Texas = Judiciary Online

Affirmed and Memorandum Opinion filed = February 27,=20 2007.

In The

Fourteenth=20 Court of Appeals

____________

NO. 14-05-00929-CV

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MICHAEL=20 GRAY,=20 Appellant

WASTE=20 RESOURCES, INC., = Appellee

On Appeal from the = 61st District Court

Harris County, Texas

Trial Court Cause = No. 99-07221

O P I N I=20 O N

Michael=20 Gray, appellant, obtained a jury verdict in his favor in a suit = for fraud=20 against Waste Resources, Inc. (AWRI@). =20 The jury awarded Gray $1,100,000 in actual and exemplary = damages. =20 However, the trial court subsequently granted WRI=3Ds motion=20 for judgment non obstante veredicto (AJNOV@) on the=20 ground that Gray presented (1) no evidence to support one or more=20 essential elements of his fraud claim and (2) no evidence to = support the=20 jury=3Ds finding=20 of damages. In a single issue, Gray contends the trial court = erred=20 in granting WRI=3Ds motion=20 for judgment notwithstanding the verdict. We = affirm.

Gray=20 founded WRI with Pierre Morow in 1994. Gray and Morow each = owned 50%=20 of the stock. Gray=3Ds=20 responsibilities included sales, and he had the title of chief = executive=20 officer. Morow=3Ds=20 responsibilities included the financial side of WRI, and he was=20 president. In 1997, the corporation needed legal = representation, and=20 WRI hired Bruce Daniel to represent it in several lawsuits. = In lieu=20 of legal fees, Gray and Morow each conveyed 12.5% of their stock = to=20 Daniel. This reduced Gray=3Ds and=20 Morow=3Ds shares=20 to 37.5% each, with Daniel owning 25%. WRI had a persistent = shortage=20 of cash. Often, WRI juggled vendor=3Ds=20 payments, causing bills to run thirty to sixty days past = due. =20

During=20 1998, Gray and Morow=3Ds=20 friendship disintegrated. In December 1998, Morow and Daniel = voted=20 to terminate Gray. Gray retained his 37.5% interest in WRI = and a=20 seat on the board of directors. However, at a special=20 director=3Ds meeting=20 on January 8, 1999, the board voted to remove Gray as a director, = raise=20 $50,000 capital through the issuance of additional shares of = stock,^[1] and to sell the = front-load division=20 of the corporation. Gray voted against the plan. Under = the=20 plan, each shareholder would have an equal opportunity to preserve = his pro=20 rata share of WRI by purchasing equivalent shares of stock for one = dollar=20 each.^[2] Thus, Gray was = requested to=20 pay $18,750. Gray failed to purchase any shares by the = January 15,=20 1999 deadline. On January 26, 1999, Daniel sent a letter to = Gray=20 stating no agreement had been reached to sell the front-load = division, but=20 the corporation was currently negotiating a sale. The next = day,=20 January 27, 1999, WRI sold the front-load division for = $1,450,000. =20

WRI=20 informed Gray of the sale in a letter dated January 28, = 1999. WRI=20 extended the deadline for Gray to purchase additional shares under = the=20 recapitalization plan until February 22, 1999. Again, Gray = failed to=20 purchase any shares. As a consequence, Gray=3Ds shares=20 were diluted until he owned no part of WRI.

In=20 November of 2002, Morow and Daniel sold WRI for $3,500,000, = earning=20 approximately $2,700,000 in profits. Gray brought suit for = fraud=20 alleging misrepresentations by WRI. Although Gray obtained a = favorable jury verdict, the trial court granted WRI=3Ds motion=20 for JNOV. In his sole point of error, Gray contends he = presented=20 more than a scintilla of evidence on each element of fraud, and = the trial=20 court erred in granting a JNOV.

A JNOV=20 should be entered when the evidence offered to prove a vital fact = is no=20 more than a scintilla. City of Keller v. Wilson,=20 168 S.W.3d 802, 810, 823 (Tex. 2005). In = conducting a=20 no-evidence review, we must view the evidence in the light most = favorable=20 to the verdict, crediting favorable evidence if reasonable jurors = could,=20 and disregarding contrary evidence unless reasonable jurors could=20 not. Id. at 807. = Proper legal=20 sufficiency review prevents reviewing courts from substituting = their=20 opinions on credibility for those of the jurors, but proper review = also=20 prevents jurors from substituting their opinions for undisputed=20 truth. Id. at 816B17. =20 When evidence contrary to a verdict is conclusive, it cannot be=20 disregarded. Id. at 817.

Gray=20 submitted only one cause of action to the juryCfraud. =20 The elements of fraud are: (1) a material misrepresentation was = made; (2)=20 the representation was false; (3) when the representation was made = the=20 speaker knew it was false or made it recklessly without any = knowledge of=20 the truth and as a positive assertion; (4) the speaker made the=20 representation intending that the other party act upon it; (5) the = party=20 acted in reliance on the representation; and (6) the party thereby = suffered injury. Formosa Plastics Corp. = USA v. Presidio = Eng=3Drs &=20 Contractors, Inc., 960=20 S.W.2d 41, 47 (Tex. 1998).

In its judgment, the = trial=20 court stated Gray failed to present any evidence for one or more = of the=20 elements of fraud. We focus on the reliance = element.

Reliance is a = necessary element=20 of common‑law fraud. Schlumberger Tech. Corp. v. = Swanson, 959=20 S.W.2d 171, 182 (Tex. 1997). The reliance = must be=20 reasonable and justified. Gilmartin v. = KVTVCChannel = 13, 985 S.W.2d 553, 558 = (Tex.=20 App.CSan Antonio 1998, no=20 pet.). To=20 prevail on a fraud claim, a plaintiff is required to demonstrate = that he=20 relied upon a fraudulent misrepresentation to his detriment. = Trenholm v. Ratcliff, 646 S.W.2d 927, 930B31=20 (Tex.=20 1983). Gray, as a plaintiff, needed to show he failed = to=20 purchase his pro rata shares of WRI under the equity = recapitalization plan=20 because of his reliance on a misrepresentation by WRI. =

The record=20 shows Gray attempted to borrow money in order to purchase the = shares, but=20 was unable to secure financing. Gray cites this as proof of = his=20 reliance on statements by Morow and Daniel that WRI needed the=20 money. The fact that Gray attempted to secure a loan does = not=20 satisfy the reliance element. The jury charge defined = justifiable=20 reliance as ABelief = in the=20 misrepresentation at the time made and acted upon = it.@ =20 (Emphasis added). Thus, Gray needed to show he did not = purchase the=20 shares because these misrepresentations induced him to forego his=20 opportunity to purchase the shares. Gray repeatedly = testified he=20 would have purchased the shares if he had been able to borrow the=20 money. Gray also stated he did not believe the statements by = Morow=20 and Daniel that WRI was in such serious financial straits the = equity=20 recapitalization plan was necessary. Gray testified he would = have=20 voted in favor of the plan if he had believed WRI actually needed = the=20 money to survive. Gray=3Ds=20 testimony negated any possible reliance he might assert regarding = the=20 alleged misrepresentations about the financial health of the = company.^[3] The jury could not = disregard=20 the undisputed truth of plaintiff=3Ds own=20 testimony. Thus, there was no evidence of reliance on=20 Gray=3Ds part,=20 and the JNOV was proper. Accordingly, we overrule = Gray=3Ds sole=20 issue and affirm the judgment of the trial court.

&n= bsp; &nb= sp; &nbs= p; = ; =20 /s/ = J.=20 Harvey = Hudson

Justice

Judgment=20 rendered and Memorandum Opinion filed February 27, = 2007.

Panel=20 consists of Justices Yates, Anderson, and Hudson.

^[1] =20 Referred to as the equity recapitalization plan or the=20 plan.

^[2] =20 The maximum number of shares each shareholder could purchase was = Gray=20 18,750, Morow 18,750, and Daniel 12,500.

^[3] =20 Gray introduced into evidence a letter dated January 27, 1999, = that stated=20 WRI had no agreement to sell the front‑load division, but = was negotiating=20 for its sale. WRI in fact sold the division the next = day. Gray=20 cites this as another misrepresentation. Even assuming = Gray's=20 assertion of a misrepresentation is true, it is irrelevant. = WRI=20 provided Gray with an additional opportunity to purchase shares = after=20 he became aware of the sale. Therefore, Gray=3Ds failure to purchase the shares could = not have=20 been due to a misrepresentation concerning the = division=3Ds=20 sale.