Introduction. The Texas Supreme Court recently reversed another multi-million dollar business fraud verdict in Mercedes-Benz USA, LLC v. Carduco, Inc., 16-0644, 2019 WL 847845, at *1 (Tex. Feb. 22, 2019). The court found that the underlying contract between the parties negated the fraud claim.
Background. In this case, Carduco, Inc. entered into a Dealer Agreement with Mercedes-Benz USA, LLC (referred to in the agreement as “MBUSA”). The agreement identified Harlingen, TX as the dealership location and prohibited Carduco from changing locations without the consent of Mercedes-Benz. The agreement stated:
“MBUSA will assign to Dealer a geographic area consisting of a collection of zip codes or census tracts that is called an Area of Influence (“AOI”). MBUSA may alter or adjust Dealer’s AOI at any time. The AOI is a tool used by MBUSA to evaluate Dealer’s performance of its primary obligations hereunder. Dealer agrees that it has no right or interest in any AOI and that MBUSA may add new dealers to or relocate dealers into Dealer’s AOI. Any such addition or relocation of a dealer will result in an alteration or adjustment of Dealer’s AOI.”
(See Mercedes-Benz USA, LLC v. Carduco, Inc., supra, at *4). Carduco’s Area of Influence under the agreement included McAllen, Texas.
According to the record, two months after signing the agreement, Mercedes-Benz entered into an agreement with another dealer allowing the dealer to open a Mercedes dealership in McAllen, Texas. After learning of this, Carduco requested authorization from Mercedes to relocate to the McAllen area. Mercedes denied the request.
Carduco sued Mercedes and other related defendants alleging that the defendants fraudulently induced Carduco to believe that Mercedes would give Carduco the opportunity to relocate to McAllen as the exclusive Mercedes dealership. This was apparently based, at least in part, upon discussions that Carduco had with Mercedes representatives prior to entering the Dealer Agreement. After hearing the evidence, the jury found that Mercedes and the other named defendants fraudulently induced Carduco into making the related dealership acquisition, and awarded $15.3 million in actual damages and $100 million in punitive damages against Mercedes. The trial court entered a judgment based upon the jury’s findings. On appeal, the appellate court upheld the award for actual damages and suggested a reduction in the punitive damages award.
Holding. The Texas Supreme Court overturned the judgment based upon the jury verdict and rendered that Carduco take nothing. The court found that in order to recover on a fraud claim, the claimant must show that the claimant justifiably relied upon the alleged improper conduct and actions of the defendant. The court held that a party cannot justifiably rely on improper conduct and actions that directly conflict with the terms of the signed contract. The court held that the terms quoted above in the Dealership Agreement directly contradicted Carduco’s fraudulent inducement claims and Carduco’s reliance upon the alleged misconduct and improper actions of Mercedes was unjustified as a matter of law.
Lessons learned. It is becoming more difficult in Texas for a buyer in a business transaction to recover on fraudulent inducement claims. A seller to a transaction can avoid liability for fraud through carefully drafting the written sale agreement. Buyer’s should specify in the written agreement all terms material to the buyer’s decision to make the purchase.