Altus Brands Ii, LLC v. Michael Alexander, Randy Moseley, & Swordfish Fin., Inc.

• Decision Date: 17 June 2014
• Docket Number: No. 05–13–00666–CV.,05–13–00666–CV.
• Citation: 435 S.W.3d 432
• Parties: ALTUS BRANDS II, LLC, Appellant v. Michael ALEXANDER, Randy Moseley, and Swordfish Financial, Inc., Appellees.
• Court: Texas Court of Appeals

435 S.W.3d 432

ALTUS BRANDS II, LLC, Appellant

v.Michael ALEXANDER, Randy Moseley, and Swordfish Financial, Inc., Appellees.

No. 05–13–00666–CV.

Court of Appeals of Texas,

Dallas.

June 17, 2014.

Jonathan R. Moothart, Williamsburg, Catherine Anne Keith, Darrell W. Cook, Dallas, for Appellant.

Dan C. Coffey, Amanda M. Coffey, Denton, for Appellees.

Before Justices LANG, MYERS, and BROWN.

OPINION

Opinion by Justice LANG.

Appellant Altus Brands II, LLC (“Altus”) filed an application for writ of garnishment in the trial court against appellees Michael Alexander and Randy Moseley to collect a foreign judgment filed in Texas (the “judgment”) that awarded Altus $289,886.88 against appellee Swordfish Financial, Inc. (“Swordfish”).¹ Altus contended Alexander and Moseley are liable for the full amount of its judgment previously rendered in Minnesota against Swordfish because they (1) are indebted to Swordfish in an amount in excess of $3,900,000; (2) fraudulently transferred assets of Swordfish to themselves in excess of the judgment; and (3) have “manipulated the assets and liabilities of [Swordfish]” such that “equity and good conscience” require that “the corporate veil of [Swordfish] be pierced.”

Following a bench trial, the trial court rendered judgment that Altus (1) “be granted the right under Section 24.008(b) of the Texas Business and Commerce Code to levy execution on that specific stock transferred in 2010 by [Swordfish] to [Alexander] and [Moseley],” seeTex. Bus. & Com.Code Ann. § 24.008(b) (West 2009),² and (2) otherwise take nothing on its causes of action.

In three issues on appeal, Altus contends the trial court erred by (1) “declining to enter a money judgment against Defendants as provided in Tex. Bus. & Com.Code § 24.009(b)”; (2) ruling that “SEC filings” in the record did not create an obligation on behalf of Alexander and Moseley to pay a $3.5 million promissory note owed to Swordfish and that the transfer of certain stock at the time that note was executed was not fraudulent as to Altus; and (3) “holding that Defendants' cancellation, after their depositions in this case, of the $3.5 million note owing to [Swordfish] ... was neither a fraudulent transfer nor a proper basis to pierce the corporate veil of [Swordfish].” We decide in favor of Altus on its first issue. Altus's second and third issues are decided against it. We reverse the trial court's judgment in part, render judgment granting Altus a money judgment pursuant to Texas Business and Commerce Code section 24.009(b), and remand this case to the trial court for further proceedings consistent with this opinion. The trial court's judgment is otherwise affirmed.

I. FACTUAL AND PROCEDURAL BACKGROUND

Altus filed its application for writ of garnishment in this case on June 15, 2011. Therein, Altus asserted in part (1) Swordfish is a Minnesota corporation and (2) Alexander and Moseley are Texas residents and, respectively, the chief executive officer and chief financial officer of Swordfish. Altus requested (1) a writ of garnishment against Alexander and Moseley (the “garnishee defendants”) and (2) judgment in favor of Altus against Alexander and Moseley for the amount due on the “judgment already rendered” against Swordfish, “together with interest and costs of the suit in the original case and in this garnishment proceeding.” Attachments to Altus's application for writ of garnishment consisted of (1) a copy of a Minnesota judgment dated October 21, 2010, awardingAltus $289,886.88 against Swordfish and (2) an affidavit in which an attorney for Altus testified in part she has “reason to believe” Alexander and Moseley have property belonging to Swordfish or are indebted to Swordfish based on “review of the information contained in [Swordfish's] Notes to Condensed Consolidated Financial Statements (Unaudited) dated March 31, 2011 (the “CCFS”), attached hereto.” The CCFS describes a 2009 transaction (the “reverse merger transaction”) between Swordfish and an entity identified as “Swordfish Financial, Inc., a Texas corporation” (hereafter “Swordfish Texas” or “the Texas corporation”). Specifically, the CCFS states in part

NOTE 1—NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE RECEIVABLE–RELATED PARTY

On August 14, 2009, [Swordfish] closed a Stock Purchase/Merger Agreement with [Swordfish Texas] (which is controlled by [Swordfish's] Chairman of the Board, President, Chief Executive Officer and majority shareholder) pursuant to which [Swordfish] sold an aggregate of 10,987,417 shares of its common stock in exchange for a $3,500,000 promissory note, payable in two installments of $1,750,000 each with the first installment being forty-five (45) days from the date of the note and the second installment being one-hundred twenty (120) days from the date of the note. [Swordfish] expects for the note and accrued interest to be paid by the shareholders of the Texas corporation. The note bears interest at the rate of 5% per annum the note and the related accrued interest at March 31, 2011 was $284,375. [Swordfish] expects to collect the balance of the note and accrued interest from the stockholders of the Texas corporation.

....

NOTE 9—RELATED PARTY TRANSACTIONS

Current Officer and Director Promissory Note to Company

On August 14, 2009, [Swordfish] closed a Stock Purchase/Merger Agreement with [Swordfish Texas] pursuant to which [Swordfish] sold an aggregate of 10,987,417 shares of its common stock in exchange for a $3,500,000 promissory note, payable in two installments of $1,750,000 each with the first installment being forty-five (45) days from the date of the note and the second installment being one-hundred twenty (120) days from the date of the note. The note bears interest at the rate of 5% per annum. As the date of this filing, no payments have been made on the promissory note and accrued interest. [Swordfish] expects to be paid in full by shareholders of the Texas corporation.

(emphasis original). Additionally, the CCFS states in part

[Swordfish] is authorized to issue 25,000,000 shares of common stock with a par value of $.16 per share....

In March, 2010 [Swordfish] issued its Chief Executive Officer and Chief Financial Officer, each, 268,000 shares of restricted common stock as stock based compensation.

In July, 2010 [Swordfish] issued its Chief Executive Officer and Chief Financial Officer, each, 279,000 shares of restricted common stock as stock based compensation.

In October 2010, [Swordfish] issued its Chief Executive Officer 7,300,000 shares of restricted common stock as stock based compensation.

In October 2010, [Swordfish] issued its Chief Financial Officer 1,500,000 shares of restricted common stock as stock based compensation.

During the fourth quarter of 2010, the Company sold 1,092,000 shares of its common stock in private placements for $151,500.

Alexander and Moseley filed separate sworn answers asserting they are “not indebted in any amount to” or “in possession of any effects belonging to” Swordfish.

On October 5, 2012, Altus filed an “Affidavit Traversing and Controverting Defendants' Answers to Garnishments.” In that affidavit, Brian Breneman, a “member” of Altus, testified in part (1) defendants' filings with the United States Securities and Exchange Commission (“SEC”) “represented that the shareholders of [Swordfish Texas] are Garnishee Defendants Alexander and Moseley”; (2) after execution of the $3.5 million promissory note described above (the “note”), Swordfish Texas was merged into Swordfish and the shares of Swordfish purchased by Swordfish Texas were distributed to the shareholders of Swordfish Texas; (3) defendants' SEC filings “represented that the $3.5 million note was going to be paid by ‘the shareholders of the Texas corporation,’ i.e., the shareholders of Swordfish Texas”; (4) “it is clear from the referenced SEC filings that Garnishee Defendants are indebted to [Swordfish] in the amount of $3.5 million plus interest”; (5) if Alexander and Moseley have no liability for repayment of the $3.5 million note described above, then “their receipt of stock in and distributions from [Swordfish] ... was without any consideration to [Swordfish] and Plaintiff is entitled to all remedies under applicable law as a creditor of the entity which fraudulently transferred such property to Garnishee Defendants”; (6) in direct response to matters adduced at depositions of defendants held on September 21, 2012, “Garnishee Defendants executed and caused to be filed with the SEC documents purporting to, among other things, cancel the $3.5 million obligation of Swordfish Texas and Garnishee Defendants to [Swordfish] in exchange for the return to [Swordfish] of stock owned by Garnishee Defendants Alexander and Moseley with a market value of less than $110,000 at the time of the exchange”; (7) because such transaction “was engaged in by Garnishee Defendants as a ruse to avoid their personal liability to [Swordfish] and Plaintiff herein” and “together with other relevant facts, demonstrates that Garnishee Defendants have and continue to treat [Swordfish] as a mere alter ego and instrumentality of Garnishee Defendants individually,” the trial court “should pierce the corporate veil of [Swordfish] and rule that the individual assets of Garnishee Defendants are immediately available for satisfaction of Plaintiff's judgment against [Swordfish]”; and (8) alternatively, the trial court should “rule that the transaction cancelling the $3.5 million obligation of Swordfish Texas and Garnishee Defendants to [Swordfish] is an avoidable fraudulent transfer and declare it avoided, null, and void, and/or grant such other and further relief to Plaintiff as is available under applicable fraudulent transfer law.”

Further, Altus filed a “Trial Brief” prior to trial. Therein, Altus further articulated its claims and contended in part (1) in addition to the fraudulent transfers alleged above, Swordfish “distributed at least...