen or so wells drilled by other companies in the expansion area “when taking into consideration the total capital expended in drilling and completing these wells, would show to be non-economic.” Rees-Jones stated these wells indicated that “further technological advancement needs to be made in order for the Barnett Shale in the ‘expansion’ area to become economic,” specifically advancements in horizontal drilling.

Allen asserts that a series of events occurred in the seven months between the November 2003 offer and the June 2004 redemption that were not disclosed by Rees-Jones and Chief, but would have materially impacted his decision to redeem his interest. According to Allen, Rees-Jones should have disclosed the following events and information:

· In January, one of Chief’s competitors reported during a lunch presentation a highly successful horizontal well. Chief’s geologist attended the meeting and reported the success of the horizontal wells back to Rees-Jones and the rest of Chief’s management.



· In February, Merrill Lynch analysts met with Rees-Jones and Chief’s management team to discuss “strategic alternatives and financing opportunities” for Chief and to present a case study for an initial public offering. In its report, Merrill Lynch noted that horizontal well drilling was expanding in the Barnett Shale both in the core and expansion areas, and that Devon Energy had identified over 1,000 potential horizontal locations in the area. Chief had significant “running room” due, in part, to the as-yet “[u]ntapped horizontal drilling potential.” In contrast to Phalon’s October 2003 valuation of $138 million, Merrill Lynch concluded that Chief was worth more than twice that, in the range of $325-$400 million based on its net asset value.



· In February, Rees-Jones received an email informing him that a competitor in the area, XTO, had purchased acreage in the expansion area for a large premium over past sales in the region. The email stated that “If these numbers are right, you guys are knocking on the door of a billion. YEE HA!!!!!!!”



· In March, Rees-Jones instructed his management team by email that they needed to step-up acquisitions in the expansion area due to a competitor’s estimation that they intended to drill 2,000 more wells in the expansion area. Rees-Jones states that “I don’t see any reason why we shouldn’t get those locations for Chief! No sense defaulting out to XTO or any other latecomer.”



· In April, Morgan Stanley issued an analyst report discussing a widespread increase in confidence in the Barnett Shale expansion area due to the success of horizontal drilling. Haas forwarded the report by email to Rees-Jones. Morgan Stanley described the Barnett shale as “one of the few domestic areas with sizeable, remaining resource potential” and “the hottest gas play in Texas.” The area had now expanded “well beyond the core area to the neighboring counties to the south.” In explaining the expansion, it stated that the industry had been skeptical of the ability to economically develop beyond the core area “[b]ut the latest results from horizontal pilot programs have given participants increased confidence in non-core prospectively.” The report went on to state that there was “growing evidence that horizontal drilling can work with several successful horizontal wells recently drilled in the non-core areas with reserve sizes /production areas on par with those of the core area wells.” The same day he received the report, Rees-Jones instructed his team by email to identify the expansion area with the greatest potential.



· In May, a competitor’s press release and an article from the Fort Worth Star-Telegram circulated to Rees-Jones by email stating that two of Chief’s competitors were expanding their activities in the expansion area due to successful horizontal drilling. One of the reports stated that the Barnett Shale was now the “hottest play” in all of North America due to improvements in horizontal drilling technology. Rees-Jones forwarded these reports by email to his management team with the exclamation, “We need to see if we can get in on this!!!”



· On June 15, 2004, Goldman Sachs issued a report about the Barnett Shale expansion area that was forwarded to Rees-Jones by email. It stated that the stock valuations for three major corporations investing in the Barnett Shale were underpriced due to the continuing successes in the Barnett Shale and stated that Devon Energy’s expansion area had “significant potential” for growth, that it had already successfully drilled 28 wells in the expansion area and that it was planning to drill an additional 50 horizontal wells in that area.



· On June 24, JP Morgan stated in a report that was provided to Rees-Jones by email that “improved horizontal drilling methods in the southern expansion area “are fast unlocking value that could ultimately rival the known recoverable resource” in the core area. JP Morgan reported that “breakthrough completion technologies” had halved well costs and reported a “frenzy surrounding the expansion play.”



· Chief purchased a significant number of leasehold interests in the expansion area between the October appraisals and the June redemption. A privately prepared reserve report indicated that Chief filed 68 new drilling permits and acquired 23,575 lease acres that were not included in the Phalon and Haas reports. In June, Chief spent over $3.5 million on lease acquisitions.



Allen asserts that, as a result of this activity, Rees-Jones’s representation in November 2003 that there were no economic wells outside the core was no longer accurate.

In early June, Rees-Jones notified Allen that Chief was ready to proceed with the redemption. According to his affidavit testimony, Allen asked whether the valuations needed to be updated and Rees-Jones responded that it “was not necessary.” Rees-Jones did not disclose any of the activity that occurred after the November 2003 redemption offer. Allen stated in his affidavit that, unknown to him at the time, Chief’s “non-core acreage almost doubled” between the initial valuation in October 2003 and the redemption in June 2004.

Chief provided Allen with a written redemption agreement for the first time in June 2004. The parties did not exchange drafts. Rees-Jones “insisted” that the contract be signed by the end of June. Allen stated in his affidavit that he had three days to review the agreement before signing because, as Rees-Jones was aware, he was on vacation for the remainder of the month. As a result of the sale by Allen and two of the three other investors, Rees-Jones’s interest in Chief increased to 77.19%.

The redemption agreement contained several release clauses which are discussed below, including an “Independent Investigation” paragraph, a general “Mutual Release,” and a merger clause. Allen claims that he was not aware that the written agreement would contain these provisions until he received it because the earlier redemption was not reflected in a written agreement. The agreement set the price based on the November 2003 appraisals “regardless of any subsequent change in value.”

C. Sale to Devon Energy Production Company

In September 2004, shortly after the June redemption, Rees-Jones and Chief’s management team discussed the possibility of an “Exit Strategy” as part of Chief’s management planning meeting. In November 2005, Chief announced that it was for sale. Though Chief redeemed Allen’s interest based on a $138.3 million valuation, Devon Energy purchased Chief for $2.6 billion in May 2006.

There were a number of reasons that the value of Chief substantially increased after the redemption. Rees-Jones told Allen after the 2006 sale that “the change in value was attributable to the advent of horizontal drilling,” that horizontal drilling was the key that “unlocked” the expansion area, and that horizontal drilling had made the expansion area “worth more than he ever conceived.” In his affidavit, Allen denied knowledge of the reports described above, the advancements in horizontal drilling, or the extent of Chief’s leasehold acquisitions.

D. Allen Files Suit

Allen subsequently sued Rees-Jones and Devon. Allen alleged Rees-Jones and Chief made misrepresentations and failed to disclose facts relevant to his determination of whether to redeem his interest. Allen does not assert that Rees-Jones misrepresented or failed to disclose information concerning whether the redemption price paid for his interest represented its true value. Rather, his claim is that he would not have sold his interest in June 2004 if he had known all the material facts that would impact his decision as an investor. In other words, he asserts that the misrepresentations and omissions concerned Chief’s future prospects, and had he known of these prospects he would have held onto his ownership interest. As Allen testified in his deposition, the picture of Chief provided to him in November 2003 was significantly different than the reality in June 2004, and if that updated picture had “been disclosed, I would not have sold.”

After deposing Allen but before Rees-Jones was deposed, Rees-Jones and Devon filed traditional motions for summary judgment asserting a variety of grounds. The trial court granted the motions.

Standard of Review

We review a trial court’s summary judgment de novo. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). If a trial court grants summary judgment without specifying the grounds for granting the motion, we must uphold the trial court’s judgment if any of the grounds are meritorious. Beverick v. Koch Power, Inc., 186 S.W.3d 145, 148 (Tex. App.—Houston [1st Dist.] 2005, pet. denied). Under the traditional standard for summary judgment, the movant has the burden to show that no genuine issue of material fact exists and that the trial court should grant judgment as a matter of law. See Tex. R. Civ. P. 166a(c); KPMG Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). The motion must state the specific grounds relied upon for summary judgment. See Tex. R. Civ. P. 166a(c); Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 204 (Tex. 2002); Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 912 (Tex. 1997). A defendant moving for traditional summary judgment must conclusively negate at least one essential element of each of the plaintiff’s causes of action or conclusively establish each element of an affirmative defense. Sci. Spectrum, Inc., 941 S.W.2d at 911. When reviewing a summary judgment motion, we must (1) take as true all evidence favorable to the nonmovant, and (2) indulge every reasonable inference and resolve any doubts in the nonmovant’s favor. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life Accid. Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).

Contractual Release of Claims

In his first and fourth sub-issues, Allen makes two contentions regarding the effect of the disclaimers and releases in the redemption agreement on his fraud claims. First, he maintains that fraudulent inducement invalidates the releases. Second, he asserts that the redemption agreement does not satisfy the test for a disclaimer to negate reliance, an element of fraudulent inducement, as a matter of law.[2] In response, Rees-Jones and Devon maintain that the disclaimers and releases bar not only Allen’s fraud claims, but also his breach of fiduciary duty and shareholder oppression claims.

A. Redemption Agreement Terms

Rees-Jones and Devon rely on three paragraphs in the redemption agreement. Paragraph three, entitled “Independent Investigation” provides that (1) Allen based his decision to sell on his independent due diligence, expertise, and the advice of his own engineering and economic consultants; (2) the Phalon appraisal and the Haas reserve analysis were estimates and other professionals might provide different estimates; (3) events subsequent to the reports might “have a positive or negative impact on the value” of Chief; (4) Allen was given the opportunity to discuss the reports and obtain any additional information from Chief’s employees as well as Phalon and Haas; and (5) the redemption price was based on the Phalon and Haas reports regardless of whether those reports reflected the actual value and regardless of any subsequent change in value since the reports. The Independent Investigation paragraph also includes mutual releases “from any claims that might arise as a result of any determination that the value of [Chief] . . . was more or less than” the agreed redemption price at the time of the closing.

In paragraph eight, entitled “Mutual Releases,” each party releases the other from all claims that “they had or have arising from, based upon, relating to, or in connection with the formation, operation, management, dissolution and liquidation of [Chief] or the redemption of” Allen’s interest in Chief, except for claims for breach of the redemption agreement or breach of the note associated with the redemption agreement.

Paragraph twelve’s merger clause provides that the redemption agreement “supersedes all prior agreements and undertakings, whether oral or written, between the parties with respect to the subject matter hereof.”

B. A Viable Fraudulent Inducement Claim Negates Release Provisions



In his first sub-issue, Allen argues that fraudulent inducement invalidates the release provisions in the redemption agreement. “[F]raud vitiates whatever it touches.” Stonecipher v. Butts, 591 S.W.2d 806, 809 (Tex. 1979); Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990) (stating release is subject to avoidance on the grounds of fraud like any other contract). Fraudulent inducement “is a particular species of fraud” that requires proof of the common law elements of fraud and the existence of a contract between the parties. Haase v. Glazner, 62 S.W.3d 795, 798–99 (Tex. 2001).

Fraudulent inducement is not an absolute defense to a contractual release; a fraudulent inducement claim may be precluded by a waiver or disclaimer of reliance. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 61 (Tex. 2008) (holding that contractual waiver of reliance provision conclusively negated reliance element of fraudulent inducement claim); Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex. 1997) (holding that disclaimer of reliance provision barred claims for fraud based on affirmative statements and non-disclosures). If the disclaimer provision negates reliance as a matter of law, Allen’s fraudulent inducement claim is barred. If Allen’s fraudulent inducement claim is barred, the release provisions bar the remainder of Allen’s claims. We therefore turn to the legal requirements for disclaimer of reliance provisions and the terms of the provisions here to determine whether they precluded Allen’s claims for fraudulent inducement.

C. Disclaimers Under the Redemption Agreement

1. Disclaimers Under Italian Cowboy, Schlumberger, & Forest Oil

We first look to the line of cases addressing the requirements for disclaimers to preclude fraudulent inducement claims. See Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., No. 08-0989, 2011 WL 1445950, at *1, 7 (Tex. Apr. 15, 2011) (concluding that “the contractual language in this case does not disclaim reliance or bar a claim based on fraudulent inducement” because it did not “include an expressed clear and unequivocal intent to disclaim reliance or waive claims for fraudulent inducement”); Schlumberger, 959 S.W.2d at 181 (stating that “a release that clearly expresses the parties’ intent to waive fraudulent inducement claims, or one that disclaims reliance on representations about specific matters in dispute, can preclude a claim of fraudulent inducement”).

In determining these requirements, the Texas Supreme Court has balanced three competing concerns. First, a party should not be able to escape the consequences of its fraud. Dallas Farm Mach. Co. v. Reaves, 307 S.W.2d 233, 238–39 (1957). See also Schlumberger, 959 S.W.2d at 179. A second concern is that the law favors granting parties the freedom to contract knowing that courts will enforce the terms of their contracts. Gym-N-I Playgrounds, Inc. v. Snider, 220 S.W.3d 905, 912 (Tex. 2007); Forest Oil, 268 S.W.3d at 58.[3] A final concern, as explained in Forest Oil, is that a party claiming fraud should not itself have made misrepresentations in the parties’ contract:

After-the-fact protests of misrepresentation are easily lodged, and parties who contractually promise not to rely on extra-contractual statements—more than that, promise that they have in fact not relied upon such statements—should be held to their word. Parties should not sign contracts while crossing their fingers behind their backs.[4]

268 S.W.3d at 60 (emphasis in original). In view of these competing concerns, Texas has not adopted “a per se rule that a disclaimer of reliance automatically precludes a fraudulent-inducement claim.” Forest Oil, 268 S.W.3d at 61; see also Schlumberger, 959 S.W.2d at 181 (“We emphasize that a disclaimer of reliance or merger clause will not always bar a fraudulent inducement claim.”). But a disclaimer of reliance can be effective to preclude a fraudulent inducement claim if the parties’ intent to release such claims “is clear and specific.” Schlumberger, 959 S.W.2d at 179. While Forest Oil identified several factors to weigh to determine if a contract provision precluded a fraudulent inducement claim as a matter of law, an expressed clear and unequivocal intent to disclaim reliance or waive a claim for fraudulent inducement is an absolute requirement. Italian Cowboy, 2011 WL 1445950, at *9. If the disclaimer does not clearly and unequivocally express an intent to preclude a fraudulent inducement claim, the language is not effective to negate reliance and the courts need not review the circumstances surrounding the agreement, namely the remaining Forest Oil factors. Id. at *4, 9 n.8; Forest Oil, 268 S.W.3d at 60. See also Schlumberger, 959 S.W.2d at 179 (stating that clear and unequivocal language is necessary to bar fraudulent inducement claim).[5]

In examining the disclaimers here, we apply “well-established rules of contract interpretation.” Schlumberger, 959 S.W.2d at 179. We look to the writing itself to determine the parties’ true intentions. Italian Cowboy, 2011 WL 1445950, at * 6. We review the totality of the contract and consider all provisions with reference to the whole agreement. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994); Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). We do not look at any one sentence in the redemption agreement in isolation, but consider the agreement and the nature of the disclaimers as a whole. See Coastal Bank SSB v. Chase Bank of Tex., N.A., 135 S.W.3d 840, 843 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (finding that “the nature of the disclaimers” demonstrated that plaintiff could not rely on other party’s representation or silence when disclaimers expressly disclaimed any warranty, stated that plaintiff had not relied on defendant’s representations, and stated that defendant would not have any liability for any representations or omissions); C & A Inv., Inc. v. Bonnet Res. Corp., 959 S.W.2d 258, 263–64 (Tex. App.—Dallas 1997, writ denied) (concluding that plaintiff could not recover on fraud claim when contract contained “ample cautionary language” precluding purchaser’s reliance on representations, including “as is” provision and provision that purchaser had not relied on seller’s statements). Assuming the disclaimer is unambiguous, the question of whether it is adequate to negate the essential element of reliance is a question of law. Italian Cowboy, 2011 WL 1445950, at *6.

2. No Clear and Unequivocal Language

The disclaimer language in the redemption agreement here is not as clear as the disclaimer language in Schlumberger and Forest Oil. For example, the release clause in Forest Oil and Schlumberger each contain a statement that “[N]one of them is relying upon any statement or any representation of any agent of the parties being released hereby.” Forest Oil, 268 S.W.3d at 54 n.4; Schlumberger, 959 S.W.2d at 180. None of the paragraphs in the redemption agreement contain the same clear and unequivocal language.

a. Paragraph Three: “Independent Investigation”

Rees-Jones and Devon contend that the independent investigation clause states that Allen relied exclusively on his own judgment. The clause states that Allen “based his decision to sell” on (1) his own independent due diligence investigation, (2) his own expertise and judgment, and (3) the advice and counsel of his own advisors and consultants.

We cannot agree that the statement of reliance on the identified factors clearly and unequivocally negates the possibility that Allen also relied on information he had obtained from Chief and Rees-Jones. Cf. Italian Cowboy, 2011 WL 1445950, at *8 (noting that in Schlumberger and Forest Oil agreement made clear that complaining party relied only on its own judgment). Consistent with the terms of the redemption agreement, Allen could have relied on both. Indeed, paragraph three acknowledges that Rees-Jones provided information to Allen—the Phalon and Haas reports. The paragraph further invites Allen to ask questions of Chief employees, and, according to his affidavit, he asked Rees-Jones whether the valuation needed updating. It is incongruous to state that he could not rely on the information he was given. The language in paragraph three could reasonably be read in the summary judgment context to imply that Allen not only could, but did, rely on information from Chief.[6] In other words, while the redemption agreement states Allen’s reliance on some facts, it does not disclaim his reliance on other facts. The absence of the words “only,” “exclusively,” or “solely” are of critical importance in this case. Paragraph three, therefore, does not clearly and unequivocally disclaim Allen’s reliance on Rees-Jones’s representations.

b. Paragraphs Three & Eight: Releases

Rees-Jones and Devon argue that paragraphs eight and three contain language that releases Allen’s claims against them and that this language shows that the parties agreed broadly to “disavow[ ] the factual theories he now asserts in his lawsuit.” Paragraph three releases the parties from claims that arise from a determination that the redemption price did not reflect Chief’s market value at closing. This argument misconstrues the nature of Allen’s claims—he is not claiming a misrepresentation of Chief’s value, he is claiming Rees-Jones made misrepresentations and omissions concerning Chief’s future prospects. The language in paragraph three disclaims any claim by Allen based on a change in value from the 2003 appraisal to the date of redemption only; it does not cover Allen’s claims that Rees-Jones and Chief withheld information relating to Chief’s future prospects and potential value.

Paragraph eight, entitled “Mutual Releases,” contains broad language releasing “all claims, demands, rights, liabilities, and causes of action of any kind or nature,” but does not specifically release fraudulent inducement claims or disclaim reliance on Rees-Jones and Chief’s representations. It is true that paragraph eight releases claims “of any kind or nature,” which necessarily includes fraudulent inducement. But the “elevated requirement of precise language” requires more than a general catch-all; it must address fraud claims in clear and explicit language. See Italian Cowboy, 2011 WL 1445950, at *9. A release may be effective to preclude fraudulent inducement claims, even in the absence of a disclaimer of reliance clause, but to do so it must “clearly express the parties’ intent to waive fraudulent inducement claims.” Id. at *5 n.4 (quoting Schlumberger, 959 S.W.2d at 178). The releases in paragraphs three and eight do not.

c. Paragraph Twelve: Merger Clause

The merger clause in paragraph twelve states that the contract is the “final integration of the undertakings of the parties hereto and supersedes all prior agreements and undertakings.” Again, a clear and unequivocal disclaimer of reliance on prior representations is missing from the clause. A generic merger clause by itself is insufficient to negate the element of reliance in a fraudulent inducement claim. Id. at *9.

d. Conclusion on Clear and Unequivocal Language

Rees-Jones and Devon contend that the three paragraphs taken as a whole add up to a clear anti-reliance provision. The redemption agreement, however, does not: (1) state that the only representations that had been made were those set forth in the agreement; (2) contain a broad disclaimer that any extra-contractual representations had been made and that no duty existed to make any disclosures; (3) provide that Allen had not relied on any representations or omissions by Chief; or (4) include a specific “no liability” clause stating that the party providing certain information will not be liable for any other person’s use of the information.

We do not hold that the words “disclaimer of reliance” must be stated in order for a disclaimer to preclude a fraudulent inducement claim or that each one of these issues must be addressed in every disclaimer. See Ins. Co. of Am. v. Jefferson Assocs., Ltd., 896 S.W.2d 156, 161 (Tex. 1995) (stating that “it should not be necessary in every ‘as is’ provision to go into this much detail” as existed in contract in that case to create an enforceable disclaimer). It is sufficient to include (1) a clear and unequivocal disclaimer of reliance; (2) an express waiver specific to fraudulent inducement claims; or (3) an all-embracing disclaimer of any and all representations and any duty to make any disclosures. See Italian Cowboy, 2011 WL 1445950, at *1, 7 (concluding that disclaimer did not “include an expressed clear and unequivocal intent to disclaim reliance or waive claims for fraudulent inducement”); Forest Oil, 268 S.W.3d at 58 (stating that “an all-embracing disclaimer of any and all representations . . . shows the parties clear intent”); Schlumberger, 959 S.W.2d at 181 (stating, “a release that clearly expresses the parties’ intent to waive fraudulent inducement claims, or one that disclaims reliance on representations about specific matters in dispute, can preclude a claim of fraudulent inducement”). But the redemption agreement does none of these.

We conclude that the language in the redemption agreement is not sufficiently clear and unequivocal to disclaim reliance and therefore bar Allen’s fraud claims.

3. The Remaining Forest Oil Factors

a. The Evidence on the Factors

If, as here, an agreement lacks a clear and unequivocal expression of intent to disclaim reliance, it will not preclude a fraudulent inducement claim regardless of the circumstances surrounding the agreement. Italian Cowboy, 2011 WL 1445950, at *4, *9 n.8. Nevertheless, we will consider the remaining Forest Oil factors because circumstances surrounding the redemption agreement provide additional reasons why summary judgment was inappropriate.

Even a clear and unequivocal disclaimer of reliance may not bar a fraudulent inducement claim under certain circumstances. See Forest Oil, 268 S.W.3d at 60–61 (stating that courts must examine contract itself and totality of surrounding circumstances to determine if waiver of reliance provision is binding). Several factors are important in determining the validity of a disclaimer of reliance provision: whether (1) the terms of the contract were negotiated or boilerplate; (2) the complaining party was represented by counsel; (3) the parties dealt with each other at arm’s length; and (4) the parties were knowledgeable in business matters. Id.; see Schlumberger, 959 S.W.2d at 179–81.

The second and fourth factors weigh in favor of Rees-Jones and Devon. The undisputed summary judgment evidence established that Allen is an attorney who specializes in the oil and gas industry and represented himself in the sale of his interest to Chief. Allen even offered to represent Rees-Jones and Chief in the sale of the company two years after the redemption. We conclude an attorney who represents himself in a legal matter in which he has particular expertise cannot claim in hindsight to lack the benefit of counsel. As an oil and gas attorney, Allen was also knowledgeable in business matters specific to the oil and gas industry. Thus, in our consideration of the second and fourth factors, we cannot say that Allen lacked representation or was not sophisticated and knowledgeable about business matters in light of these facts.

The third factor—whether the parties dealt with each other at arm’s length—is disputed, but we must examine this factor at the summary judgment stage by resolving all doubts in Allen’s favor. See Valence Operating, 164 S.W.3d at 661. As discussed below regarding informal confidential relationships, Allen relied heavily on Rees-Jones for advice on his investment and acted as a passive investor. Specifically, Allen testified to his long-established business relationship with Rees-Jones, that Rees-Jones was his sole source of information on Chief’s operations, and that the transaction was not at arm’s length. Based on the evidence presented, we weigh this factor in Allen’s favor and resolve all doubts in his favor.

The evidence relevant to the first factor, whether the parties negotiated the terms of the redemption agreement, is also disputed. Allen in his affidavit states that he received the redemption agreement for the first time on June 19 and that Rees-Jones gave him three days to review and sign it. Rees-Jones and Devon respond that Allen negotiated the agreement because he asked if the valuation needed to be updated before executing the agreement. Allen, however, offered summary judgment evidence that this conversation occurred before he ever saw the contract. He also averred in his affidavit that he relied on Rees-Jones’s oral representation that a new valuation “was not necessary.” Rees-Jones and Devon provided no other evidence to show that the contract was negotiated such as drafts exchanged, changes requested by Allen, or specific terms discussed with Allen.

Additionally, we note that despite the arguments of Rees-Jones and Devon that the paragraphs in question “make up the core of the agreement,” there is no summary judgment evidence that the parties expressly negotiated these specific paragraphs or that Rees-Jones informed Allen that they were an important part of the agreement. Cf. Jefferson Assocs., 896 S.W.2d at 162 (noting that clause was important part of basis of the bargain). Reviewing the evidence in the light most favorable to the nonmovant, we weigh the first factor in Allen’s favor.

On this record, we conclude that although Rees-Jones and Devon established the second and fourth Forest Oil factors (Allen was, in effect, represented by counsel and was knowledgeable in business matters), a fact issue exists on the first and third issues (whether the contract was negotiated and whether the parties dealt with each other at arm’s length). At the summary judgment stage and on this record, we must view these factors in Allen’s favor.

b. Must All Four Forest Oil Factors be Satisfied?

We next determine whether the existence of a fact issue on two of the four Forest Oil factors precludes summary judgment. In other words, must all four factors be satisfied in order for a disclaimer to preclude claims of fraudulent inducement, or is proof of the second and fourth factors alone sufficient for summary judgment. The Court expressly stated that all four factors were satisfied in both Forest Oil and Schlumberger.[7] Forest Oil, 286 S.W.3d at 60; Schlumberger, 959 S.W.2d at 179–80. But, the Court in Forest Oil also described these factual inquires as “factors,” suggesting that they are not absolute requirements to negate justifiable reliance and preclude a fraudulent inducement claim. Forest Oil, 286 S.W.3d at 60. See Ingram v. Deere, 288 S.W.3d 886, 898 (Tex. 2009) (noting that all factors for determining whether partnership was formed need not be satisfied and that totality of circumstances test applies). This court has previously held that the parties’ agreement barred fraud claims as a matter of law even when all the Forest Oil factors are not present. See Atlantic Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 216–17 (Tex. App.—Houston [1st Dist.] 2004, pet denied) (holding disclaimer of reliance barred fraudulent inducement claim where all factors later identified in Forest Oil were satisfied except sophistication of parties).[8] We follow our own precedent that it is not necessary to satisfy each factor provided the parties’ intent to preclude a fraud claim is clear and unequivocal and a sufficient number of factors are satisfied to meet the public policy concerns expressed in Schlumberger and its progeny.

But which factors must be satisfied and how are we to weigh the factors? Or more precisely here, is it sufficient that this is a commercial transaction between sophisticated parties represented by counsel? Neither Schlumberger nor Forest Oil answers these questions. Instead, we find helpful guidance from the Texas Supreme Court’s application of a totality of the circumstances test in another context. Ingram, 288 S.W.3d at 898 (considering whether totality of circumstances test applying factors demonstrated existence of partnership). In Ingram, the Court provided some additional guidelines for balancing factors in a totality of the circumstances test. Id. First, the Court stated that the absence of all the factors would preclude the recognition of a partnership. Id. Second, “even conclusive evidence of only one factor normally” is insufficient to prove the existence of a partnership. Id. Third, and “[o]n the other end of the spectrum, conclusive evidence of all of the . . . factors” does establish the existence of a partnership. Id. “The challenge of the totality-of-the-circumstances test will be its application between these two points on the continuum.” Id.

We find the analysis in Ingram v. Deere helpful because, in both that case and in disclaimer cases, courts must make a legal determination by examining factors as part of a totality of the circumstances test. 288 S.W.3d at 898. In addition to the overarching requirement that the language be clear and unequivocal, we conclude based on the principles in Ingram and Schlumberger that (1) if all four factors are conclusively established (and the requirement of precise language is satisfied), the disclaimer precludes fraudulent inducement as a matter of law, (2) if none of the other four factors are satisfied the disclaimer does not bar a fraudulent inducement claim even if it is clear and unequivocal, and (3) if the parties are sophisticated and represented by counsel, it is also necessary to demonstrate at least one of the other two factors (either negotiated terms or an arm’s length transaction). See generally Italian Cowboy, 2011 WL 1445950, at *9 (stating that the requirement of precise language “helps ensure that parties to a contract—even sophisticated parties represented by able attorneys—understand that the contract’s terms disclaim reliance, such that the contract may be binding even if it was induced by fraud”). We need not, and do not, decide whether both of these factors must be demonstrated under these facts because both weigh in Allen’s favor at the summary judgment stage of this case.

Considering the cases that provided the foundation for the Forest Oil factors supports our conclusion that it is insufficient to establish only that the parties are sophisticated and represented by counsel. In Prudential Insurance Company of America v. Jefferson Associates, Ltd., 896 S.W.2d 156, 162 (Tex. 1995), the Court held that an “as is” clause will only be enforceable in an arm’s length transaction involving sophisticated parties who are in “relatively equal bargaining position.” Additionally, Prudential stressed that when the parties in fact engage in negotiations over the terms of the contract, the provision in question is “an important part of the basis of the bargain.” Id. In Schlumberger, the Court stated that it is not enough for a sophisticated party to be represented by counsel; the parties in that case also negotiated at arm’s length. 959 S.W.2d at 180.

We conclude that a sophisticated party represented by counsel must show that the party who agrees to the disclaimer either (1) did in fact negotiate the contract terms or (2) had the ability to negotiate terms because the parties dealt with each other at arm’s length.[9] See Kane v. Nxcess Motorcars, Inc., No. 01-04-00547-CV, 2005 WL 497484, at *6 (Tex. App.—Houston [1st Dist.] Mar. 3, 2005, no pet.) (mem. op.) (reviewing enforceability of “as is” clause in pre-Forest Oil case based in part on whether parties had “disparity in bargaining power” and whether agreement was “freely negotiated”).[10] While both actual negotiations and an arm’s length transaction may be necessary, we need not decide that issue here when there is a fact issue on both factors.

4. Conclusion on Effect of Disclaimer

In conclusion, the redemption agreement does not satisfy the requirement of a clear and unequivocal expression of intent to preclude a fraudulent inducement claim. But even if we were persuaded otherwise, the remaining four Forest Oil factors create fact issues that must be resolved by the jury before concluding that the redemption agreement precludes Allen’s fraudulent inducement claims. Rees-Jones and Devon established the second and fourth Forest Oil factors (Allen was represented by counsel and was knowledgeable in business matters). A fact issue exists on the first and third factors (whether the contract was negotiated and whether they dealt with each other at arm’s length).

In the absence of greater clarity in the redemption agreement, and considering the totality of the circumstances based on the evidence in the summary judgment record, we cannot conclude that Rees-Jones and Devon conclusively established that Allen bargained away his ability to bring a fraudulent inducement claim. We hold, therefore, that the trial court could not grant summary judgment on Allen’s fraud claims based on the disclaimer and other provisions in the redemption agreement.[11] See Forest Oil, 268 S.W.3d at 60; see also Schlumberger, 959 S.W.2d at 179–81.

B. Release of Breach of Fiduciary Duty & Shareholder Oppression Claims

As discussed below, a fact issue exists on Allen’s fraudulent inducement claim. Because fraud vitiates every transaction tainted by it, a fact issue correspondingly exists on the enforceability of the releases with regard to these two claims. See Williams, 789 S.W.2d at 264; McMahan, 108 S.W.3d at 478–79 (Tex. App.—Houston [14th Dist.] 2003, pet. denied); Deer Creek, Ltd. v. N. Am. Mortg. Co., 792 S.W.2d 198, 201 (Tex. App.—Dallas 1990, no writ).

We sustain Allen’s first and fourth issues as they relate to the release of Allen’s claims and the contractual waiver of reliance.

Statutory and Common Law Fraud

In his second sub-issue and the remainder of his fourth sub-issue, Allen argues that Rees-Jones and Devon failed to negate conclusively his statutory and common law fraud claims and that he raised a fact issue on these claims.[12] Specifically, Allen asserts that Rees-Jones and Chief had a duty to update him on Chief’s changing status between the November 2003 letter and the June 2004 redemption, and that the failure to do so constitutes fraud by non-disclosure. Rees-Jones and Devon respond that no material facts were omitted. Alternatively, they assert that Allen had prior knowledge and access to discover the information and, therefore, could not have justifiably relied on any omission as a matter of law.[13] In addition to his fraudulent non-disclosure claims, Allen asserts that Rees-Jones made misrepresentations in his November 2003 letter and later in a conversation. Rees-Jones and Devon contend that none of the representations were false or material and that Allen could not have justifiably relied on them.

A. Fraud by Non-disclosure

1. Elements of Fraud by Non-disclosure

“Failing to disclose information is equivalent to a false representation only when particular circumstances impose a duty on a party to speak, and the party deliberately remains silent.” In re Int’l Profit Assocs. Inc., 274 S.W.3d 672, 678 (Tex. 2009). There are seven elements of a fraud by non-disclosure or omission claim, but only the third and sixth are at issue at this stage of this case: (1) the defendant failed to disclose facts to the plaintiff; (2) the defendant had a duty to disclose such facts; (3) the facts were material; (4) the defendant knew that the plaintiff was ignorant of the facts and did not have an equal opportunity to discover the truth; (5) the defendant was deliberately silent and failed to disclose the facts with the intent to induce the plaintiffs to take some action; (6) the plaintiff acted in reliance on the omission or concealment; and (7) the plaintiff suffered injury as a result of acting without knowledge of the undisclosed facts. Horizon Shipbuilding, Inc. v. BLyn II Holding, LLC, 324 S.W.3d 840, 850 (Tex. App.—Houston [14th Dist.] 2010, no pet.).

The parties disagree about whether justifiable reliance is an element of a fraud by omission claim. While Texas courts have not announced the requirement that the reliance must be justified in a claim of fraudulent non-disclosure, we are persuaded that this is an element of the plaintiff’s claim. The Supreme Court recently made clear that reliance must be justifiable in a fraud by misrepresentation claim. Grant Thornton L.L.P., v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010). The Texas Supreme Court has also explained that “[f]raud by non-disclosure is simply a subcategory of fraud.” Schlumberger, 959 S.W.2d at 181. Therefore, we find justifiable reliance also applies to claims of fraud by non-disclosure. See Am. Tobacco Co., Inc. v. Grinnell, 951 S.W.2d 420, 436 (Tex. 1997) (stating that plaintiff claiming fraud by non-disclosure “must have reasonably relied upon the silence to his detriment”).

Rees-Jones and Devon contend they conclusively proved that any omissions were immaterial and that Allen’s reliance was not justified. They do not challenge the remaining elements of fraud by non-disclosure, including that they had a duty to disclose material facts.

2. Omission of Material Facts

A party has a duty to disclose new material information when that information makes earlier representations misleading or untrue. See Anderson, Greenwood & Co. v. Martin, 44 S.W.3d 200, 212–13 (Tex. App.—Houston [14th Dist.] 2001, pet. denied); see also JSC Neftegas-Impex v. Citibank, N.A., No. 01-07-00397-CV, 2011 WL 480931, at *16 (Tex. App.—Houston [1st Dist.] Feb. 10, 2011, pet. filed). Information is material when “a reasonable person would attach importance to and would be induced to act on the information in determining his choice of actions in the transaction in question.” Italian Cowboy, 2011 WL 1445950, at *10. (citing Smith v. KNC Optical, Inc., 296 S.W.3d 807, 812 (Tex. App.—Dallas 2009, no pet.)).

Allen claims that Chief and Rees-Jones omitted material facts bearing on his decision whether to redeem his interest, including information showing Chief’s significant development in the Barnett Shale expansion area and improvements in horizontal drilling after the Phalon and Haas reports. Allen further asserts that Rees-Jones and Chief were aware that competitors had reported economic wells in the expansion area and took steps to act on that information by increasing its lease holdings in the area. Allen thus complains that three of Rees-Jones’s statements in the November 2003 letter were no longer true or were misleading, triggering a duty to disclose new information: (1) that Chief drilled only a dry hole in the expansion area and that other developers’ expansion-area wells had shown to be non-economic; (2) further technological advancement was needed for the expansion area to become economic; and (3) stepping-out into the expansion area involved “a lot more risk” to Chief.

Rees-Jones and Devon argue that their alleged omissions were not material because the redemption agreement “fully disclosed” that a change in value may have occurred after the Phalon and Haas reports and the parties agreed that the redemption price was based on the Phalon appraisal and does not reflect Chief’s value as of June 2004. More specifically, Rees-Jones and Devon contend that by agreeing to accept a price based on the Phalon appraisal value, Allen necessarily “agreed that whatever happened between November 2003 and June 2004 was irrelevant to the deal.”

Rees-Jones and Devon have misconstrued the nature of Allen’s claim. Allen’s fraud by non-disclosure claim is not that Chief and Rees-Jones omitted material facts about Chief’s value; instead, he claims that Chief and Rees-Jones omitted material facts bearing on his decision whether to redeem his interest at all, including information regarding Chief’s future. Allen contends that for a founding investor in a start-up company, the question is not only whether the price offered for his interest is fair, but whether the investor would be better-off in the long run if he retained his interest. While the omitted information is material in its impact on Chief’s value, a jury could decide that the omitted information is also material apart from its impact on Chief’s value. A jury may determine that (1) an investment in a closely-held start-up company is risky by its very nature, particularly one in the oil and gas industry and (2) the investor’s initial decision to assume that risk indicates that the investor would be willing to hold onto that investment and assume further risk when offered an opportunity to “cash-out,” even for a price based on an accurate assessment of the company’s fair market value.

Rees-Jones and Devon maintain that Allen’s claim is based on “a distinction without a difference.” More specifically, they assert that information regarding Chief’s future prospects is included in determining its fair market value,[14] and Allen has recast his claim in order to avoid the disclaimers and releases contained in the redemption agreement.[15] No summary judgment evidence from an economist or other expert was offered to support this definition of “value.” Other than the redemption agreement, Rees-Jones and Devon offered no summary judgment evidence that a reasonable person would not attach importance to the information in question “in determining his choice of actions in the transaction in question.” Italian Cowboy, 2011 WL 1445950, at *10.

Allen put forth summary judgment evidence tending to show that the nature of Chief’s future prospects—and not just its price—was an important consideration in his decision to redeem his interest. For example, Allen testified in his affidavit that “[t]he information and internal correspondence regarding the successful horizontal wells would have been material to me in deciding whether or not to redeem my interest in Chief.” Allen also included six paragraphs of examples of information known to Rees-Jones that Allen testified would have been material to his decision to redeem. Finally, Allen concluded in his affidavit that if he “had been given all material information by Chief and Rees-Jones, [he] would not have redeemed [his] interest in June 2004.”

Based on the claims asserted by Allen and the summary judgment evidence, we cannot conclude that the redemption agreement conclusively negated materiality of the claimed omissions as a matter of law. See Lundy v. Masson, 260 S.W.3d 482, 493–94 (Tex. App.—Houston [14th Dist.] 2008, pet. denied) (holding misrepresentations regarding patent’s future viability material in primary shareholder’s fraud claim against company president). On this record, a fact issue exists on whether the information that Allen alleges Chief and Rees-Jones wrongfully failed to disclose would have been material to his decision to redeem his interest, regardless of whether the redemption price accurately reflected the market value of his interest.

3. Justifiable Reliance[16]

Allen contends that Rees-Jones and Devon did not conclusively negate justifiable reliance. Rees-Jones and Devon raise two arguments for negating reliance as a matter of law: the redemption agreement negates reliance and Allen had actual knowledge of the omitted information. We will address each assertion separately.

a. Reliance Negated by Contract Provisions

Rees-Jones and Allen contend that the redemption agreement expressly negates reliance on the alleged omissions. A party cannot justifiably rely on oral statements that are directly contradicted by the parties’ written agreement. DeClaire v. G & B Mcintosh Family Ltd. P’ship, 260 S.W.3d 34, 47 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (stating that “reliance upon an oral representation that is directly contradicted by the express, unambiguous terms of a written agreement between the parties was not justified as a matter of law”); DRC Parts & Accessories, L.L.C. v. VM Motori, S.P.A., 112 S.W.3d 854, 858 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) (same). This rule, as stated, is limited to fraud claims based on oral misrepresentations; it does not address non-disclosure claims. Rees-Jones and Devon did not argue in the trial court or here that we should extend this rule to non-disclosure claims. Allen’s non-disclosure claim is based in part on allegedly misleading statements regarding the technological and economic feasibility of horizontal drilling in the expansion area. The redemption agreement does not directly contradict these statements.

b. Actual Knowledge

Rees-Jones and Devon next contend that Allen had actual knowledge of Chief’s increased value and therefore could not have justifiably relied on the alleged omissions. As part of their actual knowledge defense, they assert that they negated justifiable reliance as a matter of law through (1) Allen’s knowledge that gas prices had increased and Chief’s value had increased after the Phalon report, (2) information available in public records, (3) information available in industry reports, and (4) Allen’s access to Chief’s records. We address each of these four contentions.

“For purposes of a fraud claim, a party cannot justifiably rely on a representation when that party has actual knowledge before its reliance of that representation’s falsity.” JSC Neftegas-Impex, 2011 WL 480931, at *16 (citing Mayes v. Stewart, 11 S.W.3d 440, 451 (Tex. App.—Houston [14th Dist.] 2000, pet. denied)). See also Grant Thornton, 314 S.W.3d at 923–24 (holding that reliance not justified because party continued to purchase bonds knowing company had lost its primary source of funding and had failed to make scheduled interest payment).

i. Knowledge of Increased Gas Prices and Value

In support of their assertion that Allen had actual knowledge of the allegedly omitted facts, Rees-Jones and Devon first rely on a 2005 email in which Allen states, “We knew that the value of the enterprise would be significantly greater [at closing], but in light of the home run the investment had been, chose not to raise the issue.” Rees-Jones and Devon also rely on the redemption agreement’s statement that the Haas and Phalon reports may not reflect market value, the statement in the Phalon report that it “should be limited to transactions within 60 days of October 1, 2003” and that Chief had set aside a $50 million capital budget for 2004, and Rees-Jones’s statement in the November 2003 letter that Chief planned to spend most of its capital budget on expansion area projects. Allen concedes that he knew gas prices had increased after the initial offer to redeem his shares and that, as a result, the redemption price was less than Chief’s value at the time of redemption.

Rees-Jones and Devon did not, however, conclusively prove that he had actual knowledge of all of the claimed omissions. For example, there is no evidence in this record that he knew about the developments in horizontal drilling. Rees-Jones in the November 2003 letter stated that no competitors had drilled an economic well in the expansion area, that development in the expansion involved “a lot more risk,” and that technological advancement in horizontal drilling was needed to make development in the expansion economically viable. Allen presented evidence that these representations were misleading by June 2004 when he redeemed his interest and that Rees-Jones and Chief knew they were no longer true. Reports and emails circulated among Rees-Jones and Chief employees detailing competitors’ successful drilling based on the advancements in horizontal drilling methods. While he knew that Chief planned to step-out into the expansion area, the record does not show that he knew of the resulting frenzy of leasing activity in the expansion area. Chief’s internal cash forecast shows that Chief spent $3.5 million in lease acquisitions. Other evidence indicated that Chief had filed for 68 new drilling permits and had acquired 23,575 lease acres between Chief’s 2003 offer and Allen’s 2004 redemption. There is no evidence that Allen knew these facts.

ii. Public Records

Rees-Jones and Devon do not assert that Allen had actual knowledge of the leasehold acquisitions from Railroad Commission records and county clerk records. They do contend, however, that Allen had imputed knowledge through public records, citing Mooney v. Harlin, 622 S.W.2d 83, 85 (Tex. 1981) and HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886–87 (Tex. 1998). In other words, they contend that publically available information is imputed to Allen as a matter of law. We reject this contention both because of the state of the record and it misinterprets the law.

First, we note the absence of evidence identifying the specific documents that were filed with the Railroad Commission, the significance of those documents, or any testimony on the ease with which such information can be obtained. Cf. BP Am. Prod. Co. v. Marshall, No. 09-0399, 2011 WL 1820876, at * 4 (Tex. May 13, 2011) (expert testified that records were filed with Railroad Commission and could have been reviewed by anyone). Chief also did not ask the trial court to take judicial notice of any public record.

Second, we disagree that Texas law bars non-disclosure fraud claims based on publicly available information under these circumstances. The Texas Supreme Court in Ojeda de Toca v. Wise, 748 S.W.2d 449, 451 (Tex. 1988), refused to bar a fraudulent omission claim based on the non-disclosure of information that was publicly available. In that case, the purchaser sued for the seller’s failure to disclose the existence of a demolition order for a house on the property. The order was filed in the county deed records. The court favorably cited the Restatement (Second) of Torts § 540 comment b (1977), which states that information that is recorded that is contrary to a misrepresentation does not bar a fraud claim because records acts “are not intended as a protection for fraudulent liars.”

Based in part on Ojeda, this court recently rejected a similar argument that a party claiming fraud by non-disclosure was under a duty to examine deed records to ascertain the undisclosed information. Dernick Res., Inc. v. Wilstein, 312 S.W.3d 864, 885 (Tex. App.—Houston [1st Dist.] 2009, no pet.). We observed that in Ojeda, the deed records “afford notice of interests conveyed in real property to protect those interests and subsequent grantees, not to protect perpetrators of fraud.” Id. (citing Ojeda, 748 S.W.2d at 450–51) (emphasis in original).

The Court in Ojeda refused to follow a case on constructive notice of public records that involved a statue of limitations defense. Id. Both cases relied on by Rees-Jones and Devon, Mooney and HECI, involved limitations issues as well. Mooney, 622 S.W.2d at 85; HECI, 982 S.W.2d at 886–87. The Texas Supreme Court in HECI, this court, and other courts, however, have restricted the constructive notice doctrine as part of a limitations inquiry to limited circumstances. HECI, 982 S.W.2d at 886–87 (stating constructive notice doctrine only applies in limited circumstances like in rem and probate proceedings); Noble Mortg. & Inv., LLC v. D & M Vision Inv., LLC, No. 01-09-00987-CV, 2011 WL 940756, at *13 (Tex. App.—Houston [1st Dist.] Mar. 17, 2011, no pet.) (stating recording in county court of law execution docket does not constitute public record for constructive notice); Shell Oil Co. v. Ross, No. 01-08-00713-CV, 2010 WL 670549, at *14­–15 (Tex. App.—Houston [1st Dist.] Feb. 25, 2010, pet. denied) (holding public records at Land Office not sufficient for constructive notice). Based largely on HECI, this court has held that knowledge from public records is imputed to a party only for specific types of public records in specific situations. Shell Oil, 2010 WL 670549, at *14. For example, we observed that while recorded instruments in a grantee’s chain of title generally establish an irrebuttable presumption of notice, “a deed outside the chain of title does not impute constructive knowledge.” Noble, 2011 WL 940756, at *9 (quoting Nguyen v. Chapa, 305 S.W.3d 316, 324–25 (Tex. App.—Houston [14th Dist.] 2009, pet. denied)). Similarly, real property records constitute constructive notice to buyers, but not to tenants. Lee v. Perez, 120 S.W.3d 463, 467 (Tex. App.—Houston [14th Dist.] 2003, no pet.)

In their post-submission brief, Rees-Jones and Devon rely on Paull v. Capital Resource Management, Inc., 987 S.W.2d 214, 220 (Tex. App.—Austin 1999, pet. denied), and McCollum v. P/S Investments, Ltd., 764 S.W.2d 253, 255 (Tex. App.—Dallas 1988, writ denied), to support their contention that Allen’s non-disclosure claims are barred because he had equal access to the publicly filed documents. As discussed earlier, the fourth element of a claim for fraudulent non-disclosure is that the defendant knew that the plaintiffs were ignorant of the facts and did not have an equal opportunity to discover the truth. See Horizon Shipbuilding, Inc., 324 S.W.3d at 850. Rees-Jones and Devon did not challenge this element of Allen’s fraudulent non-disclosure claim in their motions for summary judgment; they challenged materiality and justifiable reliance. Therefore, this contention cannot support the trial court’s summary judgment.

We must instead determine whether Paull and McCollum apply the public records doctrine to negate the justifiable reliance element of fraudulent inducement claims. They do not for two reasons. First, neither case addresses the reliance element of fraud. In both cases, real estate brokers sued appraisal companies for fraud based on inaccurate appraisals. Because an appraisal is an opinion, the brokers’ fraud claims were only actionable if the defendant appraisers had superior knowledge. Both courts held that a defendant does not have superior knowledge when a plaintiff has equal access to information in the county clerk’s public records. Paull, 987 S.W.2d at 219; McCollum, 764 S.W.2d at 255. Paull and McCollum, however, only reached this conclusion in the context of determining whether opinion statements were actionable as fraud. That is a different inquiry than whether public information is imputed to a plaintiff, and therefore negates justifiable reliance. Furthermore, neither case addresses Ojeda, which presented a fraudulent omission claim based on the non-disclosure of publically available information.

iii. Publically Available Sources

Rees-Jones and Devon contend that Allen could not justifiably rely on any omissions based on his constructive knowledge of investment analysts’ reports and newspaper accounts from cities other than Allen’s residence that described successes in horizontal drilling. Rees-Jones and Devon raised this contention in one sentence and one footnote in their motions for summary judgment and cited no legal authorities for extending the constructive notice doctrine to media accounts and information available on the internet to bar a fraud claim.[17]

Because Texas courts have not found that justifiable reliance was negated as a matter of law based on publicly filed records, we see no reason to bar Allen’s claims based on these documents.

iv. Allen’s Access to Chief Documents

Rees-Jones and Devon next contend that Allen could not have justifiably relied on any omissions because he had knowledge of Chief’s involvement in the changing landscape of expansion-area drilling by virtue of the access granted to him to Chief’s records and personnel through the redemption agreement and his position as a member in Chief. More specifically, Rees-Jones and Devon maintain that the redemption agreement created a contractual obligation for Allen to review its records and perform due diligence and imputed to him “all the information a reasonably thorough review would have provided him.”

But the terms of the redemption agreement created an “opportunity” to investigate, not an obligation. Rees-Jones and Devon presented no summary judgment evidence of what would have been revealed if a reasonably thorough review had been conducted by an investor similarly situated to Allen. Additionally, Rees-Jones and Devon present no legal authority for the proposition that an “opportunity” to review a company’s internal records equates to knowledge of all of its documents and negates justifiable reliance as a matter of law.[18] In the absence of any supporting authority, we decline to reach this conclusion.

Finally, Rees-Jones and Devon assert that Allen, as a member of the closely-held corporation, had access to Chief’s records through Chief’s bylaws and therefore had knowledge of the contents of those records. They did not raise this argument to the trial court in their motion for summary judgment. A trial court cannot grant summary judgment except on the grounds expressly presented in the motion. Johnson, 73 S.W.3d at 204; Sci. Spectrum Inc., 941 S.W.2d at 912. Therefore, summary judgment would have been improper on this ground.

In conclusion, viewing the evidence in the light most favorable to Allen, we hold that Rees-Jones and Devon did not conclusively prove that Allen had knowledge of the omitted information.[19]

B. Fraud by Misrepresentation

Allen argues that Rees-Jones and Devon failed to conclusively negate his claim for fraud by misrepresentation and that he raised a fact issue on this claim. Allen identifies ten alleged misrepresentations from Rees-Jones’s November 2003 letter: (1) Chief drilled only a dry hole in the expansion area and that other developers’ expansion-area wells had shown to be non-economic; (2) further technological advancement was needed for the expansion area to become economic; (3) Chief’s relationship with a manager had become strained and could result in expensive litigation with uncertain results; (4) Chief needed a yearly profit of $5 million just to break even; (5) Rees-Jones did not expect Chief to continue to grow at the same pace; (6) Rees-Jones had decided not to sell the company; (7) Rees-Jones intended to work at “a much more relaxed pace” for the next decade and might take a “good bit of time off;” (8) stepping-out into the expansion area involved “a lot more risk” to Chief; (9) Rees-Jones did not expect the expansion area wells to have “anywhere near” the value of the core area wells; and (10) a move into the expansion area could cause “a decline in the value of our company.” Allen also asserts that Rees-Jones made an oral misrepresentation. In his affidavit, Allen stated that in June 2004, after the redemption had been postponed for several months and before Rees-Jones provided him with the redemption agreement, he asked Rees-Jones if the October 2003 valuation needed to be updated. Rees-Jones responded that an update “was not necessary.”

The elements of fraud are: (1) that a material misrepresentation of fact 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 the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; (6) reliance was justified; and (6) the party thereby suffered injury. See Italian Cowboy, 2011 WL 1445950, at *9; Grant Thornton, 314 S.W.3d at 923. As in their defense to Allen’s fraudulent non-disclosure claim, Rees-Jones and Devon contend that they negated two of these elements as a matter of law, justifiable reliance and materiality, and also contend that the statements constituted opinions, were not actionable statements of fact, and were not false.

1. Statements of Value

Allen identified three alleged misrepresentations regarding Chief’s value: (1) Rees-Jones’s statement in the November 2003 letter that he did not expect the expansion area wells to have “anywhere near” the value of core wells; (2) his statement that the expansion area drilling could cause a decline in Chief’s value; and (3) Rees-Jones’s oral statement that updating the value was not necessary. As discussed earlier, a written agreement that directly contradicts a claimed oral misrepresentation precludes a fraud claim based on the misrepresentation. DeClaire , 260 S.W.3d at 47; DRC, 112 S.W.3d at 859; Fisher Controls Int’l, Inc. v. Gibbons, 911 S.W.2d 135, 142 (Tex. App.—Houston [1st Dist.] 1995, writ denied) (holding that plaintiff has no right to rely on oral misrepresentations that contradict written contract). The question is whether the redemption agreement does so.

The redemption agreement states that the Haas and Phalon reports do not reflect any changes in value after October 2003 and that other appraisers might have different opinions on value, and released claims based on “any determination that the value of the interest at closing was more or less than the redemption price.” Because the redemption agreement expressly negates any reliance by Allen on statements regarding a change in Chief’s value, Allen could not have justifiably relied on these representations, which are directly contradicted by the terms of the redemption agreement. See DeClaire, 260 S.W.3d at 47. The redemption agreement does not directly contradict the remaining claimed misrepresentations.

2. Statements of Fact

Rees-Jones and Devon further assert that the representations identified by Allen are statements of opinion and not actionable as a basis for fraud. “Pure expressions of opinion are not representations of material fact, and thus cannot provide a basis for a fraud claim.” Italian Cowboy, 2011 WL 1445950, at *10 (citing Jefferson Assocs., Ltd., 896 S.W.2d at 163). “Whether a statement is an actionable statement of ‘fact’ or merely one of ‘opinion’ often depends on the circumstances in which a statement is made.” Transp. Ins. Co. v. Faircloth, 898 S.W.2d 269, 276 (Tex. 1995). Courts consider circumstances like “the statement’s specificity, the speaker’s knowledge, the comparative levels of the speaker’s and the hearer’s knowledge, and whether the statement relates to the present or future.” Id. “Special knowledge . . . may help lead to the conclusion that a statement is one of fact, not opinion.” Italian Cowboy, 2011 WL 1445950, at *10.

Allen identified at least two alleged misrepresentations of fact: (1) Chief drilled only a dry hole in the expansion area and other developers’ expansion-area wells had shown to be non-economic; and (2) further technological advancement was needed for the expansion area to become economic. These are statements of fact, not opinions. Summary judgment is improper on a fraudulent misrepresentation claim if a single misrepresentation is actionable as fraud. Therefore, unless these statements cannot form the basis for a fraudulent misrepresentation claim for other reasons, we reject Rees-Jones and Devon’s argument that they cannot be the basis for a fraud claim because they are opinions.

Allen also identified two statements regarding Rees-Jones’s intentions for the future: (1) Rees-Jones intended to work at a more relaxed pace and (2) he did not intend to sell the company in the future. Rees-Jones and Devon assert that Rees-Jones’s statements of intent are not actionable as a matter of law because statements of intent to act or refrain from some act in the future are not actionable as a matter of law. See Stone v. Enstam, 541 S.W.2d 473, 480-81 (Tex. App.—Dallas 1976, no writ). But such a statements are actionable if the person making the statement does not in fact have such an intent at the time. See Formosa Plastics Corp. USA v. Presidio Eng’r & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998); Beverick v. Koch Power, Inc., 186 S.W.3d 145, 153 (Tex. App.—Houston [1st Dist.] 2005, pet. denied); Stone, 541 S.W.2d at 480–81. Cf. Country Village Homes, Inc. v. Patterson, 236 S.W.3d 413, 435 (Tex. App.—Houston [1st Dist.] 2007, pet. granted, judgm’t vacated w.r.m.) (stating prediction of future event is actionable if defendant has present knowledge that prediction is false). Because Rees-Jones and Devon bore the burden of offering evidence negating such intent and they did not offer any intent evidence, the trial court could not have granted the motions for summary judgment on the basis that these statement were non-actionable statements of future intent.

3. Falsity

Allen identified at least four statements, two concerning Rees-Jones’s intent, that constitute actionable statements for the purpose of summary judgment. As the movant in a traditional summary judgment motion, Rees-Jones and Devon bore the burden of establishing that these statements were not false when made. See Italian Cowboy, 2011 WL 1445950, at *9. Although they assert that Allen “failed to show anything in the November 20, 2003 letter . . . was false,” Rees-Jones and Devon did not file a no-evidence summary judgment motion. In a traditional summary judgment motion, Allen had no burden to offer proof of falsity until Rees-Jones and Devon first satisfied their burden of proof. See Tex. R. Civ. P. 166a(c); KPMG Peat Marwick, 988 S.W.2d at 748. But Rees-Jones and Devon offered no evidence in support of their contention that the statements identified by Allen were true when made. Therefore, we must accept that the statements were false for purposes of the summary judgment motion.

4. Material Misrepresentations

Rees-Jones and Devon also contend that any misrepresentations were not material as a matter of law because the only material issue was Chief’s value. As discussed above, “[m]aterial means a reasonable person would attach importance to and would be induced to act on the information in determining his choice of actions in the transaction in question.” Italian Cowboy, 2011 WL 1445950, at *10.

Rees-Jones and Devon did not specifically discuss the materiality of these claimed misrepresentations in their summary judgment motion or in their briefs. Instead, they assert that the only material information concerned Chief’s value at the redemption in June 2004. We cannot say that as a matter of law that the following representations were not material, assuming as we must that they are false: (1) Chief drilled only a dry hole in the expansion area and other developers’ expansion-area wells had shown to be non-economic; (2) further technological advancement was needed for the expansion area to become economic; (3) Rees-Jones intended to work at “a much more relaxed pace” for the next decade and might take a “good bit of time off” and (4) Rees-Jones had decided not to sell the company. The first two statements are statements of fact regarding Chief’s future prospects and the economic viability of drilling in the Barnett Shale expansion area. We cannot say that such statements are immaterial as a matter of law. For the third statement, we cannot conclude that it would be immaterial as a matter of law for an investor who has in the past relied on the skills and experience of the company’s manager to consider such a change in determining whether to sell his interest at the time of the redemption offer. For the fourth statement, we cannot conclude that an investor in a closely-held corporation who is informed that he will not in the foreseeable future have any opportunity to sell his interest could not, as a matter of law, attach importance to such a statement.

We therefore reject Rees-Jones and Devon’s assertion that the identified statements are immaterial as a matter of law.

5. Justifiable Reliance

Rees-Jones and Devon maintain that Allen could not have justifiably relied on the claimed misrepresentations because the redemption agreement states that the Haas and Phalon reports do not reflect Chief’s market value. Alternatively, they assert that Allen had actual knowledge of Chief’s increased value and had access to publically available information pertinent to its value, and therefore could not justifiably rely on any alleged misrepresentation as a matter of law.

Rees-Jones and Devon raised these same contentions to challenge Allen’s justifiable reliance on any omitted information. For the same reasons we address above in our discussion of Allen’s fraud by omission claim, we conclude that Rees-Jones and Devon have failed to negate justifiable reliance.

C. Conclusion on Fraud

A fact issue exists on whether the information omitted by Rees-Jones and Chief was material to Allen’s decision to redeem and whether his reliance was justified. Similarly, Allen has raised a fact issue on at least four alleged misrepresentations of fact, though the trial court properly granted summary judgment on the three alleged misrepresentations concerning Chief’s value. Summary judgment was therefore improper on Allen’s claims of common law fraud and fraud under Business and Organizations Code section 27.01.

We sustain Allen’s second sub-issue and the remainder of his fourth sub-issue as they relate to his section 27.01 and common law fraud claims.

Fiduciary Duty

In his fifth sub-issue, Allen contends that the trial court erred by granting summary judgment on his breach of fiduciary duty claim against Rees-Jones because a formal fiduciary relationship existed as a matter of law or, alternatively, the summary judgment evidence raised a fact issue on whether an informal fiduciary relationship existed.[20]

A. Fiduciary Duty Generally

To recover on a breach of fiduciary duty claim, the plaintiff must first show the defendant owed a fiduciary duty. Gregan v. Kelly, No. 01-09-00685-CV, 2011 WL 1938249, at *2 (Tex. App.—Houston [1st Dist.] May 19, 2011, no pet.). See Meyer v. Cathey, 167 S.W.3d 327, 330–31 (Tex. 2005). A fiduciary duty arises from a fiduciary relationship and there are two types of fiduciary relationships. Meyer, 167 S.W.3d at 330–31; Chapman Children’s Trust v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 439 (Tex. App.—Houston [14th Dist.] 2000, pet. denied). “The first is a formal fiduciary relationship, which arises as a matter of law.” Abetter Trucking Co., Inc. v. Arizpe, 113 S.W.3d 503, 508 (Tex. App.—Houston [1st Dist.] 2003, no pet.) (citing Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998)). “The second is an informal fiduciary relationship, which may arise from ‘a moral, social, domestic or purely personal relationship of trust and confidence, generally called a confidential relationship.’” Id. (quoting Assoc. Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 287 (Tex. 1998)); see also Meyer, 167 S.W.3d at 330–31.

Whether undisputed facts give rise to a formal fiduciary relationship is a question of law. Envtl. Procedures, Inc. v. Guidry, 282 S.W.3d 602, 627 (Tex. App.—Houston [14th Dist.] 2009, pet. denied). If there are disputed facts, we must resolve those in Allen’s favor at the summary judgment stage of the proceeding.

Whether an informal fiduciary relationship exists is ordinarily a question of fact because the underlying material facts are disputed. Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992), superseded by statute on other grounds as noted in Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 225–26 (Tex. 2002); Herrin v. Med. Protective Co., 89 S.W.3d 301, 308 (Tex. App.—Texarkana 2002, pet. denied) (reversing summary judgment on fiduciary duty claim when plaintiff had long-standing relationship with defendant, subjectively trusted him, and relied on his advice); Robertson v. ADJ P’ship, Ltd., 204 S.W.3d 484, 491–92 (Tex. App.—Beaumont 2006, pet. denied) (affirming jury finding of confidential relationship based on “their close family relationship, their preexisting attorney-client relationship, their history of joint business pursuits,” and a “pattern of reliance”); Hoggett v. Brown, 971 S.W.2d 472, 488 (Tex. App.—Houston [14th Dist.] 1997, pet. denied). When the underlying facts are undisputed, however, the determination of whether a fiduciary relationship exists is a question of law for the court. Meyer, 167 S.W.3d at 330; Gregan, 2011 WL 1938249, at *2–3.

B. Formal Fiduciary Relationship

Allen asserts that he had a formal fiduciary relationship with Rees-Jones as a matter of law because Chief was a closely-held corporation, the redemption agreement was a contract for the repurchase of Allen’s stock in Chief, and Rees-Jones dominated control over Chief as the majority shareholder. Texas law, however, is not as broad as Allen suggests.

A formal fiduciary relationship is created as a matter of law. See generally Gregan, 2011 WL 1938249, at *2. The special nature of certain types of relationships establishes a fiduciary duty between the parties and “questions of whether one party relied on or confided in the other are immaterial.” Envtl. Procedures, 282 S.W.3d at 628. See Nat’l Plan Adm’rs, Inc. v. Nat’l Health Ins. Co., 235 S.W.3d 695, 700 (Tex. 2007) (holding fiduciary relationship existed as matter of law in agency relationship). Examples include attorney-client, principal-agent, trustee-beneficiary, and partnership relationships. Chapman Children’s Trust, 32 S.W.3d at 439.

A formal fiduciary relationship is not created automatically between co-shareholders simply because the plaintiff is a minority shareholder in a closely-held corporation.[21] Hoggett, 971 S.W.2d at 488. See also Schoellkopf v. Pledger, 739 S.W.2d 914, 920 (Tex. App.—Dallas 1987), rev’d on other grounds, 762 S.W.2d 145 (Tex. 1988) (declining to find fiduciary relationship exists as matter of law between shareholders of closely-held corporations because “[w]hether a fiduciary relationship exists in any particular situation is usually a question for the factfinder”).

Nor does the combination of a closely-held corporation and the purchase of a minority shareholder’s interest through a redemption agreement create a formal fiduciary relationship as a matter of law. Pabich v. Kellar, 71 S.W.3d 500, 506 (Tex. App.—Fort Worth 2002, pet. denied) (trial court erred in determining that defendant, majority owner in closely-held corporation, owed minority owner fiduciary duty as matter of law). In certain circumstances, an officer of a closely-held company “may become” a fiduciary to individual shareholders when the corporation repurchases the shareholder’s stock. In re Estate of Fawcett, 55 S.W.3d 214, 220 (Tex. App.—Eastland 2001, pet. denied) (emphasis added) (holding summary judgment evidence raised a fact issue on whether fiduciary relationship existed). See also Miller v. Miller, 700 S.W.2d 941, 945–46 (Tex. App.—Dallas 1985, writ ref’d n.r.e.) (concluding, in lawsuit brought to rescind conveyance of stock in closely-held corporation based on purchaser’s non-disclosure of information, that jury’s finding of confidential relationship was supported by evidence of the defendant’s position as a founder, officer, and director of company with inside knowledge of its affairs and prospects). A contract for the repurchase of a shareholder’s stock in a closely-held corporation may also create a fiduciary relationship when a majority shareholder dominates control over the business or the shareholders operate more as partners than in strict compliance with corporate formalities. Redmon v. Griffith, 202 S.W.3d 225, 237, 240 (Tex. App.—Tyler 2006, pet. denied). See also Willis v. Donnelly, 118 S.W.3d 10, 31–32 (Tex. App.—Houston [14th Dist.] 2003), aff’d in part, rev’d in part, 199 S.W.3d 262 (Tex. 2006) (stating that fiduciary relationship may be created “through the repurchase of a shareholder’s stock in a closely held corporation” or “in certain circumstances in which a majority shareholder in a closely held corporation dominates control over the business”); 12B William M. Fletcher & Carole A. Jones, Fletcher Cyclopedia of the Law of Corporations § 5811.05 at 176 (perm. ed., rev. vol. 2009) (citing Redmon and concluding that under Texas law fiduciary relationship does not exist as matter of law for closely-held corporations but exists only if plaintiff can demonstrate confidential relationship). Neither Fawcett nor Redmon concluded that a formal fiduciary relationship existed as a matter of law.

We decline to extend the limited category of formal fiduciary relationships to include all redemptions of a minority owner’s shares in a closely-held corporation where the majority owner exercises control over the corporation’s affairs.[22] Based on these authorities, these facts may constitute evidence of an informal fiduciary relationship. They are not, however, sufficient to establish that a formal fiduciary relationship existed as a matter of law.

C. Informal Fiduciary Relationship

Allen asserts that even if a formal fiduciary relationship does not exist, there is a fact issue as to the existence of an informal fiduciary relationship. We agree.

1. Factors for Informal Fiduciary Relationship

In cases involving a claim of an informal fiduciary relationship, the issue of whether a fiduciary relationship exists is invariably fact-bound, and thus “not subject to hard and fast lines.” Tex. Bank & Trust Co. v. Moore, 595 S.W.2d 502, 508 (Tex. 1980). Texas courts review a number of different factors for determining whether such a relationship exists. Gregan, 2011 WL 1938249, at *3. But there is one clearly-established guiding principle: a fiduciary relationship is an extraordinary one that is not favored by the law and therefore is not lightly created, especially in the commercial context. Willis v. Donnelly, 199 S.W.3d 262, 278 (Tex. 2006).

Informal fiduciary relationships may arise from a relationship that is a “moral, social, domestic or purely personal relationship of trust and confidence.” Assoc. Indem. Corp., 964 S.W.2d at 287. The mere fact that one subjectively trusts another does not create a fiduciary relationship without more. Meyer, 167 S.W.3d at 330–31; Schlumberger, 959 S.W.2d 176–77; Crim Truck & Tractor, 823 S.W.2d at 594–95. “A person is justified in placing confidence in the belief that another party will act in his or her best interest only where he or she is accustomed to being guided by the judgment or advice of the other party, and there exists a long association” between the parties. Hoggett, 971 S.W.2d at 488. See also Lee v. Hasson, 286 S.W.3d 1, 14–16 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) (holding evidence of long-standing business relationship and personal friendship when parties vacationed together was legally and factually sufficient to support jury’s finding of informal fiduciary relationship); Flanary v. Mills, 150 S.W.3d 785, 794 (Tex. App.—Austin 2004, pet. denied) (holding that legally and factually sufficient evidence existed that shareholder in homebuilding corporation had confidential relationship with corporation’s other shareholder who was his uncle and former partner in a roofing company).

We consider a variety of factors to determine whether an informal fiduciary relationship exists. Gregan, 2011 WL 1938249, at *3. Our first consideration is the nature of the parties’ relationship. Id. at *3. See also Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962) (“The existence of the fiduciary relationship is to be determined from the actualities of the relationship between the persons involved.”); Lee, 286 S.W.3d at 14–16 (analyzing (1) parties’ closeness, including whether relationship is close personal friendship or close business relationship, (2) whether parties’ transactions were conducted at arm’s length, and (3) terms of any contracts between parties). As part of the parties’ relationship, we must consider whether the purported fiduciary exercised dominance and undue influence over the other party. See R.R. St. & Co., Inc. v. Pilgrim Enterprises, Inc., 81 S.W.3d 276, 306 (Tex. App.—Houston [1st Dist.] 2001), rev’d in part, 166 S.W.3d 232 (Tex. 2005) (“[F]iduciary relationships juxtapose trust and dependence on one side with dominance and influence on the other”).[23] We also consider the length of the parties’ relationship, although a long personal relationship alone is insufficient to create a fiduciary relationship. Lee, 286 S.W.3d at 15; Hoggett, 971 S.W.2d at 488.

A second factor is whether the plaintiff actually relied on the purported fiduciary “for moral, financial, or personal support or guidance.” Trostle v. Trostle, 77 S.W.3d 908, 915 (Tex. App.—Amarillo 2002, no pet.); see Lee, 286 S.W.3d at 15. Third, we examine whether such reliance is justifiable. Morris, 981 S.W.2d at 674 (stating informal fiduciary relationship “may arise when the parties have dealt with each other in such a manner for a long period of time that one party is justified in expecting the other to act in its best interest”); Thigpen, 363 S.W.2d at 253 (“[W]e hold that in this case there is not such evidence of justifiable trust and confidence as will create a fiduciary relationship”); Gregan, 2011 WL 1938249, at *3 (stating one factor we consider is whether party claiming fiduciary relationship justifiably placed special confidence in other party to act in his best interest).

In addition to these factors, there is one bright-line temporal requirement that must be satisfied to establish an informal fiduciary relationship in business transactions: “the special relationship of trust and confidence must exist prior to, and apart from, the agreement made the basis of the suit.” Meyer, 167 S.W.3d at 331; see also Schlumberger, 959 S.W.2d at 177. Rees-Jones and Devon do not contend that Allen failed to satisfy the temporal requirement. While they generally cite this rule as part of their discussion of fiduciary duties, they do not address the applicability of the rule to these facts. See W. Reserve Life Assur. Co. v. Graben, 233 S.W.3d 360, 373 (Tex. App.—Fort Worth 2007, no pet.) (defendant failed to preserve their contention that there must be evidence of prior and separate relationship by not tendering jury instruction on this element of claim). Therefore, we do not address its applicability here.

2. The Rees-Jones and Allen Relationship

We first examine the relationship between the parties, and whether they had a moral, social, domestic or personal relationship of trust and confidence outside of their business relationship. Allen presented evidence that he and Rees-Jones were personal friends for over twenty years before the redemption and that Allen invested in Rees-Jones’s oil and gas ventures for more than 15 years. See Lee, 286 S.W.3d at 15, 19 (evidence of a long-standing personal and business relationship supports a finding of a fiduciary relationship); Kalb v. Norsworthy, 428 S.W.2d 701, 705 (Tex. Civ. App—Houston [1st Dist.] 1968, no writ) (finding fiduciary relationship because parties’ long business association and close personal friendship justified plaintiff’s belief that defendant would act in his best interest). Allen in his affidavit testified that he practiced law with Rees-Jones in Dallas for two years and that they were partners together at the firm.[24] Rees-Jones left the firm in 1985. The parties’ citations to the summary judgment record do not reflect how often Allen and Rees-Jones socialized or communicated after Rees-Jones left the firm, but they had some communication because Rees-Jones asked Allen to invest with him in “multiple wells” and Allen did so. Allen first invested with Rees-Jones in 1988 in response to Rees-Jones’s encouragement “to place my trust and confidence in him in making and protecting my investments.” According to Allen’s affidavit, Rees-Jones in 1994 again “asked me to place my ‘confidence and trust’ in him” when he offered Allen an ownership interest in Chief. In a letter Rees-Jones described each of the original investors in Chief as “long-time friends.” Allen also testified that they had a “close” and “long-term” relationship, and that he had attended Rees-Jones wedding. We conclude that this record does not conclusively establish that the parties had a purely business relationship.

Rees-Jones did not file his own affidavit to dispute their friendship, though he cites Allen’s deposition testimony stating that he had never visited Rees-Jones’s home or been to Chief’s offices after Allen moved to Houston. We must view the evidence and inferences in favor of Allen as the nonmovant regarding the closeness of their personal friendship. This factor, therefore, weighs in favor of Allen and the creation of an informal fiduciary relationship.

Additionally, Rees-Jones informed Allen that he was a “founding partner” in Chief, which is the type of relationship that would have created a fiduciary relationship.[25] In one of Allen’s earlier investments with Rees-Jones, Rees-Jones also referred to Allen as his “partner.” Rees-Jones, a lawyer, not only referred to Allen as his partner in Chief, but agreed to a limited fiduciary duty to Chief’s investors through the shareholder’s agreement. Corporate officers may assume fiduciary duties to the company’s shareholders through a contract. Somers v. Crane, 295 S.W.3d 5, 11 (Tex. App.—Houston [1st Dist.] 2009, pet. denied); Grinnell v. Munson, 137 S.W.3d 706, 718 (Tex. App.—San Antonio 2004, no pet.); Fawcett, 55 S.W.3d at 220. More specifically, members of a limited liability company are free to contract about “the relationships among members, managers, and officers of the company.” Tex. Bus. Orgs. Code Ann. § 101.052(a)(1) (West 2008). Chief’s articles recognize that Rees-Jones would have liability for a breach of his “duty of loyalty to the company or its members.” (emphasis added). The articles expressly recognize the duty of loyalty to the members.[26] The duty of loyalty is one of the fundamental duties owed in a fiduciary relationship. See Bohatch v. Butler & Binion, 977 S.W.2d 543, 545 (Tex. 1998). This language in the articles, therefore, weighs in favor of the existence of an informal fiduciary relationship.[27]

In reviewing the nature of the parties’ relationship, Rees-Jones’s position as an insider gave him intimate knowledge of Chief’s daily affairs and future plans. See Miller, 700 S.W.2d at 945–46 (stating that majority shareholders’ intimate knowledge of company’s affairs supported finding fiduciary relationship); Adickes v. Andreoli, 600 S.W.2d 939, 945 (Tex. Civ. App.—Houston [1st Dist.] 1980, writ dism’d) (holding that defendant’s superior ability and expertise supported court’s fact finding of confidential relationship); Tuck v. Miller, 483 S.W.2d 898, 905 (Tex. Civ. App.—Austin 1972, writ ref’d n.r.e.) (holding superior business expertise among other factors supported jury finding of confidential relationship). There is no evidence that Allen had such extensive knowledge of Chief’s operations. In his deposition, Allen testified Rees-Jones was his sole source of information on Chief’s status over the years of his involvement with the company. In his affidavit, Allen states that he was a passive investor who “rarely if ever received any kind of ‘status update’ or financial information” regarding Chief’s status. Between December 2003 and June 2004, there is no evidence that Rees-Jones communicated any information to Allen regarding operations in the expansion area by Chief or its competitors.

Finally, we consider the issue of dominance in the relationship between Rees-Jones and Allen. In family relationships, the dominance factor is a key reason that courts recognize informal fiduciary relationships. In closely-held corporations, a key factor for determining whether an informal fiduciary relationship exists is whether the majority owner exercises dominant control over the company. Redmon, 202 S.W.3d at 237; Hoggett, 971 S.W.2d at 488 n.13. Articles five and six of Chief’s articles of organization and article six of Chief’s regulations gave Rees-Jones control of its operations, other than certain significant actions like the sale of the company. While dominance does not necessarily create a fiduciary duty, dominance is a factor that supports a conclusion that an informal fiduciary relationship existed. See, e.g., Hoggett, 971 S.W.2d at 488 n.13 (stating that “in certain limited circumstances, a majority shareholder who dominates control over the business may owe such a duty to the minority shareholder”) (emphasis added). For example, dominance through position is amplified when the majority owner also has intimate knowledge of the company’s affairs which other shareholders do not have.

Based on the summary judgment record, the nature of Rees-Jones’s position and superior knowledge are additional facts that weigh in favor of a fiduciary relationship. See Adickes, 600 S.W.2d at 945.

3. Allen’s Reliance

We next examine whether Allen demonstrated that he in fact placed his confidence in Rees-Jones, believing that he would act in Allen’s best interest. An informal fiduciary relationship requires proof that, because of a close or special relationship, the plaintiff “is in fact accustomed to being guided by the judgment or advice” of the other. Thigpen, 363 S.W.2d at 253. Allen presented evidence of such trust. In his deposition, Allen testified that he subjectively relied on Rees-Jones, had invested in several of Rees-Jones’s projects over the years, and was “conditioned” to trust Rees-Jones. Allen stated in his affidavit that Rees-Jones “encouraged” Allen to place his trust and confidence in him in making and protecting his various investments over the course of their relationship. According to the summary judgment evidence, Allen was a passive investor in these ventures and received little substantive information about Chief’s operations. The lack of negotiation between the parties regarding the terms of the redemption agreement also supports Allen’s contention that he relied on Rees-Jones.

Allen also presented evidence that his trust and confidence in Rees-Jones was justified. The length of the parties’ relationship, Rees-Jones’s repeated assurances that Allen could place his trust and confidence in him, and Rees-Jones’s detailed knowledge of Chief’s operations support the assertion that Allen’s reliance was justified. While such evidence by itself would not create an informal fiduciary relationship, it is a factor that weighs in favor of such a relationship.

4. Nature of the Transaction

While we have declined to create a formal fiduciary relationship as a matter of law based on the nature of the transaction here—a stock repurchase by the company’s manger and majority owner that would increase his ownership interest in the company—is an additional factor that favors recognizing an informal fiduciary relationship. See Fawcett, 55 S.W.3d at 220–21 (holding that summary judgment evidence raised fact issue on existence of confidential relationship because of parties’ family relationship and because officer of closely-held corporation may become fiduciary in stock repurchase agreement); Redmon, 202 S.W.3d at 237–38; Fisher v. Yates, 953 S.W.2d 370, 379 (Tex. App.—Texarkana 1997, pet. denied) (stating that if company director had inside information that company was “about to be acquired, he stood in a fiduciary relationship” to minority shareholders with duty to disclose such information).

Courts have identified three distinct rules on the “duty of a director or officer to disclose inside information to shareholders when purchasing or selling shares.” 3A Fletcher, Fletcher Cyclopedia § 1168 at 320. The court in Miller did not adopt either the majority or minority position on whether an officer and director of a corporation has a general fiduciary duty to disclose to a stockholder material information affecting the value of the stock before purchasing it from the stockholder. We are persuaded by the Dallas Court of Appeals holding that the third rule—the “special facts” test which applies in the context of buying and selling shares in a closely-held private corporation—supports a finding of an informal fiduciary relationship here. Miller, 700 S.W.2d at 946; 3A Fletcher, Fletcher Cyclopedia § 1171 at 331.

Under the so-called majority rule, a director or officer who purchases another shareholder’s stock does not have any fiduciary relationship to that shareholder. 3A Fletcher, Fletcher Cyclopedia § 1168.10 at 321–22. Under the so-called minority rule, directors and officers in a repurchase situation by virtue of their position have a limited fiduciary duty to disclose all information gained by them that may affect the stock’s value. Id. §1168.20 at 326–27. Under the middle ground special facts test, an officer or director may have a limited fiduciary duty when purchasing stock from a shareholder. The fiduciary relationship exists only because of the special or extraordinary facts like a stock repurchase in a closely-held private corporation.[28] Id. §1171 at 331. While this test applies only when the officer or director purchases the shares for his or her own benefit, the principle from the special facts test that a fiduciary relationship may exist in extraordinary circumstances is useful here because the redemption of Allen’s minority interest increased Rees-Jones’s ownership interest.[29]

While we decline to utilize the special facts doctrine to create a formal fiduciary relationship as a matter of law, we agree with Miller that the special facts presented by the nature of this transaction weigh in favor of an informal fiduciary relationship. See also Lawton v. Nyman, 327 F.3d 30, 39–40 (1st Cir. 2003) (following special facts rule in recognizing duty to disclose material facts when insiders in closely-held firm buy stock from outsiders in person-to-person transactions or “cause the corporation to do so”); Jordan v. Duff & Phelps, Inc., 815 F.2d 429, 435 (7th Cir. 1987) (stating “knowledgeable insiders of closely held firms buying from outsiders . . . have a fiduciary duty to disclose material facts” and relying on special facts doctrine that “insiders in closely held firms may not buy stock from outsiders in person-to-person transactions without informing them of new events that substantially affect the value of the stock”).

D. Conclusion on Fiduciary Duty

Taking all evidence and inferences in the light most favorable to the nonmovant, and recognizing the unique and special facts presented here, Allen presented sufficient evidence to raise a fact issue as to the existence of an informal fiduciary relationship. See, e.g., Redmon, 202 S.W.3d at 237 (finding that combination of closely-held corporation and domination by majority interest required reversal of summary judgment granted to majority owner); Cf. Pabich, 71 S.W.3d at 506 (evidence did not conclusively establish fiduciary relationship between majority and minority shareholder in closely held corporation when minority owner distrusted majority owner and majority owner told minority that they could not be partners because of a lack of loyalty). We recognize that courts are extremely cautious to find a confidential relationship in commercial transactions, but we conclude that these factors, on balance, are sufficient to create a fact issue on whether an informal fiduciary relationship existed. See Crim Truck & Tractor Co., 823 S.W.2d at 594–95. Therefore, the trial court erred to the extent it granted summary judgment on Allen’s breach of fiduciary duty claim.

We sustain Allen’s fifth sub-issue concerning breach of fiduciary duty.

Shareholder Oppression

Allen argues that Rees-Jones and Devon failed to negate his claim of shareholder oppression conclusively. Rees-Jones and Devon argue that no oppressive conduct occurred because they treated all shareholders alike. They also assert that Rees-Jones and Chief made no effort “to push Allen out with some oppressive conduct” and demonstrated a willingness “to provide all members with all the information they would need to decide whether to redeem” so they could make their own “independent business decision.” Allen responds that his shareholder oppression claim is based on other “wrongful conduct” represented by his misrepresentation and omissions claims.

“The doctrine of shareholder oppression protects the close corporation minority stockholder from the improper exercise of majority control.” Douglas Moll, Majority Rule Isn’t What It Used To Be: Shareholder Oppression In Texas Close Corporations, 63 Tex. B.J. 434, 435 (2000). This court defines shareholder oppression as:

(1) Majority shareholders’ conduct that substantially defeats the minority’s expectations that, objectively viewed, were both reasonable under the circumstances and central to the minority shareholder’s decision to join the venture; or



(2) Burdensome, harsh, or wrongful conduct; a lack of probity and fair dealing in the company’s affairs to the prejudice of some members; or a visible departure from the standards of fair dealing and a violation of fair play on which each shareholder is entitled to rely.



Willis v. Bydalek, 997 S.W.2d 798, 801 (Tex. App.—Houston [1st Dist.] 1999, pet. denied). Whether conduct rises to the level of shareholder oppression is a question of law for the court. Id.

The conduct alleged in this case is not the typical wrongdoing in shareholder oppression cases: Allen was not a terminated employee; he was not denied access to company books or records; and there was no allegation that Rees-Jones wrongfully withheld dividends, wasted corporate funds, paid himself excessive compensation, or locked Allen out of the corporate offices. Cf. id. at 802 (describing fact patterns in various shareholder oppression cases). Likewise, Allen presented no evidence that he was squeezed-out of the company. Cf. Redmon, 202 S.W.3d at 235.

Allen focuses on the “wrongful conduct” of fraud by misrepresentations and omissions and breach of fiduciary duty. While Allen successfully raised a fact issue as to his fraud and fiduciary duty claims, he cites no case, nor can we find one, that extends shareholder oppression to include these causes of action. Because the complained-of actions by Chief and Rees-Jones are not similar to the previously recognized examples of shareholder oppression and Allen cites no case allowing conduct that is fraudulent or in breach of a fiduciary duty to be the basis of a shareholder oppression claim, we hold the trial court properly granted summary judgment on this issue.

We overrule Allen’s shareholder oppression issue.

Texas Securities Act

We consider Allen’s TSA claims raised in the remainder of his first sub-issue and his seventh and eighth sub-issues. In the remainder of his first sub-issue, Allen contends that the TSA anti-waiver provision negates any contractual release of his TSA claims. In his seventh sub-issue, he argues that the statute of limitations does not bar his TSA claims. In his eighth sub-issue, he asserts that Rees-Jones and Devon did not conclusively prove he had knowledge of facts that would prevent his recovery under the TSA.

The TSA holds a securities buyer liable to a seller when the buyer makes material misrepresentations or omits material facts necessary to make a statement not misleading. See Tex. Rev. Civ. Stat. Ann. art. 581-33B (West 2010). A seller who prevails under the TSA may be entitled to rescission or other damages. See id.

A. Release Under the TSA

Allen contends that Rees-Jones and Devon did not show the redemption agreement meets the criteria for a valid contractual release under the TSA. Section 33L of the TSA declares void any provision in which a buyer or seller of a security waives “compliance with a provision of this Act.” Tex. Rev. Civ. Stat. Ann. art. 581–33L (West 2010). This anti-waiver rule is essentially the same as the federal provision and effectuates “a general policy disfavoring releases in security claims.” Jadoff v. Gleason, 140 F.R.D. 330, 333 (M.D.N.C. 1991). See Tex. Rev. Civ. Stat. Ann. art. 581-33L cmt. § 33L (West 2010).[30] Texas courts generally follow federal precedent in construing the TSA. See Sterling Trust Co. v. Adderley, 168 S.W.3d 835, 840 (Tex. 2005) (quoting Tex. Rev. Civ. Stat. Ann. art. 581-10-1A (West 2010)).

Based on federal precedent, an exception to the TSA anti-waiver rule applies when there is “a bona fide release or settlement of an existing claim, whether or not suit has been filed.” Tex. Rev. Civ. Stat. Ann. art. 581–33L cmt. § 33L; see also Anheuser-Busch Cos., Inc. v. Summit Coffee Co., 858 S.W.2d 928, 934 (Tex. App.—Dallas 1993, writ denied), vacated on other grounds, 514 U.S. 1001, 115 S. Ct. 1309 (1995), on remand, 934 S.W.2d 705, 709 (Tex. App.—Dallas 1996, writ dism’d by agr.) (adopting TSA release analysis from original opinion). A release is valid if the releasing party had: (1) a mature, ripened claim based on past violations of the securities law; and (2) actual or constructive knowledge of the claim. Geodyne Energy Income v. Newton Corp., 97 S.W.3d 779, 786 (Tex. App.—Dallas 2003), rev’d on other grounds, 161 S.W.3d 482, 488–89 (Tex. 2005); see also Anheuser-Busch Cos., 858 S.W.2d. at 934. According to Allen, Rees-Jones and Devon failed to meet both prongs.

For the first prong, Allen contends that he did not have a mature, ripened claim when he executed the redemption agreement because no sale had taken place at that time, and therefore he had not suffered any damages. Rees-Jones and Devon respond that a sale is not required to seek recovery under the TSA because the statute covers offers to sell a security. Thus, they maintain that a release executed simultaneously with the sale may waive claims for a misrepresentation or fraudulent non-disclosure before the sale. Based on the plain terms of the TSA, federal precedent, and the rationale for the mature, ripened claim prong, we reject Rees-Jones and Devon’s contention.

The terms of the TSA support Allen. It is true that the TSA covers not only misrepresentations or omissions at the time of sale, but also “offers to buy” a security. Tex. Rev. Civ. Stat. Ann. art. 581–33B (“A person who offers to buy or buys a security by means of an untrue statement . . . or an omission . . . is liable to the person selling the security to him”). The TSA defines a “sale” as “every disposition, or attempt to dispose of a security for value.” Tex. Rev. Civ. Stat. Ann. art. 581–4E (West 2010). In other words, the offer to buy the security before a sale can constitute a “past violation” of the TSA.[31]

But the phrase “offers to buy” is part of the statute that identifies two different persons who may be liable under the TSA: a buyer and a third-party non-buyer. See Tex. Rev. Civ. Stat. Ann. art. 581-33A(1), 33B, cmt. §§ 33A(1), (B) (West 2010) (stating that term “offers” allows injured party to reach “nonprivity defendants,” like a broker, in addition to actual buyer or seller). The recognition of liability for a non-buyer, like a broker, does not mean that a sale does not have to occur. A person who elects not to sell the security would not have a claim because the statute only applies to completed sales. See Rev. Civ. Stat. Ann. art. 581-33D (West 2010) (detailing damages available for TSA violations include rescission or damages). Stated differently, while the statute expands the persons who may be liable, it does not remove the requirement that the plaintiff must sell the security as a result of a statutory violation. Reardon v. LightPath Tech., Inc., 183 S.W.3d 429, 442 (Tex. App.—Houston [14th Dist.] 2005, pet. denied). See also Quest Med., Inc. v. Apprill, 90 F.3d 1080, 1089 (5th Cir. 1996) (holding that prospective seller in tender offer could not recover damages from defendant when seller never sold shares to third party). We conclude that the damages requirement means that the plaintiff’s claims are not mature at the time of the transaction and therefore a release is not valid if it is executed concurrently with the sale.

Additionally, federal precedent recognizes that public policy disfavors releases in security claims. Jadoff, 140 F.R.D. at 333. Federal cases allow a limited exception for waivers of security claims; however, the only pre-TSA case on this issue that the parties identified or that we have located holds that a release cannot be concurrent with the sale. In Jadoff, the court treated an acknowledgment signed as a part of the sales transaction as a release. Id. at 334. Nevertheless, the “release” did not bar the plaintiff’s claims because the plaintiff, as the buyer, did not have a claim until the sale occurred.[32] A release stating that the parties had received all necessary information at the time of the closing constitutes an “anticipatory waiver,” or a release used to escape liability for fraud before a transaction is consummated. Id. at 334. “Were such a statement to be upheld as a waiver it would constitute a license for fraud. Parties would be estopped from complaining of actionable misrepresentations and omissions simply because they signed a paper stating there were none.” Id. “It would be highly anomalous . . . to hold . . . that a party, without knowing the facts, could effectively bar himself by a release from suing for fraud in the transaction of which the release was part.” Id. (quoting Schine v. Schine, 254 F. Supp. 986, 988 (S.D.N.Y. 1966)) (emphasis added). Thus, the court in Jadoff concluded that the release was ineffective based on its timing. Id. at 334–35. No later courts have overruled or limited this holding in Jadoff.

Finally, the rationale for the matured claim prong under Anheuser-Busch is inapplicable here. The TSA’s anti-waiver rule excludes mature claims because a contrary rule “would foreclose the parties from settling matured claims, force every claimant to pursue the litigation to its costly conclusion,” and would clog court dockets with “[m]any small but otherwise settleable cases.” Korn v. Franchard Corp., 388 F. Supp. 1326, 1329 (S.D.N.Y. 1975). Allowing parties to waive TSA claims under limited circumstances “enables parties to reach binding settlements to resolve existing securities fraud disputes.” Dresner v. Utility.com, Inc., 371 F. Supp. 2d 476, 490 (S.D.N.Y. 2005). When Allen signed the redemption agreement, along with the releases, there was no dispute between the parties. As in Dresner, the releases “did not constitute a settlement of an existing dispute.” Id.

Accordingly, the first prong of the exception to the anti-waiver provision—that Allen had a mature, ripened claim based on past violation of the TSA— is not met. Because we hold that the release did not satisfy the first prong of a valid release under the TSA, we do not need to address the second prong of whether Allen had actual knowledge of his claims for purposes of the anti-waiver provision.[33]

We sustain the portion of Allen’s first sub-issue that the TSA bars the contractual waiver of his TSA claims in this case.

B. TSA Statute of Limitations

In his seventh sub-issue, Allen contends that Rees-Jones and Devon did not conclusively establish that the three-year statute of limitations barred his TSA claims. Rees-Jones and Devon contend that Allen had “inquiry notice” of the alleged fraud, and therefore the limitations period began several months before Allen sold his interest. They assert that Allen knew the market price of natural gas had gone-up, increasing Chief’s value. Alternatively, they maintain that Allen could have discovered the facts underlying his fraud claims before he sold his interest by conducting a more thorough investigation.

Under the TSA, “[n]o person may sue under Section 33B . . . more than three years after discovery of the untruth or omission, or after discovery should have been made by the exercise of reasonable diligence . . . .” Tex. Rev. Civ. Stat. Ann. art. 581-33H(3) (West 2010) (emphasis added). Allen filed suit within three years of the sale of his interest. The key inquiries are: (1) when does limitations begin to run under the TSA; and (2) when Allen’s “discovery” of his claim occurred or should have occurred.

1. When Limitations Begin to Run

“The general rule is that a cause of action accrues when a wrongful act causes some legal injury, even when the fact of injury is not discovered until later, and even if all of the resulting damages have not yet occurred.” Span Enters. v. Wood, 274 S.W.3d 854, 859 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (citing S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996)).

Rees-Jones maintains that we should follow federal law in determining when the limitations period begins. The Securities Exchange Act of 1934 states that a securities fraud complaint is timely if it is filed within a specified period of years “after the discovery of the facts constituting the violation.” Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363, 111 S. Ct. 2773, 2782 (1991). According to Rees-Jones, the accrual date for limitations under the 1934 Act begins on the date of the fraudulent representation—which he asserts constitutes the “violation”—and not on the date of the sale. Allen responds that that under the language of the TSA, which differs from the Exchange Act, the statute of limitations begins to run at the time of the sale. He asserts that beginning the limitations period before the sale, and therefore before he even suffered an injury, “turns the discovery rule on its head” and misapplies the rule to shorten limitations.

The TSA limitations provision differs from that found under the 1934 Act, but that difference shortens rather than extends the limitations period. The TSA begins the three-year limitations period with the “discovery of the untruth or omission, or after discovery should have been made by the exercise of reasonable diligence.” Tex. Rev. Civ. Stat. Ann. art. 581-33H(3)(a). Because the TSA only requires proof of the discovery of the untruth or omission, not discovery of the “violation,” discovery of each of the elements necessary to prove a violation of the TSA is not required to begin limitations. Compare Tex. Rev. Civ. Stat. Ann. art. 581-33H(3), with 15 U.S.C. §§ 78i(f), 1658(b)(1) (2006). We conclude that the limitations period began on the date Allen discovered or, in the exercise of reasonable diligence, should have discovered Rees-Jones’s purported untruths or omissions. While this rule has the potential to commence limitations before the plaintiff suffers an injury, the TSA specifically identifies the commencement date of the limitations period.

The parties next dispute the meaning of the term “discovery.” Rees-Jones contends that we should utilize the federal standard in construing the TSA, which triggers the discovery rule when the plaintiff is on “inquiry notice” of his potential claim. Some federal circuit courts have equated the federal statutory requirement of “discovery” of the violation with the phrase “inquiry notice” of the violation. See Merck & Co. v. Reynolds, 130 S. Ct. 1784, 1797 (2010) (citing cases). Inquiry notice is “the term used for knowledge of facts that would lead a reasonable person to begin investigating the possibility that his legal rights had been infringed.” Tello v. Dean Witter Reynolds, Inc., 410 F.3d 1275, 1283 (11th Cir. 2005). “[F]ull exposition of the scam” is not necessary; “[i]nquiry notice is triggered by evidence of the possibility of fraud.” Id. (quoting Theoharous v. Fong, 256 F.3d 1219, 1228 (11th Cir. 2001)) (emphasis in original). Under these federal cases, circumstances that create a duty of inquiry are referred to as “storm warnings” that must be viewed by an “objectively reasonable person.” Id.

The United States Supreme Court has held, however, that the word “discovery” does not equate to inquiry notice and rejected the date of inquiry notice as the beginning of the limitations period in a securities fraud case under the Exchange Act. Merck & Co., 130 S. Ct. at 1798. Under federal law, limitations do not commence when the plaintiff begins investigating, but when the plaintiff actually discovers or a reasonably diligent plaintiff should have discovered the facts constituting the violation. Id. That does not mean that the terms “inquiry notice” and “storm warnings” are irrelevant because they “may be useful to the extent they identify a time when the facts would have prompted a reasonably diligent plaintiff to begin investigating.” Id. But the discovery of facts that put a plaintiff on “inquiry notice” do not automatically begin the running of the limitations period. Id.

2. Allen’s Date of Discovery of His Claim

Rees-Jones and Devon contend that Allen should have discovered the alleged misrepresentations and omissions more than three years before he filed suit. More specifically, they assert that Allen himself raised the issue of whether an updated appraisal was necessary in early June 2004 and that he believed at the time of the redemption that Chief’s value had increased due to a rise in natural gas prices. As discussed above, knowledge of increasing gas prices does not necessarily equate to knowledge of Chief’s future prospects in terms of developments in horizontal drilling technology and Chief’s leasehold acquisition in the Barnett Shale expansion area.

Rees-Jones contends in the alternative that the releases in paragraphs three and eight of the redemption agreement were “sufficient storm warnings in themselves to trigger limitations.” See Hendricks v. Thornton, 973 S.W.2d 348, 367 (Tex. App.—Beaumont 1998, pet. denied). The mere request to sign a release “should be sufficient to put that individual on notice that a reasonable inquiry should be undertaken.” Goodman v. Epstein, 582 F.2d 388, 403–04 (7th Cir. 1978). See Moseman v. Van Leer, 263 F.3d 129, 133–34 (4th Cir. 2001) (holding that summary judgment proper because plaintiff was asked to sign releases but made no further inquiry). While the releases may constitute notice of a need to investigate, they do not provide notice of any untruths or omissions by Rees-Jones and Chief, nor did they conclusively demonstrate than an investor in Allen’s position should have discovered the untruths or omissions. We hold, therefore, that Rees-Jones and Devon were not entitled to summary judgment on Allen’s TSA claims based on limitations.

We sustain Allen’s seventh sub-issue concerning limitations.[34]

C. Knowledge Defense

In his seventh sub-issue, Allen also challenges the summary judgment on his TSA claim based on Rees-Jones and Devon’s statutory defense that he had actual knowledge of the misrepresentations and omissions before he sold his interest in Chief. A seller may not recover under the TSA if that seller “knew of the untruth or omission.” Tex. Rev. Civ. Stat. Ann. art. 581-33B (West 2010).

Rees-Jones and Devon assert that Allen had actual knowledge that the valuation in the Haas and Phalon reports did not reflect Chief’s market value because of the terms of the redemption agreement and Allen’s admitted knowledge that the valuation had changed. They raised the same contention regarding Allen’s justifiable reliance under fraud. As discussed above, we are not persuaded that knowledge of a change in market value at the time of the redemption equates to knowledge of Chief’s increased activity in the expansion area, the advancements in horizontal drilling, the success of competitors’ wells in the area, and Chief’s future prospects. Therefore, Allen’s knowledge that the redemption agreement specified that the valuation did not reflect changes in market value between the valuation in 2003 and the 2004 redemption, and his knowledge that the value had changed in that period, do not equate to his knowledge of the alleged omissions. Rees-Jones and Devon failed to prove conclusively the defense of Allen’s actual knowledge of these claimed omissions.

We sustain Allen’s seventh sub-issue concerning knowledge of facts underlying his TSA claim.

D. Conclusion

The releases do not meet the strict requirements under the anti-waiver provision of the TSA. Allen’s claims are also not barred by the TSA’s statute of limitations. Finally, Rees-Jones and Devon failed to prove conclusively the defense of Allen’s actual knowledge of the misrepresentations or omissions. Rees-Jones and Devon, therefore, did not conclusively negate Allen’s TSA claim, and the summary judgment on this claim was improper.

We sustain the remainder of Allen’s first issue as well as his seventh and eight sub-issues regarding his TSA claim.

Damages

In his third sub-issue, Allen contends that summary judgment was improper on the issue of damages. Rees-Jones and Devon respond that summary judgment was proper because Allen (1) has not suffered damages as a matter of law and (2) is seeking “hindsight damages” that are speculative in nature because it was unknown at the 2004 redemption that Chief would be sold for significantly more money two years later. They maintain that Allen’s attempt to recover the difference in value between the June 2004 redemption price and Chief’s value in May 2006 “is an attempt to rewrite the deal so he can receive all of the upside from Chief’s post-2004 market increase without ever having shared any of the post-June 2004 risk.” Finally, they assert in the alternative that Allen’s damages, if he is entitled to any, should be measured as the difference between the redemption price and the actual value of Chief on the date of redemption, but that Allen has waived this damage measure.

Allen responds that he was entitled to rescission or disgorgement of profits, and that his damage claims based on the increased value of his shares between the 2004 redemption and the 2006 sale are not too speculative as a matter of law. Even if his other measure of damages are unavailable as a matter of law, Allen asserts that he is entitled to recover the difference in value at the time of the redemption, Rees-Jones and Devon failed to prove as a matter of law that he did not suffer any injury under that alternative measure, and that he did not waive his right to that alternative damage remedy.

A. Rescission

In their post-argument brief, Rees-Jones and Devon contend that rescission is not an available remedy because Chief redeemed that interest, retired it, and absorbed it into the company. Therefore, they assert Allen’s interest no longer exists.

Under the TSA, A seller may seek rescission based on fraud, including securities fraud. See Tex. Rev. Civ. Stat. Ann. art. 581–33B (entitling defrauded seller to “sue either at law or in equity for rescission or for damages if the buyer no longer owns the security”); Dallas Farm Mach., 307 S.W.2d at 238–39 (holding rescission is available remedy for fraud); Tex. Capital Sec., Inc. v. Sandefer, 58 S.W.3d 760, 773 (Tex. App.—Houston [1st Dist.] 2001, pet. denied) (stating that rescission has long been a remedy for common law fraud). For rescission under the TSA, the seller recovers the security and returns the consideration he received for the security plus any interest earned on the consideration. See Tex. Rev. Civ. Stat. Ann. art. 581-33(D)(2) (West 2010). Thus, if Allen prevails and the security is available, Chief will be required to return Allen’s membership interest. But if the stock is not available, the buyer is liable for damages measured by the value of the security at the time of the sale plus the amount of income the buyer received on the security. See Tex. Rev. Civ. Stat. Ann. art. 581-33(D)(4) (West 2010). A rescission measure of damages under the TSA or fraud is for the purpose of returning the defrauded party to its position before the fraud. Reardon, 183 S.W.3d at 438.

Based on this record, we cannot agree that Allen’s interest no longer existed at the time of the trial court’s summary judgment. First, this argument is not in Rees-Jones or Devon’s motions for summary judgment, nor is it in any briefing expressly incorporated into those motions. Second, Rees-Jones and Devon have not directed us to any summary judgment evidence that Chief retired Allen’s interest and that it no longer existed after the redemption. Devon Energy Production Company, L.P. purchased all of the membership interests in Chief and became Chief’s sole owner under the 2006 sale agreement. Instead of suing the parent company Devon Energy Production, Allen sued “Devon Energy Holdings, L.L.C. formerly known as Chief Holdings, L.L.C.” At oral argument, Allen asserted that at the time the trial court granted summary judgment, Chief existed renamed as Devon Energy Holdings, L.L.C. under Devon Energy Production’s ownership. Rees-Jones and Devon did not present any evidence to show any changes in the structure of Chief after the 2006 purchase. Chief’s existence and composition may have changed after the 2009 summary judgment order, but that record is not before us. Based on this limited record, Rees-Jones and Devon did not conclusively prove in their summary judgment motions that rescission was not available as a remedy from Devon.

Rees-Jones asserts in a post-argument brief that rescission is not available from him because Chief redeemed Allen’s interest and not Rees-Jones individually. Rees-Jones did not raise this argument in his summary judgment motion, his response to the motion to compel incorporated into the summary judgment motion, or his original brief in this appeal. While his summary judgment motion incorporates “supplemental briefing” filed in connection with the motion to compel, this reference is too vague to expressly present an argument for the trial court’s consideration.

We therefore do not reach the issue of whether rescission is appropriate against Rees-Jones.

B. Disgorgement of Profits

Allen seeks to recover the “profits” made by Rees-Jones and Chief, now Devon, as a result of the increased value of Rees-Jones’s membership interest at the time of the 2006 purchase. Rees-Jones and Devon contend that “profits” are not an available remedy. Rees-Jones and Devon further contend that Allen’s damages, if any, should be measured by the difference in value between the redemption price and what his interest was worth on the date of redemption.

1. Profits Generally

Disgorgement of profits is an equitable remedy for fraud and violations of securities law. See Robertson, 204 S.W.3d at 494 (stating that “disgorgement of profits has long been recognized as an appropriate remedy for fraud”); Jordan, 815 F.2d at 441–42 (“There are two standard measures of damages in securities law. One, the ‘rescissionary’ measure of damages, is based on defendants’ gain . . . . The other, the ‘market’ measure of damages, is based on the plaintiffs’ loss.”). The disgorgement of profits is also an equitable remedy for breach of fiduciary duty claims, especially when the breach arises out of fraudulent inducement actions. ERI Consulting Eng’r, Inc. v. Swinnea, 318 S.W.3d 867, 871–72, 876–77 (Tex. 2010). See also Daniel v. Falcon Interest Realty Corp., 190 S.W.3d 177, 187 (Tex. App.—Houston [1st Dist.] 2005, no pet.) (stating that “a fiduciary must account for, and yield to the beneficiary, any profit he makes as a result of his breach of fiduciary duty”).

In ERI Consulting, the Court concluded that the defendants breached their fiduciary duty and fraudulently induced the plaintiffs to sell their ownership interest in a business. Id. at 871­–72. The Court held that requiring the defendants to disgorge contractual consideration from a subsequent sale of the business after the breach was an appropriate remedy. Id. at 874. The Court reasoned that the equitable remedy of disgorgement served to deter fraudulent conduct, especially within fiduciary relationships. Id.

Rees-Jones and Devon argue that ERI Consulting does not apply in this case because Rees-Jones was not a fiduciary and the facts in ERI were more extreme, involving stolen clients, breach of a non-compete agreement, and fraudulent business dealings. While the facts in ERI Consulting may differ from those here, the key issue is the Court’s damage holding and that holding applies to fraud and breach of fiduciary duty claims.

Rees-Jones and Devon failed to negate Allen’s fraud claims conclusively and Allen raised a fact issue as to Rees-Jones’s status as a fiduciary. Disgorgement of profits, therefore, is available as a remedy for Allen’s fraudulent inducement and breach of fiduciary duty claims.

2. Profits Under the TSA

Rees-Jones and Devon contend that the TSA also precludes Allen’s recovery of profits because the TSA limits damages to the difference in value “at the time of sale.” Tex. Rev. Civ. Stat. Ann. art. 581-33D(4) (West 2010). According to this argument, Allen’s damages should be limited to the difference in the value between what he was paid and what his membership interest was worth at the time of the 2004 redemption.

The TSA sets out a specific measure of damages for a seller in the absence of rescission. These damages, known as “rescissory damages” or “rescissionary damages,” are measured by “(a) the value of the security at the time of sale plus the amount of any income the buyer received on the security, less (b) the consideration paid the seller for the security plus interest thereon at the legal rate from the date of payment to the seller.” Tex. Rev. Civ. Stat. Ann. art. 581-33D(4) (emphasis added). Rees-Jones and Devon contend that the italicized language is limited to income, such as distributions, and does not include any subsequent capital appreciation or the resulting profits received as a result of a fraud.

Allen responds that the increased value of a security after a sale procured by fraud falls within the definition of “income” under the TSA. The word “income” is not defined in the TSA, but it has been defined as “money . . . that one receives . . . from investments.” Black’s Law Dictionary 778 (9th ed. 2009). See also The New Oxford American Dictionary 859 (2001) (defining income as “money received . . . through investments”). The United States Supreme Court has indicated that “income” received by a defrauding buyer of security includes the buyer’s capital gains or profits upon the re-sale of the security. See generally Randall v. Loftsgaarden, 478 U.S. 647, 657, 106 S. Ct. 3143, 3149 (1986) (stating in dicta that “income received” as used in section 12(2) of Securities Act of 1933 includes capital gains and holding that income does not include tax benefits). The adjective “any” itself suggests a broad reading of “income.”

A number of federal authorities confirm that a broad reading of the phrase “any income the buyer receives on a security” is appropriate and may encompass capital gains realized by the buyer upon sale of the security.[35] The United States Supreme Court has stated the measure of damages for a defrauded seller may include the buyer’s profit when the defendant has made a profit greater than the difference between the value of what was paid and the value of the stock at the time of the sale had there been no fraud. Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 155, 92 S. Ct. 1456, 1473 (1972). The Court cited favorably Janigan v. Taylor, 344 F.2d 781, 786 (1st Cir. 1965), cert. denied, 382 U.S. 879, 86 S. Ct. 163 (1965), in which the court stated that “a wrongdoer should disgorge his fraudulent enrichment.” Other federal courts have held that a seller may recover a fraudulent buyer’s profits as damages made on the resale of stock to avoid unjust enrichment and to give the benefit of any windfall to the defrauded party rather than the wrongdoer. See, e.g., Lawton, 327 F.3d at 45 (citing Janigan, 344 F.2d at 786); see Pidcock v. Sunnyland Am., Inc., 854 F.2d 443, 446 (11th Cir. 1988) (holding trial court erred by not considering disgorgement remedy in fraud claims arising from sale of company).[36] The Supreme Court in Randall also noted that a rescissory measure of damages is intended to not only compensate defrauded investors but to prevent unjust enrichment of the fraudulent party, to deter fraud, to encourage full disclosure, and to shift the risk of any decline in the value of the security to the defendants. 478 U.S. at 653, 659, 106 S. Ct. at 3148, 3151.

We disagree with Rees-Jones and Devon’s assertion that the Fourteenth Court of Appeals rejected this line of federal authority in Reardon. 183 S.W.3d at 441. In Reardon, our sister court of appeals discussed only one federal case, Dupuy v. Dupuy, 551 F.2d 1005, 1024–25 (5th Cir. 1977). See Reardon, 183 S.W.3d at 441. Dupuy allowed a jury to determine a reasonable time in the future that the defrauded seller would have sold his stock but for the fraud, and to award damages based on the price at that time. Dupuy, 551 F.2d at 1024–25. Reardon did not reject the federal authority supporting a broad reading of “any income the buyer received on the security.” Instead, Reardon rejected calculating damages based on the highest intermediate value between date of the alleged wrongful conduct and trial. Reardon, 183 S.W.3d at 441.

Based on the plain language of the TSA and guiding federal law, we hold that “any income” received by the buyer includes capital appreciation after the June 2004 redemption and may be recovered under the TSA.

C. Speculative Damages

Rees-Jones and Devon contend that Allen’s damages are speculative and therefore not recoverable as a matter of law. We conclude that Texas law does not bar Allen’s damages as too speculative because the cases relied on by Rees-Jones and Devon do not apply and the law favors granting a defrauded seller, rather than the defrauding buyer, the benefit of increases in value after the fraud.

1. Reardon & Miga

Rees-Jones and Devon first assert that Reardon adopted a rule precluding the recovery of damages based on an increase in the value of a security after a sale because such damages are inherently speculative. Reardon, 183 S.W.3d at 442 (“There can be no recovery for damages that are speculative or conjectural.”).

In Reardon, 45 shareholders sued a company for fraudulently inducing them to exchange their ownership interests for a specific class of stock that, unknown to them, was highly unlikely to convert to a more valuable class as the company had promised. Reardon, 183 S.W.3d at 432. The court held that the plaintiffs’ damage experts did not properly calculate rescissory damages because they did not account for the consideration that the plaintiffs gave to receive the shares and, therefore, their calculation would not return the plaintiffs to their position before the alleged fraud. Id. at 438, 439. In dicta, the court offered a second reason that the experts’ testimony did not raise a fact issue on damages: the damages were too speculative because the damage model was based on the increased value of the stock at its highest intermediate value between the stock exchange and trial. Id. at 440–41. The plaintiffs’ damage model assumed that all 45 shareholders would have rejected the offer absent fraud, and that all of them would have waited five years and exercised their option to sell at the “highest intermediate value.” Id. The plaintiffs’ experts also testified that they had not spoken to the individual shareholders to discover their intentions over the five-year period before calculating damages. Id. at 439–40. Reardon declined to accept the highest intermediary value “as part of a rescission remedy in a securities fraud case.” Id. at 441. Citing Miga v. Jensen, 96 S.W.3d 207, 211 (Tex. 2002), the court stated that allowing such recovery “would provide the Investors with the windfall yielded from a riskless investment in a high-risk field.” Id. at 442.

We disagree with Rees-Jones and Devon’s assertion that Reardon bars Allen’s damages claims as impermissibly speculative because of four factual differences that make the facts here not as speculative as those in Reardon. First, the future event for calculating damages is not a randomly selected date, like the highest intermediate value in Reardon, but the fixed date of the sale to Devon Energy in 2006. Second, Allen is one person deciding whether to redeem his interest at a fixed point—the date of the redemption. In Reardon, the damage model assumed that all 45 plaintiffs would choose to exercise their option to sell at the same time and exactly when the stock was the most valuable between the date of the offer to exchange their interests and the time of trial. Id. at 440–41. Third, this case involves the redemption of Allen’s interest rather than a complicated scheme of updating stock based on the company’s performance and income. Fourth, Allen held onto his investment for years before the redemption. The bylaws of Chief, a closely-held corporation, do not provide any opportunity for a Class A member like Allen to force a redemption of his interest. There is no evidence in the record that he would have had another opportunity to redeem his interest between 2004 and 2006. Thus, there is no evidence that he had an option to obtain an “intermediary” value. In essence, if a fact-finder were to conclude that Allen would have held his interest in June 2004 and missed that redemption opportunity, Rees-Jones and Devon presented no evidence that he could have redeemed his interest in the intervening time before the 2006 purchase. The facts here are far less speculative than Reardon.

Rees-Jones and Devon also rely on the Texas Supreme Court’s decision in Miga v. Jensen. In Miga, an employer wrongfully denied an employee the contractual right to exercise his option to purchase stock in a privately-held corporation upon his termination. Id. The Court cautioned that it did not want to put the non-breaching party in a better position by providing him with “an investment free of the risks other shareholders undertook.” Id. at 216. Based on this language, which was subsequently quoted in Reardon, Rees-Jones and Devon argue that Texas law does not sanction “investing hindsight” and precludes an investor from “riding” the market risk-free, suffering no loss if the market goes down and participating in gains if the market goes up.

We do not interpret Miga as adopting a per se rule that investors can never recover as damages the post-transaction profits received by a defrauding buyer because the facts there are distinguishable from this case and the plaintiff in Miga asserted a different cause of action than Allen. Like Reardon, the facts in Miga are more speculative than the facts here for two reasons. First, nothing indicated when or if the injured employee in Miga would have sold the stock if he had acquired it. Id. at 213, 216. Allen, in contrast, asserts the 2006 sale provides a clear date on which all ownership interests in Chief were sold. Rees-Jones and Devon assert that the sale is too attenuated from Allen’s decision to redeem in 2004 because a factfinder must speculate that Allen would have kept his entire interest for the two years between the redemption and the 2006 sale. But nothing in the record indicates Allen could have sold his interest at any time during this intervening two years or thereafter. Second, a jury might conclude that Chief’s success by 2004 makes it less speculative that Allen would have sold his investment if he had received full disclosure of all of Chief’s activities.[37]

Second, Miga does not address damages recoverable under Allen’s causes of action: fraud, breach of fiduciary duty, and the TSA. As the Court described it, “This is a classic breach of contract case; Miga has no cause of action for fraud.” Id. at 211. The case here is not a breach of contract case brought by a would-be buyer, but fraud, TSA, and breach of fiduciary duty claims by a seller. Rees-Jones and Devon’s reliance on Miga is misplaced.

2. Benefit to Defrauded Seller

We further reject Rees-Jones and Devon’s contention because the law favors granting the benefit of the delay to the injured party over the wrongdoer. See Janigan, 344 F.2d at 786 (noting that even though unforeseeable increases in value after security sold to fraudulent party are speculative, “[i]t is more appropriate to give the defrauded party the benefit even of windfalls than to let the fraudulent party keep them.”); Jordan, 815 F.2d at 441 (stating courts award rescissionary damages “based on defendants’ gain [to] make the fraud unprofitable and therefore deter wrongdoing.”). See generally Alan R. Bromberg & Lewis D. Lowenfels, Bromberg & Lowenfels on Securities Fraud §§ 8.3, 8.7 (2d ed. 2010) (stating disgorgement damages measured by defendant’s profits create windfall for plaintiff).

By its very nature, a disgorgement remedy allows a seller to benefit from the time during which the buyer holds the stock before it is sold. As a result of that delay, the defrauded seller would not face the same risks that the buyer had faced. Texas courts permit disgorgement of profits and rescission in fraud cases, and both those remedies grant this relief even though the defrauded plaintiff avoids certain risks. See also ERI Consulting, 318 S.W.3d at 874; Tex. Capital Sec., 58 S.W.3d at 773. Furthermore, the comment to TSA section 33H involving the statute of limitations supports Allen’s contention that the damaged investor’s avoidance of that risk does not mean that recovery is unavailable for the increased value of the security after a fraudulent transaction. The comment provides a time limit in which “an investor can play the market at the expense of the violator, who remains liable and is likely to be sued only when the investor fares badly.” Tex. Rev. Civ. Stat. Ann. art. 581-33H cmt. (West 2010). Therefore, the investor is permitted to benefit from hindsight before deciding whether to initiate litigation. Id.; see also Dan B. Dobbs, Law of Remedies, 597–99, 598 n.28 (West, 2nd ed. 1993) (stating that “the defendant may be required to disgorge illicit gains in a transaction even when the transaction has caused no loss at all” with footnote emphasizing disgorgement remedy in cases with securities law violations).

Rees-Jones and Devon identify portions of Allen’s deposition testimony in which he testified that whether he would have sold his interest in June 2004 was “clearly speculation.” We are not persuaded that these are magic words that in themselves make Allen’s damage claims speculative as a matter of law. Rather, the statements must be read in context. For example, Allen testified that whether he would have sold depended on the specifics of the additional information he was given and further testified that he would not have sold at the redemption price.

Finally, Rees-Jones and Devon assert that unforeseeable events before the 2006 sale further added to the speculation behind Allen’s damage claims. They assert Hurricanes Katrina and Rita and the Railroad Commission’s new regulations on well spacing raised oil and gas prices and could not have been anticipated. These subsequent events do not make it any more speculative as to whether Allen would have redeemed his ownership interest in June 2004 if full disclosure of material facts had occurred at that time. Additionally, as discussed earlier, courts have refused to allow a fraudulent buyer to benefit from a windfall generated as a result of unforeseeable post-transaction events. See Lawton, 327 F.3d at 45–46; Janigan, 344 F.2d at 786–87. We hold that Rees-Jones and Devon failed to prove Allen’s damages were speculative as a matter of law.[38]

D. Difference in Value at Redemption

Rees-Jones and Devon alternatively contend that, assuming that Allen’s damages are not speculative, the only proper damage measure would be the difference in value on the date of sale. A limitation on damages argument can be the basis for a partial summary judgment, but cannot be a ground for an appellate court to affirm a summary judgment disposing of the entire case.

Rees-Jones and Devon further contend in the alternative that we should nevertheless affirm “the portions of the summary judgment that exclude Allen’s. . . post-June 2004 claims.” The summary judgment order does not, however, contain any provision limiting Allen’s recovery. We cannot affirm a ruling that was never made.

E. Conclusion on Damages

We conclude that Devon did not conclusively prove that rescission is not an available remedy for Allen and Texas law also allows disgorgement of profits as a remedy for fraud and breach of fiduciary duty. We also conclude that Allen’s claim for damages is not speculative as a matter of law. We do not hold that Allen is necessarily entitled to these remedies, but only that summary judgment on this ground was inappropriate based on this record.

Accordingly, we sustain Allen’s third sub-issue.

Conclusion

Rees-Jones and Devon contend that Allen contractually agreed in the redemption agreement to accept the risk that Chief’s value would substantially increase in the future. But the redemption agreement does not clearly and unequivocally express an intent to disclaim reliance and therefore does not negate the reliance element of Allen’s fraud claims as a matter of law. Because Rees–Jones and Devon have not established their right to summary judgment on Allen’s claim that the redemption agreement was fraudulently induced, they cannot establish their right to summary judgment on the basis of the releases in the redemption agreement; if the redemption agreement was fraudulently induced, its provisions are vitiated. Nor did the language of the redemption agreement satisfy the requirements for a valid release under the TSA.

Rees-Jones and Devon next contend that Allen has no claim for fraud because he “chose to cash out and to forego the future market risk of the exploration and production industry.” Therefore, any omissions or misrepresentations by Rees-Jones and Chief were not material as a matter of law. Based on this record, we conclude that a fact issue exists on whether Rees-Jones and Chief provided Allen with all material information to make his decision to redeem intelligently. Allen also identified at least four misrepresentations of fact made by Rees-Jones that a jury could conclude were material to his decision to redeem. A fact issue also exists on whether Allen could have justifiably relied on the claimed omissions or misrepresentations.[39] The record further presents a fact issue on the existence of an informal fiduciary relationship. Allen’s TSA claim is also not barred by either statute of limitations or his knowledge at the time. Finally, rescission and disgorgement of profits are available remedies to Allen’s various causes of action and his damages are not impermissibly speculative as a matter of law.

We hold that summary judgment was improper on Allen’s claims for fraudulent non-disclosure, breach of fiduciary duty, and violations of the TSA. The trial court properly granted summary judgment on Allen’s shareholder oppression cause of action. The trial court also properly granted summary judgment on Allen’s common law and section 27.01 fraudulent misrepresentation claims based on three statements on Chief’s value, but not on the remainder of his fraudulent misrepresentation claims.[40]

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See: http://www.1stcoa.courts.state.tx.us/opinions/htmlopinion.asp?OpinionId=89463

Outcome: We affirm the judgment of the trial court on Allen’s shareholder oppression claims and the three misrepresentation claims set forth above. We reverse the remainder of the judgment and remand for further proceedings consistent with this opinion.

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