Hewitt v. Biscaro

 
AFFIRM and Opinion Filed November 16, 2011
 
In The
Court of Appeals
Fifth District of Texas at Dallas
............................
No. 05-10-01011-CV
............................
RICHARD M. HEWITT AND RICHARD M. HEWITT, P.C., Appellants
V.
RONALD D. BISCARO; URIEL OSORIO; JAMES A. CHARRETTE;
COCOA BEACH HOLDINGS INC., LLC; JUDY NICHOLS;
MICHAEL SNOW; DONNA JONAS; AND BANK OF AMERICA, N.A.,
EXECUTOR OF THE ESTATE OF FRANKLIN H. COLE, Appellees
.............................................................
On Appeal from the 192nd Judicial District Court
Dallas County, Texas
Trial Court Cause No. 10-06909-K
.............................................................
OPINION
Before Justices Morris, O'Neill, and Fillmore
Opinion By Justice Fillmore
 
Appellants Richard M. Hewitt (Hewitt) and Richard M. Hewitt,
P.C. (Hewitt P.C.) appeal the trial court's summary judgment in favor of
appellees Ronald D. Biscaro, Uriel Osorio, James A. Charrette, Cocoa
Beach Holdings Inc., LLC, Judy Nichols, Michael Snow, Donna Jonas, and
Bank of America, N.A., Executor of the Estate of Franklin H. Cole, on
their claim of breach of a settlement agreement. See Footnote 1 In
two issues, appellants contend (1) the trial court erred in granting
summary judgment in favor of appellees and (2) appellants raised a
material issue of fact precluding summary judgment. We conclude the
summary judgment was proper, and we affirm the trial court's judgment.
Background
Appellees, investors in oil and gas drilling projects organized
 
and sponsored by certain defendants, sued appellants and other
defendants for various claims, including violations of the Texas
Securities Act. See Tex. Rev. Civ. Stat. Ann. art. 581-1 (West 2010).
Appellant Hewitt was allegedly liable to appellees as a “control person”
and appellants were allegedly liable to appellees as conspirators in the
commission of fraud under the Texas Securities Act. See Tex. Rev. Civ.
Stat. Ann. arts. 581-4(F), 581-33(F) (West 2010). Appellees allege
appellants prepared private placement memoranda with knowledge of the
defendants' illegal activity and enabled the defendants' fraud.
Appellees also allege appellants committed theft and misapplied
fiduciary property.
During the pendency of appellees' lawsuit, the defendants,
including appellants, and appellees executed a “Settlement Agreement and
Release” (settlement agreement). The settlement agreement provided that
defendants pay appellees a total of $1,300,000 through a series of
periodic payments. The settlement agreement also specified that its
terms were to be kept confidential.
The defendants made settlement agreement payments totaling
$400,000, but failed to make the fourth payment on or before its due
date. After the defendants ceased making payment to appellees under the
settlement agreement, appellees amended their pleadings to include a
claim against the defendants for breach of the settlement agreement.
Appellees sought the remaining amount of $900,000 payable under the
settlement agreement as damages and their attorney's fees.
Appellees moved for summary judgment on their
 
breach-of-settlement-agreement claim and submitted evidence, including a
copy of the settlement agreement and a demand notice to the defendants
regarding their failure to timely make contractual payment to appellees.
Appellants filed an amended answer asserting the affirmative defense of
impracticability or impossibility of performance, contending they “have
been prohibited from tendering any funds to the [appellees] by the
[United States] Securities and Exchange Commission (SEC).” Appellants
also asserted appellees' cause of action for breach of the settlement
agreement was barred because “compliance with the agreement would
violate federal law.” Appellants responded to the motion for summary
judgment, asserting that after defendants made a total of $400,000 in
payments to appellees under the terms of the settlement agreement, and
before the next payment became due and “could be made,” appellants,
among others, “were ordered by the [SEC] to cease any payments to the
[appellees] and to cease any payments to any other individuals who
invested funds in oil and gas projects, pending the completion of a
formal SEC investigation involving the Defendants.” According to
appellants, “[a]s instructed by the SEC, the Defendants stopped making
payments to the Plaintiffs under the terms of the settlement agreement.”
Appellants attached Hewitt's affidavit to their response to appellees'
motion for summary judgment.
The trial court granted appellees' motion for summary judgment.
The summary judgment order provides that appellants are jointly and
 
severally liable with others for damages in the amount of $900,000 for
breach of contract, as well as interest and attorney's fees of $2,000.
The trial court granted severance of the breach-of-settlement-agreement
cause of action and the summary judgment on that cause of action. See
Tex. R. Civ. P. 41 (any claim against a party may be severed and
proceeded with separately). Appellants filed a motion for new trial that
was overruled by operation of law. This appeal followed.
Appellees' Hearsay Objections to Appellants' Summary Judgment Evidence
In response to appellees' motion for summary judgment,
appellants relied upon Hewitt's affidavit. Appellees raised hearsay
objections to paragraphs 4, 5, and 6 of the affidavit. Appellees
objected that Hewitt's affidavit offered the following out-of-court
statements of representatives of the SEC for the truth of the matters
asserted: the SEC was aware of the case and was conducting an
investigation of the defendants in the suit, including appellants; the
SEC was aware of the settlement agreement between appellants and
appellees; and the SEC instructed Hewitt “not to make payments to
anyone” under the terms of the settlement agreement, pending completion
of an SEC investigation, without the agreement of the SEC, or
“distribute funds to any investors.” On appeal, appellees argue the
trial court sustained appellees' hearsay objections to Hewitt's
affidavit and, consequently, appellants failed to raise a genuine issue
of material fact on their affirmative defense of impracticability or
 
impossibility of appellants' performance under the settlement agreement.
The record does not contain an express ruling by the trial court
sustaining appellees' hearsay objections to Hewitt's affidavit. See
Footnote 2 Appellees urge us to conclude that the trial court
implicitly sustained appellees' objections by granting their summary
judgment motion. There is a split of authority regarding whether,
pursuant to appellate rule of procedure 33.1(a)(2)(A), an objection to
summary judgment evidence can be preserved by an implicit ruling in the
absence of a written, signed order. See Stewart v. Sanmina Tex. L.P.,
156 S.W.3d 198, 206 (Tex. App.-Dallas 2005, no pet.). This Court has
determined the “better practice is for the trial court to disclose, in
writing, its rulings on all evidence before the time it enters the order
granting or denying summary judgment.” Hogan v. J. Higgins Trucking,
Inc., 197 S.W.3d, 879, 883 (Tex. App.-Dallas 2006, no pet.) (quoting
Broadnax v. Kroger Tex., L.P., 05-04-01306-CV, 2005 WL 2031783, at *1-2
(Tex. App.-Dallas 2005, no pet.)). On this record, we decline to
conclude that the trial court implicitly ruled on appellees' objections
to Hewitt's affidavit.
An objection that an affidavit contains hearsay is an objection
to the form of the affidavit. Stone v. Midland Multifamily Equity REIT,
334 S.W.3d 371, 374 (Tex. App.-Dallas 2011, no pet.). A defect in the
form of an affidavit must be objected to in the trial court and the
opposing party must have the opportunity to amend the affidavit. See
 
Tex. R. Civ. P. 166a(f); See Midland Multifamily Equity REIT, 334 S.W.3d
at 374; Brown v. Brown, 145 S.W.3d 745, 751 (Tex. App.-Dallas 2004, pet.
denied). The failure to obtain a ruling on an objection to the form of
the affidavit waives the objection. Midland Multifamily Equity REIT, 334
S.W.3d at 374; see also S & I Mgmt., Inc. v. Sungju Choi, 331 S.W.3d
849, 855 (Tex. App.-Dallas 2011, no pet.) (“Defects in the form of an
affidavit must be objected to, the opposing party must have the
opportunity to amend, and the trial court must rule on the objection;
otherwise, the objection is waived and the objected-to material is in
evidence.”).
Appellees' hearsay objections to Hewitt's affidavit were
objections to the form of the affidavit, and appellees failed to obtain
rulings on the objections. Appellees' objections to Hewitt's affidavit
have therefore not been preserved for appellate review. Accordingly, we
will consider the entirety of Hewitt's affidavit in our review of the
merits of this appeal.
Summary Judgment Standard of Review
The standard of review for a traditional summary judgment is
well known. See Tex. R. Civ. P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co.,
 690 S.W.2d 546, 548 (Tex.1985). A traditional summary judgment is
reviewed de novo to determine whether a party's right to prevail is
established as a matter of law. Caldwell v. Curioni, 125 S.W.3d 784, 789
(Tex. App.-Dallas 2004, pet. denied). We must determine whether the
movant demonstrated that no genuine issue of material fact existed and
 
he was entitled to judgment as a matter of law. See Nixon, 690 S.W.2d at
548-49. We consider the evidence in the light most favorable to the
nonmovant. Id.
Analysis of Appellants' Issues on Appeal
In two issues, appellants contend (1) the trial court erred in
granting appellees' motion for summary judgment and (2) appellants
raised a material issue of fact precluding summary judgment. It is
uncontroverted that the settlement agreement is valid and binding and
that appellants failed to meet obligations to make payments to appellees
under the terms of the settlement agreement. We conclude appellees met
their burden under rule 166a(c) to demonstrate that no genuine issue of
material fact exists concerning appellants' breach of the settlement
agreement. Thus, unless appellants raised a fact issue supporting an
affirmative defense sufficient to defeat appellees' motion for summary
judgment, the trial court did not err by granting appellees summary
judgment as a matter of law. See Brownlee v. Brownlee, 665 S.W.2d 111,
112 (Tex. 1984) (if party opposing summary judgment relies on an
affirmative defense, he must come forward with summary judgment evidence
sufficient to raise an issue of fact on each element of the defense to
avoid summary judgment).
Affirmative Defense of Impracticability or Impossibility of Performance
Appellants asserted the affirmative defense of impracticability
or impossibility of performance, contending they “have been prohibited
from tendering any funds to the [appellees] by the SEC.” Appellants also
 
asserted appellees' cause of action for breach of the settlement
agreement was barred because “compliance with the agreement would
violate federal law.”
Appellants relied on Hewitt's affidavit in support of their
affirmative defense. In his affidavit, Hewitt, a licensed attorney,
attested his legal experience includes advising individuals and entities
on issues of compliance under federal and state securities law.
According to his affidavit, Hewitt was contacted by SEC representatives
who advised him the SEC was conducting an investigation of one or more
of the defendants in the suit filed by appellees, and he learned the SEC
staff was aware of the settlement agreement in this case. In his
affidavit, Hewitt stated that at a meeting with SEC staff, he was
instructed not to make any payments under the settlement agreement
pending completion of the SEC's investigation. Hewitt further stated
that “[b]ased on the instructions of the SEC staff,” the defendants,
including appellants, ceased making payments under the settlement
agreement.
Taking as true that Hewitt was verbally instructed by SEC staff
to withhold payments to appellees under the settlement agreement pending
completion of the SEC's investigation, we must determine whether this
evidence raises a genuine issue of material fact supporting appellants'
affirmative defense sufficient to defeat appellees' motion for summary
judgment. “Where . . . a party's performance is made impracticable . . .
by the occurrence of an event the non-occurrence of which was a basic
 
assumption on which the contract was made, his duty to render that
performance is discharged . . . .” Centex Corp. v. Dalton, 840 S.W.2d
952, 954 (Tex. 1992) (quoting Restatement (Second) of Contracts § 261
(1981)). “A governmental regulation or order that makes impracticable
the performance of a duty 'is an event the non-occurrence of which was
made a basic assumption on which the contract was made.'” Centex Corp.,
840 S.W.2d at 954 (quoting Restatement (Second) of Contracts § 264
(1981)). See Footnote 3 The impracticability recognized by section
264 of the Restatement (Second) of Contracts is dependent upon issuance
of a governmental order or promulgation of a governmental regulation.
Congress has granted the SEC authority to issue temporary and
permanent cease-and-desist orders. See Securities Enforcement Remedies
and Penny Stock Reform Act of 1990, Pub. L. No. 101-429, §§ 102, 203,
104 Stat. 93 (1990). A temporary cease-and-desist order is a transient
stopgap, similar in function to a temporary restraining order, that the
SEC may employ against regulated entities in furtherance of its
oversight function. See 15 U.S.C.A. § 78u-3(c)(1) (West 2009) (SEC may
enter a temporary order requiring the respondent to cease and desist
from violation or threatened violation and to prevent dissipation or
conversion of assets, significant harm to investors, or substantial harm
to public interest; such temporary order shall be entered only after
notice and opportunity for a hearing, unless the SEC determines that
 
notice and hearing prior to entry would be impracticable or contrary to
public interest); 17 C.F.R. § 201.512(a) (2010) (temporary
cease-and-desist order shall be issued only if the SEC determines that
the alleged violation or threatened violation is likely to result in
significant dissipation or conversion of assets, significant harm to
investors, or substantial harm to the public interest prior to the
completion of proceedings on the permanent cease-and-desist order). Such
a temporary cease-and-desist order shall become effective upon service
on the respondent. 15 U.S.C.A. § 78u-3(c)(1); see also 17 C.F.R. §
201.512(c) (2010) (person who serves a temporary cease-and-desist order
shall promptly file with the SEC a declaration of service identifying
the person served, the method of service, the date of service, the
address to which service was made and the person who made service).
See Footnote 4 A federal statute also authorizes the SEC to seek a
civil injunction against a person engaged in wrongdoing under the
securities laws. See 15 U.S.C.A. § 80b-9(d) (West 2009); Secs. Exch.
Comm'n v. Bilzerian, 29 F.3d 689, 695 (D.C. Cir. 1994) (when defendant
has violated the securities laws, a civil injunction is appropriate if
the court determines there is likelihood that he will violate the laws
again in the future).
Despite contending they were “ordered” by the SEC staff to cease
payments under the settlement agreement, appellants produced no summary
judgment evidence of an order issued or regulation promulgated by the
 
SEC compelling cessation of payments under the settlement agreement
pending completion of the SEC's investigation. See Secs. Exch. Comm'n v.
Nat'l Student Mktg. Corp., 68 F.R.D. 157, 160 (D.D.C. 1975), aff'd, 538
F.2d 404 (D.C. Cir. 1976) (“The SEC consists of five appointed
Commissioners who are assisted by staff members. While Commissioners may
in fact respect the staff's recommendations, they are not bound by them
nor do such recommendations necessarily reflect the position of the
agency itself on any given topic.”). Specifically, appellants failed to
produce summary judgment evidence that performance of their contractual
obligations was constrained by a temporary cease-and-desist order issued
by the SEC, any written directive from the SEC, or a civil injunction
issued by a court at the request of the SEC.
Appellants rely on Centex Corporation v. Dalton, 840 S.W.2d 952
(Tex. 1992), to support their argument of impracticability or
impossibility of performance. However, in Centex, the supreme court
found that a written order of the Federal Home Loan Bank Board See
Footnote 5 made it unlawful for Centex to make payment to Dalton under
the terms of an agreement between them. Id. at 954, 956. Here,
appellants contend a verbal “instruction” from SEC staff made
appellants' performance of payment obligations under the settlement
agreement impracticable or impossible. We disagree. Unlike Centex,
appellants submitted no summary judgment proof of an order or
regulation, such as an SEC temporary cease-and-desist order or an order
 
of civil injunction, prohibiting appellants' performance of their
payment obligations.
We conclude appellants failed to raise a fact issue on their
affirmative defense of impracticability or impossibility sufficient to
defeat appellees motion for summary judgment. There is nothing in
appellants' summary judgment proof, consisting solely of Hewitt's
affidavit, to support a good faith belief that appellants' performance
under the settlement agreement was impracticable or impossible. See
Restatement (Second) of Contracts § 264 cmt. b (party who seeks to
justify his non-performance under section 264 must have observed the
duty of good faith and fair dealing imposed by section 205 of the
Restatement (Second) of Contracts in attempting, where appropriate, to
avoid performance); Restatement (Second) of Contracts § 205 (1981)
(“Every contract imposes upon each party a duty of good faith and fair
dealing in its performance and its enforcement.”).
Affirmative Defense of Excused Performance
Appellants contend they were excused from performance of their
payment obligations under the settlement agreement because appellees
breached the confidentiality provision of the settlement agreement.
Appellants contend that appellees' attachment of the settlement
agreement to their motion for summary judgment filed in the public
records of this case was a material breach of the settlement agreement
and excused appellants from performance of their contractual obligations
to make payments. We disagree.
In Deep Nines, Inc. v. McAfee, Inc., 246 S.W.3d 842 (Tex.
 
App.-Dallas 2008, no pet.), this Court addressed the precise argument
made by appellants here. In McAfee, Deep Nines argued it was not
required to perform under a settlement agreement because McAfee
materially breached the agreement by violating the confidentiality
clause. Id. at 848. Deep Nines alleged McAfee breached the
confidentiality clause by attaching the settlement agreement to its
pleadings. Id. As here, the alleged breach did not occur until after
Deep Nines had already breached the agreement by failing to make timely
payment under the agreement. Id. We concluded that because Deep Nines
had already committed a material breach of the agreement, McAfee was
excused from any further performance under the terms of the agreement.
Id. See also Mustang Pipeline Co., Inc. v. Driver Pipeline Co., Inc.,
134 S.W.3d 195, 196 (Tex. 2004) (per curiam) (“It is a fundamental
principle of contract law that when one party to a contract commits a
material breach of that contract, the other party is discharged or
excused from further performance.”).
Appellants materially breached the settlement agreement by
failing to make timely payment. Appellees' alleged breach of the
settlement agreement did not occur until after appellants' material
breach of the settlement agreement. Appellants were not excused from
performance of their payment obligations under the settlement agreement
by appellees' alleged breach of the settlement agreement.
Accordingly, because appellants failed to raise a fact issue on their
affirmative defenses sufficient to defeat appellees' motion for summary
 
judgment, we overrule appellants' first and second issues.
Conclusion
We conclude the trial court properly granted summary judgment in
favor of appellees, and we affirm the trial court's judgment.
 
 
ROBERT M.
FILLMORE
JUSTICE
101011F.P05
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Footnote 1
Kathleen Ann Mulligan, Daniel Mulligan, The Kat Group, Inc.,
and Kedd Ranch, Inc. appealed the trial court's summary judgment. Those
appellants filed a voluntary dismissal motion with this Court in which
they stated they had settled their disputes with appellees. We granted
their motion and dismissed their appeal.
-------------------
Footnote 2
At the hearing on appellees' motion for summary judgment,
counsel for parties not before this Court indicated he wished to address
appellees' hearsay objections to the affidavit of Daniel Mulligan filed
in response to appellees' motion for summary judgment. Daniel Mulligan's
affidavit was similar to Hewitt's affidavit in that it contained
statements attributed to the SEC instructing defendants not to make
payments that became due under the terms of the settlement agreement.
The trial court stated, “You're going to lose this. You're going to lose
it. You can - why weren't you able to get me any documentation from the
SEC, or anybody that was - that wasn't double hearsay?” Counsel stated
those parties were not relying on alleged statements attributed to the
SEC for the truth of the matters asserted, but for the assertion that
the statements were made and relied upon by those parties. The trial
 
court stated, “You're going to lose this.” On appeal, appellees contend
these statements by the trial court constituted a ruling that the
statements attributed to an SEC representative were offered for the
truth of the matters asserted. These statements by the trial court
related to appellees' hearsay objections to Mulligan's affidavit, not to
Hewitt's affidavit. Moreover, these statements do not constitute a
ruling by the trial court regarding hearsay objections. At best, the
trial court's statements indicate that at sometime in the future, there
could be a ruling on the objections.
-------------------
Footnote 3
Specifically, section 264 of the Restatement (Second) of
Contracts states:
If the performance of a duty is made impracticable by having to comply
with a domestic or foreign governmental regulation or order, that
regulation or order is an event the non-occurrence of which was a basic
assumption on which the contract was made.
Restatement (Second) of Contracts § 264.
-------------------
Footnote 4
The Texas Securities Act also provides statutory authority for
issuance of temporary cease-and-desist orders. See Tex. Rev. Civ. Stat.
Ann. art. 581-23 (West 2010) (Commissioner may hold a hearing after
notice to person subject of the hearing, and if Commissioner determines
at such hearing that sale of securities would not be in compliance with
the Texas Securities Act, is a fraudulent practice, or would tend to
work a fraud on any purchaser thereof or would not be fair, just or
equitable to any purchaser thereof, the Commissioner may issue a written
 
cease and desist order); see also Tex. Rev. Civ. Stat. Ann. art.
581-23-2(A), (B) (West 2010) (on Commissioner's determination that the
conduct, act, or practice threatens immediate and irreparable public
harm, Commission may issue an emergency cease and desist order; the
order must (1) be sent on issuance to each person affected by the order
by personal delivery or registered or certified mail, return receipt
requested, to the person's last known address, (2) state the specific
charges and require the person to immediately cease and desist from the
unauthorized activity, and (3) contain a notice that a request for a
hearing may be filed).
-------------------
Footnote 5
A subsequent cease-and-desist order was issued by the Office of
Thrift Supervision.
-------------------