Opinion
Civil Action No. 3:96-CV-2068-R
September 22, 2003
FINDINGS, CONCLUSIONS, RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
Pursuant to the provisions of 28 U.S.C. § 636(b) and an Order of the Court in implementation thereof, the parties' Joint Motion Submission, filed March 11, 2003, was referred to the undersigned United States Magistrate Judge for hearing, if necessary, and recommendation. The following pleadings are in the Joint Motion Submission and presently before this Court:
(1) Plaintiff's Motion for Partial Summary Judgment and Brief in Support;
(2) Defendant's Response to Plaintiff's Motion for Partial Summary Judgment;
(3) Plaintiff's Reply to Defendant's Response to Plaintiff's Motion for Partial Summary Judgment and Brief in Support;
Having reviewed the pertinent pleadings and the evidence submitted therewith, the Court is of the opinion that Plaintiff's Motion for Partial Summary Judgment and Brief in Support should be GRANTED.
I. BACKGROUND
A. Factual BackgroundLyn-Lea Travel Corp. ("Lyn-Lea") is a travel agency formerly authorized to sell airline tickets for many different airlines, including American Airlines ("American"). Lyn-Lea sold tickets for American pursuant to the terms of an Airline Reporting Commission Reporting Agreement. Lyn-Lea, 283 F.3d at 284. The agreement required American to pay Lyn-Lea commissions for booking flights in accordance with American's published commission schedule. The agreement permitted American to modify its commission schedule at any time. Id.
In 1994, Lyn-Lea began negotiating a new booking agreement with American through American's Sabre Travel Information Network Division ("Sabre"). Id. On December 7, 1994, Lyn-Lea and American executed a new booking agreement (the Sabre Agreement) under which Lyn-Lea leased four Sabre booking terminals from American. Id. The Sabre Agreement required Lyn-Lea to use the four Sabre terminals for at least 1,200 transactions per month. Id. Lyn-Lea sold airline tickets for American pursuant to the terms of an addendum to the Airline Reporting Commission Reporting Agreement ("ARC Agreement"). The ARC Agreement requires American to pay commissions to Lyn-Lea according to American's published commission structure. The agreement also permits American to modify its commission schedule at any time, in addition to commissions, from time to time, American also paid Lyn-Lea "override" payments.
On February 10, 1995, American announced modifications to its domestic commission schedule that dramatically reduced the commissions paid to travel agencies such as Lyn-Lea. Id.
On July 24, 1996, Lyn-Lea filed suit against American, asserting state law claims for tortious interference with business relationships, breach of contract, conspiracy, fraud, and violations of the Texas Deceptive Trade Practices Act. Id. Sabre intervened as a defendant on June 26, 1997, and thereafter filed a counterclaim against Lyn-Lea for breach of contract. Id. Lyn-Lea's main contention is that American knew at the time it negotiated the Sabre Agreement that it was about to reduce commissions, and that it should have disclosed the impending changes to Lyn-Lea. Id. Lyn-Lea contends that had it known of the impending reductions in commissions, it would not have entered into the Sabre Agreement. Id. On December 2, 1997, the Court granted Sabre's motion for summary judgment and dismissed all of Lyn-Lea's claims. Remaining for trial were Sabre's breach of contract counterclaim and Lyn-Lea's nine affirmative defenses thereto, including Lyn-Lea's affirmative defense of fraudulent inducement. (Final J. at 1; Sept. 3, 1999 Ord. at 1-2.)
During the course of the litigation, American transferred ownership of the computer reservations network to Sabre and assigned Sabre all rights in the Sabre Agreement. Thus, Sabre succeeded American as defendant and counter-plaintiff in this suit, and the fraudulent inducement claim is now against Sabre. See Lyn-Lea., 283 F.3d at 285 n. 2.
On September 29, 1999, the Court rejected Lyn-Lea's affirmative defense of fraudulent inducement as preempted. (Sept. 29, 1999 Mem. Op. Ord. at 2-3.) The parties agreed to the entry of final judgment on September 29, 2000. (Final J. at 1.) On October 12, 2000, Lyn-Lea appealed, arguing, inter alia, that the Court erred in dismissing the affirmative defense of fraudulent inducement as preempted. See Lyn-Lea, 283 F.3d at 289 n. 12. In considering the Court's dismissal of this defense, the Fifth Circuit noted that "'some state-law principles of contract law . . .; might well be preempted to the extent they seek to effectuate the State's public policies, rather than the intent of the parties.'" Id. at 289 (quoting American Airlines v. Wolens, 513 U.S. 219, 233 n. 8 (1995)). After finding that fraudulent inducement was a "core concept" of contract law that "does not reflect a state policy seeking to expand or enlarge the parties' agreement[,]" the Fifth Circuit determined that the Court erred in finding that it was preempted. Id. at 290. The judgment for Sabre was vacated, and the case was remanded for the Court to "reassess Sabre's contract claim in light of Lyn-Lea's non-preempted defense." Id. at 292.
After the Court reopened the case on October 31, 2002, the parties were realigned; Sabre became the plaintiff, and Lyn-Lea became the defendant. On March 11, 2003, the parties filed the instant Joint Motion Submission in which Sabre moves for summary judgment on Lyn-Lea's affirmative defense of fraudulent inducement. Sabre argues that (1) Lyn-Lea has released this claim by operation of a previous class-action settlement; (2) Sabre had no duty to disclose information to Lyn-Lea during its negotiations of the Sabre Agreement; (3) the information allegedly withheld was a future prediction that cannot support a claim of fraudulent inducement; and (4) Lyn-Lea cannot establish reasonable or actual reliance. (Mot. at 3.)
Although Lyn-Lea asserts this theory as an affirmative defense, it asserted the same theory as a claim before this case was appealed. See Lyn-Lea Travel, 1997 WL 33441244, at *8 n. 14.
I. ANALYSIS
A. Summary Judgment Standard
Sabre moves for summary judgment on Lyn-Lea's affirmative defense of fraudulent inducement. Under FED. R. Civ. P. 56(c), summary judgment is appropriate when the pleadings and record evidence show that no genuine issue of material facts exists and that the movant is entitled to judgment as a matter of law. See Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). "[T]he substantive law will identify which facts are material." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Only genuine disputes about material facts will preclude the granting of summary judgment. Id. In a motion for summary judgment, the burden is on the movant to prove that no genuine issue of material fact exists. See Latimer v. Smithkline French Lab., 919 F.2d 301, 303 (5th Cir. 1990). If the non-movant bears the burden of proof at trial, the movant for summary judgment need not support the motion with evidence negating the opponent's case; rather, the movant may satisfy its burden by showing that there is an absence of evidence to support the non-movant's case. Id.; Little, 37 F.3d at 1075. Once the movant makes this showing, the burden shifts to the non-movant to show that summary judgment is not appropriate. Little, 37 F.3d at 1075 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). "This burden is not satisfied with 'some metaphysical doubt as to the material facts,' . . . by 'conclusory allegations,' . . . by 'unsubstantiated assertions,' or by only a 'scintilla' of evidence." Id. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)); see also Lujan v. National Wildlife Fed'n, 497 U.S. 871, 871-73, 110(1990); Hopper v. Frank, 16 F.3d 92, 97 (5th Cir. 1994); Davis v. Chevron U.S.A., Inc., 14 F.3d 1082, 1086 (5th Cir. 1994). Rather, the non-moving party must "come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587 (quoting FED. R. CIV. P. 56(e)). in determining whether a genuine issue for trial exists, the court must view all of the evidence in the light most favorable to the non-movant. See Richter v. Merchants Fast Motor Lines, Inc., 83 F.3d 96, 98 (5th Cir. 1996) (per curiam); see also Gremillion v. Gulf Coast Catering Co., 904 F.2d 290, 292 (5th Cir. 1990). If the moving party seeks to establish the absence of a material fact through the submission of affidavits, depositions, admissions, or responses to interrogatories, the non-movant may not rely solely on mere allegations or denials. Rather, the non-movant must demonstrate the existence of an issue of material fact necessitating resolution by trial through similar evidentiary materials setting forth specific facts. See FED. R. CIV. P. 56(e); see also Lechuga v. Southern Pac. Transp. Co., 949 F.2d 790, 794 (5th Cir. 1981).
At the outset it is necessary to decide Lyn-Lea's argument that the Court has already denied summary judgment on Lyn-Lea's claim of fraudulent inducement. Lyn-Lea states that this "Court has already denied Sabre's motion for summary judgment on the same claims made by Sabre in this second Motion, based on the Court's determination that disputed facts exist." (Resp. at 3.) Lyn-Lea relies on the Court's December 2, 1997 Memorandum Opinion and Order, wherein the Court denied summary judgment on Sabre's counterclaim for breach of contract. See Lyn-Lea Travel, 1997 WL 33441244, at *11. The Court granted summary judgment on Lyn-Lea's fraud claim, finding that it was preempted; this ruling was reversed and remanded for consideration of whether Lyn-Lea's fraudulent inducement claim fails on state law grounds. See Lyn-Lea Travel, 283 F.3d at 289-90 n. 13.
B. Fraudulent Inducement
Lyn-Lea asserts fraudulent inducement as an affirmative defense, claiming that American fraudulently induced it to enter into the Sabre Agreement by failing to disclose its alleged plan to cap commissions to travel agencies. Because fraudulent inducement is a state law claim, asserted in this case under Texas law, the Court will address the claim under Texas law.
Neither party has argued that the law of another jurisdiction applies, furthermore. Thus, the Court applies Texas law and this circuit's law, where applicable.
Fraudulent inducement may be asserted as an affirmative defense. Caraway v. Land Design Studio, 47 S.W.3d 696, 698 (Tex.App.-Austin 2001, no pet.) (citing Town N. Nat'l Bank v. Broaddus, 569 S.W.2d 489, 494 (Tex. 1984)). To prevail, the party claiming the defense must establish (1) the opposing party made a false material representation, (2) the opposing party either knew the representation was false when made or recklessly made a positive assertion without any knowledge of its truth, (3) the opposing party made the representation with the intention that it be acted upon, (4) the representation was in fact relied upon by the claimant, and (5) damage to the claimant resulted. See Ernst Young, L.L.P. v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001); Columbia/HCA Healthcare Corp. v. Cottey, 72 S.W.3d 735, 743 n. 5 (Tex.App. — Waco 2002, no pet.).
The element of misrepresentation can be demonstrated in a variety of ways including by way of false promise or by way of concealment by silence. See Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986). Indeed, one may fraudulently induce another to enter into a contract by through non-disclosure. See Bradford v. Vento, 48 S.W.3d 749, 754-55 (Tex. 2000). "As a general rule, a failure to disclose information does not constitute fraud unless there is a duty to disclose the information." Id. (emphasis added). "Thus, silence may be equivalent to a false representation only when the particular circumstances impose a duty on the party to speak and he deliberately remains silent." Id. (citing SmithKline Beecham Corp. v. Doe, 903 S.W.2d 347, 353 (Tex. 1995); see also Cottey, 72 S.W.3d at 744 (same) (citing Spoljaric, 708 S.W.2d at 435).
Whether a duty to disclose exists is a question of law. Bradford, 48 S.W.3d at 754. Such a duty may arise in four situations:
(1) Where there is a special or fiduciary relationship;
(2) Where one voluntarily discloses partial information, but fails to disclose the whole truth;
(3) Where one makes a representation and fails to disclose new information that makes the earlier representation misleading or untrue; and
(4) Where one makes a partial disclosure and conveys a false impression.Cottey, 72 S.W.3d at 744. In this case, Lyn-Lea primarily alleges that "Sabre had a fiduciary duty to [Lyn-Lea] which it breached when it did not disclose its plans to change commissions." (Resp. at 26.)
The Fifth Circuit has remarked that under Texas law, "[b]usiness relationships do not fit a neat dichotomy between those which are 'ordinary contractual relations' and those which are fiduciary." Lee v. Wal-Mart Stores, Inc., 943 F.2d 554, 558 n. 7 (5th Cir. 1991). "Whether a confidential or fiduciary relationship exists is normally a question of fact to be decided by a jury. When the issue is one of no evidence or conclusive evidence, the issue is a question of law." Farah v. Mafrige Kormanik, P.C., 927 S.W.2d 663, 675 (Tex.App.-Houston [1 Dist.], 1996 no writ) (citations omitted). Sabre argues that there is no evidence that Lyn-Lea could provide to establish a fiduciary relationship. Thus, the Court will consider whether a fiduciary relationship exists as a question of law in light of the summary judgment standards set forth in FED. R. CIV. P. 56.
Under Texas law, there are two types of fiduciary relationships (1) a formal fiduciary relationship that arises as a matter of law, such as principal/agent or partners, and (2) an informal fiduciary relationship arising from a confidential relationship 'where one person trusts in and relies upon another, whether the relation is moral social, domestic or merely personal.'" Hoggett v. Brown, 971 S.W.2d 472, 487 (Tex.App.-Houston [14th Dist.] 1997 writ den.) (quoting Crim Truck Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 593-94 (Tex. 1992)). Once the relationship is created through either situation, the "fiduciary duty requires the fiduciary to place the interest of the other party before his or her own." Id.
1. Formal
"Fiduciary duties arise as a matter of law in certain formal relationships, including attorney-client, partnership, and trustee relationships." Shooshtariv. Sweeten, 2003 WL 21982225, at *2 (Tex.App.-Corpus Christi, Aug. 21, 2003); Lee, 943 F.2d at 558 n. 7 ("Certain relationships embody fiduciary responsibilities as a matter of law: those of partners, attorney-client, principal-agent."). Lyn-Lea claims that it had a formal "principal-agent relationship" with American, which was "defined by a variety of agreements, written and unwritten." (Resp. at 4.) It is incumbent on the non-moving party who bears the burden of proof at trial to "come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587 (quoting FED. R. CIV. P. 56(e)). Lyn-Lea refers to the ARC Agreement, the ARC Addendum, other written agreements, and "unwritten agreements" that American would provide Lyn-Lea preferential treatment. Id. at 4-5. However, Lyn-Lea does not identify specific provisions in those agreements which state that the parties engaged in a fiduciary relationship. The only evidence specifically cited by Lyn-Lea is the unsworn declaration by its president, which was given on February 21, 2003 — after this case was remanded from the Fifth Circuit. Id. This declaration only reiterates the belief that the various agreements between the parties created a formal fiduciary relationship. It does not point to specific evidence of such a relationship. Summary judgment evidence consisting only of conclusions are insufficient to raise an issue of fact. See Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984); D.I.S.D. v. Finlan, 27 S.W.3d 220, 233 (Tex.App.-Dallas 2000, pet. denied), cert. denied, — U.S. —, 122 S.Ct. 342, 151 L.Ed.2d 258 (2001). A conclusory statement is one that does not provide the underlying facts to support the conclusion. Rizkallah v. Conner, 952 S.W.2d 580, 587 (Tex.App.-Houston [1st Dist] 1997, no pet.). Accordingly, Lyn-Lea has failed to carry its summary judgment burden to show specific facts that establish a genuine material fact issue regarding a formal fiduciary relationship.
Moreover, there is no authority for the proposition that a fiduciary duty arose between Lyn-Lea and American as a matter of law. Such a relationship commonly arises in the context of "attorney-client, partnership, and trustee relationships." Shooshtari, 2003 WL 21982225, at *2;Lee, 943 F.2d at 558 n. 7 ("Certain relationships embody fiduciary responsibilities as a matter of law: those of partners, attorney — client, principal — agent."). If a fiduciary relationship existed between Lyn-Lea and American, it was not formally created, but arose informally out of the parties' dealings. See, e.g., Evans v. United Air Lines, Inc., 986 F.2d 942, 945 (5th Cir. 1993) (discussing informal fiduciary relationship existed between an airline and a ticketing agent and affirming district court's finding that no fiduciary relationship existed).
2. Informal
Lyn-Lea argues that the record shows that its long-standing, confidential relationship created an informal fiduciary relationship with American. Under Texas law, a "fiduciary relationship may arise outside the usual situations where the dealings between the parties have continued for such a period of time that a party is justified in relying on another to act in his best interest." Shooshtari, 2003 WL 21982225, at *2. "A person is justified in placing confidence in the belief that another party will act in his or her best interest only where he or she is accustomed to being guided by the judgment or advice of the other party, and there exists a long association in a business relationship as well as personal friendship." Id. (citing Hoggett, 971 S.W.2d at 488). However, the fact a business relationship has been cordial and of long duration is not by itself evidence of a confidential or informal fiduciary relationship. The fact one businessman trusts another and relies upon another to perform a contract does not rise to such a relationship. Subjective trust is not enough to transform arms-length dealing into a fiduciary relationship:
A fiduciary relationship is an extraordinary one and will not be lightly created; the mere fact that one subjectively trusts another does not alone indicate that confidence is placed in another in the sense demanded by fiduciary relationships because something apart from the transaction between the parties is required.Shooshtari, 2003 WL 21982225, at *2 (citing Hoggett, 971 S.W.2d at 488, and Farah v. Mafrige Kormanik, P.C., 927 S.W.2d 663, 675-76). Moreover, the Fifth Circuit has determined that under Texas fiduciary law, the existence of a long-standing cordial business relationship between an airline and ticketing agent does not, by itself, create a fiduciary relationship. See Evans, 986 F.2d at 945. In Evans, the Fifth Circuit reiterated that under Texas fiduciary law,
[t]he fact that one businessman trusts another, and relies upon his promise to perform a contract, does not give rise to a confidential relationship Neither is the fact that the relationship has been a cordial one, of long duration, evidence of a confidential relationshipId. Although the appeal in Evans concerned the tort of breach of fiduciary duty, whether a fiduciary relationship exists in the context of fraudulent inducement is guided by the same principles. See Bradford, 48 S.W.3d at 754. Thus, subjective feelings of trust in a cordial, long-standing relationship is an insufficient predicate on which to base a confidential or informal fiduciary relationship. See id.
Sabre argues that because Lyn-Lea's only evidence is its subjective belief of trust, then there is an absence of evidence to support the finding of a fiduciary relationship between American and Lyn-Lea. Sabre has satisfied its summary judgment burden of showing an absence of evidence with regard to this defense. The burden now shifts to Lyn-Lea to show that summary judgment is not appropriate. See Little, 37 F.3d at 1075. Lyn-Lea must show specific facts showing that there is a genuine issue for trial. See Matsushita, 475 U.S. at 587. The proffered specific facts are the statements by Lyn-Lea's president in his unsworn declaration, given earlier this year after this case was remanded from the Fifth Circuit. It states that from 1983 to 1996,
I had always put a great deal of trust in American Airlines. American Airlines had shown me confidential business plans [and] had promised to make [Lyn-Lea] one of its preferred agencies. There were numerous confidences that were shared between American Airlines and [Lyn-Lea], as the relationship developed over the years.
After the events in 1995, it appears that American Airlines decided that [Lyn-Lea] was of no use to it anymore, and the comfortable, cooperative, and confidential relationship stopped. Formerly partners, [Lyn-Lea] and American Airlines became competitors, as American Airlines did all it could to take, or help others to take, customers from [Lyn-Lea]. Until that time, [Lyn-Lea] had always viewed American Airlines as a cooperative partner and not a competitor.
(Resp. at 31; Ex. 1 at ¶¶ 13-14.) Lyn-Lea's president also claims that American had advised it of American's future plans so that Lyn-Lea could plan its business accordingly. Id. at ¶ 46. Lyn-Lea alleges that this shows that its relationship with American was "by definition a principal/agent relationship, in which American Airlines is the principal and [Lyn-Lea] is the agent." (Resp. at 4.) Taking Lyn-Lea's president's statements as true, as the Court must for the purposes of summary judgment, these subjective feelings of trust and reliance are insufficient to create a fiduciary relationship.
Moreover, the Fifth Circuit has reasoned that "even if corporations can stand in a fiduciary relationship," there should be evidence of "social friendship or emotional or personal dependency" on the corporation's representatives. See Lee, 943 F.2d at 559. Here, Lyn-Lea has presented no evidence to show a genuine issue of material fact that would establish such friendship and dependency. "Finally, it is often pointed out that a fiduciary must put the interests of the beneficiary ahead of his own, if need be." Id. Lyn-Lea has presented no evidence to show that American put Lyn-Lea's interests above its own. In fact, the parties specifically agreed in writing that
American, in its sole discretion, reserves the right to modify its commission schedule from time to time and at any time.Lyn-Lea, 1997 WL 33441244, at *9 (emphasis added). Although American and Lyn-Lea's interests aligned for the purposes of profiting their respective businesses, it could hardly be said that American put Lyn-Lea's interests above its own when it contracted for the right to modify the amount of money paid to Lyn-Lea "in its sole discretion" at any time. See Lee, 943 F.2d at 559 (finding that when retailer intended to profit from land purchased from real estate developer, the retailer did not put the developer's interests above its own). The Lee court cited other cases in which Texas courts and the Fifth Circuit had rejected a fiduciary finding where the parties' interests were, as here, inherently at odds. See Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1963) (refusing to find that Thigpen was Locke's fiduciary, even though he was his banker, bookkeeper, a shareholder and member of the board of Locke's grocery store company, and a long-time personal friend.); see also Consolidated Gas Equip. Co. v. Thompson, 405 S.W.2d 333, 336 (Tex. 1966) ("The fact that parties have had prior dealings with one another . . . does not establish a confidential relationship."); Rutherford v. Exxon Co., USA, 855 F.2d 1141, 1146 (5th Cir. 1988) (finding "nothing unusual" in the dealings between Exxon and Rutherford which "created a relationship characterized by confidence and trust"). Lyn-Lea's president's subjective trust is insufficient to create a fiduciary relationship with American.
In sum, there is no genuine issue of material fact regarding the absence of a fiduciary relationship between American and Lyn-Lea — either formal or informal. Lyn-Lea does not argue that American was under any other duty to disclose it alleged plan to cap commissions. Thus, because Lyn-Lea cannot establish that American was under a fiduciary duty to disclose its alleged plans to changes commissions, American was not required to inform Lyn-Lea of its alleged plan. Summary judgment should be granted against Lyn-Lea on its affirmative defense of fraudulent inducement.
Sabre argues three alternative grounds for summary judgment: (1) Lyn-Lea has released this claim by operation of a previous class-action settlement; (3) the information allegedly withheld was a future prediction that cannot support a claim of fraudulent inducement; and (4) Lyn-Lea cannot establish reasonable or actual reliance. (Mot. at 3.) Because Lyn-Lea's fraudulent inducement claim fails for lack of a duty, the Court need not address these alternative arguments.
III. RECOMMENDATION
For the foregoing reasons, the Court RECOMMENDS that Plaintiff's Motion for Partial Summary Judgment B.R. GRANTED and Lyn-Lea's affirmative defense of fraudulent inducement be DISMISSED.SO RECOMMENDED.
INSTRUCTIONS FOR SERVICE AND NOTICE OF RIGHT TO APPEAL/OBJECT
Pursuant to Title 28, United States Code, Section 636(b)(1), any party who desires to object to these findings, conclusions and recommendation must file and serve written objections within ten (10) days after being served with a copy. A party filing objections must specifically identify those findings, conclusions or recommendation to which objections are being made. The District Court need not consider frivolous, conclusory or general objections. A party's failure to file such written objections to these proposed findings, conclusions and recommendation shall bar that party from a de novo determination by the District Court. See Thomas v. Am, 474 U.S. 140, 150(1985); Perales v. Casillas, 950 F.2d 1066, 1070 (5th Cir. 1992). Additionally, any failure to file written objections to the proposed findings, conclusions and recommendation within ten (10) days after being served with a copy shall bar the aggrieved party from appealing the factual findings and legal conclusions of the Magistrate Judge that are accepted by the District Court, except upon grounds of plain error. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).