Opinion
CIVIL ACTION NO. 3:00-CV-1801-G
July 9, 2002
MEMORANDUM ORDER
Before the court are the following motions: (1) the motion of the plaintiffs American Realty Trust, Inc. ("ART") and Basic Capital Management, Inc. ("BCM") (collectively, "the plaintiffs") for partial summary judgment, (2) the plaintiffs' motion to strike the declaration of Paul Bagley ("Bagley") as inadmissible summary judgment proof, (3) the motion of the defendants Jack Takacs ("Takacs"), Bagley, and Matisse Capital Partners, L.L.C. ("Matisse") ("the defendants") for partial summary judgment, (4) the defendants' motion to strike the declarations of Robert Waldman ("Waldman") and Bradford Phillips, (5) the motion of the plaintiffs and third party defendant A. Cal Rossi ("Rossi") for summary judgment on Mattisse's fraud claims, and (6) the motion of third party defendants Rossi and Gene E. Phillips ("Phillips") (collectively, "the third-party defendants") for summary judgment on Matisse's tortious interference claims. For the reasons discussed below, each of the motions is denied.
I. BACKGROUND
This suit arises out of a contractual relationship between Matisse, ART, and ART's management company, BCM. Defendants' Brief in Support of Their Motion for Partial Summary Judgment ("Defendants' MPSJ") at 3. ART is engaged in the real estate business, and as part of its normal business operations, it periodically borrows money to fund acquisitions and various aspects of its operations. Plaintiff's Brief in Support of Motion for Partial Summary Judgment ("Plaintiff's MPSJ") at 2; Affidavit of Robert A. Waldman ("Waldman Affidavit") ¶ 3, located in Appendix in Support of Plaintiff's Motion for Partial Summary Judgment ("Plaintiff's MPSJ App.") at 1. Matisse entered into a Financial Consulting, Management and Marketing Agreement (the "Consulting Agreement") with ART, BCM, and another affiliate, National Realty, LP ("National") on April 13, 2000. Defendants' MPSJ at 3; Plaintiff's MPSJ at 2; Waldman Affidavit ¶ 4, Plaintiffs MPSJ App. at 2. The Consulting Agreement provides that it will not be binding upon ART unless and until the respective boards of directors of ART and BCM approve and authorize the contract; if the approval of either board is not obtained, then the Consulting Agreement "shall terminate without liability of either party." Plaintiff's MPSJ at 2-3; Consulting Agreement ¶ 13 (d), Plaintiff's MPSJ App. at 14. Although both parties agree that the board of directors of BCM never approved the Consulting Agreement (Plaintiff's MPSJ at 3, Defendant's MPSJ at 5), the defendants contend that BCM and ART had always assured Matisse that the necessary approvals had been obtained and the parties had always acted as if there was a binding contract between them. Defendant's MPSJ at 5-6. In fact, after the contract was signed, ART elected Bagley, who was associated with Matisse, as its chief executive officer, a director and chairman of its board of directors. Defendants' MPSJ at 3. Bagley and Takacs, a principal in Matisse, worked closely with ART and BCM's officers to identify and negotiate financing transactions on behalf of ART. Defendants' MPSJ at 3. Although the defendants contend that each party initially performed its obligations under the contract to the apparent satisfaction of the other, ART alleges that Matisse failed to fulfill several obligations pursuant to the Consulting Agreement. Defendants' MPSJ at 3. ART claims that Matisse failed to obtain ART approvals of the Project Budget and Business Plan for any projects, in violation of the requirements set out in paragraph 4 of the Consulting Agreement. Plaintiff's MPSJ at 3; Deposition of Paul Bagley ("Bagley Dep.") at 115 and 120, Plaintiff's MPSJ App. at 40, 45. ART alleges that Matisse has breached the Consulting Agreement by failing to perform these obligations. Plaintiff's MPSJ at 3.
On June 14, 2000, Phillips, the principal force behind BCM and ART, and Rossi, an officer of both ART and BCM, were indicted in the Southern District of New York for their alleged participation in a mob-run stock scheme involving the preferred stock of ART. Defendants' MPSJ at 3; Declaration of Paul Bagley ("Bagley Dec.") at 4, located in Appendix in Support of Defendants' Motion for Partial Summary Judgment ("Defendants' MPSJ App.") at 4. After the indictments became public, shares in ART and its sister companies dropped precipitously. Defendants' MPSJ at 3-4. Trading in the shares of ART and its sister companies was suspended by the exchanges on Friday, June 16, 2000. Defendants' MPSJ at 4. At the time of the indictments, ART had borrowed approximately $35 million from a number of brokerages. Defendants' MPSJ at 4. These loans were margin loans secured by shares ART owned in its sister companies, of which National Realty was a large component. Id. When trading was suspended on June 16, the price of the shares had fallen to such a level that liquidation of the shares securing the loans would leave a substantial deficiency balance. Id.
In a margin loan, if the share price falls below a certain floor, the margin lender is entitled to demand cash or additional collateral as necessary to maintain the appropriate loan to collateral ratio. Defendants' MPSJ at 4. If the borrower does not respond to the margin call, the lender is entitled to sell the collateral. Id.
Faced with this crisis, ART's Board met the next day to address the margin debt of the company. Id. The minutes of that board meeting reflect that the board was informed that (1) ART did not have sufficient money to meet the margin calls that were due the following Monday; (2) none of the pending sales of real estate was likely to generate revenues in excess of the amount needed to pay of the debts on those properties; and (3) ART had no existing lines of credit on which it could draw to meet the margin calls. Id. The defendants assert that as chairman and CEO, Bagley was thus responsible for locating and negotiating a financing transaction. Id.
The defendants contend that at the end of an exhaustive search of financing prospects, only one entity remained willing to do business with ART — the Hampstead Group ("Hampstead"). Id. Over the course of a week, Bagley reached an agreement with Hampstead on a proposal that would completely retire ART's margin debt. Id. at 4-5. A letter of intent (the "Hampstead letter") was drafted and signed by Bagley on behalf of ART on June 22, 2000. Id. at 5. During the negotiations with Hampstead, Bagley contacted several of ART's margin debt holders to determine whether they would forbear on ART's margin calls with promises of financing from a respected institutional investor group. Id. While there was no certainty that ART would enter into an agreement with Hampstead to actually finance its margin debt, Bagley was confident that Hampstead's commitment to conduct due diligence and the offer evidenced by the letter of intent would reassure ART's margin debt holders and stave off the immediate crisis. Id.
Bagley presented the Hampstead letter to ART's board of directors for approval within days of executing it. Id. The board rejected the proposal contained in the letter and criticized Bagley for executing it. Id. Because the board disagreed with Bagley's judgment, it removed Bagley as Chairman and CEO. Id. On June 24, 2000, ART terminated the Consulting Agreement, citing paragraph 10 of the Consulting Agreement. Plaintiff's MPSJ at 4. Faced with ART's refusal to go forward with the proposed transaction, Hampstead agreed to terminate the Hampstead letter. Defendant's MPSJ at 5.
This case was filed on June 26, 2000. Plaintiffs MPSJ Motion at 4-5; Defendant's MPSJ at 5. ART claims that the letter of intent effectively crippled ART by preventing ART from negotiating with any other lenders for approximately sixty days, and that it gave Hampstead a free look at ART without any real obligation to ever make any loans. Plaintiff's MPSJ at 4; Waldman Affidavit ¶ 8, Plaintiff's MPSJ App. at 3. ART further contends that Matisse, Bagley, and Takacs negotiated the letter of intent without authority and that they made no attempt to comply with the necessary corporate formalities or to obtain board approval before making the transaction, thus breaching the Consulting Agreement. Plaintiff's MPSJ at 4; Waldman Affidavit ¶ 9, Plaintiff's MPSJ App. at 3. The defendants maintain that ART revealed for the first time, during the pendency of this case, that BCM's board had never approved the Consulting Agreement. Defendant's MPSJ at 5. While the Consulting Agreement requires approval by BCM's board, the defendants contend that BCM and ART assured Matisse that the necessary approvals had been obtained and that the parties had always acted as if there was a binding contract between them. Id. at 5-6.
II. ANALYSIS A. Evidentiary Burdens on Motion for Summary Judgment
Summary judgment is proper when the pleadings and evidence on file show that no genuine issue exists as to any material fact and that the moving party is entitled to judgment as a matter of law. FED. R. Civ. P. 56 (c). "[T]he substantive law will identify which facts are material." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. The movant makes such a showing by informing the court of the basis of its motion and by identifying the portions of the record which reveal there are no genuine material fact issues. Celotex Corporation v. Catrett, 477 U.S. 317, 323 (1986). The pleadings, depositions, admissions, and affidavits, if any, must demonstrate that no genuine issue of material fact exists. FED. R. Civ. P. 5 ¶ (c).
The disposition of a case through summary judgment "reinforces the purpose of the Rules, to achieve the just, speedy, and inexpensive determination of actions, and, when appropriate, affords a merciful end to litigation that would otherwise be lengthy and expensive." Fontenot v. Upjohn Company, 780 F.2d 1190, 1197 (5th Cir. 1986).
Once the movant makes this showing, the nonmovant must then direct the court's attention to evidence in the record sufficient to establish that there is a genuine issue of material fact for trial. Celotex, 477 U.S. at 323-24. To carry this burden, the "opponent must do more than simply show . . . some metaphysical doubt as to the material facts." Matsushita Electric Industrial Company, Ltd. v. Zenith Radio Corporation, 475 U.S. 574, 586 (1986). Instead, the nonmovant must show that the evidence is sufficient to support a resolution of the factual issue in her favor. Anderson, 477 U.S. at 249.
While all of the evidence must be viewed in a light most favorable to the motion's opponent, Anderson, 477 U.S. at 255 (citing Adickes v. S.H. Kress Company, 398 U.S. 144, 158-59 (1970)), neither conclusory allegations nor unsubstantiated assertions will satisfy the non-movant's summary judgment burden. Little v. Liquid Air Corporation, 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc); Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, 506 U.S. 825 (1992). Summary judgment in favor of the movant is proper if, after adequate time for discovery, the motion's opponent fails to establish the existence of an element essential to his case and as to which he will bear the burden of proof at trial. Celotex, 477 U.S. at 322-23.
B. The Plaintiffs' Motion for Partial Summary Judgment
The plaintiffs first contend that the defendants affirmatively and materially breached the Consulting Agreement by signing the letter of intent without the express approval of ART. Plaintiff's MPSJ at 6. Second, the plaintiffs contend that ART properly terminated the Consulting Agreement. Id. at 9. Third, the plaintiffs contend (in the alternative) that the Consulting Agreement terminated according to its own terms based upon failure to obtain approval of the board of directors of BCM. Id. at 10. After considering all of the summary judgment evidence presented and viewing the evidence in the light most favorable to the defendants as the nonmovants, the court finds that there is a genuine issue of material fact as to each of the plaintiffs' summary judgment points. Thus, the plaintiffs' motion for partial summary judgment is denied.
The plaintiffs have also moved to strike the declaration of Bagley as inadmissible summary judgment evidence. Because the declaration did not play a dispositive role in the court's decision to deny the motion for partial summary judgment, the plaintiffs' motion to strike is denied as moot.
C. The Defendants' Motion for Partial Summary Judgment
The defendants first contend that they did not breach any fiduciary duty owed to the plaintiffs. Defendants' MPSJ at 8. Second, the defendants contend that they did not breach the consulting agreement as to ART. Id. at 35. Third, the defendants claim that they did not commit fraud or negligent misrepresentation against BCM. Id. at 37. Fourth, the defendants aver that the Consulting Agreement is valid and enforceable. Id. at 41. Finally, the defendants maintain that ART breached the Consulting Agreement. Id at 50.After considering all of the summary judgment evidence presented and viewing the evidence in the light most favorable to the plaintiffs as the nonmovants, the court finds that there is a genuine issue of material fact as to each of the defendants' summary judgment points. Thus, the defendants' motion for partial summary judgment is denied.
The defendants have also moved to strike the declarations of Waldman and Bradford Phillips as inadmissible summary judgment evidence. Because neither of the declarations played a dispositive role in the court's decision to deny the motion for partial summary judgment, the defendants' motion to strike is denied as moot.
D. The Motion of the Plaintiffs and Rossi for Summary Summary on Matisse's Fraud Claims
The plaintiffs and Rossi move for summary judgment on Matisse's fraud claims against them, contending (1) that there was no misrepresentation of fact, (2) that there was no requisite intent, and (3) that there was no reasonable reliance by Bagley and Matisse. American Realty Trust, Inc., Basic Capital Management, Inc. and A. Cal Rossi's Brief in Support of Their Motion for Summary Judgment on Matisse's Fraud Claim at 4-9. After considering all of the summary judgment evidence presented and viewing the evidence in the light most favorable to Matisse while the nonmovant, the court finds that there is a genuine issue of material fact as to these points. Thus, the third party defendants' motion for summary judgment on Matisse's fraud claim is denied.E. The Third Party Defendants' Motion for Summary Judgment on Matisse's Tortious Interference Claims
Rossi and Phillips move for summary judgment on Matisse's tortious interference claims against them, arguing that (1) they did not interfere with the contract, (2) even if they did, such interference did not proximately cause damages to Matisse, (3) they did not interfere because a party cannot interfere with its own contract, and (4) even if Phillips is not protected as an agent, his conduct was privileged or justified. A. Cal Rossi's and Gene E. Phillips' Brief in Support of Motion for Summary Judgment on Matisse's Tortious Interference Claim at 4-8. After considering all of the summary judgment evidence presented and viewing the evidence in the light most favorable to Matisse as the nonmovant, the court finds that there is a genuine issue of material fact as to these points. Thus, the third party defendants' motion for summary judgment on Matisse's tortious interference claims is denied.
III. CONCLUSION
For the reasons stated above, the plaintiffs' motion for partial summary judgment is DENIED. The plaintiffs' motion to strike the declaration of Bagley is DENIED as moot. The defendants' motion for partial summary judgment is DENIED. The defendants' motions to strike the declarations of Waldman and Bradford Phillips are DENIED as moot. The plaintiffs' and Rossi's motion for summary judgment on Matisse's fraud claims is DENIED. The third party defendants' motion for summary judgment on Matisse's tortious interference claims is DENIED.
SO ORDERED.