PJC Business 2024

PJC 105.2

F RAUD AND N EGLIGENT M ISREPRESENTATION

resentations would have destroyed its defense of fraud.” See also Hooks v. Samson Lone Star Ltd. Partnership , 457 S.W.3d 52, 57 n.6 (Tex. 2015) (“Hooks and amicus . . . cite cases stating that if there is a fraudulent misrepresentation, it is no defense that proper inquiry might have revealed the truth. See, e.g., Buchanan v. Burnett , 102 Tex. 492, 119 S.W. 1141, 1142 (1909); Labbe v. Corbett , 69 Tex. 503, 6 S.W. 808, 811 (1888); Mitchell v. Zimmerman , 4 Tex. 75, 79–80 (1849). These cases, however, stand for the general proposition that one may be liable for fraud even if it could be discov ered by due diligence; they do not hold that limitations is extended even if due dili gence would reveal the fraud.”) . Most recently, in Grant Thornton LLP v. Prospect High Income Fund , 314 S.W.3d 913, 923 (Tex. 2010), the supreme court held: In measuring justifiability, we must inquire whether,“given a fraud plain tiff’s individual characteristics, abilities, and appreciation of facts and cir cumstances at or before the time of the alleged fraud[,] it is extremely unlikely that there is actual reliance on the plaintiff’s part.” Haralson v. E.F. Hutton Group, Inc. , 919 F.2d 1014, 1026 (5th Cir. 1990) (applying Texas law). Moreover, “a person may not justifiably rely on a representation if ‘there are “red flags” indicating such reliance is unwarranted.’” Lewis v. Bank of America NA , 343 F.3d 540, 546 (5th Cir. 2003). In 2015, the supreme court held in Westergren that “[i]n an arm’s-length transac tion[,] the defrauded party must exercise ordinary care for the protection of his own interests. . . . [A] failure to exercise reasonable diligence is not excused by mere confi dence in the honesty and integrity of the other party.” Westergren , 453 S.W.3d at 425 (quoting Thigpen v. Locke , 363 S.W.2d 247, 251 (Tex. 1962)). And in 2018, the court held in Orca Assets : [W]hen a party fails to exercise such diligence, it is “charged with knowl edge of all facts that would have been discovered by a reasonably prudent person similarly situated.” See AKB [ Hendrick, LP v. Musgrave Enter prises, Inc. ], 380 S.W.3d [221,] 232 [(Tex. App.—Dallas 2012, no pet.)]. To this end, that party “cannot blindly rely on a representation by a defen dant where the plaintiff’s knowledge, experience, and background warrant investigation into any representations before the plaintiff acts in reliance upon those representations.” See Shafipour v. Rischon Development Corp. , No. 11-13-00212-CV, 2015 WL 3454219, at *8 (Tex. App.—Eastland May 29, 2015, pet. denied) (mem. op.). Orca Assets , 546 S.W.3d at 654. Aiding and abetting fraud. Although the Texas Supreme Court has yet to answer the question, at least one appellate court has held that aiding and abetting fraud is not a recognized cause of action. See, e.g., Hampton v. Equity Trust Co. , 607 S.W.3d 1, 5 (Tex. App.—Austin 2020, pet. denied) (“In the absence of recognition by the

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