Court Opinion

ID: 4636927
Source: CourtListenerOpinion
Date Created: 2020-11-24 22:53:45.621118+00
Date Added: 2024-06-11T07:58:36.885306
License: Public Domain

NO. 12-20-00249-CV

                             IN THE COURT OF APPEALS

                   TWELFTH COURT OF APPEALS DISTRICT

                                        TYLER, TEXAS

INTERNATIONAL BUSINESS                              §       APPEAL FROM THE 159TH
MACHINES CORPORATION,
APPELLANT
                                                    §       JUDICIAL DISTRICT COURT
V.

LUFKIN INDUSTRIES, INC.,                            §       ANGELINA COUNTY, TEXAS
APPELLEE

                                     MEMORANDUM OPINION
                                         PER CURIAM
         International Business Machines Corporation filed a petition for permission to appeal.
We dismiss the petition for want of jurisdiction.

                                            BACKGROUND
             In March 2010, Lufkin Industries, Inc., a NASDAQ traded company that is an industry
leader       in   manufacturing   “engineered-to-order”    power     transmission    gear   boxes     and
“manufactured-to-order” oil field pumping units, entered into a Statement of Work (SOW) with
IBM to replace Lufkin’s Enterprise Resources Planning System with IBM’s Express Solution. 1
IBM represented that its Express Solution was preconfigured in a way to manage both of
Lufkin’s product lines and would generate financial results for all of Lufkin’s required reports.
         After several failed implementation dates, and numerous Project Change Requests and
substantial increases in implementation fees, Lufkin was forced to manually calculate payroll
amounts and manually make payments to vendors because of the nonfunctioning Express
Solution. Project materials were not delivered to the appropriate machine on a timely basis, and

         1
            The Enterprise Resources Planning System is a computer software business operating system that
integrates all departments and functions across the company.

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Lufkin’s products could not be shipped as scheduled and promised. Additionally, as a publicly
traded stock on the NASDAQ stock exchange, Lufkin released quarterly reports. With the
Express Solution unable to run its business operation system, Lufkin was unable to close its
books for January, February, and March 2012. Lufkin was required to report the failed Express
Solution implementation and the resultant problems to the public. Lufkin’s stock price suffered.
       After six months of a virtually nonfunctioning Express Solution, Lufkin invited IBM and
SAP, a corporation that makes complex and sophisticated enterprise software to manage business
operations, to assess what needed to be done to implement an effective operating system. IBM
sent one person who did not have authority to take any action. SAP began analyzing what could
be done to reconfigure the Express Solution so that its software would become operable. With
SAP’s help, along with third-party consultants, Lufkin developed an operating system after a
year and a half of effort and an additional $7,544,545 paid to third-party consultants.
       Lufkin sued IBM for numerous causes of action, including fraudulent inducement of a
contract, fraud, and breach of contract. IBM filed a motion for summary judgment, claiming that
Lufkin agreed to disclaim its reliance on IBM’s representations made before signing the SOW,
and consequently, Lufkin could not establish the reliance element of the fraudulent inducement
and fraud claims as a matter of law.
       The trial court denied IBM’s motion, and the case proceeded to a jury trial. The jury
determined that (1) IBM fraudulently induced Lufkin to execute the SOW, as modified by the
PCRs, (2) IBM committed fraud against Lufkin and made a negligent misrepresentation on
which Lufkin justifiably relied, (3) Lufkin had not waived or ratified IBM’s fraudulent acts and
was not estopped from asserting its fraud claims, (4) IBM breached the contract by failing to
comply with the SOW, as modified by the nine PCRs, (5) Lufkin suffered ten million dollars in
out-of-pocket damages, which represented the difference in the value of IBM’s Express Solution
and the amount Lufkin paid for it, and (6) Lufkin incurred eleven million dollars in “reasonable
and necessary expenses incurred in attempting to restore operation of Lufkin’s software.” The
jury awarded six million dollars on Lufkin’s fraud claim, but no damages on its claims for
negligent misrepresentation and breach of the SOW and no exemplary damages. The trial court
entered a judgment in favor of Lufkin against IBM for $23,776,025.10. IBM appealed.
       This Court reversed and rendered the judgment of the trial court awarding an alternative
judgment of $6,000,000 to Lufkin on its fraud claim. Int’l Bus. Mach. Corp. v. Lufkin Indus.,

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Inc., 564 S.W.3d 15, 37 (Tex. App.—Tyler 2017), aff’d in part, rev’d in part 573 S.W.3d 224
(Tex. 2019).   We reversed the portion of the judgment awarding $11,000,000 in mitigation
expenses and suggested a remittitur in the amount of $3,455,455. Id. Lufkin timely filed a
remittitur; thus, we modified the judgment to reflect that the amount of the judgment for
mitigation damages awarded to Lufkin is reduced to the sum of $7,544,545.00, resulting in a
reduction of total actual damages. Id. at 37-38. We further stated that Lufkin was entitled to
prejudgment interest in the amount of $2,319,244.65, for a total award of $19,863,789.60. Id. at
38.
       The Texas Supreme Court granted IBM’s petition for review and concluded that (1)
Lufkin cannot recover for fraudulent inducement because it expressly disclaimed any reliance on
IBM’s misrepresentations, (2) Lufkin cannot recover for so-called string-along fraud for the
same reason, and (3) Lufkin is entitled to a new trial on its claim for breach of contract because
the evidence conclusively established that it suffered some amount of damages as a result of
IBM’s breach. Int’l Bus. Mach. Corp., 573 S.W.3d at 227-28. Accordingly, the Supreme Court
affirmed our judgment as to Lufkin’s common-law-fraud claim, reversed the judgment as to
Lufkin’s fraudulent-inducement and breach-of-contract claims, rendered judgment for IBM on
the fraudulent-inducement claim, and remanded the case to the trial court for a new trial on the
breach-of-contract claim. Id. at 236-37.
       On remand, IBM filed a motion for summary judgment to challenge Lufkin’s proposed
damages model.     The trial court denied the motion but gave IBM permission to pursue a
permissive appeal. IBM filed its petition with this Court on November 2, 2020.

                                           JURISDICTION
       In a civil action, the trial court may, by written order, permit an appeal from an order that
is not otherwise appealable if: (1) the order to be appealed involves a controlling question of law
as to which there is a substantial ground for difference of opinion; and (2) an immediate appeal
from the order may materially advance the ultimate termination of the litigation. TEX. CIV.
PRAC. & REM. CODE ANN. § 51.014(d) (West Supp. 2019). The “permission must identify the
controlling question of law as to which there is a substantial ground for difference of opinion,
and must state why an immediate appeal may materially advance the ultimate termination of the
litigation.” TEX. R. CIV. P. 168 (emphasis added). To invoke an appellate court’s permissive-

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appeal jurisdiction, the “trial court must make a substantive ruling on the controlling legal issue
being appealed so that the legal issue presented to this court is the same legal issue determined
by the trial court.” Eagle Gun Range, Inc. v. Bancalari, 495 S.W.3d 887, 889 (Tex. App.—Fort
Worth 2016, no pet.). It matters not that the trial court “attempts to identify the controlling issue
if the order does not show that the trial court made a substantive ruling on that controlling
question of law.” Id. The trial court’s order “cannot involve a controlling question of law until
the trial court itself has made a substantive ruling on the controlling legal issue in the order.” Id.
       On September 3, 2020, the trial court notified the parties that IBM’s summary judgment
motion was denied but that the trial court was inclined to permit a permissive appeal of whether:
(1) recovery for breach of the SOW, if any, is limited to the amount paid for hours that were not
performed or deliverables that were not supplied, (2) an “incremental-value damages theory” is
impermissible for breach of the SOW, if any, and (3) recovery of Lufkin’s alleged employee
costs is barred for breach of the SOW, if any. In its summary judgment order, signed on October
16, the trial court denied IBM’s motion, without stating the basis for the denial and further held
as follows:

                The Court hereby permits an interlocutory appeal from the denial of the Motion for
       Summary Judgment on Damages under Texas Rule of Civil Procedure 168 and Section 51.014(d)
       of the Texas Civil Practice & Remedies Code.

                This order denying the Motion involves (1) a controlling question of law, (2) as to which
       there is a substantial ground for difference of opinion, and (3) the immediate appeal may
       materially advance the ultimate termination of the litigation.

                  The issues of law as to which a permissive interlocutory appeal is being permitted are as
       follows:

       •      Whether recovery for breach of the Statement of Work, if any, is limited to the amount paid
              for hours that were not performed or deliverables that were not supplied.

       •      Whether an “incremental-value damages theory” for damages is impermissible for breach of
              the Statement of Work, if any.

       •      Whether recovery of Lufkin’s alleged employee costs is barred for breach of the Statement of
              Work, if any.

                There is a substantial ground for difference of opinion as to those issues because they are
       novel issues under Texas law.

                  Further, an immediate appeal from the order may materially advance the ultimate
       termination of the litigation because it will foreclose duplicative litigation costs and remove years
       of litigation expense and effort from this case, should IBM prevail on appeal.

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         The order’s language merely denies the motion for summary judgment and identifies the
three issues of law. See Hartford Accident & Indem. Co. v. Seagoville Partners, No. 05-15-
00760-CV, 2016 WL 3199003, at *2 (Tex. App.—Dallas June 9, 2016, no pet.) (denial of
summary judgment motion is not itself a substantive ruling on a controlling question of law). The
order does not state why an immediate appeal may materially advance the ultimate termination
of the litigation. TEX. R. CIV. P. 168. The order sets forth no substantive ruling on any of the
three issues identified therein.           Nor does the record otherwise indicate the trial court’s
substantive ruling on each issue. As such, the order serves as nothing more than an attempt to
certify three legal questions for our review. Section 51.014(d) does not contemplate using an
interlocutory appeal as a mechanism to present certified questions. Bancalari, 495 S.W.3d at
889. Absent any indication in the order or otherwise in the appellate record of the trial court’s
substantive rulings on the three issues presented for this Court’s review, this permissive appeal
does not meet Section 51.014(d)’s strict jurisdictional requirements. Id.         Accordingly, any
opinion issued by this Court would necessarily be advisory because there is nothing in the record
showing that the trial court ruled on the specific legal issues that IBM presents to us to decide.
Id. at 889-90; Bank of New York Mellon v. Guzman, 390 S.W.3d 593, 597 (Tex. App.—Dallas
2012, no pet.). Consequently, this Court lacks jurisdiction over the permissive appeal in this
case. See McCroskey v. Happy State Bank, No. 07-14-00027-CV, 2014 WL 869577, at *1 (Tex.
App.—Amarillo, Feb. 28, 2014, no pet.) (absent trial court’s rulings on substantive questions of
law presented to it, appellate court lacks jurisdiction to hear permissive appeal).

                                                  DISPOSITION
         Because the order purporting to authorize a permissive appeal is insufficient to invoke
this Court’s permissive appeal jurisdiction, we dismiss the petition for permission to appeal for
want of jurisdiction.
Opinion delivered November 18, 2020.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.

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                                  COURT OF APPEALS

      TWELFTH COURT OF APPEALS DISTRICT OF TEXAS

                                          JUDGMENT

                                       NOVEMBER 18, 2020

                                        NO. 12-20-00249-CV

              INTERNATIONAL BUSINESS MACHINES CORPORATION,
                                 Appellant
                                    V.
                         LUFKIN INDUSTRIES, INC.,
                                 Appellee

                               Appeal from the 159th District Court
                    of Angelina County, Texas (Tr.Ct.No. CV-02073-13-02)

                   THIS CAUSE came to be heard on the appellate record; and the same being
considered, it is the opinion of this Court that the petition for permission to appeal should be
dismissed.
                   It is therefore ORDERED, ADJUDGED and DECREED by this Court that
the petition be, and the same is, hereby dismissed for want of jurisdiction; and that this
decision be certified to the court below for observance.
                   By per curiam opinion.
                   Panel consisted of Worthen, C.J., Hoyle, J. and Neeley, J.

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