In re Ewers

695 S.W.3d 603

In the ESTATE OF Larry Wayne EWERS, Deceased

NO. 01-21-00331-CV

Court of Appeals of Texas, Houston (1st Dist.).

Opinion issued January 30, 2024

Rehearing en banc Granted January 30, 2024

On Appeal from the Probate Court No. 2, Harris County, Texas, Trial Court Case No. 483323

Lucy H. Forbes, THE FORBES FIRM, PLLC, 839 E 27th Street, Houston, Texas 77009, K. Scott Brazil, Chad W. Dunn, BRAZIL & DUNN, LLP, 13231 Champion Forest Dr., Suite 406, Houston, Texas 77069, for Appellant.

Thane Tyler Sponsel III, Zachary Clark, SPONSEL MILLER GREENBERG PLLC, 50 Briar Hollow Lane, Suite 370 West, Houston, Texas 77027, for Appellee.

Panel consists of Justices Goodman, Countiss, and Farris.

OPINION ON REHEARING

Gordon Goodman, Justice

The appellant, Janice Barr Ewers, has moved for en banc reconsideration. We grant rehearing, withdraw our opinion and judgment of August 24, 2023, and substitute the following opinion and corresponding judgment in their stead. Our disposition remains unchanged, and we dismiss the appellant’s motion for en banc reconsideration as moot in light of the withdrawal and substitution of the prior opinion and judgment the motion addresses. See, e.g., Transamerica Occidental Life Ins. Co. v. Rapid Settlements, Ltd., 284 S.W.3d 385, 387 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (granting rehearing, withdrawing opinion and judgment and issuing new ones, and dismissing motion for en banc reconsideration as moot).

The trial court found that Larry Ewers committed fraud and unjust enrichment against Joseph Fauth, III and Prentice Cooper. Larry’s widow and the independent administrator of his estate, Janice Barr Ewers, appeals. For the reasons discussed below, we modify the trial court’s judgment to delete its finding that Green Energy Minerals LLC was Larry’s alter ego and affirm the judgment as modified.

BACKGROUND

In May of 2010, Cooper’s accountant called him and asked if he would be interested in meeting someone who had some interesting investment opportunities. Cooper met with Larry and instantly liked him. As Cooper described, Larry’s "demeanor was very, very good. He was friendly to everyone. He was always just being very courteous to people. He would be a wonderful friend." Cooper initially invested $200,000 in Larry’s company.

Fauth knew Cooper from church. Cooper told Fauth that Larry was looking for investors and introduced them to each other. Fauth soon after invested $420,000 with Larry’s company. Both Fauth and Cooper understood that they were investing in Larry’s company, EPD Management Company, LLC ("EPD"), and that they were buying an ownership interest in the company and would be entitled to proceeds of any future business deals that EPD made. Larry represented that EPD was involved in oil and gas speculation, something with which neither Fauth nor Cooper had any experience. Fauth had worked for Baker Hughes in its human resources department, and he later worked as a private consultant who trained managers and supervisors. Cooper owned a construction company.

The Dewbre Deal and the Citadel Contracts

In early 2011, Larry approached Fauth and Cooper with a business prospect: if Larry could get the financing in place, his company, Citadel Exploration, LLC ("Citadel"), could purchase a portion of Dewbre Production, an oil and gas production company. The proposed deal with Dewbre Production was for Citadel to purchase a $52 million asset and pay it off in monthly installments over five years. During that time, Citadel would earn profits from the oil and gas that Dewbre Production sold, but most of those profits would go toward paying off the $52 million note. After five years, Citadel would own the asset outright and receive all of the profits, which Larry expected to be extremely lucrative.

Larry represented that he was struggling to get the financing in place, however. Enticed by the prospect of profiting from the deal, Fauth and Cooper agreed to loan Larry’s company the needed money to make the initial down payment to fund the Dewbre deal. Both Fauth and Cooper signed nearly identical contracts in March of 2011 memorializing this agreement—the Citadel contracts. In those contracts, Fauth and Cooper agreed to "roll over" their existing interest in EPD to Citadel in exchange for a six percent interest in the company and to loan Citadel an additional amount: $220,000 from Cooper and $400,000 from Fauth. Fauth cashed out his 401k to provide the money for the loan. Cooper also withdrew from his retirement savings. The Citadel contracts stated that Citadel would repay the loan amounts to Fauth and Cooper within 59 days.

The 59 days passed, but Citadel did not repay the loans to either Fauth or Cooper. Around that time, though, Larry invited Fauth and Cooper and their wives to a celebratory dinner in Corpus Christi because the Dewbre deal was closing. Fauth and Cooper believed they were set up to earn millions, and they were not concerned that their loans had not been repaid. As Fauth testified:

[W]hen this [Dewbre] asset is paid off, it’s worth $52 million. My 6 percent was worth over $3 million. On top of that, when the deal is paid off, now we’re not making this $700,000 monthly note. I’m going to get 6 percent of that note, which is about $40,000 a month to the tune of over $500,000 a year. That was going to be my retirement income.

Within a few months, Larry began sending Fauth and Cooper monthly checks for their earnings from the Dewbre deal. The checks, written from EPD, were typically for a few thousand dollars and were sent with income statements detailing the money earned from production, less production expenses, and divided by the appellees’ ownership percentage. This continued for several years. Cooper saved the income statements because, as he put it, these were his "eagle eggs," meaning "here we’ve got something that’s really good."

In 2014, the payments stopped. When the appellees asked why, Larry explained that the oil and gas market was down, so profits were reduced. Fauth testified, as he understood the situation:

[T]he market had gotten soft on natural gas. And where we were having 3-dollar gas, the market was below $2; and I knew that that would be cutting into our revenue, our, you know, our sale of product. We still had an obligation to make our monthly note because the Dewbre deal was a 52-million-dollar asset .. [M]y investment was still solid because we were making enough production to pay the monthly note. We just—and whatever we did have left over, it was being placed into an escrow account, so I was told.

Cooper explained he was not concerned at the time:

[O]nce we got this thing paid for, if it—if we only got what Larry—what was supposed to be being paid as a note, if that’s all we got, and divided it by 6 percent, we’re still doing great. So I had no problem with Larry taking the money and not giving us any at that time because I knew within five years it was going to be paid for and then we would have something that was worth right at $52 million.

I considered Larry a friend. And he was going to do everything that he could to get back enough to where he was giving us our—or not giving us—but giving us—sending us our partnership percentage. I trusted him I trusted him because he was kind. He was considerate of other people.

Cooper understood that the note had been refinanced and was now going to take ten years to fully pay off. Fauth, like Cooper, was unconcerned:

The reason I didn’t do anything at that point is because [as] I understood the situation, our investment was still good. And we had already been paying, to my knowledge, on a 52-million-dollar asset and we were getting close—closer to paying it off and starting all over.

They were still earning enough money to pay off the installments on the note for the Dewbre deal, Larry assured them, and any amount leftover he was placing into an escrow account to fund new business ventures. The appellees never received another payment from the Dewbre deal.

New Business Ventures

Over the next six years, Larry approached Fauth and Cooper with numerous new business ventures that were each "a potentially huge deal." These included some additional oil and gas ventures like purchasing depressed oil wells to "rework them and put them back online," but also ventures that involved some exciting new, confidential technology: mining rare earth minerals in Mongolia, refining contaminated drilling water into drinking water, filtering salt water into drinking water for "deprived areas around the world," eliminating brain cancer from excessive use of cell phones, and mining rare earth salts in Nebraska. Larry and Cooper took meetings with companies that were looking for investors, and in 2016, Larry invited Cooper to fly with him on a private jet to look at a potential mining opportunity in Nebraska and tour the mining facility. Also on that flight were Donald Weise and Robert Painter, two of Larry’s business associates.

These new ventures were "a continuation of [Fauth and Cooper’s] business dealings" with Larry, Fauth testified. As he understood it, Citadel had not used up his initial investment, and that money together with the earnings from the Dewbre deal provided the "seed money" for new "business opportunities that were generated from that investment." Cooper also understood that these new opportunities were a continuation of their business dealings with Larry; Larry told them about new opportunities to let them know "that he was looking at other things, which was what [they] expected him to do."

Larry constantly emphasized the need for secrecy. In an email about a potential "mine to metal" deal, Larry wrote, "I ask this not be shared with ANYONE. If word leaked out it could cost us two deals." "[I]n all of our dealings," Fauth testified, "we were constantly told to keep it to ourselves, keep it close to the chest. If others find out about what we’re doing, we would lose our advantage. The price would go down or ...