Robinson v. National Cash Register Co.

• Decision Date: 04 February 1987
• Docket Number: No. 85-2019,85-2019
• Parties: , 6 Fed.R.Serv.3d 1202 Chester R. ROBINSON and wife, Frances Earline Robinson, Plaintiffs-Appellants, and Roy K. Ewart and David B. Black, Appellants, v. The NATIONAL CASH REGISTER COMPANY, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1119

808 F.2d 1119

55 USLW 2494, 6 Fed.R.Serv.3d 1202

Chester R. ROBINSON and wife, Frances Earline Robinson, Plaintiffs-Appellants, and Roy K. Ewart and David B. Black, Appellants, v. The NATIONAL CASH REGISTER COMPANY, et al., Defendants-Appellees.

No. 85-2019.

United States Court of Appeals, Fifth Circuit.

Feb. 4, 1987.

Rehearing Denied March 5, 1987.

David B. Black, Roy K. Ewart, Black & Ewart, Houston, Tex., for Black and Ewart.

Chester R. Robinson, pro se.

Sarah B. Duncan, Fulbright & Jaworski, Brian S. Greig, Austin, Tex., for Nat. Cash Register Co.

William Drew Perkins, Lufkin, Tex., for Henderson Development Corp.

Appeals from the United States District Court for the Eastern District of Texas.

Before GEE and HILL, Circuit Judges, and HUNTER, ^* District Judge.

ROBERT MADDEN HILL, Circuit Judge:

In this case plaintiffs Chester and Frances Robinson (the Robinsons) appeal from a judgment of the district court that barred their suit on res judicata grounds. The Robinsons and their attorneys, David Black and Roy Ewart, also appeal the sanctions imposed upon them by the district court pursuant to Fed.R.Civ.P. 11. We affirm in part and reverse in part.

I.

On August 31, 1981, the Robinsons filed a diversity action against National Cash Register (NCR) in the federal district court for the Eastern District of Texas, seeking $4 million for damages allegedly incurred as a result of NCR's contamination of the air breathed by the Robinsons in the office space subleased to them by NCR. NCR leased the Robinsons' space from Henderson Development Corporation (HDC). The Robinsons alleged that NCR's conduct was negligent, constituted a nuisance, and also breached the implied warranties of habitability in the sublease. On May 10, 1983, a jury verdict was returned in favor of NCR and judgment accordingly entered on the verdict for NCR, from which there was no appeal.

On February 8, 1984, Bookkeepers Tax Services, Inc. (BTS) and the Robinsons filed an action against NCR and HDC in state court in Angelina County, Texas. Chester Robinson is the majority stockholder and president of BTS, while Frances Robinson is secretary-treasurer of the company and serves on its board of directors. BTS and the Robinsons sought $4 million in damages from NCR and HDC alleging that the defendants had breached the express warranties in the original lease between HDC and NCR and in the sublease between NCR and the Robinsons. BTS and the Robinsons also alleged that HDC and NCR violated the Texas Deceptive Trade Practices Act.

NCR removed the second action to the federal district court based on diversity jurisdiction and then filed a motion to dismiss the action on res judicata grounds as to NCR and to dismiss HDC on the grounds that no claim against them was possible. The Robinsons and BTS filed a motion to remand the case to state court alleging that there was a lack of diversity because the Robinsons were Texas citizens and HDC was a Texas corporation. The district judge, who also presided over the Robinsons' 1981 suit against NCR, denied the plaintiffs' motion to remand, dismissed NCR on res judicata grounds, and dismissed HDC because it was not a real party to the suit. The court also imposed sanctions under Fed.R.Civ.P. 11 in the amount of $4,246.25 jointly and severally against the Robinsons, BTS and their attorneys, David Black and Roy Ewart. In this appeal, BTS, the Robinsons, David Black and Roy Ewart contend that the district court erred in (1) refusing to remand the case to state court, (2) dismissing the case on res judicata grounds, and (3) imposing sanctions against them under rule 11. ¹

Before we examine the merits of this appeal, an additional issue must be addressed. On May 8, 1985, we stayed further proceedings in the appeal pending consummation of settlement negotiations which had been ongoing since January 1985. Following a purported settlement, NCR filed a motion to dismiss the appeal. The Robinsons opposed dismissal and claimed that an alleged mutual release growing out of the settlement negotiations was invalid. We subsequently directed the parties to file briefs setting forth their positions on the validity of the mutual release. ² We now turn to that issue.

II.

The parties agree that Texas law determines whether the mutual release is valid. Under Texas law a contract may arise before execution of a writing even where the parties contemplate that a formal writing will be done later. Garner v. Boyd, 330 F.Supp. 22, 25 (N.D.Tex.1970), aff'd, 447 F.2d 1373 (5th Cir.1971) (per curiam). In order for the later writing to be considered merely a "convenient memorial" of previously agreed upon terms, the parties must agree upon all material considerations and must intend to be bound. Garner, 330 F.Supp. at 26. The intent of the parties to make a binding agreement is the ultimate issue. Hemenway Co., Inc. v. Sequoia Pac. Realco, 590 S.W.2d 545 (Tex.Civ.App.--San Antonio 1979, writ ref'd n.r.e.).

NCR asserts that a binding settlement agreement was reached on May 2, 1985, when Brian Greig, NCR's counsel, contacted Ewart and indicated acceptance of the Robinsons' settlement offer of March 13, 1985, with some minor changes. Subsequently, a proposed mutual release was drafted by Greig and sent to Black on June 19. NCR also points to Ewart's letter of May 2 to Greig and Ewart's letter of July 1, 1985, to the clerk of the court as evidence that both parties had agreed upon all the material terms and that the later writing was a mere formality. BTS and the Robinsons, however, argue that the settlement negotiations never reached a final settlement. They point to: (1) a letter sent by Greig to Black on August 28, 1985, that stated that the proposed settlement documents were unsatisfactory; (2) the fact that the Robinsons instructed Black and Ewart not to send a proposed second Mutual Release to NCR in October 1985; and (3) a letter that Ewart sent to the clerk of the court on January 6, 1986, informing the clerk that the parties were deadlocked in settlement negotiations as evidence that no "meeting of the minds" had taken place.

In their supplemental brief, Black and Ewart admit that in January 1986 Black told Greig that the Robinsons' prior settlement offer was still open for acceptance. However, after communicating with the Robinsons and BTS, Black allegedly mailed a letter to Greig on or about January 22, 1986, ³ withdrawing the mutual release. On or about January 25, 1986, Greig informed Ewart that the mutual release had already been forwarded to NCR. Black and Ewart contend that the notice of withdrawal of the settlement offer precluded NCR from accepting the Robinsons' offer to settle as set forth in the mutual release.

The evidence that appellee NCR points to as indicating an intention to be bound is ambiguous. For example, the May 2 letter from Greig to Black, which in NCR's view represents a settlement agreement between the parties, contains some changes in the terms of the settlement that could be characterized as further negotiations. In his July 1 letter to the clerk of the court, Ewart wrote that the settlement "is almost completed" (emphasis added). The other letters that the parties provide in their supplemental briefs are subject to the same varying interpretations. We have carefully examined the evidence that the parties have provided us and we conclude that the parties had never agreed on the terms of the mutual release. Since there was no "meeting of the minds," the mutual release was invalid. ⁴ Consequently, we proceed to the merits of the controversy.

III.

The Robinsons first assert that the district court erred in refusing to remand the case to the state court because there was a lack of diversity between the parties. The Robinsons are residents of Texas; NCR is a Maryland corporation with its principal place of business in Ohio; and at the time relevant to this appeal HDC was a Texas corporation. Generally, there must be complete diversity between the parties for a federal district court to have jurisdiction. 28 U.S.C. Sec. 1332(a)(1). Thus, the fact that HDC is a Texas corporation and the Robinsons are citizens of Texas would normally prevent NCR from removing the case to a federal court from a Texas state court. Where, however, the removing party can prove that there is "absolutely no possibility" that the non-diverse defendant will be liable to plaintiff in state court, Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir.1983), cert. denied, 464 U.S. 1039, 104 S.Ct. 701, 79 L.Ed.2d 166 (1984), or when there is "no arguably reasonable basis" that state law might impose liability on the non-diverse defendant, Tedder v. FMC Corp., 590 F.2d 115, 117 (5th Cir.1979), removal is allowed without complete diversity. The district court, relying on Tedder, held that HDC was not a real party in interest because BTS and the Robinsons could not recover against HDC for breach of the lease and thus removal was proper. We agree.

The Robinsons allege in their complaint that the warranties made by HDC to NCR in the original lease between those two parties also applied to them through their sublease with NCR. As the district court correctly noted, however, there is no privity of contract between a sublessee and original lessor under Texas law. Zeidman v. Davis, 342 S.W.2d 555, 558 (Tex.1961). Furthermore, a provision in the sublease between NCR and the Robinsons released HDC from any liability to the Robinsons. ⁵ All of the sublease sections that the Robinsons assert show a breach of duty on the part of HDC are unconvincing. The Robinsons first point to section 9 of the sublease, in which, they argue, HDC covenanted to maintain the premises in good repair. Section 9, however, concerns not HDC's but NCR's obligations:

Subject to the obligations of Lessor under Section five (5) of the original lease, ⁶ Sublessor, unless herein specified to the contrary, shall maintain the premises in good repair and...