Mutual of Omaha Bank v. Mayer
Filing
42
MEMORANDUM OPINION AND ORDER granting 31 MOTION to Dismiss 29 Amended Answer, Counterclaim of Defendant (Signed by Magistrate Judge Stephen Wm Smith) Parties notified.(jmarchand, 4)
United States District Court
Southern District of Texas
ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
MUTUAL OF OMAHA BANK,
Plaintiff,
v.
WILLIAM JOHNSON MAYER,
Defendant.
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July 08, 2016
David J. Bradley, Clerk
CIVIL ACTION NO . 4:15-CV-01598
MEMORANDUM OPINION AND ORDER
This breach of contract action is before the Court on Bank’s motion to dismiss Mayer’s
amended counterclaims. Dkt. 31. After reviewing the briefing and the law, the Court grants the
motion.
BACKGROUND
On November 12, 2015, this Court issued a memorandum and order granting Bank’s
motion to dismiss Mayer’s counterclaims (Dkt. 10) and allowing Mayer to re-plead. Dkt. 28. In
his amended answer, Mayer re-pleads his fraudulent inducement, slander, and slander of title
counterclaims. Dkt. 29. Bank filed another motion to dismiss these counterclaims. Dkt. 31. The
issues are now fully briefed and ripe for consideration.
A. Fraudulent inducement counterclaims
In Count One, Mayer claims that one of Bank’s senior energy lenders, Edward Fenk,
made fraudulent representations to induce Mayer into executing the loan agreement and
subsequent amendment. Mayer repeats from his original pleadings that Fenk promised
“additional flexibility” to lure Mayer’s business away from his previous lender, Wells Fargo.
Dkt. 29, ¶¶ 37–38. This “additional flexibility” included a representation that Bank could “easily
close a $12 million loan,” though the parties ultimately agreed upon a $10 million credit line,
and assurances that “there would be no change to Mayer’s ability to make his own decisions
regarding hedging oil and gas.” Id., ¶¶ 38–39.
In the amended answer, Mayer explains how his hedging authority changed with Bank.
In 2013, Fenk rejected Mayer’s request to add oil hedges for 2014–15 because Fenk disagreed
with Mayer’s assessment of the future price of oil. See id., ¶¶ 39–41. Mayer contends that, had
he been permitted to hedge as initially promised, “[he] would have been at least partially
insulated from oil’s significant devaluation in 2014.” Id., ¶ 41.
Mayer also re-pleads his claim that Fenk made fraudulent representations concerning the
maturity date of the loan, inducing Mayer into executing the loan amendment by which he
pledged an additional $8 million in collateral to secure the loan. Specifically, Mayer alleges that
Fenk claimed that the loan was undercollateralized. Id., ¶ 42. Mayer disagreed with Fenk, but
was willing to pledge additional collateral if Bank extended the maturity date of the loan by two
years. Id. Mayer alleges that during several phone calls made in July and August 2014, Fenk
“reassured Mayer that [Bank’s] loan committee had already approved the two year extension,”
which would be effectuated after Mayer pledged the additional collateral. Id., ¶¶ 45, 51. No
extension was ever made.
B. Slander and slander of title counterclaims
Mayer re-pleads his slander and slander of title counterclaims based on certain unknown
statements allegedly made by Bank to Christie’s in New York concerning Mayer’s Americana
fine art collection. The facts pleaded in support of the slander counterclaim are repeated
verbatim in support of the slander of title counterclaim.
Just as he did in his original counterclaims, Mayer alleges that on April or May 2015,
Bank contacted Christie’s and negligently made “false representations regarding the ownership
of [Mayer’s] collection and/or regarding a potential sale of the collection.” Id., ¶ 53. Mayer adds
in his amended counterclaims that Bank’s false statements damaged Mayer’s reputation with the
Americana fine art community, thereby devaluing his Americana fine art collection. Id., ¶ 54.
Specifically, Mayer alleges that Bank’s false claims to Christie’s ultimately reached the ears of
the Americana art community, causing members of that community to suspect that Mayer was
experiencing financial difficulties and they could thus acquire pieces of his collection at
discounted prices. Id. Mayer cites one example of the damages that he suffered. In September
2015, Christie’s auctioned a part of Mayer’s collection for $300,000, “despite being valued
and/or expected to sell . . . [within] the approximate range of $750,000 to $1.5 million.” Id.
Mayer does not re-plead his tortious interference counterclaim, and the Court dismissed
with prejudice Mayer’s breach of contract and Texas Debt Collection Practices Act
counterclaims. See Dkt. 28.
ANALYSIS
Federal Rule of Civil Procedure 12(b)(6) permits dismissal of an action when the
complaint, on its face, fails “to state a claim upon which relief can be granted.” In considering a
12(b)(6) motion to dismiss, the Court must accept as true all well-pleaded facts and view the
allegations in a light most favorable to the non-movant. Sullivan v. Leor Energy, LLC, 600 F.3d
542, 546 (5th Cir. 2010). While the complaint is not required to contain detailed factual
allegations, it must plead sufficient facts “to state a claim to relief that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007). Additionally, “a complaint that shows
relief to be barred by an affirmative defense . . . may be dismissed for failure to state a cause of
action.” Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050
(5th Cir. 1982). The Court reviews the complaint, documents attached to the complaint, and any
documents accompanying the motion to dismiss that are referenced by the complaint. Lone Star
Fund V (U.S.), LP v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010).
A. Mayer’s fraudulent inducement claims must be dismissed.
To properly plead fraud in Texas, a plaintiff must allege: (1) the defendant made a
material representation that was false; (2) the defendant knew the representation was false or
made it recklessly without knowledge of its truth; (3) the defendant 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. See Ernst & Young, LLP v. Pac. Mut. Life Ins.
Co., 51 S.W.3d 573, 577 (Tex. 2001); see also Shandong Yinguang Chem. Indus. Joint Stock
Co., Ltd. v. Potter, 607 F.3d 1029, 1032–33 (5th Cir. 2010). A fraudulent inducement claim
requires the plaintiff to plead the elements of fraud as well as “an underlying contract which was
induced.” Kevin M. Ehringer Enters., Inc. v. McData Servs. Corp., 646 F.3d 321, 325 (5th Cir.
2011) (citing Haase v. Glazner, 62 S.W.3d 795, 798 (Tex. 2001)).
i. Mayer cannot establish justifiable reliance on Fenk’s representation that
the maturity date of the loan would be extended.
Texas courts have long recognized that a party claiming fraud must be reasonably
diligent in protecting his interests, and “a failure to do so is not excused by mere confidence in
the honesty and integrity of the other party.” DRC Parts & Accessories, LLC v. VM Motori, SPA,
112 S.W.3d 854, 858 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) (citing Thigpen v.
Locke, 363 S.W.2d 247, 251 (Tex. 1962)). As many Texas appellate courts have held in the
context of fraud, “reliance upon an oral representation that is directly contradicted by the
express, unambiguous terms of a written agreement between the parties is not justified as a
matter of law.”1
Mayer pleads that, in executing the loan amendment and pledging the additional
collateral, he justifiably relied upon Fenk’s representation that the maturity date of the loan
would be extended for two years. Assuming that Fenk made such a representation, any reliance
upon the representation could not have been justified. Article III of the amendment contains a
ratification clause that provides:
Ratifications. The terms and provisions set forth in this Amendment shall modify
and supersede all inconsistent terms and provisions set forth in the Agreement
and except as expressly modified and superseded by this Amendment, the terms
and provisions of the Agreement are ratified and confirmed and shall continue in
full force and effect. Borrower and Lender agree that the Agreement, as amended
hereby, shall continue to be legal, valid, binding and enforceable in accordance
with its terms. The terms, provisions, and conditions of any and all of the Loan
Documents including the Agreement are hereby ratified and confirmed in every
respect by Borrower and shall continue in full force and effect.
Dkt. 31-4 at 3 (emphasis added). Section 3.2 clearly and unambiguously ratified the terms of the
original agreement, which required payment of the loan in full on or before April 6, 2015. See
Dkt. 31-2 at 5, 9. The plain language of the amendment in no way modifies this maturity date or
otherwise suggests that the date is to be extended.
Mayer’s fraudulent inducement claim as it relates to the amendment is based solely upon
Fenk’s alleged representations that the loan committee agreed to extend the maturity date of the
loan. These alleged oral representations are directly contradicted by the express, unambiguous
terms of the loan documents. Under Texas law, Mayer could not have justifiably relied upon
1
See, e.g., DRC Parts, 112 S.W .3d at 858; Playboy Enters., Inc. v. Editorial Caballero, SA de CV, 202 S.W .3d 250, 258
(Tex. App.— Corpus Christi 2006, pet. denied); DeClaire v. G&B McIntosh Family Ltd. P’ship, 260 S.W .3d 34, 46–47
(Tex. App.— Houston [1st Dist.] 2008, no pet.); Miller Global Props., LLC v. Marriott Int’l, Inc., 418 S.W .3d 342, 348
(Tex. App.— Dallas 2013, pet. denied).
Fenk’s promises in executing the amendment; therefore, Mayer fails to plead a plausible
fraudulent inducement claim related to the amendment.
ii. Mayer fails to state a plausible fraudulent inducement claim based upon
Fenk’s representation of Bank’s willingness to lend $12 million.
Mayer claims that he was fraudulently induced to enter into the original loan agreement
by false promises of “additional flexibility,” citing Fenk’s representation that Bank could lend up
to $12 million. Dkt. 29, ¶¶ 38, 50. As the Court noted in its earlier order, “Mayer does not
explain how this representation was fraudulent.” Dkt. 28 at 4. In the same paragraph in which he
labels this representation as false, Mayer acknowledges that he ultimately agreed to “a $10
million credit line with Mayer’s initial borrowing base at $7 million.” Id., ¶ 38. In his amended
pleadings, Mayer no longer admits that he declined to pursue the $12 million option because the
accompanying fees were too high, but he continues to omit any explanation as to how Fenk’s
representation that Bank could lend up to $12 million was false. Mayer’s own alleged facts
clearly show that he knowingly agreed to a $10 million credit line. Without any additional
allegations to explain how the promise of flexibility was false, Mayer fails to plead a plausible
fraudulent inducement claim based upon promises of “additional flexibility.”
iii. The pleaded facts demonstrate that Mayer expressly ratified the terms of
the original loan agreement.
Although a contract procured by fraud is voidable, the fraudulently induced party to the
contract can, with certain actions taken after becoming fully aware of the material facts of the
fraud, ratify the contract and thereby waive any claims of fraud. PSB, Inc. v. LIT Indus. Texas
Ltd. P’ship, 216 S.W.3d 429, 433 (Tex. App.—Dallas 2006, no pet.); Harris v. Archer, 134
S.W.3d 411, 427 (Tex. App.—Amarillo 2004, pet. denied); Miller v. Kennedy & Minshew, Prof’l
Corp., 142 S.W. 3d 325, 342–43 (Tex. App.—Fort Worth 2003, pet. denied).
In support of his claim that the original loan was fraudulently induced, Mayer alleges that
Fenk promised him complete control over all oil hedging decisions. Dkt. 29, ¶¶ 39–41.
Assuming the pleaded facts to be true, Mayer became aware that he did not have unfettered
hedging authority no later than June 2013. See Dkt. 29, ¶ 41. Nowhere in the pleadings does
Mayer allege that he ever attempted to rescind or otherwise avoid the contract upon learning that
his hedging decisions could be (and were) denied by Bank. To the contrary, Mayer continued to
borrow from Bank after his hedging request was denied, and in October 2014, he executed the
amendment in which he expressly “ratified and confirmed in every respect” the terms,
conditions, and provisions of that arrangement. See Dkt. 31-4 at 3.
In sum, viewing the allegations in a light most favorable to Mayer, Mayer’s own
pleadings show that he was fully aware of the alleged fraud at the time he expressly ratified the
agreement, and he continued to operate under the terms of that agreement and accept the benefits
of the loan arrangement after realizing his hedging decisions were subject to Bank’s veto. Thus,
Mayer’s claim that the original loan agreement was fraudulently procured is barred by
ratification, and he does not state a claim to relief on these grounds.2
B. Mayer fails to describe what Bank representatives said to Christie’s or explain
how those statements were slanderous.
In Count Two, Mayer claims that Bank committed slander per quod by making “material
false representations of fact to Christie’s Auction House regarding [Mayer’s] Americana fine art
collection.” Dkt. 29, ¶ 53. Mayer contends that Bank “made false representations regarding the
2
Because the Court dismisses these claims on other grounds, it is unnecessary for the Court to address the merger
and disclaimer arguments briefed by the parties.
ownership of the collection and/or regarding a potential sale of the collection,” causing harm to
his reputation within the Americana fine art community and damaging the value of his
collection. Id., ¶¶ 53–54. Mayer lifts these allegations directly from his dismissed pleadings.
However, Mayer adds his theory that “[o]nce people in the small Americana fine art community
knew or suspected that Mayer may be having financial issues due to Plaintiff claiming it owned
some of Mayer’s art collection,” members of that community believed they could acquire other
pieces of the collection at reduced prices. Id., ¶ 54. Thus, Mayer concludes, Bank’s slander led to
an unexpectedly low auction price of one of his Americana pieces. Id.
At the hearing, Mayer’s counsel elaborated that Christie’s told Mayer that it knew a piece
of Mayer’s art collection was being auctioned in a “distressed atmosphere” because Bank
expressed interest in selling it. ERO at 10:56:23. However, apart from stating a bald legal
conclusion—that Bank made material false representations of fact to Christie’s—Mayer’s
pleadings do not identify what was said to Christie’s or explain how those statements were
slanderous. Moreover, Mayer does not describe any plausible connection between Bank’s
statements to Christie’s and the underselling of his artwork at auction. Without these details,
Mayer’s slander claim is simply too speculative to survive Bank’s 12(b)(6) challenge.
C. Mayer fails to plead the loss of a specific sale.
In Count Three, Mayer repeats the allegations made in Count Two in support of his
slander of title claim. In its order dismissing Mayer’s original slander of title claim, this Court
emphasized, “The loss of a specific sale is a crucial element—alleging merely ‘impaired market
value or vendability’ is insufficient to establish a slander of title claim.” Dkt. 28 at 8 (citing
Davis v. Countrywide Home Loans, Inc., 1 F. Supp. 3d 638, 646 n.9 (S.D. Tex. 2014)). The
Court dismissed the original slander of title claim because Mayer failed to plead the loss of a
specific sale. Id.
Mayer attempts to remedy this deficiency by alleging that one of his art pieces sold for
less than the expected auction price. That is not enough. Ultimately, the sale at auction was
completed, just not for the price Mayer was hoping for. Mayer does not—and, it appears,
cannot—point to the frustration of a single previously pending sale due to Bank’s alleged
slander. Mayer fails in his second attempt to plead all elements of his slander of title claim.
CONCLUSION
For these reasons, Bank’s motion to dismiss Mayer’s amended counterclaims is granted.
Mayer’s counterclaims are dismissed with prejudice.
Signed at Houston, Texas, on July 7, 2016.
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