Opinion
Civil No. 3:99-CV-2686-H.
May 12, 2000.
MEMORANDUM OPINION AND ORDER
Before the Court is Defendants Segue Software, Inc. and Steve Butler's Motion to Dismiss, filed December 3, 1999; Plaintiff Hamilton's Response, filed December 20, 1999; Defendants' Reply, filed January 4, 2000; Plaintiff's Summary Judgment Filing, filed April 4, 2000; and Defendants' Further Statement in Support of Summary Judgment, filed April 6, 2000.
The Court, in a March 27, 2000, Order, advised the parties that, pursuant to FED. R. CIV.P.12(b) and 56(c), the Motion to Dismiss would be treated as a Motion for Summary Judgment. Counsel were directed to submit any further summary judgment evidence desired.
After considering the pleadings, briefs and relevant authorities, the Court is of the opinion that summary judgment for Defendants should be, and hereby is, GRANTED.
I. Background
This is a claim for fraudulent inducement and for breach of contract. Plaintiff Hamilton was employed at another firm when he was recruited by Steve Butler, President of Defendant Segue Software, Inc. ("Segue"), to join Segue as a Director of ERP Initiatives. On February 24, 1999, Segue sent Hamilton an employment offer letter, which indicated he was being offered the Director position, an annual salary of $125,000.00 to be paid semi-monthly, and other perquisites such as stock options and a possible merit based annual bonus. The letter stated that a copy of Segue's standard Employment Agreement ("Agreement") was enclosed, and expressly stated that to effect acceptance of the offer, Hamilton had to sign both the offer letter and the Agreement, then return them to Segue by March 1, 1999. According to Hamilton, the letter did not, in fact, contain the Agreement. He signed the offer letter and returned it to Segue prior to March 1, 1999, and assumed the Director position on March 15, 1999.
ERP, the Court believes, stands for Enterprise Resource Planning.
The letter stated "Employment Agreement," whereas the actual document is titled an "Employee Agreement." After a review of the letter and the Agreement itself, the Court finds the discrepancy irrelevant.
Hamilton subsequently signed a copy of the Agreement in July, 1999.
Hamilton traveled to Kansas City 10 days after starting at Segue, to make a presentation to a Segue customer, on a trip apparently in line with Hamilton's expectations as to his new responsibilities. Soon thereafter, however, Hamilton claims he became aware that his responsibilities did not encompass all that he had expected. Segue trained him to demonstrate Segue products to customers, and on July 1, 1999, he was transferred to a new job as Segue's Director of Business Development. The following month Segue terminated Hamilton altogether.
Hamilton claims that he and Butler had discussed Segue's commitment to SAP support in their first meeting, that Butler had committed to a Segue customer that SAP would be supported, and that he (Hamilton) had traveled to Kansas City to present Segue' s strategy to support SAP to the customer. Plaintiff's Response, Exhibit A (Hamilton Affidavit), at pg. 3. At no point in any of the pleadings does either Party define SAP, though the Court believes it stands for Systems, Applications, and Products.
Hamilton claims that Segue, through Butler, fraudulently induced him to leave his former position and join Segue, since, he claims, Butler knew when he recruited Hamilton that (1) Segue was only looking to raid Hamilton's previous firm, and did not intend to develop its own SAP business or pursue ERP initiatives; and (2) Segue had engaged in an alleged accounting fraud, which forms the basis of an ongoing shareholder class action lawsuit in Massachusetts filed subsequently to the events at issue here. Hamilton asserts that had he been advised of the accounting irregularities, he would have placed less value on the position offered by Segue. Hamilton also claims that Segue breached his employment agreement by terminating him prior to the expiration of the year term of employment called for in his employment offer letter. The Court disagrees with Hamilton for the following reasons.
In his Supplemental Summary Judgment pleading, Hamilton submits an affidavit alleging to document the accounting fraud he claims Segue committed. This is inapposite to the issues before the Court, for it is not the existence of any such fraud, but Segue or Butler's failure to inform Hamilton of it, that forms the basis of his fraudulent inducement claim.
II. Summary Judgment Standard
Summary judgment is appropriate where the facts and law as represented in the pleadings, affidavits and other summary judgment evidence show that no reasonable trier of fact could possibly find for the nonmoving party as to any material fact. FED.R.CIV.P. 56; Lujan v. National Wildlife Federation, 497 U.S. 871, 888 (1990); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Innovative Database Systs. v. Morales, 990 F.2d 217 (5th Cir. 1993). "The moving party bears the initial burden of identifying those portions of the pleadings and discovery in the record that it believes demonstrate the absence of a genuine issue of material fact, but is not required to negate elements of the nonmoving party's case." Lynch Properties, Inc. v. Potomac Ins. Co. of Ill., 140 F.3d 622, 625 (5th Cir. 1998) (citing Celotex, 477 U.S. at 322-25). If the movant fails to meet its initial burden, the motion must be denied, regardless of the nonmovant's response. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
If the movant does meet its burden, the nonmovant must go beyond the pleadings and designate specific facts showing that a genuine issue of material fact exists for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Edwards v. Your Credit, Inc., 148 F.3d 427, 431 (5th Cir. 1998). A party opposing summary judgment may not rest on mere conclusory allegations or denials in its pleadings unsupported by specific facts presented in affidavits opposing the motion for summary judgment. FED. R. CIV. P. 56(e); Lujan, 497 U.S. at 888; Hightower v. Texas Hosp. Assn., 65 F.3d 443, 447 (5th Cir. 1995).
In determining whether genuine issues of fact exist, "[f]actual controversies are construed in the light most favorable to the nonmovant, but only if both parties have introduced evidence showing that a controversy exists." Lynch, 140 F.3d at 625; see also Eastman Kodak v. Image Technical Services, 504 U.S. 451 (1992). However, in the absence of any proof, the Court will not assume that the nonmoving party could or would prove the necessary facts. Lynch, 140 F.3d at 625. A party must do more than simply show some "metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. "If the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Friou v. Phillips Petroleum Co., 948 F.2d 972, 974 (5th Cir. 1991).
III. Analysis
A. Fraudulent Inducement
A written contract "vitiates any reliance the [Plaintiff] may have placed in sweeping, off-hand statements made by the other party as a matter of law." San Antonio Garment Finishers, Inc. v. Levi Strauss Co., 18 F. Supp.2d 669, 674 (W.D.Tex. 1998) ( aff'd 174 F.3d 198 (5th Cir. 1999)). However, "Texas law has long imposed a duty to abstain from inducing another to enter into a contract through the use of fraudulent misrepresentations. . . . [I]t is well established that the legal duty not to fraudulently procure a contract is separate and independent from the duties established by the contract itself." Formosa Plastics Corporation USA v. Presidio Engineers and Contractors, Inc., 960 S.W.2d 41, 46 (Tex. 1997) ( reh'g overruled 1998).
Proving fraudulent inducement requires "a material misrepresentation, which was false, and which was either known to be false when made or was asserted without knowledge of its truth, which was intended to be acted upon, which was relied upon, and which caused injury" Id. at 47 (quoting Sears, Roebuck Co. v. Meadows, 877 S.W.2d 281, 282 (Tex. 1994)). Here, Hamilton must show that (1) a misrepresentation was made by Segue or its agent to induce Hamilton to accept the employment offer, (2) Segue or its agent knew or should have known it was false, (3) Hamilton relied on that misrepresentation, and (4) Hamilton suffered injury.
Hamilton essentially asserts two bases of fraudulent inducement by Segue: (1) Butler failed to tell him about the alleged accounting fraud, thereby denying Hamilton the ability to make a fully informed decision about accepting the employment offer, and (2) Butler promised Hamilton a position as Director of ERP Initiatives at Segue for at least one year, knowing they would not, in fact, develop SAP support or maintain ERP initiatives.
(i) Failure To Inform Hamilton of Alleged Accounting Fraud
Hamilton points to no misrepresentation by Butler, or Segue, upon which he relied to his detriment. He presents no summary judgment evidence that anyone assured him that Segue's accounting was in order, that Segue would not make any retroactive changes to its accounting reports, or that Segue had no reason to believe it would become the target of any accounting fraud investigation. Absent any misrepresentation, his claim fails.
An alternative analysis of Hamilton's claim can be made if the Court interprets it to be one for breach of good faith and fair dealing, viz, Segue, or Butler, was under a duty to inform Hamilton about any known or foreseen circumstances that might impact the future of the company or Hamilton's position. However, Hamilton points to no precedent establishing such a duty, and indeed, in Texas no such duty exists.
The Texas Supreme Court has clearly stated that an actionable duty of good faith and fair dealing in contractual relationships exists only where there is a special relationship, e.g., between an insured and his or her insurance carrier. See Great Am. Ins. Co. v. North Austin Mun. Util. Dist. No. 1, 908 S.W.2d 415, 418 (Tex. 1995) (finding that the insurance company's "exclusive control over the evaluation, processing, and denial of claims" made the duty necessary); see also Arnold v. National County Mutual Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). No such special relationship exists in the employment realm. See, e.g., Rios v. Texas Commerce Bancshares, Inc., 930 S.W.2d 809, 816 (Tex.App.-Corpus Christi 1996, writ denied) ("We further note that neither the legislature nor the supreme court has recognized an implied covenant of good faith and fair dealing in employment relationships."). Employers are free, within certain statutory guidelines, to hire or not hire employees as they see fit, and persons seeking employment are free to accept the offered positions, or seek employment elsewhere, without restriction. The Texas Supreme Court has also stated that, absent a specific contractual provision to the contrary, all Texas employment agreements are "at-will." Montgomery County Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998). Any duty to establish an employment contract in good faith, and by fair dealing, would almost certainly negate the elementary concept in at-will employment that either party can terminate the relationship at any time and for no reason at all. Thus, whether Hamilton's employment is term or at-will, Segue was under no duty to contract with him in good faith and through fair dealing.
The Texas Supreme Court recently ruled specifically that no duty of good faith and fair dealing exists in Texas employment relationships. See City of Midland v. O'Bryant, 2000 WL 351205 (Tex.). However, O'Bryant was decided on April 6, 2000, and as of this date has not yet been released. Accordingly, it is not cited as controlling authority. Nonetheless, it offers guidance in examining the issues present here, and is in line with other jurisdictions looking at the same issues. See, e.g., White v. National Steel Corporation, 938 F.2d 474, 490 (4th Cir. 1991) (finding that the imposition of a duty of good faith and fair dealing in employment relationships would result in diminution of a state's at-will doctrine).
In another recently decided case, the Fifth Circuit ruled that an at-will employment relationship is still an employment contract, albeit one that can be terminated at any time. See Byers v. Dallas Morning News, Inc., 2000 WL 358295, * 4 (5th Cir. 2000).
Since Hamilton fails to establish a fact issue on the first element of his fraud claim, and since Butler and Segue were under no duty of good faith and fair dealing, Hamilton's claim that their failure to inform him of any known or foreseen accounting irregularities constituted fraudulent inducement fails as a matter of law.
(ii) Failure to Develop ERP Initiatives or SAP Support
Both sides adduce summary judgment evidence that Hamilton was offered a position as Segue's Director of ERP Initiatives, and summary judgment evidence that Hamilton's initial position with Segue was as their Director of ERP Initiatives. Hamilton states in his affidavit that his initial experience at Segue, and his first trip to Kansas City to meet with a Segue customer, were related to ERP initiatives and SAP support. This would indicate that, at least initially, Segue utilized Hamilton's position as represented during his recruitment. Because the Court determines, in Section III. B., infra, that Hamilton was an at-will employee, Segue was under no obligation to continue his position or responsibilities for any predetermined length of time. Under either assertion discussed above, therefore, the Court finds that Hamilton fails to raise a fact issue on his claim of fraudulent inducement.
B. Breach of Contract
Hamilton claims that Segue, through its offer of employment letter, established an employment contract lasting at least one year, and Segue breached that contract by terminating him after approximately 5 months. As previously stated, in Texas employment contracts are at-will unless the employment contract "directly limited, in a meaningful and special way, the employer's right to terminate the employee without cause." Massey v. Houston Baptist Univ., 902 S.W.2d 81, 83 (Tex.App.-Houston [1st Dist.] 1995, writ denied). To establish that a question of fact exists, Hamilton must adduce summary judgment evidence that the terms of his offer of employment so limited Segue.
As summary judgment evidence Hamilton relies solely on the offer letter itself, which states, in pertinent part, "Your base salary will be at an annual rate of $125,000.00 paid semi-monthly. Upon mutually agreed upon objectives, you will be eligible for an annual 20K MBO." Plaintiff's Response, Exhibit A. According to Hamilton, this language bound Segue to employ him for at least one year, and were that the only consideration the Court would agree. "A hiring based upon an agreement of an annual salary limits in a meaningful and special way the employer's prerogative to discharge the employee during the dictated period of employment." Saucedo v. Rheem Mfg. Co., 974 S.W.2d 117, 125 (Tex.App.-San Antonio 1998, writ denied). See also Rios, 930 S.W.2d at 815, Hussong v. Schwan's Sales Enterprises, 896 S.W.2d 320, 325 (Tex.App.-Houston [1st Dist.] 1995, no writ), and Winogard v. Willis, 789 S.W.2d 307, 310 (Tex.App.-Houston [14th Dist.] 1990, writ denied).
But see Kooken v. The Leather Center, Inc., 2000 WL 381926 (Tex.App.-Dallas 2000, n.w.h.) (agreeing with the dissent in Saucedo that stating an annual salary does not result in an annual employment term). Because Kooken was not designated for publication, under Texas Rule of Appellate Procedure 47.7 it may not be cited as authority.
Hamilton, however, ignores another provision in the employment offer letter that, when considered in conjunction with the language setting his annual salary, results in an at-will relationship. The letter specifically states "To accept this offer, please sign both the enclosed copy of this letter and the Employment Agreement and return both to Human Resources via mail at 2201 Spring Street, Lexington, MA 02173." Plaintiff's Response, Exhibit A (emphasis applied). The offer of employment was conditional upon his signing the Employment Agreement, which clearly states in paragraph 7 that:
I understand that, unless expressly provided otherwise in any other written agreement signed by me an [sic] the Company by the Executive Vice President or CEO, my employment with the Company is "at will" and that my employment may be terminated by the Company at will at any time with or without cause or notice.Defendants' Motion to Dismiss, Attachment A
In Dallas Hotel Co. v. Lackey, 203 S.W.2d 557 (Tex.Civ.App. — Dallas 1947, writ ref'd), the court found that an offer letter stating an annual salary, once accepted, constituted a one-year employment contract. After he had moved to Dallas and started his job, Lackey was presented, and signed, an employment agreement stating that he was an at-will employee. The Lackey court rejected the hotel's contention that the agreement changed Lackey's employment status to at-will. Instead, since the initial offer letter was not only silent on the duration of the term of employment but guaranteed a bonus at the end of his first year, and the subsequent employment agreement was the first time the employment-at-will language had been presented to the employee, the Lackey court said the offer letter controlled.
The facts here are far different from those presented to the Lackey court. Hamilton was not guaranteed any annual bonus, he was merely advised he would be eligible for one "upon mutually agreed upon objectives." Furthermore, whether or not Hamilton signed the Agreement in March or in July makes no difference, for the offer was contingent upon accepting all the terms of employment, including those contained in the Agreement. That was a clearly stated condition in the offer letter. Even if the Agreement was not included in the letter itself, as Hamilton claims, since the Agreement was an integral part of the employment contract it behooved him to obtain a copy prior to accepting the position. Unlike the facts in Saucedo, Rios, Hussong, and Winogard, where there were no other terms included in the offer that might have countered the interpretation that an annual salary provision meant employment for at least one year, here at-will employment was expressly stated in the Agreement as a term of employment. And the Agreement was expressly incorporated in the employment offer.
Nor does the Court find that a salary stated in annual terms created an express provision otherwise, as provided for in the Agreement. Far from being a clear, express provision, such salary language has only resulted in a term contract where there was no other contradictory language. Because the Court finds that Hamilton was an at-will employee, his breach of contract claim fails.
For an early discussion regarding stated salary terms defining, the contractual length of employment where the there are no other terms of duration, see Dallas Hotel Co. v. McCue, 25 S.W.2d 902, 905-06 (Tex.Civ.App.-Dallas 1930, no writ). Here, however, there are such durational terms, viz, paragraph 7 of the Agreement. Another recent unpublished Texas case that is not controlling authority, but does serve to confirm this Court's interpretation of Texas law, is Wegner v. Dell Computer Corp., 1999 WL 645086 (Tex.App.-Austin 1999) (finding a salary stated in annual terms, in combination with other, at-will employment terms, results in at-will employment).
IV. Conclusion
For the reasons set forth, the Court finds no genuine issues of material fact exist pertaining to Plaintiff's fraudulent inducement and breach of contract claims, and Defendants' Motion for Summary Judgment is GRANTED. Plaintiff's claims against Defendants Segue Software, Inc. and Steve Butler are DISMISSED WITH PREJUDICE. Judgment will be entered accordingly.
SO ORDERED.
DATED: May 12, 2000.