02.22.19

02.22.19

Last week, the Texas Supreme Court issued an opinion where the Court weighed in on the issue of whether reliance on a belief, fostered through alleged misrepresentations and concealment, yet one that is directly contradictory to the written terms of a contract, is sufficient to prevail on a fraud claim.

In Mercedes-Benz USA, LLC, et al. v. Carduco, Inc., Carduco, a Mercedes-Benz franchisee sued Mercedes-Benz USA ("MBUSA") alleging that MBUSA fraudulently induced Carduco into a dealership position. Carduco signed a Dealer Agreement with MBUSA identifying: (1) a dealership location in Harlingen, TX, (2) Carduco's "Area of Influence", (3) a disclaimer acknowledging Carduco did not have an exclusive right to sell in the designated area and (4) MBUSA's right to add or relocate dealers within Carduco's specific area of influence. This agreement came after Carduco purchased dealership assets from a previous franchisee. During this franchise transfer and before Carduco's dealership contract with MBUSA, both the previous franchise owner and Carduco expressed interest in relocating the dealership to McAllen. MBUSA later appointed a different dealer to the McAllen area. Upon this appointment, Carduco requested permission to also relocate to McAllen but the request was denied. Carduco claimed MBUSA concealed this contract with a competing dealer for the McAllen area, a fact that if known would have led Carduco to cancel its dealership purchase. The trial court agreed that MBUSA fraudulently induced Carduco into the dealership acquisition and awarded damages measured by the benefit of Carduco's bargain to relocate to McAllen and punitive damages. The court of appeals lowered the punitive damages award but otherwise affirmed.

The Texas Supreme Court granted MBUSA's petition for review. First, the Court clarified that to prevail on a fraud claim the plaintiff must show actual and justifiable reliance. While justifiable reliance is ordinarily a question of fact, the Court explained that the element may be negated as a matter of law when circumstances exist where reliance cannot be justified. Here, the Court determined the terms of the contract between MBUSA and Carduco were unambiguous and directly in conflict with Carduco's assertion of fraudulent inducement and therefore Carduco's reliance was unjustified as a matter of law. Because the agreement identified only Harlingen as the location, provided the Carduco's right to sell in a specific area was nonexclusive and MBUSA had the right to add and relocate dealers within areas, Carduco's belief he had any right to a dealership in McAllen is directly contradicted. The Court reasoned that had Carduco entered the agreement under such belief, it had a duty to protect its interests by editing the conflicting written contractual provisions. Moreover, the Court found no duty of behalf of MBUSA to disclose its plans to relocate the competing dealership as no fiduciary relationship exists between a franchiser and a prospective franchisee. For these reasons, and because no actual evidence of misrepresentation was found, the Court determined there was no valid claim of fraud and reversed the award of actual and punitive damages and rendered that Carduco take nothing.