Case Style: Johnson Kidz, Inc. v. Vertex Community Bank, N.A.
Case Number: 05-16-00110-CV
Judge: David J. Schenck
Court: Texas Court of Appeals, Fifth District on Appeal from 134th Judicial District Court of Dallas County
Plaintiff's Attorney: Julia Pendery
Defendant's Attorney: Woodward Glenn and Matt Glenn
Description: Appellant Johnson Kidz, Inc. (“Kidz”), the tenant of commercial property owned by
appellee Veritex Community Bank, N.A. (“Veritex”), sued Veritex after the property became
uninhabitable due to vandalism. Veritex answered asserting various affirmative defenses and
conditionally counter sued Kidz for breach of contract and Kidz’s owner, Nelson Johnson, for
breach of a guaranty agreement, should there be a finding Veritex ratified a lease agreement (the
“Lease”) that was in effect when it acquired the property. Veritex sought traditional-summary
judgment on its affirmative defenses and/or alternatively on its counterclaims should the court
determine Veritex ratified the Lease, which Veritex denied it had. The trial court granted
Veritex’s motion without specifying the grounds on which the ruling was based. The order
granting summary judgment awards no damages and states all relief not expressly granted is
denied and indicates the order is a final judgment disposing of all parties and all claims including
attorney’s fee claims and is intended to completely dispose of the entire case.
We conclude genuine issues of material fact exist as to Kidz’s claims of breach of
contract, constructive eviction, and violations of the property code, and note that Veritex did not
move for summary judgment on Kidz’s gross negligence and willful misconduct claims. We
conclude there are no genuine issues of material fact as to Kidz’s common-law fraud, fraudulent
inducement, and negligent misrepresentation claims. Accordingly, we reverse, in part, the trial
court’s judgment dismissing Kidz’s breach of contract, constructive eviction, violations of the
property code, gross negligence, and willful misconduct claims, and remand those claims for
further proceedings. We affirm, in part, the trial court’s judgment dismissing Kidz’s commonlaw
fraud, fraudulent inducement, and negligent misrepresentation claims.
It appears from the trial court’s order granting summary judgment that the trial court did
not grant Veritex its alternative, conditional request for relief on its counterclaims as no damages
or attorney’s fees were awarded. Thus, it appears the trial court found the summary judgment
evidence established Veritex did not ratify the Lease and the condition upon which Veritex
asserted its counterclaims was not triggered. Because we conclude a fact issue exists as to
whether Veritex ratified the Lease, Veritex’s counterclaims are remanded for further
proceedings. Because all issues are settled in law, we issue this memorandum opinion. TEX. R.
APP. P. 47.4.
On February 1, 2011, Kidz entered into a Commercial Lease Agreement (the “Lease”)
with Eoff Savannah Square, LLC (“Eoff”), as landlord, for commercial space in a multi-use
office building located in Plano, Texas (the “Property”). Kidz operated a daycare center in that
commercial space. The Lease term was from February 1, 2011, through March 31, 2017.
Veritex succeeded Eoff as landlord through a foreclosure sale on May 1, 2012. On or about
October 6, 2013, after operating hours, someone broke into the Property and vandalized both real
and personal property, making the premises uninhabitable. Kidz reported the event to the police
department and Veritex. The police suspected a former disgruntled employee of Kidz was the
perpetrator. Veritex told Kidz that the Property would be repaired within 120 days, but the
Property remained in a state of unusable disrepair thereafter. As a result, Kidz notified Veritex
that it was terminating the Lease and demanded a refund of rental payments, the return of a
security deposit, and payment for lost income in accordance with the governing Lease terms.
When Veritex refused to accept Kidz termination notice, Kidz sued Veritex asserting
claims of breach of contract, constructive eviction, violation of various property code provisions,
fraud, fraudulent inducement, negligent misrepresentation, gross negligence and willful
misconduct. Veritex counter sued Kidz for breach of the Lease and sued Johnson for breach of
a guaranty agreement and requested an offset for funds recovered by Kidz. Initially, Veritex
filed both no-evidence and traditional motions for summary judgment. Veritex abandoned those
motions and later filed a traditional motion for summary judgment claiming: (1) Kidz does not
have a claim for breach of contract because Veritex did not ratify the Lease; (2) if Veritex
ratified the Lease, Kidz’s claims are barred by the Lease’s indemnity and exemptions from
liability provisions; (3) Kidz caused the damages it claims support its constructive eviction
claim; (4) because Kidz owed rent, the property code provisions governing security deposits do
not apply; (5) Kidz’s fraud and negligence claims are centered on nothing more than speculative
comments about what might occur in the future; (6) Kidz recovered its damages from its
insurance carrier; and (7) if Veritex ratified the Lease, Kidz breached the Lease by giving notice
of termination after the deadline specified in the Lease. Veritex requested that the court enter a
take-nothing judgment against Kidz, and/or alternatively, should the court find Veritex ratified
the Lease, which Veritex denied, that Veritex have and recover of and from Kidz and Johnson,
jointly and severally, rental payments and attorney’s fees.
The trial court granted Veritex’s traditional motion for summary judgment without
specifying the basis for its decision. The court’s order granting summary judgment does not
award Veritex damages or attorney’s fees and includes recitals that “[a]ll relief not expressly
granted is hereby denied” and “[t]his is a final judgment disposing of all parties and all claims
including attorney’s fee claims. It is the Court’s intention to completely dispose of the entire
STANDARD OF REVIEW
The standard of review in traditional-summary-judgment cases is well established.
Gonzalez v. VATR Constr. LLC, 418 S.W.3d 777, 782 (Tex. App.—Dallas 2013, no pet.). The
issue on appeal is whether the movant met its summary judgment burden by establishing that no
genuine issue of material fact exists and that it is entitled to judgment as a matter of law. TEX. R.
CIV. P. 166a(c). The movant bears the burden of proof and all doubts about the existence of a
genuine issue of material fact are resolved against the movant. Nixon v. Mr. Prop. Mgmt. Co.,
690 S.W.2d 546, 548–49 (Tex. 1985). All evidence and any reasonable inferences must be
viewed in the light most favorable to the nonmovant. Id. Evidence favoring the movant’s
position will not be considered unless it is not controverted. Great Am. Reserve Ins. Co. v. San
Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex. 1965). When, as is the case here, a party
moves for summary judgment on multiple grounds and the trial court’s order granting summary
judgment does not specify the ground or grounds on which it was based, a party who appeals that
1 This language demonstrates the trial court’s intention that its order be final. See Lehmann v. Har-Con Corp., 39 S.W.3d 191, 206 (Tex.
2001). Because the order disposed of Kidz’s breach of contract claim, the condition precedent to Veritex’s request for relief, that being the
existence of an agreement by ratification, did not exist, and the order effectively disposed of Veritex’s counterclaim by implication. See Walker
v. Sharpe, 807 S.W.2d 442, 446 (Tex. App.—Corpus Christi 1991, no writ).
order must negate all possible grounds upon which the order could have been based. See
Malooly Bros., Inc. v. Napier, 461 S.W.2d 119, 121 (Tex. 1970).
I. Summary Judgment on Affirmative Defenses
In its first issue, Kidz argues the trial court erred in granting Veritex summary judgment
on its affirmative defenses. Summary judgment granted on the basis of an affirmative defense
will be affirmed only if the record establishes that the movant conclusively proved all elements
of its affirmative defense as a matter of law. City of Houston v. Clear Creek Basin Auth., 589
S.W.2d 671, 678 (Tex. 1979). If the summary judgment evidence on any element of the
affirmative defense is controverted, the affirmative defense will not serve as the basis for a
summary judgment. See Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 494 (Tex. 1991).
A. Ratification Defense
Veritex maintains Kidz has no breach of contract claim because Veritex did not ratify the
Lease after becoming the owner of the Property. Veritex became the owner of the Property by
foreclosure. Generally, a valid foreclosure of an owner’s interest in property terminates any
agreement through which the owner has leased the property to another. Kimzey Wash., LLC v.
L.G. Auto Laundry, LP , 418 S.W.3d 291, 294 (Tex. App.—Dallas 2013, pet. dism’d).
Therefore, post foreclosure, the Lease did not exist unless it was ratified by the parties. The
elements of ratification are: (1) approval by act, word, or conduct; (2) with full knowledge of the
facts of the earlier act; and (3) with the intention of giving validity to the earlier act. White v.
Harrison, 390 S.W.3d 666, 672 (Tex. App.—Dallas 2012, no pet.).
As to the issue of ratification, Veritex presented a letter dated May 1, 2012, whereby
Veritex notified Kidz that it had purchased the Property at a foreclosure sale, that future rental
payments under the Lease should be made to Veritex, and that Veritex’s acceptance of payments
from Kidz should not be construed as a ratification of the Lease. Veritex also presented a letter
dated July 19, 2012, whereby Veritex notified Kidz that it had not yet made a decision on
ratification or termination of the Lease, and that certain issues would have to be resolved and
agreed to in order for Veritex to make that decision. In response, Kidz presented as summary
judgment evidence a June 4, 2012 letter, whereby Veritex notified Kidz that Veritex was willing
to ratify the Lease if Kidz agreed to specified terms and conditions, including a partial rent
payment for the month of April. In addition, Kidz presented a declaration from Johnson in
which he testified that on or about June 27, 2012, Kidz paid Veritex the partial rent payment
specified in the letter of June 4, 2012, Johnson signed the June 4, 2012 letter on behalf of Kidz
accepting Veritex’s offer to ratify the Lease and agreeing to the specified terms and conditions as
specified by Veritex, and, further, that he caused the acceptance letter to be delivered to Veritex.
Kidz also presented an excerpt from the deposition of Veritex’s Senior Vice President, whereby
he acknowledged that Veritex had ratified the Lease. Thus, Kidz’s summary judgment evidence
controverted Veritex’s ratification defense, precluding the defense from serving as a basis for a
summary judgment. Accordingly, we sustain Kidz’s first issue as to Veritex’s ratification
B. Indemnity Defense
Veritex also alleged that, if it ratified the Lease, the Lease’s indemnity provision relieves
it of liability to Kidz. It provides:
Landlord shall not be liable to Tenant or to Tenant’s employees, agents, invitees
or visitors, or to any other person for injury to persons or damage to property on
about the Premises or any adjacent area owned by landlord caused by the
negligence or misconduct of Tenant, Tenant’s employees, subtenants, agents,
licensees or concessionaires or any other person entering the Premises under
express or implied invitation of Tenant, or arising out of the use of the Premises
by Tenant and the conduct of Tenant’s business, or arising out of any breach or
default by Tenant in the performance of Tenant’s obligations under this Lease,
and Tenant hereby agrees to indemnify and hold Landlord harmless from any
loss, expense or claims arising out of such damage or injury.
In its summary judgment motion, Veritex argues the indemnity provision applies in this case
because Kidz’s damages were caused by the acts of an employee of Kidz. As to the identity of
the person who damaged the Property, Veritex presented the affidavit of Veritex’s Senior Vice
President in which he stated Johnson told him he “suspected” that an employee or former
employee of Kidz entered the premises and caused extensive damage to the Property. Veritex
also included the incident report from the Plano Police Department in which the reporting officer
indicated that he had asked Johnson if Kidz had recently terminated any employees and he
responded “yes.” A former employee was listed as a suspect in the police report. As relevant to
this case, the indemnity provision would only be triggered if the misconduct of a Kidz’s
employee caused damage to property by entering the property with the express or implied
consent of Kidz. At best the evidence presented established that a former employee, not a
current employee, of Kidz was suspected of having damaged the Property in a criminal act, and
clearly not with the express or implied permission of Kidz. Moreover, Veritex’s reliance on the
indemnity provision cannot support summary judgment because it precludes liability for loss of
property “on or about the premises.” It does not preclude liability for damage to the Property
itself. For summary judgment purposes, the indemnity language does not unambiguously
foreclose claims for damages such as those at issue here. We sustain Kidz first issue as to
Veritex’s indemnity defense.
C. Exemptions from Liability Defense
Veritex additionally alleged that, if it ratified the Lease, the Lease’s Exemptions from
Liability provision relieves it of liability to Kidz. That provision provides:
Landlord shall not be liable for any damage or injury to the persons, business (or
any loss of income), goods, inventory, furnishings, fixtures, equipment,
merchandise or other property of Tenant, Tenant’s employees, invitees, customers
or any other person in or about the Premises, whether the damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or wind; (b) the
breakage, leakage obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air-conditioning, or lighting fixtures or any other cause; (c)
conditions arising on or about the Premises or upon other portions of any building
of which the Premises is a part, or from other sources or places, or (d) any act or
omission of any other tenant of any building on the Property. Landlord shall not
be liable for any damage or injury even though the cause of or the means of
repairing the damage or injury are not accessible to Tenant. The provisions of
this Section 6.08 will not, however, exempt Landlord from liability for Landlord’s
gross negligence or willful misconduct.
In its summary judgment motion, Veritex argued this provision bars Kidz from asserting a
damage claim against Veritex because there is no evidence that Veritex was grossly negligent or
engaged in willful misconduct. However, Veritex abandoned its earlier no-evidence motion for
summary judgment and thereafter did not attempt to revive it or to challenge the specific
elements of Kidz’s gross negligence and willful misconduct claims that Veritex now contends
lack supporting evidence. Thus, if this provision applies in this case—an issue we do not address
here—it cannot serve as a basis upon which Veritex could have obtained summary judgment.
See Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 805 (Tex. App.—Dallas 2008, pet. denied).
Consequently, we sustain Kidz’s first issue as to Veritex’s exemptions-from-liability defense.
D. Constructive Eviction
A constructive eviction occurs when the tenant leaves the leased premises due to conduct
by the landlord which materially interferes with the tenant’s beneficial use of the
premises. Fidelity Mut. Life Ins. Co. v. Robert P. Kaminsky, M.D., P.A., 768 S.W.2d 818, 819
(Tex. App.—Houston [14th Dist.] 1989, no writ). The elements of a constructive eviction claim
are: (1) an intention on the part of the landlord that the tenant shall no longer enjoy the premises,
which intention may be inferred from the circumstances; (2) a material act by the landlord or
those acting for him or with his permission that substantially interferes with the use and
enjoyment of the premises for the purpose for which they are let; (3) permanent deprivation of
the tenant’s use and enjoyment of the premises; and (4) tenant’s abandonment of the premises
within a reasonable time after the commission of the act. Metroplex Glass Center, Inc. v.
Vantage Properties, Inc., 646 S.W.2d 263, 265 (Tex. App.—Dallas 1983, writ ref’d n.r.e.).
Veritex urges that it negated the second element of Kidz’s constructive eviction claim
because the Property may have been rendered uninhabitable by a former employee, and not
through any fault of Veritex, and Kidz refused to cooperate in getting the repairs done.2 In
contrast, Kidz claims that Veritex’s failure to repair the Property following the burglary and
vandalism of same constitutes constructive eviction. As noted, there is no proof to support
summary judgment, and certainly no conclusive proof to support summary judgment, that any
identifiable person, much less a current or former Kidz employee, committed the underlying
offense. Under the circumstances, the question of who is ultimately responsible for the state of
disrepair is an issue to be decided by the trier of fact, conditioned upon a finding Veritex ratified
the Lease. See Anderson v. Jackson, No. 06-3298, 2007 WL 458232, at *10 (E.D. La. Feb. 6,
2007). Moreover, if Veritex ratified the Lease and was thus obligated to repair the Property and
its failure to do so rendered the Property untenantable, that failure will support a constructive
eviction claim. See Ingram v. Fred, 210 S.W. 298, 300 (Tex. Civ. App.—Fort Worth 1918, writ
ref’d). Consequently, fact issues exist concerning Veritex’s defense of Kidz’s constructive
eviction claim precluding summary judgment on the claim. Accordingly, we affirm Kidz’s first
issue as to Veritex’s defense to Kidz’s constructive eviction claim.
E. Outstanding Rent Defense to Property Code Claims
In defense of Kidz’s claims under the property code concerning its security deposit,
Veritex argues it was not obliged to comply with the provisions of the property code because
Kidz owed rent when it surrendered the premises and there is no controversy on the amount of
2 While Veritex argues Kidz refused to cooperate in getting the repairs done, there is no summary judgment evidence to support this
rent owed. In his affidavit, Veritex’s Senior Vice President states, without documenting the
basis for his opinion, that Kidz was short on its September 2013 rent payment by $2,400.
Meanwhile, Johnson countered this statement by declaring Kidz paid all rent through the date of
termination of the Lease and no additional outstanding rent was due. On this state of the record,
a fact issue exists as to whether Veritex was required to comply with various provisions of the
property code relative to the security deposit. We sustain Kidz’s first issue as to Veritex’s
defense to Kidz’s property-code-violation claims.
F. Negligent Misrepresentation and Fraud Claims
Kidz contends that Veritex’s representations concerning the completion date for the
repairs, whether made fraudulently or negligently, caused it to forgo terminating the Lease, for a
time, and to continue to pay rent and abide by the obligations set forth in the Lease. The
summary judgment evidence may well support the conclusion that Veritex misinformed Kidz
about how long the contractors would take to effect the repairs necessary to permit Kidz to
reoccupy. The parties do not disagree on this. Instead, Veritex urges that the representations
amounted to a statement of opinion, for which it urges no tort claim would sound, and that any
misrepresentation would be dealt with in formulating a contract remedy. We agree with
Veritex’s second argument and limit our analysis to it.
The damages sought are entirely related to the contract Kidz argues Veritex ratified.
When the injury is only the economic loss to the subject of a contract itself the action sounds in
contract alone. Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494–95 (Tex. 1991). Veritex’s
duty to repair the Property (and any communication relating to the timing of repairs) arose solely
from the contract.3 Kidz’s damages of rent paid were only for economic loss caused by Veritex’s
failure to perform as required by contract.
Consequently, Veritex was entitled to summary judgment on Kidz’s negligent
misrepresentation, common-law fraud, and fraudulent inducement claims. Accordingly, we
overrule Kidz’s first issue as to its negligent misrepresentation, common-law fraud, and
fraudulent inducement claims.
II. Veritex’s Counterclaims
Kidz urges because the trial court did not award Veritex damages and attorney’s fees, it
appears Veritex’s counterclaims were not grounds for summary judgment. Kidz states, because
it is required to address any potential ground, it is compelled to argue the trial court erred in
granting Veritex summary judgment on its counterclaims. When a movant moves for summary
judgment on its own claims, it must prove it is entitled to summary judgment by establishing
each element of its claim as a matter of law. MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex.
1986). If the movant does not conclusively establish all the elements necessary to its cause of
action, summary judgment is improper. See, e.g., Wesson v. Jefferson S&L Ass’n, 641 S.W.2d
903, 906 (Tex. 1982).
As we previously stated, it appears from the trial court’s order granting summary
judgment that the trial court did not grant Veritex its alternative, conditional request for relief on
its counterclaims as no damages or attorney’s fees were awarded. Accordingly, Kidz’s second
issue is moot.
3 Under the contract, Veritex was obligated to repair and rebuild the Property if it could reasonably be completed within 120 days of notice
of the occurrence of the damage.
Outcome: We reverse, in part, the trial court’s judgment dismissing Kidz’s breach of contract,
constructive eviction, violations of the property code, gross negligence, and willful misconduct
claims, and remand those claims for further proceedings. We remand Veritex’s counterclaims
for further proceedings consistent with this opinion. We affirm, in part, the trial court’s
judgment dismissing Kidz’s common-law fraud, fraudulent inducement, and negligent