FREDERICKA HOMBERG WICKER, Judge.
The plaintiff/appellant, Dr. Eric R. George, appeals the trial court's judgment which dismissed his petition against the defendant/appellee, Mr. Edwin White, for breach of contract and violations of Louisiana Securities Law. For the reasons that follow, the judgment appealed from is affirmed.
Mr. Allen
During that meeting, Mr. White informed Mr. Donner that the investment was a limited partnership in MBS Yellowstone Ranch (Yellowstone), which would acquire the Yellowstone Ranch Apartments — a luxury apartment complex located in Texas. Mr. White also disclosed that Michael B. Smuck was his partner in Yellowstone. Mr. White provided Mr. Donner with some written materials about the investment, including a subscription agreement. After the meeting, Mr. Donner conducted due diligence, which included getting comfortable with the investment and also investigating Mr. White, with whom neither he nor Dr. George had ever had any prior business dealings. Mr. White did not, however, conduct any research to determine whether in fact Yellowstone had been formed. Mr. Donner presented the investment opportunity to Dr. George once he completed his due diligence, and Dr. George decided to invest.
Dr. George issued Check No. 634, drawn on his personal account at Regions Bank, in the amount of $200,000.00. The check was made payable to MBS Yellowstone Ranch Ltd. and was dated August 17, 2007. Pursuant to Mr. White's instructions, Mr. Donner hand delivered the check to Mr. White's office that day. On the advice of Mr. Donner, however, Dr. George did not sign the subscription agreement due to a clause contained therein. Paragraph 1 of the subscription agreement stated:
Because neither Dr. George nor Mr. Donner had received the partnership agreement at the time Check No. 634 was written, Dr. George declined to sign the subscription agreement. Dr. George's check, along with the other investors' checks, was forwarded to Mr. Smuck — the managing partner of Yellowstone. Check No. 634, which was made payable to MBS Yellowstone Ranch Ltd., was endorsed "FOR DEPOSIT ONLY MBS Realty Investors, LTD." on August 30, 2007 at Whitney National Bank.
Approximately one month after Dr. George's check was deposited, Mr. White became suspicious that something was afoot with the Yellowstone investment. On September 28, 2007, Mr. White, Mr. Smuck, and others held a meeting wherein Mr. White inquired about the Yellowstone project. It was at that meeting that Mr. Smuck admitted to misappropriating the funds. Mr. White then contacted the investors, including Dr. George, by letter dated October 26, 2007 and informed them that he had no knowledge of Mr. Smuck's "fraudulent and potentially illegal activities." A few days later, on October 30, 2007, Mr. White, Ed White and Associates, Inc., and Ed White and Associates, LLC entered into an agreement with Mr. Smuck and his entities wherein Mr. Smuck agreed to assign all revenues attributable to his interest in the partnership to Mr. White and his entities until all funds paid
Meanwhile, Dr. George contacted Regions Bank and requested that his $200,000.00 be returned due to the improper endorsement on Check No. 634. Rather than return the funds, however, Regions Bank contacted Whitney National Bank regarding the improper endorsement. In January of 2008, Whitney National Bank returned Check No. 634 to Regions Bank with a proper endorsement. After the endorsement was corrected, Regions refused to refund Dr. George's money.
Dr. George filed a Petition against Mr. White in his personal capacity on September 30, 2009, alleging breach of contract and fiduciary duty, negligence, and violations of securities laws pursuant to La. R.S. 51:712 et seq.
The trial court heard the exceptions on March 17, 2010. The court ruled on the exceptions in open court but issued its written judgment on April 5, 2010, which denied the exceptions of no right and no cause of action as well as the exception of prescription on the securities claims. The trial court, however, granted the exception of prescription on the negligence claim.
During the trial, testimony was elicited from Mr. White, Mr. Donner, and Dr. George.
Mr. White testified that Mr. Smuck approached him in 1994 about the possibility of forming joint ventures. As a result, Mr. White conducted due diligence on Mr. Smuck for a six-to-eight month period before deciding to move forward. After completing due diligence, Ed White and Associates, Inc. and Ed White and Associates, LLC began forming joint ventures with Mr. Smuck in July of 1995. Mr. White stated that everything went "phenomenally well" with Mr. Smuck from that time until the Yellowstone debacle. Mr. White testified that the nature of Ed White and Associates, LLC's relationship with Mr. Smuck and his entities was that Mr. Smuck and
Mr. White testified that he flew to Texas twice to investigate the Yellowstone property before announcing the project. He explained, however, that he did not perform any due diligence to determine whether the partnership had, in fact, been formed. He stated that he did not check the Texas records, because Mr. Smuck handled all the legal and financial matters. He further explained that based on his prior business dealings with Mr. Smuck, he assumed the partnership would be formed. Mr. White stressed, however, that he never represented to Mr. Donner that the partnership already existed. He explained that he specifically told Mr. Donner that the real estate investment fact sheet for Yellowstone had not yet been completed. And as a result, he gave Mr. Donner a sample real estate investment fact sheet which contained a sample partnership agreement. Mr. White stated that he gave those documents to Mr. Donner because the partnership agreements were virtually identical for each transaction.
Mr. White testified that Ed White and Associates, LLC put up a total of $525,000.00 in the Yellowstone project — a $200,000.00 investment and $325,000.00 as seed capital. Mr. White stated that he signed the subscription agreement on behalf of Ed White and Associates, LLC as "Ed White, managing member." He further explained that he felt comfortable signing the subscription agreement without having received the partnership agreement based on Mr. Smuck's 12-½ year track record of being able to perform. Mr. White admitted that he was aware that Dr. George had not signed the subscription agreement but explained that he was unaware of his reason for not doing so. He added that he could not recall Mr. Donner inquiring about the partnership agreement.
Mr. White testified that he moved quickly to salvage the properties once he learned Mr. Smuck misappropriated the funds. He, his wife, and his entities put up $3.1 million over and above what had been embezzled to preserve as much as they could; otherwise, they would have sustained a $55 million loss. Mr. White stated that, pursuant to the assignment of rights, over half the money Mr. Smuck embezzled from Dr. George had been returned to him from funds that belonged to Mr. Smuck and his entities. Mr. White explained, however, that due to the $3.1 million he paid to salvage the properties, he paid himself back some of the money that had been recouped instead of repaying Dr. George the entirety of his investment. Mr. White further explained that he, his entities, and the other Yellowstone investors filed suit against Whitney National Bank for negligently allowing the Yellowstone checks to be deposited into an account in the name of MBS-Realty Investors, Ltd. He stated, however, that Dr. George elected not to participate in this suit, adding that if he had participated, Dr. George would have received approximately $5,600.00.
Mr. White testified that he has always conducted business in the name of Ed White and Associates, LLC, and that he has never conducted business with third parties in his personal capacity. He admitted, however, that he instructed Mr. Donner to deliver Dr. George's check to his office, even though the subscription agreement directed investors to mail/deliver checks to the MBS office located in Metairie, Louisiana. Mr. White explained that this was not an uncommon practice.
Mr. Donner, Dr. George's investment advisor, testified that he presented the Yellowstone opportunity to Dr. George in
Mr. Donner testified that he learned of the Yellowstone debacle in October of 2007, when Mr. White's secretary called and asked him to come to the office. Once he arrived, Mr. White gave him a letter essentially stating that Dr. George's $200,000.00 had been stolen. He stated that Mr. White apologized and stated he would do whatever possible to make Dr. George whole again.
Dr. George testified that he has been investing in real estate personally since 2003. He stated that he signed Check No. 634, payable to MBS Yellowstone Ranch, and gave the check to Mr. Donner. He explained, however, that Mr. Donner advised him not to sign the subscription agreement because he had not yet received the partnership agreement. Dr. George stated that he fully assumed that the partnership had been formed; otherwise, he would not have invested $200,000.00. Finally, he explained that he thought he was investing in Ed White personally.
At the conclusion of trial, the court took the matter under advisement and issued its Judgment on November 30, 2011, which dismissed all of Dr. George's claims against Mr. White. Dr. George moved for a devolutive appeal on December 29, 2011.
Dr. George assigns the following errors:
In his first and second assignments of error, Dr. George contends that the trial court erred by finding that no contract existed between him and Mr. White and by finding that Mr. White is not personally liable as an agent for a non-existent principal.
In reviewing a trial court's factual findings, Louisiana courts of appeal apply the manifest error standard of review in civil cases. Tompkins v. Savoie, 08-0808
At the court below, the trial court stated in its reasons for judgment that the documents contained in the record, "do not contain any information to indicate that Dr. George would be contracting personally with Mr. White. Therefore, the Court finds that a contractual agreement did not exist between Dr. George and Mr. White." After reviewing the entirety of the record in this case, we cannot say that the trial court was manifestly erroneous in its determination.
The record reveals that the subscription agreement was clearly marked "MBS-YELLOWSTONE RANCH, LTD SUBSCRIPTION AGREEMENT," evidencing that the agreement was between Yellowstone and Dr. George. Moreover, the real estate investment summary, which Mr. Donner acknowledged receiving, states "REAL ESTATE INVESTMENT SUMMARY OF MBS-YELLOWSTONE RANCH, LTD." That document then goes on to explain that Yellowstone was being presented by Michael B. Smuck of the MBS Companies. Finally, Dr. George's check was made payable to MBS Yellowstone Ranch, Ltd. Thus, the evidence lends credence to the trial court's finding that the agreement was between Dr. George and MBS-Yellowstone Ranch, Ltd.
Dr. George, however, relies on Causeway Mortgage Co. Inc. v. Dordain, 247 So.2d 277, 278 (La.App. 4 Cir.1971), for the proposition that "... when one of two innocent persons must suffer by the act of a third person, the loss must fall upon the one of them who has furnished the third person with the means of doing the injury." In that case, Phillips sought to rescind the sale of immovable property he purchased at public auction. The sheriff advertised the sale in the newspaper but inadvertently attached the wrong photograph to the legal description. Once Phillips visited the property, he discovered that the house was a "dilapidated, tar-paper covered, shotgun type shack" as opposed to the "well kept, freshly painted, fenced in home he saw in the photograph." Id. In that case, the Fourth Circuit stated that "there [was] some evidence to the effect that Causeway Mortgage knew or should have known that the picture shown was not of the premises sold." The court determined that because Causeway's attorney attended the sale, placed a bid on the property, and prepared the petition for executory process, "it [could] reasonably be deduced that Causeway Mortgage Company, Inc. examined the property at the time of making the loan and thus would have knowledge of the type of house and improvements situated on the lot." Id.
Unlike Causeway Mortgage, there is no evidence in this case, other than Mr. Donner's testimony, which suggests that Mr. White had any knowledge that Yellowstone had not been formed at the time Mr. Donner delivered the check.
Nevertheless, Dr. George argues that Mr. White cannot avoid personal liability by alleging that it was Mr. Smuck who failed to invest the $200,000.00 in Yellowstone. To support this argument, Dr. George relies on La. C.C. art. 1977 which provides that "[t]he object of a contract may be that a third person will incur an obligation or render a performance. The
The revision comments to La. C.C. art. 1977 explain in pertinent part:
In order for promesse de porte-fort to apply in this case, evidence must have been introduced to show that Mr. White, the alleged third party, bound himself in his personal capacity to invest Dr. George's $200,000.00. For instance, if Dr. George had introduced a $200,000.00 check made payable to Ed White, one could reasonably conclude that Mr. White personally agreed to invest Dr. George's money. However, no such evidence was introduced in this case. All the evidence in this case indicates that the agreement was between Dr. George and Yellowstone — an entity that never existed. Because Yellowstone was never formed, Dr. George argues that he could not have contracted with it. Rather, he contends that Mr. White is personally liable for the losses he sustained because he dealt directly with Mr. White and because Mr. White failed to disclose that he was acting as an agent for Ed White and Associates, LLC or Ed White and Associates, Inc.
Generally, an agent is held to have bound himself personally when he enters into an agreement without disclosing the identity of his principal. Frank's Door & Bldg. Supply, Inc. v. Double H. Constr. Co., Inc., 459 So.2d 1273, 1275 (La.App. 1 Cir.1984). As the First Circuit explained in J.T. Doiron, Inc. v. Lundin, 385 So.2d 450, 452-3 (La.App. 1 Cir.1980):
In this case, there is no evidence that Mr. White expressly informed Dr. George, through Mr. Donner, that he was acting as an agent for Ed White and Associates, LLC or Ed White and Associates, Inc. This Court must, therefore, look to the facts and circumstances surrounding the transaction to determine whether Dr. George was apprised of the agency relationship.
Whether or not an agency relationship has been disclosed must be decided on a case-by-case basis. J.T. Doiron, supra, at 452. At the court below, the trial court made the following factual findings:
In Martin Home Center, Inc. v. Stafford, 434 So.2d 673, 674 (La.App. 3 Cir. 1983), a case upon which Dr. George relies, the Third Circuit determined that the agency relationship was not sufficiently disclosed. In that case, defendants Stafford and Smith purchased merchandise from Martin Home Center on an open account. Once Martin Home Center filed suit to collect the indebtedness, Stafford and Smith revealed that the purchases were made on behalf of their corporation, New Creations Enterprise Inc. In order to prove that the agency relationship had been disclosed, Stafford and Smith introduced a check drawn on the account of New Creations Enterprise, Inc.; a purchase order, bearing the letterhead or caption, New Creations Enterprise Inc.; and a group of invoices made to New Creations Enterprise Inc. Id. The Third Circuit determined that those documents, along with Smith's self-serving testimony, were insufficient to establish that an agency relationship had been disclosed. Id. at 674.
In Andrus v. Bourque, 442 So.2d 1383 (La.App. 3 Cir.1983), the Third Circuit also determined that the defendant was personally liable for the debt. In that case, the court noted that "[t]here is no evidence in the record, other than the uncorroborated testimony of Jerry Bourque, to indicate that William Andrus was made aware that any printing was being done on behalf of a corporation prior to the order placed on December 4, 1981...." Id. at 1387. It further explained that "... nowhere on the ledger, the job orders, the invoices or on any of these printed materials do the words `corporation' or `incorporated' or their abbreviations in any form appear. The record is totally lacking of any indication of any agency relationship sufficient to have put Andrus on notice of a principal-agent relationship." Id.
In J.T. Doiron, on the other hand, the court determined that the agency relationship was sufficiently disclosed because the meeting occurred at the corporation's office, "upon which was prominently displayed the logo of Tasco." Id. at 453. The court further noted that a report indicated that one of the properties appraised was assessed to Tasco, and that several witnesses testified that the defendant was representing Tasco in any conversation he had with the plaintiffs.
In Martin Home Center and Andrus, the Third Circuit found that the agency relationship was not sufficiently disclosed. We note, however, that Martin Home Center explained that express notification is
Furthermore, as in J.T. Doiron, Mr. Donner's initial meeting with Mr. White occurred at the office of Ed White and Associates. In fact, Mr. Donner testified that he returned to the office of Ed White and Associates once the debacle was exposed, after being summoned there by Mr. White's secretary.
Taken together, the facts in this case demonstrate that Dr. George had notice of the agency relationship. Thus, we cannot say that the trial court was manifestly erroneous in its determination that no contract existed between Dr. George and Mr. White or in its determination that Mr. White bears no personal liability.
Therefore, these assignments of error are without merit.
Finally, Dr. George contends that Mr. White is liable under the Louisiana Securities Laws, La. R.S. 51:701, et seq. for circulating false statements in offering to sell a security. Specifically, he contends that Mr. White violated La. R.S. 51:712(A)(2) by circulating the MBS Yellowstone Ranch Subscription Agreement, which stated, among other things, that the "partnership was recently organized," when it had not been.
La. R.S. 51:712(A)(2) states that it shall be unlawful for any person:
Dr. George has offered no evidence that Mr. White knew or "in the exercise of reasonable care" could have known, that the statements made in the subscription agreement were not true. He only states that the "subscription agreement clearly and falsely stated that the partnership had been formed and that there was an existing partnership agreement." The lone fact that the subscription agreement contained information that was untrue does not lead to the conclusion that Mr. White was aware of the falsity of the information contained therein.
In this case, Mr. White testified that Mr. Smuck always had 100% managing authority and bore the responsibility of handling
Because Dr. George failed to prove that Mr. White knew of the untruth or omission in the exercise of reasonable care, this assignment of error is without merit.
Mr. White answered the appeal, asserting two separate assignments of error, if this Court reversed the trial court's judgment. Because this Court is affirming the trial court's judgment, Mr. White's assignments of error are rendered moot. Accordingly, the judgment appealed from is affirmed.
