McMahan v. Greenwood

Decision Date29 May 2003
Docket NumberNo. 14-01-00431-CV.,14-01-00431-CV.
PartiesJohn McMAHAN, Individually and d/b/a J.M. Wholesale, Appellant, v. Howard W. GREENWOOD, Howard Greenwood Investments, Inc., Fine Rides, Inc., Circular Processing, Inc., and J. Randle Henderson, Appellees.
CourtTexas Court of Appeals

S. Loyd Neal, William T. Powell, Houston, for appellants.

David A. Carp, Michael C. Falick, Sydney N. Floyd, Houston, for appellees.

Panel consists of Justices SEYMORE, GUZMAN, and DRAUGHN.*

OPINION ON REHEARING

EVA M. GUZMAN, Justice.

We withdraw our opinion of December 31, 2002 and issue this opinion on rehearing. The motions for rehearing filed by appellant McMahan and appellee Henderson are overruled.

John McMahan appeals from summary judgments granted in favor of Howard Greenwood, Howard Greenwood Investments, Inc., Fine Rides, Inc., Circular Processing, Inc. (collectively, "the Greenwood defendants"), and J. Randle Henderson in a lawsuit arising out of a business venture between McMahan and the Greenwood defendants. McMahan contends the trial court erred in granting the defendants' motions for summary judgment and in denying McMahan's motions for continuance and new trial. We affirm in part, reverse in part, and remand for further proceedings.

I. Factual Background

John McMahan owned and operated a business refurbishing and selling antique and exotic automobiles. By early 1989, his inventory and equipment were under a lien securing a note held by the FDIC. In March of 1989, McMahan and Howard Greenwood began discussions for a business venture dealing in classic cars, which culminated in the formation of Fine Rides, Inc. in April of 1989. Greenwood was to provide financing and perform certain business functions, including financial management and accounting, while McMahan was to sell and service the cars and serve as company president. Although, initially Greenwood was to be the sole shareholder of Fine Rides, the parties signed a stock option agreement which provided that as part of his compensation, McMahan had an option to purchase 70% of the company's stock in exchange for his contribution of certain assets. The agreement provided that McMahan's stock option could be exercised at any time beginning April 1, 1989. Henderson, an attorney, drafted the incorporation documents and the Stock Option Agreement.

In order to free McMahan's assets from the FDIC lien, Fine Rides purchased McMahan's notes from the FDIC. Although McMahan contends he contributed approximately $750,000 in cash and assets to Fine Rides and that he was told by Henderson he was a shareholder, no stock certificates were ever issued to him. The summary judgment evidence reflected that the assets McMahan contributed to Fine Rides were originally recorded in the company's accounting records as contributions toward stock ownership, but were later "reversed" in March or April of 1991. The parties dispute who ordered the reversals and the reasons for the reversals.1 In 1993, Fine Rides sold the service portion of its business to McMahan. As part of this transaction, McMahan purchased much of the inventory that he had earlier "contributed" to Fine Rides. The purchase price was incorporated into a promissory note for $173,356.53 from McMahan to Fine Rides, Inc.

By 1994, the business and personal relationships between McMahan and Greenwood had deteriorated significantly. On March 30, 1994, the parties entered into a settlement agreement to resolve "all matters between [the] parties including the division of assets, release of claims and/or liens against assets, the resolution of ownership of shares of stock in Fine Rides, Inc. and the resolution of any causes of action...." In the agreement, McMahan released any claim to stock ownership in Fine Rides in return for receiving certain property and rights. The agreement also contained the following language wherein each party agreed to release the other:

from any and all claims, demands, damages, actions, causes of actions or suits in equity of whatsoever kind or nature whether heretofore or hereafter accruing or whether now known or not known to the parties for or because of any matter or thing done, omitted or suffered to be done by either of such parties prior to and including the date hereof and in any way directly or indirectly arising out of the business relationship between the parties.

In September of 1996, McMahan requested information from Henderson that would allow him to take tax credits related to losses he sustained in Fine Rides. In response, Henderson stated in a letter that McMahan had never owned any stock in Fine Rides and therefore was not entitled to an IRS Form K-1 from Fine Rides. McMahan claims he did not discover that he was not a shareholder until he received Henderson's letter. He further alleges he did not discover until August of 2000 that the accounting entries for the assets he had contributed to the company had been reversed in 1991. He contends the reversal essentially made the transfer of assets a loan from him to the company rather than a contribution toward stock ownership in accordance with the Stock Option Agreement.

McMahan filed suit against Henderson and the Greenwood defendants alleging fraud, fraudulent inducement, breach of fiduciary duty, breach of contract, conspiracy, conversion, concert of action and legal malpractice. He also pleaded duress and breach of conditions precedent. As damages for the alleged fraud, McMahan sought recovery of the contributions he claims were fraudulently obtained or the value of the tax credits he contends he would have been entitled to receive as a shareholder in the company. The defendants pleaded numerous affirmative defenses including release, ratification, and limitations. Henderson moved for summary judgment on both traditional and no-evidence grounds. The Greenwood defendants also filed a traditional and no-evidence summary judgment motion. Without specifying any grounds, the trial court granted summary judgments in favor of the Greenwood defendants and Henderson.

II. Standards of Review

Because the court's summary judgment orders do not specify the ground or grounds upon which they were granted, we uphold the court's judgment if properly supported by any ground alleged in the motions. See Carr v. Brasher, 776 S.W.2d 567, 569 (Tex.1989). As noted, both motions for summary judgment alleged traditional and no-evidence grounds. Under a traditional ground for summary judgment, the movant has the burden of proving that no genuine issue of material fact exists and that he is entitled to judgment as a matter of law. TEX.R. CIV. P. 166a; Nixon, v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex.1985). A defendant as movant for summary judgment must conclusively negate at least one essential element of the plaintiff's cause of action or conclusively establish each element of an affirmative defense. Castillo v. Westwood Furniture, Inc., 25 S.W.3d 858, 860 (Tex.App.-Houston [14th Dist.] 2000, no pet.). If the movant's motion and summary judgment proof establish a right to judgment as a matter of law, the burden then shifts to the non-movant to raise a material fact issue sufficient to defeat summary judgment. Id. In deciding whether a disputed material fact issue precluding summary judgment exists, we resolve every reasonable inference in favor of the non-movant and all evidence favorable to him will be taken as true. Nixon, 690 S.W.2d at 548-49; Castillo, 25 S.W.3d at 860.

In a no-evidence summary judgment ground, the movant asserts that there is no evidence of one or more essential elements of claims upon which the opposing party would have the burden of proof at trial. TEX.R. CIV. P. 166a(i); Lake Charles Harbor & Terminal Dist. v. Bd. of Trs. of the Galveston Wharves, 62 S.W.3d 237, 241 (Tex.App.-Houston [14th Dist.] 2001, pet. denied). A no-evidence summary judgment should be sustained if: (1) there is a complete absence of proof of a vital fact; (2) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence conclusively establishes the opposite of a vital fact. Dagley v. Haag Eng'g Co., 18 S.W.3d 787, 793 (Tex.App.-Houston [14th Dist.] 2000, no pet.). Less than a scintilla of evidence exists when the evidence is so weak as to do no more than create a mere surmise or suspicion of a fact. Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex.1983). More than a scintilla of evidence exists when the evidence rises to a level that would enable reasonable and fair-minded people to differ in their conclusions. Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.1997). In reviewing a no-evidence summary judgment, we examine the evidence in the light most favorable to the nonmovant and disregard all evidence and inferences to the contrary. Blan v. Ali,7 S.W.3d 741, 747 (Tex.App.-Houston [14th Dist.] 1999, no pet.).

III. The Greenwood Defendants
A. The Release

In their motion for summary judgment, the Greenwood defendants argued that the release language in the 1994 settlement agreement precludes all of McMahan's claims except for breach of the settlement agreement itself. A release, valid on its face, is, until set aside, a complete bar to any action based on matters covered in the release. Deer Creek Ltd. v. N. Am. Mortgage Co., 792 S.W.2d 198, 201 (Tex.App.-Dallas 1990, no writ). In a summary judgment context, once a release is properly pleaded, the burden shifts to the other party to offer proof that the release should be set aside. See Sweeney v. Taco Bell, Inc., 824 S.W.2d 289, 291 (Tex.App.-Fort...

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