GWTP Investments, L.P. v. SES Americom, Inc. , 497 F.3d 478 ( 2007 )

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
August 16, 2007
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 06-10747
GWTP INVESTMENTS, L.P.
Plaintiff-Appellant,
v.
SES AMERICOM, INC.
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Texas, Dallas
Before SMITH, BENAVIDES and DENNIS, Circuit Judges.
BENAVIDES, Circuit Judge:
GWTP Investments (“GWTP”)1 brought this suit against SES
Americom (“SES”) for breach of contract, fraud, and breach of
fiduciary duty. It claims that SES agreed to purchase teleports on
its behalf at a bankruptcy auction, but after SES won the auction
1
Immediately prior to the auction, Mission Holdings formed a
partnership with a third party to create GWTP. Some of the events
described herein occurred with Mission Holdings acting as
representative of GWTP, but neither party attributes any
significance to this distinction so we refer only to GWTP.
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and attained the rights to the teleports, it refused to transfer
them to GWTP. Finding that there was no binding contract and that
the fraud claim was just a repackaged contract claim, the district
court dismissed the contract and fraud claims. It subsequently
granted summary judgment on the fiduciary duty claim.
We REVERSE the district court’s judgment concerning the fraud
claim and REMAND for further proceedings. We AFFIRM the judgment
in all other respects.
I. FACTS
On March 30, 2004, Verastar, Inc.’s assets were sold in a
bankruptcy auction. Verastar was in the business of operating
teleports, which provide access to communications satellites and
other long-distance media. In total, eight teleports were up for
bid at the auction. There were two potential phases of the
auction: first, a select few corporations would be allowed to bid
on all eight teleports combined (“Asset Pool 1”), and second, bids
for each of the eight teleports would be accepted individually
(“Asset Pools 2-9”), presumably to gauge which method of sale would
yield the greatest profit from the most viable bidders. The
auction ended after the first phase of bidding and the second phase
never took place.
SES was one of three companies allowed to bid during the first
phase on Asset Pool 1, but GWTP was not. GWTP learned that SES
only wanted six of the eight teleports, while GWTP was primarily
interested in the remaining two, located in Cedar Hill, Texas and
2
Brewster, Washington. On March 29, the day before the auction,
GWTP and SES discussed a strategy whereby they would coordinate
their bids to increase the likelihood that each would get its
desired teleports. To that end, they drafted a “Memorandum of
Understanding” (“MOU”), stating that they “agree to discuss bidding
strategy and tactics in order to present the most attractive offer
to the Verestar auctioneers.” Slightly different versions of the
MOU were signed by each party, but each version stated that “under
no circumstances would this MOU be legally binding on or
enforceable against either party.”
When phase 1 of the bidding started, SES and GWTP devised a
formula to determine what percentage of SES’s overall bid GWTP
would contribute for the Cedar Hill and Brewster teleports. As the
auction progressed, SES’s representatives repeatedly collaborated
with GWTP’s representative, Jeffery Wateska, in determining their
bid. When the total bid on Asset Pool 1 reached $13 million, and
GWTP’s expected contribution under the devised formula was $1.35
million, Wateska informed SES representatives that GWTP would have
to cap its potential contribution at $1.5 million “regardless of
what the SES bid was ultimately going to be.”
SES won the auction. Brent Bruun, SES’s primary
representative at the auction, quickly sent e-mail messages (“Bruun
e-mails”) to SES’s parent company and its CFO announcing that it
won the auction. The e-mail then listed the “Significant terms of
the deal,” which included that “[SES] signed an MOU with [GWTP] in
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which [GWTP] agreed to acquire the Cedar Hill and Brewster
Teleports for $1.5 million at closing.”2 Bruun also called Wateska
and a GWTP executive, stating that “we’ve won the auction” and
thanking GWTP for its cooperation. There were further
communications between SES and GWTP, but all involved rather vague
assurances of “moving forward.”
It quickly became apparent that SES was interested in
retaining the Brewster teleport. Two days after the auction ended,
an SES executive sent the following e-mail to Bruun:
Can we talk about [GWTP]? They are not warming to the
idea of taking only Cedar Hill. I have removed their
suspicion that we were cutting another deal on the side
for Brewster, but they make the following point[]:
They entered into an agreement with us because we stated
during the auction (or before?) that the two assets we
did not want were the exact two assets that [GWTP] did
want—Brewster and Cedar Hill . . . .
SES continued to review and consider the profitability of the
Cedar Hill and Brewster teleports in the following weeks, and
eventually decided to retain them. It informed GWTP that it viewed
their previous discussions as providing for only “an understanding”
rather than a legal obligation. GWTP expressed its disagreement
and this lawsuit followed.
GWTP asserted three claims against SES in its complaint: (1)
breach of contract, (2) fraud, and (3) breach of fiduciary duty as
2
The two e-mails varied slightly, as the one to the CFO
stated that SES “agreed to sell” the teleports to GWTP, as opposed
to the “agreed to acquire” language.
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its agent. The district court summarily dismissed the first two
claims on a 12(b)(6) motion, finding that the Statute of Frauds
barred the contract claim and the fraud claim, as it was merely a
repackaged version of the contract claim. More than seven months
after the deadline to amend pleadings passed, GWTP moved to amend
its pleadings on the contract and fraud claims to include an
argument that the Bruun e-mails satisfied the Statute of Frauds.
The district court denied GWTP’s motion. Subsequently, the
district court granted SES’s motion for summary judgment on the
remaining agency claim.
II. DISCUSSION
In turn, we consider (1) the dismissal of the contract claim,
(2) the dismissal of the fraud claim, and (3) the summary judgment
on the agency claim. These are all claims based on state law and
it is uncontested that Texas law is applicable. We review
dispositive motions such as dismissals and summary judgments de
novo. Kennedy v. Tangipahoa Parish Library Bd. of Control, 224
F.3d 359, 364 (5th Cir. 2000).
A. The Breach of Contract Claim and the Statute of Frauds
In Texas, a contract for the sale of real estate “is not
enforceable unless the promise or agreement, or a memorandum of it,
is (1) in writing; and (2) signed by the person to be charged with
the promise or agreement or by someone lawfully authorized to sign
for him.” TEX. BUS. & COM. CODE § 26.01(a), (b)(4). The Cedar Hill
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and Brewster teleports are completely terrestrial and are built
along 127 acres of real estate. The district court dismissed
GWTP’s contract claim, finding it was barred by the Texas Statute
of Frauds because “the sale of the Teleports necessarily involves
the sale of real estate.”
GWTP does not suggest that there is any writing that
sufficiently memorialized its agreement with SES, because the MOU
was explicitly non-binding in all of its versions.3 Instead, they
argue that the “primary purpose” exception to the Statute of Frauds
applies, making the alleged oral contract enforceable. The
“primary purpose” or “main purpose” exception to the Statute of
Frauds usually arises when either (1) a promise to pay the debt of
a third party is made for the primary benefit of the promisor, see
Cooper Petroleum Co. v. LaGloria Oil & Gas Co., 436 S.W.2d 889
(Tex. 1969), or (2) a contract involving the sale of goods is
predominantly for the sale of services. See Propulsion Techs.,
Inc. v. Attwood Corp., 369 F.3d 896, 900-01 (5th Cir. 2004).
3
Very late in the proceedings, GWTP moved to amend its
complaint in order to include an argument that the Bruun e-mails
satisfied the Statute of Frauds, but the district court denied that
motion. Given that the motion to amend was filed more than seven
months after the filing deadline and nearly six months after GWTP
acquired the relevant e-mails, and GWTP’s failure to point to any
legitimate explanation for its delay in moving to amend, the
district court was well within its discretion in denying that
motion. We therefore do not address the argument that the Bruun e-
mails satisfied the Statute of Frauds, and limit our consideration
to GWTP’s argument that the Statute of Frauds is inapplicable to
this transaction.
6
GWTP argues that the dominant purpose of this contract was to
convey customer networks, service areas, and other intangibles that
flow with the purchase of teleports. GWTP basically attempts to
expand the “primary purpose” test to apply to real estate
transactions when the real estate’s commercial viability forms the
basis of the underlying transaction. This is a novel argument and
there are no Texas cases directly rejecting it, but the caselaw
strongly weighs against it in these circumstances.
GWTP relies predominantly on Hydrocarbon Horizons, Inc. v.
Pecos Dev. Corp., 797 S.W.2d 265 (Tex. App.—Corpus Christi 1990),
writ denied, 803 S.W.2d 266 (Tex. 1991). In that case, the
plaintiff agreed to show two oil and gas prospects, which it did
not own, to the defendant. The parties agreed that the plaintiff
would receive a finder’s fee if defendant chose to purchase the
prospects from a third party within two years. In finding that
this contract was outside the Statute of Frauds, the court found
that “[t]he contract alleged by Hydrocarbon was not one for the
sale of real estate . . . . [rather] the main purpose of the
contract is for the sale of geological information, and the statute
of frauds is not implicated merely because a real estate
transaction may be incidentally involved.” Id. at 267.
GWTP’s reliance on Hydrocarbon is misplaced. In Hydrocarbon,
as opposed to this case, the alleged contract was not for the sale
of real estate at all. It was a “finder’s fee” contract containing
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an obligation triggered by a completely independent real estate
transaction. The contract was for a finder’s fee, but it was only
due if the defendant purchased the acreage from a third party. It
was not a real estate transaction, even if it was triggered by one.
In this case, the alleged contract is undeniably for the
transfer of real estate (teleports), and GWTP’s argument that the
teleports are incidental to the primary purpose of obtaining
customer networks drastically extends Hydrocarbon’s rationale.4
Because the Statute of Frauds serves an important gate-keeping
function in keeping litigation costs to a minimum in cases like
this, we will not cavalierly apply Texas’s narrow “primary purpose”
exception so liberally as GWTP requests.
As SES points out, “GWTP cites no case that actually applies
such a test to enforce an oral contract to sell real property.”
Indeed, we have found none. Given the plain language of Texas’s
Statute of Frauds and lacking an applicable exception, we find that
4
Because the facts of Hydrocarbon are somewhat complex,
consider a scenario where two entrepreneurial friends agree that
whoever is last to purchase a new house will clean the other’s pool
for a year. Under Hydrocarbon’s rationale, that agreement is not
subject to the Statute of Frauds. It is a contract for pool-
cleaning services and it is not brought within the Statute of
Frauds merely because an independent real estate transaction
triggers the underlying obligation.
GWTP’s reasoning would apply that theory to a case where an
individual is buying a house, but claims that he is not so
interested in the physical house as he is the wonderful view, the
neighbors, the nearby schools, the airspace, etc. That rationale
extends Hydrocarbon’s rationale past the breaking point and would
render the Statute of Frauds a virtual nullity in real estate
cases.
8
Texas’s Statute of Frauds bars the alleged oral contract.
B. The Fraud Claim and Reliance Damages
The district court dismissed GWTP’s fraud claim finding that
it was just a repackaging of its contract claim and barred by the
Statute of Frauds. It stated that “SES’s alleged fraudulent
misrepresentations [were] not separate from the alleged oral
promise to transfer the Teleports and thus [were] promissory,
rather than factual.” The district court erred because GWTP
alleged that SES made misrepresentations separate from those
supporting its contract claim, sought only reliance damages, and
otherwise properly pled all the required elements of a fraud claim.
To establish actionable fraud, the plaintiff must prove that
the defendant made “a material misrepresentation, which was false,
and which was either known to be false when made or was asserted
without knowledge of the truth, which was intended to be acted
upon, which was relied upon, and which caused injury.” DeSantis v.
Wackenhut Corp., 793 S.W.2d 670, 688 (Tex. 1990). GWTP properly
alleged each element of its fraud claim, stating that SES knowingly
made material misrepresentations both before and in the weeks
following the auction, and that it incurred substantial reliance
damages in preparing to staff and operate the teleports.
GWTP specifically referred to misrepresentations SES
executives made on April 8 and April 23, assuring GWTP that it had
undertaken steps to finalize their earlier agreement. GWTP
9
provided evidence that these factual misrepresentations were known
to be false, as an SES executive’s e-mail to Bruun on April 2
stated, “I have removed [SES’s] suspicion that we were cutting
another deal on the side for Brewster.” That language at least
suggests that SES was in fact cutting a deal with a third party,
and merely removed GWTP’s well-founded suspicion as to that fact.
The fraud claim is distinct from the breach of contract claim as
these post-auction misrepresentations did not form the basis of the
contract that GWTP alleges was made before and during the auction.
Moreover, even if GWTP’s fraud claim relied purely on
contractual or promissory statements, it is not a repackaging of
its contract claim because GWTP’s fraud claim seeks only reliance
damages. GWTP only sought the out-of-pocket damages incurred in
preparing to operate the teleports. SES correctly points out that
fraud claims cannot be used to circumvent the Statute of Frauds,
but that is only true insofar as the plaintiff seeks the benefit of
the contractual bargain. “The essential inquiry in determining
whether a plaintiff is attempting to use a fraud claim to
circumvent the Statute of Frauds is to examine the nature of the
injury that he alleges.” Leach v. Conoco, Inc., 892 S.W.2d 954,
960 (Tex. App.—Houston 1995); see also Jim Walter Homes, Inc. v.
Reed, 711 S.W.2d 617, 618 (Tex. 1986) (“The nature of the injury
most often determines which duty or duties are breached.”).
The Texas Supreme Court has held that “the Statute of Frauds
10
bars a fraud claim to the extent the plaintiff seeks to recover as
damages the benefit of a bargain that cannot otherwise be enforced
because it fails to comply with the Statute of Frauds.” Haase v.
Glazner, 62 S.W.3d 795, 799 (Tex. 2001) (emphasis added). However,
such a claim “may not contravene the Statute of Frauds to the
extent that [it] seeks out-of-pocket damages incurred in relying
upon” the alleged misrepresentations. Id. The Texas Supreme Court
recently clarified that “[t]he statute of frauds does not bar the
recovery of out-of-pocket damages for fraud . . . . The viability
of [a] fraud claim depends upon the nature of the damages [one]
seeks to recover.” Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 636
(Tex. 2007).
The Statute of Frauds does not bar GWTP’s fraud claim insofar
as it seeks only reliance damages, and the district court erred
when it dismissed the claim.
C. The Agency Claim
GWTP’s final claim is that SES was its agent in bidding on the
Verastar teleports and SES’s actions constituted a breach of
fiduciary duty. This claim is meritless and the district court
properly granted summary judgment.
“Under Texas law, agency is a legal relationship created by
the express or implied agreement between the parties, or by
operation of law, under which the agent is authorized to act for
and on behalf of the principal, and subject to the principal’s
11
control.” Lubbock Feed Lots, Inc. v. Iowa Beef Processors, Inc.,
630 F.2d 250, 269 (5th Cir. 1980). Texas courts have adopted the
rule that a party “who contracts to acquire property from a third
person and convey it to another is the agent of the other only if
it is agreed that he is to act primarily for the benefit of the
other and not for himself.” Id. at 270 (citing RESTATEMENT (SECOND)
OF AGENCY § 14(k)). Factors that indicate a party is not acting as
an agent of another include, (1) that he is to receive a fixed
price for the property; (2) that he acts in his own name and takes
title of the property before transferring it; and (3) that he has
an independent business buying and selling the property. Id.
This is not a close question. SES was bidding collectively on
eight teleports and paid approximately $20 million for the lot. It
defies logic to suggest that GWTP’s proposed $1.5 million
contribution to the massive collective bid somehow controlled SES’s
bidding activity. It is similarly inconceivable that SES was
bidding in a way so as to primarily benefit GWTP, as an agency
relationship requires. That GWTP was to pay a fixed price for the
teleports also strongly supports the conclusion that SES was not
acting as its agent. RESTATEMENT (SECOND) OF AGENCY § 14(k) cmt. a
(providing “[t]his is the most important” factor in determining
whether an agency relationship exists).
The district court properly granted SES’s motion for summary
judgment as GWTP has not presented a genuine issue of material fact
12
suggesting that SES was ever acting as its agent.
III. CONCLUSION
The district court erred when it dismissed GWTP’s fraud claim,
and we REVERSE that dismissal and REMAND for further proceedings
consistent with this opinion. As to the breach of contract and
agency claims, the district court’s rulings are AFFIRMED.
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