Majestic Cast, Inc. v. Majed Khalaf D/B/A ProCon Paving and Construction, Inc.

• Court: Court of Appeals of Texas
• Decided: August 26, 2013
• Docket: 05-12-00112-CV
• Status: Published

Opinion

AFFIRM in part; REVERSE in part; REMAND and Opinion Filed August 26, 2013.

S In The Court of Appeals Fifth District of Texas at Dallas No. 05-12-00112-CV

MAJESTIC CAST, INC., Appellant V. MAJED KHALAF D/B/A PROCON PAVING AND CONSTRUCTION, INC., Appellee

On Appeal from the 192nd Judicial District Court Dallas County, Texas Trial Court Cause No. DC-10-06450-K

MEMORANDUM OPINION Before Justices FitzGerald, Lang-Miers, and Lewis Opinion by Justice Lang-Miers Majestic Cast, Inc. appeals the trial court’s grant of summary judgment in favor of Majed

Khalaf on its claims for theft, conversion, breach of contract, and fraud. We affirm in part and

reverse in part.

BACKGROUND

Majestic Cast entered into a contract with ProCon Paving and Construction, Inc., a Texas

corporation, for ProCon to provide various subcontractor services for the construction of a

Montessori school. Majestic Cast complained that it had difficulties with the contract almost

immediately. It alleged that ProCon did not pay bills for material and labor, it was not pleased

with the quality of the work, and materials ordered for the Montessori school project were used

at other construction sites. Majestic Cast terminated its contract with ProCon, leaving Majestic

Cast with numerous liens. Majestic Cast filed suit for theft, conversion, breach of contract, and fraud against Khalaf,

one of the two individuals who signed the contract on behalf of ProCon, alleging that Khalaf

maintained a shell corporate entity in order to bill materials and work to the construction project

while knowing he had no intention of making any payment on any of these items.

Khalaf filed a combined motion for traditional and no-evidence summary judgment,

arguing that Majestic Cast must pierce ProCon’s corporate veil in order to hold Khalaf

individually liable, and that Majestic Cast failed to plead any specific theory for piercing the

corporate veil, failed to assert a cause of action against ProCon, and failed to produce any

evidence that would provide a basis for piercing the corporate veil. Khalaf also argued that he

signed the contract as a representative of ProCon, not in his individual capacity, and was not

individually liable on the breach of contract claim. The trial court granted the motion and ordered

all of Majestic Cast’s causes of action against Khalaf dismissed. This appeal followed.

In three issues, Majestic Cast complains that (1) the trial court abused its discretion by

setting a hearing on Khalaf’s motion for summary judgment within thirty days of trial while

denying Majestic Cast additional time for discovery, (2) the trial court erred by granting Khalaf’s

traditional motion for summary judgment, and (3) the trial court erred by granting Khalaf’s no-

evidence motion for summary judgment.

ISSUE ONE: ABUSE OF DISCRETION IN HEARING SUMMARY JUDGMENT MOTION

In its first issue, Majestic Cast argues that the trial court abused its discretion when it

heard Khalaf’s summary judgment motion less than thirty days before trial—ignoring the court’s

own pretrial order that dispositive motions would not be considered within thirty days of the trial

date—while at the same time strictly enforcing the notice rules and deadlines regarding

discovery requests. Majestic Cast has not cited the record to show it made this objection below.

We have reviewed the record, and it shows that not only did Majestic Cast not object to the

–2– hearing that was scheduled within thirty days of trial, it moved for a continuance of the hearing

so that discovery could be completed. Majestic Cast did not object to the hearing on the basis

now raised on appeal, and we conclude that it has not preserved this issue for our review. See

TEX. R. APP. P. 33.1.

ISSUES TWO AND THREE: TRADITIONAL AND NO-EVIDENCE SUMMARY JUDGMENT

In its second and third issues, Majestic Cast contends that the trial court erred by granting

Khalaf’s combined traditional and no-evidence motion for summary judgment.

Standard of Review

When a party files both a no-evidence and a traditional motion for summary judgment,

we consider the no-evidence motion first. Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600

(Tex. 2004). After an adequate time for discovery, the party without the burden of proof may

move for summary judgment on the ground that there is no evidence to support an essential

element of the nonmovant’s claim. TEX. R. CIV. P. 166a(i). The motion must specifically state

the elements for which there is no evidence. Id. The burden then shifts to the nonmovant to

produce more than a scintilla of summary judgment evidence that raises a genuine issue of

material fact as to each essential element identified in the motion. Id. & cmt (1997); Timpte

Indus., Inc. v. Gish, 286 S.W.3d 306, 310 (Tex. 2009). More than a scintilla of evidence exists if

the evidence would allow reasonable and fair-minded people to reach the verdict under review.

See City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005).

We review the trial court’s decision to grant or deny a motion for summary judgment de

novo. Mid–Century Ins. Co. of Tex. v. Ademaj, 243 S.W.3d 618, 621 (Tex. 2007); Beesley v.

Hydrocarbon Separation, Inc., 358 S.W.3d 415, 418 (Tex. App.—Dallas 2012, no pet.). When,

as here, the trial court’s order granting summary judgment does not specify the basis for the

–3– ruling, we will affirm the summary judgment if any of the theories presented to the trial court are

meritorious. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 216 (Tex. 2003).

We “review the evidence presented by the motion and response in the light most

favorable to the party against whom the summary judgment was rendered, crediting evidence

favorable to that party if reasonable jurors could, and disregarding contrary evidence unless

reasonable jurors could not.” Timpte Indus., 286 S.W.3d at 310. We must take evidence

favorable to the nonmovant as true and indulge every reasonable inference and resolve any

doubts in favor of the nonmovant. Sysco Food Servs., Inc. v. Trapnell, 890 S.W.2d 796, 800

(Tex. 1994).

Pleadings

Majestic Cast’s Original Petition

Majestic Cast sued “Majed Khalaf, d/b/a ProCon Paving and Construction, Inc.” The

original petition alleged that Majestic Cast and ProCon entered into a contract, which Khalaf

signed. It alleged that ProCon failed to appear on the job, failed to meet deadlines, failed to pay

employees, and failed to pay for supplies. Majestic Cast alleged that ProCon was a “shell

corporate entity” that Khalaf used to bill materials and work and obtain credit without any

intention of making payments on the debt. And it alleged claims against Khalaf for theft,

conversion, breach of contract, and fraud.

Khalaf’s No-Evidence Motion for Summary Judgment

Khalaf moved for no-evidence summary judgment on the grounds that (1) Majestic Cast

had no evidence that would allow it to pierce the corporate veil of ProCon; (2) Majestic Cast had

no evidence Khalaf used ProCon to perpetrate a fraud; and (3) Majestic Cast had no evidence

ProCon was the alter ego of Khalaf.

–4– Majestic Cast’s Response

Majestic Cast generally responded that its causes of action address “the wrongful conduct

of Khalaf not the corporate entity. Khalif is attempting to hide behind the corporate entity but the

evidence is clear that he was the corporate entity and the two are one and the same.” It responded

that it was not attempting to pierce the corporate veil of ProCon, but, instead was seeking to

“disregard the corporate fiction.” It argued that it had pleaded that ProCon was an “empty shell

being used by Khalaf to attempt to avoid liability (alter ego theory) and that Khalaf used the

Corporate vehicle to attempt to obtain protection for a crime or to justify a wrong, effectively

causing the legal disregard of the corporate fiction.”

Majestic Cast referred to evidence attached to a previous response to a previous motion

for summary judgment filed by Khalaf. That evidence included documents purporting to show

that Khalaf was not an officer, director, or owner of ProCon when he signed the contract on

behalf of ProCon. Majestic Cast argued that, as a result, Khalaf was not protected by the

corporate entity for the breach of contract and fraud claims. It also referred to evidence that

Khalaf used the corporate entity to perpetrate a fraud. That evidence was the affidavit of one of

the employees on the construction site and a schedule of payments made by Majestic Cast.

Throughout its response, Majestic Cast referred to the evidence it previously filed in response to

Khalaf’s earlier motion for summary judgment that the trial court denied.

Analysis

We first address whether Khalaf moved for summary judgment on all claims alleged by

Majestic Cast. We conclude that he did not.

Claims for Theft, Conversion, and Fraud

Majestic Cast’s petition alleged that Khalaf “obtained funds from Majestic Cast, Inc.

knowing at the time the funds were paid that he had no intention of performing the work for

–5– which the funds were being paid, and that the corporation was in existence in name only.” It

alleged that Majestic Cast incurred losses “proximately caused by . . . Khalaf’s theft of the initial

payment on the contract and/or [his] conversion of said funds to his own personal use obtaining

such funds through a material misrepresentation that he was representing a corporation able to

fully complete the contractual obligations to which he agreed . . . .” It alleged that Khalaf took

materials “sent to and billed to [the construction site] and used [those materials] at other work

sites . . . and he could obtain payment from other job sites without having to pay for any of the

materials used as they were fraudulently billed as being for use on the subcontract with Majestic

Cast, Inc.”

Majestic Cast also alleged that at the time the contract was signed, all the other members

of ProCon had abandoned the “shell corporate entity” and “Khalaf had no authority to conduct

operations on behalf of [ProCon] and in fact the corporate entity was virtually nonexistent by the

time the contract was signed.” Majestic Cast alleged that at the time Khalaf signed the contract,

he “had no intent to complete the contract and signed it for the purpose of fraudulently obtaining

money from Majestic Cast, Inc.”

We construe these allegations to be claims against Khalaf individually regarding his own

allegedly tortious or fraudulent acts. Khalaf’s motion, however, argued only that Majestic Cast

could not hold Khalaf individually liable on the contract through a piercing-the-corporate-veil

theory, and did not address the claims against Khalaf individually for theft, conversion, and fraud

except to the extent he argued that Majestic Cast was required to pierce the corporate veil to hold

him liable on the contract. But a plaintiff is not required to pierce the corporate veil when it seeks

to hold an agent individually liable for the agent’s own tortious or fraudulent acts. Miller v.

Keyser, 90 S.W.3d 712, 717 (Tex. 2002) (corporation’s agent is personally liable for his own

fraudulent acts); Sanchez v. Mulvaney, 274 S.W.3d 708, 712 (Tex. App.—San Antonio 2008, no

–6– pet.) (corporation’s agent is personally liable for his own fraudulent or tortious acts, even when

acting within the course and scope of his employment); Cimarron Hydrocarbons Corp. v.

Carpenter, 143 S.W.3d 560, 564 (Tex. App.—Dallas 2004, pet. denied) (same).

We conclude that Khalaf’s combined motion for summary judgment did not address

Majestic Cast’s claims for theft, conversion, and fraud. A trial court may not grant summary

judgment on grounds not raised in the motion. Timpte Indus., 286 S.W.3d at 310. Consequently,

the trial court erred by granting summary judgment in favor of Khalaf on Majestic Cast’s claims

against him individually for theft, conversion, and fraud.

Claim for Breach of Contract

Majestic Cast alleged a claim for breach of contract against Khalaf individually, and it

argued that the court should disregard the corporate fiction on an alter ego theory to hold Khalaf

individually liable. Khalaf moved for no-evidence summary judgment on the breach of contract

claim arguing that Majestic Cast had no evidence that would allow it to pierce the corporate veil

of ProCon and hold him individually liable. Khalaf alleged that the contract was between ProCon

and Majestic Cast, that Khalaf signed the contract as a corporate representative of ProCon, and

that he did not sign it in his individual capacity. Majestic Cast responded by arguing that the

signature block of the contract between Majestic Cast and ProCon designated Khalaf as a

“Partner” while listing ProCon as the “Service Provider.” We interpret Majestic Cast’s statement

as a claim that Khalaf signed the contract not as a representative of ProCon, but as a partner

along with ProCon, acting in his individual capacity.

To prevail on a breach of contract claim, one of the elements a plaintiff must prove is that

there was a valid contract between the plaintiff and defendant. Gold’s Gym Franchising LLC v.

Brewer, 400 S.W.3d 156, 162 (Tex. App.—Dallas 2013, no pet.). Where it is apparent from the

entire contract that an officer of a corporation signed the contract on behalf of the corporation as

–7– an agent of the corporation, it is the corporation’s contract. In such a case, the signing officer is

not individually liable on the contract. Ward v. Prop. Tax Valuation, Inc., 847 S.W.2d 298, 300

(Tex. App.—Dallas 1992, writ denied). Agency law is based on the same premise—when an

agent contracts for a disclosed principal, the agent generally is not liable on the contracts he

makes. Whataburger, Inc. v. Rutherford, 642 S.W.2d 30, 34 (Tex. App.—Dallas 1982, no writ);

Mediacomp, Inc. v. Capital Cities Commc’n, Inc., 698 S.W.2d 207, 211 (Tex. App.—Houston

[1st Dist.] 1985, no writ).

We must review the evidence to determine whether Majestic Cast produced more than a

scintilla of evidence showing that Khalaf signed the contract in his individual capacity so that

Majestic Cast may hold Khalaf individually liable on the contract. See TEX. R. CIV. P. 166a(i);

see also McClellan v. Scardello Ford, Inc., 619 S.W.2d 593, 596 (Tex. Civ. App.—Amarillo

1981, no writ) (stating it is a general rule that a right or duty created wholly by contract can only

be enforced between the contracting parties or their privies).

We first review the contract itself. The contract states that ProCon and Majestic Cast are

parties to the contract. The first line of the contract states that it is between “Majestic Cast, Inc.”

and “ProCon Paving and Construction, Inc.” Under a section entitled “Description of Services,”

the contract states “ProCon will provide to Majestic Cast” specific services described elsewhere

in the document. In exchange for these services, the contract requires Majestic Cast to pay

ProCon. Khalaf is not mentioned as a party anywhere in the contract.

Majestic Cast argues that the signature block of the contract indicates that the two

individuals that signed for ProCon were “acting as partners” along with ProCon. The signature

block at the end of the contract has two signature lines. The first signature line is for “Service

Recipient: Majestic Cast, Inc.” Under that signature line, the name “Sammy Jibrin” is typed, and

Jibrin is described as a “Company Rep.” The next signature line is for “Service Provider:

–8– ProCon Paving and Construction, Inc.” “Majid Khalaf” and “Iyad Albelbaisi” are listed as

signers for ProCon. 1 They are described in the signature block as “Partner[s].” It is undisputed

that Khalaf signed the contract.

As evidence, Majestic Cast submitted numerous filings from the office of the Texas

Secretary of State, including ProCon’s certificate of formation, previous tax franchise reports,

and various certificates of amendments that purportedly showed Khalaf “was not a director,

officer, or member of [ProCon] when he signed the contract made the basis of this suit, and had

no authority to sign on behalf of [ProCon].” It argued that Khalaf signed as a “Partner” and

signed the contract in his individual capacity. Majestic Cast also submitted the affidavit of Jose

Luis Recio, a contractor hired by ProCon for several jobs, including Majestic Cast’s construction

project. Majestic Cast alleged that Recio was “personally aware that [Khalaf] was hired to do

work on the school construction project”; it further alleged that Recio’s affidavit indicated that

Majestic Cast hired Khalaf directly, not ProCon.

But Majestic Cast has provided no case law, and we are aware of none, stating that only

individuals listed on filings with the secretary of state can act as agents or representatives for

Texas corporations and sign contracts as representatives of Texas corporations. And the fact that

the signature block on the contract listed Khalaf as a “Partner” does not raise a fact issue

regarding whether Khalaf is individually liable for breach of contract. The first line of the

contract states it is between Majestic Cast and ProCon, the contract only sets out the

responsibility of these two parties, and nothing in the contract otherwise indicates that any other

party would be bound by it. See Ward, 847 S.W.2d at 300 (signing officer not individually liable

on contract where it is apparent from the entire contract officer signed as agent of corporation).

Finally, Recio’s affidavit does not raise a fact issue regarding whether Khalaf is individually

1 Both names were spelled incorrectly on the contract. Majestic Cast did not bring suit against the other individual that signed for ProCon.

–9– liable for breach of contract because his affidavit states that Khalaf “was hired to do the work”

and that he [Recio] “was hired as a contractor to work for Pro Con Paving and Construction, Inc.,

specifically by the owner Majed [Khalaf.]” The affidavit does not address the capacity in which

Khalaf signed the contract with Majestic Cast.

For these same reasons, we conclude that Majestic Cast’s summary judgment evidence

did not raise a fact issue on any theory alleged for disregarding the corporate fiction. See

Sanchez, 274 S.W.3d at 712 (discussing summary judgment burden to raise fact issue on piercing

corporate veil); Harco Energy, Inc. v. Re-Entry People, Inc., 23 S.W.3d 389, 393 (Tex. App.—

Amarillo 2000, no pet.) (same).

In summary, Majestic Cast’s summary judgment evidence did not raise a genuine issue of

material fact that Khalaf was individually liable for breach of contract. See Gold’s Gym

Franchising LLC, 400 S.W.3d at 162 (concluding party could not breach contract to which it was

not a party). Consequently, the trial court did not err by granting Khalaf’s motion for summary

judgment on the breach of contract claim. Because of our resolution of these issues, we do not

need to consider whether the trial court erred by granting Khalaf’s traditional motion for

summary judgment.

CONCLUSION

We reverse the trial court’s summary judgment on Majestic Cast’s claims for theft,

conversion, and fraud against Khalaf in his individual capacity. We otherwise affirm the trial

court’s summary judgment and remand the case for further proceedings.

/Elizabeth Lang-Miers/ ELIZABETH LANG-MIERS JUSTICE

120112F.P05

–10– S Court of Appeals Fifth District of Texas at Dallas JUDGMENT

MAJESTIC CAST, INC., Appellant On Appeal from the 192nd Judicial District Court, Dallas County, Texas No. 05-12-00112-CV V. Trial Court Cause No. DC-10-06450-K. Opinion delivered by Justice Lang-Miers, MAJED KHALAF D/B/A PROCON Justices FitzGerald and Lewis participating. PAVING AND CONSTRUCTION, INC., Appellee

In accordance with this Court’s opinion of this date, the judgment of the trial court is AFFIRMED in part and REVERSED in part.

We REVERSE that portion of the trial court’s judgment granting Appellee’s Majed Khalaf d/b/a ProCon Paving and Construction, Inc.’s motion for summary judgment on appellant Majestic Cast, Inc.’s claims for theft, conversion, and fraud against appellee Majed Khalaf in his individual capacity.

In all other respects, the trial court’s judgment is AFFIRMED. We REMAND this cause to the trial court for further proceedings consistent with this opinion.

It is ORDERED that each party bears its own costs of appeal.

Judgment entered this 26th day of August, 2013.

–11–