Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Employment Law No. 02-10596, 6/6/2003. Click here for the full text of this decision FACTS: John and Dan Armstrong sued American Home Shield Corp. (AHS) for breach of contract in Texas state court. The lawsuit was removed to federal court, and the Armstrongs subsequently amended their complaint to include claims for fraud and negligent misrepresentation. The district court summarily dismissed each of the Armstrongs’ claims. HOLDING: Affirmed. The appellants urge that AHS intentionally misrepresented itself during contract negotiations. They contend that AHS fraudulently stated that it was expanding its Systems Checks program, and that the average contract cost in Texas was based on “historical and current cost data.” Under Texas law, fraud requires “a material representation, which was false, and which was either known to be false when made or was asserted without knowledge of its truth, which was intended to be acted upon, which was relied upon, and which caused injury.” AHS maintains that the employment agreements’ merger clauses preclude the Armstrongs from establishing the “reliance” element of fraud claims. Texas courts hold that “a merger clause can be avoided based on fraud in the inducement and that the parol evidence rule does not bar proof of such fraud.” This general principle, however, does not wholly preclude parties from bargaining for, and executing, a release barring future fraud claims. For instance, a fraud claim can be negated where a merger clause evinces a party’s clear and unequivocal expression of intent to disclaim reliance on specific representations. Moreover, courts utilize parol evidence to evaluate whether a disclaimer of reliance is enforceable. The Armstrongs’ employment agreements provide: “This Agreement shall constitute the entire contract between the parties and supercedes all existing agreements between them, whether oral or written, with respect to the subject matter hereof.” This clause, while indicative of the parties’ intent to bar later disputes related to underlying agreements, notably fails to mention or refer to prior representations. The court nonetheless concludes, upon review of the entire employment agreement, that the Armstrongs’ merger clauses were unequivocal disclaimers of reliance. The language and the intent of the employment agreements makes clear that the Armstrongs did not rely upon AHS’s representation that it was expanding its Systems Checks program. For example, savings program five states that “AHS shall have the sole right to determine whether to implement a systems check program and to what extent.” Moreover, the agreements demonstrate that the Armstrongs did not rely upon statements that the average contract cost in Texas was based on “historical and current cost data.” Paragraph 11 of the Incentive Plan dictates that “AHS makes no representations, warranties, and/or guarantees of the accuracy of the numbers and/or assumptions, the savings to be realized and/or bonus to be paid under Cost Savings Programs 1-6,” and that all numerical information and assumptions were “estimated” and “provided for information purposes only.” Reviewing the employment agreement in whole, the court finds the merger clauses were clear and unequivocal disclaimers of reliance. Thus, summary judgment of the Armstrongs’ fraud claims was warranted. OPINION: Feldman, J.; Garwood, Higginbotham and Feldman, JJ.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 1 article* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.