Opinion
Civil Action No. 3:96-CV-2923-D, (Consolidated with, Civil Action No. 3:97-CV-0353-D).
February 2, 2005
MEMORANDUM OPINION AND ORDER
In this action by plaintiff H.C. Oil and Gas Corporation ("HC") against defendant Merrill Lynch, Pierce, Fenner Smith, Inc. ("Merrill Lynch") for fraud and negligence arising from conduct of a Merrill Lynch employee related to HC's Working Capital Management Account ("Account"), Merrill Lynch moves to dismiss for failure to state a claim on which relief can be granted and for summary judgment. The court grants in part and denies in part both motions, permits HC to replead components of its fraud claim, raises sua sponte that Merrill Lynch is entitled to summary judgment dismissing one basis for HC's fraud claim, and allows HC to demonstrate why that basis for its fraud claim should not be dismissed.
Although HC is now the plaintiff by virtue of the court's November 23, 2004 memorandum opinion and order, Merrill Lynch's motions are addressed to claims included in the amended complaint ("complaint") filed June 29, 1998 by then-plaintiff Phillip Harrison Robinette ("Robinette"). Unless the context requires otherwise, the court will refer to Robinette's pleadings as if filed by HC.
HC sued Merrill Lynch to recover on other state-law claims, but in response to Merrill Lynch's summary judgment motion, it has abandoned all claims except those for fraud and negligence. See P. SJ Resp. at 8 (requesting "that Merrill Lynch's Motion for Summary Judgment be denied as to the issues of negligence and fraud[.]").
I
HC was incorporated in May 1994. As HC's sole director, Phillip Harrison Robinette ("Robinette") named himself President and Karen D. Price ("Price") Secretary-Treasurer. Robinette was also HC's sole shareholder. Robinette's bookkeeper, Gary W. Oldham ("Oldham"), introduced him to Matthew E. Martin ("Martin"), a Merrill Lynch employee. Robinette opened the Account in June 1994. Oldham and Martin informed Robinette that a resident of the state of Washington would have to "be on the account." Robinette agreed to have Oldham designated as HC's Secretary only for purposes of the Account. Although Oldham became a signatory, Robinette restricted the Account so that all transactions involving withdrawals or transfers from the Account's general deposits would require his signature. Robinette gave Martin total and unfettered discretion, however, to buy and sell securities on HC's behalf.In September 1994 Robinette began negotiating a business deal with Loriston L. Crockett ("Crockett") and his business partner, Greg Freeman ("Freeman"). Crockett and Freeman were to receive 50% of HC's stock in exchange for payment to HC of profits from a treasury trading program. Robinette issued a stock certificate in Crockett's name but retained it until payment was made. Robinette terminated the proposed deal with Crockett and Freeman, and HC never received the funds to pay fothe stock. Robinette decided instead to conclude a deal he had negotiated at an earlier time with Allen Walker ("Walker"), whereby he would provide Walker a 50% equity stake in HC. Robinette informed Martin and Oldham of his decision and gave them information concerning how the transaction with Walker would be finalized. HC was to receive a $2 million payment in exchange for certain drilling rights. Walker deposited $2 million in a parallel Merrill Lynch account. The money was to be released to HC once Walker received a broker commission for $50,000. Robinette issued a stock certificate to Walker on December 8, 1994. That same day Robinette was arrested and incarcerated in the Dallas County Jail.
HC was set up to function despite Robinette's incarceration. Robinette's brother, common law wife, and Price would continue to conduct the corporation's affairs. Robinette contacted Walker, who confirmed that the deal would proceed as planned. Robinette placed collect calls to Martin almost daily during his incarceration to stay informed about the pending deal. Martin assured him he would have no problems executing Robinette's instructions.
On December 11, 1994 Crockett telephoned Price to tell her that he needed HC's corporate books and all the important paperwork related to the company. He informed her that he wanted to have an attorney review the corporate documents to protect Robinette's interests in light of his incarceration. Crockett also instructed Price to type a statement declaring that no corporate meetings had been held before September 1994 and to take these materials on December 12, 1994 to a "Mr. Amin" ("Amin"), who had introduced Robinette to Crockett. Price did so. Crockett assured Price that the corporate books and records would be returned after an attorney finished reviewing them to ensure that everything was proper.
After delivering HC's corporate records to Crockett and Amin, Price spoke with Martin. Martin had telephoned Price to ask her whether she was still HC's Secretary-Treasurer, and she responded that she was, so far as she knew. Price told Martin that she had just taken HC's corporate books to Crockett so that an attorney could review them, and that she would have them back in a few days. Martin informed Price that he had received a fax from Crockett stating that Robinette and Price had been fired as President and Secretary-Treasurer, respectively, on December 1, 1994, and that new officers had been elected. Martin also informed Price that he had received copies of stock certificates that had been issued to Crockett in September 1994 and Walker on December 8, 1994. Martin asked Price how it was possible for Robinette and Price to have signed Walker's stock certificate on December 8 when they both had been fired one week before. After Price told Martin that she was not aware of anyone's being fired, Martin informed her that he had no choice but to freeze the Account until he determined what was going on.
After learning of these events on December 12, 1994, Robinette arranged for the locks to be changed on HC's corporate offices, and he telephoned Amin to determine what he knew about the situation. Robinette asked Amin why he had helped Crockett. Amin denied knowing what Crockett was up to and stated that he was not in a position to do anything about it. Amin also told Robinette that Crockett had used a handwritten statement to fire Robinette and Price and had faxed the statement to Martin. Robinette called Martin to inform him, among other things, of his conversation with Amin. He told Martin that the stock certificate issued in Crockett's name had never been given to Crockett because he had not paid for it and that he had only obtained possession of it by talking Price into turning over HC's corporate books. Robinette also apparently informed Martin that, even if the stock certificate was valid, with only 50% of the equity in HC, Crockett could neither vote himself in as a director nor vote Robinette or Price out of office. Robinette made it clear to Martin that Crockett had no legitimate interest in HC, that he was never a shareholder or director of HC, and that he was not entitled to vote as a shareholder or take money out of the Account. Martin assured Robinette that the Account would be frozen to protect both Robinette and HC until the situation was resolved. He also reiterated previous statements that he had made to Robinette on December 9 and 10, 1994 that the Account was "intact and complete." Martin continued to provide similar reassurances as Robinette continued to telephone him daily from jail.
On December 14, 1994 Martin informed Robinette that the President of Merrill Lynch was flying in from New York to look into the situation with the Account. On or about December 16, 1994 Martin informed Robinette that he could not talk with him anymore about the Account and said that, when Robinette got out of jail, "we'll take care of it." Amended Complaint ("Compl.") ¶ 55. Martin began to cash checks drawn by Crockett and to liquidate stocks at Crockett's behest. Crockett systematically withdrew all the assets from the Account and, by the end of December, all the cash and stocks in the Account were depleted, even though Robinette and Price had informed Martin of the illegality of Crockett's actions. Additionally, in an attempt to finalize the Walker deal for themselves, Martin and Oldham met with Walker and, without Robinette's knowledge or consent, issued a check to him for $45,000 from HC's funds. Because Robinette was unaware of this attempt to usurp the Walker deal, he instructed Martin to issue a check to Walker for $50,000. Instead, Martin transferred the money to Crockett's separate account at Merrill Lynch. Martin and Oldham also attempted to take the $2 million that was the subject of the deal between HC and Walker, and thereby deprived HC of the corporate opportunity made available to it by the HC-Walker deal. Martin conspired with Oldham to take whatever assets they could from HC while the opportunity made available by Crockett's fraudulent "take-over" of HC existed and to aid and abet Crockett's "rape" of HC, provided they got their share. Id. ¶ 60.
II
Merrill Lynch seeks summary judgment dismissing all of HC's claims on the ground that they are barred by the equitable doctrine of laches. It is clear that this argument is based on Robinette's dilatory conduct in pursuing the case after he filed it. For example, Merrill Lynch points out that the court administratively closed the case in October 1999 to allow Robinette to complete his prison sentence. It also observes that, although Robinette was released from prison in August 2001, he waited until May 2003 to ask the court to reopen the case statistically. Finally, Merrill Lynch avers, inter alia, that Robinette did not initiate discovery until July 2004, even though the court entered a scheduling order in August 2003. It maintains that, when the case goes to trial, ten years will have elapsed since the events in question. It posits that, with the passage of time, memories have dimmed, two key witnesses have died, and numerous documents have been lost or destroyed.
Based on the fact that Robinette has both state and federal criminal convictions, Merrill Lynch asserts that Robinette is a con-artist, and that this lawsuit is but his latest con, based on false statements and bogus, manufactured evidence. It may be that, in view of his criminal past, Robinette will have considerable difficulty persuading the jury to believe his version of what occurred in this case. The court must decide the instant motions, however, under the standards imposed for motions under Rule 12(b)(6) and 56, which do not permit the court to assess matters of witness credibility.
Merrill Lynch is not entitled to summary judgment on this ground. Laches typically bars claims when plaintiffs engage in dilatory conduct before filing suit. This can be discerned from the formulation of the defense: "Laches under Texas law rests on two elements: (1) an unreasonable delay in bringing a claim although otherwise one has the legal or equitable right to do so, and (2) a good faith change of position by another, to his detriment, because of this delay." Clark v. Amoco Prod. Co., 794 F.2d 967, 971 (5th Cir. 1986) (emphasis added) (citing cases). And it is illustrated by the fact that laches is an affirmative defense, a matter in avoidance that must be pleaded affirmatively. See Fed.R.Civ.P. 8(c); Clark, 794 F.2d at 971 (holding under Texas law that "[l]aches is affirmative defense that must be plead[ed] and prove[d][.]"). Merrill Lynch seeks to invoke the affirmative defense based on post-filing dilatory conduct, but it cites no authority that applies the defense in such circumstances.
The two cases it cites — Costello v. United States, 365 U.S. 265, 282 (1961), and Nilsen v. City of Moss Point, Miss., 674 F.2d 379, 380-81, 386-90 (5th Cir. 1982) — both addressed laches in the context of pre-lawsuit delay.
Moreover, under Texas law, "[t]he application of laches . . . is usually limited to cases arising out of equity or actions at law that are essentially equitable in character." Wayne v. A.V.A. Vending, Inc., 52 S.W.3d 412, 415 (Tex.App. 2001, pet. denied) (citing, inter alia, Brewer v. Nationsbank of Tex., N.A., 28 S.W.3d 801 (Tex.App. 2000, no pet.)); U.S. Rest. Props. Operating L.P. v. Burger King Corp., 2003 WL 21448389, at *6 (N.D. Tex. June 16, 2003) (Solis, J) (applying Texas law); Clark, 794 F.2d at 971 (applying Texas law) ("Laches is usually available only in suits strictly in equity or actions at law that involve claims of an essentially equitable character."). HC is seeking money damages, and laches is not available as a defense. See Wayne, 52 S.W.2d at 415 (holding that laches was unavailable where plaintiff sought legal remedy of money damages for back rent and failure to maintain property).
And even if laches were available as a defense when based on post-filing delay, Merrill Lynch is not entitled to summary judgment. Because laches is an affirmative defense that Merrill Lynch would be required to prove at trial (assuming the defense was available), to be entitled to summary judgment, it "must establish 'beyond peradventure all of the essential elements of the . . . defense.'" 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)). Laches requires unreasonable delay and a good faith, detrimental change of position by another because of the delay. See Clark, 794 F.2d at 971. It is not enough for Merrill Lynch to show delay; it must also prove that the delay was inexcusable or unreasonable. See Gulf, C. S.F.R. Co. v. McBride, 159 Tex. 442, 322 S.W.2d 492, 500 (1959) ("Mere lapse of time raises no presumption of laches. It must be an unreasonable delay which has worked injury to another person."); Zapata Corp. v. Zapata Trading Int'l, Inc., 841 S.W.2d 45, 50 (Tex.App. 1992, no writ) ("In order to prove laches, the appellee had the burden to prove . . . that the delay was inexcusable[.]").
Merrill Lynch has not produced evidence that establishes beyond peradventure that either Robinette or HC unreasonably delayed in asserting HC's claims. It has not directed the court to any evidence that establishes unreasonable delay up to the time the court administratively closed the case to allow Robinette to complete his prison sentence. Merrill Lynch similarly has not established inexcusable delay from the time the court administratively closed the case in October 1999 until Robinette was released from prison. And Merrill Lynch consented to at least some delay during this period because it moved jointly with Robinette for a continuance of the case, which ultimately resulted in the statistical closure. Nor has Merrill Lynch adduced evidence that establishes beyond peradventure that the delay between the time Robinette was released from prison and when he moved the court to enter a new scheduling order was inexcusable. Although Merrill Lynch complains about the impact of delay on the availability of evidence for use at trial, the court is unable to say that it has shown beyond peradventure that Robinette or HC caused these adverse consequences by unreasonable delay.
Accordingly, the court declines to enter summary judgment for Merrill Lynch based on laches.
III
The court now considers whether Merrill Lynch is entitled to dismissal of HC's fraud claim.A
Under Texas law, in order to establish a claim of fraud, HC must show:
(1) that a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew that it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury.Johnson v. Brewer Pritchard, P.C., 73 S.W.3d 193, 211 n. 45 (Tex. 2002) (quoting In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001) (internal quotation marks omitted)). HC's fraud claim is based on Martin's alleged statements to Robinette and Price that the Account "would be frozen" until the issue of corporate authority was resolved and on statements he allegedly made to Robinette on December 9, 10, and 12, 1994 that the Account was "intact and complete." Merrill Lynch maintains on several grounds that this cause of action should be dismissed.
Although the section in HC's complaint that asserts a fraud claim only refers to Martin's statements on December 9 and 10, 1994 that the Account was "intact and complete," see Compl. ¶ 64, the factual allegations also appear to allege that Martin made a similar statement on December 12, see id. ¶¶ 51-53.
B
The court considers first whether HC can recover for fraud based on Martin's alleged statements that the Account would be frozen. Merrill Lynch moves to dismiss and for summary judgment on the ground that, under Texas law, a promise to do something in the future is not actionable unless made with the present intent not to perform. It contends that HC has not alleged whether Martin intended to freeze the Account at the time he made the statements. It also argues that it is entitled to summary judgment because HC has not adduced evidence that Martin had the requisite intent to commit fraud.
1
"[U]nder Texas law, a promise of future performance constitutes actionable fraud only if 'the promise was made with no intention of performing at the time it was made.'" Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552, 564 (5th Cir. 2002) (quoting Formosa Plastics Corp. USA v. Presidio Eng'rs Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998)); see also Fluorine on Call Ltd. v. Fluorogas Ltd., 380 F.3d 849, 858 (5th Cir. 2004). To survive dismissal, HC must plead fraud with the specificity required by Rule 9(b). See United States ex rel. Coppock v. Northrop Grumman Corp., 2002 WL 1796979, at *14 (N.D. Tex. Aug. 1, 2002) (Fitzwater, J.) (applying Rule 9(b) to common law fraud claim under Texas law). Rule 9(b) requires that "all averments of fraud . . . be stated with particularity," but "[m]alice, intent, knowledge, and other condition of mind of a person may be averred generally." Id. HC has failed to allege facts that show that Martin lacked the intent to freeze the Account at the time he told Robinette the Account would be frozen. It has thus failed to plead the intent necessary to plead this basis for fraud under Texas law, as required by Rule 9(b). The court dismisses HC's fraud claim to the extent it is based on Martin's statements that the Account would be frozen.
Although HC alleges in support of its fraud claim that Martin told both Robinette and Price that he would freeze the Account, in alleging specifically what Martin told Price, it avers that "Martin informed . . . Price he had no choice but to freeze the [Account] until he figured out what was going on." Compl. ¶ 48. This alleged statement cannot serve as the basis for HC's fraud claim because Martin did not affirmatively represent to Price that he would freeze the Account; he merely indicated that he had no choice but to do so. Such a statement cannot reasonably be construed as a promise to freeze the Account and cannot serve as a basis for HC's fraud claim.
Although HC has failed to plead fraud as required, the court will allow HC to file an amended complaint within 30 days of the date this memorandum opinion and order is filed to correct this defect. The Fifth Circuit has recognized that
[i]n view of the consequences of dismissal on the complaint alone, and the pull to decide cases on the merits rather than on the sufficiency of pleadings, district courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal.Great Plains Trust Co. v. Morgan Stanley Dean Witter Co., 313 F.3d 305, 329 (5th Cir. 2002) (Fitzwater, J.). Despite the age of this case, this is the first time the court has considered on the merits whether HC's complaint sufficiently alleges a fraud claim. Therefore, the court will give HC an opportunity to replead.
2
Although the court is dismissing HC's fraud claim under Rule 9(b) to the extent it is based on Martin's alleged statements that the Account would be frozen, in the interest of judicial economy, the court will consider Merrill Lynch's summary judgment argument that HC has failed to adduce evidence that Martin had the requisite intent to support a fraud claim.
In evaluating the sufficiency of HC's evidence regarding Martin's intent, the court is guided by several considerations. "Since intent to defraud is generally not susceptible to direct proof, it usually must be proven by circumstantial evidence. 'While a party's intent is determined at the time the party made the representation, it may be inferred from the party's subsequent acts after the representation is made.'" Coffel v. Stryker Corp., 284 F.3d 625, 634 (5th Cir. 2002) (citing Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986)). "Failure to perform, standing alone, is no evidence of the promissor's intent not to perform when the promise was made. However, that fact is a circumstance to be considered with other facts to establish intent." Spoljaric, 708 S.W.2d at 435 (citing cases); see Coffel, 284 F.3d at 634. Nevertheless, "[s]light circumstantial evidence of fraud, when considered with the breach of promise to perform, is sufficient to support a finding of fraudulent intent." Spoljaric, 708 S.W.2d at 435 (internal quotation marks omitted); see Coffel, 284 F.3d at 634. Moreover, "'intent 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[.]'" Beijing Metals Minerals Import/Export Corp. v. Am. Bus. Ctr., Inc., 993 F.2d 1178, 1185 (5th Cir. 1993) (quoting Spoljaric, 708 S.W.2d at 434). Consequently, "'[s]ummary judgment is rarely proper.'" Id. at 1185-86 (quoting Taylor v. Bonilla, 801 S.W.2d 553, 557 (Tex.App. 1990, writ denied)).
According to Price, when she discussed the Account with Martin on December 12, 1994, "Martin said that under the circumstances it looked like he had no choice but to put a freeze on the account until the matter of authority to act on behalf of the corporation was resolved." P. SJ Resp. App. 1-2. Robinette avers that "Martin advised [him] and advised Karen Price that he was going to freeze the account until the issue of corporate authority was resolved." Id. at 4-5. It is not entirely clear from Robinette's affidavit exactly when Martin told him that he would freeze the Account. Nevertheless, the placement of the statement in Robinette's affidavit suggests Martin made the statement around December 15, 1994, and the court will infer that Martin told Robinette on or about that date that he would freeze the Account. See Malacara v. Garber, 353 F.3d 393, 398 (5th Cir. 2003) ("In deciding a summary judgment motion, a court must review the facts drawing all reasonable inferences in the light most favorable to the nonmovant." (citing, inter alia, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986))). Thus a reasonable trier of fact could find that Martin told Price on December 12 that he had no choice but to put a freeze on the Account until the matter of corporate authority was resolved and then, on or about December 15, represented to Robinette that he was going to freeze the Account.
In its summary judgment reply brief, Merrill Lynch moves to strike ¶ 7 of Robinette's affidavit. Robinette's assertion regarding Martin's alleged representation that he was going to freeze the Account is contained in another paragraph of his affidavit and thus is not implicated by Merrill Lynch's motion. Moreover, because the court has not relied on the assertions in ¶ 7 in deciding the motions to dismiss and for summary judgment, the court denies Merrill Lynch's motion to strike as moot.
A reasonable trier of fact could find this time line to be important when considered in conjunction with evidence in the summary judgment record of Account transactions that occurred in December 1994. The proof shows that debits were posted to the Account on December 14, two days after Martin told Price that he had no choice but to freeze the Account. Two more debits were posted to the Account on December 15. Additionally, debits were posted after Martin told Robinette on or about December 15 that he was going to freeze the Account. This evidence permits the finding that Martin did not adhere to his representation to Robinette. Combined with the proof that Martin had intimated to Price that he was going to freeze the Account and apparently did not (there were debits posted to the Account on December 14 and 15), the evidence is sufficient to create a fact issue whether Martin did not intend to freeze the Account at the time he told Robinette it would be frozen. Although Martin did not promise Price that he was going to freeze the Account, the fact that he intimated he was going to, and then did not, makes more likely the proposition that Martin did not intend to freeze the Account when he told Robinette on December 15 that he would. It is the type of "slight circumstantial evidence" that, when combined with proof that Martin breached his promise, is sufficient to create a genuine issue of fact.
Although debits were posted to the Account on December 14, Robinette acknowledged in his deposition that he authorized one of them and that, although he probably did not authorize another one, it was a legitimate expense for HC. See P. SJ Resp. App. 27-28. The transactions still permit the finding that Martin did not freeze the Account after speaking to Price.
The court recognizes that Martin allegedly told Robinette that the Account would be frozen until the issue of corporate authority was resolved. HC has not directed the court to any evidence to show when the issue of corporate authority was resolved. Although this could later affect the disposition of the fraud claim — for example, if the issue of corporate authority was resolved shortly after Martin concluded his conversation with Robinette — it does not alter the court's reasoning today.
Merrill Lynch is not entitled to summary judgment dismissing the component of HC's fraud claim that is based on the assertion that Martin misrepresented to Robinette his intent to freeze the Account.
C
Merrill Lynch seeks summary judgment dismissing HC's fraud claim to the extent based on Martin's alleged statement that the Account was "intact and complete" on December 9 and 10, 1994. It maintains that HC cannot recover for fraud because Robinette has admitted that every transaction from December 8 until December 10, 1994 was authorized and thereby has conceded the truth of Martin's statements at the time they were made.
1
Merrill Lynch's argument fails because the evidence on which it relies does not show that Robinette admitted that every transaction from December 8 to December 10 was authorized. In fact, in his deposition, Robinette specifically testified that he did not authorize a withdrawal for $45,000 to Walker on December 8, 1994. Merrill Lynch maintains that the $45,000 was returned to the Account the next day. It also posits that, even if the funds had not been returned, Robinette has admitted that HC was supposed to pay Walker $50,000. Both arguments fail.
First, although evidence of the transactions that occurred in the Account does show a $45,000 deposit on December 9, nothing in the Account statements establishes that this was a repayment by Walker of the money he had received the day before. Second, although HC alleges that Robinette instructed Martin to issue a $50,000 check to Walker, Merrill Lynch does not direct the court to any evidence that shows that the $45,000 payment was an attempt to fulfill an instruction to pay Walker $50,000. Considering Robinette's deposition testimony that he did not approve the $45,000 disbursement to Walker, there is at least a genuine issue of fact whether Robinette authorized this particular transaction. This may in turn affect whether any statement that Martin made on December 9 or thereafter that the Account was "intact and complete" was correct.
2
Although Merrill Lynch does not raise this argument, the court holds sua sponte that this particular ground for HC's fraud action fails because it has not adduced evidence that would permit a reasonable trier of fact to find that Martin knew on December 9, 10, or 12, 1994 that the statement that HC's Account was "intact and complete" was false or that he made it recklessly without any knowledge of its truth.
The court is permitted to grant summary judgment sua sponte if it provides the adverse party adequate notice and an opportunity to respond. See Mannesman Demag Corp. v. M/V Concert Express, 225 F.3d 587, 595 (5th Cir. 2000). As noted above, one element of a fraud claim under Texas law is that "when the representation was made, the speaker knew that it was false or made it recklessly without any knowledge of the truth and as a positive assertion[.]" Johnson, 73 S.W.3d at 211 n. 45. Even if HC's evidence is sufficient to show that Martin told Robinette that the funds in the Account were intact, HC does not cite any evidence that would permit a reasonable trier of fact to find that Martin knew at the time he made the statements that they were false, or that he made them recklessly, without any knowledge of the truth. Therefore, the court raises sua sponte that Merrill Lynch is entitled to summary judgment to the extent HC's fraud claim is based on Martin's alleged representations that the Account was "intact and complete."
Within 30 days of the date this memorandum opinion and order is filed, HC may file a response, brief, and evidentiary appendix that demonstrates that summary judgment should not be granted on this basis. If HC fails to respond, or responds but fails to demonstrate how Merrill Lynch may be liable for fraud on this basis, the court will dismiss this component of its fraud cause of action.
D
Merrill Lynch moves to dismiss or for summary judgment as to HC's fraud claim on the ground that it has neither alleged nor produced evidence that Martin knew, suspected, or intended that Robinette rely on his statements.
To prove fraud under Texas law, HC must demonstrate, inter alia, that "the speaker made the representation with the intent that the other party should act upon it[.]" Johnson, 73 S.W.3d at 211 n. 45. Rule 9(b) permits intent to be averred generally. See supra § III(B)(1). HC does not allege that Martin intended Robinette to rely on his statements concerning the Account. Thus HC has not pleaded its fraud claim as required under Rule 9(b). For the reasons stated supra at § III(B)(1), the court will allow HC to correct this defect in an amended complaint to be filed within 30 days.
Although HC has not specifically responded to Merrill Lynch's argument that HC has failed to produce evidence that Martin intended Robinette to rely on his statements, the court concludes that the proof is sufficient to require a trial. Robinette testified in his deposition that he and Martin had approximately 10 to 15 conversations between December 8 and December 12 or 13. According to Robinette, in each conversation Martin told him that the Account was fine and intact. Robinette also avers that he told Martin to be careful, that Crockett and Freeman were going to try something funny, and not to allow Crockett to touch the Account. Viewing these statements favorably to Robinette as the summary judgment nonmovant and assuming they were made, they permit the finding that Robinette was concerned about the Account. Martin testified in his deposition that he told Robinette not to worry about the Account. Considering Robinette's alleged statements to Martin warning him about Crockett and Freeman and directing him not to let Crockett have access to the Account, proof that Martin told Robinette not to worry is at least circumstantial evidence that he intended for Robinette to rely on this and other statements he made to him about the Account. This proof creates a genuine issue of material fact about Martin's intent. Accordingly, the court denies Merrill Lynch's motion for summary judgment on this basis.
E
Merrill Lynch moves for dismissal or summary judgment on HC's fraud claim on the basis that HC has not alleged or adduced evidence of any manner in which Merrill Lynch could have benefited from Robinette's failure to "take precautions" regarding the Account.
To plead fraud with the requisite particularity, HC must allege what the person making the false representation obtained. See Williams v. WMX Techs., Inc., 112 F.3d 175, 177 (5th Cir. 1997) ("Pleading fraud with particularity in [the Fifth Circuit] requires . . . 'the identity of the person making the misrepresentation and what [that person] obtained thereby.'" (quoting Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1068 (5th Cir. 1994)). HC's allegations suggest that Martin obtained the opportunity to steal from HC. The complaint states that "Martin conspired with Gary Oldham to take whatever assets they could from [HC]. . . . Simply put, they would aid and abe[t] Larry Crockett's rape of [HC] [.]" Compl. ¶ 60. Additionally, HC posits that Martin, along with Oldham, attempted to take $2 million that Walker allegedly agreed to pay HC. These allegations are sufficient to plead what Martin obtained by his alleged misrepresentations. Merrill Lynch is not entitled to dismissal on this basis.
The court is not now deciding a case under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4, and this opinion does not guide how the court would assess the adequacy of a complaint that is subject to that Act.
Nor can the court grant summary judgment on the ground that HC has not produced evidence of how Merrill Lynch could have benefited from Robinette's failure to take precautions concerning the Account. HC need not prove that Merrill Lynch benefited from the misrepresentations to succeed on its fraud claim because, under Texas law, this is not an element of the cause of action. Instead, HC must prove that it was injured. See Johnson, 73 S.W.3d at 211 n. 45. Therefore, HC's failure to adduce such evidence is not controlling, and the court denies summary judgment on this basis.
IV
HC asserts an alternative claim for negligence. The claim is pleaded, in its entirety, as follows: "As an alternative arg[u]ment to fraud, by Robinette's factual allegations made herein and in his previous pleadings, a clear case of negligence has been established against Merrill Lynch for the losses suffered by [HC]." Compl. ¶ 66. Although HC does not specify the basis for, or plead any details of, this claim, its summary judgment response and brief provide some details. HC appears to assert that Martin negligently misrepresented to both Price and Robinette that he would freeze the Account until the issue of corporate authority was resolved, and he negligently allowed individuals without proper authority to access the Account. Merrill Lynch moves to dismiss the negligence claim or for summary judgment.
The complaint refers to Robinette rather than HC because he was the plaintiff at the time.
A
Merrill Lynch argues for dismissal on the ground that the negligence claim is barred by a two-year statute of limitations. It maintains that HC's complaint alleges that the actions that give rise to the cause of action occurred in December 1994 and that this case was not filed until February 20, 1997.
HC's negligence claim is governed by a two-year statute of limitations. See Geraghty Miller, Inc. v. Conoco Inc., 234 F.3d 917, 931 (5th Cir. 2000) (recognizing that, under Texas law, statute of limitations for negligence claim is two years) (citing Tex. Civ. Prac. Rem. Code Ann. § 16.003 (Vernon Supp. 2000))). The operative complaint in Civil Action No. 3:97-CV-0353-D was filed on February 20, 1997, after the court struck the complaint Robinette had filed in Civil Action No. 3:96-CV-2923-D and ordered him to file an amended complaint. Rather than file an amended complaint, Robinette initiated a new lawsuit, docketed as Civil Action No. 3:97-CV-0353-D. The court later dismissed the 1996 lawsuit on the basis that Robinette had failed to file an amended complaint in that case. Later, Robinette filed a motion in the 1996 suit seeking reinstatement of the case. In addressing the motion, the magistrate judge recognized that Robinette "apparently [sought] reinstatement of the original case to avoid the effect of the statute of limitations on some of his claims." Nov. 3, 1998 Mag. Rec. at 2. The magistrate judge recommended that the court reopen the 1996 lawsuit, vacate the judgment, and consolidate it with the 1997 lawsuit under the 1996 case number. He reasoned that, "[i]f the earlier judgment is not vacated, some of plaintiff's claims that may have been timely when they were filed might be barred." Id. at 4. The court adopted the recommendation. Thus HC's complaint benefits from the advantage of the October 23, 1996 filing date of the first lawsuit. That date falls within the limitations period, and Merrill Lynch is not entitled to dismissal based on limitations.
B
HC's negligence claim fails, however, to the extent it is based on the assertion that Martin negligently misrepresented that he would freeze the Account. HC's cause of action is in this respect essentially one for negligent misrepresentation. See P. SJ Br. at 4-5 ("Accordingly, even if the representations by Martin do not rise to the level of fraud, they could certainly be found by the trier of fact in this case to have been made negligently."). Negligence and negligent misrepresentation are different causes of action under Texas law, with different elements. To prove a claim for negligent misrepresentation, a plaintiff must establish that
(1) the defendant made a representation in the course of his business, or in a transaction in which he had a pecuniary interest, (2) the defendant supplied false information for the guidance of others in their business, (3) the defendant did not exercise reasonable care or competence in obtaining or communicating the information, and (4) the plaintiff suffered pecuniary loss by justifiably relying on the representation.Great Plains Trust Co., 313 F.3d at 318 (Texas law). By contrast, "[t]he elements of a negligence cause of action are the existence of a legal duty, a breach of that duty, and damages proximately caused by the breach." IHS Cedars Treatment Ctr. of Desoto, Tex., Inc. v. Mason, 143 S.W.3d 794, 798 (Tex. 2004).
HC does not specify in its complaint that it is asserting a claim for negligent misrepresentation. It only makes clear in its summary judgment brief that it is attempting to pursue such a claim. The court recognizes that Robinette was proceeding pro se at the time he filed the complaint. Although represented by counsel, HC, as the substituted plaintiff, is entitled to the same deference because it is proceeding based on the same complaint. But even construed liberally, the complaint gives no indication, much less an inartful one, that Robinette is pleading a claim for negligent misrepresentation. Accordingly, the court will not allow HC to raise this cause of action for the first time in a response to Merrill Lynch's summary judgment motion. And although the court has permitted HC to replead its fraud claims, see supra § III(B)(1) and (D), it will not allow HC to plead a claim for negligent misrepresentation that has never been in the case and that Merrill Lynch has never been fairly notified it must defend.
C
The other basis for HC's negligence cause of action appears to be the assertion that Martin was negligent in allowing Crockett, N.L. McClain, and Freeman to withdraw $127,404.91 from the Account. See P. SJ Br. at 4, 6 (identifying as remaining issue in case "whether Merrill Lynch was negligent in allowing Larry Crockett and Greg Freeman to withdraw $127,404.91 from [the Account]."). Merrill Lynch seeks dismissal and summary judgment on the ground that HC has not identified, and cannot prove, a duty owed to HC, a breach of that duty, or that HC suffered damages proximately caused by the breach.
In its summary judgment response, HC posits that "Merrill Lynch owed a duty to [HC] to preserve the [HC] account after Matt Martin became aware that Phillip Robinette was incarcerated and neither Larry Crockett nor N.L. McClain [was] authorized to make withdrawals at that time." P. SJ Resp. at 2. In its brief, HC appears to assert that, as the manager of the Account, Martin had a duty to HC to manage the Account properly so that it was not misused by unauthorized persons. These arguments appear to posit two grounds for contending that Merrill Lynch owed HC a duty. Neither assertion is supported by a citation to any Texas authority that demonstrates that a legal duty not to act negligently arises in either circumstance. Nor has the court located in its own research any Texas case that holds there is a duty not to act negligently in the circumstances presented here. Because the court has nothing before it but the ipse dixit assertions of plaintiff's brief and has found no authorities on its own, it concludes that Merrill Lynch is entitled to summary judgment based on the absence of a duty owed to HC. Since HC cannot demonstrate the ineluctable element of duty, its negligence claim fails to the extent based on the contention that Martin negligently allowed Crockett, N.L. McClain, and Freeman to withdraw $127,404.91 from the Account. See Edgar v. Gen. Elec. Co., 2002 WL 318331, at *4 (N.D. Tex. Feb 27, 2002) (Fitzwater, J.) ("The summary judgment nonmovant's failure to adduce proof as to any essential element of his cause of action renders all other facts immaterial." (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986))).
The court is not assuming arguendo the existence of a duty and addressing the elements of breach of duty and injury because there arguably are fact issues that preclude summary judgment as to these elements.
Although, Merrill Lynch is entitled to dismissal of this component of HC's negligence action, the court will give HC the opportunity to demonstrate that, in the circumstances at issue, Texas recognizes a duty not to act negligently. First, the court is already allowing HC to address a defect in its fraud claim. See supra § III(C)(2). Permitting HC to address this component of its negligence claim will not of itself delay the litigation. Second, despite HC's inadequate briefing, the court has located authorities (e.g., relating to the duties of banks) that may suggest that Texas would hold there is a duty.
Accordingly, within 30 days of the date this memorandum opinion and order is filed, HC may address in the response, brief, and evidentiary appendix allowed above why summary judgment should not be granted based on the absence of a duty not to act negligently. If HC fails to respond, or responds but fails to demonstrate that a recognized legal duty precludes summary judgment, the court will dismiss the remaining component of its negligence cause of action.
* * *
For the reasons set out, the court grants in part and denies in part Merrill Lynch's February 4, 2004 motion to dismiss and September 1, 2004 motion for summary judgment. The court permits HC to file an amended complaint and to file a summary judgment response as set forth above.