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Summers v. WellTech

935 S.W.2d 228 (1996)

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Summers v. WellTech

Texas Court of Appeals
935 S.W.2d 228 (1996)

  • Written by Tammy Boggs, JD

Facts

In 1991, three individuals (collectively, the control persons) (defendants) formed Vanguard Environmental, Inc. (Vanguard). Vanguard’s key asset was the TDS-10, a machine designed to measure soil contamination. Seeking investors, the control persons began negotiating with the president of WellTech, Inc. (plaintiff). WellTech agreed to a deal in which it would buy 50 percent of Vanguard’s stock for $1.25 million. Prior to the deal’s closing, Vanguard’s management discovered that one of the control persons had diverted $376,000 of the company’s funds to himself and was the subject of an Environmental Protection Agency (EPA) investigation. No one informed WellTech of the diverted funds or the EPA investigation. Vanguard also misrepresented the capacity of the TDS-10 and overstated Vanguard’s assets by $250,000. WellTech did not become aware of any of the misstated or concealed information until after the deal closed. WellTech sued the control persons, alleging fraud under a state securities law and seeking rescission of the sale. The trial court entered judgment for WellTech, ordering rescission. The control persons appealed, raising various points of error, including that WellTech might have discovered the facts about Vanguard through the exercise of due diligence.

Rule of Law

Issue

Holding and Reasoning (Taft, J.)

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