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.”).
11
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.
17