Gordon v. Gordon, No. 09-05-330 CV (Tex. App. 7/31/2008)
| Decision Date | 31 July 2008 |
| Docket Number | No. 09-05-330 CV.,09-05-330 CV. |
| Parties | JAMES G. GORDON and LISA K. GORDON, Appellants, v. GEORGE DAVID GORDON, JR., Appellee. |
| Court | Texas Court of Appeals |
On Appeal from the 9th District Court, Montgomery County, Texas, Trial Cause No. 03-01-00006-CV.
AFFIRMED IN PART; REVERSED AND REMANDED IN PART.
Before McKEITHEN, C.J., KREGER and HORTON, JJ.
Plaintiffs, James G. Gordon ("Greg") and his wife, Lisa, (hereafter referred to as "plaintiffs" or "appellants") appeal a take nothing judgment rendered against them following a bench trial.1 We affirm in part, reverse in part, and remand for a new trial.
Plaintiffs initially sued Greg's brother, George David Gordon, Jr. ("David"), David Covey, and SGD Holdings, Ltd. ("SGD"). The record indicates that just prior to commencement of trial; SGD filed bankruptcy proceedings in the State of Delaware. SGD's bankruptcy resulted in an automatic stay which abated any further proceedings against it. See In re Sw. Bell Tel. Co., 35 S.W.3d 602, 604 (Tex. 2000).2 A mid-trial agreement between the parties also resulted in plaintiffs nonsuiting defendant David Covey. Therefore, the remaining defendant, in whose favor judgment was ultimately rendered, was David Gordon. The appellate record is quite extensive, with the reporter's record numbering thirty-two volumes, much of which consists of voluminous exhibits that were admitted en masse. This case was tried to the judge in a relatively rapid manner, with the vast majority of hundreds of exhibits and deposition transcripts being pre-admitted and admitted by agreement without specific review of them during direct or cross-examination of the several witnesses. Plaintiffs proceeded to trial on multiple causes of action and theories of liability. Closing arguments were allowed in written form and consisted of more than one hundred pages, with multiple references to documentary evidence. While the trial court filed findings of fact and conclusions of law, the findings of fact number only twelve and are broad evidentiary statements that do not correspond to the ultimate and controlling issues of each cause of action pled. See generally Tex. R. Civ. P. 296; Limbaugh v. Limbaugh, 71 S.W.3d 1, 6 (Tex. App.-Waco 2002, no pet.). There are only four conclusions of law, none of which coordinates with the various causes of action tried to the court. As a complete reporter's record appears in the appellate record, the findings of fact are not conclusive on this court and are reviewed for legal and factual sufficiency of the evidence. See City of Beaumont v. Spivey, 1 S.W.3d 385, 392 (Tex. App.-Beaumont 1999, pet. denied); Stephenson v. Perlitz, 537 S.W.2d 287, 289 (Tex. Civ. App.-Beaumont 1976, writ ref'd n.r.e.). We have carefully examined the entire record in light of the individual elements of the causes of action asserted by plaintiffs in twenty-one issues raised on appeal.
Greg Gordon and David Gordon are brothers. David is an attorney who specializes in the area of corporate law ("mergers and acquisitions"), tax law, and securities, which also includes having represented clients before the Securities and Exchange Commission. Prior to events that spawned the instant litigation, plaintiffs had been, from 1994 to 1999, the owners and operators of a retail jewelry business, Con-Tex Silver Imports, Inc. ("Con-Tex"), located in Conroe, Texas. Either in December of 1998, or March or April of 1999, David initiated conversations with Greg and Lisa regarding a plan to convert Con-Tex into a publicly-traded corporation. Plaintiffs eventually agreed to allow David to take their business public after being assured they could maintain control of the newly formed corporation, as they had built Con-Tex up to a value estimated at more than one million dollars. The agreement, as structured by David, provided for plaintiffs to transfer complete ownership of Con-Tex to a publicly-traded "shell"3 corporation, in exchange for 75 million shares in the new corporation. This would result in plaintiffs becoming "super majority" shareholders in the new corporation and allow them to sell a sufficient number of shares to recover their investment while maintaining their majority shareholder position. Greg testified that David instructed Lisa and Greg to continue doing what they had been doing, selling jewelry. Through a series of transactions in 1999, Con-Tex was merged into a publicly-traded corporation.
Prior to this time, David had ongoing dealings with various individuals and corporate entities with whom he was engaged in multiple mergers and acquisitions, "trading or selling shells," that included but was not limited to Universal Funding, Inc. and International Internet. International Internet was a public corporation in which David was a shareholder and acted as its legal counsel. David testified that International Internet wanted to spin-off one of its privately held corporate entities, Goldonline.com ("Goldonline"), into a publicly traded company but that the principals reportedly did not want to run the operations of the company. David testified that he suggested that his brother, Greg, operate the company.4 David had incorporated Goldonline in February 1999, its only asset was a rudimentary website that International Internet had previously purchased. International Internet found a "shell" corporation, Transun International Airways, Inc. ("Transun"), that had public trading rights. David represented Universal Funding in the purchase of the majority of stock in Transun and held shares in his name as trustee. International Internet spun-off Goldonline into Transun in the first week of June 1999. Then, on or about June 10, 1999, the reverse acquisition occurred between Transun and Con-Tex. On that same day, Transun changed its name to Goldonline International, Inc. Goldonline International, Inc. subsequently changed its name to SGD Holdings, Ltd. on January 24, 2001.
David testified that approximately fifty percent of his legal business in and around 1999 consisted of mergers and acquisitions. David had various individuals either employed by him or officing with him, involved in the preparation of documentation necessary for "trading or selling shells," including the purchase and sale of stock and other corporate transactions and governmental filings associated with the merger, acquisition and operations of various corporate entities, as well as issuing press releases. These persons were also utilized in the business plan to take Con-Tex public, namely: Susan Willis, David's paralegal; Jesse Clayton, a nonlawyer that utilized David's law office space and who reportedly provided contract labor for David including drafting documentation for David and his clients for these "shell deals," as well as someone who was often named as an officer and director of the shell corporations;5 and, Jim Ross, an accountant employed by David, who prepared governmental filings for the SEC and the IRS. David admitted he reviewed the work of these nonlawyers who worked in his law office.
The legal documentation drafted by David and the nonlawyers under his supervision regarding the formation, operation, and merger of the various corporate entities involved in this matter, including the purchase and sale of stock associated with this shell deal, is replete with errors. The initial stock purchase agreement that was to initiate the business plan to take Con-Tex public was flawed in several ways. It incorrectly recited that Greg Gordon was the sole shareholder of Con-Tex, it incorrectly recited the number of shares of Con-Tex owned by Greg, it provided that Greg would receive only five hundred shares of Transun instead of 75 million shares in exchange for his interest in Con-Tex, and it refers to numerous attached exhibits, none of which are actually attached. David later claimed that the written stock purchase agreement document was so flawed it did not even reflect the actual agreement with Greg. Instead, David claimed they operated under an oral agreement. According to David, Susan Willis drafted the Certificate of Amendment of Certificate of Incorporation of Goldonline that allegedly evidenced and authorized the controversial one for six reverse split in the stock of the corporation. The certificate of amendment failed to mention Goldonline in the body of the resolution but instead, named two other unrelated corporate names. David insisted that Jesse Clayton was solely responsible for drafting many, if not all, of the transactional documents in the early stages of the Con-Tex and Transun merger, including but not limited to the mistake-ridden Stock Purchase Agreement.6 During the initial phases of the "shell deal" involving Con-Tex, Jesse Clayton suffered a debilitating stroke which rendered him unable to continue to work. Clayton's untimely illness, combined with an August 1999 telephone call from the FBI to David regarding a SEC investigation into the "shell" corporation, Transun, appears to have disrupted the timing of events and issuance of documentation with regard to this particular "shell deal" and eventually led both to the filing for bankruptcy protection by the originating corporate entities and to the filing of this lawsuit. The record indicates that following the merger of Con-Tex into the newly formed publicly-traded corporation in 1999, Greg was issued and became entitled to 75 million shares of SGD stock. Because of Greg's status as an insider, his stock certificates were issued with a restrictive legend, prohibiting their unrestricted transfer.7 Upon the anniversary date of the closing of the sale of Con-Tex, Greg and Lisa communicated their desire to David to begin selling the maximum number of shares of stock allowed by law. The unrefuted evidence shows that despite the expiration of the holding period provided by SEC regulations...
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