Mercedes-Benz USA, LLC, Jack L. Holt, Craig W. Dearing, and Frank J. Oswald Jr. v. Carduco, Inc. D/B/A Cardenas Metroplex

ACCEPTED
13-13-00296-CV
THIRTEENTH COURT OF APPEALS
CORPUS CHRISTI, TEXAS
2/10/2015 4:37:35 PM
DORIAN RAMIREZ
CLERK
NO. 13-13-00296-CV
FILED IN
13th COURT OF APPEALS
IN THE THIRTEENTH COURT OF APPEALS
CORPUS CHRISTI/EDINBURG, TEXAS
AT EDINBURG, TEXAS 2/10/2015 4:37:35 PM
DORIAN E. RAMIREZ
Clerk
MERCEDES-BENZ USA, LLC, JACK L. HOLT,
CRAIG W. DEARING, and FRANK J. OSWALD, JR.,
Appellants,
V.
CARDUCO, INC. d/b/a CARDENAS METROPLEX
Appellee.
On Appeal from the
445th Judicial District Court, Cameron County, Texas
POST-ARGUMENT SUBMISSION
TO THE HONORABLE THIRTEENTH COURT OF APPEALS:
This case was argued on November 24, 2014 before Chief Justice Valdez and
Justices Rodriguez and Longoria.1 To more fully address specific questions the
Court asked and to call the Court’s attention to additional authority published after
briefing closed, Appellee Carduco respectfully tenders this post-submission brief.
1
The case was abated from September 30, 2014 until December 17, 2014 to allow for mediation.
I. MAN Engines applies.
Mercedes asserts it should prevail because one of the many dealership
documents executed by the parties contains a boilerplate merger clause. But
Mercedes waived this disclaimer of reliance argument. Appellee’s Br. at 25-26. As
Carduco explained in its letter brief of September 23, 2014, after briefing in this case
closed, the Texas Supreme Court confirmed that contractual disclaimer defenses
must be pleaded affirmatively. See MAN Engines & Components, Inc. v. Shows, 434
S.W.3d 132, 135-36 (Tex. 2014) (“Disclaimer is an affirmative defense subject to
Rule 94’s requirements.”).
Mercedes never pled express disclaimer as an affirmative defense, nor was it
tried by consent. Mercedes first mentioned disclaimer during the charge conference.
Even then, Mercedes’ objection was not that fraud or negligent misrepresentation
questions were inappropriate because justifiable reliance was negated as a matter of
law. Mercedes first expressed that argument after the trial in its Motion for JNOV
and amended motion for new trial. That was too late. MAN Engines, 434 S.W.3d at
136 (holding that express-disclaimer argument first raised in Motion for JNOV and
2
Entry of Take-Nothing Judgment was waived because Tex. R. Civ. P. 94 requires
that affirmative defenses be raised before trial). 2
At oral argument, however, Mercedes urged that contractual disclaimer of
reliance is distinguishable from contractual disclaimer in general and is not an
affirmative defense. Mercedes maintains that disclaimer of reliance “negates” the
element of a fraudulent inducement claim and, therefore, is unlike a typical
affirmative defense. That argument fails for several reasons.
First, that is precisely the argument that the losing party made to the Texas
Supreme Court in MAN Engines: “MAN asserts that its express disclaimer of implied
warranties negated Shows’s implied-warranty claim.” 434 S.W.3d at 136 (emphasis
added). The Court’s holding nonetheless requires express disclaimer to be properly
pleaded and was not limited to only contractual disclaimers of implied warranty or
to any other subset of contractual disclaimers. Thus, where disclaimer of implied
warranty is properly pleaded and proven, it negates the existence of an implied
warranty even if the plaintiff proves all the elements of implied warranty. That is
exactly what an affirmative defense is. A disclaimer of reliance is no different
because it negates justifiable reliance that a plaintiff has otherwise proved.
2
See also Samedan Oil Corp. v. Intrastate Gas Gathering, 78 S.W.3d 425, 453 (Tex. App.—Tyler
2001, pet. granted, judgm’t vacated w.r.m.) (disclaimer of reliance, an affirmative defense, was
first raised in Motion for JNOV and therefore waived).
3
And under the Court’s analysis in MAN Engines, there is no distinction
between disclaimer of implied warranty and disclaimer of reliance. It was Carduco’s
burden to prove the elements of its fraud claim, including justifiable reliance. To
attempt to avoid Carduco’s fraud claim through an exculpatory contract provision,
Mercedes needed both to plead that defense and to carry its burden of proof by
establishing (1) that the clause is a valid disclaimer of reliance under Italian Cowboy
as a matter of law; and (2) taking into account all facts and circumstances
surrounding the formation of the contract containing the disclaimer, that the balance
of the Forest Oil factors weighed in Mercedes’ favor.3 Brief of Appellee at 30-31.
As an affirmative defense, the burden would rightfully be on Mercedes to
prove both a legally valid disclaimer and the predominance of the Forest Oil factors.
If disclaimer of reliance were not an affirmative defense, a plaintiff would effectively
have to prove all the elements of fraudulent inducement, then prove that no valid
disclaimer of reliance existed in the contract under Italian Cowboy, and further
3
The Forest Oil factors themselves demonstrate that a defendant seeking to avoid antecedent fraud
must establish certain facts relating to the formation of the contract containing the disclaimer:
“(1) the terms of the contract were negotiated, rather than boilerplate, and during negotiations the
parties specifically discussed the issue which has become the topic of the subsequent dispute; (2)
the complaining party was represented by counsel; (3) the parties dealt with each other in an arm’s
length transaction; (4) the parties were knowledgeable in business matters; and (5) the release
language was clear.” Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 60 (Tex. 2008). Each of these
factors is phrased in the affirmative—requiring the defending party to establish some or all of them
in order to avoid antecedent fraud even if a legally valid disclaimer of reliance is present.
4
prove, in the event there is a valid disclaimer, that none of the Forest Oil factors
existed at the time of the contract. That is not the plaintiff’s burden.
Moreover, as the Texas Supreme Court explained, and as Justice Longoria
recognized, Oral Arg. 9-24-14 at 12:44, the issue is notice. Rule 94’s purpose “is to
give the opposing party notice of the defensive issue to be tried.” MAN, 434 S.W.3d
at 136. This rule of fairness requires the defendant to identify affirmative defenses
involving facts distinct from elements of the plaintiff’s claim, so that the plaintiff
may reasonably prepare to rebut or explain them. Id. at 136.
Carduco proved its reliance element. It is uncontroverted that Mr. Cardenas
would not have purchased the dealership had Mercedes not misrepresented the
McAllen opportunity or had it fully disclosed that a competing dealer had already
been chosen for McAllen. To effectively show that reliance was not justified, a
disclaimer of reliance must satisfy the Italian Cowboy requirements and Forest Oil
factors, which involves evidence and facts distinct from plaintiff’s claim. Because
Mercedes did not timely identify its disclaimer defense, Carduco had no notice and
therefore no opportunity or reason to fully develop the record on these elements. As
Carduco has demonstrated, even on the limited record, those factors weigh against
enforcing the disclaimer. Appellee’s Br. at 26-31.
5
II. There is no conflict between Mercedes’ misrepresentations and the
parties’ contracts.
The Court was interested in the application of Playboy Enterprises to the facts
and evidence in this case. To further aid the Court, we offer new authority from the
Texas Supreme Court, as well as additional direction to the record and the statutory
overlay that Mercedes sought to brush aside during oral argument.
The jury found that Mercedes and its managers defrauded Carduco into the
“Dealership Acquisition,” which included the Asset Purchase Agreement between
Autoplex Harlingen and Carduco and multiple dealer agreements between Carduco
and Mercedes. Br. Appellee at 17; CR355-56. To sustain its argument under
Playboy, Mercedes attempts to show that misrepresentations alleged by Carduco
directly contradict an express, unambiguous contract provision. But the
misrepresentations alleged and proven at trial do not conflict with the standard form
provisions Mercedes cites.
First, there is no obvious conflict between any of Mercedes’ multiple
misrepresentations and the form provisions. Second, Mercedes’ new interpretation
of those provisions urged in its reply brief and oral argument—i.e. that Mercedes
had unfettered discretion to withhold consent to any relocation regardless of the
site—conflicts with the Texas Occupations Code and, even if correct, would be
invalid. Third, there is no contradiction between Mercedes’ multiple
6
misrepresentations intended to conceal the new dealership being installed in
McAllen and any contract provision.
A. The plain language of the “relocation” provision does not obviously
contradict any of Mercedes’ false representations.
Mercedes has reduced Carduco’s entire fraud case to a single sentence from
Carduco’s pre-trial pleading, alleging a promised right to relocate to McAllen.4
Having mischaracterized Carduco’s allegations as a single, affirmative
misrepresentation, Mercedes attempts to create a contradiction by cobbling together
multiple clauses from two separate documents that pertain to a franchised dealer’s
standard agreement not to operate its dealership from an unauthorized location or to
move to another site without Mercedes’ prior approval. Br. Appellant at 10 (citing
DX26; DX27).
Mercedes contends that, even if it intentionally misled Carduco that it would
relocate to McAllen upon finding a suitable site while continuing to operate in
Harlingen “in the interim,” that misrepresentation is negated as a matter of law by
the relocation clause in the Standard Provisions form. Based on that alleged right,
4
Carduco’s live pleading was twenty pages long and described, in detail, the “affirmative
misrepresentations, intentional omissions, half-truths, active concealment of the truth, and
fraudulent conduct” committed by Mercedes—pointing out that Mercedes “intentionally waited
until after Carduco had acquired Autoplex Harlingen’s assets for $7 million to inform Carduco
that Heller-Bird would become the only Mercedes-Benz dealer in the McAllen sales area.” CR
328, 329-30.
7
Mercedes believes that Carduco could not have justifiably relied on any of the
voluminous pre-contract misrepresentations regarding McAllen. Under Mercedes’
interpretation of that clause, “prior written consent” meant that Mercedes could
refuse to consent to Carduco’s relocation to McAllen at all and for any reason—even
if Carduco secured a suitable McAllen site. Mercedes took that position at oral
argument, equating the terms of the license agreement in Playboy with the relocation
provision. Oral Arg. at 7:44-8:20. Mercedes’ argument is wrong. And recent
authority from the Texas Supreme Court makes clear the question is one of
obviousness to the defrauded party, which is absent here.
The legal principle underpinning DRC Parts & Accessories, L.L.C v. VM
Motori, S.PA., 121 S.W.3d 854, 858 (Tex. App.—Houston [14th Dist.] 2003, pet.
denied)—which this Court applied in Playboy—derives from the Texas Supreme
Court’s opinion in Thigpen v. Locke, 363 S.W.2d 247 (1962). In Thigpen, the Court
addressed fraud in the context of a party’s failure to read and understand the contract
he signed. 363 S.W.2d at 251 (“In 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.”).
The Houston Court of Appeals applied the Thigpen principle in DRC Parts to
reject justifiable reliance as a matter of law where the oral representation was
8
“directly contradicted by the express, unambiguous terms of a written agreement
between the parties.” 121 S.W.3d at 858. The principle is simple: a party that
exercises ordinary care to read a contract it signs would know the prior
representations were false when the promises are directly and obviously contradicted
by the contract’s terms.
The Texas Supreme Court recently reiterated the Thigpen principle in
National Property Holdings, L.P. v. Westergren, No. 13-0801, 2015 WL 123099 at
*4 (Tex. Jan. 9, 2015). The Court held that Westergren was not justified in relying
on misrepresentations regarding the terms of a settlement that directly contradicted
a full release where Westergren had chosen not to read the release before signing it.
Id. As the Court explained, “[i]t is well-established that ‘[t]he recipient of a
fraudulent misrepresentation is not justified in relying upon its truth if he knows that
it is false or its falsity is obvious to him.’” Id. (quoting Restatement (Second) of
Torts § 541 (1977) (emphasis added)). Thus, the Court concluded, a party cannot
justifiably rely on “oral representations regarding the contract’s unambiguous
terms.” Id. (citing Thigpen, 363 S.W.2d at 251).
Because Mercedes took active steps to mislead Mr. Cardenas about relocating
to McAllen—and the deception was aimed at concealing the Heller-Bird deal
9
itself—Mercedes cannot claim that the “relocation clause” directly and obviously
contradicted Mercedes’ misrepresentations. 5
The relocation provision does not unambiguously say what Mercedes now
claims. The only interpretation consistent with Texas law, and with the parties’
actions here, is that the clause related to approval of a specific site, not to Mercedes’
ability to deny any relocation whatsoever. And unless the clause unambiguously
states a direct contradiction, it does not under Thigpen, DRC Parts, or Playboy
negate Carduco’s justifiable reliance. Here, Mercedes misrepresented that Carduco
would be able to proceed upon locating a suitable site in McAllen. Mercedes’
executives conceded that its role in approving a relocation is limited to approving
the specific site selected and the proposed dealership facility. 9RR26-27, 121,
10RR8. Mercedes suggestion now that it could deny any relocation—as opposed
to approving a specific site—contradicts its own witnesses’ testimony at trial.
Indeed, as discussed further below, accepting Mercedes’ reading would also put the
clause in conflict with the Texas Occupations Code.
That the clause pertains only to Mercedes’ involvement in approving a
proposed site is consistent with both parties’ actions. Mercedes encouraged Mr.
5
Indeed, the supposed “contradiction” that Mercedes depends on was not even obvious to
Mercedes throughout the course of the litigation below. Mercedes never moved for summary
judgment or directed verdict with respect to any “relocation” provision and only argued that clause
obliquely for the first time during the formal charge conference. 14RR91.
10
Cardenas to submit architectural and site plans for the new location in McAllen and
for Harlingen in the interim. 6 And Carduco worked to obtain Mercedes’ site
approval for the relocation, including taking Mercedes personnel on a tour of two
sites near McAllen for Carduco’s proposed relocation. The Mercedes employees
specifically stated that both sites “looked good” and that Carduco should submit the
sites to Jack Holt for approval—despite the fact that Mercedes’ already-
consummated binding agreement with Heller-Bird meant that Mercedes would never
approve Carduco for any site in McAllen.
A clause presenting a direct contradiction to Mercedes’ misrepresentation
might have been “dealer will not be permitted to relocate to McAllen” or “if dealer
desires to relocate, the parties may engage in negotiations regarding the relocation.”
No such clause is present. Moreover, in Playboy, the plaintiff claimed a promised
distributorship, but the contract provided that the parties would negotiate future
expansions beyond Mexico. Even so, if Playboy had already secretly given the U.S.
distributorship to another party at the time the license agreement was executed, that
would also have been fraudulent. That type of misrepresentation, like the ones made
here, would have falsely communicated that there was a possibility or even
6
Of course, Mercedes did so days after it agreed for Heller-Bird to open a competing dealership
in McAllen and acknowledged that it would never have approved any site plan Carduco submitted
for that city. 9RR112-13.
11
likelihood of obtaining an expanded distribution agreement (in this case, a
relocation) when, in fact, there was not.
As Carduco proved to the jury, the notion that Mercedes would deny
Carduco’s proposed relocation to McAllen—no matter what site Carduco submitted
for approval—was not even conceivable when Carduco closed on the Dealership
Acquisition, let alone obvious. Mercedes had long requested and encouraged the
relocation and it continued to string Carduco along by soliciting site plans for
McAllen and visiting sites there. At the time of the inducement, there was no other
dealership in the Rio Grande Valley and the “optimal strategy” identified by
Mercedes’ own studies was to maintain only one dealership in the Valley by
relocating the Harlingen dealership to McAllen. See, e.g., PX1; 9RR15. The
proposed move was within Carduco’s own assigned market territory, or “Area of
Influence,” at the time it closed on its purchase and Mercedes acknowledged that it
was standard to approve such a move. 9RR26. The only fact that had changed was
Mercedes’ decision to “work around” Carduco’s purchase by installing Heller-Bird
in McAllen, the very fact that Mercedes intentionally concealed. In sum, Carduco
justifiably relied on Mercedes’ misrepresentations because they were not directly
and obviously contradicted by unambiguous contract provisions.
12
B. Mercedes’ interpretation of the relocation provision ignores the
regulatory scheme governing dealer relocations in Texas.
The new twist employed by Mercedes in its reply brief and argument—that
Mercedes had sole unfettered discretion to deny Carduco’s relocation for any
reason—conflicts directly with the law and Mercedes’ own trial testimony. 7
Mercedes urges this “unbridled discretion” argument to square its position with
Playboy, where the license agreement expressly stated that the distributor could not
distribute beyond Mexico and that Playboy could refuse to expand the license for
any reason. Playboy Enters. Inc. v. Editorial Caballero, S.A. de C.V., 202 S.W.3d
250, 258 (Tex. App.—Corpus Christi 2006, pet. denied).
But if Mercedes’ new construction were correct, the “relocation” provision
would not even apply in Texas. While the distribution of Playboy magazines is not
regulated by the Texas legislature, the relationship between automobile distributors
and their dealers certainly is. As Carduco explained in its briefing and argument,
the Texas Occupations Code specifically governs dealer relocations. Br. Appellee
at 4 and n.2; Oral Arg. at 22:52-23:09. Regardless of what a franchise agreement
might say, a distributor cannot deny a dealer’s relocation request in Texas unless it
7
See Reply Br. Appellant at 3 (“Because the Dealer Agreement allowed MBUSA to grant or deny
any future application to relocate, [the contract] likewise contradicts any alleged promise to
approve future relocation requests.”) (emphasis added); Oral Arg. At 6:40, 10:18.
13
gives proper notice of denial and, upon protest, proves it had reasonable grounds to
deny the relocation:
Notwithstanding the terms of any franchise, a manufacturer, distributor,
or representative may not deny or withhold approval of a written
application to relocate a franchise unless:
(1) The applicant receives written notice of the denial or withholding
of the approval not later than the 60th day after the date the application
is received; and
(2) If the applicant files a protest with the board, the board makes a
determination of reasonable grounds.
Tex. Occ. Code § 2301.464 (emphasis added).
And the same Standard Provisions document that contains the relocation
clause expressly provides that any provision contravening Texas law or regulation
is subjugated by state authority. 8 Thus, construing the contract as a whole, the
relocation clause could never apply to give Mercedes unlimited discretion to deny
Carduco’s relocation. Mercedes admitted at trial that the statutory overlay means it
does not get “the last say” in Texas as to whether a dealer may relocate its dealership
and that Texas law controls over its form agreement. See 9RR145.
8
See DX27 (Standard Provisions) at 38 (“If any provision herein contravenes the laws or
regulations of any state or other jurisdiction wherein this agreement is to be performed, or denies
access to the procedures, forums, or remedies provided for by such laws or regulations, such
provision shall be modified to conform to such laws or regulations, and all other terms and
provisions shall remain in force.”).
14
Indeed, Mercedes expressly acknowledged another example of how the
Standard Provisions and dealer agreements give way to the Occupations Code when
there is a conflict. The Standard Provisions give Mercedes a contractual right of first
refusal should a dealer decide to sell his dealership. But Section 2301.359 of the
Texas Occupations Code strictly limits the power a manufacturer or distributor has
over a dealership’s decision to sell, requiring only that the prospective buyer be of
good moral character and sound financial qualifications. Mercedes’ Jack Holt
recognized and lamented the fact that, despite the contractual language, Mercedes
could not scuttle Carduco’s purchase of the dealership. 9
The Occupations Code applies whether or not a party is seeking administrative
relief. Its provisions are instruments of public policy that give dealerships explicit
protection over contractual provisions that the Legislature has deemed inappropriate
in manufacturer/dealer transactions. The Code demonstrates why Mercedes pursued
a transaction with Heller-Bird and concealed its binding agreement with that
dealer—to ensure success in an administrative protest after Carduco finally learned
the truth.10 And the existence of protest rights under the Code—which Mr. Cardenas,
9
See DX27 (Standard Provision giving Mercedes first right of refusal); 9RR44 (Holt agreeing that
if there were such a right, that would have been his way of blocking Renato Cardenas from
purchasing the dealership); PX27 (email in which, upon learning there was no manufacturer right
of first refusal in Texas, Holt stated “There is no God.”).
10
After it finally found out about Heller-Bird, Carduco did bring an administrative claim, but—as
Mercedes had planned—by that time Heller-Bird was established and the protest became futile.
15
a Texas car dealer for more than 40 years, was familiar with—factors into Carduco’s
justifiable reliance as a factual matter. It certainly would not be obvious to an
experienced dealer that Mercedes’ form provision purports to override the
Occupations Code by giving Mercedes unbridled discretion over relocations.
The statutory overlay also answers Justice Rodriguez’s question as to why
time was so important. Mercedes’ covert plan was to thwart Carduco’s relocation
by installing Heller-Bird in McAllen. Br. Appellee at 4-5. Mercedes concealed that
plan in order to get Heller-Bird established before Carduco closed on its purchase
and gave notice of intent to relocate. Absent Heller-Bird’s establishment in
McAllen, Mercedes would have no “reasonable grounds” to sustain a denial of
relocation (particularly when Mercedes itself had consistently requested such
relocation). 5RR66-67; 10RR132-33, 211-12; see Tex. Occ. Code § 2301.464.
When Mercedes finally told Carduco about Heller-Bird, Carduco gave its
statutory notice of intent to relocate, which Mercedes denied. 10RR211. Mercedes
then rushed to file Heller-Bird’s “evidence of franchise” to secure Heller-Bird in
McAllen and block Carduco’s relocation there. PX99. When Carduco protested the
Carduco exhausted its administrative remedies before filing this suit. In fact, Mercedes’ appellate
counsel, which represented Carduco in evaluating its claims against Mercedes before this lawsuit,
acknowledged that fact before concluding this was a fraud case and referring the matter to
Carduco’s trial counsel. See Notice of Ongoing Trial Proceedings (filed with this Court on
November 21, 2013, attaching Motion to Disqualify Baker Botts LLP, later withdrawn).
16
denial in an administrative proceeding, Mercedes’ “reasonable grounds” for
sustaining the denial were (1) that the McAllen sales area could support only one
dealership; and (2) Heller-Bird’s establishment in San Juan. 9RR144-45; 10RR132-
33, 211-12.
So Mercedes used the very circumstance it created and concealed (Heller-Bird
in McAllen) to keep Carduco from relocating. To now say Carduco’s reliance is
contradicted by a contract provision that is constrained by Texas law, when
Mercedes affirmatively concealed the orchestrated placement it ultimately used as
“reasonable grounds” under that same law, would pervert the regulatory scheme and
deny justice in this case.
C. Mercedes’ exclusivity-clause argument is a red herring.
Throughout this litigation, Mercedes has recast Carduco’s allegations as
claiming a contractual right to exclusivity in the McAllen area—thus forcing a
contradiction with a contractual “no exclusivity” provision. 7RR206-07. But
Carduco doesn’t claim an oral promise of contractual exclusivity in McAllen and
did not argue that at trial. Mr. Cardenas expressly acknowledged that Carduco’s
dealer agreements with Mercedes did not provide for territorial exclusivity as a
contract right. 7RR181, 206. Rather, Carduco proved that, in the “but for” world,
as part of its benefit-of-the-bargain damages, it would have operated as the only
dealer in the McAllen area for the foreseeable future. Carduco’s single-dealer point
17
was a factual component of damages. And it was proved by Mercedes’ own
admissions and Mercedes’ demonstrated ability to keep Carduco out of McAllen
once it installed Heller-Bird in San Juan.
Mercedes admitted that the McAllen sales area could only support one
dealership and that, based on the “optimal strategy” it identified, Mercedes would
not have put two dealers in McAllen. See e.g. PX1; 9RR15; 10RR136-37. Mercedes
further admitted that it supported its denial of Carduco’s relocation in the
administrative protest because Heller-Bird was already established in McAllen and
the market could support only one dealer. 10RR132-33, 211-12. Moreover, as the
jury learned, statutory protest rights constrain a distributor’s ability to add new
dealers to an existing dealer’s territory. Because the McAllen area could support
only one dealership, Carduco would have relocated to McAllen and could then have
prevented another dealership from entering that market. Tex. Occ. Code § 2301.454,
652; see also 11RR140-42 (Expert Dr. Manuel, explaining that state law and protest
rights constrain what Mercedes can do regardless of what the franchise agreements
say). 11
11
This de facto exclusivity is not, as Mercedes suggested in its reply brief and at oral argument, a
new argument on appeal. To the contrary, Carduco explained this very point on summary
judgment, during motions in limine, at trial, and at the JNOV hearing after trial. See 4RR49;
1RR36-37; 23RR25.
18
Even in its damages model—to which this “exclusivity” issue pertains—
Carduco did not urge any contractual right to exclusivity in the McAllen area.
Rather, in assigning a discount rate to its anticipated profits in McAllen, Carduco’s
expert reduced Carduco’s lost profits calculation by accounting for the possibility of
future competition entering the market; i.e., that the market would grow in size in
the future and Mercedes might then have had reasonable grounds to put another
dealer in McAllen. 11RR278.
D. There is no conflict between Mercedes’ misrepresentations
regarding the competing dealership and any “express,
unambiguous clause” regarding relocation or exclusivity.
Regardless of Mercedes’ misinterpretation of the “relocation” or “exclusivity”
provisions, it cannot explain how its most harmful misrepresentations—affirmative
lies, active concealment, and failure to disclose with respect to the Heller-Bird
deal—conflict in any way with those provisions. As Carduco argued, this Court in
Playboy expressly recognized that damages are recoverable for fraudulent
concealment or intentional failure to disclose material information. Oral Arg. at
33:00, 33:53-34:20; Playboy Enters., 202 S.W.3d at 260. The most damning
evidence at trial involved Mercedes’ deliberate concealment of its agreement to
place a competing dealership in the McAllen area, a decidedly material fact. Br.
Appellee at 7-8, 15.
19
Mercedes’ witnesses acknowledged under oath—before attempting to
recant—that Mercedes affirmatively lied when directly asked about a new dealer
going into McAllen. Mercedes conceded that its statements were “false,”
“misleading,” and “untrue.” 9RR107-08, 133; 10RR116. Mercedes also admitted
that the hidden Heller-Bird deal would have been material to Carduco’s decision to
purchase the Harlingen dealership—and that they decided to conceal the information
anyway. 9RR116-18; PX38 (Jack Holt email instructing Oswald to lie to Carduco);
PX44-45 (Neis instructing Holt not to tell Carduco about Heller-Bird even though
the information could affect Carduco’s decision to buy the Harlingen dealership).
It is undisputed that, had Mr. Cardenas learned of a competing dealer going
in to McAllen—regardless of Mercedes’ misleading Carduco into believing it could
relocate to McAllen—Carduco would never have followed through with its $7
million purchase of the Harlingen store. As Mr. Cardenas testified:
Q. If Mercedes-Benz had told you that they were putting another dealer
in McAllen before you closed this agreement, would you have closed?
A. No.
Q. If Mercedes-Benz had told you before you closed on this agreement
that they were putting another dealer in McAllen, would you have
signed franchise agreements with Mercedes-Benz?
A. No, sir.
7RR140; see also 7RR107. Neither the affirmative misrepresentations nor the
intentional failure to disclose the Heller-Bird deal implicates the “relocation” or
20
“exclusivity” provisions at all. Mercedes has not and cannot explain how it escapes
liability under Playboy for fraudulently concealing the Heller-Bird agreement. 12
Mercedes argues here, as Playboy argued on appeal, that this Court is wrong
to embrace failure to disclose as a recognized basis for fraud liability. But this Court
rejected those arguments, and the Texas Supreme Court denied review. In fact,
Playboy’s petition for review and brief on the merits in the Supreme Court, attacking
this Court’s Playboy holding, are eerily similar to the arguments in Mercedes’ briefs
to this Court.13 See Tex. Supreme Court No. 06-1015, Playboy Enters. Pet. for
Review (Dec. 27, 2006) and Petitioner’s Br. on the Merits (Oct. 29, 2007). The
Court should reject these recycled complaints.
III. The spoliation instruction was fully justified.
Carduco has demonstrated that the context, background, and procedural facts
fully supported the spoliation instruction given by the trial court. Appellee’s Br. at
43-48. At oral argument, Mercedes suggested that Brookshire Brothers v. Aldridge,
12
Instead, Mercedes recasts Carduco’s claims as if its sole complaint was that Mercedes failed to
disclose that Carduco could not relocate to McAllen. App. Br. at 13. That mischaracterization
again ignores Carduco’s pleadings and the evidence presented at trial. Mercedes’ active
concealment and failure to disclose were not limited to the fact that Carduco would not be
permitted to relocate to McAllen, but included the most pivotal fact: that a competing dealer was
being awarded the McAllen area.
13
See Tex. Supreme Court No. 06-1015, Playboy Enters. Pet. for Review (Dec. 27, 2006) and
Petitioner’s Br. on the Merits (Oct. 29, 2007) (available at
http://www.searchtxcourts.gov/Caseaspx?cn=06-1015&coa=cossup).
21
438 S.W.3d 9 (Tex. 2014), a case decided post-briefing, mandates reversal on this
ground. That is incorrect. Under both the Texas Supreme Court’s jurisprudence in
place at the time of trial and the Court’s refined spoliation framework, the instruction
to the jury was proper.
In commercial fraud cases, internal communications between and among key
players are critical. Those communications show motive, plan, intent, knowledge of
likely harm, failure to disclose, and concealment. It is also important to have the
whole picture to illuminate a broad scheme, which in this case was calculated and
involved the highest levels of Mercedes management from the outset.
This lawsuit was filed in 2011, less than two years after the August 2009
meeting where Mercedes first informed Carduco that it would not be allowed to
move to McAllen and that another dealer was being put there. Carduco requested
electronically stored information and documents from Mercedes from the outset of
this case. It was not until April 2013, almost three years after Mercedes anticipated
litigation with Carduco—and only after the trial court granted two motions to compel
and also ordered that Mercedes search its computer servers—that Mercedes finally
performed a valid exploration of its electronic information.
The emails of at least nine people who would have been privy to Mercedes’
activities in this case were deleted, or otherwise not produced. See Appellee’s Br.
at 44-46, App. A. When it became apparent that Mercedes had lost or destroyed
22
pivotal email communications, Carduco noticed the deposition of a corporate
representative on the topic of Mercedes’ efforts to identify, preserve, and produce
relevant evidence. Mercedes designated senior in-house counsel, Mark Kelly.
Kelly acknowledged that Mercedes anticipated litigation with Carduco as
early as March 2008, but did nothing to preserve relevant electronic documents and
emails. 12RR234-237; 13RR233-36; CR458. Kelly acknowledged that he would
have expected specific key players to have relevant communications and claimed he
did not know why emails were missing. Kelly assured Carduco (falsely, as it turns
out) that he would investigate what happened to that information and report back.
Carduco followed up repeatedly with Mercedes through counsel, but never
received the promised explanation or report. Three months before the initial trial
setting in August 2012, Carduco’s amended petition sought a spoliation instruction.
Having still received no explanation at the time of trial, Carduco subpoenaed a
Mercedes corporate representative to appear at the spoliation hearing. Mercedes’
Fred Newcomb acknowledged that the corporate representative on document
retention and destruction (pursuant to the subpoena) was Mark Kelly. 10RR118.
But Kelly did not appear. In Kelly’s absence, Mercedes’ trial counsel acknowledged
that there was no consistent policy for the destruction of files when an employee
23
leaves Mercedes.14 12RR245. The trial court gave a mild instruction in the form
proposed by Mercedes. CR257, 354. Carduco has shown that these circumstances
fully warranted the instruction. Appellee’s Br. at 43-48.
The Texas Supreme Court’s intervening decision in Brookshire Brothers is
not to the contrary. Under the Court’s refined framework, the trial court (outside the
presence of the jury) should determine whether the party spoliated and, if spoliation
occurred, fashion an appropriate remedy. Brookshire Bros., 438 S.W.3d at 9. To
conclude that a party spoliated, the court must find that (a) the spoliating party had
a duty to reasonably preserve; and (b) the party intentionally or negligently breached
that duty by failing to do so. Id. Intentional spoliation “includes the concept of
‘willful blindness,’ which encompasses the scenario in which a party does not
directly destroy evidence known to be relevant and discoverable, but nonetheless
‘allows for its destruction.’” Id. at 24.
The procedure that Judge Hinojosa conducted in deciding the spoliation
matter satisfies this standard. Both parties briefed the issue. The trial court
conducted a lengthy hearing, outside the presence of the jury, on Carduco’s request
for a spoliation instruction. Carduco presented extensive evidence and deposition
14
Mercedes represented in its reply and at oral argument that the documents were deleted through
the “ordinary course of business” or “passage of time,” see Oral Arg.9-24-14 at 45:39, but there is
no evidence of that. In its brief, Mercedes cited only to the entire spoliation hearing, but that
actually established that the documents were not deleted through a consistent, systematic policy.
24
testimony of Mercedes’ corporate representative, Mark Kelly, on the topic of
evidence preservation and destruction. The trial court reviewed the parties’ briefing
and made the determination to issue a spoliation instruction in the form proposed by
Mercedes.
At oral argument, Mercedes urged new points related to intention that it never
raised in objecting to the spoliation instruction or in its initial briefing on appeal:15
Mercedes argued that Carduco “didn’t try to prove [that the spoliation] was
intentional” but instead maintained before the trial court simply that Mercedes did
not “take its [preservation] obligation seriously enough.” Oral Arg. at 18:00-18:34.
Mercedes further argued that Carduco “certainly didn’t get a finding” that Mercedes’
spoliation was intentional. Id. Neither point is availing.
Carduco’s trial-court briefing on spoliation expressly argued that Mercedes’
destruction of evidence was intentional. As Carduco urged, “due to MBUSA’s
intention[al] destruction of evidence,” e-mails belonging to a key Mercedes
executive—Bob Neis—were deleted or destroyed. CR372. Carduco walked the trial
court through Mercedes’ admitted anticipation of Carduco’s claims years before it
made any effort to even look for relevant evidence. Carduco showed Mark Kelly’s
15
Mercedes’ only objections to the spoliation instruction during the formal charge conference were
(1) that Carduco did not suffer any prejudice due to spoliation, and (2) that there was no evidence
that Mercedes actually destroyed evidence as opposing to losing or failing to produce evidence.
14RR87-88.
25
flippant testimony that Mercedes did not believe it was necessary to take measures
to preserve relevant evidence. 13RR235. Carduco pointed Judge Hinojosa to
Mercedes’ commitment, under oath, to investigate and explain why relevant
evidence was destroyed (not only from departed Mercedes employees but from key
players who were still employed by Mercedes at the time of discovery depositions).
Carduco showed that Mercedes failed to explain the destroyed communications as
promised and that, after being subpoenaed to testify on that topic before Judge
Hinojosa at the spoliation hearing, Kelly failed to appear.
Carduco specifically argued to the trial court that Mercedes’ refusal to comply
with a subpoena and present a witness to explain why relevant evidence was deleted
or destroyed entitled the trial court to presume that Mercedes’ testimony as to the
reason for the evidence destruction would have been unfavorable to Mercedes.
Carduco concluded its briefing succinctly:
MBUSA’s intentional destruction of its electronic documents and
emails has prejudiced Carduco because emails and documents from key
MBUSA employees who were at the center of the decision to
purposefully and intentionally conceal material information from
Carduco have been deleted.
CR387 (emphasis added).
In sum, Carduco argued and proved that Mercedes either deliberately
destroyed electronic data or, just as damning, was willfully blind in countenancing
its destruction. Carduco argued intentional spoliation throughout the trial court
26
proceedings and the trial court based its instruction on that premise. Mercedes
sought, and the trial court submitted, a milder spoliation instruction. Mercedes is
not entitled to any presumption that its destruction was innocent where it willfully
ignored the trial court’s subpoena and refused to produce a witness or evidence
providing any explanation for its failure to produce documents and communications
relevant to this lawsuit.
Mercedes’ argument that Carduco “didn’t get a finding” that the spoliation
was intentional is also meritless. Carduco argued and proved intentional spoliation
as the basis for obtaining an instruction. After reviewing the parties’ briefing and
hearing extensive evidence and argument, the trial court ruled that an instruction was
appropriate. Mercedes never requested that the trial court issue findings of fact and
conclusions of law with respect to the spoliation ruling. As this Court has stated,
where no findings of fact and conclusions of law were requested or made part of the
record below, the appellate court “must presume, unless the evidence fails to support
the imposition of sanctions, that the trial court’s decision was proper.” Sanchez v.
Brownsville Sports Ctr., Inc. et al., 51 S.W.3d 643, 658 (Tex. App.—Corpus Christi
2001, pet. granted, judgm’t vacated w.r.m.) (Hinojosa, J.); see also Holt Atherton
Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992) (in nonjury trial, where no
findings of fact or conclusions of law are filed or requested, “it will be implied that
the trial court made all the necessary findings to support its judgment”).
27
IV. No Casteel error occurred.
Carduco demonstrated that the judgment here rests on a single legal theory,
common-law fraud, which the trial court submitted as this Court directed in Formosa
Plastics v. Kajima International, 216 S.W.3d 436 (Tex. App.—Corpus Christi 2006,
pet. denied) (en banc). Appellee’s Br. at 39-40. Indeed, this case offers even less of
a Casteel concern than in Formosa Plastics. There, multiple contracts were at issue,
involving multiple acts of reliance and causal chains. Here, all of Mercedes'
misrepresentations culminated in a single chain of reliance and causation.
Also, a case decided by the Texas Supreme Court after briefing in this case
was completed shows that this is not, as Mercedes claims, a presumed-harm
situation. In Ford Motor Co. v. Castillo, the Supreme Court considered a jury
question that, by virtue of a disjunctive “or” clause, permitted two alternate paths to
proving a kind of fraud. 444 S.W.3d 616 (Tex. 2014). Like Mercedes here, Ford
argued that one path was unsupported by any evidence and thus it argued presumed
harm. The Court rejected the argument that this scenario presents a Casteel
presumed-harm situation.
Casteel issues do not arise in every situation where a jury has more than
one legal theory to choose from when answering a single question.
Instead, Casteel issues arise when one of the choices presented to the
jury on a single, indiscernible question is legally invalid. Castillo does
not argue the legal invalidity of the element and thus Casteel does not
apply.
Id. at 621.
28
Moreover, as this Court in Formosa Plastic held, any “labeling” issue is
harmless under Romero. Mercedes quibbles over which labels (species of actions or
omissions that can constitute misrepresentation) should apply to certain facts or
evidence (which all prove one claim). But which labels apply is immaterial to
liability here. All of them are aspects of the definitions of “misrepresentation.” As
in Formosa Plastics, the Court can be “reasonably certain that the jury was not
significantly influenced.” 216 S.W.3d at 455 (quoting Romero v. KPH, 166 S.W.3d
212, 227-28 (Tex. 2005)).
Justice Rodriguez recognized that Mercedes relies only on secondary
authority for its argument to the contrary. And the two CLE papers Mercedes points
to are old and do not address the last decade of development. One advocates an
antiquated granular charge, which Romero and Formosa Plastics later showed
unnecessary. See 29 Advoc. (Tex.) 29 (2004). The other is simply a case summary
describing a petition for review that was denied. See 26 Advoc. (Tex.) 45, 52 (2004)
(summarizing Baribeau v. Gustafson, 107 S.W.3d 52 (Tex. App.—San Antonio
2003, pet. denied)).
In any event, Mercedes did not preserve its Casteel argument. A clear and
timely objection was needed to alert the trial court if Mercedes thought a fully
granulated charge was required. But Mercedes suggested only that a separate blank
might be needed for non-disclosure. It did not make any similar suggestion for other
29
examples of conduct that might constitute misrepresentation, but simply said there
was no evidence of them. Mercedes’ vanilla no-evidence objections, presented as
part of a litany of similar objections, did not in practical terms tell the trial court how
to fix the complaint and would not, if granted, have led to the addition of the extra
twenty-four lines they now say are needed. The trial court was not required to guess
that Mercedes’ objection about the definition of misrepresentation actually hid a
Casteel argument.
Finally, Mercedes’ “28 questions” in the fraud context is unworkable and
contrary to the law. The different facets of misrepresentation are not exclusive or
distinct. Statements (or omissions) can fit into multiple boxes. If Mercedes’ rule
were followed, litigants and courts would not only depend on the jury’s evaluation
of credibility and competing testimony, but also demand that jurors correctly classify
evidence into each discrete legal box.
V. The Court should not unduly reduce punitive damages.
Chief Justice Valdez briefly inquired about damages, but time constraints
precluded exploration of this issue during argument. Carduco has demonstrated that
punitive damages were more than warranted on this record and that Mercedes’
proposed 1:1 ratio cap is contrary to law. Appellee’s Br. at 55-69.
The Texas Supreme Court has recognized there is no absolute limit on
punitive awards. It has, however, acknowledged a 4:1 benchmark in certain
30
economic injury cases such as this one. See Bennett v. Reynolds, 315 S.W.3d 867(Tex. 2010); Tony Gullo Motors, I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006). A
4:1 or 3:1 ratio also falls in line with historical analogues noted approvingly by the
United States Supreme Court for “double, treble, or quadruple damages to deter and
punish”. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003); see
also Bennett, 315 S.W.3d at 877 n.47 (citing this principle).
There is also new authority since briefing closed. The Austin Court of
Appeals has issued a new decision in the Bennett series of cases, applying the Texas
Supreme Court’s guidance to uphold a 3:1 exemplary award. Bennett v. Grant,---
S.W.3d---, 2014 WL 4058862 (Tex. App.—Austin, Aug. 13, 2014, no pet.) (Bennett
III). The Bennett III court dealt with misconduct found violative of the same cap-
buster provision implicated here (tortious conduct equivalent to an enumerated
felony under the Texas Penal Code). The underlying tort in Bennett III was
malicious prosecution.
The jury found actual damages of $10,703 and awarded exemplary damages
of $1 million against each defendant. Id. at *39. The court of appeals recognized
that the tort of malicious prosecution threatens but does not actually inflict
imprisonment. The court thus anchored its ratio analysis against “actual or potential
damages,” counting both the $10,703 in harm Bennett actually inflicted (attorneys
31
fees and mental anguish) and the $160,000 the court ascribed to the harm Bennett
intended to inflict by a wrongful prosecution.
In suggesting remittitur, the court of appeals declined to use a 4:1 ratio, in
part, because it “recognize[d] that [Bennett’s] conduct did not actually cause” that
level of injury. Id. at *74. The court instead chose a 3:1 ratio for conduct it found
“abhorrent,” while leaving ample room for “cases with more egregious injuries.” Id.
at *75.
Unlike the defendants in Bennett III, Mercedes fully succeeded in its plot to
harm Carduco. And the actual injuries it inflicted were, in economic terms, far more
egregious than those in Bennett III. See Appellee’s Br. at 66-70. Also of importance,
the Bennett III court applied the 3:1 ratio per defendant, not in the aggregate. Id. at
*23-24. Here, the ratio between actual and punitive damages awarded is less than
1:1 for each of the three individual defendants.
CONCLUSION
The judgment should be affirmed. Any suggestion of remittitur should
comport with guidelines established by the U.S. and Texas Supreme Courts.
32
Respectfully submitted,
/s/ Wallace B. Jefferson
Wallace B. Jefferson
State Bar No. 00000019
wjefferson@adjtlaw.com
Susan S. Vance
State Bar No. 24036562
svance@adjtlaw.com
ALEXANDER DUBOSE
JEFFERSON & TOWNSEND LLP
515 Congress Ave., Suite 2350
Austin, Texas 78701
Telephone: (512) 482-9300
Telecopier: (512) 482-9303
Don Cruse
LAW OFFICE OF DON CRUSE
State Bar No. 24040744
1108 Lavaca St., #110-436
Austin, Texas 78701
Telephone: (512) 853-9100
Telecopier: (512) 870-9002
don.cruse@texasappellate.com
33
Peter D. Marketos
State Bar No. 24013101
pete.marketos@rgmfirm.com
Leslie Chaggaris
State Bar No. 24056742
leslie.chaggaris@rgmfirm.com
Reese Gordon Marketos llp
750 North S. Paul Street
Dallas, Texas 75201
Telephone: (214) 382-9810
Telecopier: (214) 501-0731
COUNSEL FOR APPELLEE
CARDUCO, INC. d/b/a CARDENAS
METROPLEX
34
CERTIFICATE OF SERVICE
I hereby certify that the foregoing document was electronically filed with the
Clerk of the Court using the electronic case filing system of the Court. I also certify
that a true and correct copy of the foregoing was served by e-service on the following
counsel of record on February 10, 2015:
Thomas R. Phillips
State Bar No. 00000102
tom.phillips@bakerbotts.com
BAKER BOTTS L.L.P.
98 San Jacinto Blvd., Suite 1500
Austin, Texas 78701
Joseph R. Knight
State Bar No. 11601275
jknight@knighttxlaw.com
Law Office of Joseph R. Knight
111 Congress Ave., Suite 2800
Austin, Texas 78701
Matthew J. Kemner
State Bar No. 11254900
mkemner@cbmlaw.com
CARROLL, BURDICK & MCDONOUGH, LLP
44 Montgomery Street, Suite 400
San Francisco, California 94104
Alex Huddleston
State Bar No. 10148400
alex.huddleston@strasburger.com
STRASBURGER & PRICE, LLP
300 Convent St., Suite 900
San Antonio, Texas 78205
35
Merritt N. Spencer
State Bar No. 18925100
merritt.spencer@strasburger.com
STRASBURGER & PRICE, LLP
600 Congress Ave., Suite 1600
Austin, Texas 78701
Eduardo Roberto Rodriguez
State Bar No. 00000080
errodriguez@atlashall.com
E. Michael Rodriguez
State Bar No. 00791553
mrodriguez@atlashall.com
ATLAS HALL RODRIGUEZ
50 W. Morrison Rd., St. A
Brownsville, Texas 78520
Attorneys for Appellants
/s/ Susan S. Vance
Susan S. Vance
CERTIFICATE OF COMPLIANCE
Based on a word count run in Microsoft Word 2013, this brief contains 7,261
words, excluding the portions of the brief exempt from the word count under Texas
Rule of Appellate Procedure 9.4(i)(1).
/s/ Susan S. Vance
Susan S. Vance
36