X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:The appeal involved a series of transactions between Tom Haynes, his two advertising companies T&S Haynes Enterprises LLC (doing business as Mission Control) and Solutioneers Consulting Ltd., and the companies’ client, Gulf Greyhound Partners Ltd., which operates a racetrack in Galveston County. Haynes owned and served as general partner of Mission Control, an advertising agency that purchased advertising time from various media outlets for clients. Haynes also owned Solutioneers, an advertising company whose business consisted largely of obtaining corporate sponsorships for clients. As described in further detail below, GGP entered into independent agreements with Mission Control and Solutioneers to obtain advertising for and sponsorship of its racetrack operations, and events relating to these agreements gave rise to the causes of action in the appeal. In December 1999, GGP and Mission Control entered into an agency contract in which Mission Control agreed, as agent of record, to purchase advertising time on GGP’s behalf in return for commissions. Charlie Fenwick, GGP’s director of marketing, testified that GGP enlisted Mission Control to alleviate the burden of conducting marketing operations in-house, which requires constant communication with media outlets and a large volume of paperwork. Under the agreement, Mission Control would purchase advertising time for GGP as follows: 1. Mission Control would select and agree to purchase time from a media outlet; 2. the outlet would send an invoice to Mission Control reflecting the amount due for the time; 3. Mission Control would forward a “master” invoice to GGP, which included the amount due for the time plus Mission Control’s commission; 4. GGP would pay Mission Control the entire amount on the master invoice within 10 to 14 days of receipt; and 5. Mission Control would deduct amounts for its commission and then forward the difference to the outlet as payment for the time. According to Fenwick, GGP expected Mission Control to forward payment to the media outlet immediately upon receipt of payment from GGP. As early as January 2001, GGP began receiving calls from media outlets complaining that GGP had not paid invoices for advertising time Mission Control had purchased. Fenwick contacted Haynes about the complaints; Haynes assured Fenwick the invoices had been paid, that the outlets were mistaken and that his employees would investigate the situation. Fenwick testified that after these initial complaints, the problem went away, as GGP did not hear anything further from the media outlet or Haynes, and GGP continued to pay invoices based on Haynes’ assurances. As the year progressed, however, GGP received similar phone calls from a growing number of outlets. Eventually, in June 2001, after GGP made further inquiries about the situation, Haynes set up a meeting with Fenwick. At the meeting, Haynes and his employee Aldie Beard disclosed that Mission Control failed to forward $154,000 to media outlets for time that Mission Control had placed for GGP, producing detailed documentation of the delinquent accounts. Haynes admitted he used these funds to pay off debts to other media outlets, because his businesses were experiencing financial difficulty. Thereafter, Fenwick, GGP General Manager Barry Sevedge and another representative in GGP’s corporate office held several meetings amongst themselves and with Haynes to determine the most efficient method to resolve the outstanding debt while salvaging GGP’s business reputation. As a result of these meetings, GGP directed the media outlets to send all future invoices directly to GGP and stated that GGP would now pay them directly. Moreover, Haynes agreed to help GGP negotiate with the outlets to either release or reduce the outstanding debt in return for promises of future advertising purchases from GGP, and the parties agreed that Mission Control would still receive commissions on future business it obtained in these negotiations. GGP decided not to sever ties and pursue legal action against Haynes and Mission Control immediately, because Haynes, who enjoyed closer, long-term relationships with many of the media outlets and had more information regarding the accounts in default, could serve as an intermediary and more effectively negotiate down the debt than could GGP alone. Although GGP and Haynes successfully obtained debt releases from most of the media outlets by promising future business, some outlets refused, leaving $56,000 in unreleased debt. Therefore, to avoid damage to its credit, GGP paid $56,000 to the remaining outlets, which GGP considered a double payment in that it had once already transmitted funds to Mission Control to purchase this time. Sevedge testified that he considered the $56,000 double payment a loan to Mission Control and that GGP never released Mission Control from liability for repayment, though he explained that he and Haynes failed to negotiate a firm schedule for repayment, despite repeated attempts. Sevedge further noted that, in addition to repaying the $56,000, GGP initially paid Haynes and his employees commissions in excess of that originally agreed, in the hope that Mission Control could continue business and would become able to repay the loan in the future. Haynes, on the other hand, believed that Mission Control had no obligation to repay the $56,000, claiming Sevedge told him it was a “cost of doing business.” On July 10, 2002, after repeated failures to settle on a repayment schedule, GGP terminated its relationship with Haynes and his companies, including Mission Control. Mission Control never repaid the $56,000. In February 2001, before GGP fully learned of Mission Control’s failure to pay the media outlets, GGP entered into a contract with Solutioneers in which Solutioneers agreed to obtain sponsorships for the racetrack in return for commissions. Under the agreement, Solutioneers would receive commissions both for obtaining new sponsorships and for enhancing the value of existing sponsorships. As with the original Mission Control agreement, the contract provided that Solutioneers would collect payments directly from the sponsors and remit GGP’s share within seven days of receipt. Thereafter, Solutioneers, through negotiations conducted by Haynes, enhanced the value of an existing sponsorship agreement GGP held with Miller Brewing Co. from $50,000 to $75,000 per year for a two-year period. In 2002, Miller made the yearly payment in two equal installments of $37,500, one in the spring and one in the fall. Solutioneers received the spring payment on May 29, 2002, but failed to remit to GGP its share until July 5, 2002. Fenwick testified that, when confronted about the late payment, Haynes lied about whether he had received or deposited the spring payment from Miller. Solutioneers received the fall payment on Aug. 14, 2002, but never forwarded any portion of this payment to GGP. The record does not reveal what Solutioneers or Haynes did with these funds. GGP then filed suit against Mission Control, Solutioneers and Haynes. GGP alleged that Mission Control had, based on its failures to forward payments to media outlets for advertising time it placed and related misrepresentations and omissions, breached its contract and committed fraud by misrepresentation and omission. GGP also claimed that Haynes individually committed fraud by misrepresentation for such conduct. GGP additionally alleged that Solutioneers breached its contract in failing to remit GGP’s share of the first Miller sponsorship payment within seven days of receipt and withholding the entire second payment. GGP also generally pleaded that Mission Control and Solutioneers constituted alter egos of Haynes and thus the companies’ corporate veils should be pierced to hold Haynes personally liable. Mission Control, Solutioneers and Haynes generally denied and asserted various affirmative defenses, including ratification, waiver and unclean hands. Mission Control counterclaimed for breach of contract, alleging that GGP failed to pay over $66,000 in commissions for advertising time it placed from April 2002 to July 2002. At trial, the jury made the following findings: 1. Mission Control committed fraud by misrepresentation and by omission; 2. Haynes committed fraud by misrepresentation; 3. Mission Control breached its contract with GGP, which was not excused due to unclean hands or otherwise; 4. GGP also breached the contract, but was excused; 5. Solutioneers breached its contract with GGP, and 6. Haynes was responsible for the conduct of both Mission Control and Solutioneers under an alter ego theory. For each instance of fraud by Mission Control and Haynes, the jury awarded $56,000 in damages for the “difference, if any, in the value of the agency services received and the price [GGP] paid.” For Mission Control’s breach of contract, the jury awarded $56,000 in damages for the “difference between the value of the radio ads as represented and the value received.” For Solutioneers’ breach of contract, the jury awarded $52,237.50, the amount of sponsorship payments Solutioneers failed to remit to GGP. The trial court entered judgment on the verdict. The court awarded recovery against Haynes and Mission Control, jointly and severally, for $56,000 based on the jury’s findings of fraud and breach of contract. The court further awarded recovery against Solutioneers and Haynes, jointly and severally, for the breach-of-contract damages. The court additionally awarded recovery against Mission Control and Solutioneers, jointly and severally, for $75,000 in attorneys’ fees. The court subsequently denied Haynes’ motions for new trial and for judgment notwithstanding the verdict. On appeal, Haynes and his two businesses challenged the sufficiency of the evidence supporting the jury’s findings of fraud, alter ego and excuse for breach of contract. HOLDING:Affirmed in part, reversed and rendered in part. In issues one and two, the court examined whether sufficient evidence supported the jury’s findings of fraud by misrepresentation and omission. Based on its review of the record, the court concluded that sufficient evidence supported the findings of fraud as to Haynes and Mission Control. First, the evidence showed that Haynes, acting for Mission Control, made false, material misrepresentations to GGP and that Mission Control failed to execute its duty to disclose information. When GGP asked Haynes about complaints from media outlets concerning delinquent payments for advertising time, the court noted, Haynes assured GGP that Mission Control had paid the outlets and that the outlets were mistaken, but Haynes later disclosed to Mission Control that it in fact had not paid numerous media outlets. Moreover, the court stated, as an agent of record and thus fiduciary for GGP, Mission Control at least had a duty to disclose information pertaining to its inability to pay its bills and its appropriation of GGP’s funds to pay such bills. Second, the evidence supported the jury’s findings that Mission Control and Haynes both knew of the falsity of these representations, or made them recklessly without knowledge of the truth, and intended GGP to rely on them. In issue three, Haynes contended that insufficient evidence supported the jury’s finding that Solutioneers constituted his alter ego; thus, he could not be personally liable for Solutioneers’ breach of contract. Because the court concluded that the record revealed a complete absence of evidence of direct personal benefit to Haynes resulting from fraud in relation to Solutioneers and the Miller sponsorship, the court sustained issue three, and reversed and rendered on that issue. In issue four, Mission Control: claimed that legally insufficient evidence supported the jury’s finding that GGP was excused for breaching its contract with Mission Control; and maintained the jury thus should have awarded Mission Control unpaid commissions under the agency contract pursuant to its counterclaim for breach. But the court found that Mission Control failed to preserve its legal sufficiency challenge to the jury’s finding regarding GGP’s excuse for breach of contract for our review. OPINION:Yates, J.; Yates, Frost and Seymore, JJ.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 3 articles* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.