North Texas Opportunity Fund LP v. Hammerman & Gainer International Inc et alBrief/Memorandum in SupportN.D. Tex.July 11, 2016DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION NORTH TEXAS OPPORTUNITY FUND, L.P., Plaintiff, v. HAMMERMAN & GAINER INTERNATIONAL, INC., LAWRENCE PRATT, LARRY ONEY, CHRISTOPHER ONEY, HGI CATASTROPHE SERVICES, L.L.C., PRINCIPAL RESOURCE GROUP, LLC, DELTA GROUP, LLC, AND HAMMERMAN & GAINER, INC. Defendants. § § § § § § § § § § § § § § § § § Case No. 3:14-cv-1906-B DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Lisa S. Gallerano (Texas Bar No. 07589500) Arnold A. Spencer (Texas Bar No. 00791709) Heather L. Peckham (Texas Bar No. 24028995) Matthew V. Lloyd (Texas Bar No. 24083404) 1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201 Telephone: 214-969-2800 Facsimile: 214-969-4343 lgallerano@akingump.com aspencer@akingump.com hpeckham@akingump.com mvlloyd@akingump.com ATTORNEYS FOR DEFENDANTS/COUNTERCLAIMANTS Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 1 of 44 PageID 7557 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT i TABLE OF CONTENTS I. SUMMARY OF THE ARGUMENT ..................................................................................1 II. RESPONSE TO PLAINTIFF’S “STATEMENT OF UNDISPUTED RELEVANT FACTS” ...............................................................................................................................4 A. The Parties and Players ............................................................................................4 B. The Stock Purchase Agreement (SPA) and SPA Amendment ................................6 C. The Monitoring Agreement .....................................................................................8 D. The Formation of HGI Catastrophe and PRG..........................................................9 E. H&G Enters a New Line of Business; Discloses Commissions to Christopher Oney and Payments to PRG to NTOF ...............................................10 F. NTOF Had Full Access to H&G’s Financials and Auditors; And the Auditors Also Disclosed the Related Party Transactions to NTOF. ......................12 G. NTOF Decides to Sell Back Its Shares Before H&G’s Audited Financial Statements Were Issued and Enters Into the Redemption Agreement ..................15 H. NTOF’s False Representations to Federal Authorities ..........................................18 I. NTOF Sued H&G, Larry Oney and Lawrence Pratt in 2012 ................................21 J. NTOF Filed the Present Suit in 2014 and Added H&G Inc. in 2016 ....................21 III. ARGUMENT AND AUTHORITIES ................................................................................23 A. Summary Judgment Standard. ...............................................................................23 B. NTOF Breached the Redemption Agreement by Suing Counterclaimants (and Others) After Releasing Its Claims ................................................................23 1. Even under NTOF’s restrictive reading of the Release, NTOF’s claims arose “prior to the date of” the Redemption Agreement. ...............24 2. Patton v. Nicholas does not support NTOF’s position. .............................29 3. NTOF’s interpretation of the Redemption Agreement’s provisions conflicts with the agreement’s plain language. ..........................................31 4. The release bars NTOF’s tort claims. ........................................................32 5. H&G and H&G Inc. are entitled to damages for NTOF’s breach of the Redemption Agreement. ......................................................................33 C. Sufficient Evidence Supports H&G’s Alternative Counterclaims for Fraudulent Inducement and Negligent Misrepresentation. ....................................35 IV. CONCLUSION AND PRAYER .......................................................................................39 Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 2 of 44 PageID 7558 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT ii TABLE OF AUTHORITIES Page(s) Federal Cases Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) .................................................................................................................23 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) .................................................................................................................23 Lane v. Halliburton, 529 F.3d 548 (5th Cir. 2008) ...................................................................................................35 Levy v. United States, 402 Fed. App’x 979 (5th Cir. Dec. 1, 2010) ............................................................................34 Smith Int’l, Inc. v. Egle Group LLC, 490 F.3d 380 (5th Cir. 2007) ...................................................................................................36 Southern Pac. Transp. Co. v. Voluntary Purchasing Grps. Inc., No. 3:94-cv-2477-H, 1997 U.S. Dist. LEXIS 22767 (N.D. Tex. Aug. 7, 1997) .....................33 State Cases Cardiac Perfusion Servs., Inc. v. Hughes, 436 S.W.3d 790 (Tex. 2014) ....................................................................................................32 Coker v. Coker, 650 S.W.2d 391 (Tex. 1983) ....................................................................................................32 Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.41 (Tex. 1998) ...........................................................................................................38 Frantom v. Neal, 426 S.W.2d 268 (Tex. Civ. App.-Fort Worth Mar. 15, 1968, writ ref’d n.r.e.) ....................33 Griffin Indus., Inc. v. Foodmaker, Inc., 22 S.W.3d 33 (Tex. App.-Houston [14th Dist] 2000, pet. denied) .......................................33 Patton v. Nicholas, 279 S.W.2d 848 (Tex. 1955) ........................................................................................29, 30, 32 Patton v. Nicholas, 302 S.W.2d 441 (Tex. Civ. App.-Waco 1957, writ ref’d n.r.e.) ...........................................30 Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014) ....................................................................................................32 Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 3 of 44 PageID 7559 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT iii Rules FED. R. CIV. P. 56(a) ......................................................................................................................23 FED. R. CIV. P. 56(c)(1)(B) ............................................................................................................23 Local Rules 56.6, and 7.1(i) .............................................................................................................5 Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 4 of 44 PageID 7560 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 1 Defendants/Counterclaimants Hammerman & Gainer International, Inc. (“H&G”) and Hammerman & Gainer, Inc. (“H&G Inc.”) (together, “Counterclaimants”) file this Brief in Support of their Response to Plaintiff/Counterdefendant North Texas Opportunity Fund, LP’s (“NTOF”) Motion for Partial Summary Judgment [ECF 145] as follows. I. SUMMARY OF THE ARGUMENT From June 7, 2004 - November 6, 2008 (the “Investment Period”), Plaintiff/ Counterdefendant NTOF held an investment interest in Defendant/Counterclaimant H&G. H&G is a privately-held, minority business enterprise based in New Orleans, which is 100% owned and run by defendant Larry Oney with his son, defendant Christopher Oney. Defendant/Counterclaimant H&G Inc. is a wholly owned subsidiary of H&G. During the Investment Period, NTOF had open access to H&G’s books and records and appointed a member to H&G’s board. In 2008, after a rocky four-year relationship, H&G and NTOF mutually agreed to end it. They entered into a redemption agreement in November 2008, during the Great Recession, by which H&G repurchased NTOF’s interest (the “Redemption Agreement”). NTOF knowingly chose to sell its shares, for a significant return, without waiting for H&G’s audited financial statements. NTOF knew the audited financial statements were substantially complete (they were issued one month later), and had communicated with H&G’s independent outside auditor. NTOF, likewise, declined to get an independent third-party valuation of its shares before redeeming them. Under the Redemption Agreement, NTOF expressly released any and all claims against H&G, H&G Inc. and others related to NTOF’s investment and that arose “prior to” the Redemption Agreement. Sometime after the Redemption Agreement, there was a wide-ranging federal Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 5 of 44 PageID 7561 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 2 investigation related to the massive federal rebuilding program in New Orleans following Hurricane Katrina. Some defendants had received State and Federal funds for substantial post- Katrina work, and H&G’s related party payments to defendant Principal Resource Group, LLC (“PRG”) (which was wholly owned by Christopher Oney) related to that work also were reviewed. No Defendant was ever charged with any misconduct, much less indicted, as a result of the federal review. Around November 2010, NTOF received a grand jury subpoena and spoke with IRS agents concerning Christopher Oney, PRG, HGI Catastrophe Services, LLC (“HGI Catastrophe”), an H&G subsidiary that contracted with PRG, and other entities connected to the disaster recovery contracts. On its part, NTOF saw an opportunity to attempt to shake down Defendants. In February 2012, nearly four years after NTOF sold its H&G stock back to H&G and released its claims related to the investment, NTOF sued H&G, Larry Oney, and H&G’s former consultant Lawrence Pratt for alleged claims related to NTOF’s investment in H&G. NTOF’s suit was entirely premised on its false allegations-made not for the first time-that it supposedly did not know about defendant PRG, and payments H&G made to it, when NTOF redeemed its shares in November 2008. NTOF alleged that had it only known about PRG and H&G’s payments to it, NTOF supposedly would have sold back its shares for more money. NTOF eventually dismissed its 2012 lawsuit without prejudice, and the parties entered into a tolling agreement. In April 2014, NTOF re-filed its suit, adding new defendants. Like its original 2012 suit, NTOF’s 2014 suit is premised on Defendants’ purported nondisclosure of the PRG related party transactions before NTOF redeemed its shares in November 2008. Then, in April 2016 NTOF added H&G Inc. as a defendant (as well as Delta Group, LLC). Despite NTOF’s malicious use of terms such as “theft” and “embezzlement” as to Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 6 of 44 PageID 7562 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 3 Defendants, it is NTOF’s own principals who have now conceded under cross-examination that they received oral and written disclosures regarding the PRG related party transactions, including from H&G’s independent auditor, no later than October 1, 2008-well before NTOF sold back its shares. Yet NTOF’s motion for summary judgment perpetuates an admitted falsehood by claiming that NTOF only discovered the payments to PRG “years” after selling back its shares. Pl.’s Brief at 10. Defendants also learned in discovery that NTOF’s representatives falsely told the IRS in 2011 that NTOF had no prior knowledge of PRG. However, just before NTOF’s false representation to the IRS, NTOF’s Sweetser freely admitted to Oney counsel that Sweetser knew Christopher Oney had received substantial payments through a subcontract with H&G for bringing in the contracts after Katrina. And indeed, there is nothing sinister about these payments. Exposed in a terrible lie (not to mention false statements to federal authorities) about the lynchpin of its case-the payments to PRG are the single biggest source of “damages” NTOF seeks1-NTOF’s First Amended Complaint tries to skirt around the now-admitted disclosures of PRG to NTOF by alleging that H&G did not disclose its “true profits” to NTOF. However, NTOF’s case still boils down to its allegations that it supposedly did not know about and did not approve H&G’s (1) payments to PRG, (2) commissions to Christopher Oney, (3) bonus payment to Larry Oney in 2008, and (4) payments to Delta and other Oney family members. Through its suit, NTOF wrongfully attempts to extract more from H&G than it received in November 2008, when it is undisputed that NTOF voluntarily sold its shares back to H&G and released its claims-despite the fact that NTOF knew or should have known of H&G’s financial 1 While NTOF purportedly sued to recover funds that Defendants allegedly “diverted” from H&G, NTOF is not bringing a derivative suit. NTOF is suing H&G, H&G’s sole shareholder Larry Oney, and others for NTOF’s alleged “share” (49%, less 40% in taxes) of those funds solely for its own benefit. Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 7 of 44 PageID 7563 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 4 condition and related party transactions. And despite the fact that H&G and H&G Inc. were released by NTOF as to any claims relating to NTOF’s investment in H&G, NTOF has breached the Redemption Agreement by suing H&G and H&G Inc. in the underlying suit. Accordingly, Counterdefendants are entitled to recover over $1,286,000.00 in damages, including the $75,000.00 termination fee paid in connection with the Redemption Agreement, attorneys’ fees, and lost employee and consultant time and productivity responding to and defending against the suit and against NTOF’s harmful and false allegations. There is ample evidence to support Counterclaimants’ breach of contract claim. H&G also brought counterclaims for fraudulent inducement and negligent misrepresentation in connection with entering into the Redemption Agreement if, as NTOF claims in its First Amended Complaint, the Redemption Agreement’s release does not apply. NTOF notes that it cannot get summary judgment on its fraudulent inducement claim because a genuine dispute of material fact exists as to whether NTOF was fraudulently induced to enter into the Redemption Agreement. And here, a genuine dispute of material fact exists as to whether H&G was fraudulently induced to enter into the Redemption Agreement and/or whether NTOF made negligent misrepresentations to induce H&G to enter into the Redemption Agreement. Therefore, NTOF’s motion for partial summary judgment should be denied. II. RESPONSE TO PLAINTIFF’S “STATEMENT OF UNDISPUTED RELEVANT FACTS” Counterclaimants disagree with NTOF’s characterization of certain facts as “undisputed” and/or “relevant” to NTOF’s motion. Further, NTOF has omitted relevant material facts. Therefore, Counterclaimants respond to and clarify the material facts as follows. A. The Parties and Players 1. Defendant/Counterclaimant H&G is a privately-held, African-American-owned Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 8 of 44 PageID 7564 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 5 Louisiana corporation that provides a wide range of third party administrative management and other services. App.2 114-15 (L. Oney Decl. (6/2/14) ¶ 3); id. 205-06 (Campbell Dep. (2/17/16) 36:19-37:11). 2. Defendant/Counterclaimant H&G Inc. is a wholly-owned Louisiana subsidiary of H&G. App. 453 (C. Oney Dep. (1/27/16) 12:14-25). 3. Defendant Larry Oney is a Louisiana resident who is the sole owner of H&G and its subsidiaries. App. 114 (L. Oney Decl. (2014) ¶ 2); id. 205-06 (Campbell Dep. 36:19-37:11). He is H&G’s Chairman of the Board, and a director of H&G. App. 114 (L. Oney Decl. (2014) ¶ 1). 4. Plaintiff/Counterdefendant NTOF is a Texas investment fund, formed around 2000. App. 384 (NTOF Dep. (2/9/16) 18:20-21). NTOF’s investment manager is North Texas Investment Advisors LLC (“NTIA”). App. 83-84 (NTOF’s Answer to H&G’s First Amended Counterclaim [ECF 134] [hereinafter “NTOF’s Ans.”] ¶ 2); id. 1547 (NTOF’s Answer to H&G Inc.’s Original Counterclaim [ECF 137] [hereafter “NTOF’s Ans. to H&G Inc. Countercl.”] ¶ 2); id. 382 (NTOF Dep. 13:13-16). Arthur W. Hollingsworth, Luke Sweetser individually and d/b/a PQR & Associates, Inc., and Greg Campbell individually and d/b/a Rainmaker, Inc. are the sole managers and members of NTIA.3 Hollingsworth, Sweetser, and Campbell are also the principals and effective managers of NTOF. App. 361 (Hollingsworth Dep. (2/19/16) 150:15- 2 Counterclaimants’ Appendix in Support of their Response and Brief in Response to NTOF’s Motion for Partial Summary Judgment (“App.”) is being filed concurrently herewith in accordance with Local Rules 56.6, and 7.1(i). Because some portions of the appendix contain information designated as either “Confidential” or “Highly Confidential - Attorneys’ Eyes Only,” under the Agreed Protective Order entered by the Court, the appendix is being filed under seal. See Agreed Protective Order [ECF 27] ¶ 15. 3 App. 686 (Defs.’ Dep. Ex. 25); id. 388 (NTOF Dep. 48:3-7); id. 618 (Sweetser Dep. 55:18-25); see also id. 63 (NTOF’s Response to Request for Admissions [hereinafter, “NTOF’s RFA Resp.”] Nos. 3, 4). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 9 of 44 PageID 7565 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 6 23); id. 192-93 (Campbell Dep. 11:20-12:2).4 B. The Stock Purchase Agreement (SPA) and SPA Amendment 5. H&G entered into a Series A Preferred Stock Purchase Agreement with NTOF dated June 7, 2004 (the “Stock Purchase Agreement” or “SPA”), by which NTOF purchased 2,500,000 shares of H&G preferred stock for $2.5 million (representing a 49% interest in H&G). App. 247-48 (H&G Dep. (2/2/16) 21:17-22:2); id. 804 (H&G Dep. Ex. 2). Subsequently, the parties entered into a First Amendment to Series A Preferred Stock Purchase Agreement dated September 30, 2005 (the “SPA Amendment”), by which NTOF purchased 500,000 additional shares of H&G preferred stock for $500,000. App. 898 (H&G Dep. Ex. 3) (SPA Amendment at 1); id. 80-81 (NTOF’s Ans. at 3-4); id. 615-16 (Sweetser Dep. 48:13-49:6). 6. While NTOF claims that “[t]he SPA and its exhibits contain a number of protections for NTOF” (Pl.’s Brief at 3), NTOF cites no evidence in support. Further, the SPA’s plain language does not support NTOF’s characterization of the SPA’s provisions. 7. For example, Counterclaimants dispute NTOF’s argument that the SPA “ensures that [H&G] must obtain the approval of NTOF’s appointed board member before it may…change the compensation paid or payable to any senior level employee of the Company by more than 10% in any year.” SPA Section 7.11, which NTOF cites for its argument, never came into effect. SPA Section 7.11 requires the Board to adopt a resolution concerning NTOF’s board member’s approval of certain matters, including to “change the compensation paid or payable to any senior level employee [of H&G] by more than 10% in any year.” App. 820-21 (H&G Dep. Ex. 2, SPA § 7.11). The draft resolution never was signed or became effective. App. 1397 (NTOF, LP 02227); see also id. 331-32 (H&G Dep. (2/2/2016) 296:13-297:9). 4 Each NTOF principal, individually and/or through their solely-owned entities, owns an interest in NTOF’s general partner. App. 655-56 (Sweetser Dep. 146:8-147:6). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 10 of 44 PageID 7566 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 7 8. The governing section of the Certificate of Designations5 entered with the SPA expressly does not require NTOF’s approval of H&G’s “ordinary and usual compensation arrangements.” App. 839 (H&G Dep. Ex. 2 at § 9(a)(x)); see also id. 331-32 (H&G Dep. (2/2/2016) 296:13-297:9). 9. Further, SPA Section 3.11 contains representations and warranties as of the closing date (June 7, 2004) regarding related party transactions,6 but carves out and does not include salaries, expenses and other standard employee benefits to H&G employees, officers and directors, and their immediate family members. App. 809 (H&G Dep. Ex. 2, SPA §3.11). 10. Moreover, in entering into the SPA, the parties recognized the importance of H&G maintaining its minority-owned enterprise (“MBE”) status. App. 85 (NTOF’s Ans. ¶ 8); id. 427-28 (NTOF Dep. 177:25-178:2). Indeed, the SPA requires H&G to use its “best efforts” to maintain MBE status. App. 820 (SPA § 7.9). MBE certification requires that an ethnic minority (here Larry Oney, still the 51% owner of H&G after the SPA) has day-to-day management control of the company. App. 331-32 (H&G Dep. (2/2/2016) 296:13-297:9); id. 220-21 (Campbell Dep. 92:17-93:9). Allowing H&G’s management (rather than NTOF) to control compensation was necessary for H&G to maintain MBE status. See App. 331-32 (H&G Dep. (2/2/2016) 296:13-297:9). 11. Counterclaimants dispute that the Certificate of Designations prohibit any 5 The parties do not dispute here that the Certificate of Designations was entered at the time of the SPA transaction and was effective. See Compl. ¶ 118 (alleging that SPA and SPA Amendment incorporate the Certificate of Designations and that the SPA and SPA Amendment constitute a valid and enforceable contract). 6 “Related party transactions” regularly occur in the normal course of business, as described in Generally Accepted Auditing Standards. App. 1411 (Anderson Report (4/11/16) ¶ 14). Related party transactions “occur frequently and are not inherently indicative of any accounting irregularities, business impropriety, or misstated financial statements.” Id. NTOF’s representatives recognize that its own investment manager, NTIA, is a related party and that material related party transactions regarding NTIA should be disclosed in NTOF’s audited financial statements. App. 395-96 (NTOF Dep. 95:12-17, 98:9-12). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 11 of 44 PageID 7567 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 8 distribution of money by H&G to the Sole Shareholder Larry Oney without NTOF’s approval and a pro rata distribution to NTOF. Rather, Section 2 of the Certificate of Designations provides for a dividend to the Sole Shareholder of up to $300,000.00 plus the purchase price ($3,000,000.00), without NTOF’s approval and without any such pro rata share to NTOF. App. 826 at § 2; id. 820 (SPA § 7.8); id. 898 (H&G Dep. Ex. 3, SPA Amendment at 1A); id. 150-51 (Becnel Dep. 130:4-131:19). NTOF has not presented evidence that Larry Oney received dividends in excess of the amount permitted under the Certificate of Designations Section 2 and SPA Section 7.8. 12. SPA Section 7.1 gives NTOF full access to H&G’s and its subsidiaries’ books, records, and financials, and requires H&G to provide periodic unaudited financial information to NTOF. App. 817-18 (H&G Dep. Ex. 2, SPA § 7.1). C. The Monitoring Agreement 13. H&G and NTOF’s investment manager, NTIA, also simultaneously entered into a Monitoring Agreement. App. 894 (H&G Dep. Ex. 2 (Monitoring Agr.)). Under it, NTIA was paid a monthly fee by H&G to monitor H&G’s financial condition and business for Plaintiff NTOF. App. 894-95 (Monitoring Agr. § 2); id. 410 (NTOF Dep. 133:20-23). H&G paid NTIA hundreds of thousands of dollars in monitoring fees during the Investment Period.7 14. Despite NTOF’s Hollingsworth’s acknowledgment that NTIA had “a responsibility to monitor the consolidated financial condition of H&G,” App. 410 (NTOF Dep. 133:20-23), neither NTOF nor NTIA ever formally requested to inspect the books and records of H&G and its subsidiaries, including check registers or payroll registers, or performed any detailed analyses in connection with their monitoring obligations, despite their open access to 7 App. 593 (Pratt Dep. 194:13-23); id. 619 (Sweetser Dep. 57:15-20); id. 333-34 (H&G Dep. (2/2/16) 316:24-317:7); id. 1325 (HG00005363). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 12 of 44 PageID 7568 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 9 H&G’s books and records.8 NTOF and NTIA likewise failed to perform any detailed analyses of H&G’s financial condition in connection with their monitoring obligations. App. 385-87, 390- 93 (NTOF Dep. 45:20-47:11, 59:16-60:10, 62:21-63:3). In particular, NTOF and NTIA admittedly failed to monitor the drastic change in H&G’s administrative expenses in connection with the Road Home program in 2006-2007.9 D. The Formation of HGI Catastrophe and PRG 15. A few months after Hurricane Katrina hit New Orleans, the formation of Defendant HGI Catastrophe was approved during the December 14, 2005 H&G Board meeting. App. 261, 264-65 (H&G Dep. (2/2/16) 68:2-5, 74:15-75:7); id. 907 (H&G Dep. Ex. 8); id. 88 (NTOF’s Ans. ¶ 17). HGI Catastrophe provides third-party administration of insurance claims and catastrophe damage estimating and/or insurance adjusting services and other services. App. 125-26 (L. Oney Decl. for HGI Catastrophe (6/2/14) ¶ 2). 16. In February 2006, Christopher Oney formed Defendant PRG. App. 477 (C. Oney Dep. 98:16-25); id. 88 (NTOF’s Ans. ¶ 18). PRG develops contacts and obtains contracts in the catastrophic claims arena. App. 121 (C. Oney Decl. (2014) ¶ 2). 17. PRG and HGI Catastrophe entered into an agreement dated September 1, 2006, under which PRG assisted HGI Catastrophe in obtaining contracts and services (the “PRG Agreement”). App. 122 (C. Oney Decl. (2014) ¶ 3); id. 916 (H&G Dep. Ex. 27, PRG Agr. § 2). The PRG Agreement gave HGI Catastrophe the “right of first refusal” with regard to any business opportunity that fell within HGI Catastrophe’s business capabilities. App. 916 (PRG 8 App. 227-29, 233-34, 242-43 (Campbell Dep. 108:23-109:13, 110:11-18, 123:25-124:3, 159:23-160:17); id. 617-18 (Sweetser Dep. 54:24-55:17); id. 397, 431 (NTOF Dep. 115:11-15, 184:15-20); id. 308 (H&G Dep. (2/2/16) 170:18-25). 9 App. 411-16 (NTOF Dep. 145:24-146:22, 147:5-13, 148:11-149:3, 150:10-12); id. 230-32 (Campbell Dep. 117:10-119:8); id. 724 (Defs.’ Dep. Ex. 40). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 13 of 44 PageID 7569 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 10 Agr. § 2). If accepted, HGI Catastrophe would pay PRG fees for services. Id. at § 3. There is no evidence that PRG was a “competing venture”; PRG brought work to HGI Catastrophe that HGI Catastrophe otherwise would not have had. See note 12 infra. 18. Around the same time, Larry Oney discussed H&G’s relationship with PRG and Christopher Oney’s ownership of PRG with NTOF’s Hollingsworth, although Hollingsworth now denies that.10 Larry Oney also told Luke Sweetser. App. 296-97 (H&G Dep. (2/2/16) 158:2-159:2). Larry Oney had been telling Hollingsworth from the beginning of their business relationship that Christopher Oney wanted to get involved in other business, but Hollingsworth wanted H&G to try to keep the team together, especially after H&G had experienced so much turnover after Katrina. App. 262-63, 292, 294-95 (H&G Dep. (2/2/16) 70:6-71:9, 153:7-24, 155:2-156:12); id. 907 (H&G Dep. Ex. 8). E. H&G Enters a New Line of Business; Discloses Commissions to Christopher Oney and Payments to PRG to NTOF 19. Through the efforts of PRG and Christopher Oney, in late 2006 HGI Catastrophe entered into an agreement with ICF International in connection with the Louisiana Road Home program, which administered public funds for the Hurricane Katrina recovery efforts.11 20. This would become a new line of business for H&G; it had never previously performed program management activities in connection with federal funds.12 21. As a sales executive for HGI Catastrophe, Christopher Oney received sales commissions, including for securing and managing the ICF contracts and extensive work 10 App. 292, 294-98, 302-03, 310-11, (H&G Dep. (2/2/16) 153:7-24, 155:2-156:12, 158:2-15, 159:12- 160:16, 164:14-165:15, 177:16-178:25); id. 537-39, 541-42, 552-54, 594 (Pratt Dep. 31:21-32:3, 32:20-33:24, 35:20-36:8, 73:11-18, 76:6-23, 78:6-14, 195:5-24); id. 483 (C. Oney Dep. 112:15-24). 11 App. 487-88 (C. Oney Dep. 151:23-152:6); id. 277-82 (H&G Dep. (2/2/16) 134:20-139:9); id. 89 (NTOF’s Ans. ¶ 21). 12 App. 255-60, 268-69, 281-85 (H&G Dep. (2/2/16) 58:1-59:9, 64:15-67:12, 91:4-92:20, 138:21-139:9, 140:3-24, 142:23-143:17); id. 1414 (Anderson Report ¶ 21). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 14 of 44 PageID 7570 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 11 thereunder.13 PRG also received fees from HGI Catastrophe for its ICF-related work in accordance with the PRG Agreement and fee schedule.14 22. The SPA did not require H&G to obtain NTOF’s approval for payments to employees or vendors such as PRG. See App. 804 (H&G Ex. 2 (SPA)). Indeed, NTOF could not have had such approval rights over vendors, procurement issues, or any other decision made by corporate management; among other things, H&G was required to be independently managed by a minority person in order to maintain MBE certification. App. 331-32 (H&G Dep. (2/2/16) 296:23-297:9); id. 220-21 (Campbell Dep. 92:17-93:9). 23. Though it was not clear that H&G would survive post-Katrina, by securing the original contract and then a series of additional task orders with ICF International, and successfully managing the extensive work under those contracts, the efforts of PRG and Christopher Oney ended up generating substantial revenue for H&G and its subsidiaries from late 2006 through 2008.15 24. Beginning sometime in 2006 and continuing during the Investment Period, Larry Oney discussed Christopher Oney’s commission arrangement and the payments to PRG with NTOF’s Hollingsworth. App. 296, 304-09, 311 (H&G Dep. (2/2/16) 158:2-15, 166:4-171:22, 178:4-25). NTOF’s Hollingsworth admits that H&G disclosed to NTOF in 2006 that H&G was paying commissions. App. 429-32 (NTOF Dep. 182:25-184:6, 184:21-185:1); id. 699-700 13 App. 459-65, 468-69, 485-87 (C. Oney Dep. 29:19-30:14, 32:24-34:10, 44:14-45:9, 53:9-54:23, 149:16- 151:3); id. 274, 279-82, 286 (H&G Dep. (2/2/16) 111:9-11, 136:11-139:9, 144:1-19):, id. 1264-73 (L. Oney Dep. Ex. 21); id. 934-62 (H&G Dep. Exs. 34, 35); id. 522-25 (L. Oney Dep. 171:20-172:22, 175:15-176:1); id. 241-42 (Campbell Dep. 158:6-159:16); id. 728 (Defs.’ Dep. Ex. 44). 14 App. 255-56, 274-78, 286-87 (H&G Dep. (2/2/16) 58:1-59:9, 111:17-112:1, 133:22-134:2, 134:20- 135:23, 144:1-19, 145:4-15); id. 916 (PRG Agr.). 15 App. 484-88 (C. Oney Dep. 148:6-150:12, 151:23-152:6); id. 276-77, 281-82, 312 (H&G Dep. (2/2/16) 133:22-134:2, 138:21-139:9, 184:13-17); id. 90 (NTOF’s Ans. ¶ 24); id. 33-34 (Defs.’ Resp. to Pl’s Interrog. No. 7 (8/10/15)); id. 734-85 (Becnel Dep. Exs. 4-6); id. 613, 614 (Sweetser Dep. 46:6-21, 47:6-15). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 15 of 44 PageID 7571 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 12 (Defs.’ Dep. Ex. 30). NTOF’s Campbell also admits that commissions H&G paid associated with H&G’s Louisiana Road Home program management work were disclosed to him at least as of February 14, 2008. App. 241-42 (Campbell Dep. 158:6-159:16); id. 728 (Defs.’ Dep. Ex. 44). 25. H&G’s unaudited financial statements, which it distributed monthly to NTOF in the format NTOF requested, reflected this increased revenue, in addition to increased administrative expenses including the PRG fees, as well as commissions paid to Christopher Oney.16 Christopher Oney’s commission payments and fee payments to PRG began in 2006 and increased substantially beginning in 2007, once the Road Home work began in earnest.17 H&G’s check registers, payroll records, general ledger, and other financial records-to which NTOF and NTIA both had open access-likewise documented in detail all of the payments to PRG and commissions to Christopher Oney.18 These records also show the immaterial payments to Delta and other Oney sons that NTOF complains of in its First Amended Complaint.19 F. NTOF Had Full Access to H&G’s Financials and Auditors; And the Auditors Also Disclosed the Related Party Transactions to NTOF. 26. In March 2008, H&G engaged Postlethwaite & Netterville (“P&N”) to conduct 2006 and 2007 independent audits of H&G and its subsidiaries. App. 132 (Becnel Dep. 17:3-7); 16 App. 544-47 (Pratt Dep. 39:19-40:5, 43:13-44:4); id. 1289-92 (Pratt Dep. Ex. 2); id. 302-06, 319-20 (H&G Dep. (2/2/16) 164:14-165:15, 165:19-168:5, 198:18-199:4); id. 924-30 (H&G Dep. Ex. 29); id. 223-25, 230- 32 (Campbell Dep. 102:18-104:11, 117:10-119:8); id. 724 (Defs.’ Dep. Ex. 40); id. 1339-96 (NTOF, LP 01534- 1541, NTOF, LP 01580-1629). 17 App. 240 (Campbell Dep. 144:6-25); id. 524-25 (L. Oney Dep. 175:15-176:12); id. 1264-73 (L. Oney Dep. Ex. 21); id. 932, 934-48, 963-1014, 1015-1108 (H&G Dep. Exs. 32, 34, 36, 37, 38, 41, 42); id. 318-22 (H&G Dep. (2/2/16) 197:22-198:4, 199:9-17, 202:15-203:20). 18 App. 313-15, 329-30 (H&G Dep. (2/2/16) 185:24-187:6, 292:17-293:4); id. 934-48 (H&G Dep. Ex. 34); id. 949-62, 1109-1116 (H&G Dep. Exs. 35, 43, 48); id. 1015-1066 (H&G Dep. Ex. 41); id. 509-10 (L. Oney Dep. 123:17-124:24); id. 932-33 (H&G Dep. Exs. 32, 33). 19 App. 572-73, 584-85 (Pratt Dep. 147:8-148:23, 179:12-180:15); id. 323-28 (H&G Dep. (2/2/16) 238:17- 239:6, 287:18-290:18); id. 1015-1108, 1117-1255 (H&G Dep. Exs. 41, 42, 48-50); id. 494-96 (C. Oney Dep. 224:23-226:7); id. 1585-90 (HG00004251) (excerpts from H&G and its subsidiaries’ 2004-2008 general ledger which details each payment/transfer from and to the companies). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 16 of 44 PageID 7572 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 13 id. 1312 (HG00002679). H&G up front disclosed PRG as a related party vendor to P&N, as well as NTOF’s investor information. App. 137-39, 157-63 (Becnel Dep. 84:23-86:19, 138:11- 140:13, 140:23-142:7, 143:10-25, 144:6-18); id. 788-802 (Becnel Dep. Exs. 25, 26, 35). H&G did not impede the audit and provided all information requested by P&N. App. 160-62 (Becnel Dep. 141:7-142:7, 143:10-13). In early April 2008, H&G’s consultant Lawrence Pratt notified NTOF’s Hollingsworth that H&G had engaged P&N, and that P&N would be starting field work on the audits in about two weeks. App. 93 (NTOF’s Ans. ¶ 35); id. 1549-50 (NTOF’s Ans. to H&G Inc. Countercl. ¶ 11); id. 694 (Defs.’ Dep. Ex. 26); id. 398-99, 401-02 (NTOF Dep. 120:24-121:14, 124:22-125:25). 27. NTOF was updated on the audit’s status in July 2008, and again in late September 2008. App. 403-04 (NTOF Dep. 126:1-127:19); id. 656-61 (Sweetser Dep. 147:11-152:2); id. 684 (Defs.’ Dep. Ex. 9); id. 143-44 (Becnel Dep. 114:9-115:1). Significantly, before NTOF redeemed its shares in November 2008, NTOF’s Sweetser spoke directly with H&G’s independent auditor, Chad Becnel of P&N, about the related party transactions between H&G, Christopher Oney, and PRG. App. 633-34, 635-39, 640, 642 (Sweetser Dep. 79:3-80:22, 81:12- 85:23, 87:3-23, 89:10-24); id. 678 (Defs.’ Dep. Ex. 3); id. 143-44 (Becnel Dep. 114:9-115:1). Rather than hiding PRG from NTOF, Becnel got NTOF’s contact information from H&G in order to contact NTOF about PRG. App. 142 (Becnel Dep. 113:8-17). Becnel called NTOF’s Sweetser, told him that the 2006 and 2007 H&G audited financials were substantially complete, and specifically discussed the related party transactions involving PRG. App. 142-44, 145-46 (Becnel Dep. 113:22-115:13, 116:4-21, 119:7-14). Becnel testified that he told Sweetser the amounts of the payments to PRG during their September 29, 2008 phone call. App. 145, 153-54 (Becnel Dep. 116:22-25, 133:20-134:17). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 17 of 44 PageID 7573 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 14 28. Sweetser denies that Becnel told him the precise amounts. App. 97 (NTOF’s Ans. ¶ 49); id. 1550-51 (NTOF’s Ans. to H&G Inc. Countercl. ¶ 13); id. 641 (Sweetser Dep. 88:6-8). Even Sweetser admits, however, that Becnel called him about PRG and that he requested additional information from Becnel, including the precise amounts. App. 642 (Sweetser Dep. 89:10-17). Sweetser also followed up with an October 1, 2008 email to Becnel-copying NTOF’s Hollingsworth and Campbell-in which Sweetser claimed H&G was in default of several provisions of the SPA as a result of the PRG related party transactions, and that NTOF was meeting with Larry Oney to discuss it.20 Becnel responded to Sweetser’s email, confirming the identity of PRG and that Christopher Oney was the sole member of PRG. App. 67, 70 (NTOF’s RFA Resp. Nos. 19, 29); id. 636-37 (Sweetser Dep. 82:22-83:15); id. 678 (Defs.’ Dep. Ex. 3). Although Becnel had the PRG Agreement in his possession, Sweetser did not ask for a copy. App. 138-39 (Becnel Dep. 85:10-86:3); see id. 666-67 (Sweetser Dep. 199:21-200:15). All this occurred before NTOF redeemed its shares. 29. It was not until 2015, however, during discovery in this case that NTOF finally produced to Defendants the September/October 2008 disclosures between Becnel and Sweetser, establishing NTOF’s knowledge of the PRG related party transactions before NTOF entered into the Redemption Agreement. App. 678 (Defs.’ Dep. Ex. 3); id. 97 (NTOF’s Ans. ¶ 49). None of the Defendants were included on these emails. App. 678 (Defs.’ Dep. Ex. 3). 30. NTOF’s Sweetser also testified that he directed Becnel of P&N to report back the precise amounts of the related party transactions at issue. App. 638, 642 (Sweetser Dep. 84:13- 25, 89:10-17). But Sweetser admits that he did not wait for the substantially completed audit of 20 App. 678 (Defs.’ Dep. Ex. 3); id. 633-36 (Sweetser Dep. 79:21-80:8, 81:12-82:6); id. 417-23 (NTOF Dep. 158:22-160:21, 161:12-21, 163:11-164:4, 164:16-165:5). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 18 of 44 PageID 7574 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 15 H&G to be finalized, or even for the auditor to respond to Sweetser’s directives on the precise amounts of the PRG related party transactions, before proceeding with the Redemption Agreement. App. 642-43, 651 (Sweetser Dep. 89:10-90:19, 129:1-3). This is despite NTOF’s insistence that the audited financials were essential in order for NTOF to redeem its shares. App. 360 (Hollingsworth Dep. 141:2-14); id. 404 (NTOF Dep. 127:11-19); id. 196-98 (Campbell Dep. 17:16-18:4, 18:23-19:5). 31. Indeed, NTOF’s Hollingsworth testified that the purpose of audits is “to pick up related party transactions.” App. 396 (NTOF Dep. 98:9-12). Yet Hollingsworth and Campbell testified they paid little attention to either the auditor’s disclosure of the PRG payments or to Sweetser’s email on the alleged events of default. App. 398-400 (NTOF Dep. 120:24-122:4); id. 191-92, 194-98 (Campbell Dep. 10:21-11:19, 13:22-14:9, 17:3-19:5). In short, during the “worst financial crisis in global history,”21 NTOF chose to sell its shares for a significant return without waiting to review H&G’s audited financial statements.22 P&N issued the 2006-2007 audits of H&G on December 17, 2008.23 App. 133-34 (Becnel Dep. 41:25-42:8); id. 734-66 (Becnel Dep. Exs. 4, 5). These audited financial statements disclose the PRG related party transactions and amounts. App. 734-66 (Becnel Dep. Exs. 4, 5); see also id. 153-54, 156-57 (Becnel Dep. 133:20-134:17, 137:20-138:4). G. NTOF Decides to Sell Back Its Shares Before H&G’s Audited Financial Statements Were Issued and Enters Into the Redemption Agreement 32. H&G periodically sought to buy out NTOF-and vice versa-before the parties 21 App. 1415-16 (Anderson Rebuttal Report ¶ 24) (quoting former Federal Reserve Chairman, Ben Bernanke). 22 App. 647-48, 651 (Sweetser Dep. 113:13-114:13, 129:1-3); id. 446-47 (NTOF Dep. 234:19-235:13); id. 152-53, 164-65 (Becnel Dep. 132:4-133:4, 152:22-153:18); id. 803 (Becnel Dep. Ex. 37). 23 These were unqualified, independent opinions, which P&N has never sought to withdraw or qualify. App. 164 (Becnel Dep. 152:2-13). NTOF’s Sweetser testified that P&N would have been considered independent in performing the audit, as well. App. 662-63 (Sweetser Dep. 153:25-154:2). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 19 of 44 PageID 7575 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 16 ultimately ended their relationship. App. 301-02, 316 (H&G Dep. (2/2/16) 163:18-164:17, 188:2-23); id. 444-46 (NTOF Dep. 232:11-234:1); id. 703-13 (Defs.’ Dep. Ex. 35); id. 714-16 (Defs.’ Dep. Ex. 36); id. 922 (H&G Dep. Ex. 28); id. 726 (Defs.’ Dep. Ex. 42); id. 732-33 (Defs.’ Dep. Ex. 53); id. 96-97 (NTOF’s Ans. ¶¶ 44, 46-48). 33. H&G and NTOF entered into the Redemption Agreement dated November 6, 2008, whereby H&G bought back NTOF’s shares for $4,000,000.00. App. 1295 (Pratt Dep. Ex. 40, Redemption Agr.). By this time, NTOF knew about the PRG related party transactions, at minimum from P&N.24 Despite noting the importance of having a valuation done, NTOF likewise did not have a valuation of the H&G stock done before it redeemed its shares. App. 449 (NTOF Dep. 242:19-22); id. 1398-99 (NTOF, LP 05204-5205). According to H&G’s owner Larry Oney, the value of the redeemed shares was no more than, and far less than $4,000,000.00 as of November 6, 2008. App. 1592 (L. Oney Dec. (07/8/2016) ¶ 4). The parties also terminated the Monitoring Agreement, and H&G made an additional payment of $75,000.00 in termination fees. App. 1295 (Redemption Agr. § 3); id. 593 (Pratt Dep. 194:13-23); id. 619 (Sweetser Dep. 57:15-20); id. 333-34 (H&G Dep. (2/2/16) 316:24-317:7); id. 1325 (HG00005363). 34. The Redemption Agreement contains releases of the parties and their affiliates, directors, officers, employees and other parties of all claims and damages arising from the “Investment,” defined as NTOF’s shares of H&G stock. App. 1295, 1297 (Redemption Agr. § 9). In particular, Section 9.1 provides: NTOF hereby irrevocably waives, releases and forever discharges [H&G] and its affiliates, and each of their respective directors, officers, employees, managers, members, shareholders, partners, heirs, personal representatives, agents, successors and assigns (the “HGI Released Parties”) of and from all manners of 24 App. 636-39, 642-43, 649-50, 651 (Sweetser Dep. 82:22-85:23, 89:10-90:19, 120:13-121:14, 129:1-3); id. 678 (Defs.’ Dep. Ex. 3); id. 97 (NTOF’s Ans. ¶ 49); id. 66-68, 70-71, 73-74 (NTOF’s Resp. to RFA Nos. 14, 19, 24, 29, 34, 39, 44, 49). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 20 of 44 PageID 7576 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 17 actions, causes, suits, debts, dues, sums of money, accounts, reckonings, covenants, contracts, controversies, agreements, promises, representations, restitutions, damages, demands and liabilities whatsoever in law or in equity which NTOF and its affiliates, and each of their respective directors, officers, employees, managers, members, shareholders, partners, heirs, personal representatives, agents, successors and assigns, and anyone claiming through NTOF, ever had, now have or hereafter can, shall or may have against any of the HGI Released Parties for, upon or by reason of any matter, cause or thing prior to the date hereof, relating to or arising out of (a) the Investment or (b) any claim for breach of contract, negligence, tortious interference with contract or violation of any state or federal securities laws by any of the HGI Released Parties. The foregoing release does not release [H&G] from its obligations under this Agreement or the Indemnification Agreement dated June 7, 2004. App. 1297 (emphasis added). 35. H&G also released claims against NTOF, but the release expressly excluded any release of NTOF’s obligations under the Redemption Agreement. App. 1297 (Redemption Agr. § 9.2). 36. Leading up to and at the time of the Redemption Agreement, NTOF knew that the audits of H&G’s financials were close to final but not yet complete.25 Further, NTOF knew of the related party transactions between H&G, Christopher Oney, and PRG, and that the amounts involved were material.26 NTOF’s Hollingsworth testified that NTOF also believed at the time of the redemption that H&G had been “in default of the stock purchase agreement for four years….[s]ince day one.” App. 422-24, 426 (NTOF Dep. 164:23-165:7, 165:16-166:8, 174:1-7). NTOF, nonetheless, agreed to release all claims for breach of the SPA, including any claims for breach for failure to provide audited financials.27 However, NTOF is suing based on these very 25 App. 642-43, 651 (Sweetser Dep. 89:10-90:19, 129:1-3); id. 142-44 (Becnel Dep. 113:22-115:13); id. 403-05 (NTOF Dep. 126:1-128:7); id. 684 (Defs.’ Dep. Ex. 9). 26 App. 142-43, 145-46, 164-65 (Becnel Dep. 113:22-114:22, 116:4-25, 119:7-14, 152:22-153:18); id. 594 (Pratt Dep. 195:9-24); id. 292-95 (H&G Dep. (2/2/16) 153:7-24, 154:15-156:12); id. 471-74, 476, 479-81 (C. Oney Dep. 73:13-74:16, 74:23-75:3, 75:19-76:10, 80:1-21, 100:24-102:8); id. 803 (Becnel Dep. Ex. 37). 27 App. 1297 (Redemption Agr. § 9); id. 653-54 (Sweetser Dep. 144:23-145:23); id. 152-53 (Becnel Dep. 132:4-133:4); id. 748 (Becnel Dep. Ex. 4). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 21 of 44 PageID 7577 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 18 released claims in this lawsuit. 37. Larry Oney on behalf of H&G and Luke Sweetser on behalf of NTOF negotiated the Redemption Agreement. App. 1592 (L. Oney Decl. (7/8/2016) ¶ 3). Larry Oney relied on Sweetser’s representations that NTOF intended to and was releasing all past and present claims related to NTOF’s investment in H&G against the HGI Released Parties (as defined in the Redemption Agreement) in entering into the Redemption Agreement. Id. H&G would not have executed the Redemption Agreement had it not contained the release of claims against the HGI Released Parties and had Larry Oney known that NTOF did not intend to honor the release. Id. H. NTOF’s False Representations to Federal Authorities 38. Years after the Redemption Agreement, there was a wide-ranging federal investigation related to the massive federal rebuilding program following Hurricane Katrina. App. 176-78 (Burns Dep. 44:20-46:7); id. 436 (NTOF Dep. 198:7-16). Some of the defendants had received State and Federal funds for substantial post-Katrina work, which were reviewed, and the payments by H&G to PRG related to that work also were reviewed. App. 171 (Burns Dep. 13:6-12); id. 433-35 (NTOF Dep. 190:21-192:6); id. 671-77 (Defs’ Dep. Ex. 2). It is undisputed that no defendant was ever charged with any misconduct, much less indicted, as a result of the investigation or federal review.28 39. NTOF received a grand jury subpoena from the IRS-Criminal Investigation Division dated November 9, 2010, for records related to NTOF’s investment in H&G, including the related party transactions between H&G, Christopher Oney, and PRG. App. 433-35 (NTOF Dep. 190:21-192:6); id. 671-77 (Defs.’ Dep. Ex. 2). In response, NTOF produced nearly 2,000 pages of documents, but inexplicably not the October 1, 2008 email disclosures between NTOF 28 App. 497-98 (C. Oney Dep. 232:23-233:19); id. 437-40 (NTOF Dep. 200:5-13, 201:7-9, 202:7-17, 203:18-204:12); id. 701 (Defs.’ Dep. Ex. 31). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 22 of 44 PageID 7578 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 19 and P&N, despite the federal authorities’ specific request for these communications.29 40. On February 28, 2011, NTOF’s Sweetser met with Christopher Oney’s Louisiana counsel, Glenn Burns. App. 172-74, 183-84 (Burns Dep. 31:12-23, 32:17-20, 38:11-17, 63:12- 64:1); id. 1309 (Burns Dep. Ex. 4); id. 54 (Defs.’ Resp. to Pl.’s Interrog. No. 12 (1/11/16)). Sweetser confirmed to Burns that NTOF knew before the Redemption Agreement that Christopher Oney had received a substantial amount of money through a subcontract with H&G for bringing in the contracts after Katrina. App. 175, 179-81, 184-85 (Burns Dep. 39:14-23, 58:19-60:11, 64:12-20, 67:1-6); id. 1309-11 (Burns Dep. Ex. 4). At his December 10, 2015 deposition, however, Sweetser testified that he could not recall even meeting with Burns. App. 623-25 (Sweetser Dep. 67:4-69:17). After Sweetser’s deposition and after Defendants moved to compel production of Sweetser’s calendars, NTOF produced the calendars for this time period, which did not show Sweetser’s meeting with Burns. App. 1337 (NTOF, LP 06689). After Burns testified regarding the meeting at his deposition on May 17, 2016, and on the eve of the discovery cut-off, NTOF finally, on May 18, 2016, produced Sweetser’s calendar that contained an entry regarding the meeting. App. 1338 (NTOF, LP 11061). 41. What is more, NTOF’s Hollingsworth represented to the IRS in March 2011 that he had directed a search of NTOF emails to be performed for terms including “PRG,” “Principal Resource Group,” “Postlethwaite,” and “P&N.” App. 363-70 (Hollingsworth Dep. 158:10- 160:2, 163:9-164:2, 167:11-169:24); id. 729-31 (Defs.’ Dep. Ex. 51); id. 101 (NTOF’s Ans. ¶ 62). These were all terms that were included in the Sweetser/Becnel October 1, 2008 email disclosure, that NTOF did not produce to the IRS. App. 368-70 (Hollingsworth Dep. 167:11- 29 App. 626-32 (Sweetser Dep. 72:7-78:2); id. 347-48, 368-70 (Hollingsworth Dep. 97:3-98:24, 167:11- 169:24); id. 100-01 (NTOF’s Ans. ¶ 61). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 23 of 44 PageID 7579 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 20 169:24); id. 678 (Defs.’ Dep. Ex. 3). Hollingsworth could not explain this failure to produce in his deposition. App. 368-70 (Hollingsworth Dep. 167:11-169:24). 42. Notwithstanding the October 1, 2008 NTOF/P&N email disclosure and NTOF and its principals’ admitted knowledge of the PRG related party transactions, and Sweetser’s admission to Burns on February 28, 2011, that he knew substantial payments were made to Christopher Oney for post-Katrina work, NTOF’s counsel reported to IRS Special Agent James Aime on April 26, 2011: After we hung up, I spoke with both AUSA Mann and Greg Campbell. Greg’s knowledge is consistent with Arthur’s and Luke’s, i.e., (a) he did not know of Principal Resource Group or the commission payments to Chris Oney, and (b) if he had known, that certainly may have changed his valuation of H&G and/or the buyout price for NTOF. App. 681 (Defs.’ Dep. Ex. 5); id. 101 (NTOF’s Ans. ¶ 63); id. 76 (NTOF’s Resp. to RFA No. 55). NTOF’s Sweetser has now admitted under oath that this representation to the federal authorities, made by NTOF to the detriment of Defendants, was false. App. 97 (NTOF’s Ans. ¶ 49); id. 646 (Sweetser Dep. 102:15-20). 43. Further, in March 2014, after suing H&G and unbeknownst to H&G, Arthur Hollingsworth misrepresented to the IRS that NTOF was authorized to obtain copies of H&G’s tax returns. App. 1485-92 (NTOF Dep. 212:12-213:12, 214:5-10, 215:15-216:5); id. 1507-45 (Defs.’ Dep. Ex. 32); id. 102 (NTOF’s Ans. at ¶ 65). In particular, Mr. Hollingsworth signed a Form 4506 falsely verifying that he was authorized by H&G, the taxpayer, to obtain H&G’s tax returns for 2004-2008. Id. Of course, NTOF was no longer an H&G shareholder after November 6, 2008, and H&G had not given NTOF authorization to obtain copies of H&G’s tax returns from the IRS. App. 1485 (NTOF Dep. 214:5-10). Mr. Hollingsworth’s verification to the contrary was just plain false. Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 24 of 44 PageID 7580 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 21 I. NTOF Sued H&G, Larry Oney and Lawrence Pratt in 2012 44. Despite NTOF’s release in 2008 and the disclosures it had received about the related party transactions, NTOF filed its first suit in Dallas County District Court on February 14, 2012 against H&G, Larry Oney, and Lawrence Pratt, falsely claiming that “[n]either PRG nor the PRG Agreement was ever disclosed to NTOF.” NTOF v. H&G, No. 3:12-cv-00882-N, Notice of Removal [ECF 1] (Orig. Pet. [ECF 1-3] ¶ 21). 45. After Defendants removed and moved to dismiss, the parties entered into a tolling agreement and NTOF voluntarily dismissed its case without prejudice. Compl. [ECF 110] at 164; see also NTOF v. H&G, No. 3:12-cv-00882-N, Notice of Dismissal [ECF 7]. J. NTOF Filed the Present Suit in 2014 and Adds H&G Inc. in 2016 46. NTOF filed its present suit in state court on April 9, 2014, which reasserts the claims in the prior suit against H&G, Larry Oney, and Pratt, adds additional claims against those Defendants, and adds for the first time Christopher Oney, H&G’s subsidiary HGI Catastrophe, and PRG as defendants. Orig. Pet. [ECF 1-6]. NTOF re-alleged contract, fraud, and other tort claims arising out of NTOF’s redemption of its H&G stock in 2008. Like its original 2012 suit, NTOF’s 2014 suit is premised on Defendants’ purported nondisclosure of the PRG related party transactions and the alleged resulting undervaluation of NTOF’s shares when it redeemed them in November 2008. 47. H&G brought a counterclaim against NTOF for breaching the Redemption Agreement’s release provision by suing H&G in the underlying suit and for breach of the indemnification provisions. H&G’s First Amended Counterclaim [ECF 125] ¶¶ 77-78. In the alternative, if, as NTOF contends, the release does not apply, H&G brought counterclaims against NTOF for fraudulent inducement and negligent misrepresentation in connection with Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 25 of 44 PageID 7581 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 22 NTOF’s misrepresentations that it was releasing any and all claims under the Redemption Agreement. Id. ¶¶ 80-87. H&G seeks damages for the $75,000.00 termination fee it paid to terminate the Monitoring Agreement as part of the redemption transaction, and H&G’s fees and expenses in connection with NTOF’s suit against it, including lost productivity and expenses and fees for consultants, attorneys and H&G employees and executives to respond to and defend against NTOF’s lawsuit. Id. ¶¶ 79, 83, 87; see also id. 1602-04 (C. Oney Decl. (7/8/2016) ¶¶ 4- 11) (quantifying H&G’s employee lost productivity and expenses for consultants and attorneys in connection with NTOF’s suit); id. 1592 (L. Oney Decl. (7/8/2016) ¶ 7). H&G also seeks exemplary damages for its tort claims. H&G’s First Amended Counterclaim [ECF 125] ¶ 83, 87. 48. On April 25, 2016, NTOF filed its First Amended Complaint [ECF 110] (the “Complaint”), adding H&G Inc. and Delta Group, LLC (“Delta”), and asserting that H&G wrongfully made, without NTOF’s approval (1) an excessive bonus payment to Larry Oney in 2008, and (2) payments to Delta and other Oney family members, in addition to H&G’s allegedly wrongful payments to PRG and Christopher Oney. Compl. [ECF 110]. These claims are all based on Defendants’ purported contractual duties to disclose to and get NTOF’s approval for related party transactions and payments during the Investment Period. 49. H&G Inc. brought a counterclaim against NTOF for breaching the Redemption Agreement’s release provision by suing H&G Inc. in the underlying suit. H&G Inc.’s Orig. Counterclaim [ECF 126] ¶¶ 40-44. As H&G’s subsidiary, H&G Inc. is one of the “HGI Released Parties” under Section 9.1 of the Redemption Agreement and a third party beneficiary of the Redemption Agreement. Id. ¶ 42. H&G Inc. seeks damages for its fees and expenses in connection with NTOF’s suit against it, including the $75,000.00 termination fee to terminate the Monitoring Agreement as part of the redemption transaction, and lost productivity and expenses Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 26 of 44 PageID 7582 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 23 and fees for consultants, attorneys and H&G employees and executives to respond to and defend against NTOF’s lawsuit. Id. ¶ 44; see also App. 1602-04 (C. Oney Decl. (7/8/2016) ¶¶ 4-12); id. 1592 (L. Oney Decl. (7/8/2016) ¶ 7). 50. NTOF has now sought partial summary judgment on H&G and H&G Inc.’s counterclaims. Pl.’s Mot. for Summ. J’t [ECF 145]. As discussed, there are genuine disputes as to material facts that preclude summary judgment, and NTOF’s motion should be denied. III. ARGUMENT AND AUTHORITIES A. Summary Judgment Standard. Summary judgment is proper when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is “material” if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A party opposing summary judgment can show that the asserted facts are genuinely disputed by showing that the materials the movant cites do not show the absence of a genuine dispute, or produce evidence supporting the material fact. FED. R. CIV. P. 56(c)(1)(B). B. NTOF Breached the Redemption Agreement by Suing Counterclaimants (and Others) After Releasing Its Claims NTOF released all claims against Counterclaimants under Section 9.1 of the Redemption Agreement. NTOF has breached the Redemption Agreement by suing Counterclaimants (and other Defendants) for its claims related to the Investment, which necessarily arose during the Investment Period before November 6, 2008. Therefore, the Court should deny NTOF’s motion for partial summary judgment on Counterclaimants’ breach of contract claims. Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 27 of 44 PageID 7583 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 24 1. Even under NTOF’s restrictive reading of the Release, NTOF’s claims arose “prior to the date of” the Redemption Agreement. NTOF concedes that it released causes of action arising “prior to the date” of the Redemption Agreement-i.e., claims arising before November 6, 2008. Pl.’s Brief at 14. All of NTOF’s claims in the underlying suit (except for its breach of Redemption Agreement claim against H&G) arose during the Investment Period, before November 6, 2008. In particular, NTOF has brought the following claims against H&G and H&G Inc., all of which arose and accrued before November 6, 2008: • Common law fraud (against H&G and H&G Inc.): Based on Defendants’ allegedly false representations during the Investment Period (and prior to the Redemption Agreement) regarding H&G, H&G Inc. and HGI Catastrophe’s “true revenue and profits.” Compl. ¶ 90. • Fraud by nondisclosure (against H&G and H&G Inc.): Based on Defendants’ alleged failure to disclose during the Investment Period (and prior to the Redemption Agreement) the following purportedly material facts: “(1) that PRG competed with [H&G] and HGI Catastrophe; (2) the PRG Contract [executed September 1, 2006]; (3) the PRG Addendum [executed October 15, 2008]; (4) payments totaling almost $11.4 million from [H&G] and its subsidiaries to PRG; (5) PRG’s payments to Christopher Oney; (6) commission payments totaling more than $6.5 million from [H&G] and its subsidiaries to Christopher Oney; (7) over $3.6 million in payments from Christopher Oney to Larry Oney and/or Delta; (8) payments directly from [H&G] to Delta; (9) payments directly from [H&G] to Larry Oney’s family members; and (10) an unauthorized bonus payment totaling more than $1.4 million from [H&G] and its subsidiaries to Larry Oney.” Compl. ¶ 94. • Fraudulent inducement (against H&G and H&G Inc.): Based on the allegation that “[d]uring NTOF’s time as a preferred stockholder in [H&G] and immediately prior to [H&G] Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 28 of 44 PageID 7584 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 25 and NTOF entering into the Redemption Agreement, Defendants…made material and false representations to NTOF regarding [H&G’s], [H&G Inc.’s], and HGI Catastrophe’s true revenue and profits.” Compl. ¶ 100 (emphasis added). • Negligent misrepresentation (against H&G): Based on H&G’s alleged “representations to NTOF in the course of [H&G’s] business and transactions with NTOF, including representations regarding [H&G’s], [H&G Inc.’s], and HGI Catastrophe’s revenue and profits.” Compl. ¶ 104 (emphasis added). • Texas Theft Liability Act (against H&G): Based on NTOF’s alleged right “[a]s a shareholder in [H&G]” to H&G and its subsidiaries’ “profits” that were diverted to “PRG, Christopher Oney, Larry Oney and his family members, and Delta.” Compl. ¶ 108 (emphasis added). • Conversion (against H&G): Based on NTOF’s alleged right “[a]s a shareholder in [H&G]” to H&G and its subsidiaries’ “true profits.” Compl. ¶ 110 (emphasis added). • Breach of fiduciary duty (against H&G): Based on H&G’s alleged breaches while NTOF was an investor, including “failing to disclose information to NTOF, failing to account for and concealing [H&G’s] revenue and profits, and paying [H&G’s] revenue and profits to those who were not entitled to receive them.” Compl. ¶ 114. • Breach of Stock Purchase Agreement and SPA Amendment (against H&G): Based on H&G’s alleged failure to provide audited financial statements to NTOF after closing [June 7, 2004] and within 90 days of the end of each fiscal year in which NTOF was an investor; increasing Christopher Oney and Larry Oney’s compensation by more than 10% in a year without NTOF’s approval; entering into the PRG Agreement [on September 1, 2006] and PRG Addendum [on October 15, 2008] and transacting other business with PRG without NTOF’s Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 29 of 44 PageID 7585 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 26 approval; transacting business with Delta and making payments to Larry Oney’s family members without NTOF’s approval; distributing money to Larry Oney without NTOF’s approval or a pro rata distribution to NTOF; and for not fulfilling SPA Section 7.3’s indemnification obligations. Compl. ¶ 119-20. • Money had and received (against H&G): Based on H&G’s alleged diversion of its revenue and profits “by paying it directly to Larry Oney and his family members and companies, and by funneling it through PRG and Christopher Oney.” Compl. ¶ 131. In sum, on their face these claims are based on H&G and H&G Inc.’s purported failure to make disclosures and obtain NTOF’s approval for payments made during the Investment Period-i.e. “prior to the date of” the Redemption Agreement. In fact, NTOF alleges that it is entitled as damages to 49% of this $19 million (less 40% for taxes), which is the amount NTOF allegedly would have been entitled to during the Investment Period had the payments not been made. While Counterclaimants disagree with NTOF’s damages theory, the theory further illustrates that NTOF’s damages arose while it was an investor, as NTOF is claiming only the percentage commensurate with its 49% ownership interest during the Investment Period. What is more, the evidence shows that the payments NTOF complains about were all made before November 6, 2008.30 The agreements that NTOF alleges it did not know about 30 Christopher Oney’s commission payments and payments to PRG began in 2006 and increased substantially beginning in 2007, once the Road Home work began in earnest. App. 240 (Campbell Dep. 144:6-25); id. 524-25, 1264-73 (L. Oney Dep. 175:15-176:12 & L. Oney Dep. Ex. 21); id. 932, 934-48, 1015-1108 (H&G Dep. Exs. 32, 34, 41, 42). The payments to Delta for which NTOF complains were made in 2007 and 2008. See App. 584-585 (Pratt Dep. 179:12-180:5); id. 325-328 (H&G Dep. (2/2/16) 287:18-288:25, 289:16-290:18 & H&G Dep. Exs. 49, 50); see also id. 1588 (excerpt from H&G general ledger). All of the payments to Michael Oney and Jonathan Oney for which NTOF complains were made before November 2008. App. 572-73 (Pratt Dep. 147:8-148:12); id. 323-24 (H&G Dep. (2/2/16) 238:17-239:4 H&G Dep. Exs. 41, 48, 49, 50); id. 494-96 (C. Oney Dep. 224:23-226:7); see also id. 1589, 1590 (excerpts from H&G general ledger). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 30 of 44 PageID 7586 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 27 (despite the evidence and its own admissions to the contrary) were entered on September 1, 2006 (the PRG Agreement) and October 15, 2008 (the PRG Addendum)-which are both within the Investment Period. App. 916 (PRG Agreement); id. 1503-04 (Pratt Dep. Ex. 38, PRG Addendum). NTOF has not brought claims for any actions taken or payments made after November 6, 2008. Nor could it, as the purported contractual requirements upon which NTOF bases its claims would have been in place only during the term of the parties’ relationship. See App. 1295 (Redemption Agr. § 3) (stating that the parties terminated the Investment Agreements, including the SPA and SPA Amendment). It is undisputed that these contractual requirements were terminated and did not survive the Redemption Agreement, through which NTOF sold back its shares and relinquished its 49% ownership interest in H&G. See id. NTOF’s tort claims are all premised on the contractual duties that NTOF alleges Defendants owed under the SPA and Certificate of Designations. See Defs.’ Briefs in Support of Motions for Summary Judgment (ECF 153 at 22-26, ECF 157 at 38-42) (explaining that NTOF’s tort claims are barred by the economic loss rule). NTOF alleges that Defendants misrepresented H&G and its subsidiaries’ “true revenue and profits” by breaching alleged contractual obligations to obtain NTOF’s approval for payments to Christopher Oney, PRG, Delta and other Oney family members, and Larry Oney’s bonus paid in 2008. Compl. ¶¶ 15, 66, 90, 94, 100, 104, 107, 110, 123, 131. NTOF does not (and cannot) base its claims on any independent, extra- contractual duties H&G and H&G Inc. owed NTOF, and no such duties exist. In particular, NTOF’s tort claims regarding the purported nondisclosure of commissions paid to Christopher Oney are based on SPA Section 7.11, which purportedly prohibits H&G from raising senior executive compensation by more than 10% per year without NTOF’s Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 31 of 44 PageID 7587 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 28 approval. Compl. ¶¶ 15, 66; see also id. ¶ 119 (alleging breach of SPA § 7.11 as well). NTOF’s Sweetser also claimed this was an event of default under the SPA when discussing the related party transactions with P&N back in September 2008. App. 678 (Defs.’ Dep. Ex. 3); id. 633-34, 635-39 (Sweetser Dep. 79:3-80:22, 81:12-85:23). Likewise, NTOF’s claims based on Defendants’ alleged failure to disclose and obtain NTOF’s approval for purported other related party transactions or payments are based solely on alleged contractual duties contained in Section 9 of the Certificate of Designations. Compl. ¶¶ 27, 34-37, 42, 60, 94. NTOF also alleges that the Certificate of Designations require NTOF’s approval of any related party payments, including transactions involving H&G’s officers, directors, companies owned by them, and their family members. Compl. ¶ 16; see also id. ¶ 119 (framing these payments as contract breaches).31 NTOF also frames its tort claims based on the alleged unauthorized payment of Larry Oney’s bonus in 2008 as a violation of the Certificate of Designations and the Employment Agreement. Compl. ¶ 16. It is undisputed that the SPA, Certificate of Designations, Employment Agreement and other Investment Agreements terminated when the Redemption Agreement was executed. Additionally, NTOF claims breaches of contract based on H&G’s failure to provide audited financials in 2004 through March 2008 as allegedly required by the SPA. Compl. ¶¶ 119-20, 127-28. NTOF alleges H&G was required to provide audited financials at closing in 2004 and within 90 days after the end of each fiscal year through the Redemption Agreement. Compl. ¶ 119. Therefore, to the extent these breaches occurred at all (they did not), they must have occurred on June 7, 2004, and March 31 of 2005, 2006, 2007, and 2008. As a result, these 31 See also Compl. ¶ 72 (“[H&G] and its subsidiaries paid Delta…and Larry Oney’s sons Jonathan and Michael Oney…without first obtaining NTOF’s approval in violation of the Stock Purchase Agreement and the Certificate of Designations for NTOF’s preferred stock.”) (emphasis added). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 32 of 44 PageID 7588 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 29 alleged failures to provide audited financials all accrued before NTOF entered into the Redemption Agreement on November 6, 2008, terminated the SPA and other Investment Agreements, and released its claims. For all these reasons, the release covers NTOF’s alleged claims against Counterclaimants.32 Therefore, NTOF’s request for partial summary judgment on H&G and H&G Inc.’s counterclaims for breach of the release should be denied. 2. Patton v. Nicholas does not support NTOF’s position. NTOF briefly argues that it did not suffer injury and its claims did not accrue until it sold its H&G stock. In addition to all the reasons above demonstrating that NTOF is seeking alleged damages based on alleged injuries that accrued prior to the Redemption Agreement, NTOF’s sole authority for its argument, Patton v. Nicholas, 279 S.W.2d 848, 858 (Tex. 1955), does not support NTOF’s position. In Patton, the members of a partnership created a closely-held corporation as part of a contractual settlement of a partnership profit-distribution dispute. Patton, 279 S.W.2d at 849-50. After incorporation, the minority shareholders brought suit to force a liquidation of the corporation due to the majority shareholder’s purported mismanagement and suppression of the payment of dividends. Id. at 852-53. The Texas Supreme Court sustained the trial court’s finding of malicious suppression of dividends, but reversed the trial court’s order liquidating the corporation through a receivership and remanded for the trial court to determine an appropriate dividend to the minority shareholders. Id. at 859. 32 NTOF’s principal Sweetser was authorized to negotiate the Redemption Agreement for NTOF, and even he agrees that NTOF released its claims. App. 653-54 (Sweetser Dep. at 144:23-145:23) (admitting NTOF released breach of contract claims such as any failure to provide audits). Moreover, even if NTOF did not know of the conduct supposedly giving rise to such “violations,” NTOF explicitly agreed to release not only the claims it was aware of, but those it “may have against” H&G and H&G Inc. App. 1297 (Redemption Agr. § 9.1). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 33 of 44 PageID 7589 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 30 Unlike this case, in Patton the minority shareholders still held their shares at the time they filed suit. Id. at 858. The Court’s statement that the minority shareholders did not suffer a “true loss” for any “past devaluation” of their stock was made with the recognition that the shareholders “still own the stock” and could be made whole by the payment of a dividend- which is what occurred upon remand. Id.; see also Patton v. Nicholas, 302 S.W.2d 441, 442 (Tex. Civ. App.-Waco 1957, writ ref’d n.r.e.). The Court recognized that both (1) the payment of the dividends and (2) the liquidation of the corporation and payment of the minority shareholders’ pro rata part of the net assets, including the surplus out of which any dividends would have come, would have resulted in an impermissible double recovery and “unjust enrichment” to the minority shareholders. Patton, 279 S.W.2d at 858. The Court’s dicta that the “loss from nonpayment of dividends” would have “become real…only if the respondents had been compelled to sell their stock” was made in the context of the remedy: either payment of the dividends while the minority shareholders still held their stock or (as the trial court found, and the Court overruled) liquidation of the corporation and payment of past dividends out of the proceeds upon liquidation. See id. The Court did not state that the minority shareholders only suffered a loss once they sold their shares, as NTOF now argues. Indeed, under NTOF’s interpretation of Patton, the minority shareholders in that case would have had no claims-and the Court could not have ordered a remedy-because they still owned their shares at the time of the Court’s opinion and upon remand when the dividend was paid. Finally, even if Patton v. Nicholas could be said to support NTOF’s argument that its claims regarding Defendants’ past actions in connection with NTOF’s investment did not become actionable until NTOF redeemed its shares (and it does not), Section 9.1 of the release Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 34 of 44 PageID 7590 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 31 still releases those claims. Section 9.1 states that NTOF released all “actions,” “contracts” and “damages” that NTOF “ever had, now have or hereafter can, shall or may have against any of the HGI Released Parties” related to the Investment. App. 1297 at § 9.1 (emphasis added). Therefore, NTOF released claims that had arisen as of the redemption, even if, as NTOF argues but Counterclaimants dispute, the claims had not become actionable at that time. 3. NTOF’s interpretation of the Redemption Agreement’s provisions conflicts with the agreement’s plain language. NTOF also argues that its claims do not relate to the “Investment” as defined in the Redemption Agreement. NTOF’s interpretation of the term would render the entire Redemption Agreement meaningless and should be rejected. The Redemption Agreement releases H&G and H&G Inc. (and others) from all claims and damages arising from the “Investment.” App. 1295-1308 (Redemption Agr. § 9.1). The Redemption Agreement defines “Investment” as NTOF’s “3,000,000 shares of Series A Preferred Stock of [H&G]…which were purchased by NTOF from [H&G] pursuant to a Series A Preferred Stock Purchase Agreement dated June 7, 2004 and a First Amendment to Series A Preferred Stock Purchase Agreement dated September 30, 2005.” App. 1295 (Redemption Agr. at 1). The Redemption Agreement goes on to recite that “[i]n connection with the Investment,” NTOF and H&G entered into certain “Investment Agreements,” including the SPA, SPA Amendment, Monitoring Agreement and other agreements. App. 1295 (Redemption Agr. § 3). Therefore, “Investment” means NTOF’s 3,000,000 shares of H&G, as the provision states, and as the reference to the Investment Agreements entered into “in connection with the Investment” indicates. Id. Despite this clear language, NTOF argues that “Investment” “does not cover the shares themselves,” and that instead “a separate definition ‘Redeemed Shares’-describes the 3 million Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 35 of 44 PageID 7591 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 32 shares of [H&G] preferred stock that NTOF held.” Pl.’s Brief at 16. Accordingly, NTOF contends that because its claims purportedly arise from “selling the Redeemed Shares to [H&G] through the Redemption Agreement,” the claims were not released. This argument depends on NTOF’s misreading of Patton v. Nicholas, which does not support NTOF’s position for the reasons explained above. NTOF’s argument also ignores that all but its breach of Redemption Agreement claim are for H&G and the other Defendants’ purported actions during the course of the Investment, not at the time NTOF sold its shares.33 Importantly, NTOF’s argument would render the release meaningless, as NTOF argues that its claims only accrue after the Redemption Agreement was entered-therefore there could be no claims “prior to the date of” the Redemption Agreement arising from the “Investment” as Section 9.1 of the Redemption Agreement provides. Texas law does not recognize contractual interpretations that read entire provisions out of a contract. See Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983). NTOF’s interpretation of “Investment” should be rejected. 4. The release bars NTOF’s tort claims. NTOF argues, in the alternative, to the extent the Court determines that the release applies to NTOF’s claims arising on or after the date of the Redemption Agreement, it should still deny Counterclaimants’ breach of contract claims with respect to NTOF’s claims for fraud, fraud by nondisclosure, theft, conversion, breach of the Redemption Agreement, and money had and received. Pl.’s Brief at 16-17, 19. NTOF contends that Section 9.1(b) specifically references and releases NTOF’s claims for “breach of contract, negligence, tortious interference 33 Texas does not recognize common law shareholder oppression claims. To the extent NTOF asserts that its claims are based on Larry Oney’s (the majority shareholder) oppression of the value of NTOF’s shares during the Investment Period, any such claims fail as a matter of law. See Ritchie v. Rupe, 443 S.W.3d 856, 877 (Tex. 2014); Cardiac Perfusion Servs., Inc. v. Hughes, 436 S.W.3d 790, 793 (Tex. 2014) (per curium); see also Order [ECF 18] at 19-21 (dismissing NTOF’s breach of fiduciary duty claims against H&G, Larry Oney and Lawrence Pratt citing Ritchie). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 36 of 44 PageID 7592 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 33 with contract or violation of any state or federal securities laws.” Id. at 16. Accordingly, NTOF argues that its claims that are not specifically listed in Section 9.1(b) have not been released. As explained above, NTOF’s tort claims all arose during the course of NTOF’s Investment and “prior to” the Redemption Agreement. See Compl. ¶¶ 90, 94, 100, 104, 107, 110, 114, 131. Therefore, whether specifically listed in Section 9.1(b) or not, these claims are barred by release. 5. H&G and H&G Inc. are entitled to damages for NTOF’s breach of the Redemption Agreement. NTOF argues that Counterclaimants are not entitled to damages for their breach claims because (1) H&G agreed to indemnify NTOF for damages in connection with H&G’s claims; and (2) there is no evidence that H&G suffered any actual damages. NTOF’s interpretation of the indemnity provision does not preclude H&G’s damages, and ample evidence exists that H&G/H&G Inc. suffered damages due to NTOF’s breach of the Redemption Agreement. First, the indemnity provision upon which NTOF relies applies to claims arising out of “the ownership or purchase of the Redeemed Shares hereunder or the operation of [H&G].” Pl.’s Brief at 17. This provision does not speak to H&G and H&G Inc.’s current claims against NTOF for breaching the Redemption Agreement by filing suit against Counterclaimants on alleged claims NTOF had already released, even assuming such claims exist (and they do not). The counterclaims, in other words, arise out of NTOF’s own conduct, not the operation of H&G or the ownership or purchase of the shares.34 Therefore, NTOF is not entitled to indemnity for damages arising from H&G and H&G Inc.’s counterclaims. 34 See Southern Pac. Transp. Co. v. Voluntary Purchasing Grps. Inc., No. 3:94-cv-2477-H, 1997 U.S. Dist. LEXIS 22767, at *29-31 (N.D. Tex. Aug. 7, 1997) (fair notice doctrine requires the express, conspicuous statement that the indemnity applies to a party’s own negligence); Griffin Indus., Inc. v. Foodmaker, Inc., 22 S.W.3d 33, 36-37 (Tex. App.-Houston [14th Dist] 2000, pet. denied) (same); cf. Frantom v. Neal, 426 S.W.2d 268, 272 (Tex. Civ. App.-Fort Worth Mar. 15, 1968, writ ref’d n.r.e.). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 37 of 44 PageID 7593 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 34 Second, there is ample evidence of H&G/H&G Inc.’s damages resulting from NTOF’s breach. These damages include the $75,000.00 termination fee that H&G paid to terminate the Monitoring Agreement as a condition of the Redemption Agreement. App. 593 (Pratt Dep. 194:13-23); id. 619 (Sweetser Dep. 57:15-20); id. 333-34 (H&G Dep. (2/2/16) 316:24-317:7); id. 1325 (HG00005363); H&G’s First Amended Counterclaim [ECF 125] ¶ 79; H&G Inc.’s Orig. Counterclaim [ECF 126] ¶ 44. Counterclaimants also suffered over $1,211,000.00 in damages to date for lost productivity and expenses and fees for consultants, attorneys and H&G employees and executives to respond to and defend against NTOF’s lawsuit. App. 1602-05 (C. Oney Decl. (7/8/2016) ¶¶ 4-12); id. 1592 (L. Oney Decl. (7/8/2016) ¶ 7). Further, while NTOF states that there is no evidence as to the value of the redeemed shares other than the opinion of NTOF’s expert as to H&G’s value, to the extent that opinion is even competent summary judgment evidence (as it is merely unsworn “opinion” testimony), Defendants’ rebuttal expert has testified that NTOF’s expert’s valuation of the H&G stock is too high. App. 1439-84 (Anderson Dep. (5/20/16) 14:16-17:2, 191:16-22, 194:13-201:20, 202:24- 203:19, 204:7-206:7, 208:8-225:9, 231:8-232:15, 235:25-236:20, 237:25-238:13, 253:7-20); see also id. 1413-24 (Anderson Rpt. ¶¶ 18-39). Moreover, H&G is not seeking to rescind the Redemption Agreement or to recover damages based on an alleged overpayment for the redeemed shares at this time. In any event, evidence of value by an owner is admissible,35 and H&G’s sole owner, Larry Oney, will testify to the value of the redeemed shares at trial, which was not more than what was paid and was, in actuality, far less. App. 1592 (L. Oney Decl. (7/8/2016) ¶ 4); id. 316 (H&G Dep. (2/2/16) 188:3-23). Additionally, the negotiations and share repurchase letters between H&G and NTOF concerning the value of the H&G shares (e.g., 35 See Levy v. United States, 402 Fed. App’x 979, 983 (5th Cir. Dec. 1, 2010). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 38 of 44 PageID 7594 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 35 rejecting offers of $5,000,000.00 and $6,000,000.00 as too high) and the ultimate purchase price ($4,000,000.00) are evidence of the shares’ value.36 In sum, there is sufficient evidence supporting Counterclaimants’ breach claims to survive summary judgment. NTOF’s motion should be denied. C. Sufficient Evidence Supports H&G’s Alternative Counterclaims for Fraudulent Inducement and Negligent Misrepresentation. H&G brought counterclaims for fraudulent inducement and negligent misrepresentation in connection with entering into the Redemption Agreement if, as NTOF claims in its First Amended Complaint, the Redemption Agreement’s release does not apply. NTOF notes that it cannot get summary judgment on its fraudulent inducement claim because a genuine dispute of material fact exists as to whether NTOF was fraudulently induced to enter into the Redemption Agreement (Pl.’s Brief at 13, n.5); here, a genuine dispute of material fact exists as to whether H&G was fraudulently induced to enter into the Redemption Agreement and/or whether NTOF made negligent misrepresentations to induce H&G to enter into the Redemption Agreement. The elements of fraudulent inducement are the same elements of a fraud claim as related to an agreement between the parties, and include: (1) counterdefendant made a false, material representation to counterclaimant which counterdefendant knew was false or made it recklessly without knowledge of its truth; (2) counterdefendant made the representation with the intent that counterclaimant act on it; and (3) counterclaimant justifiably relied on the representation and was injured. See Lane v. Halliburton, 529 F.3d 548, 564 (5th Cir. 2008). The elements of negligent misrepresentation are: (1) counterdefendant made a representation in the course of business or in a transaction in which counterdefendant has a 36 App. 301-02, 316 (H&G Dep. (2/2/16) 163:18-164:17, 188:3-23); id. 444-46 (NTOF Dep. 232:11- 234:1); id. 703-13 (Defs.’ Dep. Ex. 35); id. 714-16 (Defs.’ Dep. Ex. 36); id. 922-23 (H&G Dep. Ex. 28); id. 726 (Defs.’ Dep. Ex. 42); id. 732-33 (Defs.’ Dep. Ex. 53); id. 96-97 (NTOF’s Ans. ¶ 44, ¶¶ 46-48). Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 39 of 44 PageID 7595 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 36 pecuniary interest; (2) counterdefendant supplied false information for the guidance of others in their business; (3) counterdefendant did not exercise reasonable care or competence in obtaining or communicating the information; and (4) counterclaimant suffered pecuniary loss by justifiably relying on the representation. See Smith Int’l, Inc. v. Egle Group LLC, 490 F.3d 380, 387-88 (5th Cir. 2007). NTOF argues that no evidence exists that NTOF made any false representations in connection with the Redemption Agreement. However, there is ample evidence that NTOF’s representative, Luke Sweetser, knowingly made false representations to Larry Oney that NTOF intended to release any and all claims relating to NTOF’s Investment during the negotiations of the Redemption Agreement. App. 1592 (L. Oney Decl. (7/8/2016) ¶ 5). NTOF added the release provisions into the Redemption Agreement; they were not in the initial draft agreement H&G sent to NTOF. App. 1493-99 (Pratt Dep. (12/3/15) 186:5-13, 186:19-191:7); id. 1505-06 (Pratt Dep. Ex. 39); id. 1295 (Pratt Dep. Ex. 40); id. 1565-84 (NTOF, LP 05771-5780; NTOF, LP 05784; NTOF, LP 05802-5810). Having added a release of NTOF, H&G would not have entered into the Redemption Agreement had it not also contained a release by NTOF.37 App. 1592 (L. Oney Decl. (7/8/2016) ¶ 6). Moreover, NTOF actually knew, or at the very least should have known, of the related party transactions that NTOF now bases its case on at the time Sweetser was negotiating the Redemption Agreement with Larry Oney and when the final agreement was executed. The disputed evidence is that Larry Oney disclosed and discussed these transactions with NTOF on numerous occasions. See Response Facts ¶¶ 18, 24-25 supra. By October 1, 2008, Sweetser had 37 NTOF argues that H&G cannot show justifiable reliance based on H&G’s failure to read the release. Pl.’s Brief at 19-20. But H&G is not contending that it failed to read the release; rather, H&G contends that it relied on NTOF’s representation that the release means exactly what it says-that NTOF intended to and was releasing any and all claims against H&G arising out of or related to the Investment. See Part III.B supra. Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 40 of 44 PageID 7596 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 37 spoken with H&G’s outside auditor about PRG, H&G’s payments to PRG and the commissions to Christopher Oney. App. 633-34, 635-39, 640, 642 (Sweetser Dep. 79:3-80:22, 81:12-85:23, 87:3-23, 89:10-24); id. 678 (Defs.’ Dep. Ex. 3). Although Sweetser denies it, the auditor testified he disclosed the specific amounts of the related party transactions to Sweetser by October 1, 2008. App. 145, 153-54 (Becnel Dep. 116:22-25, 133:20-134:17); id. 97 (NTOF’s Ans. ¶ 49); id. 641 (Sweetser Dep. 88:6-8). Even Sweetser admits, however, that the auditor called him about PRG and that he requested additional information from the auditor, including the precise amounts. App. 642 (Sweetser Dep. 89:10-17). But, Sweetser testified, NTOF sold its shares without waiting for the auditor’s report, and then refused to hear him out when the auditor called back. App. 642-43, 651 (Sweetser Dep. 89:10-90:19, 129:1-3); id. 192 (Campbell Dep. 11:6-12). NTOF’s Sweetser also concedes that NTOF released its claims through the Redemption Agreement. App. 653-54 (Sweetser Dep. at 144:23-145:23). Therefore, there is evidence that NTOF intended to (and did) release its claims at the time it negotiated and entered into the Redemption Agreement, but had no intention of doing so given that it knew or should have known of the related party transactions at that time and yet sued on those very transactions years later. Further, there is evidence that H&G suffered compensable damages due to NTOF’s fraudulent inducement and negligent misrepresentations. H&G has pleaded and the evidence shows it has suffered out of pocket damages responding to and defending against NTOF’s claims in this lawsuit that NTOF represented it was releasing. H&G’s damages include the $75,000.00 termination fee it paid to terminate the Monitoring Agreement as part of the redemption transaction. App. 593 (Pratt Dep. 194:13-23); id. 619 (Sweetser Dep. 57:15-20); id. 333-34 Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 41 of 44 PageID 7597 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 38 (H&G Dep. (2/2/16) 316:24-317:7); id. 1325 (HG00005363). H&G’s damages also include $161,799.55 in lost productivity of H&G employees and consultant for preparing for and attending depositions, searching for, gathering and reviewing documents in connection with discovery, and reviewing pleadings and other documents related to the case, among other activities, in connection with responding to and defending against NTOF’s suit. App. 1602-03 (C. Oney Decl. (7/8/2016) ¶¶ 4-8); id. 1592 (L. Oney Decl. (7/8/2016) ¶ 7). Additionally, H&G seeks to recover its out of pocket costs for the over $1,000,000.00 in attorneys’ fees and $50,000.00 in expert witness fees that H&G has incurred to date in defending against NTOF’s suit. App. 1603-04 (C. Oney Decl. (7/8/2016) ¶¶ 9-11). H&G seeks to recover the attorneys’ fees as out of pocket damages for defending against NTOF’s suit. Out of pocket damages are recoverable for fraud and negligent misrepresentation, as recognized in authority that NTOF cites. See Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.41, 50 (Tex. 1998) (“Texas recognizes two measures of direct damages for common-law fraud: the out-of-pocket measure and the benefit-of-the-bargain measure.”). H&G does not seek to recover its attorneys’ fees as a prevailing party in the litigation, as the other cases NTOF cites address. See Pl.’s Brief at 25. Having suffered actual damages, H&G also properly seeks exemplary damages, which are recoverable for tort claims such as fraudulent inducement and negligent misrepresentation.38 In sum, there are genuine disputes of material fact precluding summary judgment on H&G’s alternative claims for fraudulent inducement and negligent misrepresentation. Therefore, NTOF’s motion should be denied. 38 NTOF’s argument that H&G can show no damages in connection with its fraudulent inducement and negligent misrepresentation counterclaims based on the Redemption Agreement’s indemnification provision fails for the reasons discussed above as to H&G and H&G Inc.’s breach of contract claim. See Part III.B supra. Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 42 of 44 PageID 7598 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 39 IV. CONCLUSION AND PRAYER Defendants/Counterclaimants Hammerman & Gainer International, Inc. and Hammerman & Gainer, Inc. respectfully request that the Court deny Plaintiff’s motion for partial summary judgment, and grant Defendants/Counterclaimants any such other and further relief deemed just and proper. Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 43 of 44 PageID 7599 DEFENDANTS/COUNTERCLAIMANTS HAMMERMAN & GAINER INTERNATIONAL, INC. AND HAMMERMAN & GAINER, INC.’S BRIEF IN RESPONSE TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 40 DATED: July 11, 2016 /s/ Lisa S. Gallerano Lisa S. Gallerano (Texas Bar No. 07589500) Arnold A. Spencer (Texas Bar No. 00791709) Heather L. Peckham (Texas Bar No. 24028995) Matthew V. Lloyd (Texas Bar No. 24083404) 1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201 Telephone: 214-969-2800 Facsimile: 214-969-4343 lgallerano@akingump.com aspencer@akingump.com hpeckham@akingump.com mvlloyd@akingump.com ATTORNEYS FOR DEFENDANTS CERTIFICATE OF SERVICE On July 11, 2016, I electronically submitted the foregoing Brief in Response to Plaintiff’s Motion for Partial Summary Judgment with the Clerk of the Court for the U.S. District Court, Northern District of Texas, using the electronic case filing system of the Court. I hereby certify that I have served all counsel of record electronically or by another manner authorized by Federal Rule of Civil Procedure 5(b)(2). The electronic case filing system sent a “Notice of Electronic Filing” to the attorneys who have consented in writing to accept this notice as service of this document by electronic means, as follows. Alexander M. Brauer (abrauer@baileybrauer.com) Clayton E. Bailey (cbailey@baileybrauer.com) Benjamin L. Stewart (bstewart@baileybrauer.com) BAILEY BRAUER PLLC Campbell Centre I 8350 N. Central Expy, Suite 206 Dallas, TX 75206 Telephone: (214) 360-7433 Facsimile: (214) 360-7435 /s/ Lisa S. Gallerano Lisa S. Gallerano Case 3:14-cv-01906-B Document 166 Filed 07/11/16 Page 44 of 44 PageID 7600
