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Cause No. 2013-06598
SUN COAST RESOURCES, INC., § IN THE DISTRICT COURT
Plaintiff,
OF HARRIS COUNTY, TEXAS
PLAINS MARKETING, L.P.,
Defendant. 165 JUDICIAL DISTRICT
PLAINSMARKETING , L.P. RESPONSE TO SUN COAST RESOURCES, INC.’S
MOTION FOR PARTIAL SUMMARY JUDGMENT
For the reasons set forth below, this Court should deny Sun Coast Resources, Inc.’s (“Sun.
Coast's”) Motion for Partial Summary Judgment.
SUMMARY
Sun Coast has moved for partial summary judgment
on three grounds. First, Sun Coast
argues that the economic loss rule bars Plains Marking, L.P. s (“Plains’”) fraud claim. Second,
Sun Coast argues that Plains ratified Sun Coast's fraud, barring Plains’ fraudulent inducement
claim. Third, Sun Coast argues that Plains’ affirmative defense of prior material breach fails
because the contract contains a provision allowing Sun Coast to bring its claims, and, moreover,
Plains waived the affirmative defense by treating the contract as continuing.
Sun Coast is wrong about each of these groundsFirst, under longstanding Texas law,
the economic loss rule does not bar fraud claims, and Sun Coast ignores direct authority to this
effectSecond, Plains did not ratifyand could not have ratifiedSun C oast’s fraud, for three
independent reasons: (1) Plains did not have full knowledge of all relevant facts regarding Sun
Coast’s fraud; (2) Plains did not intend to ratify Sun Coast’s fraud; and (3) the contract
amendment, far from ratifying
Sun Coast’s fraud, actually confirms that Sun Coast committed
fraud. Finally, the contract does not bar Plains’ prior material breach affirmative defense, and
Plains did not waive that defense because it did not treat the contract provisions that are relevant
to that defense
as continuing.
SUMMARY JUDGMENT EVIDENCE
In support of this response to Sun Coast’s motion, Plains relies upon the following
summary judgment evidence:
EXHIBIT : Affidavit of J eril R. Benedict
EXHIBIT Transportation Agreement, dated March 1, 2012, and First
Amendment to Transportation Agreement, dated September , 2012.
EXHIBIT 2: Deposition of Terah Parkins.
EXHIBIT 3: Deposition of Sheila Kahanek.
EXHIBIT 4: Email from Christy Smith to Sheila Kahanek and Marc Bellemare,
August 2
EXHIBIT 5: Email from Scott A. Sturgeon to Roger F. Wortham, November 6,
EXHIBIT 6: Email from Christy Smith to Thomas Hager, Sonny Glover, and Sheila
Kahanek, November 6, 2012.
EXHIBIT 7: Letter from
J effrey S. Davis to Elizabeth P. Fletcher, January 15, 2014
with exhibits
EXHIBIT 8: Sun Coast freight invoice for J une 10, 2012.
EXHIBIT 9: Sun Coast stand by invoice for
J une 10, 2012.
FACTUAL BACKGROUND
This is a case about crude oil truckingUnder the contract at issue in this casethe
Transportation A greementPlains hired Sun Coast to haul crude oil in Oklahoma from March 1,
2012, to February 2, 2013. During this year period, Sun Coast provide trucks to be
dispatched
to various wells in Oklahoma that were producing crude oil, load — the crude oil onto
the trucks, and took the crude oil to gathering station and deposit each loadPlains
paid Sun
Coast for achload according to freight rates specified in the contract See Exhibit1 at
Plains and Sun Coast entered into an amendment to the Transportation Agreement in
September 2012. The amendment applied retroactively to all of Sun Coast’s work from the
beginning of the contract period. It included a provision on so called “stand by time defined as
ours for which drivers are not dispatched but are required to remain at, near, or able
to be
dispatched when requested to do so.” Id. at (emphasis added) The amendment
thus
enabled Plains
to request that Sun Coast's trucks “stand by” for loads of crude oil. Under the
amendment, such “stand by” time, if any, is restricted by the condition that Plains must request
that Sun Coast stand by. See generally Plains Marketing, L.P.’s Motion for Partial Summary
Judgmentfiled
June 22, 2015
Contrary
to the amendment’s plain language, Sun Coast sought to bill Plains for any idle
time in its drivers’ shifts, regardless of whether Plains had requested itand regardless of
whether any Sun Coast trucks were, in fact, “standing
by Sun Coast’s decisionmakers testified
at their depositions in this case that Sun Coast intended from the moment the contract
amendment was signed to hill Plains 24 hours a day, 7 days a week, 365 days a year, whether
Sun Coast was performing services for Plains under the contract orno See Exhibit at 57:20
24 (deposition of Terah Parkins); Exhibit at 47:410 (deposition of Sheila Kahanek). Indeed,
the discovery in this case show that Sun Coast planned this course of action before entered
discussions with Plains regarding the amendment. See, e.g. Exhibit at SC0316236 (Sun Coast
intemal correspondence discussing how “[ilf the truck
was assigned but didn’t run it will get 24
hours of stand by time”).Sun Coast developed its stand by formula in or around August 2012,
before the amendment
was signed, but did not share the amendment with Plains until months
later. In contrast, Sun Coast did share its formula for calculating so called “deadhead” miles
with Plains, and that formula
was incorporated
into the amendment. SeeExhi bit 1 A at 12.
Inits pleadings this Court, Sun Coast characterizes its stand by invoices as charges for
Plains’ alleged “underutilization” of Sun Coast’s trucks, and claims that these “undenutilizatiot
charges are “expressly and unambiguously” authorized by the contract amendment Sun
Coast’s Motion for Partial Summary Judgment ff. In making these statements, Sun Coast is
disingenuous at bestas it is in much of its motion for partial summary judgment he contract
amendment in no way “expressly and unambiguously” authorizes Sun Coast to charge Plains 24
hours per day, 7 days per week, 365 days per year. The contract amendment’s stand by
provision never uses the term “utilization,” “undenutilization,” “utilized,” or something similar
Sun Coast’s euphemistic characterization of its standby invoices as pertaining to
“andezutilizatior is an attempt to conceal the fact that the contract amendment simply does not
authorize its excessive, fraudulent billing
The evidence show that Sun Coast billed Plains for trucks that Plains did not ask to
“stand by.” Sun Coast also billed Plains for trucks that were being repaired, washed, or parked
somewhere without a driveri.e. , trucks that were not and could not have been standing byAs
Sun Coast’s former CFO, Sheila Kahanek, admitted in her deposition in this case, Sun Coast
charged Plains even when it had no driver available during the shift in which it charged Plains
“stand by” time. See Exhibit 3 at 131:12132:2 Similarly, Sun Coast’s intemal correspondence
indicates that it charged Plains “stand by” time during driver shifts for which it did not have
driversavailable. See Exhibit 6.
he evidence
also show that Sun Coast engaged in a pattem and practice of fraudulently
double billing Plains: charging for both “stand by” time and freight hauling at the exact same
same truck, same shift more than 1,600 times. As just one example, on June 10, 2012,
Sun Coast sent Plains a freight invoice detailing charges for Truck 1563 for transporting 3 loads
of crude
oil during hour shiftSee Exhibit 8 at 13, lines 50607, 525.Sun Coast sent a
different “stand by” invoice to Plains for the same truck (Truck 1563), the same day (June 10,
2012), and the same 12 hour shift (evening) for 12 hours of “stand by” time.Exhibit 9 at 12,
line 381. Sun Coast billed Plains twice for the exact same truck, claiming that the truck (1)
hauled three loads of crude oil and (2) did not haul a single
load all day. This example is no
mere mistake or enor. A review of invoices suggest Sun Coast engaged in a deliberate
pattem andpractice of deceptively double hilling Plains.
After Plains exposed this fraudulent scheme in this case, Sun Coast revised its invoices
admitting there were “numerous” emors in its original billings. See Sun Coast’s Motion for
Partial Summary Judgment Sun Coast now claims it is owed about $2.4 milliona $1.3
million reduction from its original, pre lawsuit invoices. Exhibit
7 at 8 (Sun Coast’s
summary table showing reduction in total amount billed). In other words, Sun Coast has
admitted that at the time that it sued Plains it had overcharged
Plains by at least
Moreover, as Plains will show at trial, Sun Coast’s revised invoices continue to be riddled with
exrors_ and are inherently unreliable.
Sun Coast has moved for partial summary judgment on Plains’ fraud and fraudulent
inducement claims and on Plains’ affirmative defense of prior material breach. For the reasons
set forth below, Sun Coast’s motion is baseless, and this Court should deny it.
Iv. SUMMARY OF ARGUMENT
Summary judgment is appropriate only if Sun Coast proves that there is no genuine issue
of material fact as to any of the issues raised in its motion and that it is entitled
to judgment as a
matter of law. Tex. R. Civ. P. 166a(c); see, e.g. Amedisys, Inc. v. Kingwood Hone Health Care,
, 437 S.W.3d 507, 511 (Tex. 2014), reh’g denied(Aug. 22, 2014). Evidence is conclusive
only if reasonable minds could not differ
in their conclusions. City of Keller v. Wilson, 168 S.W.3d
802, 816 (Tex. 2005).
Sun Coast raises three arguments in its motion for partial summary judgment. First, Sun
Coast argues that the economic loss rule prohibits Plains from recovering on its fraud claim.
Second, Sun Coast argues that Plains ratified Sun Coast’s fraud, barring Plains’ fraudulent
inducement claim. Third, Sun Coast argues that Plains’ affirmative defense of prior material
breach fails because (1) the Transportation Agreement provides that a material breach of the
contract does not discharge Plains’ contractual obligations and (2) Plains waived the affirmative
defense by treating the contract as continuing.
On all counts, Sun Coast is wrong. First, under longstanding Texas law, the economic
ss rule does not bar fraud claims. In its motion, Sun Coast ignores direct authority from
the Texas Supreme Court to this effectSecond, Plains did not ratify Sun Coast’s fraud, for
three independent reasons: (1) Plains never had full knowledge
of all material facts pertaining
to
Sun Coast's fraud; (2) Plains never intended to ratify Sun Coast’s fraud; and (3) the amendment
to the Transportation Agreement, far from ratifying Sun Coast’s fraud, actually confirms that
Sun Coast committed fraud. Third, Plains’ affirmative defense of prior material breach has no
relation to the contract provision that Sun Coast cites; moreover, Plains’ affirmative defense
pertains to a promise under the contract that is independent of the provisions that Plains
continued totreat as being in effect after the contract amendment.
ARGUMENT AND AUTHORITIES
Under settled Texas law, the economic loss rule does not apply to fraud claims.
he economic loss rule does not apply to Plains’ fraud claims.
Under well established Texas law, the economic loss rule does not apply to fraud claims.
Indeed, the very cases that Sun Coast cites expressly indicate as mucha fact that Sun Coast
fails to mention in its motionSun Coast’s argument for summary judgment based on the
conomic loss rule fails, and this Court should deny its motion.
When applicable, the economic loss mule restricts the recovery of purely economic
damages unaccompanied by injury to the claimant or his property. LAN/SIV
v. Martin K. Eby
Const. Co., Inc. 435 S.W.3d 234, 245 (Tex. 2014). Contrary to Sun Coast’s suggestion in its
motion the economic loss mule is not a general rule of tort law; instead, it is a rule that applies
only in negligence and strict product liability cases. SeeSharyland Water Supply Corp. v. City of
Alton, 354 S.W.3d 407, 418 (Tex. 2011); see also Barzoukas v. Found. Design, Ltd., 363 S.W.3d
829, 835 (Tex. App.Hous. [14th Dist.] 2012, pet. denied).
Fraud is not a negligence or product liability claim, and it therefore should come as no
surprise that, under established Texas law, the economic loss rule does not apply to fraud claims.
See Sun Coast’s Motion for Partial Summary Judgment {| __ stating that “[t]he economic
loss mule ‘generally precludes recovery in tort’” (emphasis added)). Sun Coast also cites to
Lamar Hones, Inc. v. Mid Continent Cas. Co., 242 S.W3d 1 (Tex. 2007), in support of applying
the economic loss rule to Plains’ fraud claim. However, the Lamar ourt refused to apply the
economic loss doctrine outside the contours of a negligence claim. at 12. The plaintiff
brought a duty to defend insurance coverage claim, and the defendantsought to bar the claim
with the economic
loss nile. Id. The ourt, however, refused to apply the economic loss nile
and explained that the rule is better suited for tort claims such as negligence in which the duty
breached is created by a contractual relationship.Id.
See, eg. JJJJ Walker, LLC v. Yollick, 447 S.W.3d 453, 467 (Tex. App.Houston [14th Dist]
2014, pet. filed). Indeed, in the very case that Sun Coast cites for its definition of the economic
loss rule, Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41
(Tex. 1998), the Texas Supreme Court expressly stated that the economic loss rule does not
“preclude tort damages in fraud cases.” Id. at 46. In Formosa, the defendant
made the same
argument that Sun Coast
is making this Court _ that a fraud claim was barred by the economic
loss rule because it was nothing more than a repackaged breach of contract claim. Id. The
Plaintiff in Formosa had entered into a contract with the defendant through which the defendant
agreed to construct a building for the plaintiff. Id. at 43. The evidence revealed that the
defendant defrauded the plaintiff of millions of dollars by misrepresenting
the amount of timeit
would take to complete
the project, which allowed itself to save costs, and the defendant argued
that the plaintiff’s fraud claim was barred by the economic loss rule. Id. at 47. In rejecting
that argument, and in finding that the economic loss rule does not apply to a fraud claim, the
Supreme Court noted that its prior decisions clearly establish that tort damages are not
precluded simply because a fraudulent representation causes only an economic loss.” Id. at 47.
This is because
there is a duty, separate
from a contractual duty, to avoid making promises or
representations with no intent of performing those promises irrespective of whether the
promise is later subsumed within a contract. Id. at 46 (emphasis added)
Formosa, the Court held that a fraudulent inducement claim was not barred by the
economic loss rule. The Supreme Court in Formosa stated that its rule was not limited to
fraudulent inducement, but rather extended to fraud generally. Moreover, the Supreme Court has
reiterated in subsequent cases that economic losses are recoverable under either fraud or
fraudulent inducement theories. See, e.g. Haase v. Glazner, 62 S.W.3d 795, 799 (Tex. 2001)
Sharyland, 354 S.W.3d at 418 In Sharyland, the Court recognized that parties have been
allowed to recover purely economic loss in fraud cases for over twenty years. See 354 S.W.3d at
Additionally, this jurisdiction's appellate courts have relied on Formosa and
Sharyland and found that the economic loss rule does not bar a fraud clam. See, eg. JJJJ
Walker, 447 S.W.3d at 467.
The rule the Texas Supreme Court established in Formosa has been applied and
reiterated by many Texas courts in subsequent cases. See, e.g. Sharlyand, 354 S.W.3d at 419
(citing Formosa and noting that purely economic losses are recoverable in a fraud claim); JJJJ
Walker, 447 S.W.3d 467 (“there is evidence of fraud, a cause of action for which purely
economic losses are recoverable”) James J. Flanagan Shipping Corp. v. Del Monte Fresh
Produce NA., Inc., 403 S.W.3d 360, 366 (Tex. App.Hous [1st Dist. ] 2013, no pet.)(economic
loss mule not applicable to breach of fiduciary duty claim) Reservoir Sys., Inc. v. TGS NOPEC
Geophysical Co., L.P., 335 S.W.3d 297, 308 (Tex. App.Hous. [14th Dist.] 2010, pet. denied)
(economic loss rule did not bar fraudulent inducement claim) For this reason, this Court should
deny Sun Coast’s motion forsummary judgment Plains’ fraud claim.
Even if well established authority did not expressly bar Sun Coast's
argument, the economic loss rule would not apply here
Even absent the Texas Supreme Court’s conclusion in Formosa and subsequent cases
this Court would have every reason to deny Sun Coast’s motion. Sun Coast claims that this
Court should apply a two pronged test to determine whether the economic loss rule applies: (1)
whether the claim is for breach of a duty created by contract, or rather for breach of a duty
imposed
by law; and (2) whether the claimed injury is only the economic loss to the subject of
the contract itself. Sun Coast’s Motion for Partial Summary Judgment {9. This test does not
apply here because of Formosa, but even if this test did apply, it would compel
the denial of Sun
Coast’s motion: Plains’ claim is for Sun Coast’s breach of an independent duty established by
law, not for Sun Coast’s breach of its contractual duties, and Plains’ injuries are independent of
those that would arise from the contract itself.
Sun Coast breached independent legal dutyto refrain from
fraudulent misrepresentations
As ageneral matter, the economic loss rule applies when the breach of duty that underlies
acause
of action is a duty created
by contract. Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493,
494 (Tex. 1991). On the other hand, when the breach of duty that underlies a cause
of action is
duty created
by law, then the economic loss rule does not apply. Id.
With fraud, the law imposes
a duty, independent
of a contractual obligation, to refrain
from using false representations to induce another to take action in detrimental reliance of the
false representations. Exxon Corp. v. Emerald Oil & Gas Co., L.C., 348 S.W.3d 194, 21819)
(holding that making false statements with the intent that another party take action in detrimental
reliance of the false statements can give rise to an actual fraud claim); Formosa, 960 S.W.2d at
46 (holding that a separate duty exists to refrain from making false statements to induce another
to enter into a contract); Haasev. Glazner, 62 S.W.3d 795, 798 (Tex. 2001).
This separate legal duty is the very duty that Sun Coast breached. Contrary
to what Sun
Coast has claimed in its motion, Plains’ fraud claim is not based solely on a legal duty imposed
by the Transportation Agreement. Rather, Plains’ claim is based on the fact that Sun Coast made
false representations
regarding its stand by charges. Sun Coast made these representations
with
the intent that Plains would rely on them and pay the excess charges to its detriment. These acts
by Sun Coast breached
the legal duty that the law imposed on Sun Coast to refrain from such
conduct. Exxon, 348 S.W.3d at 21819. Thus, the economic loss rule cannot bar Plains’ fraud
claim because
the breached legal duty that underlies Plains’ fraud claim is not a duty that is
contractually imposed on Sun Coast. DeLanney -W.2d
at 494.
Plains’ damages for Sun Coast’s fraud are not the same as breach of
contract damages
The purpose of the economic loss mule is essentially to avoid recovery of benefit of the
bargain contract damages through a tort claim. See Sterling Chems., Inc. v. Texaco Inc.
S.W.3d 793, 797 (Tex. App.Hous. [1st Dist.] 2007, pet. denied) (holding that while benefit of
the bargain damages are available
for a breach of contract, such damages are not recoverable
for
a negligent misrepresentation claim because of the economic loss mule). The second prong of
Sun Coast’
s proposed two prong test encompasses this goal. Indeed, the portion of Formposathat
Sun Coast uses to create its test cites a Texas Supreme Court case in which the Court
distinguished between benefit of the bargain damages and distinct tortious injury. Jim Walter
Hone , Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). The key to the analysis is whether the
Plaintiff would be able to recover the damages even if a contract between the parties did not
exist. DeLanney, 809 S.W.2d at 494
Here, the damages that Plains seeks are not benefit of the bargain damages because the
damages are not for any lost value that Plains expected under the Agreement. See Parkway
Dental Assocs., P.A. v. Ho & Huang Props., L.P, 391 S.W.3d 596, 607 (Tex. App.Hous [14th
Dist.] 2012, no pet.);Bowen
v. Robinson, 227 S.W.3d 86, 96 (Tex. App.Hous. [1st Dist.] 2006,
pet. denied). Rather, Plains seeks damages for excess money that Plains paid in detrimenta
reliance on Sun Coast’s false representations regarding stand by time and the amount of work
that Sun Coast had performed. hese are damages for the amount of excess money that Plains
paid because Sun Coast made false representations about the amount of money Plains owed Sun
Coast. Stated differently, Plains would still have a claim for fraud based on overpaying in
reliance on Sun Coast’s false representations even if Sun Coast had fully performed its
responsibilities under the Transportation Agreement. Consequently, the damages that Plains
seeks are simply not the type of damages that the economic loss mule is intended to bar. See
Sterling, 259 S.W.3d at 797.
Forthe reasons, Sun Coast has failed as a matter of law to prove that the economic
loss
tule bars Plains’ fraud claim _his Court should deny Sun Coast’s motion for summary
judgment
on the basis of the economic loss rule.
Sun Coast’s ratification argument misapplies the law and fails to prove either
element of ratification.
atification consists of an approval by act, word, or conduct with (1) full knowledge of
the material facts of the fraudulent action and (2) the intention of giving validity to the earlier
act. Motel Enter., Inc. v. Nobani, 784 S.W.2d 545, 547 (Tex. App.Hous st Dist.] 1990, no
wnit).The issue of ratification is a mixed question of law and fact. Wise v. Pena, 552 S.W.2d
196, 199 (Tex. Civ. App.Corpus Christi 1977, writ dism’d). The issue is a question of law
only when the evidence of ratification is uncontroverted or uncontrovertahle; if the act or acts of
ratification are not uncontroverted, then the question of ratification one for the trier of fact. Id.
Here, Sun Coast’s ratification argument fails for three reasons. First, Sun Coast has not
proven that, as a matter of law, that ratification is uncontroverted or uncontrovertahle, that Plains
had full knowledge
of all material facts that constituted Sun Coast’s fraudnamely that Sun.
Coast was not goingto properly or fully utilize its trucks or that Sun Coast was going to falsely
charge
for stand by time. Indeed, Sun Coast artfully avoids mentioning that it was required to
prove that Plains
had full knowledge of all material facts that constituted Sun Coast’s fraud
instead stating that knowledge of all “relevant” facts suffices. Second, Sun Coast has not proven
that, as a matter
of law, Plains intended to ratify Sun Coast’s fraudulent actions. Third, the
amendment to the Transportation Agreement did not ratify Sun Coast’s conduct; to the contrary
the amendment clarifiesthat Sun Coast was wrongfully charging Plains for stand. by time.
Sun Coast has not proven that, as a matter of law, Plains had full knowledge
of all material facts surrounding Sun C oast’s fraudulent conduct.
party claiming that ratification occurred must provide uncontroverted proof that the
allegedly ratifying party had full knowledge of all fraudulent acts at the time of ratification. See
Leonard v. Hare, 336 S.W.2d 619, 621 (Tex. 1960); Winkins v. Frank Winther Invs., Inc., 881
S.W.2d 557, 559 (Tex. App.Houston [1st Dist] 1994, no writ). Such knowledge is the
“caitical factor’ and “key element” in determining whether a party ratified fraudulent conduct.
Land Title Co. of Dall. v. F.M. Stigler, Inc., 609 S.W.2d 754, 756 (Tex. 1980) Wise, 552 S.W.2d
at 199
Sun Coast glossed over this key element in its motion, instead merely stating in passing
that ratification occurs if all “relevant” facts are known. See Sun Coast’s Motion for Partial
Summary Judgment 12. Sun Coast downplay its burden of proof on this element because it
has not come close to providing enough “uncontroverted evidence” to establish that Plains had
full knowledge
of Sun Coast’
s fraud
Sun Coast has not even explained why it believes that Plains had full knowledge of its
fraudulent conduct. Sun Coast instead has simply stated that “Plains made complaints about the
manner
in which Sun Coast's drivers were loading and hauling Plains’ crude oil, as well as other
complaints about the way Sun Coast was conducting operations pursuant to the Agreement.”
Sun Coast’s Motion for Partial Summary Judgment Sun Coast then goes on to argue that
Moreover, even if Plains had ratified Sun Coast’s conductwhich it did not this
would only foreclose Plains’ ability to rescind the Transportation Agreement. Ratification would
not prevent Plains from recovering money damages, because Plains has not realized the benefit
of its bargain with Sun Coast.
because Plains continued to perform in light of the complaints, Plains ratified its fraud. See i
Not e does Sun Coast explain ow Plains had full knowledge of Sun Coast’s fraudulent
conduct. Seei Indeed, Sun Coast’s motion appears to admit that Plains did not ratify its
fraudulent stand by charges: Plains refused
to pay Sun Coast for the disputed charges. (Motion {]
4). For that reason alone, this Court should deny Sun Coast’s motion.
At best, it appears that Sun Coast impliedly argues that Plains had full knowledge of Sun
Coast’s fraud because Plains made complaints to Sun Coast
in April 2012 about its general
performance See id. But complaints about Sun Coast’s poor performance hardly prove that
Plains had “full knowledge” that Sun Coast was intentionally misleading Plains and wrongfully
charging Plains. For more than a century, Texas courts have explained that one cannot waive
or acquiesce
in a wrong while ignorant that it has been committed. Current suspicion and rumor
are not enough. There must be knowledge of the facts which will enable the party to take
effectual action. Nothing short of this will do Wells v. Hous., 69 S.W. 183, 188 (Tex. Civ.
App.San Antonio 1902, writ ref’d) (quoting Pence v. Langdon, 99 U.S. 578, 581 (1878)
(emphasis added)
Here, what Sun Coast has provided this Court is only evidence that Plains complained
about Sun Coast’s performance and invoicing errors under the Transportation Agreement. This
evidence is no evidence, not even circumstantial evidence, that Plains knew of Sun Coast’s
In Tex. Workers’ Comp. Ins. Facilityv. Pers. Servs., Inc., 895 S.W.2d 889 (Tex. App.
Austin 1995, no pet), a plaintiff sued a defendant for fraudulently misrepresenting that certain
workers were the defendant’s employees. Id. at 890. Arguing that the plaintiff had ratified the
fraud because the plaintiff knew that the defendants were trying to save money on worker's
compensation premiums for its employees, the defendant prevailed before the trial court. Id. at
893. In reversing, the appellate court held that knowing the defendant was trying to save money
would at best prove a suspicion or rumor that the defendant was committing fraud, which was
insufficient to prove the knowk requirement of ratification. Id. See also Hooks v. Brown
348 S.W.2d 104, 127 (Tex. Civ. App.Austin 1961, writ ref’d n.re.); Ellerd v. Burkhalter , 269
S.W. 197, 199 (Tex. Civ. App.El Paso 1925, writdis m’dwoj.).
fraudulent scheme to charge Plains for services it did notand could not provide falsely
Claimingthat
it was ready, willing, and able to provide services it did not provide but did charged.
Plains for nonethelessThe — assertion that Plains made early complaints about Sun Coast’s
performance is insufficient to prove as a matter of law that Plains ha full knowledge
of all
material facts related to Sun Coast’ s fraudand
ratified itSeeid.at
Sun Coast has also failed to prove that Plains intended to ratify Sun C oast’s
fraudulent activity.
The second element of ratification is an intent to ratify. Motel, 784 S.W.2d at 547; The
Atrium v. Kenwin Shops of Crockett, Inc., 666 S.W.2d 315, 318 (Tex. App.Hous [14th Dist.]
1984, writ ref’d mre). Sun Coast’s burden to successfully prove intent to ratify is “particularly
onerous,” Samms v. Autumn Run Cmty. Improvement Ass'n, Inc., 23 S.W.3d 398, 401 (Tex.
App.Hous [1st Dist.] 2000, pet. denied), and Sun Coast has not met it here.
The crux of Sun Coast’s argument is that Plains complained
to Sun Coast about its ability
to provide the agreed upon number of trucks while continuing to perform under the
Transportation Agreement. See Sun Coast’s Motion for Partial Summary Judgment 13. Sun
Coast states that as early as April 2012, “Plains began to raise complaints about Sun Coast and
its ability to provide the agreed upon number of trucks and drivers,” and that Plains made
additional complaints “throughout the entire duration of the Agreement,” demonstrating
“recognition
of the existence of the Agreement and an intent to be bound by it.” Id. Therefore,
Sun Coast argues, Plains’ continued compliance ratified Sun Coast’s fraud. See id.
But mere complaints and continued compliance with a contract are exactly the type of
conduct that is insufficient to prove intent to ratify as a matter of law. _ cts done in affirmance
of the original contract do not necessarily amount to a waiver of the right to sue for fraud
Arroyo Shrimp Farm Inc. v. Hung Shrimp Farm, Inc., 927 S.W.2d 146, 154 (Tex. App.
Corpus Christi 1996, no writ). Indeed, many cases, including a case that Sun Coast cites in its
motion, have held that stronger evidence than the evidence on which Sun Coast relies was
insufficient to prove intent to ratify as a matter of law. See Columbia/HCA Healthcare Corp. v.
Cottey, 72 S.W.3d 735, 742 (Tex. App.Waco 2002, no pet); Arroyo, 927 S.W.2d at 154; Wise
552 S.W.2d at 200.
Sun Coast has far from met its heavy burden to prove that Plains intended to ratify Sun
Coast’s fraud. Plains continued complianc with the Transportation Agreement does not prove
intent to ratify fraud _ his sort of mere compliance with some portion the agreementhere,
the payment for freight hauledaccompanied by complaints is ___. enough to prove that Plains
intended to ratifySun
Coast's fraud.
This case is similarto Columbia/HCA Arroyo, and Wise. In Wise, the defendant
induced the plaintiff to leave his current job and work for the defendant. Wise, 72 S.W.3d at
740. To entice the plaintiff, the defendant represented that the plaintiff would receive a lucrative
compensation plan. Id. The plaintiff did not know that the defendant intended to rescind the
plan once he came to work there. Id. Once the plaintiff came to work for the defendant, the
defendant terminated the plan. Id. The plaintiff continued working for the defendant but
consistently complained that the plan wes wrongfully terminated, and eventually sued the
defendant. Id. at 741. The defendant argued that the plaintiff's claim was barred by ratification
because, after leaming of the defendant’s misrepresentation, the plaintiff continued to comply
with the contract and continued working. Id. at 742. The court held that because the plaintiff
continued to complain about the rescission of the plan, he did not manifest an intent to ratify the
defendant’s conduct, and therefore that the defendant failed to prove ratification. Id This is
precisely the case here, where Plains complained about Sun Coast’s “stand by” invoices,
demanded. documentation of the charges, and later leamed that they had been fabricated. In
Arroyo, the plaintiff purchased property and a license from the defendant to operate a shrimp
farm. Arroyo, 927 S.W.2d at 152. During negotiations, the defendant misrepresented the price
of obtaining a license and information regarding the capabilities of the land. Id. Upon leaming
of the misrepresentations, the plaintiff purchased additional land from the defendant and
constructed pumps on the new land to try and preserve his original investment, and in the
Meantime continued to make payments under the original contract that had been secured by
misrepresentations. Id.In rejecting the defendant's ratification argument, the court held that
acts affinming the original contract and acts done to preserve an investment in light of some
knowledge of alleged misrepresentations were not enough to prove intent to ratify as a matter of
law. Id. at 154.
The Transportation Agreement amendment does not ratify Sun Coast’s
fraudulent conductit confirms it.
Sun Coast's ratification argument regarding the amendment to the Transportation
Agreement simply misunderstands the ratification doctrine. Amendments to a contract certainly
____ constitute
a ratification, but an amendment to a contract does not ratify fraud unless the
amendment approves of the fraudulent misrepresentation Wise, 552 S.W.2d at 197. An
addendum that does not approve of specific conduct does not ratify fraudulent
misrepresentations. Id. at 200. See also Vessels v. Anschutz Corp., 823 S.W.2d 72 (Tex.
App.Texarkana 1992, writ denied) (finding ratification agreement only approved of the
agreement to be bound by the terms of the lease, and did not provide that the plaintiffs approved
of the defendant conduct
In this case, Plains does not dispute that the Transportation Agreement was amended
The amendment, however, did not approve of or incorporate Sun Coast’s misrepresentations
regarding its fraudulent
stand by charges. Instead, it does just the opposite. The amendment
Clarifies the definition of stand by time, and in its billings subsequent to the amendment, Sun
Coast charged Plains in ways inconsistent with the amendmentamong other things, Sun Coast
invoiced Plains for time when drivers were not even available to be dispatched, much less
requested to “stand by” by Plains See Exhibit at 131:12132:2Thus, the amendment did not
approve of Sun Coast’s wrongful billing, nor did it approve of Sun Coast’s actions in failing to
provide the trucking capacity had promised.Notably, the formula Sun Coast developed for its
stand by billings was not disclosed to Plains. This formula, which Sun Coast had already
developed, was not given to or endorsed by Plains. This is in contract to the deadhead formula
that was disclosed
and was attached
to the amendment. No stand by formula
was ratified. Thus,
as in Wise and Vesselsthe amendment does not approve of or incorporate Sun Coast’s fraud.
In addition, Sun Coast continued
to fraudulently misrepresent
the amount of stand by
charges to Plains even after the amendment. Sun Coast would have this court believe that by
amending the Transportation Agreement, Plains has waived any right to sue Sun Coast for past
and future fraudulent misrepresentations. The amendment does not give Sun Coast free reign to
continue misrepresenting and overcharging Plains for fraudulent “stand by time, because the
amendment did not and could not have approve of or incorporate Sun Coast’s post amendment
fraudulent actions
Even if Plains had ratified Sun C oast’s fraudulent conduct (which it did not),
Plains would still be able to recover money damages for Sun Coast's fraud
ecause Plains did not receive the benefit of its bargain with Sun C oast.
Even if Plains had ratified Sun Coast’s fraud, that would not preclude Plains from
recovering money damages based on Sun Coast’s fraudulent misrepresentations. As a general
tule, ratification prevents a party from rescinding
a contract on the basis of fraud. Fortune Prod.
Co. v. Conoco, Inc., 52 S.W.3d 671, 678 (Tex. 2000)However, “not every ratification of a
contract induced by fraud will waive
the right to sue for damages, as distinguished
from the right
to rescind.” Id. Ratification only precludes a recovery for money damages when the party
asserting fraud receives the benefit of its bargain made under a contract. Id.
Sun Coast relies on R & L Inv. Prop., L.L.C. v. Ham _, 715 F.3d 145, 146 (5th Cir. 2013),
in support of its motion. See Sun Coast’s Motion for Partial Summary Judgment 12. ButR &
is readily distinguishable
from this case. In
R & L, the plaintiff had signed an amendment
to a
lease in which it agreed not to offset its purchase obligations based on any misrepresentations
regarding a permit for property the defendant had agreed to sell. Id. at 148The
court held that
because the plaintiff had received exactly what he bargained for in the amendment, he had
Yatified
the fraud. Id. at 150. Here, on the other hand, Plains did not receive the benefit of its
bargain under the amended Transportation Agreement Plains bargained to receive the
transportation of oil by Sun Coast’s trucks consistent with Sun Coast's representations, but Sun
Coast consistently failed to haul all of Plains’ loads of crudeSee, e.g., Exhibit (Plains intemal
email stating that “[t]here is no reason for [Sun Coast] to be on stand by with the amount of loads
we have”)Plains h_ ired Sun Coast to provide trucks with drivers to drive them, but Sun Coast
charged stand by time for shifts when drivers were not available. And Plains bargained to be
charged for stand by time only according
to the amendment’s tennsi.e. , that stand
by time
could only occur when Plains requested that Sun Coast have its trucks stand by. Given the fact
that Sun Coast overcharged
and double charged Plains for stand by time, Plains
has certainly not
received the benefit of that bargain.See, eg. Exhibit at :12132:2 (Sheila Kahanek
deposition).Thus, even if Plains had ratified Sun Coast’s fraud, that would not preclude Plains
from recovering damages from Sun Coastas a matter
of law
For all of these reasons, Sun Coast has failed to establish its ratification defense as a
matter of law. his Court should deny Sun Coast’s partial summary judgment motion.
Plains’ affirmative defense of prior material breach is sound.
Sun Coast contends that Plains’ affirmative defense of prior material breach fails because
(1) the Transportation Agreement provides that an alleged material breach does not discharge
performance, and (2) Plains treated the Transportation Agreement as continuing after Sun
Coast's alleged material
breach.
Both arguments fail. Sun Coast's first argument fails because the contract provision Sun
Coast cites does not apply to this circumstance, where Sun Coast's invoices do not comply with
the contract’s requirements for stand by time. Sun Coast’s second argument fails for two
reasons. First, although Plains treated certain portions of the agreement as continuing, it did not
treat the portions regarding stand by time as continuing. The contract’s provision on stand by
time is not part of the set of “mutually dependent promises” under which Plains continued to
require Sun Coast
to haul loads of oil, and hence under Texas law, the fact that Plains continued
to dispatch loads of crude oil to Sun Coast did not affect its ability to claim that Sun Coast
materially breached the contract’s provision on stand by time. Second, even if Plains
had treated.
the provision on stand by time as continuing, Plains would only have had an obligation to pay
validstand by timenot whatever stand by time Sun Coast fraudulently
chose to hill.
The contract provision that Sun Coast cites is irrelevant to Plains’ prior
material breach affirmative defensein these circumstances
In support of its prior material breach argument, Sun Coast cites a provision that has no
bearing on the issue. Paragraph 18 of the Transportation Agreement provides that each party
whether breaching or non breachingis entitled to any _ setoffs, claims, counterclaims, and
creditsthat it may have “ in connection withany payment or the performance of any obligations
under or in connection with this Contract.” Exhibit 1 at (emphas s added)
Here, Sun Coast has sued Plains for artificially create contractually invalid stand by
time. The evidence produced in this case shows that Sun Coast invoiced Plains for stand by tim
when it did not have drivers available to haul loads i.e. when it was not capable of performing
according the contract’s requirements. In her deposition, Sheila Kahanek, Sun Coast’s former
CFO and President, agreed that Sun Coast
had to have drivers available during a shift in order to
charge stand by time and that Sun Coast had in fact charged stand by time for driver shifts when
drivers were not available. See Exhibit at 95:10 14; id. at 131:12132:2. In short, Sun Coast
charged Plains for sta — by time that violated the contract’s requirementsin
more ways than one
Because Sun Coast charged Plains for stand by time that was not valid under the contract,
Sun Coast’s claim
for payment of that stand
by time is not
a claim “under or in conection with
this Contract,” and hence the contractual provision that Sun Coast cites is irrelevant to Plains’
prior material breach affirmative defense
Sun Coast’s prior material breach of the contract’s stand by provision
excused Plains’ obligation to perform with respect to that provision. And
ven if that were not the case, Plains would only be obligated to pay Sun
Coast's validstand by invoices, which Sun C oast has never supplied
In arguing that Plains’ continued performance negates its affirmative defense of prior
material breach, Sun Coast continues to mislead. Sun Coast states Plains’ affirmative defense as
follows:
Plains argues that it is not obligated
to pay Sun Coast because Sun Coast allegedly
committed prior material breaches by “not providing Plains the transportation
services it promised to provide and by failing to provide enough drivers to fully
utilize the trucks Plains had contracted to use in the Agreement.”
Sun Coast’s Motion for Partial Summary Judgment (119. But Sun Coast is wrongthe quoted
passage is an explanation of Plains’ counterclaim against Sun Coast for breach of contract. In
contrast, Plains’ affirmative defense of material breach is a defense
to Sun Coast’s breach of
contract claim against Plains. And Sun Coast’s breach of contract claim is founded primarily on
Plains’ failure to pay Sun Coast's invalid stand by invoices, as well as secondarily on Plains’
alleged failure to pay certain other invoices. See Sun Coast’s Motion for Partial Summary
Judgment
{4 (“To date, Plains has refused to pay the majority of th