Opinion
Civil No. 3:00-CV-1539-H.
May 4, 2001.
MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiff's Motion for Summary Judgment, filed November 3, 2000. On November 6, 2000, the Court filed an Order directing Defendants to respond to Plaintiff's Motion by November 22, 2000. Defendants have filed no response. The Court therefore finds the motion ready for disposition. See Local Rule 7.1(e).
The summary judgment record consists of the pleadings, Plaintiff's motion and accompanying brief, and an appendix containing Plaintiff's affidavit and various exhibits. There has been no apparent discovery conducted in this case.
The Fifth Circuit has determined that summary judgment is appropriate for cases involving unambiguous contracts. See Fischbach Moore, Inc. v. Cajun Elec. Power Coop., Inc. 799 F.2d 194, 197 (5th Cir. 1986). Looking to Texas law, the Court notes that "[i]nterpretation of a contract becomes a fact issue to be resolved by extrinsic evidence only when application of pertinent rules of construction leaves a genuine uncertainty as to which of two meanings is proper." Harris v. Rowe, 593 S.W.2d 303, 304 (Tex. 1979). For the reasons set forth below, the Court finds no ambiguity as to the relevant provisions of the contract at issue, making summary judgment the proper means for deciding the case.
The Fifth Circuit has reached the same conclusion regarding summary judgment disposition on promissory note cases, which is instructive given the nature of the contract at issue here. See Colony Creek, Ltd. v. Resolution Trust Corp., 941 F.2d 1323, 1325 (5th Cir. 1991).
After considering the pleadings, Plaintiff's brief and evidence, and the relevant authorities the Court is of the opinion, for the reasons stated below, that Plaintiff's Motion for Summary Judgment should be GRANTED.
I. Background
This case arises from a Loan Agreement between Plaintiff, a citizen of New Zealand, and Defendant Hengst Finance, Inc. ("Hengst"), a corporation organized under the laws of the State of Texas. At all times relevant to this case, Defendant Colin Jones ("Jones") was the President, sole owner, and controlling principal of Defendant Hengst. (Pl.'s Aff. Supp. Summ. J. (hereinafter, "Pl.'s Aff.") ¶ 3). In seeking and considering various investment opportunities in international markets, Plaintiff was introduced by a mutual acquaintance in the United Kingdom to Jones, who held himself out as an individual experienced in successfully managing large investments on behalf of high net worth individuals (Pl.'s Aff. ¶ 3).
The parties executed an Agreement for Loan on March 22, 1997 in England ("the Agreement") ( See Pl.'s Aff., Ex. A), and further executed an Addendum to that Agreement on May 23, 1997 ("the Addendum") ( See Pl.'s Aff., Ex. B). Plaintiff agreed to fund a loan often million dollars for investment by Hengst (Pl.'s Aff. ¶ 4; Aff. Ex. A), which corporation, on information and belief of Plaintiff, was formed by Jones solely for the purpose of this transaction. (Pl.'s Aff. ¶ 3). Under the relevant terms of the Agreement, the investment project for which the loan was made would naturally terminate twelve months and one week after the effective date (which was March 22, 1997) (Pl.'s Aff. Ex. A, § 3.1). Upon termination, Hengst agreed to pay Plaintiff "within seven (7) banking days of such termination, the loan principal and all outstanding fees," subject to an exception inapplicable in this case. (Pl.'s Aff. Ex. A, § 6.2(a)). In the process of forming the contract, Jones further individually represented to Plaintiff that the loan principal would be returned on this date. (Pl.'s Aff. ¶ 4).
In the Addendum executed by the parties, Plaintiff authorized the transfer of the loan principal from his bank account to the designated depository bank, where the principal or a bank guarantee of equivalent value were to be kept at all times. (Pl.'s Aff. ¶¶ 6, 8; Pl.'s Aff. Ex. B). The terms of the contract expressly stipulated that Plaintiff's signature was required on all transactions involving the loan principal (Pl.'s Aff. ¶ 7; Pl.'s Aff. Ex. B, Schedule II(iii)).
As discussed more fully below in the context of Plaintiff's breach of contract claim, Plaintiff alleges that Jones wrongfully transferred portions of the loan principal on three separate occasions in 1997, such that substantially all of the funds were placed in the sole dominion and control of Jones. (Pl.'s Aff. ¶¶ 10, 13, 16). Plaintiff further alleges that, throughout the remainder of the term of the Agreement, Jones continued to assure him of the security of the loan principal, including in response to Plaintiff's questions about the fund transfers. (Pl.'s Aff. ¶¶ 11, 12, 16). Finally, after the Agreement naturally terminated in March 1998, Plaintiff made repeated demands for return of the loan principal. In response, Jones allegedly represented to Plaintiff on dozens of occasions between May 1998 and April 1999 that the return of his ten million dollar principal was forthcoming and/or already in progress. (Pl.'s Aff. ¶ 18; Pl.'s Aff. Ex. G). Because Defendants have never returned Plaintiff's loan principal, Plaintiff brought this lawsuit on July 18, 2000.
II. Summary Judgment Standard
Summary judgment is appropriate where the facts and law as represented in the pleadings, affidavits and other summary judgment evidence show that no reasonable trier of fact could possibly find for the nonmoving party as to any material fact. FED.R.CIV.P. 56; Lujan v. National Wildlife Federation, 497 U.S. 871, 888 (1990); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Innovative Database Systs. v. Morales, 990 F.2d 217 (5th Cir. 1993). "The moving party bears the initial burden of identifying those portions of the pleadings and discovery in the record that it believes demonstrate the absence of a genuine issue of material fact, but is not required to negate elements of the nonmoving party's case." Lynch Properties, Inc. v. Potomac Ins. Co. of Ill., 140 F.3d 622, 625 (5th Cir. 1998) (citing Celotex, 477 U.S. at 322-25). If the movant fails to meet its initial burden, the motion must be denied, regardless of the nonmovant's response. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
If the movant does meet its burden, the nonmovant must go beyond the pleadings and designate specific facts showing that a genuine issue of material fact exists for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Edwards v. Your Credit, Inc., 148 F.3d 427, 431 (5th Cir. 1998). A party opposing summary judgment may not rest on mere conclusory allegations or denials in its pleadings unsupported by specific facts presented in affidavits opposing the motion for summary judgment. FED. R. CIV. P. 56(e); Lujan, 497 U.S. at 888; Hightower v. Texas Hosp. Assn., 65 F.3d 443, 447 (5th Cir. 1995).
In determining whether genuine issues of fact exist, "[f]actual controversies are construed in the light most favorable to the nonmovant, but only if both parties have introduced evidence showing that a controversy exists." Lynch, 140 F.3d at 625 (emphasis added); see also Eastman Kodak v. Image Technical Servs., 504 U.S. 451 (1992). However, in the absence of any proof, the Court will not assume that the nonmoving party could or would prove the necessary facts. Lynch, 140 F.3d at 625. A party must do more than simply show some "metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. "If the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Friou v. Phillips Petroleum Co., 948 F.2d 972, 974 (5th Cir. 1991).
As stated above, neither Defendant has filed a response to Plaintiff's motion. Consequently, Defendants have failed to provide the Court with disputed facts that would preclude summary judgment in this case. See FED. R. CIV. P. 56(e); Local Rules 56.4, 56.5. This failure entitles the Court to accept Plaintiff's description of the undisputed facts as prima facie evidence. See Eversley v. MBank Dallas, 843 F.2d 172, 173-74 (5th Cir. 1988). Thus, if Plaintiff's motion and supporting material establish a prima facie showing of his entitlement to judgment, summary judgment should be granted. Id.
The Court further notes that Defendants have not sought any extension of their deadline by which to respond, nor have they asserted that they have not had an adequate opportunity for discovery or otherwise challenged Plaintiff's motion under FED. R. CIV. P. 56(f). The Court is mindful of the fact that Defendants have appeared in this action as pro se parties. This, however, does not excuse them from the most basic requirement that they file a response. Bookman v. Shubzda, 945 F. Supp. 999, 1005 (N.D. Tex. 1996).
Not only have Defendants wholly failed to respond to Plaintiff's Motion for Summary Judgment, but they otherwise appear to have no intention of defending this lawsuit. Following service of Plaintiff's Original Complaint, Defendants filed a series of three documents, in the form of notarized affidavits by Defendant Jones; it is not clear to the Court in what sense one or more of these incomprehensible pleadings may be considered to be a proper Answer. They do, however, appear to deny the corporate existence of either Defendant, as well as that of Plaintiff, this Court, opposing counsel, and various other entities. Defendants filed no responsive pleading to Plaintiff's First Amended Complaint. Finally, the Court notes that Defendants have ignored other Orders of this Court, including that the Defendants confer with Plaintiff's counsel in the preparation and filing of an initial Joint Status Report (Order of Aug. 22, 2000), and that Defendants provide the Plaintiff and the Court with current phone and fax numbers at which they may be contacted (Order of Oct. 2, 2000).
III. Analysis
Plaintiff moves that the Court grant him summary judgment against both Defendants on each of Plaintiff's alternative claims, namely fraud, breach of contract, and unjust enrichment. Plaintiff further moves that the Court find that Hengst is in fact the alter ego of Jones, and that Jones is therefore personally liable for the actions of the corporation. Based on the foregoing, Plaintiff seeks a judgment awarding him the amount of his loan principal, pre-judgment interest, costs, and attorney's fees. The Court will consider each of Plaintiff's claims in turn.
The Motion is based on the live pleading, Plaintiff's First Amended Complaint, filed September 20, 2000.
A. Fraud
Plaintiff contends that Hengst committed fraud against him by making material representations to him on which he relied, both before and after the parties entered into the Agreement. To prevail on his fraud claim as a matter of law, Plaintiff must establish that: 1) Hengst made a material representation; 2) which was false; 3) which was known to be false when made or was asserted without knowledge of its truth; 4) which was intended to be acted upon; 5) which was relied upon; and 6) which caused injury. Formosa Plastics Corp. USA v. Presidio Eng'rs Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). The mere failure to perform a contract is not evidence of fraud. Texas law, however, recognizes the separate tort claim of fraudulent inducement. A defendant is liable in tort for its misrepresentation if, at the time it made the relevant promises to Plaintiff, it had no intention of performing. Id. at 48.
In this case, the summary judgment evidence establishes that there is no genuine issue of material fact regarding any of the six fraud elements on which Plaintiff would have the burden of proof at trial. Regarding materiality, Jones represented that Plaintiff's loan principal would be returned to him upon termination of the Agreement (naturally occurring a year after the effective date), that the loan principal would at all times remain under the joint control of Plaintiff and Jones, and that the loan principal or a bank guarantee of equivalent value would at all times remain safely on deposit with the designated depository bank. (Pl.'s Aff. ¶¶ 6, 7, 9). In the context of the type of contract at issue here, each of these representations was material to Plaintiff's decision to loan the Defendants ten million dollars. The record also establishes further material representations made by Jones to Plaintiff during and after the term of the Loan Agreement, regarding the security of his loan principal during the term and the promises that it would be returned to him.
Regarding the second, third and fourth elements of the fraud claim, Plaintiff argues that "the evidence establishes that Jones knew his statements were false because from the moment that he received the funds, he acted contrary to his earlier statements." (Pl.'s Br. Supp. Summ. J. at 12). The evidence does establish that Jones made several wrongful transfers of substantially all of Plaintiff's principal, that he transferred the funds in a manner in which he would have sole control over them, and that Plaintiff became aware of such transfers in October, 1997 and thereafter. (Pl.'s Aff. ¶¶ 10-16, Pl.'s Aff. Exs. C, D, F). It is undisputed that Defendants have failed to repay any of the loan principal, that Jones has refused to disclose what happened to Plaintiff's funds, and that he has failed to reveal where any remaining funds are now located. Based on Defendants' course of conduct, the Court concludes that Plaintiff has demonstrated the absence of a genuine fact issue on falsity and Jones' state of mind at the time he made the various representations to Plaintiff.
The summary judgment evidence also establishes that there is no genuine fact issue that Plaintiff relied on Jones' representations surrounding the formation of the Agreement. Plaintiff states that he would not have loaned ten million dollars to Hengst without the assurances that his loan principal would be returned at the end of the contract year and that he would retain joint control over the location and disbursement of his funds during the term of the Agreement. (Pl.'s Aff. ¶¶ 4, 7). Plaintiff further relied on Jones' subsequent assurances during the term of the Agreement regarding the security and the return of his principal. Finally, there is no genuine fact issue that Plaintiff was injured by Defendants' fraudulent representations. As a result of Plaintiff's reliance on Defendants' representations before and after execution of the Agreement, Plaintiff has suffered damages in the amount of the loan principal ($10 million), together with all applicable accrued interest on this amount. (Pl.'s Aff. ¶ 18).
This is not merely a case of failure to perform the contract, but one in which the evidence indicates Defendants had no intention of doing so. The Court bases its conclusion on the combination of Jones' alleged pre-Agreement representations and his repeated representations made during and after the term of the Agreement, regarding the status of Plaintiff's loan principal and Defendants' intention to return it. The Court therefore finds no genuine issue of material fact that Hengst is liable for fraud, and concludes that Plaintiff is entitled to judgment as a matter of law on his tort cause of action.
B. Breach of Contract
Alternatively, Plaintiff brings a cause of action for breach of contract, arguing that Hengst materially breached the terms of the Agreement by transferring the loan principal without Plaintiff's consent and by refusing to return this principal upon termination of the Agreement. To prevail on this claim, Plaintiff must prove: 1) a valid contract (the Loan Agreement) existed; 2) Plaintiff's compliance with the terms of the Agreement; 3) Hengst's material breach of the Agreement; and 4) actual damages. See Scott v. Sebree, 986 S.W.2d 364, 372-73 (Tex.App.-Austin 1999, pet. denied).
The summary judgment movant in this case has met his initial burden of pointing to those portions of the record that he believes demonstrate an absence of genuine issues of fact material to his breach of contract claim. First, Plaintiff has provided both the Agreement and the Addendum executed by the parties, and identified the relevant provisions underlying his claim of material breach. There is no evidence before the Court to suggest that the Agreement was not a valid contract. Second, Plaintiff has demonstrated that, pursuant to the Agreement and the Addendum, he performed his obligation to loan ten million dollars to Hengst by authorizing the transfer of these funds under the strict provisions of the parties' contract. (Pl.'s Aff. ¶¶ 4, 6, 7, 8; Pl.'s Aff. Ex. A §§ 3.1, 6.2(a); Ex. B Schedule II (iii)). Third, Plaintiff has pointed to undisputed facts that Defendants violated the provisions of the Agreement and the Addendum by transferring loan principal without Plaintiff's express consent and co-signature (Pl.'s Aff. ¶¶ 10, 13-14, 16; Exs. C, D, E) and by refusing to return the loan principal once the Agreement naturally terminated. (Pl.'s Aff. ¶¶ 18, 19; Exs. G, H). Because the nature of the contract was a loan of funds, unambiguously providing for the security of and the timely return of the loan principal, the Court concludes that the summary judgment evidence establishes prima facie that Hengst's actions constituted material breach. Finally, Plaintiff has proffered summary judgment evidence that he has suffered damages equal to the amount of the loan principal ($10 million) and applicable accrued interest under the Agreement. (Pl.'s Aff. ¶ 18; Exs. A, B). The Court therefore finds no genuine issue of material fact that Hengst is liable for breach of contract, and concludes that Plaintiff is also entitled to judgment as a matter of law on this cause of action.
C. Unjust Enrichment
Also alternatively, Plaintiff claims that he is entitled to equitable relief against the Defendants, namely restitution under the doctrine of unjust enrichment. To prevail on this claim, Plaintiff must establish that Defendants were unjustly enriched by receiving benefits at the innocent Plaintiff's expense. See, e.g., Harris v. Sentry Title Co., 715 F.2d 941, 949 (5th Cir. 1983). Under Texas law, "the principle of unjust enrichment suggests that restitution is an appropriate remedy in circumstances where the agreement contemplated is unenforceable, impossible, not fully performed, thwarted by mutual mistake, or void for other legal reasons." City of Harker Heights v. Sun Meadows Land, Ltd., 830 S.W.2d 313, 319 (Tex.App.-Austin 1992, no writ). Because the Court has concluded that Plaintiff is entitled to summary judgment on his breach of contract claim, it need not decide whether Plaintiff could prevail on its theory of unjust enrichment.
D. Alter Ego
Finally, Plaintiff seeks to pierce the corporate veil with respect to Hengst, and moves the Court to enter summary judgment holding Jones personally responsible for his conduct as the President of Hengst. Plaintiffs allege two of the three "broad categories" of cases in which a court may pierce a corporate veil under Texas law: 1) the corporation is the alter ego of its owners and/or shareholders; and 2) the corporation is used as a sham to perpetrate a fraud. See Western Horizontal Drilling, Inc. v. Jonnet Energy Corp., 11 F.3d 65, 67 (5th Cir. 1994) (explaining Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986)).
In support of Plaintiff's argument for piercing the corporate veil, Plaintiff alleges in his summary judgment affidavit his belief that Jones formed Hengst for the sole purpose of entering into the Agreement at the heart of this case, and that Hengst had no business or operations other than this transaction. (Pl.'s Aff. ¶ 3). Plaintiff also points to the undisputed fact that Hengst is now a defunct corporation, having forfeited its charter for failure to pay franchise taxes in Texas. (Pl.'s App. Supp. Summ. J., Ex. 2 (Jalil Affidavit) ¶ 4). Plaintiff further avers that, at all times relevant to his causes of action, Jones was the President and controlling principal of Hengst, Hengst consisted solely of Jones and his personal assistant, Jones owned 100% of Hengst and controlled all aspects of its operations, Jones made no distinction between himself and Hengst, and, to Plaintiff's knowledge, no corporate formalities were observed. (Pl.'s Aff. ¶ 3).
Plaintiff thus has met his initial summary judgment burden of pointing to portions of the record to demonstrate the absence of a genuine issue of material fact regarding either of the two piercing theories on which he relies. As with all other aspects of Plaintiff's motion for summary judgment, Defendant has failed to adduce any summary judgment evidence to demonstrate such a fact issue(s). The Court therefore concludes that Plaintiff is entitled to judgment as a matter of law that the corporate form should be ignored in this case, based on both the fraud perpetration theory and the alter ego theory. In the context of this case, including Defendant's general conduct in this litigation and his particular failure to respond to the Motion for Summary Judgment, Plaintiff's summary judgment evidence is sufficient for the Court to hold Jones personally liable for his activities through Hengst. See Western Horizontal, 11 F.3d at 69-70 (noting that the nonmovants' failure to provide any summary judgment evidence contesting the plaintiff's attempt to pierce the corporate veil, combined with their deemed admissions, supported the court's finding of no genuine fact issue and grant of summary judgment).
E. Attorney's Fees
Plaintiff also moves the Court to award him reasonable attorney's fees, pursuant to TEX. CIV. PRAC. REM. CODE ANN. § 38.001(8) (Vernon 1997) (claim based on an oral or written contract). In support of this request, Plaintiff has submitted the affidavits of local and out-of-state counsel (Pl.'s App. Supp. Summ. J., Exs. 2, 3). Although the affidavits do not address the criteria set forth in Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974) and its progeny, the Court finds that each affidavit adequately establishes the basis for the fees and expenses sought. Accordingly, Plaintiff is awarded his attorney's fees as sought through the summary judgment phase of this case, minus counsel's projected fees for preparing and filing a summary judgment reply. The Court declines at this time prospectively to award reasonable attorney's fees for possible appellate review in this matter.
IV. Conclusion
Defendants Colin Jones and Hengst Finance, Inc. have failed to adduce any summary judgment evidence to counter that adduced by Plaintiff Dr. Stephen Southwell-Gray; nor do Defendants' pleadings establish any genuine fact issue that would permit them to survive summary judgment. Plaintiff's Motion for Summary Judgment is therefore GRANTED, based on his fraud and breach of contract claims and his evidence in supporting of piercing the corporate veil with respect to Hengst. Plaintiff will submit a form of judgment prepared pursuant to this Opinion, to be submitted to the Court no later than noon, May 16, 2001. Such judgment should include the time period and the rate by which accrued pre-judgment interest should be calculated, as well as adjusted figures for attorney's fees, as described above.
SO ORDERED.