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Duncan v. Hindy

Court of Appeals of Texas, Eleventh District

December 12, 2019

LANCE DUNCAN AND MARK IV ENERGY HOLDINGS, LLC, F/K/A MARK III ENERGY HOLDINGS, LLC, Appellants
v.
GERALD B. HINDY; ASSEMBLIES OF GOD FINANCIAL SERVICES GROUP, D/B/A AG FINANCIAL SOLUTIONS; AND STEWARD ENERGY FUND, LLC, Appellees

          On Appeal from the 70th District Court Ector County, Texas Trial Court Cause No. A-16-05-0551-CV

          Panel consists of: Bailey, C.J., Stretcher, J., and Wright, S.C.J. [7]

          OPINION

          JOHN M. BAILEY CHIEF JUSTICE.

         This appeal arises from a business dispute concerning a large financial investment in oil and gas properties. It involves multiple written agreements executed by the parties as well as litigation between the parties in multiple counties over a period of time. The trial court granted summary judgment in favor of Appellees-Gerald B. Hindy; Assemblies of God Financial Services Group, d/b/a AG Financial Solutions;[1] and Steward Energy Fund, LLC-on all of Appellants' claims. Appellants, Lance Duncan and Mark IV Energy Holdings, LLC, f/k/a Mark III Energy Holdings, LLC, filed the underlying suit asserting numerous causes of action. [2] Appellants contend that the trial court erred by granting summary judgment in favor of Appellees on Appellants' claims for tortious interference with a contract, wrongful foreclosure, and declaratory relief. We affirm.

         Background Facts

         In 2008, Hindy, the president and CEO of AG Financial Solutions, met with Duncan to discuss investing in the oil and gas industry. Duncan identified certain oil and gas properties (the Batson and Wortham leases) for AG Financial Solutions to consider purchasing. AG Financial Solutions formed Steward Energy to purchase the Batson and Wortham leases. Hindy was also the president of Steward Energy. Steward Energy purchased the Batson leases from Shamrock Energy Corporation for $6, 000, 000 and the Wortham leases from Mark III for $4, 500, 000. After the sales, Duncan operated the leases through his entity, BHB Operating, Inc., and received a monthly operating fee.

         Appellees soon discovered that the Wortham leases were producing significantly less oil and gas than what Duncan had represented prior to the sale and that, due to high operating expenses, the Wortham leases were not profitable. In 2009, Mark III agreed to pay Steward Energy $1, 080, 000 to resolve this dispute.

         In 2010, AG Financial Solutions and Steward Energy sued Duncan in Freestone County, asserting additional claims related to the Batson and Wortham transactions, including breach of fiduciary duty, fraud based on intentional misrepresentations and failure to disclose, and negligent misrepresentation. In August 2010, Steward Energy, Mark III, BHB Operating, Duncan, and Duncan's wife, Holly Duncan, entered into a "Settlement Agreement and Release" of the Freestone County claims. The Settlement Agreement and Release provided (1) that Steward Energy would convey the Batson and Wortham leases to Mark III, (2) that Appellants and Holly Duncan would execute a promissory note payable to Steward Energy in the principal amount of $9, 500, 000, (3) that payment on the promissory note would be secured by a deed of trust on the Batson and Wortham leases and on other leases known as the Garner and Sanford Leases, (4) that Mark III would drill five new oil wells on the Batson property, and (5) that Appellants and Holly Duncan would sign a Confession of Judgment for $6, 000, 000 plus postjudgment interest at an annual rate of five percent. The Confession of Judgment provided that the $6, 000, 000 principal amount was "subject to a dollar-for-dollar credit and/or offset based upon any and all payments made" by Appellants according to the terms of the promissory note. The Freestone County district court signed the Confession of Judgment on September 14, 2010.

         On February 28, 2013, AG Financial Solutions and Steward Energy executed a settlement agreement with Appellants, BHB Operating, and Holly Duncan to resolve a dispute arising from a lawsuit in Lubbock County (the February 28 Settlement Agreement). Appellants acknowledged in the February 28 Settlement Agreement that the Confession of Judgment remained unpaid in the amount of $6, 000, 000 and that interest had accrued on that amount at an annual rate of five percent. The parties to the February 28 Settlement Agreement agreed (1) that the $6, 000, 000 judgment balance would be reduced only as the unpaid balance on all outstanding sums owed to Steward Energy was reduced below $6, 000, 000 and (2) that, as Appellants, BHB Operating, or Holly Duncan reduced the unpaid balance owed to Steward Energy below $6, 000, 000, Steward Energy would provide a corresponding dollar-for-dollar reduction on the Confession of Judgment.

         On August 2, 2013, Steward Energy, as lender, and Appellants, BHB Operating, and Holly Duncan, as borrowers, signed a Loan Agreement (the Consolidated Loan Agreement), which acknowledged that the promissory note relating to the Confession of Judgment had an outstanding balance of $7, 295, 044.84, that the Duncans owed Steward Energy $401, 521.33 under a separate promissory note, and that both notes were in default. The Consolidated Loan Agreement (1) consolidated the remaining debt of Appellants, BHB Operating, and Holly Duncan into a single loan and deed of trust, (2) waived the existing defaults, and (3) lowered the monthly payments. Appellants, BHB Operating, and Holly Duncan signed a "Deed of Trust, Assignment of Leases, Rents, Revenues, Security Agreement and Fixture Filing" (the Deed of Trust) that secured the Consolidated Loan Agreement. Appellees recorded the Deed of Trust in Ector County on August 28, 2013.

         In September 2014, Mark III and other companies entered into a purchase and sale agreement (PSA) to sell their collective 70% working interest in certain Ector County oil and gas leases to Ryder Operating, LLC for approximately $7, 700, 000. The closing date for the transaction was November 28, 2014. On November 19, 2014, a company called Ride the Wave, LLC filed suit against Appellants and BHB Operating, alleging that Duncan had refused to assign a working interest in the Ector County lease that Ride the Wave had purchased two years before. On November 25, 2014, Ryder Operating terminated the PSA, asserting that (1) Mark III breached the PSA by misrepresenting that there were no threatened suits against the Ector County property at the time the agreement was entered and (2) Mark III, a forfeited entity since July 2010, misrepresented in the PSA that it was validly existing and in good standing.

         Appellants remained in default of the Consolidated Loan Agreement in multiple respects. As a result, Steward Energy foreclosed on Appellants' assets, including Duncan's lake house in December 2014, the interest in the Batson and Wortham leases in February 2015, and the interest in the Ector County leases in March 2015.

         On May 31, 2016, Appellants filed the underlying suit against Appellees. Appellants brought multiple claims against Appellees, including tortious interference with an existing contract, civil conspiracy to tortiously interfere with an existing contract, duress, civil conspiracy to breach a fiduciary duty (aiding and abetting), common law fraud, promissory estoppel, intentional infliction of emotional distress, alter ego liability, fraudulent lien, and wrongful foreclosure. Appellants also sought a declaratory judgment construing the parties' rights under the February 28 Settlement Agreement and the Consolidated Loan Agreement with respect to the provisions in those agreements that purported to modify the Confession of Judgment. Appellees answered and asserted a number of affirmative defenses, including release and res judicata.

         Appellants and Appellees filed competing motions for summary judgment. After a hearing, the trial court granted Appellees' traditional and no-evidence motion for summary judgment and denied Appellants' traditional and no-evidence motion for partial summary judgment. Appellants have appealed the trial court's judgment only as to (1) Appellants' claims for tortious interference with the PSA and wrongful foreclosure, (2) Appellants' request for declaratory relief, (3) Appellants' contention that Steward Energy is the alter ego of AG Financial Solutions, and (4) Appellees' defenses of res judicata and release.

         Analysis

         In their first three issues, Appellants assert that the trial court erred in granting summary judgment in favor of Appellees as to Appellants' claims for tortious interference with contract and wrongful foreclosure and Appellants' request for declaratory relief. We review a trial court's entry of summary judgment de novo. First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 219 (Tex. 2017). When the trial court's order fails to specify the grounds for its summary judgment, we will affirm if any of the theories are meritorious. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 216 (Tex. 2003). When both parties move for summary judgment, and one is granted and the other denied, we must review all the summary judgment evidence, determine all issues presented, and render the judgment that the trial court should have rendered. Lightning Oil Co. v. Anadarko E&P Onshore, LLC, 520 S.W.3d 39, 45 (Tex. 2017).

         After adequate time for discovery, a party may move for summary judgment on the ground that there is no evidence of one or more essential elements of a claim or defense on which an adverse party would have the burden of proof at trial. Tex.R.Civ.P. 166a(i). We review a no-evidence motion for summary judgment under the same legal sufficiency standard as a directed verdict. Merriman v. XTO Energy, Inc., 407 S.W.3d 244, 248 (Tex. 2013). Under this standard, the nonmovant has the burden to produce more than a scintilla of evidence to support each challenged element of its claims. Id.

         A party moving for traditional summary judgment bears the burden of proving that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); Nassar v. Liberty Mut. Fire Ins. Co., 508 S.W.3d 254, 257 (Tex. 2017). To be entitled to traditional summary judgment, a defendant must conclusively negate at least one essential element of the cause of action being asserted or conclusively establish each element of an affirmative defense. Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). Evidence is conclusive only if reasonable people could not differ in their conclusions. City of Keller v. Wilson, 168 S.W.3d 802, 816 (Tex. 2005). If the movant initially establishes a right to summary judgment on the issues expressly presented in the motion, then the burden shifts to the nonmovant to present to the trial court any issues or evidence that would preclude summary judgment. See City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678-79 (Tex. 1979).

         In reviewing both traditional and no-evidence summary judgments, we consider the evidence in the light most favorable to the nonmovant, indulging every reasonable inference in favor of the nonmovant and resolving any doubts against the movant. Merriman, 407 S.W.3d at 248; City of Keller, 168 S.W.3d at 824. "If a party moves for summary judgment on both traditional and no-evidence grounds, as the parties did here, we first consider the no-evidence motion." Lightning Oil Co., 520 S.W.3d at 45.

         Declaratory Judgment

         In their second issue, Appellants assert that the trial court erred by granting summary judgment in favor of Appellees on Appellants' request for declaratory relief. Appellants pleaded that the February 28 Settlement Agreement and the Consolidated Loan Agreement, both of which were executed in 2013, were improper collateral attacks on the 2010 Confession of Judgment. Appellants requested that the trial court "issue a declaratory judgment declaring the parties' rights under these agreements, with respect to the provisions purporting to modify the Confession of Judgment." Specifically, Appellants sought a declaration that the subsequent agreements were "void, voidable, or otherwise invalid" to the extent that they attempted to modify the Confession of Judgment.

         Appellees moved for traditional summary judgment on Appellants' request for declaratory relief on the grounds that the requested relief was barred by the doctrine of res judicata. As set out below, Appellants based their claim of res judicata on litigation occurring between the parties in Freestone County in 2016 in a turnover proceeding. Appellants moved for no-evidence summary judgment on Appellees' res judicata affirmative defense on grounds that there was no evidence that Appellants' request for declaratory relief was based on the same claims as were raised or could have been raised in prior litigation between the parties. We conclude that Appellees established their affirmative defense of res judicata as a matter of law.

         Res judicata, or claim preclusion, is an affirmative defense that prevents the litigation by parties and their privies of matters actually litigated in a previous suit, as well as matters that, with the use of diligence, could have been litigated in a prior suit. Hallco Tex., Inc. v. McMullen Cty., 221 S.W.3d 50, 58 (Tex. 2006); see also Tex. R. Civ. P. 94 (identifying res judicata as an affirmative defense). Texas applies the transactional approach to res judicata, which requires that claims arising out of the same subject matter be litigated in a single lawsuit. Hallco, 221 S.W.3d at 58. "The party relying on the affirmative defense of res judicata must prove (1) a prior final determination on the merits by a court of competent jurisdiction; (2) identity of parties or those in privity with them; and (3) a second action based on the same claims as were or could have been raised in the first action." Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010).

         In September 2016, while this case was pending in the trial court, Appellees learned that BHB Operating had recently entered into a settlement agreement in an unrelated lawsuit and received settlement proceeds of $475, 000. Appellees filed an Application for Turnover Relief in Freestone County on September 14, 2016. Appellees asserted in their Application for Turnover Relief that Appellants and BHB Operating still owed money under the Confession of Judgment. Appellants and BHB Operating initially filed a response wherein they disputed the amount due under the Confession of Judgment. They argued that all lawful offsets, payments, and credits had not been accounted for by Appellees. The Freestone County district court held a hearing and, following the receipt of evidence and arguments, signed an order granting Appellees' application for ...


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