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Agarwal v. Villavaso

Court of Appeals of Texas, Third District, Austin

July 13, 2017

Paul D. Agarwal and Karen Natoli Maxwell, Appellants
Guy Villavaso; Larry Foles; GVMF Management, Inc.; and Newport Wildfish, GP, Inc., Appellees


          Before Justices Puryear, Pemberton, and Goodwin


          David Puryear, Justice

         Appellants Paul D. Agarwal and Karen Natoli Maxwell ("the Investors") sued appellees Guy Villavaso, Larry Foles, GVMF Management, Inc., and Newport Wildfish, GP, Inc. (collectively referred to as "appellees"), asserting claims for breach of fiduciary duty and aiding and abetting the breach of fiduciary duty related to the sale of the Eddie V's/Wildfish chain of restaurants to Darden Restaurants in 2011.[1] The Investors argued that appellees "skimm[ed] off" $10 million from the sales proceeds and, instead of splitting the money among all of the chain's investors, improperly allocated that sum to GVMF. Appellees filed a motion for traditional and no-evidence summary judgment. The trial court granted appellees' motion without specifying the grounds. We affirm the court's order granting summary judgment.

         Factual Summary[2]

         Guy Villavaso, Larry Foles, and Larry's wife Melissa Foles founded the chain, setting up a separate corporate "operating entity" for each of the eleven Eddie V's or Wildfish restaurants. Appellees sought minority investors for the individual restaurants, and Agarwal and Maxwell invested in Eddie V's Wildfish Newport Beach, LP ("Wildfish Newport"), [3] a limited partnership established under Delaware law whose general partner was Newport Wildfish GP, Inc.

         CFO Kristina Cashman explained in her sworn declaration that the eleven Eddie V's or Wildfish restaurants were all managed by Eddie V's Restaurants, Inc. ("EVR") and GVMF, which she described as "management entities." GVMF is owned by Villavaso and Melissa Foles, and Larry Foles provided all "management services for GVMF to the restaurants." Cashman averred that it was common industry practice to use such entities, that each individual restaurant signed agreements with those entities, and that the services provided by EVR and GVMF included hiring, training, human resources, accounting, purchasing, facility maintenance, and "creative control of all branding menus, concept, decoration, promotion and advertising." GVMF's Consulting Agreement with each restaurant stated that in exchange for two percent of gross revenues, GVMF would provide its services through December 31, 2012; that GVMF was responsible for creative control over menus, the restaurant's physical appearance, and advertising and promotions; and that the agreement could be terminated by either party at any time "for any reason or no reason" with ninety days' notice.[4]

         In early October 2011, Darden Restaurants agreed to pay $59.25 million to buy all of the chain's assets, including "brands, trademarks and goodwill." Cashman stated that appellees engaged an attorney and an investment banker to provide expert advice and to evaluate the various sales options and that she and Villavaso believed those individuals "possessed the professional expertise we needed to advise us on the sale." Cashman averred that the Darden offer was "the best offer by far" out of several options and that it was approved by the majority owners, general partners, and managers.[5] Cashman explained that appellees "decided that all minority investors should obtain, at a minimum, a return of their capital contributions" and therefore "allocated additional value" to Wildfish Newport and Wildfish Waterfront, the two worst-performing restaurants. Without that adjustment, investors in those two restaurants "would not have received a return of their capital contribution." Under the calculations agreed to by appellees, Agarwal "received a return of substantially all" of his investments in the three restaurants in which he had invested, as well as a profit on his investment in one high-performing location.

         As part of the sale, $10 million was assigned to GVMF as a "management fee" intended to compensate for the cancellation of the Consulting Agreements. Cashman averred that it was standard industry practice to "value the management entities and/or cancellation of management contracts in the sale of restaurant groups, " that the value assigned to GVMF was reasonable and appropriate, and that appellees used their reasonable business judgment in deciding the assignment of value. The restaurants and GVMF signed a Termination Agreement, which stated that: GVMF had contracted to provide consulting services for twenty years in exchange for two percent of each restaurant's gross revenue; the parties to the Consulting Agreements and the Termination Agreement "recognize[d] the Consulting Agreements have significant value"; Darden was requiring the chain to "effectively sell such value" by terminating the Consulting Agreements; and the parties agreed to terminate the Consulting Agreements without penalty or liability.

         On October 31, 2011, appellees sent the minority investors an "Information Statement for Written Consent of Minority Holders" explaining the terms of the sale and stating that they "wanted to reach out to our minority holders to share this news, and (although not required) have them affirm the transaction." On November 29, Agarwal wrote a letter through his attorney stating that he was "withholding his consent to the proposed transaction" and that, "[b]ased on the limited information received to date, Agarwal objects to the deduction from the purchase price of the cancellation fee paid to GVMF Management, Inc." Agarwal requested copies of the Purchase and Sale Agreement, copies of agreements between GVMF and the restaurants, a list of the key employees who would receive bonuses, and a list of all other "members of the Seller." He asked for the anticipated closing date for the sale and concluded, "It is extremely important that we be provided the requested documents in advance of closing with sufficient time to fully evaluate the proposed distribution of sales proceeds."

         In response, appellees provided Agarwal with copies of the Purchase Agreement; the Written Consent of Majority of Interest of Equity Holders; the Leased Employees Agreement, Restaurant Managers Agreement, and Restaurant Consultants Agreement between EVR, GVMF, and Eddie V's Arboretum, which were "similar [to] or the same" as the agreements the other restaurants had with EVR and GVMF; the agreement between Eddie V's Arboretum, through its manager, GVMF, and that location's investors; a list of employees and managers who received bonuses under the terms of the sale; and a list of the equity holders and managers of the three restaurants in which Agarwal had invested. Agarwal did not communicate with appellees further, and no other minority investor expressed any reservations. In mid-December 2011, the bulk of the sale's cash proceeds were distributed to the investors, and in December 2012 and December 2013, proceeds that had been placed in escrow under the terms of the sale were distributed to the investors. All of the minority investors, including Agarwal and Maxwell, cashed their checks without objection.

         In April 2015, Agarwal sued; Maxwell joined in May 2016. The Investors argued that instead of splitting the $10 million among all the investors, appellees breached their fiduciary duty and aided and abetted the breach of fiduciary duty by allocating that sum to GVMF. Appellees filed a motion for traditional and no-evidence summary judgment. In their traditional motion, in addition to attempting to establish the lack of a fiduciary duty, any breach of such a duty, and any harm to the Investors, appellees argued that they had established as a matter of law their affirmative defenses of waiver, ratification, acceptance of benefits, and quasi-estoppel and an affirmative defense under the business organizations code.[6] In their no-evidence motion, appellees asserted that there was no evidence that they owed the Investors a fiduciary duty, that such a duty was breached, or that the Investors were harmed by any such breach.

         Standard of Review

         We review a trial court's granting of summary judgment de novo, taking as true all evidence favorable to the nonmovant and indulging all reasonable inferences and resolving any doubts in the nonmovant's favor. Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 481 (Tex. 2015). "A defendant who conclusively negates at least one of the essential elements of a cause of action or conclusively establishes an affirmative defense is entitled to summary judgment." Frost Nat'l Bank v. Fernandez, 315 S.W.3d 494, 508 (Tex. 2010). If a movant asserts multiple grounds for summary judgment and the trial court's order does not specify the grounds for granting summary judgment, we will affirm the order if any of the theories advanced are meritorious. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001) (quoting Carr v. Brasher, 776 S.W.2d 567, 569 (Tex. 1989)). And, if an appellant does not challenge every possible ground for summary judgment, we will uphold the summary judgment on the unchallenged grounds. Grace v. Colorito, 4 S.W.3d 765, 768 (Tex. App.-Austin 1999, pet. denied) (citing Malooly Bros., Inc. v. ...

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