CMS Energy Resource Management Company F/K/A CMS Marketing Services and Trading Company v. Quicksilver Resources, Inc. ( 2009 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-07-260-CV
CMS ENERGY RESOURCE APPELLANT
MANAGEMENT COMPANY AND APPELLEE
F/K/A CMS MARKETING SERVICES
AND TRADING COMPANY
V.
QUICKSILVER RESOURCES, INC. APPELLEE
AND APPELLANT
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FROM THE 236TH DISTRICT COURT OF TARRANT COUNTY
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MEMORANDUM OPINION 1
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I. INTRODUCTION
Quicksilver Resources, Inc. (Quicksilver) sued CMS Energy Resource
Management Company f/k/a CMS Marketing Services and Trading Company
(CMS) for breach of a long-term contract for the sale of natural gas, for
rescission, and for fraud in the inducement of that contract. Following a two-
1
… See Tex. R. App. P. 47.4.
week trial, a jury deliberated for five days and returned a verdict. Both
Quicksilver and CMS moved for judgment on the verdict; ultimately, the trial
court signed a judgment for Quicksilver and rescinded the long-term contract,
effective from the date of the judgment. Both CMS and Quicksilver have
perfected appeals from the trial court’s judgment.
CMS raises four issues. First, CMS claims that there is legally insufficient
evidence to support the jury’s finding that it fraudulently induced Quicksilver
into the transaction. Second, CMS argues that Quicksilver did not obtain the
necessary jury findings to support rescission of the long-term contract. Third,
CMS argues that, in any event, rescission of the entire contract was improper
when the contract contained a severability clause. And fourth, CMS argues
that the trial court erred by requiring CMS to post a bond to secure the costs
of Quicksilver’s supersedeas bond. Quicksilver, as appellee, raises a
“conditional cross-point,” 2 arguing that the jury’s award of zero damages on its
fraudulent inducement claim is against the great weight and preponderance of
the evidence. Quicksilver, as cross-appellant, raises two issues: first, that the
trial court erred by only prospectively rescinding the contract instead of granting
2
… For ease of reference, we use the same characterizations as the
parties utilized in their briefs when discussing their points and issues.
2
rescission ab initio, and second, that the trial court erred by disregarding the
jury’s award of $10 million dollars in exemplary damages.
For the reasons set forth below, we sustain CMS’s first issue challenging
the legal sufficiency of the evidence to support the jury’s finding of fraudulent
inducement. Because we hold that no evidence exists that CMS made a
definitive promise that induced Quicksilver into the contract, we reverse the
trial court’s judgment and render judgment that Quicksilver take nothing.
II. F ACTUAL AND P ROCEDURAL B ACKGROUND
On March 26, 1999, CMS and Quicksilver engaged in telephone
negotiations that culminated in an agreement before the parties hung up; CMS
and Quicksilver agreed that Quicksilver would sell CMS natural gas at a fixed
price of $2.47/MMbtu for ten years. As is customary in the industry, the
telephone negotiations and, ultimately, the deal reached in the telephone
conversation, was recorded.
The recorded March 26, 1999 telephone conversation between the
parties was played for the jury multiple times. Marc Pauley, a CMS employee,
initiated the March 26, 1999 telephone conversation, speaking with Mike Ryan,
a Quicksilver product marketing manager. Eventually, Toby Darden,
Quicksilver’s Chairman of the Board, and Glenn Darden, Quicksilver’s Chief
Executive Officer, joined the call via speaker phone with Mike. Andy Coppola,
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CMS’s regional marketing manager, and David Geyer, CMS’s vice president of
risk management joined the call via speaker phone with Marc Pauley.
Unbeknownst to the Quicksilver employees who were participating in the phone
conversation, CMS’s David Geyer was having a concurrent conversation with
Lee Lewis, a CMS risk manager, who, in turn, was on the phone with someone
at J. Aron & Co., a New York bank; this trio was discussing a financial hedge
concerning the Quicksilver gas.
During the March 26, 1999 recorded telephone conversation, CMS and
Quicksilver discussed a “upside sharing provision.” The CMS and Quicksilver
parties’ conversation concerning the “upside sharing provision” was as follows:
(Radio broadcast.)
Mike Ryan: This is Mike Ryan speaking.
Marc Pauley: Mike, it’s Marc.
Mike Ryan: Hey, Marc.
Marc Pauley: I lost you.
Mike Ryan: Yeah, I was kind of hearing – it was dead air there and I
thought maybe we got – maybe we already said what we
needed to say. I didn’t know.
Marc Pauley: Oh, I’m sorry. I was just trying to get the three, five, and
seven while I had you on the line.
Mike Ryan: Right. Okay.
Marc Pauley: Okay. So – okay. 2.26 for the three-year.
Mike Ryan: Okay.
Marc Pauley: 2.31 for the five-year, 2.35 for the seven-year.
Mike Ryan: Okay. And very close on the 2.47 for ten?
Marc Pauley: I’m sorry?
Mike Ryan: And real close to 2.47?
Marc Pauley: No, we’re there. I got guys here with their hands around my
neck if I don’t close ten years at 2.47.
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Mike Ryan: Okay.
Marc Pauley: We’ve been working on this since 8:00 o’clock.
Mike Ryan: Let me put you on hold right now and try to get that.
Marc Pauley: Okay.
(Radio conversation.)
Mike Ryan: Marc?
Marc Pauley: Yes, sir.
Mike Ryan: I’ve got Glenn and Toby Darden with us.
Marc Pauley: All right.
Unidentified
Speaker: Hey, Marc. Hey, Marc.
Marc Pauley: Hi, guys.
Toby Darden: We’re going over this pricing from Consumers.
Marc Pauley: Hey, Glenn and Toby and Mike, you guys want to hang on?
I got a couple other people in the room, too, with me. Why
don’t I just put you on the speaker phone? Guys, are you
there?
Mike Ryan: Yeah, I can hear you.
Toby Darden: We’re here.
Marc Pauley: Okay. I have Andy Coppola and David Geyer in here with
me, too. Go ahead.
Toby Darden: Okay. Marc and David –
Andrew
Coppola: Yeah, David is the vice-president of Risk Management Group,
guys; and he’s the one that’s kind of back-stopping this
whole thing and making sure that we’re getting some
accurate pricing information.
Toby Darden: Sure. Well, let me just go over where we think we should
be, okay, and why we’re having some issues; but we’d love
to hear what you have to say about it. But it – it looks like
the NYMEX strip for ten years was about 2.39 to 2.40
without basis. That’s what our numbers are coming in at,
guys; and we’re checking them a lot of places. And so that
means that your basis is on the order of 6 cents or – 4 cents
is what the offer was yesterday.
David Geyer: (inaudible) 2.39 to 2.40.
Marc Pauley: We’re just relaying your feedback to somebody who’s getting
the bid for us, too.
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Mike Ryan: Yeah, those are bid prices. Those aren’t asks – those aren’t
even in the range. They were on the – I mean, they were –
they were the bid, you know.
Toby Darden: Now, one thing I also wanted to throw into this mix is with
Consumers, we have a little benefit – well, actually, with
anyone we have a little benefit in being able to deliver the
gas through Beaver Creek down directly into your service
area and maybe build some additional capacity on your
existing system.
Marc Pauley: Well, this is – we’re talking about a City Gate deal anyway,
right?
Toby Darden: Right. But anyone else going to Consumers is going to pay
a dime to go downstream, aren’t they?
Marc Pauley: I’m not sure I follow.
Toby Darden: Well, we are in the process of acquiring the Dow Beaver
Creek line.
Marc Pauley: Right.
Toby Darden: You’re aware of that?
Marc Pauley: Yeah.
Toby Darden: And there’s a transportation component to get down to the
Consumer area, isn’t there, on your part?
Andrew
Coppola: There may be. It’s just to say this is – you’re probably
proposing something that may help on our utility better than
it would help us in the marketing group here, guys, in maybe
we don’t – maybe we don’t understand that well enough to
appreciate it.
Toby Darden: Yeah, okay. Well, I can see that. I mean, it’s pretty new;
and it’s hard to value. But it doesn’t change the fact that we
seem to be substantially below where NYMEX plus even a
reasonable basis for Michigan gas would be.
Marc Pauley: What do you think the basis component ought to be?
Toby Darden: Well, I mean, we’re just using if you use a 2.39 to 2.40 ten-
year strip for NYMEX.
Marc Pauley: Right.
Toby Darden: And a 10- to 11-cent basis.
Marc Pauley: We were – so that’s a .49 versus .47. So we’re 2 cents
apart.
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Toby Darden: .49 to .50, but I didn’t say come in the – the rumor was you
couldn’t get there. You were still around 2.44, 2.45.
Marc Pauley: The last call I made to Mike, which was probably ten minutes
ago and we’ve been on the line since, was that we’d like to
close the ten-year at 2.47. We’ve been working that all
morning.
Toby Darden: Okay. Well, I’m sorry. I got part of it.
Marc Pauley: Okay.
Marc Pauley: Well, we’re still here. We’d like to do the ten-year.
Andrew
Coppola: We’re not really putting a big chunk on this, guys; and we’d
just like you to realize that we’re trying to get you as close
as we go along and try to back to back this thing. I agree
with your numbers. I think we looked at a pretty wide basis
market up here that probably was trading, in the last couple
of days, maybe 11 ½ at 16 on the paper side, which would
be equivalent to a 9 ½ bid – 9 ½, maybe 10 bid, on the
physical index is where it is. I suspect the index is probably
going to get tighter but – so I think what we’re looking at
here is probably not any – any more than – or looking at
making anymore than a penny or a penny and a half on this
deal.
Toby Darden: Wouldn’t that make it about a 2.48 price?
Andrew
Coppola: No, 230 – well, now the Market is moving, but I guess
conceptually, yeah.
Toby Darden: Well, why don’t we make it 2.48 and we’ll make a deal?
Andrew
Coppola: Let me get a look at it right here because we’re going to fill
this. Hang on.
Toby Darden: Okay.
Unidentified
Speaker: Hey, guys.
Andrew
Coppola: Hello. Hello.
Unidentified
Speaker: Yeah.
Andrew
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Coppola: With the risk we have laying this thing off, these guys are
sitting pretty tight on .47 being a fair price here.
Marc Pauley: That’s what they asked for.
Marc Pauley: Just to recap, guys, this is a number that we’ve been
working for you for several days; and, you know, we’ve run
these guys into the ground for the last four hours at .47. It
was not a number that we chose. It was a number that we
were quoted by Mike, and I think Glenn reiterated it a couple
of days ago.
Toby Darden: And from the benefit of a newcomer in here trying to haggle
the (inaudible) –
Glenn Darden: How about 2.51, can we do that?
Andrew
Coppola: Let me say, again, guys, we do – we do want this to be a
win-win and we want you to be happy with it and we want
to feel comfortable with it. Considering the business that
we’re going to do in the future, I hope that you understand
we’re not trying to take a big gouge out of this.
Toby Darden: I understand, guys. It’s not – I mean, we’re talking about a
penny; and I’ve been through the numbers on a penny on this
size deal. It’s not going to make us or break us. So –
Andrew
Coppola: I guess we feel the same way. We’re not going to take a lot
of risk on this, but it’s something that’s pivotal and it’s
something that we’d like to do because I think it makes
sense for all of us down the road. And we’ve kind of
crossed a lot of hurdles here this morning, and I’m glad we’re
all finally here together. If we’re this close, we’d love to be
able to do it.
Toby Darden: Well, let me ask you this: Can we have it deliverable off the
Beaver Creek system to Consumers?
Andrew
Coppola: I think we’ll – I think what we need is we need MMbtus into
Consumers.
Toby Darden: Oh, okay. But I mean, can we have – it would help us on
our pipeline situation to have it deliverable off that Beaver
Creek system.
Andrew
Coppola: If Consumers will accept the gas –
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Toby Darden: They will.
Andrew
Coppola: I don’t want to do anything that – that –
Toby Darden: Yeah, only if they will accept the gas. Let’s say conditional
upon accepting the gas –
Marc Pauley: And maybe I should add one more piece. I mean, if Mike
Shore comes back or anybody out of the group and says,
“Sure, for 2 ½ percent fuel and a nickel you can do that,”
obviously –
Toby Darden: That’s not going to work. Yeah. We’re just talking about a
net number here.
Andrew
Coppola: And that number – I think my concern is as long as we get
it into the Consumers – if you guys can give us flexibility
down the road and there’s money to be shared, then we’d be
happy to come back to you and say, “Guys, over this ten-
year period, these logistics may change.”
Toby Darden: Yeah, that’s right.
Andrew
Coppola: And we’d be happy to come back down the road and say, “If
we can save a nickel somewhere, guys, we’ll share that with
you.”
Glenn Darden: I think the best thing we can do is talk to Mike.
Toby Darden: Yeah. That’s probably the best way to approach it. Now, to
give you guys a little background on another contract we’ve
made, we have the ability on a peaking basis to do things
with the gas. I don’t know if Mike’s talked to y’all about
this.
Mike Ryan: No, I haven’t.
Toby Darden: But basically there may be some opportunities for both of us
to use the supply on some of these wild fluctuations in price.
Andrew
Coppola: Oh, absolutely. And we’ll stand there – with your supply and
we have peaking ability ourselves with the balancing at
Consumers, as you guys know –
Unidentified
Speaker: You bet.
Andrew
Coppola: – I think that there’s some great outside opportunities here.
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Toby Darden: Yeah. You guys got more strength in the balancing side than
we do.
Andrew
Coppola: Right.
Toby Darden: And we might be able to find some markets, you know, on
a spiking week or day or a month in winter months or, who
knows, summer months, who knows what happens, but
maybe to arbitrage the supply a little better price –
Andrew
Coppola: No question.
Toby Darden: Can we work out a 50-50 split on that?
Andrew
Coppola: Absolutely. And I can’t – as those things come up, we can
talk about any up side that we derive by taking this supply to
a higher priced market that has an arbitrage play, absolutely.
Toby Darden: Can we put some kind of general intent language or – you
know, I know how lawyers are. So I know how that works
– but some sort of indication that we will both work towards
the best use of the supply?
Andrew
Coppola: Absolutely. The only thing we can’t guarantee is that
whenever an arbitrage opportunity comes up, that this supply
will be dedicated to that; and it’s only because that’s what
we’re doing with a lot of our other supply.
Toby Darden: Right. I understand that, but if we mutually find a specific
deal for this supply –
Andrew
Coppola: Oh, absolutely.
Toby Darden: Can we say something like that?
Andrew
Coppola: Yeah. If we change this deal, whether it be short-term or
whether it even be, you know, a longer term period of time,
somewhere along the course of this ten-year period, we will
agree to share that with you folks, whether it – you know,
whether you bring us the idea or we bring you the idea.
Toby Darden: That’s wonderful. Well, if we can just kind of say that’s
what our goal is for everybody, we’re fine with that; and
we’ll work a split with you on any deal we come across,
hopefully vice versa.
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Andrew
Coppola: Fantastic. I think there’s a lot of opportunities as this market
place changes. We may be moving this gas back into
Wisconsin, guys.
Toby Darden: Yeah, yeah, right. You know, and I think off the Beaver
Creek system, but the truth is, we got to hook the Great
Lakes right there, too.
Andrew
Coppola: Yeah. And we have presence over at Dawn on the other
side. We have another office on the Canadian side.
Toby Darden: Oh, great.
Andrew
Coppola: We can do some arb work at Dawn.
Toby Darden: Well, let’s just see what we can do, and that’s wonderful.
Andrew
Coppola: Do you – I know I don’t want to shove this back at you; but
I think Marc might even talk to Mike about maybe drafting up
a letter of intent. The contract is going to take a little while,
I’m sure.
Glenn Darden: I think we ought to certainly send a letter of confirmation.
Andrew
Coppola: That’s right. At least a letter of confirmation subject to the
review of a contract, but we’re ready to go. We’re going to
go ahead and take a position here.
Glenn Darden: Do you guys want to draft that letter?
Andrew
Coppola: We could.
Glenn Darden: Why don’t you send us a letter of confirmation?
Marc Pauley: Okay. All right. Are we locking in at 2.47 for ten years,
then?
Toby Darden: That’s right.
Marc Pauley: Okay. That’s MMbtus.
Toby Darden: That’s MMbtus, yes.
Andrew
Coppola: Okay.
Andrew
Coppola: Sounds fantastic, guys. This is a great start.
Glenn Darden: Hey, we look forward to the relationship.
Andrew
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Coppola: Absolutely. We’ll get that confirmation faxed out to y’all this
afternoon.
At Quicksilver’s request, CMS sent a March 29, 1999 transaction
confirmation to Quicksilver, confirming the terms of the agreement the parties
had reached. The March 29, 1999 confirmation letter memorialized the upside
sharing provision by providing under the term “Other” that “Quicksilver and
CMS MST agree that if subject gas supply can be scheduled/delivered (whether
on spot short-term or long term basis) to derive additional value, that the parties
shall share in such additional revenue on a 50%-50% basis.” Quicksilver
signed and returned the transaction confirmation, and in March 2000,
approximately a year after the deal was struck on the telephone, the parties
executed a formal GISB contract 3 and an addendum documenting their
agreement. The GISB contract set forth the upside sharing provision in the
exact same language as the confirmation letter under the “special conditions”
box.
As natural gas prices rose, a dispute erupted between CMS and
Quicksilver concerning the specific “upside sharing provision” that was
negotiated in the recorded March 26, 1999 telephone conversation, set forth
in the transaction confirmation, and ultimately, placed into the parties’ GISB
3
… GISB stands for “Gas Industry Standards Board.” A GISB contract is
a form contract that may be utilized in the gas industry.
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contract. In December 1999, Thad Shumway of Quicksilver contacted Marc
Pauley of CMS about the upside sharing provision in the parties’ agreement.
Marc agreed that CMS had an obligation to perform and said that he might have
more time after the first of the year to explore opportunities. Shumway
continued to make inquiries of CMS about its performance under the upside
sharing provision. But CMS did not respond. By the summer of 2000, both
Marc Pauley and Andy Coppola had left CMS’s employment. Eventually, in
November 2000, Quicksilver filed suit.
CMS and Quicksilver sharply disagreed on the meaning of the upside
sharing provision. CMS took the position that the provision meant that if either
CMS or Quicksilver became aware of opportunities to increase the value of the
contract by changing the delivery point of the gas or the volume of gas
delivered and the parties discussed this opportunity and mutually agreed to
change the delivery point or the volume of gas to capture such a benefit, then
the parties would split any change to the deal that allowed the parties to
capture a benefit. Quicksilver took the position that the provision was a “profit-
sharing” provision and required CMS to pay Quicksilver fifty percent of any
amount over $2.47 that CMS sold the gas for.
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Quicksilver’s breach of contract and fraud in the inducement claims
against CMS proceeded to trial.4 The trial court’s charge asked the jury nine
questions. The jury found in question number 1 that CMS failed to comply with
the parties’ contract but found in question number 1A that a condition
precedent to CMS’s obligation to perform had failed to occur. In question
number 2, the jury found zero damages resulted from Quicksilver’s loss of
upside sharing revenue in the past and future as a result of CMS’s failure to
comply with the agreement. In question number 3, the jury found that CMS
fraudulently induced Quicksilver into the transaction, and in question number
4, it found zero damages in the past and in the future resulted from CMS’s
fraudulent inducement. In question number 5, the jury found by clear and
convincing evidence that the harm to Quicksilver resulted from fraudulent
inducement, and in question number 6, the jury awarded $10 million dollars in
4
… The trial court previously granted summary judgment for CMS; this
court reversed the summary judgment as to Quicksilver’s breach of contract
and fraudulent inducement claims. See Quicksilver Res., Inc. v. CMS Mktg.
Servs. & Trading Co., No. 02-03-00251-CV, 2005 WL 182951, at *2 (Tex.
App.—Fort Worth 2005, pet. denied) (mem. op.). Quicksilver’s live pleadings
characterize this claim as “fraud in the inducement,” and Quicksilver labels this
claim as such in its appellate brief, stating, “The jury found that CMS
fraudulently induced Quicksilver into a ten-year Contract for the sale of natural
gas.”
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exemplary damages. The jury did not answer questions 7, 8, 9, or 10 5 because
those questions were conditioned on answers contrary to the jury’s actual
answers.
The trial court signed a judgment for Quicksilver on the jury’s verdict.
The judgment states that CMS fraudulently induced Quicksilver into signing the
GISB dated March 1, 1999, and orders that the contract “is rendered void as
of the date of this Judgment and is hereby rescinded.” The judgment taxes
costs against CMS.
III. L EGALLY INSUFFICIENT E VIDENCE OF F RAUDULENT INDUCEMENT
In its first issue, CMS claims that there is legally insufficient evidence to
support the jury’s finding of fraudulent inducement in question number 3.
Question number 3 asked:
Did CMS commit fraud against Quicksilver?
Fraud occurs when:
a. a party makes a material misrepresentation;
5
… Question number 7 asked whether Quicksilver entered the contract as
a result of a unilateral mistake. Question number 8 asked whether there was
a meeting of the minds between the parties when they entered into the
contract. Question number 9 asked whether Quicksilver notified CMS of its
intent to rescind the contract within a reasonable time. And question number
10 asked what the total amount of revenue Quicksilver would have received for
the gas would have been if the gas had not been committed to the Contract,
minus the revenue Quicksilver actually received.
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b. the misrepresentation is made with knowledge of its falsity
or made recklessly without any knowledge of the truth and
as a positive assertion;
c. the misrepresentation is made with the intention that it
should be acted on by the other party; and
d. the other party reasonably relies on the misrepresentation
and thereby suffers injury.
“Misrepresentation” means:
a. a false statement of fact; or
b. a promise of future performance made with an intent, at the
time the promise is made, not to perform as promised.
Answer “Yes” or “No.”
ANSWER: Yes
A. Which Law Applies
Before we begin our legal sufficiency review of the evidence, we must
determine which law applies here. CMS contends that Michigan law defines
the elements of Quicksilver’s fraud claim because a choice-of-law provision in
the GISB contract and its addendum selects Michigan law. CMS argues,
however, that Texas law governs the procedure of the case, “[w]hile Michigan
substantive law determine[s] what facts Quicksilver must prove to establish the
elements of fraud, Texas procedure law governs how the facts are proved.”
Quicksilver argues that Texas law applies substantively and procedurally
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because (1) CMS does not point to Michigan law as requiring any different
element of fraudulent inducement not otherwise required under Texas law; (2)
CMS does not identify any way that the application of Michigan law would lead
to a different result than the application of Texas law; (3) the choice-of-law
provision in the GISB applies, if at all, only “to govern the Contract,” not to
extracontractual tort claims; and (4) in any event, the award of partial
rescission is simply a matter of election of remedies, which is governed by
Texas procedural law.
Before undertaking a choice-of-law analysis, we look to whether a
conflict of law exists. Sonat Exploration Co. v. Cudd Pressure Control, Inc.,
271 S.W.3d 228, 231 (Tex. 2008); Fraud-Tech, Inc. v. Choicepoint, Inc., 102
S.W.3d 366, 377 & n.32 (Tex. App.—Fort Worth 2003, pet. denied) (citing
Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 419 (Tex. 1984) (determining
that, before undertaking choice of law analysis, the court “must first determine
whether there is a difference between the rules of Texas and New Mexico on
this issue”), Young Ref. Corp. v. Pennzoil Co., 46 S.W.3d 380, 385 (Tex.
App.—Houston [1st Dist.] 2001, pet. denied) (finding no necessity to decide
which state’s law applied absent a conflict of law on the issues presented), and
St. Paul Surplus Lines Ins. Co. v. Geo Pipe Co., 25 S.W.3d 900, 903 n.2 (Tex.
App.—Houston [1st Dist.] 2000, no pet.) (op. on reh’g) (“In the absence of a
17
true conflict of law, we do not undertake choice of law analysis.”)). If no
conflict of law exists on the issues, we need not decide which state’s law
applies. Fraud-Tech, Inc., 102 S.W.3d at 377–78 & n.33 (citing Young Ref.
Corp., 46 S.W.3d at 385 and St. Paul Surplus Lines Ins. Co., 25 S.W.3d at 903
n.2).
In its brief, CMS sets out the elements that it contends are required to
establish fraud related to an agreement between the parties, i.e., fraudulent
inducement, under Michigan law. The elements of fraudulent inducement under
Michigan law are essentially the same as the elements required under Texas
law. Compare Belle Isle Grill Corp. v. City of Detroit, 666 N.W.2d 271, 280
(Mich. Ct. App. 2003) (setting forth elements of fraudulent inducement under
Michigan law) with In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex.
2001) (orig. proceeding) (setting forth elements of fraudulent inducement under
Texas law). The trial court’s charge in this case in question number 3
submitting fraud relating to an agreement between the parties constitutes a
proper submission of fraudulent inducement under either Michigan or Texas
law. See Custom Data Solutions, Inc. v. Preferred Capital, Inc., 733 N.W.2d
102, 105 (Mich. Ct. App. 2006); In re FirstMerit Bank, N.A., 52 S.W.3d at
758. Consequently, because no conflict of law exists on the elements of fraud
relating to an agreement between the parties—that is, the elements of
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fraudulent inducement—we need not undertake a choice-of-law analysis. We
apply Texas law to this issue.
B. Standard of Review
We will sustain a legal sufficiency challenge only when (1) the record
discloses a complete absence of evidence of a vital fact, (2) the court is barred
by rules of law or of evidence from giving weight to the only evidence offered
to prove a vital fact, (3) the evidence offered to prove a vital fact is no more
than a mere scintilla, or (4) the evidence establishes conclusively the opposite
of a vital fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334
(Tex. 1998), cert. denied, 526 U.S. 1040 (1999); Robert W. Calvert, "No
Evidence" and "Insufficient Evidence" Points of Error, 38 Tex. L. Rev. 361,
362–63 (1960). In determining whether there is legally sufficient evidence to
support the finding under review, we must determine whether the evidence is
such that a factfinder could reasonably form a firm belief or conviction that its
finding was true. Diamond Shamrock Ref. Co. v. Hall, 168 S.W.3d 164, 170
(Tex. 2005); Sw. Bell Tel. Co. v. Garza, 164 S.W.3d 607, 627 (Tex. 2004).
We must review all the evidence in the light most favorable to the finding. Hall,
168 S.W.3d at 170; Garza, 164 S.W.3d at 627. This means that we must
assume that the factfinder resolved any disputed facts in favor of its finding if
a reasonable factfinder could have done so. Hall, 168 S.W.3d at 170; Garza,
19
164 S.W.3d at 627. We must also disregard all evidence that a reasonable
factfinder could have disbelieved. Hall, 168 S.W.3d at 170; Garza, 164
S.W.3d at 627. We must consider, however, undisputed evidence even if it is
contrary to the finding. City of Keller v. Wilson, 168 S.W.3d 802, 817 (Tex.
2005); Hall, 168 S.W.3d at 170. That is, we must consider evidence favorable
to the finding if a reasonable factfinder could and disregard evidence contrary
to the finding unless a reasonable factfinder could not. Cent. Ready Mix
Concrete Co. Inc. v. Islas, 228 S.W.3d 649, 651 (Tex. 2007); City of Keller,
168 S.W.3d at 807, 827. More than a scintilla of evidence exists if the
evidence furnishes some reasonable basis for differing conclusions by
reasonable minds about the existence of a vital fact. Rocor Int’l, Inc. v. Nat’l
Union Fire Ins. Co. of Pittsburg, PA, 77 S.W.3d 253, 262 (Tex. 2002).
C. The Law and Evidence Concerning Fraudulent Inducement
CMS contends that no evidence exists that it made a definitive promise,
that is, an actionable misrepresentation to induce Quicksilver into the
transaction.6 Quicksilver points to two categories of allegedly actionable
6
… We did not address this issue in the parties’ prior summary judgment
appeal because CMS did not assert it as a ground for summary judgment on
Quicksilver’s fraudulent inducement claim. See Quicksilver Res., Inc., 2005 WL
182951, at *2 (explaining that CMS moved for summary judgment on
Quicksilver’s fraudulent inducement claim only on the ground that CMS had
conclusively negated the reliance element of the tort).
20
misrepresentations made by CMS: (1) misrepresentations made in the March
26 telephone conversation and (2) the language of and inclusion of the upside
sharing provision in the transaction confirmation and the GISB contract. We
will discuss the alleged misrepresentations in the March 26 telephone
conversation first.
Concerning the March 26 telephone conversation, Quicksilver points to
the following as actionable misrepresentations made by CMS:
• That opportunities would arise in which the gas could be
used to take advantage of wild fluctuation in price;
• That the parties would work out a 50/50 split on upside
prices;
• That CMS would work towards the best use of the supply.
But an examination of the March 26 telephone conversation transcript reveals
that the words “would arise” and “upside prices” were not used by CMS. The
parties agreed in the telephone conversation that
[I]f you guys can give us flexibility down the road and there’s
money to be shared, then [CMS would] be happy to come back to
you and say, “Guys, over this ten-year period, these logistics may
change.”
....
If we [CMS] can save [as opposed to make] a nickel somewhere,
guys, we’ll share that with you.
....
[By Quicksilver’s Toby Darden:] But, basically, there may be [not
would be] some opportunities for both of us to use the supply on
some of these wild fluctuations in price.
21
....
[By CMS’s Andy Coppola:] I think that there are some great outside
opportunities here.
....
[W]e [Quicksilver] might be able to find some markets, you know,
on a spiking week or day or month in winter months or, who
knows, summer months, who knows what happens, but maybe to
arbitrage the supply a little better price.
....
[By CMS’s Andy Coppola:] [A]s those things come up, we can talk
about any up side that we derive by taking this supply to a higher
priced market that has an arbitrage play, absolutely.
....
[By Quicksilver’s Toby Darden:] Can we put some kind of general
intent language . . . some sort of indication that we will both work
towards the best use of the supply?
....
[By CMS’s Andy Coppola:] If we change this deal, whether it be
short-term or whether it even be, you know, a longer term period
of time. . . we [CMS] will agree to share that with you folks [at
Quicksilver]. [Emphasis added.]
Thus, the first two misrepresentations Quicksilver alleges CMS made during the
March 26 telephone conversation are not supported by the record.
Concerning the third misrepresentation Quicksilver claims CMS made
during the March 26 telephone conversation—that CMS would work towards
the best use of the supply—the record reflects that what Quicksilver’s Toby
Darden actually requested is, “Can we put some kind of general intent language
or – you know, I know how lawyers are. So I know how that works – but
some sort of indication that we will both work towards the best use of the
supply?” [Emphasis added.] CMS’s Andy Coppola responds, “Absolutely. The
22
only thing we can’t guarantee is that whenever an arbitrage opportunity comes
up, that this supply will be dedicated to that; and it’s only because that’s what
we’re doing with a lot of our other supply.” Thus, to the extent CMS promised
to work towards the best use of the supply, it was not an unqualified promise
of future performance of the type sufficient to constitute an actionable
misrepresentation. See, e.g., Stiles v. Mem’l Hermann Healthcare Sys., 213
S.W.3d 521, 530 (Tex. App.—Houston [1st Dist.] 2007, pet. denied)
(recognizing unqualified promise to pay medical bills in exchange for release of
negligence cause of action sufficient to constitute misrepresentation supporting
fraud action).
Indeed, the representations by both CMS and Quicksilver in the March 26
phone conversation are akin to “trade talk,” which does not constitute an
actionable misrepresentation and will not support a fraudulent inducement
claim.7 In one case alleging deception in inducing a contract, the Eastland
Court of Appeals explained,
7
… The March 26 telephone conversation reflects quite a volume of
immaterial personal opinion and “trade talk” between these parties. The record
reflects that both parties are experienced in the gas industry and possess equal
bargaining power. Both Quicksilver’s and CMS’s representatives talk about the
strengths that their respective companies bring to the table. Toby Darden touts
Quicksilver’s abilities because it is in the process of “acquiring the Dow Beaver
Creek line” and “has a hook into the Great Lakes.” Andy Coppola counters
with CMS’s strength on the “balancing side” by virtue of CMS’s utility
company. The conversation is filled with this type of “trade talk.”
23
There is another angle from which the testimony in this case must be
viewed. On the whole, we consider the statement of facts reflects quite
a volume of immaterial personal opinion and trade-talk between these
parties, each one sparring for an advantage, and considering the matter
from his own standpoint; but on the whole we think it conclusively
appears that the general tenor and statement of these negotiations do not
rise, or rather descend, to the level of actionable fraud, warranting the
cancellation sought.
Guitar Trust Estate v. Boyd, 120 S.W.2d 914, 919 (Tex. Civ. App.—Eastland
1938, no writ); see also 37 Am. Jur. 2d Fraud and Deceit § 75 (2001)
(explaining the general rule that trade talk will not be construed as importing a
representation upon which a charge of fraud may be based at least where the
parties deal at arm’s length).
Quicksilver relies on Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432,
434–35 (Tex. 1986), for the proposition that a promise to do an act in the
future with the intention, design, and purpose of deceiving and with no
intention of performing the act may constitute actionable fraud. Quicksilver
claims CMS made such a promise here. In Spoljaric, however, the jury found
that “Upchurch promised Spoljaric that a bonus plan would be implemented to
pay Spoljaric a bonus for improvements to Percival’s financial condition.” Id.
at 434. Here, question number 3 did not ask the jury to find, and the jury did
not find, any specifically identified promise or misrepresentation by CMS. We
have reviewed the record extensively and we cannot locate, nor does
24
Quicksilver point to, any specific promise or misrepresentation by CMS during
the March 26 telephone conversation that is definite enough, that is specific
enough, that is not conditional, and that is not mere trade talk so as to
constitute an actionable misrepresentation to support a claim for fraudulent
inducement.8
In summary, the alleged telephone conversation promises made by CMS
are nothing more than if-then promises to consider opportunities to change the
terms of the contract to take advantage of arbitrage plays in higher priced
markets, to make a 50/50 split if “we might be able to find some markets, you
know, on a spiking week or day or a month in winter months or, who knows,
summer months, who knows what happens, but maybe to arbitrage the supply
a little better price,” and that the parties would mutually work towards the best
use of the supply. CMS’s if-then conditional, indefinite, speculative promises
and trade talk will not support a fraudulent inducement claim under the present
8
… Quicksilver points to the fact that CMS was negotiating hedges during
the March 26 telephone conversation as evidence of CMS’s intent not to
perform its telephone conversation promises to Quicksilver. Be this as it may,
whatever CMS’s intent, it does not transform CMS’s telephone conversation
words into something they are not; for the reasons discussed above, CMS’s
telephone conversation words were mere trade talk and are not definite enough,
specific enough, or unconditional enough to constitute an actionable
misrepresentation.
25
facts.9 The representations were at best conditional. See, e.g., Criswell v.
European Crossroads Shopping Ctr., Ltd., 792 S.W.2d 945, 945 (Tex. 1990);
Hohenberg Bros. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976)
(explaining that “[w]hile no particular words are necessary for the existence of
a condition, such terms as ‘if,’ ‘provided that,’ ‘on condition that,’ or some
other phrase that conditions performance, usually connote an intent for a
condition rather than a promise”); Ford v. City State Bank of Palacios, 44
S.W.3d 121, 140 (Tex. App.—Corpus Christi 2001, no pet.) (recognizing same
principle); see also BCY Water Supply Corp. v. Residential Inv., Inc., 170
S.W.3d 596, 603–04 (Tex. App.—Tyler 2005, pet. denied) (recognizing
statement “amounted to no more than a conditional promise of future
performance contingent on BCY’s ownership of the property”);10 Airborne
Freight Co. v. C.R. Lee Enter. Inc., 847 S.W.2d 289, 298 (Tex. App.—El Paso
1992, writ denied) (holding verbal statement that “if you do your job, we will
retain you as a delivery contractor” was a conditional promise). The
9
… Interestingly, we have not located a Texas fraudulent inducement case
where, as in this case, the seller sues the buyer for fraudulently inducing him
into a contract to sell.
10
… We recognize that some of these cases involve negligent
misrepresentation claims, which must be predicated on a misrepresentation of
existing fact. But we include these cases to show that CMS’s alleged promises
do not qualify as an actionable misrepresentation under either definition of
misrepresentation contained in the trial court’s charge.
26
representations were at best indefinite and speculative. See, e.g., Transp. Ins.
Co. v. Faircloth, 898 S.W.2d 269, 276 (Tex. 1995) (recognizing that “an
expression of opinion about monetary value is not a representation of fact
which gives rise to an action for fraud”). The representations were at worst
mere trade talk. See, e.g., Prudential Ins. Co. of Am. v. Jefferson Assocs.,
Ltd., 896 S.W.2d 156, 163 (Tex. 1995) (holding representations that building
was “superb,” “super fine,” and “one of the finest little properties in the City
of Austin” were not misrepresentations that would support a fraud action); Paull
v. Capital Res. Mgmt., Inc., 987 S.W.2d 214, 218–19 (Tex. App.—Austin
1999, pet. denied) (holding statements that an investment was “low risk” and
would “produce large revenues for a long time” were merely dealers’ talk); see
also Frost Nat’l Bank v. Heafner, 12 S.W.3d 104, 112–14 (Tex. App.—Houston
[1st Dist.] 1999, pet. denied) (holding facts purportedly constituting
misrepresentation lacked probative force sufficient to constitute basis of legal
inference of fraud).
The record reflects that no promise by CMS exists in the recorded March
26 telephone conversation that constitutes a definitive misrepresentation
sufficient to support Quicksilver’s fraudulent inducement claim. And because
every person involved in the telephone conversation who testified at trial agreed
that the “deal” was completed when the parties hung up the phone, no
27
evidence exists of an actionable misrepresentation that induced Quicksilver into
the transaction. That is, considering the evidence in the light most favorable
to the verdict and indulging in every reasonable inference that would support
it, the proffered evidence on the misrepresentation element of Quicksilver’s
fraudulent inducement claim does not rise to the level that would enable
reasonable and fair-minded people to differ in their conclusions. See City of
Keller, 168 S.W.3d at 822. The evidence here on the alleged
misrepresentations made by CMS in the March 26 telephone conversation, even
viewed in the light most favorable to the verdict, simply does not furnish any
basis for differing conclusions by reasonable minds about the existence of an
actionable misrepresentation. See Rocor Int’l , Inc., 77 S.W.3d at 262; Kindred
v. Con/Chem, Inc., 650 S.W.2d 61, 62 (Tex. 1983); see also Frost Nat’l Bank,
12 S.W.3d at 112–14. The actual words and phrases used by CMS in the
March 26 recorded telephone conversation are subject to but one reasonable
conclusion; they are at most conditional, indefinite, speculative promises or
mere trade talk and will not support an action for fraudulent inducement.
We next turn to the second category of misrepresentations relied upon by
Quicksilver. Quicksilver claims that CMS fraudulently induced it into the
contract by virtue of the promise set forth in the “upside sharing provision” in
the transaction confirmation and the GISB contract. We agree with Quicksilver
28
that the “upside sharing provision” set forth in the confirmation transaction and
the GISB contract—that “if subject gas supply can be scheduled/delivered
(whether on a spot short-term or long term basis) to derive additional value,
that the parties shall share in such additional revenue on a 50%-50%
basis,”—lends itself better to Quicksilver’s contention that CMS fraudulently
induced Quicksilver into the contract by agreeing with no intent to perform that
every time during the ten-year contract that CMS sold gas it had purchased
from Quicksilver for more than $2.47 MMbtu it would give fifty percent of sales
price over $2.47 to Quicksilver. [Emphasis added.]
Testimony at trial established that entities engaged in the gas industry
customarily record telephone conversations; the parties did so here and agree
that when they concluded their phone conversation, they “had a deal.” 11 Thus,
any promise by CMS that would make it responsible for inducing Quicksilver to
enter into the contract necessarily must have occurred during the recorded
11
… Every person who participated in the March 26 telephone
conversation and testified at trial testified that the parties had “a deal” before
their March 26 telephone conversation concluded. Toby Darden testified that
CMS and Quicksilver “had a deal” when they hung up the phone. Marc Pauley
testified that CMS and Quicksilver “had a deal” when he hung up the phone on
March 26. David Geyer testified that CMS and Quicksilver “had a deal” when
they concluded the March 26 telephone conversation. Mike Ryan testified that
the deal was consummated over the telephone. Andy Coppola testified that
when he hung up the phone on March 26, “CMS had a deal with Quicksilver for
the sale or purchase of this gas.” Thus, this fact was conclusively established.
29
telephone negotiations. See, e.g., Formosa Plastics Corp. USA v. Presidio
Eng’rs & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998); 37 Am. Jur. 2d
Fraud and Deceit § 106 (2001) (recognizing that for tort of fraudulent
inducement pertinent point in time is when misrepresentation is made and relied
upon to induce contract).12 That is, the language of the upside sharing
provision as set forth in the transaction confirmation and the GISB contract
could not have induced Quicksilver into the contract because it was not in
existence when the parties reached a deal and concluded their phone
conversation. See Haase v. Glazner, 62 S.W.3d 795, 797–98 (Tex. 2001)
(explaining the distinction between the tort of fraud and the tort of fraudulent
inducement and noting that the tort of fraudulent inducement presupposes that
misrepresentation induced party to enter a contract).
Quicksilver brought a breach of contract claim against CMS, specifically
asserting that CMS had breached the contractual “upside sharing provision.”
The jury found that a condition precedent to CMS’s performance had not yet
occurred, apparently indicating that the jury accepted CMS’s construction of
the “upside sharing provision.” While Quicksilver possessed a breach of
12
… While, in light of the GISB contract’s merger provision, parol evidence
was not admissible to vary the terms of the written contract, the parties’ verbal
negotiations that culminated in a “deal” are determinative for the tort of
fraudulent inducement. See, e.g., Spoljaric, 708 S.W.2d at 434 (party’s intent
determined at time party made representation).
30
contract claim based on CMS’s alleged failure to comply with the upside sharing
provision set forth in the transaction confirmation and the GISB contract, no
fraudulent inducement claim exists based on the language of the upside sharing
provision because the parties already “had a deal.” See id. The fact that CMS
allegedly later did not comply with the upside sharing provision it included in the
transaction confirmation and the in GISB contract may constitute a breach of
contract, but it did not fraudulently induce Quicksilver into the deal
consummated at the conclusion of the March 26 telephone conversation.
We sustain CMS’s first issue.
IV. S UPERSEDEAS ISSUE
In its fourth issue, CMS complains that the trial court abused its
discretion by requiring CMS, as the judgment debtor, to post a bond for the
costs (bond premiums) Quicksilver incurred obtaining a supersedeas bond
required by the trial court. Because the trial court possessed discretion to
fashion this type of ruling concerning security for a judgment for something
other than money or an interest in property, we overrule CMS’s fourth issue.
See Tex. R. App. P. 24.1(e), 24.2(a)(3).
V. C ONCLUSION
Having sustained CMS’s first issue and overruled CMS’s fourth issue, we
need not address CMS’s other issues. See Tex. R. App. P. 47.1 (requiring
31
appellate court to address only issues necessary to disposition). We likewise
need not address Quicksilver’s conditional cross-point. See id. Because we
have held that the evidence is legally insufficient to support the jury’s
fraudulent inducement finding, we overrule the two issues raised by Quicksilver
as cross-appellant: first, that the trial court erred by only prospectively
rescinding the contract instead of granting rescission ab initio, and second, that
the trial court erred by disregarding the jury’s award of $10 million dollars in
exemplary damages.
We reverse the trial court’s judgment and render judgment that
Quicksilver take nothing. See Tex. R. App. P. 43.2(c).
SUE WALKER
JUSTICE
PANEL: DAUPHINOT, GARDNER, and WALKER, JJ.
DELIVERED: June 25, 2009
32