Hendricks v. Thornton
| Decision Date | 29 July 1998 |
| Docket Number | No. 09-96-163,09-96-163 |
| Citation | 973 S.W.2d 348 |
| Parties | Fed. Sec. L. Rep. P 90,233 David B. HENDRICKS, Trustee, et al, Appellants, v. Grant THORNTON, Appellee. CV. |
| Court | Texas Court of Appeals |
Jennefer Bruch Hogan, Holman, Hogan, Dubose & Townsend, Randy J. McClanahan, McClanahan & Clearman, Houston, Mark Louis Greenwald, Greenwald & Greenwald, San Antonio, Ruben Hope, Jr., Hope, Causey
& Schlacks, Conroe, Gilbert I. Low, Orgain, Bell & Tucker, Beaumont, Ernest Coker, Jr., Conroe, for appellant.
Susan Pavlica, Mayer, Brown & Platt, Houston, for appellee.
Before WALKER, C.J., and BURGESS and STOVER, JJ.
This appeal arises from a suit by 127 investors (appellants) against the accounting firm of Grant Thornton International (Grant), appellee. The appellants, many of whom are current or former professional athletes, were investors in government securities trading programs offered by an entity known as Hillcrest Securities Corporation, Inc. (Hillcrest); the trades, on which appellants lost thousands of dollars, were purportedly reviewed and verified for authenticity by Grant.
The investors sued Grant for multiple causes of action, including, but not limited to, fraud, aiding and abetting fraud, Deceptive Trade Practices Act (DTPA) violations, breach of contract, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, breach of warranty, securities laws violations, negligence, and negligent misrepresentation. Over the course of ten years, Grant filed various motions for summary judgment, eleven of which were granted by the trial court. Appellants now challenge the summary judgments on appeal. Also before us on appeal is Grant's cross point appealing the two motions for summary judgment granted in favor of the Hendricks brothers on Grant's counterclaims for contribution.
Along with other Hillcrest investors, Randal Hendricks and his brothers, David and Alan Hendricks, sued Grant for damages from losses sustained in the Hillcrest transactions. At the time of the filing of suit, the Hendricks brothers, doing business as Hendricks Sports Management, were also sports agents who represented professional athletes. The record reveals the Hendricks brothers negotiated professional contracts for their clients, prepared income tax returns, and gave advice on investments, business opportunities, personal financial planning, and tax planning. As compensation, Hendricks Sports Management typically received fees from their clients' investment ventures and a percentage of their professional sports contracts.
In 1985 David Hendricks, as trustee, filed the initial suit against Hillcrest and others; Grant was not among those initially sued. In the original suit, Hendricks alleged that Hillcrest both offered to sell and, in fact, did sell securities by means of a prospectus or oral communication which included an untrue statement of material fact, or which failed to disclose a material fact. Approximately one year later, on May 9, 1986, David Hendricks amended his petition, adding his brothers, Randal and Alan, and other Hillcrest investors as plaintiffs, and Grant Thornton as a defendant.
Appellants alleged they participated in trading programs, designed, offered, and underwritten by Hillcrest, which had represented the programs and strategies as being sound investments that would secondarily yield legitimate tax benefits. According to their petition, some of the appellants began participating in the program in 1981; others were added gradually up through 1984. Appellants also allege Hillcrest represented that the accounting firm, Grant Thornton, would audit the trading programs and appellants' accounts as part of a due diligence procedure in administering and monitoring the programs. Beginning in late 1981 or early 1982, (CRI68) Grant itself, according to appellants, made representations vouching for the viability and legitimacy of the securities even though Grant knew or should have known the information and representations were false. Subsequently, as alleged by appellants, the Internal Revenue Service (IRS) disallowed the tax benefits for the years 1982 and 1983, because the transactions were "bogus and fictitious." Appellants claim their aggregate losses were in the millions of dollars.
Grant's connection with Hillcrest began in 1982 when Grant performed certain audit and tax services, specifically the auditing of Hillcrest's financial statements for both 1982 and 1983. During those same years, Hillcrest also asked Grant to prepare certain tax memoranda which discussed specific tax questions concerning Hillcrest's trading program. The tax memoranda, according to Grant, were never intended to be used as a marketing tool with prospective investors. Yet Hendricks obtained a copy of the tax memoranda and mailed the same to Hendricks' clients.
In its 1982 marketing brochures, Hillcrest listed Grant as a reference and invited potential investors to check on the reliability of Hillcrest Equities, Inc., Hillcrest Securities Corporation, Inc. and its principals by calling, among others, Alexander Grant and Co. [Grant Thornton]. The list of references in Hillcrest brochures included the following: John Latta, CPA, Alexander Grant & Company; and George Banks, CPA, Alexander Grant & Company. Appellants claim that, with Grant's knowledge, Hillcrest's 1983 marketing materials promised potential investors that Grant would verify the authenticity of the trades made by Hillcrest. One part of the question and answer section in the 1983 brochure reads as follows:
5. Are actual trades being made?
Hillcrest Securities Corporation, Inc. executes all of its trades with other dealers. Alexander Grant and Company is required to visit dealers and evaluate these transactions in order to verify their authenticity.
19. How can I check on the reliability of Hillcrest Equities, Inc., Hillcrest Securities Corporation, Inc. and its principals?
....
The auditing, taxes, and general accounting for Hillcrest Equities, Inc. and Hillcrest Securities Corporation, Inc. has been handled by the national firms of Alexander Grant & Co. and Pannell Kerr Forster.
Please feel free to call any of the references listed in our corporate brochure to check on the reliability of Hillcrest Equities, Inc., Hillcrest Securities Corporation, Inc. and its principals.
According to appellants, Grant never verified the authenticity of the trades and thereby caused appellants to lose their tax benefits, as well as their investments.
At the outset, we note the trial court held two hearings on the motions for summary judgment. At the first hearing, five separate summary judgments were granted; the other six were disposed of in another hearing some months later. The orders granting those summary judgments recite that the trial judge considered, among other things, all the motions, the briefs, and the summary judgment evidence filed by each party. Based on this recital, we know the trial judge considered all summary judgment evidence before him at the time of the hearing and did not restrict himself in ruling on a particular summary judgment to only the evidence attached to that motion for summary judgment. See TEX.R. CIV. P. 166a(c). In our review of the points of error regarding the various motions for summary judgment, we likewise, consider the pleadings, deposition excerpts, affidavits, and other evidence on file with the court, including those in other summary judgment motions, as long as they are referenced in the summary judgment motion at issue. We acknowledge there are two lines of authority on this subject matter. However, we follow Boeker v. Syptak, 916 S.W.2d 59, 61-62 (Tex.App.--Houston [1st Dist.] 1996, no writ); Dear v. City of Irving, 902 S.W.2d 731 (Tex.App.--Austin 1995, writ denied); Kotzur v. Kelly, 791 S.W.2d 254, 257 (Tex.App.--Corpus Christi 1990, no writ). See TEX.R. CIV. P. 166a(c).
In brief, the trial court granted summary judgment in favor of Grant and against appellants on the following causes of action:
1. Grant's motion for summary judgment on appellants' negligent conduct and fiduciary duty claims on statute of limitation grounds;
2. Grant's motion for summary judgment on appellants' DTPA claims;
3. Grant's motion for partial reconsideration on a motion for summary judgment previously denied by the trial court. The motion for partial reconsideration was on the following grounds:
(a) breach of contract
(b) breach of fiduciary duty
(c) Texas securities claims
(d) Federal securities claims
(e) breach of warranty;
4. Grant's motion for partial summary judgment on reliance and causation as to thirty-two of the investors;
5. Grant's motion for summary judgment on appellants' claim of failure to maintain independence;
6. Grant's motion for summary judgment on appellants' claims under Sec. 12 of the Securities Act of 1933 and Sec. 33(A) of the Texas Securities Act;
7. Grant's motion for summary judgment on appellants' fraud, aiding and abetting fraud, conspiracy claims, and aiding and abetting fraud under § 33(F) of the Texas Securities Act;
8. Grant's motion for summary judgment on appellants' claims under Sec. 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5;
9. Grant's motion for summary judgment on appellants' claims under Sec. 17 of the Securities Act of 1933;
10. Grant's motion for summary judgment on limitations grounds for federal securities claims brought under Sec.12(1) and 12(2) of the Securities Act of 1933;
11. Grant's motion for summary judgment on appellants' claim for aiding and abetting a breach of fiduciary duty of another.
In addition to granting eleven summary judgments in favor of Grant, the trial court granted the Hendrickses' two summary judgment motions on Grant's counterclaims for contribution against Hendricks Management Company and Hendricks Sports Management. On appeal, the investors challenge...
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