Int'l Bus. Machs. Corp. v. Lufkin Indus., LLC
573 S.W.3d 224
Tex.2019Background
- Lufkin Industries contracted with IBM in 2010 for implementation of IBM’s "Express Solution for SAP" after sales representations that the product would be an "out-of-the-box" solution meeting ~80% of Lufkin’s requirements and could be implemented quickly.
- The product required extensive customization, implementation repeatedly failed, and Lufkin approved nine change requests, paid ~ $12.98 million (about $6.6M more than original price), and later spent another $7.5M on consultants to salvage the system.
- Lufkin sued IBM for fraudulent inducement, post-contract "string-along" fraud, negligent misrepresentation, and breach of contract. A jury found for Lufkin on fraud claims and breach; awarded $21M for fraudulent inducement (alternative $6M for string‑along fraud) but $0 for breach damages.
- The court of appeals affirmed fraudulent inducement, reversed the alternative string‑along award, and suggested remittitur on mitigation damages. This Court granted review on whether contract disclaimers precluded fraud claims and on contract-damages issues.
- The Texas Supreme Court held that Lufkin disclaimed reliance in the Statement of Work, barring both fraudulent-inducement and string‑along fraud claims, but concluded evidence conclusively showed IBM’s breach caused some damages and remanded for a new trial on breach damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Lufkin can recover for fraudulent inducement despite contract disclaimers | Disclaimers do not apply because contract contains provisions (no‑enhancements and information‑exchanged) that “specify” IBM’s prior representations | SOW disclaimed reliance on any representations not specified in the written agreement; parties negotiated, were sophisticated, and disclaimers are clear | Clauses unambiguously disclaimed reliance on oral/sales representations; fraudulent‑inducement claim barred; judgment for IBM rendered on that claim |
| Whether post‑contract "string‑along" fraud claim survives despite disclaimers | Post‑contract misrepresentations induced approvals of change requests and are common‑law fraud separate from initial inducement | Each change request incorporated the SOW and reaffirmed the disclaimer; post‑contract representations were likewise disclaimed | String‑along‑fraud barred for same reasons as initial fraudulent inducement |
| Whether breach‑of‑contract liability/damages require remand or judgment | If fraud reversed, Lufkin seeks judgment on breach and $10,683,736 out‑of‑pocket damages (value paid minus value received) | IBM argues jury’s $0 breach damages should stand; disputes causation/amount and appellate review of fact sufficiency is improper | Court holds evidence conclusively establishes existence of some contract damages (but not the exact amount); remands for new trial on breach liability and damages |
| Whether contractual disclaimers are ambiguous due to other provisions | Disclaimers insufficiently clear because of no‑enhancements and information‑exchange language | Disclaimers clearly and unequivocally negate reliance; other provisions are recitals or limited and do not "specify" the sales promises | Disclaimers are clear; other provisions do not render them ambiguous or "specify" the misrepresentations |
Key Cases Cited
- Anderson v. Durant, 550 S.W.3d 605 (Tex. 2018) (elements of fraudulent inducement and fraud)
- Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (Tex. 2011) (merger clauses alone do not bar fraud claims; waiver‑of‑reliance analysis)
- Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008) (disclaimer must clearly and unequivocally disclaim reliance to bar fraud)
- Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997) (sophisticated parties may be bound by disclaimers)
- Formosa Plastics Corp. USA v. Presidio Engineers & Contractors, Inc., 960 S.W.2d 41 (Tex. 1998) (out‑of‑pocket damage measure discussion)
- Berry‑Helfand, 491 S.W.3d 699 (Tex. 2016) (remand appropriate when legal sufficiency supports some damages but not amount awarded)
- Dow Chem. Co. v. Francis, 46 S.W.3d 237 (Tex. 2001) (standards for conclusively establishing an issue on appeal)
- Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443 (Tex. 1982) (conclusive evidence standard)
- McKnight v. Hill & Hill Exterminators, Inc., 689 S.W.2d 206 (Tex. 1985) (distinguishing uncertainty as to fact of damages vs. amount)
- Estrada v. Dillon, 44 S.W.3d 558 (Tex. 2001) (new trial when liability disputed and damages unresolved)