UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 97-20812
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POWER ENTERTAINMENT, INC., GERRY GRIGGS, AND ROBERT THURMOND,
Plaintiffs-Appellants,
versus
NATIONAL FOOTBALL LEAGUE PROPERTIES, INC.,
Defendant-Appellee.
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Appeal from the United States District Court for the
Southern District of Texas
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August 13, 1998
Before DUHÉ, BENAVIDES, and STEWART, Circuit Judges.
BENAVIDES, Circuit Judge:
Power Entertainment, Inc., Gerry Griggs, and Robert Thurmond
(collectively “Power Entertainment”) brought this action against
National Football League Properties, Inc. (“NFLP”), alleging that
NFLP agreed to transfer to Power Entertainment a license to sell
NFL collectible cards in return for Power Entertainment’s promise
to assume the debt owed to NFLP by Pro Set, Inc., a licensee of
NFLP, and that NFLP breached that agreement. The district court
granted NFLP’s motion to dismiss with respect to Power
Entertainment’s breach of contract claim on the sole basis that the
alleged contract was unenforceable pursuant to the suretyship
statute of frauds. In this appeal, we review this determination,
and, concluding that the district court erred in dismissing the
breach of contract claim on the ground stated, we reverse.
I.
Pro Set had a licensing agreement with NFLP, which allowed Pro
Set to market NFL cards bearing the statement “official card of the
National Football League.” In August 1992, Pro Set filed for
bankruptcy. At that time, Pro Set owed NFLP approximately $800,000
in unpaid royalties from card sales. In September 1993, plaintiffs
Gerry Griggs and Robert Thurmond, as representatives of Power
Entertainment, met with NFLP to discuss taking over the licensing
agreement between NFLP and Pro Set. Power Entertainment alleges
that NFLP orally agreed to transfer Pro Set’s license to Power
Entertainment in return for Power Entertainment’s agreement to
assume Pro Set’s debt to NFLP. NFLP subsequently refused to
transfer the licensing agreement to Power Entertainment.
Power Entertainment then brought a breach of contract suit
against NFLP in Texas state court, seeking damages for amounts
spent in reliance on the alleged agreement and for lost profits.
NFLP removed the suit to federal district court on the basis of
diversity jurisdiction. The district court then granted NFLP’s
motion to dismiss, holding that Power Entertainment’s contract
2
claim failed as a matter of law because it was not in writing and
that Power Entertainment had failed to plead facts sufficient to
support an estoppel claim.1 The district court subsequently denied
Power Entertainment’s motions for reconsideration and for new
trial. Power Entertainment timely filed notice of appeal from the
district court’s granting of NFLP’s motion to dismiss and denial of
Power Entertainment’s motion for new trial. We reverse.
II.
We review de novo the district court’s decision to grant a
Rule 12(b)(6) motion to dismiss. See Lowrey v. Texas A & M Univ.
Sys., 117 F.3d 242, 246 (5th Cir. 1997). Dismissal for failure to
state a claim is appropriate only if there is no set of facts that
could be proven consistent with the allegations in the complaint
that would entitle the plaintiff to relief. See id. at 247.
1
The district court placed considerable emphasis at the hearing
on NFLP’s motion to dismiss on the potentially preclusive effect of
the Pro Set bankruptcy proceeding. In that proceeding, Power
Entertainment apparently sought and obtained approval of a
reorganization plan under which Power Entertainment would have
“purchased Pro Set out of bankruptcy,” although Pro Set was
ultimately liquidated. The district court, however, did not
ultimately rest its dismissal of Power Entertainment’s complaint on
issue or claim preclusion arising out of the bankruptcy. As the
district court made clear in its opinion on Power Entertainment’s
“motion for new trial,” the dismissal order was based on the
statute of frauds and Power Entertainment’s failure to plead facts
that would support recovery on a promissory estoppel theory.
Indeed, NFLP concedes that the district court’s ruling was not
related to the Pro Set bankruptcy proceeding and does not seek to
uphold the district court’s dismissal on that basis. The district
court is, of course, free to revisit this issue on remand.
3
In granting NLFP’s motion to dismiss, the district court
concluded that the “suretyship” statute of frauds rendered the
alleged oral agreement between NFLP and Power Entertainment
unenforceable because Power Entertainment promised to assume Pro
Set’s debt to NFLP as part of the alleged oral agreement. The
relevant statute of frauds provision under Texas law2 provides that
“a promise by one person to answer for the debt, default, or
miscarriage of another person” must be in writing. Tex. Bus. &
Com. Code Ann. § 26.01(a),(b)(2). As the Supreme Court of Texas
has explained, the suretyship statute of frauds serves an
evidentiary function:
Probably the basic reason for requiring that a promise to
answer for the debt of another be in writing is that the
promisor has received no direct benefit from the
transaction. When the promisor receives something, this
is subject to proof and tends to corroborate the making
of the promise. Perjury is thus more likely in the case
of a guaranty where nothing but the promise is of
evidentiary value. The lack of any benefit received by
the promisor not only increases the hardship of his being
called upon to pay but also increases the importance of
being sure that he is justly charged.
Cooper Petroleum Co. v. LaGloria Oil & Gas Co., 436 S.W.2d 889, 895
(Tex. 1969). These evidentiary concerns do not pertain, however,
if “the promise is made for the promisor’s own benefit and not at
all for the benefit of the third person . . . .” Id. Consistent
2
The parties agree that either Texas or New York law applies
and that the result is the same under the law of both states. The
district court gave no indication of which law it applied. Because
the parties brief Texas law most extensively, we will focus on
Texas law except to the extent that New York law differs.
4
with this common-sense approach, the Texas courts have adopted the
“main purpose doctrine,” which, broadly speaking, removes an oral
agreement to pay the debt of another from the statute of frauds
“wherever the main purpose and object of the promisor is not to
answer for another, but to subserve some purpose of his own . . . .”
Gulf Liquid Fertilizer Co. v. Titus, 354 S.W.2d 378, 386 (Tex.
1962)(quoting Lemmon v. Box, 20 Tex. 329 (1857)); see also Davis v.
Patrick, 141 U.S. 479, 488, 12 S. Ct. 58, 60 (1891); Haas Drilling
Co. v. First National Bank, 456 S.W.2d 886, 890 (Tex. 1970).
In applying the main purpose doctrine under Texas law, this
court has articulated the three factors used by Texas courts to
determine whether the main purpose doctrine applies:
1) [Whether the] promisor intended to become primarily
liable for the debt, in effect making it his original
obligation, rather than to become a surety for another;
2) [Whether there] was consideration for the promise; and
3) [Whether the r]eceipt of the consideration was the
promisor’s main purpose or leading object in making the
promise; that is, the consideration given for the promise was
primarily for the promisor’s use and benefit.
In re Fairchild Aircraft Corp., 6 F.3d 1119, 1127 (5th Cir. 1993)
(citations omitted). Applying these factors to the facts alleged
by Power Entertainment, it is apparent that Power Entertainment may
be able to show that the alleged oral agreement falls outside of
the statute of frauds. Consistent with the allegations in its
complaint, Power Entertainment may be able to adduce facts that
would prove that Power Entertainment intended to create primary
responsibility on its part to pay Pro Set’s $800,000 debt to NFLP,
5
rather than merely acting as a surety for Pro Set’s obligation.
According to Power Entertainment’s complaint, Pro Set had already
declared bankruptcy and defaulted on its royalty obligations to
NFLP, and there is no indication that Pro Set was involved in any
way in the September 1993 negotiations between NFLP and Power
Entertainment.3 Further, the licensing agreement constituted
valuable consideration for Power Entertainment’s agreement to pay
Pro Set’s debt. Finally, Power Entertainment apparently agreed to
pay Pro Set’s debt to NFLP not to aid Pro Set, but to induce NFLP
to transfer Pro Set’s licensing agreement to Power Entertainment
for Power Entertainment’s use and benefit. Under these
circumstances, we conclude that Power Entertainment may be able to
prove a set of facts that would allow a jury to find that the
alleged oral agreement is not barred by the statute of frauds.4
Thus, the district court erred in dismissing Power Entertainment’s
complaint based on the statute of frauds.
3
Comments to the Restatement (Second) of Contracts list “prior
default, inability or repudiation of the principal obligor” and
“lack of participation by the principal obligor in the making of
the surety’s promise” as factors to be taken into consideration in
determining whether the main purpose doctrine applies. Restatement
(Second) of Contracts § 116 cmt. b.
4
Although New York does not recognize the main purpose
doctrine, it does allow suit on an oral agreement to assume the
debt of another if there is proof that the promise “is supported by
a new consideration moving to the promisor and beneficial to him
and that the promisor has become in the intention of the parties a
principal debtor primarily liable.” Martin Roofing, Inc. v.
Goldstein, 469 N.Y.S.2d 595, 596 (N.Y. 1983). The foregoing
discussion demonstrates that dismissal of Power Entertainment’s
claims was inappropriate under this standard as well.
6
Although NFLP correctly points out that the cases relied upon
by Power Entertainment involve attempts by an obligee to enforce a
surety’s promise to pay the debt of a principal obligor rather than
attempts by a person in the position of a surety to hold the
obligee to its end of the bargain, we are not persuaded that the
identity of the party seeking to enforce the contract has any
bearing on whether the statute of frauds bars the contract’s
enforcement. The thrust of the suretyship statute of frauds is to
protect those alleged to have guaranteed the debt of another. See
E. Allan Farnsworth, Contracts § 6.3, at 401-02 (2d ed. 1990).
Thus, if anything, the rationale behind this statute of frauds
provision has less force in a case such as this one, where the
would-be surety, Power Entertainment, is attempting to require the
obligee (NFLP) to pay the consideration allegedly promised for
Power Entertainment’s agreement to assume the debt of the principal
obligor (Pro Set).5
III.
Accordingly, the judgment of the district court is REVERSED
and the case is REMANDED for further proceedings not inconsistent
with this opinion.
5
Because we hold that the dismissal on statute of frauds
grounds was erroneous, we do not address Power Entertainment’s
argument, made in the alternative, that the district court erred in
dismissing its promissory estoppel claim.
7