General Electric Co. v. Latin American Imports, S.A.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 05a0092n.06
Filed: February 8, 2005
Nos. 03-5137, 03-5213
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
GENERAL ELECTRIC COMPANY, a )
New York Corporation, through its GE )
Appliance business component, )
Plaintiff-Appellee, Cross-Appellant, )
)
GE INFORMATION SERVICES, INC., ) ON APPEAL FROM THE UNITED
Plaintiff-Appellee, Cross-Appellant, ) STATES DISTRICT COURT FOR THE
) WESTERN DISTRICT OF KENTUCKY
MABE, S.A., )
Plaintiff-Appellee, )
v. )
)
LATIN AMERICAN IMPORTS, S.A., dba )
LATAM, )
Defendant-Appellant, Cross-Appellee, )
)
GUILLERMO GONZALES NEUMANN, )
Defendant-Appellant, Cross-Appellee, )
)
PERUSPHERE, S.A., )
Defendant-Appellant, Cross-Appellee. )
)
Before: COLE and ROGERS, Circuit Judges; COHN, District Judge.*
ROGERS, Circuit Judge. This appeal arises from a contract dispute between Defendant-
Appellant/Cross-Appellee Latin America Imports, S.A. (“Latam”), and Plaintiff-Appellee/Cross-
*
The Honorable Avern Cohn, United States District Judge for the Eastern District of
Michigan, sitting by designation.
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Appellant General Electric Company (“GE”). GE sued to recover on a debt owed by Latam, which
distributed GE products in Peru. Latam counterclaimed, alleging that GE fraudulently induced it to
enter a distributorship contract by making false promises not to form a similar relationship with
Plaintiff-Appellee Mabe, S.A.1 The district court granted GE summary judgment on the fraud in
the inducement counterclaims; Latam appeals this decision here. GE prevailed, after a jury trial, in
its action to recover the debt. Because Latam could not have justifiably relied on GE’s promise, we
affirm the grant of summary judgment.
Latam, a Peruvian importer of household appliances, distributed GE products in Peru for
seven years. In 1991, GE and Latam entered an initial distribution agreement for one year. Then,
the two companies entered three successive two-year distribution agreements. The parties entered
their fourth and last agreement on July 25, 1996, and it expired on December 31, 1998 (the “1996
agreement”). J.A. at 87–97. The 1996 agreement provided that Latam would serve as a non-
exclusive distributor of GE products in Peru, and that either party could decline the other’s request
to renew the agreement. J.A. at 64–65, 72.2 An integration clause provided that neither party could
1
Latam argued on appeal that the court should remand this case to the district court because
the district judge erred in denying Latam’s motion to compel Mabe to answer Latam’s complaint
and to make its mandatory initial disclosures. Appellant’s Br. at 42. We do not address this
argument here, because counsel for Latam expressly waived this issue at oral argument.
2
The agreement stated that the amount of credit GE would extend to Latam for the purchase
of GE products was in GE’s absolute discretion. J.A. at 65. The distributorship agreement was
“non-exclusive and non-assignable,” with one exception not relevant here. Id. at 71. It provided
that Latam released GE from “all claims . . . relating to the distribution of the Product(s) as of the
date of execution . . ., except indebtedness which may be owing and claims (a) founded upon a
written contract, and (b) under written warranties and cooperative advertising and product service
plans . . . .” Id. at 73.
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enforce “[a]ny representations, terms or conditions relating to or in connection with [the
distributorship] and not incorporated herein. . . .” J.A. at 72.
When the 1996 agreement expired in 1998, GE decided not to renew. Instead, GE entered
into a Peru distributorship relationship with its partially-owned subsidiary, Mabe. J.A. at 163.
Latam alleges that GE’s transfer of the Peru distributorship to Mabe represented the culmination of
a plan on GE’s part to defraud Latam. J.A. at 165. Sometime before the formation of the 1996
agreement, Latam alleges, GE and Mabe “decided to take steps to appropriate the Peruvian market
from the hands of [Latam] and divert the Peruvian market to Mabe while also disabling Latam and
ensuring that it could not affiliate with another American manufacturer.” Id. Latam maintains that
GE did not disclose this intention to Latam, but that, on the contrary, GE assured Latam that GE
would retain Latam as a distributor unless Latam gave GE good cause to terminate the relationship.
Id. Further, when Defendant-Appellant/Cross-Appellee Guillermo Gonzales Neumann
(“Gonzales”), the president of Latam, pressed GE executive Robert Reid for assurances that GE
would not make Mabe a GE distributor in Peru, Reid allegedly promised Gonzales that Mabe would
not be authorized to distribute GE products in Peru. J.A. at 469. Other GE executives allegedly
made similar representations. Id.
On February 16, 1999, after the termination of the parties’ 1996 distributorship agreement,
GE sued Latam in the United States District Court for the Western District of Kentucky to recover
on a debt. In 1992, Defendant-Appellant/Cross-Appellee Guillermo Gonzales Neumann
(“Gonzales”), the president of Latam, had executed a personal guaranty for the debt he would incur
purchasing GE products on credit. See J.A. at 77–78. GE increased Latam’s line of credit over the
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course of their seven-year relationship. See J.A. at 626–627. GE contended that Latam owed it
$214,693.57 when the 1996 agreement expired. J.A. at 57. Its amended complaint alleged that
Latam was in default under the distributorship agreement. Id. at 83. The prayer for relief demanded
not only the sum owed, but also a declaration that the 1996 distributorship agreement did not require
GE to renew its relationship with Latam. Id. at 84.
In August 1999, before any significant progress in the litigation GE had initiated in
Kentucky, Latam sued GE, Mabe, and Plaintiff-Appellee/Cross-Appellant GE Information Services,
Inc. (“GEIS”), in the United States District Court for the Southern District of Florida. Upon GE’s
motion, the Florida case was transferred to the Western District of Kentucky and consolidated with
GE’s action; Latam’s claims became counterclaims. Latam’s second amended complaint, filed in
the Western District of Kentucky, averred fourteen counts based on various legal theories. Five of
the counterclaims alleged fraud. The fraud counterclaims were based substantially on Latam’s
allegation that GE promised before the formation of the 1996 agreement to continue its
distributorship arrangement with Latam absent good cause to terminate. The complaint alleged that
GE had a present intention not to adhere to this promise when GE made the promise; further, Latam
suffered loss in reliance on the promise. J.A. at 165–66. In defending against GE’s motion for
summary judgment, Latam argued an additional fraud ground: during the negotiations for the 1996
agreement, GE executives allegedly reassured Gonzales that the company had no plan to transfer
the Peru distributorship to Mabe, even though such a plan allegedly did exist.3 J.A. at 469. The
3
Latam’s second amended complaint does not allege fraud based on GE’s affirmative
representation that it had no plan to contract with Mabe. Because Latam argued this theory in
defending against summary judgment, however, we may nonetheless consider it. See Strouss v.
Mich. Dep’t of Corr., 250 F.3d 336, 345 (6th Cir. 2001).
4
district court granted summary judgment to GE on each fraud counterclaim except one.4 After a jury
trial, GE prevailed in its action to recover the debt owed by Gonzales and Latam. J.A. at 222.
Latam timely appealed the court’s grant of summary judgment on the fraud counterclaims.
In granting summary judgment, the district court concluded that Latam’s fraud counterclaims
relied on two alleged misrepresentations: a promise to continue contractual relations with Latam
unless Latam gave good cause for termination, and a promise not to make Mabe a GE distributor.
J.A. at 197. The court found that the fraud counterclaims actually alleged fraud in the performance,
not fraud in the inducement, and therefore were barred by the Florida law “economic loss rule.” It
is unclear whether this application of the economic loss rule accurately reflects Florida law.
Nonetheless, Latam’s fraud counterclaim concerning GE’s promise not to enter a distributorship
with Mabe5 lacks legal basis on another ground: construing the facts most favorably to Latam, Latam
did not establish that it justifiably relied on GE’s alleged fraudulent comments.
4
This claim alleged that GE falsely promised Latam that GE would grant Latam a long-term
exclusive distributorship if Latam invested in the products of a subsidiary company, GE-Dako. The
district court denied both summary judgment and, after the claim was tried to a jury, judgment as
a matter of law. The jury subsequently found for GE on this claim. GE cross-appealed the district
court’s denial of judgment as a matter of law on the GE-Dako fraud claim. GE noted at oral
argument that it cross-appealed only because it was unclear whether Latam’s appeal encompassed
the jury verdict on the GE-Dako claim. The appeal is moot, since judgment was entered in favor
of GE. See Smith v. Diffee Ford–Lincoln–Mercury, Inc., 298 F.3d 955, 962 (10th Cir. 2002).
5
Latam has abandoned on appeal its contention that GE promised it a distributorship
terminable only for cause. Latam’s brief raises only GE’s promise not to enter a distributorship with
Mabe as the source of GE’s fraud; further, Latam counsel stated at argument that Latam’s fraud
claim was based only on the promise concerning Mabe. Therefore, we address the latter as the only
basis for Latam’s fraud in the inducement claim.
In addition, Latam does not raise on appeal one of the four claims on which summary
judgment was granted, an alleged conspiracy to defraud Latam on the part of GE, Mabe, and GEIS.
J.A. at 168. This claim is therefore forfeited.
5
The parties agree that Florida law governs Latam’s fraud claims. A federal court sitting in
diversity is bound by the decisions of the state’s highest court. Comm’r of Internal Revenue v.
Bosch, 387 U.S. 456, 465 (1967). The federal court should disregard decisions of lower state courts
only if it is “convinced by other persuasive data that the highest court of the state would decide
otherwise.” Id. This court reviews de novo the district court’s grant of summary judgment.
Andersons, Inc. v. Consol, Inc., 348 F.3d 496, 501 (6th Cir. 2003). Summary judgment is proper
“if the pleadings, depositions, answers to interrogatories, and admissions on file, together with
affidavits, if any, show that there is no genuine issue of material fact and that the moving party is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c).
The district court correctly determined that Latam’s claims of fraud in the inducement failed
as a matter of law. A plaintiff must establish the following elements in order to prevail on a fraud
claim under Florida law: “(1) a false representation as to a material fact, (2) the defendant actually
knew or should have known that the representation was false . . . , (3) the plaintiff reasonably and
actually relied upon the representations, (4) the plaintiff incurred foreseeable damages, (5) caused
by the defendant’s representations.” Tew v. Chase Manhattan Bank, N.A., 728 F. Supp. 1551, 1564
(S.D. Fla. 1990). The district court decided that because the alleged fraudulent inducements
pertained to future action furthering the distributorship, they in effect formed a “term of
performance” of the agreement. J.A. at 203 (quoting Bankers Mutual Capital Corp. v. United States
Fidelity & Guaranty Co., 784 So. 2d 485, 489 (Fla. Dist. Ct. App. 2001)). Therefore, the district
court held, the economic loss rule barred the fraud claims.
6
The economic loss rule may be inapplicable here. The rule provides that where parties freely
enter a contract and the promisor fails to perform an obligation “interwoven with the breach of
contract,” the promisee’s claim arises only in contract and no action for fraud in the inducement can
lie. HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So. 2d 1238, 1240 (Fla. 1996) (quoting
Huron Tool & Eng’g Co. v. Precision Consulting Svces., Inc., 532 N.W.2d 541, 545 (Mich. Ct. App.
1995)). On the other hand, when the promisor makes a false promise “extraneous to the contract,”
which, rather than forming a term of performance, induces the promisee to enter the contract, then
the rule does not bar his claim. Id. (quoting Huron Tool, 532 N.W.2d at 545). GE’s alleged promise
not to enter an agreement with Mabe may be extraneous to the 1996 distributorship agreement, since
the pre-contracting promise exhibits tension with the agreement, rather than merely supplementing
its terms. Cf. Hotels of Key Largo, Inc., v. RHI Hotels, Inc., 694 So. 2d 74, 78 (Fla. Dist. Ct. App.
1997) (finding fraud to be interwoven with the performance of a contract, where the fraud involved
a hotel chain’s pre-contracting promise regarding how quickly an independent hotel would benefit
from the contracted-for reservation listing service). For this reason, it is difficult to predict whether
the Florida Supreme Court would apply the economic loss rule in this context.
It is unnecessary to decide this case on the basis of the economic loss rule, however, because
Latam’s reliance on GE’s promise not to grant a Peru distributorship to Mabe was unjustifiable. In
some Florida fraudulent inducement cases, the third fraud element, justifiable reliance, is not met
as a matter of law. There is some apparent tension in the Florida cases as to whether reliance is
unjustifiable only when there is an overt contradiction between a pre-contracting oral
misrepresentation and a term of the subsequent written contract, or whether reliance is also
unjustifiable when the contract merely fails to include the terms of the oral promise. Compare
7
Wilson v. Equitable Life Assurance Soc. of the United States, 622 So. 2d 25, 28 (Fla. Dist. Ct. App.
1993) (citing FDIC v. Hemmerle, 592 So. 2d 1110 (Fla. Dist. Ct. App. 1991)) (holding that a party
“cannot maintain an action in fraud if the alleged misrepresentation is explicitly contradictory to a
specific and unambiguous provision in a written contract”), with Saunders Leasing Sys., Inc. v. Gulf
Cent. Distrib. Ctr., 513 So. 2d 1303, 1306–7 (Fla. Dist. Ct. App. 1987) (finding that a plaintiff may
not rely on a pre-contracting promise not contained in the terms of a subsequent negotiated
agreement).
This case is closer to Saunders than to Wilson, and therefore it is more appropriate for us to
apply the “not in the contract” rule of Saunders than Wilson’s “direct conflict” rule. Latam was
unjustified in relying on GE’s oral promises not to grant a distributorship to Mabe because the 1996
distributorship agreement did not contain this term. In Wilson, a Florida appeals court held that an
insurance agent’s assertion of pre-contracting promises regarding his salary and retirement pension
did not directly conflict with his employment contract, which had “no explicit language discussing
or foreclosing” the oral misrepresentation. 622 So. 2d at 27. Therefore the fraud claim could
proceed. In choosing a “direct conflict” rule, the Wilson court distinguished Saunders on the
grounds that Saunders involved a negotiated commercial lease, whereas the employment contract
at issue in Wilson contained boilerplate terms. Id. at 28. Here, as in Saunders, Latam had the
benefit of arm’s-length negotiation of the distributorship agreement. By its own admission, Latam
complained to GE that the parties’ 1992 distributorship agreement did not make Latam GE’s
exclusive dealer in Peru. J.A. at 146. Nonetheless, such a term did not appear in the subsequent
contracts. Given that Latam had the opportunity to bargain for inclusion in the distributorship
8
agreement of either an exclusivity clause or the promise regarding Mabe, Latam’s reliance on GE’s
pre-contracting promise was unjustifiable as a matter of law.
Even under the more restrictive “direct conflict” rule, Latam’s fraud claims may fail, because
a pre-contracting promise by GE not to grant Mabe a distributorship contradicts the non-exclusivity
clause of the parties’ agreement. In Barnes v. Burger King Corp., 932 F. Supp. 1420 (S.D. Fla.
1996), a federal district court applying Florida law found a direct conflict between a restaurant
chain’s pre-contracting promise to a potential franchisee, and a subsequent franchise agreement.
The franchise agreement did not “in any way grant or imply any area, market or territorial rights,”
and it contained an integration clause. Id. at 1427. A pre-contracting letter, on the other hand,
stated that the chain had a “good faith policy” of not approving other franchises within two miles
of an existing restaurant “absent extenuating circumstances.” Id at 1423. Arguably, the pre-
contracting statement did not create or imply a territorial right, but instead merely made a more
specific representation about the limited circumstances in which the chain would choose to place
a new franchise near an existing one. Nonetheless, the franchise agreement absolved the chain of
its duty to adhere to its pre-contracting promise, and in this respect the agreement and the promise
could be viewed as contradictory. The court found that, because a direct conflict existed, the
franchisee’s reliance on the pre-contracting promise was unjustifiable. Id at 1428. Here, similarly,
GE’s alleged oral promises not to deal with Mabe were more specific than the contract’s non-
exclusivity clause. Nonetheless, just as the franchise agreement deprived the franchisee of
territorial rights in Barnes, the distributorship contract in this case put Latam on notice that GE was
not bound by an exclusivity obligation. Both this case and Barnes are thus distinguishable from
Wilson, where the court found the plaintiff to be reasonable in relying on promises concerning his
9
employment benefits package because the boilerplate employment contract simply did not address
this subject. See 622 So. 2d at 28.
Latam has failed to make out a prima facie case of fraud in the inducement. Latam was
unjustified in relying on GE’s pre-contracting promise not to deal with Mabe, both because the
promise did not form a term of the 1996 distributorship agreement, and because the promise was
in tension with the 1996 agreement’s non-exclusivity clause.
Therefore, the judgment of the district court is AFFIRMED.
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