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holding that plaintiff "is bound to his [fraud by misrepresentation] pleadings and cannot assert an unpleaded nondisclosure theory at this late stage in the litigation"
Summary of this case from Days Inn Worldwide, Inc. v. Sonia InvestmentsOpinion
3:01CV-1187-M
October 7, 2002
MEMORANDUM OPINION AND ORDER
Plaintiff Norman Becker ("Becker") brought suit against National Educational Training Group ("NETg"), asserting several claims arising out of his termination as one of NETg's employees. Before the Court is the Defendant's Motion for Summary Judgment filed on April 5, 2002, in which it seeks dismissal of Becker's claims for breach of contract, unjust enrichment, breach of the duty of good faith and fair dealing, reformation, and fraud and misrepresentation.
I. Background
NETg sells educational software. NETg offered Becker employment in a letter dated June 6, 2000 ("Offer Letter"). Becker worked for NETg as an Account Manager from June 15, 2000 until January 26, 2001. Becker's responsibilities included selling NETg products to prospective clients and servicing the needs of NETg's existing clients. The Offer Letter states that an Employee Guide ("Employee Guide") would govern the terms of his employment and that a yearly compensation plan provided by a NETg manager ("Compensation Plan") would govern his receipt of incentive compensation. Becker signed the Employee Guide on June 16, 2000. The Employee Guide states in part:
Employment by the Company is "at-will," meaning that it is not for a specified period of time and that either the Company or I may terminate the employment relationship for any or no reason at any time with or without cause or notice. I acknowledge that a violation of the Company's rules, policies, and standards will result in corrective action up to and including the immediate termination of my employment. I understand that the foregoing agreement concerning my employment-at-will status and the Company's right to determine and modify the other conditions of my employment is the sole and entire agreement between me and [my employer] concerning the duration of my employment, the circumstances under which my employment may be terminated, and the circumstances under which the terms and conditions of my employment may change. The Company disclaims any implied contractual obligation of continuing employment.
Def.'s App. at 78.
Becker received the Compensation Plan for NETg's 2000 fiscal year sometime after he began working in June of 2000. On November 6, 2000, Gary Osborn ("Osborn"), District Manager for NETg, sent Becker a memorandum discussing compensation issues and the Compensation Plan for NETg's 2001 fiscal year. Becker signed the memorandum, acknowledging "that there [were] no other compensation commitments made to him other than the 2001 Compensation Plan. The 2001 Compensation Plan provides in part:
Id. at 153.
Revenue commissions will only be payable on contracts or orders signed by Client, accepted by NETg, and signed by an officer of NETg. No commissions will be paid on contracts or revenue recognized [sic] signed by a Client subsequent to the termination date of the employee, regardless of the reasons for such termination
Id. at 151.
During the term of his employment, Becker received several evaluations of his performance. Osborn gave Becker his third evaluation on December 20, 2000, and placed him on a Performance Improvement Plan ("PIP"). The PIP provided that Osborn would monitor Becker's performance for thirty days. On January 26, 2001, Osborn advised Becker that his employment with NETg was terminated. At the time of Becker's termination, a contract was pending between CompuCom and NETg under which NETg would become CompuCom's educational software provider. During Becker's termination meeting, he expressed concern about whether or not he would receive a commission on the CompuCom account. However, Becker was told that he would not receive a commission on the CompuCom account according to the terms of his Compensation Plan. Becker claims that NETg excluded him from working on the CompuCom deal in its final stages and terminated his employment in order to avoid paying him the commission.
Becker filed this lawsuit in state court on April 24, 2001, asserting claims for breach of contract, unjust enrichment, breach of the duty of good faith and fair dealing, reformation, and misrepresentation. NETg timely removed the case to this Court. Becker seeks recovery for damages, including the unpaid commissions on four potential accounts — CompuCom, NCH, Haynes and Boone, and Inet. Following Becker's termination, three of the four potential clients signed a contract with NETg. CompuCom signed a contact with NETg on February 2, 2001; NCH signed a contract with NETg on March 20, 2001; Haynes and Boone signed a contract with NETg on March 30, 2001.
II. Summary Judgment Standard
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when the pleadings and record evidence show that no genuine issue of material fact exists and that, as a matter of law, the movant is entitled to judgment. "[T]he substantive law will identify which facts are material. Only disputes about those facts will preclude the granting of summary judgment. In a motion for summary judgment, the burden is on the movant to prove that no genuine issue of material fact exists. If the moving party meets this initial burden, the burden then shifts to the nonmovant, who must produce evidence establishing a genuine issue of material fact for trial. The record before the court must be considered in the light most favorable to the opposing party. However, bare allegations in briefs and pleadings are insufficient to withstand summary judgment.
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Id.
Latimer v. Smithkline French Lab., 919 F.2d 301, 303 (5th Cir. 1990).
Celotex Corp. v. Catrett, 477 U.S. 317, 321-22 (1986).
Anderson, 477 U.S. at 248; Harrison v. Byrd, 765 F.2d 501, 504 (5th Cir. 1985).
Alizadeh v. Safety Stores, Inc., 802 F.2d 111, 113 (5th Cir. 1986).
III. Decision
A. Breach of Contract
Becker contends that NETg breached his employment contract by terminating him to avoid paying the commissions. NETg seeks summary judgment on grounds that the terms of the contract preclude Becker's recovery. The compensation agreement in effect at the time Becker left NETg explicitly states he would not receive a commission on an account if the client signed a contract with NETg after the date of his termination. Whether an employee's commission is payable is determined according to a reasonable interpretation of the employee's contract with the employer.
See Sun Medical v. Overton, 864 S.W.2d 558, 562 (Tex.App. — Fort Worth 1993, writ denied); Stinger v. Stewart Stevenson Ser.'s Inc., 830 S.W.2d 715, 719 (Tex.App.-Houston 1992, writ denied) (both giving effect to the reasonable interpretation of the terms of the contract between employer and employee regarding commissions). See also, 33 Tex. JUR. 3D Employer and Employee § 31 (1997) ("Commissions on sales are payable according to the reasonable interpretation of the terms of agreement between the employer and employee.").
NETg terminated Becker on January 26, 2001. Becker seeks payment of commissions on three accounts involving clients who did not sign a contract with NETg until after the date of his termination and on one account involving a potential client who never signed a contract with NETg. Express terms of the Compensation Plan state that NETg had no duty to pay Becker a commission on these accounts. The Court is bound by these terms unless there is a reason the Court should disregard the specific terms of Becker's contract.
Becker argues that NETg owes Becker a commission, despite the terms of the Compensation Plan, because NETg wrongfully prevented Becker from being employed on the dates Becker's commissions would have been realized. In support of his claim, Becker cites S.K.Y. Investment Corporation v. H.E. Butt Grocery Company:
When one party to a contract, by wrongful means, prevents the other party from performing, as by making it impossible for him to perform, such an action by the party at fault constitutes a breach of contract. The effect of such a breach is not only to excuse performance by the injured party, but also to entitle him to recover for any damage he may sustain by reason of the breach.
440 S.W.2d 885 (Tex.Civ.App.-Corpus Christi 1969, no writ).
Id. at 889-890.
In S.K. Y. Investment Corporation, the parties executed a written lease agreement containing the following provision: "[i]f prior to September 1, 1967, construction work has not commenced upon the building containing the demised premises, Tenant may thereafter at its option cancel this lease . . . ." On September 1, 1967, the lessee exercised its election to terminate the lease. The lessor brought suit, contending that the lessee had canceled the contract in bad faith. The trial court granted summary judgment for the lessee. On appeal, the lessor argued that the lessee prevented it from commencing construction by failing to provide it with certain design and financial information.
Id. at 888.
Id.
Id at 887.
Id. at 888.
The court affirmed the decision below, finding that under the contract the lessee was not obligated to provide design or financial information to the lessor. Thus, the court held that the lessor failed to show that the lessee "breached any of its contractual obligations." The prevention of performance doctrine did not apply, since the action not not undertaken by the lessee was not required under the contract. Here, Becker in effect argues that NETg prevented his performance of the employment contract by terminating his employment. It is undisputed that Becker was an at-will employee. Therefore, under the analysis of S.K.Y. Investment Corporation, Becker cannot base his prevention of performance argument on NETg's failure to maintain Becker's status as an employee, since that action was not required under the contract.
Id. at 891.
Id. at 892.
Id See also, RESTATEMENT (SECOND) OF CONTRACTS § 245 ("Where a party's breach by non-performance contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused."); id. cmt. a ("The rule stated in this Section only applies, however, where the lack of cooperation constitutes a breach, either of a duty imposed by the terms of the agreement itself or of a duty imposed by a term supplied by the court. There is no breach if the risk of such a lack of cooperation was assumed by the other party or if the lack of cooperation is justifiable.)."
Another Texas court has applied a similar analysis in the employment context. In Mitsubishi Aircraft International, Inc. v. Maurer, Mauer was an at-will employee who sought to recover commissions from his former employer after he was terminated. At trial, Mauer recovered in quantum meruit against his employer. On appeal, the court found that Mauer's ability to recover commissions was subject to an express contract, which stated "[p]ersonnel may only receive [commissions] if they are in employment . . . at the applicable time. Mauer did not receive commissions on certain accounts and argued on appeal that the prevention of performance doctrine should allow him to recover in quantum meruit. The court held that the doctrine of prevention of performance did not apply because the plaintiff was an employee at-will, and the employer's act of termination could not be construed as a breach of the at-will employment contract. Thus, "there was no wrongful discharge and no breach of contract preventing [plaintiffs] completion of performance."
675 S.W.2d 286 (Tex.App.-Dallas 1984, no writ).
Id. at 287.
Id.
Id.
Id. at 288.
Id. at 289.
Becker's claim that NETg breached its contract by preventing Becker's performance fails. NETg's termination of Becker is not a breach of Becker's employment contract because that contract allowed NETg to discharge Becker "with or without cause and with or without notice." Additionally, Becker's argument that NETg's discharge was wrongful is of no assistance to him. The Texas Supreme Court has held that "absent a specific agreement to the contrary, employment may be terminated by the employer or the employee at-will for good cause, bad cause or no cause at all." Becker has not presented any evidence of an agreement indicating that his employment status at NETg was anything other than that of an at-will employee. To the contrary, the only evidence before the Court is an express agreement between Becker and NETg stating that Becker was an employee at-will who could be terminated with or without cause. Thus, Texas law precludes recovery under his cause of action for breach of contract.
Defs Brief at 77.
Montgomery County Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998).
B. Unjust Enrichment
Becker also claims that NETg was unjustly enriched by Becker's work on the accounts for which he did not receive a commission. NETg's Summary Judgment Motion on the unjust enrichment claim is based on two points. First, NETg asserts that the unjust enrichment claim is barred because an express contract governs the subject matter of the dispute. Second, NETg contends that it compensated Becker for his work. The Court agrees with the former ground for summary judgment on the unjust enrichment claim and thus does not reach the latter.
It is well settled Texas law that "when a valid express contract covers the subject matter of the parties' dispute, there can be no recovery under a quasi-contract theory." In Fortune Production Company v. Conoco, the Texas Supreme Court ruled that natural gas producers could not recover against their purchaser under an unjust enrichment theory because a written contract governed the sale. The Court held that "when a party claims that it is owed more than the payments called for under a contract, there can be no recovery for unjust enrichment if the same subject is covered by the express contract." The narrow exceptions to this rule do not salvage Becker's claim for unjust enrichment. Here, the relationship between the parties is governed by an express written contract. The Compensation Plan specified that if Becker was terminated before a final contract sale, NETg would not pay him commission "regardless of the reasons for such termination." As a matter of law, Becker's unjust enrichment claim fails because an express contract governs his compensation.
Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex. 2000) (quoting TransAmerican Natural Gas Corp. v. Finkelstein, 933 S.W.2d 591, 600 (Tex.App.-San Antonio 1996, writ denied)). The Court explained that recovery under quasi-contract is appropriate if justice requires the law to impose an obligation where no promise between the parties existed. Id.
Id. at 686.
Id. at 685.
Becker cites Mitsubishi Aircraft Int'l, Inc. v. Maurer, 675 S.W.2d 286 (Tex.App.-Dallas 1984, no writ), for his assertion that, despite the express contract governing this dispute, he can recover in unjust enrichment because NETg discharged him without good cause and prevented his performance under the contract. However, the Mauer court held that the wrongful discharge and prevention of performance arguments do not provide exceptions to the rule that "[i]f the work in question is covered by an express contract, there can be no recovery in quantum meruit." Id. at 288-89. The Texas Supreme Court has noted the existence of limited exceptions to the general rule that an express contract governing the parties' obligations is fatal to an unjust enrichment claim. See Fortune Prod. Co., 52 S.W.3d at 684; Southwestern Electric Power Co. v. Burlington Northern Railroad Co., 966 S.W.2d 467, 469-70 (Tex. 1998). However, these exceptions are not applicable here because those exceptions involve overpayments under a contract. See, e.g., Southwestern Electric Power Co. v. Burlington Northern Railroad Co., 966 S.W.2d 467, 469-70 (Tex. 1998) (noting that a party may recover overpayments under a contract by asserting a claim for unjust enrichment or restitution).
Def.'s App. at 151.
C. Duty of Good Faith and Fair Dealing
Becker argues NETg terminated him after he performed all the necessary requirements to receive his commission, thereby creating a breach of the duty of good faith and fair dealing. NETg seeks summary judgment on this cause of action, arguing that NETg did not owe Becker a duty of good faith and fair dealing.
In the City of Midland v. O'Bryant, the Texas Supreme Court held that no cause of action exists under Texas law for breach of the duty of good faith and fair dealing in the context of the employer-employee relationship. In that case, five former police officers sued the city and city administrators, alleging employment discrimination and retaliation. The Court held that the defendants were entitled to summary judgment on the plaintiffs' bad faith claim, noting that a "court-created duty of good faith and fair dealing would completely alter the nature of the at-will employment relationship, which generally can be terminated by either party for any reason or no reason at all." Additionally, the Court stated that it made no distinction in its holding "between government and private employers" or "between employment at-will and employment governed by an express agreement." Since Becker was an at-will employee, this Court holds that Becker's cause of action of breach of the duty of good faith and fair dealing is barred as a matter of law.
18 S.W.3d 209 (Tex. 2000).
Id. at 216.
Id.
Id.
Id.
D. Reformation
Becker seeks reformation of his contract with NETg. He alleges that the contract he signed after becoming an employee is different from the contract NETg presented to him prior to his employment. NETg argues that Becker has failed to provide evidence to support a cause of action for reformation. Reformation of a contract is proper "when the parties have reached a definitive and explicit agreement, understood in the same sense by both, but, by their mutual or common mistake, the written contract fails to express the agreement."
Huttleston v. Beacon Nat'l Ins. Co., 822 S.W.2d 741, 746 (Tex.App.-Fort Worth 1992, writ denied) (citing Champlin Oil Refining Co. v. Chastain, 403 S.W.2d 376, 377 (Tex. 1965)).
Becker has the burden of proving that Becker and NETg reached an agreement on a material term but that the written contract differs from the parties' agreement because of their mutual mistake. Becker argues that, prior to his employment, he and NETg entered into an agreement under which NETg would pay commissions based on his performance, rather than his employment status. However, the 2001 Compensation Plan signed by Becker indicates that NETg would not pay commissions on an account if the client had not signed a contract with NETg prior to Becker's termination. Additionally, the 2001 Compensation Plan states that it "reflects the employee's entire understanding of his/her [fiscal year] 2001 Compensation" and that it "supersedes any other agreement, whether written or verbal, regarding compensation."
Geosouthern Energy Corp. v. American Flourite Inc., 274 F.3d 1017, 1021 (5th Cir. 2001) (citing Thalman v. Martin, 635 S.W.2d 411, 413 (Tex. 1982)); Estes v. Republic National Bank of Dallas, 462 S.W.2d 273, 275 (Tex. 1970).
Def.'s App. at 153.
Id.
NETg's representative, Paula Leuske ("Leuske"), discussed the Compensation Plan with Becker during his employment interview and told him that his receipt of commissions would be subject to his performance as an employee. However, Becker has not presented evidence that he and NETg agreed that sales commissions would be paid even if NETg terminated his employment before the commissions were due under the Compensation Plan. Becker presents no evidence that a mutual mistake between the parties prevented them from entering into a contract reflecting a mutually held belief that Becker would be paid commissions regardless of his employment status. The operative document which he signed says the contrary. Thus, Becker's cause of action for reformation must be dismissed.
E. Fraud/Negligent Misrepresentation
Becker's final cause of action is for fraud/misrepresentation. In his petition, Becker asserts that NETg made misrepresentations regarding compensation prior to his employment. In his response to NETg's Motion for Summary Judgment, Becker argues that NETg's misrepresentation was its failure to reveal certain compensation details to him before he became an employee. NETg seeks summary judgment on claims Becker might have for fraud and negligent misrepresentation.
To prevail at trial on a fraud claim, Becker must show that (1) NETg made a material representation that was false, (2) NETg either knew the representation to be false at the time or asserted it without knowledge of its truth, (3) NETg intended Becker to act on its representation, and (4) that his reliance on the representation caused him injury. See Formosa Plastics Corp. USA v. Presidi Eng'rs Contrs., 960 S.W.2d 41, 47-48 (Tex. 1998); Sears, Roebuck Co. v. Meadows, 877 S.W.2d 281, 282 (Tex. 1994).
Becker would have to prove the following elements to prevail on a negligent misrepresentation claim: (1) NETg owed Becker a duty of reasonable care, (2) NETg made a representation of an existing fact in the course of its business or in a transaction in which it had pecuniary interest, (3) NETg's representation supplied false information to guide Becker in his business affairs, (4) NETg did not exercise reasonable care or competence in obtaining or communicating the information, and (5) Becker suffered a pecuniary loss by justifiably relying on NETg's representation. See Federal Land Bank Assn. v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991).
Becker argues that during his employment interview, Leuske misrepresented facts about NETg's payment of commissions. Even construed most favorably to Becker, the evidence suggests that Leuske told Becker about the Compensation Plan and explained its structure, but failed to tell Becker that he would not receive commissions if he was terminated before the commissions became payable under the plan. The Offer Letter stated that Becker's incentive compensation would be governed by a Compensation Plan that he would receive from his manager. Additionally, by signing the Offer Letter, Becker acknowledged "that there have been no representations by the Company or its agents which are not reflected in this agreement." Becker admits that no one at NETg told him he would receive commissions even if he was terminated before the commissions were payable, and there is no evidence that Leuske represented that her explanation of the Compensation Plan was as complete as the plan itself. Thus, Becker has failed to present evidence supporting his argument that NETg made a misrepresentation about the terms of his compensation, and summary judgment is granted on this cause of action.
Def.'s App. at 77.
Additionally, summary judgment is granted on Becker's claim that NETg made a misrepresentation by concealing information about his compensation. In his Response to NETg's Motion for Summary Judgment, Becker admits that that "no one told him he would not be compensated if he was not an employee," and that no one told him that NETg could terminate him in order to avoid paying his commissions. While nondisclosure gives rise to a claim for fraud in some limited circumstances, Becker's pleadings assert a cause of action only for an affirmative misrepresentation. He pleads only that agents of NETg made representations about his compensation to induce him to become an employee, and that he relied on these representations to his detriment, and the deadline for amending pleadings in this case has passed. Thus, Becker is bound to his pleadings and cannot assert an unpleaded nondisclosure theory at this late stage in the litigation.
However, even if the Court were to allow Becker to pursue a nondisclosure theory, such a claim would fail as a matter of law. The Texas Supreme Court has held that "a failure to disclose information does not constitute fraud unless there is a duty to disclose the information." Thus, a party's silence may constitute a false representation only if the party has a duty to speak and deliberately fails to do so. Further, the Fifth Circuit has repeatedly held that under Texas law a failure to disclose is not actionable as fraud unless a fiduciary or confidential relationship exists between the parties.
Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001).
Id.
See Jackson v. West Telemarketing Corp. Outbound, 245 F.3d 518, 525 (5th Cir. 2001) ("Absent a fiduciary or confidential relationship, the failure to disclose information is not actionable as fraud."); Bay Colony, LTD v. Trendmaker, Inc., 121 F.3d 998, 1004 (5th Cir. 1997) ("Texas law recognizes a duty to disclose only where a fiduciary or confidential relationship exists."); Mitchell Energy Corp. v. Bliss, 80 F.3d 976, 985 (5th Cir. 1996) ("Absent a fiduciary of confidential relationship, the failure to disclose information is not actionable as fraud.").
Whether a duty to disclose exists is a question of law. In Bradford, the Texas Supreme Court declined to recognize a general duty to disclose in a commercial setting. The Court noted that:
Id.
The Restatement (Second) of Torts section 551 also recognizes a general duty to disclose facts in a commercial setting. In such cases, a party does not make an affirmative misrepresentation, but what is said is misleading because other facts are not disclosed. We have never adopted section 551,
Id. at 755-56 (internal citations omitted).
Before Bradford, the Fifth Circuit addressed a claim for fraud by nondisclosure in the employment context. In Hamilton v. Software, Inc., the Fifth Circuit held that an employer had no duty to disclose to a prospective employee allegations of accounting fraud against the employer. Here, Becker argues that when no one at NETg explained that he would not receive compensation after his employment terminated, he was left with the impression that he would receive such compensation. Becker points to no evidence supporting such a belief other than the fact that Leuske did not explain every detail of the Compensation Plan during the employment interview. Even if Texas law recognized a duty to disclose in the employer-employee context, Becker has failed to produce any evidence that NETg's partial disclosure provided false information on which Becker justifiably relied.
232 F.3d 473 (5th Cir. 2000).
Id. at 481.
IV. Conclusion
Therefore, NETg's Motion for Summary Judgment is hereby GRANTED.
SO ORDERED.