Opti-Flow, LLC v. Production Services International,ltd.

Opinion

STATE OF LOUISIANA

COURT OF APPEAL, THIRD CIRCUIT

04-1357

OPTI-FLOW, LLC

VERSUS

PRODUCTION SERVICES INTERNATIONAL, LTD.

********** APPEAL FROM THE FIFTEENTH JUDICIAL DISTRICT COURT PARISH OF LAFAYETTE, NO. 2002-2283 HONORABLE DURWOOD CONQUE, DISTRICT JUDGE **********

GLENN B. GREMILLION JUDGE

**********

Court composed of Glenn B. Gremillion, Billy H. Ezell, and James T. Genovese, Judges.

REVERSED AND REMANDED.

Camille Bienvenu Poche P. O. Drawer 3408 Lafayette, LA 70502-3408 (337) 262-9000 Counsel for Plaintiff/Appellee Opti-Flow, LLC

Michael D. Skinner P. O. Box 3507 Lafayette, LA 70502 (337) 237-2660 Counsel for Defendant/Appellant Production Services International, Ltd. Michael D. Hebert Milling, Benson, Woodward, L.L.P. P. O. Box 51327 Lafayette, LA 70505-1327 (337) 232-3929 Counsel for Defendant/Appellant Production Services International, Ltd.

Joseph P. Hebert Renee Z. Berard Liskow & Lewis P. O. Box 52008 Lafayette, LA 70505-2008 (337) 232-7424 Counsel for Intervenor/Appellee Western National Bank GREMILLION, Judge.

The defendant, Production Services International, Ltd. (PSI), appeals the

judgment of the trial court granting summary judgment in favor of the plaintiff, Opti-

Flow, LLC, and awarding it $161,863.42. For the following reasons, we reverse and

remand for further proceedings.

FACTS

On December 5, 2000, PSI acquired the assets and goodwill of

Production Services, Inc. The company, which was involved in the oil industry,

continued the employment of employees from Production Services, including Stuart

Harlow, a shareholder/salesman for Production Services, and David Berryhill, who

became PSI’s shop manager. Prior to the sale of Production Services’ assets, Harlow

and Berryhill met with William Gray and C.T. Miller at Gray’s home in Texas, in

early November 2000. Gray, Production Services’ president, became the president

of the general partner of PSI. As a result of this meeting, Opti-Flow was formed to

provide PSI with an agent for the sale of its products in Lafayette, Louisiana. Both

Harlow and Berryhill, along with Miller, became owners/managers of Opti-Flow.

Harlow and Berryhill continued their employment with PSI.

On December 1, 2000, PSI entered into a “Representative Agreement”

with Opti-Flow, whereby Opti-Flow agreed to sell and service products manufactured

by PSI in return for a commission. On May 1, 2002, Opti-Flow filed a suit on open

account or, alternatively, for a breach of contract based on PSI’s failure to remit the

commissions owed it, in the amount of $135,354.44, as of March 15, 2002.

Subsequent to Opti-Flow’s motion for preliminary default, PSI filed declinatory and

1 peremptory exceptions and an answer. Thereafter, Opti-Flow filed a motion for

summary judgment seeking the amount owed on open account and attorney’s fees.

PSI opposed this alleging the existence of the Representative Agreement between the

parties. This matter was briefly stayed pending bankruptcy proceedings in federal

court; however, it resumed following PSI’s voluntary dismissal of that matter.

Upon the resumption of this proceeding, a petition of intervention was

filed by Western National Bank seeking the recognition of its first priority lien in

PSI’s “accounts, inventory, chattel paper, documents, instruments, general

intangibles, certificates of title, goods, and the proceeds thereof.” Thereafter, the trial

court denied Opti-Flow’s motion for summary judgment finding that the relationship

between the parties was contractual in nature. Opti-Flow then filed a second motion

for summary judgment seeking the sum of $161,863.42 owed by PSI pursuant to the

December 1, 2000 Representative Agreement. PSI opposed this motion on several

grounds including the validity of the Representative Agreement.

Following a hearing, the trial court granted summary judgment in favor

of Opti-Flow, finding that PSI had judicially confessed the existence and validity of

the Representative Agreement. Thus, it held that Opti-Flow was relieved of the

necessity of proving the validity of the contract and awarded it $161,863.42, plus

legal interest. Judgment was rendered on February 2, 2004. Although this judgment

was not certified as a final judgment, an order certifying it as a final judgment was

rendered on January 12, 2005. This appeal by PSI followed.

2 ISSUE

On appeal, PSI argues that the trial court erred in finding that it judicially

confessed the existence and validity of the Representative Agreement and in granting

summary judgment in favor of Opti-Flow.

SUMMARY JUDGMENT

The standard of review pertaining to summary judgment is well

established, as provided by La.Code Civ.P. art. 966. Thus, an appellate court asks the

same questions the trial court asks to determine whether summary judgment is

appropriate. Magnon v. Collins, 98-2822 (La. 7/7/99), 739 So.2d 191. This inquiry

seeks to determine whether any genuine issues of material fact exist and whether the

movant is entitled to judgment as a matter of law. La.Code Civ.P. art. 966(B) and

(C). Accordingly, we will undertake a de novo review of the matter.

JUDICIAL CONFESSION

In its first assignment of error, PSI argues that the trial court erred in

finding that it judicially confessed to the validity of the contract between it and Opti-

Flow. In its second memorandum in support of its opposition to motion for summary

judgment, PSI argued the existence of the December 1, 2000 Representative

Agreement, noting that it did not provide for attorney’s fees in the event of a breach

by either party. In concluding, it stated, “The contract between PSI and Opti-Flow

is just that, a contract.” The trial court held that PSI’s reliance on the existence of the

Representative Agreement constituted a judicial confession and relieved Opti-Flow

of the burden of proving the validity of the agreement.

3 Louisiana Civil Code Article 1853 provides that “[a] judicial confession

is a declaration made by a party in a judicial proceeding. That confession constitutes

full proof against the party who made it. A judicial confession is indivisible and it

may be revoked only on the ground of error of fact.”

A judicial confession under La.Civ.Code art. 1853 constitutes incontrovertible evidence of a particular issue and serves to waive the necessity of any further proof on that issue. Ramelow v. Bd. of Trustees of the University of Louisiana System, 03-1131 (La.App. 3 Cir. 3/31/04), 870 So.2d 415, writ denied, 04-1042 (La.6/18/04), 888 So.2d 184; C.T. Traina, Inc. v. Sunshine Plaza, Inc., 03-1003 (La.12/3/03), 861 So.2d 156. In order for a party’s statement to constitute a judicial confession, it must be an express acknowledgment of an adverse fact. Jones v. Gillen, 564 So.2d 1274 (La.App. 5 Cir.1990); Sanders v. Earnest, 34,656 (La.App. 2 Cir. 7/24/01), 793 So.2d 393; State v. Lamb, 31,919 (La.App. 2 Cir. 5/7/99), 732 So.2d 1270. Additionally, “the adverse party must have believed the fact was no longer at issue or must have relied on it, to his detriment.” Lamb, 732 So.2d at 1272; Alexis v. Metropolitan Life Insurance Co., 604 So.2d 581 (La.1992); Jefferson Parish v. Fidelity & Deposit Co., 95-951 (La.App. 5 Cir. 4/30/96), 673 So.2d 1238; Jones, 564 So.2d 1274. . . .

Finally, courts have taken into account a party’s otherwise consistent opposition to the fact alleged to have been confessed. . . . Thus, the presence of consistent opposition to the allegedly confessed fact weighs against finding a confession.

Leday v. Safeway Ins. Co., 04-610, pp. 5-6 (La.App. 3 Cir. 11/17/04), 888 So.2d

1084, 1088-89.

After reviewing the evidence, we do not find that PSI judicially

confessed to the validity of the Representative Agreement, as held by the trial court.

In its answer and its memorandum in opposition to Opti-Flow’s motion for summary

judgment, while admitting to the existence of a contract between the parties, PSI still

questioned the validity of that agreement. We do not find that its statement, “The

contract between PSI and Opti-Flow is just that, a contract,” is an express

4 acknowledgment of an adverse fact, which Opti-Flow believed was no longer at issue;

nor do we find any evidence in the record that it relied on this statement to its

detriment. Accordingly, the judgment of the trial court finding that PSI judicially

confessed to the validity of the Representative Agreement is reversed.

GENUINE ISSUE OF MATERIAL FACT

In its second assignment of error, PSI argues that the trial court erred in

finding that there were no genuine issues of material fact and in granting summary

judgment in favor of Opti-Flow. After conducting a de novo review of the record, we

find that a genuine issue of material fact exists; thus, the trial court improperly

granted summary judgment in favor of Opti-Flow.

PSI, through the affidavit and deposition testimony of Harold Berg,

argued that its consent to the Representative Contract was vitiated through error as

a result of a conflict of interest arising from the relationship of several of its

employees with Opti-Flow. Berg testified that Harlow and Berryhill met with Gray

and Miller at Gray’s home in Texas in early November 2000. As a result of that

meeting, Opti-Flow was formed to provide PSI with an agent in Lafayette, Louisiana.

The Representative Agreement was signed by Gray and Harlow in January 2001 and

February 2001, respectively, effective December 1, 2000. Berg testified that he was

not aware of Harlow, Berryhill, and Gray’s involvement with or the reason for the

formation of Opti-Flow.

Berg testified that he had several conversations with Gray about the

contract and was assured by him that the Representative Agreement would be good

for PSI. However, he testified that he felt Gray was untruthful; in fact, he felt that the

5 contract had worked to PSI’s detriment. He explained that prior to the acquisition of

Production Services by PSI, all sales and service originated out of Production

Services’ Spring, Texas office; thus, all income went to Production Service.

Subsequent to the formation of Opti-Flow, any business in Louisiana was sold

through the Spring office, but was run through Opti-Flow’s office in Lafayette. Thus,

all of the income from commissioned items sold was split between PSI and Opti-

Flow, whereas all of the income from any noncommissioned items, such as service,

cleaning, and testing, would go 100% to Opti-Flow.

In pointing out a further example of a conflict of interest, Berg explained

that Opti-Flow’s commission was based on a percentage of the cost of PSI’s product

sold by Opti-Flow, as set out in a schedule attached to the Representative Agreement.

The schedule provided that “[a]t no time will P.S.I. LTD pay commissions that exceed

50% of profit.” Although a product cost a certain amount of dollars, Harlow testified

that a product’s actual selling price was marked up as much as possible. Berg

testified that both Harlow and Berryhill were in a position to deflate the actual cost

of PSI’s products sold by Opti-Flow in order to increase its commission on the actual

selling price of the items. He further explained that Harlow was earning a

commission on sales for PSI and a portion of a commission from Opti-Flow on any

sales routed through it by him. Berg further disputed the amount of commissions

claimed by Opti-Flow as it failed to include the cost bases of numerous items sold to

its customers.

In Hickman v. Bates, 39,178, pp. 5-6 (La.App. 2 Cir. 12/15/04), 889

So.2d 1249, 1253, the court stated:

6 A contract is formed by the consent of the parties. La. C.C. art. 1927. However, consent may be vitiated by error, fraud, or duress. La. C.C. art. 1948. Fraud is a misrepresentation or a suppression of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other. Shelton v. Standard/700 Associates, 01-0587 (La.10/16/01), 798 So.2d 60. Fraud may also result from silence or inaction. La. C.C. art. 1953. Error induced by fraud need not concern the cause of the obligation to vitiate consent, but it must concern a circumstance that has substantially influenced that consent. La. C.C. art. 1955. Fraud does not vitiate consent when the party against whom the fraud was directed could have ascertained the truth without difficulty, inconvenience, or special skill. However, this exception does not apply when a relation of confidence has reasonably induced a party to rely on the other’s assertions or representations. La. C.C. art. 1954. Fraud need only be proven by a preponderance of the evidence and may be established by circumstantial evidence. La. C.C. art. 1957.

In reviewing the record and the pertinent law related to vitiation of

consent, we find that PSI has revealed that there are genuine issues of material fact

with regard to whether its consent to the Representative Agreement was vitiated by

error induced by fraud. Berg testified that Gray convinced him that contracting with

Opti-Flow would help its business, but stated that he was never informed by anyone

that PSI’s own employees were owners/managers of Opti-Flow. He further alleges

that this involvement resulted in a conflict of interest and argues that the contract has

led to a loss of income for PSI. Had the true facts been known by him, he stated that

PSI would not have entered into the contract with Opti-Flow. Accordingly, the

judgment of the trial court granting summary judgment is reversed and the matter is

remanded for further proceedings. The costs of this matter are assessed to plaintiff-

appellee, Opti-Flow, LLC.

REVERSED AND REMANDED.