Opinion
NUMBER 2015 CA 0215
09-18-2015
TRACER PROTECTION SERVICES, INC. AND TRACER ARMED SERVICES, INC. v. DAVID G. BURTON, SR. AND RHONDA W. HAYES
L.J. Hymel Michael Reese Davis Tim P. Hartdegen Baton Rouge, LA Attorneys for Appellee Third Party Defendant - Rene Ortlieb, III Eric A. Kracht Scott E. Frazier Baton Rouge, LA Attorneys for Appellant Defendant/Third Party Plaintiff - David G. Burton, Sr.
NOT DESIGNATED FOR PUBLICATION
Appealed from the 19th Judicial District Court In and for the Parish of East Baton Rouge, Louisiana
Trial Court Number 587952
Honorable R. Michael Caldwell, Judge L.J. Hymel
Michael Reese Davis
Tim P. Hartdegen
Baton Rouge, LA
Attorneys for Appellee
Third Party Defendant -
Rene Ortlieb, III
Eric A. Kracht
Scott E. Frazier
Baton Rouge, LA
Attorneys for Appellant
Defendant/Third Party Plaintiff -
David G. Burton, Sr.
BEFORE: WHIPPLE, C.J., WELCH, AND DRAKE, JJ. WELCH, J.
David G. Burton, Sr. appeals a judgment granting a motion for partial summary judgment in favor of Rene Ortlieb, III and dismissing Mr. Burton's claims against Mr. Ortlieb. We reverse and remand.
FACTUAL AND PROCEDURAL HISTORY
Prior Legal History
The background facts of this case are more fully set forth in the two previous opinions issued by this court in this matter: Tracer Protection Services, Inc. v. Burton, 2011-1223 (La. App. 1st Cir. 3/6/12)(unpublished opinion)("Tracer I") and Tracer Protection Services, Inc. v. Burton, 2014-1111 (La. App. 1st Cir. 6/5/15)(unpublished opinion)("Tracer II"). Essentially, in 2010, Tracer Protection Services, Inc. ("TPSI") and Tracer Armed Services, Inc. ("TASI") (sometimes collectively referred to as "the Tracer companies") filed this lawsuit seeking to recover damages against Mr. Burton and other defendants, alleging that, among other things, Mr. Burton misappropriated and converted the Tracer companies' assets for his own personal use, mismanaged the companies' business, employees, and assets, and gave himself unauthorized pay raises. In response, Mr. Burton filed an answer, a reconventional demand against the Tracer companies, and a third-party demand against Mr. Ortlieb and Clifton "Ted" Redlich (among others), and asserted therein that he (Mr. Burton) owned 100% of both TPSI and TASI and that Mr. Ortlieb and Mr. Redlich improperly and illegally took control of the Tracer companies' assets and fraudulently created false documents to give the impression that they owned the Tracer companies, when in fact, Mr. Burton owned 100% of both companies. Tracer I, 2011-1223 at p. 1.
In Tracer I, the Tracer companies and Mr. Burton had filed cross motions for partial summary judgment on the issue of the ownership of the Tracer companies. Mr. Burton's motion claimed that he acquired ownership of 100% of the stock of both companies by virtue of a February 12, 2004 agreement (the "2004 Agreement") executed by Mr. Burton and Mr. Redlich. Mr. Burton also asked the court to declare that certain documents executed after the 2004 Agreement, on which Mr. Redlich and Mr. Ortlieb had based their claim to ownership of 100% of the Tracer companies' stock, were null and void. In the Tracer companies' motion for summary judgment, it asked the court to declare that the 2004 Agreement was absolutely null because the agreement contradicted various documents confected in connection with TPSI's earlier bankruptcy reorganization documents, wherein all of TPSI's shares, originally owned by Mr. Burton, were transferred to Ansted, Inc. ("Ansted"), a company owned by Mr. Redlich. They also argued that the 2004 Agreement could not have transferred ownership of the Tracer companies to Mr. Burton because Mr. Ortlieb's company, Alsace Lorraine Corporation ("ALC"), owned 50% of Ansted at the time the agreement was signed, and Mr. Ortlieb was not a party to the transfer of ownership.
The 2004 Agreement, signed by Mr. Burton and Mr. Redlich provided as follows:
This agreement is made by and between David G. Burton and Clifton J. Redlich regarding Tracer Protection Services, Inc. and Tracer Armed Services, Inc. This agreement supersedes the agreement that was submitted in Bankruptcy, which was a revision of our original verbal agreement. The purpose of this agreement is to honor the terms and conditions of our original agreement, which are as follows:
David Burton, 100% owner of Tracer Protection Services, Inc. was seeking bankruptcy protection and required financial assistance in order to successfully reorganize. On __________ both parties agreed that Clifton would invest __________ dollars into. For his investments, Clifton would be repaid his entire investment by Tracer plus he would receive compensation from Tracer in the amount of One Hundred Thousand dollars per year, for the rest of his life. In order to satisfy the court, Clifton would take temporary possession of Tracer Protection Services, Inc. stock while in bankruptcy. Although in possession of the stock while in bankruptcy, Clifton would only have control of the company financials, and David would maintain all operational authority. Once the bankruptcy was closed, all shares [of] Tracer Protection Services, Inc. stock would be returned to David.
As of now the bankruptcy is closed and Clifton is receiving compensation in the amount [sic] One Hundred Thousand Dollars per year and is receiving compensation in the amount of Twenty Thousand Dollars per year for unpaid portions of his investment and unpaid compensation. A complete audit will be performed forthright to determine the exact amounts of unpaid investments and compensation and will be filed as an addendum to this agreement. This audit will be completed and submitted on an annual basis until all unpaid investments and compensation have been paid. . . .
. . . All payments for unpaid investments and compensation will be approved and made by David and shall be made as soon as the company is able at a minimum amount of Ten Thousand Dollars per year. . . .
During this agreement a new company, Tracer Armed Services, Inc. was formed as an Armed Division of Tracer. The stock for Tracer Armed Services, Inc. is currently in Clifton's name, however for the purpose of this agreement, this company shall be considered an asset of Tracer Protection Services, Inc. and as of the execution date of this agreement David will own 100% of both Tracer Protection Services, Inc. and Tracer Armed Services, Inc[.] and this shall be indicated accordingly on all corporate documents.
The trial court ruled that the 2004 Agreement was a valid and binding contract and conveyed whatever interest Mr. Redlich owned in the Tracer companies to Mr. Burton. In accordance with these rulings, the trial court entered a judgment denying the Tracer companies' motion for partial summary judgment and granting Mr. Burton's motion for partial summary judgment. The court's judgment decreed that: (1) the 2004 Agreement was a valid and binding contract and transferred to Mr. Burton whatever stock Mr. Redlich owned in the Tracer companies on February 12, 2004, the date the contract was signed; (2) any interest in the Tracer companies that Mr. Redlich acquired upon the dissolution of his company, Ansted, also became the property of Mr. Burton by virtue of the after-acquired title doctrine; and (3) the documents executed after the 2004 Agreement were all invalid as they were inconsistent with that agreement.
The Tracer companies appealed all three of the rulings entered by the trial court in granting Mr. Burton's motion for summary judgment. In addition, the Tracer companies also sought review of the trial court's failure to grant summary judgment in its favor declaring the 2004 Agreement to be null and void, as well as the trial court's failure to rule that ALC (Mr. Ortlieb's company) owned 50% of Ansted on the date the 2004 Agreement was confected, and thus, that Mr. Ortlieb owned 50% of the Tracer companies.
After de novo review and in light of the trial court's reasons for the granting of summary judgment in Mr. Burton's favor, this court reversed the trial court's grant of summary judgment in favor of Mr. Burton. Specifically, this court observed that it was evident that the trial court made several key credibility determinations in finding the 2004 Agreement to be a valid and binding contract. We noted that the determination of whether ALC had an ownership interest in Ansted on the day the 2004 Agreement was confected was crucial to a determination of whether Mr. Redlich, acting individually and without observing any corporate formalities, could unilaterally transfer Ansted's sole asset to Mr. Burton. In short, we concluded that the issue of whether ALC owned part of Ansted on the date Mr. Burton and Mr. Redlich executed the 2004 Agreement purporting to transfer 100% ownership of the Tracer companies to Mr. Burton, the sole asset of Ansted, must be determined before the trial court could make a final ruling on the validity of the 2004 Agreement.
This court further concluded that the trial court erred in finding the 2004 Agreement to be a valid and binding contract of sale because there were genuine issues of material fact as to whether the parties determined a price for the sale. Because of these rulings, this court also reversed the other rulings on which the trial court granted summary judgment in Mr. Burton's favor. Additionally, this court found no error in the trial court's denial of the Tracer companies' motion for summary judgment seeking a determination that the 2004 Agreement was null and void, that ALC owned 50% of Ansted on the day the 2004 Agreement was confected, and that Mr. Ortlieb owned 50% of the Tracer companies, finding that these were all disputed factual issues that could not be resolved on summary judgment. This court then remanded for further proceedings consistent with the opinion in Tracer I.
Following this court's remand, TPSI, TASI, and Mr. Ortlieb (sometimes collectively referred to as "Tracer") filed a motion for partial summary judgment seeking a determination that the 2004 Agreement was null and void on two bases. First, Tracer maintained that the agreement was contrary to the representations made by Mr. Burton and Mr. Redlich to the bankruptcy court and memorialized a fraud on that court, and thus, the agreement was invalid because its object was unlawful and against public policy. Secondly, Tracer argued that the 2004 Agreement was null and without effect because it completely disregarded corporate formalities, violated Ansted and TPSI's Articles of Incorporation, and failed to comply with Louisiana corporate law.
Following a hearing, the trial court signed a judgment, which formed the basis for the appeal in Tracer II, granting Tracer's motion in part only as to Mr. Burton's alleged ownership interest in TPSI and denying Tracer's motion with respect to Mr. Burton's alleged ownership interest in TASI. In the judgment, the trial court declared that as to TPSI, the 2004 Agreement was null and invalid and dismissed, with prejudice, Mr. Burton's claim to ownership of TPSI on the basis of that agreement constituted bankruptcy fraud. However, the trial court also concluded that there remained genuine issues of fact regarding Mr. Redlich's attempted conveyance of TASI to Mr. Burton, The court observed that while the 2004 Agreement indicated that TASI was being considered only as a division of TPSI, there was evidence showing that TASI might have been a separate entity, and therefore, material issues of fact existed concerning the ownership of TASI and whether Mr. Redlich could have transferred the stock of that corporation to Mr. Burton.
Mr. Burton appealed the trial court's judgment and Tracer answered the appeal, asking this court to review the denial of its motion for partial summary judgment on the issue of Mr. Burton's alleged ownership interest in TASI. In Tracer II, this court concluded that Tracer failed to carry its burden of proof in support of its motion for summary judgment, pertaining to the ownership of TPSI. This court observed that the only evidence on the motion for summary judgment relative to the parties' conduct suggested that all of the parties claiming an ownership interest in the Tracer companies were acting as though there had been a complete divesture of the TPSI's stock by Mr. Burton and a transfer of that stock to Mr. Redlich's company, Ansted. This court concluded that it could not make the determination, as a matter of law, that the 2004 Agreement, transferring the stock back to Mr. Burton, was invalid because it had an unlawful cause. Rather, this court observed, a determination had to first be made regarding whether Mr. Burton and Mr. Redlich intended to deceive the bankruptcy court. Since, this determination could only be made by weighing the credibility of the parties in a trial, this court reversed the trial court judgment granting Tracer's motion for summary judgment. In addition, this court noted that the ownership of the Tracer companies was the central issue to be resolved in this litigation. Whether the 2004 Agreement memorialized a bankruptcy fraud and whether it was ineffective to transfer any interest in TPSI to Mr. Burton required a trier of fact to resolve a myriad of factual issues, which depended largely on the credibility of those persons claiming an ownership interest in the Tracer companies.
This court also observed the significance of the trial court's ruling that someone in addition to Mr. Redlich owned Ansted at the time of the 2004 agreement and that the trial court had specifically declined to rule that ALC owned 50% of Ansted on February 12, 2004, such that the 2004 Agreement could not have transferred ALC's ownership of Ansted, including its sole asset. In other words, the trial court was obviously unable to resolve the issue of Ansted's ownership because that would have required a credibility determination. Thus, this court concluded that until there was a factual determination of Ansted's ownership, the validity of Mr. Redlich's purported transfer of TPSI stock to Mr. Burton could not be finally resolved. Accordingly, we held the trial court erred in declaring that Mr. Burton had no ownership interest whatsoever in TPSI due to Mr. Redlich's failure to observe corporate formalities or to adhere to the provisions of the Louisiana corporate law pertaining to the sale of substantially all of a corporation's assets in connection with the purported transfer of TPSI's stock to Mr. Burton. Therefore, this court reversed the trial court's ruling granting summary judgment in favor of Tracer on the issue of the validity of the purported transfer of TPSI to Mr. Burton. With regard to TASI, this court held that there were material issues of fact as to whether Mr. Redlich or Ansted owned TASI at the time the 2004 Agreement was signed, whether TASI was simply a division of TPSI or a separate corporate entity, and whether Mr. Ortlieb has an ownership interest in TASI. Thus, the issue of the validity of Mr. Redlich's purported transfer of TASI to Mr. Burton depended upon the ownership of TASI at the time of the purported transfer of TASI by Mr. Redlich to Mr. Burton.
The instant appeal
On June 2, 2014, appellee, Mr. Ortlieb, filed a Motion for Partial Summary Judgment, seeking dismissal of Mr. Burton's claims against him on the grounds that the 2004 Agreement between Mr. Redlich and Mr. Burton was unenforceable because it did not contain a price in consideration of the transfer of ownership and because Mr. Burton could produce no evidence to support any claim of fraud or wrongdoing by Mr. Ortlieb. By judgment dated August 15, 2014, the trial court denied the motion in part as to whether the 2004 Agreement was unenforceable because of the omission of a price in the document. Additionally, in the same judgment, the trial court granted the motion in part and dismissed all of Mr. Burton's claims against Mr. Ortlieb, with prejudice, on the basis that there was a lack of evidence to support such claims. Pursuant to La. C.C.P. art. 1915(B)(1), the trial court designated the judgment as a final, appealable judgment. Mr. Burton now appeals, contending that the trial court erred in granting summary judgment because the record contains evidence of wrongful acts by Mr. Ortlieb, or at a mimimum, establishes that there are material facts in dispute.
Specifically, in the August 15, 2014 judgment, the trial court stated that, until the appeal of the February 5, 2014 judgment (the Tracer II judgment) was resolved, the court would not exercise its discretion under La. C.C.P. art. 1915 to consider the issue of whether the 2004 Agreement was invalid because it did not contain a price.
LAW AND DISCUSSION
A motion for summary judgment is a procedural device used to avoid a fullscale trial when there is no genuine issue of material fact, and the summary judgment procedure is favored and designed to secure the just, speedy, and inexpensive determination of every action. La. C.C.P. art. 966(A)(2); Power Marketing Direct, Inc. v. Foster, 2005-2023 (La. 9/6/06), 938 So.2d 662, 668. A motion for summary judgment will be granted if the pleadings, depositions, answers to interrogatories, and admissions, together with affidavits, if any, admitted for the purposes of the motion for summary judgment, show that there is no genuine issue of material fact and that the mover is entitled to judgment as a matter of law. La. C.C.P. art. 966(B)(2).
On a motion for summary judgment, the burden of proof is on the mover. If, however, the mover will not bear the burden of proof at trial on the matter that is before the court on the motion for summary judgment, the mover's burden on the motion does not require that all essential elements of the adverse party's claim, action, or defense be negated. Instead, the mover must point out to the court that there is an absence of factual support for one or more elements essential to the adverse party's claim, action, or defense. Thereafter, the adverse party must produce factual evidence sufficient to establish that he will be able to satisfy his evidentiary burden of proof at trial. If the adverse party fails to meet this burden, there is no genuine issue of material fact, and the mover is entitled to summary judgment. La. C.C.P. art. 966(C)(2).
The credibility of a witness is a question of fact and a trial court may not make credibility determinations on a motion for summary judgment. Thus, in determining a motion for summary judgment, a trial court must assume that all affiants are credible. Hutchinson v. Knights of Columbus, Council No. 5747, 2003-1533 (La. 2/20/04), 866 So.2d 228, 234. Furthermore, summary judgment is seldom appropriate for determinations based on subjective facts of motive, intent, good faith, knowledge, or malice, and should only be granted on such subjective issues when no genuine issue of material fact exists concerning that issue. Monterrey Center, LLC v. Ed.ucation Partners, Inc., 2008-0734 (La. App. 1st Cir. 12/23/08), 5 So.3d 225, 232.
A fact is material if it potentially ensures or precludes recovery, affects a litigant's ultimate success, or determines the outcome of the legal dispute. A genuine issue is one as to which reasonable persons could disagree; if reasonable persons could reach only one conclusion, there is no need for trial on that issue and summary judgment is appropriate. Hines v. Garrett, 2004-0806 (La. 6/25/04), 876 So.2d 764, 765-66.
An appellate court reviews a trial court's decision to grant a motion for summary judgment de novo, using the same criteria that governs the trial court's consideration of whether summary judgment is appropriate. Smith v. Our Lady of the Lake Hospital, Inc., 93-2512 (La. 7/5/94), 639 So.2d 730, 750. Because the applicable substantive law determines materiality, whether a particular fact in dispute is material can be seen only in light of the substantive law applicable to the case. Lemann v. Essen Lane Daiquiris, Inc., 2005-1095 (La. 3/10/06), 923 So.2d 627, 632.
As noted above, Mr. Ortlieb asserted in his motion for summary judgment that Mr. Burton could produce no evidence to support any claim of fraud or wrongdoing by Mr. Ortlieb. According to Mr. Burton's pleadings, his claims against Mr. Ortlieb for damages are essentially based on conspiracy, conversion, fraud, and the Louisiana Unfair Trade Practices Act ("LUTPA"), codified as La. R.S. 51:1401, et seq.
With regard to conspiracy, La. C.C. art. 2324(A) provides that he who conspires with another person to commit an intentional or willful act is answerable, in solido, with that person, for the damage caused by such act. Louisiana Civil Code article 2324 does not, by itself, impose liability for a civil conspiracy; rather, the actionable element in a claim under La. C.C. art. 2324 is not the conspiracy itself, but rather the tort which the conspirators agreed to perpetrate and which they actually commit in whole or in part. Ross v. Conoco, Inc. 2002-0299 (La. 10/15/02), 828 So.2d 546, 552. Herein, the underlying torts Mr. Burton alleged Mr. Ortlieb to have perpetrated and committed with others are conversion and fraud.
A conversion is an act in derogation of the plaintiff's possessory rights and any wrongful exercise or assumption of authority over another's goods, depriving him of the possession, permanently or for an indefinite time. Quealy v. Paine, Webber, Jackson & Curtis, Inc., 475 So.2d 756, 760 (La. 1985). A conversion is committed when any of the following occurs; (1) possession is acquired in an unauthorized manner; (2) the chattel is removed from one place to another with the intent to exercise control over it; (3) possession of the chattel is transferred without authority; (4) possession is withheld from the owner or possessor; (5) the chattel is altered or destroyed; (6) the chattel is used improperly; or (7) ownership is asserted over the chattel. Dual Drilling Co. v. Mills Equipment Investments, Inc., 1998-0343 (La. 12/1/98), 721 So.2d 853, 857.
Fraud is a misrepresentation or a suppression of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other. La. C.C. art. 1953. Fraud may also result from silence or inaction. Id. Fraud must be proven by a preponderance of the evidence and may be established by circumstantial evidence. La. C.C. art. 1957. Since the charge of fraud is a serious one, the person who alleges fraud must carry the burden of establishing it. Hill's Mortuary, Inc. v. Hill, 619 So.2d 1080, 1083 (La. App. 1st Cir.), writ denied, 629 So.2d 346 (La. 1993), citing Sanders v. Sanders, 222 La. 233, 239, 62 So.2d 284, 286 (1952).
Although these Louisiana Civil Code provisions on fraud pertain to conventional obligations and the vitiation of consent between the parties, fraud may, nevertheless, furnish a cause of action for damages as an intentional wrong under La. C.C. art. 2315. Gandhi v. Sonal Furniture and Custom Draperies, L.L.C., 49,959 (La. App. 2nd Cir. 7/15/15), ___ So.3d ___, ___. --------
With regard to the LUTPA claims, La. R.S. 51:1405(A) declares that "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are ... unlawful." This legislation is broadly and subjectively stated and does not specify particular violations. Jarrell v. Carter, 577 So.2d 120, 123 (La. App. 1st Cir.), writ denied, 582 So.2d 1311 (La. 1991). What constitutes an unfair trade practice is better determined by the courts on a case-by-case basis. Id. A practice is unfair when it offends established public policy and when the practice is unethical, oppressive, unscrupulous, or substantially injurious. Id. A trade practice is "deceptive" for purposes of LUTPA when it amounts to fraud, deceit, or misrepresentation. Philips v. Berner, 2000-0103 (La. App. 4th Cir. 5/16/01), 789 So.2d 41, 49, writ denied, 2001-1767 (La. 9/28/01), 798 So.2d 119..
Based on these legal precepts, we note that at trial, Mr. Burton will bear the burden of proving that Mr. Ortlieb conspired and perpetrated fraud, conversion, and engaged in unfair or deceptive trade practices. Thus, on the motion for summary judgment, Mr. Ortlieb's burden is to point out to the court that there is an absence of factual support for one or more elements essential to Mr. Burton's claims against him. Thereafter, Mr. Burton had to produce factual support sufficient to establish that he will be able to satisfy his evidentiary burden of proof, i.e., establish that there is a genuine issue of material fact. See La. C.C.P. art. 966(C)(2).
As previously set forth, Mr. Ortlieb claimed that there was no evidence of unlawful conduct (i.e., conversion or fraud) on his part or of a conspiracy to commit such conduct. Mr. Ortlieb claimed that at the time of the 2004 Agreement, his company, ALC, owned 50% of Ansted, which owned 100% of the Tracer companies. He essentially claimed that his actions were limited to memorializing his interest and reflected no wrongful conduct or intent, and that his actions were taken upon advice of counsel.
According to Mr. Ortlieb, in March of 2009, upon hearing that Mr. Burton claimed to own 100% of TPSI, Mr. Ortlieb informed Mr. Burton that he (Mr. Ortlieb) owned part of the Tracer companies. Mr. Burton then showed Mr. Ortlieb the 2004 Agreement. Mr. Ortlieb then became concerned that his ownership interest was not being recognized by Mr. Burton or others, so Mr. Ortlieb sought the advice of corporate attorney, Patrick Reso. According to Mr. Ortlieb's affidavit, and his deposition testimony, he believed that the 2004 Agreement had no validity or effect because he knew that he had never sold any of his interest in TPSI, through ALC. Furthermore, Mr. Ortlieb attested that Mr. Reso had told him that, in his opinion, the 2004 Agreement was unlawful and invalid.
Mr. Reso testified in his deposition that when Mr. Ortlieb showed him the 2004 Agreement, he expressed the concern to Mr. Ortlieb that the 2004 Agreement appeared to be "almost fraudulent" in light of the bankruptcy proceedings. Mr. Reso further testified that when he met with Mr. Redlich, Mr. Redlich told him that the 2004 Agreement was nothing more than a letter of intent that was never consummated and that he (Mr. Redlich) did not even remember signing the 2004 Agreement. According to Mr. Reso's deposition testimony, and Mr. Ortlieb's affidavit, Mr. Redlich did not dispute Mr. Ortlieb's ownership interest in TPSI.
Mr. Reso further testified that he discussed TASI and its formation with Mr. Redlich. According to Mr. Reso, he told Mr. Ortlieb that if TASI was formed as a division of TPSI, then Mr. Ortlieb should be a 50% owner of TASI as well as of TPSI. According to Mr. Reso, Mr. Redlich did not dispute to Mr. Reso or Mr. Ortlieb that TASI was a division of TPSI and the 2004 Agreement refers to TASI as a division of TPSI, rather than as a separate corporate entity. Thus, Mr. Ortlieb argues that it was reasonable of him (Mr. Ortlieb) to believe that he held an ownership interest in the Tracer companies, including TASI.
On March 21, 2009, Mr. Ortlieb and Mr. Redlich executed an "Act of Issuance of Common Stock of Tracer Protection Services, Inc." Thereafter, on March 23, 2009, Mr. Ortlieb and Mr. Reso executed a "Unanimous Consent and Statement of Corporate Ownership by the Shareholders and Directors of Tracer Protection Services, Inc." According to Mr. Ortlieb's affidavit, two stock certificates were issued to Mr. Redlich and to Mr. Ortlieb, respectively, reflecting that they each owned 50% of TPSI. Mr. Ortlieb attested that later in 2009, he learned that, because of his prior felony conviction for tax evasion, his ownership interest in private security companies could cause licensing issues. Therefore, he transferred his shares of TPSI stock to Ortlieb Venture Capital Corporation (OVCC). Thereafter on April 29, 2009, by an act of donation, OVCC transferred all but 2% of its interest to Mr. Ortlieb's daughters, Adelyn Ortlieb and Aryanne Ortlieb Webb.
Additionally, Mr. Ortlieb stated in his affidavit that in January and February of 2010, he also divested his ownership of TASI. Pursuant to the "Unanimous Consent of the Shareholders and Directors of TASI" and "Act of Donation," all but two shares in TASI were transferred to Mr. Ortlieb's two daughters. The Unanimous Consent document reflects that Mr. Ortlieb was 50% owner of TASI prior to the transfer.
Mr. Ortlieb attested that all of these transactions (hereinafter "the 2009 and 2010 transactions") were prepared by Mr. Reso and were executed due to "licensing issues." Mr. Reso indicated in deposition and Mr. Ortlieb attested in his affidavit that Mr. Redlich did not dispute Mr. Ortlieb's ownership interest in both Tracer companies, prior to the transfers.
According to the allegations of the pleadings in this matter, between 2006 and 2010, the Tracer companies incurred substantial and crippling debt, owed to the Internal Revenue Service, resulting from Mr. Burton's refusal to pay taxes and through his use of the Tracer companies to pay for personal expenses. Although Mr. Redlich served as chief financial officer and director of the Tracer companies from 2004 to 2006, in 2006, Mr. Redlich semi-retired to Mexico and turned over complete and exclusive control of operations of the Tracer companies to Mr. Burton. The pleadings further allege that after Mr. Burton stole hundreds of thousands of dollars from the Tracer companies, by paying personal expenses through the companies, and by failing to pay the IRS huge amounts for payroll taxes, Mr. Burton was fired on January 7, 2010. Mr. Ortlieb claims that he had nothing to do with the firing of Mr. Burton. According to the "Unanimous Consent of the Shareholders and Directors of Tracer Protection Services, Inc.," the removal of Mr. Burton was carried out, not by Mr. Ortlieb, but rather by Mr. Redlich, Adelyn Ortlieb, and Ortlieb Venture Capital Corporation. Thereafter, Adelyn Ortlieb and Mr. Redlich were named as directors, Adelyn served as president, and Mr. Redlich served as secretary and treasurer.
Mr. Ortlieb explained in his affidavit that because because Mr. Burton's conduct crippled the Tracer companies, the companies ultimately went out of business in 2010. Mr. Redlich and Mr. Ortlieb's daughters then incorporated Tracer Security Service, Inc. ("Tracer Security"). Mr. Ortlieb points out that no one has disputed that Mr. Ortlieb was not involved in the start-up of Tracer Security. He further attests that he has never had any involvement in the operations or management of Tracer Security in the soliciting, hiring, or transfer of employees, customers, or assets from TPSI and TASI to Tracer Security. In fact, according to Mr. Ortlieb's affidavit, his role in Ansted, TPSI and TASI has always been that of a passive investor.
In opposition to the motion for summary judgment, Mr. Burton asserted that there was ample evidence to support his allegations that Mr. Ortlieb, for his own gain, took actions in order to deprive Mr. Burton of his stock in the Tracer companies, and further, that Mr. Ortlieb conspired with Mr. Redlich for the same purpose. Mr. Burton argued that Mr. Ortlieb's conduct was not limited to memorializing his own (claimed, but disputed) 50% interest in the TPSI stock, through Ansted and ALC. Rather, Mr. Burton asserts, Mr. Ortlieb also conspired with and assisted Mr. Redlich in reclaiming all of the stock that Mr. Redlich had transferred to Mr. Burton via the 2004 Agreement, including a 100% interest in the TSPI and the TASI stock, that the 2004 Agreement had purportedly transferred to Mr. Burton.
Mr. Burton also points out that it is undisputed that Mr. Ortlieb was aware of the existence of the 2004 Agreement at the time that he met with Mr. Reso to discuss his desire to have documents prepared to reflect 50% ownership of TPSI (including TASI) by Mr. Ortlieb and 50% ownership by Mr. Redlich. Mr. Reso testified in deposition that in their meeting in 2009, Mr. Ortlieb showed him the 2004 Agreement, indicated to Mr. Reso that there was "something very suspicious about it," and did not leave a copy of it with Mr. Reso.
Although Mr. Ortlieb argues that he was advised by his counsel, Mr. Reso, to take action to have documents prepared in order to preserve his ownership interest in TPSI and TASI and that his actions reflect no wrongful conduct or intent, Mr. Burton points out that Mr. Reso testified in his deposition that he followed the directions of Mr. Ortlieb in generating the corporate documents that were requested of him by Mr. Ortlieb and Mr. Redlich. Further, by the time Mr. Ortlieb and Mr. Redlich met with Mr. Reso on March 23, 2009, Mr. Redlich and Mr. Ortlieb had already prepared and signed a document dated March 21, 2009, entitled "Act of Issuance of Common Stock of Tracer Protection Services, Inc.," in which they issued 50% of the TPSI stock to Mr. Ortlieb and 50% to Mr. Redlich. Mr. Reso testified that he did not prepare this document.
Mr. Burton further argues that Mr. Ortlieb was acting in bad faith when he surreptitiously acted to take back all of the Tracer companies' stock from Mr. Burton for the mutual benefit of himself and Mr. Redlich. Mr. Burton asserts that if Mr. Ortlieb had been in good faith, he and Mr. Redlich would not have acted in secrecy, excluding Mr. Burton from discussions about the proposed transfers.
With regard to the TASI stock, Mr. Redlich incorporated TASI in 2001, while Mr. Ortlieb was in prison. According to Mr. Burton, Mr. Redlich personally, and not through Ansted, owned 100% of the TASI stock at the time of the 2004 transfer of stock to Mr. Burton. Notably, TASI's 2001 and 2002 tax returns, attached as evidence to the deposition of Jayne Apple, the Tracer companies' Certified Public Accountant ("CPA"), identified Mr. Redlich as 100% owner of TASI. Thus, Mr. Burton contends that Mr. Ortlieb could not have owned any TASI stock through ALC and Ansted, contrary to his claim, and it could not be disputed that Mr. Redlich had the right and authority to transfer 100% of the TASI stock to Mr. Burton in February of 2004, via the 2004 Agreement.
Mr. Burton contends that although Mr. Ortlieb never had a legitimate claim of ownership of any of the TASI stock, and despite being aware of the 2004 Agreement, Mr. Ortlieb conspired with and assisted Mr. Redlich in taking all of the TASI stock away from Mr. Burton, and he executed documents to vest himself and Mr. Redlich with 50% each in TASI stock. According to Mr. Burton's affidavit, starting in 2004, and for the following six years, Mr. Redlich and his wife received payments, as delineated in the 2004 Agreement. Those payments, which were in the form of checks written on the Tracer companies accounts, continued until the time that Mr. Redlich and Mr. Ortlieb locked Mr. Burton out of the Tracer companies in January of 2010. A copy of the 2004 Agreement reflects that pursuant to the terms of the Agreement, and in exchange for the Tracer companies stock, Mr. Redlich was to receive two categories of payments: (1) a $100,000.00 per year salary for life, payable by Tracer companies (reduced to $60,000.00 payable to Mr. Redlich's wife upon his death); and (2) repayment by Tracer companies of Mr. Redlich's prior "unpaid investments and compensation" with minimum annual payments of $10,000.00 per year, without interest.
Mr. Burton's affidavit further stated that, in late 2006, Mr. Redlich fully retired and moved to Mexico, after which time, he and his wife provided no significant services for the Tracer companies; however, Mr. Redlich and his wife continued to receive "non-cash benefits," including health insurance, as well as cash payments from the Tracer companies, amounting to approximately $100,000.00 per year through 2009.
Furthermore, Mr. Burton attested that in early 2009, Mr. Ortlieb told him that he claimed to be an owner of TPSI. In response, Mr. Burton gave Mr. Ortlieb a copy of the 2004 Agreement and told Mr. Ortlieb that he (Mr. Burton) owned both Tracer companies. After that discussion, according to Mr. Burton's affidavit, Mr. Redlich told Mr. Burton that Mr. Ortlieb was a "paranoid nut" and that Mr. Burton should not argue with him. During that conversation, according to Mr. Burton's affidavit, Mr. Redlich reaffirmed the 2004 Agreement and told Mr. Burton "our deal is good." Thereafter, Mr. Burton continued to make the payments to Mr. Redlich and his wife in accordance with the 2004 Agreement, and Mr. Burton continued to act as owner and president of both Tracer companies.
According to Mr. Burton, without his knowledge or consent, in 2009 and 2010, Mr. Ortlieb and Mr. Redlich signed the March 21, 2009 "Act of Issuance of Common Stock of Tracer Protection Services, Inc.," which purported to issue 50% of the TPSI stock to Mr. Ortlieb and the other 50% to Mr. Redlich, and the February 8, 2010 "Unanimous Consent of Shareholders and Directors of Tracer Armed Services, Inc.," which purported to issue 50% of the TASI stock to Mr. Ortlieb and the other 50% to Mr. Redlich, and that these documents that were intended to vest Mr. Ortlieb and Mr. Burton with ownership of both Tracer companies, to the exclusion of Mr. Burton.
In their pleadings, Mr. Redlich and Mr. Ortlieb admitted having locked Mr. Burton out of the Tracer companies' offices in January of 2010. According to Mr. Burton, they changed the bank accounts and took full control of both companies to the exclusion of Mr. Burton, who was thereafter not allowed to participate in any business of the Tracer companies. In mid-2010, Mr. Redlich, along with Mr. Ortlieb's two daughters, formed a new company, Tracer Security Services, Inc. (Tracer Security). According to Mr. Burton's affidavit, all of the assets, employees, customers and contracts of TPSI and TASI were transferred to the new company, and TPSI and TASI are no longer in existence.
After a careful review of the pleadings and evidence, including deposition testimony and affidavits, we find that Mr. Burton has succeeded in establishing that his claims against Mr. Ortlieb raise genuine issues of material fact, which should be decided in a trial on the merits. As this court has previously stated in Tracer II, the validity of Mr. Redlich's purported transfer of Tracer companies stock to Mr. Burton in the 2004 Agreement cannot be finally resolved without a determination regarding the validity of the 2004 Agreement, as well as the ownership of the stock at the time of the 2004 Agreement. This court has concluded that the countervailing evidence on these issues creates genuine issues of material fact that must be decided in a trial on the merits. Furthermore, a determination of the credibility of the witnesses regarding their intentions and motives in this case is essential. The credibility of the witnesses, as well as the specific intention of Mr. Ortlieb and of Mr. Redlich regarding the actions they took in 2009 and 2010, allegedly to wrongfully divest Mr. Burton of his alleged ownership of Tracer companies' stock, should be decided in a trial on the merits. Accordingly, we find that the trial court erred in granting, in part, Mr. Ortlieb's motion for partial summary judgment.
Last, we turn to Mr. Ortlieb's argument that the facts, as alleged by Mr. Burton, do not constitute fraud or conspiracy to commit fraud. We disagree. Mr. Burton alleged that, although he honored his obligations under the 2004 Agreement by making the required payments to Mr. Redlich, nevertheless, Mr. Ortlieb and Mr. Redlich, without Mr. Burton's knowledge or consent, prepared and signed documents intended to vest themselves with full ownership of both Tracer companies, excluding Mr. Burton. Those documents included the March 21, 2009 "Act of Issuance of Common Stock of Tracer Protection Services, Inc.", which purported to issue 50% of the TPSI stock to Mr. Ortlieb and the other 50% to Mr. Redlich, and the February 8, 2010 "Unanimous Consent of Shareholders and Directors of Tracer Armed Services, Inc.," which purported to issue 50% of the TASI stock to Mr. Ortlieb and the other 50% to Mr. Redlich.
According to Mr. Burton, Mr. Ortlieb was not simply attempting to protect the 50% stock ownership in TPSI that he has claimed to have acquired during the bankruptcy proceedings that predate the 2004 Agreement. Rather, Mr. Burton asserts that Mr. Ortlieb acted to re-vest Mr. Redlich with 50% of TPSI stock, thereby acting directly contrary to Mr. Burton's interests and claims pursuant to the 2004 Agreement, by which he (Mr. Burton) claimed to have acquired an ownership interest in TPSI. Likewise, by signing the above-referenced documents, Mr. Ortlieb acted along with Mr. Redlich to purportedly divest Mr. Burton of all ownership of TASI, in which Mr. Ortlieb had no ownership interest, according to Mr. Burton's version of events.
Mr. Burton has asserted that Mr. Ortlieb was aware that Mr. Redlich had obviously defrauded someone by engaging in multiple sales of the same stock. Furthermore, Mr. Burton alleged that because Mr. Ortlieb did not control a majority of the TPSI stock and, therefore could not procure the issuance of stock to himself without a majority vote, he needed a co-conspirator to support him in the execution of the unanimous consent documents. Mr. Redlich's compensation for supporting Mr. Ortlieb was Mr. Ortlieb's reciprocal support of Mr. Redlich in "re-acquiring," by surreptitious means, the same Tracer companies stock that Redlich had transferred to Mr. Burton in 2004. Additionally, Mr. Ortlieb assured his 50% ownership interest in TPSI, which had allegedly been transferred to Mr. Burton, and Mr. Ortlieb gained an interest in TASI, in which Mr. Ortlieb allegedly had no claim of ownership.
Mr. Burton has further alleged that after having wrongfully divested him of all Tracer companies stock, Mr. Ortlieb and Mr. Redlich then admittedly locked Mr. Burton out of the Tracer offices and transferred all assets from the Tracer companies to Tracer Protection, a new company owned by Mr. Redlich and Mr. Ortlieb's two daughters.
Considering all of the pleadings in the underlying litigation, we find that Mr. Burton's allegations, if proven at trial, would support a claim of fraud and/or conspiracy to commit fraud.
CONCLUSION
For the foregoing reasons, the judgment appealed from is reversed. The case is remanded to the trial court for proceedings consistent with this opinion. All costs of this appeal are assessed to appellee, Rene Ortlieb, III.
REVERSED AND REMANDED.