Graeme Roustan - Ridglea Entertainment, Inc - History of W. Graeme Roustan Statutory Fraud Case in Texas

W. GRAEME ROUSTAN v. MICHAEL SANDERSON, WIFE ANN GAINOUS AND REA ENTERTAINMENT, INC.
, 12-0051 - Supreme Court of Texas Blog
12-11-16 6:37 PM
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W. GRAEME ROUSTAN v. MICHAEL No. 12-0051 TAMES SANDERSON, WIFE ANN GAINOUS AND RIDGLEA ENTERTAINMENT, INC.
A petition was filed on January 17, 2012. The Court requested full merits briefing on August 31, 2012.
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Trial Court: County: Trial Judge: 342nd District Court Tarrant Honorable Robert S. McGrath 342-22382907
2nd Court of Appeals AFF/PT, REV/REND/PT 02-09-00377-CV
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W. GRAEME ROUSTAN v. MICHAEL SANDERSON, WIFE ANN GAINOUS AND REA ENTERTAINMENT, INC., 12-0051 - Supreme Court of Texas Blog
12-11-16 6:37 PM
Upcoming
Date 201212-05 201211-20 Event Pet/Rel reply brief on the merits due
Respondent/Real party in interest brief on the merit due
Docket Entries
Date 201210-30 201209-24 201209-21 201209-12 201209-04 201208-31 Event Brief filed (Petitioner) ! Outcome
Motion for Extension of Time disposed. (Petitioner) ! Motion for extension of time to file brief. (Petitioner) ! Case Record Filed !
Filing granted
Record Requested in Petition for Review !
Brief on the Merits Requested !
This case was waiting for a decision about briefing or a possible grant between June 26, 2012 and August 31, 2012. 201206-26 201206-11
Reply filed (Petitioner) !
Response to Petition for Review filed (Respondent) !

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W. GRAEME ROUSTAN v. MICHAEL SANDERSON, WIFE ANN GAINOUS AND REA ENTERTAINMENT, INC., 12-0051 - Supreme Court of Texas Blog
12-11-16 6:37 PM
06-11 201205-22 201205-18 201205-18 201204-16 201204-13 201203-23 201202-21 201201-17 201201-17
(Respondent) ! Motion for Extension of Time to File Response disposed (Respondent) ! Motion for Extension of Time to File Response (Respondent) ! Designation of Lead Counsel (Respondent) ! Motion for Extension of Time disposed. ! Filing granted Filing granted
Motion for Extension of Time to File Response (Respondent) ! Supreme Court of Texas Requested Response ! Case forwarded to Court
Appendix Filed (Petitioner) !
Petition for Review filed (Petitioner) !
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APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw
12-11-16 5:58 PM
Court of Appeals of Texas, Waco.
APPELLANT v. APPELLEES
W. Graeme Roustan APPELLANT v. Michael Sanderson, Wife Ann Gainous, and Ridglea Entertainment, Inc. APPELLEES NO.020900377CV -- September 30, 2011
COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH MEMORANDUM OPINION1 In six issues, Appellant W. Graeme Roustan appeals from the trial court's judgment awarding damages to Appellees Michael Sanderson, his wife Ann Gainous, and Ridglea Entertainment, Inc. (collectively S & G) on their breach of contract and fraud claims against him. Because we hold that the evidence is insufficient to support an award of damages against Roustan individually on S & G's breach of contract claim but sufficient to support an award of damages on S & G's statutory fraud claim, we reverse in part and affirm in part.
http://caselaw.findlaw.com/tx-court-of-appeals/1581487.html
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Background Sanderson and Gainous wanted to start their own ice rink business, and in November 2004, Gainous signed a two-year lease for an ice rink in Fort Worth owned by YDIDI, I LP. The lease contained an option to purchase the property during the lease term. Sanderson and Gainous formed a corporation, Ridglea Entertainment, Inc., to operate the business, and they opened for business in December 2004. In March 2005, S & G began having equipment problems, which caused problems with the ice. They finally identified and repaired the source of the problem at the end of May 2005. Because of the problem with the ice, the rink had been closed for business from March until the end of June. Meanwhile, in April 2005, Sanderson contacted Roustan, an investor in and operator of a number of other ice rinks, about Roustan buying a controlling interest in the couple's business. In May 2005, Sanderson and Gainous went to Las Vegas to an ice rink convention and met with Roustan while there. At the meeting, Roustan gave a presentation about his ice rink business venture in which he told Sanderson and Gainous about ice rink facilities he currently owned and others that he planned to acquire in the next few years. The parties signed a purchase agreement on August 1, 2005, in which a new entity, Roustan Ridglea, LLC (Ridglea LLC) purchased the lease and all of the assets of the ice rink business, except that Gainous kept the $30,000 security deposit that she had paid when she signed the lease. Ridglea LLC agreed to assume the utility contracts for the premises, including the electricity service. Ridglea LLC also agreed to transfer a twenty-five percent ownership interest in the entity to Ridglea Entertainment and to pay $75,000, in two installments of $37,500 each, to Gainous and Ridglea Entertainment. At trial, the parties disputed whether the second installment was ever paid. At the same time, Gainous executed an assignment of the lease as well as an assignment of the purchase option. As part of the consideration for the agreement, Ridglea LLC agreed to employ Sanderson as general manager of the ice rink and to employ Gainous as a full-time employee. Ridglea Entertainment and Roustan Inc. (a company of which Roustan is the sole stockholder) also executed an operating agreement for Ridglea LLC. Under the agreement, Roustan Inc. held a sixty-five percent ownership interest in Ridglea LLC. Ridglea Entertainment owned twenty-five percent, and two trusts each took a five percent ownership interest. The agreement called for Roustan Inc. to make a $150,000 capital contribution to Ridglea LLC, with $20,000 paid prior to formation and the remaining $130,000 due upon formation. Ridglea Entertainment's capital contribution consisted of its assignment of its interest in the ice rink and
http://caselaw.findlaw.com/tx-court-of-appeals/1581487.html Page 2 of 14
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its sale of all of the business assets as set out in the purchase agreement. Roustan made an advance of $20,000 prior to closing on the purchase agreement and another $55,000 around the time of closing. The parties disputed at trial whether Roustan Inc. ever satisfied the rest of its capital contribution. Attached to the agreement as Exhibit 2 was an unexecuted promissory note, dated July 1, 2005, under which Ridglea LLC promised to pay the Fernandez Family Trust a sum of $200,000 plus interest over a period of three years. The operating agreement provided that Roustan, the managing member, was authorized to pay the note as set forth in Exhibit 2. This trust was not one of the two trusts that received a five percent membership interest in Ridglea LLC. By October 2005, Ridglea LLC did not have enough money in its account to pay all of its bills, and the business was not generating enough income to cover them. Roustan had not had the utilities transferred out of Gainous's name, and in the spring of 2006, the business began getting shut-off notices from the utility company for failure to pay the rink's bills. S & G paid these bills with their personal charge cards. In September 2006, the business continued to have trouble making money, and Roustan informed S & G that he would not put any more money into the business. That same month, the electricity was shut off for failure to pay the bill, and S & G paid $22,000 to have the service turned on again. S & G also received notice that month that there were insufficient funds to make payroll. Sanderson and Gainous notified Roustan that they would be taking the revenue from the ice rink and putting it in Ridglea Entertainment's account. They paid the rent for October and November. After accepting that rent, YDIDI notified S & G that the September rent had not been paid and that the lease was in default. They sent a check to YDIDI, but the entity held the check and, in December, evicted S & G. The next day, the rink opened up again for business, now under the management of Firland Management LLC, a company used by Roustan to manage other ice rinks in which he invests. During this time, Roustan's lawyer was negotiating with YDIDI for a new lease and new purchase option, but with a new company instead of with Ridglea LLC. On November 30, 2006, Roustan sent an email to a YDIDI representative stating that [f]rom what I hear, [Sanderson] is having trouble getting an Insurance Certificate for Ridglea Entertainment, Inc. If your lawyer demands to see one in 5 days, he might not be able to get one and would be in default even though my policy is still in effect. I am pretty certain he will come up with the September rent and December rent. Just a thought.
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The YDIDI representative responded, I have forwarded your message to our attorney who is working on a specific notice to Sanderson. I am confident we will be able to prevail in the end. On December 18, 2006, the day after S & G were locked out of the ice rink, Roustan registered a new corporation, Roustan Fort Worth, LLC, with the Texas Secretary of State, using the ice rink's address as the registered address. S & G filed suit against Roustan; Ridglea LLC; Roustan Fort Worth, LLC; YDIDI; and Firland Management, LLC.2 S & G's petition contained a seven-paragraph section with the heading Causes of Action Against the Roustan Defendants. In the first paragraph of that section, they alleged that Roustan had made false representations concerning his business acumen, his financial strength[,] and his commitment to funding the new company to which [S & G] sold the business. S & G then stated a claim for common law fraud and statutory fraud pursuant to Tex. Bus. & Com.Code 27.01. In a separate paragraph in that section, S & G included the following claim: Ridglea LLC failed to pay the second [half] of the purchase price and thereby breached the contract of Purchase and Sale. The breach of contract by [Ridglea LLC] resulted in damages to [S & G]. After a trial, a jury found that Roustan had failed to comply with his agreement to pay Sanderson and Gainous $75,000 for the transfer of the ice rink business, and it assessed their damages at $37,500. The jury further found that Roustan had not failed to make the agreed $150,000 capital contribution and that he did not agree to contribute the money for payment of Ridglea LLC's operating expenses. The jury also found that Roustan did not commit common law fraud against S & G and that he did not engage in any false, misleading, or deceptive act or practice that [S & G] relied on to their detriment and that was a producing cause of damages to [S & G]. The jury did find that Roustan committed statutory fraud against S & G, but it awarded statutory fraud damages only to Ridglea Entertainment, in the amount of $50,000. Roustan filed a motion for judgment notwithstanding the verdict. The trial court denied the motion and entered judgment ordering that Sanderson and Gainous recover from Roustan $37,500 plus prejudgment interest and that Ridglea Entertainment recover from Roustan $50,000. Analysis Roustan's first two issues relate to S & G's breach of contract claim. His third, fourth, fifth, and sixth issues relate to S & G's statutory fraud claim. Breach of Contract Claim
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In Roustan's second issue, he argues that the evidence is legally and factually insufficient to support the jury's verdict on S & G's breach of contract claim because there is no evidence that Roustan made any agreement with them in his personal capacity. We agree. The jury found that Roustan had agreed to pay Sanderson and Gainous $75,000 for the transfer of the ice rink business. The agreement regarding the transfer of the business was contained in the purchase and sale contract, which was between S & G and Ridglea LLC, not Roustan individually. Roustan signed the agreement as president of Roustan, Inc., which signed as the managing member of Ridglea LLC. Accordingly, Ridglea LLC may be liable for a breach of the contract to which it is a party, but Roustan as an officer may not be held individually liable.3 Roustan could, through his actions, cause Ridglea LLC to breach the agreement,4 but because he was not a party to the contract, he could not personally breach it.5 S & G did not plead any facts or provide sufficient evidence to support a ground for ignoring the limitation on liability afforded to limited liability companies and did not allege that the limitation should be disregarded.6 By statute, a member of a limited liability company is not liable for a debt, obligation, or liability of the company.7 Fraud is a ground for disregarding the corporate form,8 but although S & G pled that Roustan fraudulently induced them to enter a contract, they did not plead that Roustan used the LLC itself to perpetrate a fraud and that, consequently, the corporate form should be disregarded and Roustan held individually liable.9 Nor did they plead any other ground for disregarding the corporate structure.10 S & G argue in their brief that they had always understood that Roustan would be paying the $75,000 cash portion of the purchase price[,] and it was not until shortly before closing when they received the purchase agreement that they understood Roustan had put a provision in the purchase agreement that the new company would be paying the second half. They then contend that they had a conversation with Roustan about their concerns with capital calls and Roustan had told them that he would personally pay any monetary shortfalls during the first [twelve] months of the operation of the company, and they therefore had every reason to believe that Roustan was standing by his personal commitment on the purchase price. S & G may have put on some evidence of statements Roustan made before or after the contract's formation about the source of funding for the $37,000, but they did not put on evidence of a separate contract with Roustan personally to pay them the money. The only contract that they pled had been breached was the purchase agreement, and this was the only agreement that they proved existed.11 Roustan was not a party to this agreement, and S & G did not put on evidence to support the disregarding of the corporate form to hold him personally liable.12 Because they neither pled nor proved a ground for setting aside the corporate form to hold Roustan personally liable on the purchase agreement, and because they neither pled nor proved a separate contract with Roustan, he cannot be held individually liable for breach of contract.13 Accordingly,
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applying the appropriate standard of review,14 we sustain Roustan's second issue. Because S & G failed to establish a basis for holding Roustan personally liable, we do not need to reach Roustan's first issue, in which he argues that the pleadings did not support a verdict of personal liability on the contract.15 Statutory Fraud The remainder of Roustan's issues relate to the jury's verdict of statutory fraud. In his third issue, he argues that there is no evidence that he made any representation that was false. S & G pled a claim for fraud involving real estate or corporate stock under section 27.01 of the business and commerce code.16 To show fraud under section 27.01, a plaintiff may prove either (1) a false representation of a material fact or (2) a false, material promise to do an act.17 If the plaintiff's claim is based on a false representation of fact, the plaintiff must show a false representation of a past or existing material fact, when the false representation is made to [the plaintiff] for the purpose of inducing [the plaintiff] to enter into a contract; and relied on by [the plaintiff] in entering into that contract.18 If the claim is based on a false promise to act, the plaintiff must show that the false promise was material, made to the plaintiff with the intention of not fulfilling it and for the purpose of inducing the plaintiff to enter into a contract, and that the plaintiff relied on the promise in entering into that contract.19 The jury charge tracked section 27.01, instructing the jury that statutory fraud can occur when either (a) there is a false representation of a past or existing material fact or (b) a party makes a false promise to do an act. In the short section of Roustan's appellate brief addressing this issue, he asserts that [t]here was no evidence of any representation by [him] that was false in any respect. He does not, however, argue that there is no evidence that he made a promise to do something with the intention of not fulfilling it. In his reply brief, however, Roustan does make one argument regarding the evidence to support a finding of a false promise in a sentence in a footnote of the brief. He states that testimony suggesting that he failed to perform on any of his promises cannot support a fraud claim because Texas cases have consistently held that failure to perform an agreement cannot support a fraud claim. We agree with the statement that under Texas law, proof of the failure to perform, without more, does not establish fraud.20 But circumstantial evidence may be used to establish that, when making the promise, the party had no intention to perform.21 A party's acts after the promise was made, the party's denial that he ever made a promise, and no pretense of performance are all factors that may be considered to show a lack of intent.22 Roustan makes no argument that the evidence was insufficient to show that in order to induce S
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& G to enter into a contract, he made a promise with the intention of not fulfilling it. Furthermore, Gainous's and Sanderson's testimony indicates that Roustan led them to believe that he and his business enterprise had the financial wherewithal to provide the funding to keep their business going and that he would in fact provide the funding. The emails from Roustan in the record do nothing to contradict this testimony. For example, when the parties were still negotiating the deal, Roustan told Sanderson that he would pay $20,000 up front and then, after formation of the LLC and the assignment of the lease, [he] would then provide an additional $130,000. [Emphasis added.] Roustan did nothing to disillusion S & G after they formed the LLC; in February 2006, Sanderson asked Roustan about the second payment of $35,000, and in response Roustan asked them to wait on payment because it would make life easier on [him]. [Emphasis added.] No mention was made of funding the business by taking out a loan. Neither the operating agreement nor the note attached to it indicated that the trust loan was not an additional source of funds and was instead the primary source of Roustan's contribution to the LLC. The evidence in the record was enough for the jury to conclude that Roustan told S & G that he could and would provide a capital contribution of $150,000, either with his own funds or with the financial resources of his business, but that he actually borrowed money on behalf of the LLC. The record therefore contains sufficient evidence that Roustan made a promise to S & G that went unfulfilled. Roustan does not argue that, even if he did not follow through on a promise, such promise was nevertheless not made with an intention not to fulfill it. Even if he had so argued, however, our conclusion would be the same. From Roustan's testimony about how he structures business deals, his opinion about the note's satisfaction of his capital obligation, and the operating agreement's provision making repayment of the loan the obligation of the LLC rather than Roustan, Inc., the jury could have concluded that Roustan never intended to make a capital contribution from his own funds or the funds of Roustan, Inc. and that he had always intended to fund the business by way of a debt that the LLC would have to repay. Accordingly, the jury could have found that Roustan's borrowing money to fund the LLC and making the LLC liable for the repayment satisfied Roustan's obligation to make a capital contribution but at the same time violated his promise to S & G that he personally could and would fund the company. Roustan does not argue that the promise to provide funding out of his own funds or his business's funds was not material. Nor does he argue that the evidence was not sufficient to show that S & G relied on the promise or to show that the promise was made to induce them to sign the purchase and sale agreement and the assignments. Accordingly, we do not address the sufficiency of the evidence as to those elements of S & G's claim. We overrule Roustan's third issue. In his fourth issue, Roustan argues that the judgment does not conform to the pleadings. The
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entirety of his argument on this issue is as follows: [Texas Rule of Civil Procedure] 301 requires a judgment to conform to the pleadings. As mentioned above, [S & G] assert in the [p]etition that Roustan made false representations concerning his business acumen, his financial strength and his commitment to funding the new company. However, as discussed above, such representations (even if made) cannot support a judgment of fraud under Texas law[.] See, Stephanz v. Laird, 846 S.W.2d [895,] 903 [ (Tex.App.Houston [1st Dist.] 1993, writ denied)]. Thus, the [j]udgment against Roustan for statutory fraud does not conform to the pleadings. Roustan expands on his argument somewhat in his reply brief, in which he asserts that as a matter of law, the allegations that he made false representations concerning his business acumen, his financial strength and his commitment to funding the new company cannot support a claim for fraud because the representation complained of must concern a material fact and not a mere matter of opinion, judgment, probability, or expectation. Thus, he argues, the petition failed to plead any grounds that would support a fraud claim. In the case relied on by Roustan, the court looked to see if the evidence supported a finding of misrepresentation, not a finding of a false promise to do an act. Roustan does not explain why the pleadings cannot support a judgment that he committed statutory fraud based on a false promise. In the paragraph of the pleadings pointed out by Roustan, S & G did state that Roustan made false representations about his business ability, his finances, and his commitment to funding the new company. They assert that these representations were made with knowledge of their falsity with the intent of inducing them to enter into the purchase and sale agreement, and [S & G] assert an action for common law fraud and statutory fraud pursuant to Tex. Bus. & Com.Code 27.01 based on the purchase and sale agreement and the assignments. But S & G did not limit their statutory cause of action to a claim based on false representations under section 27.01(a)(1). And in their pleadings, S & G alleged that Roustan misled them about his commitment to funding the new company and that Roustan had represented to them that he had financial capital to put into the business and to exercise the purchase option so that the new entity he would form would own the [p]roperty. Although S & G used the term representations, a term that generally relates to assertions of fact rather than promises, these statements were sufficient to put Roustan on notice of a claim based on statements by him that he would perform acts in the future with respect to funding the new company and purchasing the property.23 Roustan makes no argument about why, if S & G proved that Roustan made promises about funding the business, such promises could not serve as the basis of a section 27.01(a)(2) claim.24 The pleadings can support a judgment for statutory fraud based on a false promise, and, accordingly, we overrule
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this issue. In Roustan's fifth issue, he argues that the jury's finding that he committed statutory fraud was inconsistent with its findings as to common law fraud. In reviewing the jury findings for conflict, a court may not strike down jury answers as conflicting if there is any reasonable basis upon which they can be reconciled.25 The question for this court is not whether the findings may reasonably be viewed as conflicting but whether there is any reasonably possible basis upon which they may be reconciled.26 In Roustan's original brief, he does not explain why the jury's findings are inconsistent and irreconcilable.27 In his reply brief, however, he argues that under the common law fraud question, the jury found that he did not make a false representation, but the jury's answer to statutory fraud requires a finding that he did make a false representation. Thus, he argues, the findings are in conflict and are irreconcilable. We disagree. The jury's answers are not irreconcilable. The jury charge on common law fraud limited liability to the making of misrepresentations, which the charge defined as a false statement of fact or opinion. The statutory fraud definition, however, allowed the jury to find that Roustan had committed fraud either by making a misrepresentation or by making a false promise to do an act. The jury could have found that Roustan did not make a false statement of fact or opinion and therefore did not commit common law fraud but that Roustan did make a false promise to do an act and therefore did commit statutory fraud. Furthermore, when the jury returned its verdict, Roustan did not object to the findings as conflicting.28 We overrule this issue. In his sixth issue, Roustan contends that the trial court submitted an improper instruction on damages concerning statutory fraud. The jury charge asked the jury, What sum of money, if any, if paid now in cash, would fairly and reasonably compensate [S & G] for their damages, if any, that resulted from such statutory fraud? Consider the following elements of damages, if any, and none other: 1. The economic losses, if any, suffered by [S & G] caused by the [statutory] fraud. The jury charge instructed the jury to determine economic losses but did not define that term. In Roustan's brief on appeal, he argues that the measure of damages for fraud was discussed by the Supreme Court of Texas in Formosa Plastics,29 in which that court stated that Texas recognizes two measures of direct damages for fraud: out-of-pocket and benefit-of-the-bargain.
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Thus, Roustan argues, the trial court's instruction was contrary to Texas law because the proper measure of damages for a fraud claim is either out-of-pocket damages or benefit-of-the bargain damages. Section 27.01 provides that a plaintiff under that section may recover actual damages, and, in some cases, exemplary damages.30 The statute does not define the term actual damages, so we look to the common law for guidance.31 Under the common law, both out-of-pocket and benefit-of-the-bargain damages are methods of measuring direct actual damages.32 Economic damages are measured the same way, and in fact courts often use the terms economic damages and actual damages interchangeably.33 Thus, the jury charge set forth the correct kind of damages recoverable on a statutory fraud claim. To the extent that the terms are not interchangeable, Roustan was not harmed by the trial court's use of the term economic damages instead of actual damages because actual damages could have allowed for greater recovery in that actual damages can include both economic and non-economic damages.34 In sum, out-ofpocket and benefit-of-the-bargain are both measures of actual damages and of economic damages. In his reply brief, Roustan argues that a proper instruction on damages would have set forth the out-of-pocket and benefit-of-the-bargain measures. We construe Roustan's issue liberally to argue, not that the instruction failed to name the proper measure of damages recoverable, but that it failed to instruct the jury on how to calculate those damages, that is, that the charge should have instructed the jury to determine either the difference between the value S & G paid and the value of what they received (out-of-pocket damages) or the difference between the value as represented and the value as received (benefit-of-the-bargain damages).35 In the charge conference, Roustan's attorney objected to the damages question, stating that the measure of damages stated here is not one of the measures of damages for fraud recognized by Texas law. It just says the economic losses. And the proper definitions for fraud would be benefit of the bargain or out-of-pocket or one of the other recognized measures, and this is not one of them. [Emphasis added.] This objection was not sufficient to advise the trial court of Roustan's objection that the charge was defective for failing to instruct the jury how to calculate benefit-of-the-bargain damages and out-of-pocket damages. Roustan argued only that economic losses were not a proper measure of fraud damages. Thus, to the extent that Roustan argues that the trial court should have instructed the jury on how to calculate the damages, he has not preserved the complaint.36 To the extent that Roustan's reply brief merely repeats the argument from his original brief, the argument is overruled because economic losses are an appropriate measure of damages for the
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statutory fraud claim alleged. We overrule Roustan's sixth issue. Conclusion Having sustained Roustan's second issue, we reverse the part of the trial court's judgment awarding S & G damages on their breach of contract claim and render judgment that they take nothing on the breach of contract claim. We affirm the remainder of the trial court's judgment. PANEL: DAUPHINOT, WALKER, and GABRIEL, JJ. GABRIEL, J. concurs without opinion. DELIVERED: September 29, 2011 FOOTNOTES 1. FN1.See Tex.R.App. P. 47.4. 2. FN2.They subsequently dismissed their claims against Firland and YDIDI. 3. FN3.See Willis v. Donnelly, 199 S.W.3d 262, 271 (Tex.2006) (A bedrock principle of corporate law is that an individual can incorporate a business and thereby normally shield himself from personal liability for the corporation's contractual obligations.). 4. FN4.See In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762 (Tex.2006) (orig.proceeding) (noting that corporations must act through human agents). 5. FN5.See Bernard Johnson, Inc. v. Cont'l Constructors, Inc., 630 S.W.2d 365, 369 (Tex.App. Austin 1982, writ ref'd n.r.e.) (As a general rule, a suit for breach of contract may not be maintained against a person who is not a party to the contract.). 6. FN6.See Castleberry v. Branscum, 721 S.W.2d 270, 272 (Tex.1986) (setting out six grounds on which the corporate form may be disregarded), superseded in part by Act effective Sept. 1, 1997, 75th Leg., R.S., Ch. 375, 7, 1997 Tex. Gen. Laws 1522, 152223 (amended 2003 & 2007) (current version at Tex. Bus. Orgs.Code Ann. 21.223 (West 2010)); see also SSP Partners v. Gladstrong Inv. (USA) Corp., 275 S.W.3d 444, 45152 (Tex.2008) (stating that the limitation on corporate liability may be ignored only when the corporate form has been used as part of a basically unfair device to achieve an inequitable result); McCarthy v. Wani Venture, A.S., 251 S.W.3d 573, 590 (Tex.App.Houston [1st Dist.] 2007, pet. denied) (noting that Texas courts have applied to limited liability corporations the same state law principles for piercing the corporate veil that they have applied to corporations).
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7. FN7.Act effective Aug. 26, 1991, 72nd Leg., R.S., Ch. 901, 46, 1991 Tex. Gen. Laws 3192, 3203 (now renumbered and codified at Tex. Bus. Orgs.Code Ann. 101.114 (West 2010)). 8. FN8.See Castleberry, 721 S.W.2d at 272. 9. FN9.Cf. HoustonAm. Life Ins. Co. v. Tate, 358 S.W.2d 645, 657 (Tex.Civ.App.Waco 1962, no writ) (holding that the corporate fiction was used to perpetrate a fraud and that adherence to the corporate fiction would promote injustice and lead to a most inequitable result). 10. FN10.See Castleberry, 721 S.W.2d at 272; see also Blond Lighting Fixture Supply Co. v. Funk, 392 S.W.2d 586, 591 (Tex.Civ.App.San Antonio 1965, no writ) (holding that there was no justification for disregarding the corporate form when the plaintiffs did not present evidence that the corporation was formed as a means of perpetrating fraud, that it was operated as a mere tool of another corporation or as the alter ego of an individual, that the corporate form was being used as a means of evading existing obligations, or that the corporation was used to circumvent a statute, protect crime, or justify wrong). 11. FN11.See Fieldtech Avionics & Instruments, Inc. v. Component Control.Com, Inc., 262 S.W.3d 813, 825 (Tex.App.Fort Worth 2008, no pet.) (stating that the elements of a breach of contract claim include the existence of a valid contract). 12. FN12.See Castleberry, 721 S.W.2d at 272. 13. FN13.See Bernard Johnson, Inc., 630 S.W.2d at 369. 14. FN14.Cent. Ready Mix Concrete Co. v. Islas, 228 S.W.3d 649, 651 (Tex.2007); City of Keller v. Wilson, 168 S.W.3d 802, 807, 827 (Tex.2005); Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex.1998), cert. denied, 526 U.S. 1040 (1999). 15. FN15.See Tex.R.App. P. 47.1. 16. FN16.Tex. Bus. & Com.Code Ann. 27.01(a) (West 2009). 17. FN17.Id. 18. FN18.Id. 19. FN19.Id.
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20. FN20.Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 48 (Tex.1998). 21. FN21.See Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex.1986). 22. FN22.See id.; see also Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 775 (Tex.2009) ([A] party's intent is determined at the time the party made the representation, [but] it may be inferred from the party's subsequent acts after the representation is made.) (quoting Spoljaric, 708 S.W.2d at 434). 23. FN23.See Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 89697 (Tex.2000) (noting that Texas follows a fair notice standard for pleading, that a petition is sufficient if it gives fair and adequate notice of the facts upon which the pleader bases his claim, that when a party fails to specially except to a pleading, a court should construe the pleadings liberally in favor of the pleader, and that it is hard to imagine that [Appellee] was unaware of exactly what [Appellant] was claiming). 24. FN24.See Tex.R.App. P. 38.1(i). 25. FN25.Bender v. S. Pac. Transp. Co., 600 S.W.2d 257, 260 (Tex.1980). 26. FN26.Id. 27. FN27.See Tex.R.App. P. 38.1(i). 28. FN28.See Columbia Med. Ctr. of Las Colinas v. Bush, 122 S.W.3d 835, 861 (Tex.App. Fort Worth 2003, pet. denied) (holding that the appellants did not preserve complaint about conflicting jury findings because they failed to object to the conflict before the jury was discharged). 29. FN29.960 S.W.2d at 49. 30. FN30.Tex. Bus. & Com.Code Ann. 27.01(b), (c). 31. FN31.Hawkins v. Walker, 233 S.W.3d 380, 39192 (Tex.App.Fort Worth 2007, no pet.) (applying without discussion the common law measure of damages for fraud in a section 27.01 statutory fraud case); see also Swinnea v. ERI Consulting Eng'rs, Inc., 236 S.W.3d 825, 836 (Tex.App.Tyler 2007) (looking to the common law for guidance and stating that [t]he measure of damages recoverable under [s]ection 27.01 is the same as that under a claim of common law fraud), rev'd in part on other grounds, 318 S.W.3d 867 (Tex.2010).
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32. FN32.See Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex.1997) (stating that under the common law, actual damages can be either direct or consequential and that direct damages for misrepresentation may be measured as out-of-pocket or as benefit-of-the-bargain damages); Everett v. TKTaito, L.L.C., 178 S.W.3d 844, 858 (Tex.App.Fort Worth 2005, no pet.) (noting that out-of-pocket and benefit-of-the-bargain are the two common law measures of economic damages). 33. FN33.See Matheus v. Sasser, 164 S.W.3d 453, 458 (Tex.App.Fort Worth 2005, no pet.) (noting that current version of the Deceptive Trade Practices Act provides for economic damages, that the prior version called for actual damages, and that we had found no case suggesting that the terms had any difference in meaning). 34. FN34.See, e.g., Latham v. Castillo, 972 S.W.2d 66, 69 (Tex.1998) (noting that mental anguish damages are actual damages recoverable at common law for some torts). 35. FN35.See Arthur Andersen, 945 S.W.2d at 817 (defining out-of-pocket and benefit-of-thebargain damages). 36. FN36.See Tex.R.App. P. 33.1. LEE ANN DAUPHINOT JUSTICE
Copyright 2012 FindLaw, a Thomson Reuters business. All rights reserved.
http://caselaw.findlaw.com/tx-court-of-appeals/1581487.html
Page 14 of 14
FILED IN THE SUPREME COURT OF TEXAS 12 January 17 P11:15 BLAKE. A. HAWTHORNE CLERK
No. _____
IN THE SUPREME COURT OF TEXAS W. GRAEME ROUSTAN, Petitioner, v. MICHAEL SANDERSON, WIFE ANN GAINOUS, AND RIDGLEA ENTERTAINMENT, INC., Respondents. On Petition for Review from the Second Court of Appeals, Fort Worth, Texas Court of Appeals No. 02-09-00377-CV PETITION FOR REVIEW
David E. Keltner State Bar No. 11249500 david.keltner@kellyhart.com Marianne M. Auld State Bar No. 01429910 marianne.auld@kellyhart.com John T. Wilson IV State Bar No. 24033344 john.wilson@kellyhart.com Kelly Hart & Hallman LLP 201 Main Street, Suite 2500 Fort Worth, Texas 76102 Telephone: (817) 332-2500 Telecopier: (817) 878-9280 COUNSEL FOR PETITIONER
IDENTITY OF PARTIES AND COUNSEL Petitioner: Counsel for Petitioner: W. Graeme Roustan David E. Keltner State Bar No. 11249500 david.keltner@kellyhart.com Marianne M. Auld State Bar No. 01429910 marianne.auld@kellyhart.com John T. Wilson IV State Bar No. 24033344 john.wilson@kellyhart.com Kelly Hart & Hallman LLP 201 Main Street, Suite 2500 Fort Worth, Texas 76102 Telephone: (817) 332-2500 Telecopier: (817) 878-9280 Appellate Counsel Ernest Leonard State Bar No. 12208750 ELeonard@fflawoffice.com Friedman & Feiger, L.L.P. 5301 Spring Valley Road, Suite 200 Dallas, Texas 75254 Telephone: (972) 788-1400 Telecopier: (972) 776-5313 Trial and Appellate Counsel
Respondents:
Michael Sanderson Ann Gainous Ridglea Entertainment, Inc. D. Nicholas Acuff State Bar No. 00836000 Acuff & Gamboa, LLP 2501 Parkview Drive, Suite 405 Fort Worth, Texas 76102 Telephone: (817) 885-8500 Telecopier: (817) 885-8504 Trial and Appellate Counsel
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Counsel for Respondents:
Petition for Review
TABLE OF CONTENTS Page IDENTITY OF PARTIES AND COUNSEL ...................................................................... ii INDEX OF AUTHORITIES .............................................................................................. iv STATEMENT OF THE CASE .......................................................................................... vi STATEMENT OF JURISDICTION ................................................................................. vii ISSUES PRESENTED .....................................................................................................viii PRELIMINARY STATEMENT ......................................................................................... 1 STATEMENT OF FACTS.................................................................................................. 2 SUMMARY OF THE ARGUMENT .................................................................................. 4 ARGUMENT AND AUTHORITIES ................................................................................. 4 I. II. This is Not a Case of Statutory Fraud ...................................................................... 4 There is No Evidence to Support the Jurys Finding of an Unfulfilled Promise Required to Support Statutory Fraud....................................... 7 A. B. Roustan did not make a false promise........................................................... 8 The court of appeals fraud analysis is flawed and conflicts with the jury verdict ................................................... 10 Roustan, individually, did not make a promise........................................... 11
C.
PRAYER ........................................................................................................................... 13 CERTIFICATE OF SERVICE.......................................................................................... 14
Petition for Review
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INDEX OF AUTHORITIES Cases Page
Big Dog Logistics, Inc. v. Strategic Impact Corp., 312 S.W.3d 122 (Tex. App.Houston [14th Dist.] 2010, pet. denied).............................. 9 Bryant v. Transcon. Gas Pipe Line Corp., 821 S.W.2d 187 (Tex. App.Houston [14th Dist.] 1991, writ denied) ........................... 13 Burleson State Bank v. Plunkett, 27 S.W.3d 605 (Tex. App.Waco 2000, pet. denied) ................................................... 4, 5 City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) ............................................................................................... 7 City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515 (Tex. 1968) ............................................................................................. 12 Cunningham v. Zurich Am. Ins. Co., 352 S.W.3d 519 (Tex. App.Fort Worth 2011, pet. filed) ................................................ 9 Hawkins v. Walker, 233 S.W.3d 380 (Tex. App.Fort Worth 2007, no pet.) ................................................... 7 Marshall v. Quinn-L Equities, Inc., 704 F. Supp. 1384 (N.D. Tex. 1988) ................................................................................... 6 Nolan v. Bettis, 577 S.W.2d 551 (Tex. Civ. App.Austin 1979, writ refd n.r.e.) ..................................... 5 Ratcliff v. Trenholm, 596 S.W.2d 645 (Tex. Civ. App.Tyler 1980, writ refd n.r.e) ........................................ 5 Satterwhite v. Safeco Land Title of Tarrant, 853 S.W.2d 202 (Tex. App.Fort Worth 1993, writ denied) ............................................ 6 Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432 (Tex. 1986) ............................................................................................... 9 Thedford Crossing, L.P. v. Tyler Rose Nursery, Inc., 306 S.W.3d 860 (Tex. App.Tyler 2010, pet. denied) ...................................................... 9
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INDEX OF AUTHORITIES (cont.) Cases Page
Thompson v. Am. Power & Light Co., 192 F.2d 651 (5th Cir. 1951) ........................................................................................... 6, 7 Ulrich v. Krueger, 272 S.W. 824 (Tex. Civ. App.Galveston 1924, no writ)................................................. 6 Westcliff Co. v. Wall, 153 Tex. 271, 267 S.W.2d 544 (1954) ................................................................................ 5 Rules and Statutes Tex. Bus. & Com. Code Ann. 27.01 ................................................................................ 5 Other Authorities Othello, Act 3 scene 3......................................................................................................... 1
Petition for Review
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STATEMENT OF THE CASE Nature of the Case: Respondents Michael Sanderson, Ann Gainous, and Ridglea Entertainment, Inc. (Respondents) sued W. Graeme Roustan (Roustan) for various causes of action, including common-law fraud, statutory fraud, and breach of contract. The case was tried to a jury, which returned a verdict finding Roustan liable for breach of contract and statutory fraud but not liable for common-law fraud. The trial court entered judgment against Roustan, in favor of Respondents, based upon the breach of contract finding, and in favor of Ridglea Entertainment, Inc., based upon the statutory fraud finding. [App. 1] The judgment also included an award of attorneys fees. Defendant-Appellant-Petitioner: W. Graeme Roustan Plaintiffs-Appellees-Respondents: Michael Sanderson Ann Gainous Ridglea Entertainment, Inc. Court of Appeals: Appellate Disposition: Second Court of Appeals, Fort Worth, Texas Reversed in part and Affirmed in part. Roustan v. Sanderson, No. 02-09-00377-CV, 2011 WL 4502265 (Tex. App.Fort Worth Sept. 29, 2011, pet. filed) (per Dauphinot, J., Walker, J., and Gabriel, J.) [App. 3, 4] In a non-unanimous opinion by Justice Dauphinot, the court of appeals reversed the judgment as to breach of contract and affirmed the judgment as to statutory fraud. Justice Gabriel concurred without opinion. The court denied Roustans Motion for Rehearing on December 1, 2011. No further motions for rehearing or en banc reconsideration are pending in the court of appeals at this time.
Trial Court Disposition:
Parties on Appeal:
Petition for Review
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STATEMENT OF JURISDICTION This Court has jurisdiction over this Petition under Texas Government Code section 22.001(a). Under section 22.001(a)(3), this Court has jurisdiction over this Petition because it involves the construction or validity of a statute necessary to a determination of the case, Texas Business and Commerce Code section 27.01. Under section 22.001(a)(2), this Court has jurisdiction over this Petition because the court of appeals opinion conflicts with opinions of other courts of appeals, which hold that statutory fraud is limited to situations in which misrepresentations of material fact are made to induce another to enter into a contract for the sale of real property or stock. Under section 22.001(a)(6), this Court has jurisdiction over this Petition because the court of appeals committed errors of law of such importance to the States jurisprudence that they should be corrected, i.e., that the seller of a real property lease can recover for statutory fraud against the buyer for allegedly unpaid consideration, and that a cause of action for statutory fraud can be based upon a promise that a jury determines was fulfilled.
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ISSUES PRESENTED The court of appeals judgment affirms a finding of statutory fraud against Roustan, the purchaser of the assets of a business that included a commercial lease of real property, for what amounted to an alleged failure to pay the promised consideration. 1. Can a seller of the assets of a business, including a lease of real property, maintain a statutory fraud cause of action against the buyer based upon a claim that the buyer failed to pay the agreed consideration? Can a fulfilled promise support a finding of statutory fraud?
2.
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PRELIMINARY STATEMENT This Petition seeks to rectify an unusual and incorrect application of the statutory fraud cause of action. Although the dollar amount at stake in this case may not be great by todays standards, the case is important nonetheless in that it bears upon the good reputation of the individual who unjustly has been found liable for statutory fraud. As William Shakespeare wrote, But he that filches from me my good name/Robs me of that which not enriches him/And makes me poor indeed. Othello, Act 3 scene 3. Respondents owned a struggling ice rink business in which they asked Roustans company to invest. When the rink ultimately failed, Respondents sued the landlord, the management company, and Roustan. Respondents ultimately secured a judgment for breach of contract and statutory fraud against Roustan, individually. The court of appeals correctly analyzed and reversed the breach of contract portion of the trial courts judgment, as it could not stand against Roustan individually. However, the court of appeals grossly misapplied the law with respect to statutory fraud, resulting in a judgment that holds the purchaser of a businesss assets liable for statutory fraud when the promise upon which the statutory fraud claim was premised actually was fulfilled. Even more troubling, the individual held liable was not a party to the
transaction and did not make the promise; the party making the promise was a corporation. As a result, there is no evidence to support the judgment, and it must be reversed.
Petition for Review
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STATEMENT OF FACTS In November 2004, Respondents Gainous and Sanderson, a married couple, formed Ridglea Entertainment, Inc. (Ridglea Entertainment) and leased an ice skating rink in Fort Worth, Texas, in order to open an ice skating business. [2 RR 7-9] They soon encountered problems with the facility, particularly the ice-making apparatus, but they were able to open their business toward the end of the yearabout a month behind schedule. [2 RR 11] Although Ridglea Entertainment was able to make ice and run its business during the winter months, the ice-making equipment failed to perform adequately as the weather warmed, which forced a shutdown of the operation. [2 RR 13-14] The business was able to re-open by the end of June, although Respondents incurred tens of thousands of dollars of expenses during the shutdown. [2 RR 15-16] In April 2005, due to their financial desperation, Respondents contacted Roustan and asked whether he had an interest in partnering with them. [2 RR 18] As a result of that contact, Roustan, Inc. advanced Respondents $20,000, and Roustan later met with Respondents to negotiate an agreement. [2 RR 19-20; 3 RR 117] The parties eventually entered a purchase agreement (Purchase Agreement) in July 2005. [PX-3] Pursuant to the Purchase Agreement, Roustan Ridglea, LLC (Ridglea LLC) purchased the assets of Ridglea Entertainment, including the lease of the ice rink, for $75,000 ($37,500 paid at signing, $37,500 to be paid within six months). [PX-3] The Ridglea LLC Operating Agreement (Operating Agreement), signed the same day, provided that Roustan, Inc. would make a $150,000 capital contributionless the
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$20,000 previously deliveredand would own a 65% interest in Ridglea LLC. [DX-21] Respondents Gainous and Sandersonthrough Ridglea Entertainmentwould own a 25% interest, and two trusts would each own 5% interests. [Id.] All told, Roustan, Inc.s capital contributions to Ridglea LLC far exceeded $150,000, eclipsing $235,000. [3 RR 129-30] Roustan, Inc. borrowed $200,000 of the capital in its own name. [3 RR 130-31] The borrowed funds were deposited in Roustan, Inc.s lawyers trust account and contributed into Ridglea LLC over a period of sixteen months for Ridglea LLCs expenses. [3 RR 136, 140-41] By October 2005, the ice rink had encountered additional financial strains and was not generating sufficient income to pay its bills. The ice rink ultimately failed by the end of 2006, and Respondents sued Roustan, Ridglea LLC, the landlord, and the management company, asserting fraud, statutory fraud, and breach of contract. [Supp CR 2] The jury found that (1) Roustan was personally liable to Respondents Gainous and Sanderson for breach of contract; (2) Roustan did not breach a personal promise to make a $150,000 capital contribution to Ridglea LLC; (3) Roustan did not commit common law fraud against any plaintiff; (4) Roustan did not engage in any false, misleading, or deceptive act or practice; and (5) despite these findings, Roustan committed statutory fraud against Respondents. The trial court entered judgment on the verdict. [CR 33-38; App. 2] The court of appeals reversed the judgment as to the breach of contract, finding that Roustan did not personally contract with Respondents Gainous and Sanderson. [App. 3] However, the court of appeals affirmed the judgment as to statutory fraud,
holding that Roustans promise to make a $150,000 capital contribution supported the frauddespite the jurys specific finding that Roustan fulfilled the promise. [CR 34; App. 2, 3] SUMMARY OF THE ARGUMENT Statutory fraud applies only in limited circumstances involving misrepresentations of material fact made to induce another to enter into a contract for the sale of real property or stock. See Burleson State Bank v. Plunkett, 27 S.W.3d 605, 611 (Tex. App.Waco 2000, pet. denied). Here, Roustan cannot be liable for statutory fraud because no contract for the sale of real estate or stock was involved, and a purchaser cannot be liable for statutory fraud merely because there are allegations that the agreedupon purchase price was not paid. Id. Additionally, statutory fraud must be premised on a false promise. Because the jury found that the only promise that could support a finding of statutory fraud was not false, but was fulfilled, there can be no statutory fraud recovery. ARGUMENT AND AUTHORITIES I. This is Not a Case of Statutory Fraud. The court of appeals opinion sets a dangerous precedent, expanding the use of statutory fraud and exposing purchasers to fraud liability any time a seller raises allegations that the purchase price was not paid. This improperly transforms an alleged
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breach of contract into a tort.1 Moreover, the court of appeals opinion conflicts with opinions from several other courts, which confine the application of statutory fraud only to situations where misrepresentations of material fact are made to induce another into a contract for sale of land or stock. See e.g., Plunkett, 27 S.W.3d at 611; Nolan v. Bettis, 577 S.W.2d 551, 556 (Tex. Civ. App.Austin 1979, writ refd n.r.e.). Statutory fraud is a specific cause of action applicable only to . . . transactions involving real estate or stock in a corporation . . . . See Tex. Bus. & Com. Code Ann. 27.01; [App. 5]; see also Plunkett, 27 S.W.3d at 611; Nolan, 577 S.W.2d at 556 (An examination of section 27.01 shows that it is concerned with misrepresentation of material fact made to induce another to enter into a contract for the sale of land or stock.). Section 27.01 is penal in nature and must be strictly construed. Westcliff Co. v. Wall, 153 Tex. 271, 267 S.W.2d 544, 546 (1954); Ratcliff v. Trenholm, 596 S.W.2d 645, 650 (Tex. Civ. App.Tyler 1980, writ refd n.r.e). Respondents did not provenor can they provea claim for statutory fraud because this case does not involve a sale of real estate or stock. Instead, this case undisputedly stems from the sale of the assets of Ridglea Entertainment to Ridglea LLC. [PX-3] While one of those assets was a lease, no sale of real property took place. Statutory fraud applies to sales of real estate, but it does not apply in situations like this one, in which the transaction merely relates to real estate. See Plunkett, 27 S.W.3d at 605 (statutory fraud does not apply to loan transactions, even construction loans secured
Respondents here have thus far been allowed a second bite at the liability apple, given the court of appeals willingness to transform an unsuccessful breach of contract claim into a finding of statutory frauda holding considerably more damaging to Roustans reputation.
1
by land); Satterwhite v. Safeco Land Title of Tarrant, 853 S.W.2d 202, 205 (Tex. App. Fort Worth 1993, writ denied) (statutory fraud does not apply to title insurance transactions); Marshall v. Quinn-L Equities, Inc., 704 F. Supp. 1384, 1392 (N.D. Tex. 1988) (statute inapplicable to investors purchase of interests in limited partnership formed for the purpose of acquisition, development, and management of commercial real estate). Nor does this case involve the sale or transfer of stock. Like its applicability to real estate transactions, the statutes applicability to stock transactions is narrowly construed. See Ulrich v. Krueger, 272 S.W. 824, 825 (Tex. Civ. App.Galveston 1924, no writ) (statute did not apply where by the undisputed evidence it was the outright purchase by Dr. Kruegerlock, stock and barrelof the Republic Tire Company, a corporation, its entire business and property, and no mention is made anywhere of its stock as such or of any shares therein.); Thompson v. Am. Power & Light Co., 192 F.2d 651, 654 (5th Cir. 1951) (statute not applicable to transaction involving stock where though it did deal with stock, dealt with it in a completely subordinate and incidental way, the indebtedness represented by the note being in an amount so large as to deprive the stock of any substantial value). In this case, while Respondents were to receive a 25% interest in Ridglea LLC, their interest was a membership interest, not a stock interest. [PX-3; DX-21] Not only does the court of appeals analysis and judgment fall outside the plain language of the statute, it also is inconsistent with the purpose behind section 27.01. The statute, originally known as the Canales Bill, was enacted to prevent sellers from overPetition for Review Page 6
reaching by making false representations and unfulfilled promises in their attempts to sell land in the Lower Rio Grande Valley of Texas. Thompson, 192 F.2d at 653. Later, in order to reach oil stock promotions, the statute was broadened to include sales of stock in corporations and joint stock companies. Id. Importantly, this case does not involve misrepresentations impacting real property or stockthe purpose for which the statute was enacted. Consequently, this is not a case of statutory fraud and the judgment should be reversed. II. There is No Evidence to Support the Jurys Finding of an Unfulfilled Promise Required to Support Statutory Fraud. The Court should sustain a legal sufficiency challenge when: (1) the record discloses a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence establishes conclusively the opposite of a vital fact. Hawkins v. Walker, 233 S.W.3d 380, 390 (Tex. App.Fort Worth 2007, no pet.); see also City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). The evidence is legally insufficient to support the jurys finding that Roustan committed statutory fraud. The court of appeals opinion erroneously finds that the record contains sufficient evidence that Roustan made a promise to S&G that went unfulfilled. [Op. at 14; App. 3] As demonstrated by the record and the jurys findings, there is no evidence that Roustan made a false promise that went unfulfilled or made any other representation that would support a statutory fraud finding.
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As the opinion acknowledges, the jurys verdict finds that Roustan did not commit common law fraud but that he did commit statutory fraud. [CR 36, 38] The court harmonizes these two conflicting findings with reference to the charges definitions of Common Law Fraud and Statutory Fraud. [Op. at 18; CR 31-32; App. 3] However, there is no evidence to support a finding that Roustan made a false promise to do a material act with no intention of fulfilling it. A. Roustan did not make a false promise.
According to the definition of statutory fraud in the charge, the jury was required to find that Roustan made a false promise to do an act. [CR 31-32; App. 2] Because there is no evidence that a false promise was made, that the promise was material, that the promise [was] made with the intention of not fulfilling it, or that the promise was relied upon in entering the contract, the judgment against Roustan for statutory fraud cannot stand. [Id.] First, there is no evidence of a false promise. In fact, the only false promise Respondents allege that could support a fraud finding is the promise in the Operating Agreement to provide a capital contribution of $150,000 to Ridglea LLC. [DX-21] Roustan, Inc., however, more than complied with the obligation, contributing capital totaling $235,000 over a sixteen-month period. [3 RR 129-42] Of this, Roustan, Inc. borrowed $200,000, but did so in its own name. [3 RR 136] The money was paid to Roustan, Inc.s lawyers trust account and paid incrementally to Ridglea LLC. [3 RR 140-41] Ridglea LLC was not liable on the note. [3 RR 136] Based on this undisputed evidence, the jury found that Roustan fulfilled the promise. [CR 34]
Logically, a promise that is fulfilled cannot be a false promise. See Thedford Crossing, L.P. v. Tyler Rose Nursery, Inc., 306 S.W.3d 860, 872 (Tex. App.Tyler 2010, pet. denied). Given the jurys determination that Roustan did not fail to comply with the promise, the promise was not false. See Big Dog Logistics, Inc. v. Strategic Impact Corp., 312 S.W.3d 122, 189-29 (Tex. App.Houston [14th Dist.] 2010, pet. denied); see also Cunningham v. Zurich Am. Ins. Co., 352 S.W.3d 519, 527 (Tex. App. Fort Worth 2011, pet. filed). This is particularly true when, as here, there is no evidence showing that the alleged false promise caused any injury. See Big Dog Logistics, 312 S.W.3d at 129. Second, there is no evidence that Roustan made a promise with the intention of not fulfilling it. A partys intent is determined at the time the party makes the representation, but intent may be inferred from the partys acts after the representation is made. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986). Failure to perform, standing alone, is no evidence of the promissors intent not to perform when the promise was made. However, that fact is a circumstance to be considered with other facts to establish intent. Id. at 435. Here, failure to perform cannot be considered as evidence of intent because, as the jury found, the promise was fulfilled. Thus, no evidence exists to support the statutory fraud finding. In fact, the evidence at trial positively establishes that there was intent to perform when the promise was made. In determining intent to perform, courts may look to whether a party confirms or denies that he made a promise to perform. Spoljaric, 708 S.W.2d at 435. Here, Roustan testified that Roustan, Inc. promised to provide, intended
to provide, and in fact did provide the remaining $130,000 of capital contribution. [3 RR 129] This is evidence that the promise was made with the intent to perform. B. The court of appeals fraud analysis is flawed and conflicts with the jury verdict.
The court of appeals analysis of the promise underlying the statutory fraud cannot be reconciled with the jury verdict. Specifically, the jury expressly found that Roustan did not fail to comply with the agreement to make a capital contribution of $150,000 to Ridglea LLC. [CR 34; App. 2] Despite the jurys finding, however, the court of appeals held that there was sufficient evidence that Roustan made a promise that went unfulfilled because Roustan told S&G that he could and would provide a capital contribution of $150,000, either with his own funds or with the financial resources of his business, but that he actually borrowed money on behalf of the LLC. [Op. at 14; App. 3] The court of appeals opinion is wrong. The undisputed evidence contradicts the courts theory that Roustan caused Ridglea LLC to borrow the money so that he would not have to make a capital contribution. Roustans testimony that Roustan, Inc.not Ridglea LLCsigned a note for $200,000 is uncontradicted. [3 RR 131-36] In other words, Roustan, Inc. borrowed the money to make the capital contribution to Ridglea LLC. Ridglea LLC received the full benefit of the $200,000 and did not have an
obligation to repay the note. [Id.] The court of appeals attempt to justify the statutory fraud finding is contradicted by the evidence and the jurys finding that Roustan, Inc. fulfilled its obligation to make
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the $150,000 capital contribution required by the Operating Agreement. Thus, the court of appeals judgment must be reversed. C. Roustan, individually, did not make a promise.
The only evidence of promises that the court or Respondents cite are the promises to (1) pay the purchase price of $75,000, and (2) make a capital contribution of $150,000 ($20,000 of which was previously delivered). As the court correctly
recognized, Roustan was not a party to the Purchase Agreement, and, therefore, he could not be held liable for breaching that agreement.2 [Op. at 10; App. 3] Thus, the court properly held the $75,000 promise unenforceable against Roustan. The same is true with respect to the promise to make a $150,000 capital contribution. Roustan did not appeal the finding that he made this promise because the jury determined that it was fulfilled and awarded no damages. [CR 34] However, the court of appeals logic applies equally to this promise. Like the $75,000 promise, the $150,000 promise was contained in an agreement to which Roustan was not a party. [DX-21 at 27, 28] Specifically, the promise was contained in paragraph 3.2 and Exhibit 1 of the Operating Agreement, executed the same day as the Purchase Agreement. [DX-21 at 1, 5, 28] The promise was: (a) Initial Capital Contributions. At the time of, and in connection with, each Members admission pursuant to Section 2.6(a), such Member shall contribute to the capital of the Company the consideration set forth opposite such Members name on Exhibit 1.
The Buyer in the Agreement was Roustan Ridglea, LLC. The Agreement was executed by Roustan, Inc., its managing member. [PX-3 at 1, 13]
2
[DX-21 at 5] According to Exhibit 1, Roustan, Inc., a member corporation, would make a capital contribution of $150,000$20,000 of which had been delivered preformation. [DX-21 at 28] Even if Roustan had made such a promise in his individual capacity, which he did not, it was made when the parties were still negotiating the deal. [Op. at 13; App. 3] Like the Purchase Agreement, the Operating Agreement contained a merger clause: This Agreement and the Articles of Organization contain the entire understanding among the Members and supersede any prior written or oral agreement among them respecting the Company.3 [DX-21 at 25] Therefore, the writing contains all of the agreements and promises between the parties, none of which were made by or were to be performed by Roustan, individually. There is no evidence, or even a legitimate inference, that Roustan made any promise or representation apart from those memorialized in the Purchase Agreement and the Operating Agreement. Courts will give effect to the intention of the parties as expressed or as is apparent in the writing. In the usual case, the instrument alone will be deemed to express the intention of the parties for it is objective, not subjective, intent that controls. City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515, 518 (Tex. 1968). Here, it is conclusively established that the promises and obligations were those
Paragraph 22 of the Agreement provides: This Agreement contains the entire agreement between Seller and Buyer with respect to the subject matter hereof and the related transactions and supersedes all prior arrangements or understandings, whether written or oral, with respect thereto. [PX-3 at 11]
of Roustan, Inc.not Roustan, individually. As such, these promises cannot support a claim for statutory fraud against Roustan.4 PRAYER Petitioner W. Graeme Roustan respectfully requests that this Court (1) grant this Petition for Review, (2) reverse in part the judgment of the court of appeals, and (3) render judgment that Respondents take nothing from Petitioner. Alternatively, Roustan requests a remand to correct the errors of law committed by the court of appeals. Respectfully submitted,
/s/ David Keltner David E. Keltner State Bar No. 11249500 david.keltner@kellyhart.com Marianne M. Auld State Bar No. 01429910 marianne.auld@kellyhart.com John T. Wilson IV State Bar No. 24033344 john.wilson@kellyhart.com Kelly Hart & Hallman LLP 201 Main Street, Suite 2500 Fort Worth, Texas 76102 Telephone: (817) 332-2500 Telecopier: (817) 878-9280 COUNSEL FOR PETITIONER
Fraud cannot arise from pure expressions of opinion, whether personal or legal, or predictions about the future. Bryant v. Transcon. Gas Pipe Line Corp., 821 S.W.2d 187, 190 (Tex. App.Houston [14th Dist.] 1991, writ denied). Therefore, any promise by Roustan regarding another partys (Roustan, Inc.) performance in the future could only be an unenforceable prediction and cannot form the basis for a fraud claim.
CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the above and foregoing document has been served upon Respondents counsel via telecopier on January 17, 2012: Via Electronic Filing: D. Nicholas Acuff Acuff & Gamboa, LLP 2501 Parkview Drive, Suite 405 Fort Worth, Texas 76102
/s/ David Keltner David E. Keltner
Petition for Review
Page 14
No. _____
IN THE SUPREME COURT OF TEXAS W. GRAEME ROUSTAN, Petitioner, v. MICHAEL SANDERSON, WIFE ANN GAINOUS, AND RIDGLEA ENTERTAINMENT, INC., Respondents. On Petition for Review from the Second Court of Appeals, Fort Worth, Texas Court of Appeals No. 02-09-00377-CV INDEX TO APPENDIX TO PETITION FOR REVIEW
1. 2. 3.
Final JudgmentOctober 9, 2009. Charge of the CourtAugust 28, 2009. Roustan v. Sanderson, No. 02-09-00377-CV, 2011 WL 4502265 (Tex. App.Fort Worth Sept. 29, 2011, pet. filed). Court of Appeals JudgmentSeptember 29, 2011. Tex. Bus. & Com Code Ann. 27.01.
4. 5.
Petition for Review
Page 15
ppendix 1
; No. 342 -223829-07 MICHAEL SANDERSOR, WIVE ANN GAINOUS AND GLIEN-,; ENTERTAINMENT, IKC0-;1,,,, _
_
N- THE DISTRICT COURT
Plaintiffs VS.
oa.
fit : '
ICIAL DISTRICT NO 342
GRAEME ROUSTAI. SPN 11 ;-:: RIDGLEA, LLC, ROUSIANFORT wo4TH, LLC, YDIDI, IiR a,nd t FIRLAND MANAGEMENTLLC. Defendants
W.
TN TARRANT COUNTY, TEXAS
H;
Y. FilsIAL JUDGMENT
On August 24, 2411)Aliis caa was 'called for trid Plaiiiti, Michael Sanderson, Atm , Gainous and Ridglea Ente..ttakmiint,-Itic., appedred.in person and through their attonrey D.Nicholas .: Acuff and announced readifor trialiD efstaants, W. Graeme Rotistaii i Roustan Ridglea, LLC, and Roustan Fort Worth, LreC 4ppeareit in person and thrbugh their attorney Ernest Leonard and announced ready for trialgr i -- After a jury was i ie1ed aid sworn: it bearOthe evidericq . Ond arguments of counsel. In response to the jury oharg0; hte juiymae ifndinis that the . court received,ifled; and . entered of record. The questions sutunitited . to gib ju.t r and hte jury's finaings,are attached as Exhibit A and incorporated by reference,Pl*atiffs itled a motion ht disregard the jurY'S answer to question number 28 (b) through (d) concepintappellnte attorney's fees which the COurt grants.
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The court hereby TEISDERS judgment for the Plaintiffs as follows. n , It is ORDERED, kalpDGED AND DECREED that Plaintiffs Ivlichael Sanderson and Ann Gainous recover damage g4rOin Defendant W. Graeme Roustan i n the sum-of $37,500, prejudgment interest on that sum at the:_asrinual .rath of 5%, in the sum of $4,53 1 for a total of $42,031.00. <
F
is further ORDEAED ADJUDGED AND DECREED that PlaintiffRidglea Entertainment, . Inc. recover damages frolnpefendant W. Graeme Roustan A in the sum df $50,000, mgrnent i --" t . : lir it . I 4 ;--, ' "
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Courtsklinutes* Final Jud Transacti n
It is further ORDN4D, ADMD9ED AND D ECREED that the damage awards to the . Sandersons and to RidgleaEntertaintene, Inc. will lioth accrud post judgment intemst from the date of this judgment until, at rate of 5% annum. Copy M9'ct to
4 Attorney pf,Ree.ord
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As Ridglea EntertailiunInc.as:entitled byl 27.01(e) Tex. Bus. & Comm. Code to recover, . in addition to normal co*ticiiists, the, costs of copies ordepositions and,expert witness fees, it is further ORDERED, ADitt -dEp AND DEC D that Riciglea Entertaiiiment, Inc. recover from W. Graeme Roustart hte kidEonal A of$ 059.25. for snChodaititnal costs and fees. .
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It is further ORDE ADitiDGED ANI3CDEREED that Plaintiffs jointly recover from -f; W. Graeme Rous tan attofnan.f es ihie sum of $27,500 for the services rendered through the trial of this case. In the event 04 appeAkr,W. Graeme Roustan t the Courtof Appeals, if the appeal . . is unsuccessful, Plain:WOO be.fUither entitled tq $15,000 as a reasonable attorney's fee; in hte event of an appeal to the kiiittne COint of Texas and it is necessa ryto make or respond to a Petition ioned on a successful outcome for Review, Plaintiffs witbeAntitled toarradditional $7,500 for the Plaintiffs in the SutiremeCo4it of Texas and the Plainipffs vviir be entitled to an additional $10,000 in the event the Sumeme Court grants review, conditioned c:.)n a successful outcome in the Texas Supreme Court. 71 r ' 4,(: ); , d This judgment is ffi,-4: ntdipoSes. a11clai7 and alkiparties,-..and is 4ppealable. All relief ; requested but not grantectis-iknied:' . .
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All court costs are gj4 gifll agOstothe Defendant W. Graeme Rouistan. ait
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'All writs and proce4seAhr theienforOementand collection of this judgment may issue as necessary.
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SIGNED on
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Appendix 2
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No. 342-2t3S29-07
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MICHAEL SANDERS015, *IFE.ANN GAINOUS AND RIDGLEA. ii ENTERTAINMENT, INC:, ... ..-,. .V4 Plaintiffs , -. : :.-. n, 1,-5., / 71 VS. l' ' ;I .' y
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IN 1.EiE DISTRICT COURT
7.
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JUDICIAL DISTRICT NO. 342

,i
W. GRAEME ROUSTAMROUSTAIf ;4 RIDGLEA, LLC, ROUSTM #ORT 4-.-..1. WORTH, LLC. Roo Defendants
rill .z,.
IN TARRANT COUNTY, TEXAS

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co LADIES AND G bi, il . EMEN OF THE JURX:
CHARGE OF THE COURT
t i' This &selfs qmItteltoi you on p1 eciifc questions about the facts, which yo u must decidifrom the evkiiinbe yon.have heard in this trial. You are the sole judges of the credibility of the witnesses andllii;41eight togie liven their testimony, but in matters of law, you must be governed by the iistrnaios irtthis charge. In discharging your responiibility on this jury, you will carefully andAtiOY-obseikse aH the instructions previously given you as well as the ,. i: following:
1. Do not let bias, prbpdice or,,sympaphy play any pait in your deliherations .,;.2. In arriving at yoUr answers, consider:only the evidence 'mtrodu ,6(1 here -under oath and such nr . exhibits, if any, as -haviii!b gen iniOduced for your consideratiodunOr the rulings of the Judge. In l other words, consiOek ii ily what you have seen ,and heard in this cciurtivom, together with the law ' as given you by thef4e4n Yinn-de liberaticnii you will not consider or discuss anything that is : not represented byiitht*Videnqein . this case. . 3. Do not speeulataoy inatters not in hte eVidence ddmitted before you and about which you are not asked in any o4heniestions. Do not basq any answer on sunfise, suspicion, conjecture or . personal experienc6,.b* only upon the evidence admitted bgbre you. You cannot guess your way to a just and correct Verdict; t, t 4..Every answer thnt isiiequired rhy hte charge is important; therefore, no juror should state or consider that any idquird ansWbr is not limportant s 'i. 5. You must not de*dAvno ytu think shouldxvin and then trito a nswer the questions accordingly. Simplr4' 1ii3Ver tli . que:stions frokthe evidence introdUced before you and do not discuss or condem4miitelves Nikith he effect oi' your answers on th final outcome of the case. z."...r f'zti in t 6. You will not deoct6 kquestibbY lot or by drawing straw& or by any other mehtod of chance. Do not return a quaieeverdict. A quotient verdict means that the jurors are to abide by the
COURT CHARGE
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ic!,` t 4 results tci be reache b*add4 together each j,uror's figures, and divide by the number of jurors to get an 'average. DO, not5,Clo any tmding on your answers; that is, one juror should not agree to answer a certain qiiestitn one way if others will agree to answer another question another way. 7. Your verdict ntayibc rendered by all 12 meImbers of the jury, or by a vote of 10 to 2, or 11 to 1. If the verdict is less thin unanimousor-in other words, less than 12, the same 10 or the same 11 jurors, as the case."msybe, must agret to all cif the answers to the questions herein. You may not return a verdict 4144 thin.10 jurors. If you return a'unaninious v.erdiet, the presiding juror shall sign the verdict in414ace indicated the last page Olds chat ige. If the verdict is not . unanimous, then eachgthe 1R;-.4, 1- 11 jurcirs who agree to all tht answers shall each sign the verdict: Thosejur ssdio%oAf agre.denot sign. r 1 These inseticti`Ons; are tiSe# to you be8ause your conduct is subject to review the same as that of the wirnesself.pirties, attorneys, and the judge. If it should be found that you have ignored any of these instrufltitO, it will tipiury misconduct and it may require another trial by another jury; then .allttfort 44* will have been Wasted. i!
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An importinit Ort .oficiurfunction is to' weigh andievaluite the testimony of each witness and any document;1 admitted iitio evidence by the Judge; Kexerciiing this function, the jury may consider the witneSe .blas, interest, prejudice, or lack of suh quaiities, and determine the witness' credibility under theAts and bircunistances of this case. You may acceptpart of a witness' testimony and rejeof pail of it; You may accept all of it or reject all of it-, and you may accept all of one witness' testinrotiY .litntl rejebt the testimony of other witnesses, although you must not do this .4 0 arbitrarily. r 1 Answer "Yes" or 14\16.7to all questions unless otherwise instructece A n res" answer must be based on a preponderinevbf the evidence untess otherwiie instructed. ' If you do not find that a preponderance of ;die' 4yidence supports a "Yes" answer, thin answer, ."No." Whenever a question requires hl.h Emlwer other than "Yeslor "No," your answer must be based on a preponderance of giiiiidence unledotherwise instructed. If a question calls for a number, and you do not fmd that a mprepanddrance o4 the evidence" supphrts a ny sulh number, then answer, f
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A faceis drkumentary evidence or by witnesses who savs7Eict don . ' the A'rords spoken. A facitis established by circumstantial evideneawh eirit%al be fairly And reasonably inferred from other facts proved.
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During yo*..4iberatilInS, )Tou are instructed thalyou may not consider the fact thatother parties have s&-tlerfAlt the Plaintiffs for i- ny ji'urpdse. You are inStructeethaf a corporate igent is , personally IiVble flit. his own fraudulent acts even when acting in th4Ourse and stope of his employment by iscorpORtion. ...
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COURT CHARGE -
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pEFINITIONS
When words are used in tiii3eliarge inr asense that varies fr om the meaning comnionly understood, you ' of are given a properlegal deifnition, whiC. h you are boundtto weep* plaS any other meaning.
Common Law. Fraud ocOurs *hen
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a. b. c. d. Or when
a.
avarWmakes.a material misrepresentation,

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the TnfarepreOentation is nuide with knowledge of its falsity or made recklessly Without any knowledge of the truth and as -a positive assertion, smisrepresentation is made with the inte'n t'ionthat if should be acted on, and ., the other .part346lies ifiejnisrepreseritation lind.thereby suffers injury. t . (7,4:. n there Islafalse*epresentation of a past or exisling lmaterial fact, . . . tiotri,*.3e rePresontation is ilia de to a person for the purpose of inducing that pOson'to en-Wfinta a contract and. . , tht fa repreiOtation is relied on by that,PersOn in.entering into that contract.
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Misrepresentation
means;;. ;
a. b. c. d.
afalgtfatement of fact; or a stint-I:nen o ..o .prinon basedtaa a false statement of fact; or

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a *tell:tent of opintoWthat the maker knows to be false; or
ativipresgion of.opinioq that is false, made by one aiming or implying to have speeinetnowledie of the 'subject matt& of the 'Gpinion: "Special knowledge" intlana'f-jcnckwledge-or:iiiarmation superior to that 'possessed by the other party alatenihiCh tie other party did not have equal acCess. ; f. I. 'V' Statutory Fraud obcurs when- 1.; iv . 1 ..TX a. there is a ralseliptesegiation of a'pasit or existing 'material'fact b. the false refitefeOtation;is.made to a .petson Or the purpose 6f inducing that person to enter intis aatintractvAid i c. the false relieli on b5,' that perton inlentering into that contract.
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COURT CHARGE
a party matteatfalse promise o do an act, the promise"ls'iiiiterial, 7 the promistlirliade witti the Anentiola ofiot fulfilling it,
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the Protai*Ofiniderfib a person folithe purpose of inducing that .person to enter into a
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that persok teli6 on thN ) e'PriSiniseinmitering into that contract. .14 .', Failure to contply is itrcu;ett& .,. a. b. c. d. by Plaintrffsltpiev icitir failure fto comply with a nifite r al obligation of the same . '. ;? ' " 4 agre. emengi olf "7
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by,Plaintiffe'tior remidiation of the same agreenient; or i -') * , e 1,vaiv i)y Plaintiffs; 0:4' pit, ofga. A i0 if Plaintift cowmitted fraud #gairtst . W. Graeme Roustan. i
A party rev:44We.} 4.1fgreet ndhi when. he indicates,.by hi.words Cr actions, that he is not going to perform his obligation04er the agreement in'the future, showing k fixed intention to abandon, renounce, and refuse to peifOnifi the agreement is an inteifiogal i sm.:ender of a known right or intentional., conduct inconsistent with claiming the right.
Waiver
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Proximate u ql3 use Whith, in a natural and L orliitnicius sequence, produces an event, and without wic het.'tta'Zsitch Oent woUld nohave occurred In . oraer to be a proximate cause, the h act or omission complaine0 , 015inust be.:nacitthat a pern using the degree of care required of him would r have foreseen that the evpiti tr sontmiltir event might reasonably result therefrom. There may be more htan one proximate nate 'of an , t
, Producing cause aiietilis a..caik9Q-th4t wap.asubstalitial factor if iir inging about the damages, if k -ink= any, and without whict tlie 4 g.ges yfocild not live_occurred. There m4i. . be more than one producing e ;. 4 ig f c , : -,.e . cause. ..C.'. f .::ca f False, misleading, or decein#:e or4ora ce means any of the f011wihg: act
Representing:that go04- or s4c cs have pohtoiship, approval, characteristics, ingredients, uses, . i beneifts, or quantlies iiiiibh diey do not have or that a person has a sponsorship, approval, status, afifliation, or contifictiqh whiCb lie. does not; 4 it ,. a Representing thaqvdis or seivices are of kpardcular standard: qualify, or grade, or that goods . are of a particular st,1CIOr model, if they rae of another; PrepOnderance of the evidehei nieans the . greater W "eight and degree of credible evidence admitted in ,. . .4, this case. Clear and convincing evi dence meansAhe measure .or degree . 01pro of:I, that produces a firm belief or I conviction of the truth bf th e 'allbgaton sought toile rIstablished. . t,. t i. s fiti tA e
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QUESTIONS
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QUESTION la
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Did W. Graeme Rptistan agree with Ann Gainous and Michael Sanderson to pay $75,000 for the transfer of the ice rink busine07 Answer Yes.or No
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If you have answered ',TeX" then ';answer the followink question. Otherwise do not answer the following . question. , :A
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Did W. Graeme R:e4tn fai*Corpply with the agreemer4 r Answer Yes or No:' ,,.Ve5
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QUESTION lc Was W. Gramm It-94'dr 's failure to comply excused? Answer Yes or No:
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What sum of mona4tany, piid now in cash woiild fairly and reasonably compensate Michael Sanderson and Ann Gainotipl&tIir r drinages, iftuny, that r esuited frorh pc:hfailure to comply? Do not add'any iri0ffor inte4st prclamagel Answer in dollars imil,. R#nts forldamages, if any. Answbr: $
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QUESTION 2a Did W. Capital Contribution of $ Answer Yes or No:
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1 - itontila5rt agr'eewith Ann Gainous and .'i.Michael Sanderson to make a l I i I to Rimstan Ridgleki,LC.?
' If you have answered "Y0,51#en answer the foltoWing question. Otherwise do not answer the following question. 1;;.: QUESTION 2b
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Did,W.. Graeme Roumn failfto- complyUth the agreement Wriake a Capital Contribution of ?t, $150,000 to Roustan RidgigkktLC.?
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Was W. Graeme rotia 'sfai1re to'complY excused?

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QUESTION 2d
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What sum of monily,, if any, paid nay in cath would fairlY andlreasonably compensate Michael Sanderson and Ann Gaino*sfaitheirdamageS, any, that resultedifrom such failure to comply? Do not increase oriaince the in i;imt in oReanswer because of;,your answer to any other question about damages.. Do not seatiAatePab4111 what any party's ulitmate re lco4ery may or may not be Any recovery will be determinettli:the court when it applies the law to -your answers at the time of judgment. on :nakes, if any.;," Do not add any amount. foriaitetest,di Answer in dollars and cents fon damages, if any.
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Answer: $
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Did W. Graeme p.otistan agreb with Ann Gainous and Micliabl Sanderson to contribute the monies necessary to pay the Operating expenses of Roustan Ridgle, LLC to allow the company to pay its overhead? Answer Yes or No: '/ A ("
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If you have answered "Ye.' then anwiter-the following question. Otherwise do not answer hte following question.
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QUESTION3b Did W. Graeme Roustan fai1tcomply with the agreement to contribute the.monies necessary to pay the operating expenses? 3
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question. QUESTION 3c Was W. Graeme Answer Yes or No:
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's failure to comply excused?
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QUESTION 3d
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What sumof monl any , paid now in cal would fairl; and reasonably compensate Michael . eA4 7.' Sanderson and Ann Gainotiyfort.their cihtiraies . if any, that resulted from such failure to comply? f::' I . i Do not increase orteilnee the..amount in one answer Because , of.your answer to any other question about damages. Do not specili4e about :what any party'&:ultirnate recovery may or may not be. Any recovery will be determinetrWithe couttkVhen it applies the lawio yotizr aiswers at the time of judgment, . Do not add any amountifortnter t sf on,frgmages, ifIranyt _
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Answer in dollars 644qe forttiam4ges, if any. :nts Answer: $ v)i

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QUESTION 4a
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Michael Sindersciii ,...-. 4,--' .;::. Ann Gainous .Ridglea Entertainittenrc.
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If you have answered "Yes,". tciany patt then answer the following question . Otherwise do not answer the following question. -.;.' 6 QUESTION 4b
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What sum of money, if any;iffpaid nciw in cash, would fairly and reasonably compensate Plaintiffs for their damages, if any, thatSi .espited from suchicoMmon law fraud? Consider the following elements of damages, if any, and none otheii. .... 1 .The econcttniclosses, if anAluffered:;:by'Plaintiffs caused by the common law fraud. 4 i 41.1 , ;.4 E , 4 Do not increase of 4 ,411Ittp the apoimt intone a nswer because of your answer to any other question v Y, e ab o-tifwhat 'any pa1rty's tiltirh ate r4ec1tery may or may not be Any about damages. Do not recovery will be deterht m41 h he -corqt,when it Wppltes the law to .yotir abswers at the time of judgment Do not add any amount foirtitoest ort in. es,. if,anY.
Answer in dollars and Answer:
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Miehael Sanderson Aiktik 1ihoui Rideek Entertai imient, Inc. r 2 4 4.. :1 11

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.QUESTION 9a Did Plaintiffs conimit Common law fraud against W. (3raeme Roustan? ; 4 Answer "Yes" or "No" as &each::
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Michael Sanderson' ' . )^ fO AA; Ann Gainous Ai 0 ) Ridglea Entertainril'400r( ;, 11,10
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, ' What sum .of monlotiany; jfpaid tiow in/cash; would fairly i,nd reasonably compensate W. Graeme Roustan for his drtmagels, if any thitresulted from such commoi . law fraud? Consider the following:elements of damages, if any, and ndne other:. 1. The ainOuntof money that W. Graeme Roustan put into the ice rink business relying upon tt(41hi1itiffOretresentations. In answering . question.s,. about damages, answer each question separately. Do not increase or reduce the amount 20 in one : miswer because of your answer to any other questions about damages. Do not speculate about whay:..party's,ultimate recoyew . may or may not be. Any recovery will be determined by the court wlii applie&the law to ydur answers at the time ofjudgment. Do not add any amount for interest on daingif any. Answer in dollars .hrid cents. Answer: QUESTION 9c
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For each person found y.y,iy:ou to hame;;f(-cansed these damages pna the percentage caused by each: a. b. c. Michael San40* Ann Gainouski 1k. Ridglea Entertamment lxic
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For each person found by you to have daused these'damages find the percentage caused by each: ik' -3" -,'- :V % co a. Michael Sanadrsern _ :) % Ann Gainour1-,', ,'r' ' b. AV % Ridglea EntettaitiMent, Inc, c. 4 u TOTAL 1:00%
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illpaig now in cash, should be assessed against any of the persons What slim of s . t?p' 4 rilaituh as exempharf damages, if any, for the fraud? , ,.. below and awarded l "Exemplary dmaages" meail aii andinithat `you may in your discretion award as a penalty or by way 1 . , of punishment. ' 1). ki,;4-. .,. i .# % 1,t ngempyg? if any, . Factors to consider in
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Michael Sanderson: Ann Gainous: Ridglea Entertainment, llic..,:f!11 . * ,..4
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Mic1. --1 Sanderson.: I-X. - '' 4 Ann Gainous: Ridglea Entertainment, .,. . QUESTION 12b
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CERTIFICATE We, the jur y, haveansiiefed tlie.aboVe and foregoing questions as ierein indicated, and herewith .Feturn same into court as oUimerdict.
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Appendix 3
COURT OF APPEALS
SECOND DISTRICT OF TEXAS FORT WORTH
NO. 02-09-00377-CV W. GRAEME ROUSTAN V. MICHAEL SANDERSON, WIFE ANN GAINOUS, AND RIDGLEA ENTERTAINMENT, INC. APPELLEES APPELLANT
FROM THE 342ND DISTRICT COURT OF TARRANT COUNTY
MEMORANDUM OPINION' --R

In six issues, Appellant W. Graeme Roustan appeals from the trial court's judgment awarding damages to Appellees Michael Sanderson, his wife Ann Gainous, and Ridglea Entertainment, Inc. (collectively S&G) on their breach of contract and fraud claims against him. Because we hold that the evidence is
insufficient to suppotr an award of damages against Roustan individually on
1 See Tex. R. App. P. 47.4.
S&G's breach of contract claim but sufficient to support an award of damages on S&G's statutory fraud claim, we reverse in patr and afifrm in part.
Background
Sanderson and Gainous wanted to start their own ice rink business, and in November 2004, Gainous signed a two-year lease for an ice rink in Fort Worth owned by YDIDI, I LP. The lease contained an option to purchase the property during the lease term. Sanderson and Gainous formed a corporation, Ridglea Entertainment, Inc., to operate the business, and they opened for business in December 2004. In March 2005, S&G began having equipment problems, which caused problems with the ice. They finally identified and repaired the source of the
problem at the end of May 2005. Because of the problem with the ice, the rink had been closed for business from March until the end of June. Meanwhile, in April 2005, Sanderson contacted Roustan, an investor in and operator of a number of other ice rinks, about Roustan buying a controlling interest in the couple's business. In May 2005, Sanderson and Gainous went to Las Vegas to an ice rink convention and met with Roustan while there. At the meeting, Roustan gave a presentation about his ice rink business venture in which he told Sanderson and Gainous about ice rink facilities he currently owned and others that he planned to acquire in the next few years.
The parties signed a purchase agreement on August 1, 2005, in which a new entity, Roustan Ridglea, LLC (Ridglea LLC) purchased the lease and all of the assets of the ice rink business, except that Gainous kept the $30,000 security deposit that she had paid when she signed the lease. Ridglea LLC agreed to assume the utility contracts for the premises, including the electricity service. Ridglea LLC also agreed to transfer a twenty-five percent ownership interest in the entity to Ridglea Entertainment and to pay $75,000, in two installments of $37,500 each, to Gainous and Ridglea Entertainment. disputed whether the second installment was ever paid. At the same time, Gainous executed an assignment of the lease as well as an assignment of the purchase option. As patr of the consideration for the At trial, the parties
agreement, Ridglea LLC agreed to employ Sanderson as general manager of the ice rink and to employ Gainous as a full-time employee. Ridglea Entertainment and Roustan Inc. (a company of which Roustan is the sole stockholder) also executed an operating agreement for Ridglea LLC. Under the agreement, Roustan Inc. held a sixty-five percent ownership interest in Ridglea LLC. Ridglea Entertainment owned twenty-five percent, and two trusts each took a five percent ownership interest. The agreement called for Roustan inc. to make a $150,000 capital contribution to Ridglea LLC, with $20,000 paid prior to formation and the remaining $130,000 due upon formation. Ridglea Entertainment's capital
contribution consisted of its assignment of its interest in the ice rink and its sale 3
of all of the business assets as set out in the purchase agreement.
Roustan
made an advance of $20,000 prior to closing on the purchase agreement and another $55,000 around the time of closing. The parties disputed at trial whether Roustan Inc. ever satisfied the rest of its capital contribution. Attached to the agreement as Exhibit 2 was an unexecuted promissory note, dated July 1, 2005, under which Ridglea LLC promised to pay the Fernandez Family Trust a sum of $200,000 plus interest over a period of three years. The operating agreement provided that Roustan, the managing member, was authorized to pay the note "as set forth in Exhibit '2. '" This trust was not one of the two trusts that received a five percent membership interest in Ridglea LLC. By October 2005, Ridglea LLC did not have enough money in its account to pay all of its bills, and the business was not generating enough income to cover them. Roustan had not had the utilities transferred out of Gainous's name, and in the spring of 2006, the business began getting shut-off notices from the utility company for failure to pay the rink's bills. S&G paid these bills with their personal charge cards. In September 2006, the business continued to have trouble making money, and Roustan informed S&G that he would not put any more money into the business. That same month, the electricity was shut off for failure to pay the bill, and S&G paid $22,000 to have the service turned on again. S&G also
received notice that month that there were insufficient funds to make payroll.
Sanderson and Gainous notified Roustan that they would be taking the revenue from the ice rink and putting it in Ridglea Entertainment's account. They paid the rent for October and November. After accepting that rent, YDIDI notified S&G that the September rent had not been paid and that the lease was in default. They sent a check to YDIDI, but the entity held the check and, in
December, evicted S&G. The next day, the rink opened up again for business, now under the management of Firland Management LLC, a company used by Roustan to manage other ice rinks in which he invests. During this time, Roustan's lawyer was negotiating with YDIDI for a new lease and new purchase option, but with a new company instead of with Ridglea LLC. On November 30, 2006, Roustan sent an email to a YDIDI representative stating that [f]rom what I hear, [Sanderson] is having trouble getting an Insurance Certificate for Ridglea Entertainment, Inc. If your lawyer demands to see one in 5 days, he might not be able to get one and even though my policy is still in effect. I am would be in default pretty certain he will come up with the September rent and December rent. Just a thought. The YDIDI representative responded, "I have forwarded your message to our attorney . . . who is working on a specific notice to Sanderson. I am confident we will be able to prevail in the end." On December 18, 2006, the day after S&G were locked out of the ice rink, Roustan registered a new corporation, Roustan Fotr Worth, LLC, with the Texas Secretary of State, using the ice rink's address as the registered address.
S&G filed suit against Roustan; Ridglea LLC; Roustan Fotr Worth, LLC; YDIDI; and Firland Management, LLC. 2 S&G's petition contained a seven-
paragraph section with the heading "Causes of Action Against the Roustan Defendants. " In the first paragraph of that section, they alleged that Roustan had made false representations "concerning his business acumen, his financial strength[,] and his commitment to funding the new company to which [S&G] sold the business." S&G then stated a claim "for common law fraud and statutory
fraud pursuant to Tex. Bus. & Com. Code 27.01." In a separate paragraph in that section, S&G included the following claim: "Ridglea LLC failed to pay the second [half] of the purchase price and thereby breached the contract of Purchase and Sale. The breach of contract by [Ridglea LLC] resulted in damages to [S&G]. " After a trial, a jury found that Roustan had failed to comply with his agreement to pay Sanderson and Gainous $75,000 for the transfer of the ice rink business, and it assessed their damages at $37,500The jury further found that Roustan had not failed to make the agreed $150,000 capital contribution and that he did not agree to contribute the money for payment of Ridglea LLC's operating expenses. The jury also found that Roustan did not commit common law fraud against S&G and that he did not "engage in any false, misleading, or deceptive act or
2They subsequently dismissed their claims against Firland and YDIDI.
practice that [S&G] relied on to their detriment and that was a producing cause of damages to [S&G]. " The jury did find that Roustan committed statutory fraud against S&G, but it awarded statutory fraud damages only to Ridglea Entertainment, in the amount of $50,000. Roustan filed a motion for judgment notwithstanding the verdict. The trial court denied the motion and entered judgment ordering that Sanderson and Gainous recover from Roustan $37,500 plus prejudgment interest and that Ridglea Entertainment recover from Roustan $50,000. Analysis Roustan's first two issues relate to S&G's breach of contract claim. third, fourth, fifth, and sixth issues relate to S&G's statutory fraud claim.
Breach of Contract Claim
His
In Roustan's second issue, he argues that the evidence is legally and factually insufficient to support the jury's verdict on S&G's breach of contract claim because there is no evidence that Roustan made any agreement with them in his personal capacity. We agree. The jury found that Roustan had agreed to pay Sanderson and Gainous $75,000 for the transfer of the ice rink business. The agreement regarding the transfer of the business was contained in the purchase and sale contract, which was between S&G and Ridglea LLC, not Roustan individually. Roustan signed the agreement as president of Roustan, Inc., which signed as the managing member of Ridglea LLC. Accordingly, Ridglea LLC may be liable for a breach of 7
the contract to which it is a party, but Roustan as an officer may not be held individually liable. 3 Roustan could, through his actions, cause Ridglea LLC to breach the agreement, 4 but because he was not a party to the contract, he could
not personally breach it. 5
S&G did not plead any facts or provide sufifcient
evidence to support a ground for ignoring the limitation on liability afforded to limited liability companies and did not allege that the limitation should be disregarded.6 By statute, a member of a limited liability company is not liable for
principle of corporate law is that an individual can incorporate a business and thereby normally shield himself from persona( liability for the corporation's contractual obligations.").
4 See In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762 (Tex. 2006) (orig. proceeding) (noting that "corporations must act through human agents"). 5 See Bernard Johnson, Inc. v. Cont'! Constructors, Inc., 630 S.W.2d 365, 369 (Tex. App.Austin 1982, writ refd n.r.e.) ("As a general rule, a suit for breach of contract may not be maintained against a person who is not a party to the contract.").
3 See Willis v. Donnelly, 199 S.W.3d 262, 271 (Tex. 2006) ("A bedrock
part by Act effective Sept. 1, 1997, 75th Leg., R.S., Ch. 375, 7, 1997 Tex. Gen. Laws 1522, 1522-23 (amended 2003 & 2007) (current version at Tex. Bus. Orgs. Code Ann. 21.223 (West 2010)); see also SSP Partners v. Gladstrong Inv. (USA) Corp., 275 S.W.3d 444, 451-52 (Tex. 2008) (stating that the limitation on corporate liability may be ignored "only 'when the corporate form has been used as part of a basically unfair device to achieve an inequitable result'"); McCarthy v. Wani Venture, A.S., 251 S.W.3d 573, 590 (Tex. App.Houston [1st Dist.] 2007, pet. denied) (noting that Texas courts have applied to limited liability corporations the same state law principles for piercing the corporate veil that they have applied to corporations). 8
6See Castleberry v. Branscum, 721 S.W.2d 270, 272 (Tex. 1986) (setting out six grounds on which the corporate form may be disregarded), superseded in
a debt, obligation, or liability of the company. 7 Fraud is a ground for disregarding the corporate form, 8 but although S&G pled that Roustan fraudulently induced them to enter a contract, they did not plead that Roustan used the LLC itself to perpetrate a fraud and that, consequently, the corporate form should be disregarded and Roustan held individually liable. 9 Nor did they plead any other ground for disregarding the corporate structure. 1 S&G argue in their brief that they "had always understood that Roustan would be paying the $75,000 cash portion of the purchase price[,] and it was not until shortly before closing when they received the purchase agreement that they understood Roustan had put a provision in the purchase agreement that the new company would be paying the second half " They then contend that they "had a conversation with Roustan about their concems with capital calls and Roustan 7Act effective Aug. 26, 1991, 72nd Leg., R.S., Ch. 901, 46, 1991 Tex. Gen. Laws 3192, 3203 (now renumbered and codified at Tex. Bus. Orgs. Code Ann. 101.114 (West 2010)). 8See Castlebeny, 721 S.W.2d at 272. 8Cf Houston-Am. Life Ins. Co. v. Tate, 358 S.W.2d 645, 657 (Tex. Civ. App.Waco 1962, no writ) (holding that the corporate ifction was used to perpetrate a fraud and that adherence to the corporate fiction "would promote injustice and lead to a most inequitable result"). 10See Castleberry, 721 S.W.2d at 272; see also Blond Lighting Fixture Supply Co. v. Funk, 392 S.W.2d 586, 591 (Tex. Civ. App.San Antonio 1965, no writ) (holding that there was no justification for disregarding the corporate. form when the plaintiffs did not present evidence that the corporation was formed as a means of perpetrating fraud, that it was operated as a mere tool of another corporation or as the alter ego of an individual, that the corporate form was being used as a means of evading existing obligations, or that the corporation was used to circumvent a statute, protect crime, or justify wrong).
had told them that he would personally pay any monetary shortfalls during the first [twelve] months of the operation of the company, and they therefore "had " every reason to believe that Roustan was standing by his personal commitment on the purchase price." S&G may have put on some evidence of statements Roustan made before or after the contract's formation about the source of funding for the $37,000, but they did not put on evidence of a separate contract with Roustan personally to pay them the money. The only contract that they pled had been breached was the purchase agreement, and this was the only agreement that they proved existed. " Roustan was not a party to this agreement, and S&G did not put on evidence to support the disregarding of the corporate form to hold him personally liable. 12 Because they neither pled nor proved a ground for setting aside the
corporate form to hold Roustan personally liable on the purchase agreement, and because they neither pled nor proved a separate contract with Roustan, he cannot be held individually liable for breach of contract. 13 Accordingly, applying the appropriate standard of review, 14 we sustain Roustan's second issue.
"See Fieldtech Avionics & Instruments, Inc. v. Component Control.Com , Inc., 262 S.W.3d 813, 825 (Tex. App.Fort Worth 2008, no pet.) (stating that the elements of a breach of contract claim include the existence of a valid contract). 12See Castlebeny, 721 S.W.2d at 272. 13See Bernard Johnson, Inc., 630 S.W.2d at 369. 14 Cent. Ready Mix Concrete Co. v. Islas, 228 S.W.3d 649, 651 (Tex. 2007); City of Keller v. Wilson, 168 S.W.3d 802, 807, 827 (Tex. 2005); Uniroyal 10
Because S&G failed to establish a basis for holding Roustan personally liable, we do not need to reach Roustan's first issue, in which he argues that the pleadings did not support a verdict of personal liability on the contract. 15 Statutory Fraud The remainder of Roustan's issues relate to the jury's verdict of statutory fraud. In his third issue, he argues that there is no evidence that he made any representation that was false. S&G pled a claim for fraud involving real estate or corporate stock under section 27.01 of the business and commerce code. 16 To show fraud under
section 27.01, a plaintiff may prove either (1) a false representation of a material fact or (2) a false, material promise to do an act. " If the plaintiff's claim is based on a false representation of fact, the plaintiff must show a "false representation of a past or existing material fact, when the false representation is . . . made to [the plaintiff] for the purpose of inducing [the plaintiff] to enter into a contract; and . . . relied on by [the plaintiff] in entering into that contract. "18 If the claim is based on a false promise to act, the plaintiff must show that the false promise was material,
Goodrich 'Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998), cert. denied, 526 U.S. 1040 (1999). 15See Tex. R. App. P. 47.1. 16Tex. Bus. & Com. Code Ann. 27.01(a) (West 2009).
171d. 180
11
made to the plaintiff with the intention of not fulfilling it and for the purpose of inducing the plaintiff to enter into a contract, and that the plaintiff relied on the promise in entering into that contract. 19 The jury charge tracked section 27.01, instructing the jury that statutory fraud can occur when either (a) there is a false representation of a past or existing material fact or (b) a party makes a false promise to do an act. In the short section of Roustan's appellate brief addressing this issue, he asserts that "[t]here was no evidence of any representation by [him] that was false in any respect. " He does not, however, argue that there is no evidence that he made a promise to do something with the intention of not fulfilling it. In his reply brief, however, Roustan does make one argument regarding the evidence to support a finding of a false promise in a sentence in a footnote of the brief. He states that testimony suggesting that he failed to perform on any of his promises cannot support a fraud claim because Texas cases have consistently held that failure to perform an agreement cannot suppotr a fraud claim. We agree with the statement that under Texas law, proof of the failure to perform, without more, does not establish fraud. But circumstantial evidence may be used to establish that, when making the promise, the party had no
19Id. 20Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998). 12
intention to perform. 21 A party's acts atfer the promise was made, the party's denial that he ever made a promise, and no pretense of performance are all factors that may be considered to show a lack of intent. 22 Roustan makes no argument that the evidence was insufficient to show that in order to induce S&G to enter into a contract, he made a promise with the intention of not fulfilling it. Furthermore, Gainous's and Sanderson's testimony
indicates that Roustan led them to believe that he and his business enterprise had the financial wherewithal to provide the funding to keep their business going and that he would in fact provide the funding. The emails from Roustan in the record do nothing to contradict this testimony. For example, when the parties
were still negotiating the deal, Roustan told Sanderson that he would pay $20,000 up front and then, after formation of the LLC and the assignment of the lease, "[he] would then provide an additional $130,000." [Emphasis added.]
Roustan did nothing to disillusion S&G atfer they formed the LLC; in February 2006, Sanderson asked Roustan about the second payment of $35,000, and in response Roustan asked them to wait on payment because "it would make life easier on [him]." [Emphasis added.] No mention was made of funding the
business by taking out a loan.
Neither the operating agreement nor the note
21 See Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986). 22 See id.; see also Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 775 (Tex. 2009) ("[A] party's intent is determined at the time the party made the representation, [but] it may be inferred from the party's subsequent acts after the representation is made.") (quoting Spo ljaric, 708 S.W.2d at 434). 13
attached to it indicated that the trust loan was not an additional source of funds and was instead the primary source of Roustan's contribution to the LLC. The evidence in the record was enough for the jury to conclude that Roustan told S&G that he could and would provide a capital contribution of $150,000, either with his own funds or with the financial resources of his business, but that he actually borrowed money on behalf of the LLC. The record therefore contains sufficient evidence that Roustan made a promise to S&G that went unfunled. Roustan does not argue that, even if he did not follow through on a promise, such promise was nevertheless not made with an intention not to fulfill it. Even if he had so argued, however, our conclusion would be the same. From Roustan's testimony about how he structures business deals, his opinion about the note's satisfaction of his capital obligation, and the operating agreement's provision making repayment of the loan the obligation of the LLC rather than Roustan, Inc., the jury could have concluded that Roustan never intended to make a capital contribution from his own funds or the funds of Roustan, Inc. and that he had always intended to fund the business by way of a debt that the LLC would have to repay. Accordingly, the jury could have found that Roustan's
borrowing money to fund the LLC and making the LLC liable for the repayment satisfied Roustan's obligation to make a capital contribution but at the same time violated his promise to S&G that he personally could and would fund the company.
14
Roustan does not argue that the promise to provide funding out of his own funds or his business's funds was not material. Nor does he argue that the
evidence was not su cient to show that S&G relied on the promise or to show that the promise was made to induce them to sign the purchase and sale agreement and the assignments. Accordingly, we do not address the sufficiency of the evidence as to those elements of S&G's claim. We overrule Roustan's third issue. In his fourth issue, Roustan argues that the judgment does not conform to the pleadings. The entirety of his argument on this issue is as follows: [Texas Rule of Civil Procedure] 301 requires a judgment to conform to the pleadings. As mentioned above, [S&G] assetr in the [p]etition that Roustan made false "representations concerning his business acumen, his financial strength and his commitment to funding the as discussed above, such new company." . . . However, representations (even if made) cannot suppotr a judgment of fraud under Texas law[.] See, Stephanz v. Laird, 846 S.W.2d [895,] 903 [(Tex. App.Houston [1st Dist.] 1993, writ denied)]. Thus, the [j]udgment against Roustan for statutory fraud does not conform to the pleadings. Roustan expands on his argument somewhat in his reply brief, in which he asserts that as a matter of law, the allegations that he made false
"representations concerning his business acumen, his financial strength and his commitment to funding the new company" cannot support a claim for fraud because "the representation complained of must concern a 'material fact' and not 'a mere matter of opinion, judgment, probability, or expectation. Thus, he
argues, the petition failed to plead any grounds that would support a fraud claim.
15
In the case relied on by Roustan, the court looked to see if the evidence supported a finding of misrepresentation, not a finding of a false promise to do an act. Roustan does not explain why the pleadings cannot suppotr a judgment that he committed statutory fraud based on a false promise. In the paragraph of the pleadings pointed out by Roustan, S&G did state that Roustan made false representations about his business ability, his finances, and his commitment to funding the new company. They assert that these
representations were made with knowledge of their falsity with the intent of inducing them to enter into the purchase and sale agreement, and "[S&G] assetr an action for common law fraud and statutory fraud pursuant to Tex. Bus. & Com. Code 27.01" based on the purchase and sale agreement and the assignments. But S&G did not limit their statutory cause of action to a claim based on false representations under section 27.01(a)(1). And in their pleadings, S&G alleged that Roustan misled them about his commitment to funding the new company and that Roustan had represented to them that he had financial capital to put into the business and to exercise the purchase option "so that the new entity he would form would own the [p]roperty." Although S&G used the term
"representations," a term that generally relates to assertions of fact rather than promises, these statements were sufifcient to put Roustan on notice of a claim based on statements by him that he would perform acts in the future with respect
16
to funding the new company and purchasing the property. 23 Roustan makes no argument about why, if S&G proved that Roustan made promises about funding the business, such promises could not serve as the basis of a section 27.01(a)(2) claim. 24 The pleadings can support a judgment for statutory fraud based on a false promise, and, accordingly, we overrule this issue. In Roustan's fifth issue, he argues that the jury's finding that he committed statutory fraud was inconsistent with its findings as to common law fraud. In
reviewing the jury findings for conflict, a court may not strike down jury answers as conlficting if there is any reasonable basis upon which they can be reconciled. 25 The question for this coutr is not whether the findings may
reasonably be viewed as conlficting but whether there is any reasonably possible basis upon which they may be reconciled. 26 In Roustan's original brief, he does not explain why the jury's findings are inconsistent and irreconcilable. 27 In his reply brief, however, he argues that
23See Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896-97 (Tex. 2000) (noting that Texas follows a fair notice standard for pleading, that a petition is sufficient if it gives fair and adequate notice of the facts upon which the pleader bases his claim, that when a party fails to specially except to a pleading, a court should construe the pleadings liberally in favor of the pleader, and that qt is hard to imagine that [Appellee] was unaware of exactly what [Appellant] was claiming"). 24See Tex. R. App. P. 38.1(i). 25Bender v. S. Pac. Transp. Co., 600 S.W.2d 257, 260 (Tex. 1980). 26o. 27 See Tex. R. App. P. 38.1(i). 17
under the common law fraud question, the jury found that he did not make a false representation, but the jury's answer to statutory fraud requires a finding that he did make a false representation. Thus, he argues, the findings are in conflict and are irreconcilable. We disagree. The jury's answers are not irreconcilable. The jury charge on common law fraud limited liability to the making of misrepresentations, which the charge defined as a false statement of fact or opinion. The statutory fraud definition, however, allowed the jury to find that Roustan had committed fraud either by making a misrepresentation or by making a false promise to do an act.
The jury could have found that Roustan did not make a false statement of fact or opinion and therefore did not commit common law fraud but that Roustan did make a false promise to do an act and therefore did commit statutory fraud. Furthermore, when the jury returned its verdict, Roustan did not object to the findings as conflicting. 28 We overrule this issue.
In his sixth issue, Roustan contends that the trial coutr submitted an improper instruction on damages concerning statutory fraud. asked the jury, What sum of money, if any, if paid now in cash, would fairly and reasonably compensate ES&G] for their damages, if any, that resulted from such statutory fraud? 28See Columbia Med. Ctr. of Las Colinas v. Bush, 122 S.W.3d 835, 861
(Tex. App.Fort Worth 2003, pet. denied) (holding that the appellants did not preserve complaint about conlficting jury findings because they failed to object to the conlfict before the jury was discharged).
The jury charge
18
Consider the following elements of damages, if any, and none other: 1. The economic losses, if any, suffered by [S&G] caused by the [statutory] fraud. The jury charge instructed the jury to determine "economic losses" but did not define that term. In ,Roustan's brief on appeal, he argues that the measure of damages for fraud was discussed by the Supreme Coutr of Texas in Formosa Plastics, 29 in which that court stated that Texas recognizes two measures of direct damages for fraud: out-of-pocket and benefit-of-the-bargain. Thus,
Roustan argues, the trial court's instruction was contrary to Texas law because the proper measure of damages for a fraud claim is either out-ofpocket damages or benefit-of-the bargain damages. Section 27.01 provides that a plaintiff under that section may recover "actual damages," and, in some cases, exemplary damages. 39 The statute does not define the term "actual damages," so we look to the common law for guidance. 31 Under the common law, both out-of-pocket and benefit-of-the-
29960 S.W.2d at 49. 30Tex. Bus. & Com. Code Ann. 27.01(b), (c). 31 Hawkins v. Walker, 233 S.W.3d 380, 391-92 (Tex. App.Fort Worth 2007, no pet.) (applying without discussion the common law measure of damages for fraud in a section 27.01 statutory fraud case); see also Swinnea v. ER! Consulting Eng'rs, inc., 236 S.W.3d 825, 836 (Tex. App.Tyler 2007) (looking to the common law for guidance and stating that "[t]he measure of damages recoverable under [s]ection 27.01 is the same as that under a claim of common law fraud"), rev'd in part on other grounds, 318 S.W.3d 867 (Tex. 2010). 19
bargain damages are methods of measuring direct actual damages 32 Economic
damages are measured the same way, and in fact courts often use the terms "economic damages" and "actual damages" interchangeably. 33 Thus, the jury charge set forth the correct kind of damages recoverable on a statutory fraud claim. To the extent that the terms are not interchangeable, Roustan was not harmed by the trial court's use of the term "economic damages" instead of "actual damages" because "actual damages" could have allowed for greater recovery in that "actual damages" can include both economic and non-economic dannages.34 In sum, out-of-pocket and benefit-of-the-bargain are both measures of "actual damages" and of "economic damages." In his reply brief, Roustan argues that a proper instruction on damages would have "set forth" the "out-of-pocket" and "benefit-of-the-bargain" measures. We construe Roustan's issue liberally to argue, not that the instruction failed to 32See Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817
(Tex. 1997) (stating that under the common law, actual damages can be either direct or consequential and that direct damages for misrepresentation may be measured as out-of-pocket or as benefit-of-the-bargain damages); Everett v. TK-
Taito, L.L.C., 178 S.W.3d 844, 858 (Tex. App.Fort Worth 2005, no pet.) (noting that "out-of-pocket" and "benefit-of-the-bargain" are the two common law measures of economic damages).
33See Matheus v. Sasser, 164 S.W.3d 453, 458 (Tex. App.Fort Worth 2005, no pet.) (noting that current version of the Deceptive Trade Practices Act provides for "economic damages," that the prior version called for "actual damages," and that we had found no case suggesting that the terms had any difference in meaning). 34See, e.g., Latham v. Castillo, 972 S.W.2d 66, 69 (Tex. 1998) (noting that mental anguish damages are actual damages recoverable at common law for some torts).
20
name the proper measure of damages recoverable, but that it failed to instruct
the jury on how to calculate those damages, that is, that the charge should have instructed the jury to determine either the difference between the value S&G paid and the value of what they received (out-of-pocket damages) or the difference between the value as represented and the value as received (benefit-of-thebargain damages).35 In the charge conference, Roustan's attorney objected to the damages question, stating that the measure of damages stated here is not one of the measures of damages for fraud recognized by Texas law. It just says the economic losses. And the proper definitions for fraud would be beneift of the bargain or out-of-pocket or one of the other recognized measures, and this is not one of them. [Emphasis added.] This objection was not sufficient to advise the trial court of Roustan's objection that the charge was defective for failing to instruct the jury how to calculate benefit-of-the-bargain damages and out-of-pocket damages. Roustan argued
only that economic losses were not a proper measure of fraud damages. Thus, to the extent that Roustan argues that the trial court should have instructed the jury on how to calculate the damages, he has not preserved the complaint. 36 To the extent that Roustan's reply brief merely repeats the argument from his original brief, the argument is overruled because "economic losses" are an
35 See Arthur Andersen, 945 S.W.2d at 817 (defining out-of-pocket and benefit-of-the-bargain damages). 36See Tex. R. App. P. 33.1. 21
appropriate measure of damages for the statutory fraud claim alleged. overrule Roustan's sixth issue. Conclusion
We
Having sustained Roustan's second issue, we reverse the part of the trial court's judgment awarding S&G damages on their breach of contract claim and render judgment that they take nothing on the breach of contract claim. affirm the remainder of the trial court's judgment. We
LEE ANN DAUPHINOT JUSTICE PANEL: DAUPHINOT, WALKER, and GABRIEL, JJ. GABRIEL, J. concurs without opinion. DELIVERED: September 29, 2011
22
Appendix
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SECOND CT OF APPEALS
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COURT OF APPEALS
SECOND DISTRICT OF TEXAS FORT WORTH NO. 02-09-00377-CV W. Graeme Roustan v. Michael Sanderson, Wife Ann Gainous, and Ridglea Entertainment, Inc. From the 342nd District Court of Tarrant County (342-223829-07) September 29, 2011 Opinion by Justice Dauphinot
JUDGMENT This court has considered the record on appeal in this case and holds that there was error in the trial court's judgment. It is ordered that the judgment of the trial court is affimned in patr and reversed in part. We reverse that portion of the trial court's judgment awarding Michael Sanderson, Wife Ann Gainous, and Ridglea Entertainment, Inc. damages on their breach of contract claim and render judgment that they take nothing on the breach of conrtact claim. We affirm the remainder of the trial court's judgment. It is further ordered that Appellant W. Graeme Roustan shall pay one-half of all costs of this appeal and Appellees Michael Sanderson, Wife Ann Gainous, and Ridglea Entertainment, Inc. shall jointly and severally pay one-half of all costs of this appeal, for which let execution issue. SECRND DISTRICT COURT OF APPEALS I 1
ppendix 5
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C Effective:[See Text Amendments] Vernon's Texas Statutes and Codes Annotated Currentness Business and Commerce Code (Refs & Annos) /K w Title 3. Insolvency, Fraudulent Transfers, and Fraud cw Chapter 27. Fraud 27.01. Fraud in Real Estate and Stock Transactions (a) Fraud in a transaction involving real estate or stock in a corporation or joint stock company consists of a
(1) false representation of a past or existing material fact, when the false representation is (A) made to a person for the purpose of inducing that person to enter into a contract; and (B) relied on by that person in entering into that contract; or
(2) false promise to do an act, when the false promise is (A) material; (B) made with the intention of not fulfilling it; (C) made to a person for the purpose of inducing that person to enter into a contract; and (D) relied on by that person in entering into that contract. (b) A person who makes a false representation or false promise commits the fraud described in Subsection (a) of this section and is liable to the person defrauded for actual damages. (c) A person who makes a false representation or false promise with actual awareness of the falsity thereof commits the fraud described in Subsection (a) of this section and is liable to the person defrauded for exemplary damages. Actual awareness may be inferred where objective manifestations indicate that a person acted with actual awareness.
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(d) A person who (1) has actual awareness of the falsity of a representation or promise made by another person and (2) fails to disclose the falsity of the representation or promise to the person defrauded, and (3) benefits from the false representation or promise commits the fraud described in Subsection (a) of this section and is liable to the person defrauded for exemplary damages. Actual awareness may be inferred where objective manifestations indicate that a person acted with actual awareness. (e) Any person who violates the provisions of this section shall be liable to the person defrauded for reasonable and necessary attorney's fees, expert witness fees, costs for copies of depositions, and costs of court.
CREDIT(S) Acts 1967, 60th Leg., vol. 2, p. 2343, ch. 785, 1. Amended by Acts 1983, 68th Leg., p. 5208, ch. 949, 1, 2, eff. Sept. 1, 1983. HISTORICAL AND STATUTORY NOTES 2009 Main Volume Acts 1983, 68th Leg., p. 5208, ch. 949, in subsec. (b), in the first sentence substituted "commits" for ", and a person who benefits from that false representation or false promise, commit" and "is" for "are jointly and severally" and deleted the former second sentence; in subsec. (c), in the first sentence deleted "wilfully", substituted "with actual awareness of the falsity thereof commits" for ", and a person who knowingly benefits from a false representation or false promise, commit" and "is" for "are", and deleted "not to exceed twice the amount of the actual damages" and added the second sentence; added subsecs. (d) and (e). The former second sentence of subsec. (6) read: "The measure of actual damages is the difference between the value of the real estate or stock as represented or promised, and its actual value in the condition in which it is delivered at the time of the contract." Sections 3 and 4 of Acts 1983, 68th Leg., p. 5208, ch. 949 provide: "Sec. 3. This Act applies to fraud if every element of the fraud occurred on or after the effective date of this Act. If an element of fraud occurred before the effective date [Sept. 1, 1983] of this Act, the fraud is governed by Section 27.01, Business & Commerce Code, as it existed before being amended by this Act, and that law is continued in effect for that purpose. "Sec. 4. The provisions of Section 27.01, Business & Commerce Code, as amended, and this Act do not abrogate or repeal any other laws relating to the rights, duties, obligations, or liabilities of principals and agents to one another or to third parties."
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FILED IN THE SUPREME COURT OF TEXAS 12 June 26 P1:45 BLAKE. A. HAWTHORNE CLERK
No. 12-0051
IN THE SUPREME COURT OF TEXAS W. GRAEME ROUSTAN, Petitioner, v. MICHAEL SANDERSON, WIFE ANN GAINOUS, AND RIDGLEA ENTERTAINMENT, INC., Respondents. On Petition for Review from the Second Court of Appeals, Fort Worth, Texas Court of Appeals No. 02-09-00377-CV REPLY TO RESPONSE TO PETITION FOR REVIEW
David E. Keltner State Bar No. 11249500 david.keltner@kellyhart.com Marianne M. Auld State Bar No. 01429910 marianne.auld@kellyhart.com John T. Wilson IV State Bar No. 24033344 john.wilson@kellyhart.com Kelly Hart & Hallman LLP 201 Main Street, Suite 2500 Fort Worth, Texas 76102 Telephone: (817) 332-2500 Telecopier: (817) 878-9280 COUNSEL FOR PETITIONER
TABLE OF CONTENTS Page INDEX OF AUTHORITIES .............................................................................................. iii INTRODUCTION ............................................................................................................... 1 REPLY POINTS.................................................................................................................. 2 I. II. III. A Fulfilled Promise is Not False and Cannot Support Statutory Fraud ................... 2 W. Graeme Roustan Did Not Make the Promise ..................................................... 5 This is Not a Case of Statutory Fraud ...................................................................... 6
PRAYER ............................................................................................................................. 8 CERTIFICATE OF SERVICE ............................................................................................ 9
Reply to Response to Petition for Review
Page ii
Bank One, Tex., N.A. v. Stewart, 967 S.W.2d 419 (Tex. App.Houston [14th Dist.] 1998, pet. denied).......................... 3, 4 Big Dog Logistics, Inc. v. Strategic Impact Corp., 312 S.W.3d 122 (Tex. App.Houston [14th Dist.] 2010, pet. denied).............................. 2 Burleson State Bank v. Plunkett, 27 S.W.3d 605 (Tex. App.Waco 2000, pet. denied) ....................................................... 7 Cunningham v. Zurich Am. Ins. Co., 352 S.W.3d 519 (Tex. App.Fort Worth 2011, pet. filed) ................................................ 2 Greenway Bank & Trust of Houston v. Smith, 679 S.W.2d 592 (Tex. App.Houston [1st Dist.] 1984, writ refd n.r.e.) ......................... 7 IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113 (Tex. App.Houston [14th Dist.] 2003, pet. denied).............................. 3 MCI Sales & Serv., Inc. v. Hinton, 329 S.W.3d 475 (Tex. 2010) ............................................................................................... 1 Reyna v. First Natl Bank of Edinburg, 55 S.W.3d 58 (Tex. App.Corpus Christi 2001, no pet.) .................................................. 3 Satterwhite v. Safeco Land Title of Tarrant, 853 S.W.2d 202 (Tex. App.Fort Worth 1993, writ denied) ............................................ 7 Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432 (Tex. 1986) ............................................................................................... 3 Thedford Crossing, L.P. v. Tyler Rose Nursery, Inc., 306 S.W.3d 860 (Tex. App.Tyler 2010, pet. denied) ...................................................... 2 Westcliff Co. v. Wall, 153 Tex. 271, 267 S.W.2d 544 (1954) ................................................................................ 7 Rules and Statutes Tex. Bus. & Com. Code Ann. 27.01 ................................................................................ 1
Page iii
INTRODUCTION Respondents convinced the court of appeals to expand the boundaries of Texas Business and Commerce Code 27.01s statutory fraud cause of action to a most unusual and unwise conclusion, allowing a fraud recovery on (1) a promise made by another and (2) a promise found to be fulfilled. The promise to make a $150,000 capital contribution was made by Roustan, Inc. not by W. Graeme Roustan. Moreover, the jury found that the capital contribution promise was kept. What, then, is the basis for fraud and damages? Respondents say the fraud is that, while Mr. Roustan made the payment in cash, he did so with borrowed funds.1 They say it makes no difference that their business received the promised cash and that neither they nor their business was liable on the note. Under Respondents theory of section 27.01, if a potential homebuyer notifies the seller that he will pay in cash and actually tenders the agreed amount in cash, the homebuyer can be held liable for statutory fraud if he obtains from a third party the money that he uses to make the payment. The statute does not permit and the Texas Legislature did not intend this result. Indeed, this result is directly contrary to the fundamental tenant of tort law that a defendant is liable only for his own injury causing conduct. MCI Sales & Serv., Inc. v. Hinton, 329 S.W.3d 475, 505 (Tex. 2010). Here, the judgment is against one who did not make the promise and is for damages that Respondents never incurred.
While this is the argument made by Respondents, it plainly misstates the facts. Mr. Roustan, individually, did not participate in the transactions. All actions were taken by Roustan, Inc., the entity that acquired the interest in Roustan Ridglea, LLC and that made the promise to contribute capital.
Reply to Response to Petition for Review Page 1
1
Equally important, this is not a case of statutory fraud. The transaction was a sale of business assets rather than a sale of real estate or stock; the fact that the businesss assets happened to include a lease of real property was entirely incidental to the transaction. Indeed, it is undisputed that the alleged fraud had nothing to do with the lease. Nonetheless, Respondents spend the majority of their response suggesting that Petitioners position is that section 27.01 does not apply to leases of real estate. That is simply not true. The problem with Respondents statutory fraud action is not that it deals with a lease, but that the lease has little to do with the transaction and nothing to do with the alleged fraud. The issues in this Petition are important both to W. Graeme Roustan and to the jurisprudence of the State. The judgment brands a well-respected businessman with fraud, even though the promise made by another entity was more than fulfilled. This slur on his reputation was accomplished only by an expansion of section 27.01 so far past the statutes plain meaning that it does damage to the statute. REPLY POINTS I. A Fulfilled Promise is Not False and Cannot Support Statutory Fraud. Respondents offer no authority that a fulfilled promise can be a false promise to support a finding of statutory fraud. Instead, Texas law reveals the opposite to be true. See e.g., Thedford Crossing, L.P. v. Tyler Rose Nursery, Inc., 306 S.W.3d 860, 872 (Tex. App.Tyler 2010, pet. denied); Big Dog Logistics, Inc. v. Strategic Impact Corp., 312 S.W.3d 122, 138-39 (Tex. App.Houston [14th Dist.] 2010, pet. denied); Cunningham v. Zurich Am. Ins. Co., 352 S.W.3d 519, 527 (Tex. App.Fort Worth 2011, pet. filed).
Page 2
Although intent to perform is determined as of the time the promise is made, intent may be inferred from the partys subsequent acts.2 Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986). It has thus been held that even partial performance of a promise will negate an intent not to keep the promise at the time it was made. IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113, 124 (Tex. App.Houston [14th Dist.] 2003, pet. denied). For instance, in Reyna v. First National Bank, Reyna and First National Bank entered into an agreement for the installation of a computer system for FNB. 55 S.W.3d 58, 63 (Tex. App.Corpus Christi 2001, no pet.). Reyna was to acquire and install the equipment, and FNB was to pay the vendor of the equipment directly. Id. When FNB did not timely make payment, Reyna brought common law fraud claims against the bank. The court granted summary judgment on the fraud claim because FNB had tendered a partial payment of $90,000, holding that FNB negated any claim that they had no intention of paying. Id. at 68. Likewise, in Bank One, Texas, N.A. v. Stewart, Midland Associates, a joint venture, executed a $9 million promissory note. 967 S.W.2d 419, 446 (Tex. App. Houston [14th Dist.] 1998, pet. denied). For five years, Midland Associates made
payments on the note, but then defaulted. Id. at 427-28. The court submitted a common law fraud question to the jury, which was decided against Midland Associates. On
2
Mr. Roustan disagrees with Respondents argument that the court of appeals correctly applied Spoljaric. [Resp. at 4] Spoljaric holds that failure to perform, standing alone, is no evidence of the promissors intent not to perform when the promise was made, but may be considered along with other facts showing intent. 708 S.W.2d at 435. In Spoljaric, the promissor failed to make any performance, and other evidence demonstrated his intent not to perform when the promise was made.
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appeal, the court held that because Midland Associates initially performed on the Midland Note, we find no probative evidence to support the jurys finding that Trendmaker and Weyerhaeuser executed the Midland Note and Letter Guaranty with no intent to perform. Id. at 446. The principle that a fulfilled (and even a partially fulfilled) promise is not false and cannot support a fraud is axiomatic. It is particularly true when, as here, the fulfilled false promise did not cause any injury to the promisee. While claiming that the flaw in Petitioners argument is apparent on its face, Respondents fail to point out that flaw. They further fail to demonstrate (1) why the fulfilled promise should support the fraud, or (2) how they were injured by the method in which Roustan, Inc. acquired the capital contribution. In truth, they are unable to answer the rhetorical question they pose: What difference does it make where I get the money from as long as I get it. [Resp. at 5] The answer, of course, is that it makes no difference to Respondents since they received all of the money they were promised, and only Roustan, Inc. incurred an obligation to repay the loan it undertook in order to obtain the funds with which to pay Respondents. Contrary to the court of appeals analysis, the record reflects, and the jury found, that Roustan, Inc. contributed over $150,000 (actually $235,000) to Roustan Ridglea, LLC. [3 RR 129-42] Roustan, Inc. borrowed $200,000 in its own name. [3 RR 136] Roustan Ridglea, LLC was not liable on the note. [Id.] Based on this undisputed evidence, the jury found the promise to contribute $150,000 to Roustan Ridglea, LLC fulfilled. [CR 34]
Page 4
Because Roustan, Inc. fulfilled the promise, the statutory fraud finding cannot stand. II. W. Graeme Roustan Did Not Make the Promise. Respondents acknowledge that [s]ufficient evidence shows that the Petitioner met his obligation to make a capital contribution, yet they claim that at the same time [Mr. Roustan] violated his promise to Respondents that he would and could make that contribution from his personal funds.3 [Resp. at 1] Their argument misses the mark and fails to address the appropriate issue. Although there is legally insufficient evidence to support the jurys finding that he personally made a promise to contribute $150,000, Mr. Roustan did not challenge that finding below, given the jurys finding that the promise was fulfilled. In fact, it was not until the court of appeals issued its erroneous opinion holding Mr. Roustan liable for statutory fraud based upon this fulfilled promise that the finding became material. Nonetheless, it is curious that Respondents claim [i]t is clear from the record that Mr. Roustan personally made a promise, without citing to the record. [Resp. at 4] The record reflects otherwise. First, the documentary evidence reveals that it was Roustan, Inc., not Mr. Roustan, that was obligated to make a capital contribution. This is reflected in the Operating Agreement. [DX-21 at 1, 5, 28] Moreover, Mr. Roustan testified at trial that Roustan, Inc. was obligated to make, and in fact did make, the $150,000 capital contribution. [3 RR 129]
3
Again, Mr. Roustan did not make the promise.

Page 5
Respondents own testimony confirmed this fact. For instance, with respect to the $20,000 payment, Gainous testified: Q A And, in fact, that was given by Mr. Roustans company to your old company, Ridglea Entertainment, correct? Correct.
[2 RR 35] She also testified: Q Now, would you agree with me that in this operating agreement, the only obligation of Mr. Roustans company was to pay the $150,000 as far as cash into the company? Yes, it appears that way.
A [2 RR 38]
Likewise, Sanderson knew from emails with Mr. Roustan during the negotiation stage that Mr. Roustan had two partners with whom he had to consult before the company could contribute any money. [2 RR 165; DX-8] Even Appellees Brief in the court of appeals provides: Roustan Inc. was supposed to contribute $130,000.00 as a capital contribution in addition to $20,000.00 previously advanced by Graeme Roustan in return for the 65%. [Appee Br. at 4] The evidence is therefore clear that Mr. Roustan, individually, never made, and cannot be held liable for, such a promise. III. This is Not a Case of Statutory Fraud. Respondents fail to grasp Mr. Roustans argument that statutory fraud does not apply in this case. In fact, in attempting to establish that statutory fraud can apply in a lease transaction, they have not cited a single authority contrary to Mr. Roustans position. Mr. Roustan is not arguing that statutory fraud cannot apply to lease
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transactions in certain instances. However, it cannot apply where the lease is merely incidental to another transaction. The problem with applying statutory fraud to these facts is emphasized by the fact that the alleged misrepresentation in no way relates to the real estate.4 Section 27.01, the statutory fraud statute, is penal in nature and must be strictly construed. Westcliff Co. v. Wall, 153 Tex. 271, 267 S.W.2d 544, 546 (1954). For this reason, courts have refused to apply statutory fraud to situations where the real estate was merely incidental to the transaction. See Burleson State Bank v. Plunkett, 27 S.W.3d 605, 611 (Tex. App.Waco 2000, pet. denied) (statutory fraud does not apply to loan transactions, even construction loans secured by land); Satterwhite v. Safeco Land Title of Tarrant, 853 S.W.2d 202, 205 (Tex. App.Fort Worth 1993, writ denied) (statutory fraud does not apply to title insurance transactions); Greenway Bank & Trust of Houston v. Smith, 679 S.W.2d 592, 596 (Tex. App.Houston [1st Dist.] 1984, writ refd n.r.e.) (statutory fraud does not apply to guaranty agreements secured by real estate or to a party who merely loaned money for the purchase of real estate). Here, the transfer of the real estate interest was completely unrelated to the alleged misrepresentation by Mr. Roustan. transactions.
4
In fact, the events occurred in two separate
The promise, if any, was made in conjunction with Roustan, Inc.s
Specifically, the lease, under which Gainous was the tenant, was assigned by Gainous to Roustan Ridglea, LLC, the entity in which both Roustan, Inc. and Respondents would own interests and that would run the skating rink on August 1, 2005. [PX-1; PX-3] The instrument used to transfer the lease was the Agreement for Purchase and Sale of Leasehold Interest in Real Property, Business, and Attendant Personal Property, referred to as the Purchase Agreement in Mr. Roustans Petition. [PX-3] At the same time, the parties executed the Roustan Ridglea LLC Operating Agreement, referred to as the Operating Agreement, which contains the promise by Roustan, Inc. to make a capital contribution. [DX-21]
acquisition of an interest in Roustan Ridglea, LLC. [DX-21] Separate and apart from that promise was Gainouss assignment of the lease to Roustan Ridglea, LLC. [PX-3] The paper-thin connection to statutory fraud was that the assets of Roustan Ridglea, LLC, into which Roustan, Inc. was buying, incidentally included a lease of an ice-skating rink. By applying statutory fraud in this case, the court of appeals is in conflict with its own earlier opinions, as well as opinions of other courts of appeals, which properly have taken a more restrictive view of the statute. PRAYER Petitioner W. Graeme Roustan respectfully requests that this Court (1) grant this Petition for Review, (2) reverse in part the judgment of the court of appeals, and (3) render judgment that Respondents take nothing from Petitioner. Alternatively, Mr.
Roustan requests a remand to correct the errors of law committed by the court of appeals. Respectfully submitted, /s/ David Keltner David E. Keltner State Bar No. 11249500 david.keltner@kellyhart.com Marianne M. Auld State Bar No. 01429910 marianne.auld@kellyhart.com John T. Wilson IV State Bar No. 24033344 john.wilson@kellyhart.com Kelly Hart & Hallman LLP 201 Main Street, Suite 2500 Fort Worth, Texas 76102 Telephone: (817) 332-2500 Telecopier: (817) 878-9280 COUNSEL FOR PETITIONER
CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the above and foregoing document has been served upon Respondents counsel via electronic filing service on June 26, 2012: Via Electronic Filing: Kirk Claunch Jim Claunch 2912 West 6th Street Fort Worth, Texas 76107 /s/ David Keltner David E. Keltner
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FILED IN THE SUPREME COURT OF TEXAS 12 November 15 P3:18 BLAKE. A. HAWTHORNE CLERK
NO. 12-0051
========================================================== IN THE SUPREME COURT OF TEXAS ==========================================================
W. GRAEME ROUSTAN, Petitioner, v. MICHAEL SANDERSON, WIFE ANN GAINOUS, AND RIDGLEA ENTERTAINMENT, INC., Respondents =============================================================== On Petition for Review from the Second Court of Appeals, Fort Worth, Texas Court of Appeals No. 02-09-00377-CV =============================================================== RESPONDENTS BRIEF ON THE MERITS ===============================================================
Kirk Claunch State Bar No. 04326075 Jim Claunch State Bar No. 04326000 THE CLAUNCH LAW FIRM 2912 West 6th Street Fort Worth, Texas 76107 817-335-4003 817-335-7112 fax COUNSEL FOR RESPONDENTS
TABLE OF CONTENTS Page INDEX OF AUTHORITIES iii REPLY ISSUES .. iv PRELIMINARY STATEMENT 1 STATEMENT OF FACTS.... 1 SUMMARY OF THE ARGUMENT.... 8 ARGUMENT AND AUTHORITIES 10 I. II. III. IV. THE PETITIONER DID NOT FULFILL HIS PROMISE AND COMMITTED STATUTORY FRAUD THERE IS EVIDENCE OF A FALSE PROMISE THE PETITIONER DID NOT RAISE HIS THIRD POINT OF ERROR TO THE COURT OF APPEALS THIS IS A CASE OF STATUTORY FRAUD
CONCLUSION and PRAYER ..... 18 CERTIFICATE OF SERVICE ..... 18
Respondents Brief on the Merits
ii
Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 775 (Tex. 2009). 12 Baber v. Pioneer Concrete of Texas, 919 S.W.2d 664 (Tex. App. Fort Worth 1995)... 17 Beckham v. Mantle, 13-09-00083-CV (Tex.App. Corpus Christi, 2010) 17 Edwards v. Strong, 213 S.W.2d 979, 980 (Tex. 1948). 14 F.A. Hubacek v. Ennis State Bank, 325 S.W.2d 124, 125-126 (Tex. 1959).. 15 Lott v. Lott, 370 S.W.2d 463 (Tex. 1963)..... 14 Prudential Ins. v. Italian Cowboy, 270 S.W.3d 192 (Tex. App. [11th] 2005) 17 Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986) 12 Swanson v. Schlumberger, 895 S.W.2d 719 (Tex.App. Texarkana 1994).... 17 Wise v. Pena, 552 S.W.2d 196, 202 (Tex.App. Corpus Christi 1977, writ dismd)...16, 17 Rules and Statutes Tex. Bus. & Com. Code 27.01. 9, 15, 16 17 Tex. Bus. & Com. Code 27.01(a)... 16 Tex. Bus. & Com. Code 27.01 (e)... 18 Texas Occ. Code 1101.022 (5).. 9, 16
iii
REPLY ISSUES The Respondent addresses the two issues presented by the Petitioners.
iv
PRELIMINARY STATEMENT The Petitioner has submitted a preliminary statement which attacks the reasoning of the Court of Appeals in upholding the jury verdict finding the Petitioner committed statutory fraud. The Petitioner is asking this Court to re-evaluate factual issues that were exhaustively analyzed by the Court of Appeals which found sufficient evidence to uphold the jury verdict. Further, the Petitioner is asking this Court to review for the first time the issue of whether he made the false promise which is the basis of the statutory fraud in his personal capacity. This is an issue that the Petitioner chose not to raise to the Court of Appeals. Finally, the Petitioner attempts to argue that the Court of Appeals grossly misapplied the law with respect to statutory fraud because the promise upon which the statutory fraud claim was premised actually was fulfilled. That is not the case here. Again the Court of Appeals carefully analyzed the facts and evidence and found that the promise was not fulfilled because the promise was for more than just a capital contribution. The promise was that the capital contribution would be made from personal funds. The Petitioner broke that promise by making his capital contribution from a loan instead.
STATEMENT OF FACTS
Michael Sanderson had twenty plus years experience in the ice skating business and had a dream of opening an ice rink of his own. (RR Vol. 2, 7:7-11). Michael had started working at the ice rink at the Tandy Center in Fort Worth as a young man and
1
spent twenty years working there in various positions, including general manager of the business. (RR Vol. 2, 86: 18-25). In 2004, Michael Sanderson and his wife Ann Gainous Sanderson found an ice rink located on the Benbrook Circle in Fort Worth that had ceased operations. (RR Vol. 2, 8:1-10) Ann signed a lease in November, 2004 (RR Vol. 2, 10:17) for the ice rink property.1 Although the Sandersons were told the refrigeration equipment was in good working order, the equipment ultimately would not make sufficient ice for a skating rink. (RR Vol. 2, 11:5 12:6). Eventually they were able to open for business in December 2004 (RR Vol. 2, 12:6 -23). However, when the weather got warmer in March, 2005, the refrigeration equipment couldnt keep the ice frozen and, due to the wet ice, the Sandersons had to shut down the ice skating rink. (RR Vol. 2, 13:14-14:12). After replacing compressors and completing lots of trouble shooting, the problem was found at the end of May 2005 to be the chiller barrel, and the business opened again at the end of June (RR Vol. 2, 14:1 15:22).2 In January, 2005 the Sandersons had been contacted by Graeme Roustan who expressed an interest in buying into their business. At that point the Sandersons were not interested. (RR Vol. 2, 17:23 18:7) They believed that the equipment issues had been solved and felt the business would be successful. (RR Vol. 2, 104:9-17) After they experienced subsequent equipment problems in March 2005, the extended shut downs
A CPA had recommended that there might be some benefits to having the business owned by a female. (RR Vol 2, 92:1-9) The lease with YDIDI I, the landlord, became very contentious as to what the representations were by YDIDI I as to the equipment, the amount in repairs for which YDIDI I should be responsible and the communications between YDIDI I and Roustan while YDIDI I was preparing to evict the Sandersons; however, YDIDI I settled with the Plaintiffs before trial so those details are not covered in any detail. Respondents Brief on the Merits
2 1
and the expenditure of additional funds, the Sandersons attitude changed and Michael Sanderson contacted Roustan at the end of April, 2005. (RR Vol. 2, 18:2-16). Graeme Roustan invited the Sandersons to a meeting in Las Vegas where he put on a power point presentation which referenced the facilities Roustan supposedly owned, plus more he planned to acquire in 2007, and up to 40 facilities by 2008. The Sanderson were impressed. (RR Vol. 2, 107:2 -22). The Sandersons believed Roustan when he told them about his vast holdings and his ability to purchase all the additional ice rink facilities (RR Vol. 2, 107:9 108:7). Roustan was aware at that time of the equipment and ice problems at the Benbrook ice rink because he had provided an engineer to help with the problems before the Las Vegas meeting. (RR Vol. 2, 110:13 111:4) In addition to his financial strength, Roustan represented he would supply to the Fort Worth rink, through his other companies, his marketing services, bookkeeping services, web services and that he would make the equipment supplier he owned available to the Sandersons (RR Vol. 2, 22:15 -23:15). Ann characterized all of the benefits that Roustan represented he would provide as huge things that were out of the realm of what Michael and I could have been able to accomplish. (RR Vol. 2, 23:1-17) The Sandersons eventually entered into an agreement with Roustan whereby Anns lease with YDIDI I, the landlord, would be assigned to Roustan as well as the option to purchase the property (RR Vol. 2, 21:2-15). Ann retained the rights to the $30,000.00 security deposit, the right to sue the landlord for all the equipment problems and she remained liable to the landlord on the lease. (RR Vol. 2, 21:6-14). Roustan was
to pay Ann and Michael $75,000.00 for an assignment of the lease and the purchase of the business from Ridglea Entertainment, Inc. (the Sandersons company running the business), plus Ridglea Entertainment, Inc. was to receive 25% ownership in the new company to be set up by Roustan. (RR Vol. 2, 21:2-15). Thereafter, Roustan set up a new company called Roustan Ridglea, LLC and an operating agreement was entered into which provided that the Sandersons would own 25% and Roustan Inc. would own 65%. (RR Vol. 6, Defendants Exhibit 21) Roustan Inc. was supposed to contribute $130,000.00 as a capital contribution in addition to the $20,000.00 previously advanced by Graeme Roustan in return for the 65% interest. (RR Vol. 3, 129:1 132:25) Roustan testified that because he had obtained a loan for the new company, Roustan Ridglea, Inc. for which the new company was liable, that somehow excused the fact that he did not make his capital contribution (RR Vol. 3, 133:10 135:8). Roustan testified that in his mind there was no difference in a capital contribution to the new company and a promissory note which was owed by the new company. (RR Vol. 3, 135:3-8). The Sandersons were not told that Roustan was not funding his capital
contribution. The Sandersons had concerns about the infusion of capital and potential capital calls because the purchase price did not come close to offsetting the amount they had contributed. They spoke to Roustan about not being required to contribute additional capital during the first 12 months and such a provision was placed in the operating agreement. Roustan assured the Sandersons that he would personally fund whatever the
monetary requirements were at least during the first eleven months. (RR Vol. 3, 65:216). The purchase agreement between the parties was, thereafter, signed on August 1, 2005. (RR Vol. 2, 23:20-21). Throughout the negotiations with Roustan, it was understood that Roustan would pay the $75,000 cash portion of the purchase price up front. Right before the purchase agreement was signed, Roustan said it would help him to break the payment into two payments. (RR Vol. 2, 119:17-25). As it turned out, when the Sandersons got the written purchase agreement, Roustan had provided that the second $37,500 was to be paid by the new company, Roustan Ridglea, of which the Sandersons company was to be part owner. Michael Sanderson had understood that Roustan would be individually paying the entire $75,000. (RR Vol. 2, 120:8-121:3) Of course, as noted above, Roustan had told the Sandersons he would personally cover any shortfalls in the monetary requirement during the first 12 months. In the spring of 2006, problems arose when Roustan wrongfully failed to pay the utility bills.3 In order to keep the rink open, the Sandersons paid utility bills to the electric company, to the gas company, advertising bills, etc. The total for all of these critical expenses was $75,763. (RR Vol. 2, 26:1-29:25). When the agreement was entered into by the parties the Sandersons understood that Roustan would be contributing $150,000 in a capital contribution, less the $20,000 that he had advanced prior to signing the agreement, and that a trust was advancing a
3
The agreements between the parties provided Roustan would assume liability for and transfer the utility bills out of Ann Gainouss name. That did not occur. (RR. Vol. 2, 24:22-25:6).
loan to the new company in the amount of $200,000. The total cash available to the new company would be $330,000. (RR Vol. 2, 125: 1 126: 29). Had those monies actually been funded by Roustan there would never have been a shortfall in funds needed to pay bills in 2006. (RR Vol. 2, 126:5-11). Based on Michael Sandersons review of the Quickbooks records produced by Roustan in this litigation, that money was never funded. (RR Vol. 2, 125:15 126: 4). Despite the problems with the bills not being paid, when Michael Sanderson emailed Roustan in April 2006 to inquire as to whether Roustan wished to exercise the option to renew the lease beyond the November 1, 2006 expiration date, Roustan responded that he did want to exercise the option to extend the lease. (RR Vol. 2, 134:113). When Michael Sanderson asked Rouston about getting reimbursed for the bills he and Ann were paying out of their pocket, and the $37,500 they were owed on the purchase price, Roustan told Michael that he was about to purchase the property, that he had submitted the paperwork for the loan, that he had established a line of credit with GE Capital and that he was going to use that credit line to put an infusion of capital into the facilities. But that never happened. (RR Vol. 2, 138: 5-12). In September of 2006, the electricity was shut off for failure to pay the bill, and the Sandersons had to pay a two-months delinquent electric bill for $22,000 to get the electricity turned back on. (RR Vol. 2, 135: 5-7). Also in September the Sandersons received a notice that there were insufficient funds to meet payroll obligations. (RR Vol. 2, 137:12-15). Sometime around the end of September, the Sandersons notified Roustan
that since bills were not getting paid and they were not getting reimbursed for the bills they had paid, they were going to take the revenue from ice rink and deposit it in the bank account of their company, Ridglea Entertainment, Inc. (RR Vol. 2, 141:9-17). The Sandersons paid the $8,000 monthly rent due in October and November and notified the landlord, YDIDI I, that they, not Roustan, would be paying the rent. After accepting the October and November rent, YDIDI I notified the Sandersons that the lease was in default because the September rent had not been paid. The Sandersons assumed Roustan had paid the September rent at the beginning of September because the on-line version of Quickbooks they could look at showed its payment. (RR Vol. 3, 33:5-34:1)4 When the Sandersons received notice that the September rent had not been paid, they sent a check to YDIDI I by Federal Express. YDIDI I held the check and proceeded to evict the Sandersons from the ice rink. (RR Vol. 2, 142:2-25) At this time, unbeknownst to the Sandersons, Roustan was communicating with Melinda Collins (also know by her married name, Melinda de la Isla) a principal in YDIDI I, the landlord of the rink. Roustan sent her an email stating Hi Melinda, from what I hear Mike is having trouble getting an insurance certificate for Ridglea Entertainment, Inc. If your lawyer demands to see one in five days, he may not be able to get one and will be in default, even though my policy is still in effect. Im pretty certain he will come up with the September rent and December rent. Just a thought, Graeme. (RR Vol. 3, 175: 20-25).
The Sandersons could look at an online version of Quickbooks that Roustan maintained but could not print a report or make entries. (RR Vol. 3, 57:11-17)
4
When asked at trial if the email is suggesting to Melinda Collins how YDIDI can find the Sandersons in default on the lease, Roustan responded Yes, absolutely. (RR Vol. 3, 176:2-5). Roustan also confirmed that in this period of time his lawyer was negotiating with YDIDI for a new lease and new purchase option for a new company. (RR Vol. 3, 179:11-15) On December 18, 2006 Roustan incorporated a new corporation with the Texas Secretary of State named Roustan Fort Worth, LLC. The registered address of the corporation is the same address as the ice rink on Benbrook Circle. (RR Plaintiffs Exhibit 27). A day after the Sandersons were evicted and excluded from the rink, the facility was back in business under the management of Firland Management LLC, (RR Vol. 2, 144:10-21). Roustan listed Firland Management on a web site as a strategic partner of the Roustan companies. (RR Vol. 3, 184:6-23).5
SUMMARY OF THE ARGUMENT The jury found that W. Graeme Roustan committed statutory fraud against Michael Sanderson, Ann Gainous, and Ridglea Entertainment, Inc. in response to Question 6a of the Courts charge.
Firland Management was an original defendant in this lawsuit but settled before trial.
The jury found in answer to questions 6a of the Courts Charge that W. Graeme Roustan committed statutory fraud against the Plaintiffs and they should recover damages in the amount of $50,000.00 from W. Graeme Roustan. Roustan clearly made a false promise that he never intended to perform when he promised to make a capital contribution from personal funds in the amount of $150,000 as part of a purchase agreement of an ice rink that concerned the assignment of a lease with an option to buy. The Court of Appeals made an exceedingly thorough factual analysis to conclude that Roustan committed statutory fraud by not fulfilling his promise to make a capital contribution from personal funds even though he fulfilled a contractural obligation to do so by means of a loan. Further, Roustan now improperly attempts to raise a completely new argument which he chose not to address to the Court of Appeals, namely that the false promise was not made in his individual capacity. This new argument has been waived and should not be considered by this Court. Finally, Tex. Bus. & Com. Code Ann. 27.01 is applicable to the present case wherein Roustan made a false promise to the Sandersons while entering into a contract to purchase the assets of Ridglea Agreement LLC. The assets included the lease of an ice rink with an option to purchase the ice rink. Assets is a term broad enough to cover all of any form of ownership of Ridglea Agreement LLC. The terms, real estate, stock in a corporation or stock in a joint-stock company, Tex. Bus. & Com. Code 27.01, are not defined in 27.01. However, the term real estate is defined in the Texas Occupation Code, under the Real Estate License Act, as follows:
any interest in real property, including a leasehold located in or outside of Texas. Tex. Occ. Code 1101.002 (5). A real estate transaction which includes a lease with an option to buy is clearly within the scope and intent of the statutory fraud statute and is consistent with existing case law. ARGUMENT & AUTHORITIES REPLY TO POINT 1: THE PETITIONER DID NOT FULFILL HIS PROMISE AND COMMITTED STATUTORY FRAUD The Court of Appeals correctly held that Roustan committed statutory fraud when he did not fulfill his promise to make a $150,000 capital contribution from personal funds. Roustan argues that the promise to provide the capital contribution was fulfilled based upon the jurys finding that the $150,000 capital contribution was paid from a loan. The Court of Appeals correctly reasoned that while the jury found that Roustan fulfilled the contractural promise, the promise was false for purposes of statutory fraud because the money was borrowed. [Opinion at 13-14] Roustan testified that because he had obtained a loan for the new company, for which the new company was liable, that somehow excused the fact that he did not make his capital contribution (RR Vol. 3, 133:10 135:8). Roustan testified that, in his mind, there was no difference in a capital contribution to the new company and a promissory note which was owed by the new company. (RR Vol. 3, 135:3-8). The Sandersons were not told that Roustan was not funding his capital contribution. Contrary to Petitioners argument, there is direct testimony from Roustan that he did not fulfill his promise to personally fund the $150,000.
10
Roustan attempts to argue that his promise to the Sandersons was simply one to make a capital contribution of $150,000. This ignores the fact his promise to the
Sandersons was for his contribution to be made from his personal funds. That was not done by Roustan. Instead, he made his capital contribution from a loan. Roustans promise to the Sandersons was not fulfilled. Accordingly, Roustans action supports the jurys finding of Statutory Fraud and a judgment in favor of the Sandersons on that point. REPLY TO POINT 2: THERE IS EVIDENCE OF A FALSE PROMISE The Court of Appeals correctly upheld the jury verdict that the Petitioner committed statutory fraud against the Respondents, finding that there was sufficient evidence to support that verdict. [Op. at 17] The Petitioner argues that Roustan did not make a false promise with the intent not to perform because a) there is no evidence that Mr. Roustan made a false promise; b) there is no evidence of an intent not to perform and c) the promise was not material and did not cause any injury. Roustan also argues that the Court of Appeals fraud analysis is flawed and conflicts with the jury verdict. Roustan did not argue in the Court of Appeals that the promise to provide funding out of his own funds or his businesss was not material. Further, he did not argue to the Court of Appeals that the evidence was not sufficient to show that the Sandersons relied on the promise or to show that the promise was made to induce them to sign the purchase and sale agreement and the assignments. As a result, the Court of Appeals did not have the opportunity to address the sufficiency of the evidence as to those elements of the Sandersons claims, and Petitioner has waived those newly urged arguments. [Op. at 14]
11
The Petitioner here is simply attempting to retry a fact issue that was properly decided by the jury and that underwent a careful and thoughtful analysis by the Court of Appeals, both of whom reached the conclusion that there is sufficient evidence to support the jurys verdict. With respect to any claim that there is no evidence that Mr. Roustan made a false promise, the Court of Appeals correctly applied this Courts analysis in Spoljaric v. Percival Tours, Inc., which holds that circumstantial evidence may be used to establish that, when making a promise, the party had no intention to perform. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986). [Op. at 13] Further, the Court of Appeals also correctly applied this Courts opinion in Aquaplex, Inc. v. Rancho La Valencia, Inc. in its analysis, which holds that a partys intent is determined at the time the party made the representation, [but] it may be inferred from the partys subsequent acts after the representation is made. Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 775 (Tex. 2009)(quoting Spoljaric, 708 S.W.2d at 434). [Op. at 13] It is clear from the record, as reflected in the Court of Appeals opinion, that Roustan told Sanderson that he would pay $20,000 up front and then, after formulation of the LLC and the assignment of the lease, [he] would then provide an additional $130,000. [Emphasis added][Op. at 13] It is important to note that the Court of Appeals notes the fact that the Petitioner made [n]o mention of funding the business by taking out a loan. Neither the operating agreement nor the note attached to it indicated that the trust loan was not an additional source of funds and was instead the primary source of Roustans contribution to the LLC. [Op. at 13-14]
12
The Court of Appeals then correctly concludes that the evidence in the record was enough for the jury to conclude that Roustan told S&G that he could and would provide a capital contribution of $150,000, either with his own funds or with the financial resources of his business, but that he actually borrowed money on behalf of the LLC. The record therefore contains sufficient evidence that Roustan made a promise to S&G that went unfulfilled. [Op. at 13-14] The Petitioners argument that a false promise was not made is without merit. The Petitioners argument is better characterized as nothing more than an ex post facto excuse that goes: What difference does it make where I get the money from as long as I get it. The flaw in Petitioners argument is apparent on its face, and provides an easy explanation as to how the jury could find that the Petitioner met his obligation to make a capital contribution but at the same time violated his promise to the Respondents. There simply is no way around the fact that there is evidence the Petitioner individually made a promise to S&G that he personally could and would fund the company. [Op. at 14] That did not happen and both the jurys verdict and the decision of the Court of Appeals should be upheld. With regard to the Petitioners purported claim that there is no evidence of intent not to perform, the Court of Appeals made a thorough analysis into this subject and rightfully found that the jury could have concluded that Roustan never intended to make a capital contribution from his own funds or the funds of Roustan, Inc. and that he had always intended to fund the business by way of a debt that the LLC would have to repay. Accordingly, the jury could have found that Roustans borrowing money to fund the LLC
13
and making the LLC liable for the repayment satisfied Roustans obligation to make a capital contribution but at the same time violated his promise to S&G that he personally could and would fund the company. [Op. at 14] With regard to the meritless claim that the promise was not material, Roustan made no such argument to the Court of Appeals and that court chose not to address the sufficiency of the evidence as to those elements of the Sandersons claim. [Op. at 15] Accordingly, any such argument raised now for the first time is waived. A point not assigned as error in the Court of Appeals cannot be considered on review by the Supreme Court. Lott v. Lott, 370 S.W.2d 463, 465 (Tex. 1963); Edwards v. Strong, 213 S.W.2d 979, 980 (Tex. 1948).
REPLY TO POINT 3: THE PETITIONER DID NOT RAISE HIS THIRD POINT OF ERROR TO THE COURT OF APPEALS Roustan attempts to argue for the first time that he did not personally make a promise to make a capital contribution. Mr. Roustan did not challenge this finding in the Court of Appeals and raises this point for the first time now. The Sandersons would show that this point for purposes of review has been waived. A point not assigned as error in the Court of Appeals cannot be considered on review by the Supreme Court. Lott v. Lott, 370 S.W.2d 463, 465 (Tex. 1963); Edwards v. Strong, 213 S.W.2d 979, 980 (Tex. 1948). Regardless, the Court of Appeals made a thorough evaluation of the evidence in rendering its opinion. The Court of Appeals held that the evidence in the record was enough for the jury to conclude that Roustan told S&G that he could and would provide a
14
capital contribution of $150,000, either with his own funds or with the financial resources of his business. [Op. at 14] Under the same false premise that such a promise was not made in his personal capacity, Roustan now claims that there was no promise regarding the source of the capitial contribution. The Court of Appeals thoroughly analyzed this topic and their ruling should be upheld. In reviewing a judgment of a Court of Appeals, the Supreme Court must assume that concurring justices reached the conclusion they did only after weighing the evidence properly before them and with proper rules of law as their guide. F.A. Hubacek v. Ennis State Bank, 325 S.W.2d 124, 125-126 (Tex. 1959). The Court of Appeals held that the jury could have concluded that Roustan never intended to make a capital contribution from his own funds or the funds of Roustan, Inc. and that he had always intended to fund the business by way of a debt that the LLC would have to repay. Accordingly, the jury could have found that Roustans borrowing money to fund the LLC and making the LLC liable for the repayment satisfied Roustans obligation to make a capital contribution but at the same time violated his promise to S&G that he personally could and would fund the company. [Op. at 14] Roustan cannot raise a new issue to this Court that was not addressed to the Court of Appeals and the rulings of the Court of Appeals as to the sufficiency of evidence of the jury findings should be upheld.
REPLY TO POINT NO. 4: THIS IS A CASE OF STATUTORY FRAUD
Statutory Fraud is applicable to real estate transactions that involve a leasehold interest. The Petitioner argues otherwise. Simply stated, the Petitioner attempts to limit the application of Tex. Bus. & Comm. Code 27.01 to transactions involving the sale of
15
real estate only. That argument is an incorrect interpretation of the statute and is contrary to Texas case law. Further, Petitioner attempts to characterize the lease of the ice skating rink as merely incidental and as being a paper-thin connection to statutory fraud. This argument is wrong. The subject matter of this transaction concerned the ice skating rink which was secured by a leasehold interest held by the Sandersons. The transaction included the assignment of the lease. It is illogical to conclude that the lease was incidental to the statutory fraud when it was in fact indispensible to the fraud because the ice rink itself was the heart of the deal. The capital contribution by Roustan was consideration for the assignment of the lease of the rink which also included an option to buy the ice rink. Accordingly, there is a direct connection between the capital contribution and the lease assignment. Texas Bus. & Com. Code 27.01(a) applies to a transaction involving real estate or stock in a corporation or joint stock company. In the present case, the Petitioner made misrepresentations to the Respondents while entering into a contract to purchase the assets of Ridglea Agreement, LLC, which included the lease of the ice rink. The term real estate is not defined in Section 27.01 of the Texas Business and Commerce Code. However, the term real estate is defined under the Texas Occupations Code 1101.022 (5) as any interest in real property, including a leasehold located in or outside of Texas. This definition is consistent with Texas case law which clearly includes a leasehold as applicable under the provisions 27.01 of the Business and Commerce Code. In Wise v. Pena, the Corpus Christi Court of Appeals held that a claim based upon a leaseRespondents Brief on the Merits
16
purchase type of arrangementwas entitled to recovery under Section 27.01 Wise v. Pena, 552 S.W.2d 196, 202 (Tex.App. Corpus Christi 1977, writ dismd). There are several examples of cases alleging statutory fraud on the basis of a lease agreement that have appeared in Texas courts in which the parties did not dispute the application of statutory fraud to lease agreements involving real estate. In Prudential Ins. v. Italian Cowboy, 270 S.W.3d 192 (Tex. App. [11th] 2005)(reversed on other grounds), the parties did not dispute the application of statutory fraud where the underlying real estate transactions were lease agreements. . In Beckham v. Mantle, 13-09-00083-CV (Tex.App. Corpus Christi, 2010), the parties did not dispute the application of statutory fraud in a case involving the assignment of an interest in a mineral lease. . In Baber v. Pioneer Concrete of Texas, 919 S.W.2d 664 (Tex. App. Fort Worth 1995), the parties did not dispute the application of statutory fraud in a case involving leases to mine sand and gravel. . In a similar case in Swanson v. Schlumberger, 895 S.W.2d 719 (Tex.App. Texarkana 1994), it was undisputed by both parties that mineral interest would be treated as real estate for purposes of 27.01. . Clearly, leases of real estate should be included within the definition of transactions involving real estate as contemplated by 27.01. That is especially true in this case when the lease included an option to buy which Roustan clearly took steps to exercise. To limit the application of statutory fraud to transactions simply involving the sale of real estate would be an incorrect and needlessly narrow interpretation of 27.01, and would conflict with established Texas case law.
17
CONCLUSION and PRAYER Roustan clearly made a false promise that he never intended to perform that concerned the assignment of a lease with an option to buy. Further, Roustan now attempts to improperly raise new issues that were not addressed by the Court of Appeals, including that the false promise was not made in his individual capacity. This Court should refuse to consider Petitioners newly-raised issues. Respondents, Ann Gainous and Michael Sanderson respectfully request that this Court (1) deny the Petition for Review, (2) affirm the judgment of the Court of Appeals, and (3) render judgment that Petitioner should be assessed the additional attorneys fees of $7,500.00 awarded by the trial court and provided by Tex. Bus. & Com. Code 27.01(e). Respectfully submitted, THE CLAUNCH LAW FIRM 2912 West 6th Street Fort Worth, Texas 76107 817-335-4003 817-335-7112 fax By: /s/Kirk Claunch Kirk Claunch State Bar No. 04326075 Jim Claunch State Bar No. 04326000 Attorneys for Respondents
CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the above and foregoing has been served upon Petitioners counsel via electronic filing on November 15, 2012. /s/ Kirk Claunch Kirk Claunch
18
TAMES SEARCH - Supreme Court
12-11-16 6:04 PM
Case # 12-0051
Case Information:
Case Number: Date Filed: Case Type: Style: v.:
12-0051 01/17/2012 Petition for Review under Tex. R. App. P. 53.1 W. GRAEME ROUSTAN MICHAEL SANDERSON, WIFE ANN GAINOUS AND RIDGLEA ENTERTAINMENT, INC.
Appellate Briefs:
Date 11/15/2012 10/30/2012 06/26/2012 06/11/2012 01/17/2012 01/17/2012 Event Type Brief filed Brief filed Reply filed Response to Petition for Review filed Appendix Filed Petition for Review filed Description Respondent Petitioner Petitioner Respondent Petitioner Petitioner Remarks Response Brief on the Merits filed on behalf of Michael Sanderson, et al. Petitioner W. Graeme Roustan's Brief on the Merits. (HARD COPIES REC'D Reply in Support of Petition for Review filed on behalf of W. Graeme Roustan. (HARD COPIES REC'D) Response to Petition for Review filed on behalf of Michael Sanderson, et al. (HARD COPIES REC'D) Appendix attached. EFILED Petition for Review filed on behalf of W. Graeme Roustan. (HARD COPIES REC'D) [ PDF/2.18 MB ] Document [ PDF/406 KB ] [ PDF/195 KB ] [ PDF/153 KB ] [ PDF/442 KB ]
Case Events:
Date 11/15/2012 10/30/2012 Event Type Brief filed Brief filed Description Respondent Petitioner Disposition Remarks Response Brief on the Merits filed on behalf of Michael Sanderson, et al. Petitioner W. Graeme Roustan's Brief on the Merits. (HARD COPIES REC'D Filing granted Petitioner brief due 10/31/12; Response brief due 11/20/12; Reply brief due 12/05/12; FURTHER REQUESTS FOR EXTENSION OF TIME FOR THIS FILING WILL BE DISFAVORED. Unopposed Motion for Extension of Time to File Petitioner Brief on the Merits filed on behalf of W. Graeme Rouston. Clerk's record (1V), supp clk's record (1V), Record requestes from the 2nd COA Document [ PDF/406 KB ] [ PDF/195 KB ]
09/24/2012
Motion for Extension of Time disposed. Motion for extension of time to file brief. Case Record Filed Record Requested in Petition for Review Brief on the Merits Requested
Petitioner
NOTICE
[ PDF/152 KB ]
09/21/2012 09/12/2012 09/04/2012
Petitioner
[ PDF/37 KB ]
08/31/2012
Indicates filing of Petition for Review Petitioner Respondent Filing granted
Brief on the merits requested: Petitioner's brief due no later than 10/1/12; Response brief due 10/22/12; Reply brief due 11/6/12. Reply in Support of Petition for Review filed on behalf of W. Graeme Roustan. (HARD COPIES REC'D) Response to Petition for Review filed on behalf of Michael Sanderson, et al. (HARD COPIES REC'D) Motion for Extension of Time is granted. Requested Response is due June 22, 2012. FURTHER REQUESTS FOR EXTENSIONS OF TIME FOR THIS FILING WILL NOT BE CONSIDERED. Joint Motion for Extension of Time to file Response to Petition filed on behalf of Michael Sanderson, et al. Lead Counsel Notice submitted by Kirk Claunch, The Claunch Law Firm, 2912 W. 6th Street, Fort Worth, Texas 76107, Telephone: (817) 335-4003.
NOTICE
[ PDF/178 KB ]
06/26/2012 06/11/2012
Reply filed Response to Petition for Review filed Motion for Extension of Time to File Response disposed Motion for Extension of Time to File Response Designation of Lead Counsel
[ PDF/153 KB ] [ PDF/442 KB ]
05/22/2012
Respondent
[ DOC/98 KB ]
05/18/2012
Respondent
[ PDF/135 KB ]
05/18/2012
Respondent
[ PDF/135 KB ]
http://www.search.txcourts.gov/Case.aspx?caseid=3f91f94f-36e0-4624-8658-4c483354d23f&coa=cossup&p=1
Page 1 of 2

Telephone: (817) 335-4003. 04/16/2012 Motion for Extension of Time disposed. Motion for Extension of Time to File Response Supreme Court of Texas Requested Response Case forwarded to Court Appendix Filed Petition for Review filed Petitioner Petitioner Appendix attached. EFILED Petition for Review filed on behalf of W. Graeme Roustan. (HARD COPIES REC'D) ** See Remarks Filing granted Requested Response is due May 23, 2012. FURTHER REQUESTS FOR EXTENSIONS OF TIME FOR THIS FILING WILL BE DISFAVORED Unopposed Motion to Extension to file Response. On behalf of Michael Sanderson, et al.
12-11-16 6:04 PM
[ DOC/97 KB ]
04/13/2012
Respondent Indicates filing of Petition for Review
[ PDF/38 KB ]
03/23/2012
Requested response to petition for review due no later than 4/23/12.
[ DOC/98 KB ]
02/21/2012 01/17/2012 01/17/2012
[ PDF/2.18 MB ]
Calendars:
Set Date 02/21/2012 12/05/2012 Calendar Type Work-Up by Staff / Review by Justices Status Reason Set judicial review of petition for review Pet/Rel reply brief on the merits due Remarks Set by the Forward Matters process
Parties:
Party Sanderson, Michael PartyType Respondent Representative Mr. Kirk Matthew Claunch Mr. D. Nicholas Acuff Mr. Jim (James) Claunch Ms. Marianne M. Auld Mr. Ernest Walter Leonard Mr. David E. Keltner Mr. John Thomas Wilson IV
Roustan, W. Graeme
Petitioner
Court of Appeals Case Information:

COA Case Number: COA Disposition: Opinion Cite: Court of Appeals District:
02-09-00377-CV AFF/PT, REV/REND/PT ___ SW3d ___, 09-29-11 2nd Court of Appeals
Court of Appeals Judge:

Justice:
Honorable LeeAnn Dauphinot
Trial Court Information:

Trial Court: County: Trial Court Judge: Trial Court Case #: Trial Court Reporter: Punishment:
342nd District Court Tarrant Honorable Robert S. McGrath 342-223829-07
To view or print PDF files you must have the Adobe Acrobat reader. This software may be obtained without charge from Adobe. Download the reader from the Adobe Web site
http://www.search.txcourts.gov/Case.aspx?caseid=3f91f94f-36e0-4624-8658-4c483354d23f&coa=cossup&p=1
Page 2 of 2

Graeme Roustan - Ridglea Entertainment, Inc - History of W. Graeme Roustan Statutory Fraud Case in Texas

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Graeme Roustan - Ridglea Entertainment, Inc - History of W. Graeme Roustan Statutory Fraud Case in Texas

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W. GRAEME ROUSTAN v. MICHAEL SANDERSON, WIFE ANN GAINOUS AND REA ENTERTAINMENT, INC.

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APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

Court of Appeals of Texas, Waco.

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

APPELLANT v. APPELLEES, NO.020900377CV, September 30, 2011 - TX Court of Appeals | FindLaw

Counsel for Respondents:

Petition for Review

PRAYER ........................................................................................................................... 13 CERTIFICATE OF SERVICE.......................................................................................... 14

Petition for Review

INDEX OF AUTHORITIES Cases Page

Petition for Review

INDEX OF AUTHORITIES (cont.) Cases Page

Petition for Review

Trial Court Disposition:

Petition for Review

Petition for Review

Petition for Review

Petition for Review

Petition for Review

Petition for Review

Petition for Review

/s/ David Keltner David E. Keltner

Petition for Review

Petition for Review

N- THE DISTRICT COURT

ICIAL DISTRICT NO 342

TN TARRANT COUNTY, TEXAS

Courtsklinutes* Final Jud Transacti n

; Judge Bop McGrath

IN 1.EiE DISTRICT COURT

JUDICIAL DISTRICT NO. 342

IN TARRANT COUNTY, TEXAS

co LADIES AND G bi, il . EMEN OF THE JURX:

CHARGE OF THE COURT

Courts Minijtes I-.:1 Transaction #9y 01

avarWmakes.a material misrepresentation,

afalgtfatement of fact; or a stint-I:nen o ..o .prinon basedtaa a false statement of fact; or

a *tell:tent of opintoWthat the maker knows to be false; or