Brown v. KPMG Peat Marwick

• Decision Date: 28 April 1993
• Docket Number: No. 08-92-00324-CV,08-92-00324-CV
• Citation: 856 S.W.2d 742
• Parties: Willard E. BROWN, Estoril Producing Corporation, et al., Appellants, v. KPMG PEAT MARWICK, Appellee.
• Court: Texas Court of Appeals

Page 742

856 S.W.2d 742

Willard E. BROWN, Estoril Producing Corporation, et al., Appellants, v. KPMG PEAT MARWICK, Appellee.

No. 08-92-00324-CV.

Court of Appeals of Texas,

El Paso.

April 28, 1993.

Rehearing Overruled June 9, 1993.

Thomas A. Albright, Scott, Douglass & Luton, L.L.P., Austin, Thomas V. Murto, III, Law Offices of R. Jack Ayres, Jr., Cary Schachter, Vikram Chandhok, Conant Whittenburg Whittenburg & Schachter, Dallas, for appellants.

Stewart H. Thomas, Karen F. Gray, Timothy W. Mountz, Locke Purnell Rain Harrell, Dallas, for appellee.

Before OSBORN, C.J., and BARAJAS and LARSEN, JJ.

OPINION

BARAJAS, Justice.

This is an appeal from the entry of two summary judgments in an accounting malpractice case. The trial court entered summary judgment in favor of Appellee KPMG Peat Marwick, dismissing all claims asserted by the limited partners of a partnership. A second summary judgment was entered dismissing all cross-claims asserted against the Appellee by the general partner of the limited partnership. We affirm the judgment of the trial court.

I. SUMMARY OF THE EVIDENCE

In 1980, 43 limited partner investors (the "Partners") entered into an agreement of limited partnership ("Partnership Agreement") named EPC 1980-1 (the "Partnership"). The Partnership Agreement, formed under the law of the State of Texas, named Estoril Producing Corporation as the managing partner and Rotan Mosle Energy as an additional general partner. The limited partnership certificate filed with the Texas Secretary of State defined the purposes of the Partnership to include "operations and productions of oil, gas and minerals and all things incident thereto." Both the prospectus used to solicit limited partners and the Partnership Agreement identified the oil and gas operations to be conducted by the partnership to include "installing, ... processing, gathering, and/or transporting facilities to produce, process, gather and/or transport any oil or gas produced from any well on a Prospect...."

Estoril operated a substantial number of leases in the N.W. Tecumseh Field, located in the State of Oklahoma, where the Partnership was the largest working interest owner in the leases operated by Estoril, and as a result, had the most oil and gas to sell. Estoril initially gathered the Partnership's gas and sold it to Public Utilities Service Company at approximately $1.28 per MMBTU. It later learned that Oklahoma Natural Gas Company ("ONG") would buy gas at twice that amount, or more. Estoril contracted and agreed with Ed Moses and counter-defendant Bill Sumner to form a separate partnership (counter-defendant Pott County Partnership ["Pott"] ) whose purpose was to (1) acquire the existing gas gathering system, (2) build a new system and/or add to the existing system and (3) use the system to gather gas that Pott would buy at one price from the Partnership, and others, and then sell to ONG for a profit. In furtherance of the Pott agreement, Estoril committed the Partnership's gas to Pott and authorized Pott to commit the Partnership's gas for sale to ONG. A contract was negotiated for the sale of the Partnership's gas to ONG. ¹ In essence, Estoril sold itself the Partnership gas and later resold it at a higher price to ONG, thereby realizing significant profits. ²

In addition to the above, Estoril entered into an agreement with co-defendant James Charles Hollimon and his company, Heritage Processing, Inc. and Magnum V Energy to enter into a joint venture for the construction and operation of a plant to process gas produced from the N.W. Tecumseh Field, including the Partnership gas. Estoril committed the Partnership's gas for processing at the plant and in exchange, became a 10 percent owner of the Heritage plant and all associated gas processing contracts, including that with the Partnership. Under the terms of the Partnership Agreement, Estoril was required to engage independent certified public accountants to annually audit the financial statement of the Partnership and to report to the Partners the results of such audit. Estoril retained the services of Trott & Co. to perform the audit for the year ending December 31, 1980. It engaged Peat Marwick to perform the audit for 1981, then it retained Trott & Co. and its successor company to perform the audits for the Partnership for the years 1982 through 1988.

The Partners assert that Estoril's activities with the various other entities involved in the distribution of the Partnership's oil and gas were related party transactions which should have been reported under principles and standards generally recognized by the accounting profession. ³

II. PROCEDURAL HISTORY

Estoril Producing Corporation initiated the action below against the Partners seeking a declaratory judgment regarding its obligations to the Partners. The Partners filed a counterclaim against Estoril and twenty-two additional counter-defendants, including KPMG Peat Marwick, alleging breach of fiduciary duty, breach of contract, fraud, civil conspiracy and accounting malpractice and also seeking a declaratory judgment, an audit and an accounting. The Partners allege that Estoril and numerous other counter-defendants had secretly misappropriated economic opportunities of the Partnership in 1981, resulting in damages to the Partnership. The Partners allege that Peat Marwick's performance in auditing the financial statements of the Partnership for 1981 constituted professional malpractice, negligence, negligence per se, negligent misrepresentation and gross negligence. No claims of fraud, conspiracy or knowing misconduct are raised against Peat Marwick.

Peat Marwick moved for and obtained summary judgment on the claims asserted by the Partners against it. Among the grounds specified in the motion for summary judgment was the defense of limitations; however, the trial court did not specify on what basis the motion for summary judgment was granted. After obtaining summary judgment on the Partners' claims, Peat Marwick moved for summary judgment on the cross-claims filed against it by Estoril, arguing that the exoneration by summary judgment from the claims by the Partners automatically relieved Peat Marwick from any claims for breaches of duty to Estoril. It is from the granting of the above two motions for summary judgment that the instant appeal ensues. All other claims in the suit have been either settled and dismissed or severed from this action, making the summary judgments final and appealable.

III. DISCUSSION

A. Standard of Review

The standard of review on appeal is whether the successful movant at the trial level carried its burden of showing that there is no genuine issue of material fact and that a judgment should be granted as a matter of law. Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex.1991); Nixon v. Mr. Property Management Company, 690 S.W.2d 546, 548 (Tex.1985); Hernandez v. Kasco Ventures, Inc., 832 S.W.2d 629 (Tex.App.--El Paso 1992, no writ); Marsh v. Travelers Indemnity Company of Rhode Island, 788 S.W.2d 720 (Tex.App.--El Paso 1990, writ denied). Thus, the question on appeal is not whether the summary judgment proof raises fact issues as to the required elements of the movant's cause or claim, but whether the summary judgment proof establishes, as a matter of law, that there is no genuine issue of material fact as to one or more elements of the movant's cause or claim. Gibbs v. General Motors Corporation, 450 S.W.2d 827, 828 (Tex.1970).

In resolving the issue of whether the movant has carried this burden, all evidence favorable to the non-movant must be taken as true and all reasonable inferences, including any doubts, must be resolved in the non-movant's favor. Nixon, 690 S.W.2d at 548-49; Stoker v. Furr's, Inc., 813 S.W.2d 719, 721 (Tex.App.--El Paso 1991, writ denied). Where the defendants are the movants and they submit summary evidence disproving at least one essential element of each of plaintiff's causes of action, then summary judgment should be granted. Perez, 819 S.W.2d at 471; Bradley v. Quality Service Tank Lines, 659 S.W.2d 33, 34 (Tex.1983); Rayos v. Chrysler Credit Corporation, 683 S.W.2d 546, 547 (Tex.App.--El Paso 1985, no writ).

The above standard of review is altered when the movant relies on an affirmative defense to avoid liability. Instead of merely demonstrating the lack of a fact issue as to one element of the non-movants claim, the movant must establish each element of his defense as a matter of law. Munoz v. Gulf Oil Company, 693 S.W.2d 372, 373 (Tex.1985); Republic Bankers Life Insurance Company v. Wood, 792 S.W.2d 768, 776 (Tex.App.--Fort Worth 1990, writ denied). Thus, when moving for summary judgment based on the running of limitations, the defendant must show that as a matter of law, the suit is barred by limitations. A.C. Collins Ford, Inc. v. Ford Motor Company, 807 S.W.2d 755, 759 (Tex.App.--El Paso 1990, writ denied). Moreover, a defendant seeking summary judgment on the basis of limitations must prove when the cause of action accrued and must further negate the discovery rule by proving as a matter of law that there is no genuine issue of fact about when the plaintiff discovered or should have discovered the nature of the injury. Burns v. Thomas, 786 S.W.2d 266, 267 (Tex.1990).

B. Summary Judgment against the Partners

1. The Summary Judgment

The Partners alleged that Peat Marwick's failure to disclose Estoril's "related-party transactions" in connection with its audit of the Partnership's 1981 financial statements constituted professional malpractice, negligence, negligence per se and gross negligence, and rendered its opinion a negligent misrepresentation. Peat Marwick moved for summary judgment on the following four grounds: (1) Peat Marwick's conduct did not proximately cause any damage to the Partners; (2) the Partner's claims against Peat Marwick were barred by the two-year statute of limitations; (3) a violation of professional accounting...