Stabilis Fund II LLC v. Compass Bank

Filing 212

Memorandum Opinion and Order 187 Motion for Summary Judgment filed by Compass Bank is granted in part and denied in part. The Court GRANTS Compasss Motion for Summary Judgment on Stabilis's fraudulent-inducement claim. However, the Court DENIES Compasss Motion for Summary Judgment on Stabilis's fraud based on fraudulent concealment claim and Compasss breach-of-contract counterclaim. (Ordered by Judge Jane J. Boyle on 1/30/2020) (svc)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
STABILIS FUND II, LLC,
Plaintiff,
v.
COMPASS BANK,
Defendant.

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CIVIL ACTION NO. 3:18-CV-0283-B

MEMORANDUM OPINION AND ORDER
Before the Court is Defendant Compass Bank’s Amended Motion for Summary Judgment
(Doc. 187). The Court GRANTS Compass’s Motion for Summary Judgment on Stabilis’s
fraudulent-inducement claim. However, the Court DENIES Compass’s Motion for Summary
Judgment on Stabilis’s fraud based on fraudulent concealment claim and Compass’s breach-ofcontract counterclaim.
I.
BACKGROUND
A.

Factual Background1
This is a fraud and breach-of-contract case. In June of 2009, Zions First National Bank

loaned $4.05 million to the Kaura Family Trust and Neil Kaura (the Kauras). Doc. 188, Def.’s Br.,
3. The loan was secured by an apartment complex in Indio, California. Id. Zions then assigned the
loan to BBVA Bancomer USA, which then merged with Compass, which became the holder of the

1

Disputed facts are noted as such.

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loan. Id.
In September of 2011, the Kauras defaulted on the loan. Id. at 4. In December of 2011,
Compass and the Kauras entered into a Loan Modification Agreement (LMA) and a Memorandum
of LMA. Id. Because the Kauras failed to comply with the conditions precedent to the LMA,
however, the LMA became void and was not filed in the California property records. Id.
In January of 2013, Compass began to offer for sale a portfolio of loans, which included the
Kaura loan, through a sealed bid process. Id. Compass’s loan sale advisory, Mission Capital,
conducted the process. Id. Mission gave to prospective bidders both an Asset Sale Overview and a
Loan Sale Memorandum. Id. at 4–5.
Stabilis was the highest bidder for the Kaura loan, with a bid of $2,380,450, which was about
60% of the outstanding principal loan balance. Id. at 7. After negotiations back and forth between
Compass and Stabilis’s General Counsel, Joseph Tuso, they executed the Loan Sale Agreement
(LSA) for the Kauras’ loan effective on March 13, 2013. Id. at 7–8.
The LSA contains four provisions relevant to this Order. First, § 3.02(d) of the LSA contains
a disclaimer-of-reliance clause, which states, in relevant part, “Buyer has relied and shall rely solely
on its own investigation and other than Seller’s representations and warranties in Section 3.01 of this
Agreement, Buyer has not relied and will not rely upon any oral or written statements or
representations by Seller or any of the Seller Parties.” Doc. 189, Def.’s App., 69. Second, § 3.01
states,
(a)

Seller is the owner of the Loan Rights, and Seller shall have the right on the
Closing Date to assign the Loan Rights to Buyer, subject to the consent of any
Participant.

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(b)

As of the [sic] March 4, 2013, the unpaid principal balance of the Loan is
$3,850,548.90.

(c)

To Seller’s Knowledge, the Borrower does not have the right to disbursement of
additional loan proceeds or future advances with respect to the Note or Loan
Documents.

(d)

The Loan Documents and/or Note are not secured by the same property as any other
loan held by BBVA Compass.

Id. at 68–69. Third, § 6.01(a) of the LSA reads, in relevant part:
(a)

Release. Buyer shall and does hereby fully release, remise, and forever discharge
the Seller Parties, from and against any and all claims, . . . causes of action, . . .
damages and liabilities of every kind and character arising from or relating to the
Borrower, or the Loan Rights founded either in tort, contract or otherwise and
the duties arising thereunder, that Buyer had in the past, or now has, or which
may hereafter accrue (except those arising under this Agreement).

Id. at 73. Fourth, § 2.01(e)(i) of the LSA, titled “Assignment of Litigation,” states, in relevant part:
At Closing, . . . Seller shall be deemed to have assigned to Buyer and Buyer shall be
deemed to have assumed full responsibility for litigation related to the Loans and
involving the Seller in any way, whether now existing or hereafter commenced, including,
but not limited to, the litigation listed on Schedule I attached hereto (the “Assigned
Litigation”). Upon the Closing, Buyer shall assume sole responsibility and liability for the
prosecution and/or defense of the Assigned Litigation and any and all other claims
concerning the Loan Rights, whether now existing or hereafter commenced, that are
asserted in the Assigned Litigation against any of the Seller Parties concerning the Loan
Rights. Buyer shall and does hereby indemnify and hold Seller harmless for and against
all such claims.
Id. at 66–67.
Stabilis and Compass’s relationship began to sour in April of 2013, when the Kauras filed a
lawsuit against Compass in California state court, alleging, inter alia, that Compass breached the
LMA. Doc. 188, Def.’s Br., 11. Because of the indemnification provision in § 2.01(e)(i) of the LSA,
Stabilis provided for Compass’s defense in the California Action. Doc. 49, Am. Compl., ¶ 51. But
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Stabilis did not pay Compass’s litigation expenses during an appeal of the California Action, which
totaled $101,019.46. See Doc. 188, Def.’s Br., 35.
Stabilis claims that it did not know about the LMA when it signed the LSA. Stabilis alleges
that Compass had a duty to disclose the LMA in the LSA or beforehand, and that but for this
concealment, Stabilis “would not have agreed to purchase the Kaura loan, and therefore was
fraudulently induced into entering that agreement . . . .” Doc. 49, Am. Compl. ¶¶ 81, 89. Stabilis
alleges that “[b]ased on [Compass’s] false representations that no such [LMA] existed and subject
to a written reservation of rights pursuant to the Sale Agreement, Stabilis provided a legal defense
to Compass in the California Action.” Doc. 195, Pl.’s Resp., 7–8. Additionally, Stabilis alleges that
throughout the next several months following the execution of the LSA and the California Action,
Compass’s counsel misrepresented to Stabilis that no signed LMA existed. Id. at 8. In August of
2013, Stabilis received notice of a memorandum of the LMA, signed by Compass and the Kauras.
Id. The memorandum stated that the LMA was not effective until the LMA was signed, and
Compass, according to Stabilis, ensured that it was not. Id. at 8–10. Finally, however, in late
September 2013, and no later than October 7, 2013, Compass confirmed that a signed LMA did in
fact exist. Id. at 10; Doc. 188, Def.’s Br., 16.
B.

Procedural History
On September 22, 2017, Stabilis sued Compass in New York state court. Doc. 1, Notice of

Removal, ¶ 1. Compass then removed the suit to the Southern District of New York. Id. at 1. The
district court in the Southern District of New York then transferred the case to this Court, in the
Northern District of Texas. Doc. 24, Transfer Order, 1. Stabilis then filed an amended complaint
alleging claims for fraudulent inducement, fraudulent concealment, and unjust enrichment based
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on Compass’s alleged misrepresentations and concealment of the LMA. Doc. 49, Am. Compl., ¶¶
80–105.
This Court subsequently dismissed with prejudice the fraudulent-inducement claim based on
extra-contractual representations, on the grounds that Stabilis disclaimed any reliance on Compass’s
extra-contractual representations when it agreed to the disclaimer-of-reliance provision in § 3.02(d)
of the LSA. Doc. 77, Order, 14. The Court clarified in a separate order that its holding extended to
extra-contractual affirmative misrepresentations and nondisclosures. Doc. 80, Mem. Op. & Order,
2. The Court also dismissed with prejudice Stabilis’s unjust enrichment claim because the subject
matter of the claim was based on an express agreement—the LSA. Doc. 77, Mem. Op. & Order,
21–22. The Court, however, did not dismiss Stabilis’s fraudulent-inducement claim based on
nondisclosure of the LMA in the LSA, nor its fraudulent-concealment claim based on Compass’s
alleged concealment of the LMA after the closing of the LSA. Id. at 22.
Compass subsequently brought this Amended Motion for Summary Judgment (Doc. 187).
All briefing has been submitted, and the motion is now ripe for review.
II.
LEGAL STANDARD
Federal Rule of Civil Procedure 56(a) provides that summary judgment is appropriate “if the
movant shows that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” FED. R. CIV. P. 56 (a). The substantive law governing a matter
determines which facts are material to a case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). The summary-judgment movant bears the burden of proving that no genuine issue of
material fact exists. Latimer v. Smithkline & Fr. Labs., 919 F.2d 301, 303 (5th Cir. 1990). Usually, this
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requires the movant to identify “those portions of the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrate
the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
(quotation marks omitted). But if the non-movant ultimately bears the burden of proof at trial, the
summary-judgment movant may satisfy its burden by pointing to the mere absence of evidence
supporting an essential element of the non-movant’s claim. See Austin v. Kroger Tex., L.P., 864 F.3d
326, 335 n.10 (5th Cir. 2017).
Once the summary-judgment movant has met this burden, the burden shifts to the nonmovant to “go beyond the pleadings and designate specific facts” showing that a genuine issue exists.
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (per curiam) (citing Celotex, 477 U.S.
at 325). “This burden is not satisfied with ‘some metaphysical doubt as to the material facts,’ by
‘conclusory allegations,’ by ‘unsubstantiated assertions,’ or by only a ‘scintilla’ of evidence.” Id.
(citations omitted). Instead, the non-moving party must “come forward with specific facts showing
that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587 (1986) ( quotation marks omitted). “[C]ourts are required to view the facts and draw reasonable
inferences in the light most favorable to the party opposing the summary judgment motion.” Scott
v. Harris, 550 U.S. 372, 378 (2007) (alterations incorporated and quotations marks omitted). But
the court need not “sift through the record in search of evidence to support a party’s opposition to
summary judgment.” Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998) (citation and
quotation marks omitted). If the non-movant is unable to make the required showing, the court must
grant summary judgment. Little, 37 F.3d at 1076.

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III.
ANALYSIS
Compass moves for summary judgment on several grounds. As to Stabilis’s fraudulentinducement claim, the Court finds that the disclaimer-of-reliance clause in § 3.02(d) of the LSA is
fatal to the reliance element of that claim. The Court GRANTS Compass’s motion for summary
judgment on the fraudulent-inducement claim.
For Stabilis’s fraud based on fraudulent concealment, the Court finds that there are genuine
disputes of material fact that prevent the Court from granting summary judgment on that claim. The
Court DENIES Compass’s motion for summary judgment on Stabilis’s fraud based on fraudulent
concealment claim.
Finally, because the Court denies summary judgment on the fraud based on fraudulent
concealment claim, the Court also DENIES Compass’s motion for summary judgment on its breachof-contract counterclaim.
A.

Fraudulent Inducement
The elements of a fraudulent-inducement claim are the same as those for common-law fraud:

“(1) a material misrepresentation, (2) made with knowledge of its falsity or asserted without
knowledge of its truth, (3) made with the intention that it should be acted on by the other party, (4)
which the other party relied on and (5) which caused injury.” Anderson v. Durant, 550 S.W.3d 605,
614 (Tex. 2018). “[F]raudulent inducement arises only in the context of a contract . . . .” Id.
Compass argues many grounds for why summary judgment should be granted on Stabilis’s
fraudulent-inducement claim. Because the Court finds the disclaimer-of-reliance provision argument
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dispositive, the Court will only consider that argument.
1.

By signing the LSA, Stabilis disclaimed reliance on all representations and
nondisclosures relating to such representations not discussed in § 3.01 of the LSA.

Compass contends that the disclaimer-of-reliance clause in § 3.02(d) of the LSA precludes
Stabilis’s fraudulent-inducement claim. Doc. 188, Def.’s Br., 20. Compass argues that although the
Court did not dismiss Stabilis’s fraudulent-inducement claim “premised on nondisclosure of the LMA
in the LSA” in a previous order on Compass’s motion to dismiss, “[t]he disclaimer-of-reliance clause
. . . is not so limited.” Id. at 21. Section 3.02(d), Compass notes, states that Stabilis will rely “solely
on its own investigation and, other than Seller’s representations and warranties in Section 3.01 of
this Agreement, Buyer has not relied and will not rely upon any oral or written statement or
representation by Seller . . . .” Id. (citing Doc. 189, Def.’s App., 69).
Compass then notes how since the Court’s order on Compass’s motion to dismiss, Stabilis’s
witnesses have admitted that Compass’s representations within § 3.01 of the LSA were true. Id. at
22. Thus, Compass argues that the representations within § 3.01 cannot be the basis for Stabilis’s
fraudulent inducement claim. Id. And neither can any other representations made by Compass,
because Stabilis, according to Compass, disclaimed reliance on any representations not made within
§ 3.01. Id.
In response, Stabilis argues that § 3.02(d) applies only to “affirmative ‘oral or written
statements or representations,’” and “is silent about nondisclosures or material omissions, as this
Court previously held.” Doc. 195, Pl.’s Resp., 20 (quoting Doc. 77, Mem. Op. & Order, 14). To
Stabilis, that Compass’s affirmative representations in § 3.01 were accurate “is irrelevant to this
analysis,” as a party has “a duty to disclose—irrespective of contractual duties—when a partial
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disclosure is misleading or creates a false impression.” Id. Compass’s omission of the fully executed
LMA, Stabilis argues, was misleading. Id. Stabilis believes that because the “notice of failure” letter
to the Kauras was listed as a loan document in Exhibit B, the fully executed LMA was “a fortiori a
Loan Document . . . .” Id. at 20–21. Stabilis believes that this misleading omission “g[ave] rise to the
duty to disclose as this Court previously ruled.” Id. at 20 (citing Doc. 77, Mem. Op. & Order, 9–10).
The Court agrees with Compass, for several reasons. First, despite Stabilis’s argument to the
contrary, the disclaimer-of-reliance clause in § 3.02(d) is not limited to affirmative statements and
representations. This Court previously explained that its “holding [that the reliance provision is
enforceable and barred claims based on extra-contractual allegations] applies to alleged extracontractual affirmative misrepresentations and nondisclosures.” Doc. 80, Order, 1–2 (emphasis
added). “Texas law compel[led] this conclusion,” id. at 2, because “nondisclosure allegations are
simply the converse of . . . affirmative misrepresentations.” Schlumberger Tech. Corp. v. Swanson, 959
S.W.2d 171, 182 (Tex. 1997); see also Cronus Offshore, Inc. v. Kerr McGee Oil & Gas Corp., 369 F.
Supp. 2d 848, 859 (E.D. Tex. 2004)(“[A]lleged nondisclosures are merely the converse of
misrepresentations and are subsumed under any contract language disclaiming reliance on affirmative
statements.”) (citing Schlumberger, 959 S.W.2d at 179–81). Thus, § 3.02(d) necessarily applies to
both affirmative misrepresentations and nondisclosures.
Second, § 3.02(d) disclaims reliance on any topic not covered by the representations made
in § 3.01. Section 3.02(d) reads, in relevant part, “Buyer has relied and shall rely solely on its own
investigation and other than Seller’s representations and warranties in Section 3.01 of this
Agreement, Buyer has not relied and will not rely upon any oral or written statements or
representations by Seller or any of the Seller Parties.” Doc. 189, Def.’s App., 69. By this plain
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language, then, Stabilis disclaimed reliance on all of Compass’s statements or representations except
those in § 3.01. See Great Am. Ins. Co. v. Primo, 512 S.W.3d 890, 893 (Tex. 2017) (“The goal of
contract interpretation is to ascertain the parties’ true intent as expressed by the plain language they
used.”). And Compass made four representations in § 3.01:
(a)

Seller is the owner of the Loan Rights, and Seller shall have the right on the
Closing Date to assign the Loan Rights to Buyer, subject to consent of any
Participant.

(b)

As of the [sic] March 4, 2013, the unpaid principal balance of the Loan is
$3,850,548.90.

(c)

To Seller’s Knowledge, the Borrower does not have the right to disbursement of
additional loan proceeds or future advances with respect to the Note or Loan
Documents.

(d)

The Loan Documents and/or Note are not secured by the same property as any
other loan held by BBVA Compass.

Doc. 189, Def.’s App., 68–69. Stabilis admits that Compass’s “affirmative representations in 3.01 of
the LSA are accurate and not challenged by Stabilis . . . .” Doc. 195, Pl.’s Br., 20. Instead, Stabilis
believes that Compass made a material omission when it left the LMA out of Exhibit B’s Loan
Documents. Id. However, § 3.01 makes no representations concerning the accuracy or inclusiveness
of Exhibit B’s listed documents. See Doc. 189, Def.’s App., 68–69. Thus, Stabilis has disclaimed
reliance on any representation relating to, or omission within, Exhibit B. Stabilis’s fraudulentinducement claim, then, fails as a matter of law. See Schlumberger, 959 S.W.2d at 180 (“[A]
disclaimer of reliance may conclusively negate the element of reliance, which is essential to a
fraudulent inducement claim.”).

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2.

This holding is not in Conflict with the Court’s previous orders in this case.

In the Court’s Order on Compass’s Motion to Dismiss, the Court held that “Compass had
a duty to disclose the LMA because its disclosure of the notice to the Kauras gave the false
impression that there was no executed LMA.” Doc. 77, Mem. Op. & Order, 20. Whether there was
a duty to disclose is distinct from whether someone relied on a nondisclosure. See White v. Zhou Pei,
452 S.W.3d 527, 537 (Tex. App.—Houston [14th Dist.] 2014) (listing duty to disclose and reliance
as distinct elements). That there was a duty to disclose the LMA, then, does not negate the effect
of the disclaimer-of-reliance clause on Stabilis’s fraudulent-inducement claim.
The Court also held that “the disclaimer-of-reliance provision forecloses Stabilis’s fraudulentinducement claim based on Compass’s extra-contractual misrepresentations . . . .” Doc. 77, Mem.
Op. & Order, 14. The Court, in a footnote, explained that this holding “does not apply to Stabilis’s
fraudulent-inducement claim premised on nondisclosure of the LMA in the LSA.” Id. at 14 n.5. In
its Order on Compass’s Motion for Reconsideration, the Court explained that because the allegation
that Compass failed to disclose the LMA in the LSA “arises from the contract . . . the disclaimer-ofreliance provision does not bar it.” Doc. 80, Mem. Op. & Order, 2.
Holding, as the Court does now, that the disclaimer-of-reliance provision does indeed bar
Stabilis’s claim based on Compass’s failure to disclose the LMA in the LSA is not inconsistent with
this Court’s previous orders. At the motion-to-dismiss stage, it would have been inappropriate for
the Court to dismiss that claim because facts disclosed during discovery could have revealed that the
representations made in § 3.01 of the LSA—representations for which reliance was not disclaimed
in the disclaimer-of-reliance clause—were materially misleading with respect to the nondisclosure
of the fully executed LMA. The claim, then, satisfied Rule 12(b)(6)’s plausibility threshold.
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However, with discovery now having taken place, Stabilis itself has admitted that the
affirmative representations made in § 3.01 were true. Doc. 195, Pl.’s Br., 20. And it does not explain
how any of the representations in § 3.01 were misleading or omitted any material fact with respect
to the existence of the LMA. See generally Doc. 195, Pl.’s Br., 19–21. Instead, Stabilis’s nondisclosure
claim is based on the nondisclosure of the LMA in a provision of the LSA—Exhibit B’s Loan
Documents—for which there was no representation made in § 3.01. Doc. 195, Pl.’s Br., 20–21. Thus,
discovery has shown that there is no genuine dispute of material fact as to whether there was a
fraudulent misrepresentation or omission with respect to the LMA’s existence, stemming from
Compass’s representations made in § 3.01. Stabilis disclaimed reliance on the alleged improper
disclosure of the LMA in Exhibit B. Therefore, its fraudulent-inducement claim fails as a matter of
law. See Schlumberger, 959 S.W.2d at 180.
This Court previously held that the disclaimer-of-reliance clause in § 3.02(d) of the LSA was
enforceable for all extra-contractual representations. See Doc. 77, Mem. Op. & Order, 11–15. As
the factors that the Court considered in its enforceability analysis do not attach any significance to
whether the representations disclaimed were intra- or extra-contractual, see Forest Oil Corporation
v. McAllen, 268 S.W.3d 51, 60 (Tex. 2008), this Court’s previous holding as to the clause’s
enforceability applies to intra-contractual representations made outside of § 3.01. For this reason and
the reasons stated above, Compass’s Amended Motion for Summary Judgment on Stabilis’s
fraudulent-inducement claim is GRANTED. That claim is hereby DISMISSED.
B.

Fraud Based on Fraudulent Concealment
Stabilis also brings a cause of action for fraud based on fraudulent concealment, alleging that

Compass’s post-sale misrepresentations and omissions concerning the LMA resulted in Stabilis
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“incurr[ing] the additional legal expenses of protracted litigation in the California Action” as Stabilis
“would have settled that action before trial” if it knew about the LMA. Doc. 49, Am. Compl., ¶ 97.
The elements of fraud by nondisclosure2 are as follows:
(1) the defendant failed to disclose material facts to the plaintiff that the defendant had
a duty to disclose; (2) the defendant knew the plaintiff was ignorant of the facts and the
plaintiff did not have an equal opportunity to discover the facts[;] (3) the defendant was
deliberately silent when the defendant had a duty to speak; (4) by failing to disclose the
facts, the defendant intended to induce the plaintiff to take some action or refrain from
acting; (5) the plaintiff relied on the defendant’s nondisclosure; and (6) the plaintiff was
injured as a result of acting without that knowledge.
White, 452 S.W.3d at 537 (citing Frankoff v. Norman, 448 S.W3d 75, 84 (Tex. App.—Houston [14th
Dist.] 2014, no pet.)).
Compass has five arguments as to why Stabilis’s fraudulent-concealment claim fails at
summary judgment: (1) the fraudulent-concealment claim is barred by the statute of limitations; (2)
Stabilis and the Kauras actually agreed on a settlement, but the Kauras refused to close; (3) Stabilis
knew of the LMA during the California litigation; (4) Compass’s alleged post-closing
misrepresentation did not cause any damage to Stabilis because Stabilis agreed in the LSA to bear
the risk and expense of, and liability for, the California Action; and (5) Stabilis released Compass
from future torts in the LSA. Doc. 187, Def.’s Br., 32–35. The Court disagrees and DENIES
summary judgment on the fraudulent-concealment claim.
1.

There is a factual dispute as to when the statute of limitations accured.

Compass believes that Stabilis’s fraudulent-concealment claim is time barred, and that
2

Stabilis’s second cause of action is “fraudulent concealment.” Doc. 49, Second Am. Compl., 24.
However, “fraudulent concealment” is a defense to the statute of limitations. See BP Am. Prod. Co. v.
Marshall, 342 S.W.3d 59, 67 (“The second doctrine that may extend the limitations period in this case is
fraudulent concealment, an equitable doctrine that, unlike the discovery rule, is fact-specific.”). Thus, this
Court assumes that Stabilis meant “fraud by nondisclosure.”

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Stabilis could not have justifiably relied on any representation by Compass that there was not a
signed LMA. Id. at 32–33. These arguments center around the same basic contention: that Stabilis
knew, or should have known, about the signed LMA in August 2013, if not earlier. See id. at 18–19,
40. Stabilis filed this action on September 22, 2017. See Doc. 1-1, Summons.
In Texas, the statute of limitations for fraud claims is four years. TEX. CIV. PRAC. & REM.
CODE § 16.004(a)(4). Thus, the statute of limitations bars any fraud-by-nondisclosure claim that
accrued before September 27, 2013. Typically, “a cause of action accrues when a wrongful act causes
some legal injury, even if the fact of injury is not discovered until later, and even if all resulting
damages have not yet occurred.” TIG Ins. Co. v. Aon Re, Inc., 521 F.3d 351, 355 (5th Cir. 2008)
(quoting S.V. v. R.V., 933 S.W.2d, 1, 4 (Tex. 1996)). However, “[t]he statute of limitations for
causes of action based on fraud does not commence until the fraud is discovered or until plaintiff
acquires such knowledge as would lead to the discovery of the fraud if reasonable diligence was
exercised.” Kelly v. Dorsett, 581 S.W.2d 512, 513 (Tex. App.—Dallas 1979) (citing, inter alia, Kelley
v. Rinkle, 532 S.W.2d 947, 948 (Tex. 1976)).
To demonstrate that the statute of limitations commenced prior to September 22, 2013,
Compass points to six things that happened prior to September 22, 2013, that should have put
Stabilis on notice of the signed LMA. To Compass, Stabilis:
(a) [was] made aware of the existence of the LMA by the notice that Compass had
declared the LMA void; (b) [was] made aware of the Kauras’ lawsuit alleging breach of
and attaching an unsigned copy of the LMA; (c) received a signed Memorandum of LMA
incorporating by reference the LMA; (d) internally discussed and analyzed potential
misrepresentation claims against Compass; (e) threatened Compass with litigation; and
(f) began strategizing in the California litigation regarding ‘options available to Stabilis
in light of modification agreement.’”
Doc. 188, Def.’s Br., 19. However, as Stabilis notes in its response, each time Stabilis had its doubts
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as to the existence of a signed LMA, it asked Compass whether a signed LMA existed. Doc. 195, Pl.’s
Resp., 16. For example, when the Kauras filed suit in California, Stabilis’ counsel asked Compass
whether an LMA had been signed. Id. And after Stabilis received the signed Memorandum of the
LMA in August of 2013, it again asked Compass whether a signed LMA existed. Id. Each time
Compass denied the signed LMA’s existence. Id. Additionally, the signed memorandum, Stabilis
notes, contained an attached LMA that itself was unsigned. Id. at 18. Finally, Stabilis points out that
Compass’s allegation that it called Stabilis to tell it of the signed LMA in September or October of
2013 is too vague, “as [Compass] cannot pinpoint the actual date of that call . . . .” Id.
Stabilis has demonstrated that it took actions in response to its suspicions about a concealed
and signed LMA. The Court concludes that in light of these actions, Stabilis has raised a genuine
dispute of material fact as to whether these actions were reasonably diligent, as to delay the accrual
of the statute of limitations. Only when there are no genuine disputes of fact as to reasonable
diligence may the Court render summary judgment on the statute-of-limitations issue. Wakefield v.
Bevly, 704 S.W.2d 339, 345 (Tex. App.—Corpus Christi 1985). Summary judgment on this ground
is thus DENIED.
2.

The agreed-upon settlement does not necessitate dismissal of Stabilis’s fraudulentconcealment claim.

Compass argues that because Stabilis and the Kauras actually agreed on a settlement,
Compass’s alleged fraudulent concealment of the LMA did not result in any harm to Stabilis. Doc.
187, Def.’s Br., 32–33. Specifically, Compass points to the fact that Stabilis’s lawyer, Joseph Tuso,
testified that Stabilis and the Kauras agreed on a settlement of the California Action for $3.5 million,
but that the Kauras refused to close on the settled amount. Id. at 32. Thus, according to Compass,

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Stabilis’s allegation that Compass “deprived it of an opportunity to settle the lawsuit simply is
inaccurate and cannot serve as the basis of Stabilis’s [fraudulent-concealment] claim.”
Stabilis points out in its response, however, that Mr. Tuso testified that at the time of the
original settlement discussions, Stabilis believed that “the Kauras had access to the financial
resources necessary to consummate settlement for the amounts that were under discussion.” Doc.
195, Pl.’s Resp., 32. Mr. Tuso’s testimony indicates, therefore, that had Stabilis been aware of the
signed LMA at the beginning of the settlement discussions, it would have decided to settle the
California Action with the Kauras at the Kauras’s initial settlement offer—$3.2 million—or even
less. Id. Perhaps then, Stabilis implies through this argument, the Kauras would not have balked at
the eventual $3.5 million agreement. See id. at 32–33.
Regardless of the plausibility of this argument, the Court finds that at this time, a reasonable
juror could accept Stabilis’s argument. The Court concludes that Tuso’s beliefs, at this time, are
inadmissible evidence that cannot be considered at the summary judgment stage, despite Compass’s
arguments to the contrary. Doc. 199, Def.’s Reply, 15. It is possible that Mr. Tuso can testify at trial,
and if he does, his testimony might be the basis for a reasonable juror’s conclusion on causation.
Summary judgment on this ground is thus DENIED.
3.

Stabilis’s knowledge of the signed LMA by October 7, 2013

Next, Compass points out that Stabilis received a signed copy of the Memorandum of LMA
on August 27, 2013. Doc. 187, Def.’s Resp., 33. Compass argues that this means that “even if Stabilis
rejected a settlement offer in late 2013,” because it already knew of the signed Memorandum of the
LSA, Stabilis “did not justifiably rely on an alleged representation by Co[mpass] that Compass and
the Kauras had not agreed to modify the loan.” Id. Compass also points to the fact that by October
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7, 2013, Compass told Stabilis that the signed LMA existed, id., and that settlement discussions in
the California Action did not start until November 2013. See Doc. 199, Def.’s Reply, 18. So too
Compass notes, “Stabilis’ settlement decisions after that date were made with full knowledge of the”
signed LMA. Id.
But Stabilis responds that Mr. Tuso testified that he did not learn about the signed LMA
until September of 2014. Doc. 195, Pl.’s Resp., 12. Stabilis also points to the deposition of two
Compass employees/attorneys who did not recall the exact date on which Compass revealed to
Stabilis that a signed LMA existed. Id. at 12–13. For example, one employee “did nothing to correct
the Compass/Stabilis demurrer filings in the California Action as late as May 2014 that continued
to deny the LMA had been signed.” Id. at 12–13. Thus, there is a genuine dispute of material fact
as to whether Stabilis knew of the signed LMA before it entered into settlement discussions with the
Kauras.
Compass perhaps acknowledges this in its reply, when it states that the Court “may assume,
for purposes of the present motion” that the October 2013 notice of a signed LMA did exist “in light
of the facts” that show Stabilis should have known about the signed LMA. See Doc. 199, Def.’s
Reply, 16 n.9. But as the Court previously explained in its discussion on the statute of limitations,
a reasonable juror could conclude that such events did not put Stabilis on sufficient notice that a
signed LMA existed. Therefore, the Court DENIES summary judgment on this ground.
4.

Compass has not shown that the assumption-of-liabilities or indemnity clause
preclude Stabilis’s fraudulent-concealment claim as a matter of law.

Compass argues that Stabilis cannot prove that Compass’s actions were the cause-in-fact of
Stabilis’s decision to reject a settlement offer because “Stabilis assumed all of Compass’ ‘liabilities and

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obligations of every nature whatsoever with respect to the Loan and the Loan Documents as of the
Closing Date’, and Stabilis agreed to indemnify Compass in all future litigation related to the Loan.”
Doc. 187, Def.’s Br., 33–34.
However, this argument is the same one, without any real difference, that the Court rejected
in its order on Compass’s motion to dismiss. See Doc. 77, Mem. Op. & Order, 17. What was said in
the Court’s order then can be said now: “Compass’s argument that Stabilis’s agreement to assume
Compass’s liabilities and indemnify it in future litigation [in the LSA] bars Stabilis’s fraudulentconcealment claim is minimal at best; Compass does no more than cite to the relevant LSA
provision.” Id. “The Court declines to make Compass’s argument for it and thus finds that the LSA
provisions Compass cites do not bar Stabilis’s fraudulent-concealment claim.” Id. Therefore, the
Court DENIES summary judgment on this ground.
5.

Compass has not shown that the release provision precludes Stabilis’s fraudulentconcealment claim as a matter of law.

Section 6.01(a) of the LSA reads, in relevant part,
(a)

Release. Buyer shall and does hereby full release, remise, and forever discharge
the Seller Parties, from and against any and all claims, . . . causes of action, . . .
damages and liabilities of every kind and character arising from or relating to the
Borrower, or the Loan Rights founded either in tort, contract or otherwise and
the duties arising thereunder, that Buyer had in the past, or now has, or which
may hereafter accrue (except those arising under this Agreement).

Doc. 196, Pl.’s App., 14. Compass believes that the release provision is enforceable, that Stabilis’s
fraudulent-concealment claim “does not arise under the LSA,” and therefore that Stabilis is barred
from bringing the claim. Doc. 188, Def.’s Br., 34.
The only place in which Stabilis directly responds to this claim is in a footnote in its response,
where it states that “[Compass’s] repetitive argument concerning the contractual release provision
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. . . fails with respect to Stabilis’s fraudulent concealment claim for the same reasons it fails against
the fraudulent inducement claim.” Doc. 195, Pl.’s Resp., 33 n.7. Looking at Stabilis’s arguments with
respect to the contractual release provision’s applicability to the fraudulent-inducement claim,
Stabilis has two arguments. First, Stabilis believes that its cause of action does arise under the LSA
and therefore the contractual release provision does not apply. Id. at 29. It points to this Court’s
decision on Compass’s motion to dismiss, where the Court explained that “[b]ecause Stabilis’s claim
that Compass fraudulently induced it into signing the LSA by concealing the LMA plainly arises
under the LSA, the release provision does not bar Stabilis’ claim.” Id. (citing Doc. 77, Mem. Op. &
Order, 11 n.2). Second, Stabilis claims that the release clause, if as broad as Compass claims that it
is, violates “Texas’ fair notice requirements.” Id. at 30 n.6.
At this time, the Court is not prepared to conclude that Stabilis’s fraudulent-concealment
claim “does not arise under the LSA.”3 Compass’s own arguments, in fact, demonstrate that there
is a genuine dispute of material fact on this issue. For example, as a defense to the fraudulentconcealment claim, Compass argues in the alternative that Stabilis did not suffer any damages from
any concealment of the LMA because Stabilis “assumed all of Compass’ ‘liabilities and obligations
of every nature whatsoever with respect to the Loan and the Loan Documents as of the Closing
Date’, and Stabilis agreed to indemnify Compass in all future litigation related to the Loan.” Doc.
188, Def.’s Br., 33–34 (citing LSA §§ 2.01(a) and (e)(i), respectively)). Thus, conceivably, the
fraudulent-concealment claim could “arise under the LSA.” Doc. 188, Def.’s Br., 34.
Additionally, in its breach-of-contract counterclaim, Compass argues that in § 2.01(e)(i) of

3

For this reason, the Court will not analyze whether the release clause violates Texas’s fair-notice
requirements.

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the LSA, Stabilis agreed to pay for the litigation expenses related to the California Action. Id. at 35.
Stabilis’s fraudulent-concealment claim, however, alleges that during the California Action for which
it was required to indemnify Compass under the LSA, Compass fraudulently concealed the signed
LMA. See Doc. 49, Am. Compl., ¶¶ 73, 92–99. Thus, even under Compass’s version of events, the
fraudulent-concealment claim possibly “arise[s] under the LSA.” Doc. 189, Def.’s Br., 34. The Court
DENIES summary judgment on this ground.
C.

Compass’s Counterclaim For Breach of Contract
Next, Compass seeks summary judgment on its breach-of-contract/indemnity counterclaim.

Doc. 188, Def.’s Br., 35–36. Compass argues that under § 2.01(e)(i) of the LSA, Stabilis agreed to
pay for the litigation expenses related to the California Action. Id. at 35. Despite this, Compass
explains, Stabilis notified Compass that it would refuse to pay the attorneys’ fees Compass would
incur in the appeal of the California Action. Id. Compass had to pay $101,019.45 in attorney’s fees
as a result. Id.
Compass states that to its “knowledge, Stabilis[’s] sole defense to Compass’ indemnity claim
is based on its allegation that Compass fraudulently induced Stabilis to execute the LSA.” Id. And
because Compass believes that the fraudulent inducement claim fails as a matter of law, it argues that
the Court should grant Compass summary judgment on its counterclaim. Id. at 35–36.
In response, Stabilis does argue that “[b]ecause summary judgment is not warranted on
Stabilis’ fraud claims . . . summary judgment must also be denied on the counterclaim as well.” Doc.
195, Pl.’s Resp., 34. But Stabilis contends that other reasons also preclude summary judgment. Id.
Specifically, Stabilis argues that there is a fact issue as to whether the LMA is a Loan Document
containing Loan Rights. Id. Stabilis contends that under the LSA, Compass is entitled to
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indemnification only for litigation “concerning the Loan Rights.” Id. at 35 (quotation marks
omitted). Thus, to Stabilis, if the jury finds “that the LMA is not a Loan Document, that finding
would preclude Compass’ indemnification claim.” Id.
To prevail on a breach-of-contract claim, Compass must prove “(1) the existence of a valid
contract between plaintiff and defendant; (2) the plaintiff’s performance or tender of performance;
(3) the defendant’s breach of the contract; and (4) the plaintiff’s damage as a result of the breach.”
In Re Staley, 320 S.W.3d 490, 499 (Tex. App.—Dallas, 2010, no pet.).4
Section 2.01 of the LSA reads, in relevant part:
Seller shall be deemed to have assigned to Buyer and Buyer shall be deemed to have
assumed full responsibility for litigation related to the Loans and involving the Seller in
any way, whether now existing or hereafter commenced, including, but not limited to,
the litigation listed on Schedule I attached hereto (the “Assigned Litigation”). Upon the
Closing Buyer shall assume sole responsibility and liability for the prosecution and/or
defense of the Assigned Litigation and any and all other claims concerning the Loan
Rights, whether now existing or hereafter commenced, that are asserted in the Assigned
Litigation against any of the Seller Parties concerning the Loan Rights.
Doc. 196, Pl.’s App, 7. The LSA states that Stabilis is solely responsible for “Assigned Litigation and
any and all other claims concerning the Loan Rights . . . .” Id. (emphasis added). It need not matter
whether the LMA concerns the Loan Rights, as Stabilis also had to assume sole responsibility for
“Assigned Litigation.” Assigned Litigation is defined as “litigation related to the Loans and involving
the Seller in any way . . . .” Id. The California litigation involved the Seller—Compass—and of
course involved the loan at issue—the Kauras loan. Thus, the California litigation was Assigned
Litigation, and Stabilis was responsible for the litigation, as this Court has previously explained. See

4

As this is a counterclaim, for purposes of clarity, Compass is considered the plaintiff, while Stabilis,
the defendant.

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Doc. 78, Mem. Op. & Order, 4 (“In the LSA, Stabilis assumed responsibility for Compass’s litigation
of the Kauras’s claims involving the Kaura loan.”). It is undisputed that it did not take full
responsibility for this litigation—leaving $101,019.46 for Compass to pay. Doc. 188, Def.’s Br., 35.
Thus, by the plain language of the contract, Stabilis’s second argument fails.
So, the question becomes whether Compass’s alleged fraudulent concealment after the
contract—which survived Compass’s motion for summary judgment—could vitiate Stabilis’s duty
to indemnify. It is true that fraud in the inducement of a contract can vitiate duties under a contract.
See Schlumberger, 959 S.W.2d at 179 (“[T]o vitiate the contract, the fraud must be such that it
‘prevents the coming into existence of any valid contract at all.’”) (quoting Distribs. Inv. Co. v. Patton,
110 S.W.2d 47, 48 (Tex. 1937))). Stabilis’s fraudulent-inducement claim has been dismissed. But
can alleged fraudulent concealment that happened after the contract was signed vitiate duties agreed
to under a contract? This Court concludes that it may. Compass has not pointed the Court to any
authority that holds that a party can recover on a breach-of-contract theory, when the reason for the
alleged breach was that the party seeking to recover fraudulently misrepresented facts relevant to the
duty allegedly breached. And because the Court declines to grant Compass summary judgment on
Stabilis’s fraudulent-concealment claim, it DENIES summary judgment on its counterclaim.
IV.
CONCLUSION
For the foregoing reasons, the Court GRANTS Compass’s Motion for Summary Judgment
on Stabilis’s fraudulent-inducement claim. However, the Court DENIES Compass’s Motion for
Summary Judgment on Stabilis’s fraud based on fraudulent-concealment claim and Compass’s
breach-of-contract counterclaim.
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SO ORDERED.
SIGNED: January 30, 2020.

______________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE

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