The Texas Supreme has granted a commercial tenant’s petiton for review of a Dallas Court of Appeals decision that overturned a $30 million judgment in a fraud case against the landlord.
Maya Walnut LLC f/k/a Maya Foods, Inc. v. Bryan Ly, Walnut Creek Center, Inc., Leng Chiv Ly, and Sao Minh Ly (No. 24-0171; granted September 5, 2025; No. 05-21-01140-CV; January 24, 2024) arose from a dispute over negotiations for a commercial lease. Tenant Maya Walnut, owned and operated by Hamdy Shalabi, operated a grocery in Walnut Creek Center, owned by the Lys (Landlord). Tenant’s lease was scheduled to expire on September 30, 2019. In 2016 Landlord and Tenant, through Tenant’s broker, began negotiating a new lease. After back and forth over the amount of rent, Tenant submitted a draft lease agreement to Landlord, which lowered Tenant’s base rate, in December 2017. Landlord paused the negotiations, which didn’t resume until June 2018. Meanwhile, Tenant was scouting possible alternate locations for the grocery, identifying a location a block from its current location. In July 2018 Landlord leased the property to another tenant, Chihuahua Foods, without notifying Tenant of his negotiations for a new tenant. Even after the lease was signed, Landlord continued to string Tenant along until the following February, when he sent notice of non-renewal to Tenant. Tenant vacated bye premises and closed the store.
Shortly thereafter, Tenant filed suit, alleging fraud, negligent misrepresentation, conspiracy to commit fraud, promissory estoppel, and equitable estoppel, and sought actual and punitive damages. Landlord counterclaimed for unpaid rent and property damage. A six-person jury found that Landlord committed fraud and that tenant sustained $1,500,000 in damages for past lost profits, $3,000,000 for future lost profits, and $12,000,000 for lost business value. The jury also assessed punitive damages of $10,000,000. The jury also determined that Landlord was party of a conspiracy that damaged Tenant and made a negligent misrepresentation on which Tenant justifiably relief, awarding $1,500,000 for past economic loss and $3,000,000 for future economic loss. Landlord didn’t walk away empty-handed, though. The jury awarded $353,000 for unpaid rent and $100,000 for damage to the property. Tenant elected to recover lost business value on its fraud claim, awarding $10,855,917 (net of Landlord’s recovery) and $10 million in punitive damages. Both parties appealed.
In an opinion by Justice Pederson III, the court reversed the trial court’s judgment and rendered a take nothing judgment for Landlord. Landlord argued that Plaintiff’s fraud claim failed as a matter of law for lack of justifiable reliance. According to SCOTX, a plaintiff’s “purported reliance upon an oral misrepresentation is unjustifiable: when ‘red flags’ preclude such reliance, (citation omitted), and when the representation directly contradicts the parties’ written agreement (citation omitted.” Landlord alleged that there were numerous “red flags” and that, given Tenant’s business savvy, it was “extremely unlikely that there [was] actual reliance on [his] part” (citations omitted). Those red flats included the following: (1) Tenant, himself experienced and knowledgeable, was represented in the negotiations by an experienced broker with 30 years of experience in the commercial real estate business; (2) the fact that Tenant’s lease contained no right to renew, no requirement to negotiate exclusively with Tenant, and no requirement for advance notice of non-renewal; (3) the parties conducted an arm’s-length negotiation; (4) Landlord’s representations and non-disclosures never promised that a new lease would be executed and were part of discussions that could potentially lead to a new lease; (5) the extended and nonproductive negotiating process should have tipped off Tenant that lease renewal was in jeopardy (not to mention Tenant’s suspicion that a competitor might be negotiating against him).”
Landlord further argued that Tenant failed to exercise reasonable care to reasonably protect his business. Tenant responded that he looked for alternative locations, couldn’t find any, and became desperate to renew his lease with Landlord. Tenant thus “recognize[d] failure to renew its lease posed substantial risk to its business.” Tenant testified at trial that it didn’t aggressively pursue alternative space because its existing location “was superior” and “was the better business decision.” But, as Landlord argued and the court agreed, Tenant did not “protect its business” by staking it entirely on the negotiations for renewal, when the lease didn’t provide for renewal or notice of non-renewal. All in all, the record showed “numerous red flags” that negated justifiable reliance as a matter of law. The court thus reversed Tenant’s recovery for fraud, conspiracy to commit fraud, negligent misrepresentation, and promissory estoppel (all of which require justifiable reliance), as well as recovery of punitive damages. As to Tenant’s cross-appeal of Landlord’s awards for breach of contract and property damage, the court determined that: there was legally and factually sufficient evidence to support both awards.
Oral argument has been scheduled for December 2.
