Opinion
No. 04-06-00507-CV
Delivered and Filed: January 9, 2008.
Appeal from the 150th Judicial District Court, Bexar County, Texas, Trial Court No. 2001-CI-05864, Honorable Janet Littlejohn, Judge Presiding.
The Honorable Janet Littlejohn signed the final judgment in this case, which is not the subject in this appeal. However, over the course of the litigation, three summary judgments were rendered by three different trial courts. These summary judgments are the subject of this appeal.
REVERSED REMANDED.
Sitting: CATHERINE STONE, Justice, SANDEE BRYAN MARION, Justice, PHYLIS J. SPEEDLIN, Justice.
MEMORANDUM OPINION
Jason Jacoby, as president of C.E. Entertainment, appeals from a summary judgment rendered in favor of Alfredo Hinojosa and Gustavo Felix in their roles as officers and investors in O.K. Corral, Inc. Because Hinojosa and Felix failed to prove they were entitled to summary judgment as a matter of law on Jacoby's claims, we reverse and remand for further proceedings.
BACKGROUND
Business partners Alfredo Hinojosa and Gustavo Felix formed O.K. Corral, Inc. to operate a nightclub in San Antonio, Texas. The record indicates Felix was the sole investor in O.K. Corral, while Hinojosa performed the daily tasks of operating the club. On May 17, 2000, Hinojosa, on behalf of O.K. Corral and with the approval of Felix, contracted with C.E. Entertainment, Inc. ("CEE") to purchase a night club. Jason Jacoby signed the contract on behalf of CEE and Hinojosa signed for O.K. Corral. The terms of the sale called for O.K. Corral to pay $110,000 into escrow in order to assume control of the club under CEE's existing liquor license, with release of the escrow to CEE when O.K. Corral received its own liquor license. In addition, O.K. Corral was to pay fourteen monthly payments of $10,000 per month to commence in July 2000. Jacoby and Hinojosa met at CEE's bank, where CEE added Hinojosa as an authorized signer to CEE's checking account, apparently in furtherance of the parties' intent that O.K. Corral would operate under CEE's liquor license for a period of time. O.K. Corral received its liquor license in October 2000 and released the $110,000 escrow to CEE. The club soon experienced problems and closed its doors at the end of December 2000. The property was returned to CEE.
Jacoby and CEE sued O.K. Corral, Hinojosa, and Felix alleging the following causes of action: (1) breach of contract; (2) breach of fiduciary duty; and (3) fraud based on defendants' alleged misrepresentations regarding their intent to manage and purchase the club. Hinojosa and Felix each filed separate motions for traditional summary judgment on all of Jacoby's claims. The trial court granted the motions and rendered partial summary judgments in favor of Hinojosa and Felix. Hinojosa then moved for a traditional summary judgment as to any claims asserted by CEE. The trial court granted the motion and rendered summary judgment against CEE. The parties agreed to a final judgment against O.K. Corral in favor of Jacoby. Jacoby and CEE now appeal the summary judgments in favor of Hinojosa and Felix.
SUMMARY JUDGMENT ON JACOBY AND CEE'S CLAIMS
As the defendants moving for summary judgment on a plaintiff's cause of action, Hinojosa and Felix bore the burden of showing that no genuine issue of material fact exists and that they are entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c). Summary judgment for a defendant is proper only when the defendant negates at least one element of each of the plaintiff's theories of recovery, or pleads and conclusively establishes each element of an affirmative defense. Science Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). When reviewing a summary judgment, we take as true all evidence favorable to the nonmovant, and we indulge every reasonable inference and resolve any doubts in the nonmovant's favor. Id. "[T]the question on appeal, as well as in the trial court, is not whether the summary judgment proof raises fact issues with reference to the essential elements of a plaintiff's claim or cause of action, but is whether the summary judgment proof establishes as a matter of law that there is no genuine issue of fact as to one or more of the essential elements of the plaintiff's cause of action." Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex. 1970).
A. Breach of Contract
In his petition, Jacoby alleged Hinojosa and Felix breached the contract by failing to make the required payments and by converting and vandalizing property and fixtures. Jacoby also alleged in his petition that the corporate veil should be pierced because "1) the corporate fiction of O.K. Corral, Inc., was used to perpetuate a fraud, 2) O.K. Corral, Inc., was organized and operated as a mere tool or business conduit of another corporation and/or 3) O.K. Corral, Inc., was inadequately funded."
Hinojosa and Felix each moved for a traditional summary judgment on the grounds that they were not parties to the contract and did not sign the contract in their individual capacities; therefore, Jacoby could not pursue his breach of contract claim against them individually. Hinojosa also moved for summary judgment as to any claims asserted by CEE, asserting the same arguments as in his own motion for summary judgment, as well as the additional argument that because CEE's claims were pled in conjunction with Jacoby's claims, CEE's claims failed because the trial court "did not believe that the cited acts [alleged by Jacoby] rose to a level that allowed the corporate veil to be pierced." Therefore, Hinojosa argued that because the trial court rendered summary judgment against Jacoby, summary judgment against CEE also was proper.
An individual can incorporate a business and thereby shield himself from personal liability for the corporation's contractual obligations. See Willis v. Donnelly, 199 S.W.3d 262, 271 (Tex. 2006). However, an individual may be held personally liable for a corporation's contractual obligations if a plaintiff can establish that the corporate fiction should be disregarded, such as where (1) the fiction is used as a means of perpetrating fraud; (2) a corporation is organized and operated as a mere tool or business conduit of another corporation; (3) the corporate fiction is resorted to as a means of evading an existing legal obligation; (4) the corporate fiction is employed to achieve or perpetrate monopoly; (5) the corporate fiction is used to circumvent a statute; or (6) the corporate fiction is relied upon as a protection of crime or to justify wrong. See Castleberry v. Branscum, 721 S.W.2d 270, 272 (Tex. 1986). Neither Hinojosa nor Felix moved for summary judgment on the grounds that the corporate fiction should not be disregarded. Instead, they sought summary judgment only on the grounds that they were not parties to the contract. Therefore, summary judgment in favor of Hinojosa and Felix on the breach of contract claim was improper.
B. Fraud
In his petition, Jacoby alleged Hinojosa and Felix were "wholly unqualified and incompetent to deliver the described services and [they] never possessed the intent to purchase the club." Hinojosa and Felix each moved for a traditional summary judgment on the grounds that they had prior experience in the club industry and O.K. Corral had every intention of purchasing the club at the time the parties entered into the contract and its inability to make continued payments under the contract was due to the club's failure to make a profit. Hinojosa's and Felix's contention that they had every intention of purchasing the club does no more than controvert Jacoby's allegation that they had no such intention. Thus, rather than establishing that no genuine issue of material fact exists on the issue of their intentions, Hinojosa and Felix's own summary judgment evidence raised issues of fact. Accordingly, summary judgment in favor of Hinojosa and Felix on the fraud claim was improper.
C. Breach of Fiduciary Duty
Finally, in his petition, Jacoby alleged Hinojosa and Felix were fiduciaries who had a duty to at all times act in his best interest. Hinojosa and Felix each moved for a traditional summary judgment on Jacoby's breach of fiduciary duty claim on the grounds that the parties' relationship was at arms length and based upon the following language contained in the contract: "Manager [O.K. Corral] shall be responsible for operating the nightclub in a reasonable and prudent manner and shall expressly assume the duties of fiduciary with respect to Owners' [CEE's] interests." Because the parties' relationship here arises from a business transaction, to prevail on his breach of fiduciary duty claim at trial, Jacoby must establish that a confidential relationship existed prior to, and apart from, the agreement made the basis of the suit. Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997). Thus, to prevail on their motion for a traditional summary judgment, Hinojosa and Felix had to establish there was no genuine issue of material fact on the question of whether a confidential relationship existed prior to, and apart from, the agreement made the basis of the suit against them. Hinojosa's and Felix's reliance on the contract's provision that O.K. Corral would assume any fiduciary duties owed to CEE with regard to managing the club does not establish, as a matter of law, that no prior confidential relationship existed between Hinojosa, Felix, and Jacoby. Accordingly, summary judgment in favor of Hinojosa and Felix on the breach of fiduciary duty claim was improper
CONCLUSION
We reverse the summary judgment in favor of Hinojosa and Felix and remand for further proceedings consistent with this opinion.