FILED 5/8/2020 9:08 PM FELICIA PITRE DISTRICT CLERK DALLAS CAUSE NO. DC-19-18831 FIRST NATIONAL CAPITAL, LLC, § IN THE DISTRICT COURT OF § Plaintifif § § V. § § BLUESTONE RESOURCES, INC., DALLAS COUNTY, TEXAS § § Defendant. § § § 95TH JUDICIAL DISTRICT DEFENDANT’S RESPONSE TO PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND OBJECTION TO CONFIRMATION OF ARBITRATION AWARD TO THE HONORABLE COURT: Defendant Bluestone Resources, Plaintiff First National Capital, LLC’S (“FNC”) Motion Confirmation of Arbitration Award. By generally deny all Inc. (“Bluestone”), respectfully files its this for Response Summary Judgment and Response and Obj ection, Bluestone seeks the allegations and assertions in t0 t0 FNC’S Motion. ARGUMENT AND AUTHORITIES A Final Award was issued by the Honorable Mark Whittington 0n November 13, 2019 in favor 0f the Plaintiff. The parties’ dispute related t0 an equipment lease. Plaintiff financed Defendant’s lease 0f a bulldozer. auditing firm was As argued at the arbitration hearing, unable t0 provide certain required documents in accordance with the terms 0f the lease agreement. After negotiations failed, Defendant sought t0 damage demand was unreasonable. Indeed, under Texas make their own bargains The universal loss 0r rule for damage Defendant Bluestone’s is show Plaintiff’s liquidated law, the right 0f competent parties t0 not unlimited. Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484 (1952). measuring damages for the breach 0f a contract actually sustained. Id. is just compensation for the TEXAS DEPUTY CO., Darling Tellez Defendant put 0n evidence elicited testimonial as the t0 show Plaintiff” s claims were unreasonable. In fact, Defendant evidence t0 support the unreasonableness 0f the liquidated damage provision damages sought were almost double the amount that the parties bargained f0r.1 The Texas Supreme Court holds that a party generally should be awarded neither less nor more than his damages. Farrar v. clause, the court must find: Beeman, 63 Tex. 175, 181 (1885)? In order estimation, and (2) that the compensation.” Cf. Inc. v. (1) that the harm caused by amount 0f liquidated damages TEX.BUS. & COM.CODE t0 enforce a liquidated the breach called for § 2.718(a). is is actual damage incapable 0r difficult 0f a reasonable forecast ofjust Rio Grande Valley Sugar Growers, Campesi, 592 S.W.2d 340 (TeX. 1979). CONCLUSION AND PRAYER Accordingly, Bluestone prays the Court reduce the arbitration award t0 $1,884,492.50 being the only costs Plaintiff incurred and bargained for. The amounts being calculated as follows: 1. $1,387,500. purchase 0f the equipment; and 2. $496,992.50 being the aggregate 0f the monthly lease amount 0f $26,157.50 for the period 0f Defendant’s possession 0f the bulldozer 3. either the return — October 201 8 — May 2020; and 0f the equipment 0r the purchase 0f the equipment in accordance with the lease being “for a price equal t0 ten percent Taxes (including all sales (10%) 0f Lessor‘s Total Costs plus and use Taxes) payable in connection all with such purchase. B at p 95 lines 21-24. See also see Lefevere v. Sears, 629 S.W.2d 768, 771 (TeX.CiV.App.—El Paso 1981, no writ); Muller v. Light, 538 S.W.2d 487, 488 (TeX.CiV.App.—Austin 1976, writ ref‘d n.r.e.); Schepps v. American Dist. Telegraph C0,, 286 1 EX. 2 S.W.2d 684, 690 (TeX.CiV.App.—Dallas 1955, n0 writ); Zucht v. Stewart Title Guar. C0., 207 S.W.2d 414, 418 (TeX.CiV.App.—San Antonio 1947, writ dism'd); Bourland v. Huflhines, 244 S.W. 847, 849 (TeX.CiV.App.— Amarillo 1922, writ dism'd). Respectfully submitted, SCHEEF & STONE, L.L.P. By: /s/James Stafford, III Chris Quillin Texas Bar N0. 00791472 James Stafford, III Texas Bar N0. 24066974 500 North Akard Street, Suite 2700 Dallas, Texas 75201 (214) 706-4200 Telephone (214) 706-4242 Facsimile James.Stafford@solidcounsel.com ATTORNEYS FOR DEFENDANT EXHIBIT B ARBITRATION, OCTOBER l4, 2019 Page ARBITRATION IN THE § JAMS REFERENCE NO. ‘MATTER BETWEEN § 1310024305 § BLUESTONE RESOURCES, INC. and FIRST NATIONAL CAPITAL, HON. MARK WHITTINGTON LLC (Neutral) ARBITRATION PROCEEDINGS Volume l of l 10 ll On October l4, 12 l3 2019, the Arbitration convened, and the following proceedings came on to be heard in l4 the above—entitled and —numbered cause before HON. 15 MARK WHITTINGTON, held at JAMS, l6 Expressway, l7 Proceedings reported by Amy Sturgess, CSR No. l8 and for the State of Texas, by Stenographic method, l9 said 20 Suite 610, Dallas, 8401 North Central Texas 75225. 6993 in proceedings taken pursuant to Notice of Hearing and any provisions stated on the Record. 21 22 23 24 25 Job NO. 31464 WENDY WARD ROBERTS & ASSOCIATES, INC. TOLL FREE 866.487.3376 1 ARBITRATION, OCTOBER l4, 2019 Page 95 stipulated loss value as a measure of its damages, what happens to the bulldozer at that point? A. Bluestone keeps the bulldozer. Q. So after this is all over, Bluestone is going to have that bulldozer and whatever value it has that attaches to it, right? A. That's correct. Q. What would have happened to the bulldozer if Bluestone had just gone ahead and rode out its 36 lO ll months of rent payments for the remainder of the term? A. Well, they would have had the option at the 12 end of the 36 months to either extend the lease, l3 purchase the equipment, or return it. l4 Q. Under all three of those options, the l5 economic value of the bulldozer would have —— the l6 remaining economic value would have accrued to First l7 National Capital, right? l8 A. That's correct, yes. l9 Q. Is 20 A. Absolutely. 21 Q. Okay. that bulldozer a valuable asset? Now, the amount of damages that 22 you're asking here is almost double what you paid for 23 the bulldozer, right? 24 A. Almost. 25 Q. Almost. Is that fair? WENDY WARD ROBERTS & ASSOCIATES, INC. TOLL FREE 866.487.3376 ARBITRATION, OCTOBER l4, 2019 Page 118 have to necessarily look at those. A. Okay. Q. In all of those exhibits, they ask for the 2017 audited financials of Bluestone. They don't, though. A. We're asking when the fieldwork is going to be —— we ask if the fieldwork, at least the fieldwork, lO has that started? And so the fieldwork had not begun? Q. Okay. A. Evidently it hadn't. That's Why we started asking ll Q. That's right. 12 A. I l3 August. l4 Q. l5 things. l6 A. Okay. l7 Q. So the actual funding expiration date was l8 I don't know that we knew that on —— before don't know that we knew. And maybe Bluestone did know some Okay. Let's look at the interim agreement again. August the 30th of 2018? l9 A. Yes. 20 Q. And then underneath that it says: 21 or such date as lessor may agree in its 22 absolute sole discretion. Do you see that there? 23 24 A. Yes, 25 Q. And did FNC exercise that absolute and sole I do. WENDY WARD ROBERTS & ASSOCIATES, INC. TOLL FREE 866.487.3376 ARBITRATION, OCTOBER l4, 2019 Page 119 discretion? A. We did, because we essentially extended the When they told us the audit would not be August 30th. ready mid—August anymore, that it would be October 10th, we obviously waited. Q. FNC know, That's right. So Bluestone knew, that this August 30th, 2018, and so did date came and went? lO ll A. Yes. Q. And FNC, besides asking for the audit, took no other action? 12 A. Right. l3 Q. And so thereafter —— l4 A. Well, we didn't commence the 36—month lease l5 at that time, which we could have. l6 Q. We'll get there in l7 A. Okay. l8 Q. And so I a second. want to point your attention —— you l9 see my little cursor here? 20 funding expiration date. 21 amended again here. 22 mentions it here. We talked about the And it says here it could be And then one more time, it 23 A. Mm—hmm. 24 Q. So the parties were well aware that the 25 funding expiration date could be extended? WENDY WARD ROBERTS & ASSOCIATES, INC. TOLL FREE 866.487.3376 ARBITRATION, OCTOBER l4, 2019 Page 123 the funding expiration date would no longer be extended? A. No, but we're not required to give notice it's no longer going to be extended. understand your position. Q. I A. Mm—hmm. Q. But is it reasonable for Bluestone to have an expectation that the funding expiration date would be extended after it was extended for a number of lO times, even after —— don't think it is reasonable —— ll A. No, 12 Q —— hold on. l3 A. Mm—hmm. l4 Q Thank you. I Can I finish my question? Would it be reasonable for Bluestone to l5 l6 anticipate the funding expiration date to be extended l7 after it receives questions in Exhibits 21, 22, and 23 l8 with regard to, When is the audit going to be l9 completed, when is the audit going to be completed, 20 and —— 21 A. Mm—hmm. 22 Q. —— even though there's no response, 23 24 25 the expiration date is extended? A. Okay, but then we were told it would be ready by October 10th, that we would have the audit WENDY WARD ROBERTS & ASSOCIATES, INC. TOLL FREE 866.487.3376 ARBITRATION, OCTOBER l4, 2019 Page 124 October 10th. October 10th came and went. commenced the 36—month lease. I We don't think it's reasonable to expect that it would just continue to be extended. Q. Do you think it was reasonable for Bluestone to expect notice that the funding expiration date would be no longer extended? No, I don't think that is reason —— don't —— what I don't think is reasonable, that they A. I lO would expect it to just be extended, extended, ll extended, 12 will be due —— will be ready this date, will be ready l3 this date, will be ready that date. l6 you know, the audit report At some point First National had to l4 l5 after, you know, commence the lease, right? Q. And my question was: Would it be reasonable l7 for Bluestone to expect some sort of notice before the l8 expiration date of —— was no longer going to be l9 extended? 20 21 22 A. I don't —— 25 don't think at that point that it was a reasonable expectation. Q. Let's move to Exhibit Number 28. So on November 13th, 23 24 I about Ms. Nariz, A. I 2018, we talked believe —— Yes. WENDY WARD ROBERTS & ASSOCIATES, INC. TOLL FREE 866.487.3376 ARBITRATION, OCTOBER l4, 2019 Page 151 accounting firm based in West Virginia. Q. How long has Bluestone had a relationship with Hester A. Campbell? & At least 15 years. It could be as much as 20 years but somewhere between 15 to 20 years. Q. Ultimately did Bluestone provide audited financials to FNC by the August 30th deadline set forth in the interim schedule? A. No. lO Q. And why not? ll A. Hester 12 l3 & Campbell had not finished the audit by that time. Q. Would you tell the arbitrator little bit a l4 about what Bluestone understood about the delay in l5 providing the audit. l6 A. So there are several factors, believe, I l7 that contributed to that. l8 all transparency, l9 turnover in our accounting department, and the audit 20 got started later than it typically would. Some on the front end, related to Bluestone. But once it was underway, 21 in We had some Hester & 22 Campbell —— we had trouble, especially in August and 23 September, getting them to react very quickly. 24 think that was 25 do corporate tax returns for other clients that were a I result of, they were also trying to WENDY WARD ROBERTS & ASSOCIATES, INC. TOLL FREE 866.487.3376 ARBITRATION, OCTOBER l4, 2019 Page 206 monthly rent payments. economic benefit, National. At the end of the lease, if you will, the reverts back to First The lessee has to either extend the lease, purchase the equipment, or return the equipment. So we should be compensated for both. Q. And again, the market for bulldozers Okay. earlier this year —— as of February 2019, A. Mm—hmm. Q. —— you believe that that market is robust high enough demand to sustain 10 enough and there is ll valuation, 12 somewhere in the neighborhood of $1.4 million? 13 A. a a residual valuation of the Caterpillar Absolutely, supported by the fact that l4 Bluestone had -- other units had been sold that they 15 wanted to purchase. 16 this specific dozer. l7 be sold. They wanted to move quickly on They were afraid it was going to SMITH: I'll pass the witness. 18 MR. 19 THE ARBITRATOR: 20 question. 2019, ‘Let me ask a quiak So that valuation‘was dated February 19, for residual value? THE WITNESS: 23 a That was —— yes. THE ARBITRATOR: I'm curious, and 24 there's probably an explanation. 25 residual value be calculated at the end of the lease Why shouldn't the WENDY WARD ROBERTS & ASSOCIATES, INC. TOLL FREE 866.487.3376