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Clement Group, LLC v. ETD Services, LLC

United States District Court, E.D. Texas, Sherman Division

January 17, 2018

THE CLEMENT GROUP, LLC,
v.
ETD SERVICES, LLC d/b/a THE DAVITZ GROUP; E. EARL DAVIS, II; TARA DAVIS,
v.
BILL'S BOOKKEEPING SERVICE, LLC

          MEMORANDUM OPINION AND ORDER

          AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

         Pending before the Court is Bill's Bookkeeping Services, LLC's (“BBS”) Motion for Summary Judgment (Dkt. #49), The Clement Group, LLC's (“Clement”) Motion for Summary Judgment Against Defendants' Counterclaims (Dkt. #50), Clement's Motion for Partial Summary Judgment on Clement's Claims (Dkt. #55), and ETD Services, LLC d/b/a The Davitz Group (“ETD”) and E. Earl Davis, II's (“Davis”) Motion to Withdraw Certain Admissions (Dkt. #52). Having reviewed the relevant pleadings and motions, the Court finds that BBS and Clement's Partial Motion for Summary Judgment should be granted, Clement's Motion Against Defendants' Counterclaims should be granted in part, and ETD and Davis's motion should be denied.

         BACKGROUND

         The United States Small Business Association (“SBA”) created a Mentor/Protégé Program (“Mentor Program”) to “encourage approved mentors to provide various forms of business development assistance to protégé firms.” 13 C.F.R. 124.520. Clement was a mentor approved by the SBA. On May 3, 2013, Clement agreed to partner with ETD as a part of the Mentor Program to bid on federal contracts. On October 16, 2013, Clement and ETD formed the Davitz joint venture and on May 30, 2014, Clement and ETD formed the ETD-TCG joint venture. BBS began providing book-keeping and administrative services to ETD and the two joint ventures starting in 2013.

         On July 17, 2014, Clement and ETD entered into a Joint Venture Agreement (“JVA”) to dictate the terms by which the ETD-TCG joint venture would operate in order to bid for a construction contract at Fort Lee, Virginia. The SBA approved the JVA. ETD and Clement entered into three addenda to the JVA to expand their construction services to more districts. The SBA approved each addenda. According to the terms of the JVA, Davis, the sole member of ETD, would be the project manager, ETD would be the managing member handling the day-to-day operations, and Clement would be the consulting project manager and provide management and technical assistance.

         Upon entering the agreement with ETD in May 2013, Clement learned that ETD had significant negative equity. As a result, Clement began loaning and advancing money to ETD. Clement also suggested ETD enter into an overhead cost sharing program with Clement's other teaming partners (the “Pooling Agreement”), which ETD agreed to enter. The business relationship was beneficial for both parties and ETD's debt began to diminish. However, in 2015, Davis began demanding cash distributions from ETD's operations in the joint ventures. In April 2015, Davis made a specific request to BBS for a distribution of $150, 000.00 to use as a down payment for a personal home. In December 2015, Davis discussed his desire to purchase a new family home with Clement and Davis mentioned that he needed a loan from the joint ventures. Both BBS and Clement explained to Davis, on multiple occasions, that he could not receive any distributions yet because ETD still had a negative equity.

         In January 2016, after being denied a loan and a distribution from BBS and Clement, Davis wrongfully withdrew $300, 000.00 from the joint venture bank account. Davis had the ability to withdraw the amount on his own, without approval from Clement, because he set up the joint venture bank account to only require his signature for withdrawals, in violation of the JVA. On February 18, 2016, the parties entered into a settlement agreement regarding the wrongful withdrawal (the “Settlement Agreement”). According to the terms of the Settlement Agreement, Clement allowed ETD to retain $150, 000.00 advanced “as a full and final payment for the anticipated future-earned profits from the joint venture operations and/or related operations on project where [Clement] is providing the bonding.” (Dkt. #54, Exhibit V at p. 1). The Settlement Agreement also provided that $50, 000.00 would serve as an advance of the “full and final payment for all ETD overhead costs from the joint venture operations and/or related operations on projects where [Clement] is providing the bonding.” (Dkt. #54, Exhibit V at p. 1). Finally, the Settlement Agreement determined that the remaining $50, 000.00 that Davis withdrew would be “an interest bearing loan.” (Dkt. #54, Exhibit V at p. 1). EDT and Clement entered into a separate agreement to memorialize the terms of the loan (“the Note”) (Dkt. #54, Exhibit W). The parties agreed that the Settlement Agreement would also be a release of the claims “[a]ll debt/equity matters go away and everyone is back to zero and we each walk away clean, other than the $50, 000[.00] loan. . . .” (Dkt. #54, Exhibit V at p. 1). To ensure the completion of the joint ventures' ongoing projects, the Settlement Agreement stated that Clement would enter into subcontracts with the joint venture to relieve administrative burden on ETD (Dkt. #54, Exhibit V at p. 1).

         After the parties signed the Settlement Agreement, Davis made another unauthorized withdrawal in April 2016, allegedly for taxes. Upon investigation, the parties discovered that it was for ETD's taxes, separate and apart from its involvement in the joint venture. On May 16, 2016, Davis did in fact purchase a family home for $510, 000.00. Further on June 20, 2016, Davis withdrew all remaining funds in the ETD-TCG joint venture account, totaling $2, 063, 691.84, with “Distribution per JVA” written on the memo line. Davis sent Clement a check for $999, 204.00, claiming that this was Clement's share of the joint venture profits; however, the joint venture projects were still ongoing and the profits for each party were not yet determinable. At this point, Clement and ETD agreed to open a new joint venture bank account to complete the joint venture projects, which required two signatures before withdrawals were made (“the Macrum Account”). Clement deposited the $999, 204.00 into the Macrum Account and ETD returned $373, 316.35 of the amount it withdrew into the Macrum Account.

         On July 5, 2016, Davis terminated five subcontracts between the ETD-TCG joint venture and Clement, without discussing the termination with Clement. The ETD-TCG joint venture began to default on its commitments to the Government and was asked to cure the default. Clement and ETD responded to the Government, and ETD promised, among other things, that it would return all funds. ETD has yet to return the funds and stopped making payments on the Note.[1]

         Based on this set of facts, Clement sued Defendants ETD, Davis, and Tara Davis on October 7, 2016 asserting causes of action for breach of contract, breach of fiduciary duty, defamation, conversion, unjust enrichment, and fraud (Dkt. #1). Defendants responded to the suit, asserted counterclaims against Clement, and added a third-party complaint against BBS on December 5, 2016 (Dkt. #8). Defendants amended their answer (Dkt. #10) and then filed their Second Amended Original Answer, Affirmative Defenses and Counter-Complaint on July 24, 2017 (Dkt. #44). To briefly summarize Defendants' allegations, Defendants assert that BBS and Clement falsely represented that in order to obtain any loan from Clement they had to enter the Pooling Agreement. Defendants maintain that, through this Pooling Agreement, BBS and Clement were able to manipulate overhead costs and move funds around to benefit BBS and Clement.

         Defendants further allege that they cancelled the subcontract between the joint ventures and Clement because Clement denied Defendants access to the books and receipts needed to verify amounts owed to Clement under the subcontract. Defendant sued BBS for common law fraud, unjust enrichment, and statutory fraud in violation of the Texas Deceptive Trade Practices Act (“DTPA”). Defendants sued Clement for breach of contract, breach of fiduciary duty, common law fraud, unjust enrichment, and statutory fraud in violation of the DTPA.

         On October 10, 2017, BBS filed its motion for summary judgment (Dkt. #49) and Clement filed its motion for summary judgment against Defendants' counterclaims (Dkt. #50). Responses to these motions were due on October 24, 2017. See Local Rule CV-7(e).[2] Defendants did not file responses by October 24, 2017. In fact, as of the date of this Order, Defendants have not filed responses to the motions. Because Defendants did not file responses to the motions, the Court presumes that Defendants do not controvert the facts set out by BBS and Clement and has no evidence to offer in opposition to the motion. Local Rule CV-7(d) (“A party's failure to oppose a motion in the manner prescribed herein creates a presumption that the party does not controvert the facts set out by the movant and has no evidence to offer in opposition to the motion.”).

         Additionally, on October 11, 2017, Clement filed a motion for partial summary judgment (Dkt. #55). A response to this motion was due on October 25, 2017. See Local Rule CV-7(e).[3]Defendants did not file a response by October 25, 2017. In fact, as of the date of this Order, Defendants have not filed a response to the motion. Because Defendants did not file a response to the motion, the Court presumes that Defendants do not controvert the facts set out by Clement and has no evidence to offer in opposition to the motion. Local Rule CV-7(d) (“A party's failure to oppose a motion in the manner prescribed herein creates a presumption that the party does not controvert the facts set out by movant and has no evidence to offer in opposition to the motion.”).

         LEGAL STANDARD

         The purpose of summary judgment is to isolate and dispose of factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). Summary judgment is proper under Rule 56(a) of the Federal Rules of Civil Procedure “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute about a material fact is genuine when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986). Substantive law identifies which facts are material. Id. The trial court “must resolve all reasonable doubts in favor of the party opposing the motion for summary judgment.” Casey Enters., Inc. v. Am. Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981).

         The party seeking summary judgment bears the initial burden of informing the court of its motion and identifying “depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials” that demonstrate the absence of a genuine issue of material fact. Fed.R.Civ.P. 56(c)(1)(A); Celotex, 477 U.S. at 323. If the movant bears the burden of proof on a claim or defense for which it is moving for summary judgment, it must come forward with evidence that establishes “beyond peradventure all of the essential elements of the claim or defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). Where the nonmovant bears the burden of proof, the movant may discharge the burden by showing that there is an absence of evidence to support the nonmovant's case. Celotex, 477 U.S. at 325; Byers v. Dall. Morning News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the movant has carried its burden, the nonmovant must “respond to the motion for summary judgment by setting forth particular facts indicating there is a genuine issue for trial.” Byers, 209 F.3d at 424 (citing Anderson, 477 U.S. at 248-49). A nonmovant must present affirmative evidence to defeat a properly supported motion for summary judgment. Anderson, 477 U.S. at 257. Mere denials of material facts, unsworn allegations, or arguments and assertions in briefs or legal memoranda will not suffice to carry this burden. Rather, the Court requires “significant probative evidence” from the nonmovant to dismiss a request for summary judgment. In re Mun. Bond Reporting Antitrust Litig., 672 F.2d 436, 440 (5th Cir. 1982) (quoting Ferguson v. Nat'l Broad. Co., 584 F.2d 111, 114 (5th Cir. 1978)). The Court must consider all of the evidence but “refrain from making any credibility determinations or weighing the evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007).

         ANALYSIS

         I. Clement's Partial Motion for Summary Judgment ...


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