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ORAL ARGUMENT REQUESTED
APPEAL NO. 05-10-00490-CV
IN THE COURT OF APPEALS FOR THE FIFTH APPELLATE DISTRICT
FOR THE STATE OF TEXAS
GREENLEE ENTERPRISES, INC., ET AL Appellants,
KWIK INDUSTRIES, INC., ET AL Appellees.
APPEALED FROM THE 16zND DISTRICT COURT OF DALLAS COUNTY, TEXAS
Cause No. 05-10901 Honorable Judge Lorraine Raggio
APPELLANTS' BRIEF
APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\AppealiAppellants' B~iefdoc
MARK H. HOW State Bar No. 10059900 MARK FRELS State Bar No. 07438200 BUDDY APPLE State Bar No. 24059387
HOW, FRELS ROHDE WOODS &DUKE A Professional Corporation 2027 Young Street Dallas, Texas 75201 (2 14) 720-2220 Telephone (2 14) 720-2240 Facsimile
ATTORNEYS FOR APPELLANTS Page 1
INDEX OF PARTIES AND COUNSEL
MARK H. HOW MARK FRELS BUDDY APPLE HOW FRELS ROHDE WOODS & DUKE 2027 Young Street Dallas, Texas 75201 (214) 720-2220 Telephone (214) 720-2240 Facsimile ATTORNEYS FOR PLAINTIFFS GREENLEE ENTERPRISES, INC., ET AL
JAN STALLONS 8020 Wallace Road Fort Worth, Texas 76135 PRO SE
JEFFREY S. SEEBURGER KANE RUSSELL COLEMAN & LOGAN, P.C. 3 700 Thanksgiving Tower 1 60 1 Elm Street Dallas, Texas 75201 (214) 777-4200 Telephone (214) 777-4299 Facsimile ATTORNEYS FOR DEFENDANT COMPASS BANK
PAUL FRANCIS PAUL FRANCIS, ATTORNEY AT LAW, PLLC P.O. Box 13369 1 178 W. Pioneer Parkway Arlington, TX 76094 (8 1 7) 543-2600 (8 17) 460-223 6
JAMES A. CRIBBS CRIBBS & MCFARLAND, P.C. P.O. Box 13060 1000 W. Abram Arlington, Texas 76094-0060 ATTORNEYS FOR DEFENDANT CHRIS CHEVREAUX d/b/a CHRIS CHEVREAUX & ASSOCIATES
There are no other persons interested in this proceeding.
APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' B~ief.doc
Page 2
TABLE OF CONTENTS
SUBJECT PAGE (S)
Index of Parties and Counsel ................................................................................. 2
Table of Contents .............................................................................................. 3
Table of Authorities ........................................................................................... 5
Statement Regarding Oral Argument ....................................................................... 8
I . Statement of the Case ................................................................................ 9
I1 . Issues Presented ...................................................................................... 11
A . The Trial Court erred in granting Defendants' Motions on the following issues of law ................................................................................................ 12
I11 . Statement of Facts ................................................................................... 12
Greenlee Plaintiffs ................................................................................... 13
Michaels Plaintiffs ................................................................................... 15
Lofton Plaintiffs ..................................................................................... 18
Judd Plaintiffs ....................................................................................... 20
Willis Plaintiffs ...................................................................................... 22
IV . Summary of Argument .............................................................................. 26
.......................................................................... V . Argument and Authorities 28
A . Standard of Review ........................................................................ 28
B . Plaintiffs raised genuine issues of material facts and raised sufficient evidence that Defendants engaged in a common plan. device. scheme. or artifice to deceive Plaintiffs into purchasing their automotive and dry cleaning Service Centers ........................................................................................ 29
C . Plaintiffs raised sufficient evidence and raised genuine issues of material fact that Defendants committed material misrepresentation and fraudulent inducement. as well as fraudulent concealment. both orally and in writing. to Plaintiffs prior to. and
APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\AppalMppellants' Briefdoc
Page 3
during, the Plaintiffs' purchase o f the Service ....................................................................................... Centers.. .34
D. The Judd, Lofton, and Willis Plaintiffs raised genuine issues of material fact and raised sufficient evidence that Defendants violated the Texas Business Opportunity
........................................................................................... Act.. .46
E. Plaintiffs raised genuine issues of material fact and raised sufficient evidence that Defendants' actions constituted statutory fraud in the sale of real estate under section 27.01 o f the Texas Business and Commerce
.......................................................................................... Code.. -48
F. Plaintiffs raised genuine issues of material fact and raised sufficient evidence that Defendants' actions violated the Texas Deceptive Trade Practices, Consumer Protection Act, Texas Business and Commerce Code section 17.41, the L L ....................................................................................... DTPA.". .49
................................................................................................ VI. Prayer. 50
APPELLANTS' BRIEF N:\KWIK KAR\PLEADMppealMppella~~ts' B~ief.doc
Page 4
TABLE OF AUTHORITIES
CASES
American Title Co . of Houston v . Bomac Mortgage Holdings. L.P., 196 S.W.3d 91 5 (Tex.App.- Dallas, 2006) ................................................................................................... 33
. ................................................ Bradford v . Vento. 48 S.W.3d 749. 754 (Tex 2001) ..4 243
Campbell v . Booth. 526 S.W.2d 167. 172 (Tex.Civ.App.-Dallas, 1975. writ ref d n.r.e.). ....... 37, 40
City ofHouston v . Clear Creek Basin Auth.. 589 S.W.2d 671, 678 (Tex . 1979) ..................... 28
Corpus Christi Area Teachers Credit Union v . Hernandez. 8 14 S.W.2d 195. 202 (Tex.App.-San Antonio. 1991) ................................................................................................. 37
Ernst & Young LLP v . Pac . Mut . Life Ins . Co., 5 1 S.W.3d 573. 578 (Tex . 2001 ................. 37-39
Fisher v . Yates. 953 S.W.2d 370 (Tex . App.-Texarkana 1997) ..................................... 30, 34
......................... . Fletcher v Edwards. 26 S.W.3d 66. 76 (Tex.App.-Waco, pet denied) .46, 48
Garcia v . John Hancock Variable Life Ins . Co., 859 S.W.2d 427, 435 (Tex.App.-San Antonio 1993, writ denied) ............................................................................................. 30
GXG v . Texacal Oil & Gas. 977 S.W.2d 403. 416 (Tex.App.-Corpus Christi 1998, no writ) ............................................................................................................. 45
Hennigan v . Harris County. 593 S.W.2d 380. 384 (Tex.Civ.App.-Waco 1979. writ ref'd n.r.e.). ........................................................................................................... 40
Int'l Bankers Life Ins . Co . v . Holloway., 368 S.W.2d 567, 581-582 (Tex . 1963) .................. 30, 34
Jackson v . Fiesta Mart. Inc.. 979 S.W.2d 68. 70-71 (Tex.App.-Austin 1998, no pet.). .......... 29
Kalyanaram v . Univ . of Tex . Sys., 230 S.W.2d 68,7 0-71 (Tex.App.-Dallas 2007, pet . denied) ...... 29
LMB. Ltd . v . Moreno. 201 S.W.3d 686. 688 (Tex . 2006) (per curiam) ................................ 28
Marshal v . Kusch. 84 S.W.3d 78 1 . 785 (Tex.App.-Dallas 2002. pet . denied) ...................... 37
Massey v . Armco Steel Co.. 652 S.W.2d 932, 934 (Tex . 1983) ............................................ 29
Merrell Dow Pharmaceuticals. Inc . v . Havner. 953 S.W.2d 706. 71 1 (Tex . 1997) ............ .29. 33
APPELLANTS' BRIEF N:\KWIK KAR\PLEADblppealblppellants' Blief.doc
Page 5
. . ................... Prudential Ins . Co . v . Jefferson Assoc Ltd., 896, S . W.2d 156, 162 (Tex 1995) .4 3-44
Roth v . FFP Operating Partners. L.P., 994 S.W.2d 190. 195 (Tex.App.--Amarillo 1999, pet . denied) .. : ...................................................................................................... 28
Ruiz v . City of Sun Antonio. 966 S.W.2d 128. 130 (Tex.App.-Austin 1998. no pet.) ............. 28
Schlumberger Well Surveying Corp . v Nortex Oil & Gas Corp., 453 S.W.2d 854. 858 (Tex . 1 968) ................................................................................................ -43-45
. ...................................... . . SW Elec . Power Co v Grant, 73 S.W.3d 211, 215 (Tex 2002) 28
Univ . of Tex . Health Science Center a t Houston v . Big Train Carpet ofEl Camp. Inc., 739 S.W.2d 792 (Tex . 1987) .............................................................................................. 28
STATUTES PAGE(S)
Tex . Bus . & Com . Code $ 1 7.41 et seq., Texas Deceptive Trade Practices Act ............. 12- 13, 49
Tex . Bus . & Com . Code $ 27.01 .................................................................... 12-1 3. 48
Tex . Bus . & Com . Code $ 41.002 et seq., Texas Business Opportunity Act ........................ 46-48
SBA Loan Guidelines SOP 50 1 O(5). 8(a) and (b) ................................................... 3 4 1 5.
RULES PAGE (S)
TEX . R . CIV . P . 166a(c) ................................................................................ .28, 34
Restatement (Second) of Torts $ 53 1. cmt "g" (1977) ............................................ .37. 39
APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' B~ief.doc
Page 6
APPEAL NO. 05-10-00490-CV
IN THE COURT OF APPEALS FOR THE FIFTH APPELLATE DISTRICT
FOR THE STATE OF TEXAS
GREENLEE ENTERPRISES, INC., ET AL Appellants
KWIK INDUSTRIES, INC., ET AL Appellees.
APPEALED FROM THE 1 6 2 ~ ~ DISTRICT COURT OF DALLAS COUNTY, TEXAS
Cause No. 05-10901 Honorable Judge Lorraine Raggio
APPELLANTS' BRIEF
APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' Brief.doc
Page 7
TO THE HONORABLE COURT OF APPEALS:
COME NOW Greenlee Enterprises, Inc., et al. ("Appellants") and pursuant to the Texas
Rules of Appellate Procedure submit the following Brief to the Court.
STATEMENT REGARDING ORAL ARGUMENT
Appellants submit that oral argument should be scheduled in this case because the Brief and
record, unaided by oral argument, would be insufficient to illuminate fully the facts and legal
arguments herein. Appellants would additionally submit that this appeal is neither frivolous nor
authoritatively decided by any recent adjudication. Moreover, additional reasons, such as the
magnitude of the financial impact on Plaintiff - Appellants of the District Court's Judgment strongly
suggest that judicial analysis of this case would be greatly aided by oral argument herein.
APPELLANTS' BRIEF N:\KWlK KAR\PLEAD\AppealL4ppellants' Briefdoc
Page 8
I. STATEMENT OF THE CASE
This is an appeal of various orders granting partial summary judgment against claims by
Greenlee Enterprises, Inc. d/b/a Kwik Kar Oil & Lube on Ferris, Gary Greenlee and Rosemary
Greenlee (the "Greenlee Plaintiffs"); G & W Inc. d/b/a Kwik Kar of Duncanville, Wayne R.
Michaels and Glenda R. Michaels (the "Michaels Plaintiffs"); Rock Prairie Holding, Ltd., Centex
Kwik Care, Inc., Bill Lofton and James Lofton (the "Lofton Plaintiffs"); Will-Wall Enterprises, Inc.,
Mitzi Willis and Dr. Charles E. Willis I1 (the "Willis Plaintiffs") and Neighborhood Oil Centers, Inc.
d/b/a Kwik Kar Lube, Loyd W. Judd 111 and Carla S. Judd (the "Judd Plaintiffs") (collectively,
1
"Plaintiffs"). (CR 2882-2888, 2892-2898).
Plaintiffs contend that Defendants Kwik Industries, Inc. ("Kwik"); Ray Ellis ("Ellis"); Gary
Henson [sic Hinson] ("Henson"); Jan Stallons ("Stallons") (Kwik, Ellis, Henson, and Stallons,
collectively, the "Kwik Defendants"); Compass Bank, N.A. ("Compass Bank"); and Chris
Chevreaux d/b/a Chevreaux and Associates ("Chevreaux") (the Kwik Defendants, Compass Bank,
and Chevreaux, collectively "Defendants") knowingly committed actions and/or inaction against
Plaintiffs related to contracts for the purchase and operation of various automobile and dry cleaning
service centers. (CR 2097-21 19).
Defendants Stallons and Henson filed their Second Motions for Summary Judgment against
the Greenlee, Judd, and Willis Plaintiffs on December 5,2008. (CR 1 170-1 340, 1341 - 15 13, 15 14-
1699). Defendants Stallons and Henson filed Supplemental Motions for Summary Judgment on
January 26,2009. (CR 2191-2259).
Defendants Stallons and Henson filed their Second Motions for Summary Judgment against
1
Court Reporter's Record (hereinafter "C.R."). APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' Blief.doc
Page 9
the Lofton and Michaels Plaintiffs on December 10,2008. (CR 1705-2096). Defendants Stallons
and Henson filed Supplemental Motions for Summary Judgment on January 26,2009. (CR 2191-
2259).
Plaintiffs filed their response to Kwik Defendants' No-Evidence and Traditional Motions for
Summary Judgment Against Each Plaintiff on February 2,2009. (CR 2264-2801).
Defendant Compass Bank filed its Motion for Summary Judgment against the Michaels
Plaintiffs on April 13,2007, and their First Amended No Evidence Motion for Summary Judgment
and Supplemental Motion for Summary Judgment on January 19,2009. (CR 64-133,2132-2190).
Plaintiffs filed their response to Defendant Compass Bank's Motion for Summary Judgment
on January 2, 2008, and their Supplemental Response to Defendant Compass Bank's Motion for
Summary Judgment on March 27,2008. (CR 134-171,175-423). Plaintiffs filed their Response to
Supplemental Motion for Summary Judgment and First Amended No-Evidence Motion for Summary
Judgment of Compass Bank on February 2,2009. (CR 2264-2801).
Defendant Chevreaux filed his Motion for Summary Judgment against the Greenlee,
Michaels, and Willis Plaintiffs on November 7,2008, and his Supplemental Motion for Summary
Judgment (Traditional and No-Evidence) on December 5,2008. (CR 436-48 1, 1700- 1704).
Plaintiffs filed their response to Defendant Chevreaux's Motion for Summary Judgment on
November 25, 2008. (CR 653-1 152).
After hearings on February 9,2009, February 11,2009, and March 18,2009 on the Motions
for Summary Judgment listed above, the Trial Court granted the following Orders:
1. Orders Granting Compass Bank's No-Evidence and Traditional Motions for
Summary Judgment against the Michaels Plaintiffs on February 12,2009; (CR 2882-
APPELLANTS' BRlEF N:\KWlK KAR\PLEADMppealMppellants1 Briefdoc
Page I0
2. Order Granting Chevreaux's Motion for Summary Judgment against the Greenlee,
Michaels, and Willis Plaintiffs on February 13,2009; (CR 2886-2891)
3. Orders Granting Stallons and Henson's No-Evidence and Traditional Motions for
Summary Judgment against Michaels, Greenlee, Judd, and Lofton Plaintiffs on
March 6,2009. (CR 2892-2899)
4. Order Granting Stallons and Henson's No-Evidence and Traditional Motions for
2
Summary Judgment against the Willis Plaintiffs.
The Summary Judgment Orders became final as to Stallons, Compass Bank, and Chevreaux
by the Trial Court's Order Granting Joint Motion to Sever dated March 22,201 0. (CR 29 1 1-29 15).
Plaintiffs thereafter timely filed their Notice of Appeal. (CR 2916-2921).
However, despite the similarity in evidence as to the claims against all Defendants, the Trial
Court's Summary Judgment Orders and Order Granting Joint Motion to Sever only granted partial
summary judgment on Plaintiffs' claims. (CR 2882-2899). Kwik and Ellis' Motions for Summary
Judgment were not granted by the Trial Court's Summary Judgment Orders; thus, Plaintiffs' claims
against Kwik and Ellis in Trial Court Cause No. 05-10901 remain pending in the 162"~ District
Court, Dallas County, Texas. Just before a scheduled jury trial was set to begin, the Trial Court
3
stayed the case until further notice due to this related matter on appeal.
11. ISSUES PRESENTED
2
After consultation with the Trial Court, Appellees drafted, and Appellants have approved for entry, an Order Granting Defendant Jan Stallons No-Evidence and Traditional Motions for Summary Judgment Against Will-Wall Enterprises, Inc., Mitzi Willis and Charles E. Willis. The proposed Order was tendered to the Trial Court on August 4,2010, and Appellants timely filed their Second Amended Notice of Appeal to include said Order on July 27, 201 0. 7
Order Administratively Closing Case (Subject to Reinstatement) issued by the Trial Court on August 3, 2010, "staying this action due to a related case currently on appeal until hrther notice of the court." APPELLANTS' BRIEF Page 1 1 N:KWIK KAR\PLEADMppealMppellants' Briefdoc
A. The Trial Court erred in granting Defendants' Motions for Traditional and No-Evidence
Summary Judgment because Plaintiffs presented probative evidence to raise genuine issues of
material fact on the following issues of law:
1. Defendants' engagement in a common plan, device, scheme, or artifice to deceive Plaintiffs into purchasing their automotive and/or dry cleaning service centers;
2. Defendants' material misrepresentation and fraudulent inducement, both orally and in writing, to Plaintiffs prior to and during the purchase of the service centers;
3. Defendants' fraudulent concealment of material facts related to Plaintiffs' purchase of the service centers;
4. Defendants' actions in violation of the Texas Business Opportunity Act ("BOA") 4
pertaining to the Judd, Lofton, and Willis Plaintiffs;
5. Defendants' actions constituting statutory fraud in the Sale of Real Estate under Section 27.01 the Texas Business and Commerce Code; and
6. Defendants' actions in violation of the Texas Deceptive Trade Practices, Consumer Protection Act, Texas Business & Commerce Code Section 17.41 (the "DTPA").
111. STATEMENT OF FACTS
Plaintiffs' Sixth Amended Petition asserts claims against the Defendants for fraud and
violations of the Texas Deceptive Trade Practices Act codified at Tex. Bus. & Comm. Code 6 17.41
et seq. (the "DTPA") related to the Willis Plaintiffs' purchase of adry cleaning facility located at 1 10
S. Cockrell Hill Road, DeSoto, Texas (the "Dry Cleaners"), and the remaining Plaintiffs' purchases
of Kwik Kar automobile Service Centers, including a Service Center purchased by the Greenlee
Plaintiffs located at Ferris Avenue, Ellis County, Waxahachie, Texas (the "Ferris Avenue Service
Center"); purchased by the Michaels Plaintiffs located at Clark Road, Duncanville, Dallas County,
4
Plaintiffs concede that the Greenlee and Michaels Plaintiffs do not have claims under the BOA because their Service Centers were "flip" purchases of previously-built Kwik Service Centers that were sold by disgruntled, former owners. (CR 2571, 2605). APPELLANTS' BRIEF Page 12 N:\KWIK KAR\PLEAD\AppeaI\Appellants' B~iefdoc
Texas (the "Clark Road Service Center"); purchased by the Lofton Plaintiffs located at 114 Rock
Prairie, college Station, Brazos County, Texas (the "Centex Service Center"); and apurchase by the
Judd Plaintiffs located at Dalrock, Rowlett, Rowlett County, Texas (the "Dalrock Service Center")
5
(collectively the "Plaintiffs' Service Centers"). (CR 2097-21 19).
Plaintiffs' Sixth Amended Petition also reasserted claims against the Defendants generally for
rescission, misrepresentation and fraud, fraudulent concealment, conspiracy, violations of the Texas
Business Opportunity Act (the "BOA"), statutory fraud in the Sale of Real Estate under Tex. Bus. &
Comm. Code 5 27.01 ("5 27.01"), and for violations of the Texas Deceptive Trade Practice,
Consumer Protection Act, Tex. Bus. & Comm. Code am. 5 17.41 et seq., the DTPA, all related to,
among other things, the value and profitability of each of Plaintiffs' Service Centers. Only the
Greenlee Plaintiffs, the Michaels Plaintiffs, and the Willis Plaintiffs have asserted claims against
Chevreaux, and only the Michaels Plaintiffs have asserted claims against Compass Bank. (CR 2097-
The following is the Plaintiffs' Summary Judgment affidavit evidence:
The Greenlee Plaintiffs
Ellis, representing himself to be an authorized agent of Kwik, approached the Greenlee
Plaintiffs and offered to sell them the Ferris Avenue Service Center, which was built, owned and/or
represented by Kwik. (CR 2603). With regard to the prospective purchase by the Greenlee Plaintiffs
of the Ferris Avenue Service Center, the Kwik Defendants, acting in complicity with Chevreaux and
their lender, made certain representations to the Greenlee Plaintiffs concerning the Ferris Avenue
Service Center and Kwik's responsibilities to the Greenlee Plaintiffs after the sale occurred. (CR
5
Plaintiffs' Original Petition filed October 25,2005 was superseded by Plaintiffs' Sixth Amended Petition, and is therefore not included in the Clerk's Record. APPELLANTS' BRIEF Page 13 N:\KWIK KAR\PLEAD\Appeal\Appellants' Brief.doc
2603). Specifically, the Kwik Defendants represented to the Greenlee Plaintiffs:
a. That the price charged for the Ferris Avenue Service Center was fair, reasonable
and supported by a valid appraisal;
b. That the Kwik Defendants' sales projections were valid, attainable, and
reasonable;
c. That the Ferris Avenue Service Center was and or would be in compliance with
EPA requirements;
d. That the business growth, daily car count, and the value of the product would
continue to increase it; and
e. That Kwik would provide all needed training and support. (CR 2604).
In reliance upon the foregoing representations, the Greenlee Plaintiffs did thereafter execute
and close a Contract of Sale to purchase the Ferris Avenue Service Center, which agreement
included both real property on which the Service Center is located, all improvements thereon, and
what was represented to be all equipment and other necessary items to own, open and operate the
Service Center, to include training and inventory. (CR 2604). The Kwik Defendants had arranged
for Chevreaux to appraise the business so that the Greenlee Plaintiffs could obtain SBA financing for
the acquisition of the Ferris Avenue Service Center. (CR 2604). In consideration of the foregoing
and in further reliance upon the foregoing representations, the Greenlee Plaintiffs paid Kwik the sum
of $ 1,448,775.00. (CR 2605).
Thereafter, the Greenlee Plaintiffs discovered with regard to the forgoing representations:
a. That the Service Center was not worth the amount set forth in the appraisal;
b. That the appraisal was not based upon accepted and proper appraisal techniques;
c. That in truth and in fact; the revenue projections were not made in accordance with
APPELLANTS' BRIEF N:\KWlK KAR\PLEADMppealMppellants' B~ief.doc
Page 14
industry standards and/or similarly situated service locations and were not attainable;
d. That in truth and in fact, the competitive environment in which the Ferris Avenue
Service Center was located insured it would not be profitable;
e. That in truth and in fact; EPA requirements for the Service Center were never met;
f. That the Ferris Avenue Service Center business did not progress or grow; and
g. That Kwik did not provide the necessary training. (CR 2605).
Further, the Greenlee Plaintiffs discovered that the Kwik Defendants, in complicity with the
Chevreaux and their lender, failed to disclose:
a. That the Kwik Defendants or their affiliates were receiving undisclosed "loan
origination and/or referral fees" from their lender (CR 2 102);
b. That Kwik had a financial interest in the Pennzoil products contracts (the
"Pennzoil Contracts") (CR 2605);
c. That the required Pennzoil products contracts (the "Pennzoil Contracts") have
substantial penalties unless realistic production quotas were achieved (CR 2 103);
d. That the Service Center acquisition was structured as a "flip" sale fiom a prior
disgruntled owner (CR 2605);
e. That the Defendants utilized an improper and inflated appraisal in the sale (CR
2605); and
f. The conspiratorial relationship that existed between the Kwik Defendants,
Chevreaux, and their lender to sell and finance the Ferris Avenue Service Center.
(CR 2605).
The Michaels Plaintiffs
Ellis, representing himself to be an authorized agent of Kwik, approached the Michaels
APPELLANTS' BRIEF N:\KWIK KARVLEAD\Appeal\Appellants' Brief.doc
Page 15
Plaintiffs in May 2003 and offered to sell them the Clark Road Service Center, which was built,
owned and/or represented by Kwik. (CR 257 1). With regard to the prospective purchase by the
Michaels Plaintiffs of the Clark Road Service Center, the Kwik Defendants, acting in complicity
with Chevreaux and Compass Bank, made certain representations to the Michaels Plaintiffs with
regard to the Clark Road Service Center and with regard to Kwik's responsibilities to the Michaels
Plaintiffs after the sale occurred. (CR 42). Specifically, Defendants represented to the Michaels
Plaintiffs:
a. That the price charged for the Clark Road Service Center was fair, reasonable and
supported by a valid appraisal;
b. That the Kwik Defendants' sales projections were valid, attainable, and
reasonable;
c. That the Clark Road Service Center was and or would be in compliance with EPA
requirements;
d. That the business growth, daily car count, and the value of the product would
continue to increase it; and
e. That Kwik would provide all needed training and support. (CR 42-43).
In reliance upon the foregoing representations, the Michaels Plaintiffs did thereafter execute a
Contract of Sale to purchase the Clark Road Service Center, which agreement included both real
property on which the Clark Road Service Center is located, all improvements thereon, and what was
represented to be all equipment and other items necessary to own, open and operate the Clark Road
Service Center, to include training and inventory. (CR 43). The Kwik Defendants arranged for
Chevreaux to appraise the business so that the Michaels Plaintiffs could obtain SBA financing from
Compass Bank for the acquisition of the Clark Road Service Center. (CR 2574). In connection
APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' B~ief.doc
Page 16
therewith, the Michaels Plaintiffs paid the Appraiser's fee and other fees and expenses charged by or
through Compass Bank as part of the closing of the purchase of the Clark Road Service Center. (CR
2581). In consideration of the foregoing and in further reliance upon the foregoing representations,
the Michaels Plaintiffs paid Kwik the sum of $ 1,594,270.86 in June 2003. (CR 2573).
Thereafter, the Michaels Plaintiffs discovered with regard to the forgoing representations:
a. That the Clark Road Service Center was not worth the amount set forth in the
appraisal;
b. That the appraisal was not based upon accepted and proper appraisal techniques;
c. That in truth and in fact; the revenue projections were not made in accordance with
industry standards and/or similarly situated service locations and were not attainable;
d. That in truth and in fact, the competitive environment in which the Clark Road
Service Center was located insured it would not be profitable;
e. That in truth and in fact; EPA requirements for the Clark Road Service Center
were never met;
f That the Clark Road Service Center business did not progress or grow; and
g. That Kwik did not provide the necessary training. (CR 2576).
Further, the Michaels Plaintiffs discovered that the Kwik Defendants, in complicity with
Chevreaux and Compass Bank, failed to disclose:
a. That the Kwik Defendants or their affiliates were receiving undisclosed "loan
origination andlor referral fees" from Compass Bank (CR 2575);
b. That Kwik had a financial interest in the Pennzoil Contracts and actually received
the contract consideration instead of the Michaels Plaintiffs (CR 2574);
c. That the required Pennzoil products contracts have substantial penalties'unless
APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' BI-iefdoc
Page 17
realistic production quotas were achiev'ed (CR 2701);
d. That the Service Center acquisitioii was structured as "flip" sales from prior
disgruntled owner (CR 44);
e. That the Defendants utilized an improper and inflated appraisal in the sale (CR
2576); and
f. The conspiratorial relationship that existed between the Kwik Defendants,
Chevreaux, and Compass Bank to sell and finance the Clark Road Service Center.
(CR 2575).
The Lofton Plaintiffs
Ellis, representing himself to be an authorized agent of Kwik, approached the Lofton
Plaintiffs and offered to sell them the "Centex Service Center", which was built, owned and/or
represented by Kwik. (CR 26 18). With regard to the prospective purchase by the Lofton Plaintiffs of
the Centex Service Center, the Kwik Defendants, acting in complicity with their appraiser and
lender, made certain representations to the Lofton Plaintiffs with regard to the Centex Service Center
and with regard to Kwik's responsibilities to the Lofton Plaintiffs after the sale occurred. (CR 26 18).
Specifically, the Kwik Defendants represented to the Lofton Plaintiffs:
a. That the price charged for the Centex Service Center was fair, reasonable and
supported by a valid appraisal;
b. That the Kwik Defendants' sales projections were valid, attainable, and
reasonable;
c. That the Centex Service Center was and or would be in compliance with EPA
requirements;
d. That the business growth, daily car count, and the value of the product would
APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' B~iefdoc
Page 18
continue to increase it; and
e. That Kwik would provide all needed training and support. (CR 48-49).
In reliance upon the foregoing representations, the Lofton Plaintiffs did thereafter execute a
Contract of Sale to purchase the Centex Service Center, which agreement included both real property
on which the Centex Service Center is located, all improvements thereon, and what was represented
to be all equipment and other items necessary to own, open and operate the Centex Service Center, to
include training and inventory. (CR 49). The Kwik Defendants arranged for an appraiser to appraise
the business so that the Lofton Plaintiffs could obtain SBA financing from their lender for the
acquisition of the Centex Service Center, and in connection therewith, the Lofton Plaintiffs paid the
appraiser's fee and other fees and expenses charged by or through their lender as part of the closing
of the purchase of the Centex Service Center. (CR 2620,2627). In consideration of the foregoing
and in further reliance upon the foregoing representations, the Lofton Plaintiffs paid Kwik the sum of
$1,384,819.06. (CR 2619).
Thereafter, the Lofton Plaintiffs discovered with regard to the forgoing representations:
a. That the Centex Service Center was not worth the amount set forth in the appraisal;
b. That the appraisal was not based upon accepted and proper appraisal techniques;
c. That in truth and in fact; the revenue projections were not made in accordance with
industry standards andlor similarly situated service locations and were not attainable;
d. That in truth and in fact, the competitive environment in which the Centex Serve
Center was located insured it would not be profitable;
e. That in truth and in fact; EPA requirements for the Centex Service Center were
never met;
f. That the Centex Service Center business did not progress or grow; and
APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' B~ie fdoc
Page 19
g. That Kwik did not provide the necessary training. (CR 49-50).
Further, the Lofton Plaintiffs discovered that the Kwik Defendants, in complicity with their
appraiser and the lender, failed to disclose:
a. That the Kwik Defendants or their affiliates were receiving undisclosed "loan
origination and/or referral fees" from the lender (CR 2621);
b. That Kwik had a financial interest in the required Pennzoil Contracts and actually
received the contract consideration instead of the Lofton Plaintiffs (CR 2621);
c. That the required Pennzoil Contracts have substantial penalties unless realistic
production quotas were achieved (CR 2701);
d. That the Defendants utilized an improper and inflated appraisal in the sale (CR
49); and
e. The conspiratorial relationship that existed between the Kwik Defendants, their
appraiser, and the lender to sell and finance the Centex Service Center. (CR 2621).
The Judd Plaintiffs
Ellis, representing himself to be an authorized agent of Kwik, approached the Judd Plaintiffs
and offered to sell them the Dalrock Service Center, which was built, owned and/ or represented by
Kwik. (CR 2633). With regard to the prospective purchase by the Judd Plaintiffs of the Dalrock
Service Center, the Kwik Defendants, acting in complicity with the appraiser and the lender, made
certain representations to the Judd Plaintiffs with regard to the Dalrock Service Center and with
regard to Kwik's responsibilities to the Judd Plaintiffs after the sale occurred. (CR 60). Specifically,
the Kwik Defendants represented to the Judd Defendants:
a. That the price charged for the Dalrock Service Center was fair, reasonable and
supported by a valid appraisal;
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b. That the Kwik Defendants' sales projections were valid, attainable, and
reasonable;
c. That the Dalrock Service Center was and or would be in compliance with EPA
requirements;
d. That the business growth, daily car count, and the value of the product would
continue to increase it; and
e. That Kwik would provide all needed training and support. (CR 60-6 1).
In reliance upon the foregoing representations, the Judd Plaintiffs did thereafter execute a
Contract of Sale for the Dalrock Service Center, which agreement included both real property on
which the Dalrock Service Center is located, all improvements thereon, and what was represented to
be all equipment and other items necessary to own, open and operate the Dalrock Service Center to
include training and inventory. (CR 2633-2634). The Kwik Defendants arranged for the appraiser to
appraise the business so that the Judd Plaintiffs could obtain SBA financing from their lender for the
acquisition of the Dalrock Service Center, and in connection therewith, the Judd Plaintiffs paid the
appraiser's fee and other fees and expenses charged by or through the lender as part ofthe closing of
the purchase of the Dalrock Service Center. (CR 2636,2639). In consideration of the foregoing and
in further reliance upon the foregoing representations, the Judd Plaintiffs paid Kwik the sum of
$1,298,921.00. (CR 2639).
Thereafter, the Judd Plaintiffs discovered with regard to the forgoing representations:
a. That the Dalrock Service Center was not worth the amount set forth in the
appraisal;
b. That the appraisal was not based upon accepted and proper appraisal techniques;
c. That in truth and in fact; the revenue projections were not made in accordance with
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industry standards and/or similarly situated service locations and were not attainable;
d. That in truth and in fact, the competitive environment in which the Dalrock
Service Center was located insured it would not be profitable;
e. That in truth and in fact; EPA requirements for the Dalrock Service Center were
never met;
f. That the Dalrock Service Center business did not progress or grow; and
g. That Kwik did not provide the necessary training. (CR 61 -62).
Further, the Judd Plaintiffs discovered that the Kwik Defendants, in complicity with the
appraiser and the lender, failed to disclose:
a. That the Kwik Defendants or their affiliates were receiving undisclosed "loan
origination and/or referral fees" from the lender (CR 2637);
b. That Kwik had a financial interest in the required Pennzoil Contracts and actually
received the contract consideration instead of the Judd Plaintiffs (CR 2636);
c. That the required Pennzoil Contracts have substantial penalties unless realistic
production quotas were achieved (CR 2701);
d. That the Defendants utilized an improper and inflated appraisal in the sale (CR
61); and
e. The conspiratorial relationship that existed between the Kwik Defendants, the
appraiser, and the lender to sell and finance the Dalrock Service Center. (CR 2637).
The Willis Plaintiffs
Ellis' agent, Gary Hinson, representing himself to be an authorized agent of Kwik,
approached the Willis Plaintiffs and offered to sell them the Dry Cleaning Service Center, which Dry
Cleaning Service Center was built, owned and/ or represented by Kwik. (CR 2588). With regard to
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the prospective purchase by the Willis Plaintiffs of the Dry Cleaning Service Center, the Kwik
Defendants, acting in complicity with Chevreaux and the lender, made certain representations to the
Willis Plaintiffs with regard to the Dry Cleaning Service Center and with regard to Kwik's
responsibilities to the Willis Plaintiffs after the sale occurred. (CR 2588). Specifically, the Kwik
Defendants represented to the Willis Plaintiffs:
a. That the price charged for the Dry Cleaning Service Center was fair, reasonable
and supported by a valid appraisal (CR 2589);
b. That the Kwik Defendants' sales projections were valid, attainable, and reasonable
and that the Willis Plaintiffs would earn at least $20,000.00 per month (CR 55,
2589);
c. That the Dry Cleaning Service Center was and or would be in compliance with
EPA requirements (CR 54);
d. That the business growth and the value of the product would continue to increase it
(CR 2589); and
e. That Kwik would provide all needed training and support. (CR 55).
In reliance upon the foregoing representations, the Willis Plaintiffs did thereafter execute a
Contract of Sale to purchase the Dry Cleaning Service Center, which agreement included both real
property on which the Dry Cleaning Service Center is located, all improvements thereon, and what
was represented to be all equipment and other items necessary to own, open and operate the Dry
Cleaning Service Center, to include training and inventory. (CR 2589). The Kwik Defendants
arranged for Chevreaux to appraise the business so that the Willis Plaintiffs could obtain SBA money
from their lender for the acquisition of the Dry Cleaning Service Center, and in connection therewith,
the Willis Plaintiffs paid Chevreaux's fee and other fees and expenses charged by or through the
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lender as part of the closing of the purchase of the Service Center. (CR 2589, 2596). In
consideration of the foregoing and in further reliance upon the foregoing representations, the Willis
Plaintiffs paid Kwik the sum of $1,674,805.00. (CR 2590).
Further, the Willis Plaintiffs discovered that the Kwik Defendants failed to disclose:
a. That the Dry Cleaning Service Center was not worth the amount set forth in the
appraisal;
b. That the appraisal was not based upon accepted and proper appraisal techniques;
c. That in truth and in fact; the revenue projections were not made in accordance with
industry standards and/or similarly situated dry cleaning locations;
d. That in truth and in fact; EPA requirements for the Dry Cleaner were never met;
f. That the Dry Cleaner business did not progress or grow; and
g. That Kwik did not provide the necessary training. (CR 56,2590).
Further, the Willis Plaintiffs discovered that the Kwik Defendants, in complicity with
Chevreaux and the lender, failed to disclose:
a. That the Defendants utilized an improper and inflated appraisal in the sale (CR
55); and
b. The conspiratorial relationship that existed between the Kwik Defendants,
Chevreaux, and the lender to sell and finance the Dry Cleaning Service Center. (CR
2590).
The summary judgment evidence filed in support of Plaintiffs' Motion also established the
additional facts:
1. During the period of December 2001 through October 2005, Chevreaux performed
appraisals for 86 purchases of existing or proposed Kwik Kar Service Centers, Compass Bank acted
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as SBA lender on at least 24 of these purchases, and Kwik was listed as seller on 48 of these
purchases. (CR 677).
2. Compass Bank admits Chevreaux was solicited by Stallons outside of Compass Bank
policies to perform appraisals on the Michaels Plaintiffs' Service Center. (CR 206).
3. Chevreaux was not on Compass Bank's approved appraiser list at the time he
performed the appraisal of the Clark Road Service Center, the Michaels Plaintiffs' property. (CR
195).
4. Kwik provided Chevreaux with a copy of the cost breakdown information, which the
appraiser is typically expected to obtain on his own. (CR 208).
5 . Kwik also provided Chevreaux with its own market study, information normally
found in an appraisal report and normally independently obtained by the appraiser. (CR 209).
6. Chevreaux admits the only demographic data which he reviewed for the sale of the
Clark Road Service Center was provided by Kwik. (CR 1 100).
7. Chevreaux admits he probably received most of the information for comparable sales
related to the Ferris Avenue Service Center owned by the Greenlee Plaintiffs from Kwik. (CR
1101).
8. National surveys conducted by Garrett McKinnon, editor of National Oil & Lube
News, a publication in which Kwik advertises, indicated that the average daily car count for lube and
tube service centers went from 47.9 to 35.7, a decrease of 20%, between 1995 and 2005. (CR 2755,
9. Compass Bank sold Plaintiffs' guaranteed SBA loans on the secondary market,
removing their vulnerability under the loans and generating profits for Compass Bank. (CR 199-
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10. As an example, Compass Bank would sell a $750,000.00 SBA guaranteed loan on the
secondary market for approximately $825,000.00, for a profit of $75,000.00. (CR 199-200).
11. Although the Pennzoil Contracts signed by the Plaintiffs promised to pay the
Plaintiffs a lump sum of varymg amounts up to $45,000.00, Kwik was paid these sums, except in the
case of the Greenlee Plaintiffs who received $20,000.00, the only instance where Brian Easley, the
field account manager for Pennzoil, could recall a Kwik Service Center purchaser actually receiving
any money fi-om Pennzoil as a result of signing a Pennzoil Contract. (CR 2698,2712).
12. Stallons and Ellis accepted substantial loan origination fees for Compass Bank SBA
loans for Plaintiffs' Service Centers, a fact undisclosed to Plaintiffs at the time of their purchase of
the Service Centers. (CR 2671).
IV. SUMMARY OF ARGUMENT
The Motions for Summary Judgment filed by Stallons (CR 1170-1699, 1705-2096),
Chevreaux (CR436-481, 1700-1 7O4), and Compass Bank (CR 64-1 33, 21 32-2190) contend that
Plaintiffs have raised no genuine issues of material facts and/or that Plaintiffs have no evidence to
support one or more elements of their claims. However, the record demonstrates summary judgment
evidence presented by PlaintiffsIAppellants concerning the following:
First, Appellants present circumstantial evidence that raises genuine issues ofmateiial fact as
to Defendants engaging in a common plan or scheme to deceive Plaintiffs into purchasing the
Plaintiffs' Service Centers.
Second, Appellants raise genuine issues of material fact that Defendants committed material
misrepresentation and fraudulent inducement, both orally and in writing, to Plaintiffs prior to, and
during, the Plaintiffs' purchase of the Plaintiffs' Service Centers.
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Third, Appellants raise genuine issues of material of fact that Defendants committed
fraudulent concealment related to Plaintiffs' purchase of the Plaintiffs' Service Centers.
Plaintiffs' summary judgment evidence raises genuine issues of material fact and
considerable circumstantial evidence supporting Plaintiffs' claims of a conspiracy between
Defendants. Evidence such as Stallons' inappropriate actions in soliciting appraisals directly fkom
Chevreaux, combined with Compass Bank's policy violations raise substantial circumstantial
evidence for determination by the trier of fact. (CR 179). Finally, the benefits which accrued to
Defendants' through their actions provide substantial motive for their common plan and scheme to
damage Plaintiffs. (CR 677).
Plaintiffs' summary judgment evidence also establishes genuine issues of material fact
regarding fraudulent misrepresentation by Stallons, Compass Bank, and Chevreaux regarding the
values of the Plaintiffs' Service Centers. (CR 2268). The appraisals valuing the Plaintiffs' Service
Centers were inappropriately solicited fiom Chevreaux by Stallons on behalf of Compass Bank. (CR
206). The grossly-inflated values were then represented to Plaintiffs as valid values based upon
generally accepted appraisal methods. (CR 673-676). In fact, Stallons inappropriately supplied
Chevreaux with contracts for sale which included sale price information (CR 671, 673), and
Compass Bank's violation of its own standard operating procedures as well as SBA policies in
ensuring the appraisal values represented were accurate. (CR 179-1 80). Plaintiffs raise multiple
issues of material facts regarding Defendants' misrepresentations to Plaintiffs.
Plaintiffs' summary judgment evidence also establishes genuine issues of material fact
regarding the fraudulent concealment by Defendants regarding payments to Stallons and the Kwik
Defendants of loan orignation fees and Pennzoil Contract monies. Payment of the Compass Bank
loan orignation fees to Stallons and the Kwik Defendants was never disclosed to Plaintiffs. The
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Kwik Defendants concealed the Pennzoil Contracts from Plaintiffs until closing, and concealed the . ,
payments to Kwik under the Pennzoil Contracts. (CR 2636,2698).
v. ARGUMENT AND AUTHORITIES
A. STANDARD OF REVIEW.
In a traditional summary judgment case, the issue on appeal is whether the movant met the
summary judgment burden by establishing that no genuine issue of material fact exists and that the
movant is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Sw. Elec. Power Co. v.
Grant, 73 S.W.3d 21 1, 215 (Tex. 2002); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d
671, 678 (Tex. 1979). On appeal, Courts of Appeal have stated that they will review de novo the
trial court's decision upon summary judgment. Ruiz v. City of San Antonio, 966 S.W.2d 128, 130
(Tex.App.-Austin 1998, no pet.). The burden of proof is on the movant, and all doubts about the
existence of a genuine issue of material fact are resolved against the movant. Sw. Elec. Power Co.,
at 21 5. The non-movant is entitled to have all reasonable inferences made and all doubts resolved in
its favor. Univ. of Tex. Health Science Center a t Houston v. Big Train Carpet of El Campo, Inc.,
739 S.W.2d 792 (Tex. 1987).
In a no-evidence summary judgment case, the motion was properly granted if, after adequate
time for discovery, the moving party asserted there was no evidence presented as to one or more
specified elements of a claim for which the claiming party had the burden of proof, and which the
respondent produces no surnmary-judgment evidence raising a genuine issue of material fact on
those elements. LMB, Ltd. v. Moreno, 201 S.W.3d 686, 688 (Tex. 2006) (per curiam). Thus, the
Court examines whether the nonmovant produced any evidence of probative force to raise a fact
issue on the material questions presented. Roth v. FFP Operating Partners, L.P., 994 S.W.2d 190,
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195 (Tex.App.-Amarillo 1999, pet. denied). The Court considers all evidence in the light most
favorable to the party against whom the no-evidence summary judgment was rendered, disregarding
all contrary evidence and inferences. See Merrell Dow Pharmaceuticals, Inc. v. Havner, 953 S.W.2d
706, 7 1 1 (Tex. 1997). A no-evidence summary judgment is improperly granted if the nonrnovant
presents more than a scintilla of probative evidence to raise a genuine issue of material fact. Jackson
v. Fiesta Mart, Inc., 979 S.W.2d 68,70-71 (Tex.App.--Austin 1998, no pet.). More than a scintilla of
evidence exists when the evidence "rises to a level that would enable reasonable and fair-minded
people to differ in their conclusions. Merrell Dow, 953 S.W.2d at 71 1. Here, the Trial Court erred
in granting Defendants' Motions.
B. PLAINTIFFS RAISED SUFFICIENT EVIDENCE AND RAISED GENUINE ISSUES OF MATERIAL
FACT THAT DEFENDANTS ENGAGED IN A COMMON PLAN, DEVICE, SCHEME, OR ARTIFICE TO DECEIVE PLAINTIFFS INTO PURCHASING THEIR AUTOMOTIVE AND DRY CLEANING SERVICE CENTERS.
This Court has held that when motions for summary judgment present both traditional and
no-evidence grounds, it is appropriate to analyze the no-evidence grounds first. Kalyanaram v. Univ.
of Tex. Sys., 230 S.W.3d 921, 925 (Tex. App.-Dallas 2007, pet. denied). Here, Appellants
presented considerable evidence raising genuine issues of material fact as to their claims of
conspiracy.
An actionable civil conspiracy is a combination by two or more persons to accomplish an
unlawful purpose or to accomplish a lawful purpose by unlawful means. Massey v. Armco Steel Co.,
652 S.W.2d 932,934 (Tex. 1983). The essential elements are: (I) two or more persons; (2) an object
to be accomplished; (3) a meeting of minds on the object or course of action; (4) one or more
unlawful, overt acts; and (5) damages as the proximate result. Id. Texas Courts have long held that
proof of a conspiracy may be, and usually must be, made by circumstantial evidence. Schulumberger
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Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 858 (Tex. 1968). "When men
enter into conspiracies, they are not likely to call in a witness.. .In such cases the injured party must
necessarily have recourse to circumstantial evidence." Int '1 Bankers Life Ins. Co. v. Holloway, 368
S.W.2d 567, 58 1 (Tex. l963), quoting Jernigan v. Wainer, 12 Tex. 189. It is not necessary to show
each and every act of a conspirator as being in concert with the others by direct evidence. Id. at 582.
Inferences of concerted action may be drawn from joint participation in the transaction and from
enjoyment of the h i t s of the transactions on the part of the defendants. Id.
The summary judgment rule is not intended to permit a trial by deposition or affidavit, and a
motion for summary judgment should not be resolved by weighing the relative strength of conflicting
facts and inferences. Garcia v. John Hancock Variable Life Ins. Co., 859 S.W.2d 427, 435
(Tex.App.-San Antonio 1993, writ denied). In particular, summaryjudgment dismissing claims of
conspiracy has been ruled improper when the plaintiffs discovery responses raised questions as to
the credibility and weight of defendants' affidavits, as well as to what reasonable inferences arise
from such evidence. Fisher v. Yates, 953 S. W .2d 370 (Tex.App.-Texarkana 1 997).
Here, in support of their claims, among other summary judgment evidence, Plaintiffs filed
affidavits of Gary Greenlee (the "Greenlee Affidavit") (CR 2602), Wayne Michaels (the "Michaels
Affidavit") (CR 2570), Bill Lofton (the "Lofton Affidavit") (CR 2617), Loyd Judd (the "Judd
Affidavit") (CR 2632), and Mitzi Willis (the "Willis Affidavit") (CR 2587). Plaintiffs' affidavits set
forth the common plan and scheme whereby the Defendants worked in concert to market, sell, and
finance service centers to Plaintiffs through the use of deceptive andlor fraudulent representations of
material fact. Only through the use of these fraudulent representations regarding projected sales and
profitability would any reasonable person agree to pay the large sums of money required to purchase
these service centers from Kwik Defendants. These same projections were supplied to lenders, such
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as Compass Bank, by Kwik Defendants on behalf of the Plaintiffs as part of their applications for
SBA loans. (CR 202). Compass Bank's close relationship with Kwik is evidenced by the fact that
Compass failed to follow its own internal guidelines, as well as the SBA guidelines, in a number of
material respects, particularly in allowing Kwik to: 1) select the appraiser, often Chevreaux (CR
206); 2) communicate directly with the appraiser (CR 207); 3) provide inappropriate information to
the appraiser (including the contract of sale itself) (CR 206); 4) select the Phase I environmental
inspector (CR 207); and 5) "flip" the purchase of various service centers in a manner entirely
inconsistent with the contractual agreements in the SBA loan file. (CR 204). This evidence
demonstrated the inappropriately "cozy" relationship between the Kwik Defendants and Compass
Bank.
The final necessary component of the Defendants' plan was an appraisal of each of the
Plaintiffs' Service Centers which offered a grossly inflated value to support the purchase price. (CR
2268). Appraisers such as Chevreaux supplied appraisals that estimated grossly inflated property
values for the Service Centers. (CR 2268). The affidavit of Jay Massey (the "Massey Affidavit"), a
certified, professional real estate appraiser who provided retroactive appraisals of the Service
Centers7 values at the time of purchase by Plaintiffs, indicates the extent of value inflation reflected
in Defendants7 appraisals. (CR 696-699). Specifically, the Michaels Plaintiffs purchased the Clark
Road Service Center based upon an over-inflated appraisal by Chevreaux indicating the facility had a
market value of $1,500,000.00 as of July 18, 2003, when, in fact, the market value of this facility
was actually only $790,000.00 as of July 3 1,2003 (CR 657,699); the Willis Plaintiffs purchased the
Dry Cleaning Service Center based upon a grossly inflated appraisal by Chevreaux indicating the
facility had a market value of $1,625,000.00 as of December 27, 2003, when, in fact, the facility's
actual market value as of August 18, 2003 was only $760,000.00 (CR 657, 699); and the Greenlee
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Plaintiffs purchased the Ferris Avenue Service Center based upon an appraisal by Chevreaux
indicating the facility had a market value on February 20,2001 of $1,200,000.00, when, in fact, the
facility's market value as of July 3 1,2002 was only $360,000.00. (CR 657,699). After the Service
Centers were sold to Plaintiffs at these grossly-inflated prices, the SBA-guaranteed loans on the
facilities were sold in the secondarymarket, freeing Compass Bank of any risk ofdefault. (CR 199).
All told, Chevreaux completed 86 appraisals of Kwik service centers between 2001 and 2005,
Compass Bank served as the SBA lender in the purchase of 24 Kwik service centers, and Defendant
Kwik was the seller in at least 48 of these transactions. (CR 677). The scope and scale of the
potential income to Defendants is considerable. Plaintiffs' Supplemental Response to Compass
Bank's Motion for Summary Judgment attached the deposition transcript of a representative for
Compass Bank, Stuart Mitchell ("Mitchell"), Senior Vice President SBA Operations Manager (the
"Mitchell Deposition"). (CR 188-236). Mitchell gave testimony regarding a request from Defendant
Stallons to Defendant Chevreaux for the appraisal of the Clark Road Service Center, purchased from
Kwik by the Michaels Plaintiffs. (CR 206). Mitchell admitted this was not standard operating
procedures for someone other than the bank/lender to request the appraisal. (CR 206). Additionally,
Mitchell admits that Chevreaux was not on Compass Bank's approved appraiser list at the time he
performed the appraisal of the Michaels Plaintiffs' Service Center. (CR 195). Mitchell also testified
that the appraisal request from Stallons to Chevreaux included a copy of the sales contract, which
would normally not be supplied to an appraiser performing an assignment in an effort to keep the
appraiser unclouded by the contract's sale price. (CR 206). Finally, Compass Bank not only freed
themselves fiom any risk of default on loans such as the Plaintiffs' by selling them on the secondary
market, they made additional profits on these sales. (CR 199-200). For example, Compass would
sell an SBA-guaranteed loan valued at $750,000.00 on the secondary market for approximately
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$825,000.00, a handsome profit of $75,000.00. (CR 199-200). This evidence indicates significant
breaches of Compass Bank policy and inappropriate action between the Defendants.
The foregoing evidence raised by Plaintiffs demonstrates that both Compass Bank and
Chevreaux routinely received numerous referrals for SBA loans and appraisals related to Kwik
service centers (CR 677), and that SBA loan and appraisal procedures were regularly ignored andlor
violated as a result of the close relationship between Chevreaux, Compass Bank, and Kwik,
specifically Stallons. (CR 195, 206, 2 13). Plaintiffs provided multiple evidentiary sources
concerning genuine issues of material facts which would enable reasonable and fair-minded people
to differ in conclusions as to the existence of an inappropriately "cozy" relationship between
Defendants. Merrell Dow, 953 S.W.2d at 71 1. As such, no-evidence summary judgment for the
Defendants on Plaintiffs' conspiracy claims was inappropriate.
Plaintiffs' evidence establishes genuine issues of material facts as to their claim of
conspiracy. This Court has upheld a jury's finding of conspiracy when there was no direct evidence
of conspirators getting together to explicitly agree to take advantage of their victim. American Title
Co. ofHouston v. Bomac Mortgage Holdings, L.P., 196 S. W.3d 903,915 (Tex.App.-Dallas 2006).
It was sufficient that one conspirator had full knowledge of the transaction complained of, assisted
the other conspirator with the documentation, accepted payment as h i t s of the transaction, and at
least passed along, if not created, altered documents concealing the nature of the transaction. Id.
The only evidence raised by Defendant Chevreaux regarding Plaintiffs' claims of conspiracy
6
is his self-serving affidavit. (CR 442). A summary judgment may be based on uncontroverted
testimonial evidence of an interested party if the evidence is clear, positive and direct, otherwise
6 Chevreaux's affidavit, an attachment to Chevreaux's Motion for Summary Judgment is not included in the Clerk's Record. (CR 442). APPELLANTS' BRIEF Page 33 N :\KWIK KAR\PLEADMppeal\Appellants' Btief.doc
credible and free from contradictions and inconsistencies, and could have been readily controverted.
TEX. R. CIV. P. 166a(c). Plaintiffs' own affidavits and the Mitchell Deposition controvert
Chevreaux's affidavit and raise material questions of fact related to the evidence of Chevreaux's
participation in a common plan to deceive Plaintiffs. (CR 188-236,2570-2647). The affidavits and
deposition testimony raise questions concerning the reliability and deference which should be
accorded Chevreaux's affidavit, and make summary judgment for Defendants improper. Fisher v.
Yates, 953 S.W.2d at 380.
Plaintiffs' evidence regarding the allegation of a conspiracy by Defendants establishes, or at
least raises genuine issues of material fact properly for consideration by the trier of fact with regard
to each element of Plaintiffs' conspiracy claims. Defendants argue there was no meeting of the
minds to establish a common scheme; however, as noted above, inferences of concerted action may
be drawn from joint participation in the transaction and the enjoyment of the h i t s of said transaction
on the part of the defendants. Int'I Bankers Life Ins. Co., 368 S.W.2d at 582. Defendants' efforts
worked in concert to persuade Plaintiffs to make their unfortunate purchases of their Service Centers,
and Defendants clearly enjoyed the h i t s of these efforts. (CR 677). The inappropriately cozy
relationship between Defendants led to unlawhl, overt acts to accomplish the closings on Plaintiffs'
Service Centers, and Plaintiffs suffered damage as a result. Because Plaintiffs' evidence raised
genuine issues of material fact relating to all elements of their conspiracy claim, traditional summary
judgment for Defendants as to conspiracy was also improper.
C. PLAINTIFFS RAISED SUFFICIENT EVIDENCE AND RAISED GENUINE ISSUES OF MATERIAL
FACT THAT DEFENDANTS COMMITTED MATERIAL MISREPRESENTATION AND FRAUDULENT
INDUCEMENT, AS WELL AS FRAUDULENT CONCEALMENT, BOTH ORALLY AND IN WRITING,
TO PLAINTIFFS PRIOR TO, AND DURING, THE PLAINTIFFS' PURCHASE OF THE SERVICE
CENTERS.
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Plaintiffs raised multiple issues of material questions of fact related to Defendants' acts of
fraud in the inducement and fraudulent concealment. Plaintiffs relied upon, without limitation, the
affidavits and supplemental affidavits of all the Plaintiffs (CR 143- 17 1, 2570-2647); the Massey
Affidavits (CR 696-1083, 2322-2451); the affidavit of Mark H. How (CR 2649-2658); the
depositions and attached exhibits of Chevreaux (CR 2691-2751), Stallons (CR 2659-2689), Mitchell
(CR 188-236), Brian Easley, the field-based account manager for Pennzoil (CR 269 1-275 I), and
Garrett McKinnon, the editor of National Oil &Lube News, a national trade publication dedicated to
the automobile oil change industry (CR 2753-2799); SBA Loan Guidelines SOP 50 1 0(5), 8(a) and
(b) (CR 2801); Compass Bank's Objections and Answers to Plaintiffs' Second Interrogatories in
Cause No. DC-07-15 199, Joseph & Cheiyl Kay Hilley et al. v. Kwik Industries, Inc., et al. in the
19 1 st Judicial District Court of Dallas County, Texas (CR 1 148-1 152); and the pleadings,
admissions, affidavits, stipulations of the parties, and authenticated or certified public records, if any,
on file at the time of the hearing, or filed thereafter and before judgment with permission of the
Court .
Defendants' misrepresentations regarding the financial viability of the Service Centers
successfully induced the Plaintiffs to purchase Kwik service centers, causing them injury. The
starting and ending point of Plaintiffs' decisions to invest with Kwik Defendants is the Pro Fonna
information presented to each Plaintiff by Kwik (the "Pro Formas"). (CR 2578-2580,2593-2595,
2608-261 0,2624-2626,2643-2645). During the Kwik Defendants' marketing of the Service Centers
to the Plaintiffs, Ellis (Hinson for the Willis Plaintiffs) showed each of the Plaintiffs information
concerning the projected car/customer count and projected revenue for their respective facilities.
(CR 2572,2588,2603,261 8,2633). The Plaintiffs' affidavits confirm that the Plaintiffs materially
relied upon this information, especially considering that they considered Ellis to be an expert in his
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field. (CR 2572-2573, 2588-2589, 2603, 2618-2620, 2633-2635). Mitchell testified that even
Compass Bank accepted the Pro Formas without question from Kwik as they considered Kwik and
Ellis "the professionals in that industry, not Compass Bank." (CR 203). For the automobile service
centers, the Pro Formas indicated that the daily car count would increase over the years, giving the
Plaintiffs steadily increasing revenue and profits. (CR 2570-2585,2602-2646). In reality, Plaintiffs'
affidavits confirm that the daily car counts and income figures reflected in the Pro Formas were
grossly exaggerated and highly inaccurate, and the actual car counts and sales figures for each
Plaintiffs service facility have been dramatically less, causing the Service Centers to operate at a
loss. (CR 2585, 2600, 2615, 2631, 2646). McKinnon testified in his deposition that the yearly,
national surveys conducted by his magazine, National Oil &Lube News, demonstrated that during
the period from 1995 through 2005, the average daily car count went from 47.9 to 35.7, a decrease of
20%. (CR 2764). Kwik advertised in McKinnon's magazine, meaning the Kwik Defendants were
aware of this key inconsistency on their Pro Formas compared to the national surveys. (CR 2755).
Not only were these Pro Formas provided to the Plaintiffs as potential customers, but they were
presented by Stallons to the lender, Compass Bank, as support for the viability of the loan. (CR
202). Chevreaux admitted that the only demographic information he reviewed for his appraisal of
the Michaels Plaintiffs' Service Center was the data provided by the Kwik Defendants. (CR 1 100).
The Plaintiffs present probative evidence raising genuine issues of material fact related to the
Plaintiffs' reliance on the Pro Formas as the inducement to purchase their Service Centers.
Plaintiffs raised considerable evidence raising genuine issues of material fact relating to each
element of their claims of fraudulent misrepresentation. These elements include: (1) a material
misrepresentation, (2) that was either known to be false when made or was asserted without
knowledge of its truth, (3) which was intended to be acted upon, (4) which was relied upon, and (5)
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which caused injury. Marshal v. Kusch, 84 S.W.3d 781,785 (Tex. App.-Dallas 2002, pet, denied).
Having received the benefit of Ellis' fraudulent misrepresentations to the Plaintiffs, Stallons cannot
insulate herself from liability for fraud resulting from those misrepresentations. See, Corpus Christi
Area Teachers Credit Union v. Hernandez, 8 14 S. W.2d 195,202 (Tex. App.-San Antonio 199 1, no
writ) (a party in interest may become liable by mere silent acquiescence in fraudulent
misrepresentations of a third party). Moreover, it is also established that active concealment of
material facts may also be actionable as false statements. Campbell v. Booth, 526 S.W.2d 167, 172
(Tex. Civ. App.-Dallas 1975, writ ref d n.r.e.). Stallons was in charge of handling the Plaintiffs'
applications for SBA loans on behalf of the Kwik Defendants. (CR 2665). She was privy to all of
the information solicited from, and provided to, the Plaintiffs on behalf of the Kwik Defendants.
(CR 2665-2666).
Similarly, Chevreaux's claim that Plaintiffs were not within the class of persons the appraiser
had "reason to expect" to rely on the appraisal to purchase the property is without merit. (CR 445).
Chevreaux apparently contends that since the lender was officiallyhis client and Plaintiffs were not
aware of the appraisals, at least until closing of the purchase, Plaintiffs did not rely on Chevreaux's
appraisals. (CR 445). However, it is not required that the misrepresentation be made directly to the
claimant, inasmuch as a person who makes the misrepresentation is liable to the person or class of
persons the maker intends or has reason to expect will act in reliance upon the misrepresentation.
Id., citing Ernst & Young LLP v. Pac. Mut. Life Ins. Co., 5 1 S.W.3d 573, 578 (Tex. 2001) (citing,
Restatement (Second) of Tort, 5 53 1 (1977) [emphasis added]. The reason to expect standard is
consistent with Texas jurisprudence and requires that an alleged fiaudfeasor have information that
would lead a reasonable man to conclude that there is a special likelihood that it will reach those
persons and will influence their conduct. Id. at 580. [emphasis added].
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Here, Chevreaux clearly knew the appraisal was being used as part of the approval process
for an SBA loan transaction for the Greenlee, Michaels, and Willis Plaintiffs. (CR 1097). In fact,
Chevreaux admitted he was provided with a copy of the sales contract between the Michaels
Plaintiffs and Kwik prior to completing his appraisals. (CR 1094). The Michaels and Willis
Plaintiffs' Contracts of Sale even indicate that they paid for Chevreaux's appraisal. (CR 2581,
2596). Mitchell confirmed that the Plaintiffs were indeed responsible for paying for the appraisals.
(CR 198). Additionally, it is without question that Plaintiffs' SBA loan approvals were based on
Chevreaux's Appraisals. (CR 2681). Appraisals were an essential part of the Plaintiffs' loan
applications; no appraisal = no loan. (CR 213). Consequently, the evidence establishes that
Plaintiffs relied on the appraisals, as part of the SBA approval process, to ensure that the Service
Centers were worth the amount which Plaintiffs had agreed to pay for them. (CR 2574,2589,2604,
2620, 2636). Mitchell acknowledged that the SBA and Compass Bank policies with regard to the
appraisals were very similar, indicating that the appraisals included in Plaintiffs' SBA loan packages
for Compass Bank would have to pass SBA requirements. (CR 213). As set forth in the Michaels
and Willis Affidavits, each Plaintiff relied upon the appraisal and would not have closed the
purchase transaction if the Chevreaux appraisal had not contained a grossly inflated market value of
each appraised service facility. (CR 2574-2575,2589-2591).
With regard to the Greenlee Plaintiffs, Chevreaux erroneously contends they do not fall
within the class of parties whom Chevreaux had "reason to expect" the market value representations
to reach because their purchase involved a loan assumption after the appraisal was originally
performed. (CR 445). However, it is established that the transactions sued upon need not be
identical to that the defendant contemplates if it has the same essential character. Id. "It may differ
in matters of detail or an extent, unless these differences are so great as to amount to a change in the
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essential character of the transaction." Id., citing, Restatement (Second) of Torts 8 53 1 cmt. "g."
Here, the Greenlee Plaintiffs assumed the SBA loan for the Ferris Avenue Service Facility
approximately 1 112 years after the original SBA loan. (CR 145). As evidenced by the Greenlee
Affidavit, the Greenlee Plaintiffs clearly relied on the accuracy of the appraisals and revenue
projections made as part of the SBA loan approval process. (CR 144-145). The Greenlee Plaintiffs'
loan application required an appraisal as an essential part of the package; no appraisal = no loan.
(CR 21 3). This evidence raises material issues of fact as to whether Chevreaux had "reason to
expect" the Greenlee Plaintiffs to rely on the appraisal supporting the Service Center's original
purchase price.
Additionally, Compass Bank's claim that they made no misrepresentation and committed no
fraud against the Plaintiffs is without merit. (CR 67). Plaintiffs raise material issues of fact
concerning violations of Compass Bank internal policies and SBA loan policies with regard to
Compass Bank's handling of the Plaintiffs' loans. (CR 195, 206, 213). By violating SBA loan
policies, Compass Bank has misrepresented to the SBA, andindirectly to Plaintiffs, that the loan was
handled properly and with the utmost diligence. (CR 21 3). In reality, Compass Bank policies were
violated with regard to Kwik's selection of, and interacting with, the appraiser. (CR 206).
Additionally, Mitchell admits never comparing the Pro Formas from one loan package to another.
(CR 202). He contends that he was unaware that all of the Pro Formas submitted were identical.
(CR 202). Thus, Compass Bank misrepresented to the SBA, and indirectly to Plaintiffs, that the
loans for Plaintiffs' Service Centers had been vetted and given all proper consideration.
Likewise, Plaintiffs' evidence indicating the cozy and inappropriate relationship between the
Kwik Defendants, Compass Bank, and Chevreaux raises material issues of fact as to Compass
Bank's willing participation and/or acquiescence in the Kwik Defendants' overall scheme through
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SBA procedural improprieties perpetuated by the Kwik Defendants which not only resulted in faulty
appraisals, but the non-disclosure of referral fees in violation of the SBA guidelines. (CR 49,2801).
Again, active concealment of material facts may be actionable as a false statement. Campbell v.
Booth, szpva. Moreover, Compass Bank's acquiescence in the actions of the Kwik Defendants in
perpetuating fraudulent misrepresentations as to the value of the Kwik Service Centers purchased by
the Plaintiffs is also actionable as fraud. Hennigan v. Havvis County, 593 S.W.2d at 380, 384
(Tex.Civ.App.-Waco 1979, writ ref d n.r.e.).
Defendants also committed fraudulent concealment in the sale of the Service Centers to the
Plaintiffs. The Kwik Defendants did not disclose payments to Kwik of thousands of dollars in return
for the Kwik Defendants' signing of the Pennzoil Contracts. (CR 2574, 2620, 2636). Easley
testified in his deposition that Kwik received payments of up to $45,000 related to the signing of the
Pennzoil Contracts, money that by the terms of the contract should have been paid to the Plaintiffs.
(CR 2695-2699). These Pennzoil Contracts required the Plaintiffs to purchase the vast majority of
the products they needed to operate their businesses from Pennzoil, with substantial penalty
provisions for failure to purchase the mandated amounts. (CR 2698, 2701). Easley could not
confirm the source of the number of units projected in the Pennzoil Contracts, nor could he identify
any business reviews for the existing Service Centers purchased by Plaintiffs. (CR 2701). Thus, yet
again, Plaintiffs suffered injury due to the Kwik Defendants' misrepresentations contained in their
Pro Formas which projected continued car count growth. (CR 2701,2578-2580,2593-2595,2608-
26 10,2624-2626,2643-2645). The double standard continues, whereby the Kwik Defendants claim
the Plaintiffs are unable to claim reliance upon the Pro Formas and sales projections, yet Compass
Bank, and Pennzoil both relied upon them in the course of the Plaintiffs' Service Center purchases.
(CR 203,2701). The Plaintiffs confirmed in their affidavits that neither the Kwik Defendants nor
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Pennzoil informed them that the payments which they should have received were actuallybeing paid
by Pennzoil to Kwik. (CR 2574,2620,2636). This evidence raises a material question of fact as to
whether information concerning the Pennzoil Contracts was fraudulently concealed from the
Plaintiffs.
Mitchell testified to the importance of complying with the SBA SOP, as confirmed by the
Compass Bank Credit Policy Manual. (CR 210). Mitchell acknowledged that it was "very
important" to comply with all SBA procedures in order to keep the SBA guarantee intact, and
because Compass Bank was acting as an agency of the Federal Government. (CR 210). Yet,
Defendants fraudulently concealed from Plaintiffs the fact that Stallons and Kwik received loan
referral fees from the closings for the Plaintiffs' Service Centers. (CR 2575,2621,2637). Stallons
testified that Kwik used various lenders, all of whom paid referral fees for SBA loan originations,
often 2% of the loan amount. (CR 2667). As an example, a $1.2 million loan origination would
generate a fee of $24,000.00. (CR 2668). Stallons, and the entity she created, LEST, Inc., would
split these fees with Ellis. (CR 2668-2669). None of this information was disclosed to the Plaintiffs,
and the information relating to the fees was not included on the closing statement of the SBA loans,
even though SBA loan regulations at SOP 50 10(5), 8(a), and (b) require, among other things, that a
loan packager or a referral agent ". . . or any other party that receives compensation from
representing an applicant for an SBA loan" must execute and provide an SBA Compensation
Agreement and an SBA Form 159(7a) "Fee Disclosure Fonn and Compensation Agreement," must
be signed by the small business applicant, the agent and the lender. (CR 2801). This evidence also
raises material questions of fact as to whether Defendants fraudulently concealed information from
the Plaintiffs.
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Plaintiffs also raised evidence concerning genuine material fact issues relating to Compass
Bank's fi-audulent concealment. Fraudulent concealment occurs when: 1) aparty conceals or fails to
disclose a material fact within the knowledge of that party; 2) the party knows that the other party is
ignorant of the fact and does not have an equal opportunity to discover the truth; 3) the party intends
to induce the other party to take some action by concealing or failing to disclose the fact; and 4) the
other party suffers injury as a result of acting without knowledge of the undisclosed fact. Bvadfovd v.
Vento, 48 S.W.3d 749, 754 (Tex. 2001). Compass Bank argues that it had no duty to disclose any
facts which Plaintiffs allege contributed to their injury. (CR 2 136). In fact, Plaintiffs raised evidence
which indicated SBA guidelines, let alone internal Compass Bank policies, which were violated in
the transactions to finance the Michaels Plaintiffs' Kwik service center. (CR 195, 206, 213).
Plaintiffs presented testimony by Mitchell admitting Compass Bank's violations ofmaterial elements
of the Michaels Plaintiffs' SBA loan transaction. (CR 195,206,213). Plaintiffs believe this raises a
genuine issue of a material fact as to whether or not Compass Bank's policies required disclosure of
these violations to their customers, specifically the Michaels Plaintiffs. Likewise, Chevreaux was
aware of improprieties in the solicitation of his services by Kwik directly (CR 1094), and in his
violation of standard and uniform appraisal procedures regarding comparable sales valuation,
demographic analysis, and open market exposure analysis. (CR 1098- 1 100). Additionally, Compass
Bank's deliberate failure to disclose the referral fees paid to the Kwik Defendants out of the
transaction costs materially damaged Plaintiffs. (CR 2801). The affidavits of the Plaintiffs raised
evidence regarding their unawareness of these fees and payments to the Kwik Defendants (CR 2801),
as well as to their lack of knowledge concerning the appraisals' inflated values. (CR 2575-2575,
2589-2591). Compass Bank and Chevreaux are unable to shield themselves by claiming they had no
communication with the Plaintiffs when they knew that Plaintiffs were ignorant of these loan
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transaction violations, inflated appraisals, and fees, and knew that Plaintiffs had no equal opportunity
to discover these facts. See Id at 755. Plaintiffs' evidence presented material questions regarding
Compass Bank's fraudulent concealment which were properly within the province of the trier of fact
to determine.
The Kwik Defendants and Chevreaux erroneously contend that Plaintiffs' fraud claims are
barred by the contractual disclaimers contained in paragraph 10(E) and in paragraph 13 or 14 of
Plaintiffs' contracts which contain boiler plate disclaimers and integration clauses. [emphasis
added]. (CR 456-457,463-465,473-474,495-500). Stallons and Chevreaux's contention regarding
contractual disclaimers is especially interesting considering that although the Trial Court granted
summary judgment for Stallons and Chevreaux, it also denied Kwik and Ellis' motions based upon
the same argument. (CR 2886-2888,2892-2899). The Trial Court's Orders are inconsistent in that
they are based upon the same evidence regarding disclaimers on the same contracts. (CR (CR 2886-
2888,2892-2899). It is a double standard for the Kwik Defendants to argue the Plaintiffs are unable
to claim reliance upon the Pro Formas and sales projections when both Compass Bank and Pennzoil
relied upon them in the course of their loan approval and in preparing supply contracts. (CR 203,
2701). The Kwik Defendants concede that a disclaimer of reliance or merger clause will not always
bar a fraudulent inducement claim, (CR 497) citing, Prudential Ins. Co. v. Jeferson Assoc. Ltd., 896
S.W.2d 156,162 (Tex. 1995). Defendants contend that the disclaimers in the instant case should be
enforced under the decision in Schlumberger Tech Corp. v. Swanson, 959 S.W.2d 17 1 (Tex. 1997).
However, Defendants failed to note the equally established principle that a purchaser is not bound by
such boilerplate disclaimers, or integration agreements, when, as in the instant case, the purchaser is
induced by the fraudulent representations or concealment of information by the seller. Prudential
Ins. Co., 896 S.W.2d at 162. [emphasis added]. In other words, disclaimers of reliance and
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integration clauses do not bar a fraud claim. Moreover, a purchaser is not bound by such disclaimer
provisions when his inspecting rights are impaired by the seller's conduct, such as an active
concealment, as in the instant case, of not only the true value of the facility, but its profitability. In
the instant case, material fact issues exist as to the active concealment by the Kwik Defendants of the
true value and revenue prospects of the Service Centers purchased by Plaintiffs, and under
Prudential, the misrepresentations and active concealment render the contractual disclaimer and
integration provisions ineffective in the instant case. Consequently, Chevreaux also cannot rely upon
the disclaimers to bar liability when his appraisals were the instrument which perpetuated the Kwik
Defendant's concealment of the true value of the Plaintiffs' Service Centers.
Moreover, even if there were no evidence which raises a material fact issue regarding
fraudulent concealment, Defendants' argument based upon the disclaimer provision still must be
rejected under a legitimate review of the factors determining whether the provisions should be
enforced. See, Id. Specifically, the nature of the transaction and the totality of the circumstances
surrounding the agreement must be considered, as in whether the clause is an important part of the
basis of bargain or an incidental boiler plate provision, and if it is entered by parties of relatively
equal bargaining positions. Id.
Further, the Kwik Defendants' reliance on the Schlz~nzbevgev decision is misplaced, inasmuch
as the facts in the instant case are clearly distinguishable. In Schlumbevgev, the evidence established
that the parties ( I ) were represented by "highly competent and able legal counsel," (2) negotiated
with each other at arms length, (3) were knowledgeable and sophisticated business players, (4)
disagreed over the value of the subject project, and (5) entered into a settlement to end their dispute
about the value of the project. Schlumbevgev Tech. Covp., 959 S.W.2d at 180. By contrast, the
Plaintiffs in the instant case were not represented by independent counsel in negotiating the contract,
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but simply utilized counsel referred by the Kwik Defendants to form the corporate entities who are
now Plaintiffs in the instant case. (CR 2575,2606,2637,2679). The Plaintiffs' use of legal counsel
that the Kwik Defendants suggested to form their business entities is, in fact, the exact opposite of
using independent counsel. (CR 2575,2606,2637,2679). Moreover, aside from Ellis' self-serving,
inadmissible testimony, it is obvious that the parties were not negotiating at arms length and that the
Plaintiffs were relying on Ellis' experience and expertise to provide them with accurate information
about the operation of their Service Centers. (CR 2572-2573,2588-2589,2603,2618-2620,2633-
263 5). Additionally, Plaintiffs cannot be viewed as either being knowledgeable or sophisticated with
regard to the lube and tube business, as none of them had any experience in investments of this
magnitude, particularly in this industry. (CR 2575-2576,2606,2622,2637). Moreover, there was
no existing disagreement about the value of each Service Center, and the Plaintiffs relied on the
Kwik Defendants to provide accurate information regarding the value of their Service Centers. (CR
2572-2573, 2588-2589, 2603, 2618-2620, 2633-2635). Finally, the Court in Schlumberger
specifically limited its holding to the facts at hand in that matter. Id. at 181. "We conclude only
that on this vecovd, the disclaimer of reliance conclusively negates as a matter of law the element of
reliance on representations.. .needed to support the [plaintiffs'] claim of fraudulent inducement." Id.
Consequently, the Schlumbevgev decision is completely distinguishable from the instant case and
would ostensibly apply only in cases where the disclaimers were contained in settlements, negotiated
by knowledgeable attorneys, involving a dispute as to the value of each respective Service Center.
Moreover, the doctrine of merger does not apply, inasmuch as it is settled that the doctrine is
inapplicable in situations, like the present case, where there is an allegation of fraud. GXG v.
Texacal Oil & Gas, 977 S.W.2d 403, 416 (Tex. App.-Corpus Christi 1998, no writ), citing
Schlumbevgev, 895 S.W.2d at 729. Likewise, Compass Bank cannot rely on similar merger
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agreements and disclaimers contained in the Compass Bank loan documents executed as part of the
transaction involving Plaintiffs' purchase of their respective Service Centers, inasmuch as all
agreements related to a transaction fraudulently induced are vitiated by the fraud. (CR 69). Fletcher
v. Edwards, 26 S.W.3d 66, 76 (Tex. App.-Waco 2000, pet. denied) (holding that fraudulent
inducement vitiates all documents executed as part of a transaction).
The foregoing evidence of probative force produced by the Plaintiffs raises fact issues on the
material questions presented. This evidence clearly raises fact issues properly for consideration by
the trier of fact with regard to each element of Plaintiffs' claims of fraudulent misrepresentation and
fraud in the inducement, and fraudulent concealment. As such, summary judgment for the
Defendants was improper.
D. THE JUDD, LOFTON, AND WILLIS PLAINTIFFS RAISED GENUINE ISSUES OF MATERIAL FACT
AND RAISED SUFFICIENT EVIDENCE THAT DEFENDANTS VIOLATED THE TEXAS BUSINESS
OPPORTUNITY ACT.
The Trial Court erred in granting summary judgment for Stallons with regard to the Judd,
Lofton, and Willis Plaintiffs' claims under the BOA. Plaintiffs concede that the Greenlee and Michaels
Plaintiffs do not have claims under the BOA because their Service Centers were "flip" purchases ofpreviously-
built Kwik Service Centers that were sold by disgruntled, former owners to Kwlk, who then flipped the Service
Centers to the Greenlee and Michaels Plaintiffs. (CR 2571, 2605). The Kwik Defendants erroneously
contended the BOA provides no relief to Plaintiffs, based upon a restrictive construction of the
definitional terms of the statute. (CR 1202-1206, 1371 -1 376, 1546-1 550, 1738-1 742, 1965-1969).
However, the Kwik Defendants ignore the initial provision at fj 41.002(a)(l) and (2), entitled
Construction and Application, which provides as follows:
(a) This chapter shall be liberally construed and applied to:
(1) protect persons against false, misleading, or deceptive practices in the advertising, offering for sale or lease, and sale or lease of business
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opportunities; and
(2) provide efficient and economical procedures to secure that protection. [Emphasis added]. (CR 2303-2306).
Additionally, the definition of a "business opportunity contract" under 5 41.003(1) is equally as
broad and provides that a "'[b]usiness oppoltunity contract' means an agreement that obligates or is
intended to obligate apurchaser to a seller." (CR 2304). Moreover, the Kwik Defendants' reliance
on exceptions set forth in 5 41.004 of the BOA is misplaced, as the evidence clearly establishes that
representations were made by the Kwik Defendants to each Plaintiff regarding potential profits in the
Pro Forrnas given to each Plaintiff, which, as set forth in Plaintiffs' sales comparisons, all turned out
to be false. (CR 2304, 2585, 2600, 261 5, 263 1, 2646). Moreover, the Kwik Defendants'
contentions relating to the remaining BOA criteria are also misplaced, inasmuch as the very terms of
Plaintiffs' contracts reveal that the Kwik Defendants were required to provide training to each
Plaintiff (CR 2634). A "marketing program" is defined under the Act as encompassing training.7
(CR 2304-2305). Moreover, in addition to the clear statutory directive that the BOA should be
liberally construed, the Kwik Defendants have missed the point, inasmuch as Plaintiffs are
proceeding under 5 41.301 of the Act (entitled Prohibited Acts) which precludes a seller from,
among other things, employmg representations to deceive a purchaser.8 (CR 2305). A review of the
7 The definitions under 5 41.003 include the following:
(6 ) "Marketing program" means advice or training that is given to the purchaser by the seller or a person recommended by the seller pertaining to the sale of products, equipment, supplies, or services and that includes the preparation or provision of:
(A) promotional literature, brochures, pamphlets, or advertising materials; (B) training regarding the promotion, operation, or management of the business opportunity; or (C) operational, managerial, technical, or financial guidelines or assistance.
8 541.30 1 of the BOA provides as follows: "A seller may not: (1) employ a representation, device, scheme, or artifice to deceive a purchaser; (2) make an untrue statement of a material fact or omit to state a material fact in connection
with the documents and information required to be hmished to the Secretary of State or APPELLANTS' BRIEF Page 47 N:\KWIK KAR\PLEADL4ppeal\Appellantsr Brief.doc
acts prohibited by 5 41.301 reveals that they all facially apply in the instant case. Moreover,
5 41.302 of the BOA also provides as follows:
A violation of this chapter is a false, misleading, or deceptive act or practice under Section 17.46, Business & Commerce Code. A public or private right or remedy prescribed by Chapter 17, Business & Commerce Code, may be used to enforce this chapter. Tex. Bus. & Comm. Code 6 41.302. (CR 2305).
Even if, as the Kwik Defendants contend, the Plaintiffs' Service Center purchase transactions
would otherwise be exempt under the DTPA, the BOA confers a right of action to the Plaintiffs, and
more importantly, specifically allows for the remedies under the DTPA to be applied in actions
involving a violation of the BOA. Plaintiffs' evidence raises fact issues properly for consideration
by the trier of fact with regard to Plaintiffs' claims under the BOA. Consequently, summary
judgment dismissal for Stallons of the Plaintiffs' BOA claims was improper.9
E. PLAINTIFFS RAISED GENUINE ISSUES OF MATERIAL FACT AND RAISED SUFFICIENT EVIDENCE THAT DEFENDANTS' ACTIONS CONSTITUTED STATUTORY FRAUD IN THE SALE OF REAL ESTATE UNDER SECTION 27.01 OF THE TEXAS BUSINESS AND COMMERCE CODE.
The foregoing evidence of probative force produced by the Plaintiffs raises issues on
questions of material facts properly for consideration by the trier of fact with regard to each element
of Plaintiffs' claims of fraudulent misrepresentation and fraud in the inducement, fraudulent
concealment, and also statutory fraud in the Sale of Real Estate under 5 27.01 of the Texas Business
purchaser; (3) represent that the business opportunity provides or will provide income or earning
potential unless the seller: (A) has documented data to substantiate the claims of income or eaming potential; and (B) discloses the data to the purchaser when the representation is made; or
(4) make a claim or representation in advertising or promotional material or in an oral sales presentation, solicitation, or discussion between the seller and the purchaser that is inconsistent with the information required to be disclosed by this chapter."
he Kwik Defendants have also failed to cite any decision which holds that the Kwik Defendants' arguments that the integration and disclaimer clauses in the contracts prohibit Plaintiffs from relying on the BOA. Additionally, as previously noted, these clauses are not effective in cases, like the instant case, which involve fraud. Fletcher v. Edwards, 26 S.W.3d at 76. APPELLANTS' BRIEF Page 48 N:\KWIK KAR\PLEAD\Appeal\Appellants' B~ief.doc
and Commerce Code. As such, summary judgment for the Defendants was improper.
F. PLAINTIFFS RAISED GENUINE ISSUES OF MATERIAL QUESTIONS OF FACT AND RAISE
SUFFICIENT EVIDENCE THAT DEFENDANTS' ACTIONS VIOLATED THE TEXAS DECEPTIVE
TRADE PRACTICES, CONSUMER PROTECTION ACT, TEXAS BUSINESS AND COMMERCE CODE
SECTION 17.41, THE "DTPA."
The Trial Court erred in granting sumrnaryjudgment for Defendants with regard to Plaintiffs'
claims under the DTPA. Defendants erroneously contended Plaintiffs' claims under the DTPA must
fail because the transactions involving the purchase of Plaintiffs' Service Centers were exempt under
§ 17.49(g) of the DTPA, inasmuch as they involve a consideration of more than $500,000.00 and did
not involve Plaintiffs' residences. Although there is apparently no case authority on point which
applies this exemption, it facially appears to apply to the Plaintiffs' Service Center purchase
transactions and may exempt these transactions from the purview of the DTPA. However, as set
forth hereinabove, Plaintiffs are still entitled to pursue relief under the DTPA against Defendants
under €j 41.302 of the BOA, and the summary judgment evidence clearly raises a fact issue with
regard to each of the prohibited acts under the BOA which include (1) employing a representation,
device, scheme, or artifice to deceive a purchaser, (2) making an untrue statement of the material fact
or omitting to state a material fact in connection with documents furnished to Plaintiffs, as the
purchasers, (3) representing that a business opportunity provides or will provide income or earnings
which were not properly documented or disclosed, and (4) making a claim or representation in
advertising or promotional material and in sales, presentations, or solicitations between the seller and
the purchaser that is inconsistent with information which must be disclosed under the BOA.
Further, the evidence via the affidavits of each Plaintiff establishes that the Kwik Defendants,
employed misrepresentations and made untrue statements of material facts related to projected car
count, income, and profitability of the Service Centers purchased by Plaintiffs. (CR 2572-2573,
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2588-2589,2603,2618-2620,2633-2635). Compass Bank used this information in performing the
lending services on the transactions, and Chevreaux used the Kwik Defendants' demographic data in
performing his appraisals. (CR 20 1-202, 1 100). Moreover, the summary judgment evidence
establishes that the underlying documentation was false and inaccurate and varied widely from the
true daily car count numbers and income which had suffered a progressively downward trend during
the period from 1995 through 2005 according to testimony by McKinnon about national surveys in
the industry. (CR 2764).
Moreover, the summary judgment evidence also establishes that the Kwik Defendants, acting
with the participation and/or acquiescence of Compass Bank and Chevreaux, employed numerous
devices or schemes to deceive Plaintiffs as purchasers under the BOA, including, without limitation,
failing to disclose that the Kwik Defendants were receiving referral fees from Compass Bank in
violation of SBA loan requirements (CR 2575. 2637, 2671); taking Pennzoil payments at each
closing in the range of $30,000.00 to $45,000.00, each of which should have been paid to Plaintiffs,
and which were diverted to the Kwik Defendants, without any disclosure to Plaintiffs (CR 2574,
2620, 2636); and by colluding with Chevreaux and other appraisers to provide grossly inaccurate
appraisals of the Service Centers which were actually worth far less than the appraised amount. (CR
657,699). Consequently, the summary judgment evidence submitted by Plaintiff clearly raises fact
issues as to Plaintiffs' entitlement to pursue a claim for BOA violations and for relief under the
DTPA.
VI. PRAYER
WHEREFORE, PREMISES CONSIDERED, Appellants respectfully pray that this
Honorable Court reverse the judgment of the Trial Court and renderjudgment in their favor, or in the
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alternative, remand this matter to the Trial Court, and for any and all such relief for which Appellants
may show themselves justly entitled.
Respectfully submitted,
HOW FRELS ROHDE WOODS & DUKE A Professional Corporation
State Bar No. 10059900 MARK FRELS State Bar No. 07438200 BUDDY APPLE State Bar No. 24059387
2027 Young Street Dallas, Texas 75201 (2 14) 720-2220 Telephone (21 4) 720-2240 Facsimile ATTORNEYS FOR APPELLANTS
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CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing instrument has been sent to the followi g counsel for Appellees via certified mail-return receipt requested andlor facsimile, on this the day ofAugust, 2010.
JAN STALLONS PRO SE 8020 Wallace Road Fort Worth, Texas 76 13 5
JEFFREY S. SEEBURGER KANE RUSSELL COLEMAN & LOGAN, P.C. 3700 Thanksgiving Tower 1601 Elm Street Dallas, Texas 75201 (214) 777-4200 Telephone (214) 777-4299 Facsimile
PAUL FRANCIS PAUL FRANCIS, ATTORNEY AT LAW, PLLC P.O. Box 13369 1178 W. Pioneer Parkway Arlington, TX 76094 (8 17) 543-2600 Telephone (8 17) 460-2236 Facsimile
JAMES A. CRIBBS CRIBBS & MCFARLAND, P.C. P.O. Box 13060 1000 W. Abram Arlington, Texas 76094-0060 (8 17) 46 1-2000 Telephone (817) 275-7810 Facsimile
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