source: Caselaw Access Project

author: Justice O’NEILL

license: Public Domain

text:
    STERLING TRUST COMPANY, Petitioner, v. Roderick ADDERLEY, et al., Respondents.
    No. 03-1001.
    Supreme Court of Texas.
    Argued Sept. 29, 2004.
    Decided June 17, 2005.
    Rehearing Denied Aug. 26, 2005.

      Donald E. Herrmann, Dee J. Kelly, Todd W. Spake, John Thomas Wilson IV, Kelly Hart & Hallman, P.C., Fort Worth, Robert B. Gilbreath, V. Elizabeth Kellow, Alan R. Bromberg, Jenkens & Gilchrist, P.C., Dallas, Sharon E. Callaway, Crofts & Callaway, P.C., San Antonio, for Petitioner.
    Rickey J. Brantley, David E. Keltner, Jose Henry Brantley & Keltner, L.L.P., Thomas G. Farrier, Murphy Mahon Kef-fler & Farrier, L.L.P., Fort Worth, James Dan Moorhead, Law Office of James Dan Moorhead, Arlington, for Respondents.
    Karen Sue Neeley, Joseph R. Knight, Baker <& Botts, L.L.P., Austin, Philip John Kuhl Jr., Sanford & Kuhl, N. Scott Fletcher, Houston, Royal B. Lea III, Bingham & Lea, P.C., San Antonio, for Amici Curiae.
   Justice O’NEILL

delivered the opinion of the Court.

The Texas Securities Act (TSA) imposes liability on a person who sells securities “by means of an untrue statement of a material fact or an omission to state a material fact,” and imposes liability on a person who “materially aids a seller, buyer, or issuer of a security” if the person acts “with intent to deceive or defraud or with reckless disregard for the truth or the law.” TEX. REV. CIV. STAT. ANN. ART. 581-33F(2) (Vernon Supp.2004-2005). The trial court and court of appeals interpreted the latter provision to allow aider liability even if the aider was unaware of its role in the securities violation. We conclude, however, that the TSA’s requirement of “reckless disregard for the truth or the law” means that an alleged aider is subject to liability only if it rendered assistance to the seller in the face of a perceived risk that its assistance would facilitate untruthful or illegal activity by the primary violator. This standard does not mean that the aider must know of the exact misrepresentations or omissions made by the seller, but it does mean that the aider must be subjectively aware of the primary violator’s improper activity. Accordingly, we reverse the court of appeals’ judgment and remand this case to the trial court for further proceedings consistent with this opinion.

I

During the early to mid-1990s, Norman Cornelius formed Avalon Custom Homes and a number of related corporate entities (collectively referred to as “Avalon”) designed to develop and sell luxury homes. At that time, Cornelius worked as an investment advisor and broker for Sunpoint Securities. Cornelius operated Avalon out of his Sunpoint office and encouraged his brokerage clients to invest their money in Avalon. Cornelius also persuaded members of his church and retirees from Mrs. Baird’s Bakery to invest in Avalon, offering investors promissory notes that bore as much as an eighteen percent rate of return and allowed conversion to Avalon stock.

Many of the investors chose to invest their retirement savings in Avalon. Because certain retirement accounts such as IRAs and lump-sum pension distributions must be held by a third-party trustee to maintain their preferential tax status, Avalon needed a third-party trustee in order to accept such funds. In 1994, Cornelius began recommending that Avalon investors use Sterling Trust Company, a custodian of self-directed IRA accounts, as their IRA custodian. From 1994 until 1997, Sterling served as the exclusive trustee over the retirement money that the investors self-directed to Cornelius.

In 1997, the Securities and Exchange Commission (SEC) filed suit against Cornelius, alleging that Cornelius misrepresented the risks associated with the investments, misrepresented the uses of investment funds, and misrepresented the commingling and misappropriation of funds. Avalon was forced into receivership, and the Avalon investors collectively lost millions of dollars. A number of elderly investors lost their entire retirement savings. The investors sued Cornelius, Sunpoint Securities, Van Lewis (the owner of Sunpoint), and Sterling Trust. After suit was filed, but before the case was tried, Cornelius died and Sunpoint entered receivership. The claims against Sunpoint were severed from the suit as a result of the receivership, but Sunpoint was still included in the charge as a party to which the jury could apportion responsibility.

At trial, the investors put forth several theories of liability. The jury charge asked (1) whether each of the defendants offered or sold securities “by means of an untrue statement of material fact or the omission to state a material fact necessary in order to make the statements made, if any, in light of the circumstances under which they were made not misleading”; (2) whether Sterling aided Cornelius in committing securities fraud by “directly or indirectly with intent to deceive or defraud or with reckless disregard for the truth or the law materially aid[ing] a seller of a security”; (3) whether Sterling was “part of a conspiracy that damaged [the investors]”; (4) whether Sterling “fail[ed] to comply with its fiduciary duty” to its account holders; and (5) whether the defendants committed fraud against the investors.

In support of these contentions, the investors provided evidence that Cornelius told investors that investing in Avalon carried “no risk” and that any principal invested would be protected. There was also evidence that Avalon was not profitable and that early investors were paid with the proceeds of later investors, thus creating a pyramid effect that collapsed when new investments dried up.

The investors argued that Sterling played an essential role in allowing the investment scheme to continue as long as it did. They argued that Sterling had a duty to undertake a “suitability analysis” and that it should have informed the investors that “too much of their net worth” was held in “overly risky investments.” The investors provided evidence that Sterling’s failure to comply with several of its own internal procedures facilitated Cornelius’s pyramid scheme and allowed Cornelius to hide the nature of his scheme from the investors. For example, the investors showed that, although Sterling’s policies prohibited it from holding promissory notes that were in default, it nevertheless held such notes. The investors also provided evidence that Sterling failed to obtain many of the Avalon stock certificates and original promissory notes; ordinarily, Sterling employees could not enter transactions into Sterling’s computer system without such documents. When lower-level Sterling employees alerted management to the lack of such documents, they were told that Sterling had made an agreement allowing Avalon to retain those documents. There was also evidence that Sterling failed to obtain copies of the security agreements for the promissory notes that purported to be secured by real estate, even though Sterling’s internal procedures required it to keep such documents on file. In addition, the investors provided evidence that Sterling was aware that Cornelius was commingling investors’ funds by having one or more of the Avalon companies make payments on notes for which another Avalon company was indebted, and that at least one of Sterling’s internal memos questioned this practice. Finally, the investors demonstrated that Cornelius did not pay the principal balance on a number of notes as they became due, but instead transferred the investors’ money into new investment vehicles in other Avalon entities. There was evidence that Sterling allowed Cornelius to unilaterally make such transfers despite its own policy requiring documentation of investor approval for new investments.

The jury returned a verdict against Cornelius on all counts. On the issues pertaining to Sterling, however, the verdict was mixed. Specifically, the jury found that Sterling was not a “seller” of securities, that Sterling did not conspire to damage the investors, and that Sterling did not commit fraud. However, the jury found that Sterling aided Cornelius’s securities violation and that Sterling breached its fiduciary duty to its account holders. The investors elected to recover on the aiding- and-abetting finding, and the trial court rendered judgment against Sterling for $6 million in actual damages and $250,000 in exemplary damages. The court of appeals affirmed the trial court’s award of actual damages, but reversed the exemplary damages award. 119 S.W.3d 312. We granted Sterling’s petition for review to consider the scope of its potential liability to the investors and related issues.

II

The Texas Securities Act establishes both primary and secondary liability for securities violations. Primary liability arises when a person “offers or sells a security ... by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.” TEX. REV. CIV. STAT. ANN. art. 581-33A(2) (Vernon Supp.2004-2005). Secondary liability is derivative liability for another person’s securities violation; it can attach to either a control person, defined as “[a] person who directly or indirectly controls a seller, buyer, or issuer of a security,” or to an aider, defined as one “who directly or indirectly with intent to deceive or defraud or with reckless disregard for the truth or the law materially aids a seller, buyer, or issuer of a security.” Id. art. 581-33F(l)-(2). Both control persons and aiders are jointly and severally liable with the primary violator “to the same extent as if [they] were” the primary violator. Id.

In this case, the jury found that Sterling was secondarily liable as an aider. Sterling argues that the trial court erred by failing to instruct the jury that an alleged aider cannot be held secondarily liable unless it had a “general awareness” of its role in the primary violation. See Frank v. Bear, Steams & Co., 11 S.W.3d 380, 384 (Tex.App.-Houston [14th Dist.] 2000, pet. denied) (holding that “[i]n order to establish liability” for aiding a securities violation, “a plaintiff must demonstrate ... that the alleged aider had ‘general awareness’ of its role in this violation”) (citations omitted). At the charge conference, Sterling objected to the trial court’s proposed instruction on aider liability because it made no mention of the “general awareness” requirement. The trial court overruled this objection. The court of appeals held that the failure to include such an instruction was not error, concluding that “the TSA does not require proof that an aider is generally aware of its role in the securities violation to be liable as an aider.” 119 S.W.3d at 320. Sterling contends the court of appeals’ holding conflicts with opinions from other Texas courts of appeals that have held that the TSA does impose such a requirement. See Goldstein v. Mortenson, 113 S.W.3d 769, 776 (Tex.App.-Austin 2003, no pet.); Crescendo Invs., Inc. v. Brice, 61 S.W.3d 465, 472 (Tex.App.-San Antonio 2001, pet. denied); Bear, Steams & Co., 11 S.W.3d at 384. In this case, the court of appeals noted the conflict but concluded that, because the “language of the TSA” does not explicitly impose such a requirement, the proper course was to “decline to follow those opinions ... that have concluded that the TSA contains a general awareness requirement.” 119 S.W.3d at 319-20.

We disagree with the court of appeals’ conclusion that the TSA contains no awareness requirement. The statute’s history demonstrates that the Legislature intended the TSA to be interpreted in harmony with federal securities law, and the TSA itself instructs that “[tjhis Act may be construed and implemented to effectuate its general purpose to maximize coordination with federal and other states’ law and administration.” TEX. REV. CIV. STAT. ANN. art. 581-10-1A (Vernon Supp. 2004-2005). When the Legislature added the aider-liability provision to the TSA in 1977, most federal courts considering the issue had held that aider liability could be imposed under the federal securities law only when the aider was generally aware of its role in an improper scheme. See Gould v. American-Hawaiian S.S. Co., 535 F.2d 761, 779-80 (3d Cir.1976) (stating that “[tjhe required knowledge of the act has been defined as a ‘general awareness (on the part of the aider and abettor) that his role was part of an overall activity that is improper’ ” and that “the proof offered must establish conscious involvement in impropriety or constructive notice of intended impropriety”) (quoting SEC v. Coffey, 493 F.2d 1304, 1316 (6th Cir.1974)); Woodward v. Metro Bank of Dallas, 522 F.2d 84, 96 (5th Cir.1975) (“The postman who mails a fraudulent letter is not covered by the Act, nor is the company that manufactured the paper on which the violating documents are printed.... [T]he proof must demonstrate actual awareness of the party’s role in the fraudulent scheme.”) (citations omitted).

The investors argue that the federal cases are irrelevant because the Texas Legislature chose a different, lesser standard for aider liability under the TSA; specifically, the investors point out that liability may be imposed on an aider who acted “with intent to ... defraud or with reckless disregard for the truth or the law,” and argue that “reckless disregard” may be shown even if the aider had no awareness of its role in an improper scheme. See TEX. REV. CIV. STAT. ANN. art. 581-33F(2). As support for this proposition, the investors point to a Texas court of appeals case which held that a “failure to conduct minimal investigation and inquiry” before rendering assistance with a securities transaction can suffice to create liability under the “reckless disregard” standard. See Goldstein, 113 S.W.3d at 777.

We disagree that the “reckless disregard” standard either imposes a lesser standard than the “general awareness” requirement or allows liability to be imposed for a mere failure to investigate. Instead, we conclude that the statute’s use of the phrase “reckless disregard for the truth or the law” accords with the requirement that an aider must be aware of the primary violator’s improper activities before it may be held hable for assisting in the securities violation. The Legislature’s use of the phrase “reckless disregard” is consistent with a requirement of subjective awareness; at the time that the Legislature enacted the TSA, this Court had long held that “recklessness” required evidence of “conscious indifference” in the context of gross negligence. See Rowan v. Allen, 134 Tex. 215, 134 S.W.2d 1022, 1025 (1940) (holding that “reckless disregard of the rights of [the] plaintiff’ means “a conscious indifference to her rights or welfare”). The United States Supreme Court has noted a number of other civil actions in which recklessness requires a subjective awareness of, and indifference to, the risk posed by the defendant’s conduct. See Kolstad v. Am. Dental Ass’n, 527 U.S. 526, 535, 119 S.Ct. 2118, 144 L.Ed.2d 494 (1999). In Kolstad, the Court stated that “recklessness in its subjective form” requires “a ‘subjective consciousness’ of a risk of injury or illegality and a ‘criminal indifference to civil obligations.’ ” Id. at 536, 119 S.Ct. 2118. The Court noted that “recklessness in its subjective form” has been applied to the recovery of punitive damages in certain civil-rights actions and has also been applied in defamation cases, which require “knowledge of falsity or reckless disregard for the truth,” id., a requirement that has been interpreted to mean that the defendant “in fact entertained serious doubts as to the truth of his publication.” St. Amant v. Thompson, 390 U.S. 727, 731, 88 S.Ct. 1323, 20 L.Ed.2d 262 (1968). In Kolstad, the Court applied this subjective standard to the award of punitive damages in certain employment discrimination actions, holding that the statute’s “reckless indifference” requirement meant that “an employer must at least discriminate in the face of a perceived risk that its actions will violate federal law to be hable in punitive damages.” Kolstad, 527 U.S. at 536, 119 S.Ct. 2118 (emphasis added).

We conclude that the TSA’s scienter requirement of “reckless disregard for the truth or the law” is similarly intended to impose a requirement of “recklessness in its subjective form,” and this recklessness must be directly related to the primary violator’s securities violation. Id. When the Texas Legislature adopted the aider provision of the TSA, it explicitly stated that aider liability should be imposed “only if the aider has the requisite scienter.” TEX. REV. CIV. STAT. ANN. art. 581-33, Comment — 1977 Amendment (Vernon Supp.2004-2005). Furthermore, at the time this amendment was adopted, some scholars had suggested that the policy concerns favoring a subjective scienter standard outweighed the potential investor protections available under a “should have known” standard:

In most cases, the alleged aider and abettor ... will merely be engaging in customary business activities, such as loaning money, managing a corporation, preparing financial statements, distributing press releases, completing brokerage transactions, or giving legal advice. If each of these parties will be required to investigate the ultimate activities of the party whom he is assisting, a burden may be imposed upon business activities that is too great.... The essential point is that imposition of a duty to investigate under the guise of a “should have known” standard in essence would amount to eliminating scienter as a necessary element in imposing aiding and abetting liability and the substitution of a negligence standard.

Ruder, Multiple Defendants in Securities Law Fraud Cases: Aiding and Abetting, Conspiracy, In Pari Delicto, Indemnification, and Contribution, 120 U. PA. L. REV. 597, 632-33 (1972). The Legislature presumably weighed these policy concerns when it chose to adopt the “reckless disregard” standard instead of a lower negligence or “should have known” standard.

We therefore hold that the TSA’s “reckless disregard for the truth or the law” standard means that an alleged aider can only be held liable if it rendered assistance “in the face of a perceived risk” that its assistance would facilitate untruthful or illegal activity by the primary violator. TEX. REV. CIV. STAT. ANN. art. 581-33F(2); Kolstad, 527 U.S. at 536, 119 S.Ct. 2118. In order to perceive such a risk, the alleged aider must possess a “ ‘general awareness that his role was part of an overall activity that is improper.’ ” Gould, 535 F.2d at 780.

We further hold that the trial court’s failure to include the subjective awareness requirement in the jury charge was harmful error. The investors assert that no such instruction was needed; they acknowledge that “the TSA aider liability ‘reckless disregard for the truth or the law’ language is not inconsistent with the federal ‘general awareness’ language,” but argue that the charge’s inclusion of the “reckless disregard” requirement was sufficient to instruct the jury on the standard for liability. We disagree. The trial court is required to “submit such instructions and definitions as shall be proper to enable the jury to render a verdict.” TEX. R. CIV. P. 277. In this case, the jury may well have thought that “reckless disregard” could be based on evidence of Sterling’s negligent handling of accounts even if Sterling had no actual knowledge of Cornelius’s improprieties; the plaintiffs themselves created such a risk of misinterpretation by arguing repeatedly at trial that Sterling “either knew fully what Cornelius was doing” or “exercised reckless disregard” by ignoring internal procedures that would have brought Cornelius’s activities to light. Ignoring internal procedures that might have alerted Sterling to Cornelius’s scheme may be negligence, but it is not “reckless disregard for the truth or the law.” Therefore, “consider[ing] the pleadings of the parties, the evidence presented at trial, and the charge in its entirety,” we conclude that the absence of an instruction on the subjective awareness requirement “was reasonably calculated [to] and probably did cause the rendition of an improper judgment.” Island Recreational Dev. Corp. v. Republic of Tex. Sav. Ass’n, 710 S.W.2d 551, 555 (Tex.1986).

Ill

Sterling makes two other arguments that it should be absolved of liability for aiding a securities violation. First, it argues that it cannot be liable as an aider “with respect to transactions and persons with which Sterling had no contact.” As the court of appeals correctly noted, however, the TSA does not require the aider to have had direct dealing with the defrauded party; indeed, a person who “materially aids a seller” may have no contact at all with the investors. See TEX. REV. CIV. STAT. ANN. art. 581-33F(2).

Sterling also argues that it cannot be liable as an aider because the jury found in Sterling’s favor on its affirmative defense that it did not know, and could not have known, of the particular misrepresentations or omissions made by Cornelius. This affirmative defense is available to persons alleged to have committed a primary violation of the securities laws. As noted above, the statute provides that a seller of a security may be held liable if it “offers or sells a security ... by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.” Id. art. 581-33A(2). The statute permits the seller to avoid liability by proving the affirmative defense that “he (the offeror or seller) did not know, and in the exercise of reasonable care could not have known, of the untruth or omission.” Id.

Because the jury was asked whether Sterling should be held liable as a seller, it was also asked if Sterling had established this affirmative defense; specifically, the question asked whether Sterling “did not know, and in the exercise of reasonable care, could not have known of the untruth or omission” made by the seller. The jury found that Sterling lacked such knowledge and thereby absolved Sterling of primary liability as a seller. Sterling argues that this lack of knowledge also establishes that it cannot be liable as an aider. We disagree.

The TSA provides different knowledge requirements for different classes of defendants; one standard applies to sellers, another applies to control persons, and a third standard applies to aiders. As noted above, sellers are absolved of liability if they prove that they lacked knowledge of the “untruth or omission.” Id. Control persons may invoke a similar, but not identical, lack-of-knowledge defense:

A person who directly or indirectly controls a seller, buyer, or issuer of a security is liable under Section 33A, 33B, or 33C jointly and severally with the seller, buyer, or issuer, and to the same extent as if he were the seller, buyer, or issuer, unless the controlling person sustains the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist.

Id. art. 581-33F(1) (emphasis added). The control-person defense differs slightly from the one applied to sellers; instead of proving that they did not know of the “untruths or omissions,” control persons must show that they did not know of “the facts by reason of which liability is alleged to exist.” Id.

Finally, the knowledge requirement for aiders is different from both the standard for control persons and the standard for sellers:

A person who directly or indirectly with intent to deceive or defraud or with reckless disregard for the truth or the law materially aids a seller, buyer, or issuer of a security is liable under Section 33A, 33B, or 33C jointly and severally with the seller, buyer, or issuer, and to the same extent as if he were the seller, buyer, or issuer.

Id. art. 581-33F(2) (emphasis added). Instead of requiring the aider to establish lack of knowledge as an affirmative defense, the section on aider liability requires a plaintiff to prove that the aider acted with “intent to deceive or defraud or with reckless disregard for the truth or the law.” Id.

The legislative history of this provision reflects that the Legislature intended to apply distinct liability standards to the different categories of defendants. The Legislature’s comment to section 33F states that the provision “derives in part from Uniform Securities Act § 410(b).” Id. art. 581-33, Comment — 1977 Amendment. Unlike the TSA, however, this section of the Uniform Securities Act applies the same standard to control persons and to aiders:

Every person who directly or indirectly controls a seller liable [for unlawful sales of securities], every partner, officer, or director of such a seller, ... every employee of such a seller who materially aids in the sale, and every broker-dealer or agent who materially aids in the sale are also liable jointly and severally with and to the same extent as the seller, unless the nonseller who is so liable sustains the burden of proof that he did not know, and in exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist.

UNIF. SECURITIES ACT § 410(b), 7C U.L.A. 266 (1956).

It thus appears that the TSA adopted the Uniform Securities Act’s liability standard for control persons but modified its standard for aiders; while the TSA allows a broader class of persons to qualify as aiders, it imposes a stricter scienter restriction on them. For example, the Uniform Securities Act of 1956 limited aider liability to a seller’s employees, brokers, or agents, id., but the TSA permits “[a] person” who provides material aid to be held liable. TEX. REV. CIV. STAT. ANN. art. 581-33F(2). In contrast to its narrow class of defendants, the Uniform Securities Act imposed a more relaxed scienter requirement, allowing liability to be imposed on an aider if it negligently failed to discover the facts creating liability. § 410(b). Conversely, the TSA creates a broader class of defendants, but requires more than mere negligence to impose liability; the TSA only imposes liability if the aider acted with “intent to deceive or defraud or with reckless disregard for the truth or the law.” TEX. REV. CIV. STAT. ANN. art. 581-33F(2). Furthermore, the TSA places the burden of proof on the plaintiff to prove that the defendant acted with the requisite scienter, id., while the Uniform Securities Act required the defendant to prove that it acted with reasonable care. § 410(b). Finally, the TSA focuses on the aider’s reckless disregard “for the truth or the law,” art. 581-33F(2), instead of the aider’s knowledge “of the existence of the facts by reason of which the liability is alleged.” § 410(b). These modifications indicate that the Legislature gave significant consideration to the proper scienter standard for aiders. We decline to imply an additional defense not offered to aiders under the text of the statute.

Sterling argues that the failure to imply such a defense renders the statute illogical and allows secondary violators to be held liable even when a primary violator could escape liability by invoking an affirmative defense. We disagree. First, a secondary violator’s liability depends upon the primary violator’s culpability; even without an additional affirmative defense, a secondary violator may only be held liable “to the same extent as” the primary violator. TEX. REV. CIV. STAT. ANN. art 581-33F(2). Thus, if it were proven that the seller reasonably believed its statements to be true, there would be no primary violation and no derivative liability to attach to the aider. Second, the Legislature did not act illogieally by adopting different scien-ter standards for primary and secondary violators; the different standards make sense in light of the facts that these parties may reasonably be expected to know. A primary violator is the party actually making the misrepresentations or misleading omissions, and it therefore makes sense to focus on whether it knew the statements were untrue. On the other hand, an aider may know that the primary violator is engaging in improper activity, but, if the aider is not involved in the actual sale or offer of the securities, it may not know what particular misrepresentations or misleading omissions were made to the investors. Consequently, it makes sense to predicate liability on the aider’s “reckless disregard for the truth or the law” rather than the aider’s knowledge of specific misrepresentations or omissions. In this case, for example, Sterling argued to the jury that its answer to Question 8— whether Sterling lacked knowledge of the untrue statement or omission found to constitute securities fraud in Question 1 — had to be “yes” because “Sterling Trust Company had no way of knowing what Norman Cornelius was telling or not telling these people.”

The investors acknowledge that Sterling may not have known the exact misrepresentations that Cornelius was making to the investors, but they argue that Sterling did know that Cornelius was operating an illegal pyramid scheme. We agree that knowledge of such an illegal scheme, if proven, could support a finding that Sterling acted “with reckless disregard for the truth or the law” even if Sterling could not have known of the particular misrepresentations made by Cornelius. See State ex rel. Goettsch v. Diacide Distribs., Inc., 561 N.W.2d 369, 382 (Iowa 1997) (permitting aider liability under Iowa’s securities statute to be based on the aider’s knowledge that the primary violator was engaging in “atypical business transactions [that] amounted to a Ponzi scheme”); see also Graham v. Sec. & Exch. Comm’n, 222 F.3d 994, 1005 (D.C.Cir.2000) (scienter established when aider continued to assist primary violator despite knowledge of his “irrational trading” and financial difficulties).

We acknowledge that there is some tension between the jury’s finding that Sterling acted with “reckless disregard for the truth or the law” and its finding that Sterling did not know and could not have reasonably known of “the untruth or omission” made by Cornelius. However, Sterling does not argue in this Court that the two findings conflict, and Sterling did not seek to have the jury harmonize these two answers in the trial court. See TEX. R. CIV. P. 295 (providing that, when a jury’s verdict contains conflicting answers, “the court shall in writing instruct the jury in open court of the nature of the ... conflict, provide the jury such additional instructions as may be proper, and retire the jury for further deliberations”). Instead, Sterling argues only that its lack of knowledge of Cornelius’s “untruth or omission” establishes as a matter of law that it cannot have acted “with reckless disregard for the truth or the law.” We disagree. Because the finding referred specifically to knowledge “of the untruth or omission,” we conclude that this finding does not establish whether Sterling knew of Cornelius’s improper activity in general, and therefore does not necessarily trump the jury’s finding that Sterling acted “with intent to deceive or defraud or with reckless disregard for the truth or the law.”

In this case, the jury may have agreed that Sterling could not have known what Cornelius was telling the investors but nevertheless believed that Sterling knew that Cornelius was operating an illegal pyramid scheme. Because the jury in this case was asked only whether Sterling knew of “the untruth or omission,” the jury’s “no” answer does not shed light on whether the jury believed that Sterling knew Cornelius was engaged in illegal activity. Sterling’s argument to the jury also focused on whether Sterling had knowledge of Cornelius’s statements, not whether it had knowledge of the underlying scheme. Specifically, Sterling argued that the jury must find that Sterling “did not know, and in the exercise of reasonable care, could not have known of the untruth or omission” because Sterling “had no way of knowing what Norman Cornelius was telling or not telling these people.” Consequently, we hold that the jury’s finding that Sterling “did not know, and in the exercise of reasonable care could not have known of the untruth or omission” is not dispositive of the question of whether Sterling had knowledge of the underlying wrongdoing.

IV

Sterling also argues that the trial court improperly instructed the jury on the standard for breach of fiduciary duty. The trial court instructed the jury that Sterling failed to comply with its fiduciary duties if:

a. Sterling Trust Company did not make reasonable use of the confidence placed in it; or
b. Sterling Trust Company did not act in the utmost good faith and did not exercise the most scrupulous honesty toward the plaintiffs; or
c. Sterling Trust Company did not place the interests of the plaintiffs before its own, used the advantage of its position to gain benefit for itself at the expense of the plaintiffs, and placed itself in a position where its self-interest might conflict with its obligations as a fiduciary.

At the charge conference, Sterling objected to this instruction, arguing that it failed to reflect Sterling’s contractual limitation of its fiduciary duties. For example, in a document signed by all account holders, Sterling provided that “Sterling Trust has no responsibility to question any investment directions given by the individual regardless of the nature of the investment,” and that “Sterling Trust is in no way responsible for providing investment advice.” The Texas Trust Code allows parties to contractually limit a trustee’s duties. See TEX. PROP. CODE § 113.059. Because the question on breach of fiduciary duty did not account for these contractual modifications, it was overly broad and rendered the question defective. See Spencer v. Eagle Star Ins. Co. of Am., 876 S.W.2d 154, 157 (Tex.1994) (holding that a question in the jury charge that defined the “unfair practice in the business of insurance” as “any act or series of acts which is arbitrary, without justification, or takes advantage of a person to the extent that an unjust or inequitable result is obtained” was defective because the statute limited the actions for which the defendant could be liable and the instruction did not reflect those limitations).

For the foregoing reasons, we reverse the court of appeals’ judgment and remand the case to the trial court for further proceedings consistent with this opinion.

Justice JOHNSON did not participate in the decision.

      . This type of pyramid scheme is often referred to as a "Ponzi scheme,” a term "derived from one Charles Ponzi, a famous Boston swindler. With a capital of $150, Ponzi began to borrow money on his own promissory notes at a 50% rate of interest payable in 90 days. Ponzi collected nearly $10 million in 8 months ... using the funds of new investors to pay off those whose notes had come due.” United States v. Shelton, 669 F.2d 446, 449 n. 2 (7th Cir.1982).

      . The United States Supreme Court later held that Congress did not intend to create a private cause of action for aiding and abetting a securities violation under section 10(b) of the Securities Exchange Act. Cent. Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 191, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994). However, that decision does not affect the SEC's ability to impose penalties against parties who have "willfully aided” another's violation of the securities laws. 15 U.S.C. § 78u-2(a)(2). Such SEC actions still require " 'a general awareness by the aider and abettor that his role was part of an activity that was improper.’ ” Howard v. Sec. & Exch. Comm’n, 376 F.3d 1136, 1142 (D.C.Cir.2004) (citations omitted).

      . The Fifth Circuit has clarified that its use of the term "actual awareness” did not encompass a different standard than the term "general awareness.” Abell v. Potomac Ins. Co., 858 F.2d 1104, 1126 (5th Cir.1988) (“In Woodward, we explained what these scienter requirements mean. 'General awareness,’ we said, means knowledge which, though it may be adduced from reckless conduct, means actual awareness.”) (citing Woodward, 522 F.2d at 96). Federal courts have typically used the term "general awareness” as a shorthand to describe actual awareness of general wrongdoing. See, e.g., Investors Research Corp. v. Sec. & Exch. Comm'n, 628 F.2d 168, 178 (D.C.Cir.1980) (noting that the SEC "failed to consider whether Driehaus had a general awareness that he was assisting Stowers in wrongful conduct”); see also K & S P’ship v. Cont’l Bank, N.A., 952 F.2d 971, 977 (8th Cir.1991) ("[A] defendant’s general awareness of its overall role in the primary violator’s illegal scheme is sufficient knowledge for aiding and abetting liability.... If an illegal scheme exists and a bank’s loan assists in that scheme, the bank’s knowledge of the scheme is the crucial element that prevents it from suffering automatic liability for the conduct of insiders to whom it loaned the money.”).

      . The investors argue that Sterling waived error by agreeing to this instruction in an earlier pretrial hearing and by submitting a proposed charge that included a similar instruction. However, the proposed charge was superseded by a subsequent amended charge that contained no such instruction, and the alleged pretrial agreement is not part of the record. Because Sterling made a clear, timely objection and obtained a ruling, we conclude that it preserved error. See State Dep't of Highways & Pub. Transp. v. Payne, 838 S.W.2d 235, 241 (Tex.1992).


author: Justice BRISTER

text:
    FREEDOM NEWSPAPERS OF TEXAS, et al., Petitioner, v. Conrado M. CANTU, Respondent.
    No. 04-0115.
    Supreme Court of Texas.
    Argued Jan. 25, 2005.
    Decided June 24, 2005.
    Rehearing Denied Sept. 2, 2005.

      Jeffery T. Nobles, Beirne, Maynard & Parsons, L.L.P., Houston, John A. Bussian III, The Bussian Law Firm, PLLC, Raleigh, NC, and Brian G. Janis, Sanchez, Whittington, Janis & Zabarte, Brownsville, for petitioner.
    Victor Quintanilla, Brownsville, Larry Zinn, Law Office of Larry Zinn, San Antonio, Ernesto Gamez Jr., Law Offices of Ernesto Gamez, Jr., for respondent.
    Jorge C. Rangel, Jon D. Brooks, The Rangel Law Firm, P.C., Corpus Christi, Gregory S. Coleman, Weil, Gotshal & Manges, L.L.P., Austin, Thomas S. Leath-erbury, Marc A. Fuller, Vinson & Elkins, L.L.P, Dallas, for Amicus Curiae.
   Justice BRISTER

delivered the opinion of the Court.

The former sheriff of Cameron County, Texas brought suit against The Brownsville Herald and two former employees (collectively “the Herald ”) alleging that two articles about a candidate debate shortly before the 2000 election were defamatory. The trial court denied the Herald’s motions for summary judgment and the court of appeals affirmed. Because we conclude there was no evidence of actual malice, we reverse.

I

On October 4, 2000, shortly before early voting was to begin in the November 2000 general election, several candidates for local office in Cameron County participated in a debate at the Brownsville Public Library. Among them was respondent Con-rado M. Cantu, Democratic candidate for Sheriff, and his Republican opponent, Terry Vinson. Both candidates made speeches and answered questions over the course of approximately thirty minutes.

An audience member recorded the debate. WTiile the transcript of that recording in the summary judgment record is not entirely complete, all parties agree that as far as it goes it accurately represents what the candidates said. During the course of the debate, the following exchanges occurred:

Cantu: I am sure you [Vinson] are a good instructor, because you were my instructor in the police academy, but the fact still remains that if he was in Los Fresnos as Chief and sincere, why didn’t they select him as chief.... [I]t is not easy to go out there and stand in a neighborhood and tell everybody what are your needs, what are your problems. I can do that because I am bi-cultural, I know the people, I know everybody that lives in my precinct and that is why I have been honored by everybody because of my dedication.
Cantu: I have been honored like I said by the school district, by the county and other entities because of my dedication and it is going to be very, very important when you go out to vote on November 7, you are going to vote for somebody that really cares, who comes from the heart, and want to do a great job for every taxpayer of this county. It is not easy, it is not an easy job. Mr. Vinson is a nice man, but he is an instructor, he is not a sheriff. You have to have the right character to be a sheriff and you have to delegate authority and it does not stop there. You have to be bi-cultural to understand what is going on in our neighborhoods, where there is a lot of burglaries, how are you going to relate to these people — in Spanish — and make them understand that they need to stop or we are going to put a stop to it in their neighborhoods. How is it going to happen? You have to be able to understand, you have to have grown up here to understand that.
Vinson: Well, when he brings up the bi-cultural, well he is forgetting we have orientals, we have Filipinos, we have Chinese, we got Japanese, we got Chinese, we’ve got ... Israelis, we have ... what is he going to talk to them, you are going to find somebody to do the communicating for you. I have worked the streets in Cameron County for over 13 years, 14 years on the street, I have never called anybody ... because he is unable to communicate one way or another. He didn’t take ... in the area, I mean, all you got to do is take a report and say what can we do as being ... not what I can do, what can we do, the people and myself as sheriff. What can we do as a team itself, that’s what we need to do. Bi-cultural is a barrier that is there because people put it there, it shouldn’t exist. I don’t believe in it. I believe everybody is the same, everybody is treated the same and everybody should be shown the respect....
Vinson: I am not going to tolerate the compadreism, I am sorry, I am not from this culture, I apologize to that [sic], but I can guarantee you one thing, I will treat everybody the same....

The Herald assigned Brad Pierce to report on the debate. He took notes, but did not record it. The next morning, his article appeared on the front page of the newspaper, under a headline added by the copy desk editor:

Cantu: No Anglo can be sheriff of Cameron County
Election 2000: Dem candidate stresses Hispanic heritage at debate
No Anglo could ever be sheriff of Cameron County, Conrado Cantu said Wednesday during a debate with his opponent Terry Vinson in the race for the county’s top law enforcement office.
“How are you going to relate to these people?” Cantu asked Vinson, stressing that he’s up for the job because he’s Hispanic and knows the residents.
Cantu repeatedly said he’s the better candidate because he’s bi-cultural.
“Bi-cultural is a barrier that’s there because people put it there,” Vinson replied. “We have a large culture,” but “I believe everyone is the same.”
The two sheriff candidates squared off for more than 30 minutes at the public library Wednesday in debates sponsored by South Texans for Good Government. When asked about investigations of criminal misconduct currently focusing on him, Cantu became visibly upset, said he thought he had come to debate the issues and blamed Vinson for trying to “trick” him.
“I have never done anything wrong,” Cantu said. “I’m still going to work hard and win this campaign.”
Cantu defended his qualifications for the job, saying that while he might have only 32 years experience in law enforcement, he’s learned a lot in that time. “If you don’t work among the people that count, what good is (experience)?” Cantu said. “I have the desire and energy to be the next sheriff of the county,” and that is more important than experience.
“It takes a man who is dedicated to his job and in fulfilling his goals,” he said. “I will work hard to represent you and I know I won’t let you down.”
Vinson, standing on his record of more than two decades in law enforcement and his extensive instruction in training officers, said that while he’s not suggesting Cantu is not qualified, he is a “rookie” officer.
“I’ve done my time. I’m ready to get to work,” Vinson said. “I have the ability to manage personnel. I know what officers need to do. We all have differences, Y but the issues are who can do the job.”
Vinson said he wants to reorganize the sheriffs department, build on Sheriff Omar Lucio’s programs and focus on training deputies. He said he won’t tolerate compadreism and wants to instill honesty and accountability to the office. Cantu wants to build a better relationship with the constables’ offices and beef up patrols in neighborhoods.
“There’s a lot of burglaries going on in this county and for a while nothing’s been done about it,” Cantu said. Vinson agreed that burglary is an important issue to address, but “we’ve got to get the drugs out of the community and I’m the man who can do that.”

The article concluded with reports of debates between other local candidates.

The morning the article appeared, George Cox, then the editor of the newspaper, spoke with Pierce about the article. Pierce told Cox that Cantu had not used the word “Anglo,” but that the substance of the article was accurate.

That same morning, Cantu came to the Herald offices and told Cox that he objected to the use of the word “Anglo” in the article. He brought an audiotape of the debate, which Cox declined to review. But Cox did agree to publish a follow-up article, and had Cantu meet with Pierce for an interview to present his side of what occurred.

The next day, October 6, 2000, a second article appeared concerning the debate. That article stated in its entirety:

Sheriff candidate says racial issue wasn’t the point
Election: Cantu says Valley needs bi-cultural candidates
Constable Conrado Cantu said he wants to set the record straight on comments that he made this week about his opponent in the Cameron County sheriffs race not being the best man for the job because he’s not Hispanic.
Democrat Cantu said he never intended to suggest that race is an issue in his campaign, but that he has an advantage over Republican Terry Vinson because he is from the Rio Grande Valley, speaks Spanish and understands the needs of the majority of the public.
“The people of the Rio Grande Valley live in a bi-cultural area,” Cantu said, explaining that because he is “bi-cultural,” he is the best candidate to represent citizens as Cameron County’s top law enforcement officer.
Cantu was speaking at the South Texan for Good Government debates on Wednesday when he made what some observers believe were discriminating remarks against Vinson. However, Chris Patterson, a youth basketball coach and Cantu supporter, said he believes the constable was simply misunderstood.
“I didn’t hear it that way. I don’t think it was a bad intent. He was talking about bi-cultural,” Patterson said. Claiming that he said no Anglo could ever be sheriff “wasn’t a fair representation” of Cantu’s comments, Patterson added, “and its [sic] definitely not what he stands for.”
However, Vinson maintains that Cantu’s statements that he cannot connect with Hispanics just because he’s not native to the Valley are inappropriate.
“It was my impression that because of my heritage, I was incapable of communicating or relating with the Hispanic culture,” Vinson said. ‘What is that, if it’s not a racial statement? He was singling me out and that was wrong, I was quite offended.”
In a county that’s more than 90 percent Hispanic, “he does have a point,” independent voter Henry Gonzalez said, “but theyhe all kinds of people in the Valley, not just Hispanics.”
Cantu said some of his strengths are the fact that he grew up in South Texas and can relate to the problems of all people, regardless of whether they live in Cameron Park or Valley International Country Club.
“I did not say that an Anglo could not be sheriff,” he said, but rather that, by being bi-cultural, he has a better opportunity to resolve conflicts and protect neighborhoods.
However, Tracy Larimore, who said he was leaning toward voting for Cantu until Wednesday night, said, “Does that mean that he can understand the Anglo race, and if that’s so, how come Vinson can’t understand the Hispanic race?
“I clearly heard that the only person who could be sheriff is an Hispanic,” Larimore said. “Frankly, I think he was caught off guard. I think he meant what he said and now he’s taking flack over it. He would have been far better not saying a word.”
However, Patterson said anyone who knows Cantu is sure that he would never say anything discriminatory. He’s only known the constable for a short while, but finds him to be a generous, caring person who’s deeply interested in the well being of the county’s youth.
In Wednesday’s debates, Cantu talked about his energy and passion for the job while Vinson cited his experience and knowledge of the office.

Cantu ultimately won the election. Nine months after taking office, he sued the Herald for defamation. The Herald filed motions for summary judgment, which the trial court denied. The Herald filed an interlocutory appeal, and the Thirteenth Court of Appeals affirmed. We granted the Herald’s petition for review.

II

A

To recover for defamation, a public official like Cantu must prove that the Herald published a false and defamatory statement with actual malice. At the summary judgment stage, the Herald can negate actual malice as a matter of law by proving that it did not publish the articles at issue with knowledge of falsity or reckless disregard for the truth.

The Herald’s motions for summary judgment included affidavits from its publisher, copy desk editor, Pierce, and Cox, each averring he had no knowledge of any inaccuracies in the articles before publication or any reason to doubt their accuracy. Neither Cantu nor the court of appeals suggest these affidavits were insufficient to meet the applicable summary judgment standards.

Jurors of course would not be required to accept the truth of these affidavits. But the possibility that a jury might disbelieve them is not evidence supporting the contrary. The Herald having produced some evidence that it acted without malice, the burden shifted to Cantu to produce some contrary evidence to avoid summary judgment.

The court of appeals held that Cantu had done so, pointing to circumstantial evidence suggesting actual malice. To that evidence we now turn.

B

From the day the articles appeared through oral arguments in this Court, Cantu’s primary complaint is that he never used the words attributed to him by the Herald in its initial headline and first sentence. The Herald concedes this is true. The court of appeals concluded this was some evidence of malice, as “Pierce attended the debate and heard the candidate’s comments, and knew that Cantu did not say that ‘No Anglo can be sheriff of Cameron County.’ ”

But unlike the court of appeals, the Herald did not put this last phrase in quotation marks. While some of Cantu’s statements at the debate were placed in quotation marks, this one was not. Cantu discounts this distinction,- arguing the colon used in the headline is the “equivalent” of quotation marks.

In Masson v. New Yorker Magazine, Inc., the United States Supreme Court held that placing a reporter’s words in a speaker’s mouth may be evidence of malice in some circumstances. As the Court noted:

In general, quotation marks around a passage indicate to the reader that the passage reproduces the speaker’s words verbatim. They inform the reader that he or she is reading the statement of the speaker, not a paraphrase or other indirect interpretation by an author.

But the Court rejected the notion that every alteration of a speaker’s words was some evidence of actual malice. The Court noted that reporters who rely on notes must often reconstruct a speaker’s statements, and even those who rely on recordings can print statements verbatim “in only rare circumstances” due to space limitations and editorial judgments.

Instead, the Court held that an altered statement could constitute some evidence of actual malice if a reasonable reader could understand the passage as the speaker’s actual words (not a paraphrase), and the alteration was material. As we recently noted, the reasonable-reader standard is objective rather than subjective, and presumes a hypothetical reader of ordinary intelligence who reads an entire article in context.

In this case, three rather apparent clues would lead a reasonable reader to conclude the Herald was interpreting Cantu’s remarks rather than quoting them verbatim. First, such a reader would note that quotation marks were placed around eight of Cantu’s statements in the first article, but not the one at issue.

Second, a reasonable reader could not miss the pattern of the articles, in which a summary of what each candidate said appears in one paragraph (for example, the 1st, 6th, 8th, 11th, and 14th paragraphs of the initial article) followed by one or two paragraphs of explicit quotations to support the summary. In this context, a reasonable reader would understand the first headline and sentence to be a paraphrase of Cantu’s remarks, with his actual statements following in quotations.

Finally, while both articles were allegedly defamatory, the Herald’s second article reported Cantu’s response that “I did not say that an Anglo could not be sheriff.” Nothing in the follow-up article contradicts that claim. To the contrary, the report that “some observers believe” Cantu had made “discriminating remarks” at the debate clarified that the issue was the implicit rather than explicit meaning of what he said.

Based on the entire context of the articles Cantu claims were defamatory, we hold that a reasonable reader would have understood the Herald’s reports to be a paraphrase or interpretation of Cantu’s remarks. Accordingly, proof that he did not make the exact remark attributed to him, standing alone, is no evidence of actual malice.

C

Of course, deliberately attributing a statement to a public figure that the latter never made may be defamatory whether or not it is in quotation marks. But “a deliberate alteration of the words uttered by a plaintiff does not equate with knowledge of falsity for purposes of New York Times Co. v. Sullivan and Gertz v. Robert Welch, Inc., unless the alteration results in a material change in the meaning conveyed by the statement.”

Cantu argues that the Herald made a deliberate and material change in meaning when it converted his remarks about his bilingual and bicultural attributes into remarks about racial and ethnic ones. For summary judgment purposes, we assume the truth of Cantu’s assertion that he intended only the former. Further, we agree with Cantu that reasonable jurors could conclude from the Herald’s report that he was accused of intending the latter, and that the difference between the two is material.

But evidence that the Herald’s report was mistaken, even negligently so, is no evidence of actual malice. Cantu must present some evidence that the Herald misinterpreted his remarks on purpose, or in circumstances so improbable that only a reckless publisher would have made the mistake. “An understandable misinterpretation of ambiguous facts does not show actual malice.”

In Time, Inc. v. Pape, the Supreme Court addressed a similar defamation claim in which the words of a source were undisputed but their meaning was ambiguous. In that case, a report on police brutality by the U.S. Commission on Civil Rights cited allegations from a civil lawsuit asserting misconduct by Chicago police. In its article on the Commission’s report, Time magazine stated the allegations as fact, omitting the word “alleged” that appeared in the report.

But while the Commission’s report did list the incident as “alleged,” in fact the report was “extravagantly ambiguous” about whether the allegations were true. The Commission summarized the contents of the report as “the alleged facts of 11 typical cases of police brutality,” though of course none could be “typical cases” of brutality unless they were true. While the report stated that the truth of each incident was a matter for the courts, the Commission cited no other evidence of brutality to support the changes it recommended. In this context, the Supreme Court held that reporting the Chicago incident as factual was a rational interpretation of what the Commission’s report impliedly said:

Time’s omission of the word “alleged” amounted to the adoption of one of a number of possible rational interpretations of a document that bristled with ambiguities. The deliberate choice of such an interpretation, though arguably reflecting a misconception, was not enough to create a jury issue of “malice” under New York Times. To permit the malice issue to go to the jury because of the omission of a word like “alleged,” despite the context of that word in the Commission Report and the external evidence of the Report’s overall meaning, would be to impose a much stricter standard of liability on errors of interpretation or judgment than on errors of historic fact.

In this case, Cantu’s remarks at the debate also “bristled with ambiguities.” Cantu argues that his comments had nothing to do with race, as anyone can be both bilingual and bicultural. But the context here was a debate in which Cantu was distinguishing himself from his opponent. Cantu conceded at his deposition that he knew his opponent was not Hispanic, but did not know whether he spoke Spanish; at the least, this might suggest he was using “bilingual” to indicate the former rather than latter. And Cantu does not explain why his opponent was not “bicul-tural,” despite claiming many more years of experience in law enforcement in the Rio Grande Valley than Cantu.

It is apparent from his response that Cantu’s opponent certainly thought the remarks had something to do with race or ethnicity. While an opponent’s interpretation cannot make Cantu’s remarks ambiguous, it is noteworthy that Cantu never corrected his opponent’s misinterpretation during the remainder of their debate.

Similarly ambiguous is Cantu’s explanation from the day after the debate until now that he was merely referring to place of birth, native language, and understanding for “the needs of the majority.” While place of birth and native language are not necessarily indicative of racial or ethnic attributes, courts have recognized they can be used as surrogates for them.

While Cantu never used the explicit words stated in the Herald’s initial article, the standard is whether that summary was a rational interpretation of what he said. Pleas for ethnic solidarity or racial prejudice are not always made in explicit terms. As Justice Peeples noted in analyzing such a plea in the context of a jury argument, “[t]o permit the sophisticated ethnic plea while condemning those that are open and unabashed would simply reward counsel for ingenuity in packaging.” Similarly, holding that headlines like the one here are actionable unless candidates make an explicit ethnic plea would reward candidates who make implicit ones by punishing the press for reporting on it.

This is not to say that every claim by a candidate to local community ties could be rationally interpreted as a racial plea. In a democratic republic, candidates distance themselves from local voters at their peril. Moreover, identification between voters and their representatives can help assure that republican institutions reflect the people whom they serve.

But the context here “bristled” with substantially more. The difference in the candidates’ ethnic backgrounds were apparently obvious to those who attended the debate, and as we have noted the terms Cantu used to distinguish himself are similar to those sometimes used for ulterior purposes. Further, while the record does not reflect the composition of the audience at the debate, the wider audience is a matter of record — according to the U.S. Census taken in the year of the election, 84.3% of Cameron County residents were persons of Hispanic or Latino origin. If Cantu’s only purpose was to emphasize his community ties, he could have chosen less ambiguous terms.

While it would be up to a jury to decide what Cantu meant, the Constitution requires us to decide whether the Herald articles were a rational interpretation of what he actually said. In this case, there is no factual dispute as to what that was. Based on the entire context of the debate, we hold that the Herald’s articles were a rational interpretation of Cantu’s remarks at the debate. Accordingly, the articles standing alone were not evidence of actual malice.

D

The court of appeals listed four other items of circumstantial evidence that it believed created a fact issue as to actual malice.

First, at his deposition Cantu detailed several out-of-court statements by Herald reporters to the effect that the officers of the paper “don’t like you” and “had it out” for him. Assuming the truth of this hearsay, it only establishes ill will, which is not proof of actual malice. Jurors cannot impose liability on the basis of a defendant’s “hatred, spite, ill will, or desire to injure.” “[Ejvidence of pressure to produce stories from a particular point of view, even when they are hard-hitting or sensationalistic, is no evidence of actual malice.” “[Ajctual malice concerns the defendant’s attitude toward the truth, not toward the plaintiff.” While a personal vendetta demonstrated by a history of false allegations may provide some evidence of malice, free-floating ill will does not.

Second, the court of appeals pointed to the second Herald article as proof that the paper changed nothing after learning of Cantu’s objections and receiving an audiotape of the debate. “The mere fact that a defamation defendant knows that the public figure has denied harmful allegations or offered an alternative explanation of events is not evidence that the defendant doubted the allegations.” In the world of politics, “such denials are so commonplace ... they hardly alert the conscientious reporter to the likelihood of error.” The Herald’s prompt follow-up article quoting Cantu’s version of his remarks and the opinions of his supporters is evidence of the absence of actual malice, not the opposite. Moreover, as pointed out above, as Cantu’s remarks in the second article (which he does not claim were misquoted) carried the same ambiguities as his original remarks, the content of the second article is itself no evidence of actual malice.

Third, the court pointed to the questions Cox raised after reading the first article as some evidence that the newspaper entertained doubts about its veracity. But “the focus of the actual-malice inquiry is the defendant’s state of mind during the editorial process. Evidence concerning events after an article has been printed and distributed, has little, if any, bearing on that issue.”

Finally, the court of appeals pointed to the opinions of an “expert journalist” criticizing the Herald’s handling of the story and finding a consistent pattern of biased reporting regarding Cantu. But actual malice inquires only into the mental state of the defendant, and the expert claimed no particular expertise in that field. Nor was Ms opmion based on any-tMng other than the articles themselves and the circumstantial evidence already discussed. Even assuming this evidence was competent, his opinions cannot show that the Herald knew its articles were not a rational interpretation of Cantu’s remarks.

“[PJerhaps the largest share of news concerning the doings of government appears in the form of accounts of reports, speeches, press conferences, and the like.” While an increasing number of such “doings” can be viewed in full by those with Internet access and sufficient time, most members of the public rely on the myriad of other news outlets — traditional and otherwise — to provide them with a summary. As a result, press reports generally must include not a transcript of what was said but a distillation and analysis of its implications.

“Any departure from full direct quotation of the words of the source, with all its qualifying language, inevitably confronts the publisher with a set of choices.” Since the founding of the nation, political candidates have complained that those choices sometimes appear to adopt the most unflattering and controversial interpretation possible. But notMng in the Constitution requires the press to adopt favorable attitudes toward public figures.

The summary judgment record before us establishes as a matter of law that the Herald’s reporter thought he was reporting the gist of what Cantu said. Accordingly, any error in the Herald’s articles evidences at most negligence, not actual malice. We reverse the court of appeals’ judgment and render judgment that Cantu take nothing.

Justice JOHNSON did not participate in the decision.

      . Defendants/petitioners are Freedom Newspapers of Texas d/b/a The Brownsville Herald, former editor George Cox, and former reporter Brad Pierce.

      . 126 S.W.3d 185, 195.

      . Cantu’s First Amended Petition includes multifarious subtitles, including libel, slander, defamation of character, damage to reputation, intentional infliction of emotional distress, and publications made with actual malice. But he does not argue that any of these claims can be asserted against the Herald absent some evidence of actual malice. See, e.g., Hustler Magazine v. Falwell, 485 U.S. 46, 56, 108 S.Ct. 876, 99 L.Ed.2d 41 (1988) (hold-mg Constitution prohibits intentional infliction claim absent actual malice). Accordingly, to the extent his pleadings allege claims other then defamation, they must stand or fall with his defamation claim.

      . See Tex. Civ. Prac. & Rem.Code § 51.014(a)(6).

      . 126 S.W.3d at 195.

      . See Tex. Gov't Code § 22.225(d).

      . Hearst Corp. v. Skeen, 159 S.W.3d 633, 636-37 (Tex.2005) (per curiam); Huckabee v. Time Warner Entm’t Co., 19 S.W.3d 413, 420 (Tex.2000).

      . New Times, Inc. v. Isaacks, 146 S.W.3d 144, 162 (Tex.2004); Huckabee, 19 S.W.3d at 420; WFAA-TV, Inc. v. McLemore, 978 S.W.2d 568, 574 (Tex.1998); Casso v. Brand, 776 S.W.2d 551, 559 (Tex.1989).

      . See Tex.R. Civ. P. 166a(c) (allowing summary judgment based on testimony of interested witnesses if "clear, positive, and direct, otherwise credible and free from contradictions and inconsistencies, and could have been readily controverted”); New Times, 146 S.W.3d at 163-65.

      . See, e.g., Bentley v. Bunion, 94 S.W.3d 561, 596 (Tex.2002) (holding defendant’s testimony "that he believed what he said is not conclusive, irrespective of all other evidence”).

      . Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256-57, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485, 512, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984) (“When the testimony of a witness is not believed, the trier of fact may simply disregard it. Normally the discredited testimony is not considered a sufficient basis for drawing a contrary conclusion.”); Turner v. KTRK Television, Inc., 38 S.W.3d 103, 124-25 (Tex.2000) ("It is not enough for the jury to disbelieve defendant's testimony. Rather the plaintiff must offer clear and convincing affirmative proof to support a recovery.”) (citing Casso, 776 S.W.2d at 558).

      . Skeen, 159 S.W.3d at 637; Huckabee, 19 S.W.3d at 424.

      . Bentley, 94 S.W.3d at 596 ("The defendant’s state of mind can — indeed, must usually — be proved by circumstantial evidence.").

      . 126 S.W.3d at 194.

      . 501 U.S. 496, 519-20, 111 S.Ct. 2419, 115 L.Ed.2d 447 (1991).

      . Id. at 511, 111 S.Ct. 2419.

      . Id. at 514, 111 S.Ct. 2419.

      . Id. at 515, 111 S.Ct. 2419.

      . Id. at 512-13, 515-17, 521-25, 111 S.Ct. 2419.

      . New Times, Inc. v. Isaacks, 146 S.W.3d 144, 157-59 (Tex.2004).

      . Masson, 501 U.S. at 517, 111 S.Ct. 2419 (1991) (citations omitted).

      . Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485, 512, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984); St. Amant v. Thompson, 390 U.S. 727, 88 S.Ct. 1323, 20 L.Ed.2d 262 (1968); Turner v. KTRK Television, Inc., 38 S.W.3d 103, 120 (Tex.2000) ("A publisher’s presentation of facts may be misleading, even negligently so, but is not a ‘calculated falsehood’ unless the publisher knows or strongly suspects that it is misleading.”).

      . Bentley v. Bunton, 94 S.W.3d 561, 596 (Tex.2002) (citing New York Times Co. v. Sullivan, 376 U.S. 254, 290, 84 S.Ct. 710, 732, 11 L.Ed.2d 686 (1964)).

      . Id.

      . 401 U.S. 279, 91 S.Ct. 633, 28 L.Ed.2d 45 (1971).

      . Id. at 280-81, 91 S.Ct. 633.

      . Id. at 282-83, 91 S.Ct. 633.

      . Id. at 289, 91 S.Ct. 633.

      . Id. at 287, 91 S.Ct 633.

      . Id. at 287-89, 91 S.Ct. 633.

      . Id. at 290, 91 S.Ct. 633.

      . See, e.g., Hernandez v. New York, 500 U.S. 352, 371-72, 111 S.Ct 1859, 114 L.Ed.2d 395 (1991) ("We would face a quite different case if the prosecutor had justified his peremptory challenges with the explanation that he did not want Spanish-speaking jurors. It may well be, for certain ethnic groups and in some communities, that proficiency in a particular language, like skin color, should be treated as a surrogate for race under an equal protection analysis.”); Sandoval v. Hagan, 197 F.3d 484, 511 (11th Cir.1999) (enjoining state’s administration of driver’s license exams in English only) rev’d on other grounds, 532 U.S. 275, 279, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001); Housing Rights Ctr. v. Donald Sterling Corp., 274 F.Supp.2d 1129, 1143 (C.D.Cal.2003) (enjoining policy requiring tenants to state national origin and place of birth on rental applications); E.E.O.C. v. Premier Operator Servs., 75 F.Supp.2d 550, 557 (N.D.Tex., 1999) (holding company’s "speak English only” policy constituted prima facie evidence of racial discrimination); U.S. v. State of N.J., 530 F.Supp. 328, 335 (D.N.J.1981) (finding racial motivation in failure to hire firefighters from bilingual eligibility list); Linda M. Mea-ley, English-Only Rules and "Innocent” Employers: Clarifying National Origin Discrimination and Disparate Impact Theory Under Title VII, 74 Minn. L.R. 387 (1989) (arguing that definition of national origin should include linguistic characteristics).

        .Pape, 401 U.S. at 290, 91 S.Ct. 633.

      . Tex. Employers’ Ins. Ass’n v. Guerrero, 800 S.W.2d 859, 862-63 (Tex.App.-San Antonio 1990, writ denied) (holding that argument by plaintiff's counsel that "by golly there comes a time when we have got to stick together as a community” was incurable when plaintiff and 11 members of jury had Spanish surnames).

      . U.S. Census Bureau: 2000 Census of Population and Housing, available at

      http://quickfacts. census.gov/qfd/ states/ 48/4806 l.html.

      . 126 S.W.3d at 195.

      . The Herald apparently filed no objection. See Tex.R. Evid. 802 ("Inadmissible hearsay admitted without objection shall not be denied probative value merely because it is hearsay.").

      . New Times, Inc. v. Isaacks, 146 S.W.3d 144, 161-62 (Tex.2004); Forbes Inc. v. Granada Biosciences, Inc., 124 S.W.3d 167, 171 (Tex.2003); Huckabee v. Time Warner Entm't Co., 19 S.W.3d 413, 424-25 (Tex.2000).

      . Letter Carriers v. Austin, 418 U.S. 264, 281, 94 S.Ct. 2770, 41 L.Ed.2d 745 (1974).

      . Huckabee, 19 S.W.3d at 425.

      . New Times, 146 S.W.3d at 165.

      . Bentley v. Bunton, 94 S.W.3d 561, 602 (Tex.2002).

      . Huckabee, 19 S.W.3d at 427; accord Hearst Corp. v. Skeen, 159 S.W.3d 633, 639 (Tex.2005) (per curiam).

      . Harte-Hanks Communications, Inc. v. Connaughton, 491 U.S. 657, 692 n. 37, 109 S.Ct. 2678, 105 L.Ed.2d 562 (1989).

      . New Times, 146 S.W.3d at 166; see Skeen, 159 S.W.3d at 639.

      . Forbes Inc. v. Granada Biosciences, Inc., 124 S.W.3d 167, 174 (Tex.2003); see also New Times, 146 S.W.3d at 168.

      . Forbes, 124 S.W.3d at 173; Bentley, 94 S.W.3d at 591 (citing Herbert v. Lando, 441 U.S. 153, 160, 99 S.Ct. 1635, 60 L.Ed.2d 115 (1979)).

      . While Me opinions contain nothing beyond the competence of jurors and thus would normally be inadmissible, K-Mart Corp. v. Honeycutt, 24 S.W.3d 357, 360 (Tex.2000) (per cu-riam), the Herald again appears to have filed no objection.

      . See Skeen, 159 S.W.3d at 639. In light of our disposition of this issue, we do not reach the Herald’s request that we revisit our holding in Huckabee v. Time Warner Entm't Co., 19 S.W.3d 413, 421 (Tex.2000), and join most other jurisdictions in holding that the summary judgment record be reviewed for clear and convincing evidence of actual malice. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-56, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); New Times, 146 S.W.3d at 168.

      . Time, Inc. v. Pape, 401 U.S. 279, 286, 91 S.Ct. 633, 28 L.Ed.2d 45 (1971).

      . Id.

        . See, e.g., Letter from Thomas Jefferson to the president of the United States (Sept. 9, 1792), in 1 The Works of Thomas Jefferson 136, 146 (Paul Leicester Ford ed., 1904) ("No government ought to be without censors; and where the press is free no one ever will.”); President John F. Kennedy’s News Conference, 1962 Pub. Papers 375, 376 (May 9, 1962) — ("I am reading [the press] more and enjoying it less.”); Letter from Franklin D. Roosevelt to Colonel Edward M. House (May 7, 1934), in 3 The Roosevelt Letters, 125, 125 (Elliott Roosevelt ed., 1949) ("The newspapers, especially those in the East, are amazingly superficial and ... a large number of news gatherers are either cynics at heart or are following the orders and the policies of the owners of their papers.”); President Ronald Reagan’s Remarks at a White House Briefing for Supporters of Welfare Reform, 1987 Pub. Papers 115, 115 (Feb. 9, 1987) (“The doctors told me this morning my blood pressure is down so low that I can start reading the newspapers and watching the TV news.”).


author: TERRY JENNINGS, Justice.

text:
    MARUBENI AMERICA CORPORATION, Appellant, v. HARRIS COUNTY APPRAISAL DISTRICT and Harris County Appraisal Review Board, Appellees.
    No. 01-04-00107-CV.
    Court of Appeals of Texas, Houston (1st Dist.).
    Oct. 14, 2004.
    Bernard Lilse Mathews, III, Green & Mathews, III, Houston, for Appellant.
    Mario L. Dell’Osso, Olson & Olson, Houston, TX, for Appellees.
    Panel consists of Justices TAFT, JENNINGS, and BLAND.
   OPINION

TERRY JENNINGS, Justice.

In this ad valorem property tax case, appellant, Marubeni America Corporation (Marubeni), challenges the trial court’s rendition of summary judgment in favor of appellees, the Harris County Appraisal District (HCAD) and the Harris County Appraisal Review Board (HCARB) (collectively, the taxing authorities). In its sole issue, Marubeni contends that the trial court erred in granting the taxing authorities’ motion for summary judgment and in denying Marubeni’s motion for summary judgment because the summary judgment evidence established, as a matter of law, that, due to a clerical error, Marubeni had inaccurately reported the value of its inventory to HCAD for appraisal and taxation.

We affirm.

Factual and Procedural Background

In 2000, Marubeni, a commodity trading company, owned and stored mixed xylene in two leased tanks located in Harris County. In April 2001, Marubeni submitted a “Report of Stored Product Inventory” to HCAD in which Marubeni’s representative, E.B. Andrew, stated that, as of January 1, 2001, Marubeni’s inventory of mixed xylene totaled 584,261.83 gallons and was valued at $2,439,192. HCAD then appraised and taxed this inventory based on the value listed in the report.

In October 2002, Marubeni timely filed a “Personal Property Correction Request / Motion” with HCAD requesting a correction of the 2001 appraisal roll and listing the basis for the requested correction as “[p]roperty over-appraised by more than 1/3.” In its motion to correct the appraisal roll, Marubeni’s Vice-President, H. Onod-era, explained, “The warehouse report was not available at the timing [sic] of filing the original 2001 rendition. The value of the inventory was incorrectly computed.” On-odera also stated that the correct value of the 2001 inventory was $855,193. Following a hearing, HCARB subsequently denied Marubeni’s motion to correct the appraisal roll.

Marubeni subsequently filed a lawsuit against the taxing authorities, seeking a judgment directing the taxing authorities to correct the 2001 appraisal roll to reflect the “proper” value of Marubeni’s mixed xylene inventory and to refund any overpayment of ad valorem property taxes resulting from the adjusted value. Marubeni also filed a motion for summary judgment arguing that, as a matter of law, the figures that Marubeni had submitted to HCAD in the 2001 inventory report regarding both the volume and the value of its mixed xylene inventory amounted to “a clear case of clerical error” and were subject to correction under the provisions of section 25.25(c) of the Tax Code.

As summary judgment evidence, Maru-beni submitted the affidavit of its Assistant Marketing Manager, Cathy Wolfe. Wolfe stated that the 2001 inventory report contained “inadvertent errors in both the quantity of material ... and the value of that material” and that “[t]he error was apparently created by Mr. Andrew using internal reports that were not intended to accurately reflect the year-end volume.” Wolfe explained that, in its 2001 inventory report, Marubeni had understated the volume of its mixed xylene inventory and had overstated its inventory’s value. Wolfe stated that the actual volume of mixed xylene held in Marubeni’s inventory in January 2001 was 880,216.92 gallons and that its market value was $855,193.

The taxing authorities responded to Ma-rubeni’s motion for summary judgment and filed their own joint motion for summary judgment, arguing that, as a matter of law, the mistakes Marubeni allegedly made in its 2001 inventory report were not clerical errors, or alternatively, that material fact questions existed concerning whether such mistakes constituted clerical errors. In support of their response and their motion, the taxing authorities also relied on portions of Wolfe’s affidavit, as well as excerpts from her deposition testimony.

At her deposition, Wolfe testified that she could not recall whether or not she had ever spoken to Andrew. It was Wolfe’s understanding, based on what she had been told by another Marubeni employee, that Andrew had obtained the figure for the value of the 2001 mixed xylene inventory from an internal balance sheet used to track stored material. Wolfe explained that the figure from that balance sheet did not reflect all of the deliveries of mixed xylene that Marubeni had made to its customers before the end of 2001. Wolfe also identified Maggie Tan, a Marubeni employee in its Houston, Texas office, as the person who had given Andrew the incorrect information regarding the volume of the 2001 inventory. However, Wolfe admitted that, although Marubeni routinely received daily reports from another company regarding the volume of its inventory, she did not know how Tan had arrived at that incorrect figure and that she had not determined the source of that miscalculation.

The trial court subsequently denied Ma-rubeni’s motion for summary judgment and granted summary judgment for the taxing authorities.

Standard of Review

A party moving for summary judgment must conclusively prove, as a matter of law, all of the elements of its cause of action or defense. Tex.R. Civ. P. 166a(c); Holy Cross Church of God in Christ v. Wolf 44 S.W.3d 562, 566 (Tex.2001). When, as here, both sides move for summary judgment, and the trial court grants one motion but denies the other, a reviewing court should review both sides’ summary judgment evidence, determine all questions presented, and render the judgment that the trial court should have rendered. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex.2000). The determination of whether an alleged error constitutes a “clerical” error is a matter of law. Fort Bend Cent. Appraisal Dist. v. Hines Wholesale Nurseries, 844 S.W.2d 857, 858 (Tex.App.-Texarkana 1992, writ denied).

Clerical Errors

Here, Marubeni concedes that the information that it provided to the taxing authorities was the source of any error that occurred in the appraisal of its 2001 mixed xylene inventory. The parties also do not dispute that, in effect, the trial court ruled that, as a matter of law, the mistakes that Marubeni alleges that it made in submitting its 2001 inventory report were not clerical errors. In its sole issue, Marubeni argues that the trial court erred in denying its motion for summary judgment and in granting summary judgment in favor of the taxing authorities.

Under the provisions of the Tax Code, an appraisal review board may correct an appraisal roll for clerical errors made by a taxpayer in its rendition of the value of its own taxable personal property. Tex. Tax Code Ann. § 25.25(c) (Vernon 2001); Comdisco, Inc. v. Tarrant County Appraisal Dist., 927 S.W.2d 325, 327 (Tex.App.-Fort Worth 1996, writ ref d). With regard to the correction of such clerical errors, the Tax Code provides, in part, as follows:

The appraisal review board, on motion of the chief appraiser or of a property owner, may direct by written order changes in the appraisal roll for any of the five preceding years to correct:
(1) clerical errors that affect a property owner’s liability for a tax imposed in that tax year;....

Tex. Tax Code Ann. § 25.25(c). A “clerical error” is defined as an error:

(A) that is or results from a mistake or failure in writing, copying, transcribing, entering or retrieving computer data, computing, or calculating; or
(B) that prevents an appraisal roll or a tax roll from accurately reflecting a finding or determination made by the chief appraiser, the appraisal review board, or the assessor; however, “clerical error” does not include an error that is or results from a mistake in judgment or reasoning in the making of the finding or determination.

Id. § 1.04(18) (Vernon 2001).

Marubeni relies on Comdisco in support of its assertion that its alleged mistakes in submitting the amounts of the volume and value of its 2001 mixed xylene inventory amounted to clerical errors. In Comdisco, the taxpayer submitted information to a taxing authority listing the value of its taxable property at “$13,000,000” instead of “$1,300,000.” 927 S.W.2d at 326. The court of appeals held that, under the provisions of section 25.25(c) of the Tax Code, the taxpayer’s alleged mistake was the result of a clerical error, and the court of appeals reversed the summary judgment that had been granted in favor of the taxing authority and remanded the case for a determination of the actual value of the property. Id. at 327-28.

We note that, in Comdisco, the taxpayer’s alleged error resulted from the addition of an extra decimal place. Id. at 326; see also Handy Hardware Wholesale, Inc. v. Harris County Appraisal Dist., 985 S.W.2d 618, 619 (Tex.App.-Houston [1st Dist.] 1999, no pet.) (holding that taxing authority’s incorrect listing of warehouse as having 20,125 square feet instead of 201,250 square feet was correctable “clerical” error under section 25.25(c) of the Tax Code). Here, Marubeni alleges that the errors in its 2001 inventory report resulted from its employees’ use of incorrect information and were merely the result of mistakes in “writing, copying, transcribing, entering or retrieving computer data, computing, or calculating.” See Tex. Tax Code Ann. § 1.04(18). However, Marubeni offered no summary judgment evidence from the persons who made the alleged errors, and its representative, Wolfe, testified that she had not determined the source or the reason for all of the alleged errors. Accordingly, based on the summary judgment record presented, we hold that Ma-rubeni did not establish, as a matter of law, that its alleged errors were “clerical errors” subject to correction under section 25.25(c) and thus, the trial court did not err in denying Marubeni’s motion for summary judgment.

The taxing authorities argue that, as a matter of law, the types of errors allegedly made by Marubeni do not amount to clerical errors as that term is defined by the Tax Code and by the cases interpreting that provision. See Comdisco, 927 S.W.2d at 327-28; Handy Hardware Wholesale, 985 S.W.2d at 619. We agree. We hold that the summary judgment evidence submitted by Marubeni concerning the alleged proper figures for its 2001 mixed xylene inventory established that Marubeni’s employees did not commit errors merely in “writing, copying, transcribing, entering or retrieving computer data, computing, or calculating.” Rather, its employees simply submitted figures based on allegedly incorrect information. Wolfe testified that Andrew had obtained the figures for the volume and the value of the 2001 inventory from another employee and from an internal balance sheet, respectively.

Accordingly, we hold that, based on the summary judgment record presented, the taxing authorities established, as a matter of law, that Marubeni’s alleged errors were not clerical errors subject to correction under section 25.25(c), and we further hold that the trial court did not err in granting summary judgment in favor of the taxing authorities.

We overrule Marubeni’s sole issue.

Conclusion

We affirm the judgment of the trial court.

      . The record indicates that mixed xylene is a liquid chemical used in the solvents industry and as a gasoline.fuel additive.

      . Tex. Tax Code Ann. § 25.25(c) (Vernon 2001).

      . This figure matches the value submitted by Onodera in Marubeni’s motion to correct the 2001 appraisal roll. However, we note that, in its original petition and in its motion for summary judgment, Marubeni asserts that the proper value of its 2001 mixed xylene inventory was "$854,487.80.” The record contains no explanation for this discrepancy between Ma-rubeni's pleadings and its summary judgment evidence.


author: TERRY McCALL, Justice.

text:
    ECTOR COUNTY, Appellant, v. Danny BREEDLOVE and Diane Breedlove, Appellees.
    No. 11-03-00356-CV.
    Court of Appeals of Texas, Eastland.
    Nov. 4, 2004.

      Denis Dennis, Rush, Kelly, Morgan, Dennis, Corzine & Hansen, P.C., Odessa, TX, for appellant.
    Steve Brannan, Odessa, TX, for appel-lee.
    Panel consists of: ARNOT, C.J., and WRIGHT, J., and McCALL, J.
   Opinion

TERRY McCALL, Justice.

After heavy rains in October 2000, Danny and Diane Breedlove’s home was flooded. They sued Ector County, claiming that (1) Ector County, in performing its road and ditch work, negligently increased the grade near their home to the extent that water would not drain away from their residence, (2) Ector County negligently installed drainage culverts near other properties and failed to place a culvert near their property, (8) Ector County’s right-of-way and drainage ditches constituted a premises defect, and (4) Ector County employees’ negligent operation and use of motor-driven vehicles or motor-driven equipment proximately caused the flooding to the Breedlove home.

The trial court granted Ector County’s plea to the jurisdiction with regard to the Breedloves’ claims of negligence in performing road and ditch grade work, negligence in installing or failing to install drainage culverts, and premises defect. The trial court denied Ector County’s plea with regard to the Breedloves’ claim that their flood injury arose from Ector County’s operation or use of motor-driven equipment. Ector County filed this interlocutory appeal from that denial. We reverse and render judgment for Ector County, dismissing the Breedloves’ claim.

Standard of Review

Governmental immunity from suit defeats a court’s subject matter jurisdiction. Texas Department of Transportation v. Jones, 8 S.W.3d 636, 638 (Tex.1999). Whether a court has subject matter jurisdiction is a legal question that we review de novo. State ex rel. State Department of Highways and Public Transportation v. Gonzalez, 82 S.W.3d 322, 327 (Tex.2002).

The instances in which our legislature has waived sovereign immunity are limited and are narrowly defined. Texas Department of Criminal Justice v. Miller, 51 S.W.3d 583, 587 (Tex.2001). A plaintiff must affirmatively demonstrate the court’s jurisdiction by alleging a valid waiver of immunity. Id. at 587. To determine if the plaintiff has met that burden, we look to the facts alleged by the plaintiff and any evidence relevant to the jurisdictional issue. County of Cameron v. Brown, 80 S.W.3d 549, 555 (Tex.2002); Bland Independent School District v. Blue, 34 S.W.3d 547, 555 (Tex.2000). We view the petition in favor of the plaintiff, taking all allegations as true and construing them in favor of the plaintiff. Texas Association of Business v. Texas Air Control Board, 852 S.W.2d 440, 446 (Tex.1993).

Sovereign Immunity and the Tort Claims Act

In the Texas Tort Claims Act, the legislature has provided a limited waiver of liability and suit in certain circumstances for torts committed by the government. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 101.021-101.029 (Vernon 1997 & Pamph. Supp.2004-2005). Section 101.021 of the Texas Tort Claims Act provides that a governmental unit in this state is liable for:

(1) property damage, personal injury, and death proximately caused by the wrongful act or omission or the negligence of an employee acting within his scope of employment if:
(A) the property damage, personal injury, or death arises from the operation or use of a motor-driven vehicle or motor-driven equipment; and
(B) the employee would be personally liable to the claimant according to Texas law; and
(2) personal injury and death so caused by a condition or use of tangible personal or real property if the governmental unit would, were it a private person, be liable to the claimant according to Texas law. (Emphasis added)

The Breedloves contend that Ector County employees were negligent in their “use” of motor-driven equipment in performing road and ditch grade work near their property and that, therefore, governmental immunity was waived under Section 101.021(1)(A). Ector County responds by pointing out that there was no motor-driven equipment near the Breedloves’ property at the time of the flooding, that the last work by Ector County near the Breed-loves’ property was done two years before the flooding, and that the “use” of motor-driven equipment only created a condition that made the flooding possible. Citing Dallas County Mental Health & Mental Retardation v. Bossley, 968 S.W.2d 339, 343 (Tex.1998), Ector County argues that the use of motor-driven equipment did not cause injury within the meaning of Section 101.021(1) because it did no more than furnish the condition that made the Breed-loves’ injury possible.

The Tort Claims Act does not define “use.” In both “use of motor-driven equipment” cases and “use of property” cases, the supreme court has given the word “use” its ordinary meaning and held that there must be a direct nexus between the operation or use of the motor-driven equipment (or use of the government’s property) and plaintiffs alleged damages. As the supreme court stated in Dallas Area Rapid Transit v. Whitley, 104 S.W.3d 540, 543 (Tex.2003):

We have consistently required a nexus between the operation or use of the motor-driven vehicle or equipment and a plaintiffs injuries. See, e.g., White, 46 S.W.3d at 869; LeLeaux v. Hamshire-Fannett Indep. Sch. Dist., 835 S.W.2d 49, 51 (Tex.l992)(“The phrase ‘arises from’ requires a nexus between the injury negligently caused by a governmental employee and the operation or use of a motor-driven vehicle or piece of equipment.”); Hopkins v. Spring Indep. Sch. Dist., 736 S.W.2d 617, 619 (Tex.1987). This nexus requires more than the mere involvement of property. See generally Dallas County Mental Health & Mental Retardation v. Bossley, 968 S.W.2d 339, 343 (Tex.1998). Rather, “the [vehiclej’s use must have actually caused the injury.” White, 46 S.W.3d at 869 (citing Bossley, 968 S.W.2d at 342-43). Thus, as with the condition or use of property, the operation or use of a motor vehicle “does not cause injury if it does no more than furnish the condition that makes the injury possible.” Bossley, 968 S.W.2d at 343.

Whitley made it clear that the supreme court requires a direct nexus between the “use” of motor-driven equipment and the plaintiff’s injury, just as Bossley mandated that there be a direct nexus between the “use” of tangible personal or real property and the plaintiffs injury. The use of motor-driven equipment or the use of property does not cause injury if it does no more than furnish the condition that made the injury possible.

Although the Breedloves attempted to bring their claim within the waiver of Section 101.021(1)(A) by phrasing their claim in terms of Ector County’s “use” of motor-driven equipment, Ector County’s use of motor-driven equipment only furnished the condition-the increased grade and misplacement of culverts — that caused the flooding of their home. The use of the motor-driven equipment did not cause the Breedloves’ injury within the meaning of the waiver language in Section 101.021(1)(A). Texas Department of Transportation v. Curry, No. 10-03-00210-CV, 2004 WL 2009386 (Tex.App.-Waco, September 8, 2004, no pet’n h.)(memorandum opinion); Hunt County v. Dallas, Garland and Northeastern Railroad, No. 05-03-01587-CV, 2004 WL 1178609 (Tex.App.-Dallas, May 28, 2004, no pet-n)(memorandum opinion).

This Court’s Ruling

We reverse the trial court’s order denying Ector County=s plea to the jurisdiction and render a judgment of dismissal.

      . TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(a)(8) (Vernon Supp.2004 — 2005).

      . See Justice Hecht’s concurring opinion in Texas Department of Criminal Justice v. Miller, supra at 589, where he pointed out that Miller was the sixteenth case in which the supreme court had tried to determine whether plaintiff’s injury or death had arisen from the government’s use of property so that the plaintiff’s claim for damages was within the Act's waiver of sovereign immunity.