Thomas A. "Kip" Hyde and Robert L. Winspear v. GACP Finance Co., LLC

CourtCourt of Appeals of Texas
DecidedOctober 24, 2024
Docket05-23-00873-CV
StatusPublished

This text of Thomas A. "Kip" Hyde and Robert L. Winspear v. GACP Finance Co., LLC (Thomas A. "Kip" Hyde and Robert L. Winspear v. GACP Finance Co., LLC) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Thomas A. "Kip" Hyde and Robert L. Winspear v. GACP Finance Co., LLC, (Tex. Ct. App. 2024).

Opinion

Reversed and Rendered and Opinion Filed October 24, 2024

In The Court of Appeals Fifth District of Texas at Dallas No. 05-23-00873-CV

THOMAS A. “KIP” HYDE AND ROBERT L. WINSPEAR, Appellants V. GACP FINANCE CO., LLC, Appellee

On Appeal from the 134th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-19-02210

MEMORANDUM OPINION Before Justices Reichek, Nowell, and Wright1 Opinion by Justice Nowell Appellee GACP Finance Co., LLC sued appellants Thomas A. “Kip” Hyde

and Robert L. Winspear for fraud. A jury awarded GACP $1,546,422.00 in actual

damages and $280,000 in punitive damages. Appellants raise four issues on appeal:

whether the trial court erred by (1) allowing GACP to amend its petition during trial;

(2) finding GACP did not waive its right to sue appellants; (3) submitting jury

instructions that incorrectly stated the elements of fraud and the measure of damages;

1 The Hon. Carolyn Wright, Justice, Assigned and (4) awarding damages to GACP. We reverse the trial court’s judgment and

render judgment that GACP take nothing on its claims against Winspear and Hyde.

Background

The underlying facts of this case are well-known to the parties; therefore, we

provide only those facts relevant for disposition of the appeal. See TEX. R. APP. P.

47.1. GACP is a specialty finance lender that originates and underwrites senior

secured loans to asset-rich companies that support the ability of middle market

companies to grow, refinance, recapitalize, and restructure. On or about November

2, 2016, GACP entered into a Loan and Security Agreement (the Credit Agreement)

with Excel Corporation, a credit card processing company. Hyde was Excel’s CEO

and Winspear was the CFO.

The Credit Agreement defined the debts that were subordinated to GACP’s

loans (“Subordinated Indebtedness”), which included, in relevant part, “any

indebtedness, liability or obligation in respect of any deferred compensation

arrangement with any present, past or future employees or directors of the Borrower

(or its predecessor) or any of the Subsidiaries or Affiliates.” It also provided that no

Loan Party “shall permit any of its Subsidiaries to” make any payment with respect

to any of the “Subordinated Indebtedness . . . without the prior written consent of the

Agent whether or not any express subordination arrangement exists in respect

thereof.” Hyde and Winspear knew the terms and covenants of the Credit

Agreement because they negotiated and recommended the agreement to Excel’s

–2– board of directors for approval. Based on their recommendations, the board of

directors approved the Credit Agreement with GACP.

The three parties to the Credit Agreement were Excel as the borrower, GACP

as the “administrative agent and collateral agent,” and GACP I, L.P. (GACP Lender)

as the lender. GACP Lender loaned Excel $13.5 million. Excel gave GACP a

security interest in its assets, and among other obligations, Excel agreed to maintain

a certain liquidity as of the last date of every month. If Excel violated a loan

covenant, GACP Lender was entitled to receive an additional monthly interest

payment of 5% as a penalty rate.

When the parties entered into the Credit Agreement, Hyde and Winspear had

claims against Excel for alleged deferred compensation. Despite the Credit

Agreement requiring prior written consent before such “Subordinated Indebtedness”

could be paid, Hyde and Winspear paid themselves $750,000 ($375,000 a piece) in

deferred compensation without GACP’s prior consent. From GACP’s perspective,

“within days of GACP funding $13.5 million under the Credit Agreement,

Defendants Hyde and Winspear had taken $750,000 of GACP’s money for their

personal benefit, through a secret transfer, without any attempt to first ask GACP’s

permission.”

After Hyde and Winspear paid themselves the deferred compensation, Excel

had less than the $2 million in minimum liquidity required by the Credit Agreement.

In December 2016, GACP sent Excel a written Notice of Event of Default and

–3– Reservation of Rights based on Excel’s breach of section 5.23(n) of the Loan

Agreement, which required prior written consent for payments of “Subordinated

Indebtedness.”

On January 26, 2017, GACP and Excel agreed to the First Amendment and

Waiver to Loan Security Agreement (the First Amendment) in which Excel, among

other things, assumed certain obligations regarding a revised minimum liquidity. If

Excel met the conditions of the First Amendment, then GACP would waive and

release Excel’s breach of section 5.23(n) for the $750,000 in deferred compensation.

Excel did not satisfy its obligations under the First Amendment.

On May 5, 2017, GACP sent written notice to Excel demanding repayment of

the loan. Instead of foreclosing on Excel, GACP entered into a forbearance

agreement allowing for the sale of Excel’s assets through an auction. GACP alleged

the sale caused it to incur a multimillion-dollar loss, including $2.1 million for

Hyde’s and Winspear’s misconduct and $600,000 in transaction costs. GACP

subsequently filed suit against Hyde and Winspear for fraud.

A jury found Hyde and Winspear committed fraud against GACP and

awarded GACP $1,211,520.00 in loss of benefit-of-the-bargain damages and

$334,902.00 in out-of-pocket expenses. It further awarded $140,000 in punitive

damages against Hyde and $140,000 in punitive damages against Winspear. The

trial court signed the final judgment on June 7, 2023. The trial court denied

appellants’ post-judgment motions, and this appeal followed.

–4– Notice of Pleadings

In their first issue, appellants argue the trial court erred by allowing GACP to

shift trial strategy on the third day of trial and argue for the first time that it was not

seeking its own damages, but instead was seeking damages as agent on behalf of

GACP Lender. Appellants contend, in part, that the trial court’s ruling dispensed

with the fair notice of pleadings doctrine thereby shifting the burden to them to

engage in discovery to determine the meaning of GACP’s second amended petition

and which party was seeking damages. GACP maintains appellants knew it was

seeking damages as agent on behalf of GACP Lender from the inception of the

lawsuit, and to the extent it was unclear, appellants should have filed a special

exception. GACP further contends appellants are raising a capacity issue, which is

not preserved.

In its second amended petition, GACP repeatedly alleged “GACP Finance

Co., LLC (GACP)” was the plaintiff in the suit. Throughout discovery, GACP

referred only to itself with no mention of acting as agent on behalf of GACP Lender.

During appellants’ opening statement at trial, they emphasized, “I want to be really

clear that plaintiff in this lawsuit is Great American Capital Partners Finance, Co.,

LLC. That is the plaintiff in this lawsuit.” GACP did not correct appellants’

identification of plaintiff. The case then continued with testimony from Hyde and

Winspear.

–5– On the third day of trial, appellants argued in a hearing outside the jury’s

presence that GACP did not have capacity to seek its requested damages. GACP’s

counsel admitted, “[A]ll the damages that we’ve ever sought throughout this entire

case are losses suffered by the lender. They’re not losses suffered by GACP Finance

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Thomas A. "Kip" Hyde and Robert L. Winspear v. GACP Finance Co., LLC, Counsel Stack Legal Research, https://law.counselstack.com/opinion/thomas-a-kip-hyde-and-robert-l-winspear-v-gacp-finance-co-llc-texapp-2024.