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Click here for the full text of this decision FACTS:A 31-unit apartment building, Parkmont Apartments, were built in the Junius Heights neighborhood of Dallas in 1964, when the area was zoned for multifamily housing units of this size. Jeanette Sadler and James Williams bought the building in 1972. In 1978, the area was rezoned to single-family housing, but multifamily units like the apartment complex were still allowed. The area was rezoned in 1988, too. This time, multifamily units were now considered nonconforming. In 1994, neighborhood members sought to enforce the zoning code against Parkmont and other apartment buildings. The city thus created a planned development district in the area, which would allow multifamily units of greater than six units only upon application for a special-use permit. Without a special-use permit, the city could abate the nonconforming use and the building would either have to be converted to single-family units or closed down. Sadler and Williams applied for a special-use permit in 1995. Though their application was denied, the building was not abated and operation continued on as before. Ryan Equity Partners, through its partner Dean Ryan, contracted with Coldwell Banker Whiteside Associates and John Whiteside for the realty company to find run-down apartment complexes for Ryan Equity to buy and rehabilitate. Whiteside proposed Parkmont Apartments as a suitable purchase. When asked about applicable zoning laws, Whiteside said the apartment complex was legal nonconforming, but also grandfathered; Ryan Equity did not conduct a separate zoning investigation, nor did it ask Sadler or Williams about the zoning. Ryan Equity bought the property for $470,000. The purchase agreement stated that the sellers were not aware of any material defects to the property, and it stated that the property was not in violation of any environmental laws. The city soon cited Parkmont Apartments for multiple building code violations. Ryan Equity thus hired a real-estate attorney, Roger Albright, for help dealing with the city. Albright discovered the planned development district ordinance, determining that Ryan Equity would have to apply for a special-use permit or else be shut down. The neighborhood refused to support the special-use permit, and an application for abatement was filed. Ryan Equity incurred more than $167,000 in fines for the building-code violations. Then the city brought a lawsuit seeing to demolish the building for the code violations. Another suit sought abatement. Ryan Equity agreed to tear down the building in exchange for the city waiving the fines. Ryan Equity demolished the building in 2001, then sold the property six months later for a net amount of $247,962. Ryan Equity sued Sadler, Williams and Coldwell Banker for breach of the duty of good faith and fair dealing, common-law and statutory fraud and breach of contract. It also sued Coldwell Banker for breach of fiduciary duty. After a bench trial, the trial court determined Sadler and Williams were not liable, but that Coldwell Banker was. A witness for Ryan Equity calculated damages in two ways: actual expenditures and the lost-time value of the investments, and lost profits. The witness provided a range between $277,249 and $697,249. The trial court determined that Coldwell Banker owed Ryan Equity $90,000 in damages. Ryan Equity appeals the rulings regarding itself and Sadler and Williams, as well as the damages amount. Coldwell Banker appeals the trial court’s decision that it breached the brokerage agreement it had with Ryan Equity. HOLDING:Affirmed. Ryan Equity asserts that Sadler and Williams should have been found to have breached the purchase contract and that they committed fraud. Ryan Equity contends that the possible zoning problems the property might face was a material defect that Sadler and Williams failed to disclose. The court confirms that whether nonconformance with zoning ordinances is a material defect is an issue of first impression in Texas. The court finds that the ordinary meaning of “defect” refers to some physical or tangible problem: “blemished, broken, deficient, or imperfect in some physical sense.” Under this definition, zoning laws are not defects. “Zoning laws neither cause nor result from physical imperfections or deficiencies in real property itself. The zoning law at issue does not relate to the exact physical condition of the Property. Instead, the zoning law regulates the use of the Property, giving it a discernible legal status.” The court then notes that there is no legal authority for the proposition that a seller of commercial real estate has a duty to identify applicable zoning laws or explain their impact to a sophisticated, experienced real estate investor who makes no inquiry to the seller of the zoning status and receives no express representation from the seller of the zoning status. After finding that failure to disclose applicable zoning laws did not violate the purchase agreement, the court then finds that Sadler and Williams did violate the same agreement to the extent that it required disclosure of lapses in compliance with environmental regulations. The court rules that the sellers’ declaration that the property complied with environmental regulations was not a declaration that the property was also in compliance with zoning laws. The court next addresses whether the trial court erred in concluding that Sadler and Williams did not commit fraud. Though the pair never discussed or disclosed the zoning laws or the denial of the special-use permit with Ryan Equity, the court notes that Ryan Equity never explains why those facts could not be discovered through the exercise of ordinary care, reasonable diligence or reasonable investigation. Albright, for instance, was able to find out the information fairly routinely after the sale. Furthermore, Williams and Sadler had no duty to disclose the information. The court next addresses Coldwell Banker’s argument that it breached its purchase agreement. The court notes that Coldwell Banker did not violate the clause requiring disclosure of material defects for the same reasons given above with respect to Sadler and Williams. The court finds no evidence to support Coldwell Banker’s affirmation to Ryan Equity that the property was “grandfathered” in. In fact, this was an incorrect evaluation of the property, the court finds. Though there is nothing in the purchase agreement requiring Coldwell Banker to identify the effects of local zoning laws, once it undertook the effort to do so, it had a duty to do so correctly. As to the trial court’s handling of the damages owed to Ryan Equity, the court takes note of Ryan Equity’s witness who calculated damages in two ways: actual expenditures and the lost-time value of the investments, and lost profits. In both instances he came up with a number in excess of $90,000. The court says that because both methods of calculation exceeded $90,000, it need not decide whether lost-profits were properly awarded. The court, however, refuses Ryan Equity’s argument that it was entitled to damages of at least $277,249 and at most $697,249. The court finds Ryan Equity cites no authority for its assessment, and the witness’ calculations were admittedly inexact. “Even if all the evidence on damages shows Ryan Equity’s damages exceeded $90,000, we cannot change the trial court’s judgment to a higher damages amount unless Ryan Equity proved that exact amount as a matter of law.” Finally, the court finds the trial court was correct in finding Coldwell Banker did not commit fraud against Ryan Equity. OPINION:Fitzgerald, J.; Morris, Moseley and FitzGerald, JJ.

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