Abraham Shakeri v. ADT Security Services, I

Case: 15-10539 Document: 00513466840 Page: 1 Date Filed: 04/15/2016
REVISED April 15, 2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 15-10539 March 7, 2016
Lyle W. Cayce
ABRAHAM SHAKERI; KAHATEREH TAJI, Clerk
Plaintiffs - Appellants
v.
ADT SECURITY SERVICES, INC., doing business as ADT,
Defendant - Appellee
Appeal from the United States District Court
for the Northern District of Texas
Before KING, JOLLY, and PRADO, Circuit Judges.
PER CURIAM:
Plaintiffs–Appellants Abraham Shakeri and Kahatereh Taji filed suit
against Defendant–Appellee ADT Security Services, Inc. in state court,
pursuing a breach of contract claim and tort claims under Texas law for
negligence, fraud, unconscionable conduct, and breach of the implied warranty
of good and workmanlike performance. ADT removed the case to federal court,
thereafter moving to dismiss the tort claims and limit recovery on the breach
of contract claim. The district court ultimately dismissed Plaintiffs’ tort claims
and limited their contractual recovery in three separate orders. Plaintiffs
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timely appealed and argue that the district court erred in dismissing their tort
claims. For the following reasons, we REVERSE the district court’s order
dismissing Plaintiffs’ negligence claim and REMAND to the district court for
further proceedings on this claim, and we AFFIRM the district court’s orders
dismissing Plaintiffs’ remaining tort claims.
I. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs–Appellants Abraham Shakeri and Kahatereh Taji were
proprietors of a jewelry store, Neimax Jewelry Shop, in Irving, Texas, that they
opened in 1987. After the store opened, Shakeri executed a contract on June
16, 1988 (1988 Contract), with Defendant–Appellee ADT Security Services,
Inc. (ADT), whereby ADT would provide Neimax Jewelry with an alarm system
and backup alarm while also servicing the alarm systems. Included in the
1988 Contract were a number of terms and conditions to govern the parties’
relationship. Shortly thereafter, in November 1988, Shakeri and Taji formed
the company Neimax Jewelry, Inc. (Neimax). On August 26, 1999, Shakeri,
acting as President of Neimax, executed a second contract with ADT (1999
Contract) under which ADT updated and replaced some of the alarm system’s
existing components. The 1999 Contract included many of the same terms and
conditions as the 1988 Contract, some of which are now relevant to the appeal
before us. As to maintenance, the 1999 Contract stated:
C. Maintenance — If the reverse side of this agreement indicates
this service is being provided, ADT will, upon Customer’s request,
provide ordinary maintenance and repair of such system due to
normal wear and tear and bear the expense thereof. . . .
As to liability, the 1999 Contract limited Neimax’s recoverable damages in the
event that ADT failed to perform its obligations under the Contract:
E. . . . IF ADT SHOULD BE FOUND LIABLE FOR LOSS,
DAMAGE, OR INJURY DUE TO A FAILURE OF SERVICE OR
EQUIPMENT IN ANY RESPECT, ITS LIABILITY SHALL BE
LIMITED TO A SUM EQUAL TO 10% OF THE ANNUAL
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SERVICE CHARGE OR $1,000, WHICHEVER IS GREATER, AS
THE AGREED UPON DAMAGES AND NOT AS A PENALTY, AS
THE EXCLUSIVE REMEDY; AND THAT THE PROVISIONS OF
THIS PARAGRAPH SHALL APPLY IF LOSS, DAMAGE OR
INJURY, IRRESPECTIVE OF CAUSE OR ORIGIN, RESULTS
DIRECTLY OR INDIRECTLY TO PERSON OR PROPERTY
FROM PERFORMANCE OR NONPERFORMANCE OF
OBLIGATIONS IMPOSED BY THIS CONTRACT OR FROM
NEGLIGENCE, ACTIVE OR OTHERWISE, STRICT LIABILITY,
VIOLATION OF ANY APPLICABLE CONSUMER
PROTECTION LAW OR ANY OTHER ALLEGED FAULT ON
THE PART OF ADT, ITS AGENTS OR EMPLOYEES.
And the 1999 Contract also included a merger clause acknowledging that
Neimax was not relying on any representation, inducement, or advertisement
in entering the contract:
N. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE CUSTOMER AND ADT. IN
EXECUTING THIS AGREEMENT, CUSTOMER IS NOT
RELYING ON ANY ADVICE OR ADVERTISEMENT OF ADT.
CUSTOMER AGREES THAT ANY REPRESENTATION,
PROMISE, CONDITION, INDUCEMENT OR WARRANTY,
EXPRESS OR IMPLIED, NOT INCLUDED IN WRITING IN
THIS AGREEMENT SHALL NOT BE BINDING UPON ANY
PARTY, AND THAT THE TERMS AND CONDITIONS HEREOF
APPLY AS PRINTED WITHOUT ANY ALTERATION OR
QUALIFICATION, EXCEPT AS SPECIFICALLY MODIFIED IN
WRITING. THE TERMS AND CONDITIONS OF THIS
AGREEMENT SHALL GOVERN NOTWITHSTANDING ANY
INCONSISTENT OR ADDITIONAL TERMS AND CONDITIONS
OR ANY PURCHASE ORDER OR OTHER DOCUMENT
SUBMITTED BY THE CUSTOMER.
After Neimax entered into the 1999 Contract, Neimax continued to use ADT
as its alarm system provider, paying ADT for the alarm system’s installation
and for monthly alarm system service. The ADT alarm system included a
panic button (or silent alarm system) whereby the alarm would be triggered by
pushing a button.
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On January 5, 2012, Shakeri contacted ADT to request servicing of the
Neimax alarm system and the backup alarm. ADT dispatched a technician to
Neimax on January 10, 2012, who ostensibly performed the service and
informed Shakeri that the service was complete. However, after the
technician’s visit, Shakeri noticed a new beeping sound coming from the alarm.
Shakeri subsequently called ADT to report the problem on January 11, but a
repair technician never repaired the alarm system. According to ADT, the
repair technician arrived in Neimax’s parking lot at 5:00 PM that day but did
not enter the store because no overtime was authorized for his work.
On January 12, 2012, Neimax was robbed at gunpoint, and Shakeri was
severely beaten and tasered. During the robbery, Shakeri pushed the button
to trigger the alarm system multiple times, but the alarm system and the
backup alarm failed to work. Shortly after the robbery occurred on January 12,
an ADT technician arrived at Neimax to fix the alarm system, by which point
Shakeri was being taken to the hospital. As a result of the robbery, Shakeri
suffered injuries to his neck, body, and right shoulder that required surgery.
ADT alleges that, by the time of the robbery, its technician had informed
Shakeri that the alarm system was broken and that no monitoring was taking
place.
Shakeri and Taji filed the instant civil action against ADT in the 14th
Judicial District Court of Dallas County, Texas, on June 11, 2013, seeking
monetary relief over $200,000 but not more than $1,000,000. Plaintiffs
asserted claims for negligence, breach of contract, common law fraud, and
unconscionable conduct under the Texas Deceptive Trade Practices Act
(DTPA). On their breach of contract claim, Plaintiffs alleged that ADT had
breached the contract by not providing a working alarm system and repairing
it in a timely manner. Plaintiffs also alleged that Defendants committed fraud
by misrepresenting that the alarm would be a top of the line alarm system and
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that Plaintiffs had relied on this misrepresentation when entering into the
1999 Contract. As to their negligence claim, Plaintiffs alleged that ADT owed
a legal duty to provide a top of the line commercial alarm for Plaintiffs and
breached that duty by failing to provide a working alarm and making the
necessary repairs. Finally, Plaintiffs’ DTPA claim alleged that ADT had
engaged in unconscionable conduct when it falsely advertised that its alarm
system would not fail and would be of high quality, thereby exploiting
Plaintiffs’ lack of knowledge, ability, experience, or capacity.
ADT removed the action to federal court under 28 U.S.C. § 1441,
asserting diversity jurisdiction under 28 U.S.C. § 1332. Following removal,
ADT moved to dismiss Plaintiffs’ negligence, fraud, and DTPA claims. ADT
also sought to limit any breach of contract damages to a maximum of $1,000,
pursuant to Section E of the 1999 Contract. The district court granted the
motion in part and denied the motion in part on December 11, 2013. The
district court dismissed the negligence claim, relying on a decision of a Texas
intermediate appellate court to find that ADT had no common law duty under
Texas law to provide Plaintiffs with an operating top of the line commercial
alarm. The court added that such an obligation also would have arisen
contractually, thus barring Plaintiffs’ claim under Texas’s economic loss rule.
The court dismissed Plaintiffs’ common law fraud and DTPA fraud claims for
failing to meet the heightened pleading standards of Fed. R. Civ. P. 9(b).
However, the court declined to dismiss Plaintiffs’ claim that ADT had engaged
in unconscionable conduct in violation of the DTPA and declined to limit
Plaintiffs’ contract damages to $1,000 at the motion to dismiss stage. Plaintiffs
were then granted an opportunity to replead their claims in order to satisfy
heightened federal pleading standards. Shakeri thereafter filed a motion to
file a first amended complaint.
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On February 5, 2014, Neimax filed a motion to intervene as a party–
plaintiff under Fed. R. Civ. P. 24, and, along with Shakeri, filed a motion to file
another amended complaint. The court granted both motions on April 29,
2014. Shakeri, Taji, and Neimax then filed a third amended complaint on April
30, 2014, re-asserting their breach of contract, DTPA unconscionable conduct,
and fraud claims under Texas law. In addition, Plaintiffs asserted common
law and DTPA claims for breach of the implied warranty of good and
workmanlike performance on the basis that ADT’s technician failed to repair
or modify the commercial alarm during his service visit. 1 ADT again moved to
limit Plaintiffs’ breach of contract damages to $1,000 and moved to dismiss
Plaintiffs’ fraud, DTPA unconscionable conduct, and DTPA implied warranty
claims under Fed. R. Civ. P. 9(b) and 12(b)(6).
On November 6, 2014, the court granted ADT’s motion to limit Plaintiffs’
breach of contract damages and dismissed Plaintiffs’ unconscionable conduct,
fraud, and DTPA implied warranty claims under Fed. R. Civ. P. 12(b)(6). The
court found that Plaintiffs did not state a claim for unconscionable conduct
under the DTPA because their claim was essentially an allegation that ADT
failed to fulfill its contractual obligations. As to Plaintiffs’ fraudulent
inducement claim, the court found that it was foreclosed by the merger clause
in the 1999 Contract where Plaintiffs explicitly disclaimed reliance on any
advice or advertisement by ADT. The court also dismissed Plaintiffs’ DTPA
implied warranty claim on the basis that Plaintiffs had not pleaded sufficient
facts to make out such a claim. The court raised sua sponte whether ADT was
entitled to dismissal of Plaintiffs’ common law implied warranty claim, giving
Plaintiffs twenty-one days to brief why that claim should not be dismissed as
well. Plaintiffs failed to brief the issue, leading the district court to dismiss
1 Plaintiffs did not replead their negligence claim in their third amended complaint.
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the common law implied warranty claim on December 3, 2014. In order to
perfect their appeal as to their dismissed claims, Plaintiffs moved for an agreed
judgment against ADT in the amount of $1,000 on their remaining breach of
contract claim, and the district court granted the motion on May 12, 2015.
Plaintiffs timely appealed the district court’s judgment on June 5, 2015.
II. STANDARD OF REVIEW
“We review ‘de novo a district court’s grant or denial of Rule 12(b)(6)
motion to dismiss, accepting all well-pleaded facts as true and viewing those
facts in the light most favorable to the plaintiff.’” Hines v. Alldredge, 783 F.3d
197, 200–01 (5th Cir. 2015) (quoting True v. Robles, 571 F.3d 412, 417 (5th Cir.
2009)). Under this standard “[d]ismissal is appropriate when the plaintiff has
not alleged ‘enough facts to state a claim to relief that is plausible on its face’
and has failed to ‘raise a right to relief above the speculative level.’” True, 571
F.3d at 417 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
Similarly, when we review “a district court’s determination of state law,” while
sitting in diversity jurisdiction, our review is de novo. Salve Regina Coll. v.
Russell, 499 U.S. 225, 231 (1991). In resolving issues of state law, “we are
bound to apply the law as interpreted by the state’s highest court.” Barfield v.
Madison Cty., 212 F.3d 269, 271–72 (5th Cir. 2000). But “[i]f no final
disposition is directly on point, we must make an ‘Erie-guess’, predicting how
that court would rule.” Hodges v. Mack Trucks, Inc., 474 F.3d 188, 199 (5th
Cir. 2006) (quoting Centennial Ins. Co. v. Ryder Truck Rental, Inc., 149 F.3d
378, 382 (5th Cir. 1998)); see generally Erie R.R. Co. v. Tompkins, 304 U.S. 64
(1938).
In making an Erie guess “as to how the Texas Supreme Court would
rule,” this court looks to:
(1) decisions of the [Texas] Supreme Court in analogous cases, (2)
the rationales and analyses underlying [Texas] Supreme Court
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decisions on related issues, (3) dicta by the [Texas] Supreme Court,
(4) lower state court decisions, (5) the general rule on the question,
(6) the rulings of courts of other states to which [Texas] courts look
when formulating substantive law and (7) other available sources,
such as treatises and legal commentaries.
Am. Int’l Specialty Lines Ins. Co. v. Rentech Steel L.L.C., 620 F.3d 558, 564 (5th
Cir. 2010) (alterations in original) (quoting Hodges, 474 F.3d at 199).
III. PLAINTIFFS’ TORT CLAIMS
Plaintiffs Shakeri and Taji argue on appeal that the district court erred
in dismissing their claims for common law negligence, breach of the implied
warranty of good and workmanlike performance under the common law and
the DTPA, unconscionable conduct under the DTPA, and common law
fraudulent inducement. Before proceeding to our review of Plaintiffs’ claims,
we address a prefatory issue that may affect our analysis. Recognizing that
the terms of Neimax’s 1999 Contract with ADT might preclude their various
tort claims, Shakeri and Taji assert that they are not parties to the 1999
Contract or the 1988 Contract and that only Neimax is a party to these
contracts. Because Shakeri signed the contracts in his representative capacity
as president or officer of Neimax, but not in his individual capacity, Shakeri
and Taji argue that the 1999 Contract has no effect on their claims. We find
Plaintiffs’ arguments unpersuasive. Under Texas law, “a litigant who sues
based on contract subjects him or herself to the contract’s terms.” In re
FirstMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex. 2001). While Plaintiffs
Shakeri and Taji claim that they are not bound by the 1999 Contract, their
original and amended complaints asserted breach of contract claims, even
before Neimax intervened as a party to the suit. Plaintiffs are therefore bound
by the terms of the 1999 Contract. With this in mind, we address each of
Plaintiffs’ tort claims in turn.
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A. Plaintiffs’ Negligence Claim
Although Plaintiffs argue that their negligence claim was improperly
dismissed, ADT asserts that Plaintiffs abandoned their negligence claim after
the district court dismissed the claim in its December 11, 2013 order.
According to ADT, because the district court granted Plaintiffs leave to replead
the claims dismissed in that order and because Plaintiffs failed to replead the
negligence claim, this claim is now abandoned on appeal. ADT is correct that
a failure to replead claims after being granted leave to replead constitutes
waiver of any such claims on appeal. See Gonzalez v. Aztex Advantage, 547 F.
App’x 424, 428 n.8 (5th Cir. 2013) (per curiam) (unpublished) (noting that
failure to file a claim in the amended complaint renders it waived on appeal);
King v. Dogan, 31 F.3d 344, 346 (5th Cir. 1994) (“An amended complaint
supersedes the original complaint and renders it of no legal effect. . . .”).
However, Plaintiffs did not waive their negligence claim by failing to replead
it.
The district court did not specify whether it was dismissing claims with
or without prejudice in its December 11, 2013 order. Nonetheless, a closer
examination of the district court’s order shows that it dismissed Plaintiffs’
negligence claim under Rule 12(b)(6) and fraud claims under Rule 9(b) for
failure to plead the “claims with the required degree of specificity.” While the
district court order granted Plaintiffs leave to replead, it is clear that it did so
as to Plaintiffs’ fraud claims in order to give Plaintiffs “an opportunity to
replead under the federal pleading standards.” By contrast, the district court
appears to have dismissed Plaintiffs’ negligence claim with prejudice when it
held that the claim was unavailable under Texas law. And we have noted that,
“[u]nless the court in its order for dismissal otherwise specifies,” a Rule 12(b)
dismissal “operates as an adjudication on the merits.” Hall v. Tower Land &
Inv. Co., 512 F.2d 481, 483 (5th Cir. 1975) (quoting Fed. R. Civ. P. 41(b)).
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Reading the district court’s order as a whole, we conclude that Plaintiffs did
not abandon their negligence claim by failing to replead it because Plaintiffs
could not have repleaded the claim. See Memon v. Allied Domecq QSR, 385
F.3d 871, 874 n.6 (5th Cir. 2004) (determining that a district court’s dismissal
order was with prejudice although the order did not specify whether it was
with or without prejudice).
Turning to Plaintiffs’ negligence claim on the merits, we find that the
district court erred in dismissing the claim. Under Texas law, “[t]o sustain a
negligence action, the plaintiff must produce evidence of a legal duty owed by
the defendant to the plaintiff, a breach of that duty, and damages proximately
caused by that breach.” Lee Lewis Const., Inc. v. Harrison, 70 S.W.3d 778, 782
(Tex. 2001). Nonetheless, “[a] party’s conduct may often ostensibly implicate
both contractual obligations and various tort duties.” Mem’l Hermann
Healthcare Sys. Inc. v. Eurocopter Deutschland, GMBH, 524 F.3d 676, 678 (5th
Cir. 2008). Recognizing this, Texas courts follow “[t]he economic loss rule
[which] generally precludes recovery in tort for economic losses resulting from
a party’s failure to perform under a contract when the harm consists only of
the economic loss of a contractual expectancy.” Chapman Custom Homes, Inc.
v. Dallas Plumbing Co., 445 S.W.3d 716, 718 (Tex. 2014) [hereinafter Chapman
(Tex.)] (per curiam). Under this doctrine, “if the defendant’s conduct . . . would
give rise to liability only because it breaches the parties’ agreement, the
plaintiff’s claim ordinarily sounds only in contract.” Sw. Bell Tel. Co. v.
DeLanney, 809 S.W.2d 493, 494 (Tex. 1991).
However, the doctrine “does not bar all tort claims arising out of a
contractual setting.” Chapman (Tex.), 445 S.W.3d at 718. The Supreme Court
of Texas has held that “a party states a tort claim when the duty allegedly
breached is independent of the contractual undertaking and the harm suffered
is not merely the economic loss of a contractual benefit.” Id. In this analysis,
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“[t]he nature of the injury most often determines which duty or duties are
breached.” Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986).
If the injury “would give rise to liability independent of the fact that a contract
exists between the parties, the plaintiff’s claim may also sound in tort.” Sw.
Bell Tel., 809 S.W.2d at 494. Following this principle, Texas courts have held
that “[t]he [economic loss] rule does not preclude tort recovery if [the injury
involves] physical harm to the ultimate user or consumer or other property.”
Equistar Chems., L.P. v. Dresser-Rand Co., 240 S.W.3d 864, 867 (Tex. 2007);
see also Restatement (Third) of Torts: Liab. for Econ. Harm § 3 cmt. b (Am.
Law Inst. 2012) (“An actor whose negligence causes personal injury or physical
harm to the property of another can be held liable in tort regardless of whether
the negligence occurs in the performance of a contract between the parties.”).
In dismissing Plaintiffs’ negligence claim, the district court committed
two errors. First, it relied on Chapman Custom Homes, Inc. v. Dallas Plumbing
Co., 446 S.W.3d 29 (Tex. App.—Dallas 2013, pet. granted) [hereinafter
Chapman (Dall.)] (mem. op.), to conclude that plaintiffs had not specifically
pleaded a common law duty under Texas law to provide an operating top of the
line commercial alarm. Second, it concluded that even “if ADT has such an
obligation, it arose by contract,” so the claim would be subject to the economic
loss rule. On the first point, Chapman (Dall.) has since been overruled, and
the rationale from Chapman (Dall.) specifically relied on by the district court
has been overruled. In Chapman, a homeowner filed a negligence claim
against a plumber “for water damage to new construction allegedly caused by
a plumber’s negligent performance under its subcontract with the
homeowner’s general contractor.” Chapman (Tex.), 445 S.W.3d at 717.
Because the intermediate appellate court was under the impression that the
pleadings alleged no “violation of any duties imposed by law that were
independent of the contract,” it granted summary judgment on the negligence
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claim. Chapman (Dall.), 446 S.W.3d at 35. On review, the Supreme Court of
Texas reiterated the economic loss rule but found that “the plumber assumed
an implied duty not to flood or otherwise damage the trust’s house while
performing its contract with the builder.” Chapman (Tex.), 445 S.W.3d at 718
(emphasis added). And this implied duty was “independent of any obligation
undertaken in its plumbing subcontract with the builder, and the damages
allegedly caused by the breach of that duty extend beyond the economic loss of
any anticipated benefit under the plumbing contract.” Id. at 719. Chapman
(Tex.) demonstrates that Plaintiffs should not be faulted for failing to
specifically demonstrate that a common law duty to provide an operating top
of the line commercial alarm exists in Texas because such duties may be
implied by the relationship between the parties.
On the second point, the district court erred when it suggested that, in
any event, Plaintiffs’ negligence claim would be covered by the 1999 Contract.
A reading of the 1999 Contract shows that ADT was bound by Section C of the
contract to provide maintenance and repair of the alarm system. At first
glance, this suggests that the economic loss rule should preclude Plaintiffs’
negligence claim. Plaintiffs alleged that ADT breached its duty to provide
them with a top of the line alarm and to provide a working alarm system, a
duty that appears to be covered by contract. However, under Texas law, “[t]he
nature of the injury most often determines which duty or duties are breached.”
Jim Walter Homes, 711 S.W.2d at 618. While Plaintiffs assert a duty that
sounds similar to the one covered by contract, the nature of Plaintiffs’ injury is
non-economic. Plaintiff Shakeri alleged that he suffered severe and permanent
physical injuries when Neimax was robbed on January 12, 2012. Plaintiff
Shakeri’s injury is therefore the kind of “physical harm” that is not covered by
the economic loss rule and is not defeated by the existence of a contract
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between the parties. Equistar Chems., 240 S.W.3d at 867. Accordingly, the
district court erred in dismissing Plaintiffs’ negligence claim.
B. Plaintiffs’ Common Law and DTPA Claims for Breach of the
Implied Warranty of Good and Workmanlike Performance
While the district court erred in dismissing Plaintiffs’ negligence claim,
it did not err in dismissing Plaintiffs’ claims for breach of the implied warranty
of good and workmanlike performance at common law and under the DTPA.
The district court held that Plaintiffs had not specifically pleaded facts to
“enable the court to draw the reasonable inference that the ADT repair
technician did not perform the alarm repairs in a manner generally considered
proficient by those capable of judging such work.” Plaintiffs likely pleaded
enough facts to make out a breach of the implied warranty claim; 2 however, we
nevertheless affirm the district court’s dismissal because Plaintiffs’ claims still
fail under Texas law. See Gilbert v. Donahue, 751 F.3d 303, 311 (5th Cir. 2014)
(“Under our precedent, we may ‘affirm on any ground supported by the record,
including one not reached by the district court.’” (quoting Ballew v. Cont’l
Airlines, Inc., 668 F.3d 777, 781 (5th Cir. 2012)).
Under Texas law, “[t]he DTPA prohibits the breach of an express or
implied warranty . . . but it does not create warranties.” Parkway Co. v.
Woodruff, 901 S.W.2d 434, 438 (Tex. 1995). “The warranties, both express and
implied, actionable under the DTPA must be recognized by the common law or
2 Texas law “define[s] good and workmanlike as that quality of work performed by one
who has the knowledge, training, or experience necessary for the successful practice of a trade
or occupation and performed in a manner generally considered proficient by those capable of
judging such work.” Melody Home Mfg. Co. v. Barnes, 741 S.W.2d 349, 354 (Tex. 1987).
Plaintiffs pleaded that ADT’s technician failed to properly repair the alarm system and left
it in a condition where it did not work, despite being called to repair the alarm system and
telling Shakeri that the alarm was in working order. Based on this allegation, it is clear that
Plaintiffs “plead[ed] factual content that allow[ed] the court to draw the reasonable inference
that the defendant [could be] liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009).
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created by statute.” Id. And an “implied service warranty,” like the implied
warranty of good and workmanlike performance, is “a common law creation.”
Id.; see also Melody Home Mfg., 741 S.W.2d at 354 (recognizing the implied
warranty of good and workmanlike performance of services under common
law). 3 The Supreme Court of Texas has, at times, “recognized an implied
warranty for services only when the services relate to the repair or modification
of existing tangible goods or property.” Rocky Mountain Helicopters, Inc. v.
Lubbock Cty. Hosp. Dist., 987 S.W.2d 50, 52–53 (Tex. 1998). However, implied
warranties that “services will be performed in a good and workmanlike
manner” will generally only “arise under the common law when public policy
mandates.” Id. at 53. The Supreme Court of Texas has clarified that “[p]ublic
policy does not justify imposing an implied warranty for service transactions
in the absence of a demonstrated, compelling need” and “[t]here is no
compelling need for an implied warranty when other adequate remedies are
available to the consumer.” Id.
We are not aware of, and Plaintiffs do not point to, any case recognizing
an implied warranty in circumstances analogous to the instant case.
Moreover, a Texas court would not recognize an implied warranty here.
Although Plaintiffs plead an implied warranty in the repair and modification
of their alarm system, Plaintiffs’ claim essentially rests on ADT’s failure to
perform “services . . . in a good and workmanlike manner.” Id. An implied
warranty in ADT’s service of the alarm system therefore would only exist if
public policy justified imposing one based on a compelling need. Because
Plaintiffs have adequate remedies for ADT’s conduct in both their negligence
and breach of contract causes of action, Texas courts would not recognize an
3 Because Plaintiffs’ DTPA and common law implied warranty claims both rely on the
existence of an implied warranty created at common law, we treat them similarly in our
analysis of whether Texas courts would recognize an implied warranty here.
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implied warranty in ADT’s repair and modification of the alarm system.
Plaintiffs fail to state adequate claims for breach of the implied warranty of
good and workmanlike performance under Texas law.
C. Plaintiffs’ DTPA Unconscionable Conduct Claim
The district court also did not err in dismissing Plaintiffs’ DTPA
unconscionable conduct claim because this claim amounted to an allegation
that ADT breached the contract. The DTPA makes actionable “[f]alse,
misleading, or deceptive acts or practices in the conduct of any trade or
commerce,” including unconscionable conduct. Tex. Bus. & Com. Code Ann.
§ 17.46(a). Unconscionable conduct exists where “an act or practice which, to
a consumer's detriment, takes advantage of the lack of knowledge, ability,
experience, or capacity of the consumer to a grossly unfair degree.” Tex. Bus.
& Com. Code Ann. § 17.45(5). However, “[a]n allegation of a mere breach of
contract, without more, does not constitute a ‘false, misleading or deceptive act’
in violation of the DTPA.” Ashford Dev., Inc. v. USLife Real Estate Servs.
Corp., 661 S.W.2d 933, 935 (Tex. 1983). Instead, as with the economic loss
rule, the inquiry is whether the alleged unconscionable conduct “could have
resulted in the absence of a contract between the parties.” Crawford v. Ace
Sign, Inc., 917 S.W.2d 12, 13 (Tex. 1996) (per curiam). Interpreting Texas law,
we have stated that where “allegedly unconscionable statements” are made but
where the breach of the contract causes the harm, a plaintiff cannot maintain
a claim for unconscionable conduct under the DTPA. Malsom v. Match.com,
L.L.C., 540 F. App’x 412, 415 (5th Cir. 2013) (unpublished).
Plaintiffs argue that their unconscionable conduct claim is not simply a
claim of “failure to perform the contract” and that there was unconscionable
conduct notwithstanding the contract. Nonetheless, their claim ultimately
rests on the allegation that ADT falsely advertised that its alarm system would
be of high quality and would work, when the alarm system, in fact, did not
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No. 15-10539
work as it was supposed to under the contract. Plaintiffs’ claim resembles that
of the plaintiffs in Malsom. We held that the Malsom plaintiffs had not stated
an unconscionable conduct claim because “[t]heir allegations [we]re essentially
. . . that (1) [Defendant] represented that it would perform under the contract,
and (2) nonperformance mean[t] that [Defendant] misrepresented that [it]
would perform under the contract.” Id. at 416. Like the Malsom plaintiffs’
claim, the claim for unconscionable conduct before us “amounts to a breach of
contract claim.” Id. Thus, the district court did not err in dismissing Plaintiffs’
unconscionable conduct claim. 4
D. Plaintiffs’ Fraudulent Inducement Claim
Finally, the district court did not err in dismissing Plaintiffs’ fraudulent
inducement claim. The district court concluded that this claim was barred
because of a merger clause in Section N of the 1999 Contract, which stated that
“in executing th[e] agreement, [the] customer [was] not relying on any advice
or advertisement of ADT.” Although, Texas law generally permits actions for
common law fraud, 5 “it may be possible for a contract’s terms to preclude a
claim for fraudulent inducement by a clear and specific disclaimer-of-reliance
clause.” Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341
4 We note that an unconscionable conduct claim may also exist “when the plaintiff
alleges not only a breach of contract, but also that the other party ‘never intended’ to fulfill
the contract in the first place.” Malsom, 540 F. App’x at 415 (quoting Tony Gullo Motors I,
L.P. v. Chapa, 212 S.W.3d 299, 304 (Tex. 2006)). However, Plaintiffs did not allege that ADT
never intended to fulfill the contract in their pleadings.
5 Under Texas law, a plaintiff can demonstrate common law fraud where:
(1) a material representation was made; (2) the representation was false;
(3) when the representation was made the speaker knew it was false or made
it recklessly without any knowledge of its truth and as a positive assertion;
(4) the speaker made the representation with the intent that it should be acted
upon by the party; (5) the party acted in reliance upon the representation; and
(6) the party thereby suffered injury.
Eagle Props., Ltd. v. Scharbauer, 807 S.W.2d 714, 723 (Tex. 1990).
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No. 15-10539
S.W.3d 323, 332 (Tex. 2011). “[A] disclaimer of reliance or merger clause will
not always bar a fraudulent inducement claim,” but “a release that clearly
expresses the parties’ intent to waive fraudulent inducement claims, or one
that disclaims reliance on representations about specific matters in dispute,
can preclude a claim of fraudulent inducement.” Schlumberger Tech. Corp. v.
Swanson, 959 S.W.2d 171, 181 (Tex. 1997); cf. Italian Cowboy Partners, 332
S.W.3d at 334 (distinguishing pure merger clauses from those with “an
expressed clear and unequivocal intent to disclaim reliance or waive claims for
fraudulent inducement”). We find that Section N of the 1999 Contract was
sufficiently clear as to disclaim any reliance by Plaintiffs on any alleged
misrepresentation ADT made prior to Plaintiffs entering into the contract.
Accordingly, Plaintiffs’ fraudulent inducement claim is barred under Texas
law.
IV. CONCLUSION
We hold that the district court erred in dismissing Plaintiffs’ negligence
claim but correctly dismissed Plaintiffs’ other tort claims. Therefore, we
REVERSE the district court’s order dismissing Plaintiffs’ negligence claim and
REMAND to the district court for further proceedings on this claim, but we
AFFIRM the district court’s orders dismissing Plaintiffs’ remaining tort
claims. Each party shall bear its own costs.
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