Opinion
No. 01-04-00627-CV
Opinion issued May 24, 2007.
On Appeal from the 280th District Court Harris County, Texas Trial Court Cause No. 2001-38158.
Panel consists of Chief Justice Radack and Justices Jennings and Alcala.
MEMORANDUM OPINION
Appellants, GCM Corporation, Ltd. and Blitz Holdings Corporation, appeal from a take-nothing judgment rendered in favor of appellees, Grant Thornton LLP (Grant) and Deloitte Touche LLP (Deloitte). This case concerns audit reports prepared by Grant and business valuations prepared by Deloitte, of corporations, IFS Financial Holdings Corporation (IFS) and Interamericas Financial Holdings Corporation (Interamericas), that were indebted to GCM. GCM contends that by relying on the erroneous information in these reports about the financial condition of IFS and Interamericas, GCM did not foreclose on the debt and instead restructured the debt, which caused GCM to ultimately lose $74 million when the debt was not paid after the restructure. The trial court granted a partial summary judgment in favor of Deloitte, and, at trial, directed verdicts in favor of Grant and Deloitte.
Blitz sought no independent relief in the case, but sued as a "necessary party."
In its third issue, GCM challenges the trial court's directed verdict in favor of Grant and Deloitte on all of GCM's claims, asserting that GCM produced more than a scintilla of evidence to prove the damages that it would have recovered had it foreclosed on the debt in either October 1999 or March 2000 instead of restructuring the debt. In its eleventh issue, GCM asserts that the trial court erred by rendering partial summary judgment in favor of Deloitte by determining that the 2000 IFS Note was not a security as a matter of law under the Texas Securities Act. See Tex. Rev. Civ. Stat. Ann. arts. 581-1 to 581-43 (Vernon 1964 Supp. 2006). We affirm the judgment of the trial court.
Factual Background
GCM was a company in the business of assisting Mexican nationals make investments in the United States. GCM took the funds that it received from these investors and loaned the money, an amount that totaled approximately $95 million in December 1998, to IFS and Interamericas, the parent company of IFS. Of this total amount, IFS owed GCM $18.2 million pursuant to the terms of a "Basic Agreement," which was ultimately paid in full. The remaining loan by GCM was with Interamericas for a total of $76 million for five promissory notes pursuant to a "Credit Agreement."
Interamericas secured its indebtedness by an "Agreement Concerning Collateral" that provided that Interamericas pledged shares of stock in IFS, IFS pledged shares of stock in one of its subsidiaries, and Hugo Pimienta pledged 64% of the outstanding voting shares in IFS. Pimienta was the principal owner and investor of IFS, Interamericas, and related companies. The agreements specifically required the value of the collateral to meet what the parties refer to as the "market value ratio" and the "book value ratio." Further, the agreements required that the market value of the shares be determined by Marshall Stevens, Incorporated or "by an appraisal firm selected by [GCM] and acceptable to [Interamericas]." The book value of the stock was to be determined "on the basis of IFS's audited financial statements prepared in accordance with [Generally Accepted Accounting Principles] as of the end of the immediately preceding fiscal year." The first payments for these debts were due October 31, 1999. Before the first payments were due, however, IFS and Interamericas filed suit and obtained a temporary restraining order preventing GCM from accelerating the debt or foreclosing on the collateral.
The market value ratio required that the market value of the pledged shares of IFS stock be at least 1.5 times the total debt owed by Interamericas and IFS to GCM. The book value ratio required that the book value of the stock be at least 1.3 times the total debt.
October 1999 Restructure that Relied on Audits for 1998 by Grant
After the lawsuit was filed in 1999, GCM entered into settlement negotiations with IFS and Interamericas, which resulted in the October 1999 debt restructure. Under the debt restructure in October 1999, Interamericas and IFS agreed to pay GCM $2 million upon execution of the agreement, $18 million by December 3, 1999, and $12 million by January 31, 2000. Interamericas and IFS paid the first two payments that totaled $20 million, but missed the third payment of $12 million that was due January 31, 2000.
In deciding to enter into the October 1999 restructure of the indebtedness, GCM relied on Grant's audits of the financial statements of Interamericas and IFS for the year ending December 31, 1998, that showed that the required book value ratio was not met by Interamericas and IFS. Although GCM was aware that the 1998 audits showed that the book value ratio was not met, GCM opted not to foreclose based on the book value deficiency because it had waived the book value ratio. Jorge Hollander, a member of GCM's advisory committee, testified that GCM waived the required book value ratio "since the beginning until April 2000." The failure of Interamericas and IFS to meet the book value ratio was known by GCM, and the deficiency was waived by GCM when the debt was restructured in October 1999.
After the October 1999 restructure of the debt, Grant again audited Interamericas and IFS for the year 1999. In this second audit, Grant discovered a $44 million "management fee" that was paid in December 1999 by IFS to a related entity. IFS asserted that the payment was for services that had been performed over several years. Based on the newly-reported management fee, Grant added a note to the 1999 audit statements that it was restating the 1998 book value at $119 million, instead of the value that was originally reported at $143 million. The audit statements also show that the December 1999 book value of IFS was just under $135 million. The management fee charge of $44 million was "made known" to Grant by February 21, 2000. Grant, however, did not inform GCM of the change in its audit for 1998 until June 2000.
March 2000 Restructure that Relied on Audits by Grant and Appraisals by Deloitte
In early 2000, IFS hired Deloitte to perform a valuation of the market value of the pledged stock "in accordance with the terms of the Agreement Concerning Collateral." Deloitte's proposal to provide services to IFS expressly stated that Deloitte was entitled to rely on and would not independently verify information provided to it by IFS. Deloitte's first valuation of IFS's stock was based on the value as of October 31, 1999.
GCM filed a lawsuit against Interamericas and IFS after they failed to pay the $12 million due January 31, 2000, and settlement negotiations ensued. During the settlement negotiations concerning the lawsuit, GCM received information in March 2000 that the valuation by Deloitte was that IFS's stock was valued at around $153 million on October 31, 1999. Although GCM was aware that the value of IFS's stock on October 31, 1999 was below the required market value ratio, GCM did not pursue the default, opting instead to settle the dispute on March 21, 2000. The settlement provided that GCM would receive the $12 million payment and the debt would again be restructured.
The restructure involved the exchange of promissory notes on May 24, 2000. As part of the restructuring, Blitz, a Panamanian corporation, was formed for the sole purpose of holding the IFS debt. Under a "Commercial Loan Agreement" between Blitz and IFS, Blitz loaned $74 million to IFS for the specific purpose of IFS purchasing all of Interamericas's indebtedness to GCM. At the same time, GCM loaned Blitz $74 million. Under the terms of the agreement between Blitz and GCM, Blitz would pay GCM when IFS paid Blitz. Thus, as of May 24, 2000, Interamericas was no longer a party to any indebtedness; IFS owed $74 million to Blitz; and Blitz owed $74 million to GCM. The agreements and notes between GCM and Interamericas and IFS were no longer in effect.
Depletion of the IFS and Interamericas Assets
In the months immediately preceding the March 2000 restructure that included the formation of Blitz, IFS and Interamericas depleted a significant amount of assets. Mark Schwartz, an expert for GCM, testified that in late 1999 to early 2000, IFS moved significant amounts of money into other entities, mostly offshore entities, that never came back through loans or transfers. Because of the depletion of the IFS assets, by March 2000, according to GCM's expert, there was "no way" GCM was going to recover all of its money.
The Lawsuit by Blitz Against IFS
After the decision to restructure the debt was made in March 2000 by transferring the IFS debt to Blitz, Blitz sued IFS three months later, in June 2000, and obtained a temporary restraining order prohibiting IFS from transferring assets. On April 17, 2001, a federal district court granted a judgment against IFS and in favor of Blitz for $95 million for the promissory note, plus interest and attorney's fees. Only $2 million has been collected on the judgment due to the declaration of bankruptcy by IFS in August 2002. The effect of Blitz's uncollectible judgment against IFS is that Blitz is relieved of the duty to pay the promissory note it has with GCM because the terms of the agreement between Blitz and GCM were that Blitz would pay GCM only when IFS paid Blitz. Thus, although GCM has, through written documents, received "full satisfaction" of the debt with IFS by virtue of a promissory note from Blitz, GCM contends that the promissory note is not collectible under the terms of its agreement with Blitz because the terms provide that Blitz is excused from payment on the note until it is paid by IFS and IFS is bankrupt and unable to pay. GCM thus asserts that it has suffered a monetary loss of millions of dollars, despite the existence of a promissory note that outwardly appears to satisfy the debt.
After Blitz filed its lawsuit, GCM and Blitz received from Deloitte, on July 2000, Deloitte's business valuation of IFS "as of January 30, 2000," that showed that IFS had a significant value of $118 million. Later that year, in November 2000, GCM and Blitz received Deloitte's business valuation of IFS "as of June 30, 2000," which still showed a significant value of $48 million.
GCM's Claims Against Grant and Deloitte
GCM brought suit against Grant and Deloitte, claiming that, if GCM had foreclosed on the debt instead of restructuring the debt, then it would have been able to recover at least some of the debt. Specifically, against Grant, GCM sought recovery for (1) "negligence/accounting malpractice," (2) common-law fraud, and (3) negligent misrepresentation. GCM also sought punitive damages for gross negligence or malice. There are two underlying bases of GCM's suit against Grant. First, GCM claims that Grant wrongfully failed to discover the $44 million management fee when it conducted the audit of the 1998 financial statements because even though the fee was not paid until December 1999, Grant's audit should have discovered the fee that, according to IFS, had been accruing over several years before it was paid. GCM contends that had Grant discovered the $44 million management fee and properly stated IFS's value for 1998 at $119 million instead of $143 million, GCM would not have entered into the October 1999 restructure of the debt because GCM would have had "more ammunition to fight in court for a foreclosure." Second, GCM contends that, once Grant actually learned of the fee, it wrongfully failed to inform GCM of its discovery until June 2000, when it was too late to act on the information. According to GCM, had Grant informed GCM in February 2000 about the change in the December 1998 value of IFS, GCM would have sought foreclosure in March 2000, instead of restructuring the debt.
Against Deloitte, GCM sought recovery for (1) aiding and abetting violations of the Texas Securities Act, (2) negligence, (3) negligent misrepresentation, (4) conspiracy to commit fraud, (5) breach of fiduciary duty to a known third party, and (6) breach of contract (as the third-party beneficiary to the contract). GCM also sought punitive damages for malice and attorney's fees under the Texas Securities Act and Texas Civil Practice and Remedies Code 38.001. On appeal, GCM asserts that it also sued Deloitte for fraud.
In response to GCM's Texas Securities Act claims, Deloitte filed a motion for summary judgment on multiple grounds, including that the note was not a security as a matter of law, and the trial court granted the motion. The remaining claims were tried to a jury. Grant and Deloitte moved for a directed verdict, asserting that GCM had (1) failed to produce any evidence of damages because Blitz fully satisfied the IFS debt to GCM through a promissory note and therefore GCM had no standing to bring the suit; (2) failed to produce any evidence that a foreclosure in October 1999 or in March 2000 would have been successful in recovering any of the debt owed by IFS and Interamericas; and (3) failed to produce any evidence that GCM would have foreclosed earlier had it received all the information that it alleges it should have received. The trial court granted the direct verdict on these grounds, which pertain to every cause of action asserted by GCM.
Grant and Deloitte also made separate motions for directed verdict. Grant moved for a directed verdict on the ground that Grant's alleged wrongful acts did not cause GCM's harm because GCM had waived the book value ratio as a ground for default on the debt. Deloitte moved for a directed verdict on the grounds that (1) GCM's negligent misrepresentation claim against Deloitte failed because there was no evidence that the appraisal was "false" or that Deloitte made a misrepresentation for a known purpose, (2) there was no evidence that Deloitte conspired to commit fraud, (3) GCM had impermissibly "fractured" a claim for professional malpractice into multiple causes of action, (4) limitations barred claims against Deloitte, and (5) there was no evidence to support an award of punitive damages against Deloitte. The trial court granted both motions.
Directed Verdict on Damages
In its third issue, GCM contends that the trial court erred by granting the directed verdict against it on the element of damages, which it claims were proven through its expert Schwartz. Here, the trial court granted the directed verdict on the ground that GCM failed to produce any evidence that a foreclosure on the assets of IFS would have resulted in recovery of any of the debt owed by IFS and Interamericas to GCM. Grant and Deloitte assert that the evidence fails to show any damages caused to GCM by restructuring the debt instead of foreclosing on the debt. The parties do not dispute that IFS had assets in October 1999 and March 2000 that could have been used to satisfy at least some of the outstanding indebtedness to GCM. Thus, the dispute is whether any evidence shows that, assuming GCM had foreclosed instead of restructuring the debt in either October 1999 or March 2000, the initiation of foreclosure proceedings against IFS by GCM in either October 1999 or March 2000 would have, in reasonable probability, been successful in recovering any of the IFS assets while they were still available.
In regard to Grant, GCM contends that, based on Grant's erroneous information about the 1998 book value of IFS, it suffered damages resulting from GCM's decision to restructure rather than foreclose in October 1999 and March 2000. In regard to Deloitte, GCM contends that, based on Deloitte's erroneous information about the 1999 market value of IFS, it suffered damages resulting from GCM's decision to restructure rather than foreclose in March 2000.
A. Directed Verdict Standard of Review
A directed verdict in favor of a defendant is proper when the plaintiff does not present evidence that raises a fact issue essential to the plaintiff's right of recovery or when the plaintiff admits or the evidence conclusively establishes a defense to the plaintiff's cause of action. Prudential Ins. Co. v. Fin. Rev. Servs., 29 S.W.3d 74, 77 (Tex. 2000). In reviewing a directed verdict, the standards are the same as a legal sufficiency challenge. City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005). We "[c]redit all favorable evidence that reasonable jurors could believe and disregard all contrary evidence except that which they could not ignore." Id. at 830. A directed verdict would be improper if the evidence is within a "zone of reasonable disagreement." See id. at 822. When a trial court directs a verdict without stating the specific ground or grounds on which it is relying, the verdict must be upheld if any of the grounds stated in the motion for directed verdict are meritorious. Prather v. Brandt, 981 S.W.2d 801, 805 (Tex.App. — Houston [1st Dist.] 1998, pet. denied).
B. Proof of Damages
A plaintiff must produce some evidence from which the fact finder could reasonably infer that the damage sued for has resulted from the conduct of the defendant. McKnight v. Hill Hill Exterminators, Inc., 689 S.W.2d 206, 209 (Tex. 1985). The evidence of damages must be based on more than a "suspicion or surmise." Id. "Uncertainty as to the fact of legal damages is fatal to recovery, but uncertainty as to the amount will not defeat recovery." Id. Damages that are "remote, contingent, and not . . . a proximate result of the acts of which complaint is made" may not be recovered. Miller v. Bank of Commerce, 387 S.W.2d 691, 691-92 (Tex.Civ.App.-Fort Worth 1965, no writ) (holding "actual damage could be no more than a matter of conjecture" under circumstances showing that defendant induced creditor to delay in collecting on debt and delay later barred creditor's claim because defendant filed bankruptcy).
To prove damages, the plaintiff must produce evidence that the defendant's conduct "caused an event and that event caused the plaintiff to suffer compensable damages." See Keo v. Vu, 76 S.W.3d 725, 731 (Tex.App.-Houston [1st Dist.] 2002, pet. denied); see also Sunshine Mining and Refining Co. v. Ernst Young, L.L.P., 114 S.W.3d 48, 52 (Tex.App. — Eastland 2003, no pet.) (holding that there was no causal link between auditor's actions and company's damages because "there must be some evidence that the spring stock offering would have been successful in order for [the company] to establish the causal link for the damages it seeks"). Proof of actual damages must be based on objective facts or data and must be more than conjecture. See Carter v. Steverson Co., 106 S.W.3d 161, 165-66 (Tex.App.-Houston [1st Dist.] 2003, pet. denied) (noting that lost profits damages must be based on objective facts or data, not speculative or uncertain evidence).
A directed verdict, however, is improper if the plaintiff produces some evidence of a reasonable basis for determining his loss, even if the exact amount is not ascertainable or contradicted by other evidence. See Vance v. My Apartment Steak House of San Antonio, Inc., 677 S.W.2d 480, 484 (Tex. 1984); Field v. AIM Mgmt. Group, Inc., 845 S.W.2d 469, 471-72 (Tex.App.-Houston [14th Dist.] 1993, no writ).
We must determine, therefore, whether there is any evidence in the record that shows the amount of money that GCM would in reasonable probability have recovered had it started foreclosure proceedings in October 1999 or March 2000, instead of renegotiating the debt. See McKnight, 689 S.W.2d at 209.
C. The Evidence
Schwartz testified that IFS assets were available in October 1999 and March 2000 if foreclosure on those assets had been accomplished at that time. Schwartz said that "the amount of assets that could have been realized by GCM had it foreclosed on IFS in October 1999 was approximately $77.3 million." Schwartz also testified that the "most conservative" number for GCM's possible recovery from IFS's assets was $67.5 million, which was based on the percentage of outstanding shares that IFS had actually pledged to GCM. These IFS assets included approximately $19 million in cash in October 1999. Schwartz testified that on October 31, 1999, IFS and Interamericas "had sufficient moneys and would have had sufficient moneys to pay the debt to GCM."
Schwartz testified as follows:
[Attorney]: What we put in front of the jury with respect to March is your expert opinion as to what could have been acquired, foreclosed?
[Schwartz]: Had GCM —
[Attorney]: If GCM had exercised its right to foreclose, this is the amount of money you would have expected to recover from the assets?
[Schwartz]: Yes.
[Attorney]: And the same is true for October. If they had seized the assets in October?
[Schwartz]: Yes.
On December 31, 1999, IFS had a net value of $143 million, as shown in Grant's audit, and one month later, on January 31, 2000, IFS had a fair market value of $118 million, as shown in Deloitte's appraisal. During the period of time between late 1999 and early 2000, significant assets valued between $90 and $150 million were depleted from IFS and placed into mostly offshore accounts, with no return in assets to IFS, according to Schwartz. Schwartz testified that, in his review of documents and information provided by GCM's attorneys and Hollander, he "saw evidence of assets moving out and not coming back in the system" beginning in late 1999 and early 2000.
Schwartz gave examples of how the money was transferred out of IFS. Schwartz stated that IFS invested $24 million in a start-up company called Pueblo, by the spring of 2000, a lot of loans were made to a company called UNI, that $3 million was loaned to a company called Larce in February 2000, $13 million was loaned to a company called Southsea before March 2000, $4.5 million was loaned to a company called Northsea before March 2000, and the $44 million management fee was paid sometime in late 1999 or early 2000. Schwartz also testified that additional transfers were made after March 2000, although he did not identify specific transactions.
By the time of the March 2000 settlement and agreement to restructure the $74 million debt, Schwartz said that IFS had $29.9 million in "assets available." Schwartz arrived at the $29.9 million figure by deducting costs for collecting on the debt from the larger amount of $34 million in available assets. Of the $29.9 million in net assets, Schwartz said that only $13.3 million in assets would have been available if GCM had recovered "nothing but the value of the shares actually pledged." Schwartz reached the figure of $13.3 million by apparently accounting for the amount that would have been necessary to redeem the outstanding shares of preferred stock.
Because of the significant depletion of IFS assets, Schwartz acknowledged that by March 2000, "there was no way GCM was going to get all its money." Schwartz explained that by March 2000, GCM was in a "work-out situation," which he described as follows:
In a credit arrangement borrower/lender, when the loan, the operations of the business, begin to deteriorate and the loan performance, the ability to come to service the loan comes into question, you often find that the bank or lender will put the loan in work-out where they're trying to maximize the recovery and figure out a strategy that will get them repaid, because [sic] on other than the agreed terms, because the agreed terms, the loan's not going to repay. Any number of factors, the work-out can take out any number of different ways, debt for dividends, interest for bearers, renegotiation.
Schwartz acknowledged that in a work-out situation, "lenders frequently agree to things that they would not normally agree to in order to try to preserve some value" because "the lender is just trying to make the best of a bad situation." Schwartz agreed that "the lender may believe that over the long run they can recover more by restructuring than by incurring the cost of foreclosure and liquidation."
Schwartz related that IFS was no longer in operation as of March 2000 and the only source of payment that GCM would have had was through the sale of the assets of IFS. Schwartz explained that "when you are looking at essentially the assets to pay off the debt, the value of those assets and their retention of value becomes critical to your recovery." Schwartz testified that he was determining the "value of the assets available to pay the debt or at least pay some on the debt." Schwartz said he was "looking at just generally the availability of assets to pay the debt." Schwartz acknowledged that he was not offering an opinion on what GCM might have realized by foreclosing on the shares and attempting to liquidate IFS's assets, but only that there was value in IFS.
D. Analysis
GCM asserts that it has produced some evidence of damages because (1) it would have become the majority shareholder if it had foreclosed on the stock of IFS; (2) IFS had assets available to satisfy some or all of the debt; and (3) Schwartz took the costs of collection of the debt into account when he gave his figures on the available amounts.
1. Majority Stockholder
GCM asserts that had it foreclosed on the IFS stock in October 1999 or March 2000, it would have become the majority stockholder of IFS and would have recovered not only the value of the stock, but it also could have liquidated IFS's assets to recover the debt owed. Schwartz, however, did not offer an opinion on the value of the collateral, the shares of IFS. Schwartz stated that he was not offering an opinion "as to the value of the IFS common stock as to any point in time." Thus, there is no evidence of the value of the collateral — the shares of stock of IFS — in either October 1999 or March 2000.
GCM contends that regardless of the value of the stock of IFS, foreclosure on the collateral would make GCM the majority shareholder of IFS, and GCM could have then liquidated the assets of IFS to satisfy the debt. But even assuming that foreclosure proceedings would have enabled GCM to become the majority stockholder in IFS, GCM produced no evidence to show, in reasonable probability, that if it had succeeded at liquidating the assets, what the value of those assets would have been had the liquidation occurred. Schwartz did not testify to what GCM would have realized by foreclosing and liquidating IFS's assets, but only that there was some value in IFS in October 1999 or March 2000, when foreclosure proceedings could have been initiated. GCM, thus, offered no evidence showing that a foreclosure initiated in late October 1999 or in March 2000 would have resulted in the recovery of any of the indebtedness.
No direct evidence shows that foreclosure proceedings would have resulted in GCM's capturing any of IFS's available assets, and the record does not support any such inference. To the contrary, the record suggests that assets could not have been reached through foreclosure proceedings beginning in October 1999 or March 2000. In October 1999, GCM was in litigation with IFS and Interamericas, and there was an injunction in place preventing GCM from accelerating or foreclosing on the debt. To begin foreclosure in October 1999, GCM would have had to first convince the court to lift the injunction to allow the foreclosure proceedings that were prohibited. Even assuming that GCM could have convinced the court to lift the injunction to allow the foreclosure to proceed, no evidence shows, in reasonable probability, what would have been the result of foreclosure proceedings.
The direct evidence from GCM's advisory committee member Hollander also suggests that it would not be reasonable to infer that foreclosure could have actually resulted in the acquisition of the assets of IFS. Hollander testified that one of the reasons that he restructured in October 1999 instead of foreclosing was that the types of default that existed, namely the non-compliance with the book value ratio and IFS's delinquency in producing monthly unaudited financial statements, were not the types of defaults that would cause a court to turn over control of IFS by foreclosing on the majority of outstanding shares of stock. Although knowledge of the $44 million restatement would have given GCM, in Hollander's words, "more ammunition to fight for a foreclosure," no evidence shows that the information would have resulted in a reasonable probability that GCM could have foreclosed on the IFS collateral. We cannot conclude that the evidence reasonably supports an inference that foreclosure proceedings initiated by GCM in October 1999 could have resulted in GCM's ability to capture any amount of IFS's assets.
By March 2000, the assets of IFS were significantly depleted, and no evidence shows in reasonable probability what the result of foreclosure proceedings started in March 2000 would have been. As noted by Deloitte,
The relevant issue was not the value of IFS's realizable assets on March 31, 2000, a mere nine days after Deloitt's first valuation was delivered, but rather the value of realizable assets on March 21, 2000 following the conclusion of any foreclosure proceedings that GCM might have instituted and the conversion of its resulting stock ownership into possession of liquid assets. That date, almost certainly, would have been months after March 31, 2000. GCM's argument that Deloitte's second valuation concluded that the fair market value of IFS was $118 million as of January 31, 2000, is irrelevant. Given the rapidity with which IFS was disposing of assets in early 2000, the company's value on January 31, 2000, indicated very little about its value on March 31, 2000, and even less on some unknown future date when GCM's hypothetical foreclosure proceedings would have been concluded.
To support their contention that it is not reasonable to infer that damages resulted from the decision not to foreclose, Deloitte and Grant note the events of June 2000, when Blitz attempted to foreclose on the IFS debt. When Blitz took over the debt of IFS from GCM in May 2000, Blitz attempted to foreclose on the IFS debt. On June 30, 2000, Blitz initiated an arbitration procedure seeking foreclosure and filed a federal lawsuit, obtaining a temporary restraining order forbidding IFS from transferring assets. Despite the initiation of foreclosure proceedings by Blitz and the restraining order against IFS, IFS's primary shareholder Pimienta transferred almost $62 million in assets out of IFS, according to Hollander. Hollander, however, continued to negotiate with IFS during the pendency of the arbitration and the lawsuit. Blitz finally obtained a judgment against IFS in April 2001, but by that time, the judgment was uncollectible. Here, there is simply no evidence that a foreclosure would have been any more successful at recovering any of the IFS debt than the restructure of the debt.
2. Assets Available
There is evidence that IFS had recoverable assets available in October 1999 and March 2000. The record is silent, however, on whether, in reasonable probability, any of the available assets could have been recovered had GCM decided to initiate foreclosure proceedings on the IFS debt in either October 1999 or March 2000, rather than restructure the debt. As discussed more fully above, the collateral for IFS's indebtedness was stock in IFS, not in the underlying assets, and no evidence connects foreclosure on those shares with an ability to collect any amount of assets that was available in October 1999 or March 2000. We conclude that the mere fact that IFS had assets available in October 1999 or March 2000 does not establish that in reasonable probability any amount of those assets could have been actually recovered by foreclosure proceedings initiated on those dates.
3. Cost of Foreclosure
GCM asserts that Schwartz testified about the costs of foreclosure, discounts to be applied to any assets, and the "steps that Plaintiffs were required to take in order to foreclose." Schwartz did not testify about the necessary steps for foreclosure on assets or the reasonable probability of GCM's ability to collect any amount through the foreclosure proceedings. Although Schwartz estimated the costs of collection for a foreclosure in March 2000, he did not describe how any amount of the assets could have been obtained by foreclosure proceedings that began in October 1999 or March 2000. Although Schwarz testified that he deducted the costs of foreclosure from the available amount of assets, his testimony constitutes no evidence of the actual damages incurred by GCM as a result of not foreclosing in October 1999 or March 2000.
Schwartz merely reduced the value of the assets that he said were available from approximately $34 million to $29.9 million. He did not explain why he chose that amount. Schwartz did not offer any testimony on the amount for costs of foreclosure in October 1999.
4. Conclusion
GCM stated its theory of damages to the trial court as follows:
We are trying to collect the money that GCM would have had if it had chosen to foreclose in October, or it had later chose[n] to foreclose in March. That is what we are trying to recover.
GCM, however, did not prove any amount of money that it would have recovered had it sought foreclosure in October 1999 or March 2000. It is undisputed that when Blitz attempted to foreclose on the debt in June 2000, IFS actually transferred its assets to other entities in violation of the court order and then declared bankruptcy, making the debt uncollectible. GCM failed to produce any evidence that foreclosure proceedings initiated three months earlier in March 2000 or nine months earlier in October 1999 would have enabled it to acquire any assets of IFS. Even if GCM had opted to foreclose and began foreclosure proceedings on the collateral of IFS, there is no evidence in the record that any such foreclosure would have actually resulted in GCM's ability to take possession of the majority stock of IFS, or the value of that stock. Furthermore, even if GCM had taken possession of the stock to become the majority shareholder, there is no evidence that any assets would have been reached through liquidation of the IFS assets when that would have occurred at some time following the foreclosure proceedings. See Sunshine Mining and Refining Co., 114 S.W.3d at 52; Keo, 76 S.W.3d at 731.
Thus, GCM presented no evidence of any damages resulting its decisions in October 1999 and March 2000 to restructure IFS's debt. GCM presented no basis for a jury to determine, with reasonable certainty, the amount of "money that GCM would have had if it had chosen to foreclose." See Formosa Plastics Corp. USA v. Presidio Eng'rs Contractors, Inc., 960 S.W.2d 41, 50 (Tex. 1998) (holding that there was no evidence that plaintiff would have obtained contract had its bid been lower); Szczepanik v. First S. Trust Co., 883 S.W.2d 648, 650 (Tex. 1994) (holding that there was no evidence that plaintiff could have retained accounts for any period of time because account holders could transfer accounts at will); Miller, 387 S.W.2d at 692 (holding that, because it was not certain creditor's effort to collect debt would have been successful, there was no evidence of damages). GCM's expert on damages, Schwartz, acknowledged that he was not offering an opinion on what GCM might have realized by foreclosing on the shares and attempting to liquidate IFS's assets. Accordingly, we hold that the trial court did not err by granting a directed verdict in favor of Grant and Deloitte on the ground that GCM presented no evidence of damages. See City of Keller, 168 S.W.3d at 813 (noting that evidence is not legally sufficient "if jurors would have to guess whether a vital fact exists").
In support of its arguments, GCM relies on Vance and Field, but both cases are factually distinguishable. In those cases, the evidence established some amount for the damages, but here no evidence and no reasonable inference from the evidence shows any amount of damages caused by GCM's decision not to foreclose. See Vance, 677 S.W.2d at 484 (holding that directed verdict was improper on element of damages because some evidence showed reasonable basis for determining party's loss, even though exact amount of damages could not be ascertained and there was substantial conflict in evidence with regard to exact cost of repairs); Field, 845 S.W.2d at 472 (holding that directed verdict was improper on element of damages because plaintiff recited amount for which stock could have been sold, stockbroker testified regarding probable value of stock, and AIM executive related how much eventually paid for plaintiff's AIM stock).
We overrule GCM's third issue.
GCM's Texas Securities Act Claims
In its eleventh issue, GCM contends that the trial court erred by granting summary judgment for Deloitte on GCM's claims for violations of the Texas Securities Act because the Commercial Loan Agreement is a security.
"If summary judgment may have been rendered, properly or improperly, on a ground not challenged, the judgment must be affirmed." Ellis v. Precision Engine Rebuilders, Inc., 68 S.W.3d 894, 898 (Tex.App. — Houston [1st Dist.] 2002, no pet.); see also Jacobs v. Satterwhite, 65 S.W.3d 653, 655 (Tex. 2001) (holding appellate court may not reverse judgment on grounds not raised and argued on appeal); San Jacinto River Auth. v. Duke, 783 S.W.2d 209, 209-10 (Tex. 1990) (same). That the CLA was not a security is only one of the grounds that Deloitte asserted as a basis for its motion for summary judgment. GCM does not attack any other ground for summary judgment. We therefore affirm the summary judgment with respect to GCM's Texas Securities Act claims. See Ellis, 68 S.W.3d at 898.
We overrule GCM's eleventh issue. Having overruled GCM's third and eleventh issues, we need not reach GCM's first, second, and fourth through tenth issues, nor Grant's two cross-points.
In its second issue, GCM challenges the trial court's directed verdict on the lack of proof of damages due to undisputed evidence that GCM transferred the debt to Blitz and that Blitz fully satisfied the debt with a promissory note to GCM for the entire amount of the debt owed by IFS to GCM. We do not reach this alternative argument that there is no proof of damages due to the full satisfaction of the IFS debt by the promissory note given to GCM by Blitz. To the extent that Deloitte and Grant contend that GCM lacks standing due to the promissory note from Blitz, we reject that challenge because the pleadings by GCM alleged that the erroneous information provided by Grant and Deloitte caused GCM to restructure the debt rather than to foreclose on the notes and that, had it foreclosed, it would have recovered something more than a worthless promissory note. See Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993) (pleadings, viewed in favor of plaintiff, must allege facts that affirmatively demonstrate court's jurisdiction to hear case); Cedar Crest Funeral Home, Inc. v. Lashley, 889 S.W.2d 325, 330 (Tex.App.-Dallas 1993, no writ) (holding that pleadings that alleged injury from wrongful conduct showed plaintiffs had standing).
In its first issue, GCM challenges the directed verdict in favor of Grant and Deloitte by asserting that it produced more than a scintilla of evidence that it was unnecessary to produce the other members of the advisory committee to establish that they would have voted to foreclose because Jorge Hollander and Malu McKee, through Gamma Capital Services, had the power to foreclose on IFS. In its fourth and fifth issues, which concern Grant only, GCM contends that it introduced more than a scintilla of evidence of Grant's fraud or negligence in failing to timely notify GCM of the 1999 change to the 1998 audit and that it could have foreclosed under other sections of the agreement, even if GCM had waived the "book value ratio." GCM's remaining issues, numbered six through 10, concern Deloitte only. GCM contends that it produced some evidence that Deloitte's business valuations were inaccurate and that Deloitte committed fraud and conspired to commit fraud with IFS. GCM also asserts that it did not impermissibly fracture its causes of action against Deloitte, that its claims against Deloitte are not barred by the statute of limitations, and that the evidence supports punitive damages.
In its two cross-points, Grant challenges the trial court's denial of a directed verdict on its negligent misrepresentation claim on the grounds that (1) a negligent misrepresentation claim requires that the representation be made to a known party for a known purpose and that GCM did not rely on Grant's audits for a known purpose, and (2) there was no duty to disclose information under the facts of this case.
Conclusion
We affirm the judgment of the trial court.