Opinion
Civil Action No. 01-2411, SECTION "J" (4)
May 14, 2002
ORDER AND REASONS
Before the Court are identical Motions to Dismiss Under Fed.R.Civ.P. 9(b) and 12(b)(6), or, in the Alternative, Motions for Summary Judgment (Rec. Docs. 39 and 59) filed by Defendants Sentry Select Insurance Company ("Sentry") and Acadian Shipyard, Inc. ("Acadian"). Plaintiff Cashman Equipment Corporation ("Cashman") opposes the motions. The motions, set for hearing on April 24, 2002, are before the Court on briefs without oral argument. Having considered the evidence submitted by both sides, the various memoranda, and the applicable law, the Court concludes, for the reasons that follow, that the motions for summary judgment should be GRANTED.
Following an arbitration proceeding between the parties, Cashman filed the instant suit, claiming that Acadian made several misrepresentations as to its capability to construct the barge at the center of this dispute within the contractual deadline, which alleged misrepresentations constitute fraud, vitiating Cashman's consent to the liquidated damages provision of the Vessel Construction Contract. See Complaint, at ¶¶ 9 and 15. In the motions presently before the Court, Sentry and Acadian argue that: (1) Cashman's Complaint should be dismissed because Cashman has failed to plead fraud with particularity, as required by the Federal Rules of Civil Procedure; or, alternatively (2) that Sentry and Acadian are entitled to summary judgment on the grounds that, as a matter of law, Cashman cannot carry its burden to prove that it justifiably relied on any supposed misrepresentation by Acadian or that the alleged fraud caused the damages of which Cashman complains. For the reasons that follow, the Court concludes that Defendants' motions for summary judgment have merit and that Cashman's claims should be dismissed.
The Court has detailed the factual and procedural background of this matter in several previous orders and does not find it necessary to do so again herein. See, e.g., Cashman Equipment Corp. v. Acadian Shipyard. Inc., No. CIV.A. 01-4411, 2001 WL 1387863 (E.D.La., Nov 06, 2001).
Under Louisiana law, consent to a contractual obligation may be vitiated by error, fraud, or duress. See La. Civ. Code art. 1948; Shelton v. Standard/700 Associates, 01-0587 (La. 10/16/01), 798 So.2d 60. Fraud is defined by the Civil Code as "a misrepresentation or a suppression of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other." La. Civ. Code art. 1953. "Error induced by fraud need not concern the cause of the obligation to vitiate consent, but it must concern a circumstance that has substantially influenced that consent." La. Civ. Code art. 1955. However, "[f]raud does not vitiate consent when the party against whom the fraud was directed could have ascertained the truth without difficulty, inconvenience, or special skill." La. Civ. Code art. 1954. Therefore, to prevail on a claim of fraudulent inducement, Cashman must be able to demonstrate that it was reasonable in relying on Acadian's alleged misrepresentations without further inquiry or investigation into Acadian's business before contracting with Acadian to build the barge at issue. See Brown v. Forest Oil Corp., 29 F.3d 966, 969 (5th Cir. 1994) (citing Busby v. Parish Nat'l Bank, 464 So.2d 374, 377 (La.App. 1st Cir. 1985), writ denied, 467 So.2d 1132 (1985)). Sentry and Acadian assert that, as a matter of law, Cashman cannot demonstrate such justifiable reliance.
Article 1954 also provides an exception to this rule for situations "when a relation of confidence has reasonably induced a party to rely on the other's assertions or representations." However, it is clear no such relationship existed here between the parties, as this matter evolves out of the parties' first and only dealing with each other.
Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (citing Fed.R.Civ.Proc. 56(c)). The moving party bears the initial burden of demonstrating to the court that there is an absence of genuine factual issues. Topalian v. Ehrmann, 954 F.2d 1125, 1132 (5th Cir. 1992). Once the movant meets that burden, the non-moving party must produce evidence sufficient to establish that there is a genuine issue of material fact in dispute. Id. Accordingly, a factual controversy exists when both parties have submitted evidence of contradictory facts.Little, 37 F.3d at 1075. On summary judgment, factual controversies are resolved in favor of the non-moving party. Id.
Turning to the facts of the instant matter, in the Complaint, Cashman lists numerous misrepresentations Acadian allegedly made to Cashman during the contractual negotiations. The crux of Cashman's Complaint is that Acadian allegedly made misrepresentations as to its shipyard's size and facilities, the company's physical and financial capability to construct a barge the size for which Cashman contracted by the agreed upon deadline, its past experience in constructing large barges, and the company's financial stability. In response to the allegations in the Complaint, Sentry has submitted, among other documents, the deposition testimony of James M. Cashman, the President and sole shareholder of Plaintiff Cashman Equipment Corporation, to demonstrate there is no genuine issue of material fact with respect to whether Cashman can demonstrate it justifiably relied on Acadian's alleged misrepresentations.
Given the evidence the Court has reviewed thus far, the Court is skeptical that Cashman would be able to demonstrate that Acadian made any such intentional misrepresentations at trial. However, as discussed herein, even assuming Cashman could meet the burden of demonstrating fraud, the Court concludes that, as a matter of law, Cashman was unreasonable in relying on Acadian's alleged misrepresentations when it could easily have discovered the truth of the matters of which it complains.
In his deposition, Mr. Cashman first explained that he is the sole owner of Cashman Equipment Corp., which is primarily in the business of equipment rental for floating barges and cranes, but that he is also involved with barge construction through another company he solely owns in Puerto Rico. He stated that Cashman owns approximately 40 to 50 vessels presently, that he personally has been in this business since 1975, and that he also owned a shipyard at some point during the 1980's. Mr. Cashman further explained that he had been involved in the construction of approximately 18 barges before he contracted with Acadian for the barge presently in dispute.
According to Mr. Cashman, he learned about Acadian through a third party who arranged a meeting where Mr. Cashman, representing Cashman Equipment, met with representatives of Acadian, including Don Underwood, who was the President of Acadian at the time when the contract was entered into by the parties. The meeting took place at Acadian's shipyard. Mr. Cashman stated that he believes that more than one meeting took place before the contract was signed, but is unsure whether two or three meetings took place.
Mr. Cashman went on to aver that at one of the meetings, he knows Don Underwood told him that Acadian had been in the marine industry for 25 years, building vessels and barges and doing repair work at its shipyard. He further recalls Mr. Underwood telling him that the company was owned by a wealthy man in Texas, so that there would be no financial problems and that Acadian did not have a lot of work in the yard at that time and would be able to devote their entire management staff and yard personnel to the project. Mr. Cashman did not recall whether Mr. Underwood ever told him that Acadian had built a barge the size of the one for which Cashman was contracting. Mr. Cashman admitted he went out to look at the shipyard at some point, but does not remember exactly when or what he saw.
Mr. Cashman stated in his deposition that, most important to him, were Acadian's representations concerning financial issues. He said that Mr. Underwood assured him that getting a bond on the project would not be a problem and that he assumed, if the company was bondable, it had adequate financial capabilities to perform the project. When asked if he saw any documents regarding Acadian's finances other than the bond obtained by Acadian for the project, Mr. Cashman responded: "I didn't ask for any. I asked for a bond, and I relied on the bond." Rec. Doc. 78, Exh. A, at 31.
Sentry and Acadian argue that, in light of Mr. Cashman's testimony, there is no genuine issue of material fact as to whether Cashman could have easily ascertained the truth regarding Acadian's size, capability, experience, and financial status. Mr. Cashman admitted he visited the yard. He further stated that he could not recall discussing with Acadian the specific sizes of barges Acadian had actually built in the past, or whether Acadian had a historical record of the time and material requirements or the cost of building a barge the size of the one in dispute. Mr. Cashman additionally admitted that he knew Acadian's business was slow at the time of the negotiations, as Mr. Underwood told him that the shipyard was experiencing a unique circumstance in that it did not have a lot of work at the time, so it would be available to devote its resources to Cashman's project. Finally, and most importantly in the Court's view, is Mr. Cashman's admission that, even though Acadian's financial status was probably his biggest concern, he did not ask for any information regarding Acadian's finances and relied solely on the bond issued in conjunction with the project to make certain assumptions about Acadian's capabilities.
In the Court's view, the facts of this case are reminiscent of those inForsman v. Mace, 111 La. 28, 35 So. 372 (La. 1903). In Forsman, the defendants sold a logging contract and a logging outfit to the plaintiffs, who obligated themselves to carry out the logging contract in place of the defendants. Id. at 29, 35 So. at 373. The plaintiffs subsequently sought to annul the contract on the grounds that their consent to the agreement was fraudulently induced by the defendants' gross exaggeration of the quantity of timber to be hauled, the length of the haul, and the condition of the logging outfit, including the condition and number of oxen to be delivered for use. Id. at 31-32, 35 So. at 373-74. The court refused to annul the contract for the following reasons:
Two of the plaintiffs were experienced timbermen. They were taken to the logging camp, and afforded the fullest kind of opportunity to examine and be informed as to the condition of the oxen, and as to the location and quantity of the timber. By so simple a thing as looking at the map of the parish they could have known of the distance. They went over the land to look at the timber, and if they did not go over all of it they have but themselves to blame.Id. at 32, 35 So. at 374.
Similarly, in the instant case, Sentry has presented evidence that Cashman is a sophisticated and experienced company in the business of barge rental and construction. Mr. Cashman, who has been in this business for approximately 25 years, specifically remembers visiting Acadian's shipyard on at least one occasion, but believes he might have visited twice or maybe three times. However, he stated in his deposition that he did not remember what he saw of the shipyard prior to signing the contract. Furthermore, while in an affidavit, Mr. Cashman complains that he did not have access, prior to signing the contract, to Acadian's records of barges previously constructed, financial records, or personnel records, in his deposition, Mr. Cashman admits he did not ask to see any of those records, but, instead relied solely on the fact Acadian obtained a bond for the project.
Rec. Doc. 41, Exh. A.
Based on this evidence, the Court agrees with Defendants that Cashman could easily have assessed Acadian's facilities and personnel in order to determine whether they were adequate for the project. Mr. Cashman, President of Cashman and an experienced business man in this field, made at least one visit, and probably more than one, to the shipyard. Mr. Cashman could have easily determined Acadian's construction history and capabilities by more carefully viewing the shipyard and/or asking to see relevant records. Mr. Cashman confesses he did not do so, and, instead chose to rely on Mr. Underwood's statements about the shipyard and the fact that Acadian obtained a bond.
The Court concludes that there is no genuine issue of material fact that Cashman could easily have ascertained the truth about any of Acadian's alleged misrepresentations without difficulty, inconvenience, or special skill. La. Civ. Code art. 1954. Accordingly, under Louisiana law, Cashman cannot prevail on its claims of fraudulent inducement regarding the liquidated damages portion of the vessel Construction contract. Therefore,
IT IS ORDERED that Sentry's and Acadian's Motions for Summary Judgment (Rec. Docs. 39 and 59) are hereby GRANTED.
IT IS FURTHER ORDERED that Cashman's claims against both Defendants are hereby DISMISSED with prejudice.