BBVA Compass and Sam Meade v. David Bagwell, Individually and as Trustee of the David S. Bagwell Trust, Broughton Limited Partnership, Old Grove Limited Partnership and Broadland Limited Partnership and Marilyn D. Garner, Chapter 7 Trustee of the Estate Of the David Bagwell Company and the Estate of Evermore Communities, Ltd.

Reversed and Rendered and Opinion Filed December 14, 2020

In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-18-00860-CV

BBVA COMPASS AND SAM MEADE, Appellants
V.
DAVID BAGWELL, INDIVIDUALLY AND AS TRUSTEE OF THE DAVID
S. BAGWELL TRUST, BROUGHTON LIMITED PARTNERSHIP, OLD
GROVE LIMITED PARTNERSHIP, AND BROADLAND LIMITED
PARTNERSHIP, AND MARILYN D. GARNER, CHAPTER 7 TRUSTEE
OF THE ESTATE, AND DAVID BAGWELL COMPANY, EVERMORE
COMMUNITIES, LTD., AND THE OXFORD CORPORATION, Appellees

On Appeal from the 101st Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-14-00991

MEMORANDUM OPINION
Before Justices Myers, Whitehill, and Pedersen, III
Opinion by Justice Pedersen, III
BBVA Compass and Sam Meade (together, the Bank) appeal the trial court’s

judgment finding the Bank liable for fraud and awarding appellees approximately

$50.5 million in actual damages, $40 million in exemplary damages, plus

prejudgment and postjudgment interest. In this Court, the Bank contends that (1)

appellees’ claims are barred by the statute of frauds, (2) insufficient evidence

supports the fraud elements of causation and justified reliance, (3) appellees’ claims
are barred by the statute of limitations, (4) appellees are not entitled to recover any

of the actual damages awarded, and (5) appellees are not entitled to recover

exemplary damages in this case. We reverse the trial court’s judgment and render

judgment that appellees take nothing on their claims.

BACKGROUND

David Bagwell, a residential land developer with over forty years of

experience in that business, planned three luxury subdivisions in Colleyville Texas.

He raised money from investors and—working through three limited partnerships

(appellees Broughton L.P., Broadland L.P., and Old Grove L.P.)—acquired and

began to develop the subdivisions. In all, Bagwell’s plan anticipated the sale of 264

lots for an average price of approximately $160,000 each. In 2006, after selling just

more than half of the lots, the three limited partnerships borrowed $11 million from

Texas State Bank. The notes were guaranteed by Bagwell individually and by

appellees the David S. Bagwell Trust, the David Bagwell Company, and Evermore

Communities, Ltd.1 When BBVA acquired first Texas State Bank and then Compass

Bank, BBVA Compass became the owner of the partnerships’ notes and guarantees.

The terms of the loans are not in dispute. Each note was secured by the

partnership’s underlying real estate. The Bank had the right to sell or assign the loans

1
The trial court made separate awards to the corporate guarantors, who intervened in the lawsuit below,
and they have filed a separate brief in this Court. That brief, however, addresses only issues of the timing
of their intervention in the suit and the damages awards. For purposes of the Bank’s liability for fraud, the
same analysis applies to all appellees.
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to a third party without notice to the borrower and without the borrower’s

permission. The notes specifically stated that their terms could not be “contradicted

by evidence of prior, contemporaneous or subsequent oral agreement of borrower

and lender” and that no term could be modified except by written amendment.

The loans became due on February 1, 2008. The Bank agreed in written

modification agreements to extend the maturity date to May 1, 2008, but Bagwell

was still unable to make the required payments on that date. In July, Bagwell was

notified that the loans were being sent to the Bank’s Special Assets Group for

collection. Late that year, Bagwell and the Bank signed a second modification

agreement that included (a) assignment of the partnerships’ proceeds from mineral

lease bonuses (approximately $1.6 million) to the Bank, and (b) an extension of the

notes’ maturity until December 1, 2009.

By June 2009, Bagwell was already beginning efforts to obtain a third

extension. He sent Gary Noble, a Compass loan officer, a number of proposals.2 In

August, Compass acquired Guaranty Bank, and a new loan officer, appellant Meade,

was assigned the Bagwell loans. Meade first spoke to Bagwell on November 6, 2009.

At that time Bagwell restated his proposals from June; Meade testified he told

Bagwell then that he did not believe the proposals were workable. Nevertheless, he

2
Bagwell’s proposals included: limited lot price discounts for cash purchases, vendor financing,
advertising to reach prospective buyers about favorable sale terms, and speculative homebuilding ventures
with local luxury home builders.
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emailed Bagwell, saying: “I want to go in and extend the loans for at least 60 days

while we see if one of the discussed proposals will work.” Bagwell contends that he

believed the Bank was going to do this short extension and then follow it with a

longer one. But the Bank never offered Bagwell a written extension on the maturity

date for the Notes.

Early in 2010, Bagwell received calls from two business colleagues reporting

information that suggested the Notes were being offered for sale by the Bank. Paul

Kramer, a local homebuilder and customer of Bagwell, informed Bagwell that he

had heard a rumor the partnerships’ lots were being sold. Bagwell testified that he

sought and received a meeting with Meade on January 4 and that he asked Meade

whether the Notes had been sold or were in the process of being sold; Meade told

him no. Bagwell testified that he asked Meade to check around and determine if

anyone else at the Bank was working on selling the Notes; Meade said that he would.

Days later, Bagwell received a second call, this time from a local retired

homebuilder, Terry Horton. Horton said Bagwell should know his Notes were being

offered for sale. He told Bagwell that he had been contacted by a “money fund” and

asked to visit and evaluate the real estate involved in Bagwell’s development.

Bagwell was concerned about the continuing rumor. He met with Meade again on

January 11, and he “pressed” Meade for information. He testified that Meade told

him he checked—as Bagwell had requested—and found no one working on selling

the Notes. According to Bagwell, Meade said “if the bank were working on selling

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your notes, I would know about it and I don’t know about it.” Bagwell related further

that Meade thought that if the Bank were going to sell the partnerships’ loans that it

would have to have the partnerships’ permission to do that. Then Meade closed the

meeting by saying “as for me, I’m working on getting your loans extended.”

Meade testified that Bagwell told him in November, the first time they met,

that he had no wherewithal to pay what he owed on the notes. Meade testified further

that Bagwell never came to him and offered information about “any investor or

friend or acquaintance or anyone who was going to help him refinance or pay off or

restructure the notes.” Indeed, Bagwell testified that, faced with this debt he could

not pay, what he did was wait to see if the Bank would offer some way to work it

out. It did not. Instead, the Bank sold Bagwell’s loans to Toll Brothers, a national

homebuilder, which foreclosed upon the property securing the Notes.

Bagwell sued the Bank and Meade for fraud based on Meade’s alleged oral

representations. The trial court awarded summary judgment to the Bank, and

Bagwell appealed. We concluded that the statute of frauds barred Bagwell’s claim

for benefit-of-the-bargain damages. Bagwell v. BBVA Compass, No. 05-14-01579-

CV, 2016 WL 3660403, at *12 (Tex. App.—Dallas July 7, 2016, no pet.) (mem. op.)

[hereinafter Bagwell I]. We affirmed the summary judgment in all respects save one:

we reversed “to the extent appellants [sought] to recover out-of-pocket damages for

fraud.” Id. And we remanded for that limited purpose.

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 On remand, the case proceeded to trial, and the jury found in favor of Bagwell

on the fraud claim and awarded him more than $98 million. The Bank appeals.

DISCUSSION

The Bank raises five issues for our review.

Statute of Frauds

In its first issue, the Bank argues that the statute of frauds—on which

Bagwell I was premised—allows Bagwell to recover only out-of-pocket

expenditures incurred in reliance on Meade’s representations. Bagwell contends that

the Bank misunderstands Bagwell I and that the statute of frauds prohibits only

benefit-of-the bargain damages; he argues that consequential damages are not based

on the benefit of an unenforceable bargain, so neither the statute of frauds nor

Bagwell I prohibits their recovery. Bagwell argues further that mental anguish and

exemplary damages are appropriate fraud recoveries that are not based on the benefit

of his admittedly unenforceable oral bargain.

We need not determine whether the damages Bagwell claims were properly

recoverable in this case. Any damages he claims as a fraud plaintiff require proof of

the elements of fraud, and we conclude that Bagwell cannot establish all of those

elements.

Justifiable Reliance

To prevail on a fraud claim, a plaintiff must establish that: (1) the defendant

made a material representation that was false; (2) the defendant knew the

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representation was false, or he made it recklessly as a positive assertion without any

knowledge of its truth; (3) the defendant intended to induce the plaintiff to act upon

the representation; and (4) the plaintiff actually and justifiably relied upon the

representation and suffered injury as a result. JPMorgan Chase Bank, N.A. v. Orca

Assets G.P., L.L.C., 546 S.W.3d 648, 653 (Tex. 2018). In its second issue, the Bank

contends that Bagwell cannot establish the fourth element, i.e., actual justified

reliance on the purported representation.3 The challenge, in essence, is to the legal

sufficiency of the evidence supporting justifiable reliance, see id., so we consider

the evidence in the light most favorable to appellees, crediting evidence a reasonable

jury could credit and disregarding contrary evidence and inferences unless a

reasonable jury could not, id. (citing Merriman v. XTO Energy, Inc., 407 S.W.3d

244, 248 (Tex. 2013)). Judgment contrary to a jury verdict is proper “only when the

law does not allow reasonable jurors to decide otherwise.” Id. (citing City of Keller

v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005)).

Although justifiable reliance usually presents a question of fact, it “can be

negated as a matter of law when circumstances exist under which reliance cannot be

justified.” Id. at 654. The Supreme Court of Texas has recently identified two

circumstances in which a plaintiff’s purported reliance upon an oral

misrepresentation is unjustifiable: when “red flags” preclude such reliance, id. at

3
The Bank’s second issue also challenges Bagwell’s proof that the purported misrepresentation
proximately caused him injury. We do not reach that portion of the issue.
–7–
655, and when the representation directly contradicts the parties’ written agreement,

id. at 658. Either of these circumstances can alone be sufficient to negate justifiable

reliance as a matter of law. Id. at 660, n.2.4 The Bank’s argument centers on the

presence of a trio of red flags that—it contends—should have alerted Bagwell that

his reliance was unwarranted. Our analysis, rooted in the nature of the parties’

relationship and the contract, id. at 654, leads us to agree.

One may not justifiably rely on a representation when red flags indicate that

reliance is unwarranted. Grant Thornton LLP v. Prospect High Income Fund, 314

S.W.3d 913, 923 (Tex. 2010). In the context of a contractual relationship, this rule

speaks to circumstances surrounding an oral representation that would warn a person

of the plaintiff’s experience and sophistication that he ought not to place confidence

in that representation. See, e.g., Orca Assets, 546 S.W.3d at 656 (“[W]orld-savvy

participants entering into a complicated, multi-million-dollar transaction should be

expected to recognize ‘red flags’ that the less experienced may overlook.”).

4
The supreme court has subsequently confirmed that either the presence of red flags or a representation
directly contradicting the parties’ agreement can serve to negate justifiable reliance:
Although Orca Assets discusses both direct contradiction and other red flags, it does not
require them both to negate justifiable reliance. In fact, we noted just the opposite, stating
that either could be sufficient to preclude justifiable reliance. Id. at 660 n.2. In truth, when
a plaintiff asserts reliance on a misrepresentation that the written contract directly and
unambiguously contradicts, both are present because the existence of such a conflict is
itself a large red flag. See id. at 658 (stating that written contract’s direct contradiction was
“another alarm Orca disregarded”).

Mercedes-Benz USA, LLC v. Carduco, Inc., 583 S.W.3d 553, 559 (Tex. 2019).

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 Neither party in this case pretends to be less than experienced and

sophisticated in commercial real estate transactions. The transaction at issue began

with a loan for $11 million that Bagwell asserts would have led to profits of many

times that amount. Our law charges these parties with exercising care to protect their

own interests, and a failure to do so is not excused by mere confidence in the honesty

and integrity of the other party. See Mikob Props., Inc. v. Joachim, 468 S.W.3d 587,

599 (Tex. App.—Dallas 2015, pet. denied). Thus, Bagwell—as an experienced

businessman, and borrower, in this field—was required to establish that when he

relied upon Meade’s oral representations, he was reasonably protecting his multi-

million-dollar interest in the transaction.

The Bank contends that at least three red flags would have sufficiently warned

someone in Bagwell’s position that his reliance on Meade’s representations could

not be justified.

The Loan Documents:

First, the loan documents themselves provided that the parties’ agreement

could not be amended except in writing. The earlier extensions granted by the Bank

had been put in writing, but no third written extension was ever put in writing and

signed by the parties. Accordingly, Bagwell was not justified in relying on any

representation that the Bank would grant him another extension.

Likewise, the loan documents gave the Bank the authority to sell Bagwell’s

loans at any time, without notice to him. That authority was not revoked in writing.

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Thus, Bagwell could not justifiably rely on a contrary representation by Meade. See

Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 499 (Tex.

2019) (oil and gas production company’s oral representation that it would not

exercise its authority to prevent assignment of its interest by well driller “directly

contradicted” contract giving production company right to prevent assignment,

foreclosing justifiable reliance). In Bagwell’s case, the contract gave the Bank the

right to sell the loans, but if Meade’s alleged oral representations were to be believed,

the Bank would not exercise that right—at least, Bagwell suggests, not without

giving him notice. Bagwell contends that if had he known the Bank was considering

selling the loans, he would have moved them to some unnamed lender that was not

interested in foreclosing upon his properties. In effect, thus, he contends that the

Bank’s authority to sell the loans was subject to a condition that exists nowhere in

the parties’ agreement. Bagwell could not have justifiably relied upon such an

interpretation of the contract. See id.

A representation that contradicts the parties’ agreement is both a red flag that

should be heeded and is—on its own—a basis for negating justified reliance as a

matter of law. Carduco, 583 S.W.3d at 559 (“In truth, when a plaintiff asserts

reliance on a misrepresentation that the written contract directly and unambiguously

contradicts, both are present because the existence of such a conflict is itself a large

red flag.”). This ground alone, then, negates justified reliance.

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Specific Warnings:

The Bank relies as well on the fact that two of Bagwell’s friends and

colleagues in the development business told him that the Bank was trying to sell his

loans. Bagwell acknowledges that these warnings caused him to go to Meade to

follow up. The reports were significant red flags that a sophisticated borrower would

have heeded. Indeed, according to Bagwell, he questioned Meade after receiving

both of these reports, indicating that he “harbored doubts” about the status of the

loans. See Orca Assets, 546 S.W.3d at 656.

Knowledge of Unreliability:

The Bank also points to another of Meade’s alleged representations: that the

Bank would require Bagwell’s approval to sell the loans. Bagwell knew that

representation was untrue, and he asserts that he did not rely on it specifically. But

knowing that Meade had made one such unreliable statement regarding selling the

loans was yet another red flag for Bagwell.

Bagwell responds to the Bank’s arguments by conceding that it had a right to

sell the loans but not a “right to lie” about its intentions. We are unaware of any legal

concept embracing—or rejecting—a so-called “right to lie.” Our common law

protects a plaintiff from deceit when the plaintiff can prove fraud. But fraud has

well-defined elements, which include justifiable reliance upon the deceitful

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representation. Given the red flags evidenced in this record, we conclude Bagwell

has failed to prove that element of his fraud claim.5

Considering all the evidence of the nature and circumstances of the parties’

relationship as well as their agreement, we conclude that justifiable reliance has been

negated as a matter of law. Carduco, 583 S.W.3d at 563; Orca Assets, 546 S.W.3d

at 654. The law would not allow reasonable jurors to decide otherwise. Orca Assets,

546 S.W.3d at 653. We sustain the Bank’s second issue challenging the justifiable-

reliance element of Bagwell’s fraud claim. In the absence of justifiable reliance,

appellees’ fraud claim fails. We need not reach the Bank’s remaining issues.

CONCLUSION

We reverse the trial court’s judgment and render judgment that Bagwell take

nothing on his claim.

/Bill Pedersen, III//
BILL PEDERSEN, III
180860f.p05 JUSTICE

5
We are not to be understood as condoning the Bank’s conduct in this case. Counsel for the Bank referred
to “side whispers” when addressing oral representations among those doing business. If Meade made the
representations as Bagwell alleges, they were not side whispers; they were outright misrepresentations. As
a matter of policy, businesses should deal with their customers in a more straightforward manner.
–12–
 Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT

BBVA COMPASS AND SAM On Appeal from the 101st Judicial
MEADE, Appellants District Court, Dallas County, Texas
Trial Court Cause No. DC-14-00991.
No. 05-18-00860-CV V. Opinion delivered by Justice
Pedersen, III. Justices Myers and
DAVID BAGWELL, Whitehill participating.
INDIVIDUALLY AND AS
TRUSTEE OF THE DAVID S.
BAGWELL TRUST, BROUGHTON
LIMITED PARTNERSHIP, OLD
GROVE LIMITED PARTNERSHIP,
AND BROADLAND LIMITED
PARTNERSHIP, AND MARILYN
D. GARNER, CHAPTER 7
TRUSTEE OF THE ESTATE, AND
DAVID BAGWELL COMPANY,
EVERMORE COMMUNITIES,
LTD., AND THE OXFORD
CORPORATION, Appellees

In accordance with this Court’s opinion of this date, the judgment of the trial
court is REVERSED and judgment is RENDERED that appellees David Bagwell,
individually and as Trustee of the David S. Bagwell Trust, Broughton Limited
Partnership, Old Grove Limited Partnership, and Broadland Limited Partnership,
and Marilyn D. Garner, Chapter 7 Trustee of the Estate, and David Bagwell
Company, Evermore Communities, and The Oxford Corporation: take nothing.

It is ORDERED that appellants BBVA Compass and Sam Meade recover
their costs of this appeal from appellees David Bagwell, individually and as
Trustee of the David S. Bagwell Trust, Broughton Limited Partnership, Old Grove

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Limited Partnership, and Broadland Limited Partnership, and Marilyn D. Garner,
Chapter 7 Trustee of the Estate, and David Bagwell Company, Evermore
Communities, and The Oxford Corporation.

Judgment entered this 14th day of December, 2020.

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