Schlumberger Technology Corp. v. Swanson

• Decision Date: 11 December 1997
• Docket Number: No. 95-0355,95-0355
• Citation: 959 S.W.2d 171
• Parties: 41 Tex. Sup. Ct. J. 165 SCHLUMBERGER TECHNOLOGY CORPORATION and Schlumberger Limited, Petitioners, v. John SWANSON, et al., Respondents.
• Court: Texas Supreme Court

Page 171

959 S.W.2d 171

41 Tex. Sup. Ct. J. 165

SCHLUMBERGER TECHNOLOGY CORPORATION and Schlumberger

Limited, Petitioners, v. John SWANSON, et al., Respondents.

No. 95-0355.

Supreme Court of Texas.

Dec. 11, 1997.

Linda L. Addison, Roger Townsend, Joy M. Soloway, Hugh E. Tanner, Blake Tartt Houston, Ben Taylor, Dallas, Joe R. Greenhill, Austin, for petitioners.

F. Eric Fryar, Evelyn Jo Wilson, Houston, Franklin Jones, Jr., Marshall, Douglas Laycock, Russell J. Weintraub, Austin, Kendall C. Montgomery, Houston, Stephen D. Susman, Dallas, John M. O'Quinn, Houston, Luther H. Soules, III, San Antonio, William Powers, Jr., Pamela Stanton Baron, Austin, for respondents.

ENOCH, Justice, delivered the opinion of the court.

This is a commercial dispute. In settling this dispute, the Swansons signed a release that disclaimed reliance on the representations of Schlumberger. The question is whether this disclaimer precludes, as a matter of law, the Swansons from recovering damages against Schlumberger for fraudulently inducing them to settle. The trial court granted a judgment for Schlumberger notwithstanding the jury's verdict for the Swansons. The court of appeals reversed, holding that the disclaimer of reliance did not preclude the Swansons' fraudulent inducement claim. 895 S.W.2d 719. We agree with the trial court. Accordingly, we reverse the court of appeals' judgment and render judgment for Schlumberger.

I. FACTS

In the 1970s, John Swanson and his brother George Swanson approached SEDCO, Inc. about a proposal to mine diamonds from the ocean floor in deep waters off the South African coast. SEDCO had expertise in offshore oil and gas drilling and had mined manganese nodules off the ocean floor. The Swansons, whose family had been in the mining industry in South Africa for several decades, had contacts with the South African government. By letter dated October 17, 1978, SEDCO agreed to a three-phase project. In Phase I, SEDCO would study the feasibility of the sea-diamond project. In Phase II, a lease was to be acquired and prospecting was to begin. Phase III was to be commercial mining. The agreement provided that SEDCO had exclusive authority to determine whether to proceed with Phases II and III.

The Swansons were to use their goodwill and contacts to obtain concession rights and any licenses or permits the South African government required. They also were to provide SEDCO with information on diamond mining generally and offshore mining specifically. For their part, the Swansons would be paid a consulting fee through Phases I and II and a royalty, if any, on any diamonds mined during Phases II and III. Should the project ever become commercially productive, the Swansons had the right to purchase five percent of the shares in the company contemplated to be formed to mine the diamonds. SEDCO was to bear the expense of all phases of the project, with the exception of the Swansons' own out-of-pocket expenses. Any diamond grants or offshore concessions or leases were to be held by SEDCO, by the company to be formed, or by the Swansons, but as trustees.

SEDCO completed Phase I in 1979 and opted to proceed with Phase II. In July 1983, SEDCO and George E. Swanson Enterprises, as co-lessees, obtained a prospecting lease, Lease 3C, from the South African government. At the same time, the South African government issued leases on surrounding tracts to other companies. DeBeers Mining Consolidated Limited (DeBeers) obtained Leases 4C and 5C immediately to the south; African Selection Trust Exploration (Pty.) Limited (Seltrust), a subsidiary of British Petroleum, obtained Lease 2C to the north.

Almost immediately after receiving the leases, SEDCO, DeBeers, and Seltrust began negotiating a joint venture agreement to jointly develop the mining project. In December 1984, before this joint venture agreement was finalized, Schlumberger Technology Corporation acquired SEDCO by merger and formed Sedswan Diamonds (Pty.), Limited, a wholly-owned South African subsidiary, to continue the sea-diamond project. Sedswan then entered into the joint venture with DeBeers and Seltrust in February 1985. Around the same time, the South African government reissued Lease 3C in Sedswan's name only and without reference to George E. Swanson Enterprises. Sedswan, DeBeers, and Seltrust participated in the joint venture through 1986. In early January 1987, the Swansons became concerned about rumors that Schlumberger was going to stop funding its share or withdraw from the joint venture. Further, they were disturbed about the lack of information they were receiving on the project's progress. Consequently, the Swansons consulted a lawyer. Their objectives were to ensure that Schlumberger stayed in the joint venture and that their rights under the original letter agreement, which predated the joint venture agreement, were enforced. Of particular concern to the Swansons was the effect of the joint venture agreement on the Swansons' interests, including Schlumberger's ability to dilute Sedswan's joint venture interest after an initial investment, the right of first refusal given to the other joint venture members, and a confidentiality agreement.

Shortly after the Swansons hired their lawyer, Schlumberger gave notice to DeBeers and Seltrust of its intent to withdraw Sedswan from the joint venture. As required by the joint venture agreement, Schlumberger offered to sell Sedswan's interest to the remaining joint venture members. DeBeers and Seltrust rejected this offer, each refusing to buy out Sedswan's interest so long as it was subject to any rights the Swansons may claim.

During the next thirteen months, Schlumberger negotiated its withdrawal from and a price for Sedswan's joint venture interest with DeBeers and Seltrust. Schlumberger initially offered to sell Sedswan's interest for twenty-five million dollars plus a royalty. DeBeers and Seltrust rejected this offer and countered at ten million rand. Schlumberger dropped its demand for a royalty and offered to sell for thirty-five million dollars. Again, DeBeers and Seltrust rejected this offer, holding firm at ten million rand.

Throughout this time, Schlumberger discussed the various proposals with the Swansons, communicating mostly through their lawyer. According to the Swansons, Schlumberger represented to them that the sea-diamond project was neither technologically feasible nor commercially viable, but refused to give them joint venture progress reports and other information and data supporting Schlumberger's views. During these negotiations, Schlumberger also disputed the validity of the Swansons' rights and interests in the joint venture, claiming that the joint venture agreement altered whatever rights the Swansons had. Displeased with Schlumberger's decision to withdraw Sedswan from the joint venture and concerned about Schlumberger's assertions disputing their interests and its unwillingness to turn over joint venture information, the Swansons contemplated suing Schlumberger but did not.

Instead, in February 1988, a little more than a year after Schlumberger gave notice of its withdrawal from the joint venture, the Swansons agreed that Schlumberger would buy their interest for two million South African rand (about $814,000). In exchange, the Swansons relinquished all rights, claims, and interests in the offshore diamond project and Lease 3C and released all causes of action against Schlumberger, known or unknown. In the release, the Swansons specifically agreed that they were not relying on any statement or representation of Schlumberger, SEDCO, or Sedswan, that they were relying on their own judgment, and that they had been represented by counsel who had explained the entire contents and legal consequences of the release.

Schlumberger thereafter sold Sedswan's interest to DeBeers and Seltrust for 10 million rand (about $4,100,000). After recouping its investment in the project of 6.8 million rand (about $2,767,000), buying out the Swansons' interests for two million rand (about $814,000) and paying them an additional $200,000 in consulting fees, Schlumberger netted 778,000 rand (about $319,000) from the offshore diamond project.

Asserting that Schlumberger had misrepresented the project's viability and value, the Swansons then sued Schlumberger and its parent corporation, Schlumberger Limited, Inc., for fraudulently inducing them to sell their interest at an undervalued price. The Swansons also alleged breach of fiduciary duty.

The jury found for the Swansons and against Schlumberger on all issues. The jury awarded the Swansons fifteen million dollars in actual damages, thirty-five million dollars in exemplary damages on a statutory fraud claim under section 27.01 of the Texas Business and Commerce Code, ten million dollars in exemplary damages on the common law claims, and attorney's fees. As already mentioned, the trial court rendered a judgment notwithstanding the verdict, but the court of appeals reversed and rendered judgment in accordance with the jury's findings. 895 S.W.2d 719.

Here, Schlumberger contends that the release precludes all of the Swansons' claims as a matter of law; that there is no evidence of common law fraud, statutory fraud under section 27.01 of the Texas Business and Commerce Code, or breach of fiduciary duty; and that the court of appeals erred in awarding prejudgment interest on future damages. We agree that the release precludes all of the Swansons' claims as a matter of law. Accordingly, we reverse the court of appeals' judgment and render judgment for Schlumberger. Because of our disposition, we need not reach the prejudgment interest issue.

II. RELATIONSHIP OF THE PARTIES

Schlumberger argues that the Swansons' fraud claims are barred as a matter of law because the Swansons were represented by legal counsel throughout the arm's-length negotiations between the parties. Schlumberger contends that when a party is represented by counsel and...