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Quintanilla v. West

Court of Appeals of Texas, Fourth District, San Antonio

April 26, 2017

Oscar Leo QUINTANILLA, Appellant
v.
Andrew Bradford WEST, Appellee

         From the 131st Judicial District Court, Bexar County, Texas Trial Court No. 2016-CI-06259 Honorable David A. Canales, Judge Presiding

          Sitting: Karen Angelini, Justice Rebeca C. Martinez, Justice Luz Elena D. Chapa, Justice

          OPINION

          Rebeca C. Martinez, Justice

         Andrew Bradford West sued Oscar Leo Quintanilla for slander of title and fraudulent liens arising out of Quintanilla's filing of financing statements in the public records to perfect a security interest in West's assets. Quintanilla appeals the trial court's order denying his motion to dismiss the claims under the Texas Citizens Participation Act ("TCPA").[1] Tex. Civ. Prac. & Rem. Code Ann. §§ 27.001-.011 (West 2015). We conclude the TCPA applies to West's claims, but also conclude that West failed to establish a prima facie case for each essential element of his claims. We therefore reverse the trial court's order denying Quintanilla's motion to dismiss the claims and remand to the trial court for entry of an order of dismissal and for calculation of reasonable attorney's fees, costs of court, and other expenses to which Quintanilla is entitled. See id. § 27.005(b), (c); id. § 27.009(a).

         Factual and Procedural Background

         The basic facts are undisputed. Under a 2011 employment agreement, West served as CEO and President of several businesses owned in whole or in part by Quintanilla throughout Texas. West was offered the right to participate as an owner in some of the businesses he managed on behalf of Quintanilla. The Quintanilla businesses ranged from oil field-related ventures to cattle operations to commercial and residential real estate projects.

         The underlying lawsuit arises out of a business dispute involving oil and gas commodity trading accounts managed by West on behalf of Quintanilla from 2011 to late 2014. Quintanilla provided the capital investments in the accounts and West conducted the trading. Profits and losses in the accounts were split 50/50 between Quintanilla and West. After a few years of net profits, West and Quintanilla entered into a letter agreement dated January 1, 2014 regarding West's management of the accounts (the "Commodity Trading Agreement" or "CTA"). The CTA provided for a settlement date on December 31 of each calendar year. On the settlement date, Quintanilla was required to pay West 50% of any profits and West became liable to Quintanilla for 50% of any losses. To effectuate the CTA, West executed a secured promissory note with a maximum loan amount of $5 million (the "CTA Note") and an All-Assets Security Agreement (the "CTA Security Agreement"), both dated January 1, 2014. Under the CTA, all losses incurred by West in the commodities accounts, regardless of the time of year, were automatically deemed borrowed under the CTA Note and secured by the CTA Security Agreement. Under the CTA Note, it was an event of default if the balance on the note exceeded $5 million. The CTA Note and Security Agreement permitted Quintanilla to perfect his security interest in the assets pledged by West.

         During mid to late 2014, the trading accounts began incurring losses due, in part, to falling oil prices. By late 2014, West had incurred over $14 million in trading losses in the accounts, and he was instructed to stop all trading. At the time trading was halted, West's 50% share of the losses was approximately $7 million. On March 1, 2015, Quintanilla, West, and MPC Equipment, LLC, which was a company solely owned by West, entered into an asset purchase agreement (the "Purchase Agreement") under which West conveyed personal assets and MPC Equipment assets to Quintanilla in exchange for Quintanilla's payment of certain debts owed by West. The gist of the current business dispute between Quintanilla and West concerns whether the Purchase Agreement also satisfied West's debt under the CTA, which was memorialized by the CTA Note and secured by the CTA Security Agreement.

         West was terminated from all of the Quintanilla businesses in January 2016. In late March and early April 2016, Quintanilla filed a UCC-1 Financing Statement with the Texas Secretary of State and a Memorandum of the CTA Security Agreement in the real property records of McMullen County (collectively, the "Financing Statements") to perfect his security interest in the assets West pledged as collateral for the CTA Note. Those pledged assets included West's overriding royalty interests in several leases and mineral interests in McMullen County, Texas.

         Shortly after the Financing Statements were filed, West sued Quintanilla seeking a declaratory judgment that the Purchase Agreement fully satisfied West's obligations under the CTA Note and that "the recorded liens . . . are void ab initio and of no legal force or effect." In his petition, West alleged that Quintanilla received assets in the Purchase Agreement with an actual value of $8, 883, 000, rather than the prescribed value of $4, 567, 792 which was "intentionally chosen by Quintanilla's financial advisors and attorneys to minimize the tax implications of the transaction and to satisfy the outstanding balance on the CTA Note." West also asserted claims for slander of title and fraudulent liens under Chapter 9 of the Texas Business and Commerce Code and Chapter 12 of the Texas Civil Practice and Remedies Code, alleging Quintanilla made false or fraudulent statements by filing the Financing Statements in an attempt to collect on the CTA Note, which West contends was discharged. In addition, West sued Quintanilla for breach of the CTA and the Purchase Agreement and for promissory estoppel.

         Although the 2015 Purchase Agreement does not mention the CTA debt, [2] West alleged in his petition that the Purchase Agreement transaction was the culmination of months of negotiations between the financial advisors and attorneys for West and Quintanilla concerning how to "best structure the situation to reduce taxes and settle West's obligations under the CTA Note." West further alleged that the Purchase Agreement was expressly structured to permit Quintanilla to claim the full $14 million in trading losses on his 2014 federal tax return and to discharge West's 50% share of the losses as if the CTA agreement never existed. West attached the following documents as exhibits to his petition: (1) the CTA letter agreement; (2) the CTA Note; (3) the CTA Security Agreement; (4) the Purchase Agreement with exhibits; (5) a file folder with handwritten notes in pencil that are scratched out in ink; (6) file-stamped copies of the Financing Statements; and (7) a copy of a letter from Quintanilla's counsel stating he would not pay the next $350, 000 installment due to West under the Purchase Agreement. Exhibit Nos. 2 and 3 (the CTA Note and CTA Security Agreement) each show a handwritten note stating "Pd 3-15-15" that West alleged was written by Quintanilla's representative, Marcello Tamez, to show the CTA debt was discharged. West also alleged the scratched-out handwriting on the file folder (Exhibit No. 5) stated "4/10/15-shared-did not exist-PEP, " which referenced his agreement with Quintanilla to "treat the CTA as if it never existed, " i.e., the agreement to share trading losses 50/50 never existed.

         Quintanilla answered West's petition by filing a general denial. Quintanilla also pled several affirmative defenses, including the parol evidence rule, the statute of frauds, and the merger/integration clause of the Purchase Agreement. In addition, Quintanilla counterclaimed for breach of fiduciary duty, fraud, and breach of the CTA, the CTA Note and the CTA Security Agreement; he also sought judicial foreclosure of the CTA Security Agreement. Quintanilla alleged West induced Quintanilla into hiring him to manage the Quintanilla businesses and then engaged in self-dealing, misrepresentation, breach of fiduciary duty, and fraud.

         Quintanilla subsequently filed a motion to dismiss West's claims for slander of title and fraudulent liens. Quintanilla asserted those claims were improper retaliation for the exercise of his rights to free speech and to petition, and thus violated the TCPA. Quintanilla supported his motion to dismiss with the affidavit of Paul Perry, a board member and executive vice president of the Quintanilla businesses as well as the accounting supervisor for Quintanilla and his businesses. Quintanilla also sought recovery of his attorney's fees, court costs, and expenses.

         In Paul Perry's affidavit, he states he is personally aware of the debt owed by West to Quintanilla under the CTA. Perry further states the CTA debt had not been "paid, forgiven, discharged or otherwise settled." Perry avers he was directly involved in the negotiation of the Purchase Agreement; is familiar with the assets purchased by Quintanilla and the process by which West's assets were valued by the parties; and he is not aware of any other understanding or arrangement between the parties "concerning the value of the assets." Perry expressly states the CTA debt owed by West was "not in any way addressed or resolved by the March 2015 Purchase Agreement." With respect to the handwritten notes on the CTA Note, CTA Security Agreement, and file folder, Perry states that he did not personally make or authorize anyone else to make the handwritten notes "Pd 3-15-15" and "4/10/15-shared-did not exist-PEP;" the notes and initials are not made in his handwriting; it is not his practice to "acknowledge the payoff or discharge of obligations, especially obligations under promissory notes" by making such notations; and he did not cancel West's indebtedness under the CTA Note and CTA Security Agreement.

         Finally, with respect to the filing of the Financing Statements, Perry states that shortly after West was terminated on January 26, 2016, "it became clear that litigation was likely imminent;" West's attorney began sending letters to Quintanilla as early as February 1, 2016 claiming West was entitled to certain payments under his employment agreement; and counsel for Quintanilla and West exchanged letters "concerning potential disputes between the parties during February and March 2016." Perry avers that Quintanilla took steps to "protect his security interest and rights" under the CTA, the CTA Note and the CTA Security Agreement "after we became reasonably certain that litigation with Mr. West was imminent." Perry states the Financing Statements were filed and recorded "for purposes of protecting Mr. Quintanilla's rights under the [CTA], the Note, and the Security Agreement by, among other things, providing public notice of Mr. Quintanilla's security interests."

         West filed a response to the motion to dismiss, asserting the requirements for dismissal under the TCPA were not met. See Tex. Civ. Prac. & Rem. Code Ann. §§ 27.003, 27.005 (listing requirements for dismissal). West attached his own affidavit in support. West admits he executed the CTA letter agreement, the CTA Note, and the CTA Security Agreement, and that his 50% share of the losses for 2014 was $7.143 million. West states that instead of formally settling the account on December 31, 2014 as required under the CTA, Quintanilla and he met over the next few months with their financial advisers and attorneys, including Paul Perry and Marcello Tamez, "to determine how to best utilize the situation to reduce taxes and settle my obligations under the CTA Note." West avers he offered to sell some of his personal assets "to satisfy my obligations under the CTA Note, " and the negotiations culminated in the March 2015 Purchase Agreement pursuant to which he conveyed the listed assets to Quintanilla for the "prescribed values, " which were lower than the assets' actual values. West asserts the asset values stated in the Purchase Agreement were "intentionally chosen by Quintanilla's financial advisors and attorneys to minimize the tax implications of the transaction and to satisfy the outstanding balance on the CTA Note." West further states the "entire structure of the March 2015 Sale was carefully designed by Quintanilla and his financial advisors and attorneys to allow Quintanilla to claim as many tax losses as possible, which included using my 50% share of the losses under the CTA Note, " and he describes how the transaction was structured. West states that as a result of the Purchase Agreement, Quintanilla received approximately $7 million more in value than the nominal values ascribed to the assets, "which was more than enough to satisfy all obligations I owed under the CTA Note."

         West also states he asked Marcello Tamez, an attorney involved in the transaction, "what was needed to document that the CTA Note was paid." West states, "Tamez handed me the original CTA, original CTA Note and original CTA Security Agreement with the latter two documents marked 'Paid 3-1-15' and stated to me, 'This is all you need.'" West also avers "[t]he intent behind the transaction was that Quintanilla would get the full $14 million dollar value of the CTA losses and that Quintanilla and I would treat the CTA as if it never existed." As proof, West refers to the copy of a file folder, which he states contained the original CTA documents handed to him by Tamez. According to West, the penciled notation on the file, subsequently scratched out in ink, states, "4/10/15-shared-did not exist-PEP." West states that "PEP" are Paul Perry's initials. West acknowledges the Purchase Agreement does not mention the CTA, the CTA Note, or CTA Security Agreement, but explains the omission was intentional so that Quintanilla could claim the full $14 million in losses and discharge West's $7 million share "as if the CTA never existed."

         After considering the evidence detailed above, and holding a hearing, the trial court denied Quintanilla's motion to dismiss. The trial court made the following findings on each step of the analysis:

(1) Quintanilla met his burden to establish that the slander of title and fraudulent lien claims fell within the scope of the TCPA; [but]
(2) West established a prima facie case on [each element of] his slander of title and fraudulent lien claims by clear ...

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