Date: 05-19-2015

Case Style: Mikob Properties, Inc., Allan Klein, and Mitchell Kobernick v. David Joachim, International Realty Concepts, Inc., and H.S. Joachim Family Limited Partnership LTD.

Case Number: 05-13-01613-CV

Judge: Bill Whitehill

Court: Texas Court of Appeals, Fifth Court of Appeal from 101st Judicial District Court of Dallas County

Plaintiff's Attorney: Ryan K. Lurich for David Joachim, International Realty Concepts, Inc., and H.S. Joachim Family Limited Partnership LTD

Defendant's Attorney: Christopher B. Trowbridge, Jason P. Steed and Jeffrey S. Lowenstein for Mikob Properties, Inc., Allan Klein, and Mitchell Kobernick

Description: This breach of contract case arises out of a settlement agreement negotiated by business
people who were represented by counsel. Appellants assert five issues that present three areas of
dispute: (i) whether the trial court erroneously dismissed appellants’ claim that the appellees
breached a settlement agreement by pursuing a lawsuit not mentioned in the settlement
agreement; (ii) whether the trial court erroneously directed a verdict against appellants’ claim
that they were fraudulently induced into the settlement agreement because there was no evidence
that appellants reasonably relied on the appellees’ statements about the settlement agreement’s
content and effect; and (iii) whether the trial court erred in awarding appellees their attorney’s
fees under appellants’ declaratory judgment claim.
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Because we conclude that (1) the trial court properly interpreted and applied the
settlement agreement’s plain language; (2) appellants’ reliance on the alleged misrepresentations
as a matter of law was not justified; and (3) the trial court could reasonably decide that appellees
should recover their attorneys’ fees incurred in defending against appellants’ declaratory
judgment claim, we affirm the trial court’s judgment.
I. Background
The Parties.
The appellants are: (1) Mikob Properties, Inc.; (2) Alan Klein, individually; and (3)
Mitchell Kobernick, individually. The settlement agreement at issue defined Mikob, Klein,
Kobernick, and another entity not involved in this appeal as the “K&K Group.” We refer to
Mikob, Klein, and Kobernick as “K&K.”
The appellees are: (1) David Joachim; and (2) International Realty Concepts, Inc. The
settlement agreement at issue defined Joachim and IRC as the “IRC Group,” and we use that
reference too.
The Partnerships.
Joachim is IRC’s president. Joachim and IRC brokered a number of real estate
transactions for K&K dating back to the 1980’s.
In 1999, Kobernick, Klein, Joachim, and others formed Hilcom Partners, Ltd.
(“Hilcom”). Kobernick and Klein owned their interest through a trust (the “Trust”). Hilcom’s
purpose was to acquire vacant land and build a hotel.
Hilcom acquired land that was divided into three parcels. Hilcom retained the hotel parcel
and placed the other two parcels into two separate limited partnerships, “Left Field, Ltd.” and
“Right Field, Ltd.” In 2005, the Left Field and Right Field parcels were sold to third parties. The
sales proceeds were loaned to Hilcom.
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Although the hotel was completed in 2001, Hilcom could not obtain permanent financing.
The construction lender, however, agreed to carry the note if the loan was paid down to
$650,000. The Trust loaned Hilcom the money for this payment.
In 2006, a permanent lender agreed to pay off the construction lender and carry the
permanent loan if the Hilcom partner loans were converted to Hilcom partner equity. A new
partnership, Hilcom Mezz Texas, Ltd. (“HM”), was formed to achieve that structure and its sole
purpose was to be a Hilcom limited partner.
Hilcom Mezz GP, L.L.C. was HM’s sole general partner. Kobernick, Klein, and William
Karrington were the LLC’s managers.
HM’s limited partners included, among others, the Trust, Karrington, and Joachim. HM’s
partnership agreement included a schedule reflecting the conversion of partnership debt to equity
and prioritizing partner distributions. The parties called these scheduled distributions as the
“Waterfall.”
The Brokerage Litigation.
In 2005, K&K converted a few apartment complexes into nonprofit housing projects.
Several parties sued K&K and others claiming that they were entitled to commissions from these
transactions (the “Brokerage Litigation”).
IRC intervened in the Brokerage Litigation claiming that it acted as broker in the
purchase of eight condominium complexes involved in the transactions and was entitled to a
percentage of the purchase price. IRC asserted that it had not been paid for its services nor paid
out of cash flows pursuant to a promissory note between IRC and Oak Creek Management, Inc.
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(the “Oak Creek Note”).1 K&K received a take-nothing judgment against the original plaintiffs,
and IRC’s claims were severed from the case.
The Libel Litigation.
In 2007, while K&K were attempting to refinance one of the apartment properties,
Joachim sent a letter to the title company handling the refinancing. K&K characterized
Joachim’s letter as threatening the title company with criminal prosecution if the loan closed. On
January 7, 2008, K&K sued Joachim in Houston asserting business disparagement, defamation,
tortious interference, and civil conspiracy claims (the “Libel Litigation”).
The Hilcom Suit.
In February 2009, Hilcom considered selling the partnership assets. Kobernick prepared a
spreadsheet analyzing potential sales proceeds and included historical payments and
distributions.
Joachim became concerned about some of the payments reflected on the spreadsheet. As
a result, he and Karrington requested access to HM’s books and records. When they received an
unsatisfactory response, on July 31, 2009 Joachim and the other Hilcom limited partners sued
Kobernick and Klein in Houston (the “Hilcom Suit”). That court issued a temporary restraining
order (“TRO”) that prevented the defendants from misusing partnership funds among other
things.
K&K’s counsel was served with the suit on K&K’s behalf on August 12, 2009. On
September 2, 2009, K&K answered the Hilcom Suit. Although that answer included several
affirmative defenses, it did not plead “release.” From September 10, 2009 through May 24, 2011,
the Hilcom Suit parties exchanged written discovery, continued to extend the TRO by
agreement, retained experts, and filed summary judgment motions.
1 The Oak Creek Note was signed by Kobernick as president of Oak Creek Management, Inc.
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The Hilcom Suit asserted negligent misrepresentation claims arising out of alleged
misrepresentations concerning K&K’s ability to manage the partnership, breach of contract for
refusing to allow the inspection of books and records, and failure to provide proper accounting
and notice concerning distributions. The lawsuit also asserted breach of fiduciary duty and alter
ego claims, and requested injunctive relief, actual and exemplary damages, and a constructive
trust and accounting.
The Settlement Agreement.
The Brokerage Litigation was set for trial in the fall of 2009. In August 2009, Kobernick,
Klein, and Joachim began settlement negotiations regarding that case. On August 12, 2009, the
parties signed a Rule 11 settlement agreement regarding the Brokerage Litigation and the Libel
Litigation. The parties, who were represented by counsel, later memorialized their agreement in a
settlement agreement executed on August 27, 2009, two weeks after K&K’s counsel was served
with the IRC Group’s Hilcom Suit petition.
The settlement agreement is between the K&K Group and the IRC Group. That is, all
parties to this appeal are also parties to the settlement agreement and its mutual releases. The
“Brokerage Litigation” and the “Libel Litigation” are also defined terms in the settlement
agreement.
The settlement agreement’s recitals state that “the Parties wish to terminate the Brokerage
Litigation and the Libel Litigation . . . and enter into this Settlement Agreement for the mutual
release and settlement of all disputes and claims that they have or may have had against one
another in connection with the Brokerage Litigation and the Libel Litigation and the Cumidad
Transaction Note, without any admission of liability.”2
2 This note is not involved in this case.
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Section B of the settlement agreement, entitled “Dismissals With Prejudice of the
Brokerage Litigation and the Libel Litigation” provides that the settlement agreement is a
compromise and settlement of the Brokerage Litigation and the Libel Litigation. The parties
agreed to mutual releases and to dismiss with prejudice “all claims against all remaining
defendants in the Brokerage Litigation and the Libel Litigation.”
Stated consideration for the settlement agreement included a $20,480 cash payment and
$235,000 note to IRC. The parties also agreed on how historical distributions from HM would be
treated, including a $784,000 distribution from 2006.
Finally, paragraph 18 of the settlement agreement provides that “the Settlement
Agreement and the Settlement Documents reference [sic] herein contain the entire agreement
between the parties.”
The parties did not mention the Hilcom Suit in the settlement agreement.
The Current Lawsuit.
The Hilcom Suit continued for almost two years after the settlement agreement was
signed. On May 24, 2011, however, K&K’s counsel told IRC that IRC’s continuing the Hilcom
Suit breached the settlement agreement. After a thirty-day cure period, K&K filed the current
lawsuit against Joachim and IRC.3 K&K asserted declaratory judgment, breach of the settlement
agreement, fraud, statutory fraud, fraud in the inducement, and negligent misrepresentation
claims. K&K requested rescission of the settlement agreement, or alternatively, damages and
attorney’s fees. The IRC Group counterclaimed for declaratory relief, breach of contract, and
attorney’s fees.
3 K&K also sued Clark Simmons and the H.S. Joachim Family Limited Partnership, Ltd. but subsequently nonsuited their claims against
these defendants, who are not part of this appeal.
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Both sides moved for summary judgment, which the trial court carried to trial. On the
first day of trial, before the jury was empaneled, the court made a preliminary ruling on K&K’s
breach of contract claim and held that the settlement agreement did not include the Hilcom Suit.
A jury was then empaneled, and K&K’s fraud claims were presented to the jury. After K&K
rested, the trial court granted the IRC Group a directed verdict on all of K&K claims.
Specifically, the court held that: (i) the settlement agreement’s release unambiguously did not
release the Hilcom Suit; (ii) the IRC Group did not otherwise breach the settlement agreement by
pursuing the Hilcom Suit; (iii) the IRC Group did not breach the settlement agreement and the
settlement agreement is not void; (iv) there was no evidence of justifiable reliance to support a
fraud claim; (v) the IRC Group was the prevailing party and a $15,000 attorney’s fees award to it
under the declaratory judgment statute would be equitable and just. The judge signed a final
judgment and made findings of fact and conclusions of law.
II. Issues On Appeal And Standard Of Review
K&K’s first and second issues assert that (1) the trial court erred as a matter of law
when interpreting the settlement agreement and (2) there was legally sufficient evidence to
submit the breach of contract issue to the jury. We review the interpretation of a contract de novo
following the applicable rules of construction. U.S. Bank, Nat’l Ass’n v. Am. Realty Trust, Inc.,
275 S.W.3d 647, 650 (Tex. App.—Dallas 2009, pet. ref’d). If the relevant contract construction
rules give the contract a definite legal meaning, we construe it as a matter of law. See Frost Nat’l
Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (per curiam). For the reasons
discussed below, we conclude that the trial court correctly interpreted the contract and do not
reach the legal sufficiency issue concerning contract breaches.
K&K’s third issue challenges the directed verdict on their fraud claims. A court may
direct a verdict if no evidence of probative force raises a fact issue on the material questions in
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the suit. See Szczepanik v. First S. Trust Co., 883 S.W.2d 648, 649 (Tex. 1994). We review a trial
court’s decision to grant or deny a motion for a directed verdict and a motion for JNOV under
the legal sufficiency standard of review. Helping Hands Home Care, Inc. v. Home Health of
Tarrant Cnty., Inc., 393 S.W.3d 492, 515 (Tex. App.—Dallas 2013, pet. denied); see also City of
Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005). When reviewing a directed verdict, we
consider all the evidence in a light most favorable to the nonmovant, and we resolve all
reasonable inferences that arise from the evidence admitted at the trial in the nonmonvant’s
favor. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 750–51 (Tex. 2003).
K&K’s fourth and fifth issues challenge the award of attorney’s fees under the
declaratory judgment act. Specifically, K&K argue that the trial court erroneously held that the
settlement agreement was not breached and in determining that the IRC Group was the
prevailing party for purposes of a fee award. We review an award of attorney’s fees under the act
by determining whether the trial court abused its discretion by awarding fees because (i) there
was insufficient evidence that the fees were reasonable and necessary, or (ii) the award of fees
was inequitable or unjust. See Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998). Whether the
fees are reasonable and necessary are fact questions, and whether they are equitable and just are
questions of law. Id. A trial court abuses its discretion if it awards attorney’s fees when there is
no evidence to support the award. Id.
III. Analysis
A. Did the Trial Court Correctly Interpret the Settlement Agreement?
The essence of K&K’s contract breach argument is that the settlement agreement either
directly released or otherwise resolved the claims in the Hilcom Suit and the IRC Group
breached the settlement agreement by refusing to dismiss that suit. We begin by examining
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whether the trial court correctly held that the release paragraph does not cover the Hilcom Suit
claims.
Release of the Claims
In construing a contract, a court must ascertain and give effect to the parties’ intent as
expressed in the writing itself. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., 341 S.W.3d
323, 333 (Tex. 2011). We examine and consider the entire writing in an effort to harmonize and
give effect to all of its terms so that none will be rendered meaningless. Id. We begin our
analysis with the contract’s express language. Id. We analyze the contract terms “with reference
to the whole agreement,” Frost Nat’l Bank 165 S.W.3d at 312, and no single provision is given
controlling effect. Hackberry Creek Country Club v. Hackberry Creek Homeowners Assn., 205
S.W.3d 45, 56 (Tex. App.—Dallas 2006, pet. denied). We give contract terms their plain,
ordinary, and generally accepted meanings unless the contract itself shows them to be used in a
technical or different sense. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005).
Unless the court finds a contract ambiguous, a contract’s meaning and intent is
determined from the four corners of the document without the aid of extrinsic evidence.
Chapman v. Hootman, 999 S.W.2d 118, 123 (Tex. App.—Houston [14th Dist.] 1999, no pet.). A
contract is ambiguous when it is reasonably susceptible to more than one meaning. See Italian
Cowboy Partners, 341 S.W.3d at 333. Lack of clarity or disagreement over interpretation of
contract language, however, does not make a contract ambiguous. Universal Health Servs., Inc.
v. Renaissance Women’s Group, P.A., 121 S.W.3d 742, 746 (Tex. 2003).
The IRC Group’s Interpretation
The applicable settlement agreement release paragraph states that the IRC Group releases
K&K:
. . . from any and all claims, disputes, demands, damages, debts,
obligations, liabilities, suits, covenants, contracts, controversies,
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agreements, promises or causes of action of any kind whatsoever, whether
known or unknown, whether brought in the Brokerage Litigation and the
Libel Litigation or not, compensatory or punitive, developed or
undeveloped, which any of the IRC Group has, claims to have, or may
have or claim to have in the future by reason of any and all claims or
counterclaims asserted in the Brokerage Litigation and the Libel
Litigation or arising from the events and transactions that are the
subject of the Brokerage Litigation and the Libel Litigation or are
related in any way to the Brokerage Litigation and the Libel
Litigation; provided, however, anything herein to the contrary
notwithstanding, the release set forth in this Section F.11. specifically
excludes the any of K&K Group’s obligations under the Settlement
Documents.
(Emphasis added).
The IRC Group contends, the trial court held, and for the reasons discussed below, we
agree that the release paragraph unambiguously did not release the IRC Group’s claims against
K&K in the Hilcom Suit because the release applies to only the Brokerage and Libel Litigations.
K&K’s Interpretation
K&K, on the other hand, posit that the settlement agreement’s release language divides
into two halves for interpretative purposes. Specifically, K&K contend that “there is no
limitation in the scope of the Release as to any of the listed items. Only the last item (causes of
action) is modified to refer to everything related to the Brokerage and Libel Lawsuits.”
According to K&K, the Hilcom Suit is within the release’s scope because it was a “suit”
involving “claims, disputes, demands and damages.” In other words, K&K maintain that the IRC
Group released its Hilcom Suit “claims” but that the “Brokerage Litigation” and the “Libel
Litigation” limitations apply only to causes of action asserted in those two cases—and that those
limitations do not apply to “claims.”
K&K rely on the “last antecedent rule” to support their argument. Under that canon of
contract and statutory construction, “relative and qualifying words, phrases, and clauses are to be
applied to words and phrases immediately preceding, and are not to be construed as extending to
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or including others more remote.” Montanye v. Transamerica Ins. Co., 638 S.W.2d 518, 521
(Tex. App.—Houston [1st Dist.] 1982, no writ). Further, “modifiers are intended to refer to the
words closest to them in [a] sentence.” Samano v. Sun Oil. Co., 621 S.W.2d 580, 581–82 (Tex.
1981). Assuming, without deciding, that the last antecedent doctrine applies here, it is neither
controlling nor inflexible. See Spradlin v. Jim Walter Homes, Inc., 34 S.W.3d 578, 580 (Tex.
2000). It can be overcome by indicia of other meaning. Barnhart v. Thomas, 540 U.S. 20, 26
(2003).
K&K’s interpretation of the release paragraph is not reasonable because there is clear
indicia of other meaning. Specifically, the release paragraph does not isolate the phrase “causes
of action” as K&K suggest. Instead, “causes of action” is included among several synonyms that
include “claims, disputes, demands, damages, debts, obligations, liabilities, suits, covenants,
contracts, controversies, agreements, promises or causes of action of any kind whatsoever.” This
phrase, in its entirety, is then qualified by three express references to the Brokerage Litigation
and the Libel Litigation: (i) “by reason of any and all claims or counterclaims asserted in the
Brokerage Litigation and the Libel Litigation,” (ii) “or arising from the events and transactions
that are the subject of the Brokerage Litigation and the Libel Litigation,” and (iii) “or are related
in any way to the Brokerage Litigation or the Libel Litigation.” There is no indication that the
parties intended to apply the term “causes of action” to another lawsuit that is not expressly
mentioned.
Moreover, the settlement agreement in its entirety evinces the parties’ intent that the
release applies to only the Brokerage and Libel Litigations. For example, the recitals define the
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Libel and Brokerage Litigations and state that “the parties wish to terminate the Brokerage
Litigation and Libel Litigation,” without mentioning the Hilcom Suit.4
Next, the settlement agreement’s first numbered paragraph specifies those lawsuits that
are within the agreement’s scope. This paragraph states that it “is a compromise and settlement
of all disputes, defaults, claims, counterclaims or potential claims that the parties have or may
have had . . . in connection with the Brokerage Litigation and the Libel Litigation.” Again, there
is no reference to the Hilcom Suit.
And, in paragraph 2, the parties agree to dismiss the Brokerage and Libel Litigations
without mentioning the Hilcom Suit or the IRC Group’s claims in that lawsuit.
Yet there is no reference to the Hilcom Suit anywhere in the settlement agreement despite
the fact that K&K were served with the Hilcom Suit before the settlement agreement was signed,
and it is undisputed that they were aware of its existence at that time. Had the parties intended to
include the Hilcom Suit in the release, that intent could have been stated in the settlement
agreement’s express language.
Accordingly, the only reasonable construction of the release’s scope that gives effect to
all of the settlement agreement’s terms is that the release includes only those lawsuits that are
referenced—the Brokerage Litigation and the Libel Litigation and does not release the claims in
the Hilcom Suit.
Having concluded that the release paragraph unambiguously does not release the Hilcom
Suit claims, we next consider whether the IRC Group’s continued pursuit of the Hilcom Suit
otherwise breached the settlement agreement.
4 The recitals portion of a contract is a preliminary statement explaining the reasons for entering the contract, or the background of the
transaction. See Furmante Worldwide, Inc. v. NextCorp, Ltd., 339 S.W.3d 326, 336 (Tex. App.—Dallas 2011, no pet.). Recitals do not control
over operative phrases unless there is an ambiguity. Id. While we do not read the recitals as controlling, they are part of our consideration of the
agreement in its entirety. See Ameripath, Inc. v. Herbert, 447 S.W.3d 319, 331 (Tex. App.—Dallas 2014, pet. filed); All Metals Fabricating, Inc.
v. Ramer Concrete, Inc., 338 S.W.3d 557, 561 (Tex. App.—El Paso 2009, no pet.) (recitals may be looked to in determining proper construction
of the contract and the parties’ intent).
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K&K’s Remaining Contract Arguments
K&K argue that there was nonetheless still legally sufficient evidence that the IRC
Group’s continued pursuit of the Hilcom Suit breached other parts of the settlement agreement.
Stated differently, according to K&K, “[r]egardless of the Court’s determination on the scope of
the Release language, the Parties agreed on how to resolve the Hilcom issues involved in the
Hilcom Lawsuit, within the four corners of the Settlement Agreement.” As supporting this
argument, K&K identify five paragraphs in the settlement agreement that purportedly otherwise
resolve the Hilcom Suit issues. These paragraphs include paragraph 3 (K&K assign ownership
and membership interests in the Right and Left Field partnerships to Joachim), paragraph 4
(K&K resign their membership in Right and Left Field), paragraph 5 (where K&K disclaim any
interest in a note payable from Hilcom to the Trust), paragraph 6 (acknowledging validity of
$784,000 in distributions under the Waterfall), and paragraph 7 (acknowledging conversion of
outstanding amounts owed to Left and Right Field to preferred equity to be paid under the terms
of the Waterfall). As discussed below, however, K&K did not preserve this argument in the trial
court because it was not pled or raised in the summary judgment papers.
K&K’s live pleading at the time of trial does not address those paragraphs. That petition
instead asserts that “[the IRC Group] did not perform under the settlement agreement” by
refusing to drop the Hilcom Suit. In so pleading, K&K relied exclusively on settlement
agreement paragraph 11 (the release paragraph). K&K also relied only on settlement agreement
paragraph 11 in its summary judgment motion and in response to the IRC Group’s summary
judgment motion.5 K&K now attempt to transform paragraphs 3-7’s effect into a breach of
contract argument raised for the first time on appeal.
5 K&K’s reference to settlement agreement paragraph 4 in their response reads as a predicate to their fraud claim.
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To preserve a complaint for appellate review, a party must have presented to the trial
court a timely request, objection, or motion that states the specific grounds for the desired ruling,
if they are not apparent from the context of the request, objection, or motion. TEX. R. APP. P.
33.1(a). If a party fails to do this, error is not preserved, and the complaint is forfeited. Bushell v.
Dean, 803 S.W.2d 711, 712 (Tex. 1991) (op. on reh’g). Additionally, the complaint on appeal
must be the same as that presented in the trial court. See Banda v. Garcia, 955 S.W.2d 270, 272
(Tex. 1997). An appellate court cannot reverse based on a complaint not raised in the trial court.
Id. Thus, to the extent K&K now rely on paragraphs 3-7 as an independent ground for their
breach of contract claim, the argument was not preserved for our review.6
Because the settlement agreement does not impose an obligation to dismiss or release
the Hilcom Suit, the IRC Group did not breach the contract by continuing to pursue that suit. See
Mays v. Pearce, 203 S.W.3d 564, 575 (Tex. App.—Houston [14th Dist.] 2006, pet. denied).
K&K’s first and second issues are overruled.7
B. Was there Legally Sufficient Evidence to Support the Fraud Claim’s Reliance Element?
K&K argue that Joachim made three fraudulent comments: (i) the settlement agreement’s
release language included the Hilcom Suit; (ii) the settlement agreement resolved all differences
between the parties; and (iii) Joachim would persuade the Hilcom Suit plaintiffs to dismiss their
claims.8
The elements of a fraud claim are: (1) a material representation was made; (2) the
representation was false; (3) when the representation was made, the speaker knew it was false or
6 K&K also contend that the $855,480 consideration they paid under the settlement agreement is far less than the $377,750 given by
Joachim and thus Joachim must have given some additional consideration—an agreement to dismiss the Hilcom Suit as consideration. This
premise appears to apply to the argument that paragraphs 3-7 have the effect of resolving the Hilcom Suit, which K&K have not preserved.
7 In addition, because there was no breach, the trial court properly declined to find that the settlement agreement was null and void and of
no further effect.
8 Although K&K pled common law fraud, statutory fraud, and negligent misrepresentation in this case, they raise only the fraud claim on
appeal. We limit our inquiry accordingly.
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made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker
made the representation intending that the other party should act upon it; (5) the party acted in
reliance on the representation; and (6) the party thereby suffered injury. In re First Merit Bank,
N.A., 52 S.W.3d 749, 758 (Tex. 2001).9
Fraud requires a showing of actual and justifiable reliance. Grant Thornton LLP v.
Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010). In evaluating justification, the
court considers whether, “given a fraud plaintiff’s individual characteristics, abilities, and
appreciation of facts and circumstances at or before the time of the alleged fraud, it is extremely
unlikely that there is actual reliance on the plaintiff’s part.” Id. One may not justifiably rely on a
representation when there are “red flags” indicating such reliance is unwarranted. See id.
“Generally, reliance on representations made in a business or commercial transaction is not
justified when the representation takes place in an adversarial context.” AKB Hendrick, LP v.
Musgrave Enters., Inc., 380 S.W.3d 221, 232 (Tex. App.—Dallas 2012, no pet.) (citing Coastal
Bank SSB v. Chase Bank of Tex., N.A., 135 S.W.3d 840, 843 (Tex. App.—Houston [1st Dist.]
2002, no pet.)).
Here, these businesspeople were represented by counsel in an adversarial setting. The
parties were actively involved in multiple lawsuits. The settlement agreement was, as the trial
court found, negotiated at arms-length. As the trial judge also found, these sophisticated
businesspeople had extensive experience in commercial real estate and related financing
transactions. Moreover, the settlement agreement includes the parties’ representations and
warranties that they have read and understand the terms of the agreement. In ruling on the
motion for directed verdict, the trial judge observed that:
9 The IRC Group maintains that Joachim’s alleged misrepresentations are not actionable fraud as a matter of law. But we need not consider
whether that is so because even if the misrepresentations were actionable, the trial court properly held that K&K’s reliance on the alleged
misrepresentations was not justified.
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There is absolutely no reason for their lawyer to trust his lawyer. There is
absolutely no reason for them to trust him under those circumstances because
according to you, he’s been sandbagging them all along and here they are . . .
they’ve got everything settled and he files another lawsuit. And they said, oh,
well, you know, we trust you. We know you’ll make it go away. Huh-uh. That’s
not reasonable or justifiable reliance.
We agree with the trial court’s conclusion. A party to an arm’s length transaction must
exercise ordinary care for the protection of his own interests and is charged with knowledge of
all facts that would have been discovered by a reasonably prudent person similarly situated. See
AKB Hendrick, 380 S.W.3d at 232. A failure to exercise reasonable diligence is not excused by
mere confidence in the honesty and integrity of the other party. Id. (citing Thigpen v. Locke, 363
S.W.2d 247, 251 (Tex. 1962)). K&K were obligated to take steps to protect their own interests
and there is no evidence that they did so. Under these circumstances, K&K were not justified in
relying on Joachim’s alleged misrepresentations.
In addition, two of the alleged misrepresentations concern the settlement agreement’s
content—whether the settlement agreement resolved all differences between the parties and
included the Hilcom Suit. We previously concluded that the unambiguous language in the
settlement agreement does not release the Hilcom Suit. To the extent K&K relied on oral
promises that are contrary to the unambiguous terms of the parties’ written agreement, their
reliance was unjustified as a matter of law. See National Prop. Holdings, L.P. v. Westergren, 453
S.W.3d 419, 424-25 (Tex. 2015); DRC Parts & Access., L.L.C. v. VM Motori, S.P.A., 112
S.W.3d 854, 858 (Tex. App.—Houston [14th Dist.] 2003, pet. denied). Therefore, the trial court
did not err in granting a directed verdict on K&K’s fraud claim. K&K’s third issue is resolved
against them.
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C. Was it Error to Award Attorney’s Fees to the IRC Group Under K&K’s Declaratory
Judgment Claim?
The IRC Group requested $75,000 in attorney’s fees, but the trial court found that it
would not be equitable and just to award that full amount. Instead, the court found that $15,000
was an equitable and just amount because the IRC Group should have filed its summary
judgment motion sooner. K&K’s fourth and fifth issues challenge this award.
Citing MBM Financial Corp. v. Woodlands Op. Co., 292 S.W.3d 600, 609 (Tex. 2009),
K&K assert that the IRC Group “was not entitled to attorney’s fees as a prevailing defendant on
K&K’s breach of contract claim,” and that the IRC Group “was not entitled to use the
[Declaratory Judgments Act] as a vehicle to obtain otherwise impermissible attorney’s fees.”
K&K’s reliance on MBM Financial is misplaced here.
In MBM Financial, the plaintiff sued for breach of contract, fraud, and declaratory
judgment. At trial, the plaintiff recovered no damages on its breach of contract and fraud claims.
Although the plaintiff obtained five declarations, these declarations merely duplicated the issues
in the fraud and contract claims. Id. at 671. As a result, the Supreme Court concluded that the
plaintiff could not recover fees under the declaratory judgment statute. Id. at 670. In so doing, the
Court held that:
When a claim for declaratory relief is merely tacked on to a standard suit for a
matured breach of contract, allowing fees under [the declaratory judgment statute]
would frustrate the limits Chapter 38 imposes on such fee recoveries. And
granting fees under [the declaratory judgment statute] when they are not permitted
under the specific common-law or statutory claims involved would violate the
rule that specific provisions prevail over general ones.
Id.
MBM Financial, however, does not prohibit the trial court from awarding IRC Group its
attorney’s fees based on K&K’s declaratory judgment suit. See LG Ins. Mgmt. Servs., L.P. v.
Leick, 378 S.W.3d 632, 641 (Tex. App.—Dallas 2012, pet. denied). The declaratory judgment
–18–
statute allows “fee awards to either party in all cases.” MGM Financial, 292 S.W.3d at 669.
Because K&K pled for declaratory relief and the IRC Group pled for recovery of its attorney’s
fees for either prosecuting or defending a claim for declaratory relief, the trial court was
authorized to award the IRC Group its attorney’s fees under the UDJA. See TEX. CIV. PRAC. &
REM. CODE ANN. § 37.009 (West 2015).
The declaratory judgment act authorizes a trial court to award “reasonable and necessary
attorney’s fees as are equitable and just.” TEX. CIV. PRAC. & REM. CODE ANN. § 37.009. The trial
court expressly found that the IRC Group was the prevailing party and a $15,000 fee award was
equitable and just. Nothing in the record contradicts this finding. We thus conclude the trial court
did not err in awarding the IRC Group attorney’s fees under the declaratory judgment act.
K&K’s fourth and fifth issues are overruled.

Outcome: Conclusion
Having resolved all of K&K’s issues against them, we affirm the trial court’s judgment.
131613F.P05 /Bill Whitehill/
BILL WHITEHILL
JUSTICE

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