Maya Foods leased space from Walnut Creek Center for use as a grocery store. The expiration date was September 30, 2019; Maya had no rights to renew or extend the term.
Maya began renewal negotiations with Walnut Creek in 2016, three years before the term expired. In June 2018 a Maya representative met with Walnut Creek’s counterpart. After the meeting, Maya was told that Walnut Creek only needed to process some “final numbers on the lease [to] get it moving.”
However, in July 2018 Walnut Creek executed a lease with Maya’s competitor, El Rancho, to commence upon expiration of Maya’s lease towards the end of 2019. El Rancho and Walnut creek also signed a non-disclosure agreement.
Rent payable by El Rancho would commence at $11.25 PSF.
Walnut Creek did not disclose to Maya that their premises had been leased to a competitor. Instead, on August 1, Walnut Creek’s representative told Maya that “because there is ample time remaining,” Walnut Creek’s owners had “unanimously agreed to renegotiate next year” and “we’ll continue discussing the final terms again in the near future.”
Later in 2018, one of Maya’s owners learned that El Rancho was planning a “big surprise” coming the following year, 2019. Maya’s owner suspected that the surprise was connected to the Walnut Creek location.
Maya’s owner began contacting Walnut Creek’s representative more frequently to try to learn whether the Walnut Creek site was the surprise. But he never asked the direct question – whether the property had already been leased to someone else.
Representatives of Walnut Creek and Maya Foods continued to meet through the fall and winter of 2018. A new Lease was prepared. Walnut Creek requested $7.50 PSF; Maya countered at $7.25 PSF. Maya was told that the Walnut Creek owners would get back to them within a week regarding the 25 cent PSF delta.
Then, Maya’s owners learned in January 2019 that El Rancho had posted on its website job opportunities for the Walnut Creek location. This confirmed Maya’s suspicion. The site had been leased to El Rancho.
Maya Foods reached out to the owner of an alternative location that had been previously considered but learned that a Lease had just been signed on that property. The Maya Foods grocery store ceased business operations at the Walnut Creek site in October 2019. Maya did not relocate the business to another site.
Maya Foods sued Walnut Creek, its representatives, and its owners for fraud, negligent misrepresentation, promissory estoppel, and equitable estoppel. In the trial court a jury found for Maya Foods and awarded more than $20 million in damages, less an offset for Walnut Creek’s breach of contract claim.
Both parties appealed.
The Court of Appeals reversed and rendered Judgment that Maya Foods take nothing. That Court also upheld Walnut Creek’s counterclaim.
Maya Foods appealed.
The Supremes primarily evaluated Maya’s fraud claim. The Court of Appeals had determined that Maya failed to justifiably rely on the lease status misrepresentations of Walnut Creek. Meanwhile, Walnut Creek stated that it had no duty to disclose that it was negotiating with others. And even if it did, Maya’s reliance was unjustified.
Justifiable reliance can be negated when circumstances show that such reliance is unwarranted. This is the “red flag doctrine.” A plaintiff cannot recover “if he blindly relies upon a misrepresentation, the falsity of which would be [known] to him if he had utilized his opportunity to make a cursory examination or investigation.”
The Court of Appeals identified five red flags: (1) Maya Foods was a sophisticated party; (2) the parties engaged in arm’s-length negotiations; (3) the existing lease did not obligate Walnut Creek to negotiate exclusively with Maya; (4) Walnut Creek’s representative’s statements were indefinite and vague; and (5) lengthy and unsuccessful negotiations raised suspicions that the lease was in trouble.
The Supremes focused on another – that El Rancho announced a “big surprise” in the summer or fall of 2018. Maya grew suspicious, but never directly asked Walnut Creek the pointed question of whether the property had already been leased to someone else. When a sophisticated party engaged in arm’s-length negotiations grows suspicious about the truth of a representation, the party must investigate, not blindly rely on that representation.
Having failed to do so, Maya Foods is charged with the knowledge it would have obtained had it asked Walnut Creek this question. Had Maya posed this question, even if Walnut Creek told Maya that it could not answer due to the existence of an NDA, that answer (or non-answer) would have suggested to Maya Foods that the property was no longer available for re-lease.
The Judgment rendered by the Court of Appeals that Maya Foods take nothing is affirmed. Walnut Creek wins; Maya Foods loses. See Maya Walnut LLC v. Ly; Supreme Court of Texas; Case 24-0171; June 26, 2026: https://law.justia.com/cases/texas/supreme-court/2026/24-0171.html.
Stuart A. Lautin, Esq.*
* Board Certified, Commercial and Residential Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York