Mikhail v. Maritz

• Court: Court of Appeals for the Fifth Circuit
• Decided: July 1, 1999
• Docket: 98-50525
• Status: Unpublished

Opinion

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 98-50525 _____________________

SAM R MIKHAIL, Individually and doing business as MGC Engineering; MIKHAIL PROPERTIES; E CORPORATION,

Plaintiffs-Appellants,

v.

PHILIP F MARITZ; MARITZ WOLFF & CO,

Defendants-Appellees.

_________________________________________________________________

Appeal from the United States District Court for the Western District of Texas (A-98-CV-50-JN) _________________________________________________________________

July 1, 1999

Before KING, Chief Judge, REYNALDO G. GARZA and JOLLY, Circuit Judges.

PER CURIAM:*

Plaintiffs-appellants Sam R. Mikhail, individually and doing

business as NGC Engineering and Mikhail Properties,1 and E

Corporation appeal the district court’s grant of summary judgment

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

1 Although the official style of the case characterizes Mikhail Properties as a plaintiff-appellant in its own right, Mikhail’s brief describes him as “doing business as NGC Engineering and Mikhail Properties.” on their fraud, negligent misrepresentation, and tortious

interference with contract claims in favor of defendants-

appellees Philip F. Maritz and Maritz Wolff & Company. We

affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

In April 1996, plaintiff-appellant Sam R. Mikhail and

Lakshminarayan Srinivasan, an agent for plaintiff-appellant E

Corporation, entered into a contract with Avanti Properties

(“Avanti”) to buy a piece of land in downtown Austin, Texas (“the

Property”). The Property is part of a four-parcel development

that includes the Four Seasons Hotel (“the Hotel”), which is

managed by defendant-appellee Maritz Wolff & Company (“Maritz

Wolff”) for owner Hotel Equity Fund, L.P.; the San Jacinto Office

Tower; the Shoreline Grill; and an underground parking garage

connecting the Hotel and the office tower. The contract between

E Corporation and Avanti provided for the expiration of a due

diligence period on June 20, 1996 and the closing of the sale on

or before July 1, 1996.

At the time that they contracted with Avanti, Mikhail and E

Corporation intended to construct a public parking garage on the

Property.2 In early May 1996, however, after another company

expressed interest in leasing 150,000 square feet of office space

2 Mikhail testified at his deposition that he originally planned on building a public parking garage. Srinivasan initially testified that he could not recall whether there had been any discussion as to the public or private character of the proposed garage prior to May 14, 1996, but he later stated that he had “contemplated” constructing a public garage “[a]round April 11.”

2 in downtown Austin, Mikhail and E Corporation decided to build an

office tower with a private underground parking garage on the

Property. On May 14, 1996, Mikhail and Srinivasan met with

defendant-appellee Philip F. Maritz, a principal in Maritz Wolff;

Ken Fearn, an employee of Maritz Wolff; and Craig Reid, the

manager of the Hotel, in the Hotel’s cocktail lounge. Mikhail

and Srinivasan informed Maritz, Fearn, and Reid that E

Corporation planned to build an office tower with an underground

garage on the Property, showed them drawings of a building that

had been planned by one of the Property’s previous owners, and

inquired as to Maritz Wolff’s interest in participating in the

development of the Property. The parties discussed developing

parking, hotel rooms, condominiums, corporate apartments, and

retail space on the Property, but failed to reach any agreements.

On or about May 20, 1996, the company with which E Corporation

had been negotiating decided against leasing office space

downtown, and Mikhail and E Corporation abandoned the idea of

building an office tower, focusing instead on the development of

a parking garage.

On June 18, 1996, Mikhail sent the following facsimile to

Maritz:

We finalized the purchase of the property adjacent to your Four Seasons Hotel, and will be closing by the end of July. My partner and I would like to discuss these three issues with you:

. I met with Austin Commercial, who handled the construction of the Four Seasons, and have learned that some of the utilities for the Four Seasons are located on our site. It would be a costly

3 proposition to relocate these utilities, but we need to discuss this further. . We need a letter of intent for the 200 parking spaces for the Four Seasons at $100.00 per month, with another 100 spaces either on a daily or an hourly basis, to be designated for the Four Seasons. . The possibility of adding 100 rooms and 50 condominiums to the hotel, as we discussed.

As soon as you get this fax, please give me a call. We are looking forward to being a good neighbor to you and Four Seasons.

Maritz responded with a letter that stated in relevant part:

In regard to the three issues you raised in your letter, you should be advised that our requirements have changed since we last met. The hotel does not have any need for additional parking spaces and is not interested in proposals to lease additional parking spaces. Due to a slowdown in the Austin economy, we see no need for either additional hotel rooms or for any condominiums and are interested in neither adding to our existing inventory nor providing service or other amenities to such units. As to the issue of utilities, I would simply suggest that you confirm the facts as our utility arrangements and easements related thereto are fully operable.

Prior to receiving this letter, however, Mikhail and E

Corporation had obtained a thirty-day extension of the due

diligence and closing deadlines under their contract with Avanti.

In July 1996, Mikhail and E Corporation extended the contract yet

again, so that the due diligence deadline became August 16, 1996

and the closing date August 30, 1996. By August 1996, however,

they still had not obtained the zoning variances and permits

necessary for building a public parking garage from the city of

Austin. Accordingly, on August 15, 1996, plaintiffs voluntarily

terminated their rights under the contract with Avanti.

During the period that Mikhail and E Corporation had the

Property under contract, Lewis N. Wolff, a principal of Maritz

4 Wolff, made several inquiries as to whether it was for sale. On

May 8, 1996, Wolff contacted Avanti and inquired about the status

of the Property. Marvin Shapiro, an Avanti principal, informed

Wolff that the Property was under contract and declined to

discuss the matter further, although he did invite Wolff to call

back on June 20, 1996, to see if the purchaser (whom Shapiro did

not identify) had closed the sale. On June 20, 1996, the same

day that Maritz sent his letter to Mikhail, Wolff contacted

Avanti again to inquire about the Property. Shapiro advised

Wolff that the purchasers had extended their contract, and no

further discussion ensued. On August 18, 1996, after Mikhail and

E Corporation canceled their contract, Wolff again contacted

Avanti, and some two months later, Maritz Wolff entered into a

contract to purchase the Property on behalf of the owners of the

Hotel. This deal closed in December 1996.

In June 1997, Mikhail, individually and doing business as

MGC Engineering and Mikhail Properties, and E Corporation

(collectively, plaintiffs), brought suit against Maritz and

Maritz Wolff (collectively, defendants) in state court in Dallas

County, Texas for fraud, negligent misrepresentation, and

tortious interference with contract. The defendants removed the

action to the United States District Court for the Northern

District of Texas on the basis of diversity of citizenship. That

court then transferred the case sua sponte to the Western

District of Texas. On February 9, 1998, the defendants filed a

5 motion for summary judgment, which the district court granted.

The plaintiffs appeal.

II. STANDARD OF REVIEW

We review a district court’s grant of summary judgment de

novo, applying the same standards as the district court. See

United States v. Johnson, 160 F.3d 1061, 1063 (5th Cir. 1998).

After consulting applicable law in order to ascertain the

material factual issues, we consider the evidence bearing on

those issues, viewing the facts and the inferences to be drawn

therefrom in the light most favorable to the non-movant. See Doe

v. Dallas Indep. Sch. Dist., 153 F.3d 211, 214-15 (5th Cir.

1998). Summary judgment is properly granted if “the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law.” FED. R. CIV. P.

56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

Finally, to the extent that a district court’s grant of summary

judgment is based on its interpretation of state law, we review

that determination de novo. See FDIC v. Abraham, 137 F.3d 264,

267 (5th Cir. 1998).

III. DISCUSSION

A. Fraud

First, the plaintiffs contend that Maritz’s allegedly false

statements that the Hotel did not need additional rooms or

6 parking spaces constituted fraud. In Texas, a plaintiff seeking

to recover on a fraud claim bears the burden of proving the

existence of the following: “a material misrepresentation, which

was false, and which was either known to be false when made or

was asserted without knowledge of the truth, which was intended

to be acted upon, which was relied upon, and which caused

injury.” See Johnson & Johnson Med., Inc. v. Sanchez, 924 S.W.2d

925, 929-30 (Tex. 1996) (quoting DeSantis v. Wackenhut Corp., 793

S.W.2d 670, 688 (Tex. 1990)). To succeed in a common law fraud

action, moreover, a plaintiff’s reliance on the defendant’s

conduct must be justifiable as well as actual. See Haralson v.

E.F. Hutton Group, Inc., 919 F.2d 1014, 1025 (5th Cir. 1990)

(applying Texas law). As a general rule, “[i]n an arm’s-length

transaction the defrauded party must exercise ordinary care for

the protection of his own interests and is charged with knowledge

of all facts which would have been discovered by a reasonably

prudent person similarly situated. And a failure to exercise

reasonable diligence is not excused by mere confidence in the

honesty and integrity of the other party.” Thigpen v. Locke, 363

S.W.2d 247, 251 (Tex. 1962) (quoting Courseview, Inc. v. Phillips

Petroleum Co., 312 S.W.2d 197, 205 (Tex. 1957)). To determine

whether reliance is justifiable in a particular case, courts

inquire whether--given a fraud plaintiff’s individual

characteristics, abilities, and appreciation of facts and

circumstances at or before the time of the alleged fraud--it is

extremely unlikely that there was actual reliance on the

7 plaintiff’s part. See Haralson, 919 F.2d at 1026 (citing Lone

Star Mach. Corp. v. Frankel, 564 S.W.2d 135, 139 (Tex. Civ. App.-

-Beaumont 1978, no writ); General Motors Corp. v. Courtesy

Pontiac, Inc., 538 S.W.2d 3, 6 (Tex. Civ. App--Tyler 1976, no

writ)).

Under the circumstances in this case, any reliance

plaintiffs placed on Maritz’s representations as to the Hotel’s

needs was unreasonable as a matter of law. At the time Maritz

wrote his letter, the parties were in the earliest stages of an

arms-length negotiation. Indeed, they had spoken only once

before, in the Hotel’s cocktail lounge, where they briefly

discussed the possibility of Maritz Wolff’s participating in the

development of the Property but failed to reach even a

preliminary agreement. Moreover, Maritz’s representations were

made in the context of terminating negotiations, a time when, we

think, a reasonable businessperson would view his supposedly

uninterested adversary’s descriptions of his needs and wants as

inherently suspicious. In short, a party’s statement that he

does not wish to continue preliminary negotiations because he

does not require or desire the subject of the discussions may be

a mere negotiating ploy, a signal that he does not wish to do

business with the other party. Cf. Keasler v. Natural Gas

Pipeline Co., 569 F. Supp. 1180, 1187 (E.D. Tex. 1983) (holding

that, under Texas law, offerees were not entitled to rely on

offeror’s representation that its offer was “non-negotiable”

because such a statement was “a mere negotiating ploy”), aff’d,

8 741 F.2d 1380 (5th Cir. 1984) (unpublished table decision);

Marburger v. Seminole Pipeline Co., 957 S.W.2d 82, 86-88 (Tex.

App.--Houston [14th Dist.] 1997, writ denied) (same).3 We

therefore agree with the district court that plaintiffs could not

justifiably rely on Maritz’s representations.

B. Negligent Misrepresentation

Plaintiffs also argue that Maritz’s statements constituted

negligent misrepresentation. Under Texas law, the elements of a

claim for negligent misrepresentation are (1) a representation

made by a defendant in the course of his business, or in a

transaction in which he had a pecuniary interest; (2) the

defendant supplies “false information” for the guidance of others

in their business; (3) the defendant did not exercise reasonable

care or competence in obtaining or communicating the information;

and (4) the plaintiff suffers pecuniary loss by justifiably

3 Plaintiffs point out that the Marburger court did find that an allegedly false representation that all offerees “had been and necessarily would be offered the same set price” was actionable. 957 S.W.2d at 87. They argue that Maritz’s representation that the Hotel did not need additional parking spaces is more akin to a statement that all offerees will receive the same price than one that an offer is non-negotiable. We disagree. The Marburger court found that the former was actionable because offerees might reasonably infer from such a statement that, having said so, the offeror was obligated to offer the same price irrespective of its own willingness to compromise with any particular offeree. See id. at 87-88. In this case, however, Maritz’s assertions that the Hotel did not need additional rooms or parking spaces and was not interested in acquiring them does not carry the same sense of obligation. Rather, in light of the fact that they were made in the context of terminating preliminary arms-length negotiations, these representations were, like the statement that an offer is non- negotiable, merely expressions of whether the speaker is willing to compromise.

9 relying on the representation. See Federal Land Bank Ass’n v.

Sloane, 825 S.W.2d 439, 442 (Tex. 1991). Justifiable reliance is

also an element of negligent misrepresentation. See Haralson,

919 F.2d at 1025 n.5 (citing Great Am. Mortgage Investors v.

Louisville Title Ins. Co., 597 S.W.2d 425, 429 (Tex. Civ. App.--

Fort Worth 1980, writ ref’d n.r.e.); RESTATEMENT (SECOND) OF TORTS

§ 552(1) (1977)). But, this circuit has noted, because an

intentional tort like fraud is not at issue, courts more readily

equate unjustifiable reliance in a negligent misrepresentation

context with contributory negligence. See id. at 1025-26 n.5

(citing Blue Bell, Inc. v. Peat, Marwick, Mitchell & Co., 715

S.W.2d 408, 415 (Tex. App.--Dallas 1986, writ ref’d n.r.e.);

Geosearch, Inc. v. Howell Petroleum Corp., 819 F.2d 521, 526 (5th

Cir. 1987)). Accordingly, “[d]ue to the justifiability

requirement’s stricter nature under negligent misrepresentation

than under common law fraud, a finding of unjustifiable reliance

on fraudulent conduct for common law fraud purposes precludes a

negligent misrepresentation claim based on the same conduct.”

Id. at 1026 n.5. Our conclusion in the previous section that the

plaintiffs unjustifiably relied on Maritz’s representations thus

requires us to rule against them on their negligent

misrepresentation claim as well.

C. Tortious Interference with Contract

Finally, plaintiffs claim that Maritz’s alleged

misrepresentations constituted tortious interference with their

contract with Avanti. In their appellate brief, plaintiffs argue

10 that Maritz’s statements “made performance [of the contract with

Avanti] more burdensome, difficult or impossible, or of less or

no value,” which ultimately “led Mikhail and E Corporation to

terminate the contract and lose the benefit of the bargain.” In

Texas, a party alleging tortious interference with a contract

must prove four elements to sustain its claim: (1) that a

contract subject to interference exists; (2) that the alleged act

of interference was willful and intentional; (3) that the willful

and intentional act proximately caused damage; and (4) that

actual damage or loss occurred. See ACS Investors, Inc. v.

McLaughlin, 943 S.W.2d 426, 430 (Tex. 1997). A third party’s

efforts to induce a contract obligor to “do what it has a right

to do” is not tortious interference with contract under Texas

law, however. Id. at 430; see C.E. Servs., Inc. v. Control Data

Corp., 759 F.2d 1241, 1248 (5th Cir. 1985) (“A third-party’s

efforts to induce another to exercise his right to dissolve a

contract at will or to terminate contractual relations on notice

does not constitute tortious interference with contract under

Texas law.”). Viewing the evidence in the light most favorable

to the plaintiffs, the defendants did no more than convince

Mikhail and E Corporation to exercise what plaintiffs themselves

describe as an “option to cancel the contract” with Avanti.

Under Texas law, such an action cannot form the basis of a

tortious interference with contract claim.4

4 Plaintiffs argue that the Texas Supreme Court’s holding in Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689 (Tex. 1989), that “the terminable-at-will status of a contract is no defense

11 IV. CONCLUSION

For the foregoing reasons, we AFFIRM the judgment of the

district court.

to an action for tortious interference with its performance” indicates that it has stated an actionable claim even though it had an option to cancel its contract with Avanti. After Sterner, however, the Texas Supreme Court reaffirmed that while the terminable-at-will or terminable-upon-notice status of a contract does not preclude all actions for tortious interference with its performance, merely inducing one of the parties to a contract to exercise his right to terminate it does not constitute actionable interference. See ACS Investors, 943 S.W.2d at 430 (citing C.E. Servs., 759 F.2d at 1248, as direct support and noting “but cf.” Sterner).