W. Graeme Roustan Statutory Fraud Appeal - appeal to the Supreme Court of Texas

FILED IN THE SUPREME COURT OF TEXAS 12 November 15 P3:18 BLAKE. A. HAWTHORNE CLERK

NO. 12-0051 ========================================================== IN THE SUPREME COURT OF TEXAS ========================================================== W. GRAEME ROUSTAN, Petitioner, v. MICHAEL SANDERSON, WIFE ANN GAINOUS, AND RIDGLEA ENTERTAINMENT, INC., Respondents =============================================================== On Petition for Review from the Second Court of Appeals, Fort Worth, Texas Court of Appeals No. 02-09-00377-CV =============================================================== RESPONDENT’S BRIEF ON THE MERITS ===============================================================

Kirk Claunch State Bar No. 04326075 Jim Claunch State Bar No. 04326000 THE CLAUNCH LAW FIRM 2912 West 6th Street Fort Worth, Texas 76107 817-335-4003 817-335-7112 fax COUNSEL FOR RESPONDENTS

TABLE OF CONTENTS Page INDEX OF AUTHORITIES ……………………………………………………… iii REPLY ISSUES …………………………………………………………….……. iv PRELIMINARY STATEMENT…………………………………………………… 1 STATEMENT OF FACTS……………………………………………………….... 1 SUMMARY OF THE ARGUMENT..…………………………………………….. 8 ARGUMENT AND AUTHORITIES ……………………………………………… 10 I.

THE PETITIONER DID NOT FULFILL HIS PROMISE AND COMMITTED STATUTORY FRAUD

II.

THERE IS EVIDENCE OF A FALSE PROMISE

III.

THE PETITIONER DID NOT RAISE HIS THIRD POINT OF ERROR TO THE COURT OF APPEALS

IV.

THIS IS A CASE OF STATUTORY FRAUD

CONCLUSION and PRAYER .………………………………………………..….. 18 CERTIFICATE OF SERVICE …………………………………………………..... 18

Respondent’s Brief on the Merits

ii

INDEX OF AUTHORITIES Cases

Page

Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 775 (Tex. 2009)…………………………………………………. 12 Baber v. Pioneer Concrete of Texas, 919 S.W.2d 664 (Tex. App. – Fort Worth 1995)…………………………………... 17 Beckham v. Mantle, 13-09-00083-CV (Tex.App. – Corpus Christi, 2010)……………………………… 17 Edwards v. Strong, 213 S.W.2d 979, 980 (Tex. 1948)…………………………………………………. 14 F.A. Hubacek v. Ennis State Bank, 325 S.W.2d 124, 125-126 (Tex. 1959)…………………………………………….. 15 Lott v. Lott, 370 S.W.2d 463 (Tex. 1963)……………………………………………………..... 14 Prudential Ins. v. Italian Cowboy, 270 S.W.3d 192 (Tex. App. [11th] 2005)…………………………………………… 17 Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986) ………………………………………………… 12 Swanson v. Schlumberger, 895 S.W.2d 719 (Tex.App. – Texarkana 1994)………………………………….... 17 Wise v. Pena, 552 S.W.2d 196, 202 (Tex.App. – Corpus Christi 1977, writ dism’d)……………………………..….16, 17 Rules and Statutes Tex. Bus. & Com. Code § 27.01…………………………………………. 9, 15, 16 17 Tex. Bus. & Com. Code § 27.01(a)………………………………………...……… 16 Tex. Bus. & Com. Code § 27.01 (e)………………………………………………... 18 Texas Occ. Code §1101.022 (5)……………………………………………….. 9, 16

Respondent’s Brief on the Merits

iii

REPLY ISSUES The Respondent addresses the two issues presented by the Petitioners.

Respondent’s Brief on the Merits

iv

PRELIMINARY STATEMENT The Petitioner has submitted a preliminary statement which attacks the reasoning of the Court of Appeals in upholding the jury verdict finding the Petitioner committed statutory fraud. The Petitioner is asking this Court to re-evaluate factual issues that were exhaustively analyzed by the Court of Appeals which found sufficient evidence to uphold the jury verdict. Further, the Petitioner is asking this Court to review for the first time the issue of whether he made the false promise which is the basis of the statutory fraud in his personal capacity. This is an issue that the Petitioner chose not to raise to the Court of Appeals. Finally, the Petitioner attempts to argue that the Court of Appeals grossly misapplied the law with respect to statutory fraud because the promise upon which the statutory fraud claim was premised actually was fulfilled. That is not the case here. Again the Court of Appeals carefully analyzed the facts and evidence and found that the promise was not fulfilled because the promise was for more than just a capital contribution. The promise was that the capital contribution would be made from personal funds. The Petitioner broke that promise by making his capital contribution from a loan instead. STATEMENT OF FACTS

Michael Sanderson had twenty plus years experience in the ice skating business and had a dream of opening an ice rink of his own. (RR Vol. 2, 7:7-11). Michael had started working at the ice rink at the Tandy Center in Fort Worth as a young man and

Respondent‟s Brief on the Merits

1

spent twenty years working there in various positions, including general manager of the business. (RR Vol. 2, 86: 18-25). In 2004, Michael Sanderson and his wife Ann Gainous Sanderson found an ice rink located on the Benbrook Circle in Fort Worth that had ceased operations. (RR Vol. 2, 8:1-10) Ann signed a lease in November, 2004 (RR Vol. 2, 10:17) for the ice rink property.1 Although the Sandersons were told the refrigeration equipment was in good working order, the equipment ultimately would not make sufficient ice for a skating rink. (RR Vol. 2, 11:5 – 12:6). Eventually they were able to open for business in December 2004 (RR Vol. 2, 12:6 -23). However, when the weather got warmer in March, 2005, the refrigeration equipment couldn‟t keep the ice frozen and, due to the “wet ice,” the Sandersons had to shut down the ice skating rink. (RR Vol. 2, 13:14-14:12). After replacing compressors and completing lots of trouble shooting, the problem was found at the end of May 2005 to be the chiller barrel, and the business opened again at the end of June (RR Vol. 2, 14:1 – 15:22).2 In January, 2005 the Sandersons had been contacted by Graeme Roustan who expressed an interest in buying into their business. At that point the Sandersons were not interested. (RR Vol. 2, 17:23 – 18:7) They believed that the equipment issues had been solved and felt the business would be successful. (RR Vol. 2, 104:9-17) After they experienced subsequent equipment problems in March 2005, the extended shut downs 1

A CPA had recommended that there might be some benefits to having the business owned by a female. (RR Vol 2, 92:1-9) 2

The lease with YDIDI I, the landlord, became very contentious as to what the representations were by YDIDI I as to the equipment, the amount in repairs for which YDIDI I should be responsible and the communications between YDIDI I and Roustan while YDIDI I was preparing to evict the Sandersons; however, YDIDI I settled with the Plaintiffs before trial so those details are not covered in any detail. Respondent‟s Brief on the Merits

2

and the expenditure of additional funds, the Sandersons‟ attitude changed and Michael Sanderson contacted Roustan at the end of April, 2005. (RR Vol. 2, 18:2-16). Graeme Roustan invited the Sandersons to a meeting in Las Vegas where he put on a power point presentation which referenced the facilities Roustan supposedly owned, plus more he planned to acquire in 2007, and up to 40 facilities by 2008. The Sanderson were impressed. (RR Vol. 2, 107:2 -22). The Sandersons believed Roustan when he told them about his vast holdings and his ability to purchase all the additional ice rink facilities (RR Vol. 2, 107:9 – 108:7). Roustan was aware at that time of the equipment and ice problems at the Benbrook ice rink because he had provided an engineer to help with the problems before the Las Vegas meeting. (RR Vol. 2, 110:13 – 111:4) In addition to his financial strength, Roustan represented he would supply to the Fort Worth rink, through his other companies, his marketing services, bookkeeping services, web services and that he would make the equipment supplier he owned available to the Sandersons (RR Vol. 2, 22:15 -23:15). Ann characterized all of the benefits that Roustan represented he would provide as “huge things that were out of the realm of what Michael and I could have been able to accomplish.” (RR Vol. 2, 23:1-17) The Sandersons eventually entered into an agreement with Roustan whereby Ann‟s lease with YDIDI I, the landlord, would be assigned to Roustan as well as the option to purchase the property (RR Vol. 2, 21:2-15). Ann retained the rights to the $30,000.00 security deposit, the right to sue the landlord for all the equipment problems and she remained liable to the landlord on the lease. (RR Vol. 2, 21:6-14). Roustan was Respondent‟s Brief on the Merits

3

to pay Ann and Michael $75,000.00 for an assignment of the lease and the purchase of the business from Ridglea Entertainment, Inc. (the Sandersons‟ company running the business), plus Ridglea Entertainment, Inc. was to receive 25% ownership in the new company to be set up by Roustan. (RR Vol. 2, 21:2-15). Thereafter, Roustan set up a new company called Roustan Ridglea, LLC and an operating agreement was entered into which provided that the Sandersons would own 25% and Roustan Inc. would own 65%. (RR Vol. 6, Defendant‟s Exhibit 21) Roustan Inc. was supposed to contribute $130,000.00 as a capital contribution in addition to the $20,000.00 previously advanced by Graeme Roustan in return for the 65% interest. (RR Vol. 3, 129:1 – 132:25) Roustan testified that because he had obtained a loan for the new company, Roustan Ridglea, Inc. for which the new company was liable, that somehow excused the fact that he did not make his capital contribution (RR Vol. 3, 133:10 – 135:8). Roustan testified that in his mind there was no difference in a capital contribution to the new company and a promissory note which was owed by the new company. (RR Vol. 3, 135:3-8).

The Sandersons were not told that Roustan was not funding his capital

contribution. The Sandersons had concerns about the infusion of capital and potential capital calls because the purchase price did not come close to offsetting the amount they had contributed. They spoke to Roustan about not being required to contribute additional capital during the first 12 months and such a provision was placed in the operating agreement. Roustan assured the Sandersons that he would personally fund whatever the Respondent‟s Brief on the Merits

4

monetary requirements were at least during the first eleven months. (RR Vol. 3, 65:216). The purchase agreement between the parties was, thereafter, signed on August 1, 2005. (RR Vol. 2, 23:20-21). Throughout the negotiations with Roustan, it was understood that Roustan would pay the $75,000 cash portion of the purchase price up front. Right before the purchase agreement was signed, Roustan said it would help him to break the payment into two payments. (RR Vol. 2, 119:17-25). As it turned out, when the Sandersons got the written purchase agreement, Roustan had provided that the second $37,500 was to be paid by the new company, Roustan Ridglea, of which the Sandersons company was to be part owner. Michael Sanderson had understood that Roustan would be individually paying the entire $75,000. (RR Vol. 2, 120:8-121:3) Of course, as noted above, Roustan had told the Sandersons he would personally cover any shortfalls in the monetary requirement during the first 12 months. In the spring of 2006, problems arose when Roustan wrongfully failed to pay the utility bills.3 In order to keep the rink open, the Sandersons paid utility bills to the electric company, to the gas company, advertising bills, etc. The total for all of these critical expenses was $75,763. (RR Vol. 2, 26:1-29:25). When the agreement was entered into by the parties the Sandersons understood that Roustan would be contributing $150,000 in a capital contribution, less the $20,000 that he had advanced prior to signing the agreement, and that a trust was advancing a 3

The agreements between the parties provided Roustan would assume liability for and transfer the utility bills out of Ann Gainous‟s name. That did not occur. (RR. Vol. 2, 24:22-25:6).

Respondent‟s Brief on the Merits

5

loan to the new company in the amount of $200,000. The total cash available to the new company would be $330,000. (RR Vol. 2, 125: 1 – 126: 29). Had those monies actually been funded by Roustan there would never have been a shortfall in funds needed to pay bills in 2006. (RR Vol. 2, 126:5-11). Based on Michael Sanderson‟s review of the Quickbooks records produced by Roustan in this litigation, that money was never funded. (RR Vol. 2, 125:15 – 126: 4). Despite the problems with the bills not being paid, when Michael Sanderson emailed Roustan in April 2006 to inquire as to whether Roustan wished to exercise the option to renew the lease beyond the November 1, 2006 expiration date, Roustan responded that he did want to exercise the option to extend the lease. (RR Vol. 2, 134:113). When Michael Sanderson asked Rouston about getting reimbursed for the bills he and Ann were paying out of their pocket, and the $37,500 they were owed on the purchase price, Roustan told Michael that he was about to purchase the property, that he had submitted the paperwork for the loan, that he had established a line of credit with GE Capital and that he was going to use that credit line to put an infusion of capital into the facilities. But that never happened. (RR Vol. 2, 138: 5-12). In September of 2006, the electricity was shut off for failure to pay the bill, and the Sandersons had to pay a two-months delinquent electric bill for $22,000 to get the electricity turned back on. (RR Vol. 2, 135: 5-7). Also in September the Sandersons received a notice that there were insufficient funds to meet payroll obligations. (RR Vol. 2, 137:12-15). Sometime around the end of September, the Sandersons notified Roustan Respondent‟s Brief on the Merits

6

that since bills were not getting paid and they were not getting reimbursed for the bills they had paid, they were going to take the revenue from ice rink and deposit it in the bank account of their company, Ridglea Entertainment, Inc. (RR Vol. 2, 141:9-17). The Sandersons paid the $8,000 monthly rent due in October and November and notified the landlord, YDIDI I, that they, not Roustan, would be paying the rent. After accepting the October and November rent, YDIDI I notified the Sandersons that the lease was in default because the September rent had not been paid. The Sandersons assumed Roustan had paid the September rent at the beginning of September because the on-line version of Quickbooks they could look at showed its payment. (RR Vol. 3, 33:5-34:1)4 When the Sandersons received notice that the September rent had not been paid, they sent a check to YDIDI I by Federal Express. YDIDI I held the check and proceeded to evict the Sandersons from the ice rink. (RR Vol. 2, 142:2-25) At this time, unbeknownst to the Sandersons, Roustan was communicating with Melinda Collins (also know by her married name, Melinda de la Isla) a principal in YDIDI I, the landlord of the rink. Roustan sent her an email stating “Hi Melinda, from what I hear Mike is having trouble getting an insurance certificate for Ridglea Entertainment, Inc. If your lawyer demands to see one in five days, he may not be able to get one and will be in default, even though my policy is still in effect. I‟m pretty certain he will come up with the September rent and December rent. Just a thought, Graeme.” (RR Vol. 3, 175: 20-25). 4

The Sandersons could look at an online version of Quickbooks that Roustan maintained but could not print a report or make entries. (RR Vol. 3, 57:11-17)

Respondent‟s Brief on the Merits

7

When asked at trial if the email is suggesting to Melinda Collins how YDIDI can find the Sandersons in default on the lease, Roustan responded “Yes, absolutely”. (RR Vol. 3, 176:2-5). Roustan also confirmed that in this period of time his lawyer was negotiating with YDIDI for a new lease and new purchase option for a new company. (RR Vol. 3, 179:11-15) On December 18, 2006 Roustan incorporated a new corporation with the Texas Secretary of State named Roustan Fort Worth, LLC. The registered address of the corporation is the same address as the ice rink on Benbrook Circle. (RR – Plaintiffs‟ Exhibit 27). A day after the Sandersons were evicted and excluded from the rink, the facility was back in business under the management of Firland Management LLC, (RR Vol. 2, 144:10-21). Roustan listed Firland Management on a web site as a strategic partner of the Roustan companies. (RR Vol. 3, 184:6-23).5

SUMMARY OF THE ARGUMENT The jury found that W. Graeme Roustan committed statutory fraud against Michael Sanderson, Ann Gainous, and Ridglea Entertainment, Inc. in response to Question 6a of the Court‟s charge.

5

Firland Management was an original defendant in this lawsuit but settled before trial.

Respondent‟s Brief on the Merits

8

The jury found in answer to questions 6a of the Court‟s Charge that W. Graeme Roustan committed statutory fraud against the Plaintiffs and they should recover damages in the amount of $50,000.00 from W. Graeme Roustan. Roustan clearly made a false promise that he never intended to perform when he promised to make a capital contribution from personal funds in the amount of $150,000 as part of a purchase agreement of an ice rink that concerned the assignment of a lease with an option to buy. The Court of Appeals made an exceedingly thorough factual analysis to conclude that Roustan committed statutory fraud by not fulfilling his promise to make a capital contribution from personal funds even though he fulfilled a contractural obligation to do so by means of a loan. Further, Roustan now improperly attempts to raise a completely new argument which he chose not to address to the Court of Appeals, namely that the false promise was not made in his individual capacity. This new argument has been waived and should not be considered by this Court. Finally, Tex. Bus. & Com. Code Ann. § 27.01 is applicable to the present case wherein Roustan made a false promise to the Sandersons while entering into a contract to purchase the assets of Ridglea Agreement LLC. The assets included the lease of an ice rink with an option to purchase the ice rink. Assets is a term broad enough to cover all of any form of ownership of Ridglea Agreement LLC. The terms, real estate, stock in a corporation or stock in a joint-stock company, Tex. Bus. & Com. Code § 27.01, are not defined in § 27.01. However, the term real estate is defined in the Texas Occupation Code, under the Real Estate License Act, as follows: Respondent‟s Brief on the Merits

9

any “interest in real property, including a leasehold located in or outside of Texas. Tex. Occ. Code § 1101.002 (5). A real estate transaction which includes a lease with an option to buy is clearly within the scope and intent of the statutory fraud statute and is consistent with existing case law. ARGUMENT & AUTHORITIES REPLY TO POINT 1: THE PETITIONER DID NOT FULFILL HIS PROMISE AND COMMITTED STATUTORY FRAUD The Court of Appeals correctly held that Roustan committed statutory fraud when he did not fulfill his promise to make a $150,000 capital contribution from personal funds. Roustan argues that the promise to provide the capital contribution was fulfilled based upon the jury‟s finding that the $150,000 capital contribution was paid from a loan. The Court of Appeals correctly reasoned that while the jury found that Roustan fulfilled the contractural promise, the promise was false for purposes of statutory fraud because the money was borrowed. [Opinion at 13-14] Roustan testified that because he had obtained a loan for the new company, for which the new company was liable, that somehow excused the fact that he did not make his capital contribution (RR Vol. 3, 133:10 – 135:8). Roustan testified that, in his mind, there was no difference in a capital contribution to the new company and a promissory note which was owed by the new company. (RR Vol. 3, 135:3-8). The Sandersons were not told that Roustan was not funding his capital contribution. Contrary to Petitioner‟s argument, there is direct testimony from Roustan that he did not fulfill his promise to personally fund the $150,000. Respondent‟s Brief on the Merits

10

Roustan attempts to argue that his promise to the Sandersons was simply one to make a capital contribution of $150,000.

This ignores the fact his promise to the

Sandersons was for his contribution to be made from his personal funds. That was not done by Roustan. Instead, he made his capital contribution from a loan. Roustan‟s promise to the Sandersons was not fulfilled. Accordingly, Roustan‟s action supports the jury‟s finding of Statutory Fraud and a judgment in favor of the Sanderson‟s on that point. REPLY TO POINT 2: THERE IS EVIDENCE OF A FALSE PROMISE The Court of Appeals correctly upheld the jury verdict that the Petitioner committed statutory fraud against the Respondents, finding that there was sufficient evidence to support that verdict. [Op. at 17] The Petitioner argues that Roustan did not make a false promise with the intent not to perform because a) there is no evidence that Mr. Roustan made a false promise; b) there is no evidence of an intent not to perform and c) the promise was not material and did not cause any injury. Roustan also argues that the Court of Appeals fraud analysis is flawed and conflicts with the jury verdict. Roustan did not argue in the Court of Appeals that the promise to provide funding out of his own funds or his business‟s was not material. Further, he did not argue to the Court of Appeals that the evidence was not sufficient to show that the Sandersons relied on the promise or to show that the promise was made to induce them to sign the purchase and sale agreement and the assignments. As a result, the Court of Appeals did not have the opportunity to address the sufficiency of the evidence as to those elements of the Sanderson‟s claims, and Petitioner has waived those newly urged arguments. [Op. at 14] Respondent‟s Brief on the Merits

11

The Petitioner here is simply attempting to retry a fact issue that was properly decided by the jury and that underwent a careful and thoughtful analysis by the Court of Appeals, both of whom reached the conclusion that there is sufficient evidence to support the jury‟s verdict. With respect to any claim that there is no evidence that Mr. Roustan made a false promise, the Court of Appeals correctly applied this Court‟s analysis in Spoljaric v. Percival Tours, Inc., which holds that circumstantial evidence may be used to establish that, when making a promise, the party had no intention to perform. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986). [Op. at 13] Further, the Court of Appeals also correctly applied this Court‟s opinion in Aquaplex, Inc. v. Rancho La Valencia, Inc. in its analysis, which holds that “a party‟s intent is determined at the time the party made the representation, [but] it may be inferred from the party‟s subsequent acts after the representation is made.” Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 775 (Tex. 2009)(quoting Spoljaric, 708 S.W.2d at 434). [Op. at 13] It is clear from the record, as reflected in the Court of Appeals‟ opinion, that Roustan told Sanderson that he would pay $20,000 up front and then, after formulation of the LLC and the assignment of the lease, “[he] would then provide an additional $130,000. [Emphasis added][Op. at 13] It is important to note that the Court of Appeals notes the fact that the Petitioner made “[n]o mention of funding the business by taking out a loan. Neither the operating agreement nor the note attached to it indicated that the trust loan was not an additional source of funds and was instead the primary source of Roustan‟s contribution to the LLC. [Op. at 13-14] Respondent‟s Brief on the Merits

12

The Court of Appeals then correctly concludes that “the evidence in the record was enough for the jury to conclude that Roustan told S&G that he could and would provide a capital contribution of $150,000, either with his own funds or with the financial resources of his business, but that he actually borrowed money on behalf of the LLC. The record therefore contains sufficient evidence that Roustan made a promise to S&G that went unfulfilled.” [Op. at 13-14] The Petitioners argument that a false promise was not made is without merit. The Petitioner‟s argument is better characterized as nothing more than an ex post facto excuse that goes: “What difference does it make where I get the money from as long as I get it.” The flaw in Petitioner‟s argument is apparent on its face, and provides an easy explanation as to how the jury could find that the Petitioner met his obligation to make a capital contribution but at the same time violated his promise to the Respondents. There simply is no way around the fact that there is evidence the Petitioner individually made a “promise to S&G that he personally could and would fund the company.” [Op. at 14] That did not happen and both the jury‟s verdict and the decision of the Court of Appeals should be upheld. With regard to the Petitioner‟s purported claim that there is no evidence of intent not to perform, the Court of Appeals made a thorough analysis into this subject and rightfully found that “the jury could have concluded that Roustan never intended to make a capital contribution from his own funds or the funds of Roustan, Inc. and that he had always intended to fund the business by way of a debt that the LLC would have to repay. Accordingly, the jury could have found that Roustan‟s borrowing money to fund the LLC Respondent‟s Brief on the Merits

13

and making the LLC liable for the repayment satisfied Roustan‟s obligation to make a capital contribution but at the same time violated his promise to S&G that he personally could and would fund the company.” [Op. at 14] With regard to the meritless claim that the promise was not material, Roustan made no such argument to the Court of Appeals and that court chose not to address the sufficiency of the evidence as to those elements of the Sanderson‟s claim. [Op. at 15] Accordingly, any such argument raised now for the first time is waived. A point not assigned as error in the Court of Appeals cannot be considered on review by the Supreme Court. Lott v. Lott, 370 S.W.2d 463, 465 (Tex. 1963); Edwards v. Strong, 213 S.W.2d 979, 980 (Tex. 1948).

REPLY TO POINT 3: THE PETITIONER DID NOT RAISE HIS THIRD POINT OF ERROR TO THE COURT OF APPEALS Roustan attempts to argue for the first time that he did not personally make a promise to make a capital contribution. Mr. Roustan did not challenge this finding in the Court of Appeals and raises this point for the first time now. The Sandersons would show that this point for purposes of review has been waived. A point not assigned as error in the Court of Appeals cannot be considered on review by the Supreme Court. Lott v. Lott, 370 S.W.2d 463, 465 (Tex. 1963); Edwards v. Strong, 213 S.W.2d 979, 980 (Tex. 1948). Regardless, the Court of Appeals made a thorough evaluation of the evidence in rendering its opinion. The Court of Appeals held that the “evidence in the record was enough for the jury to conclude that Roustan told S&G that he could and would provide a Respondent‟s Brief on the Merits

14

capital contribution of $150,000, either with his own funds or with the financial resources of his business….” [Op. at 14] Under the same false premise that such a promise was not made in his personal capacity, Roustan now claims that there was no promise regarding the source of the capitial contribution. The Court of Appeals thoroughly analyzed this topic and their ruling should be upheld. In reviewing a judgment of a Court of Appeals, the Supreme Court must assume that concurring justices reached the conclusion they did only after weighing the evidence properly before them and with proper rules of law as their guide. F.A. Hubacek v. Ennis State Bank, 325 S.W.2d 124, 125-126 (Tex. 1959). The Court of Appeals held that “the jury could have concluded that Roustan never intended to make a capital contribution from his own funds or the funds of Roustan, Inc. and that he had always intended to fund the business by way of a debt that the LLC would have to repay. Accordingly, the jury could have found that Roustan‟s borrowing money to fund the LLC and making the LLC liable for the repayment satisfied Roustan‟s obligation to make a capital contribution but at the same time violated his promise to S&G that he personally could and would fund the company.” [Op. at 14] Roustan cannot raise a new issue to this Court that was not addressed to the Court of Appeals and the rulings of the Court of Appeals as to the sufficiency of evidence of the jury findings should be upheld. REPLY TO POINT NO. 4: THIS IS A CASE OF STATUTORY FRAUD

Statutory Fraud is applicable to real estate transactions that involve a leasehold interest. The Petitioner argues otherwise. Simply stated, the Petitioner attempts to limit the application of Tex. Bus. & Comm. Code §27.01 to transactions involving the sale of Respondent‟s Brief on the Merits

15

real estate only. That argument is an incorrect interpretation of the statute and is contrary to Texas case law. Further, Petitioner attempts to characterize the lease of the ice skating rink as merely “incidental” and as being a “paper-thin” connection to statutory fraud. This argument is wrong. The subject matter of this transaction concerned the ice skating rink which was secured by a leasehold interest held by the Sandersons. The transaction included the assignment of the lease. It is illogical to conclude that the lease was “incidental” to the statutory fraud when it was in fact “indispensible” to the fraud because the ice rink itself was the heart of the deal. The capital contribution by Roustan was consideration for the assignment of the lease of the rink which also included an option to buy the ice rink. Accordingly, there is a direct connection between the capital contribution and the lease assignment. Texas Bus. & Com. Code §27.01(a) applies to a “transaction involving real estate or stock in a corporation or joint stock company….” In the present case, the Petitioner made misrepresentations to the Respondents while entering into a contract to purchase the assets of Ridglea Agreement, LLC, which included the lease of the ice rink. The term “real estate” is not defined in Section 27.01 of the Texas Business and Commerce Code. However, the term “real estate” is defined under the Texas Occupations Code §1101.022 (5) as any “interest in real property, including a leasehold located in or outside of Texas.” This definition is consistent with Texas case law which clearly includes a leasehold as applicable under the provisions §27.01 of the Business and Commerce Code. In Wise v. Pena, the Corpus Christi Court of Appeals held that a claim based upon a “ „leaseRespondent‟s Brief on the Merits

16

purchase‟ type of arrangement…was entitled to recovery under Section 27.01” Wise v. Pena, 552 S.W.2d 196, 202 (Tex.App. – Corpus Christi 1977, writ dism‟d). There are several examples of cases alleging statutory fraud on the basis of a lease agreement that have appeared in Texas courts in which the parties did not dispute the application of statutory fraud to lease agreements involving real estate. In Prudential Ins. v. Italian Cowboy, 270 S.W.3d 192 (Tex. App. [11th] 2005)(reversed on other grounds), the parties did not dispute the application of statutory fraud where the underlying real estate transactions were lease agreements. . In Beckham v. Mantle, 13-09-00083-CV (Tex.App. – Corpus Christi, 2010), the parties did not dispute the application of statutory fraud in a case involving the assignment of an interest in a mineral lease. . In Baber v. Pioneer Concrete of Texas, 919 S.W.2d 664 (Tex. App. – Fort Worth 1995), the parties did not dispute the application of statutory fraud in a case involving leases to mine sand and gravel. . In a similar case in Swanson v. Schlumberger, 895 S.W.2d 719 (Tex.App. – Texarkana 1994), it was undisputed by both parties that mineral interest would be treated as real estate for purposes of §27.01. . Clearly, leases of real estate should be included within the definition of transactions involving real estate as contemplated by §27.01. That is especially true in this case when the lease included an option to buy which Roustan clearly took steps to exercise. To limit the application of statutory fraud to transactions simply involving the sale of real estate would be an incorrect and needlessly narrow interpretation of §27.01, and would conflict with established Texas case law.

Respondent‟s Brief on the Merits

17

CONCLUSION and PRAYER Roustan clearly made a false promise that he never intended to perform that concerned the assignment of a lease with an option to buy. Further, Roustan now attempts to improperly raise new issues that were not addressed by the Court of Appeals, including that the false promise was not made in his individual capacity. This Court should refuse to consider Petitioner‟s newly-raised issues. Respondents, Ann Gainous and Michael Sanderson respectfully request that this Court (1) deny the Petition for Review, (2) affirm the judgment of the Court of Appeals, and (3) render judgment that Petitioner should be assessed the additional attorneys fees of $7,500.00 awarded by the trial court and provided by Tex. Bus. & Com. Code §27.01(e). Respectfully submitted, THE CLAUNCH LAW FIRM 2912 West 6th Street Fort Worth, Texas 76107 817-335-4003 817-335-7112 fax By:

/s/Kirk Claunch Kirk Claunch State Bar No. 04326075 Jim Claunch State Bar No. 04326000 Attorneys for Respondents

CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the above and foregoing has been served upon Petitioner‟s counsel via electronic filing on November 15, 2012. /s/ Kirk Claunch Kirk Claunch Respondent‟s Brief on the Merits

18