564 S.W.3d 15
Tex. App.2017Background
- Lufkin, a NASDAQ‑listed manufacturer, contracted with IBM for an "Express Solution" SAP-based ERP implementation (SOW signed March 25, 2010) after IBM represented the product was heavily preconfigured and would permit a fast Go‑Live.
- Multiple integration tests failed (Nov 2010, Feb 2011, Sept & Nov 2011); IBM requested multiple Project Change Requests (PCRs) and collected ~$12.98M from Lufkin before the January 1, 2012 Go‑Live.
- The Go‑Live failed: payroll, vendor payments, production scheduling and financial close processes broke, causing months of manual operations, stock decline, and disruption to Lufkin’s business.
- Lufkin spent an additional $7.544M on third‑party consultants and SAP to restore an operating system; it sued IBM for fraudulent inducement, fraud, negligent misrepresentation, and breach of contract.
- Jury found fraudulent inducement, fraud, negligent misrepresentation, and breach; awarded $10M out‑of‑pocket, $11M mitigation, and $6M on fraud (alternative). Trial court entered judgment ~ $23.8M plus interest. IBM appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SOW disclaimer bars fraudulent inducement (reliance) | Lufkin: representations during pre‑contract exchange were incorporated into SOW and therefore not disclaimed | IBM: clear disclaimer in SOW and signature page negates reliance element | Court: disclaimer not "clear and unequivocal" in context; pre‑contract exchange language incorporated IBM representations — disclaimer does not bar claim; issue overruled for IBM |
| Whether Lufkin ratified/waived/estopped from asserting fraud claims | Lufkin: continued performance after reassurances, but did not have full knowledge of material facts; relied on IBM representations | IBM: Lufkin continued implementation despite knowing defects, so ratified or waived rights; alternatively quasi‑estoppel | Court: IBM failed to conclusively prove full knowledge and intentional relinquishment; jury verdict (no waiver/ratification/estoppel) upheld |
| Whether independent fraud claim barred by economic loss rule / duplicative with fraudulent inducement | Lufkin: separate "string‑along" fraud for post‑SOW misrepresentations inducing PCRs | IBM: fraud claim is subsumed by fraudulent inducement and seeks same economic losses; economic loss rule bars duplicative recovery | Court: economic loss rule does not bar fraudulent inducement, but Lufkin’s separate fraud allegations duplicate the inducement claim and cannot recover twice; fraud award reversed and rendered for nothing |
| Sufficiency and amount of damages; applicability of an alleged 1991 liability cap | Lufkin: experts established Express Solution value ($2.3M), out‑of‑pocket and mitigation damages; total supported | IBM: damages unsupported, expert methodology flawed; contractual 1991 customer agreement caps recovery to amounts paid | Court: out‑of‑pocket award ($10M) supported; employee‑salary portion of mitigation unsupported, third‑party post‑Go‑Live mitigation supported ($7,544,545). Suggested remittitur reducing mitigation from $11M to $7,544,545. IBM’s 1991 agreement not admitted, cap not applied |
Key Cases Cited
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (standard for reviewing legal sufficiency of evidence)
- Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (Tex. 2011) (requirements for enforcing reliance disclaimers in contracts)
- Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008) (caution against enforcing disclaimers that would forgive intentional lies at contract formation)
- Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997) (role of clear disclaimer language and public policy in fraud contexts)
- In re Int'l Profit Assocs., Inc., 274 S.W.3d 672 (Tex. 2009) (elements of fraud/fraudulent inducement)
- Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41 (Tex. 1998) (economic loss rule and source of tort duties)
- Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768 (Tex. 2009) (out‑of‑pocket measure for fraud damages)
- Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006) (one‑satisfaction rule limiting double recovery on alternate theories)
- Birchfield v. Texarkana Mem'l Hosp., 747 S.W.2d 361 (Tex. 1987) (election between alternative theories when damages overlap)
- Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat'l Dev. & Research Corp., 299 S.W.3d 106 (Tex. 2009) (procedure and standards for suggesting remittitur)