MBank Fort Worth, NA v. Trans Meridian, Inc.

• Decision Date: 20 December 1985
• Docket Number: Civ. A. No. 4-83-13-E.
• Citation: 625 F. Supp. 1274
• Parties: MBANK FORT WORTH, N.A. (formerly Continental National Bank of Fort Worth) Plaintiff, v. TRANS MERIDIAN, INC. Robert G. Tunnell, Gale Tunnell Itaf Daou, Ghalee A. Hamadeh, Mary Hamadeh, Charles L. Ward, Barbara Ward, H.J. Van Praag, and Laiping F. Van Praag, Counterclaim Plaintiffs, v. MBANK FORT WORTH, N.A. (formerly Continental National Bank of Fort Worth), Sabre Exploration Corp., John C. Andrews, and Gerald T. Langford, Counterclaim Defendants.
• Court: U.S. District Court — Northern District of Texas

625 F. Supp. 1274

MBANK FORT WORTH, N.A. (formerly Continental National Bank of Fort Worth) Plaintiff, v. TRANS MERIDIAN, INC. Robert G. Tunnell, Gale Tunnell Itaf Daou, Ghalee A. Hamadeh, Mary Hamadeh, Charles L. Ward, Barbara Ward, H.J. Van Praag, and Laiping F. Van Praag, Counterclaim Plaintiffs, v. MBANK FORT WORTH, N.A. (formerly Continental National Bank of Fort Worth), Sabre Exploration Corp., John C. Andrews, and Gerald T. Langford, Counterclaim Defendants.

Civ. A. No. 4-83-13-E.

United States District Court, N.D. Texas, Fort Worth Division.

December 20, 1985.

John Keker, Keker & Brokett, San Francisco, Cal., for TMI.

Edward L. Kemble, Cantey, Hanger, Gooch, Munn & Collins, Fort Worth, Tex., for Sabre.

Sam J. Day, McDonald, Sanders, Ginsburg, Phillips, Maddox & Newkirk, Fort Worth, Tex., for plaintiff MBank.

MEMORANDUM OPINION

MAHON, District Judge.

At the close of the evidence in this case and prior to the charge to the jury, the Court was asked by the parties to resolve certain questions of law regarding the applicability of certain statutes and defenses to the facts of this case. The Court carried these requests to alter the jury's deliberation so that fact findings could be made as to each alleged cause of action, thereby obviating the need for a new trial in the event this Court errs in its ruling. On May 7, 1985, the jury returned their verdict. Thereafter, on May 13, 1985, the Court ordered all parties to submit proposed forms of judgment and accompanying briefs in support thereof for consideration by the Court. In the briefs, the Court asked that the following issues be addressed:

1. Whether the Texas Deceptive Trade Practices — Consumer Protection Act, Tex.Bus. & Com.Code § 17.41 et seq. (hereinafter referred to as "DTPA") applies to the facts of this case;

2. Whether Tex.Rev.Civ.Stat.Ann. art. 5539c (Vernon's 1985) prevents the application of the statute of limitation defense to the counterclaim upon which the TMI Group prevailed; and

3. Whether the waiver defense applies to a DTPA claim.

Each party filed proposed forms of judgments, accompanying briefs, reply briefs and letter briefs pursuant to the Court's order. After careful consideration of all the briefs filed, the record in this case and the applicable law, the Court makes the following determination to those questions of law previously presented to the Court so that a judgment may be entered.

I. Background

This case revolves around the sale of a participating working interest in certain oil and gas leases in the South Hamel field in Colorado County, Texas between the TMI Group¹ and Sabre Exploration.² A final agreement called a Drilling and Participation Agreement was executed by the TMI Group and Sabre on August 1, 1980. Thereafter, in December 1980 and July 1981,³ MBank made two loans to the TMI Group totaling $1 million. The TMI Group pledged its interest in the South Hamel field to MBank as security for the loans. The loans eventually became delinquent and in December of 1982, MBank filed suit against the TMI Group to collect the unpaid balances of the notes, to foreclose on the oil and gas properties securing payment of the notes, and to recover the deficiency upon foreclosure.

On January 11, 1983, the TMI Group answered MBank's suit by filing a counterclaim against Sabre and MBank, contending that Sabre and MBank defrauded them and that they should not be required to repay the loans. Specifically, the TMI Group alleged that they were induced into investing into the South Hamel field by fraudulent misrepresentations and omissions by both Sabre and MBank pursuant to an overall plan on the part of Sabre and MBank to recoup losses from unsuccessful drilling. The TMI Group claimed that these facts gave rise to causes of action for common law and statutory fraud, negligent misrepresentation, violations of Texas and federal securities laws, and a violation of the Texas Deceptive Trade Practices-Consumer Protection Act.

Sabre and MBank denied that they violated any state or federal law or committed any fraud, and asserted various affirmative defenses to the TMI Group's claims which would preclude any recovery on the part of the TMI Group. Specifically, they allege that the TMI Group's actions were barred by the applicable statute of limitations; that members of the TMI Group were contributorily negligent and proximately caused their own damages; that the TMI Group had superior knowledge of the operations in the South Hamel filed as early as July 1980 but misrepresented and concealed any unfavorable information to the Bank's and Sabre's detriment; that the TMI Group failed to prevent or mitigate their damages by seeking loans from MBank after they knew of the rights to proceed against Sabre; and that by their actions, the TMI Group waived any right to relief for any alleged misrepresentations based on the original Drilling Participation Agreement.⁴

II. Jury Findings

The jury was charged on each of the TMI Group's theories of recovery as well as each of Sabre's and MBank's defenses. The jury found that the TMI Group did not establish fraud against either Sabre or MBank.⁵ On the TMI Group's negligent misrepresentation claim, the jury found that the TMI Group established a claim against MBank but not against Sabre. The jury also found that the TMI Group was contributorily negligent and attributed the percentage of the fault 90% to the TMI Group and 10% to MBank.

The jury found that both Sabre and MBank violated the DTPA by engaging in any one or more false or deceptive acts, practices or omissions in the conduct of its trade or business. The jury found that Sabre but not MBank violated section 12(2) of the Securities Act of 1933 and that neither Sabre nor MBank violated section 10(b) and Rule 10b-5 of the Securities and Exchange Act of 1934 or the Texas Securities Act.

As to the defenses issues raised by Sabre and MBank, the jury found that the TMI Group failed to exercise due diligence in investing in the drilling program in the South Hamel field; that the TMI Group waived their right to complain of Sabre's and MBank's conduct with respect to the TMI Group's investing in the drilling program in the South Hamel field; and that the TMI Group did discover or should have discovered the untrue statements and omissions which the jury found prior to January 10, 1981 — more than two years prior to the TMI Group's filing of its counterclaim.

The jury then went on to award actual damages to each member of the TMI Group. The jury also awarded punitive damages to be assessed only against Sabre.

It is clear, based on the jury verdict, that the TMI Group did not prevail on its claim for negligent misrepresentation against MBank and on its claim for a violation of section 12(2) of the Securities Act of 1933 against Sabre. The defenses of waiver, which is applicable to both claims, and due deligence, which applies only to the security claim, are a complete bar to the TMI Group's recovery on these bases of recovery.⁶

The TMI Group argues that they prevailed in their DTPA claim against both MBank and Sabre because the defense of waiver does not apply to claims under the DTPA and because article 5539c of the Tex.Rev.Civ.Stat.Ann. (Vernon's 1985) prevents the application of the statute of limitations defense to the counterclaims upon which the TMI Group prevailed. The TMI Group also argues that even if its affirmative claim under the DTPA is barred by the statute of limitations, the jury's verdict constitutes an affirmative defense to MBank's original claim on the notes. MBank and Sabre argue that the DTPA is inapplicable to the facts of this case because the TMI Group are not "consumers" as defined in the Act; that article 5539c does not extend the statute of limitations of the TMI Group's DTPA claim; and that the defense of waiver applies to a DTPA claim.

III. DTPA

The Court's analysis must begin with whether or not the TMI Group prevailed on its affirmative claim under the DTPA. Although the jury found that both Sabre and MBank engaged in deceptive practices, their actions cannot give rise to a private cause of action for damages under the DTPA unless the TMI Group can first qualify as a "consumer" as defined in the Act. Knight v. International Harvester Credit Corp., 627 S.W.2d 382, 388 (Tex. 1982); Riverside National Bank v. Lewis, 603 S.W.2d 169, 173 (Tex.1980). "Consumer" is defined in § 17.45(4) as "an individual, partnership, corporation or governmental entity, who seeks or acquires by purchase or lease any goods or services." "Goods" are defined in § 17.45(1) as "tangible chattels or real property purchased or leased for use." "Services" are defined in § 17.45(2) and include "work, labor or service purchased or leased for use, including services furnished in connection with the sale or repair of goods." Furthermore, these goods or services acquired by the consumer must form the basis of the DTPA complaint. Knight, 627 S.W.2d at 388; Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535, 539 (Tex.1981); Riverside, 603 S.W.2d at 175.

Thus, there are two requirements which must be satisfied before a person may maintain a cause of action under the DTPA: (1) a person must have sought or acquired goods or services by purchase or lease for use, and (2) the goods or services purchased or leased must form the bases of the complaint. "If either requirement is lacking, the person aggrieved by a deceptive act or practice must look to the common law or some other statutory provision for redress." Cameron, 618 S.W.2d at 539.

MBank and Sabre argue that the TMI Group is not a "consumer" because the oil and gas interests purchased by the TMI Group were "securities"⁷ and therefore cannot also be "goods" within the terms of the DTPA. The TMI Group argues that because the DTPA's definition of goods includes "real property purchased or leased for use" and the oil and gas interests purchased by them were interests in real property, they are "c...