Conn Credit I, LP v. Sherman Originator III LLC
4:15-cv-03713
S.D. Tex.Jan 19, 2017Background
- Conn Credit sold charged-off consumer retail accounts (bulk plus monthly "Flow" deliveries); Garnet Capital acted as broker.
- TF LoanCo initially purchased but refused later Flow deliveries; Conn sued TF LoanCo and prevailed in a bench trial (findings attached in the record).
- Conn and Sherman entered a Purchase and Sale Agreement (PSA) for remaining charged-off accounts; Sherman later refused the October/third Flow delivery and Conn sued for breach of contract.
- Sherman counterclaimed for breach and for fraudulent inducement, alleging Garnet told Sherman the initial buyer "could not fund" rather than disclosing RSA-related disputes; Sherman says it relied on that statement in purchasing.
- The PSA contained a clear, negotiated disclaimer of reliance stating Sherman relied solely on its own due diligence and not on extra-contractual statements.
- Court ruled on cross-motions for summary judgment: it granted Conn’s partial MSJ, dismissed Sherman’s fraudulent inducement counterclaim, and denied Sherman’s motion for summary judgment on breach issues due to factual disputes about materiality and dispute rates.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Sherman can maintain a fraudulent inducement claim | Conn argues PSA’s clear disclaimer of reliance bars fraud claim | Sherman argues it relied on Garnet/Conn statements and that a lie cannot be disclaimed | Held: Disclaimer was clear, negotiated, and precludes fraudulent inducement; claim dismissed |
| Whether disclaimer covers statements by broker (Garnet) | Conn argues Garnet was Conn’s agent/representative and PSA disclaims reliance on such agents | Sherman contends disclaimer doesn’t apply to Garnet as Loan Sale Advisor | Held: No evidence Garnet was excluded; disclaimer covers broker statements |
| Whether Conn materially breached PSA (accounts not handled per law/accuracy) | Conn contends accounts complied and any disputes are minor | Sherman contends failures re: terminated RSAs and a "remarkably high dispute rate" permitted termination/repurchase | Held: Genuine issues of material fact exist about materiality of breaches and dispute rate; summary judgment denied on breach claims |
| Remedy for noncompliant accounts under PSA | Conn points to PSA repurchase remedy for individual noncompliant accounts | Sherman seeks termination/repurchase of all accounts based on alleged systemic problems | Held: Disputed facts (e.g., 0.604% dispute rate, materiality) preclude summary judgment; remedy question for trial |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment allocation of burdens)
- Anderson v. Liberty Lobby, 477 U.S. 242 (standard for genuine issue of material fact)
- Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171 (Tex.) (disclaimer of reliance can preclude fraud claim)
- Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (Tex.) (clear disclaimer by sophisticated parties may bar fraud claims)
- Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex.) (upholding disclaimer where parties were sophisticated and negotiated language)
- Hoffman v. L & M Arts, 838 F.3d 568 (5th Cir.) (elements of fraudulent inducement)
- Bohnsack v. Varco, L.P., 668 F.3d 262 (5th Cir.) (fraudulent inducement elements)