Case 4:16-cv-00773-ALM Document 43 Filed 07/12/17 Page 1 of 9 PageID #: 642
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`United States District Court
`EASTERN DISTRICT OF TEXAS
`SHERMAN DIVISION
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`THE CLEMENT GROUP, LLC.,
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`v.
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`ETD SERVICES, LLC., D/B/A THE
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`DAVITZ GROUP;
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`E. EARL DAVIS, II;
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`TARA DAVIS,
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`v.
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`BILL’S BOOKKEEPING SERVICES, LLC.
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`Civil Action No. 4:16-cv-00773
`Judge Mazzant
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`MEMORANDUM OPINION AND ORDER
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`Pending before the Court is Plaintiff’s Partial Motion to Dismiss Defendants’ First
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`Amended Counterclaim (Dkt. #13). After reviewing the pleadings, the Court finds the motion
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`should be denied.
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`BACKGROUND
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`The Clement Group, LLC (“Clement”), is an Alabama-based company operating in
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`Montgomery, Alabama (Dkt. #10 at p. 11). Clement’s members are Alabama citizens (Dkt. #10 at
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`p. 12). ETD Services, LLC d/b/a The Davitz Group (“ETD”), is a Texas-based company operating
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`in McKinney, Texas (Dkt. #10 at p. 10). ETD’s sole member is a Texas citizen (Dkt. #10 at p. 12).
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`Bill’s Bookkeeping Services, LLC (“BBS”) is an Alabama-based company operating in
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`Montgomery, Alabama (Dkt. #10 at p. 11). BBS’s members are Alabama citizens (Dkt. #10 at
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`p. 12).
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`Both Clement and ETD operate as construction companies (Dkt. #10). On May 3, 2013,
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`Clement and ETD agreed to become partners as part of the United States Small Business
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`1
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`Case 4:16-cv-00773-ALM Document 43 Filed 07/12/17 Page 2 of 9 PageID #: 643
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`Association’s Mentor/Protégé Program (the “SBA Mentor Program”) (Dkt. #10 at p. 17). Under
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`this program, ETD, the protégé, sought to gain business insight and experience in providing
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`contacting services to federal government agencies in construction and renovation projects on
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`military installations (Dkt. #10 at p. 17). The program allowed joint ventures between Clement
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`and ETD to bid for federal contracts for which the companies individually would otherwise not
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`have been eligible to bid (Dkt. #10 at p. 17). ETD alleges that Craig Clement, the president of
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`Clement, represented to Earl Davis, ETD’s sole member, that he had the experience and knowledge
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`to utilize the opportunities provided by the SBA Mentor Program (Dkt. #10 at p. 18).
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`On or about May 2014, ETD and Clement formed a joint venture known as ETD-TCG,
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`LLC (Dkt. #10 at p. 18). On July 17, 2014, ETD and Clement entered into a Joint Venture
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`Agreement to bid for projects involving construction services for the United States Army Corp of
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`Engineers (the “USACE”), Norfolk District (Dkt. #10 at p. 18). On August 12, 2014 and
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`December 18, 2014, ETD-TCG, LLC entered into two addenda to the Joint Venture Agreement to
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`provide construction services for the USACE, Mobile District (Dkt. #10 at p. 18). On January 20,
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`2015, ETD-TCG, LLC entered into another addendum to the Joint Venture Agreement to provide
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`design-build construction services to the USACE, Louisville District (collectively, the “Joint
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`Ventures”) (Dkt. #10 at p. 19).
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`Prior to Clement and ETD forming ETD-TCG, LLC, BBS performed bookkeeping services
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`for Clement (Dkt. #10 at p. 15). BBS managed a “pooling arrangement” in which participants
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`contributed a percentage of their revenue from construction projects to a general fund managed by
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`BBS (Dkt. #10 at p. 15). Participants could use the fund to pay their overhead expenses as well as
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`direct and indirect costs (Dkt. #10 at p. 15). ETD alleges it was required to participate in the
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`“pooling arrangement” during the entirety of the Joint Ventures (Dkt. #10 at p. 19).
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`Case 4:16-cv-00773-ALM Document 43 Filed 07/12/17 Page 3 of 9 PageID #: 644
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`ETD alleges that “from the beginning of the operation of the Joint Ventures” it expressed
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`concerns to Clement that “all did not seem appropriate with respect to the allocations for costs and
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`expenses of the Joint Ventures, the profits and losses of the Joint Ventures.” (Dkt. #10 at p. 19).
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`ETD alleges it received limited financial reports and that BBS and Clement ignored its requests
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`for project information and pay requests (Dkt. #10 at p. 19–20). Specifically, ETD alleges that in
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`September 2015, it sought bonding coverage for a construction project in Arkansas from Baldwin
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`Cox (Dkt. #10 at p. 20). ETD alleges that as part of its bond application, it provided Baldwin Cox
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`a set of financial records prepared by BBS (Dkt. #10 at p 20). ETD alleges that Baldwin Cox
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`found the financial records reflected a $1.1 million distribution to ETD’s members (Dkt. #10 at
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`p. 20). ETD alleges that during that same period, BBS advised Earl Davis that ETD’s financial
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`records reflected a $600,000 loss (Dkt. #10 at p. 20). ETD alleges it continued to ask BBS and
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`Clement about this apparent discrepancy and BBS and Clement refused to respond to ETD. ETD
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`alleges that, on information and belief, Clement and BBS charged ETD-TCG, LLC excessive
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`consulting fees (Dkt. #10 at p. 20).
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`ETD alleges that ETD and Clement met several times in late 2015 and early 2016 to attempt
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`to resolve the dispute (Dkt. #10 at p.21). As a part of the discussions between Earl Davis and
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`Craig Clement, ETD alleges Craig Clement proposed that Clement enter into a subcontract with
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`ETD-TCG, LLC (Dkt. #10 at p. 21). Pursuant to the subcontract, Clement would perform the
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`administration of ETD-TCG, LLC’s contract with the USACE for various projects pending
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`between the two entities (Dkt. #10 at p. 21). ETD alleges Craig Clement “made assurances to
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`ETD” that such a subcontract was acceptable to the SBA Mentor Program and that Clement’s
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`position as a subcontractor of ETD-TCG, LLC would not negatively affect ETD’s financial
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`position in ETD-TCG, LLC (Dkt. #10 at p. 21). On February 15, 2016, ETD-TCG, LLC entered
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`Case 4:16-cv-00773-ALM Document 43 Filed 07/12/17 Page 4 of 9 PageID #: 645
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`into a subcontract (the “Subcontract”) with Clement that allowed Clement to assume the role of a
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`prime subcontractor for ETD-TCG, LLC (Dkt. #10 at p. 22); (Dkt. 10, Exhibit F).
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`After the execution of the Subcontract, ETD continued to serve as ETD-TCG, LLC’s
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`project manager and remained responsible for approving pay applications addressed to the USACE
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`(Dkt. #10 at p. 22). ETD also remained responsible for approving payments to all subcontractors,
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`including Clement, in its role as subcontractor (Dkt. #10 at p. 22). ETD alleges that Clement
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`demanded that ETD approve all Clement’s pay requests to the USACE without providing
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`appropriate supporting documentation (Dkt. #10 at p. 22). On June 23, 2016, and July 5, 2016,
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`ETD sent Clement a letter terminating the subcontracts between ETD-TCG, LLC and Clement
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`(Dkt. #10 at p. 22).
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`ETD alleges Clement then advised its lower-tier subcontractors working on projects for the
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`USACE that they were no longer under contract and payment was no longer assured (Dkt. #10 at
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`p. 23). ETD also alleges that Clement informed the USACE of the dispute and that all work would
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`cease on USACE projects (Dkt. #10 at p. 23). On July 11, 2016 and July 21, 2016, the USACE
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`issued ETD, Clement, and ETD-TCG, LLC notices threatening to terminate the contract between
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`the USACE and ETD-TCG, LLC for cause (the “Cure Notices”) (Dkt. #10 at p. 23); (Dkt. #10,
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`Exhibit G). In response to the Cure Notices, ETD issued a partial rescission of the cancellation of
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`the Subcontract in order to allow lower-tier subcontractors working under Clement to continue to
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`work on the USACE projects (Dkt. #10 at p. 23). ETD also agreed to approve pay requests from
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`lower-tier subcontractors provided ETD received sufficient documentation establishing such
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`subbcontrators’ right to payment (Dkt. #10 at p. 23)
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`On October 7, 2016, Clement brought suit against ETD, alleging breach of contract, breach
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`of fiduciary duty, defamation, conversion, unjust enrichment and fraud (Dkt. #1). On December
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`Case 4:16-cv-00773-ALM Document 43 Filed 07/12/17 Page 5 of 9 PageID #: 646
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`26, 2016, ETD filed a First Amended Original Answer, Affirmative Defenses, and Counter-
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`Complaint (Dkt. #10). ETD brings counterclaims against Clement for breach of contract, breach
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`of fiduciary duty, unjust enrichment, common law fraud, and statutory fraud under the Texas
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`Deceptive Trade Practices Act (“DTPA”) (Dkt. #10). ETD’s Counter-Complaint included a Third-
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`Party Complaint against BBS alleging unjust enrichment, common law fraud, and statutory fraud
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`under the DTPA (Dkt. #10).
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`On January 9, 2017, Clement filed its Partial Motion to Dismiss ETD’s First Amended
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`Counterclaim (Dkt. #13). Clement seeks to dismiss ETD’s statutory fraud and DTPA claims. On
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`February 1, 2017, ETD filed a response (Dkt. #19). On January 31, 2017, Clement filed a reply
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`(Dkt. #18).
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`LEGAL STANDARD
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`The Federal Rules of Civil Procedure require that each claim in a complaint include a “short
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`and plain statement . . . showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Each
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`claim must include enough factual allegations “to raise a right to relief above the speculative level.”
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`Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
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`A Rule 12(b)(6) motion allows a party to move for dismissal of an action when the
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`complaint fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). When
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`considering a motion to dismiss under Rule 12(b)(6), the Court must accept as true all well-pleaded
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`facts in plaintiff’s complaint and view those facts in the light most favorable to the plaintiff.
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`Bowlby v. City of Aberdeen, 681 F.3d 215, 219 (5th Cir. 2012). The Court may consider “the
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`complaint, any documents attached to the complaint, and any documents attached to the motion to
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`dismiss that are central to the claim and referenced by the complaint.” Lone Star Fund V (U.S.),
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`L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010). The Court must then determine
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`Case 4:16-cv-00773-ALM Document 43 Filed 07/12/17 Page 6 of 9 PageID #: 647
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`whether the complaint states a claim for relief that is plausible on its face. ‘“A claim has facial
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`plausibility when the plaintiff pleads factual content that allows the [C]ourt to draw the reasonable
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`inference that the defendant is liable for the misconduct alleged.’” Gonzalez v. Kay, 577 F.3d 600,
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`603 (5th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “But where the well-
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`pleaded facts do not permit the [C]ourt to infer more than the mere possibility of misconduct, the
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`complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’” Iqbal,
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`556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
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`In Iqbal, the Supreme Court established a two-step approach for assessing the sufficiency
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`of a complaint in the context of a Rule 12(b)(6) motion. First, the Court should identify and
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`disregard conclusory allegations, for they are “not entitled to the assumption of truth.” Iqbal, 556
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`U.S. at 664. Second, the Court “consider[s] the factual allegations in [the complaint] to determine
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`if they plausibly suggest an entitlement to relief.” Id. “This standard ‘simply calls for enough
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`facts to raise a reasonable expectation that discovery will reveal evidence of the necessary claims
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`or elements.’” Morgan v. Hubert, 335 F. App’x 466, 470 (5th Cir. 2009) (citation omitted). This
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`evaluation will “be a context-specific task that requires the reviewing [C]ourt to draw on its judicial
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`experience and common sense.” Iqbal, 556 U.S. at 679.
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`Thus, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter,
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`accepted as true, to ‘state a claim to relief that is plausible on its face.”’ Id. at 678 (quoting
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`Twombly, 550 U.S. at 570).
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`Common Law Fraud
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`ANALYSIS
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`ETD alleges that Clement “made material misrepresentations” regarding the Subcontract
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`the parties entered into on February 15, 2016 (Dkt. #10 at p. 27); (Dkt. 10, Exhibit F). The
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`Subcontract allowed Clement to assume the role of prime subcontractor for ETD-TCG, LLC (Dkt.
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`#10 at p. 22). ETD alleges Clement made material representations that “the Subcontract would be
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`managed in a fair and equitable manner” (Dkt. #10 at p. 27). ETD alleges that the Subcontract
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`instead permitted Clement, with the aid and assistance of BBS, to misdirect funds to Clement and
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`BBS (Dkt. #10 at p. 27). ETD alleges these funds should have been paid to ETD-TCG, LLC and
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`accrued to the benefit of ETD (Dkt. #10 at p. 27).
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`Clement moves to dismiss the common law fraud claim, arguing that ETD has not met the
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`heightened pleading requirements of Federal Rule of Civil Procedure 9(b) (Dkt. #13 at p. 7).
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`Clement alleges
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`that ETD has not explained “any details of Clements’ supposed
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`misrepresentations other than to allege that Clement stated that the Subcontracts would be ‘fair
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`and equitable,’ and that Clement caused unspecified sums of money to be ‘misdirected.’” (Dkt. #13
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`at p. 9). Clement also argues that ETD has not established the reasonable reliance element of a
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`fraud claim (Dkt. #13 at p. 8).
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`To state a claim for fraud, a plaintiff must show: (1) a material misrepresentation or
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`omission; (2) that is false; (3) made with knowledge of its falsity or recklessness as to its truth; (4)
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`made with the intention that it should be acted upon by another party; (5) relied upon by the other
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`party, and (6) causing injury. Jag Media *213 Holdings Inc. v. A.G. Edwards & Sons Inc., 387 F.
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`Supp. 2d 691, 709 (S.D. Tex. 2004); Ernst & Young, L.L.P v. Pac. Mut. Life Ins. Co., 51 S.W.3d
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`573, 577 (Tex. 2001). Under Rule 9(b), allegations of fraud are subject to a heightened pleading
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`standard that requires a plaintiff to “state with particularity the circumstances constituting fraud.”
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`Fed. R. Civ. P. 9(b); Whiddon v. Chase Home Finance, LLC, 666 F. Supp. 2d 681, 690 (E.D. Tex
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`2009). To state a claim for fraud, the plaintiff must plead the “who, what, when, where, and how.”
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`Williams v. WMX Technologies, Inc., 112 F.3d 175, 179 (5th Cir. 1997).
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`The Court finds that ETD has failed to plead its claim for fraud with sufficient particularity
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`to survive the requirements of Rule 9(b). ETD requests leave to amend its complaint if more
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`specificity is needed. Rule 15(a) directs that the Court should freely give leave when justice so
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`requires. Fed. R. Civ. 15(a)(2). The Court agrees, and finds ETD’s request for leave to amend
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`should be granted as to ETD’s common law fraud counterclaim. See Jag Media Holdings, 387 F.
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`Supp. 2d at 704 (citing Summer v. Land & Leisure, Inc., 664 F.2d 965, 971 (5th Cir. 1981) (finding
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`that “[w]hen a party has failed to plead with sufficient particularity, the Court will almost always
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`permit leave to amend to bring the complaint into compliance with the requirements of Rule
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`9(b).”)).
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`DTPA
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`Clement next moves to dismiss ETD’s DTPA claim, arguing ETD is not a consumer under
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`the DTPA.
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`A DTPA claim requires the claimant to establish: (1) that he is a consumer of the
`defendant’s goods or services; (2) that the defendant committed a false, misleading,
`or deceptive act in connection with the lease or sale of goods or services, breached
`an express or implied warranty, or engaged in an unconscionable action or course
`of action; and (3) that such actions were the producing cause of the . . . actual
`damages. In order to qualify as a consumer under the DTPA a person must seek or
`acquire goods or services by lease or purchase and the goods or services sought or
`acquired must form the basis of [that person’s] compliant.
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`Perkins v. Bank of Am., 602 F. App’x 178, 182 (5th Cir. 2015) (internal citations and quotations
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`omitted). Clement argues ETD did not purchase goods or services from Clement.
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`However, ETD alleges that at the time it joined the “pooling arrangement,” Clement and
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`BBS “had been involved in operating, directing and/or managing the Pooling Arrangement for
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`several years and assigning and accepting excessive payments from the Pooling Arrangement, at
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`the direction and with the consent” of Clement and BBS (Dkt. #10 at p. 30). ETD argues that
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`Clement and BBS provided and facilitated accounting services and bond acquisition services for
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`Case 4:16-cv-00773-ALM Document 43 Filed 07/12/17 Page 9 of 9 PageID #: 650
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`ETD. ETD has sufficiently alleged that it was a consumer under the DTPA. Clement’s motion to
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`dismiss ETD’s DTPA claim is therefore denied.
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`CONCLUSION
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`The Court therefore ORDERS ETD to file an amended counterclaim as to its common law
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`fraud counterclaim within ten (10) days of this order. It is further ORDERED that Clement’s
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`motion to dismiss ETD’s common law fraud counterclaim is DENIED AS MOOT (Dkt. #13).
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`The remainder of Clement’s motion to dismiss (Dkt. #13) is hereby DENIED.
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