Preview
Filed
11) une 16 P2:49
Gary Fitzsimmons
District Clerk
Dallas District
CAUSE NO. 10-01167
SIERRA INVESTMENT ASSOCIATES, § IN THE DISTRICT COURT OF
Plaintiff/Counter-Defendant
§
§
Vv.
§
WILSON OFFICE INTERIORS, LLC,
§
ROBERT BLOMSTROM 298" JUDICIAL DISTRICT
§
Defendants/Cross-Claimants,
Counter-Plaintiff
Vv.
B. DONALD HILL, JR. and
THE WILSON GROUP, LTD.,
Defendants/Cross-Defendants. DALLAS COUNTY, TEXAS
DEFENDANT WILSON OFFICE INTERIORS LLC’S SECOND
MOTION FOR
PARTIAL E
S SUMMARY
L
REMIJUDG MENT
MEIN
COMES NOW, Defendant/Cross-Claimant Wilson Office Interio
rs LLC (“Wilson
Office’ ”) and asks the Court to enter a partial summary judgment
against Plaintiff, Sierra
Investment Associates (“Plaintiff”), that the 2007 Lease Extens
ion Agreement fails to
constitute an Acknowledgment of a debt under Section 16.065 of
the Texas Civil Practice
& Remedies Code and striking paragraph 4.2 from Plaintiff's Third
Amended Petition,
and would respectfully show as follows:
SUMMARY
This is a lease dispute over whether Plaintiff, as landlord, is
entitled under its
written lease to recoup over $200,000 for costs for taxes, insuran
ce, maintenance, and
repairs to the premises from 1994 through 2007 (“Excess Costs”).
This Court heard the
parties’ motions for partial summary judgments on April 22, 2011.
In the motions and at
the hearing, Wilson Office expressly argued that the 2007 Lease Extens
ion Agreement
(Exhibit 1) failed to revive stale claims, failed to constitute an Ackno
wledgement, and
WILSON OFFICE INTERIORS? 2" MOTION FOR PARTI
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failed to satisfy the statute of frauds for expenses incurred under the prior tenants, co-
defendants The Wilson Group Ltd. (“WG”) and Mr. Hill and/or prior to Wilson Office’s
assumption of the Lease in 2005. This Court ruled that the 4-year statute of limitations
barred claims for Excess Costs accrued (i.e., incurred) prior to February 1, 2006 (more
than 4 years prior to the filing of theaction).1 Despite the Court’s ruling, Plaintiff filed a
Third Amended Petition (“Petition,” Exh. 2) which retained its claim for Excess Costs “in
excess of $200,000” against defendants -- which necessarily includes the barred claims.
In addition, the Petition added a new paragraph 4.2, that attempts to plead that the 2007
Lease Extension Agreement is an Acknowledgement of the antecedent debt going back to
1994. Paragraph 4.2 is quoted below:
4.2 The lease extension agreement also constituted an acknowledgment of the
existence and justness of Sierra’s claim for reimbursement of operating expenses,
sufficient under Section 16.065 of the Texas Civil Practice & Remedies Code, and
constitute a new and collateral promise to pay the operating expenses. The
written lease extension agreement, dated June 26, 2007, was executed by Wilson
Office Interiors LLC. Additionally, the lease extension contains an unequivocal
acknowledgement of the existence of Wilson Office Interiors’ obligation to pay all
amounts due or accrued under the Lease as submitted and detailed in the form of
an audit. Wilson Office Interiors’ obligation was to pay those sums on or before
December 1, 2007. The Lease extension agreement clearly expresses a
willingness and obligation of Wilson Office Interiors to honor the audit results.
The amount of the audit results was readily ascertainable, as admitted by each of
the defendants in their pleadings. (Emphasis added; Petition at p. 5 at Exhibit 2.)
The agreement underlined above is attached hereto as Exhibit 1. Both paragraph 4.2 and
the 2007 Lease Extension Agreement fail to constitute an Acknowledgement and are
contrary to the law.
' According to Plaintiff's calculations, the Excess Costs after 02/06 are less than $12,000.
WILSON OFFICE INTERIORS’ 2 MOTION FOR PARTIAL SUMMARY JUDGMENT Page 2
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FACTS
The original lease (“Lease” at Exh. 3) was signed in 1993 by Plainti
ff and co-
defendant WG, for a term from September 1993 to April 2000. The
Lease provided that
Plaintiff would recoup annually from the tenant any Excess Costs
that might be incurred
for annual, combined costs for taxes, fire insurance, maintenance,
and repairs that
exceeded the annual, threshold amount stated in the Lease. Such expens
es are not a
given, and are conditional on whether the expenses exceed the
threshold amount.
The Lease expired in 2000 and was extended by WG and Plaintiff
several times
by written extensions, with no mention of the statute of limitations
or Excess Costs due or
owing. Movant Wilson Office, an entirely separate company and tenant
from co-
defendant WG, assumed the Lease but not WG’s prior liabilities effecti
ve August 7, 2005
via a written Assignment Of Lease Agreement And Landlord’s Consen
t (“Assignment”,
Exh. 4). In April 2006, the latest lease extension expired, and Wilson
Office continued
its tenancy month-to-month. Over one year later, on June 26, 2007, Plaintiff and Wilson
Office executed the 2007 Lease Extension Agreement (Exh. 1) for
a 21-month lease term,
retroactive to April 2006. The Petition now alleges Exhibit 1 is an Acknow
ledgment
sufficient to make Wilson Office liable for Excess Costs accrued back to
1994 when co-
defendants were tenants. (Petition para. 4.2, Exh. 2.)
The 2007 Lease Extension Agreement expressly limited the lease term
to 21
months, as follows:
[The parties] agree to extend the 1993 Commercial Lease... for an
extension term. The extension term of the lease shall be a period of
21
months commencing on May 1, 2006 and terminating on January 31,
2008. (Exhibit 1, p. 1.)
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Because the lease term was limited to 21 months, any Excess Costs
that might be
“due or accrued” were limited to the stated term. The 2007 Lease Extens
ion
Agreement was drafted by Plaintiff.? Before Exhibit 1 was drafted, Plainti
ff
drafted an earlier version of the agreement, quoted in part below,
which sought to
have Wilson Office pay for Excess Costs that were “past due”:
Landlord shall conduct an audit of all past due amounts due under
the lease...
Tenant shall pay all past due amounts under the lease on or before Decemb
er 1,
2007. (Em, phasis added; Exh. 5, Blomstrom’s Affid. at p. 2, para. 3 and Exhibit
B
thereto.)
Wilson Office did not sign this version, and did not agree to be liable
for past due
debts. (Exh. 5, Blomstrom Affid. at p. 2, para. 3.)
ARGUMENT AND AUTHORITIES
“Whether a written instrument sufficiently acknowledges a debt barred by
limitations is a question of law.” Doncaster v, Hernaiz, 161 S.W.3d
594, 605 (Tex. App-
San Antonio 2005). Eldridge v. Collard, 834 S.W.2d 87, 89 (Tex. App.
— Ft. Worth
1992), teaches that the correct practice is either to quote the writing alleged
to constitute
the new promise, or to attach it to the pleading as an exhibit. Plaintiff did
neither. The
Eldridge court held that the pleadings there “do not establish any written
or oral
acknowledgement of any previous debt, much less create an obligation
to pay ona
renewed one.” Id; emphasis added.
Stine v. Stewart, 80 8.W.3d 586, 591-592 (Tex. 2002) held that the
“well-
established” requirements of Section 16.065 require “an agreement:
1) be in writing and
? Plaintiffs sole managing partner, Wesley Jeanes, is an attorney.
> Blomstrom’s Affidavit and Exhibit B thereto were filed in connection with
the Movant’s Response to
Plaintiff's No Evidence Motion for Partial Summary Judgment, heard by
this Court on April 22.
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signed by the party to be charged; 2) contain an unequivocal acknowledgement of the
justness or the existence of the particular obligation; and 3) refer to the obligation and
express a willingness to honor the obligation. Additionally, the amount of the obligation
the acknowledgment describes must be susceptible of ready ascertainment.”
Both Petition paragraph 4.2 and the 2007 Lease Extension Agreement fail to
constitute an Acknowledgment as a matter of law. First, the 2007 Lease Extension
Agreement expressly limits the lease term to 21 months, as follows: “The extension term
of the lease shall be a period of 21 months commencing on May 1, 2006 and terminating
on January 31, 2008.” (Emphasis added, Exh. 1 at para. 1, p. 1.) The limited term
is
inconsistent with the “unequivocal” and “unconditional” promise to pay Excess Costs
back to 1994. Further, no antecedent debt is acknowledged or even mentioned in the
2007 Lease Extension Agreement. There is no prior and particular obligation
acknowledged, much less an express agreement to pay the debt of a previous tenant.
Second, the 2007 Lease Extension Agreement was signed in June 2007 -- over 1
year after the expiration of the original Lease and its various extensions. At the signing,
it
was possible Wilson Office owed Plaintiff excess costs from 2006, but it was also
possible none had accrued.
Third, the 2007 Lease Extension Agreement is silent on “past due” amounts,
although Plaintiff originally sought “all past due amounts due” (which Wilson Office did
not sign). There is no express and unequivocal statement agreeing to pay past due
expenses or waiving and reviving the statute of limitations. It is well settled that “an
agreement to toll the statute of limitations must be specific and for a reasonable time.”
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Page 5
Am. Alloy Steel, Inc., Armco, Inc. 777 8.W. 2D 173,177 (Tex App.-Houston 14" Dist.
1989).
Fourth, a promise to pay amounts due or accrued is exactly the generic obligation
of all tenants under a lease. At the summary judgment hearing, this Court rejected
Plaintiff's arguments that the words “due or accrued” meant Defendants had promised to
perpetually pay any and all amounts ever due or accrued under the original Lease and its
many extensions, or for the debts of another.
Fifth, the 2007 Lease Extension Agreement fails to overcome the Statute of
Frauds. Neither the Petition’s paragraph 4.2 nor the 2007 Lease Extension Agreement
show that Wilson Office expressly agreed to pay the particular and antecedent
obligation of the prior tenants, WG and/or Hill. The 2007 Lease Extension Agreement
should not be construed to contradict the prior Assignment, which in four places states
that Wilson Office did not assume liabilities that might have arisen prior to August 5,
2005 (Exh. 4, at Introduction, {| B, Preamble, and§ 5). The Assignment’s first paragraph
states the agreement is, “effective as of August 7, 2005 (the ‘Effective Date’).” The
Recital paragraph B states,
“Assignee (Wilson Office) has agreed to accept the
Assignment and to assume (the ‘Assumption’) all of
Assignor’s rights (WG) and obligations under the Lease
from and after the Effective Date, and has requested
Landlord consent to such Assignment and Assumption”
(emphasis added).
The Preamble to the numbered paragraphs states,
“...Assignor and Assignee agree to the following effective
as of the Effective Date: * * * 2. Assumption. Assignee
hereby assumes and promises to pay Landlord all the rent
and other sums due or becoming due under the terms of the
Lease ....”
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Paragraph 5 at page 2 states, “...the parties agree that the recitals above shall be
contractual and not merely recitals” (Emphasis added). No other document states that
Wilson Office agreed to be liable for the prior tenant’s debts. Under section 26.01 of the
Texas Business & Commerce Code, the Statute of Frauds prohibits Plaintiff from creating
liability for the debt of another without an express, written agreement and the exchange of
consideration. The Parol Evidence Rule prohibits Plaintiff from contradicting the written
agreements.
Sixth, although the Petition alleges that Wilson Office agreed to pay the audit
amount, this alone fails to constitute an express agreement to pay an antecedent debt or
the debt incurred by others. Every tenant would expect a landlord to audit its operating
expenses to determine what amounts, if any, might be rightfully due or accrued to that
tenant. Wilson Office was the current tenant and had occupied the property almost two
years. Thus, it was possible that Excess Costs were owed for 2006. Clearly, Petition
paragraph 4.2 and the 2007 Lease Extension Agreement fail to “contain an unequivocal
acknowledgment of the justness or the existence of the particular obligation, and... refer
to the obligation.” Stine, supra, at 591-592.
Lastly, the 2007 Lease Extension Agreement made payment conditional on
Plaintiff's compliance with its own conditions precedent, which Plaintiff failed to do.
Some of the conditions precedent are stated on page 1 of Exhibit 1, as follows:
Landlord shall conduct an audit of all amounts due or accrued under the
lease and shall submit such audit, together with supporting receipts and
invoices, to Tenant on or before November 1, 2007. Tenant shall pay, on
or before December 1, 2007, all amounts due or accrued under the lease as
of November 1, 2007, as shown by the audit. (Emphasis added.)
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Setting aside no audit was performed, Plaintiff failed to submit its operative
“audit” prior to the November 1* deadline. Plaintiff has conceded that its purported
“audit” on October 30 was inaccurate, so Plaintiff recalculated its data and sent Wilson
Office the operative “audit” on November 29. (Exh. 6, Sierra depo at 63:21-65:9.) Thus,
Plaintiff failed to comply with the November 1“ condition precedent.
Stewart, supra, is instructive. There, plaintiff lent her daughter and son-in-law
$100,000 to buy a house. In return they executed a promissory note to plaintiff. They
subsequently divorced, and in their divorce agreement promised to repay plaintiff
$50,000 from the proceeds from the sale of the house. The son-in-law refused to honor
the agreement. The agreement provided as follows:
The parties agree that with regard to the note to
[plaintiff], after application of the proceeds of the
residence at [address], if there are any amounts owing to
[plaintiff] the remaining balance owing to her will be
appropriated 50% to [daughter] and said 50% to [son-in-
law] and said 50% from each party will be due and
payable upon the determination that the proceeds from
the sale of said residence are not sufficient to repay said
$50,000.00 in full.
The Court found this agreement met the statutory prerequisites. Here, in contrast, the
2007 Lease Extension Agreement falls short.
Another case that illustrates the defects with Plaintiff's Acknowledgment
allegation is Doncaster, supra. There, Doncaster solicited from plaintiff $100,000 in 2
payments for an investment opportunity with a third party, who failed to repay the money.
Doncaster and plaintiff executed the following agreement:
“I, Anita S. Doncaster,...obligate myself to pay to [plaintiff] of Mexico, D.F. the
sum of $100,000 by April 30, 1998 or before that date with an interest rate of 7%
when due. This amount shall be paid to cover the present debt of [the third party]
to [plaintiff]. To date [plaintiff] has a promissory note from [the third party],
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which is for the same amount. When I pay this promissory note I will receive said
document (original).” (Id. at p.600)
This money was not repaid. The Doncaster court found this agreement constituted
an
acknowledgement, because it expressly referenced the antecedent debt and the debt
amount. Here, the opposite is true. Even today, Plaintiff has failed to perform an audit or
produce an accurate accounting of its operating expenses.
Accordingly, Movant Wilson Office Interiors LLC seeks a partial summary
judgment that the 2007 Lease Extension Agreement fails to constitute an
Acknowledgment under Section 16.065, that Petition paragraph 4.2 be stricken, and that
Excess Costs accrued prior to February 1, 2006 are barred by the statute of limitations.
WHEREFORE, Defendant Wilson Office Interiors, LLC prays that this Court set
this matter for hearing, and that upon same, it grant this Motion in its entirety, and tax
all
costs of Court against Plaintiff, and for all other and further relief, in law or in equity, to
which Defendant Wilson Office Interiors, LLC may show itself justly entitled.
Respectfully submitted,
GIBSON, MeCLURE, WALLACE
& DANIELS, L.L.P.
Evelyn A. Yae:
Texas Bar No. 00789740
8080 N. Central Expressway
Suite 1300, LB 50
Dallas, Texas 75206-1838
(214) 891-8040
(214) 891-8010 Telecopy
WILSON OFFICE INTERIORS’ 2" MOTION FOR PARTIAL SUMMARY JUDGMEN
T Page 9
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Jean A. Hobart
Texas Bar No. 09736620
Tucker, Ellis & West, LLP
515 South Flower Street, 42" Floor
Los Angeles, California 90071
(213) 430-3400
(213) 430-3409 Telecopy
CERTIFICATE OF SERVICE
Thereby certify that on this 16 day of June, 2011, a true and correct copy of the
foregoing instrument was forwarded via certified mail, return receipt requested to the
following:
L. Randall Yazbeck
5050 Quorum Drive
Suite 140
Dallas, Texas 75254
Charles C. Frederiksen
Glast, Phillips & Murray
14801 Quorum Drive, Suite 500
Dallas, Texas 75254
John Helms
Helms, Johnson & Diaz
660 N. Central Expressway
Suite 560
Dallas, Texas 75206
R. Ritch Roberts, III
R. Ritch Roberts, P.L.L.C.
9090 Skillman St., Suite 182-A310
Dallas, TX 75243-8262
Evelyn Yi er
WILSON OFFICE INTERIORS’ 2™ MOTION FOR PARTIAL SUMMARY JUDGMENT Page 10
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EXHIBIT 1
a
te
STATE OF TEXAS
COUNTY OF DALLAS
—LEASE
— EX TEE
R NSN
ION AG
AGRE
REEM
EMEN
ENT
T -
KNOW ALL MEN BY THES
E PRESENTS:
SierraInvestment Associates
as Landlord, and Wilson Office
Interiors, LLC, as
Science of The Wilson Group,
Lid, as Tenant, hereby agree to exend
the 1903
Commercial Lease, telating to
the property and improvements
located at 1540 Champion
Dave in the City of Cano
n, Texas, for an extension ter
m, The extension term of
the
lease shall be a period of
21 months commencing on
May 1,2006 and tenminati
ng on
Janu
31,
ar200
y8,
The rent during the extension
term shall be $467,579.49,
being $4.76 per building
Sma {ot per annum, payable
in 21 monthly installments
of $22,265.69 each, due in
advance on the first day of
each calendar month. The
expense Stop shall be $70,72
6.32
Per annum, being $1.26 per
building square foot per annum,
thereby yielding net reat of
$3.50 per building square foo
t per annum,
Landlord shall conduct an aud
it of all amounts due or accrue
d under the lease and
Sint swbmit such audit, tog
ether with supporting recip
and invoices, to Tenant on ox
before November 1, 2007. Ten
ant shall pay, on or before
December 1, 2007, all amount
s
due or accrued under the
lease as of November 1,
2007, as shown by the aud
it.
Except as modified
by this extensicn agement. ~all of the te
rm
of s
the 1993
Comms Tease shal
rein in fll ce and effet, and shall
mite on Jamary
31, 2008. Provided, ho wever, this Lease
Extension Agreement shal
l not serve to revive,
=
LEASE EXTENSION AG
REEMENT — Page 1
renew or extend any renewal option or extension optio
n contained in the 1993
Commercial Lease, all of such renewal options and exten
sion options having previously
expired.
Date: June 26, 2007
Sierra Investment As ciate
oll) MW hil LWA
C, Wes ry Je nes, Genet
Dn Partner
Wilson Office Interiors, L.L.C.
By:
nae
Robert Rlomstrom, President
LEASE EXTENSION AGREEMENT— Page
2
EXHIBIT 2
NO. DC-10-01167
SIERRA INVESTMENT ASSOCIATES, IN THE DISTRICT COURT OF
Plaintiff,
Vv. OF DALLAS COUNTY, TEXAS
WILSON OFFICE INTERIORS, LLC;
THE WILSON GROUP, LTD.; ROBERT
BLOMSTROM; B. DONALD HILL, JR.
Defendants. 298" JUDICIAL DISTRICT
PLAINTIFF’S THIRD AMENDED PETITION
TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW Sierra Investment Associates, Plaintiff, complaining of Wilson Office
Interiors, LLC, The Wilson Group, Ltd., Robert Blomstrom, and B. Donald Hill, Jr., Defendants,
and for cause of action would show as follows:
I
PARTIES
Ll Sierra Investment Associates (“Sierra”) is a Texas general partnership. Sierra has
heretofore made a general appearance in this case.
1.2 Wilson Office Interiors, LLC (“Wilson Office”) is a Delaware limited liability
company. Wilson Office has heretofore made a general appearance in this case.
1,3 The Wilson Group, Ltd. (“Wilson Group”) is a Nevada corporation. Wilson
Group has heretofore made a general appearance in this case.
14 Robert Blomstrom (“Blomstrom”) is an individual residing in Tarrant County,
Texas. Blomstrom has heretofore made a general appearance in this case.
15 B. Donald Hill, Jr. (“Hill) is an individual residing in Collin County, Texas. Hill
PLAINTIFF’S THIRD AMENDED PETITION Pagel
has heretofore made a general appearance in this case. Suit is brought against Hill in his
individual capacity and as a trustee of Wilson Group.
I.
JURISDICTION AND VENUE
21 The Court is vested with jurisdiction in this case because the case involves claims
for damages in an amount in excess of $10,000, and because the events and transactions upon
which the claims are based occurred in substantial part in Dallas County, Texas.
2.2 The Court is vested with venue in this case because the case involves the breach
of contracts performable in Dallas County, Texas, because the case involves tort claims arising
from events and transactions which occurred in substantial part in Dallas County, Texas, because
Wilson Office has its principal business office in Texas within Dallas County, Texas, and
because all defendants have been properly joined in this case.
Tl.
DISCOVERY LEVEL
Sierra designates Discovery Level 2 to control the discovery process in this case,
pursuant to Rule 190.3 of the Texas Rules of Civil Procedure.
Iv.
BREACH OF CONTRACT
41 Sierra entered into a written lease agreement with Wilson Group in 1993 for the
use and occupancy of the commercial warehouse located at 1540 Champion Drive in Carrollton,
Texas. Multiple written lease extension agreements were executed by Wilson Group and Sierra
prior to 2004, extending that lease through April, 2006. In August, 2005, that lease was assigned
to, and assumed by, Wilson Office pursuant to a written assignment agreement. In that
PLAINTIFF’S THIRD AMENDED PETITION Page 2
assignment agreement, Wilson Office specifically and expressly agreed to assume and pay all
amounts due or becoming due under that lease. Because of such contractual covenant, Sierra
was a third party beneficiary of the assignment agreement. In June, 2007, a written lease
extension agreement concerning that lease was executed by Wilson Office, wherein Wilson
Office specifically and expressly agreed to make an interim payment of operating expenses
accrued during the lease term. That lease extension agreement extended the lease through
January, 2008, and amended the lease to require an interim expense reimbursement on a specific
date in December, 2007.
4.2 The lease extension agreement also constituted an acknowledgment of the
existence and justness of Sierra’s claim for reimbursement of operating expenses, sufficient
under Section 16.065 of the Texas Civil Practice & Remedies.Code, and constituted a new and
collateral promise to pay the operating expenses. The written lease extension agreement, dated
June 26, 2007, was executed by Wilson Office Interiors, LLC. Additionally, the lease extension
contains an unequivocal acknowledgement of the existence of Wilson Office Interiors’
obligation to pay all amounts due or accrued under the Lease, as submitted and detailed in the
form of an audit. Wilson Office Interiors’ obligation was to pay those sums on or before
December 1, 2007. The lease extension agreement clearly expresses a willingness and obligation
of Wilson Office Interiors to honor the audit results. The amount of the audit results was readily
ascertainable, as admitted by each of the Defendants in their pleadings.
43 When presented in 2007 with a written interim statement of amounts due under
the lease for operating expenses, and Sierra’s demand for payment, both Wilson Office and
Wilson Group failed and refused to pay or otherwise perform, immediately or within the period
for cure under the concerned agreements, in knowing breach of the lease, the assignment
PLAINTIFF’S THIRD AMENDED PETITION Page 3
agreement, and the written lease extension agreements with Sierra. Following the expiration of
the term of the lease in 2008, Sierra again made written demand upon Wilson Office and Wilson
Group for reimbursement of operating expenses. Again both Wilson Office and Wilson Group
refused to make any reimbursement. Such failures and refusals by Wilson Group and Wilson
Office have proximately and directly caused Sierra to suffer and incur damages in an amount
exceeding $200,000, for which Sierra hereby seeks recovery and judgment as a contract party
and/or as a third party beneficiary.
44 While in the possession of the premises at 1540 Champion Drive, employees of
Wilson Office and Wilson Group, and invitees of Wilson Office and Wilson Group, physically
damaged portions of the improvements to the property. Such physical damage was far in excess
of normal wear and tear. Such physical damage was not repaired or remediated by Wilson
Office or Wilson Group prior to the end of the term of the lease as extended, nor did Wilson
Office or Wilson Group pay or reimburse Sierra for such physical damage or the costs of
remediation, immediately or within the period for cure, as they were contractually obligated to
do under the lease and assignment agreement. Such physical damage and costs of remediation
have caused Sierra to suffer and incur damages in an amount exceeding $40,000, for which
Sierra hereby seeks recovery and judgment as a contract party and/or as a third party beneficiary.
Sierra has performed all conditions precedent to its contract claims, or all such conditions
precedent have occurred,
Vv.
CONVERSION
In the process of vacating the premises at 1540 Champion Drive, Wilson Office,
Blomstrom and persons acting under the direction and supervision of Blomstrom intentionally
PLAINTIFF’S THIRD AMENDED PETITION Page 4
removed from the premises property of Sierra, some of which had been permanently attached to
and incorporated within the structure. Such conduct constitutes intentional conversion of the
property of Sierra, and has proximately and directly caused Sierra to suffer and incur damages in
an amount exceeding $2,000. The conversion was knowing, intentional and malicious, and
therefore Sierra for further seeks punitive damages in an amount exceeding $15,000. Sierra
seeks the recovery of such economic and punitive damages against Wilson Office and
Blomstrom, jointly and severally.
VI.
PROMISSORY FRAUD AND FRAUDULENT INDUCEMENT
6.1 In connection with the negotiation and execution of the June, 2007 lease
extension agreement, Wilson Office and Blomstrom knowingly and intentionally falsely
promised performance and payments which they at the time of the execution of such agreement
had no intention of performing, In June, 2007, Wilson Office and Blomstrom promised the
reimbursement of expenses incurred by Sierra prior to August, 2005, and when such promises
were made Wilson Office and Blomstrom had no present intent of ever making such
reimbursements. Such false promises of performance were made by Blomstrom, acting with
authority or apparent authority, in the course and scope of his actions as an officer and managing
representative of Wilson Office. Wilson Office benefitted from the fraud, and by and through
Blomstrom, knew of the fraud. Wilson Office also ratified the conduct of Blomstrom. Wilson
Office is therefore responsible and liable for all damages incurred by Sierra and caused by such
false promises and fraudulent inducement.
6.2 Such false promises of performance constitute promissory fraud and fraudulent
inducement. Sierra reasonably and justifiably relied to its detriment upon such false promises of
PLAINTIFF’S THIRD AMENDED PETITION Page 5
performance, and thereby suffered economic damages in an amount in excess of $50,000.
Among such damages, and without limitation, was unpaid holdover rent in an amount in excess
of $50,000, under Section 18 of the lease. Sierra was induced by the false promises of
Blomstrom and Wilson Office to enter into the 2007 lease extension agreement, and, among
other things, thereby receive rent in an amount substantially less than the holdover rent required
by Section 18 of the lease. But for the false promises of performance of Blomstrom and Wilson
Office, Sierra would not have executed the June, 2007 lease extension agreement. Sierra seeks
economic damages with respect to such promissory fraud and fraudulent inducement against
Blomstrom and Wilson Office, jointly and severally, in an amount in excess of $50,000.
6.3 The false promises and the fraudulent inducement of Blomstrom and Wilson
Office were committed knowingly, intentionally and with legal malice. Accordingly, Sierra
seeks punitive and exemplary damages against Blomstrom and Wilson Office, jointly and
severally, in an amount in excess of $500,000.
VIL
IMPROPER DISTRIBUTIONS AND DISREGARD
OF THE CORPORATE STRUCTURE
7A Hill has improperly distributed to himself retained earnings and other capital from
Wilson Group, without paying, and without making adequate provision for the payment of,
amounts due to Sierra, or which Hill knew would become due to Sierra, under the lease for the
property at 1540 Champion Drive. Hill has stripped and denuded Wilson Group of all of its
assets and net worth, and rendered it inadequately capitalized and financially incapable of
fulfilling its contractual obligations to Sierra, and also financially incapable of paying any
liability or judgment assessed against Wilson Group in this case. The stripping and denuding of
Wilson Group of all its assets and net worth has thereby worked an injustice upon Sierra. The
PLAINTIFF’S THIRD AMENDED PETITION Page 6
stripping and denuding of Wilson Group was knowingly and intentionally directed by Hill.
72 By such conduct, Hill has knowingly and intentionally used the corporate
structure of Wilson Group as a sham to perpetrate an actual fraud upon Sierra, for the direct and
personal benefit of Hill. By such conduct, Hill and Wilson Group have perpetrated an actual
fraud upon Sierra. Moreover, Hill has used the corporate structure of Wilson Group as a mere
business conduit of Hill personally. As such, because of such actions and intent, and because of
such improper distributions, under the common law of Texas Hill is personally obligated to pay
all of the amounts due and owing by Wilson Group to Sierra, or repatriate such amounts to
Wilson Group, for recapture and payment to Sierra. Additionally, the corporate structure of
Wilson Group should be disregarded, and judgment for all of the liabilities and obligations of
Wilson Group, and for all damages in favor of Sierra and against Wilson Office as determined in
this case, should be assessed against and imposed upon Hill individually and personally.
73 Wilson Group is a Nevada corporation. At all times relevant to this case, Hill was
an officer, director and shareholder of Wilson Group. Under Sections 78.010(1)(c) and 78.590
of the Nevada Revised Statutes, Hill was a trustee of Wilson Group and its assets. Because of
the actions and conduct of Wilson Group and Hill detailed in paragraphs 7.1 and 7.2 above,
Wilson Group and Hill have made improper distributions in knowing and intentional violation of
Sections 78.300 and 78.595 of the Nevada Revised Statutes and Hill is personally liable to Sierra
for the amount of such improper distributions. Such conduct also renders Hill as the alter ego of
Wilson Group under Section 78.747 of the Nevada Revised Statutes. As such, Hill, acting as the
alter ego of Wilson Group, is personally liable under Section 78.747 of the Nevada Revised
Statutes to Sierra for all of the contractual obligations of Wilson Group to Sierra. The three
criteria listed in Section 78.747(2) Nevada Revised Statutes all exist in this case, as a matter of
PLAINTIFF’S THIRD AMENDED PETITION Page 7
law. Under Sections 1.102, 1.104 and 1.105 of the Texas Business Organizations Code, Nevada
statutory law is applicable in this case.
Vil.
CONDITIONS PRECEDENT
Pursuant to Rule 54, T.R.CP., Sierra affirmatively avers that all conditions precedent to
its recovery and right to judgment have been performed or have occurred.
IX.
NOTICE AND ESTOPPEL
The concerned 1993 lease, as extended, contains thirty day cure periods in Section
15(a)(1) and (2) and Section 16(a) of said lease. None of the defendants in this case ever gave
Sierra any notice of default in the form required by Section 21 of the lease sufficient to
commence the cure period. Therefore, under the doctrines of estoppel by contract and quasi-
estoppel, defendants are estopped and precluded from asserting Sierra’s breach of the lease, or
failure to comply with any condition precedent under the lease as extended, in this case.
Defendants are estopped from denying, and estopped from disregarding, the express cure periods
contained in the lease, and are estopped from asserting any right inconsistent with the cure
periods and the duties of notice contained in the lease.
x
ATTORNEY’S FEES
Pursuant to the concerned lease, and pursuant to Chapter 38 of the Texas Civil Practice
and Remedies Code, Sierra is entitled to recover from Wilson Group, Wilson Office and Hill all
attorney’s fees and legal expenses incurred by Sierra in the prosecution of this case. Sierra seeks
recover of all attomey’s fees and costs incurred by Sierra in the prosecution of this case.
PLAINTIFF’S THIRD AMENDED PETITION Page 8
XI.
PRAYER
WHEREFORE, such premises considered, Sierra respectfully prays that upon final trial
or hearing in this case:
a. Sierra recover judgment against Wilson Office and Wilson Group, jointly and
severally, for damages in an amount in excess of $300,000 for breach of contract;
Sierra recover further judgment against Wilson Office and Blomstrom, jointly and
severally, for damages in an amount in excess of $2,000 for conversion;
Sierra recover further judgment against Wilson Office and Blomstrom, jointly and
severally, for economic damages in an amount in excess of $50,000 for
promissory fraud;
Sierra recover further judgment against Wilson Office and Blomstrom, jointly and
severally, for punitive and exemplary damages in an amount in excess of
$1,000,000;
Sierra further recover judgment against Wilson Group and Hill, jointly and
severally, for economic damages in an amount in excess of $300,00 for improper
distributions from Wilson Group to Hill and in disregard of the corporate structure
of Wilson Group;
Sierra
Preview
Filed 11) une 16 P2:49 Gary Fitzsimmons District Clerk Dallas District CAUSE NO. 10-01167 SIERRA INVESTMENT ASSOCIATES, § IN THE DISTRICT COURT OF Plaintiff/Counter-Defendant § § Vv. § WILSON OFFICE INTERIORS, LLC, § ROBERT BLOMSTROM 298" JUDICIAL DISTRICT § Defendants/Cross-Claimants, Counter-Plaintiff Vv. B. DONALD HILL, JR. and THE WILSON GROUP, LTD., Defendants/Cross-Defendants. DALLAS COUNTY, TEXAS DEFENDANT WILSON OFFICE INTERIORS LLC’S SECOND MOTION FOR PARTIAL E S SUMMARY L REMIJUDG MENT MEIN COMES NOW, Defendant/Cross-Claimant Wilson Office Interio rs LLC (“Wilson Office’ ”) and asks the Court to enter a partial summary judgment against Plaintiff, Sierra Investment Associates (“Plaintiff”), that the 2007 Lease Extens ion Agreement fails to constitute an Acknowledgment of a debt under Section 16.065 of the Texas Civil Practice & Remedies Code and striking paragraph 4.2 from Plaintiff's Third Amended Petition, and would respectfully show as follows: SUMMARY This is a lease dispute over whether Plaintiff, as landlord, is entitled under its written lease to recoup over $200,000 for costs for taxes, insuran ce, maintenance, and repairs to the premises from 1994 through 2007 (“Excess Costs”). This Court heard the parties’ motions for partial summary judgments on April 22, 2011. In the motions and at the hearing, Wilson Office expressly argued that the 2007 Lease Extens ion Agreement (Exhibit 1) failed to revive stale claims, failed to constitute an Ackno wledgement, and WILSON OFFICE INTERIORS? 2" MOTION FOR PARTI Lalmanage\065688.0001 AL SUMMARY JUDGMENT Page 1 69\718436.1-J76 failed to satisfy the statute of frauds for expenses incurred under the prior tenants, co- defendants The Wilson Group Ltd. (“WG”) and Mr. Hill and/or prior to Wilson Office’s assumption of the Lease in 2005. This Court ruled that the 4-year statute of limitations barred claims for Excess Costs accrued (i.e., incurred) prior to February 1, 2006 (more than 4 years prior to the filing of theaction).1 Despite the Court’s ruling, Plaintiff filed a Third Amended Petition (“Petition,” Exh. 2) which retained its claim for Excess Costs “in excess of $200,000” against defendants -- which necessarily includes the barred claims. In addition, the Petition added a new paragraph 4.2, that attempts to plead that the 2007 Lease Extension Agreement is an Acknowledgement of the antecedent debt going back to 1994. Paragraph 4.2 is quoted below: 4.2 The lease extension agreement also constituted an acknowledgment of the existence and justness of Sierra’s claim for reimbursement of operating expenses, sufficient under Section 16.065 of the Texas Civil Practice & Remedies Code, and constitute a new and collateral promise to pay the operating expenses. The written lease extension agreement, dated June 26, 2007, was executed by Wilson Office Interiors LLC. Additionally, the lease extension contains an unequivocal acknowledgement of the existence of Wilson Office Interiors’ obligation to pay all amounts due or accrued under the Lease as submitted and detailed in the form of an audit. Wilson Office Interiors’ obligation was to pay those sums on or before December 1, 2007. The Lease extension agreement clearly expresses a willingness and obligation of Wilson Office Interiors to honor the audit results. The amount of the audit results was readily ascertainable, as admitted by each of the defendants in their pleadings. (Emphasis added; Petition at p. 5 at Exhibit 2.) The agreement underlined above is attached hereto as Exhibit 1. Both paragraph 4.2 and the 2007 Lease Extension Agreement fail to constitute an Acknowledgement and are contrary to the law. ' According to Plaintiff's calculations, the Excess Costs after 02/06 are less than $12,000. WILSON OFFICE INTERIORS’ 2 MOTION FOR PARTIAL SUMMARY JUDGMENT Page 2 Lalmanage\065688.000169\718436.1-J76 FACTS The original lease (“Lease” at Exh. 3) was signed in 1993 by Plainti ff and co- defendant WG, for a term from September 1993 to April 2000. The Lease provided that Plaintiff would recoup annually from the tenant any Excess Costs that might be incurred for annual, combined costs for taxes, fire insurance, maintenance, and repairs that exceeded the annual, threshold amount stated in the Lease. Such expens es are not a given, and are conditional on whether the expenses exceed the threshold amount. The Lease expired in 2000 and was extended by WG and Plaintiff several times by written extensions, with no mention of the statute of limitations or Excess Costs due or owing. Movant Wilson Office, an entirely separate company and tenant from co- defendant WG, assumed the Lease but not WG’s prior liabilities effecti ve August 7, 2005 via a written Assignment Of Lease Agreement And Landlord’s Consen t (“Assignment”, Exh. 4). In April 2006, the latest lease extension expired, and Wilson Office continued its tenancy month-to-month. Over one year later, on June 26, 2007, Plaintiff and Wilson Office executed the 2007 Lease Extension Agreement (Exh. 1) for a 21-month lease term, retroactive to April 2006. The Petition now alleges Exhibit 1 is an Acknow ledgment sufficient to make Wilson Office liable for Excess Costs accrued back to 1994 when co- defendants were tenants. (Petition para. 4.2, Exh. 2.) The 2007 Lease Extension Agreement expressly limited the lease term to 21 months, as follows: [The parties] agree to extend the 1993 Commercial Lease... for an extension term. The extension term of the lease shall be a period of 21 months commencing on May 1, 2006 and terminating on January 31, 2008. (Exhibit 1, p. 1.) WILSON OFFICE INTERIORS’ 2™ MOTION FOR PARTIA L SUMMARY JUDGMENT Page3 Lalmanage\065688.000169\718436.1-J76 Because the lease term was limited to 21 months, any Excess Costs that might be “due or accrued” were limited to the stated term. The 2007 Lease Extens ion Agreement was drafted by Plaintiff.? Before Exhibit 1 was drafted, Plainti ff drafted an earlier version of the agreement, quoted in part below, which sought to have Wilson Office pay for Excess Costs that were “past due”: Landlord shall conduct an audit of all past due amounts due under the lease... Tenant shall pay all past due amounts under the lease on or before Decemb er 1, 2007. (Em, phasis added; Exh. 5, Blomstrom’s Affid. at p. 2, para. 3 and Exhibit B thereto.) Wilson Office did not sign this version, and did not agree to be liable for past due debts. (Exh. 5, Blomstrom Affid. at p. 2, para. 3.) ARGUMENT AND AUTHORITIES “Whether a written instrument sufficiently acknowledges a debt barred by limitations is a question of law.” Doncaster v, Hernaiz, 161 S.W.3d 594, 605 (Tex. App- San Antonio 2005). Eldridge v. Collard, 834 S.W.2d 87, 89 (Tex. App. — Ft. Worth 1992), teaches that the correct practice is either to quote the writing alleged to constitute the new promise, or to attach it to the pleading as an exhibit. Plaintiff did neither. The Eldridge court held that the pleadings there “do not establish any written or oral acknowledgement of any previous debt, much less create an obligation to pay ona renewed one.” Id; emphasis added. Stine v. Stewart, 80 8.W.3d 586, 591-592 (Tex. 2002) held that the “well- established” requirements of Section 16.065 require “an agreement: 1) be in writing and ? Plaintiffs sole managing partner, Wesley Jeanes, is an attorney. > Blomstrom’s Affidavit and Exhibit B thereto were filed in connection with the Movant’s Response to Plaintiff's No Evidence Motion for Partial Summary Judgment, heard by this Court on April 22. WILSON OFFICE INTERIORS? 2" MOTION FOR PARTIAL SUMMA Lalmanage\065688.0001 RY JUDGMENT Page 4 69\718436.1-J76 signed by the party to be charged; 2) contain an unequivocal acknowledgement of the justness or the existence of the particular obligation; and 3) refer to the obligation and express a willingness to honor the obligation. Additionally, the amount of the obligation the acknowledgment describes must be susceptible of ready ascertainment.” Both Petition paragraph 4.2 and the 2007 Lease Extension Agreement fail to constitute an Acknowledgment as a matter of law. First, the 2007 Lease Extension Agreement expressly limits the lease term to 21 months, as follows: “The extension term of the lease shall be a period of 21 months commencing on May 1, 2006 and terminating on January 31, 2008.” (Emphasis added, Exh. 1 at para. 1, p. 1.) The limited term is inconsistent with the “unequivocal” and “unconditional” promise to pay Excess Costs back to 1994. Further, no antecedent debt is acknowledged or even mentioned in the 2007 Lease Extension Agreement. There is no prior and particular obligation acknowledged, much less an express agreement to pay the debt of a previous tenant. Second, the 2007 Lease Extension Agreement was signed in June 2007 -- over 1 year after the expiration of the original Lease and its various extensions. At the signing, it was possible Wilson Office owed Plaintiff excess costs from 2006, but it was also possible none had accrued. Third, the 2007 Lease Extension Agreement is silent on “past due” amounts, although Plaintiff originally sought “all past due amounts due” (which Wilson Office did not sign). There is no express and unequivocal statement agreeing to pay past due expenses or waiving and reviving the statute of limitations. It is well settled that “an agreement to toll the statute of limitations must be specific and for a reasonable time.” WILSON OFFICE INTERIORS’ 2" MOTION FOR PARTIAL SUMMARY JUDGMENT Lalmanage\065688.000169\718436.1-J76 Page 5 Am. Alloy Steel, Inc., Armco, Inc. 777 8.W. 2D 173,177 (Tex App.-Houston 14" Dist. 1989). Fourth, a promise to pay amounts due or accrued is exactly the generic obligation of all tenants under a lease. At the summary judgment hearing, this Court rejected Plaintiff's arguments that the words “due or accrued” meant Defendants had promised to perpetually pay any and all amounts ever due or accrued under the original Lease and its many extensions, or for the debts of another. Fifth, the 2007 Lease Extension Agreement fails to overcome the Statute of Frauds. Neither the Petition’s paragraph 4.2 nor the 2007 Lease Extension Agreement show that Wilson Office expressly agreed to pay the particular and antecedent obligation of the prior tenants, WG and/or Hill. The 2007 Lease Extension Agreement should not be construed to contradict the prior Assignment, which in four places states that Wilson Office did not assume liabilities that might have arisen prior to August 5, 2005 (Exh. 4, at Introduction, {| B, Preamble, and§ 5). The Assignment’s first paragraph states the agreement is, “effective as of August 7, 2005 (the ‘Effective Date’).” The Recital paragraph B states, “Assignee (Wilson Office) has agreed to accept the Assignment and to assume (the ‘Assumption’) all of Assignor’s rights (WG) and obligations under the Lease from and after the Effective Date, and has requested Landlord consent to such Assignment and Assumption” (emphasis added). The Preamble to the numbered paragraphs states, “...Assignor and Assignee agree to the following effective as of the Effective Date: * * * 2. Assumption. Assignee hereby assumes and promises to pay Landlord all the rent and other sums due or becoming due under the terms of the Lease ....” WILSON OFFICE INTERIORS’ 2"* MOTION FOR PARTIAL SUMMARY JUDGMENT Page 6 Lalmanage\065688.000169\718436.1-J76 Paragraph 5 at page 2 states, “...the parties agree that the recitals above shall be contractual and not merely recitals” (Emphasis added). No other document states that Wilson Office agreed to be liable for the prior tenant’s debts. Under section 26.01 of the Texas Business & Commerce Code, the Statute of Frauds prohibits Plaintiff from creating liability for the debt of another without an express, written agreement and the exchange of consideration. The Parol Evidence Rule prohibits Plaintiff from contradicting the written agreements. Sixth, although the Petition alleges that Wilson Office agreed to pay the audit amount, this alone fails to constitute an express agreement to pay an antecedent debt or the debt incurred by others. Every tenant would expect a landlord to audit its operating expenses to determine what amounts, if any, might be rightfully due or accrued to that tenant. Wilson Office was the current tenant and had occupied the property almost two years. Thus, it was possible that Excess Costs were owed for 2006. Clearly, Petition paragraph 4.2 and the 2007 Lease Extension Agreement fail to “contain an unequivocal acknowledgment of the justness or the existence of the particular obligation, and... refer to the obligation.” Stine, supra, at 591-592. Lastly, the 2007 Lease Extension Agreement made payment conditional on Plaintiff's compliance with its own conditions precedent, which Plaintiff failed to do. Some of the conditions precedent are stated on page 1 of Exhibit 1, as follows: Landlord shall conduct an audit of all amounts due or accrued under the lease and shall submit such audit, together with supporting receipts and invoices, to Tenant on or before November 1, 2007. Tenant shall pay, on or before December 1, 2007, all amounts due or accrued under the lease as of November 1, 2007, as shown by the audit. (Emphasis added.) WILSON OFFICE INTERIORS’ 2" MOTION FOR PARTIAL SUMMARY JUDGMENT Page7 Lalmanage\065688.000169\718436.1-J76 Setting aside no audit was performed, Plaintiff failed to submit its operative “audit” prior to the November 1* deadline. Plaintiff has conceded that its purported “audit” on October 30 was inaccurate, so Plaintiff recalculated its data and sent Wilson Office the operative “audit” on November 29. (Exh. 6, Sierra depo at 63:21-65:9.) Thus, Plaintiff failed to comply with the November 1“ condition precedent. Stewart, supra, is instructive. There, plaintiff lent her daughter and son-in-law $100,000 to buy a house. In return they executed a promissory note to plaintiff. They subsequently divorced, and in their divorce agreement promised to repay plaintiff $50,000 from the proceeds from the sale of the house. The son-in-law refused to honor the agreement. The agreement provided as follows: The parties agree that with regard to the note to [plaintiff], after application of the proceeds of the residence at [address], if there are any amounts owing to [plaintiff] the remaining balance owing to her will be appropriated 50% to [daughter] and said 50% to [son-in- law] and said 50% from each party will be due and payable upon the determination that the proceeds from the sale of said residence are not sufficient to repay said $50,000.00 in full. The Court found this agreement met the statutory prerequisites. Here, in contrast, the 2007 Lease Extension Agreement falls short. Another case that illustrates the defects with Plaintiff's Acknowledgment allegation is Doncaster, supra. There, Doncaster solicited from plaintiff $100,000 in 2 payments for an investment opportunity with a third party, who failed to repay the money. Doncaster and plaintiff executed the following agreement: “I, Anita S. Doncaster,...obligate myself to pay to [plaintiff] of Mexico, D.F. the sum of $100,000 by April 30, 1998 or before that date with an interest rate of 7% when due. This amount shall be paid to cover the present debt of [the third party] to [plaintiff]. To date [plaintiff] has a promissory note from [the third party], WILSON OFFICE INTERIORS’ 2" MOTION FOR PARTIAL SUMMARY JUDGMENT Page 8 Lalmanage\065688.000169\718436.1-J76 which is for the same amount. When I pay this promissory note I will receive said document (original).” (Id. at p.600) This money was not repaid. The Doncaster court found this agreement constituted an acknowledgement, because it expressly referenced the antecedent debt and the debt amount. Here, the opposite is true. Even today, Plaintiff has failed to perform an audit or produce an accurate accounting of its operating expenses. Accordingly, Movant Wilson Office Interiors LLC seeks a partial summary judgment that the 2007 Lease Extension Agreement fails to constitute an Acknowledgment under Section 16.065, that Petition paragraph 4.2 be stricken, and that Excess Costs accrued prior to February 1, 2006 are barred by the statute of limitations. WHEREFORE, Defendant Wilson Office Interiors, LLC prays that this Court set this matter for hearing, and that upon same, it grant this Motion in its entirety, and tax all costs of Court against Plaintiff, and for all other and further relief, in law or in equity, to which Defendant Wilson Office Interiors, LLC may show itself justly entitled. Respectfully submitted, GIBSON, MeCLURE, WALLACE & DANIELS, L.L.P. Evelyn A. Yae: Texas Bar No. 00789740 8080 N. Central Expressway Suite 1300, LB 50 Dallas, Texas 75206-1838 (214) 891-8040 (214) 891-8010 Telecopy WILSON OFFICE INTERIORS’ 2" MOTION FOR PARTIAL SUMMARY JUDGMEN T Page 9 Lalmanage\065688.000169\718436.1-J76 Jean A. Hobart Texas Bar No. 09736620 Tucker, Ellis & West, LLP 515 South Flower Street, 42" Floor Los Angeles, California 90071 (213) 430-3400 (213) 430-3409 Telecopy CERTIFICATE OF SERVICE Thereby certify that on this 16 day of June, 2011, a true and correct copy of the foregoing instrument was forwarded via certified mail, return receipt requested to the following: L. Randall Yazbeck 5050 Quorum Drive Suite 140 Dallas, Texas 75254 Charles C. Frederiksen Glast, Phillips & Murray 14801 Quorum Drive, Suite 500 Dallas, Texas 75254 John Helms Helms, Johnson & Diaz 660 N. Central Expressway Suite 560 Dallas, Texas 75206 R. Ritch Roberts, III R. Ritch Roberts, P.L.L.C. 9090 Skillman St., Suite 182-A310 Dallas, TX 75243-8262 Evelyn Yi er WILSON OFFICE INTERIORS’ 2™ MOTION FOR PARTIAL SUMMARY JUDGMENT Page 10 Lalmanage\065688,000169\718436.1-J76 EXHIBIT 1 a te STATE OF TEXAS COUNTY OF DALLAS —LEASE — EX TEE R NSN ION AG AGRE REEM EMEN ENT T - KNOW ALL MEN BY THES E PRESENTS: SierraInvestment Associates as Landlord, and Wilson Office Interiors, LLC, as Science of The Wilson Group, Lid, as Tenant, hereby agree to exend the 1903 Commercial Lease, telating to the property and improvements located at 1540 Champion Dave in the City of Cano n, Texas, for an extension ter m, The extension term of the lease shall be a period of 21 months commencing on May 1,2006 and tenminati ng on Janu 31, ar200 y8, The rent during the extension term shall be $467,579.49, being $4.76 per building Sma {ot per annum, payable in 21 monthly installments of $22,265.69 each, due in advance on the first day of each calendar month. The expense Stop shall be $70,72 6.32 Per annum, being $1.26 per building square foot per annum, thereby yielding net reat of $3.50 per building square foo t per annum, Landlord shall conduct an aud it of all amounts due or accrue d under the lease and Sint swbmit such audit, tog ether with supporting recip and invoices, to Tenant on ox before November 1, 2007. Ten ant shall pay, on or before December 1, 2007, all amount s due or accrued under the lease as of November 1, 2007, as shown by the aud it. Except as modified by this extensicn agement. ~all of the te rm of s the 1993 Comms Tease shal rein in fll ce and effet, and shall mite on Jamary 31, 2008. Provided, ho wever, this Lease Extension Agreement shal l not serve to revive, = LEASE EXTENSION AG REEMENT — Page 1 renew or extend any renewal option or extension optio n contained in the 1993 Commercial Lease, all of such renewal options and exten sion options having previously expired. Date: June 26, 2007 Sierra Investment As ciate oll) MW hil LWA C, Wes ry Je nes, Genet Dn Partner Wilson Office Interiors, L.L.C. By: nae Robert Rlomstrom, President LEASE EXTENSION AGREEMENT— Page 2 EXHIBIT 2 NO. DC-10-01167 SIERRA INVESTMENT ASSOCIATES, IN THE DISTRICT COURT OF Plaintiff, Vv. OF DALLAS COUNTY, TEXAS WILSON OFFICE INTERIORS, LLC; THE WILSON GROUP, LTD.; ROBERT BLOMSTROM; B. DONALD HILL, JR. Defendants. 298" JUDICIAL DISTRICT PLAINTIFF’S THIRD AMENDED PETITION TO THE HONORABLE JUDGE OF SAID COURT: COMES NOW Sierra Investment Associates, Plaintiff, complaining of Wilson Office Interiors, LLC, The Wilson Group, Ltd., Robert Blomstrom, and B. Donald Hill, Jr., Defendants, and for cause of action would show as follows: I PARTIES Ll Sierra Investment Associates (“Sierra”) is a Texas general partnership. Sierra has heretofore made a general appearance in this case. 1.2 Wilson Office Interiors, LLC (“Wilson Office”) is a Delaware limited liability company. Wilson Office has heretofore made a general appearance in this case. 1,3 The Wilson Group, Ltd. (“Wilson Group”) is a Nevada corporation. Wilson Group has heretofore made a general appearance in this case. 14 Robert Blomstrom (“Blomstrom”) is an individual residing in Tarrant County, Texas. Blomstrom has heretofore made a general appearance in this case. 15 B. Donald Hill, Jr. (“Hill) is an individual residing in Collin County, Texas. Hill PLAINTIFF’S THIRD AMENDED PETITION Pagel has heretofore made a general appearance in this case. Suit is brought against Hill in his individual capacity and as a trustee of Wilson Group. I. JURISDICTION AND VENUE 21 The Court is vested with jurisdiction in this case because the case involves claims for damages in an amount in excess of $10,000, and because the events and transactions upon which the claims are based occurred in substantial part in Dallas County, Texas. 2.2 The Court is vested with venue in this case because the case involves the breach of contracts performable in Dallas County, Texas, because the case involves tort claims arising from events and transactions which occurred in substantial part in Dallas County, Texas, because Wilson Office has its principal business office in Texas within Dallas County, Texas, and because all defendants have been properly joined in this case. Tl. DISCOVERY LEVEL Sierra designates Discovery Level 2 to control the discovery process in this case, pursuant to Rule 190.3 of the Texas Rules of Civil Procedure. Iv. BREACH OF CONTRACT 41 Sierra entered into a written lease agreement with Wilson Group in 1993 for the use and occupancy of the commercial warehouse located at 1540 Champion Drive in Carrollton, Texas. Multiple written lease extension agreements were executed by Wilson Group and Sierra prior to 2004, extending that lease through April, 2006. In August, 2005, that lease was assigned to, and assumed by, Wilson Office pursuant to a written assignment agreement. In that PLAINTIFF’S THIRD AMENDED PETITION Page 2 assignment agreement, Wilson Office specifically and expressly agreed to assume and pay all amounts due or becoming due under that lease. Because of such contractual covenant, Sierra was a third party beneficiary of the assignment agreement. In June, 2007, a written lease extension agreement concerning that lease was executed by Wilson Office, wherein Wilson Office specifically and expressly agreed to make an interim payment of operating expenses accrued during the lease term. That lease extension agreement extended the lease through January, 2008, and amended the lease to require an interim expense reimbursement on a specific date in December, 2007. 4.2 The lease extension agreement also constituted an acknowledgment of the existence and justness of Sierra’s claim for reimbursement of operating expenses, sufficient under Section 16.065 of the Texas Civil Practice & Remedies.Code, and constituted a new and collateral promise to pay the operating expenses. The written lease extension agreement, dated June 26, 2007, was executed by Wilson Office Interiors, LLC. Additionally, the lease extension contains an unequivocal acknowledgement of the existence of Wilson Office Interiors’ obligation to pay all amounts due or accrued under the Lease, as submitted and detailed in the form of an audit. Wilson Office Interiors’ obligation was to pay those sums on or before December 1, 2007. The lease extension agreement clearly expresses a willingness and obligation of Wilson Office Interiors to honor the audit results. The amount of the audit results was readily ascertainable, as admitted by each of the Defendants in their pleadings. 43 When presented in 2007 with a written interim statement of amounts due under the lease for operating expenses, and Sierra’s demand for payment, both Wilson Office and Wilson Group failed and refused to pay or otherwise perform, immediately or within the period for cure under the concerned agreements, in knowing breach of the lease, the assignment PLAINTIFF’S THIRD AMENDED PETITION Page 3 agreement, and the written lease extension agreements with Sierra. Following the expiration of the term of the lease in 2008, Sierra again made written demand upon Wilson Office and Wilson Group for reimbursement of operating expenses. Again both Wilson Office and Wilson Group refused to make any reimbursement. Such failures and refusals by Wilson Group and Wilson Office have proximately and directly caused Sierra to suffer and incur damages in an amount exceeding $200,000, for which Sierra hereby seeks recovery and judgment as a contract party and/or as a third party beneficiary. 44 While in the possession of the premises at 1540 Champion Drive, employees of Wilson Office and Wilson Group, and invitees of Wilson Office and Wilson Group, physically damaged portions of the improvements to the property. Such physical damage was far in excess of normal wear and tear. Such physical damage was not repaired or remediated by Wilson Office or Wilson Group prior to the end of the term of the lease as extended, nor did Wilson Office or Wilson Group pay or reimburse Sierra for such physical damage or the costs of remediation, immediately or within the period for cure, as they were contractually obligated to do under the lease and assignment agreement. Such physical damage and costs of remediation have caused Sierra to suffer and incur damages in an amount exceeding $40,000, for which Sierra hereby seeks recovery and judgment as a contract party and/or as a third party beneficiary. Sierra has performed all conditions precedent to its contract claims, or all such conditions precedent have occurred, Vv. CONVERSION In the process of vacating the premises at 1540 Champion Drive, Wilson Office, Blomstrom and persons acting under the direction and supervision of Blomstrom intentionally PLAINTIFF’S THIRD AMENDED PETITION Page 4 removed from the premises property of Sierra, some of which had been permanently attached to and incorporated within the structure. Such conduct constitutes intentional conversion of the property of Sierra, and has proximately and directly caused Sierra to suffer and incur damages in an amount exceeding $2,000. The conversion was knowing, intentional and malicious, and therefore Sierra for further seeks punitive damages in an amount exceeding $15,000. Sierra seeks the recovery of such economic and punitive damages against Wilson Office and Blomstrom, jointly and severally. VI. PROMISSORY FRAUD AND FRAUDULENT INDUCEMENT 6.1 In connection with the negotiation and execution of the June, 2007 lease extension agreement, Wilson Office and Blomstrom knowingly and intentionally falsely promised performance and payments which they at the time of the execution of such agreement had no intention of performing, In June, 2007, Wilson Office and Blomstrom promised the reimbursement of expenses incurred by Sierra prior to August, 2005, and when such promises were made Wilson Office and Blomstrom had no present intent of ever making such reimbursements. Such false promises of performance were made by Blomstrom, acting with authority or apparent authority, in the course and scope of his actions as an officer and managing representative of Wilson Office. Wilson Office benefitted from the fraud, and by and through Blomstrom, knew of the fraud. Wilson Office also ratified the conduct of Blomstrom. Wilson Office is therefore responsible and liable for all damages incurred by Sierra and caused by such false promises and fraudulent inducement. 6.2 Such false promises of performance constitute promissory fraud and fraudulent inducement. Sierra reasonably and justifiably relied to its detriment upon such false promises of PLAINTIFF’S THIRD AMENDED PETITION Page 5 performance, and thereby suffered economic damages in an amount in excess of $50,000. Among such damages, and without limitation, was unpaid holdover rent in an amount in excess of $50,000, under Section 18 of the lease. Sierra was induced by the false promises of Blomstrom and Wilson Office to enter into the 2007 lease extension agreement, and, among other things, thereby receive rent in an amount substantially less than the holdover rent required by Section 18 of the lease. But for the false promises of performance of Blomstrom and Wilson Office, Sierra would not have executed the June, 2007 lease extension agreement. Sierra seeks economic damages with respect to such promissory fraud and fraudulent inducement against Blomstrom and Wilson Office, jointly and severally, in an amount in excess of $50,000. 6.3 The false promises and the fraudulent inducement of Blomstrom and Wilson Office were committed knowingly, intentionally and with legal malice. Accordingly, Sierra seeks punitive and exemplary damages against Blomstrom and Wilson Office, jointly and severally, in an amount in excess of $500,000. VIL IMPROPER DISTRIBUTIONS AND DISREGARD OF THE CORPORATE STRUCTURE 7A Hill has improperly distributed to himself retained earnings and other capital from Wilson Group, without paying, and without making adequate provision for the payment of, amounts due to Sierra, or which Hill knew would become due to Sierra, under the lease for the property at 1540 Champion Drive. Hill has stripped and denuded Wilson Group of all of its assets and net worth, and rendered it inadequately capitalized and financially incapable of fulfilling its contractual obligations to Sierra, and also financially incapable of paying any liability or judgment assessed against Wilson Group in this case. The stripping and denuding of Wilson Group of all its assets and net worth has thereby worked an injustice upon Sierra. The PLAINTIFF’S THIRD AMENDED PETITION Page 6 stripping and denuding of Wilson Group was knowingly and intentionally directed by Hill. 72 By such conduct, Hill has knowingly and intentionally used the corporate structure of Wilson Group as a sham to perpetrate an actual fraud upon Sierra, for the direct and personal benefit of Hill. By such conduct, Hill and Wilson Group have perpetrated an actual fraud upon Sierra. Moreover, Hill has used the corporate structure of Wilson Group as a mere business conduit of Hill personally. As such, because of such actions and intent, and because of such improper distributions, under the common law of Texas Hill is personally obligated to pay all of the amounts due and owing by Wilson Group to Sierra, or repatriate such amounts to Wilson Group, for recapture and payment to Sierra. Additionally, the corporate structure of Wilson Group should be disregarded, and judgment for all of the liabilities and obligations of Wilson Group, and for all damages in favor of Sierra and against Wilson Office as determined in this case, should be assessed against and imposed upon Hill individually and personally. 73 Wilson Group is a Nevada corporation. At all times relevant to this case, Hill was an officer, director and shareholder of Wilson Group. Under Sections 78.010(1)(c) and 78.590 of the Nevada Revised Statutes, Hill was a trustee of Wilson Group and its assets. Because of the actions and conduct of Wilson Group and Hill detailed in paragraphs 7.1 and 7.2 above, Wilson Group and Hill have made improper distributions in knowing and intentional violation of Sections 78.300 and 78.595 of the Nevada Revised Statutes and Hill is personally liable to Sierra for the amount of such improper distributions. Such conduct also renders Hill as the alter ego of Wilson Group under Section 78.747 of the Nevada Revised Statutes. As such, Hill, acting as the alter ego of Wilson Group, is personally liable under Section 78.747 of the Nevada Revised Statutes to Sierra for all of the contractual obligations of Wilson Group to Sierra. The three criteria listed in Section 78.747(2) Nevada Revised Statutes all exist in this case, as a matter of PLAINTIFF’S THIRD AMENDED PETITION Page 7 law. Under Sections 1.102, 1.104 and 1.105 of the Texas Business Organizations Code, Nevada statutory law is applicable in this case. Vil. CONDITIONS PRECEDENT Pursuant to Rule 54, T.R.CP., Sierra affirmatively avers that all conditions precedent to its recovery and right to judgment have been performed or have occurred. IX. NOTICE AND ESTOPPEL The concerned 1993 lease, as extended, contains thirty day cure periods in Section 15(a)(1) and (2) and Section 16(a) of said lease. None of the defendants in this case ever gave Sierra any notice of default in the form required by Section 21 of the lease sufficient to commence the cure period. Therefore, under the doctrines of estoppel by contract and quasi- estoppel, defendants are estopped and precluded from asserting Sierra’s breach of the lease, or failure to comply with any condition precedent under the lease as extended, in this case. Defendants are estopped from denying, and estopped from disregarding, the express cure periods contained in the lease, and are estopped from asserting any right inconsistent with the cure periods and the duties of notice contained in the lease. x ATTORNEY’S FEES Pursuant to the concerned lease, and pursuant to Chapter 38 of the Texas Civil Practice and Remedies Code, Sierra is entitled to recover from Wilson Group, Wilson Office and Hill all attorney’s fees and legal expenses incurred by Sierra in the prosecution of this case. Sierra seeks recover of all attomey’s fees and costs incurred by Sierra in the prosecution of this case. PLAINTIFF’S THIRD AMENDED PETITION Page 8 XI. PRAYER WHEREFORE, such premises considered, Sierra respectfully prays that upon final trial or hearing in this case: a. Sierra recover judgment against Wilson Office and Wilson Group, jointly and severally, for damages in an amount in excess of $300,000 for breach of contract; Sierra recover further judgment against Wilson Office and Blomstrom, jointly and severally, for damages in an amount in excess of $2,000 for conversion; Sierra recover further judgment against Wilson Office and Blomstrom, jointly and severally, for economic damages in an amount in excess of $50,000 for promissory fraud; Sierra recover further judgment against Wilson Office and Blomstrom, jointly and severally, for punitive and exemplary damages in an amount in excess of $1,000,000; Sierra further recover judgment against Wilson Group and Hill, jointly and severally, for economic damages in an amount in excess of $300,00 for improper distributions from Wilson Group to Hill and in disregard of the corporate structure of Wilson Group; Sierra