Prudential Ins. Co. of America v. Jefferson Associates, Ltd.

Decision Date11 May 1995
Docket NumberNo. D-3096,D-3096
Citation896 S.W.2d 156
Parties, 38 Tex. Sup. Ct. J. 366 The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Petitioner, v. JEFFERSON ASSOCIATES, LTD. and F.B. Goldman, Respondent.
CourtTexas Supreme Court

John L. Hill, Houston, Edwin R. DeYoung, John K. Schwartz, Mark G. Yudof, Austin, for petitioner.

Douglass D. Hearne, Don W. Kothmann, Carey S. Leva, Robert J. Hearon, Selden Anne Wallace, Robert Clar Heidirck, Jr., Austin, for respondent.

HECHT, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice and GONZALEZ, HIGHTOWER and OWEN, Justices, join.

ENOCH, Justice, took no part in the consideration or decision of this case.

We granted writ of error in this case to decide whether a buyer who agrees, freely and without fraudulent inducement, to purchase commercial real estate "as is" can recover damages from the seller when the property is later discovered not to be in as good a condition as the buyer believed it was when he inspected it before the sale. We hold he cannot.

I

F.B. Goldman bought the Jefferson Building, a four-story office building in Austin, from The Prudential Insurance Company of America in 1984. Over two years later Goldman discovered that the building contained asbestos fireproofing. He then filed this suit against Prudential. (Four months after he bought the building, Goldman conveyed it to Jefferson Associates, Ltd., a limited partnership which he formed with other investors for the purpose of owning the building, and which is a plaintiff with Goldman in this suit. Because their interests are aligned, we refer to Goldman only.) The gist of Goldman's complaints is that Prudential misrepresented the condition of the building to him and failed to disclose that it contained asbestos which impaired its value. Prudential vigorously disputes Goldman's allegations, but since Goldman prevailed at trial, we must view the evidence in the light most favorable to him. Prudential's central argument here is a legal one, namely, that Goldman is not entitled to damages because he bought the building "as is".

Prudential provided the original permanent financing for construction of the Jefferson Building in 1972 and acquired the building four years later through foreclosure. In 1983, Prudential offered the building for sale by a closed bidding process in which offers were submitted in the form of proposed contracts. Prudential invited bidders to review financial records pertaining to the building and to inspect the premises. Goldman had tried to buy the building from Prudential before, and he submitted a bid. Goldman was a knowledgeable real estate investor who owned an interest in at least thirty commercial buildings. He was president of Transland Management Company, a commercial property management firm in Dallas that had developed, built, rehabilitated, owned or managed properties valued altogether at about $100 million. He had bought and sold several large investment properties on an "as is" basis.

Before bidding on the building, Goldman had it inspected by his maintenance supervisor, Timmy Don Kirk, and also by his property manager and an independent professional engineering firm. Kirk testified that Donna Buchanan, Prudential's on-site property manager, told him that the building was "superb", "super fine", and "one of the finest little properties in the City of Austin". Kirk also testified that Buchanan told him that the building had no defects except for a mechanical room foundation problem. These are the statements Goldman claims misrepresented the condition of the building, and we assume they were made.

Kirk asked Buchanan for the building plans and specifications, but she mistakenly told him she had only the "as-built" drawings, which she gave him. She referred him to the architects for additional information. Neither Goldman nor anyone on his behalf contacted the architects or made any further effort to obtain the plans and specifications. In fact, Prudential had the plans and specifications Kirk requested but did not make them available to Goldman during their negotiations. Prudential contends it could not locate the plans and specifications at the time; Goldman contends Prudential concealed them. Again, we assume Goldman is correct. Those specifications called for use of a fireproofing material called Monokote TM, or an approved substitute. Information published by the manufacturer of Monokote TM about the time the building was built stated that the product contained asbestos; but information published several years later stated that the product did not contain asbestos. Kirk was not aware of any of this information and stated that had he seen plans calling for Monokote TM, he would not have known that the product might have contained asbestos. Even someone aware of the information published by the manufacturer could not be certain whether any Monokote TM used in the Jefferson Building contained asbestos. Nor could anyone be certain from the specifications alone whether Monokote TM, or an approved substitute, was actually used in the building. Thus, when the original architects reviewed the specifications in 1987, some three years after the sale, they saw nothing to indicate that the building contained asbestos.

Throughout the 1970s there was a growing public concern that asbestos in a building could pose a health hazard. By 1983, before the sale to Goldman, Prudential knew of this concern and feared that it could adversely affect a building's marketability. Prudential also knew that buildings built about the same time as the Jefferson Building often contained asbestos fireproofing, and that there was thus a good chance that asbestos was used in the Jefferson Building. However, there is no evidence that Prudential actually knew before Goldman filed this lawsuit that the Jefferson Building contained asbestos. Goldman and Kirk testified that they were unaware of the public concern over asbestos and thus did not raise the issue during negotiations with Prudential.

Goldman bought the Jefferson Building for $7,150,000 cash. The contract he submitted contained the following provision:

As a material part of the consideration for this Agreement, Seller and Purchaser agree that Purchaser is taking the Property "AS IS" with any and all latent and patent defects and that there is no warranty by Seller that the Property is fit for a particular purpose. Purchaser acknowledges that it is not relying upon any representation, statement or other assertion with respect to the Property condition, but is relying upon its examination of the Property. Purchaser takes the Property under the express understanding there are no express or implied warranties (except for limited warranties of title set forth in the closing documents). Provisions of this Section 15 shall survive the Closing.

The contract also provided: "In no event shall a Purchaser have the right to recover consequential damages. Purchaser hereby waives any action under the Texas Deceptive Trade Practices Act."

Three years later, when Goldman tried to refinance the building, a potential lender required evidence that the building did not contain asbestos. Goldman obtained a letter to that effect from the two original architects, which was based on their review of the construction specifications. When the building was inspected, however, the asbestos fireproofing was discovered. Goldman then sued Prudential alleging violations of the Texas Deceptive Trade Practices--Consumer Protection Act, TEX.BUS. & COM.CODE §§ 17.41-.63 ["the DTPA"], fraud, negligence, and breach of the duty of good faith and fair dealing.

At trial, the parties agreed to submit a single question to the jury concerning liability: "Do you find from a preponderance of the evidence that the Plaintiffs should be entitled to recover damages from the Defendant as the result of any wrongful conduct by the Defendant?" The jury answered this question affirmatively. While there was evidence at trial that the asbestos in the building did not pose a health hazard, did not need to be removed, and could be managed in place at a cost of $61,000, the jury found that the difference between the consideration Goldman paid and the value received was $6,023,993.03. The jury also found that punitive damages should be awarded against Prudential in the amount of $14,300,000.00. In accordance with the verdict, the trial court rendered judgment which, including interest, costs and attorney fees, totaled $25,692,571.58. The court of appeals affirmed. 839 S.W.2d 866.

II
A

The effect of the jury's affirmative answer to the question quoted above is to establish Prudential's liability for actual damages on any cause of action pleaded by Goldman that is supported by some evidence. However, combining all liability theories in a single question does not obviate the necessity for proof of all elements of at least one cause of action. Stated another way, Goldman is entitled to recover damages if, but only if, some evidence supports each element of one pleaded cause of action. Neither Goldman nor Prudential disputes that this is the proper method of analyzing this case.

Proof of causation is essential for recovery on all of Goldman's causes of action. Negligence, for example, requires proof of proximate cause. Brown v. Edwards Transfer Co., 764 S.W.2d 220, 223 (Tex.1988). For DTPA violations, only producing cause must be shown. TEX.BUS. & COM.CODE § 17.50(a). The element common to both proximate cause and producing cause is actual causation in fact. General Motors Corp. v. Saenz, 873 S.W.2d 353, 357 (Tex.1993). This requires proof that an act or omission was a substantial factor in bringing about injury which would not otherwise have occurred. McClure v. Allied Stores of Texas, Inc., 608 S.W.2d 901, 903 (Tex.1980). Unless there is some evidence that Prudential caused Goldman damages,...

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