Murphree v. Godshall
Filing
48
MEMORANDUM OPINION AND ORDER granting in part and denying part 40 Second MOTION to Dismiss 38 Amended Complaint, denying 42 Alternative Motion for Leave to Amend Counterclaim Under Rule 15(a), granting in part and denying in part 46 MOTION for Summary Judgment. (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
DENNIS E. MURPHREE,
§
§
§
§
§
§
§
§
§
Plaintiff,
v.
NED A. GODSHALL,
Defendant.
CIVIL ACTION NO. H-13-0453
MEMORANDUM OPINION AND ORDER
This action was filed on February 20,
2013,
by plaintiff,
Dennis E. Murphree ("Murphree") , against defendant, Ned A. Godshall
("Godshall"),
rights,
for
declaratory
obligations,
Assignment ("PIA")
and
judgment
status
under
regarding
a
the
parties'
Partnership
Interest
Pending before the court are Murphree's Second
Motion to Dismiss Pursuant to Rule 12(b) (6) and Rule 9(b)
Entry No.
40),
(Docket
Godshall's Alternative Motion for Leave to Amend
Counterclaim Under Rule 15(a)
(Docket Entry No. 42), and Plaintiff
Dennis E. Murphree's Motion for Summary Judgment ("Murphree's MSJ")
(Docket Entry No.
46).
motion to dismiss will
For the reasons stated below Murphree's
be granted in part and denied in part,
Godshall's alternative motion to amend will be denied, Murphree's
motion for summary judgment will be granted in part and mooted in
part, and the court will enter a declaratory judgment that the PIA
contains all of the terms between the parties relating thereto.
I.
Factual and Procedural Background
On or about May 3, 2001, Murphree and Godshall entered into a
PIA pursuant to which Murphree assigned to Godshall a small portion
of Murphree's interest in a Delaware limited partnership known as
(~the
for
the
assignment of interest, Godshall paid Murphree $87,500.00. 2
The
MVP-GP
V,
assignment
L.P.
was
Partnership").1
approved
by
Greenbay Ventures II, LLC
Partnership's
(~Greenbay"),
company with three members:
David M. Lee.
the
In
exchange
General
Partner,
a Texas limited liability
Murphree, Thomas J. Stephenson, and
The approval states:
Pursuant to the terms of the Agreement of Limited
Partnership of MVP-GP, L.P., Greenbay Ventures II, LLC,
a Texas limited liability company, as the General Partner
of MVP-GP V, L.P., hereby approves the assignment of 1.25
Units in the Partnership to Ned A. Godshall and Ned A.
Godshall becoming a substitute Regular Limited Partner
for such Interests. Ned A. Godshall as of the Effective
Date shall be a Regular Limited Partner in the
Partnership.,,3
Godshall has not received a payout on his Partnership interest.
Murphree alleges that
beginning on February 4, 2013, defendant Godshall sent
Murphree a series of communications . . . related to his
ISee Plaintiff's Amended Complaint for Declaratory Judgment
Complaint"), Docket Entry No. 39, p. 2 ~ 6; Defendant's
First Amended Counterclaim (~Amended Counterclaim"), Docket Entry
No. 38, p. 2 ~ 4.
See also PIA, Exhibit A to Murphree's MSJ,
Docket Entry No. 46-2.
(~Amended
2PIA, Exhibit A to Murphree's MSJ, Docket Entry No. 46-2, p. 1
~ I1.2.
3S ee id. at 3.
-2 -
----------------
---------------------
ownership interest which he apparently believes entitles
him to hundreds of thousands of dollars from Murphree.
In his communications, defendant Godshall has also
threatened to initiate litigation against plaintiff
Murphree. ,,4
On February 20,
2013, Murphree filed this action under the
Declaratory Judgments Act, 28 U.S.C.
§§
2201 and 2202, seeking a
declaration and judgment that the PIA
contains all of the terms between the parties relating to
the assignment of the Transferred Interest, that the
payment for the Transferred Interest was an investment,
not a loan; and that there are no terms, conditions,
warranties or representations except as set forth in the
Partnership Interest Assignment. 5
Murphree's original complaint contained a prayer for attorneys'
fees,6 but Murphree's amended complaint filed on February 14, 2014,
does not contain a prayer for attorneys' fees. 7
On
August
26,
2013,
Counterclaim
(Docket
Murphree
fraudulent
for
Godshall
Entry
No.
20),
inducement,
filed
Defendant's
asserting
breach of
claims
against
fiduciary
constructive trust/unjust enrichment, violations of
Sky Laws, and rescission.
Original
duty,
the Texas Blue
On September 20, 2013, Murphree filed a
motion to dismiss Godshall's counterclaims pursuant to Federal
4Amended Complaint, Docket Entry No. 39, p. 3
~
12.
5Plaintiff's Complaint for Declaratory Judgment ("Plaintiff's
Complaint"), Docket Entry No. 1, p. 4 ~ 15; Amended Complaint,
Docket Entry No. 39, pp. 3-4 ~ 14.
6Plaintiff's Complaint, Docket Entry No.1, pp. 4-5
Prayer for Relief.
7See Amended Complaint, Docket Entry No. 39.
-3-
~
16 and
Rules of Civil Procedure 9(b) and 12(b) (6)
At
the
Initial
January 17,
Murphree's
2014,
motion
Pretrial
and
(Docket Entry No. 22).
Scheduling
Conference
held
on
the court granted in part and denied in part
to
dismiss
Godshall's
counterclaims
after
concluding that Godshall's allegations of fraud failed to satisfy
the requirements for pleading fraud established by Federal Rule of
Civil Procedure 9(b).B
The court granted Godshall leave to file an
amended counterclaim by January 31,
2014,9 and granted Murphree
leave to file an amended complaint by February 14, 2014. 10
On January 31, 2014, Godshall filed his Amended Counterclaim
(Docket
Entry No.
fraudulent
38)
inducement,
reasserting
breach
of
claims
against
fiduciary
duty,
Murphree
for
constructive
trust/unjust enrichment, violation of the Texas Blue Sky Laws, and
rescission. ll
On February 14,
2014,
Murphree filed his Amended
Complaint (Docket Entry No. 39), and the pending motion to dismiss
Godshall's Amended Counterclaim. 12
On June 20, 2014, Murphree filed
the pending motion for summary judgment.13
Godshall has responded
BHearing Minutes and Order, Docket Entry No. 36.
9Id.
lODocket Control Order, Docket Entry No. 37.
llAmended Counterclaim, Docket Entry No. 38, pp. 7-10
~~
19-23.
12Murphree's Second Motion to Dismiss Pursuant to Rule 12 (b) (6)
and Rule 9(b) ("Second Motion to Dismiss"), Docket Entry No. 40.
13Murphree's MSJ, Docket Entry No. 46.
-4-
to Murphree's motion to dismiss,
14
and to Murphree's motion for
summary judgment .IS
II.
Plaintiff's Second Motion to Dismiss Counterclaims
Murphree argues that all of Godshall's counterclaims should be
dismissed because they are time-barred.
Godshall's
counterclaim
for
Murphree also argues that
fraudulent
inducement
should
be
dismissed because it lacks the particularity that Rule 9(b) requires
for pleading causes of action based on fraud. 16
that
Murphree's
motion
to
dismiss
should
Godshall responds
be
denied
because
Godshall's counterclaim for fraudulent inducement meets the pleading
requirements of Federal Rules of Civil Procedure 8 and 9(b),
because pursuant to Texas Civil Practice & Remedies Code
none of his counterclaims are time barred.
§
and
16.069,
Alternatively, Godshall
argues that the court should grant his motion for leave to amend.17
14Ned A. Godshall's Response to Dennis Murphree's Second Motion
to Dismiss Pursuant to Rules 12(b) (6)
and 9(b)
(Doc. #41)
( "Godshall's Response to Second Motion to Dismiss"), Docket Entry
No. 42.
lSNed A. Godshall's Response to Dennis Murphree's Motion for
Summary Judgment ("Godshall's Response to Murphree's MSJ") , Docket
Entry No. 47, p. 1.
16Second Motion to Dismiss, Docket Entry No. 40.
17Godshall's Response to Second Motion to Dismiss, Docket Entry
No. 42, p. 6.
-5-
A.
Standards of Review
1.
Federal Rule of Civil Procedure 12 (b) (6)
A Rule 12(b) (6)
pleadings
and
is
motion tests the formal sufficiency of the
"appropriate
when
a
defendant
attacks
the
complaint because it fails to state a legally cognizable claim."
Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001), cert.
denied sub nom. Cloud v. United States,
122 S. Ct. 2665
(2002).
The court must accept the factual allegations of the complaint as
true, view them in a light most favorable to the plaintiff, and
draw all reasonable inferences in the plaintiff's favor.
Id.
To
defeat a motion to dismiss pursuant to Rule 12(b) (6), a plaintiff
must
plead
"enough facts
plausible on its face."
1955,
1974
(2007).
to
state
a
claim to
relief
that
is
Bell Atlantic Corp. v. Twombly, 127 S. Ct.
"A claim has facial
plausibility when the
plaintiff pleads factual content that allows the court to draw the
reasonable
inference
misconduct alleged."
(2009)
that
the
defendant
is
liable
Iqbal,
129 S.
Ct.
Ashcroft v.
(citing Twombly,
127 S. Ct. at 1965).
for
1937,
the
1949
"The plausibility
standard is not akin to a 'probability requirement,' but it asks
for more
than a
unlawfully."
complaint
defendant's
Id.
pleads
sheer possibility that
defendant
has
acted
(quoting Twombly, 127 S. Ct. at 1965.
"Where a
facts
with'
liability,
that
it
are
'stops
possibility and plausibility of
(quoting Twombly,
a
127 S.
Ct.
'merely
short
of
entitlement
at 1966)
-6-
consistent
the
to
line
a
between
relief.'"
Id.
"The court's review is
limited to the complaint, any documents attached to the complaint,
and any documents
attached to
the
motion
to
dismiss
central to the claim and referenced by the complaint.
1t
that
Lone Star
Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387
Cir. 2010)
are
(5th
(citing Collins v. Morgan Stanley Dean Witter, 224 F.3d
496, 498-99 (5th Cir. 2000).
2.
Federal Rule of Civil Procedure 9(b)
Godshall's counterclaim for fraudulent inducement is subj ect to
the pleading requirements of Federal Rule of Civil Procedure 9(b),
which states that
"[i] n alleging fraud or mistake,
a party must
state with particularity the circumstances constituting fraud or
mistake.
Malice,
intent,
knowledge,
and other conditions of a
person's mind may be alleged generally.
Fifth
Circuit
plaintiff to
"interprets
Rule
Fed. R. Civ. P. 9(b).
9(b)
The
strictly,
It
the
requiring
'specify the statements contended to be fraudulent,
identify the speaker, state when and where the statements were made,
and
explain why
the
statements
were
fraudulent.'
It
Flaherty
&
Crumrine Preferred Income Fund, Inc. v. TXUCorp., 565 F.3d 200,207
(5th
Cir.
2009)
(quoting
Williams
v.
WMX
Technologies,
Inc.,
112 F.3d 175, 177 (5th Cir.), cert. denied, 118 S. Ct. 412 (1997)).
See also United States ex rel. Thompson v. Columbia/RCA Realthcare
Corp., 125 F. 3d 899, 903 (5th Cir. 1997)
("At a minimum, Rule 9 (b)
requires that a plaintiff set forth the 'who, what, when, where, and
how' of the alleged fraud.")
(quoting Williams,
-7-
112 F.3d at 179).
"A dismissal
for
failure
to
plead
fraud with particularity as
required by Rule 9(b) is a dismissal on the pleadings for failure to
Southland Securities Corp. v.
state a claim. 11
Solutions, Inc'
365 F.3d 353 1 361 (5th Cir. 2004)
l
v. Allwaste, Inc'
B.
INSpire Insurance
l
992 F.2d 517
(citing Shushany
520 (5th Cir. 1993)).
1
Analysis
1.
Godshall/s Counterclaims Are Not Time-Barred
Murphree argues that all of Godshall/s counterclaims are time
barred and are not revived under Texas Civil Practices & Remedies
Code
§
16.069 because
February
141
2014 1
the Amended
contains
no
Complaint
claim for
that
he
filed
affirmative
on
relief. 18
Godshall argues his counterclaims are not time-barred because they
were timely filed under
Complaint
his
1
claim
§
16.069 in response to Murphree/s Original
and cannot be extinguished by Murphree/s abandonment of
for
Alternatively
1
affirmative
Godshall
relief
argues that
in
an
"[t] he
Amended
Complaint.
fund closed with no
payout to Godshall on or about May 3 1 2011[/] so Godshall/s claims
that
fall
Murphree 1
within the applicable statutes of
S
motion to dismiss.
limitation survive
1119
18Murphreel s Memorandum Supporting His Second Motion to Dismiss
Pursuant to Rule 12(b) (6) and Rule 9(b) ("Memorandum in Support of
Second Motion to Dismiss") 1 Docket Entry No. 411 pp. 15-18.
19Godshalll s Response to Second Motion to Dismiss
No. 421 p. 20.
-8-
1
Docket Entry
Texas Civil Practices and Remedies Code
(a)
§
16.069 provides:
If a counterclaim or cross claim arises out of the
same transaction or occurrence that is the basis of
an action, a party to the action may file the
counterclaim or cross claim even though as a
separate action it would be barred by limitation on
the date the party's answer is required.
(b)
The counterclaim or cross claim must be filed not
later than the 30th day after the date on which the
party's answer is required.
"Where the requirements of the statute are met, section 16.069
allows those who are already parties to the action to assert claims
against
one
J.M.K. 6,
App. -
another
that
would
Inc. v. Gregg & Gregg,
Houston
[14th Dist.]
otherwise
be
time-barred."
P.C., 192 S.W.3d 189, 199
2006,
no pet.).
(Tex.
"The statute is a
savings clause, 'intended to prevent a plaintiff from waiting until
an adversary's valid claim arising from the same transaction was
barred by limitations before asserting his own claim.'"
Pitts
&
Collard, L.L.P. v. Schechter, 369 S.W.3d 301, 323-24 (Tex. App.
Houston [1st Dist.] 2011, no pet.)
Arnett Grain Co.,
560
S.W.2d 85,
(quoting Hobbs Trailers v. J.T.
88
(Tex.
predecessor statute substantially similar to
1977)
§
16.069)).
Oliver v. Oliver, 889 S.W.2d 271, 273 (Tex. 1994)
§
(interpreting
See also
(recognizing that
16.069 prevents a party from postponing the filing of a claim
until an adversary's claim is barred by limitations).
There is no dispute that Godshall
filed his counterclaims
within thirty days of when his original answer was due.
stipulated answer date was August I, 2013
-9-
Godshall's
(Docket Entry No. 17),
and Godshall filed his counterclaims on August 26,
five days later (Docket Entry No. 20).
2013, twenty-
Nor is there any dispute
that Godshall's counterclaims arise out of the same transaction or
occurrence
judgment,
that
i.e.,
underlies
the
Murphree's
execution of the PIA.
suit
for
declaratory
See Wells v. Dotson,
S.W.3d 275, 281 (Tex. App. - Tyler 2008, no pet.)
261
(recognizing that
to determine what constitutes a "transaction" under
§
16.069, Texas
courts "employ the logical relationship test, which asks whether
the essential facts on which the claims are based are significantly
and logically relevant
to both claims").
Holman Street Baptist Church v.
Nevertheless,
Jefferson,
317 S.W.3d 540
citing
(Tex.
App. - Houston 2010, pet. denied), and Ball v. SBC Communications,
Inc., No. 04-02-00702-CV, 2003 WL 21467219 (Tex. App. - San Antonio
2003, pet. denied), Murphree argues that Godshall's counterclaims
should be dismissed because
§
16.069 does not revive time-barred
counterclaims where the plaintiff seeks only declaratory judgment
and "Murphree's Amended Complaint seeks a declaratory judgment and
does not seek any affirmative relief."20
sought
affirmative
relief
in his
Acknowledging that he
Original
Complaint,
Murphree
argues that his "amended complaint seeks no affirmative relief,
2°Memorandum in Support of Second Motion to Dismiss, Docket
Entry No. 41, p. 18. See also Plaintiff's Reply in Support of His
Second Motion to Dismiss Pursuant to Rule 12(b) (6) and Rule 9(b)
("Plaintiff's Reply in Support of Second Motion to Dismiss"),
Docket Entry No. 43, pp. 2-4.
-10-
thereby removing defendant's
§
counterclaims
from the
shelter of
16.069." 21
In Jefferson,
317
S.W.3d at
545,
the
court
observed that
" [c]ourts have interpreted section 16.069 as permitting a party's
otherwise time-barred counterclaims or cross claims only when the
opposing party has sought 'affirmative relief,' rather than just a
declaration on a
dispute between the parties.
Although like
II
Murphree, the plaintiff in Jefferson amended his complaint to remove
his originally asserted claim for attorney's fees in an effort to
prevent defendant from relying on
16.069 to assert otherwise time-
§
barred counterclaims, Murphree's reliance on Jefferson is misplaced
because
there
affirmative
the
claims
court
that
stated,
were
"[w] e
abandoned
do not
before
fulfill the requirements of Sec. 16.069(a)."
In Ball,
2003 WL 21467219,
opine on whether
or
during
trial
Id. at 546.
the plaintiff also amended his
complaint to remove a claim for affirmative relief, but the court
did not
rely on the plaintiff's
abandonment
of
affirmative relief in reaching its conclusion that
revive defendant's time-barred counterclaims.
its
§
claim for
16.069 did not
Instead, the court
held that "section 16.069 of the Texas Civil Practice and Remedies
Code
does
not
revive
or
save
claims
brought
by
a
party
as
counterclaims in a suit for declaratory judgment which alleges that
21Plaintiff's Reply in Support of Second Motion to Dismiss,
Docket Entry No. 43, p. 2.
-11-
such claims are absolutely barred by limitations as a matter of
law."
Ball, 2003 WL 21467219, *6.
The court explained that
[w] ere we to hold that section 16.069 revives claims
which are absolutely barred by limitations as a matter of
law, the result would be that a litigant would never be
able to seek a declaratory judgment based on limitations
because a defendant could always use section 16.069 to
defeat such a suit.
Id.
[W]ere we to hold that section 16.069 revives
claims which are absolutely barred by limitations as a
matter of law, we would be reading into the Uniform
Declaratory Judgments Act a provision that would make
such actions fruitless.
[W] e conclude that the
particular construction advocated by Ball would be unjust
and unreasonable.
at *4.
In other words, the Ball court held that "if
plaintiff
files
an action seeking only a
declaration that
a
the
defendant would be barred by a statute of limitations if it chose
to bring a particular cause of action, the defendant could not use
§
16.069 to then bring the otherwise time-barred cause of action."
Jefferson,
*4).
317 S.W.3d at 545
(citing Ball,
2003 WL 21467219,
at
Because Murphree did not file this action seeking declaratory
judgment that Godshall's claims are time-barred,
and because the
Jefferson court expressly declined to address the issue before this
court, Jefferson and Ball are both distinguishable.
Even
assuming
without
deciding
that
filing
an
amended
complaint that abandons a claim for affirmative relief will deprive
a defendant of the ability to rely on § 16.069 to revive otherwise
time-barred
claims,
the
court
concludes
that
Godshall's
counterclaims should not be dismissed on that basis under the facts
-12-
of this case.
Although the Docket Control Order gave Murphree the
ability to file an amended complaint by February 14,
2014,22 the
Hearing Minutes and Order entered therewith required Godshall to
file an amended counterclaim by January 31, 2014. 23
therefore able
to wait until
after Godshall
Counterclaim to file his Amended Complaint.
question,
the
court
concludes
that
to
Murphree was
filed his Amended
Although it is a close
dismiss
Godshall's
counterclaims based on Murphree's abandonment of his claim for
affirmative relief in the amended complaint that he filed after
Godshall had filed his Amended Counterclaim in reliance on
would
§
impose
upon Godshall
a
harm analogous
16.069 is intended to prevent.
at 323-24 (recognizing that
§
to
the
§
16.069
harm that
See pitts & Collard, 369 S.W.3d
16.069 is a savings clause, "intended
to prevent a plaintiff from waiting until an adversary's valid
claim arising from the same transaction was barred by limitations
before asserting his own claim")
(quoting Hobbs, 560 S.W.2d at 88).
Asserting that "[t]he fund closed with no payout to Godshall
on or about May 3, 2011,"24 Godshall argues that "[w]ith the May 3,
2011, accrual date, the only claim that would arguably fall outside
the
applicable
statute
of
limitations
is
Godshall's
claim for
22Docket Entry No. 37.
23Docket Entry No. 36.
24Godshall's Response to Second Motion to Dismiss, Docket Entry
No. 42, p. 20.
-13-
unjust
enrichment,
which
is
governed by a
two
year period. 1125
Although Murphree has filed a reply in support of his second motion
to
dismiss
Godshall's
(Docket
Entry
contention
that
No.
43),
the
he
has
counterclaims
action did not accrue until May 3, 2011.
not
responded
asserted
in
to
this
Accordingly, Murphree's
motion to dismiss Godshall's counterclaims will be denied.
2.
Godshall's Fraudulent Inducement Counterclaim Fails to
Satisfy the Rule 9(b) Pleading Requirements
Murphree argues that Godshall's cause of action for fraudulent
inducement should be dismissed under Rule 12(b) (6) because Godshall
has failed to satisfy Rule 9(b) 's requirements for pleading fraud
with particularity.26
plainly
answer
the
Godshall responds that his "counterclaims
\ who,
what,
where,
when,
and
how'
of
the
fraudulent representations." 27
(a)
Applicable Law
"Texas law has long imposed a duty to abstain from inducing
another to enter into a contract through the use of fraudulent
misrepresentations.
As a rule, a party is not bound by a contract
procured by fraud."
Formosa Plastics Corporation USA v. Presidio
25Id. at n.3.
26Memorandum in Support of Second Motion to Dismiss,
Entry No. 41, pp. 10-14.
Docket
27Godshall's Response to Second Motion to Dismiss, Docket Entry
No. 42, pp. 7-8.
-14-
Engineers
&
"Moreover,
Contractors,
it
is
well
Inc.,
960
S.W.2d 41,
established that
the
46
legal
(Tex.
1998).
duty not
to
fraudulently procure a contract is separate and independent from
the duties established by the contract itself."
Id.
Texas law has
also long "recognized that a fraud claim can be based on a promise
made with no intention of performing, irrespective of whether the
Id.
promise is later subsumed within a contract."
Truck
&
( citing Crim
Tractor Co. v. Navistar International Transportation Corp. ,
823 S.W.2d 591, 597 (Tex. 1992)).
To state a claim for fraudulent inducement under Texas law a
party must allege all of the elements of fraud in addition to the
fact that he entered into a binding agreement as a result of an
alleged misrepresentation.
(Tex. 2001)
Haase v. Glazner,
("Fraudulent inducement .
62 S.W.3d 795, 798
. is a particular species
of fraud that arises only in the context of a contract and requires
the existence of a contract as part of its proof.
That is, with a
fraudulent
fraud
inducement
claim,
the
elements
of
must
be
established as they relate to an agreement between the parties.") .
The elements of fraud are:
is
false;
(3)
(1) a material representation;
when the defendant made
the
(2) that
representation,
the
defendant knew it was false or made the representation recklessly
without any knowledge of its truth;
(4) the defendant intended the
plaintiff to rely on the representation, and the plaintiff did rely
on the representation; and (5)
injury.
Formosa,
the defendant's actions caused an
960 S.W.2d at 47.
-15-
.•.....
_ ....._. __..
_---
See also Kevin M.
Ehringer
Enterprises, Inc. v. McData Services Corp., 646 F.3d 321, 325 (5th
Cir.
"A promise
2011)
actionable
of
misrepresentation
future
if
performance
the
promise
constitutes
was
made
48
S.W.2d 853,
(citing Schindler v.
854
(Tex.
1992)).
Austwell
960
Farmers Coop.,
841
See also Spoljaric v.
failure to perform a contract is not evidence of fraud."
alleging
fraudulent
inducement
pleading requirements of Rule 9 (b),
must
i. e.,
meet
the
Id.
A
heightened
the party "must state
with particularity the circumstances constituting fraud."
Civ. P. 9(b)
Percival
"However, the mere
Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986).
party
no
Formosa,
intention of performing at the time it was made."
S.W.2d at
with
an
Fed. R.
Shandong Yinguang Chemical Industries Joint Stock
Co., Ltd. v. Potter, 607 F.3d 1029, 1032 (5th Cir. 2010)
(" [W] ith
respect to the fraud and fraudulent inducement claims, Fed. R. Civ.
P. 9(b) requires that [the claimant] 'state with particularity the
circumstances constituting the fraud.'
(b)
Under
the
Fed. R. Civ. P. 9(b) .").
Application of the Law to Godshall's Allegations
headings
"CAUSES
OF
ACTION"
and
"Fraudulent
Inducement," Godshall alleges:
Godshall incorporates and reiterates all previous factual
allegations as if spelled out herein for all purposes.
At the outset, in or about April, and specifically
April 30, 2001 both through personal statements and
prospectus
in
writing,
Murphree
made
false
representations
regarding
material
facts
of
this
transaction, and the financial obligations from Murphree
to Godshall, as well as the payment of interest and carry
on the interest sold. Murphree knew these statements and
promises were false, or made recklessly without knowledge
-16-
-----------------------
of their truth or veracity with the intent, design and
purpose of inducing Godshall to rely on same in order to
execute the Partnership Assignment Agreement. Godshall
relied on the false representations by entering the
agreement and paying $87,500 to Murphree. As a result,
Godshall justifiably relied on same as Murphree was in
control of the GP and had superior knowledge of the
transaction. 28
Murphree argues
Godshall's
allegation
that
"Murphree
made
false
representations regarding material facts.
. with the
intent, design and purpose of inducing Godshall to rely
on same in order to execute the Partnership Assignment
Agreement," Amended Counterclaim at ~19, fails to allege
the
particular
time
and
place
of
the
false
representation [s] or set forth any specific facts to
support an inference of fraud. 29
Godshall's only attempt to add the requisite
particularity appears in Paragraph 4 where he alleges
that in "April and May of 2001, Murphree and Stephenson
made specific representations to Godshall . . . " He then
references "a prospectus, a letter, and the agreements
themselves," claiming they were written by "Murphree and
Stephenson."
His pleading jumbles three alleged
documents and two alleged authors over a two-month time
span and fails to specify what representations in any of
these documents provide the basis for Godshall's claim.
Because Godshall's fraudulent inducement claim only
consists of a recitation of the cause of action and the
allegations in the Factual Background are vague as to the
time,
place,
and
circumstances
surrounding
the
statements,
this
claim
must
be
dismissed
under
Rule 9 (b) .30
28Amended Counterclaim, Docket Entry No. 38, pp. 7-8
~ 19.
29Memorandum in Support of Second Motion to Dismiss, Docket
Entry No. 41, pp. 10-11.
30rd. at 11-12.
-17-
Citing
~~
4-14,
17-18 of the Amended Counterclaim, Godshall
responds that his fraudulent inducement counterclaim is adequate
under Rule 9(b) .31
Godshall argues that
[t] he
"who"
and
"what"
constitute
the
various
representations made by Murphree and/or Stephenson
recounted . . . in the Amended Complaint. Murphree made
representations that i
1)
Godshall's money would be
treated as a loan, 2) that he would pay interest, 3) the
valuation of the fund, 4) he would eventually pay
Godshall back, and 5) his continued fraudulent pattern of
promising payment . . . . The "when" was "repeatedly over
the course of the ten-year life of the fund and
afterwards, including within weeks of hiring counsel and
suing Godshall" and "in a telephone call in February
2013."
. The "where" and "how" refer to the false
representations "throughout
the transaction",
telephone calls, a written prospectus, and in-person
meetings "on several occasions". 32
Having carefully considered the Amended Counterclaim,
concludes
that
Godshall's
allegations
fail
to
heightened requirements necessary to plead fraud.
tions alleged in
Godshall's
~~
the court
satisfy
the
The representa-
13-14, 17, and 18 are not capable of supporting
fraudulent
inducement
counterclaim
because
the
representations alleged in those paragraphs are all alleged to have
been made long after Godshall executed the PIA in May of 2001 and,
therefore, could not have induced Godshall to enter into the PIA.33
31Godshall's Response to Second Motion to Dismiss, Docket Entry
No. 42, p. 9.
32Id. at 10-11.
33S ee Amended Counterclaim, Docket Entry No. 38, pp. 4 -7 ~~ 1314, 17, and 18 (describing representations Murphree allegedly made
a£ter Godshall and Murphree had executed the PIA, e.g., ~ 13 where
(continued ... )
-18-
Godshall's
Murphree
Rule
made
9(b) 's
allegations
before
pleading
the
of
fact
regarding
PIA
was
executed
requirements
because
statements
fail
to
Godshall
specify the statements contended to be fraudulent,
that
satisfy
fails
"to
identify the
speaker, state when and where the statements were made, and explain
why the statements were fraudulent. //
Flaherty,
565 F.3d at 207
(quoting Williams, 112 F.3d at 177).
In
~
4 of the Amended Counterclaim Godshall alleges that
[i]n April and May of 2001, Murphree and Stephenson made
specific representations to Godshall related to an
investment in their MVP GP, V, LP and MVP V, LP. These
were made in writing through a prospectus, a letter, and
the agreements themselves.
Same are attached hereto as
exhibits I, 2, and 3. Although too many representations
are made to recount herein verbatim, the initial letter
(exhibit 1) makes many representations of investments,
liquidity, and the sale of some of Murphree's "interest
in Fund V now for a very attractive price.//
Murphree
then pegs the value at $87,500.00 per quarter point, and
states that even at the current raise, the value is 5X to
7.5X.
The fund never approached any such valuation. 34
Although the First Amended Counterclaim refers to the prospectus,
letter, and agreement that contain false representations made by
Murphree and Stephenson attached to the Amended Counterclaim "as
exhibits I, 2, and 3,//35 the referenced documents are not attached
33 ( ... continued)
Godshall alleges that Murphree affirmed the promise to pay back the
money Godshall had given him "over the course of the ten-year life
of the fund and afterwards, including wi thin weeks of hiring
counsel and suing Godshall//) .
34Amended Counterclaim, Docket Entry No. 38, p. 2
35rd.
-19-
~ 4.
to either the original or the amended counterclaim filed with the
court.
Moreover, Godshall fails to specify which representations
in the prospectus, letter, or agreement were false or why they were
false,
false
fails to allege which representations Murphree knew were
when
he
made
them
or
that
he
made
them
with
reckless
disregard to their truth or falsity; fails to allege where Murphree
provided Godshall documents containing false representations; and
also fails to allege which of the representations made in these
documents induced Godshall to execute the PIA.
representations
in
the
prospectus,
letter,
Absent the actual
and
PIA,
and
the
contexts in which those representations were made and the documents
provided
to
Godshall,
representations
fail
Godshall's
to
satisfy
allegations
Rule
9(b) 's
regarding
those
requirements
for
pleading fraud.
In
~
6 of the Amended Counterclaim Godshall alleges that
Murphree represented that the 80% limited partnership
[MVP-V, LP] interest would be sold to limited partners to
generate $120 million. The agreement further represented
that Godshall's interest in this investment would be
worth more than $1 Million at payout. Instead, the fund
was closed in 2011 and Godshall received nothing, not a
penny. Not even [] his principal. 36
Godshall alleges that Murphree represented that the 80% limited
partnership interest would be sold to limited partners to generate
$120 million and that his interest in the investment would be worth
more than $1 million at payout, but Godshall fails to specify when,
36Id.
at 2-3
~
6.
-20-
where,
how,
or
representations.
in
what
context
Moreover,
Murphree
Godshall
has
made
neither
these
alleged
alleged
that
Murphree knew the alleged representations were false when he made
them, nor alleged that these representations induced him to execute
the PIA.
In
~~
9-10 and 12 of the Amended Complaint, Godshall alleges
9.
Murphree made numerous false representations to
induce Godshall into executing the Partnership
Interest Assignment that forms the basis of
Murphree's claims. Murphree told Godshall that the
partnership would comprise a greater than $100
million fund that would be actively managed by
Murphree
and
Stephenson;
neither
of
those
representations was true.
10.
Murphree and Stephenson sent Godshall a written
prospectus, met with Godshall in person, and told
Godshall the investment would multiply in value (5X
to 7.5X) over the ten-year life of the fund; that
was not true, either.
Murphree reduced some of
these representations to writing in a prospectus
for
the
investment
which he
gave
Godshall,
intending Godshall to rely upon same in purchasing
the portion of Mur[ph]ree's interest, as well as,
the interest carry Godshall was to receive.
12.
Murphree represented to Godshall that the money
Godshall invested was supposed to be "put to work"
as part of the larger investment vehicle but it
simply was not. Instead, Murphree effectively took
Godshall's 'investment' as an advance on the fund's
success (which never came) and then failed to
follow through with the representations he made
about the partnership and the fund.
He failed to
pursue the limited partner investment on the scale
that he represented to Godshall and failed to
actively manage the assets that were invested in
the fund. 37
37Id.
at 3-4
~~
9-12.
-21-
Missing from the Amended Counterclaim are any allegations of
fact capable of establishing when, where, or how Murphree made the
representations
Counterclaim.
described
~~
in
9-10
and
12
of
the
Also missing are allegations of fact
Amended
capable of
establishing that Murphree knew the representations were false when
he made
them,
or
that
Murphree
made
the
representations
reckless disregard to their truth or falsity.
alleges
that
investment
Murphree
"failed
to
pursue
with
Instead, Godshall
the
limited
on the scale he represented to Godshall,"
partner
and that
Murphree "failed to actively manage the assets that were invested
in the fund."38
But Godshall neither alleges that Murphree made the
representations described in
~~
9-10
and 12 without
intent
to
follow through with them, nor alleges that Murphree entered into
the PIA without intent to comply with it.
A promise to act in the
future constitutes fraud only when made with the intention, design,
and purpose of deceiving, and with no intention of performing the
act.
Formosa,
960 S.W.2d at 48;
Instead of alleging facts
Spoljaric,
708 S.W.2d at 434.
capable of constituting even "slight
circumstantial evidence" of intent to defraud, Godshall's claim for
fraudulent
inducement is based on his contention that Murphree
failed
follow
to
through
on
the
scale
Murphree failed to follow through at all.
represented,
not
that
Godshall's claim for
fraudulent inducement is therefore belied by his own allegations of
38Id. at 4 ~ 12.
-22-
fact, which recognize Murphree's partial performance.
Godshall's
allegations that Murphree merely failed to follow through on the
scale represented thus negate his claim for fraudulent inducement.
See IKON Office Solutions,
(Tex.
App.
-
Houston
Inc.
v.
[14th Dist.]
Eifert,
2003,
125 S.W.3d 113,
pet.
denied)
124
("Partial
performance can negate an intent not to keep a promise at the time
it was made.") .
Nor has Godshall alleged that the representations described in
~~
9-10 and 12 induced him to execute the PIA.
In
~~
11 and 15 Godshall alleges:
11.
Moreover, at the time of the "investment" Murphree
failed to disclose that Murphree had personal
financial difficulties in fact needed the money
from Godshall for his own purposes.
Murphree
basically took Godshall's money and pocketed same
as a personal loan. 39
15.
Upon information and belief, Murphree was having
financial difficulties in the timeframe when he
induced Godshall
to provide
him the
funds.
Murphree induced Godshall, Leslie Moore, and others
to make similar "investments" into MVP-GP V so that
he could use the funds to "rob Peter and pay Paul,"
and not as an honest venture capital investment. 4o
Godshall
alleges that Murphree
failed to disclose
that he had
personal financial difficulties and needed the money from Godshall
for his own purposes, but Godshall has not alleged that he would
not have executed the PIA had he known of Murphree's financial
39Id.
~
11.
4°Id. at 4
~
11, 5
~
15.
-23-
difficulties. 41
Because the Amended Counterclaim lacks allegations
of fact capable of proving that the omission alleged in ~~ 11 and
15 played any role in Godshall's decision to enter into the PIA,
Godshall has failed to allege facts capable of proving that the
omission alleged is actionable under Texas law.
Read
Amended
collectively,
Counterclaim
the
fail
factual
to
allegations
identify
with
in
Godshall's
particularity
as
required by Rule 9(b) any false representations or omissions that
induced him to execute the PIA.
Godshall's allegations of fact
also fail to identify with the requisite particularity when, where,
or how any allegedly
false
representation was
made.
Nor has
Godshall alleged facts capable of establishing that any allegedly
false representation or omission induced him to enter into the PIA.
Accordingly,
the
court
concludes
that
the
counterclaim
for
41The notion that Godshall relied on the omission alleged in
the Amended Counterclaim is belied by the text of the
letter that Godshall alleges contained representations that induced
him to execute the PIA. There Murphree plainly states:
~
11 of
I need a small cash infusion now to allow me to do
productive work without having to worry about paying the
bills while we raise Fund V .
. . . As an "insider" on virtually everything we do, most
of my stocks from recent sales, mergers and IPO's are in
lengthy lock-ups so I can't sell or pledge many of them,
particularly with stock prices where they are today.
It's interesting to me to have a very decent net worth
right now but to be in a cash crunch
. but we are
where we are.
Letter, Exhibit B to Murphree's MSJ, Docket Entry No. 46-3, p. 1.
See below, § IV.B.2(a).
-24-
fraudulent inducement as alleged against Murphree must be dismissed
for
failure
to
meet
the
heightened
pleading
requirement
of
Rule 9 (b) .42
III.
Godshall's Alternative Motion for Leave to Amend
At the end of his response in opposition to Murphree's second
motion to dismiss, Godshall states u[iJf the Court determines that
Godshall's fraud counterclaim does not meet the requirements of
Rule 9(b) or Rule 12(b) (6), Godshall respectfully requests 30 days
to
amend
the
counterclaim. 1143
Murphree
argues
that
Godshall's
alternative motion for leave to amend should be denied because
Godshall
has
already
had
one
opportunity
to
amend,
and
an
additional opportunity to amend would be futile.
Leave to amend should be freely granted when justice requires.
Fed. R. Civ. P. 15(a).
Although under Rule 15(a) there is a strong
presumption in favor of granting leave,
automatic.
leave to amend is not
Financial Acquisition Partners, LP v. Blackwell, 440
F.3d 278, 291
(5th Cir. 2006).
uDenial of leave to amend may be
warranted for undue delay, bad faith or dilatory motive on the part
of
the
movant,
prejudice
to
repeated
the
failure
opposing
party,
to
or
cure
deficiencies,
futility
of
a
undue
proposed
42For the reasons stated below in § IV.B.2(a), the court also
concludes that Murphree is entitled to summary judgment on
Godshall's fraudulent inducement counterclaim.
43Godshall's Response to Second Motion to Dismiss, Docket Entry
No. 42, p. 21.
-25-
amendment."
United States ex reI. Steury v. Cardinal Health, Inc.,
625 F.3d 262, 270 (5th Cir. 2010)
(citing Rosenblatt v. United Way
of Greater Houston, 607 F.3d 413, 419 (5th Cir. 2010), and Foman v.
Davis,
83 S. Ct. 227,
230
(1962)).
Dismissal with prejudice is
appropriate if the court finds that the plaintiff has alleged his
best case.
Jones v. Greninger, 188 F.3d 322, 327 (5th Cir. 1999)
(per curiam) .
The court concludes that Godshall's counterclaims should be
dismissed without a second opportunity to amend because Godshall
has already had one opportunity to amend to satisfy the pleading
requirements of Rule
9 (b),
has alleged his best
case,
and has
merely asked for an additional opportunity to amend without either
submitting a proposed second amended complaint or describing what,
if
any,
additional
alleged.
facts,
he
could
In response to Murphree's
add
to
the
facts
already
second motion to dismiss,
Godshall repeatedly declares the adequacy of his counterclaims, and
only seeks leave to amend should the court determine otherwise.
Under these circumstances the court concludes that Godshall has
pleaded his best case.
See Jacquez v. Procunier, 801 F.2d 789, 792
(5th
some
Cir.
1986)
("At
point
a
court
must
decide
that
a
plaintiff has had fair opportunity to make his case; if, after that
time, a cause of action has not been established, the court should
finally dismiss the suit.")
Rouge, 761 F.2d 242, 248-49
See also Morrison v. City of Baton
(5th Cir. 1985)
("The plaintiffs were
given an opportunity to amend to allege specific conduct .
-26-
. in
support of their . . . theories, but failed to do so; we must assume
that they were unable in good faith to make such allegations.").
Accordingly,
Murphree's
motion
for
leave
to
amend
asserted
in
response to Murphree's second motion to dismiss will be denied.
IV.
for Summary Judgment
Pla~nt~ff's Mot~on
Murphree
moves
for
summary
judgment
arguing
that
he
is
entitled to summary judgment on his claim for declaratory judgment
because (1) the PIA contains an integration clause that precludes
the court from considering parole evidence;
(2) the parol evidence
that Godshall cites in support of his counterclaims does not raise
a
genuine
issue
of
material
fact
for
trial;
Godshall's counterclaims are time-barred. 44
fact
issues
preclude
granting
Murphree's
and
(3)
all
of
Godshall responds that
motion
for
summary
judgment, that parole evidence is admissible to prove fraudulent
inducement, and that his counterclaims are not time-barred. 45
A.
Standard of
Rev~ew
Summary judgment is authorized if the movant establishes that
there is no genuine dispute about any material fact,
entitles it to judgment.
material
facts
are
Fed. R. Civ. P. 56(c).
"genuine"
if
the
evidence
and the law
Disputes about
is
such
that
a
reasonable jury could return a verdict for the nonmoving party.
44Murphree's MSJ, Docket Entry No. 46.
45Godshall's Response to Murphree's MSJ, Docket Entry No. 47.
-27-
Anderson v. Liberty Lobby, Inc., 106 S. Ct. 2505, 2511 (1986).
The
Supreme Court has interpreted the plain language of Rule 56(c) to
mandate the entry of summary judgment
discovery and upon motion,
showing
sufficient
to
"after adequate time for
against a party who fails to make a
establish
the
existence
of
an
element
essential to that party's case, and on which that party will bear
the burden of proof at trial."
S.
Ct.
"must
2548,
2552
\ demonstrate
(1986).
Celotex Corp.
v.
Catrett,
106
A party moving for summary judgment
the absence of
a
genuine
issue of material
fact,' but need not negate the elements of the nonmovant's case."
Little v.
Liquid Air Corp.,
(en banc)
(quoting Celotex, 106 S. Ct. at 2553-2554
original) )
37 F.3d 1069,
1075
(5th Cir.
1994)
(emphasis in
"If the moving party fails to meet this initial burden,
the motion must be denied, regardless of the nonmovant's response."
Id.
If, however,
requires
the
the moving party meets this burden, Rule 56(c)
nonmovant
to go beyond the pleadings
and show by
affidavits, depositions, answers to interrogatories, admissions on
file, or other admissible evidence that specific facts exist over
which there is a genuine issue for trial.
S. Ct. at 2553-2554).
Id.
(citing Celotex, 106
In reviewing the evidence "the court must
draw all reasonable inferences in favor of the nonmoving party, and
it may not make credibility determinations or weigh the evidence."
Reeves v. Sanderson Plumbing Products, Inc., 120 S. Ct. 2097, 2110
(2000) .
Factual controversies are to be resolved in favor of the
nonmovant,
"but only when there is an actual controversy, that is,
-28-
when both parties have submitted evidence of contradictory facts."
Little, 37 F.3d at 1075.
"Moreover, the nonmoving party's burden is
not affected by the type of case; summary judgment is appropriate in
any case
'where critical
evidence
is
so weak or tenuous on an
essential fact that it could not support a judgment in favor of the
nonmovant. '"
Id. (quoting Armstrong v. City of Dallas, 997 F. 2d 62,
67 (5thCir. 1993)).
B.
Analysis
1.
Motion for Summary Judgment on Declaratory Judgment Claim
Murphree seeks a declaration
(i)
regarding the parties' rights, obligations, and
status under the [PIA];
(ii)
that the [PIA] contains all of the terms between
the parties relating to the assignment of the
Transf~rred Interest, and
(iii)
that the payment for the Transferred Interest was
an investment, not a loan;
(i v)
that there are no terms, conditions, warranties
or representations except as set forth in the
[PIA] .46
Murphree argues that the PIA "contains all of the terms between the
parties relating to the assignment of the Transferred Interest."47
Asserting that the PIA contains an integration clause, and citing
Claus v. Gyorkey, 674 F.2d 427, 434 n.5 (5th Cir. 1982), Murphree
46Amended Complaint, Docket Entry No.
Murphree's MSJ, Docket Entry No. 46, p. 8.
39,
47Murphree's MSJ, Docket Entry No. 46, p. 9.
-29-
p.
4.
See also
argues that even if the parties to a contract previously made oral
agreements or representations, "the terms of an oral contract, once
reduced to writing,
final,
and
are,
under the Texas parole evidence rule,
and all prior and contemporaneous negotiations, promises,
agreements
instrument.
are
presumed
to
be
merged
into
the
written
1148
The integration clause contained in the PIA provides:
Entire Agreement.
This Assignment contains all of the
terms between the parties relating to the assignment of
the Transferred
Interest.
There
are
no
terms,
conditions, warranties or representations except as set
forth
in this Assignment.
Any addition to or
modification of this Assignment shall be of no force or
effect unless in writing and duly executed by the parties
hereto. 49
Based on
this
integration
clause,
Murphree
argues
that
he
is
entitled to summary judgment because
the only admissible summary judgment evidence - the [PIA]
itself - sets forth all of the necessary information for
the Court to grant summary judgment for Plaintiff. There
is no genuine issue of material fact as to Plaintiff's
allegations that would prevent the court from granting
the relief requested. 50
Citing Dallas Farm Machinery Co. v.
(Tex.
Reaves,
307 S.W.2d 233
1957), Godshall responds that the Texas Supreme Court has
long held that parole evidence is admissible, even in the face of
a merger clause in a written contract, to show that the contract
was induced by fraud.
Godshall argues that
48Id.
49PIA, Docket Entry No. 46-2,
~
II.5(d).
50Murphree's MSJ, Docket Entry No. 46, p. 10.
-30-
[t]he Fund Solicitation Letter and Godshall's Affidavit
demonstrate that Murphree made a material misrepresentation to Godshall about the fund, its value, and its
earnings potential, and that Godshall relied upon those
misrepresentations to his detriment.
See
Ex. A,
Solicitation Letter; Ex. B, Affidavit.
The [PIA] into
which both Murphree and Godshall entered created a
fiduciary relationship between the two, as it made them
partners in MVP-GP V, L.P.
See Ex. C,
Partnership
Assignment. 51
Murphree does not dispute the admissibility of parole evidence
to prove fraudulent inducement.
Murphree argues instead that even
if parol evidence were permitted, Godshall's counterclaims would
fail because the parole evidence that he seeks to have considered,
i.e.,
Godshall's
actually
affidavit
contradict
inducement. 52
and
the
Godshall's
fund
solicitation
allegations
For the reasons stated below in
§
of
letter,
fraudulent
IV.B.2, the court
concludes Murphree's motion for summary judgment on his claim for
declaratory judgment should be granted because the parole evidence
51Godshall's Response to Murphree's MSJ, Docket Entry No. 47,
p. 5.
52Murphree's MSJ, Docket Entry No. 46, p. 11 (citing PIA,
Exhibit A, and Fund Solicitation Letter, Exhibit B, Docket Entry
Nos. 46-2 and 46-3, respectively). Godshall does not dispute that
the exhibits submitted in support of Murphree's MSJ are the PIA and
fund solicitation letter referenced in his Amended Counterclaim.
Godshall's response in opposition (Docket Entry No. 47) references
both a Fund Solicitation Letter attached thereto as Exhibit A, and
a PIA attached thereto as Exhibit C.
But Exhibit A attached to
Godshall's response in opposition is not the Fund Solicitation
Letter provided to him by Murphree but, instead, a letter agreement
pursuant to which Murphree and Company, Inc. engaged Morgan
Keegan & Company, Inc. as its exclusive placement agent in
connection with the Murphree Venture Partners V, L.P., and
Exhibit C attached to Godshall's response in opposition is not the
PIA executed by Murphree and Godshall but, instead, the PIA
executed by Murphree and Leslie Moor.
-31-
Godshall
cites
inducement,
in
support
of
his
counterclaims
breach of fiduciary duty,
for
fraudulent
constructive trust/unjust
enrichment, violation of the Texas Blue Sky Laws, and rescission,
do not raise genuine issues of material fact for trial.
2.
Motion for Summary Judgment on Godshall's Counterclaims
(a)
In
§
Fraudulent Inducement
II.B.2, above, the court concluded that Murphree's second
motion to dismiss Godshall's counterclaim for fraudulent inducement
should be granted because Godshall's allegations of fraud failed to
satisfy Rule 9(b)'s particularity requirement.
For the reasons
stated below, the court concludes alternatively that Murphree is
entitled
to
summary
judgment
on
Godshall's
counterclaim
for
fraudulent inducement because the evidence that Godshall cites in
support
of
his
fraudulent
inducement
claim,
solicitation letter and his own affidavit,
i.e.,
the
fund
is not evidence from
which a reasonable jury could conclude that Murphree made any false
representations or omissions of material fact.
"[A]n omission or
misrepresentation of fact is material if there is a substantial
likelihood that a reasonable investor would consider it important
in deciding to invest.
II
Highland Capital Management
Scott Co., 402 S.W.3d 719, 743
2012, no pet.).
(Tex. App. -
r
L. P. v. Ryder
Houston [14th Dist.]
See also Basic v. Levinson, 108 S. Ct. 978,
(1988) .
-32-
983
Godshall alleges that Murphree told him that his investment
would increase 5 to 7.5 times in value,53 but the text of the fund
solicitation letter actually states:
Our historical average return net to our investors has
been about 5 times their invested capital.
That
includes the five complete failures we've had out of our
approximately 50 start-ups and includes 75% of Fund IV
still being carried at our cost
so our returns
should exceed 5X going forward.
Some VC firms can show
higher returns to their investors but I'll use a 5X and
7.5X return as conservative examples. 54
Godshall
alleges
that
the
PIA represented
that
his
investment
interest would be worth more than one million dollars at payout,55
but
the
PIA
does
not
contain
any
representation
Godshall's investment interest would be worth at payout.
about
what
Moreover,
the fund solicitation letter contained a range of possible payouts
based on various possibilities for the amount of funds raised and
the rates of returns.
For example, the letter states that U[iJf
Fund V is $35 MM and 5X return, the profit per point is $1.4 MM. 1156
Since Godshall only purchased one quarter of a point,57 pursuant to
53Amended Counterclaim, Docket Entry No. 38,
~~
4, 10.
54Letter, Exhibit B, Docket Entry No. 46-3, p. 2.
55Amended Counterclaim, Docket Entry No. 38,
~
6.
56Letter, Exhibit B to Murphree's MSJ, Docket Entry No. 46-3,
p. 2.
57Amended Counterclaim, Docket Entry No. 38, ~ 8 (UMurphree
sold to Godshall one-quarter of one-percent (0.25%) of the net
profit from the fund at the end of the ten-year term: 1.25% of the
20% 'carry' equals 0.25% of the entire 100% of the fund, after the
80% limited partners first receive all of their initial investment
back:
1.25%/5 = 0.25%.").
-33-
this possibility, Godshall's investment interest would have been
worth
far
less
than one million dollars
at
payout.
Godshall
alleges that Murphree told him "that the partnership would comprise
a greater than $100 million fund,"58 but this allegation is belied
by
the
range
of
possible
fund
amounts
set
out
of
in
the
the
fund
solici tation letter. 59
Godshall
alleges
that
"at
the
time
\ investment'
Murphree failed to disclose that Murphree had personal financial
difficulties in fact needed the money from Godshall for his own
purposes. "60
This
solici tation
allegation
letter,
but
is
also
by
belied not
the
only by
affidavit
that
the
fund
Godshall
submitted in opposition to Murphree's motion for summary judgment.
The opening sentence of the fund solicitation letter states:
"I
need a small cash infusion now to allow me to do productive work
without having to worry about paying the bills while we raise
Fund V. "61
In his affidavit Godshall acknowledges that the fund
solicitation letter he received from Murphree described Murphree's
"need for immediate cash.
58Id.
~
"62
9.
59Letter, Exhibit B to Murphree's MSJ, Docket Entry No. 46-3,
p. 2.
6°Amended Counterclaim, Docket Entry No. 38
~
11.
61Letter, Exhibit B to Murphree's MSJ, Docket Entry No. 46-3,
p. 1.
62Affidavit of Ned A. Godshall, Exhibit B to Godshall's
Response to Murphree's MSJ, Docket Entry No. 47-2, p. 1.
-34-
Godshall's
argument
that
Murphree
made
materially
false
representations and omissions is based on the fact that Murphree's
predictions
about
future
such as
events
the
fund's
future
performance and the future value of Godshall's investment -- did
not come true.
Predictions of future events are not actionable as
misrepresentations under Texas law absent evidence that Murphree
purported
to
Trenholm v.
have
special
Ratcliff,
knowledge
646 S.W.2d 927,
about
930
the
(Tex.
future
1983)
event,
Murphree
i
knew that the representation was false when he made it, Dowling v.
NADW Marketing, Inc., 631 S.W.2d 726, 728 (Tex. 1982)
made
a
promise
as
to
his
future
intention of keeping.
performance
See also Aguaplex,
that
960 S.W.2d at 48,
he
Inc.
La Valencia, Inc., 297 S.W.3d 768, 774-75 (Tex. 2009)
(citing Formosa Plastics,
or Murphree
i
v.
had
no
Rancho
(per curiam)
and Spoljaric,
708
S.W.2d at 434) .
Godshall alleges that over the course of the ten-year life of
the partnership Murphree and Stephenson repeatedly assured him that
he would be paid back, but Godshall has not included any statements
in his affidavit or presented any other evidence from which a
reasonable
jury could conclude that Murphree purported to have
special knowledge about the fund's future value, that Murphree knew
that any of his alleged representations were false when made, or
that Murphree made a promise as to his future performance that he
had no intention of keeping.
-35-
Citing Reynolds-Southwestern Corp. v. Dresser Industries l 438
s.w.2d 135
n.r.e.)
1
139 (Tex. App. - Houston [14th Dist.] 1969
and Brosseau v. Ranzau l 81 S.W.3d 381
I
Beaumont 2002
1
pet. denied)
I
394
1
1
writ refld
(Tex. App. -
Godshall argues that
a presumption of unfairness taints the transactions
between Murphree and Godshall and requires Murphree to
prove the fairness of the transaction . . . Although it is
Murphree and not Godshall who must produce evidence . . .
Godshall nonetheless submits evidence establishing that
despite having a duty to fully disclose all matters
affecting the partnership
Murphree failed to
disclose that he had not raised the capital that he
represented would be raised l Murphree failed to disclose
that despite having raised $30 million as represented the
payout to Godshall would not be between $1.4 and $2.1
million l and/or Murphree failed to disclose that he had
not actually raised $30 million as represented.
See
Ex. B Af f i da vi t . 63
I
But missing from the summary judgment record is any evidence from
which
a
reasonable
jury could
conclude
that
Murphree
had not
actually raised $30 million and did not intend to raise additional
funds.
Moreover l the range of possible values stated in the fund
solicitation letter negates Godshallls assertion that Murphree did
not inform him that his income on an investment fund of $30 million
would be significantly less than $1.4-$2.1 million.
Godshallls reliance on Reynolds-Southwestern and Brosseau is
misplaced
because
these
cases
are
inapposite.
In
Reynolds-
Southwestern the court held that transactions between corporations
with common board members are subject to close scrutiny and are
63Godshallls Response to Murphreels MSJ
pp. 5-6.
-36-
I
Docket Entry No.
471
presumptively fraudulent.
The transaction at issue in this case is
not a transaction between corporations with common board members.
In Brosseau,
81 S.W.3d at 394-95, the court recognized the well-
established principle that partners have a duty to one another to
make full disclosure of all matters affecting the partnership and
to account for all partnership profits and property,
managing partner owes his
recognized in the law.
579 (Tex. 1976).
partners
the
highest
and that a
fiduciary duty
See Huffington v. Upchurch, 532 S.W.2d 576,
Since Godshall's fraudulent inducement claim is
necessarily based on
representations
alleged
to
have
occurred
before he and Murphree executed the PIA that made them partners,
and
since
Godshall
has
failed
either to
allege
facts
or cite
evidence capable of establishing the existence of a prior fiduciary
or confidential relationship between him and Murphree, Godshall's
argument that Murphree fraudulently induced him to enter the PIA by
breaching
a
fiduciary
duty
of
disclosure
has
no
merit.
See
Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex.
1997)
("[T]o impose such a relationship in a business transaction,
the relationship must exist prior to, and apart from, the agreement
made the basis of the suit.") .
Although
Godshall
argues
that
the
solicitation letter support his allegations
PIA
and
the
fund
that Murphree made
false representations and omitted to disclose material information
about
the
fund,
its
value,
and
its
earnings
potential
that
fraudulently induced him to enter the PIA, neither the text of the
-37-
PIA,
the
contain
fund
solicitation letter,
evidence
representations
that
fund
solicitation
any
letter
of
the
false
In fact,
the
disclose
of
any
affidavit
information alleged in Godshall's Amended Counterclaim.
of
to
Godshall
material
text
failed
made
the
the
the
or
Murphree
nor
actually
negates
Godshall's claim of fraudulent inducement because it contradicts
his allegations that Murphree made false representations and failed
to disclose material information.
Because Godshall has failed to
cite evidence from which a reasonable fact-finder could conclude
that Murphree made false representations or omissions of material
fact that induced Godshall to execute the PIA, the court concludes
that
Murphree
is
entitled
to
summary
judgment
on
Godshall's
counterclaim for fraudulent inducement.
(b)
Breach of Fiduciary Duty
Godshall alleges that
Murphree sold and assigned a partnership interest to
Godshall i such a transaction is between two partners. In
such a transaction, especially in light of Murphree's
position as majority GP interest holder, Murphree owed a
fiduciary
duty
to
Godshall.
Murphree's
misrepresentations, obfuscation, and likewise failure to present
all the facts known to him demonstrate Murphree's breach
of his fiduciary duty. 64
In
support
of
this
counterclaim for
breach of
fiduciary
duty
Godshall cites his own affidavit stating in pertinent part that
Mr. Murphree provided to me a letter in which he
described the venture capital fund ("Fund V"), and his
64Amended Counterclaim, Docket Entry No. 38, p. 8
-38-
~
20.
need for immediate cash so that he could continue
fundraising.
In that solicitation letter, Mr. Murphree
stated that he already had about $30 million in closings
and commitments . . . I understood this statement to mean
that he already had at least $30 million in Fund V, and
that he projected a closing of about $100 million.
At no time did Mr. Murphree . . . or anyone [on] his
behalf, inform me that he had not actually raised $30
million at the time I purchased an interest. At no time
did Mr. Murphree or anyone on his behalf inform me that
the income on $30 million would be significantly less
than the predicted $1.4 - $2.1 million. At no time did
Mr. Murphree or anyone on his behalf disclose to me that
he had not raised the additional capital that he
represented to me that he would raise. 65
To
establish
a
claim
for
complaining party must show:
existed,
(2)
a
a
(1)
breach
of
fiduciary
duty
a
that a fiduciary relationship
breach of that duty,
and
(3)
an injury to the
complaining party or a benefit to the fiduciary as a result of the
breach.
See Lundy v. Masson,
260 S.W.3d 482,
Houston [14th Dist.] 2008, pet. denied).
501
(Tex. App. -
A fiduciary duty requires
the fiduciary to place the interest of the other party before his
or her own.
Id.
Thus, where a fiduciary relationship exists, the
burden is upon the fiduciary to show he acted fairly and informed
the other party of all material facts related to the challenged
transaction.
Brazosport Bank v. Oak Park Townhouses, 889 S.W.2d
676, 684 (Tex. App. - Houston [14th Dist.] 1994, writ denied).
Under
information.
2009).
Texas
law
McBeth v.
a
fiduciary
Carpenter,
has
a
duty
565 F.3d 171,
to
179
disclose
(5th Cir.
However, for a fiduciary relationship to exist incident to
65Affidavit of Ned A. Godshall, Exhibit B to Godshall's
Response to Murphree's MSJ, Docket Entry No. 47-2, p. 2.
-39-
a business transaction such as the one at issue here "there must be
a fiduciary relationship before, and apart from the agreement made
the basis of the suit."
McBeth,
565
F.3d
at
Schlumberger, 959 S.W.2d at 177.
178
("based
on
Texas
law,
once
See also
such
a
partnership is established, fiduciary responsibilities flow between
the parties").
Godshall has not cited any evidence capable of
establishing that he had a fiduciary relationship with Murphree
that existed separate and apart from the agreement made the basis
of this lawsuit, i.e., the PIA.
jury could not
conclude
Absent such evidence a reasonable
that
a
fiduciary
relationship between
Godshall and Murphree existed before, and apart from, the agreement
made the basis of the suit,
reasons
stated
in
§
i.e.,
IV.B.2(a),
the PIA.
above,
the
Moreover,
court
has
for the
already
concluded that Godshall has failed to cite any evidence from which
a
reasonable
jury
could
conclude
that
at
the
time
Godshall
purchased his interest Murphree had not actually raised $30 million
and did not intend to raise additional funds, or that Murphree had
not
informed Godshall
that the
income on $30 million would be
significantly less than $1.4 - $2.1 million.
Accordingly, Murphree
is entitled to summary judgment on Godshall's breach of fiduciary
duty counterclaim.
(c)
Constructive Trust/Unjust Enrichment and Rescission
A constructive trust is an equitable remedy created by the
courts to prevent unjust enrichment.
imposed based on the existence of a
A constructive trust may be
fiduciary or confidential
-40-
-------
------------
---------- --------
Swinehart v.
relationship or when there has been actual fraud.
Stubbeman, McRae, Sealy, Laughlin & Browder, Inc'
878
(Tex. App. - Houston [14th Dist.]
Meadows v. Bierschwale
l
2001 1 pet.
516 S.W.2d 125
1
128
48 S.W.3d 865
l
denied)
1
(citing
(Tex. 1974)).
Texas
law allows a party who is induced by fraud to enter into a contract
to
rescind
the
contract
or
to
Production Co. v. Conoco, Inc'
sue
for
52 S.W.3d 671
l
(citing Dallas Farm MachinerYI
See
damages.
1
Fortune
676-77 (Tex. 2000)
307 S.W.2d at 238-39).
Because
Godshall has failed to cite evidence capable of establishing either
that
Murphree
engaged
in
actual
fraud
by
making
a
false
representation or failing to disclose information that he had a
duty to disclose
l
or that Godshall breached a fiduciary dutYI the
court concludes that Murphree is also entitled to summary judgment
on
Godshall/s
counterclaims
enrichment and rescission.
213 (Tex. 1973)
for
constructive
See Tyra v. Woodson
("Our holdings.
l
trust/unjust
495 S.W.2d 2111
. are to the effect that for a
constructive trust to arise there must be a fiduciary relationship
before
Such
l
is
and apart from
our
holding
l
the agreement made the basis of the suit.
here.");
Fortune
1
52
S.W.3d
at
676-77
(recognizing rescission as a remedy for fraudulent inducement) .66
66In addition to alleging that he is "entitled to rescission
of the transaction and a return of his investment
including
interest at the legal rate from the date of tender I" based on
fraud breach of fiduciary dutYI and constructive trust Godshall
alleges the he is entitled to rescission because "the [PIA] is not
valid because it presents ambiguous and contradictory language on
essential terms
and "because of Murphree/s active obfuscation and
continued misrepresentation and promise 'to payl up to and
(continued ... )
1
l
l
1 "
-41-
(d)
Violation of the Texas Blue Sky Laws
The Texas Securities Act ("TSA") provides for civil liability
by means of an
of a "person who offers or sells a security .
untrue statement of a material fact or omission to state a material
fact."
Tex.
Rev.
Civ.
Stat.
art.
581-33(A) (2) i
Geodyne Energy
Income Production Partnership I-E v. Newton Corp., 161 S.W.3d 482,
484-85 (Tex. 2005)
See also R2 Investments v. Phillips, No. 3:02-
cv-323-N, 2003 WL 22862738
(N.D. Tex. Mar. 26(2003)
("The Texas
Securities Act prohibits false statements and material omissions in
the sale of securities and imposes liability upon sellers, aiders
and control persons who offer or sell securities 'by means of an
untrue statement of a material fact or omission.'").
Violation of
the Texas Securities Act requires proof of the sale of a security
by means of an untrue statement of a material fact or an omission
to state a material fact necessary to make the statement made, in
light of the circumstances,
securities.
not misleading,
and a tender of the
See Tex. Rev. Civ. Stat. art. 581-33 (A) (2)
i
Geodyne,
161 S.W.3d at 484-85.
Godshall contends that Murphree violated the TSA by making
false
representations
and
omissions
alleged
in
his
Amended
66 ( • • • continued)
including the date Murphree filed suit attempting to 'get out' of
his obligations." Amended Counterclaim, Docket Entry No. 38, ~ 23.
In response to Murphree's second motion to dismiss, Godshall
acknowledges that " [r]escission is an equitable remedy appropriate
in instances of fraud, and unjust enrichment."
See Godshall's
Response to Second Motion to Dismiss, Docket Entry No. 42, p. 19.
Godshall has not cited and the court has not found authority
supporting a claim for rescission outside of these parameters.
-42-
Counterclaim.
The evidence that Godshall cites in support of his
counterclaim for violation of the TSA is the same as the evidence
For the reasons
he cites in support of his other counterclaims.
stated in
§
IV.B.2. (a), above, the court has already concluded that
Godshall has failed to cite evidence from which a reasonable juror
could
conclude
that
when
Godshall
decided
to
enter
the
PIA,
Murphree made any false representations or material omissions.
In
the affidavit submitted in opposition to Murphree's motion for
summary
judgment
Godshall
asserts
that
when
he
purchased
the
Transferred Interest Murphree failed to disclose that he had not
actually raised $30 million, that Murphree never informed him that
his
income
on
an
investment
significantly less than $1.4
fund
of
$30
$2.1 million,
million
would
be
and that Murphree
never disclosed that he had not raised additional capital that he
represented he
would raise. 67
But Godshall
fails
to
cite any
evidence from which a reasonable juror could conclude that Murphree
had not actually raised $30 million,
and the text of the fund
solicitation letter negates Godshall's assertion that Murphree did
not inform him that his income on an investment fund of $30 million
would be
significantly less
than $1.4-$2.1 million.
Nor does
Godshall cite any evidence from which a reasonable juror could
conclude that when he and Godshall entered into the PIA, Murphree
did not intend to raise additional capital.
Under Texas law a
promise
actionable
of
future
performance
67Id.
-43-
is
not
as
a
misrepresentation absent evidence that the speaker never intended
to perform as promised.
case.
Godshall presents no such evidence in this
Accordingly, the court concludes that Murphree is entitled
to summary judgment on Godshall's counterclaim for violation of the
TSA.
See R2 Investments, 2003 WL 22862738, at *7 (dismissing the
TSA claim because the plaintiff
"failed to
identify any false
statements or material omissions by" the defendant) .
v.
Conclusions and Orders
For reasons stated in
§
II, above, the court concludes that
Godshall's counterclaims are not subj ect to dismissal as timebarred, but that Godshall's counterclaim for fraudulent inducement
is subject to dismissal for failure to state a claim for which
relief may be granted because his allegations of fraud fail
satisfy
the
pleading
requirements
for
fraud-based
established by Federal Rule of Civil Procedure 9(b).
to
claims
Accordingly,
Murphree's Second Motion to Dismiss Pursuant to Rule 12(b) (6) and
Rule 9(b)
(Docket Entry No. 40)
is GRANTED IN PART and DENIED IN
PART.
For the reasons stated in
that
Godshall's
alternative
§
III, above, the court concludes
motion
counterclaims to satisfy the Rule 9(b)
for
leave
to
amend
his
requirements for pleading
fraud with particularity should be denied.
Accordingly, Godshall's
Alternative Motion for Leave to Amend Counterclaim Under Rule 15(a)
made in Docket Entry No. 42 is DENIED.
-44-
For the reasons stated in
IV,
§
above,
the court concludes
that Murphree is entitled to summary judgment on his claim for
declaratory judgment because Godshall has failed to cite evidence
from which a reasonable jury could conclude that the PIA is subject
to rescission based on any of Godshall's counterclaims, and that
Murphree
is
also
counterclaims.
entitled
to
summary
judgment
on
Godshall's
Because this conclusion is sufficient to resolve
the dispute between the parties,
Murphree's motion for summary
judgment for the alternative reason that Godshall's counterclaims
are
time-barred
is
moot.
Accordingly,
Murphree's Motion for Summary Judgment
Plaintiff
Dennis
(Docket Entry No.
46)
E.
is
GRANTED IN PART and DENIED IN PART.
SIGNED at Houston, Texas, this 24th day of September, 2014.
SIM LAKE
UNITED STATES DISTRICT JUDGE
7
-45-
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