Opinion
No. SA-02-CA-1175-RF
August 15, 2003
Before the Court are Defendant M.G. "Pat" Robertson's Amended Motion to Dismiss for Failure to State a Claim, and Defendant Gary Sekulow's Amended Motion to Dismiss for Failure to State a Claim (collectively, "Amended Motions to Dismiss"), both filed on July 14, 2003. After due consideration, the Court is of the opinion that Defendants' Amended Motions to Dismiss should be GRANTED IN PART and DENIED IN PART.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff Focus Direct, Inc. ("Focus Direct") filed its original petition in Bexar County District Court, 57th Judicial District of Texas. On December 12, 2002, Defendants removed this case to federal court. On June 23, 2003, Plaintiff filed its First Amended Complaint in this Court. Defendants had previously filed Motions to Dismiss on the basis of Plaintiff's original petition. However, those motions were superseded by the Amended Motions to Dismiss.
In its First Amended Complaint, Plaintiff alleges multiple causes of action against Defendants Sekulow and Robertson, which arise out of a contractual relationship between Focus Direct and Defendant American Center for Law and Justice ("ACLJ"). Under this relationship, Plaintiff was to provide services to ACLJ, including mailings to potential donors. Under the financial agreement between Plaintiff and ACLJ, ACLJ was to set aside funds for payment of expenses, and payments were to be made to Plaintiff no less often than every fourteen (14) days. When any invoice was not paid in full within six months, the invoice became immediately due and payable to Plaintiff.
Pl.'s First Am. Compl. ¶ 13, at 3 (June 23, 2003).
Id. ¶ 15, at 3-4.
Id. ¶ 6, at 4.
Defendant Pat Robertson is the founder and a board member of ACLJ. Defendant Gary Sekulow is the Chief Financial Officer of ACLJ. Defendant William Sidebottom operated as Plaintiffs "broker" for the work received by ACLJ. The Court discusses the claims against Defendant Sidebottom more extensively in a contemporaneously filed Order.
Id. ¶ 12, at 3.
Id. ¶ 6, at 2.
Id. ¶ 20, at 5, Ex. 1 at 4 ¶ F.
Plaintiff alleges that one of the major reasons it entered into a relationship with ACLJ was its affiliation with Robertson. In that regard, Plaintiff alleges that it informed Robertson in 1996 and 1998 of work that had been done for ACLJ by Plaintiff which was outstanding and overdue for payment. Plaintiff alleges that Robertson told Plaintiff that it "need not worry about the overdue amounts because ACLJ was part of Robertson's `family' and [it] had money to pay the outstanding indebtedness." Plaintiff alleges that, based upon this reassurance, it continued to perform services for ACLJ.
Id. ¶ 12, at 3.
Id. ¶ 42, at 11.
Id.
Id. ¶ 43, at 11.
Plaintiff alleges that, beginning around 1999, ACLJ, Sekulow, Sidebottom, and Robertson "developed a fraudulent scheme" to obtain work from Plaintiff at a reduced rate. Under this alleged scheme, Sidebottom and Sekulow agreed to limit the payments made to Plaintiff. Robertson was consulted and approved the terms of the agreement. Plaintiff alleges that after 1999 invoices were not regularly paid, although Plaintiff continued to provide services to ACLJ.
Id. ¶ 22, at 5.
Id.
Id. ¶ 22, at 5.
Id. ¶¶ 23, at 6.
In addition, Plaintiff alleges that the aforementioned Defendants "developed a scheme" to further alter the terms of the agreement between Plaintiff and ACLJ. Sekulow allegedly sent statements purporting to seek "account verification," but which actually misrepresented the amount owed and the due date. Defendants sought "confirmation" of the statements by Plaintiff. Plaintiff alleges that Robertson was aware and approved of the issuance of the statements. Plaintiff attaches copies of two such statements-one from May 2001 and the other from April 2002-as well as its response to the statements.
Id. ¶ 26, at 6.
ld. ¶ 26, at 7.
Id.
Id.
Id., Exs. 3-6.
Plaintiff alleges that it discovered the misrepresentations and therefore returned the statements to ACLJ without checking the "correct" box, thus "indicating that [Plaintiff] did not approve of the new terms." Nevertheless, Plaintiff claims, Defendants conspired to forge and change the statements by placing a check in the "correct" box and adding forged initials.
Id. ¶ 27, at 7.
Id.
On the basis of the above allegations, Plaintiff states various claims gainst each of the Defendants. With regard to Defendant Sekulow, Plaintiff alleges causes of action for: (1) breach of contract; (2) fraudulent concealment; and (3) conspiracy to defraud. With regard to Defendant Robertson, Plaintiff alleges causes of action for: (1) breach of contract; (2) fraudulent concealment; (3) fraud; and (4) conspiracy to defraud.
The Court notes that Plaintiff has not included either of these Defendants in the claims for suit on account or breach of fiduciary duty.
Sekulow and Robertson filed their Amended Motions to Dismiss on July 14, 2003, arguing that Plaintiff had not alleged any facts to support the causes of action against them. Plaintiff responded to the Amended Motions to Dismiss on July 25, 2003. The Court held a hearing on these matters on July 28, 2003. The Court now discusses its disposition of the Motions.
STANDARD OF REVIEW
For purposes of a 12(b)(6) Motion to Dismiss for failure to state a claim, the complaint must be liberally construed in favor of the plaintiff, and all the facts pleaded in the complaint must be taken as true. Dismissal on this basis is a disfavored means of disposing of a case, and district courts should avoid such dismissals "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." "The question therefore is whether, in the light most favorable to the plaintiff and with every doubt resolved in his behalf, the complaint states any valid claim for relief."
Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440, 442 (5th Cir. 1986).
Kennedy v. Tangipahoa Parish Library Ed, of Control, 224 F.3d 359, 365 (5th Cir. 2000).
Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957).
Brown v. Nationsbank Corp., 188 F.3d 579, 586 (5th Cir. 1999) (citing 5 CHARLES ALAN WRIGHT ARTHUR MILLER, FEDERAL PRACTICE AND PROCEDURE § 1357, at 601 (1969)).
DISCUSSION
I. Legal Standard to Survive Motion to DismissIn order to survive a motion to dismiss, a complaint "must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory." The issue before the Court "is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear that recovery is remote and unlikely but that is not the test." "In order to avoid dismissal for failure to state a claim, however, a plaintiff must plead specific facts, not mere conclusory allegations." Moreover, "a district court must limit itself to the contents of the pleadings. . . ."
In re Plywood Antitrust Litigation, 655 F.2d 627, 641 (5th Cir. 1981).
Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686 (1974).
Coltins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000).
Id.
Rule 9(b) of the Federal Rules of Civil Procedure additionally provides that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." "Thus, allegations of fraud must meet a higher, or more strict, standard than the basic notice pleading[,]" which "`stems from the obvious concerns that general, unsubstantiated charges of fraud can do damage to a defendant's reputation.'" The standard of "particularity" will necessarily vary with the facts of each case, but "[a]t a minimum, Rule 9(b) requires allegations of the particulars of time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby."
FED.R.Qv.R 9(b).
Shushany v. Allwaste, Inc., 992 F.2d 517, 521 (5th Cir. 1993) (quoting Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir. 1992)).
Id. (citing Tel-Phonic Services, Inc. v. TBS Int'l, Inc., 975 F.2d 1 134, 1 139 (5th Cir. 1992) and Guidry, 954 F.2d at 288).
In this case, Plaintiff has alleged causes of action against Defendants Sekulow and Robertson based on fraud. Under Texas law, "[t]he elements for actionable fraud are that: (1) a material representation was made; (2) the representation was false; (3) when the representation was made the speaker knew it was false or made it recklessly without any knowledge of its truth and as a positive assertion; (4) the speaker made the representation with the intent that it should be acted upon by the party; (5) the party acted in reliance upon the representation; and (6) the party thereby suffered injury," Thus, in order to survive Defendants' Motions to Dismiss on this issue, Plaintiff must allege sufficient facts to establish a claim, in conformity with the particularity requirement discussed above.
34Mc Whorter v. Shelter, 993 S.W.2d 781, 785 (Tex.App.-Houston [14th Dist.] 1999, pet. denied).
II. Sufficiency of Plaintiffs Complaint
Plaintiff alleges that Defendants Sekulow and Robertson, along with other Defendants, "developed a fraudulent scheme" to obtain work from Plaintiff at a reduced rate. It alleges that they diverted and misappropriated funds which were contractually owed to Plaintiff as payment for invoices. Plaintiff further alleges that Defendants Sekulow and Sidebottom, along with other Defendants, "developed a scheme to further alter the terms" of the fee arrangement by means of false account verification statements. Plaintiff alleges that Sekulow, with Robertson's approval, forwarded the statements to Plaintiff. Plaintiff claims that, after it indicated its rejection of the new terms, Defendants "agreed to forge and change" the statements to falsely indicate Plaintiffs approval. Finally, Plaintiff alleges that, in 1996 and 1998, Robertson told Plaintiff that it "need not worry about the overdue amounts because ACLJ was part of Robertson's `family' and [it] had money to pay the outstanding indebtedness." A. Breach of Contract
Pl.'s First Am. Compl. ¶ 22, at 5.
Id. ¶ 33, at 9.
Id. ¶ 26, at 6-7.
Id. ¶ 26, at 7.
Id. ¶ 27, at 7.
Id. ¶ 42, at 11.
Plaintiff first argues that Defendants Sekulow and Robertson are "jointly and severally liable" for ACLJ's breach of the 1995 agreement and for payment of amounts due and owing to Plaintiff. Plaintiff asserts that Defendants "used ACLJ as a sham to perpetrate an actual fraud on FOCUS." Beyond this bare statement, however, Plaintiff offers no basis for holding Sekulow and Robertson personally liable for the debts of the corporate entity, ACLJ, Plaintiff has not alleged that ACLJ is a "corporate fiction," that it is the "alter ego" of either Sekulow or Robertson, or that either Defendant personally benefitted from the underlying actions. Moreover, as discussed further below, none of Plaintiffs allegations regarding Sekulow or Robertson support a direct claim of fraud by these Defendants. Since Plaintiff has established no basis for piercing the corporate veil in this case, any contractual liability lies only with the corporation itself. Accordingly, Defendants' Amended Motions to Dismiss should be GRANTED with regard to Plaintiffs claims of breach of contract against Sekulow and Robertson individually. B. Fraud
Id. ¶ 33, at 9.
Id.
See Menetti v. Chavers, 974 S.W.2d 168, 173 (Tex.App.-San Antonio 1998, no pet.).
See id.
Plaintiff characterizes its next set of claims against these Defendants as "fraudulent concealment." The Court discusses these claims at greater length in its contemporaneous Order regarding Defendant Sidebottom's Amended Motion to Dismiss. As noted in that Order, fraudulent concealment is not an independent cause of action, but rather an affirmative defense to the expiration of the limitations period. Nevertheless, the Court examines the substance of Plaintiff s allegations.
Pl.'s First Am. Compl. at 9.
See, e.g., Taub v. Houston Pipeline Co., 75 S.W.3d 606, 620 (Tex.App.-Texarkana 2002, pet. denied); Hay v. Shell Oil Co., 986 S.W.2d 772, 778 (Tex.App.-Corpus Christi 1999, pet. denied).
Plaintiff's first claim of fraud alleges that, under the 1999 agreement, Defendants intentionally misappropriated monies intended for Plaintiff and concealed the misappropriation, as well as other activities, from Plaintiff in an attempt to continue receiving services while avoiding payment. This claim does not, therefore, allege an affirmative representation, but rather the concealment of information. As the Court notes in its accompanying Order, however, the Texas Supreme Court has held that "[f]raud by non-disclosure is simply a subcategory of fraud because, where a party has a duty to disclose, the non-disclosure may be as misleading as a positive misrepresentation of facts."
Pl.'s First Am. Compl. ¶¶ 35-36, at 9-10.
Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex. 1997); see also Smith v. Nat 7 Resort Cmtys., Inc., 585 S.W.2d 655, 658 (Tex. 1979) (finding that, "where there is a duty to speak, silence may be as misleading as a positive misrepresentation of existing facts").
The Court has found that Sidebottom, as Plaintiffs broker for work received from ACLJ, owed such a duty to disclose. This principle does not apply to Defendants Sekulow and Robertson, who are both corporate officers ACLJ. In this capacity, these Defendants do not owe Plaintiff the same duty of disclosure. Rather, the relationship of Plaintiff with these parties is that of marketplace participants engaged in an arm's length transaction. Thus, while the failure of these Defendants to disclose their alleged attempts to avoid payments may have violated the terms of the contract, it is not the equivalent of an affirmative misrepresentation. Plaintiff has an adequate remedy against ACLJ in contract; it may not, however, assert a claim of fraud on this basis against Sekulow or Robertson.
See Johnson v. Peckham, 120 S.W.2d 786, 788 (Tex. 1938).
Plaintiffs second claim of fraud against Sekulow and Robertson alleges that Defendants participated in the creation of false account verification statements. The Court rejects this claim as to all Defendants in its accompanying Order. As the Court notes in that Order, Plaintiff does not allege either reliance or injury with regard to this claim. Although Plaintiff alleges that Defendants attempted to induce Plaintiff to confirm altered terms to ACLJ's invoices, Plaintiff states that it discovered and rejected those attempts. There is no suggestion in Plaintiffs Complaint that it ever complied with, or otherwise acted in accordance with, the amended terms. Thus, Plaintiff cannot establish that it suffered any injury in reliance upon them. For this reason, the second claim of fraud also fails.
McWhorter v. Shelter, 993 S.W.2d 781, 785 (Tex.App.-Houston [14th Dist.] 1999, pet. denied) (discussing the elements of actionable fraud).
Pl.'s First Am. Compl. ¶ 27, at 7, ¶ 28, at 8, Exs. 3, 5, 6.
Plaintiffs third and final claim of fraud involves only Robertson. The extent of Plaintiffs allegations against Defendant Robertson regarding this claim is that Robertson assured Plaintiff that it "need not worry about the overdue amounts because ACLJ was part of Robertson's `family; and [it] had money to pay the outstanding indebtedness." The Court finds this allegation insufficient to state a claim of fraud against Robertson.
Id. ¶ 42, at 11.
Plaintiff makes no allegation that the representation was false at the time it was made or that Defendant knew of or recklessly disregarded the falsity of the statement. The statements attributed to Defendant only addressed the financial solvency of ACLJ, not the organization's intention to pay. Plaintiff alleges no facts to suggest that Robertson's statement is factually untrue.
Moreover, even if Robertson's statements could be construed as an assurance of ACLJ's commitment to its financial obligations, Plaintiff has not stated a claim of fraud. The statements attributed to Robertson were made in 1996 and 1998. Plaintiffs own allegations in its Complaint state that the fraudulent scheme to avoid payment was not developed until 1999. Moreover, Plaintiff concedes that, "[p]rior to December 1999, invoices for work performed by [Plaintiff] for ACLJ were paid." Thus, there is no basis upon which to infer that Robertson' s statement was factually untrue at the time he made it. Accordingly, the third claim of fraud must also be dismissed.
Id.
Id. ¶ 22, at 5.
Id. ¶ 23, at 6.
For the foregoing reasons, the Court finds that Defendants' Amended Motions to Dismiss should be GRANTED with regard to all of Plaintiff s claims of fraud against Sekulow and Robertson.
C. Conspiracy to Defraud
Plaintiffs final claim against Defendants Sekulow and Robertson is a conspiracy to defraud, based on the first two schemes discussed above. As the Court states in its Order regarding Sidebottom's Amended Motion to Dismiss, a "civil conspiracy consists of `a combination of two or more persons to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means.'" "The essential elements are: (1) two or more persons; (2) an object to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as the proximate result."
Id. ¶ 47, at 12.
Pinnacle Data Servs., Inc. v. Gillen, 104 S.W.3d 188, 198 (Tex.App.-Texarkana 2003) (quoting Firestone Steel Prods. Co. v. Barajas, 927 S.W.2d 608, 614 (Tex. 1996)).
Id. (citing Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex. 1983)).
The Court notes in its accompanying Order that "a defendant's liability for conspiracy depends on participation in some underlying tort for which the plaintiff seeks to hold at least one of the named defendants liable." Since the Court has rejected Plaintiffs fraud claims regarding the false account verification statements with respect to all Defendants, its conspiracy claims against Sekulow and Robertson on that ground are also dismissed. Accordingly, Defendants' Amended Motions to Dismiss should be GRANTED with respect to this conspiracy claim.
Tilton v. Marshall, 925 S.W.2d 672, 681 (Tex. 1996) (citing Carroll v. Timmers Chevrolet, Inc., 592 S.W.2d 922, 925 (Tex. 1979)).
This principle, however, does not confer the same benefit upon Sekulow and Robertson with regard to Plaintiffs other conspiracy claim. That claim alleges that Defendants' `developed a fraudulent scheme to obtain additional work from [Plaintiff] at a reduced rate or without having to pay for the work at all." In furtherance of this scheme, Plaintiff alleges that Defendants misappropriated monies and concealed other activities in an attempt to avoid payment to Plaintiff for its services. Plaintiff need not establish Sekulow's and Robertson's liability for the underlying fraud in order to state a cause of action for civil conspiracy against these Defendants. The Court has already found that Plaintiff has sufficiently stated a claim for fraud, with adequate particularity, against Defendant Sidebottom. Since Plaintiff "seeks to hold at least one of the named defendants liable" for the underlying tort, it can assert a claim of civil conspiracy against others, provided the other elements of that claim are satisfied.
Pl.'s First Am. Compl. ¶ 22, at 5.
W. ¶¶ 35-36, at 9-10.
Tilton, 925 S.W.2d at 681 (emphasis added).
Plaintiffs allegation that Defendants "ACLJ, Sekulow, Sidebottom and Robertson developed a fraudulent scheme to obtain additional work from [Plaintiff] at a reduced rate or without having to pay for the work at all" establishes the first three elements of a civil conspiracy claim. The allegations regarding misappropriation of funds, as well as Sidebottom's failure to disclose, constitute overt acts in satisfaction of the fourth element. Finally, Plaintiff has alleged damages-in the form of over $700,000 in outstanding invoices-as a proximate result of the civil conspiracy. Thus, Plaintiff has stated a claim against Sekulow and Robertson for civil conspiracy involving the 1999 agreement. Accordingly, Defendants' Amended Motions to Dismiss should be DENIED with regard to the conspiracy to commit the fraud alleged in paragraphs 35 and 36 of Plaintiffs Complaint.
Pl's First Am. Compl. ¶ 22, at 5.
Pinnacle Data Servs., Inc. v. Gillen, 104 S.W.3d 188, 198 (Tex.App.-Texarkana 2003) (citing Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex. 1983)).
Id.
Pl's First Am. Compl. 1 30, at 8, ¶¶ 48-49, at 12.
CONCLUSION
For the foregoing reasons, the Court concludes that Plaintiff has failed to state a claim against Defendants Sekulow and Robertson for which relief can be granted with regard to breach of contract or fraud (including fraudulent concealment). In addition, Plaintiff has failed to state a claim for civil conspiracy with regard to the fraud claim alleged in paragraph 37 of its First Amended Complaint. Plaintiff has, however, stated a claim for conspiracy to commit the fraud alleged in paragraphs 35 and 36 of the First Amended Complaint.
It is therefore ORDERED that Defendant M.G. "Pat" Robertson's Amended Motion to Dismiss for Failure to State a Claim is GRANTED IN PART and DENIED IN PART.
It is ORDERED that Defendant Gary Sekulow's Amended Motion to Dismiss for Failure to State a Claim is GRANTED IN PART and DENIED IN PART.
It is ORDERED that all claims of breach of contract, fraud, or fraudulent concealment against these Defendants are DISMISSED.
It is ORDERED that Plaintiffs claims of civil conspiracy against these Defendants, arising out of alleged "false account verification statements, " are DISMISSED.
See id. ¶ 37, at 10.
It is ORDERED that Plaintiffs remaining civil conspiracy claims against these Defendants are PRESERVED.