Description: This case was a breach of contract case arising out of the discovery of the world’s largest nickel deposit by Defendant Jeann Boule. Defendant moved for partial summary judgment on the plaintiff’s fraud claim arising from his brother’s alleged breach of an agreement to share profits from certain designated exploration projects. The motion claimed that there was no evidence that the defendant entered into the agreement with no intention of performing. The court granted the motion, eliminating the plaintiff’s fraud claim and removing the possibility of punitive damages. The remainder of the case was tried to a defense verdict after a two-week jury trial. This brief was filed by Heygood, Orr & Pearson on behalf of their client.
|MARIE JOSEPH FRANCO BOULLE
and LESA SCHMIDT,
|IN THE DISTRICT COURT
DALLAS COUNTY, TEXAS
116TH JUDICIAL DISTRICT
DEFENDANT’S NO-EVIDENCE MOTION FOR PARTIAL SUMMARY JUDGMENT
Defendant Jean-Raymond Boulle (“Jean”) files this No-Evidence Motion for Partial Summary Judgment, and respectfully shows the Court as follows:
In June 1992, Plaintiff Marie Joseph Franco Boulle (“Franco”) and his brother, Jean-Raymond Boulle (“Jean”), entered into an agreement (“Agreement”) to formally separate their ownership interests, if any, in a designated list of “projects.” In the Agreement, Franco agreed to transfer his interests, if any, in those projects to Jean in exchange for $45,000 plus, among other things, a “five percent (5%) interest in the net revenues received by Jean Boulle from [those] projects.” One of the projects listed in the Agreement was Arkansas Diamond Development Company (“ADDC”).
In 1993, Jean transferred 85% of his participation rights in ADDC to Diamond Mining Company (“DMC”), another company owned by Jean. On September 9, 1993, the shares in DMC were traded for shares in Diamond Field Resources (“DFR”).
Earlier in 1993—i.e., before any shares in DMC were traded to DFR—DFR purchased an option to mine property near Voissey Bay in Canada. In 1994, DFR exercised the Voissey Bay option and discovered, not diamonds, but one of the world’s richest nickel deposits. As a result, the value of DFR’s stock shot up dramatically. In 1996, DFR spun off its recently discovered nickel assets to International Nickel Company (“Inco”), and its diamond assets, including DMC, to Diamond Fields International (“DFI”). The entire transaction was valued at $3.7 billion.
In this suit, Franco contends that he is entitled to five percent of the revenues received by Jean from the entire $3.7 billion transaction in 1996 based on two causes of action, breach of contract and fraud. The fraud claim is premised on a false promise—i.e., that Jean entered into the Agreement with no intention to perform. Franco’s claims fail as a matter of law because there is no evidence of any of the elements of fraud and, in particular, no evidence that Jean entered into the June 22, 1992 agreement with no intent to perform.
On June 22, 1992, Franco Boulle and his brother, Jean Boulle, signed an agreement confirming the previous separation of their interests, if any, in a designated list of “projects.” See Tab 1 (Agreement). In the Agreement, Franco agreed to transfer to Jean “any and all interests he may have in the following entities and projects” in exchange for payments of $45,000 plus Jean’s assumption of a number of liabilities. See Tab 1.
It is undisputed that Jean performed under the agreement by making the $45,000 payment to Franco and settled hundreds of thousands of dollars in liabilities assumed under the Agreement. Even Franco has admitted—in prior sworn testimony—that Jean performed all of his duties and obligations under the Agreement from 1992 to 1995. See Franco Boulle Dep. [Nacol Wortham Suit] at 553 (Tab 2).
The Agreement also included a “five-percent provision”—i.e., the provision giving rise to this lawsuit. See Tab 1 ¶ 5. It provides:
Jean Boulle will assign to Franco Boulle a five percent (5%) interest in the net revenues received by Jean Boulle from the projects in which Franco Boulle transfers his interest to Jean Boulle under this agreement, with a maximum of $5,000,000 to be paid pursuant to this provision; . . .
See Tab 1 ¶ 5. The list of projects in the Agreement included ADDC. See Tab 1 ¶ F. ADDC was a joint venture organized to pursue commercial diamond mining opportunities at the Crater of Diamonds in Arkansas. Under the terms of the Agreement, Franco transferred his interests in ADDC, if any, to Jean in exchange for, among other things, five percent of “net revenue” received by Jean from the ADDC project and other projects listed in the Agreement. See Tab 1.
In early 1993, Jean transferred 85 percent of his participation rights in ADDC to DMC. DMC was later acquired by Maria Investments Limited (“MIL”). DMC and MIL were both owned by Jean. On February 18, 1993, MIL agreed to transfer its shares of DMC to Rutherford Ventures Corporation (“Rutherford”) in exchange for 200,000 shares of Rutherford stock. This agreement is referred to as the Vend-In Agreement.
The sale of DMC stock to Rutherford did not close until September 9, 1993. By this time, Rutherford had been renamed Diamond Field Resources (“DFR”). On September 9, 1993, MIL sold DMC to DFR in exchange for 200,000 shares of DFR stock.
On May 18, 1993, almost four months before the sale of the DMC stock to DFR, DFR purchased an option to mine property located near Voissey Bay, Canada, from Archean Resources Ltd. DFR paid $372,000 in cash plus shares of DFR stock for the Voissey Bay mining option. In late 1994, when DFR exercised the Voissey Bay mining option, it did not find diamonds; however, DFR did discover one of the world’s richest nickel deposits. As a result, the value of DFR’s stock shot up dramatically. In contrast, the ADDC project did not prove to be commercially viable, and ADDC never undertook any commercial mining in the Crater of Diamonds or anywhere else.
In 1996, DFR spun off its nickel assets to International Nickel Company (“INCO”) and its diamond assets—including its DMC stock—to Diamond Fields International. Franco contends that this last transaction is the event that triggered the five-percent provision under the Agreement. The entire transaction was valued at $3.7 billion. At the time of the transaction, DFR’s current assets were listed as $700 million. Tab 3 at FBL021761. Only $10.5 million of this total represented diamond assets. Tab 3 at FBL021765. And of this amount, only $90,428 represented the value of ADDC. Id. Under the agreement, DFR’s nickel assets were sold to INCO and its diamond assets were spun off into Diamondco and DFR shareholders were given shares in this new entity, which had a total book value of only $15.2 million. Tab 3 at FBL021466, FBL021506.
On February 18, 1998, Franco filed this suit, alleging breach of contract, fraud, breach of fiduciary duty, and a claim for a partnership accounting. Jean moved for summary judgment, asserting limitations. On February 24, 2003, the Honorable Carlos Lopez granted Jean’s motion for summary judgment and entered a judgment that Franco take nothing. Franco appealed the trial court’s ruling regarding breach of contract, fraud, and for a partnership accounting.
The Court of Appeals affirmed the trial court’s dismissal of Franco’s claim for a partnership accounting and his claim for breach of fiduciary duty. See Boulle v. Boulle, 160 S.W.3d 167, 176 (Tex. App.—Dallas 2005, pet. denied). However, the court of appeals remanded Franco’s breach of contract and fraud claims. According to the court, the meaning of the term “net revenue” in the five percent provision was ambiguous and precluded summary judgment on the breach of contract and fraud claims. See id. at 173-75. As for the fraud claim, the Court of Appeals held that summary judgment on this claim was improper because:
Franco’s brief identifies the allegedly false statement on which he relies for his fraud claim: “Jean’s promise to pay Franco 5% of the profit he made on account of the partnership assets Franco transferred to him pursuant to the Agreement.” Thus, Franco’s fraud claim is limited–just as his breach-of-contract claim is limited–to the five-percent paragraph of the Agreement. We have concluded this provision is ambiguous and that we cannot define the parties’ rights and obligations under the provision as a matter of law. Accordingly, we cannot begin to determine the most fundamental question in the fraud case: whether a false statement was made in reference to the provision. The fraud claim cannot be resolved as a matter of law at this time. We decide Franco’s second issue in his favor.
Boulle, 160 S.W.3d at 175 (emphasis added). The instant Motion, however, does not require the Court to interpret the meaning of paragraph 5 in order for the Court to rule in Jean’s favor. In fact, for purposes of this Motion only, Jean is prepared to accept Franco’s interpretation of the contract. Even if Franco’s construction is accepted, as set forth below, there is no evidence that Jean entered into the June 22, 1992 agreement with no intent to perform. For this reason, Defendant is entitled to judgment as a matter of law on Plaintiff’s fraud claim.
ARGUMENT AND AUTHORITIES
I. Defendant is entitled as a matter of law to a no-evidence summary judgment on Plaintiffs’ fraud claim.
A no evidence summary judgment is essentially a pretrial directed verdict, and courts apply the same legal sufficiency standard in reviewing a no evidence summary judgment as they apply in reviewing a directed verdict. Marsaglia v. University of Texas, El Paso, 22 S.W.3d 1, 3 (Tex.App.–El Paso 1999, pet. denied); Frazier v. Yu, 987 S.W.2d 607, 610 (Tex.App.–Fort Worth 1999, pet. denied). A no evidence summary judgment is properly granted when the nonmovant fails to bring forth more than a scintilla of probative evidence to raise a genuine issue of material fact as to an essential element on which the nonmovant would have the burden at trial. See Tex. R. Civ. P. 166a(i); Merrell Dow Pharmaceuticals, Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.1997), cert. denied, 523 U.S. 1119 (1998). If the evidence amounts to no more than mere surmise or suspicion, supporting a finding rises to a level that would enable reasonable, fair-minded persons to differ in their conclusions, then more than a scintilla of evidence exists and the motion must be denied. Havner, 953 S.W.2d at 711; General Mills Rests., Inc. v. Tex. Wings, Inc., 12 S.W.3d 827, 833 (Tex.App.–Dallas 2000, no pet.).
Defendant is entitled as a matter of law to a no-evidence motion for summary judgment on Plaintiffs’ fraud claim. To prevail on a fraud claim, a plaintiff must prove that (1) the defendant made a material representation that was false; (2) it knew the representation was false or made it recklessly as a positive assertion without any knowledge of its truth; (3) it intended to induce the plaintiff to act upon the representation; and (4) the plaintiff actually and justifiably relied upon the representation and thereby suffered injury. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex.2001) (emphasis added). Fraudulent inducement is a particular species of fraud that arises only in the context of a contract and requires the existence of a contract as part of its proof. Haase v. Glazner, 62 S.W.3d 795, 798-99 (Tex.2001). That is, in a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties. Id.. .
Where, as here, a contract between the parties exists, a party top the contract may only bring a claim for fraud a cause of action for fraudulent inducement. Thus, the elements of Plaintiff’s cause of action for fraud are the following:
- a material representation was made;
- the representation was false;
- when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and a positive assertion;
- the speaker made the representation with the intent that the other party should act upon it;
- the party acted in reliance on the representation; and
- the party thereby suffered injury.
DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex.1990). Haase v. Glazner, 62 S.W.3d 795, 799 (Tex.2001). Where, as here, a fraud claim is based on the failure to perform a contract, the plaintiff satisfies elements 1 through 3 above by demonstrating that the defendant entered into the contract with no intention of performing. See, e.g., Crim Truck & Tractor Co. v. Navistar Intern. Transp. Corp., 823 S.W.2d 591, 597 (Tex.1992) (“As a general rule, the failure to perform the terms of a contract is a breach of contract, not a tort. However, when one party enters into a contract with no intention of performing, that misrepresentation may give rise to an action in fraud.”); Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex.1986) (“A promise to do an act in the future is actionable fraud when made with the intention, design and purpose of deceiving, and with no intention of performing the act.”); T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex.1992) (“When the alleged fraud involves a promise to do an act in the future, the plaintiff must prove that, at the time the defendant made the promise, he had no intention of performing.”); Formosa Plastics Corp. v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 46 (Tex.1998) (“a fraud claim can be based on a promise made with no intention of performing”).
Under Rule 166a(i) of the Texas Rules of Civil Procedure, Defendant asserts that there is no evidence that Jean entered into the June 22, 1992 agreement with no intention of performing Defendant’s no evidence Motion should therefore be granted as to Plaintiff’s fraud claim.
II. Defendant is entitled to a no-evidence summary judgment on Plaintiff’s claim for rescission of the June 22, 1992 agreement.
Defendant is also entitled to a no-evidence summary judgment on Plaintiff’s claim for rescission of the June 22, 1992 agreement. Such claim is premised either on allegations of fraud or allegations of failure of consideration. See Plaintiff’s Second Amended Petition attached hereto at Tab 4 par. 36. As the Court of Appeals correctly noted, “[r]escission of a contract is available as an alternative to damages in cases in which one contracting party is induced to contract by the fraud of the other.” Boulle, 160 S.W.3d at 176. But, as set forth above, Defendant is entitled to judgment in his favor as a matter of law on Plaintiff’s fraud claims. Moreover, as to the alleged failure of consideration, Texas law permits rescission only upon a total failure of consideration, not upon a mere partial failure of consideration:
Failure of consideration occurs when, because of some supervening cause after an agreement is reached, the promised performance fails. Total failure of consideration constitutes a ground for rescission. Partial failure of consideration does not invalidate the contract but instead is a defense pro tanto.
Matter of Topco, Inc.¸894 F.2d 727, 742 (5th Cir. 1990). In the instant case, there is no evidence of a total failure of consideration.
WHEREFORE, PREMISES CONSIDERED, Defendant Jean-Raymond Boulle respectfully prays that the Court grant this Motion, dismiss with prejudice Plaintiff’s fraud claim, dismiss with prejudice Plaintiff’s claim for rescission and award Defendant such other and further relief to which he may be justly entitled.