Opinion
Civil Action No. SA-04-CA-0303-XR.
November 3, 2005
ORDER
On this date, the Court considered Defendants BCE Inc.'s and BCE Ventures Inc.'s (collectively, "BCE") motion for summary judgment, Plaintiff Stephen Smith's original and amended responses, and BCE's original and supplemental replies. After careful consideration of the pleadings and relevant case law, the Court GRANTS the motion.
I. Factual and Procedural Background
In 1989, Stephen Smith ("Smith") joined Excel Communications Inc. ("Excel") to develop a long-distance telephone marketing system. Based on the success of the marketing system, Excel and Smith entered into a commission agreement in 1989 (the "1989 Agreement"). The 1989 Agreement entitled Smith and his heirs to receive commissions in perpetuity on the long-distance telephone revenue generated by the marketing system. The 1989 Agreement was amended in 1996 and 1997.
The 1996 and 1997 amendments to the 1989 Agreement are not relevant to Smith's claims before this Court.
In November 1998, Excel stockholders, including Smith, exchanged their Excel stock for the stock of Teleglobe, Inc. ("Teleglobe"). Excel became a wholly-owned subsidiary of Teleglobe. At the time of the 1998 stock exchange, Teleglobe's primary business purpose was the construction of the GlobeSystem network, a globally integrated video, internet, data, and voice network. Bell Canada, a subsidiary of BCE Inc., owned 23% of Teleglobe's stock.
In 2000, BCE reached an agreement with Teleglobe to acquire the remaining 77% of Teleglobe stock it did not already own. BCE also agreed to provide Teleglobe with a $100 million loan and $900 million of additional financial support for the construction of the GlobeSystem network. Teleglobe's shareholders, including Smith, approved the acquisition. BCE's acquisition of Teleglobe included Excel. The BCE-Teleglobe transaction closed in November 2000 at a total cost to BCE of $4.8 billion. At the time of the closing, Smith resigned from Excel's and Teleglobe's board of directors and exchanged his Teleglobe stock for BCE stock. BCE's acquisition of Teleglobe and Excel did not impact Smith's receipt of commissions under the 1989 Agreement.
In December 2000, William Anderson, a BCE Inc. officer and president of BCE Ventures Inc., contacted Smith to set-up a meeting regarding an undisclosed subject. The meeting ultimately took place at Smith's Kerrville, Texas ranch in March 2001. Anderson informed Smith of BCE's intention to sell Excel. In order to complete the sale, BCE needed to secure the release of Excel from Smith's perpetual commission payments under the 1989 Agreement.
Selling Excel was a business priority for BCE. Am. Resp., at Ex. 4 (internal BCE document listing Excel as a "definitely sell" asset).
Smith learned VarTec Telecom, Inc. ("VarTec") would be Excel's purchaser in May 2001. VarTec and BCE, however, had been in negotiations regarding Excel's release from the 1989 Agreement by at least early March 2001. VarTec would not assume any liability associated with the commission payments Excel owed Smith. VarTec's reluctance to assume the commission payments necessitated BCE's request for Smith to release Excel from the 1989 Agreement. Smith agreed to release Excel from the 1989 Agreement for a cash payment.
BCE, Excel, Teleglobe, and Smith negotiated the terms of the release between April and August 2001. Excel agreed to pay Smith $22 million over five years in lieu of the perpetual commission payments. Smith conditioned his release of the 1989 Agreement on documentation assuring cash payment and the cash payment being bankable. Smith allegedly sought BCE's guarantee of the $22 million payment out of concern over the large capital expenditures necessary to complete the GlobeSystem network. In response to his concerns, Anderson allegedly told Smith BCE could not, or would not, provide the guarantee. Anderson assured Smith that Teleglobe would guarantee the payments. Smith alleges Anderson soothed his concerns over Teleglobe by telling him that Teleglobe and BCE were essentially the same because BCE was committed to support Teleglobe for as long as it took to have the GlobeSystem up and running. Smith's reliance on Teleglobe was further bolstered by Anderson's alleged comments that BCE was not going to walk away from its investment, would continue to support Teleglobe beyond the $900 million financial support arrangement, was "100% behind Teleglobe," and there was no need to "worry about Teleglobe." Additionally, Jean Monty, BCE's chief executive officer, told analysts during a conference call that BCE was "ready to finance the Teleglobe program . . . didn't come into this business for a one or two year payback . . . [and was] committed to help Teleglobe finance the whole thing." Smith, in reliance on Anderson's alleged representations and BCE's and Teleglobe's public disclosures, agreed to release Excel from the 1989 Agreement and have Teleglobe guarantee the cash payments.
Smith participated in the negotiations with the assistance of his in-house counsel and financial advisors. Mot., at Ex. E (Smith Aff.).
The negotiations culminated in the August 28, 2001 execution of the Third Amendment to the 1989 Agreement ("Third Amendment") and Teleglobe's guarantee of all payments due to Smith under the Third Amendment ("Teleglobe Guaranty"). The Third Amendment provided, in relevant part: (1) Smith would receive a $22 million payment over five years in lieu of his perpetual commission payments; (2) he could assign his right to receive payments to certain third parties; (3) Excel's contractual obligations could be assigned to Teleglobe Holdings Corporation, a subsidiary of Teleglobe; and (4) upon completion of the assignment, Excel would be released from all contractual obligations it owed Smith. At the time the Third Amendment was executed, Smith was aware that Excel intended to assign the payment obligations to Teleglobe Holdings Corporation when the VarTec-Excel acquisition closed.
Under the Third Amendment, Smith was entitled to receive the following payments:
August 31, 2001: $2,000,001; August 31, 2002: $2,000,000; August 31, 2003: $4,000,000; August 31, 2004: $4,000,000; August 31, 2005: $5,000,000; and August 31, 2006: $4,999,999.
It is undisputed that Smith received the August 31, 2001 payment from Excel.
Smith did not have the right to assign his commission payments under the 1989 Agreement, 1996 Amendment, or 1997 Amendment. Within weeks of executing the Third Amendment, Smith pledged the deferred payments under the Third Amendment to CitiBank to secure a business loan.
Throughout the parties' negotiations, the telecommunications industry began to show a marked weakening. In response, Teleglobe publicly announced a reduction in its three-year budget during an April 25, 2001 conference call. On August 29, 2001, one day after the Third Amendment was executed, Teleglobe publicly disclosed a "major downsizing of the GlobeSystem [network], a huge reduction in its workforce, a gross failure to meet its business plans, and a downgrading of its public credit rating." Am. Resp., at ¶ 1. The September 11, 2001 terrorist attacks further depressed the telecommunications industry, and the national economy as a whole. Despite the weakening economy and telecommunications market, BCE provided an additional $650 million in long-term funding for Teleglobe between September 2001 and April 2002. Mot., at Ex. P. In November 2001, BCE's board of directors approved a 2002 budget authorizing up to $850 million in funding for Teleglobe. Mot., at Ex. Q.
The telecommunications industry continued its downward spiral in early 2002, forcing many of Teleglobe's competitors to seek bankruptcy protection. On January 29, 2002, Moody's Investors Service downgraded Teleglobe's debt rating to the lowest investment grade level and questioned whether BCE could continue to financially support Teleglobe:
BCE is very actively working to improve the financial performance of [Teleglobe], but Moody's is concerned that a failure to do so might cause BCE to reevaluate its commitment to support Teleglobe in the future. Moody's does recognize that BCE's current strategy to support Teleglobe has not changed. It is unclear how much additional funding Teleglobe will require until it is self-financing; this factor is dependent upon a volatile global economic environment.
Mot., at Ex. U.
On April 5, 2002, VarTec completed its acquisition of Excel. Consistent with Smith's understanding and the Third Amendment, Excel assigned its interest in the Third Amendment to Teleglobe Holdings Corporation. On the same day, Moody's Investors Service downgraded Teleglobe to non-investment grade status over concern that the "[telecommunications] sector continues to be weak, and that BCE may reconsider its willingness to invest additional monies in [Teleglobe]." Mot., at Ex. R. On April 24, 2002, BCE publicly announced it would no longer provide additional long-term funding to support Teleglobe:
BCE Inc. announced today that it will cease further long-term funding to Teleglobe Inc. This decision is based on a number of factors, including: Teleglobe's revised business plan and outlook with associated funding requirements; a pragmatic assessment of Teleglobe's prospects; and, a comprehensive analysis of the state of the industry. BCE will provide only short-term periodic funding to Teleglobe, on terms and conditions satisfactory to BCE, up to a maximum aggregate amount of between US $100 million and US $125 million so that Teleglobe can provide continuing customer service and fund other operations-related needs while it reviews its options for the future, including possible business combinations and restructuring.
Mot., at Ex. V. BCE's withdrawal of long-term funding forced Teleglobe to file for bankruptcy in May 2002. Smith argues Teleglobe's bankruptcy was the culmination of BCE's long-term fraudulent scheme that induced him to execute the Third Amendment and substitute Teleglobe as the entity obligated to pay him millions under the 1989 Agreement.
II. Smith's "Live" Claims
Because Smith's original and amended responses expend a substantial number of pages addressing claims not properly before this Court, a brief recitation of the procedural history of Smith's case is necessary to establish the live claims pending before the Court. Smith filed suit against BCE Inc., BCE Ventures Inc., and Excel in Texas state court alleging causes of action for fraud and negligent misrepresentation. BCE removed, alleging that Excel had been fraudulently joined to defeat diversity jurisdiction. This Court denied Smith's motion to remand, finding that there was no possibility of recovery against Excel, and dismissed Excel from the case. See Orders dated September 14, 2004 (denying remand) November 3, 2004 (dismissing Excel). Smith's First Amended Complaint asserts fraud and negligent misrepresentation causes of action against BCE Inc. and BCE Ventures Inc. In May 2005, five months after the Court-ordered deadline for amending pleadings expired and two weeks before BCE's deadline for filing a dispositive motion, Smith sought leave to file a Second Amended Complaint. Smith's Second Amended Complaint included allegations of written misrepresentations. By order dated June 10, 2005, this Court denied Smith leave to file his Second Amended Complaint. Smith's First Amended Complaint is the "live" pleading pending before this Court. Smith's written misrepresentation claims are not properly before the Court and cannot preclude summary judgment on his "live" oral misrepresentation claims. See Fisher v. Metropolitan Life Ins. Co., 895 F.2d 1073, 1078 n. 3 (5th Cir. 1990) (claims raised in plaintiff's response to motion for summary judgment, but not in his live pleading, could not defeat summary judgment because they were not properly before the district or appellate court). BCE seeks summary judgment on the oral fraud and negligent misrepresentation claims set forth in Smith's First Amended Complaint. BCE Mot., at n. 1.
III. Summary Judgment Standard
The summary judgment movant must show by affidavit or other evidence that there is no genuine issue of material fact and that he is due judgment as a matter of law. FED. R. CIV. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The court must determine whether the evidence in favor of the nonmoving party would not permit a reasonable jury to return a verdict in its favor. Lavespere v. Niagra Mach. Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). "[I]f the crucial issue is one for which the nonmoving party will bear the burden of proof at trial, [the movant may] merely point out that the evidentiary documents in the record contain insufficient proof concerning an essential element of the nonmoving party's claim or defense." Id. (citing Celotex, 477 U.S. at 325).
While the reviewing court must make all inferences in favor of the non-moving party, Union Pacific Resources Group Inc. v. Rhône Poulenc, 247 F.3d 574, 583-84 (5th Cir. 2001), "[g]uesswork and speculation simply cannot serve as a basis for sending a case to a jury," Brown v. CSC Logic, Inc., 82 F.3d 651, 658 (5th Cir. 1996). Fluorine On Call, Ltd. v. Fluorogas Ltd., 380 F.3d 849, 864 (5th Cir. 2004). Similarly, "unsubstantiated assertions are not competent summary judgment evidence." Id. (citing Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir. 1994)).
IV. Analysis
A. Fraud by Misrepresentation.
Under Texas law, Smith's fraud by misrepresentation cause of action requires proof that: (1) BCE made a material representation; (2) it was false when made; (3) BCE knew the material representation was false or made it recklessly without any knowledge of its truth; (4) BCE made the false representation with the intent that it should be acted upon by Smith; (5) Smith justifiably relied on the representation; and (6) suffered injury as a result. See Flourine On Call, 380 F.3d at 858. "To show fraud based on a promise of future performance, [Smith] must also show that the person making the promise had no intention of performing at the time he made the promise." Id. (emphasis in original). "Failure to perform, standing alone, is no evidence of the promisor's intent not to perform when the promise was made." Spoljaric v. Pervical Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986); see also Clardy Mfg. Co. v. Marine Midland Bus. Loans Inc., 88 F.3d 347, 360 (5th Cir. 1996).
Smith claims, without citing to any authority for support, that "[t]here is no requirement that a representation be false when made; rather, the requirement is that the representation be false when it is acted upon by the person to whom it was made." Am. Resp., at ¶ 22. Even if the Court adopted Smith's position, his claim would still fail because there is no evidence BCE's alleged representations were false when made or when Smith executed the Third Amendment on August 28, 2001.
Smith alleges "BCE fraudulently induced [him] to substitute Teleglobe for Excel as the party obligated to pay him millions of dollars under his 1989 [A]greement with Excel." Am. Resp., at ¶ 1. Smith alleges BCE made the following oral misrepresentations:
• Anderson, sometime during the negotiations of the Third Amendment and Teleglobe Guaranty, told Smith BCE was "100% behind" and "solidly behind" Teleglobe. First Am. Compl., at ¶ 16; Am. Resp., at ¶ 26; BCE Mot., at 10.
• BCE CEO, Jean Monty, stated in an April 2001 public analyst call:
BCE remained "committed to our strategy with Teleglobe;"
"There is no question that we are ready to finance the Teleglobe program;"
"We will put our financial resources behind the Teleglobe program;"
"This is a long-term play and we didn't get into this business or into this game for a one or two-year payback;" and
"We are committed to help Teleglobe finance the whole thing. So there should be no quivering about that, there's no misunderstanding I hope between all of us, we'll get it done. . . ."
Am. Resp., at ¶ 26 Ex. 35; First Am. Compl., at ¶¶ 12, 13, 16.
Smith deliberately cast BCE's representations as false statements of existing fact, not promises of future performance. The fallacy of Smith's characterization lies in his own statement of BCE's conduct: "Notwithstanding that BCE's commitment to Teleglobe's banking relationship was fixed at $900 million, BCE went much further and unequivocally represented to [Smith] that it was committed to fund the construction of the GlobeSystem to completion." Am. Resp., at ¶ 26. BCE asserts, and the Court agrees, the alleged representations are promises to commit, in the future, more funding to the GlobeSystem network in excess of the $900 million financing structure. Reply, at 9-10. In Bay Colony, Ltd. v. Trendmaker, Inc., the Fifth Circuit treated nearly identical representations as promises of future performance, not statements of existing fact. 121 F.3d 998, 1006 (5th Cir. 1997). Accordingly, to defeat summary judgment "[Smith] had to present evidence that [BCE] made representations with the intent to deceive and with no intention of performing as represented." Formosa Plastics Corp. v. Presidio Eng'rs Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998). BCE argues summary judgment is proper because the alleged representations were not false at the time made, the evidence shows BCE had the intention to, and did, fund Teleglobe in excess of the $900 million financial support agreement, and BCE's funding of Teleglobe after the execution of the Third Amendment precludes a finding of fraudulent intent as a matter of law.
Smith's Amended Response states: "Smith does not claim that he was defrauded by false promises so that there is no need to respond to BCE's MSJ on that point. BCE's argument is solely a tactical one to provide it with a platform to assert that BCE spent large sums of money after Smith was defrauded, therefore Smith cannot be defrauded." Am. Resp., at ¶ 41.
Similar to BCE's alleged representations, Trendmaker represented it was committed to fully develop a master-planned community, would be there from start to finish, and would see the project from "cradle to grave." Bay Colony, 121 F.3d at 1001.
Smith presents scant evidence to support his misrepresentation claim. He claims internal BCE presentations, reports, and memoranda demonstrate "that by August 28, 2001, BCE's commitment to fund the construction of the GlobeSystem to completion had weakened to the point that it was unreliable. . . ." Am. Resp, at ¶ 26. Smith's argument is derailed by pure speculation and innuendo, i.e. BCE's evaluation of alternative business plans prior to Smith's execution of the Third Amendment and Teleglobe Guaranty in conjunction with BCE's eventual decision in April 2002 to stop financing Teleglobe must mean BCE's alleged representations to Smith were fraudulent. The evidence, even when read in a light most favorable to Smith, fails to support his position.
Smith spends less than two pages arguing his misrepresentation claim. As previously discussed, the vast majority of Smith's original and amended response address written misrepresentation claims that were not raised in his First Amended Complaint and are not before the Court.
First, Smith points to two McKinsey Company presentations, dated April 2, 2001 and June 21, 2001, as evidence of BCE's wavering commitment to fund Teleglobe. A fair reading of these documents, however, shows that despite weakening market conditions and increased risk, BCE was committed to developing a workable business plan for Teleglobe:
Since October, market conditions have worsened, Teleglobe's operating plans have not been met, and most critical, both the risk-spreading partnerships and edge-oriented acquisitions have proven impossible to consummate. . . . Consequently, a variety of new strategic options have been developed, several of which warrant serious consideration by Teleglobe's and BCE's management.
Because of the risks embedded in the organic plan, a new strategy for Teleglobe is being proposed that builds on equity partnerships. As such, we are proposing to turn Teleglobe into a voice and data/IP co-op whereby many players will have the opportunity to capitalize on a common set of assets in order to either conquer new markets, or simply reduce their costs and build their data capabilities.
Am. Resp., at Exs. 26 42.
Second, Smith claims a BCE internal presentation, dated July 5, 2001, which proposes three alternative business plans for Teleglobe, including total divestiture, demonstrates BCE's reluctance to financially support Teleglobe. Am. Resp., at Ex. 43. The presentation, however, specifically recommended a continued scaled-back operation of Teleglobe, not total divestiture. Am. Resp., at Ex. 43 (total divestiture would defeat "BCE's strategic objective, of having an international presence"). The presentation is no evidence that BCE's alleged misrepresentations were false when made.
Third, Smith claims BCE's internal documents reflect Teleglobe would exhaust BCE's $900 million financial support by September 2001 and encounter a $500 million funding gap in the fourth quarter of 2001. Am. Resp., at ¶ 26 Exs. 30, 31, 32, 33, 44, 45. Smith argues Teleglobe's deficient cash flow was negatively impacting BCE's liquidity and forcing BCE to "pursue alternatives to achieving [GlobeSystem] network and growth objectives with less BCE funding." Am. Resp., at ¶ 26 Exs. 30, 31, 32, 33, 44, 45. Although BCE's corporate treasurer, Michael Boychuk, questioned "how will Teleglobe raise the additional financing required in 2001" offset the $500 million cash shortfall, BCE was working with Teleglobe to develop "capital expenditure plans, funding requirements for the rest of 2001 and 2002, and financing plans." Am. Resp., at Exs. 30 45 (both dated July 6, 2001). In fact, BCE provided $650 million in financial support between September 2001 and April 2002. The $650 million pushed BCE's funding of Teleglobe beyond the original $900 million financing arrangement. These documents are not evidence that BCE's representations were false when made.
Smith's final piece of evidence, an August 23, 2001 internal BCE presentation, demonstrates the inherent flaw in his argument. Smith argues that " just five days before Smith signed the third amendment, a memo reflects internal BCE consideration of massive changes to Teleglobe's business plan." Am. Resp., at ¶ 26 (emphasis in original). Though the August 23 presentation indicates a change in Teleglobe's business plan, it also reflects BCE's commitment to weather the collapse of the telecommunications industry and turn Teleglobe into a viable business entity:
1. The collapse of the telecom sector has created the fall of most Datacom companies, with the following very important changes in the environment:
• Flight to quality. Teleglobe, although without huge Brand, is viewed as a clear survivor, mainly because of the financial backing of its parent.
. . .
3. Teleglobe should turn to an offensive plan of action and test three parallel opportunities that have real potential to re-launch the company:
• Build an international Managed Network Services powerhouse by merging part or all of [Teleglobe], Nexxia and Connexim. This option opens real options for partnering with a number of US players that can complement with product, customer access, and synergies, all this at now much more reasonable prices.
• Fueling both [Teleglobe's] and Emergis' growth by targeting EDI and Data operator and splitting their revenues between network (TGO) and application (Emergis) elements. ATE combination is not a good idea at this time.
• Aggressively renew derisking activities with Voice, Data, and SI players.
Am. Resp., at Ex. 46. Contrary to Smith's characterization, the August 23 presentation supports BCE's argument that it was actively pursuing and financially supporting Teleglobe's growth.
None of the evidence Smith relies upon creates a genuine issue of material fact regarding the falsity of BCE's representations when made or when acted upon by Smith. Contrary to Smith's description, the summary judgment evidence as a whole supports BCE's position that it was committed to the long-term financing of Teleglobe's GlobeSystem network. BCE is entitled to summary judgment on Smith's fraud by misrepresentation claim.
Additionally, BCE argues Smith's fraud by misrepresentation claim is equally defective because the $650 million investment in Teleglobe after Smith executed the Third Amendment precludes a finding that BCE misled Smith as to its commitment to fund Teleglobe. BCE relies on the Fifth Circuit's decision in Bay Colony, Ltd. v. Trendmaker, Inc., 121 F.3d 998 (5th Cir. 1997), as support. In Bay Colony, a real estate purchaser, Bay Colony, sued a real estate developer, Trendmaker, for fraud by non-disclosure and violations of the Texas Deceptive Trade Practices Act ("DTPA") in connection with a failed real estate project. Id. at 1002. Bay Colony's causes of action were based upon Trendmaker's alleged representations that it "was committed to the project," "going to fully develop the master-planned community," "would be there from start to finish," and oversee the project from "cradle to grave." Id. at 1001. Bay Colony claimed Trendmaker never disclosed that it did not intend to put its own money into the project and conditioned its commitment on a certain level of market stability. Id. at 1006. Trendmaker argued its failure to fully develop the project was caused by a depressed economy. Id. at 1006. After the jury rendered a verdict in favor of Bay Colony, the district court entered a judgment as a matter of law for Trendmaker because the jury's verdict was based on speculation and conjecture. Id. at 1003. On appeal, the Fifth Circuit found Trendmaker's $37 million investment after completing negotiations with Bay Colony negated any deceitful or fraudulent intent. Id. at 1006.
The Fifth Circuit's treatment of fraud by non-disclosure/omission causes of action will be discussed infra in Section IV., B.
Even assuming the jury could have inferred that [Trendmaker] should have put even more money into the project, the evidence would still not support a DTPA laundry list violation. The mere failure to perform a promise does not constitute a misrepresentation actionable under the DTPA unless it can be shown that at the time the promise was made, the promisor had no intentions of fulfilling the promise. The $37 million investment over three years forecloses a finding that [Trendmaker] misled Bay Colony as to their commitment to the project during negotiations.Id. at 1006 (citations omitted).
Though Bay Colony addressed a DTPA cause of action, the Fifth Circuit's rationale is applicable to Smith's misrepresentation claim because the standard for misrepresentation by false promises is the same for fraud and DTPA causes of action, i.e. the plaintiff must prove that at the time the promise was made, the defendant had no intention of fulfilling the promise. Compare Bay Colony, 121 F.3d at 1006 with Flourine On Call, 380 F.3d at 858. Similar to the defendant in Bay Colony, BCE argues the decision to pull financial support from Teleglobe was made only after the September 11, 2001 terrorist attacks further weakened an already depressed telecommunications industry and Moody Investors Service downgraded Teleglobe to non-investment status. Reply, at 2. BCE also presented uncontroverted evidence that subsequent to the execution of the Third Amendment, it invested $650 million in Teleglobe. Mot., at Ex. P. Consistent with Bay Colony, BCE's $650 million investment after negotiation and execution of the Third Amendment forecloses a finding that BCE had no intention of performing its promise to financially support Teleglobe beyond the original $900 million. See Bay Colony, 121 F.3d at 1006; see also Spoljaric, 708 S.W.2d at 434 ("While a party's intent is determined at the time the party made the representation, it may be inferred from the party's subsequent acts after the representation is made.").
B. Fraud by Omission.
As an initial matter, the Court must address whether BCE sought summary judgment on Smith's fraud by omission cause of action. Smith argues BCE's motion for summary judgment failed to address his omission claim, and therefore, is nothing more than a motion for partial summary judgment. Am. Resp., at ¶ 9. The Court does not agree. A district court may "grant summary judgment on the basis of any facts shown by competent evidence in the record." United States v. Houston Pipeline Co., 37 F.3d 224, 227 (5th Cir. 1994) (citation omitted). A summary judgment ruling may be based on arguments presented for the first time in a reply brief, so long as the non-movant has adequate opportunity to respond. Vais Arms, Inc. v. Vais, 383 F.3d 287, 292 (5th Cir. 2004) (citing Southwestern Bell Tel. Co. v. City of El Paso, 346 F.3d 541, 545 (5th Cir. 2003)). BCE's reply brief asserts Smith's fraud by omission claim lacks evidentiary support. Reply, at 11. Subsequent to BCE's reply, the Court granted Smith's motion to extend the responsive deadline and allowed him to file an amended response. Smith's Amended Response presented an adequate opportunity to address BCE's fraud by omission arguments. Because the issue was fully briefed, Smith's fraud by omission claim is properly before the Court for summary determination. See Vais Arms, 383 F.3d at 292.
Smith claims BCE "fail[ed] to disclose that [it] was considering, or had already decided, to decline to extend its financial support past the then existing levels or to withdrawal financial support in the future." Am. Comp., at ¶ 22. "[F]raud by [omission] requires proof of all the elements of fraud by affirmative misrepresentation, including fraudulent intent, with the exception that the misrepresentation element can be proven by [omission] of a material fact in light of a duty to disclose." United Teacher Assocs. Ins. Co. v. Union Labor Life Ins. Co., 414 F.3d 558, 566 (5th Cir. 2005) (citations omitted). As a general rule, "silence may be equivalent to a false representation only when the particular circumstances impose a duty on the party to speak and he deliberately remains silent." Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001) (citing SmithKline Beecham Corp. v. Doe, 903 S.W.2d 347, 353 (Tex. 1995)). Whether a duty to disclose information exists is a question of law. Id.
Defining the circumstances that impose a duty to disclose has eluded Texas courts of appeal, United States district courts, and the Fifth Circuit. See United Teacher Assocs. Ins. Co. v. Union Labor Life Ins. Co., 311 F. Supp. 2d 587, 596 (W.D. Tex. 2004), affirmed in part, vacated and remanded in part, 414 F.3d 558 (5th Cir. 2005) (discussing the various, divergent decisions regarding the existence of a duty to disclose under Texas law). Smith requests this Court adopt a broad, general duty to disclose as recognized by the Fifth Circuit in Union Pacific Resources Group, Inc. v. Rhône-Poulenc, Inc., 247 F.3d 574, 584-86 (5th Cir. 2001), and consistent with section 551 of the Restatement (Second) of Torts. Specifically, Smith asserts a duty to disclose arises when one party knows that the other party relies on a concealed fact and lacked an equal opportunity to discover the concealed fact. See id. at 586. BCE argues that Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001), and Coburn Supply Co. v. Kohler Co., 342 F.3d 372, 377-78 (5th Cir. 2003), limit the duty to disclose to confidential or fiduciary relationships.
Section 551 of the Restatement (Second) of Torts provides, in relevant part:
(2) One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated,
(a) matters known to him that the other is entitled to know because of a fiduciary or other similar relation of trust and confidence between them; and
(b) matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading; and
(c) subsequently acquired information that he knows will make untrue or misleading a previous representation that when made was true or believed to be so; and
(d) the falsity of a representation not made with the expectation that it would be acted upon, if he subsequently learns that the other is about to act in reliance upon it in a transaction with him; and
(e) facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts.
RESTATEMENT (SECOND) OF TORTS, § 551(2) (1977).
The Texas Supreme Court has only explicitly recognized a duty to disclose in the context of a confidential or fiduciary relationship. Insurance Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998). In Bradford, the Texas Supreme Court outlined Texas law with regard to the duty to disclose in arm's-length business transactions. 48 S.W.3d at 755. The court noted that Texas courts of appeals have recognized a duty to disclose outside of confidential or fiduciary relationships, such as "when a party makes a partial disclosure that, although true, conveys a false impression." Id. The court also acknowledged section 551's broad, general duty to disclose in a commercial setting. Id. The court emphasized, however, that Texas has "never adopted section 551." Id. at 756 (citing SmithKline Beecham, 903 S.W.2d at 352). As recently noted by the Fifth Circuit, Bradford has not provided a road map for limiting the duty to disclose to confidential or fiduciary relationships:
A reasonable jurist might well conclude, certainly after Bradford, that a duty to disclose exists in Texas only in the context of a confidential or fiduciary relationship. This court has so held in Coburn, the only Fifth Circuit case that discusses the relevant portion of Bradford. However, apart from Coburn, it would be fair to say that courts after Bradford (including this court) have not gotten the message, but have instead continued to find that a duty to disclose can exist in Texas absent a confidential or fiduciary relationship.United Teacher Assoc. Ins. v. Union Labor Life Ins. Co., 414 F.3d 558, 566 (5th Cir. 2005) (citations omitted). The Fifth Circuit ultimately decided United Teacher on other grounds, avoiding the duty to disclose issue. Id.
"Fortunately, we need not decide whether a duty to disclose exists in Texas absent a confidential or fiduciary relationship because, even if such a duty did exist, United Teacher's fraud claim would fail." United Teacher, 414 F.3d at 566 568 n. 6 ("[B]ecause United Teacher's fraud claim fails regardless of whether a duty to disclose exists in Texas absent a confidential or fiduciary relationship, we need not address whether to certify to the Texas Supreme Court the question of when a duty to disclose exists in Texas.").
Although the Texas Supreme Court has not adopted section 551, this Court does not believe that Morris and Bradford can be read to limit the duty to disclose to only confidential or fiduciary relationships. Morris is uninformative because it limits the discussion of the duty to disclose to confidential or fiduciary relationship without analyzing other circumstances, if any, in which such a duty could arise. See Morris, 981 S.W.2d at 674 ("Generally, no duty of disclosure arises without evidence of a confidential or fiduciary relationship."). Likewise, the reversal of the jury's fraud determination in Bradford is not even based on the lack a confidential or fiduciary relationship. See 48 S.W.2d at 756 ("[E]ven if we were to adopt [section 551's] general duty, there is no evidence to support the jury's liability finding under the submitted jury charge."). Neither Morris nor Bradford foreclosed the existence of a duty to disclose outside the context a confidential or fiduciary relationship.
The Court, however, is not persuaded that Union Pacific Resources accurately defines the parameters of a duty to disclose under Texas law. Union Pacific Resources was decided three weeks before the Texas Supreme Court's decision in Bradford. Union Pacific, 247 F.3d at 574 (April 5, 2001); Bradford, 48 S.W.3d at 749 (April 26, 2001). The circuit court, without having the benefit of the Bradford decision, assumed Texas law followed Section 551. Union Pacific, 247 F.3d at 584 n. 24 (" See Restatement (Second) of Torts § 551(2)(b) (1976), with which Texas law is in accord."). Because Bradford did not adopt section 551, Union Pacific Resources is not an authoritative statement of Texas law. See Bradford, 48 S.W.3d at 756.
Smith's reliance on Rimade, Ltd. v. Hubbard Enters., Inc., 388 F.3d 138 (5th Cir. 2004), and Lewis v. Bank of Am., N.A., 347 F.3d 587 (5th Cir. 2003), is equally misplaced. The Rimade and Lewis decisions fail to cite Bradford and are based on the misstatement of Texas law in Union Pacific Resources.
Despite the muddled state of duty to disclose law in Texas and the Fifth Circuit, the Court finds, under the facts of this case, BCE had no duty to disclose. Here, Smith, a sophisticated businessman with an extensive background in the telecommunications industry, entered into an arm's length business transaction dependent on the long-term stability of the volatile telecommunications industry. There is no evidence Smith requested, and was denied, access to any information regarding Teleglobe or BCE's commitment to financially support Teleglobe. The breadth of the duty to disclose Smith seeks would essentially replace any due diligence responsibilities in arm's length business transactions. See Bradford, 48 S.W.3d at 756 ("The defendant may reasonably expect the plaintiff to make his own investigation, draw his own conclusions and protect himself. . . ." (quoting RESTATEMENT (SECOND) OF TORTS § 551 cmt. k (1977)). This is not a case of unequal bargaining power or knowledge.
Even if the Court were to assume a duty to disclose existed, Smith's fraud by omission claim remains deficient. Smith's omission claim requires proof of fraudulent intent. See United Teacher, 414 F.3d at 566. This Court has already held BCE's injection of $650 million into Teleglobe after execution of the Third Amendment conclusively negates any finding that BCE had the intent to mislead Smith during negotiations. See Bay Colony, 121 F.3d at 1006. This finding forecloses the fraudulent intent element essential to Smith's omission claim. Accordingly, BCE is entitled to summary judgment on Smith's fraud by omission claim.
C. Negligent Misrepresentation.
Under Texas law, to prevail on a negligent misrepresentation claim Smith must establish that (1) a representation was made by BCE in the course of its business, or in a transaction in which BCE had a pecuniary interest; (2) BCE supplied false information for the guidance of others in their business; (3) BCE did not exercise reasonable care or competence in obtaining or communicating the information; and (4) Smith suffered pecuniary loss by justifiably relying on the representation. See Clardy Mfg. Co. v. Marine Midland Bus. Loans Inc., 88 F.3d 347, 357 (5th Cir. 1996). Summary judgment is proper as to Smith's negligent misrepresentation claim for two reasons: (1) as discussed supra, Smith failed to present any evidence that BCE's alleged representations were false, or provided "false information," and (2) Texas law does not recognize a claim of negligent misrepresentation based on the failure to perform a promise. See id. ("A claim for negligent misrepresentation under Texas law contemplates that the `false information' provided by the defendant is a misstatement of existing fact." (emphasis in original)); Sergeant Oil Gas Co. v. Nat'l Maint. Repair, Inc., 861 F.Supp. 1351, 1360 (S.D. Tex 1994) ("[T]he `false information' must entail a misstatement of existing fact.").
V. Conclusion
Plaintiff Stephen Smith sued BCE for fraud by misrepresentation, fraud by omission, and negligent misrepresentation. Smith claims BCE fraudulently induced him to execute the Third Amendment and substitute Teleglobe for Excel as the party obligated to pay him millions of dollars under the 1989 Agreement with Excel by misrepresenting its commitment to fund Teleglobe's GlobeSystem network in the future. The Court finds Smith has offered no evidence regarding the falsity of BCE's alleged representations when made, and that BCE did not intend to perform its promise to fund Teleglobe at the time the promise was made. The summary judgment evidence, even when read in a light most favorable to Smith, demonstrates BCE's commitment to develop Teleglobe into a viable business entity. BCE's $650 million investment in Teleglobe subsequent to the negotiations and execution of the Third Amendment conclusively negates any finding that BCE acted with the intent to mislead Smith as to their commitment to continue to fund Teleglobe beyond the initial $900 million financial support arrangement. In addition, Smith's fraud by omission claim fails because BCE did not have a duty to disclose information to Smith. Because BCE's alleged misrepresentations were promises of future performances, not statements of existing fact, Smith's negligent misrepresentation claim fails as a matter of law. Therefore, there is no genuine issue of material fact as to an element of Smith's fraud by misrepresentation, fraud by omission, and negligent misrepresentation claims, and BCE is entitled to summary judgment. BCE's motion for summary judgment is GRANTED (docket no. 53).
Defendants BCE Inc.'s and BCE Venture Inc.'s Motion to Exclude the Testimony of Ruben M. Escobedo is DISMISSED as moot (docket no. 70).
The Clerk of the Court is directed to enter judgment in favor of Defendants BCE Inc. and BCE Ventures Inc.