600 F.3d 542 (5th Cir. 2010), 06-20867, Sullivan v. Leor Energy, LLC

Docket Nº:06-20867.
Citation:600 F.3d 542
Opinion Judge:OWEN, Circuit Judge:
Party Name:William D. SULLIVAN, Plaintiff-Appellant, v. LEOR ENERGY, LLC; Leor Energy LP, Defendants-Appellees.
Attorney:James T. McBride, Jackson Walker, L.L.P., Kristi Belt, Manuel Lopez (argued), Shook, Hardy & Bacon, L.L.P., Houston, TX, Donald F. Hawbaker, Jones Walker, The Woodlands, TX, for Sullivan. Anthony Joseph Ashley (argued), Vedder Price, P.C., Chicago, IL, for Defendants-Appellees.
Judge Panel:Before DAVIS, STEWART and OWEN, Circuit Judges.
Case Date:March 15, 2010
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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600 F.3d 542 (5th Cir. 2010)

William D. SULLIVAN, Plaintiff-Appellant,

v.

LEOR ENERGY, LLC; Leor Energy LP, Defendants-Appellees.

No. 06-20867.

United States Court of Appeals, Fifth Circuit.

March 15, 2010

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James T. McBride, Jackson Walker, L.L.P., Kristi Belt, Manuel Lopez (argued), Shook, Hardy & Bacon, L.L.P., Houston, TX, Donald F. Hawbaker, Jones Walker, The Woodlands, TX, for Sullivan.

Anthony Joseph Ashley (argued), Vedder Price, P.C., Chicago, IL, for Defendants-Appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before DAVIS, STEWART and OWEN, Circuit Judges.

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 Chief Executive Officer and President of Leor, Sullivan would commit 30% of his time to Leor's business, and would receive a salary, additional

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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 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

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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 his agreement with Leor is enforceable because it is an at-will contract that is performable within one year.

The statute 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 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 more 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

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