Opinion
Civil Action No: SA-04-CA-0303-XR.
December 9, 2004
ORDER
On this date the Court considered the motion to dismiss by Defendants BCE, Inc. and BCE Ventures, Inc. (collectively, "BCE"). BCE contends that Plaintiff's First Amended Complaint does not sufficiently state a claim for either fraud or negligent misrepresentation, or, alternatively, does not meet the pleading requirements of FED. R. CIV. P. 9. Specifically, BCE argues that the Texas Statute of Frauds acts to bar Plaintiff's claims and that Plaintiff cannot establish the elements of his fraud and negligent misrepresentation claims. The Court finds that Plaintiff's First Amended Complaint sufficiently states a claim for fraud and negligent misrepresentation to defeat a motion to dismiss and therefore DENIES the motion (docket no. 19).
I. Factual and Procedural Background
According to Plaintiff's First Amended Complaint, Plaintiff, a co-founder and stockholder of Excel Telecommunications, Inc, entered into an agreement with Excel in 1989, at which time Excel agreed to pay Plaintiff commissions based on long-distance telephone revenue generated by Plaintiff's marketing system. This agreement was amended in 1996 and 1997. In 1998, the stockholders of Excel exchanged their interests in Excel stock for stock of Teleglobe, Inc. As a result, Excel became a wholly owned subsidiary of Teleglobe. BCE and Teleglobe reached an agreement in 2000 in which BCE would acquire Teleglobe. Plaintiff then exchanged his Teleglobe stock for BCE stock. BCE was then owner of Excel.
In August 2001, a third amendment to the agreement ("the Third Amendment") was entered into between Plaintiff and Excel. Plaintiff alleges that Bill Anderson, a BCE Inc. officer and the president of a BCE subsidiary, BCE Ventures, Inc., telephoned Plaintiff and asked to meet with him. According to Plaintiff, Anderson informed him that BCE intended to sell Excel to an undisclosed purchaser and that as a condition to the sale, BCE needed to secure a release of Excel from the 1989 agreement. After some negotiation, Plaintiff asserts that it was agreed that he would be paid $22 million in cash over a five year period in return for releasing Excel from the contract. Plaintiff alleges that he suggested BCE supply a guaranty for the payment. Plaintiff asserts that Anderson replied that BCS could not directly guaranty the deferrals, but that it would have Teleglobe supply the guaranty. According to Plaintiff, he was assured by Anderson that BCE was committed to supporting Teleglobe, that BCE had made the decision that it was not going to walk away from its investment in Teleglobe, and that it was going to continue to support Teleglobe beyond the term of the existing financial support arrangements. Plaintiff states that he relied on these assurances, as well as public disclosure by BCE and Teleglobe that Teleglobe's 2001 capital expenditures would exceed $1B and that BCE had pledged to support Teleglobe to at least the $900 million level. In addition, BCE's chief executive officer, Jean Monty, stated that BCE was prepared to put resources behind Teleglobe. Plaintiff asserts that he relied upon these statements in coming to the conclusion that Teleglobe would be a stable entity able to guaranty payment.
Paragraph 6 of the Third Amendment states, in part, ". . . Smith hereby expressly consents to the assignment of the Agreement, as amended by this Third Amendment, by Excel to Teleglobe Holdings (U.S.) Corporation, a Delaware corporation, or to BCE Inc., a Canadian corporation, and, upon such assignment, that Excel be released from all of its obligations under the Agreement, as amended by this Third Amendment." After the signing of the Third Amendment, Plaintiff was told that BCE was trying to sell Excel to a third-party (VarTec Inc.), and that Plaintiff's agreement was an impediment to that sale. Plaintiff asserts that he once again met with Anderson and was again reassured of BCE's commitment to Teleglobe.
Plaintiff further alleges that Excel made one payment of $2 million under the Third Amendment in August of 2001 and then assigned the 1989 agreement to Teleglobe on April 5, 2002. According to Plaintiff, within a matter of days of this assignment, BCE announced it was withdrawing financial support from Teleglobe and then placed Teleglobe in bankruptcy in May, 2002.
Plaintiff filed suit against BCE Inc., BCE Ventures Inc., and Excel in the 216th Judicial District Court of Kerr County, Texas. BCE removed the case to this Court on April 12, 2004. BCE alleged that Excel had been fraudulently joined in an effort to avoid federal diversity jurisdiction. In an Order dated September 14, 2004, the Court denied Plaintiff's motion to remand, finding that there was no possibility of recovery against Excel for breach of contract, the lone substantive claim against Excel, the in-state defendant. In an Order dated November 3, 2004, the Court dismissed Excel from the case and granted leave to Plaintiff to file his First Amended Complaint, which was subsequently filed November 12. In his First Amended Complaint, Plaintiff asserts causes of action against BCE for fraud, deceit, misrepresentations and omissions (collectively, fraud), and negligent misrepresentation. BCE now seeks dismissal under either Rule 12(b)(6) or Rule 9, claiming that Plaintiff has not stated a claim for relief and that Plaintiff's allegations do meet the requirements of Rule 9.
Plaintiff has apparently abandoned a promissory estoppel cause of action that was asserted in his state court Petition but that is omitted from the First Amended Complaint.
II. Dismissal Standard
In considering a motion to dismiss, the Court must accept all well-pleaded facts as true and view them in the light most favorable to the plaintiff. Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). The Court must accept the plaintiff's well-pleaded facts as true, even where the defendant has pleaded contradictory facts. Id. The issue is not whether the plaintiff will prevail but whether the plaintiff is entitled to pursue its complaint and offer evidence in support of its claims. Doe v. Hillsboro Indep. Sch. Dist., 81 F.3d 1395, 1401 (5th Cir. 1996). The Court may not look beyond the pleadings in ruling on the motion. Baker, 75 F.3d at 196. Documents attached to or incorporated in the complaint, however, may be considered. Willard v. Humana Health Plan of Texas, 336 F.3d 375, 379 (5th Cir. 1993).
Plaintiff contends that BCE's motion is in actuality a motion for summary judgment under Rule 12, as various documents are attached to the motion. The Court finds that the majority of these documents are incorporated into Plaintiff's complaint and are therefore available for review on a motion to dismiss. Willard v. Humana Health Plan of Texas, 336 F.3d 375, 379 (5th Cir. 1993). Any document not incorporated into Plaintiff's complaint has not been taken into consideration in deciding this motion. FED. R. CIV. P. 12(b).
Motions to dismiss are disfavored and are rarely granted. Beanal v. Freeport-McMoran, Inc., 197 F.3d 161, 164 (5th Cir. 1999). Dismissal should not be granted "`unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Id. at 164 (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). However, the Court will not accept conclusory allegations or unwarranted deductions of fact as true. Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir. 1994).
Under Rule 9(b), a plaintiff pleading fraud must set forth the "who, what, when, and where . . . before access to the discovery process is granted." Williams v. WMX Technologies, Inc., 112 F.3d 175, 178 (5th Cir. 1997). Anything less fails to provide defendants with adequate notice of the nature and ground of the claim. Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir. 1994). "Although a court may dismiss the claim, it should not do so without granting leave to amend, unless the defect is simply incurable or the plaintiff has failed to plead with particularity after being afforded repeated opportunities to do so." Hart v. Bayer Corp., 199 F.3d 239, 247 n. 6 (5th Cir. 2000) (citing O'Brien v. Nat'l Prop. Analysts Partners, 936 F.2d 674, 675-76 (2nd Cir. 1991)).
III. Analysis
BCE argues that the Texas Statute of Frauds bars Plaintiff's claims. It argues that any representations made to Plaintiff are properly characterized as promises to answer for the debt of another, and are therefore required to be in writing and signed by the promisor. BCE also argues that Plaintiff cannot establish that he reasonably relied to his detriment on any alleged misrepresentation, and he therefore cannot sufficiently state a claim for which relief can be granted. Under the standard for a motion to dismiss, the Court finds that Plaintiff's First Amended Complaint sufficiently states a claim that would not be barred by the Statute of Frauds and for which relief can be granted.
TEX. BUS. COM. CODE § 26.01 provides that a promise to answer for the debt, default, or miscarriage of another person "is not enforceable unless the promise or agreement, or a memorandum of it, is (1) in writing; and (2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him."
A. Statute of Frauds
If BCE is correct that the Statute of Frauds bars enforcement of any oral representations, then any benefit-of-the-bargain-type damages would likewise be barred. Haase v. Glazner, 62 S.W.3d 795, 799 (Tex. 2001). Out-of-pocket damages, however, would still be available should Plaintiff prove a fraudulent misrepresentation, despite the presence of the Statute. Id. Plaintiff seeks $20 million in damages for fraud. Plaintiff states that he is not seeking benefit-of-the-bargain-type damages. However, $20 million is the exact figure that Plaintiff has not been paid under the Third Amendment. Therefore, Plaintiff's First Amended Complaint establishes that he is seeking benefitof-the-bargain-type damages. Thus, the ability of Plaintiff to recover the damages he seeks rests on whether the Statute of Frauds is applicable to the representations that Plaintiff alleges of BCE.
BCE argues that, at most, Plaintiff's allegations as to Anderson's assertions that BCE would continue to support Teleglobe and that Teleglobe could guaranty the Third Amendment constitute an oral promise to guaranty the debt of another. Consequently, BCE argues that such a promise would be void under the Statute of Frauds. In response, Plaintiff asserts that the statements made by Anderson, as an officer of BCE Inc. and president of BCE Ventures, Inc., pertained solely to the then-existing financial status of certain aspects of Teleglobe's and BCE's business.
The Court does not need to decide the nature of BCE's alleged representations at this stage, as, even assuming along with BCE that the alleged representations are correctly characterized as promises to answer for the debt of another, Plaintiff's complaint sufficiently alleges fact to bring the promise outside the Statute of Frauds. Though neither side makes mention of it, an exception to the Statute of Frauds exists for a promise that is made, as its main purpose, for the benefit of the promisor. See Gulf Liquid Fertilizer Co. v. Titus, 354 S.W.2d 378, 383 (Tex. 1962). "`In order to take his promise out of the statute, [the promisor] must be bargaining for a consideration that is beneficial to himself and that constitutes his primary object of desire.'" Id. at 386 (quoting 2 CORBIN, CONTRACTS § 367, at 284 (1950 ed.)). According to Plaintiff's complaint, BCE sought the Third Amendment in order to facilitate the sale of Excel to another entity. Plaintiff alleges that Anderson contacted Plaintiff in December 2000 and then met with him at Plaintiff's ranch in Kerrville in March 2001. Plaintiff further alleges that at that time, Anderson informed him that "BCE intended to sell Excel to an undisclosed purchaser, and that as a condition to the sale, BCE needed to secure a release of Excel from the 1989 agreement." Plaintiff further alleges that "a few weeks later," Anderson told Plaintiff that Teleglobe would guaranty the Third Amendment, but that "for the term of the deferred payments, Teleglobe was the same as BCE because . . . [it] was committed to support Teleglobe for as long as it took to complete the GlobeSystem network and have it up and running."
Plaintiff's First Amended Complaint, ¶ 11.
Id. ¶ 12.
Assuming the allegations in Plaintiff's First Amended Complaint to be true, as the Court must at this stage of the litigation, the Court finds that Plaintiff has sufficiently pled a claim that BCE made a promise to answer for the debt of Teleglobe and that the primary object of this promise was to benefit BCE. Plaintiff's allegations sufficiently state that BCE's primary object was to alleviate Excel, a BCE subsidiary, of an indefinite contract with Plaintiff. Doing so would then facilitate the sale of Excel to VarTec. Therefore, promises made to Plaintiff to answer for the debt of Teleglobe, should the contract be assigned to Teleglobe, were for the primary object of facilitating the sale of Excel to VarTec and fall outside the Statute of Frauds. See BMC Indus., Inc. v. Barth Indus., Inc., 160 F.3d 1322, 1338 (11th Cir. 1998) (analyzing analogous Florida statute).
B. Elements of Plaintiff's Claims
Plaintiff's First Amended Complaint asserts causes of action for fraud and negligent misrepresentation against BCE. Under Texas law, the elements of a fraud cause of action are: (1) a material representation; (2) that was false when made; (3) the speaker either knew it was false, or made it without knowledge of its truth; (4) the speaker made it with the intent that it should be acted upon; (5) the party acted in reliance; and (6) the party was injured as a result. Formosa Plastics Corp. U.S.A. v. Presidio Eng'rs Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). In the case of a promise of future performance, the plaintiff also must prove that "the promise was made with no intention of performing at the time it was made." Id. Additionally, reliance on the representations must have been justifiable as well as actual. Haralson v. E.F. Hutton Group, Inc., 919 F.2d 1014, 1025 (5th Cir. 1990).
BCE argues that Plaintiff could not have "reasonably relied" upon any representations by BCE because public filings at the time any representations were made confirm that BCE did not intend to fund Teleglobe beyond a $900 million limitation. However, "`[j]ustifiable reliance' represents a lesser burden on fraud plaintiffs than what `reasonable reliance' might imply." Id. To determine justifiable reliance, courts inquire whether, "given a fraud plaintiff's individual characteristics, abilities, and appreciation of facts and circumstances at or before the time of the alleged fraud — it is extremely unlikely that there is actual reliance on the plaintiff's part." Id. at 1026. Assuming Plaintiff's allegations as true, Plaintiff could have justifiably relied upon Anderson's assertions that BCE intended to support Teleglobe "for as long as it took to complete the GlobeSystem network and have it up and running," and that Teleglobe would be an appropriate entity to guaranty the Third Amendment. Therefore, Plaintiff has sufficiently stated a claim of justifiable reliance.
Insofar as BCE hints that Plaintiff has not sufficiently stated a claim under the element of fraudulent intent, the Court notes that "[i]ntent is a fact question uniquely within the realm of the trier of fact because it so depends upon the credibility of the witnesses and the weight to be given to their testimony," Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986), and "[s]ummary judgment[, much less dismissal] is rarely proper," Beijing Metals Minerals Imp./Exp. Corp. v. Am. Bus. Ctr., Inc., 993 F.2d 1178, 1185 (5th Cir. 1993) (citations omitted).
As to Plaintiff's claim for negligent representation, he must show: (1) a representation made in the course of business; (2) the defendant supplied false information for the guidance of others in their business; (3) the defendant did not exercise reasonable care in communicating the information; and (4) the plaintiff suffered pecuniary loss by justifiably relying on the representation. Fed. Land Bank Ass'n v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991). BCE claims that Plaintiff cannot base a claim for negligent misrepresentation on promises of future performance. See Clardy Mfg. Co. v. Marine Midland Bus. Loans Inc., 88 F.3d 347, 357-58 (5th Cir. 1996). However, at this stage, the Court is not prepared to say that Plaintiff has failed to allege a misrepresentation of existing fact. It may be that Anderson's alleged statements as to the then-existing condition of Teleglobe were false, and that Anderson knew they were false at the time they were made. According to Plaintiff's First Amended Complaint, Anderson told Plaintiff that BCE would not directly guaranty the Third Amendment, but that BCE would have Teleglobe supply the guaranty and that Teleglobe was sound financially. This statement was made in approximately April 2001; the deal was completed in August 2001 and Teleglobe was placed into bankruptcy approximately in May 2002. Assuming Plaintiff's allegations as true, Anderson may have made false representations as to the status of Teleglobe upon which Plaintiff justifiably relied and suffered pecuniary loss. Therefore, the Court finds that Plaintiff, however inarticulately, has sufficiently stated a claim for negligent misrepresentation to avoid dismissal under Rule 12(b)(6).
C. Rule 9(b)
Rule 9(b) requires a plaintiff asserting "fraud or mistake" to state "the circumstances . . . with particularity." A plaintiff pleading fraud must set forth the "who, what, when, and where . . . before access to the discovery process is granted." Williams, 112 F.3d at 178. Anything less fails to provide defendants with adequate notice of the nature and ground of the claim. Tuchman, 14 F.3d at 1067. BCE argues that Plaintiff's First Amended Complaint does not meet the requirements of Rule 9(b) and should be dismissed with prejudice. As BCE states in its Reply, "[Plaintiff] should not be allowed to amend his complaint in yet another futile attempt to cure his Rule 9(b) deficiencies. He has already had two opportunities to plead his claims, and he was well aware of Rule 9(b)'s requirements when he filed his First Amended Complaint. Two bites at the apple are enough." While Plaintiff's allegations are likely at the outer boundaries of Rule 9(b)'s requirements, the Court finds that the allegations are sufficient specific to provide defendants with adequate notice of the nature and ground of the claims. Id.
Plaintiff's main argument focuses on the conversation between himself and Anderson in which Anderson allegedly stated that BCE would continue to support Teleglobe, that BCE and Teleglobe were one and the same, and that Teleglobe's financial situation was stable. Plaintiff's First Amended Complaint states that this conversation took place in March 2001 at Plaintiff's Kerrville, Texas ranch and was to discuss alleviating BCE and Excel from the contract with Plaintiff. BCE argues that Plaintiff has failed to plead "why" statements made by Anderson and other BCE personnel were false. As far as can be discerned, however, "why" is not an element under Rule9(b). See Willard v. Humana Health Plan of Tex., 336 F.3d 375, 384 (5th Cir. 2003) ("who, what, when, where, and how. . . ."); Williams, 112 F.3d at 178 ("who, what, when, and where. . . ."). The Court finds that Plaintiff's allegations, while "somewhat conclusory," are sufficient to give BCE adequate notice of the nature and ground of the fraud claims — that BCE knew Teleglobe was not in a solid financial state and could not guaranty the Third Amendment at the time allegedly contrary representations were made — and to allow Plaintiff access to the discovery process. See Hart, 199 F.3d at 247 n. 6.
BCE further argues that Plaintiff's allegations as to BCE's other conduct, including further representations that Plaintiff could count on BCE supporting Teleglobe, as well as public filings demonstrating BCE's commitment to support Teleglobe at least up to the $900 million mark, are conclusory and do not state when and where they were made. Plaintiff's First Amended Complaint states that during the preparation of the Third Amendment, when Plaintiff became concerned of a possible error, "Anderson immediately contacted [Plaintiff], once again reaffirmed his prior statements about Teleglobe's financial stauts . . ., and assured him . . . that `BCE was 100% behind Teleglobe' and [Plaintiff] did not have to `worry about Teleglobe.'" Plaintiff then states that in May 2001, during a meeting at VarTec's offices in Dallas, "Anderson . . . reaffirmed BCE's commitment to Teleglobe to finance the completion of the system." Plaintiff also refers to certain public filings throughout his First Amended Complaint. Again, these allegations are "somewhat conclusory," but are sufficient to point BCE to the persons involved, the nature of the conversation, and the time at which it took place. Rule 9(b) is not meant to require Plaintiff to state with absolute specificity the precise words and time of day certain misrepresentations were made. It is meant to give the defendant adequate notice of the nature and grounds of the fraud claims. Plaintiff's First Amended Complaint, though reaching the outer limits, meets the requirements of Rule 9(b).
First Amended Complaint at ¶ 16.
Id. ¶ 17.
BCE argues that Plaintiff's First Amended Complaint should be dismissed in its entirety. Rule 9(b) does not apply to Plaintiff's negligent misrepresentation claim. See Leatherman v. Tarran Cty., 507 U.S. 163, 168 (1993). Consequently, the Court finds that Plaintiff's allegations of negligent misrepresentation are sufficient to meet the liberal pleading standard under Rule 8.
IV. Conclusion
Plaintiff has filed his Third Amended Complaint, alleging fraud and negligent misrepresentation against BCE Inc. and BCE Ventures, Inc., in the formation of a contract calling for Plaintiff to be paid $22 million over a span of five years. BCE has filed a motion to dismiss, claiming that Plaintiff's allegations are barred by the Statute of Frauds, do not meet the elements of the causes of actions, and do not meet the requirements of Rule 9(b). The Court finds that Plaintiff's allegations sufficiently plead an exception to the Statute of Frauds, in that they allege a promise to answer for the debt of another, which promise was made for the benefit of the promisor. Plaintiff's allegations are also sufficient to deny dismissal as to the elements of the fraud and negligent misrepresentation claims. Finally, Plaintiff's fraud claims, while somewhat conclusory, are sufficiently specific to meet the requirements of Rule 9(b). Accordingly, the Court DENIES BCE's motion (docket no. 19). After adequate time for discovery, the Court will be willing to entertain BCE's arguments again under the summary judgment standard.