Texas Soil Recycling, Inc. v. Intercargo Insurance

REVISED DECEMBER 5, 2001
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 00-20337
TEXAS SOIL RECYCLING, INC.
Plaintiff-Appellant,
BOBBY E. SELTZ; JOE R. CALVERT; LISA G. CALVERT
Plaintiffs-Counter Defendants-Appellants,
and
JAMES J. GILLILAND, JR.
Counter Defendant-Appellant
v.
INTERCARGO INSURANCE COMPANY
Defendant-Counter Claimant-Appellee.
Appeal from the United States District Court
For the Southern District of Texas, Houston Division
November 15, 2001
Before GARWOOD, PARKER, and DENNIS, Circuit Judges.
1
DENNIS, Circuit Judge:
Texas Soil Recycling Inc., Bobby E. Seltz, Joe E. Calvert, Lisa G. Calvert, and James J.
Gilliland (collectively “plaintiffs”) appeal from the district court’s order granting summary judgment
in favor of Intercargo Insurance Company. Plaintiffs contend that the district court erred in
dismissing their claims for negligence, negligent misrepresentation, grossly negligent
misrepresentation, and violation of the Texas Deceptive Trade Practices Act as barred by the statute
of limitations. Plaintiffs also contend that the district court erred in granting summary judgment to
Intercargo on plaintiffs’ promissory estoppel and fraud claims and on Intercargo’s counterclaim for
indemnity. While this appeal was pending, Intercargo filed a motion for leave to allow the district
court to correct its order on final summary judgment. We affirm the judgment of the district court
and deny Intercargo’s motion for leave without prejudice.
I. FACTS AND PROCEDURAL HISTORY
Texas Soil Recycling, Inc. (Texas Soil) was fo rmed in 1991 to clean soil that had become
contaminated with hydrocarbons. Texas Soil leased a site near Houston, Texas from Waste
Reduction Systems, Inc. (WRS) for its operations. WRS operated a landfill adjacent to the site and
used the remediated soil from Texas Soil as fill dirt for the landfill. The lease between Texas Soil and
WRS required Texas Soil to obtain a $75,000 performance bond to secure any environmental clean-
up costs associated with the site upon termination of the lease. At the suggestion of WRS, Texas Soil
obtained the bond from Intercargo Insurance Company through Rose-Tillmann, Inc., an insurance
brokerage firm. In February 1992, James Gilliland, Bobby Seltz, Joe Calvert, and Lisa Calvert (the
indemnitors) signed a general agreement of indemnity in Intercargo’s favor for any damages or losses
incurred by the execution of the bond. Intercargo renewed the bond on February 12, 1993 through
2
Cheri Davis, a surety bond underwriter for Rose-Tillmann, for one year.1
Later that year, WRS and Texas Soil executed an amended lease that required Texas Soil to
renew the performance bond at least 45 days prior to the bond’s expiration. If Texas Soil failed to
renew the bond timely, the lease provided for default unless Texas Soil obtained a renewed bond
within 20 days after writ ten notice of the failure to renew. Default gave WRS the option of
terminating the lease, taking possession of the premises, and pursuing any remedy provided by law.
The parties agree that Texas Soil did not renew its bond with Intercargo 45 days prior to the
expiration of the bond. Nor did Texas Soil seek an indemnity bond from another source in order to
comply with its lease.
On January 10, 1994, 33 days before the bond’s expiration, Cheri Davis of Rose-Tillmann sent
a fax to Steve Hecht of Texas So il stating that the bond “will renew” on February 12, 1994, and
requesting certain financial statements in order to renew the bond. On that same day, the chief
financial officer of WRS sent Hecht a letter notifying him of Texas Soil’s failure to renew the bond
45 days prio r to the expiration of the bond and of Texas Soil’s right to cure the default within 20
days. Texas Soil sent the information requested by Cheri Davis for the bond renewal.
Plaintiffs claim that Davis promised them several times over the phone that the bond would
be issued. They also claim that on February 8, 1994, during a telephone conference call, the
Chairman and CEO of Rose-Tillmann, Craig Johnston, advised plaintiffs that he would execute the
bond that afternoon. During a deposition in 1997, Johnson confirmed that Intercargo had approved
1
Three Rose-Tillmann employees, Craig Johnson, Cheri Davis, and Raul Castaneda, had a limited power of
attorney executed by Intercargo to be used solely in conjunction with Texas Soil’s 1993 bond.
3
the bond renewal prior to February 7, 1994.2 However, WRS had notified Intercargo, by letter dated
February 7, 1994, that it had terminated Texas Soil’s lease and was making demand under the bond.
The claim by WRS on the bond terminated Intercargo’s ability to renew the bond. That same day,
WRS sent Texas Soil notice that it was in default, that WRS had elected to terminate Texas Soil’s
right of possession of the leased premises, and that WRS was making a claim on the bond. Without
its lease, Texas Soil went out of business and filed for bankruptcy.
Texas Soil subsequently filed suit against WRS in state court. During those proceedings,
Texas Soil’s attorney deposed Cheri Davis and Craig Johnston. WRS filed suit in state court against
Intercargo, based upon its claim against the bond. Intercargo then made a demand upon the
indemnitors for the amount claimed by WRS. The two cases were consolidated, and WRS eventually
settled with Intercargo for $86,563.95. The indemnitors did not reimburse Intercargo.
On January 29, 1998, Texas Soil, Bobby Seltz, Joe Calvert and Lisa Calvert3 filed suit in the
Southern District of Texas against Intercargo alleging breach of contract, fraud, negligence, negligent
misrepresentation, grossly negligent misrepresentation, and violation of the Texas Deceptive Trade
Practices Act because of Intercargo’s failure to renew the bond. The individual plaintiffs also sought
declaratory judgment that the general agreement of indemnity was null and unenforceable because
of Intercargo’s wrongful conduct. Intercargo counterclaimed for breach of the indemnity agreement,
requested judgment for the amount of its damages and attorney’s fees in connection with the
indemnity agreement, and joined James Gilliland as a party.
Intercargo filed a motion for partial summary judgment on January 4, 1999 that the statute
2
This approval was apparently oral. Nothing in the record indicates written approval for renewal.
3
The Plaintiffs-Appellants will be collectively referred to as “Texas Soil” hereafter in this opinion.
4
of limitations barred plaintiffs’ causes of action for negligence, negligent misrepresentation, grossly
negligent misrepresentation, and violation of the Texas Deceptive Trade Practices Act. The court
agreed and held that those claims were time-barred. Intercargo filed additional motions for summary
judgment and partial summary judgment on the remaining claims. The court granted Intercargo’s
motion for summary judgment on Texas Soil’s breach of contract, promissory estoppel, and fraud
claims on March 28, 2000. The court also granted summary judgment to Intercargo on its
counterclaim for damages resulting from WRS’s claim on the bond, awarding Intercargo $86,563.95
in damages and $45,635.25 in attorneys’ fees. Texas Soil timely filed an appeal in this court. While
the appeal was pending, Intercargo filed a motion for leave to allow the district court to correct its
order on final summary judgment pursuant to Rule 60(a) of the Federal Rules of Civil Procedure.
II. STANDARD OF REVIEW
We review a district court’s decision to grant or deny summary judgment de novo, applying
the same criteria as the trial court.4 Summary judgment is proper when the pleadings, depositions,
admissions, and the answer to interrogatories together with affidavits, demonstrate that no genuine
issue exists as to any material fact and that the movant is entitled to judgment or partial judgment as
a matter of law.5
III. STATUTE OF LIMITATIONS
We turn first to Texas Soil’s claim that the statute of limitations did not bar its claims of
deceptive trade practices, negligence, negligent misrepresentation, and grossly negligent
misrepresentation. As this is a diversity case in which the causes of action arise under state law, the
4
Burns v. Harris County Bail Bond Bd., 139 F.3d 513, 517 (5th Cir. 1998).
5
Fed. R. Civ. P. 56(c); Burns, 139 F.3d at 517-18.
5
district court properly applied Texas statutes of limitations to the claims presented.6 Under Texas
law, claims for negligence, negligent misrepresentation, and grossly negligent misrepresentation must
be brought within two years from the time the cause of action accrues.7 In general, a cause of action
accrues and the limitations period begins when a wrongful act causes a legal injury.8 In some cases,
however, Texas courts have held that an action does not accrue until the plaintiff knew, or in the
exercise of reasonable diligence should have known, of the wrongful action causing injury.9 The
“discovery rule” has been codified in the Texas Deceptive Trade Practices - Consumer Protection Act
(DTPA), which provides that claims must be brought within two years after the date on which the
false, misleading, or deceptive act or practice occurred, was discovered, or in the exercise of
reasonable diligence should have been discovered.10 Discovery does not necessarily mean “actual
knowledge of the particulars of a cause of action.”11 Instead, the question is whether the plaintiff has
“knowledge of facts which would cause a reasonable person to diligently make inquiry to determine
his or her legal rights.”12 When the plaintiff pleads the discovery rule as an exception to limitations,
the defendant moving for summary judgment on limitations grounds has the burden of negating that
exception by establishing that there is no genuine issue of fact about when the plaintiff discovered or
6
Kansa Reinsurance Co. v. Cong. Mortgage Corp., 20 F.3d 1362, 1368-69 (5th Cir. 1994).
7
Tex. Civ. Prac. & Rem. Code Ann. § 16.003(a) (Vernon 1997); KPMG Peat Marwick v. Harrison County
Hous. Fin. Corp., 988 S.W.2d 746, 750 (Tex. 1999) (negligence); HECI Exploration Co. v. Neel, 982 S.W.2d 881,
885 (Tex. 1998) (negligent misrepresentation).
8
S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996).
9
Id.
10
Tex. Bus. & Com. Code Ann. § 17.565 (Vernon 1987).
11
Vaught v. Showa Denko K.K., 107 F.3d 1137, 1141-42 (5th Cir. 1997).
12
Id.
6
should have discovered the nature of his injury.13 Intercargo has met that burden.
Unquestionably, Texas Soil’s injury occurred in February 1994 when it defaulted on its lease
and WRS evicted it from the property. Texas Soil knew the nature of its injury at that time, namely
that Intercargo did not renew the bond. Because Texas Soil did not file this lawsuit until January
1998, those claims subject to a two-year statute of limitations cannot stand.
Texas Soil argues that its claims did not accrue until it learned during discovery in the state
lawsuit that Rose-Tillmann employees knew that WRS was attempting to prevent the bond’s renewal.
In KPMG Peat Marwick v. Harrison County Housing Finance Corp., however, the Texas Supreme
Court rejected an argument “that a claim does not accrue until the plaintiff knows not only of the
injury, but the specific nature of each wrongful act that may have caused the injury.”14 Texas Soil’s
injury was the loss of its lease. The allegedly deceptive statements by Rose-Tillmann employees to
Texas Soil representatives during the bond renewal process, even if relevant, are specific acts that
“may have caused the injury.” Texas Soil’s “discovery” of these acts by Cheri Davis and Craig
Johnston less than two years prior to filing suit does not resuscitate these claims. There being no
genuine issue of material fact that Texas Soil discovered or should have discovered the nature of its
injury, summary judgment is appro priate because these claims were filed after the statute of
limitations had run.
IV. PROMISSORY ESTOPPEL AND FRAUD
We apply Texas law to plaintiffs’ remaining claims of promissory estoppel and fraud.15 Texas
13
Harbor Ins. Co. v. Urban Constr. Co., 990 F.2d 195, 199 (5th Cir. 1993); KPMG Peat Marwick v. Harrison
County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999).
14
988 S.W.2d at 749.
15
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
7
Soil claims that Intercargo, through its authorized representatives, promised that the indemnity bond
would be renewed and that Texas Soil relied upon that representation to its detriment. In its claim
for fraud, Texas Soil argues that Cheri Davis and Craig Johnston made misrepresentations as to
material facts upon which Texas Soil relied and, as a result, sustained damages.
The only written contract that existed between Texas Soil and Intercargo, and the only basis
for any obligation of Intercargo to issue a bond to Texas Soil, was the General Agreement of
Indemnity (GAI). Rather than convey a promise to renew the bond, the GAI specifically stated that
Intercargo had “the right, at its option and in its sole discretion, to issue or cancel or decline the
execution of any Bond, or renewal thereof, including a final Bond, when it has furnished a bid Bond.”
We focus, therefore, on Texas Soil’s claim that Rose-Tillmann had the authority to bind Intercargo
beyond the authority specifically noted in the 1993 “Limited Power of Attorney.” Unless Texas Soil
can demonstrate a principal-agent relationship between Intercargo and Rose-Tillmann beyond the
specific power of attorney attached to the 1993 bond, Intercargo cannot be held liable as a principal
for the actions or omissions of Rose-Tillmann.16
Under Texas law, an agent is someone authorized by a person or entity to transact business
or manage some affair for that person or entity.17 Generally, an agent has only such authority as the
principal has either expressly or impliedly conferred on the agent.18 Without actual or apparent
16
See Henry v. Lane, 128 F. 243, 255 (5th Cir. 1904) (holding that if agents exceed their authority in signing
a contract on behalf of a principal, it plainly does not bind him and there is no basis in law or equity for sustaining a
suit against him).
17
First Valley Bank of Los Fresnos v. Martin, 55 S.W.3d 172, 183 (Tex. App.--Corpus Christi 2001).
18
3 Tex. Jur. 3d Agency § 37 (1996).
8
authority, an agent may not bind a principal.19 The appointment of an attorney-in-fact creates an
agency relationship.20 But powers of attorney have to be st rictly construed and under no
circumstances will the principal be bound beyond the plain import of the instrument.21
The indemnity bond became effective on February 12, 1993 and ended on February 12, 1994.
The 1993 bond was signed by Steve Hecht for Texas Soil and Cheri Davis as Attorney-in-Fact for
Intercargo. It bears the corporate seal of Intercargo and states that “[t]his obligation may be
extended from year to year at the option of Surety, by issuing a new bond.”
As the trial judge recognized, “The core issue here turns on the authority afforded by
Intercargo to Rose-Tillmann employees such as Craig Johnson and Cheri Davis.” The record
indicates that Texas Soil had notice and knew of Rose-Tillmann’s limited authority pursuant to the
Limited Power of Attorney. The language of the limited power of attorney explicitly did not give the
Rose-Tillmann employees authority to bind Intercargo to a renewal agreement without a signature;
nor did it give Rose-Tillmann employees authority to bind Intercargo to an oral promise to sign a
renewal agreement. The district court was correct in granting summary judgment on the claims for
promissory estoppel and fraud because there is no genuine issue as to the fact that Rose-Tillmann
lacked authority to bind Intercargo to renew Texas Soil’s bond.
V. INTERCARGO’S COUNTERCLAIM FOR INDEMNITY
The indemnitors appeal the trial judge’s finding that Intercargo established the necessary
elements of an indemnity claim. There being no dispute that the indemnitors signed the agreement,
19
First Valley Bank, 55 S.W.3d at 183.
20
Sassen v. Tanglegrove Townhouse Condo. Ass’n, 877 S.W.2d 489, 492 (Tex. App.–Texarkana 1994).
21
Henry, 128 F. at 250.
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that a contractual indemnity agreement existed between Intercargo and the indemnitors, that the
agreement obligated the indemnitors to indemnify Intercargo in the event claims were made on the
bond, and that WRS made a claim on the bond, we affirm.
VI. MOTION FOR LEAVE TO CORRECT JUDGMENT
Rule 60(a) provides that this court may grant leave to the district court to correct clerical
mistakes in judgments and errors arising from oversight or omission during the pendency of the
appeal. We deny the motion without prejudice to the movant’s right to proceed under Rule 60(a) in
the district court.22
For the reasons stated in this opinion, the judgment of the district court is AFFIRMED.
22
See Dura-Wood Treating Co. v. Century Forest Indus., 694 F.2d 112, 114 (5th Cir. 1982); Wallace v.
Mulholland, 957 F.2d 333, 335 (7th Cir. 1992); Klingman v. Levinson, 877 F.2d 1357, 1363 (7th Cir. 1989).
10