Hamilton v. Segue Software Inc.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

____________________

No. 00-10541

Summary Calendar
____________________

RANDALL K HAMILTON,

Plaintiff - Appellant

v.

SEGUE SOFTWARE INC; STEVE BUTLER,

Defendants - Appellees

_________________________________________________________________

Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________

November 20, 2000

Before KING, Chief Judge, and SMITH and PARKER, Circuit Judges.

PER CURIAM:

Plaintiff-Appellant Randall Hamilton appeals the district

court’s grant of summary judgment in favor of Defendants-

Appellees, Segue Software, Inc. and Steve Butler, President and

Chief Executive Officer of Segue Software, Inc. For the

following reasons, we AFFIRM.
 I. FACTS AND PROCEDURAL BACKGROUND

In 1999, while employed as a Product Marketing Manager at

AutoTester, Inc., Randall Hamilton was recruited to work at Segue

Software, Inc. (“Segue”). Steve Butler, President and CEO of

Segue, offered Hamilton the position of Director of Enterprise

Resource Planning (ERP) Initiatives at the company. The offer

was formalized in an offer letter dated February 24, 1999 and

signed by Butler.

The offer letter included three paragraphs relevant to our

disposition of this case. First, the letter contained language

stating, “Your base salary will be at an annual rate of

$125,000.00 paid semi-monthly. Upon mutually agreed upon

objectives, you will be eligible for an annual 20K MBO [bonus].”

Second, the letter stated, “A copy of Segue’s standard Employment

Agreement is enclosed. Please sign this agreement and return it

with this letter.” Finally, the letter stated, “To accept this

offer, please sign the enclosed copy of this letter and the

Employment Agreement and return both to Human Resources . . . .”

Hamilton signed and returned the letter, accepting the

position. However, there was no Employment Agreement attached.

Hamilton did not receive or sign an “Employee Agreement”1 until

1
We accept the district court’s finding that the
discrepancy between the “Employment Agreement” mentioned in the
letter and the “Employee Agreement” signed by Hamilton is
irrelevant. For consistency, we will refer to both agreements as
an “Employment Agreement.”

2
July 13, 1999. This document was a standard form employment

contract setting forth the terms and conditions for employment at

Segue, including, inter alia, rules governing conflicts of

interest, confidentiality, and intellectual property rights.

Paragraph seven of the signed Employment Agreement also included

the language, “I understand that, unless expressly provided

otherwise in any other written agreement signed by me an [sic]

the Company by the Executive Vice President or CEO, my employment

with the Company is ‘at will’ and that my employment may be

terminated by the Company at will at any time with or without

cause or notice.”

Hamilton began working at Segue on March 15, 1999 as

Director of ERP Initiatives. In this capacity, he traveled on

behalf of Segue to meet with clients and was paid according to

the figure in the offer letter. On July 1, 1999, Hamilton was

transferred to a new position as a member of Segue’s Business

Development team. On August 20, 1999, Segue terminated

Hamilton’s employment altogether.

Hamilton brought suit for breach of contract and fraud in

the inducement in Texas state court. The suit was removed to the

United States District Court for the Northern District of Texas

pursuant to 28 U.S.C. §§ 1332 and 1441. To support his breach of

contract claim, Hamilton asserts that the language in the offer

letter established a one-year contract under Texas law and that

3
Segue and Butler breached this employment agreement by firing

him.

To support his fraud in the inducement claim, Hamilton

asserts that Butler and Segue fraudulently induced him to join

the company by promising him the Director of ERP Initiatives

position, without any intent to keep him in that position.

Hamilton also alleges that prior to and during his employment,

Segue perpetrated an accounting fraud that resulted in a

restatement of Segue’s 1998 financial statement. This fraud

precipitated the filing of a shareholder class action lawsuit and

is claimed to have weakened the financial condition of the

company. Hamilton argues that this fraud was concealed from him

and would have altered his decision to join the company.

In federal district court, Segue and Butler moved to dismiss

Hamilton’s suit. The district court converted the Motion to

Dismiss into a Motion for Summary Judgment pursuant to Federal

Rule of Civil Procedure 12(b) and directed the parties to submit

summary judgment evidence. On May 11, 2000, the district court

granted Defendants’ Motion for Summary Judgment. Hamilton timely

appeals.

II. STANDARD OF REVIEW

We review a grant of summary judgment de novo, applying the

same criteria used by the district court in the first instance.

4
See Norman v. Apache Corp., 19 F.3d 1017, 1021 (5th Cir. 1994);

Conkling v. Turner, 18 F.3d 1285, 1295 (5th Cir. 1994). Summary

judgment is proper “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to judgment

as a matter of law.” FED. R. CIV. P. 56(c); see also Celotex

Corp. v. Catrett, 477 U.S. 317, 327 (1986). After the movant has

presented a properly supported motion for summary judgment, the

burden shifts to the nonmoving party to show with “significant

probative evidence” that there exists a genuine issue of material

fact. See Conkling, 18 F.3d at 1295. A fact is “material” if

its resolution in favor of one party might affect the outcome of

the lawsuit under governing law. See Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248 (1986). An issue is “genuine” if the

evidence is sufficient for a reasonable jury to return a verdict

for the nonmoving party. Id.

III. BREACH OF CONTRACT CLAIM

The gravamen of Hamilton’s breach of contract complaint is

that the February 24, 1999 offer letter and his acceptance

created a binding contract of one-year employment. The letter

stated in relevant part, “Your base salary will be at an annual

rate of $125,000.00 paid semi-monthly. Upon mutually agreed upon

5
objectives, you will be eligible for an annual 20K MBO.” This

case turns on whether, under Texas law, the “annual rate of

$125,000.00" language in the offer letter creates a definite

contract of employment for a one-year period. As our

jurisdiction in this case is based on diversity of citizenship,

we therefore function as an Erie court and must, to the best of

our ability, apply Texas law as we think a Texas court would.

See Erie R. Co. v. Tompkins, 304 U.S. 64 (1938).

The district court interpreted the contractual relationship

by reading the offer letter and the Employment Agreement

together. It found that the offer was conditioned on Hamilton’s

signing of the Employment Agreement, which expressly termed

Hamilton’s employment “at will”. The court reasoned that because

the offer letter stated that an Employment Agreement was

attached, the at-will terms in that agreement were “expressly

incorporated” in the offer. Our difficulty with the district

court’s reasoning, however, is that the Employment Agreement was

not signed until five months after the offer letter.2 While the

district court dismissed this time difference as insignificant,

we are not so persuaded.3 Nevertheless, we affirm the district

2
We take as true Hamilton’s assertion that he did not
receive or sign the Employment Agreement until July 1999.
3
Our concern is that under Texas law, an employee’s
success in a wrongful termination/breach of contract suit can
depend on whether he or she was hired as a term employee or an
at-will employee. This determination of initial status is the
dispositive question because we cannot evaluate the effect of a

6
court on the ground that the offer letter language, alone, fails

to limit in a “meaningful and special way” the employer’s right

to terminate at will.

“The long-standing rule in Texas provides for employment at

will, terminable at any time by either party, with or without

cause, absent an express agreement to the contrary.” Ronnie Loper

Cheverolet-Geo, Inc. v. Hagey, 999 S.W.2d 81, 83 (Tex.

App.—Houston [14th Dist.] 1999, no pet.) (citing Montgomery

County Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998)).

“To rebut the presumption of employment at will, an employment

contract must directly limit in a ‘meaningful and special way’

the employer’s right to terminate the employee without cause.”

Rios v. Texas Commerce Bancshares, Inc., 930 S.W.2d 809, 815

(Tex. App.—Corpus Christi 1996, writ denied) (quoting Massey v.

subsequently signed employment agreement without knowing the
initial status of the employee. For example, if the employee
demonstrates that a written offer letter created a binding
contract for a specific term of employment, then he is not an at-
will employee and can only be fired for cause. See Lee-Wright,
Inc. v. Hall, 840 S.W.2d 572, 578 (Tex. App.—Houston [1st Dist.]
1992, no writ). A subsequent signing of an Employment Agreement
which includes an at-will clause will not necessarily change this
term employment into an at-will agreement. See Dallas Hotel Co.
v. Lackey, 203 S.W.2d 557, 561 (Tex. Civ. App.—Dallas, 1947, writ
ref’d). Specifically, conflicting provisions in a form
employment agreement, like the one at issue here, may have to
yield to the expression of intent in the initial agreement. See
id. As we decide this issue on the antecedent question of
whether the offer letter itself created a binding contract, we
need not resolve the effect of Hamilton’s signing of the
Employment Agreement.

7
Houston Baptist Univ., 902 S.W.2d 81, 83 (Tex. App.—Houston [1st

Dist.] 1995, writ denied)).

Hamilton argues that the language in the offer letter limits

his employer’s right to terminate him at will. He argues this

“annual rate” language fits within the long-established “English

Rule”4 adopted by Texas courts. The English Rule provides that

“a hiring at a stated sum per week, month or year, is a definite

employment for the period named.” Dallas Hotel Co. v. Lackey,

203 S.W.2d 557, 561 (Tex. Civ. App.—Dallas 1947, writ ref’d); see

also Winogard v. Willis, 789 S.W.2d 307, 310 (Tex. App.—Houston

[14th Dist.] 1990, writ denied) (“A hiring based upon an

agreement of an annual salary limits in a ‘meaningful and special

way’ the employer’s prerogative to discharge the employee during

the dictated period of employment.”). Offering the “annual rate”

language as evidence of “a hiring based on an agreement of an

annual salary,” Hamilton argues he has met his burden for summary

judgment.

The difficulty in resolving this question is that a conflict

exists in Texas law over whether a written job offer proposing an

annual salary constitutes a binding one-year employment contract.

Specifically, a conflict exists over the status of the English

4
For the history of this doctrine and its development in
the United States, see Bernard v. IMI Systems Inc., 618 A.2d 338,
341-44 (N.J. 1993).

8
Rule as it relates to the presumption of at-will employment, that

can only be overcome with specific terms.5

Two cases frame our analysis in deciding this matter.

First, Dallas Hotel Co. v. Lackey, provides an analogous factual

situation whereby an employee accepted a written offer letter

stating an annual salary and then upon commencing work was

required to sign an employment agreement, including an “at-will

clause.” 203 S.W.2d 557, 561 (Tex. Civ. App.—Dallas, 1947, writ

ref’d). The Lackey court, following the English Rule, found that

the initial letter controlled, and that the subsequent employment

agreement could not alter the already agreed to term employment.

See id.

In contrast, the Texas Supreme Court in a recent employment

decision reaffirmed the presumption of at-will employment in

Texas, requiring employees to demonstrate an “unequivocal” intent

of non-at-will status in their contracts. See Montgomery County

Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998). The

Montgomery court held that, “the employer must unequivocally

indicate a definite intent to be bound not to terminate the

employee except under clearly specified circumstances.” 965

S.W.2d at 502. The Montgomery holding reflects the general

5
See Stone v. Jo-Ann Stores, Inc., 109 F. Supp. 2d 752,
755 (N.D. Ohio 2000) (acknowledging in a diversity case
interpreting Texas employment law, “The English Rule is in
conflict with the more broadly stated Montgomery holding that,
for a binding employment contract to exist, an employer must
express an ‘unequivocal intent to be bound not to terminate.”).

9
understanding that at-will employment can only be altered by

express provisions. See Byars v. City of Austin, 910 S.W.2d 520,

523 (Tex. App.—Austin 1995, writ denied) (“Any modification of

at-will employment status must be based on express rather than

implied agreements.”).

Because there is no Texas Supreme Court ruling precisely on

point, we must make an Erie guess regarding Texas law on this

subject. As we stated in United States v. Johnson, 160 F.3d

1061, 1063 (5th Cir. 1998), “[i]n the absence of Texas Supreme

Court pronouncements, we generally defer to the holdings of

lesser state courts unless we are convinced by other evidence

that the state law is otherwise.” In this instance, we are

guided by what appears to be the direction of Texas courts in

addressing this conflict.

While we are cognizant of the factual similarity of the

Lackey case to Hamilton’s claim, we are bound to follow the more

recent holding interpreting the Montgomery decision. In this

task, we are guided by a recent Texas court of appeals decision,

Saucedo v. Rheem Mfg. Co., which squarely addressed this conflict

and resolved it in favor of the at-will presumption. 974 S.W.2d

117, 127 (Tex. App.—San Antonio 1998, pet. denied).6 As was

6
In addition to Saucedo, we also take note of several
unpublished Texas cases, which are not controlling authority but
do serve to support our reading of Montgomery. See Kooken v. The
Leather Center, Inc., 2000 WL 381926 (Tex. App.—Dallas 2000);
College v. Marshall, 2000 WL 31863 (Tex. App.—Dallas 2000);
Wegner v. Dell Computer Corp., 1999 WL 654086 (Tex. App.—Austin

10
recognized in the Saucedo dissent, “[T]here is an apparent

inconsistency between the English Rule’s implied agreement to

limit an employer’s right to terminate and the supreme court’s

insistence that such an agreement be specific.” Id. at 127

(Green, J., dissenting). The relevant issue in Saucedo was

whether a written memorandum, confirming an oral offer which

stated that the employee was to be paid a base salary of “$36,000

annually” constituted employment for a term of one year.

The majority of the Saucedo panel initially followed the

English Rule, finding “that a hiring based upon an agreement of

an annual salary limits in a meaningful and special way the

employer’s prerogative to discharge the employee during the

dictated period of employment.” 974 S.W.2d at 125. In dissent,

Judge Green recognized the conflict of the English Rule with the

more modern at-will presumption sanctioned by the Texas courts

and concluded that the latter principle should control.7

On a petition for rehearing, the Saucedo court reversed

itself. Finding that the Texas Supreme Court’s recent decision

1999).
7
See Saucedo, 974 S.W.2d at 127 (Green, J., dissenting)
(“Nothing in the memorandum of employment indicates that the
language “Base salary of $36,000 annually” was intended by [the
employer] to evince an agreement that Saucedo was to have a one-
year term of employment. At best, the language is equivocal and
fails to satisfy Saucedo’s burden to overcome the at-will
presumption.”).

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in Montgomery controlled its analysis,8 the court concluded that

the written confirmation, including the “$36,000 annually,” was

too indefinite to create a one-year contract. See Saucedo, 974

S.W.2d at 128. The Saucedo rehearing decision lends support to

the dissent’s questioning of the continued viability of the

English Rule. While we make no determination on the validity of

the English Rule in Texas courts, our interpretation of Texas law

is also shaped by the Montgomery decision.

In the instant case, Hamilton’s offer letter provided

nothing unequivocal nor definite about the length of employment

at Segue. The “$36,000 annually” language in Saucedo and the

language promising Hamilton a “base salary [] at an annual rate

of $125,000.00" are similarly indefinite. In practical terms,

this statement of an annualized base salary does not provide a

guarantee of employment, but merely provides a benchmark to

evaluate one’s pay. See Stone v. Jo-Ann Stores, Inc., 109 F.

Supp. 2d 752, 755 (N.D. Ohio 2000) (interpreting Texas law).

Like the Saucedo court, we are unpersuaded that such language

unequivocally conveys the intent of an employer to be bound to a

one-year contract.

“The mere fact that an employment contract is in writing,...

is insufficient to rebut the presumption of employment at-will;

an employment contract must directly limit in a meaningful and

8
The Montgomery opinion was decided the same week as the
initial Saucedo decision.

12
special way the employer’s right to terminate the employee

without cause.” Massey, 902 S.W.2d at 83. As the written offer

letter provided nothing that limited Segue’s right to terminate,

the general presumption of at-will employment must prevail.

Following the Saucedo court’s reasoning, and making our Erie

guess, we therefore affirm the district court’s denial of summary

judgment on the breach of contract claim.

IV. FRAUD IN THE INDUCEMENT

Hamilton asserts two separate fraud in the inducement claims

against Segue and Butler. First, he argues that the Segue

company never intended for him to remain as Director of ERP

Initiatives and thus misled him as to his employment position.

Second, Hamilton argues that the failure of Segue or Butler to

inform him of the alleged accounting fraud misrepresented the

fiscal health of the company and prevented him from making an

informed decision to leave his previous employer. The district

court denied Hamilton’s fraud claims, finding that there were no

misrepresentations made upon which Hamilton relied to his

detriment. We agree. We also hold that Segue and Butler did not

fraudulently conceal the alleged accounting fraud because, under

Texas law, the company was under no duty to reveal the alleged

fraud to its prospective employees.

13
 Under Texas law, a plaintiff establishes a fraudulent

inducement claim by showing the elements of a simple fraud claim.

See Balogh v. Ramos, 978 S.W.2d 696, 701 (Tex. App.—Corpus

Christi 1998, pet. denied) (“The supreme court has defined

fraudulent inducement as a simple fraud claim.”). “The elements

of fraud and fraudulent inducement applicable here, are (1) a

material representation, (2) which was false, and (3) which was

either known to be false when made or was asserted without

knowledge of the truth, (4) which was intended to be acted upon,

(5) which was relied upon, and (6) which caused injury.” Id.

We agree with the district court that Hamilton has offered

no summary judgment evidence to demonstrate that the offering of

the Director of ERP Initiatives position was a misrepresentation.

From the record, Segue through Butler represented to Hamilton

that he would be the Director of ERP Initiatives, and Hamilton

was, in fact, given that position. Initially, and for several

months, Hamilton held the Director of ERP Initiatives title. He

was paid according to this position and traveled on behalf of

Segue in that capacity. While Hamilton was later transferred

from his position, this modification of title or position does

not rise to the level of fraud. Therefore, we agree with the

district court that Hamilton has failed to raise an issue of

material fact sufficient to survive summary judgment.

We also agree with the district court that Hamilton has

failed to demonstrate a factual issue arising from the alleged

14
accounting fraud. The record is devoid of any representation or

misrepresentation by Segue or Butler about the issue. Because

Hamilton cannot demonstrate that he relied on a material

misrepresentation, the district court did not err in granting

summary judgment on this issue.

Hamilton is correct, however, that fraudulent

misrepresentation is also cognizable under a fraudulent

concealment analysis.9 See Schlumberger Tech. Corp. v. Swanson,

959 S.W.2d 171, 181 (Tex. 1997) (“Fraud by non-disclosure is

simply a subcategory of fraud.”). Hamilton argues that the

failure of Segue and Butler to inform him of the accounting

problems demonstrates fraudulent concealment of a material fact

and thus creates the misrepresentation necessary for his

fraudulent inducement claim to go forward. We disagree.

“For there to be an actionable nondisclosure fraud, there

must be a duty to disclose.” Bradford v. Vento, 997 S.W.2d 713,

725 (Tex. App.—Corpus Christi 1999, pet. granted); see also

Amouri v. Southwest Toyota, Inc., 20 S.W.3d 165, 170 (Tex.

App.—Texarkana 2000, pet. denied) (“Silence is equivalent to a

9
While the district court did not analyze “fraudulent
concealment,” the district court’s discussion of whether there
was a breach of the duty of “good faith and fair dealing”
encompasses the underlying issue of whether Segue or Butler had a
duty to disclose the fraud. Under both analyses, there must be a
special relationship that creates a duty to disclose. This
special relationship does not exist in the employer-employee
context. See City of Midland v. O’Bryant, 18 S.W.3d 209, 215
(Tex. 2000).

15
false representation where circumstances impose a duty to speak

and one deliberately remains silent.”). Therefore, Hamilton must

demonstrate that Segue or Butler breached a duty owed to him in

order to prevail.

Whether such a duty to disclose exists in this case is

“entirely a question of law.” See Bradford, 997 S.W.2d at 725

(quoting Hoggett v. Brown, 971 S.W.2d 472, 487-88 (Tex.

App.—Houston [14th Dist.] 1997, no writ)). Texas courts have

found that “a duty to disclose may arise in four situations: (1)

when there is a fiduciary relationship; (2) when one voluntarily

discloses information, the whole truth must be disclosed; (3)

when one makes a representation, new information must be

disclosed when that new information makes the earlier

representation misleading or untrue; (4) when one makes a partial

disclosure and conveys a false impression.” Id.

None of the above situations is present in the instant case.

Segue/Butler and Hamilton were not in a fiduciary relationship,

and as stated, nothing at all was disclosed to Hamilton. We note

that the district court’s analysis of the duty owed by an

employer to an employee supports our finding. The district court

correctly held that in Texas there is no special relationship in

the employment context that would create an obligation for

employers to inform potential employees about an issue like the

accounting fraud. The Texas Supreme Court has recently found

that “there is no cause of action in Texas based on a duty of

16
good faith and fair dealing in the context of an

employer/employee relationship.” See City of Midland v.

O’Bryant, 18 S.W.3d 209, 211 (Tex. 2000). Thus, the special

relationship necessary to infer a duty to disclose is lacking

between Segue and Hamilton. We therefore affirm the district

court’s grant of summary judgment.

V. CONCLUSION

For the above stated reasons, we AFFIRM.

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