IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

DAYS INN WORLDWIDE, INC., §

formerly known as Days Inn §

of America, §

 §

Plaintiff, §

 § Civil Action No. 3:04-CV-2278-D

VS. §

 §

SONIA INVESTMENTS, a Texas §

Limited Liability Company, §

et al., §

 §

Defendants. §

MEMORANDUM OPINION

 AND ORDER 

The instant litigation arises from the acquisition and

unsuccessful operation of a Days Inn hotel property. It involves

claims by plaintiff Days Inn Worldwide, Inc. (“DIW”) to recover

from the entity that acquired the property and/or its investors

under a license agreement, written guaranty, and promissory note,

and allegations by one of the investors——the defendant-third-party

plaintiff——that he was injured by fraudulent and other tortious

conduct related to the acquisition, financing, and subsequent sale

of the hotel property. DIW and one of the third-party defendants,

United Central Bank (“UCB”), move for summary judgment. For the

reasons that follow, the court grants in part and denies in part

both motions.

I

DIW entered into a License Agreement with defendant Sonia

Investments, LLC (“Sonia”) to operate a Days Inn facility in

 

 Case 3:04-cv-02278-D Document 149 Filed 11/02/06 Page 1 of 61 PageID 2115
1B. Patel is also identified in the briefing as “Balvant

Patel.” See, e.g., Keshav July 13, 2006 Br. 1.

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Mesquite, Texas for a 15-year term. As part of the transaction,

defendants Dolatray Patel (“D. Patel”), Jitendra Keshav (“Keshav”),

and Sukhabhai Patel (“S. Patel”), who are present or former members

of Sonia, signed a written Guaranty of Sonia’s performance under

the License Agreement. All four defendants executed an initial fee

promissory note (“Note”) in the sum of $10,000. DIW alleges that

Sonia repeatedly failed to comply with various terms of the License

Agreement——in particular, that it failed six quality assurance

inspections and did not pay periodic fees (“Recurring Fees”). DIW

later terminated the agreement. It contends that $5,000 of the

Note balance is due and unpaid. 

DIW sues Sonia on theories of breach of contract and unjust

enrichment to recover liquidated damages under the terms of the

License Agreement and “Recurring Fees” for breach of the License

Agreement. DIW sues D. Patel, Keshav, and S. Patel to recover on

their Guaranty of Sonia’s performance under the License Agreement.

It sues all four defendants for breach of contract and unjust

enrichment to recover the unpaid balance of the Note.

As third-party plaintiff, Keshav sues third-party defendants

Chhaganbhai Patel, Harshad Desai, Satish D. Patel, Hemlataben A.

Patel, Jagdish K. Patel, Chetna Hira, Rajnikant M. Patel,

Balvantbhai Patel (“B. Patel”),1 Nitin Jariwala (“Jariwala”),

 

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2Although DIW asserts an unjust enrichment claim in its second

amended complaint, it does not appear to rely on this theory in

seeking summary judgment.

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Rakeshkumar Patel, and UCB, alleging that they are liable for

indemnification and contribution, securities fraud, breach of

contract, breach of fiduciary duty/minority oppression, tortious

interference with contract, fraudulent inducement, fraud,

fraudulent transfer under the Texas Uniform Fraudulent Transfer Act

(“TUFTA”), attorney’s fees, costs, and expenses, conversion, and

civil conspiracy.

DIW moves for summary judgment on its claims against all

defendants. Only defendant Keshav has responded to the motion.

UCB moves for summary judgment dismissing Keshav’s third-party

claims against it.

II

The court turns initially to DIW’s summary judgment motion. 

A

DIW maintains that it is entitled to recover for breach of

contract2

 from Sonia under the License Agreement, from D. Patel,

Keshav, and S. Patel under the Guaranty, and from all four

defendants under the Note. Specifically, it posits that it has the

right to recover Recurring Fees in the sum of $104,615.78,

liquidated damages in the sum of $119,000, and prejudgment

 

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3

In the “Conclusion” section of its brief, DIW posits that it

is entitled to contractual post-judgment interest at the rate of

1.5%. DIW has failed to demonstrate through adequate briefing that

it is entitled to post-judgment interest at a rate greater than

that which would be awarded under 28 U.S.C. § 1961. Accordingly,

unless DIW establishes at trial or through a procedurally proper

submission that it can recover post-judgment interest at a higher

rate, the court will award such interest according to § 1961.

4DIW also seeks attorney’s fees and costs. As the court

explains infra at § VII, attorney’s fees are recoverable by the

prevailing party in an amount to be determined in response to a

properly filed Fed. R. Civ. P. 54(d) application.

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interest3 under the License Agreement, and to recover the $5,000

unpaid balance of the Note and prejudgment interest.4 Under New

Jersey law, which controls this case, “to establish a breach of

contract claim, a plaintiff has the burden to show that the parties

entered into a valid contract, that the defendant failed to perform

his obligations under the contract and that the plaintiff sustained

damages as a result.” Murphy v. Implicito, 2005 WL 2447776, at *4

(N.J. Super. Ct. App. Div. Sept. 22, 2005) (per curiam)

(unpublished opinion) (citing Coyle v. Englander’s, 488 A.2d 1083,

1088-89 (N.J. Super. Ct. App. Div. 1985)). 

B 

Because DIW will bear the burden of proof at trial on its

breach of contract claim, to obtain summary judgment, it “must

establish ‘beyond peradventure’ all of the essential elements of

the claim.” Bank One, Tex., N.A. v. Prudential Ins. Co. of Am.,

878 F. Supp. 943, 962 (N.D. Tex. 1995) (Fitzwater, J.) (quoting

Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986)). DIW

 

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5The court discusses DIW’s claim for attorney’s fees and costs

infra at § VII.

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has adduced evidence that proves its claims under the License

Agreement, Guaranty, and Note. Sonia has not contested liability

under the License Agreement or Note, and D. Patel and S. Patel have

not challenged liability under the Guaranty or Note. None of these

three defendants has responded to DIW’s motion. Although their

failure to respond does not permit the court to enter a “default”

summary judgment against them, the court is permitted to accept

DIW’s evidence as undisputed. Tutton v. Garland Indep. Sch. Dist.,

733 F. Supp. 1113, 1117 (N.D. Tex. 1990) (Fitzwater, J.) (citing

Eversley v. MBank Dallas, 843 F.2d 172, 174 (5th Cir. 1988)). When

accepted under this standard, DIW’s proof permits the conclusion

that it has proved beyond peradventure each essential element of

its breach of contract claim against Sonia, D. Patel, and S. Patel.

Accordingly, the court holds that DIW is entitled to recover from

Sonia for breach of contract under the License Agreement and Note

and from D. Patel and S. Patel under the Guaranty and Note.5

C

In Keshav’s response to DIW’s motion, he does not dispute

several fundamental premises of the motion, and he generally

accepts the evidence on which DIW relies. Nevertheless, he opposes

summary judgment on four grounds: DIW has overstated the amount of

Recurring Fees to which it is entitled and is attempting to collect

 

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6

DIW relies on §§ 7 and 18.4 and Schedule C of the License

Agreement.

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fees for a reservation system to which it denied Sonia access for

over one year; DIW has failed to mitigate its damages; DIW is not

entitled to recover liquidated damages because the liquidated

damages provisions of the License Agreement are unenforceable

penalties; and DIW is not entitled to prejudgment interest on

liquidated damages. The court considers these arguments below. 

III

Keshav contends first that DIW has overstated the past-due

Recurring Fees that it is entitled to recover and is attempting to

collect fees for a reservation system to which it denied Sonia

access for over one year. 

A

DIW maintains that it has established that it is entitled to

Recurring Fees in the amount of $104,615.78.6 It seeks payment of

past-due fees assessed for reservation system use, marketing,

inspection, royalty payments, and other fees. Keshav argues that,

under the License Agreement, DIW is entitled to only two types of

Recurring Fees: a royalty fee and a reservation fee. He maintains

that Recurring Fees do not include marketing, maintenance, or any

other fees. Keshav challenges DIW’s calculation of $104,615.78,

contending that the unpaid royalty and reservation fees total

$83,762.96, and that other fees totaling $17,276.19 are not

 

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recoverable as Recurring Fees. He also asserts that DIW cannot

fully recover for standard reservation fees that are normally

proper because, in October 2000, DIW suspended Sonia’s access to

and participation in the reservation system, and DIW is attempting

to recover $19,300 in fees that accrued after the suspension

occurred. Insofar as the License Agreement purports to allow DIW

to charge reservation fees during suspension periods, Keshav

complains that DIW is not entitled to recover fees for services

that it did not provide, because the provision of the License

Agreement that purports to allow DIW to charge for reservation fees

during suspension periods is an unenforceable stipulated damages

clause. He therefore opposes DIW’s motion, contending that it has

overstated the amount of unpaid Recurring Fees by at least

$17,276.19 for unauthorized marketing costs and by $19,300 for

reservation fees for services DIW did not actually provide Sonia,

resulting in a balance that is at least $36,576.19 lower than

claimed.

B

To decide whether DIW has established that it is entitled

under the License Agreement to recover as Recurring Fees more than

royalties and reservation system fees, the court begins by

interpreting the License Agreement. Under New Jersey law, when the

terms of a contract are clear, “it is the court’s duty to enforce

the contract as written so as to fulfill the objectively reasonable

 

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expectations of the parties.” N. J. Dep’t of Envtl. Prot. v. Signo

Trading Int’l, Inc., 562 A.2d 251, 258 (N.J. Super. App. Div. 1989)

(citation omitted), aff’d, 612 A.2d 932 (N.J. 1992). The

determination whether a contractual term is clear or ambiguous is

a question of law. Schor v. FMS Fin. Corp., 814 A.2d 1108, 1112

(N.J. Super. App. Div. 2002) (citing Nester v. O’Donnell, 693 A.2d

1214, 1220 (N.J. Super. App. Div. 1997)). 

An ambiguity in a contract exists if the terms

of the contract are susceptible to at least

two reasonable alternative interpretations[.]

To determine the meaning of the terms of an

agreement by the objective manifestations of

the parties’ intent, the terms of the contract

must be given their “plain and ordinary

meaning.” 

Id. (quoting Kaufman v. Provident Life & Cas. Ins. Co., 828 F.

Supp. 275, 283 (D.N.J. 1992), aff’d, 993 F.2d 877 (3d Cir. 1993)).

Under the License Agreement, the term “‘Recurring Fees’ means

fees paid to [DIW] on a periodic basis, including without

limitation, Royalties, Reservation System User Fees, and other

reservation fees and charges stated in Section 7.” P. App. 34.

Recurring Fees thus include all fees that Sonia paid to DIW on a

periodic basis. DIW has shown, without genuine and material

dispute, that these fees included assessments not only for

royalties and the reservation system but also for marketing and

facility inspection. P. App. 141-146 (Itemized Statement). Keshav

does not contest DIW’s evidence that the claimed fees were assessed

on a periodic basis or, if payable, were correctly calculated.

 

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Rather, he opposes DIW’s claim on the basis of a mistaken

interpretation of the License Agreement. 

Accordingly, the court holds that DIW has established beyond

peradventure that it is entitled to recover as Recurring Fees all

the types of periodic fees for which it sues. For reasons the

court explains infra at § IV(B), this recovery will be reduced by

any sum that Keshav establishes at trial is attributable to a

failure by DIW to mitigate its damages.

C

Keshav also argues that part of the Recurring Fees sought are

for reservation system use fees charged during a period when Sonia

was suspended from using the system and therefore are improperly

assessed under an unenforceable liquidated damages clause. The

court addresses this argument infra at § V(D).

IV

 Keshav contends second that DIW is not entitled to all the

damages it seeks because DIW failed to take reasonable steps to

mitigate its damages, and that there is a genuine issue of material

fact concerning the extent of the damages that should be awarded.

A

Keshav asserts that DIW had reason to know that the hotel

property had experienced financial difficulties even before Sonia

entered into the License Agreement; the facility failed six quality

inspections during an 18-month period, resulting in warnings from

 

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DIW that the License Agreement could be terminated, but DIW waited

over 18 months after the first failure to terminate the agreement;

Sonia stopped paying Recurring Fees and filing monthly revenue

reports in July 2000, but DIW waited almost six months before

warning that this conduct was a material default under the License

Agreement that must be cured; and DIW warned Sonia that if payment

and the reporting forms were not received in ten days, DIW could

terminate the license to operate the facility, it later sent

similar warnings, but it failed to mitigate damages and terminate

the License Agreement. In sum, Keshav maintains that by July 2000

DIW knew the facility had a history of financial instability, it

had failed inspections, Sonia had stopped paying Recurring Fees and

filing monthly reports, and DIW had acknowledged in letters that

Sonia had breached the License Agreement and that DIW could

terminate it at any time, but DIW permitted its damages to accrue

for approximately 18 months before terminating the License

Agreement, thereby failing to mitigate its damages. Keshav

therefore posits that the amount of DIW’s damages must be

determined at trial.

DIW replies that Keshav’s mitigation defense fails because

defendants had the same opportunity to avoid incurring the

Recurring Fees that DIW seeks, such as by terminating the License

Agreement before DIW did. DIW also maintains that Keshav has

failed to establish that DIW’s damages are capable of mitigation.

 

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It complains that he relies on Sonia’s failures to comply with the

terms of the License Agreement during an 18-month period and the

conclusory claim that DIW had reason to know that Sonia would not

perform and that it had a duty to take reasonable steps to

mitigate, without evidence that DIW could or should have mitigated.

DIW posits that, absent evidence that DIW’s damages were capable of

mitigation, Keshav has not raised a fact issue concerning this

affirmative defense. It also asserts that Keshav has not met his

burden to establish that DIW acted unreasonably, such as through

evidence that another licensor in DIW’s position would have

terminated the agreement earlier. DIW points to a lack of evidence

of the surrounding facts and circumstances of the parties’

relationship, their communications, or steps that Sonia was taking

to comply with the License Agreement during the 18-month period

that would enable an assessment of whether DIW’s conduct was

unreasonable. DIW argues that, absent such proof, Keshav has not

raised a fact issue that supports his mitigation defense.

B

For procedural reasons, the court cannot resolve the

mitigation issue at the summary judgment stage. Under New Jersey

law, “‘the burden of proving facts in mitigation of damages rest[s]

upon the party breaching the contract.’” Ingraham v. Trowbridge

Builders, 687 A.2d 785, 791 (N.J. Super. App. Div. 1997) (quoting

Cohen v. Radio-Elecs. Officers, 645 A.2d 1248, 1259 (N.J. Super.

 

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App. Div. 1994) (citation omitted)). “[T]he breaching party has

the burden of proving that damages are capable of mitigation.” Id.

at 790-91 (citing Sommer v. Kridel, 378 A.2d 767 (N.J. 1977)).

“Damages will not be recovered to the extent that the injured party

could have avoided his losses through reasonable efforts and

without undue risk, burden or humiliation.” Id. (citing

Restatement (Second) of Contracts § 350 (1), (2) (1981)). The

question whether DIW’s efforts to mitigate its damages were

reasonable “‘is a question for the trier of fact.’” Id. (quoting

Higgins v. Lawrence, 309 N.W.2d 194, 196 (Mich. Ct. App. 1981)).

The duty to mitigate, however, “is not applicable where the party

whose duty it is primarily to perform the contract has equal

opportunity for performance and equal knowledge of the consequences

of the performance.” Id. (citations omitted).

Because DIW is moving for summary judgment on claims as to

which it will have the burden of proof at trial, it must establish

its right to summary judgment relief beyond peradventure. Although

DIW will not have the burden at trial of proving that it mitigated

its damages, to obtain summary judgment where the mitigation

defense has been pleaded, DIW is obligated to point to the absence

of evidence to support the mitigation defense. This is because for

a party who will not have the burden of proof as to a claim or

defense at trial to obtain summary judgment, it must point the

court to the absence of evidence to support an essential element of

 

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the claim or defense. See Celotex Corp. v. Catrett, 477 U.S. 317,

325 (1986). Once the party does so, the nonmovant must go beyond

his pleadings and designate specific facts showing there is a

genuine issue for trial. See id. at 324; Little v. Liquid Air

Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam).

In its summary judgment motion, DIW neither moved for summary

judgment on Keshav’s mitigation defense nor pointed to the absence

of evidence to support the defense. Because DIW did not challenge

defendants’ ability to prove the mitigation defense at trial,

Keshav was not on notice that he was obligated to adduce evidence

that would permit a reasonable trier of fact to find that DIW did

not mitigate its damages. And because, as here, DIW must meet the

beyond peradventure standard to obtain summary judgment on each of

its claims in the amounts for which it sues, DIW cannot obtain

summary judgment where the mitigation defense is as yet unresolved

and may result in a reduction of the amounts awarded.

Accordingly, although DIW has established beyond peradventure

that it is entitled to recover from Keshav under the Guaranty (and,

because Keshav does not contest all the relief DIW seeks, for

damages in some amount), the mitigation defense must be resolved by

trial before the amount of DIW’s recovery can be calculated.

V

Keshav contends third that DIW is not entitled to liquidated

damages because they are an unenforceable penalty under New Jersey

 

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law. And as noted above, he maintains as a component of his first

argument that the reservation fees charged during the period when

Sonia was suspended from using the system are being assessed under

an unenforceable stipulated damages clause.

A

Keshav posits that the License Agreement has one clearly

defined liquidated damages provision——in §§ 12.1 and 18.5——and a

proviso that functions as one——§ 7.1.2. Section 18.5 provides for

liquidated damages not to exceed $1,000 for each guest room of

Sonia’s facility (i.e., 119 x $1,000 = $119,000). According to

Keshav, § 7.1.2 is a “hidden” liquidated damages clause because it

requires Sonia to pay reservation system fees even when suspended

from using the system. Keshav argues that New Jersey law does not

allow liquidated damages that are meant to be punitive rather than

compensatory, and that the reservation fees are punitive and act as

a liquidated damages clause because DIW was not providing Sonia a

service with these fees. Keshav contends that the question whether

a stipulated damages clause is enforceable is one of law for the

court, and he maintains that this determination may require that

underlying fact issues be resolved. Keshav posits that the court

must apply a reasonableness standard, including consideration of

DIW’s duty to mitigate its damages, and he asserts that the

liquidated damages provisions are unreasonable because DIW’s

liquidated damages exceed the actual damages it claims to have

 

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sustained, or they allow damages where DIW sustained none. He also

argues that because the court must consider DIW’s duty to mitigate

damages, and because this duty presents a fact issue to be decided

at trial, the court cannot now rule on liquidated damages. Keshav

also contends the unpublished cases on which DIW relies are

inapposite and argues that a published decision supports the

conclusion that a clause similar to the one at issue here is

unenforceable, because the provisions set damages at a much higher

amount than would have been calculated based on Recurring Fees.

DIW replies that Keshav’s arguments fail because they are

based only on the false premise that DIW’s actual damages are

overstated. Contending that the questions of reasonableness and

enforceability of a liquidated damages provision are questions of

law for the court, and asserting that the provisions are

presumptively reasonable, DIW argues that Keshav has the burden of

raising a fact issue that rebuts this presumption. DIW maintains

that of the four factors in the reasonableness test, Keshav focuses

only on one——the amount of actual damages sustained——to posit that

the liquidated damages provision is unreasonable. It argues that

Keshav does not dispute that actual damages for breach of the

agreement are extremely difficult to estimate, or question the

parties’ good faith attempt to fix adequate compensation for DIW’s

loss resulting from premature termination of the Agreement, but

merely claims that the liquidated damages are a penalty because

 

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they are disproportionate to the actual damages sustained. DIW

also distinguishes the case on which Keshav relies, noting that in

the instant case, the actual past due Recurring Fees are only

$15,000 less than the liquidated damages amount of $119,000.

Concerning Keshav’s argument that the reservation fees charged

under § 7.1.2 during a period when Sonia was suspended from using

the system are unenforceable stipulated damages, DIW contends that

the fees are not a penalty because the undisputed evidence shows

that the costs of the reservation system are allocated across all

of DIW’s licensees. It maintains that Sonia’s obligation to fund

the reservation system is not a penalty but is compensatory and an

element of the total franchise fee. DIW also posits that Keshav

has not met his obligation to show that the reservation system fees

charged during suspension periods are unreasonable. 

B

“Whether a liquidated damages clause is enforceable is a

question of law for the court[.]” Naporano Assocs. v. B & P

Builders, 706 A.2d 1123, 1127 (N.J. Super. App. Div. 1998) (citing

Wasserman’s Inc. v. Middletown, 645 A.2d 100, 105 (N.J. 1994)).

Damages for breach of either party may be

liquidated in the agreement but only at an

amount that is reasonable in the light of the

anticipated or actual loss caused by the

breach and the difficulties of proof. A term

fixing unreasonably large liquidated damages

is unenforceable on grounds of public policy

as a penalty. 

Id. at 1128 (citations omitted). “‘The overall single test of

 

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7DIW contends that liquidated damages cannot be less than

$1,000 per hotel guest room and that Keshav has adduced no evidence

that the amount of liquidated damages is unreasonable. Keshav

responds that liquidated damages cannot exceed $1,000 per room and

that §§ 12.1 and 18.5 of the License Agreement fix unreasonably

large liquidated damages in light of DIW’s actual loss. The court

need not now decide whether the agreement specifies $1,000 per room

as the maximum or minimum liquidated sum because neither party’s

argument is affected by this distinction.

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validity is whether the [stipulated damage] clause is reasonable

under the totality of the circumstances[.]’” Metlife Capital Fin.

Corp. v. Washington Ave. Assocs., 732 A.2d 493, 495 (N.J. 1999)

(brackets in original) (quoting Wassenaar v. Panos, 331 N.W.2d 357,

361 (Wis. 1983)).

“Liquidated damages provisions . . . are presumptively

reasonable and the party challenging the clause bears the burden of

proving its unreasonableness.” Id. at 496 (citing Wasserman’s,

Inc., 645 A.2d at 107-08). Because DIW will not have the burden of

proving the reasonableness element at trial, it need not establish

reasonableness beyond peradventure to obtain summary judgment. See

Celotex Corp., 477 U.S. at 323. Keshav may defeat summary judgment

on liquidated damages, however, by demonstrating the existence of

a genuine issue of material fact regarding the enforceability of

the clause. 

C

 The court considers initially whether the sum of $119,000 in

liquidated damages is an unenforceable penalty.7 Keshav maintains

that liquidated damages are unreasonable because of DIW’s actual

 

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losses. He states that although it is difficult to assess actual

damages because DIW has overstated its past-due Recurring Fees and

has failed to mitigate its damages, DIW’s liquidated damages exceed

even the actual damages that it claims to have sustained. Keshav

presumably refers to the sum of $104,615.78 in claimed Recurring

Fees.

Relying on Shree Ganesh, Inc. v. Days Inn Worldwide, Inc., 192

F.Supp.2d 774 (N.D. Ohio 2002) (applying New Jersey law), Keshav

appears to suggest that the degree of difference between claimed

actual loss and liquidated damages is evidence of their

unreasonableness. Keshav also posits that summary judgment is

improper because DIW’s duty to mitigate, to the extent it bears on

reasonableness, is a fact issue to be determined by a trier of

fact.

1

The court has rejected supra at § III(B) Keshav’s argument

that DIW overstated its actual loss in the sum of $104,615.78 for

the 18-month period that preceded termination of the License

Agreement. The claimed liquidated damages, intended to approximate

future damages over a two-year period following termination, are

$119,000. Thus even assuming that Shree Ganesh governs, it is

distinguishable factually. The difference between actual losses

and liquidated damages in that case was $166,000, as compared to a

 

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difference of $14,384.22 here. See Shree Ganesh, 192 F.Supp.2d at

786. If anything, a comparison that accounts for the six-month

time differential reveals the claimed liquidated damages to be a

reasonable estimate of future loss. Having rejected Keshav’s

overstatement-based argument, the court is left to consider

Keshav’s failure-to-mitigate argument.

2

A party’s failure to mitigate damages is relevant to the

court’s assessment of the reasonableness of a liquidated damages

clause. See Wasserman’s, Inc., 645 A.2d at 110-11. The mere

raising of a mitigation defense, however, is insufficient to

overcome the presumption that a liquidated damages clause is

reasonable. “‘[T]he burden of proving facts in mitigation of

damages,” like the burden of demonstrating the unreasonableness of

a liquidated damages clause, “rest[s] upon the party breaching the

contract.” Ingraham, 687 A.2d at 791 (citing Cohen, 645 A.2d at

1259). In other words, Keshav must ultimately show not only that

DIW failed to take reasonable steps in mitigation, but that this

failure resulted in an actual loss so low as to render the amount

of liquidated damages unreasonable as a matter of law.

Keshav asserts that because the question whether DIW took

reasonable steps in mitigation of damages is one fact that bears on

the reasonableness of a liquidated damages clause, summary judgment

on liquidated damages is improper. The court agrees. 

 

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8

Although the court is unable to quantify the difference

between actual losses and liquidated damages (much less hold at

this time that the putative disparity is so large as to render

unreasonable the amount of liquidated damages sought), this is not

Keshav’s burden as the summary judgment nonmovant.

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Although DIW’s alleged failure to mitigate damages is only one

element of the multi-faceted reasonableness inquiry, Keshav may be

able prove at trial that DIW’s failure to mitigate is substantial

enough to render the damages fixed by the liquidated damages clause

unreasonably large in light of actual loss.8

3

Accordingly, the court holds that DIW is entitled to recover

liquidated damages in the amount of $119,000, unless Keshav is able

to prove at trial that DIW failed to mitigate its damages to such

a degree that the liquidated damages it seeks are unreasonable and

therefore an unenforceable penalty.

D

The court addresses next whether § 7.1.2, which permits DIW to

assess reservation fees during suspension periods, is an

unenforceable penalty. It decides whether DIW has established that

it is entitled to recover $19,300 in reservation system use fees

that it assessed after it suspended Sonia’s access to the system,

and whether it has demonstrated that Sonia’s failure to pay the

fees is a breach of the License Agreement for which DIW can recover

from Keshav under the Guaranty.

The court disagrees with Keshav’s characterization of § 7.1.2

 

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as a hidden and unenforceable penalty clause, or that it acts as

one. Under New Jersey law, 

liquidated damages is the sum a party to a

contract agrees to pay if he breaks some

promise, and which, having been arrived at by

a good faith effort to estimate in advance the

actual damages that will probably ensue from

the breach, is legally recoverable as agreed

damages if the breach occurs. 

Wasserman’s Inc., 645 A.2d at 105-06 (citing Westmount Country Club

v. Kameny, 197 A.2d 379 (N.J. Super. Ct. App. Div. 1964)). By

contrast,

[a] penalty is the sum a party agrees to pay

in the event of a breach, but which is fixed,

not as a pre-estimate of probable actual

damages, but as a punishment, the threat of

which is designed to prevent the breach. 

Id. at 106. As the court explained supra at § V(B), liquidated

damage provisions are presumptively valid, but “[p]arties to a

contract may not fix a penalty for its breach.” Id. Having

examined § 7.1.2 in light of these principles of New Jersey law,

the court concludes as a matter of law that it is not an

unenforceable penalty clause.

Section 7.1.2 neither fixes an amount that Sonia must pay in

the event of breach nor prescribes any formula from which such a

sum can be derived. It provides that reservation system use fees

are to be paid on a periodic basis for the duration of the 15-year

license agreement, “from [its] Opening Date until the end of the

 

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9A suspension of access to the system may occur under the

contract “for any default or failure to pay or perform,” and the

defaulting party is afforded the opportunity to cure the breach.

P. App. 22.

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Term, including during suspension periods.”9 P. App. 18. In other

words, it requires Sonia, during periods of lawful suspension, to

continue to pay the reservation system fees that it is otherwise

contractually obligated to pay DIW for the duration of the

contract. P. App. 17-18. The court is thus unable to conclude

from Keshav’s cursory argument or from the summary judgment record

that the clause is punitive in nature or designed solely to prevent

Sonia from breaching the License Agreement. The clause appears

instead to be aimed at ensuring compensation to DIW for the cost of

maintaining the reservation system, to which a non-defaulting

licensee would be normally granted access for the term of the

agreement. Moreover, Keshav cites no authority to support the

contention that § 7.1.2 is an unenforceable penalty solely because

it permits DIW to assess fees during periods of the 15-year license

term when service is suspended as a result of default. 

Accordingly, the court holds that DIW is entitled to the

claimed $19,300 in past-due reservation system fees that accrued

during the suspension period, minus any amount that Keshav can

prove at trial is attributable to DIW’s failure to mitigate

damages.

 

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VI

A

Keshav opposes summary judgment on a fourth ground, contending

that DIW cannot recover prejudgment interest on its liquidated

damages under §§ 12.1 and 18.5 of the License Agreement. He

maintains that DIW relies on § 7.3 of the License Agreement for

this proposition, but § 7.3 is found under the main section for

“Recurring Fees, Taxes and Interest,” the liquidated damages

provisions are found in §§ 12.1 and 18.5, neither section provides

for interest, and neither refers to § 7.3. He points out that one

of the unpublished decisions that DIW cites in its brief reaches

the same conclusion regarding a similar agreement. DIW replies

that Keshav has misinterpreted § 7.3, which provides for interest

at 1.5% per month for any past due amount payable to DIW under the

License Agreement.

B

“A contract must be construed as a whole and the intention of

the parties is to be collected from the entire instrument and not

from detached portions.” In re Fairfield Gen. Corp., 383 A.2d 98,

106 (N.J. 1978) (quoting 9 Williston on Contracts § 46, at 64 (rev.

ed.)). Assuming arguendo that New Jersey law permits recovery of

prejudgment interest on liquidated damage claims at a contractually

defined rate, DIW has failed to establish beyond peradventure that

the terms of the License Agreement provide for 1.5% per month in

 

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prejudgment interest on liquidated damages. 

Section 7.3 provides, in relevant part, that interest at the

rate of 1.5% per month “is payable when you receive our invoice on

any past due amount payable to us under this Agreement” P. App.

18. DIW emphasizes the words “on any past due amount” to argue

that it is entitled to recover prejudgment interest on liquidated

damages. Construing this clause and the License Agreement as a

whole, however, the court concludes that DIW’s reliance on these

words is misplaced. Under § 7.3, interest is payable on Sonia’s

receipt of an invoice for a past-due amount. Section 7.3 does not

refer to liquidated damages claims, and under the License

Agreement, liquidated damages are neither periodically assessed,

considered “past due,” nor invoiced. They are payable on

termination of the License Agreement.

Even if the court were to disregard § 7.3’s reference to

invoiced past-due amounts, it would still hold that prejudgment

interest on liquidated claims at a contractually-prescribed rate

cannot be recovered. This is because § 7.3 relates to past-due

recurring fees and taxes assessed under § 7, not to liquidated

damages recoverable under §§ 12.1 and 18.5. Section 7.3 is a

subsection of § 7, which governs the payment of “Recurring Fees,

Taxes and Interest.” Neither § 7 nor any of its subsections

provides for the recovery of interest on liquidated damages.

Moreover, neither § 12.1 nor § 18.5 expressly provides for

 

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prejudgment interest nor refers to § 7.3. Construing the License

Agreement as a whole, the court concludes that § 7.3 is

inapplicable to the liquidated damages provisions of §§ 12.1 and

18.5. 

Accordingly, the court holds that DIW has failed to establish

that it is entitled to summary judgment awarding it contractual

prejudgment interest on liquidated damages.

C

Keshav does not contest DIW’s claim for 1.5% per month in

prejudgment interest on Recurring Fees and the Note claim pursuant

to § 7.3 of the License Agreement and the terms of the Note. The

court is permitted to accept DIW’s proffered evidence as

undisputed. Tutton, 733 F. Supp. at 1117. The plain language of

the License Agreement and the Note support DIW’s claim. Section

7.3 provides that “‘Interest’ is payable when you receive our

invoice on any past due amount payable to us under this Agreement

at the rate of 1.5% per month or the maximum rate permitted by

applicable law, whichever is less, accruing from the due date until

the amount is paid.” P. App. 49. The Note provides that “the

outstanding principal balance shall bear simple interest at a rate

equal to the lesser of eighteen (18%) per annum or the highest rate

allowed by applicable law from its due date until paid.” Id. at

47. 

Accordingly, the court holds that DIW is entitled to recover

 

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prejudgment interest from Keshav at the contractually-defined rate

of 1.5% per month on its past-due Recurring Fees claim and its

claim for the unpaid balance on the Note.

VII

DIW contends that defendants are contractually obligated to

pay reasonable attorney’s fees and costs associated with

enforcement of the License Agreement, Guaranty, and Note. Although

“New Jersey has a strong policy disfavoring shifting of attorneys

fees.” N. Bergen Rex Transp., Inc. v. Trailer Leasing Co., 730

A.2d 843, 848-49 (N.J. 1999) (citing McGuire v. Jersey City, 593

A.2d 309, 317 (1991)). “[A] party may agree by contract to pay

attorney’s fees.” Id. (citing Cmty. Realty Mgmt., Inc. v. Harris,

714 A.2d 282, 293 (N.J. 1998)). “[C]ourts,” however, “will

strictly construe [fee shifting] provision[s] in light of the

general policy disfavoring the award of attorneys’ fees.” Id.

(citing McGuire, 593 A.2d at 317).

DIW proffers evidence of the unambiguous fee shifting

provisions in both the License Agreement and Note, along with the

affidavit of one of its counsel, in support of invoices in the

amount of $37,877.20 for legal services rendered. P. App. 448,

454. No defendant has responded to this request, and none has

contested DIW’s legal basis for recovering attorney’s fees and

costs or its computation of the amount. Because this case must be

tried and the amount of fees and costs that DIW is entitled to

 

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recover may be affected by services rendered in connection with

trial and the relief awarded as a result of the trial, the court

declines to grant summary judgment for such fees and costs. The

court holds that the License Agreement and Note both provide for

fee shifting, and that DIW is entitled to recover its reasonable

attorney’s fees and costs in amounts to be determined on proper

application under Fed. R. Civ. P. 54(d).

VIII

In sum, the court holds that DIW is entitled to recover

judgment from Sonia for breach of the License Agreement and from D.

Patel and S. Patel for breach of the Guaranty as follows:

$104,615.78 for unpaid Recurring Fees, $119,000 for liquidated

damages, and prejudgment interest at the rate of 1.5% per annum

under the License Agreement and Guaranty. DIW is entitled to

recover judgment from Sonia, D. Patel, and S. Patel in the amount

of $5,000 on the Note, together with prejudgment interest. It is

also entitled to recover attorney’s fees and costs in an amount to

be determined by the court after it files a proper Rule 54(d)

application. 

DIW is entitled to partial summary judgment against Keshav as

follows: for the $5,000 unpaid balance of the Note and prejudgment

interest thereon; $104,615.78 in Recurring Fees, minus any amount

that Keshav is able to prove at trial that DIW should have

mitigated, and prejudgment interest on the Recurring Fees awarded;

 

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10Keshav moves to strike UCB’s motion as untimely. The court

denies the motion. The deadline for UCB to file the motion was

June 15, 2006. UCB mistakenly attempted to file the motion

electronically on the due date. The court was not then accepting

filings electronically, so it was necessary that UCB file the

motion on paper, which it did on June 16, 2006. Under these

circumstances, the court declines to strike UCB’s motion.

Keshav also moves for leave to file a surreply in opposition

to UCB’s motion for summary judgment. The court denies the motion

for the reasons stated infra at § XX.

11The court recounts the evidence in a light favorable to

Keshav as the summary judgment nonmovant and draws all reasonable

inferences in his favor. E.g., U.S. Bank Nat’l Ass’n v. Safeguard

Ins. Co., 422 F.Supp.2d 698, 701 n.2 (N.D. Tex. 2006) (Fitzwater,

J.) (citing Clift v. Clift, 210 F.3d 268, 270 (5th Cir. 2000)).

- 28 -

$119,000 in liquidated damages, unless Keshav can prove at trial

that DIW failed to mitigate its damages and that this failure

renders an award of liquidated damages unreasonable; and attorney’s

fees and costs on its Note and Guaranty claims in amounts that the

court awards on proper Rule 54(d) application. 

IX

The court now considers UCB’s summary judgment motion, in

which it seeks dismissal of Keshav’s third-party action.10

In 1999, at the inducement of Jariwala and B. Patel, Keshav

invested $145,000 to obtain a minority membership interest in Sonia

for the purpose of purchasing the Mesquite Days Inn.11 Keshav

believed that Sonia was purchasing the hotel property from Jariwala

for $2.85 million, using a UCB loan of $2.2 million for most of the

purchase price. He later learned that UCB did not fund the entire

$2.2 million but instead created two $100,000 certificates of

 

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deposit (“CDs”) in the names of Jariwala’s brother-in-law and B.

Patel’s father. He also discovered that the sale price for the

hotel was $2.55 million, not $2.85 million.

According to Keshav, in April 1999 Jariwala entered into an

agreement to purchase the Mesquite Days Inn from Wichita Falls B &

R Investment, Inc. (“Wichita”) for $2.7 million, later lowered by

amended agreement to $2.55 million. In a second agreement, dated

July 7, 1999 between Jariwala and Sonia, Sonia agreed to pay $2.85

million. Keshav was unaware of these agreements until he conducted

discovery in this litigation. 

Unlike Keshav, who was unaware of the proposed hotel purchase

until July 1999, UCB had been involved for several months and was

aware that Jariwala was purchasing the property from Wichita. A

UCB committee suggested that $200,000 be placed in CDs as

additional collateral for the UCB loan because it was a flip

transaction, and UCB wanted the profit from the flip as additional

collateral to protect the bank. UCB did not ensure that other

investors were aware of the flip, the profit made from that

transaction, or the additional collateral, even though disclosure

of collateral is routine. When UCB did disclose the CDs to Keshav

in 2004, their value had increased to approximately $300,000.

Keshav also maintains that the $200,000 in CDs were not

contributed as additional collateral but were created with loan

proceeds, i.e., funds that Sonia borrowed. Therefore, the money

 

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12S. Patel’s name is also spelled “Sukhabhai” in the record.

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used to fund the CDs was Sonia’s property. Keshav avers that UCB

aided in concealing the CDs, laundered money for Jariwala and B.

Patel, and knew that they were going to profit from the transaction

and that the CDs represented their profit.

Keshav also cites evidence that UCB began in 2004 to solicit

him to make additional contributions to Sonia, advising him that he

would need to contribute $115,000 to resolve the Days Inn and other

claims, threatening to collect on his Guaranty, before all others,

if he did not, and offering to lend him the money to make

additional contributions. During meetings in 2004, Keshav first

learned of the CDs.

UCB’s attorney, Tim A. Forgerson, Esquire (“Forgerson”),

attempted to facilitate the sale of Keshav’s interest in Sonia to

Sukhbhai Patel (“S. Patel”),12 but Keshav refused. Sonia was

nevertheless sold to S. Patel, and the UCB note was refinanced with

other funds, allowing Jariwala and B. Patel to access their CDs.

Forgerson permitted S. Patel to attest falsely that he owned 100%

of Sonia, despite Forgerson’s knowledge that Keshav had not sold

his interest in Sonia. And despite his knowledge that DIW had made

a claim against Sonia, Forgerson and UCB permitted S. Patel to

represent that there were no outstanding and undisclosed claims.

Keshav was unaware that the closing had occurred, and S. Patel sent

him a tax return that showed that Keshav had no interest in Sonia.

 

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DIW sued Keshav and others shortly thereafter.

Keshav points to evidence that UCB had a close and extensive

business relationship with Jariwala, that certain UCB directors had

business relationships with him, and that UCB relied on Jariwala to

generate substantial business for the bank. He also relies on

evidence that Forgerson represented UCB, Mohammed Younus

(“Younus”), a UCB Vice President who was integrally involved in the

Days Inn transaction, and Jariwala, including during the closing of

the 2004 transaction, but that UCB and Younus did not disclose

their business relationships to him.

Keshav sues UCB and other third-party defendants, alleging

that they are liable for indemnification and contribution,

securities fraud, breach of contract, breach of fiduciary

duty/minority oppression, tortious interference with contract,

fraudulent inducement, fraud, fraudulent transfer under TUFTA,

attorney’s fees, costs, and expenses, conversion, and civil

conspiracy.

X

UCB contends that it is entitled to summary judgment

dismissing all of Keshav’s claims based on his inability to prove

damages and the assertion that he waived any claims against UCB.

The court will address below, in the context of Keshav’s specific

claims that survive summary judgment, whether UCB is entitled to

dismissal on the basis that Keshav cannot prove damages. The court

 

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now examines whether UCB is entitled to summary judgment based on

waiver.

Because waiver is an affirmative defense, UCB will bear the

burden of proof at trial. Trinet Corp. Realty Trust v. Microsoft

Corp., 2004 WL 1217936, at *3 (N.D. Tex. June 2, 2004) (Fitzwater,

J). Accordingly, to obtain summary judgment, UCB must meet the

beyond peradventure standard.

Under Texas law, the essential elements of waiver are “(1) an

existing right, benefit, or advantage; (2) knowledge, actual or

constructive, of its existence; and (3) actual intent to relinquish

the right, which can be inferred from conduct.” First Interstate

Bank of Ariz., N.A. v. Interfund Corp., 924 F.2d 588, 595 (5th Cir.

1991) (citing, inter alia, Edwin M. Jones Oil Co. v. Pend Oreille

Oil & Gas Co., 794 S.W.2d 442, 447 (Tex. App. 1990, writ denied)).

A waiver takes place when one dispenses with

the performance of something that he has a

right to exact, or when one in possession of

any right, whether conferred by law or

contract, with full knowledge of the material

facts, does or forbears to do something, the

doing or forbearing of which is inconsistent

with the right. 

Mo.-Kan.-Tex. R.R. Co. v. Heritage Cablevision of Dallas, 783

S.W.2d 273, 280 (Tex. App. 1989, no pet.) (citing Ford v.

Culbertson, 158 Tex. 124, 138-39, 308 S.W.2d 855, 865 (1958)).

Additionally, under Texas law, “[w]aiver is largely a matter of

intent, and for implied waiver to be found through a party’s

actions, intent must be clearly demonstrated by the surrounding

 

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facts and circumstances.” Jernigan v. Langley, 111 S.W.3d 153, 156

(Tex. 2003) (citation omitted).

UCB argues that the following statements contained in an

August 2004 letter from a Nitu Patel (“N. Patel”), acting as

Keshav’s agent, to Younus, a UCB Vice President, are sufficient to

prove waiver: 

[Keshav] assures me that this is not the

position taken because of issues with you or

[UCB] but rather with members of LLC. He

values [sic] relationship with you and [UCB]

but cannot agree with your request to meet

with LLC partners and outsiders who have not

acted properly in the past. 

UCB App. 138. UCB appears to premise its waiver argument on the

the first statement, contending that Keshav intentionally and

expressly stated that he had no issues with UCB regarding the

transaction. UCB maintains that Keshav then had full knowledge of

all material facts supporting the allegations of his third-party

complaint. 

Keshav responds that neither he nor N. Patel had full

knowledge of the material facts at the time of the letter; he did

not knowingly and intentionally waive any claims against UCB; the

N. Patel statements are inadmissible hearsay; N. Patel lacked

actual authority to waive claims on Keshav’s behalf; and the

letter’s plain language does not show waiver.

The court need only address whether UCB has established beyond

peradventure that Keshav actually intended to waive his claims

 

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against UCB. UCB does not specify a theory of waiver. It simply

asks the court to conclude from N. Patel’s statements that Keshav

waived his claims. UCB’s conclusory assertion that Keshav did so

by stating, with full knowledge of the material facts, that he in

effect had no issues with UCB is insufficient to establish waiver

beyond peradventure. To the extent that UCB contends that the

statements are an express waiver, its argument fails. The plain

language of the statements does not refer to legal claims, and UCB

has failed to produce any evidence that would permit such an

inference. If it is UCB’s contention that waiver can be inferred,

the cited statements are insufficient of themselves to comprise

circumstances that clearly demonstrate Keshav’s intent to waive his

claims.

In sum, UCB has failed to establish that the statements

constitute Keshav’s voluntary relinquishment of his right to sue,

or that they amount to conduct inconsistent with claiming a known

right. Moreover, even if the court were to assume that the N.

Patel letter demonstrates Keshav’s intent to waive claims, there

are genuine issues of material fact as to whether Keshav and N.

Patel had full knowledge of the material facts relating to Keshav’s

legal claims at the time the letter was written, and whether N.

Patel had authority to effect a waiver on Keshav’s behalf. The

court is unable to hold in such circumstances that UCB has shown

beyond peradventure that Keshav voluntarily relinquished his right

 

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to sue. Accordingly, UCB is not entitled to summary judgment based

on the affirmative defense of waiver.

XI

UCB moves for summary judgment on Keshav’s claims for

indemnification and contribution and tortious interference with

contract. Keshav responds that he is not pursuing these claims

against UCB. Accordingly, based on this concession, the court

denies UCB’s motion in part as moot.

XII

UCB maintains that it is entitled to summary judgment

dismissing Keshav’s claim under the Texas Securities Act (“TSA”).

A

UCB contends that Keshav cannot recover under the TSA because

liability can only be imposed on someone who offers or sells a

security by means of an untrue statement of material fact, UCB made

no representations concerning Keshav’s purchase of an interest in

Sonia, it is unclear whether Keshav’s interest in Sonia is a

“security” under the TSA because it may not be an investment

contract, UCB did not as a matter of law offer or sell a security

to Keshav, and there is no allegation or evidence to show that UCB

directly or indirectly controlled a seller, buyer, or issuer of a

security.

Keshav responds that UCB is liable under the TSA for aiding

and abetting Jariwala and B. Patel in their commission of

 

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securities fraud. He contends that UCB does not dispute that

Jariwala and B. Patel committed fraud; the TSA provides for aider

and abettor liability; Jariwala and B. Patel intentionally deceived

him by misrepresenting the purchase price of the Days Inn property

and the siphoning of $300,000 from the proceeds of the UCB loan;

UCB aided and abetted Jariwala and B. Patel’s violations of the

TSA; and that Keshav’s membership in Sonia is a “security” under

the TSA.

UCB replies that it has not conceded that Jariwala and B.

Patel committed fraud; Keshav has not pleaded aider and abettor

liability but has raised it for the first time in his summary

judgment response; Keshav has not adduced summary judgment evidence

on the issue whether his membership interest in Sonia is a

“security,” because Texas statutory law does not define a

membership in a limited liability corporation as a “security”; he

must therefore show, but cannot, that his interest is an

“investment contract”; and there is no summary judgment proof that

UCB either intended to deceive Keshav or acted with reckless

disregard for the truth of the representations made by Jariwala and

B. Patel, assuming they are the primary violators, because there is

no proof of what representations Jariwala and B. Patel made to

Keshav regarding the Sonia loan or of UCB’s knowledge of such

representations.

 

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13Keshav also alleges that UCB is liable for a primary

violation. In his second amended third-party complaint, Keshav

avers that UCB and others caused him to invest in Sonia by making

“untrue statements of material fact,” in violation of § 33 of the

TSA.

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B

The court concludes as a threshold matter that Keshav has

pleaded aider and abettor liability.13 In ¶¶ 39 and 40 of his

second amended third-party complaint, Keshav alleges a claim for

securities fraud. In ¶ 39 he incorporates all allegations from the

preceding paragraphs, and in ¶ 16 he explicitly alleges, inter

alia, that UCB “aided and abetted the activities of the other

[t]hird-party defendants.” Jariwala and B. Patel are both thirdparty defendants and are sued for securities fraud. Therefore,

Keshav is not improperly relying on an unpleaded basis for

liability against UCB.

C

To establish aiding and abetting liability under the TSA,

a plaintiff must demonstrate 1) that a primary

violation of the securities laws occurred; 2)

that the alleged aider had “general awareness”

of its role in this violation; 3) that the

actor rendered “substantial assistance” in

this violation; and 4) that the alleged aider

either a) intended to deceive plaintiff, or

[b]) acted with reckless disregard for the

truth of the representations made by the

primary violator.

In re Enron Corp. Secs., Derivative & ERISA Litig., 258 F.Supp.2d

576, 608 (S.D. Tex. 2003) (quoting Frank v. Bear Stearns & Co., 11

 

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14UCB has pointed to the absence of evidence of its liability

as a primary violator, but Keshav has pleaded both bases for

holding UCB liable under the TSA. Keshav has not responded to

UCB’s contention, relying instead on his aiding and abetting

theory.

- 38 -

S.W.3d 380, 384 (Tex. App. 2000, pet. denied)). Because Keshav

will have the burden at trial of proving the essential elements of

aiding and abetting securities fraud, UCB need only point the court

to the absence of evidence of any essential element. See Celotex

Corp., 477 U.S. at 323. Once it does so, Keshav must go beyond his

pleadings and designate specific facts showing that there is a

genuine issue for trial. See id. at 324; Little, 37 F.3d at 1075.

The absence of evidence of one essential element of the claim

mandates the entry of summary judgment. See Edgar v. Gen. Elec.

Co., 2002 WL 318331, at *4 (N.D. Tex. Feb. 27, 2002) (Fitzwater,

J.) (citing Celotex Corp., 477 U.S. at 323). 

UCB has pointed to the absence of evidence that it is liable

as a primary violator. It has not, however, discharged its initial

burden of pointing to the absence of evidence that it can be held

liable as an aider and abettor of a primary violation under the

TSA, a claim that Keshav has properly pleaded.14 To establish UCB’s

liability as an aider and abettor of securities fraud, Keshav is

not required to prove that UCB committed a primary violation——i.e.,

that it offered or sold a security to Keshav by means of an untrue

statement of material fact, made any representations to Keshav

concerning his purchase of an interest in Sonia, or that UCB

 

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- 39 -

directly or indirectly controlled a buyer, seller, or issuer of a

security. Accordingly, none of these allegations is sufficient to

point to the absence of evidence of aider and abettor liability

under the TSA. This leaves the court to consider UCB’s allegation

regarding Keshav’s membership interest in Sonia and whether it

qualifies as a security under the TSA. 

Keshav must show, inter alia, that some primary violation

occurred in order to establish UCB’s liability as an aider and

abettor, and a primary violation must involve a security. Under

Texas law, a party may be liable for a primary violation when it

offers or sells a security . . . by means of

an untrue statement of a material fact or an

omission to state a material fact necessary in

order to make the statements made, in the

light of the circumstances under which they

are made, not misleading.

Tex. Rev. Civ. Stat. Ann. art. 581-33(A)(2) (Vernon 2006) (emphasis

added). UCB posits that it is “unclear” whether Keshav’s

membership interest in Sonia is a security under the TSA. Although

UCB does not appear to move for summary judgment on Keshav’s aiding

and abetting claim, it is at least conceivable that this allegation

relates to whether Keshav has adduced sufficient evidence of a

primary violation, proof of which is an essential predicate for an

aiding and abetting claim. UCB’s initial burden, however, is to

point to the absence of evidence. This initial burden, while not

difficult, is not discharged when a summary judgment movant merely

asserts that it is “unclear” whether evidence exists to support the

 

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15UCB does not even appear to rely on this assertion. It

states next that the court does not need to resolve whether

Keshav’s membership interest is a security because UCB did not

offer or sell a security to Keshav. As the court notes above

however, Keshav is not required to show that UCB committed a

primary violation of the TSA in order to establish its liability as

an aider and abettor.

- 40 -

claim.15 Moreover, in assessing whether UCB has met its initial

burden of pointing to the absence of evidence, the court will not

consider arguments made for the first time in UCB’s reply brief.

See, e.g., Senior Unsecured Creditors’ Comm. of First RepublicBank

Corp. v. FDIC, 749 F. Supp. 758, 772 (N.D. Tex. 1990) (Fitzwater,

J.). Accordingly, the court holds that UCB has not met its initial

burden of pointing the court to the absence of evidence that it can

be held liable under the TSA as an aider and abettor of a primary

violation of the Act.

Even if the court were to assume that UCB has met its initial

burden, it would still deny summary judgment. Keshav has raised a

genuine issue of material fact as to whether his membership

interest in Sonia qualifies as a “security” under the TSA.

The Securities Act of 1933 and the Texas

Securities Act define the term “security” in

virtually the same wording. For that reason

Texas courts look to federal interpretations

of the meaning of the term “security.”

Specifically, Texas courts have adopted the

Howey test to determine what constitutes an

investment contract.

Long v. Schultz Cattle Co., No. CA:3-84-1464-D, at 9 (N.D. Tex.

Sept. 4, 1990) (Fitzwater, J.) (citations omitted). Under the

 

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Howey test, “‘[t]o determine whether a particular financial

relationship constitutes an investment contract, “[t]he test is

whether the scheme involves an investment of money in a common

enterprise with profits to come solely from the efforts of

others.”’” Barnes v. Bell Helicopter Textron, Inc., No.

3:92-CV-0694-D, at 16 (N.D. Tex. June 23, 1995) (Fitzwater, J.)

(quoting Int’l Bhd. of Teamsters v. Daniel, 439 U.S. 551, 558

(1979) (quoting SEC v. W. J. Howey Co., 328 U.S. 293, 301 (1946))).

Keshav has presented evidence that he invested in Sonia with

the expectation that he would be a passive investor with no

operational role and with the expectation that the profits would

result solely from the efforts of others. This evidence is

sufficient to demonstrate the existence of a genuine issue of

material fact concerning whether his membership in Sonia qualifies

as an investment contract.

D

The court now addresses UCB’s contention that Keshav is unable

to prove damages on any claim. UCB posits that proof of damages is

an essential element of all of Keshav’s claims, including his

action under the TSA. It contends that Keshav has failed to meet

his burden of providing evidence of the current value of his

interest in Sonia, from which damages could be calculated. UCB

argues that, absent such evidence, there is no proof that Keshav

 

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suffered any loss on his initial $145,000 investment in Sonia.

Keshav responds that he has created a genuine issue of

material fact as to damages, and that he never would have invested

in Sonia had he known of the flip nature of the transaction or of

the CDs. He has produced evidence that he made an initial

investment of $145,000, and he points to the fact that Sonia’s

financial statements suggest that his investment is worth nothing

due to negative cash flow and negative equity. He maintains that

he has been deprived of his ownership interest in Sonia, or at

least that there is a factual dispute as to the extent of his

ownership interest. Keshav also contends that his potential

liability and legal expenses in the lawsuit brought by DIW would

never have arisen but for UCB’s conduct.

The court holds that Keshav has demonstrated the existence of

a genuine issue of material fact regarding whether he has sustained

damages. He has adduced proof concerning the extent of his

ownership interest in Sonia and of Sonia’s distressed financial

condition, as evidenced by a December 2004 financial statement.

This evidence alone is sufficient for Keshav to defeat summary

judgment on the issue of damages under the TSA.

XIII

UCB also moves for summary judgment dismissing Keshav’s breach

of contract claim. It maintains that he is suing UCB for breaching

Sonia’s LLC agreement, but that it cannot be held liable for

 

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16Keshav refers to a claim for “minority oppression” in the

heading of his fourth cause of action (“Breach of Fiduciary

Duty/Minority Oppression”). In his summary judgment response,

however, he does not pursue this claim as an independent cause of

action against UCB. Accordingly, the court need not address it.

- 43 -

breaching the agreement because it is not a party to it. Keshav

responds that UCB breached its contracts with Sonia, including the

Business Loan Agreement. He also relies on an alleged breach of at

least one Purchase and Sale Agreement and amendments thereto.

The court holds that Keshav has not shown that UCB can be held

liable to him for breaching Sonia’s LLC agreement, to which it was

not a party. Nor can Keshav avoid summary judgment by relying on

allegations that UCB breached other contracts that Keshav has not

pleaded in his second amended third-party complaint. Cutrera v.

Bd. of Supervisors of La. State Univ., 429 F.3d 108, 113 (5th Cir.

2005) (“A claim which is not raised in the complaint but, rather,

is raised only in response to a motion for summary judgment is not

properly before the court.”) (citing Fisher v. Metro. Life Ins.

Co., 895 F.2d 1073, 1078 (5th Cir. 1990)). Accordingly, the court

grants summary judgment dismissing Keshav’s breach of contract

claim against UCB.

XIV

UCB moves for summary judgment on Keshav’s breach of fiduciary

duty and minority oppression claim.16

A

UCB contends that, as a matter of law, a creditor-debtor

 

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17For the same reasons described supra at § XII(D) (discussing

Keshav’s TSA claim), the court rejects UCB’s contention that Keshav

is unable to prove damages for breach of fiduciary duty. 

18The court refers throughout this memorandum opinion to

Keshav’s aider and abettor theory because that terminology is used

in the briefing to refer to UCB’s alleged liability based on B.

Patel’s and Jariwala’s breach of their fiduciary duties to Keshav.

- 44 -

relationship does not create fiduciary duties, and that a

relationship between a bank and its customer does not create

fiduciary duties. UCB maintains that Keshav alleges that a breach

of fiduciary duty occurred as a result of third-party defendants’

refusal to perform under the Sonia LLC agreement, that UCB was not

a party to the agreement, and that it cannot have failed or refused

to perform under the agreement. It also argues that Keshav’s

assertion that UCB actively participated and aided and abetted the

parties in breaching their fiduciary duties is simply a restatement

of his civil conspiracy claim, and that it should be dismissed for

the same reasons as should that claim. It posits that Keshav has

failed to produce any evidence, and that the only action UCB took

concerning the refinancing was to accept payoff of the Sonia note.

UCB asserts that it did not have a fiduciary relationship with

Keshav, and he has not set forth any facts that establish a prior,

separate relationship with UCB that would support an informal

fiduciary relationship.17

Keshav responds that UCB aided and abetted18 B. Patel’s and

Jariwala’s breach of their fiduciary duties as organizers and

 

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promoters, officers, and controlling shareholders of Sonia. He

contends that, in Texas, liability for breach of fiduciary duties

extends to any party who participates in or facilitates the breach,

that he has demonstrated that B. Patel and Jariwala breached their

fiduciary duties to him, and that UCB was an active participant.

Keshav also contends that the elements of aiding and abetting a

breach of fiduciary duty are distinct from those for civil

conspiracy. 

UCB replies that Keshav’s claim should be dismissed because he

has not presented any evidence or cited any authority to support

his contentions that B. Patel and Jariwala owed Keshav fiduciary

duties as organizers, promoters, officers, or controlling

shareholders of Sonia, that there was an informal confidential

relationship giving rise to a fiduciary duty, that there was a

special relationship beyond the corporate relationship with B.

Patel and Jariwala, or that UCB actively participated in or had any

knowledge of any breach of a fiduciary duty. 

B

Under Texas law, the elements of a claim for breach of

fiduciary duty are 

(1) a fiduciary relationship between the

plaintiff and defendant; (2) the defendant’s

breach of its fiduciary duty owed to the

plaintiff; and (3) injury to the plaintiff or

benefit to the defendant resulting from the

defendant’s fiduciary duty breach. 

Sealed Party v. Sealed Party, 2006 WL 1207732, at *5 (S.D. Tex. May

 

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19UCB points, inter alia, to the absence of evidence that a

fiduciary relationship existed between it and Keshav. In his

response, however, Keshav relies solely on an aiding and abetting

theory and appears to abandon any claim that UCB is directly and

primarily liable as a fiduciary.

- 46 -

4, 2006) (citing, inter alia, Kelly v. Gaines, 181 S.W.3d 394, 414

(Tex. App. 2005, pet filed); Punts v. Wilson, 137 S.W.3d 889, 891

(Tex. App. 2004, no pet.)). Additionally, “[i]t is settled as the

law of [Texas] that where a third party knowingly participates in

the breach of duty of a fiduciary, such third party becomes a joint

tort-feasor with the fiduciary and is liable as such.” Cox Tex.

Newspapers, L.P. v. Wootten, 59 S.W.3d 717, 721 (Tex. App. 2001,

pet. denied) (citing Kinzbach Tool Co. v. Corbett-Wallace Corp.,

138 Tex. 565, 573-75, 160 S.W.2d 509, 514 (1942)). Moreover, “[a]

cause of action premised on contribution to a breach of a fiduciary

duty under Kinzbach must involve the knowing participation in such

a breach.” Id. (citing Kinzbach Tool Co., 160 S.W.2d at 514). 

The bulk of UCB’s summary judgment contentions point the court

to the absence of evidence that UCB is itself liable as a fiduciary

of Keshav.19 UCB does, however, point to the absence of evidence

of its potential liability for aiding and abetting a breach of

fiduciary duty. UCB also characterizes Keshav’s aiding and

abetting claim as a mere “restatement” of his action for civil

conspiracy and suggests that both claims should be dismissed for

 

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20The court rejects this contention. Civil conspiracy is a

separate cause of action that requires, inter alia, an underlying

tort and a “meeting of the minds” among the coconspirators “on the

object or course of action” to be taken. Franklin Sav. Ass’n. v.

FDIC, No. 3:92-CV-1536-D, at 9 (N.D. Tex. Mar. 23, 1993)

(Fitzwater, J.) (discussed infra at § XVIII). By contrast, a cause

of action under Cox and Kinzbach requires only the knowing

participation of a party in a breach of a fiduciary duty and does

not require a conspiratorial agreement.

21The court need not decide whether Keshav has adduced

sufficient evidence that B. Patel and Jariwala are fiduciaries of

Keshav, because UCB did not meet its initial burden of pointing in

its opening brief to the absence of evidence of a fiduciary

relationship between them, or that UCB knew of such a fiduciary

relationship. To the extent UCB presented this contention in its

reply brief, the assertion came too late to shift the summary

judgment burden to Keshav.

22The court has not relied on Keshav’s affidavit testimony, to

which UCB has made evidentiary objections. 

- 47 -

the same reasons.20 The burden therefore shifts to Keshav to adduce

evidence demonstrating that there is a genuine issue of material

fact concerning UCB’s participation in the breach of a duty by a

fiduciary. To recover against UCB as an aider and abettor, Keshav

is not required to prove the existence of a fiduciary relationship

between UCB and him; he need only establish that UCB participated

in the breach of a fiduciary duty.21 See Cox Tex. Newspapers, 59

S.W.3d at 721.

The evidence Keshav cites in his response brief, much of which

the court has already discussed, is sufficient to create a genuine

issue of material fact as to whether UCB knowingly participated in

a breach of a fiduciary duty.22 The summary judgment record

contains evidence that would permit a reasonable trier of fact to

 

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find that UCB participated in and facilitated the very

transactions that are the subject of Keshav’s third-party

complaint. Specifically, Keshav has adduced evidence that UCB

knew, inter alia, that the proposed purchase of the Days Inn

property was a flip transaction from which Jariwala would profit,

and that it actively concealed the nature of the CDs from Keshav by

describing them at one point as additional collateral. This proof

is sufficient to demonstrate a genuine issue of material fact as to

whether UCB aided and abetted a breach of fiduciary duty.

Accordingly, the court holds that UCB has failed to show that

Keshav cannot recover against it for aiding and abetting a breach

of fiduciary duty.

XV

UCB moves for summary judgment dismissing Keshav’s claims for

fraudulent inducement and fraud. 

A

UCB states that Keshav’s claim for fraudulent inducement,

while vague, appears to rest on the assertion that UCB fraudulently

induced him to enter into the Sonia LLC agreement. It points to

evidence from Keshav’s deposition that he did not rely on UCB to

enter into the agreement. And UCB assumes that Keshav is also

alleging that UCB hid the fact that the CDs were pledged as

collateral for the loan, cites a document that Keshav executed that

states there were pledgors on the loan, and posits that Keshav’s

 

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lack of understanding of the word “pledgors” and his trust in

Sonia’s attorney is not proof that supports his claim. Regarding

alleged fraudulent and illegal activities based on UCB’s inducement

of Keshav in 2004 to come up with money to refinance the loan and

get it off UCB’s books, UCB argues that the evidence is undisputed

that Keshav did not advance any monies other than his original 1999

investment, so he could not have been damaged from these

activities.

UCB also assumes from Keshav’s pleadings and discovery

responses that he is asserting that UCB undertook fraudulent and

illegal activities in relation to the 2004 sale of the hotel

property and refinancing of Sonia’s debt. It contends that Keshav

cannot explain why the fact that there were two CDs put up as

additional collateral, and of which he was on notice, was somehow

harmful to him, particularly since additional collateral would

benefit a guarantor. UCB concludes by contending that Keshav did

not suffer injury; UCB took no action to induce him to enter into

Sonia and purchase the Days Inn property; the only damages he

claims are the loss of his initial investment in Sonia and monies

owed under the Guaranty; and since UCB did not induce him to invest

in Sonia or require that he sign the Guaranty, he has no claim for

damages for fraud or fraudulent inducement.

Keshav responds that he has a viable claim for common law

fraud based on his lack of knowledge that Sonia was only paying

 

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$2.55 million rather than $2.85 million for the Days Inn property,

and that UCB was using Sonia loan funds to create CDs in the names

of Jariwala’s brother-in-law and B. Patel’s father. Keshav also

disputes that he was aware of the CDs or the details of their

funding, the actual purchase price of the hotel property, the

actual amount of UCB’s loan, the flip transaction that occurred, or

the profit that Jariwala and B. Patel made. He contests the

assertion that the CDs did not injure him, and he posits that there

is ample evidence of fraud.

B

Keshav alleges fraudulent inducement and fraud based on

representations or misrepresentations, not nondisclosures. See 2d

Am. Third-Party Compl. ¶¶ 57, 59. He cannot now raise new

allegations of fraud by nondisclosure in order to defeat summary

judgment. See Becker v. Nat’l Educ. Training Group, Inc., 2002 WL

31255021, at *6 (N.D. Tex. Oct. 7, 2002) (Lynn, J.) (holding that

plaintiff “is bound to his [fraud by misrepresentation] pleadings

and cannot assert an unpleaded nondisclosure theory at this late

stage in the litigation”); see also Cutrera, 429 F.3d at 113.

Because these are the only grounds on which he relies to avoid

summary judgment and they exceed the scope of his second amended

third-party complaint, the court holds that UCB is entitled to

summary judgment dismissing Keshav’s claims for fraud and

 

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23Keshav mentions “fraudulent representation” in the heading

of part (f), but he only presents argument on alleged

nondisclosures.

- 51 -

fraudulent inducement.23

XVI

UCB moves for summary judgment dismissing Keshav’s claim under

TUFTA.

UCB argues that Keshav’s TUFTA claim is based on UCB’s

transfer of assets to S. Patel but that UCB did not transfer any of

Sonia’s assets to him. It contends it had a lien on the hotel but

did not own it and therefore could not have transferred it to a

third party. UCB asserts alternatively that Keshav is an equity

holder, not a “creditor” within the meaning of TUFTA, and that he

has failed to adduce evidence of which assets were transferred,

much less that such a transfer was for less than reasonably

equivalent value.

Keshav responds by alleging a new theory of fraudulent

transfer that he did not plead. In his second amended third-party

complaint, he alleges that UCB and others caused Sonia to transfer

assets to S. Patel. 2d Am. Third-Party Compl. ¶ 61. In his

summary judgment response, however, he argues that “[t]he

‘transfer’ at issue was the transfer of funds to create the CDs in

1999 and ultimate release of those CDs to [Jariwala] and [B. Patel]

in 2004.” Keshav July 13, 2006 Br. 37. Keshav cannot avoid

summary judgment on that basis. See Cutrera, 429 F.3d at 113.

 

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Accordingly, the court grants summary judgment dismissing his claim

under TUFTA.

XVII

UCB moves for summary judgment on Keshav’s conversion claim.

A

UCB contends that Keshav cannot prevail on his allegation that

his membership in Sonia was converted because he still owns 20% of

Sonia. UCB argues in the alternative that Keshav has presented no

evidence that UCB ever exercised “dominion or control” over his

membership interest in Sonia, which is an essential element of a

conversion claim. UCB also posits that Keshav is unable to show

injury because he was never forced to pay money under his Guaranty

or to pay additional money as a member of Sonia.

Keshav responds that UCB converted $200,000 of Sonia’s and

Keshav’s property by funneling that money to Jariwala and B. Patel.

He maintains that UCB, followed by Jariwala and B. Patel,

wrongfully exercised dominion and control over the $200,000 that

was part of the Sonia loan proceeds. Specifically, Keshav argues

that UCB funded the CDs out of the loan monies, put them in the

names of relatives of Jariwala and B. Patel with knowledge that

they were the beneficial owners, and released the funds in 2004,

all without the consent of Keshav or Sonia. Keshav also argues

that he was injured in the amount of his initial investment of

$145,000 and $200,000 plus interest.

 

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UCB replies that it did not have fair notice that Keshav

intended to bring a derivative claim for conversion, because in his

third-party complaint he alleges conversion as an individual claim.

It also asserts that Keshav testified by deposition that the

conversion claim refers to his membership interest in Sonia. And

it argues that it lacked fair notice that Keshav is relying on

conversion of the CD funds rather than his membership interest in

Sonia. Addressing the merits of this claim, UCB posits that Keshav

lacks evidence to defeat summary judgment. It maintains that there

is no property that Sonia or Keshav owned or possessed or had the

right to possess immediately; the CDs were willingly created with

the knowledge of Sonia’s management to serve as collateral for the

loan; UCB did not wrongfully exercise dominion or control over the

CDs to the exclusion of Sonia because the CDs were created with

Sonia’s full knowledge and understanding; Keshav’s consent was not

required because he is a minority shareholder; and Keshav’s

assertion that Sonia did not consent is a complete

misrepresentation of the facts.

B

 The court rejects UCB’s contention that Keshav’s conversion

claim exceeds the scope of what he has pleaded or disclosed during

discovery. Keshav’s claim refers to his beneficial ownership in

certain property entrusted to UCB and the other third-party

defendants. It is not explicitly premised on his membership

 

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interest in Sonia. The court will not limit Keshav’s claim based

on his deposition testimony because UCB presented that evidence in

a reply appendix that it never obtained leave of court to file, and

that the court, by its July 31, 2006 order, refused to consider

absent such leave. The court accordingly declines to hold that

Keshav’s conversion claim is improperly raised.

C

Turning to the merits, the court holds that UCB is entitled to

summary judgment because Keshav has failed to produce evidence

sufficient to permit a reasonable trier of fact to find in his

favor. Under Texas law, 

[c]onversion is an act of dominion and control

wrongfully exerted over another’s personal

property and inconsistent with that person’s

right in the property. An act of conversion

does not have to be an actual manual taking

but merely an act that is such active

interference with the owner’s right of

property or control as to deprive him of its

free use and enjoyment. 

Stasan, Inc. v. Network Staffing Servs., Inc., 2004 U.S. Dist.

LEXIS 7432, at *20 (N.D. Tex. Apr. 29, 2004) (Fitzwater, J.)

(citing Pierson v. GFH Fin. Servs. Corp., 829 S.W.2d 311, 314 (Tex.

App. 1992, no writ) (citations omitted)). Even assuming arguendo

that Keshav has produced evidence sufficient to enable a reasonable

trier of fact to find that UCB exercised dominion and control over

Keshav’s interest in Sonia’s property by using the loan monies to

fund the CDs, Keshav has not shown a basis on which to conclude

 

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24Keshav characterizes himself as a minority shareholder and

“passive investor” at various points in his response. See Keshav

July 13, 2006 Br. 1, 29.

- 55 -

that such conduct was “wrongful.” Keshav, a minority member of

Sonia, has produced no evidence that UCB was required to obtain his

consent before funding the CDs and subsequently releasing them.24

Instead, a reasonable trier of fact could find from the summary

judgment evidence that UCB acted with Sonia’s consent, given by

Dolotray C. Patel, Sonia’s managing member and signatory to the

loan documents.

Accordingly, the court holds that UCB is entitled to summary

judgment dismissing Keshav’s claim for conversion.

XVIII

UCB next moves for summary judgment dismissing Keshav’s cause

of action for civil conspiracy.

A 

UCB maintains that Keshav must show that it is liable for an

underlying intentional tort, he has not, and, absent an underlying

tort, Keshav has no claim for civil conspiracy. It also points to

the absence of evidence of a meeting of the minds involving UCB and

others for the purpose of inflicting a wrong on Keshav, the absence

of evidence of one or more unlawful, overt acts in furtherance of

the conspiracy, and the absence of evidence that Keshav suffered

 

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25For the same reasons described supra at § XII(D) (discussing

Keshav’s TSA claim), the court rejects UCB’s contention the Keshav

is unable to show damages.

- 56 -

injury.25

Keshav responds that he can premise his claim on his

underlying fraud, breach of fiduciary duty, tortious interference,

conversion, or fraudulent transfer claims; UCB and its

coconspirators employed unlawful means in the form of money

laundering; UCB engaged in a series unlawful acts that he has

already alleged in the context of his substantive claims; there was

a meeting of the minds among UCB, Jariwala, and B. Patel, as

evidenced by Younus’s testimony; and Keshav was injured in the

amount of $145,000, his initial investment in Sonia, the $200,000

in siphoned loan funds, an additional $100,000 unaccounted for at

closing, and the profit from the flip. UCB replies that Keshav has

improperly attempted to replead his causes of action as a new claim

for money laundering, Keshav has failed to produce any evidence to

support his response allegations of unlawful acts in ¶¶ 122 and

123, and there is no evidence that a transaction by which Jariwala

profited amounts to a conspiracy against Keshav. 

B

“An actionable claim for civil conspiracy is a combination by

two or more persons to accomplish an unlawful purpose or to

accomplish a lawful purpose by unlawful means.” Massey v. Armco

Steel Co., 652 S.W.2d 932, 934 (Tex. 1983). The essential elements

 

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of conspiracy are (1) two or more persons, (2) an object to be

accomplished, (3) a meeting of minds on the object or course of

action, (4) one or more unlawful, overt acts, and (5) damages as

the proximate result. Franklin Sav. Ass’n, No. 3:92-CV-1536-D, at

9. In Texas, civil conspiracy is a “derivative” tort by which

Keshav can hold one conspiracy participant liable for the torts

committed by another participant if the torts were committed in

furtherance of an unlawful conspiracy. See Tilton v. Marshall, 925

S.W.2d 672, 681 (Tex. 1996). As a “derivative” tort, Keshav must

“plead and prove another substantive tort upon which to base a

civil conspiracy claim.” Grizzle v. Tex. Commerce Bank, N.A., 38

S.W.3d 265, 285 (Tex. App. 2001), rev’d in part on other grounds,

96 S.W.3d 240 (Tex. 2002).

Keshav cannot now assert an entirely new claim for money

laundering for the purpose of providing a predicate for his civil

conspiracy claim and avoiding summary judgment. See Cutrera, 429

F.3d at 113. Neither can Keshav——in light of the court’s ruling

above——premise his civil conspiracy claim on his actions for

tortious interference, conversion, and fraudulent transfer, each of

which is being dismissed on motion for summary judgment. Keshav

can, however, predicate a claim for civil conspiracy on his breach

of fiduciary duty claim, to the extent that he is able to prove at

trial that UCB knowingly participated in or facilitated a breach of

a fiduciary duty owed to Keshav.

 

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UCB has pointed to the absence of evidence of one or more

overt, unlawful acts and of a meeting of the minds. It has thus

shifted the burden to Keshav to adduce evidence from which a

reasonable trier of fact could find in his favor on these elements.

To the extent that Keshav can show that UCB is liable for a breach

of fiduciary duty committed by Jariwala or B. Patel, he may be able

to succeed on a claim for civil conspiracy. Moreover, Keshav’s

summary judgment evidence raises a genuine issue of material fact

regarding the meeting of the minds element of a civil conspiracy.

Keshav relies on the Younus deposition, in which Younus essentially

testified that the bank arranged the flip transaction with Jariwala

and B. Patel, and that the resulting profits would accrue to

Jariwala. A reasonable trier of fact could find a meeting of the

minds on the basis of this testimony.

Accordingly, the court holds that there is a genuine issue of

material fact that precludes summary judgment on Keshav’s civil

conspiracy claim.

XIX

The court next addresses UCB’s motion for summary judgment on

Keshav’s claim for attorney’s fees and costs. Keshav originally

asserted no specific basis for recovering attorney’s fees and

costs; he simply alleged entitlement to fees and costs pursuant to

“applicable Texas law.” In his response brief, however, Keshav

seeks attorney’s fees and costs pursuant to his breach of contract

 

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26By “costs” the court means costs that are available under a

fee-shifting statute, not costs that are taxable under Rule

54(d)(1).

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and TUFTA claims. In light of the court’s rulings granting summary

judgment as to both of these claims, the court is left with no

substantive basis on which to award this relief. 

The court therefore holds that Keshav is not entitled to

recover attorney’s fees and costs.26

XX

The court now addresses UCB’s objections to Keshav’s summary

judgment evidence and Keshav’s pending motion for leave to file a

surreply to UCB’s summary judgment reply. 

The court denies UCB’s evidentiary objections as moot.

Alternatively, it holds that the objections are moot in part and

denied in part. The court relies on ¶ 25 of Keshav’s Affidavit in

support of its alternative holding denying UCB’s motion for summary

judgment on Keshav’s TSA claim. See supra § XII(C). But even if

the court were to consider UCB’s objections to ¶ 25 based on

relevance and the best evidence rule, it would hold that the

objections lack merit and overrule them. 

Keshav moves for leave to file a surreply to respond to UCB’s

evidentiary objections and arguments that he maintains are new and

inaccurate and raised for the first time in UCB’s reply brief.

Specifically, Keshav contends that he provided UCB fair notice of

all his claims, he has standing to raise derivative claims on

 

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behalf of Sonia, UCB knowingly participated in B. Patel’s and

Jariwala’s breach of fiduciary duties owed to him, and UCB had a

legal duty to inform him of the alleged fraud. 

Even if the court were to consider Keshav’s surreply, it would

not affect the court’s rulings. The court has denied UCB’s

evidentiary objections as moot. Alternatively, it has held that

they are in part moot and are in part overruled, ruling that the

cited portion of Keshav’s Affidavit is admissible. Consequently,

it need not grant Keshav an opportunity to respond to UCB’s

evidentiary objections via a surreply. And in holding that

Keshav’s fraud, fraudulent transfer, and breach of contract claims

are improperly raised for the first time in his summary judgment

response, the court has not relied on the UCB reply brief arguments

to which Keshav objects. The remaining objections that Keshav

would present in his surreply are also moot. The court is not

dismissing any of Keshav’s derivative claims on the basis of

standing, it is denying UCB’s summary judgment motion as to

Keshav’s breach of fiduciary duty claim, and it is dismissing

Keshav’s fraud claim for the independent procedural reasons already

described. The court therefore denies Keshav’s motion for leave to

file a surreply.

* * *

For the reasons set out, the court grants in part and denies

in part DIW’s June 15, 2006 motion for summary judgment, grants in

 

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part and denies in part UCB’s June 16, 2006 motion for summary

judgment, and denies Keshav’s August 15, 2006 motion for leave to

file a surreply.

SO ORDERED.

November 1, 2006.

_________________________________

SIDNEY A. FITZWATER

UNITED STATES DISTRICT JUDGE

 

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