2016 John Black 1L Moot Court Competition Please note: A. The Facts in this Opinion are fictional. The parties’ names and their businesses are not intended, and should not be understood, to refer to or reference any individual (living or dead) or any institution, extant or defunct. Any resemblance to any real person, organization, product or situation is purely coincidental. The Opinion below of the Harris County District Court in the State of Texas is imaginary. Conclusions of law within the Opinion do not represent the opinion of UHLC Advocates or any of its members. No inference should be drawn about any actual person, organization, product or situation on the basis of any facts or conclusions of law in this Opinion. B. The opinion in this problem frequently references the terms of a contract. The entire contract is not necessary for the purposes of the arguments in this competition. Any pertinent clauses in the contract are expressly written or mentioned within the opinion. Reasonable inferences, if any exist, may be drawn about the referenced‐to clauses. C. You may only use authorities from the List of Authorities combined with this problem. However, if there are basic principles or doctrines of law picked up in classes, you may apply those concepts to your argument, but you still may not cite to any authority outside of the list provided D. Frequently, issues in a case that conceivably could be appealed are not. This Appeals Court, like most, will not entertain arguments that are not fairly comprehended within the formal “Issues on Appeal,” which in this case are: Issue No. 1: Did the lower court err in denying summary judgment, finding that Bannister, LLC was not entitled to a judgment as a matter of law that Wolf Sports Industries, Inc. fraudulently induced Bannister, LLC into an agreement to take an ownership stake of Wyldfyre as a partner? Issue No. 2: Did the lower court err in granting summary judgment finding that Bannister, LLC breached the terms of the contract to enter into a partnership, and thus Wolf Industries is owed the remaining amount under those terms? No. 2016-99978
BANNISTER, LLC,
Plaintiff,
v.
WOLF SPORTS INDUSTRIES, INC.,
Defendant.
§
§
§
§
§
§
§
§
§
IN THE DISTRICT COURT
OF HARRIS COUNTY TEXAS
496TH JUDICIAL DISTRICT
OPINION AND ORDER GRANTING SUMMARY JUDGMENT
Plaintiff Bannister, LLC (“Bannister”), an Austin-based limited liability company filed a
cause of action against Defendant Wolf Sports Industries, Inc. (“Wolf Sports”), a closely held
Houston-based corporation, for fraudulent inducement during a transaction to enter into a
partnership between both parties without disclosing facts leading to the partnership’s business in
this particular industry eventually rendering it worthless. Bannister seeks to invalidate the
partnership agreement, and to obtain restitution of capital funding provided to the partnership.
Wolf Sports counterclaims for breach of contract, under the basis that Bannister did not
fulfill its obligations under the terms of the agreement. Wolf Sports seeks enforcement of the terms
of the contract as stipulated in Paragraph 10.
Bannister now moves for summary judgment against Wolf Sports on its claim, while in
turn, Wolf Sports files a motion for summary judgment on its counterclaim; both contending there
are no genuine disputed issues of material fact in their respective causes of action. Both parties
argue against opposing motions that various disputed issues of fact exist and that deciding these
matters on summary judgment would be inappropriate. As set forth below, this Court finds that
there are sufficient fact issues that must be resolved in the lower court for Bannister’s motion.
However, no genuine disputes of material fact exist as to Bannister’s breach of contract and Wolf
1 Sports is entitled to judgment as a matter of law. Accordingly, Bannister’s summary judgment is
denied and Wolf Sports’ motion is granted.
FACTUAL BACKGROUND
Bannister, LLC is a small family-owned investment company started by a father and son,
Byron and James Bannister in 2002. The company found its roots in an opportunity to jump in at
the ground floor with a company that was starting to revolutionize the online shopping experience.
That year, Bannister was able to sell a portion of its ownership in the company for a healthy return
of $24.2 million. This new-found wealth allowed Bannister to begin investing in areas it saw
growth. Over the next 10 years, Bannister invested in a portfolio of over 30 different companies,
in industries including tech startups, pharmaceuticals, entertainment, and education.
In 2012, the company’s portfolio began showing its age. Most of the returns in the portfolio
were starting to plateau and the company had not started any new investment projects since 2008.
Byron, the father and President of the company, wanted to bring back the growth that Bannister
experienced in the mid-2000’s. He desired to find new opportunities that would generate high rates
of return. So at the end of the year, he entrusted his son, James, with the responsibility of seeking
out new opportunities that the company could provide funding for and take an ownership interest
in that would lead to substantial investment income for the company.
During his years in college, James got really good at Fantasy Sports.1 He was involved in
almost every kind there was. From the common games of Fantasy Football, Baseball, and
Fantasy Sports - a type of online game where participants assemble imaginary or virtual teams of real players of a
professional sport. These teams compete based on the statistical performance of those players' players in actual
games. This performance is converted into points that are compiled and totaled according to a roster selected by
each fantasy team's manager. These point systems can be simple enough to be manually calculated by a "league
commissioner" who coordinates and manages the overall league, or points can be compiled and calculated using
computers tracking actual results of the professional sport. In fantasy sports, team owners draft, trade and cut (drop)
players, analogously to real sports (Definition courtesy of the esteemed experts of Wikipedia). 1
2 Basketball to the more obscure, such as Fantasy Curling. He has continued to participate in these
games, and even more impressive is that he is good at just about every one of them. He does
extensive homework on each athlete he selects for his teams and he sees value in players where
others do not. In college, when he wasn’t in class, James was working on his teams and if he was
not winning his league championships, he was at least in the championship game.
James realized in 2013 that there was a lot of potential value in fantasy sports, especially
when consumers are willing to put money down and play in leagues where the organizer can take
a cut of the fees. James predicted that these revenues could create as much as a 20-30% return on
investment if the right opportunity was found. This type of investment would be in line with what
Bannister, LLC is looking to add to their portfolio.
Wolf Sports started as a sports-entertainment company that originally set itself up to run a
sports complex that included a golf driving range, mini golf, and batting cages. What began as a
partnership, started by half-brothers John Frost and Robert Hark, turned into a booming success
when mini golf became the sport of the future, after Tiger Woods hung up his clubs for a shot at
the US Pro Mini Golf Championship.
In 2012, the brothers incorporated their business and expanded their sports complex
operations into 20 different metropolitan markets and one international venture in Costa Rica. It
was at this time that the brothers soon began planning their next steps and deciding which direction
they wanted to see Wolf Sports go. After careful discussions between the board, everyone realized
that the next potential success would be not by bringing consumers to the sports but by bringing
the sports to the consumers, in the form of fantasy sports.
3 Over the next year, Wolf Sports hired software programmers and a new marketing team to
work their Wyldfyre Division. This division was originally created to provide and market
“WYLDFYRE CHAMPS,” a fantasy sports platform for consumers.2 The WYLDFYRE
CHAMPS platform was designed to give sports fans an experience they never had with a new realtime team management simulator that would soon revolutionize the industry. The revenues were
generated through small fees collected by the consumers even though most of the fees went to
prize money for its league champions at the end of each season. By 2014, WYLDFYRE CHAMPS
was the fastest growing fantasy sports platform in the industry and it appeared to have eclipsed
anything that the brothers could have ever imagined building. This would soon change, however.
In the latter half of 2014, Wolf Sports found itself faced with two threats to its new
business. First, the amount of capital invested in its new enterprise left the company low on funds
to continue its operations without taking on massive amounts of debt. And second, states have
become all too familiar with the fantasy sports industry and legislators have begun putting the reins
on the market by taking the position that fantasy sports are more akin to gambling than to video
games.
Late in the year, state legislators started the discussion of passing new laws categorizing
fantasy sports, where consumers would pay to compete for prize money, as gambling. Legislators
in New York ultimately determined that fantasy sports are a game of chance and not skill. This
new finding soon brought fantasy sports within the purview of gambling laws. Other states began
following suit to prohibit this type of gambling and as this occurred, the customer base for the
producers in the industry, such as Wolf Sports, started to erode by a significant degree.
The Wyldfyre Division is actually a subsidiary of Wolf Sports, according to Wolf Sports executive, it was soon
dedicated to creating all kinds of new business opportunities for the corporation, from the ground up. The division
would bring in entrepreneurs to start up their companies and Wolf Sports would provide the funding for these
purposes. 2
4 At a business convention in early 2015, Robert Hark and James Bannister happened to
meet each other and began discussing their companies and opportunities that both were exploring.
Bannister explained that his company was looking for new investment income and growth
opportunities for his company’s portfolio. Robert discussed how WYLDFYRE CHAMPS was
taking off within his company and that he was looking for new sources of funding. James was
ecstatic that he was having a discussion with one of the owners of WYLDFYRE CHAMPS and he
thought this would be the perfect opportunity for the company’s portfolio, given his expertise and
excitement about fantasy sports and the huge growth potential in the industry. Unknown to him
though was the looming gambling legislation that was creeping forward, state-by-state.
Nevertheless, with the mutual goals of both companies fitting so well, Robert and James sought to
put the proposal up to their respective boards.
By the second quarter of the year, Bannister and Wolf Sports created a proposal for a
partnership agreement, whereby Wolf Sports would give 50% ownership in the Wyldfyre Division
in exchange for capital funding, made in monthly increments over two years, totaling $48 million.
As part of this agreement, Bannister would gain its ownership shares as it pays its agreed-to
monthly funding amounts. In essence, over 24 months, Bannister would exchange $2 million for
an additional 2.083% ownership interest each month.
While each company conducted its due diligence, the owners discussed the growth
opportunities of the Wyldfyre Division. Byron explained that WYLDFYRE CHAMPS was the
only project currently in the division because of the amount of capital and manpower that it
required, but that it was well worth it because of the significant amount of initial return it already
experienced. However, there was never any mention as to the legislation that has passed in existing
states nor of the legislation pending in other states.
5 The partnership agreement was signed at the start of the third quarter in 2015 and Bannister
made its first payment for a 2.083% stake in the Wyldfyre Division with Wolf Sports. The returns
in the third quarter exceeded expectations as more consumers were joining into leagues as the
professional football season kicked off. By the fourth quarter, revenues were fairly healthy as the
basketball and hockey seasons started up. However, news broke in December that Texas along
with 16 other states would adopt legislation that follow laws similar to those of New York. Wolf
Sports, after extensive board discussions, voted to spin off WYLDFYRE CHAMPS to minimize
the risk of significant losses that could be incurred while attempting to continue its business.
When Bannister got word of the news about the adoption of the new state gambling laws
that prohibit fantasy sports and Wolf Sports’ subsequent spin off, it threatened to pull its funding
as a result of having been misled by John and Robert throughout the entire deal. Wolf Sports
shrugged off the threat and assured Bannister that it had other projects in its pipeline, although
those projects would not be ready for another 13 months, at a minimum.
Bannister now brings an action for fraudulent inducement. Bannister wants a simple
resolution through restitution by backing out of the deal, relinquishing the 12.498% ownership it
currently has in the Wyldfyre partnership, and receiving back the $12 million it has already
contributed to Wolf Sports. Wolf Sports responded with a counterclaim for breach of contract
when Bannister failed to continue making its agreed upon payments to Wolf Sports, as stated in
the contract. Also preferring a simple solution, Wolf Sports seeks to merely have the contract
enforced as stated.
6 Plaintiff and Defendant both have sufficient stakes in the outcome of these businesses, both
of which are the focus of this case, affording both parties the standing to maintain and defend this
action.
FRAUDULENT INDUCEMENT
This case began as the result of a new determination under existing gambling laws. Section
47.02 bars gambling devices where:
“. . . the award of which is determined solely or partially by
chance, even though accompanied by some skill, whether or not the
prize is automatically paid by the contrivance.” Tex. Penal Code §
47.02(a)(3).
When Texas, as well as many other states, chose to fall in line with New York laws and
concluded that fantasy sports contained a significant element of chance, it set into motion the
downturn for an industry in its infancy. Plaintiff in this case argues that it sought new investment
opportunities in industries with high amounts of growth. Based on an eventual series of meetings
and understandings between Robert Hark and James Bannister, Plaintiff though this would be the
perfect investment for its portfolio. The plans were eventually understood as becoming widely
profitable in the fantasy sports industry, and in particular, through growth and management of the
Wyldfyre Division under James Bannister. This was the alleged purpose for which the Plaintiff
claims both parties entered into the agreement. Additionally, an acknowledgment of the looming
trouble for fantasy sports was never brought up by Wolf Sports, who was in the best position to
disclose this type of information.
Wolf Sports argues adamantly that it wanted to enter into a partnership with Bannister
because it needed additional funds that it was no longer able to obtain through borrowing and that
7 Bannister was merely looking to improve its portfolio’s rate of return through investing in high
growth industries.
Under Paragraph 5 of the agreement the purpose expressly states that:
“The purpose of this partnership is to enter into profitable
ventures in young businesses found to have a potential for high rates
of growth in their respective industries.”
It must also be remembered that both parties are sophisticated entities in their respective
industries, with over 20 years of experience between the both of them. While the bargaining
positions of both sides appear similar enough that the four corners of the contract should be
controlling, there are still numerous issues of fact that should be resolved before a decision of law
is made by this court. This list includes but is not limited to how the agreement was actually
bargained for in terms of its purpose, whether or not Plaintiff should or could have known about
the pending gambling legislation, whether or not the legislation would have any material effect on
revenues and the overall structure of the business. A final point worth noting is that the agreement
appears to be devoid of any merger clause.
BREACH OF CONTRACT
The agreement signed between both parties included various conditions that needed to
occur before Plaintiff would have become a fully-fledged partner in the Wyldfyre Division. First,
even though the agreement stated that Plaintiff would be an equal partner, this only occurred after
the full amount of contributions were made to Defendant. The agreement would not have this
happen until 24 months after its execution and signing. Second, the agreement stated that, as a
partner, Plaintiff would agree to be responsible for any liabilities. Finally, the agreement stipulated
that until Plaintiff becomes a 50% owner, all profit distributions to Plaintiff will be held by
8 Defendant until Plaintiff has contributed the full $48 million to Wolf Sports. In the absence of
anything else, the Defendants consideration here would appear to be no more than a fiction where
the plaintiff may be paying for nothing more than air.
The Plaintiff primarily argues upon defensive grounds of illegality and frustration of the
agreement’s purpose. Plaintiff’s reasoning is that due to changes in the law, gambling activities
are now found to be illegal, and the partnership agreement would thus be serving an illegal purpose.
Alternatively, Plaintiff reasons that the purpose of the agreement is frustrated to the point that the
Wyldfyre Division is no longer what Plaintiff bargained for, and Plaintiff should be relieved from
its obligations. Plaintiffs contention is that, at the very least, a factual inquiry is required to
determine whether or not the purpose of the Wyldfyre partnership still serves the legitimate end
that the transaction was originally contracted for.
There may be questions as to whether or not Plaintiff is getting its money’s worth in a
business agreement between two entities. However, this court finds no genuine issues of material
fact as to whether or not Plaintiff, in this case, held up its end of the bargain. Plaintiff agreed to
make 24 equal monthly payments and bargained for an actual ownership stake in a partnership,
albeit with deferred rights. Plaintiff then breached its duties when it failed to make the subsequent
payment on the seventh month and Defendant is entitled to any contracted-for rights under that
breach.
This court hereby holds that Plaintiff’s motion for summary judgment on fraudulent
inducement is denied and this cause of action will proceed to trial. Additionally, Defendant’s
motion for summary judgment is granted. This court orders damages awarded to the Defendant in
accordance with the terms of the agreement.
9 ORDERED that Plaintiff’s motion is DENIED. It is further
ORDERDED that Defendant’s motion is GRANTED.
Signed this 20th Day of February, 2016.
_________________________________
HON. ROBERT MCAFFREEIN
PRESIDING JUDGE
10