International Business MacHines Corporation v. Lufkin Industries, Inc.

• Court: Texas Supreme Court
• Decided: March 15, 2019
• Docket: 17-0666
• Status: Published

Opinion

IN THE SUPREME COURT OF TEXAS ══════════ No. 17-0666 ══════════

INTERNATIONAL BUSINESS MACHINES CORPORATION, PETITIONER, v.

LUFKIN INDUSTRIES, LLC, RESPONDENT ══════════════════════════════════════════ ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE TWELFTH DISTRICT OF TEXAS ══════════════════════════════════════════

Argued December 6, 2018

JUSTICE BOYD delivered the opinion of the Court.

JUSTICE BLACKLOCK did not participate in the decision.

Under Texas law, a party may be liable in tort for fraudulently inducing another party to

enter into a contract. But the party may avoid liability if the other party contractually disclaimed

any reliance on the first party’s fraudulent representations. Whether a party is liable in any

particular case depends on the contract’s language and the totality of the surrounding

circumstances. In this case involving a contract to purchase a business-management software

system, we hold that contractual disclaimers bar the buyer from recovering in tort for

misrepresentations the seller made both to induce the buyer to enter into the contract and to induce

the buyer to later agree to amend the contract. But we also hold that, contrary to the jury’s finding,

the evidence conclusively established that the seller’s breach of the contract caused the buyer to

suffer some amount of damages. Reversing the court of appeals’ judgment in part, we render judgment for the seller on the fraudulent-inducement claims and remand the case to the trial court

for a new trial on the breach-of-contract claims.

I. Background 1

Lufkin Industries, a publicly traded company based in Lufkin, Texas, manufactures

machinery and equipment used in various segments of the energy industry. In 2009, Lufkin

decided to upgrade its business-operations computer-software system. Over a period of several

months, Lufkin and IBM engaged in numerous meetings, “discovery workshops,” and other

discussions in which they exchanged information about Lufkin’s needs and IBM’s capabilities.

Lufkin’s representatives explained that Lufkin needed an “out-of-the-box” or “off-the-shelf”

system that could quickly replace its old system for a price lower than the cost of upgrading that

system. Based on Lufkin’s operational needs, IBM recommended its “Express Solution for SAP,”

which utilizes software developed by SAP, a separate German corporation.

During these extended discussions, IBM made numerous representations about its Express

Solution that turned out to be false. IBM represented that the Express Solution was a preconfigured

system that could be implemented for Lufkin within four to six months and meet eighty percent of

Lufkin’s requirements without any enhancements. IBM knew, however, that its Express Solution

would require extensive customization before it could meet most of Lufkin’s needs. Yet IBM

continued to represent the Express Solution as a “fit” for Lufkin, hoping it could land the sale and

then figure out how to provide what Lufkin needed.

1 Because IBM appeals from a judgment based on a jury verdict in Lufkin’s favor, we recite the facts that support the jury’s findings, in a light most favorable to Lufkin. See Sw. Energy Prod. Co. v. Berry-Helfand, 491 S.W.3d 699, 709 (Tex. 2016). 2 In September 2009, IBM presented a demonstration of the Express Solution for Lufkin.

During this demonstration, IBM’s representatives again represented that the Express Solution

would meet eighty percent of Lufkin’s needs without any customization. In fact, the

representatives knew that Express Solution was designed for much smaller operations and could

not meet Lufkin’s requirements without extensive and costly enhancements. Relying on IBM’s

misrepresentations, Lufkin agreed to a written contract with IBM in March 2010. The contract—

called the “Statement of Work,” or “SOW”—gave IBM about a year to finalize and implement the

system, projecting that Lufkin could “go live” with IBM’s Express Solution system on March 1,

2011.

The implementation did not go well. Beginning in November 2010, the new system failed

multiple test runs. Each time, IBM assured Lufkin that the system would work as planned if Lufkin

would just be patient while IBM addressed the issues. Over time, IBM convinced Lufkin to

approve nine different “Project Change Requests” in which Lufkin agreed to delay the “go-live”

date and increase the overall price. Ultimately, Lufkin paid IBM just under $13 million, an increase

of about $6.6 million over the original price, and agreed to settle for a “go-live-ugly”

implementation on January 1, 2012. Lufkin only agreed to these repeated delays and increased

costs because IBM continued to represent that once implemented, the Express Solution would meet

Lufkin’s needs without any further enhancements, and by then it had invested so much time and

money it could not start the process over.

On the day of the “go-live-ugly,” Lufkin deactivated its old system at IBM’s instruction.

But Lufkin was unable to use the Express Solution to invoice customers, manage inventory, track

orders, shipments, or costs, calculate payroll, or pay employees and vendors. Because the system

3 did not integrate with Lufkin’s financial modules, Lufkin had to delay filing public financial

reports, and its stock lost value. In short, the system failure crippled Lufkin’s business.

Initially, Lufkin scrambled to perform all the necessary functions manually. Over the next

year and a half, Lufkin worked with SAP and other new consultants to construct and stabilize a

working system. Ultimately, Lufkin paid these consultants an additional $7.5 million to salvage

the system IBM had delivered.

Lufkin filed this suit against IBM, asserting claims for fraudulent inducement, fraudulent

misrepresentation and concealment, negligent misrepresentation, and breach of contract. 2 At trial,

the jury found IBM liable on all claims. As damages for fraudulent inducement, the jury awarded

$10 million for out-of-pocket losses and $11 million for additional costs to mitigate and replace

IBM’s system. As damages for fraud—which Lufkin refers to as “string-along fraud”—the jury

awarded $3 million for out-of-pocket losses and $3 million for mitigation costs. But the jury

awarded zero damages for negligent misrepresentation and breach of contract.

Based on the jury’s verdict, the trial court entered judgment awarding Lufkin $21 million

for fraudulent inducement, or alternatively, $6 million for the string-along-fraud claim “if the

judgment above for fraudulent inducement is reversed by an appellate court.” The court of appeals

upheld IBM’s liability for fraudulent inducement but reversed the alternative string-along-fraud

award, concluding that claim was based on the same misrepresentations as the fraudulent-

inducement claim. Int’l Bus. Machs. Corp. v. Lufkin Indus., Inc., 564 S.W.3d 15, 32 (Tex. App.—

Tyler 2017). The court also concluded that the evidence did not support all of the $11 million in

2 Lufkin asserted other claims against IBM and other defendants, but ultimately submitted only these claims against IBM to the jury.

4 mitigation damages and suggested a remittitur of about $3.5 million, which Lufkin accepted. Id.

at 37.

We granted IBM’s petition for review. IBM argues that the court of appeals erred by

affirming liability for fraudulent inducement because Lufkin expressly disclaimed reliance on

IBM’s misrepresentations. Lufkin disagrees and also argues by conditional cross-points that, if we

were to reverse the fraudulent-inducement award, we should render judgment in its favor on the

string-along-fraud claim and either render judgment on the breach-of-contract claim or remand

that claim for a new trial.

We hold 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.

II. Fraudulent Inducement

Fraudulent inducement is a “species of common-law fraud” that “arises only in the context

of a contract.” Anderson v. Durant, 550 S.W.3d 605, 614 (Tex. 2018). Like a broader common-

law fraud claim, a fraudulent-inducement claim requires proof that: (1) the defendant made a

material misrepresentation; (2) the defendant knew at the time that the representation was false or

lacked knowledge of its truth; (3) the defendant intended that the plaintiff should rely or act on the

misrepresentation; (4) the plaintiff relied on the misrepresentation; and (5) the plaintiff’s reliance

on the misrepresentation caused injury. Id. In a fraudulent-inducement claim, the

“misrepresentation” occurs when the defendant falsely promises to perform a future act while 5 having no present intent to perform it. Id. The plaintiff’s “reliance” on the false promise “induces”

the plaintiff to agree to a contract the plaintiff would not have agreed to if the defendant had not

made the false promise. See id.

The court of appeals held that sufficient evidence supports the jury’s finding that IBM

knowingly misrepresented its ability to provide the software system Lufkin required, and IBM

does not challenge that holding here. Instead, IBM argues that Lufkin did not and cannot establish

that it detrimentally relied on IBM’s misrepresentations because Lufkin expressly disclaimed any

such reliance in two provisions of the Statement of Work. First, in section 2, Lufkin agreed:

In entering into this SOW, Lufkin Industries is not relying upon any representation made by or on behalf of IBM that is not specified in the Agreement[3] or this SOW, including, without limitation, the actual or estimated completion date, amount of hours to provide any of the Services, charges to be paid, or the results of any of the Services to be provided under this SOW. This SOW, its Appendices, and the Agreement represent the entire agreement between the parties regarding the subject matter and replace any prior oral or written communications.

Similarly, in section 2.11, the parties agreed:

This SOW and the referenced Agreement identified below are the complete agreement between Lufkin Industries and IBM regarding Services, and replace any prior oral or written communications between us. Accordingly in entering into this SOW, neither party is relying upon any representation that is not specified in this SOW including without limitation, any representations concerning 1) estimated completion dates, hours, or charges to provide any Service; 2) the experiences of other customers; or 3) results or savings Lufkin Industries may achieve.

3 The Statement of Work incorporates a document referred to as “the IBM Customer Agreement (‘ICA’), number HQ 12291, dated January 22, 1991.” Lufkin denies that it ever signed such an agreement. At trial, IBM proffered a document, but it was never entered into evidence.

6 Both of these provisions include a merger clause, providing that the Statement of Work

and the incorporated Customer Agreement contain the parties’ “entire” or “complete” agreement

and “replace any prior oral or written communications.” And both also include a disclaimer clause,

disclaiming any reliance on any representation that is “not specified” in the Statement of Work or

the Customer Agreement.

We have held that a merger clause, standing alone, does not prevent a party from suing for

fraudulent inducement. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d

323, 327 (Tex. 2011). And similarly, a clause that merely recites that the parties have not made

any representations other than those contained within the written contract is not effective to bar a

fraudulent-inducement claim. Id. at 334. But a clause that clearly and unequivocally expresses the

party’s intent to disclaim reliance on the specific misrepresentations at issue can preclude a

fraudulent-inducement claim. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 60–61 (Tex. 2008);

see also Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 179 (Tex. 1997). Not every such

disclaimer is effective, and courts “must always examine the contract itself and the totality of the

surrounding circumstances when determining if a waiver-of-reliance provision is binding.” Forest

Oil, 268 S.W.3d at 60. Specifically, courts must consider such factors as whether

(1) the terms of the contract were negotiated, rather than boilerplate, and during negotiations the parties specifically discussed the issue which has become the topic of the subsequent dispute; (2) the complaining party was represented by counsel; (3) the parties dealt with each other at arm’s length; (4) the parties were knowledgeable in business matters; and (5) the release language was clear.

Italian Cowboy, 341 S.W.3d at 337 n.8; see also Forest Oil, 268 S.W.3d at 60. When

“sophisticated parties represented by counsel disclaim reliance on representations about a specific 7 matter in dispute, such a disclaimer may be binding, conclusively negating the element of reliance

in a suit for fraudulent inducement.” Italian Cowboy, 341 S.W.3d at 332 (citing Schlumberger,

959 S.W.2d at 179).

We have no trouble concluding that the factors generally support a finding that Lufkin

effectively disclaimed reliance on IBM’s misrepresentations. The parties negotiated the Statement

of Work at arm’s length, they were both knowledgeable in business matters and represented by

counsel, 4 and the two clauses expressly and clearly disclaim reliance. But as Lufkin points out, the

clauses only disclaim reliance on representations that are “not specified” in the Statement of Work

or the Customer Agreement. Relying on two other provisions, Lufkin argues that the

misrepresentations on which it based its fraudulent-inducement claim were “specified” in the

Statement of Work, and at a minimum, reading those provisions together with the disclaimers’

“not specified” language renders the clauses too ambiguous to be enforceable. We are not

convinced.

A. The no-enhancements provision

To avoid the disclaimer of reliance on representations “not specified” in the Statement of

Work, Lufkin relies primarily on a provision in which IBM represented that its Express Solution

system would need no “enhancements.” Specifically, under a section entitled “Project Scope,” the

Statement of Work states:

The following Enhancements will be developed as part of this project:

4 Lufkin argues that the disclaimers were “non-negotiated boilerplate” provisions, but the factors do not require that every sentence in a contract be negotiated. Lufkin acknowledges that it negotiated “certain deal points,” and it does not contend that it could not have negotiated the disclaimers if it had wanted to. See Forest Oil, 268 S.W.3d at 60. Lufkin also argues that it was not knowledgeable about business-operations software systems, but it does not dispute that it was generally knowledgeable about “business matters.”

8 1. None

Lufkin contends that this no-enhancements provision confirmed in writing IBM’s prior

representations that the Express Solution system would provide an “out-of-the-box” solution that

would meet eighty percent of Lufkin’s requirements. Lufkin insists that it did not disclaim reliance

on those misrepresentations because they are “specified” in the no-enhancements provision.

We cannot accept Lufkin’s reading of the no-enhancements provision. To begin with, it

clearly does not specify 5 that the Express Solution system would be ready “out-of-the-box” and

meet eighty percent of Lufkin’s needs without customization. At most, it specifies only that the

parties had not then agreed on any particular enhancements. In other provisions, however, the

parties agreed that they would discuss and evaluate the need for enhancements during subsequent

phases following the product’s initial implementation. In section 1.2.1, for example, the Statement

of Work provided that IBM would perform a “Post Implementation Review” after the go-live

phase and before the “Sustain” phase, and that review would provide “an initial basis for

identifying potential enhancements that could be made to improve efficiency.”

Consistent with these provisions, Lufkin’s chief financial officer, Chris Boone, admitted

in his testimony that “there was always a certain amount of . . . customization” expected, and “there

was a contingency for things that weren’t identified during the discovery process.” And Lufkin

itself understood that enhancements could be necessary for the product to meet up to twenty

percent of its requirements. As Boone testified, there was “always an element of the project that

5 See WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 2187 (1961) (defining “specify” as “to mention or name in a specific or explicit manner: tell or state precisely or in detail”); see also id. (defining “specific” as “characterized by precise formulation or accurate restriction”).

9 was going to require some [enhancements 6], but the original scope of the project requires no

enhancements or customization.” Reading the contract’s provisions together, and in light of

Lufkin’s own acknowledgements and assertions, we cannot read the no-enhancements provision

to mean that no enhancements would ever be needed or developed.

Instead, it appears from the trial testimony that the no-enhancements provision may refer

to enhancements to SAP’s standard software on which the Express Solution system ran, not to the

Express Solution system itself. Although the contract does not define the term “Enhancements,”

both parties accept IBM’s corporate representative Juan Gonzales’s explanation that the term

refers to “code writing outside of what SAP can do, standard SAP can do.” 7 Another IBM

representative, Anthony Giambone, testified that one of the Statement of Work’s “key

assumptions” was that the Express Solution would utilize SAP’s “standard” software product,

which was “one of [the] reasons we didn’t have any enhancement originally scheduled.” Based on

this testimony, which Lufkin’s witnesses did not contradict, it may be that the no-enhancements

provision refers only to the parties’ agreement that IBM’s Express Solution system would

incorporate only the standard SAP software.

But whatever the no-enhancements provision means, it simply does not “specify” that the

Express Solution system would meet eighty percent of Lufkin’s needs upon initial implementation.

In fact, the reliance disclaimers themselves contradict that construction. Both disclaimers list

examples of representations that were “not specified” in the contract, including representations

6 Boone actually referred here to “RICEFs,” an acronym the parties used for “reports, interfaces, forms, enhancements, and conversions.” 7 Lufkin witness Kenneth Patrick testified that Lufkin receives “enhancement packages” directly from SAP to update the program.

10 regarding the project’s completion date, the amount of hours necessary to provide services, the

charges to be paid for the services, and the “results” of the services IBM provided. We cannot read

the no-enhancements provision to specify any such representations when the provision itself states

that all such provisions are not specified.

B. The information-exchanged provision

Lufkin alternatively argues that another provision specifies the misrepresentations on

which its fraudulent-inducement claim relies. In this provision, which appears in the contract’s

introductory section, IBM explained that it based its proposal on information Lufkin had provided

to IBM:

IBM is pleased to submit this Statement of Work (“SOW”) to assist Lufkin Industries, Inc. (“Lufkin Industries”) with the implementation of SAP. We recognize the significance of this project and the importance of this solution to Lufkin Industries’ business. We also recognize the effort Lufkin Industries’ staff has expended over the past several months interacting with IBM to share information about the goals and objectives of this project, current business processes and supporting systems. This exchange is the basis of our understanding for this proposal.

We bring years of experience to every project. We apply our experience gained in developing similar solutions for other customers to help develop your solution. We appreciate the opportunity to present this SOW for your approval.

Lufkin argues that this provision’s reference to “our understanding” refers to both IBM and

Lufkin, and the information the parties “exchanged” during the months leading up to the proposal

includes not only information Lufkin provided to IBM but also IBM’s misrepresentations

regarding the Express Solution system. The court of appeals agreed, holding that the “information”

the provision refers to “necessarily includes the representations made by IBM during the sales

process, including its sales presentations, which are the same representations IBM argues that the

11 reliance disclaimer provisions purport to negate.” See 564 S.W.3d at 28. Lufkin argues that it did

not disclaim reliance on IBM’s misrepresentations because this provision “specifies” those

misrepresentations.

Again, we disagree. Within the context of the provision’s repeated use of the plural “we”

to refer only to IBM, its use of the plural “our” similarly refers only to IBM’s understanding on

which it based its proposal. We read the provision to explain that IBM based its proposal on its

understanding of Lufkin’s goals, objectives, processes, and systems, which IBM obtained from

information Lufkin “shared” with IBM during the parties’ “exchange” leading up to the proposal.

The provision thus serves more as a recital than an operative term, stating the circumstances

surrounding the contract’s formation. See Furmanite Worldwide, Inc. v. NextCorp, Ltd., 339

S.W.3d 326, 336 (Tex. App.—Dallas 2011, no pet.) (defining recital as “[a] preliminary statement

in a contract or deed explaining the reasons for entering into it or the background of the transaction,

showing the existence of particular facts”) (quoting Recital, BLACK’S LAW DICTIONARY (8th ed.

2004)).

By contrast, Lufkin’s reading of the information-exchanged provision improperly renders

the two disclaimers superfluous. See URI, Inc. v. Kleberg Cty., 543 S.W.3d 755, 770 (Tex. 2018);

U.S. Metals, Inc. v. Liberty Mut. Grp., Inc., 490 S.W.3d 20, 24 (Tex. 2015). Lufkin’s construction

would mean that the parties agreed that, “in entering into” the contract, they did not rely on any

representations except those the parties made to each other before they entered into the contract.

Of course, that would mean that they did not disclaim reliance on any representations at all.

We cannot read the information-exchanged provision to contain any representations by

IBM, other than the representation that it relied on Lufkin’s information to prepare its proposal. It

12 certainly does not “specify” any particular representations IBM made during the parties

“exchange,” including representations that the Express Solution system provided an out-of-the-

box solution that would meet eighty percent of Lufkin’s requirements upon implementation. We

conclude that the information-exchanged provision does not negate Lufkin’s disclaimer of reliance

on those misrepresentations.

C. Ambiguity

Finally, Lufkin argues that, in light of the no-enhancements and information-exchanged

provisions, the disclaimers do not “clearly and unequivocally” disclaim reliance as our precedent

requires, see Forest Oil, 268 S.W.3d at 60, particularly when the disclaimer appears in an

agreement that initiates the parties’ business relationship, see Italian Cowboy, 341 S.W.3d at 335.

The court of appeals agreed that the information-exchanged provision makes the disclaimers

ambiguous because the “information” the provision refers to “necessarily includes the

representations made by IBM during the sales process, . . . which are the same representations

IBM argues that the reliance disclaimer provisions purport to negate.” 564 S.W.3d at 28. But as

we have explained, the court of appeals’ construction of the information-exchanged provision

renders the disclaimers meaningless, not ambiguous. Ambiguity exists when a provision is

susceptible to two or more reasonable constructions, Great Am. Ins. Co. v. Primo, 512 S.W.3d

890, 893 (Tex. 2017), and a construction that renders the disclaimers meaningless is not

reasonable, Tex. Health Presbyterian Hosp. of Denton v. D.A., No. 17-0256, — S.W.3d —, 2018

WL 6713207, at *6 (Tex. Dec. 21, 2018).

We conclude that the disclaimers clearly and unequivocally confirm that, in entering into

the Statement of Work, Lufkin did not rely on any representations IBM made except those that

13 were specified in the parties’ written agreement. And although the no-enhancements and

information-exchanged provisions may be ambiguous, they do not render the disclaimers

ambiguous, and they certainly do not “specify” that IBM’s Express Solution system was an out-

of-the-box system that would meet eighty percent of Lufkin’s requirements upon initial

implementation. We thus conclude that Lufkin disclaimed reliance on IBM’s representations and,

as a result, cannot recover for fraudulent inducement based on those representations. 8

III. String-Along Fraud

By a conditional cross-point of error, Lufkin argues that if we reverse the award for

fraudulent inducement we should reinstate the trial court’s alternative judgment awarding $6

million for common-law fraud. Characterizing this as a claim for “string-along fraud,” Lufkin

argued—and the jury agreed—that IBM committed fraud after the parties entered into the

Statement of Work by repeatedly and knowingly misrepresenting that its Express Solution system

would meet Lufkin’s needs if Lufkin would agree to delay the go-live date and pay more money.

Lufkin contends that, by relying on these post-contractual misrepresentations, it suffered costly

delays and damages through the $6.6 million it agreed to add to the original price. The jury found

for Lufkin on this theory and awarded $6 million in damages, and the trial court’s judgment

conditionally awarded those damages, in the event that the fraudulent-inducement award were

reversed on appeal.

The court of appeals upheld the fraudulent-inducement award but reversed the conditional

string-along-fraud award, concluding that it was based on the same misrepresentations and same

8 In light of this holding, we need not address IBM’s arguments challenging the damages the trial court awarded for fraudulent inducement. 14 injuries and thus subsumed within the fraudulent-inducement claim. 564 S.W.3d at 33. In this

Court, Lufkin argues that its so-called string-along-fraud claim is based on different

misrepresentations and sought different damages than its fraudulent-inducement claim.

In reality, Lufkin’s string-along-fraud claim is also a fraudulent-inducement claim, because

it asserts that IBM’s continued misrepresentations induced Lufkin to agree to IBM’s project

change requests. We conclude that the disclaimers bar Lufkin’s string-along-fraud claim for the

same reasons they bar Lufkin’s fraudulent-inducement claim. Lufkin argues that the disclaimers

do not apply to the misrepresentations IBM made after they signed the Statement of Work because

the disclaimers state only that the parties did not rely on representations when “entering into” the

Statement of Work. But each time Lufkin authorized a change by signing a project change request,

it agreed that the parties’ “complete agreement” would include that change authorization, all prior

change authorizations, the Statement of Work, and the Customer Agreement. And section 2 of the

Statement of Work characterizes changes resulting from the agreed “Project Change Control

Procedure” as “[c]hanges to this [Statement of Work].” So with each change authorization, Lufkin

reaffirmed that it was not relying on IBM’s representations “in entering into” the Statement of

Work, which then included the change authorization.

Lufkin argues, however, that its string-along fraud claim is based on IBM’s breach of “a

common law, not contractual, duty not to misrepresent its continuing performance” and a common-

law duty “to disclose information to correct earlier misrepresentations.” While we agree that fraud

is a common-law creation, we do not see how that invalidates Lufkin’s reaffirmations of the

disclaimer of reliance in the project change requests. Lufkin’s argument that IBM’s string-along

fraud breached a common law “duty to disclose information to correct earlier misrepresentations”

15 also fails. Lufkin cannot maintain a claim that it reasonably relied on any earlier misrepresentations

when it disclaimed reliance on such misrepresentations in the Statement of Work and the project

change requests. We thus conclude that Lufkin cannot recover on its string-along-fraud claim.

IV. Breach of Contract

Finally, Lufkin argues that if we reverse the judgment on its fraudulent-inducement claim,

we should render judgment in its favor on its contract claim, or at least remand the case for a new

trial on that claim. We agree that Lufkin is entitled to a new trial on its contract claim.

The jury found that IBM breached the parties’ contract, but then awarded “$0” as damages

for that breach. Lufkin challenged the zero-damages finding in the trial court and on appeal, 9 but

the court of appeals overruled Lufkin’s cross-point because the award it affirmed for fraudulent

inducement—which included both out-of-pocket and mitigation damages—exceeded any damages

Lufkin could recover for breach. 564 S.W.3d at 37. Now that we have reversed the fraudulent-

inducement award, Lufkin argues that we should disregard the jury’s zero-contract-damages

answer because no evidence supports that finding, and we should render judgment awarding

$10,683,736 because the evidence conclusively established that Lufkin sustained that amount as

out-of-pocket losses. 10

9 Asserting that the measure of out-of-pocket damages—the difference between the value paid and value received—is the same for both contract and fraud claims, Lufkin surmises that the jury erroneously awarded zero damages on the contract claim because it had already awarded out-of-pocket damages on the fraudulent-inducement claim. Lufkin suggests that the “jury apparently heeded the trial court’s multiple instructions ‘not [to] compensate twice for the same loss, if any,’ but did so in a way that its findings on liability and damages are contradictory.” 10 Lufkin’s evidence established that it paid IBM a total of $12,983,736, and that the value of the services it received from IBM was $2.3 million. IBM challenges the sufficiency of Lufkin’s value evidence, but it did not provide evidence controverting the $2.3 million figure. 16 IBM argues that we cannot disregard the jury’s zero-damages answer because this Court

lacks jurisdiction over an argument that a jury finding is against the great weight and

preponderance of the evidence. See Tippett v. Brannon, 493 S.W.2d 511 (Tex. 1973) (per curiam)

(“This Court does not have jurisdiction to pass upon the fact questions of the sufficiency of the

evidence, or the great weight and preponderance of the evidence.”); Gulf, Colo. & Santa Fe Ry.

Co. v. Deen, 312 S.W.2d 933, 938 (Tex. 1958) (“Being a court of law only, we will not review a

holding of the Court of Civil Appeals that a verdict is or is not against the great weight and

preponderance of the evidence, the holding being considered one of fact.”). But Lufkin urges us

to disregard the jury’s answer not only because it “was against the great weight and preponderance

of the evidence,” but also because it “has no support in the evidence.” We construe Lufkin’s brief

to assert that the evidence was both legally and factually insufficient, 11 and we have jurisdiction

to address the legal argument.

In addressing Lufkin’s challenge to the jury’s zero-damages finding, we must distinguish

“uncertainty as to the fact of damages” from “uncertainty merely as to the amount of damages.”

McKnight v. Hill & Hill Exterminators, Inc., 689 S.W.2d 206, 207 (Tex. 1985). Lufkin argues that

the evidence conclusively established the amount of its contract damages, but its legal challenge

to the jury’s zero-damages finding rests on an assertion that the evidence conclusively established

that it suffered some damages—some amount more than zero—as a result of IBM’s breach.

Because Lufkin bore the burden of proof on that issue, it must demonstrate on appeal that the

11 See Pool v. Ford Motor Co., 715 S.W.2d 629, 633 (Tex. 1986) (“It is our practice to liberally construe the points of error in order to obtain a just, fair and equitable adjudication of the rights of the litigants. We look not only at the wording of the points of error, but to the argument under each point to determine as best we can the intent of the party.”) (quoting Holley v. Watts, 629 S.W.2d 694, 696 (Tex. 1982)).

17 evidence conclusively established the fact of damages as a matter of law. See Dow Chem. Co. v.

Francis, 46 S.W.3d 237, 241 (Tex. 2001) (per curiam). To conclusively establish that fact, the

evidence must leave “no room for ordinary minds to differ as to the conclusion to be drawn from

it.” Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443, 446 (Tex.

1982).

Lufkin argues that it meets this burden because the evidence conclusively established—as

the jury found—both that IBM breached the contract and that Lufkin suffered out-of-pocket

damages. Specifically, Lufkin contends, it submitted uncontroverted evidence that IBM’s Express

Solution system did not meet the requirements Lufkin bargained for and, as a result, the value

Lufkin received was less than the amount it paid to IBM. In response, IBM asserts that Lufkin did

not conclusively establish the fact of contract damages because Lufkin’s expert testified that IBM’s

breach caused no damages, and because Lufkin failed to specify the alleged breaches or segregate

its out-of-pocket damages to any breaches the jury may have found.

We do not agree that Lufkin’s expert witness testified that IBM’s breach did not cause

Lufkin any damages. The testimony IBM relies on is that of Rosemary Lee, an IT consultant. Lee

testified that IBM’s efforts to “blueprint” the project before the go-live date were insufficient and

that it did not properly identify the system’s data requirements. 12 IBM’s theory at trial was that

any delays resulted from Lufkin’s resistance to change, and specifically that Lufkin delayed

converting its data for the new system. Lee testified that, in her opinion, IBM’s failure to properly

12 A system blueprint is a large document that includes all the system requirements and the system design. It “should be in sufficient detail to allow later configuration . . . to physically meet those requirements.” That is, it should contain detailed instructions on how to physically configure the system to function as required.

18 blueprint the process was a “potential cause” of the delays in converting Lufkin’s data, but in any

event, Lufkin’s data-conversion efforts were not “delayed or behind.” She further testified that

IBM’s failure to stabilize the system “by definition . . . put the conversion in a state where it

couldn’t be completed,” but that any issues with delays in Lufkin’s data conversion “did not cause

significant problems.” 13

Lee later testified that, specifically regarding loading data in a thirty-three day period, IBM

did not cause problems or delays “overall.” She did criticize IBM for failing to load the data earlier

in the project so it could “assess how efficient your load programs were working.” Like Lufkin,

we read Lee’s testimony to opine that Lufkin did not cause the problems it endured by delaying its

data conversion, not that Lufkin did not suffer damages as a result of IBM’s breach.

Nor do we agree that Lufkin’s failure to specify or obtain findings on exactly how IBM

breached the contract requires the conclusion that reasonable jurors could find that its breach

caused Lufkin no damages. As IBM suggests, it could be that the jury found that IBM breached

the contract in only certain ways, and those breaches did not diminish the system’s value as much

as Lufkin’s expert explained. But the jury found that IBM did breach the contract and that Lufkin

sustained out-of-pocket damages, and we agree that the evidence that supported these findings was

sufficient to conclusively establish the fact of contract damages.

13 Specifically, Lee testified as follows: Q. What was your opinion about the existence of any problems at Go-Live due to data conversion issues by Lufkin? A. The issue logs indicated that there were no significant data issues post Go-Live. Q. And so, the delays that are reflected in the documents that you reviewed, is it your opinion that those alleged delays that people talked about and the risk of data conversion issues, that they did not cause significant problems at Go-Live? A. That’s correct, they did not cause significant problems. 19 We do not agree with Lufkin, however, that the evidence conclusively established the

amount of contract damages. Citing Formosa Plastics Corp. USA v. Presidio Engineers &

Contractors, Inc., 960 S.W.2d 41, 49 (Tex. 1998), Lufkin argues that the measure of out-of-pocket

damages—the difference between the amount paid and the value received—is the same for breach

of contract as for fraudulent inducement. And because the jury found that Lufkin’s out-of-pocket

damages resulting from IBM’s fraudulent inducement totaled $10,683,736, Lufkin contends that

it conclusively established out-of-pocket contract damages of that same amount.

Lufkin’s burden on appeal, however, is not that simple. We did not hold in Formosa

Plastics that the out-of-pocket measure of damages applies identically to both contract and

fraudulent-inducement claims, and we have found no other cases in which we have announced that

holding. We need not decide that issue here, however, because we agree with IBM that the

evidence does not conclusively establish that IBM’s breach caused the exact same harm that its

fraudulent inducement caused. As IBM asserts, we cannot tell from the jury’s answer exactly how

IBM breached the parties’ contract, and the evidence certainly doesn’t conclusively establish that

it breached it in every way Lufkin alleged.

Having concluded that the evidence conclusively established that IBM’s contractual breach

caused Lufkin some damages but did not conclusively establish the amount of those damages, we

agree with Lufkin that the proper remedy is to remand the case to the trial court for a new trial on

that issue. See Berry-Helfand, 491 S.W.3d at 721 (remanding for new trial when legally sufficient

evidence supported the fact of damages but did not support the entire amount the jury awarded).

And because IBM disputed that it breached the parties’ contract, the new trial must determine both

20 IBM’s liability for breach and the amount of any resulting damages. See Estrada v. Dillon, 44

S.W.3d 558, 562 (Tex. 2001).

V. Conclusion

For the reasons explained, we affirm the court of appeals’ judgment as to Lufkin’s

common-law-fraud claim, reverse the judgment as to Lufkin’s fraudulent-inducement and breach-

of-contract claims, render judgment for IBM on the fraudulent-inducement claim, and remand this

case to the trial court for a new trial on the breach-of-contract claim.

_____________________ Jeffrey S. Boyd Justice

Opinion delivered: March 15, 2019