* Pursuant to 5th Cir. R. 47.5, the court has determ ined th at this opinio n s hould not be published and is not precedent except under the limit ed circumstances set fo rth in 5th Cir. R. 47.5.4. 1 United States Court of Appeals Fifth Circuit 

## FILED February 19, 2007 Charles R. Fulbruge III Clerk REVISED February 22, 2007 IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 06-50088

STEPHEN R. SMITH, Pl aint iff- Appellant, versus BCE INC. AND BCE VENTURES INC., Defendants-Appellees.

Appeal from the United States District Court fo r the Western District of Texas, San Antonio Division Before REAVLEY, STEWART, and CLEMENT, Circuit Judges. PER CURIAM * : Stephen R. Smith filed suit against BCE Inc. and BCE Ventures Inc. (collectively, “BCE”) fo r fraud by affirmat ive misrepresentation, fraud by om issio n, and negligent misrepresentation. Sm it h claims th at BCE fraudulently induced him to amend a com missio n agreement despite knowledge of the guarantor’s unstable financial condition. Smith not only filed suit against BCE for fraud and2

negligent misrepresentation, but attem pted to jo in Excel Com

munications Inc. (“Exce l”), a nondiverse defendant, th

rough a breach of contract claim and request fo r declarato ry judgm ent relief. During the course o f the proceedings, the district court denied Smith’s motion to remand and his
mo tion fo r leave to amend pleadings. The district court granted summary judgment to BCE on the fraud and negligent misrepresentation claims, and we affirm its judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND In 1989, Sm

it h worked with Excel to develop a long-distance telephone marketing syst em. Through an ongoing contractual relationship, Sm it h received a com

missio n on the prof

it s earned from this syst em. The commission agreement also entitled Smith’s heirs to any commission payments. In 1998, Teleglobe acquired Excel and maint ained it as a wholly-owned subsidiary. Teleglobe’s business purpose primarily invo lved the GlobeSystem network, a globally int egrated video, int ernet, data, and voice network. In 2000, BCE acquired Teleglobe. When BCE purchased Teleglobe, BCE immediat ely invest ed $100 millio n and pledged $ 900 millio n in additional support to reassure its debts. Before the BCE acquisition, Smith served on Teleglobe’s board of directors fo r two years.

In 2001, VarTec Telecom , Inc. (“VarTec”) of fered to purchase Excel. VarTec, however, did not want to ass ume Smit h’s commission agreement. William Anderson, a BCE Inc. officer and president of BCE Ventures Inc., and Sm it h negoti ated a thir d amendment to his original agreement. On August 24, 2001, Sm it h surrendered his right to perpetual com missio n s in exchange for a guarantee d payment of $22 millio n over five years (the “Third Amendment”). The amendment designated Teleglobe Holdings (U.S.) Corporation, a subsidiary of Teleglobe Inc., as the party responsible fo r payments by authorizing Excel to assig n it s contractual obligations to Teleglobe3

Holdings. Excel and Teleglobe executed a guarantee that named Teleglobe as the guarantor of Sm it h’s payments. Upon assignment, the amended agreement released Excel from any contractual obligation to Smith and facilitated VarTec’s acquisition of Excel. Aft er the 9/11 terrori st attacks, the telecom munications market suffered an e conom ic downturn. Nevertheless, BCE invested $640 million of long-term funding into Teleglobe fo r the purpose of developing GlobeSystem, it s central business proj ect. In November 2001, BCE’s board of director s approved a 2002 budget that authorized up to $850 m illio n in additional funding for Teleglobe. On January 29, 2002, Moody ’s Investors Service downgraded Teleglobe’s rating to its lo west invest ment grade level; two mo nt hs lat er, Moody ’s Investors Service downgraded Teleglobe’s rating to “no n-investment grade” status. On April 24, 2002, BCE retracted the com mit ment to provide Teleglobe with long-term financial support. In May 2002, Teleglobe filed bankruptcy. Sm it h filed suit against BCE fo r fraud, negligent misrepresentation, and prom issory estoppel
. He also filed suit against Excel fo r breach of contract. Finally, he sought a declarat ory judgment against BCE and Excel. BCE removed the case from Texas state court to the Western District of Texas, alleging th at Sm

it h fraudulently jo ined Excel to defeat diversity. Sm it h mo ved to remand the
case. The district court denied Sm it h’s mo tion fo r remand. The district court entered a scheduling order th at set January 3 , 2005, as the deadl ine fo r all mo tions to am end or to supplement the pleadings. On May 18, 2005, Smith filed a motion for leave to file his second amended complaint. The district court denied leave to amend. BCE moved for summary judgment on Sm it h’s pending claims. The district court denied Sm it h’s mo tion fo r reconsideration of his mo tion fo r leave to file an amended com

plaint and thereafter, granted BCE’s mo tion fo r summary judgment. Sm it h appeals the4

district court’s denial of his mo tion to remand and his mo tion fo r leave to amend pleadings, and the district court’s grant of summary judgment. II. STANDARD OF REVIEW This court reviews de novo the district court’s order to deny a plaint iff’s mo tion to remand based on fraudulent jo inder. Heritage Bank v. Redcom Labs., Inc. , 250 F.3d 319, 323 (5th Cir. 2001); Griggs v. State Farm Lloyds , 181 F.3d 694, 699 (5th Cir.1999). We review the district court’s denial of leave to amend pleadings for abuse of discretion. Sw . Bell Tel. Co
. v. City of El Paso , 346 F.3d 5 41, 546 (5th Ci

r. 2003). A district court’s grant of summary judgment is reviewed de novo, applying the same legal standards as the district court. Machinchick v. P.B. Power, Inc. , 398 F.3d 345, 349 (5th Cir. 2005). If no genuine issue of material fact exists, then the moving party is entitled to judgment as a mat ter of law. Celotex Corp. v. Catrett , 477 U.S. 317, 323 (1986). The court m ust view all evidence in the light mo st favorable to the non-movant. B roussard v. Parish of Orleans , 318 F.3d 644, 650 (5th Cir.), cert. denied , 539 U.S. 915 (2003). If the evidence would permit a reasonable trier of fact to f ind fo r the non-moving party, then summary judgment should not be granted. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247-48 (1986). III. DISCUSSION A. To establish fraudulent j oinder, a party must demonstrate either (1) actual fraud in the pleading of jurisdictional facts, or (2) inabilit y of the plaint iff to establish a cause of action against the non-diverse party in state court. G riggs , 181 F.3d at 699. Under the second route, the court determ ines:5

whether there is arguably a reasonable ba sis fo r predicting that the state law might impo se liabilit y [on the resident defendant] on the facts invo lved, or whether there was a reasonable basis in law and fact for the claim against the resident defendant.
Hornbuckle v. State Farm Lloyds , 385 F.3d 538, 542 ( 5th Cir. 2004) (quotation om it ted and alt eration in original). To m erely plead “a valid state law claim” or an arguably reasonable state law claim do es not automatically dissolve the issue of fraudulent joinder. Id. The district court should “pierce the pleadings to determ ine whether, under controlling state law, the non-removing party has
a valid claim against the non-diverse parties.” Id. (citing LeJeune v. Shell Oil Co ., 950 F.2d 267, 271 (5th Cir. 1992). In this case, to defeat Sm

it h’s mo tion to remand based on fraudulent jo inder, BCE must fir st show th at Sm

it h cannot establish a breach of contract claim against Excel, the resident defendant. To prove breach of contract, the plaint iff must prove (1) a valid contract; (2) the plaint iff performed
or tendered performance; (3) the defendant breached the contract; and (4) the plaint iff was damaged as a result of the breach. Richter v. Wagner Oil Co. , 90 S.W.3d 890, 898 (Tex. App. 2002). Based on the undisputed facts, Sm it h cannot show th at Excel breached the Third Amendment
. Excel assigned it s payment obligation to Teleglobe. That assignment released Excel from remitting future payments to Sm

it h. Sm it h knowingly consented to the amended payment terms and novation. The amendment’s underlying purpose, from the beginning, was to release Excel of payment obligations in order to facilit ate Excel’s acquisition by VarTech. Therefore, Smith’s breach of contract cl aim against Excel would not result in recovery. On his claim fo r declaratory judgment relief, the Tex. Civ. Prac. & Rem. Code § 37.004(a) reads in pertinent part that:6

A person int erested under a deed, will, written contract, or other writings constituting a contract or whose rights, status, or other legal relations are affected by a statute, municipal ordinance, contract, or franchise may have determined any question of construction or validit y arising under the inst rum ent, statute, ordinance, contract, or franchise and obtain a declaration of rights, status, or other legal relations thereunder. In theory , Sm

it h may seek a declaratory judgment regarding the Third Amendment , however, a declaratory judgment would not permit Sm it h to rescind the thir d amendment and hold Excel liable under the original contract. In Sid Richardson Carbon & Gasoline Co. , 99 F.3d 746, 752 n.3 (5th Cir. 1996), this court reasoned that: Alt hough the peti

tion fo rmally stated two independent causes of action fo r breach of contract and declaratory judgment, the lat ter ground is merely a theory of recovery fo r the fo rm

er. The Texas Unifo rm Declaratory Judgments Act, is merely a procedural device; it does not create any substantive rights or causes of action. Consequently, we construe the request fo r declaratory judgment as a theory of recovery predicated upon the cause of action for breach of contract. (citations omitted). Sm it h never asserted a fraud claim against Excel in this case. The only claim brought against the resident defendant alleged a breach of contract, and Sm it h cannot prevail on a breach of contract claim against Excel. Thus, the declaratory judgment claim constitutes only a theory of recovery. To
overcom e fraudu lent jo inder, however, the state law claim “must be reasonable, not merely theoretical.” T

ravis v. Irby , 326 F.3d 644, 648 (5th Cir. 2003) (emphasis om itted). F or these
reason s, the district court did not err in denying Smit h’s motion to remand based on fraudulent jo inder. B. Fed. R. Civ. P. 16(b) governs the amendm ent of pleadings after the district court enters a scheduling order. Sw. Bell Tel. , 346 F.3d at 546. Rule 16(b) states that a scheduling order “shall not be mo dified except upon a showing of good cause and by leave of the di strict j udge.” The good7

cause standard requires the “party seeking relief to show th at the deadlines cannot reasonably be met despite the diligence of the party needing the extension.” S &W Enters., L.L.C. v. South Trust Bank of Ala. NA , 315 F.3d 533, 535 (5th Cir. 2003). The court considers fo ur factors to determ ine whether a party demonstrated good cause: (1) the explanation fo r th e failure to timely move for leave to amend; (2) the importance of the amendment; (3) potenti al prejudice in allo wing the ame ndment; and (4) the availabilit y o f a continuance to cure such prejudice. Id. at 536. Sm it h failed to present any arguments on the fo ur factors of good cause, but inst ead argued, under Fed. R. Civ. P. 15, that leave to amend should be “freely given when justice so requires.” In this appeal, Sm

it h now maint ains th at BCE prevented the timely request of docum ents, and his review ext e nded even further past the deadline due to the manner of production. Yet Sm it h’s motion for leave to amend, dated May 18, 2005, mentions none of these facts. Even in light of his recent justifications, Sm it h fails to meet the good cause standard. Sm it h claims th at he requested discovery on December 27, 2004, only six days before the deadline, because BCE refused discove ry until the court ruled on the motion to dismiss. On December 9, 2004, the court denied BCE’s mo tion to dismiss. According to Smith, on February 22, BCE began producing docum ents. By May 18, when Smith filed the motion fo r leave to amend, five months after the deadline, BCE’s summary judgment deadline was only two weeks away. Sm it h’s Second Amended Com plaint added an array of factual allegations regarding written misrepresentations; whereas, his First Amended Complaint relies solely upon oral statements. The “party seeking relief [m ust] show th at the deadlines cannot reasonably be met despite the diligence of the part y needing the extension.” S &W , 315 F.3d at 535. As to the initial delay in8

propoundin g a discovery request, Sm it h insinuat es that BCE refused to even accept discovery requests. A diligent party attem pts to com

pel discovery through the presiding court after opposing counsel unjustly refuses to provide responses. Sm it h argues that the information gathered from the docum ents fo rm ed the basis of his amendment, alo ng wit h the Anderson deposition of May 11, 2005. Sm it h began receiving docum ents from BCE, however, as early as February 22. To requi re that BCE provide a response to his newest theory of written misrepresentations wit hin two weeks undoubtedly would constitute unfair prejudice. Accordingly, we affirm the district court’s order. C. To establish fraud by misrepresentati on, a pl aint iff must show that (1) a material representation was made; (2) it was false when made; (3) the defendant eit her knew it was false or mad e it recklessly without any knowledge of its truth; (4) the defendant made the false material representation with the intent that it should be relied upon by the plaint iff; (5) the plaint iff r elied on the representation; and (6) the plaint iff suffered injury. F luorine On Call, Ltd. v. Fluorogas Ltd. , 380 F.3d 849, 858 (5th Cir. 2004). Under the fir st prong, fraud by om issio n can occur when there is a duty to di sclose info rmation as a matter of law. Id. at 859. To sustain a fraud by omission claim, the plaint iff must prove all the elements of “fraud by affirmat ive misrepresentation, including fraudulent int ent, wit h the exception th at the misrepresentation element can be proven by [omission] of a material fact in light of a duty to disclose.” U

nited Teacher Assocs. Ins. Co. v. Union Labor Life Ins. Co. , 414 F.3d 558, 567 (5th Cir. 2005) (citation omitted). A plaint iff can also allege a negligent misrepresentation by proving th at (1) the representation is made by a defendant in the course of his business, or in a transaction in which he has a pecuniary9

int erest; (2) the defendant supplied “false info rmation” fo r the guidance of others in their business; (3) the defendant did not exercise reasonable care or com petence in obtaining or com municating the info rmation; and (4) the plaint iff suffered pecuniary lo ss by justifiably relying on the representation. Fed. Land Bank Ass’n of Tyler v. Sloane , 825 S.W.2d 439, 442 (Tex. 1991) (citing the Restatem ent (Second) of Torts (1977)). In his First Amended Com plaint , Sm

it h alleges th at BCE misrepresented the f inanci al condition of Teleglobe and it s financial com mit ment to Teleglobe’s vit alit y as a solvent busin e ss entity. The representations offered to support his fraud claims include the negotiations with Anderson and the public disclosures of BCE’s CEO at a conference of public analyst s. BCE and Smith never entered int o a written agreement regarding BCE’s com mit ment to Teleglobe. In F luorogas , this court held th at “t o show fraud based on a prom ise of future performance, a plaint iff must also show th at the person making the prom ise had no int ention of performing at the time he made the prom ise. Failure to perform a contract, however, is not evidence of a fraud.” 380 F.3d at 858-59 (emphasis
omit ted). Both the alleged promise to provide additional financial investments and the alleged prom ise to com

plete GlobeSystem constitute oral prom ises of future performance, and Sm it h failed to prove th at these statem ents were not true when made. T o the co nt rary , BCE indeed invested additional funds int o Teleglobe aft er Sm it h’s amendment to the com missio n agreement. Based on the weakening financial climat e at the com pany, and generally in the telecom munication market, BCE swallowed its loss and backed away from the business. Sm it h’s evidence fails to support his fraud by misrepresentation claim. Similarly under Texas law, a plaintiff cannot base a negligent misrepresentation claim on a prom ise of future conduct. Clardy Mfg. Co. v. Marine Midland Bus Loans Inc. , 88 F.3d 347, 35710

(5th Cir. 1996). Sm

it h fails t o of

fer evidence that BCE supplied false information prior to execution of the Third Amendment ; inst ead, his factual allegations relate to BCE’s future financial com mit ment to Teleglobe. For this reason, the district court properl y granted summary judgment to BCE on the negligent misrepresentation claim. The underlying facts of Bay Colony, Ltd. v. Trendmaker, Inc. , 121 F.3d 998 (5th Cir. 1997), also bear a strong resemblance to an aspect of Smith’s fraud by omission claim in t his appeal. Bay Colony entered int o a contractual relationship wit h Midlands, negoti ated by Trend maker, f or Midlands to perform certain construction obligations on thirteen raw tracts purchased in a masterplanned com

munit y. I d. at 1001. Trendmaker, also an investor in the planned community, promised to fully support the com

munit y to com

pletion. I d. Bay Colony and Trendmaker executed no written agreements to memo ri alize this prom ise. Subsequently, the real estate market crashed and com pleting the planned com

munit y became an untenable venture under the existing agreements. Id. at 1001-02. Trendmaker eventually pulled out of the development by transferring it s int erest to another business entity. I d. at 1002. Bay Colony filed suit against Trendmaker fo r payments under it s contract wit h Midlands. Bay Colony argued th at, based on the past business conduct of the parties, Trendmaker had a duty to di sclose its intention to withdraw from the joint venture. Further, Bay Colony continued to perform under the contract in reliance upon Trendmaker’s continued participation in buildin g th e planned community. I d. at 1004. The court held that “[t]here was no confidential or fiduciary relationship between the parties. Bay Colony did not act on behalf of Trendmaker or Midlands, nor did it have the authority to do so. Instead, Trendmaker and Bay Colony entered into
an arms-length transaction.... [t]he fact th at parties have entered int o a contract does not create a confidential relationship.” Id.11

Similar to Trendmaker’s relation to Bay Colony, BCE is a thir d party th at merely negoti ated
an arms-length transaction wit hout creating an obligation to perform. When Smit h requested that BCE guarantee the amended com missio n agreement, BCE declined this of fer, and inst ead, Sm

it h and BCE agreed that Teleglobe would serve as the guarantor. Similar to Trendmaker, BCE also made
a business decision to pull out based on a worsening econom y and weakened market. Accordingly,
we find th at BCE had no duty to disclose confidential info rmation, and thus, cannot be held liable fo r fraud by omission. IV. CONCLUSION For the foregoing reasons, we affirm the district court’s judgment.