Blockbuster v. C-Span Entertainment

• Decision Date: 12 August 2008
• Docket Number: No. 05-06-00849-CV.,05-06-00849-CV.
• Citation: 276 S.W.3d 482
• Parties: BLOCKBUSTER, INC., Appellant, v. C-SPAN ENTERTAINMENT, INC. and Sunil Dharod, Appellee.
• Court: Texas Court of Appeals

276 S.W.3d 482

BLOCKBUSTER, INC., Appellant, v. C-SPAN ENTERTAINMENT, INC. and Sunil Dharod, Appellee.

No. 05-06-00849-CV.

Court of Appeals of Texas, Dallas.

August 12, 2008.

Rehearing Overruled November 6, 2008.

Nina Cortell, Haynes & Boone, L.L.P., Dallas, TX, for Appellant.

David C. Musslewhite, Fruitvale, TX, Paul A. Bezney, Adkerson, Hauder & Bezney, P.C., Julia F. Pendery, Dallas, TX, for Appellee.

Before Justices RICHTER, LANG, and MAZZANT.

OPINION

Opinion by Justice RICHTER.

This dispute arises out of Sunil Dharod's purchase of 11 Blockbuster stores. At various times during the negotiation and purchase process, Blockbuster provided Dharod with three different profit and loss statements. The parties executed an asset sale contract at the time of closing. After closing, the parties executed a consent to transfer (transfer agreement) transferring Dharod's rights, title, and interest in and to the Blockbuster stores to C-Span. The transfer agreement included a broad form release of claims against Blockbuster. Dharod and C-Span subsequently initiated this suit against Blockbuster and asserted claims for breach of warranties in the asset sale agreement, conversion, and fraudulent inducement. Following a bench trial, the trial court entered judgment for Dharod and C-Span in excess of $8.5 million dollars. Blockbuster challenges the trial court's findings in support of the judgment and argues C-Span and Dharod are not entitled to recover for fraudulent inducement or breach of contract and are not entitled to damages or attorney's fees. Blockbuster also asserts it is entitled to recover its attorney's fees. We conclude Dharod and C-Span are not entitled to judgment on any of their claims or to attorney's fees because the claims against Blockbuster were released upon execution of the consent to transfer. Because the asset sale agreement provides for an award of attorney's fees to the prevailing party and Blockbuster is the prevailing party, Blockbuster is entitled to recover its attorney's fees. We reverse the trial court's judgment and render judgment for Blockbuster on attorney's fees.

BACKGROUND

In 1998, Dharod, an experienced franchisee, attended a two-day event hosted by Blockbuster for potential franchisees. Blockbuster provided some initial evaluation material, and Dharod signed a confidentiality agreement that permitted him to receive Blockbuster proprietary information. The confidentiality agreement provided that only representations and warranties contained in a definitive sales transaction agreement would have any legal effect, and that no contract would be deemed to exist unless and until a definitive transaction agreement was executed. The confidentiality agreement further provided that profit and loss statements (P & L's) provided by Blockbuster "may not accurately reflect" the experience of franchisees, who may be subject to a different revenue-sharing model than corporate stores.

Dharod indicated he was interested in purchasing a Blockbuster franchise, and retained Akin, Gump, Strauss, Hauer and Feld, LLP (Akin Gump) to represent him in connection with the purchase. After Dharod was approved as a franchisee, he expressed an interest in purchasing 11 stores located in Tyler, Texas. In June 1999, Blockbuster gave him a bid package that contained a P & L (the Bid P & L). The Bid P & L was not audited, and provided data on company-owned stores. In this regard, the Bid P & L warned that results were "likely to differ" from franchisee results for the same stores. Dharod initially declined the purchase because he believed Blockbuster's price was too high.

Blockbuster and Dharod continued their dialogue about a potential sale. In August 1999, a Blockbuster representative asked Dharod to reconsider the Tyler purchase. The representative printed a P & L from the Blockbuster computer system (the August P & L) and provided it to Dharod. Although the August P & L appeared to be more favorable than the Bid P & L, it showed a negative cost of goods number for the month of July 1999. When Dharod inquired about the negative number, the Blockbuster representative told him it resulted from an accounting adjustment.

At the time the representative retrieved the August P & L for Dharod, Blockbuster was in the process of changing the manner in which it allocated costs for 1999 and had yet to book costs for the month of July. When the costs were booked, the P & L showed a positive cost number for the month of July.

Dharod decided to purchase the Tyler stores. In September 1999, Dharod formed C-Span for the purpose of acquiring the Tyler Blockbuster stores. C-Span is a Subchapter S corporation in which Dharod is the sole shareholder. On September 20, 1999, Akin Gump received additional documents in connection with the closing of the transaction. A new P & L that showed a positive cost number for the month of July 1999 (the Contract P & L) was included in the documents. Akin Gump faxed the Contract P & L to Dharod, but Dharod claimed he did not recall receiving it.

The transaction closed five days later, with Dharod agreeing to pay $5.9 million for the Tyler stores. The asset sale agreement, to which the Contract P & L was attached, was executed in connection with the closing. The franchise agreements for the 11 stores were also executed. Dharod signed the asset sale agreement in his individual capacity and on behalf of C-Span as its president. Dharod signed the franchise agreements in his individual capacity. The asset sale agreement provided for the Tyler stores to be operated under the franchise agreements and for Dharod to transfer the franchises to C-Span. On October 25, 1999, Dharod, C-Span, and Blockbuster executed the transfer agreement. The transfer agreement transferred all of Dharod's interests in the stores under the franchise agreements to C-Span and provided, in pertinent part:

As additional consideration for [Blockbuster's] consent to the Transfers [Dharod] hereby releases, relieves and discharges [Blockbuster] ... of and from any and all claims, demands, rights, duties, obligations and any action or causes of action that it has or might have been asserted against [Blockbuster], whether known or unknown, foreseen or unforeseen, direct or indirect, contingent or actual, liquidated or unliquidated, which have arisen or which might or could arise under the Agreements or under federal, state, or local law prior to or after the date of this Consent. IT IS THE EXPRESSED INTENTION OF [DHAROD] THAT THIS RELEASE BE GENERAL AND AS BROAD AS PERMITTED BY LAW FOR SUCH MATTERS EXISTING OR ARISING AT ANY TIME PRIOR TO OR AFTER THE DATE OF THIS CONSENT.

The Tyler stores did not perform as Dharod anticipated. Consequently, Dharod and C-Span initiated this action against Blockbuster and Akin Gump.¹ Dharod and C-Span claimed, inter alia, Blockbuster fraudulently induced Dharod to enter into the asset sale agreement when it provided him with the August P & L. Dharod further asserted claims for breach of contract based on the August P & L, the Contract P & L, and certain warranties in the asset sale agreement.² Blockbuster answered and asserted several affirmative defenses, including the defense of release. Blockbuster also counterclaimed for breach of contract. Dharod asserted several affirmative defenses in response to Blockbuster's counterclaim, including "lack of or failure of consideration."³ After a bench trial, the trial court filed detailed findings of fact and conclusions of law. The court found the value of the Tyler stores Dharod purchased was zero, and that Blockbuster had breached the contract and fraudulently induced Dharod to enter into it. As a result, the court awarded Dharod and C-Span $5.9 million dollars in actual damages, plus interest and attorney's fees. Blockbuster requested additional findings of fact and conclusions of law which were expressly denied by the trial court. The trial court also denied Blockbuster's motion for new trial. This appeal followed.

STANDARD OF REVIEW

Findings of fact in a nonjury trial have the same force and dignity as a jury's verdict and may be reviewed for legal and factual sufficiency of the evidence. See Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996) (per curiam); Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex.1994). In reviewing for legal sufficiency we view the evidence "in the light favorable to the verdict, crediting favorable evidence if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not." City of Keller v. Wilson, 168 S.W.3d 802, 807 (Tex.2005). In reviewing for factual sufficiency, we are to set aside the finding "if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust." See Cain v. Bain, 709 S.W.2d 175, 176 (Tex.1986) (per curiam). The trial court's conclusions of law are reviewed de novo. See Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 222 (Tex.2002).

DISCUSSION

Were the Claims Against Blockbuster Within the Scope of the Release?

The trial court found Dharod was fraudulently induced to enter into the asset sale agreement and that Blockbuster breached the agreement, but made no findings on the issue of release. Blockbuster requested additional findings on the issue of release which the trial court denied. In its first two issues, Blockbuster asserts a number of challenges to the trial court's findings on breach of the asset sale agreement and fraudulent inducement.⁴ One of these challenges involves Blockbuster's contention that Dharod and C-Span (together Dharod) are not entitled to recovery because all claims against Blockbuster were released. Dharod argues his claims were not barred because they arose out of the asset sale agreement and the release is limited to claims under the franchise agreements. In response, Blockbuster maintains Dharod's interpretation fails to give full effect to all provisions in the contract. We agree with...