Playboy Enterprises, Inc. v. EDITORIAL CABALLERO, SA

• Court: Texas Court of Appeals
• Writing for the Court: Before Chief Justice VALDEZ and Justices HINOJOSA and RODRIGUEZ.
• Citation: Playboy Enterprises, Inc. v. Editorial Caballero, SA, 202 S.W.3d 250 (Tex. App. 2006)
• Decision Date: 25 May 2006
• Docket Number: No. 13,13
• Parties: PLAYBOY ENTERPRISES, INC., Appellant, v. EDITORIAL CABALLERO, S.A. DE C.V., ET AL., Appellees.

202 S.W.3d 250

PLAYBOY ENTERPRISES, INC., Appellant, v. EDITORIAL CABALLERO, S.A. DE C.V., ET AL., Appellees.

No. 13-03-048-CV.

Court of Appeals of Texas, Thirteenth District, Corpus Christi.

Opinion Delivered and Filed May 25, 2006.

Before Chief Justice VALDEZ and Justices HINOJOSA and RODRIGUEZ.

OPINION

Opinion by Justice RODRIGUEZ.

This commercial dispute arose between plaintiff Eduardo Gongora,¹ appellant Playboy Enterprises, Inc. (PEI), and appellees Editorial Caballero, S.A. de C.V. (EC) and Grupo Siete International, Inc. (GSI). EC and GSI cross-claimed against PEI for fraud, breach of contract, breach of fiduciary duty, business disparagement, tortious interference, and interference with prospective business relations. PEI cross-claimed against EC and GSI alleging, among other things, breach of contract and fraud. Immediately before closing arguments and over PEI's objection, the trial court realigned EC and GSI as plaintiffs. The jury found for EC and GSI and against PEI on all claims, except interference with prospective business relations, and awarded $3,600,000 for out-of-pocket expenses, $500,000 for liabilities incurred, and $260,000 for lost profits. The jury declined to award punitive damages. With respect to PEI's claims, the jury found that both EC and GSI had committed fraud and various contractual breaches, but that their actions were excused.² The trial court rendered a final judgment for damages awarded by the jury in the amount of $4,360,000, plus the maximum allowable pre-judgment interest calculated from the date suit was filed and post-judgment interest at the maximum rate allowed by law.

PEI appeals from the judgment entered in favor of EC and GSI on their claims against PEI. By ten issues and sub-issues, PEI brings legal and factual sufficiency challenges related to the jury's liability and damage findings, and contends that the trial court erred in (1) realigning EC and GSI as plaintiffs, (2) failing to properly charge the jury on wrongful disparagement, and (3) refusing to send a requested exhibit to the jury room during deliberations. PEI asks this Court to reform the judgment, if affirmed, with respect to pre-judgment and post-judgment interest rates. By a single issue with sub-issues, PEI also appeals from the judgment entered against PEI on its breach of contract cross-claim because EC and GSI failed to make payments owed under the International Publishing License Agreement (the License Agreement) and under the Renegotiated Payment Plan. We reverse and render, in part, and remand, in part.

I. BACKGROUND

For many years, pursuant to predecessor agreements between EC and PEI, EC published and distributed a Spanish language version of Playboy magazine in Mexico.³ In October 1996, PEI and EC entered into the License Agreement at issue in this case. It provided that EC would continue to publish and distribute the magazine in Mexico. It also provided that EC, with PEI's prior written approval, could publish a Spanish language version of Playboy for distribution in the United States and could assign the United States distribution rights to, and only to, GSI.⁴ The License Agreement was for a three-year term beginning January 1, 1997. The October 1997 issue was the first issue of the Spanish language edition of Playboy distributed in the United States pursuant to the License Agreement. PEI terminated the License Agreement in January 1998 for EC's non-payment of royalties and other payments owed. Before termination of the License Agreement, the parties had renegotiated payments and entered into a written Renegotiated Payment Plan.

II. Fraud

By its second issue, PEI contends that EC and GSI cannot recover for fraud as a matter of law. Alternatively, it complains that the evidence is insufficient to support the finding.

The jury answered, "Yes," when asked, "Did [PEI] commit fraud against [EC] or [GSI], or both, proximately causing damages?" The jury was instructed, in part, as follows:

Fraud occurs when —

a. a party makes a material misrepresentation,

b. the misrepresentation is made with knowledge of its falsity or made recklessly without any knowledge of the truth and as a positive assertion,

c. the misrepresentation is made with the intention that it should be acted on by the other party, and

d. the other party acted in reliance on the misrepresentation and thereby suffers injury.

A. Oral Representations

PEI contends that EC and GSI cannot, as a matter of law, recover for fraud based on PEI's alleged oral representations because the License Agreement specifically bars EC and GSI from relying on oral representations. The alleged oral representations at issue in this case include the following: (1) PEI would not enforce or terminate the License Agreement; (2) renewal was automatic; (3) EC and GSI could import the Spanish language edition into the United States; (4) PEI intended to ramp up circulation after the initial three-year term of the License Agreement and was not concerned with "cannibalization;"⁵ (5) it was not going to be a problem to distribute or sell 150,000 copies per month; and (6) the parties would be partners.

In this regard, [however,] a party to an arm's length transaction must exercise ordinary care and reasonable diligence for the protection of his own interests, and a failure to do so is not excused by mere confidence in the honesty and integrity of the other party. Therefore, reliance upon an oral representation that is directly contradicted by the express, unambiguous terms of a written agreement between the parties is not justified as a matter of law.

DRC Parts & Accessories, L.L.C. v. VM Motori, S.P.A., 112 S.W.3d 854, 858 (Tex. App.-Houston [14th Dist.] 2003, pet. denied) (en banc) (op. on reh'g).

The License Agreement, in this case, specifically provided for the following:

1. Upon the occurrence of an event of default, the non-defaulting party may terminate the License by written notice to the party in default;

2. On the condition that Licensee shall be in full compliance with the material terms of this Agreement, including the timely payment of all amounts required under this Agreement, then Licensee shall have the option . . . to request negotiations concerning an extension of the license;

3. Distribution and sale of the Foreign Edition in any country other than Mexico will be subject to Licensor's prior written approval, which may be withdrawn once given, on notice from Licensor;

4. If Licensor fails or declines to grant such consent or approval to Licensee, Licensor shall not be liable to give any reason therefor;

5. Licensor's approval of such distribution and sale in the United States, if at all, will not occur until at least six (6) months following the legal formation of the joint venture Grupo Siete International, Inc., and if such approval is granted, will not exceed one-hundred-fifty thousand (150,000) copies per issue; and

6. The rights and powers herein granted to Licensee are those of a licensee only and this Agreement shall not, and is not intended to, create any other relationship nor make, constitute or appoint Licensee an agent or employee of Licensor.

The alleged oral representations about which EC and GSI complain are directly contradicted by the express, unambiguous terms of the License Agreement, and EC and GSI are not justified in relying upon them as a matter of law. See id. Thus, the fraud claim based on these oral representations is barred on this basis.

The License Agreement also contains a merger clause that specifically sets out that "this Agreement represents the entire understanding of the parties. None of the terms of this Agreement can be waived or modified except by an express agreement in writing signed by the parties. There are no representations, promises, warranties, covenants or undertakings other than those contained in this Agreement." Where a contract is negotiated at arms-length by sophisticated businessmen represented by counsel, this type of "merger" clause, like the clause in Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 180-81 (Tex. 1997), is enforceable and negates reliance on any alleged oral representations, an essential element of fraud as set out in the charge above. See id. (providing that merger clauses could, in some cases, operate to negate the reliance element of fraudulent-inducement claims arising from the same contract containing the merger clause); see also IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113, 126-28 (Tex. App.-Houston [14th Dist.] 2003, pet. denied) (providing that provisions that contract was "entire agreement" and requiring any modifications to be in writing barred fraudulent-inducement claim under Schlumberger). Here, as in Schlumberger, the alleged oral representations dealt with matters specific to PEI's rights under the License Agreement. Therefore, reliance by EC and GSI on the purported oral representations is negated as a matter of law on this basis.

B. Media Kit

PEI also asserts that EC and GSI cannot rely on the asserted approval of the "media kit" as a representation that EC and GSI could distribute 225,000 copies monthly in the United States. GSI prepared the media kit to promote the planned U.S. launch of the magazine. The kit set out expected monthly U.S. distribution at 225,000 copies, with expected sales of 125,000 copies. However, the License Agreement, which required formal, written approval for any U.S. distribution, provided that, if approval was granted, such distribution and sale in the United States would not exceed 150,000 copies per issue. The number set out in the media kit exceeded 150,000, and PEI approval, if any, of a media kit was not the formal written approval for U.S. distribution required by the License Agreement. Therefore, because the alleged approval of the media kit and representations set out in the media kit dealt with matters specific to PEI's rights under the License Agreement, reliance by EC and GSI...