A family-owned automotive group has filed a lawsuit seeking as much as $150 million in damages from a group of business partners-turned defendants stemming from a soured deal to buy a trio of auto dealerships in the Houston area.
Legacy Automotive Capital, The Reynolds and Reynolds Company, Tommy Barras and Benjamin Catanese are named as defendants in the lawsuit that was filed Thursday evening in the Houston Division of the business court. Tate Group Automotive alleges that its would-be business partners violated the terms of a nondisclosure agreement and used that private information the agreement gave them access to as a means to try and push it out of the business deal to purchase the dealerships.
“Further, the defendants continually concealed critical facts about the transaction and their intention to replace the Tate Group as the purchaser of the dealerships despite repeated reassurances to the contrary, thereby lulling the Tate Group into continued reliance and delaying alternative options,” the 46-page lawsuit alleges. “For instance, when confronted about the Tate Group not being listed as the buyer of the target dealerships in the [letter of intent], the defendants reassured the Tate Group it had nothing to worry about rather than revealing their true intentions. In sum, the defendants essentially stole this lucrative business opportunity from the Tate Group through a pattern of material misrepresentations, abusing the relationship of trust between them.”
The lawsuit brings claims for breach of contract, breach of fiduciary duty, misapplication of fiduciary property or civil theft, negligent misrepresentation, fraud, quantum meruit, tortious interference and civil conspiracy.
Kevin McDonald of Werner Ayers & McDonald, who represents Tate Automotive Group, issued a statement to The Texas Lawbook about the lawsuit.
“In Texas, we expect companies doing business here to treat our citizens fairly and comply with our laws,” he said. “This case reflects our belief that those expectations were not met. We look forward to proving our case in court.”
Counsel for the defendants had not filed an appearance as of Monday and messages sent to Legacy and Reynolds and Reynolds seeking comment were not immediately returned.
According to the lawsuit, Jesse Allen Tate, Jaime Tate and Kris Tate launched Tate Group Automotive in February 2024 after developing a “proprietary business model in which they would not only own and operate automotive dealerships, but also occupy key positions within the organization.”
But even before officially forming the group, the trio began researching dealerships it could acquire and worked to cultivate relationships with potential partners and investors. One investor it courted early on was Reynolds and Reynolds, according to the lawsuit, in part because of the company’s reputation as the leading provider of software and related services for car dealerships and manufacturers and its established and lucrative working relationship with the founders regarding other dealerships they managed.
Reynolds and Reynolds was receptive to the idea of a partnership under which Tate would own and manage the dealerships acquired, while Reynolds and Reynolds would become the exclusive provider of software and related services to the dealerships and Reynolds’ affiliate, Legacy Capital, would own the real estate and lease it to Tate.
In March 2024, Reynolds and Tate entered into a mutual nondisclosure agreement “to facilitate the Tate Group and Reynolds determination of whether they could agree to jointly pursue the acquisitions of dealerships and business opportunities related to the ownership and operation of those dealerships.” According to the lawsuit, during an April 2024 meeting about the possible partnership, Reynolds executives asked Tate Group to “keep Reynolds’ affiliation with Legacy Capital confidential.”
The parties agreed to the terms of the arrangement, and in May 2024, a “longtime industry contact” of the Tates reached out with a lead about an individual not identified in the lawsuit who was possibly interested in selling multiple Houston-area auto dealerships.
That same month, according to the suit, Tate Group and the potential seller entered into a nondisclosure agreement to further discuss the possibility of acquiring the dealerships. Under that agreement, Tate Group was allowed to share the information with its partners, Reynolds and Legacy Capital.
On May 28, 2024, the seller’s broker informed Tate Group that the seller wanted to proceed with a transaction to sell to Tate Group. The lawsuit states that the seller and Tate Group shared “Christian values” and that the seller appreciated Tate Group’s “focus on quality service and strong values.”
“The seller’s broker explained that the seller understood that the Tate Group would prioritize employee welfare during an ownership transition,” the lawsuit alleges. “According to the seller’s broker, because of the principal of the seller’s desire to protect their family’s legacy and to ensure their employees were well treated, he didn’t want to sell the dealerships to a large company or to another dealership in Houston that had expressed interest.”
Acquiring the dealerships was appealing to Reynolds, the lawsuit alleges, in part because the seller had previously replaced Reynolds as its software provider with the company’s largest competitor, CDK Global, and the acquisition provided an opportunity for Reynolds to “recapture the profitable account.”
When discussions progressed to the point that Tate, Reynolds and Legacy were preparing to craft and send a letter of intent to the seller, the lawsuit alleges that Tate was instructed not to communicate with Reynolds directly about the deal and to go through Legacy instead.
In early June 2024, Legacy sent Tate a proposed letter of intent that listed Legacy as the buyer rather than Tate.
“Only later did the Tate Group realize that Legacy Capital was surreptitiously circumventing the express intent and the transaction NDA’s sole purpose, which was the ‘purchase of assets by [the Tate Group] from [the Seller],’” the suit alleges. “… Both Legacy Capital and the Seller’s Broker responded that naming Legacy Capital as the buyer in the LOI at that stage was not a concern as all involved in the transaction understood that the Tate Group would be the buyer of the target dealerships and that the LOI would become irrelevant once the APA was completed.”
After receiving assurances that “there was nothing to be concerned about,” Tate Group continued to work toward the acquisition of the target dealerships. But in the days that followed, Tate Group alleges, Legacy pushed changes to its compensation structure and to the “basic transaction structure that all had agreed to and worked toward,” including a proposal that would have Tate Group serve as employees and not owners of the dealerships.
When Tate Group told Legacy the new terms were “unacceptable,” Legacy told the group to raise the issue with Tommy Barras, Reynolds’ CEO, because he “supported and had directed the new terms.”
“At that point, Legacy Capital, Barras and Reynolds’ collusion to usurp the Tate Group’s transaction became clear,” Tate Group alleges. “Because they had been deceived and betrayed, the Tate Group determined it could not, in good conscience, proceed with a transaction under the terms dictated by Legacy Capital and Reynolds. More importantly, it was untenable for the Tate Group to do business with Reynolds, Barras, or Legacy Capital after they had revealed themselves to be untrustworthy.”
In July 2024, the defendants executed an asset purchase agreement to acquire the dealerships and buy the associated real estate, “with total consideration exceeding $150 million, highlighting the significant value of the opportunity that was originally sourced, developed, and advanced by the Tate Group.”
“Ultimately, the transaction between the defendants and the seller did not close,” according to the lawsuit. “Based on information and belief, one of the automotive manufacturers did not approve the buyer(s) designated by the defendants for purposes of proceeding with the acquisition of the target dealerships. While the specific reasons for the manufacturer’s decision are not fully known to plaintiff, the Tate Group believes that, had it remained affiliated with the transaction in the role originally contemplated, the necessary approvals would have been secured and the acquisition successfully completed.”
The lawsuit, filed March 27, has been assigned to Judge Sofia Adrogué. According to a case information sheet filed by lawyers for Tate, the parties previously engaged in mediation or other alternative dispute resolution prior to filing suit, and Tate informed the court it doesn’t believe future alternative dispute resolution efforts would be beneficial.
In addition to as much as $150 million in actual damages, the suit is seeking unspecified punitive damages from the defendants.
Tate Group Automotive is also represented by David Ayers and Philip Werner of Werner Ayers & McDonald.
The case number is 25-BC-11A-0020.