Gulf Coast Bank and Trust Company v. Stinson

Filing 50

ORDER granting Plaintiff's 43 Motion for Summary Judgment. The Court finds that Defendant, Sam William Stinson, is personally liable for $2,789,775.00 of damages to Plaintiff, Gulf Coast Bank and Trust Company. A separate final judgment shall be entered in accordance with Rule 58 of the Federal Rules of Civil Procedure. Signed by District Judge Keith Starrett on January 2, 2013 (dsl)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
HATTIESBURG DIVISION
GULF COAST BANK AND TRUST
COMPANY
V.

PLAINTIFF
CIVIL ACTION NO. 2:11-CV-88-KS-MTP

SAM WILLIAM STINSON

DEFENDANT

MEMORANDUM OPINION AND ORDER
For the reasons stated below, the Court grants Plaintiff’s Motion for Summary
Judgment [43]. The Court finds that Defendant, Sam William Stinson, is personally
liable for $2,789,775.00 of damages to Plaintiff, Gulf Coast Bank and Trust Company,
caused by his actions as Vice President of Stinson Petroleum Company.
I. INTRODUCTION1
Stinson Petroleum Company (“Stinson Petroleum”) sold gasoline to convenience
stores and other businesses. In 2005, Stinson Petroleum entered into the first of
multiple “Receivables Purchase Agreements” (“RPA’s”) with Plaintiff, pursuant to
which Stinson Petroleum would assign all of its accounts receivable to Plaintiff in
exchange for the advancement of funds up to 85% of the value of the accounts
receivable, but no more than an upper limit of $7,000,000.00. Stinson Petroleum was
required to collect on the accounts and remit the funds to Plaintiff to repay the loans.
Stinson Petroleum also represented in the RPA that the accounts assigned to Plaintiff
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The facts of this case are undisputed, as Plaintiff failed to present any
evidence in support of his response to Plaintiff’s motion for summary judgment.

were “bona fide existing obligations created by the sale and delivery of goods or the
rendition of services in the ordinary course of Stinson Petroleum’s business,” and that
they were “unconditionally owed and will be paid to [Plaintiff] without defense,
disputes, offsets, counterclaims, or rights of return or cancellation.”
During the term of each RPA, Stinson Petroleum – through Defendant, its Vice
President – sent Plaintiff a monthly statement of the accounts receivable assigned to
Plaintiff. The statements reported the current account balance for each Stinson
Petroleum customer and certain payment history information. These statements
determined the amount of credit available to Stinson Petroleum. Each one included the
following representation, signed by Defendant: “The undersigned, for value received,
hereby sells, assigns, transfers and sets over to Gulf Coast Business Credit, all
invoices, in accordance with the terms and conditions recited in certain Receivables
Agreement executed by the undersigned with Gulf Coast Business Credit. Further that
all materials have been delivered and all services performed as represented on the
above listed invoices, and that there are no existing offsets.”
On August 4, 2009, Stinson Petroleum filed a Voluntary Petition for Chapter 11
bankruptcy in the United States Bankruptcy Court for the Southern District of
Mississippi. The Bankruptcy Court appointed a neutral third party analyst to review
Stinson Petroleum’s financial information and identify payments made to Plaintiff by
Stinson Petroleum from pre-petition receivables collected after the petition had been
filed. On August 20 and 31, 2009, Defendant presented the analyst, Gary Aldridge,
with accounts receivable reports, representing that they were Stinson Petroleum’s
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then-current accounts receivable. Aldridge’s analysis of the accounts revealed that the
monthly statements sent to Plaintiff had higher accounts receivable balances than the
monthly statements Defendant provided him pursuant to the Bankruptcy Court’s
order.
On December 16, 2009, the Bankruptcy Court converted Stinson Petroleum’s
Chapter 11 case into a Chapter 7 liquidation. Stinson Petroleum then provided the
Trustee with copies of its monthly accounts receivable reports for the year prior to the
filing of their petition. These reports – like the ones provided to Aldridge – revealed
lower accounts receivable balances than the monthly statements that had been
provided to Plaintiff pursuant to the RPA.
Over a six-month period, from January 2009 to June 2009, Stinson Petroleum
had overstated its new accounts receivable by $27,343,521.74. As a result of these
misrepresentations, Plaintiff advanced $5,617,759.85 to Stinson Petroleum that it
would not have advanced if the monthly statements were accurate. The final monthly
statement submitted to Plaintiff on July 27, 2009, included a representation that
Stinson Petroleum’s accounts receivable totaled $7,746,472.00. Based on this figure,
the total funds available were represented to be $5,937,687.00 – approximately 76.65%
of the total reported accounts receivable. The actual accounts receivable was
$4,106,864.00. Assuming the same proportion of available funds, the overstatement of
accounts receivable in the final monthly statement resulted in an advancement of
$2,789,775.00 under the RPA that would not have been advanced if the monthly
statement were accurate. On November 30, 2009, Plaintiff filed a proof of claim in the
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bankruptcy proceeding, reflecting an outstanding balance of $4,283,815.00 under the
RPA.
In the present action, Plaintiff asserted claims of fraud and negligent
misrepresentation against Defendant, Sam William Stinson. At all relevant times,
Defendant was the Vice President of Stinson Petroleum. Plaintiff requests actual
damages in the amount of $2,789,775.00. The Court now considers Plaintiff’s Motion
for Summary Judgment [43].
II. DISCUSSION
Rule 56 allows a party to “move for summary judgment, identifying each claim
. . . on which summary judgment is sought. The Court shall grant summary judgment
if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a); see also Sierra
Club, Inc. v. Sandy Creek Energy Assocs., L.P., 627 F.3d 134, 138 (5th Cir. 2010). “An
issue is material if its resolution could affect the outcome of the action.” Sierra Club,
Inc., 627 F.3d at 138. “An issue is ‘genuine’ if the evidence is sufficient for a reasonable
jury to return a verdict for the nonmoving party.” Cuadra, 626 F.3d at 812. “The mere
existence of some alleged factual dispute between the parties will not defeat an
otherwise properly supported motion for summary judgment,” and “the mere existence
of a scintilla of evidence” is likewise insufficient. State Farm Life Ins. Co. v. Gutterman,
896 F.2d 116, 118 (5th Cir. 1990).
The Court is not permitted to make credibility determinations or weigh the
evidence. Deville v. Marcantel, 567 F.3d 156, 164 (5th Cir. 2009). When deciding
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whether a genuine fact issue exists, “the court must view the facts and the inference
to be drawn therefrom in the light most favorable to the nonmoving party.” Sierra
Club, Inc., 627 F.3d at 138. However, “[c]onclusional allegations and denials,
speculation, improbable inferences, unsubstantiated assertions, and legalistic
argumentation do not adequately substitute for specific facts showing a genuine issue
for trial.” Oliver v. Scott, 276 F.3d 736, 744 (5th Cir. 2002).
A.

Fraud
To establish a claim of fraud, Plaintiff must establish the following elements by

clear and convincing evidence: “(1) a representation; (2) its falsity; (3) its materiality;
(4) the speaker’s knowledge of its falsity or ignorance of the truth; (5) his intent that
it should be acted on by the hearer and in the manner reasonably contemplated; (6) the
hearer’s ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely
thereon; and (9) his consequent and proximate injury.” Hobbs Auto., Inc. v. Dorsey, 914
So. 2d 148, 152 (Miss. 2005); see also Trim v. Trim, 33 So. 3d 471, 478 (Miss. 2010).
1.

A Representation

Defendant, in his role as an officer of Stinson Petroleum, submitted the monthly
accounts receivable statements described above [43-4, 43-5]. According to the RPA, the
accounts receivable were “bona fide existing obligations created by the sale and
delivery of goods or the rendition of services in the ordinary course of Stinson
Peteroleum’s business,” and that they were “unconditionally owed and will be paid to
[Plaintiff] without defense, disputes, offsets, counterclaims, or rights of return or
cancellation.” Defendant signed the monthly accounts receivable statements
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themselves, representing that the statements were “[i]n accordance with the terms and
conditions” of the RPA’s, and that “all materials [had] been delivered and all services
performed as represented” therein. Accordingly, Plaintiff has provided undisputed,
clear and convincing evidence that Defendant made certain representations on behalf
of Stinson Petroleum.
2.

Falsity

Gary Aldridge, a neutral third party analyst appointed by the Bankruptcy Court,
testified [43-10] that Defendant gave him a set of accounts receivable reports [43-11]
and told him he “needed to use” them for his report to the Bankruptcy Court. After
investigation, Aldridge discovered that Stinson Petroleum’s actual accounts receivable
were significantly less than what Defendant had represented them to be in the
monthly statements submitted to Plaintiff [43-4, 43-5]. Accordingly, Plaintiff has
provided undisputed, clear and convincing evidence that the monthly accounts
receivable statements submitted to it by Defendant were false.
3.

Materiality

The RPA [43-2] provided that the maximum amount of advances shall be
$7,000,000.00 or 85% of the total assigned accounts receivable. Plaintiff also presented
an affidavit [43-3] from Wade Hladky, Senior Vice President of Plaintiff, which
provides the same. Therefore, the amount of Stinson Petroleum’s accounts receivable
determined the amount of funds Plaintiff would advance under the RPA. Accordingly,
Plaintiff has provided undisputed, clear and convincing evidence that the monthly
accounts receivable statements submitted to it by Defendant were material.
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4.

The Speaker’s Knowledge

Aldridge testified [43-10] that during a meeting with the unsecured creditors’
committee during Stinson Petroleum’s bankruptcy proceeding, he asked Defendant
why there was a discrepancy between the accounts receivable balances submitted to
him and the ones submitted to Plaintiff. According to Aldridge, Defendant replied that
“those numbers that he submitted really didn’t mean anything. They were numbers
that he put on there in order to get the loan funds he needed to keep the business
going.” During his deposition in this case [43-1], Defendant denied that he made this
statement. However, he acknowledged that he had previously testified under oath –
in a previous lawsuit stemming from the same events – that he did, in fact, admit that
the numbers on the monthly accounts receivable statements were meaningless, that
they were just a means of getting money from Plaintiff.
Defendant provided no explanation for his inconsistent testimony, and he
avoided further questioning on the matter by asserting his Fifth Amendment right to
be free from self-incrimination. Regardless, a party may not create a genuine dispute
of material fact by contradicting his own prior testimony. Holtzclaw v. DSC Communs.
Corp., 255 F.3d 254, 259 (5th Cir. 2001); Doe v. Dallas Indep. Sch. Dist., 220 F.3d 380,
386 (5th Cir. 2000). Therefore, the Court shall disregard Defendant’s denial that he
admitted having submitted false monthly statements to Plaintiff in order to obtain
financing.
Indeed, Defendant declined to answer a substantial number of the questions
submitted to him during his deposition, citing his Fifth Amendment rights. Among
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them was an inquiry as to whether he knew that the information contained in the
monthly statements was false. The Court may – and shall – draw an adverse inference
from a party’s assertion of the Fifth Amendment right to be free from selfincrimination. Gutterman, 896 F.2d at 119.2 This inference, when combined with
Aldridge’s testimony, leads to the conclusion that Plaintiff has presented undisputed,
clear and convincing evidence that Defendant knew that the figures he provided to
Plaintiff in the monthly statements were false.
5.

The Speaker’s Intent

As noted above, Aldridge testified that Defendant admitted that he provided
inflated figures so that he could obtain more funds.3 When asked whether he intended
for Plaintiff to act upon the information contained in the monthly statements, he
asserted his Fifth Amendment rights. The Court will draw an adverse inference from
his refusal to answer the question. See Gutterman, 896 F.2d at 119. This inference,
when combined with Aldridge’s testimony, leads to the conclusion that Plaintiff
presented undisputed, clear and convincing evidence that Defendant intended for
Plaintiff to act upon the monthly statements by advancing additional funds.

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The value of such an inference is limited, though, as “a party seeking
summary judgment can not rest solely on the other party’s exercise of her fifth
amendment rights.” Id. at 119 n. 3. But Plaintiff presented independent evidence in
support of its motion. Therefore, granting summary judgment in this case would not
“unduly penalize the employment of the” Fifth Amendment privilege. Id.
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Again, Defendant now denies having made such an admission, despite his
previous testimony to the contrary. The Court will disregard his denial. See
Holtzclaw, 255 F.3d at 259; Doe, 220 F.3d at 386.
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6.

The Hearer’s Ignorance

Wade Hladky, Senior Vice President of Plaintiff, testified by affidavit that
Plaintiff was unaware that the representations contained in Stinson Petroleum’s
monthly accounts receivable statements were false. Defendant has not presented any
evidence to dispute this testimony. Therefore, the Court concludes that Plaintiff
presented clear and convincing evidence that it was ignorant of the falsity of the
figures provided by Defendant in the monthly statements.
7.

The Hearer’s Reliance

Hladky also testified that Plaintiff relied upon the representations provided in
the monthly statements. Defendant has not presented any evidence to contradict this
testimony. Therefore, the Court concludes that Plaintiff presented clear and convincing
evidence that Plaintiff relied upon the misrepresentations in the monthly statements
submitted by Defendant.
8.

The Hearer’s Right to Rely

The RPA [1-1] required Stinson Petroleum to submit monthly financial
statements detailing the company’s receivables during that time period. The amount
of financing extended to Stinson Petroleum depended upon the amount of the
receivables assigned to it under the RPA. Accordingly, the Court finds that Plaintiff
presented clear and convincing evidence that it had a right to rely on the financial
statements.4

4

Defendant argues that Plaintiff allowed Stinson Petroleum to operate
outside the guidelines of the RPA, disregarding the integrity of their own lending
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9.

Consequent and Proximate Injury

Wade Hladky testified that Plaintiff “has not received repayment of
$4,139,566.60 in advances made based upon misrepresentations of the qualified
accounts receivables submitted by Sam Stinson,” due to Stinson Petroleum’s
bankruptcy. Plaintiff also presented expert testimony from H. Kenneth Lefoldt, Jr., a
certified public accountant. Lefoldt provided the following analysis:
[T]he last Statement of Accounts Receivable was submitted to Gulf Coast
Bank on July 27, 2009, just prior to Stinson Petroleum filing bankruptcy
on August 4, 2009. On the certificate submitted on July 27, 2009, the
total availability to Stinson Petroleum was represented to be $5,937,687
based on total accounts receivable of just $7,746,472. The availability
represented 76.65% of the total accounts receivable reported. The actual
accounts receivable was $4,106,864. Since there is not a certificate
calculating the availability to Stinson Petroleum for accounts receivable
of $4,106,864, I have assumed Stinson Petroleum would have a similar
availability of 76.65% or $3,147,912. Due to the overstatement of accounts
receivable, Stinson Petroleum had $2,789,775 in additional funds under
the Receivables Purchase Agreement.
Lefoldt concluded: “As a result of Sam Stinson materially misrepresenting the monthly
accounts receivable balance, Stinson Petroleum had drawn down approximately
$2,789,775 in availability to which they were not entitled.”
Accordingly, the Court concludes that Plaintiff presented undisputed, clear and
convincing evidence that Defendant’s misrepresentations proximately caused it to
suffer damages in the amount of $2,789,775.00.
10.

Corporate Officer Liability

process. However, Defendant has not provided any evidence in support of this
argument.
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Defendant argues that he should not be personally liable. He claims that he
never signed any note, loan documents, or personal guaranty related to the subject
debt. However, “[w]hen a corporate officer directly participates in or authorizes the
commission of a tort, even on behalf of a corporation, he may be held personally liable.”
Whitaker v. Limeco Corp., 32 So. 3d 429, 439 (Miss. 2010).
Plaintiff offered abundant, undisputed evidence that Defendant directly
participated in or authorized the fraud described above. Aldridge testified that
Defendant admitted having falsified the receivables in order to obtain additional
financing. Defendant also signed each monthly receivables statement, including a
representation that the statement conformed to the RPA’s requirement that the
assigned receivables be “bona fide existing obligations” which were due and owing to
Stinson Petroleum. Furthermore, during Defendant’s deposition, he asserted his Fifth
Amendment rights every time that Plaintiff’s counsel asked a question pertaining to
his personal involvement in these events. For example, he declined to answer questions
related to 1) whether he had personal knowledge of the information contained in the
statements, 2) whether he entered the pertinent information into Stinson Petroleum’s
computer system for the purpose of creating the monthly statements, 3) whether he
oversaw and directed the gathering of the information that was used in the generation
of the monthly statements, and 4) whether he knew that the monthly statements
contained misrepresentations. The Court will draw an adverse inference from
Defendant’s refusal to answer these questions. See Gutterman, 896 F.2d at 119.
For all of these reasons, the Court finds that Defendant may be held personally
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liable for the fraudulent misrepresentations contained in the monthly statements
which he submitted to Plaintiff on behalf of Stinson Petroleum.5
11.

Summary

For all of the reasons stated above, the Court finds that Plaintiff presented
undisputed, clear and convincing evidence that Stinson Petroleum fraudulently
misrepresented the amount of its accounts receivable to obtain additional financing
from Plaintiff. Defendant directly participated in and/or authorized these actions,
which proximately caused Plaintiff to suffer $2,789,775.00 in damages. Accordingly,
the Court grants Plaintiff’s motion for summary judgment on its fraud claim.
B.

Negligent Misrepresentation
To establish a claim of negligent misrepresentation, Plaintiff must prove the

following elements by a preponderance of the evidence:
(1) a misrepresentation or omission of a fact; (2) that the representation
or omission is material or significant; (3) that the person/entity charged
with the negligence failed to exercise that degree of diligence and
expertise the public is entitled to expect of such persons/entities; (4) that
the plaintiff reasonably relied upon the misrepresentation or omission;
and (5) that the plaintiff suffered damages as a direct and proximate
result of such reasonable reliance.
Holland v. Peoples Bank & Trust Co., 3 So. 3d 94, 101 (Miss. 2008).

5

In briefing, Defendant claims that Plaintiff’s principal officers’s sole
motivation in pursuing this litigation is to financially ruin him. However, as
demonstrated above, Plaintiff has presented undisputed, clear and convincing
evidence that Stinson Petroleum fraudulently misrepresented the amount of its
receivables in an effort to gain further financing from Plaintiff. Defendant directly
participated in and/or authorized these actions. Therefore, Defendant may be held
personally liable for them, and Plaintiff’s motives in seeking a judgment against
him are irrelevant.
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All of the evidence described above is sufficient to demonstrate that Plaintiff has
proven the elements of negligent misrepresentation by a preponderance of the
evidence, and that Defendant may be held personally liable for his actions as the Vice
President of Stinson Petroleum. Therefore, the Court grants Plaintiff’s motion for
summary judgment as to its negligent misrepresentation claim.
III. CONCLUSION
For the reasons stated above, the Court grants Plaintiff’s Motion for Summary
Judgment [43]. The Court finds that Defendant, Sam William Stinson, is personally
liable for $2,789,775.00 of damages to Plaintiff, Gulf Coast Bank and Trust Company,
caused by his actions as Vice President of Stinson Petroleum Company. The Court will
enter a separate final judgment in accordance with Rule 58.
SO ORDERED AND ADJUDGED on this the 2nd day of January, 2013.
s/Keith Starrett
UNITED STATES DISTRICT JUDGE

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