Mikhail v. Maritz

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 98-50525
_____________________
SAM R MIKHAIL, Individually and doing business as MGC
Engineering; MIKHAIL PROPERTIES; E CORPORATION,
Plaintiffs-Appellants,
v.
PHILIP F MARITZ; MARITZ WOLFF & CO,
Defendants-Appellees.
_________________________________________________________________
Appeal from the United States District Court
for the Western District of Texas
(A-98-CV-50-JN)
_________________________________________________________________
July 1, 1999
Before KING, Chief Judge, REYNALDO G. GARZA and JOLLY, Circuit
Judges.
PER CURIAM:*
Plaintiffs-appellants Sam R. Mikhail, individually and doing
business as NGC Engineering and Mikhail Properties,1 and E
Corporation appeal the district court’s grant of summary judgment
*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
1
Although the official style of the case characterizes
Mikhail Properties as a plaintiff-appellant in its own right,
Mikhail’s brief describes him as “doing business as NGC
Engineering and Mikhail Properties.”
on their fraud, negligent misrepresentation, and tortious
interference with contract claims in favor of defendants-
appellees Philip F. Maritz and Maritz Wolff & Company. We
affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
In April 1996, plaintiff-appellant Sam R. Mikhail and
Lakshminarayan Srinivasan, an agent for plaintiff-appellant E
Corporation, entered into a contract with Avanti Properties
(“Avanti”) to buy a piece of land in downtown Austin, Texas (“the
Property”). The Property is part of a four-parcel development
that includes the Four Seasons Hotel (“the Hotel”), which is
managed by defendant-appellee Maritz Wolff & Company (“Maritz
Wolff”) for owner Hotel Equity Fund, L.P.; the San Jacinto Office
Tower; the Shoreline Grill; and an underground parking garage
connecting the Hotel and the office tower. The contract between
E Corporation and Avanti provided for the expiration of a due
diligence period on June 20, 1996 and the closing of the sale on
or before July 1, 1996.
At the time that they contracted with Avanti, Mikhail and E
Corporation intended to construct a public parking garage on the
Property.2 In early May 1996, however, after another company
expressed interest in leasing 150,000 square feet of office space
2
Mikhail testified at his deposition that he originally
planned on building a public parking garage. Srinivasan
initially testified that he could not recall whether there had
been any discussion as to the public or private character of the
proposed garage prior to May 14, 1996, but he later stated that
he had “contemplated” constructing a public garage “[a]round
April 11.”
2
in downtown Austin, Mikhail and E Corporation decided to build an
office tower with a private underground parking garage on the
Property. On May 14, 1996, Mikhail and Srinivasan met with
defendant-appellee Philip F. Maritz, a principal in Maritz Wolff;
Ken Fearn, an employee of Maritz Wolff; and Craig Reid, the
manager of the Hotel, in the Hotel’s cocktail lounge. Mikhail
and Srinivasan informed Maritz, Fearn, and Reid that E
Corporation planned to build an office tower with an underground
garage on the Property, showed them drawings of a building that
had been planned by one of the Property’s previous owners, and
inquired as to Maritz Wolff’s interest in participating in the
development of the Property. The parties discussed developing
parking, hotel rooms, condominiums, corporate apartments, and
retail space on the Property, but failed to reach any agreements.
On or about May 20, 1996, the company with which E Corporation
had been negotiating decided against leasing office space
downtown, and Mikhail and E Corporation abandoned the idea of
building an office tower, focusing instead on the development of
a parking garage.
On June 18, 1996, Mikhail sent the following facsimile to
Maritz:
We finalized the purchase of the property adjacent to
your Four Seasons Hotel, and will be closing by the end of
July. My partner and I would like to discuss these three
issues with you:
. I met with Austin Commercial, who handled the
construction of the Four Seasons, and have learned
that some of the utilities for the Four Seasons
are located on our site. It would be a costly
3
proposition to relocate these utilities, but we
need to discuss this further.
. We need a letter of intent for the 200 parking
spaces for the Four Seasons at $100.00 per month,
with another 100 spaces either on a daily or an
hourly basis, to be designated for the Four
Seasons.
. The possibility of adding 100 rooms and 50
condominiums to the hotel, as we discussed.
As soon as you get this fax, please give me a call. We
are looking forward to being a good neighbor to you and Four
Seasons.
Maritz responded with a letter that stated in relevant part:
In regard to the three issues you raised in your letter, you
should be advised that our requirements have changed since
we last met. The hotel does not have any need for
additional parking spaces and is not interested in proposals
to lease additional parking spaces. Due to a slowdown in
the Austin economy, we see no need for either additional
hotel rooms or for any condominiums and are interested in
neither adding to our existing inventory nor providing
service or other amenities to such units. As to the issue
of utilities, I would simply suggest that you confirm the
facts as our utility arrangements and easements related
thereto are fully operable.
Prior to receiving this letter, however, Mikhail and E
Corporation had obtained a thirty-day extension of the due
diligence and closing deadlines under their contract with Avanti.
In July 1996, Mikhail and E Corporation extended the contract yet
again, so that the due diligence deadline became August 16, 1996
and the closing date August 30, 1996. By August 1996, however,
they still had not obtained the zoning variances and permits
necessary for building a public parking garage from the city of
Austin. Accordingly, on August 15, 1996, plaintiffs voluntarily
terminated their rights under the contract with Avanti.
During the period that Mikhail and E Corporation had the
Property under contract, Lewis N. Wolff, a principal of Maritz
4
Wolff, made several inquiries as to whether it was for sale. On
May 8, 1996, Wolff contacted Avanti and inquired about the status
of the Property. Marvin Shapiro, an Avanti principal, informed
Wolff that the Property was under contract and declined to
discuss the matter further, although he did invite Wolff to call
back on June 20, 1996, to see if the purchaser (whom Shapiro did
not identify) had closed the sale. On June 20, 1996, the same
day that Maritz sent his letter to Mikhail, Wolff contacted
Avanti again to inquire about the Property. Shapiro advised
Wolff that the purchasers had extended their contract, and no
further discussion ensued. On August 18, 1996, after Mikhail and
E Corporation canceled their contract, Wolff again contacted
Avanti, and some two months later, Maritz Wolff entered into a
contract to purchase the Property on behalf of the owners of the
Hotel. This deal closed in December 1996.
In June 1997, Mikhail, individually and doing business as
MGC Engineering and Mikhail Properties, and E Corporation
(collectively, plaintiffs), brought suit against Maritz and
Maritz Wolff (collectively, defendants) in state court in Dallas
County, Texas for fraud, negligent misrepresentation, and
tortious interference with contract. The defendants removed the
action to the United States District Court for the Northern
District of Texas on the basis of diversity of citizenship. That
court then transferred the case sua sponte to the Western
District of Texas. On February 9, 1998, the defendants filed a
5
motion for summary judgment, which the district court granted.
The plaintiffs appeal.
II. STANDARD OF REVIEW
We review a district court’s grant of summary judgment de
novo, applying the same standards as the district court. See
United States v. Johnson, 160 F.3d 1061, 1063 (5th Cir. 1998).
After consulting applicable law in order to ascertain the
material factual issues, we consider the evidence bearing on
those issues, viewing the facts and the inferences to be drawn
therefrom in the light most favorable to the non-movant. See Doe
v. Dallas Indep. Sch. Dist., 153 F.3d 211, 214-15 (5th Cir.
1998). Summary judgment is properly granted if “the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.” FED. R. CIV. P.
56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Finally, to the extent that a district court’s grant of summary
judgment is based on its interpretation of state law, we review
that determination de novo. See FDIC v. Abraham, 137 F.3d 264,
267 (5th Cir. 1998).
III. DISCUSSION
A. Fraud
First, the plaintiffs contend that Maritz’s allegedly false
statements that the Hotel did not need additional rooms or
6
parking spaces constituted fraud. In Texas, a plaintiff seeking
to recover on a fraud claim bears the burden of proving the
existence of the following: “a material misrepresentation, which
was false, and which was either known to be false when made or
was asserted without knowledge of the truth, which was intended
to be acted upon, which was relied upon, and which caused
injury.” See Johnson & Johnson Med., Inc. v. Sanchez, 924 S.W.2d
925, 929-30 (Tex. 1996) (quoting DeSantis v. Wackenhut Corp., 793
S.W.2d 670, 688 (Tex. 1990)). To succeed in a common law fraud
action, moreover, a plaintiff’s reliance on the defendant’s
conduct must be justifiable as well as actual. See Haralson v.
E.F. Hutton Group, Inc., 919 F.2d 1014, 1025 (5th Cir. 1990)
(applying Texas law). As a general rule, “[i]n an arm’s-length
transaction the defrauded party must exercise ordinary care for
the protection of his own interests and is charged with knowledge
of all facts which would have been discovered by a reasonably
prudent person similarly situated. And a failure to exercise
reasonable diligence is not excused by mere confidence in the
honesty and integrity of the other party.” Thigpen v. Locke, 363
S.W.2d 247, 251 (Tex. 1962) (quoting Courseview, Inc. v. Phillips
Petroleum Co., 312 S.W.2d 197, 205 (Tex. 1957)). To determine
whether reliance is justifiable in a particular case, courts
inquire whether--given a fraud plaintiff’s individual
characteristics, abilities, and appreciation of facts and
circumstances at or before the time of the alleged fraud--it is
extremely unlikely that there was actual reliance on the
7
plaintiff’s part. See Haralson, 919 F.2d at 1026 (citing Lone
Star Mach. Corp. v. Frankel, 564 S.W.2d 135, 139 (Tex. Civ. App.-
-Beaumont 1978, no writ); General Motors Corp. v. Courtesy
Pontiac, Inc., 538 S.W.2d 3, 6 (Tex. Civ. App--Tyler 1976, no
writ)).
Under the circumstances in this case, any reliance
plaintiffs placed on Maritz’s representations as to the Hotel’s
needs was unreasonable as a matter of law. At the time Maritz
wrote his letter, the parties were in the earliest stages of an
arms-length negotiation. Indeed, they had spoken only once
before, in the Hotel’s cocktail lounge, where they briefly
discussed the possibility of Maritz Wolff’s participating in the
development of the Property but failed to reach even a
preliminary agreement. Moreover, Maritz’s representations were
made in the context of terminating negotiations, a time when, we
think, a reasonable businessperson would view his supposedly
uninterested adversary’s descriptions of his needs and wants as
inherently suspicious. In short, a party’s statement that he
does not wish to continue preliminary negotiations because he
does not require or desire the subject of the discussions may be
a mere negotiating ploy, a signal that he does not wish to do
business with the other party. Cf. Keasler v. Natural Gas
Pipeline Co., 569 F. Supp. 1180, 1187 (E.D. Tex. 1983) (holding
that, under Texas law, offerees were not entitled to rely on
offeror’s representation that its offer was “non-negotiable”
because such a statement was “a mere negotiating ploy”), aff’d,
8
741 F.2d 1380 (5th Cir. 1984) (unpublished table decision);
Marburger v. Seminole Pipeline Co., 957 S.W.2d 82, 86-88 (Tex.
App.--Houston [14th Dist.] 1997, writ denied) (same).3 We
therefore agree with the district court that plaintiffs could not
justifiably rely on Maritz’s representations.
B. Negligent Misrepresentation
Plaintiffs also argue that Maritz’s statements constituted
negligent misrepresentation. Under Texas law, the elements of a
claim for negligent misrepresentation are (1) a representation
made by a defendant in the course of his business, or in a
transaction in which he had a pecuniary interest; (2) the
defendant supplies “false information” for the guidance of others
in their business; (3) the defendant did not exercise reasonable
care or competence in obtaining or communicating the information;
and (4) the plaintiff suffers pecuniary loss by justifiably
3
Plaintiffs point out that the Marburger court did find
that an allegedly false representation that all offerees “had
been and necessarily would be offered the same set price” was
actionable. 957 S.W.2d at 87. They argue that Maritz’s
representation that the Hotel did not need additional parking
spaces is more akin to a statement that all offerees will receive
the same price than one that an offer is non-negotiable. We
disagree. The Marburger court found that the former was
actionable because offerees might reasonably infer from such a
statement that, having said so, the offeror was obligated to
offer the same price irrespective of its own willingness to
compromise with any particular offeree. See id. at 87-88. In
this case, however, Maritz’s assertions that the Hotel did not
need additional rooms or parking spaces and was not interested in
acquiring them does not carry the same sense of obligation.
Rather, in light of the fact that they were made in the context
of terminating preliminary arms-length negotiations, these
representations were, like the statement that an offer is non-
negotiable, merely expressions of whether the speaker is willing
to compromise.
9
relying on the representation. See Federal Land Bank Ass’n v.
Sloane, 825 S.W.2d 439, 442 (Tex. 1991). Justifiable reliance is
also an element of negligent misrepresentation. See Haralson,
919 F.2d at 1025 n.5 (citing Great Am. Mortgage Investors v.
Louisville Title Ins. Co., 597 S.W.2d 425, 429 (Tex. Civ. App.--
Fort Worth 1980, writ ref’d n.r.e.); RESTATEMENT (SECOND) OF TORTS
§ 552(1) (1977)). But, this circuit has noted, because an
intentional tort like fraud is not at issue, courts more readily
equate unjustifiable reliance in a negligent misrepresentation
context with contributory negligence. See id. at 1025-26 n.5
(citing Blue Bell, Inc. v. Peat, Marwick, Mitchell & Co., 715
S.W.2d 408, 415 (Tex. App.--Dallas 1986, writ ref’d n.r.e.);
Geosearch, Inc. v. Howell Petroleum Corp., 819 F.2d 521, 526 (5th
Cir. 1987)). Accordingly, “[d]ue to the justifiability
requirement’s stricter nature under negligent misrepresentation
than under common law fraud, a finding of unjustifiable reliance
on fraudulent conduct for common law fraud purposes precludes a
negligent misrepresentation claim based on the same conduct.”
Id. at 1026 n.5. Our conclusion in the previous section that the
plaintiffs unjustifiably relied on Maritz’s representations thus
requires us to rule against them on their negligent
misrepresentation claim as well.
C. Tortious Interference with Contract
Finally, plaintiffs claim that Maritz’s alleged
misrepresentations constituted tortious interference with their
contract with Avanti. In their appellate brief, plaintiffs argue
10
that Maritz’s statements “made performance [of the contract with
Avanti] more burdensome, difficult or impossible, or of less or
no value,” which ultimately “led Mikhail and E Corporation to
terminate the contract and lose the benefit of the bargain.” In
Texas, a party alleging tortious interference with a contract
must prove four elements to sustain its claim: (1) that a
contract subject to interference exists; (2) that the alleged act
of interference was willful and intentional; (3) that the willful
and intentional act proximately caused damage; and (4) that
actual damage or loss occurred. See ACS Investors, Inc. v.
McLaughlin, 943 S.W.2d 426, 430 (Tex. 1997). A third party’s
efforts to induce a contract obligor to “do what it has a right
to do” is not tortious interference with contract under Texas
law, however. Id. at 430; see C.E. Servs., Inc. v. Control Data
Corp., 759 F.2d 1241, 1248 (5th Cir. 1985) (“A third-party’s
efforts to induce another to exercise his right to dissolve a
contract at will or to terminate contractual relations on notice
does not constitute tortious interference with contract under
Texas law.”). Viewing the evidence in the light most favorable
to the plaintiffs, the defendants did no more than convince
Mikhail and E Corporation to exercise what plaintiffs themselves
describe as an “option to cancel the contract” with Avanti.
Under Texas law, such an action cannot form the basis of a
tortious interference with contract claim.4
4
Plaintiffs argue that the Texas Supreme Court’s holding
in Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689 (Tex. 1989),
that “the terminable-at-will status of a contract is no defense
11
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court.
to an action for tortious interference with its performance”
indicates that it has stated an actionable claim even though it
had an option to cancel its contract with Avanti. After Sterner,
however, the Texas Supreme Court reaffirmed that while the
terminable-at-will or terminable-upon-notice status of a contract
does not preclude all actions for tortious interference with its
performance, merely inducing one of the parties to a contract to
exercise his right to terminate it does not constitute actionable
interference. See ACS Investors, 943 S.W.2d at 430 (citing C.E.
Servs., 759 F.2d at 1248, as direct support and noting “but cf.”
Sterner).
12