State Supreme Court smells fraud in case over stinky restaurant

By Steve Korris | May 2, 2011

Texas Supreme Court

AUSTIN – Ten years after foul odor ruined the Italian Cowboy restaurant at Keystone Park Mall in Dallas, the Supreme Court of Texas has rescinded the lease.

On April 15, six Justices ruled that Prudential Insurance misrepresented to Francesco and Jane Secchi the condition of the property they leased at the mall.

The Justices temporarily restored a fraud judgment worth more than $2 million, but gave appeals judges a chance to measure the weight of the evidence.

Justice Paul Green wrote that statements of mall manager Fran Powell were material misrepresentations which she knew were false.

"Testimony indicated that Powell herself personally experienced the odor and described it as almost unbearable and ungodly," he wrote.

The majority held that the Secchis established misrepresentation even though the lease stated that there were no representations beyond the terms of the lease.

Three dissenters claimed the Secchis didn't fall for a fraud but the majority did.

Justice Nathan Hecht asked, "Can a party claim fraud based on his own fraud?"

He wrote that the Secchis had been in the restaurant business 25 years.

"This was not their first rodeo," he wrote.

Powell worked for Prizm Partners, Prudential's property manager, when she and the Secchis signed a lease to replace a restaurant that closed.

The lease provided, "Tenant acknowledges that neither landlord nor landlord's agents, employees or contractors have made any representations or promises with respect to the site, the shopping center or this lease except as expressly set forth herein."

It provided that it constituted the entire agreement between the parties.

As the Secchis began remodeling, they heard two reports that severe odor plagued the previous restaurant, Hudson's Grill.

Days before opening, a cleanup crew removed a mass of hard grease blocking the inlet pipe to the grease trap.

Green wrote that "a constant foul sewer gas order became evident immediately."

The Secchis contacted Powell, who came over and said she smelled it too.

Green wrote, "Attempts to remedy the persistent sewer gas order began immediately and continued for months."

He wrote, "All of these attempts were unsuccessful."

The Italian Cowboy opened anyway, but city inspectors briefly shut it down after a diner complained to the health department.

Curiosity drew former Hudson's Grill manager Darla Wahl to dine there, and she told the Secchis that the odor had led to the closing of the grill, and that Powell knew all about it.

The Secchis immediately closed the Italian Cowboy and stopped paying on the lease.

They sued Prudential and Prizm Partners in Dallas County Court at Law, alleging fraud, misrepresentation and breach of warranty.

They claimed they detrimentally relied on representations that the premises were a prime restaurant site.

Prudential countersued them, claiming they breached the contract.

At trial in 2005, Wahl and Hudson's Grill regional manager Matt Quinn testified that Powell knew about the odor.

Powell swore she didn't know, but Judge Sally Montgomery didn't believe her.

Montgomery wrote, "Powell's conduct and attempted coverup when the Hudson's Grill sewer gas smell recurred in the Italian Cowboy restaurant evinced consciousness of guilt of her pre-lease and pre-guaranty misrepresentations to the Secchis."

She awarded $650,700.40 in damages for recission, $50,000 in exemplary damages, and $705,000 in attorney fees.

Prudential appealed to the Texas Fifth District in Dallas, seeking to restore its counterclaim and challenging the factual sufficiency of evidence for fraud.

Fifth District judges transferred the appeal to Eleventh District judges in Eastland, who overturned judgment for the Secchis and rendered it for Prudential on the counterclaim.

They ruled that the lease disclaimed reliance on any statement outside the lease, and that they didn't need to review the evidence for fraud.

The Secchis appealed, and the state Supreme Court upheld Montgomery.

Green wrote, "In a commercial lease, the lessor makes an implied warranty that the premises are suitable for the intended commercial purposes."

He wrote, "Italian Cowboy offered uncontroverted evidence that a grease trap had been improperly installed, causing raw sewage to back up from the sewer lines."

He wrote that the next tenant eliminated the odor by severing a waste water pipe and moving the kitchen.

Chief Justice Wallace Jefferson and Justices Dale Wainwright, David Medina, Phil Johnson and Debra Lehrmann joined the opinion.

They directed the Eleventh District to review the evidence.

Hecht's dissent compared the lease to the lawsuit and argued that both can't be true.

"Either representations not contained in the lease were made, or they were not made," he wrote.

"The Secchis do not contend that after studying seven drafts of the lease with their lawyer, they just forgot to include representations that Prudential and Prizm had made about the suitability of the site for use as a restaurant," he wrote.

He wrote that the issue wasn't Powell's truthfulness but whether a sophisticated party, without mistake or duress, can include a statement in a contract and later disavow it.

"Italian Cowboy and the Secchis can prevail on their fraud claim only if they successfully defrauded Prudential and Prizm," he wrote.

"The Court's depreciation of the written word in this case is troubling and exacts a high price, not only to the parties here, but to all who are denied the right to negotiate freedom from uncertain, unending litigation," he wrote.

He wrote that judgment with interest is over $2 million and a new trial is possible.

Luke Madole, Thomas Allen, Ricardo Rochetti and Charles Blanchard represented the Secchis.

Luke Ashley, John Mackintosh and Richard Barrett Phillips represented Prudential.

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