Italian Cowboy Partners, Ltd. v. The Prudential Insurance Company Of America And Four Partners, LLC

341 S.W.3d 323 (2011)

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Nature of the Case

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Facts

P terminated their restaurant's lease because of a persistent sewer gas odor. Ps sued Ds seeking to rescind the lease and recover damages for fraud and breach of the implied warranty of suitability. D seeks to recover for breach of contract. P had identified Keystone Park, a Dallas shopping center owned by Ds, as a possible site for a new restaurant. It had a vacant restaurant building available for lease. P negotiated a potential lease of the vacant restaurant building with the property management director, Fran Powell. Powell told P that the building was practically new and had no problems. Powell said, 'the building was in perfect condition, never a problem whatsoever.' 'There had been nothing wrong with the place at all.' The lease contained the following provisions: 14.18 Representations. Tenant acknowledges that neither Landlord nor Landlord's agents, employees or contractors have made any representations or promises with respect to the Site, the Shopping Center, or this Lease except as expressly set forth herein. 14.21 Entire Agreement. This lease constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and no subsequent amendment or agreement shall be binding upon either party unless it is signed by each party. . . . P began remodeling the property after signing the lease. They then discovered that a severe odor had plagued Hudson's Grill, the previous tenant. A nearby cinema manager had asked Ron Perry, P's general contractor if he knew of the problematic odor existing in the previous restaurant. A few days later, '[a] guy with a motorcycle' stopped by the restaurant and said to 'be very careful. . . . [There] used to be a place called Hudson's here and they used to serve excellent hamburgers, but there was a very, very bad odor.' P contacted Powell and specifically asked whether Hudson's Grill had experienced an odor problem. Powell answered that she had been working with the building 'all the time,' and that '[n]ever before' had there been a problem-this was the 'first time' she heard something was wrong. The sewer system subsequently backed up during the remodeling, and the odor made itself known, and Powell replied that she did not 'know anything' about these issues. As renovations proceeded, the odor subsided. A persistent odor-distinct from the earlier odor-materialized a few months later, a week before the planned opening. A cleanup crew removed a layer of hardened grease that had been blocking the inlet pipe to the grease trap, and a constant foul sewer gas odor became evident immediately. 'The odor started to come inside . . . the restaurant' from the grease trap, which was located outside the restaurant building. Powell acknowledged that she smelled the odor, though she never admitted the same problem had occurred with Hudson's Grill. Significant and good faith efforts were made to fix the problem but to no avail. The odor persisted, however, and the restaurant was unable to draw customers. At one point, the City of Dallas briefly shut down the restaurant following a customer's complaint to the health department. Powell then arranged for a smoke test to help identify the odor's source. Powell said nothing was found. But P was told by one tester that they found three old [smoke] bombs that had been placed some time ago.' Powell denied any problems but P soon learned this was a lie. The former manager from Hudson visited and learned the odor was still present. Eventually, P and the former manager compared notes and confirmed the lie. P immediately ceased paying rent and closed the restaurant. P sued Ds, asserting claims for fraud, including both a theory of fraud in the inducement of the lease, as well as fraud based on later misrepresentations. P asserted claims for negligent misrepresentation, breach of the implied warranty of suitability, and constructive eviction, and also sought rescission of the lease. The trial court found for P on all claims. P elected to rescind the lease and to recover damages for rescission. P was awarded $600,070.40 in actual damages, plus prejudgment interest and attorney's fees. The trial court awarded $50,000 as exemplary damages. The trial court also ordered that D take nothing on its counterclaim for breach of contract. The court of appeals reversed and rendered a take-nothing judgment while rendering judgment in favor of D on its counterclaim for breach of contract. P appealed.