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Lutfak v. Gainsborough

Court of Appeals of Texas, First District

May 18, 2017

GILAD LUTFAK AND OREN LUTFAK, Appellants
v.
JEFF GAINSBOROUGH, Appellee

         On Appeal from the 127th District Court Harris County, Texas Trial Court Case No. 2012-73748

          Panel consists of Justices Massengale, Brown, and Huddle.

          MEMORANDUM OPINION

          Michael Massengale Justice.

         Appellants Gilad and Oren Lutfak appeal from a judgment in favor of appellee Jeff Gainsborough. Gainsborough sued Gilad and Oren based on claims arising out of his purchase of a townhome. A jury found that Gilad, the seller, committed fraud, breached implied warranties, violated the Deceptive Trade Practices Act, and made negligent misrepresentations. The jury also found that Oren conspired with Gilad during the sale of the home. Based on these findings and the damages awarded by the jury, the trial court rendered judgment in favor of Gainsborough, against both Oren and Gilad.

         Because Gainsborough executed an "as is" earnest money sales contract when he purchased the home, he cannot satisfy the reliance or causation elements of his fraud, DTPA, and negligent-misrepresentation claims. Further, the evidence was legally insufficient to support the jury's affirmative findings on breach of implied warranties. We therefore reverse the trial court's judgment against Gilad and render judgment that Gainsborough take nothing on his claims against him. Additionally, because of our disposition of Gainsborough's claims against Gilad, there was no unlawful conduct to support a judgment based on the jury's conspiracy finding. Thus, we also reverse the trial court's judgment with respect to Oren and render judgment that Gainsborough take nothing on those claims as well.

         Background

         The homes at 514 and 516 West Polk Street in Houston, Texas are connected townhomes. Gilad Luftak owned 514 West Polk and his brother, Oren Luftak, owned 516 West Polk. Gilad purchased his home in 2009 from Hampton Development Corporation. This sale was evidenced by a "New Home Contract" and a special warranty deed between Hampton Development and Gilad. In 2010, Gilad put his home up for sale, and Jeff Gainsborough became interested in leasing it from him. After entering into a lease, Gainsborough decided to try to buy the home.

         There were several meetings between Gainsborough, Gilad, and their real estate agents prior to their agreement on the sale of the townhome. During those meetings, Gilad represented to Gainsborough that he and his brother Oren were the "builders" of the townhomes, that the townhomes were "brand new, " and that he was the only person who had lived in the 514 West Polk townhome. In addition, during one of the meetings before the execution of the contract, Gainsborough noticed water damage around one of the windows. Gilad represented to Gainsborough that the damage was the result of a burst pipe that had been "taken care of." Gilad allegedly stated that the water stain "could easily be painted over" and that "it was cosmetic."

         In December 2010, Gainsborough and Gilad entered into a standard Texas Real Estate Commission One to Four Residential Resale Contract. Gainsborough agreed to pay $484, 000 to buy the home in "its present condition." The contract provided for the buyer to deposit $4, 200 as earnest money which would be paid to seller as liquidated damages in the event of a default by the buyer. The contract stated that Gilad had provided a "Seller's Disclosure Notice Pursuant to §5.008, Texas Property Code, " and it gave Gainsborough the right to inspect the home prior to closing. The contract further provided that, for nominal consideration of $100, Gainsborough retained "the unrestricted right to terminate this contract" during a ten-day "termination option" period. The contract listed Korloch, Inc. as the builder of the home, not Gilad or his brother.

         The day after execution of the contract, Gainsborough had the home inspected, which resulted in the identification of numerous problems. The very next day-two days after the execution of the sales contract, and within the termination option period-Gainsborough and Gilad formally amended their contract on a TREC form, which appended the home inspection report and required "[a]ll items . . . to be addressed and repaired as required." Gainsborough and Gilad later supplemented the terms of the amended sales contract by entering into a written escrow agreement. Under the terms of the escrow agreement, Gainsborough placed $2, 500 of the purchase price in escrow and Gilad agreed to make certain repairs identified in the inspection report. If Gilad made the repairs within 30 days of the escrow, he would be entitled to demand release of the escrowed $2, 500. If he did not make the repairs, then Gainsborough could demand the $2, 500 from escrow and make the repairs himself. The amendment and escrow agreement did not alter the term that Gainsborough was purchasing the home in "its present condition."

         At closing, Gainsborough accepted and signed a special warranty deed. According to this deed, Gainsborough purchased the property:

. . . AS IS, WHERE IS, AND WITH ALL FAULTS, AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, WRITTEN OR ORAL, IT BEING THE INTENTION OF GRANTOR AND GRANTEE TO EXPRESSLY REVOKE, RELEASE, NEGATE, AND EXCLUDE ALL REPRESENTATIONS AND WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY AND ALL EXPRESS OR IMPLIED REPRESENTATIONS AND WARRANTIES . . . .

         After closing, Gilad did not make the repairs, and Gainsborough demanded and received the $2, 500 from escrow. Gainsborough moved into the home and began noticing that it leaked when it rained. In addition to the leaks, Gainsborough discovered several other problems with the home, including that the air conditioning was insufficient to cool it.

         Gainsborough hired two contractors to make repairs. He eventually sued Gilad, Oren, and their real estate agent and agency claiming fraud, breaches of warranty, violations of the Deceptive Trade Practices Act, and negligent misrepresentation arising out of the sale of the home. Gilad and Oren's real estate agent and agency settled with Gainsborough prior to trial.

         At trial, Gainsborough testified about his interactions with Gilad before and after purchasing the home. He also testified about extensive repairs and the amount of money he paid to make them. In addition, Gainsborough testified about his interaction with Oren, which included a fenceline dispute that occurred after Gainsborough purchased the home.

         Gainsborough also offered into evidence a letter from an attorney who represented Gilad with respect to claims he brought against Korloch regarding a burst pipe in 2009. Gilad disclosed the burst pipe in the Seller's Disclosure Notice he provided to Gainsborough. The letter, along with photographs taken by Gilad's insurer, indicated that the damage caused by the burst pipe may have been more severe than Gilad had suggested on his seller's disclosure or during discussions with Gainsborough.

         Gainsborough's witnesses at trial included his real estate agent, one of the contractors who made repairs, and a construction-defect expert. They testified to the extensive problems they discovered in the construction of the home. With respect to Oren's involvement in the sale, there was evidence that he may have been the builder of the home, that he had engaged the same real estate agent as Gilad to sell his home at 516 West Polk at the same time as the sale to Gainsborough took place, and that he occupied all of the officer positions at Korloch, the company listed as the builder of the 514 West Polk home.

         The jury found that Gilad had committed fraud, violations of the DTPA, breaches of implied warranties, and negligent misrepresentation when he sold the home to Gainsborough. In addition, the jury found that Oren had engaged in a conspiracy with Gilad that caused injury to Gainsborough.

         Gilad and Oren both moved for judgment notwithstanding the verdict, arguing that the earnest money contract and other agreements precluded a judgment in Gainsborough's favor. The court denied their motions and rendered judgment in favor of Gainsborough against both Gilad and Oren, awarding damages, attorney's fees, and prejudgment interest. ...


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