Source: https://casetext.com/case/schlumberger-technology-corp-v-swanson
Timestamp: 2019-10-21 08:22:00
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Matched Legal Cases: ['§ 1', 'art. 6132', '§ 47', 'art. 6132', '§ 6', 'art. 6132', '§ 7', '§ 27', '§ 27']

Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 | Casetext
959 S.W.2d 171 (Tex. 1997)
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Schlumberger Technology Corp.v.Swanson
Supreme Court of TexasDec 11, 1997
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Appeal from the 281st Judicial District Court, Harris County, Louis M. Moore, J.
Linda L. Addison, Roger Townsend, Joy M. Soloway, Hugh E. Tanner, Blake Tartt,
Houston, Ben Taylor, Dallas, Joe R. Greenhill, Austin, for petitioners.
Almost immediately after receiving the leases, SEDCO, DeBeers, and Seltrust began negotiating a joint venture agreement to jointly develop the mining project. In December 1984, before this joint venture agreement was finalized, Schlumberger Technology Corporation acquired SEDCO by merger and formed Sedswan Diamonds (Pty.), Limited, a wholly-owned South African subsidiary, to continue the sea-diamond project. Sedswan then entered into the joint venture with DeBeers and Seltrust in February 1985. Around the same time, the South African government reissued Lease 3C in Sedswan's name only and without reference to George E. Swanson Enterprises. Sedswan, DeBeers, and Seltrust participated in the joint venture through 1986. In early January 1987, the Swansons became concerned about rumors that Schlumberger was going to stop funding its share or withdraw from the joint venture. Further, they were disturbed about the lack of information they were receiving on the project's progress. Consequently, the Swansons consulted a lawyer. Their objectives were to ensure that Schlumberger stayed in the joint venture and that their rights under the original letter agreement, which predated the joint venture agreement, were enforced. Of particular concern to the Swansons was the effect of the joint venture agreement on the Swansons' interests, including Schlumberger's ability to dilute Sedswan's joint venture interest after an initial investment, the right of first refusal given to the other joint venture members, and a confidentiality agreement.
The jury found for the Swansons and against Schlumberger on all issues. The jury awarded the Swansons fifteen million dollars in actual damages, thirty-five million dollars in exemplary damages on a statutory fraud claim under section 27.01 of the Texas Business and Commerce Code, ten million dollars in exemplary damages on the common law claims, and attorney's fees. As already mentioned, the trial court rendered a judgment notwithstanding the verdict, but the court of appeals reversed and rendered judgment in accordance with the jury's findings. 895 S.W.2d 719.
Important to Schlumberger's position is its assertion that it was negotiating with the Swansons at arm's length. Schlumberger contends that it openly disputed the validity of the Swansons' interests in the sea-diamond project. Schlumberger further contends that,by virtue of the extended adversarial negotiations through legal counsel over the Swansons' rights and the buyout of their interests, if any, Schlumberger did not owe a fiduciary duty to the Swansons during the negotiations.
At the outset, we note that the Legislature revised the Texas Uniform Partnership Act in 1993, effective January 1994. Act of May 31, 1993, 73d Leg. R.S., ch. 917, § 1, 1993 Tex. Gen. Laws 3887. As the Swansons and SEDCO originally formed their enterprise in 1978, the pre-1993 statute and case law decided under that statute control our determination. See TEX.REV.CIV. STAT. ANN. art. 6132b, § 47.
Under the Texas Uniform Partnership Act, a partnership or joint venture is an association of two or more persons to carry on as co-owners a business for profit. TEX.REV.CIV. STAT. ANN. art. 6132b, § 6. As the issue was submitted to the jury, a partnership consists of an express or implied agreement containing four required elements: (1) a community of interest in the venture, (2) an agreement to share profits, (3) an agreement to share losses, and (4) a mutual right of control or management of the enterprise. See Coastal Plains Dev. Corp. v. Micrea, Inc., 572 S.W.2d 285, 287 (Tex. 1978). Accordingly, if there is no evidence of any one element of a partnership, we cannot sustain the jury's affirmative finding.
We conclude that there is no evidence of an agreement to share profits. The undisputed evidence is that the Swansons were to receive a royalty on diamonds mined in Phases II and III and that their royalty was to be paid before expenses. Entitlement to a royalty based on gross receipts is not profit sharing. See TEX.REV.CIV. STAT. ANN. art. 6132b, § 7(3) (sharing gross returns does not itself establish partnership); see also Patton v. Callaway, 522 S.W.2d 252, 256 (Tex.Civ.App. — El Paso 1975, writ ref'd n.r.e.). Of course, the payment of consultation fees is not the sharing of profits. Such payments are compensation for services rendered and are unrelated to the venture's profits. See Grimmett v. Higginbotham, 907 S.W.2d 1, 2-4 (Tex.App. — Tyler 1994, writ denied) (weekly compensation unrelated to financial requirements of business is no evidence of agreement to share profits or losses); Gutierrez v. Yancey, 650 S.W.2d 169, 172 (Tex.App. — San Antonio 1983, no writ) (partners must participate in profits and share them as principals of business and not as compensation).
An informal relationship may give rise to a fiduciary duty where one person trusts in and relies on another, whether the relation is a moral, social, domestic, or purely personal one. See Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962); Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256, 261 (1951). But not every relationship involving a high degree of trust and confidence rises to the stature of a fiduciary relationship. See Crim Truck Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992). In order to give full force to contracts, we do not create such a relationship lightly. See Thigpen, 363 S.W.2d at 253. Accordingly, while a fiduciary or confidential relationship may arise from the circumstances of a particular case, to impose such a relationship in a business transaction, the relationship must exist prior to, and apart from, the agreement made the basis of the suit. See Transport Ins. Co. v. Faircloth, 898 S.W.2d 269, 280 (Tex. 1995). In this case, there is no evidence that a prior fiduciary relationship had arisen between the Swansons and Schlumberger.
We recognize that the Swansons testified that they trusted and relied on Schlumberger to negotiate a fair price with DeBeers and Seltrust for Sedswan's interest in the joint venture. However, mere subjective trust does not, as a matter of law, transform arm's-length dealing into a fiduciary relationship. See Crim Truck, 823 S.W.2d at 595. In addition, though, the Swansons point out that certain Schlumberger and SEDCO executives testified that the Swansons were their "partners" in the sea-diamond project, and that the original lease application to the South African government and the original lease from the South African government provided that SEDCO and the Swansons were partners. The Swansons maintain that this evidence established, at the very minimum, that both parties believed a confidential relationship existed, providing some evidence to support the jury's finding. Again, the fact that the parties to a transaction trust one another will not, in and of itself, establish a finding of a confidential relationship. See Thigpen, 363 S.W.2d at 253. Instead, to impose such a relationship in a business transaction, "`there must be a fiduciary relationship before, and apart from, the agreement made the basis of the suit.'" Tyra v. Woodson, 495 S.W.2d 211, 213 (Tex. 1973) (quoting Consolidated Gas Equip. Co. v. Thompson, 405 S.W.2d 333, 336 (Tex. 1966)). As we have said, there is no evidence of a prior fiduciary relationship in this case.
Finally, the Swansons argue that Manges v. Guerra, 673 S.W.2d 180 (Tex. 1984), imposes a fiduciary duty on Schlumberger. In Manges, we recognized that a holder of executive rights to a mineral estate owes a fiduciary duty to the non-executive interest. 673 S.W.2d at 183. That is not the situation here. Manges simply is inapposite.
To support their fraudulent inducement claim, the Swansons alleged that Schlumberger made several affirmative misrepresentations during their negotiations over the withdrawal of Sedswan from the joint venture. The Swansons had seen an April 1986 Schlumberger evaluation that described the project as "economical," but noted that the "commerciality" of the project would not be determined until 1988 or 1989. Despite the 1986 evaluation, and without having undertaken any later studies, Schlumberger represented to the Swansons that the project was neither technologically feasible nor commercially viable. In addition, Schlumberger represented that the project had a negative value and that Sedswan would be lucky to get out with its costs.
At trial, the evidence was undisputed that there are diamonds on the ocean floor off South Africa. It was further undisputed that, as of the time of trial in 1993, no one had begun mining diamonds. Also, it was undisputed that Seltrust's successor sold its interest to DeBeers in 1992 for only slightly more than its project costs. On the other hand, there was substantial dispute about whether the project was technologically feasible or commercially viable. Schlumberger brings a point of error asserting that there is legally insufficient evidence of fraud, but it does not argue in its briefing in this Court that its representations about the project's technological or commercial infeasibility were immaterial, were merely opinion, or were either not knowingly made or not made without knowledge of the truth. See Prudential Ins. Co. v. Jefferson Assocs., 896 S.W.2d 156, 163 (Tex. 1995). Accordingly, we assume, as we must, that Schlumberger misrepresented the project's technological feasibility and commercial viability and that such misrepresentations are actionable as fraudulent inducement.
Texas law favors and encourages voluntary settlements and orderly dispute resolution. However, a release is a contract, and like any other contract, is subject to avoidance on grounds such as fraud or mistake. See Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990); Dallas Farm Mach. Co. v. Reaves, 158 Tex. 1, 307 S.W.2d 233, 236-37 (1957). Yet our early decisions are not entirely consistent. Several of our opinions conclude that a release could be set aside if it was induced by a fraudulent representation or promise — even if the release contained language disclaiming that any such representation had been made. Other cases hold to the contrary.
In Texas Pacific Railway Co. v. Presley, 137 Tex. 232, 152 S.W.2d 1105 (Tex. 1941), an injured worker settled his claim against his employer for $50, executing a release providing that he relied upon his own judgment as to the extent and duration of his injuries and that no promise of employment or other agreement not mentioned in the release had been made to him. Id. at 1106. The worker later sued to set aside the release, contending that his employer's doctor had misrepresented the extent of his injuries and that the employer had promised him permanent employment for executing the release, with no intention of fulfilling that promise. See id. We held that proof of these contentions would be sufficient to set aside the release. Id. at 1108. This could be done, we decided, even though the plaintiff may have read and understood the release. Id. at 1107.
There are other early cases, however, that reach the opposite result. For example, in Distributors Investment Co. v. Patton, 130 Tex. 449, 110 S.W.2d 47 (Tex. 1937), the seller of a tractor sued the buyer on his promissory note. In defense, the buyer contended that the seller had fraudulently induced the transaction by orally misrepresenting the tractor's capabilities. The contract provided that the tractor was sold "as is," and further provided that no other representations had been made. Id. at 48. We held that, in light of these contract provisions, an action for rescission could not be maintained on account of oral representations. Although recognizing that "fraud vitiates a contract," we concluded that the fraud must be something more than merely oral representations that conflict with the terms of the written contract. Id. Instead, to vitiate the contract, the fraud must be such that it "prevents the coming into existence of any valid contract at all." Id.; see also Avery Co. v. Harrison Co., 267 S.W. 254, 256 (Tex.Com. App. 1924, judgm't adopted); J.I. Case Threshing Mach. Co. v. Manes, 254 S.W. 929, 931 (Tex.Com. App. 1923, judgm't adopted); Wright v. Couch, 54 S.W.2d 207, 209 (Tex.Civ.App. — Eastland 1932, no writ).
Juxtaposed to this authority, we have a competing concern — the ability of parties to fully and finally resolve disputes between them. Parties should be able to bargain for and execute a release barring all further dispute. This principle necessarily contemplates that parties may disclaim reliance on representations. And such a disclaimer, where the parties' intent is clear and specific, should be effective to negate a fraudulent inducement claim. As an example, a disclaimer of reliance may conclusively negate the element of reliance, which is essential to a fraudulent inducement claim. See Prudential, 896 S.W.2d at 161-62 (holding that agreement to buy property "as is," in which buyer included "voluntary, freely negotiated affirmation that he was depending on his own assessment of the building," precluded claim for damages when building was found to contain asbestos); Estes v. Hartford Accident Indem. Co., 46 S.W.2d 413, 417-18 (Tex.Civ.App. — El Paso 1932, writ ref'd) (affirming directed verdict upholding release where evidence conclusively negated reliance on alleged misrepresentations). The question is under which circumstances such disclaimers are binding.
In this case, the Swansons contend that they agreed to Schlumberger's low-price buyout offer only after they were induced by misrepresentations about the value and feasibility of the sea-diamond project. We conclude that our well-established rules of contract interpretation govern whether the Swansons gave the requisite clear and unequivocal expression of intent necessary to disclaim reliance on these specific representations by Schlumberger. The contract and the circumstances surrounding its formation determine whether the disclaimer of reliance is binding. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 591 (Tex. 1996); National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995); Prudential, 896 S.W.2d at 162. Because the parties were attempting to put an end to their deal, and had become embroiled in a dispute over the feasibility and value of the project, we conclude that the disclaimer of reliance the Swansons gave conclusively negates the element of reliance.
[E]ach of us [the Swansons] expressly warrants and represents and does hereby state . . . and represent . . . that no promise or agreement which is not herein expressed has been made to him or her in executing this release, and that none of us is relying upon any statement or representation of any agent of the parties being released hereby. Each of us is relying on his or her own judgment and each has been represented by Hubert Johnson as legal counsel in this matter. The aforesaid legal counsel has read and explained to each of us the entire contents of this Release in Full, as well as the legal consequences of this Release . . . . (emphasis added)
Because courts are to assume that the parties intended every contractual provision to have some meaning, see Columbia Gas, 940 S.W.2d at 591; Lenape Resources Corp. v. Tennessee Gas Pipeline Co., 925 S.W.2d 565, 574 (Tex. 1996), we must presume that the parties contemplated, by the inclusion of this clause, that the Swansons would not rely on any representations of Schlumberger about the commercial feasibility and value of this project, which, after all, was the very dispute that the release was supposed to resolve. Therefore, we conclude that the disclaimer of reliance is binding and, as a matter of law, precludes the Swansons' claim that they were fraudulently induced to sell their interest in the sea-diamond project.
In sum, we hold that a release that clearly expresses the parties' intent to waive fraudulent inducement claims, or one that disclaims reliance on representations about specific matters in dispute, can preclude a claim of fraudulent inducement. We emphasize that a disclaimer of reliance or merger clause will not always bar a fraudulent inducement claim. See Prudential, 896 S.W.2d at 162 (identifying some circumstances in which "as is" clause would not preclude fraudulent inducement claim). We conclude only that on this record, the disclaimer of reliance conclusively negates as a matter of law the element of reliance on representations about the feasibility and value of the sea-diamond mining project needed to support the Swansons' claim of fraudulent inducement. As there is no evidence of a fiduciary or confidential relationship, the trial court correctly rendered a judgment notwithstanding the verdict against the Swansons on their claims of breach of fiduciary duty and fraudulent inducement.
The Swansons contend that even if the disclaimer of reliance precludes their claim that they were fraudulently induced to sign the release by Schlumberger's affirmative misrepresentations, it does not preclude their claim of fraud by non-disclosure. Under common-law fraud, the Swansons assert, Schlumberger had an affirmative duty to disclose material information about the sea-diamond project because Schlumberger knew that the Swansons did not have an equal opportunity to discover the information, that the Swansons lacked accurate information on the project's value and feasibility, and that the Swansons were relying on this inaccurate information in selling their interests in the project. See Smith v. National Resort Communities, Inc., 585 S.W.2d 655, 658 (Tex. 1979). In addition, the Swansons claim that Schlumberger, having made only partial disclosures that were misleading, had a duty to disclose the whole truth about the value and feasibility of the project. See Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986). The Swansons contend that Schlumberger withheld geologic, economic, and technical information that would have permitted the Swansons to make their own assessment of the sea-diamond project. Again, we assume that Schlumberger had a duty to disclose pertinent information and failed to do so.
In support of their argument, the Swansons reiterate the evidence that in April 1986 Schlumberger had a report that positively assessed the technological and economic feasibility of the sea-diamond project, yet in 1987 and 1988, after Schlumberger decided to withdraw Sedswan from the joint venture, Schlumberger made statements and disclosures to the Swansons indicating that the technology was unworkable and the project would not be commercially feasible. Had Schlumberger disclosed the geological, economic, and technical data available to it, the Swansons contend that they would have been able to make their own assessment and determine that there had been no adverse developments since April 1986. In short, had Schlumberger disclosed all the true facts about the project, it would not have affirmatively misrepresented the truth. The Swansons' non-disclosure allegations are simply the converse of Schlumberger's affirmative misrepresentations and are covered by the disclaimer of reliance.
V. SECTION 27.01 OF THE TEXAS BUSINESS COMMERCE CODE
In addition to finding breach of fiduciary duty and common-law fraud, the jury found that Schlumberger committed fraud in connection with a real estate transaction in violation of section 27.01 of the Texas Business and Commerce Code. TEX. BUS. COM.CODE § 27.01. Schlumberger contends that section 27.01 does not apply to the Swansons' interest in the sea-diamond project. Schlumberger argues that the Swansons' interest at most was an interest in a prospecting lease off the South African coast, which under both South African and Texas law is a personal property interest, and not an interest in real estate.
As with the common law, reliance is a necessary element of a statutory fraud claim under section 27.01. TEX. BUS. COM.CODE § 27.01(a)(1)(B). As is clear from our previous discussion, the disclaimer of reliance in this case conclusively negates the Swansons' allegation that they relied on misrepresentations about commercial feasibility and value by Schlumberger in selling their interest in the sea-diamond project. The trial court's judgment notwithstanding the verdict was in all respects proper.