Melissa Goodwin, Justice

FROM THE DISTRICT COURT OF BLANCO COUNTY, 33RD JUDICIAL DISTRICT
NO. CV07681, HONORABLE J. ALLAN GARRETT, JUDGE PRESIDINGMEMORANDUM OPINION

Debbie J. Triesch appeals from the trial court's final decree of divorce dividing the marital estate pursuant to the terms of a mediated settlement agreement (the MSA). Debbie challenges the trial court's enforcement of the MSA, refusal to grant sanctions, and exclusion of evidence. For the reasons that follow, we affirm the trial court's final decree of divorce.

BACKGROUND

Debbie and Cody were married on November 7, 1998. Two years before the marriage, Cody acquired a 3-acre tract of land in Blanco County known as 2483 U.S. Highway 281, Blanco, Texas, where he built a home. In 1999, Debbie and Cody acquired an adjacent 2.21-acre tract, on which a home for Debbie's mother was built in approximately 2008. After Debbie's mother's home was built, Debbie and Cody "name[d their] driveway" and "gave" their home the street address of 219 Peaceful Lane. Over the years, both before and after they were married, Debbie and Cody executed a number of documents related to home improvement loans as joint owners of the 3-acre tract. Although there is no evidence in the record that the two tracts were ever re-subdivided into one tract, the parties at times refer to "the 5.21 acres" and appear to agree that 219 Peaceful Lane and 2483 U.S. Highway 281 are "the same address."

In 2014, acting pro se, Cody filed a petition for divorce. The form petition called for Cody to list and "confirm" any separate property. Cody listed as property he owned before he married Debbie "a house" and "land" at "219 Peaceful Lane, Blanco Texas." After Cody filed the petition, both parties obtained counsel and entered into a Rule 11 agreement whereby each party agreed to produce all documents regarding his or her assets. The case was mediated in July 2014, resulting in the MSA, in which Cody was awarded the 5.21 acres and all improvements. See Tex. Fam. Code §§ 6.602 (setting out mediation procedures and requirements of MSA in suit for dissolution of marriage); 153.0071(c)-(f) (same in suit affecting parent child relationship). After the mediation, but prior to entry of the final decree, Debbie found a box containing documents related to the properties, including "a deed showing that Debbie was the joint owner of the 2.21 acres of the 5.21 acres" and deeds of trust naming Debbie as grantor on the 3 acres. Debbie moved to set aside the MSA and sought sanctions against Cody under Rule 13. Cody, in turn, sought entry of a final order based on the MSA. The trial court denied Debbie's motion to set aside the MSA and for sanctions and entered a final decree incorporating the terms of the MSA. Debbie then filed this appeal.

DISCUSSION

Fraudulent Inducement

In her first three issues, Debbie contends that the trial court erred by refusing to set aside the MSA. We review a trial court's decision not to set aside a mediated settlement agreement for abuse of discretion. R.H. v. Smith, 339 S.W.3d 756, 765 (Tex. App.—Dallas 2011, no pet.); In re C.H., Jr., 298 S.W.3d 800, 804 (Tex. App.—Dallas 2009, no pet.). A trial court does not abuse its discretion if there is some substantive, probative evidence to support its decision. Granger v. Granger, 236 S.W.3d 852, 855-56 (Tex. App.—Tyler 2007, pet. denied); Echols v. Olivarez, 85 S.W.3d 475, 477 (Tex. App.—Austin 2002, no pet.). "If a mediated settlement agreement meets the requirements of [section 6.602], a party is entitled to judgment on the mediated settlement agreement notwithstanding Rule 11, Texas Rules of Civil Procedure, or another rule of law." Tex. Fam. Code § 6.602(c); see id. § 153.0071(e). However, a court is not required to enforce an MSA if it is illegal in nature or was procured by fraud, duress, coercion or other dishonest means. Spiegel v. KLRU Endowment Fund, 228 S.W.3d 237, 241 (Tex. App.—Austin 2007, pet. denied); In re Marriage of Joyner, 196 S.W.3d 883, 890 (Tex. App.—Texarkana 2006, pet. denied).

Debbie does not argue that the settlement agreement does not meet the requirements of sections 6.602 and 153.0071. See Tex. Fam. Code §§ 6.602(b), 153.0071(d). Rather, in her first issue, she contends that Cody fraudulently induced her into signing it by misrepresenting the character of the real estate. "Fraudulent inducement 'is a particular species of fraud that arises only in the context of a contract.'" National Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 423 (Tex. 2015) (per curiam) (quoting Haase v. Glazner, 62 S.W.3d 795, 798 (Tex. 2001)). To prevail on her fraudulent inducement claim, Debbie must prove that (1) Cody made a material misrepresentation that was false, (2) he knew it was false or made it recklessly without knowledge of its truth, (3) he intended to induce Debbie to act based upon the representation, and (4) Debbie actually and justifiably relied upon the representation and thereby suffered injury. See Ernst & Young, L.L.P. v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001).

In determining justifiability, we "inquire whether, 'given a plaintiff's individual characteristics, abilities, and appreciation of facts and circumstances at or before the time of the alleged fraud[,] it is extremely unlikely that there is actual reliance on the plaintiff's part.'" Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010) (citing Haralson v. E.F. Hutton Grp., Inc., 919 F.2d 1014, 1026 (5th Cir. 1990)). "It is well-established that '[t]he recipient of a fraudulent misrepresentation is not justified in relying upon its truth if he knows that it is false or its falsity is obvious to him.'" Westergren, 453 S.W.3d at 424 (quoting Restatement (Second) of Torts § 541 (1977)). "[A] party who has actual knowledge of specific facts cannot have relied on a misrepresentation of the same facts." Williams v. Dardenne, 345 S.W.3d 118, 126 (Tex. App.—Houston [1st Dist.] 2011, pet. denied). "Moreover, 'a person may not justifiably rely on a representation if there are "red flags" indicating such reliance is unwarranted.'" Grant Thornton, 314 S.W.3d at 923 (quoting Lewis v. Bank of Am. NA, 343 F.3d 540, 546 (5th Cir. 2003) (quoting In re Mercer, 246 F.3d 391, 418 (5 th Cir. 2001) (internal quotations omitted) (holding that plaintiff's decision to enter into transaction without undertaking additional investigation into tax consequences was not justifiable, given his access to professional accountants, amount of money involved, and ambiguous nature of pertinent representation))).

Debbie argues that she relied on Cody's representation in his petition for divorce that the property at 219 Peaceful Lane was his separate property, that the documents she found after mediation showed that all or part of the 5.21 acres was community property, and that she would not have signed the MSA if she had known that Cody's representation that it was his separate property was false. On record before us, we cannot conclude that Debbie has established the elements of fraudulent inducement.

As an initial matter, Debbie has not proven that Cody's statement that the house and land at 219 Peaceful Lane were his separate property was a misrepresentation. The record contains conflicting documents concerning ownership of the 3 acres and confusing testimony as to the separateness of the two tracts and their address or addresses. Debbie offered into evidence deeds of trust and other documents related to home improvement loans for Debbie's and Cody's home that Debbie signed as a co-owner of the 3 acres and the home. Debbie testified that 219 Peaceful Lane and 2483 U.S. Highway 281 are the "same address"; that 219 Peaceful Lane consists of 5.21 acres, her house, and her mother's house; that 219 Peaceful Lane and 2483 U.S. Highway 281 "is the 5.21 acres"; and that the address of the 5.21 acres is 2483 U.S. Highway 281. Moreover, Debbie offered as exhibits an undated petition in a breach of contract suit filed by Debbie and Cody and a default judgment dated September 9, 2002. Debbie testified that they filed the petition when they "had trouble when [they] were building [their] home," identified in the petition as "their house at 2483 U.S. Highway 281" and in the judgment as "the Triesch's property at 2483 U.S. Highway 281," without any reference to Peaceful Lane and without any distinction between the 3-acre tract and the 2.21-acre tract. Similarly, Cody testified that in his petition for divorce he did not "clarify the 3 acres versus the 5.21" and that 219 Peaceful Lane and 2483 U.S. Highway 281 are the same address, and he conceded on cross-examination that listing the entire 5.21 acres as his separate property was "deceitful" "as [opposing counsel was] wording it."

On the other hand, Debbie also offered into evidence a deed indicating that the 3-acre tract was deeded to Cody prior to marriage, which Debbie acknowledged, making it Cody's separate property. Tex. Const. art. XVI, § 15; Tex. Fam. Code § 3.001(1). In addition, Debbie testified that before her mother's house was built, "2483 [U.S. Highway 281] was given" as the address for the 3 acres and their house, but when her mother's house was built, they "named" their driveway Peaceful Lane and "gave" it a street number, supposedly to differentiate it from her mother's house address at 2483 U.S. Highway 281. She also testified that the house she and Cody lived in is on the 3-acre tract and that the address is 219 Peaceful Lane. And Cody testified that 219 Peaceful Lane is the address of the 3 acres and that he listed that address in his petition as his separate property. Thus, on this record, there is some substantive, probative evidence that Cody's representation that 219 Peaceful Lane is his separate property was not false. Ernst & Young, 51 S.W.3d at 577; Westergren, 453 S.W.3d at 423; Granger, 236 S.W.3d at 855-56; Echols, 85 S.W.3d at 477.

Even assuming that it was a misrepresentation, at least as to the 2.21 acres, we cannot conclude that Debbie justifiably relied on it in signing the MSA. Debbie knew that she and Cody purchased the 2.21 acres after they were married and that she had an interest in the tract. In her testimony, she identified the warranty deed as having both Cody's name and her name and as "showing the 2.21 acres as joint property" and stated that she is a legal owner of that property as of March 26, 1999, when the deed was filed. She also acknowledged that she was a party to the transaction and offered no explanation for how, when Cody filed the petition and during mediation, she could have been unaware of her interest in the tract, on which her mother's house had been built. Thus, Debbie's "appreciation of facts and circumstances" before Cody's alleged misrepresentation included knowledge that the 2.1 acres was not Cody's separate property; in other words, Debbie had actual knowledge of the specific facts that she alleges Cody misrepresented. See Williams, 345 S.W.3d at 126. We therefore find it "extremely unlikely" that she actually and justifiably relied on the statement in Cody's petition. See Grant Thornton, 314 S.W.3d at 923; see also Ginn v. NCI Bldg. Sys., 472 S.W.3d 802, 830 (Tex. App.—Houston [1st Dist.] 2015, no pet.) ("'Actual knowledge is inconsistent with the claim that the defrauded party has been deceived, and it negates the essential element of reliance . . . .'" (quoting Mayes v. Stewart, 11 S.W.3d 440, 451 (Tex. App.—Houston [14th Dist.] 2000, pet. denied)).

In addition, Debbie testified that before mediation Cody provided her a spreadsheet with a suggested division of assets that awarded Cody the real property at "2483 U.S. Highway 281-3 acres," as property "purchased before marriage" and did not mention the 2.21 acres. She stated that she executed the deeds of trust and other documents related to home improvement loans for their house on the 3 acres as co-owner and was aware of their contents long before mediation. She also acknowledged that she represented in the MSA that she had taken into consideration all claims that could or should have been made concerning characterization of martial and separate property. These circumstances were, at a minimum, "red flags" indicating to Debbie that she should not rely on any representation by Cody that he owned the entire 5.21 acres as separate property without further investigation, particularly in light of the ambiguous way in which the parties referred to and handled the two tracts. See Grant Thornton, 314 S.W.3d at 923. Additionally, the deeds and other documents related to the properties were matters of public record, putting Debbie on constructive notice of their existence. See Tex. Prop. Code § 13.002 (properly recorded instrument is notice to all persons of its existence); Moore v. Brenham Ready Mix, Inc., 463 S.W.3d 109, 120-21 (Tex. App.—Houston [1st Dist.] 2015, no pet.). On these facts, even assuming that Cody's representation in his divorce petition that 219 Peaceful Lane is his separate property was false, we cannot conclude that Debbie met her burden to show that she actually and justifiably relied on that representation. See Grant Thornton, 314 S.W.3d at 923; Ernst & Young, 51 S.W.3d at 577.

Debbie also complains that Cody misrepresented an antique 1935 Pontiac as his separate property. However, the record contains no evidence of any representation by Cody concerning the Pontiac. Following the trial court's exclusion of communications made during mediation, addressed and upheld in our discussion of issue five, Debbie "pass[ed] on that issue" because "the only evidence that [she had] is what happened at mediation." Consequently, Debbie offered no evidence of any of the elements of fraudulent inducement as to the Pontiac. We overrule Debbie's first issue.

Vacation of property division and adequacy of consideration for MSA

In her second issue, Debbie argues that the property division in the final decree should be vacated because the MSA was based on Cody's misrepresentation of his separate property and thus did not adequately address property characterizations. We are not persuaded by this argument for the reasons stated in our discussion of Debbie's first issue.

In her third issue, Debbie argues that the MSA is not supported by adequate consideration because Cody promised in the MSA that he had made full disclosure but did not provide that consideration because he failed to produce documents regarding all marital assets as required by the parties' Rule 11 agreement and the local standing orders. Because Debbie alleges that Cody failed to perform a promise contained in the MSA, we construe this argument to assert failure of consideration. See In re C.H.C., 396 S.W.3d 33, 46 (Tex. App.—Dallas 2013, no pet.) ("Failure of consideration may result as a consequence of one party's failure to perform its obligations under the agreement."). Failure of consideration is an affirmative defense. Tex. R. Civ. P. 94; Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 510 (Tex. 2014). Initially, we observe that it is not clear that the affirmative defense of failure of consideration applies to MSAs under Family Code sections 6.602 and 153.0071, which provide that a party is entitled to judgment on an MSA "notwithstanding Rule 11, Texas Rules of Civil Procedure, or another rule of law." Tex. Fam. Code §§ 6.602(c), 153.0071(e); In re C.H.C., 396 S.W.3d at 44. No court appears to have considered the effect of that language on this defense. See In re C.H.C., 396 S.W.3d at 44-45 (addressing argument that lack and failure of consideration defenses are "another rule of law" and noting lack of appellate decision on effect of that language on those defenses).

Without determining whether the defense of failure of consideration applies here, we conclude that Debbie has not shown that the MSA would be unenforceable on that basis. First, Debbie has failed to establish that Cody withheld the documents in question. Although Debbie testified that Cody did not disclose "the character and nature of the 219 Peaceful Lane" property, she did not testify that he did not provide the deeds of trust and other documents prior to mediation. To the contrary, Debbie testified that under the Rule 11 agreement, Cody was "asked to provide" information, and "provided what was requested." Debbie did state that "[a]fter mediation, Cody had a box of documents that he brought home, and when [she] was going through the documents, putting them back in the file cabinet, [she] found all these documents." (Emphasis added.). However, this statement is ambiguous as to whether "after mediation" refers to when Cody brought the box to the house or only to when Debbie went through the box that Cody already "had" at the house. The statement also implies that the documents had previously been located in a file cabinet in their home and that Debbie was aware that they were there.

Even if Cody did fail to produce the "box of documents," this complaint relates in part to alleged discovery abuse, which Debbie did not assert in the trial court. Moreover, Debbie executed and had actual, as well as constructive, knowledge of the allegedly withheld documents and their content "long before" mediation. See Tex. Prop. Code § 13.002. On this record, we cannot conclude that Debbie established that Cody failed to disclose documents, or if Cody did fail to disclose them, that withholding public documents of which Debbie was aware and that related to transactions to which she was a party, alone, is sufficient to establish failure of consideration for the MSA. See Federal Sign v. Texas S. Univ., 951 S.W.2d 401, 408-09 (Tex. 1997), superseded on other grounds by Tex. Gov't Code §§ 2260.001-.008 (explaining that consideration consists of benefits and detriments to parties and mutuality of obligation); In re C.H.C., 396 S.W.3d at 46 (finding no failure of consideration for MSA where record reflected father could make monthly payments despite father's testimony that he no longer had funds available). We overrule Debbie's second and third issues.

Sanctions

We turn next to Debbie's fourth issue, in which she argues that the trial court erred in refusing to sanction Cody under Rule 13. See Tex. R. Civ. P. 13. Rule 13 provides that a court may impose sanctions upon a determination that a pleading or motion is groundless and brought in bad faith or groundless and brought for the purpose of harassment. Id. Because we have concluded that Debbie did not establish that Cody fraudulently induced her into signing the MSA and that the trial court did not err in refusing to set aside the MSA, we cannot agree that Cody's petition for divorce was groundless or brought in bad faith or for purposes of harassment. See id.; In re Y.B., 300 S.W.3d 1, 5-6 (Tex. App.—San Antonio 2009, pet. denied) (op. on reh'g) (where court concluded that trial court had erred in granting defendant's plea to jurisdiction and dismissing plaintiff's claims, it could not conclude that plaintiff's pleadings violated Rule 13); Ochsner v. Ochsner, No. 14-11-00395-CV, No. 14-11-00412-CV, 2012 Tex. App. LEXIS 4044, at *12-13 (Tex. App.—Houston [14th Dist.] May 22, 2012, no pet.) (mem. op.) (where trial court erred in denying motion for order enforcing child support, it abused discretion in imposing sanctions under Rule 13); see also Delahoussaye v. Kana, No. 01-07-00579-CV, 2008 Tex. App. LEXIS 8561, at *25 (Tex. App.—Houston [1st Dist.] Nov. 13, 2008, pet. denied) (mem. op.) (where there was some evidence to support counterclaims, trial court did not abuse discretion in refusing to impose sanctions under Rule 13 based on counterclaims). We overrule Debbie's fourth issue.

Exclusion of Evidence

In her fifth issue, Debbie argues that the trial court erred in excluding evidence as to what occurred at mediation. Debbie attempted to offer into evidence statements made by Cody in mediation. Cody objected on the ground that communications during mediation are confidential and may not be used as evidence in any judicial proceeding, and the trial court excluded the evidence. See Tex. Civ. Prac. & Rem. Code § 154.073(a) (providing for confidentiality of communications made in alternative dispute resolution procedures and prohibiting their use as evidence against participant in judicial proceedings). On appeal, Cody contends that Debbie has waived this argument by failing to make an offer of proof, and that even if she has preserved this argument, the evidence was properly excluded under section 154.073. See Tex. R. Evid. 103(a)(2) (requiring offer of proof to preserve error on exclusion of evidence); Tex. Civ. Prac. & Rem. Code § 154.073(a). Debbie does not dispute that she made no offer of proof but argues that she preserved error because the substance of the evidence was apparent from the context of the questioning. See Tex. R. Evid. 103(a)(2) (setting out exception to requirement of offer of proof where substance was apparent from context).

We review a trial court's exclusion of evidence for an abuse of discretion. JLG Trucking, LLC v. Garza, 466 S.W.3d 157, 161 (Tex. 2015). Erroneous exclusion of evidence is reversible only if it probably resulted in an improper judgment. Tex. R. App. P. 44.1(a)(1); Garza, 466 S.W.3d at 161. To preserve error concerning the exclusion of evidence, the complaining party must demonstrate the substance of the excluded evidence through an offer of proof or a bill of exception unless the substance of the evidence is apparent from the context. Tex. R. Evid. 103(a)(2); Compton v. Pfannenstiel, 428 S.W.3d 881, 885 (Tex. App.—Houston [1st Dist.] 2014, no pet.). "'While the reviewing court may sometimes be able to discern from the record the general nature of the evidence and the propriety of the trial court's ruling, it cannot, without an offer of proof, determine whether exclusion of the evidence was harmful.'" Compton, 428 S.W.3d at 886 (quoting Akukoro v. Akukoro, No. 01-12-01072-CV, 2013 Tex. App. LEXIS 15302, at *17-18 (Tex. App.—Houston [1st Dist.] Dec. 19, 2013, no pet.) (mem. op.)). Thus, failure to demonstrate the substance of the excluded evidence through an offer of proof or bill of exception results in waiver of any error in its exclusion. Bobbora v. Unitrin Ins. Servs., 255 S.W.3d 331, 335 (Tex. App.—Dallas 2008, no pet.).

Here, although Debbie argues that the substance of the excluded communications is apparent from the context because it is clear that Cody "acted fraudulently throughout the process," there is no evidence in the record to establish the content of the excluded statements. Cody objected before any questions about the communications were asked, and at most, we can only surmise that they generally concerned the characterization of one or both of the two tracts as separate or community property. Accordingly, Debbie has failed to preserve error on this complaint. See Tex. R. Evid. 103(a)(2); Tex. R. App. P. 44.1(a)(1); Compton, 428 S.W.3d at 886; cf. In re Commitment of Smith, 422 S.W.3d 802, 808-09 (Tex. App.—Beaumont 2014, pet. denied) (where cross-examination question followed answers that suggested substance of excluded answer, excluded response was apparent from context and error was preserved).

Even if Debbie had preserved error, however, we would conclude that the trial court did not err in excluding the evidence. With limited exceptions, communications related to the subject of any dispute made by a participant in mediation is confidential and may not be used as evidence against the participant in any judicial proceeding. See Tex. Civ. Prac. & Rem. Code § 154.073(a). "Unless the parties agree otherwise, all matters, including the conduct and demeanor of the parties and their counsel during the settlement process, are confidential and may never be disclosed to anyone, including the appointing court." Id. § 154.053(c); In re Empire Pipeline Corp., 323 S.W.3d 308, 312 (Tex. App.—Dallas 2010, orig. proceeding) (citing Allison v. Fire Ins. Exch., 98 S.W.3d 227, 259 (Tex. App.—Austin 2002, pet. granted, judgm't vacated w.r.m.) ("a 'cloak of confidentiality' surrounds mediation, and the cloak should be breached only sparingly"). Debbie wanted to use communications made by Cody in mediation against him in an effort to persuade the trial court to set aside the MSA. Since she was trying to use representations from mediation to undo the existing settlement agreement and there are no applicable exceptions to the statutory confidentiality, the trial court correctly held they were not proper evidence. See Tex. Civ. Prac. & Rem. Code § 154.073(a); Hydroscience Techs., Inc. v. Hydroscience, Inc., 401 S.W.3d 783, 795-96 (Tex. App.—Dallas 2013, pet. denied) (holding that the mediation privilege barred consideration of evidence of oral communications made during mediation); Pechero v. Garcia, No. 13-13-00453-CV, 2015 Tex. App. LEXIS 5638, at *18 (Tex. App.—Corpus Christi June 4, 2015, no pet.) (mem. op.) (concluding that where appellant sought to disclose his version of what happened during mediation to cause trial court to set aside summary judgment based on settlement agreement, trial court did not err in excluding evidence). We overrule Debbie's fifth issue.

CONCLUSION

Having overruled Debbie's issues, we affirm the trial court's final decree of divorce.

/s/_________

Melissa Goodwin, Justice Before Justices Puryear, Goodwin, and Bourland Affirmed Filed: March 8, 2016