Port City Ventures, L.L.C. v. Donald G. Angle, Matthew G. Angle, Briana Stanley, and Port City Armory, L.L.C.

Judgment rendered August 14, 2019.
Application for rehearing may be filed
within the delay allowed by Art. 2166,
La. C.C.P.

No. 52,745-CA

COURT OF APPEAL
SECOND CIRCUIT
STATE OF LOUISIANA

*****

PORT CITY VENTURES, L.L.C. Plaintiff-Appellee

versus

DONALD G. ANGLE, Defendants-Appellants
MATTHEW G. ANGLE,
BRIANA STANLEY, AND
PORT CITY ARMORY, L.L.C.

*****

Appealed from the
First Judicial District Court for the
Parish of Caddo, Louisiana
Trial Court No. 583,362

Honorable Ramon Lafitte, Judge

*****

SINCLAIR LAW FIRM, LLC Counsel for Appellants
By: Scott C. Sinclair

AYRES, SHELTON, WILLIAMS, Counsel for Appellee,
BENSON & PAINE, LLC Port City Ventures, LLC,
By: Curtis Ray Shelton and Third Party Appellee,
Lee H. Ayres Richard D. Lamb, II
Ryan P. Telep

*****

Before WILLIAMS, STONE, and STEPHENS, JJ.

STEPHENS, J.

Defendants, Donald G. Angle, Matthew G. Angle, and Port City

Armory, L.L.C., appeal a judgment of the First Judicial District Court,

Parish of Caddo, State of Louisiana, in favor of Plaintiff, Port City Ventures,

L.L.C. For the following reasons, we affirm in part and reverse in part the

trial court’s judgment.

FACTS AND PROCEDURAL HISTORY

In late 2012 and early 2013, there was a period of excessive demand

(commonly known as a “market run”) for AR-15 rifles and magazines.1

Amidst this market run, Matt Angle and Josiah Rosmarin, doctoral

candidates at the Massachusetts Institute of Technology, designed a plastic

magazine for an AR-15 that would hold 30 rounds of ammunition, which

they called the FS30. Matt then consulted his father, Don Angle, regarding

the prospect of starting a business to manufacture and sell the magazines.

Following Don’s research into the logistics of marketing, production, and

distribution, Port City Armory, L.L.C. (“Armory”), was formed by Matt,

Don, and Josiah’s wife, Briana Stanley, for the purpose of manufacturing

and selling the magazines.2

Subsequently, Don contacted Walter Frederick, president of Sports

South, L.L.C. (“Sports South”), a Shreveport company engaged in the

distribution of firearms and related products, and on February 19, 2013,

Sports South issued six purchase orders to Armory for the purchase of

50,000 magazines per month for a six-month period at a price of $11.00 per

1
This market run manifested in anticipation of new gun legislation following the
mass shooting at Sandy Hook Elementary School in Newtown, Connecticut, on
December 14, 2012.
2
Brianna Stanley was dismissed as a defendant prior to trial.

magazine. The purchase orders provided shipping dates on the first day of

six consecutive months in 2013—starting in April. On each purchase order

appeared the language: “SHIP NO BACK ORDERS WITHOUT

PERMISSION UNLESS PREPAID.”

Thereafter, Don met with Walter Lamb of Ouachita Independent Bank

and attempted to obtain financing for Armory but was informed he could not

obtain a loan based on the purchase orders. Don was later able to finance

the startup costs for Armory by obtaining a line of credit for $150,000

through Versa Finance, which line of credit was secured by immovable

property owned by Don and the personal guaranties of each of Armory’s

members. Meanwhile, Walter Lamb advised his brother, Richard Lamb, II,

that he should contact Don regarding the business opportunity he was

pursuing.

Richard, a medical sales representative who makes private

investments on the side, subsequently contacted Don and expressed his

interest in investing in Armory. The two first met to discuss the venture in

either April or May 2013, at which time Don informed Richard of the Sports

South purchase orders. Ultimately, to facilitate their discussion, they signed

a Confidentiality Agreement dated May 30, 2013. On June 2, Don, Matt,

and Josiah met with Richard at his home to further discuss Richard’s interest

in investing in Armory. On June 10, Lamb Capital, L.L.C., a company

consisting of Richard and his children, issued Armory a Letter of Intent to

acquire 10% of the capital interest in Armory. The Letter of Intent was

drafted by Richard’s son, Rich, who is an attorney, and provided in part that

“the purchase price or capital contribution shall be ten percent (10%) of: the

total value of the purchase order by and between Port City Armory, L.L.C.
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and Sports South, L.L.C., less the expenses and costs associated with said

purchase order.”

Don attached a signed copy of the Letter of Intent to an email sent to

Rich on June 13, and Richard, Matt, and Josiah were copied on the email as

well. The email by Don provided in part:

Due to the fact that the P.O.’s from Sports South represent a
monthly buying level and not really a one time purchase, and
the fact that the buying level is subject to change based on
Sport South’s ability to move our magazines, I’d rather not base
this agreement on the expected profit on the written P.O.’s in
hand. I do have 6 P.O.’s for the purchase of 50,000 magazines
[for] each of the next 6 months but I expect the quantities will
change over that time frame. At the time I received these
P.O.’s my customer said he would buy at least 50,000 a month
based on the current demand. Today it appears that the quantity
will be less than 50,000 a month but as soon as Gun Control
gets back in the headlines every day, the quantities may
increase substantially.

On June 21, Richard formed Port City Ventures, L.L.C. (“Ventures”),

with Jim Haynes and J&S Hardin Holdings, L.P. (whose manager is John

Hardin, III). It was ultimately Ventures, rather than Lamb Capital, that on

June 24 entered into an agreement with Armory, paying Armory $250,000 in

exchange for a 10% equity interest in Armory. An amended Operating

Agreement reflecting the purchase and status of Ventures as a member of

Armory was signed by Don and Richard. The next day, Armory repaid in

full its loan from Versa Finance.

On June 27, Richard and Don met with Sports South, at which time

Walter Frederick advised the market conditions had deteriorated rapidly and

Sports South would, therefore, only be able to make a one-time purchase of

10,000 magazines. That purchase was made on June 30, 2013, for which

Sport South issued a $110,000 payment to Armory. Tension grew between

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Armory and Ventures regarding the uncertainty of Armory’s financial

success and Ventures’ desire to have its investment returned.

On March 13, 2015, Ventures filed the instant petition for

reimbursement of the funds it invested due to Armory’s misrepresentations

and fraudulent inducement of Ventures’ investment. Specifically, Ventures

claimed Armory knew and failed to disclose to Ventures that the Sports

South purchase orders were invalid, unenforceable, and speculative.

Armory filed a reconventional demand and third party demand against

Ventures and Richard, individually, claiming they had breached the Letter of

Intent by failing to provide adequate marketing and sales assistance, and had

likewise breached the Confidentiality Agreement by bringing their lawsuit.

Following a bench trial, the trial court issued an oral ruling on May

10, 2018, in favor of Ventures, stating it found Armory suppressed the truth

with the intent of obtaining an unjust advantage over Ventures and Ventures

had not breached either the Confidentiality Agreement or Letter of Intent. In

support of its finding, the trial court specifically noted the following:

At no time prior to the June 25th, 2013 date of the sell [sic] of
the ten percent interest did the defendants inform plaintiff that
the ship dates on three of these purchase orders had passed and
that no back orders were permitted without permission.
Additionally, Don Angle stated in an email dated February 13,
2013, that Walter Fredrick of Sports South was not interested in
financing Port City Armory but was happy to issue it a large
purchase order that Don Angle could take to the bank to borrow
against if Armory needed it.

Judgment was filed August 17, 2018, against Don, Matt, and Armory,

in solido, in the amount of $250,000 together with $100,000 for attorney

fees and expenses. The trial court’s judgment also dismissed Armory’s

reconventional and third party demands. This appeal by Armory ensued,

and Ventures answered to request additional attorney fees.
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DISCUSSION

Fraud

On appeal, Armory asserts in three assignments of error that the trial

court’s finding of fraud by silence or suppression was precluded because: (1)

Armory did not have a special duty to speak; (2) Ventures did not avail itself

of readily available means of knowledge; and, (3) the undisclosed

information did not substantially influence Ventures’ decision to purchase an

interest in Armory.

Legal Principles

A contract is formed by the consent of the parties established through

offer and acceptance. La. C.C. art. 1927. Contracts have the effect of law

for the parties and must be performed in good faith. La. C.C. art. 1983.

Consent to a contract may be vitiated by fraud. La. C.C. art. 1948.

Fraud is a misrepresentation or a suppression of the truth made with

the intention either to obtain an unjust advantage for one party or to cause a

loss or inconvenience to the other. Fraud may also result from silence or

inaction. La. C.C. art. 1953. Fraud need only be proved by a preponderance

of the evidence and may be established by circumstantial evidence. La. C.C.

art. 1957; Benton v. Clay, 48,245 (La. App. 2 Cir. 8/7/13), 123 So. 3d 212.

The basic elements to an action for fraud against a party to a contract are: (1)

a misrepresentation, suppression, or omission of true information; (2) the

intent to obtain an unjust advantage or to cause damage or inconvenience to

another; and (3) the error induced by a fraudulent act must relate to a

circumstance substantially influencing the victim’s consent to (a cause of)

the contract. Shelton v. Standard/700 Associates, 2001-0587 (La. 10/16/01),

798 So. 2d 60; Henderson v. Windrush Operating Co., 47,659 (La. App. 2
5

Cir. 8/21/13), 128 So. 3d 283, 291, writ denied, 2013-2502 (La. 2/14/14),

132 So. 3d 411. Additionally, to find fraud from silence or suppression of

the truth, there must exist a duty to speak or to disclose information. Greene

v. Gulf Coast Bank, 593 So. 2d 630 (La. 1992); Skannal v. Bamburg, 44,820

(La. App. 2 Cir. 1/27/10), 33 So. 3d 227, writ denied, 2010-0707 (La.

5/28/10), 36 So. 3d 254. Fraud does not vitiate consent when the party

against whom the fraud was directed could have ascertained the truth

without difficulty, inconvenience, or special skill. However, this exception

is not applicable when a relation of confidence has reasonably induced a

party to rely on the other’s assertions or representations. La. C.C. art. 1954.

The trial court’s findings with respect to a claim of fraud are subject

to the manifest error standard of review. Clay v. Washington, 51,065 (La.

App. 2 Cir. 1/11/17), 211 So. 3d 1266. To reverse a fact finder’s

determination, the appellate court must find from the record that a

reasonable factual basis does not exist for the finding of the trial court and

that the record establishes that the finding is clearly wrong. Stobart v. State

Dept. of Transp. & Dev., 617 So. 2d 880 (La. 1993); Henderson, supra.

Analysis

In its first assignment of error, Armory asserts the trial court erred by

finding fraud by silence or suppression in the absence of a special duty to

speak. Armory argues there was no evidence any special relationship

existed between Armory and Ventures prior to the June 24 closing. We

agree.

Jurisprudence demonstrates a relation of confidence arises when there

is a family relationship involved and where there is a longstanding and close

relationship between the parties due to numerous transactions, but the
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confidant/trustee relationship is less likely to exist between parties to a

single or limited business transaction. Henderson, supra.

A cause of action for fraud based on a relation of confidence was

found to exist in Sanders Family, LLC No. 1 v. Sanders, 46,476 (La. App. 2

Cir. 12/14/11), 82 So. 3d 434, writ denied, 2012-0414 (La. 4/9/12), 85 So.

3d 702, where a 76-year-old mother, who was the managing partner of an

L.L.C. that she owned with her three children, was induced to sell L.L.C.

property at well below its market value to her son and his wife, who later

resold the property for great profits. She relied on her son to run the L.L.C.

on a daily basis, for which he was paid, and to give her advice about matters

related to the L.L.C. She also regularly signed documents without reading

them if she trusted the person advising her. Similarly, in Hickman v. Bates,

39,178 (La. App. 2 Cir. 12/15/04), 889 So. 2d 1249, this court found a

relation of confidence where a young woman with limited education and

ability to understand financial transactions relied on her relatives to advise

her.

A relation of confidence was also found to exist in Perot v. Perot,

46,431 (La. App. 2 Cir. 8/10/11), 71 So. 3d 1123, writ denied, 2011-2263

(La. 11/23/11), 76 So. 3d 435. In that case, a wife successfully argued her

consent to a community property agreement was vitiated by fraud where the

attorney who prepared the agreement was a close family friend. Not only

was the wife unaware her husband had filed for divorce that day, she was not

told the attorney was representing her husband.

In Skannal, supra, a relation of confidence was found between

longstanding partners who had worked together over 25 years in numerous

business ventures and had a close personal working relationship. Upon
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consideration of the above cited cases, this court in Henderson, supra, found

that no relation of confidence and resulting duty to speak existed between

parties to a lease who during a three-year period had developed a close

relationship that consisted of regular visits and phone conversations,

discussions of family and unrelated business endeavors, and time spent

together that included their families.

Here, Ventures has not shown Armory had a duty to disclose the

withheld information prior to the closing. First, there is clearly no enduring

family or marital relationship that would give rise to a duty to disclose.

Additionally, there is no long-term business relationship that would create

such duty. All three members of Ventures testified that in determining to

invest in Armory, they relied solely on the information provided by Don and

that they trusted Don. However, the record is void of any real justification

for Ventures’ reliance on Don. Jim Haynes testified he knew Don from high

school but that prior to this transaction, they had not had any notable

interaction since then. Likewise, Richard testified that he knew of Don

simply because, like himself, he was an alumnus of Texas A&M University.

While the testimony shows the members of Ventures were friends and had

made various investments together in the past, it is undisputed that this

transaction was the very first between Ventures (or any of its members) and

Armory (or any of its members), and the record clearly shows that absolutely

no relationship of any kind existed between them previously. Moreover, the

closing occurred merely two months after the time Don first contacted

Richard. Prior to closing, the totality of the interaction between Ventures

and Armory consisted of a handful of meetings, and two months’ worth of

emails and text messages. The parties’ use of the Confidentiality Agreement
8

and Letter of Intent further demonstrates the absence of a relation of

confidence. Based on these facts and the cited jurisprudence, the brief

business relationship between Ventures and Armory is simply not sufficient

to create a relation of confidence and duty to speak.

Furthermore, a fiduciary relationship did not exist between the parties.

As manager of a limited liability company, Don undeniably stood in a

fiduciary relationship with that limited liability company and its members.

La. R.S. 12:1314. However, each of the alleged nondisclosures claimed by

Ventures occurred before the closing and before Ventures became a member

of Port City Armory, L.L.C. The trial court did not articulate in its oral

reasons a specific finding regarding Armory’s duty to speak. However, after

reviewing the record in its entirety as well as the applicable law, we find

there is no reasonable factual basis to support the trial court’s finding that a

duty to speak or relation of confidence existed in this case. We therefore

conclude the trial court was clearly wrong in holding Armory committed

fraud by silence or suppression against Ventures.

With this determination, we need not discuss Armory’s remaining two

assignments of error regarding the trial court’s finding of fraud.

Nonetheless, we note that if affirmative misrepresentations rather than

nondisclosures regarding the purchase orders were the issue (thereby

eliminating the additional duty to speak element required for fraud by

silence), the trial court’s finding of fraud would still be clearly wrong

because the record is void of a reasonable factual basis to support the finding

that Ventures could not have ascertained the truth about the purchase orders

without difficulty, inconvenience, or special skill.

The Letter of Intent provides in pertinent part:
9

In connection with negotiations relating to the possible
acquisition by the investors, Investors shall have the right, at
Investor’s expense, to examine and copy all books, records,
files, documents, reports, and other information of the
Company, including all leases, service agreements, insurance
policies, and intellectual property related documents.

Accordingly, Richard and his affiliates had a right to examine the purchase

orders. By doing so, they could have easily ascertained two of the three

nondisclosures cited by the trial court—the shipping dates on three of the

purchase orders had passed at the time of closing and the purchase orders

included the language “Ship no back orders without permission unless

prepaid.” However, Don and each of the three members of Ventures

testified that neither Richard nor any other member of Ventures ever

requested to see the purchase orders prior to closing.

Likewise, all three members of Ventures testified they did not reach

out to Sports South to confirm the validity of the purchase orders. They

each testified they thought it would have been inappropriate to go behind

Don’s back and contact Sports South. There is no indication in the record

Don was ever asked about setting up a conversation between Ventures and

Sports South; nor does the record show any evidence that Ventures would

have encountered any difficulty in contacting Sports South or that such

efforts would have required any special skill. Finally, considering Ventures’

argument that it relied solely on the purchase orders in deciding to invest in

Armory, any slight inconvenience making a single phone call to Sports

South would have caused, would certainly have been inconsequential

10

compared to the information regarding the purchase orders that would have

been obtained as a result. 3

Therefore, based on a thorough review of the record, we find

Ventures’ consent to its purchase of a 10% interest in Armory could not

have possibly been vitiated by fraud. Ventures relied solely on information

provided by Armory and refused to confirm or even request to see the

purchase orders on which it was basing its $250,000 investment. There was

no relation of confidence that could have reasonably induced Ventures to

rely on Armory’s assertions made through arm’s-length negotiations

between experienced and sophisticated business persons. The trial court

erred on the issue of fraud.

Armory’s Reconventional and Third Party Demand

Breach of Contract

In its fourth assignment of error, Armory asserts the trial court erred

by failing to render judgment in its favor regarding its breach of contract

claim against Ventures and Richard. Armory argues Richard and Ventures

breached their agreement with Armory to provide marketing and sales

assistance to the company. We disagree.

The Letter of Intent provides in pertinent part:

The investors have full-time jobs that take priority over their
potential obligations to the Company. However, it is expected
that the investors that participate in sales on behalf of the
3
Ventures additionally asserts Armory is liable to them under La. R.S. 51:712(A),
which provides in pertinent part: “It shall be unlawful for any person . . . (2) To offer to
sell or to sell a security by means of any oral or written untrue statement of a material fact
or any omission to state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they are made, not misleading, the buyer
not knowing of the untruth or omission, if such person in the exercise of reasonable care
could not have known of the untruth or omission.” However, Ventures’ failure to
exercise reasonable care would likewise preclude recovery under this statute, to the
extent it is applicable.

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Company shall make a good faith and reasonable effort to
market and sell the products of the Company.

Armory points particularly to Richard’s failure to secure sales made through

his industry contact, Mike Murski. The trial court noted in its oral ruling

that although Richard threatened to terminate his relationship with Murski in

an October 2013 email, the court did not find any evidence such termination

occurred or that Richard had discontinued his efforts to market the FS30.

After review of the record in its entirety, we cannot say this factual

determination by the trial court was manifestly erroneous or clearly wrong.

Richard and Don both testified that even after the market run ended, Murski

was confident he could still sell approximately 100,000 units in the next

year. They also testified that no magazine sales through Murski were ever

made. However, the record reflects Richard continued to market the FS30

after the June 27 meeting with Sports South and even still after his October

2013 email to Don. Specifically, Richard maintained contact with Murski

and coordinated with Don to have sample FS30s shipped to Murski and

other potential purchasers. While Richard’s efforts never materialized into

additional sales, we cannot say that, considering the steadily deteriorating

relationship between the parties, the trial court erred in determining Richard

made a sufficient good faith effort to market the FS30. This assignment of

error is without merit.

Confidentiality Agreement

In its fifth assignment of error, Armory asserts the trial court erred by

failing to render judgment in its favor on its claim under the Confidentiality

Agreement. Armory claims Ventures’ lawsuit violates Paragraph F of the

Confidentiality Agreement, which states in pertinent part:

12

Except as provided in this provision, Seller makes no
representation or warranty regarding the accuracy or
completeness of the Confidential Information. Recipient agrees
that Seller shall have no liability to Recipient resulting from
Recipient’s use of Confidential Information, except as may be
expressly set forth in a definitive written agreement between the
parties and in accordance with the terms thereof.

Armory argues the purchase orders are the kind of information covered by

Paragraph F. Armory maintains that by filing this lawsuit, Ventures and

Richard violated the understanding that Armory made no representation or

warranty regarding the accuracy or completeness of the purchase orders and

would have no liability resulting from Richard and Ventures’ use of the

purchase orders in consideration of whether or not to enter into a transaction

with Armory. We disagree.

As basis for denying this claim by Armory, the trial court cited only

its finding that Armory had committed fraud. While we disagree with the

trial court’s reasons, we find from thorough review of the record that a

reasonable factual basis does exist for the trial court’s denial of Armory’s

claim under the Confidentiality Agreement. Significantly, Ventures’

petition did not simply seek to recover damages it incidentally incurred as a

result of its use of incomplete or inaccurate “Confidential Information.”

Instead, Ventures sought to hold Armory liable for fraud—intentional

misrepresentations and suppression of the truth for the purpose of gaining an

unjust advantage. Despite Ventures’ failure to ultimately prevail in its

action for fraud against Armory, its pursuit of that action was not prohibited

by the Confidentiality Agreement. This assignment of error is without merit.

CONCLUSION

For the reasons stated above, we reverse that portion of the trial

court’s judgment awarding $250,000 and attorney fees to Port City
13

Ventures, L.L.C. Accordingly, we deny Port City Ventures, L.L.C.’s request

for additional attorney fees in its answer to appeal. We affirm that portion of

the trial court’s judgment denying the claims made in Port City Armory,

L.L.C.’s, reconventional and third party demands. Costs in this court are

assessed one-half to Port City Ventures, L.L.C., and one-half to Port City

Armory, L.L.C., Donald G. Angle, and Matthew G. Angle.

REVERSED IN PART, AFFIRMED IN PART.

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