Royal, 815 S.W.2d at
233 (finding that it would offend traditional notions of fair play and justice to subject a
nomesident defendant to personal jurisdiction in Texas because it would be burdensome for the
defendant to submit to a foreign judicial system when the alleged acts occmTed outside of
Texas).
SUBJECT TO SPECIAL APPEARANCE, PRESTON'S ORIGINAL ANSWER
Defendant John T. Preston, subject to and without waiver of his special appearance, files
this Original Answer to Plaintiffs' First Amende-d Oliginal Petition and shows the Court as
follows:
General Denial
Preston denies generally every a11egation contained in Plaintiffs' petition and demands
strict proof of the allegations in accordance with the Texas Rule of Civil Procedure and the
Texas Constitution. Preston reserves the right to plead further and with greater patticularity as
this case progresses.
THEREFORE, Defendant John T. Preston respectfully requests that the Court dismiss
Plaintiffs' claims against him, assess all costs against Plaintiffs. and grant him such other and
fm1her relief as is just and proper.
481:!-3575-8602. V. J
84
Respectfully submitted,
Is/ Arnir Alavi
Amir Alavi
State Bar No. 00793239
Ashley Frankson
State Bar No. 24059776
AHMAD, ZAVITSANOS, ANAIPAKOS, ALAVI &
MENSJNGP.C
3460 One Houston Center
1221 McKinney Street
Houston, Texas 77010
Telephone: (713) 655-1101
Telecopier: (713) 655-0062
ATTORNEYS FOR DEFENDANTS
MICHAEL SYDOW, JOHN T. PRESTON, C
CHANGE INVESTMENTS, LLC and BRILLIANT
NOVELTY, LLC
CERTIFICATE OF SERVICE
I hereby certify that on this 28th day of September, 2011, I sent by facsimile transmission,
by first class mail, postage prepaid, or by email, a true and correct copy of the above and
foregoing document to counsel as follows:
Randall 0 . SetTels
Clyde J. ''Jay" Jackson, ill
800 Commerce Street
Houston , Texas 77002
Facsimile: 713-225-0827
Brent C. Pen y
800 Commerce Street
Houston, Texas 77002
Facsimile: 713-237-0415
Asher Griffin
ChJ.is Sileo
Scott, Douglass & McConnico, L.L.P.
600 Congress Avenue, Suite 1500
Austin, Texas 78701-2589
Facsimile: 512-474-0731
Is/ Amir Alavi
Amir Alavi
4812-3575-8602, v. 1
85
CAUSE NO. 2011-44058
MlCilAEL COLLINS, ELLEN COLLiNS, § fN THE DISTRICT COURT OF
BOS, INC., ENVEN, INC., §
METAL C/\TALYSTVENTUR ES, INC., §
FAT.L RIVER REALTY, LTD., §
M. SAMEER AHMED, AND §
TSBC SOUTH TEXAS INVESTORS, L.P.. §
§
Plaintiffs, §
.. . .
;~
~.!! v.
§
§ IlARRIS COUNTY, TEXAS
~0 A
N t) .... ':/
Qi 'E M f: MICHAEL SYDOW, JOHN T. PRESTON, §
~cS ~ ~ CHRISTOPH HENKEL, C. CHANGE §
-[...:``~ INVESTMENTS, LLC, SONlA LO, CHALSYS §
~ ·~ ``~ CAPITAL PARTNERS, L.L.P., §
-oo..., l; BI:ULLlANT NOVELTY, L.L.C., §
Cll .~ ·c
-
'0 0 ·~ and MEL! ORA ENERGY
U)-
§
~ ...... .
ii:5``~ TECHNOLOUIES, S.A.R.L., §
§
Defendants. § 715T11 .I UO IClAL DISTRICT
AFFIDAVIT OF .JOHN T. PRESTON
STATE OF MASSACHUSETTS §
§
COUNTY OF MIDDLESEX §
BEFORE ME, the undersigned ofticial, on tlus day personally appeared John T. Pre.ston,
who is personally known to me, and who fi rst being sworn by me, according to Jaw, upon his
oath deposed and stated the following:
1. My name is John T. Preston. 1 am over the age of2 J. 1 have never been
convicted of a felony or crime involving moral turpitude. I am of sow1d
mind and am fu lly compelem to make this affidavit.
2. I am a Director of NC12, Inc, a Nevada corporation. l have personal
knowledge of all of the facts stated herein, and they are all true and correct
now, and for all applicable time rrames involving the Plaintills'
allegations in thi s c.:ase.
3. I am a resident of Massachusetts. I am not a Texa~ resident.
4. I have never done business in Texas in my individual capacity. ln the past
sixty years, I have not travell ed to or visited Texas in my indivi dual
capacity. As a11 infant, I lived in Texas for less than one year.
EXHIBIT A
86
5. 1 visited Texas a limited number of times approximately twenty years ago,
and each of these visits was made in my representative capacity and on
behalf of a company for which I was a board member. Specifically, in the
1990's, J attended no more than tive board meetings in Texas us a
representative and hoard member of a nonprofit organization. Also in the
1990's, I attended no more Lhan three board meetings in Texas as a
representative of a Delaware con.lpany of which T was a board member.
These visits were not made by me in my individual c ~ac ity, hut a~ a
reprc.-;entative and board member of these companies.
G. In the past approxirnately five years, I have visited Texas a very limited
number of times, and again on ly as a representative and on behalf of a
company for whi ch I was a director or plincipal. 1 visi ted Texas
appl'oxl matcly three rimes in the past five years on behalf of TEM Capital.
a oompany for which J om managing partner. These visits consisted of
touring facilit ies in which TEM Capital invests. My only other activity in
Texas has been to appear as a witness in Michud Sydow's divorce
proceedings in 2010. I appeared as a representative of NC12, lnc. and
testi fied regarding an asset (a building) owned by NC12, Inc.
7. Any buard meetings J have attended related to NC12, Inc. have occurred
in Massachusetts.
8. J am employed outside of Texas. have never maintained an o t1icc in
Texas, and have never been employed by a•lY person or company located
in Texas. 1 have never been engaged in routine sales or other profit
making activities in Texas, '-!nd Tdo no£ own any private Texas business. I
am not required to nor do I maintain a registered agent on whom scrvioe of
process can be made in Texas. Other than engaging defense counsel in the
present action, I have never entered into any contracts individually in
Texas: with any Texas residents, any contracts call ing for pcrformuncc in
Texas, or any contracts with a mandatory venue provision in Texas.
9. I do not rent, own, or possess any real or personal prop~rty in Texas, nor
do I hold a mortgage or other lien on any real or personal property in
Texas. J do nut have any investments or assets in Texas, and I have never
taken out a loan in Texas or guaranteed any debt owed to a Texas resident.
I0. I do not maintain '-In indi vidual telephone listing, post office box, or
registered address in Texas.
II . I do not employ nny persons who reside in Texas, or who •·cgularly travel
to Texas in cormection with their individm1l business.
4!Wl 7!.41 09S4, v. l
87
12_. .I ·_b<)ve .never personally incurr~d or pCli:d any ta;xt.'S. in Te~as. or filed a
persomu tax1~turn in T.eX'as.
13. :Except tot. this lawsuit, 1 baye nevet been ·a party to 1itigat\on in oi1y state
or fedetal court hi T(}xas.
14. .I havez ne~er ootnmitte{} a tort in whole or in part in Tex..a.s.
.15, If tbts lilWSlJit Wel1e allowed to qotltinue. in r~xa.s, I WO:tlld be. fot=ced to
t!flvel ro Texas and ·stay there_, perhB:ps fot exit';!ntlw peri-ods <.tftitn:e. The
.cqsts and time a~ociated with $UCh traveJ are. id. at§ 15.002(a)(3).
VTT. Facts
A. Formation of Texas Syngas
46. This case involves revolutionary new energy technology developed by Texas inventor
and businessman Michael Collins for producing synthetic natural gas and other fuels from coal
ORIGINAL PP.TI'I'JON t~ TNTf!.RVF.NTlON
114
Collins worked for almost a decade in South Africa during the 1970s and became familiar with
Sasol' s Lurgi fluidized bed gasification process-a technology that dates back to World War ll.
47, In 1989, Molten Metal Technology, lnc. was founded in Massachusetts. Defendant John
Preston, a fonner Director of Technology Development at the Massachusetts Institute of
Technology, was instrume ntal in founding that company. Preston widely promoted its stock and
served as one of its directors throughout its existence. Molten Metal Technology developed
Cata lyti c Extracti on Processing technology, which used high-temperatures and molten metals to
dispose of hazardous waste. In large part due to Preston 's effort s, Molten Metal Technology
raised millions of investment dollars., and in 1992, the company built and completed 86,000
square foot facility in Fall River, Massachusetts, at a cost of approximately $25 million.
48. Molten Metals Technology impl oded in 1997 under an avalanche of investor lawsuits,
many ofwhich named Preston individuall y. The company was put into bankruptcy in 1998 and
was ultimately liquidated . In 1999, Quantum Catalytics, L.L. C., an entity controlled by Preston,
purchased the patents, technology, and intellectual property portfolio of Molten Metals
Technology out of bankruptcy Molten Metals Technology's $25 million facility in Fall River
was also purchased out of the bankruptcy by the Meissner Trust, an entity owned by Preston and
Paul Lohnes.
49. In the late 1990s, Collins began researching new technological approaches to the process
of creating synthetic fuels. In 2001, Collin s approached Preston to gain access to the catalytic
technology developed by Molten Metal Technology. Collins developed improvements on the
molten metal catalytic processes to be used in converting carbon-based feedstock into synthetic
natural gas and other fu els. CoJJ ins ultimately created a totally new process involving high
temperatures and high pressures to create clean-burning syntJ1eti c fu els from coal, petroleum
ORIGINAL Pl:-~l"n'fON TN TNTI:.RVl:.t--.1 !0"
115
coke, and biomass. An independent consulting engineer later described the new technology as
"substantially difl'erent in theory of operation and design from more common entrained flow
systems (such as the Chevron-Texaco process, Shell gasifier, etc.) or the fi xed bed (Lurgi)
systems.'' Collins, along with retired Univer sity of Maryland professor Robert Bach, tbnnally
patented the process in 2009.
50. In 2004, Collins met Houston lawyer Michael Sydow, who persuaded Collins that he had
the legal and business e--xpertise Collin s needed to exploit the new technoloov)' commercially. In
October 2004, Collins, Preston , and Sydow agreed to create Texas Syngas, L.L. C., a Texas
limi ted liability company to be headquartered in Houston, Texas. The business was reorgani zed
as a new Nevada corporation, Texas Syngas, Inc., in May 2006. Preston, through Quantum
Ca.talytics, licensed the Molten Metals Technology, Inc. patents and intellectual property to
Texas Syngas, Inc. in exchange for 10% of the shares. Sydow became the chief executive officer
and received 5% of the shares. Collins contributed his intellectual property and e-xperti se to the
company and received approximately 75% of the shares. Preston, Collins, and Sydow served as
d1e Texas Syngas, Inc. board of directors.
B. Investment by the Shareholder Intervenors
5 1. In the fall of 2007, Preston and Sydow began serious efforts to raise capital for Te,-xas
Syngas. Preston approached the shareholders of Atomic Ordered Materials (AOM), another
company in which Preston was involved and in which a number of the Intervenors had invested.
Preston brought Sydow and Collins to an AOM shareholders' meeting, where Sydow made a
presentation on the Texas Syngas technology and soli cited investments in the company. This
green ener!,'Y startup company, with what seemed to be a technology ripe for success in a time
116
when the world was embracing environmental conservation and carbon reduction, offered a
compelling investment opportunity.
52. After d1is meeting Preston approached Mr H.J . von der Goltz, who had been present at
the meeting. Preston informed Mr. von der Goltz that he had negotiated a $100 million pre-
money investment valuation for Texas Syngas and was trying to rai se $ 12 million to build a
demonstration reactor to prove and implement the technology. Preston represented that the value
of the technology was in excess of $100 mill ion, but he suggested that von der Goltz meet with
Collins and Sydow to negotiate a discounted valuation to put together an initial investor group
for the $12 million needed. Preston represented that he was assisting Texas Syngas in raising
money, but never disclosed that he owned or controll ed any equity interest in the company. In
November 2007, von der Goltz met with Collins and Sydow in Houston . Collins and Sydow
agreed to accept new investors based on a pre-money valuation of $78 mitlion and a post-money
valuation of$90 million.
53. Mr. von der Goltz brought the opportunity to friends, family, ami business associates,
who ultimately invested $ 11 75 million in excha11ge for which they received preferred shares in
Texas Syngas, representing approximately 13% of the company. Among thi s group were the
Shareho lder Intervenors. Sydow and Preston represented to the Shareholder Intervenors, both
directly a.nd through Mr. von der Goltz, that the value of the technology exceeded $100 million
and that d1e money being raised would be used primari ly for building the demonstration reactor
The Shareholder Tntetvenors relied on these representations in making their investments and,
more importantly, trusted in Preston's integrity and technical expertise, as Preston had pre-
existing relationships with Mr. von der Goltz and with many of the Shareholder Intervenors and
117
who held himself out as having special expertise in val uing new technologies, based largely on
his fanner position on the faculty a.nd as Director of Licensing at MIT.
C. Growth ofT ex as Syngas
54. After the Shareholder lntervenors' funds were received, it was agreed that one of these
new shareholders, Gennan businessman Christoph Henkel, would serve on the board of directors
as the representative of the new investors, along with existing di rectors Collins. Preston, and
Sydow. Furthermore, Sydow agreed to become a full-time officer of Texas Syngas at an annual
salary of $360,000 and agreed to stop practicing law and to devote himself fu ll time to building
Texas Syngas. Colli ns was to focus his efforts on selecting a suitable faci lity and building the
demonstration reactor.
55. In early 2008, Texas Syngas negoti ated a deal with Central Louisiana El ectric Company
(CLECO), a New Orleans gas utility company, for a 10-reactor plant to begin operations in the
fall of 2012. Based on these developments, Preston now represented to Texas Syngas
shareholders that the company was worth $300 milli on, and in the sum mer of 2008, Preston
claimed that he had secured financing through hi s venture capital group C Change Investments.
C Change made a written $30 million commitment to Texas Syngas at a $100 million valuation.
The committed money from C Change was repeatedly delayed and ultjmately never materialized.
56. In September 2008, Preston and Sydow represented to the shareholders that Texas
Syngas had purchased the Fall Ri ver facili ty where the test reactor would be built. The Fall River
faci lity had originally been built by Molten Metal Technoloov)' and had been purchased out of
bankruptcy by the Meissner Realty Tmst, a Preston-controlled entity . Texas Syngas paid the
Meissner Realty Trust, a n entity owned by Preston and Paul Lohnes, $3 .5 mill ion cash. The deed
re<:orITERVEN l !ON ;·· nr'...~
118
was never actually transferred to Texas Syngas. In September 2008, the property was put in the
name of FaJJ River Realty, Ltd., an entity in whi ch Sydow owned an individual interest, and for
which Sydow served as the managing director Defendants never disclosed to the shareholders
that Texas Syngas (and later NC12) did not own the building. Title to the building remained in
FaJI River Realty, Ltd., which then proceeded to charge Texas Syngas a monthly rent of $28,000
for use of the facility it should have owned.
57. ln February 2009, MPR, an independent engineering firm, concluded its review of the
Texas Syngas technology. MPR confirmed the viability of the reactor' s science and theoretical
basis, its design, and the gasification process chemistry. On or about May 14, 2009, Collins and
Robert Bach formally assigned the patented technology to Texas Syngas in the records of the
United States Patent and Trademark Office.
D. Fraud on Texas Syngas and Its Shareholders
58. On infonnation and belief, Preston and Sydow had no intentjon of using shareholder
money as represented to the shareholders. Preston is a classic stock promoter and has rai sed (and
spent) millions upon millions of shareholder dollars, but has never actually built a commercially
successful company. Sydow is a lawyer skilled at hiding assets ami corporate manipulation.
During the t}me that Preston and Sydow controlled the board of directors, they made sure that the
bulk of the money actually went to them or to several of their related entities, rather than to build
the demonstration reactor. In addition to the fraudulent acquisition of the Fall River facility, on
infom1ation and belief, C Change was apparently paid a $40,000 per month consuJtjng fee.
Additionally, Sydow and Preston had the company pay tens of thousands of dollars evety month
to lawyers and consultants and as well as other expenses that did not benefit the shareholders or
119
the corporation, but actually provided benefit for Sydow and his law fim1 and was apparently
used by Preston to solicit investors for C Change .
59. Ow-ing 2009, Sydow moved the Texas Syngas corporate headquarters in Houston from
4900 Woodway to more luxwious accommodations on Post Oak Boulevard. Sydow never
devoted his full attention to Texas Syngas as promised, but relocated his law practice to the
Texas Syngas office space, spent most of his time on his own law practice, and used Texas
Syngas employees to do work for hi s firm . Two of Sydow's children worked full time as lawyers
in Sydow's law firm at Texas Syngas' expense. Texas Syngas was not compensated for use of its
space, suppli es, resources, or personnel. Texas Syngas also paid for the maintenance, storage,
and cleaning for Sydow' s airplane. When Texas Syngas was finally ready to construct the test
reactor, Sydow and Preston had largely squandered the money raised for that purpose
E. Investment by tbe Note Holder Intervenors
60 Despite his numerous promises and despite being compensated to do so, Preston faj led to
rai se additim1al funds for Texas Syngas in 2009, and by mid-year Texas Syngas desperately
needed funding. In 2009, Preston and Sydow again turned to N[r. von der Goltz for assistance.
Mr. von der Goltz was able, through mid-2010, to raise a total of$6,104,000 in additional funds
from friends, family, and business assodates. These investors, the Note Holder Intervenors, were
issued convertible promissmy notes, which provided for automatic conversion into common
shares at a 20% discount of the new investor' s valuation if Texas Syngas obtained qualified
financing from a single investor of at least $5 million on or before September 30, 20 10. If no
qualified financing occurred, the notes would become due and payable within five days after a
demand was made on or after the September 30, 20 10, maturity date.
0Rt(il};Al. PE'l-n'fO~ TN TNiERVl:.l\'l !Oh
120
6 1. Preston and Sydow, both di rectly and through their statements to von der Goltz,
represented to the Note Holder Intervenors that Texas Syngas was worth $300 million as of
2009, based on the value of the technology and the CLECO and Turkish contracts. However,
Preston and Sydow fai led to di sclose that the CLECO contract had been cancelled. Preston and
Sydow also represented that the money would be used prima1ily to build the test reactor;
however, their later conduct and misuse of the funds demonstrate that they had no intention of
using the money for that purpose.
F. Formation of NC12
62. During 2009, Sydow, Henkel, and Preston became increasingly at odds with Collins, who
still owned o r controll ed over 60% of the shares. By the end of 2009, Preston, Sydow, and
Henkel att.empted to wrest control of the company from Colli ns through a scheme to dilute his
interest C Change had received an investment of $15 million from Corinna von Schoenau,
which was intended for investment in Texas Syngas; however, Preston withheld $10 million of
these funds and proposed that C Change would invest $5 milli on at a pre-money valuati on of $10
million and post-money valuation of $ 15 milli on in exchange for a 33% interest in the company .
Collins, as the majmity shareholder, blocked thi s effort, and tension among the board members
reached a boiling poi nt- to tJ1e poi nt where moving the business forward seemed impossible.
Collins and Sydow approached Mr. von der Goltz to mediate a settlement to save the company .
Ultimately. Preston, Sydow, and Collins agreed that Texas Syngas would be reorganized and that
a new three-person board of directors compri sed of Sydow and two new directors acceptable to
Collins would govern the t1ew corporation. Collins was very hesitant to relinquish hi s position as
a director, but agreed to a new board on the conditions that the new board members retained their
positions for two years and that no funds would be accepted from C Change. (Preston ultimately
O Rt~ TN TmP.RVl:.N 1!ON
121
took von Schoenau 's $ 15 million intended for Texas Syngas and invested it in a different Preston
scheme).
63. In late 2009, as part of the reorganizati on, Sydow li quidated Texas Syngas before a new
board was named. Sydow transfen-ed Texas Syngas' assets to a new Nevada corporation, NC 12,
Inc. The preferred shares of the Shareholder Intervenors in Texas Syngas were convet1ed to
common shares in NC12 and the convertible promissory notes held by the Note Holder
Intervenors were assumed by NC 12. With Collins' agreemetlt, Sydow remajned as CEO of
NC 12 and was joined on the board of directors by Mr. H.J. von der Goltz and Dr. Aydin
Muderrisoglu. Von der Goltz was elected to serve as n on~executi ve chairman of the board of
directors. Von der Goltz hoped the reorganization would relieve tension between Sydow and
Collins, allowing Collins to focus on building the reactor at the Fall River, Massachusetts,
facility that supposedly had been purchased by Texas Syngas, and allowi ng Sydow to focus on
managi ng the company from the Houston headquat1ers and negotiating contracts with potential
customers.
64. Sydow apparently believed that he would be able to manipul ate the new board members
and assume greater control. When the new board members made clear their independence and
intent to act in the best interest of the corporation and its shareholders, Sydow enl isted Preston
and immediately began to undercut the authority of the new board members and to withhold
infom1ation from them until they could be removed. Sydow maintained sole signatory authority
over all NC 12 bank accounts and refused requests by von der Goltz that certain expenditures
require two signatures.
65. Mr. von der Goltz took seriously his new role as a chairman of the board of directors. 1'-Ie
met personally with all the Houston and Fall Ri ver employees in January 20 10 and sought to
ORlGJNAl. Pt-7Jn'fON TN TNTI:.RVEN'Y'lON
122
clean up NC 12's finances, streamline operations based on his vast operational experience, and
above all, see that the demonstration reactor wa.s built. Collins, in the meantime, had moved full-
time to Massachusetts and made meaningful progress on constructing the reactor and purchasing
necessary equipment with the funds rai sed by von der Goltz. Sydow retained control of the
corporation's money and continued his rni sappropriation and profligate spending, which
included approxi mately $46,000 that he spent during a nine-day trip to London in mid-2010, a
$20,000 per month lease payment that Sydow charged NC 12 for Sydow's private aircraft. and
other wasteful personal e-xpenses and benefits, whi ch w-ere never divulged to the board of
directors . While Sydow saw that all of the expenses incurred for hjs benefit were paid
immediately, he refused to pay for the actual expenses incurred for building the reactor in Fall
River, resulting in numerous disputes with vendors, work stoppages, and delays.
66. Sydow continuall y blamed Collins for NCI2' s financial problems and shortages offunds.
Sydow vehemently opposed any review or financial controls over his own handling of corporate
funds and never supplied financial statements to the board of directors. With board approval, von
der Goltz engaged Elder, Gaffey & Paine, P.C. (EGP), a Boston-based accounting firm, to
1 1
review both Fall RiveT S and Houston' s book s and fiscal procedures. EGP s investigation
showed that adequate oversight measures were in place at Fall River and that all expenditures
were supported by approved purchase orders sent to the Houston office for payment and tiling.
67. Sydow stonewalled and delayed providing EGP the accounting records and QuickBooks
files relating to operations in Houston for almost eight weeks in mid-201 0. After tin ally
obtaining records from the Houston office, EGP discovered numerous excessive expenditures for
travel, professional fees, outside consultants, and the undisclosed lease payments for Sydow·s
airplane-all expenses neither known to nor appr-oved by NC12's board of di rectors EGP ' s
0R tromissory notes into common shares. The NC12 boal'd of di rectors, consisting of Preston,
Henkel, and Sydow, infom1ed the Note Holder lnterve11ors on September 28, 20'10, that they
were now common shareholders with 39.4% ownership, whjle MET owned 30.3% for its $5
million investment, and the " old" shareholder group would be diluted to 30.3%-137 P.3d 1171 , 1178 (Nev. 2006) (citing
Foster v. Arata,
325 P.2d 759, 765 (Nev . 1958)); see Nev . Rev. Stat. § 78.138. The Controlling
Shareholder Defendants violated and breached their fiduciary duties to the shareholde rs of care,
loyalty, reasonable inquiry, oversight, and good fai th. Horwitz v. Southwest Forest indus.,
604
F. Supp. 11 30, 11 34 (D. Nev. 1985). These breaches involved intentional misconduct and fraud
Nev. Rev. Stat. § 78 .138(7). These acts include:
a. Sydow's theft and mi sappropriation of corporate assets, including but not limited
to use of corporate funds to pay for his private plane, use of corporate resources
for hi s law practice without compensation to the company. the use of corporate
funds for personal expenses, and bogu s fees for lawyers, co11Sultants, and services
that did not benefi t NC12;
b. Failure to transfer title of the Fall River property to the corporation and instead
transferring it to an entity in which Sydow and Preston held an individual interest,
and charging the corporati on rent for use of its own property;
c. Transfer of the technolot,'Y of the corporation- its most valuable asset, worth
hundreds of millions of dollars-for grossly inadequate consideration to an entity
in w hich Sydow, Preston, and other Defendants had individual interests.
84. Each of the Controlling Shareholder Defendants authorized, or by abdication of duty,
permitted and allowed these bad acts to occur. These acti ons were not a good faith exercise of
prudent business judgment to promote and protect NC l2's corporate interests. See Nev. Rev.
Stat. § 78 138; i n re Western World Funding. Inc.•
52 B.R. 743, 764 (Bkrtcy. D. Nev. 1985 )
ORtG!'NAL PI:'.'Tn'fON TN T"l>rH:.RVEN l !ON
130
("An officer who or director who participates, ratifies, aids or approves of the breach of duty of a
co-fiduciary, or fails to repudi ate the wrongdoing, may be jointly liable for the violation.").
85. Intervenors arc entitled to their actual damages for this breach of fiduciary duty and
funher equitable rel ief including buy-out, disgorgement, and constructive trust. White NC12 may
also have claims arising out of the same conduct, Intervenors do not seek to assert any claims
owned by NC l2 or to asseit any remedy on behalf of NC12. Intervenors asseit only their
individual claims for violati ons of fiduciary duties owed directl y to them as shareholders and
seek only those damages for injuries suffered by lntetvenors di rectly as shareholders. Because
the Controlling Shareholder Defendants acted knowingly, intentionally, mal iciously, and with
reckless disregard of Intervenors' rights, Intervenors are further entitled to exemplary damages.
B. Shareholder Oppression
86. The Controlling Shareholder Defendants are subject to legal duti es to Intervenors,
including fiduciary duties, duties not to oppress, and duties of good faith and fair dealing.
Defendants committed a continuing pattern of oppressive acts that have the purpose and effect of
substantially defeating Intervenors' objectively reasonable expectations of share ownership, of
systematically violating their rights and interests as shareholders, and of denying them the
economic value of share ownership and return on thei r investment.
87. Examples of but a few of these oppressive acts include, but are not limited to: instituting
a plan to gain unfettered control of the company with the intent of stealing its assets.. stripping
the company of its most valuable assets for their own personal gain, and the secretive and
questionable removal of directors von der Goltz and :rv·Iuderrisoglu, who were reputable,
independent of Preston and Sydow, and trusted by the shareholders. Sydow thwarted these
di reclors' investigative efforts into the company's accountjng practices. Sydow, Preston, and
ORtGI'l\AL PETI1'fON TN T'l>ITI:.RVl::.N I !ON
131
Henkel illegally exerci sed dominion and control over the corporation by removing these
directors in direct violation of a previous agreement among a super-majority of the shares.
Sydow also misappropriated corporate assets fo r personal expenses, and engaged in numerous
undi sclosed self-dealing tran saction s at the expense of NC12 shareholders. Defendants' conduct
rendered Intervenors' share ownership worthl ess, meaningless, and financially punitive.
Defendants' burdensome, harsh, and wrongful conduct visibly departs from standard s of fair
dealing and constjtutes shareholder oppression
88. Jntervenors are e11titled to equitable relief to remedy the oppressive conduct, including
but not limited to, having the Court order a buy-out at a fair price, together with actual and
exemplary damages, disgorgement, restitution, and other equitable relief. Furthermore,
Defendants' conduct was committed willfully and maliciously and Intervenors are entitled to
punitive damages. Intervenors are without adequate remedy at law.
C. Knowing Participation/Civil Conspiracy
89. As alleged herein, all Defendants conspired to commit fraud and breaches of their
fid udary duties. and thus are jointly and severally liable for all actual damages and equitabl e
rel ief. Furthermore, all Defendants acted knowingly, intentionall y, maliciously, and with reckless
disregard of Intervenors' rights and the company' s ri ghts, and Intervenors are entitled to
exemplary damages.
D. Securities Fraud-Common Law Fraud and Statutory Fraud
90. Sydow and Preston committed common law and statutory fraud on each of the
Interv enors in connection with the sale and purchase of the shares and conve11ible notes. As
alleged herein, Sydow and Preston solicited the Intervenors' investments and directly or
indirectly communi cated false representations of fact to the Intervenors- including that the
ORlf: l'NAl. Pl.::'l n'ION TN T'!>ITERVENT!ON
132
company was worth $ 100 million or later $300 million, that the corporation would use the
investment money primarily to build the reactor (when Sydow and Preston intended to utilize the
money primarily for other purposes or to misappropriate it and to delay the construction of the
reactor), and that the CLECO deal was in place when in fact it had been cancelled. Addi tionally,
Sydow and Preston fajled to disclose facts that they were under a duty to disclose to new
investors-including the cancellation of the CLECO deal. Sydow and Preston made the
misrepresentations, false promi ses, and omissions with knowledge of the falsity, with the intent
to deceive, and with the intent that the Interven ors rel y on those misrepresentations. The
Intervenors did in fact reasonably rely on the fraudulent representations and non-disclosures of
Preston and Sydow by investing in Texas Syngas and NC12. Intervenors suffered actual damages
proximately caused by Preston and Sydow' s fraud . Furthermore, Preston and Sydow acted
willfully, intentionall y, and maliciously and are liable for exempl ary damages.
IX. Jury Demand
9 1. Intervenors wish to exercise their right to trial by jury .
X. P1·ayer
92. For these reasons, Intervenors request that the Defendants be cited to appear and answer
and that Intervenors have judgment agajnst the Defend ants for the following:
a. Actual and exemplary damages as allowed by law;
b. Equitable reli ef including buy-out or return of investment;
c. Prejudgment and post-judgment interest as allowed by law;
d. Attorney fees and expenses;
e. Costs of suit;
ORIGINAl. P P.TITJON I~ TNTF!.RVF.NTION
133
f All other relief, general and special, legal and equitable, to which Intervenors may
be entitled.
Respectfully Submitted,
FRYAR LAW Fl.RNI, P.C.
F. Eric Fcyar
Texas Bar No. 07495770
Email: eric@fryarlawfirm.com
Matthew Buschi
Texas Bar No. 24064982
Email: mbuschi@fryarlawfirm.com
Christina Richardson
Texas Bar No. 24070495
1001 Texas Ave. , 14th Floor
Houston, Texas 77002-3194
Tel. (281) 715-6396
Fax (281) 715-6397
ATTORNEYS FOR INTERVENORS
0RfGJNA.L PETITION IN lNTf.'RVl'{NTfON
134
CERTIFICATE OF SERVICE
I certify that a copy of the foregoing instrument was served on all parties and counsel of record
pursuant to the Texas Rules of Civil Procedure as indicated below:
[]Telephonic document transfer on 11 November 2011 before 5:00p.m .
[]Email or eservice by agreement on 11 November 201 1.
[X] First Class United States Mail, CMRRR, on 11 November 2011.
Randall 0 . Sorrels Brent C. Perry
Clyde J. "Jay'' Jackson, ill Law Offices of Brent C. Perry
Abraham Watkins, Nichols, Sorrels, Matthews 800 Commerce Street
& Friend Houston, Texas 77002
800 Commerce Street Fax: 713-237-0415
Houston, Texas 77002-1776 Attorney for Original Plaintiffs
Fax: 713-225-0827
Attorneys.for Original Plainti:ffs
Asher Griffin Amir Alavi
Chris Sileo Ashley Frankson
Sean Flammer Ahmad, Zavitsanos, Anaipakos, Alavi &
Scott, Douglass & McConnico, LLP Mensing P.C.
600 Congress Ave., Ste 1500 3460 One Houston Center
Austin, Texas 78701-2589 1221 McKinney Street
Fax: 512-474-0731 H ouston, Texas 770 lO
Attorneys for Defendants Clwlsys, At/ET, and Fax: 713-658-0062
Lo Attorneys for Defendants Sydow, Preston,
Henkel, C Change, and Brilliant Novelty
OR!GlNALPf.TJTJON IN INTH.RVF.NTION
135
``-``
];' l '
IN THE UNITED STATES BANKRUPTCY COURT /Jf:?hfif-D h ~
FOR THE SOUTHERN DISTRICT OF TEXAS 81
' rlct an;~/ .U
HOUSTON DMSION 77,.,., 4UG J C!erlr
!Jr J 20;;
INRE; § !'~......, .' '·u,;~·~ ..
§ CASE NO: 11-38794 `` ... `` .,._,."' ".'~ ;.. .._.
()·· .... -.. ~
NC12, INC. § CHAPTER 7 ~r>'·il"- _ . - --....___
Debtor(s).
§
§ JUDGEISGUR
. -·--,------
§
§
MICHAEL COLLINS, et al §
§
Plaintiff(s), §
§
vs. § ADVERSARY NO. 11-3634
§
SYDOW, eta/ §
§
Defendant(s). §
MEMORANDUM OPINION
The Plaintiffs and Intervenors assert claims against fonner officers and directors of
NC12, the debtor in the underlying bankruptcy case. NC12 was a technology company engaged
in developing catalytic gasification processes. Plaintiffs and Intervenors allege that the
Defendants stripped NC 12 of assets, misappropriated corporate assets, engaged in self-dealing,
and improperly removed other directors from NC12's board. The Plaintiffs sue for breach of
fiduciary duty, and Plaintiff Michael Collins sues for conversion. The Intervenors sue for breach
of fiduciary duty, shareholder oppression, statutory and common law securities fraud, and
conspiracy.
The Court grants, in part, and denies, in part, the Intervenors' motion to remand. The
Court remands the Intervenors' securities fraud claims, including the aiding and abetting and
conspiracy to commit fraud claims, as they are the Intervenors' property; the Court declines to
1 I 3l
206
exercise subject matter jurisdiction over the claims. The remainder of the Intervenors' claims are
the estate's property, and the Court dismisses them for lack of standing.
The Court denies, in part, and abates, in part, the Plaintiffs' motion to remand. Plaintiff
Michael Collins' conversion claim is arguable property of the estate. lf the claim belongs to
Collins, the Court may lack subject matter jurisdiction or the claim's potential effects on the
estate may be so remote that the Court should discretionarily abstain. If the claim is property of
the estate, Collins lacks standing to assert the claim. Until the issue is decided, the Court cannot
remand the claim; Collins' pursuit of the conversion claim in state court would violate the
automatic stay. The remainder of the Plaintiffs' claims are property of the estate, and the Court
dismisse~ them for lack of standing.
Background
This proceeding involves numerous Plaintiffs, Defendants, and Intervenors. The
Plaintiffs are Michael Collins, individually and on behalf of NC12, Inc. and Fall River Realty,
Ltd.; Ellen Collins, on behalf of BOS, Inc., EnVen, Inc. and Metal Catalyst Ventures, Inc.; BOS,
Inc., as a shareholder ofNC12; EnVen, lnc., as a shareholder ofNC12; Metal Catalyst Ventures,
lnc., as a shareholder of NC12; M. Sameer Ahmed, individually and on behalf of NC12 and
TSBC South Texas Investors, L. P., as a shareholder ofNCI2.
The Defendants are Michael Sydow; John T. Preston; Christoph Henkel; C Change
Investments, L.L.C.; Sonia Lo; Chalsys Capital Partners L.L.P.; Oscura, Inc.; Brilliant Novelty,
L.L.C.; and Meliora Energy Technologies. S.A.R.L. The Plaintiffs sued the Defendants in Harris
County District Court on July 26, 2011. ECF No. l-1.
The Plaintiffs assert claims for breach of fiduciary duty, alleging that Sydow, Preston,
and Henkel breached their fiduciary duty to the Plaintiffs as shareholders of NCl2 by
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207
misappropriating corporate funds. They seek ''their proportionate share of economic injuries" as
shareholders ofNC12. The Plaintiffs sue the other Defendants for aiding and abetting breach of
fiduciary duty. The Plaintiffs sue Sydow, Preston, C Change Investments, and Brilliant Novelty
for conversion of Collins' interest in Fall River Realty.
The Intervenors filed a petition in intervention on November 11, 2011 . The Intervenors
are Akila Finance, S.A.; Bosques del Molino, S.A.; Centrans Energy Services, Inc.; Chester
Mester Holdings, Ltd.; Deltec Bank & Trust, Ltd.; Emjo Investments, Ltd.; William End; Evans
and Petree 401K Plan; First Bay Intertrade; GM Partners; Marair Corporation; W.L. Nichol, IV;
Panorama Investment, Ltd.; PC 01 Vermoegens Verw.; Alejandro Santo Domingo; Sinchi
investment; Venturi Global Investments, Ltd.; and H.J. von der Goltz. ECF No. 1-3.
The Intervenors sue Sydow, Preston, and Henkel for breach of fiduciary duty to
shareholders and for shareholder oppression. They also sue all Defendants for knowing
participation/civil conspiracy to commit fraud and breach of fiduc iary duties. The intervenors
sue Sydow and Preston for common law fraud and statutory fraud.
NC12 filed for chapter 11 bankruptcy on October 14, 201 I. On December 22, 2011, the
Court granted the United States Trustee's motion to appoint an examiner in the case. ECF No.
28. Walter Bissex was appointed examiner. ECF No. 30. Bissex filed a status report on
February JS, 2012. ECF No. 41.
The Defendants removed this proceeding on December 15, 2011. The Intervenors filed a
motion to remand or abstain on January 17, 2012, arguing that they asserted only direct claims
against the Defendants. ECF No. 6. The Plaintiffs joined in the motion to remand on the same
day. ECF No. 7.
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At a hearing on February 2, 2012, the Court required parties to file briefs on whether the
estate owned the claims asserted in this proceeding. The Intervenors and Defendants Sydow,
Preston, Henkel, C Change Investments, LLC, and Brilliant Novelty, LLC (collectively, "Sydow
Defendants") filed briefs on March 2, 2012. ECF Nos. 12 & 14. The Sydow Defendants also
filed a response to the motion to remand on the same day, arguing that the claims were property
of the estate. ECF No. 13. The Sydow Defendants also argue that the existence of a joint
directors and officers insurance policy with a maximum coverage limit of $1 ,000,000.00 for
defense costs provides another basis for "related to" jurisdiction. ECF No. 13, at 21 -22.
Additionally, the Intervenors' requested relief of a forced buy-out, they argue. would affect the
bankruptcy estate by affecting ownership of the debtor and rearranging bankruptcy priorities.
ECF No. 13, at 23. Finally, mandatory abstention does not apply, they argue, because remand
would violate tbe automatic stay. ECF No. 13, at 23.
Defendants Sonia Lo; Chalsys Capital Partners, LLP, and Meliora Energy Technologies,
S.A.R.L. (collectively, " Lo Defendants") filed a joinder with the Sydow Defendants' briefing on
March S, 2012. ECF No. IS. The Lo Defendants filed a joinder with the Sydow Defendants'
response to the motion to remand on March 7, 2012. ECF No. 17. The Intervenors filed a reply
to the Sydow Defendants' brief on March 9, 2012. ECF No. 18.
In NC12's main bankruptcy case, the United States Trustee filed a motion to convert tbe
case to a chapter 7 case on February 28, 2012. No. 11-38794, ECF No. 43. The intervenors
joined in the motion on March 22, 2012. No. 11-38794. ECF No. 51 . NC12 filed a response on
March 22. 2012, opposing the conversion to chapter 7. No. 11-38794, ECF No. 52. The Court
held a hearing on the motion to convert on March 26,2012 and March 27,2012. After hearing
testimony from Bissex, Sameer Ahmed, Sydow, and Preston, the Court concluded that NC12
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was not operating in a meaningful way and had limited assets of an unknown value. The Court
granted the motion to convert, and Janet S. Casciato-Northrup was appointed chapter 7 Trustee.
The Court set a hearing on the ownership of the claims in this advers1lry proceeding for
May 15, 2012. Prior to the hearing, the Trustee and the Intervenors filed briefs. ECF Nos. 25 &
26. At the May 15, 2012 hearing, lhe Court heard arguments as to the ownership of the claims.
The lntenrenors filed an additional brief on May 25, 2012. ECF No. 27.
The Trostee filed a separate adversary proceeding against Michael Collins, Ellen Collins,
and BOS, lnc. on June 5, 2012, seeking a detennination ofthe extent and validity of the estate's
interest in real property in Fall River, Massachusetts and a determination that the property was
subject to either a resulting or a constructive trust. The Trustee also sued Michael Collins for
breach of fiduciary duty. Adv. No. 12·3266, ECF No. 1.
The Trustee filed another adversary proceeding against Michael Collins on August 13,
2012. Adv. No. 12-3376, ECF No. I. In Adv. No. 12-3376, the Trustee sues for a declaratory
judgment that Collins does not own any interest in U.S. Patent Application No. 12/363,398 and
the underlying technology; breach of fiduciary duty; and unjust enrichment.
On August 21, 2012, the Court ordered the parties to this adversary proceeding to file a
copy of NC12's Philadelphia Indemnity Insurance Company policy and to stipulate whether the
copy was true and correct. ECF No. 28. The Trustee filed a copy of the policy on August 27,
2012, with a stipulation signed by the Trustee, the Plaintiffs, the Intervenors, Sydow, Preston.
Henkel, and the other Defendants. ECF No. 30. The Trustee, the Plaintiffs, the Intervenors,
Sydow, Preston, and Henkel stipulate that the copy of the policy is a true and correct copy. ECF
No. 30, at 1. The other Defendants have no basis either to dispute the authenticity of the policy
or to stipulate that the copy is true and correct. ECF No. 30, at 2.
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The Plaintiffs' and Intervenors' Allegations
The Plaintiffs and Intervenors allege that the Defendants, who were directors and officers
of NC 12, engaged in self-dealing and mismanagement with the ultimate result of stripping NC 12
of its most valuable assets. For context, the Court summarizes the allegations made by the
Plaintiffs and Intervenors. By summarizing the allegations, the Court does not fmd that the
allegations are meritorious. Nevertheless, the Court must assume that the allegations are true for
the purpose of ruling on the pending motions.
NC12 was involved in the development of catalytic gasification technology. ECF No. 1-
2, at 6. The technology was developed by Plaintiff Michael Collins for producing synthetic
natural gas and other fuels from coal. ECF No. 1-3, at 14. Collins' technology involved using
high temperatures and high pressures to create clean-burning synthetic fuel~ from coal,
petroleum coke, and biomass. ECF No. 1-3, at 15-16. Collins. along with retired University of
Maryland professor Robert Bach, patented the process in 2009. ECF No. 1-3, at 16.
NC12 began as a Texas limited liability company named Texas Syngas, LLC. ECF No.
1-2, at 7-8. Texas Syngas was fonned jn October 2004 to exploit the technology portfolio of a
defunct company called Molten Metal Technology, Inc., which had been founded and promoted
by Defendant John Preston. ECF No. 1-2, at 7; ECF No. 1-3, at 15. Quantum Catalytic&, Inc.,
another entity controlled by Preston, purchased Molten Metal Technology's portfolio in l999.
ECF No. 1-2, at 7; ECF No. 1-3, at 15. In May 2006, Quantum Catalytics licensed its
technology to Texas Syngas in return for 10% of the available shares. ECF No. 1-2. at 8.
Collins agreed to contribute his intellectual property to Texas Syngas in exchange for 754,500
shares {approximately 75%) of Texas Syngas. ECF No. 1-2, at 8; ECF No. 1-3, at 16. Collins
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211
kept I 00,000 shares personally and transferred the other shares to EnVen, Inc. and Metal
Catalyst Ventures, Inc., Nevada companies owned by his wife, Ellen Collins. ECF No. 1-2. at 8.
Texas Syngas was reorganized as a new Nevada CQrporation, Texas Syngas. Inc.• in May
2006. ECF No. 1-3, at 16.
Texas Syngas began raising significant capital in 2007. ECF No. l -2. at 9; ECF No. 1-3,
at 16. Through Preston and his contact Johan von der Goltz, Texas Syngas raised at least $12
million from European investors. ECF No. 1-2, at 9. Von der Goltz's friends, family, and
business associates invested $11.75 million in exchange for approximately 13% ofthe comp110y.
ECF No. 1-3, at I 7. These investors included some of the Intervenors ("Shareholder
Intervenors''). ECFNo. 1-3, at 17.
Sydow and Preston represented to the Shareholder Intervenors that the value of the
technology exceeded $100 million and that the funds would be used for building a demonstration
reactor. ECF No. 1-3, at 17.
The funds were also intended to be used to acquire a research and development facility in
Fall River, Massachusetts. EFC No. 1-2, at9. The facility was formerly owned by Molten Metal
Technology and was acquired by the Meissner Trust, an entity owned by Preston and Paul
Lohnes. ECF No. 1-3, at 1S. Texas Syngas structured the acquisition of the facility by Fall
River Realty, Ltd. ECF No. 1-2, at 9. Preston and Lohnes retained an ownership interest in Fall
River Realty. ECF No. 1-2, at 9-10. Preston and Lohnes, through a complex transaction,
transferred to Collins an interest in Fa11 River Realty in exchange for $3.5 million and Texas
Syngas shares. ECF No. 1-2, at 10.
Preston and Sydow told the shareholders that Texas Syngas had purchased the Fall River
facility, but the property was never actually transferred to Texas Syngas. ECF No. 1-3, at 18-19.
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Sydow became the Chief Executive Officer of Texas Syngas with an annual salary of
$360,000. ECF No. 1-2, at 9. Sydow, a lawyer, agreed to stop practicing law and devote his full
efforts to building Texas Syngas. ECF No. 1-2. at 9. Sydow worked from office space in
Houston, paying salaries to officers and employees and pursuing execution of Texas Syngas's
business plan. ECF No. 1-2, at 9.
Collins began working at the Fall River facility to build a full scale gasification system
prior to commercial development, retaining the necessary consultants and employees. ECF No.
1-2. at 10. Collins and Bach assigned the patented gasification technology to Texas Syngas on
May 14, 2009. ECF No. 1-3, at 19.
Texas Syngas negotiated a deal with the Central Louisiana Electric Company (CLECO)
in early 2008, for a tO-reactor plant to begin operations in the fall of20l2. ECF No. 1·3. at 18.
In the summer of 2008, Preston claimed that he had secured .$30 million in financing through
C Change, but the money never materialized. ECF No. 1-3, at 18.
By 2009, Texas Syngas needed additional funding. Von der Goltz raised a total of
$6,104,000.00 from friends, family, and business associates. ECF No. 1-3, at 20. These
investors, who included the remainder of the Intervenors ("Note Holder Intervenors"), were
issued convertible promissory notes, which provided for automatic conversion into common
shares at a 20% discount if the oompany obtajned qualified financing from a single investor of at
least $5 million on or before September 30, 20 I 0. ECF No. 1·3, at 20. Preston and Sydow
represented to the Note Holder Intervenors that the company was worth $300 million as of2009,
based on the value of the technology and the CLECO contract and prospective contracts with the
Turkish national coal company. ECF No. 1-3, at 21, 26. The prospective Turkish contracts were
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to be obtained through the efforts of von der Goltz and Dr. Aydin Muderrisoglu. ECF No. 1-3, at
26.
However, the CLECO contract had already been canceled. Preston and Sydow did not
disclose the cancellation of the contract. ECF No. 1-3, at 21. Preston and Sydow represented
that the money would be used primarily to build the test reactor. ECF No. 1-3, at 21 .
The Intervenors allege that Preston and Sydow had no intention of using shareholder
money as represented to the shareholders. ECF No. 1-3, at 19. While they controlled the board
of directors, they "made sure that the bulk of the money actually went to them or to several of
their related entities, rather than to build the demonstration reactor." ECF No. 1-3, at 19.
C Change, Preston's company, was "apparently" paid a $40,000 per month consulting fee. ECF
No. 1-3, at 19. Sydow and Preston had the company pay tens of thousands of dollars every
month to lawyers and consultants and for other expenses that did not benefit the shareholders or
the corporation, but instead benefited Sydow and Preston. ECF No. 1-3, at 19-20.
Although Sydow had agreed to devote all ofhis time to Texas Syngas when he was hired
as CEO, he continued practicing law, spending most of his time on his own law practice and
using Texas Syngas employees to do work for his firm. ECF No. 1-3, at 20.
Also in 2009, Texas Syngas became NC12. ECF No. 1-2, at 11. Sydow and Preston
managed the transfer of assets and liabilities to the new entity. ECF No. 1~2. at 11. TSl was
dissolved. ECF No. 1-2, at 11. Sydow remained as CEO and was joined on the board of
directors by von der Goltz and Muderrisoglu. ECF No. 1-3, at 22.
In March 2009, C Change Investments, Preston's investment company, acquired a small
interest in NC12. Through 2009, Preston and Sydow developed the prospects for a Louisiana
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production facility, and Collins oversaw research and development of the reactor in Fall River.
ECF No. 1-2, at 11.
Collins began having problems with contractors at the Fall River facility by late .2009.
ECF No. 1-2, at 11. One contractor placed a stop on all work until NC12 paid over $1.2 million
in past due invoices.
Von der Goltz began investigating the funding issues, contacting an accountant to review
NC J2's financial records. ECF No. 1-2, at 12. The accountant did a limited review of the Fall
River accounting process and then requested a set of books for NC12. ECF No. 1-2, at 12. After
obtaining the Quickbooks file, the accountant raised concerns about NC12's use of funds,
including large amounts ofprofesstonal fees and expenses. ECF No. 1-2, at 12. The accountant
recommended a forensic audit and noted that very linle of the money raised had been spent on
developing the reactor at the Fall River facility. ECF No. l -2, at 12. Instead, much of the money
had been spent on travel, offices, professional fees, outside consultants, and undisclosed lease
payments for an airplane. ECF No. 1-2, at 12; ECF No. 1-3, at 23 .
Collins and von der Goltz were aligned. After von der Goltz delivered the audit request
to Sydow, Sydow obtained an injunction in Montgomery County against Collins. ECF No. 1-2,
at 12. Sydow removed Collins from all company operations in August 2010 and closed off
access to company records. ECF No. 1-2, at 12. Sydow and Preston removed Collins, von der
Goltz, and Muderrisog1u as directors and named Christoph Henkel as a director. ECF No. 1-2, at
12; ECF No. 1-3, at 25. Sydow, Preston, and Henkel, as a board, voted to ftre Collins and bar
him from company property. ECF No. 1-3, at 25. The board also revoked all access to company
bank accounts and records for von der Goltz and Muderrisoglu. ECF No. 1-3, at 25. As a result
of Preston, Sydow, and Henkel's takeover, NC121ost the Turkish contracts.
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About $300,000 remained to be paid to vendors for the cost of the reactor. After Sydow.
Preston, and Henkel fired Collins, all progress on the reactor halted, and the board refused to pay
the outstanding bills. A vendor repossessed the reactor and sold it for scrap. ECF No. 1-3, at 29.
Preston, Sydow, and Henkel, along with their companies, worked with Sonia Lo and
Chalsys Capital Partners, LLP, to strip NC12 of its assets and transfer the assets to Meliora
Energy Technologies, S.A.R.L., a Luxembourg limited liability company established on
September 14, 2010 and controlled by Sydow, Preston, Henkel and Lo and owned by C Change,
Chalsys, and Henkel. ECF No. 1-2, at 12-13; ECF No. 1·3, at 27. Sydow, Preston, and Henkel
represented to shareholders that Meliora would provide a $1.5 million bridge loan to NC12,
along with a commitment of an additional $5 million investment, in exchange for the license to
use NCI2's technology in Europe, Asia, and Africa. ECF No. 1-3, at 27.
However, Sydow, Preston, and Henkel assigned all ofNC12's technology to Oscura, Inc. ,
a company believed to have been created and controlled by Sydow, on September I, 2010. ECF
No. 1·3, at 28. Oscura assigned the patents to Meliora via a security agreement. ECF No. 1·3, at
28. Meliora began paying Sydow a monthly fee of$15,000. ECF No. 1-3, at 28.
Meliora 's supposed $5 million financing resulted in the automatic conversion of the
promissory notes into common shares. The conversion diluted the "old" shareholder group's
ownership from 100% to 30.3%. ECF No. 1-3, at 28. However, Meliora never made the $5
million investment. ECF No. 1·3, at 28. According to the Intervenors, it is believed that NC12
received no more than $500,000 for its patented technology. ECF No. 1-3, at 28.
In December 2010, all employees of NC12 were terminated and all business operations
ceased. ECF No. 1-3, at 28.
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In May 2011, Fall River Realty sold the Fall River facility to Brilliant Novelty, LLC for
$2.6 million. Lohnes and Preston are members and managers of Brilliant Novelty, and Brilliant
Novelty obtained a $2.6 million mortgage on the property. ECF No. 1-2, at 13. Sydow fi led a
certificate of vote stating that the Fall River Realty shareholders had approved the transaction.
However, Collins, the majority shareholder in Fall River Realty, was never consulted about the
sale. ECF No. 1-2, at 13.
On October 14, 201 1, Sydow caused a voluntary chapter 11 petition to be filed on behalf
ofNC12. The petition states that NC12 has no assets. ECF No. 1-3, at 29.
Ana lysis
If a cause of action belongs to the estate, then the Trustee has exclusive standing to assert
the claim. Schertz-Cibolo-Universal City, Jndep. Sch. Dist. (In re Educators Grp. Health Trust),
25 F.3d 1281, 1284 (5th Cir. 1994). If, on the other hand, a cause of action belongs to the
Plaintiffs and Intervenors, the Court must consider whether it has subject matter jurisdiction over
the claims. lf the Court lacks subject matter jurisdiction over claims because the claims do not
relate to NC12's bankruptcy, then the Court must remand the claims.
lf the Plaintiffs and lntervenors lack standing to bring claims, the Court must dismiss the
claims for Jack of subject matter jurisdiction. See Highland Capital Mgmr. LP v. Chesapeoke
Energy Corp. (In re Seven Seas Petroleum),
522 F.3d 575, 583 (5th Cir. 2008) ("If the claims
belong to the estate, then it was not error for the bankruptcy court to deny remand (because it has
jurisdiction over all property of the estate) and dismiss the claims (because the trustee has
exclusive standing to assert claims belonging to the estate).")~ Cobb v. Cent. States, 461 f .3d
632, 63 5 (5th Cir. 2006) ("[T]he issue of standing is one of subject matter jurisdiction.").
12 /31
217
Whether a particular cause of action belongs to the estate depends on whether under
applicable state Jaw the debtor could have raised the claim as of the commencement of the case.
Educators Grp., 25 F.3d at 1284. If a cause of action alleges only indirect hann to a creditor
(i.e., an injury that derives from hann to the debtor), and the debtor could have raised a claim for
its direct injury under the applicable law,then the cause of action belongs to the estate. ld
NC12 is incorporated under Nevada Jaw. Nevada law therefore governs the internal
affairs of NCJ2. Tex. Bus. Org. Code § 1.102 ("[T]he law of the state (in which an entity is
fonned] . . . governs the fonnation and internal affairs of the entity.''); Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941) (holding that a federal court sining in diversity
applies the conflict of laws rules of the forum state); Hollis v. Hill,
232 F.3d 460, 465 (5th Cir.
2000) (applying Texas choice of law rules and concluding that Nevada law governs internal
affairs of corporation incorporated in Nevada); Reed v. Linehan (In re Soporex, Inc.),
463 B.R.
344, 396 (Bankr. N.D. Tex. 2011) (applying Texas choice of law rules, which provide that
internal affairs of a foreign corporation a governed by the law of the state of incorporation).
Although the Court first considers whether NC12 could have raised claims outside of
bankruptcy, the Coun also looks at the underlying injury for which relief is sought.
(S)ome claims that are usually brought by creditors outside of
bankruptcy (and thus in a sense may be said to "belong to" the
creditors and not the debtor) are nonetheless vested exclusively in
the trustee in bankruptcy. This is so not merely because the claims
are common to a number of creditors, but because they ultimately
seek to recover assets of the estate that are not under the debtor' s
control-by reason of a fraudulent transfer, for instance, or
because of the existence of separate corporate entities that are a
sham.
Seven
Seas, 522 F.3d at 589.
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The Trustee's exclusive standing protects the Bankruptcy Code's djstribution scheme.
''Since one of the goals of the Bankruptcy Code is to preserve property of the bankruptcy estate
and ensure that similarly situated creditors receive equal distributions, if a cause of action
belongs to the debtor, only the trustee or debtor in possession may pursue it." In re Cabrini Med
Ctr.,
2012 WL 2254386., at *6 (Bankr. S.O.N .Y. June 15, 2012) (citing S.I. Acquisition, Inc. v.
Eastway Delivery Serv., Inc. (In re S.I. Acquisition, Inc.),
817 F.2d 1142. 1152 (5th Cir. 1987))
(citations omitted).
If claims are not owned by the bankruptcy estate, the Court must consider whether it bas
subject matter jurisdiction over the claims. The Bankruptcy Court's subject matter jurisdiction
is limited to bankruptcy cases and proceedings that arise under the Bankruptcy Code, arise in a
bankruptcy case, or are related to a bankruptcy case. 28 U.S.C. § 1334. The Court therefore has
subject matter jurisdiction only over claims that arise under the Bankruptcy Code, arises in the
NCI2 bankruptcy case, or are related to NC12's bankruptcy case.
A proceeding arises under the Bankruptcy Code when a plaintiff asserts a right created by
the Bankruptcy Code. Wilborn v. Wells Fargo Bank (In re Wilborn),
609 F.3d 748, 752 (5th Cir.
2010). When a plaintiff asserts a claim that could not exist outside of bankruptcy, tbe proceeding
arises in a bankruptcy case. Id
An action is related to a bankruptcy case if the outcome could conceivably affect the
bankruptcy estate. Edge Petroleum Operating Co. v. GPR Holdings, LLC (In re TXNB Internal
Case), 483 f .3d 292, 298 (5th Cir. 2007). "Certainty is unnecessary; an action is 'related to'
bankruptcy if the outcome could alter, positively or negatively, the debtor's rights, liabilities,
options, or freedom of action or could influence the administration of the bankruptcy estate." /d.
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If the Court has only "related-to" jurisdiction over a claim, the claim may be subject to
mandatory abstention. Mandatory abstention applies when a proceeding: (i) is based upon a state
law claim or state law cause of action; (ii) is related to a bankruptcy case but not arising under
the Bankruptcy Code or arising in the bankruptcy case; (iii) could not have been commenced in a
federal court other than through bankruptcy jurisdictjon; and (iv) was commenced and can be
timely adjudicated in a state court. 28 U.S.C. § 1334(c)(2).
Even if the requirements for mandatory abstention are not met, the Court may
discretionarily abstain from hearing a proceeding "in the interest of justice, or in the interest of
comity with State courts or respect for State law." 28 U.S.C. § l334(c)(l). "Nothing ...
prevents a court from permissively abstaining under§ 1334(c)(l) where some, but not all, of the
requirements for mandatory abstention are met. The decision to abstain or not to abstain is
committed to the discretion of the district court[.]" Gober v. Terra + Corp. (In re Gober),
100
F.3d 1195, 1207 (5th Cir. 1996). ln exercising its "broad discretion" to decide whether to abstain
under§ 1334(c)(l), a court may consider the following non-exclusive factors:
(1) the effect or lack thereof on the efficient administration of the estate;
(2) the extent to which state law issues predominate over bankruptcy issues;
(3) the difficult or unseuled nature of applicable law;
(4) the presence of related proceeding commenced m state court or other
oonbankruptcy proceeding;
(5) the jurisdictional basis, ifany, other than§ 1334;
(6) the degree of relatedness or remoteness of proceeding to main bankruptcy case;
(7) the substance rather than the fonn of an asserted core proceeding;
(8) the feasibility of severing state law claims from core bankruptcy matters to allow
judgments to be entered in state court with enforcement left to the bankruptcy
court;
lS I 31
220
(9) the burden of the bankruptcy docket;
(10) the likelihood that commencement of the proceeding in bankruptcy court involves
forum shopping by one of the parties;
( 11) the existence of a right to a jury trial;
(12) the presence in the proceeding of non-debtor parties;
( 13) comity; and
(14) the possibility of prejudice to other parties in the action.
Shipley Garcia Enters .. LLC v. Cureton,
2012 WL 3249544, at •12 (S.D. Telt. Aug. 7, 2012)
(quoting Ramirez v. Rodriguez (In re Ramirez),
413 B.R. 621. 631·32 (Bankr. S.D. Tex. 2009)).
Intervenors' Shareholder Oppression Claim
To detennine whether the shareholder oppression claim is property of the estate, the
Court looks at whether, under state law, the claim could have been asserted by NC12 and
whether, under the test set forth in Educators Group and Seven Seas, the Intervenors assert an
injury that is not merely derivative of injury to NC12.
NC12 could have asserted any claims that, under Nevada state law, enforced the
corporation's rights. This is true both for rights nonnally enforced directly by the corporation or
nonnally enforced through a shareholder derivative action. See San Mateo Plaintiffs v. At Home
Corp. (In re At Home Corp.),
154 F. App'x 666, 668 (9th Cir. 2005) ("A bankruptcy court may
enjoin a derivative claim brought by shareholders because the claim is the property of the
bankrupt estate."); Jn re AgriBioTech, 319 B.R. 216, 223 (D. Nev. 2004) (holding that, pre·
bankruptcy, a breach of fiduciary duty claim had belonged to the corporation, because the claim
was enforceable directly by the corporation or through a derivative action) (citing Pepper v.
Litton,
308 U.S. 295, 306-07 (1939)); Sobchak v. Am. Nat '/ Bank & Trust Co. of Chicago (In re
16 I 31
221
Ionosphere Clubs, Inc.),
17 F.3d 600, 604 (2d Cir. 1994) (holding that claims that were classified
as derivative under Delaware law, the governing law, belonged exclusively to the bankruptcy
estate). Therefore, the Court ftrst examines Nevada Jaw.
Under Nevada law, allegations of generalized injury to the corporation give rise to a
derivative claim, not a direct claim. See Cohen v. Mirage Resorts, Inc.,
62 P.3d 720, 734 (Nev.
2003) ("This is hann to the corporation, shared by all stockholders and not related to an
individual stockholder. To the ext.ent these allegations were intended to state a cause of action,
the district court was correct in dismissing the allegations as derivative claims barred by lack of
standing."). The Court therefore looks at the nature of the injury alleged to detennine whether
the action was derivative under Nevada law-and thus, assuming it was a valid claim, could
have been asserted by NC12.
The parties have extensively argued the issue of whether Nevada Jaw recognizes a claim
for shareholder oppression and whether such a claim would be a direct claim. Two federal
cases-one from the Fifth Circuit and one from the District ofNevada-predict that the Nevada
Supreme Court would recognize a claim for shareholder oppression. Hollis, 232 F.3d at 468
(holding that there was ''strong indication that the Nevada Supreme Court would find fiduciary
obligations between shareholders in a corporation such as FFUSA operated by shareholder·
djrectors''); Simon v. Mann,
373 F.2d 1196, 1199- 1200 (D. Nev. 2005) (holding that shareholders
of a closely-held corporation could assert a direct suit against majority shareholders). In 2011,
however, the Nevada Supreme Court stated in dicta that "Nevada does not recognize a cause of
action for abuse of control, and in the case to which appellants cite, claims for abuse of control
are essentially claims for breach of the fiduciary duty of loyalty." In re Amerco Deriv. Lirlg.,
252 P.3d 681,700 n. ll (Nev. 2011).
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It is unclear whether the "abuse of control" cause of action referred to in Amerco is the
same cause of action that the courts in Hollis and Simon predicted the Nevada Supreme Court
would recognize. Because this area of Nevada law is uncertain, the Court does not make an
Ullllecessary pronouncement of whether there is a shareholder oppression claim under Nevada
law and, if so, whether such a claim is available to shareholders of NC12. The Court merely
conclude.s that under Cohen, the specific injuries pleaded by the Intervenors in this case should
be classified as derivative, not direct.
The EdrJcators Group and Seven Seas test produces the· same result. If the nature of the
alleged injury is purely derivative of injury to NC12, the claims are property of the estate even if
they could nonnally be asserted by creditors outside of bankruptcy. Seven Seas, 522 F.Jd at 589;
see Schimmelpenninck v. Byrne (In re Schimme/penninck),
183 F.3d 347, 355 (Stb Cir. 1999)
(holding that even though alter ego and veil-piercing claims are typically brought by a creditor,
corporations can bring such claims on their own behalf and in bankruptcy, the claims may be
asserted only by the estate) (ching S./.
Acquisition, 817 F.2d at 1152).
The Intervenors' shareholder oppression claim in this case is property of the estate. ln
their statement of the shareholder oppression cause of action, the Intervenors assert that the
Defendants oppressed them as shareholders by:
• Taking control of the corporation, stripping it of its assets for
their own personal gain, misappropriating corporate assets, and
self-dealing;
• Secretly and questionably removing von der Goltz and
Muderrisoglu, who were reputable, independent of Preston and
Sydow, and trusted by the shareholders, in direct violation of a
previous agreement among a super-majority of the shares; and
• Thwarting investigative efforts into the company's accounting
practices.
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223
ECF No. 1·3, at 31-32. The Intervenors seek the following remedies:
• A court-ordered buy-out of their shares at a fair price;
• Actual and exemplary damages;
• Disgorgement;
• Restitution;
• Other equitable relief; and
• Punitive damages.
ECF No. 1-3, at 32.
Even if Nevada Jaw allows a claim for shareholder oppression, any claim based on the
Defendants' alleged stripping of corporate assets is property of the estate. Any injury suffered
by the alleged misappropriation, asset-stripping, and self-dealing was derivative of the harm to
NC 12. The Intervenors may seek damages for the violation of their shareholder rights, but only
for damages not derivative of damages to the corporation; they may not seek damages for
dilution of corporate value due to the alleged stripping or misappropriation of corporate assets.
Any claim for damages due to stripping or misappropriation of corporate assets belongs to the
estate and may be asserted only by the Trustee.
The alleged violation of the shareholders' rights by the removal of von der Goltz and
Mudenisoglu and the alleged thwarting of shareholders' rights to investigate accounting
practices do not give rise to direct claims. Although it is possible that a loss of shareholder
influence or the violation of shareholders' investigative rights could result in a direct injury to
shareholders, the Intervenors have not stated such circumstances here. The Intervenors do not
allege any particularized injury arising from the removal of von der Goltz and Mudenisoglu
independent of the hann caused to the corporation-e.g., through the alleged loss of the Turkish
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224
contracts. Because all injuries allegedly caused by the removal of von der Goltz and
Muderrisoglu were incurred by the corporation, and any injury to the shareholders was derivative
of the injury to NC12, the claim belongs to the estate.
Similarly, the alleged injury from the thwarting of investigative efforts was the inability
to discover and remedy banns to the corporation caused by the misappropriation of assets and
self--dealing. This injury is derivative of the injury to the corporation and therefore belongs to
the estate.
The shareholder oppression claim is property of the estate. Therefore, it is dismissed for
lack of standing.
Plaintiffs' and Intervenors' Breach of Fiduciary Duty Claims
The Plaintiffs and Intervenors allege that the Defendants breached their fiduciary duties
to NC12 by self-dealing and mismanagement. The Plaintiffs refer to their general allegations of
mismanagement and assert that the Plaintiffs are, "as shareholders of NCl2, . . . entitled to
recover from [the Defendants] their proportionate share of economic injuries in an amount in
excess of the jurisdictional minimum of this court." ECF No. 1-2, at 14 (emphasis added).
The Intervenors refer to their general allegations of mismanagement and also allege three
specific breaches of fiduciary duty:
• Sydow's theft and misappropnatlon of corporate assets,
including but not limited to use of corporate funds to pay for
hjs private plane, use of corporate resources for his law
practice without compensation to the company, the use of
corporate funds for personal expenses, and bogus fees for
lawyers, consultants, and services that did not benefit NCI2;
• Failure to transfer title of the Fall River property to the
corporation and instead transferring it to an entity in which
Sydow and Preston held an individual interest, and charging
tbe corporation rent for use of its own property;
20 I 3 I
225
• Transfer of the technology of the corporation-its most
valuable asset, worth hundreds of millions of dollars- for
grossly inadequate consideration to an entity in which Sydow,
Preston, and other Defendants had individual interests.
ECF No. 1-3, at 30.
Neither the Plaintiffs' general allegations of mismanagement nor the Intervenors' specific
alleged breaches of fiduciary duty involve any alleged injury directly to the shareholders. All of
the Plaintiffs' and Intervenors' allegations pertain to injuries to NC12 . The generalized
allegations of mismanagement and self-dealing, which refer back to the Plaintiffs' and
Intervenors' overall narrative ofNC12's collapse, all relate to injuries to the corporation. There
is no indication of any hann to shareholders other than the hann to the corporation.
Similarly, the specific alleged breaches of fiduciary duty do not state any injury to
shareholders other than through the corporation. The alleged then and misappropriation of
corporate assets is an alleged injury to NC12, not the shareholders. Similarly, the alleged failure
to transfer title of the Fall River property to NCI2 is an alleged injury directly to NC12. Finally,
the alleged transfer of NCI2's technology is an alleged hann to NC12; the only hann to the
shareholders is derivative of the alleged hann to NC 12.
The essence of Plaintiffs' and (ntervenors' breach of fiduciary duty claims is that the
Defendants stripped NC 12 of assets to the detriment of NC 12's creditors and shareholders. The
claims are fundamentally derivative, predicated on injury to NC12, not on injury to individual
Plaintiffs or Intervenors. The Plaintiffs' complaint states that the shareholders' injury as a result
of the economic hann to NC12 is ''proportionate." Such proportionate injuries must be
recovered through the estate.
21 I 31
226
The breach of fiduciary duty claim is property of the estate. Only the Trustee has
standing to assert the claim, and therefore the Court dismisses the claim for lack of subject
matter jurisdiction.
The Plaintiffs' claim for aiding and abetting breach of fiduciary duty is dependent on the
underlying breach of fiduciary duty claim. Because the breach of fiduciary duty claim is
property of the estate, the aiding and abetting claim is also property of the estate. Deep Marine
Holdings, Inc. v. FLI Deep Marine LLC (In re Deep Marine Holdings, Inc.),
2011 WL 2420274,
at •t 0 (Bankr. S.D. Tex. June 13, 20 11) (''The aiding and abetting claims are derivative claims to
the extent that the actions that were aided and abetted resulted in derivative injuries[.]").
Intervenors' Statutory and Common Law Fraud Claim
The Intervenors allege that the Defendants made false representations upon which the
Intervenors relied when they invested in NCI2. ECF No. 1-3, at 21, 32-33. The Intervenors
allege that the Defendants solicited investments by fal sely representing that the company was
worth $I 00 mill ion and, later, $300 million, that the corporations would use the investment
money to build the reactor, and that the CLECO deal was in place when it had been cancelled.
ECF No. 1-3. at 32-33. The Intervenors allege that they ..suffered actual damages proximately
caused by Preston and Sydow's fraud ."
The Trustee concedes that the securities fraud claims, as pleaded, are direct claims owned
by the Intervenors. The Court agrees.
The Fifth Circuit held in Seven Seas that a conspiracy to defraud claim based on
allegations thnt defendants employed material misrepresentations to induce potential investors to
acquire unsecured notes was "a direct injury to the bondholders that was independent of any
injury to Seven Seas." 522 F.3d at 586. The Fifth Circuit further noted that it "doubt[ed] that,
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under applicable state law, Seven Seas could have raised either claim as of the conunencement of
the bankruptcy case." /d. The bondholders' fraud claims were therefore property of the
bondholders, not the bankruptcy estate.
The Intervenors' fraud claims are similar; the only material distinction is that the Seven
Seas claims were brought by bondholders and the Intervenors are shareholders of NC12.
Because the lntevenors are shareholders, their fraud claim is based on the alleged diffe.rence
between the price they paid in reliance on the alleged misrepresentations and the actual value of
NC12's shares at the time of their investment. The Intervenors may not recover damages for the
difference between the price they paid for the shares and what the shares would have been worth
if not for the atleged post-purchase misconduct in the operation of the corporation. However,
they may recover damages for the amount they allegedly overpaid as a result of Sydow and
Preston's alleged misrepresentations.' With these Limitations, the Intervenors' claims for harm
due to fraudulently induced investment are independent of any harm directly to NC12; indeed,
NC12 benefited from the Intervenors' investments by having their cash.
Because the Intervenors' fraud claims allege an injury to the Intervenors that is not
merely derivative of the alleged harm to NC12, the Intervenors own the claims resulting from
fraud or misrepresentations that occurred at the time that they made their investment.
The Court discrctionarily abstains from hearing the Intervenors' fraud claim because it is
only remotely related to the NC12 bankruptcy case.
The Defendants argue that the claim is related to the bankruptcy case because the
Intervenors' p-otential recovery may draw from NC12's directors and officers' Liability policy.
1
The Intervenors do not state, and this Court does not decide, which jurisdiction's law govern¥ their fraud claims.
The Court's ruling regarding the recoverable damages relates $Oiely to the Issue of which injuries give rise to claims
belonging to the Intervenors. The Court does not rule on the ap·propriate measure of damages for the Intervenors'
frilud claims.
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NC12's insurance policy with Philadelphia Indemnity Insurance Company covers both the
corporation and its directors and officers against losses due to claims against the directors and
officers or against NC12 relating to alleged malfeasance by directors and officers. ECF No. 30,
at 31. The policy's proceeds are capped at $1,000,000.00, with an additional $1,000,000.00
available for defense fees. ECF No. 30, at 15, 56. Because the proceeds are capped at
$1,000,000.00, the Defendants argue, any recovery by the Intervenors will reduce the amount
available to NCI2 for its own claims against directors and officers.
Insurance proceeds that are applied to a claim against directors and officers are not
property of the estate, and actions to collect such proceeds are not barred by the automatic stay.
See Unsecured Creditors Disbursement Commilfee v. Antill Pipeline Con.str. Co. (In re Equinox
Oil Co.),
300 F.3d 614, 618 (5th Cir. 2002) (" An insurance policy owned by the debtor is
generally considered property of the estate. But, whether the proceeds of a particular insurance
policy is property of the estate depends on the nature of the policy.") (citing In re Edgeworth,
993 F.2d 51, 55 n. I3 (5th Cir. 1993)). "The overriding question when determining whether
proceeds are property of the estate is whether the debtor would have a right to receive and keep
those proceeds when the insurer paid on a claim. When a payment by the insurer cannot inure to
the debtor's pecuniary benefit, then that payment should neither enhance nor decrease the
bankruptcy estate."
Edgeworth, 993 F.2d at 55.
The Philadelphia Indemnity policy applies to claims against the directors and officers or
against NC12. ECF No. 30, at 31. The policy provides liability coverage for the directors and
officers and NCl2 and indemnity coverage for NCI2 for claims against the directors and
officers. Although NC12 could be the beneficiary of the indemnity coverage, any payment to the
directors and officers for liability coverage would offset a potential indemnification claim. See
24 I 31
229
Louisiana World Exposition. Inc. v. Federal Ins. Co. (Ln re Louisiana World Exposition, Inc.),
832 F.2d 1391, 1400 (5th Cir. 1987) (holding that proceeds were not property of the estate,
despite cap on the total of liability and indemnity coverage, where ''any payment under the
liability coverage reduces the amount of the potential indemnification claim to the same extent
that policy amounts available for indemnification are thus reduced. There is not the potential for
increasing the estate's exposure by payment of liability proceeds due.").
NCI2 would not have a right to receive and keep the proceeds of claims against the
liability coverage for losses caused to third parties (such as the Intervenors) by the directors and
officers. See
Edgeworth, 993 F.2d at 56 (''[U]nder the typical liability policy, the debtor will not
have a cognizable interest in the proceeds of the policy. Those proceeds will normally be
payable only for the benefit of those harmed by the debtor under the tenns of the insurance
contract.'').
The estate could have a right to receive proceeds on account of its own claims against the
directors and officers. However, the estate has only a contractual right to recover if certain
conditions are met; the proceeds do not become property of the estate until the contractual
conditions are met. MOXlve/1 v. Meglioga (Jn re mard1FIRST, Inc.), 288 B.R. 526, 530 (Ban.kr.
N.D. 111. 2002) ("The Debtors had and the Trustee has contractua1 rights governed by the terms
of the insurance policies. Unless and until the terms are met, which they may never be, the
proceeds are not property of the estate.'').
The directors and officers' liability proceeds are not the kind of proceeds that Edgeworth
holds may be included as property of the estate. 993 F.2d at 56 ("E~amples of insurance policies
whose proceeds are property of the estate include casualty, collision, life, and fire insurance
policies in which the debtor is a beneficiary. Proceeds of such insurance policies, if made
25 I 31
230
payable to the debtor rather than a third party such as a creditor, are property of the estate and
may inure to all bankruptcy creditors."). The policies listed in Edgeworth are those for which the
debtor is the designated beneficiary and the party to whom proceeds would be paid. This is not
the case with the NC12's directors and officers' liability coverage. 'The estate may be entitled to
proceeds from the policy, but so may other parties. If the estate recovers from the directors and
officers' liability coverage, its recovery will be on the same tenns as other injured parties'
recovery. The estate's owners.hip of the policy does not affect the outcome. The estate does not
have a greater interest in the proceeds than any other person suing on an indemnified claim, See
Boles v. Turner (In re Enivid, Inc.), 364 B.R. 139, 157 (Bankr. D. Mass. 2007) (denying
liquidating trustee's motion for an injunction to prevent shareholders from entering into a
settlement of fraud claims against directors and officers where the settlement was payable from
the directors and officers' liability policies and might affect trustee's ability to recover); Reliance
Acceptance Grp.. Inc. v. Levin (In re Relianct Acceptance Grp.• lnc.),
235 B.R. 548, 561 (D.
Del. 1999) ("The difficulty the Debtors have is in identifying a right to the relief: tbat is, they
have been unable to identify a legal principle tbat stands for the proposition that the Estate's
claims for relief should take precedence over the Sbarebol~ers• claims.").
Because the estate does not own the proceeds, the Court must consider whether the
potential diminution of the proceeds is sufficient to establish related-to jurisdiction.
The burden is on the Defendants, as the removing pames. to establish federal jurisdiction.
DaimlerChrysler Corp. v. Cuno, 541 U .S. 332, 342 n.3 (2006) ("[T]he party asserting federal
jurisdiction when it is challenged bas the burden of establishing it."). Even if the Jntervenors
prevrul and collect against the insurance proceeds, their claim will affect the estate only if (i)
there are not sufficient funds remaining under the insurance policy to satisfy the estate's claims;
26 / 31
231
and (ii) the estate successfully asserts claims against directors and officers;1 and (ill) the directors
or officers have insufficient assets to satisfy the claims.
The Court recognizes the possibility that (i) the Intervenor's claim could exhaust the
insurance policy; and (ii) the estate could prevail against the Defendants; and (iii) the Defendants
could have inadequate other resources to pay a judgment. Should these events occur, the
outcome of the shareholder oppression claim could affect the amount of proceeds available to the
estate for its own claims against officers and directors. This remote effect is, at most, on the
outer fringes of the Court's related-to jurisdiction. SeeFeld v. Zale Corp. (In re Zale Corp.), 62
F.3d 746, 752 (5th Cir. 1995) (noting that a bankruptcy court's related-to jurisdiction "cannot be
limitless'' and stating that an action "is related to bankruptcy if the outcome could alter the
debtor's rights, liabilities, options. or freedom of action (either positively or negatively) and ...
in any way impacts upon the handling and administration of the bankruptcy estate.") (quoting
Walker v. Cadle Co. (In re Walker),
51 F.3d 562, 569 (5th Cir. 1995)). However, a related
proceeding's effect on the bankruptcy estate may be contingent. See TXNB Internal
Case, 483
F.3d at 298 (holding that court had related-to jurisdjction over a dispute between two non-debtor
parties when, depending on the outcome, either the defendant or the debtors owed money to the
plaintiff).
The Court cannot conclude that the outcome of the fraud claims could have no
"conceivable effect" on the estate. See Randall & Blake. lnc. v. Evans (In re Canion), I
96 F.3d
579, 587 (5th Cir. 1999) ([nhe law is well established in this Circuit, as in others, that, when
tt:sting 'related to' jurisdiction, an effect is not required to a certainty. Rather, jurisdiction will
attach on a finding of any conceivable effect."). Contingent or tangential effects may be
2 The Trustee has sued Michael Collins in a separate adversary proceeding. Jt is unclear whether the claim against
Collins would be covered by the Philadelphia Indemnity policy.
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232
sufficient in the Fifth Circuit to establish related-to jurisdiction. /d. at 587 n.30 ("[E]ven a
proceeding which portends a mere contingent to tangential effect on a debtor's estate meets the
broad jurisdictional test[.]") (quoting National Union Fire Ins. Co. v. Titan Energy, Inc. (In re
Titan Energy, inc.), 837 F.2d 325, 330 (8th Cir. 1988)).
The Court does not apply mandatory abstention, because there is no evidence before the
Court as to whether the fraud claims could be timely adjudicated before the state court. See
Carriage Credit Corp. v. Flanagan (In re Draper),
2010 WL 4736168, at *3 (Bankr. S.D. Tex.
Nov. 15, 2010) C'A party moving for mandatory abstention must provide the court with more
than a 'naked assertion' that the action can be timely adjudicated in state court.") (quoting
Mugica v. Helena Chern. Co. (ln re Mugica),
362 B.R. 782, 793 (Bankr. S.D. Tex. 2007)).
Nevertheless, the Court discretionarily abstains from hearing the fraud claims. See
Shipley Garcia Enters.,
2012 WL 3249544, at *12 (listing non-exclusive factors a court may
consider in exercising its "broad discretion'' to abstain under 28 U.S.C. § 1334(c)(l )). The fraud
claims, at most, remotely relate to the bankruptcy proceedings, and the efficient administration of
the estate will not be affected by the remand. The estate is not a party to the litigation. It is true
that the depletion of the insurance proceeds may affect the estate; however, the Court does not
have the authority to prevent this effect. There is no jurisdictional basis other than bankruptcy
related-to jurisdiction, and the claim involves solely state law issues. Moreover, this Court's
constitutional authority to enter a final judgment with respect to the fraud claim is doubtful under
Stern v. Marshall,
131 S. Ct. 2594, 2620 (20 11 ). The Court therefore remands the Intervenors'
fraud claims.
28 I 3J
233
Collins' Conversion Cl11im
Michael Collins' conversion claim against Sydow, Preston, C Change Investments, and
Brilliant Novelty may be either direct or derivative, depending on whether Collins has an interest
in Fall River Realty. Collins alleges that he suffered damages from the sale of the real property
as an owner of Fall River Realty. Collins seeks actual and exemplary damages.
The Trustee concedes that Collins' conversion claim, as currently pleaded, is a direct
claim. ECF No. 25, at 9. If Collins is an owner of Fall River Realty, this conclusion is correct.
However, the Trustee contends in Adv. No. 12-3266 that lOO% of Fall River Realty is
owned by the estate. In that adv.ersary proceeding, the Trustee seeks declaratory judgment
against Michael Collins, Ellen Collins, and BOS, Inc. stating that no Defendant owns an interest
in Fall River Realty or the Fall River property. The Trustee also seeks a judgment that the Fall
River property is subject to a resulting trust in favor of the Trustee for the benefit of the
bankruptcy case.
Jf the estate is the owner of I 00% of Fall River Realty, any claim for conversion of an
interest in Fall River Realty belongs to the estate.
Property that is "arguable property" of the estate is protected by the automatic stay from
unilateral action by creditors. Brown v. Chesnut (In re Chesnut), 356 F. App' x 732, 734 (5th Cir.
2009) (citing Brown v. Chesnut (In re Chesnut),
422 F.3d 298, 303-04 (Stb Cir. 2005)). Because
the TnJstee's compJajnt asserts a plausible claim, as between the estate and Collins, to ownership
of Fall River Realty, Fall River Relllly is arguable property of the estate. Claims for conversion
of interests in Fall River Realty are therefore also arguable property of the estate.
The Court will not presently remand the conversion claim, because Collins' pursuit of the
conversion claim in state court would violate the automatic stay. At the same time, if the claim
29 I 31
234
is actually owned by Collins, the Court may lack subject matter jurisdiction or the claim may be
so remotely related to the NC12 bankruptcy that the Court should discretionarily abstain. The
Court therefore abates consideration of the conversion claim or its remand pending the resolution
of Adv. No. 12-3266.
Intervenors' Conspiracy Claims
The Intervenors' claim for conspiracy to commit fraud and breach of fiduc iary duty is
dependent on the underlying claims. Because the underlying breach of fiduciary duty claim is
property of the estate, the conspiracy to commit breach of fiduciary duty claim is also property of
the estate. See Deep Marine Holdings,
2011 WL 2420274, at •to (holding that aiding and
abening claims were property of the estate where the underlying conduct gave rise to a claim that
was property of the estate). The Court dismisses the conspiracy to commit breach of fiduciary
duty claim for lack of st.anding.
Because the remanded fraud claim is the Intervenors' property, the Intervenors own the
claim for conspiracy to defraud. See Seven
Seas, 522 F.3d at 585 (holding that conspiracy to
defraud claim was owned by bondholders, not estate); Deep Marine Holdings,
2011 WL
2420274, at •t 0 (holding that aiding and abetting claims were not property the estate where
underlying conduct did not give rise to a claim that was property of the estate). The Court lacks
subject matter jurisdiction over the Intervenors' conspiracy to commit fraud claim. Therefore the
Court remands the conspiracy to commit fraud claim.
Conclusion
The Court dismisses the following claims for lack of standing:
• Plaintiffs' and Intervenors' claims for breach of fiduciary duty;
• Intervenors' claim for shareholder oppression; and
30 / 31
235
• Intervenors' claim for conspiracy to commit breach of
fiduciary duty.
The Court remands the following claims:
• Intervenors' claims for common law and statutory securities
fraud and conspiracy to commit fraud; and
• Intervenors' aiding and abetting claim related to the common
law and statutory securities fraud .
Plaintiff Michael Collins' conversion claim and the remand of the conversion claim are
abated pending resolution of Adv. No. 12·3266.
SIGNED August 28, 2012.
a~---
Marvin ls;!;ic=
UNITED STATES BANKRUPTCY JUDGE
31/31
236
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
INRE: §
§ CASE NO: 11-38794
NC12,1NC. § CHAPTER 7
§
Debtor(s). § JUDGEISGUR
§
§
MICHAEL COLLINS, et aJ §
§
PlalntlfT(s), §
§
vs. § ADVERSARY NO. 11-3634
§
SYDOW, eta/ §
§
Defendant(s). §
ORDER
The Court djsmisses the following claims:
• Plaintiffs' and Intervenors' claims for breach of fiduciary duty;
• Intervenors' claim for shareholder oppression; and
• Intervenors' claim for conspiracy to commit breach of fiduciary duty.
The dismissals are without prejudice to the Trustee's ability to assert the dismissed claims on behalf of
the Estate.
The Court remands the following claims to 215th Judicial District Court of Harris County, Texas:
• Intervenors' claims for common law and statutory securities fraud and conspiracy to
commit fraud; and
• Intervenors' aiding and abetting claim related to the common law and statutory securities
fraud.
Michael Collins' conversion claim and the remand of the conversion claim are abated pending
resolution of Adv. No. 12-3266.
SIGNED August 28,2012.
Marvin lsgur
UNITED STATES BANKRUPTCY JUDGE
Ill
~?PY 1 CERTIFY
u,P~:~of~
~Oar..
237
7/31201 4 12:01.33 AM
Chris Daniel - District Clerk Harris County
Envelope No. 1717873
By· GAYLE FULLER
Cause No. 2011-44058
MICHAEL COLLINS; ET AL., § IN TilE DISTRICT COURT
P LAINTIFFS, §
vs. § OF HARRIS COUNTY, TEXAS
§
MICHAEL SYDOW; ET AL., §
DEFENDANTS. § 215th JUDICIAL DISTRICT
AKILA FINANCE, S.A.; ET AL., § IN THE DISTRICT COURT
INTERVENORS/PLAINTIFFS, §
vs. § OF HARRIS COUNTY, TEXAS
§
MICHAEL SYDOW; ET AL., §
D EFENDANTS. § 2 15th JUDICIAL DISTRICT
INTERVENORS' RESPONSE TO THE SPECIAL APPEARANCES OF
JOHN D. PRESTON, BRILLIANT NOVELTY, L.L.C.,
AND C CHANGE INVESTMENTS. LLC
I. INTRODUCTION
Intervenors sued John Preston ("Preston") alleging, among other things, that Preston
fraudulently induced investments in Texas Syngas, Inc. ("TSl'') and NC12, Inc. ("NC12") while
systematically misappropriating the invested funds and company assets for his personal gain.
Preston's service as a director of and purported fund.raiser for TSI and NC12 unquestionably
involved Texas and constituted doing business in this state - although incorporated in Nevada,
TSI and NC12 have at all times called Houston, Texas home. The impact in Texas of Preston's
fraudulent scheme, in which he was aided by his companies C Change Investments, LLC ("'C
Changej and Brilliant Novelty, L.L.C. ("Brilliant Novelty"), is evident - NC12 is now the
debtor in a chapter 7 bankruptcy pending in a federal bankruptcy court in Houston.
Preston, C Change, and Brilliant Novelty (collectively, the " Preston Defendants") have
purposefully established sufficient minimum contacts with Texas, through their contacts with
TSI and/or NC12 as well as other Texas residents, sufficient to pennit the exercise of personal
257
jurisdiction over them in this Court. Moreover, the Preston Defendants• Special Appearances are
unverified, and so fail to comply with TEx. R. C1v. P. 120a. Accordingly, the Preston
Defendants' Special Appearance should be denied.
II. BACKGROUND
A. The Parties.
NC12, Inc. ("NC12") was incorporated in Nevada in April 2008. Nevada Secretary of
State records reflect that the original directors of NC12 were Preston, Michael D. Sydow
(''Sydow") and Michael Collins ("Collins"). (See Exhibit A-l 1) . Sydow is also identified as the
president ofNC12. (/d). The address given for Sydow and CoUins in the initial list of officers and
directors is 4900 Woodway, Suite 900, Houston, Texas n056. (/d). Sydow, Preston, and Collins
are identified as the NC12 directors again in NC12's May 2009 filing with the Nevada Secretary of
State. (Id ).
In 2009, NC12 acquired the assets of Texas Syngas. Inc. ("TSI''). TSJ was incorporated
under the laws of the S1ate of Nevada in May 2006 and registered to do business in the State of
Texas in June 2008. (See Exhibit A-2). TSI identified Preston, Sydow, Collins, and Christoph
Henkel ("Henkel") as its directors in its Application for Registration filed with the Texas Secretary
of State. (/d). TSI identified its principal office as 4900 Woodway. Suite 900, Houston, Texas
77056. (!d).
NC12 registered to do business in Texas on August 28, 2009. (See Exhibit A-3). The
company's principal office address is identified as 4400 Post Oak Parkway, Suite 2360, Houston,
Texas 77027. (/d). The company directors identified in the Texas registration in 2009 were
Sydow, Preston, and Collins. (/d). Both Sydow and Collins are Texas residents.
The Affidavit of Kelley M. Keller, dated July 2, 2014, is attached hereto as Exhibit A and
incorporated herein by reference.
2
258
NC12 filed for bankruptcy protection on October 14, 2011, under chapter 11. On February
28, 2012, the United States Trustee filed a motion to convert the case to chapter 7. On March 22,
201 2, NCI2 filed a response opposing the oonversion to chapter 7. The Bankruptcy Court granted
the motion to convert on March 27, 2012.
C Change and Brilliant Novelty are Preston's companies and participated in certain of the
fraudulent acts of Preston.2 (See Pet. in lnterv. ~ 33).
B. The Lawsuit.
This action was filed in 2011 as a fraud and shareb.older oppression action by shareholders
ofNC12. Intervenors joined the litigation, asserting claims based solely on their individual rights
as investors in NC12. The Intervenors assert that Sydow and Preston, along with others
conspiring with them, engaged in a fraudulent scheme to raise millions in investment dollars on
behalf of TSI and then NC12 for the development of revolutionary new energy technology that
Collins had developed for producing synthetic natural gas and other fuels from coal, while
denuding the company of its assets- i1S valuable tecb.nology, research and development facility,
and cash. Intervenors were left holding only their cLaims in the bankruptcy proceedings, after
Sydow and Preston enjoyed years of cash rolling in to TSI and NC12 which they used to their
personal benefit.
C. Preston's Contacts with Texas.
By Preston•s own admission, his contacts with Texas are long-standing, reaching back at
least 20 years. However, Preston has misrepresented the extent and nature of his contacts with
Texas in his attempt to avoid the exercise of personal jurisdiction over him by this Court.
2
Brilliant Novelty has not denied the allegation that Preston was at all relevant times a manager of
Brilliant Novelty, and C Change has not denied the allegation that Preston was a manag.ing partner of C
Change and controlled that company.
3
259
Whether inadvertently or intentionally, Preston has failed to disclose purposeful continuous and
on-going contacts with and activity in Texas.
In his affidavit filed in support of his Special Appearance, Preston identifies his "only [ ]
activity in Texas" as (I) a "limited number'' of visits approximately 20 years ago; (2) a "very
limited number'~ of visits to Texas in the past five years on behalf ofTEM Capital; and (3) a visit
to Texas in 2010 to testify in the divorce proceedings of Michael D. Sydow ("Sydow•/. (See
Preston Aff. at,, 5-63).
The evidence) however, reflects much more than the "limited" activity that Preston has
selectively disclosed. The following is a chronology of Preston's contacts with Texas- including
those to which he admits and those which he has neglected to disclose.
• Preston claims that he visited Texas ''a limited number of timesn approximately 20
years ago, allegedly in a representative capacity on behalf of a company for which he
was a board member. (Preston Aff. at~ 5).
o Preston does not identify that company in his Affidavit, but states, "specifically.,
that he made up to eight visits to Texas - five for board meetings of a nonprofit
organization and ..no more than three'' for board meetings of a Delaware
corporation. (Preston Aff. at ~ 5).
• Preston failed to disclose meetings he attended in Texas in the late 1990s on behalf of
Molten Metal Technology, Inc. (''MMT"), a Delaware corporation, registered to do
business in Texas. 5 Preston was a board member of MMT, and the company's chief
executive officer. (See Exhibit A-4) .
o Preston visited Texas on numerous occasions to negotiate a contract between
MMT and Hoescht Celanese to develop and operate a waste recycling facility for
Hoescht Celanese. (See Exhibit B at, 1 2~.
l
Affidavit of John T. Preston, submitted as Exhibit A to Preston•s Amended Special Appearance,
filed September 28. 20 I I.
Affidavit of John T. Preston, submitted as Exhibit A to Preston•s Amended Special Appearance.
ftled September 28. 2011.
MMTs Texas existence was forfeited in 1999. (See Ex. A-4).
6
The Affidavit of Michael Collins, dated Juty 2. 2014. is attached hereto as Exhibit B and
incorporated herein by reference.
4
260
o MMT had developed certain technology called Catalytic Extraction Processing
(''.Qgf''). CEP is a process for breaking down hazardous and radioactive waste
and recycling them into marketable products. (See Ex. B at~ 3).
o MMT filed for bankruptcy protection in 1997. Preston and/or his company,
Quantum cataiyti~ LLC ("Quantum,.), acquired MMT•s patents from the MMT
bankruptcy estate. (See Ex. A-S at VI 15-17; ExhibitA-15 at pp. 4-5).
• (n 2004, Preston flew to Houston, Texas to meet with Collins near Collins's home in
The Woodlands. (Ex. B at 1 6). Owing that meeting, Preston touted the patented
technology that he had acquired from MMT and encouraged Comns•s participation in
the commercial development of that technology. (/d.).
o Preston flew to Texas to meet with Collins again a few months after that first
meeting in The Woodlands. (Ex. Bat 1{7). During that second meeting, Preston
and Comns travelled to Bay City, Texas to meet with Hoescht Celanese to
continue discussions regarding the development an-d operation of a CEP facility
for Hoescht Celanese that had begun with MMT. (/d).
o Preston returned to Texas again about two months later, when Preston and Collins
met with Hoescht Celanese in Baytown, Texas. (Ex. Bat 1 7).
o During these three meetings in Texas, Preston and Collins discussed the
commercial opportunities possible utilizing the MMT technology and the
technology that Collins had developed. (Ex. B at~ 8).
o Preston continued to talk with Collins by telephone over the COW'Se of the ensuing
months. Preston initiated a number of those caJls, either to Collins at his home in
The Woodlands, Texas, or to Houston offices where Collins would occasionally
work, including the law offices of Sydow, McDonald, Kaiser & Ahmed, on
Bagby Street in Houston, Texas. Preston also shipped records to Collins at the
Bagby Street office for Collins's review and use in connection with the work he
was undertaking with Preston. (Jd ).
o At all times during Collins's discussions and business relationship with Preston,
Collins was a resident of The Woodlands, Texas. (Ex. B at ~ 12). In his
discussions with Preston, Collins learned that Preston had been to Texas on
multiple occasions prior to their introduction. Preston advised Collins that he had
previously travelled to Texas on numerous occasions for meetings with Hoescht
Celanese and with Flour Daniel in Clear Lake, Texas. Preston also told Collins
that he had made numerous visits to the Houston Area Research Center, or
HARC, on Research Forrest Drive in The Woodland~ Texas to study new
technologies in the late 1990s. As a result, Preston was very familiar with The
Woodlands. (/d.).
• [n July 2004, Collins fonned Texas Syngas LLC ("Syngas LLC") for the purpose of
e)(pJoiting his technology. Collins was the original sole member of Syngas LLC. (Ex.
5
261
B at ~ 2). Preston joined Syngas LLC as a member after his discussions with Collins.
(Ex. B at 11 10, 11; Exhibit A-6 at ~ 3'). Although Preston ultimately executed the
Syngas LLC Operating Agreement on behalf of Quantum, the investment was clearly
Preston's. (See id; Ex. Bat~ 11).
• On June 19, 2006, Metal Catalyst Ventures, Inc. (''Metal C-atalys~') filed Articles of
Incorporation with the Nevada Secretary of State. (Exhibit A-7). The Metal Catalyst
Articles of Incorporation identify only one director -Preston- and lists his address as
4900 Woodway, Suite 900, Houston, Texas 77056.
• On November 10, 2008, Preston traveled to Houston, Texas to meet with Collins to
discuss a financing proposal by Preston's company C Change. (See Ex. B at, 13;
Exhibit A-8 at 25:8-26:4, 30:4-15; Exhibit A-9 at p. 13).
• On November 10, 2008, Preston wrote a personal check in the amount of$1,100,000,
payable to BOS, Inc. ("BOS"). (See Exhibit A-13 at 01158).
o BOS is identified in its banldng records as officing at 4900 Woodway Dr., Suite
900, Houston, Texas 77056 - the same address as NCl2ffSI. (See Ex. A· l3 at
00448, 00501). That same banking record reflects a wire transfer from BOS's
Texas bank account to Preston in the amount of$1,100,000 on January 15, 2009.
(Jd at 00448, 01142).
o TSI apparently _paid for the incorporation of BOS. (See Ex. A-13 at 0050 1-502).
• On April2, 2009 and May 3, 2009. Preston traveled to Houston, Texas. (See Ex. A-9
at p. 13; Exhibit A-10).
o Preston contends that his travel to Texas on those occasions was uas a
representative on behalf of TEM Capital." (See Ex. A-9 at p. 12). However,
according to Russell Read ("Read.,), Preston's former partner in C Change and
TEM Capital, TEM Capital was not formed until 201 1. (See Ex. A-8 at 33 :2-12).
Accordingly, Preston•s travel to Texas in April and May of2009 would not have
been as a representative and on behalf ofTEM Capital.
• Preston traveled to Texas with Read in "either 2009 or early 201 ou allegedly "for
meetings with Russian technology partners for the fonnation of a joint venture M.J.T.
was entering into with the Russian government. ~· (See Ex. A-8 at 49: 13-50:4).
7
?reston submitted an Affidavit dated December 6, 2013, in Cause No. 2007-38533, Kaiser v.
Collins, pending in the 152 Judicial District Court, Harris County, Texas, in support of Plaintiff's
Opposition to Collins's Motion for Summary Judgment. In that Affidavit, Preston discusses his decision
to invest in "Te:x.as Syngas and to beoome a member in the Texas Limited Liability Company into which
it ultimately was formed!'
6
262
o Preston did not disclose this visit to Texas in his Affidavit filed in support of
his Special Appearance or in the discovery responses he served in this action.
(See Ex. A·9 at pp. 12-13).8
• In the summer of 2009, Preston' s C Change was looking at another company with
operations in Texas, EMC Cement BV eEMe').
o In its Original Complaint recently filed in the United States District Court for the
Western District of Texas, Waco Division, under Civil Action No. 6:14-cv-149
(the '~EMC Litigation, ), against Preston9 and others, EMC alleges that in August
2010, Preston visited a cement plant in Jewett, Texas operated by Texas EMC
Products, EMC's exclusive licensee for the use of EMC's patents in the state of
Texas. (See Exhibit A-11 at 1 36}.
• Preston did not disclose a visit to Texas in August 2010 in his Affidavit filed
in support of his Special Appearance or in the discovery responses he served
in this action. (See Ex. A-9 at pp. 12-13).
• On October 6, 2010, Preston appeared as a witness on behalf of Sydow in the divorce
proceedings flled by Sydow in the 308mJudicial District Court. Harris County, Texas.
(Exhibit A-12).
o Although Preston contends that his testimony in the Sydow divorce proceedings
was "as the corporate representative for NC12," 10 there is nothing in the record of
those proceedings indicating that Preston appeared as a "corporate
representative." Rather, it appears he simply traveled to Texas to support his
colleague and co-conspirator Michael Sydow.
• EMC alleges that Preston visited Texas again in January 2011 to discuss a potential
investment by C ChangeffEM Capital in EMC's line of business and technology.
(Ex. A-ll at~ 48).
o Preston did not disclose a visit to Texas in January 2011 . (See Ex. A-9 at pp. 12-
13).
• EMC alleges that Preston appeared at a foreclosure sale in Texas on May 3,.2011 , on
behalf of the defendants in the EMC Litigation during which the EMC Defendants are
alleged to have acquired the cement plant in Jewett, Texas, that Preston had visited a
year earlier. (Ex. A-11 at 53).
Preston was asked to identify ''all" travel to Texas since 2000. (Ex. A-9 at p. 14).
9
Preston asserts in his Affidavit filed in support of his Special Appearance that "[e]xcept for this
lawsuit, [he has] never been a party to litigation in any state or federal court in Texas." The lawsuit filed
by EMC on May 5, 2014, now changes that fact.
to See Ex. A-9 at p.l3.
7
263
o Preston did not disclose tbjs visit to Texas in May 2011 in response to the
Intervenors• interrogatories. (See Ex. A-9 at pp. 12-13). However, Preston
produced flight records that confinn a flight to Dallas/Fort Worth on May 2,
2011, with a return flight to Boston, Massachusetts on May 4, 2011 . (Su Ex. A-
10 at Preston 000025-26).
o Preston claims that his visit to Texas in May 2011 was for the purpose of
testifying "as the corporate representative for NC12, Inc. regarding an asset
owned by the company in Michael Sydow•s divorce proceedings." (Ex. A-9 at p.
13). However, as noted, above, Preston came to Houston (not Dallas/Fort Worth
as the flight records for May 2011 reflect) to testify for Sydow in October 2010.
Accordingly, Preston's travel records for May 2011 , likely reflect this visit to
attend the foreclosure sale reJated to the EMC Cement property.
• EMC alleges that Preston visited Jewett, Texas again within days of the May 3, 2011 ,
foreclosure sale to inspect the cement plant. (Ex. A-11 at, 53).
• On August 22, 2012, JK Claims Investment Corporation (..JK Claims") filed a
Certificate of Formation with the Texas Secretary of State as a domestic for-profit
cotporation. (Exhibit A-14). Preston is identified in the Texas Secretary of State
records as the sole director ofJK Claims. 11 (Id.).
o JK Claims purchased from the bankruptcy estate of Jeffery Kajser ("Kaiser') the
claims asserted by Kaiser in Cause No. 2007-38533. Kaiser v. Collins, pending in
the 152 Judicial District Court, Harris County, Texas (the ''Kaiser Litigation").
o Preston is now pursuing relief in a Texas state court, under the guise of JK Claims
and Quantum, through an amended petition in the Kaiser Litigation reframing the
complaint to one complaining about alleged misrepresentations by Collins
regarding his educational background and professional licensing to induce the
plaintiffs' investment in Syngas LLC.
Ill. ARGUMENT AND AUTHORITIES
A. Tbe Preston Defendants• Special Appearances Fail to Comply with Rule 120a.
A defendant desiring to challenge the exercise of personal jurisdiction over him in a
Texas court must file a sworn motion challenging jurisdiction. TEX. R. Ctv. P. 120a Although
11
Note that Preston asserted in response to Interrogatories served in this matter tbat 14Texas Syngas
LLC is the only company with its principal place of business in Texas or incorporated in Texas for which
Preston was a director, officer, or employee.•• (Ex. A-9 at p. 12). According to the records of the Texas
Secretary of State, Preston's statement is incorrect.
8
264
the Preston Defendants' have each submitted an affidavit in support of their special appearance,
the special appearances themselves are not verified and so fail to comply with Rule 120a.
B. State and Federal Due Process Considerations and "Minimum Contacts."
Courts sitting in Texas may assert personal jurisdiction over a nonresident if the Texas
Long-Ann statute authorizes jurisdiction and the exercise of jurisdiction ..is consistent with the
state and federal due process standards." Am. Type Culture Co/lee/ion. Inc. v. Coleman, 83
S.W.3d 801, 806 (rex. 2002). The Texas Long-Ann statute authorizes the exercise of
jurisdiction over "those who do business in Texas, which includes contracting with a Texas
resident where either party is to perform the contract in whole or in part in Texas." Jones v.
Petty-Ray Geophysical Geosource, Inc.,
954 F.2d 1061, 1067 (5th Cir. 1992) (emphasis added);
see TEx. Crv. PRAC. & REM. CODE ANN. at§ 17.042.
Texas courts have generally held that the "broad language of the [Texas] long-ann statute
permits an expansive reach, limited only by the federal constitutional requirements of due
process." Daimler-Benz Akliengesellschaft v. Olson,
21 S.W.3d 707, 714 (Tex. App.-Austin
2000, pet. dism'd w.o.j.). Accordingly, the court may consider solely ''whether it is consistent
with federal due process for Texas courts to assert personal jurisdiction over'' the foreign
defendant.
Daimler-Benz, 21 S.W.3d at 714.
Federal due process considerations ask whether the nonresident defendant bas
"purposefully established minimum contacts with the forum state" such that the exercise of
personal jurisdiction over the nonresident "comports with traditional notions of fair play and
substantial justice." Daimler-Benz, 21 S.WJd at 714.
9
265
Jurisdiction will be proper "where the contacts proximately result from actions by the
defendant himself that create a 'substantial connection' with the forum State., Burger King
Corp. v. Rudzewicz,
471 U.S. 462, 475 (1985).
"The ultimate test of minimum contacts is whether the defendant purposefully availed
itself of the privilege of conducting activities in Texas, thereby invoking the benefits and
protection of Texas laws:• Daimler-Benz,
2 1 S.W.3d at 714. When a defendant has deliberately
engaged in "significant'' activities with a state. "or has created 'continuing obligations' between
himself and residents of the forum," he has availed himself of the privilege of conducting
business in that state. Burger
King. 471 U.S. at 475-76 (emphasis added). " [B]ecause his
activities are shielded by 'the benefits and protections' of the forum's laws it is presumptively
not unreasonable to require him to submit to the burdens of Litigation in that forum as well., /d.
Accordingly, a finding of "minimum contacts•• requires a "substantial connect between
the nonresident defendant and the forum state, brought about "by action or conduct of the
nonresident defendant purposefully directed toward the forum state:• Guardian Royal Exchange
Assur., Ltd v. English China Clays, P.L.C.,
815 S.W.2d 223,226 (Tex. 199l);see also Carllidge
v. Hernandez,
9 S.W.3d 341, 347 (Tex. App. -Houston (14th Dist.] 1999, no pet.) ("The
exercise of personal jurisdiction is proper when the contacts proximately result from actions of
the nonresident defendant which create a substantial connection with the forum state.").
Requiring that the non-resident's actions be (Royal, 815
S.W.2d at 226 (quoting Burger
King. 471 U.S. at 475).
10
266
Implicit in the requirement of a pwposeful action and a ·~substantial connection, is the
concept of''foreseeability., Guardian
Royal, 815 S.W.2d at 227. "Indeed, so long as it creates a
substantial coMection with the forum State, even a single act can support jurisdiction.,
Carrlidge, 9 S.W.3d at 348; see also Wes/ernGeco L.L.C. v. Ion Geophysical Corp.,
776 F. Supp.
2d 342, 355 (S.D. Tex.. 2011) (same).
The Supreme Court in Burger King instructs that personal jurisdiction does not tum on
"'mechanical' tests, or "'conceptualistic . . . theories of the place of contracting or of
performance., Burger
King, 471 U.S. at 479. Instead, the court "must review the quality and
nature of the defendant' s activities in the forum in their totality to decide whether the defendant
purposefully availed itself of the privileges offered by the forum state." Microseismic, Inc. v.
TRAC Charitable Remainder Trust, No. H-12-0118,
2012 U.S. Dist. LEXIS 101108, •19-20
(S.D. Tex.. July 20, 2012).
Fair play and substantial justice factors include: "(1) the burden on the defendant, (2) the
interests of the forum state in adjudicating the dispute, (3) the plaintifrs interest in obtaining
convenient and effective relief, (4) the interstate judicial system's interest in obtaining the most
efficient resolution of controversies, and (5) the shared interest of the several States in furthering
fundamental substantive social policies." Villagomez v. Rockwood Specialties, Inc.,
210 S.W.3d
720, 742 (Tex. App.-Corpus Christi-Edinburg 2006, pet. denied).
C. General and Specific Jurisdiction.
A defendant's contacts with a forum can support the exercise of either specific or general
jurisdiction. J.D. Fields & Co., Inc. v. W.H Streil, Inc.,
21 S.W.3d 599, 602 (Tex. App.-
Houston (1st Dist.] 2000, no pet.).
11
267
Under a specific jurisdictional analysis, the court will focus on "the relationship among
the defendants, the forum, and the litigation." J.D.
Fields, 21 S.W.3d at 603 (citations omitted).
"This analysis requires courts to inquire •(t) whether the defendant has purposefully directed his
activities at residents of the forum; and (2) whether the litigation results from the alleged injuries
that arise out of or relate to those activities.'' ReedHycalog UK Ltd v. United Diamond Drilling
Servs., No. 6:07 CV 251,
2009 U.S. Dist. LEXIS 77654, •9-10 (E.D. Tex. Aug. 31, 2009).
AcoordJ.ngly, even if the defendant has relatively few contacts with a forum, " the court may still
exercise personal jurisdiction over that party if the suit ...arises out or or is related to the
defendant's contacts with the forum."' Microseismic,
2012 U.S. Dist. LEXIS 101108 at •ts.
The Court may exercise general jurisdiction over a nonresident defendant when the
"nonresident defendant's contacts are continuous and systematic,.. regardless of whether the
alleged liability arises from those contacts. J.D. Fields, 21 S.\V.3d at 602; see also Twister B. V.
v. Newton Research Partners, LP,
364 S.W.3d 428, 434 (fex. App.-Dallas 2012, no pet.).
"General jurisdiction can be assessed by evaluating contacts of the defendant with the forum
over a reasonable number of years, up to the date the suit was filed."
Villagomez, 210 S.W.3d at
729.
A defendant objecting to the exercise of jurisdiction bears the burden of presenting "a
compelling case that the presence of some other consideration would render jurisdiction
unreasonable.'' Burger
King, 471 U.S. at 477; see also
Jones, 954 F.2d at 1068. "Only in rare
cases will the exercise of personal jurisdiction not comport with fair play and substantial justice
when a nonresident defendant has purposefully availed itself of the privilege of conducting
business with a forum." Critin Holdings, UC v. Minnis,
305 S.W.3d 269, 280 (Tex. App. -14tb
Dist. 2009, no pet.). This case does not present that rare circwnstance.
12
268
D. The Preston Defendants Have PurposefuUy Availed Themselves of the Privilege of
Conducting Business With Texas and Are Subject to This Court's Jurisdiction.
As demonstrated above, Preston has purposefully availed himself of the privilege of
doing business in Texas by, among other things:
• Actively engaging in business with MMT to pursue a business opportunity in Bay
City, Texas·'
• Actively engaging in business with Collins, a Texas resident, for the development of
a business based in Texas~
• Shipping materials to Collins in Texas for his use in connection with business with
Preston;
• Serving as a director of TSI and NC 12, companies having their principal place of
business in Texas;
• Visiting Texas on numerous occasions as he worked to build business relationships
with Collins as well as with the parties involved in the EMC Litigation;
• Engaging in a million dollar financial transaction with BOS, Inc.;
• Appearing as a witness in the personal divorce proceedings of his business coJleague
Michael Sydow; and
• Forming a Texas corporation to purchase litigation claims out of Kaiser's Texas
bankruptcy estate to pursue those claims in a Texas court.
All of the contacts identified herein directly resulted from Preston's own purposeful
conduct which created a substantial connection with the State of Texas. Preston and his
controlled companies cannot reasonably contend that they have not availed themselves of the
privilege of conducting business in Texas or that they couJd not have reasonably anticipated that
they could he baled into a Texas court as a result of their own purposeful activities in or directed
to Texas.
The acts and events complained of in this litigation all arise directly from Preston•s
activities as a director of and fund raiser for TSI and NC12- both Texas companies. In raising
funds for a TSI and NC12, through fraudulent misrepresentations and then denuding the
13
269
companies of their assets, Preston, C Change, Brilliant Novelty (which took title to the
companys research facility), could reasonably foresee that NC12 and its shareholders and
investors would suffer direct economic injury. Accordingly, Presto~ C Change, and Brilliant
Novelty are subject to the exercise of personal jurisdiction by this Court under a specific
jurisdictional analysis.
Additionally, the Court may exercise general jurisdiction over Preston and C Change as a
result of their continuous and systematic business dealings in Texas with TSI, NC12, and EMC.
E. Preston Is Not Protected by the Fiduciary Shield.
The fiduciary shield doctrine is expressly limited in application to questions of general
jurisdiction and will not protect an individual from the exercise of specific jurisdiction to shield
the individual from a claim for intentional torts or fraudulent acts for which he may be held
individually liable. Wright v. Sage Eng 'g, Inc.,
137 S.W.3d 238, 250 (Tex. App. -Houston [1st
Dist.] 2004, pet. denied). Accordingly, if the claims asserted against individual defendants are
ones for v.rhich they may be held individually liable, the fiduciary shield doctrine wiU not
preclude the exercise of specific persona) jurisdiction over them.
Wright, 137 S.W.3d at 251.
"It is well-settled that a corporate agent can be held individually liable for fraudulent
statements or knowing misrepresentations even when they are made in the capacity of a
corporate representative."
Wright, 137 S.W.3d at 250. Accordingly, regardless of whether
Preston's allegedly fraudulent conduct was made in the capacity of an officer or director of TSI,
NC12, C Change, or Brilliant Novelty, Preston is subject to personal liability for his actions and
may not hide behind the fiduciary shield to avoid this Court's jurisdiction.
14
270
F. Traditional Notions of Fair Play and Substantial Justice Support tbe Exercise of
Jurisdiction Over the Preston Defendants.
The Preston Defendants contend that it would be burdensome for them to participate in
this litigation in Texas. By way of example, the Preston Defendants complain that a
representative of C Change and Brilliant Novelty and Preston "would be required to travel to
Texas to attend court proceedings.'' (See C Change Spec. App. at~ 21, Brilliant Novelty Spec.
App. at~ 22, Preston Spec. App. at 29). However, as noted above, Preston was at all relevant
times a manager of Brilliant Novelty and was a managing partner of and controlled C Change. In
reality, only Preston will need to travel to Texas.
Moreover, in any multi-state dispute, "someone will always be inconvenienced." Tobasso
v. Bearcom Group, Inc., No. 05-11-01674-CV, 2013 Tex. App. LEXIS 7866, *11 (fex. App.-
Dallas June 26, 2013, no pet.). Accordingly, the argument is frequently rejected as a basis for
denying jurisdiction. ld
The Preston Defendants further claim that Texas has little interest in providing a forum
for this litigation, asserting that the "injury occurred outside of Texas." (See Brilliant Novelty
Spec. App. at~ 23). The argument is simply wrong. NC12- the company driven into bankruptcy
by the Preston Defendants• fraudulent conduct - was doing business in Texas and is now a
chapter 7 debtor in a federal court here in this state. Accordingly, this Court has an interest in
adjudicating the claims asserted herein which arise from NC12's operations in this state. See
Tobasso. 2013 Tex. App. LEXIS 7866, at *11 .
Although the Preston Defendants complain about the restrictions on the subpoena power
of this Court, they have failed to identify any witnesses or evidence that would be necessary for
the litigation of this matter beyond the range of this Court•s subpoena power. Moreover, given
15
271
the pending bankruptcy proceedings, the logical presumption, is that the books and Tecords of the
company and other evidence relevant to these proceed1ngs reside here in Houston.
lV. CONCLUSION AND J>l{.l-\ YER
The PTeston Defendants have established sufficient minimum contacts with Texas to
support fhe exercise of Jurisdiction over tltem by this Court Accordio¥1Y) intervenors Ernjo
hwestments, Ltd. and ILT. von der Goltz respectfully reqqest th<\t this Court deny the SpeCi~;tl
Appearances filed by Jolm T , Pre~ton, C Change _ln.V,est~ents, LLC, and Brilfiant Novelty~
L.L.C. a~d gr:ant ltltetvenw.'s $u.ch .othet ~nd fijrther r·e liefto which they may be entitled.
Respectfully su~m1tted,
ELLISON •KELLER, P;C.
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State Bar No.. 1.50541'720
5120 Wood~:vay Dtive.~ Su1te :6.019
f:k)tJstotlfTe.xas 770.56
:rdephon,e: 713 -:26(};.~2~0
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272
CERTIFICATE OF SERVICE
'l11e 1mdersigned hereby certifies that on this 2nd day of July, 2014 a true and correct
~opy of the above Response to the Special Appearances filed by John T. Preston, Brilliant
Novelty, L.L.C., ru1d C Change Investments LLC was served on all interested parties) by and
through their attorney of recoTd indicated below via emaiL
Randall 0. Sorrels Brent C. Pen·y
Clyde J. "Jay" Jackson.llJ Law Offices of Brent C. Perry
Abraham W~tk.ins. Nichols~ Sorreis, 800 Commerce Street
Matthews & Friend Hou~ton. Texas 770CJ2
son Commerce Street Facsimile: 713,.237-0415
Houston, Texas 77002~ 1770 Aam·neyjor Original Plain:tijfs
Facsimile: 713-225-0827
Attorneysfor Original Plainrijj.;·
Asher Griffin Amir Alavi
Chris Sile.o Ashley Frankson
Sean FJanuner Ahmad. Zavitsanos, Anaipakos, Alavi &
Scott. boug1ass & McCounico, LLP Mensing P.C.
600 Congress Ave.~ St-e 1500 3460 One Houston Center
Al!Stin, Texas 78701-2589 1221 M~Kinney Street
Facs.imile: 512A74-073 I Houston._Texas 770tO
Atrorneys for Dejendmus Facsimile: 713-658-0062
Cha/sys, AI/E.T, and Lo Attorneysji:Jr Defendants ~ydow. Preston,
Henkel, C Change, and BrilliantJllovel~v
F. Eric Fryar
State Bru· ·No. 07495770
eric@fryarlawfi rm .com
Matthew Buschl
State Bar No. 24064982
mbuscht~arlawfinn.com
Chrlstin~ Richardson
FRYAR LA'" FJJt\1, P. c.
State Bar No. 24070495
9J2 Prairie. Suite 100
Houston, Texas 77002-3 145
Fa~imile: 281-605-1888
Attorneysfor all lntervenors,Plaintfff.i:j
273
Cause No. 20 ll-44058
MICHAEL COLLINS; ET AL., § IN TilE DISTRICT COURT
PLAINTIFFS, §
vs. § OFHAJUUSCOUNTY,TEXAS
§
MICHAEL SYDOW; ET AL., §
DEFENDANTS. § 215th JUDICIAL DISTRICT
AKILA FINANCE, S.A.; ET AL., § IN THE DISTRICf COURT
INTERVENORs!PLAINTlFFS, §
vs. § OF HARRIS COUNTY, TEXAS
§
MICHAEL SYDOW; ET AL., §
DEFENDANTS. § 215th JUDICIAL DISTRICT
AFFIDAVIT OF KELLEY M. KELLER
Before me, the undersigned notary, on this day personally appeared KELLEY M. KELLER,
who is personally known to me, and first being duly sworn to law upon her oath deposed and said:
1. My name is Kelley M. Keller. I am over the age of 19 years old and am fully competent
to make this affidavit. I am an attorney licensed to practice law in the state of Texas. I
am lead counsel for Johan von der Goltz in the above referenced action. The
infonnation contained herein is true and correct and is based on my personal knowledge
as it relates to my representation of Mr. Von der Goltz.
2. Attached to the Intervenors' Response to the Special Appearance of John T. Preston (the
~'Response~') as Exhibit A-1 is a true and correct copy of the Initial List of Officers,
Directors, and Registered Agent of NC12, Inc. \'NC12''), filed with the Nevada
Secretary of State on July 29, 2008 and the Annual List of Officers, Directors and
Registered Agent ofNC12, filed with the Nevada Secretary of State on May 20, 2009.
3. Attached to the Response as Exhibit A-2 is a true and correct copy of the Application
44
for Registration of a Foreign For-Profit Corporation filed by Texas Syngas, Inc. ( TSI1
with the Texas Secretary of State on June 19, 2008.
4. Attached to the Response as Exhibit A-3 is a true and correct copy of the Application
for Registration of a Fo.reign For-Profit Corporation filed by NC12 with the Texas
Secretary of State on August 28, 2009.
5. Attached to the Response as Exhibit A-4 is a true and correct copy of the Business
Organizations Inquiry - View Entity for Molten Metal Technology, Inc. ("MMT"),
EXHIBIT A
274
reflecting the '"'Filing History" and ''Management," which includes John T. Preston,
Director and Chief Executive Offer, 238 Main Street, Suite 20 I, Cambridge. MA.
6. Attached to the Response as Exhibit A-5 is a true and correct copy of the First Amended
Complaint filed January 9, 2009 under Case No. 1:08-cv-11456, Quantum Catalytics,
LLC and Texas Syngas, Inc. v. Ze-Gen, Inc., eta/, in the United States District Court of
Massachusetts, Eastern Division.
7. Attached to the Response as Exhibit A-6 is a true and correct copy of the Affidavit of
John T. Preston, dated December 6, 2013, filed in Cause No. 2007-38533, Kaiser v.
Collins, pending in the 152 Judicial District Court, Hanis County, Texas, (the "Kaiser
Litigation") in support of Plaintiff's Opposition to CoJlins's Motion for Summary
Judgment.
8. Attached to the Response as Exhibit A-7 is a true and correct copy of the Articles of
Incorporation for Metal Catalyst Ventures, lnc., filed with the Nevada Sec~ of State
on June 19, 2006.
9. Attached to the Response as Exhibit A-8 is a true and correct copy of excerpts from the
deposition of Russell Read, taken April 21, 2014 in the Kaiser Litigation.
10. Attached to the Response as Exhibit A-9 is a true and correct copy of excerpts from the
Amended Answers of John T. Preston to Intervenors' First Set of Interrogatories.
11. Attached to the Response as Exhibit A-10 are true and correct copies the documents
produced by Preston in response to Intervenors' Request for Production.
12. Attached to the Response as Exhibit A-1 I is a true and correct copy of the Original
Complaint filed May 5, 2014, under Case No. 6:14-cv-149, Procedo Enterprises
Establishment and EMC Cement, BV v. Quadrant Management~ Inc. , e/ a/., in the
United States District Court for the Western District of Texas, Waco Division.
13. Attached to the Response as Exhibit A-lZ is a true ~d correct copy of excerpts from the
transcript of the proceedings held October 6. 201 o. in Cause No. 20 I 0..()271 0. Sydow v.
Sydow, In the 308th Judicial District Court, Harris County, Texas.
14. Attached to the Response as Exhibit A- 13 are true and correct copies of excerpts from
the document production of BBVA Compass in Cause No. 2010-02710, Sydow v.
Sydow, In the 308th Judicial District Court, Harris County, Texas.
15. Attached to the Response as Exhibit A· l3 is a true and correct copy of the Business
Organizations Inquiry - View Entity for JK Claims Investment Corporation, a Texas
domestic for-profit corporation, reflecting the following HManagement": John T.
Preston, Director, 421 Currant Rd., Fall River, MA 02720 USA.
t 6. Attached to the Response as Exhibit A-15 is a true and correct copy of a Memorandum
filed by Quantum Catalytics, LLC, John Preston, and Christopher Nagel in Case No. 05-
10077-RGS, in the United States District Court of Massachusetts.
2
275
Dated: Ju1y 2, 2014.
STATEOFTEXAS §
§
COUNTY OF HARRIS §
BEFORE ,ME, the undersig.tied authority, on this day personally appeared Kelley M, Keller,
known to me to be the person w11ose nmne is subscr_.tbed to the foregoing instrument, and
acknowledged to me that she read the Ai1idavit of Kelley tvL Keller and that the facts stated therein
were wi:thi11 her personal knowiedge and were true. and correct.
e BARBARAOAVIS
My Commls$fon E.xplr&a
No.vember 14• .2015
1OTARY PUBLIC IN AND FOR
THE STATE ()p tEXAS
MY COM1vHSSION EXPLRES:
3
276
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BUSINESS ORGANFZATIONS INQUIRY- VtEW ENTUY
Filing Number~ 9112306 Entity Type: Foreign Fot~Protil Corporation
Original Oate of Filing: April 3, 1992 Entity Status~ Forf~ited existence
f'omudion nate: N!A
Tax 10: •1 5216599595 FEIN:
Name: MOLTEN METAL TECMNOLOGY, lNC.
Adtlress: 400-2 TOTIEN POND RD
Waltham. MA 02'154 USA
fictitious Name: NIA
Juris~iiction : DE, USA
Foreign formation Date: NJA
!nstructiqns;
~ To plac~ an order for additional informahon about a ffling press the 'Order' butl(Jrt.
EXHI.BIT .A.-4·
287
BUSINESS OR<:W41ZATIONS IN<~UIRY • Vl'C.W ENfiTY
TEXAS SECRETARY of STATE
NAN01TA BERRY
BUSINESS ORGANIZATIONS INQU~RY ~VIEW ENTITY
Filing Number-: 9112306 Entity Type: foretgn For-Profit Corporation
Origina l Oats of Filing: Aprif 3, 1992 Entity Status Forfeited existence
Formation Date: NfA
Tax ID: 15216599595 FEIN:
Name: MOLTEN METAL TECHNOLOGY, INC.
Address: 400-2 TOTIEN P OND RO
\tlallhaf'1, MA 02154 USA
Fictiti ous Name: NIA
Jurisdi ction: DE, USA
Foreign Fonnation Date: NIA
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; !Last Update N.1m4\ Title Address
;l Jui'OOS B Anderson O:rectot ONETO'lllffiSQ.U..O.RE l
~ l Hanford, CT 05183 U~.l\ 11
: !,':, &Jger\:e Bet'tl'\$n VP 400-2 TOTIEN ROAD ·.:}t
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7/112014 BUSINESS ORGANIZATIONS INQUIRY- VIEW ENTITY
John T Preston llrector 238 MAN STRB:T, SUITE 201
carrtJridge, MA 02141 USA
NAGS., OiRISTOA-IER .rsrn SRVP 40~2 TO'Tlm ROAD
Waltham, MA 02154 USA
NAGS., Q-iRISTO~ .rsrn llrector 40~2 TOne.! ROAD
Waltham, MA 02154 USA
NAGS., OfRJSTOFtffi J•srn llrector 40~2 TOTlB'II ROAD
Waltham. MA. 02154 USA
Bhan Jacks GENCSL 40~2 TO'Tlm ROAD
Waltham, MA. 02154 USA
VW!Iam M Haney Ill CEO 40~2 TOTlB'II ROAD
Waltham, MA 02154 USA
\Nilliam M Haney Ill Director 40~2 TOTlB'II ROAD
Waltham. MA. 02154 USA
GATIO, VICTOR E"EDD VP 40~2 TOTlB'II ROAD
Waltham, MA. 02154 USA
Benjarrin T Downs VPFIN 40~2 TOTTEN ROAD
Waltham. MA. 02154 USA
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IOrder I I Return to Search I
Instructions:
iTo place an order for additional information about a filing press the 'Order' button.
289
https://direclsos.state.tx.us/corp_inquil)lcorpjnq ul~entity.asp?spage=mg mt&:Spag efTOtTF&:Siiling_number=9112306&:Ndocurrent_runber=551530130002&... 212
Case 1:08-cv-11456-JGD Document 74 Filed 01109/09 Page 1 of 20
UNITED STATES DISTRJCT COURT
DISTRJCf OF MASSACHUSETTS
Eastern Division
- - - -- - ---·- - --- -- --·- -- --
QUANTUMCATALYTICS, LLC, and
TEXAS SYNGAS, INC., C.A. No. I :08-cv-11456
Plaintiffs,
V. FIRST AMENDED COMPLAINT
AND JURY DEMAND
ZE-GEN, INC.; WILLIAM ("BILL"} DAVIS;
NEW BEDFORD WASTE SERVICES, (Leave to file granted December 18, 2008)
LLC; VANTAGE POINT VENTURE
PARTNERS; FLAGSHIP VENTURES 2004
FUND LLC~ and IRV MORROW.
Defendants.
Plaintiffs Quantum Catalytics, LLC (formerly referred to as Quantum Catalytics, Inc.),
and Texas Syngas, lnc. (collectively "Plaintiffs,.) bring this complaint against Defendants Ze-
Gen, Inc.: William ("Bill'') Davis; New Bedford Waste Services, LLC; Vantage Point Venture
Partners, Flagship Ventures 2004 Fund LLC; and lrv Morrow (collectively "Defendants").
alleging as follows:
THE PARTIES
l. Quantum Catalytics, LLC (hereinafter "Quantum") is a Delaware limited liability
company with its principal place of business in Fall River, Massachusetts.
2. Texas Syngas, lnc. (hereinafter ''TSI", and collectively with Quantum.
"Plaintiffs"), is a Nevada corporation with its principal place of business in Houston, Texas.
3. On information and belief. Ze-Gen, Inc. (herein "Ze-Gen") is a Delaware
corporation with its principal place of business in Boston, Massachuset1s and may be located for
service of process through its president:
EXHIBIT A-5 290
STATE Of MASSACHU$E11'S
COUNTY OF MlDDLESEX
AFFlD.t~ VlT
Before me. the undersigned authority~ (H1 this day persnnally appeared John
T. Preston who bein~ by me fitst duly swot1l upon oath did deptJSe :and say;
1. 'My mmH~ iS john Preston. t .atn over the age of2.1, am under t:IQ leg~tl
.
disability, and an1 wmpetent to make t1'lis :.)flfdavit. Th~! fucrs recited herein lre true
based upotl rny·p.er.sonal km)wierlge. l rl
his ed~l{:(IQOllal background. C~1JHnH en:pht:~tic~i!y Sf<.~t.\``1 that he had gntdUtudent ilt
Cwed no t'ecqrt~ of Mr. Collh:s being .1 gt·<.ldtl<~h'~ of C(lrn!;gi~ Mef t)f his dt~gn!~!s that iw promised. i
312
development effort. and f Wvorthy.
to t:he Board nf l'.>il"ect.CJr~ of NC:\.2 on Tvl<;y 5, 2010 (Mt::tchment 1).
Oircctnrs and l tcjoined th(.~ 13o``rd. lnnnediately the new Board baf;kt;d UJ.t an
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IN mE DISTRitT
s DY MR. HUNTER 6 56
-s-> Jl( C\.AIMS ~DIT' COURT
OORI'ORATION, indivldllllly 111d : 6
TION PAGE
TfXASSYNOAS, LLCIIIId MICIJAEI. : OFIIARR~C()UNl"Y, 12 1 l)ocument entitled "Notice of 6
A. COl..LINS, : TElCAs
Dotmdl:n!J. ; Intention to Take 01111 DcJl(lsition of
. . . . . . . ..... . . . .. « 13 Russel Read"
VIOOOfAPF.l> DI!I'OSITION OF RUSSf.J.t. Rf.Af), Cf'A, H
l'll.D.• • lriln... call«< oo.bdWI' old\~ flo.iatill't,
~ pl>mW>t ro the Fedcnll Rulto ofCivil
~ . bofo"' ).,.. M. WiUi.amoon, R(8illleftd
15 ••• •
M
.- -...
Merit RqJcrlorund "'"lory
I'UI>Ii~ in and for the 16
c;.,.,.mO«weoltb ofM~ II Ole Olli2 A. Ido.
13 THE COURT REPORTER: No. 13 Q. Js there any reason, such as a medical
14 MR. HUNTER: Will the reporter swear 1M 14 condition, that you cannot testify truthfully today?
15 wilness, please. 15 A. No, there is none.
16 16 Q. I'm goins to ask you questions that you
17 17 must answer with audible answers, so that the court
16 18 reporter can write your answers down.
19 19 Please do not respond to my questions wilh
20 20 a nod or shake of your head, because I can't see
21 21 that, and the coUJ1 reporter is not allowed to
22 22 interpret it. So juSl spoken l\'Ords. And, please,
23 23 no "uh-hum" or "uh-huh,• for the same reason.
24 24 Do you understand that?
25
25 A. I ttnderstand..
Page 6 Page 8
1 RUSSELL READ. Cf A. Ph.D. 1 Q. Wlwl is your residence. please?
2 a witness called for exummalion by counsel for the 2 A. My U.S. residence is 38 Mercer Street,
3 Plaintiff~ having been satisfactorily identified by 3 Jersey City, New Jerst!y, 07302.
4 the production of his driver's license and being 4 Q. Thank you. And wttat is yout work address?
5 first duly sworn by the Notary Publie. wDS examined
5 A. I work in Kuwait City for Gulf lnv~tm~:nt
6 811d testified as follows: 6 Corporntion. P.O. Dox 3402 Safat. S-A-F-A-T, Kuwait
7 DIRECT EXAMJNATION 7 City, 13035~ CoUlltry ofKuwail,
8 BY MR. HUNTER: 8 Q. Thank you. After this dcpc>sition, which
9 Q. Thank you, Mr. Read. 9 address or whut method mould lhe co.111 n:porter
10 MR. HUNTBR: Ms. Williamsoot do you have a 10 ~nd you your l~:Stimony?
11 copy of the deposition notice? lnsk lh"t you mark 11 A. My prefem:d method of T\:10Clp4 is by emnil
12 it as Exhibit l of Ibis deposition. 1 don't have 12 1'hc second would be to mail at my work addccss in
13 lillY additionaJ exhibits. 13 Kuwait
14 (Document marked as Rc:ad 14 Q. Can you give us - 0! give the court
15 Exhibit 1 for identification) 15 reporter your email address-
16 Q. Mr. RQd, y;·ould you please stole your full 16 A. My email address is IT88.d, the No. 5, at
17 k:pl name Cot the record. 17 Yahoo.com.
18 A. RusscU Read. 18 Q. Thank you. Mr. Rct1d.
19 Q. I thank you for taking time Lodoy. Mr. 19 Wbc:n you receive the tnmscript. it will
20 Read, from your day and from your stay i.J) the United 20 eitbc:r be in a booklet or in an electronic fonnal
21 States to give the Coun 111\d the Jury )'OUr testimony 21 Ptt:aSe n:vicw your testimony and com:ct any
22 in this actioo. 22 d~ricu l crron; und return the tnmsc~ to me.
23 Have you ever been deposed before? 23 Will you do that for me, please?
24 A. 1 have been. 24 A. Yes, I will
25 Q. Jam sure that you will roo11ll from your 25 Q. Do you understand that if you mak~ uny
.,... .. - . . ... - -··· - ··~
2 {Pages 5 to 8)
Confidenti a l Communications Int . Ltd .
318
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319
Russell Read, CFA, Ph.D. 4777
Page 29 Page 31
1 about five minw~l 1 officer was replaood. 811d Norm t cBla!lc was rcpUtced
2 MS. KELLER: Sounds goocL Okay, thruU: you. 2 by Gina foote, F-0-0-T.£. In addition. we blld
3 MR. HilJNTSR: OfT the record. 3 anoth4!r operational per.;on who carne on, who was Joe
4 THtl VtOI!OORAPHE:R: 1ne tlmu •:s 12 fl.m•. md 4 S>'~ldMa. each of U1em were junior~
5 we Q1\! uiTl.h.t: tcX.'OOO 5 Q. Is C Chllnge ln\~"1mcnt.<~ still in operation?
6 (Rcoess taken from 12:00 to 12:06) 6 A. C Change lnv~ents is not opc::mting now.
7 TiiE VTDEOGRAPHER: The time is l 2:06 p.m., 7 Il \\ras d Ycctivcly merged into a n-=w company . calJ~
8 1111d we are <>;n the record. a "'Tra.osform31ive Enefgy and M~terials Capital, which
9 CROSS EXAMINATION 9 was fonnc:d as a combination or C Change and a group
10 BY MS. KalER: 10 out of New YorX City. ~lied "Quadrant Capital. M
ll Q. Mr. R~. my name is Kclly Keller, arid you 11 Q. Wt:re you uffiliatt:d with Quadrant Capital?
12 understand I represent the defendant in this ca~, 12 A. l\lo, J had no relationship or affiliation
13 Michael Collins, correct? 13 with QuSldrant CapitaL
14 A. I d<>. 14 Q. Oo you know if Mr. Preston has an
15 Q, r want to go briefly - just some brief 1S uflili16 A. I'm nrn aware of any invcsuncnts in whicll
17 A.. They included David Bro\Vn, who ~:rvcd as 17 that fund invested ma John Preston-related enti1)'.
18 our general counsel. They included Norm LeBlanc. 19 Q. How long were you as C Chsugc?
19 Norm LeBlanc was our chief operating oftioct" They
19 A. I was with C Chan~ a:s a pru1ner and
20 also included Mr. .)ohn SyJvia, an in,•esoncnt 20 urn ploy~ from July l:st, 2008 until I jointxf as chicl'
21 professional out of San Francisco. 21 investment officer and depu'Y cllief cxecu~ive of the
22 Q. An)' otberi? 22 Gulf Investment Corporation in the summer of 20 I I.
23 A. Later on, we also hired someone who became 23 1'bal being .said, because or difficulties lD
2~ a partner, who was Roger Berry, BrEwR· R- Y. I 211 ft1nd-rnising beginning in 20 I 1. 1 ceased to take
25 believe. And later on, also our chief operating 25 :salary beginning on Jtln\181}' I l>1 o( 20 I l and Sought
8 (Pages 29 t o 32)
Confidential Communications Int . Lt d.
320
4 77 i
P~gc .l~
(lW...:i op!X•rtwutics. i``u:uing in ~Ill: st unu~ A Th.: amount reech.ed from I'Jipi' \: tQ fund C
Q. l'm ...m; , \\ i;"! w:t:- ll:c n:.lsmt yuu :-~ur.pttv 2 Chaugc wa) S25 uulliuu.
l(lklllg " s..~l<·~·"? J Q. Aud \\ llltl \\:tS the ntnount rt:<.~tvcd fn:nu ~k
A JIO~cth•e!} , w•~ wcm ttMllk: tv rtH:O:\: 11U1 4 Kcnl-cf>
tum! tt ''• 8
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million \\:ts warclt{)U!'cd. and tfu1t \'\~ts ulliuuttcl)
9 a u~w mtlit~, ~n~:rl • I'EM Ct)!1lll11. · - , r:m~I.Ir;;m;ll\'~ :::: m~t.t.."<1 ror TS I ~ is thut com:cl'?
!.0 Eaw/l!;. ~nd ,\.iatcntds t .:upitul," in ~mhumtir.u \\!th l(l ,\ 1 million \\1tS act1tally ch rc<,1t:d to :md
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9. .Preston expressly incorporates each ofthe above objections to the extent appHcable1n
each specific respvnse to the interrogatories set forth below~ as if fully set furth in the answef to
each specific interrogatory.
SPECIFIC RESPONSES AND OBJECTIONS
INTERROGATORY NO. l
State the dates of service for your service on the board of directors ofTSL
Subject to and \\~thout waiving Preston's objections. Preston responds as follows:
Preston served on the board of directors ofTSl between the end of 2004 and on or about
May4, 2009.
INTERROGATORY NO.2
Describe in detail tl1e nature ofyour service Of.l the board of directors ofTSI.
ANSWER:
Pre5tnn objoc.ts to. this interrogat{)ry as ~:wefly broad arl.d undllly burdensome in requestin~ that
Pn!stO:n.d'Cscribe "'in detaw~ his $et:\ll(~.
Preston ~so .~b.jects t9 this interr()gat~ry as va;gu~ and a.mbigu<.lU$ i`` requ~sti,ng that Prestoo
describe ~'the n.ature ·of'~ his $ervice.. P~ton ,,.,,.ill intecpret thi$ to be a request for Preston to.
describe his serVice on tJ)e board ofdh:ectors .
.S'Ubjeet to and ·'rvitbout wnivi~ Prcston.•s objections, Preston.respond$ ·~s follows:.
The board of dire.ctor$ played· a.· roi~ :h'J. t.tle· ·~QVtmtW,'lW~ ·ot ' TSI~ ·:wh,ieh ·i:ncl.uderJ
.respoQsibility fQt.tlw·~iring amLnrlilg of the 'CEO~ :'P.tes.to~·h~d provide govemance.
fNTERROGATQRV NO.9
Identify each board meetingofNCll in which you participated and state (I) where such
meeting was held, 2) when such meeting was held. and 3) whether your participation was in
person, by telephone, or by some other electroni<: means.
9
327
ANSWER:
Preston is not subject to the j urisdiction of this court. Accordingly, Preston objects to this
request to the extent it does not seek infonnation that relates to or is reasonably calculated to lead
to admissible evidence regarding whether thjs court has jurisdiction over Preston.
Preston objects to this interrogatory as overly broad and unduly burdensome in requesting that
Preston identify " each" board meeting regardless of whether it has any connection to Texas.
Subject to and without waiving Preston·s objections. Preston responds as follows:
Preston is not aware which meetings constituted NC12 board meetings. He participated
in meetings or calls related to NC12, however, that may have constituted NC1 2 board
meetings on the following dates and locations. but Preston was never in Texas for any
such meetings or calls:
Date .· : - Lcu::ation Means
May 1, 2009 Massachusetts In Person
September 14, 201 0 Massachusetts In Person
October 17, 201 0 Munich, Gennany Telephone
November 24,2010 Massachusetts In Person
November 29, 2010 Massachusetts In Person
January 4, 2011 Massachusetts In Person
January 7. 2011 · Massachusetts In Person
February 21 , 2011 Massachusetts Telephone
February 25, 201 t Frankfurt., Gennany TeleJ:>hone
INTERROGATORY NO. 10
Identify all payments you reocived of any nature from NC 12.
ANS\VER:
Preston is not subject to the jurisdiction of this court. Accordingly) Preston objects to thi s
interrogatory on the grounds that it does not seek infonnation that relates to or is reasonably
calculated to lead to admissible evidence regarding whether this court has jurisdiction over
Preston.
Preston further objects on the grounds that this information may be obtained directly from other
entities that are subject to this court' s jurisdiction, which would be the Jeast intrusive and most
efficient method for Intervenors ' to obtain the infonnation they seek.
10
328
Preston also objects to this request to the extent it seeks proprietary infoiDlation, trade secrets or
other confidential information, disclosure of which would harm Preston or Quantum Catalytics
or is protected fiom disclosure by confidentiality agreements.
INTERROGATORY NO.ll
Identify all documents which you signed as an officer or director ofNC12.
ANSWER:
Preston is not subject to the jurisdiction of this court. Accordingly, Preston objects to this
interrogatory on the grounds that it does not seek information that relates to or is reasonably
calculated to lead to admissible evidence regarding whether this cowt has jurisdiction over
Preston.
Preston also objects to this interrogatory on the grounds that it is overly broad and unduly
burdensome is seeking "all documents" Preston signed without any limits, regardless of their
connection to Texas.
Preston further objects on the grolDlds that this information may be obtained directly from NC 12,
which would be the least intrusive and most efficient method for InterVenors' to obtain the
information they seek.
Preston also objects to this request to the extent it seeks proprietary information, trade secrets or
other confidentiaJ information, disclosure of which would hann Preston or is protected from
disclosure by confidentiality agreements.
UITERROGATORYNO.U
Identify all investments that you made in NC12, whether such investment was made in
money or services. Include in your :response, 1) the date of such investment; 2) the amoWlt of
such investment; 3) the number of share or other interest received on such investment; and 4) the
returns, if any, received on such investment.
ANSWER:
Preston is not subject to the jurisdiction of this court. Accordingly, Preston objects to this
interrogatory on the grounds that it does not seek infonnation that relates to or is reasonably
calculated to lead to admissible evidence regarding whether this court has jurisdiction over
Preston.
Preston further objects on the grounds that this information may be obtained directly from TSI,
which would be the least in1J'USive and most efficient method for lntervenors' to obtain the
information they seek.
11
329
Preston also objects to this request to the extent it seeks proprietary information, trade secrets or
other confidential infonnation~ disclosure of whjcb would harm Preston Ol' is protected fi·om
disclosure by «>nfidentiali ty agreements.
!NTKRROGATORYNO.l3
Identify aU companies, whether public or privat€; wifu offices in Texas, for which you
have served on tbe board of directors or as 1m officer or etnpJoyee. Include in your response 1)
the dates of such service, 2) the location from wb.ich you worked/served; 3) the compensation
received; and 4) the position in which you served and/or were ~'l'lployed.
ANSWER:
Preston is not subject to the jurisdiction of tlus court. Acoording1y, Preston objects to this
interrogatory to the extent that it does not seek iuformation tl1at relates to or is reasonably
calculated to lead to admissible evidence regarding whether this oou.rt has jurisdiction over
!>reston.
Subject to and vvithout waiving Prestnn~s. o'bjections.l,reston responds as foUows:
Texas Syngas LLC }s the only company Vrith its principal place of business in Texas or
incorporated in Texas for which 11 reston was a remnn's: objections. Preston responds as follo~'S:
No company or entity wholly owned or ccmtroHcd by Prestoll directly owns or controls
a.lly real property in "fe.xas or has any business operatio.ns in Tex.as.
1NTERROGATORY NO•.16
State whether any company in which you hold ~ majority interest owns or controls any
real pro~rty itl Texas or ha.s f\ny business operntions in Texas. If so) indude in y()ur response;
l) the identity of snch t¥lmp:,ny; Z) describe the rw11 prop(..'Tiy owned or controlJed; Md ~}
de.<)cribe in detail the nature of such business.
331
ANSWER:
Preston is not subject to the jurisdiction of this court. Accordingly, Preston objects to this
interrogatory on the groWids that it does not seek information that relates to or is reasonably
calculated to lead to admissible evidence regarding whether this court has jurisdiction over
Preston.
Preston further objects to this interrogatory to the extent it is duplicative of Interrogatory No. 15.
Subject to and without waiving Preston's objections. Preston responds as follows:
No company or entity in which Preston holds a majority interest directly owns or controls
any real property in Texas or has any business operations in Texas.
INTERROGATORY NO. 17
Identify each investment you have made within the last 10 years in any company
incorporated in Texas or having a principal office in Texas. Includ.e in yow- response the amount
ofyow- investment and the nature of such investment.
ANSWER:
Preston is not subject to the jurisdiction of this court. Accxmlingly, Preston objects to this
interrogatory on the grounds that it does not seek information that relates to or is reasonably
calculated to lead to admissible evidence regarding whether this court bas jurisdiction over
Preston.
Preston objects to this interrogatory as overly broad and \Dlduly burdensome in seeking detailed
infonnation about events that OOCWTed so long ago that: (a) do not relate to specific jurisdiction.
and (b) cannot be used as a basis to support general jmisdjction.
INTERROGATORY NO. 18
Describe in detail all communications which you have had with any pmon or entities
located in Texas within the last five years. Include in your response the dates of such
communications, the pwpose of such communications, and the means by which such
communications were made.
ANSWER:
Preston objects to this intem>gatory as overly broad and unduly bmdensome in seeking detailed
information about "all commtmications" over a fiv~yea:r period.
14
332
Subject to and without waiving Preston~s objections~ Preston responds as follows:
Preston communicated by telephone with Michael Sydow on occasion during the last five
years in relation to TSI and NC12. As a representative of TEM Capital, Preston
communicated regularly with various individuals in Texas on behalf ofTEM Capital over
the last five years.
15
333
VERIFICATION
My name is John Preston, my date of birth is March 18, 1950, and my address is 9
Martins Cove Lane, Hingham, MA 02043. I declare under penalty ofperjwy that the answers in
the foregoing John Preston's First Amended Objections and Answers to Intervenor's First Set of
Interrogatories are 1rue and correct to the best of my own personal knowledge and belief.
Executed on the.?.oday of March, 2014
JtLr~
ohnPreston
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Tl'u~. ~
Sent: Thursday, March 10, 201111:58 AM
To: Katherine Frisina
Subject: Travel Reservation March 16 for JOHN THOMAS PRESTON
Your Travel Arranger is pleased to deliver your complete travel itinerary through Sabre® Virtually There®.
Click here to access your reservation on the web or a mobile device.
Itinerary
JOHN THOMAS PRESTON
Reservation code : HKZBLO
Travel Arranger Priority comments :
ETA/HRG OFFERS 24/7 IN-HOUSE EMERGENCY SERVICE
Wed, Mar 16
Flights : JETBLUE AIRWAYS , 86 1265
From : BOSTON , MA (BOS) Departs : 6 : 40am
Departure Terminal : TERMINAL C
To : AUSTIN , TX (AUS) Arr i v es : l2 : 09pm
Class : REDACTED
Seat(G) :Check - In Re quired
Status: Confirmed Airline Confirmation: OOKMQI
Meal: Smoking : No
Aircraft : EMBRAER EMB E90 JET Distance (in Miles ): 1694
Duration: 4hour(s) and 29minute{s)
Frequent Flyer: JETBLUE AIRWAYS 2047935390
Please verify flight times prior to departure
March 16
Other :
Status: Confirmed
Information:SEATS RESTRICTED TO AIRPORT CHECKIN . WE WILL CONTINUE TO MONITOR SEAT MAP
REDACTED
Thu , Mar 17
Flights : JETBLUE AIRWAYS , B6 1264
From: AUSTIN, TX tAUS) Departs: 4 : 55pm
To: BOSTON, MA (80S ) Arrives : 9:43pm
Arrival Terminal : TERMINAL C
Class : REDACTED
Seat(s): PRESTON/JOHN THOMAS- lSD
Status : Confirmed Airline Confirmation: OOKMQI
PRESTONOOOOtl
345
Meal: Smoking: No
Aircraft: EMBRABR BMB B90 JET Distance (in Miles): 1694
Duration: Jbour(s) and 48minute(s)
Frequent Flyer: JBTBL'0'2 AIRWAYS 2047935390
Please verify flight ti111es prior to departure
May 16
Othert
Status' Confi .ra\ed ,
Information:VISIT WWW·EXECTBAVEL.CQM
ARRANGBR RBMAJU.tS:
VISIT US ON THB WBB AT WWW. EXEC1'BAWL. COM
• --MY DIR!CT PHONE tS 202 • 496-2791••
•--APTBR HRS EMERGENCY SVC 202-828-0090••
PLS NOTE TICKBT 18 NONREP'UNDABLB CHANGES MUST BE IQDB
I
ON OR BBPORE 1'1IE DBPARTORB OP EACH TICKETBD PLIGHT
SBGMBHT AND ARB S'UBJBCT TO A PBNALTY PLUS ANY PARE
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ORIGINAL TICKB'l'BD FLIGHT ARB NOT PERMITTED AND TICKBT
WILL HOLD NO VALUE.
eTicket Receipt(s);
2797962668075 • PREST/J
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the e·mail was sent Please click on the link above or contact Your Travel Arranger for the most current
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EXECUTIVE TRAVEL ASSOCIATE~/HRG
VISIT US ON THE WEB AT WWW.EXECTRA VEL.COM
1
raESTONOOODl2
346
From: JUQX PALION
To: Katbedne Frisina
Subjec:t; Trawl Reservation December JO rOf JOHN THOMAS PRESTON
Date: Tuesday, December 28, 201B JO:U:37 AM
Your Travel Arranger is pleased to deliver your complete travel itinerary through Sabre® Virtually
There®.
Click here to access your reservation on the web or a mobjle deyjce
Itinerary
JOHN THOMAS PRESTON
Reservation code: KPUDSE
Travel Arranger Priority comments:
ETA/HRG OFFERS 24/7 IN-HOUSE EMERGENCY SERVICE
Thu, Dec 30
Flights: AMERICAN AIRLINES, AA 1365
From: BOSTON, MA (BOS) Departs: 8:40am
Departure Terminal: TERMINAL B
To : DAL NORTH, TX (OFI-1) Arrives: 12:1Spm
Class: REDACTED
Seat(s) TON/JOHN THOMAS - 18F
Status: Confirmed Airline confirmation : KPUDSE
Meal: Food for Purchase Smoking: No
Aircraft: BOEING 757 JET Distance (in Miles): 1556
Duration: 4hour(s) and 35minute{s)
Frequent Flyer: AMERICAN AIRLINES NR\'16022
Please verify flight times prior to departure
Thu, Dec 30 - Fri, Dec 31
Flights: AMERICAN AIRL1NES, AA 2282
From: DALLAS FT \>IORTH, TX ( DFW) Departs: 7:45pm - December 30
To: BOSTON, MA {BOS) Arrives : 12:10am -December 31
Arrival al: TERMINAL B
Class: REDACTED .
Seat(s) TON/JOHN THOMAS - 13A
Status: Confirmed Airline Confirmation: KPUDSE
Meal: Food for Purchase Smoking: No
Aircraft: BOEING 757 JET Dis tance (in Miles): 1556
Duration: 3hour(s) and 25minute(s)
Frequent Flyer: ANERICAN At RLINES NRW6022
Please verify flight times prior to departure
Ma.rch 01
Other:
Status: Confirmed
Infoilllation : VISIT WWN. EXECTRAVEL. COM
ARRANGER REMARKS:
VISIT US ON THE WEB AT WW~I. EXECTRAVEL.COM
•--MY DIRECT PHONE IS 202·496-2791••
•--AFTER HRS EMERGENCY SVC 202-828-0090 ..
eTicket Receipt(s):
0017943995686 - PREST/J
For your convenience, a text version of your itinerary is included in this e-mail and was current as
of the time the e-mail was sent. Please click on the link above or contact Your Travel Arranger for
the most current information.
PRESTONOIIn023
347
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PRESTOI'IOOOOZ4
348
From: JUQX DALTON
To: l11 A. I went to the Universit y of Wisconsin for
12 physics . I got a Master ' s in physics and Northwest ern
13 Universit y for an MDA.
14 a. And if you could , were you the director of
15 technolog y anywhere?
16 A. Yes, I was.
17 Q. Where were you the director of technolog y?
4
18 A. I was the director of technolog y , developme nt
ffi
i 19 of technolog y licensed at HIT.
I 20
21
Q.
A.
And when was that, sir?
I started at HIT -- I have had many roles at
22 MIT; but I started in 1977, December of 1977; and I
23 still have an appointme nt at HIT.
24 Q. And have you received any appointm ents to
25 advisory positions ?
Cheryl L. Pierce, CSR
356
1 THE COURT : Are you calling this man as
2 an expert?
3 MR. NEWMAN: Well , judge , 1n part , ye s .
4 THE COURT : Expert on what?
5 HR . NEWMAN : Well , basically as it
6 relates to the i r claim with regard to the Fall Ri ver
7 Reality entity. I believe, there is an allegation --
8 if there is not going to be an allegation that that is
9 some asset that Mr . Sydow owns for purposes of th i s
10 hearing - -
11 THE COURT: I thought that th i s argument
12 was over whether or not Mr . Sydow was still getting
13 $30 , 000 . 00 from NC12 .
14 MR. NEWMAN: That is . I will offer that
15 testimony, too ; but I don't want them to say that
I
g
d
16
17
there is some additional source of money for Mr.
Sydow. So I am just going through that . I can speed
~
4
18 it up .
~
~
i
0
19 THE COURT: Quickly .
!
~
«
f 20 MR . NEWMAN: Thank you, judge .
!
cw 21 Q. (By Mr . Newman) You have signif i cant
~
~ 22 experien ce in entities wh i ch own real estate and / or
2
g
~
23 patents and things of th at nature?
24 A. Yes. s ir .
25 Q. And are you on the board of directors of
Cheryl L. Pierce, CSR
357
65
1 NC1 2?
2 A. I am .
3 Q. And what does NC12 do?
4 A. NC12 is a develo pment stage company that is
5 trying to develop a reactor that converts coal i nt o
6 natura l gas or synthetic natural gas .
7 Q. Does NC12 own significant licenses and
8 licensure for patents?
9 A. It took a license for some of the core
10 background patents on high temperatu r e liquid metal
11 c hemist r y . So , yes ; and it has developed its own
12 patent applications t hat ar e i nventions that I don ' t
13 think are filed yet.
14 a. And wit h regard to t he lice nses that NC12 has
15 or had a right to , what entity owns the pr i mary core
I
g
16
17
patent licenses?
MR. KELLY: I am objecting to hearsay,
!.?:1
.
..,
CE:
18 Your Honor .
! 19 THE COURT: Overruled .
~
li"' I f you know.
f 20
~
~ 21 THE WITNESS: Yes , sir.
~
~
u 22 A. So the patent that were lice nsed were
~
...0 23 lice nsed from a company ca l led Quant um Catalytics
24 whi ch is a compa ny that I he l ped create.
25 Q. ( By Mr . Newman) And NC12 ha s been in
Cheryl L. Pi erce, CSR
358
66
1 existence for a little over a year?
2 A. That is correct.
3 a. So it is kind of a start-up company?
4 A. That is correct.
5 a. Now, how much has NC12 earned?
6 How much in revenue and earnings has NC12
7 had since its inception ?
8 A. To the best of my knowledge zero .
9 a. Not one penny?
10 A. That is correct.
11 Q. How is it that NC12 has paid salaries and its
12 officers and/or employees ?
13 A. NC12 raised some venture capital investmen ts
14 from individua ls , and it has been using that money to
15 support itself .
..i3
16 a. Has there been difficult y in obtaining funds
Ig 17 from investors to continue the financing for NC12?
..~
a:
18 MR . KELLY: I will object to hearsay ,
i"'w 19 Your Honor .
m 20 THE COURT : Sustained .
~
21 MR . NEWMAN : You said sustained it .
~
~ 22 THE COURT: I sustained · the objection .
I0
... 23 The only way that he is going to know that is what
24 somebody else told him .
25 a. (By Mr . Newman) You certainly are a critical
Cheryl L. Pierce, CSR
359
67
1 party in obtaining funds for NC12?
2 THE WITNESS : I have been the primary
3 fundraiser for the company over the last few years,
4 Your Honor .
5 a. (By Mr . Newman) And how much money has been
6 raised for NC12?
7 MR . KELLY : Object to hearsay, and object
8 to relevance .
9 THE COURT : Ove rruled.
10 A. None . If you go back to NC12's predecessor
11 company which was called Texas Syngas .
12 MR . KELLY: Objection to nonresponsiv e .
13 a. (By Mr . Newman) I am just talk i ng about NC12
14 right now.
1
5 A. I wi ll have to review the records .
...
~ 16 THE COURT: All right . So you don ' t
Ig 17 know .
~
~ 18 THE WITNESS : I don ' t know e xactly, no ,
•
a:
!r
! 19 sir .
I
a:
~
20
21
a. (By Mr . Newman) So you don ' t know exactly.
Do you have a ballpark figure , sir?
~
~ MR. KELLY:
fj 22 I object to asked and
~ 23 answered , Your Honor .
24 THE COURT : Overruled.
25 Give us your best guesstimate .
Cheryl L. Pierce , CSR
360
68
1 A. Best guesstima te for NC12 is about
2 $5 . 2 million as convertib le debt .
3 a. (By Mr. Newman) And what is convertib le debt?
4 A. Convertib le debt means that it was given to
5 the company as debt which means the company was
6 obligated to repay it.
7 a. As a promissor y note?
8 A. As a promissor y note that would mature as of
9 Septembe r 30th of this year, so a week and a half ago.
10 a. And when that matured, was it enough money in
11 NC12 to pay the promissor y note back?
12 A. No, sir.
13 Q. So what was done with regard to those notes ?
14 MR. KELLY : Your Honor, I am not going to
15 get the sustain probably ; but I want to have a running
.,
ij
16 objection on hearsay . Everythin g that he 1s talking
I 17 about is hearsay .
8
Cl
.
~
II:
18 Q. (By Mr. Newman) Do you have personal
I 19 knowledge of what I am asking you about?
~
w
&:
..
~ 20 A. Yes , sir .
a:
a:
21 HR . MOFFETT : Your Honor, can we take the
~
.i:
tl 22 witness on voir dire?
...~ 23 THE COURT: No .
24 MR . NEWMAN : And I would like one lawyer ,
25 judge.
Cheryl L. Pierce , CSR
361
69
1 THE COURT: That will be Mr . Kelly .
2 MR . NEWMAN: All right .
3 a. (By Mr. Newman) With regard to -- I think my
4 question was: Did NC12 have sufficient funds to meet
5 the obligation to pay the promissory note back?
6 A. No, sir .
7 THE COURT : Well , now hold on just a
8 minute .
9 He may be a fundraiser, but you have not
10 made the tie that he knows enough about the day-to-day
11 management of NC12.
12 HR. NEWMAN : Yes, sir.
13 a. (By Mr. Newman) You are a board member of
14 NC12?
15 HR. KELLY : Object to leading, Your
16 Honor .
17 THE COURT : Sustained.
18 a. (By Mr . Newman) Are you a board member of
19 NC12?
20 A. Yes, sir .
21 a. As a board member of NC12, are part of your
22 duties and obligations to review the major financing
23 situations of NC12?
24 A. Yes , sir .
25 a. And have you done that?
Cheryl L. Pierce, CSR
362
70
1 A. Yes, sir.
2 Q. And as part of that obligation and you
3 carrying out your duties , did you come to the
4 determinatio n whether NC12 had the ability to pay back
5 the prom i ssory notes that are due?
6 MR. KELLY : Objection, Your Honor . The
7 question is based on hearsay. These are documents
8 that I have an issue with because I can't get to them ,
9 Your Honor , to say whether they are right or they are
10 wrong.
11 MR. NEWMAN : I didn't ask him anything
12 about a document, judge .
13 HR . KELLY: Well , I know but that is what
14 the question is based on.
15 THE COURT: Are you the chief financial
~
g
$ 16 officer for the company?
§
g 17 THE WITNESS: No, sir.
~
2 18 THE COURT : What is your involvement with
•
~
! 19 the company day-to-day?
!
~
w
~
20 THE WITNESS: I have been working with
21 the company really almost day - to-day trying to raise
~
~
~
u 22 money and trying - -
l
0
~
23 THE COURT : But you are not involved in
24 the day-to -day management: in other words, the hiring?
25 THE WITNESS: No, sir.
Cheryl L. Pierce, CSR
363
71
1 THE COURT : I will sustain the hearsay
2 objection .
3 a. (By Mr . Newman) Mr . Preston, although you are
4 not involved in the day-to-day involvement with the
5 hiring and the firing of employees, are you involved
6 wi th virtually the day - to-day involvement with the
7 finances related to the company; in other words,
8 monies available to pay debt and monies available to
9 pay salaries?
10 MR. KELLY : Objection, asked and
11 answered . It presupposes that his response is going
12 to be based on some document . So my objection is
13 hearsay.
14 MR. NEWMAN: Your Honor, 1t is not
15 hearsay . I am not asking about a document . I am
"ii
16 asking whether he knows about the financial condition
i
i 17 of the entity .
g
c
..
~ 18 THE COURT : Well, let's just play that
i
Ill
a:
19 out a little bit. He is on the board of directors.
I
~
20 Wouldn ' t directors' minutes, memoranda,
21 all of those things that pass back and forth between
~
ct
Ill
u 22 companies and their operating officers and board of
...f 23 directors be relevant to this?
24 MR. NEWMAN: Absolutely relevant , Your
25 Honor, and absolutely will record what the parties
Cheryl L. Pierce , CSR
364
f"L
1 did ; but Mr . Kelly's proposit i on is in reverse . They
2 meet, they discuss it , they figure out what the
3 situation is, he has personal knowledge of the
4 situation; and that is documented in some minut e s
5 somewhere and in the financial documents somewhere .
6 I am not asking him about the financial
7 document . I am asking him about his specific
8 knowledge ; and, judge , they are sword and shield i ng
9 it. What they say is , "Either gi ve us the documents
10 which we have not requested . " They acknowledge they
11 have not requested appropriately . They have never
12 requested the documents, judge , from NC12 like they
13 were required to do .
14 And now they are saying , "Well, si nee
15 they didn't produce document that weren ' t reques ted
Ii 16 properly, this witness can ' t testify to what he
g 17 personally knows because it also happens to be
..12
:E
a::
18 contained in the documents somewhere .u
l!'
I
Ill
19 THE COURT : He has already testified that
~ 20 they invested - - that he got about $5.5 million in
~
....
II:
ei 21 venture capital , that on September the 30th, 2010 , the
.
~
«:
Ill
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22 debt came due ; and it wasn't paid .
:!
a:
...
0
23 Q. (By Mr . Newman) Mr . Preston , does Mr. Sydow
24 set his salary or does t he board set his salary?
25 A. The board of directors s ets the salary for
Cheryl L. Pierce, CSR
365
73
1 the CEO .
2 a. Are you on the board of directors?
3 A. I am.
4 a. Is Mr . Sydow on the board of directors?
5 A. Yes.
6 a. Who else i s on the board of directors?
7 A. Christopher Henkle .
8 THE COURT : Is Mr. Sydow the CEO?
9 THE WITNESS : He is the CEO , yes .
10 a. (By Mr . Newman ) Being the CEO , can he
11 unilaterally set what his salary is?
12 A. No, the board sets his salary.
13 a. Is there sufficient funds now in NC12 to
14 continue paying Mr . Sydow the salary?
15 MR . KELLY : Objection, Your Honor. The r e
16 is no basis for him knowing that .
17 THE COURT : I will take his opinion and
18 give it the weight that I thin k it deserves .
19 A. The board does review financial - -
20 THE COURT : Is it sufficient money to pay
21 Mr . Sydow ' s salary?
22 THE WITNESS: No , sir.
23 THE COURT: In your opinion?
24 THE WITNESS : No, sir .
25 a. (By Mr. Newman ) Are you trying to secure
Cheryl L. Pierce , CSR
366
_ ...
78
1 salary?
2 A. Yes.
3 Q. With regard to there has been an issue of
4 Fall River Reality .
5 Is there an entity that you are aware
6 MR. KELLY: Objection, Your Honor,
7 relevance .
8 THE COURT: Overruled .
9 MR . NEWMAN: Well, judge
10 THE COURT: I have overruled. You can
11 proceed.
12 MR . NEWMAN: Judge, I might can cut th1s
13 short if I can address the present counsel for two
14 seconds .
15 Are you all going to bring up anything
16 about Fall River Reality?
17 MR . KELLY : Eventually, sure .
18 MR . NEWMAN: Well, I am talking about in
19 th1s hearing.
20 MR . KELLY: Other than what you all said,
21 you know, that he owns it; and I might bring that up
22 with Mr . Sydow or somebody but not with this guy.
23 MR . NEWMAN : Okay .
24 a. (By Mr . Newman) Hr . Preston, who owns Fall
25 River Realty?
Cheryl L. Pierce, CSR
367
79
1 A. NC12 to the best of my knowledge owns Fall
2 River Realty .
3 Q. What does Fall River Realty own?
4 A. Fall River Realty owns a piece of property
5 located at 421 Curren Road in Fall River,
6 Massachuset ts .
7 Q, Where did the money come from to purchase
8 that real property?
9 A. From NC12 .
10 Q. NC12 cut a check?
11 A. Yes.
12 Q. Was Fall River Realty -- why would NC12, for
13 example, pay money for another corporation to own a
14 parcel of property?
15 MR . KELLY: Your Honor, I object to the
Ia 16 relevance. I object to hearsay, too .
g 17 THE COURT: Ove r ruled.
d
.
~
c
18 Q. (By Mr. Newman) Why might you set up a
r
f 19 different company?
...1
2
A. It is normal to put property in a separate
~
20
cr 21 company and the reason for doing that is that it
~
&i:
rJ 22 enables you to get a mortgage on the property . It is
...~ 23 a normal business operation. If you have a business
24 over in Company A; and you have got the real estate i n
25 Company B; and the reason for doing that is you can
Cheryl L. Pierce, CSR
368
82
1 Sydow, haven't you, s i r?
2 A. Yes, sir . As I said , I was on the board of
3 Texas Syngas.
4 Q. And Texas Syngas was an organization that di d
5 essentially the same things that NC12 does?
6 A. Texas Syngas re-organized into NC12 .
7 Q. And do you know that Michael Sydow moved his
8 stock out of Texas Syngas into another corporation
9 named Zygometa?
10 HR. NEWMAN: Objection. That assumes
11 facts that are not in evidence.
12 THE COURT : Overruled .
13 Do you know that?
14 THE WITNESS : Yes .
15 Q. (By Hr. Kelly) That he moved his stock out of
I
§
16
17
Zygomata into NC12, do you know that?
A. Zygomata wa s an entity
g
~ 18 THE COURT : Do you know that. that is a
•
II;
I....
II;
19 yes or no answer .
~ THE WITNESS : Yes, sir .
~ 20
"'a:
21 Q. (By Hr. Kelly) Were you on the board of
~ti:
:3 22 directors of Texas Syngas?
~
e 23 A. Yes.
24 Q. How many people were with Texas Syngas , sir?
25 A. How many people?
Cheryl L. Pierce, CSR
369
108
1 REPORTER'S CERTIFICATE
2 THE STATE OF TEXAS )
COUNTY OF HARRIS )
3
4 I, Cheryl L. Pierce, Deputy Official Court Reporter
5 in and for th e 308th District Court of Harris County ,
6 State of Texas , do hereby certify that the above and
7 foregoing contains a true and correct transcription of
8 all portions of evidence and other proceedings
9 requested in writing by counsel for the parties to be
10 included in this volume of the Reporter's Record, in
11 the above-styled and numbered cause, all of which
12 occurred in open court or in chambers and were
13 reported by me .
fr'
... _
14 I further certify that this Reporter's Record of
15 the proceedings truly and correctly reflects the
16 exhibits, if any, admitted by the respective parties .
17 I further certify that the total cost for the
18 preparation of this Reporter's Record is $648.00 and
19 was paid by the Respondent.
20 WITNESS MY OFFICIAL HAND this the 26th ~ay of
ffi
Ul
21 October, 2010 .
s
22
23
CHERYL PIERCE, Texas CSR 2711
24 Expirat '· n Date: 12/31/2010
Deputy Official Court Reporter
c 25 308th District Court
Houston , Harris County, Texas
Cheryl L. Pierce, CSR
370
No. 2010-027!0
In the Mauer or the Marriage or IN THE DISTRICT COURT OF
Michael D. Sydow
and
KeUi McDonald Sydow HARRISCOU~7Y,TEXAS
and in the interest of Micbael Wyatt Sydow,
n minor child
308TH JUDICIAL DISTRfCT
DIRECT QUESTIONS TO BE PROPOUNDED TO THE WITNESS
Custodian of Records for: Compass Bank, Brokerage Dept. C/0 CT Corporation System
Rtcords Pertaining To: See Exhibit A
Type of Records: Any and all records as describ~od on the auachecJ Exhibit 'A'
2. Please state by whom you are employed and tbc business address.
Answer: 13B i /4 C:~rn(:Ls S '/0 I - 3 ~n(~ ``e:t- ~uft J5•fte,i;J(.s,r.)~.5
l. What is lh¢ title of your position or job'?
Answer: I.Je.r,> :=Ro Ci'S'So v:Jt
41. Arc these memoranda, reports, records, or data compilations, outlined in the subpoena duces tecum, penaining t•``
-
...'~!'``
· -
NotarY Public. ~tate of Tes
C miss1on EltP'18
Jc~!.~.~,"
..... ``.. 0
Mv J:ne 30, 20\4
'.. ·- · .., Cowi;!11 0 11182-2010 g, t;obu• S..W.a, Int. · P1ocau S.,.er'5 Toolllax V!i.r the State ofTexas, hereby certify pursuant to the
Rule 206, Texas Rules of Civil Procedure,
I. That this Deposition by Written Questions of Patricia D. Custard, the Custodian of Records for the above named is a true
and exact duplicate of the records pertaining to See Exhibit A, given by the witDess named herein, after said witness was duly
sworn by Anneetress D. Walker
2. That the U'IU\SCript is a true record of the testimony given by the witness;
3. That $1,406.15 is the charge for the preparation of the completed Deposition by Written Questions and any copies of
exhibits, charged to Anomey for Respondent, Dennis B. KeUy, TBA # 11217500;
4. That the deposition transcript was submitted on the l6tb day of January, lOll , to the witness for examination, signature and
return to the officer b:y a specified date;
S. That chana~. it any made by the witness, in th~; transcript and otherwise are auached thereto or incorporated therein;
6. That the witness returned the transcript;
7. That the original depositio~ by Written Questions and a copy thereof, together with copies of all exhibitS was delivered to the
anomey or party who Noticed the first questions for safekeeping and use at uial;
8. That pul'$uant to information made a part of the records at the time said testimony was taken. the following includes all parties
of record:
Asher B. Griffin
Joseph lodelka.to,lr.
David J . Wukosoo. Attoraey For Petitioner
and
9. A copy of this Notice of Delivery was served o_n all panies shown herejn,
MerriU Corporation
315 Capitol Suite 210
Houston, TX 77002
(713) 868-1919 Fax (713) 315-1158
SHEUA ANN EDWARDS
Order No. 03-6170-001 MV COl.IMISSION EXPIRES
OIIC8mber 2. 2011
374
P.EPOSlTION S~OENA TO TESl]fY OR Pft.ODYCE DOCUMJfNTS OR TlllNGS
THE STATE OF TEXAS
To any Sheriff or Constable of the State of Texas or Olhrr person aurhorized to serve subpoenas under RULE 176 OF TEXAS
RULES OF CIVIL PROCEDURE. - GREETINGS -
You are ~b)· commanded to subpOena and summon the following witnes.s(es):
Custodian of Re<:ords for:
Compass Bank, Brokerage Dept.
CIO CT CorporalJoo System
350 North Sr. Paul Street
Dallas, TX 75201
to be and appear before a Notary Public or my dcsignatioo for
M~rrill Corporadon (713) 868-2929
315 Capitol Suite 210, Holl$ton, TX 77002
or ii.S designate€& d``
which the subpoena L5 served, and may be punished by fine or confioemtnt, or both. ~ ••• ":'~
0:,
~
.~-``
•;..,.~
~ ~ •;!'iF~
..~... . •• ••
OFFICER 'S RETURN
. ····i::w
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' ,~.···~·
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``:·...... "•.)
·' , 20_.
Came to hand this day of • 20_ _ • and executed thts the _ _ day of
in lbt rollowlng manner: By delivering 10 the witness - - -- - - - -- - - - -- - -' a true copy bereof.
Returned this _ _ _ d.ay o f - - - - - -· 20_.
PROCESS SERVER
Orlkc 1'\o. 03-6270-001
375
COMPASS BANK - EXHIBIT A
The terms udocuments,, "writings," and "records" are used in t his ex hibit
in their c ustomary broad sense and incl ude without lim itation the following items,
regardless of origin or location, whether printed, recorded, filmed, or rep roduced
by any other mechanical process or written or produced by hand; and whether an
original, master, or copyj namely:
1. All acGOunt statements. deposit records. withdrawal records, transfer records, cancelled
checks, partnership agreements, funding lines of credit, financing statements, pt·omissory
notes and loan documents for tbe period from April 15, 2010, to the present date. for all
checking accounts, savings accounts, certificates of deposit, and all other types of
financial accounts. whether personal or for businesses in which the parties, Michael D.
Sydow (alk/a Michael D. Sydow. Sr., Michael David Sydow, Michael David Sydow, Sr.,
Michael Sydow, or Michael Sydow~ Sr.) or KelU McDonald Sydow (or either of them),
have any interest and that are maintained in the name of the parries (or either of them). in
the narne(s) of their business(es). including but not limited to NCJ2, Inc., Texas Syngas.
Zagometa, Daedelus Air, The Michael and Kelli Sydow Irrevocable Insurance Trust,
Chippendale Park, Loki Investments, Loki Services, American Inte rn atio nal
Helicopters , Inc., No Peanuts. or Woden Enterprises. and any other entity on
behalf of the parties (or either of them), or on which the parties (or either of them)
has or has had the right to draw. includi ng but not limited to each of 'th e fallowing
accounts:
a. Joint (Kelli Sydow and Michae~ Sydow) Account #xxx8347
b. Amegy Bank Loan CoUateral FBO Michael D. Sydow Accou nt #xxx8347-1
c. ATM Joint (Kelli Sydow and Michael Sydow) Checking Account #xxx4380
d. Money Market Joint (Kelli Sydow and Michael Sydow) Account #xxx1016
e. Bill Payer Joint (Kellf Sydow and Michael Sydow) Checking Account
#xxx7863
f. Kelli Sydow C/F Michael Wyatt Sydow UTMAITX Account #xxx3919
g. VCSP/CollegeAmerica 529 Account for Michael Wyatt Sydow
h. Kelli McDonald Sydow Account #xxx6212
i. Kelli Sydow and Michael Sydow Tenants in Common Account #xxx8662
j. Michael Wyatt Sydow (Kelli McDonald Sydow Custodian} A ccount
#x.xx3511
k. NC12 Account #xxx8791
I. Texas Syngas Account #xxx8791
m. Airplane Account.
2. AH cashier's checks purchased by or on behalf of Michael D. Sydow (alk/a M ichael D.
Sydow, Sr., Michael Da,i d Sydow, M;cbael David Sydow, Sr., Michael Sydow. or
Michael Sydow~ Sr.) or any of his businesses, including but not limited to NC 12, Inc..
Texas Syngas, Zagometa, Oaedelus Air, The Michael and Kell i Sydow Irrevocable
Insurance Trost, Chippendale Park, loki Investments. l oki Services. Am erican
International Helicopters. Inc., No Peanuts, or Woden Enterprises. from April 15,
...
376
2010, to the present date.
3. All financial sratements in your possession prepared by or on behalf of Michael D.
Sydow (alk/a Michael D. Sydow, Sr. ~ Michael David Sydow, Michael David Sydow. Sr.•
Michael Sydow. or Michael Sydow, Sr.} or any of his businesses, including but not
limited to NCI2. Inc .. Texas Syngas. Zagometa. Daedelus Air, The Michael and Kelli
Sydow Irrevocable Insurance Trust, Chippendale Park, Loki Investments, Loki
Services, American International Helicopters, Inc., No Peanuts. or Woden
Enterprises, from April 15, 2010, to the present date.
4. AJI checks and other financial instruments negotiated for cash paid by your institution to
Michael D. Sydow (alk.'a Michael D. Sydow, Sr., Michael David Sydow, Michael David
Sydow, Sr., Michael Sydow, or Michael Sydow, Sr.) or any of his businesses, including
but not limited to NCI2, Inc., Texas Syngas, Zagometa, Daedelus Air, The Michael and
Kelli Sydow Irrevocable Insurance Trust, Chippendale Park, Loki Investments, Loki
Services, American International Helicopters, Inc., No Peanuts, or Woden
Enterprises. from April15, 2010, to the present date.
5. All witinglrouting instructions, information and transactions for Michael D. Sydow (alk/a
Michael D. Sydow, Sr., Michael David Sydow, Michael David Sydow, Sr., Michael
Sydow, or Michael Sydow, Sr.) or any of his businesses, including but not limited to
NC12, Jnc., Texas Syngas, Zagometa, Daedelus Air, The Michael and Kelli Sydow
Irrevocable Insurance Trust, Chippendale Park, Loki Investments. Loki Services,
American International Helicopters, Inc., No Peanuts, or Woden Enterprises,
from April 15, 2010, to the present date, including but not limited to ABA
wiring/routing #113011258.
6. All account statements, deposit records, withdrawal records, transfer records, cancelled
checks, partnership agreements, funding lines of credit, financing statements, promissory
notes and Joan documents for the period from April 15, 2010, to the present date, for th~
following account:
a. Account #1013572 with.Compass Bank (formerly Southwest Bank of Texas)
...
377
No. 2010~2710
In the Matter of tlte Marriage of IN THE DISTRICT COURT OF
Michael D. Sydow
and
'Kelli McDonaJd Sydow HARRJS COUl'tTY, TEXAS
and u• the interest of Michael Wyatt S~·dow,
a minor ehJid
308TH JUDICIAL DISTRICT
NOTICE OF INTENTION
TO TAKE DEPOSITION BY WRITIE~ QUESTIONS
To Petitioner by and through their anomey(s) of record: David J. Wukoson
Toomer party/parties by and through their auomey(s) of record: Asher B. Griffin and Joseph Indelicato, Jr.
You will please tak~ notice that awenty-fow (24) days from the servi~ of a copy bereof with attached questions, a deposition
by wriuen questions will be taken of Custodian of Records for:
Compass Bank, Brokerage Dept. C/0 CT Corporation System(Any & All Records)
350 North St. Paul Street Dallas, TX 75201
before a Nowy Public for Merrill Corporation (713) 868-2929 Fax (713) 315-2158
315 Capitol~ Suite 21 O, Rous ton, TX 77002
or 1lS designated agenl. which deposition with attached questions may be used in evidence upon the trial of the above·styled and
numbered cause pending in the above named coun. Notice is further given that request 1S hereby made as authorit.ed under
Rule 200. Texas Rules or Civil Procedure, to the o ff~eer raking this deposition to issue a subpoena duces tecum and cause it to
be served on the witness to produce any and all records as described on the auached questions andfor Exhibit(S) and any other
such record in the possession, custody or control of the said witness. and every such record to which the witness may have
access, pertaining to:
See Exhibil A
and to tum all such reconhi over to the officer authori:z.ed to take this deposition so that photographic reproductions of the same
may be made and anached to said deposition.
Dennls 8 . Kelly
Law Offices of Dennis B. Kelly
602 Sawyer, Suite 700
Houston, TX 77007-7524
(713) 868-2700 Fax (713) 86$-6054
Attorney for ~'PQndent
SBA # 11217.500
1 hereby certify that a true and correct copy of the foregoing insuument has been forwarded to all Counsel of Record by band
delivery. FAX. and/or certified majJ, return receipt requested. on this day. . j
Da~£d: December IS. 2010 by Dg 4~.8·
. 44 t:.£v .W A,_.,
Order No. 03-627().001
378
CERTIFICATE OF SERVICE
I cenify that a true and correct copy of the foregoing Notice and written questions has been
hand-delivered and/or mailed receipt requested, 10 the auorneys of record.
Merrill Corporation
315 Capitol
Suite 210
Houston, TX 77002
(713) 868-2929 Fax (713) 315-2158
379
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i'~.t.;.;:;.,:SO~GlJ'-lllA110NS INQUlRY • VJEVVENTITY
TEXAS SECRETARY of STATE
NANOITA BERRY
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FHi:ng Nurnber. 80 1644545 Entity Type: Domestic For·Profit Corporation
Original Date Qf FWng: August 22, 2012 ~:tH;y Stalu~ Forfeited existence
formation Date: N!A
Tax 10: 3.2048819349 FEH\1;
:Ouration: P'erpetua!
Name: .Jl\ Claims trl"Vestrne.nt Corporation
Ad~ros...~ 35{1 N SAiNT Pl\UL ST STE 2900
DALLAS) TX75201-4234 USA
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~ l~st Update
1sal was simply Preston's (lttempt to cut a
deal for himselfduough C Change, and not a genuine efff Michael Collin$ and .that the fact~ stated therein
were w.ithhi lus. pet-soual.k11ovoilecige ;.md we.te true and.corre.ct.
GIVEN UNDER MY I:! AND AND SEAL OF OFPICE this thc~duy ·of J~me:20 14.
"NOTAl~YPOB.tJC lN ANP FOR
THE STATE OF TEXAS
410
8/8/2014 5 :43:24 PM
Chris Daniel • District Clerk Harris County
Envelope No. 2104187
By. GAYLE FULLER
Cause No. 2011-44058
MICHAEL COLLINS, ET AL .• § IN THE DISTRICT COURT
PLAINTIFFS, §
vs. § OF HARRIS COUNTY, TEXAS
§
. MICHAEL SYDOW, ET AL., §
DEFENDANTS. § 215th JUDICIAL DISTRICT
AKILA FINANCE, S.A.; BOSQUES DEL MOLINO, § IN TilE DISTRICT COURT
S .A. ~ CENTRANS ENERGY SERVICES, INC.; §
CHESTERMESTERHOLDINGS. LTD.; DELTEC §
BANK & TRUST, LTD.; EMJO INVESTMENTS, §
LTD.; WILLIAM END; EVANS & PETREE 40 JK §
PLAN; FlRST BAY INTERTRADE; GM PARTNERS; §
MARAlR CORP.; W.L. NICHOL, IV; PANORAMA §
INVESTMENT, LTD.; PCOI VERMOEGENS VERW.; §
ALEJANDRO SANTO DOMINGO; SINCHI §
INVESTMENT; VENTURI GLOBAL §
INVESTMENTS., LTD., and HJ. von der GOLTZ §
lNTERVENORSIPLAJNTIFFS, §
vs. § OF HARRIS COUNTY, TEXAS
§
MICHAEL SYDOW; JOHN PRESTON; CHRISTOPH §
HENKEL; C CHANGE INVESTMENTS, LLC; §
CHALSYS CAPITAL PARTNERS, LLP; SONIA LO; §
BRILLIANT NOVELTY, L.L.C.; OSCURA, INC.; §
MELIORA ENERGY TECHNOLOGIES, S.a.r.l; and §
FALL RIVER REALTY. LTD., §
DEFENDANTS. § 215th JUDICIAL DISTRICT
INTERVENORS' SUPPLEMENTAL RESPONSE
TO THE SPECIAL APPEARANCE OF JOHN T. PRESTON
l. INTRODUCTION
Intervenors file this Supplemental Response to the Special Appearance filed by John T.
Preston ("Preston") further addressing Preston's contacts with Texas through JK Claims
Investment Corporation C'JK Claims..) and allegedly through Transformative Energy &
Materials Capital, Jnc. ("TEM Capital"). The evidence confirms that:
413
• JK Claims is merely a shell corporation and the alter ego of Preston. Accordingly, JK
Claims' contacts with Texas are contacts of Preston for purposes of the personal
jurisdictional analysis.
• TEM Capital was not yet incorporated at the time Preston travelled to Texas,
allegedly on behalf of TEM CapitaL Accordingly, Preston is not entitled to the
fiduciary shield as to those visits.
D. BACKGROUND
A. Preston Established Minimum Contacts with Texas Under the Guise of JK Oaim.
The available evidence confirms that Texas corporatjon JK Claims is merely a front for
and the alter ego of Preston and his co-conspirator Michael Sydow ("Sydow, ), created for the
purpose of purchasing and then dismissing claims pending against them individually in the 152"d
Judicial District Court in Harris County, Texas.1
1. The Kaiser Litigation.
On June 26, 2007, Jeffery B. Kaiser (''Kaiser") filed a lawsuit against Texas Syngas LLC
("Syngas LLC"), Michael Collins ("Co11ins, ), M. Sameer Ahmed, Sydow, and all other similarly
situated officers and directors of "Texas Syngas LLC alk/a Texas Syngas, Inc." in the 152"d
District Court, Harris County, Texas. under cause number 2007-38533 (the "Kaiser Litigation,).
On May 5, 2008, Kaiser filed his Second Amended Petition, adding Preston as a named
defendant. (Exhibit B at ~ 10). As reflected in the Second Amended Petition, Kaiser sought to
recover against Preston, Sydow, and others for what he alleged to have been fraud in the creation
ofTexas Syngas, Inc. ("TSI") and the transfer of Syngas LLC' s assets to TSI in violation of his
rights as a member of Syngas LLC. Kaiser asserted a number of causes of action against all of
the defendants including breach of fiduciary duty. fraud, and violations of the Texas Securities
Act. (/d. at `` 23 through 68).
Attached hereto and incorporated herein by reference is the Affidavit of Kelley M. Keller.
2
414
2. Preston~s a nd Sydow's Response to the Kaiser Litigation.
On August 17, 2007, Preston intervened in the Kaiser Litigation through Quantum
Catalytics LLC ("Quantum"). (Exhibit C). Preston is the president of Quantum. (See Exhibit D at
Ex. D). Quantum asserted that Kaiser did not represent the interests of Quantum and was not
entitled to bring any action on its behalf. (Ex. C at ~ 8). Quantum also sought affumative re1ief
against Kaiser for alleged breaches of fiduciary duty, negligence, and breach of contract. (ld at
m!9, 10). Sydow signed Quantum's petition in intervention as counsel for Quantum. (/d.).
On June 20, 2008, Sydow filed an amended answer and counterclaim against Kaiser,
asserting that Kaiser brought the Kaiser Litigation for purposes of harassment, in bad faith, and
without support in fact or in law. (Exhibit E) . The same day, Sydow filed an amended motion for
summary judgment on the claims asserted by Kaiser, asserting:
At its core, this lawsuit concerns Kai ser's anger over the fact that Collins has not
offered Kaiser any stock in Texas Syngas, Inc. Of course, Collins has no legal
obligation to offer his Texas Syngas, Inc. stock to Kaiser or anyone else.
Consequently, Kaiser's second amended petition is a lengthy artful dodge
asserting causes of action that would purport to create damages where none exist.
(Ex. D at p. 4). Preston submitted an affidavit in support of Sydow' s motion, asserting that u(t]he
majority of the members of Texas Syngas, L.L.C. have approved the acts taken by Michael C.
Collins in the management of the company." (See Ex. D at Ex. D).
3. The Kaiser Bankruptcy and the Assignment to JK Claims.
On August 8, 2008, Kaiser filed for bankruptcy under Chapter 7 of Title II of the United
States Code in the Southern District of Texas, Houston Division, under Case Number 08-35261-
Hl-7. Ronald J. Sommers was appointed Chapter 7 Trustee (the ...Kaiser Trustee").
Upon commencement of the Kaiser bankruptcy, the claims owned by Kaiser and asserted
in the Kaiser Litigation became the property of Kaiser' s b-ankruptcy estate and the Kaiser Trustee
became the real party in interest. See l l U.S.C. § 541(a).
3
415
The Kaiser Trustee attempted to find couns.el to pursue Kaiser's claims on behalf of the
Kaiser bankruptcy estate or to find a purchaser for the claims. On March 14, 2012, Gretchen
McCord r·~ceord.,), counsel for the Kaiser Trustee, forwarded a draft motion to sell and order
2
to Kelly Stephens ("Stephens"), of Stephens & Domnitz, PLLC, for his review. (Exhibit F at
38:6-39:7 and Ex. 11 ). Stephens represented the purchaser in connection with the purchase of
Kaiser's claims from the Kaiser bankruptcy estate. (Ex. F at 40:3-7, 4 1:3-42:5 and Exs. 11-13).
In an email to McCord on June 15, 20 12, Stephens refers to his "clients" without identifying the
clients. (Ex. Fat Ex. 13).
On June 19, 2012, the Kaiser Trustee filed a motion in the bankruptcy court seeking
authority to sell Kaiser' s claims to JK Claims for $25,000. (Exhibit G). Tn the motion to sell, the
Kaiser Trustee describes the assets to be sold as follows:
Any and call causes of action owned by the Debtor as of the date of his
Bankruptcy filing and now owned by the bankruptcy Estate against Texas Syngas,
LLC, Texas Syngas, Inc. and their officers. directors, shareholders, agents,
attorneys and/or against any predecessor, successor, or affiliated companies,
including but not lim ited to the following individuals: Michael Sydow, Michael
Collins, John T. Preston, Quantum Catalytics, Inc., and M. Sameer Ahmed. These
claims would include specifically all those claims that were owned by the Debtor
and that were pled, or that could have been pled, in the Lawsuit with Cause
Number 2007-38533, and styled Jeffery B. Kaiser, el. a/ v. Texas Syngas. LLC
alkla Texas Syngas, Inc., et a/., currently pending in the 152'1d Judicial District
Court of Harris County ("Claims..).
(Ex. Gat~ 15).
The Trustee described the value of the Kaiser Litigation as "tentative at best' and noted
that of ''utmost importance in the Trustee's analysis is that he believes that there is little chance
ofrecovery if he were to pursue'' the litigation. (Ex. Gat~ 23) (emphasis added).
Coli ins requested the deposition of the corporate representatjve of JK Claims in the course of the
Kaiser Litigation. JK Claims designated Sydow as the corporate representative. Sydow·s deposjtion in
such capacity was taken on February 25, 2014. That deposition is attached hereto and incorporated herein
as ExlUbit F.
4
416
The Kaiser Trustee described the purchaser as follows:
The purchaser is JK Claims Investment Corporation, or its assigns, which the
Trustee has been informed is being funded by Paul Lohnes ("Purchaser"). The
Trustee has been informed that the Purchaser is a business associate of the
Defendants.
(Jd at~ 16). As reflected below, JK Claims had not yet been incorporated at this time. (Ex. Fat
Ex. 3).
The bankruptcy court granted the Kaiser Trustee's motion to sell on July 13, 2012.
(Exhibit H). On July 26, 2012, Stephens & Domnitz, PLLC, wired $24,970 to the Kaiser Trustee
as payment for the claims purchased from the Kaiser Trustee (the ''Kaiser Claims''). (See Exhibit
I at 103).
4. The Formation of JK Claims.
On June 15, 2012, Sydow filed an Application for Reservation of an Entity Name with
the Texas Secretary of State (the " Application"}, reserving the name JK Claims Investment
Corporation for the exclusive use of Preston. (Ex. F at 27:23-28:24, 29:3-1 9 and Ex. 6). An
applicant for a name reservation may be either an organized entity or an individual. (See Ex. F at
Ex. 6). The Application reflects that the applicant is an individual- Preston. (/d). Sydow also
prepared JK Claims' Certificate of Formation and filed same with the Texas Secretary of State
on August 22, 20 12. (Ex. Fat 17: 5-9~ 21 : 17-22:13 and Ex. 3).3
Sydow signed the Application and paid the $30 fee for the name reservation. (Ex. F at
27:23-28:24, 29:20-24 and Exs. 6, 8). Michael David Sydow, Jr., Sydow' s son employed with
Sydow at the time, paid the $300 filing fee for incorporating JK Claims. (Ex. F at 20:15-21 :4,
23:23-25:25 and Ex. 4).
3
Sydow contends that he is ··corporate counsel" for JK Claims and has been since the company's
fonnation. (Ex. Fat 6: 18-7:8). Sydow could not say how much he charged for his services in forming JK
CJaims and could not even say if he sent JK Claims an invoice for his services. (/d. at 67:2 J-68:4).
5
417
Although Sydow contends that Quantum would have paid for both the name reservation
and the incorporation, he could not identify any records confirming same - the only available
documentary evidence is that Sydow and his son paid to incorporate JK Claims. (See Ex. F at
20: 15-21 :4, 26: 1-6 and Exs. 4, 6, and 8)."
Sydow contends that he also prepared the bylaws for JK Claims (the "Bylaws"). (Ex. F at
10:3-10, 11:1-1 2). However. JK Claims failed to produce a signed and dated copy of its Bylaws.
(Ex. Fat Ex. 2). According to Sydow, there is not likely a signed and dated copy. (Ex. F at
12:24-1 3:4 , 13: 15-19, 14:10-13, 15:8-12). The Bylaws Sydow did produce appear to have been
hastily prepared from bylaws previously prepared for a Nevada corporation, using a search and
replace feature to include the corporation's name and to substitute the word "Texas'' iu place of
the word ..Nevada.,. While the Bylaws purport to invoke Texas Jaw. they refer to the "General
Corporation Law" throughout - a reference to Nevada law - and refer to specific provisions of
the General Corporation Law of Nevada. (See Ex. Fat Ex. 2 at pp. 21 5, 7)
The only other corporate records that Sydow produced for JK Claims are similarly
lacking in marks of authenticity. Neither the Written Consent in Lieu of Meeting, by which
Quantum consented to the appointment of Preston as the sole director on August 22, 2012, nor
the Wrilten Consent in Lieu of Meeting. by which Quantum reelected Preston as the sole director
on August 22, 2013 , are signed. (Ex. fat Ex. 9, pp. l , 2).s However, the Bylaws require that
written consents in lieu of shareholder meetings be signed by I he stockholders holding at least a
majority of the voting power of the company. (EJt. Fat Ex. 2 at p. 6).
The Bylaws further provide that any action required or permitted to be taken by the JK
Sydow testified that he docs not advance payment for the fonnation of entities. (Ex . fat 33 :4~7) .
Accordingly. if the payments were not advances, they were payments made by and on behalf of Sydow
and/or Preston. for whom the company name was reserved.
s Sydow testified that he prepared these documents at Preston·s request. (Ex. Fat 34:11-36:1).
6
418
Claims board of directors may be taken without a meeting if. ..before or after the action. a written
consent thereto is signed by all/he members of lhe Board." (Ex. Fat Ex. 2 at p. 9) (emphasis
added). However, the document entitled ..JK Claims Action by Director, by which some
6
unnamed director purportedly approved the purchase of the Kaiser Claims is neither signed nor
dated. (ld at p. 3).
5. Officen, Directors, and Ownership of JK Claims.
The JK Claims Certificate of Formation identifies Preston as the sole director and is
signed by Sydow as the organizer. (Ex. Fat 21 :17-22:3 and Ex. 3 at p. 7-9). Preston is and has
always been JK Claims' sole officer (president, secretary, and treasurer) and director. (Ex. F at
7:9-25). According to Sydow, Preston was his sole point of contact on the incorporation of JK
Claims. (Ex. Fat 11 : 17-24).
Sydow contends that JK Claims is wholly owned by Quantum. (Ex. F at 8:1-6. 56:21-
57•3). Sydow initially testified that Quantum held 1,000 shares in JK Claims. (Ex. Fat 8:1-6).
However, there are no share certificates evidencing ownership by Quantum. (Ex. F at 55:2-6,
57:14-19). Later in the deposition, Sydow testified that JK Claims does not have any
shareholders. (Ex. Fat 56:21-57:3).
In fact, there do not appear to be a ny documents evidencing the ownership of JK Claims.
According to Sydow, because JK Claims is an "uncertificated" company under applicable Texas
law, there are no records that identify JK Clajms ' shareholder(s). {See Ex. Fat 57:2-19, 58:3-
59:5). However, "uncertificated" corporations are merely relieved of the obligation to issue
"certificates" to their shareholders evidencing share ownership. See Tex. Bus. Org. Code §
3.201. Ownership of corporatjons electing ·~uncertificated" status is still represented by
6
The Bylaws state that the business and affairs of the company shall be managed by the board of
directors. (Ex. F at Ex. 2 at p. 7).
7
419
shareholders. In the event the corporatjon elects to issue ''uncertificated" shares, it nonetheless
"issues" shares7 and must deliver to the shareholder a ''notice for uncenificated ownership
interest" notifying the shareholder of the infonnation required to be stated on the share
certificate, unless such information is reflected in the governing documents of the entity and the
shareholder has been provided with such governing documents. Tex. Bus. Org. Code § 3.205
e•after issuing or transferring an tmc.erlijicaled ownership interest, a domestic entity shall notify
the owner of the ownership interest in writing of any information required onder thi s subchapter
to be stated on a certificate representing the ownership interesf') (emphasis added). Accordingly,
corporations electing to be "uncertificated" must issue notice to each of their shareholders that
includes, among other things. the name of the shareholder and the number and class of
ownership interests held by such shareholdeTS, unless refl ected in the corporate governing
documents. Tex. Bus. Org. Code§§ 3.202(c) and 3.205(a). This information- the identity of the
shareholder and number and class of shares held - is not included in JK Claims' governing
documents.g (See Ex. F at Ex. 2). Accordingly, JK Claims was required to provide the prescribed
notice to its shareholder(s) and, apparently, has failed to do so.
6~ Preston and Sydow Purchased tbe Kaiser Claims, Not JK Claims.
Although the Kaisu Trustee was led to understand that Paul Lohnes, an alleged business
associate of a defendant in the Kaiser Litigation, would be funding the purchase of the Kaiser
Claims, according to Sydow. Mr. Lohnes is not connected to JK Claims in any way. (Ex. F at
66: 12-18). Sydow contends instead that Quantum funded the purchase. (Ex. F at 6 1:25-62:23,
, The T exas Business Organizations Code defmes a ··sbare" as ''a unit into which the ownership
interest in a for-profit corporation, . . . is divided, regardless of whether the share
Is cerfljicoted or
uncertiflcated." Te.~ . Bus. Org . Code § l.002(80) (emphasis added). Accordingly. ownership in
uncertificated corporations is still evidenced by shares.
Intervenors challenge whether the documents produced by Sydow arc in fact "governing
documents" as tJtey are neilher signed nor dated. (See Ex. F at Ex. 2).
8
420
63: 11-23). However, Sydow was not able to produce any records confinning that Quantum
funded the purchase. (See Ex. Fat 61 :25-<>2:23, 63: 11 -23).
Records subpoenaed from JK Claims~ former counsel Kelly Stephens reflect that Sydow
9
and Preston split the cost of the claims purchase - with $12,500 coming ufrom Boston" and
$12,500 from Sydow. (See Ex. I at 0060). Stephens received the funds for the purchase on June
12,2012. (/d.).
As counsel for JK Claims, Stephens negotialed me purchase of the Kaiser Claims with
the Kaiser Trustee•s counsel Gretchen McCord. The following communications between
Stephens and McCord confirm that Stephens was negotiating on behalf of Preston and Sydow-
defendants in the Kaiser Litigation motivated to dismiss the Kaiser Claims - not JK Claims - a
corporation not then in existence.
• On September 13,201 1, Stephens emailed the Kaiser Trustee, regarding his prior offer to
purchase the Kaiser Claims for $25.000. Stephens indicated that he was making another
off~r to purchase, this time at $1 0,000, because he understood that Kaiser was going to
attempt to acquire the claims from the bankruptcy estate. (Ex. I at 0001).
o This email indicates that the purchaser wished to keep Kaiser from pursing the
claims.
• Later the same day, Stephens emailed the Trustee, raising the offer to purchase back up to
$2Si000 and stating that the purchase price was based on a ..,cost of defense' evaluation."
Moreover, Stephens' email goes on to explain the weaknesses in Kaiser's claims,
concluding that they are "worthless!• (Ex. I at 0002-3).
o The valuation method and conclusion that the claims are worthless reflects
settlement discussions, not negotjations by a bona fide purchaser for whom "cost
of defense'' would not have been an issue.
• Stephens confirmed in an email to McCord on September 19, 2011 , that the offer was
"based on the cost of defense of the clajms made in the prior lawsuit" and stated that the
buyer had come forward "because Kaiser has filed a couple of motions to retain."
Stephens stated that the purchasers had let the first offer lapse when they "thought the
suit would die of natural causes.,, Stephens also confirmed that "we may be interested in
9
Preston is a resident of Boston.
9
421
maintaining the claims in the original derivative suit depending on the terms of mty
settlemellf." (Ex. I at 00 12) (emphasis added).
o A bona fide purchaser wouJd not be interested only because Kaiser had filed a
motion to retain, as the purchaser could have filed its own motion to retain. Only
a defendant would have an interest in obtaining control of the plaintiff's claims if
Kaiser filed the motion to retain. Moreover, Stephens' email confirmed that the
nature of the purchase is a settlement.
• On December 21, 2011 , McCord emailed Stephens asking if he was around " to discuss
the settlement offer." When Stephens responded that he was, he did not correct McCord' s
characterization of the offer as a "settlement offer." Later that same day, Stephens
emailed McCord, advising her that he clients were "discussing what vehicle to purchase
through." (Ex. I at 0021-23) (emphasis added).
• On December 27, 2011, Stephens emailed McCord advising her that his client bad
"decided to make the offer/purchase through one of the individual s involved, Paul
Lohnes." (Ex. l at 0024).
• In an email to McCord on January 17, 2012, Stephens indicated that his client is a "he."
(Ex. I at 0032).
o We now know through Sydow' s testimony that the "he" was not Lohnes. (Ex. Fat
66:12-18).
• On February 7, 2012, Stephens emaited McCord and advised her that his client was
''forming a company to purchase this asset. •• (Ex. I at 0040).
o We know from Sydow that Sydow formed JK Claims at Preston' s instruction. (Ex.
Fat 11 :17-24, 17:5-9. 2 1:17-22:13).
• On March 14, 2012, McCord emailed Stephens stating that she had defined the
"purchaser'' as ~• Paul Lohnes or his assignee . . . a business associate of the Defendants,"
and asked for "some explanation as to why [Lohnes] is buying these claims." She stated
"I assume he is a business association of Mr. Sydow. But, l need clarification on that
issue." (Ex. l at 0042).
• Later that day, Stephens confirmed the purchaser definition, but did not explain why
Lohnes would be purchasing the claims. (Ex. 1 at 0044).
• On March 29, 2012, McCord asked for confirmation that the purchase funds were in
Stephens• IOLT A account, and again asked about the purchaser. Stephens responded that
he had been ')lnable to speak with Lohnes or Sydow." (Ex. I at 0047).
• On June 7, 2012, McCord emailed Stephens to "take one more stab at contacting''
Stephens. McCord adv1sed Stephens that the Trustee had her engaging special counsel to
10
422
take the litigation on a contingency fee basis "so we can reach some resolution'' and
asked if Stephens' client was stiiJ interested in purchasing the claims. (Ex. I at 0049).
• Later that day~ Stephens emailed McCord, advising her that he had been assurod that the
money would be in his trust account the following week. (Ex. I at 0051 ).
• On June 12, 2012, Stephens emailed McCord advising her that he had received notice of
a wire transfer of $12,500 "from Boston" and had received "a check in the amount of
$12,500.00 from Mr. Sydow.'' (Ex. I at 0060).
• On June 15, 2012, Stephens advised McCord that the name ofthe purchaser would be JK
Claims Investment Corporation. (Ex. I at 0067).
• On June 27. 2012, Stephens forwarded to McCord a copy of the June 20 12 order from the
152nd District Court dismissing the Kaiser Litigation. Stephens asked McCord how the
order wouJd affect "what we are supposed to be purchasing." (Ex. I at 0069). McCord
responded that she did not think it would. (Ex. I at 0070).
• Later that same day, Sydow emailed Stephens the following:
lf the case has been dismissed and the statute of limitations has run there is
nothing left to purchase. A dismissal for want of persecution [sic] used to be
subject to reinstatement within a certain time. However, if 1 recall correcely
the reinstatement was discretionary with the Court. If so, either the trustee
needs to have it reinstated to sell it or the buyer is purchasing yet another
problem. 1 fail to understand how she thinks the dismissal has no bearing.
Perhaps she can explain in just a bit more detail.
(Ex. I at 0071 ).
• McCord emailed Stephens on June 28, 2012. stating that she would need a written
commitment from the purchaser that ..if the Trustee reinstates the lawsuit, we still have a
deal" or a written statement from the buyer that they were no longer interested in going
forward. She further advised that she was meeting with someone to discuss the cost to
reinstate the lawsuit. (Ex. I at 0075).
• Stephens confirme721
S.W.2d 270, 272 (Tex. 1986) (the corporate veil may be pierced "where a corporation is
organized and operated as a mere tool or business conduit of another"). Such ••alter ego'' status
may be shown " from the total dealings of the corporation and the individual, including the
degree to which corporate formalities have been followed and corporate and individual property
have been kept separately, the amount of financial interest, ownership and control the individual
maintains over the corporationJ and whether the corporation has been used for personal
purposes." ld; see also Tryco Enters. v. Robinson,
390 S.W.3d 497, 508 (Tex. App. -Houston
[1st Dist.] 2012, pet. disrn' d); Stauffacher v. Lone Star Mud Inc.•
54 S.W.3d 810, 816 (fex.
App.- Texarkana 2001, no pet.).
II
The Delaware Secretary of State records reflect that Transfonnative Energy & Materials Capital,
Inc.- referred to as TEM Capital- was incorporated on April 12, 201 I.
13
425
As noted above, JK Claims failed to follow any corporate formalities and was used
merely for the personal purpose of Preston and Sydow to purchase the Kaiser Claims pending
against them individuaJly to "prevent further problems with Kaiser." (See Ex. I at 0089). Sydow
further confinned the following:
• JK Claims does not maintain a stock ledger reflecting issued shares. (Ex. F at 55:2-6).
• JK Claims has no shareholder or director meeting minutes. (Ex. F at 56:7-56: 13).
• JK Claims has no documents reflecting the financial condition of the company. (Ex. F
at 59: 12-22).
• JK Claims has no documents reflecting any outstanding financial obligations. (Ex. F
at 60:25-6 1:5).
• JK Claims does not maintain any type of account with any financial institution. (Ex. F
at 61:7-13).
• JK Claims has no employees. (Ex. F at 61: 14-18).
• JK Claims has no investments or business interests other than its interest in the Kaisel'
Claims. (Ex. Fat 66:19-67:7).
• JK Claims was formed solely for the purpose of purchasing the Kaiser Claims and has
no other business. (Ex. F at 66:1 9-67:7).
Texas Jaw prohibits a settling tortfeasor from accepting an assignment of a plaintiff's
cause of action against other defendants as against public policy. See Beech Aircraft Corp. v.
Jinkins,
739 S.W.2d 19, 21 (Tex. 1987); BDO Seidman, L.L.P. v. Bracewell & Pauerson, L.L.P.•
No. 05-02-006360-CV, 2003 Tex. App. LEXIS 337, *13 (fex. App.- Dallas 2003, pet. denied).
Accordingly, Preston and Sydow were motivated to hide their purchase behind the corporate face
- that is to use the corporate fonn to perpetrate a fraud - to avoid the settling tortfeasor bar to
their continued pursuit of the Kaiser Litigation against Collins.
Moreover, the negotiations for and purchase of the Kaiser Claims on behalf of Preston
and Sydow- which occurred in Te.xas among Texas residents- occurred before Preston and
14
426
Sydow inc.oq>orated J,K Claims. Accordingly, regardless of whclher .I K Claims is the alter ego of
Prm.i.on, Preston is not afforded the protections of the fiduciary shield doctrine in purchasing tbe
KaiseT Oairns. ,)'tN Cappm;t.:i/li 11. Gu!f l11dus. Prrxlr.. 1m·., 222 ~ . W. Jd 468, 485·86 (Tex:
App.--Houston [ lst Dist.] 2007, n<.) pet.) C"'A promoter cannot ac-t as an agem of a corporation
tlu.tt does not yet exist; the.rc.tbre~ th~ corppration c.t incorporated. during the.t~eriod C)f:Prest:on's:rr.a.vel to Texa~
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427
CERTIFlCATE 01" SEUVlCE
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Cause No. 2011-44058
MICHAEL COLUNS, ET AL., § IN THE DISTRICT COURT
PLAINTIFFS, §
vs. § OF HARRIS COUNTY, TEXAS
§
MICHAEL SYDOW, ET AL.• §
DEFENDANTS. § 215th JUDICIAL DISTRICT
AKILA FINANCE, S.A.; BOSQUES DEL MOLINO. § IN THE DISTRICT COURT
S.A.; CENTRANS ENERGY SERVICES, INC.; §
CHESTER MESTER HOLDINGS, LTO.; DELTEC §
BANK & TRUST, LTD.; EMJO INVESTMENTS, §
LTD.; WILLIAM END; EVANS & PETREE 401 K §
PLAN; FIRST BAY INTERTRADE; GM PARTNERS; §
MARAIR CORP.; W.L. NICHOL. IV ~ PANORAMA §
INVESTMENT. LTD.; PCOl VERMOEGENS VERW.; §
ALEJANDRO SANTO DOMINGO; SINCHI §
INVESTMENT; VENTURI GLOBAL §
INVESTMENTS .~ LTD., and H.J. von der GOLTZ §
INTER VENORSIPLA INTI f'FS, §
vs. § OF HARRIS COUNTY t TEXAS
§
MICHAEL SYDOW; JOHN PRESTON; CHRISTOPH §
HENKEL; C CHANGE INVESTMENTS, LLC; §
CHALSYS CAPITAL PARTNERS. LLP; SONIA LO; §
BRILLIANT NOVELTY, L.L.C.; OSCURA, INC.; §
MELIORA ENERGY TECHNOLOGIES, S.a.r.l; and §
FALL RIVER REALTY, LID .• §
DEFENDANTS. § 215th JUDICIAL DISTRICT
AFFIDAVIT OF KELLEY M. KELLER
Before me, the undersigned notary, on this day personaUy appeared KELLEY M. KELLER,
who is personally known to me, and first being duly sworn to law upon her oath deposed and said:
1. My name is Kelley M . Keller. I am over the age of 19 years old and am fully competent
to make this affidavit. 1 am an anomey licensed to practice law in the state of Texas. I
am lead counsel for Intervenors H.J. von der Goltz and EMJO Investments, Ltd.
(collectively, " Intervenors") in the above referenced action. The infonnation contained
herein is true and correct and is based on my personal knowledge as it relates to my
representation of Intervenors.
2. Attached to the Intervenors' Supplemental Response to the Special Appearance of John
T. Preston (the "Supplemental Response") as Exhibit B and incorporated therein is a
429
true and correct copy of the Plaintiffs~ Second Amended Petition filed in the Kajser
Litigation (without exhibits).
3. Attached to the Supplemental Response as Exhibit C and incorporated therein is a troe
and correct copy of a Petition in Intervention of Quantum Catalytics, LLC filed in the
Kaiser Litigation.
4. Attached to the Supplemental Response as Exhibit D and incorporated therein is a true
and correct copy of the Motion for Summary Judgment, without exhibits. filed by
Sydow in the Kaiser Litigation.
5. Attached to the Supplemental Response as Exhibit E and incorporat BARBARA DAVIS
My Comm!ss!on Expires NOTARY PUBLrC TN Al\TD FOR
November 14, 2015 THE STATE OF TEXAS
wJY COM:MJSSJDN EXPIRES:_..... .t.``:z:.1f'~---·········-······--·-····-----
l ""
...
,)
431
!
I
flied I
08May&P4:M
=~
Hams Dlstrfct l
NO. 2007-38533
I
JEFFERY B. KAISER. INDIVIDUALLY. § IN THE DISTRICT COURT OF
DERJVAIELY, AND ON BEHALF OF § I!
ALL SIMILARLY SIIUA TED §
STOCKHOLDERS AND MEMBERS OF §
~=
TEXAS SYNGAS, LLC a/kla TEXAS
SYNGAS, INC , :
Plaintiffs, § ``
§ HARRIS CO~, I EXAS
v. § ~
§ ``~
TEXAS SYNGAS, LLC alk/a TEXAS § @a~
SYNGAS,INC.,MICHAELA. COLLINS, § Q``
MICHAEL D. SYDOW, M. SAMEER AHMED, § ~'V
ANDALLOIHERSIMILARLYSITUATED § o ~
OFFICERS AND DIRECTORS OF § ~
TEXAS SYNGAS. LLC alk/a TEXAS § ~(o/j
SYNOAS, INC., § ~
Defendants. ~ 152nd JUDICIAL DISTRICT
P~'SECO~NDEDPETnnON
COMES NOW, Jeffery B. Kaiser, ~vidually and Derivatively on Behalf of Texas
. ~
Syngas, LLC and I exas Syngas. In``laintitfs"), and files this Second Amended Petition,
complaining of Michael A. CoJlmG,chael D . Sydow, M . Samee.r Ahmed, and Texas Syngas,
LLC and I exas Syngas. Inc. @\port of tbis Second Amended Petition, Plaintiffs show tbe
following: ~Q
0~
~
DISCOVERY
1. ~"\,ay is intended to be conducted under Level 3 of Rule 194 of the I exas
Rules ofCivil~ure.
i
PARTIES I
I
II
I
i
I
!
J
EXHIBIT B
432
2 Jetfe~y B. Kaiser, r'Kaiser''), is a membe1 of Texas Syngas, LLC, owning 7 5
percent ownership intere~ and resides in HaJJis County, Texas_
3. Fred Sembeta is an individual member and shaJeholder in Texas Syngas. LLC &
Texas Syngas Inc., and resides in Hanis County, Texas.
4. Texas Syngas, LLC is a Texas Limited Liability Company. ~se articles of
organi.zation was filed on July 30, 2004, and whose Operating AgJee.m~ signed by its
~
members ou October 4, 2004, and has been served with citation and~swered herein.
5. Texas Syngas, Inc. is a Nevada co1poration, i~ted on May 22, 2006, and
has been served with citation and lw answered herein. o-il
6. M"ocllael A CoUins ("CoUins"), is ~er of Texas Syogas L.L.C. and
CbaiJman ofthe Board of Direcwts and Senior Vi~esident of I exas Syngas Inc., and owner
of seventy-eight (78%) percent of the owne``e1ests and stock in each of fex.as Syngas
L.L.C. and Texas Syngas Inc ; and. is an in~ual resident ofMootgome~y County, Texas, has
been smved with cibllion aad has ODS~ min.
7 Michael D. Sydoaydow") is the Chief Execurive Officer of I exas Syngas
L.L.C. and Texas Syogas ilw@"\dividual resident of Hauls Coo111ty, Texas, bas been smved
with citatioo and bas ans~ hetein.
of{@
8 M.~r Ahmed, !he Project Development Office.- of Texas Syogos L.L.C.
and Texas Syng``-. an individual resident ofFou Bend County, Texas has been setved with
citation and ~d herein.
9. Quantum Catalytics, LLC, is a DelawaJe limited liability company which bas its
principal office at 421 Cunant Road, Fall River. MA 02720, and bas intetvened in this lawsuit .
2
433
10. 1ohn L Preston is the manager of Quantum Catalytics L.L C. and may be seaved
with citation at% Quantum Catalytics L L-C., 42 t Cwrant Road, FalJ River, MA 02720.
DERIVATIVE ACJ'ION
1t. Kaiset brings this suit individually, and derivatively oo behalf of Texas Syngas,
`````` ~
VENUE r()(/j
~
12. Venue is proper in this case pumuant to lexas ``thereodants have their
business addresses, personal residences., and principal places of~ in Hauis County. lexas
and the caDSe of action occurred in Hauis County, ot all 01 apntial part of the events giving
rise to this claim occwred in Hartis County, I exas. QtF'
JURIS»Ip
13. The cowt has jurisdiooon ov4 lawsuit because the amount in conuoversy
ex~
__,_ this cowtt s mmunwn
• • • 'sd' - ~
JUll •ction ·~tements
~
~ FACTS
14. Beginning in a``ately 2004 and continuing through present, Collins,
Sydow, and Ahmed. and oth~ and di.rectolS of I exas Syngas. LLC and I exas Syngas
Inc. solicited and, upon~ation and belie£ obtained in excess of one miUion dollazs in
0~
investment fimds ~ividual residents of the State ofTexas I exas Syngas, LLC and Texas
Syngas Inc., Col~
~dow, and Ahmed. and otbez officers and directors, without full discloswe
to Plaintiffs,~ oth.et members and stoclcholde~ thereafter participated in concealing the
plaruting, organization, tegistration. creation and expenditure of the approximately one million
dollars of the investors' monies by Collins, Sydow, and Ahmed. and o1ber'S to deceive and hide
Texas Syngas, LLC and Texas Syngas, Inc.'s true financiaJ condition from Plaintiffs to further
3
434
lhe finaocial intcxests of Collins, Sydow, Ahmed, and that of the directors and officers at the
expense, and in breach o~ DefeodanJ.s' statu~ry, contractual, fiduciSiy, and common law
obligations and duties owed to Plaintiffs and other membel-stoc.kholders, causing damages to
Plaintiffs and Texas Syngas, LLC, and I exas Syogas, Inc
15. On or about August 10, 2004, Kais:a's law fum and Sydow~ firm entered
b~ch lhey agreed to
i
I
into a retainer agreement with Michael Collins and I ex.as Syngas LLC. i
~ J
provide legal services for Collins and Texas Syngas LLC inch~ as to all .aspects of
f
Collins/Syngas' effons to exploit the Co.lliiWSyngas proprie~logy. Kaiset received 7.5 i
l
pescent of the ownership interests in Texas Syngas LLC for~fessional set vices. Mr . .[(ajser
I
l
j
continued his tepJCSODlation in all aspecls of Collins~ Syngas LLC's busiJJess efforts to I
I
utilize tbeii' prop1ietary tecllnology Kaise1 duly ~ as Oene~aJ CounseJ fot Texas Syngas I
I
LLC, until the dissolution of Kaiser an.d Sydo~ fum in Febnuuy 2006. !
l
16. On or about October 4, 2oo&e Operating Agreement of I exas Syn~, L.L.C
~
was signed by its members, Michael~· Quantum Cata.lytics. LLC by .John Preston. Michael
Sydow and JeffKaiser, a copy of~ is attached as Exhibit L
17. Collins devel~voluable intellectual ptoptrty to improve and enltance the
technology of Molten ~Technology, Inc., whose assets were pwchased by John Preston
0~ •
and othets after M~"f-telab was placed in chaplet II bankruptcy proceeditJa.s and CMatm competition with the
couunon entetprise
25 . Collins breached his 6duciaty duties owed to Kaiser- as to minority sbateholdeJs,
member, partner and joint venturer, through oppressive conduct and through domi:nat.ed contJol
oveJ lbe business, by dissipation of all the assets of tbt: commoo enterprise s;:lr conversion of
the assets to his own use and benefit, thus destroying the object for which ~int eotcJprise was
~
created and rendering it impossible for the joint entetpxise to co~ its business Collins'
conduct destroyed Kaiset's reasonable expectations lhat were ~to hi.s decision to join and
participate in the ventwe. Collins conduct rendered the~ enterptise incapable of the
continued business for which it was es1ablisbed. Coll~bed his duty of loyalty to the joint
concern, his duty of utmost good faith, fait ness ~oesty, his duty of full d.iscloswe of all
mattets affecting the common entetprise. his ~to account for all pJopetty of the common
eotetp!ise, and his duty to Jetiain from com~on with the common entetJ)Jise.
26. Detendants knew ``lins' conduct constituted a wroog!UI ad qaiost
Plaintiffs and with intent to assist ~ins in the wrongful acts., defendants substantiaJiy assis~
and eocouJaged Collins by ~ a<:Ca of assjslaDCe and encouragement as alleged beleio.
Defendants' assistance ~cowagement was a suh!tllntial factor in causing the wrongful
ofjg
conduct. AJtemativ~fendonts were engaged in a joint ente!prise. Plaiotiffs aocl Defendants
had an agreem~ common pwpose, a community of pecuniary interest in that common
pwpose, and ~ual tight to direct and connol the enterprise. AI the time ofdefendants' acts as
alleged herein they were acting within the scope of the enterprise. Aftematively, defendants wett
engaged in a conspiracy, in that there was a combination among the co-coospiratoas for an r
j
unlawful pmpose as alleg~ herein 01 lawful pwpose by unlawful means. Defendants knew that I
7
/
I
I
I
438
the agreed acts would result in bairn to Plaintiffs. To accomplish the object of their agreement
Defendants engaged in the overt acts described herein. The agreement to engage in the above
described acts proximately caused injwy to Plaintiffs.
27. Defendants' breach of fiduciary duty injured Plaintiffs by deptiving Plaintiffs of
the value of their property, the loss of their reasonable expectations fm `` en~prise
and their investment and loss of business opportunities, in damages ind~g the full market
~
value of their ownership interest in the common enterprise ~ry
28. Defendants, breach of fiducimy duty benefited ~ts in that the conversion
of the assets of Texas Syng.as, LLC for use in Texas Syn``c substantially bene..fited and
~
emiched Defendants to the dettiment of the Plaintiffs ``
29. PlaintiffS injwy resulted from de``ts· gross negligence, malice. or actual
fraud, which entitles Plaintiffs to exemplmy 4 under the Texas Civil Pr:actice & Remedies
Code section 41.003(a). ~
~
``UNT TWO
F-CH OF CONTRACI'
30. Plaintiffs het~reai.lege and inco1porate herein by reference Pmagraphs t
tlttough 22 ofthis Petitio~Q
0~
31. On``beJ 10, 2004, Plaintiffs and Defendants executed a valid and
enforCeable wri~ating Agreement of Texas Syngas, LLC, attached as Exhibit "1" and
incorporated ~ference herein
32. The Operating Agreement provides in Section 5.07 that "no member or Manager
shall engage in 01 possess any interest, legal, equitable, or otherwi~ in any business venture that
competes in any way with the Company W\Jess such participation sball be app:t'Oved by a vote of
8
439
__
-
... ... . ... ..... . . .
;~ -``S:·SSEO ~
CAUSE NO. 2007-38533
JEFFERY 8. KAISER, INOJVIDUALLY §
DERIVATIVELY, AND ON BEHALF OF §
ALL SlMILARLY SITUATED §
STOCKHOLDERS AND MEMBERS OF §
TEXAS SYNGAS, LLC A/K/A TEXAS §
SYNGAS, INC.,
Plaintiff,
§
~ ~
,·
~
v. § HARRIS CO" "Y) TEXA"
~ <:7 · ~
§ 0 ~ ,.] ~ .I
TEXAS SYNGAS, LLC A/KIA TEXAS § ~t~ ~v -
SYNGAS, INC~, MICHAEL A. COLLINS, § ~ ~) ... · _:::s -:.
````~L``:````````~;:A``~D, §§ Q.fi : ~ _:
~
3
OFFICERS AND DIRECTORS OF § 1+ ·::,
~ ~·. ~."
o
TEXAS SYNGAS, LLC A/KJA TEXAS §
SYNGAS, INC., . § ;:~
Defendants. § 'V 1901h JUDICIAL DISTRICT
T~
INTERVENTION OF QUAN~-.. - CATALYTICS, L.L.C.
TO THE HONORABLE JUDGE OF SAI~QURT:
COMES NOW, Quantum Ca1a' a?: L.L.C., and in support of iiS Intervention under
Rule 60 of the Texas Rules of Civil ~ure would respectfully show the following:
o~- --
~. FACTS
~' .
l. Quantum C~cs, L.L.C. (hereinafter ''Quantum Catalytics ..). is one of four
members of Texo.s S~. L.L.C. The four members are Michael C. Collins, Quantum
Catalytics., Michae``dow, and Jeffery Kaiser.
jQ
2. ~ther members o fTexas Syngas, L.L.C. are parties to this sui t Jeffery Ka!ser
(hereinafter ·•Kaiser.,) is a Plaintiff, and he has sued Michael C. Colli ns and Michael D. Sydow.
3. The operating agreement, signed by a\1 four members, provides that the company
is to be managed by a majority of its members. All of the corporation•s members other than
Kaiser, who owns a minority interest, agree that it is being managed in the best i.nterests of_the
1
EXHIBIT C
452
Flied
08 June 20 P4:20
Theresa Chang
Olstrfct cterk
Hams District
CAUSE NO. 2007-38533
JEFFERY B. KAISER, INDIVIDUALLY, § IN THE DISTRICT COURT OF
DERIVATELY,AND ON BEHALF OF §
ALL SI.MILARtY SITUATED §
STOCKHOLDERS AND MEMBERS OF §
TEXAS SYNGAS, LLC A/KIA TEXAS §
SYNGAS, INC.,
v.
Plaintiffs,
§
§
: _e_~.
HARRIS C~rY, TEXAS
~
§ ~ /[}
TEXAS SYNGAS, LLC AIK/A TEXAS § ~
SYNGAS, INC., MICHAEL A. COLLINS, § o ~
MICHAEL D. SYDOW, M. SAMEER § .(~-
AHMED, AND ALL OTHER SIMILARLY § ~ ,¥
SITUATED OFFICERS AND § ,flJ~
()~'0
DIRECTORS OF TEXAS SYNGAS, LLC § ..,_``
A/KIA TEXAS SYNGAS, INC., § ~?!)
Defendants. § ~ 152Dd JUDICIAL DISTRICT
.,@?'1
DEFENDANT MIC~L SYDOW'S
AMENDED"MOTION ``tJMMARY JUDGMENT
Defendant Michael D. Sydow her~les his Amended Motion for Summary Judgment,
in suppo~ of which he would r~w the Court as follows:
- ``
0~ INTRoDUCI'ION
\
We have been down`` once before. In April 2008, Defendant Michael Sydow
-fJ~
("Sydow,) moved for~ judgment on all claims asserted against him by Jeffery Kaiser
~-
(" Kaiser''). Sydow'~gtion was based on purely legal issues and undisputed facts (e.g.,
Kaiser's admissi# t Sydow did not induce him to acquire an interest in Texas Synp LLC).
-'~
Rather than ~ond to Sydow's motion, Kaiser claimed that he needed a 45-day continWUlce in
order to review additional documents. The Court gave Kaiser one week (until May 9) to file a
response.
But Kaiser's gamesmanship continued. On May 5, Kaiser attempted to side-step
summary judgment by filing a second amended petition. Although the new petition asserts
EXHIBIT D
456
101. l"'fU'90-r.;) p.,c
:
'JDI.IIOU'B. ~JSD.IlQ)IVJDUALLY IRTD DJRI»ICY OOllll'l' OP
. DDJV'ADVBLY,.AKD OlfBICIJAI.B 0'1
jLl, IIIW·'W·Y m'UADD
8'i'oaalOLDD8ANDMBMJIIR8 OlP
TRJ1.8 SYm.WI,LLC; A/JC/A..Tl;j'AS
~me. '
••
1
Defeadant's
E~jt
-~
475
··-· -- ---· ---- .. ··-··,- ·--. ·- ~ ~. ...
. . .·
...
Michael D. Sydow 1188 aoted as file adafBaaabvo om.- of tbo oompmy umJar 1he
· cDmadou 8lld GOD!m1 ofMJcbad C.. CalliDs:Mlabael D. Sydow bas Deverbad auy aathodty cmr
tbo expnndlture or dttbiuw:meat ofaJ ibuda biD Taaa ~ L.L.C. Mlob•cl D. Sydow has
mm:r slped, or baa autbadzed to tdp. Gil Ifill bat or afJ&ar 'OCf'!'lnfs GfTexas ~ Ll..C.a
2
476
Ared
08 June 20 P4:04
Theresa Chang
Dlstlfct Cfertc
Hams Olatrfct
CAUSE NO. 2007-38533
JEFFERY B. KAISER, INDIVIDUALLY, § IN THE DISTRICf COURT OF
DERIVATELY, AND ON BEHALF OF §
ALL SIMILARLY SITUATED §
STOCKHOLDERS AND MEMBERS OF §
TEXAS SYNGAS, LLC A/KIA TEXAS §
SYNGAS, INC., §
v.
PlaiDtill's,
:
: HARRIS CO~, TEXAS
~
TEXAS SYNGAS, LLC AIK/A TEXAS f ~
SYNGAS, INC., MICHAEL A. COLLINS, § ~·
MICHAEL D. SYDOW, M. SAMEER § o~c.?e)
AHMED,ANDALLOTHERSIMILARLY § <{J~
SITUATED OFFICERS AND § ~
DIRECfORS OF TEXAS SYNGAS, LLC § o~
AIJ(JA TEXAS SYNGAS, INC., § ~
Defendants. § ralioo. I WWII you to 14 Q. lllank )'OU.
15 find those in the materials we reviewed today. 15 Corpc:~r.Ue resolutions. have you prodoood
16 A. Bates NO$. 36 throv&J! 38. 16 ~II or the eorporaw: resolutions of JK Cbims?
17 Q. Okay. And what is !he titk of thai docomeol 17 A. Yes..
18 yo~eref~nsto7 18 Q. Otll)'. And -cain. the one$ we've seen are
19 A. Certifu:aac: ofFormillioo For-Profit 19 un1i~, conut?
20 Corporation. 2o A They doo't 113vc to be srBJW!.
21 or
Q. Okay. So there'SI Certificate Formation. 21 Q. Oluly. ~lder COMents. have )'OU prodO<:Cd
22 Have you found anything idcntiftcd as Anlc:les of 22 all of lhe sh'mholdet collSalts of JK Clairru?
23 Incorporation for JK Claims? 23 A. There af'Cfl't any sflan:holders.
24 A. Thll($ wtusttbis i.s. 24 Q. Okty. So ~re's ~ sb~boldcrs.. WOO arc
25 Q. Okay . 25 the owner.~·-
Page Pb(JC 57
1 A. It's the some thing. A. Jfs uncertirl.c:ated.
2 Q. Okay. S4oct ledgers. are tbcre any st5 A. It's unccrtiracatcd under the DOC.
6 Hen«, tbc:re woukt be no stodc ledgers. 6 Q. If somcooc: wanted to flnd out who the owner o(
1 Q. Dlrtt;tor and shlltd.older meeting nllrtutcs7 7 JK Claims is rrom $0me type of record. wlliat record
8 A. Produced. 8 would they loot to -
9 Q. I ho~n·• Sttn mlnuacs. I've seen consents g A. The-
I
10 tlH'II were unsl~. Wf!f'C &here any dircctOt and 110 Q. •• lind the owACr of JK Claims?
11 .shatdloldcr - ,
11 A. Its unccr1ificatcd, so lhere aren't rcr:orch.
12 A. You jUSt need to read - j 12 Q. So anybody could be ovmu off JK Cloims.
13 Q. -meeting minutes? 113 correct7
l4 A. YoujiJSI need to read the Business tu A. Ownership interests are unoc:stific:ated under
tS Orgallizations COde. 15 tbeBOC.
16 Q. I undmtand lhaL 16 Q. And what I'm ask.lng. Is thc:re any odlcJ type
17 A. l'm not here to ~vc you a- 17 of record that ~one would loot to to f111d out who
18 Q. And I undentand - 18 ahc owner of JK Ctalnu ls?
19 A. - semJnar on fonnin3 oorpor.:lliOI¢ 19 A. Not that I'm aware of.
20 Q. Mr. Sydow, I un6er$Wid the diif'ercnce bel~n 2 0 Q. Olcay. So you c;ould ~actually say anyone is 111e
21 necclin&- 21 owner of JK Claims lllld there's no way to verify thlll>
22 A. And if you cSon't quiet down and set out of my 22 is &hat correct?
23 face, I'm walking out. 2J MR. HUNTER: Objcaion> form.
2. Q. YWI. I'm noc In your faoc:. 24 A. JK Claims is incorporated as an uncer1ifi~ed
25 A. You arc. vou•re leanJng across the coblc and 25 oompany-
• -:;J"- .. .
15 (Pages 54 to 57)
9438 Data scope 713-688 - 9300
495
Oral Deposition of Michael D. Sydow, Sr .
Page 58 Pa ge 60
1 Q. (BY MS. KELUR) I've hcatd tha.t. 1 A. It's not filed if it's re~.
2 A. -through the BOC. 2 Q. OkAy. But It was flied and th.en rejected.
3 Q. Wh3e rm eskiJlg is. is lhcre any other way 3 corn:c:t? Jus1 filed. but not ~ted'?
.. oth.cr than your testimony today 10 verify the ownership 4 A. )I WIIS wbmitted, OOt not fi)cd bcca.w'c it I
5 ofJK Claims? 5 ~properly filled out.
6 A. I'm~ awan: ofany clocumet``tlon- well 6 Q. Do yoo bve :a copy of Ill~?
7 attualty tha'c m~t be: some documenwion thai may 7 A. No.
8 exist. 8 Q. Who prepared lhar?
9 Q. Okay. Wbal would IIIII documc:nlalion be:? 9 A. Some DCCOUnWII in Mus:\dwSdts..
10 A. J believe the consent in lieu of mcell"£,5 1o Q. So does JK Claims have: any profJt and loss
ll clc:atl)' sfl.ows who the owner is. 11 scatc:ITICfiiS?
12 MR. HUl'fTER: I think tha'c's a B:aiC$ 12 A. No.
13 No. so. 13 Q. Docs JK Ct3lms have a tJ.I~ sheer?
14 A. Q&``twn Catalytics, l .l..C., being llle holder l4 A. No.
lS of the majority or the shares of JK Claims docs ~by 15 Q. Does JK Claims have any inc:omc: Slalc:ments?
16 consent tO the ac>polntmcnl of John Preston ll$ so~ J6 A. No.
17 dii'CQO: of the company. 17 Q. Oocs JK C1aims have any oilier type of documen.l
18 Q. (BY MS. KEllER) Otay. 18 thai might rellcct the current finOVlcial ClOilditio«< or
19 A. Exhibit 9. 19 JK Claims'?
20 Q. Ok:s.y. Anythi~ eiSIC? 20 A. No.
21 A. Bate.s No. OSO, QIIIUlfUm Catalybc:s. l..l.C., 21 Q. Rc:quc~ No. 6 t\Sk:s for ;!:tly and all loan
22 be&!~ the bolder of the majoriry of the snares or Jl< 22 appiK:ations prepared by or on behalfor IK Caaims.
23 Claims dues hereby redcct John Prescot~ as the sole 23 Has JK Claims pre~ any loan apptic:atioM?
24 di~ of the company. Exhibit 9, Bates No. Sl . 24 A. No.
25 Q. Okly. J2S Q. All documc:nlS re_rlccti11g any ouiSianding
Page 59 1 Page 61
l A. So, yes. lllere are dQCumc:JIIS that reOCCI the l)
2
flnanc:inl obliption held by JK Claims, inc:ludinJ but
not limited lO. loorl sta1cmc:nts, credit card account
2 ownersfljp.
3 Q. Okay. Would there be: any other doa!mct1LS 3 stalc:mcnts, promissofy notes, and scc:ID'ity instrvmcnu.
4 otller than E)(hibit No. 9? 4 H&"C you soc:n eny suc-h documeMS?
5 A. N04IIIal I'm aw1re of. 5 A. Thctt aren'\ any.
6 Q. OQ)'. Request No. 4 asks ror an 6 Q. There an: none?
1 cmployment·tclatcd agrcemenlS ccea.ted by JK Claims 1 RcqYC:St No. &. all ~rds reflccti,.,; the
8 from Jamwy 2012 10 lhe present, including but!)()( I 8 e:xiscence ofall "oourns held by JK Claim¥ at any type
9 limited to. con.sultina qreements and employment 9 of fin:~r~Ct.llnsdMion, inc:ludine but nocllmJted to.
10 ~LS. Are there any document$? 10 ~opening docwnenlS, si!:Jtarute 11.11horizaliom,
\1 A. No.. 11 and 1t1e last six moatbs ofstatements. Docs JK Claims
12 Q. Request No. 9 asks for all doMes, Preston, 8liCV«
11 before? 21 Sydow regatrry'! 6 Q. Request No. 12, all documents reO~ or
1 A. None. 7 rdatc:d to CX~mmuniCil.ions between IK Clai~m or it$
8 Q. Okay. I ass~Umc thallhere wouid be documents 8 repn:scntativcs and the tNStee of the~ regardint
9 te.flectiB3 the sourte ofth1t funding. H1111e you made 9 the pu:d\ase. Thilf$ c:ssmtially these dwc ~rds
10 811Y effort to locate doaunents responsivc 10 Exhibit l0 you produced as Exhibit No. I I thto~tp 13?
11 No. ll - 11 A. Those ue the doQwcr11s that exi~.
12 A. Yes. 12 Q. Is t.hc:re an)'lhin& ebe, any other
13 Q. - exa.rse me- Request No. I I? \3 communications related to the discussioM betwmll.bc
1' A. Y~ 1~ t.rustee of the Ka.iser c:Sl:lll! and my per$00 on hd!o.l f
15 Q. Wbal errOrts 113ve you made? 1S ofJK a.Jms?
16 A. I have dooe an investigolion. 16 A. t..'q. No. no! lhlll I've been able eo determine:.
17 Q. Wha1 wus that i:nv.estiantion? Who did )'OU 17 Q. Were )'OU a puty to lilY of th~
18 reque;u n:eoord$ from? 18 tornt1WI1i<:.cions?
l9 A. Jobn Pn:Sioll. l9 A.. No.
20 Q. When did you make tN.t request? 20 Q. Request No. 13. all e--mails, notes.
21 A. I d 01t1't recall. 21 COrre$J)Qildcrlce, and other dC)CWQCIIts reOectillg
22 Q. And~ wns the: rc:sponlrC from Mr. P~n? 22 convnunk:.uions by and between or 8mOC'IS Lobnc:s. ~on.
23 A. JK Claims doesn't have any suc:b n:eotds. 23 andfor Sydow n:gmding lhc dailn$ znd the pwdaiiSC of
24 Q. Regarding the sour(e ofchdunds of the 24 the same: ffOm the: cswe. Art there ~ documents
25 2.S,000 purthast money for the claims? 2S I'CSJ)OrtSi\-e IO No. 13?
Page 63
--------------------------------------1
1 A. Right 1 A. No.
2 Q. Do you know wha1 souroc of funding for ihe 2 Q. Ob,y. rd like to focus now on con¥erS~Ui011$
3 p1Rhll$e - whllt w~ the funding source for the 3 becween you M~d Mr. Preston n:~arding the plli'Chase of
4 priase or JX Claims- excuse me - Kaiser claims? 4 Mr. KaiSCf's claims out of lbc K4i$Cr bankruptcy
s MR. HUNTER: Objection; fonn. 5 C$tliC.
6 A. r understand it was from QIW!rum Catalytics. 6 When do you n:call you rms spoke with
7 Q. (BY MS. KEU..ER) And how did you make Chat 7 Mr. P~ regardlng some entity pun:twing those
8 Wldmu.nding? e claims?
9 A Through an internal investiption thnt I
9 A. l don't recall.
10 conducted to pn:pru-e for th.e dc:pQsition. 10 Q. How oWly times wootd you say )'OU spoke with
11 Q. And what did you lcam in cbal intef'nll ll Mr. Preston n:g~d ing that matter'?
12 investigation rqarding the payment for Mr. K<~isets 1
2 A. I don't rec::tll.
13 claim'? 13 Q. Whose proposal was it that some entity
14 A. QU13t1rum Ca~alytics transmitted the money to 14 pUidlose Mr. Kaiscts clAims (rom the bankl\lptcy
lS pay for the claims. 15 c$latc?
16 Q. In "Ail# form? Was it a check or win: llanSfct
16 A. I don't recall.
17 rcc:ord? 17 Q. Was it your su~ion l~ somebody pllrdlase
18 A. I don't know. 18 those claimJ?
19 Q. fm S!Orr/1 19 MR. HUNTER: Objedion; foml.
2() A. I don"t know. 20 A. No.
21 Q. And wbo told you that Qu~cum Cnta!Y'ic:s 21 Q. (BY MS. K.ELI.£R) Wz it Mr. ~n'$
22 lnnSmilkd the money? 22 susges1lon? i
23 A. John Pn:stoll. 2
3 A. I don't recall.
24 Q. What else djd he say abolJI the fund.ing. of the 24 Q. Could it hnvc been )'OIIr sugscstilon Olo&C the: ~
25 plltdl&$t of Kaiser dalms? 2S claims be purcllased by somec:ruit)'? i
~.--``-
``-~
.-=-~-~
- ``
- ~-~--``-~.~-``~--~---~-~
- ~.-~.``
-~-~
.-~
.-``
-~-~
- ``-````
.-`` . .. . .
17 (Pages 62 to 65 )
9438 Data scope 7 1 3-688-9300
497
Oral Deposition of Michael D. Sydow, Sr.
Page 66 Page 68
l A. No. 1 A. f dorft know.
2 Q. Wa$ i1 Mr. t.olwles- suucstion? 2 Q. Would )'OU have a copy oftlle bill for services
3 A No. 3 if you did?
~ Q. Do you la!ow if Mr. Lohne$ provided lllc: money 4 A. Yes.
~ WI was wed to purdlo.se the claims from the Kaiser 5 Q. Okay.
6 e:sQtc:? 6 MS. KELLER: Mf make a reqUICSt for
7 A. No. 7 lhaL
8 Q. Do you blow ~Y the: bank.ruptcy trustee would 8 Q. (BY MS. KELLER} Do you know the sources of ~
9 have 5t.alc:cl thai the money was ~ng &om Mr. Lohnes? 9 funds for the: capit:lli&``Jjon other th311 yout testimony
10 A. I don't know tint the barlkruptcy tJuMe so 10 Lhat lr came from Quanrum C.1alytics'?
11 staled. ll A. Thllt is the JOuru.
12 Q. Oby. f f tlle bo.nkruptey uustcc st~d 14 A. I as:sumc it hopes 10.
1~ A. Yes. 15 Q. And wfl31 SO\Itee woold that be?
16 Q. Oby. 1s Mr. LoMcs affiliated in any way 16 A. R~ry on the claims m.t it purchased.
17 with JK Oldms l nYestment Corponllion? 17 Q. Ok.y. Anyothc:rpot.end.al sourotsof incomc
18 A No. 18 for JK Claims?
19 Q. Okay. Do you know wbat- docs JK Clo.ims have 19 A. No. '
2o ;ny other business other than holdil1s tlle claims 20 Q. Does JK Chums have My assets other than the
21 pud!ascd from the K.ai:>cr bankruptcy estate? 21 eloims it putdlased from tbe Koisa' blntrvptcy1
22 A No. 22 A. No.
23 Q. Thai's the onl)' busina-s that J K Ctaims bas 23 Q. Doc$ JK Claims have any liobilrucs?
24 ~done was to purchase those dalms ond pum~C t.hosc 24 A. No.
25 in co~ oom:et'? 2~ Q. As c:mpor.Jte eou.n:sel for JK Claims, "'C'C >'0'1
Pa qe 67 Page 69
1 A. That's correct. l responsible for obUinifll litiptio.n counsel 10 pursue
2 Q. Okay. fs that Lhe put'p(Ule oftbe formotion or 2 the claims Olat were purchased from lhe Kaiser estate?
3 JK Clllims? J MR. HUNTER: Objection; privileged.
4 A. Yes. 4 Q. (BY MS. KELLER,) I'm going to ask you acain;
~ Q. Okay. Wh3l Other - so is it l.n.lc, lhel\ that ~ and if you rt:fusc to answer it on the basis ofadvice
6 JK Ollim$ has ftO ocher inv~c:nt:s? 6 of oounstl, ~ me know.
7 A. No. it docs not. 7 As corpoi"Dk counsel fo~ JK Claims. ~
8 Q. Okay. Does JK Claims have g.ny lnvestotS otbc:r 8 you respDn$lble for retaining ClOIJtiSCI tO purme the
9 Lhllll its sole shareholder Quanl\lm Ca.talytics? 9 cl31ms f« bank:rupecy?
10 A. No. 10 A. J refuse 1o llll$Wtr on the advic:c of ~unscl.
11 Q. ~. Did QuMtwn CatalytiC$ provide Any 11 Q. Olc.ay. Goins ba.ck to RcqiJCSt for Production.
12 money for the c:aphafizalion or JK Cl~ims oa Its 12 lhc: ones relaJod to the funding of the P"'rehase. the
lJ ronnalion? 13 ~UC:Sl specifically osk$ ror dlcdcs, witt transfer
H A. Ofcourse. 14 records, en&. or any loan doeumentation. anythins
15 Q. How much did Quancum Catalytics provide for 1~ relakd to the p~rc:base for the claims. Wert: you able
16 Lhe capit.aliz::a.don ol'lhc company? 16 10 obaln any of lhaa from Mr. Pre$t0n?
17 A. Enough to buy the claims and organke the 17 A. No.
1e comJllllly. 1e Q. Did you asic fo: ttuu from Mr. f>Rs1on7
19 Q, How much was thai? 19 A. Yes.
20 A. Somewflere between 25- 0.11d $26,000. 20 Q. And what was his response?
21 Q. And how mvd! did you c~ JK Clalms as 21 A. JK Claims doesn't h;ave .,Y $UCh docwnents.
22
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WRITIEN CONSENT IN LIEU OF MEETING
i
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;
I
[ Quantum Catalytics, LLC being the bolder of a majority of the shares of JK.
~
I
t Claims, does hereby consent to the appointment of John Preston as the sole director of the
company.
John Preston, Managing Member
August 22~ 2012
EXHIBIT
...... .
i-4b-
JK Claims 000050
529
JK. CLAIMS WRl1TEN CONSENT IN LIEU OF MEETING
Quantum Catalytics LLC being the holder of a majority of the shares of JK.
Claims, does hereby re-elect John Preston as the sole director of the company.
John T. Preston, Managing Member
August22, 2013
I
I
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!
JK Claims 000051
530
JK CLAIMS ACTION BY DIRECTOR
The undersigned director does hereby approve the purchase ofall claims of
Jeffery Kaiser from the trustee of his Chapter 7 bankruptcy.
JK Claims 000052
531
From: gmcoord@natbansommers.com · ·
To: keOy.stepbens@hotmail.com
Subject: Kaiser
Date: Wed, 14 Mar2012 14:13:25 +0000
I am sending you a motion to sell today with a an order for your review. Do you have the money in your
aooount? And, do you.have the name ofthe entity set up to purchase the claims?
~Oiuer McCord
r Neshan Sommen Jacob!
A ProfosdoceJ Corporation
II 2800 Post Oak Boulevard
I
6btPioor
I' Hoostoa, Texas 71056
i Voice: (713) 892.-4816
Fax: (713) 892.-4800
i
r
pccord@oatbaD8o111111Gn.COIII
www.nadumsommcrs.oom
I' ..
II tBIS B-MAJL MBSSAOB AHD 1HB AlTANPJDI!NTIAl•lNPORMAnoN. ·
niB Dl8SIIhfiNA1lON, DJSllUBUJTON, PUBLICATION, DI.Sa..OSt.IRB OR \JliB OP SAID B-NAIL Ml!SSACJB, ATl'.AaiMBNTS AND
INI'ORMATlOH AND S'IR1C1LY PROHIBI1BD AND YOU ARB INS"DUJC1ED TO DdMSDJA1ELY (A) NOTIPY niB SI!NIEltBY 'IBI.l!PHONH AT
713.960.1003 a: YOUJl RBCEIPT 01' THIS &NAIL MBSSAGB AND SAID A1TAOIMI3NTS, AND (B) DI!LBlB THJ8 'S-MAIL NJ!SSAGB AND TRB
ATrAawBNJS 10 rr. AND DBSTROY ALL OOPfB3 AND P.RDn'OUTS 'T'HJIRE(F.
EXHIBIT
II
dow
"'
JK Claims 000013
532
···- - ---·· . . · · · - · · · - - · · - - - - · -· . . . ..,...,. _ _ _ _ .._ . . , , , ._ _. _ -·· - -- ¥• _ .. _ - . .. . _ · ·- ·- - • • • · · · - - · · ... ·-·-
INPORMAnOH AHD STJUcn.Y PltOHIBITt!D AND YOU ARIIINSTRUCTIID TO IMMEDIATI!I..Y (A) HOT1FY llfB S.BNDER BY Tl!LI!PtJONB AT
713.96Q.m03 OP YOUR JIBCiilPT OP THIS &MAIL MBSSAOB .AND SAID .ATTACHMSNTS, .AND (B) DElETE 11US S-MAIL MliSSAOE AND TJUi
ATTACHMENTS TO rr,AND DllS'J"RRY ALLCOPlES AND Pflllfi'OlTI'Snn!ROOP.
J'rom: Kelly Slcphens [mallto:kclly.stepheos@hotmail.com]
Seol: Friday, June 15,2012 10:24 AM
To: Orctchcu McConi
SUbject: RE: Kai&eT- Salo Order
I
l
Gretchen,
l
I my clients inform me that they would like to make some changes in the valuation language of the order.
f
t they are supposed to get me their suggestions today. I will forward upon receipt.
Kelly D. Stephens
Stephcos & DomniU. PU.C
P.0. Box 79734
Hoaaton, TX 77Z79-9734
281-394-3287
832-476-5460 Fax
From: gma:ord®natbaoso111mcru:om
To: kclly.stephens@hotmftll.com
Subject Kaiser- Sale Order
Dato: Wcd,13 Juo 2012 20:2S:OS -+0000
Attached is a form of order tbat wlll be filed with tho motion. The trustco hnd a few revisioos. I hAve put a signature blank to
sign as ao agreed order. but did not blow if you or somcoae else would be algnjag. Pleosc Jet me know asap. Tbanlcs.
GRU:hcn Gauer McCord
Nalhan Somnlm Jacobs
A Prdeaslonal Corpotalloa
2800 Fbat Oak Boulevard
6Jst Roor
Houston, Teus770S6
l
Vok« (713) 892-4816
Fax: (713) 892.4800
EXHIBIT
www.nathaMOmmoll.com
JK Claims 000053
s~?w
533
Case 08-35261 Document 51 Filed in TXSB on 06/19/12 Page 1 of 11
IN THE 1JNlTED STATES BANKRUPTC'f COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISIO~
INRE: §
§
JEFFERY B. KAISER § CASE NO. 08-35261-Bl-7
24Zl Wordsworth §
Boustoo, TX 77030 § (CBAPTER7)
SS#: ux-n-7148 §
§
DEBTOR(S) §
TRUSTEE'S MOJION FORAUTHORrtY TO SELL
ESTATE'S INTEREST IN CLAIMS
PUISuantto Local Rule 9013:
THIS MOTION SEEKS AN ORDER THAT MAY ADVERSELY AFFECT
YOU. IF YOU OPPOSE THE M0110N,.YOU SHOULD IMMEDIATELY
CONTACfTBE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU
AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A
RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST
FILE AND SERVE YOUR RESPONSE WITBIN 21 DAYS OF THE DATE
TBIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY
THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A
TIMELY RESPONSE, THE RELIEF MAY BE GRAN.I'ED WITHOUT
FURTBERNOTICETOYOU.IFYOUOPPOSETHEMOTIONANDBAVE
NOT REACHED AN AGREEMENT,YOU MUST ATTEND THE BEARING.
UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY
CONSIDER EVIDENCE AT THE BEARING AND MAY DECIDE THE
MOHONAT`` \
REPRESENTEDPARTIESSBOULDACTTBROUGB 'rBEIRATTORNEY.
COMES NOW, Ronald J. Sommers in his capacity as the Chapter 7 Trustee ("Trusteej for
the above-captioned baDlauptcy estate ("Estate") and files this his Motion for Authority to Sell
Estate's Im.erest in Claims ("'Motionj and would show as follows:
1
EXHIBIT G
534
Case 08-35261 Document 52 Filed in TXSB on 07/13/12 Page 1 of 3
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTIUCT OF TEXAS
HOUSTON DIVISION ENTERED
07/llllOll
INRE: §
§
JEFFERY B. KAISER § CASE NO. 08-35261-Bl-7
2411 Wordsworth §
Roustoa, TX 77030 § (CIIAPTER. 7)
SS#: xu-n-7148 §
§
DEBTOR(S) §
ORDER GRANTING
TRUSTEE'S MOTION FOR AUTHORITY TO SELL
. ESTATE'S INTEREST IN CLAIMS
ONnDSDAYcameonforconsiderationtheTrustee'sMotionforAuthoritytoSellEstate•s
Interest in Claims (the "Motion'') filed by Ronald J. Sommers, the chapter 7 trustee in the above-
. '
captioned bankruptcy estate (the '"Trusteej, pursuant to 11 U.S.C. § 363. The Court, after
c:onsiderini the Motion, the argument of couusel and any evidence presented, finds that
I. · This is an action filed under Fedtmil Rule of Bankruptcy Procedure 6004 and the
coaesponding local rules for the Southern District of Texas and under 11 U.S.C.
§§ 363 to sen the estate's interest in property.
2. This Court has jurisdiction over this matter.
3. The sale approved herein is in the best interests of the creditors and the abov&-
captioned bankru~ estate \Esfatej.
4. The Trustee is exercising reasonable business judgment.
5. The sale approved herein is free and clear of liens.
6. The Trustee and the bvyer nogotiated the sale at arms length and in good f8ifh.
1
EXHIBIT H
545
Case 08-35261 Document 52 Filed in TXSB on 07/13/12 Page 2 of 3
7. Adequate notice ofthe Motion and any hearing on the Motion has been given to all
creditors and parties-in-interest.
8. The sale of the Claims is a sale of the Estate's interest in such Claims.
9. The Trustee has not made any n:presentations or wmanties with rospect to the sale
or ownership of the Claims. ·...
10. Any and all objections have been withdmwn or are ovenulod.
Acc.ordinglyt it is
ORDERED that the Trustee is authorized to sell the Estate's interest, ifany~ in the following claims
to JK Claims Investment Corporation, or its assigns ("Buyer"), for twenty-five thousandandno/100
dollars (S2S,OOO.OO) ('"Sale Price") in accordance with the teuns ofthis order:
Any and all causes of action owned by the Debtor as of the date ofhis Bank.ruptc:y
filing and now owned by the bankruptcy Estate against Teus Syngas, LLC, Texas
Syngas, Inc. and their officers, directors. shareholdcm, age11ts, attomcya and/or
against any predecessor, successor, or affiliated companies, including but not limited
to the following individuals: Michael Sydow, Michael Collins, John T. Preston,
Quan1mn Catal.ytics, Inc., and M. Sameer. Ahmed. These claims would include
specifically all those claims that were owned by the Debtor and that were pled, or that
could ~ve been pled, in the Lawsuit with Cause Number 2007-38533, and styled
Jeffery B. Kmser, et a1 v. Texas Syngas. LLC alkla Teras Syngas, Inc. et al, currently
pending in the 1S2nd Judicial District Coort ofH.anis County ('Oaimsj.
Further, it i$
ORDERED that within three days ofthe entry ofthis order, Bu~rmustdelivertheenti.rety
ofthe Sale Price to the Trustee in good funds. Further, it is.
ORDERED fh:at, upon receive of the Sale Proceeds in good funds. the Trustee will provid~
to Buyer a receipt of such funds in writing. Further, it is
2
546
Case 08-35261 Document 52 Filed in TXSB on 07/13/12 Page 3 of 3
ORDERED that the sale ofthe Claims shall be effective immediately upon the c~ons
in 1bis Order being met without further Older ofthis Court or fUrther docum~tation and~ Order
shall be sufficient evidence ofthe assignment and sale ofthe Claims. Further, it is
ORDERED that 1he sale ofthe Claims is free and clear ofany liens, claims or interests. It is
.
ORDERED that the Trustee is authorized to execute all documents and take all other actions
necessary to complete the compromise and the sale ofthe Claims. It is further
ORDERED that the Trustee bas made no wmanties or representations as to the sale or
ownership ofthe Claims. It is further
ORDERED that the sale of the Claims is a sale of the Estate's intetest therein, and tbatthe
Court makes no finding that the Estate bas any actual interest in the Claims, ownmhip of.wbich
is disputed.
Signed: July 13, 2012
·United States Bankruptcy Judge
547
311<4/2014 QIU~con Print au;ege
II
_,- .
In re: Kaiser and In re: Jorden
... ·-- ·' ... . - . .- -- ··- - "* --··· --- .
From KeUy Stephens (keDy.stephens@hotrnail.com)
Sent: Tue 9/13/11 2:23PM
To: r.;onuners@natbansormners.com
Ron.
I need to discuss two ~sues with you.
I) Cause No. 08-35261, In Re: Jeffery B. Kaiser.
On tim case, you may rem:mbcr that I made a written offi:r to p~base
the Estate's interest in aD cases and/or
causes ofaction whi:h JeffKa.i<;erfibe Estate had a claim against Texas Syngas, lLC, Texas Syngas, Inc.,
Michael Sydow etc.
We oBCred you $25,000.00 cash fur those claims. You never n:~onded. Keer has recently (this year) tiled
two rrotions to retain in the existing laws~ claiming to have acq d or tbat he is about to acquire from you
the right to go furward in this case.
I can still offer you$ J 0,000.00 fur those cJairm assuming they ha not been abandoned. Please !et me know
your position on this rmtter.
2) lDlSU1'e about the cause but I believe that the case is In Re: Ro ert Jordan.
I received a call from Artice Allen yesterday n:questing that I rep~nt
bim in th5 matter and his deposition.
Based on our conversation, ~ bas been noticed for ~day o is week.
1 am requesting a postponement of that deposition to give me a c ce to meet with him, get the doct.Dll!nts
concerning the property in band and to get a grasp on your clairm.
please call me asap to discuss.
KeDy D. Stephens
Stephens & Do~ PILC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
lit
KDS 0001
EXHIB IT I 548
I
Cause No. 08-35261, In Re: Jeffery B. Kaiser
From: Kelly Stephens (kelly.stephcns@hotml..il.com)
Sc:nC: The 9/13/1 1 6~0 PM
To: Ronald SorTI't)ers (rsommcts@nathansoi'l:IIllers.com)
Bee: ~haelsydow@lbesydowfirm.com; Amber Polach (amb .potach@tbesydowfitm.com)
Ron,
I am contacting you in reference to my offer to purchase rights/ca es ofaction of the estate ofJeftery Kaiser.
ln my earlier email, l offered $10,000.00 fur those ri&hts.
As we discussed this afternoon, I am renewing that ofler at S2S, 0.00. My client would hlce to purchase any
a.ad aD causes ofaction held by the estate against Texas Syngas, , Texas Syngas, Inc., Michael Sydow,
Michael Collins, John T. Preston, Quann.un CataJytics., lnc., and . Samecr Ahmed.
These wouH include specifically aD those claims !llldc in Cause 2 !'7-38533, Jeffery B. Kaiser, et aJ v.
Texas Syngas, LLC a/kla Texas Syngas, Inc. er aL, currently p iog in the I 90th Judicial District Co\D1 of
Harri; CoLilty.
(n that case, Mr. Ka~er bas filed a derivative action as a shareho and is allc~g loss oflm "iwe.~tn'le.m"
and/or o~ irerest io Texas Syngas, ILC. Mr. K~ did t co.atribute any real rmney fur his
ownership ~st, rather it was predicated on ~ contrinltion as officer and prorroter ofthe con;>an)'.
A partial S\m'Dil8J}' judg,mnt was issued ~h decJared that Te Syngas, Inc., was not a contim.ration o(
subsidiary ofor a substftution corporation for Texas Syngas., LLC Mr. Kaiser had no affiliaEX>n will or
ownership in Texas Syngas, Inc. Therefore he has no cla.irrs or s nding to make derivative claim; regarding
tim entity.
My client is rmking tim otrer based on a "cost ofdefenw" cvatua · n I might point out that Mr. Kaiser filed
this banknlptcyon the eve ofsumnary judgment~ being h on behalfofaDderendants io that suit. It 6
my beliefthat lOOse tiX>ti>ns woukl havclwill be granted. Mr. Kais s claims are refuted by over 75% oflhe
shareholders ofthe COJ11>any. Additionally, in deposition, Mr. K · was ur.ablc to detail even a singfe
instance ofmSrepresentation or omission on behalfofthe officers directors oftbe cornpany. "''e believe
that Mr. Kaiser's b~tcy W8$ directly and predoroillately pred ated on 1m inability to sobstan~Dy respond
to those motions or to provide any evidence to support the clemen ofhis claims.
As you may be aware, both Texas Syngas, ILC and Texas Synga Inc., are now defunct non-operating
j
companies with no assets. tbe mibe ofTexas S}'Df}lS, LLC wasp icated on a severe lack of funding. The
fit.Wre ofthe new company (with subsLantiaJ new investors and gement) Texas Syngas, Inc., was brought
about by tbe inabaity ofthe COfl1)any to rmke the synthesis proces coll'lrrerCiaDy viable.
KOS 0002
549
311412014
'~
l
I
It is my beliefthat the clairm ofMr. Ka.i5er are wortbJess. It wo . 6tate
be in the best. interest ofthe ! . to take
'
tlm cash offur.
I
i
Kelly D. Stephens
Stephens & Donmitz, PILC I
P.O. Box 79734
Houston, TX 77279-9734
28 1-394-3287
832-476-5460 Fax
212.
K.DS 0003
550
311~4
RE: Kaiser Bankruptcy
From: KeUy Stephens (kclJy.stephens@hotrmil.com)
Sent Moo 9/19/11 12:06 AM
To: gmccord@nathansoiJllrers.com
Grethen,
our offi:r is the same we made a couple ofyears ago. it~ based· n the cost ofderense ofthe claims made in
the prior lawsuit
we came forward becal.lSe Kaiser has filed a couple of motions t retain. the one early in ttm year was made
wiihout notice to myselfor my client. the last one was noticed an promted the re up of the otrer. the first offer
was not responded to, so we thought the suit would die of nattn"al causes.
at any rate, we rmy be interested in maintaining the c)ajms in the o 'ginal derative suit depending on the tenTlS of
any settlerrent
you should know that according to Sydow, he has oot been serve with the suit you furwarded.
Kelly D. Stephens
Stephens & Domnitz, PLLC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
__ ___ .. ______ _ ! __ __ __ _ __ __ _
Subject Kaiser Bankruptcy
Date: Fri, 16 Sep 2011 14:05:45 -0500
From: gmccord@nathansommers.corn
To: kelly.stephens@hotmail.com
Kelly:
htlos:lltM7l.rnlil.li~e.cxmc#rreli.IT1ICJPrir-.M as sao es?ITN=an-us
KDS 0012
551
311412014 8
RE: Cause No. 08-35261, In Re: Jetfe y B. Kaiser
From: Gretchen McCord (gmccord@nathansommers.com)
Sent: Wed 12121/11 7:47AM
To: 'KeOy Stephens' (kelly.stcphens@hotrmilcom)
Kelly:
Are you around this week to discuss the settlement offer?
Gretchen Gauer McCord
Nathan Sommers Jacobs
A Professional Corporation
2800 Post Oak Boulevard
61stFioor
Houston, Texas 77056
Voice: (713) 892-4816
Fax: (713) 892-4800
qmccord@nathansommers.com
www.na!hansom mers.cqm
THIS E-MAIL MESSAGE AND THE ATTACHMENTS HERETO, IF ANY. ARE INTE~OED ONLY FOR USE BY THE SENDER'S INTENDED
RECIPIENT($). IF YOU ARE NOT THE SENDER'S INTENDED RECIPIENT OF THI~ E-MAIL MESSAGE OR YOU RECEIVED THIS E-MAIL
MESSAGE OR THE ATTACHMENTS TO IT IN ERROR, OR THIS E-MAIL MES~AGE OR SAID ATTACHMENTS CONTAIN LEGALLY
PRIVILEGED OR CONFIDENTIAL INFORMATION AND YOU ARE. NOT THE SE~DER'S ll'lTENDEO RECIPIEI'lT OF SUOi LEGALLY
PRIVILEGED OR CONFIDENTIAL INFORMATION. THE DISSEMINATION. DISTRIBtiON, PUBLICATION, DISCLOSURE OR USE OF SAlD
htiDs:llltU173.mall.ll\e.aJI'Iolfrrellm.cJPriniMessaaes ?m4:~W~ous
KDS 0021
552
311412014 Oullockc:an Print M~e
II
I
RE: Cause No. 08-35261, In Re: Jeffet B•. Kaiser_
From: KeDy Stephens (kelly.stephcns@hotmail.com) I
Sent: Wed 12121/1 I 10:54 AM
To: grn:cord@nathansoJTD'l'X:rs.com
lam
Kelly D. Stephens
Stephens & Dornnitz, PLLC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
- ---- --·----·- ··- --
From: gmccord@nathansommers.com
To: kelly.stephens@hotmailcom
Subject RE: Cause No. OR-35261, In Re: Jeffery B. Kaiser
Date: Wed, 21 Dec 2011 12:47:47 +0000
Kelly:
Are you around this week to discuss the settlement offer?
Gretchen Gauer McCord
Nathan Sommers Jacobs
A Professional Corporation
2800 Post Oak Boulevard
hflns:/~u173.m:lil.ll\eCa~Vcf/nal.m.o9rintMessao es'?ni«=erH5 118
KDS 0022 553
311412014 OuiJocP.com Print Mesaage
RE: Cause No. 08-35261, In Re: Jeffery B. Kaiser
From: KeUy Stephens (kelly.stephens@hotrnail.com)
Sen!: Wed 12/21111 12:57 PM
To: grrocord@nathansom:rrers.com
I attacmnt
OrderRetaining09232011.PDF ( 135.3 KB)
Gretchen,
attached are the orders regarding retention ofthe case by Judge Schaffer. I talked with the coordinator a
minute or so ago. no action has been taken or will be taken fur a week or so at least
my clients are interested in going forward with the asset purchase as discussed and will be available for
testinxmy ifneeded.
I will furward more precise language on the offer shortly, my clients are discussing what vehicle to purchase
through etc.
Kelly D. Stephens
Stephens & Doi11Ilil4 PUC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
from: gmccord@nathansommers.com
To: keDy.stephens@botrnail.com
Subject: RE: Cause No. 08-35261, In Re: Jeftery B. Kaiser
Date: Wed, 21 Dec 2011 12:47:47 +0000
Kelly:
Are you around this week to discuss the settlement offer?
118
KDS 0023
554
31t4120t4 OUUoaltcom Print Message
Kaiser estate
From: KeUy Stephens (kelly.stephens@hotmail.com)
Sen!: Tue 12127/11 10:39 AM
To: gmccord@nathansommers.com
Gretchen,
sony for the delay. I know we need to get th5 in. my client has decided to make the oiler/purchase through
one the individuals involved, Paul Lohnes.
I am renewing the offer of $25,000.00. My dient would like to purchase any and all causes of
action or potential causes of action held by the estate against Texas Syngas, LLC, Texas
Syngas, Inc., their officers, directors, shareholders, agents, attorneys, etc. (or any predecessor,
successor, or related companies), including but not limited to the following individuals: Michael Sydow, Michael
Collins, John T. Preston, Quantum Catalytics, Inc.; and M. Sameer Ahmed. These would include spedfically all those
claims made or that could have been made in Cause 2007-38533, Jeffery B. Kaiser, et al v. Texas Syngas, LlC a/1
n from my client he is Wllting to put the rroney in my IOLTA account pending approval
He wants rre to hold. assuming that is sufficient I woukJ give you notice ofthe deposit and hold pending
approval
lctm: know.
Kelly D. Stephens
Stephens & Do~ PLLC
P.O. Box 79734
Ho~ton, TX 77279-9734
281-394-3287
832-476-5460 Fax
From: gm:;cord@nalhansoiJ'II'DCrs.com
To: keDy.stephens@hotmail.com
Subject Kaiser
Date: Tue, 17 Jan 2012 15:09:55 +0000
Kelly:
Any word?
112
KDS 0032
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3/1412014 0\Alook.com Pfin\ Message
RE: Kaiser
From: Kelly Stephens (kefly.stephens@hobnail.com)
Sent: Tue 2/07/ 12 12:01 PM
To: gm:oord@nathansoouners.com
Gretchen,
a couple ofthings.
I . My clienl5 furming a company to purchase th.5 asset. should have that infO mid day totrorrow.
2. Should have the rmney by Thursday.
3. His lawyer in Boston is asking to review the tran!ifer doclDTICnts. do you use a standard fur fur asset
purchase? ifso, can I get a copy to give them so that we speed up the process.
Kelly D. Stephens
Stephens & Donmitz, PLLC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
From: gux:cord@nathansommers.com
To: kelly.stephens@hotmait.com
CC: rsormrers@nathansorruners.com
Subject Kaiser
Date: Thu, 2 Feb 2012 17:01 :45 +0000
Kelly:
I wanted to file the motion to sell this week. Do you helVe the funds in your lolta account? Also, did you send
the email I requested that I can attach to the motion to sell as the offer?
112
KDS 0040
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3/1412014 Ot.Cicdtoom Print Message
Kaiser
Front Gretchen McCord (gm:cord@nathansommers.com)
Sent Wed 3/14/12 12:08 PM
Tn: Kelly Stephens (kelly.sl<.:phcn<>@hotmail.com) (kcUy.stephcns@hotmail.com)
Since I never heard who the purchaser was, I defined it as follows :
The purchaser is Paul Lohnes or his assignee ("Purchaser"). The Purchaser is a business associate of
the Defendants.
There needs to be some explanation as to why he is buying these claims . I assume he is a business
associate of Mr. Sydow. But, I need clarification on that issue.
Gretchen Gauer McCord
Nathan Sommers Jacobs
A Professional Corporation
2800 Post Oak Boulevard
61st Roor
Houston, Texas 77056
Voice: (713) 892-4816
FalC (713) 892-4800
gmccord@nalhansommers .com
www.nathansommers.com
THIS E·MAIL MESSAGE ANO THE ATTACHMENTS HERHO. 1r ANY. ARE INTENDED ONLY FOR USE BY THE SENDER'S INTENDED
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31141'lUI4
Re: Kaiser
Fmm: Kelly 0 Stephens (kelly.stephens@hotrnail.com)
Sent: Wed 3/l4/12 1:04l,M
To: Grelchen McCord (gmccord@nathansormncrs.com)
I am out of the ottlc ~c unt i J Monday. The definition is acr.ually 90ad as he has not
yet i nforrned me either.
r-Mobile, America's .First Nat.i,,nwide o1G Network
Sent by Samsung Mobile
Gretchen M<:Cor:d wrot:e:
>Since I never heard who the purch~H`` was, defined i t as follows:
>
>The purchaser i~ Paul Lohnes or h i s assi9nee ("Purchaser"). The Purchaser is a
busin~ss associate of the Defendants.
>
>There needs to be some explal'lation as to why he is buying these clalms. r assume
hP. i~ a business associate of l'tr. Syd~. But, I lHWd c i~t" l fication on t.hat issue .
>
>
>Grel~c h en Gauer McCord
>Nathan Sommers Jacobs
>A Professional Co cporaL ion
>2B OO Post Oak Roulevard
>6lst rloor
>Houst on, Texas 77056
>Voice : (7131 892 - 48Ui
>Fax: (713) 892-4800
>gmccord@oathansommers. com
>www. nathansommers . com
>
>TIIIS E-MAlL MESSAGE hNO TH~ ATTACHMENTS HERETO, I f ANY, ARE INTENDED ONLY FOR USE
BY THE SENDER'S INTENDED RECI l'IENT (S) • IF YOU A~ N0'1' THE SENOE~' S INTENDED
RECIPIENT Of THIS E-MAl~ M~SSAG~ OR YOU RF.CEIVF.O THIS E-MAIL MESSAGE OR THE
ATTACHMENTS TO 1'1' .TN ERROR, OR THIS E-MAIL ME:SSAGE OR SJI.IO A'1"1'ACHMENTS CONTAIN
f,EGALLY PRIVILEGED OR CONFIDEN'l' IAL IN F'ORMA'l'ION AND YOU ARE NOT THE SENDER'S
INTENDED RECIPIENT 01-· SUCH LI::GA.LLY PRIVILEGED OR CONFIDENTIAL INfORMATION, THE
DISSEMINATION, DISTRTBUTION, PUBLICATION, DI~CLOSURE OR OSE Cr SAID !::-MAIL MESSAGE,
7\T'rACHMENTS AND I Nf'ORMA'flON AND STRl C'rL't I:'ROH1lH'l'ED J',ND YOU ARE INSTRUCTED TO
IMMEDIATELY (A) NOTlfY THt:: SENDF.R BY TEI.EPHONE AT 713.960.0303 OF YOUR RECEIPT Of'
l'HlS E-MAIL MESSAGf. AND SAl D ATTACHMENTS, AND (B) DBL.£'1'£ '!'hlS E-MAIL MESSME J\ND
THE J\Tl'ACHMENTS TO IT, AND DES'l'I{OY AI~L COPIES J\ND PRTN'l'OU'J"S THEREOF .
>
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311412()14 C\JI/ookcan Print Message
RE: Kaiser
Front Kelly Stephens (kciJy.steplx:ns@hotJnailcom)
Sent: Tue 4/03/ 12 10:08 AM
To: gmccord@natbansommers.com
Gretchen,
j l.l.'it wanted to let you know, J urn not ignoring your request I have been tmable to speak with Lohnes or
Sydow.
I do not have the money as ofyet
KeUy D. Stephen"
Stephens & Do~ PLLC
P.O. Box 79734
Houston. TX 77279-9734
28 1 ~394-3287
832~476-5460 Fax
> From gm:cord@nathansommers.com
> To: kelly. stephe~hotimilcom
> Subject RE: Kaiser
> Date: Thu, 29 Mar 2012 16:01 :12 +0000
>
> KeDy:
>
> Can you confirm that you have the rmney in your JOLTA account? That the buyer still wants to trove
furward?
>
> Also, per my request can you give me a short explanation of the identity ofthe buyer? (per my question
below) If there bas not yet been an entity set up, then J will use the definition below.
>
> Gretchen Gauer McCord
> Nathan Sommers Jacobs
> A Professional Corporation
> 2800 Post Oak Boulevard
hltns:/Mu173.maii.Ji~olfmail.mdf'riniMMSIIIl8.'1'?rrH=etH.IS 113
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:Y1412014 OUUookcom Pril'lt Mesuge
Kaiser
From: Gretcben McCord (gm:cord@nalhansommers.com)
Sent: Tiw6/07/12 2:56PM
To: Kelly Stephens (kclly.slcphens@hoiJm.ilcom) (kelly.stephens@hotmail.com)
Kelly:
I thought I would take one more stab at contacting you. Ron has me engaging special counsel to take this on
an contingency fee basis so we can reach some resolution. Is your client still interested in purchasing the
claims? We had reached an understanding, but your client was required to pay·the money into your t rust
account. Last we spoke, they had still not done this.
If 1do not hear back from you by tomorrow morning, I will assume that your client is no longer interested in
purchasing the claims.
Gretchen Gauer McCord
Nathan Sommers Jacobs
AProfessional Corporation
2800 Post Oak Boulevard
61slFioor
Houston, Tellas 77056
Voice: (713)892-4816
Fax: (713)892-4800
gmCCQrd@na!hansommers .com
www.nathansommers.com
112
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31141'.!014 OU!c:dtccm Pr~nt Message
RE: Kaiser
From: Kelly Stephens (keDy.stephen~hotmail.com)
Scn1: Thu 6107/ 12 3:23 PM
To: gm:cord@nathansommers.com
Gretchen,
I am again assured that the money wiD be in my trust accoWlt mid next week.
Kelty D. Stephens
Stephens & Do~ PT.l.C
P.O. Box 79734
Houston, TX 77279-9734
281 -394-3287
832-476-5460 Fax
From: gm:cord@nathansollllll:rs.com
To: kclly.stephens@botmail.com
Subject: Katier
Date: Thu, 7 JlUl 20 I2 18:56:48 +0000
Kelly:
I thought I would take one more stab at contacting you. Ron has me engaging special counsel to take this on
an contingency fee basis so we can reach some resolution. Is your client still interested in purchasing the
daims? We had reached an understanding, but your client was required to pay the money Into your trust
account. last we spoke, they had still not done this.
If I do not hear back from you by tomorrow morning, I will assume that your client is no longer interested in
purchasing the claims.
112
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311412014 OUtlockcan Print Message
Kaiser Estate
From: Kelly Stephens (kelly.stephens@hotmail.com)
Sent: Tue 6/12/12 5:53PM
To: gm:cord~natbansoiJ:mErs.com
Gretchen,
this DX>ming. I received notice ofa wire transfer of$12,500.00 from Boston
this afternoon, I received a check in the amounl of$12,500.00 from Mr. Sydow. I deposited S<~Ire around
4:15p.m tim afternoon.
I guess I can say that 1 have the money in my trust account
Kelly D. Stephens
Stephens & Donmitz, PLLC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
1/1
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Oullockc.cm Prfnt Message
RE: Kaiser- Sale Order
From: Kelly Stephens (kelly.stephens@hotmJ.il.com)
Sent: Fri 6/15/12 11:23 AM
To: gm:cord@nathansommers.com
Gretchen,
my clients infurm Ire that they would like to make some changes in the valuation lan!,'lUlgc ofthe order.
they are supposed to get rre their suggestions today. I will forward upon receipt
Kelly D. Stephens
Stephens & Dorrm~ PLLC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
From: grrecord@nathansommers.com
To: keDy.stephens@hotrmil.com
Subject: Kaiser- Sale Order
Date: Wed, 13 Jun 2012 20:25:05 +0000
Attached is a form of order that will be filed with the motion . The trustee had a few revisions. I have put a
signature blank to sign as an agreed order, but did not know if you or someone else would be signing. Please
let me know asap. Thanks.
Gretchen Gauer McCord
Nathan Sommers Jacobs
AProfessional Corporation
htiDs:/it1u173.1'11!ll.lhe.am'dlrreil.m.c/PrintMessao es?rl1F~ us 1l2
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311412014
RE: Kaiser- Sale Order
From: Gretchen McCord ~cord@nathanc;ommers.com)
Sent Fri 6/l5/12 llJ2 AM
To: Kelly Stephem (kelly.stephens@hotrmil.com)
I am pretty much married to that language . I will look at what they send, but the language is already broader
than I think it should be .
Gretchen Gauer McCord
Nathan Sommers Jacobs
A Professional Corporation
2800 Post Oak Boulevard
61st Floor
Houston, TeJ~as 77056
Voice: (713) 892-4816
FalC (713) 892·4600
gmcoord@nathansom mers .com
www.nalhansommers.com
THIS E-MAIL MESSAGE AND THE ATTACHMENTS HERETO. IF ANY, ARE INTENDED ONLY FOR USE BY THE SENDER'S INTENDED
RECIPIENT(S~ IF YOU ARE NOT THE SENDER'S INTENDED RECIPIENT OF THIS E-MAIL MESSAGE OR YOU RECSIVED THIS E~\!AIL
MESSAGE OR THE ATIACHMENTS TO IT IN ERROR. OR THIS E-MAIL MESSAGE OR SAID ATTACHMENTS CONTAIN LEGAlLY
PHIVILEGED OR CONFIDENTIAL INFORMATION AND YOU ARE NOT THE SENDER'S INTENDED RECIPIENT OF SUCH LEGALLY
PRIVILEGED OR CONFIDENTIAL INFORMATION. THE DISSEMINATION. DISTRIBUTION. PUBLICATION, DISClOSURE OR USE OF SAID
E-MAIL MESSAGE. ATIACHMENTS AND INFORMATION AND STRICTLY PROHIBITED AND Y OU ARE INSTRUCTED TO IMMEOIATEL Y (A)
NOTIFY THE SENOER BY TELEPHONE AT 713.960.0303 OF YOUR RECEIPT OF THIS E·MAIL MESSAGE AND SAID ATTACHMENTS.
AND (B)OELETE THIS E-MAIL MESSAGE AND THE ATTACHMENTS TO IT, AND DESTROY All COPIES AND PRINTOUTS THEREOF.
llttn
To: Michael Sydow
Sent Wednesday, June 13, 2012 3:57PM
Subject: FW: Kaiser- Sale Order
Mace,
see the attached. we have a window to make suggestions.
Kelly D. Stephens
Stephens & Donmitz, PLLC
P.O. Box 79734
112
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311412014 OIJUooltcom Pril'll Messago
FW: Kaiser- Sale Order
From: KeBy Stephens (kelly.stephens@hotmlil.com)
Sent: Fri 6/15/12 4:09PM
To: gmccord@nathllnsoiTIFT1:rs.com
Here ~ the ilusive name.
Kelly D. Stephens
Stephens & Domnitz, PLLC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
Date: Fri, 15 1lll20 12 12:54:56 -0700
From: ~haelsydow@th:sydowfinncom
Subject Re: Kaiser- Sale Order
To: kclly.stephens@hotrmil.com
The name ofthc purchas er will be JK Cluirrti lnvcsm.:n t C'.orporation .
--··--·- -
From: KeUy Stephens
To: "mdsydow@yahoo.com• ; Michael Sydow
Sent Friday, June 15, 2012 11:33 AM
Subject: FW: Kaiser- Sale Order
KeDy D. Stephens
Stephe~ & Do~ PLLC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
113
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Dismissal of State Court Action
F'ronr KeUy Stepbem (kclly.stephenc;@hotmaucom)
Se::nl: Wed 6!J.7112 10:08 AM
To: gnx:cord@nathansoiilllErs.com
Bt:c: Michael Sydow (michael.sydow@thesydowfirm.com); Amber Polach
(amber.potach@thesydowfinncom)
1 attachment
Order Oi.omlissing case 06-12-2012.pdf( I 8.5 KBJ
Gretchen.
have you seen ths order, how does this aOCct what we are supposed to be purchasing.
KcDy D. Stephens
Stephens & Domnitz, PLLC
P.O. Box 79734
Houston, TX 77279-9734
28 1-394-3287
832-476-5460 Fax
t'Gm://hl11\ 73.nwll.fl\e.cornldhnlil.md'rlrAMesl;aoOS'?rrii:P.fl.tA 1/t
KDS 0069
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Outlod(.ocm Pr inl Message
Re: Dismissal of State Court Action
From: Gretcbeo McCord (gm;:cord@nathansommers.com)
Sent: Wed 6fl.7/ 12 10:12 AM
To: kelly.stephens@hotmailcom (kelly.stephens@hotmailcom)
l don't think it does.
Sent from my HTC on the Now Network from Sprint!
----- Reply message -----
From: "KeUy Stephens"
Date: Wed, Jun 27, 2012 9:08am
Subject D~missal ofState Court Action
To: "Gretchen McCord"
Gretchen,
have you seen thf; order, how docs lh.is affect what we arc supposed to be purchasing.
KeDy D. Stephens
Stephens & Dormtitz, PLLC
P.O. Box 79734
Holl~on, TX 77279-9734
28 1-394-3287
832-476-5460 Fax
11!
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31141'..'014 Oullockcom Pl'inl Message
FW: Dismissal of State Court Action
rrom: KeUy Stephe.os (kclly.stephens@hotrnail.com)
Sent: Thu 6128/12 II :16 AM
To: gm:cord@nathansomrrers.com
Gretchen,
see the question below.
Kelly D. Stephens
Stephens & Oomnitz, PLLC
P.O. Box 79734
Ho~ton, TX 77279-9734
281-394-3287
832-476-5460 Fax
_____
_ _- -·· ·--·-·-·-··-·-------------·-·· . ---·
, _ . - ------------ --·- - -- -···-------------
Date: Wed, 27 Jun 2012 13:54:42 -0700
From: michaelsydow@thcsydowfirm.com
Subject Re: Dismissal ofState Cowt Action
To: kelly.stepbens@hotmailcom
If the case has been dismissed und the s tatute of limitations has run there is no tbing left to purchase. A dismissal for want of
persecution used to be subject to reinstatement within u certain time. However, ifl recall correctly the reinstatement was
d iscretionary with the Court. If s o, either the trustee needs to have it re instated to :;ell it or the buyer is purchasing yet
another problem. I fail to understand how s he thinks the dismissal ha:; no beuring. Perhaps she can explain in just a bit rrore
detail.
li!Ds:/~u173.mail.lile.cc:rM:UrrBI.rnrA'riniMessaoes?rrk=en-us 111
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Kaiser
From: Gretchen McCord (gm:cord@natbaosormners.com)
Sent: Thu 6/28/12 11 :56 AM
To: Kelly Stepbe~ (kclly.stcphens@hotlmil.com) (keDy.stephcns@hotmail.com)
C:c: Ron Sornrrers (rsommers@nathansornmers.com)
I need a written commitment from the purchaser that if the Trustee reinstates the lawsu it, we still have a
deal and the purchase money needs to be paid to t he t rustee to hold in trust pending approval of the
motion.
Or, I need a written statement from the buyer that they are no longer interested i n going forward because
the case has now been dismissed .
Please let me know today. I am meeting with someone to discuss the cost to reinstate the lawsuit.
Gretchen Gauer McCord
Nathan Sommers Jacobs
A Profes sional Corporation
2800 Post Oalc Boulevard
61 st Floor
Houston, Texas 77056
Voice: (71 3) 892~816
Fax: (713)892~800
gmQCOrd@nathansomm ers .com
www.nalhansommers.com
THIS E·MAIL MESSAGE ANO THE ATTACHMENTS IIERETO. IF ANY. ARE INTENDED ONLY FOR USE 8Y THE SENDER'S INTENDED
ht!Da:J~u173.mail.lhe.c:miallmail.rrM1Prlnll\Aessanes'?n1t=rn-us 112
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FW: Kaiser
From: KeOy Stephens (kcUy.stcpbcns@hotl'micom)
Sent: Thu 6/28/12 2:52 PM
To: gm:cord@nathansolllt1l!rs.com
here is the response.
KeDy 0. Stephens
Stephens & Do~ PLLC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
Date: Thu, 28 Jun 2012 J0:45:23 -0700
From: michaelsydow@thesydowfirmcom
Subject Re: K~er
To: ketly.stepher6@hotma.il.com
I have !>flOkcn to the purchaser. He is OK with the tms lee holding Lhe ~roncy IN TRUST, ami w ill go through with the
purchase it:
I. The cue i11 rcin11taled retroactively so that o nly limitations defenses available al the tiu10 the s uit wat> filed arc now
available; and
2. The Court approves t he sale of the cause of action in substantially the fonn agreed.
-----·---·---- -· .. -· .. -.- -- -· , ____ _______
.. -·- - - ---- - -
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Kaiser
From: Gretchen McCord (gm:cord@nathansorrurers.com)
Sent: Tue 7/03/ 12 12:28 PM
To: Kelly Stephens (kelly.stephens@mtmaa.com) (kelly.stcphcns@hotmailcom)
C:c: R.X;k K.incheloe (rkiocheJoc@nathansonmers.com)
2 attachments
mln rcin'itme.v2.pdf(68.4 KB) . mtn rcinst.ah.!.v2.wpd (2 1.5 KH)
Kelly:
I asked about Michael Sydow because I think that we should perhaps make this a j oint motion. See the draft
attached hereto (we will have to change, as I thought Michael was counsel to some defendants, including
himself).
But see what I want to do and get back with me.
The reason I would like to make it joint, is that I don't want to run into a problem with the court saying the
trustee never intervened. There are two schools of thought· one that the trustee just steps in without the
necessity that a motion for intervention is necessary and two that the trustee has to formally intervene . I
just don't want it to be an issue and then have the court say the trustee had no standing to file the motion to
reinstate .
Gretchen Gauer Pvteord
Nathan Sommers Jacobs
A Professional CorporaUon
2800 Post Oak Boutewrd
61st A oor
Houston, TelCBs 77056
112
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~14.'2014
Kaiser
From: Gretchen McCord (gmccord@nathansoll111l!rs.com)
Sent: Tue 7/10/12 6:14PM
To: KeUy Stephens (kelly.stephens@hotimilcom) (kclly.stcphcno;@hotmaitcom)
Cc: lti:k KirK:heloc (rkincheloe@nathanc;ommers.com)
Kelly:
If they are not going to join in the motion, can I at least represent that they are unopposed. I need an answer
asap.
Gretchen Gauer McCord
Nathan Sommers Jacobs
A Professional Corporation
2800 Post Oak Boulevard
61s l Aoor
Houston, Texas 77056
Voice: (713) 892-4816
Fax: (713) 892-4800
gmccord@na!hansommers.com
www.na!hansommers.com
THIS E-MAIL MESSAGE ANO THE ATTACHMENTS HERETO. IF ANY. ARE INTENDED ONlY FOR USE BY THE SENDER'S INTENDED
RECIPIENT(S~ IF YOU J\RE NOT THE SENDER'S INTENDED RECIPIENT OF THIS E-MAIL MESSAGE OR YOU RECEIVED THIS E-MAIL
MESSAGE OR THE ATTACHMENTS TO IT IN ERROR. OR THIS E-MAIL M ESSAGE OR SAID ATTACHMENTS CONTAIN LEGALLY
PRIVILEGED OR CONFIDENTIAL INFORM A liON AND YOU ARE NOT THE SENDER'S INTENDED RECIPIENT OF SUCH LEGALLY
PRIVILEGED OR CONFIDENTIAL INFORMATION. THE DISSEMINATION. DISTRIBUTI ON. PUBLICATION. DISCLOSURE OR USE OF SAID
E-MAIL MESSAGE. ATT ACHtAENTS AND INFORMATION AND STRICTLY PROHIBITED ANO YOU ARE INSTRUCTED TO IMMEDIATELY (A)
NOTIFY THE SENDER BY TELEPHONE AT 713.960.0303 OF YOUR RI:CEIPT OF THIS E-MAIL MESSAGE AND SAID ATTACHMENTS.
lels:/lblu173mlll.llw,carldlrrfi,l.md'rirCMessaa es?!TH=eo-us 112
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311412014
OUIJook.am Prlnl Message
RE: Kaiser
From: Kelly Stephem (kelly.stephcns@hotmail.com)
Sent: Wed 7/ll /12 10:17 AM
To: grnccord@nathansol'l'llJI:rs.com
Gretchen.
we're back to please don't shoot the m:ssengec. Mike's reply to joining the Jrolion was (paraphrased):
I am buying this thing to prevent further problem; with Kaiser, why would I (the defendant) join in a motion to
reinstate.
I have fOrwarded your request below to him, but have not heard hack yet I am about to get on the road fur
Duval County fur a hearing th~ afternoon.
my cen is 713-252-4945. please caU IR! around noon. my hearing is at I :30. I'll try to reach Mike while I am
on !he road.
Kelly D. Stephens
Stephens & Domnitz, PLLC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
·-- - --·--·- - -
From: gmccord@nathansomrners. com
To: keDy.stephenc;@hotmail.com
CC: rkincheloc@natharmmmers. com
Subject: Ka~er
Date: Tue, tO Jul2012 22:14:53 +0000
Kelly:
l-.ms:JftAut73.maii.IM.cc:rrld/mail.rnciPrintMessaoos~en-us 112
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3f1412014
RE: Kaiser
From: KeDy Stephem (kelly.stephen~hotmailcom)
Sent: Wed 7/11/12 11:01 AM
To: gmccord@nathansonnners.com
Gretchen,
first, my hearing in Duval got cancellec.llale yesterday and I just fuund out.
second: I looked at the court records regarding dte parties in this litigdlion:
JeffKaiser represented bimscU: now your position.
1 represented John Preston, Texas Syngas, Inc. and Quanhan Calalytics, LLC
Steve Da\16 (Davis & Davi<;) represented Sameer Ahmed.
Teresa Schnieer (Winstead) represented Michael Cotlins, Micheal Sydow and Texas Syngas, lLC
She withdrew leaving each ofthese prose.
On behalfofJohn Preston, Texas Syngas,lnc. and Quantum CataJytics, U£, I have requested authority but
have not received it to represent t.batlhey arc \DlOpposed.
Mike Sydow's position is that he cannot rmke that representation for any of the other defendants, and will not
on his own behalf.
I have not been able to reach Steve Davis, but I represent Sam:er Ahmed in other tmtters (and have made
him aware of~) and he wants this thing dead so I doubt if he wouki agree.
I have no conmcl with Michael Collins.
1 realize this corrplicates thin~, but ils the best I can do at this poinl
KeDy D. Stephem
Stephens & Oomnitz, PLLC
P.O. Box 79734
Houston, TX 77279-9734
281 -394-3287
832-476-5460 Fax
hiiDtiJ/tJu t73.rrei1Jiw.am'dmal.~ ntM01111.10 II':?rri(:m-'15 113
KDS 0090
577
311~4 Oudoollccm Prml Message
RE: Kaiser
From: KeUy Stephens (kelly.stephens@hot:rmilcom)
Sent: 11w 7/12/12 5:29PM
To: gmccord@nathan.c;omrners.com
Gretchen,
I can confirm that Mike Sydow is my primary contact My Wlderstanding i.<> that the purchaser is consulting
with Mike regarding the claim; (their merits etc under Texas Law), but not that he is "having" someone
purchase the claim.
Kelly D. Stephens
Stephens & Do~ PLLC
P.O. Box 79734
Houston, TX 77279-9734
281-394-3287
832-476-5460 Fax
From: gnx:cord@nathansommers.com
To: keDy.stephens@hotmtilcom
Subject: RE: Kaiser
Date:Thu, 12 Jul2012 21:07:34 +0000
Please confirm for me t hat Mike Sydow is the one who is having the purchaser buy t he claims.
Gretchen Gauer McCord
Nathan Sommers Jacobs
A Professional Corporation
2800 Post Oak Boulevard
h!UI&:IIbluf73.mlll.lhe.carrldlmaii.ITIICiPrintMessaoes'?lriFen-us 1/4
KDS 0095
578
311412014 OuUcx:KctfftJ Thc~ltlttho.'SHdw:~
bfift9ddllled~r._,,..-.mt. UwthffHinlcrlllllion~lt~twoul)ll'--1'undl'ot
11>c ````Guide. Do 1101 usc SVTIWP ~gr r~ wtw:n t ht actovtll r, not 0t JGI' rt9on ~dit!oNIIfts
I
•AUwhlftlllc
Orii(Ntcw'l
I«CJ'Idfs~ l" ~'~ftllunwdtundi~m~"- "OAt / /
/£JJ. c; 7{ Z~//C...
2
6.. Wtfl• Use - w.lb fa o • wftH.
"When Cilaoft\tf'\ .ccoun~ ts noc ~wIMP~' o ~by.
~ 1Jl!.!rur1~q,t
~d .:tnd entitled cause. and respectfully files this Nonsuit
Kaiser). Plai ntiff in the above-n ..7~,.~
\~ ,,
With Prejudice. ln support o ft~P'otion f'laintiff shows as follows:
.0."
·~ I•
.,
'l ('
,~
Plaintiff has ~eCI•Defenaant, Midael D. Sydow, for alleged mismanagement, breach of
~ .
``
fiduciary duty. ~lion of state or federal securities law.;. fmud. misreprcsentat:on, and
,)
··...:::-·
misapprop~ . Plaintiff no longer wishes to pursue the claims against Defendant. Michael D.
"
Sydow.
II.
Plaintiff asks the Court lo sign ar. order of nonsuit with prejudice on all of Plaintiff's
claims against Defendant, Michael D. Sydow.
PltfNonsuit w/Prejudice
EX HIBIT J 581
Plaintiff asks that all cl<:jms against Defendant, Michael D. Sydow, be dismissed with
prejudice. Plaintiff asks that all costs of court be assessed against the party incurring same.
III.
WHEREFORE, PREMISES CONSIDERED, Plainti ff respectfully requests that this
motion for Nonsuit With Prejudice be f:ranted; that the Court d ismiss wi_.~t prej:Jdice all
~(7/!'>
;'~:``·
claims against Defendant. Michael D. Syd·)W; that all costs of (:ourt be a``'cd against the party
~
incurring same; and for such other relief, at law or in equity, to whic!'``!ntiff is entitled.
,~)' ~: ..t.::;;
./``-
Respectfully subnjrt~a.
STEPHENS ``bMNITZ, P
..
.Jt ~
kelly.stcphcns@hotmail .com
. Attorneys for Plaintiff, JK Clainrs Jm,estment
~ Corporation, Defendants, Texas Syngas·, LLC and
F)) !'
·0:1 ~ Texas Syngas, /11c. and Intervenor, Quantum
. -=~
'!-...._.) Cata/ytics, LLC.
r.,;
~,.+.-.
§i;~,; Certificate of Service
'~·
(~
I her``rtify that a tn:.e and correct copy of the foregoing document has been served
on this l 51 d~t>f October, 2012. on the following:
Via Telecopier No. (713) 781-2235
Mr. Steven Ray Davis
Davis & Davis
440 Louisiana, Suite 1850
Houston, Texas 77002
Attorneys for Sameer Ahmed
Pltf Nonsuit w/Prejudice
582
Via Telecopier No. (713) 552-1949
Mr. Michael D. Sydov.
1980 Po!:l1 Oak Ooulevard, Sujte 2 100
Houston. Texas 77056
Defendant Pro Sc
Via Certified Mail, Return Receipt Reque5ted #70JJ 1570 0000 9065 3472
Mr. Michael A. Collins
63 Sky Terrace Place U
r.*n~
The Woodlands, Texas 7738 1 1'..>, __
<·``v
'd\,
?Afj``i"/.::;``=-
Defendant Pro Sc
~ghens
f``
.-::::..~'.!
~;
..
-:...·~ .,
.....- ...
-\ ~
,r· -~
·\..,..-
CAUSE NO. 2007-38533
Pltf Nonsuit w/Prejudicc 3
583
Flied 13 Jan~ 11 P5:09
Chris Daniel - Dla1rlct Cleric
Hania County
ED101J017268621
By. Marcella D. HRI
Cause No. 2007-3 8533
JEFFERY B. KAlSER, INDlVIDUALLY, § IN THE DISTRICT COURT OF
DERIVATELY, AND ON BEHALF OF s
STOCKHOLDERS AND MEMBERS OF §
TEXAS SYNGAS, LLC a/k/a TEXAS ~
SYNGAS, INC., ~
Plaintiffs, §
§
v. §
§
TEXAS SYNGAS, LLC a/k/a TEXAS §
SYNGAS, rNC., MICHAEL A. COLLINS, §
MICHAEL D . SYDOW, M. SAMBER §
AHMED, ANDALLOTHERSIMILARL Y §
SITUATED OFFICERS AND DfRECTORS § -:8•
~ ·~DJ
OF TEXAS SYNGAS, LLC a/k/a TEXAS § ~"'~
SYNGAS, lNC.,
Defendants. ~ ~(w
§,. G;~2nd JUDICIAL DJSTRlCT
·'\.~'"
.~- ,J
DEFEND ANT Ml~l:L D. SYDOW'S
MOTION TO NONSUrf CAUSE OF ACTION
TO THE HONORABLE JUDGE OF ~ COURT :
_©
r~
,ir..Jf-·J;
NOW C O MES Defendant ~'Chael D . Sydow, and requests this Honorable Court to
j( )
~!J
nonsuit the counterclaim he fil~.against Plaintiff Kaiser in Cause Number 2007-38533 for the
~I
. r),':'s
ground set forth herem. ..;:-~
\.-!'
T.
~ ...
,r . .,
~'}
A. De~t requests nonsuit of his counterclaim in Cause Number 2007-38533 for
-~
(.~
the followin``n:
"
1. Kaiser has dismissed his claims against Mr. Syuuw in exchange for tht;
nonsuit ofMr. Sydow's bad faith claim against Kaiser.
WHERE FORE, Defendant requests this Honorable Court to nonsuit his counlerclajm
against Kaiser in Cause Number 2007-38533 and for such other and further relief that may be
584
awarded at law or in equity.
RespectfuJiy submitted,
Is/ Michael D. Sydow ~
Michael D. Sydow ~"
Texas Bar No. 19592000 (; -
1980 Post Oak Boulevard, 5\ti.te 2100
Houston, Texas 17056 ``--
(713) 622-9700 [Tel~p~e]
(713) 552-1949 [T`` t erJ
Attorney for Oef~dadt,
Michael D. Sygqw. ~
"
-41- ..,
``
h``l..~r
CERTIFICATE
AN
~RVICE
Olf;
~·-- ·-v
I certify that on January ll , 20 13 ``ouston, Texas a true and correct copy of
Defendant's Motion to Nonsuit was ``ed on Kelley M . Keller electronically at
kkcller@cllison.keller.com, and the electro t'fuansmission was reported as complete.
(l>n
_, ,r~\~1
~.
``
Is! Michael D. Sydow
(--:::-.~
y Michael D. Sydow
\ E-mail: michael.sydow@ thesydowfirm.com
...~\
-o-~
f\_A
2
585
01/14/2013 02:32:33 PM 713-755-1451 Page2/5
Filed 13 January 14 P2:33
Chris Daniel ·District Clerk
Harris County
FAX15387276
Cause No. 2007-38533
JEFFERY B. KAISER. INDIVIDUALLY. § IN THE DJSTRICf COURT OF
DERIVATELY, AND ON BEHALF OF §
STOCKHOLDERS AND MEMBERS OF §
TEXAS SYNGAS. LLC alkJa TEXAS §
SYNGAS, INC.,
Plaintiffs, :
Jt
~
§ (( ~ ~
~-
~
0~
'II.
§ HA.RRlS CO~TEXAS
~ ,, t
TEXAS SYNOAS. LLC a/kla TEXAS § .r.~
SYNGAS, INC., MICHAEL A. COLLINS, § ``"
MICHAEL D. SYDOW, M. SAMBER
AHMED, AND ALL OTIIER SIMILARLY
§ ``:·
§ ~"Y
SmJATED OFFICERS AND DIRECTORS §
..
·@
``
OF TEXAS SYNGAS, LLC alkla TEXAS
¥ ~"'
SYNGAS, INC.,
Defendants.
§
§
r::J
'-J·
§. ..,•<... 52nd JUDJCIAL DfSTRICT
~<~
' .
JNDayENOR OUANIUM CAT4\ t1c. LLC'S MODQN FOB NONSUIT
r-
~
TO nfE HONORABLE JUDGE 0``~ COURT:
t.AV>
NOW COMES Intcrven``tum Catalytic., U..C. and requests this Honorable Court
·~.//
to nonsuit the counterclaim he ~ against Ptaintiff Kaiser in Cause Number 2007-38533 for the
~l'
(~
ground set forth herein. P ~·
~
following~
l. JK Claims Investment Corporation has acquired the cause of action of
Kaiser, and Intervenor is not adverse to JK Claims Investment Corporation. Intervenor
wiU align its interests with those JK Claim Investment Corporation in an amended
petition.
586
01/14/2013 02:32:33 PM 713-755-1 451 Page 3/5
WHE.REFORE. Intervenor requests this Honorable Court to nonsuit his claim against
Kaiser in Cause Number 2007-38533 and for such other and further relief that may be awarded at
law oc in equity.
Respectfully submitted,
587
01/14/2013 02:32:33 PM 713-755-1451 Page 4/5
CERTIFICATE OF SERVICE
I certify that on January 11, 2013 at Houston, Texas a true and correct copy of
Defendant's Motion to Dismiss wa.~ served on Kelley M. Keller electronically at
kkellec@ellison.k.ellcr.com, and the electronic transmission was reported as complete.
588
'Transcript of the Testin1ony
of
Russell Read_, CfA, Ph .. DI$
Vo.4ume: I
Date Qf Deposition:
ApriJ 21, 2014
Case: Jeffrey B. Kaiser v. Texas Syngas, LCC
Contlo~ntlal Comm.un·ications Int. Ltd.
Phone:.71.3.365.0177
Fax: 713.365:0808
E.maH: schedul'lng@recordsdlscovery .co.m.
Internet: www.:records.distovery:. corn
47TJ
EXHIBIT L
600
817/2014 Diloision of Ccrporatic:ns- Online Senices
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EXHIBIT M 608 1/1
10/27/2014 9:26:29 AM
Chris Daniel · District Clerk Harris County
Envelope No. 2958109
By: GAYLE FULLER
Filed : 10/24/2014 7:28:31 PM
CAUSE NO. 2011-44058
MICHAEL COLLINS, ET AL.. § IN THE DISTRICT COURT
Plaintiffs §
§
§
vs. § OF HARRIS COUNY
§
sf\
MICHAEL SYDOW, ET AL. §
Defendants § 215rn JUDICIAL DISTRICT
AKILA FINANCE, S.A. , ET AL. , § TN THE DISTRICT COURT
Intervenors/Plaintiffs §
§
vs. § OF HARRIS COUNTY, TEXAS
§
MlCHAEL SYDOW; ET AL. §
Defendants . § 215TH JUDICIAL DISTRICT
DEFE NDANTS JOHN T. PRESTON, BRILLIANT NOVELTY, L.L.C., AND C CHANGE
I NVESTMENTS, LLC'S REPLY IN SUPPORT OF THEIR SPECIAL APPEARA NCES AND
MOTION TO STRIKE HEARSAY STATEMENTS
Pursuant to Texas Rule of Civil Procedure 120a. Defendants John T. Preston. Brilliant
Novelty, L.L.C. ("Bdlliant Novelty"), and C Change Investments, LLC ("C Change" ) (together
"Massachusetts Defendants") fi le this Reply in Support of Their Special Appearances and
Motion to Strike Hearsay Statements, and in support state as follows:
PRELIMINARY STATEMENT
At issue here is whether claims filed by foreign corporations and individuals-none of
whom are Texas residents- against a Masachusetts resident and two Massachusetts companies
should be allowed to go forward even though after three years of litigation there still is no
evidence for assertingjurisdiclion over any of the Massachusetts Defendanls in a Texas court.
617
The Massachu etts Defendants established in the ir Special Appearances that personal
j urisdiction cannot be asserted over them. Neither the lcnglhy response or supp lcm~nt al
response submiued by the Intervenors should be considered in this case because both are
1
untimely. Jn a ny event. nothing in either brief c hanges the fact that there is no specific or
general jurisdiction over any of the Mas achusetts Defendants. First. there is no specific
jtu·isdiction because Ute Intervenors do not even allege that the Massachusetts Defendants
conunitted any act in Texas that gives rise to the claims in t11i s lawsuit. The Texas Supteme
Court has explicitly rejected the theory on which the Intervenors rely for specific jurisdiction. Jt
i not enough to allege that a t01t was ·'directed" at Texas. Second. there i no general
j urisdiction over any of these defendants. Preston has not lived in Texas since he was an infant
over sixty years ago and the handful of visits he has made to Texas since the n are not
jurisdictional contacts because they were made in a t'e pt'e sentative capacity. The handful of
contacts by C Change with Texas through Preston were not o ··continuou and systematic" to
render C Change "essentially at home" in Texas as the U.S. Supreme Cmu1 requires. Finally.
Intervenors have not cited any specifi.c contacts by Brilliant Novelty with Texas.
J. THE MASSACHUSETTS DEFENDANTS COMPURD WITH RULE 120A.
The Intervenors claim that d1c Massachusetts Defendants' special appearances do not
comply with Rule 120a on the grounds that the special appearances themselves arc not verified.
But as the Intervenors acknowledge, affidavits were attached to each of the special appearances.
Resp. at 8-9. These affidavits swear to the truth of every statement of fact in the mot ions. Jt
1
Despite the fact that Defendants agreed to several extensions of the deadline for Intervenors' response briet~
Intervenors fajJed to meet the agreed July 2, 2014 deadline for flli ng tfleir Response Brief. Ex. A, Rule 1t
Agreement (June 29. 2014); Intervenors' Resp. at 1 (July 3, 20l4). More significantly. Intervenors subsequently
filed an additional S\ipplemental response brief on AugustS, 2014. despite being bound by the Rule 11 Agreement
reqmring that any resJlonse by the Intervenors must be fi led by July 2. 2014. Intervenors' Supp. Resp. (Aug. S,
2014).
2
618
makes no sense to argue they are not sworn motions as Rule 120a requires. In any event, even if
there were a technical defect- which there is not- the Texas Supreme Court has made clear that
a special appearance can be veri fied after the hearing. 2
ll. INTERVENORS DID NOT MEET TH~IR BURDEN OF PLEADING S UFFICIENT
JURISDICTIONAL ALLEGATIONS OVER NON-RESIDENTS.
The1·e is no allegation that any acts by the Massachusetts Defendants giving rise lo the
Intervenors claims took place in Texas. That means it is enough to establish that the
Massachusetts Defendants m·c not residents and the Court does not need to go any further. "The
plaintiff has the initial burden of pleading sufficient allegations to bring the nomesident
de fendant within the provisions of the Texas long-aJ:m statute. . .. If the plaintjff docs not plead
jurisdictional allegati ons, i.e .. that the defendant has committed any act in Texas, the defendant
can satisfy its burden by presenting evidence that it is a nonresident. ''3
Ill. THERE IS NO SPECII993 S.W.2d 473,476 (Tex. App.- Houston [14th Oist.J 1999. no pet.): see
t1lso Hmel Panners v. KPMG Pem Manvick.
847 S.W.2d 630, 634 (Tex.App.·Oallas 1993. writ denied) (granting
special appe.arance prorer where the defe ndant established it wa.~ a non-resident and the plaintiff's ''pleadings
contained no allegatio ns that [the defendant] committed any acts in Te:~:as'l
*M oki M ac Ri1•er E.qJeditions v. Drugg. 22.1 S. W .3d 569. 576 (Tex. 2007).
5
fd. at SSS.
3
619
A. No Allegations in the Intervenors' Petition Support Specific Jurisdiction.
The Jntervenors do not make a single fact ual allegation in their petition that any conduct
by the Massachusetts Defendants actuaJly took place in Texas. Without specific allegations
regarding acts by the Massachusetts Defendants in Texas, there can be no specific jurisdiction. 6
B. None of the Contacts Alleged by the Intervenors in Their Briefing Support the
Exercise of Specific Jurl~di c tion.
The Tntervet1ors argue that specific jurisdiction may be asserted over the Massachusetts
Defendants based on ..Preston' s activities as a director of and fund raiser for TS J and NC12-
both Texas companies" and on the grounds that they "could reasonably foresee that NC12 and its
7
shareholders and investors would suffer direct economic iJljury." T his argument echoes
Intervenors· ge neral claim in their petition that jlllisdiction is proper simply because tortious
conduct '·was directed at the State of Texas:·S But the Texas Supreme Court unequivocally
rejected the ru·gument that j urisdiction can arise just because actions caused harm to a Texas
.resident.Y "Several pmblems arise if jurisdiction rums not on a defendant's contncls, bur on
where it 'directed a tort.''' 11) Here, the Intervenors· allegations are even further removed given
that none of the Intervenors ru·c Texas residents ~md TSJ ru1d NC 12 ru·c Nevada corporations. not.
Texas corporations.
11
Vosko v. Chase Manharran Bank. N.A.•
909 S.W.2d 95. 99 (Tex.Arp.-Houston [14th Oist.J 1995. writ denied) (" if
the plainriff does not allege that the defendant performed a specific act in Texas. the defendant's evidence ttl at he is a
nonresident is enough to cany his burden of pmof): Olympia Capita( A.~sors.. LP. v. Jackson. 247 S.W.Jd 399,
407 (Tex.App.-Dallas 2()08, no pet.) ('"absent allegations of any specific. purposeful act through which the
defend am can he snid to have sough t a benefit by ' availing itself of the ,jurisdiction.' . .. evidence that a defendant is
a nonresident is suffic ient to me~t.s its burden").
7
Inletvenors' Resp. at 13.
REx. B. Orig. Pet. in Intervention ut ~144 (Nov. 1 I. 2011).
'~ Michiana Easy Livin' Cmmtry. Ttw. v. llofum, 168 S.W.3d 777 (Tex. 2005).
10
lei. at 790.
4
620
Because the general allegations by the Intervenors do not point to any activities in Texas,
they also fail to show that Preston " purposely avail[ed] [him]self of the privilege of conducting
activities" in Texas. 11 Nor do the actual facts related to Preston's involvement with NC12 show
a connection to Texas. Preston is a shareholder and di rector of NC 12. but the only board
meeting he attended physically took place in Massachusetts. not Texas. and the only tirne he ever
traveled to Texas in relation to NC1 2 was to serve as a witness in a representative capacity for
the company for the limited purpose o f testifying about an asset in a divorce proceeding. 1z
The Intervenors argue that Preston is not protected by fiduciary shield docttine for
purposes of specific j urisdiction. 13 But thi s does not change the fact that there are no allegations
here of contacts with Texas that g ive rise to specific jUli sdiction. Intervenors simply have no t
pointed to any specific conduct that took place in Texas that gives rise to the claims asserted in
this case.
IV. T HERE IS NO GENRRAL J URISDICTION OVER THE MASSACHUSETTS DEFENDANTS.
There can be no question that none of the Massachusetts Defendants have the s ubstantial
continuous and syste mat ic contacts with Texas that are necess131 S. Ct. 2846. 2851 (2011).
15
PJ-JC-Minden. 235 S.W.3d at 169.
16
Itl. ar 168 (quoting 4 W1ighr & Millet, Federal Practice and Procedm-e § 1067.5).
17 [(/_
18
Ex . C, Preston Dec. l4.
19
ltl. t'K 4-6: Ex. D, Preston Supp. Dec. .• 131 S. Ct. at 2851 (requiring that a nonresident defeJldant must have
!.1
"continuous and systematic" contacts with the fonun that are "so 'continuous and systematic' as to render them
essentially at home in the fomm State" to exercise general jurisdiction).
2
~ Ex. C, Preston Dec. <(i1 5-10.
~ 6 /d. (I 9.
27
Id. n 2. 6 -7.
18
See. e.g .. PHC- Mi11den v. Kimberly- Clark Corp.,
235 S.W.3d 163. 176 (Tex. 2007) : Mikuni Corp. v. Fvster. No.
01-11-00383-CV,
2012 WL 170603. *5 (Tex. App.-Hot•ston fi st Dist.l Jan 19.201 2. no pet.).
7
623
Preston.'29 Also, notwithstanding the Intervenors' claims, Preston was not involved with Metal
Catalyst Venture. Inc.30
intervenors also claim that certain visits to Texas by Preston that he initially stated were
on behalf of TEM Capital must have been made in a personal capacity because the visits
preceded the formation of TEM Capital.31 As Preston explained in his supplemental declaration.
however, these contacts were made on behalf of C Change. an entity affiliated with TEM
Capita1.32
Even if the handful of visits Preston made to Texas in hi s representative capacity were
j urisdictional contacts- which they are not-"[o]ccasionaltravel to Texas is insufficient by itself
to establish continuous and systematic contact." 33 Here. like the defendant in Gamer v.
Furmanite Australia Pty., Ltd., Preston' s handful of visits to Texas in a representational capacity
cannot give 1ise to general jurisdiction. 34
3. Intervenors Have Not Shown that Preston is the Alter Ego for JK Claims.
Knowing the weakness of their argument for general jurisdiction over Preston,
lntervenots filed an untimely supplemental response in a last ditch effort to create nonexistent
connections between Preston and Texas. In this desperate supplemental brief. Intervenors argue
that contacts by JK Claims Investment Corporation ("JK Claims") with Texas should be imputed
to Preston.
9
! Intervenors' Resp. at 6.
Jo Ex . 0. Preston Supp. Oec. ~[ 9.
31
Intervenors ' Resp. at 6.
32
Ex. 0. Pre~ton Supp. Oec. ~11 5-6.
33
PrettSSag AkTiengesellscha.fi. v. Colmwn. 16 S. W .3d II 0, 124 (Te~. App.-Hous ton (I st Oist.J 2000. pet. denied).
34
966 S.W .2d 798. 803 (Tex. App.-Houston [lst Dist.] 1998. pet. denied) (holding no general Jmisdictwn over
individual who made eight to 10 visits to Texas on behalf of company).
8
624
Absent a showing that a company is the alter ego of an ind ividual defendant, an
individual defendant's contacts witl1 Texas on behalf of a corporation or company cannot be the
basis fot genetaljudsdict ion over a person.35
Because Intervenors· attempt to assert that contacts hy JK Clai ms should he considered
contacts of Preston for pw-poses of general j urisdiction:i6 Intervenors must prove-not simply
allege- that Preston is the alter ego of JK Claims for the Court to consider these contacts in its
j m·isdictional analysis. The convoluted suing of hearsay statements presented in the Intervenors'
untimely Supple mental Response falls far short of the sttingent requirements for showing that JK
Claims is the alter ego of Preston. Moreover. Quantum Catalytics-not Preston- is the sole
shareholder of JK Claims and Preston is only one of the 21 shareholders in Quantum
Catalytics. 37 Thus, there is no basis for concluding that Preston is the alter ego of JK Claims and
that its contacts should be imputed to Preston.
And even if these contacts were imputed to Preston-though there is no reason for them
lo be-Preston's contacts with Texas still would fall fru· shorr of the contacts required to
demonstrate th at he is "essentially at home" in Texas as the U.S. Supteme Court made clear is
required in Goodyear.
3
~ SJTQ E.U., Inc. v. Reata Rests., /n('.. 111 S.W.3cl 638. 65 1 (Tex. App.-Fmt Worth 2003. pet. denied): Brown v.
Gen. Brick Sales Co .. 39 S.W.3d 29 1. 300 (Tex. App.-Fort Worlh 2001 . no pet.); cj: Ganwr 1'. Fumwnite Australia
Pty .. Ltd .. 966 S.W.2cl 798. 803 (Tex . App.-Houston [1 st Dist.] 1998. pet. denied) (ho lding rbut fid uciary shield
doctrine protected Australian resident from trial court's exercise o f general jurisdiction becuuse hi.s only contacts
with Texas were on his employer's business).
36
T here ill no question that Intervenors' allegatio ns related to .IK Claims cannot fonn the basis for asserting specific
jlllisdicrion because the claims in this case are not related in any way to rhe,<;e allegations.
37
Ex. D. Preston Supp. Dec. ~I 10.
9
625
V. THF. COURT SHOULD STRIKE HF.ARSA Y STATEMENTS IN THE COLLINS AFFIDAVIT.
T he Mass~chu setts Defendants object to and move to strike the following statements in
lhe Collins affidavit U1at was attached as Exhibit B lo the Intervenors' Response for the
following reasons:
4 Before I met Preston, he had been active in There is no evidence tJult the
attempting to put together a project between declarant has personal
MMT and Hoescht Celanese for the developmenl knowledge. TEX. R. Evm.
of a faci lity in Bay City, Texas to process waste 602.
water bypmducts generated at Hoescht
Celanc c · s Gulf Coa t. chemical plants. This statement constitutes
inadmissible hearsay under
TEX. R . Evm. 802 because this
information is clearl y based on
s t~tement s alleged to have
been made by another person.
6 During thi s meeting, Preston touted the patented This statement constitutes
technology that he had acquired from MMT and inadmissible hearsay under
encoW'aged my participat ion in the commercial TEX. R. EVID. 802 becau e this
development of that technology. information is clearly based on
statements alleged to have
been made by another person.
10 Preston later requested that his name on the This statement constilutes
Syngas LLC record be changed to Quantum inadmj ssible hearsay under
Catalytics LLC ("Quant um"), a compa ny owned TEX. R. EVID. 802 bec~use this
by Preston. Preston led us to believe that he was information is clearly based on
the sole owner. officer. and employee of statements alJeged to have
QuantunL been made by another person.
11 When we began our discussions and negotiations This statement constitutes
in 2004. Preston did not represent himself to be inadmissible hearsay under
negotiating and planning wllh me on behalf of TEX. R. Evm. 802 because this
any corporate entity. information is clearly based on
statements alleged to have
been made by another person.
10
626
12 In my discussions with Preston. I learned that This statement constitutes
Preston had been to Texas on multiple occasions inadmissible hearsay under
prior to our introduction. He lold me that he had TEX. R. EviD. 802 because this
previously travelled to Texas on numerous information is clearly based on
occasions for meeting with Hoescht Celanese and sr~rement s alleged to have
with Flour Daniel in Cleru· Lake. Texas. Preston been made by another person.
also told me that he had made numerous visits to
the Housto n Area R e~earc h Center, or HARC. on
Research Fon cst Drive in The Woodlands. Texas
to study new technologies in the mid and late
1990s. As a result Presto n was very famili~u·
with The Woodlands. It was my understanding
that hi s visits to HARC were for his personal
benefit and not done through MIT or any
corporation.
13 During this dinner. Preston pressed me to consent · This statement constitutes
to a proposal for fi nru1cing for NC l2 that he was inadmi ssible hearsay under
attempting to put together through his company C T EX. R. EVlD. 802 because this
Change lnvestments ("C Change"). However. it information is cle~ul y based on
appeared that the proposal was simply Preston· s statements aiJeged to have
attempt to cut a deal for himself through C been made by another person.
Change, and not a gcnujne effort to raise fu nding
for NC12. As I understood the tran saction. the T here is no evidence that the
only parties that would hene fit would he Preston declara nt has personal
and companies solely under hi controL including knowledge of the statements in
C Change, at the expense of NC 12 and its the second two sentences.
existing investors and shareholders. TEX. R. Evm. 602.
CONCLUSION
This Court should rejecl the aUempt by the Intervenors- none of whom urc Texas
residents- to have this Court assert personal j urisdiction over nonresidents with practically no
contact with Texas in a case in which they assert c laims related to activities involving Nevada
corporations. T here is no specific jurisdiction over any of the Massachu ctts Defendants because
this dispute docs not arise from or re la te to any acl they performed in Texas. There is no general
jurisdiction over the Massachusetts DefendanLS because none of the m have continuous and
11
627
systematic contacts with Texas. Preston is not a Texas resident, does not conduct business in
Texas in his personal capacity, and has no presence in Texas. Btilliant Novelty has no
connection to Texas whatsoever and C Change only a handful of contacts with Texas that fall far
short of the contact that are necessary to support general jurisdiction.
Respectfully submitted,
AHMAD, ZA VITSANOS, ANAIPAKOS, ALA VI
& MENSING P.C.
By: Is/ Jamie A. Aycock
Sean Gorman
Texas Bar No. 08218100
Jamie A. Aycock
Texas Bar No. 24050241
1221 McKinney St., Suite 3460
Houston, Texas 77010
Telephone: (713) 655-1101
Telecopier: (713) 655-0062
ATIORNEYS FOR D EFENDANTS MICHAEL
SYDOW, JOHN T. PRESTON, CHRISTOPH
c
HENKEL, CHANGE INvEsTMENTS , LLC,
AND BRILLIANT NOVELTY, L.L.C.
12
628
CERTIFICATE OF SERVICE
I hereby ce11ify that on the 24th day of October 2014, a true and correct copy of the above
and foregoing document was served by E-File.TxComts.Gov. or facsimile on the following
counsel of record in accordance with the Texas Rules of Civil Procedme:
Kelley M. Keller
State Bar No. 11198240
Tracey N. Ellison
State Bar No. 15054720
5120 Woodway Dr., Suite 6019
Houston, Texas 77056
Telephone: 713-266-8200
Fax:713-266-8201
)f.J:&~U~x@ellison-keller .corn
Attonzeys for Intervenors/Plaintiffs Em:io Investments, Ltd. and H.]. von der Goltz
Asher Griffin
Chris Sileo
Sean Flammer
SCOTT, DOUGLASS & MCCONNICO, LLP
600 Congress Ave., Ste 1500
Austin, Texas 78701-2589
Fax:512-474-0731
Attorneys fort Defendants Chalysys, MET, and Lo
F. Eric Fryar
State Bar No. 07495770
eri``@ f:r.xarlawfirm.com.
Matthew Bus chi
State Bar No. 24064982
mbuschi@ti'yar1 awfirm.com
Christina Richardson
FRYAR LAW FIRM, P.C.
State Bar No. 24070495
912 Prairie, Suite 100
Houston, Texas 77002-3145
Fax:281-605-1888
Attorneys for all Intervenors/Plaintiffs
Is/ Jamie A. Aycock
Jamie A. Aycock
629
CAUSE NO. 2011-44058
MICHAEL COLLINS, ET .t\.L, rN THE DISTH ICT COURT
P l a im1 m~
§
YS. § OF HARRIS COCNY
§
§
MICHAEL SYDOW, ETAL. §
f)(;;f'emhmt.s § 215TH JUD1C IAL DfSTRlCT
AKILA FINANCE, S.A., ET AL., IN ·nrE DISTRICT COURT
lnterve11urs/PJni.riliffs
VS. OF HARRlS COUNTY. -n~:XAS
MICHAEL SYDOW. ET AL.
Defendants. § 2 15TH J1JD1CIAL DISTRfCT
.JOHN T. ])RESTON'S SlJPl>LEMENTAL DF.CLARATION IN SUl}PORT OF HlS
SPECIAL APPEARANCE
l. My name is .loJ.m T. Pl·~s'lbrt.
My date of birth is MarCJ) 18, 1950, and r.ny address is 9
Martins Cove Lane, Hingham, MA 02043. l deciate under penalty of perjury that the
statements ~n tllis declaration are true ~nd con'CcL
1 1 am l.rver the age of 21. [ have neve.r been convi~ted or a felony or crime invotving
nHn·al turpitude. 1 a.tll of {)OUnd mind a.u d am fully competent to make this declaration.
3. As I previously d1sdos~d in this case, l traveled to rcxas in the 1990s on a handful of
occssions. None of those trips wei'e in111y personal ca}}acity.
4. l keep dct.ailed reconis of my tJ:a.v~l. i\fter reviewing my traveJ reco.rds, Tiden1.ified Bll of
roy trips to Texas in the five years beforf~ this lawsuit was filed for which I could locaLe
travel in1orm)Q-" ``~ ~ 301 S.W.3d 653 (2010)
53 Tex. Sup. Ct. J. 247
301 S.W.3d 653
Supreme Court of Texas.
Dan KELLY and Laura Hofstatter, Petitioners,
v.
GENERAL INTERIOR CONSTRUCTION, INC., Respondent.
No. 08–0669. | Argued Nov. 18, 2009. | Delivered Jan. 15, 2010.
Synopsis
Background: Hotel corporation sued Arizona general contractor for claims arising from
renovation of hotel in Texas. Subcontractor filed cross-claims against general contractor for
breach of contract, violation of Texas Trust Fund Act, and fraud. The 125th District Court, Harris
County, John A. Coselli, Judge, denied general contractor's motion for special appearance. General
contractor appealed, and the Court of Appeals,
262 S.W.3d 79, affirmed denial.
[Holding:] On general contractor's petition for review, the Supreme Court, Guzman, J., held that
trial court lacked personal jurisdiction over Arizona general contractors.
Judgment of cap reversed in part; judgment rendered dismissing cross-claims.
Attorneys and Law Firms
*655 David C. Holmes and Leymon L. Solomon, The Solomon Law Firm, Houston, TX, for
Petitioners.
Ross A. Sears II, Sears Crawford, L.L.P., Houston, TX, for Respondent.
Opinion
Justice GUZMAN delivered the opinion of the Court.
[1] To establish personal jurisdiction in Texas courts over nonresident defendants, plaintiffs must
plead a connection between the defendants' alleged wrongdoing and the forum state. Asserting
statutory and common law claims, General Interior Construction, Inc. (GIC), a Texas corporation,
sued Daniel Kelly and Laura Hofstatter (collectively, the Officers), both Arizona residents. Absent
from GIC's pleadings, however, is any allegation that Kelly and Hofstatter committed any acts
giving rise to these claims in Texas. Because the Officers filed a special appearance proving that
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
Kelly v. General Interior Const., Inc.,
301 S.W.3d 653 (2010)
53 Tex. Sup. Ct. J. 247
they do not live in Texas, they successfully negated all alleged bases for personal jurisdiction in
Texas courts. We accordingly reverse in part the court of appeals and render judgment dismissing
GIC's claims against the Officers for lack of personal jurisdiction.
I. Background
Kelly and Hofstatter are the sole shareholders and officers of Diva Consulting, Inc., an Arizona-
based general contractor that Meristar Hospitality Corporation, a non-Texas entity, hired to
renovate a Houston hotel. Diva then entered into subcontracting agreements with various
companies, including Texas-based GIC, to perform the work. During construction Kelly made
several trips to Houston to oversee the project. Diva also sent change orders and payments to and
received invoices from these Texas companies, while receiving funds from Meristar to pay for
the work.
Disputes arose between Diva and GIC, with the former claiming that GIC did substandard work
requiring substantial expenditures *656 to remedy, and the latter claiming that Diva did not
pay the entire contract amount. Meristar ultimately filed a lawsuit against Diva and various
subcontractors, including GIC. GIC filed cross-claims against Diva and third-party claims against
the Officers, asserting claims for breach of contract, violations of Chapter 162 of the Texas
Property Code (Texas Trust Fund Act), 1 and fraud.
1 Texas law provides that payments made to a contractor or its officers, agents, or directors are trust funds if made under a contract for
the improvement of real property in this state. See TEX. PROP.CODE § 162.001(a). The contractor or its officers, agents, or directors
who receive or control the funds are trustees thereof.
Id. § 162.002. The beneficiaries of the trust funds are persons who provide
labor or materials for the project. See
id. § 162.003. A trustee who acts, inter alia, with intent to defraud by using, disbursing, or
otherwise diverting “trust funds without first fully paying all current or past due obligations incurred by the trustee to the beneficiaries”
misapplies the trust funds.
Id. § 162.031. “Intent to defraud” means, as relevant here, that the trustee so used trust funds obtained
by means of an affidavit under Texas Property Code § 53.085 containing false information relating to the trustee's payment of the
obligations.
Id. § 162.005(1)(C); see also
id. § 53.085 (requiring the affiant, upon request of the payor, to aver that subcontractors,
laborers, and materialmen have been paid in full).
Regarding the trust-fund claims, GIC alleged that the Officers “were the trustee[s] of all payments
made to [Diva] by [Meristar]”; that GIC was “a beneficiary of the trust money paid to the trustees”;
and that the Officers “provided affidavits to [Meristar] stating that all subcontractors (including
[GIC] ) were paid or would be paid” when in fact those statements were “untrue.” In its fraud
claim, GIC referred to its trust-fund allegations and alleged that “the material representations made
by [Diva] were false and were made with the intention that GIC would rely thereon.” The only
mention of Texas in GIC's pleading is the incorporation by reference of Diva's contract with GIC,
which identifies the Houston hotel as the job site. GIC did not allege that the Officers lived in
Texas, that they conducted business in Texas, or that any of the operative facts of the trust-fund
and fraud claims occurred in Texas.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2
Kelly v. General Interior Const., Inc.,
301 S.W.3d 653 (2010)
53 Tex. Sup. Ct. J. 247
The Officers filed a special appearance, stating they were residents of Arizona, did not own
property in Texas, did not employ anyone in Texas, and did not conduct business in Texas in their
personal capacities. The trial court denied the special appearance, and a divided court of appeals
affirmed in part, reversing only as to the breach-of-contract claim. 2
2 GIC has not sought review of the court of appeals' judgment regarding the breach-of-contract issue.
The majority reasoned that the Texas Trust Fund Act reaches past the corporation to hold its
officers personally liable for violations of the Act: “[W]e must focus only on whether [GIC] has
pleaded that the Officers, regardless on behalf of [Diva] or in their individual capacities, controlled
and directed funds received for the [hotel] project.”
262 S.W.3d 79, 86. Finding that GIC had
so pleaded, the court upheld the trial court's order. The court used similar reasoning regarding
the fraud claim, concluding that “[t]he Officers' alleged fraud sufficiently ‘relates to’ conduct
purposefully directed toward Texas.”
Id. at 86–87. In response to the dissent's claim that the
Officers had no connection with Texas, the majority pointed to the following facts: “The record
reveals that performance under the construction contract was to be performed exclusively in Texas.
The Officers sent and directed payments to [GIC] in Texas. Kelly made site visits to the Texas work
site. The Officers received *657 numerous invoices from Texas regarding the [hotel] project.”
Id. at 86 n. 5.
The dissent found no connection between the Officers and Texas for either claim:
In its third-party petition, [GIC] alleges that the Officers acted with intent to
defraud by providing false affidavits to Meristar and that the Officers violated
section 162.005(1)(C) of the Texas Property Code. [GIC] also asserts that
the Officers fraudulently represented that [GIC] would be paid in full under
its contract with Diva. Notably, [GIC] does not allege that any of these acts
occurred in Texas. Moreover, in its third-party petition, [GIC] does not allege
that the Officers committed any act whatsoever in Texas or that they conducted
any business whatsoever in Texas. Therefore, [GIC's] third-party petition lacks
sufficient allegations to invoke the trial court's personal jurisdiction over the
Officers, and the Officers, thus, could satisfy their burden of negating all bases
of personal jurisdiction merely by presenting evidence that they are not residents
of Texas.
Id. at 93 (Frost, J., dissenting). Because the Officers established that they do not live in Texas, the
dissent would have reversed the trial court's denial of the Officers' special appearance.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 3
Kelly v. General Interior Const., Inc.,
301 S.W.3d 653 (2010)
53 Tex. Sup. Ct. J. 247
The Officers petitioned this Court for review, which we granted. 52 Tex. Sup.Ct. J. 792 (June 5,
2009). We have jurisdiction because there is a dissent in the court of appeals. See TEX. GOV'T
CODE § 22.225(c); BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789, 793 (Tex.2002).
II. Standard of Review
[2] [3] Whether a court can exercise personal jurisdiction over nonresident defendants is a
question of law, and thus we review de novo the trial court's determination of a special appearance.
Moki Mac River Expeditions v. Drugg,
221 S.W.3d 569, 574 (Tex.2007); BMC
Software, 83
S.W.3d at 794. “When [as here] a trial court does not issue findings of fact and conclusions of law
with its special appearance ruling, all facts necessary to support the judgment and supported by the
evidence are implied.” BMC
Software, 83 S.W.3d at 795 (citing Worford v. Stamper,
801 S.W.2d
108, 109 (Tex.1990); Zac Smith & Co. v. Otis Elevator Co.,
734 S.W.2d 662, 666 (Tex.1987); In
re W.E.R.,
669 S.W.2d 716, 717 (Tex.1984)).
III. Discussion
A. In Personam Jurisdiction
[4] [5] [6] [7] A nonresident defendant is subject to the personal jurisdiction of Texas courts
if (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and (2) the exercise of
jurisdiction does not violate federal and state constitutional due process guarantees. Schlobohm
v. Schapiro,
784 S.W.2d 355, 356 (Tex.1990). The broad “doing business” language in Texas's
long-arm statute allows the trial court's jurisdiction to “reach as far as the federal constitutional
requirements of due process will allow.” Moki
Mac, 221 S.W.3d at 575 (quoting Guardian Royal
Exch. Assurance, Ltd. v. English China Clays, P.L.C.,
815 S.W.2d 223, 226 (Tex.1991)). Personal
jurisdiction is consistent with due process “when the nonresident defendant has established
minimum contacts with the forum state, and the exercise of jurisdiction comports with traditional
notions of fair play and substantial justice.”
Id. (internal quotation marks omitted) (quoting Int'l
Shoe Co. v. Washington,
326 U.S. 310, 316,
66 S. Ct. 154,
90 L. Ed. 95 (1945)). “A defendant
establishes minimum contacts with a state when it purposefully avails itself of the privilege of
conducting activities within the forum *658 state, thus invoking the benefits and protections of
its laws.” Retamco Operating, Inc. v. Republic Drilling Co.,
278 S.W.3d 333, 338 (Tex.2009)
(internal quotation marks omitted) (quoting Hanson v. Denckla,
357 U.S. 235, 253,
78 S. Ct. 1228,
2 L. Ed. 2d 1283 (1958)).
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 4
Kelly v. General Interior Const., Inc.,
301 S.W.3d 653 (2010)
53 Tex. Sup. Ct. J. 247
[8] [9] GIC argues that the trial court had only specific jurisdiction over its claims against
the Officers. “Specific jurisdiction ... arises when (1) the defendant purposefully avails itself of
conducting activities in the forum state, and (2) the cause of action arises from or is related to those
contacts or activities. In a specific jurisdiction analysis, we focus ... on the relationship among
the defendant, the forum[,] and the litigation.”
Id. (alteration in original) (citations and internal
quotation marks omitted).
B. Special Appearance
[10] Our special-appearance jurisprudence dictates that the plaintiff and the defendant bear
shifting burdens of proof in a challenge to personal jurisdiction. We have consistently held that the
plaintiff bears the initial burden to plead sufficient allegations to bring the nonresident defendant
within the reach of Texas's long-arm statute. See
id. at 337; Moki
Mac, 221 S.W.3d at 574; Am.
Type Culture Collection, Inc. v. Coleman,
83 S.W.3d 801, 807 (Tex.2002); BMC
Software, 83
S.W.3d at 793; McKanna v. Edgar,
388 S.W.2d 927, 930 (Tex.1965). Once the plaintiff has
pleaded sufficient jurisdictional allegations, the defendant filing a special appearance bears the
burden to negate all bases of personal jurisdiction alleged by the plaintiff. E.g., Retamco
Operating,
278 S.W.3d at 337. 3 Because the plaintiff defines the scope and nature of the lawsuit, the
defendant's corresponding burden to negate jurisdiction is tied to the allegations in the plaintiff's
pleading. 4
3 The adoption of the special appearance was a significant development in Texas law. For most of its history prior to 1962, Texas
law did not recognize a special appearance, and a nonresident defendant who appeared in a Texas court waived any objection to
personal jurisdiction. See Atchison, Topeka & Santa Fe Ry. Co. v. Stevens,
109 Tex. 262,
206 S.W. 921, 921 (1918) (“A special
appearance is unknown to our practice. The filing by a defendant of any defensive pleading, though it be only for the purpose of
challenging the jurisdiction of the court, constitutes an appearance and a submission to the jurisdiction of the forum.”); see also
York v. Texas,
137 U.S. 15, 21,
11 S. Ct. 9,
34 L. Ed. 604 (1890) (holding that Texas's rule disallowing special appearances did not
violate due process); E. Wayne Thode, In Personam Jurisdiction; Article 2031B, the Texas “Long Arm” Jurisdiction Statute; and
the Appearance to Challenge Jurisdiction in Texas and Elsewhere, 42 TEX. L.REV. 279, 292–97 (1964) (recounting early special-
appearance jurisprudence). Thus, a nonresident defendant wishing to challenge personal jurisdiction in Texas had but one choice
—default and challenge jurisdiction collaterally when the plaintiff came to enforce the judgment in the defendant's home state.
Faced with a waiver of any objection to jurisdiction or a default on the merits, the nonresident defendant had to choose between
two unpleasant alternatives. Seeking to remedy this dilemma, this Court promulgated Texas Rule of Civil Procedure 120a, which
allows nonresident defendants to specially appear for the sole purpose of challenging the trial court's jurisdiction over them or their
property. See TEX.R. CIV. P. 120a.
4 While the pleadings are essential to frame the jurisdictional dispute, they are not dispositive. Rule 120a requires a special appearance
to be made by sworn motion, TEX.R. CIV. P. 120a(1), and also requires the trial court to “determine the special appearance on the
basis of the pleadings, any stipulations made by and between the parties, such affidavits and attachments as may be filed by the
parties, the results of discovery processes, and any oral testimony,” TEX.R. CIV. P. 120a(3). Even so, this additional evidence merely
supports or undermines the allegations in the pleadings.
[11] [12] If the plaintiff fails to plead facts bringing the defendant within reach *659 of the
long-arm statute (i.e., for a tort claim, that the defendant committed tortious acts in Texas), the
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 5
Kelly v. General Interior Const., Inc.,
301 S.W.3d 653 (2010)
53 Tex. Sup. Ct. J. 247
defendant need only prove that it does not live in Texas to negate jurisdiction. See Siskind v. Villa
Found. for Educ., Inc.
642 S.W.2d 434, 438 (Tex.1982) (“[T]he only evidence offered to negate
jurisdiction was [a defendant's] testimony that she and the other individuals were residents of
Arizona.... In view of [the plaintiff's] failure to allege any act by these individuals in Texas, we
believe that the [defendants] have sustained their burden.”). 5 When the pleading is wholly devoid
of jurisdictional facts, the plaintiff should amend the pleading to include the necessary factual
allegations, see TEX.R. CIV. P. 63, thereby allowing jurisdiction to be decided based on evidence
rather than allegations, as it should be.
5 See also Perna v. Hogan,
162 S.W.3d 648, 653 (Tex.App.-Houston [14th Dist.] 2005, no pet.) (“If the plaintiff does not plead
jurisdictional allegations, i.e., that the defendant has committed any act in Texas, the defendant can satisfy its burden of negating
all bases of personal jurisdiction by presenting evidence that it is a nonresident at the special appearance hearing.”); Frank A. Smith
Sales, Inc. v. Atl. Aero, Inc.,
31 S.W.3d 742, 747 (Tex.App.-Corpus Christi 2000, no pet.) (“[The plaintiff's] third-party petition
stated only that [the defendant] had committed acts of negligence, without specifying what those negligent acts were, or where they
occurred. Therefore, [the] petition fell well short of pleading sufficient allegations to show jurisdiction in Texas.”).
[13] [14] [15] [16] [17] The defendant can negate jurisdiction on either a factual or legal
basis. Factually, the defendant can present evidence that it has no contacts with Texas, effectively
disproving the plaintiff's allegations. The plaintiff can then respond with its own evidence that
affirms its allegations, 6 and it risks dismissal of its lawsuit if it cannot present the trial court
with evidence establishing personal jurisdiction. 7 Legally, the defendant can show that even if
the plaintiff's alleged facts are true, the evidence is legally insufficient to establish jurisdiction; the
defendant's contacts with Texas fall short of purposeful availment; for specific jurisdiction, that
the claims do not arise from the contacts; or that traditional notions of fair play and substantial
justice are offended by the exercise of jurisdiction. 8
6 If the plaintiff's evidence does not fall within the scope of the factual allegations in the pleading, then the plaintiff should amend
the pleading for consistency.
7 The losing party in the trial court can challenge the factual sufficiency of the evidence in the court of appeals. E.g., BMC
Software,
83 S.W.3d at 794.
8 The losing party in the trial court can challenge the legal sufficiency of the evidence in the court of appeals and in this Court. E.g.,
id. The trial court's legal conclusions are, as noted, reviewed de novo. See
id.
C. Analysis
[18] Turning to the case at hand, the only relevant prong of the Texas long-arm statute extends
jurisdiction over a nonresident who “commits a tort in whole or in part in this state.” TEX. CIV.
PRAC. & REM.CODE § 17.042(2). 9
9 We recognize that § 17.042 is non-exclusive, see BMC
Software, 83 S.W.3d at 795, but GIC does not separately allege that the
Officers conducted business in Texas, and the only remaining claims against them are for tortious activity, making this subsection
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 6
Kelly v. General Interior Const., Inc.,
301 S.W.3d 653 (2010)
53 Tex. Sup. Ct. J. 247
directly applicable. Section 17.042(1), regarding performance of a contract in Texas, does not apply as the Officers were not parties
to Diva's contract with GIC, nor did they guarantee it.
GIC failed to plead facts within the reach of the long-arm statute because it did not allege that
the Officers committed any tortious acts in Texas. As noted, GIC's live pleading contains no
allegations *660 that the Officers' wrongdoing occurred in Texas. Regarding the fraud claim, GIC
did allege several fraudulent acts (e.g., providing false affidavits to Meristar and misrepresenting
to GIC that it would be paid in full), but it did not allege that any fraudulent acts occurred in
Texas. Regarding the trust-fund claims, GIC did not allege that the Officers used or retained the
trust funds in Texas, nor that they submitted false affidavits to Meristar in Texas. Thus, although
GIC has alleged two claims of wrongdoing, it has not alleged that any acts giving rise to these
two claims occurred in Texas.
Because GIC failed to plead jurisdictional facts, the Officers could, and did, meet their burden to
negate all bases of jurisdiction by proving that they do not live in Texas. See
Siskind, 642 S.W.2d
at 438. GIC did not challenge that fact, nor did it present any responsive evidence establishing the
requisite link with Texas. The most relevant piece of evidence is an affidavit of GIC's president
stating that Laura Hofstatter promised him payment. But even this affidavit does not state where
this conversation occurred or make any connection with Texas. In short, GIC's rebuttal evidence
is as silent as its pleadings regarding the Officers' Texas contacts related to its claims. Having met
their burden of proof, the Officers' special appearance should have been granted.
Although the trier-of-fact may ultimately conclude that Kelly and Hofstatter violated the Texas
Trust Fund Act and committed fraud, the mere commission of an act does not grant Texas courts
jurisdiction over the actor. Rather, as we have frequently emphasized, the requirements of due
process must be upheld, particularly the connection between the defendant, the forum, and the
litigation in the specific jurisdiction context. See, e.g., Retamco
Operating, 278 S.W.3d at 338.
[19] [20] [21] The majority in the court of appeals focused on a corporate officer's potential
for individual liability under the Texas Trust Fund Act, finding sufficient GIC's allegations that
the Officers controlled and directed funds received under Diva's contract with Meristar.
See 262
S.W.3d at 84–86. But the mere existence of a cause of action does not automatically satisfy
jurisdictional due process concerns. A state is powerless to create jurisdiction over a nonresident
by establishing a remedy for a private wrong and a mechanism to seek that relief. Instead,
jurisdictional analysis always centers on the defendant's actions and choices to enter the forum
state and conduct business. See, e.g., Int'l
Shoe, 326 U.S. at 316,
66 S. Ct. 154 (focusing the inquiry
on the defendant's presence in, or contacts with, the forum state); Retamco
Operating, 278 S.W.3d
at 338 (“We focus on the defendant's activities and expectations when deciding whether it is
proper to call the defendant before a Texas court.”); Moki
Mac, 221 S.W.3d at 575 (“[O]nly the
defendant's contacts with the forum are relevant, not the unilateral activity of another party or a
third person.”); Michiana Easy Livin' Country, Inc. v. Holten,
168 S.W.3d 777, 784–85 (Tex.2005)
(“[I]t is essential in each case that there be some act by which the defendant purposefully avails
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 7
Kelly v. General Interior Const., Inc.,
301 S.W.3d 653 (2010)
53 Tex. Sup. Ct. J. 247
itself of the privilege of conducting activities within the forum State, thus invoking the benefits
and protections of its laws.” (quoting
Hanson, 357 U.S. at 253,
78 S. Ct. 1228)). The concept of
minimum contacts is rooted in the notion that a defendant may reasonably be haled into the forum
state's courts when it purposefully, not randomly or fortuitously, engages in activities there. See,
e.g.,
Michiana, 168 S.W.3d at 785. Thus, merely pleading that Kelly and Hofstatter violated the
Texas Trust Fund Act is not enough; GIC must also plead and, when *661 challenged by the
defendants, present evidence that the Officers' relevant acts (i.e., those connected to GIC's claims)
occurred, at least in part, in Texas.
The court of appeals also erred by allowing GIC's fraud claim to proceed despite the lack of
allegations and evidence that any part of the claim originates from the Officers' conduct in Texas.
See 262 S.W.3d at 86–87. The court reasoned that “[t]he Officers' alleged fraud sufficiently ‘relates
to’ conduct purposefully directed toward Texas.”
Id. But we rejected the concept of directed-a-
tort jurisdiction in Michiana, instead affirming the importance of the defendant's contacts with the
forum state.
See 168 S.W.3d at 788–92. While we noted that “on one occasion the United States
Supreme Court found specific jurisdiction based on alleged wrongdoing intentionally directed at
a forum resident,” the defendant's conduct in that case still “constituted a substantial ‘presence’ in
the state.”
Id. at 789 (discussing Calder v. Jones,
465 U.S. 783,
104 S. Ct. 1482,
79 L. Ed. 2d 804
(1984)). Here, as noted, GIC has not alleged that the Officers engaged in activities that constitute
any presence—let alone a substantial presence—in this state.
IV. Conclusion
Because GIC's pleadings lack Texas-specific allegations, the Officers negated all jurisdictional
bases by proving that they do not live in Texas, and GIC has not presented any evidence to the
contrary. 10 Accordingly, we reverse in part the court of appeals and render judgment dismissing
GIC's claims against Kelly and Hofstatter for lack of personal jurisdiction.
10 Because we decide this case based on the lack of alleged minimum contacts with Texas, we do not discuss the fair-play-and-
substantial-justice prong of personal jurisdiction.
Parallel Citations
53 Tex. Sup. Ct. J. 247
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 8
BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
83 S.W.3d 789
Supreme Court of Texas.
BMC SOFTWARE BELGIUM, N.V., Petitioner,
v.
Michel MARCHAND, Respondent.
No. 00–1019. | Argued Sept. 5, 2001. | Decided
June 27, 2002. | Rehearing Denied Aug. 29, 2002.
Employee sued Houston based corporation and its foreign subsidiary for breach of contract,
fraud, negligent misrepresentation, and declaratory relief. The 127th District Court, Harris County,
Sharolyn Wood, J., denied foreign subsidiary's special appearance contesting jurisdiction, and
foreign subsidiary appealed. The Court of Appeals affirmed and foreign subsidiary petitioned
Supreme Court for review. The Supreme Court, James A. Baker, J., held that: (1) trial court did not
have specific jurisdiction over foreign subsidiary; (2) trial court did not have general jurisdiction
over foreign subsidiary; (3) foreign subsidiary was not the alter ego of its parent for jurisdictional
purposes; and (4) trial court did not abuse its discretion in denying employee's request for a
continuance of the special appearance hearing.
Court of Appeals reversed, and judgment rendered.
Attorneys and Law Firms
*792 Merritt B. Chastain, III, Thomas H. Wilson, Houston, Vinson & Elkins, for Petitioner.
Stuart M. Nelkin, Carol Nelkin, Nelkin & Nelkin, Houston, for Respondent.
Opinion
Justice BAKER delivered the opinion of the Court.
This is an interlocutory appeal from the denial of a foreign corporation's special appearance.
A divided court of appeals affirmed the trial court's ruling.
80 S.W.3d 52. We conclude that
the foreign corporation's contacts with Texas are insufficient to create either specific or general
jurisdiction. We also conclude that the trial court did not abuse its discretion in denying the
plaintiff's motion to continue the special appearance hearing. We therefore reverse the court
of appeals' judgment and render judgment dismissing the plaintiff's claims against the foreign
corporation for want of jurisdiction.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
*793 I. BACKGROUND
Michel Marchand, a Belgian citizen, was employed by Platinum Technologies in Belgium. In
March 1996, Marchand began negotiating with Gerd Ordelheide and Adri Kok for employment
with BMC Software Belgium, N.V. (BMCB). Ordelheide and Kok were directors of BMCB, a
wholly-owned subsidiary of BMC Software, Inc. (BMCS), a Delaware corporation headquartered
in Houston.
On March 29, 1996, Marchand and BMCB signed a letter agreement outlining the terms of
Marchand's employment with BMCB, including the offer of options to purchase 20,000 shares
of BMCS stock. The agreement did not specify when the options would be granted or when
Marchand could exercise them. The letter agreement also referenced a “management agreement”
that Marchand had apparently presented to BMCB. On June 13, 1996, BMCB and Marchand
executed the management agreement between BMCB and a company called Procurement, N.V., of
which Marchand was the sole officer and director. The record shows that Marchand asked BMCB
to hire Procurement as a management company so that Marchand could work for Procurement as
an independent contractor rather than directly for BMCB. Apparently, this arrangement enabled
Marchand to reduce his Belgian tax liability. The management agreement was in German, and it
stated that Belgian law applies and the court at Brussels had exclusive jurisdiction.
When Marchand actually began working for BMCB is unclear. But it is clear that in July 1997,
BMCB discharged Procurement and Marchand. Marchand was never granted any options to
purchase BMCS stock. He sued BMCB and BMCS for breach of contract, fraud, negligent
misrepresentation, and declaratory relief. Marchand alleged both specific and general jurisdiction
over BMCB. BMCB filed a special appearance, which the trial court denied. BMCB appealed the
trial court's interlocutory order. See TEX. CIV. PRAC. & REM.CODE § 51.014(a)(7). The court
of appeals
affirmed, 80 S.W.3d at 55, and BMCB petitioned this Court for review.
II. THIS COURT'S JURISDICTION
Until 1997, a trial court's order denying a special appearance was reviewable only on appeal after
trial. Canadian Helicopters Ltd. v. Wittig,
876 S.W.2d 304, 307 (Tex.1994). But the Legislature
amended section 51.014 of the Civil Practice and Remedies Code to permit an interlocutory appeal
from a trial court's ruling on a special appearance.
Typically, a court of appeals judgment in an interlocutory appeal is conclusive and an appeal
to this Court is not allowed. See TEX. GOV'T CODE § 22.225(b). However, because there is a
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BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
dissent in the court of appeals, we may exercise jurisdiction in this case. See TEX. GOV'T CODE
§ 22.225(c).
III. APPLICABLE LAW
A. SPECIAL APPEARANCE—STANDARD OF REVIEW
[1] [2] The plaintiff bears the initial burden of pleading sufficient allegations to bring a
nonresident defendant within the provisions of the long-arm statute. See McKanna v. Edgar,
388
S.W.2d 927, 930 (Tex.1965). A defendant challenging a Texas court's personal jurisdiction over
it must negate all jurisdictional bases. Kawasaki Steel Corp. v. Middleton,
699 S.W.2d 199, 203
(Tex.1985). This Court has never clearly articulated the standard for reviewing a trial court's
order denying a special appearance. The Fourth Court of Appeals has held that, because personal
jurisdiction involves both legal and factual questions, appellate courts should review *794 the
trial court's decision for an abuse of discretion. See, e.g., Klenk v. Bustamante,
993 S.W.2d 677, 681
(Tex.App.-San Antonio 1998, no pet.). However, other courts of appeals review the trial court's
factual findings for legal and factual sufficiency and review the trial court's legal conclusions
de novo. See, e.g., E.L.M. LeBlanc v. Kyle,
28 S.W.3d 99, 101 (Tex.App.-Texarkana 2000, pet.
denied); In re Estate of Judd,
8 S.W.3d 436, 440–41 (Tex.App.-El Paso 1999, no pet.); C–Loc
Retention Sys., Inc. v. Hendrix,
993 S.W.2d 473, 476 (Tex.App.-Houston [14th Dist.] 1999, no
pet.); Cadle v. Graubart,
990 S.W.2d 469, 471 (Tex.App.Beaumont 1999, no pet.); Ball v. Bigham,
990 S.W.2d 343, 347 (Tex.App.Amarillo 1999, no pet.); Garner v. Furmanite Australia Pty, Ltd.,
966 S.W.2d 798, 802 (Tex.App.-Houston [1st Dist.] 1998, pet. denied); Al–Turki v. Taher,
958
S.W.2d 258, 260–61 (Tex.App.-Eastland 1997, pet. denied).
[3] [4] [5] [6] [7] We agree with the latter view and disapprove of those cases applying an
abuse of discretion standard only. 1 Whether a court has personal jurisdiction over a defendant
is a question of law. See Hotel Partners v. Craig,
993 S.W.2d 116, 120 (Tex.App.-Dallas 1994,
writ denied) (stating that this Court's decision in Guardian Royal Exch. Assurance, Ltd. v. English
China Clays, P.L.C.,
815 S.W.2d 223, 226 (Tex.1991), suggests that personal jurisdiction is a legal
question). However, the trial court frequently must resolve questions of fact before deciding the
jurisdiction question. See E.L.M.
LeBlanc, 28 S.W.3d at 101; C–Loc Retention
Sys., 993 S.W.2d at
476. If a trial court enters an order denying a special appearance, and the trial court issues findings
of fact and conclusions of law, the appellant may challenge the fact findings on legal and factual
sufficiency grounds. See Hotel Partners v. KPMG Peat Marwick,
847 S.W.2d 630, 632 (Tex.App.-
Dallas 1993, writ denied). Our courts of appeals may review the fact findings for both legal and
factual sufficiency. Ortiz v. Jones,
917 S.W.2d 770, 772 (Tex.1996). This Court's review of the
trial court's fact findings is limited to legal sufficiency.
Ortiz, 917 S.W.2d at 772.
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BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
1 See Whalen v. Laredo Nat'l Bancshares Inc.,
37 S.W.3d 89, 91 (Tex.App.-San Antonio 2000, pet. denied); Joe Guerra Exxon Station
v. Michelin Tyre Pub. Ltd.,
32 S.W.3d 383, 386 (Tex.App.-San Antonio 2000, no pet.); Case v. Grammar,
31 S.W.3d 304, 307–08
(Tex.App.-San Antonio 2000, no pet.); Jones v. J.P. Sauer & Sohn,
27 S.W.3d 157, 161 (Tex.App.-San Antonio 2000, pet. denied);
Eakin v. Acosta,
21 S.W.3d 405, 407–08 (Tex.App.-San Antonio 2000, no pet.); Long Distance Int'l, Inc. v. Telefonos de Mexico,
S.A.,
18 S.W.3d 706, 711 (Tex.App.-San Antonio 2000), rev'd on other grounds,
49 S.W.3d 347 (Tex.2001); Transportes Aereos de
Coahuila, S.A. v. Falcon,
5 S.W.3d 712, 717 (Tex.App.-San Antonio 1999, pet. denied); Jones v. Beech Aircraft Corp.,
995 S.W.2d
767, 769–70 (Tex.App.-San Antonio 1999, pet. dism. w.o.j.); Magnolia Gas Co. v. Knight Equip. Mfg. Corp.,
994 S.W.2d 684, 689
(Tex.App.-San Antonio 1998, no pet.);
Klenk, 993 S.W.2d at 681.
[8] [9] [10] Appellate courts review a trial court's conclusions of law as a legal question.
Hitzelberger v. Samedan Oil Corp.,
948 S.W.2d 497, 503 (Tex.App.-Waco 1997, pet. denied). The
appellant may not challenge a trial court's conclusions of law for factual insufficiency; however,
the reviewing court may review the trial court's legal conclusions drawn from the facts to determine
their correctness. Templeton v. Dreiss,
961 S.W.2d 645, 656 n. 8 (Tex.App.-San Antonio 1998, pet.
denied); Dallas County v. Sweitzer,
881 S.W.2d 757, 763 (Tex.App.-Dallas 1994, writ denied). If
the reviewing court determines a conclusion of law is erroneous, but the trial court rendered the
proper judgment, the erroneous conclusion of law does not require reversal. Scholz v. Heath,
642
S.W.2d 554, 559 (Tex.App.-Waco 1982, no writ).
*795 [11] [12] [13] When a trial court does not issue findings of fact and conclusions of
law with its special appearance ruling, all facts necessary to support the judgment and supported
by the evidence are implied. See Worford v. Stamper,
801 S.W.2d 108, 109 (Tex.1990); Zac
Smith & Co. v. Otis Elevator Co.,
734 S.W.2d 662, 666 (Tex.1987); In re W.E.R.,
669 S.W.2d
716, 717 (Tex.1984). When the appellate record includes the reporter's and clerk's records, these
implied findings are not conclusive and may be challenged for legal and factual sufficiency in the
appropriate appellate court. Roberson v. Robinson,
768 S.W.2d 280, 281 (Tex.1989); Zac Smith
&
Co., 734 S.W.2d at 666. For legal sufficiency points, if there is more than a scintilla of evidence
to support the finding, the no evidence challenge fails. Holt Atherton Indus., Inc. v. Heine,
835
S.W.2d 80, 84 (Tex.1992).
B. IN PERSONAM JURISDICTION
[14] The Texas long-arm statute governs Texas courts' exercise of jurisdiction over nonresident
defendants. See TEX. CIV. PRAC. & REM.CODE §§ 17.041–.045. That statute permits Texas
courts to exercise jurisdiction over nonresident defendants that “does business” in Texas, and the
statute lists some activities that constitute “doing business.” TEX. CIV. PRAC. & REM.CODE
§ 17.042. The list of activities, however, is not exclusive. We have held that section 17.042's
broad language extends Texas courts' personal jurisdiction “as far as the federal constitutional
requirements of due process will permit.” U–Anchor Adver., Inc. v. Burt,
553 S.W.2d 760, 762
(Tex.1977). Thus, we rely on precedent from the United States Supreme Court and other federal
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BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
courts, as well as our own State's decisions, in determining whether a nonresident defendant has
met its burden to negate all bases of jurisdiction. See Guardian
Royal, 815 S.W.2d at 226; U–
Anchor
Adver., 553 S.W.2d at 762.
[15] [16] [17] [18] [19] Personal jurisdiction over nonresident defendants is constitutional
when two conditions are met: (1) the defendant has established minimum contacts with the
forum state, and (2) the exercise of jurisdiction comports with traditional notions of fair play and
substantial justice. International Shoe Co. v. Washington,
326 U.S. 310, 316,
66 S. Ct. 154,
90 L. Ed.
95 (1945). A nonresident defendant that has “purposefully availed” itself of the privileges and
benefits of conducting business in the foreign jurisdiction has sufficient contacts with the forum
to confer personal jurisdiction. Burger King Corp. v. Rudzewicz,
471 U.S. 462, 474–76,
105 S. Ct.
2174,
85 L. Ed. 2d 528 (1985) (discussing the constitutional boundaries of personal jurisdiction).
Although not determinative, foreseeability is an important consideration in deciding whether the
nonresident defendant has purposefully established “minimum contacts” with the forum state.
Guardian
Royal, 815 S.W.2d at 227. However, a defendant should not be subject to a foreign
court's jurisdiction based upon “random,” “fortuitous,” or “attenuated” contacts. Burger
King, 471
U.S. at 475,
105 S. Ct. 2174. Because of the unique and onerous burden placed on a party called
upon to defend a suit in a foreign legal system, the minimum contacts analysis is particularly
important when the defendant is from a different country. CSR Ltd. v. Link,
925 S.W.2d 591, 595
(Tex.1996) (citing Asahi Metal Indus. Co. v. Superior Court,
480 U.S. 102, 114,
107 S. Ct. 1026,
94 L. Ed. 2d 92 (1987)).
[20] [21] [22] Personal jurisdiction exists if the nonresident defendant's minimum contacts
give rise to either specific jurisdiction or general jurisdiction. *796 Helicopteros Nacionales de
Colombia, S.A. v. Hall,
466 U.S. 408, 413–14,
104 S. Ct. 1868,
80 L. Ed. 2d 404 (1984); Guardian
Royal, 815 S.W.2d at 226. Specific jurisdiction is established if the defendant's alleged liability
arises from or is related to an activity conducted within the forum. Guardian
Royal, 815 S.W.2d
at 228. In contrast, general jurisdiction is present when a defendant's contacts in a forum are
continuous and systematic so that the forum may exercise personal jurisdiction over the defendant
even if the cause of action did not arise from or relate to activities conducted within the forum state.
Guardian
Royal, 815 S.W.2d at 228; Schlobohm v. Schapiro,
784 S.W.2d 355, 357 (Tex.1990).
IV. ANALYSIS
In his original petition in the trial court, Marchand alleged the following to support jurisdiction over
BMCB: (1) BMCB is operated by and is a wholly owned subsidiary of BMCS; (2) BMCS provides
support to and uses its wholly owned subsidiaries such as BMCB to jointly market BMCS's
products worldwide; (3) BMCS and BMCB have the same officers; (4) BMCB has continuous
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BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
and systematic contacts with BMCS; (5) BMCB uses stock in BMCS to entice employees to work
for it; and (6) the stock allegedly offered to Marchand is located in Houston, Texas.
The court of appeals determined that the trial court could have reasonably concluded that BMCB
failed to negate all possible bases for establishing specific jurisdiction. In doing so, the court of
appeals explained that the evidence shows that BMCB and BMCS officers discussed Marchand
and the stock option offer in
Texas. 80 S.W.3d at 59–60. Furthermore, the court of appeals
concluded that the record showed that BMCB had sufficient continuous and systematic contacts
with BMCS and thus Texas to establish the trial court's general jurisdiction. In so concluding, the
court of appeals relied upon alleged conversations in Texas about Marchand between BMCB and
BMCS officers, BMCB's selling BMCS's software and services, BMCS's including its subsidiaries'
financial performance on annual reports, and BMCB providing its employees BMCS stock
options as part of an employee incentive
plan. 80 S.W.3d at 58–59. Because the court of appeals
determined the trial court could have found specific and general jurisdiction over BMCB, it did
not reach BMCB's argument that the evidence is not legally sufficient to establish that BMCB was
BMCS's alter
ego. 80 S.W.3d at 59.
A. SPECIFIC JURISDICTION
Marchand asserts that the trial court had specific jurisdiction over BMCB because BMCB
committed a tort in whole or in part in Texas. See TEX. CIV. PRAC. & REM.CODE § 17.042(2).
Specifically, Marchand alleges that Ordelheide and Max Watson, BMCS's chairman and chief
executive officer, discussed in Texas the stock-options offer BMCB made to Marchand and, in
this conversation, they planned to defraud him. Marchand argues that the discussion Ordelheide
and Watson had in Texas forms the basis of his fraud and negligent misrepresentation claims about
the stock options. In response, BMCB argues that there is no evidence in the record to support the
trial court's implied fact findings to support specific jurisdiction. We agree with BMCB.
[23] Here, Marchand alleges that his fraud and negligent misrepresentation claims arise from the
alleged Watson–Ordelheide conversation in Texas. See
Schlobohm, 784 S.W.2d at 357 (“Where
the activities of a defendant in a forum are isolated or disjointed ... jurisdiction is proper if the cause
of action arises from a particular activity.”). But they do not. The nature of the claims demonstrate
that they can only arise from BMCB's contact *797 with Marchand, which all occurred outside
of Texas. Even assuming Watson and Ordelheide talked in Texas about Marchand's employment
and the stock options, Marchand was not a party to those conversations. BMCB negotiated with
Marchand about his employment, and offered the stock options to Marchand, in Europe. Moreover,
Marchand accepted the employment offer in Belgium and worked in Belgium. Consequently,
BMCB made no representations to Marchand in Texas, and he did not rely to his detriment
on the conversation in Texas. See T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d
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BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
218, 222 (Tex.1992) (fraud requires showing that plaintiff acted in reliance on defendant's
material misrepresentation); Federal Land Bank Ass'n of Tyler v. Sloane,
825 S.W.2d 439,
442 (Tex.1991) (negligent misrepresentation requires that the plaintiff justifiably rely on the
defendant's representation). Therefore, Marchand's alleged damages arose outside of Texas. See,
e.g., Primera Vista S.P.R. de R.L. v. Banca Serfin, S.A. Institucion de Banca Multiple Grupo
Financiero Serfin,
974 S.W.2d 918, 926 (Tex.App.El Paso 1998, no pet.) (holding that specific
jurisdiction did not exist where defendant deposited money in Texas but misrepresentations to
plaintiffs about that money occurred elsewhere).
There is no evidence to support the trial court's conclusion that BMCB committed a tort in whole or
in part in Texas so that specific jurisdiction exists. See Guardian
Royal, 815 S.W.2d at 227; TEX.
CIV. PRAC. & REM.CODE § 17.042(2); see also
Roberson, 768 S.W.2d at 281. Accordingly, we
conclude that the trial court lacked specific jurisdiction over BMCB.
B. GENERAL JURISDICTION
Marchand also contends that the trial court has general jurisdiction over BMCB. Marchand relies
on the alleged Watson–Ordelheide conversation and BMCB's purchasing products from BMCS
in Texas. On the other hand, BMCB asserts that these events are not enough to establish general
jurisdiction. We agree and conclude that neither of the events Marchand relies upon are continuous
or systematic so as to establish general jurisdiction in Texas.
[24] [25] General jurisdiction may only be exercised when the nonresident defendant's contacts
in a forum are continuous and systematic.
Helicopteros, 466 U.S. at 414–15,
104 S. Ct. 1868;
Guardian
Royal, 815 S.W.2d at 228;
Schlobohm, 784 S.W.2d at 357. Though a single act may
be enough to show general jurisdiction in some instances, the alleged conversation between
Ordelheide and Watson in Texas is not enough here. See Guardian
Royal, 815 S.W.2d at 230 n. 12.
We have recognized that “[g]eneral jurisdiction requires a showing that the defendant conducted
substantial activities within the forum, a more demanding minimum contacts analysis than for
specific jurisdiction.” CSR
Ltd., 925 S.W.2d at 595 (citing Guardian
Royal, 815 S.W.2d at 228).
For the reasons discussed above, the alleged Watson–Ordelheide conversation does not constitute
“substantial activities” within the forum to meet the more onerous burden of proving general
jurisdiction. See Guardian
Royal, 815 S.W.2d at 228.
[26] Furthermore, BMCB's purchasing products from BMCS in Texas to distribute in Europe
is not enough to establish general jurisdiction. In Helicopteros, the United States Supreme Court
examined a Colombian corporation's contacts with Texas to decide if Texas courts could exercise
general jurisdiction.
Helicopteros, 466 U.S. at 415–16,
104 S. Ct. 1868. The nonresident defendant
had purchased helicopters, equipment, and training services from *798 a Texas company, sent
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BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
its employees to Texas for training, and sent its chief executive officer to Houston for contract
negotiation.
Helicopteros, 466 U.S. at 416,
104 S. Ct. 1868. The Supreme Court held that these
contacts were insufficient to warrant a Texas court's exercising general jurisdiction.
Helicopteros,
466 U.S. at 415–16,
104 S. Ct. 1868 (reversing Hall v. Helicopteros,
638 S.W.2d 870 (Tex.1982)).
The Court noted that “mere purchases, even if occurring at regular intervals, are not enough to
warrant a State's assertion of in personam jurisdiction over a nonresident corporation in a cause of
action not related to those purchase transactions.”
Helicopteros, 466 U.S. at 418,
104 S. Ct. 1868.
This case is analogous to Helicopteros. Marchand's claims against BMCB do not arise from
the purchases BMCB made from BMCS. To the contrary, Marchand's claims arise from his
employment with BMCB in Belgium and the alleged misrepresentations BMCB made to
Marchand concerning his employment. BMCB's unrelated purchases in Texas from BMCS are not
the type of contacts that justify a finding that BMCB could have “reasonably anticipate[d] being
haled into court” here. World–Wide Volkswagen Corp. v. Woodson,
444 U.S. 286, 297,
100 S. Ct.
559,
62 L. Ed. 2d 490 (1980); see also
Helicopteros, 466 U.S. at 418,
104 S. Ct. 1868.
There is no evidence to support the trial court's conclusion that BMCB's contacts with Texas were
continuous and systematic so that they established general jurisdiction. See
Helicopteros, 466
U.S. at 414–15,
104 S. Ct. 1868; Guardian
Royal, 815 S.W.2d at 228;
Schlobohm, 784 S.W.2d at
357; see also
Roberson, 768 S.W.2d at 281. Thus, we conclude that the trial court lacked general
jurisdiction over BMCB.
C. ALTER EGO
Marchand's jurisdictional allegations in his original petition can be read to allege that the trial court
has general jurisdiction over BMCB because it is BMCS's alter ego. In response, BMCB contends
that there is no evidence to support a determination that it is BMCS's alter ego.
[27] [28] [29] Personal jurisdiction may exist over a nonresident defendant if the relationship
between the foreign corporation and its parent corporation that does business in Texas is one
that would allow the court to impute the parent corporation's “doing business” to the subsidiary.
Hargrave v. Fibreboard Corp.,
710 F.2d 1154, 1159 (5th Cir.1983); Walker v. Newgent,
583 F.2d
163, 167 (5th Cir.1978). The rationale for exercising jurisdiction is that “the parent corporation
exerts such domination and control over its subsidiary ‘that they do not in reality constitute separate
and distinct corporate entities but are one and the same corporation for purposes of jurisdiction.’
”
Hargrave, 710 F.2d at 1159 (citations omitted); see also Conner v. ContiCarriers & Terminals,
Inc.,
944 S.W.2d 405, 418 (Tex.App.-Houston [14th Dist.] 1997, no writ). The party seeking to
ascribe one corporation's actions to another by disregarding their distinct corporate entities must
prove this allegation.
Walker, 583 F.2d at 167;
Conner, 944 S.W.2d at 418–19; see also Lucas v.
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BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
Texas Indus., Inc.,
696 S.W.2d 372, 375 (Tex.1984). This is because Texas law presumes that two
separate corporations are indeed distinct entities:
The general rule seems to be that courts will not because of stock ownership or
interlocking directorship disregard the separate legal identities of corporations,
unless such relationship is used to defeat public convenience, justify wrongs,
such as violation of the anti-trust laws, protect fraud, or defend crime.
Bell Oil & Gas Co. v. Allied Chem. Corp.,
431 S.W.2d 336, 339 (Tex.1968) (citations omitted).
*799 [30] To “fuse” the parent company and its subsidiary for jurisdictional purposes, the
plaintiffs must prove the parent controls the internal business operations and affairs of the
subsidiary.
Conner, 944 S.W.2d at 418–19 (discussing
Hargrave, 710 F.2d at 1160;
Walker, 583
F.2d at 167). But the degree of control the parent exercises must be greater than that normally
associated with common ownership and directorship; the evidence must show that the two entities
cease to be separate so that the corporate fiction should be disregarded to prevent fraud or injustice.
See
Hargrave, 710 F.2d at 1160;
Conner, 944 S.W.2d at 419; see also Gentry v. Credit Plan Corp.
of Houston,
528 S.W.2d 571, 573 (Tex.1975).
[31] We conclude that there is no evidence to support any implied findings by the trial court to
support that BMCB was BMCS's alter ego so that general jurisdiction exists in Texas. In Gentry,
this Court held that “[a] subsidiary corporation will not be regarded as the alter ego of its parent
merely because of stock ownership, a duplication of some or all of the directors or officers, or an
exercise of the control that stock ownership gives to stockholders.”
Gentry, 528 S.W.2d at 573.
Though Gentry dealt with whether a subsidiary corporation should be regarded as its parent's alter
ego for purposes of service of process, the Fifth Circuit and our courts of appeals have relied
on its alter ego rule in determining personal jurisdiction. See
Walker, 583 F.2d at 167; Gutierrez
v. Raymond Int'l, Inc.,
484 F. Supp. 241, 253 (S.D.Tex.1979);
Conner, 944 S.W.2d at 419; 3–D
Elec. Co. v. Barnett Constr. Co.,
706 S.W.2d 135, 139 (Tex.App.-Dallas 1986, writ ref'd n.r.e.).
Accordingly, general jurisdiction does not extend to BMCB to the extent Marchand relies on
BMCB and BMCS having duplicate officers.
In addition to alleging that BMCB and BMCS share the same officers, Marchand argues that the
record shows the following to establish BMCB's alter-ego status: (1) BMCS's SEC documents
incorporate BMCB's financial performance, and BMCS's annual report includes BMCB's financial
performance on a consolidated basis; (2) BMCS gives BMCB financial assistance; (3) BMCS
provides stock options for BMCB's employees; (4) BMCS treats BMCB's offices, employees, and
accounts receivable as its own property; (5) BMCS personnel has offices at its subsidiary facilities;
(6) BMCS performs human resources, accounting, risk management, and marketing services
for BMCB; (7) BMCS recruits employees for BMCB and approves hiring and competition; (8)
BMCB and BMCS use the same letterhead and use the terms “BMC” and “BMC Software”
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 9
BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
interchangeably; and (9) Watson's deposition testimony shows that BMCB is a mere BMCS
operation or department.
[32] There is no evidence in the record to support Marchand's assertions that BMCB is BMCS's
alter ego. There are no SEC filings in the record, and nothing in BMCB's annual report supports a
reasonable inference that BMCS considered its subsidiaries' revenue as its own or that it offered
BMCB financial assistance. The annual report's listing international sales figures could represent
either the subsidiaries' revenue or BMCS's revenue from selling its products to those subsidiaries.
Moreover, the annual report's listing Belgium as a location of both International Offices and
Independent Agents fails to show that BMCS treated its subsidiaries as mere departments or
offices. BMCS's referencing its subsidiaries in its annual report is a common business practice,
which the Internal Revenue Service, the SEC, and generally accepted accounting *800 principles
recommend. See Calvert v. Huckins,
875 F. Supp. 674, 678–79 (E.D.Cal.1995). Finally, the annual
report's stating that BMCS engaged in hedging transactions to protect against the volatility of
foreign currency exchange rates is not evidence that BMCS engaged in risk management for
BMCB.
[33] Additionally, the letter agreement between Marchand and BMCB is not evidence that BMCS
typically recruits, controls, and approves personnel whom BMCB employs or that BMCS typically
compensates BMCB employees with stock options. And, in any event, a parent company's offering
a stock option plan to a subsidiary's employees is acceptable under IRS regulations and is not
evidence of abnormal control over the subsidiary. See In re Silicone Gel Breast Implants Prods.
Liab. Litig. (MDL 926),
837 F. Supp. 1128, 1136 (N.D.Ala.1993), vacated in part on other grounds
by,
887 F. Supp. 1455 (N.D.Ala.1995).
Further, Watson's deposition testimony that BMCS employees were “from time to time ... in
the offices of a variety of our subsidiaries” does not permit a reasonable inference that BMCS
exerted such control over BMCB that the two entities ceased to be separate. See
Hargrave, 710
F.2d at 1160;
Conner, 944 S.W.2d at 418. Moreover, in discussing certain BMCS employees in
his deposition, Watson identified a senior vice-president for worldwide marketing and a vice—
president for human resources. But the existence of these two positions for BMCS is not evidence
that BMCS performed marketing and human resources for its subsidiaries, or that, even if BMCS
did perform such services, the subsidiaries were not charged for them. Similarly, BMCS and
BMCB having letterhead with “BMC Software” is no evidence that the two entities do not observe
corporate formalities, because both entities have “BMC Software” as part of their names.
In sum, the record does not reveal any evidence to support the trial court's conclusion that BMCB
was BMCS's alter ego. See
Hargrave, 710 F.2d at 1160;
Walker, 583 F.2d at 167;
Conner, 944
S.W.2d at 419; see also
Roberson, 768 S.W.2d at 281. We therefore conclude that the trial court
did not have general jurisdiction over BMCB based on BMCS's “doing business” in Texas.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 10
BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
V. OTHER ISSUES
Before the special appearance hearing, Marchand objected to the hearing going forward because
of BMCB's and BMCS's alleged failure to cooperate in discovery and requested that the trial court
continue the hearing so that he could complete discovery. The trial court overruled the objection
and denied the motion for continuance. Marchand asserts that, even if we reverse the court of
appeals' judgment, we should remand his claims for further proceedings, because the trial court
prevented him from conducting sufficient discovery before the special appearance hearing.
[34] [35] [36] This Court will not disturb a trial court's order denying a motion for continuance
unless the trial court has committed a clear abuse of discretion. Villegas v. Carter,
711 S.W.2d
624, 626 (Tex.1986). A trial court “abuses its discretion when it reaches a decision so arbitrary
and unreasonable as to amount to a clear and prejudicial error of law.” Johnson v. Fourth Court of
Appeals,
700 S.W.2d 916, 917 (Tex.1985). Here, the record shows that Marchand had ample time
to conduct, and did conduct, discovery. BMCB filed its special appearance on January 29, 1999,
and the trial court held the hearing seven months later on September 7, 1999. During that time,
Marchand deposed Watson and served numerous written discovery requests on BMCS and BMCB.
Although BMCB and BMCS objected to several discovery requests, the record does not reveal
that Marchand ever filed a motion to compel *801 or otherwise attempted to obtain any discovery
BMCB and BMCS did not provide. Based on the record, we cannot conclude that the trial court
abused its discretion in overruling Marchand's objection to the special appearance hearing and
denying his motion for a continuance to conduct further discovery.
VI. CONCLUSION
We hold that there is no evidence to support the trial court's conclusion that BMCB's contacts
with Texas were sufficient to confer either specific or general jurisdiction. In so holding, we also
conclude that there is no evidence to support a finding that BMCB was BMCS's alter ego so that
general jurisdiction in Texas exists. Finally, we hold that the trial court did not abuse its discretion
in denying its motion to continue the special appearance hearing. Accordingly, we reverse the court
of appeals' judgment and render judgment dismissing Marchand's claims against BMC Software
Belgium, N.V. for want of jurisdiction.
Parallel Citations
45 Tex. Sup. Ct. J. 930
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BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789 (2002)
45 Tex. Sup. Ct. J. 930
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 12
PHC-Minden, L.P. v. Kimberly-Clark Corp.,
235 S.W.3d 163 (2007)
50 Tex. Sup. Ct. J. 1153
235 S.W.3d 163
Supreme Court of Texas.
PHC–MINDEN, L.P. d/b/a Minden Medical Center, Petitioner,
v.
KIMBERLY–CLARK CORPORATION, Respondent.
No. 05–0823. | Argued Nov. 16, 2006. | Delivered Aug. 31, 2007.
Synopsis
Background: In context of action against tampon manufacturer brought by representative of
consumer's estate for products liability and other claims, tampon manufacturer filed third-party
claim against Louisiana hospital for medical malpractice. The County Court at Law #2, Gregg
County, F. Alfonso Charles, J., denied hospital's special appearance and determined that court had
general jurisdiction. Hospital appealed, and the Tyler Court of Appeals,
202 S.W.3d 193, affirmed.
Holdings: On petition for review, the Supreme Court, Wallace B. Jefferson, C.J., held that:
[1] hospital's contacts with Texas were not continuous and systematic, so as to establish general
jurisdiction;
[2] relevant time period for assessing hospital's contacts with Texas ended at time suit was filed,
abrogating MedCost, L.L.C. v. Loiseau,
166 S.W.3d 421, Schott Glas v. Adame,
178 S.W.3d 307,
and AmQuip Corp. v. Cloud,
73 S.W.3d 380; and
[3] hospital and its parent company did not operate as single business enterprise such that parent's
contacts with Texas could be imputed to hospital.
Reversed and rendered.
Attorneys and Law Firms
*164 R. Brent Cooper, Diana L. Faust, Devon J. Singh, Cooper & Scully, P.C., Dallas, for
petitioner.
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PHC-Minden, L.P. v. Kimberly-Clark Corp.,
235 S.W.3d 163 (2007)
50 Tex. Sup. Ct. J. 1153
*165 C. Michael Moore, David G. Cabrales, Locke Liddell & Sapp LLP, Dallas, James K.
Horstman, Rodney E. VanAusdal, Iwan Cray Huber Horstman & VanAusdal, LLC, Chicago, IL,
for respondent.
Mark P. McMahon, Erskine & McMahon, L.L.P., Kenneth Charles Cunningham, Director of Legal
Services, Good Shepard Medical Center, Longview, Susan Cassidy Cooley, Schell & Cooley,
L.L.P., Timothy D. Ryan, Shell, Mitchel & Cooley, L.L.P., Addison, Mary Olga Lovett, Andrew
J. Wupper, Greenberg Traurig LLP, Gracelyn M. Sessions, Texas Children's Hospital, Houston,
Stephen A. Madsen, Ryan D. Adair, Cantey & Hanger, Fort Worth, Mark A. Stinnett, Stinnett
Thiebaud & Remington L.L.P., Dallas, for other interested parties.
Roger Townsend, Alexander Dubose Jones & Townsend LLP, C.W. “Rocky” Rhodes, Houston,
for amicus curiae.
Opinion
Chief Justice JEFFERSON delivered the opinion of the Court.
The United States Constitution prohibits a court from exercising jurisdiction over a party that
lacks minimum contacts with the forum. Personal jurisdiction has been described as either
specific—that is, based on contacts arising from the dispute at issue—or general, predicated on a
party's “continuous and systematic” contacts with the forum. Minimum-contacts analysis is easily
muddled, however, as courts frequently import contacts relevant to one type of jurisdiction when
deciding the other. Additionally, courts sometimes impute contacts of related entities to each other,
when mere relatedness is an insufficient basis on which to confer jurisdiction. Today, we must
determine whether a Louisiana hospital, either independently or through its parent corporation,
has continuous and systematic contacts with Texas. We conclude that it does not.
I
Factual and Procedural Background
While traveling through Louisiana on December 10, 2000, Texas resident Jajah Eddington sought
medical care at MHC–Minden Hospital (“Minden Hospital”), a 159–bed acute care hospital
located in Minden, Louisiana. Medical personnel treated Eddington's flu-like symptoms in the
emergency room and advised her to consult her primary care physician if her condition did not
improve. Four days later, Eddington was admitted to Good Shepherd Medical Center in Longview,
Texas, where she ultimately was diagnosed with toxic shock syndrome. That infection led to her
death on December 28, 2000.
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PHC-Minden, L.P. v. Kimberly-Clark Corp.,
235 S.W.3d 163 (2007)
50 Tex. Sup. Ct. J. 1153
DeWayne Eddington, individually and as next friend of Devvyn Eddington, and as representative
of Jajah Eddington's estate, sued Kimberly–Clark Corporation asserting product liability, breach
of warranty, and negligence claims. He alleged that Eddington's use of Kotex tampons led to the
infection that caused her death. On February 28, 2003, Kimberly–Clark filed a third-party petition
against PHC–Minden, L.P. (“Minden”), which owns Minden Hospital, asserting that Minden's
negligence proximately caused Eddington's death. 1 Minden is a nonresident of Texas and a wholly
owned subsidiary of Province Health Care (“Province”). Kimberly–Clark pleaded that Province,
whose headquarters is in Tennessee, did business in Texas and that its forum-related acts *166
should be imputed to Minden because: (1) Province owns Minden; (2) Province and Minden
share officers, directors, and “common departments or business”; (3) Province and Minden do not
differentiate their operations and have failed to erect “formal barriers” between themselves; and
(4) Province's officers and directors control Minden's policies. Minden filed a special appearance
and, subject thereto, a general denial. The parties conducted extensive discovery relating to the
jurisdictional issue. After a hearing, the trial court concluded it had general jurisdiction over
Minden and denied the special appearance.
1 Kimberly–Clark also filed third-party claims against Good Shepherd Medical Center; Longview Emergency Medicine Associates;
Schumacher Group of Louisiana; Dr. Russell Riggs; Dr. Rodney Slone; Dr. Don Ferguson; D. Lea, R.N.; C. Bennett, R.N.; and C.
Coleman, R.N.
The court of appeals affirmed, reasoning that (1) Minden itself had “continuous and systematic
contacts with Texas”; and (2) Minden and Province operated as a single business enterprise, and
Minden, through Province, did business in Texas.
202 S.W.3d 193, 203–04. We granted Minden's
petition for review to decide whether Texas courts have general jurisdiction over Minden. 2 49
Tex. Sup.Ct. J. 950 (Aug. 25, 2006).
2 Charles W. “Rocky” Rhodes and Riata Energy, Inc. submitted amicus curiae briefs.
II
General Jurisdiction
[1] [2] [3] The Texas long-arm statute governs Texas courts' exercise of jurisdiction over
nonresident defendants. See TEX. CIV. PRAC. & REM.CODE §§ 17.041–.045. That statute
permits Texas courts to exercise jurisdiction over a nonresident defendant that “does business”
in Texas, and the statute identifies some activities that constitute “doing business.”
Id. § 17.042.
The list, however, is not exclusive. BMC Software Belg., N.V. v. Marchand,
83 S.W.3d 789,
795 (Tex.2002). We have held that section 17.042's language extends Texas courts' personal
jurisdiction “as far as the federal constitutional requirements of due process will permit.” U–
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PHC-Minden, L.P. v. Kimberly-Clark Corp.,
235 S.W.3d 163 (2007)
50 Tex. Sup. Ct. J. 1153
Anchor Adver., Inc. v. Burt,
553 S.W.2d 760, 762 (Tex.1977). Thus, we rely on precedent from the
United States Supreme Court and other federal courts, as well as our own decisions, in determining
whether a nonresident defendant has negated all bases of jurisdiction. See BMC
Software, 83
S.W.3d at 795–796. Personal jurisdiction over nonresident defendants is constitutional when: (1)
the defendant has established minimum contacts with the forum state, and (2) the exercise of
jurisdiction comports with traditional notions of fair play and substantial justice. Int'l Shoe Co. v.
Washington,
326 U.S. 310, 316,
66 S. Ct. 154,
90 L. Ed. 95 (1945).
In Helicopteros Nacionales de Colombia, S.A. v. Hall, the Supreme Court adopted the terms
“specific” and “general” to describe the differing types of personal jurisdiction. Helicopteros,
466
U.S. 408, 414,
104 S. Ct. 1868,
80 L. Ed. 2d 404 (1984) (citing Arthur T. von Mehren & Donald
T. Trautman, Jurisdiction to Adjudicate: A Suggested Analysis, 79 HARV. L.REV.. 1121, 1144–
1164 (1966)). The Court defined specific jurisdiction as “arising out of or related to the defendant's
contacts with the forum.”
Id. at n. 8. By contrast, the Court referred to general jurisdiction as
“personal jurisdiction over a defendant in a suit not arising out of or related to the defendant's
contacts with the forum.” 3
Id. at n. 9 (citations omitted).
3 The use of the terms “specific” and “general” to connote differing types of personal jurisdiction has been criticized as contributing
to the confusion among courts as to the quality and quantity of contacts required for each. See Mary Twitchell, The Myth of General
Jurisdiction, 101 HARV. L.REV.. 610, 612–13 (1988) (suggesting that the “general/specific framework” has led to ambiguity and
suggesting the terms “dispute-blind” and “dispute-specific” instead). Ironically, Professors von Mehren and Trautman suggested
the terms “specific” and “general” to alleviate the confusion associated with the “in rem,” “quasi in rem,” and “in personam”
jurisdictional terminology. von Mehren & Trautman, Jurisdiction to Adjudicate, 79 HARV. L.REV.. at 1135–36 (noting that “some
of the terminology conventionally employed in Anglo–American discussions of jurisdiction to adjudicate is not very helpful”).
*167 In Helicopteros, the Court concluded that Texas courts did not have general jurisdiction
over a Colombian company, Helicol. One of Helicol's helicopters had been involved in a crash in
Peru, and the survivors and representatives of the decedents sued Helicol in state district court in
Harris County, Texas. Helicol filed a special appearance and moved to dismiss the case, but the
trial court denied the motion. The court of appeals, however, agreed with Helicol that in personam
jurisdiction over Helicol was lacking. Helicopteros Nacionales De Colombia, S.A. v. Hall,
616
S.W.2d 247 (Tex.App.-Houston 1981). Our Court reversed. Hall v. Helicopteros Nacionales De
Colombia, S.A.,
638 S.W.2d 870 (1982).
The Supreme Court granted certiorari, and it summarized the pertinent jurisdictional facts:
It is undisputed that Helicol does not have a place of business in Texas and never
has been licensed to do business in the State. Basically, Helicol's contacts with
Texas consisted of sending its chief executive officer to Houston for a contract-
negotiation session; accepting into its New York bank account checks drawn on
a Houston bank; purchasing helicopters, equipment, and training services from
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PHC-Minden, L.P. v. Kimberly-Clark Corp.,
235 S.W.3d 163 (2007)
50 Tex. Sup. Ct. J. 1153
Bell Helicopter for substantial sums; and sending personnel to Bell's facilities
in Fort Worth for training.
Helicopteros, 466 U.S. at 416,
104 S. Ct. 1868. The Court concluded that the CEO's trip to Houston
could not be described as a “continuous or systematic” contact.
Id. Similarly, it held that Helicol's
acceptance of checks drawn on a Houston bank was of “negligible significance.”
Id. at 416, 104
S. Ct. 1868. The Court held, relying on a 1923 unanimous opinion written by Justice Brandeis,
that “purchases and related trips, standing alone, are not a sufficient basis for a State's assertion of
jurisdiction.”
Id. at 417, 104 S. Ct. 1868 (citing Rosenberg Bros. & Co. v. Curtis Brown Co.,
260
U.S. 516,
43 S. Ct. 170,
67 L. Ed. 372 (1923)).
The point at which jurisdictional contacts reach a tipping point, however, has eluded precise
formulation. Beyond stating that mere purchases and related travel are not enough, the Supreme
Court has given little guidance on the appropriate inquiry for general jurisdiction, although
its Helicopteros conclusion that general jurisdiction was improper suggests that the requisite
level of contacts is fairly substantial. 16 JAMES WM. MOORE ET AL., MOORE'S FEDERAL
PRACTICE § 108.41[3] (3d ed.2007); 4 CHARLES ALAN WRIGHT & ARTHUR R. MILLER,
FEDERAL PRACTICE & PROCEDURE § 1067.5 (2007) (noting that the Court's rejection
of each contact and its failure to aggregate contacts “suggests very strongly that the threshold
contacts required for a constitutional assertion of general jurisdiction over a nonresident defendant
are very substantial, indeed”). Perkins v. Benguet Consolidated Mining Co., the only case in
which that court has upheld a finding of general jurisdiction, offers an insight into the nature of
the contacts required. Perkins, 3
42 U.S. 437,
72 S. Ct. 413,
96 L. Ed. 485 (1952). In assessing
whether the nonresident defendant's Ohio contacts were sufficient to warrant a finding of general
jurisdiction, the Court noted that the company's president, who was also the general manager and
principal shareholder, *168 maintained an Ohio office in which he “did many things on behalf
of the company.”
Id. at 447–48, 72 S. Ct. 413. He maintained company files in Ohio, carried on
correspondence from there, drew and distributed salary checks from his Ohio office, used two Ohio
bank accounts for company funds and had an Ohio bank act as transfer agent for the company's
stock, held directors' meetings in Ohio, supervised policies dealing with the rehabilitation of the
corporation's properties in the Philippines there, and dispatched funds from Ohio bank accounts to
cover purchases of machinery for such rehabilitation.
Id. The Court concluded that the company
“carried on in Ohio a continuous and systematic supervision of the necessarily limited wartime
activities of the company,” and even though “no mining properties in Ohio were owned or operated
by the company, many of its wartime activities were directed from Ohio and were being given
the personal attention of its president in that State at the time he was served with summons.”
Id.
at 448, 72 S. Ct. 413. The Court held that “under the circumstances above recited, it would not
violate federal due process for Ohio either to take or decline jurisdiction of the corporation in this
proceeding.”
Id.
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PHC-Minden, L.P. v. Kimberly-Clark Corp.,
235 S.W.3d 163 (2007)
50 Tex. Sup. Ct. J. 1153
A general jurisdiction inquiry, therefore, is very different from a specific jurisdiction inquiry and
involves a “more demanding minimum contacts analysis,” CSR, Ltd. v. Link,
925 S.W.2d 591,
595 (Tex.1996), with a “substantially higher” threshold, 4 WRIGHT & MILLER, FEDERAL
PRACTICE & PROCEDURE § 1067.5. Usually, “the defendant must be engaged in longstanding
business in the forum state, such as marketing or shipping products, or performing services
or maintaining one or more offices there; activities that are less extensive than that will not
qualify for general in personam jurisdiction.” 4 WRIGHT & MILLER, FEDERAL PRACTICE
& PROCEDURE § 1067.5; see also
Hall, 638 S.W.2d at 882 (Pope, J., dissenting) (noting that
“substantial and continuous activity” required for general jurisdiction suggests that defendant
“must establish some close substantial connection with the state approaching the relationship
between the state and its own residents”); 16 MOORE'S FEDERAL PRACTICE § 108.41[3]
(stating that general jurisdiction “typically requires the defendant to have an office in the forum
state”); Lea Brilmayer, A General Look at General Jurisdiction, 66 TEX. L.REV. 723, 742 (1988)
(proposing that “the basic inquiry must be whether the defendant's level of activity rises to the
level of activity of an insider, so that relegating the defendant to the political processes is fair”);
Charles W. “Rocky” Rhodes, Clarifying General Jurisdiction, 34 SETON HALL L.REV. 807, 811
(2004) (suggesting that a proper general jurisdiction query should evaluate whether the defendant
engaged in activities in the forum state similar in frequency and nature to the activities of local
businesses); Mary Twitchell, The Myth of General Jurisdiction, 101 HARV. L.REV.. 610, 635
(1988) (noting that “traditional indicia” of general jurisdiction are “a home base, an agent for the
service of process, a local office, or the pursuance of business from a tangible locale within the
state”).
[4] General jurisdiction has been described as “dispute-blind,” an exercise of the court's
jurisdiction made without regard to the nature of the claim presented. Twitchell, The Myth
of General Jurisdiction, 101 HARV. L.REV.. at 613. It involves a court's ability to exercise
jurisdiction over a nonresident defendant based on any claim, including claims unrelated to
the defendant's contacts with the state. 16 MOORE'S FEDERAL PRACTICE § 108.40. Some
commentators suggest that courts assessing general jurisdiction employ an analytical *169 device
to determine whether the jurisdiction is, in fact, dispute-blind. Twitchell, The Myth of General
Jurisdiction, at 680; Rhodes, Clarifying General Jurisdiction, 34 SETON HALL L.REV. at 819.
They propose that the court construct a hypothetical claim without any forum connection “to insure
that any related forum activities of the defendant are not improperly infiltrating the dispute-blind
query.” Clarifying General Jurisdiction, 34 SETON HALL L.REV. at 819. For example:
[A]re the corporate defendant's actual activities in California so pervasive and
extensive that it should be amenable to the adjudicatory jurisdiction of California
for a hypothetical employment discrimination claim filed by a New York citizen
employed at corporate headquarters in New York? Or, with respect to a foreign
corporation, do the corporation's actual California contacts support jurisdiction
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PHC-Minden, L.P. v. Kimberly-Clark Corp.,
235 S.W.3d 163 (2007)
50 Tex. Sup. Ct. J. 1153
even for a hypothetical cause of action arising from its sale of a product in
Germany that injured a German citizen?
Id. at 819–20. Such an inquiry properly frames the issue, as general jurisdiction is based solely
on the defendant's “continuous and systematic” contacts with the forum.
Helicopteros, 466 U.S.
at 416,
104 S. Ct. 1868.
A
Minden's Contacts
[5] With this in mind, we turn to an analysis of Minden's Texas contacts, as the court of
appeals concluded that Minden had “continuous and systematic contacts with Texas” sufficient to
support general
jurisdiction. 202 S.W.3d at 204. We first determine the appropriate time period for
assessing contacts for purposes of general jurisdiction, an issue on which our courts of appeals are
in conflict. Some examine the defendant's forum-related activities up to the time of the occurrence
that prompted the suit. See MedCost, L.L.C. v. Loiseau,
166 S.W.3d 421, 434 (Tex.App.-Austin
2005, no pet.); Schott Glas v. Adame,
178 S.W.3d 307, 313–14 (Tex.App.-Houston [14th Dist.]
2005, pet. denied); AmQuip Corp. v. Cloud,
73 S.W.3d 380, 388 (Tex.App.-Houston [1st Dist.]
2002, no pet.). Others focus on contacts up to the time of filing suit. See, e.g., Equitable Prod.
Co. v. Canales–Trevino,
136 S.W.3d 235, 237–38, 245 (Tex.App.-San Antonio 2004, pet. denied)
(considering corporate defendant's relocation from Texas, which occurred after the cause of action
accrued but before suit was filed, for purposes of determining jurisdiction); see also Tuscano
v. Osterberg,
82 S.W.3d 457, 467 (Tex.App.-El Paso 2002, no pet.) (holding that jurisdictional
contacts were “too attenuated in time,” because such activities occurred more than “three years
before service of this suit was effected”). Another—the court of appeals in this case—noted the
conflict and assessed contacts under both timetables.
4 202 S.W.3d at 203 (“A relevant continuous
contact in this analysis includes those contacts over a period up to the date of injury ... or up to
and including the date suit commenced....”).
4 This conflict gives us jurisdiction over this interlocutory appeal. TEX. GOV'T CODE § 22.225(c).
[6] We conclude that the relevant period ends at the time suit is filed. As noted above, general
jurisdiction is dispute-blind; accordingly, and in contrast to specific jurisdiction, the incident made
the basis of the suit should not be the focus in assessing continuous and systematic contacts—
contacts on which jurisdiction over any claim may be based. See Charles W. *170 “Rocky”
Rhodes, The Predictability Principle in Personal Jurisdiction Doctrine: A Case Study of the
Effects of a “Generally” Too Broad, But “Specifically” Too Narrow Approach to Minimum
Contacts, 57 BAYLOR L.REV. 135, 238 (2005) (noting that “analyzing the contacts at the time
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PHC-Minden, L.P. v. Kimberly-Clark Corp.,
235 S.W.3d 163 (2007)
50 Tex. Sup. Ct. J. 1153
of accrual is not appropriate under the proper explanation of general jurisdiction as dispute-blind
general adjudicative authority”); see also 4 WRIGHT & MILLER, FEDERAL PRACTICE &
PROCEDURE § 1067.5 (noting that “a court should consider all of a defendant's contacts with
the forum state prior to the filing of the lawsuit”). We also agree that “a mere one-time snapshot
of the defendant's in-state activities” may not be sufficient, see Rhodes, Predictability Principle,
57 BAYLOR L.REV. at 239, and contacts should be assessed over a reasonable number of years,
up to the date suit is filed, see Access Telecom, Inc. v. MCI Telecomms. Corp.,
197 F.3d 694, 717
(5th Cir.1999). This includes contacts at the time the cause of action arose, and it comports with
the Supreme Court's guidance on the issue, as well as our prior caselaw. See
Helicopteros, 466
U.S. at 409–11,
104 S. Ct. 1868 (evaluating contacts over the seven-year period before suit was
filed); American Type Culture Collection, Inc. v. Coleman,
83 S.W.3d 801, 807–08 (Tex.2002)
(assessing contacts over the twenty-year period preceding suit).
[7] We now turn to Minden's contacts up to the time of suit. A general jurisdiction inquiry can
be tedious, as it “demands ... that all contacts be carefully investigated, compiled, sorted, and
analyzed for proof of a pattern of continuing and systematic activity.” Schlobohm v. Schapiro,
784 S.W.2d 355, 359 (Tex.1990). In conducting this dispute-blind inquiry, Jajah's Eddington's
status as a Texas resident, her treatment in Minden Hospital's emergency room, and her family's
choice not to sue Minden are irrelevant. Instead, we focus solely on Minden's contacts with Texas.
Minden is a nonresident limited partnership that owns a hospital licensed by the state of Louisiana.
Minden's only facility is in Minden, Louisiana, and ninety percent of its patients reside within a
twenty-five mile radius of Minden Hospital. Minden does not advertise in Texas. It owns no Texas
property and has no Texas office or bank accounts, nor does it maintain a registered agent for
service of process here. The court of appeals relied on three categories of contacts in determining
that Minden's Texas contacts were continuous and systematic: (1) Minden employees' attendance
at seminars in Texas; (2) Minden's purchases from vendors with Texas addresses; and (3) three
contracts with Texas entities. We examine each in turn.
1. Texas Trips
The evidence showed that, since 1999, Minden employees attended two Province-sponsored
meetings in Dallas. These isolated trips fall short of the “continuous and systematic contact” the
Supreme Court requires. In Helicopteros, the Supreme Court rejected the notion that multiple
trips to Fort Worth supported general jurisdiction, noting that the trips did not “in any way
enhance[ ] the company's contacts with
Texas.” 466 U.S. at 418,
104 S. Ct. 1868; see also Kulko
v. California Superior Court,
436 U.S. 84, 93,
98 S. Ct. 1690,
56 L. Ed. 2d 132 (1978) (basing
California jurisdiction on 3–day and 1–day stopovers in that State “would make a mockery of” due
process limitations on assertion of personal jurisdiction); Nat'l Indus. Sand Ass'n v. Gibson,
897
S.W.2d 769, 774 (Tex.1995) (concluding that attending a meeting in Texas, as well as periodic
mailings to Texas members, “presented no evidence of general jurisdiction”). We agree with that
analysis.
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50 Tex. Sup. Ct. J. 1153
*171 2. Payments to Texas Vendors
Since October 1, 1999, Minden paid $1,508,467.20 to 136 entities with Texas addresses. The
largest payment, $515,650.15, was to Alcon Laboratories in Dallas, Texas, and the second largest,
$209,997.36, to Centerpoint Energy in Houston, Texas. Most of the remaining payments are for
less than $10,000.00 each. In
Helicopteros, 466 U.S. at 418,
104 S. Ct. 1868, the Supreme Court
held that “mere purchases, even if occurring at regular intervals, are not enough to warrant a State's
assertion of in personam jurisdiction over a nonresident corporation in a cause of action not related
to those purchase transactions.” And we have recognized that “purchases from Texas vendors
will not alone support the exercise of general jurisdiction.” American Type Culture
Collection, 83
S.W.3d at 808. We conclude that the payments to Texas vendors do not support general jurisdiction
over Minden in Texas.
3. Contracts with Texas Entities
The court of appeals also identified three contracts with a Texas connection: (1) a September 23,
2003 contract with Cox Business Services, a Tyler, Texas-based company, for internet service (at a
charge of $59.95 per month) and a cable modem; (2) a July 2002 contract with Lone Star Research,
located in The Woodlands, Texas, pursuant to which Lone Star Research would conduct a one-
time marketing survey of 200 adult residents in Minden Hospital's service area; and (3) an April
2001 professional services agreement with Horizon Radiology, P.A., a Texas company, whereby
Horizon would provide specialty coverage (via teleradiology equipment) to Minden Hospital, in
exchange for $1600 per month.
We agree with the court of appeals that the 2003 Cox contract, entered into after suit was filed,
is irrelevant to the jurisdictional inquiry
here. 202 S.W.3d at 203. The 2002 Lone Star contract
pursuant to which a Texas company conducted a marketing study of residents in Minden Hospital's
service area—presumably Louisiana, as ninety percent of the hospital's patients live within twenty-
five miles of the hospital—does not establish a continuous and systematic Texas contact. Lone
Star agreed to conduct 200 telephone interviews and analyze the data within a week of the survey's
completion, in exchange for $5,200. This type of sporadic Texas contact is not substantial enough
for general jurisdiction.
Of the three contracts, the Horizon agreement has the most substantial connection to Texas.
The agreement, signed in 2001 and renewed twice thereafter, required that Louisiana-licensed
physicians (located in Texas) provide teleradiology services, for which Minden supplied the
necessary equipment, in exchange for $1600 per month. Even this agreement, however, does not
support general jurisdiction. Hiring a contractor to perform such limited services in the forum state
does not equate to “continuous and systematic contacts.”
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50 Tex. Sup. Ct. J. 1153
Even when amassed, Minden's Texas contacts simply are not “continuous and systematic general
business contacts” sufficient to support general jurisdiction, particularly when compared to
the substantial, regular business activities conducted by the nonresident defendant in Perkins.
Helicopteros, 466 U.S. at 416,
104 S. Ct. 1868;
Perkins, 342 U.S. at 447–48,
72 S. Ct. 413. Instead,
the facts here are more like those described in Helicopteros: the nonresident defendant had limited
contacts with Texas but none sufficient to support general jurisdiction. Accordingly, the court of
appeals erred in holding otherwise.
*172 B
Jurisdictional Veil–Piercing
[8] As its second basis for general jurisdiction, the court of appeals imputed Province's Texas
contacts to Minden, concluding the two entities operated as a single business enterprise and that
Minden, through Province, did business in Texas. In 1925, the Supreme Court of the United States
considered whether a North Carolina court had jurisdiction over a nonresident parent corporation
whose subsidiary did business in North Carolina. Cannon Mfg. Co. v. Cudahy Packing Co.,
267
U.S. 333, 335,
45 S. Ct. 250,
69 L. Ed. 634 (1925). In affirming the district court's dismissal for
lack of jurisdiction, the Court held:
Through ownership of the entire capital stock and otherwise, the defendant
dominates [its subsidiary], immediately and completely; and exerts its control
both commercially and financially in substantially the same way, and mainly
through the same individuals, as it does over those selling branches or
departments of its business not separately incorporated which are established
to market the [defendant's] products in other states. The existence of the
[subsidiary] as a distinct corporate entity is, however, in all respects observed.
Its books are kept separate. All transactions between the two corporations are
represented by appropriate entries in their respective books in the same way as
if the two were wholly independent corporations.
Id. The Court concluded that “the corporate separation, though perhaps merely formal, was real.
It was not pure fiction.”
Id. at 337, 45 S. Ct. 250.
The Court has never disavowed Cannon, despite an opportunity to do so. Instead, it essentially
echoed the Cannon rule in Keeton v. Hustler Magazine, Inc.,
465 U.S. 770, 781 n. 13,
104 S. Ct.
1473,
79 L. Ed. 2d 790 (1984). See William A. Voxman, Comment, Jurisdiction over a Parent
Corporation in Its Subsidiary's State of Incorporation, 141 U. PA. L.REV. 327, 339 (1992) (noting
that Keeton footnote implicitly recognized Cannon's continuing validity). In that case, then-Justice
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50 Tex. Sup. Ct. J. 1153
Rehnquist, writing for the Court, noted that “jurisdiction over a parent corporation [does not]
automatically establish jurisdiction over a wholly owned subsidiary.... Each defendant's contacts
with the forum State must be assessed individually.”
Keeton, 465 U.S. at 781 n. 13,
104 S. Ct. 1473;
see also Voxman, 141 U. PA. L.REV. at 338 (noting that “[t]he clear implication of Rehnquist's
assertion is that the nature of the parent-subsidiary relationship may well be a factor in determining
whether jurisdiction comports with due process, but the existence of the relationship will not, in
and of itself, be dispositive of the issue”).
The Fifth Circuit Court of Appeals followed Cannon in Hargrave v. Fibreboard Corp.:
Cannon ... stands for the proposition that so long as a parent and subsidiary
maintain separate and distinct corporate entities, the presence of one in a forum
state may not be attributed to the other. Cases in this circuit appear to have
followed the Cannon rule in applying the Texas long-arm statute, although
sometimes without explicit citation. We have noted often that 100% stock
ownership and commonality of officers and directors are not alone sufficient
to establish an alter ego relationship between two corporations. Generally, our
cases demand proof of control by the parent over the internal business operations
and affairs of the subsidiary in order to fuse the two for jurisdictional purposes.
The degree of control exercised by the parent must be greater than that normally
associated with common ownership *173 and directorship. All the relevant
facts and circumstances surrounding the operations of the parent and subsidiary
must be examined to determine whether two separate and distinct corporate
entities exist.
Hargrave,
710 F.2d 1154, 1160 (5th Cir.1983) (citations omitted). The court held that the two
corporations at issue “maintained a degree of corporate separation that was more than superficial”
and “[t]he policy making authority held and exercised by [the parent] was no more than that
appropriate for a sole shareholder of a corporation” and not enough to warrant the extraterritorial
exercise of jurisdiction over that shareholder.
Id. at 1161. The court concluded: “The Lone Star of
Texas may shine brightly throughout the world, but its long arm is not judicially all encompassing.”
Id.
We recently followed Hargrave (and, by implication, Cannon ) in explaining when the contacts of
a related corporate entity may be considered for purposes of determining general jurisdiction. BMC
Software Belg., N.V. v. Marchand,
83 S.W.3d 789, 795–796 (Tex.2002). We held that “[p]ersonal
jurisdiction may exist over a nonresident defendant if the relationship between the foreign
corporation and its parent corporation that does business in Texas is one that would allow the court
to impute the parent corporation's ‘doing business' to the subsidiary.”
Id. at 798 (citing
Hargrave,
710 F.2d at 1159 and Walker v. Newgent,
583 F.2d 163, 167 (5th Cir.1978)). The rationale for
exercising jurisdiction is that “the parent corporation exerts such domination and control over its
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50 Tex. Sup. Ct. J. 1153
subsidiary ‘that they do not in reality constitute separate and distinct corporate entities but are
one and the same corporation for purposes of jurisdiction.’ ” Id. (quoting
Hargrave, 710 F.2d at
1159 (citations omitted)). We required that the party seeking to ascribe one corporation's actions
to another by disregarding their distinct corporate entities prove this allegation, because Texas
law presumes that two separate corporations are distinct entities. Id.; accord 4A WRIGHT &
MILLER, FEDERAL PRACTICE & PROCEDURE § 1069.4 (noting a “reluctance to exercise
personal jurisdiction over a subsidiary merely because its parent corporation is doing business in
the forum state”). We concluded that there was no evidence to support the trial court's finding
of general jurisdiction over a Belgian subsidiary based on allegations it was the alter ego of its
American parent. BMC
Software, 83 S.W.3d at 801.
1. Single Business Enterprise
Here, the court of appeals held that Province and Minden operated as a single business enterprise—
a theory we have never endorsed—and, therefore, Province's Texas contacts could be imputed to
Minden.
5 202 S.W.3d at 202; see Southern Union Co. v. City of Edinburg,
129 S.W.3d 74, 86–87
(Tex.2003) (noting that this Court “has never considered the ‘single business enterprise’ concept in
any detail” and declining to decide “whether a theory of ‘single business enterprise’ is a necessary
addition to Texas law regarding the theory of alter ego for disregarding corporate structure”). In
doing so, the court of appeals examined eight factors as they related to Minden and Province: (1)
common employees, (2) common offices, (3) centralized accounting, (4) payment of *174 wages
by one corporation to another corporation's employees, (5) common business name, (6) services
rendered by the employees of one corporation on behalf of another corporation, (7) undocumented
transfers of funds between corporations, and (8) unclear allocation of profits and losses between
corporations. 202 S.W.3d at 201–02. The court's analysis failed to recognize, however, that veil-
piercing for purposes of liability (“substantive veil-piercing”) is distinct from imputing one entity's
contacts to another for jurisdictional purposes (“jurisdictional veil-piercing”).
5 The record contains no evidence regarding the structure of Province's ownership of Texas hospitals. That is, there is no evidence
regarding whether those hospitals are owned directly by Province or instead by a wholly owned subsidiary like Minden. The parties
assume that Province (rather than its subsidiaries) does business in Texas; for purposes of our analysis, we make the same assumption.
[9] Courts have acknowledged that jurisdictional veil-piercing and substantive veil-piercing
involve different elements of proof. See, e.g., Wells Fargo & Co. v. Wells Fargo Express
Co.,
556 F.2d 406, 425 (9th Cir.1977) (noting that undercapitalization, “which is important
to deciding whether to pierce the veil raised by a subsidiary corporation in order to hold the
parent corporation liable for failure of the subsidiary to meet its debts, may not be relevant
to a showing that the two corporations are in fact one so as to establish that the out-of-state
corporation—be it parent or subsidiary—is present within the forum for jurisdictional purposes”;
instead, “the operative question is whether the two corporations are in fact mere ‘divisions'
or ‘branches' of a larger whole”); Daimler–Benz Aktiengesellschaft v. Olson,
21 S.W.3d 707,
721 n. 5 (Tex.App.-Austin 2000, pet. dism'd w.o.j.) (“Although many of the factors relevant to
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50 Tex. Sup. Ct. J. 1153
[determining whether subsidiaries' contacts should be imputed to parent] may also be relevant in
determining whether a parent corporation should be liable for the actions of its subsidiary, the
determination whether two corporate entities are one and the same for jurisdictional purposes
is distinct.”), cert. denied,
535 U.S. 1077,
122 S. Ct. 1960,
152 L. Ed. 2d 1021 (2002); see also
2–32 WILLIAM V. DORSANEO, TEXAS LITIGATION GUIDE § 32.06 (2005). This makes
sense in light of the fact that personal jurisdiction involves due process considerations that
may not be overridden by statutes or the common law. Cf. City of Monroe Employees Ret.
Sys. v. Bridgestone Corp.,
399 F.3d 651, 667–668 (6th Cir.2005) (refusing, in case involving
jurisdictional allegations based on alleged “control person” under the securities laws, to “substitute
our analysis of the securities laws' substantive bases for liability for the required, due-process
based personal jurisdiction analysis”); AT & T Co. v. Compagnie Bruxelles Lambert,
94 F.3d 586,
591 (9th Cir.1996) (concluding that “liability is not to be conflated with amenability to suit in
a particular forum. Personal jurisdiction has constitutional dimensions, and regardless of policy
goals, Congress cannot override the due process clause, the source of protection for non-resident
defendants.”); In re Baan Co. Sec. Litig.,
245 F. Supp. 2d 117, 129 (D.D.C.2003) (noting that
liability under the Securities Act “cannot on its own support personal jurisdiction,” as such an
approach “impermissibly conflates statutory liability with the Constitution's command that the
exercise of personal jurisdiction must be fundamentally fair”); Michiana Easy Livin’ Country, Inc.
v. Holten,
168 S.W.3d 777, 790–91 (Tex.2005) (rejecting theory that where defendant “directed
a tort” was relevant inquiry for specific jurisdiction, as such a rule improperly “equat [ed] the
jurisdictional inquiry with the underlying merits”); Nat'l Indus. Sand Ass'n v. Gibson,
897 S.W.2d
769, 773 (Tex.1995) (observing that “[c]onspiracy as an independent basis for jurisdiction has been
criticized as distracting from the ultimate due process inquiry: whether the out-of-state defendant's
contact with the forum was such that it should reasonably anticipate being haled into a court
in the forum state” and declining to recognize *175 personal jurisdiction based on conspiracy
allegation); John A. Swain & Edwin E. Aguilar, Piercing the Veil to Assert Personal Jurisdiction
Over Corporate Affiliates: An Empirical Study of the Cannon Doctrine, 84 B.U.L. REV. 445, 453
(2004) (noting that “the principle of limited liability is statutory and does not speak to judicial
jurisdiction”).
For this reason, fraud—which is vital to piercing the corporate veil under section 21.223 of the
Business Organizations Code—has no place in assessing contacts to determine jurisdiction. See
TEX. BUS. ORGS.CODE § 21.223. Similarly, some of the factors courts look to in determining
whether an entity may be held liable as a “single business enterprise” are irrelevant to an analysis of
jurisdictional contacts. For example, the court of appeals examined whether Province and Minden
shared a common name and concluded that “[Minden's] partnership name and initials, PHC–
Minden, L.P. can be construed as a reference to Province Healthcare
Company.” 202 S.W.3d at
201. Whether two related entities share a common name, however, does not affect whether each
has sufficient contacts with the forum for jurisdictional purposes.
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50 Tex. Sup. Ct. J. 1153
2. Factors
[10] Instead, we recently outlined the relevant factors for jurisdictional veil-piercing:
To “fuse” the parent company and its subsidiary for jurisdictional purposes, the
plaintiffs must prove the parent controls the internal business operations and
affairs of the subsidiary. But the degree of control the parent exercises must be
greater than that normally associated with common ownership and directorship;
the evidence must show that the two entities cease to be separate so that the
corporate fiction should be disregarded to prevent fraud or injustice.
BMC
Software, 83 S.W.3d at 799 (citations omitted). We also relied on our prior precedent,
which held that “[a] subsidiary corporation will not be regarded as the alter ego of its parent
merely because of stock ownership, a duplication of some or all of the directors or officers, or an
exercise of the control that stock ownership gives to stockholders.” Gentry v. Credit Plan Corp. of
Houston,
528 S.W.2d 571, 573 (Tex.1975). A leading treatise suggests that in determining whether
a subsidiary corporation is subject to the jurisdiction of a forum state because its parent corporation
is present or doing business there, courts should determine whether the subsidiary is “separate
and distinct from its parent corporation for personal jurisdiction purposes,” taking into account
the amount of the subsidiary's stock owned by the parent corporation, the existence of separate
headquarters, the observance of corporate formalities, and the degree of the parent's control over
the general policy and administration of the subsidiary. 4A WRIGHT & MILLER, FEDERAL
PRACTICE & PROCEDURE § 1069.4.
Here, the court of appeals cited the following as evidence that Province and Minden were a single
business enterprise:
the record shows that Province and [Minden] have at least one common
employee and that Province pays certain [Minden] employees, although the
salaries are intercompany payables. The names of the two companies are
similar, and Province employees provide various services to assist [Minden]
in its operations. Province exercises control over [Minden]'s revenues and
expenditures and oversees [Minden]'s operations, financial performance, and
completion of strategic initiatives. Further, Province audits [Minden]'s financial
goals to determine if [Minden] will be able to meet these goals. Considering the
totality of *176 this evidence, we conclude that Province and [Minden] have
integrated their resources to achieve a common business
purpose.
202 S.W.3d at 202.
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50 Tex. Sup. Ct. J. 1153
[11] Upon closer examination, however, it is clear that Province does not exercise the
sort of control over Minden that is required to fuse them for jurisdictional purposes. BMC
Software, 83 S.W.3d at 799. Much of the evidence cited points to parental involvement
—involvement consistent with its investor status—not atypical control. See 16 MOORE'S
FEDERAL PRACTICE § 108.42[3][b]. “Appropriate parental involvement includes monitoring
the subsidiary's performance, supervision of the subsidiary's finance and capital budget decisions,
and articulation of general policies.”
Id. What is lacking here is the “plus” factor, “something
beyond the subsidiary's mere presence within the bosom of the corporate family.” Dickson Marine,
Inc. v. Panalpina, Inc.,
179 F.3d 331, 338 (5th Cir.1999); see also Central States, Southeast
& Southwest Areas Pension Fund v. Reimer Express World Corp.,
230 F.3d 934, 943 (7th
Cir.2000) (holding that “constitutional due process requires that personal jurisdiction cannot
be premised on corporate affiliation or stock ownership alone where corporate formalities are
substantially observed and the parent does not exercise an unusually high degree of control over
the subsidiary”); De Castro v. Sanifill, Inc.,
198 F.3d 282, 283–84 (1st Cir.1999) (requiring
“strong and robust” evidence of parental control over subsidiary, such that subsidiary is “mere
shell,” before subsidiary's contacts could be imputed to parent). The two entities maintain separate
headquarters, Minden in Louisiana and Province in Tennessee. Minden's Board of Governors
approves Minden's budget and oversees day-to-day operations, and Minden alone establishes
its policies and procedures for providing health care to patients. Province is not involved in
Minden's physician recruitment, and the two entities share no directors. While Minden's chief
executive officer, chief nursing officer, and chief financial officer receive their paychecks from
Province, their salaries are intercompany payables; that is, the monies come from Minden's
revenues. Similarly, while Province provides Minden's general liability insurance and a group
health insurance policy for its employees, the policies are funded from Minden's revenues. There
is no indication that Minden and Province have disregarded corporate formalities. The court of
appeals cited evidence that two Minden employees received Province stock options, but we have
said that “a parent company's offering a stock option plan to a subsidiary's employees is acceptable
under IRS regulations and is not evidence of abnormal control over the subsidiary.” BMC
Software,
83 S.W.3d at 800. Put simply, we find no evidence of control other than that consistent with
Province's investor status, and the court of appeals erred in imputing Province's Texas contacts
to Minden.
III
Conclusion
Minden does not have continuous and systematic contacts with Texas, nor is there any basis for
imputing Province's Texas contacts to Minden. We reverse the court of appeals' judgment and
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PHC-Minden, L.P. v. Kimberly-Clark Corp.,
235 S.W.3d 163 (2007)
50 Tex. Sup. Ct. J. 1153
render judgment dismissing the claims against Minden for want of jurisdiction. TEX.R.APP. P.
60.2(c).
Parallel Citations
50 Tex. Sup. Ct. J. 1153
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