Reymond MEADAA; Harry Hawthorne; Jose Mathew; Dinesh Shaw; Navtej Rangi; Naja Holdings, L.L.C.; Hulenci, L.L.C., Plaintiffs-Appellees, v. K.A.P. ENTERPRISES, L.L.C.; Arun K. Karsan; Versha Patel Karsan; SaiNath, L.L.C., Defendants-Appellants.
No. 12-30918.
United States Court of Appeals, Fifth Circuit.
July 1, 2014.
756 F.3d 875
George Andrew Veazey, Esq. (argued), Huval, Veazey, Felder & Renegar, L.L.C., Lafayette, LA, for Defendants-Appellants K.A.P. Enterprises, L.L.C., Arun K. Karsan and Versha Patel Karsan.
Stephen Mark Whitlow (argued), Virginia Jordan McLin, Esq., Keogh, Cox & Wilson, Ltd., Baton Rouge, LA, George Andrew Veazey, Esq., Huval, Veazey, Felder & Renegar, L.L.C., Lafayette, LA, for Defendant-Appellant SaiNath, L.L.C.
Before OWEN, SOUTHWICK, and GRAVES, Circuit Judges.
In this interlocutory appeal, Arun K. Karsan, Versha Patel Karsan, K.A.P. Enterprises, L.L.C., and SaiNath, L.L.C. (defendants) appeal the district court‘s grant of partial summary judgment in favor of seven investors. Defendants challenge both the district court‘s conclusion that there was a failure of consideration because the investors did not receive the agreed upon consideration in return for their investment and the district court‘s order holding all of the defendants jointly and solidarily liable. We affirm in part and vacate in part.
I
Dr. Arun K. Karsan and Versha Patel Karsan (the Karsans) formed K.A.P. Enterprises, L.L.C. (K.A.P.), as a holding company for their personal investments. Five months later, K.A.P. executed a letter of intent to purchase the Louisiana Hotel and Convention Center (the hotel) out of bankruptcy. To finance the purchase, K.A.P. obtained a $6.7 million loan from Red River Bank (the Bank), which the Karsans personally guaranteed. The loan agreement required K.A.P. to raise an additional $2.75 million to renovate the hotel.
The Karsans thereafter invited some of Dr. Karsan‘s medical colleagues, including the plaintiffs (the investors),1 to an investment presentation on November 22, 2006 at Copeland‘s restaurant. The presentation, titled “Louisiana Hotel & Convention Center,” described the hotel and the Karsans’ plans for its renovation. Additionally, it offered the investors two different investment options: a “private debt” offering and an “equity” offering. The latter permitted investors to become “Share Certificate Holder[s]” and “Participate in [the]
About a week after the presentation, Mrs. Karsan formed SaiNath, L.L.C. (SaiNath), and designated Dr. Karsan and herself as the company‘s members and managers. Shortly thereafter, each of the investors signed a “Letter of Interest,” agreeing to purchase “share units” of SaiNath for “$125,000 per share unit.” Although the letters of interest did not say that SaiNath was to own the hotel, the words “(Louisiana convention center and hotel)” appeared at the top of the page in large font, immediately below the “Letter of Interest” title. Additionally, the letter stated that “[t]he date of this confidential private offering memorandum began on 11/22/2006 during a presentation of the business at the Copeland‘s Restaurant in Alexandria, LA.” Collectively, the investors purchased 28 equity shares for $3.5 million. It is undisputed that the Karsans and each of the investors intended for SaiNath to own the hotel.
The investors’ funds ultimately were deposited into a bank account in SaiNath‘s name. The money was used to renovate the hotel and pay down K.A.P.‘s loan from the Bank. Title to the hotel, however, has not been transferred to SaiNath. Instead, for accounting purposes at least, SaiNath has paid “rent” to K.A.P. in exchange for the hotel‘s revenues. Additionally, the Karsans remain the sole record members and managers of SaiNath. Nonetheless, the Karsans have treated the investors as members of SaiNath when preparing both tax and financial documents.
Almost three years after SaiNath was formed, the investors filed suit against the Karsans, K.A.P., and SaiNath. In their complaint, the investors alleged various causes of action against K.A.P. and the Karsans, including breach of contract and violations of the Securities Exchange Act of 1934. They did not assert any causes of action against SaiNath, except to demand a formal accounting pursuant to Louisiana corporate law. The district court initially granted a motion for partial summary judgment filed by the investors (the May 2010 order), holding all of the defendants liable for breach of contract and ordering them to return the $3.5 million paid by the investors. Subsequently, however, the district court granted in part a motion by K.A.P. and the Karsans to alter or amend the judgment (the August 2010 order). The court reaffirmed its holding that there had been a breach of contract but determined that its decision to hold the Karsans personally liable “rest[ed] upon unclear grounds” because there was “at least some argument that the Karsans, as members of Sainath, may have been operating under the ‘corporate veil.‘” The court therefore withdrew its grant of partial summary judgment and ordered supplemental briefing on the issue of which defendants should be held liable.
In their supplemental brief, the Karsans and K.A.P. included an affidavit by Kurt Oestriecher. Finding some of Oestriecher‘s conclusions not based on personal knowledge, the district court granted the investors’ motion to strike the affidavit (the September 2011 order). After further consideration, the district court issued a supplemental ruling holding each of the defendants liable for the return of the $3.5 million (the December 2011 order). The court held that SaiNath was obligated to return the money it had received because there had been a failure of consideration. The court found K.A.P. liable on the ground of unjust enrichment and that the Karsans were liable “through a piercing of
II
Prior to examining the merits of the parties’ dispute, we must determine the scope of our jurisdiction.2 In their notice of appeal, defendants state that they are appealing five orders: (a) the May 2010 order initially granting partial summary judgment; (b) the August 2010 order granting in part and denying in part the Karsans’ and K.A.P.‘s motion to alter or amend; (c) the September 2011 order granting plaintiffs’ motion to strike the affidavit of Kurt Oestriecher; (d) the December 2011 order reinstating partial summary judgment in favor of plaintiffs and holding defendants jointly and solidarily liable; and (e) the March 2012 order denying defendants’ motions to alter the December 2011 order. The district court, however, did not certify all of these judgments in its
Plaintiffs argue that this court lacks jurisdiction to review the four orders because ”
The March 2012 order, however, came after the December 2011 order. The parties have not pointed to a case from this circuit that addresses whether courts of appeals possess jurisdiction to review a denial of a
III
Turning to the merits, we review “a grant of summary judgment de novo, applying the same standards as the district court.”8 Under those standards, summary judgment is appropriate if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”9 “On review of a grant of summary judgment, all facts and inferences must be construed in the light most favorable to the non-movant,” in this case the defendants.10
We review a district court‘s exclusion of evidence submitted in a summary judgment proceeding for abuse of discretion.11 “Resolution of preliminary factual questions concerning the admissibility of evidence are reviewed for clear error.”12 A district court‘s decision not to amend or alter a judgment under
IV
We first consider the district court‘s order striking the affidavit of Kurt Oestriecher. K.A.P. and the Karsans attached the affidavit to their supplemental brief concerning which defendants should be held liable for the return of the $3.5 million. In the affidavit, Oestriecher, a certified public accountant, reached various conclusions regarding SaiNath‘s financial and accounting history and the financial transactions between the company and both the Karsans and K.A.P. He concluded, for instance, that “the transactions of SaiNath have not resulted in any direct advantage to the Karsans to the detriment of the Plaintiffs as members of SaiNath” and that SaiNath had been treated from an accounting standpoint as separate and distinct from both the Karsans and K.A.P. Oestriecher attested that these conclusions were based on “personal knowledge, information and belief” and that he had reviewed K.A.P.‘s tax returns as well as SaiNath‘s bank statements, general ledgers, and tax returns.
The district court did not commit clear error in finding that Oestriecher lacked personal knowledge of the conclusions he was asserting. It is by no means clear how a certified public accountant can obtain personal knowledge of the effects of the actions of one entity on other parties without reviewing the latter‘s financial documents. If Oestriecher was able to gain such knowledge about the Karsans and the investors merely by consulting SaiNath‘s financial statements and K.A.P.‘s tax returns, it was incumbent upon him to explain how he acquired such knowledge. In the absence of that explanation, we cannot form “the definite and firm conviction that a mistake has been committed.”16 Accordingly, we conclude that the district court did not abuse its discretion in striking Oestriecher‘s affidavit.
V
We next consider whether the district court erred in granting plaintiffs’ motion for partial summary judgment. The district court concluded that there had been a failure of consideration as a matter of law because “(1) the transfer of the Convention Center to Sainath was the paramount purpose of forming the company, purchasing membership units in it, and maintaining its existence; and (2) the Convention Center was never transferred to Sainath.” The investors did not receive what they were entitled to receive under the contract, which was equity interests in an entity that owned and operated the hotel. Under
Defendants offer a number of arguments as to why the district court‘s conclusion was erroneous. First, K.A.P. and the Karsans contend that the district court failed to apply
We disagree. Although
K.A.P. and the Karsans argue that, irrespective of who technically owns the hotel, there was no breach of contract because “Plaintiffs derived exactly the same benefit and are in exactly the same position as they would have been had record title been transferred into the name of SaiNath.” This is so, they claim, because the Karsans have provided plaintiffs with financial documents reflecting their proportional ownership of SaiNath and the revenue identified in these documents “was being generated by the operation of the Convention Center by SaiNath.” As a result, the failure to transfer the hotel was not a breach of the contract. This contention is also unavailing.
SaiNath also asserts that there was no breach of contract, but for different reasons. It contends that the contract was simply for the sale of equity interests in SaiNath and that the investors have received such interests.21 That SaiNath does not own the hotel is a matter that should be resolved through a different cause of action, such as a suit under the Exchange Act or an action for misrepresentation, SaiNath maintains. SaiNath further argues that, if there was a breach of contract, the plaintiffs are not entitled to recovery because their failure to sign the Operating Agreement and their initiation of the instant litigation constituted bad faith and/or negligence. However, these contentions have not been properly preserved for appeal because they were not raised in the district court.22 The Karsans and K.A.P. assert these same arguments for the first time in their reply brief, which, as appellants, they may not do.23
Over the course of three years of litigation, SaiNath did not assert that the contract was simply for the sale of equity interests in SaiNath. Instead, it and its member-managers consistently took the position that the contract was for the sale of interests in an entity that owned and operated the hotel. Even in its reply brief in this court, SaiNath states that “a thorough review of the sale documents and pro forma reveals that intent of the sale was to convey equity units in a company that owned and operated a hotel.” Similarly, neither SaiNath nor any of the other defendants ever averred that plaintiffs were barred from recovery as a result of bad faith or negligence.24
VI
Lastly, we consider whether the district court erred in holding all of the defendants liable for the return of the $3.5 million. In reaching this conclusion, the district court analyzed each defendant‘s liability separately. The court held that SaiNath was obligated to return the money it had received because there had been a failure of consideration and that K.A.P. was liable for the return of the funds because it had been unjustly enriched by the receipt of plaintiffs’ funds. The district court imposed liability upon the Karsans “through a piercing of the veil.”
The district court did not err in finding SaiNath liable. The investors paid SaiNath substantial amounts to become members of SaiNath with the understanding that SaiNath would obtain ownership of the hotel. All of the invested funds were deposited into SaiNath‘s account. The district court did not err in finding that there was a failure of consideration in this transaction because SaiNath never obtained ownership of the hotel.
Nor did the district court err in holding K.A.P. liable under a theory of unjust enrichment. Although K.A.P. argues that the investors have other remedies available at law against SaiNath and the Karsans, that is irrelevant. The focus is whether the investors have an adequate remedy at law against K.A.P. The investors have no contract or other agreement with K.A.P. No representations were made by K.A.P. to the investors. The investors were not informed of the existence of K.A.P. when the investment was structured. The $3.5 million paid by the investors to SaiNath was directed to K.A.P. without the investors’ knowledge or consent. Those funds were used by K.A.P. to improve property it owned and to pay down K.A.P.‘s debt to the Bank. The investors received nothing in return, other than perhaps certain tax benefits. The district court did not err in holding that under Louisiana law, including
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We affirm the district court‘s partial summary judgment as to SaiNath and K.A.P. We vacate and remand as to the Karsans in their individual capacities for further proceedings.