Paolino v. Argyll Equities, L.L.C.

• Decision Date: 02 November 2005
• Docket Number: No. Civ.SA05CA0342XR.,Civ.SA05CA0342XR.
• Citation: 401 F.Supp.2d 712
• Parties: Louis D. PAOLINO, Jr., Plaintiff, v. ARGYLL EQUITIES, L.L.C., et al., Defendants.
• Court: U.S. District Court — Western District of Texas

401 F.Supp.2d 712

Louis D. PAOLINO, Jr., Plaintiff, v. ARGYLL EQUITIES, L.L.C., et al., Defendants.

No. Civ.SA05CA0342XR.

United States District Court, W.D. Texas, San Antonio Division.

November 2, 2005.

COPYRIGHT MATERIAL OMITTED

Ross D. Cooper, Shulman, Rogers, Gandal, Pordy & Ecker, P.A., Rockville, MD, Jason Davis, Law Office of Jason Davis, San Antonio, TX, for Plaintiff.

J. Ken Nunley, Nunley, Davis, Jolley & Hill, L.L.P., Boerne, TX, for Defendants.

ORDER

RODRIGUEZ, District Judge.

On this date, the Court considered Defendant Jeffrey Spanier's and Defendant Amerifund's Rule 12(b) Motion to Dismiss for Lack of Jurisdiction, Improper Venue, Insufficiency of Process and Service of Process (docket no. 11); Defendant John Franczyk's and Defendant Hussain, Egan, Bendersky & Franczyk, L.L.C.'s 12(b) Motion to Dismiss for Lack of Jurisdiction, Improper Venue, Insufficiency of Process and Service of Process (docket no. 14); Defendant Douglas McClain, Jr.'s Amended Motion to Dismiss for Lack of Jurisdiction (docket no. 55); and Defendant James Miceli's Rule 12(b) Motion to Dismiss for Lack of Jurisdiction (docket no. 53).

I. Facts & Procedural Background

According to the Complaint, Paolino is the President, CEO, and Chairman of the Board of Mace Security International, Inc., a publicly traded company. Before the transaction giving rise to this suit, Paolino was the beneficial owner of approximately 19.7% of the issued and outstanding shares of Mace. On April 15, 2004, Paolino and his broker approached Defendant Jeffrey Spanier, the President of Amerifund. Spanier directed Paolino to Argyll Equities. Plaintiff alleges that, "[a]t all relevant times, Spanier was the intermediary through whom Paolino negotiated the loan agreement with Argyll." Further, according to Paolino's Complaint, Spanier assured Paolino that his stock would be held in escrow during the loan term so long as Paolino was not in default and that Argyll would provide Paolino with notices in advance of the date of each quarterly interest payment. Paolino alleges that this promise to provide notice of interest payments due was repeated by Argyll's then-Chief Financial Officer following execution of the loan.

On April 20, 2004, Paolino entered into a Private Collateralized Loan Agreement (with an amendment), and two related agreements (the Pledge Agreement and Nonrecourse Promissory Note) with Argyll Equities, Inc. Under these agreements, Argyll agreed to loan Paolino approximately $4.1 million in exchange for his pledge of 1.19 million shares of Mace as collateral. The loan documents contained a forum selection clause providing that Paolino "consents to the exclusive jurisdiction of the courts sitting in Kendall County, Texas, United States of America ... for the purpose of any suit, action or other proceeding by any party to this Agreement, arising out of or related in any way to this Agreement."

On July 12, 2004, Argyll provided Paolino with the amount of his first quarterly interest payment, which Paolino then timely paid. Paolino's next payment was due October 15, 2004. However, Paolino did not receive notice regarding the interest amount due. On November 22, 2004, Argyll provided Paolino with a Notice of Event of Default based on his failure to timely pay the October 15 interest payment. The notice further indicated that Argyll was terminating the loan agreement and that Argyll could seize and sell the Mace stock. Paolino responded to the notice of default, advising Argyll that he deemed the notice to be notice of the interest amount due, and tendered the interest payment. According to the Complaint, though Argyll accepted the payment, it refused to rescind the default and continued to claim an ability to dispose of the Mace stock.

In a letter dated November 5, 2004, Defendant John Franczyk of the law firm of Defendant Hussain Egan Bendersky Franczyk, L.L.C., sent a letter to Paolino offering to defer Argyll's exercise of its right to dispose of the stock on the condition that Paolino execute a modified loan agreement. Paolino alleges that, that same day, Franczyk promised by email to Paolino's counsel that Argyll would take no action with regard to the stock until at least the close of business on November 8. Paolino alleges that Franczyk intended to induce Paolino to refrain from or to defer filing suit or notifying federal and state regulators, and to force Paolino to expend resources investigating the matter, when in fact Franczyk knew that Argyll had already disposed of the Mace stock. In reliance on the promise, Paolino did not pursue immediate action and agreed to a standstill agreement to pursue negotiations with Argyll. Negotiations were extended by agreement through December 23, 2004. Paolino alleges that Franczyk and Argyll never intended to reach an agreement but were simply trying to delay and increase Paolino's costs in the hopes that he would withdraw and not learn of the stock sale. According to Paolino, during the period of negotiation, Defendants James Miceli and Douglas McClain, Jr., both Argyll principals, also specifically represented to Paolino over the telephone that no action would be taken with regard to the stock.

On December 16, 2004, Paolino filed suit in the 216^th District Court for Kendall County, Texas against Argyll, eventually amending his complaint to add the remaining Defendants. Paolino alleges that, upon learning of a similar fraudulent scheme involving a borrower in Hong Kong,¹ Paolino voluntarily dismissed the suit on April 25, 2005 and filed suit in this Court. Plaintiff brings numerous counts against Defendants, including Breach of Contract (Argyll), Unjust Enrichment (all Defendants), Civil Conspiracy (all Defendants), Fraud and Fraudulent Inducement (all Defendants), RICO/RICO conspiracy (all Defendants), DTPA (Argyll), Usury (Argyll), Accounting (Argyll), Conversion (Argyll), and violations of Texas Business and Commerce Code § 27.01 (Argyll, Spanier and Amerifund). Paolino seeks compensatory and exemplary damages. Paolino alleges federal jurisdiction based on federal question (RICO) and supplemental jurisdiction over the state-law claims. Plaintiff further alleges that venue is proper under 28 U.S.C. § 1391 because Defendant Argyll Equities has its principal place of business in Texas and, pursuant to 18 U.S.C. § 1965(b), RICO's nationwide service of process provision, the ends of justice require that the other parties be brought before this Court.

On August 30, 2005, this Court granted Argyll's motion to dismiss Plaintiff's claims against it based on the forum selection clause.

II. Defendants Spanier and Amerifund's Rule 12(b) Motion to Dismiss (docket no. 11)

Defendant Jeffrey Spanier and Defendant Amerifund move to dismiss pursuant to Rule 12(b)(2) for lack of personal jurisdiction, Rule 12(b)(3) for improper venue, Rule 12(b)(4) for insufficiency of process, and Rule 12(b)(5) for insufficiency of service of process. These Defendants' primary argument is that they have insufficient contacts with Texas to support an exercise of personal jurisdiction, and Defendants' 12(b)(4) and 12(b)(5) motions are based solely on their objection to personal jurisdiction.

A.

Defendants state that Jeffrey Spanier is the President of Amerifund, a closely held corporation, and that Amerifund acts as a "broker of sorts" by placing people who want high-end unconventional loans in touch with Argyll, which provides working capital secured by stock as collateral (called "stock loans"). According to Spanier's affidavit, Amerifund has worked with Argyll since 2003 and primarily "puts people who need high-end loans in contact with Argyll, who in turn lends them large sums of money." He further states that Amerifund and Argyll are not business partners, nor is Spanier a business partner with Argyll. Amerifund's principal place of business is in Boca Raton, Florida, and it has no offices or employees in Texas.

Spanier was introduced to Paolino on April 15, 2004 when Paolino came to his Florida office. Spanier did not solicit business from Paolino, but was introduced to Paolino through Paolino's own Florida broker. When Paolino told Spanier what he needed, Spanier put him in contact with Argyll. Argyll is a Texas L.L.C. with its principal place of business in California. Spanier states that "[a]fter the meeting that took place with Mr. Paolino and his broker in my office, all of my communications related to Mr. Paolino's loan took place in my Florida office: either between me and Mr. Paolino at his home in Florida, or between me and one or more of Mr. Paolino's representatives in Florida or New Jersey; or between me and Argyll in California, Illinois and Georgia." Neither Amerifund nor Spanier is a party to the loan transaction, and Spanier states that he did not negotiate any part of the transaction reflected in the loan documents. Spanier asserts that, although he has made a few phone calls to Argyll at its Texas office, the transaction made the basis of this suit was done wholly with the California and Georgia Argyll offices, and no communications whatsoever went through Texas.

Defendants further assert that it would have been "impossible for Mr. Spanier or his company, Amerifund, to anticipate being haled into court in Texas. The only mention of Texas in the entire transaction was that Argyll had an office there." Defendants state that there was no labor performed, no services rendered, no communications made, and no material furnished in Texas by Spanier or Amerifund. Defendants argue that, contrary to Paolino's allegations in the Complaint, Spanier had no communication with the parties to the loan documents about the terms therein; he only relayed messages from Paolino to Argyll. In his affidavit, Spanier states that, although he serves "as a conduit of information between potential borrowers and Argyll," he does not engage in any negotiations with Argyll's clients and cannot change the terms of loan...