343 F.3d 719 (5th Cir. 2003), 02-20655, Benchmark Electronics, Inc. v. J.M. Huber Corp.
|Citation:||343 F.3d 719|
|Party Name:||Benchmark Electronics, Inc. v. J.M. Huber Corp.|
|Case Date:||August 20, 2003|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
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Joe W. Redden, Jr. (argued), Robert David Daniel, Beck, Redden & Secrest, Houston, TX, for Plaintiff-Appellant.
D. Gibson Walton (argued), James D. Thompson, III, Penelope E. Nicholson, Daniel E. Hinde, Richard Dearing, Ara Ayles Hardig, Vinson & Elkins, Houston, TX, for Defendant-Appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before REAVLEY, JOLLY and JONES, Circuit Judges.
EDITH H. JONES, Circuit Judge:
Benchmark Electronics, Inc. (Benchmark) sued J.M. Huber Corporation (Huber) after a Huber subsidiary that Benchmark purchased lost significant customers and experienced a catastrophic income decline. Benchmark alleged the breach of various contract provisions, fraud, and negligent misrepresentation. Responding to dispositive motions by the parties, the district court treated Huber's motion for judgment on the pleadings as a motion for summary judgment, applied New York law to all of Benchmark's claims, and granted summary judgment and dismissal on the pleadings for Huber. We conclude that while New York law governs Benchmark's breach of contract claims pursuant to the parties' contractual choice, Texas law governs its fraud and negligent misrepresentation claims. Further, Benchmark's fraud and misrepresentation pleadings withstand a lack of particularity challenge under Rule 9(b). Accordingly, we vacate the judgment and remand the case for further proceedings. [*]
In August 1999, Benchmark, a Texas corporation with its principal place of business in Angleton, Texas, purchased the stock of AVEX, a contract manufacturer for the electronics industry headquartered in Alabama. Huber, the seller, is a New Jersey corporation with its principal place of business in Edison, New Jersey. Huber put AVEX on the market after it suffered heavy operating losses in 1997 and 1998. In April 1999, a Huber representative met with Benchmark representatives in Texas to promote AVEX's sale, but he did not disclose any substantive information about the company because Benchmark had not yet signed a confidentiality agreement. Huber retained New York investment banking and law firms to facilitate the AVEX transaction.
In May, Benchmark signed a Confidentiality Agreement in which it agreed that only representations and warranties in a definitive agreement between the parties would have any legal effect. Huber then sent Benchmark executives in Texas a Confidential Descriptive Memorandum about the potential AVEX acquisition that touted AVEX's current and expected customer relationships and profitability. After Benchmark officially expressed interest in purchasing AVEX, Huber allowed Benchmark access to data rooms in New York that contained information regarding
AVEX, its operations, contracts, customers, and historical financial performance. Benchmark also interviewed AVEX customers as part of its due diligence. From June to August, Huber representatives and AVEX executives authorized to speak for Huber made representations regarding AVEX's profitability in telephone conversations with Benchmark representatives in Texas.
Because Benchmark could not, despite its due diligence, verify Huber's representations regarding AVEX's renewed profitability and the strength of its customer relationships, it negotiated a series of representations and warranties in the parties' Stock Purchase Agreement. Huber disclaimed all other representations and warranties.
In June, Benchmark and Huber representatives and their counsel met in New York for a negotiating session. Further negotiations took place by teleconference with Benchmark representatives in Texas. Huber's counsel sent drafts of the agreement to Benchmark in Texas, and Benchmark's attorneys proposed revisions to the agreement from Houston. At a final negotiating session in New York, Huber agreed to sell AVEX to Benchmark for $255 million in cash, subject to a working capital adjustment, plus one million shares of Benchmark stock worth approximately $34 million. The parties executed the Original Stock Purchase Agreement in New York and an Amended Stock Purchase Agreement (Agreement) in their respective home states. A formal closing took place in New York in August 1999.
Contrary to Huber's representations, several AVEX customers allegedly reduced or discontinued their purchases from AVEX in 1999 before the sale closed, and AVEX allegedly suffered significant operational losses.
Benchmark's lawsuit against Huber alleged fraud, negligent misrepresentation, and breach of contract claims. The district court ordered Benchmark to file various documents in support of its fraudulent misrepresentation claims, a bill of particulars, and a page on each material adverse change in AVEX's business condition; it also ordered Huber to file a counter-explanation. The district court next ordered mediation. When mediation failed, the court ordered Huber to file a motion for summary judgment, but Huber, instead, sought partial summary judgment urging application of New York law and judgment on the pleadings on all of Benchmark's claims. Benchmark filed a cross motion for partial summary judgment, asserting that Texas law governs its noncontractual claims and that Huber is liable for statutory fraud and breach of the contractual warranty in § 3.7 of the Agreement. The district court treated Huber's motion for judgment on the pleadings as a motion for summary judgment, applied New York law, granted Huber's motions, and denied Benchmark's motions. Benchmark timely appealed.
A. Sufficiency of Benchmark's Pleadings
As a preliminary matter, we turn to the district court's decision that Benchmark failed to plead its fraud and negligent misrepresentation claims with the particularity required by Federal Rule of Civil Procedure 9(b). Although Rule 9(b) by its terms does not apply to negligent misrepresentation claims, this court has applied the heightened pleading requirements when the parties have not urged a separate focus on the negligent misrepresentation claims. Williams v. WMX Techs., Inc., 112 F.3d 175, 177 (5th Cir. 1997). That is the case here, as Benchmark's fraud and negligent misrepresentation claims are based on the same set of alleged facts.
"What constitutes 'particularity' will necessarily differ with the facts of each case...." Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir. 1992). "At a minimum, Rule 9(b) requires allegations of the particulars of time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby." Tel-Phonic Servs., Inc. v. TBS Int'l, Inc., 975 F.2d 1134, 1139 (5th Cir. 1992) (internal quotation marks and citation omitted). Put simply, Rule 9(b) requires "the who, what, when, where, and how" to be laid out. Williams, 112 F.3d at 179. Review of a dismissal for failure to comply with Rule 9(b) is de novo. United States ex rel. Russell v. Epic Healthcare Mgmt. Group, 193 F.3d 304, 308 (5th Cir. 1999).
Benchmark's final complaint satisfies the pleading requirements of Rule 9(b). It alleges that a Huber representative 1 made false representations regarding AVEX's operations, financial results, and customer relations in April 1999 in Angleton, Texas. It also alleges false or misleading statements regarding favorable past financial results and the strength of its customer relations with Lucent, Compaq, General Instruments, and Ericsson in the Confidential Descriptive Memorandum sent on behalf of Huber to Benchmark in May 1999, in the information provided to Benchmark in the data rooms at the offices of Huber's investment bankers in June and July 1999, and in personal discussions between Huber representatives and Benchmark in June, July, and August 1999. Specifically, Timothy D. Boates, Gregor J. Smith, and Jeffrey Nesbitt allegedly were involved in the oral misrepresentations. The complaint also alleges fraud and negligent misrepresentation based on representations and warranties made in the Original Stock Purchase Agreement in July and in the Amended Stock Purchase Agreement in August that AVEX had encountered no material adverse change prior to closing, that AVEX had not received notice of default or termination under any significant contract, and that AVEX's proffered financial statements were accurate under generally accepted accounting principles.
In addition to setting forth the who, what, when, and where, Benchmark's complaint also explains why the various assertions are fraudulent or misleading. The complaint alleges, for example, that AVEX lost as customers General Instruments and Compaq, and that Ericsson, Lucent, and Phillips planned to dramatically reduce their purchases from AVEX. It also alleges that AVEX's financial statements materially overstated the company's financial condition and that, due to the misrepresentations, Huber was able to sell its stock to Benchmark, and Boates, Smith, and Nesbitt became entitled to substantial transaction incentive bonuses. Based on the foregoing, Benchmark's final complaint satisfies Rule 9(b)'s pleading requirements and sufficiently puts Huber on notice as to the challenged assertions.
B. Summary Judgment for Huber
The district court awarded summary judgment to Huber in three stages. First, it converted, sua sponte, Huber's deliberately limited motion for judgment on the pleadings and for partial summary judgment on the application of New York law, into an all-encompassing defensive summary judgment motion. Second, it held that New York law applied to the transaction and consequently...
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