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Not a Whiff of Fraud
by Ron Davis
Experience and professional help have, oddly enough, hampered reprisal efforts by the tenants of a Texas shopping center in a lease dispute with the center’s owner.
The shopping center is Keystone Park, located in the Dallas area, and the tenants (a husband and wife) operated a restaurant there for only a brief time. The primary reason for the restaurant’s closing was a sewer-related gas-odor problem that seemingly had no solution at the time. The odor apparently resulted in a decline in patronage for the restaurant—and its ultimate failure.
The restaurant’s tenants subsequently sued the shopping center owner, asserting fraud, negligent misrepresentation, constructive eviction, and breach of the covenant of quiet enjoyment, among other charges. The center’s owner responded with a lawsuit to collect unpaid rent and other damages.
Under Texas law, proof of fraud requires evidence that a portrayal was false and that the portrayal was known to be false when made. There also must be a distortion of facts that was intended to be acted on and that caused financial injury.
A charge of negligent misrepresentation requires proof that a person with a financial interest supplied information that is false and that results in a financial loss by someone relying on that source of information.
The shopping center owner pointed out, however, that the tenants’ broker and attorney assisted in the lease negotiations and the finalizing of the lease terms. Moreover, at least seven different drafts of the lease were circulated among the tenant principals, their brokers, and their attorneys during the negotiation period. Finally, during the lease negotiations (which occurred over the course of five months) the tenants, experienced restaurateurs, personally visited the restaurant premises on several occasions, yet willingly signed the lease.
At trial, a Texas court decided in favor of the tenants and ruled that the center’s owner must pay $1,286,084 in damages. The center’s owner appealed.
A Texas appellate court reversed the lower court, noting a provision of the lease that stated, “Tenant acknowledges that neither landlord nor landlord’s agents, employees, nor contractors have made any representations or promises with respect to the site, the shopping center, or this lease except as expressly set forth herein.”
Added the judges, “The parties to this arm’s length transaction were sophisticated in dealings involving the leasing and the operation of restaurant properties, several drafts of the lease were circulated, and various changes were negotiated and made to both the lease and a guaranty…. “[They] clearly and unequivocally expressed their intent that they were not relying on any representations made outside of this agreement.” (Prudential Insurance Company of America v. Italian Cowboy Partners, Ltd., 2008 WL 2841848 [Tex.App.-Eastland])
Decision: July 2008
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