Paul Morrell, Incorporated v. Kellogg Brown & Root Services

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 10-1253

PAUL MORRELL, INCORPORATED, d/b/a The Event Source,

Plaintiff - Appellee,

v.

KELLOGG BROWN & ROOT SERVICES, INCORPORATED; KELLOGG BROWN &

ROOT INTERNATIONAL, INCORPORATED; KELLOGG BROWN & ROOT,

INCORPORATED; KELLOGG BROWN & ROOT, LLC,

Defendants – Appellants,

and

KBRI TX-1 NEWCO, INCORPORATED; KELLOGG ENERGY SERVICES,

INCORPORATED; KELLOGG BROWN & ROOT (CALIFORNIA),

INCORPORATED,

Defendants.

Appeal from the United States District Court for the Eastern

District of Virginia, at Alexandria. Anthony J. Trenga,

District Judge. (1:08-cv-00072-AJT-JFA)

Argued: September 22, 2011 Decided: November 10, 2011

Before NIEMEYER, KING, and AGEE, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Warren W. Harris, BRACEWELL & GIULIANI, LLP, Houston,

Texas, for Appellants. Mark David Crawford, MCMANUS & DARDEN,

LLP, Washington, D.C., for Appellee. ON BRIEF: Jeffrey L.

Oldham, BRACEWELL & GIULIANI, LLP, Houston, Texas, for

Appellants. Jeanne A. Anderson, MCMANUS & DARDEN, LLP,

Washington, D.C.; Laurence Schor, ASMAR, SCHOR & MCKENNA, PLLC,

Washington, D.C.; Monica Taylor Monday, GENTRY LOCKE RAKES &

MOORE, Roanoke, Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

2

PER CURIAM:

Plaintiff/Appellee Paul Morrell, Incorporated, d/b/a The

Event Source (“TES”) brought suit in the United States District

Court for the Eastern District of Virginia against

Defendants/Appellants Kellogg Brown & Root Services,

Incorporated and several related entities (“KBR”), alleging

various common law claims. Prior to trial, a number of the

claims were either dismissed or resolved between the parties.

After a multi-week bench trial on the remaining claims, the

district court ruled against TES on its claims for breach of

contract and tortious interference, 1 but in favor of TES on its

claim for fraudulent inducement, setting forth detailed findings

of fact and conclusions of law in a 47-page written opinion.

The court awarded approximately $12.4 million in fraud damages,

slightly more than $2.5 million in prejudgment interest, and $4

million in punitive damages.

On appeal, KBR challenges the district court’s judgment on

the fraud claim, as well as the award of both compensatory and

punitive damages. For the reasons set forth herein, we affirm

the judgment of the district court.

1

Those rulings are not at issue in this appeal.

3

I.

This case arises out of a contract and subsequent

settlement agreement between KBR and TES. The district court

determined that KBR made material false statements in order to

induce TES to accept a settlement payment that was approximately

$12.4 million less than what KBR had previously acknowledged it

owed TES.

The initial contract between KBR and TES was part of the

effort to provide dining facilities and food services (“DFAC

services”) to American troops in Iraq. That effort began in

December 2001, when KBR contracted with the federal government

to provide logistical support, including DFAC services, to our

armed forces in Iraq. On June 13, 2003, actual work

authorization was awarded to KBR through Task Order 59, and KBR

selected TES as a sub-contractor to provide certain of those

services. TES and KBR entered into a Master Agreement on June

15, 2003, which contained a number of incorporated contractual

documents. TES, in turn, hired a number of sub-contractors to

perform various aspects of the required work, setting up

separate payment arrangements with each of them. The time of

performance under Task Order 59 was modified periodically and

additional funding was provided as the need for DFAC services in

Iraq continued.

4

Toward the end of 2003, KBR came under scrutiny from the

Defense Contract Audit Agency (“DCAA”), which was investigating

the DFAC invoices KBR submitted for payment from its

subcontractors. One of DCAA’s primary concerns was that some

DFAC invoices, including those from TES, billed for more meals

than were actually served to the troops. In early 2004, DCAA

began reviewing its payment of invoices to KBR, and informed KBR

that, pending further discussions, DCAA would withhold payment

on a portion of the invoices. 2 DCAA also instructed KBR to

review all of its DFAC subcontracts.

KBR conducted the review of its subcontracts, and informed

DCAA that its review confirmed that its subcontracts were

reasonably priced and structured, and that outstanding invoices

should be paid in full. KBR thus told DCAA that it intended to

2

DCAA had concluded it was not obligated to pay KBR for

invoiced meals that exceeded the actual number of soldiers

served. However, that arrangement between DCAA and KBR was

inconsistent with the terms of the competitively-bid subcontract

between TES and KBR. In the subcontract, KBR agreed that TES

was entitled to charge for a minimum number of meals, regardless

of the number of persons actually served at a site. This

pricing scheme was considered reasonable by both KBR and TES

since it was intended to allow TES to recover, within the

initial performance period, all of its initial expenditures

(such as capital costs for facilities and equipment) which were

considerable and not likely recoverable on an actual per person

charge rate. This ability to recoup capital costs was a

substantial inducement by KBR for TES to enter into the

subcontract.

5

pay outstanding invoices to its subcontractors in full and bill

those amounts to the government.

In response to KBR’s stated intention, DCAA announced in

May 2004 that it would begin to withhold and/or recoup 19.35% of

the total payments made by the government to KBR for DFAC

invoices because of the discrepancy between the actual number of

meals served and the invoiced meal amounts. This “decrement”

caused KBR, in turn, to withhold money from its subcontractors.

Additionally, in response to the imposition of the decrement,

KBR and TES executed Amendment No. 1 to the Master Agreement,

which reflected their agreement as to the proper method to

calculate the amount due and payable to TES, later agreed by

them to be $36,464,644.65. Amendment No. 1 also extended the

time for TES to file contract dispute claims with KBR.

In early 2005, KBR met with the Army Sustainment Command

(“ASC”), to discuss the government’s continued concerns

regarding the alleged overbilling, and they engaged in extensive

renegotiations over the DFAC billing and invoices. ASC and KBR

finally reached a negotiated settlement (“the KBR-ASC

Settlement”), in which KBR agreed to a $55 million decrement

from the invoice amounts it had submitted from its DFAC

subcontractors and released the government from all claims

relating to the DFAC invoices. As a result, KBR no longer had

the ability to assert claims on behalf of its subcontractors for

6

any additional payment for DFAC services, and the sole remedy

for TES and other subcontractors was against KBR. KBR did not

consult with TES or its other sub-contractors regarding the KBR-

ASC Settlement, nor did it disclose any of the settlement

details to TES. In any event, TES never authorized KBR to waive

any of TES’ rights vis a vis the government under its

subcontract with KBR.

Following the KBR-ASC Settlement, KBR scheduled meetings in

Dubai with TES and other subcontractors in order to resolve

their outstanding invoices which had been subject to the

decrement. During the Dubai meetings, KBR convinced TES to

accept a reduced payment from KBR on its invoiced amounts

(approximately $24 million, instead of the $36.4 million agreed

to in Amendment No. 1) and to release KBR from any additional

claim for payment.

TES’ fraud claim was based on the representations made by

KBR before and during the Dubai meetings. The dispute over the

fraud claim at trial focused primarily on whether the Dubai

representations by KBR were knowingly false, and whether TES

justifiably relied on those representations when it accepted the

reduced payment from KBR and released it from further claims.

The district court found that KBR officials made numerous

fraudulent statements to TES in order to induce TES to agree to

the reduced payment and the release. These misrepresentations

7

by KBR included: (1) the characterization of the amount KBR was

going to pay TES as a “Government decision,” that was

“calculated by the Government based on a number of factors,

primarily including actual headcount and the period of

performance”; (2) “that KBR has no ability to increase or

decrease the KBR Holdback,” defined as “that portion of the

amount billed for the Invoiced Work that will not be paid to TES

as determined by the Government”; (3) that KBR had no discretion

to raise or lower the amount offered, which was therefore “non-

negotiable”; and (4) if TES rejected the KBR offer, “TES’ only

legal remedy was to contest the government’s decision by filing

a claim, through KBR, against the government.” (See J.A. 2379-

82.)

Many of KBR’s fraudulent statements were made orally, but

some were incorporated into a written document, Amendment No. 2

to the Master Agreement. Significantly, the district court

expressly found that TES asked KBR to sign Amendment No. 2 in

order to verify that KBR was being truthful about its

representations.

The district court further found that, had KBR not executed

Amendment No. 2, TES would not have agreed to accept the reduced

payment. Instead, it would have sued and could have recovered

from KBR the full amount KBR had previously acknowledged was

due, the $36.4 million. The district court thus found that TES

8

was entitled to damages in the amount it released in the

settlement with KBR, i.e., $12,424,387.

On appeal, KBR assigns error to three rulings by the

district court: (1) the district court’s finding that TES

actually and justifiably relied on KBR’s misrepresentations; (2)

the district court’s award of compensatory damages for the

fraud; and (3) the district court’s determination that punitive

damages were proper. 3 KBR timely filed its appeal and we have

jurisdiction pursuant to 28 U.S.C. § 1291.

II.

A.

When a judgment results from a bench trial, it is reviewed

“under a mixed standard of review—factual findings may be

reversed only if clearly erroneous, while conclusions of law . .

. are examined de novo.” Universal Furniture Int’l v.

Collezione Europa USA, 618 F.3d 417, 427 (4th Cir. 2010)

3

Because KBR has not identified as a separate issue on

appeal or offered any argument in support of a claim that the

district court erred in finding that the false statements were

made or that they were material, we deem any such challenges

abandoned. See Fed. R. App. P. 28(a)(9)(A) (“appellant’s brief

must contain . . . appellant’s contentions and the reasons for

them”); Jones v. Liberty Mut. Ins. Co. (In re The Wallace & Gale

Co.), 385 F.3d 820, 835 (4th Cir. 2004) (where a party does not

comply with Rule 28 and fails to address a claim, the claim is

waived).

9

(quoting Roanoke Cement Co. v. Falk Corp., 413 F.3d 431, 433

(4th Cir. 2005)) (alteration in original). Under the clear

error standard, the court of appeals must affirm factual

findings if they are “plausible” in light of the entire record,

“even though convinced that had it been sitting as the trier of

fact, it would have weighed the evidence differently.” Walton v.

Johnson, 440 F.3d 160, 173 (4th Cir. 2006).

B.

In this diversity jurisdiction case, the parties are in

agreement that Texas law governs the common law claims asserted.

Under Texas law, TES’ fraudulent inducement claim required it

to prove, among other elements, that it justifiably relied on

KBR’s misrepresentations when entering into the settlement

agreement. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51

S.W.3d 573, 577 (Tex. 2001). The district court found that TES

proved its reliance was justifiable. Specifically, the district

court found:

TES’ willingness to enter into Amendment No. 2 was

related directly to KBR’s misrepresentations. KBR’s

representation that the government unilaterally

determined the amount to be paid to TES and its

repeated references to the Disputes Clause caused TES

to conclude that if TES were to seek more than what

KBR was offering, TES’ only remedy would be against

the government. For a variety of reasons, TES was not

willing to litigate against the government . . . .

[But] TES was fully prepared to pursue KBR, including

through litigation, if necessary, over its outstanding

10

DFAC invoices since, among other reasons, KBR had

already acknowledged the amount that was properly

payable to TES. TES questioned the accuracy of KBR’s

representations and, in response, KBR labeled as

inaccurate certain news reports concerning a

“settlement” with the government. KBR also provided

written confirmation of certain of its representations

in order to dispel any misgivings on TES’ part. TES

specifically conditioned its willingness to accept

KBR’s settlement offer and its willingness to release

KBR based on receiving those assurances and entered

into Amendment No. 2 only after receiving KBR’s

representations through KBR’s legal counsel. While

certain of TES’ officers suspected that certain of

KBR’s representations were untrue (while others, such

as its general counsel, did not), TES did not, in

fact, know at the time, and had no means of

determining, that KBR’s representations were untrue

and it took reasonable steps, because of its

suspicions, to ensure that they were true.

(J.A. 2387-88.)

The parties dispute the proper standard of review on this

issue. KBR argues that justifiable reliance in this case is a

legal issue that should be reviewed de novo. Citing Grant

Thornton, LLP v. Prospect High Income Fund, ML CBO IV (Cayman),

Ltd., 314 S.W.3d 913 (Tex. 2010), KBR contends that the issue

should be determined as a matter of law because there were “red

flags” in the case such that TES was alerted to the falsity of

KBR’s representations, thereby rendering its reliance

unjustified. See id. at 923 (“a person may not justifiably rely

on a representation if there are red flags indicating such

reliance is unwarranted.”) (internal quotation marks and

citation omitted). KBR also points to the testimony of some of

11

TES’ agents, involved in the negotiations with KBR, who stated

that they had concerns about the truthfulness of the

representations being made to them. Because of these “red

flags,” KBR argues, TES’ reliance was not justifiable as a

matter of law. KBR thus urges us to review the determination de

novo.

While there are cases in which justifiable reliance can be

determined as a matter of law, this is not one of them. See

1001 McKinney Ltd. v. Credit Suisse First Boston Mortg. Capital,

192 S.W.3d 20, 30 (Tex. App. 2005) (collecting authority and

noting that Texas state and federal “courts have uniformly

treated the issue of justifiable reliance as a question for the

factfinder”); id. at 35 (Frost, J., concurring and dissenting)

(noting that reliance may be determined as a matter of law, but

also recognizing that “i[f] there is a genuine issue of material

fact as to whether reliance was justifiable in a common-law

fraud case, then, of course, the factfinder should determine

this issue”). Instead, in this case, there are facts that could

support a conclusion either way. Thus, which version of events

to credit here was determined by the district court as a factual

matter based on its first-hand knowledge of the evidence and its

credibility determinations of the witnesses. We therefore agree

with TES that the justifiability of its reliance in this case is

a factual finding that we review only for clear error.

12

The district court’s finding was not clearly erroneous.

Although KBR argues the existence of any “red flags” should end

the inquiry, the district court concluded that it was precisely

because of the purported “red flags,” i.e., TES’ concerns, that

TES sought additional reassurances and particularly why it

sought assurances from KBR in writing. The record contains

ample support for the factual finding that TES justifiably

relied on KBR’s misrepresentations. For example, members of

TES’ Dubai team testified regarding the importance of KBR’s

representations in TES’ decision-making process. They also

emphasized that both KBR’s lead negotiator, retired three-star

Army General Paul Cerjan, and KBR’s lawyer, told TES that any

dispute over the payments would be with the government, and that

KBR did not know how site-specific numbers were reached.

Additionally, KBR denied it had negotiated with the government

and told TES that media reports to the contrary were inaccurate.

There was also testimony from TES that it would not have settled

without KBR’s written assurances of its representations.

Particularly in light of the district court’s opportunity

to observe the witnesses and assess credibility, we conclude

that the district court’s finding of reliance here is certainly

“plausible” in light of the entire record. Cf. Walton, 440 F.3d

at 173. Thus, we find no clear error.

13

C.

KBR’s second assignment of error is that the district court

erred in finding that TES was entitled to damages in the amount

of $12,424,387. We review the district court’s legal rulings as

to the damages award de novo and its factual finding as to the

amount of damages for clear error. Universal Furniture Int’l,

618 F.3d at 427.

In order to recover damages on its fraud claim, TES was

required to prove that KBR’s acts or omissions were a cause-in-

fact of TES’ foreseeable losses. Prospect High Income Fund, ML

CBO IV (Cayman), Ltd. v. Grant Thornton, LLP, 203 S.W.3d 602,

618 (Tex. App. 2006), rev’d on other grounds, Grant Thornton,

LLP, supra, 314 S.W.3d 913. KBR advances several theories

challenging the damages award. We have reviewed them and do not

find any persuasive.

KBR’s primary argument is that TES could not have recovered

any more than what it received in exchange for the release, due

to the “pay-when-paid” clause in Paragraph 3.1.4 of the General

Conditions of the Master Agreement:

Notwithstanding any other provision hereof, payment by

[the government] to [KBR] is a condition precedent to

any obligation of [KBR] to make payment hereunder.

[KBR] shall have no obligation to make payment to

[TES] for any portion of the Sublet Work for which

[KBR] has not received payment from [the government].

14

(J.A. 107.) Additionally, Amendment No. 1 to the Master

Agreement between KBR and TES acknowledged the continuing

validity of the pay-when-paid clause.

It is not entirely clear from the district court’s opinion

whether it was treating the provision merely as a timing of

payment provision or as a condition precedent. In any event, we

need not decide either (1) whether the provision was a condition

precedent; 4 or (2) if so, whether that condition was satisfied by

the partial payment to KBR pursuant to the KBR-ASC Settlement. 5

4

The contract itself describes the provision as a

“condition precedent.” (J.A. 107.) Additionally, in Amendment

No. 1, the language used is that payment is “conditioned on”

payment to KBR by the government. (J.A. 123.) See Gulf Constr.

Co. v. Self, 676 S.W.2d 624, 627 (Tex. App. 1984) (“While no

particular words are necessary for the existence of a condition,

such terms as ‘if,’ ‘provide that,’ ‘on condition that,’ or some

other phrase that conditions performance usually connote an

intent for a condition rather than a promise.”).

5

KBR argues that because it was not paid by the government

for the $12 million that TES now seeks, the condition precedent

was not satisfied. That is, of course, a simplistic view. As

pointed out by TES, the KBR-ASC Settlement was a global one for

all of KBR’s invoices, and did not dictate that any sub-

contractor be paid any specific amount. Moreover, TES as a

subcontractor, was not a party to the agreement between KBR and

the government in the KBR-ASC Settlement. Indeed, KBR’s

internal documents discussing how to negotiate with TES and

other subcontractors clearly recognized that

[i]f vendors [such as TES] don’t accept the settlement

and sue for recovery, we will probably have to turn

over USG documents and the vendors will see the

different settlement per [Task Order] . . . If they

prevail, we may have to pay them the ‘over recovery’

(Continued)

15

Even if the pay-when-paid clause was a condition precedent and

it was not satisfied by the partial payment by the government to

KBR, we agree with the district court that the prevention

doctrine would not allow KBR to rely on that condition to avoid

payment to TES of the amounts due.

The prevention doctrine, an equitable principle, bars a

party from relying on a condition precedent where that party’s

own wrongful conduct has prevented the condition from being met.

See Sanderson v. Sanderson, 109 S.W.2d 744, 749 (Tex. Comm’n

App. 1937) (referring to the “universal maxim that, where the

obligation of a party depends upon a certain condition being

performed, and the fulfillment of that condition is prevented by

the act of the other party, the condition is considered as

fulfilled”) (quotation marks and citation omitted).

As explained by the district court, “the KBR-ASC

[S]ettlement did not limit TES’ recovery against KBR on its DFAC

invoices given the manner in which KBR chose to enter into that

settlement.” (J.A. 2399.) In particular, by entering into the

settlement with ASC, KBR essentially preempted any government

decision and, further, could not have pursued TES' claims

and will have no way to recover it from other vendors

who haven’t sued us.”

(J.A. 2597.)

16

against the government on TES' behalf. Despite this, KBR led

TES to believe that a "decision" had been made as to the amounts

payable to TES, even going so far as to reference Section 3.0 in

its letter notifying TES of a government "decision." (See J.A.

2607.) 6 KBR’s general counsel also testified at trial that the

reference to Section 3.0 in that letter conveyed that any remedy

by TES was against the government, not KBR, and the district

court so found.

The district court thus reasoned:

The “pay when paid” provision of the Master Agreement

was inextricably bound up with TES’ rights against the

government in the event of a dispute. KBR’s actions

eliminated TES’ rights to seek additional payments on

its outstanding DFAC invoices and now prevent KBR from

relying on the “pay when paid” provision of the Master

Agreement.

(J.A. 2400-01.)

We find no error in the district court’s application of the

prevention doctrine. That is, KBR acted wrongfully because,

while agreeing the government did not have to pay KBR for the

6

Section 3.0 of the Special Conditions, titled “Disputes,”

states that “Notwithstanding any other provision in this

SUBCONTRACT,” any decision of the government is binding on TES

only if KBR notifies TES of the decision and, if requested by

TES, “appeals the decision in accordance with the Disputes

clause of the Prime Contract.” (J.A. 118.) According to the

contract documents, in the event of a conflict between contract

provisions, the Special Conditions, where Section 3.0 falls,

"take precedence" over the General Conditions, where the pay-

when-paid clause appears. (J.A. 114.)

17

full amount TES invoiced, it also gave away, without notice,

TES’ rights to pursue further payment against the government

through KBR, thereby preventing occurrence of the condition

precedent. It then falsely represented to TES that TES had no

remedy against KBR. As TES succinctly argues: “KBR was not at

liberty to fundamentally alter the contractual disputes and

payment process and then still rely upon a contractual defense

that presupposes the existence of that process.” (Br. of

Appellee at 48.) Accordingly, KBR’s own conduct prevented it

from relying on the pay-when-paid clause. See Moore Bros. Co.

v. Brown & Root, Inc., 207 F.3d 717, 725 (4th Cir. 2000) (where

the general contractor’s wrongful actions “‘contributed

materially’ to the non-occurrence of the condition precedent,”

the contractor could not rely on the pay-when-paid defense to

bar the plaintiff’s recovery) (citing Restatement (Second) of

Contracts § 245 (1981) cmt. b); 7 Urban Masonry Corp. v. N&N

7

KBR argues that Virginia law, applicable in Moore Bros. is

materially different law, but the prevention doctrine appears

substantially similar in Virginia and Texas. Compare, e.g.,

Moore Bros., 207 F.3d at 725 (setting forth Virginia law and

relying on Restatement (Second) of Contracts § 245) with

Sanderson, 109 S.W.2d at 749 (referring to the “universal maxim

that, where the obligation of a party depends upon a certain

condition being performed, and the fulfillment of that condition

is prevented by the act of the other party, the condition is

considered as fulfilled”) (quotation marks and citation

omitted); Heritage Life Ins. Co. v. Heritage Grp. Holding Corp.,

751 S.W.2d 229, 234 (Tex. App. 1988) (citing Restatement

(Second) of Contracts § 245 for same). Cf. Clear Lake City Water

(Continued)

18

Contractors, Inc., 676 A.2d 26, 36 (D.C. 1996) (in dispute

between subcontractor and general contractor, a walk-away

settlement between the owner and general contractor either

satisfied condition of “pay if paid” clause (because it

constituted sufficient “payment”), or, by settling without

securing outstanding payments for the sub-contractor, the

general contractor willfully hindered satisfaction of the

condition precedent and could not rely on it).

Having found that KBR could not rely on the pay-when-paid

clause to bar TES’ recovery, we conclude that the amount of

damages determined by the district court was not clearly

erroneous. The KBR-TES Settlement induced by fraud reduced the

agreed-upon amount KBR owed TES by $12,424,387 and an award in

that amount as compensatory damages was not error. We therefore

affirm the district court’s award of damages to TES on its fraud

claim.

Auth. v. Friendswood Dev. Co., 344 S.W.3d 514, 520 (Tex. App.

2011) (noting that Section 245 of the Restatement has not been

adopted by the Texas Supreme Court, but citing the general rule

that “a party who ‘prevents or makes impossible’ the occurrence

of a condition precedent upon which its liability under a

contract depends cannot rely on the nonoccurrence to escape

liability”).

19

D.

In addition to awarding TES compensatory damages on its

fraud claim, the district court also awarded punitive damages in

the amount of $4 million. KBR does not challenge the amount of

punitive damages, but instead contends that TES failed to prove

its fraud claim by the stringent “clear and convincing evidence”

standard, as required to award punitive damages under Texas law.

See Tex. Civ. Prac. & Rem. Code Ann. § 41.003 (West 2010)

(punitive damages permitted where each element of a plaintiff’s

fraud claim is proved by clear and convincing evidence); Foley

v. Parlier, 68 S.W.3d 870, 879-80 (Tex. App. 2002). Clear and

convincing evidence is a “degree of proof that will produce in

the mind of the trier of fact a firm belief or conviction as to

the truth of the allegations sought to be established.” Tex.

Civ. Prac. & Rem. Code Ann. § 41.001(2) (West 2003).

As an initial matter, we note that the district court

applied the proper standard and recited that it found each

element of the fraud claim had been proven by clear and

convincing evidence. It also described KBR’s conduct as

part of a well orchestrated and thought-out plan,

reviewed by its management before being implemented,

in order to eliminate KBR’s legal exposure for tens of

millions of dollars in additional liability . . . .

Organizationally, KBR devised a scheme that was

intended to conceal accurate information from TES,

even to the point of concealing accurate information

from certain of its own employees who were selected

because of their professional stature to convey false

20

information to TES. . . . Having made the decision to

resolve its contractual dispute with the government

without the knowledge or participation of TES, KBR was

then not free to misrepresent what had happened in

order to eliminate its own remaining legal exposure to

TES.

(J.A. 2403-04.)

This direct language from the district judge, who observed

the witnesses at trial, shows that the court was not merely

giving lip service to the clear and convincing standard, but in

fact held “a firm belief or conviction” that TES proved its

fraud claim against KBR. Cf. Tex. Civ. Prac. & Rem. Code Ann.

§ 41.001(2). Accordingly, the district court’s award of

punitive damages is affirmed.

III.

For the foregoing reasons, we affirm the judgment of the

district court.

AFFIRMED

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