ORAL ARGUMENTcourtstuff.com/edocs/10/0/10049016.pdf · ORAL ARGUMENT REQUESTED ... JAN STALLONS...

ORAL ARGUMENT REQUESTED

APPEAL NO. 05-10-00490-CV

IN THE COURT OF APPEALS FOR THE FIFTH APPELLATE DISTRICT

FOR THE STATE OF TEXAS

GREENLEE ENTERPRISES, INC., ET AL Appellants,

KWIK INDUSTRIES, INC., ET AL Appellees.

APPEALED FROM THE 16zND DISTRICT COURT OF DALLAS COUNTY, TEXAS

Cause No. 05-10901 Honorable Judge Lorraine Raggio

APPELLANTS' BRIEF

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\AppealiAppellants' B~iefdoc

MARK H. HOW State Bar No. 10059900 MARK FRELS State Bar No. 07438200 BUDDY APPLE State Bar No. 24059387

HOW, FRELS ROHDE WOODS &DUKE A Professional Corporation 2027 Young Street Dallas, Texas 75201 (2 14) 720-2220 Telephone (2 14) 720-2240 Facsimile

ATTORNEYS FOR APPELLANTS

INDEX OF PARTIES AND COUNSEL

MARK H. HOW MARK FRELS BUDDY APPLE HOW FRELS ROHDE WOODS & DUKE 2027 Young Street Dallas, Texas 75201 (214) 720-2220 Telephone (214) 720-2240 Facsimile ATTORNEYS FOR PLAINTIFFS GREENLEE ENTERPRISES, INC., ET AL

JAN STALLONS 8020 Wallace Road Fort Worth, Texas 76135 PRO SE

JEFFREY S. SEEBURGER KANE RUSSELL COLEMAN & LOGAN, P.C. 3 700 Thanksgiving Tower 1 60 1 Elm Street Dallas, Texas 75201 (214) 777-4200 Telephone (214) 777-4299 Facsimile ATTORNEYS FOR DEFENDANT COMPASS BANK

PAUL FRANCIS PAUL FRANCIS, ATTORNEY AT LAW, PLLC P.O. Box 13369 1 178 W. Pioneer Parkway Arlington, TX 76094 (8 1 7) 543-2600 (8 17) 460-223 6

JAMES A. CRIBBS CRIBBS & MCFARLAND, P.C. P.O. Box 13060 1000 W. Abram Arlington, Texas 76094-0060 ATTORNEYS FOR DEFENDANT CHRIS CHEVREAUX d/b/a CHRIS CHEVREAUX & ASSOCIATES

There are no other persons interested in this proceeding.

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' B~ief.doc

TABLE OF CONTENTS

SUBJECT PAGE (S)

Index of Parties and Counsel ................................................................................. 2

Table of Contents .............................................................................................. 3

Table of Authorities ........................................................................................... 5

Statement Regarding Oral Argument ....................................................................... 8

I . Statement of the Case ................................................................................ 9

I1 . Issues Presented ...................................................................................... 11

A . The Trial Court erred in granting Defendants' Motions on the following issues of law ................................................................................................ 12

I11 . Statement of Facts ................................................................................... 12

Greenlee Plaintiffs ................................................................................... 13

Michaels Plaintiffs ................................................................................... 15

Lofton Plaintiffs ..................................................................................... 18

Judd Plaintiffs ....................................................................................... 20

Willis Plaintiffs ...................................................................................... 22

IV . Summary of Argument .............................................................................. 26

.......................................................................... V . Argument and Authorities 28

A . Standard of Review ........................................................................ 28

B . Plaintiffs raised genuine issues of material facts and raised sufficient evidence that Defendants engaged in a common plan. device. scheme. or artifice to deceive Plaintiffs into purchasing their automotive and dry cleaning Service Centers ........................................................................................ 29

C . Plaintiffs raised sufficient evidence and raised genuine issues of material fact that Defendants committed material misrepresentation and fraudulent inducement. as well as fraudulent concealment. both orally and in writing. to Plaintiffs prior to. and

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\AppalMppellants' Briefdoc

during, the Plaintiffs' purchase o f the Service ....................................................................................... Centers.. .34

D. The Judd, Lofton, and Willis Plaintiffs raised genuine issues of material fact and raised sufficient evidence that Defendants violated the Texas Business Opportunity

........................................................................................... Act.. .46

E. Plaintiffs raised genuine issues of material fact and raised sufficient evidence that Defendants' actions constituted statutory fraud in the sale of real estate under section 27.01 o f the Texas Business and Commerce

.......................................................................................... Code.. -48

F. Plaintiffs raised genuine issues of material fact and raised sufficient evidence that Defendants' actions violated the Texas Deceptive Trade Practices, Consumer Protection Act, Texas Business and Commerce Code section 17.41, the L L ....................................................................................... DTPA.". .49

................................................................................................ VI. Prayer. 50

APPELLANTS' BRIEF N:\KWIK KAR\PLEADMppealMppella~~ts' B~ief.doc

TABLE OF AUTHORITIES

CASES

American Title Co . of Houston v . Bomac Mortgage Holdings. L.P., 196 S.W.3d 91 5 (Tex.App.- Dallas, 2006) ................................................................................................... 33

. ................................................ Bradford v . Vento. 48 S.W.3d 749. 754 (Tex 2001) ..4 243

Campbell v . Booth. 526 S.W.2d 167. 172 (Tex.Civ.App.-Dallas, 1975. writ ref d n.r.e.). ....... 37, 40

City ofHouston v . Clear Creek Basin Auth.. 589 S.W.2d 671, 678 (Tex . 1979) ..................... 28

Corpus Christi Area Teachers Credit Union v . Hernandez. 8 14 S.W.2d 195. 202 (Tex.App.-San Antonio. 1991) ................................................................................................. 37

Ernst & Young LLP v . Pac . Mut . Life Ins . Co., 5 1 S.W.3d 573. 578 (Tex . 2001 ................. 37-39

Fisher v . Yates. 953 S.W.2d 370 (Tex . App.-Texarkana 1997) ..................................... 30, 34

......................... . Fletcher v Edwards. 26 S.W.3d 66. 76 (Tex.App.-Waco, pet denied) .46, 48

Garcia v . John Hancock Variable Life Ins . Co., 859 S.W.2d 427, 435 (Tex.App.-San Antonio 1993, writ denied) ............................................................................................. 30

GXG v . Texacal Oil & Gas. 977 S.W.2d 403. 416 (Tex.App.-Corpus Christi 1998, no writ) ............................................................................................................. 45

Hennigan v . Harris County. 593 S.W.2d 380. 384 (Tex.Civ.App.-Waco 1979. writ ref'd n.r.e.). ........................................................................................................... 40

Int'l Bankers Life Ins . Co . v . Holloway., 368 S.W.2d 567, 581-582 (Tex . 1963) .................. 30, 34

Jackson v . Fiesta Mart. Inc.. 979 S.W.2d 68. 70-71 (Tex.App.-Austin 1998, no pet.). .......... 29

Kalyanaram v . Univ . of Tex . Sys., 230 S.W.2d 68,7 0-71 (Tex.App.-Dallas 2007, pet . denied) ...... 29

LMB. Ltd . v . Moreno. 201 S.W.3d 686. 688 (Tex . 2006) (per curiam) ................................ 28

Marshal v . Kusch. 84 S.W.3d 78 1 . 785 (Tex.App.-Dallas 2002. pet . denied) ...................... 37

Massey v . Armco Steel Co.. 652 S.W.2d 932, 934 (Tex . 1983) ............................................ 29

Merrell Dow Pharmaceuticals. Inc . v . Havner. 953 S.W.2d 706. 71 1 (Tex . 1997) ............ .29. 33

APPELLANTS' BRIEF N:\KWIK KAR\PLEADblppealblppellants' Blief.doc

. . ................... Prudential Ins . Co . v . Jefferson Assoc Ltd., 896, S . W.2d 156, 162 (Tex 1995) .4 3-44

Roth v . FFP Operating Partners. L.P., 994 S.W.2d 190. 195 (Tex.App.--Amarillo 1999, pet . denied) .. : ...................................................................................................... 28

Ruiz v . City of Sun Antonio. 966 S.W.2d 128. 130 (Tex.App.-Austin 1998. no pet.) ............. 28

Schlumberger Well Surveying Corp . v Nortex Oil & Gas Corp., 453 S.W.2d 854. 858 (Tex . 1 968) ................................................................................................ -43-45

. ...................................... . . SW Elec . Power Co v Grant, 73 S.W.3d 211, 215 (Tex 2002) 28

Univ . of Tex . Health Science Center a t Houston v . Big Train Carpet ofEl Camp. Inc., 739 S.W.2d 792 (Tex . 1987) .............................................................................................. 28

STATUTES PAGE(S)

Tex . Bus . & Com . Code $ 1 7.41 et seq., Texas Deceptive Trade Practices Act ............. 12- 13, 49

Tex . Bus . & Com . Code $ 27.01 .................................................................... 12-1 3. 48

Tex . Bus . & Com . Code $ 41.002 et seq., Texas Business Opportunity Act ........................ 46-48

SBA Loan Guidelines SOP 50 1 O(5). 8(a) and (b) ................................................... 3 4 1 5.

RULES PAGE (S)

TEX . R . CIV . P . 166a(c) ................................................................................ .28, 34

Restatement (Second) of Torts $ 53 1. cmt "g" (1977) ............................................ .37. 39


APPEAL NO. 05-10-00490-CV

IN THE COURT OF APPEALS FOR THE FIFTH APPELLATE DISTRICT

FOR THE STATE OF TEXAS

GREENLEE ENTERPRISES, INC., ET AL Appellants

KWIK INDUSTRIES, INC., ET AL Appellees.

APPEALED FROM THE 1 6 2 ~ ~ DISTRICT COURT OF DALLAS COUNTY, TEXAS

Cause No. 05-10901 Honorable Judge Lorraine Raggio

APPELLANTS' BRIEF

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' Brief.doc

TO THE HONORABLE COURT OF APPEALS:

COME NOW Greenlee Enterprises, Inc., et al. ("Appellants") and pursuant to the Texas

Rules of Appellate Procedure submit the following Brief to the Court.

STATEMENT REGARDING ORAL ARGUMENT

Appellants submit that oral argument should be scheduled in this case because the Brief and

record, unaided by oral argument, would be insufficient to illuminate fully the facts and legal

arguments herein. Appellants would additionally submit that this appeal is neither frivolous nor

authoritatively decided by any recent adjudication. Moreover, additional reasons, such as the

magnitude of the financial impact on Plaintiff - Appellants of the District Court's Judgment strongly

suggest that judicial analysis of this case would be greatly aided by oral argument herein.

APPELLANTS' BRIEF N:\KWlK KAR\PLEAD\AppealL4ppellants' Briefdoc

I. STATEMENT OF THE CASE

This is an appeal of various orders granting partial summary judgment against claims by

Greenlee Enterprises, Inc. d/b/a Kwik Kar Oil & Lube on Ferris, Gary Greenlee and Rosemary

Greenlee (the "Greenlee Plaintiffs"); G & W Inc. d/b/a Kwik Kar of Duncanville, Wayne R.

Michaels and Glenda R. Michaels (the "Michaels Plaintiffs"); Rock Prairie Holding, Ltd., Centex

Kwik Care, Inc., Bill Lofton and James Lofton (the "Lofton Plaintiffs"); Will-Wall Enterprises, Inc.,

Mitzi Willis and Dr. Charles E. Willis I1 (the "Willis Plaintiffs") and Neighborhood Oil Centers, Inc.

d/b/a Kwik Kar Lube, Loyd W. Judd 111 and Carla S. Judd (the "Judd Plaintiffs") (collectively,

1

"Plaintiffs"). (CR 2882-2888, 2892-2898).

Plaintiffs contend that Defendants Kwik Industries, Inc. ("Kwik"); Ray Ellis ("Ellis"); Gary

Henson [sic Hinson] ("Henson"); Jan Stallons ("Stallons") (Kwik, Ellis, Henson, and Stallons,

collectively, the "Kwik Defendants"); Compass Bank, N.A. ("Compass Bank"); and Chris

Chevreaux d/b/a Chevreaux and Associates ("Chevreaux") (the Kwik Defendants, Compass Bank,

and Chevreaux, collectively "Defendants") knowingly committed actions and/or inaction against

Plaintiffs related to contracts for the purchase and operation of various automobile and dry cleaning

service centers. (CR 2097-21 19).

Defendants Stallons and Henson filed their Second Motions for Summary Judgment against

the Greenlee, Judd, and Willis Plaintiffs on December 5,2008. (CR 1 170-1 340, 1341 - 15 13, 15 14-

1699). Defendants Stallons and Henson filed Supplemental Motions for Summary Judgment on

January 26,2009. (CR 2191-2259).

Defendants Stallons and Henson filed their Second Motions for Summary Judgment against

1

Court Reporter's Record (hereinafter "C.R."). APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' Blief.doc

the Lofton and Michaels Plaintiffs on December 10,2008. (CR 1705-2096). Defendants Stallons

and Henson filed Supplemental Motions for Summary Judgment on January 26,2009. (CR 2191-

2259).

Plaintiffs filed their response to Kwik Defendants' No-Evidence and Traditional Motions for

Summary Judgment Against Each Plaintiff on February 2,2009. (CR 2264-2801).

Defendant Compass Bank filed its Motion for Summary Judgment against the Michaels

Plaintiffs on April 13,2007, and their First Amended No Evidence Motion for Summary Judgment

and Supplemental Motion for Summary Judgment on January 19,2009. (CR 64-133,2132-2190).

Plaintiffs filed their response to Defendant Compass Bank's Motion for Summary Judgment

on January 2, 2008, and their Supplemental Response to Defendant Compass Bank's Motion for

Summary Judgment on March 27,2008. (CR 134-171,175-423). Plaintiffs filed their Response to

Supplemental Motion for Summary Judgment and First Amended No-Evidence Motion for Summary

Judgment of Compass Bank on February 2,2009. (CR 2264-2801).

Defendant Chevreaux filed his Motion for Summary Judgment against the Greenlee,

Michaels, and Willis Plaintiffs on November 7,2008, and his Supplemental Motion for Summary

Judgment (Traditional and No-Evidence) on December 5,2008. (CR 436-48 1, 1700- 1704).

Plaintiffs filed their response to Defendant Chevreaux's Motion for Summary Judgment on

November 25, 2008. (CR 653-1 152).

After hearings on February 9,2009, February 11,2009, and March 18,2009 on the Motions

for Summary Judgment listed above, the Trial Court granted the following Orders:

1. Orders Granting Compass Bank's No-Evidence and Traditional Motions for

Summary Judgment against the Michaels Plaintiffs on February 12,2009; (CR 2882-

APPELLANTS' BRlEF N:\KWlK KAR\PLEADMppealMppellants1 Briefdoc

Page I0

2. Order Granting Chevreaux's Motion for Summary Judgment against the Greenlee,

Michaels, and Willis Plaintiffs on February 13,2009; (CR 2886-2891)

3. Orders Granting Stallons and Henson's No-Evidence and Traditional Motions for

Summary Judgment against Michaels, Greenlee, Judd, and Lofton Plaintiffs on

March 6,2009. (CR 2892-2899)

4. Order Granting Stallons and Henson's No-Evidence and Traditional Motions for

2

Summary Judgment against the Willis Plaintiffs.

The Summary Judgment Orders became final as to Stallons, Compass Bank, and Chevreaux

by the Trial Court's Order Granting Joint Motion to Sever dated March 22,201 0. (CR 29 1 1-29 15).

Plaintiffs thereafter timely filed their Notice of Appeal. (CR 2916-2921).

However, despite the similarity in evidence as to the claims against all Defendants, the Trial

Court's Summary Judgment Orders and Order Granting Joint Motion to Sever only granted partial

summary judgment on Plaintiffs' claims. (CR 2882-2899). Kwik and Ellis' Motions for Summary

Judgment were not granted by the Trial Court's Summary Judgment Orders; thus, Plaintiffs' claims

against Kwik and Ellis in Trial Court Cause No. 05-10901 remain pending in the 162"~ District

Court, Dallas County, Texas. Just before a scheduled jury trial was set to begin, the Trial Court

3

stayed the case until further notice due to this related matter on appeal.

11. ISSUES PRESENTED

2

After consultation with the Trial Court, Appellees drafted, and Appellants have approved for entry, an Order Granting Defendant Jan Stallons No-Evidence and Traditional Motions for Summary Judgment Against Will-Wall Enterprises, Inc., Mitzi Willis and Charles E. Willis. The proposed Order was tendered to the Trial Court on August 4,2010, and Appellants timely filed their Second Amended Notice of Appeal to include said Order on July 27, 201 0. 7

Order Administratively Closing Case (Subject to Reinstatement) issued by the Trial Court on August 3, 2010, "staying this action due to a related case currently on appeal until hrther notice of the court." APPELLANTS' BRIEF Page 1 1 N:KWIK KAR\PLEADMppealMppellants' Briefdoc

A. The Trial Court erred in granting Defendants' Motions for Traditional and No-Evidence

Summary Judgment because Plaintiffs presented probative evidence to raise genuine issues of

material fact on the following issues of law:

1. Defendants' engagement in a common plan, device, scheme, or artifice to deceive Plaintiffs into purchasing their automotive and/or dry cleaning service centers;

2. Defendants' material misrepresentation and fraudulent inducement, both orally and in writing, to Plaintiffs prior to and during the purchase of the service centers;

3. Defendants' fraudulent concealment of material facts related to Plaintiffs' purchase of the service centers;

4. Defendants' actions in violation of the Texas Business Opportunity Act ("BOA") 4

pertaining to the Judd, Lofton, and Willis Plaintiffs;

5. Defendants' actions constituting statutory fraud in the Sale of Real Estate under Section 27.01 the Texas Business and Commerce Code; and

6. Defendants' actions in violation of the Texas Deceptive Trade Practices, Consumer Protection Act, Texas Business & Commerce Code Section 17.41 (the "DTPA").

111. STATEMENT OF FACTS

Plaintiffs' Sixth Amended Petition asserts claims against the Defendants for fraud and

violations of the Texas Deceptive Trade Practices Act codified at Tex. Bus. & Comm. Code 6 17.41

et seq. (the "DTPA") related to the Willis Plaintiffs' purchase of adry cleaning facility located at 1 10

S. Cockrell Hill Road, DeSoto, Texas (the "Dry Cleaners"), and the remaining Plaintiffs' purchases

of Kwik Kar automobile Service Centers, including a Service Center purchased by the Greenlee

Plaintiffs located at Ferris Avenue, Ellis County, Waxahachie, Texas (the "Ferris Avenue Service

Center"); purchased by the Michaels Plaintiffs located at Clark Road, Duncanville, Dallas County,

4

Plaintiffs concede that the Greenlee and Michaels Plaintiffs do not have claims under the BOA because their Service Centers were "flip" purchases of previously-built Kwik Service Centers that were sold by disgruntled, former owners. (CR 2571, 2605). APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\AppeaI\Appellants' B~iefdoc

Texas (the "Clark Road Service Center"); purchased by the Lofton Plaintiffs located at 114 Rock

Prairie, college Station, Brazos County, Texas (the "Centex Service Center"); and apurchase by the

Judd Plaintiffs located at Dalrock, Rowlett, Rowlett County, Texas (the "Dalrock Service Center")

5

(collectively the "Plaintiffs' Service Centers"). (CR 2097-21 19).

Plaintiffs' Sixth Amended Petition also reasserted claims against the Defendants generally for

rescission, misrepresentation and fraud, fraudulent concealment, conspiracy, violations of the Texas

Business Opportunity Act (the "BOA"), statutory fraud in the Sale of Real Estate under Tex. Bus. &

Comm. Code 5 27.01 ("5 27.01"), and for violations of the Texas Deceptive Trade Practice,

Consumer Protection Act, Tex. Bus. & Comm. Code am. 5 17.41 et seq., the DTPA, all related to,

among other things, the value and profitability of each of Plaintiffs' Service Centers. Only the

Greenlee Plaintiffs, the Michaels Plaintiffs, and the Willis Plaintiffs have asserted claims against

Chevreaux, and only the Michaels Plaintiffs have asserted claims against Compass Bank. (CR 2097-

The following is the Plaintiffs' Summary Judgment affidavit evidence:

The Greenlee Plaintiffs

Ellis, representing himself to be an authorized agent of Kwik, approached the Greenlee

Plaintiffs and offered to sell them the Ferris Avenue Service Center, which was built, owned and/or

represented by Kwik. (CR 2603). With regard to the prospective purchase by the Greenlee Plaintiffs

of the Ferris Avenue Service Center, the Kwik Defendants, acting in complicity with Chevreaux and

their lender, made certain representations to the Greenlee Plaintiffs concerning the Ferris Avenue

Service Center and Kwik's responsibilities to the Greenlee Plaintiffs after the sale occurred. (CR

5

Plaintiffs' Original Petition filed October 25,2005 was superseded by Plaintiffs' Sixth Amended Petition, and is therefore not included in the Clerk's Record. APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' Brief.doc

2603). Specifically, the Kwik Defendants represented to the Greenlee Plaintiffs:

a. That the price charged for the Ferris Avenue Service Center was fair, reasonable

and supported by a valid appraisal;

b. That the Kwik Defendants' sales projections were valid, attainable, and

reasonable;

c. That the Ferris Avenue Service Center was and or would be in compliance with

EPA requirements;

d. That the business growth, daily car count, and the value of the product would

continue to increase it; and

e. That Kwik would provide all needed training and support. (CR 2604).

In reliance upon the foregoing representations, the Greenlee Plaintiffs did thereafter execute

and close a Contract of Sale to purchase the Ferris Avenue Service Center, which agreement

included both real property on which the Service Center is located, all improvements thereon, and

what was represented to be all equipment and other necessary items to own, open and operate the

Service Center, to include training and inventory. (CR 2604). The Kwik Defendants had arranged

for Chevreaux to appraise the business so that the Greenlee Plaintiffs could obtain SBA financing for

the acquisition of the Ferris Avenue Service Center. (CR 2604). In consideration of the foregoing

and in further reliance upon the foregoing representations, the Greenlee Plaintiffs paid Kwik the sum

of $ 1,448,775.00. (CR 2605).

Thereafter, the Greenlee Plaintiffs discovered with regard to the forgoing representations:

a. That the Service Center was not worth the amount set forth in the appraisal;

b. That the appraisal was not based upon accepted and proper appraisal techniques;

c. That in truth and in fact; the revenue projections were not made in accordance with

APPELLANTS' BRIEF N:\KWlK KAR\PLEADMppealMppellants' B~ief.doc

industry standards and/or similarly situated service locations and were not attainable;

d. That in truth and in fact, the competitive environment in which the Ferris Avenue

Service Center was located insured it would not be profitable;

e. That in truth and in fact; EPA requirements for the Service Center were never met;

f. That the Ferris Avenue Service Center business did not progress or grow; and

g. That Kwik did not provide the necessary training. (CR 2605).

Further, the Greenlee Plaintiffs discovered that the Kwik Defendants, in complicity with the

Chevreaux and their lender, failed to disclose:

a. That the Kwik Defendants or their affiliates were receiving undisclosed "loan

origination and/or referral fees" from their lender (CR 2 102);

b. That Kwik had a financial interest in the Pennzoil products contracts (the

"Pennzoil Contracts") (CR 2605);

c. That the required Pennzoil products contracts (the "Pennzoil Contracts") have

substantial penalties unless realistic production quotas were achieved (CR 2 103);

d. That the Service Center acquisition was structured as a "flip" sale fiom a prior

disgruntled owner (CR 2605);

e. That the Defendants utilized an improper and inflated appraisal in the sale (CR

2605); and

f. The conspiratorial relationship that existed between the Kwik Defendants,

Chevreaux, and their lender to sell and finance the Ferris Avenue Service Center.

(CR 2605).

The Michaels Plaintiffs

Ellis, representing himself to be an authorized agent of Kwik, approached the Michaels

APPELLANTS' BRIEF N:\KWIK KARVLEAD\Appeal\Appellants' Brief.doc

Plaintiffs in May 2003 and offered to sell them the Clark Road Service Center, which was built,

owned and/or represented by Kwik. (CR 257 1). With regard to the prospective purchase by the

Michaels Plaintiffs of the Clark Road Service Center, the Kwik Defendants, acting in complicity

with Chevreaux and Compass Bank, made certain representations to the Michaels Plaintiffs with

regard to the Clark Road Service Center and with regard to Kwik's responsibilities to the Michaels

Plaintiffs after the sale occurred. (CR 42). Specifically, Defendants represented to the Michaels

Plaintiffs:

a. That the price charged for the Clark Road Service Center was fair, reasonable and

supported by a valid appraisal;


reasonable;

c. That the Clark Road Service Center was and or would be in compliance with EPA

requirements;



e. That Kwik would provide all needed training and support. (CR 42-43).

In reliance upon the foregoing representations, the Michaels Plaintiffs did thereafter execute a

Contract of Sale to purchase the Clark Road Service Center, which agreement included both real

property on which the Clark Road Service Center is located, all improvements thereon, and what was

represented to be all equipment and other items necessary to own, open and operate the Clark Road

Service Center, to include training and inventory. (CR 43). The Kwik Defendants arranged for

Chevreaux to appraise the business so that the Michaels Plaintiffs could obtain SBA financing from

Compass Bank for the acquisition of the Clark Road Service Center. (CR 2574). In connection


therewith, the Michaels Plaintiffs paid the Appraiser's fee and other fees and expenses charged by or

through Compass Bank as part of the closing of the purchase of the Clark Road Service Center. (CR

2581). In consideration of the foregoing and in further reliance upon the foregoing representations,

the Michaels Plaintiffs paid Kwik the sum of $ 1,594,270.86 in June 2003. (CR 2573).

Thereafter, the Michaels Plaintiffs discovered with regard to the forgoing representations:

a. That the Clark Road Service Center was not worth the amount set forth in the

appraisal;




d. That in truth and in fact, the competitive environment in which the Clark Road


e. That in truth and in fact; EPA requirements for the Clark Road Service Center

were never met;

f That the Clark Road Service Center business did not progress or grow; and

g. That Kwik did not provide the necessary training. (CR 2576).

Further, the Michaels Plaintiffs discovered that the Kwik Defendants, in complicity with

Chevreaux and Compass Bank, failed to disclose:


origination andlor referral fees" from Compass Bank (CR 2575);

b. That Kwik had a financial interest in the Pennzoil Contracts and actually received

the contract consideration instead of the Michaels Plaintiffs (CR 2574);

c. That the required Pennzoil products contracts have substantial penalties'unless

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' BI-iefdoc

realistic production quotas were achiev'ed (CR 2701);

d. That the Service Center acquisitioii was structured as "flip" sales from prior

disgruntled owner (CR 44);

e. That the Defendants utilized an improper and inflated appraisal in the sale (CR

2576); and

f. The conspiratorial relationship that existed between the Kwik Defendants,

Chevreaux, and Compass Bank to sell and finance the Clark Road Service Center.

(CR 2575).

The Lofton Plaintiffs

Ellis, representing himself to be an authorized agent of Kwik, approached the Lofton

Plaintiffs and offered to sell them the "Centex Service Center", which was built, owned and/or

represented by Kwik. (CR 26 18). With regard to the prospective purchase by the Lofton Plaintiffs of

the Centex Service Center, the Kwik Defendants, acting in complicity with their appraiser and

lender, made certain representations to the Lofton Plaintiffs with regard to the Centex Service Center

and with regard to Kwik's responsibilities to the Lofton Plaintiffs after the sale occurred. (CR 26 18).

Specifically, the Kwik Defendants represented to the Lofton Plaintiffs:

a. That the price charged for the Centex Service Center was fair, reasonable and



reasonable;

c. That the Centex Service Center was and or would be in compliance with EPA

requirements;


APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' B~iefdoc


e. That Kwik would provide all needed training and support. (CR 48-49).

In reliance upon the foregoing representations, the Lofton Plaintiffs did thereafter execute a

Contract of Sale to purchase the Centex Service Center, which agreement included both real property

on which the Centex Service Center is located, all improvements thereon, and what was represented

to be all equipment and other items necessary to own, open and operate the Centex Service Center, to

include training and inventory. (CR 49). The Kwik Defendants arranged for an appraiser to appraise

the business so that the Lofton Plaintiffs could obtain SBA financing from their lender for the

acquisition of the Centex Service Center, and in connection therewith, the Lofton Plaintiffs paid the

appraiser's fee and other fees and expenses charged by or through their lender as part of the closing

of the purchase of the Centex Service Center. (CR 2620,2627). In consideration of the foregoing

and in further reliance upon the foregoing representations, the Lofton Plaintiffs paid Kwik the sum of

$1,384,819.06. (CR 2619).

Thereafter, the Lofton Plaintiffs discovered with regard to the forgoing representations:

a. That the Centex Service Center was not worth the amount set forth in the appraisal;



industry standards andlor similarly situated service locations and were not attainable;

d. That in truth and in fact, the competitive environment in which the Centex Serve

Center was located insured it would not be profitable;

e. That in truth and in fact; EPA requirements for the Centex Service Center were

never met;

f. That the Centex Service Center business did not progress or grow; and

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' B~ie fdoc

g. That Kwik did not provide the necessary training. (CR 49-50).

Further, the Lofton Plaintiffs discovered that the Kwik Defendants, in complicity with their

appraiser and the lender, failed to disclose:


origination and/or referral fees" from the lender (CR 2621);

b. That Kwik had a financial interest in the required Pennzoil Contracts and actually

received the contract consideration instead of the Lofton Plaintiffs (CR 2621);

c. That the required Pennzoil Contracts have substantial penalties unless realistic

production quotas were achieved (CR 2701);

d. That the Defendants utilized an improper and inflated appraisal in the sale (CR

49); and

e. The conspiratorial relationship that existed between the Kwik Defendants, their

appraiser, and the lender to sell and finance the Centex Service Center. (CR 2621).

The Judd Plaintiffs

Ellis, representing himself to be an authorized agent of Kwik, approached the Judd Plaintiffs

and offered to sell them the Dalrock Service Center, which was built, owned and/ or represented by

Kwik. (CR 2633). With regard to the prospective purchase by the Judd Plaintiffs of the Dalrock

Service Center, the Kwik Defendants, acting in complicity with the appraiser and the lender, made

certain representations to the Judd Plaintiffs with regard to the Dalrock Service Center and with

regard to Kwik's responsibilities to the Judd Plaintiffs after the sale occurred. (CR 60). Specifically,

the Kwik Defendants represented to the Judd Defendants:

a. That the price charged for the Dalrock Service Center was fair, reasonable and


APPELLANTS' BRIEF N:KWIK KAR\PLEADW.ppeal\Appellants' Brief doc


reasonable;

c. That the Dalrock Service Center was and or would be in compliance with EPA

requirements;



e. That Kwik would provide all needed training and support. (CR 60-6 1).

In reliance upon the foregoing representations, the Judd Plaintiffs did thereafter execute a

Contract of Sale for the Dalrock Service Center, which agreement included both real property on

which the Dalrock Service Center is located, all improvements thereon, and what was represented to

be all equipment and other items necessary to own, open and operate the Dalrock Service Center to

include training and inventory. (CR 2633-2634). The Kwik Defendants arranged for the appraiser to

appraise the business so that the Judd Plaintiffs could obtain SBA financing from their lender for the

acquisition of the Dalrock Service Center, and in connection therewith, the Judd Plaintiffs paid the

appraiser's fee and other fees and expenses charged by or through the lender as part ofthe closing of

the purchase of the Dalrock Service Center. (CR 2636,2639). In consideration of the foregoing and

in further reliance upon the foregoing representations, the Judd Plaintiffs paid Kwik the sum of

$1,298,921.00. (CR 2639).

Thereafter, the Judd Plaintiffs discovered with regard to the forgoing representations:

a. That the Dalrock Service Center was not worth the amount set forth in the

appraisal;



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Page 2 1


d. That in truth and in fact, the competitive environment in which the Dalrock


e. That in truth and in fact; EPA requirements for the Dalrock Service Center were

never met;

f. That the Dalrock Service Center business did not progress or grow; and

g. That Kwik did not provide the necessary training. (CR 61 -62).

Further, the Judd Plaintiffs discovered that the Kwik Defendants, in complicity with the

appraiser and the lender, failed to disclose:


origination and/or referral fees" from the lender (CR 2637);

b. That Kwik had a financial interest in the required Pennzoil Contracts and actually

received the contract consideration instead of the Judd Plaintiffs (CR 2636);

c. That the required Pennzoil Contracts have substantial penalties unless realistic

production quotas were achieved (CR 2701);

d. That the Defendants utilized an improper and inflated appraisal in the sale (CR

61); and

e. The conspiratorial relationship that existed between the Kwik Defendants, the

appraiser, and the lender to sell and finance the Dalrock Service Center. (CR 2637).

The Willis Plaintiffs

Ellis' agent, Gary Hinson, representing himself to be an authorized agent of Kwik,

approached the Willis Plaintiffs and offered to sell them the Dry Cleaning Service Center, which Dry

Cleaning Service Center was built, owned and/ or represented by Kwik. (CR 2588). With regard to


the prospective purchase by the Willis Plaintiffs of the Dry Cleaning Service Center, the Kwik

Defendants, acting in complicity with Chevreaux and the lender, made certain representations to the

Willis Plaintiffs with regard to the Dry Cleaning Service Center and with regard to Kwik's

responsibilities to the Willis Plaintiffs after the sale occurred. (CR 2588). Specifically, the Kwik

Defendants represented to the Willis Plaintiffs:

a. That the price charged for the Dry Cleaning Service Center was fair, reasonable

and supported by a valid appraisal (CR 2589);

b. That the Kwik Defendants' sales projections were valid, attainable, and reasonable

and that the Willis Plaintiffs would earn at least $20,000.00 per month (CR 55,

2589);

c. That the Dry Cleaning Service Center was and or would be in compliance with

EPA requirements (CR 54);

d. That the business growth and the value of the product would continue to increase it

(CR 2589); and

e. That Kwik would provide all needed training and support. (CR 55).

In reliance upon the foregoing representations, the Willis Plaintiffs did thereafter execute a

Contract of Sale to purchase the Dry Cleaning Service Center, which agreement included both real

property on which the Dry Cleaning Service Center is located, all improvements thereon, and what

was represented to be all equipment and other items necessary to own, open and operate the Dry

Cleaning Service Center, to include training and inventory. (CR 2589). The Kwik Defendants

arranged for Chevreaux to appraise the business so that the Willis Plaintiffs could obtain SBA money

from their lender for the acquisition of the Dry Cleaning Service Center, and in connection therewith,

the Willis Plaintiffs paid Chevreaux's fee and other fees and expenses charged by or through the

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\AppealMppeIlants' Briefdoc

lender as part of the closing of the purchase of the Service Center. (CR 2589, 2596). In

consideration of the foregoing and in further reliance upon the foregoing representations, the Willis

Plaintiffs paid Kwik the sum of $1,674,805.00. (CR 2590).

Further, the Willis Plaintiffs discovered that the Kwik Defendants failed to disclose:

a. That the Dry Cleaning Service Center was not worth the amount set forth in the

appraisal;



industry standards and/or similarly situated dry cleaning locations;

d. That in truth and in fact; EPA requirements for the Dry Cleaner were never met;

f. That the Dry Cleaner business did not progress or grow; and

g. That Kwik did not provide the necessary training. (CR 56,2590).

Further, the Willis Plaintiffs discovered that the Kwik Defendants, in complicity with

Chevreaux and the lender, failed to disclose:

a. That the Defendants utilized an improper and inflated appraisal in the sale (CR

55); and

b. The conspiratorial relationship that existed between the Kwik Defendants,

Chevreaux, and the lender to sell and finance the Dry Cleaning Service Center. (CR

2590).

The summary judgment evidence filed in support of Plaintiffs' Motion also established the

additional facts:

1. During the period of December 2001 through October 2005, Chevreaux performed

appraisals for 86 purchases of existing or proposed Kwik Kar Service Centers, Compass Bank acted

APPELLANTS' BRIEF. N:\KWIK KAR\PLEAD\AppealMppellants' Briefdoc

as SBA lender on at least 24 of these purchases, and Kwik was listed as seller on 48 of these

purchases. (CR 677).

2. Compass Bank admits Chevreaux was solicited by Stallons outside of Compass Bank

policies to perform appraisals on the Michaels Plaintiffs' Service Center. (CR 206).

3. Chevreaux was not on Compass Bank's approved appraiser list at the time he

performed the appraisal of the Clark Road Service Center, the Michaels Plaintiffs' property. (CR

195).

4. Kwik provided Chevreaux with a copy of the cost breakdown information, which the

appraiser is typically expected to obtain on his own. (CR 208).

5 . Kwik also provided Chevreaux with its own market study, information normally

found in an appraisal report and normally independently obtained by the appraiser. (CR 209).

6. Chevreaux admits the only demographic data which he reviewed for the sale of the

Clark Road Service Center was provided by Kwik. (CR 1 100).

7. Chevreaux admits he probably received most of the information for comparable sales

related to the Ferris Avenue Service Center owned by the Greenlee Plaintiffs from Kwik. (CR

1101).

8. National surveys conducted by Garrett McKinnon, editor of National Oil & Lube

News, a publication in which Kwik advertises, indicated that the average daily car count for lube and

tube service centers went from 47.9 to 35.7, a decrease of 20%, between 1995 and 2005. (CR 2755,

9. Compass Bank sold Plaintiffs' guaranteed SBA loans on the secondary market,

removing their vulnerability under the loans and generating profits for Compass Bank. (CR 199-

APPELLANTS' BRIEF N:\KWIK KAR\PLEADMppeaI\Appellants' B~ief.doc

10. As an example, Compass Bank would sell a $750,000.00 SBA guaranteed loan on the

secondary market for approximately $825,000.00, for a profit of $75,000.00. (CR 199-200).

11. Although the Pennzoil Contracts signed by the Plaintiffs promised to pay the

Plaintiffs a lump sum of varymg amounts up to $45,000.00, Kwik was paid these sums, except in the

case of the Greenlee Plaintiffs who received $20,000.00, the only instance where Brian Easley, the

field account manager for Pennzoil, could recall a Kwik Service Center purchaser actually receiving

any money fi-om Pennzoil as a result of signing a Pennzoil Contract. (CR 2698,2712).

12. Stallons and Ellis accepted substantial loan origination fees for Compass Bank SBA

loans for Plaintiffs' Service Centers, a fact undisclosed to Plaintiffs at the time of their purchase of

the Service Centers. (CR 2671).

IV. SUMMARY OF ARGUMENT

The Motions for Summary Judgment filed by Stallons (CR 1170-1699, 1705-2096),

Chevreaux (CR436-481, 1700-1 7O4), and Compass Bank (CR 64-1 33, 21 32-2190) contend that

Plaintiffs have raised no genuine issues of material facts and/or that Plaintiffs have no evidence to

support one or more elements of their claims. However, the record demonstrates summary judgment

evidence presented by PlaintiffsIAppellants concerning the following:

First, Appellants present circumstantial evidence that raises genuine issues ofmateiial fact as

to Defendants engaging in a common plan or scheme to deceive Plaintiffs into purchasing the

Plaintiffs' Service Centers.

Second, Appellants raise genuine issues of material fact that Defendants committed material

misrepresentation and fraudulent inducement, both orally and in writing, to Plaintiffs prior to, and

during, the Plaintiffs' purchase of the Plaintiffs' Service Centers.

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' Briefdoc

Third, Appellants raise genuine issues of material of fact that Defendants committed

fraudulent concealment related to Plaintiffs' purchase of the Plaintiffs' Service Centers.

Plaintiffs' summary judgment evidence raises genuine issues of material fact and

considerable circumstantial evidence supporting Plaintiffs' claims of a conspiracy between

Defendants. Evidence such as Stallons' inappropriate actions in soliciting appraisals directly fkom

Chevreaux, combined with Compass Bank's policy violations raise substantial circumstantial

evidence for determination by the trier of fact. (CR 179). Finally, the benefits which accrued to

Defendants' through their actions provide substantial motive for their common plan and scheme to

damage Plaintiffs. (CR 677).

Plaintiffs' summary judgment evidence also establishes genuine issues of material fact

regarding fraudulent misrepresentation by Stallons, Compass Bank, and Chevreaux regarding the

values of the Plaintiffs' Service Centers. (CR 2268). The appraisals valuing the Plaintiffs' Service

Centers were inappropriately solicited fiom Chevreaux by Stallons on behalf of Compass Bank. (CR

206). The grossly-inflated values were then represented to Plaintiffs as valid values based upon

generally accepted appraisal methods. (CR 673-676). In fact, Stallons inappropriately supplied

Chevreaux with contracts for sale which included sale price information (CR 671, 673), and

Compass Bank's violation of its own standard operating procedures as well as SBA policies in

ensuring the appraisal values represented were accurate. (CR 179-1 80). Plaintiffs raise multiple

issues of material facts regarding Defendants' misrepresentations to Plaintiffs.

Plaintiffs' summary judgment evidence also establishes genuine issues of material fact

regarding the fraudulent concealment by Defendants regarding payments to Stallons and the Kwik

Defendants of loan orignation fees and Pennzoil Contract monies. Payment of the Compass Bank

loan orignation fees to Stallons and the Kwik Defendants was never disclosed to Plaintiffs. The

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appeilantsl Briefdoc

Kwik Defendants concealed the Pennzoil Contracts from Plaintiffs until closing, and concealed the . ,

payments to Kwik under the Pennzoil Contracts. (CR 2636,2698).

v. ARGUMENT AND AUTHORITIES

A. STANDARD OF REVIEW.

In a traditional summary judgment case, the issue on appeal is whether the movant met the

summary judgment burden by establishing that no genuine issue of material fact exists and that the

movant is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Sw. Elec. Power Co. v.

Grant, 73 S.W.3d 21 1, 215 (Tex. 2002); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d

671, 678 (Tex. 1979). On appeal, Courts of Appeal have stated that they will review de novo the

trial court's decision upon summary judgment. Ruiz v. City of San Antonio, 966 S.W.2d 128, 130

(Tex.App.-Austin 1998, no pet.). The burden of proof is on the movant, and all doubts about the

existence of a genuine issue of material fact are resolved against the movant. Sw. Elec. Power Co.,

at 21 5. The non-movant is entitled to have all reasonable inferences made and all doubts resolved in

its favor. Univ. of Tex. Health Science Center a t Houston v. Big Train Carpet of El Campo, Inc.,

739 S.W.2d 792 (Tex. 1987).

In a no-evidence summary judgment case, the motion was properly granted if, after adequate

time for discovery, the moving party asserted there was no evidence presented as to one or more

specified elements of a claim for which the claiming party had the burden of proof, and which the

respondent produces no surnmary-judgment evidence raising a genuine issue of material fact on

those elements. LMB, Ltd. v. Moreno, 201 S.W.3d 686, 688 (Tex. 2006) (per curiam). Thus, the

Court examines whether the nonmovant produced any evidence of probative force to raise a fact

issue on the material questions presented. Roth v. FFP Operating Partners, L.P., 994 S.W.2d 190,

A P P E L L A N T S ' B R l E F N:\KWIK KAR\PLEAD\AppeaI\Appellants' Blief.doc

195 (Tex.App.-Amarillo 1999, pet. denied). The Court considers all evidence in the light most

favorable to the party against whom the no-evidence summary judgment was rendered, disregarding

all contrary evidence and inferences. See Merrell Dow Pharmaceuticals, Inc. v. Havner, 953 S.W.2d

706, 7 1 1 (Tex. 1997). A no-evidence summary judgment is improperly granted if the nonrnovant

presents more than a scintilla of probative evidence to raise a genuine issue of material fact. Jackson

v. Fiesta Mart, Inc., 979 S.W.2d 68,70-71 (Tex.App.--Austin 1998, no pet.). More than a scintilla of

evidence exists when the evidence "rises to a level that would enable reasonable and fair-minded

people to differ in their conclusions. Merrell Dow, 953 S.W.2d at 71 1. Here, the Trial Court erred

in granting Defendants' Motions.

B. PLAINTIFFS RAISED SUFFICIENT EVIDENCE AND RAISED GENUINE ISSUES OF MATERIAL

FACT THAT DEFENDANTS ENGAGED IN A COMMON PLAN, DEVICE, SCHEME, OR ARTIFICE TO DECEIVE PLAINTIFFS INTO PURCHASING THEIR AUTOMOTIVE AND DRY CLEANING SERVICE CENTERS.

This Court has held that when motions for summary judgment present both traditional and

no-evidence grounds, it is appropriate to analyze the no-evidence grounds first. Kalyanaram v. Univ.

of Tex. Sys., 230 S.W.3d 921, 925 (Tex. App.-Dallas 2007, pet. denied). Here, Appellants

presented considerable evidence raising genuine issues of material fact as to their claims of

conspiracy.

An actionable civil conspiracy is a combination by two or more persons to accomplish an

unlawful purpose or to accomplish a lawful purpose by unlawful means. Massey v. Armco Steel Co.,

652 S.W.2d 932,934 (Tex. 1983). The essential elements are: (I) two or more persons; (2) an object

to be accomplished; (3) a meeting of minds on the object or course of action; (4) one or more

unlawful, overt acts; and (5) damages as the proximate result. Id. Texas Courts have long held that

proof of a conspiracy may be, and usually must be, made by circumstantial evidence. Schulumberger

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Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 858 (Tex. 1968). "When men

enter into conspiracies, they are not likely to call in a witness.. .In such cases the injured party must

necessarily have recourse to circumstantial evidence." Int '1 Bankers Life Ins. Co. v. Holloway, 368

S.W.2d 567, 58 1 (Tex. l963), quoting Jernigan v. Wainer, 12 Tex. 189. It is not necessary to show

each and every act of a conspirator as being in concert with the others by direct evidence. Id. at 582.

Inferences of concerted action may be drawn from joint participation in the transaction and from

enjoyment of the h i t s of the transactions on the part of the defendants. Id.

The summary judgment rule is not intended to permit a trial by deposition or affidavit, and a

motion for summary judgment should not be resolved by weighing the relative strength of conflicting

facts and inferences. Garcia v. John Hancock Variable Life Ins. Co., 859 S.W.2d 427, 435

(Tex.App.-San Antonio 1993, writ denied). In particular, summaryjudgment dismissing claims of

conspiracy has been ruled improper when the plaintiffs discovery responses raised questions as to

the credibility and weight of defendants' affidavits, as well as to what reasonable inferences arise

from such evidence. Fisher v. Yates, 953 S. W .2d 370 (Tex.App.-Texarkana 1 997).

Here, in support of their claims, among other summary judgment evidence, Plaintiffs filed

affidavits of Gary Greenlee (the "Greenlee Affidavit") (CR 2602), Wayne Michaels (the "Michaels

Affidavit") (CR 2570), Bill Lofton (the "Lofton Affidavit") (CR 2617), Loyd Judd (the "Judd

Affidavit") (CR 2632), and Mitzi Willis (the "Willis Affidavit") (CR 2587). Plaintiffs' affidavits set

forth the common plan and scheme whereby the Defendants worked in concert to market, sell, and

finance service centers to Plaintiffs through the use of deceptive andlor fraudulent representations of

material fact. Only through the use of these fraudulent representations regarding projected sales and

profitability would any reasonable person agree to pay the large sums of money required to purchase

these service centers from Kwik Defendants. These same projections were supplied to lenders, such

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as Compass Bank, by Kwik Defendants on behalf of the Plaintiffs as part of their applications for

SBA loans. (CR 202). Compass Bank's close relationship with Kwik is evidenced by the fact that

Compass failed to follow its own internal guidelines, as well as the SBA guidelines, in a number of

material respects, particularly in allowing Kwik to: 1) select the appraiser, often Chevreaux (CR

206); 2) communicate directly with the appraiser (CR 207); 3) provide inappropriate information to

the appraiser (including the contract of sale itself) (CR 206); 4) select the Phase I environmental

inspector (CR 207); and 5) "flip" the purchase of various service centers in a manner entirely

inconsistent with the contractual agreements in the SBA loan file. (CR 204). This evidence

demonstrated the inappropriately "cozy" relationship between the Kwik Defendants and Compass

Bank.

The final necessary component of the Defendants' plan was an appraisal of each of the

Plaintiffs' Service Centers which offered a grossly inflated value to support the purchase price. (CR

2268). Appraisers such as Chevreaux supplied appraisals that estimated grossly inflated property

values for the Service Centers. (CR 2268). The affidavit of Jay Massey (the "Massey Affidavit"), a

certified, professional real estate appraiser who provided retroactive appraisals of the Service

Centers7 values at the time of purchase by Plaintiffs, indicates the extent of value inflation reflected

in Defendants7 appraisals. (CR 696-699). Specifically, the Michaels Plaintiffs purchased the Clark

Road Service Center based upon an over-inflated appraisal by Chevreaux indicating the facility had a

market value of $1,500,000.00 as of July 18, 2003, when, in fact, the market value of this facility

was actually only $790,000.00 as of July 3 1,2003 (CR 657,699); the Willis Plaintiffs purchased the

Dry Cleaning Service Center based upon a grossly inflated appraisal by Chevreaux indicating the

facility had a market value of $1,625,000.00 as of December 27, 2003, when, in fact, the facility's

actual market value as of August 18, 2003 was only $760,000.00 (CR 657, 699); and the Greenlee

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Page 3 1

Plaintiffs purchased the Ferris Avenue Service Center based upon an appraisal by Chevreaux

indicating the facility had a market value on February 20,2001 of $1,200,000.00, when, in fact, the

facility's market value as of July 3 1,2002 was only $360,000.00. (CR 657,699). After the Service

Centers were sold to Plaintiffs at these grossly-inflated prices, the SBA-guaranteed loans on the

facilities were sold in the secondarymarket, freeing Compass Bank of any risk ofdefault. (CR 199).

All told, Chevreaux completed 86 appraisals of Kwik service centers between 2001 and 2005,

Compass Bank served as the SBA lender in the purchase of 24 Kwik service centers, and Defendant

Kwik was the seller in at least 48 of these transactions. (CR 677). The scope and scale of the

potential income to Defendants is considerable. Plaintiffs' Supplemental Response to Compass

Bank's Motion for Summary Judgment attached the deposition transcript of a representative for

Compass Bank, Stuart Mitchell ("Mitchell"), Senior Vice President SBA Operations Manager (the

"Mitchell Deposition"). (CR 188-236). Mitchell gave testimony regarding a request from Defendant

Stallons to Defendant Chevreaux for the appraisal of the Clark Road Service Center, purchased from

Kwik by the Michaels Plaintiffs. (CR 206). Mitchell admitted this was not standard operating

procedures for someone other than the bank/lender to request the appraisal. (CR 206). Additionally,

Mitchell admits that Chevreaux was not on Compass Bank's approved appraiser list at the time he

performed the appraisal of the Michaels Plaintiffs' Service Center. (CR 195). Mitchell also testified

that the appraisal request from Stallons to Chevreaux included a copy of the sales contract, which

would normally not be supplied to an appraiser performing an assignment in an effort to keep the

appraiser unclouded by the contract's sale price. (CR 206). Finally, Compass Bank not only freed

themselves fiom any risk of default on loans such as the Plaintiffs' by selling them on the secondary

market, they made additional profits on these sales. (CR 199-200). For example, Compass would

sell an SBA-guaranteed loan valued at $750,000.00 on the secondary market for approximately


$825,000.00, a handsome profit of $75,000.00. (CR 199-200). This evidence indicates significant

breaches of Compass Bank policy and inappropriate action between the Defendants.

The foregoing evidence raised by Plaintiffs demonstrates that both Compass Bank and

Chevreaux routinely received numerous referrals for SBA loans and appraisals related to Kwik

service centers (CR 677), and that SBA loan and appraisal procedures were regularly ignored andlor

violated as a result of the close relationship between Chevreaux, Compass Bank, and Kwik,

specifically Stallons. (CR 195, 206, 2 13). Plaintiffs provided multiple evidentiary sources

concerning genuine issues of material facts which would enable reasonable and fair-minded people

to differ in conclusions as to the existence of an inappropriately "cozy" relationship between

Defendants. Merrell Dow, 953 S.W.2d at 71 1. As such, no-evidence summary judgment for the

Defendants on Plaintiffs' conspiracy claims was inappropriate.

Plaintiffs' evidence establishes genuine issues of material facts as to their claim of

conspiracy. This Court has upheld a jury's finding of conspiracy when there was no direct evidence

of conspirators getting together to explicitly agree to take advantage of their victim. American Title

Co. ofHouston v. Bomac Mortgage Holdings, L.P., 196 S. W.3d 903,915 (Tex.App.-Dallas 2006).

It was sufficient that one conspirator had full knowledge of the transaction complained of, assisted

the other conspirator with the documentation, accepted payment as h i t s of the transaction, and at

least passed along, if not created, altered documents concealing the nature of the transaction. Id.

The only evidence raised by Defendant Chevreaux regarding Plaintiffs' claims of conspiracy

6

is his self-serving affidavit. (CR 442). A summary judgment may be based on uncontroverted

testimonial evidence of an interested party if the evidence is clear, positive and direct, otherwise

6 Chevreaux's affidavit, an attachment to Chevreaux's Motion for Summary Judgment is not included in the Clerk's Record. (CR 442). APPELLANTS' BRIEF N :\KWIK KAR\PLEADMppeal\Appellants' Btief.doc

credible and free from contradictions and inconsistencies, and could have been readily controverted.

TEX. R. CIV. P. 166a(c). Plaintiffs' own affidavits and the Mitchell Deposition controvert

Chevreaux's affidavit and raise material questions of fact related to the evidence of Chevreaux's

participation in a common plan to deceive Plaintiffs. (CR 188-236,2570-2647). The affidavits and

deposition testimony raise questions concerning the reliability and deference which should be

accorded Chevreaux's affidavit, and make summary judgment for Defendants improper. Fisher v.

Yates, 953 S.W.2d at 380.

Plaintiffs' evidence regarding the allegation of a conspiracy by Defendants establishes, or at

least raises genuine issues of material fact properly for consideration by the trier of fact with regard

to each element of Plaintiffs' conspiracy claims. Defendants argue there was no meeting of the

minds to establish a common scheme; however, as noted above, inferences of concerted action may

be drawn from joint participation in the transaction and the enjoyment of the h i t s of said transaction

on the part of the defendants. Int'I Bankers Life Ins. Co., 368 S.W.2d at 582. Defendants' efforts

worked in concert to persuade Plaintiffs to make their unfortunate purchases of their Service Centers,

and Defendants clearly enjoyed the h i t s of these efforts. (CR 677). The inappropriately cozy

relationship between Defendants led to unlawhl, overt acts to accomplish the closings on Plaintiffs'

Service Centers, and Plaintiffs suffered damage as a result. Because Plaintiffs' evidence raised

genuine issues of material fact relating to all elements of their conspiracy claim, traditional summary

judgment for Defendants as to conspiracy was also improper.

C. PLAINTIFFS RAISED SUFFICIENT EVIDENCE AND RAISED GENUINE ISSUES OF MATERIAL

FACT THAT DEFENDANTS COMMITTED MATERIAL MISREPRESENTATION AND FRAUDULENT

INDUCEMENT, AS WELL AS FRAUDULENT CONCEALMENT, BOTH ORALLY AND IN WRITING,

TO PLAINTIFFS PRIOR TO, AND DURING, THE PLAINTIFFS' PURCHASE OF THE SERVICE

CENTERS.

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' BI-ief.doc

Plaintiffs raised multiple issues of material questions of fact related to Defendants' acts of

fraud in the inducement and fraudulent concealment. Plaintiffs relied upon, without limitation, the

affidavits and supplemental affidavits of all the Plaintiffs (CR 143- 17 1, 2570-2647); the Massey

Affidavits (CR 696-1083, 2322-2451); the affidavit of Mark H. How (CR 2649-2658); the

depositions and attached exhibits of Chevreaux (CR 2691-2751), Stallons (CR 2659-2689), Mitchell

(CR 188-236), Brian Easley, the field-based account manager for Pennzoil (CR 269 1-275 I), and

Garrett McKinnon, the editor of National Oil &Lube News, a national trade publication dedicated to

the automobile oil change industry (CR 2753-2799); SBA Loan Guidelines SOP 50 1 0(5), 8(a) and

(b) (CR 2801); Compass Bank's Objections and Answers to Plaintiffs' Second Interrogatories in

Cause No. DC-07-15 199, Joseph & Cheiyl Kay Hilley et al. v. Kwik Industries, Inc., et al. in the

19 1 st Judicial District Court of Dallas County, Texas (CR 1 148-1 152); and the pleadings,

admissions, affidavits, stipulations of the parties, and authenticated or certified public records, if any,

on file at the time of the hearing, or filed thereafter and before judgment with permission of the

Court .

Defendants' misrepresentations regarding the financial viability of the Service Centers

successfully induced the Plaintiffs to purchase Kwik service centers, causing them injury. The

starting and ending point of Plaintiffs' decisions to invest with Kwik Defendants is the Pro Fonna

information presented to each Plaintiff by Kwik (the "Pro Formas"). (CR 2578-2580,2593-2595,

2608-261 0,2624-2626,2643-2645). During the Kwik Defendants' marketing of the Service Centers

to the Plaintiffs, Ellis (Hinson for the Willis Plaintiffs) showed each of the Plaintiffs information

concerning the projected car/customer count and projected revenue for their respective facilities.

(CR 2572,2588,2603,261 8,2633). The Plaintiffs' affidavits confirm that the Plaintiffs materially

relied upon this information, especially considering that they considered Ellis to be an expert in his

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\AppealMppellants' Biief.doc

field. (CR 2572-2573, 2588-2589, 2603, 2618-2620, 2633-2635). Mitchell testified that even

Compass Bank accepted the Pro Formas without question from Kwik as they considered Kwik and

Ellis "the professionals in that industry, not Compass Bank." (CR 203). For the automobile service

centers, the Pro Formas indicated that the daily car count would increase over the years, giving the

Plaintiffs steadily increasing revenue and profits. (CR 2570-2585,2602-2646). In reality, Plaintiffs'

affidavits confirm that the daily car counts and income figures reflected in the Pro Formas were

grossly exaggerated and highly inaccurate, and the actual car counts and sales figures for each

Plaintiffs service facility have been dramatically less, causing the Service Centers to operate at a

loss. (CR 2585, 2600, 2615, 2631, 2646). McKinnon testified in his deposition that the yearly,

national surveys conducted by his magazine, National Oil &Lube News, demonstrated that during

the period from 1995 through 2005, the average daily car count went from 47.9 to 35.7, a decrease of

20%. (CR 2764). Kwik advertised in McKinnon's magazine, meaning the Kwik Defendants were

aware of this key inconsistency on their Pro Formas compared to the national surveys. (CR 2755).

Not only were these Pro Formas provided to the Plaintiffs as potential customers, but they were

presented by Stallons to the lender, Compass Bank, as support for the viability of the loan. (CR

202). Chevreaux admitted that the only demographic information he reviewed for his appraisal of

the Michaels Plaintiffs' Service Center was the data provided by the Kwik Defendants. (CR 1 100).

The Plaintiffs present probative evidence raising genuine issues of material fact related to the

Plaintiffs' reliance on the Pro Formas as the inducement to purchase their Service Centers.

Plaintiffs raised considerable evidence raising genuine issues of material fact relating to each

element of their claims of fraudulent misrepresentation. These elements include: (1) a material

misrepresentation, (2) that was either known to be false when made or was asserted without

knowledge of its truth, (3) which was intended to be acted upon, (4) which was relied upon, and (5)

APPELLANTS' BRIEF N:KWK KAR\PLEADMppealMppellants' B~ief.doc

which caused injury. Marshal v. Kusch, 84 S.W.3d 781,785 (Tex. App.-Dallas 2002, pet, denied).

Having received the benefit of Ellis' fraudulent misrepresentations to the Plaintiffs, Stallons cannot

insulate herself from liability for fraud resulting from those misrepresentations. See, Corpus Christi

Area Teachers Credit Union v. Hernandez, 8 14 S. W.2d 195,202 (Tex. App.-San Antonio 199 1, no

writ) (a party in interest may become liable by mere silent acquiescence in fraudulent

misrepresentations of a third party). Moreover, it is also established that active concealment of

material facts may also be actionable as false statements. Campbell v. Booth, 526 S.W.2d 167, 172

(Tex. Civ. App.-Dallas 1975, writ ref d n.r.e.). Stallons was in charge of handling the Plaintiffs'

applications for SBA loans on behalf of the Kwik Defendants. (CR 2665). She was privy to all of

the information solicited from, and provided to, the Plaintiffs on behalf of the Kwik Defendants.

(CR 2665-2666).

Similarly, Chevreaux's claim that Plaintiffs were not within the class of persons the appraiser

had "reason to expect" to rely on the appraisal to purchase the property is without merit. (CR 445).

Chevreaux apparently contends that since the lender was officiallyhis client and Plaintiffs were not

aware of the appraisals, at least until closing of the purchase, Plaintiffs did not rely on Chevreaux's

appraisals. (CR 445). However, it is not required that the misrepresentation be made directly to the

claimant, inasmuch as a person who makes the misrepresentation is liable to the person or class of

persons the maker intends or has reason to expect will act in reliance upon the misrepresentation.

Id., citing Ernst & Young LLP v. Pac. Mut. Life Ins. Co., 5 1 S.W.3d 573, 578 (Tex. 2001) (citing,

Restatement (Second) of Tort, 5 53 1 (1977) [emphasis added]. The reason to expect standard is

consistent with Texas jurisprudence and requires that an alleged fiaudfeasor have information that

would lead a reasonable man to conclude that there is a special likelihood that it will reach those

persons and will influence their conduct. Id. at 580. [emphasis added].


Here, Chevreaux clearly knew the appraisal was being used as part of the approval process

for an SBA loan transaction for the Greenlee, Michaels, and Willis Plaintiffs. (CR 1097). In fact,

Chevreaux admitted he was provided with a copy of the sales contract between the Michaels

Plaintiffs and Kwik prior to completing his appraisals. (CR 1094). The Michaels and Willis

Plaintiffs' Contracts of Sale even indicate that they paid for Chevreaux's appraisal. (CR 2581,

2596). Mitchell confirmed that the Plaintiffs were indeed responsible for paying for the appraisals.

(CR 198). Additionally, it is without question that Plaintiffs' SBA loan approvals were based on

Chevreaux's Appraisals. (CR 2681). Appraisals were an essential part of the Plaintiffs' loan

applications; no appraisal = no loan. (CR 213). Consequently, the evidence establishes that

Plaintiffs relied on the appraisals, as part of the SBA approval process, to ensure that the Service

Centers were worth the amount which Plaintiffs had agreed to pay for them. (CR 2574,2589,2604,

2620, 2636). Mitchell acknowledged that the SBA and Compass Bank policies with regard to the

appraisals were very similar, indicating that the appraisals included in Plaintiffs' SBA loan packages

for Compass Bank would have to pass SBA requirements. (CR 213). As set forth in the Michaels

and Willis Affidavits, each Plaintiff relied upon the appraisal and would not have closed the

purchase transaction if the Chevreaux appraisal had not contained a grossly inflated market value of

each appraised service facility. (CR 2574-2575,2589-2591).

With regard to the Greenlee Plaintiffs, Chevreaux erroneously contends they do not fall

within the class of parties whom Chevreaux had "reason to expect" the market value representations

to reach because their purchase involved a loan assumption after the appraisal was originally

performed. (CR 445). However, it is established that the transactions sued upon need not be

identical to that the defendant contemplates if it has the same essential character. Id. "It may differ

in matters of detail or an extent, unless these differences are so great as to amount to a change in the


essential character of the transaction." Id., citing, Restatement (Second) of Torts 8 53 1 cmt. "g."

Here, the Greenlee Plaintiffs assumed the SBA loan for the Ferris Avenue Service Facility

approximately 1 112 years after the original SBA loan. (CR 145). As evidenced by the Greenlee

Affidavit, the Greenlee Plaintiffs clearly relied on the accuracy of the appraisals and revenue

projections made as part of the SBA loan approval process. (CR 144-145). The Greenlee Plaintiffs'

loan application required an appraisal as an essential part of the package; no appraisal = no loan.

(CR 21 3). This evidence raises material issues of fact as to whether Chevreaux had "reason to

expect" the Greenlee Plaintiffs to rely on the appraisal supporting the Service Center's original

purchase price.

Additionally, Compass Bank's claim that they made no misrepresentation and committed no

fraud against the Plaintiffs is without merit. (CR 67). Plaintiffs raise material issues of fact

concerning violations of Compass Bank internal policies and SBA loan policies with regard to

Compass Bank's handling of the Plaintiffs' loans. (CR 195, 206, 213). By violating SBA loan

policies, Compass Bank has misrepresented to the SBA, andindirectly to Plaintiffs, that the loan was

handled properly and with the utmost diligence. (CR 21 3). In reality, Compass Bank policies were

violated with regard to Kwik's selection of, and interacting with, the appraiser. (CR 206).

Additionally, Mitchell admits never comparing the Pro Formas from one loan package to another.

(CR 202). He contends that he was unaware that all of the Pro Formas submitted were identical.

(CR 202). Thus, Compass Bank misrepresented to the SBA, and indirectly to Plaintiffs, that the

loans for Plaintiffs' Service Centers had been vetted and given all proper consideration.

Likewise, Plaintiffs' evidence indicating the cozy and inappropriate relationship between the

Kwik Defendants, Compass Bank, and Chevreaux raises material issues of fact as to Compass

Bank's willing participation and/or acquiescence in the Kwik Defendants' overall scheme through

APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' Brief.doc

SBA procedural improprieties perpetuated by the Kwik Defendants which not only resulted in faulty

appraisals, but the non-disclosure of referral fees in violation of the SBA guidelines. (CR 49,2801).

Again, active concealment of material facts may be actionable as a false statement. Campbell v.

Booth, szpva. Moreover, Compass Bank's acquiescence in the actions of the Kwik Defendants in

perpetuating fraudulent misrepresentations as to the value of the Kwik Service Centers purchased by

the Plaintiffs is also actionable as fraud. Hennigan v. Havvis County, 593 S.W.2d at 380, 384

(Tex.Civ.App.-Waco 1979, writ ref d n.r.e.).

Defendants also committed fraudulent concealment in the sale of the Service Centers to the

Plaintiffs. The Kwik Defendants did not disclose payments to Kwik of thousands of dollars in return

for the Kwik Defendants' signing of the Pennzoil Contracts. (CR 2574, 2620, 2636). Easley

testified in his deposition that Kwik received payments of up to $45,000 related to the signing of the

Pennzoil Contracts, money that by the terms of the contract should have been paid to the Plaintiffs.

(CR 2695-2699). These Pennzoil Contracts required the Plaintiffs to purchase the vast majority of

the products they needed to operate their businesses from Pennzoil, with substantial penalty

provisions for failure to purchase the mandated amounts. (CR 2698, 2701). Easley could not

confirm the source of the number of units projected in the Pennzoil Contracts, nor could he identify

any business reviews for the existing Service Centers purchased by Plaintiffs. (CR 2701). Thus, yet

again, Plaintiffs suffered injury due to the Kwik Defendants' misrepresentations contained in their

Pro Formas which projected continued car count growth. (CR 2701,2578-2580,2593-2595,2608-

26 10,2624-2626,2643-2645). The double standard continues, whereby the Kwik Defendants claim

the Plaintiffs are unable to claim reliance upon the Pro Formas and sales projections, yet Compass

Bank, and Pennzoil both relied upon them in the course of the Plaintiffs' Service Center purchases.

(CR 203,2701). The Plaintiffs confirmed in their affidavits that neither the Kwik Defendants nor

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Pennzoil informed them that the payments which they should have received were actuallybeing paid

by Pennzoil to Kwik. (CR 2574,2620,2636). This evidence raises a material question of fact as to

whether information concerning the Pennzoil Contracts was fraudulently concealed from the

Plaintiffs.

Mitchell testified to the importance of complying with the SBA SOP, as confirmed by the

Compass Bank Credit Policy Manual. (CR 210). Mitchell acknowledged that it was "very

important" to comply with all SBA procedures in order to keep the SBA guarantee intact, and

because Compass Bank was acting as an agency of the Federal Government. (CR 210). Yet,

Defendants fraudulently concealed from Plaintiffs the fact that Stallons and Kwik received loan

referral fees from the closings for the Plaintiffs' Service Centers. (CR 2575,2621,2637). Stallons

testified that Kwik used various lenders, all of whom paid referral fees for SBA loan originations,

often 2% of the loan amount. (CR 2667). As an example, a $1.2 million loan origination would

generate a fee of $24,000.00. (CR 2668). Stallons, and the entity she created, LEST, Inc., would

split these fees with Ellis. (CR 2668-2669). None of this information was disclosed to the Plaintiffs,

and the information relating to the fees was not included on the closing statement of the SBA loans,

even though SBA loan regulations at SOP 50 10(5), 8(a), and (b) require, among other things, that a

loan packager or a referral agent ". . . or any other party that receives compensation from

representing an applicant for an SBA loan" must execute and provide an SBA Compensation

Agreement and an SBA Form 159(7a) "Fee Disclosure Fonn and Compensation Agreement," must

be signed by the small business applicant, the agent and the lender. (CR 2801). This evidence also

raises material questions of fact as to whether Defendants fraudulently concealed information from

the Plaintiffs.

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Page 4 1

Plaintiffs also raised evidence concerning genuine material fact issues relating to Compass

Bank's fi-audulent concealment. Fraudulent concealment occurs when: 1) aparty conceals or fails to

disclose a material fact within the knowledge of that party; 2) the party knows that the other party is

ignorant of the fact and does not have an equal opportunity to discover the truth; 3) the party intends

to induce the other party to take some action by concealing or failing to disclose the fact; and 4) the

other party suffers injury as a result of acting without knowledge of the undisclosed fact. Bvadfovd v.

Vento, 48 S.W.3d 749, 754 (Tex. 2001). Compass Bank argues that it had no duty to disclose any

facts which Plaintiffs allege contributed to their injury. (CR 2 136). In fact, Plaintiffs raised evidence

which indicated SBA guidelines, let alone internal Compass Bank policies, which were violated in

the transactions to finance the Michaels Plaintiffs' Kwik service center. (CR 195, 206, 213).

Plaintiffs presented testimony by Mitchell admitting Compass Bank's violations ofmaterial elements

of the Michaels Plaintiffs' SBA loan transaction. (CR 195,206,213). Plaintiffs believe this raises a

genuine issue of a material fact as to whether or not Compass Bank's policies required disclosure of

these violations to their customers, specifically the Michaels Plaintiffs. Likewise, Chevreaux was

aware of improprieties in the solicitation of his services by Kwik directly (CR 1094), and in his

violation of standard and uniform appraisal procedures regarding comparable sales valuation,

demographic analysis, and open market exposure analysis. (CR 1098- 1 100). Additionally, Compass

Bank's deliberate failure to disclose the referral fees paid to the Kwik Defendants out of the

transaction costs materially damaged Plaintiffs. (CR 2801). The affidavits of the Plaintiffs raised

evidence regarding their unawareness of these fees and payments to the Kwik Defendants (CR 2801),

as well as to their lack of knowledge concerning the appraisals' inflated values. (CR 2575-2575,

2589-2591). Compass Bank and Chevreaux are unable to shield themselves by claiming they had no

communication with the Plaintiffs when they knew that Plaintiffs were ignorant of these loan

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transaction violations, inflated appraisals, and fees, and knew that Plaintiffs had no equal opportunity

to discover these facts. See Id at 755. Plaintiffs' evidence presented material questions regarding

Compass Bank's fraudulent concealment which were properly within the province of the trier of fact

to determine.

The Kwik Defendants and Chevreaux erroneously contend that Plaintiffs' fraud claims are

barred by the contractual disclaimers contained in paragraph 10(E) and in paragraph 13 or 14 of

Plaintiffs' contracts which contain boiler plate disclaimers and integration clauses. [emphasis

added]. (CR 456-457,463-465,473-474,495-500). Stallons and Chevreaux's contention regarding

contractual disclaimers is especially interesting considering that although the Trial Court granted

summary judgment for Stallons and Chevreaux, it also denied Kwik and Ellis' motions based upon

the same argument. (CR 2886-2888,2892-2899). The Trial Court's Orders are inconsistent in that

they are based upon the same evidence regarding disclaimers on the same contracts. (CR (CR 2886-

2888,2892-2899). It is a double standard for the Kwik Defendants to argue the Plaintiffs are unable

to claim reliance upon the Pro Formas and sales projections when both Compass Bank and Pennzoil

relied upon them in the course of their loan approval and in preparing supply contracts. (CR 203,

2701). The Kwik Defendants concede that a disclaimer of reliance or merger clause will not always

bar a fraudulent inducement claim, (CR 497) citing, Prudential Ins. Co. v. Jeferson Assoc. Ltd., 896

S.W.2d 156,162 (Tex. 1995). Defendants contend that the disclaimers in the instant case should be

enforced under the decision in Schlumberger Tech Corp. v. Swanson, 959 S.W.2d 17 1 (Tex. 1997).

However, Defendants failed to note the equally established principle that a purchaser is not bound by

such boilerplate disclaimers, or integration agreements, when, as in the instant case, the purchaser is

induced by the fraudulent representations or concealment of information by the seller. Prudential

Ins. Co., 896 S.W.2d at 162. [emphasis added]. In other words, disclaimers of reliance and


integration clauses do not bar a fraud claim. Moreover, a purchaser is not bound by such disclaimer

provisions when his inspecting rights are impaired by the seller's conduct, such as an active

concealment, as in the instant case, of not only the true value of the facility, but its profitability. In

the instant case, material fact issues exist as to the active concealment by the Kwik Defendants of the

true value and revenue prospects of the Service Centers purchased by Plaintiffs, and under

Prudential, the misrepresentations and active concealment render the contractual disclaimer and

integration provisions ineffective in the instant case. Consequently, Chevreaux also cannot rely upon

the disclaimers to bar liability when his appraisals were the instrument which perpetuated the Kwik

Defendant's concealment of the true value of the Plaintiffs' Service Centers.

Moreover, even if there were no evidence which raises a material fact issue regarding

fraudulent concealment, Defendants' argument based upon the disclaimer provision still must be

rejected under a legitimate review of the factors determining whether the provisions should be

enforced. See, Id. Specifically, the nature of the transaction and the totality of the circumstances

surrounding the agreement must be considered, as in whether the clause is an important part of the

basis of bargain or an incidental boiler plate provision, and if it is entered by parties of relatively

equal bargaining positions. Id.

Further, the Kwik Defendants' reliance on the Schlz~nzbevgev decision is misplaced, inasmuch

as the facts in the instant case are clearly distinguishable. In Schlumbevgev, the evidence established

that the parties ( I ) were represented by "highly competent and able legal counsel," (2) negotiated

with each other at arms length, (3) were knowledgeable and sophisticated business players, (4)

disagreed over the value of the subject project, and (5) entered into a settlement to end their dispute

about the value of the project. Schlumbevgev Tech. Covp., 959 S.W.2d at 180. By contrast, the

Plaintiffs in the instant case were not represented by independent counsel in negotiating the contract,

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but simply utilized counsel referred by the Kwik Defendants to form the corporate entities who are

now Plaintiffs in the instant case. (CR 2575,2606,2637,2679). The Plaintiffs' use of legal counsel

that the Kwik Defendants suggested to form their business entities is, in fact, the exact opposite of

using independent counsel. (CR 2575,2606,2637,2679). Moreover, aside from Ellis' self-serving,

inadmissible testimony, it is obvious that the parties were not negotiating at arms length and that the

Plaintiffs were relying on Ellis' experience and expertise to provide them with accurate information

about the operation of their Service Centers. (CR 2572-2573,2588-2589,2603,2618-2620,2633-

263 5). Additionally, Plaintiffs cannot be viewed as either being knowledgeable or sophisticated with

regard to the lube and tube business, as none of them had any experience in investments of this

magnitude, particularly in this industry. (CR 2575-2576,2606,2622,2637). Moreover, there was

no existing disagreement about the value of each Service Center, and the Plaintiffs relied on the

Kwik Defendants to provide accurate information regarding the value of their Service Centers. (CR

2572-2573, 2588-2589, 2603, 2618-2620, 2633-2635). Finally, the Court in Schlumberger

specifically limited its holding to the facts at hand in that matter. Id. at 181. "We conclude only

that on this vecovd, the disclaimer of reliance conclusively negates as a matter of law the element of

reliance on representations.. .needed to support the [plaintiffs'] claim of fraudulent inducement." Id.

Consequently, the Schlumbevgev decision is completely distinguishable from the instant case and

would ostensibly apply only in cases where the disclaimers were contained in settlements, negotiated

by knowledgeable attorneys, involving a dispute as to the value of each respective Service Center.

Moreover, the doctrine of merger does not apply, inasmuch as it is settled that the doctrine is

inapplicable in situations, like the present case, where there is an allegation of fraud. GXG v.

Texacal Oil & Gas, 977 S.W.2d 403, 416 (Tex. App.-Corpus Christi 1998, no writ), citing

Schlumbevgev, 895 S.W.2d at 729. Likewise, Compass Bank cannot rely on similar merger

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agreements and disclaimers contained in the Compass Bank loan documents executed as part of the

transaction involving Plaintiffs' purchase of their respective Service Centers, inasmuch as all

agreements related to a transaction fraudulently induced are vitiated by the fraud. (CR 69). Fletcher

v. Edwards, 26 S.W.3d 66, 76 (Tex. App.-Waco 2000, pet. denied) (holding that fraudulent

inducement vitiates all documents executed as part of a transaction).

The foregoing evidence of probative force produced by the Plaintiffs raises fact issues on the

material questions presented. This evidence clearly raises fact issues properly for consideration by

the trier of fact with regard to each element of Plaintiffs' claims of fraudulent misrepresentation and

fraud in the inducement, and fraudulent concealment. As such, summary judgment for the

Defendants was improper.

D. THE JUDD, LOFTON, AND WILLIS PLAINTIFFS RAISED GENUINE ISSUES OF MATERIAL FACT

AND RAISED SUFFICIENT EVIDENCE THAT DEFENDANTS VIOLATED THE TEXAS BUSINESS

OPPORTUNITY ACT.

The Trial Court erred in granting summary judgment for Stallons with regard to the Judd,

Lofton, and Willis Plaintiffs' claims under the BOA. Plaintiffs concede that the Greenlee and Michaels

Plaintiffs do not have claims under the BOA because their Service Centers were "flip" purchases ofpreviously-

built Kwik Service Centers that were sold by disgruntled, former owners to Kwlk, who then flipped the Service

Centers to the Greenlee and Michaels Plaintiffs. (CR 2571, 2605). The Kwik Defendants erroneously

contended the BOA provides no relief to Plaintiffs, based upon a restrictive construction of the

definitional terms of the statute. (CR 1202-1206, 1371 -1 376, 1546-1 550, 1738-1 742, 1965-1969).

However, the Kwik Defendants ignore the initial provision at fj 41.002(a)(l) and (2), entitled

Construction and Application, which provides as follows:

(a) This chapter shall be liberally construed and applied to:

(1) protect persons against false, misleading, or deceptive practices in the advertising, offering for sale or lease, and sale or lease of business

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opportunities; and

(2) provide efficient and economical procedures to secure that protection. [Emphasis added]. (CR 2303-2306).

Additionally, the definition of a "business opportunity contract" under 5 41.003(1) is equally as

broad and provides that a "'[b]usiness oppoltunity contract' means an agreement that obligates or is

intended to obligate apurchaser to a seller." (CR 2304). Moreover, the Kwik Defendants' reliance

on exceptions set forth in 5 41.004 of the BOA is misplaced, as the evidence clearly establishes that

representations were made by the Kwik Defendants to each Plaintiff regarding potential profits in the

Pro Forrnas given to each Plaintiff, which, as set forth in Plaintiffs' sales comparisons, all turned out

to be false. (CR 2304, 2585, 2600, 261 5, 263 1, 2646). Moreover, the Kwik Defendants'

contentions relating to the remaining BOA criteria are also misplaced, inasmuch as the very terms of

Plaintiffs' contracts reveal that the Kwik Defendants were required to provide training to each

Plaintiff (CR 2634). A "marketing program" is defined under the Act as encompassing training.7

(CR 2304-2305). Moreover, in addition to the clear statutory directive that the BOA should be

liberally construed, the Kwik Defendants have missed the point, inasmuch as Plaintiffs are

proceeding under 5 41.301 of the Act (entitled Prohibited Acts) which precludes a seller from,

among other things, employmg representations to deceive a purchaser.8 (CR 2305). A review of the

7 The definitions under 5 41.003 include the following:

(6 ) "Marketing program" means advice or training that is given to the purchaser by the seller or a person recommended by the seller pertaining to the sale of products, equipment, supplies, or services and that includes the preparation or provision of:

(A) promotional literature, brochures, pamphlets, or advertising materials; (B) training regarding the promotion, operation, or management of the business opportunity; or (C) operational, managerial, technical, or financial guidelines or assistance.

8 541.30 1 of the BOA provides as follows: "A seller may not: (1) employ a representation, device, scheme, or artifice to deceive a purchaser; (2) make an untrue statement of a material fact or omit to state a material fact in connection

with the documents and information required to be hmished to the Secretary of State or APPELLANTS' BRIEF N:\KWIK KAR\PLEADL4ppeal\Appellantsr Brief.doc

acts prohibited by 5 41.301 reveals that they all facially apply in the instant case. Moreover,

5 41.302 of the BOA also provides as follows:

A violation of this chapter is a false, misleading, or deceptive act or practice under Section 17.46, Business & Commerce Code. A public or private right or remedy prescribed by Chapter 17, Business & Commerce Code, may be used to enforce this chapter. Tex. Bus. & Comm. Code 6 41.302. (CR 2305).

Even if, as the Kwik Defendants contend, the Plaintiffs' Service Center purchase transactions

would otherwise be exempt under the DTPA, the BOA confers a right of action to the Plaintiffs, and

more importantly, specifically allows for the remedies under the DTPA to be applied in actions

involving a violation of the BOA. Plaintiffs' evidence raises fact issues properly for consideration

by the trier of fact with regard to Plaintiffs' claims under the BOA. Consequently, summary

judgment dismissal for Stallons of the Plaintiffs' BOA claims was improper.9

E. PLAINTIFFS RAISED GENUINE ISSUES OF MATERIAL FACT AND RAISED SUFFICIENT EVIDENCE THAT DEFENDANTS' ACTIONS CONSTITUTED STATUTORY FRAUD IN THE SALE OF REAL ESTATE UNDER SECTION 27.01 OF THE TEXAS BUSINESS AND COMMERCE CODE.

The foregoing evidence of probative force produced by the Plaintiffs raises issues on

questions of material facts properly for consideration by the trier of fact with regard to each element

of Plaintiffs' claims of fraudulent misrepresentation and fraud in the inducement, fraudulent

concealment, and also statutory fraud in the Sale of Real Estate under 5 27.01 of the Texas Business

purchaser; (3) represent that the business opportunity provides or will provide income or earning

potential unless the seller: (A) has documented data to substantiate the claims of income or eaming potential; and (B) discloses the data to the purchaser when the representation is made; or

(4) make a claim or representation in advertising or promotional material or in an oral sales presentation, solicitation, or discussion between the seller and the purchaser that is inconsistent with the information required to be disclosed by this chapter."

he Kwik Defendants have also failed to cite any decision which holds that the Kwik Defendants' arguments that the integration and disclaimer clauses in the contracts prohibit Plaintiffs from relying on the BOA. Additionally, as previously noted, these clauses are not effective in cases, like the instant case, which involve fraud. Fletcher v. Edwards, 26 S.W.3d at 76. APPELLANTS' BRIEF N:\KWIK KAR\PLEAD\Appeal\Appellants' B~ief.doc

and Commerce Code. As such, summary judgment for the Defendants was improper.

F. PLAINTIFFS RAISED GENUINE ISSUES OF MATERIAL QUESTIONS OF FACT AND RAISE

SUFFICIENT EVIDENCE THAT DEFENDANTS' ACTIONS VIOLATED THE TEXAS DECEPTIVE

TRADE PRACTICES, CONSUMER PROTECTION ACT, TEXAS BUSINESS AND COMMERCE CODE

SECTION 17.41, THE "DTPA."

The Trial Court erred in granting sumrnaryjudgment for Defendants with regard to Plaintiffs'

claims under the DTPA. Defendants erroneously contended Plaintiffs' claims under the DTPA must

fail because the transactions involving the purchase of Plaintiffs' Service Centers were exempt under

§ 17.49(g) of the DTPA, inasmuch as they involve a consideration of more than $500,000.00 and did

not involve Plaintiffs' residences. Although there is apparently no case authority on point which

applies this exemption, it facially appears to apply to the Plaintiffs' Service Center purchase

transactions and may exempt these transactions from the purview of the DTPA. However, as set

forth hereinabove, Plaintiffs are still entitled to pursue relief under the DTPA against Defendants

under €j 41.302 of the BOA, and the summary judgment evidence clearly raises a fact issue with

regard to each of the prohibited acts under the BOA which include (1) employing a representation,

device, scheme, or artifice to deceive a purchaser, (2) making an untrue statement of the material fact

or omitting to state a material fact in connection with documents furnished to Plaintiffs, as the

purchasers, (3) representing that a business opportunity provides or will provide income or earnings

which were not properly documented or disclosed, and (4) making a claim or representation in

advertising or promotional material and in sales, presentations, or solicitations between the seller and

the purchaser that is inconsistent with information which must be disclosed under the BOA.

Further, the evidence via the affidavits of each Plaintiff establishes that the Kwik Defendants,

employed misrepresentations and made untrue statements of material facts related to projected car

count, income, and profitability of the Service Centers purchased by Plaintiffs. (CR 2572-2573,

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2588-2589,2603,2618-2620,2633-2635). Compass Bank used this information in performing the

lending services on the transactions, and Chevreaux used the Kwik Defendants' demographic data in

performing his appraisals. (CR 20 1-202, 1 100). Moreover, the summary judgment evidence

establishes that the underlying documentation was false and inaccurate and varied widely from the

true daily car count numbers and income which had suffered a progressively downward trend during

the period from 1995 through 2005 according to testimony by McKinnon about national surveys in

the industry. (CR 2764).

Moreover, the summary judgment evidence also establishes that the Kwik Defendants, acting

with the participation and/or acquiescence of Compass Bank and Chevreaux, employed numerous

devices or schemes to deceive Plaintiffs as purchasers under the BOA, including, without limitation,

failing to disclose that the Kwik Defendants were receiving referral fees from Compass Bank in

violation of SBA loan requirements (CR 2575. 2637, 2671); taking Pennzoil payments at each

closing in the range of $30,000.00 to $45,000.00, each of which should have been paid to Plaintiffs,

and which were diverted to the Kwik Defendants, without any disclosure to Plaintiffs (CR 2574,

2620, 2636); and by colluding with Chevreaux and other appraisers to provide grossly inaccurate

appraisals of the Service Centers which were actually worth far less than the appraised amount. (CR

657,699). Consequently, the summary judgment evidence submitted by Plaintiff clearly raises fact

issues as to Plaintiffs' entitlement to pursue a claim for BOA violations and for relief under the

DTPA.

VI. PRAYER

WHEREFORE, PREMISES CONSIDERED, Appellants respectfully pray that this

Honorable Court reverse the judgment of the Trial Court and renderjudgment in their favor, or in the

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alternative, remand this matter to the Trial Court, and for any and all such relief for which Appellants

may show themselves justly entitled.

Respectfully submitted,

HOW FRELS ROHDE WOODS & DUKE A Professional Corporation

State Bar No. 10059900 MARK FRELS State Bar No. 07438200 BUDDY APPLE State Bar No. 24059387

2027 Young Street Dallas, Texas 75201 (2 14) 720-2220 Telephone (21 4) 720-2240 Facsimile ATTORNEYS FOR APPELLANTS


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CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing instrument has been sent to the followi g counsel for Appellees via certified mail-return receipt requested andlor facsimile, on this the day ofAugust, 2010.

JAN STALLONS PRO SE 8020 Wallace Road Fort Worth, Texas 76 13 5

JEFFREY S. SEEBURGER KANE RUSSELL COLEMAN & LOGAN, P.C. 3700 Thanksgiving Tower 1601 Elm Street Dallas, Texas 75201 (214) 777-4200 Telephone (214) 777-4299 Facsimile

PAUL FRANCIS PAUL FRANCIS, ATTORNEY AT LAW, PLLC P.O. Box 13369 1178 W. Pioneer Parkway Arlington, TX 76094 (8 17) 543-2600 Telephone (8 17) 460-2236 Facsimile

JAMES A. CRIBBS CRIBBS & MCFARLAND, P.C. P.O. Box 13060 1000 W. Abram Arlington, Texas 76094-0060 (8 17) 46 1-2000 Telephone (817) 275-7810 Facsimile


Page 5 2

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