Summary
holding that trial court did not affirmatively indicate in record that it accepted or considered new evidence attached to motion to reconsider summary judgment ruling when order denying motion stated, "The Court has considered the motion for new trial and motion for reconsideration of [the summary judgment], any response, the arguments of counsel, and the papers on file. The Court believes the motion should be DENIED"
Summary of this case from In re Estate of MooneyOpinion
NO. 01-16-00816-CV
10-24-2017
NMRO HOLDINGS, LLC, Appellant v. ANNA WILLIAMS AND CD HOMES, LLC, Appellees
On Appeal from the 157th District Court Harris County, Texas
Trial Court Case No. 2015-43968-A
MEMORANDUM OPINION
NMRO Holdings, LLC ("NMRO") appeals the trial court's order granting summary judgment in favor of Anna Williams ("Williams") and CD Homes, LLC ("CD Homes") on its underlying suit to collect a judgment it holds against Williams's husband, Robert Parker ("Parker"). In one issue, NMRO Holdings contends that the trial court erred in granting summary judgment on its claims seeking to impose liability on the bases of alter ego, partnership, joint enterprise, and conspiracy. We affirm.
Background
Parker owned and operated a business that developed and built residential properties. On November 2, 2004, Finger Interests Number One, Ltd. ("Finger Interests") obtained a judgment against Parker in the amount of $604,871.38, plus interest at 18% per annum. However, Parker filed a Chapter 7 bankruptcy proceeding which eventually excepted that judgment from discharge.
NMRO alleges that Parker currently owes approximately $4,000,000.
The bankruptcy case is styled In re: Robert Foster Parker, Debtor, Case No. 04-34127; the United States Bankruptcy Court for the Southern District of Texas, Houston Division.
On November 3, 2005, Williams formed Profit for Non-Profits, LLC, a company which provided event and auction coordination for charities and non-profits. Williams did not know Parker at the time she formed her company but met him later in 2005. At the time she met Parker, he owned a residential home building business with his daughter.
On July 27, 2006, Williams got into the residential home building business when she changed the name of her company to CD Homes and began building "spec" homes.
Parker and his wife, Hattie Parker, divorced on April 25, 2007. On November 9, 2007, Parker and Williams married. Before the marriage, on November 8, 2007, Parker and Williams executed a premarital agreement under the terms of which they agreed, among other things, that Parker's liabilities and obligations as of the date of marriage remain his sole and separate property liabilities and obligations and must be satisfied and paid solely from his separate estate.
On May 22, 2015, Finger Interests assigned the judgment against Parker to NMRO. On July 29, 2015, NMRO sued Williams and CD Homes, among others, seeking to impose liability for recovery of Parker's unpaid judgment under an alter ego theory of liability, asserting claims for fraudulent transfer and conspiracy, and filing applications for turnover and injunctive relief. On August 6, 2015, Williams and CD Homes filed their answer. On January 27, 2016, NMRO amended its petition seeking to impose liability on the defendants for Parker's judgment under the additional theories of partnership and joint enterprise, and asserting a fraud claim.
On March 31, 2016, Williams and CD Homes filed a traditional motion for summary judgment asserting that NMRO's claims failed as a matter of law because the summary judgment evidence conclusively negated certain elements of NMRO's claims of alter ego, partnership, joint enterprise, and conspiracy. As exhibits to their summary judgment motion, Williams and CD Homes attached the following: (1) Williams's Declaration; (2) Articles of Incorporation for Profit for Non-Profits, LLC; (3) Articles of Amendment for CD Homes, LLC; (4) Parker and Williams's premarital agreement; (5) Parker's Declaration; (6) Parker's divorce decree; (7) and NMRO's first amended petition. On April 22, 2016, NMRO filed its summary judgment response in which it argued that it had raised a genuine issue of material fact on each of its claims, thereby precluding summary judgment. NMRO attached the following exhibits to its summary judgment response: (1) Williams's deposition; (2) contractor agreements; (3) investor agreements; and (4) CD Homes's transaction register.
On May 9, 2016, the trial court granted summary judgment in favor of Williams and CD Homes on all of NMRO's claims. NMRO filed a motion for new trial and a motion for reconsideration of its order granting summary judgment. The trial court denied NMRO's motions. This appeal followed.
Standard of Review
We review a trial court's decision to grant a motion for summary judgment de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). In our review, we take the non-movant's competent evidence as true, indulge every reasonable inference in favor of the non-movant, and resolve all doubts in favor of the non-movant. Diversicare Gen. Partner, Inc. v. Rubio, 185 S.W.3d 842, 846 (Tex. 2005). If a trial court grants summary judgment without specifying the grounds for granting the motion, we must uphold the trial court's judgment if any of the asserted grounds is meritorious. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).
Under the traditional summary judgment standard, the movant has the burden to show that no genuine issues of material fact exist and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c) ; Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). A defendant moving for traditional summary judgment must either negate at least one element of the plaintiff's cause of action or plead and conclusively establish each essential element of an affirmative defense. See Frost Nat'l Bank v. Fernandez, 315 S.W.3d 494, 508 (Tex. 2010). If the movant meets its burden as set out above, the burden then shifts to the non-movant to raise a genuine issue of material fact precluding summary judgment. Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995). The evidence raises a genuine issue of fact if reasonable and fair-minded jurors could differ in their conclusions in light of all of the summary judgment evidence. Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex. 2007).
Discussion
A. Alter Ego
NMRO contends that the trial court erred in granting summary judgment in favor of Williams and CD Homes on the basis that no alter ego liability existed. It argues that Williams and CD Homes used the corporate form of CD Homes as a sham to perpetuate a fraud to avoid paying Parker's judgment, and that their actions justify reverse-piercing the corporate veil and holding CD Homes liable for Parker's unpaid judgment.
1. Applicable Law
Corporate veil piercing in Texas is limited primarily to a finding that the corporate structure is, in fact, the alter ego of an individual and has, hitherto, been limited to corporate shareholders, officers, and directors. See Peterson Grp., Inc. v. PLTQ Lotus Grp., L.P., 417 S.W.3d 46, 58 (Tex. App.—Houston [1st Dist.] 2013, pet. denied) (noting veil-piercing doctrine as applied to corporate alter egos is applied to owners and operators, including "shareholders, officers, and directors who otherwise would ordinarily be insulated from liability for corporate obligations"). Piercing the corporate veil is not an independent cause of action, but is instead a means of imposing liability for an underlying cause of action. Wilson v. Davis, 305 S.W.3d 57, 68 (Tex. App.—Houston [1st Dist.] 2009, no pet.); Cox v. So. Garrett, LLC, 245 S.W.3d 574, 582 (Tex. App.—Houston [1st Dist.] 2007, no pet.). To pierce the corporate veil and impose liability under an alter ego theory of liability, a plaintiff must show that (1) the persons or entities on whom he seeks to impose liability are alter egos of the debtor, and (2) that the corporate fiction was used for an illegitimate purpose. See Tryco Enters., Inc. v. Robinson, 390 S.W.3d 497, 508 (Tex. App.—Houston [1st Dist.] 2012, pet. denied) (citing SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 456 & n.57 (Tex. 2008)).
The alter ego theory imposes liability on a shareholder for corporate obligations when "a corporation is organized and operated as a mere tool or business conduit of another" and "there is such unity between corporation and individual that the separateness of the corporation has ceased and holding only the corporation liable would result in injustice." Wilson, 305 S.W.3d at 69. In determining whether an alter ego relationship exists, courts look at the total dealings of a corporation and the individual and considers the degree to which corporate and individual property have been kept separately, the amount of financial interest, ownership, and control the individual maintains over the corporation, and whether the individual used the corporation for personal purposes. Id.
"Generally, basic veil-piercing alter ego principles apply to reverse veil-piercing situations." Rocklon, LLC v. Paris, No. 09-16-00070-CV, 2016 WL 6110911, at *4 (Tex. App.—Beaumont Oct. 20, 2016, no pet.) (mem. op.). Under a reverse-piercing theory, a creditor seeks to apply the alter ego doctrine in reverse; that is, to hold a corporation's assets accountable for the liability of individuals who treated the corporation as their alter ego. Id. at *3 (citing Zahra Spiritual Trust v. U.S., 910 F.2d 240, 243-44 (5th Cir. 1990) (applying Texas law and concluding that Texas would allow creditor to reach assets of corporation when there is showing that alter ego relationship exists between individual debtor and corporation)). As with direct piercing, reverse veil piercing as a means of imposing alter ego liability applies only when necessary to prevent an injustice and in "exceptional circumstances." See e.g., Wilson, 305 S.W.3d at 71 (holding trial court erred in rendering summary judgment on plaintiffs' claim alleging that corporation was vicariously liable for tortious acts of shareholder on basis of alter ego theory of liability); Boyo v. Boyo, 196 S.W.3d 409, 419 (Tex. Ap.—Beaumont 2006, no pet.) (recognizing that courts occasionally reverse pierce and, under exceptional circumstances, hold corporations liable for debts of controlling shareholders who have used corporations to hide assets); Lifshutz v. Lifshutz, 61 S.W.3d 511, 516 (Tex. App.—San Antonio 2001, pet. denied) (noting that, in exceptional circumstances, principles of alter ego and reverse piercing corporate veil have been applied to divorce cases).
2. Analysis
In their summary judgment motion, Williams and CD Homes argued that NMRO's alter ego liability claim against CD Homes fails as a matter of law because Parker owns no interest in CD Homes. Thus, they argue, CD Home cannot be the alter ego of Parker. See Zahra, 910 F.2d at 245-46 (citing Texas cases in which courts declined to treat corporation and individual as one and same where individual did not have some ownership interest in corporation). In support of their argument, Williams and CD Homes point to Williams's declaration in which she attested that she formed her company in 2005—before she met Parker—and that she has been its sole member and manager since its formation.
In its summary judgment response and on appeal, NMRO argued that although Williams formed Profit for Non-Profits, LLC (CD Homes's predecessor) before she met Parker, Williams did not change the name of her company to CD Homes and begin operating it as a residential real estate business until after she met Parker. However, the act of renaming a company is not tantamount to forming a new company. Similarly, the transformation of Williams's event planning business into a homebuilding business does not change the undisputed fact that she is the sole legal de jure owner of her company. NMRO also argues that Williams admitted that it was Parker's idea to start CD Homes. A review of the evidence, however, does not support NMRO's assertion. When asked in her deposition whose idea it was to form CD Homes, Williams testified, "Basically both of ours but I'm the one that suggested going into business."
NMRO then asserts that even if Parker is not the actual owner of CD Homes, he is a de facto owner who exercises significant decision-making authority, management, and control over CD Homes, thus justifying the imposition of alter ego liability on CD Homes through reverse veil piercing. In support of its argument that reverse veil piercing is available under these circumstances, NMRO relies on three federal district court cases: Cadle Co. v. Brunswick Homes, LLC (In re Moore), 379 B.R. 284 (Bankr. N.D. Tex. 2007), Roberts v. J. Howard Bass & Assocs., Inc. (In re Bass), No. 09-11451-CAG, 2011 WL 560418 (Bankr. W.D. Tex. Feb. 15, 2011), and Bramante v. McClain, No. SA-06-CA-0010 OG (NN), 2007 WL 4555943 (W.D. Tex. Dec. 18, 2007).
Unlike two of the three federal cases on which NMRO relies, this is not a bankruptcy case in which a creditor asserts a claim against a party seeking bankruptcy protection from the claim. Although Texas courts have applied veil piercing principles in exceptional circumstances to impose alter ego liability on an individual shareholder, see Wilson, 305 S.W.3d at 70, Texas courts have not recognized the imposition of liability on a corporation for a judgment debt of a non-shareholder unrelated to any corporate activity. We likewise decline to do so here.
Because Parker undisputedly incurred the judgment debt that NMRO seeks to enforce before he had any relationship with Williams and Parker is not a shareholder of CD Homes, Williams and CD Homes cannot be held liable for Parker's unpaid judgment on the basis of NMRO's claim of alter ego liability.
B. Partnership
As an alternative to its reverse veil-piercing theory, NMRO argues that CD Homes and Williams are also liable for Parker's judgment under a theory of partnership.
The General Partnership Act in the Business Organizations Code defines a partnership as "an association of two or more persons to carry on a business for profit as owners." TEX. BUS. ORGS. CODE ANN. § 152.051(b) (West 2012); Ingram v. Deere, 288 S.W.3d 886, 895 (Tex. 2009). Section 152.052 lists five factors indicating the creation of a partnership:
(1) receipt or right to receive a share of profits of the business;
(2) expression of an intent to be partners in the business;
(3) participation or right to participate in control of the business;
(4) agreement to share or sharing:
(A) losses of the business; or
(B) liability for claims by third parties against the business; and
TEX. BUS. ORGS. CODE ANN. § 152.052(a) (West 2012).
(5) agreement to contribute or contributing money or property to the business.
In determining whether a partnership exists, courts consider "all of the evidence bearing on the [statutory] partnership factors." Ingram, 288 S.W.3d at 896; Nguyen v. Hoang, 507 S.W.3d 360, 371-72 (Tex. App.—Houston [1st Dist.] 2016, no pet.). The statute "does not require proof of all of the listed factors in order for a partnership to exist." Ingram, 288 S.W.3d at 896. The evidence in support of the five factors is considered on a continuum. Nguyen, 507 S.W.3d at 372. At one end of the continuum, "a partnership exists as a matter of law when conclusive evidence supports all five statutory factors," and, at the other end, "a partnership does not exist as a matter of law when there is no evidence as to any of the five factors, and conclusive evidence of only one factor will normally be insufficient to establish the existence of a partnership." Id.
In support of the first, second, and fourth factors—whether Parker received or had a right to receive a share of CD Homes's profits, if Williams and Parker expressed an intent to be partners, and whether Williams and Parker shared in the losses of the partnership—NMRO relies exclusively on evidence that is not part of the summary judgment record. Specifically, it cites to exhibits H through M attached to its motion for new trial and motion for reconsideration of Williams and CD Homes's motion for summary judgment filed nearly four months after the trial court granted the motion for summary judgment.
These exhibits include two promissory notes between HOUTEX and Great Southwestern Financial Corporation, the affidavits of Hattie B. Parker, Parker's ex-wife, and Michael E. Labita, a home builder who worked for CD Homes, and photocopies of deposit slips and checks that NMRO alleges shows the flow of funds from GSFC to HOUTEX to CD Homes.
When a motion for reconsideration or new trial is filed after a summary judgment motion has been heard and ruled upon, the trial court may ordinarily consider only the record as it existed when it first heard the motion. See Circle X Land & Cattle Co. v. Mumford Indep. Sch. Dist., 325 S.W.3d 859, 863 (Tex. App.—Houston [14th Dist.] 2010, pet. denied); Chapman v. Mitsui Eng'g & Shipbuilding Co., 781 S.W.2d 312, 315 (Tex. App.—Houston [1st Dist.] 1989, writ denied). However, a trial court may consider evidence submitted with a motion to reconsider as long as the court "affirmatively indicates" in the record that it accepted or considered the later-filed evidence. Circle X, 325 S.W.3d at 863; PNP Petroleum I, LP v. Taylor, 438 S.W.3d 723, 730-31 (Tex. App.—San Antonio 2014, pet. denied) (concluding order denying motion to reconsider did not "state that the trial court considered the evidence attached to the motion"); cf. Stephens v. Dolcefino, 126 S.W.3d 120, 134 (Tex. App.—Houston [1st Dist.] 2003, pet. denied) (noting trial court affirmatively accepted later-filed tape as summary judgment evidence where it stated at hearing it would "include the evidence offered today in the summary judgment record" and it denied motion for new trial "even taking th[e] [later-filed] evidence into the record" (internal quotations and emphasis omitted)).
Here, in its order, the trial court stated, "The Court has considered the motion for new trial and motion for reconsideration of Defendants Anna Williams and CD Homes, LLC's Traditional Motion for Summary Judgment filed by Plaintiff NMRO Holdings, LLC, any response, the arguments of counsel, and the papers on file. The Court believes the motion should be DENIED." Because the court did not affirmatively indicate that it accepted or considered the later-filed evidence attached to NMRO's motions for new trial and reconsideration, we cannot consider this evidence in our examination of the partnership factors. See PNP Petroleum I, 438 S.W.3d at 730-31 (noting appellate court "limited in [its] review" of summary judgment ruling "to the evidence and arguments presented at the initial summary judgment hearing" where order denying motion to reconsider did not "state that the trial court considered the evidence attached to the motion").
With regard to the fifth factor—whether all the partners have contributed money or property to the business—NMRO asserts that Williams and CD Homes have contributed money to the alleged partnership and that Parker "contributed his reputation, experience, and the investors' money to insure that the business could operate." Although one's reputation is a type of goodwill that may be valuable intangible property, see Ingram, 288 S.W.3d at 902-03, Williams's testimony to which NMRO cites does not support its assertion. Rather, the evidence relates only to the degree of Parker's participation in control of the business, i.e., the third factor. Because the summary judgment evidence supports, at most, only one partnership factor, it is insufficient to establish the existence of a partnership. Nguyen, 507 S.W.3d at 372. We conclude that NMRO failed to raise a genuine issue of material fact that a partnership existed among Parker, Williams, and CD Homes.
C. Joint Enterprise
NMRO also seeks to recover from Parker, Williams, and CD Homes under a theory of joint enterprise.
To prove a joint enterprise under Texas law, NMRO had to prove that Parker, on the one hand, and Williams and CD Homes, on the other, (1) entered into an express or implied agreement, (2) with a common purpose, (3) a community of pecuniary interest in that purpose, and (4) an equal right to a voice in the direction of the enterprise giving each an equal right of control. Tex. Dep't of Transp. v. Able, 35 S.W.3d 608, 613 (Tex. 2000). In their summary judgment motion, Williams and CD Homes argued that NMRO's joint enterprise claim fails as a matter of law because NMRO did not raise a genuine issue of material fact with regard to the third and fourth elements of its claim.
With regard to the third element, NMRO, in its summary judgment response and on appeal, argues only that "the community of pecuniary interest in defrauding Parker's creditor is obvious, because without it the parties would be working to pay off their debts rather than to line their pockets and pay for luxuries, such as the River Oaks Country Club." NMRO provides no additional argument, and cites to no evidence in the record or to any authority to support its assertion. Centeq Realty, 899 S.W.2d at 197 (stating that once movant meets its burden, non-movant must present evidence sufficient to raise fact issue); TEX. R. APP. P. 38.1(i) (stating brief must contain clear and concise argument for contentions made, with appropriate citations to authorities and to record). Because NMRO failed to demonstrate that a genuine issue of material fact exists as to whether Williams, CD Homes, and Parker shared a community of pecuniary interest in a common purpose, the trial court properly granted summary judgment on NMRO's joint enterprise claim.
D. Conspiracy
NMRO also contends that the evidence raises a fact issue as to the elements of its conspiracy claim.
A civil conspiracy is a combination by two or more persons to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means. Firestone Steel Prods. Co. v. Barajas, 927 S.W.2d 608, 614 (Tex. 1996). The essential elements of a civil conspiracy are (1) two or more persons; (2) an object to be accomplished; (3) a meeting of minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as the proximate result. Tri v. J.T.T., 162 S.W.3d 552, 556 (Tex. 2005).
In its brief, NMRO argues that (1) Parker, Williams, and CD Homes were members of a combination of two or more persons who set out to defraud NMRO; (2) they had a meeting of the minds relative to their desire to defraud NMRO; (3) Parker and Williams fraudulently transferred money to avoid paying creditors; and (4) NMRO suffered injury as a result. However, NMRO's summary judgment response did not address the elements of its conspiracy claim or otherwise argue that a fact issue existed precluding summary judgment. Having failed to do so, NMRO waived its right to challenge the trial court's order granting summary judgment on its conspiracy claim. Further, in its brief, NMRO relies exclusively on evidence that is not part of the summary judgment record. Having previously determined that we cannot consider this evidence, we conclude that NMRO failed to raise a genuine issue of material fact on its conspiracy claim.
In summary, we conclude that the trial court properly granted summary judgment on NMRO's claims seeking to impose liability on Williams and CD Homes on the bases of alter ego, partnership, joint enterprise, and conspiracy because NMRO failed to raise a genuine issue of material fact on certain elements of each of its claims. Accordingly, we overrule NMRO's issue.
Conclusion
We affirm the trial court's judgment.
Russell Lloyd
Justice Panel consists of Justices Jennings, Bland, and Lloyd.