Opinion ID: 32132
Heading Depth: 3
Heading Rank: 3

Heading: Status of Benchmark's Fraud and Misrepresentation Claims

Text: 28 Applying Texas law to Benchmark's fraud and misrepresentation claims mandates a different substantive analysis than the district court undertook. We sketch the parameters of that analysis, which raises pure questions of law briefed by the parties, to expedite the case on remand. 29 Benchmark bases its fraud claims on (1) allegedly misleading information provided to Benchmark during negotiations and (2) Huber's alleged breach of contractual representations and warranties in the Agreement. We conclude that the Stock Purchase Agreement's disclaimer bars Benchmark's claims based on un-warranted precontractual representations. Texas law, however, allows Benchmark's common law and statutory fraud claims to proceed to the extent they are based on representations warranted in the Agreement. 30 The parties' Confidentiality Agreement and Stock Purchase Agreement each contains a disclaimer. Pursuant to the agreements' choice of law provisions, New York law controls the validity of the disclaimers. Under New York law, [a] disclaimer is generally enforceable only if it `tracks the substance of the alleged misrepresentation....' Caiola v. Citibank, N.A., 295 F.3d 312, 330 (2d Cir. 2002) (quoting Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729, 735 (2d Cir.1984)); see also Harsco Corp. v. Segui, 91 F.3d 337, 345-48 (2d Cir.1996). Under this standard, the disclaimer in the Confidentiality Agreement is too broad and general to be enforceable. 5 31 By contrast, the disclaimer in the Stock Purchase Agreement 6 specifically excludes, and the agreement thus vouches for, representations made in Article III, a thirteen-page, single-space section that incorporates by reference additional schedules and financial statements. The contractual representations cover, inter alia, AVEX's operations, financial results, and customer contracts, dealing with the same subject matter as Huber's precontractual representations. 7 As the court held in Harsco Corp., supra, the specificity of what is warranted by Huber precludes Benchmark, a sophisticated business entity, from claiming reliance upon other precontractual representations covering the same subjects: ... the exhaustive nature of the ... representations adds to the specificity of [Section 3.29]'s disclaimer of other representations. We see no reason not to hold [Benchmark] to the deal it negotiated. Harsco, 91 F.3d at 346. 32 Although, under the Stock Purchase Agreement's disclaimer, precontractual misrepresentations (covering anything other than the warranties in Article III) are not actionable by Benchmark, Texas law permits its allegations of fraudulent inducement or fraud arising from false representations contained in the contract to go forward. Under Texas law, tort damages are recoverable for a fraudulent inducement claim irrespective of whether the fraudulent representations are later subsumed in a contract or whether the plaintiff only suffers an economic loss related to the subject matter of the contract. Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex.1998). Statutory fraud claims under § 27.01 of the Texas Business and Commerce Code 8 can also be based on false contractual representations. See SMB Partners, Ltd. v. Osloub, 4 S.W.3d 368 (Tex.App.-Houston [1st Dist.] 1999, no writ). To the extent, therefore, that Benchmark bases its common law and statutory fraud claims on representations warranted in the Agreement, Texas law allows such claims. 33 Further, Texas law governs Benchmark's negligent misrepresentation claim. On remand, the district court must determine whether Benchmark can assert a case for recovery under Texas law. See, e.g., D.S.A., Inc. v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662, 663-64 (Tex.1998); Fed. Land Bank Ass'n of Tyler v. Sloane, 825 S.W.2d 439, 443 (Tex.1991). 34