Texas Supreme Court should uphold contractual agreement in Texas dealership case

By Cameron Kinvig | Feb 19, 2019

It is not news that Texas law has long required businesses to respect  the terms of their written agreements.  Businesses remain in Texas and  many new ones are drawn here, in part, because they know they can rely  on the written agreements  they enter into and expect the rule of law to be applied to everyone.   Texas provides a stable business environment because its courts uphold  contractual responsibilities.

Currently pending before the Texas Supreme Court is an automobile  dealership dispute involving a south Texas car dealership, Carduco,  Inc., and Mercedes-Benz USA, LLC (MBUSA), the U.S. company that  distributes Mercedes-Benz automobiles to U.S. dealers.  Both  businesses are very experienced, and are therefore considered  “sophisticated” under Texas law.  Despite  this sophistication, the  dealership nonetheless claims in litigation that it should not be held  to the terms of the written dealership agreement with MBUSA  it had abundant opportunity to review and sign, with attorney  representation throughout the process.

Carduco claims it was “led to believe” it could move its dealership from  Harlingen to McAllen and be the sole Mercedes-Benz dealer in the entire  Rio Grande Valley.  But the written agreement it signed expressly  stated that Carduco had no right to any exclusive  territory, and, specifically, that MBUSA had the right to designate  additional Mercedes-Benz dealerships in the Rio Grande Valley.

And while MBUSA has consistently denied that it misled Carduco, Carduco  in any event also agreed in its written agreement with MBUSA that it was  not relying on any representations not contained in that agreement—a  common contract term.  Unfortunately, a jury  decided it would largely ignore the contract between Carduco and MBUSA.

Thankfully for Texas business interests, the Texas Supreme Court has now  agreed to decide whether the jury should ever have heard this case at  all, or whether the trial judge should have enforced the written  contract.

Carduco seems interested in muddying the legal waters around this simple  contractual dispute, arguing late last year that MBUSA’s actions were  somehow inconsistent with Carduco’s rights under the Texas dealership  laws.  But in the end it concedes, as it must,  that MBUSA in fact violated no Texas dealership law.  

Carduco also incorrectly contends that the Brownsville trial resulted in  the jury finding that MBUSA committed “felony fraud.”  However, the  trial between the parties in Cameron County was a civil, not a criminal,  matter, and resulted in no conviction of any  party.  And trial court tactics to create a basis for an exorbitant  civil punitive damages verdict have already been addressed by the Corpus  Christi Court of Appeals, which reduced punitive damages to less than  1% of their original amount.   More importantly,  no prosecutor has ever shown any interest in pursuing a criminal claim  against MBUSA or any of its employees.

In fact, the only felony conviction related to this lawsuit was in 2005,  when the company that previously owned Carduco’s dealership was  convicted of a corporate felony for failing to file appropriate  paperwork with the IRS.  That company was actually owned  by the son of Carduco’s owner.  Both the son, and his father to whom he  sold the dealership, were long-time, very experienced auto dealers in  the Valley.

In short, under Texas law, the written contract between Carduco and  MBUSA should be enforced because the dealership agreement, entered into  by sophisticated parties, expressly negated in writing any oral  representations Carduco now claims to have relied on.

There are good reasons why Texas law firmly requires that sophisticated  parties adhere to their written agreements in the face of claims they  were fraudulently induced via oral representation to enter into them.   Absent such law, the validity of contracts becomes  uncertain, even with experienced businesses deemed to be “sophisticated  parties” under Texas law.  And litigation abounds, devolving into a  he-said, she-said exercise where truth is difficult to find.  

The defendants in this case did not violate any laws, whether statutory  or common law, civil or criminal.  Texas courts have repeatedly rejected  the plaintiff’s argument that they should decline to enforce the  written agreements of experienced businesses like  those involved here.  The Texas Supreme Court should reject that  argument once again in this matter.

In short, the Constitution of Texas protects the freedom of contract,  and Texas courts enforce that freedom.  The flip side of that freedom is  that a sophisticated party must abide by the terms of its written  word.  If it later is  unhappy with the written  deal it struck, that party has only itself to blame.Cameron is an attorney in Dallas that served as the president of the Dallas chapter of the Federalist Society for three years.  He also served for five years as the general counsel to the Dallas County Republican Party. He runs a private legal practice with a focus on energy and real estate and has regularly opined as a conservative columnist. 

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