Case: 23-50297 Document: 58-1 Page: 1 Date Filed: 03/05/2024
United States Court of Appeals
for the Fifth Circuit
____________
United States Court of Appeals
Fifth Circuit
No. 23-50297
____________ FILED
March 5, 2024
Dean Chase, Lyle W. Cayce
Clerk
Plaintiff—Appellant,
versus
Ryan E. Hodge; Helping Hands Capital, L.L.C., a Texas
Limited Liability Company,
Defendants—Appellees.
______________________________
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:20-CV-175
______________________________
Before Davis, Southwick, and Ho, Circuit Judges.
Leslie H. Southwick, Circuit Judge:
This litigation is a business dispute over the formation and ownership
of a limited liability company. The plaintiff alleges there was an agreement
with the defendant that the plaintiff would be an equal owner of the business,
but the company was improperly formed with the defendant as the sole
owner. The district court granted summary judgment to the defendant based
on, among other grounds, the statute of limitations and the statute of frauds.
We AFFIRM.
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FACTUAL AND PROCEDURAL BACKGROUND
Dean Chase, Ryan E. Hodge, and Mark Guedri owned HMR Funding,
a business that provided case-expense loans for litigants. In 2013, they
decided to form a business to make pre-settlement medical advancement
loans to litigants, with the loans to be secured by future proceeds of any
lawsuit settlement. Chase alleges Hodge, as attorney for both Chase and
Guedri, was to form the entity, and the parties would have equal ownership
interests in the business and split the profits equally. There is no written
agreement among the parties and thus no text to interpret.
Helping Hands Capital, LLC was formed as a Texas limited liability
company on March 28, 2013. Only Hodge was listed on the Certificate of
Formation as the managing member of the business. Hodge was also named
in the initial Company Operating Agreement as the sole owner of Helping
Hands’ member units. Neither Guedri nor Chase was ever listed as owners
in any document.
In 2016, Guedri transferred any interest he had in Helping Hands back
to the business. Chase’s sworn declaration states that after the transfer,
Hodge informed him they were now 50/50 partners. Distributions to both
Hodge and Chase were made on a 50/50 basis until early 2018. Chase then
began insisting that Hodge provide him with Helping Hands’ financial
information, but Hodge responded in April 2018 that Chase held an
“economic benefit only” in the company, not “legal ownership,” and
Helping Hands was “owned 100% by a trust.” Chase contends that this was
the point when Hodge began excluding him from the business, causing a
breach of contract claim to accrue.
In an April 2018 email, Hodge wrote Chase that the agreement among
the three initial parties was “a gentleman’s agreement of ownership,” but
neither Chase nor “Guedri have ever made any capital contributions to the
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company nor have either of [them] ever made any capital available to the
company in any form.” The agreement was not one where they would each
be owners but was one “for distribution of economic interests.” Hodge, after
writing in an email that the company was owned by a trust, later described
Chase’s interest as “economic benefit only and not legal ownership.” Hodge
also wrote that some of the lawyers with whom Helping Hands does business
“do not hold [Chase] in high regard,” and it was important that none of them
believe Chase was an owner.
Chase and Hodge met in Washington, D.C. in May 2018 to resolve
their ownership disputes. Hodge allegedly reassured Chase they were 50/50
partners in Helping Hands; they would continue to work together on the
business; and Chase would have “complete and unlimited access” to all
Helping Hands’ books. Chase insists such access was never provided,
though Hodge did forward “preliminary financials” to Chase in January
2019.
Chase’s affidavit asserts he had no idea Hodge would not honor their
agreement and tried to resolve their disagreements throughout 2019.
Chase’s affidavit states that Hodge confirmed several times, both orally and
in writing, the existence of a 50/50 ownership agreement. Further, Chase
was asked to vote on periodic corporate matters. In September 2019, Hodge
emailed Chase and requested that Chase sell his interests to him, or, in the
alternative, threatened to transfer Chase’s money out of the company and
dissolve it.
Chase filed a petition in Texas state district court in February 2020,
naming Hodge, his ex-wife Stephanie Hodge, 1 and Helping Hands as
defendants. Chase asserted seven different causes of action related to
_____________________
1
The district court dismissed Stephanie Hodge as a party on June 23, 2021.
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Hodge’s assertion of sole ownership of Helping Hands and sought a
declaratory judgment and the appointment of a receiver. Helping Hands
removed the case to federal district court based on diversity jurisdiction. All
defendants filed motions to dismiss pursuant to Federal Rule of Civil
Procedure 12(b). Following limited discovery, Chase filed his first amended
complaint in September 2020, which is the live complaint.
The defendants again filed Rule 12(b)(6) motions to dismiss. A
magistrate judge issued a Report and Recommendation in May 2021,
recommending the district court dismiss all claims against both defendants
except those for breach of fiduciary duty and breach of contract, and also
dismiss the requests for declaratory judgment and appointment of a receiver.
The district court adopted this recommendation. Those rulings are not
contested now.
In July 2022, the defendants filed a motion for summary judgment on
Chase’s remaining claims. The parties then consented to have all remaining
proceedings, including entry of final judgment, conducted by a magistrate
judge. See 28 U.S.C. § 636(c). Because the magistrate judge was assigned
the court’s authority, we will refer to the judge as the district court. In
January 2023, the district court granted the defendants’ summary judgment
motion. After the court denied reconsideration, Chase timely appealed.
DISCUSSION
We review a district court’s grant of summary judgment de novo,
applying the same standards as the district court. Keller Founds., Inc. v.
Wausau Underwriters Ins. Co., 626 F.3d 871, 873 (5th Cir. 2010). Summary
judgment is appropriate “if the movant shows there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of
law.” FED. R. CIV. P. 56(a). The court’s factual and legal conclusions are
reviewed de novo when determining if there is a genuine issue of material fact.
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See Guy v. Cockrell, 343 F.3d 348, 351 (5th Cir. 2003). The evidence
presented is viewed and any reasonable inferences are drawn in the light most
favorable to the non-moving party. Ezell v. Kan. City S. Ry. Co.,
866 F.3d
294, 298 (5th Cir. 2017).
Chase argues the district court erred in holding that (1) the statute of
limitations barred his claims, (2) the statute of frauds prevents enforcement
of the purported contract, and (3) the purported contract was too indefinite.
Chase further asserts he was entitled to a declaratory judgment and the
appointment of a receiver. Because this appeal can be resolved solely on the
issue of the applicability of the statute of frauds, that is the only issue we
address.
Under Texas law, promises and agreements are unenforceable if they
fall within the statute of frauds. TEX. BUS. & COM. CODE § 26.01.
Whether the statute of frauds applies to an agreement is a question of law.
Dynegy, Inc. v. Yates, 422 S.W.3d 638, 642 (Tex. 2013). These defendants
properly raised this affirmative defense in their answers to the amended
complaint. See TEX. R. CIV. P. 94. The relevant state statute provides that
if certain agreements are not in writing and signed by the party to be bound
by the agreement, they are unenforceable. BUS. & COM. § 26.01(a). These
requirements apply to, among other categories, agreements that are “not to
be performed within one year from the date of making the agreement.”
§ 26.01(b)(6).
Chase asserts the statute of frauds is inapplicable to his claims because
the agreement could have been performed within one year. The general
principle is that if the terms of an agreement render it impossible to be
completed within one year, the agreement is unenforceable without a signed
writing. Hairston v. S. Methodist Univ., 441 S.W.3d 327, 333–34 (Tex. App.—
Dallas 2013, pet. denied). A different but consistent articulation is “that,
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where the agreement, either by its terms or by the nature of the required acts,
cannot be completed within one year, it falls within the statute and must
therefore be in writing.” Niday v. Niday, 643 S.W.2d 919, 920 (Tex. 1982)
(emphasis in original) (citing Hall v. Hall,
308 S.W.2d 12 (1957)). The Niday
court distinguished its holding from caselaw “that, where the parties do not
fix the time of performance and the agreement itself does not indicate that it
cannot be performed within one year, the contract does not violate the
statute.”
Id. (citing Miller v. Riata Cadillac Co.,
517 S.W.2d 773 (Tex. 1974)).
Even when a date for performance is not stated, the nature of the contract
may mandate its existence for more than a year.
We have interpreted these holdings this way: “when no time for
performance has been specified in the agreement, a reasonable time will be
implied on the basis of all circumstances surrounding adoption of the
agreement, the situation of the parties, and the subject matter of the
agreement.” Mercer v. C. A. Roberts Co., 570 F.2d 1232, 1236 (5th Cir. 1978).
Similarly, Texas state court opinions have occasionally relied on a finding of
whether a reasonable time for performance of an oral contract would be more
than one year. In Hall, the Texas Supreme Court found an oral contract for
a manufacturing partner to develop sales territory that did not contain an
explicit performance duration to be subject to the statute of frauds. Hall, 308
S.W.2d at 15–17. The court held that “[w]hat is a reasonable time must be
determined by the circumstances in evidence surrounding the situation of the
parties and the subject-matter under which the contract was executed.”
Id.
at 16–17 (quotation marks and citations omitted).
Chase asserts it is error to look at the “intended performance of the
agreement” rather than the possibility of performance within one year. He
argues all that is necessary is the possibility the agreement could have been
completed within one year. The caselaw we have just discussed, however,
shows there is more nuance to the analysis than Chase acknowledges.
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Specific categories of contracts in which a reasonable time has been
considered when analyzing a statute of frauds issue include “exclusive
franchise or distributorship agreements, which are indefinite in duration and
which contemplate the expenditure of substantial sums of money or other
investments by one of the parties preparatory to or in accordance with his
performance under the contract.” Clear Lake City Water Auth. v. Clear Lake
Utils. Co., 549 S.W.2d 385, 391 (Tex. 1977). Therefore, the nature of an
agreement can cause a “reasonable duration” to be greater than one year and
the contract to be unenforceable under the statute of frauds. See Niday,
643
S.W.2d at 920.
When analyzing the applicability of the statute of frauds, we may “use
any reasonably clear method of ascertaining the intended length of
performance . . . to determine the parties’ intentions at the time of
contracting.” Gerstacker v. Blum Consulting Eng’rs, Inc., 884 S.W.2d 845,
850 (Tex. App.—Dallas 1994, writ denied) (citing Hall, 308 S.W.2d at 16–
17). The five-year duration of the agreement is immaterial; instead, we
consider whether it was expected, based on the nature of the agreement at
the time it was entered, that performance could have been concluded in less
than a year. Quite relevant is Hodge’s declaration where he explained
Helping Hands’ business model:
I saw a need in the market for a litigation-funding company that
provided nonrecourse funding to personal-injury claimants for
living expenses, and I began discussing that opportunity with
Mr. Chase and Mr. Guedri. The new potential litigation-funding company would operate in a similar fashion to HMR
Funding, LLC [a business providing funding for medical
expenses to personal-injury claimants], in that it would provide
non-recourse funds to injured claimants, and would collect a
fee (usually years later) if the claimant prevailed.
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It is obvious the agreement Chase entered contemplated an endeavor
that would take more than a year to perform, with expenditures and no
income at first, and potential income as claims were settled or litigated. The
nature of these contracts resembles exclusive franchise or distributorship
agreements that “contemplate the expenditure of substantial sums of money
or other investments by one of the parties preparatory to or in accordance
with his performance under the contract.” Clear Lake City Water Auth., 549
S.W.2d at 391. Thus, to split the profits Helping Hands would eventually
earn, performance needed to exceed one year.
Id.
Chase responds to such reasoning by saying “it was expected that the
agreement to start the company and share ownership equally would be
completed within a matter of weeks. It certainly was expected that the
agreement would be fulfilled within one year.” The formation of Helping
Hands was just the beginning of the performance under the agreement.
While all these first steps could be taken in less than one year, that fact hardly
matters as Chase himself insists the agreement was for more than that. This
suit claims unpaid profits earned by the business. Chase states the agreement
was a “contract to share profits,” and the parties “entered into a contract to
combine their efforts to make loans to finance litigation and split the profits
that came from those efforts.” It most certainly was not just an agreement to
form a company, then walk away.
Viewing the evidence in the light most favorable to Chase, the
circumstances surrounding the formation of the agreement and the subject-matter of the contract establish that it was an endeavor to last more than one
year. See Hall, 308 S.W.2d at 16–17.
Chase also contends partial performance removes the agreement from
the statute of frauds. Partial performance is an equitable exception to the
statute of frauds, rendering an agreement enforceable even without a signed
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writing. National Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 426
(Tex. 2015). The performance must indicate that an actual contract was
made and “must be such as could have been done with no other design than to
fulfill the particular agreement sought to be enforced.” Berryman’s S. Fork,
Inc. v. J. Baxter Brinkmann Int’l Corp.,
418 S.W.3d 172, 193 (Tex. App.—
Dallas 2013, pet. denied) (emphasis added) (quotation marks and citation
omitted). “In other words, the purpose of the . . . performance must be to
fulfill a specific agreement.” Westergren,
453 S.W.3d at 426. If the
performance does not precisely establish the specific contract sought, the
statute of frauds still applies.
Id. at 426–27.
The performance on which Chase relies is that he was paid money by
Helping Hands. According to Chase, the district court erroneously
determined these payments could have been for services Chase rendered to
Helping Hands rather than partial performance of a profit-sharing,
ownership agreement. Chase contends there was sufficient evidence of the
agreement and its partial performance to remove it from the statute of frauds.
Both parties agree, at first, there was a profit-sharing agreement with
50/50 ownership in the profits of Helping Hands. Hodge later took the
position that Chase had only an economic benefit in the company and denied
that Chase has any ownership rights. Hodge submitted a declaration that
described both Chase and Guedri as independent contractors for Helping
Hands, and the funds they received were as independent contractors.
Additionally, the tax documents Chase received were those paid to
independent contractors who have no ownership interest in a company.
Texas law requires precision in the evidence establishing a contract
based on partial performance. Exxon Corp. v. Breezevale Ltd., 82 S.W.3d 429,
440 (Tex. App.—Dallas 2002, pet. denied). Chase must show that the
payments to him could not have been made except as a share of profits:
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The partial performance must be “unequivocally referable to
the agreement and corroborative of the fact that a contract
actually was made.” The acts of performance relied upon to
take a parol contract out of the statute of frauds must be such
as could have been done with no other design than to fulfill the
particular agreement sought to be enforced; otherwise, they do
not tend to prove the existence of the parol agreement relied
upon by the plaintiff.
Id. at 439–40 (emphasis added) (citations omitted).
The evidence here does not unequivocally support the existence of a
profit-sharing contract. Both parties agreed to a profit-sharing agreement at
one point, but Hodge’s declaration and Chase’s tax documentation provide
a possible change in purpose of the payments to Chase and Guedri — their
independent contracting work. The statute of frauds thus applies to Chase’s
efforts to enforce an oral agreement. AFFIRMED.
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