Case: 06-20867 Document: 00511052141 Page: 1 Date Filed: 03/15/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 15, 2010
No. 06-20867 Charles R. Fulbruge III
Clerk
WILLIAM D. SULLIVAN,
Plaintiff–Appellant,
v.
LEOR ENERGY LLC; LEOR ENERGY LP,
Defendants–Appellees.
Appeal from the United States District Court
for the Southern District of Texas
Before DAVIS, STEWART, and OWEN, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge:
William Sullivan appeals the district court’s dismissal of his state law
claims against Leor Energy, LLC and Leor Energy LP (collectively Leor). For
the following reasons, we affirm.
I
This case arises out of a contract dispute between Sullivan and Leor.
Sullivan’s First Amended Complaint presents the facts as follows. Leor is an
energy company with rights to certain oil and gas properties in Robertson
County, Texas. Sullivan was introduced to Leor as a possible candidate to serve
as its Chief Executive officer. Numerous discussions ensued for the next two
months, and the parties “tentatively agreed” that Sullivan would become the
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Chief Executive Officer and President of Leor, Sullivan would commit 30% of his
time to Leor’s business, and would receive a salary, additional compensation,
and equity in an entity that was to hold the Robertson County properties.
Attorneys for Leor prepared drafts of an employment agreement, none of which
either party signed. Leor attached to its answer to Sullivan’s Complaint a draft
of an employment agreement, which Leor says was the last that the parties
discussed. It is lengthy and detailed. The compensation provisions
contemplated a base salary of $180,000 per year, a potential discretionary bonus,
and a potential equity interest in an entity that was to be formed. Sullivan
alleges that Leor promised to sign an agreement and that Sullivan therefore
began working for the company. Leor represented to potential investors that
Sullivan was its President and CEO, and Sullivan succeeded in securing
financing for Leor that would enable it to commence exploration of the Robertson
County properties. Shortly after that transaction was consummated, Leor
terminated Sullivan’s employment without cause. A written employment
agreement had never been executed.
Sullivan sued Leor in state court, asserting claims under Texas state law
for breach of contract, quantum meruit, unjust enrichment, fraud, equitable and
promissory estoppel, and “detrimental reliance.” Leor removed the suit to
federal district court based on diversity jurisdiction. The district court dismissed
Sullivan’s amended complaint for failure to state a claim. Sullivan now appeals.
He contends that the district court erred in concluding that the statute of frauds
bars enforcement of the compensation provisions in the unsigned contract.
Alternatively, Sullivan argues that he falls within the partial-performance
exception to the statute of frauds. He also argues that if the statute of frauds
would otherwise apply, the district court erred in dismissing his contention that
either promissory estoppel or equitable estoppel bars application of the statute
of frauds. He further asserts that the district court erred in dismissing his
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claims for quantum meruit, unjust enrichment, and fraud, and abused its
discretion in dismissing his claims without granting him leave to amend his
complaint.
II
We review de novo a district court’s dismissal under Rule 12(b)(6),
accepting all well-pleaded facts as true and viewing those facts in the light most
favorable to the plaintiff.1 “To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to state a claim to relief that
is plausible on its face.”2 “While a complaint attacked by a Rule 12(b)(6) motion
to dismiss does not need detailed factual allegations, a plaintiff’s obligation to
provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will
not do.”3 In ruling on a motion to dismiss, the district court generally “must not
go outside the pleadings.” 4 However, the court may consider documents attached
to a motion to dismiss that “are referred to in the plaintiff’s complaint and are
central to the plaintiff’s claim.”5
III
Sullivan first argues that the district court erred in finding that his breach
of contract claim is barred by the Texas statute of frauds.6 He maintains that
1
Gonzalez v. Kay, 577 F.3d 600, 603 (5th Cir. 2009).
2
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
3
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted); see
Iqbal, 129 S. Ct. at 1949.
4
Scanlan v. Texas A&M Univ., 343 F.3d 533, 536 (5th Cir. 2003).
5
Id.
6
T EX . BUS . & COM . CODE ANN . § 26.01.
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his agreement with Leor is enforceable because it is an at-will contract that is
performable within one year.
The statue of frauds bars enforcement of contracts that cannot be
performed within one year unless the contract is in writing and signed by the
party to be charged with the promise.7 Sullivan asserts that the draft
employment contract reflects the essential elements of the parties’ agreement.
That draft states that Leor Energy LLC agrees to employ Sullivan for a fixed
term of approximately two and a half years. The draft contract prohibits
Sullivan from competing with Leor LLC for twelve months after termination of
Sullivan’s employment. It also provides that either party may terminate the
agreement, with or without cause, and specifies remedies in the event of
termination. Leor was entitled to terminate upon giving written notice, and
Sullivan was entitled to terminate upon giving 30 days written notice.
Sullivan contends that because the contract provides for termination
without cause, it creates an employment-at-will relationship of an indefinite
term, which would be performable in one year and thus not barred by the statute
of frauds. However, under Texas law, a contract for a stated term longer than
one year is not taken out of the statute of frauds when there is a mere possibility
of termination within one year due to contingent events set forth in the contract,
including termination by a party.8 In Gilliam v. Kouchoucos, the Supreme Court
of Texas held that the possibility that a party to a contract might die less than
a year after a contract with a term of more than one year was consummated does
not take the agreement out of the statute of frauds.9 As a corollary, the Texas
court recognized in dicta that the same reasoning applies when a contract
7
Id.
8
See Gilliam v. Kouchoucos, 161 Tex. 299, 302, 340 S.W.2d 27, 29 (1960).
9
161 Tex. at 302, 340 S.W.2d at 29.
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expressly grants either party the right to terminate at any time a contract with
a stated term of more than one year:
Contracts for service for m ore than a
year . . . [terminable] at the election of a party upon the
happening of some event, or even at the mere will of a
party, have generally been held to be within the
statute. The contemplated performance would occupy
more than a year. If the contract should be terminated
within the year, the result would not be an alternative
form of performance, but excusable nonperformance.10
In Gilliam, the Texas court cited Williston on Contracts as support for this
conclusion.11 Section 24:9 of Williston expresses the view that
[o]ral agreements which are subject to a right of
cancellation or defeasance, not by operation of law but
by the express terms of the contract, within the period
of a year – such as a contract for several years’ service
containing a provision permitting termination by either
party on a week’s or a month’s notice – are generally
held to be within the Statute.12
The Texas courts of appeals have continued to follow the rule announced in
Gilliam:
[I]f an agreement could be fully “performed” within one
year of its making, section 26.01(b)(6) does not apply.
But if the occurrence of some other contingent event,
even if expressly contemplated in the agreement, would
simply terminate the agreement before the agreement
had been fully performed, then the possibility of that
terminating event occurring within one year of the
10
Id.
11
Id.
12
9 WILLISTON ON CONTRACTS § 24:9 (4th ed. 2009).
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agreement’s making is insufficient to take the
agreement outside of section 26.01(b)(6).13
Although the Restatement (Second) of Contracts appears to take a
contrary position,14 Texas law is consistent with what the court in Gilliam
deemed to be the majority view on this issue.15 The Gilliam court noted that
there was “respectable authority to the contrary,” but that it was “definitely
committed” to its approach.16 Accordingly, as the alleged agreement is for a
stated term of more than a year, and Leor did not sign any document reflecting
the parties’ agreement, enforcement is barred by the statute of frauds. We note
that we express no opinion as to whether the draft agreement was one for “at
will” employment. Whether the employment agreement was “at will” is not
determinative of whether it comes within the Texas statute of frauds.
IV
Sullivan contends that he falls within the partial-performance exception
to the statute of frauds. “Partial performance removes an oral agreement from
13
Young v. Ward, 917 S.W.2d 506, 511 (Tex. App.–Waco 1996, no writ) (internal
citations omitted); see also Collins v. Allied Pharmacy Mgmt., Inc., 871 S.W.2d 929, 934 (Tex.
App.–Houston [14th Dist.] 1994, no writ) (“When a contract is for a term longer than one year,
the mere possibility of termination within a year because of death or another contingent event
does not then insulate it from the statute of frauds.”).
14
See RESTATEMENT (SECOND ) OF CONTRACTS § 130, cmt. b, illus. 6.
15
See 340 S.W.2d at 29; see also 9 WILLISTON ON CONTRACTS § 24:9 (“In accord with the
majority view, it has been said, ‘most cases . . . hold a contract to render service for more than
a year to be within the intention and force of the statute, notwithstanding one or both of the
parties may have the option of ending it by notice in a year, because full performance cannot
be rendered in a year consistently with the understanding of the parties.’”); id. (“A case clearly
illustrative of the majority rule that an oral promise subject to an express defeasance within
the period of a year is nevertheless unenforceable, involved an oral agreement under which
defendant agreed to purchase the entire output of buttermilk for a period in excess of one year,
but either party had the option of cancelling the agreement under certain circumstances. The
court held that the optional cancellation provision was a defeasance clause and the agreement
was within the Statue.”).
16
161 Tex. at 303, 340 S.W.2d at 29.
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the statute of frauds only if the performance is unequivocally referable to the
agreement and corroborative of the fact that the contract was made.” 17 Sullivan
points to the fact that he performed valuable services for Leor and was paid a
salary for that period of time. However, payment of a salary for services
rendered “is insufficient to take the alleged agreement out of the statute of
frauds because the services were fully explained by the salary without supposing
any additional consideration.”18
Furthermore, this partial-performance exception to the statute of frauds
applies only “if denial of performance would amount to a virtual fraud,” which
requires “strong evidence establishing the existence of an agreement and its
terms, [that] the party acting in reliance on the contract has suffered a
substantial detriment for which he has no adequate remedy, and the other party,
if permitted to plead the statute, would reap an unearned benefit.” 19 Sullivan
has not demonstrated that he has “suffered a substantial detriment for which he
has no adequate remedy.” Nor has he alleged facts showing that Leor will “reap
an unearned benefit” if the statue of frauds is applied. More importantly, even
if Sullivan could prove that the partial-performance exception applies, he would
be entitled only to reliance damages, and not the contract damages he seeks.20
V
Sullivan argues that promissory estoppel, equitable estoppel, and
“detrimental reliance” bar Leor from invoking the statute of frauds. “If the
elements of promissory or equitable estoppel are met, then a promisee may
17
Biko v. Siemens Corp., 246 S.W.3d 148, 161 (Tex. App.–Dallas 2007, pet. denied)
(citing Chevalier v. Lane’s Inc., 147 Tex. 106, 213 S.W.2d 530 (1948)).
18
Wiley v. Bertelsen, 770 S.W.2d 878, 882 (Tex. App.–Texarkana 1989, no writ).
19
Exxon Corp. v. Breezevale Ltd., 82 S.W.3d 429, 439 (Tex. App.–Dallas 2002, pet.
denied).
20
See id. at 441.
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enforce an otherwise unenforceable contract.” 21 Under Texas law, promissory
estoppel requires that “the agreement that is the subject of the promise must
comply with the statute of frauds. That is, the agreement must be in writing at
the time of the oral promise to sign it.” 22
The district court concluded that Sullivan had failed to allege all the
elements necessary to bring his claim within the doctrine of promissory estoppel
We assume without deciding that Sullivan’s amended complaint arguably
alleged that Leor agreed to sign a specific written agreement. His promissory
estoppel claim nevertheless fails because he affirmatively asserted in his
response to Leor’s motion to dismiss that no written document was finalized,
rendering him unable to satisfy the elements of promissory estoppel. Sullivan
cannot now change his position. This admission bars Sullivan from taking a
contrary position on appeal.23
With regard to equitable estoppel, some Texas courts have “refus[ed] to
recognize [equitable estoppel] as a distinct cause of action separate from
promissory estoppel or fraud.” 24 It is also far from clear that Texas courts
recognize “detrimental reliance” as a distinct cause of action. We do not resolve
either of these issues here because Sullivan has failed to allege reliance
damages. Recovery under an estoppel or reliance theory is “limited to reliance
21
Transcon. Realty Investors, Inc. v. John T. Lupton Trust, 286 S.W.3d 635, 648 (Tex.
App.–Dallas 2009, no pet.).
22
Breezevale Ltd., 82 S.W.3d at 438.
23
See Loose v. Offshore Navigation, Inc., 670 F.2d 493, 498 (5th Cir. 1982) (noting that
an admission in a pretrial order “is usually a waiver of the assertion of a contrary position”).
24
Kelly v. Rio Grande Computerland Group, 128 S.W.3d 759, 769 (Tex. App.–El Paso
2004, no pet.); see, e.g., Watson v. Nortex Wholesale Nursery, Inc., 830 S.W.2d 747, 751 (Tex.
App.–Tyler 1992, writ denied); Crowder v. Tri-C Res., Inc., 821 S.W.2d 393, 397 (Tex.
App.–Houston [1st Dist.] 1991, no writ).
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damages,” 25 which “put the promisee in the position he would have been in had
he not acted in reliance upon the promise.” 26 Sullivan has not alleged reliance
damages, and instead is seeking damages based on the compensation provisions
in a draft contract. Sullivan also does not dispute that he was paid a salary for
his services. Sullivan has not stated a claim based on an estoppel theory.
VI
Sullivan further asserts that the district court erred in dismissing his
quasi-contract claims for quantum meruit and unjust enrichment. He
acknowledges that he received a salary from Leor but contends that this does not
preclude him from recovering under a quantum meruit theory since he was not
“fully compensated” by Leor.
Quantum meruit is an equitable claim whereby one who provides services
to another may recover “based on an implied agreement to pay for benefits
received.”27 Quantum meruit “does not arise out of a contract, but is
independent of it.” 28 Recovery should be allowed under this theory when “non
payment for the services rendered would result in an unjust enrichment to the
party benefited by the work.”29 The measure of damages in quantum meruit is
the “reasonable value of the work performed.”30
Sullivan has failed to state a claim in this regard. As discussed, he
concedes that Leor paid him a salary, and he has alleged no facts suggesting that
25
Transcon. Realty Investors, 286 S.W.3d at 648 (citing Fretz Constr. Co. v. So. Nat’l
Bank of Houston, 626 S.W.2d 478, 483 (Tex. 1981)); see also Wheeler v. White, 398 S.W.2d 93,
97 (Tex. 1965).
26
Wheeler, 398 S.W.2d at 97.
27
Heldenfels Bros., Inc. v. City of Corpus Christi, 832 S.W.3d 39, 41 (Tex. 1992).
28
Vortt Exploration Co., Inc. v. Chevron USA, Inc., 787 S.W.2d 942, 944 (Tex. 1990).
29
Id.
30
Johnston v. Kruse, 261 S.W.3d 895, 902 (Tex. App.–Dallas 2008, no pet.).
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the salary was unreasonable. As the district court noted, Sullivan is essentially
arguing that he was not “fully compensated” since he did not receive the salary
and the additional compensation set forth in the unsigned employment contract.
But quantum meruit cannot be used to enforce the terms of an unsigned draft
of a contract, and Sullivan has alleged no facts showing that the salary was not
the “reasonable value” for the services he rendered. Accordingly, the district
court correctly dismissed Sullivan’s claim for quantum meruit.
Sullivan’s unjust enrichment claim is similarly meritless. A plaintiff may
recover under an unjust enrichment theory “when one person has obtained a
benefit from another by fraud, duress, or the taking of an undue advantage.”31
Unjust enrichment “characterizes the result of a failure to make restitution of
benefits either wrongfully or passively received under circumstances that give
rise to an implied or quasi-contractual obligation to pay.” 32 As discussed,
Sullivan has alleged no facts suggesting that Leor was unjustly enriched when
it paid Sullivan only a salary for his services. Accordingly, the district court did
not err in dismissing this claim.
VII
Sullivan next challenges the district court’s dismissal of his fraud claims
for failure to comply with Federal Rule of Civil Procedure 9(b). State law fraud
claims are subject to the heightened pleading requirements of Rule 9(b).33 To
plead fraud adequately, the plaintiff must “specify the statements contended to
31
Heldenfels, 832 S.W.3d at 41.
32
Argyle Indep. Sch. Dist. v. Wolf, 234 S.W.3d 229, 246 (Tex. App.–Fort Worth 2007,
no pet.) (internal quotation marks and citation omitted).
33
Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338-39 (5th Cir. 2008).
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be fraudulent, identify the speaker, state when and where the statements were
made, and explain why the statements were fraudulent.” 34
Sullivan alleges that “Leor falsely and recklessly or knowingly represented
to Sullivan that it would employ him and compensate him as its CEO according
to the parties’ negotiated terms of employment” and that “Leor . . . represented
to Sullivan that the parties had an agreement regarding Sullivan’s employment.”
But he does not allege who at the company made the statements or when or
where they occurred. Sullivan has failed to allege fraud with particularity under
Rule 9(b).
VIII
Lastly, Sullivan challenges the district court’s decision to dismiss his
complaint with prejudice. We review the district court’s decision to grant a
motion to dismiss with or without prejudice for abuse of discretion.35
Sullivan argues that the district court should have allowed him leave to
amend his pleadings since, under Federal Rule of Civil Procedure 15(a), leave to
amend should be “freely” given when justice requires. However, Rule 16(b)
governs the amendment of pleadings after the deadline for amendments in the
court’s scheduling order expires,36 as it had in this case. Rule 16(b) provides
that a scheduling order “may be modified only for good cause and with the
judge’s consent.” 37
Leor moved to dismiss Sullivan’s original complaint, and Sullivan, on
notice of possible pleading deficiencies, thereafter filed a first amended
34
ABC Arbitrage v. Tchuruk, 291 F.3d 336, 350 (5th Cir. 2002) (internal quotation
marks and citation omitted).
35
Club Retro, LLC v. Hilton, 568 F.3d 181, 215 n.34 (5th Cir. 2009).
36
Fahim v. Marriott Hotel Servs., Inc., 551 F.3d 344, 348 (5th Cir. 2008).
37
F ED . R. CIV . P. 16(b).
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complaint. When Leor filed its motion to dismiss the amended complaint,
Sullivan asserted in his opposition that if necessary, he would replead with even
more particularity. Yet in the nine months between the filing of the motion to
dismiss and the court’s ruling, Sullivan made no effort to further amend his
complaint, even though he was on notice of the alleged deficiencies in the
amended complaint. In addition, Sullivan has not asserted what additional facts
he could plead to correct the deficiencies. Thus, the district court was within its
discretion in dismissing the case with prejudice without granting leave to
amend.38
* * *
Therefore, for the reasons discussed above, we AFFIRM the district court’s
judgment.
38
See Adrian v. Regents of Univ. of Calif., 363 F.3d 398, 404 (5th Cir. 2004) (concluding
that the district court did not abuse its discretion in denying leave to amend when it had given
plaintiff one opportunity to amend and plaintiff had failed to show what additional facts he
could plead to satisfy the fraud pleading requirements); Goldstein v. MCI WorldCom, 340 F.3d
238, 255 (5th Cir. 2003) (finding no abuse of discretion when plaintiff did not offer a second
amended complaint to the district court and did not suggest what additional facts would cure
the pleading deficiency).
12