Opinion
Civil Action No. 3:97-CV-0860-L
August 22, 2001
MEMORANDUM OPINION AND ORDER
Before the court is Defendant Peyton Feltus' ("Feltus") Second Motion for Summary Judgment, filed March 30, 2001. After careful consideration of the motion, response, reply, briefs, evidence submitted by the parties, and applicable law, the court grants the motion.
I. Factual and Procedural Background
The facts contained herein are either undisputed or, where they are disputed, presented in the light most favorable to Plaintiff as the nonmovant.
Plaintiff's ("Stroud") First Amended and Supplemental Complaint ("Complaint") concerns two investment transactions, denominated "joint venture agreements," in 1996 between Stroud and Defendant Motor Works of Arlington, Inc. ("Motor Works"). Defendant Danny Meister ("Meister") was the president of Motor Works. The purported purpose of both transactions was to purchase luxury motorcoaches and Mercedes Benz sedans, under an existing agreement with the Federal Deposit Insurance Corporation ("FDIC"), at a reduced price and immediately resell them at a profit. Feltus solicited Stroud to invest in the transactions, and allegedly made various representations to Stroud concerning whether the investments were sound. Stroud invested a total of $250,000 in the transactions: $100,000 on March 27, 1996 and $150,000 on June 27, 1996. He agreed to pay Feltus 20% of the net profits, if any, in excess of a 7% return on the investment.
Feltus placed petroleum futures orders on behalf of Phoenix Gas Liquids Company ("Phoenix") from approximately 1990 through October, 1996. Stroud was the president and sole owner of Phoenix. Stroud asserts that this prior relationship with Feltus was critical to his decision to invest in the transactions.
In fact, the joint venture agreements were apparently nothing but a sham; the FDIC had no such properties to be liquidated, and Motor Works had no agreement with the FDIC to buy such properties. Stroud was notified of this by an FDIC investigator on or about August 22, 1996, and in turn notified Feltus and Meister of his discussion with the FDIC. Stroud lost the entire amount invested, and Meister subsequently was sentenced to a prison term for fraud in connection with these and similar transactions. Since Stroud made no profit on the transactions, he paid nothing to Feltus for his involvement in the transaction.
Stroud subsequently filed this suit, seeking recovery of the $250,000 he lost plus interest, as well as other compensatory, statutory, or punitive damages and attorney's fees. He seeks recovery against Meister and Motor Works for selling unregistered securities in violation of the Texas Securities Act ("ISA"), Tex. Rev. Civ. Stat. Ann. art. 581-1 et seq. (Vernon 1964 Supp. 2001), and knowing and intentional deception in violation of the Texas Deceptive Trade Practices Act ("DTPA"), Tex. Bus. Comm. Code Ann. § 17.41 et seq. (Vernon 1987 Supp. 2001). The court's order of March 16, 2001 dismissed several other Defendants, and dismissed all but one of Stroud's claims against Feltus. The subject of the instant motion is the only remaining claim against Feltus, under the DTPA for fraudulent or negligent misrepresentations and/or misleading omissions of material facts. Feltus asserted a counterclaim against Stroud, on the basis that the claims against him were groundless and brought in bad faith, seeking attorney's fees and costs. Feltus now seeks summary judgment on the DTPA claim, asserting that Stroud is not a "consumer" as defined by the DTPA and therefore is not entitled to recovery.
Stroud requests that he be awarded the $250,000 he invested, but the Complaint also states that Meister made payments totaling $65,000 after suit was filed, which the court assumes would reduce his damages. Also, an earlier motion for summary judgment by Feltus mentions that Stroud subsequently assigned half of his interest in the second joint venture to a third party, John Hinsey. It is therefore unclear exactly how much Stroud really lost.
II. Summary Judgment Standard
Summary judgment shall be rendered when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Ragas v. Tennessee Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the court is required to view all inferences drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Ragas, 136 F.3d at 458.
Once the moving party has made an initial showing that there is no evidence to support the nonmoving party's case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere conclusory allegations are not competent summary judgment evidence, and thus are insufficient to defeat a motion for summary judgment. Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996). Unsubstantiated assertions, improbable inferences, and unsupported speculation are not competent summary judgment evidence. See Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513 U.S. 871 (1994). The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his claim. Ragas, 136 F.3d at 458. Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to support the nonmovant's opposition to the motion for summary judgment. Id., see also Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 n. 7 (5th Cir.), cert. denied, 506 U.S. 832 (1992). "Only disputes over facts that might affect the outcome of the suit under the governing laws will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact issues which are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to its case and on which it will bear the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23.
III. Analysis
The DTPA prohibits "[f]alse, misleading, or deceptive acts or practices in the conduct of any trade or commerce," Tex. Bus. Comm. Code Ann. § 17.46(a) (Vernon Supp. 2001), which
includes, but is not limited to, the following acts: . . . (5) representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have . . . (23) the failure to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed; . . .Id. § 17.46(b). As set forth in its order of March 16, 2001, the court construes the Complaint as asserting a cause of action under both § 17.46(b)(5) and (23). The DTPA provides a cause of action only for a "consumer." Id. § 17.50(a) ("A consumer may maintain an action. . . .") (emphasis added). At issue is whether Stroud is a "consumer" for purposes of the DTPA; if not, his DTPA claim against Feltus must fail. A "consumer," with exceptions not relevant here, is a person "who seeks or acquires by purchase or lease, any goods or services." Id. § 17.45(4). The purchase of intangibles, such as securities, accounts receivable, commodity option contracts, and interests in limited partnerships, does not confer "consumer" status. Insurance Co. of North America v. Morris, 928 S.W.2d 133, 148 (Tex.App.-Houston [14th Dist.] 1996), aff'd in part and rev'd in part on other grounds, 981 S.W.2d 667 (Tex. 1998). An intangible is not a "good" even when the underlying subject matter constitutes a good. Id. It is undisputed that Stroud purchased an interest in the joint venture agreements, not the underlying automobiles. The court concludes that the joint venture agreements clearly constitute intangibles rather than goods or services, and Stroud's purchase of them does not make him one "who seeks or acquires by purchase or lease, any goods or services."
Stroud argues that he is a consumer because he "sought or acquired investment, investment counseling, and/or investment underwriting services from Feltus which were an important object to the transaction and not merely incidental thereto." Plaintiffs Brief in Support of Response to Defendant Peyton Feltus' Second Motion for Summary Judgment ("Response Brief"), at 1-2. As Feltus points out, this is not the theory set forth in the Complaint, which predicated Stroud's consumer status on the purchase of the investment, rather than the purchase of Feltus' services. "Plaintiff Stroud is a consumer within the meaning of the Texas Deceptive Trade Practices Act. The purchase of an investment in movable properties to be resold for profit, constitutes a good or service provided by Feltus and/or Motorworks [sic] of Arlington, Inc. and Danny Meister." Complaint ¶ 30. Even assuming arguendo that Stroud has properly pleaded this theory, however, the court finds it insufficient.
Stroud cites two cases in which the purchase of investment and counseling services were held to satisfy the requirements for consumer status. Frizzell v. Cook, 790 S.W.2d 41, 47 (Tex.App. — San Antonio 1990, writ denied); First Fed. Sav. Loan Ass'n of San Antonio v. Ritenour, 704 S.W.2d 895, 900 (Tex.App. — Corpus Christi 1986, writ ref'd n.r.e.). Feltus counters with Morris, in which the court held that "[w]hen a transaction's central objective is the acquisition of an intangible, Texas law requires that the collateral services be an important object to the transaction and not merely incidental." Morris, 928 S.W.2d at 148.
Frizzell has limited persuasive value here, as the basis for the summary judgment motion in that case was whether the ISA preempted the DTPA in cases involving securities. Frizzell, 790 S.W.2d at 42, 47. The case did not address the broader question implicated here.
The DTPA defines "services" as "work, labor, or service purchased or leased for use, including services furnished in connection with the sale or repair of goods." Tex. Bus. Com. Code Ann. § 17.45(2). The Fifth Circuit has reasoned from this definition that some, but not all, activities related to the sale of intangibles quality as "services":
The plain language of the statute indicates that labor, work or service that is the sole purpose of a contract is a "service" within the DTPA. In addition, when a service is furnished in connection with the sale of a "good," it is a "service" under the DTPA. The specific statutory reference to services furnished in connection with the sale of a "good" and the corresponding omission of reference to services in connection with the sale of something that is not a "good," however, suggest that a service furnished in connection with the sale of intangibles is not a "service" under the DTPA.
On the other hand, all transactions involve human service to some extent, the cost of which is included in the price of the transaction. Arguably, then, all services in any transaction are purchased "services" under the DTPA. Under this approach, any service involved in a stock purchase or loan transaction would give rise to DTPA consumer status even though the actual stock purchase or loan could not, thereby undermining the legislature's exclusion of sales of intangible chattels from the DTPA. Thus, it appears that at least some activities related to the sale of intangibles must not be "services" under the DTPA.Federal Deposit Ins. Corp. v. Munn, 804 F.2d 860, 863-64 (5th Cir. 1986). See also Insurance Co. of North America v. Morris, 981 S.W.2d 667, 676-77 (Tex. 1998) (concluding that plaintiffs were "consumers" as to some activities related to the sale of investments, but not as to others).
The Munn court identified two categories of cases where, as here, "the objective of the transaction is the exchange of intangibles." Munn, 804 F.2d at 865. In the first category, represented by Riverside Nat 7 Bank v. Lewis, 603 S.W.2d 169 (Tex. 1980), "the court denies consumer status because the transaction's sole objective is the exchange of intangibles [such as money for the joint venture agreements in this case] and because the complaint's basis is the purchase of the intangible instead of any collateral services." Munn, 804 F.2d at 865. In the second category, represented by Ritenour, "the court grants consumer status even though an important objective is the purchase of an intangible, for the service that forms the basis of the complaint is also an important objective of the transaction and hence is a purchased `service.'" Id.
As examples of the factors that would demonstrate that the services are an important objective of the transaction rather than merely incidental, the Fifth Circuit pointed to certain circumstances present in Ritenour: 1) the plaintiff sought the services separately from the purchase of the intangible; 2) the plaintiff "undertook an important course of action [other than purchase of the intangible] . . . based on the service alone"; and 3) the service was specially offered, financed indirectly by revenue from the sale of the intangible. Id. The court notes also that the services in question were continuing services to purchasers of the intangibles, and thus typically provided after the purchase of the intangible. Ritenour, 704 S.W.2d at 899-900. In fact, the plaintiff's complaint in Ritenour had nothing to do with the misrepresentations concerning the intangible (certificate of deposit); it was based on alleged misrepresentations concerning the services (placing a "hold" on the account). Id. at 897.
The court concludes that the situation in this case is clearly more similar to Riverside than Ritenour. There is no competent summary judgment evidence to support a conclusion that the alleged investment counseling services from Feltus — in essence, investigating and recommending the purchase of the joint venture agreements — were a separate objective of the transaction. Stroud has submitted an affidavit which consists of a conclusory allegation to that effect. The only explanation offered, however, is that he relied on the advice:
The investment counseling services provided by Peyton Feltus in connection with the above-referenced transactions were an important object to the transactions and not merely incidental to the transactions. I would not have entered into these transactions had it not been for Peyton Feltus' representations that he had investigated the investment opportunity and felt that both the investment opportunity and Mr. Meister and Motor Works were solid.
Plaintiff's Appendix at 2 (Stroud Affidavit ¶ 6). Reliance on the advice does not, however, necessarily mean that the advice was a separate objective. If anything, it points the other way, as it implies that the purported service was inextricably intertwined with the purchase of the investment and was not sought separately. Cf. Munn, 804 F.2d at 865. The court further notes that the payment to Feltus was conditioned on successful performance of the investment, implying that the value of alleged services was only derivative of the value of the investment. In addition, there is no indication that this was more than a one time deal, that is, that Stroud contracted with Feltus to provide investment consulting services on an ongoing basis. When, as is apparently the case here, the identified services by definition will not continue past the purchase of the intangible, there is additional support for a conclusion that the sole objective of the transaction is the purchase of the intangible and the services in question are merely incidental to that objective.
Feltus also argues that because he never received payment, Stroud did not "purchase" any services from him. This argument is unpersuasive. A plaintiff need only intend or seek to purchase services to attain consumer status; the actual transfer of valuable consideration is not necessary. Martin v. Lou Poliquin Enterprises, Inc., 696 S.W.2d 180, 184-85 (Tex.App.-Houston [14th Dist.] 1985, writ ref'd n.r.e.).
If Stroud had submitted more than his conclusory allegation, he might have established a genuine issue of material fact as to his objectives in the transaction. "Whether a plaintiff is a `consumer' under the DTPA is a question of law." Kenneth H. Hughes Interests, Inc. v. Westrup, 879 S.W.2d 229, 234 (Tex.App.-Houston [1st Dist.] 1994, writ denied). The Fifth Circuit has concluded that, despite this general rule, controverted evidence as to the objectives of the transaction in cases such as this would create a question of fact for the jury. Munn, 804 F.2d at 865. In this case, however, Stroud has failed to present competent summary judgment evidence to create such an issue of fact, and therefore is not entitled to a jury determination.
For example, Stroud's affidavit did not address how he came to promise Feltus a share of his profits, if any, from the investments. Several different possibilities are conceivable. The contingent payment might have been demanded, offered voluntarily, or specifically bargained for. It may have been in return for making the opportunity available, specifically for conducting an investigation of Meister and the opportunity, or for some other reason. If, for example, the payment was specifically bargained for and intended by both parties as consideration for investigating the investment opportunity, the court would expect Stroud to have offered summary judgment evidence to that effect. He did not.
Finally, the court notes another requirement for consumer status: "the goods or services purchased or leased must form the basis of the complaint." Cameron v. Terrell Garrett, Inc., 618 S.W.2d 535, 539 (Tex. 1981). Stroud might have a valid breach of contract claim (that is, that Feltus failed to perform the alleged services adequately), but his DTPA claim requires that Feltus have made misrepresentations about the services. What Stroud has alleged, however, are misrepresentations about the investment, rather than about Feltus' services. "Clearly, the core of the Plaintiff's claims against Feltus are the misrepresentations as to the soundness of the investment and the credibility of Danny Meister and Motor Works of Arlington, Inc." Response Brief at 3. See also Complaint ¶ 26.
As noted above, a DTPA claim based on alleged services provided by Feltus arguably was not properly pleaded and therefore is not before the court. Even if Stroud has made such a claim, however, he has not adequately countered Feltus' challenge to his status as a "consumer." He has not shown that the alleged services were an important objective in the transaction, or that the services form the basis for his complaint.
IV. Conclusion
For the above-stated reasons, there is no genuine issue of material fact with respect to Stroud's DTPA claim against Feltus, and Feltus is entitled to judgment as a matter of law as to that claim. Feltus' Second Motion for Summary Judgment is granted and Stroud's sole remaining claim against Feltus is hereby dismissed with prejudice.
This eliminates the final claim outstanding against Feltus, and the court's order of March 16, 2001 dismissed all claims against several other Defendants. Stroud still has claims against Meister and Motor Works, however, and the case therefore will proceed to trial. The court's order of July 25, 2001 suspended pretrial deadlines pending resolution of Feltus' motion for summary judgment. The court now reschedules those deadlines as follows:
1. Pretrial Disclosures and Materials, including any Daubert challenges, are to be filed with the Clerk's office by September 4, 2001. 2. Objections to Pretrial Materials, including responses to any Daubert challenges, and Motions in Limine are to be filed with the Clerk's office by September 7, 2001. 3. The Pretrial Conference is scheduled for September 11, 2001 at 9:00 a.m.
As noted in the court's order of July 25, 2001, counterclaims for attorney's fees, by Feltus and other Defendants, are more appropriately addressed by motion rather than at trial.
The case will be tried during the two-week period starting September 17, 2001. Counsel and the parties must be ready for trial on two (2) days notice at any time during this two-week period, unless the court allows otherwise at the pretrial conference. The court recognizes that Meister may still be incarcerated, and therefore the parties are to notify the court by August 29, 2001 whether a writ of habeas corpus ad testificandum for Meister is necessary. If such a writ is requested, information must be provided to the court regarding Meister's date of birth, the name of the facility where he is incarcerated, and the complete address of the facility.
It is so ordered