Allcapcorp Ltd v. Chc Consulting Llc

Motion to Dismiss for Failure to State a Claim

N.D. Tex.May 4, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION ______________________________________ ALLCAPCORP, LTD. CO. D/B/A ALLEGIANCE CAPITAL CORPORATION, Plaintiff, v. CHC CONSULTING, LLC, Defendant. § § § § § § § § § § § CIVIL ACTION NO. 3:17-CV-00757-L PLAINTIFF’S MOTION TO DISMISS TO DEFENDANT CHC CONSULTING, LLC’S ORIGINAL COUNTERCLAIM PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(b)(6) AND BRIEF IN SUPPORT Benjamin L. Riemer State Bar No. 24065976 Wendy A. Duprey State Bar No. 24050543 BELL NUNNALLY & MARTIN, LLP 3232 McKinney Ave., Ste 1400 Dallas, Texas 75204-2429 Telephone: (214) 740-1400 Telecopier: (214) 740-1499 ATTORNEYS FOR PLAINTIFF ALLCAPCORP, LTD. CO. D/B/A ALLEGIANCE CAPITAL CORPORATION Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 1 of 33 PageID 194 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM PAGE ii TABLE OF CONTENTS PAGE I. INTRODUCTION ...............................................................................................................1 II. BACKGROUND .................................................................................................................3 A. CHC’s Factual Allegations Do Not Support CHC’s Counterclaim .........................3 B. Relevant Procedural History ....................................................................................6 III. ARGUMENT AND AUTHORITIES ..................................................................................7 A. Legal Standard for Rule 12(b)(6) Motions to Dismiss ............................................7 B. Defendant’s Claims Fail as a Matter of Law Because CHC Has Alleged Claims Against the Wrong Legal Entity ..................................................................8 C. Defendant Fails to State a Claim for Declaratory Judgment ...................................9 1. Defendant does not bring a claim under the Federal Declaratory Judgment Act ...............................................................................................9 2. Even if Defendant’s claim is filed under the Federal Declaratory Judgment Act, Defendant fails to state a claim for declaratory relief ...........................................................................................................10 a. Defendant’s requested declaration, “due to a fundamental failure of consideration, the Agreement is null and void, and CHC is relieved of paying any Success Fee in connection with any Transaction” fails as a matter of law and is also redundant and unnecessary .........................................11 b. Defendant’s requested declaration, “due to the failure to secure appropriate licenses, that the Agreement is null and void, and CHC is relieved of paying any Success Fee in connection with any Transaction” is redundant and unnecessary ....................................................................................13 c. Defendant’s requested declaration, “[Allcap] materially breached the Agreement, relieving CHC of any obligation to perform” fails as a matter of law...............................................13 d. Defendant’s requested declaration, “[Allcap] is not entitled to a Success Fee for any Transaction with a party Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 2 of 33 PageID 195 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM PAGE iii to which CHC was not introduced by [Allcap]”is redundant and unnecessary ...........................................................14 c. Defendant’s requested declaration, “[Allcap] is not entitled to a Success Fee for any Transaction closing after the Tail Period irrespective of whether a party to the Transaction was introduced to CHC by [Allcap]” does not present a justiciable controversy ...................................................14 D. Defendant Fails to State a Claim for Negligent Misrepresentation .......................16 E. Defendant Fails to State a Claim for Breach of Contract ......................................19 F. Defendant Fails to State a Claim for Attorneys’ Fees ...........................................22 1. As a matter of law, Defendant may not obtain an award of attorneys’ fees pursuant to state procedural law in a federal court sitting in diversity ......................................................................................22 2. As a matter of law, Defendant may not recover attorneys’ fees “in bringing its other claims” ...........................................................................24 3. Alternatively, Plaintiff requests a more definite statement regarding Defendant’s request for fees ......................................................25 IV. CONCLUSION AND PRAYER .......................................................................................25 Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 3 of 33 PageID 196 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM PAGE iv TABLE OF AUTHORITIES CASES PAGE(S) Albritton Props. v. Am. Empire Surplus Lines, 2005 WL975423 (N.D. Tex. Apr. 25, 2005) .....................................................................11 Alta Mesa Holdings, L.P. v. Ives, 488 S.W.3d 438 (Tex. App.-Houston [14th Dist.] 2016, pet. denied) ............................24 Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240 (1975) ...........................................................................................................22 Am. Equip. Co. Inc. v. Turner Bros. Crane & Rigging, LLC, 2008 WL 3543720 (N.D. Tex. July 14, 2014) ...................................................................11 Ashcroft v. Iqbal, 556 U.S. 662 (2009) .............................................................................................................8 Assistmed, Inc. v. Conceptual Health Solutions, Inc., 2006 WL 3691003 (N.D. Tex. Dec. 14, 2006) ..................................................................11 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .........................................................................................................7, 8 Burlington Ins. Co. v. Ranger Specialized Glass, Inc., 2012 WL 6569774 (S.D. Tex. Dec. 17, 2012) ...................................................................11 Chevron Phillips Chemical Co. LP v. Kingwood Crossroads, L.P., 346 S.W.3d 37 (Tex. App.-Houston [14h Dist.] 2011, pet. denied) ...............................24 Coburn Supply Co., Inc. v. Kohler Co., 342 F.3d 372 (5th Cir. 2003) .............................................................................................18 Camacho v. Texas Workforce Com’n, 445 F.3d 407 (5th Cir. 2006) .............................................................................................23 David Yurman Enters., LLC v. Sam’s E., Inc., 2015 WL 1602136 (S.D. Tex. Apr. 9, 2015) .......................................................................8 Fed. Land Bank Ass’n of Tyler v. Sloane, 825 S.W.2d 439 (Tex. 1991) ..............................................................................................16 Funk v. Stryker, 631 F.3d 777 (5th Cir. 2011) ...............................................................................................4 Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 4 of 33 PageID 197 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM PAGE v CASES - CONTINUED PAGE(S) Gallentine v. Housing Authority of City of Port Arthur, Tex., 919 F.Supp.2d 787 (E.D. Tex. 2012) ...................................................................................8 Goonewardene v. ADP, LLC, 5 Cal. App.5th 14 (Cal. Ct. App. 2016) .............................................................................16 Gordon v. Neugebauer, No. 1:14-CV-0093-J, 2014 WL 6449984 (N.D. Tex. Nov. 14, 2014) .................................7 Hanson Aggregates, inc. v. Roberts & Schaefer Co., 2006 WL 225575 (N.D. Tex. Aug. 9, 2006) ......................................................................11 Hazelhurst v. JP Morgan Chase Bank, 2014 WL 3778160 (N.D. Tex. July 31, 2014) ...................................................................10 Kogul v. Xspediou Mgmt. Co., 2005 WL 1421445 (N.D. Tex. June 1, 2005) ....................................................................11 Lawyers Title Ins. Corp. v. Doubletree Partners, LP, 739 F.3d 848 (5th Cir. 2014) .............................................................................................19 Mercantile Nat’l Bank v. Bradford Trust Co., 850 F.2d 215 (5th Cir. 1998) .......................................................................................22, 23 Middle S. Energy, Inc. v. City of New Orleans, 800 F.2d 488 (5th Cir. 1986) .............................................................................................14 Neitzke v. Williams, 490 U.S. 319 (1989) .............................................................................................................8 Oasis West Realty, LLC v. Goldman, 51 Cal.4th 811 (Cal. 2011) .................................................................................................19 Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891 (5th Cir. 2000) .................................................................................10, 14, 15 Pagosa Oil & Gas, LLC v. Marrs & Smith P’ship, 323 S.W.3d 203 (Tex. App.-El Paso 2010, pet. denied) .................................................12 Ramming v. United States, 281 F.3d 158 (5th Cir. 2001, cert. denied, 536 U.S. 960 (2002)) ........................................8 Regus Mgmt. Group, LLC v. Internat’l Bus. Machine Corp., 2008 WL 2434245 (N.D. Tex. June 17, 2008) ..................................................................11 Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 5 of 33 PageID 198 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM PAGE vi CASES - CONTINUED PAGE(S) Rowan Cos., Inc. v. Griffin, 876 F.2d 26 (5th Cir. 1989) ...............................................................................................15 Sasol N. Am., Inc. v. GTL Petrol, L.L.C., 2017 WL 1063462 (5th Cir. Mar. 20, 2017) ......................................................................11 Sherwin-Williams Co. v. Holmes Cty., 343 F.3d 383 (5th Cir. 2003) .............................................................................................10 St. Paul Ins. Co. v. Trejo, 39 F.3d 585 (5th Cir. 1993) ...............................................................................................10 Tempur-Pedic Internat’l Inc. v. Angel Beds LLC 902 F.Supp.2d 958 (S.D. Tex. 2012) .................................................................................25 Thompson v. City of Waco, Texas, 764 F.3d 500 (5th Cir. 2014) ...............................................................................................8 Tuchman v. DSC Comms. Corp., 14 F.3d 1060 (5th Cir. 1994) ...............................................................................................8 Turner v. AmericaHomeKey Inc., 514 F. Appx. 513 (5th Cir. 2013).........................................................................................8 Torch, Inc. v. LeBlanc, 947 F.2d 193 (5th Cir. 1991) .............................................................................................10 Utica Lloyd’s of Tex. v. Mitchell, 138 F.3d 208 (5th Cir. 1998) .......................................................................................22, 23 Waste Mgmt. of Tex., Inc. v. Tex. Disposal Sys. Landfill, Inc., 434 S.W.3d 142 (Tex. 2014) ..............................................................................................19 Wright’s v. Red River Fed. Credit Union, 71 S.W.3d 916 (Tex. App.-Texarkana 2002, no pet.) .....................................................18 Xtria LLC v. Tracking Sys., Inc., 2007 WL 1791252 (N.D. Tex. June 21, 2007) ..................................................................11 Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 6 of 33 PageID 199 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM PAGE vii RULES, STATUTES, AND OTHER AUTHORITIES PAGE(S) 28 U.S.C. § 2201 ......................................................................................................................10, 22 28 U.S.C. § 2202 ............................................................................................................................10 CAL. CIV. PRO. CODE § 1060 ..........................................................................................................23 FED. R. CIV. P. 8(a)(2) ......................................................................................................................7 FED. R. CIV. P. 12(b)(6) ...............................................................................................................7, 8 FED. R. CIV. P. 12(e) ......................................................................................................................25 RESTATEMENT (SECOND) OF TORTS § 552B ...................................................................................18 TEX. CIV. P. & REM. CODE ANN. § 37.009 .....................................................................................23 TEX. CIV. P. & REM. CODE ANN. § 38.001 .....................................................................................24 TEX. R. CIV. P. 94 ...........................................................................................................................12 Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 7 of 33 PageID 200 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 1 Plaintiff ALLCAPCORP, LTD. CO. d/b/a Allegiance Capital Corporation (“Allcap” or “Plaintiff”) files this Motion to Dismiss CHC Consulting, LLC’s (“CHC” or “Defendant”) Original Counterclaim [Dkt. Nos. 7, 8] (“Counterclaim”) Pursuant to Federal Rule of Civil Procedure 12(b)(6) and Brief in Support and would respectfully show the Court as follows: I. INTRODUCTION Each of CHC’s counterclaims all fail as a matter of law and should be dismissed. This case arises from a contract CHC entered into with Allcap in 2014, which CHC is now attempting to repudiate. The contract required Allcap to put forth substantial effort - with no guarantee of payment unless and until the closing of a “Transaction” (defined in the contract). In the event of a closing, Allcap is entitled to payment of a “Success Fee” from CHC. The contract permits CHC to terminate the contract (which CHC did in October 2015), but CHC’s obligation to pay the Success Fee in the event a Transaction closes survives for two years following such termination (the “Tail Period”). CHC is now seeking all means to avoid its obligation to pay Allcap a Success Fee, including filing frivolous counterclaims against Allcap. Each of CHC’s Counterclaims, however, is meritless on its face. First, CHC’s declaratory judgment action is erroneously brought pursuant to state procedural law rather than under the Federal Declaratory Judgment Act. Further, CHC’s requested declarations are mirror images of Allcap’s claims for declaratory judgment and are, thus, redundant and unnecessary; seek relief that is not permitted as a matter of law; do not present a justiciable controversy; or are not supported by the facts alleged in the Counterclaim, even if the allegations are assumed true. Second, CHC’s claim for negligent misrepresentation fails as a matter of law because CHC fails to allege any facts that, even if true, establish that Allcap made any actionable misrepresentation to CHC. CHC’s complaints are entirely focused upon alleged representations Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 8 of 33 PageID 201 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 2 that the “Success Fee” and “Tail Period” being “industry standard” terms. CHC fails to allege facts demonstrating any justifiable reliance upon any representation by Allcap. To the contrary, CHC’s allegations expressly negate any justifiable reliance. More specifically, CHC admits that CHC received legal advice prior to entering into the contract. Indeed, CHC’s counsel provided legal advice with respect to the precise issues about which CHC now complains - the reasonableness of the Success Fee and the Tail Period. It is, therefore, implausible that CHC relied - justifiably or otherwise - upon any alleged representations by Allcap that the terms of the contract were supposedly “industry standard.” Additionally, CHC fails to allege any pecuniary loss sustained as a result of its reliance upon any alleged representation by Allcap. Third, CHC’s claim for breach of contract claim fails as a matter of law. CHC makes (false) accusations about the quality of work performed by Allcap. However, even if those allegations are true (they are not), CHC does not identify any specific contractual provision that was allegedly breached by Allcap. Moreover, CHC terminated the contract before Allcap’s work was complete. CHC does not allege facts that, if true, establish a breach of contract by Allcap prior to CHC’s termination of the contract. Further, CHC fails to allege any actual damages resulting from any alleged breach by CHC. Indeed, the Counterclaim is devoid of any specific facts relating to damages at all. This highlights the fact that CHC’s true motive is simply to avoid paying the Success Fee. Finally, CHC fails to state a legal basis for attorneys’ fees. CHC cites to the state-law declaratory judgment statutes under California and Texas as a basis for an award of fees. But both of these statutes are procedural and do not provide a substantive basis for attorneys’ fees. The California declaratory judgment act also does not itself include an attorneys’ fees provision. CHC also seeks recovery of attorneys’ fees for “bringing its other claims,” but it does not specify Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 9 of 33 PageID 202 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 3 any legal basis for recovering fees for breach of contract or negligent misrepresentation. Attorneys’ fees for negligent misrepresentation are not recoverable and CHC may not recover attorneys’ fees from Allcap under Chapter 38 of the Texas Civil Practice and Remedies Code because Allcap is a limited liability company, not a “corporation.” Accordingly, all of CHC’s claims fail as a matter of law. CHC requests that the Court dismiss the Counterclaim pursuant to Rule 12(b)(6). 1 II. BACKGROUND A. CHC’s Factual Allegations Do Not Support CHC’s Counterclaims 1. According to CHC’s Counterclaim, CHC is a company that provides professional services to companies in the areas of design, project management, process development, and staffing with an emphasis on providing engineering services for companies building out fiber networks. [Dkt No. 7, at ¶6] 2. CHC alleges that on August 29, 2014, several CHC representatives (CHC’s CEO Chris Cook, CHC’s President Susan Cook, and CHC’s Vice President Paul Cook) and several Allcap representatives (Fred McCallister, Chris Wolford, and Brent Earles) met in Dallas, Texas, for the purpose of providing CHC the opportunity to learn about services that Allcap might provide to CHC in connection within CHC selling all or a part of the equity interests in, or assets of, CHC to a third party. [Dkt. No. 7, at ¶¶7, 9] At the conclusion of those meetings, Allcap provided CHC with an “Engagement Agreement for the Sale of a Company” (the “Engagement Agreement” or “Agreement”). Id. at ¶11. 3. The terms of the proposed Engagement Agreement included the requirement that CHC pay Allcap a “Success Fee,” in the amount of 6% for a transaction up to $60,000,000 (plus 1 The fact that Allcap does not challenge a specific allegation or elements to a cause of action shall not be construed as any kind of admission or concession by Allcap. Rather, Allcap does not raise issue in this motion that implicate fact issues that are improper for consideration or resolution in connection with a Rule 12(b)(6) motion. Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 10 of 33 PageID 203 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 4 8% of any excess), or a $3.6 million fee on a $60,000,000 Transaction. Id. at ¶11. The Engagement Agreement also included provisions permitting CHC to terminate the contract, but requiring CHC to pay a Success Fee if a Transaction (defined in the Agreement) closed during the two years following the termination (the “Tail Period”). Id. [See also Dkt. No. 8, at p.2] 4. CHC alleges that on or about September 18, 2014, CHC’s CEO, Chris Cook consulted the legal advice of a friend and attorney regarding the terms of the Engagement Agreement. CHC alleges that the attorney raised concerns about a number of provisions in the Engagement Agreement, including the size of the Success Fee and the length of the Tail Period. [Dkt. No. 7, at ¶13]. Mr. Cook then forwarded the concerns raised by the lawyer (Sean Varner) to Allcap banker Mr. McCallister by email. A true and correct copy of the forwarded email is attached hereto as Exhibit 1. 2 5. According to Mr. Varner’s email, he advised Mr. Cook, among other things, that he believed the “Success Fee” is high based on the purchase price he had discussed with Mr. Cook for a full sale, but if this is only a partial sale, then 5-6% is “probably about right,” and 8% is “too high.” Mr. Varner also told Mr. Cook that the tail coverage “should only survive 12 months[.]” (Ex. 1) 6. CHC alleges that after Mr. Cook forwarded Mr. Varner’s email to Allcap, Mr. McCallister of Allcap made it clear that none of the terms in the Engagement Agreement were negotiable, and allegedly reassured Mr. Cook that Allegiance’s terms were standard. [Dkt. No. 7, at ¶14] CHC then alleges that Chris Cook and Susan Cook signed the Engagement Agreement “in reliance on Mr. McCallister’s representations,” without requesting modification. [Dkt. No. 7, at ¶15] 2 In deciding a Rule 12(b)(6) motion to dismiss, a Court may consider, among other things, documents attached to a complaint or identified as central to the claims made therein and documents attached to the motion to dismiss that are referenced in the complaint. Funk v. Stryker, 631 F.3d 777, 783 (5th Cir. 2011). Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 11 of 33 PageID 204 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 5 7. The stated purpose of the two-page Engagement Agreement “is to define in plain language the working relationship between [Allcap] and [CHC]. . . . The objective of this relationship is to consummate any transaction involving a complete or partial sale, merger, consolidation, or recapitalization involving [CHC]s stock or assets (any of the foregoing a “Transaction”).” [Dkt. No. 8, at ¶1]. The second paragraph of the Engagement Agreement sets forth Allcap’s services: [Allcap] shall provide, or stand ready to provide, financial advisory and investment banking advisory services in connection with a Transaction, which will include: (i) helping the Company define its business and financial objectives; (ii) development and implantation of appropriate strategies designed to achieve these objections; (iii) preparation of a Confidential Information Memorandum (“CIM”) designed to describe the Company’s attributes, including its history, capabilities, products and/or services, facilities, equipment, management, marketing, financial history, and earnings capabilities; (iv) at the Company’s direction, contacting and maintaining discussions, meetings and negotiations with third-party acquirers and/or investors; and (v) providing [Allcap’s] guidance and stewardship throughout the process. [Dkt. No. 8, at ¶2] 8. CHC alleges that from September 2014 to March 2015, “CHC assisted [Allcap] in preparing the CIM called for by the Agreement.” [Dkt. No. 7, at ¶18]. CHC makes allegations, however, regarding the quality of work done by Allcap, including allegations relating to the preparation of the CIM and targeting potential purchasers (allegations that Allcap vehemently denies). [Dkt. No. 7, at ¶¶18-20]. 9. CHC alleges that on October 15, 2015, it sent a letter to Allcap terminating the Engagement Agreement, making the termination effective on October 25, 2015, alleging it terminated the contract as it “failed to receive any meaningful interest after more than a year of work[.]” [Dkt. No. 7, at ¶20]. A true and correct copy of CHC’s letter is attached hereto as Exhibit 2. CHC states in this short, three-sentenced letter (emphases added): Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 12 of 33 PageID 205 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 6 This letter is in reference e [sic] to our Engagement Agreement dated September 19, 2014 (the Agreement”). As we have stopped our process, we are hereby terminating the Agreement. Thank you for the services you provided us. 10. CHC’s Counterclaim then essentially admits CHC ceased all efforts relating to any potential Transaction until June 2016 - 8 months later - when “CHC decided to consider re- engaging in a process to evaluate a potential Transaction.” [Dkt. No. 7, at ¶26] CHC alleges that it has selected “a new investment banker.” Id. CHC then alleges that in February 2017, it reached out to Allcap to ask relief for from the Tail Period “in the event CHC decided to engage in a Transaction near the end of the Tail Period in the Agreement.” [Dkt. No. 7, at ¶27]. 11. In its effort to avoid its obligation to pay the Success Fee, CHC alleges that Allap was required to be a licensed real-estate broker under California Business Professions Code Section 10130 or a federally licensed broker dealer in order to receive a Success Fee under that statute. Allcap denies these allegations. But other than the fact that CHC raises these allegations, they are not central to the instant motion. CHC’s Counterclaim also includes other allegations relating to what Mr. Cook unilaterally supposedly understood or did not understand, whether the Success Fee and Tail Period are “industry standard,” and groundless attacks on Allcap’s experience and qualifications and practices. Allcap also denies these allegations, but they are not central to the instant motion. B. Relevant Procedural History 12. On March 6, 2017, Allcap3 filed its Original Petition in Texas state court, initiating Cause No. DC-17-0628 in the 191 st Judicial District Court, Dallas County, Texas (the “State Court Action”). Allcap asserted a claim for declaratory judgment seeking declarations that 3 As explained in Part III.B, infra, this action was inadvertently initiated in the name of the wrong plaintiff, which was corrected in Plaintiff’s First Amended Complaint. The substitution of the correct plaintiff relates back to the Original Petition. Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 13 of 33 PageID 206 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 7 (a) the Engagement Agreement is a valid and binding agreement; (b) CHC is obligated to pay the Success Fee for any Transaction closing during the Tail Period, even if the ultimate buyer is engaged by CHC (i.e., was not introduced by Allcap) during the Tail Period; (c) CHC is estopped from denying the reasonableness of the Success Fee or, alternatively, the Success Fee is reasonable; and (d) the length of the two-year Tail Period is valid and enforceable. [Dkt. No. 1-3, at ¶25] 13. On March 15, 2017, CHC removed the State Court Action to federal court based on diversity jurisdiction. [Dkt. No. 1] Allcap filed its First Amended Complaint on April 19, 2017. [Dkt. No. 9] 14. On April 13, 2017, CHC filed its Original Counterclaim. [Dkt. No. 7]. CHC asserts a claim for declaratory judgment under a California (or, alternatively, a Texas) declaratory judgment statute, a claim for negligent misrepresentation, a claim for breach of contract, and a request for attorneys’ fees. Allcap files this Rule 12(b)(6) motion to dismiss CHC’s counterclaim as CHC fails to state a claim for relief. III. ARGUMENTS AND AUTHORITIES A. Legal Standard for Rule 12(b)(6) Motions to Dismiss. Rule 8 of the Federal Rules of Civil Procedure requires that a plaintiff (or, in this case, counter-plaintiff) plead “a short and plain statement of the claim showing that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). To survive a rule 12(b)(6) motion to dismiss, a complaint (or counterclaim) must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 546, 570 (2007). Although “detailed factual allegations” are not required, a pleading must contain more than conclusory allegations. See id. at 555; Gordon v. Neugebauer, No. 1:14-CV-0093-J, 2014 WL 6449984, at *5 (N.D. Tex. Nov. 17, 2014). Factual allegations need to “be enough to raise a right to relief above the Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 14 of 33 PageID 207 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 8 speculative level.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A pleading must contain “specific facts, not mere conclusory allegations. Tuchman v. DSC Comms. Corp., 14 F.3d 1060, 1067 (5th Cir. 1994). Legal conclusions are not entitled to a presumption of truth. Twombly, 550 U.S. at 570. In analyzing a motion to dismiss for failure to state a claim under Rule 12(b)(6), the Court accepts all well-pleaded facts as true and views them in the light most favorable to the plaintiff (or counter-plaintiff). See Thompson v. City of Waco, Texas, 764 F.3d 500, 502 (5th Cir. 2014). A Rule 12(b)(6) motion to dismiss tests “the formal sufficiency of the statement of a claim for relief and is ‘appropriate when a defendant attacks the complaint because it fails to state a legally cognizable claim.’” Gallentine v. Housing Authority of City of Port Arthur, Tex., 919 F.Supp.2d 787, 794 (E.D. Tex. 2012) (quoting Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001, cert. denied, 536 U.S. 960 (2002)). A pleading may not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle it to relief. David Yurman Enters., LLC v. Sam’s E., Inc., 2015 WL 1602136, at *2 (S.D. Tex. Apr. 9, 2015) (emphasis in original, quotation omitted). Further, a court may dismiss a claim “on the basis of a dispositive issue of law.” Turner v. AmericaHomeKey Inc., 514 F. Appx. 513, 516 (5th Cir. 2013)) (quoting Neitzke v. Williams, 490 U.S. 319, 326 (1989). A claim must be dismissed if, as a matter of law, no relief could be granted under any set of facts that could be provided consistent with the allegations. Turner, 514 Fed. Appx. at 516. B. Defendant’s Claims Fail as a Matter of Law Because CHC Has Alleged Claims Against the Wrong Legal Entity. Plaintiff inadvertently initiated this action in the name of the wrong, but related, entity. ALLCAPCORP, LTD. d/b/a Allegiance Capital Corporation is a former Texas limited Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 15 of 33 PageID 208 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 9 partnership and is referred to herein as the “Allcap LLP.” CHC admits in its own Counterclaim that the Allcap LLP is not a party to the Engagement Agreement and did not exist at the time of the events at issue in this case. [Dkt. No. 7, at ¶4, fn. 1] The correct party is ALLCAPCORP, LTD. CO. d/b/a Allegiance Capital Corporation, which is a Texas limited liability company (the “Allcap LLC”). Id. The Allcap LLP was converted to the Allcap LLC in 2007. Id. CHC distinguishes between the Allcap LLP and Allcap LLC in its Counterclaim by referring to the Allcap LLP - the wrong party- as “Plaintiff/Counter-Defendant” and to the Allcap LLP - the correct party - as “Allegiance.” Id. All of CHC’s counterclaims, however, are asserted against the Allcap LLP, despite CHC alleging and admitting this is the wrong entity. [See Dkt. No. 7, at ¶¶3, 31, 36, 40-42, 45, and ¶4 fn.1] Plaintiff substituted in the correct legal entity through the filing of its First Amended Complaint. [Dkt. No. 9] Thus, CHC’s counterclaims should likewise be amended to identify the correct legal entity or they should be dismissed. C. Defendant Fails to State a Claim for Declaratory Judgment. 1. Defendant does not bring a claim under the Federal Declaratory Judgment Act. CHC seeks various declarations (discussed below) “[p]ursuant to Section 1060 of the California Civil Code (or in the alternative, Texas Civil Practice and Remedies Code Section 37.003)[.]” [Dkt. No. 7, at ¶30]. However, the state law declaratory judgment statutes set forth in Section 1060 of the California Civil Procedure Code (“California DJA”) and in Chapter 37 of the Texas Civil Practice and Remedies Code (“Texas DJA”) are merely procedural statutes for seeking relief in California or Texas state courts. They do not provide a substantive legal basis for a declaratory judgment claim in federal court in a diversity case. As Allcap pointed out in its response to CHC’s Rule 12(b)(6) motion to dismiss, when CHC removed Allcap’s declaratory judgment action (initially filed in Texas state court under the Texas DJA) to federal court, it was Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 16 of 33 PageID 209 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 10 converted into one brought under the federal Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. See Hazelhurst v. JP Morgan Chase Bank, 2014 WL 3778160, at *5 (N.D. Tex. July 31, 2014) (Lindsay, J.) (citations omitted). The California DJA is found in the California Code of Civil Procedure and expressly states, in relevant part, that a party may bring an action under that statute “in the superior court for a declaration of his or her rights and duties . . . .” CAL. CIV. PRO. CODE § 1060. CHC’s claims brought pursuant to state procedural rules that do not apply in this federal court sitting in diversity should be dismissed. Alternatively, CHC should be required to re-plead a cognizable claim under the Federal DJA. 2. Even if Defendant’s claim is filed under the Federal Declaratory Judgment Act, Defendant fails to state a claim for declaratory relief. The Federal DJA states, “In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201. Federal courts have discretion on whether to grant declaratory judgment. Id. (citing Torch, Inc. v. LeBlanc, 947 F.2d 193, 194 (5th Cir. 1991)). When considering a motion to dismiss a declaratory judgment action, the Fifth Circuit states that courts should determine three things: (1) whether the declaratory action is justiciable; (2) whether the court has the authority to grant declaratory relief in the case presented; 4 and (3) how to exercise its discretion to decide or dismiss a declaratory judgment action. 5 Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000). In the declaratory judgment context, the question is whether the facts alleged, under all the circumstances, show that there is a 4 This factor is not in dispute for purposes of this Rule 12(b)(6) motion. According to the Fifth Circuit, a district court does not have authority to consider the merits of a declaratory judgment action in three situations: (1) the declaratory defendant previously filed a cause of action in state court; (2) the state case involved the same issues as those in federal court; and (3) the district court is prohibited from enjoining the state proceedings under the Anti- Injunction Act. Sherwin-Williams Co. v. Holmes Cty., 343 F.3d 383, 388 fn.1 (5th Cir. 2003) (citations omitted). 5 See St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590-91 (5th Cir. 1993) for seven factors identified by the Fifth Circuit to consider whether to decide or dismiss a declaratory judgment claim. Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 17 of 33 PageID 210 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 11 substantial controversy between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. Sasol N. Am., Inc. v. GTL Petrol, L.L.C., 2017 WL 1063462, at *2 (5th Cir. Mar. 20, 2017) (citation omitted). Additionally, “[c]ourts in the Fifth Circuit regularly reject declaratory judgment claims seeking the resolution of issues that will be resolved as part of the claims in the lawsuit,” including declaratory judgment counterclaims that are simply “mirror images” of a complaint or are “repetitive and “unnecessary” or “redundant.” See Am. Equip. Co., Inc. v. Turner Bros. Crane & Rigging, LLC, 2014 WL 3543720 (S.D. Tex. July 14, 2014) (citations omitted); Regus Mgmt. Group, LLC v. Internat’l Bus. Machine Corp., 2008 WL 2434245, at *2 (N.D. Tex. June 17, 2008) (citations omitted). 6 CHC seeks five different declarations, each of which is discussed in turn below. The first two requested declarations seek to have the Engagement Agreement declared “null and void” for different reasons. The second three requested declarations assume the Engagement Agreement is valid and enforceable, but CHC seeks relief from its obligation to pay the Success Fee for different reasons. None of CHC’s requested declarations are properly before the Court. a. Defendant’s requested declaration, “due to a fundamental failure of consideration, the Agreement is null and void, and CHC is relieved of paying any Success Fee in connection with any Transaction” fails as a matter of law and is also redundant and unnecessary. CHC asks the Court to declare that the Engagement Agreement is “null and void” and that, as a result, “CHC is relieved of paying any Success Fee in connection with any Transaction” to Allcap due to “a fundamental failure of consideration.” [Dkt. No. 7 at ¶31] This 6 See also Burlington Ins. Co. v. Ranger Specialized Glass, Inc., 2012 WL 6569774, at *3 (S.D. Tex. Dec. 17, 2012); Xtria LLC v. Tracking Sys., Inc., 2007 WL 1791252, *3 (N.D. Tex. June 21, 2007); Assistmed, Inc. v. Conceptual Health Solutions, Inc., 2006 WL 3691003, at *17 (N.D. Tex. Dec. 14, 2006); Hanson Aggregates, Inc. v. Roberts & Schaefer Co., 2006 WL 225575, at *3 (N.D. Tex. Aug. 9, 2006); Albritton Props. v. Am. Empire Surplus Lines, 2005 WL 975423, at *2 (N.D. Tex. Apr. 25, 2005); Kogul v. Xspediou Mgmt. Co., 2005 WL 1421445, at *4 (N.D. Tex. June 1, 2005). Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 18 of 33 PageID 211 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 12 requested declaration relates to CHC’s allegation that Allcap allegedly breached the parties’ contract by supposedly “failing to provide competent investment banking services” (an allegation that Allcap vehemently denies). [See, e.g., Dkt. No. 7, at ¶2: “…its work was essentially useless. Such a complete failure by [Allcap] to fulfill the most basic promises of the Agreement in any meaningful way constitutes a wholesale failure of consideration, rendering the Agreement null and void, or at a minimum, constitutes a material breach of the Agreement.”]. This requested declaration is not properly before the Court. First, for the reasons set forth in Part III.E, infra, CHC does not allege facts that, if true, establish any material breach of the Agreement by Allcap prior to CHC’s termination of the contract in October 2015. Thus, the Counterclaim fails to allege facts that, if true, establish a failure of consideration or material breach of contract by Allcap. Second, CHC’s requested declaration fails as a matter of law. “Failure of consideration” is an affirmative defense. See TEX. R. CIV. P. 94. “A failure of consideration occurs when the plaintiff fails to perform a condition precedent to the defendant’s duty to perform.” Pagosa Oil & Gas, LLC v. Marrs & Smith P’ship, 323 S.W.3d 203, 219 (Tex. App.-El Paso 2010, pet. denied). This “doctrine assumes the contract is already in existence.” Id. “Consideration consists of either a benefit to the promisor or a determine to the promise.” Id. Thus, as this doctrine assumes that the contract exists and is an affirmative defense that relieves a party from an obligation to perform, it cannot, as a matter of law, be used to render a contract “null and void.” Third, CHC’s request that the Court declare the parties’ contract null and void and that CHC is relieved of its obligation to pay the Success Fee during the Tail Period is simply the opposite of Allcap’s previously filed request for declaratory judgment that the “Engagement Agreement is a valid and binding agreement,” which is an issue already before the Court. [Dkt. Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 19 of 33 PageID 212 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 13 No. 9, at ¶43] CHC’s declaration is redundant and unnecessary. Accordingly, CHC’s first requested declaration fails as a matter of law and is also redundant and unnecessary. The Court should dismiss this requested declaratory relief. b. Defendant’s requested declaration, “due to the failure to secure appropriate licenses, that the Agreement is null and void, and CHC is relieved of paying any Success Fee in connection with any Transaction” is redundant and unnecessary. CHC seeks a declaration that the Engagement Agreement is “null and void, and CHC is relieved of paying any Success Fee in connection with any Transaction” “due to the failure to secure appropriate licenses[.] [Dkt. No 7, at ¶31]. This is a reference to CHC’s argument that California law applies to the parties’ agreement and that, under California law, Allcap was supposedly required to have a broker’s license or be licensed as a real-estate broker in California. [See Dkt. No. 7, at ¶24] Allcap denies that California law applies and disputes the manner in which CHC is applying that law to this case. Regardless, this requested declaration is simply a mirror opposite of Allcap’s claim for declaratory relief that the “Engagement Agreement is a valid and binding agreement,” which is already before the Court. [Dkt. No. 9, at ¶43]. In fact, in seeking dismissal of Allcap’s declaratory judgment claim, CHC argued about California law and the licensing issue that is the subject of CHC’s second requested declaration at length. [See Dkt. No. 4]. Thus, CHC’s second requested declaration is redundant and unnecessary. This second requested declaratory relief is not properly before the Court. c. Defendant’s requested declaration, “[Allcap] materially breached the Agreement, relieving CHC of any obligation to perform” fails as a matter of law. CHC’s third requested declaratory relief assumes that the parties’ Engagement Agreement is enforceable, and then CHC seeks to be relieved of its obligation to perform (i.e., by Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 20 of 33 PageID 213 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 14 paying the Success Fee) because Allcap alleged “materially breached the Agreement.” [Dkt. No. 7, at ¶31] For all the reasons set forth in Part III.E, infra, CHC fails to allege facts that, if true, establish a breach of the Engagement Agreement by Allcap prior to CHC’s termination of the parties’ contract in October 2015. Thus, this requested declaration fails as a matter of law. d. Defendant’s requested declaration, “[Allcap] is not entitled to a Success Fee for any Transaction with a party to which CHC was not introduced by [Allcap]” is redundant and unnecessary. CHC’s fourth requested declaration also assumes that the Engagement Agreement is enforceable, and then asks the Court to declare that Allcap “is not entitled to a Success Fee for any Transaction with a party to which CHC was not introduced by [Allcap].” [Dkt. No. 7, at ¶31] This request is the mirror opposite of Allcap’s previously filed request that the Court declare “CHC is obligated to pay the Success Fee for any Transaction closing during the Tail Period, even if the ultimate buyer is engaged by CHC during the Tail Period” (i.e., if the buyer was not introduced to CHC by Allcap). As a result, CHC’s fourth requested declaration is redundant and unnecessary and the Court should exercise its discretion to dismiss the requested declaratory relief. e. Defendant’s requested declaration, “[Allcap] is not entitled to a Success Fee for any Transaction closing after the Tail Period irrespective of whether a party to the Transaction was introduced to CHC by [Allcap]” does not present a justiciable controversy. CHC’s final requested declaration does not present a justiciable controversy. The issue of jusiticability is typically a question of whether there is an “actual controversy” between the parties. Orix, 212 F.3d at 895 (citation omitted). “As a general rule, an actual controversy exists where ‘a substantial controversy of sufficient immediacy and reality [exists] between parties having adverse legal interests.” Id. at 896 (quoting Middle S. Energy, Inc. v City of New Orleans, 800 F.2d 488, 490 (5th Cir. 1986)). “Whether particular facts are sufficiently immediate to Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 21 of 33 PageID 214 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 15 establish an actual controversy is a question that must be addressed on a case-by-case basis.” Id. (citations omitted). CHC asks the Court to declare that Allcap is not entitled to a Success Fee for any transaction closing after the Tail Period ends, regardless of whether the a party to the transaction was introduced to CHC by Allcap. [Dkt No. 7, at ¶31]. In other words, CHC wants to know if it can avoid paying the Success Fee if Allcap introduced a buyer or investor to CHC, but if CHC waits to close on a Transaction until after the Tail Period ends. Although Allcap would certainly take issue with any such antics by CHC, there is no justiciable controversy on this issue at this time. CHC does not allege any facts to establish that it is intending to consummate any Transaction with any party that Allcap introduced to CHC and that it intends to wait to close on the Transaction until after the Tail Period ends. CHC simply wants an “advisory” opinion from the Court that it is permitted to do so. This is not a justiciable controversy. See Rowan Cos., Inc. v. Griffin, 876 F.2d 26, 28 (5th Cir. 1989) (“A controversy, to be justiciable, must be such that it can presently be litigated and decided and not hypothetical, conjectural, conditional or based upon the possibility of a factual situation that may never develop.”) (citation and quotation omitted). As CHC failed to allege facts that, if true, establish an actual controversy concerning CHC’s fifth requested declaration, the requested declaration must be dismissed. The Court does not have the authority to render an advisory opinion for a purely hypothetical situation. 7 Accordingly, for the foregoing reasons, all of CHC’s requested declarations should be dismissed. 7 This is in stark contrast to the fact that CHC has informed Allcap that it wants to close on a Transaction during the Tail Period with a buyer or investor that Allcap supposedly did not introduce to CHC, as alleged in Allcap’s First Amended Complaint. Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 22 of 33 PageID 215 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 16 D. Defendant Fails to State a Claim for Negligent Misrepresentation. The elements to a claim for negligent misrepresentation are: (1) a representation is made by a defendant in the course of his business, or in a transaction in which the defendant has a pecuniary interest; (2) the defendant supplies ‘false information’ for the guidance of others in their business; (3) the defendant did not exercise reasonable care or competence in obtaining or communicating the information; and (4) the plaintiff suffers pecuniary loss by justifiably relying on the representation. Fed. Land Bank Ass’n of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991) (emphases added). 8 CHC fails to allege facts that, if true, establish the necessary elements to this claim. First, CHC does not allege that Allcap provided any information, true or false, “for the guidance of” CHC in CHC’s business. CHC’s business is described in Paragraph 6 of the Counterclaim: CHC “provides professional services to companies in the areas of design, project management, process development, and staffing, with a particular emphasis on providing engineering services for companies building out fiber networks.” [Dkt. No. 7, at ¶6] The sole basis for CHC’s negligent representation claim is its allegation that “Mr. McCallister, Senior Vice President of [Allcap] . . . represented to CHC that the terms of the [Engagement] Agreement, including the size of the Success Fee and the length of the Tail Period, were industry standard terms.” [Dkt. No. 7 at ¶33]. According to CHC’s Counterclaim, the purpose of the 8 Although California does not apply, the elements of a negligent misrepresentation claim under California law are: (1) misrepresentation of a past or existing material fact, without reasonable ground for believing it to be true, and with intent to induce another’s reliance on the fact misrepresented; (2) ignorance of the truth and justifiable reliance on the misrepresentation by the party to whom it was directed; and (3) resulting damages. Goonewardene v. ADP, LLC, 5 Cal. App.5th 14, 175 (Cal. Ct. App. 2016). Under California law, this tort “is also subject to a limitation applicable to claims against professionals such as auditors, attorneys, architects, engineers, and title insurers, who generally provide reports or opinions to clients on the basis of information supplied by clients.” Id. (citations omitted). CHC does not allege - and cannot allege - that Allcap provided any services as an auditor, attorney, architect, engineer, or title insurer. Thus, even if CHC argues California law applies, this claim fails as a matter of law under California law. Further, CHC fails to allege justifiable reliance or damages for the same reasons stated under Texas law. Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 23 of 33 PageID 216 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 17 Engagement Agreement was to provide services in connection with CHC “sell[ing] all or a part of the equity interests in or assets of CHC to a third party.” Id. at ¶7. See also id. at ¶16 (“Under the Agreement, [Allcap’s] principal task was to find a potential buyer for CHC.”). CHC alleges that the Engagement Agreement states, “the objective of this relationship is to consummate any transaction involving a complete or partial sale, merger, consolidation, or recapitalization involving the Company’s stock or assets (any of the foregoing a ‘Transaction’).” Id. at ¶16. Any alleged representations regarding the terms of the Engagement Agreement in connection with the execution of that contract have nothing to do with providing CHC with guidance in connection with CHC’s business. CHC does not allege any representations made by Allcap to provide CHC with guidance in the operation of CHC’s business. Thus, this claim fails as a matter of law. Second, CHC’s own Counterclaim conclusively negates the element of justifiable reliance. CHC specifically alleges: “Chris Cook [CHC’s owner] sought the advice of a friend who was also an attorney regarding the terms of the [Engagement] Agreement provided by [Allcap]. The attorney raised concerns about a number of provisions in the Agreement, including the size of the Success Fee and the length of the Tail Period.” [Dkt. No. 7, at ¶13]. CHC then alleges that it forwarded CHC’s attorneys’ email to Allcap. In the email, Sean Varner (the attorney CHC consulted) states, in relevant part:  Paragraph 4 references a “Success Fee”. From transactions I recently negotiated, I believe the fee is high based on the purchase price we discussed for a full sale. For deals in the $40mm range, the fee ranges from 3-4 percent on a full scale. If they have calculated this on only a partial sale of the company as we also discussed, 5-6% is probably about right if the deal is in the $20mm range or less. 8% is too high. I would like to review the Transaction Value received by the Company concept with you to ensure the parties agree on the type of compensation for which they will get a fee[.]  “The tail coverage . . . should only survive 12 months[.] (Ex. 1) CHC then alleges that after it forward Mr. Varner’s email to Allcap, Allcap called CHC “to make clear to Mr. Cook that none of the terms in the Agreement were negotiable, but also Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 24 of 33 PageID 217 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 18 reassured [Mr. Cook] that [Allcap’s] terms were standard.” [Dkt. No. 7, at ¶5]. CHC then alleges that Allcap’s alleged representations created the “definite impression that the reason the terms of the Agreement were non-negotiable was because the Agreement contained the same standard terms that CHC would receive from any other investment banking firm performing similar work.” Id. at ¶14. But the fact that CHC simultaneously alleges that it received legal advice from an attorney expressly “rais[ing] concerns about . . . the size of the Success Fee and the length of the Tail Period” conclusively negate any element of justifiable reliance, or any reliance for that matter. CHC admits facts showing that it was made fully aware that of the fact that the Success Fee may be high and the Tail Period may be too long, and that they both may not be “industry standard.” 9 CHC nonetheless entered into the Engagement Agreement despite those “concerns” because Allcap stated the terms were non-negotiable. The allegations in the Counterclaim conclusively negate justifiable reliance. See Coburn Supply Co., Inc. v. Kohler Co., 342 F.3d 372, 378 (5th Cir. 2003) (evidence of justifiable reliance is negated by the plaintiff’s awareness of the alleged falsity of the representations at issue) (citing Wright’s v. Red River Fed. Credit Union, 71 S.W.3d 916, 921 (Tex. App.-Texarkana 2002, no pet.)). Further, CHC fails to identify any “pecuniary loss” it sustained that was caused from its supposed reliance upon any representations made by Allcap about the Success Fee or Tail Period.Damages recoverable for a negligent misrepresentation are those necessary to compensate the plaintiff for the pecuniary loss to him of which the misrepresentation is a legal cause. Sloane, 825 S.W.2d at 442 (citing RESTATEMENT (SECOND) OF TORTS § 552B). Damages recoverable for negligent misrepresentation are (a) the difference between the value of what he has received in the transaction and its purchase price or other value given for it; and (b) pecuniary loss suffered otherwise as a consequence of the plaintiff’s reliance upon the misrepresentation. Id. Such 9 For the record, Allcap disputes Mr. Varner’s position. Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 25 of 33 PageID 218 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 19 damages do not include benefit of the bargain damages. Id. “Pecuniary loss” has been defined as “including money and everything that can be valued in money.” Id. (quoting Waste Mgmt. of Tex., Inc. v. Tex. Disposal Sys. Landfill, Inc., 434 S.W.3d 142, 151 (Tex. 2014)). In its Counterclaim, CHC merely alleges that it has been “harmed in entering the Agreement with grossly unfair terms, which has hindered and inconvenienced its renewed efforts to find a buyer for its stock or assets.” [Dkt. No. 7, at ¶38]. The Counterclaim is completely devoid of any allegations of pecuniary loss, or any allegations of how any reliance by CHC upon alleged negligent misrepresentation by Allcap caused any such pecuniary loss. Once again, this claim is nothing more than another attempt to avoid paying the Success Fee under a different legal theory. Accordingly, CHC’s claim for negligent misrepresentation fails as a matter of law. CHC fails to allege facts showing any representation made by Allcap (false or otherwise) that was provided for the guidance of CHC’s business, and CHC alleges no pecuniary loss caused by CHC’s reliance upon any such representations. Further, the Counterclaim itself conclusively negates the essential element of justifiable reliance. This claim should be dismissed. E. Defendant Fails to State a Claim for Breach of Contract. Under Texas law, the elements to a claim for breach of contract are: (1) a valid contract between the plaintiff and defendant; (2) performance or tender of performance by the plaintiff; (3) breach by defendant; and (4) damage to the plaintiff as a result of the breach. 10 Lawyers Title Ins. Corp. v. Doubletree Partners, LP, 739 F.3d 848, 858 (5th Cir. 2014) (citation omitted). CHC fails to allege facts that, if true, establish the elements to this claim. 10 The elements are essentially the same under California law. See Oasis West Realty, LLC v. Goldman, 51 Cal.4th 811, 821 (Cal. 2011). Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 26 of 33 PageID 219 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 20 First, CHC does not identify any specific provision in the Engagement Agreement that was allegedly breached by Allcap. The Agreement defines Allcap’s services as: [Allcap] shall provide, or stand ready to provide, financial advisory and investment banking advisory services in connection with a Transaction, which will include: (i) helping the Company define its business and financial objectives; (ii) development and implantation of appropriate strategies designed to achieve these objections; (iii) preparation of a Confidential Information Memorandum (“CIM”) designed to describe the Company’s attributes, including its history, capabilities, products and/or services, facilities, equipment, management, marketing, financial history, and earnings capabilities; (iv) at the Company’s direction, contacting and maintaining discussions, meetings and negotiations with third-party acquirers and/or investors; and (v) providing ACC’s guidance and stewardship throughout the process. [Dkt. No. 8 at ¶2] CHC merely alleges that Allcap supposedly “fail[ed] to provide competent investment banking services, including failing to engage any strategic buyers, conducting a mass mailing effort directed to multiple parties who would have no interest in CHC, and failing to provide a competent version of the required CIM.” Even if these allegations are true - and they are not - they do not establish a breach of the Engagement Agreement. On the contrary, CHC admits that Allcap did provide a CIM and that Allcap did contact third-party acquirers or investors. [Dkt. No. 7, at ¶¶18-19] CHC does not allege that Allcap refused to contact any specific potential investor despite a “direction” from CHC. The Engagement Agreement does not give CHC unilateral discretion to determine whether it approves of the work done by Allcap, nor does it provide any specific deadline for any specific task. Further, CHC admits that it terminated the contract by sending a letter to Allcap on October 15, 2015. [Dkt. No. 7, at ¶20]. The entirety of CHC’s letter states: This letter is in reference e [sic] to our Engagement Agreement dated September 19, 2014 (the Agreement”). As we have stopped our process, we are hereby terminating the Agreement. Thank you for the services you provided us. (Ex. 2, emphases added). So CHC terminated the agreement because it “stopped [its] process” Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 27 of 33 PageID 220 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 21 and thanks Allcap for its services. At that point in time, Allcap’s obligation to provide services under the contract came to an end. Consistent with the fact that CHC terminated the agreement because it stopped its process, CHC alleges that after the termination, it essentially stopped all such efforts until June 2016 (8 months later), when it “decided to consider re-engaging in a process to evaluate a potential Transaction.” [Dkt. No. 7, at ¶26] These facts do not establish a breach of contract by Allcap. On the contrary, CHC”s allegations demonstrate that CHC decided to simply “stop its process.” CHC’s termination letter does not include any complaints about the services provided by Allcap. Instead, CHC thanks Allcap for its services. Second, CHC does not allege any damages resulting from any allege breach, if any. CHC does not allege any economic loss resulting from any of the alleged performance issues (which, for the record, are false) referenced in the Counterclaim. As noted above, CHC makes it clear in its Counterclaim that it terminated the Agreement in October 2015, and then it stopped all efforts to try to effectuate any Transaction - until June 2016, at which time it engaged a new investment banker to consummate a Transaction. [Dkt. No. 7, at ¶26] CHC then alleges that now it wants “relief” from the tail provision under the Engagement Agreement in the event CHC decides to engage in a Transaction near the end of the Tail Period. [Id. at ¶27]. None of these allegations establish any damages resulting from any alleged breach of the Engagement Agreement. Moreover, CHC does not allege that it performed, or tendered performance of its obligations under the Engagement Agreement - not in the recitation of the elements of this claim under “Claim Three” or in the facts alleged in support of the Counterclaim generally. [See Dkt. No. 7, generally] At most, CHC alleges that it “assisted [Allcap] in preparing the CIM called for by the Agreement.” [Dkt. No. 7, at ¶18]. But the Engagement Agreement requires CHC to not only honor the payment terms of the contract, but to “provide Company-related business and Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 28 of 33 PageID 221 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 22 financial information requested in connection with ACC providing its services,” among other things. [Dkt. No. 8, at ¶3]. CHC does not allege that it provided all such company related business and financial information requested by Allcap, or even that it performed or tendered performance of its contractual obligations. Accordingly, CHC fails to allege facts that, if true, state the elements to a claim for breach of contract. Thus, this claim fails as a matter of law and should be dismissed. F. Defendant Fails to State a Claim for Attorneys’ Fees. CHC requests attorneys’ fees under the California and Texas declaratory judgment statutes. [Dkt. No. 7, at ¶43]. CHC then seeks its “reasonable and necessary attorneys’ fees and costs in [sic] incurred in bringing its other claims.” Id at ¶44. These are not proper bases for an award of attorneys’ fees in this diversity case. Thus, CHC’s request for fees should be dismissed. 1. As a matter of law, Defendant may not obtain an award of attorneys’ fees pursuant to state procedural law in a federal court sitting in diversity. CHC’s request for attorneys’ fees incurred in bringing its declaratory judgment claim under “the California Civil Code and/or Texas Declaratory Judgment Act” fails as a matter of law. Federal courts follow the American Rule in the absence of fee-shifting congressional legislation. Utica Lloyd’s of Tex. v. Mitchell, 138 F.3d 208, 210 (5th Cir. 1998) (citing Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 247 (1975)). As explained in Part III.C, supra, a declaratory judgment action filed in federal court is deemed brought under the federal Declaratory Judgment Act, 28 U.S.C. §§ 2201, et seq. (the “Federal DJA”). The Fifth Circuit holds that the Federal DJA “does not by itself provide statutory authority to award attorneys’ fees that would not otherwise be available under state law in a diversity action.” Id. (quoting Mercantile Nat’l Bank v. Bradford Trust Co., 850 F.2d 215, 218 (5th Cir. 1998)). The “otherwise available” state law in a diversity case must be substantive, such Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 29 of 33 PageID 222 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 23 that controlling substantive law permits recovery of attorneys’ fees. Id. (citing Mercantile, 850 F.2d at 218). Although Section 37.009 of the Texas DJA, authorizes recovery of attorneys’ fees, 11 the Fifth Circuit holds that the Texas DJA “functions solely as a procedural mechanism for resolving substantive controversies which are already within the jurisdiction of the courts.” Id. (citation and quotation omitted). As Texas procedural law does not govern a diversity action in federal court, the Texas DJA may not provide a basis for an award of fees in a diversity case. The Fifth Circuit confirmed Utica’s holding in Camacho v. Texas Workforce Com’n, 445 F.3d 407, 409-413 (5th Cir. 2006). CHC’s request for fees under the Texas DJA fails as a matter of law and should be dismissed. CHC also seeks fees under the “California Civil Code.” [Dkt. No. 7, at ¶43] CHC does not identify any specific statutory basis for an award of attorneys’ fees under California law. The California Declaratory Judgment Act does not itself include any provision for the award of attorneys’ fees. See CAL. CIV. PRO. CODE § 1060. This statute is also clearly procedural as it is found in the California Code of Civil Procedure. See id. California procedural law and the California Declaratory Judgment Act do not apply to this case. Regardless, CHC fails to identify any legal basis for an award of attorneys’ fees under any substantive California statute in connection with a claim for declaratory judgment, even if California law applied (and it does not). CHC’s request for fees under the “California Civil Code” fails as a matter of law and should be dismissed. Additionally, CHC fails to state a cognizable claim for declaratory judgment, as explained in Part III.C, supra. Thus, CHC’s corresponding request for attorneys’ fees in bringing that claim likewise should be dismissed. 11 Section 37.009 states, “In any proceeding under this chapter, the court may award costs and reasonable and necessary attorney’s fees as are equitable and just.” TEX. CIV. PRAC. & REM. CODE. 37.009. Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 30 of 33 PageID 223 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 24 2. As a matter of law, Defendant may not recovery attorneys’ fees “in bringing its other claims.” The “other claims” pled by CHC are negligent misrepresentation and breach of contract. As an initial matter, CHC fails to state legally cognizable claims for negligent misrepresentation and breach of contract, as explained in Parts III.D-E, supra, so any request for fees in bringing these claims should be dismissed. Further, it is well established that attorneys’ fees are not recoverable for torts such as negligent misrepresentation. Chevron Phillips Chemical Co. LP v. Kingwood Crossroads, L.P., 346 S.W.3d 37, 69 (Tex. App.-Houston [14th Dist.] 2011, pet. denied) (“[A]ttorneys’ fees are not recoverable for prosecuting a . . . negligent misrepresentation claim.”). CHC does not identify any legal authority for its request for fees in bringing this claim. This request fails as a matter of law. Second, CHC does not identify any legal basis for seeking attorneys’ fees for breach of contract. CHC may not recover attorneys’ fees under Chapter 38 of the Texas Civil Practice and Remedies Code. That statute permits a person to recover reasonable attorneys’ fees “from an individual or corporation, in addition to the amount of a valid claim and costs….” TEX. CIV. PRAC & REM. CODE. ANN. § 38.001. A limited liability company is not a “corporation” for purposes of Chapter 38. Alta Mesa Holdings, L.P. v. Ives, 488 S.W.3d 438, 452-55 (Tex. App.- Houston [14h Dist.] 2016, pet. denied) (“[S]ection 38.001 does not authorize the recovery of attorney’s fees in a breach of contract action against an LLC . . . .”). Allcap is a Texas limited liability company. [Dkt. No. 7 at ¶4, fn. 1] Thus, as a matter of law, CHC may not recover attorneys’ fees against Allcap under Chapter 38. Accordingly, CHC fails to allege any factual or legal basis for an award of attorneys’ fees against Allcap. This claim fails as a matter of law and should be dismissed. Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 31 of 33 PageID 224 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 25 3. Alternatively, Plaintiff requests a more definite statement regarding Defendants’ request for fees. Alternatively, pursuant to Federal Rule of Civil Procedure 12(e), Allcap requests a more definite statement of CHC’s request for attorneys’ fees, both under the “California Civil Code” and for “bringing its other claims”, to the extent any of CHC’s claims survive dismissal under Rule 12(b)(6) These allegations, and the legal basis for which attorneys’ fees are sought, are so vague and ambiguous that Allcap cannot reasonably prepare a response. See FED. R. CIV. P. 12(e); Tempur-Pedic Internat’l Inc. v. Angel Beds LLC, 902 F.Supp.2d 958 (S.D. Tex. 2012) (citations omitted). CHC neither expressly identifies the claims for which CHC intends to seek recovery of its attorneys’ fees nor identifies any legal basis for any award of fees for any such claim. Allcap requests that the Court order CHC to specifically plead the claims for which it is seeking recovery of attorneys’ fees and to specifically plead the legal grounds, if any, for which CHC intends to rely upon to seek recovery of attorneys’ fees and costs. IV. CONCLUSION AND PRAYER For all the foregoing reasons, Plaintiff respectfully requests that the Court grant this motion and dismiss Defendant’s counterclaims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Alternatively, Plaintiff requests that the Court grant its motion for a more definite statement under Rule 12(e) regarding Defendant’s request for fees as explained above. Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 32 of 33 PageID 225 PLAINTIFF’S RULE 12(b)(6) MOTION TO DISMISS DEFENDANT’S COUNTERCLAIM Page 26 Respectfully submitted, BELL NUNNALLY & MARTIN LLP By: /s/ Benjamin L. Riemer Benjamin L. Riemer Texas Bar No. 24065976 briemer@bellnunnally.com Wendy A. Duprey Texas Bar No. 24050543 wduprey@bellnunnally.com 1400 One McKinney Plaza 3232 McKinney Avenue Dallas, Texas 75204-2429 Telephone: (214) 740-1400 Telecopier: (214) 740-1499 ATTORNEYS FOR PLAINTIFF CERTIFICATE OF SERVICE I hereby certify that on May 4, 2017, I electronically filed the foregoing paper(s) with the Clerk of the Court using the ECF system which will send notification to all parties of record. /s/ Benjamin L. Riemer Benjamin L. Riemer 3223105_2.docx / 10856.1 Case 3:17-cv-00757-L Document 14 Filed 05/04/17 Page 33 of 33 PageID 226 EXHIBIT 1 Case 3:17-cv-00757-L Document 14-1 Filed 05/04/17 Page 1 of 4 PageID 227 1/3 Subject : Fwd: Agreement From : "Cook, Chris" Date : 2 years ago Fri, 19 Sep 2014 18:48:20 -0500 To : Fred McCallister Attachments : image001.jpg (2KB) image002.png (21KB) Flag : Flagged for Review Sent via the Samsung GALAXY S®4, an AT&T 4G LTE smartphone -------- Original message -------- From: Sean Varner Date:09/18/2014 8:00 PM (GMT-08:00) To: "Cook, Chris" Subject: RE: Agreement Chris, I have the following comments to the Engagement Agreement: 1. I know you understand this concept, but the first paragraph confirms that this is an exclusive arrangement; 2. Paragraph 4 references a “Success Fee”. From transactions I recently negotiated, I believe the fee is high based on the purchase price we discussed for a full sale. For deals in the $40mm range, the fee ranges from 3-4 percent on a full sale. If they have calculated this on only a partial sale of the company as we also discussed, 5-6% is probably about right if the deal is in the $20mm range or less. 8% is too high. I would like to review the Transaction Value received by the Company concept with you to ensure the parties agree on the type of compensation for which they will get a fee; 3. Paragraphs 5 and 6 are unnecessary. In any transaction, the definitive agreement will include a provision whereby you have to disclose any investment banking arrangement; 4. Paragraph 7 non-refundable fees are not unreasonable for a reputable investment banker; 5. In Paragraph 8, ACC refers to itself as “finder”. You need to ask if they are a registered broker/dealer; 6. The termination provisions of Paragraph 10 needs to reflect that upon termination, they provide you list of the potential buyers they contacted. The tail coverage only applies to those entities and should only survive 12 months; and 7. Do you have current NDA in place with this company? There is no confidentiality provision in the Engagement Agreement and approval rights for how to publish a closed transaction. Most Engagement Agreements I see have a little more detail, but less detail in this scenario is not a bad thing. I am available tomorrow to discuss. Sean S. Varner | Managing Partner 3750 University Avenue | 6th Floor Case 3:17-cv-00757-L Document 14-1 Filed 05/04/17 Page 2 of 4 PageID 228 2/3 Riverside, CA 92501-3323 Tel 951 274 7777 Fax 951 274 7770 Personal Fax 951 823 8969 Email sean.varner@varnerbrandt.com www.varnerbrandt.com NOTE: This e-mail message and any files or attachments transmitted with it are for the sole use of the intended recipient(s). The information contained in this message may be privileged and confidential and protected from disclosure. If the reader of this message is not the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify us immediately by replying to the message, deleting it from your computer and destroying all copies of the original message. Thank you. Varner & Brandt LLP IRS Circular 230 Disclosure Notice. To insure compliance with requirements imposed by the Internal Revenue Service, Varner & Brandt LLP informs you that any tax advice that may be contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or any state or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment) including any local tax law to which a governmental requirement similar to Circular 230 applies. From: Cook, Chris [mailto:ccook@chcconsulting.com] Sent: Thursday, September 18, 2014 5:08 PM To: Sean Varner Subject: RE: Agreement Would you mind emailing them? Sent via the Samsung GALAXY S®4, an AT&T 4G LTE smartphone -------- Original message -------- From: Sean Varner Date:09/18/2014 5:05 PM (GMT-08:00) To: "Cook, Chris" Subject: RE: Agreement Chris, I have reviewed the Engagement Agreement. There are a few issues of which you should be aware. I can send you an email with those issues or we can discuss over the phone tomorrow. Let me know your preference. Sean S. Varner | Managing Partner 3750 University Avenue | 6th Floor Riverside, CA 92501-3323 Tel 951 274 7777 Fax 951 274 7770 Personal Fax 951 823 8969 Email sean.varner@varnerbrandt.com www.varnerbrandt.com Case 3:17-cv-00757-L Document 14-1 Filed 05/04/17 Page 3 of 4 PageID 229 3/3 NOTE: This e-mail message and any files or attachments transmitted with it are for the sole use of the intended recipient(s). The information contained in this message may be privileged and confidential and protected from disclosure. If the reader of this message is not the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify us immediately by replying to the message, deleting it from your computer and destroying all copies of the original message. Thank you. Varner & Brandt LLP IRS Circular 230 Disclosure Notice. To insure compliance with requirements imposed by the Internal Revenue Service, Varner & Brandt LLP informs you that any tax advice that may be contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or any state or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment) including any local tax law to which a governmental requirement similar to Circular 230 applies. From: Cook, Chris [mailto:ccook@chcconsulting.com] Sent: Thursday, September 18, 2014 12:46 PM To: Sean Varner Subject: FW: Agreement Sean Does this look like a standard engagement agreement to you? Chris From: Fred McCallister [fmccallister@allcapcorp.com] Sent: Tuesday, September 16, 2014 12:18 PM To: Cook, Chris Subject: Agreement Chris, the agreement is attached. I did not retain a version signed by David Mahmood. Once you and Sue sign you can send me a scanned copy and I will have David sign and provide a copy for your records. Best, Fred Fred McCallister Senior Vice President | Allegiance Capital Corporation | Dallas Office 214-217-7718 | fmccallister@allcapcorp.com| www.allcapcorp.com Click here to review Allegiance Capital Corporation’s privacy policy. Chris Cook | Chief Executive Officer Office - 949.242.0433 | Mobile - 949.293.0473 1700 E Garry Ave., Suite # 210 Santa Ana, CA 92705 Email - ccook@chcconsulting.com Company Website | CHC on Facebook! |Connect with me on LinkedIn! | Interested in Opportunities? Click TN! Case 3:17-cv-00757-L Document 14-1 Filed 05/04/17 Page 4 of 4 PageID 230 EXHIBIT 2 Case 3:17-cv-00757-L Document 14-2 Filed 05/04/17 Page 1 of 2 PageID 231 tOHC· CHC CONSUL ING, LLC October 14, 2015 Fred Mccallister Allegiance Capital Corporation 5429 LBJ Freeway, Suite 750 Dallas, TX 75240 Re: Termination of Engagement Agreement Dear Fred: This letter is in reference e to our Engagement Agreement dated September 19, 2014 (the "Agreement"). As we have stopped our process, we are hereby terminating the Agreement. Thank you for the services you provided us. CEO CHC Consulting, LLC CHC Consulting, LLC • 1845 W Orangewood Avenue, Suite 300 •Orange, CA 92868 ·Ph (949) 250-0004 •Fax (949) 250-0006 • www.chcconsulting.com Case 3:17-cv-00757-L Document 14-2 Filed 05/04/17 Page 2 of 2 PageID 232