Cage v. WorldFab, Inc. (In re Technicool Sys., Inc.)

594 B.R. 663
United States Bankruptcy Court, S.D. Texas·Decided October 31, 2018·No. CASE NO: 15-34435; ADVERSARY NO. 17-3265·Published·Cited by 3 cases

Opinion

Marvin Isgur, UNITED STATES BANKRUPTCY JUDGE

National Oilwell Varco ("NOV") filed suit against Technicool Systems, Inc., in Texas state court, alleging breach of contract for malfunctioning Heating, Ventilation, and Air Conditioning ("HVAC") units NOV purchased. (ECF No. 95 at 2). Technicool eventually filed for chapter 7 bankruptcy, leading NOV to file a proof of claim based on its state court lawsuit. (ECF No. 94-4 at 3). NOV later amended its state court petition to include specific fraud claims which allege that Robert Furlough, *667Technicool's founder, played a role in the purported fraud against NOV. (ECF No. 95-4 at 21).

Furlough filed a motion for summary judgment, arguing that NOV may only look to the contract for any possible recovery and its fraud claims are barred under the Texas Business Organizations Code. (ECF No. 95 at 3-4).

Furlough's motion for summary judgment is granted as to his personal liability for fraud by Technicool. Summary judgment is denied as to Furlough's liability for his individual conduct in which he allegedly committed fraud.

Background 1

Robert Furlough founded Powerhouse Marine International, Inc., in the 1970s to sell industrial HVAC units to the oil and gas industry. (ECF No. 27 at 4). Furlough's business grew to include the production of modular control houses as well as HVAC units. In 1997, Furlough founded Safe-T-Cool, Inc., in order to spin off the HVAC producing portion of Powerhouse into a separate company. (ECF No. 27 at 4). After the split, Powerhouse continued to build modular control houses until 2006, when Furlough created WorldFab, Inc., which assumed all of Powerhouse's modular building assets and operations. (ECF No. 27 at 5).

In 2006, Safe-T-Cool was accused of trademark infringement and became involved in a dispute over the right to use the Safe-T-Cool name. (ECF No. 27 at 5). Furlough decided to create a new entity to assume all of Safe-T-Cool's operations. To effectuate this, Furlough founded Technicool in 2008, naming himself as the sole owner and his then son-in-law, Robert Huckaby, as President. (ECF No. 27 at 5-6). All of Safe-T-Cool's assets and operations were transferred to Technicool, which operated until August 14, 2015, when it filed for chapter 7 bankruptcy in this Court. (ECF No. 27 at 4).

One of Technicool's principal customers was NOV. (ECF No. 27 at 11). From 2010 to 2014, NOV purchased 260 industrial HVAC units at price of $3,297,212.50. According to NOV, Furlough and Technicool agreed to service and support the HVAC units overseas and that the units were tested to withstand the harshest environmental conditions. (ECF No. 104 at 6). NOV claims these attributes were critically important to the HVAC units' intended uses. (ECF No. 104 at 6).

Once installed, the HVAC units began failing in the field or were unable to perform at the quoted specifications. (ECF No. 104 at 6-7). This led NOV to sue Technicool on November 10, 2014, in Texas state court. (ECF No. 27 at 11). NOV's lawsuit alleged various causes of action, including breach of contract, breach of warranty, negligent misrepresentation, and product liability. (ECF No. 27 at 13). This lawsuit eventually transitioned into NOV's proof of claim in Technicool's chapter 7 bankruptcy case. (ECF No. 95-4). NOV amended its lawsuit on November 11, 2015, to include fraud claims against Furlough individually. (ECF No. 95-4 at 19).

NOV's amended lawsuit specifically cites four causes of action against Furlough: (i) fraud and fraudulent inducement, (ii) fraud by non-disclosure, (iii) negligent misrepresentation, and (iv) aiding and abetting. (ECF No. 104 at 5).

In Technicool's bankruptcy case, NOV has been the only active creditor. (See generally Case No. 15-34435). NOV developed *668an alliance with the Trustee in which NOV's counsel was retained by the Trustee to represent the Trustee in litigation against Technicool's former owners and affiliates. As an accommodation to the Trustee (and to overcome any potential conflict), NOV agreed to subordinate its claims against the Estate to 100% payment of all administrative expenses and to 100% recoveries by all other unaffiliated, general unsecured creditors in this case.

In light of NOV's agreement to fully subordinate its interest and other factors, the Court approved NOV's state court counsel as Trustee's counsel in this present litigation. (Case No. 15-34435; ECF No. 96).

Furlough moved for summary judgment against NOV's fraud claims, alleging that NOV's claims are barred under the Texas Business Organizations Code § 21.223, merger clauses in the allegedly breached contracts, and the economic loss doctrine. (ECF No. 95 at 3-4).

Jurisdiction

The Court has "related to" jurisdiction over this matter. The parties have consented to a final adjudication by this Court.2

Summary Judgment Standard

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). FED. R. BANK. P. 7056 incorporates FED. R. CIV. P. 56 in adversary proceedings. A party seeking summary judgment must demonstrate the absence of a genuine dispute of material fact by establishing the absence of evidence supporting an essential element of the non-movant's case. Sossamon v. Lone Star State of Tex. , 560 F.3d 316, 326 (5th Cir. 2009). A genuine dispute of material fact is one that could affect the outcome of the action or allow a reasonable fact finder to find in favor of the non-moving party. Gorman v. Verizon Wireless Tex., L.L.C. , 753 F.3d 165, 170 (5th Cir. 2014) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).

In cases involving the interpretation of a contract, summary judgment is only appropriate where the language of the contract is unambiguous. See Nowak v. Ironworkers Local 6 Pension Fund , 81 F.3d 1182, 1192 (2d Cir. 1996) ; Cooper Indus., LLC v. Precision Castparts Corp. , 2016 WL 4939565, at *6 (S.D. Tex. Sept. 14, 2016).

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Cage v. WorldFab, Inc. (In re Technicool Sys., Inc.), 594 B.R. 663 (Tex. 2018).

594 B.R. 663 (Cage v. WorldFab, Inc. (In re Technicool Sys., Inc.)) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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