The Texas Supreme Court ruled Friday that a company victimized by the fraudulent conduct of a business partner cannot use the civil justice system to recover damages caused by the illegal activity if the two businesses signed a written contract covering the issues in question.
In a unanimous 19-page opinion, the state’s highest court said that a written contract between Mercedes-Benz USA and a South Texas car dealership, Carduco Inc., exempts the automaker from being held financially responsible for the economic losses it caused by its false oral promises and misleading comments, which a jury that heard all of the evidence in the case described as criminal.
“Because the conduct and actions of MBUSA on which Carduco relies to establish its fraudulent-inducement claim are directly contrary to the unambiguous terms of the contract it signed, we conclude that Carduco’s reliance thereon was unjustified as a matter of law,” Justice John Devine wrote.
The decision, according to several legal experts, is another example of the Texas Supreme Court shifting questions of fact that were traditionally decided by citizen juries to issues of law that will now be decided by judges.
Some corporate attorneys say that the justices’ opinion preserves the sanctity of business-to-business contracts. Any other decision, they say, would make written contracts useless.
“[Friday’s] decision follows logically on the court’s earlier holdings in JPMorgan Chase Bank v. Orca Assets and National Property Holdings v. Westergren, among others,” said Ray Guy, a partner at Weil, Gotshal & Manges. “A contracting party cannot justifiably rely on extra-contractual representations that contradict the language to which he agreed in the contract that he signed.
“The court correctly pointed out that if, indeed, the execution of the contract was induced by an oral representation, Carduco’s duty to exercise ordinary care and diligence in protecting its own interests required that Carduco and its lawyers insist on revision of the contradictory provisions of the written contract,” Guy said.
Other business lawyers, however, say that the decision essentially eviscerates the role of juries and solidifies the Texas Supreme Court’s position as one of the most pro-defendant appellate courts in the U.S., even when the plaintiff is another business.
Pete Marketos, a partner at Reese Marketos and lawyer for Harlingen car dealer Carduco Inc., said the justices ignored overwhelming evidence presented at trial to come to its conclusion.
“The court’s opinion resembles the
case we tried to the jury in that the names of the parties were correct,”
Marketos told The Texas Lawbook. “This
was the clearest case of fraud I have encountered in a 20-year career of trying
business disputes. That’s why a unanimous jury found felony deception ‘beyond a
reasonable doubt.’
“In order to arrive at this result, the court
first had to start with its intended result and work its way backwards – changing
the facts and claims as necessary to justify a preordained outcome,” he
said. “Legal protection from felony-level deception and fraud in Texas
business erodes with each opinion this court issues.”
Mercedes-Benz USA v. Carduco is a decade-long, nine-digit dollar dispute between two businesses. Carduco claims that Mercedes and three of its executives intentionally devised a scheme to defraud the South Texas car dealer by sabotaging the owner’s business.
A Cameron County jury heard two weeks of evidence and ruled that the elite automaker pressured Carduco’s owner to spend millions of dollars to relocate the dealership to McAllen, but that Mercedes secretly negotiated a separate agreement with another dealer to move into the same town, which Mercedes knew would severely damage revenue and profits at Carduco.
“Mercedes’ corporate representatives admitted that the information passed on to Carduco was false, misleading and untrue,” Marketos said.
The jury awarded Carduco $15 million in compensatory damages and also found “beyond a reasonable doubt” that Mercedes’ conduct violated the state’s deceptive trade practices laws and ordered the automaker to pay $115 million in punitive damages.
Mercedes appealed to the Texas Thirteenth Court of Appeals in Edinburg, which upheld the jury’s finding that the automaker committed fraud and the $15 million in actual damages. The appellate judges, however, struck down the $115 million punitive damage award as excessive.
Both sides appealed to the Texas Supreme Court.
“The issue here is whether Carduco’s belief that Mercedes had promised the McAllen area to it was justified in light of the parties’ written agreement,” Justice Devine wrote. “Because that agreement approved and identified only Harlingen as Carduco’s dealership location, provided that Carduco could not move, relocate, or change any dealership facilities without Mercedes’s prior written consent, provided that Carduco’s right to sell cars in any specific geographic area was nonexclusive, and stated that the agreement was not intended to limit Mercedes’s right to add new dealers in the area, we conclude that the parties’ written agreement directly contradicts Carduco’s alleged belief and thereby negates its justifiable reliance as a matter of law.
“The court of appeals’ judgment affirming the award of actual and punitive damages is accordingly reversed and judgment rendered that Carduco take nothing,” Justice Devine stated.
Doug Alexander, a partner at Alexander Dubose Jefferson and the lawyer who argued the case for Carduco, said that he is “obviously disappointed” by the Texas Supreme Court decision.
“The court’s opinion overlooks testimony that supports the trial court’s judgment and that we believe the jury was entitled to credit under the governing standard of review,” Alexander said.