Weaver v. Kellogg

• Decision Date: 08 January 1997
• Docket Number: Civ. A. No. H-94-3703.
• Citation: 216 BR 563
• Parties: John W. WEAVER, Liquidating Trustee, Plaintiff, v. Richard C. KELLOGG, Frans G.J. Speets and TMH (Trans Marketing Houston), N.V., Defendants.
• Court: U.S. District Court — Southern District of Texas

216 B.R. 563 (1997)

John W. WEAVER, Liquidating Trustee, Plaintiff, v. Richard C. KELLOGG, Frans G.J. Speets and TMH (Trans Marketing Houston), N.V., Defendants.

Civ. A. No. H-94-3703.

United States District Court, S.D. Texas, Houston Division.

January 8, 1997.

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Diana Merrill Woodman, Boris A. Hidalgo, James R. Leahy, Daniel H. Johnston, Jr., Brown Parker & Leahy, Houston, TX, for Plaintiff.

Charles G. King, III, King and Pennington, Houston, TX, for Defendants.

MEMORANDUM AND ORDER

ATLAS, District Judge.

                                                        TABLE OF CONTENTS
                     INTRODUCTION ................................................................ 568
                  I. FACTUAL BACKGROUND .......................................................... 569
                

                 II. SUMMARY JUDGMENT STANDARD ................................................... 570
                III. PLAINTIFF'S CLAIMS AND DEFENDANTS' MOTION FOR SUMMARY                         570
                     JUDGMENT
                     A. Promissory Notes to TMHI ................................................. 571
                        1. The Note Transactions ................................................. 571
                           a. Pioneer Loan Notes ................................................. 571
                           b. Accounts Receivable Notes .......................................... 571
                           c. TMH N.V. Loan Note ................................................. 571
                        2. Plaintiff's Claims for Avoiding the Note Transactions ................. 572
                           a. 11 U.S.C. ? 548(a)(2) and Texas Business and Commerce Code           572
                              ? 24.005(a)(2) and 24.006(a)
                                (i) Transfer ..................................................... 573
                               (ii) Less Than Reasonably Equivalent Value ........................ 574
                              (iii) Other Requirements ........................................... 575
                                    (a) Insolvency ............................................... 575
                                    (b) Unreasonably Small Capital ............................... 576
                                    (c) Intent to Incur Debts Beyond Its Ability to Pay .......... 576
                           b. 11 U.S.C. ? 548(a)(1) and Texas Business and Commerce Code           576
                              ? 24.005(a)(1)
                     B. Payments of Salary and Expenses to Speets and Kellogg .................... 577
                     C. Breach of Corporate Duties ............................................... 579
                        1. Plaintiff's Allegations ............................................... 579
                           a. Pioneer Acquisition ................................................ 579
                           b. Foreign Distribution Companies ..................................... 580
                           c. Personal Cash Advances to Speets and Kellogg ....................... 580
                           d. December 1992 Promissory Note Transactions ......................... 580
                        2. Speets and Kellogg's Defenses ......................................... 580
                           a. Sole Shareholders and Sole Directors Argument ...................... 581
                           b. Business Judgment Rule ............................................. 584
                     D. Alter Ego Doctrine ....................................................... 584
                     E. Conspiracy ............................................................... 586
                     F. Punitive Damages ......................................................... 586
                     G. Statute of Limitations ................................................... 586
                 IV. PLAINTIFF'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT ....................... 587
                  V. MOTIONS TO STRIKE ........................................................... 587
                     A. Defendants' Motion to Strike Affidavits of Weaver, Deweese, and Chernow    587
                        1. Weaver ................................................................ 587
                        2. Deweese ............................................................... 587
                        3. Chernow ............................................................... 588
                     B. Plaintiff's Motion to Strike Supplemental Affidavits of Defendants ....... 588
                 VI. CONCLUSION .................................................................. 588
                

INTRODUCTION

Plaintiff John W. Weaver ("Plaintiff") is the Liquidating Trustee for Trans Marketing Houston International ("TMHI"), a petroleum and chemical trading corporation that filed for Chapter 11 bankruptcy in April 1993. In this action, Plaintiff, on behalf of TMHI's creditors, is seeking to recover TMHI's unpaid debts from TMHI's founders and sole shareholders, Defendants Richard C. Kellogg ("Kellogg") and Frans G.J. Speets ("Speets"), and from another corporation established by Speets and Kellogg, Defendant Trans Marketing Houston, N.V. ("TMH N.V.").

In a 34-count complaint, Plaintiff has alleged a variety of legal theories to support this recovery. See Amended Complaint, Exhibit A to Exhibit 1 of Appendix to Defendants' Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment Doc. # 37 ("Complaint").¹ Stated briefly, Plaintiff contends that Defendants Speets and Kellogg breached their corporate duties as directors of TMHI; wrongfully diverted substantial sums of money from TMHI for their own personal benefit, despite TMHI's financial instability; and so should be held personally liable to TMHI's creditors in the wake of its bankruptcy. Speets and Kellogg vigorously deny that they violated any law or corporate duty and thus deny that they should be held personally liable for any of TMHI's debts. Contrary to Plaintiff's assertions, Defendants insist that TMHI was financially healthy up until the brink of its bankruptcy and, therefore, as sole shareholders in the corporation, they were free to use its assets however they wished.

Pending before the Court are Defendants' Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment ("Motion") Doc. # 36 and Plaintiff's Cross-Motion for Partial Summary Judgment ("Cross-Motion") Doc. # 65. Both sides have also filed motions to strike portions of each other's testimony. See Defendants' Motion to Strike Affidavits of Weaver, Deweese, and Chernow ("Defendants' Motion to Strike") Doc. # 61 and Plaintiff's Motion to Strike and Objection to Supplemental Affidavits of Defendants ("Plaintiff's Motion to Strike") Doc. # 81.

After considering the Motions and their supporting exhibits, the responses and replies, all other matters of record in this case, and the relevant authorities, the Court concludes, in sum, that all of the determinative issues in this case are fact-based inquiries requiring a trial. For this and other reasons stated below, Defendants' Motion for Summary Judgment Doc. # 36 is now DENIED, and Plaintiff's Cross-Motion for Partial Summary Judgment Doc. # 65 is DENIED. In addition, both Defendants' and Plaintiff's Motions to Strike Docs. # 61 and # 81 are DENIED.

I. FACTUAL BACKGROUND

In 1985, Defendants Speets and Kellogg established TMHI, a petroleum and chemical trading corporation, for which they were the sole shareholders. Originally incorporated in Texas, TMHI was reincorporated in Delaware on December 31, 1991. From the time of TMHI's original incorporation until May 1992, Speets and Kellogg were also the company's sole directors. TMHI grew from a start-up business in 1985 to a company that grossed $1.3 billion in 1990. However, in April 1993, TMHI filed for Chapter 11 bankruptcy. See Bankruptcy No. 93-43008-H4-11. Plaintiff Weaver was appointed trustee and, in October 1994, brought the current action on behalf of TMHI and its creditors.

According to Defendants, TMHI became insolvent when one of its principal lenders, Banque Paribas, unexpectedly and suddenly withdrew its support in April 1993. According to Plaintiff, however, TMHI was an undercapitalized company that was in fact insolvent for a number of years before it filed for bankruptcy.

Apparently, Speets and Kellogg used money from TMHI to finance a number of other chemical trading operations, either through direct start-up loans from TMHI or through loans channeled first through Defendant TMH N.V., a Netherlands Antilles corporation, also owned and run by Speets and Kellogg. These transactions included the establishment of thirteen affiliated foreign distribution companies in Latin America and Europe, owned primarily by TMH N.V., and Speets and Kellogg's personal acquisition of Pioneer Chlor Alkali, Inc. ("Pioneer"), a company specializing in the production and trade of caustic soda.

Plaintiff alleges that Speets and Kellogg structured these transactions in ways that were unfair to TMHI and beneficial to the other operations and to Speets and Kellogg personally. In addition to the money Speets and Kellogg withdrew from TMHI to start these other companies, Plaintiff alleges that Speets and Kellogg advanced large sums from TMHI for their own personal expenses. According to Plaintiff, these withdrawals from a thinly capitalized corporation eventually led to TMHI's insolvency. When TMHI filed for bankruptcy, it left behind more than $22 million in unpaid debt. Meanwhile, Plaintiff claims, Speets and Kellogg each personally profited from its transactions involving TMHI by at least $25 million, while other operations they established with TMHI's capital continue to thrive.

Plaintiff argues, for reasons described below, that TMHI's creditors should not be left unpaid in the wake of TMHI's bankruptcy after Speets and Kellogg intentionally diverted TMHI's assets to themselves and other corporations which Speets and Kellogg continue to control. In their defense, Speets and Kellogg adamantly argue that they did nothing wrong, that they violated no law or corporate duty, that as sole shareholders of TMHI their only duty of loyalty was to themselves, that their transactions were lawful because TMHI was solvent until just before it filed for bankruptcy, and that some of Plaintiff's charges are barred by the...