The Fifth Circuit kept itself busy last week with Texas fraudulent inducement cases, in which Innocent Person accused Lying Person of fibbing to get IP to sign a contract with LP.

In one appeal (see post), a panel held as a matter of law that a false representation in a contract didn't count as a misrepresentation at all if a dozen or so pages later the contract gave the fib-believer a "sole" remedy for the fib's falsity.  The decision involved a $61 million buy of securities that pooled thousands of mortgage loans, including hundreds that, contrary to the rep, had gone bad before the purchase. 

The next day, a different panel tossed a verdict and judgment on the ground that no evidence showed the defendant never intended to perform promises in a settlement agreement.  Arete Partners LP v. Gunnerman, No. 06-51133 (5th Cir. Jan. 13, 2010).

Dissenting, Senior Circuit Judge Patrick E. Higginbotham summed up his thoughts thus:

Under Texas law[,] disagreement over contract interpretation alone is insufficient evidence that performance was never intended.  While Texas courts carefully police the boundaries of contract law lest tort law run it over, it does so with its rule that even “slight circumstantial evidence of fraud, when considered with the breach of promise to perform, is sufficient to support a finding of fraudulent intent.”  The majority goes much further and in doing so upsets this balance of operating spheres for tort and contract law.  It does so at the expense of basic legal principles controlling fraudulent conduct.   


Gunnerman’s actions, described by the district court, are sufficient evidence to support the findings of fraud.  That this conduct was sanctionable does not mean that it was not also evidence of an intent not to perform an agreement made to escape the judgment day of trial.  This veteran district judge, with a lifetime of trial experience, was better equipped to make this judgment than this court.  More to the point, a federal district court is not a mere entry gate to the Court of Appeals. It is an independent court to which we owe a legal duty of deference.  We fail that duty today.  Put simply, that we might have reached a different conclusion in the first instance is of no moment.  As I find no error in the judgment of the district court, and certainly not clear error, I respectfully dissent.

Id., slip op. at 16-17 (footnotes omitted).

He added for good measure:

The majority's handwringing over opening the door to claims of fraud in all contract disputes by a finding that a party in breach lacked credibility is misplaced.  The district court did not do that.  It simply recognized the age old "D and D" defense — ducking and dodging — in a case where it was plain.

Id. at 16 n.4.

FeedIcon Our feed thinks a lot of Judge Higginbotham.