Arthur W. Tifford, Pa v. Tandem Energy Corp.

• Citation: 562 F.3d 699
• Decision Date: 11 March 2009
• Docket Number: No. 08-50413.,08-50413.
• Parties: ARTHUR W. TIFFORD, PA, Plaintiff-Appellant, v. TANDEM ENERGY CORPORATION, a Colorado corporation; Tandem Energy Holdings, Inc., a Nevada corporation; Todd M. Yocham; Tim G. Culp; Jack Chambers; Michael Cunningham, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

562 F.3d 699

ARTHUR W. TIFFORD, PA, Plaintiff-Appellant, v. TANDEM ENERGY CORPORATION, a Colorado corporation; Tandem Energy Holdings, Inc., a Nevada corporation; Todd M. Yocham; Tim G. Culp; Jack Chambers; Michael Cunningham, Defendants-Appellees.

No. 08-50413.

United States Court of Appeals, Fifth Circuit.

March 11, 2009.

Christopher Benjamin Dove, Sarah Baker Duncan (Argued), Mike A. Hatchell, Locke, Lord, Bissell & Liddell, LLP, Austin, TX, James W. Essman, Raymon Charles Stoker, Jr., Shafer, Davis, O'Leary & Stokier, Odessa, TX, Thomas F. Loose, Locke, Lord, Bissell & Liddell, LLP, Dallas, TX, for Arthur W. Tifford, P.A.

J. Michael Tibbal, Snell, Wylie & Tibbals, Dallas, TX, for Tandem Energy Corp., Tandem Energy Holdings, Inc.

Andrew Harper Estes, Scott M. Kidwell, Lynch, Chappell & Alsup, Midland, TX, for Todd M. Yocham, Tim G. Culp, Jack Chambers, Michael Cunningham.

Appeal from the United States District Court for the Western District of Texas.

Before JOLLY, DAVIS and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

This case concerns whether Tandem Energy Corporation ("Tandem Colorado"), Tandem Energy Holdings, Inc. ("Tandem Nevada"), Todd Yocham, Tim Culp, Jack Chambers, and Michael Cunningham (collectively "Defendants") can be held liable for conversion and civil conspiracy. We find genuine issues of fact regarding whether Plaintiff Arthur W. Tifford, PA ("Tifford"), a Florida corporation, owns a valid interest in Tandem Nevada, and whether Defendants' actions unreasonably deprived Tifford of that interest. We therefore reverse the district court's grant of summary judgment and remand for further proceedings.

I.

This dispute centers on a stock certificate in Tifford's possession. The certificate number TE 1069 ("Certificate 1069"), represents 2.7 million Tandem Nevada shares. Defendants believe Certificate 1069 is invalid, and have refused Tifford's demand to be listed as a record owner on Tandem Nevada's books. Tifford says genuine issues of fact exist regarding the certificate's validity, and whether Tandem's refusal to transfer record ownership constitutes conversion.

The conflict arises from a corporate deal gone wrong. In 2005, the owners of Tandem Colorado agreed to sell the company. The buyers hired Ron Williams to make a deal happen. Williams hired Aritex Consultants ("Aritex"), which was owned and operated by Lyle Mortensen. Williams and Mortensen were to execute a "reverse merger," in which a publicly held shell company acquires the stock of a private company in exchange for the public company's stock. The plan was this: Tandem Texas, a private company, was to purchase Tandem Colorado and other assets. The yet-to-be-acquired shell company, Tandem Nevada, was then to purchase Tandem Texas. There was apparently no written agreement concerning the duties and compensation of Williams, Mortensen, or Aritex. Mortensen purchased a public shell company, renamed it Tandem Nevada, and named himself president, secretary, and sole director. In that capacity, he issued 20 million shares to himself in March 2005, to allow him to complete the formalities necessary to the deal. What happened next is disputed.

Tifford acknowledges that the deal did not go according to plan, but notes that a reverse merger took place. After the merger, Mortensen re-issued just over 20 million shares of Tandem Nevada. Of those, just over 17 million went to the sellers of Tandem Colorado and new investors. Three million shares went to Aritex, Mortensen's company, as compensation for expenses and services. Mortensen resigned from the positions he held in Tandem Nevada, appointing in his place certain of the Defendants. His shares were later reissued, including into a block of 2.7 million shares represented by Certificate 1069. All stock issuances and transfers were done by Manhattan Transfer Registrar Company ("Manhattan Transfer"), Tandem Nevada's transfer agent.¹

Defendants paint a different picture. They agree that Aritex was supposed to receive 3 million shares of Tandem Nevada for shepherding the reverse merger to a close. However, Defendants say that Williams, who is a "securities fraud felon and disbarred attorney," sold $8-9 million of the shares issued by Mortensen in a "pump and dump" scheme, with Mortensen's knowledge or complicity. Defendants also aver that Mortensen did not have the power to issue stock in Tandem Nevada in March 2005 because he was not actually a director of the company. Moreover, Williams's and Mortensen's acts allegedly caused the original buyers to back out of the deal. After Williams and Mortensen moved on, Defendants restructured the deal. They capitalized Tandem Nevada directly with the assets of Tandem Colorado, some other assets, and borrowed funds. In sum, the originally contemplated reverse merger failed, but Defendants salvaged a deal by converting Tandem Colorado into publicly held Tandem Nevada.

Defendants state that "[o]n August 25, 2005, the new Tandem Board of Directors, by unanimous resolution, and pursuant to NEV.REV.STAT. § 78.211 cancelled the 20 million stock shares, including [Certificate 1069], based on an investigation and certified opinion of counsel concluding the shares were issued without consideration and were, therefore, invalid." Most of the cancelled shares were then reissued; only the shares issued to Aritex were not. In a letter dated August 26, 2005, Tandem directed Manhattan Transfer to "not make any transfers of cancelled shares and notify us immediately if any attempt or request is made to transfer any of the cancelled shares." Defendants say that they notified Mortensen of the cancellation in a certified letter dated September 7, 2005. Defendants submitted the letter as summary judgment evidence, but did not produce a certified mail receipt. Mortensen said in an affidavit that he does not recall receiving notice of the cancellation.

In April 2006, Mortensen signed a Stock Power on behalf of Aritex which purports to transfer the shares represented by Certificate 1069 to Tifford. In an affidavit, Arthur Tifford, the owner of the eponymous corporate plaintiff, states that the transfer was in partial satisfaction of a judgment entered for Tifford's client, Universal Express, Inc., in a Florida state-court lawsuit. Tifford now claims a partial interest in the shares by virtue of a contingency-fee agreement with Universal Express. Additionally, Tifford alleges he had no knowledge of Tandem Nevada's efforts to cancel the shares. In May 2006, Tifford's agent, T.D. Ameritrade, made a demand on Manhattan Transfer to have Certificate 1069 reissued in its name. Manhattan Transfer refused due to the August 26, 2005 stop order. On May 17, 2006, Tifford sent a letter to Tandem Nevada's attorneys demanding that the shares be reissued. Tandem Nevada refused.

On June 14, 2006, Tandem Nevada sued Aritex, Arthur Tifford and his corporation, Williams, Mortensen, and Manhattan Transfer in Nevada state court. Tandem Nevada sought a declaration that Certificate 1069 was invalid. All defendants but Manhattan Transfer were dismissed for lack of personal jurisdiction. On May 15, 2007, the court found that the dismissed defendants were not indispensable parties, and granted summary judgment in favor of Tandem Nevada. The court held that the shares issued by Mortensen, including Certificate 1069, were invalid and void. The court ordered Manhattan Transfer to void and refuse to transfer Certificate 1069 if such were presented to it. A separate lawsuit involving Aritex and concerning the validity of the stock is currently proceeding in a Texas state court.

Tifford filed this suit on June 12, 2007. Tifford sought a declaration of its rights in Tandem Nevada and damages in excess of $12 million for conversion and civil conspiracy. Initially, Defendants moved to have the claim dismissed for failure to state a claim. Upon considering evidence outside of the pleadings, the district court construed Defendants' motion as one for summary judgment. However, Defendants have not filed answers to Tifford's complaint. In a written order, the court stated that the parties agreed that the conversion took place on August 25, 2005, and Tifford did not own Certificate 1069 at that time. Thus, Defendants did not deprive Tifford of a property interest, and summary judgment was proper. In the alternative, the court held that the Nevada judgment invalidating Certificate 1069 was an in rem judgment, and thus bound Tifford. As Tifford could not demonstrate an unlawful act, the court granted summary judgment in favor of Defendants on Tifford's civil conspiracy claim as well. Final judgment was entered and Tifford appealed. We have jurisdiction pursuant to 28 U.S.C. § 1291.

II.

We review a grant of summary judgment de novo. Delta & Pine Land Co. v. Nationwide Agribus. Ins. Co., 530 F.3d 395, 398 (5th Cir.2008). "The judgment sought should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). "We may affirm a summary judgment on any ground supported by the record, even if it is different from that relied on by the district court." Holtzclaw v. DSC Commc'ns Corp., 255 F.3d 254, 258 (5th Cir.2001).

A.

"The unauthorized and wrongful assumption and exercise of dominion and control over the personal property of another, to the exclusion of or inconsistent with the owner's rights, is in law a conversion." Waisath v. Lack's Stores, Inc., 474 S.W.2d 444, 447 (Tex.1971).² "[I]t is not necessary that there be a manual taking of the property in question." Id. However, the defendant's actions must impair the plaintiff's ownership interest. See Prewitt v. Branham, 643 S.W.2d 122, 123 (Tex. 1982). The plaintiff must prove that: (1) he legally possessed the property or was entitled to it; (2) the defendant wrongfully...