Chris Wilmot v. Harry A. Bouknight, Junior , 466 S.W.3d 219 ( 2015 )

Opinion issued March 3, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-13-00738-CV
———————————
CHRIS WILMOT, Appellant
V.
HARRY A. BOUKNIGHT, JR., Appellee
On Appeal from the 295th District Court
Harris County, Texas
Trial Court Case No. 2010-00373
OPINION
Appellee, Harry A. Bouknight, Jr., sued appellant, Chris Wilmot, for
fraudulent inducement relating to an employment contract and, following a bench
trial, the trial court rendered judgment in Bouknight’s favor. In five issues on
appeal, Wilmot challenges the trial court’s judgment, arguing that (1) Bouknight’s
fraudulent inducement claim fails as a matter of law; (2) the evidence supporting
the trial court’s finding of fraudulent inducement was legally and factually
insufficient; (3) the evidence supporting the trial court’s award of damages was
legally and factually insufficient; (4) various legal doctrines, such as the economic
loss rule, prohibit Wilmot’s liability as a matter of law, and (5) the Texas Supreme
Court’s opinion in Sawyer v. E.I. DuPont De Nemours & Co. precludes
Bouknight’s recovery.
We affirm.
Background
Petroci, the national oil company of Côte d’Ivoire in West Africa, wanted to
build a refinery, also known as the Côte d’Ivoire Peace Refinery. Through its
managing director, Kassoum Fadika, it contracted with WCW International, Inc.
(“WCW”) to manage the project, which included everything from obtaining a
feasibility study through final development of the Peace Refinery. Wilmot is the
sole owner of WCW and a majority owner of its holding company, WCW
International Holding Company, Ltd. (“WCW Holding”). In 2007, Wilmot hired a
company called Energy Allied International (“Energy Allied”) to prepare a
feasibility study for building the Peace Refinery. Bouknight, an engineer
specializing in the energy industry, worked for Energy Allied at the time Wilmot
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hired it. Bouknight was involved in completing and presenting a feasibility study
on the Peace Refinery Project to government officials in Côte d’Ivoire. The Côte
d’Ivoire government and Petroci approved the Peace Refinery Project and a site
was dedicated in Abidjan, Côte d’Ivoire.
In November 2007, because of Bouknight’s role in the feasibility study and
his experience in the field, Wilmot sought Bouknight’s participation in the Peace
Refinery Project by asking him to serve as chief operating officer (“COO”).
In December 2007, planning for the Peace Refinery Project began in earnest.
Energy Allied withdrew from the project because it could not obtain the necessary
funding. Bouknight decided to leave Energy Allied and work for Wilmot at
WCW. Project development activities began in early 2008, and Bouknight signed
an executive employment agreement (“EEA”) with Côte d’Ivoire Peace Refinery
Ltd. (“CIPR”), a corporation formed by Petroci and WCW Holding.
The EEA provided that it was made effective as of January 5, 2008. It stated
that it was entered into between Bouknight and the “Cote d’Ivoire Peace Refinery
Ltd, a corporation incorporated under the law of the British Virgin Islands, with its
principal place of business at 1001 McKinney, Suite 1660, Houston (hereinafter
referred to as the “Company”).” The EEA stated that the “Company hereby agrees
to engage [Bouknight] as its Chief Operating Officer (“Executive”) and Executive
hereby accepts such employment in accordance with the terms of this Agreement.”
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It set out Bouknight’s responsibilities as COO, including “solicit[ing], identify[ing]
and secur[ing] new business opportunities for Company” and “manag[ing] and
supervis[ing] the construction of the refinery and related facilities.”
Regarding compensation, the EEA provided that Bouknight was entitled to a
$100,000 signing bonus, $300,000 in annual salary for the first year, $400,000 in
the following years, and various stock options and other benefits. The majority of
the compensation provisions were contingent upon CIPR’s obtaining initial
funding for its activities: “Executive acknowledges that Company is in the process
of obtaining initial funding for the activities of the Company and execution of the
Project and consequently Company would not be able to commence payment of
the entire base salary until such initial funding is in place.” However, the EEA
provided, “In the interim and until the initial funding is acquired, Company agrees
to pay Executive a monthly allowance of $25,000.”
The EEA was to remain in effect for a term of five years and was subject to
renewal under certain circumstances. The EEA also provided that it “may be
terminated at Company’s discretion, provided that Company shall pay to Executive
an amount equal to payment at Executive’s base salary rate for the remaining
period of the Agreement.”
Following execution of the EEA, Bouknight worked to obtain funding for
the Peace Refinery Project. Petroci wired $2.5 million to WCW that Bouknight
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contended was for the Peace Refinery Project, and Bouknight eventually arranged
a financing deal with a Chinese bank. In the meanwhile, Bouknight was not being
paid regularly under the terms of the EEA. He informed Wilmot that he was not
being paid, and Wilmot told him that he would be paid and that things were just
slow. CIPR paid Bouknight a total of $152,500.
In April 2009, Bouknight and Wilmot traveled to China to complete the
financing deal. In September 2009, Wilmot sent Bouknight an email terminating
his employment and representing that CIPR would not honor the EEA.
The Peace Refinery Project subsequently collapsed. According to Wilmot,
this was due in part to the financial collapse that began in 2008 and in part to a war
and regime change in Côte d’Ivoire.
Bouknight sued Wilmot and WCW for tortious interference with the EEA,
for conspiracy, and for fraudulent inducement, and he also argued that he was
entitled to recover under a quantum meruit theory. Wilmot designated CIPR as a
responsible third party and asserted cross-claims against Bouknight.
Bouknight testified at trial that Wilmot recruited him to be COO of CIPR,
telling him that he was needed for his technical experience and his previous work
on the project while he was employed by Energy Allied. Bouknight stated that,
based on a verbal agreement between Wilmot and himself, he began working out
of an office at WCW. As far as he was aware, there was never a separate office for
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CIPR in Houston. Bouknight testified that in January 2008, when he signed the
EEA, Wilmot told him that the agreement had to be between Bouknight and CIPR,
rather than Wilmot individually or WCW, because CIPR was the entity that was
going to lead the development of the Peace Refinery and ultimately operate it.
At the time he left his employment with Energy Allied and signed the EEA,
Bouknight did not have first-hand knowledge of the financial situation or corporate
structure of CIPR, and he relied upon what Wilmot told him. He testified that
Wilmot negotiated the terms of the EEA with him, acted as his supervisor and
assigned him work on behalf of CIPR, and provided him with his paychecks.
Bouknight became aware that CIPR had a bank account that Wilmot controlled.
He stated that whenever he would complain to Wilmot that he had not been paid in
accordance with the terms of the EEA, Wilmot would assure him that he was
arranging for payment and that Bouknight would be paid soon. Bouknight further
testified that Wilmot was very complimentary of his work on behalf of CIPR.
However, in September 2009, Bouknight received an email from Wilmot
terminating his employment. The September 2009 email stated that his
employment on the project had actually been terminated in April 2009, before
Bouknight’s trip to China to obtain funding from a Chinese bank. Shortly after
receiving this email, Bouknight obtained other employment.
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Wilmot testified at trial that Bouknight was recruited by other people
involved in the Peace Refinery Project and that he paid Bouknight as a consultant.
He further stated that Bouknight was “kicked out by Energy Allied” and that he
allowed Bouknight to office out of WCW as a favor. Regarding the EEA, Wilmot
testified that he intended to bind CIPR to the EEA. However, he also testified that
he knew he did not have authority to bind CIPR to the EEA at the time he and
Bouknight executed it because his authority was subject to board approval.
Wilmot, who was the chairman of CIPR’s board, stated that the board never met or
considered the EEA. He testified that he never called a board meeting because the
formulation of the board changed and CIPR changed its organizational structure.
Wilmot testified that in March 2008, approximately two months after he and
Bouknight signed the EEA, he traveled to Côte d’Ivoire and met with the Chief
Executive, Kassoum Fadika, who told him that CIPR could not sign the document.
Wilmot testified that the laws of Côte d’Ivoire precluded Bouknight from being an
employee of CIPR and that Bouknight could only function as a consultant. Wilmot
also testified that the only reason the EEA was ever effective was because he was
trying to do a personal favor for Bouknight after Bouknight lost his job at Energy
Allied. He further testified that he called Bouknight to his office, first in April
2008 and then again in April 2009, and told him that CIPR was terminating the
EEA. After originally indicating that CIPR never approved the EEA and that it
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was terminated in March 2008, Wilmot subsequently testified that CIPR
terminated the EEA in April 2009.
Wilmot testified that the EEA was a contingent contract because it was not
enforceable unless initial funding occurred. He argued that initial funding was $40
million, and CIPR never obtained this amount. Wilmot further testified that he and
Bouknight discussed and understood that Bouknight was working as a contractor
and that they did not have a written consultation agreement because he believed a
handshake was sufficient to establish the agreement. Wilmot also argued at trial
that Bouknight never complained of any violations of the EEA in writing.
Wilmot challenged Bouknight’s ability to pursue liability solely against
Wilmot personally. He testified that he was an agent of CIPR at all relevant times.
As such, he argued, he could not be personally liable to Bouknight under the EEA.
Wilmot also testified that Bouknight knew and worked with Kassoum Fadika,
another principal of CIPR, and that Bouknight was aware that CIPR was a start-up
company with uncertain funding and that the business and political climate in Côte
d’Ivoire was unstable. Thus, he argued, Bouknight was a knowing and willing
participant in the enterprise, and he could not have relied upon any representations
made by Wilmot.
The trial court found in Bouknight’s favor on his fraudulent inducement
claim against Wilmot individually and awarded Bouknight $1,337,500 in damages
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on that claim. The trial court determined that Wilmot and WCW did not commit
tortious interference with a contract or conspiracy and that Bouknight was not
entitled to relief for quantum meruit. The trial court likewise found that Wilmot
and WCW failed to establish their counter-claims against Bouknight.
In its findings of fact and conclusions of law, the trial court found that
Wilmot represented to Bouknight that Wilmot had the authority to bind CIPR to
the terms of the EEA and that “[t]his was an intentional material
misrepresentation.” The trial court further found that Wilmot did not have the
authority to bind CIPR to the EEA, that Wilmot knew he did not have the authority
to bind CIPR to the EEA, and that Bouknight “reasonably relied on [Wilmot’s]
misrepresentations when entering into the [EEA].” The trial court determined that
Bouknight suffered economic damages as a result of Wilmot’s fraud in the
inducement because he was “owed $25,000 a month for five years . . . decreased
by the amount of $152,500.00 which he [had] previously received for his services.”
Accordingly, the trial court concluded that Wilmot “committed fraudulent
inducement against” Bouknight and that Bouknight was entitled to $1,337,500 in
economic damages.
Fraudulent Inducement
In his first issue, Wilmot argues that Bouknight’s fraudulent inducement
claim fails as a matter of law based on the trial court’s findings that Wilmot did not
9
have authority to bind CIPR to the EEA. He argues that if he did not have
authority to bind CIPR to the EEA, then there was no valid and binding contract
and, therefore, Bouknight’s fraudulent inducement claim fails under Texas law. In
his second issue, Wilmot argues that the evidence is legally and factually
insufficient to support the trial court’s findings on each element of fraudulent
inducement. In his fourth issue, Wilmot argues that “[t]here is no legally or
factually sufficient evidence or the [judgment] otherwise cannot legally stand”
because all of his acts were done as an agent of CIPR, the economic loss rule bars
recovery, the EEA’s merger clause prohibits a fraud in the inducement finding, and
CIPR is a responsible third party. In his fifth issue, Wilmot argues that the Texas
Supreme Court case Sawyer v. E.I. DuPont De Nemours & Co. prohibits recovery
for fraudulent inducement in this case. We construe all of these arguments as
attacking the legal and factual sufficiency of the evidence to support trial court’s
judgment in favor of Bouknight on his fraudulent inducement claim.
A. Standard of Review
In an appeal of a judgment rendered after a bench trial, the trial court’s
findings of fact have the same weight as a jury’s verdict, and we review the legal
sufficiency of the evidence used to support them just as we would review a jury’s
findings. Daniel v. Falcon Interest Realty Corp., 190 S.W.3d 177, 184 (Tex.
App.—Houston [1st Dist.] 2005, no pet.) (citing Catalina v. Blasdel, 881 S.W.2d
10
295, 297 (Tex. 1994)). In conducting a legal-sufficiency review, we credit
favorable evidence if a reasonable fact-finder could and disregard contrary
evidence unless a reasonable fact-finder could not. City of Keller v. Wilson, 168
S.W.3d 802, 827 (Tex. 2005); Brown v. Brown, 236 S.W.3d 343, 348 (Tex. App.—
Houston [1st Dist.] 2007, no pet.). We consider the evidence in the light most
favorable to the finding under review and indulge every reasonable inference that
would support it. City of Keller, 168 S.W.3d at 822. We sustain a no-evidence
contention only if: (1) the record reveals a complete absence of evidence of a vital
fact; (2) the court is barred by rules of law or of evidence from giving weight to the
only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital
fact is no more than a mere scintilla; or (4) the evidence conclusively establishes
the opposite of the vital fact. Id. at 810; Volkswagen of Am., Inc. v. Ramirez, 159
S.W.3d 897, 903 (Tex. 2004).
In reviewing a challenge to the factual sufficiency of the evidence, we must
consider and weigh all the evidence and should set aside the judgment only if it is
so contrary to the overwhelming weight of the evidence as to be clearly wrong and
unjust. Arias v. Brookstone, L.P., 265 S.W.3d 459, 468 (Tex. App.—Houston [1st
Dist.] 2007, pet. denied) (citing Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986)).
The trial court acts as fact-finder in a bench trial and is the sole judge of the
credibility of witnesses. HTS Servs., Inc. v. Hallwood Realty Partners, L.P., 190
11
S.W.3d 108, 111 (Tex. App.—Houston [1st Dist.] 2005, no pet.). We review a
trial court’s conclusions of law de novo, and we will uphold the conclusions if the
judgment can be sustained on any legal theory supported by the evidence. BMC
Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002); In re Moers,
104 S.W.3d 609, 611 (Tex. App.—Houston [1st Dist.] 2003, no pet.).
B. Law of Fraudulent Inducement
The elements of fraud are: (1) that the speaker made a material
misrepresentation (2) that he knew was false when he made it or that he made
recklessly without any knowledge of its truth and as a positive assertion (3) with
the intent that the other party act upon it and (4) that the other party acted in
reliance on the misrepresentation and (5) suffered injury thereby. Italian Cowboy
Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011). A
representation is material if “a reasonable person would attach importance to [it]
and would be induced to act on the information in determining his choice of
actions in the transaction in question.” Id. Fraudulent inducement is a particular
species of fraud that arises only in the context of a contract and requires the
existence of a contract as part of its proof. Haase v. Glazner, 62 S.W.3d 795, 798
(Tex. 2001); Clark v. Power Mktg. Direct, Inc., 192 S.W.3d 796, 799 (Tex. App.—
Houston [1st Dist.] 2006, no pet.). That is, with a fraudulent inducement claim, the
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elements of fraud must be established as they relate to an agreement between the
parties. Haase, 62 S.W.3d at 798–99.
Fraud requires a showing of actual and justifiable reliance. Grant Thornton
LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010). In
evaluating justification, the court considers whether, “given a fraud plaintiff’s
individual characteristics, abilities, and appreciation of facts and circumstances at
or before the time of the alleged fraud[,] it is extremely unlikely that there is actual
reliance on the plaintiff’s part.” Id. (quoting Haralson v. E.F. Hutton Grp., Inc.,
919 F.2d 1014, 1026 (5th Cir. 1990)).
C. Legal and Factual Sufficiency of the Evidence
The trial court found that Wilmot made a material misrepresentation to
Bouknight when he represented that he had the authority to bind CIPR to the terms
of the EEA. The trial court further found that Wilmot did not have the authority to
bind CIPR to the EEA, that Wilmot knew he did not have the authority to bind
CIPR to the EEA, and that Wilmot’s misrepresentation was “intentional.” The trial
court also found that Bouknight “reasonably relied on [Wilmot’s]
misrepresentations when entering into the [EEA].”
The misrepresentation identified by the trial court was Wilmot’s
representation to Bouknight that Wilmot had the authority to bind CIPR to the
EEA. This is the type of information that “a reasonable person would attach
13
importance to and would be induced to act on . . . in determining his choice of
actions in the transaction in question.” See Italian Cowboy, 341 S.W.3d at 337.
Thus, it was a material misrepresentation.
Wilmot signed the EEA in his capacity as “Chairman” of CIPR. He
acknowledged at trial that he did not have authority to bind CIPR to the EEA and
that he knew he lacked such authority at the time he and Bouknight executed the
EEA. He also knew he needed the approval of CIPR’s board, but he, in his
capacity as chairman of the board, never called a board meeting and never
presented the EEA to the board for approval. He further testified that he knew in
March 2008 that CIPR would not agree to the EEA, but he testified that he did not
provide this information to Bouknight until April 2008 or April 2009. This is
legally and factually sufficient evidence that Wilmot made a material
misrepresentation that he knew was false when he made it. See id.; see also City of
Keller, 168 S.W.3d at 810 (setting out standard for legally sufficiency review);
Arias, 265 S.W.3d at 468 (setting out standard for factual sufficiency review).
Bouknight, on the other hand, testified that Wilmot recruited him to work as
CIPR’s COO and that he did extensive work for the Peace Refinery Project,
including traveling to Africa and Asia and obtaining funding for the project, while
under the impression that he was an executive of CIPR. He stated that every time
he complained to Wilmot that he was not being paid under the terms of the EEA,
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Wilmot assured him that the financial arrangements were being made and that he
would receive his full compensation soon. Bouknight testified that Wilmot did not
tell him that CIPR would not honor the EEA until September 2009. This is legally
and factually sufficient evidence that Wilmot misrepresented his authority to enter
into the EEA with the intent that Bouknight act upon it by agreeing to the EEA and
providing services pursuant to its terms. See Italian Cowboy, 341 S.W.3d at 337;
City of Keller, 168 S.W.3d at 810; Arias, 265 S.W.3d at 468.
Finally, Bouknight testified that, at the time he entered into the EEA and left
his consulting job with Energy Allied, he relied on Wilmot’s representations about
CIPR’s corporate structure and financing. He testified that he performed work for
the Peace Refinery Project in what he believed was his capacity as COO, including
overseeing development and obtaining funding. Specifically, Bouknight testified
that he flew to China to finalize a funding deal with a Chinese bank in April 2009
and that Wilmot did not inform him that CIPR would not honor the EEA until
September 2009, after Bouknight had once again asked about his compensation
and status on the Peace Refinery Project. Wilmot testified that he told Bouknight
that CIPR would not honor the EEA in April 2008 or 2009 and that Bouknight
continued working only as a consultant, but Wilmot acknowledged that they had
no written consulting agreement. Although the parties disagreed about whether
initial funding was obtained that would trigger all of the EEA’s compensation
15
provisions, it is undisputed that Bouknight was not paid the monthly allowance of
$25,000 that was due him under the terms of the EEA “[i]n the interim and until
the initial funding [was] acquired” for the Peace Refinery. Rather, Bouknight was
paid $152,000 for his work between January 2008 and September 2009. Thus,
there was sufficient evidence to support the trial court’s finding that Bouknight
acted in reliance on Wilmot’s misrepresentation and that he suffered injury
thereby. See Italian Cowboy, 341 S.W.3d at 337 (setting out elements of fraud);
City of Keller, 168 S.W.3d at 810; Arias, 265 S.W.3d at 468.
Likewise, there is evidence that the fraud here arose in the context of a
contract, namely the EEA. See Haase, 62 S.W.3d at 798. Wilmot argues that
because the trial court found that he did not have the authority to bind CIPR to the
EEA, it was not a valid contract and thus will not support a conclusion that he
fraudulently induced Bouknight into the executing the EEA, and he relies on
Haase to support his argument. However, Haase is distinguishable from the
present case. In Haase, the supreme court held that Texas law imposes a duty to
abstain from inducing another to enter into a contract through the use of fraudulent
misrepresentations, but “there can be no breach of that duty when one is not
induced into a contract.” Id. at 798. The Haase court stated, “[W]hen a party has
not incurred a contractual obligation, it has not been induced to do anything.” Id.
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It concluded that because the parties in Haase “never reached a final agreement”
the plaintiff could not maintain a fraudulent inducement claim. Id.
Here, by contrast, the trial court never found that the EEA was not a valid
agreement. It merely found that Wilmot misrepresented his authority to enter into
it on behalf of CIPR. The record demonstrates the existence of a valid contract, in
that Wilmot offered Bouknight employment as the COO of the Peace Refinery
Project, Bouknight accepted his offer, both of them agreed to the terms set forth in
the EEA and executed the agreement, and Bouknight performed his obligations
under the EEA. See DeClaire v. G & B McIntosh Family Ltd. P’ship, 260 S.W.3d
34, 44 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (setting out elements of
valid contract as requiring “(1) an offer, (2) an acceptance, (3) a meeting of the
minds, (4) each party’s consent to the terms, and (5) an execution and delivery of
the contract with the intent that it be mutual and binding”).
There is likewise evidence of Bouknight’s detrimental reliance on Wilmot’s
misrepresentation: Bouknight left his consulting position with Energy Allied after
being recruited by Wilmot, and he worked on the Peace Refinery Project while
under the impression that he was an executive on the project and believed
Wilmot’s representations that the financing was being arranged and that he would
soon get paid under the terms of the EEA. See Haase, 62 S.W.3d at 798
(discussing significance of detrimental reliance element of fraudulent inducement
17
claim). Texas courts have long held that when one party enters into a contract with
no intention of performing, that misrepresentation may give rise to an action in
fraud. See, e.g., Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors,
Inc., 960 S.W.2d 41, 46–47 (Tex. 1998); Crim Truck & Tractor Co. v. Navistar
Int’l Transp. Co., 823 S.W.2d 591, 597 (Tex. 1992).
We conclude that the evidence was legally and factually sufficient to support
the trial court’s conclusion that Wilmot fraudulently induced Bouknight into
executing the EEA.
Wilmot also argues that he cannot be held liable for fraudulent inducement
in his individual capacity because he acted at all times as an agent of CIPR.
However, as we discussed above, the evidence was sufficient to support the trial
court’s conclusion that Wilmot did not have the authority to bind CIPR to the EEA.
Wilmot has pointed to no legal authority to support his contention that he should
not be held liable for his own acts of fraud. See, e.g., Kingston v. Helm, 82 S.W.3d
755, 758–59 (Tex. App.—Corpus Christi 2002, pet. denied) (holding that
corporation’s employee is personally liable for tortious acts that he directs or
participates in during his employment and that “a corporate agent can be held
individually liable for fraudulent statements or knowing misrepresentations even
when they are made in the capacity of a representative of the corporation”) (citing
Leyendecker & Assocs., Inc v. Wechter, 683 S.W.2d 369, 375 (Tex. 1984), and
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Commercial Escrow Co. v. Rockport Rebel, Inc., 778 S.W.2d 532, 541 (Tex.
App.—Corpus Christi 1989, writ denied)); Maintenance, Inc. v. ITT Hartford
Group, Inc., 895 S.W.2d 816, 819 (Tex. App.—Texarkana 1995, writ denied) (“An
agent may be liable for its own acts of negligence or fraud committed in
performing a contract for its principal if those negligent or fraudulent acts cause
reasonably foreseeable harm to a third party.”).
Wilmot argues that the merger clause in the EEA prevents a finding of
fraudulent inducement. However, even a written contract containing a merger
clause can be avoided for fraud in the inducement, and the parol evidence rule does
not stand in the way of proof of such fraud. Italian Cowboy, 341 S.W.3d at 331;
see also Formosa Plastics, 960 S.W.2d at 46 (“This Court has also repeatedly
recognized that a fraud claim can be based on a promise made with no intention of
performing, irrespective of whether the promise is later subsumed within a
contract.”); Dallas Farm Mach. Co. v. Reaves, 307 S.W.2d 233, 239 (Tex. 1957)
(“[T]he law long ago abandoned the position that a contract must be held sacred
regardless of the fraud of one of the parties in procuring it.”).
Wilmot further argues that the economic loss rule prohibits Bouknight from
prevailing on his fraudulent inducement claim. This argument likewise fails
because the Texas Supreme Court has held that “tort damages are not precluded
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simply because a fraudulent representation causes only an economic loss.”
Formosa Plastics, 960 S.W.2d at 47.
Wilmot also contends that Bouknight’s fraudulent inducement claim must
fail as a matter of law because CIPR was a responsible third party. The trial court
permitted Wilmot to name CIPR as a responsible third party. However, the trial
court did not apportion any liability to CIPR in its findings of fact and conclusions
of law or in its final judgment. Furthermore, Wilmot has not presented any
evidence that CIPR was a participant in his fraud against Bouknight. Thus, this
argument also fails.
Finally, Wilmot argues that the supreme court’s opinion in Sawyer v. E.I.
DuPont De Nemours & Co. prohibits Bouknight from establishing his fraudulent
inducement claim. In Sawyer, former employees brought an action against their
former employer, DuPont, alleging that they were fraudulently induced to
terminate their employment with DuPont and accept employment with its wholly-
owned subsidiary, DuPont Textiles and Interiors (“DTI”). 430 S.W.3d 396, 398
(Tex. 2014). The former employees alleged that DuPont assured them that it
would not sell DTI and that they would continue to have the same pay and benefits
they had had at DuPont. Id. However, after the employees moved to DTI, DuPont
sold DTI to another company that reduced the former DuPont employees’ pay and
benefits. Id. The supreme court held that because the employees were at-will
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employees, they could not bring an action for fraud that depended upon continued
employment, citing the holding of various Texas courts that “a fraud claim cannot
be based on illusory promises of continued at-will employment.” Id. at 400.
Sawyer is factually distinguishable from the present case, which does not
involve a promise of continued at-will employment. Bouknight was not an at-will
employee of Wilmot’s at the time that Wilmot made the fraudulent
misrepresentation that induced Bouknight to leave his consulting job with Energy
Allied and work for CIPR with Wilmot as his supervisor. In fact, Bouknight was
hired for a term of years pursuant to the EEA, which obligated his new employer to
provide him with at least his base pay for a period of five years unless he was
terminated for cause. Thus, Sawyer does not apply here. Furthermore, as the
Saywer court recognized, its holding in that case did not mean that even an at-will
employee can never sue for fraud. Id. “Recovery of expenses incurred in reliance
on a fraudulent promise of prospective employment has been allowed because
neither the injury nor the recovery depends on continued employment.” Id. Again,
here, Wilmot fraudulently induced Bouknight to enter into the EEA by
misrepresenting his authority to bind CIPR to the EEA. Bouknight performed the
services and duties of the COO as set out in the EEA, but he was not paid
according to its terms because of Wilmot’s fraudulent misrepresentation.
We overrule Wilmot’s first, second, fourth, and fifth issues.
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Damages
In his third issue, Wilmot argues that the evidence is legally and factually
insufficient to support the trial court’s award of damages. Alternatively, he argues
that the amount of damages awarded was excessive.
A. Damages for Fraudulent Inducement
Damages for fraudulent inducement typically conform to one of two
measures of damages: an “out-of-pocket” measure or a “benefit-of-the-bargain”
measure. See, e.g., Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768,
775 (Tex. 2009); Formosa Plastics, 960 S.W.2d at 49. “The out of pocket measure
computes the difference between the value paid and the value received, while the
benefit-of-the-bargain measure computes the difference between the value as
represented and the value received.” Aquaplex, Inc., 297 S.W.3d at 775 (quoting
Formosa Plastics, 960 S.W.2d at 49); see also Baylor Univ. v. Sonnichsen, 221
S.W.3d 632, 636 (Tex. 2007) (per curiam) (observing that out-of-pocket damages
“derive from a restitutionary theory,” while benefit-of-the-bargain damages “derive
from an expectancy theory”). “Under the benefit-of-the bargain measure, lost
profits on the bargain may be recovered if such damages are proved with
reasonable certainty.” Aquaplex, Inc., 297 S.W.3d at 776 (citing Formosa Plastics,
960 S.W.2d at 50).
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B. Sufficiency of the Evidence of Damages
Here, the trial court found that Bouknight “suffered economic injury as a
result of [Wilmot’s] fraud in the inducement” and that Bouknight “was owed
$25,000 per month for five years.” The trial court found that the amount that
Bouknight was owed must be “decreased by the amount of $152,500 which he
[had] previously received for his services.” It awarded Bouknight damages of
$1,337,500.
The trial court based its findings on the clause in the EEA that provided, “In
the interim and until the initial funding is acquired, Company agrees to pay
Executive a monthly allowance of $25,000.” The EEA, by its own terms, was to
be effective from when it was executed in January 2008 for a period of five years.
Furthermore, the terms of the agreement required payment of “an amount equal to
[Bouknight’s] base salary rate for the remaining period of the Agreement” if the
EEA was terminated at CIPR’s discretion at any point. It is undisputed that
Bouknight was paid $152,500 for his work. Thus, there was sufficient evidence to
support the trial court’s conclusion that $1,337,500 constituted the benefit of the
bargain to Bouknight. Stated another way, that amount, as proved with reasonable
certainty by Bouknight based on the terms of the EEA and the evidence presented
at trial, reflected the difference between the value of the EEA as represented to
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Bouknight and the value he actually received. See Aquaplex, Inc., 297 S.W.3d at
775–76.
Wilmot argues that Bouknight could not obtain benefit-of-the-bargain
damages in this case because Bouknight did not contract with Wilmot in his
individual capacity. However, as we have already held, the record demonstrates
the existence of a valid contract, in that Wilmot offered Bouknight employment as
the COO of the Peace Refinery Project, Bouknight accepted his offer, both of them
agreed to the terms set forth in the EEA and executed the agreement, and
Bouknight performed his obligations under the EEA. See DeClaire, 260 S.W.3d at
44 (setting out elements for valid contract). Likewise, Wilmot has not presented
any valid legal theory supporting his claim that he cannot be held individually
liable for his own act of fraud. See, e.g., Kingston, 82 S.W.3d at 758–59.
Wilmot also argues that Bouknight mitigated his damages by working
elsewhere following his termination in 2009. However, the fact that Bouknight
was subsequently employed by a different company is irrelevant in determining the
benefit he anticipated from the performance of the EEA. The EEA entitled him to
five years of his base salary if CIPR terminated his employment in its discretion
before the EEA expired on its own terms. The EEA did not limit Bouknight’s
ability to find new employment upon termination or otherwise condition the
payment of his base salary for the full term of the contract on his remaining
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unemployed after being terminated by CIPR at its discretion. An injured party is
required to exercise reasonable care to minimize his damages, if the damages can
be avoided with only slight expense and reasonable effort. Harris Cnty. v. Smoker,
934 S.W.2d 714, 721 (Tex. App.—Houston [1st Dist.] 1996, writ denied). As the
terms of the EEA demonstrate, no action on Bouknight’s part could have
minimized his employer’s damages for the failure of the EEA. See id. Wilmot
does not cite any authority indicating that Bouknight should not receive as
damages the amount he would have received under the EEA had it been performed
according to its terms. See Cook Composites, Inc. v. Westlake Styrene Corp., 15
S.W.3d 124, 135 (Tex. App.—Houston [14th Dist.] 2000, pet. dism’d) (holding
that breaching party bears burden of proving that damages could have been
mitigated and that injured party was not required to mitigate its damages by
forgoing its rights and remedies under its agreement with breaching party).
Wilmot also argues that there was no evidence that his fraudulent
inducement was the proximate cause of Bouknight’s damages. He argues that
factors such as the financial crash of 2008 and the civil war in Côte d’Ivoire were
the causes of the failure of the Peace Refinery Project and CIPR. However, as
discussed above, the evidence demonstrates that Wilmot induced Bouknight into
the EEA by misrepresenting his ability to bind CIPR to the terms of the EEA.
According to Wilmot’s own testimony, CIPR never intended to honor the EEA,
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and Wilmot knew this within two months after he and Bouknight executed the
EEA. However, he continued to assign Bouknight job responsibilities and
Bouknight performed his obligations under the EEA for more than a year and a
half, relying on Wilmot’s initial misrepresentation and on his continued
representations that the financing was being arranged and that Bouknight would
eventually be paid pursuant to the EEA. We conclude that there is evidence that
Wilmot’s misrepresentation was the cause of Bouknight’s damages, as found by
the trial court.
Wilmot also argues that Bouknight waived his $25,000 per month allowance
and that Bouknight waived any requirement of written notice of termination, but
these contentions are likewise unsupported by the record. Wilmot further contends
that employment law principles limit Bouknight’s recovery in this case. However,
Wilmot does not point to any place in the record where he presented this argument
to the trial court. Accordingly, it is waived. See TEX. R. APP. P. 33.1(a).
We overrule Wilmot’s third issue.
Conclusion
We affirm the judgment of the trial court.
Evelyn V. Keyes
Justice
Panel consists of Chief Justice Radack and Justices Jennings and Keyes.
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