Internacional Reality, Inc. et al v. Ferrari et al

Filing 117

REPORT AND RECOMMENDATIONS re 74 MOTION for Summary Judgment filed by USA Seasons, LLC, Internacional Realty, Inc., USA Court Village, LLC, USA Meyer Park II, LLC, USA Hollister Place GP, LLC, USA Conyers, LLC, USA Cambria, LLC, USA Savoy, LLC, USA Bradenton, LLC, Chasco Apartments, LLC, USA Meyer Park I, LLC. (copy sent to parties by certified mail if not registered for electronic service) Signed by Judge Nancy Stein Nowak. (rg1, )

IN THE UNITED STATES DISTRICT COURT F O R THE WESTERN DISTRICT OF TEXAS S A N ANTONIO DIVISION

I N T E R N A C I O N A L REALTY, INC.; U S A BRADENTON, LLC; U S A CAMBRIA, LLC; U S A CONYERS, LLC; U S A MEYER PARK I, LLC; U S A MEYER PARK II, LLC; U S A SEASONS, LLC; C H A S C O APARTMENTS, LLC; U S A COURT VILLAGE, LLC; U S A SAVOY, LLC; and U S A HOLISTER PLACE GP, LLC, P l a i n t if f s , v. D O N A L D L. FERRARI; S T . GEORGE FINANCIAL, INC.; and G E N O A TRADING COMPANY, INC., D efenda nts. *************************************** D O N L. FERRARI and S T . GEORGE FINANCIAL, INC., C o u nte r -P la in tiffs , v. I N T E R N A C I O N A L REALTY, INC.; U S A BRADENTON, LLC; U S A CAMBRIA, LLC; U S A CONYERS, LLC; U S A MEYER PARK I, LLC; U S A MEYER PARK II, LLC; U S A SEASONS, LLC; C H A S C O APARTMENTS, LLC; U S A COURT VILLAGE, LLC; U S A SAVOY, LLC; and U S A HOLISTER PLACE GP, LLC, C o u nte r -D e fe nd a nts . TO: H o no r a b le Xavier Rodriguez U n ite d States District Judge

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C I V I L ACTION NO. S A -0 7 -C V -0 9 8 1 XR

REPORT AND RECOMMENDATION ON M O T IO N FOR SUMMARY JUDGMENT ON CLAIM OF QUANTUM MERUIT T h is report and recommendation addresses the first motion for summary judgment filed by th e plaintiffs/counter-defendants--Internacional Realty, Inc.; USA Bradenton, LLC; USA Cambria, LLC ; USA Conyers, LLC; USA Meyer Park I, LLC; USA Meyer Park II, LLC; USA Seasons, LLC; C h asco Apartments, LLC; USA Court Village, LLC; USA Savoy, LLC; and USA Holister Place G P , LLC.1 The motion asks for summary judgment on the remaining counter-claim brought by d efen d an ts Don Ferrari and St. George Financial, Inc. (the defendants/counter-plaintiffs).2 (Ferrari is President and Director of St. George Financial.) In the counter-claim, the defendants/counterp lain tiffs rely on the Texas theory of quantum meruit to recover fees they allege are due for referral serv ices provided to the plaintiffs/counter-defendants.3 After considering the motion, the response, an d the reply, I recommend granting the motion and entering summary judgment on the counterclaim in favor of the plaintiffs/counter-defendants. Because the parties are sophisticated business en tities represented by exceptional advocates, the district court should anticipate objections req u irin g a de novo review before the February 2, 2009 trial date. The parties' advocates have spun th e law and the evidence to the full extent of advocacy, making the question of summary judgment ap p ear complex. While the parties' arguments complicate the issues in this case, this report and reco m m en d atio n distills the arguments and issues to permit the district court to resolve the counterclaim before the scheduled trial and provide the parties with guidance that may be helpful in
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D o cket entry # 74. D efen d an t Genoa Trading, Inc., is not a party to the counter-claim, D o cket entry # 38, ¶ 6.

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mediating their dispute on January 12, 2009. The basis of my recommendation follows. T h e plaintiffs/counter-defendants maintain they are entitled to summary judgment on the co u n ter-claim for quantum meruit because the defendants/counter-plaintiffs--through Ferrari-- ad m itted they provided referral services gratuitously and the defendants/counter-plaintiffs can n o t show the plaintiffs/counter-defendants received reasonable notice that defendants/counterp lain tiffs expected compensation from plaintiffs/counter-defendants for the referrals. The p lain tiffs/co u n ter-d efen d an ts maintain that any agreement for payment of referral fees was between Ferrari and non-party Kevin Fitzgerald--not between Ferrari and the plaintiffs/counter-defendants. Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials o n file, and any affidavits show that there is no genuine issue as to any material fact and that the m o v an t is entitled to judgment as a matter of law."4 Q u an tu m meruit is an equitable theory of recovery which is based on an implied agreem en t to pay for benefits received. To recover under the doctrine of quantum m eru it, a plaintiff must establish that: 1) valuable services and/or materials were fu rn ish ed , 2) to the party sought to be charged, 3) which were accepted by the party so u gh t to be charged, and 4) under such circumstances as reasonably notified the recip ien t that the plaintiff, in performing, expected to be paid by the recipient.5 "T o recover in quantum meruit, the plaintiff must show that his efforts were undertaken for the p erso n sought to be charged; it is not enough to merely show that his efforts benefitted the d efen d an t." 6 "Quantum meruit relief cannot be obtained where the benefit is conferred officiously o r gratuitously or where the services were rendered to gain a business advantage or where the
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Fed . R. Civ. P. 56(c).

H eld en fels Bros. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992) (citations o m i t t e d ). E co n o m y Forms Corp. v. Williams Bros. Const. Co., 754 S.W.2d 451, 459 (Tex. A p p .-- H o u s. [14 Dist.] 1988, no writ).
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defendant could not have reasonably believed that the plaintiff expected a fee."7 In this case, the d efen d an ts/co u n ter-p lain tiffs seek to charge the plaintiffs/counter-defendants a 2% referral fee for referrin g investment advisors that led to client investments in tenant-in-common interests in multifam ily residential real estate. The plaintiffs/counter-defendants contend that the d efen d an ts/co u n ter-p lain tiffs cannot show that they performed services for the plaintiffs/counterd efen d an ts or that the defendants/counter-plaintiffs reasonably expected to be paid by the p l a i n tif f s / c o u n t e r - d e f e n d a n t s . T h e claims and counter-claims in this lawsuit flow from the past business relationship b etw een International Realty and non-party US Advisor to offer third party investors tenant-inco m m o n interests in multi-family residential real estate. As part of its role in the relationship, US A d v iso r was responsible for finding potential investors. Fitzgerald is US Advisor's CEO. The p lain tiff/co u n ter-d efen d an ts presented summary judgment evidence showing that Fitzgerald used Ferrari to assist him in finding investors because Ferrari had an extensive background in real estate in v estm en ts. That evidence shows that Ferrari performed services for Kevin Fitzgerald, not the p l a i n tif f s / c o u n t e r - d e f e n d a n t s . Ferrari testified in his deposition that he had a verbal agreement with Fitzgerald to refer to U S Advisor investors interested in tenant-in-common interests in multi-family residential real estate8 and that he made referrals to Fitzgerald rather than the plaintiffs/counter-defendants.9 Ferrari

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P eko Oil USA v. Evans, 800 S.W.2d 572, 577 (Tex. App.--Dallas 1990, no pet.). D o cket entry # 74, exh. A, p. 173, line 2 to p. 176, line 9.

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Id . at p. 186, lines 4-7. See id., exh. L, p. 49, lines 19-23 (Fitzgerald testified that Ferrari m ad e referrals to US Advisor).

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stated that he never felt he had an agreement with Internacional Realty or the FeeCo p lain tiffs1 0 -- th e plaintiffs other than Internacional Realty, Inc.-- and that the FeeCo plaintiffs were u n d er no compulsion to pay him any money.1 1 This testimony shows that no agreement for co m p en satio n for referrals existed between Ferrari and the plaintiffs/counter-defendants. To the ex ten t that an agreement existed, the agreement was between Ferrari and Fitzgerald based on their lo n g-term friendship and past dealings. Without evidence that Ferrari believed he had an agreement fo r compensation with the plaintiffs/counter-defendants, Ferrari cannot recover in quantum meruit b ecau se he cannot show that his efforts were undertaken for the plaintiffs/counter-defendants--the p erso n s sought to be charged. In the absence of an agreement with the plaintiffs/counterd efen d an ts, the defendants/counter-plaintiffs had no reasonable basis for believing they would be p aid by the plaintiffs/counter-defendants because no basis exists for an implied promise on the part o f the plaintiffs/counter-defendants. The defendants/counter-plaintiffs may have expected to be p aid by Fitzgerald or US Advisor, but the counter-claim does not seek recovery from Fitzgerald or U S Advisor. Ferrari's deposition testimony also shows the defendants/counter-plaintiffs never notified th e plaintiffs/counter-plaintiffs that they expected to be paid. Ferrari testified that he had never h eard of the FeeCo plaintiffs until he received checks from those entities,1 2 he never invoiced the p lain tiffs/co u n ter-d efen d an ts,1 3 and he came to terms with the fact that neither he nor St. George

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Id . at p. 176, lines 16-20. Id . at p. 16, line 16 to p. 17, line 16. Id . at p. 12, lines 7-15. Id . at p. 14, lines 11-13.

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would receive future checks when the checks stopped.1 4 In addition, Hugh Caraway, CEO for In tern acio n al Realty, attested that he had "never received or seen any request for payment from Don Ferrari, St. George Financial, Inc., or Genoa Trading Company, Inc. with respect to a property o fferin g sponsored by [Internacional Realty]."1 5 Unless the defendants/counter-plaintiffs can raise a fact question about an implied promise between Ferrari and the plaintiffs/counter-defendants, the d efen d an ts/co u n ter-p lain tiffs are entitled to summary judgment. R esp o n d in g, the defendants/counter-plaintiffs first argue that the district court's prior fin d in gs preclude summary judgment. The defendants/counter-plaintiffs rely on the district court's o rd er denying the plaintiffs' motion to dismiss the counter-claim for quantum m eru it1 6 -- sp ecifically, the district court's characterization of the plaintiffs' argument as "ex cessiv e."1 7 That characterization referred to the argument that the quantum-meruit claim should b e dismissed because Ferrari admitted in his answer that the plaintiffs/counter-defendants were n eith er legally nor contractually required to pay him for referrals.1 8 In denying the motion, the d istrict court recognized that a "party generally cannot recover under quantum meruit when there is a valid contract covering the services or materials furnished."1 9 Thus, an argument based on a p lain tiff's admission that the defendant was neither legally nor contractually required to pay the

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Id . at p. 207, lines 3-13. D o cket entry # 74, exh. J, p. 2. D o cket entry # 49. S ee docket entry # 58, p. 7. S ee docket entry # 38, ¶ 22. In re Kellogg Brown & Root, 166 S.W.3d 732, 740 (Tex. 2005).

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plaintiff is excessive because the argument disregards the legal theory underlying a quantum-meruit claim -- an expectation based on implied promise rather than a contractual obligation. Because a p lain tiff seeking to recover in quantum meruit must prove he reasonably expected the defendant to p ay him for the services provided, the district court focused on Ferrari's expectation--as set out in h is affidavit dated May 28, 20082 0 -- th at Ferrari would be paid a 2% finder's fee or referral fee of th e total investor investment.2 1 Since that time, Ferrari was deposed, revealing more about the n atu re of the counter-claim. The district court's earlier order does not preclude summary judgment b ecau se the plaintiffs/counter-defendants rely on Ferrari's deposition rather than the d efen d an ts/co u n ter-p lain tiffs's answer. T h e defendants/counter-plaintiffs next argue that the plaintiffs/counter-defendants m isco n tru e Ferrari's deposition testimony that he was unaware of whether the plaintiffs/counterd efen d an ts owe him money for referral services.2 2 That testimony, however, is significant if the p lain tiffs/co u n ter-d efen d an ts had reasonable notice that Ferrari expected compensation for referrals. As discussed above, the defendants/counter-plaintiffs did not notify the plaintiffs/counterd efen d an ts that they expected compensation. P erh ap s recognizing the evidence doesn't show an agreement between Ferrari and the p lain tiffs/co u n ter-d efen d an ts, the defendants/counter-plaintiffs next argue that Fitzgerald's kn o w led ge about an agreement to compensate Ferrari is imputed to all plaintiffs/counterd efen d an ts. The defendants/counter-plaintiffs contend Fitzgerald's knowledge must be imputed to
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D o cket entry # 52, exh. D, ¶ 3. Ferrari did not specify who he expected to pay the 2% fee. See id. S ee docket entry # 73, § II.

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the plaintiffs/counter-defendants because Internacional Realty and US Advisor/Kevin Fitzgerald w ere partners in a joint venture to offer the FeeCo investment products2 3 -- th at is, because Fitzgerald knew that Ferrari expected to be compensated, the plaintiffs/counter-defendants knew th at Ferrari expected to be compensated. The argument is a resourceful one based on Texas joint v en tu re partnership law, but the argument stretches the evidence too far to raise a fact question. A lth o u gh Fitzgerald characterized the business relationship between Intenactional Realty an d US Advisor as a joint venture,2 4 Internacional Realty's CEO Hugh Caraway testified that there w as never a general partnership between Internacional Realty and US Advisor. Instead, Caraway stated that the entities created a specific partnership or limited liability company for each real estate d eal2 5 -- th e deals represented by the FeeCos. The defendants/counter-plaintiffs rely on Caraway's d ep o sitio n as an admission that Caraway knew that Ferrari expected the plaintiff/counter-defendants to pay him for referrals, but Carraway's testimony only shows that Carraway understood that Ferrari w o u ld refer investors to US Advisor and that Fitzgerald intended to pay Ferrari. Caraway testified th at he "went along" with Fitzgerald's recommendation that Ferrari refer investors,2 6 not that he kn ew that Ferrari expected the plaintiffs/counter-defendants to pay him. C araw ay's understanding is consistent with US Advisor's understanding. Fitzgerald attested that "[t]here was no agreement or contract written or oral between [Internactional Realty], U S Advisor, Hugh Carraway, Genoa Trading Company. . ., St. George Fianancial. . ., Don Ferrari or

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D o cket entry # 75, p. 13. D o cket entry # 75, exh. F, p. 21, lines 11-15. D o cket entry # 75, exh. E, p. 155, line 17 to p. 156, line 17. D o cket entry # 73, exh. E, p. 42, line 3 to p. 43, line 3.

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me that required Mr. Ferrari to refer advisors or otherwise perform other services. [Ferrari] referred ad v iso rs to me, with no legal right to be paid a referral fee."2 7 Fitzgerald further attested that he d irected that Ferrari be paid a fee for referring business that resulted in investors closing business in th e properties found by Internacional Realty2 8 and marketed by US Advisor and characterized the referral fee as a "reward."2 9 R eco m men d a tio n. The summary-judgment evidence shows no basis for believing the p lain tiffs/co u n ter-d efen d an ts made an implied promise to pay the defendants/counter-plaintiffs for referrals. The defendants/counter-plaintiffs have presented evidence showing C araw ay/In tern acio n al Realty knew Ferrari expected a 2% fee, but no evidence indicates Ferrari ex p ected the plaintiffs/counter-defendants to pay him; indeed, Ferrari testified that the p lain tiffs/co u n ter-d efen d an ts didn't have to pay. Consequently, I recommend GRANTING the m o tio n for summary judgment (docket entry # 74) and entering SUMMARY JUDGMENT on the q u an tu m -m eru it claim in favor of the plaintiffs/counter-defendants. If the district court accepts this reco m m en d atio n , the plaintiffs/counter-defendants' second motion for summary judgment on the co u n ter-claim (docket entry # 84) and the defendants/counter-plaintiffs motion to strike that motion (d o cket entry # 98) will be moot. In stru ctio ns for Service and Notice of Right to Object/Appeal T h e United States District Clerk shall serve a copy of this report and recommendation on all p arties by either (1) electronic transmittal to all parties represented by attorneys registered as a
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D o cket entry # 75, exh. D, ¶ 5. Id . Id . at ¶ 6.

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"filing user" with the clerk of court, or (2) by mailing a copy to those not registered by certified m ail, return receipt requested. Written objections to this report and recommendation must be filed w ith in 10 days after being served with a copy of same, unless this time period is modified by the d istrict court.3 0 Such party shall file the objections with the clerk of the court, and serve the o b jectio n s on all other parties and the magistrate judge. A party filing objections must specifically id en tify those findings, conclusions or recommendations to which objections are being made and th e basis for such objections; the district court need not consider frivolous, conclusive or general o b jectio n s. A party's failure to file written objections to the proposed findings, conclusions and reco m m en d atio n s contained in this report shall bar the party from a de novo determination by the d istrict court.3 1 Additionally, failure to file timely written objections to the proposed findings, co n clu sio n s and recommendations contained in this memorandum and recommendation shall bar th e aggrieved party, except upon grounds of plain error, from attacking on appeal the unobjected-to p ro p o sed factual findings and legal conclusions accepted by the district court.3 2 S IG N E D on January 7, 2009. _____________________________________ N A N C Y STEIN NOWAK U N IT E D STATES MAGISTRATE JUDGE

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2 8 U.S.C. §636(b)(1); FED. R. CIV. P. 72(b).

T h o m a s v. Arn, 474 U.S. 140, 149-152 (1985); Acuña v. Brown & Root, Inc., 200 F.3d 3 3 5 , 340 (5th Cir. 2000).
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D o u g la ss v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996).

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