AUSTIN, Texas — The Supreme Court of Texas has reversed an appeals court decision upholding an award of actual and punitive damages to Carduco Inc., a Mercedes-Benz franchisee that sued the factory for fraud. The dealer, Renato Cardenas Sr., claimed Mercedes-Benz USA LLC intentionally misled him into believing he could purchase a dealership in Harlingen, Texas, near the state’s southernmost point, then move it to the more affluent McAllen area about 30 miles away.
Instead, MBUSA awarded the McAllen point to a competing group, Heller-Bird Motors, before the Carduco deal was closed in June 2009. Cardenas, who bought the Harlingen location from his son, Renato Cardenas Jr., renamed it Cardenas Metroplex Mercedes-Benz. Heller-Bird opened the McAllen-area point as Mercedes-Benz of San Juan in 2011.
Cardenas said the factory and three key employees were fully aware of his plans, going so far as to discuss prospective locations in and around McAllen. Neither he nor his son were made aware of the Heller-Bird deal, Cardenas claimed, and no mention of the McAllen-area point was made in the written agreements between Carduco and MBUSA.
A jury found in the dealer’s favor in February 2013, awarding $15.3 million in compensatory damages, plus interest, and $115 million in punitive damages. The Texas Court of Appeals upheld the verdict in June 2016 but reduced the punitive award to $600,000.
Writing for Forbes, attorney and author Joyce Mazero said the Texas Supreme Court’s decision proves “the contract is the contract” and advised Texas dealers and suppliers to ensure their transaction documents include any and all material representations.
“The court clarified under Texas law that a party may not justifiably rely on misrepresentations by another contracting party when such misrepresentations are contradicted by the terms of the parties’ written contract,” Mazero wrote. “This means fraud claims between contracting parties would be barred even if the parties make reasonable, but false or misleading, oral representations regarding the contract’s terms during their negotiations.”