Clear-and-Unequivocal Reliance Disclaimers and “Alarm-Meeting” Accrual for Texas Fraud Claims in Private Placement Investments

I. Introduction

In Pastrana v. Bestrenewedoil (arising from In the Matter of JPG Renewables L.L.C., Debtor), the Fifth Circuit affirmed a bankruptcy-court bench-trial judgment exceeding $4 million stemming from a multi-million-dollar fraud scheme tied to a proposed oil-recycling facility in Harris County, Texas.

The investor-plaintiffs—Bestrenewedoil, L.L.C., Carlos Ramirez, and Ramirez’s investment entity DRCHR Oil & Gas Investments, L.L.C.—claimed that defendant Juan Fernando Pastrana and his company Lub-Line, L.L.C. induced a $3.25 million “Tranche A” investment through materially false statements in a private placement memorandum (“PPM”) and related communications, including false “development costs” and misleading representations concerning land ownership/transfer.

On appeal, defendants challenged: (1) timeliness under Texas’s four-year limitations period; (2) whether contractual language barred fraud claims via reliance disclaimers; (3) whether plaintiffs proved justifiable reliance; and (4) the measure and evidentiary support for damages.

II. Summary of the Opinion

The Fifth Circuit affirmed in full. It held that:

Accrual/limitations: Plaintiffs’ fraud-based claims accrued on January 17, 2017—the “alarm meeting”—when facts surfaced that “shocked” plaintiffs and triggered investigation, not at the 2014 investment dates.
Disclaimers: The Investment Agreement’s merger clause and the PPM’s language did not constitute a “clear and unequivocal” disclaimer of reliance sufficient to bar Texas fraud and fraudulent-inducement claims.
Justifiable reliance: Plaintiffs actually and justifiably relied; a single PPM admonition about “independent verification” was not a dispositive “red flag,” particularly given plaintiffs’ limited oil-and-gas sophistication and their substantial due diligence.
Damages: Out-of-pocket (restitution) damages equaling the full investment were supported because the “value received” at the time of investment was found to be zero; exemplary damages stood because actual damages were upheld.

III. Analysis

A. Precedents Cited

1. Appellate posture and standards of review

In re Highland Cap. Mgmt., 57 F.4th 494 (5th Cir. 2023) and ASARCO, Inc. v. Elliott Mgmt. (In re ASARCO, L.L.C.), 650 F.3d 593 (5th Cir. 2011) anchored the Fifth Circuit’s framework for reviewing a district court acting in its bankruptcy appellate capacity: legal conclusions and mixed questions de novo; fact findings for clear error.
In re Perry, 345 F.3d 303 (5th Cir. 2003) and In re Dennis, 330 F.3d 696 (5th Cir. 2003) emphasized deference to the bankruptcy court’s credibility and factfinding; the panel reiterated it would not “weigh the evidence anew.”

2. Accrual, discovery, and the role of public records

Berry v. Berry, 646 S.W.3d 516 (Tex. 2022) and Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211 (Tex. 2003) supplied the general accrual rule: limitations runs when facts exist authorizing a judicial remedy (legal injury).
Hooks v. Samson Lone Star, Ltd. P'ship, 457 S.W.3d 52 (Tex. 2015), Ruebeck v. Hunt, 176 S.W.2d 738 (Tex. 1943), and S.V. v. R.V., 933 S.W.2d 1 (Tex. 1996) supported the fraud “discovery” principle: fraud prevents limitations from running until discovered or discoverable by reasonable diligence, to avoid rewarding concealment.
Est. of Ewers, 695 S.W.3d 603 (Tex. App.—Hous. [1st Dist.] 2024, no pet.) reinforced that reasonable diligence is fact-intensive and typically for the factfinder unless only one conclusion is possible.
JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648 (Tex. 2018) was used both in limitations and reliance analyses. In limitations, the panel cited Orca Assets for the point (via Ojeda de Toca v. Wise, 748 S.W.3d 449 (Tex. 1988), as quoted) that Texas courts have not broadly held failure to search deed records automatically bars fraud actions; and it distinguished the sophistication and context present in Orca Assets.

3. Reliance disclaimers, merger clauses, and specificity

Italian Cowboy, 341 S.W.3d 323 (Tex. 2011) was the controlling authority: merger clauses generally do not waive fraud claims; enforceable reliance disclaimers must use “clear and unequivocal language,” and adequacy is a question of law.
LHC Nashua P'ship Ltd. v. PDNED Sagamore Nashua, L.L.C., 659 F.3d 450 (5th Cir. 2011) was cited for the “exacting” standard under Italian Cowboy.
International Business Machines Corp. v. Lufkin Industries, LLC, 573 S.W.3d 224 (Tex. 2019) provided a contrast case: a disclaimer can work when it specifically identifies categories of non-actionable representations.
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003) supplied the interpretive rule that contracts should be harmonized to avoid rendering provisions meaningless—used to show why the PPM clause, read as defendants urged, risked nullifying the PPM.
Sysco Merch. & Supply Chain Servs., Inc. v. Remcoda, LLC, No. 4:22-CV-02075, 2023 WL 1781810 (S.D. Tex. Feb. 6, 2023) was invoked for the observation that post-Italian Cowboy disclaimers typically require explicit “rely/reliance” language.

4. Justifiable reliance and “red flags”

Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913 (Tex. 2010) (quoting Lewis v. Bank of Am. NA, 343 F.3d 540 (5th Cir. 2003)) provided the “red flags” doctrine: reliance is unjustifiable if red flags make it unwarranted.
AKB Hendrick, LP v. Musgrave Enters., Inc., 380 S.W.3d 221 (Tex. App.—Dallas 2012, no pet.) supported the “ordinary care” diligence framing in arm’s-length transactions.
Est. of Ewers and Orca Assets were used to stress “totality of the circumstances” and relative sophistication.
Sanders v. Unum Life Ins. Co. of Am., 553 F.3d 922 (5th Cir. 2008) was cited to reject arguments raised for the first time in reply.

5. Fraud elements and damages

Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768 (Tex. 2009) (per curiam) and Italian Cowboy supplied the elements of Texas fraud.
Hooks, Haase v. Glazner, 62 S.W.3d 795 (Tex. 2001), and Anderson v. Durant, 550 S.W.3d 605 (Tex. 2018) framed fraudulent inducement as a subspecies of fraud tied to an agreement.
Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812 (Tex. 1997) was used for direct damages principles and the requirement to measure certain fraud damages at the time of sale; the opinion also distinguished defendants’ overbroad reading of Arthur Andersen.
Zorrilla v. Aypco Constr. II, LLC, 469 S.W.3d 143 (Tex. 2015) supplied the out-of-pocket/restitution measure: value expended minus value received.
Flanary v. Mills, 150 S.W.3d 785 (Tex. App.—Austin 2004, pet. denied) supported that damages amounts are fact questions.
Siddiqui v. Fancy Bites, LLC, 504 S.W.3d 349 (Tex. App.—Hous. [14th Dist.] 2016, pet. denied) strongly influenced the damages analysis: misrepresentations about core value (including land) can support a finding that “value received” was zero at investment, justifying recovery of the full investment as out-of-pocket damages.
Carlton Energy Grp., LLC v. Phillips, 369 S.W.3d 433 (Tex. App.—Hous. [1st Dist.] 2012), aff'd in part, rev'd in part on other grounds, 475 S.W.3d 265 (Tex. 2015) was used to explain that acknowledging general investment risk does not immunize intentional misrepresentations of present fact.

B. Legal Reasoning

1. Limitations: discovery, diligence, and constructive notice

Applying Texas’s four-year limitations period for fraud claims (Tex. Civ. Prac. & Rem. Code Ann. § 16.004(a)(4)), the court accepted the bankruptcy court’s factual determination that plaintiffs discovered (or reasonably could have discovered) the fraud at the January 17, 2017 “alarm meeting.”

Defendants’ principal limitations theory—constructive notice via deed records—failed for two linked reasons:

Ambiguity about timing and meaning: The record supported that Pastrana represented the land would be transferred in connection with the deal, not necessarily that deed records would already reflect a completed transfer at the precise investment moment. Public records do not give constructive notice of a transfer not yet recorded (or not yet made).
Reasonable diligence is not perpetual suspicion: Relying on Hooks v. Samson Lone Star, Ltd. P'ship, the panel endorsed the view that requiring investors to repeatedly check public filings post-investment to guard against a liar’s continued misstatements imposes “a higher burden than reasonable diligence requires.”

The opinion also underscored that deed records, even if checked, would not have exposed the separate fraudulent inflation of development costs supplied to Focus Strategies and embedded in the PPM.

2. Contract clauses: why the merger clause and PPM language did not disclaim reliance

The core doctrinal move is a rigorous application of Italian Cowboy: to bar fraud claims by negating reliance, the contract must disclaim reliance in “clear and unequivocal” terms.

Here, the Investment Agreement purported to be the “entire agreement” and stated the parties had not relied on promises or representations “other than those expressly set forth or referred to herein,” while also expressly referencing the PPM and describing the Agreement as “additional terms” to the PPM. Meanwhile, the PPM asserted that “Only those representations and warranties made in a definitive, written purchase agreement…shall have any legal effect.”

The Fifth Circuit characterized the combined drafting as internally inconsistent and “circular,” making it impossible to treat the documents as a clear, unequivocal reliance disclaimer—especially where the alleged fraud concerned misstatements of existing facts (land ownership/costs), not merely forward-looking projections or “performance.”

The court’s use of International Business Machines Corp. v. Lufkin Industries, LLC is instructive: IBM’s disclaimer worked because it specifically identified categories of non-actionable representations. Defendants’ PPM language lacked that kind of targeted clarity for the misstatements at issue.

3. Justifiable reliance: totality, diligence, and the non-dispositive “red flag”

Defendants attacked the reliance element, but the Fifth Circuit treated the bankruptcy court’s reliance findings as fact-bound and well supported: plaintiffs undertook nine months of due diligence, met repeatedly with Focus Strategies and Pastrana, reviewed a lengthy PPM, and involved counsel. The court viewed their conduct as “ordinary care,” not blind trust.

On “red flags,” defendants pointed mainly to a PPM statement instructing investors to perform “their own independent verification.” The panel rejected that as legally insufficient, distinguishing JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., where multiple red flags plus high oil-and-gas sophistication and expressed doubts cumulatively defeated reliance. Here, plaintiffs lacked comparable industry sophistication and lacked the kind of explicit contemporaneous skepticism present in Orca Assets.

4. Damages: full-investment restitution where value received is zero

The court affirmed out-of-pocket damages (value expended minus value received) under Zorrilla v. Aypco Constr. II, LLC, measured at the time of sale per Arthur Andersen & Co. v. Perry Equip. Corp..

Crucially, the court accepted that the “value received” was zero because the investment’s valuation premises were materially false—especially the supposed $7 million prior investment and the supposed land contribution/ownership. The opinion relied heavily on Siddiqui v. Fancy Bites, LLC to validate the proposition that investor testimony and the centrality of a misrepresented asset (such as land) can support a zero-value finding at investment, justifying recovery of the full invested amount as restitution.

Exemplary damages were affirmed because actual damages were upheld and defendants did not mount a distinct, developed challenge to the exemplary award.

C. Impact

Investment-document drafting in Texas fraud exposure: The decision reinforces that a merger clause plus generalized PPM caveats are often insufficient. If parties intend to disclaim reliance, Italian Cowboy and IBM v. Lufkin demand specificity and clarity tied to defined categories of representations.
Limitations defense limits in concealment-heavy schemes: Defendants cannot readily shift fraud-detection burdens onto investors by pointing to public records, especially when the alleged misstatements concern multiple topics and the fraud continues post-investment through misleading updates and withheld accurate reporting.
Reliance analysis remains contextual: Sophistication, expressed doubts, and cumulative “red flags” matter. A generic admonition to verify information, standing alone, is unlikely to defeat reliance where investors undertake meaningful diligence and the seller actively falsifies foundational inputs.
Restitutionary damages in fraudulent private placements: The case strengthens the practical availability of full-investment out-of-pocket recovery when the factfinder determines the interest acquired had no value at the time of purchase because the venture was not what was represented.

IV. Complex Concepts Simplified

Discovery rule (fraud context): Limitations may not start when money changes hands if the fraud is concealed; it starts when the victim discovers (or reasonably should discover) the fraud.
Constructive notice: Sometimes public records “count” as notice even if a person did not look. But public records do not automatically defeat fraud claims, particularly where the records do not clearly reveal the wrongdoing at the relevant time or would not reveal the broader fraud.
Merger clause vs. reliance disclaimer: A merger clause says the written contract is the whole agreement. A reliance disclaimer goes further: it says the party did not rely on certain representations. Texas law requires reliance disclaimers to be explicit and unambiguous to block fraud claims.
Justifiable reliance and “red flags”: A victim must act with ordinary care. If glaring warnings exist—especially for sophisticated parties—reliance may be unjustified. But a general “do your own diligence” statement is not automatically a deal-ending red flag.
Out-of-pocket damages: A fraud victim can recover what they paid minus what they actually received in value at the time of the transaction. If what they received was worth $0 at that time, the full payment can be recoverable.

V. Conclusion

The Fifth Circuit’s affirmance in Pastrana v. Bestrenewedoil crystallizes several Texas-law takeaways in the private placement context: fraud claims may accrue upon a later “alarm” event when concealment delays discovery; public-record arguments do not automatically impose constructive notice or heightened diligence; reliance disclaimers must be “clear and unequivocal” and cannot be cobbled together from circular, internally inconsistent clauses; and out-of-pocket damages may equal the full investment when the factfinder supports a zero-value-at-investment conclusion. Even as an unpublished decision, the opinion provides a detailed roadmap for how Texas fraud doctrines operate at the intersection of investment documentation, diligence expectations, and restitutionary remedies.