Fraud Is Now Legal in Texas (For Some People)

Three intermediate appellate courts in Texas have held that corporate actors— directors, officers, managers, shareholders, and probably common employees and agents—are immune from personal liability for fraud that they themselves commit as long as their deceit relates to or arises from a contractual obligation of the corporation. Similar actors in limited liability companies also enjoy immunity. These courts do not require that the business entities themselves be liable for the fraud. When the entities are not liable, these new holdings leave fraud victims no remedy at all, even if a jury would find fraud. One (or maybe two) Texas appellate courts have held otherwise. The Supreme Court of Texas will probably decide the issue, and one justice has already signed on. To date, these decisions have only been noticed in print by a few practicing attorneys. No commentator has questioned them. But the decisions are wrong. These courts claim to be following a statute, but the statute does not support the courts’ analysis. Nor does the statute’s legislative history. Surprising (and probably unnoticed) results strongly suggest the legislature never intended this reading. And what rationale could justify it? Fraud is the economic equivalent of theft. Practitioner comments on the decisions suggest that the cost of litigating fraud is too high. Texas’s reputation for pro-business policies might suggest this move is just helpful de-regulation, but it is not. Policing fraud is the only way to make markets safe for freedom of contract, and litigating fraud claims is the courts’ role. These decisions should be abandoned before they become the law in all of Texas and elsewhere

Possibility of Plain Meaning: Wittgenstein and the Contract Precedents

Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co and In re Soper\u27s Estate claim that plain meaning in contract law is impossible. This claim is left irrefuted in the casebooks and contract law literature, Part I notes, and in most teaching of contract law. The consequence is that students are taught that plain meaning is impossible. A startling implication of this conclusion, as Part I explains, is that the majority of U.S. courts, which hold to the plain meaning rule, are relying on a fiction. But the claim that plain meaning is impossible is false, as are its premises. Part II explains why. Drawing on the philosophy of Ludwig Wittgenstein, Part I.A shows why the meaning of words cannot be the thoughts and intentions of the speaker, hearer, or anyone else. Part II.B demonstrates that plain meaning does not require that words have inherent meaning or absolute and constant referents. Plain meaning is possible and occurs quite apart from reference or another theory of inherent meaning. Plain meaning rests instead on our unreflective, public, conventional practice of language use. Most meaning is plain. Part III explains that, though plain meaning is immune from attack on grounds of impossibility, whether the plain meaning rule is the best legal rule is another matter. Actually, all of the legal rules currently available for determining the meaning of contractual language are possible. Which rule one chooses is not a matter of possibility at all, or of language philosophy, but of legal reasoning and social policy