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dismissing declaratory judgment action that sought resolution of substantive claims that were already basis of lawsuit
Summary of this case from Vandelay Hosp. Grp. v. Cincinnati Ins. Co.Opinion
Civil Action No. 3:00-CV-0906-D
February 19, 2002
MEMORANDUM OPNION AND ORDER
A company that provided staff leasing services as assignee of various contracts seeks summary judgment establishing that it is entitled to recover on its counterclaim for unpaid services and that the contract, tort, and statutory claims of its former customers lack merit as a matter of law. For the reasons that follow, the court grants the motion in part and denies it in part.
I
This litigation arises from a business relationship entered into in 1990 by plaintiffs-counterdefendants ("plaintiffs") Landscape Design and Construction, Inc. ("LDC"), Maintain Services, Inc. ("Maintain"), and Sunbelt Trees, Inc. ("Sunbelt"), which are affiliated companies, and third-party-defendant Consolidated Employment Benefits Corporation ("CEBCOR"). CEBCOR provided staff leasing services (i.e., supplied employees whom it compensated) to LDC, Maintain, and Sunbelt under separate, but virtually identical, Client Service Agreements ("Agreements"). Plaintiffs compensated CEBCOR based on "Actual Cost," a defined term in the Agreements.
The court recounts the evidence favorably to plaintiffs as the summary judgment nonmovants and draws all reasonable inferences in their favor. See Clift v. Clift, 210 F.3d 268, 270 (5th Cir. 2000).
In 1998 CEBCOR sought and obtained contract amendments ("Amendments") from LDC, Maintain, and Sunbelt for the stated purpose of enabling it to assign the Agreements to defendant-counterplaintiff-third-party plaintiff Transport Leasing/Contract, Inc. ("TLC"). CEBCOR advised plaintiffs' agent, Jerry Davis ("Davis"), that it was merging with and/or being acquired by TLC and requested consent to assign the Agreements. Based on representations by CEBOOR and ThC officers or employees that agreeing to the Amendments would ensure that TLC was obligated to perform under the terms of the Agreements as written, particularly concerning the price charged for its services, that the deal they had with CEBCOR would not change, and that plaintiffs would continue to receive good service, Davis executed the documents. The Amendments provided, in pertinent part, as follows:
Lessor and Client hereby amend any and all provisions of the Agreement so that from now on the provisions of the Agreement conform with the following provisions, and any provisions of the Agreement conflicting with the following provisions are deleted:
1. From this date forward, both Lessor and Client have the right to assign their respective interests in the Agreement without any consent from the other party;
2. Any rate, payments or fees paid by Client to Lessor (or its successor or assigns) under the terms of the Agreement shall be those rates, payments or fees actually being paid presently by Client to Lessor and shall not be determined by any "Client Service Application," "Client Data Sheet," or exhibits attached to the Agreement, or by any Addendum which forms part of the Agreement. Any such rates, payments or fees may be adjusted in the future by mutual consent which Client and Lessor shall memorialize in writing signed by both parties;
3. All other provisions of the Agreement shall remain the same and in full force and effect between Lessor and Client.
D. App. 166-68.
Plaintiffs allege that after TLC took over CEBCOR's business, it began marking up the "Actual Cost" and concealing the fact that it was charging a premium. They sue TLC, as successor in interest to American Executive Leasing, Inc. ("AEL"), to recover on theories of breach of contract, breach of special relationship/confidential relationship, misrepresentations and/or negligent misrepresentations, declaratory judgment, civil conspiracy, fraud, fraud in the inducement, violation of the Texas Deceptive Trade Practices-Consumer Protection Act ("DTPA"), Tex. Bus. Com. Code Ann. §§ 17.41-17.826 (Vernon 1987 Pamp. Supp. 2002), and negligence.
This cause of action was dismissed with prejudice on July 24, 2000 (Maloney, J.) and on January 2, 2001 (Fitzwater, J.), and need not be addressed.
TLC counterclaims to recover inter alia for unpaid services based on the terms of the Agreements as modified by the Amendments. It alleges that CEBCOR assigned the Agreements, as amended, to Transport Labor Leasing/Contract, Inc., the parent entity of TLC, which assigned them to AEL. TLC contends that AEL provided services to LDC, Maintain, Maintain Incorporated ("MI"), and Sunbelt until AEL merged with TLC. The Agreements became assets of TLC, which then provided services to plaintiffs. TLC asserts that all services were charged in accordance with the Agreements, as amended. It counterclaims against LDC, Maintain, Sunbelt, MI, and Carl P. McCord alleging that it is entitled to unpaid service fees. TLC also sues for a declaratory judgment and to recover on theories of breach of contract, unjust enrichment/quantum meruit, rescission and restitution based on mutual mistake, breach of fiduciary duty, violations of the Texas Uniform Fraudulent Transfers Act, Tex. Bus. Com. Code Ann. §§ 24.001-24.012 (Vernon 1987 Pamp. Supp. 2002), fraud, and civil conspiracy.
TLC also counterclaimed against Davis, but he was dismissed by agreed order filed November 17, 2000.
TLC also brings a third-party action against third-party-defendants CEBCOR and CEBCOR Service Corp. seeking a declaratory judgment and alleging claims for contribution, breach of contract, unjust enrichment, and negligent misrepresentation.
TLC moves for summary judgment dismissing all of plaintiffs' causes of action and for partial summary judgment establishing that counterdefendants LDC, Maintain, and Sunbelt are liable for breach of contract.
TLC filed on November 13, 2001 objections to plaintiffs' summary judgment evidence. Because the court has not considered in deciding this motion any evidence to which TLC has objected, the objections are overruled as moot.
II
TLC first moves for partial summary judgment establishing that LDC, Maintain, and Sunbelt are liable on its counterclaim for breach of contract. It alleges that each owes unpaid fees for staff leasing services provided from approximately April 1, 1998 to March 29, 2000 under the 1990 Agreements and 1998 Amendments.Because TLC will have the burden of proof at trial on its breach of contract counterclaim, to obtain summary judgment it "must establish `beyond peradventure all of the essential elements of the claim[.]'" Bank One, Tex., N.A. v. Prudential Ins. Co. of Am., 878 F. Supp. 943, 962 (N.D. Tex. 1995) (Fitzwater, J.) (quoting Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986)). For reasons the court explains below, although TLC is entitled to summary judgment dismissing almost all of plaintiffs' counterclaims, it cannot establish as a matter of law that it is entitled to recover under the Agreements for breach of contract. The fact that plaintiffs' affirmative claims against TLC are in large part being dismissed does not translate into automatic partial summary judgment for TLC where plaintiffs still have defenses available to them. Cf. John v. State of La. (Rd of Trustees for State Colls. and Univs.), 757 F.2d 698, 705 (5th Cir. 1985) ("cross-motions for summary judgment do not constitute an agreement that if one is rejected the other is warranted" (quoting Newark Morning Ledger Co. v. United States, 539 F.2d 929, 932 (3d Cir. 1976)). Moreover, for reasons the court explains below, plaintiffs' breach of contract claim in large part survives TLC's summary judgment motion. TLC's motion for partial summary judgment is therefore denied.
III
TLC moves for summary judgment dismissing plaintiffs' breach of contract claim. Plaintiffs allege that TLC breached the Agreements by overcharging them for its services, failing to defend and/or indemnify them in connection with a United States Department of Labor ("DOL") Wage and Hour Division investigation concerning alleged violations of the Fair Labor Standards Act, and failing in several other respects to adhere to the Agreements. TLC argues that it is entitled to summary judgment dismissing the overcharge component of this cause of action because the charges it made for its services comply with the Agreements as amended in 1998, and that plaintiffs cannot show the Amendments are invalid or that TLC failed to comply with them. TLC contends the indemnification component of this claim must be dismissed because the investigation arose from plaintiffs', not TLC's, conduct. TLC argues that plaintiffs cannot adduce evidence to prove that it breached the Agreements in any of the other aspects alleged.
A
TLC seeks summary judgment as to plaintiffs' overcharge claim on the ground that it billed them in conformity with the Amendments to the Agreements. In opposition to TLC's motion for partial summary judgment, plaintiffs maintain that the Amendments are unenforceable (1) based on the doctrine of res judicata because a state court, in related litigation, Landscape Design and Construction, Inc., et al. v. Consolidated Employment Benefits Corp., Cause No. 00-02375-M (298th Judicial District Court, Dallas County, Texas) ("the CEBCOR Litigation"), determined that the Amendments were procured by fraud and are void ab initio; (2) due to lack of consideration; (3) because they were procured by fraud; and (4) because they were the product of mutual mistake. In response to TLC's motion for summary judgment, plaintiffs contend (5) that TLC is collaterally estopped from relying on the Amendments due to the state court's judgment in the CEBCOR Litigation.
1
TLC argues on three grounds that plaintiffs cannot rely on the doctrine of res judicata to defeat its right to recover under the Amendments to the Agreements. The court need only consider, however, TLC's contention that the court in the CEBCOR Litigation was not a court of competent jurisdiction because it lacked personal jurisdiction over CEBCOR.
TLC also maintains that its counterclaim against plaintiffs for breach of contract is for services that it rendered on or after January 1, 2001, almost two years after CEBCOR sold and assigned the Agreements to TLC, so CEBCOR could not have asserted this counterclaim because it did not provide the services on which the counterclaim is based, and that TLC is not in privity with CEBCOR because it acquired its rights in the Agreements before plaintiffs filed the CEBCOR Litigation. The court does not reach these arguments.
Whether res judicata is treated as an affirmative defense to TLC's breach of contract counterclaim or as a component of one or more of plaintiffs' own claims, plaintiffs will have the burden of proving it at trial. See, e.g., In re J.G.W., 54 S.W.3d 826, 832 (Tex.App. 2001, no pet.) ("A party asserting the defense of res judicata has the burden to present sufficient evidence to establish that it should apply[.]").
Res judicata bars all claims that were or could have been advanced in support of a cause of action on the occasion of its former adjudication. Nilsen v. City of Moss Point, Miss., 701 F.2d 556, 560 (5th Cir. 1983) (en banc). In determining whether the present suit is barred by the state court judgment in the CEBCOR Litigation, the court applies state law. Sid Richardson Carbon Gasoline Co. v. Interenergy Resources, Ltd, 99 F.3d 746, 756 (5th Cir. 1996) ("We determine the preclusive effect of a state court judgment according to state law."). Under Texas law, a party must show inter alia a prior final judgment on the merits rendered by a court of competent jurisdiction. See Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996) (citing Texas Water Rights Comm'n v. Crow Iron Works, 582 S.W.2d 768, 771-72 (Tex. 1979)). TLC has not cited, and the court has not located, a Texas state court case that interprets the Texas-law requirement of "court of competent jurisdiction" to mean a court that has in personam jurisdiction over the party in question. The Fifth Circuit, in discussing Texas res judicata law, appears to assume, however, that a court of competent jurisdiction means one that has in personam as well as subject matter jurisdiction. See Jones v. Sheehan, Young Culp, P.C., 82 F.3d 1334, 1338 n. 3 (5th Cir. 1996) (applying Texas res judicata law and discussing plaintiff's challenge to "county court's jurisdiction over his person" without suggesting that absence of in personam jurisdiction was immaterial). The court therefore holds that res judicata does not apply if the state court lacked jurisdiction in the CEBCOR Litigation over CEBCOR, the party that plaintiffs contend is in privity with TLC.
This would not be the rule if plaintiffs were relying on a federal judgment. In that instance, the court would apply federal law. See, e.g., Avondale Shipyards, Inc. v. Insured Lloyd's, 786 F.2d 1265, 1269 n. 4 (5th Cir. 1986) ("We apply federal law to the question of the res judicata or collateral estoppel effect of prior federal court proceedings, regardless of the basis of federal jurisdiction in either the prior or the present action.").
TLC has introduced evidence that calls into question whether the state court had in personam jurisdiction over CEBCOR. According to the record, plaintiffs effected service on CEBCOR by serving the Texas Secretary of State through the Texas Long-Arm Statute. "Texas requires strict compliance with the rules relating to service of citation." Malone v. Williams Fried Chicken, 1999 WL 288687, at *2 (N.D. Tex. May 4, 1999) (Fitzwater, J.) (citing P H Transp., Inc. v. Robinson, 930 S.W.2d 857, 858-59 (Tex.App. 1996, writ denied)). Where a default judgment is obtained based on substituted service, "jurisdiction must affirmatively appear on the face of the record." S. Mill Mushrooms Sales v. Weenick, 851 S.W.2d 346, 350 (Tex.App. 1993, writ denied) (citing McKanna v. Edgar, 388 S.W.2d 927, 930 (Tex. 1965)). The record shows that plaintiffs failed in their pleadings in the CEBCOR Litigation to allege that CEBCOR did not maintain a regular place of business in Texas. Under Texas law, this defect "indicate[s] a lack of jurisdiction . . . that is apparent on the face of the record" and supports reversing a default judgment. IdCEBCOR was the party against whom plaintiffs obtained the default judgment that held the Amendments were "void ab initio" because they "were procured by the fraud of [CEBCOR] and failed for consideration." Ps. App. 124. It is CEBCOR with which TLC is alleged to be in privity. Accordingly, plaintiffs have not established that TLC's reliance on the Amendments is barred by res judicata.
On November 19, 2001 TLC filed a motion for leave to file summary judgment reply appendix. The court has granted the motion by separate order filed today because TLC seeks to introduce inter alia evidence in opposition to plaintiffs' res judicata argument that it could not reasonably have anticipated the need to submit when it moved for summary judgment. The court has not considered, however, any evidence in the reply appendix that TLC should have introduced as part of its appendix filed October 2, 2001.
Because of the procedural posture of this case and the substantive manner in which res judicata has been used, this holding does not result in dismissal of plaintiffs' breach of contract cause of action or a final ruling that res judicata is unavailable (offensively or defensively) to plaintiffs at trial. TLC moved for summary judgment on plaintiffs' breach of contract claim. Res judicata did not enter the picture until plaintiffs' response brief, when they raised it to preclude TLC from relying on the Amendments. Plaintiffs will have the burden of proof at trial concerning res judicata, but TLC is the summary judgment movant. Had TLC in its opening brief pointed the court to the absence of evidence to support res judicata, plaintiffs would have been required to adduce evidence that would permit a reasonable trier of fact to find the factual components of res judicata in their favor. But because plaintiffs did not present their res judicata argument until their response brief, TLC's arguments opposing res judicata, raised for the first time in its reply brief, did not shift the burden to plaintiffs. Therefore, although plaintiffs cannot at this time conclusively defeat TLC's reliance on the Amendments based on res judicata, they may still be able to do so at trial.
"The question whether res judicata applies in a given instance is a mixed question of law and fact." Ex parte Myers, ___ S.W.3d ___ 2002 WL 88896, at *1 (Tex.App. Jan, 24, 2002, no pet. h.).
Although the court has granted TLC leave to file a reply appendix because it could not reasonably have anticipated the need to submit res judicata evidence, see supra note 7, to grant TLC summary judgment based on arguments raised for the first time in its reply brief would be improper, because the court would be doing so on a ground not raised in TLC's motion. See John Deere Co. v. American Nat'l Bank, Stafford, 809 F.2d 1190, 1192 (5th Cir. 1987) (holding that it is error for court to grant summary judgment on ground not properly raised).
The court's reasoning has even greater force when applied to TLC's motion for summary judgment concerning its breach of contract counterclaim. In that context, it must prove beyond peradventure that res judicata is unavailable, which it cannot do based on arguments raised for the first time in a reply brief.
2
Plaintiffs argue that TLC cannot obtain dismissal of their breach of contract claim based on the text of the Amendments because they are unenforceable due to lack of consideration. Lack of consideration is a matter of avoidance on which plaintiffs will have the burden of proof at trial. See Roark v. Stallworth Oil Gas, Inc., 813 S.W.2d 492, 495 (Tex. 1991). They have not established that TLC's reliance on the Amendments is barred on this basis.First, under Texas law, "[a] written contract presumes that there was consideration given for its execution." Gooch v. American Sling Co., 902 S.W.2d 181, 185 (Tex.App. 1995, no writ) (citing Wright v. Robert St. John Motor Co., 122 Tex. 278, 282, 58 S.W.2d 67, 69 (1933); Hargis v. Radio Corp. of Am., Elec. Components, 539 S.W.2d 230, 232 (Tex.Civ.App. 1976, no writ)). Second, "[c]onsideration is a present exchange bargained for in return for a promise. It consists of either a benefit to the promisor or a detriment to the promisee. The detriment must induce the making of the promise, and the promise must induce the incurring of the detriment." Roark, 813 S.W.2d at 496 (Tex. 1991) (citations omitted). A reasonable trier of fact could find that plaintiffs and CEBCOR exchanged benefits and detriments. As TLC points out in its reply brief, unlike the business arrangement established by the Agreements, under the Amendments plaintiffs took the risk that CEBCOR's actual costs would decrease from January 29, 1998 levels but that they would still be required to pay service fees calculated at those levels; CEBCOR undertook the risk that its costs would increase, but that it could only contractually charge at January 29, 1998 levels. See D. Rep. Br. at 9. Third, a reasonable trier of fact could find that, had plaintiffs not agreed to the Amendments, CEBCOR would have exercised its right to terminate the Agreements. See id. Under Texas law, "[i]t is, of course, well settled that the forbearance in the exercise of a legal right is sufficient consideration for a contract." Kennard v. McCray, 648 S.W.2d 743, 745-46 (Tex.App. 1983, writ ref'd n.r.e.) (collecting cases).
Although plaintiffs have not met their burden at the summary judgment stage, due to the procedural posture in which this issue has been addressed, see supra § III(A)(1), this conclusion does not mean that TLC has conclusively established that there was consideration. Therefore, TLC cannot demonstrate that it is entitled to partial summary judgment holding that plaintiffs are liable on its breach of contract counterclaim or that plaintiffs' breach of contract claim must be dismissed.
3
Plaintiffs contend TLC cannot obtain dismissal of their contract claim based on the Amendments because they were procured by fraud. For reasons the court explains infra at § IV, the court holds that plaintiffs' fraud-related claims are barred by the parol evidence rule. Accordingly, the court grants partial summary judgment holding that plaintiffs cannot recover at trial, and cannot defeat TLC's claims, based on fraud in the inducement and the related fraud claims addressed below.
4
Plaintiffs next rely on mutual mistake to defeat TLC's reliance on the Amendments. Mutual mistake requires inter alia "a mistake of fact" that is "held mutually by the parties." de Monet v. PERA, 877 S.W.2d 352, 357 (Tex.App. 1994, no writ). Plaintiffs have not cited evidence that would permit a reasonable trier of fact to find that both sides of the Amendments transaction were mistaken about a fact. See Ps. Br. at 15-16. Plaintiffs merely maintain that it is "arguable" that they and CEBCOR were mutually mistaken. Id. at 15. And the example they cite is not one of mutual mistake. As an example of a mutual mistake, plaintiffs cite TLC's belief that, under the Amendments, it could keep charging the same rates even if its actual costs were lower, contrasted with plaintiffs' belief that the arrangements would remain the same unless altered by mutual agreement. Id. at 15-16. But as TLC points out, this reflects that TLC and plaintiffs had different understandings of the terms of the Amendments, not that they were mutually mistaken. See D. Rep. Br. at 12-13. The court therefore holds that plaintiffs may not rely on this ground to defeat TLC's reliance on the Amendments.
5
Plaintiffs maintain last that TLC is collaterally estopped from relying on the Amendments by reason of the state court's judgment in the CEBCOR Litigation. Like the defense of res judicata, collateral estoppel requires that the issue in question have been decided by a court of competent jurisdiction. See Gonzalez v. State Bar of Tex., 904 S.W.2d 823, 830-31 (Tex.App. 1995, writ denied) (suggesting that court of competent jurisdiction is required for collateral estoppel); Winters v. Diamond Shamrock Chem. Co., 149 F.3d 387, 391 (5th Cir. 1998) (referring in case involving offensive collateral estoppel to "relitigation of an issue previously decided by a court of competent jurisdiction"). For the reasons stated supra at § III(A)(1). plaintiffs cannot meet this burden and therefore cannot avoid TLC's reliance on the Amendments on this basis. This ruling does not, for the reasons explained above, result in summary judgment in favor of TLC.
6
The court's foregoing analysis does not fit neatly into one analytical construct because TLC has filed a motion in which it seeks to establish a right to recover on its breach of contract counterclaim and to dismiss plaintiffs' breach of contract claim by relying on the Amendments, and plaintiffs attempt on several grounds to preclude TLC from enforcing the Amendments. The court has thus necessarily proceeded back and forth between the claims, addressing each side's arguments as it goes. In sum, although plaintiffs have not shown that TLC's reliance on the Amendments is barred on one or more grounds, TLC is not entitled to summary judgment dismissing plaintiffs' breach of contract action for alleged overcharges because it relies on the Amendments, and plaintiffs may still be able to demonstrate at trial that the Amendments are barred based on res judicata, lack of consideration, mutual mistake, or collateral estoppel (except for a fraud-type defense). If plaintiff prove one or more of these defenses at trial, it could excuse them from the binding effect of Amendments. Except for plaintiffs' fraud-related defenses, TLC has failed to establish that plaintiffs are precluded from relying on their defenses or that they cannot recover for breach of the Agreements based on overcharges. TLC may be able to do so at trial, however, if plaintiffs fail to carry their burden of proving that the Amendments are not binding.
The court uses the term "defenses" to denote that plaintiffs have the burden of proof concerning the matters at issue. It recognizes that plaintiffs assert some of these arguments offensively.
B
TLC next moves for summary judgment dismissing the component of plaintiffs' breach of contract claim in which they assert that TLC failed to defend and/or indemnify them in connection with the DOL wage and hour investigation. TLC posits that under the Agreements, it was obligated to indemnify plaintiffs only for investigations that resulted from its own breaches of the contracts. It asserts that the evidence shows that the investigation related to an area of plaintiffs' responsibility — compiling, verifying, and providing TLC accurate time records — and that plaintiffs' failure to keep and report accurate wage and hour information to TLC prompted the DOL investigation. Because plaintiffs have adduced evidence that creates a genuine issue of material fact regarding whose conduct triggered the investigation and whether it was the result of a responsibility assigned to plaintiffs under the Agreements, the court denies TLC's motion in this respect.
C
Plaintiffs have not specifically responded to the part of TLC's motion that addresses other grounds for asserting breach of contract. Although the court cannot enter a partial "default" summary judgment, see Tutton v. Garland Indep. Sch. Dist., 733 F. Supp. 1113, 1117 (N.D. Tex. 1990) (Fitzwater, J.), plaintiffs' failure to respond means that they have not carried their burden as the nonmovants. When the summary judgment movant will not have the burden at trial concerning a cause of action, it can meet its summary judgment obligation by pointing the court to the absence of evidence to support the claim. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the party does so, the nonmovants must then go beyond their pleadings and designate specific facts showing that there is a genuine issue for trial. See id. at 324; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam). Moreover, the summary judgment nonmovants must produce evidence to establish the existence of each element for which they bear the burden of proof See Dunn v. State Farm Fire Cas. Co., 927 F.2d 869, 872 (5th Cir. 1991). Summary judgment is mandatory where the nonmoving parties fail to meet this burden. Little, 37 F.3d at 1076.
TLC pointed the court to the absence of evidence to support plaintiffs' so-called residual breach of contract claims. See D. Br. at 15-16. Plaintiffs did not respond to this part of the motion. Accordingly, plaintiffs' breach of contract claim is dismissed to the extent it is based on components other than alleged overcharges and failure to indemnify them in connection with the DOL investigation.
IV
TLC asserts that it is entitled to summary judgment dismissing plaintiffs' claims for misrepresentation, negligent misrepresentation, fraud, and fraud in the inducement because inter alia any evidence on which they rely to prove these causes of action is barred by the parol evidence rule. Although the court agrees with this premise, and therefore need not address TLC's other arguments to decide the merits of plaintiffs' fraud-related claims, for reasons the court will explain infra at § VIII, it must decide the merits of some of TLC's other arguments because they affect plaintiffs' claim of conspiracy to defraud. Therefore, in § IV(A) the court will address the parol evidence rule. In § IV(B) it will consider TLC's contentions that plaintiffs have no competent proof (even if not barred by the parol evidence rule) of the misrepresentations on which they rely, that plaintiffs base their claims on statements of opinion rather than of fact, and that TLC cannot be held vicariously liable for representations made by employees or officers of CEBCOR.
A
"The parol evidence rule is not a rule of evidence but, rather, is a rule of substantive contract law. The rule functions as an evidentiary rule in that extrinsic evidence which seeks to vary, add to, or contradict the terms of a written agreement is inadmissible. As a substantive rule, the parol evidence rule denies efficacy to prior or contemporaneous expressions relating to the same subject matter as that encompassed in the final written contract between the parties." Boy Scouts of Am. v. Responsive Terminal Sys., Inc., 790 S.W.2d 738, 744 (Tex.App. 1990, writ denied) (citations omitted). "It is well settled that a written instrument may not be varied by evidence of an oral agreement that contravenes its terms." Aminian v. Woodward-Clyde Consultants, Inc., 2001 WL 493 174, at *3 (Tex.App. May 10, 2001, no pet.) (unpublished opinion) (citing Litton v. Hanley, 823 S.W.2d 428, 430 (Tex.App. 1992, no writ)).
Plaintiffs argue that they are not attempting to vary a provision of the Amendments and, because they are relying on fraud in the inducement, their evidence of fraud is admissible. It is "well established that extrinsic evidence is admissible to show fraud[ulent] inducement to enter into a written contract." Tracy v. Annie's Attic, Inc., 840 S.W.2d 527, 532 (Tex.App. 1992, writ denied) (collecting cases). TLC maintains that the exception to the parol evidence rule that applies to a claim for fraud in the inducement is inapposite because plaintiffs do not allege such a cause of action.
Under Texas law, "a contract may be induced by fraud when a party promises to perform the contract while knowing that it has no intention of carrying out that promise." DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 105 (Tex. 1999). This is not, however, the factual scenario on which plaintiffs rely to establish fraud in the inducement. According to plaintiffs' theory of the case and the record evidence, TLC performed according to the terms of the Amendments. The fees plaintiffs paid for staff leasing services no longer fluctuated, as had been the case with CEBCOR under the Agreements. Instead, TLC's charges were effectively fixed at the level in place on January 29, 1998, the date plaintiffs and CEBCOR executed the Amendments. Therefore, this is not a case in which the defendant (with no intent to do so) promised to perform according to a contract, thereby inducing the plaintiff to enter into the agreement, and then (as it had intended all along) failed to perform the contract as written. As plaintiffs have pleaded these claims, and viewed favorably to them as the nonmovants, this is a case in which TLC misrepresented what would be included in the Amendments and/or what the terms of the Amendments meant.
Plaintiffs include language at two points in their brief that suggests they maintain that TLC overcharged them even under the provisions of the Amendments. They assert that "[e]ven if the Amendments are valid, the Amendments did not allow TLC to alter the pricing arrangements between CEBCOR and Plaintiffs, and TLC still breached the Agreements." Ps. Br. at 18. Elsewhere they allege that "[e]ven if the Amendments were valid, TLC represented that they did not change the calculation of rates, and by adding surcharges and changing the method of calculating fees, TLC breached the Agreements by overcharging Plaintiffs." Id. at 20. The unsworn allegations of a summary judgment opposition brief, however, are not evidence and are insufficient to withstand summary judgment. See Larry v. White, 929 F.2d 206, 211 n. 12 (5th Cir. 1991) ("Unsworn pleadings, memoranda, or the like are not, of course, competent summary judgment evidence."). Because such assertions, if intended, are not supported by summary judgment evidence, the court may proceed on the basis of plaintiffs' clear assertion that TLC charged them under the terms of Amendments that were procured by misrepresentations concerning their intent and effect.
Moreover, allegations concerning this type of overcharge, even if supported by evidence, do not appear consistent with plaintiffs' theory of fraud in the inducement. Plaintiffs do not contend that TLC fraudulently induced them to enter into the transactions by accurately representing the content of the Amendments but then overcharging them under the Amendments' terms.
Plaintiffs' fraud-related claims are thus of a type for which parol evidence is not admissible. "Misrepresentations as to the impact of the express terms of a written contract . . . do not make the requisite showing of fraud in the inducement necessary to allow introduction of parol evidence." Aminian, 2001 WL 493174, at *3. A plaintiff "who voluntarily signed a contract whose terms he knew, should not be allowed to claim fraud based on an earlier oral statement inconsistent with a specific contract provision." Id. at *5 (citing Fisher Controls Int'l, Inc. v. Gibbons, 911 S.W.2d 135, 141-42 (Tex.App. 1995, writ denied)). Fisher Controls is illustrative. There the purchaser of a business sued the seller contending it had fraudulently induced him to purchase the business by misrepresenting that the express three-year term of the relevant written sales representative agreement was a mere formality. Fisher Controls, 911 S.W.2d at 140. At the end of the term, the defendant declined to renew the contract, and the plaintiff, who had wanted a five-year term, sued inter alia for fraud. The court of appeals held that he could not recover because the evidence on which he relied would be barred by the parol evidence rule. Id. at 141-42. The court reasoned that "[n]egotiations preceding a written contract should not displace the terms of the written contract. When experienced executives represented by counsel voluntarily sign a contract whose terms they know, they should not be allowed to claim fraud in any earlier oral statement inconsistent with a specific contract provision. Otherwise, contracts would be nothing more than a scrap of paper." Id. (citations and internal quotations omitted). The court pointed out that the written contract the plaintiff had signed charged him "as a matter of law, with knowledge of the true facts that he contends were misrepresented." Id. at 142. "Here, Mr. Gibbons seeks to avoid the contract he signed, which clearly sets a three-year term that terminates `automatically,' expressly denies any obligation to renew, allows non-renewal `for any reason whatsoever,' and gives up his right to seek damages for termination or non-renewal of the contract." Id.
This principle has also been applied to a Texas-law claim for negligent misrepresentation. See Rosas v. U.S. Small Business Admin., 964 F.2d 351, 355-56 (5th Cir. 1992) (per curiam) (note case).
Like the plaintiff in Fisher Controls, in the present case plaintiffs seek to vary through their fraud-related claims the express terms of the Amendments, particularly ¶ 2. This they cannot do. Accordingly, the court dismisses plaintiffs' claims for misrepresentation, negligent misrepresentation, fraud, and fraud in the inducement based on the parol evidence rule.
Plaintiffs cannot rely on the possibility that they may be able to establish at trial the res judicata or collateral estoppel effect of the judgment in the CEBCOR Litigation to prevail on their fraud claim. The scope of the state court ruling would be adequate to void the Amendments based on fraud but not to establish affirmatively the right to recover for fraud. The court is thus able to decide definitively that plaintiffs' fraud-related claims must be dismissed at the summary judgment stage.
B
The court now turns to TLC's assertions that plaintiffs cannot prove their fraud-related claims that they base the claims on statements of opinion rather than of fact, and that TLC cannot be held vicariously liable.Plaintiffs could survive summary judgment on the question of TLC's vicarious liability if their evidence were admissible. According to TLC, plaintiffs' misrepresentation allegations stem in part from statements that Dianne Keeton ("Keeton"), a CEBCOR employee, made to Davis. TLC posits that plaintiffs only rely on Keeton's own statements about her authority, that there is no cited evidence that a TLC employee or officer made any misrepresentations regarding the Amendments or their effect, and that there is no proof that Keeton held herself out as an agent of TLC or, if she did, that TLC was aware of and condoned such representations. It therefore argues that plaintiffs cannot show that TLC is liable for statements made by an officer or employee of CEBCOR because there is no evidence of an agency relationship via actual or apparent authority.
Plaintiffs have presented evidence that raises a genuine issue of material fact whether a TLC officer made misrepresentations directly and whether CEBCOR personnel had apparent authority to make false representations. For example, plaintiffs have introduced deposition testimony from Davis that he had a conversation with TLC's President, who assured him that "everything was going to be the same," and "[t]hat the rates and everything stayed the same[.]" Ps. App. 35. When TLC made its initial presentation of the Amendments to Davis, the TLC team included Keeton (a CEBCOR customer service representative) and two TLC employees, including Timothy Coughlin. TLC's Chief Financial Officer. Ps. App. 68. A reasonable trier of fact could find from TLC's conduct that Keeton had authority to speak for it as an agent, before, during, and after the presentation meeting. The foregoing evidence, if admissible, would also permit a reasonable trier of fact to find that TLC misrepresented the intent and effect of the Amendments.
TLC objects on various grounds to Davis' affidavit, see supra note 4, but not to his deposition testimony.
Nor has TLC established that plaintiffs rely only on statements of opinion rather than of fact. Although the Texas Supreme Court in Fina Supply, Inc. v. Abilene Nat'l Bank, 726 S.W.2d 537 (Tex. 1987), held that "[a] representation as to the legal effect of a document is regarded as a statement of opinion rather than of fact and will not ordinarily support an action for fraud[,]" id., it also concluded that "misrepresentations involving a point of law will be considered misrepresentations of fact if they were intended and understood as such." Id. Were plaintiffs' evidence admissible, there would be a genuine issue of fact whether TLC intended its representations to be misrepresentations of fact that plaintiffs understood as such.
V
TLC moves for summary judgment dismissing plaintiffs' DTPA cause of action on the ground that the DPTA does not apply to transactions of the type at issue here and, even if it does, plaintiff cannot adduce evidence that TLC violated the DTPA.
Section 17.49(g) of the DTPA provides:
Nothing in this subchapter shall apply to a cause of action arising from a transaction, a project, or a set of transactions relating to the same project, involving total consideration by the consumer of more than $500,000, other than a cause of action involving a consumer's residence.
Plaintiffs seek to avoid this proviso on the ground that "TLC itself states that the amount of total indebtedness is less than $300,000." Ps. Br. at 31. They have not cited evidence, however, that raises a genuine issue of material fact whether the "transaction," "project," or "set of transactions relating to the same project" involved "total consideration" of more than $500,000. The court therefore grants summary judgment dismissing plaintiffs' DTPA claim.
VI
TLC contends that plaintiffs' negligence claim must be dismissed because inter alia it is merely a recast breach of contract claim. It reasons that plaintiffs sue under this theory only for damages based on TLC's alleged breach of its contractual obligation to charge the correct amounts under the Agreements. Texas law provides that in such circumstances, the plaintiff's right of action sounds in contract rather than in tort. See, e.g., Southwestern Bell Tel. Co. v. Delanney, 809 S.W.2d 493, 494-95 (Tex. 1991).
TLC points the court to an absence of evidence that plaintiffs have claimed anything more than contract damages based on the terms of the Agreements. See D. Br. at 28-29. As noted above, when this occurs, the summary judgment nonmovants must go beyond their pleadings. Plaintiffs have responded to TLC's argument at a general level, but have addressed only their fraud and misrepresentation claims. See Ps. Br. at 32-33. They do not explain how they are seeking under a negligence theory any recovery other than the contract measure of damages. Accordingly, the court dismisses plaintiffs' negligence claim.
VII
TLC seeks dismissal of plaintiffs' declaratory judgment action on the ground that it is brought under Texas law and the Texas Declaratory Judgment Act is a procedural rule that does not apply in federal court. The court agrees. See Utica Lloyd's of Tex. v. Mitchell, 138 F.3d 208, 210 (5th Cir. 1998).
Even if the Texas Act did apply, however, the court, in its discretion, would dismiss the action. Federal courts have broad discretion to grant or refuse declaratory judgment. Torch, Inc. v. LeBlanc, 947 F.2d 193, 194 (5th Cir. 1991). "Since its inception, the Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). This section is "an authorization, not a command." Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962). It gives federal courts the competence to declare rights, but does not impose a duty to do so. Id. Here, both sides have asserted substantive claims that have placed at issue the "construction of the terms of the written instrument(s) made the basis of this suit," which is plaintiffs' avowed purpose for seeking a declaratory judgment. See Ps. Am. Compl. ¶ 32. There is no need for a separate declaratory judgment action, and it is therefore dismissed.
VIII
Finally, TLC seeks summary judgment dismissing plaintiffs' conspiracy cause of action. It argues that the conspiracy claim cannot stand alone without an underlying tort and, because TLC is entitled to dismissal of plaintiffs' other causes of action, the conspiracy must likewise be dismissed. Alternatively, it argues that plaintiffs cannot establish each of the elements of conspiracy because they cannot show that TLC or CEBCOR engaged in an unlawful, overt act. Plaintiffs respond by contending that TLC and CEBCOR conspired to commit fraud. The court denies TLC's motion in this respect. Although the court has granted summary judgment dismissing plaintiffs' other causes of action, TLC has not established (and the court in its own research has not located support for the premise) that when an underlying fraud claim is precluded by operation of the parol evidence rule, a claim for conspiracy to defraud is also barred.
An actionable civil conspiracy is the combination by two or more persons to accomplish an unlawful purpose, or to accomplish a lawful purpose by unlawful means. Riquelme Valdes v. Leisure Resource Group, Inc., 810 F.2d 1345, 1350 (5th Cir. 1987) (citing Massey v. Armco Steel Co., 652 S.W.2d 932 (Tex. 1983)). A "conspiracy to defraud" on the part of two or more persons requires a common purpose, supported by a concerted action to defraud, intent by each conspirator to accomplish that purpose, and an understanding by each conspirator that the others have that goal. Schlumberger Well Surveying Corp. v. Nortex Oiland Gas Corp., 435 S.W.2d 854, 857 (Tex. 1968). To show civil conspiracy, a plaintiff must prove that (1) there was a combination of two or more persons or entities, (2) there was an oral or written agreement among these persons or entities for a common purpose, (3) each of these persons or entities had knowledge of that purpose, (4) each of these persons or entities intended to participate therein, and (5) that one or more overt acts were done in furtherance of the conspiracy. Id. at 1351 (citing Schlumberger, 435 S.W.2d 854). As the court has noted above, the parol evidence rule is a substantive rule that functions as an evidentiary rule. It does not mean that fraud did not occur, it means that fraud cannot be proved.
TLC has not demonstrated that a plaintiff's inability to prove fraud due to the operation of the parol evidence rule in any way precludes proof of the elements of a conspiracy to defraud. TLC cites Texas Oil Co. v. Tenneco Inc., 917 S.W.2d 826 (Tex.App. 1994) (on rehearing), rev'd on other grounds, 958 S.W.2d 178 (Tex. 1997), for the premise that plaintiffs cannot recover for civil conspiracy in the absence of a viable underlying claim. See D. Br. at 32 n. 108. In Texas Oil, after the court of appeals affirmed summary judgment dismissing all substantive claims against one alleged coconspirator, it affirmed the dismissal of the conspiracy claim on the basis that "there are no longer two potential wrongdoers." Texas Oil, 958 S.W.2d at 836. But this court's reading of Texas Oil shows that the court of appeals did not reach this conclusion after holding that one or more of the underlying claims were unenforceable based on something akin to the parol evidence rule.
The court has located one Texas court of appeals decision that rejected the assertion that the parol evidence rule precluded a conspiracy claim, but it did so on the basis that "fraud is one of the classic exceptions to the parol evidence rule[.]" Desert Palm Props., N.V. v. McFarlane, 1994 WL 681737, at *10 (Tex.App. Dec. 8, 1994, writ denied) (unpublished decision).
TLC's second contention lacks merit because plaintiffs have adduced evidence that would permit a reasonable trier of fact to find that TLC and CEBOOR conspired to defraud plaintiffs. Although the evidence is largely, if not completely, circumstantial, this type of proof is typical in a conspiracy case. See Facciolla v. Linbeck Constr. Corp., 968 S.W.2d 435, 445 (Tex.App. 1998, no writ) (noting that requested jury instruction that civil conspiracy is ordinarily established by circumstantial evidence, although unnecessary to assist jury in rendering verdict, was correct statement of law). The court denies summary judgment on this ground.
* * *
Accordingly, for the reasons set out, the court grants in part and denies in part TLC's October 2, 2001 motion for summary judgment.
SO ORDERED.