*1 challenged Texas Election Code provisions legal and constitutional.
AFFIRMED. LTD.,
RIMADE Via Alla Fontana Ruvigliana, Switzerland; Giait
Ltd., Ruviglia Alla Fontana
na, Switzerland; Acqui S.P.A., Pneus
Reg Barbato, 21, Acqui Terme,
Italia, Plaintiffs-Appellants,
v. ENTERPRISES, INC.,
HUBBARD
Etc., al., Defendants, et Hubbard,
Robert M. also known as
Bob M. Defendant-
Appellee.
No. 03-11294. Appeals,
United States Court of
Fifth Circuit.
Oct. *2 (ar- Grow, Joseph A. R. Price
Michael Fox, Kintner, Arent, Plotkin & gued), DC, Kahn, Washington, Plaintiffs-Ap- pellants. (argued), Klein Mat-
Stefanie Martin Gilstrap, Hill Ar- Germany, David thew TX, Defendant-Appellee. lington, JOLLY, WIENER, and Before PICKERING, Judges. Circuit JOLLY, Judge: E. Circuit GRADY companies sued Robert The Plaintiff tire him seeking to hold M. “Bob” company, of his liable for the debt (“HEI”), a tire Inc. Enterprises, bard trial, him to reduce to the dis- the Plaintiffs allowed After a bench wholesaler. $150,000 year later. that the evidence did not trict court held contention that support the Plaintiffs’ A sham to *3 creditors, to hold 20, 2000, defraud refused Hubbard directed an On June Hubbard debts, and en- personally liable for HEI’s HEI to email Rimade and ask if employee take-nothing judgment. tered a HEI could cancel its Letter. Rimade re- appealed. have In this fact-in- Plaintiffs request, the as HEI owed Rimade fused case, by clearly $300,000 tensive we are bound the August at the time. As of about review, 2000, erroneous standard of which is 31, beginning all invoices from the important question on the particularly relationship the business between Accordingly, HEI, intent to defraud. mil- totaling Plaintiffs and over $4.3 that persuaded lion, we are in full. Shortly had been there- in committed no reversible error conclud- after, HEI fail began pay- to to make that, law, under Texas HEI’s ments, but Hubbard induced the Plaintiffs Hub- veil should be reach providing by promising to continue tires personal assets. therefore af- bard’s We profits that he would use the from these firm. new tires to overdue invoices. 30, 2001, January Acqui
On Pneus em- ployee Loretta Ferrarin emailed Hubbard I request that he increase HEI’s Letter (“Rimade”) Ltd. and Ltd. Rimade Giait $400,000 outstanding because the bal- (“Giait”) are tire that Swiss manufacturers ance had reached over million. Un- $1 Acqui, S.p.A. tires to Pneus supply Plaintiffs, however, known to the their (“Pneus Acqui”), an Italian tire distributor (“SG bank, Ruegg Ruegg”), SG Bank SA (collectively, “Plain- and wholesaler informed that had First Tennessee tiffs”). Acqui’s of Pneus One customers longer required. Letter was no Accord- business, HEI, was Bob Hubbard and his ingly, First Tennessee canceled the Letter corporation principal a Tennessee with its and informed Hubbard of the cancellation Worth, place of business Fort Texas. by day Acqui fax the before Pneus sent its president, who was the sole responded email. Hubbard to Pneus Ac- during shareholder and director of HEI its qui by stating that he could not increase existence, rather brief sold tires in Texas Letter; testified, as Hubbard he knew surrounding states. the Letter had been canceled did not Acqui. mention this fact to Pneus Acqui Pneus sold HEI tires on credit that bard testified he never intended negotiated from 1998 to 2001. It terms Plaintiffs, mislead the and that he made no shipped with Hubbard alone and tires from to conceal the cancellation. effort Letter’s Europe to Texas under standard invoices shipments Further tire were generated Giait and Rimade. The accompanied by stating they still invoices required that Hubbard maintain were covered the Letter. a standard letter of credit for a fixed 24, April believing amount that could be on in the drawn On still Letter payment. place, again event he failed to make be Ferrarin wrote to Hub- $350,000 that, opened letter of credit bard to state owed (the “Letter”) nearly with First Tennessee Bank and had a Letter for Tennessee”) (“First $150,000, April shipments future would have to which sons, through in Texas.1 Hubbard and his upon receipt. Sometime paid for be interests, controlling caused the Hub- June, finally learned May or variety bard Businesses to in a engage in fact Letter had Ruegg SG questionable practices, including: business canceled, they stopped point at which been 1) making loans to each other that were testified tires to HEI. Ferrarin selling 2) collected; renting property have made Plaintiffs never would that the rents; collecting each other without full HEI between Janu- on-credit sales to 3) overextending credit to each other. ary 2001 had known June had canceled. the Letter been case, particular Of relevance to this be- tween October 2000 and June failed to August after On *4 HEI running up time when was its debt to invoices, and know- pay down its overdue Plaintiffs, HEI transferred over $1 more, no Ferrarin met ing the Letter was assets, million in including the Plaintiffs’ in resolu- with Hubbard Texas discuss tires, (“TDW”), to Tire Dealers Warehouse At outstanding balance. tion of a corporation operated by owned and signed summaries that meeting, Hubbard 2001, bard’s sons. From April August $227,922.68to Ri- reflected HEI’s debt of HEI transferred over million in inven- $1.4 $224,647.51 to Giait. Hubbard made and tory to on credit. paid TDW TDW several stating a that he was signed also letter of hundreds thousands of dollars to HEI checks to- giving post-dated Ferrarin six 2001, during quarters the first three $105,000 plan. a taling begin payment paying was unable to continue its debts honored, how- Only two of the checks were doing thereafter. ceased TDW business ever, First Hubbard later instructed 2003, as of March and sold its assets to stop payment on the remain- Tennessee entities, including various other Hubbard ing four. Businesses. TDW still owes HEI over filed in complaint At the time the million, and it making payments $1.9 matter, stipulated HEI and Hubbard this HEI’s secured creditor. (ex- $359,052 HEI owed the Plaintiffs HEI to much Hubbard never caused so interest) this is where clusive —and TDW, a which is as issue demand letter sum, in in the July stood balance only to which HEI “overex- business Plaintiffs sent dealings, course of their though he did file a secu- tended” credit — HEI for a total tires to that were invoiced HEI lease. rity against interest for TDW million, nearly all of which $6 never told the Plaintiffs that Hubbard also returned, excep- either for or with to his sons’ selling he was tires on credit $359,000 tion of the worth of tires issue making or that was no efforts company, he litigation. in of this Ferrarin testi- to collect on those sales. that the Plaintiffs never would have fied B HEI if making sales on credit to continued dealings they had known about Hubbard’s also had extensive involve- with TDW. ments with a number of other businesses Parr, the Plain- According Reginald and his operated owned and always accounting expert, Busi- HEI was (collectively relatives the “Hubbard tiffs’ during definition its nesses”), tires insolvent some most of which sell and resell nesses, parties' in the Hubbard Businesses’ activi- light stipulations or 1. In the in Order, dispute there is no as to Joint Pretrial ties. Busi- involvement in the Hubbard Hubbard's life, proceeded one-day over The case to a bench it owed Hubbard short in trial November 2003 on the issue of $400,000 the trial. Because at the time of HEI to de- whether Hubbard its subchapter corporation, S HEI was a Plaintiffs, thereby warranting fraud the income, taxed as income was piercing. veil The Plaintiffs called Ferra- received distribu- though Hubbard rin, Parr, and Hubbard. The defense He did receive tions as a shareholder. called Hubbard. The district court $64,000 in 2000 and salaries of restated each of the five issues contested rental income from TDW as well as fact from the Joint Pretrial Order and (from Berry Properties, stake Street orally ruling then announced that it was Business). a Hubbard for Hubbard each instance without mak- ing any specific findings.2 It then issued a C Order, brief stating it recovery should be denied could the Plaintiffs sued On October by preponderance not find their favor Hubbard, charging that HEI HEI and any of the evidence as to of the contested that “HEI contract and is the breached its timely appealed. issues. The Plaintiffs *5 of who used alter 2003, In Plaintiffs.” June defraud II summary judgment moved for (which supplemented) motion later The Plaintiffs contend that the evidence partial summary moved for and Hubbard presented at trial a establishes as matter question of his own judgment on the sole of law that Hubbard used HEI to defraud July, personal liability. In ways: by fraudulently the Plaintiffs in two Plaintiffs leave to amend denied the misrepresenting to the Plaintiffs the status on complaint with new counts based Letter, by transferring of the and HEI’s discovery. new evidence from in assets to TDW fraudulent sales such pay would be unable to either partially granted The district court then judgment. the balance owed or the As summary judgment, entering the Plaintiffs such, argue, the Plaintiffs the district court judgment against HEI the amount of piercing corporate erred in not veil $359,052, interest and costs. It also plus holding personally liable for summary for opposing denied the motions HEI’s debts. piercing on the veil issue. Hub- that HEI ceased stipulated bard then do- We review the district court’s 2002 and ing business November conclusions of de findings law novo and its disposed Joslyn Mfg. its assets time. of fact for clear error. v.Co. jointly stipulated findings 2. The contested 3. Whether Hubbard caused HEI to sell despite knowing tires on credit to TDW fact were: pay; TDWwould never be able to 1. Whether Hubbard used HEI to defraud 4. Whether the Hubbards and Hubbard by convincing them to sell routinely "regu- to follow Businesses failed HEI would HEI tires when Hubbard knew practices”; lar commercial business them; for engaged strategy 5. Whether Hubbard in a continued to order Whether Hubbard defrauding by using creditors the Hub- accept tires from the Plaintiffs while acquire bard Businesses to assets on credit knowing would not make HEI could and selling and then the assets to other Hub- payment; Businesses, leaving bard creditors without recourse.
143 (5th inaction, 750, Co., action or reliance on the misrep- 40 F.3d 753 Cir. Koppers 1994). who, clearly by person erroneous standard resentation a as a result of reliance, findings injury.” factual made apply not such suffers Trustees does controlling Laundry Dry view of the N.W. & under an erroneous Cleaners Health Maritrend, Inc. v. Serac & Co. Burzynski, law. & Trust Fund v. 27 Welfare (5th Ltd., (5th Cir.1994) (internal 348 F.3d (Shipping) quo- F.3d .2003). omitted).3 “A Cir tation marks and citation defendant’s failure to disclose a material law, “there are Texas Under if fact is fraudulent the defendant has a court categories which three broad duty duty a to disclose that fact.” AId. (1) corporate veil: the cor may pierce “can operation to disclose arise of law ego of its owners poration is the alter by agreement parties,” or or (2) shareholders; corporation and/or special relationship “some between the (3) the cor illegal purposes; fiduciary as a or parties, such confidential a as a sham to poration is used relationship.” Notwithstanding Id. Drilling v. Jonnet fraud.” W. Horizontal above, always duty “there is a to correct (5th Energy Corp., F.3d Cir. prior misleading one’s own false or state- 1994). Corporations The Texas Business ments,” speaker that a making par- such pierc requirements Act sets additional tial disclosure assumes to tell the on veil cases based partial truth whole even when disclo- claims of breach of contract. such (all legally required. sure was Id. cases, may the veil be where omitted). citations corpo “caused the defendant shareholder *6 purpose perpe ration to be used for the recently, this More Court reiterated that an actual fraud trating and did duty speak operation a arises of law obligee primarily on the for the direct party voluntarily when “one discloses some holder.” Tex. Bus. personal benefit of the facts, than all material so that he but less 2.21(A)(2). Thus the alter CoRP. Act art. truth, i.e., the whole material must disclose illegal purposes considerations are facts, convey a partial lest his disclosure issue; case is based present not at as the Pac. Res. impression.” false Union contract, we focus on on breach Rhone-Poulenc, Inc., Group, Inc. v. 247 HEI alleged perpe use of Cir.2001) (citation (5th omit- F.3d 586 trate fraud. ted). Rhone-Poulenc, re- this Court versed a favor defen-
A to a claim respect dant with fraud defendant, beyond it determine whether when went We must first sham, required by the perpetrat HEI as a minimal formal disclosures using an affirmative partnership, fraud on the Plaintiffs when “assumed ed an actual full disclosures.” Id. The defen- to them that to make he failed to disclose merely “could not remain silent after had canceled the Letter. Texas law dant bank conveyed that making partial disclosures “misrepresentation fraud as the defines impression.” Id. fact with intention to induce false a material Chavers, (4) gard falsity; with the for its truth or made 3. also Menetti v. 974 S.W.2d See 1998) (“Actual upon by acted the other (Tex.App. intention that it be 175 Antonio — San (5) upon by party; rep party; the other by misrepresentation consists of a relied fraud material; false; (6) (cita- (1) (2) (3) damaging party.”) to the other [and] resentation that omitted). knowingly tions or made with reckless disre- false here, credibility of witnesses.” argue depends upon that as in the The & Minerals v. Amer. Bus. Beijing disclosure was held to Metals partial where cases (5th Cir.1993). Ctr., disclosure, 993 F.2d Hubbard’s commu- obligate full end, conveyed a To that the Rhone-Poulenc the Letter false nications about theory that the of fraud based on the Letter still existed stressed impression —that disclosure, light in the most upon partial canceled viewed after First Tennessee it— non-movant, to their detri- favorable to the was sufficient the Plaintiffs relied which though summary judgment. to defeat F.3d Specifically, ment. even Similarly, Burzynski a Letter was decided on required that the Plaintiffs knew credit, summary judgment for on and received invoices cross-motions to sell tires affirmatively seeking pay- where a doctor stating they were covered Letter, “chemotherapy” indisputably ment he never dis- then-nonexistent chemotherapy canceled. failed to disclose that this closed that the Letter had been say at 156. illegal. emailed Ferrarin to was F.3d When Hubbard Letter, that he could not increase judge case tried to a who Here the promises pay when he made continued opportunity an had evaluate the evi- balances, outstanding he never corrected judge credibility dence and of wit- impression the Plaintiffs’ the Letter direct, nesses. There was also if self- And remained effective. Hubbard’s mis- serving, evidence of a lack of intent it in- representation was material because supports deceive court’s the Plaintiffs to continue to sell to duced determination: Hubbard took the twice credit, on sales which were say stand to he never intended to mislead paid. the Plaintiffs. Under the circumstances here, Plaintiffs also contend that this where Hubbard more than $6 by incomplete ultimately fraud disclosure should be million to the Plaintiffs and $400,000, unpaid an than attributed to Hubbard because his acts are balance less indistinguishable They argue from HEI’s. the court was within its discretion to be- that, director, shareholder, Further, as HEI’s sole lieve him. Hubbard caused used HEI to over four amount of president, take times the *7 to HEI: It was Letter after the Letter was canceled—the actions harmful Hubbard partial guaranteed paid who caused HEI to make a disclo- Letter and HEI $600,000. thereby sure and defraud the Plaintiffs. down over This evidence further gained supports And it Hubbard who a direct trier of fact’s was determination personal benefit from the fraud in the that there was no intent to defraud. It salary corporation carry form of his and in- also shows that the did not S Plaintiffs come, satisfying veil-piercing re- their to show that fail- thus burden 2.21(A)(2). Article to of the quirements of ure tell them Letter’s cancellation them, actually damaged given that Hub- notify had no Yet Hubbard paid more than the bard down Letter’s Plaintiffs that their own bank had caused worth after its cancellation. Moreover, cancellation. both the Letter’s Indeed, Burzynski immediately if the Plaintiffs had Rhone-Poulenc and were sum- cases, mary summary judg- and learned of the Letter’s cancellation and at rarely proper point doing in fraud cases be- that ceased business with Hub- ment is bard, have, they they required cause the intent to establish as testified would financially. have worse off question “uniquely fraud is a factual within would been would have the realm of the trier of fact because it so This is so because Hubbard sell, Letter, surrounding tires to and so would we now turn supply lost his profit argument from the Plaintiffs’ that have able to use the HEI’s veil not been debts, pierced should be pay new tires to old Hubbard used the sale of stands, HEI to defraud the by shifting As it Plaintiffs practice. had been his TDW, inventory to knowledge until the with the time the Letter was cancelled pay. that TDW would never The learned that the Letter had been Plaintiffs point showing to the record as (January May 2001 until or be- cancelled tween 2001), HEI the Plaintiffs a sum October and June when paid June during ordering failing that time Hubbard was equivalent to all invoices tires, $300,000. Plaintiffs’ the Plaintiffs’ Hubbard was also period plus some transferring hundreds of thousands of dol- proof evidence thus does not establish lars worth of tires to company TDW—a damages. paid salaries to Hubbard’s relatives fact, As the trier of the district court paid also rent to Hubbard himself. evidence, weighed including all the During increasing a time of demands for credibility, making when its find- bard’s contend, payment, the Plaintiffs ings, and our examination of the record store,” literally “giving away respect not clear with does reveal error knowing that HEI would never be Hubbard’s use of to defraud the any judgment against it would be respect Plaintiffs with to the Letter. worthless. sum, correctly ap- the district court support argument, To partial the law of disclosure: plied While cite Texas courts that have corpo- nothing did to correct the Plain- company rate veils where the indebted about the Let- impression tiffs’ mistaken company assets to a related transfers ter, partial he also made no disclosures judgments avoid or collection efforts. One perpetuate cause or that misunderstand- company court found that a was used as a ing. simple His refusal to increase the sham to fraud when its owner amount of the Letter did disclose compa- shifted its funds to another of his impose legal duty fact that would Texas, liability. nies to avoid Love v. knowledge can- disclose Letter’s (Tex.App. 119-20 S.W.2d — Austin was, all, It after the Plaintiffs’ cellation. 1998). Another court found a sole share that had canceled the own bank Letter company holder liable for debts when he failed to that fact to communicate incorporated a new to continue business implic- Plaintiffs. Thus the district court’s company of a foreclosed business finding it that Hubbard lacked the intent merely the foreclosure sale was an where to use as a sham to defraud with *8 attempt Sport to avoid creditors. Klein v. personal respect to his letter credit was Goods, Inc., 176-77 S.W.2d dispute not clear error. Hubbard does not 1989). (Tex.App. — Houston that HEI breached its contract with the Plaintiffs, HEI, or that he controlled cases, In the defendants these and other pierce facts alone are insufficient to these companies they wholly controlled to corporate veil in this breach of con- the plaintiffs person- defraud the for their own Plaintiffs, tract case under Texas law. Here, argue al benefit. similarly gained through his — B in- and his relatives’ salaries and rental HEI to transfer its as- by causing that the district court did Finding come— Plaintiffs, thereby defraud the respect alleged not err with to the fraud sets and Moreover, Hubbard has not taken a sal- veil-piercing require- satisfying the thus 2.21(A)(2). money ary from HEI since lost on ments of Article HEI, on the loans to and also taxes a personal did not have Yet Hubbard which were deemed to company’s earnings, TDW, merely selling on interest him passed through to as shareholder be cannot be fraudulent credit to TDW distributed). money no (though income paid over because TDW business tactic Thus the Plaintiffs cannot establish Hub- during the first three to HEI any from personal bard’s direct benefit (pre-9/11) time when quarters of 2001 —a fraud, they nor indeed that were harmed considering investing Goodyear was they never re- by sales to TDW because cannot be Surely selling on credit TDW. any representations relied on quested or fraudulent, way as this is considered by regarding its customers. transacted busi- themselves sum, correctly ap- the district court Moreover, the ness with HEI. receivables plied the law of fraudulent transfer of as- being are collected to the ex- TDW (implicitly) sets: Once the court found 1) they payments can to TDW tent be: Hubbard lacked the intent to defraud with Tennessee, First currently going are respect finding to the sales to TDW—a secured creditor to which HEI’s receiv- clearly that is not erroneous —it could not 2) security HEI took a pledged; ables are as a matter of law have found that he used TDW, in a owned interest lease as a sham to fraud. going thereunder are toward payments HEI. TDW’s debt to Ill Further, prove Plaintiffs need to reasons, foregoing For the fraud, of fact evaluated actual and the trier of the district court is testimony and did not find that AFFIRMED. that actual fraud proved the Plaintiffs had preponderance had occurred WIENER, Judge, dissenting: Circuit Prot, Coury evidence. See v. F.3d me, respectfully I dissent. To the factu- Cir.1996) (“The (5th showing burden of court, findings al of the district albeit court are findings that the of the district terse, knowingly are reflect that Hubbard if clearly is heavier the credibili- erroneous intentionally disregarded misused and trial ty of witnesses is a factor corporation’s form to disad- one-man decision.”). authori- court’s The Plaintiffs’ vantage plaintiffs, these with whom he had pre-dates the inapposite: ties are Klein years. corporation’s done business for His 2.21, of Article while applicable version expose it Hub- veil should be position that Love reinforces Hubbard’s him personally bard’s alter and make (not constructive) actual fraud must be corporation’s liable for his debts to Plain- corporate veil where proven pierce tiffs-Appellants. liability from a breach of stems Love, contract. 972 S.W.2d 118. We Even when Hubbard’s acts and omis- therefore hold that it was not clear error legal sions are viewed the context *9 implicitly to find that applicable hurdles law of erected any Texas, not made with emerges anything HEI’s credit sales were he as an but Plaintiffs; innocent, harm therefore the unsophisticated intent tire dealer. He fraudulently Plaintiffs did not establish the actual fraud stood mute and continued plaintiffs with corporate veil. do “business as usual” these necessary pierce key closely party; entirely of a fact er related despite knowledge unrecog- his certain disclose, viz., duty bound to nized is the that he was commercial fact that the letter vendors, the letter that unbeknownst to his of credit was not meant to serve as full partially securing corpora- of credit his safety collateral but as a net to hold the obligations to them had been can- tion’s potential vendors’ to a manageable losses full Knowing plain- celed. well these level; risk unrealistic is the treatment security were unaware that tiffs arms-length transactions between had ceased to exist and these transactions litigants indistinguishable these as from would not sell merchandise to non-arms-length among transactions absence, him in not con- its family members. purchases
tinued to make unsecured Except for wide-eyed, self- tires, proceeded duplici- to orchestrate serving testimony that he intended no non-arms-length tous transfers of that fraud, objective demonstrates, evidence wholly merchandise from his owned and least, my satisfaction at that this is the operated corporation to entities owned and very kind of case that cries out for the than his own controlled none other piercing corporate of the veil to hold its deliberately put sons. He this merchan- personally sole shareholder liable to those proceeds beyond sales dise its duped by interposing he his al- uninformed, arms-length reach of his cred- ter remaining silent the face of simultaneously itors and made them avail- else, If nothing inform. we corporation’s lending able instead to his today age-old re-affirm the adage that bank, a secured to which—not so creditor “debtors either die or move to Texas.” li- coincidentally personally —Hubbard Despite my sincerely genuine respect for guarantor. obviously He benefited able my the district court and learned col- intra-family machi- personally these leagues panel majority, I am con- nations, just from rent received and strained to dissent. realized, corporation advantages Sub-S but from substantial reduction or elimina- personal liability
tion of his to his bank as
well. court, majori-
Like the the panel district
ty by viewing errs each discrete fact as a snapshot a vacuum”—rather than as —“in Billy ALLEN, Frederick a series of links in a continuous and evolv- Plaintiff-Appellant, chain ongoing business transactions v. parties. between the Far too much is fact that
made of unrelated the letter Johnny THOMAS; Major; M. Ronnie happened get through of credit canceled Dickey; Doe, # 4; Doe, Robert John bank; plaintiffs’ the inadvertence of the 5, Defendants-Appellees. # emphasis placed far too much is on mean- No. 03-21208. ingless statistics of in-and-out sales payments; weight given far too little Appeals, United States Court of advantages the financial that Hubbard re- Fifth Circuit. personally through totality alized of his Oct. totally
manipulation corporation; of “his” attribution, ignored concept is the
ascribing party of the acts of one to anoth-