Tim Bounds v. Cole & Ashcroft

Affirmed and Memorandum Opinion filed June 22, 2006

Affirmed and Memorandum Opinion filed June 22, 2006.

In The

Fourteenth Court of Appeals

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NO. 14-05-00064-CV

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TIM BOUNDS, Appellant

V.

COLE & ASHCROFT, Appellee

On Appeal from the 152nd District Court

Harris County, Texas

Trial Court Cause No. 2003-70157

M E M O R A N D U M   O P I N I O N

Appellant Tim Bounds appeals the trial court=s grant of summary judgment in favor of Cole & Ashcroft on Bounds=s fraud, negligent misrepresentation, and breach of contract claims arising out of Cole & Ashcroft=s agreement to purchase Bounds=s gift packaging business and employ Bounds as a sales manager in Cole & Ashcroft=s business.  We affirm.

Factual and Procedural Background

In October 2001, Tim Bounds and his company, Bounds Marketing, Inc., entered into an asset purchase agreement and related employment agreement with Cole & Ashcroft, a Houston-based manufacturer and distributor of gift basket supplies and gift packaging.  In his petition, Bounds alleged that he anticipated bringing his own business customers to the business and working to develop new business in the candy, chocolate, and gift basket industry.  Bounds believed that Cole & Ashcroft was substantially larger and better funded than his own operation; however, after entering into the transactions, Bounds allegedly discovered that Cole & Ashcroft had made fraudulent misrepresentations concerning the size and scope of its business and its ability to support new business.  Cole & Ashcroft also allegedly refused to pay commissions on new business Bounds generated and terminated him without cause.

In December 2003, Bounds filed suit against Cole & Ashcroft, alleging fraud, negligent misrepresentation, and breach of contract.  On December 18, 2004, the trial court granted Cole & Ashcroft=s traditional and no-evidence motion for summary judgment on all of Bounds=s claims.  The trial court=s order did not specify the ground or grounds relied on for its ruling.  This appeal followed.

Issues on Appeal

On appeal, Bounds raises five issues:  (1) he established the element of reliance to defeat summary judgment on his fraud claim; (2) the merger clause in the asset purchase agreement did not preclude his fraud claim; (3) he did not ratify or waive his fraud and negligent misrepresentation claims; (4) his negligent misrepresentation claim is not barred by the statute of limitations; and (5) he raised fact issues to preclude summary judgment on his breach of contract claim.  We will address Bounds=s issues as they relate to his fraud, negligence, and breach of contract claims.

A.      Standards of Review

The movant for a traditional summary judgment has the burden to show there is no genuine issue of material fact and it is entitled to judgment as a matter of law.  Tex. R. Civ. P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985).  However, once the movant establishes that it is entitled to summary judgment, the burden shifts to the non-movant to show why summary judgment should not be granted. See Casso v. Brand, 776 S.W.2d 551, 556 (Tex. 1989).  Summary judgment for a defendant is proper when the defendant negates at least one element of each of the plaintiff=s theories of recovery or pleads and conclusively establishes each element of an affirmative defense.  Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997).  When deciding whether there is a disputed material fact issue precluding summary judgment, we must take as true all evidence favorable to the non‑movant.  Nixon, 690 S.W.2d at 548B49. We must indulge every reasonable inference in favor of the non‑movant and resolve any doubts in its favor.  Id. at 549.

Additionally, after sufficient time for discovery has passed, a party may file a Ano evidence@ motion for summary judgment if there is no evidence of one or more essential elements of a claim or defense on which an adverse party would have the burden of proof at trial. See Tex. R. Civ. P. 166a(i). We sustain a no-evidence issue when (a) there is a complete absence of evidence of a vital fact, (b) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact, (c) the evidence offered to prove a vital fact is no more than a mere scintilla, or (d) the evidence conclusively establishes the opposite of the vital fact.  King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003). If the respondent brings forth more than a scintilla of probative evidence to raise a genuine issue of material fact, a no‑evidence summary judgment is improper.  Tex. R. Civ. P. 166a(i); King Ranch, 118 S.W.3d at 751.  Less than a scintilla of evidence exists when the evidence is so weak as to do no more than create a mere surmise or suspicion of a fact.  King Ranch, 118 S.W.3d at 757.

B.      The Fraud Claim

In his first and second issues, Bounds contends Cole & Ashcroft was not entitled to summary judgment on his fraud claim, which was based on lack of reliance and the existence of the merger clause.  In his third issue, Bounds contends Cole & Ashcroft failed to demonstrate that he ratified or waived the fraud and negligent misrepresentation claims.  We hold that Bounds=s fraud claim is barred by the merger clause in the asset purchase agreement, and consequently we do not reach Bounds=s contention that Cole & Ashcroft failed to establish the affirmative defenses of ratification and waiver as to fraud.

Bounds contends that Cole & Ashcroft misrepresented sales figures for the division he was hired to run, and that he relied on the allegedly fraudulent statements in deciding to enter into the asset purchase agreement.^[1]  In its motion for summary judgment, Cole & Ashcroft asserted that the merger clause of the asset purchase agreement precluded reliance on any allegedly fraudulent statement.  The merger clause provided as follows:

SECTION 9.4     Entire Agreement.  This Agreement (including the Exhibits and Schedules hereto), together with the Bill of Sale and the Employment Agreement, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior written or oral agreements and understandings and all contemporaneous oral agreements and understandings among the parties or any of them with respect to the subject matter hereof.  All Exhibits and Schedules hereto are expressly made a part of this Agreement.

In response, Bounds contends that the merger clause fails to clearly express intent to waive his fraud claim. 

Reliance is an element of fraudulent inducement.  See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001); Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 524 (Tex. 1998).  The inclusion of a merger clause or a disclaimer of reliance in an agreement may, under certain circumstances, negate the element of reliance and thus preclude a claim of fraudulent inducement.  See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex. 1997) (holding disclaimer provision in settlement agreement defeated fraudulent inducement claim by negating reliance on pre‑contractual representations).  The factors to consider when assessing the sufficiency of the evidence of reliance include (1) the terms of the contract, (2) the circumstances surrounding its formation, (3) whether the parties were represented by counsel, and (4) whether the parties negotiated at arm=s length.  See id. at 179B80.

Bounds attempts to distinguish Schlumberger by contending that the clause here does not clearly express the parties= intent to waive fraudulent inducement claims.  See id. at 181 (AIn sum, we hold that a release that clearly expresses the parties= intent to waive fraudulent inducement claims, or one that disclaims reliance on representations about specific matters in dispute, can preclude a claim of fraudulent inducement.@). Bounds also attempts to distinguish IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113 (Tex. App.CHouston [14th Dist.] 2003, pet. denied), a factually similar case relied on by Cole & Ashcroft.  Bounds asserts that IKON is distinguishable because, in that case, the court held that the agreement containing the merger clause recited specific language encompassing the subject of the alleged misrepresentation and therefore merged the alleged representation into the final agreement. See id. at 128.  Bounds argues that, because the asset purchase agreement does not contain a clear description of sales figures or a Adescription that can be merged into the agreement,@ the merger clause does not apply.  However, we do not view the issue so narrowly.

We have reviewed the facts and circumstances of this case and the case law cited by the parties and, assuming the representation Bounds relies on is actionable, concluded that any reliance on the representation as to sales figures is precluded by the merger clause.  Here, Cole & Ashcroft established that Bounds was an experienced businessman who had operated several independent marketing businesses, including the gift basket supply business.  Bounds was represented by a lawyer during the negotiations prior to  the buy-out of his business with Cole & Ashcroft and had an opportunity to engage in a detailed inquiry about its business. However, in his deposition, Bounds admitted that, during the negotiations, he did not ask for any written information about Cole & Ashcroft=s volume of business, financial condition, or sales revenues.  In fact, Bounds never asked for any documentation in writing of the sales figures for the wholesale-to-trade division, despite his contention that Cole & Ashcroft=s sales figures were material to his decision.  Instead, Bounds acknowledged and agreed that the asset purchase agreement constituted Athe entire agreement among the parties@ and Asupersedes all prior written and oral agreements and understandings@ among the parties.  Bounds does not contend the asset purchase agreement was not freely negotiated, nor does he contend it is ambiguous.

Given the clear language of the merger clause here and the circumstances surrounding the parties= negotiations, we hold Bounds could not have reasonably relied on the single, alleged oral misrepresentation by Cole & Ashcroft=s president.  See Schlumberger, 959 S.W.2d at 181; Ikon, 125 S.W.3d 126B28; see also Coastal Bank SSB v. Chase Bank of Texas, N.A., 135 S.W.3d 840, 843 (Tex. App.CHouston [1st Dist.] 2004, no pet.) (holding circumstances surrounding formation of contract and nature of disclaimers in arm=s length transaction between two sophisticated financial institutions that were both represented by counsel negated justifiable reliance).  Therefore, the trial court did not err in granting summary judgment on Bounds=s fraud claim.

We therefore overrule Bound=s first and second issues, and do not reach his third issue as to fraud.

C.      The Negligent Misrepresentation Claim

In his third issue, Bounds also contends Cole & Ashcroft failed to establish its affirmative defenses of ratification and waiver to defeat his negligent misrepresentation claim.  In his fourth issue, Bounds contends his negligent misrepresentation claim is not barred by the statute of limitations.  Because we hold that Bounds=s summary judgment evidence does not defeat Cole & Ashcroft=s evidence that Bounds=s claim is barred by the statute of limitations, we do not consider whether Cole & Ashcroft established the affirmative defenses of ratification and waiver as to Bounds=s negligent misrepresentation claim.

Similar to his fraud claim, Bounds=s negligent misrepresentation claim is based on the alleged misrepresentation concerning Cole & Ashcroft=s annual sales in its wholesale-to-trade division.  A negligent misrepresentation claim is subject to a two-year statute of limitations.  See Tex. Civ. Prac. & Rem. Code ' 16.003; see also HECI Exploration Co. v. Neel, 982 S.W.2d 881, 885 (Tex. 1998) (noting applicability of two‑year statute of limitations for negligent misrepresentation). 

In his deposition, Bounds testified that Cole & Ashcroft=s president made the alleged misrepresentation concerning its sales in September 2001.  Bounds further testified that he learned the alleged statements concerning Cole & Ashcroft=s sales figures were false during  October 2001, after he ran a sales report. Bounds did not file his suit, however, until December 2003, more than two years after this discovery. In a subsequent summary judgment affidavit, Bounds attempted to modify his deposition testimony to assert that, although he investigated his suspicions in October, he Awas unable to determine if [his] suspicions where [sic] correct until some time in 2002.@^[2]  Bounds does not identify any facts to support this assertion. 

Notwithstanding the discovery rule, Cole & Ashcroft contends the evidence establishes that Bounds Aknew or, exercising reasonable diligence, should have known of the facts giving rise@ to his negligent misrepresentation claim as early as October 2001, when he first suspected a problem.  See HECI, 982 S.W.2d at 886 (discussing application of discovery rule to defer accrual of a cause of action in those cases in which the nature of the injury is inherently undiscoverable and the evidence of the injury is objectively verifiable).  We agree. Therefore, we hold that the trial court properly granted summary judgment on Bounds=s negligent misrepresentation claim.^[3]  Because of our holding, we do not reach Bounds=s claim in his third issue that Cole & Ashcroft failed to establish ratification or waiver of this claim.

We therefore overrule Bounds= fourth issue.

D.      The Breach of Contract Claim

Finally, in his fifth issue, Bounds contends he raised fact issues that precluded the trial court=s grant of summary judgment on his claim that Cole & Ashcroft breached the employment agreement.  However, we find the trial court did not err in granting summary judgment on this claim.

In its motion for summary judgment, Cole & Ashcroft asserted that it fully complied with the employment agreement in terminating Bounds for cause and in compensating him. The employment agreement provided that Bounds may be terminated for cause based on a failure Ato meet realistic performance goals established from time to time by Company management in consultation with@ Bounds. Cole & Ashcroft presented undisputed evidence, in the form of Bounds=s own deposition testimony, that Bounds failed to meet his agreed-upon sales goals in 2002, and was not likely to meet his sales goals for 2003.  Thus, Cole & Ashcroft demonstrated, as a matter of law, that it had the right to terminate Bounds for cause as provided in the employment agreement.  Bounds presented no evidence to counter their proof.

The employment agreement also provided that, upon termination for cause, Bounds was entitled Ato receive his accrued Base Salary on a pro rata basis to the date of termination.@  Bounds was terminated August 11, 2001, and he admitted in his deposition that Cole & Ashcroft paid him his full salary through the end of AugustCmore than what was required under the terms of the employment agreement. Bounds also admitted that Cole & Ashcroft paid outstanding commissions on items that shipped through his termination date, even though the company was not contractually required to do so in the event of a termination for cause.

In response, Bounds contended that he was wrongly terminated because (1) the sales goals he agreed to were not attainable because they were based in part on false sales figures,^[4] (2) Cole & Ashcroft systematically transferred business he established out of his division to Afraudulently decreas[e] his sales numbers,@ and (3) failed to pay commissions Aas specified in the referenced agreement.@  These conclusory assertions were not accompanied by any explanation of the basis for these alleged breaches by Cole & Ashcroft, any discussion of the allegedly relevant provision of Athe referenced agreement,@ or any explanation of the relevant evidence allegedly supporting these assertions. Instead, Bounds merely referred the trial court (and this Court) to the employment agreement and the deposition testimony attached to the response.^[5]  A[I]ssues a non-movant contends avoid the movant=s entitlement to summary judgment must be expressly presented by written answer to the motion . . . and are not expressly presented by mere reference to summary judgment evidence.@  McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341 (Tex. 1993); see also Boeker v. Syptak, 916 S.W.2d 59, 61 (Tex. App.CHouston [1st Dist.] 1996, no writ) (AA party must expressly and specifically identify the supporting evidence on file which it seeks to have considered by the trial court.@). Accordingly, Bounds=s mere reference to the employment agreement and deposition testimony is insufficient to support his general assertions as a ground for avoiding summary judgment.

We therefore overrule Bounds=s fifth issue.

Conclusion

We overrule Bounds=s issues and affirm the trial court=s judgment.

/s/      Wanda McKee Fowler

Justice

Judgment rendered and Memorandum Opinion filed June 22, 2006.

Panel consists of Justices Hudson, Fowler, and Seymore.

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^[1]  In his brief, Bounds does not identify the representation allegedly made, but instead points to the following deposition exchange between Bounds and Cole & Ashcroft=s counsel: 

Q:         [Defense counsel]: And sales was something that was pretty important in this deal if you were going to sign on with this company and sort of hitch your wagon to their star, right?

A:         [Bounds]:  Yes.

Cole & Ashcroft state that Bounds=s claim is based on the allegation that, at a meeting in September 2001, Cole & Ashcroft=s president told Bounds that the sales of the wholesale-to-trade division were Aprobably about 250,000 [dollars] a year.@  Bounds allegedly discovered this was false when, a few days after coming to work, he ran a sales report on October 10 or 11, 2001.

^[2]  The full paragraph concerning the misrepresentation claim is as follows:

AI began working for Cole & Ashcroft on or about October 1st, 2001.  Shortly after beginning to work for Cole & Ashcroft, I began to suspect that fraudulent misrepresentations had been made to me in an effort to get me to enter into an Asset Purchase Agreement with Cole & Ashcroft.  I investigated these suspicions in October, but was unable to determine if my suspicions where [sic] correct until some time in 2002.  At that time I became convinced that I had been defrauded [and] my former business had become irreversibly intertwined with Cole & Ashcroft.@

^[3]  We note that Cole & Ashcroft asserted in its summary judgment below and in its appellate brief  that Bounds=s negligent misrepresentation claim, like his fraud claim, was also barred by the merger clause in the asset purchase agreement.  Bounds does not address this possible basis for summary judgment in his appellate brief, but we agree with Cole & Ashcroft that the merger clause is another basis on which the trial court could have granted summary judgment on Bounds=s negligent misrepresentation claim.

^[4]  Bounds contended in part that he was wrongly terminated because Athe sales goals where [sic] based on a number the [sic] equaled Mr. Bounds [sic] new business, plus what he believed was Cole & Ashcroft=s existing business.@ Bounds argues that if Cole & Ashcroft had $250,000 of business to build on, his sales for 2002 would have Aactually surpassed his 2002 goals.@ Based on these statements, we understand Bounds=s argument to be that the sales goals he agreed to were not attainable because they were based in part on false sales figures.

^[5]  Bounds also referenced his affidavit in response to the summary judgment motion; however, the statements in it are nothing more than unsupported conclusions:

AI feel the [sic] Cole & Ashcroft also breached my employment contract by failing to pay commissions and give sales credit on new customers that I generated.  Additionally they wrongfully took away customer sales from my division in an effort to reduce my sales numbers in a shameful attempt to justify my termination.@

Affidavits supporting and opposing a motion for summary judgment must set forth facts, not merely conclusions.  Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984).