TEXAS SUPREME COURT HOLDS HOMEOWNER NOT A “PREVAILING CONSUMER” AGAINST CONTRACTOR UNDER DTPA, BUT INSURER'S ORAL PROMISE TO PAY CONTRACTOR IS ENFORCEABLE

April 25, 2012

In Cruz v. Andrews Restoration, Inc., --- S.W.3d ---- (Tex. April 20, 2012), a DTPA dispute arose between a remediation contractor, (Andrews Restoration, Inc. d/b/a Protech Services and Rudy Martinez), a homeowner (Dr. Erwin Cruz), and the homeowner's insurer (Chubb Lloyds Insurance Company of Texas).

The remediation contractor sued the insurer and homeowner, seeking breach of contract damages and attorney’s  fees.  The  insurer  counterclaimed  for  fraud.  The  homeowner  counterclaimed  for  fraud, fraudulent inducement, negligent misrepresentation, and violations of the Texas Deceptive Trade Practice–Consumer Protection Act.

A jury found in the remediation contractor’s favor, and the trial court rendered judgment against the homeowner and its insurer, jointly and severally.   All parties appealed, raising numerous issues. The intermediate court of appeals held that despite the trial court’s finding that the contractor engaged in a deceptive act, the homeowner was not entitled to restoration of consideration because he had failed to prove that he was entitled to any rescission. The court concluded that the insurer’s oral promise to pay the contractor was unsupported by consideration and thus barred by the statute of frauds. Finally, the court held that the remediation contractor was not entitled to a new trial on attorney’s fees, having waived its objection to the trial court’s failure to submit a question on attorney’s fees for preparation and trial.

Upon granting petitions for review filed by the homeowner and contractor, the Texas Supreme Court affirmed the court of appeals’ judgment with respect to the homeowner’s DTPA claim holding the homeowner was not a “prevailing consumer” against the contractor because the jury awarded no damages and there was no finding of reliance.  The court also held that under the "restoration" remedy in the DTPA, the homeowner could not recover the amount that he and the insurer paid to the contractor. Finally, and most importantly, the insurer's oral promise to pay the contractor was enforceable under the "main purpose" exception to the statute of frauds, because the main purpose of the insurer's oral promise was to benefit the insurer, not to pay for the homeowner's debt to the contractor.