Response to Motion for Summary Judgment

Summary: In this case, Heygood, Orr & Pearson represented a boat dealership and the principal involved in the dealership in a dispute over an agreement to form a partnership with the owner of another boat dealership.  The new dealership was to sell high-performance “Cigarette” speedboats.  The defendant filed a motion for summary judgment on the plaintiffs’ claims.  The below brief was our firm’s response to the motion for summary judgment.  The summary judgment motion was defeated on behalf of our clients.

CAUSE NO. 05-07738
SKYLINE MARINE, L.L.C,

Plaintiff and Counter-Defendant,

vs.

EDDIE J. LOUDON and LOUDON
EXPLORATION, INC.,

Defendants, Counter-Plaintiffs,
And Third-Party Plaintiffs,

vs.

JOHN DOE, SKYLINE CAPITAL,
L.L.C. and BANK OF TEXAS, N.A.,

Third-Party Defendants.

IN THE DISTRICT COURT
DALLAS COUNTY, TEXAS
B-44TH JUDICIAL DISTRICT

PLAINTIFF SKYLINE MARINE, L.L.C.’S RESPONSE TO

DEFENDANTS’ EDDIE J. LOUDON AND LOUDON EXPLORATION, INC.’S

NO-EVIDENCE AND TRADITIONAL MOTION FOR SUMMARY JUDGMENT

Pursuant to Tex. R. Civ. P. 166a, Plaintiff Skyline Marine, L.L.C. (“Skyline Marine”) hereby files its Response to Defendants Eddie J. Loudon and Loudon Exploration, Inc.’s (“Loudon Exploration”) (collectively, “Loudon”) No-Evidence and Traditional Motion for Summary Judgment (“Motion for Summary Judgment”). In support thereof, Skyline Marine Respectfully States as follows:

I. PRELIMINARY STATEMENT

Loudon has moved for a no-evidence and traditional summary judgment on Skyline Marine’s causes of action against Loudon for breach of partnership agreement and fraudulent inducement and on Skyline Marine’s claim that Loudon Exploration is liable as an alter ego of Loudon. For the reasons discussed below, the Loudon’s motion should be denied in its entirety.

First, Loudon’s motion for summary judgment on Skyline Marine’s breach of partnership agreement claim should be denied because Skyline Marine has produced summary judgment evidence that: (1) Skyline Marine’s net contributions to the partnership exceeded Loudon’s net contributions; (2) Skyline Marine has provide evidence showing the net contributions of each partner; and (3) Loudon damaged Skyline Marine by failing to pay his 50% share of the partnership’s losses.

Second, Loudon’s no-evidence motion for summary judgment on Skyline Marine’s fraudulent inducement claim should be denied because Skyline Marine has produced summary judgment evidence supporting each element of that claim. Likewise, a traditional summary judgment on Skyline’s fraud claim is inappropriate because there are disputed issues of material fact.

Third, Loudon’s motion for summary judgment on Skyline Marine’s alter ego claim against Loudon Exploration should be denied because: (1) it is not necessary to plead every element of an alter ego claim to satisfy Texas’s liberal notice pleading standards; (2) even if Skyline Marine was required to plead the elements of alter ego, its alleged failure to plead every element is not grounds for summary judgment; and (3) Skyline has produced summary judgment evidence showing that: (i) Loudon Exploration was operated as a mere tool or business conduit of Loudon, (ii) there was such a unity between Loudon Exploration and Loudon that their separateness would result in injustice, and (iii) Loudon used Loudon Exploration to perpetrate a fraud on Skyline Marine.

II. SUMMARY JUDGMENT EVIDENCE

Skyline Marine submits the following summary judgment evidence in opposition to Loudon’s Motion for Summary Judgment: (1) the Affidavit of John Doe and supporting exhibits (Ex. A); and (2) the July 20, 2006 Deposition of John Doe and exhibits thereto (Ex. B).

III. DISPUTED ISSUES OF MATERIAL FACT

1. Loudon’s assertion: “In the spring of 2004, Loudon owned and operated a high performance powerboat dealership in Dallas, Texas. After nearly two years in the powerboat retail business, however, he determined that his dealership would, at best realize a meager annual profit. Therefore, Loudon began looking to wind down his dealership by no later than September 1, 2004. As early as May 2004, he informed his employees about his plans to close the dealership.” (Mot. for Summ. J. at 3.)

Disputed facts. During John Doe’s (“Doe”) initial discussions with Loudon in late June and early July 2004, Loudon did not say anything about the possibility of winding down his two powerboat dealerships (the “Loudon Dealerships”). Instead, Loudon indicated that he was thinking about selling the dealerships or bringing in a partner. (Aff. of John Doe (“Doe Aff.”) ¶ 11 (Ex. A); Dep. of John Doe (“Doe Dep.”) Vol. 1 (Ex. B) at 19:25-20:13, 21:1-11, 23:18-22, 23:25-24:6.)

2. Loudon’s assertion: “At about this time, Loudon was introduced to Doe who proposed that he and Loudon form a 50/50 partnership to develop and operate a new high performance boat dealership.” (Mot. for Summ. J. at 3.)

Disputed facts: During Doe’s initial discussions with Loudon in late June and early July 2004, Doe did not make the initial proposal to form a partnership. Loudon made the initial proposal. During the discussions that followed, Skyline Marine and Loudon agreed to form a 50/50 partnership known as the Performance Group to develop a powerboat dealership. (Doe Aff. (Ex. A) ¶ 12; Doe Dep. Vol. 1 (Ex. B) at 21:15-22:8, 23:25-25:1.)

3. Loudon’s assertion: “During their initial discussions, Loudon provided Doe with all of his dealership’s financial information, which Doe reviewed.” (Mot. for Summ. J. at 3.)

Disputed Facts: The financial information Loudon provided to Skyline Marine about the Loudon Dealerships was incomplete and inaccurate. Specifically, the information failed to disclose that the Loudon Dealerships had sold boats without paying them off. (Doe Aff. ¶ 16.) On October 20, 2004, Doe received an email from Janet Thomas (“Thomas”), Loudon’s bookkeeper, indicating that Loudon had failed to pay off $814,355.92 in loans on eight boats that the Loudon Dealerships had sold. (Id.; Ex. 2 to Doe Aff.; Ex. 20 to Doe Dep.) Loudon also failed to disclose that, as result of his failure to pay off $814,355.92 in loans on eight boats that the Loudon Dealerships had sold, the $1.5 million in certificates of deposit that Loudon claimed were available to fund or collateralize loan for the Performance Group could not be pledged and were in danger of being lost. (Id. ¶ 17.)

4. Loudon’s assertion: “Loudon also informed Doe that the dealership was losing money and would be hard pressed to break even by Labor Day—the end of the 2004 boating season.” (Mot. for Summ. J. at 3-4.)

Disputed facts: In 2004, Loudon operated two powerboat dealerships in Dallas, Texas: (1) Fountain of North Texas (“FNT”) and (2) International Boating Center (“IBC”). (Doe Aff. (Ex. A) ¶ 2.) Skyline Marine was only interested in the Fountain portion of Loudon’s boat business (i.e., FNT). Based on the information Loudon provided to Doe, FNT was operating profitably and would have been even more profitable if Loudon had not been using his dealerships to pay his personal expenses. (Id. ¶¶ 4, 6.) Since Skyline Marine was not interested in the IBC portion of Loudon’s boat business, the fact that Loudon’s personal expenses made IBC unprofitable did not concern Doe. (Id. ¶ 6.) Loudon never told Doe that FNT was losing money. (Id.)

5. Loudon’s assertion: “Nevertheless, Doe was able to convince Loudon to give the powerboat retail business another try.” (Mot. for Summ. J. at 4.)

Disputed facts: Doe did not make the initial proposal to form a partnership. Loudon made the initial proposal. During the discussions that followed, Skyline Marine and Loudon agreed to form a 50/50 partnership known as the Performance Group to develop a powerboat dealership. (Doe Aff. (Ex. A) ¶ 12.)

6. Loudon’s assertion: “Consequently, in or about July 2004, Loudon and Doe, by and through Skyline, formed entered [sic] into their oral Partnership Agreement for purposes of developing a powerboat dealership together.” (Mot. for Summ. J. at 4.)

Disputed facts: The Performance Group partnership consisted of Skyline Marine and Loudon individually. (Doe Aff. (Ex. A) ¶ 12. Doe was not a party to the partnership. (Id.)

7. Loudon’s assertion: “Pursuant to the Partnership Agreement, Loudon and Doe/Skyline would make equal contributions and share all profits and losses equally on a 50/50 basis. No further terms concerning the relationship of the partners or between the partners and the Performance Group were agreed upon and no written partnership agreement was ever executed.” (Mot. for Summ. J. at 4.)

Disputed facts: Although a written partnership agreement was never signed, the terms of the oral partnership are set forth in the unsigned, execution copy of the partnership agreement, which was agreed to by the parties. (Doe Aff. (Ex. A) ¶ 12.) The partnership was to be funded by $25,000 initial capital contributions, periodic additional capital contributions, and a $3.5 million line of credit from the Bank of Texas. (Doe Aff. (Ex. A) ¶ 12.) Skyline Marine also loaned money to the Performance Group to buy inventory while the Performance Group was attempting to obtain a line of credit from the Bank of Texas. (Id. ¶ 19; Ex. 5 to Doe Aff.) Loudon approved these loans. (Id.) Moreover, at Loudon’s request, the Performance Group loaned $425,714 to Loudon to pay off amounts that FNT owed on three boats. (Id. ¶ 24.) Since these boats were not owned by the Performance Group, Loudon and Skyline Marine agreed that the $425,714 in advances were a loan that Loudon would have to repay to the Performance Group. (Id.)

8. Loudon’s assertion: Loudon claims that, as part of the Performance Group’s efforts to obtain a line of credit, he submitted financial statements to the Bank of Texas containing some inaccuracies. (Mot. for Summ. J. at 4-5.) Loudon further contends that the inaccuracies were not fraudulent and Skyline Marine did not rely on the financial statements. (Id. at 5-7.)

Disputed facts: Loudon induced Skyline to enter into the partnership by providing false information to Skyline about Loudon’s borrowing power, his financial resources, and the financial resources of Loudon Exploration. (Doe Aff. (Ex. A) ¶¶ 4-10, 16-18, 20-22. Among other things, Loudon failed to disclose: (1) Loudon had failed to pay off $814,355.92 in loans on eight boats that the Loudon Dealerships had sold.(id. ¶ 16); (2) contrary to what Loudon told Doe, Loudon’s $1.5 million in certificates of deposit could not be pledged or a loan and were in danger of being lost because of Loudon’s failure to pay off loans on the Loudon Dealerships’ boats (id. ¶ 17); and (3) contrary to Loudon’s previous representations that Loudon Exploration was a profitable, financially successful company, Loudon Exploration did not have any money (id.¶ 22; Ex. 7 to Doe Aff.). When Doe confronted Loudon about his failure to pay off $814,355.92 in loans on eight boats that the Loudon Dealerships had sold, Loudon admitted that he knowingly used the proceeds to pay for other Loudon Dealership expenses. (Doe Dep. at 91-96; Ex. 20 to Doe Dep.) If Skyline had known about these facts, it would not have entered into the partnership or loaned money to the Performance Group. (Id. ¶¶ 20, 22.)

9. Loudon’s assertion: Loudon contends that Doe improperly instructed the Bank of Texas to remove Loudon as a signatory on the Performance Group’s bank account without telling Loudon. Loudon further contends that he did not write any checks on the Performance Group’s account. (Mot. for Summ. J. at 7-8.)

Disputed facts: When Doe learned that Loudon failed to pay off $814,355.92 in loans on eight boats and that the Loudon Dealerships had sold and that Loudon Exploration did not have the money to make Loudon’s $25,000 deposit, he became concerned that Loudon would attempt to use the Line of Credit improperly. Therefore, acting on behalf of Skyline Marine and the Performance Group, he instructed the Bank of Texas to remove Loudon as a signatory on the Performance Group’s bank account. (Doe Aff. (Ex. A) ¶ 23.)

10. Loudon’s assertion: Loudon contends that, in late November or early December 2004, he was surprised to learn that Skyline Marine “burned” through $914,821.99 of the Performance Group’s $1,000,000 Line of Credit without his knowledge or consent. (Mot. for Summ. J. at 8.) Loudon further alleges that, under these “suspicious circumstances,” Loudon moved quickly to dissolve the partnership. (Id.)

11. Disputed facts: Contrary to Loudon’s assertion, Skyline Marine did not use the Line of Credit without Loudon’s knowledge or consent. (Doe Aff. (Ex. A) ¶¶ 24-28.) Instead, as discussed above, Loudon “burned” through $425,714 of the $1 million Line of Credit by borrowing money from the Performance Group to pay for three of the Loudon Dealerships’ boats. (Id. ¶ 24.) The remainder of the Line of Credit was used to pay for boats that the Performance Group ordered before Skyline Marine learned of Loudon’s desire to end the partnership in December 2004. (Id. ¶¶ 25-28.) Loudon approved the purchase of each boat that the Performance Group ordered. (Id. ¶ 26.)

12. Loudon’s Assertion: Loudon complains that Skyline Marine “maxed out” the Line of Credit on December 14, 2004, the same day Loudon sent a letter to the Bank of Texas revoking the Guaranty. (Mot. for Summ. J. at 8.)

Disputed facts: Skyline Marine did not do anything improper by directing the Performance Group to make a payment on a Cigarette Maximus boat on December 14, 2004, the same day Loudon sent a letter to the Bank of Texas purporting to revoke his Guaranty. First, Loudon had previously approved the Performance Group’s purchase of the Cigarette Maximus during a November 2004 visit to Cigarette’s manufacturing facility. (Doe Aff. (Ex. A) ¶¶ 24-28.) Therefore, the December 14, 2004 advance was a payment on a boat that the Performance Group ordered and became obligated to pay for before Loudon informed Skyline Marine of his desire to end the partnership. (Id.) Second, Skyline Marine did not become aware of Loudon’s attempt to revoke his Guaranty until approximately a week after the Performance Group made the December 14, 2004 payment on the Cigarette Maximus. (Id.)

13. Loudon’s Assertion: Loudon alleges that he attempted to dissolve the partnership, but Skyline Marine refused to recognize any capital contributions made by Loudon beyond Loudon’s initial $25,000 contribution. (Mot. for Summ. J. at 8.)

Disputed facts: Once Skyline Marine learned of Loudon’s desire to end the partnership, the Performance Group began to wind up its operations. (Doe Aff. (Ex. A) ¶ 29.) Since the Performance Group had already placed orders for several boats, the winding up of the Performance Group’s operations included paying for the boats and the expenses associated with selling them. (Id.) Loudon only made four contributions to the Performance Group partnership: (1) his $25,000 initial capital contribution; (2) $10,873 for a Myco Trailer; (3) $2,500 to pay a musical group the Performance Group hired for a Poker Run boating event; and (4) $5,864.33 for a Performance Group trip to the Fountain factory. (Id. ¶¶ 37-40.)

14. Loudon’s Assertion: Loudon contends that Doe “secretly” bought the note (“Note”) the Performance Group signed in connection with the Line of Credit and engaged in “procedural gamesmanship” by filing suit on the Note. (Mot. for Summ. J. at 9.)

Disputed facts: The Note had an original maturity date of April 30, 2005. (Doe Aff. (Ex. A) ¶ 31; Ex. 6 to Doe Aff..) If the Note was not repaid by the maturity date, it had a post-maturity rate of 18%. (Id.) To avoid paying the post maturity interest rate, the Note was renewed at 5.5% with a maturity date of July 30, 2005. (Id.) In July 2005, Skyline Marine and Loudon had not resolved their dispute about each partner’s share of the losses and expenses of the Performance Group. (Id. ¶ 32.) Therefore, to avoid having to pay the 18% post maturity interest rate, Skyline Marine purchased the Note from the Bank of Texas on July 29, 2005. (Id.; Ex. 5 to Doe Aff.) Before Skyline Marine purchased the Note, counsel for the Bank of Texas informed Skyline Marine that Loudon was also attempting to purchase the Note. (Id.) Therefore, Loudon’s assertion that Doe secretly bought the Note is incorrect. (Id.)

15. Loudon’s Assertion: Loudon claims that his net contributions to the partnership exceed Skyline Marine’s by $348,569. (Mot. for Summ. J. at 9-12.) Specifically, Loudon contends that he contributed $218,504.64 in operating expenses, a $25,000 initial capital contribution, and a $433,617.25 promissory note payment, but only received $346,893.80 in collateral sales, leaving him with a net loss of $330,228.09. (Id.) Loudon further argues that Skyline Marine had a net profit of $18,341.26 because Skyline Marine received $586,927.81 in collateral sales and have collateral worth $453,910.36, but contributed only $276,903.59 in operating expenses, a $25,000 initial capital contribution, and $22,975.85 in interest and $697,617.37 in principal on a promissory note. (Id.)

Disputed facts: Skyline Marine disputes Loudon’s calculation of the profits and loses received by the Loudon and Skyline Marine as follows:

  • Skyline Marine’s operating expenses. Skyline Marine’s operating expenses were more than $276,903.59. Excluding losses on the sale of boats, Skyline Marine’s operating expenses were $504,565.15. (Doe Aff. (Ex. A) ¶ 33; Ex. 9 to Doe Aff.);
  • Skyline Marine’s promissory note payments. Skyline Marine’s promissory note payments were not limited to $697,617.37 in principal and $22,975.85 in interest. (Id. ¶ 34.) In addition to those amounts, Doe took out three loans from the Bank of Texas and loaned the proceeds to the Performance Group on behalf of Skyline Marine to buy inventory for the Performance Group, including: (1) a $107,960.00 loan for a payment on thirty-eight foot Cigarette boat (Bank of Texas Loan No. 1028832); (2) a $200,000 loan for a payment on a forty-two foot Cigarette boat (Bank of Texas Loan No. 1022382); and (3) a $96,357 loan for a payment on the same forty-two foot Cigarette boat (Bank of Texas Loan No. 1028833). (Id.; Ex. A to Ex. 5 to Doe Aff.) Including these three additional loans (each of which had a 5% interest rate), Skyline Marine’s note repayments to the Bank of Texas total $1,124,910.20 (plus approximately $20,000 in interest on the three additional loans). (Id.);
  • Skyline Marine’s proceeds from the sale of collateral. Skyline Marine received the following proceeds from the sale of Performance Group collateral, including: (1) $615,338.48 as of September 5, 2006 and (2) $225,000 after September 5, 2006. (Doe Aff. (Ex. A) ¶ 35; Ex 10 to Doe Aff..) The post-September 5, 2006 payments include $200,000 on a Cigarette Maximus and $25,000 on a Cigarette XXX (Doe Aff. (Ex. A) ¶ 35);
  • Collateral in Skyline Marine’s possession. The only additional collateral in Skyline Marine’s possession is a forty-two foot Cigarette XXX, which is under contract to be sold for $300,000, of which $25,000 has been received. (Doe Aff. (Ex. A) ¶ 36.);
  • Loudon’s expenses. Out of the $218,504.64 in expenses Loudon claims he paid on behalf of the Performance Group, only three items are Performance Group expenses: (1) $10,873 for a Myco Trailer (LOU 936); (2) $2,500 to pay a musical group the Performance Group hired for a Poker Run boating event (LOU 938); and (3) $5,864.33 for a Performance Group trip to the Fountain factory (LOU 986). (Doe Aff. (Ex. A) ¶ 37.) The remaining expenses of $199,267.31 are not Performance Group expenses. Instead, the expenses appear to the Loudon Dealerships’ expenses that the Performance Group did not agree to pay. (Id.);
  • Loudon’s alleged promissory note payment. Loudon’s $433,617.25 payment on the Note does not count as a contribution to the Performance Group. (Doe Aff. (Ex. A) ¶ 38.) Loudon borrowed $425,714 from the Line of Credit to pay off three of the Loudon Dealership’s boats. (Id. ¶¶ 24, 38.) Since these boats were not owned by the Performance Group, Loudon and Skyline Marine agreed that the $425,714 advanced to the Loudon Dealerships on the Line of Credit was a loan that Loudon would have to repay to the Performance Group. (Id.) Loudon’s $433,617.25 payment on the Note is a repayment of that loan, not a capital contribution to the Performance Group. (Id.); and
  • Loudon’s collateral sales. Since Loudon’s $433,617.25 payment on the Note is a repayment of the $425,714 loan to pay off the three Loudon Dealership boats, the $346,893.30 Loudon received from the sale of those boats are not Performance Group collateral sales. (Id. ¶ 39.)

16. Loudon’s Assertion: Loudon contends that Loudon Exploration is not Loudon’s alter ego despite the fact that Loudon used a Loudon Exploration check to make his initial capital contribution. (Mot. for Summ. J. at 22-27.)

Disputed facts: The evidence shows that Loudon’s assertion that Loudon Exploration is not Loudon’s alter ego is incorrect. On October 22, 2004, Thomas, Loudon’s bookkeeper, sent Doe an email stating that Loudon regularly used Loudon Exploration’s money to fund the Loudon Dealerships. (Doe Aff. (Ex. A) ¶ 42; Ex. 11 to Doe Aff.) In addition, Loudon indicated that Loudon Exploration was a source of funding for the Performance Group during Skyline Marine’s initial discussions with Loudon about forming the Performance Group. (Doe Aff. (Ex. A) ¶ 42.) Skyline Marine subsequently learned that Loudon Exploration had no money. (Ex. 7 to Doe Aff.)

IV. ARGUMENT AND AUTHORITIES

A. The Existence of Disputed Fact Issues Make Summary Judgment on Skyline Marine’s Breach of Partnership Claim Inappropriate.

1. A No-Evidence Summary Judgment Is Inappropriate Because Skyline Has Produced Evidence Supporting Each Challenged Element of its Breach of Partnership Claim.

Loudon contends that he is entitled to traditional and no-evidence summary judgment on Skyline Marine’s breach of partnership agreement claim because there is allegedly no evidence (1) that Skyline Marine complied with its partnership obligations; (2) that Loudon breached the contract; or (3) that Loudon’s breach injured Skyline Marine. (Mot. for Summ. J. at 13-14.) For the reasons discussed below, a no-evidence summary judgment on Skyline Marine’s breach of partnership claim is inappropriate because Skyline Marine has produced evidence supporting each challenged element of its claim.

First, Loudon argues that there is no evidence that Skyline Marine performed its obligations under the contracts because (1) Loudon’s net contributions to the partnership were allegedly higher than Skyline’s contributions and (2) Skyline Marine allegedly failed to maintain accurate books and records reflecting the contributions made by each partner. (Mot. for Summ. J. at 14.) Contrary to Loudon’s assertion, Skyline Marine has produced evidence showing that Skyline Marine’s net contributions to the partnership far exceeded Loudon’s net contributions. (Doe Aff. ¶¶ 33-40.) Moreover, Skyline Marine has produced detailed evidence showing the net contributions of each partner. (See, e.g., Doe Aff. and supporting exhibits.)

Second, Loudon contends that there is no evidence that Loudon breached the partnership agreement or that Skyline Marine sustained any damages because there is allegedly no evidence showing that Skyline Marine’s net contributions to the partnership exceeded Loudon’s net contributions. (Mot. for Summ. J. at 14-15.) As previously noted, Skyline Marine has produced evidence showing that Skyline Marine’s net contributions to the partnership far exceeded Loudon’s net contributions. (Doe Aff. ¶¶ 33-40.) Therefore, Skyline Marine has met is burden to produce evidence showing that Loudon damaged Skyline Marine by failing to pay his 50% share of the partnership’s losses.

2. Triable Fact Issues Preclude a Traditional Summary Judgment on Skyline Marine’s Breach of Partnership Claim.

In what amounts to nothing more than a rehash of his arguments for a no-evidence summary judgment, Loudon maintains that he is entitled to a traditional summary judgment on Skyline Marine’s breach of contract claim because: (1) that Skyline Marine allegedly failed to comply with its partnership obligations; (2) that Loudon did not breach the partnership agreement; and (3) that Loudon’s breach did not injure Skyline Marine. (Mot. for Summ. J. at 15-16.) As discussed in detail above, Skyline Marine has produced detailed controverting evidence showing that it performed its contractual obligations and that Loudon injured Skyline Marine by failing to pay his 50% share of the Performance Group’s net losses. (See Doe Aff. ¶¶ 33-40 and supporting exhibits.) Therefore, Loudon’s motion for a traditional motion for summary judgment on Skyline Marine’s breach of partnership claim should be denied.

B. The Existence of Disputed Fact Issues Makes Summary Judgment on Skyline Marine’s Fraudulent Inducement Claim Inappropriate.

1. A No-Evidence Summary Judgment Is Inappropriate Because Skyline Has Produced Evidence Supporting Each Challenged Element of its Fraudulent Inducement Claim.

Loudon contends that he is entitled to traditional and no-evidence summary judgment on Skyline Marine’s fraudulent inducement claim because there is allegedly no evidence of the following elements of its fraud claim: (1) that Loudon made a false representation to Skyline Marine; (2) the representation was material; (3) Loudon knew the representation was false when he made it or he made it recklessly, as a positive assertion and without knowledge of its truth; (5) Loudon made the representation with the intent that Skyline Marine rely on it; (6) Skyline Marine acted in reliance on Loudon’s false representations; and (7) Skyline Marine was injured by Loudon’s false representations. (Mot. for Summ. J. at 13-14.) For the reasons discussed below, a no-evidence summary judgment on Skyline Marine’s breach of partnership claim is inappropriate because Skyline Marine has produced evidence supporting each challenged element of its fraudulent inducement claim.

a. Elements 1 and 3: Loudon Made False Representations to Skyline Marine Regarding Loudon’s Financial Condition.

Skyline Marine has produced summary judgment evidence of elements 1 and 3 of its fraudulent inducement claim by showing that Loudon made a number of false representations to Skyline Marine, including:

  • Providing false information to Skyline Marine regarding the financial condition of the Loudon Dealerships. Loudon failed to disclose that the Loudon Dealerships had sold boats without paying them off. (Doe Aff. ¶ 16.) On October 20, 2004, Doe received an email from Thomas indicating that Loudon had failed to pay off $814,355.92 in loans on eight boats that the Loudon Dealerships had sold. (Id.; Ex. 2 to Doe Aff.; Doe Dep. at 91-96; Ex. 20 to Doe Dep.);
  • Providing false information about his certificates of deposit. Loudon falsely stated that he had $1.5 million in certificates of deposit that could be used to fund or collateralize loans to fund the proposed powerboat dealership. (Doe Aff. ¶¶ 8, 16-17.) Loudon failed to disclose that, as result of his failure to pay off $814,355.92 in loans on eight boats that the Loudon Dealerships had sold, the $1.5 million in certificates of deposit that Loudon claimed were available to fund or collateralize loans for the Performance Group could not be pledged and were in danger of being lost. (Id. ¶ 17.); and
  • Providing false information regarding the financial condition of Loudon Exploration. Loudon falsely represented to Skyline Marine that Loudon Exploration was a profitable oil and gas business that was expecting $47 million from the sale of certain oil and gas properties. (Doe Aff. ¶¶ 9, 22.) When Loudon failed to make a timely capital contribution, Skyline Marine discovered that Loudon Exploration did not have any money (id.¶ 22; Ex. 7 to Doe Aff.).

b. Elements 2, 5, and 6: Loudon’s False Representations Were Material and Made With the Intent Skyline Marine Rely on Them by Entering Into and Borrowing Money on Behalf of the Partnership.

Skyline Marine has produced summary judgment evidence of elements 2, 5, and 6 of its fraudulent inducement claim by showing that Loudon’s false representations were material and made with the intent that Skyline Marine rely of the representations by entering into the Performance Group partnership and borrowing money on behalf of the partnership. A false representation is material if a reasonable person would attach importance to the information and be induced to act on the information in determining whether to make a transaction. Brush v. Reata Oil and Gas Corp., 984 S.W.2d 720, 727 (Tex. App.—Waco 1998, pet. denied). To prove intent, the defendant must have reason to expect that the plaintiff will enter into a binding agreement based on the false representation. Formosa Plastics Corp. v. Presidio Eng’rs & Contractors, 960 S.W.2d 41, 48 (Tex. 1998). To prove inducement, a plaintiff must have entered into a binding agreement based on the fraud. Haase v. Glaszner, 62 S.W.3d 795, 798-797-98 (Tex. 2001).

Here, Skyline Marine has produced summary judgment evidence showing that Loudon made the false representations described above for the purpose of inducing Skyline Marine to enter into the Performance Group partnership and to borrow money on behalf of the partnership. (Doe Aff. ¶¶ 4-11, 16-23.) Moreover, the summary judgment evidence shows that Skyline Marine relied on Loudon’s false representations by entering into the partnership and borrowing money to fund the partnership’s operations. (Id. ¶¶ 6-7, 10, 20, 22.)

c. Element 4: Loudon Made False Representations Knowingly or Recklessly.

Skyline Marine has produced summary judgment evidence of element 4 of its fraudulent inducement claim by showing that Loudon’s false representations were made with the intent that Skyline Marine rely on the representations by entering into and borrowing money on behalf of the partnership. A plaintiff can use direct or circumstantial evidence to show that the defendant made the false statement knowingly or without knowledge of its truth. Johnson & Higgins v. Kenneco Energy, 962 S.W.2d 507, 526 (Tex. 1998).

Here, Skyline Marine has direct and circumstantial evidence that Loudon made the false representations described above knowingly or recklessly. Thomas, Loudon’s bookkeeper, admitted that Loudon knew his representations were false. In response to Doe’s question about the Loudon Dealerships’ $800,000 in non-current boats, Thomas replied:

We had been one boat behind each time (revenue would go to payables/payroll, then we’d pay the last boat off when we sold the next one.) Eddie knew it would catch up with us when the season ended, but I think he got sidetracked in the oil business (if sidetracked is the right word!) and it just snowballed. For the first part of the year, he was putting money from Loudon into the boat business. He had to quit doing that, and that’s when payables began to stack up.

(Ex. 11 to Doe Aff.) When Doe confronted Loudon about this, Loudon admitted that he knew all about what amounted to a Ponzi-scheme to prop up the Loudon Dealerships long enough to induce Skyline Marine into the Performance Group partnership and to borrow money on the partnership’s behalf. (Doe Dep. (Ex. B) at 91-96; Ex. 20 to Doe Dep.)

Thomas also admitted that, contrary to Loudon’s representations to Skyline Marine, Loudon Exploration did not have any money. (Doe Aff. ¶¶ 9, 22.) According to Thomas, Loudon had to quit using Loudon Exploration’s money to prop up the Loudon Dealerships after the first part of the year. (Ex. 11 to Doe Aff.) Therefore, there is strong circumstantial evidence that Loudon knew Loudon Exploration was strapped for cash when he falsely represented that Loudon Exploration had money available to fund or collateralize loans for the Performance Group.

d. Element 7: Skyline Marine Was Injured by Loudon’s False Representations.

Skyline Marine has also produced summary judgment evidence of element 7 of its fraudulent inducement claim by showing that it sustained large financial damages as a result of its reliance on Loudon’s false representations. Among other things, Skyline’s Marine’s damages include: (1) operating expenses of $504,565.15 (Doe Aff. (Ex. A) ¶ 33; Ex. 9 to Doe Aff.); (2) the difference between Skyline Marine’s payments on the four loans it paid on behalf of the Performance Group and the proceeds Skyline Marine received from collateral sales and the value of its remaining collateral (Doe Aff. (Ex. A) ¶¶ 34-36); and (3) Skyline Marine’s fees and expenses in this action. Because Skyline Marine has met its burden of producing evidence on each element of its fraudulent inducement claim, Loudon’s no-evidence motion for summary judgment should be denied.

2. Triable Fact Issues Preclude a Traditional Summary Judgment on Skyline Marine’s Fraudulent Inducement Claim.

Loudon contends that he is entitled to a traditional summary judgment on Loudon’s fraud claims because: (1) Skyline Marine did not see Loudon’s financial statements until after the partnership was formed; (2) Loudon advised Skyline Marine that the Loudon Dealerships were losing money before the partnership was formed; (3) Loudon provided the financial statements to the Bank of Texas, which does not view the misstatements as material or fraudulent; and (4) Loudon’s false statements did not injure Skyline Marine. (Mot. for Summ. J. at 17-22.) Contrary to Loudon’s assertion, the existence of disputed issues of material fact preclude summary judgment on Skyline Marine’s fraud claim.

First, the fact that Loudon provided personal financial statements to the Bank of Texas after the partnership was formed has no effect on Skyline Marine’s fraud claim. As discussed in detail above, Skyline Marine’s fraud claim is based on false representations that Loudon made regarding: (1) the financial condition of the Loudon Dealerships, (2) the availability of $1.5 million in certificates of deposit to fund or collateralize loans for the Performance Group; and (3) the financial condition of Loudon Exploration. (Doe Aff. (Ex. A) ¶¶ 8-9, 16-17, 22.) These representations were made to induce Skyline Marine to enter into the Performance Group partnership and, subsequently, to borrow money on behalf of the partnership.

Second, Loudon cannot escape liability for providing false information regarding the Loudon Dealerships because the information showed that the Loudon Dealerships were collectively unprofitable. As Loudon was well aware, Skyline Marine was only interested in FNT, Loudon’s Fountain dealership. (Doe Aff. (Ex. A) ¶¶ 5-6.) Based on the false information provided by Loudon, FNT appeared to be operating at a profit and it also appeared that the Loudon Dealerships would have been profitable collectively if Loudon had not been using them to pay his personal expenses. (Doe Aff. (Ex. A) ¶¶ 4-7, 16.) Moreover, Loudon’s failure to disclose that the Loudon Dealerships had sold $814,355.92 in boats without paying them off materially misrepresented the financial condition of the dealerships. (Doe Aff. ¶ 16; Ex. 2 to Doe Aff.)

Third, Skyline Marine is not basing its fraud claim on the financial information that Loudon provided to the Bank of Texas. Instead, Skyline’s fraud claim is based on: (1) the financial condition of the Loudon Dealerships, (2) the availability of $1.5 million in certificates of deposit to fund or collateralize loans for the Performance Group; and (3) the financial condition of Loudon Exploration. (Doe Aff. (Ex. A) ¶¶ 8-9, 16-17, 22.) For obvious reasons, different financial information that Loudon provided to the Bank of Texas at a later time (and the bank’s opinion about that information) has no bearing on whether Loudon’s earlier representations to Skyline Marine were false.

Fourth, Skyline Marine has produced summary judgment evidence showing that its net losses from the Performance Group far exceed Loudon’s losses, if any. (See Doe Aff. ¶¶ 33-40 and supporting exhibits.) Moreover, because of Loudon’s liquidity problems, the Performance Group could not obtain the $3.5 million line of credit that the parties contemplated, starving the partnership of much-needed startup capital. (Id. ¶ 18.) Therefore, Loudon’s motion for a traditional motion for summary judgment on Skyline Marine’s fraudulent inducement claim should be denied.

C. The Existence of Disputed Fact Issues Makes Summary Judgment on Skyline Marine’s Alter Ego Claim Inappropriate.

1. A No-Evidence Summary Judgment Is Inappropriate Because Skyline Has Produced Evidence Supporting Each Challenged Element of its Alter Ego Claim.

Loudon contends that Loudon Exploration is entitled to a no-evidence summary judgment on Skyline Marine’s alter ego claim against Loudon Exploration because: (1) that Skyline Marine allegedly failed to properly plead its alter ego claim and (2) there is allegedly no evidence that (i) Loudon Exploration was operated as a mere tool or business conduit of Loudon, (ii) there was such a unity between Loudon Exploration and Loudon that their separateness would result in injustice, and (iii) Loudon used Loudon Exploration to perpetrate a fraud on Skyline Marine. (Mot. for Summ. J. at 23-25.) Loudon’s argument misstates the law and ignores ample evidence supporting the alter ego claim.

First, Loudon’s argument that Skyline Marine’s alleged failure to plead each and every element of an alter ego claim entitles Loudon Exploration to summary judgment on that claim misstates the law. It is not necessary to plead every element of an alter ego claim to satisfy Texas’s liberal notice pleading standards. Tex. R.. Civ. P. 45, 47. Even if Skyline Marine was required to plead the elements of alter ego, its alleged failure to plead every element is not grounds for summary judgment. If Loudon believes that Skyline Marine’s alter ego claim does not contain sufficient information, he should have filed special exceptions and obtained an order requiring Skyline Marine to provide additional information. Friesenhahn v. Ryan, 960 S.W.2d 656, 658 (Tex. 1998). Loudon’s authority that he is entitled to summary judgment based on alleged pleading defects are cases where the plaintiff did not plead alter ego at all, not cases where the plaintiff failed to plead every element of an alter ego claim. Mapco, Inc. v. Carter, 817 S.W.2d 686, 688 (Tex. 1991) (judgment for plaintiff reversed because plaintiff failed to plead alter ego theory); Jones v. Sig Arms, Inc., No. 04-00-00395-CV, 2001 Tex. App. LEXIS 8372, at *3 (Tex. App.—San Antonio Dec. 19, 2001, no pet.) (granting summary judgment on alter ego claim because it was not pleaded at all and was only raised in the response to a motion for summary judgment). Since Skyline Marine has pleaded an alter ego theory against Loudon Exploration, the cases cited by Loudon are inapposite.

Second, a no-evidence summary judgment on Skyline Marine’s alter ego claim against Loudon Exploration is inappropriate because Skyline Marine had produced summary judgment evidence supporting the elements of alter ego. As a threshold matter, the evidence shows that Loudon Exploration was nothing more than a mere tool or conduit of Loudon. This is evidenced by the fact that Loudon used a Loudon Exploration check to make his capital contribution to the Performance Group and to pay his boat dealership’s expenses. (Ex. 11 to Doe Aff.) Moreover, Loudon used Loudon Exploration to hide the Loudon Dealership’s losses from Skyline Marine and made false claims about Loudon Exploration’s financial condition to induce Skyline Marine into entering the partnership. (Doe Aff. ¶¶ 9, 22, 42-43; Ex. 11 to Doe Aff.) This evidence is obviously sufficient to raise a triable fact issue about whether (i) Loudon Exploration was operated as a mere tool or business conduit of Loudon, (ii) there was such a unity between Loudon Exploration and Loudon that their separateness would result in injustice, and (iii) Loudon used Loudon Exploration to perpetrate a fraud on Skyline Marine. Therefore, Loudon’s no-evidence motion for summary judgment should be denied.

2. Triable Fact Issues Preclude a Traditional Summary Judgment on Skyline Marine’s Alter Ego Claim.

Loudon argues that his is entitled to a traditional summary judgment on Skyline Marine’s alter ego claim against Loudon because: (1) Loudon Exploration was not a mere tool or conduit of Loudon; (2) Loudon and Loudon Exploration have remained separate and distinct; and (3) Loudon Exploration was not used to perpetrate a fraud on Skyline Marine. (Mot. for Summ. J.) For the reasons discussed above, Skyline Marine has produced summary judgment evidence supporting each element of its alter ego claim. (See supra § IV.C.1.) Therefore, Loudon’s self-serving affidavit does not warrant summary judgment on Skyline Marine’s alter ego claim. Since Loudon and his bookkeeper admitted that Loudon used Loudon Exploration to pay the expenses of his boat dealerships until Loudon Exploration ran out of money, Loudon’s claim that Loudon Exploration is a completely distinct, successful oil and gas company is suspect, at best. (Ex. 7 to Doe Aff.; Ex. 11 to Doe Aff.; Doe Dep. at 90-96; Ex. 20 to Doe Dep.) Therefore, Loudon’s motion for a traditional motion for summary judgment on Skyline’s alter ego claim against Loudon Exploration should be denied.

V. CONCLUSION

For the foregoing reasons, Loudon’s Motion for Summary Judgment should be denied in its entirety.

Dated: July 12, 2007

 

Respectfully submitted,

James Craig Orr, Jr.

State Bar No. 15313550

Michael E. Heygood

State Bar No. 00784267

Charles W. Miller

State Bar No. 24007677

Heygood, Orr, & Pearson

2331 W. Northwest Highway, 2nd Floor

Dallas, Texas 75220

1-877-446-9001 Telephone

214-237-9002 Facsimile

ATTORNEYS FOR

PLAINTIFF/COUNTER-DEFENDANT

SKYLINE MARINE, L.L.C. AND THIRD-PARTY DEFENDANTS JOHN DOE AND SKYLINE CAPITAL, L.L.C.