                      Revised August 14, 2000

               IN THE UNITED STATES COURT OF APPEALS

                       FOR THE FIFTH CIRCUIT

                       ____________________

                           No. 99-20274
                       ____________________



     DUNBAR MEDICAL SYSTEMS INC

                     Plaintiff - Counter Defendant - Appellee

          v.


     GAMMEX INC, formerly known as Radiation Measurements Inc

                     Defendant - Counter Claimant - Appellant


_________________________________________________________________

           Appeal from the United States District Court
                for the Southern District of Texas
_________________________________________________________________

                           June 21, 2000

Before KING, Chief Judge, and REAVLEY and STEWART, Circuit
Judges.

KING, Chief Judge:

     Gammex Inc. appeals the district court’s entry of judgment

on Dunbar Medical Systems Inc.’s fraudulent inducement claim,

arguing that two clauses in the parties’ settlement agreement or

Texas Rule of Civil Procedure 11 bar that claim.   Gammex further

contends that the court erred in finding that there was no intent

to perform at the time the alleged misrepresentations were made,
in awarding punitive damages given the existence of contract

language barring the recovery of such damages, in awarding

punitive damages given the elements of fraud had not been proved

by clear and convincing evidence, and in awarding pre-judgment

interest on both compensatory and punitive damages.    We affirm

the entry of judgment and the award of punitive damages, and

reform the judgment solely to clarify the pre-judgment interest

award.



              I.   FACTUAL AND PROCEDURAL BACKGROUND

     Gammex Inc. is a manufacturer of teleradiology equipment,

which is used to digitize data from a medium such as x-ray film

or ultrasound and to transmit those data to a remote unit for

purposes of medical review and diagnosis.    Until 1994, Ms. Linda

Dunbar, president and sole shareholder of Dunbar Medical Systems,

Inc. (“DMSI”), was an independent distributor of teleradiology

equipment for Gammex.1    A by-product of the dissolution of the

parties’ relationship was a lawsuit, filed by Gammex on April 28,

1994, in which Gammex sought return of equipment and damages

(“1994 Litigation”).     In February 1995, DMSI filed a counterclaim

asserting breach of contract, fraud, defamation, and various

     1
        In early 1989, DMSI and DataSpan, Inc. entered into an
agreement whereby DMSI became an independent sales representative
for DataSpan. Radiation Measurements, Inc. is Gammex’s
predecessor in interest. DataSpan was acquired by
Gammex/Radiation Measurements in 1989. We refer to each of these
companies as “Gammex.”

                                   2
other claims against Gammex.    Shortly before trial, the parties

executed a Settlement Agreement.       That Agreement is the focus of

the case before us.

     Discussions leading up to the execution of the Settlement

Agreement occurred between December 1995 and July 1996.      In

December, the parties participated in unsuccessful court-ordered

mediation.   Sometime thereafter, Ms. Margaret Lescrenier, a vice-

president of Gammex, telephoned Ms. Dunbar to discuss settlement

terms, including the possibility of transferring equipment to

DMSI in lieu of cash.    The district court found that in that

conversation, Ms. Dunbar told Ms. Lescrenier that she did not

want to consider older Courier II units because they had software

and hardware defects.2   According to Ms. Dunbar, Ms. Lescrenier

assured her that the units would be new and come from the latest

run of fifty manufactured by Gammex and would be problem free.        A

follow-up letter dated February 1, 1996 faxed by Ms. Lescrenier

to Ms. Dunbar listed various equipment, including ten Courier II

units, that Gammex was willing to give DMSI.      The letter gave a

list price of the Courier II units of $10,000 each, a total list

price of all offered equipment of $203,600, and stated that

“[t]he majority of the above equipment is new, never been used.

Some of the Courier computers were demonstration units.”

     On February 8, Ms. Dunbar sent a fax to Ms. Lescrenier that

     2
        The Courier II is a stand-alone computer that runs
teleradiology equipment.

                                   3
responded to the proposal.   That transmission included a list of

the same equipment along with dealer transfer prices.    Ms.

Dunbar’s fax indicated that, based on the dealer prices, the

actual value of Gammex’s proposal was $44,654.25.    Ms. Dunbar

also stated that she did not “know what to do” with some of the

listed equipment, and that there had to be a cash settlement

along with the equipment package.

     The two principals again corresponded later in February.

Ms. Lescrenier proposed as a counteroffer a new combination of

equipment and $50,000 in cash.    Ms. Dunbar, the district court

found, emphasized in a phone conversation with Ms. Lescrenier the

importance to DMSI that the equipment (including the Courier IIs)

be new.   Ms. Lescrenier made the same representations as earlier

— that the Courier IIs were from the latest production run, and

that for the most part, the equipment was new or demonstration

units and thus practically new.    Ms. Dunbar requested a

particular type of camera that normally went with the base units

that were part of the proposed package, but was told that Gammex

had none in stock and did not wish to purchase one merely for

purposes of settlement.3

     These discussions were outlined in a fax dated February 26.

That communication (1) explained the equipment substituted for


     3
        Ms. Dunbar later determined that in fact, the camera’s
manufacturer had earlier ceased production of the requested
camera.

                                  4
the items for which Ms. Dunbar indicated she had no use; (2) made

reference to an exclusive dealer contract, a definition of a

sales territory, service arrangements, and assistance with

advertising that were agreed to in earlier mediation proceedings,

and (3) offered $50,000 in cash.       The total list price associated

with the new equipment package was $203,975, and again, the

communication indicated that the majority of the equipment was

“new, never been used” and that “[s]ome of the Courier computers

were demonstration units.”    The fax also stated that Ms. Dunbar

had “misstated the value of the equipment in the original list”

in her February 8 response.

     Negotiations resumed in late April, when Ms. Dunbar’s

attorney contacted Gammex’s counsel.      By April, DMSI was no

longer interested in maintaining certain relationships with

Gammex,4 and it indicated that several aspects of the earlier

proposals were no longer of value (e.g., a new distributorship

agreement, assistance with advertising).      Negotiations between

the parties’ counsel dealt, inter alia, with the amount of cash

Gammex was to pay to DMSI, the equipment to be transferred (e.g.,

whether mouses and cables were included, whether a six-month

warranty would be included, configuration and programming


     4
        The letter Ms. Dunbar’s attorney sent to Gammex’s
attorney listed as part of Ms. Dunbar’s settlement proposal that
“[a]ll continuing or past relationships will be severed (except
for the terms of the settlement agreement, the non-disclosure and
software license agreements).”

                                   5
issues), the availability of documentation regarding the

equipment, the availability of discounts on such items as

replacement parts, responsibility for shipping and insurance

costs, and the timing of the delivery of the cash and the

equipment.   Thus, the focus of the second stage was on the

consideration Gammex was to give DMSI in return for DMSI

releasing its claims.

     The parties eventually agreed to Gammex’s releasing claims

related to the 1994 Litigation, and transferring to DMSI the

equipment listed in Ms. Lescrenier’s second proposal and $70,000

in cash.   The final agreement included three express warranties:

(1) that Gammex “has good and clear title to the Equipment, and

that the Equipment is free of all liens, mortgages and

encumbrances at the time of shipment to Dunbar Medical”; (2) that

the equipment “is either new and has never been used, or has

previously been used as demonstration or loaner equipment”; and

(3) that the “Equipment, at the time of shipment to Dunbar

Medical, is working and operational in accordance with the

manufacturer’s specifications applicable to each item included in

the Equipment.”   In return, DMSI agreed to release claims related

to the 1994 Litigation.   The agreement was signed by Ms. Dunbar,

on behalf of herself and DMSI, on July 18, 1996; Charles

Lescrenier, Gammex’s CEO, signed the agreement on July 23, 1996.

     As per the agreement, Gammex transferred $70,000 to DMSI.

The parties dismissed, with prejudice, their respective claims.

                                 6
Ms. Dunbar sent to Gammex instructions regarding how the Courier

II units were to be configured and programmed.   DMSI received

equipment from Gammex, albeit after the date stated in the

Agreement.   After receiving the equipment, some of which was

damaged in transit, Ms. Dunbar determined through testing that it

differed in significant ways from what it had been represented to

be.

      As a result, on November 11, 1996, DMSI filed in the 152nd

Judicial District Court of Harris County, Texas an action

asserting breach of contract and fraud claims.   Gammex removed

the case on December 23, 1996 to the United States District Court

for the Southern District of Texas.5   In response to the district

court’s granting of Gammex’s November 28, 1997 motion for a more

definite statement, DMSI filed a first amended complaint on

January 16, 1998.   In that complaint, DMSI alleged breach of

contract and fraudulent inducement, and sought $150,000 in

compensatory damages, $600,000 in punitive damages, pre- and

post-judgment interest, and attorney fees.

      Gammex filed a motion for summary judgment on February 2,

1998, arguing, inter alia, that under the Texas Supreme Court’s

decision in Schlumberger Technology Corporation v. Swanson, 959

S.W.2d 171 (Tex. 1997), the Settlement Agreement barred DMSI’s

      5
        Jurisdiction is claimed under 28 U.S.C. § 1332. DMSI is
a Texas corporation with its principal place of business in
Harris County, Texas, and Gammex is a Wisconsin corporation with
its principal place of business in Middleton, Wisconsin.

                                 7
fraudulent inducement claim.6    The district court denied Gammex’s

motion on March 4, 1998, and also denied Gammex’s subsequent

motion to reconsider.7    A three-day bench trial began March 31,

1998.    Gammex’s motion for a judgment as a matter of law was

denied.

     In the district court’s careful and thorough Findings of

Fact and Conclusions of Law, the court admitted DMSI’s parol

evidence of Gammex’s prior oral representations and promises,

finding that they did not contradict or vary the Agreement, and

instead specified and clarified the nature of the equipment made

part of that Agreement.    It found that Gammex had breached its

contract with DMSI.    According to the court:

     The evidence revealed that some of the highly technical
     equipment was not only not new, but outmoded, or
     defective, or had been used not merely for
     demonstration or loaner purposes. The ten Courier II
     units were not programmed as set forth by Linda Dunbar
     in breach of Paragraph 2.2 of the Agreement. The
     evidence, both testimonial and spreadsheet
     documentation, showed that upon arrival, none of the
     ten Courier IIs captured images off the digitizer or
     ultrasound and that the equipment did not meet
     specifications provided to Gammex by DMSI . . . .
     [C]redible testimony established that a large portion
     of the equipment was not new, but used, and some
     nonoperational or only partly operational. Despite

     6
        The Settlement Agreement contains a choice-of-law clause
that provides that the Agreement “shall be construed and governed
by the laws of the State of Texas.”
     7
        Because Gammex’s motion to reconsider raised a new
argument — that Texas Rule of Civil Procedure 11 barred DMSI’s
claims — the lower court interpreted the motion as a supplemental
motion for summary judgment that was ripe for decision given DMSI
had responded.

                                  8
     Linda Dunbar’s insistence that she wanted Courier II
     units from the last production run that did not have
     the hard drive and software problems identified in the
     state court suit, none of the equipment sent to DMSI
     was manufactured later than 1993, and most was
     manufactured between 1990-1992. It included old,
     discontinued models . . . . Some of the equipment had
     been used and taken back by Gammex as trade-ins or
     exchanges.

The court also noted Ms. Dunbar’s testimony that the August 1996

value of the transferred equipment was no more than $20,000.   It

held that as a result of Gammex’s breach, DMSI was entitled to

$150,000 in benefit-of-the-bargain damages and to $35,200 in

attorney fees.

     The court went on to find that Gammex had fraudulently

induced DMSI to enter into the Settlement Agreement.   Ms.

Lescrenier was found by the court to have knowingly made false

statements regarding the transferred equipment’s value,

condition, and age.   The court found that the estimates of the

equipment’s value were “deliberately and greatly inflated.”    Ms.

Lescrenier’s statements, which were found by the district court

not to be expressions of opinion, were made with the intention of

causing Ms. Dunbar to rely on them and settle the parties’

dispute.   Ms. Dunbar was found to have relied on Ms. Lescrenier’s

statements and to have been injured as a result.   The court

determined that Gammex’s fraud entitled DMSI to $150,000 in

benefit-of-the-bargain damages, and $300,000 in punitive damages.

     As a result of these determinations, the court ordered on

November 23, 1998 that DMSI submit a proposed final judgment, and

                                 9
allowed Gammex to file objections to that proposed judgment.     On

February 22, 1999, the court entered final judgment, which, not

surprisingly, reflected DMSI’s election to recover under its

fraud in the inducement cause of action.   The court awarded DMSI

$150,000 in compensatory damages, $300,000 in punitive damages,

and pre- and post-judgment interest.   Gammex timely appealed.



              II.   THE FRAUDULENT INDUCEMENT CLAIM

     Before us, Gammex challenges only the district court’s entry

of judgment on DMSI’s fraudulent inducement claim, its award of

$300,000 in punitive damages, and its award of pre-judgment

interest on those punitive damages.8   In general, Gammex contends

that (1) DMSI’s claim is barred, either by the Settlement

Agreement’s terms or by Texas Rule of Civil Procedure 11; (2) the

evidence does not support the court’s finding of no intent to

perform; (3) the Agreement bars the punitive damage award;

(4) DMSI has not met its statutory burden in proving entitlement

to such damages; and (5) the lower court improperly awarded pre-

judgment interest on punitive damages.   We note that Gammex does

not challenge the lower court’s findings that Ms. Lescrenier made

the statements that are at the heart of DMSI’s fraudulent


     8
        Gammex concedes that DMSI is entitled to recover   $150,000
in compensatory damages on its breach of contract claim,   and to
receive $35,200 in attorney fees. It also concedes that    DMSI is
entitled to recover pre-judgment interest at the rate of   6% per
annum on the compensatory damages award.

                                10
inducement claim, that the statements included misrepresentations

of fact, or that Ms. Dunbar relied on Ms. Lescrenier’s

statements.   In assessing Gammex’s arguments, we apply the well-

established standard of review applicable to bench trials,

examining questions of law de novo, and reviewing findings of

fact for clear error.   See Gebreyesus v. F.C. Schaffer & Assocs.,

Inc., 204 F.3d 639, 642 (5th Cir. 2000).



         A.   Whether Contractual Provisions Act as a Bar

     Gammex contends that under Schlumberger Technology

Corporation v. Swanson, 959 S.W.2d 171 (Tex. 1997), two

provisions within the Settlement Agreement operate to bar DMSI’s

fraudulent inducement claim.   The first is an “as is” clause,

which provides that “[e]xcept as expressly provided for herein,

the equipment is conveyed and transferred by Gammex to Dunbar

Medical as is, where is, and with all faults, and there are no

warranties which extend beyond the description of the equipment

on the face of exhibit ‘A’ attached hereto.”9   ¶ 2.2.   The second

provision, a merger clause, provides that the Settlement

Agreement “contains the entire agreement between the parties, and

no representations, inducements, promises, or agreement, oral or

otherwise between the parties with reference thereto and not


     9
        The quoted language appears in all capital letters, in a
bold-face type, at the end of the paragraph that lists Gammex’s
warranties with regard to the equipment.

                                11
embodied herein shall be of any force.” ¶ 4.2.

     The district court rejected Gammex’s argument in its review

of Gammex’s motion for summary judgment.   It distinguished

Schlumberger from the case sub judice by noting that “while the

agreement here may appear to Gammex to be an integrated one,

there was no express, specific disclaim of reliance on Gammex’s

alleged statements and representations.”   We also reject Gammex’s

argument, but do so for somewhat different reasons.

     In Schlumberger, the Texas Supreme Court recognized the

inherent tension between the principle that the “[p]arties should

be able to bargain for and execute a release barring all further

dispute,” 959 S.W.2d at 179, and prior authority holding that

clauses in contracts, including merger and disclaimer provisions,

need not bar subsequent claims of fraudulent inducement.      See id.

at 178-79.   The court held that “a release that clearly expresses

the parties’ intent to waive fraudulent inducement claims, or one

that disclaims reliance on representations about specific matters

in dispute, can preclude a claim of fraudulent inducement,” but

also emphasized that “a disclaimer of reliance or merger clause

will not always bar” such a claim.10   Id. at 181.   Because the

     10
        The court cited its opinion in Prudential Insurance Co.
v. Jefferson Associates, Ltd., 896 S.W.2d 156, 162 (Tex. 1995),
as describing some of the circumstances under which such clauses
would not be binding. Included in those circumstances are where
the contract was procured by fraud and where a seller’s conduct
obstructs a buyer’s ability to inspect the condition of what is
being sold. See id. The court also noted that “[w]here the ‘as
is’ clause is an important part of the basis of the bargain, not

                                12
parties should be able to rely on their negotiated disclaimer or

merger clauses to resolve fully their disputes, the question for

the court was “under which circumstances such disclaimers are

binding.”   Id. at 179.   For the answer to this question, the

court looked to “[t]he contract and the circumstances surrounding

its formation . . . .”    Id.; see also Prudential Ins. Co. v.

Jefferson Assocs., Ltd., 896 S.W.2d 156, 162 (Tex. 1995) (stating

that, in determining whether an “as is” clause is unenforceable,

“[t]he nature of the transaction and the totality of the

circumstances surrounding the agreement must be considered”).

     We read Schlumberger as holding that particular contract

clauses may, under certain limited circumstances, curtail the

contracting parties’ ability to challenge the contract’s validity

on fraudulent inducement grounds.      Schlumberger gives us some

indication of what those circumstances may include.     That the

negotiating parties in Schlumberger were represented by counsel,

were experts in the subject matter of the negotiations, and were

bargaining at arm’s length were important to the court.11     See

Schlumberger, 959 S.W.2d at 180.      In addition, the court noted



an incidental or ‘boiler-plate’ provision, and is entered into by
parties of relatively equal bargaining position, a buyer’s
affirmation and agreement that he is not relying on
representations of the seller should be given effect.” Id.
     11
        The argument that merger or disclaimer clauses should be
binding whenever parties to the agreement were represented by
independent legal counsel was expressly rejected by the
Schlumberger court. See 959 S.W.2d at 178.

                                 13
that at the center of the parties’ dispute was the object of the

alleged misrepresentations — the value of the mining project —

and that the sole purpose of the unambiguous release was to end

that dispute “once and for all.” Id.

     We must assess whether Gammex and DMSI’s Settlement

Agreement “clearly expresses the parties’ intent to waive

fraudulent inducement claims, or . . . disclaims reliance on

representations about specific matters in dispute.”    Id. at 181.

The parties in the instant action were represented by counsel,

and bargained at arm’s length over the terms of the Settlement

Agreement.   The final bargain struck exchanged releases of claims

for equipment and cash.   Both parties could be considered

extremely knowledgeable about the type of equipment reflected in

the agreement — one manufactured and marketed that equipment, the

other was previously a distributor of the equipment.

     We nonetheless conclude that under the circumstances of this

case, the “as is” and merger clauses do not bar DMSI’s fraudulent

inducement claim.   The Agreement reflects that Gammex and DMSI

specifically contemplated future, although not continuing,

interactions with one another.   DMSI had the right to send one

employee to Gammex’s offices for training on the Courier II and

other equipment, Gammex was to provide DMSI free support by

telephone for one year, and Gammex agreed to apply for one year

its standard trade discount to DMSI’s purchases of replacement

parts and supplies.   In addition to future interactions, the

                                 14
parties contemplated future disputes related to the Settlement

Agreement.    A punitive-damages provision in that Agreement

presupposes a claim arising from or related to it.       This

suggests that the parties were not seeking to end all disputes

between them “once and for all.”       Schlumberger, 959 S.W.2d at

180.    Although these observations are not dispositive, they frame

our analysis of the “as is” and merger clauses.

       As the Texas Supreme Court noted in Prudential Insurance,

although an “as is” clause can negate a claim that a seller’s

conduct caused a buyer injury, see 896 S.W.2d at 161, such a

clause is not always enforceable.      See id. at 162.   The court

explicitly noted that fraud used to induce agreement was a

circumstance that rendered that clause unenforceable.       See id.

(“A buyer is not bound by an agreement to purchase something ‘as

is’ that he is induced to make because of a fraudulent

representation or concealment of information by the seller.”).

The issue at hand is whether the “as is” clause demonstrates the

parties’ clear intent to waive fraudulent inducement claims or

disclaim reliance on representations about specific matters in

dispute.    See Schlumberger, 959 S.W.2d at 181.

       We conclude that it does not.    The misrepresentations in

this case went to the condition of the equipment (i.e., its

“newness” and its being problem-free).      The contract specifically

warrants that the equipment be either “new and . . . never . . .

used, or . . . previously . . . used as demonstration or loaner

                                 15
equipment” and that it would be “working and operational in

accordance with the manufacturer’s specifications . . . .”     The

“as is” clause specifically excepts the other explicit

warranties.   Under these circumstances, we cannot conclude that

DMSI, in agreeing to the “as is” clause, disclaimed reliance on

Gammex’s representations regarding the equipment’s age or

functioning, or intended to waive fraudulent inducement claims.

Cf. SMB Partners, Ltd. v. Osloub, 4 S.W.3d 368, 371 (Tex. App.

1999, no pet.) (holding that an “as is” clause that specifically

excluded other warranties did not apply to the purported

misrepresentation and thus did not bar the fraudulent inducement

claim).

     The merger clause, on its face, represents a closer

question.   In agreeing to that clause, DMSI agreed that “no

representations   . . . oral or otherwise between the parties with

reference [to the Settlement Agreement] and not embodied [in the

Agreement] shall be of any force.”   Again, however, we find that

the language of the clause is not sufficient to bar DMSI’s

fraudulent inducement claim.   Gammex contends that Ms.

Lescrenier’s representations regarding the equipment’s age and

ability to operate problem-free are not embodied in the

Settlement Agreement’s language, and DMSI argues the opposite.

The agreement’s reference to new equipment that had never been

used is the outgrowth of the February discussions regarding the

equipment, appearing in the contract after DMSI reminded Gammex

                                16
of Ms. Lescrenier’s proposal that the majority of the equipment

was new, with some demonstration equipment, and drafted proposed

language that stated that the equipment is “either new and never

been used or only used as demonstration units.”12   Whether this

history is sufficient to conclude that the representations are

embodied in the agreement is something we need not decide, for we

can say that under the circumstances, the agreement does not

reflect the “requisite clear and unequivocal expression of intent

necessary to disclaim reliance on the[] specific representations”

by Gammex.   Schlumberger, 959 S.W.2d at 179.   As a result, the

district court did not err in concluding that DMSI’s fraudulent

inducement claim was not barred.13




     12
        DMSI also sought additional language relating to a six-
month warranty on the equipment. This was rejected. The
description of the equipment to be transferred in the final
agreement differs from the description in the documents exchanged
by Ms. Lescrenier and Ms. Dunbar in including a reference to
“loaner” equipment. This addition does not contradict Ms.
Lescrenier’s representations, however, as loaner equipment,
although not new, could still come from the last fifty
manufactured by Gammex and be problem-free.
     13
        We note that the parties negotiated separate release
clauses covering any and all claims “made in or based on or
related to the claims made in the Litigation.” The “Litigation”
was defined as the action Gammex initiated in 1994. Thus, we do
not read the release clauses as covering claims arising from the
Settlement Agreement. Indeed, in a section of the contract
separate from the “Releases” section, the parties included
provisions relating specifically to the Settlement Agreement.
Those provisions were the merger clause, the clause prohibiting
recovery of punitive and special damages, and the choice-of-law
clause.

                                17
      B.   Whether Rule 11 Acts to Make Oral Representations
                           Unenforceable

     Gammex also argues that under the Texas Supreme Court’s

opinion in Padilla v. LaFrance, 907 S.W.2d 454 (Tex. 1995), Texas

Rule of Civil Procedure 11 makes oral representations made in the

course of negotiating a settlement agreement unenforceable.14    As

a result, DMSI cannot rely on Ms. Lescrenier’s statements to

support a claim of fraudulent inducement.   Gammex takes issue

with the district court’s rejection of this argument, contending

that the court erred in concluding that because the Settlement

Agreement was to be performed in less than one year, the statute

of frauds does not apply.

     Like the district court, we conclude that Gammex’s argument

must be rejected, although we base our decision on different

reasoning.   In Padilla, the Texas Supreme Court faced the

question of whether a series of letters between parties

constituted an agreement that satisfied Rule 11’s writing

requirement.   Analogizing to the statute of frauds, the court

held that the letters evidenced a binding agreement, in part

because they reflected “all material terms of the agreement.”

907 S.W.2d at 460-61.   Gammex wishes to use language within the


     14
        Under Rule 11, “no agreement between attorneys or
parties touching any suit pending will be enforced unless it be
in writing, signed and filed with the papers as part of the
record, or unless it be made in open court and entered of
record.” TEX. R. CIV. P. 11 (West 2000).


                                18
Padilla opinion to require that all oral representations made in

the context of settlement negotiations be in writing in order to

be enforceable.     See id. at 460 (“To satisfy the statute of

frauds, ‘there must be a written memorandum which is complete

within itself in every material detail . . . .’” (quoting Cohen

v. McCutchin, 565 S.W.2d 230, 232 (Tex. 1978))).     Gammex contends

that because oral settlement agreements are unenforceable as a

matter of law, no claim of fraudulent inducement can be brought.

It looks to Weakly v. East, 900 S.W.2d 755, 758 (Tex. App. 1995,

writ denied), for support for this contention.

      We find Weakly distinguishable on its facts.    In that case,

plaintiffs alleged that defendants, in an effort to forestall the

sale of the real estate to another buyer and to purchase that

property at a lower price in a foreclosure sale, promised to

purchase real estate with no intention of actually carrying out

that promise.     See id. at 758.   The court found that the essence

of the fraud claim was the oral promise to purchase realty.       See

id.   Because a contract for the sale of realty is not enforceable

unless in writing, and because the alleged fraud did not prevent

the necessary writing, the court found that summary judgment in

favor of the defendants was proper on the fraud claim.      See id.

      Gammex’s argument could have more force if DMSI was seeking

to enforce as a contract an alleged oral settlement agreement

between Ms. Dunbar and Ms. Lescrenier.     Here, however, DMSI

challenges the validity of the signed Agreement.     Unlike the

                                    19
plaintiffs in Weakly, DMSI alleges that Gammex’s actions

constituted fraud in the inducement — the writing, signed by the

parties, was procured by Ms. Lescrenier’s misrepresentations as

to the condition of the equipment to be transferred.    This

allegation cannot be said to be an attempt to by-pass the statute

of frauds via a fraud claim, or an attempt to enforce an

otherwise unenforceable oral settlement agreement.   DMSI’s injury

stems from Gammex’s alleged violation of its independent legal

duty not to procure a contract with DMSI through fraud.    See

Formosa Plastics Corp. USA v. Presidio Engineers & Contractors,

960 S.W.2d 41, 46 (Tex. 1998).

     Gammex seeks to distinguish Formosa on the ground that it

involves a contract, rather than a settlement agreement.    Rule 11

applies only to settlement agreements.   Although it is clear that

a settlement agreement must be in writing to be enforceable under

Texas courts’ interpretation of Rule 11, we must reject Gammex’s

attempt to rely on the scope of that Rule to negate DMSI’s

fraudulent inducement claim.   We can think of no principled

reason for distinguishing between fraudulent inducement claims

targeting contracts and those targeting settlement agreements,

and Texas law provides us with no cause to do so.

     In general, Texas law treats a settlement agreement as a

contract, and courts typically analyze an agreement’s

enforceability following contract law.   See Certain Underwriters

at Lloyd’s v. Oryx Energy Co., 203 F.3d 898, 901 (5th Cir. 2000);

                                 20
Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990); National Cas.

Co. v. Lane Express, Inc., 998 S.W.2d 256, 262 (Tex. App. 1999,

writ denied); Stewart v. Mathes, 528 S.W.2d 116, 118 (Tex. Civ.

App. 1975, no writ).    Like a contract, “an agreement in

compliance with [Rule 11] is subject to attack on the grounds of

fraud or mistake.”     Kennedy v. Hyde, 682 S.W.2d 525, 529 (Tex.

1984) (citing Burnaman v. Heaton, 240 S.W.2d 288 (Tex. 1951)).

There is no suggestion in the instant case that the signed

Settlement Agreement does not comply with Rule 11’s requirements.

“[A] fraud claim can be based on a promise made with no intention

of performing, irrespective of whether the promise is later

subsumed within a contract.”     Formosa, 960 S.W.2d at 46; see also

Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432 (Tex. 1986)

(holding, in a fraudulent misrepresentation case, that evidence

was sufficient to support jury finding that employer did not

intend to implement a bonus plan when he orally promised to do

so).   Under Texas law, parties challenging contracts as

fraudulently induced may rely on evidence of oral promises or

agreements to support their claims.     See Santos v. Mid-Continent

Refrigerator Co., 471 S.W.2d 568, 569 (Tex. 1971) (per curiam)

(“The parol evidence rule will not prevent proof of fraud or

mutual mistake.”); Dallas Farm Mach. Co. v. Reaves, 158 Tex. 1,

307 S.W.2d 233, 239 (1957) (holding that a merger clause does not

bar the use of parol evidence to establish that the contract was

induced by fraud).     Padilla negates none of these principles.    We

                                  21
therefore conclude that neither Padilla nor Rule 11 precludes

DMSI’s fraudulent inducement claim.15



    C.    Whether a Factual Basis Exists for a Finding of Fraud

     Under Texas law, a party claiming fraudulent inducement must

demonstrate (1) a material representation, (2) that was false,

(3) that was either known to be false when made or was asserted

without knowledge of the truth, (4) that was intended to be acted

upon, (5) was relied upon, and (6) that caused injury.    See

Formosa, 960 S.W.2d at 47; DeSantis v. Wackenhut Corp., 793

S.W.2d 670, 688 (Tex. 1990), cert. denied, 498 U.S. 1048 (1991).

“A promise of future performance constitutes an actionable

misrepresentation if the promise was made with no intention of

performing at the time it was made.”    Formosa, 960 S.W.2d at 48.

     Gammex contends that the district court erred in finding

that Ms. Lescrenier intended not to perform at the time she

     15
        Gammex also contends that we should apply language from
Boggan v. Data Systems Network Corp., 969 F.2d 149 (5th Cir.
1992), to hold that Ms. Lescrenier’s statements cannot constitute
actionable misrepresentations. See id. at 153 (“It is well
settled that the negotiations and discussions leading up to the
writing cannot displace the terms of the written agreement.”).
We decline to do so. Our decision in Boggan was in part based on
the finding that the alleged misrepresentations were expressions
of intent, rather than statements of fact, see id., and that
statements such as “I think we have a deal” could not, under the
circumstances, be considered actionable misrepresentations. In
the case before us, the district court found that Ms.
Lescrenier’s statements were misrepresentations of fact, or
promises made with no intention of performing. Each of these is
an actionable misrepresentation under Texas law. See Formosa,
960 S.W.2d at 46-48.

                                 22
represented that the transferred Courier IIs would come from the

last production run and would be problem free.   To support this

contention, it points to the fact that the Ms. Lescrenier’s

proposals were not fully accepted in February, to evidence that

Ms. Lescrenier relied on a list of available equipment prepared

by Mr. Sopotnick, and to evidence that Ms. Lescrenier did not

participate in the second stage of negotiations.   Gammex urges us

to conclude that the evidence supporting the lower court’s

finding of the requisite intent is “so weak that it creates only

a mere surmise or suspicion of its existence,” T.O. Stanley Boot

Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992), and is

thus insufficient.

     Our review of the district court’s finding is limited.

Under the Federal Rules, “due regard shall be given to the

opportunity of the trial court to judge of the credibility of the

witnesses.” FED. R. CIV. P. 52(a); see also Coury v. Prot, 85 F.3d

244, 254 (5th Cir. 1996).   “The burden of showing that the

findings of the district court are clearly erroneous is heavier

if the credibility of witnesses is a factor in the trial court’s

decision.” Id. at 254 (citing Village Fair Shopping Ctr. v.

Stanley Broadhead Trust, 588 F.2d 431, 434 n.2 (5th Cir. 1979)).

In this case, the trial judge specifically noted her assessments

of Ms. Dunbar’s, Ms. Lescrenier’s, and Mr. Sopotnick’s

credibility.

     We do not emerge from our review of the record with a

                                23
“‘definite and firm conviction that a mistake has been

committed.’” Concrete Pipe & Prods. of Cal., Inc. v. Construction

Laborers Pension Trust for Southern Cal., 508 U.S. 602, 622

(1993) (quoting United States v. United States Gypsum Co., 333

U.S. 364, 395 (1948)).   Evidence indicates that although Ms.

Lescrenier was not an active participant in the last rounds of

negotiations, her second February proposal was a basis upon which

those negotiations built.   Although Ms. Lescrenier indicated in

her testimony that Gammex’s inventory changed between February

and August, when the equipment was shipped, Mr. Sopotnick

testified that there was no change.     He also testified that Ms.

Lescrenier accompanied him when he reviewed the inventory to

assess what equipment was available.     Given this and other

evidence in the record, we conclude that the district court’s

finding is not clearly erroneous.



        III.   PUNITIVE DAMAGES AND PRE-JUDGMENT INTEREST

     Because we conclude that the district court did not err in

entering judgment on DMSI’s fraudulent inducement claim, we turn

to Gammex’s challenges to the lower court’s punitive damages and

pre-judgment interest decisions.     With regard to punitive

damages, Gammex contends that the district court erred in not

enforcing a contractual provision in which DMSI explicitly

released claims for punitive damages, and that DMSI is not

entitled to such damages because it has not met its statutory

                                24
burden of proof.

     The parties’ Settlement Agreement provides that

     As to any and all claims that may be asserted by Dunbar
     Medical or Dunbar arising from or in any way relating
     to this Settlement Agreement, including but not limited
     to the Equipment, in no event shall Dunbar Medical or
     Dunbar be entitled to recover special, consequential or
     punitive damages, and recovery of special,
     consequential or punitive damages shall be absolutely
     precluded.

Gammex contends that this language must be interpreted as a

release of DMSI’s punitive damages claim, and that because the

clause was freely negotiated, it bars DMSI’s recovery of such

damages.

     In general, a party is not bound by a fraudulently induced

contract.    See Formosa, 960 S.W.2d at 46; Prudential Ins., 896

S.W.2d at 162.   Underlying this rule is the notion that a party

induced by fraud to enter into an agreement has not provided the

assent necessary to make a binding contract.    See Dallas Farm

Mach. Co., 307 S.W.2d at 240; Edward Thompson Co. v. Sawyers, 111

Tex. 374, 234 S.W. 873, 874 (1921) (“Contracts, though reduced to

writing, are avoided when induced by material promises, never

intended to be kept, not because one is allowed to vary his

written contract, but because real assent is essential to a

binding contract.”).   “One who is entitled to avoid an entire

written contract because it lacked his assent can no longer be

held bound by any of its stipulations . . . .” Sawyers, 234 S.W.

at 874-75.


                                 25
     Because a party is not bound by a contract he was induced by

fraud to enter, we find inapplicable Memorial Medical Center v.

Keszler, 943 S.W.2d 433 (Tex. 1997), a case Gammex relies upon to

support its contention that the punitive damages provision is

enforceable.   In Memorial Medical, the Texas Supreme Court

determined, inter alia, that a post-injury release of claims for

gross negligence is not against public policy.    See id. at 435.

The settlement agreement and release at issue in the case were

considered valid documents.    See id. at 434 (“The parties . . .

have not contested the validity of the release or claimed

ambiguity or fraud in its execution.”).   Thus, the issue regarded

the enforceability of a clause within the contract, not the

validity of the contract.    Here, we consider whether a clause in

a contract otherwise unenforceable against DMSI may nonetheless

preclude punitive damages.    We hold that it cannot.   Because DMSI

was found to have been induced into entering the Settlement

Agreement by Gammex’s fraud, the district court did not err in

concluding that the Agreement’s punitive damages provision was

not binding on DMSI.

     Gammex next argues that DMSI has not met its burden under

section 41.003 of the Texas Civil Practice and Remedies Code, and

therefore is not entitled to a punitive damages award.    Section

41.003(a) provides that a claimant prove “by clear and convincing

evidence that the harm with respect to which the claimant seeks

recovery of exemplary damages results from (1) fraud, (2) malice,

                                 26
or (3) wilful act or mission or gross neglect in wrongful death

actions . . . .”   Gammex attacks the lack of “clear and

convincing” evidence supporting a finding of no intent to perform

on the part of Ms. Lescrenier, and argues that this case exhibits

neither the “evil mind,” Transportation Ins. Co. v. Moriel, 879

S.W.2d 10, 18 (Tex. 1994), nor the “extraordinary harm,” id. at

24, that are required under Texas law to award punitive damages.

     Gammex’s reliance on Moriel and other cases building on its

principles is misplaced.    The cases cited each deal with

allegations of bad faith.    See State Farm Fire & Cas. Co. v.

Simmons, 963 S.W.2d 42 (Tex. 1998) (involving allegations that

insurance company breached its duty of good faith and fair

dealing); Universe Life Ins. Co. v. Giles, 950 S.W.2d 48 (Tex.

1997) (same); Moriel, 879 S.W.2d at 14 (same).      As subsequent

Texas Supreme Court decisions have recognized, Moriel “clarified

the requirements for the imposition of punitive damages in a bad

faith case.”   Simmons, 963 S.W.2d at 47; see also Giles, 950

S.W.2d at 54 (noting Moriel limits recovery of punitive damages

in bad faith cases to, among others, those able to show

fraudulent conduct in addition to bad faith).

     This is a fraud case.    Under section 41.003(a), DMSI had the

burden of demonstrating that its harm was due to Gammex’s fraud.

The statute defines fraud to be “fraud other than constructive

fraud.”   TEX. CIV. PRAC. & REM. CODE ANN. § 41.001(6).   As the Texas

Supreme Court has noted, “[a] finding of intent to harm or

                                  27
conscious indifference to the rights of others will support an

award of exemplary damages.    In [Trenholm v. Ratcliff, 646 S.W.2d

927, 933 (Tex. 1983)], this court held that a fraudulent

inducement was enough to support at least a finding of conscious

indifference.” Spoljaric, 708 S.W.2d at 436 (internal citations

omitted).   DMSI did not also need to show malice, as the statute

is explicit in providing that a claimant needs to show harm from

fraud or malice.

     DMSI was required to show by clear and convincing evidence

the elements of punitive damages provided in section 41.003(a).

See TEX. CIV. PRAC. & REM. CODE ANN. § 41.003(b).   Clear and

convincing evidence is “that measure or degree of proof which

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.” Id. § 41.001(2).    Gammex contends only that

evidence is insufficient to support a finding that Ms. Lescrenier

had no intent to perform when she assured Ms. Dunbar of the

condition of the equipment to be transferred.       We have considered

the evidence under the clear error standard and have rejected

Gammex’s argument.   It fares no better under the standard

applicable here.   Thus, we conclude that the district court did

not err in awarding punitive damages.

     The final argument Gammex raises before us challenges the

district court’s award of pre-judgment interest.      The court’s

judgment provides that DMSI “is also entitled to recover pre-

                                  28
judgment interest at the rate of 10% per annum from November 18,

1996 until entry of judgment . . . .”        Gammex contends that this

is an award of pre-judgment interest on punitive damages in

addition to compensatory damages.      Under Texas law, pre-judgment

interest is not recoverable on an award of punitive damages.         See

TEX. CIV. PRAC. & REM. CODE ANN. § 41.007.    We hold that DMSI is

entitled to pre-judgment interest at the rate of 10% per annum

assessed on only the compensatory damages portion of its award.16



                           IV.   CONCLUSION

     For the foregoing reasons, we affirm the district court’s

entry of judgment on DMSI’s fraudulent inducement claim, and its

award of punitive damages.    We reform the judgment to clarify

that pre-judgment interest at the rate of 10% per annum is to be

assessed only on the compensatory damage award.        See Krieser v.

Hobbs, 166 F.3d 736, 747 (5th Cir. 1999).

     AFFIRMED in part; REFORMED in part.       Gammex shall bear the

costs of this appeal.




     16
        Gammex also asks that we reform the interest award to
reduce the rate to 6%, as this was the rate DMSI requested. It
does not contend that an award at the higher rate was erroneous,
and thus we deny its request.

                                  29
