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Cexchange, LLC v. Top Wireless Wholesaler

Court of Appeals of Texas, Fifth District, Dallas

August 23, 2019

CEXCHANGE, LLC, Appellant
v.
TOP WIRELESS WHOLESALER, Appellee

          On Appeal from the 14th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-16-02705

          Before Justices Bridges and Richter [1]

          MEMORANDUM OPINION

          DAVID L. BRIDGES JUSTICE

         This appeal arises from an "as is" sale of used merchandise. The buyer, appellee Top Wireless Wholesaler (Top), claims that the seller, appellant CExchange, LLC, misrepresented the grading and quality of the merchandise for sale. CExchange appeals a jury verdict awarding Top damages. It raises four issues, including that the "as is" provision in the parties' contract barred Top's claims as a matter of law. We affirm in part and reverse and remand in part.

         BACKGROUND

         CExchange and Top are both electronics resellers. The events that gave rise to this suit occurred in December 2015 and in January 2016. On December 15, CExchange purchased 9, 119 used "Beats" headphones and speakers from Best Buy for $276, 474.18. Before the purchase, Best Buy forwarded a spreadsheet to CExchange that described the grading of the units for sale. The spreadsheet reflected that Best Buy had graded 89% of the merchandise as "Grade D," meaning that the "product was found to have defects"-including "physical or functional issues"-and may be missing "accessories" or "retail packaging."

         On December 16, CExchange's Director of Operations, Oscar Trevino, sent an e-mail to a Top employee, Israel Biller, inquiring whether Top was interested in purchasing Beats headphones. Trevino's e-mail did not specify the source of the headphones, but around the same time Top was separately seeking to convince Best Buy to give Top the opportunity to make an offer to purchase from Best Buy a group of salvage Beats products. Accordingly, Top wished to confirm with CExchange that the lot it was selling was different than the salvage lot that Top had discussed with Best Buy. Top did not ask CExchange whether its lot had come from Best Buy, but Biller's response to Trevino's e-mail did ask about the condition of the merchandise for sale. Trevino replied that "[t]hese are all ungraded customer returns."[2] He noted that, based on CExchange's "past experience with this[, ] the majority of the items are in working condition" and "will be in the original retail packaging." However, his e-mail also warned of the "risk that not 100% of them are in working condition." Trevino confirmed in a telephone call with Top that CExchange had purchased the items as ungraded and did not yet have them in its possession.

         Top offered $408, 000 to purchase the entire lot of merchandise, and CExchange accepted the offer on December 18. That same day, CExchange forwarded an invoice for the merchandise. The invoice noted that the sale was "AS-IS" and that "No Warranty" had been made. The sale was contingent on Top's satisfaction with the merchandise following an inspection.

         Thereafter, the parties made arrangements for Top's owner, Amman Lifshiz, to travel from New Jersey to Texas to conduct the inspection at CExchange's warehouse. The approaching Christmas holiday limited the number of available flights. Top proposed Tuesday, December 22, as the inspection date. CExchange responded that the merchandise totaled forty-eight pallets, some of which would not arrive until December 23. It noted that it "still need[ed] to go through the order to insure accuracy." Accordingly, CExchange suggested that Lifshiz begin his inspection on the afternoon of the 22nd and that he stay over the following day to complete the inspection. However, Lifshiz's schedule precluded him from staying until the 23rd. He instead elected to proceed with a single-day inspection on the 22nd of the merchandise available at that time.

         When Lifshiz arrived at CExchange's warehouse, CExchange had received two pallets from Best Buy. Lifshiz inspected the pallets for approximately ten to fifteen minutes, and he immediately recognized that they were from Best Buy. The pallets contained between 400 and 500 units, the majority of which were in their original retail packaging. Top had dealt with CExchange four or five times in the past, and Lifshiz testified that he trusted CExchange. Based on his inspection of the two pallets, Lifshiz decided to move forward with the purchase. The following day, on December 23, Top wired the $408, 000 payment.

         CExchange received the remaining pallets from Best Buy on December 23 and on December 28. Unlike the first shipment, the units in the subsequent shipments were packaged in plastic bags. Trevino expressed concern within CExchange that the new shipments did not match the first two pallets that Lifshiz had inspected. CExchange did not notify Top of this new information.

         On January 11, 2016, Top received the 9, 119 units it had purchased. It discovered the vast majority of them were in "salvage condition," i.e., they looked "physically defective," and they were in plastic bags rather than in their original packaging. Top tested a sampling of the units and confirmed that 90% "were either physically or technically damaged." It sought to return the merchandise, but CExchange refused.

         Top sued CExchange and asserted five causes of action: breach of contract, breach of express warranty, fraudulent inducement, negligent misrepresentation, and deceptive trade practices (DTPA). The core of Top's complaint is that CExchange knew all along, but failed to disclose to Top, that Best Buy had graded the merchandise as Grade D. CExchange responds that its representation regarding "all ungraded customer returns" was truthful because, in contrast to its previous sales to Top, CExchange had not graded these returned goods.

         CExchange generally denied Top's allegations and asserted several affirmative defenses, including the doctrines of disclaimer, waiver, and estoppel, as well as Top's own negligence. Thereafter, the parties filed cross-motions for summary judgment. Following the court's rulings on these motions, Top's claims for breach of contract, breach of warranty, and deceptive trade practices remained.

         The case was tried before a jury, which returned a verdict on June 28, 2017. Among other questions, the charge asked whether CExchange agreed to sell products that were "all ungraded customer returns," or whether they were instead sold "as is." The jury answered "[a]ll ungraded customer returns." It awarded Top $171, 500, which is less than half of the $346, 000 sum it had requested. CExchange filed a motion for judgment notwithstanding the verdict, which the court denied. On August 17, 2017, the court rendered judgment for Top in the amount of $171, 500 in actual damages, in accordance with the jury's verdict. The judgment also awarded Top $182, 854.75 in attorney's fees through trial, additional attorney's fees conditioned on Top's success on appeal, pre- and post-judgment interest, and taxable costs. CExchange filed a motion for new trial, which the court denied. This appeal followed.

         ANALYSIS

         I. "As Is" and "No Warranty" Provisions

         In its first issue, CExchange contends the "as is" and "no warranty" provisions in the parties' contract barred all of Top's claims as a matter of law. A valid "as is" agreement prevents a buyer from holding a seller liable if the item sold turns out to be worth less than the price paid. Prudential Ins. Co. of Am. v. Jefferson Assocs., Ltd., 896 S.W.2d 156, 161 (Tex. 1995). This is so because "it is impossible for the buyer's injury on account of this disparity to have been caused by the seller." Id. Instead, the sole cause of the injury is the buyer's agreement to take the full risk of determining the value of the purchase.[3] Id. Applying the foregoing principle, the Supreme Court in Prudential held that the contract's "as is" clause in that case conclusively showed that nothing the defendant did caused the plaintiff's damages. Id. at 164; see also Gym-N-I Playgrounds, Inc. v. Snider, 220 S.W.3d 905, 908, 914 (Tex. 2007) (holding that "as is" clause in commercial lease negated causation element of several of tenant's claims against landlord).

         CExchange relies on CAS, Ltd v. TM Aviation Partners, LP, in which this Court affirmed the trial court's judgment for a defendant seller based on an "as is" clause in the bill of sale. No. 05-15-00779-CV, 2016 WL 4151455, at *1 (Tex. App.-Dallas Aug. 4, 2016, no pet.) (mem. op.). In that case, the seller owned used "aviation floats"-i.e., "'pontoons . . . designed to go on aircraft'"-that he had previously purchased based solely on his review of photographs of the floats. Id. at *1 & 3. The seller had not taken possession of the floats after purchasing them from their original owner, nor did he personally see the floats in the years that he owned them. Id. at 1. Nevertheless, the seller represented the floats to be "'like new'" and with only "twenty hours of total float time on the water." Id. at *1. However, in reality the floats were "in very poor condition," had "lots of corrosion," were "badly stored," and had "more than twenty hours of total time on them." Id. The buyer agreed to purchase the floats "as is" without conducting any inspection other than reviewing the same photos that the seller had examined before buying the floats four years earlier. Id. at *1-2.

         Under these circumstances, we held that the "as is" clause precluded the buyer from proving that the seller's conduct caused the buyer's harm. Id. at *4. We noted that the buyer himself had drafted the bill of sale, which included the "as is" provision, and both parties were "sophisticated businessmen with years of experience in buying and selling within the aviation industry." Id. at *3. Moreover, the "as is" clause was "not boilerplate language hidden within a lengthy document, but rather" was "set forth in the few short paragraphs comprising the one page document." Id. In addition, the seller made it clear he had never personally seen the floats, and he encouraged the buyer to inspect them himself. Id. Nor did the record indicate the seller had any superior knowledge of aircraft floats over the buyer. Id. at *5. We were not persuaded by the buyer's contention the seller had fraudulently concealed that the photos of the floats were over four years old. Id. We noted the seller disclosed he had never inspected the floats and that they were over thirty-years old. Id. In addition, the seller did not impair the buyer's ability to inspect the floats prior to sale. Id.

         A. Scope of Agreement

         We begin by considering Question 1 of the court's charge, which asked the jury to choose whether CExchange agreed to sell goods to Top that were "'all ungraded customer returns, '" or whether the goods were instead sold "'as is."" The jury answered, "[a]ll ungraded customer returns" Question 1 was derived from the parties' competing proposals regarding the submission of Top's breach of contract claim. CExchange's proposed charge asked whether the parties agreed that Top "was buying the goods at issue 'as is.'" In contrast, Top's proposed charge asked whether CExchange "failed to comply with its agreement to sell . . . 'all ungraded customer returns, '" and it defined such returns as "neither graded by CExchange nor by any other third party."

         The parties disagree regarding the impact of Question 1. CExchange urges that this question related to the enforceability of the "as is" clause, which in its view is a question of law that should not have been submitted to the jury. It argues the jury's finding in response to this question must therefore be disregarded. See Se. Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 172 (Tex. 1999) (noting that "[a] question is immaterial when it should not have been submitted" or "it calls for a finding beyond the province of the jury, such as a question of law"). It also contends that the record establishes as a matter of law that Top purchased the subject products "as is" and with "no warranty."

         Top does not dispute that the enforceability of an "as is" clause is a question of law, but it urges that it was CExchange who submitted the "as is" language that the court incorporated into Question 1. It also contends the jury correctly determined in response to Question 1 that the "as is" clause was not an operative part of the contract.

         Question 1 did not ask whether the "as is" clause was enforceable. On its face, this question instead asked the jury to determine the scope of the agreement-either "all ungraded customer returns" or "as is"-which is a question of fact. See Preston Farm & Ranch Supply, Inc. v. Bio-Zyme Enters., 625 S.W.2d 295, 298 (Tex. 1981) ("The question of whether an agreement was reached by the parties is generally a question of fact where the existence of the agreement is disputed."). Under the circumstances here, we agree with Top that the jury's finding of "all ungraded customer returns" amounts to a determination that the "as is" clause was not an operative part of the subject agreement.[4]

         B. Enforceability of "As Is" Clause

         Even if the "as is" clause were part of the contract, we conclude that in this case the jury's findings and the supporting evidence establish that the clause was unenforceable. Relevant to this point, the Prudential court noted that an "as is" clause will not preclude a buyer's claim in every circumstance. 896 S.W.2d at 162. Specifically, an "as is" clause is not binding if the buyer was induced to enter the transaction by the seller's fraudulent representation or concealment of information. Id. A buyer is also not bound "if he is entitled to inspect the condition of what is being sold but is impaired by the seller's conduct." Id. Other aspects of a transaction may also make an "as is" agreement unenforceable. Id. In conducting such an assessment, we must consider the nature of the transaction and the totality of the circumstances. Id. An "as is" contract "freely negotiated by similarly sophisticated parties . . . in an arm's length transaction has a different effect than a provision in a standard form contract which cannot be negotiated and cannot serve as the basis of the parties' bargain." Id.; see also Bishop v. Creditplex Auto Sales L.L.C., No. 05-15-00395-CV, 2016 WL 3453633, at *3 (Tex. App.-Dallas June 23, 2016, no pet.) (mem. op.) (noting that an "as-is clause may not be controlling if it appears in a standard form contract that cannot be negotiated nor serve as the basis of the parties' bargain, particularly if the parties are not equally sophisticated."). In this opinion, we will refer collectively to the foregoing circumstances in which an "as is" clause does not apply as "Prudential exceptions."

         The Texas Supreme Court has noted that a court should normally determine the "preliminary question" of whether an "as is" clause is enforceable before determining whether such a clause waived a plaintiff's claims. Gym-N-I Playgrounds, 220 S.W.3d at 912. However, the question of enforceability may rest on the jury's resolution of disputed fact issues. Cf. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 357 (Tex. 2011) ("We review legal questions that rest on a factual basis de novo, while affording deference to the trial court's findings of fact."). For example, in Bishop, we held that the evidence raised fact issues regarding the enforceability of an "as is" clause that precluded the rendition of a directed verdict in favor of the defendant seller. 2016 WL 3453633, at *4-7. We also acknowledged that our sister courts have construed the Prudential exception for fraudulent inducement "to mean that the buyer resisting the as-is clause must prove the elements of common law fraud regarding the condition of the property being sold in order to overcome the clause."[5]Id. at *6; cf. GJP, Inc. v. Ghosh, 251 S.W.3d 854, 886-87 (Tex. App.-Austin 2008, no pet.) (holding that a seller's assertion of an "as is" clause is an "inferential rebuttal"-"[a] question that presents a contrary or inconsistent theory from the claim relied upon for ...


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