Cagle v. Clark

• Decision Date: 26 April 2013
• Docket Number: No. 06–12–00034–CV.,06–12–00034–CV.
• Citation: 401 S.W.3d 379
• Parties: Michael CAGLE and Martin Lake Construction, Inc., Appellants v. Timothy J. CLARK, Appellee.
• Court: Texas Court of Appeals

401 S.W.3d 379

Michael CAGLE and Martin Lake Construction, Inc., Appellants

v.Timothy J. CLARK, Appellee.

No. 06–12–00034–CV.

Court of Appeals of Texas, Texarkana.

Submitted March 27, 2013.

Decided April 26, 2013.

John S. Ament, Ament * Peacock, Jacksonville, TX, for Appellants.

Gregory D. Smith, Nolan D. Smith, Ramey & Flock, PC, Tyler, TX, Craig D. Zips, Derryberry & Zips, PLLC, Tyler, TX, for Appellee.

Before MORRISS, C.J., CARTER and MOSELEY, JJ.

OPINION

Opinion by Justice CARTER.

Michael Cagle and Martin Lake Construction, Inc. (MLC) appeal the grant of a special appearance in favor of Timothy J. Clark, a resident of the state of New York. Because we agree with Cagle and MLC's arguments that the trial court had specific in personam jurisdiction over Clark, we reverse the court's judgment and remand to the trial court for further proceedings.¹

I. Factual and Procedural History

Cagle owned MLC, a Texas corporation that “did oil and gas work, as well as construction work in the lignite mines and power plants.” MLC routinely bid on jobs requiring “preliminary work,” such as building “roads and pads,” and laying pipeline. Eventually, MLC began to run out of operating capital, which limited the number of bids it could make. Cagle “was approached ... by several individuals,” including Clark, about the possibility of a sale of MLC.

Cagle testified that Clark “actually just called one day and introduced himself and told me a little about himself and wanted to just come down and set up a meeting.” Pervis Eugene Young, operations manager for MLC since 2004, testified that it was his understanding that Clark, who lived in New York, was going to buy MLC. A meeting was scheduled, and Clark alone made a personal appearance to the Carthage facility two weeks after the telephoneconversation with Cagle. During the meeting, Cagle told “him that we had ... reached our maximum as far as funding on our own.” Clark responded by presenting “several case scenarios where he owned other companies in Texas and they had grown from this revenue base to other revenue base.” ²

This led to a business proposal with the goal of growing MLC's existing business. Specifically: (1) a new entity called Martin Lake Energy Services, LLC (MLES) would be formed “for the purpose of acquiring the assets of the business formerly conducted under the name of [MLC],” (2) Cagle would agree to sell MLC's assets, (3) MLC would receive $6,800,000.00, (4) Clark would obtain financing to expand operations, (5) Cagle would receive a twenty percent interest in the new MLES entity, (6) Clark would be Chairman of the MLES Board, and (7) MLES would continue to do business, primarily in Texas. This strategy would allow an infusion of capital into the new MLES entity to provide for company growth. According to Cagle, he would manage the day-to-day operations of MLES in the same manner as he did with MLC, and Clark would take over the financial management of the company. Cagle testified that once a tentative agreement was reached in June 2007, he hired accountants and attorneys to assist him in arriving at a “desired result” in the sale.

Cagle stated that he met Clark several times to conduct business in a Fort Worth office and that they had many meetings and conversations prior to the MLC sale. Cagle testified that negotiations of the sale were all conducted by Clark and that he spoke to Clark “two or three times a week, if not more” “[f]or a period of time.” Young testified that he met Clark personally in Carthage either “right before or right after” the Asset Purchase Agreement was executed. After MLES' formation, the sale of MLC to MLES, conducted via an Asset Purchase Agreement, was completed September 1, 2007. Cagle was named the president of MLES. Clark was not at the closing.

Cagle testified that he believed he was dealing individually with Clark until “we finally agreed on the deal and he began to ... file for licensing and all.” Clark accomplished the goal of obtaining additional financing through a revolving credit facility issued by FCC, LLC, d/b/a First Capital (FCC), a Florida limited liability company that was “in the business of providing operating capital for businesses through credit facility agreements.” ³ The FCC Loan and Security Agreement was signed by Clark as the Chairman of the Board. The MLES Board also included Vice President Marcia McKillop, Controller Eric Niemeyer, and a Chief Financial Officer (CFO) allegedly hired by Clark.

After MLES' formation, Cagle testified that Clark came to Texas to conduct MLES business on several occasions. Young testified that he met with Clark and was hired by him to work for MLES. Young also stated that Clark returned “[f]our or five” times to MLES' offices in Carthage. During one visit, Young recalled that Clark and Cagle “had one meeting there that he was present about expansion. The one meeting was about growth, to grow the company.” According to Young, Clark “was supposed to furnish us with another million dollars for growth.” The aim “was to move and put a yard in [ ] Arkansas .... he wanted to expand and grow in that area in Arkansas, mainly in the pipeline division.”

Cagle explained:

[Clark] wanted to go and grow [the business] in the Fayetteville shale in Arkansas, as well as a large pipeline division in Dubach, Louisiana. And there was actually a bid meeting the next morning in Fayetteville, Arkansas over several different jobs.

And we asked him then, “How soon do you want to start?” And he said, “How soon do we need to be there?” And [Young] made him aware that, hey, there's a meeting in the morning and someone could [g]et several jobs. And he said, “I want to be present in that meeting.” And he said, “I will have the funding that you need within the next couple of weeks.”

Based on these representations, Cagle testified that MLES won bids for several projects. However, additional operating funding did not arrive. Therefore, MLES “stole out of accounts receivable that was coming through ... the Carthage area that were actually eartagged to pay Carthage's bills and keep those accounts payable done. We would—we just kept borrowing from that slush pool until it basically ran it dry.” In other words, Cagle said MLES was robbing Peter to pay Paul, resulting in a default of the FCC loan. The expenses of the bid job and money used to purchase equipment led to cash being “tight.”

According to Cagle, employees were unable to be paid on “four or five” occasions, and “funds could not be transferred without the approval of Tim Clark.” Cagle stated, “Tim was calling the shots weekly on who got paid and how much and when they got paid. And a lot of times, he would skip vendors and pay—a lot of times, he would pay his attorney.” Eventually, MLES defaulted on the FCC note.

To secure its loan in the form of a revolving credit facility to MLES, FCC had taken a first priority lien and security interest in all of MLES' collateral. When MLES defaulted by failing to make payment in accordance with the terms of the credit facility, FCC filed a verified petition against MLES, along with an unopposed request for the emergency appointment of a receiver of MLES' assets.⁴

MLC and Cagle intervened. Their second amended petition in intervention and second amended original petition (petition) was filed against MLES and Clark, in his individual capacity.⁵ The petition alleged that “Clark induced Cagle to give up a going business” and that Clark breached the contract, promises, and representations made to Cagle the he would continue to obtain additional funding for MLES.⁶ During the course of the litigation, FCC obtained receivership and auctioned MLES' assets. The petition blamed Clark for mismanaging the company and allowing MLES “to become in default on the loan with” FCC.

The petition noted that Clark lived in New York and was not a named owner of MLES. Yet, it alleged that Clark “owned or controlled” TJC Investments, LLC (TJC), a limited liability company that owned MLES. TJC “does not hold a permit to do business in Texas and is not registered with the Texas Secretary of State.” However, Cagle asserted that the court had personal jurisdiction over Clark because “Clark was using the various LLCs as shams and those LLCs are the defendants' alter egos.” ⁷ Cagle also contended that Clark purposely conducted business in Texas and was physically present in Texas.

Clark filed a special appearance accompanied by an affidavit which asserted:

(1) I am not a resident of the State of Texas, and I am not required to maintain, nor do I maintain, a registered agent for service in Texas. I am a resident of the State of New York.

(2) I do not maintain a place of business in Texas, and I do not personally have any employees, servants, or agents within the State of Texas.

(3) I do not own any real property in the State of Texas, nor do I own any tangible property in the State of Texas.⁸

(5) I did not expect to be haled to Court in the State of Texas. If I am required to appear in this matter in Panola County, Texas, I will incur substantial expenses for travel, lodging and meals while away from home.

(6) At all times relevant hereto, I was the Chairman of the Board of [MLES]. On or about July 16, 2007, MLES entered into that certain Asset Purchase Agreement with [MLC and Cagle] in which MLES agreed to purchase the assets of MLC for $6,800,000, along with a subordinated promissory note in the amount of $2,850,000 (the “Note”) and the issuance of 20% of the ownership interest in MLES. MLC and/or Cagle received the $6,800,000 purchase price.

(7) The Asset Purchase Agreement between MLES on the one hand, and MLC and Cagle, on the other hand, was negotiated and executed by me while I was in the State of New York....

....

(9) Article 4 ... of the Asset Purchase Agreement states that “there are no representations, warranties, understandings or agreements other than those expressly set forth herein .... except as modified in writing...