In Flores v. Millennium Interests, Ltd., 185 S.W.3d 427, 429 (Tex. 2005), the Texas Supreme Court was presented with three certified questions from the United States Court of Appeals for the Fifth Circuit:
(1) whether a seller who provides an annual statement under Section 5.077 is liable for the statute's "liquidated damages" provision when the statement omits some of the required information;
(2) if so, must the purchaser prove actual harm or injury to recover under Section 5.077;
(3) whether "exemplary damages" in Chapter 41 encompass the "liquidated damages" in Section 5.077, requiring compliance with Section 41.003. See Flores, 185 S.W.3d at 428.
The court concluded that:
(1) the pre-2005 Section 5.077 is penal in nature;
(2) a deficient annual statement representing a good faith effort to provide the statement does not trigger the liquidated damages provision in Section 5.077;
(3) that if the provision is triggered, the legislature "did not intend that a purchaser prove actual damages as a predicate to their recovery." See id. at 429, 434.
Importantly, however, the court went on to state that "because the incomplete annual statement here did not invoke the liquidated damages provision of Section 5.077(c), we decline to decide at this time whether these statutory damages are also 'exemplary damages' within the meaning of Chapter 41." Id.
The Court noted that, while an amount stipulated in advance as an acceptable measure of damages may be either an enforceable liquidated damages provision or an unenforceable penalty under the common law, the same "does not always hold true for statutes." Id. at 431.
Consequently, the Court determined that a statutory "liquidated damages" provision for noncompliance, when invoked, was penal in nature. Id. at 433.
The Texas Supreme Court concluded that a "liquidated damages" provision in section 5.077(c) of the Texas Property Code was really a punitive-damages provision, and held that the claimants were not required to "prove actual harm or injury to recover statutory damages," because the court found "nothing in the statute to suggest such a requirement." Id. at 434.
Significantly, however, the court "declined to decide at this time whether these statutory damages are also 'exemplary damages' within the meaning of Chapter 41." See Flores, 185 S.W.3d at 434.
The court accordingly did not answer the question of whether "a purchaser must also comply with the requirements of Chapter 41 of the Texas Civil Practice and Remedies Code to collect these statutory damages." Id.