Gomez v. Saenz (In re Saenz), Case No: 13-70423

• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
• Writing for the Court: Marvin Isgur
• Citation: 534 B.R. 276
• Parties: In re: Humberto Saenz Jr; fdba Pizza Patron Inc; fdba Estrella Ventures, Inc. dba Pizza Patron; aka Saenz; fdba Armar Enterprises Inc, et al, Debtor(s) Jose Maria Gomez, Plaintiff(s) v. Humberto Saenz Jr, et al, Defendant(s)
• Decision Date: 27 July 2015
• Docket Number: Adversary No. 13-07024.,Case No: 13-70423

534 B.R. 276

In re: Humberto Saenz Jr; fdba Pizza Patron Inc; fdba Estrella Ventures, Inc. dba Pizza Patron; aka Saenz; fdba Armar Enterprises Inc, et al, Debtor(s)
Jose Maria Gomez, Plaintiff(s)
v.
Humberto Saenz Jr, et al, Defendant(s)

Case No: 13-70423
Adversary No. 13-07024.

United States Bankruptcy Court, S.D. Texas, McAllen Division.

Signed July 22, 2015
Filed July 27, 2015

[534 B.R. 280]

Martin R. Griffin, Law Offices of Martin R. Griffin, Dallas, TX, Jose Wilfredo Hernandez, Ortiz Millin LP, Weldon G. Nixon, Kittleman Thomas and Gonzales LLP, Edmundo O. Ramirez, Ellis Koeneke et al., Antonio Villeda, Attorney at Law, McAllen, TX, Mark Alan Weitz, Weitz Morgan PLLC, Austin, TX, for Plaintiff(s).

Martin R. Griffin, Law Offices of Martin R. Griffin, Dallas, TX, Jose Wilfredo Hernandez, Ortiz Millin LP, Weldon G. Nixon, Kittleman Thomas and Gonzales LLP, Edmundo O. Ramirez, Ellis Koeneke et al., Antonio Villeda, Law Offices of Antonio Villeda, Antonio Villeda, Attorney at Law, McAllen, TX, Mark Alan Weitz, Weitz Morgan PLLC, Austin, TX, Benjamin Ray Guerra, Ben Guerra Law Office PLLC, Harlingen, TX, for Defendant(s).

MEMORANDUM OPINION
Marvin Isgur, UNITED STATES BANKRUPTCY JUDGE

Humberto Saenz, Jr. and Estrella Ventures, LLC's actions constitute common law fraud. As a result of Defendants' actions, Plaintiffs Jose Maria Gomez and JMG JMG Ventures, LLC suffered actual damages in the amount of $330,000. The Court awards Plaintiffs exemplary damages in the amount of $82,500.

The $412,500 award is excepted from discharge under 11 U.S.C. § 523(a)(2)(A).

Procedural Posture

On September 11, 2011, Gomez and JMG JMG Ventures, LLC filed suit against Saenz, Estrella Ventures, and Lone Star Bank in the 381st District Court, Starr County, Texas. Plaintiffs alleged causes of action against Saenz and Estrella Ventures for: (i) fraudulent misrepresentation; (ii) breach of contract; (iii) common law fraud; and (iv) conversion. On December 4, 2012, Plaintiffs filed a First Amended Original Petition in the Starr County lawsuit naming IBC and Pizza Patrón, Inc. Plaintiffs sole cause of action against IBC was common law fraud.

Saenz filed a Chapter 7 bankruptcy petition on August 27, 2013. (Case No. 13–70423; ECF No. 1). The lawsuit was removed to bankruptcy court on November 19, 2013. On November 26, 2013, Plaintiffs commenced an adversary proceeding seeking an exception to discharge under 11 U.S.C. § 523. (Case No. 13–07029; ECF No. 1). On that same date, IBC brought its own suit seeking indemnification from Saenz and an exception to discharge. (Case No. 13–07028; ECF No. 1).

[534 B.R. 281]

Pizza Patrón was dismissed from Adversary Proceeding 13–07024 on October 22, 2014. (ECF No. 33). Lone Star and IBC filed separate motions for summary judgment on December 15, 2014. (ECF Nos. 54 and 56). The Court denied IBC's motion on February 6, 2015. (ECF No. 74). On March 5, 2015, the Court issued an order severing all claims against Lone Star into a separate adversary proceeding. (ECF No. 86). In the separate adversary proceeding, judgment was issued on June 12, 2015 in favor of Lone Star Bank. (Case No. 15–07006; ECF No. 10).

In Adversary Proceeding 13–07029, Saenz and Estrella Ventures filed a motion to dismiss on August 26, 2014. (Case No. 13–07029; ECF No. 23). At a hearing on January 26, 2015, the Court dismissed Plaintiffs claims under 11 U.S.C. § 523(a)(2)(B). Plaintiffs were allowed to proceed with their claims under §§ 523(a)(2)(A); 523(a)(4); and 523(a)(6).

On February 17, 2015, the Court held a consolidated trial on Adversary Proceedings 13–07024, 13–07028, and 13–07029. At the close of Plaintiffs' case in chief, IBC moved for a Judgment on Partial Findings under Fed.R.Civ.P. 52(c). The Court granted the motion. Saenz and Estrella Ventures also moved for a Judgment on Partial Findings, and the motion was granted as to Plaintiffs' claims for conversion and nondischargeability under §§ 523(a)(4) and 523(a)(6). Following the conclusion of the trial, the Court requested supplemental briefing.

Background

In the spring of 2009, Gomez approached Saenz to inquire about purchasing a Pizza Patrón franchise location in Rio Grande City, Texas. (Case No. 13–07029; ECF No. 22 at 3); ( see also ECF No. 97 at 16) (testimony of Saenz). Gomez had been introduced to Saenz through Jesús Ortiz, Saenz's brother-in-law and a close friend of Gomez. (ECF No. 97 at 200). Ortiz was a manager at a separate Pizza Patrón location. Id. at 256. Prior to his expressing interest in the Pizza Patrón franchise, Gomez had spent approximately six months looking into purchasing either a Domino's, Little Caesers, or Dairy Queen franchise. (ECF No. 98 at 147–48). Ultimately, Gomez settled on Pizza Patrón due to his longstanding relationship with Ortiz. (ECF No. 97 at 255). Ortiz told Gomez that Saenz was the corporate representative for Pizza Patrón in the South Texas region. (ECF No. 98 at 168). Gomez further testified that Saenz made the same representation several times, a fact which Saenz denies.

On September 7, 2004, Saenz had entered into a Franchise Development Agreement with Pizza Patrón. (Plaintiffs' Ex. No. 5). Saenz signed the document in his capacity as President of Estrella Ventures, Inc., a company he had founded for the purpose of operating Pizza Patrón franchises. The agreement granted Saenz the right to develop Pizza Patrón restaurants within a certain Development Area. Id. Although the “Development Area” was not defined in the agreement as presented to the Court, Saenz has testified that his territory was from “Starr County, Roma, all the way to Alamo and bordered with the actual Mexican border. The northern border was Monte Cristo Street up in Edinburg.” ¹ (ECF No. 97 at 55). Saenz held the exclusive right to develop stores within the region.

Although Saenz's Franchise Agreement with Pizza Patrón for the Rio Grande City

[534 B.R. 282]

location is not before the Court, Plaintiffs have provided copies of a blank Pizza Patrón Franchise Agreement that Saenz provided to Gomez for his review. The Franchise Agreement unambiguously prohibits voluntary transfers of the franchise without the prior written consent of the Franchisor. (Plaintiffs' Ex. No. 4 at 19). “Any transfer lacking the Company's prior written consent ... will be ineffective against Company and will constitute a default under Section 16(c)(2).” Id.

As of 2009, Saenz owned at least four Pizza Patrón locations. Id. at 81. To finance the development of these restaurants, Saenz took out three loans from the International Bank of Commerce. The three loans were cross-collateralized and were secured by blanket liens over accounts receivable, inventory, equipment, furniture, and fixtures for three of the four locations. (Plaintiffs' Ex. No. 22). The liens covered the Rio Grande City location as well as two stores in McAllen. The three loans combined were in the original principal amount of $480,500.00. Id. By November 25, 2009, Saenz owed IBC $335,880.00. Id.

In August of 2009, Gomez and Saenz reached a preliminary agreement for Gomez to purchase the Rio Grande City location for $350,000.00. Gomez needed financing and requested a Small Business Administration loan from Lone Star National Bank for $287,200.00.² (IBC Ex. No. 8). In connection with the loan application, Lone Star asked for certain documentation. Gomez has testified that he called Saenz and requested that he provide a profit and loss statement. (ECF No. 98 at 179). After receiving the request, Saenz testified that he enlisted the help of Elizabeth Gauna, his banker at IBC. (ECF No. 97 at 26). Gauna had known Saenz since 2005, when he first took out a loan from IBC. (ECF No. 98 at 7). Saenz stated that he brought his receipts to Gauna and she showed him where the numbers belonged. (ECF No. 97 at 26–27). Gauna denies that Saenz ever approached her for help with the profit and loss statements. (ECF No. 98 at 46). Even if Gauna provided assistance, however, Saenz testified that he provided all of the numbers and she merely helped with “how to format it.” (ECF No. 97 at 125).

According to Saenz, he first met with Guana in August of 2009 to prepare the income statements. (ECF No. 97 at 27). He testified that he told Gauna he needed the income statements in connection with the sale of the Rio Grande City location. (ECF NO. 97 at 51). Saenz claimed he first told Gauna about the potential sale as early as June or July of 2009. (ECF No. 97 at 136). Gauna testified that Saenz never told her about the sale until October 29, 2009. (ECF No. 98 at 30). IBC documents prepared by Gauna shortly after the relevant events corroborate Guana's version of events. Gauna kept an Activity Summary where she logged every contact she made with Saenz regarding his loans. (Plaintiffs' Ex. No. 21). She logged eight contacts with Saenz between June 10, 2009, and October 27, 2009, including two face-to-face meetings. Id. The Activity Summary made no mention of any potential sale. It was not until a Special Progress Report dated November 25, 2009, that Gauna noted that Saenz “currently has the Rio Grande Pizza Patron location for sale....” (IBC Ex. No. 17). Gauna clarified that...