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Click here for the full text of this decision FACTS:In 1995, Bill Wilson and his father, William Wilson, joined with two others to form Wil-Roye Investment Co., an invoice refactoring company. Wil-Roye purchased the invoices from another factoring company called Key Commercial Investments, owned by Steve and Tim Holder. The next year, Bill’s other company, Renewable Investments, entered into an identical agreement with KCI. KCI acted as an agent for both Wil-Roye and Renewable in acquiring invoices and in day-to-day operation of the factoring business. In November 1995, John Grist, who was president of Midland American Bank, encouraged Bill Wilson to accept one of the bank’s customers as a factoring client. Though the customer, Riley Drilling, was on the bank’s “watch list,” Grist may have indicated to Steve Holder that it would continue to extend credit to the company. KCI did its own due diligence of the company, and met with Riley Drilling’s owner, Denny Allen. KCI and Wil-Roye took Riley Drilling on as a client and, for a while, made a substantial profit factoring their invoices. In 1996, Allen created Southwest Petroservices, made Riley Drilling a subsidiary of the company and put Steve Holder in charge of acquisitions. Steve Holder had also created Investors Drilling Equipment, which bought Riley Drilling’s equipment and leased it back to that company. Shortly after this transaction, the Wilsons and another Wil-Roye investor sold their oil field services business to SPI in exchange for $5 million in promissory notes. Though through this transaction and its increased factoring work for Riley Drilling, Wil-Roye knew that the company had cash flow problems. Still, they continued factoring Riley Drilling’s invoices. Meanwhile, KCI allowed Riley Drilling to bypass the usual payment methods. During this time, Allen and his companies began creating bogus or fraudulent invoices and factored those invoices to get money through Wil-Roye and Renewable. Steve Holder initially accused someone else of making up the invoices, but others said they had created the false invoices at Holder’s behest. KCI has since become Key Funding Group, and Midland American Bank has since become Washington Mutual Bank. As a result of the fraudulent invoices, Wil-Roye and Renewable lost a lot of money. The two companies filed suit against KFG, KCI and the Holders. (SPI and Riley Drilling filed for bankruptcy and Wil-Roye and Renewable recovered from them.) Wil-Roye and Renewable also sent demand letters to Washington Mutual, saying they had claims against the bank for a check kiting scheme involving SPI. Consequently, the bank sought a declaration that it did not owe anything to the plaintiffs. Wil-Roye and Renewable filed counter claims alleging fraud, negligence and others causes of action. The bank non-suited, realigning Wil-Roye and Renewable as the plaintiffs and Washington Mutual as the sole defendant. During discovery, the trial court entered a Dec. 20, 2000, scheduling order. Trial was eventually set for Sept. 10, 2001. The plaintiffs filed a motion for partial summary judgment on June 8, and it was scheduled for a hearing on July 6. On June 12, Washington Mutual filed to revise the scheduling order because it had not been able to a representative of the plaintiffs. It then filed a motion for continuance on June 29. It did not file a summary judgment response. The trial court held a hearing on the motion for continuance on July 3, but it was not recorded. The summary judgment hearing was reset for July 5, but at a conference before the hearing could take place on that day, the bank’s counsel, Harris Kerr, told the court that he had suffered chest pains the day before and could not continue as counsel. Through a letter, the trial court granted the motion for continuance. On July 26, the bank filed a motion to cancel the scheduling order due to Kerr’s illness and the need to substitute counsel. The trial court granted the motion, citing docket considerations and Kerr’s health. The deadline for summary judgment motions was reset for Jan. 4, 2002. The bank, through substitute counsel, Robert Cohan, filed a response to the June 8 summary judgment motion (timely under the new scheduling order; untimely under the old). The trial court eventually denied the motion for partial summary judgment. At his deposition, Steve Holder testified at length about conversations between him and Grist about Riley Drilling, but he took the Fifth when asked about the fraudulent invoices. During a lengthy bench trial, the plaintiffs read into evidence substantial portions of Steve’s deposition, and the bank responded by reading into evidence questions Steve refused to answer. The trial court did not, however, allow in Tim Holder’s deposition testimony because the plaintiffs did not first make offensive use of it. The bank was allowed to make a bill of exception that included questions Tim refused to answer. The trial court entered a take-nothing judgment against the plaintiffs. The trial court found that Grist made one misrepresentation: “By stating or implying that Riley Drilling would be a good factoring customer, John Grist made a negligent misrepresentation.” But, it further found that this misrepresentation “was not made fraudulently or with an intent to deceive.” The misrepresentations did not cause the plaintiffs’ loss. Their loss was the result of the fraudulent invoices, the trial court noted in its findings of fact and conclusions of law. On appeal, the plaintiffs complain that the trial court should not have ruled against them on their summary judgment. They also argue that the trial court erred in drawing an adverse inference from the Holders’ exercise of the Fifth Amendment right to remain silent during their deposition testimony. And they challenge the factual sufficiency of the evidence supporting finding that Grists’ misrepresentations did not harm the plaintiffs. HOLDING:Affirmed. Finding no record of the proceedings on July 3 or July 5, the court says it will assume that the evidence supports the trial court’s decision allowing for a rescheduling of the summary judgment hearing or the amendments to the scheduling order. The court next considers whether the trial court could extend the deadlines in the scheduling order even though the original deadlines had passed. Texas Rule of Civil Procedure 166 recognizes the inherent right of a trial court to change or modify any interlocutory order or judgment until the time the judgment on the merits becomes final, the court finds. Despite the plaintiffs’ assertion otherwise, the court finds ample evidence that the parties fully discussed Kerr’s medical condition, even if formal evidence was not introduced. Yet, at issue at the hearing was not whether Kerr in fact had an incapacitating medical condition or whether the bank should be able to get a new attorney. Instead, the dispute focused on whether or not it was fair to change the scheduling order given that new counsel was coming to the case shortly before trial. Balancing the equities, the trial court’s decision to re-set the trial date and extend the deadlines for both parties was not an abuse of discretion. Turning to the adverse inference question, the bank argues that Texas Rule of Evidence 513, which generally prohibits a trial court from drawing an adverse inference from the invocation of certain privileges, does not apply to the Holders because they are settling parties and are the plaintiffs agents. The court points out that the general rule prohibiting drawing adverse inferences “does not apply in civil proceeding with respect to a party’s claim of the privilege against self-incrimination.” Whether Rule 513(c) applies to a claim of privilege by a party’s agent is a question of first impression in Texas, the court says. The court notes that Texas Rule of Evidence 801(e)(2)(D), which is the party-opponent exception to hearsay, allows in certain statements based on the relationship of the speaker to the party. As one commentator suggestion, “where a witness is so closely related to a party that his statement would be deemed an admission, it follows that the witness’s refusal to testify or his invocation of the Fifth Amendment privilege should give rise to an adverse inference of liability. . . . The underlying rationale of Rule 801(e)(2) applies with equal vigor to Rule 513(c).” The court also notes that federal courts have allowed adverse inferences to be drawn when non-party witness invoke the privilege against self-incrimination on a case-by-case basis. Considering those cases and the commentator’s statement, the court concludes that evidence that an agent-witness has claimed a privilege against self-incrimination can be admitted. The court notes that the plaintiffs would have had an unfair advantage if they were allowed to use Steve Holder’s favorable statements but refused to allow in his non-statements that directly related to the bank’s defense. Plus, allowing the trial court to draw the inference does not infringe on the Holders’ assertion of the privilege. And even if the trial court erred, there was other evidence that the Holders knew of or were involved in the fraudulent invoice scheme. The court then examines the evidence surrounding the court’s findings on Grist’s statements. Grist made his recommendation although he had little factoring expertise. His knowledge of Riley Drilling’s financial condition would not compel a conclusion that it necessarily would be a poor factoring customer. “While Grist’s recommendation was negligent, the trial court’s determination that Grist did not make the misrepresentation with knowledge of its falsity or without knowledge of its truth is not against the great weight and preponderance of the evidence. “ The court also finds that the bank was not in a special relationship with the plaintiffs when it told them about Riley Drilling, and that the plaintiffs’ reliance on Grist’s statements was not justifiable. Through its principals and agents, the plaintiffs actually had more information about Riley Drilling’s financial health than did the bank. Furthermore, even knowing of their financial straits, the plaintiffs not only continued to factor the company’s invoices, but actually expanded their involvement. OPINION:McClure, J.; Barajas, C.J., Larsen and McClure, JJ.

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