United States District Court, E.D. Texas, Sherman Division
MEMORANDUM OPINION AND ORDER
L. MAZZANT UNITED STATES DISTRICT JUDGE.
before the Court is Plaintiff's Partial Motion to Dismiss
Defendants' First Amended Counterclaim (Dkt. #13). After
reviewing the pleadings, the Court finds the motion should be
Clement Group, LLC (“Clement”), is an
Alabama-based company operating in Montgomery, Alabama (Dkt.
#10 at p. 11). Clement's members are Alabama citizens
(Dkt. #10 at p. 12). ETD Services, LLC d/b/a The Davitz Group
(“ETD”), is a Texas-based company operating in
McKinney, Texas (Dkt. #10 at p. 10). ETD's sole member is
a Texas citizen (Dkt. #10 at p. 12). Bill's Bookkeeping
Services, LLC (“BBS”) is an Alabama-based company
operating in Montgomery, Alabama (Dkt. #10 at p. 11).
BBS's members are Alabama citizens (Dkt. #10 at p. 12).
Clement and ETD operate as construction companies (Dkt. #10).
On May 3, 2013, Clement and ETD agreed to become partners as
part of the United States Small Business Association's
Mentor/Protégé Program (the “SBA Mentor
Program”) (Dkt. #10 at p. 17). Under this program, ETD,
the protégé, sought to gain business insight
and experience in providing contacting services to federal
government agencies in construction and renovation projects
on military installations (Dkt. #10 at p. 17). The program
allowed joint ventures between Clement and ETD to bid for
federal contracts for which the companies individually would
otherwise not have been eligible to bid (Dkt. #10 at p. 17).
ETD alleges that Craig Clement, the president of Clement,
represented to Earl Davis, ETD's sole member, that he had
the experience and knowledge to utilize the opportunities
provided by the SBA Mentor Program (Dkt. #10 at p. 18).
about May 2014, ETD and Clement formed a joint venture known
as ETD-TCG, LLC (Dkt. #10 at p. 18). On July 17, 2014, ETD
and Clement entered into a Joint Venture Agreement to bid for
projects involving construction services for the United
States Army Corp of Engineers (the “USACE”),
Norfolk District (Dkt. #10 at p. 18). On August 12, 2014 and
December 18, 2014, ETD-TCG, LLC entered into two addenda to
the Joint Venture Agreement to provide construction services
for the USACE, Mobile District (Dkt. #10 at p. 18). On
January 20, 2015, ETD-TCG, LLC entered into another addendum
to the Joint Venture Agreement to provide design-build
construction services to the USACE, Louisville District
(collectively, the “Joint Ventures”) (Dkt. #10 at
to Clement and ETD forming ETD-TCG, LLC, BBS performed
bookkeeping services for Clement (Dkt. #10 at p. 15). BBS
managed a “pooling arrangement” in which
participants contributed a percentage of their revenue from
construction projects to a general fund managed by BBS (Dkt.
#10 at p. 15). Participants could use the fund to pay their
overhead expenses as well as direct and indirect costs (Dkt.
#10 at p. 15). ETD alleges it was required to participate in
the “pooling arrangement” during the entirety of
the Joint Ventures (Dkt. #10 at p. 19).
alleges that “from the beginning of the operation of
the Joint Ventures” it expressed concerns to Clement
that “all did not seem appropriate with respect to the
allocations for costs and expenses of the Joint Ventures, the
profits and losses of the Joint Ventures.” (Dkt. #10 at
p. 19). ETD alleges it received limited financial reports and
that BBS and Clement ignored its requests for project
information and pay requests (Dkt. #10 at p. 19-20).
Specifically, ETD alleges that in September 2015, it sought
bonding coverage for a construction project in Arkansas from
Baldwin Cox (Dkt. #10 at p. 20). ETD alleges that as part of
its bond application, it provided Baldwin Cox a set of
financial records prepared by BBS (Dkt. #10 at ¶ 20).
ETD alleges that Baldwin Cox found the financial records
reflected a $1.1 million distribution to ETD's members
(Dkt. #10 at p. 20). ETD alleges that during that same
period, BBS advised Earl Davis that ETD's financial
records reflected a $600, 000 loss (Dkt. #10 at p. 20). ETD
alleges it continued to ask BBS and Clement about this
apparent discrepancy and BBS and Clement refused to respond
to ETD. ETD alleges that, on information and belief, Clement
and BBS charged ETD-TCG, LLC excessive consulting fees (Dkt.
#10 at p. 20).
alleges that ETD and Clement met several times in late 2015
and early 2016 to attempt to resolve the dispute (Dkt. #10 at
p.21). As a part of the discussions between Earl Davis and
Craig Clement, ETD alleges Craig Clement proposed that
Clement enter into a subcontract with ETD-TCG, LLC (Dkt. #10
at p. 21). Pursuant to the subcontract, Clement would perform
the administration of ETD-TCG, LLC's contract with the
USACE for various projects pending between the two entities
(Dkt. #10 at p. 21). ETD alleges Craig Clement “made
assurances to ETD” that such a subcontract was
acceptable to the SBA Mentor Program and that Clement's
position as a subcontractor of ETD-TCG, LLC would not
negatively affect ETD's financial position in ETD-TCG,
LLC (Dkt. #10 at p. 21). On February 15, 2016, ETD-TCG, LLC
entered into a subcontract (the “Subcontract”)
with Clement that allowed Clement to assume the role of a
prime subcontractor for ETD-TCG, LLC (Dkt. #10 at p. 22);
(Dkt. 10, Exhibit F).
the execution of the Subcontract, ETD continued to serve as
ETD-TCG, LLC's project manager and remained responsible
for approving pay applications addressed to the USACE (Dkt.
#10 at p. 22). ETD also remained responsible for approving
payments to all subcontractors, including Clement, in its
role as subcontractor (Dkt. #10 at p. 22). ETD alleges that
Clement demanded that ETD approve all Clement's pay
requests to the USACE without providing appropriate
supporting documentation (Dkt. #10 at p. 22). On June 23,
2016, and July 5, 2016, ETD sent Clement a letter terminating
the subcontracts between ETD-TCG, LLC and Clement (Dkt. #10
at p. 22).
alleges Clement then advised its lower-tier subcontractors
working on projects for the USACE that they were no longer
under contract and payment was no longer assured (Dkt. #10 at
p. 23). ETD also alleges that Clement informed the USACE of
the dispute and that all work would cease on USACE projects
(Dkt. #10 at p. 23). On July 11, 2016 and July 21, 2016, the
USACE issued ETD, Clement, and ETD-TCG, LLC notices
threatening to terminate the contract between the USACE and
ETD-TCG, LLC for cause (the “Cure Notices”) (Dkt.
#10 at p. 23); (Dkt. #10, Exhibit G). In response to the Cure
Notices, ETD issued a partial rescission of the cancellation
of the Subcontract in order to allow lower-tier
subcontractors working under Clement to continue to work on
the USACE projects (Dkt. #10 at p. 23). ETD also agreed to
approve pay requests from lower-tier subcontractors provided
ETD received sufficient documentation establishing such
subbcontrators' right to payment (Dkt. #10 at p. 23)
October 7, 2016, Clement brought suit against ETD, alleging
breach of contract, breach of fiduciary duty, defamation,
conversion, unjust enrichment and fraud (Dkt. #1). On
December 26, 2016, ETD filed a First Amended Original Answer,
Affirmative Defenses, and Counter-Complaint (Dkt. #10). ETD
brings counterclaims against Clement for breach of contract,
breach of fiduciary duty, unjust enrichment, common law
fraud, and statutory fraud under the Texas Deceptive Trade
Practices Act (“DTPA”) (Dkt. #10). ETD's
Counter-Complaint included a Third-Party Complaint against
BBS alleging unjust enrichment, common law fraud, and
statutory fraud under the DTPA (Dkt. #10).
January 9, 2017, Clement filed its Partial Motion to Dismiss
ETD's First Amended Counterclaim (Dkt. #13). Clement
seeks to dismiss ETD's statutory fraud and DTPA claims.
On February 1, 2017, ETD filed a response (Dkt. #19). On
January 31, 2017, Clement filed a reply (Dkt. #18).