Court Opinion

ID: 65381
Source: CourtListenerOpinion
Date Created: 2010-04-26 05:56:56+00
Date Added: 2024-06-11T08:13:25.970030
License: Public Domain

REVISED April 21, 2009

        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                           United States Court of Appeals
                                                                    Fifth Circuit

                                                                FILED
                                                              March 30, 2009
                                  No. 08-11224
                                                         Charles R. Fulbruge III
                                                                 Clerk
BILLY J MULLINS JR; FARAWAY ENTERPRISES

                                     Plaintiffs-Appellees-Cross-Appellants
v.

TESTAMERICA INC; SAGAPONACK PARTNERS LP

                                     Defendants-Appellants-Cross-Appellees

                 Appeal from the United States District Court
                      for the Northern District of Texas

Before KING, HIGGINBOTHAM, and WIENER, Circuit Judges.
KING, Circuit Judge:
       In 1998, Plaintiff Billy Mullins sold all the assets of his company to
Defendant TestAmerica, Inc. in exchange for cash and an unsecured promissory
note   payable   to   Mullins’s   company,   renamed     Faraway          Enterprises.
TestAmerica’s obligation to pay the note was subordinated and subject to the
prior payment in full of all of TestAmerica’s “debt facilities.” TestAmerica fell
on hard times, winding up with approximately $50 million in debt. In 2003,
TestAmerica sold all of its assets to a third party in exchange for $33.5 million.
Secured and senior debt was paid, and at the direction of the secured creditor,
                                    No. 08-11224

approximately $3 million due it was paid to retire part of TestAmerica’s debt to
Sagaponack Partners LP, the majority shareholder of TestAmerica. Faraway’s
note and the balance of Sagaponack’s debt remain unpaid. Mullins and Faraway
filed suit against TestAmerica claiming breach of contract and fraud and against
TestAmerica and Sagaponack alleging a violation of the Texas Uniform
Fraudulent Transfer Act. The jury found that the contract was breached, that
TestAmerica defrauded Faraway, and that TestAmerica and Sagaponack
violated TUFTA. The jury awarded no actual damages but imposed punitive
damages against TestAmerica and Sagaponack. In large part, we reverse.
                             I. Factual Background
A.    The 1998 sale of METCO to TestAmerica
      Plaintiff Billy Mullins, a resident of Texas, owned Mullins Environmental
Testing Co., Inc. (“METCO”), a Texas company that specialized in testing air
from smokestacks. Early in 1998, Mullins began marketing his company to
potential buyers. A business broker put Mullins in touch with TestAmerica, Inc.
(“TestAmerica”), then known as Hydrologic, an environmental testing company
based in North Carolina that was seeking to expand the scope of its business.
Thomas Barr served as TestAmerica’s President, as its CEO, and as one of five
directors on its board. Of TestAmerica’s four other directors, two—Barry
Rosenstein and Defendant Marc Weisman (“Weisman”)—were also limited
partners in Sagaponack Partners LP (“Sagaponack”), a private equity group, a
third was chosen by Barr from a slate of individuals proposed by Sagaponack,
and the fourth was unaffiliated with Sagaponack.1

      1
          Rosenstein also served as the managing member of Sagaponack’s general partner,
RSP Capital, LLC. Sagaponack’s investment advisor was Sagaponack Management Company
(“Sagaponack Management”), an entity unaffiliated with Sagaponack.          Sagaponack
Management also employed Weisman and contracted with Rosenstein for his consulting
services.

                                           2
                                      No. 08-11224

       On December 18, 1998, TestAmerica purchased METCO and two other
companies. TestAmerica financed these acquisitions by issuing both debt and
equity. First, Fleet Capital Corporation (“Fleet”), both as a lender and as agent
for a syndicate of other lenders, agreed to make available to TestAmerica a
“Total Credit Facility” of $37 million consisting of revolving credit loans, letters
of credit, and term loans. These loans were secured by all of TestAmerica’s
assets. Key Mezzanine Capital, L.L.C. (“Key”) and Regis Capital Partners, L.P.
(“Regis”) also provided a total of $7 million in mezzanine financing, a hybrid of
debt and equity financing. By agreement, Fleet’s loan had priority in right of
payment over that of Key and Regis.
       TestAmerica also issued three “amended and restated” promissory notes
totaling $555,000, and three “earnout” promissory notes totaling $350,000 to
Louis, Rami, and Firas Mishu (the “Mishus”).2 The Mishu notes were secured
by approximately $2 million of equipment belonging to Geotek Drilling
Company, Inc., one of TestAmerica’s existing subsidiaries.
       Sagaponack, under a “Second Securities Purchase and Loan Agreement,”
contributed $3,700,000 in cash and agreed to cancel two prior notes from
January 13, 1998, in exchange for a bridge note of $3,000,000, a term note of
$700,000, and a replacement note of $5,311,094. Sagaponack also received
enough shares of TestAmerica’s common stock to become the majority
shareholder of TestAmerica. Significantly, the agreement included a change of
control provision that prohibited TestAmerica from selling its assets without
Sagaponack’s approval.
       Closing occurred at the offices of Fleet’s attorneys in New York City.
Mullins, who signed the documents in Texas and sent them to the closing,

       2
       Apparently, the Mishus had sold all or part of Geotek to TestAmerica sometime earlier
and held promissory notes issued by TestAmerica on August 7, 1997 in the total principal
amount of $1,199,999.99.

                                             3
                                    No. 08-11224

executed five contracts with TestAmerica governing the sale of METCO: (1) an
employment agreement under which Mullins would serve for three years as
President of the new METCO entity, METCO Environmental, Inc. (“METCO
Environmental”) and receive a yearly salary of $150,000; (2) a non-compete
agreement; (3) an asset purchase agreement (the “Purchase Agreement”); (4) an
“8% subordinate convertible note” (the “Note”); and (5) a subordination
agreement (the “Subordination Agreement”).         After the sale of its assets,
METCO changed its name to Faraway Enterprises (“Faraway”), a Texas
corporation wholly owned and controlled by Mullins with its principal place of
business in Texas. The parties’ dispute centers around the payment and priority
terms in the Note, Purchase Agreement, and Subordination Agreement
(collectively, the “Agreements”).
      As required by the Purchase Agreement, TestAmerica paid Mullins $8.25
million in cash at closing. TestAmerica’s obligation to pay the balance of the
purchase price for METCO’s assets was evidenced by the Note. Pursuant to a
formula based on METCO Environmental’s profits over the following three-year
period, the Note’s initial principal amount of $2 million would be adjusted to an
amount between $1 million and $6.75 million. This calculation was to be
provided to Faraway in a “Period Income Statement” within 90 days of December
31, 2001, i.e., on or before March 31, 2002. The Note also required TestAmerica
to make annual interest payments of $160,000 starting on December 31, 2000,
and three annual principal payments starting on December 31, 2001. Both the
Note and Purchase Agreement included Texas choice of law provisions and
provided for exclusive venue and jurisdiction in Dallas County, Texas.
      Faraway’s priority in payment in relation to TestAmerica’s other creditors
is defined by several provisions in the Agreements. According to the Purchase
Agreement, the Note
      shall be subordinated and subject in right of payment to the prior

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                                     No. 08-11224

      payment by [TestAmerica] in full of all of [TestAmerica’s] debt
      facilities. The indebtedness evidenced by the . . . Note shall be
      expressly subordinated to the extent and the manner set forth in the
      Subordination Agreement dated December 18, 1998 among
      TestAmerica Incorporated (“TAI”), Key Mezzanine Capital L.L.C.
      (“KMC”), Regis Capital Partners, L.P[.] (“Regis”), [and] Fleet Capital
      Corporation (“Fleet”) . . . .3
      The Subordination Agreement, which was drafted by the attorneys for
Key and Regis, delineates two categories of creditors: (1) “Senior Creditors”
Fleet, Key, and Regis (the “Senior Creditors”), and (2) “Subordinated Creditors,”
defined as “the parties signing below as Subordinated Creditors.” During the
course of litigation, the parties disputed which of two versions of the
Subordination Agreement is the operative agreement. The day before closing,
Mullins signed a copy of the agreement, which Mullins’s counsel sent to
TestAmerica’s counsel in New York City. That document is labeled in the footer
as “v.6” (“Version 6”), and the only signature reflected on the signature page is
that of Mullins, as a “Subordinated Creditor.” The version that surfaced later
during the course of litigation, however, is identified in the footer as “v.7”
(“Version 7”). The footer on the two signature pages to Version 7, however,
indicates that they are from Version 6. The first of these pages includes the
signatures of the Senior Creditors; Thomas Barr for TestAmerica; and, as a
“Subordinated Creditor,” Robert Juneja, the authorized signatory for
Sagaponack. The second signature page contains only Mullins’s signature.

      3
        The Note contains similar language, except for an addition at the end of the first
sentence that the Note

      shall be subordinated to the extent required by [TestAmerica] . . . and subject
      in right of payment to the prior payment in full of all of [TestAmerica’s] debt
      facilities whether now existing or hereafter created.

(emphasis added). Since the priority dispute that this suit focuses on is between debts to
Faraway and Sagaponack which were created on the same day, the provision of the Note which
contemplates future debt facilities does not affect our decision.

                                            5
                                  No. 08-11224

According to Mullins, he neither authorized anyone to attach his signature to
Version 7, nor anticipated that it would be so attached. Although several
witnesses suggested that Version 7 was assembled by counsel to one of the
lenders, at trial no one definitively identified the responsible lender.
      Both versions of the Subordination Agreement establish the priority of
TestAmerica’s debts to the Senior Creditors (“Senior Debt”) over all
“Subordinated Debt” but permit certain payments on Subordinated Debt while
the Senior Debt remains outstanding so long as other conditions within the
agreement are satisfied:
      2.    Subordinated Debt Subordinated to Senior Debt

            (a)    Notwithstanding any contrary provisions of any
                   instruments or agreements evidencing or relating to
                   Subordinated Debt, [TestAmerica] covenants and
                   agrees, and each holder of Subordinated Debt by its
                   signature hereon likewise covenants and agrees, for the
                   benefit of the holders from time to time of Senior Debt,
                   that all payments of Obligations and Claims in respect
                   of Subordinated Debt shall be subject and subordinate
                   in right of payment . . . to the prior payment in full in
                   cash of all Obligations in respect of (1) Designated
                   Senior Debt [i.e., debt to Fleet] and (2) other Senior
                   Debt. . . .

            (b)    Unless and until all Obligations in respect of the Senior
                   Debt have been finally paid in full in cash, and subject
                   to the provisions of this Agreement, including without
                   limitation Section 3, 4, and 5, no direct or indirect
                   payments shall be made on, under or with respect to
                   any Obligations or Claims under, relating to or in
                   respect of any Subordinated Debt except for the
                   payments set forth as Permitted Schedule Payments on
                   Exhibit 1 hereto.
“Subordinated Debt” is defined as “all Obligations under the Subordinated Debt
Documents,” which, in turn, means
      all agreements . . . governing the indebtedness or other liabilities of

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                                   No. 08-11224

      [TestAmerica] or any affiliate to each party signing below as a
      Subordinated Creditor, including without limitation those listed on
      Exhibit 1 hereto. Without limiting the generality of the foregoing, all
      agreements or other instruments between [TestAmerica] . . . and
      Sagaponack . . . shall be a Subordinated Debt Document.
(emphasis added). In Version 6, the only “Subordinated Creditor” listed in
Exhibit 1 is METCO (i.e., Faraway), but the spaces provided for METCO’s
address, subordinated debt, permitted payments, and subordinated documents
are blank. According to Mullins’s attorney, he anticipated that TestAmerica’s
counsel would fill in this information. Exhibit 1 to Version 7, in contrast,
provides the information missing from Version 6 but also includes payments for
the bridge, term, and replacement notes to Sagaponack and for management fees
to Sagaponack Management. According to TestAmerica’s counsel, Key and
Regis’s attorneys most likely added Sagaponack and Sagaponack Management
to Exhibit 1.
      Both versions suspend TestAmerica’s obligations to pay “Subordinated
Debt” in the event that TestAmerica defaults on its obligations to the Senior
Creditors, although the italicized words in the first sentence below are found
only in Version 7:
      4.    Subordination on Default in Senior Debt.

             No direct or indirect payments by or on behalf of
      [TestAmerica] shall be made on, under or with respect to any
      Obligations or Claims under, relating to or in respect of any
      Subordinated Debt . . . (a) if, at the time specified for such payment,
      (i) there exists . . . a default in the payment . . . of any Obligation in
      respect of Senior Debt or any other Default . . . of any kind or nature
      shall have occurred and be continuing under the Senior Debt
      Documents, whether or not a payment default, and (ii) [Fleet] and
      the other Senior Creditors shall not have delivered to the holders of
      Subordinated Debt a written notice of waiver to the benefits of this
      sentence and consent to the making of payments on Subordinated
      Debt . . . . In addition to the foregoing, the liability of [TestAmerica]
      to pay any Obligation or Claims under, relating to or in respect of

                                          7
                                 No. 08-11224

      Subordinated Debt shall be suspended for the period specified below
      upon the occurrence of events or circumstances constituting a
      Default . . . under any instrument or agreement creating or
      evidencing any Senior Debt . . . and, during such suspension period,
      no default, event of default, breach or other right to payment shall
      arise or exist under the Subordinated Debt Documents, by reason of
      [TestAmerica’s] failure to pay such suspended Subordinated Debt.
      The suspension period . . . shall commence upon the occurrence of
      events or circumstances constituting a Default . . . under . . . any
      Senior Debt and shall end upon the occurrence of a Proceeding or
      indefeasible payment in full of the Senior Debt. During such
      suspension period, [TestAmerica] shall not pay any Subordinated
      Debt, whether pursuant to the terms of the Subordinated
      Documents or otherwise, and, the holders of Subordinated Debt
      shall not . . . commence . . . any Proceeding, or take any action to
      demand or enforce payment of any Subordinated Debt. Immediately
      following the expiration of any such period of suspension, any
      Subordinated Debt which, but for such suspension, would have
      become and would then be due and payable shall become
      immediately due and payable subject to the provisions of this
      Agreement.
Under both versions of the agreement, a “Proceeding” means, in pertinent part:
      (a) any insolvency, bankruptcy, receivership, liquidation,
      reorganization, readjustment, arrangement, composition or other
      similar proceeding relating to [TestAmerica], its property or its
      creditors . . . .
Finally, both versions also include the following, identical clauses:
      7.    Subrogation

            If any payment or distribution to which the holders of
      Subordinated Debt would otherwise have been entitled, but for the
      provisions of this Agreement, shall have been applied, pursuant to
      the provision of this Agreement, to the payment of Obligations in
      respect of Senior Debt, then and in such case following the final and
      indefeasible payment in full in cash of all Obligations and Claims in
      respect of Senior Debt, the holders of Subordinated Debt shall be
      subrogated to the rights of the holders of Senior Debt to receive
      payments or distributions of assets of [TestAmerica] and/or its
      subsidiaries made on such Senior Debt until all Subordinated Debt
      shall be paid in full . . . .

                                        8
                                  No. 08-11224

      8.    Obligations of [TestAmerica] Unconditional

            Nothing contained in this Agreement (a) is intended to or
      shall impair, as between [TestAmerica] and the holders of
      Subordinated Debt, the obligations of [TestAmerica], which are
      absolute and unconditional, to pay to the holders of Subordinated
      Debt all Obligations in respect of Subordinated Debt as and when
      the same shall become due and payable in accordance with their
      terms, or (b) is intended to or shall affect the relative rights of the
      holders of Subordinated Debt, on the one hand, the creditors of
      [TestAmerica] other than the holders of Senior Debt, on the other
      hand.

B.    TestAmerica’s financial troubles
      TestAmerica made only one payment on the Note: the first interest
payment of $160,000, which it paid in January, 2000, after the December 31,
1999 due date.     By September, 2000, TestAmerica was in default of its
obligations to the Senior Creditors, although it continued to make quarterly
payments on its notes to the Mishus. During this period, Fleet threatened to
force TestAmerica into bankruptcy.
      TestAmerica began seeking a buyer for METCO Environmental.
According to testimony of Mullins at trial, Barr offered to sell the company back
to Mullins, but Mullins balked at the asking price of $13 million. Mullins,
through Barr, learned that General Electric had offered to buy METCO
Environmental for $10.5 million and had expressed an interest in having
Mullins stay on to run the company. Mullins offered to speak to General Electric
to see if the company would be willing to assume the Note. But, according to
Mullins, Barr later informed him that Weisman refused to permit the company
to be sold to General Electric if any money were to go to Mullins.
      On February 14, 2001, some of TestAmerica’s lenders, including
Sagaponack, Key, and Mullins attended a meeting at Key’s offices in Cleveland,
Ohio. Weisman, as a representative of Sagaponack, conducted the meeting and

                                        9
                                      No. 08-11224

informed the lenders of TestAmerica’s default to Fleet and its ramifications.
According to Weisman, he also discussed the hierarchy amongst the creditors
and specifically told Mullins that he was at the bottom behind the Senior
Creditors and Sagaponack.
       Fleet and two other syndicate members entered into a forbearance
agreement with TestAmerica in November, 2001. Based on TestAmerica’s
calculation of Mullins Environmental’s average profits from 1999 through 2001
in a “Period Income Statement” faxed and sent to Mullins on April 1, 2002—one
day after the prescribed deadline—the principal amount of the Note was to be
$1,000,000. As will be seen infra, Mullins and Faraway disputed that amount.
C.     TestAmerica’s sale to HIG
       In mid-2002, TestAmerica accepted an offer from H.I.G. Capital, LLC
(“HIG”) to purchase substantially all of its assets for $33.5 million, an amount
significantly less than TestAmerica’s total outstanding debt of $50 million.
TestAmerica’s board of directors, which then consisted of Barr, Weisman,
Rosenstein, and another director unaffiliated with Sagaponack, unanimously
approved the sale to HIG.
       The transaction closed on January 3, 2003, at the offices of HIG’s counsel
in New York City. The proceeds of the sale were allocated as follows. Key and
Regis received $3,480,000 and $870,000, respectively—about $2 million less than
the amount owed under their loans to TestAmerica. Several secured creditors,
including the Mishus, were also paid in exchange for their release of security
interests in various properties of TestAmerica or its subsidiaries.4 As stated in
a January 2, 2003 pay-off letter addressed to HIG, although Fleet was owed, and
thus entitled to, $26,336,585.64 of the proceeds from the sale, it agreed to release
its lien against TestAmerica’s assets upon receiving a “Payoff Amount” of

       4
         Those amounts were: (1) $305,428.94 and $203,623.03 to Louis and Rami Mishu,
respectively; (2) $210,000 to Richard Alt; and (3) $771,718.35 to FINOVA Capital Corporation.

                                             10
                                  No. 08-11224

$23,133,785.64 that would constitute “payment in full” of TestAmerica’s
obligations. In that letter, Fleet directed that HIG pay directly to Sagaponack
the remaining $3,202,800 which it would otherwise have been entitled to receive
“[i]n consideration for (a) the consent of Sagaponack . . . to the Sale and
(b) Sagaponack’s agreement to cooperate and assist with certain post-closing
matters arising from and in connection with the Sale . . . .” This transfer was
negotiated by Weisman on Sagaponack’s behalf.            According to Weisman,
Sagaponack also agreed to provide HIG the indemnifications and warranties
that Fleet and Key would not.
      HIG paid Sagaponack $2.3 million in cash and placed approximately
$700,000 in escrow accounts to cover the wind-up expenses. Only $200,000 from
those accounts has been disbursed to Sagaponack. To date, Sagaponack has not
made any distributions to Weisman or any of its other limited partners from the
funds received from HIG.
      After the sale, TestAmerica changed its name to Asheville, Inc., and moved
its headquarters from North Carolina to New York City. Weisman took over as
President in charge of winding up the company’s affairs, and he and Rosenstein
served as the company’s sole directors.
                            II. Procedural History
      On December 13, 2001, at the end of Mullins’s three-year employment
contract with METCO Environmental but more than two years before the HIG
transaction, Mullins and Faraway (“Plaintiffs”) filed suit in Texas state court
against TestAmerica and Sagaponack, asserting state law claims for, among
other things, breach of contract and fraud. Defendants removed on the basis of
diversity jurisdiction, stating in their notice of removal that Plaintiffs are Texas
citizens, that TestAmerica is a citizen of Delaware and of North Carolina—the
states of its incorporation and principal place of business, respectively—and that
Sagaponack “is a limited partnership existing under” and with its “principal

                                        11
                                      No. 08-11224

place of business” in New York and “is now and was at the time this action was
commenced a citizen of the State of New York and of no other state.”
       Sagaponack promptly moved to dismiss for lack of personal jurisdiction
pursuant to FED. R. CIV. P. 12(b)(2). The motion was granted on June 25, 2002,
following an evidentiary hearing.
       In June, 2003, Faraway and TestAmerica arbitrated their dispute over the
principal amount of the Note. The arbitrator determined that amount to be
$2,233,102.80, which was confirmed by the district court on November 14, 2003.
It was around this period that Sagaponack and TestAmerica first disclosed
Version 7 of the Subordination Agreement to Mullins.
       Later that year, the instant suit was reassigned intra-district to a different
judge. Shortly thereafter, the district court granted Plaintiffs leave to file a
second amended complaint to assert new causes of action arising out of the sale
of TestAmerica to HIG, to join numerous additional defendants—including
Weisman—and to plead Sagaponack back into the suit.5                       In addition to
realleging their breach of contract and fraud claims against TestAmerica,
Plaintiffs, construing the Subordination Agreement to give them priority to
payment behind the Senior Creditors and ahead of Sagaponack, asserted that
Sagaponack’s receipt of proceeds from the HIG transaction constituted a
fraudulent transfer by Sagaponack, TestAmerica, and Weisman, in violation of
TEX. BUS. & COM. CODE ANN. § 24.005(a)(1) (“TUFTA”). TestAmerica asserted
a counterclaim for breach of contract, alleging that Plaintiffs breached their
obligations under the Subordination Agreement by filing suit during the
suspension period, thereby affecting the sale price for METCO Environmental
received by TestAmerica and causing TestAmerica to incur attorneys’ fees.

       5
           Other defendants, TestAmerica Environmental Services, L.L.C., Bank One, H.I.G.
TestAmerica, Inc. (Cayman Islands), H.I.G. Capital Partners II, L.P., H.I.G. Investment Group
II, L.P., H.I.G. Capital, LLC, Thomas Barr, and Fleet Capital Corporation, later settled or
were otherwise dropped from the suit.

                                             12
                                  No. 08-11224

Although Sagaponack, this time joined by Weisman, again moved to dismiss for
lack of personal jurisdiction, the motion was summarily denied.
      The parties later cross-moved for summary judgment on Plaintiffs’ breach
of contract and fraudulent transfer claims based, in critical part, on their
divergent constructions of the relevant agreements as they relate to Plaintiffs’
priority in payment vis-a-vis other TestAmerica creditors.       The court denied
Defendants’ motions and granted Plaintiffs’ motion in part with respect to
TestAmerica’s breach of contract counterclaim.
      The case was tried to a jury for six days between February 7 and 16, 2005.
Notably, Sagaponack and Weisman did not renew their objections to personal
jurisdiction in the joint pretrial report or in their motion for judgment as a
matter of law following the close of Plaintiffs’ case in chief, which the district
court held over until the conclusion of trial. At the close of all the evidence, the
district court denied in part and granted in part Defendants’ joint Rule 50(a)
motion for judgment with respect to several of Plaintiffs’ claims, including all
those asserted individually by Mullins for failure to show damages. Faraway’s
remaining claims for fraud and breach of contract by TestAmerica and for
fraudulent transfer against all Defendants were submitted to the jury.
      Regarding Faraway’s breach of contract claim, the jury, over
TestAmerica’s objection, was instructed that TestAmerica had the burden of
proving that Faraway had agreed to be subordinated to all of TestAmerica’s
other creditors and found the burden was not met. It further concluded that
TestAmerica breached its contractual obligations by failing to make the
prescribed interest and principal payments under the Agreements, and by failing
to provide Faraway with a “Period Income Statement” as required under the
Note and the Purchase Agreement. The jury also found that TestAmerica had
committed fraud by misrepresenting to Faraway the creditors to which the Note
would be subordinated. Additionally, the jury concluded that each of Defendants

                                        13
                                  No. 08-11224

had fraudulently transferred assets in violation of TUFTA § 24.005(a)(1), that
Weisman and Sagaponack were “insiders,” and that neither Weisman nor
Sagaponack had taken assets from Fleet in good faith and for a reasonably
equivalent value. The jury assessed punitive damages of $400,000, $500,000 and
$1,000,000 against Weisman, TestAmerica, and Sagaponack, respectively, based
on the fraudulent transfer, and an additional $350,000 in punitives against
TestAmerica for fraud. No instructions were given, and thus no findings were
made, regarding Faraway’s actual damages for any of its claims.
      Following a post-trial hearing, the district court partially reconsidered its
previous ruling on Defendants’ Rule 50(a) motion, granting judgment in favor
of Weisman on the fraudulent transfer claim because Faraway had not shown
that Weisman received any portion of the funds that Fleet directed HIG to pay
Sagaponack. The court refused to award actual damages against TestAmerica
but adjudged TestAmerica and Sagaponack to be jointly and severally liable for
the $3,202,800 fraudulently transferred to Sagaponack. The court also entered
judgment in favor of Faraway on the breach of contract claim in the amount of
$3,249,734.42, the principal amount set at arbitration plus annual interest at
the contractual rate of 8% calculated from December 31, 1999. Since Faraway
represented that it suffered no injury from TestAmerica’s breach of its
obligations to provide a Period Income Statement apart from attorneys’ fees, the
court awarded no actual damages, although it nonetheless entered judgment in
Faraway’s favor on that claim. To preclude a double recovery, the court limited
TestAmerica’s individual liability for breach of contract to the remaining
difference between the amount fraudulently transferred and the $3,249,734.42
due under the Note. Finally, the court entered judgment in accordance with the
jury verdict in favor of Faraway on the punitive damage award for the fraud
claim, but no actual damages were awarded.
      TestAmerica and Sagaponack timely appealed the judgment with respect

                                        14
                                  No. 08-11224

to Faraway’s claims for breach of contract, fraudulent transfer and punitive
damages, and the dismissal of TestAmerica’s counterclaim on summary
judgment. Faraway cross-appealed the district court’s grant of judgment as a
matter of law to Weisman on the fraudulent transfer claim.
      After the case was fully briefed and orally argued to this panel, we
identified deficiencies in the pleadings regarding the citizenship of Sagaponack
and remanded the case to the district court.          See generally Mullins v.
TestAmerica Inc., 300 F. App’x 259 (5th Cir. 2008) (unpublished opinion) (per
curiam). On remand, Sagaponack disclosed the citizenships of all its partners
both as of the date of removal and the date of Plaintiffs’ second amended
complaint pleading Sagaponack back into the suit.          Based on these new
disclosures, the district court concluded that diversity jurisdiction was proper.
After amending the notice of removal and the complaint to incorporate the
details pertaining to Sagaponack’s citizenship, the parties re-filed their appeal
and cross-appeal, which, pursuant to this court’s previous order, was reassigned
to this panel.
                                III. Discussion
A.    Diversity jurisdiction
      We briefly revisit the issue of subject matter jurisdiction that was raised
sua sponte on initial appeal. TestAmerica, a Delaware corporation with its
principal place of business in North Carolina, is clearly diverse from Plaintiffs,
who are Texas citizens. But as noted in our previous opinion, neither the
original notice of removal nor the second amended complaint “distinctly and
affirmatively alleged” the citizenship of all of Sagaponack’s partners, general
and limited. Mullins, 300 F. App’x at 259 (internal quotation marks and citation
omitted).   This information was crucial to determining whether complete
diversity existed. See Carden v. Arkoma Assocs., 494 U.S. 185, 187 (1990).
Although we declined to allow amendment on appeal of the parties’ pleadings to

                                       15
                                         No. 08-11224

cure this deficiency, we remanded the case to the district court to permit
supplementation of the record and to make findings regarding the parties’
citizenship. Mullins, 300 F. App’x at 261.
       The district court, after evaluating Sagaponack’s undisputed disclosures,
concluded that the parties are diverse. Plaintiffs’ newly-amended complaint
reflects, and the parties agree, that Sagaponack’s citizenship as of December 16,
2003 is that of its sole general partner, RSP Capital, LLC, and 31 limited
partners: 16 individuals, 6 corporations, 3 trusts, 4 general partnerships, a
limited partnership, and a limited liability company.                      After applying the
appropriate tests for citizenship to these individuals and entities,6 and further
tracing their citizenships down the various organizational layers where
necessary, the district court deemed Sagaponack to be a citizen of California,
Colorado, Delaware, Florida, Illinois, New Jersey, Massachusetts, Michigan,
Nevada, New York, Pennsylvania, Canada, the British Virgin Islands, and
Israel. Because none of Sagaponack’s partners is a citizen of Texas, we agree
with the district court that diversity jurisdiction exists.
B.     Personal jurisdiction
       Sagaponack first contends that the judgment against it on Faraway’s
claim under TUFTA § 24.005(a)(1) must be reversed because Sagaponack lacked
the requisite contacts with Texas to support personal jurisdiction. Weisman
also asserts that the district court lacked personal jurisdiction over him, but as
an alternative basis for affirming the take-nothing judgment in his favor below
with respect to the § 24.005(a)(1) claim against him. Based on our review of the

       6
         See 28 U.S.C. § 1332(c)(1) (corporation is a citizen of the states of its incorporation and
its principal place of business); Navarro Savs. Ass’n v. Lee, 446 U.S. 458, 464 (1980)
(citizenship of a trust is that of its trustee); Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077,
1080 (5th Cir. 2008) (citizenship of an LLC is that of all its members); Int’l Paper Co. v.
Denkmann Assocs., 116 F.3d 134, 135, 137 (5th Cir. 1997) (citizenship of a general partnership
depends on that of all partners); Coury v. Prot, 85 F.3d 244, 249 (5th Cir. 1996) (citizenship of
an individual is synonymous with his domicile).

                                                16
                                   No. 08-11224

record, and for the reasons that follow, we conclude that specific jurisdiction over
both defendants exists because Sagaponack and Weisman purposefully aimed
their conduct at Faraway in Texas by actively procuring for Sagaponack
$3,202,800 of the proceeds from the 2003 sale of TestAmerica to HIG, with the
knowledge that their conduct would allegedly impair the rights of a single, major
creditor and Texas resident under agreements that center around Texas.
      1.     Standard of review
      We review the district court’s exercise of personal jurisdiction de novo. See
Submersible Sys., Inc. v. Perforadora Cent., S.A. de C.V., 249 F.3d 413, 417–18
(5th Cir. 2001). A federal court sitting in diversity may exercise personal
jurisdiction over a non-resident defendant (1) as allowed under the state’s long-
arm statute; and (2) to the extent permitted by the Due Process Clause of the
Fourteenth Amendment. “Because the Texas long-arm statute extends to the
limits of federal due process, the two-step inquiry collapses into one federal due
process analysis.” Johnston v. Multidata Sys. Int’l Corp., 523 F.3d 602, 609 (5th
Cir. 2008). To satisfy the requirements of due process, the plaintiff must
demonstrate: “(1) that the non-resident purposely availed himself of the benefits
and protections of the forum state by establishing ‘minimum contacts’ with the
state; and (2) that the exercise of jurisdiction does not offend ‘traditional notions
of fair play and substantial justice.’” Id. (quoting Wilson v. Belin, 20 F.3d 644,
647 (5th Cir. 1994)).
      “Jurisdiction may be general or specific.”         Stroman Realty, Inc. v.
Wercinski, 513 F.3d 476, 484 (5th Cir. 2008). Specific jurisdiction exists when
the plaintiff’s claim against the non-resident defendant arises out of or relates
to activities that the defendant purposefully directed at the forum state. Alpine
View Co. v. Atlas Copco AB, 205 F.3d 208, 215 (5th Cir. 2000) (quoting Burger
King Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S. Ct. 2174 (1985)). In contrast,
general jurisdiction requires the defendant to have maintained “continuous and

                                         17
                                 No. 08-11224

systematic” contacts with the forum state. Helicopteros Nacionales de Colombia,
S.A. v. Hall, 466 U.S. 408, 415–16, 104 S. Ct. 1868 (1984).
      The parties’ briefs conspicuously fail to address an important threshold
question, namely, if and how procedural anomalies in Sagaponack’s and
Weisman’s litigation of the jurisdictional question affect the evidentiary
standard under which the district court’s jurisdictional ruling must be assessed.
After Faraway amended its complaint to replead Sagaponack into the suit,
Sagaponack and Weisman jointly moved to dismiss for lack of jurisdiction
pursuant to FED. R. CIV. P. 12(b)(2). The district court denied that motion
without conducting an evidentiary hearing, impliedly concluding that the
allegations in the complaint, together with the affidavits and other
documentation, demonstrated a prima facie case of personal jurisdiction over
both defendants. See Johnston, 523 F.3d at 609 (explaining that a plaintiff need
only make a prima facie showing of personal jurisdiction if the district court
rules on the issue without an evidentiary hearing). This adverse jurisdictional
ruling at the pre-trial stage did not foreclose either defendant from holding
Faraway to its ultimate burden at trial of establishing contested jurisdictional
facts by a preponderance of the evidence. See Travelers Indem. Co. v. Calvert
Fire Ins. Co., 798 F.2d 826, 831 (5th Cir. 1986) (“‘Whatever degree of proof is
required initially, a plaintiff must have proved by the end of trial the
jurisdictional facts by a preponderance of the evidence.’” (quoting Forsythe v.
Overmyer, 576 F.2d 779, 781 (9th Cir. 1978))), modified on other grounds, 836
F.2d 850 (5th Cir. 1988). However, neither Sagaponack nor Weisman pressed
its jurisdictional defense at any later point in the proceedings below. No
mention of the defense is made in either defendant’s summary judgment motion,
the joint pretrial order, motion for judgment as a matter of law at the close of
Faraway’s case, response to Faraway’s post-trial motion for judgment, or in
Sagaponack’s renewed motion under FED. R. CIV. P. 50(b) after entry of final

                                       18
                                        No. 08-11224

judgment. Neither defendant objected to the district court’s statement in its
final judgment that “it had jurisdiction over the subject matter and the parties
to this proceeding”—that is, not until this appeal.
       Several decisions, including an unpublished decision from this court, have
held that a defendant’s failure to renew an objection to personal jurisdiction
following the district court’s denial of a Rule 12(b)(2) motion to dismiss either
forecloses the defendant’s right to invoke the higher burden of proof otherwise
applicable to jurisdictional facts established at trial, or waives the objection
entirely.7 We would likewise be inclined to find that Sagaponack and Weisman’s
wholesale failure to pursue their jurisdictional challenge beyond the 12(b)(2)
stage, at a minimum, limits us to determining whether the record at that time
demonstrated a prima facie case of personal jurisdiction. But several factors
counsel against our application of such a rule in this case. First and foremost,
Faraway does not recognize, let alone argue, that either defendant’s litigation
of its jurisdictional defense affects the applicable evidentiary burden or our
ability to review the district court’s denial of the joint motion to dismiss. We also
find significant that Faraway’s brief relies almost entirely on the evidence
presented at trial and the jury’s finding of liability under TUFTA § 24.005(a)(1)
to substantiate personal jurisdiction over Weisman. Faraway similarly refers
to the jury’s finding that “Sagaponack’s receipt of money from HIG was . . . a

       7
           See Beagles & Elliott Enters., LLC v. Fla. Aircraft Exch., Inc., 70 F. App’x 185, 187
(5th Cir. 2003) (unpublished summary disposition) (viewing the omission of the personal
jurisdiction issue from the joint pretrial order, coupled with the parties’ stipulation that
“[t]here are presently no pending jurisdictional issues,” as a concession of personal jurisdiction
by the defendant); Peterson v. Highland Music, Inc., 140 F.3d 1313, 1319 (9th Cir. 1998)
(limiting appellate review to “the issue that [the defendants] actually contested below: whether
or not plaintiffs made out a prima facie case for personal jurisdiction, and whether the district
court was correct in denying the motion to dismiss”); Rice v. Nova Biomed. Corp., 38 F.3d 909,
915 (7th Cir. 1994) (refusing to allow the defendant to rely on evidence presented at trial in
support of his arguments against personal jurisdiction, when no affidavit or other evidence was
presented in connection with his Rule 12(b)(2) motion to dismiss, which was correctly denied).

                                               19
                                   No. 08-11224

fraudulent transfer” in support of its argument that jurisdiction over
Sagaponack was proper. We construe these references as an implied concession
that the entire record is relevant to resolving the jurisdictional question. Under
these circumstances, we deem Faraway to have waived any objection to these
defendants’ failure to preserve their jurisdictional challenge and, accordingly,
will review the entire record to determine whether Faraway established by a
preponderance of the evidence that Sagaponack and Weisman possessed the
requisite contacts with Texas to confer personal jurisdiction.
      2.     Personal jurisdiction over Sagaponack
      We first address whether the district court properly exercised personal
jurisdiction over Sagaponack with respect to Faraway’s TUFTA claim, which
stems from Sagaponack’s receipt of a portion of the proceeds from TestAmerica’s
sale to HIG. Faraway, invoking the “effects” test from Calder v. Jones, 465 U.S.
783 (1984), contends that specific jurisdiction exists because Sagaponack’s
conduct amounts to an intentional tort intended or highly likely to harm
Faraway in its state of residence. Although Faraway advances alternative
arguments in support of jurisdiction, we find this issue dispositive.
      Under Calder, “an act done outside the state that has consequences or
effects within the state will suffice as a basis for jurisdiction in a suit arising
from those consequences if the effects are seriously harmful and were intended
or highly likely to follow from the nonresident defendant’s conduct.” Guidry v.
U.S. Tobacco Co., 188 F.3d 619, 628 (5th Cir. 1999) (citing Calder, 465 U.S. 783,
789–90 (1984)). Calder involved a suit brought by a California actress in a
California state court against two Florida employees of a tabloid magazine based
on an allegedly libelous article featured in one of its issues. 465 U.S. at 785–86.
The Supreme Court concluded that the defendants, who wrote and edited the
article, knew that its injurious effects would be felt by plaintiff in California and
had therefore “expressly aimed” their intentional and allegedly tortious conduct

                                         20
                                  No. 08-11224

at the forum state. Id. at 789–90. Critically, the focal point of the article itself
was also California, since it was drawn primarily from California sources and
pertained to an actress whose career was centered in California. Id. at 788–89.
Thus, “[t]he key to Calder is that the effects of an alleged intentional tort are to
be assessed as part of the analysis of the defendant’s relevant contacts with the
forum.” Panda Brandywine Corp. v. Potomac Elec. Power Co., 253 F.3d 865, 869
(5th Cir. 2001) (per curiam) (internal quotation marks and citation omitted).
      We are skeptical of Faraway’s suggestion that a non-resident defendant’s
receipt of assets transferred with an intent to hinder, delay, or defraud a creditor
ipso facto establishes personal jurisdiction in the state where a complaining
creditor resides. The “effects” test in Calder does not supplant the need to
demonstrate minimum contacts that constitute purposeful availment, that is,
conduct by the non-resident defendant that invoked the benefits and protections
of the state or was otherwise purposefully directed toward a state resident.
See id. at 869. The premise of the fraudulent transfer claim asserted by
Faraway, however, “requires only a finding of fraudulent intent on the part of
the ‘debtor,’” not the transferee. See S.E.C. v. Res. Dev. Int’l, LLC, 487 F.3d 295,
301 (5th Cir. 2007) (discussing TEX. BUS. & COM. CODE ANN. § 24.005(a)(1)).
Knowingly accepting a fraudulent transfer may subject a transferee to liability,
but such conduct is not necessarily tantamount to committing a wrongful act
purposefully aimed at a creditor of the transferor in his state of residence. Even
with libel claims such as that addressed in Calder, we do not presume that the
tortious act itself categorically satisfies the requirement of purposeful availment.
See Fielding v. Hubert Burda Media, Inc., 415 F.3d 419, 425–26 (5th Cir. 2005)
(requiring a “case-by-case” analysis of the nexus between the forum state, the
subject matter, and sources of the allegedly defamatory article).
      Moreover, any creditor of the transferor may challenge the transferor’s
transfer as fraudulent, and the resulting injury would ordinarily be felt in the

                                        21
                                  No. 08-11224

creditor’s state of residence. Under Calder, however, “the plaintiff’s residence
in the forum, and suffering of harm there, will not alone support [personal]
jurisdiction.” Revell v. Lidov, 317 F.3d 467, 473 (5th Cir. 2002). We are thus
doubtful that personal jurisdiction exists over the recipient of a fraudulent
transfer anywhere a complaining creditor files suit simply by virtue of the
creditor’s residence in that forum. We need not resolve this question, however,
primarily because Sagaponack has not argued that asserting personal
jurisdiction in this case would potentially subject it to jurisdiction in any forum
where a TestAmerica creditor happens to reside, but also because the evidence
in this case demonstrates both that Faraway was no ordinary creditor of
TestAmerica, and Sagaponack was far from a passive transferee.
      TestAmerica’s debt to Faraway was sizeable.             As established at
arbitration, TestAmerica owed $2,233,102.80 in principal on the Note. Of
TestAmerica’s $50 million in total outstanding debt in 2003, approximately $32.6
million was owed to the Senior Creditors. The Note therefore accounted for
roughly 13% of TestAmerica’s non-senior debt. But among all of TestAmerica’s
creditors mentioned in the record, Faraway was the only one who received no
share of the proceeds from TestAmerica’s sale to HIG. This was the case even
though Sagaponack, who obtained $3,202,800 from the HIG Transaction was,
like Faraway, an unsecured and non-senior creditor of TestAmerica. Thus, we
are presented with a case in which the distribution of funds which gave rise to
the challenged transfer singled out for denial of payment a specific, major
creditor of the transferor.
      Sagaponack’s imprimatur on the challenged transfer is also unmistakable.
As of 2003, Sagaponack was TestAmerica’s majority shareholder that, through
its limited partners Weisman and Rosenstein, controlled half of the four-member
board of directors that approved the HIG transaction. As Sagaponack concedes,
Weisman acted on Sagaponack’s behalf when he negotiated an agreement with

                                        22
                                  No. 08-11224

Fleet to direct HIG’s payment to Sagaponack of approximately $3.2 million that
Fleet would otherwise have been entitled to receive. This arrangement was
effected through Sagaponack’s contractual power to block TestAmerica’s sale,
coupled with its agreement to provide post-transfer services and to indemnify
HIG. Thus, the very transfer underlying Faraway’s claim was engineered by
Sagaponack.
      Sagaponack, through its insider status and conduct, clearly knew of
TestAmerica’s agreements with Faraway and consistently asserted that its own
loans had priority. According to Mullins’s uncontroverted testimony, Tom Barr
told him that Sagaponack would block any sale (inferentially, by exercising its
contractual veto power) that included a distribution to Faraway. Weisman, as
Sagaponack’s representative, also conducted the meeting in Cleveland at which
Mullins was purportedly told that his right to payment was subordinated to that
of Sagaponack. For jurisdictional purposes, we do not opine on the merits of the
parties’ relative priority. However, Sagaponack’s conduct manifests that it was
acutely aware of TestAmerica’s significant debt to Faraway under agreements
that allegedly entitled Faraway to payment upon TestAmerica’s sale and
nonetheless obtained for itself a share of the proceeds to which Faraway claims
a superior right.
      Given Sagaponack’s level of involvement with the challenged transfer, we
find particularly persuasive the analysis of Calder’s “effects” test as applied to
tortious interference with contract claims.      In that context, we determine
whether the alleged tortfeasor expressly aimed his out-of-state conduct at the
forum state by examining the nexus between the forum and the injured
contractual relationship. See Cent. Freight Lines Inc. v. APA Transp. Corp.,
322 F.3d 376, 383–84 (5th Cir. 2003) (holding that the defendant shipper’s
awareness of and interference with a contractual relationship between two
Texas-based companies whose business relationship centers around Texas and

                                       23
                                 No. 08-11224

that resulted in harm to plaintiff in Texas supported personal jurisdiction in
Texas); Panda Brandywine Corp., 253 F.3d at 869–70 (affirming dismissal for
lack of personal jurisdiction in Texas when the financing agreements with which
the defendant allegedly interfered “are not governed by Texas law, are not to be
performed in Texas, and have no relation to Texas other than the fortuity that
Appellants reside there”); Southmark Corp. v. Life Investors, Inc., 851 F.2d 763,
772–73 (5th Cir. 1988) (rejecting specific jurisdiction under Calder when the
injured contractual relationship was negotiated outside the forum, contemplated
no performance in the forum, was not governed by the law of the forum state,
and pertained to the sale of stock of a company that had no connection with the
forum).
      Sagaponack allegedly thwarted Faraway’s right to payment from
TestAmerica as provided under contracts governing the sale of METCO, a Texas
company, that were executed by Faraway in Texas, where Faraway resides.
Additionally, the Note and Purchase Agreement are expressly governed by Texas
law. Thus, the debtor-creditor relationship between TestAmerica and Faraway
is centered in Texas. Cf. Panda Brandywine Corp., 253 F.3d at 869; Southmark
Corp., 851 F.2d at 772–73. Utilizing its veto authority over the HIG transaction,
and with full awareness of the Note, Sagaponack purposefully aimed its conduct
at Faraway in Texas by ensuring that a portion of its own notes would be paid
while knowing that Faraway’s would not. It is therefore no “mere fortuity” that
Sagaponack’s conduct would cause injury to Faraway in Texas. See Cent.
Freight Lines, 322 F.3d at 384.     Under these circumstances, we find that
Sagaponack should reasonably have anticipated being haled into a Texas court
for precipitating and directing an alleged fraudulent transfer at the expense of
a known, major creditor in Texas whose right to payment arises out of contracts
that share a strong connection with Texas.
      Finally, Sagaponack has not asserted, let alone made a “compelling case,”

                                       24
                                 No. 08-11224

that assertion of personal jurisdiction would offend traditional notions of fair
play and substantial justice. Burger King, 471 U.S. at 477, 105 S. Ct. 2174; see
also Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208, 215 (5th Cir. 1999).
Accordingly, we conclude that the district court properly exercised personal
jurisdiction over Sagaponack with respect to Faraway’s fraudulent transfer
claim.
      3.    Personal jurisdiction over Weisman
      For the same reasons, we likewise find that the preponderance of evidence
at trial demonstrates that specific jurisdiction over Weisman for his alleged
commission of a fraudulent transfer is proper. The intentional conduct of
Sagaponack discussed above and that was directed at Faraway’s contractual
relationship with TestAmerica was effected through Weisman. It was Weisman
who represented Sagaponack on TestAmerica’s board, had direct knowledge of
the Note, asserted to Mullins Sagaponack’s alleged priority over the Note,
threatened to veto any sale of METCO that allowed payment to Faraway, and
ultimately obtained for Sagaponack the proceeds from TestAmerica’s sale that
underlie Faraway’s fraudulent transfer claim. Without opining on the merits,
we conclude that Weisman’s alleged conduct in engineering a transfer that
knowingly impaired the rights of a Texas resident under agreements centered
in Texas substantiates that he purposefully aimed his intentionally tortious
conduct at the forum state. Accordingly, the district court properly exercised
personal jurisdiction over Weisman with respect to Faraway’s fraudulent
transfer claim.
C.    Faraway’s state law claims
      Moving to the merits, TestAmerica challenges the district court’s denial
of its Rule 50 motion for judgment as a matter of law on Faraway’s breach of
contract claims and on the punitive damages imposed for fraud, and both
TestAmerica and Sagaponack appeal the denial of their Rule 50 motion on

                                      25
                                  No. 08-11224

Faraway’s fraudulent transfer claim under TUFTA § 24.005(a). Faraway, in
turn, appeals the district court’s grant of judgment as a matter of law on its
fraudulent transfer claim against Weisman.
      1.    Standard of review
      “We review a district court’s ruling on a Rule 50(a) motion for judgment
as a matter of law de novo.” Delano-Pyle v. Victoria County, 302 F.3d 567, 572
(5th Cir. 2002). “In evaluating such a motion, the court must consider all of the
evidence in the light most favorable to the nonmovant, drawing all factual
inferences in favor of the non-moving party, and leaving credibility
determinations, the weighing of evidence, and the drawing of legitimate
inferences from the facts to the jury.” Price v. Marathon Cheese Corp., 119 F.3d
330, 333 (5th Cir. 1997). That said, the court “should give credence to the
evidence favoring the nonmovant as well as that evidence supporting the moving
party that is uncontradicted and unimpeached, at least to the extent that that
evidence comes from disinterested witnesses.” Reeves v. Sanderson Plumbing
Prods., Inc., 530 U.S. 133, 151 (2000) (internal quotation marks and citation
omitted).
      2.    Breach of contract
      Pursuant to the jury’s verdict, the district court adjudged TestAmerica
liable in the amount of $3,249,734.42—the principal amount of $2,233,102.80 as
established at arbitration and stipulated by the parties at trial, plus 8% interest
accrued from December 31, 1999 through August 2, 2006—for breaching its
obligations to Faraway under the Agreements by failing to make annual interest
payments after December 31, 2000 and annual principal payments starting
December 31, 2001. The district court also adjudged TestAmerica to have
breached its contractual obligation under the Note and Purchase Agreement to
provide Faraway a Period Income Statement on March 31, 2002, but awarded
no actual damages.     We address each aspect of Faraway’s contract claim

                                        26
                                No. 08-11224

separately below.
            a.      TestAmerica’s payment obligations to Faraway
      Two jury findings underlie the district court’s judgment on the contract
claim that arises from TestAmerica’s failure to make the payments to Faraway
prescribed under the Agreements. First, the jury, responding to the court’s
interrogatory instructing that TestAmerica bore the burden of proof on this
issue, found that Faraway had not “agreed to be subordinate to all other of
TestAmerica’s creditors, whether existing at the time” the agreements were
signed or thereafter created. Second, the jury found that TestAmerica breached
its obligations under the Agreements “by failing to make the interest and
principal payments to [Faraway] due and owing under the [A]greement[s].”
      TestAmerica contends that the judgment must be reversed because
language in the Note and Purchase Agreement subordinating the Note to “prior
payment in full of all of TestAmerica’s debt facilities” expressly and
unambiguously subordinated Faraway’s claim to all of TestAmerica’s debt,
including the debt owed to Sagaponack.        Since Sagaponack’s loans have
undisputedly not been paid in full, TestAmerica asserts that Faraway had no
right to payment, regardless of which of the two competing versions of the
Subordination Agreement is valid.         Faraway, in contrast, argues that
Sagaponack’s notes cannot have priority over its own unless Sagaponack was a
proper party to the Subordination Agreement. Whereas Version 6 of that
agreement is signed only by Faraway, as a “Subordinated Creditor,” and lists
only Faraway in the attached exhibit of permitted payments, both the signature
page and exhibit to Version 7 include Sagaponack. Faraway thus construes the
jury’s finding that Faraway did not agree to be subordinated to all of
TestAmerica’s other creditors as a finding that Version 6 of the Subordination
Agreement is the authentic agreement. Based on this finding, Faraway asserts
that it is subordinated only to TestAmerica’s Senior Creditors, and not to

                                     27
                                 No. 08-11224

Sagaponack.    Faraway additionally asserts that TestAmerica breached its
obligations under the Subordination Agreement by failing to make the payments
on its Note prescribed in the attached schedule.
      When interpreting contracts, courts applying Texas law must strive to
ascertain the parties’ intent as expressed in the written instrument. See Texas
v. Am. Tobacco Co., 463 F.3d 399, 407 (5th Cir. 2006); Matagorda County Hosp.
Dist. v. Burwell, 189 S.W.3d 738, 740 (Tex. 2006) (per curiam). “To achieve this
object the [c]ourt will examine and consider the entire instrument so that none
of the provisions will be rendered meaningless.” R & P Enters. v. LaGuarta,
Gavrel & Kirk, Inc., 596 S.W.2d 517, 519 (Tex. 1980). If the wording of the
instrument can be given a definite or certain meaning, then it is not ambiguous
and must be construed as a matter of law. Cedyco Corp. v. PetroQuest Energy,
LLC, 497 F.3d 485, 490 (5th Cir. 2007); Coker v. Coker, 650 S.W.2d 391, 393
(Tex. 1983).   If, however, “its meaning is uncertain and doubtful or it is
reasonably susceptible to more than one meaning, taking into consideration
circumstances present when the particular writing was executed, then it is
ambiguous and its meaning must be resolved by a finder of fact.” Lenape Res.
Corp. v. Tenn. Gas Pipeline Co., 925 S.W.2d 565, 574 (Tex. 1996). Only when
such ambiguity exists may the trier of fact consider evidence extrinsic to the
contract to ascertain the parties’ intent. See R & P Enters., 596 S.W.2d at 519.
      We first address Faraway’s contention that TestAmerica’s failure to make
the principal and interest payments under the Note amounts to a breach of the
Subordination Agreement. That agreement prescribes, in relevant part:
      2.    Subordinated Debt Subordinated to Senior Debt

            (a)    Notwithstanding any contrary provisions of any
      instruments or agreements evidencing or relating to Subordinated
      Debt, [TestAmerica] covenants and agrees, and each holder of
      Subordinated Debt by its signature hereon likewise covenants and
      agrees, for the benefit of the holders from time to time of Senior

                                      28
                                   No. 08-11224

      Debt, that all payments of Obligations and Claims in respect of
      Subordinated Debt shall be subject and subordinate in right of
      payment, in accordance with the provisions of this Agreement, to
      the prior payment in full in cash of all Obligations in respect of (1)
      Designated Senior Debt [i.e., TestAmerica’s debt to Fleet] and (2)
      other Senior Debt. . . .

            (b) Unless and until all Obligations in respect of the Senior
      Debt have been finally paid in full in cash, and subject to the
      provisions of this Agreement, including without limitation Section
      3, 4 and 5, no direct or indirect payments shall be made on, under
      or with respect to any Obligations or Claims . . . in respect of any
      Subordinated Debt except for the payments set forth as Permitted
      Scheduled Payments on Exhibit 1 hereto.
(emphasis added). “Subordinated Debt” includes the loan agreements between
TestAmerica and “each party signing below as a Subordinated Creditor,” and “all
agreements . . . between [TestAmerica] and Sagaponack.” Faraway was the only
entity who signed Version 6 (as a “Subordinated Creditor”) and was the only
holder of Subordinated Debt listed in the attached exhibit. However, the
schedule itself is incomplete in that it does not identify Faraway’s loan
documents, much less include any of the pertinent payment information.
      Even assuming, as Faraway contends, that Version 6 of the Subordination
Agreement incorporates the payment obligations prescribed in the Note but that
are omitted from the exhibit, it is undisputed that TestAmerica defaulted on its
obligations to the Senior Creditors in September, 2000. This occurred before the
December 31, 2000 due date of TestAmerica’s second of three annual interest
payments on the Note and well before the prescribed annual payments of
principal on the Note were to begin on December 31, 2001. TestAmerica’s
default triggered the following suspension clause:
      4.    Subordination on Default in Senior Debt

            No . . . payments by or on behalf of [TestAmerica] shall be
      made . . . in respect of any Subordinated Debt, . . . (a) if, at the time
      specified for such payment, (i) there exists . . . a default in the

                                         29
                                   No. 08-11224

      payment . . . of any Obligation in respect of Senior Debt . . ., and (ii)
      the Designated Senior Creditor [i.e., Fleet] and the other Senior
      Creditors shall not have delivered to the holders of Subordinated
      Debt a written notice of waiver of the benefits of this sentence and
      consent to the making of payments on Subordinated Debt . . . .
Because the permitted payments under Paragraph 2 were conditioned on
TestAmerica’s compliance with Paragraph 4, the latter provision prohibited
TestAmerica from making further payments on the Note while it was in default
to the Senior Creditors. Moreover, no evidence in the record indicates that any
of the Senior Creditors permitted TestAmerica to make payments on Faraway’s
Note notwithstanding the default.
      While conceding that TestAmerica’s default in September, 2000 suspended
its payment obligations on the Note, Faraway nonetheless contends that the
suspension period terminated upon one of three events: (1) TestAmerica’s waiver
of the suspension clause through its quarterly payments on debt to the Mishus
during the default period; (2) Fleet’s forbearance agreement with TestAmerica
in November, 2001 in which Fleet and two syndicate lenders agreed to refrain
temporarily from foreclosing on their security interest in all of TestAmerica’s
assets; and (3) TestAmerica’s satisfaction of its debts to the Senior Creditors
upon the company’s sale to HIG on January 3, 2003.
      We readily reject Faraway’s initial contention that TestAmerica waived
the suspension period by making quarterly payments to the Mishus during the
period of default. The Mishus were not parties to the Subordination Agreement.
Hence, their secured loans were not “Subordinated Debt” whose payments were
prohibited by the suspension clause. We find no evidence of conduct by
TestAmerica manifesting an intent to relinquish its right to invoke the
suspension clause, and its payment of debt not subject to the Subordination
Agreement is not inconsistent with its reliance on the agreement’s suspension
clause to cease payments on the Note. See Sun Exploration & Prod. Co. v.

                                         30
                                  No. 08-11224

Benton, 728 S.W.2d 35, 37 (Tex. 1987) (explaining that waiver requires either
“the intentional relinquishment of a known right or intentional conduct
inconsistent with claiming that right”).
      Faraway’s characterization of the November, 2001 forbearance agreement
as an event that terminated the suspension period relies on language in
Paragraph 4 stating that the suspension period “shall end upon the occurrence
of a Proceeding or indefeas[i]ble payment in full of the Senior Debt,” at which
time “any Subordinated Debt which, but for the suspension, would have become
and would then be due and payable shall become immediately due and payable
subject to the provisions of this Agreement.” (emphasis added). The agreement
defines a “Proceeding” as “any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, arrangement, composition or other similar
proceeding relating to [TestAmerica], its property or its creditors.” (emphasis
added).   Faraway asserts that Fleet and the two other syndicate lenders
“readjusted” or “arranged” a debt related to TestAmerica’s property within the
meaning of a “Proceeding” by agreeing not to immediately foreclose on their
security interest in TestAmerica’s assets.
      We disagree with Faraway’s characterization of the forbearance agreement
as a “readjustment” or “arrangement” that amounts to a “Proceeding” under the
Subordination Agreement. These words must be construed consistently with the
magnitude of the other terms enumerated in the definition of a “Proceeding.”
See In re Katrina Canal Breaches Litig., 495 F.3d 191, 218 (5th Cir. 2007)
(“Under the canon of ejusdem generis, ‘where general words follow the
enumeration of particular classes of persons or things, the general words will be
construed as applicable only to persons or things of the same general nature or
class as those enumerated.’” (quoting In re Biloxi Casino Belle Inc., 368 F.3d 491,
500 (5th Cir. 2004))).    As used here, a “readjustment” or “arrangement”
contemplates a comprehensive agreement with all of TestAmerica’s creditors,

                                        31
                                      No. 08-11224

comparable to an insolvency, bankruptcy, receivership, liquidation, or
reorganization proceeding. A “readjustment” in the insolvency context refers to
a “[v]oluntary reorganization of a financially troubled corporation by the
shareholders themselves, without a trustee’s or a receiver’s intervention.”
BLACK’S LAW DICTIONARY 1291 (8th ed. 2004).                 No such reorganization is
contemplated by Fleet’s agreement to delay foreclosure.                      Whereas an
“arrangement” with creditors may generally include an “agreement . . . for the
. . . extension of time for payment of debts,” id. at 116, the scope of the other
enumerated terms convinces us that the extension granted to TestAmerica by
Fleet and other syndicate lenders regarding a single secured debt is
insufficiently comprehensive to constitute an “arrangement” as used in the
definition of “Proceeding.”8 We therefore conclude that the November, 2001
forbearance agreement did not terminate the suspension period.
       TestAmerica’s debts to the Senior Creditors were, however, paid off upon
the company’s sale to HIG on January 3, 2003. As TestAmerica concedes, this
“indefeas[i]ble payment in full” of the Senior Debt terminated the suspension
period. The parties argue about the significance of the payment of the Senior
Debt on the payment obligations under Paragraph 2(b) of the Subordination
Agreement. But the key provision of the Subordination Agreement is the last
sentence of Paragraph 4, “any Subordinated Debt which, but for such
suspension, would have become and would then be due and payable shall become
immediately due and payable subject to the provisions of [the Subordination]
Agreement.” This means that a large portion of TestAmerica’s debt to Faraway,
interest and principal payments due before January 3, 2003, became due and

       8
          We find no support in the trial record for Faraway’s assertion that the forbearance
agreement was executed to allow TestAmerica time “to pay debt other than Senior Debt.” The
agreement itself was not submitted into evidence, and the only testimony regarding its
execution was that of Tom Barr, who merely stated that Fleet and the syndicate lenders under
Fleet’s secured loan agreement were allowing TestAmerica some time to get its finances in
order and to resume its payments.

                                             32
                                      No. 08-11224

payable on that date, subject to another provision of the Subordination
Agreement which we discuss below.9
       We turn now to the impact of TestAmerica’s unpaid debt to Sagaponack
on Faraway’s right to payment. Following the distribution of the sale proceeds
among the Senior Creditors and other creditors of TestAmerica, and taking into
account that Fleet shared $3,202,800 of its portion of the proceeds with
Sagaponack, TestAmerica still owed more than $6 million on Sagaponack’s
unsecured loans. Thus, to resolve whether TestAmerica’s failure to make
payments to Faraway on or after January 3, 2003 breached the Subordination
Agreement or the other Agreements, we must ascertain whether TestAmerica’s
undisputed outstanding debt to Sagaponack suspended its payment obligations
to Faraway. If, as TestAmerica contends, its obligation to pay on the Note has
not matured because Sagaponack’s notes have priority, then TestAmerica would
not have breached any of the Agreements by failing to pay Faraway on or after
TestAmerica’s sale.       But if Faraway had priority over Sagaponack, then
TestAmerica’s payment obligations would have matured and been breached once
TestAmerica’s Senior Creditors were paid from the sale proceeds. This would
also be true if neither Faraway nor Sagaponack has priority over the other, in
which case TestAmerica would be in breach to both these unsecured creditors.
       We begin by determining if either of the two competing versions of the
Subordination Agreement—whose sole material difference is the exclusion or
inclusion of Sagaponack as a signatory and in the exhibit of permitted
payments—defines the relative priorities between Faraway and Sagaponack.

       9
          Faraway alternatively invokes the subrogation provision, Paragraph 7, of the
Subordination Agreement and claims that it steps into the shoes of the Senior Debt once that
debt was paid off. The subrogation provision is complex, and we would need more than
Faraway’s single-sentence claim that “[Faraway] should have been paid pursuant to the terms
of the subrogation paragraph of the Subordination Agreement as the Senior Creditors were
paid in full” to decide whether or how it applies here. Faraway’s inadequate briefing waives
this claim. See Nichols v. Enterasys Networks, Inc., 495 F.3d 185, 190 (5th Cir. 2007).

                                            33
                                   No. 08-11224

Our reading of both versions convinces us that the Subordination Agreement
unambiguously declines to establish whether either creditor has priority over the
other.
         Several provisions compel this conclusion. First, the preamble to both
versions of the Subordination Agreement divides TestAmerica’s creditors into
two categories: the “Subordinated Creditors,” i.e., “the parties signing below as
Subordinated Creditors,” and the Senior Creditors. In declaring the agreement’s
purpose of “induc[ing] the Senior Creditors to make or continue to make credit
available to” TestAmerica, and noting that the covenants of TestAmerica and the
Subordinated Creditors under the agreement are “for the benefit of the Senior
Creditors,” the Subordination Agreement manifests its singular intent to protect
the interests of the Senior Creditors. Given this narrow purpose, the Senior
Creditors would have no reason to prescribe the order in which TestAmerica’s
non-senior debts are paid so long as their own loans are satisfied.
         Indeed, Paragraph 2, which is the same in both versions, establishes the
priority of the Senior Debt over other specified debts of TestAmerica without
further delineating the hierarchy amongst those other debts. According to
Paragraph 2(a), unless TestAmerica has fully paid its Senior Debt, no
“Subordinated Debt” shall be paid. Both versions define “Subordinated Debt” to
include the loan agreements between TestAmerica and “each party signing below
as a Subordinated Creditor,” and “all agreements . . . between [TestAmerica] and
Sagaponack.” Thus, even under Version 6 of the Subordination Agreement,
which Faraway signed as a “Subordinated Creditor” but Sagaponack did not, the
Senior Creditors have priority over both Faraway and Sagaponack.
         Paragraph 2(b), which references the schedule of permitted payments
discussed above, reflects that, notwithstanding their priority to payment, the
Senior Creditors allowed TestAmerica to make payments listed in the attached
exhibit so long as other provisions of the Subordination Agreement were

                                        34
                                 No. 08-11224

satisfied. Thus, if Sagaponack were not properly included in the schedule, as
Faraway contends, TestAmerica could not have made regular payments on
Sagaponack’s loan while its Senior Debt remained outstanding without
breaching its obligations to the Senior Creditors. The dispute here, however, is
not whether TestAmerica violated its duties to the Senior Creditors by paying
Sagaponack ahead of Faraway, but whether TestAmerica was required to pay
either Sagaponack or Faraway before the other. Nothing in Paragraph 2(b)
resolves that issue. Merely listing certain payments in the attached schedule
does not suggest their relative priority, nor does it indicate that the listed
payments have priority over other non-senior debts not included in the schedule.
Whether the schedule of permitted payments includes both Faraway’s and
Sagaponack’s notes, or solely Faraway’s, therefore has no bearing on the issue
of priority as between these two creditors.
      Nor does the satisfaction of TestAmerica’s debts to the Senior Creditors
upon the 2003 sale to HIG affect our conclusion. Faraway suggests that if it
were the only “Subordinated Creditor” under the Subordination Agreement, it
alone would be subrogated to the rights of the Senior Creditors to receive
payment once their debts were paid.         We have declined supra to address
Faraway’s argument about the subrogation clause in Paragraph 7, but we note
that both versions of Paragraph 7 confer a right of subrogation on “the holders
of Subordinated Debt.”     Even if Sagaponack did not sign the agreement,
“Subordinated Debt,” by definition, includes TestAmerica’s debt to Sagaponack.
Thus, even assuming that Paragraph 7 confers special rights on Faraway to
receive payment after the Senior Debt was satisfied in 2003, it would at best
have shared that right with Sagaponack.          Which between Faraway and
Sagaponack has priority at that juncture, again, is not settled in the agreement.
      That the Subordination Agreement does not address Faraway’s and
Sagaponack’s relative priority is all the more apparent when Paragraphs 2 and

                                       35
                                  No. 08-11224

7 are viewed in conjunction with the following language:
      8.    Obligations of [TestAmerica] Unconditional

            Nothing contained in this Agreement (a) is intended to or
      shall impair, as between [TestAmerica] and the holders of
      Subordinated Debt, the obligations of [TestAmerica], which are
      absolute and unconditional, to pay to the holders of Subordinated
      Debt all Obligations in respect of Subordinated Debt as and when
      the same shall become due and payable in accordance with their
      terms, or (b) is intended to or shall affect the relative rights of the
      holders of Subordinated Debt, on the one hand, the creditors of
      [TestAmerica] other than the holders of Senior Debt, on the other
      hand.
By disclaiming in Subpart (b) that the agreement has any effect other than
establishing the priority of Senior Debt over Subordinated Debt, the
Subordination Agreement plainly disavows any intent to place Faraway ahead
of or behind Sagaponack in right to payment; both of their notes are
“Subordinated Debt.”      As Faraway points out, Subpart (a) declares that
TestAmerica’s payment obligations to pay Faraway and Sagaponack are
“absolute and unconditional.” But Faraway improperly overlooks the remainder
of the clause stating that TestAmerica’s payments on Subordinated Debt “shall
become due and payable in accordance with their terms.” (emphasis added).
Subpart (a) therefore defers to TestAmerica’s loan agreements with Faraway
and Sagaponack to resolve whether any payments are due and owing. The
relative priorities of these two creditors is simply not addressed.
      We conclude as a matter of law that neither version of the Subordination
Agreement establishes the priority between TestAmerica’s debts to Faraway and
to Sagaponack, which leads us to examine whether any terms within the Note
and Purchase Agreement resolve this question.             TestAmerica cites the
subordination clause in both agreements stating that the Note “shall be
subordinated to” and “subject in right of payment to the prior payment in full of
all of [TestAmerica’s] debt facilities.” Interpreting this clause to subordinate the

                                        36
                                      No. 08-11224

Note to all of TestAmerica’s debt, TestAmerica asserts that Faraway agreed to
be subordinated to Sagaponack. This was the very construction advanced by
TestAmerica’s counsel below, asserted by TestAmerica’s witnesses, and,
evidently, rejected by the jury.
       We agree with the jury’s finding that Faraway did not agree to be
subordinated to all of TestAmerica’s other debt merely because it agreed to be
subordinated to TestAmerica’s “debt facilities.” A “debt facility” is the flip-side
of a “credit facility,” the appropriate term when viewing the “facility” from the
standpoint of the creditor instead of the debtor. “Credit facilities” generally
denote formal agreements to extend credit, typically by a lending institution to
a business.10 Ordinary trade debt, payroll debt, or utility bills, for example, do
not constitute debt facilities.       Indeed, equating all of TestAmerica’s “debt
facilities” to all of TestAmerica’s “debt” impermissibly renders meaningless the
accompanying word, “facility,” which clearly restricts the types of debt
encompassed by the term. See, e.g., Ill. Tool Works, Inc. v. Harris, 194 S.W.3d
529, 536 (Tex. App.—Houston [14th Dist.] 2006, no pet.) (rejecting an
interpretation of an employment contract that “would render parts of the
contract superfluous”).
       Neither the Note nor the Purchase Agreement defines “debt facilities.”

       10
          The definition of “credit facility” varies in substance and scope in several of the
sources we have consulted. See, e.g., JERRY M. ROSENBERG, DICTIONARY OF BANKING &
FINANCE 146 (1982) (defining “credit facilities” as “a business system set up to offer credit
services to those who possess personal or business credit”); P.H. COLLIN, DICTIONARY OF
BANKING & FINANCE 59 (1991) (defining “credit facilities” as an “arrangement with a bank or
supplier to have credit so as to buy goods”); OXFORD DICTIONARY OF FINANCE & BANKING 147
(3d ed. 2005) (defining a “facility” as “[a]n agreement between a bank and a company that
grants the company a line of credit with the bank”); A.S. PRATT & SONS, STRUCTURING &
DRAFTING COMMERCIAL LOAN AGREEMENTS ¶ 1.02 (noting that credit facilities are “usually
documented by a formal loan agreement” and constitute “a legally binding commitment of the
bank,” and identifying revolving credit agreements, term loans, revolving credit agreements
that convert to a term loan, and evergreen facilities as types of “credit facilities,” but
specifically excluding a line of credit).

                                             37
                                 No. 08-11224

Notably, TestAmerica’s contemporaneously-executed loan agreement with Fleet
is specifically identified as a “credit facility” and, indeed, fits the mold of a
typical credit facility in that Fleet, a bank, agreed to make “available” to
TestAmerica a total of $37 million in the form of revolving credit loans, letters
of credit, and a $25 million term loan to be paid at regular quarterly intervals.
Sagaponack’s notes, in contrast, arise in the context of a mixed equity, loan and
security agreement executed between TestAmerica and a major shareholder, and
one of the three notes merely amends a pre-existing note that dates back to a
prior loan transaction. Whether the subordination clause in the Note and
Purchase Agreement intended to include Sagaponack’s notes as a “debt facility”
with priority is therefore unclear, and neither this court nor the district court
had any briefing on it. Because TestAmerica’s presentation at trial (wrongly)
equated “debt facilities” with “all debt,” and Faraway (wrongly) maintained that
its priority vis-a-vis Sagaponack depended on the terms of the Subordination
Agreement, the record contains no testimony or other evidence regarding
whether Sagaponack’s notes constitute the type of credit agreement intended to
be included as a “debt facility” as used in the Note and Purchase Agreement. We
therefore cannot discern from this record if Faraway was entitled to be paid on
or after the January 3, 2003 sale of TestAmerica to HIG.
      The jury may have believed that by finding that Faraway had not agreed
to be subordinated to all of TestAmerica’s other creditors, it was necessarily
concluding that Faraway had not agreed to be subordinated to Sagaponack, since
Sagaponack was the sole TestAmerica creditor whose relative priority was at
issue. As we have observed, if Sagaponack does not have priority over Faraway,
then TestAmerica would have breached its duty to pay the Note, as the jury also
found.
      Under other circumstances, we might well have been able to affirm the
jury’s finding that TestAmerica breached the Agreements, but in this case, the

                                       38
                                         No. 08-11224

district court also instructed the jury that TestAmerica bore the burden of
proving that Faraway was subordinated to Sagaponack under the Agreements
because it deemed the issue of subordination to be an affirmative defense.
TestAmerica argues that this instruction improperly relieved Faraway of its
burden of proving that TestAmerica breached these agreements by failing to pay,
a contention that it preserved by properly and specifically raising it during the
charge conference below.11
       “An affirmative defense allows the defendant to introduce evidence to
establish an independent reason why the plaintiff should not prevail; it does not
rebut the factual proposition of the plaintiff’s pleading.” Hassell Constr. Co. v.
Stature Commercial Co., 162 S.W.3d 664, 667 (Tex. App.—Houston [14th Dist.]
2005, no pet.) (emphasis added); see also Tex. Beef Cattle Co. v. Green,
921 S.W.2d 203, 212 (Tex. 1996) (noting that mere denial of a plaintiff’s claims
is not an affirmative defense). For example, recognized affirmative defenses to
breach of contract such as modification,12 failure of consideration,13 statute of

       11
           We agree with Faraway that the wording of TestAmerica’s proposed jury instruction
on the issue of subordination is consistent with its treatment as an affirmative defense upon
which TestAmerica would bear the burden of proof. We also acknowledge that TestAmerica
in its answer prophylactically pleaded the subordination clause as an affirmative defense. But
at the subsequent charge conference, TestAmerica specifically objected to the burden of proof
in the district court’s charge on precisely the same grounds that it asserts now on appeal. See
FED. R. CIV. P. 51(c)(1) (noting that a party preserves its claim of error in the jury instructions
by objecting to the instruction on the record and specifying the reasons for the objection).
TestAmerica’s objection sufficiently preserved this question for our review.
       12
            Intec Sys., Inc. v. Lowrey, 230 S.W.3d 913, 918 (Tex. App.—Dallas 2007, no pet.).
       13
         Suttles v. Thomas Bearden Co., 152 S.W.3d 607, 614 (Tex. App.—Houston [1st Dist.]
2004, no pet.).

                                               39
                                         No. 08-11224

frauds,14 ratification,15 material breach,16 and duress17 either admit or do not
engage the plaintiff’s allegations of breach but assert other, independent facts
as a basis for negating liability that the defendant must plead and prove.
       The dispute surrounding the effect of the subordination clause differs
qualitatively from these defenses. To establish a breach of the Agreements,
Faraway was required to prove that TestAmerica was obligated to and failed to
meet its payment obligations. See Sears, Roebuck & Co. v. AIG Annuity Ins. Co.,
270 S.W.3d 632, 637 (Tex. App.—Dallas 2008, pet. filed) (“The plaintiff in any
breach of contract case bears the burden of proving the breach.”). Because
Faraway agreed to make the Note “subject in right of payment to the prior
payment in full” of all of TestAmerica’s “debt facilities,” TestAmerica’s failure to
make the prescribed payments constitutes a breach only if TestAmerica’s
outstanding debt to Sagaponack was not a “debt facility” that had priority. Cf.
id. at 637 (holding that the plaintiff investors who challenged the defendant’s
redemption of bonds prior to their maturity date bore the burden of proving that
the defendant had no right to redeem them, since their redemption “was a
breach only if the requirements for redemption had not been met”).
TestAmerica’s invocation of the subordination clause attempts to negate
Faraway’s allegations of breach by directly attacking the factual assertion that
TestAmerica was required to pay under the Agreements. See, e.g., James M.
Clifton, Inc. v. Premillenium, Ltd., 229 S.W.3d 857, 859–60 (Tex. App.—Dallas

       14
          Wilkerson v. Pic Realty Corp., 590 S.W.2d 780, 782 (Tex. Civ. App.—Houston [14th
Dist.] 1979, no writ).
       15
            Land Title Co. of Dallas, Inc. v. F.M. Stigler, Inc., 609 S.W.2d 754, 756 (Tex. 1980).
       16
         Compass Bank v. MFP Fin. Servs., Inc., 152 S.W.3d 844, 852 (Tex. App.—Dallas
2005, pet. denied).
       17
         Firemen’s Fund Ins. Co. v. Abilene Livestock Auction Co., 391 S.W.2d 147, 149 (Tex.
Civ. App.—Dallas 1965, writ ref’d n.r.e.).

                                                40
                                         No. 08-11224

2007, no pet.) (holding that the defendant’s “position that it was not obligated by
the Agreement to pay [the plaintiff] is not a matter of avoidance; it need not be
pleaded as an affirmative defense”).18 Thus, TestAmerica’s insistence that the
Note is subordinated to Sagaponack’s loans is not an independent basis for non-
liability that qualifies as an affirmative defense.
       In fact, we construe the subordination language making the Note “subject
to” payment in full of TestAmerica’s debt facilities as a condition precedent to
TestAmerica’s duty to pay Faraway. “A condition precedent is an event that
must happen or be performed before a right can accrue to enforce an obligation.”
Centex Corp. v. Dalton, 840 S.W.2d 952, 956 (Tex. 1992). Texas courts construe
language such as “if,” “provided that,” “on condition that,” or similar phrases to
condition performance of a promise upon the occurrence of a prescribed event.
See Criswell v. European Crossroads Shopping Ctr., Ltd., 792 S.W.2d 945, 948
(Tex. 1990); Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3
(Tex. 1976). The phrase, “subject to” is also sufficiently conditional to create a
condition precedent. See Cedyco Corp., 497 F.3d at 488–89 (offering to sell a
working interest in two oil wells “subject to a[ ] consent to assign” by the original
lessee made the consent of the lessee a condition precedent to the formation of
a contract under Texas law); Shaw v. Kennedy, Ltd., 879 S.W.2d 240, 246 (Tex.
App.—Amarillo 1994, no writ) (construing the obtaining of a release as a
condition precedent because the defendant’s obligations were “subject to”
obtaining the release).

       18
            We find Faraway’s attempt to distinguish Clifton unpersuasive. In that case,
because the terms of the contract required the defendant to pay an entity other than the
plaintiff, the court concluded that the plaintiff had failed to establish a breach of the agreement
stemming from defendant’s failure to make payments to plaintiff, and that the defendant’s
denial of that obligation was not a matter of avoidance that must be pleaded or proved as an
affirmative defense. Clifton, 229 S.W.3d at 859. It did not, as Faraway contends, address the
validity of the contract, and, indeed, the recited facts make evident that the parties had a valid
contract. Id. at 858.

                                               41
                                       No. 08-11224

       The Note and Purchase Agreement contain the requisite conditional
language making the terms of the Note, and thus TestAmerica’s obligations
thereunder, “subject to” TestAmerica’s payment of all its “debt facilities.” Both
agreements make prior payment of TestAmerica’s “debt facilities” a condition
precedent to TestAmerica’s payment obligations to Faraway under those
agreements.       Since the alleged “debt facility” at issue is TestAmerica’s
outstanding debt to Sagaponack, Faraway bears the burden of proving that
Sagaponack did not have to be paid in full before TestAmerica’s obligations to
Faraway would mature.19 See Associated Indem. Corp. v. CAT Contracting, Inc.,
964 S.W.2d 276, 283 (Tex. 1998) (“A party seeking to recover under a contract
bears the burden of proving that all conditions precedent have been satisfied.”).
       We therefore conclude that the district court erred by requiring
TestAmerica to prove that the Note was subordinated to Sagaponack’s loans.
Although misallocating the burden of proof might be harmless in some instances,
see, e.g., Whiteside v. Gill, 580 F.2d 134, 139 (5th Cir. 1978) (observing that such
error might be harmless where, for example, the evidence is “so clear that the
allocation of the burden of proof would make no difference”), such is not the case
here, when we find the record has conflicting evidence on whether Faraway
agreed to be subordinated to the payment of Sagaponack’s loans. Accordingly,

       19
           We recognize that one of our prior decisions treated a condition precedent as an
affirmative defense for which the defendant bears the burden of proof. See Tex. Dep’t of
Housing & Cmty. Affairs v. Verez Assurance, Inc., 68 F.3d 922, 928 (5th Cir. 1995) (“To succeed
with the affirmative defense of conditions precedent, the defendant must establish (1) that the
contract creates a condition precedent, and (2) that the condition precedent was not
performed.”). However, this directly contradicts the Texas Supreme Court’s later decision in
Associated Indemnity, which expressly requires the party asserting breach to prove that a
condition precedent is satisfied. 964 S.W.2d at 283. We therefore conclude that the statement
of Texas law in Texas Department of Housing is incorrect and is not binding precedent in this
Circuit. See Floors Unlimited, Inc. v. Fieldcrest Cannon, Inc., 55 F.3d 181, 185 (5th Cir. 1995)
(declining to adhere to a prior panel decision that is “‘clearly contrary’” to subsequent state
appellate decisions); Farnham v. Bristow Helicopters, Inc., 776 F.2d 535, 537 (5th Cir. 1985)
(“In diversity cases . . . we are to follow subsequent state court decisions that are clearly
contrary to a previous decision of this court.”).

                                              42
                                  No. 08-11224

we must vacate the judgment to the extent it declared TestAmerica to have
breached its payment obligations to Faraway and remand this contract claim for
further proceedings.
            b.    TestAmerica’s obligation to provide a “Period Income
                  Statement”
      TestAmerica additionally challenges the legal sufficiency of the evidence
supporting the jury’s finding that TestAmerica breached its obligation to provide
Faraway a “Period Income Statement” as required under the Note and Purchase
Agreement. Faraway wholly fails to address this contention in its brief, and,
more importantly, sought no finding by the jury or the district court regarding
its actual damages based on this claim. Even assuming that TestAmerica’s
delivery of the Period Income Statement one day after the prescribed deadline
amounts to a breach, Faraway was required to prove that TestAmerica’s conduct
caused actual damages to establish its breach of contract claim. See Lewis v.
Bank of Am. NA, 343 F.3d 540, 544–45 (5th Cir. 2003) (concluding that the
district court erred by submitting a Texas common-law contract claim to the jury
when there was no proof of damages suffered as a result of the breach); James
L. Gang & Assocs., Inc. v. Abbott Labs., Inc., 198 S.W.3d 434, 439 (Tex.
App.—Dallas 2006, no pet.) (affirming grant of summary judgment to defendant
on breach of contract claim for which the plaintiff failed to submit competent
evidence substantiating its damages); Barr v. AAA Tex., LLC, 167 S.W.3d 32,
35–36 (Tex. App.—Waco 2005, no pet.) (affirming a take-nothing judgment on
a breach of contract action based on the insufficiency of evidence supporting
damages); Harris v. Am. Protection Ins. Co., 158 S.W.3d 614, 622–23 (Tex.
App.—Ft. Worth 2005, no pet.) (affirming the trial court’s refusal to submit a
breach of contract claim to the jury in the absence of evidence that the plaintiff
suffered any damages). The record contains no evidence substantiating any
injury to Faraway as a result of the untimely delivery of the Period Income

                                       43
                                    No. 08-11224

Statement.     Because Faraway failed to submit legally sufficient evidence
substantiating its actual damages, we must reverse the district court’s judgment
on this breach of contract claim.
      3.     Fraudulent transfer
             a.     Faraway’s claim against TestAmerica and Sagaponack
      TestAmerica and Sagaponack challenge the district court’s judgment
voiding the transfer to Sagaponack of $3,202,800 of the proceeds received from
TestAmerica’s sale to HIG pursuant to the jury’s finding that both defendants
violated TUFTA § 24.005(a)(1), holding both defendants jointly and severally
liable up to that amount, and entering the jury’s award of punitive damages of
$1 million and $500,000 against Sagaponack and TestAmerica, respectively.
Both defendants assert that TUFTA, by definition, does not apply to the money
allocated to Sagaponack because those funds came out of Fleet’s rightful share
of the sale proceeds and were encumbered by Fleet’s security interest in all of
TestAmerica’s assets.
      The relevant provision of TUFTA states:
      A transfer made or obligation incurred by a debtor is fraudulent as
      to a creditor, whether the creditor’s claim arose before or within a
      reasonable time after the transfer was made or the obligation was
      incurred, if the debtor made the transfer or incurred the obligation:

             (1) with actual intent to hinder, delay, or defraud any
             creditor of the debtor . . . .
TEX. BUS. & COM. CODE ANN. § 24.005(a)(1) (emphasis added). Under TUFTA,
a “transfer” means disposing of or parting with an “asset.” § 24.002(12). The
statute defines an “asset” in turn, as “property of a debtor,” but expressly
excludes “property to the extent it is encumbered by a valid lien.” § 24.002(2)(A).
A “valid lien” is defined as “a lien that is effective against the holder of a judicial
lien subsequently obtained by legal or equitable process or proceedings.”
§ 24.002(13). A “lien” includes a security interest. § 24.002(8). Together, these

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                                        No. 08-11224

definitions exempt from TUFTA an alleged fraudulent transfer of property to the
extent that such property is encumbered by a security interest that would be
effective against a subsequent judicial lien. Pursuant to the jury instructions,
which Faraway does not challenge, Faraway bore the burden of proving that the
money received by Sagaponack as part of TestAmerica’s sale to HIG was subject
to TUFTA.
       The uncontroverted evidence reflects that as of January 3, 2003, the date
of TestAmerica’s sale to HIG, TestAmerica had $50 million in outstanding debt,
well more than the agreed sale price of $33.5 million. At that time, Fleet was
owed at least $26,336,585.64 on its loans to TestAmerica and held a “lien” in the
form of a security interest in all of TestAmerica’s assets. In rejecting the
defendants’ renewed motion for judgment as a matter of law, the district court
misinterpreted the definition of a “valid lien” under TUFTA by limiting it to “a
judicial lien obtained through a legal or equitable process.” But to constitute a
“valid lien,” a lien need only be effective against a subsequent judicial lien.
§ 24.002(13). Faraway presented no evidence that Fleet’s security interest in all
the assets of TestAmerica would not have priority over any later-acquired
judicial lien on those assets, and, indeed, does not dispute on appeal that Fleet
held a “valid lien” within the meaning of TUFTA.20 We conclude that the

       20
           Notably, a security interest in collateral has priority over subsequent judicial liens
only if the interest was perfected by filing an appropriate financing statement. See, e.g.,
Grocers Supply Co. v. Intercity Inv. Props., Inc., 795 S.W.2d 225, 226–27 (Tex. App.—Houston
[14th Dist.] 1990, no writ) (collecting cases from other Uniform Commercial Code Article 9
jurisdictions and following this super-majority rule that confers priority on the holder of a
prior-perfected security interest over a judgment creditor); 9 ANDERSON ON THE UNIFORM
COMMERCIAL CODE § 9-301:15 (“A security interest perfected by filing prevails over a
subsequent judgment lien . . . .”). Although TestAmerica’s loan documents with Fleet obligated
TestAmerica to file the requisite financing statements to perfect Fleet’s security interest, we
find no evidence in the trial record substantiating that those statements were actually filed.
However, under the jury instructions—which Faraway does not challenge—Faraway bore the
burden of proving that the money given to Sagaponack was a “transfer” subject to TUFTA. To
meet its burden, Faraway was required to prove that the $26,336,585.64 in proceeds from
TestAmerica’s sale to HIG was an “asset” over which Fleet did not hold a security interest with

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                                      No. 08-11224

$26,336,585.64 in proceeds from TestAmerica’s sale to HIG was encumbered by
Fleet’s “valid lien” and was therefore not an “asset” within the meaning of
TUFTA. See, e.g., Yokogawa Corp. of Am. v. Skye Int’l Holdings, Inc., 159
S.W.3d 266, 269 (Tex. App.—Dallas 2005, no pet.) (holding the enforcement of
a security interest through foreclosure and sale of the debtor’s property was not
a voidable transfer of an “asset” under TUFTA).
       Faraway instead asserts that Fleet’s lien did not extend to the $3,202,800
of the proceeds that Fleet directed HIG to pay to Sagaponack because Fleet
entered into an “accord and satisfaction” with TestAmerica by agreeing to forego
that portion and to release its lien. In its January 2, 2003 pay-off letter to HIG,
Fleet agreed to accept a discounted payment of $23,133,785.64 instead of the
full $26,336,585.64 it was owed. As part of that agreement, Fleet directed HIG
to pay the remaining “Allocated Amount” of $3,202,800 to Sagaponack “[i]n
consideration for (a) the consent of Sagaponack . . . to the Sale and (b)
Sagaponack’s agreement to cooperate and assist with certain post-closing
matters arising from and in connection with the Sale . . . .” The letter expressly
acknowledged “that but for the agreement of [Fleet] to share with Sagaponack
the proceeds of the assets that were granted as collateral . . . under the terms of
its [Loan Agreement], [Fleet] would be entitled to receipt of the Allocated
Amount in its entirety.”          In consideration for HIG’s payment of Fleet’s
discounted loan, Fleet agreed to release its security interests “upon receipt” of
payment on the day of closing.
       Faraway’s treatment of the $3.2 million allocated to Sagaponack as exempt
from Fleet’s lien assumes that the disbursement of funds occurred in two distinct
and independent steps: (1) an “accord and satisfaction” between TestAmerica

priority over a later judicial lien. Because no evidence at trial suggests that Fleet did not
properly perfect its security interest in TestAmerica’s assets, we conclude that Fleet held a
“valid lien” exempt from TUFTA.

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                                  No. 08-11224

and Fleet under which Fleet accepted less than it was owed and extinguished its
lien; and (2) a later transfer of the remaining, unencumbered $3.2 million to
Sagaponack. For Fleet’s acceptance of less than the full amount owed to
constitute an “accord and satisfaction,” however, the debt owed by TestAmerica
to Fleet must have been disputed or unliquidated. See Lopez v. Munoz, Hockema
& Reed, L.L.P., 22 S.W.3d 857, 863 (Tex. 2000) (“A valid accord and satisfaction
requires that there initially be a legitimate dispute between the parties about
what was expected” (internal quotation marks and citation omitted)); Ind.
Lumbermen’s Mut. Ins. Co. v. State, 1 S.W.3d 264, 266 (Tex. App.—Ft. Worth
1999, pet. denied) (requiring for a valid accord and satisfaction that there be
either a disputed or an unliquidated debt); 1 TEX. JUR. 3D ACCORD            AND

SATISFACTION § 25. The uncontroverted evidence shows that neither of these
requirements is satisfied because, on the date of TestAmerica’s sale, it owed
Fleet the undisputed and liquidated amount of $26,336,585.64. See Am. Gen.
Life Ins. Co. v. Copley, 428 S.W.2d 862, 865 (Tex. Civ. App.—Houston [14th
Dist.] 1968, writ ref’d n.r.e.) (“Where there is an undisputed obligation to pay a
liquidated amount, an agreement to pay and to accept a lesser amount is not a
valid accord because it is not supported by sufficient consideration.”). Thus,
Fleet made no enforceable commitment to receive less than the full sum to which
it was entitled under its loans to TestAmerica. Its lien therefore encompassed
the entire $26,336,585.64.
      Moreover, the economic realities of the agreement reached between Fleet
and Sagaponack reflect that Fleet’s acceptance of a discounted payment of $23
million and its allocation of $3.2 million to Sagaponack are inextricable
components of an integrated transaction involving assets wholly secured by
Fleet’s valid lien. During the eighteen months following TestAmerica’s default
on its loans, Fleet had threatened to force TestAmerica into bankruptcy. As
TestAmerica’s counsel testified at trial, TestAmerica’s liquidation value in

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                                  No. 08-11224

bankruptcy would be substantially less than the amount that could be obtained
in the normal course of business, such as HIG’s offer to buy TestAmerica’s assets
for $33.5 million. But because of Sagaponack’s contractual change-of-control
provision, the sale to HIG could not occur without Sagaponack’s consent.
Because its security interest extended to the $26 million owed on its loan, Fleet
had the authority to dictate how that sum would be distributed. Wanting to
maximize the amount recouped on its loans, Fleet was willing to give up part of
its rightful share to ensure Sagaponack’s cooperation and to consummate the
sale. It is therefore improper to treat Fleet’s acceptance of $23 million as a
settlement or “accord and satisfaction” of TestAmerica’s debt to Fleet that freed
the remaining $3.2 million to pay other creditors, when Fleet effectuated its
recovery by specifically and contemporaneously agreeing to pay Sagaponack part
of its share. Contrary to Faraway’s contentions, both the pay-off letter and the
testimony of Fleet’s representative at trial establish that Fleet did not release
its lien until after it received payment following the close of the sale.
      Had the January 2, 2003 pay-off letter specified that Fleet would receive
the full $26 million from HIG and then disburse $3.2 million of those proceeds
to Sagaponack, the entire amount would unquestionably be exempt from TUFTA
as an asset wholly encumbered by Fleet’s valid lien. The only difference here is
that Fleet agreed to settle its loan to TestAmerica by accepting the lesser
amount of $23 million at the same time as it directed HIG to pay the remaining
$3.2 million directly to Sagaponack, an arrangement that merely eliminated
Fleet as the intermediary. We see no substantive difference between these two
scenarios; under both, Fleet’s entitlement to the full $26 million means that the
entire sum was subject to its security interest, including the portion that Fleet
allocated to Sagaponack. Because the $3,202,800 paid to Sagaponack was
encumbered by a “valid lien,” it was not an “asset” under TUFTA. Therefore, no
“transfer” occurred, and Faraway’s fraudulent transfer claim under TUFTA

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                                  No. 08-11224

§ 24.005(a)(1) fails as a matter of law.
      We reject Faraway’s alternative contention that the money transferred to
Sagaponack violates TUFTA § 24.005(a) in spite of Fleet’s valid lien. Faraway
relies on TUFTA § 24.005(b)(11), which lists a debtor’s transfer of “essential
assets of the business to a lienor who transferred the assets to an insider of the
debtor” as one of several badges of fraud that can support a finding of fraudulent
intent under § 24.005(a)(1). TEX. BUS. & COM. CODE ANN. § 24.005(b)(11)
(emphasis added). However, that statute is subject to the definitional provisions
of TUFTA excluding the debtor’s disposition of property encumbered by a “valid
lien.” See TEX. BUS. & COM. CODE ANN. § 24.002 (listing the definitions that apply
to all other provisions of TUFTA).          When construed together with these
definitions, § 24.005(b)(11) provides that a transfer from a debtor to a “lienor” to
an insider can substantiate fraudulent intent, but only if the “lienor” does not
hold a “valid lien” exempt from the definition of an “asset” under TUFTA. This
could occur, for example, if the circumstances surrounding the lien’s creation are
themselves part of the alleged fraudulent transfer, see, e.g., Tel. Equip. Network,
Inc. v. TA/Westchase Place, Ltd., 80 S.W.3d 601, 609 (Tex. App.—Houston [1st
Dist.] 2002, no pet.), or if the lien would not have priority over a subsequent
judicial lien so as to constitute a “valid lien” as defined by TUFTA. But when,
as here, the disputed property is encumbered by a “valid lien,” it is not an “asset”
subject to avoidance, and the transferor’s intent in disposing of the asset is
irrelevant.    See, e.g., Webster Indus., Inc. v. Northwood Doors, Inc.,
320 F. Supp. 2d 821, 836 (N.D. Iowa 2004) (“[I]f there is no ‘asset’ involved, the
intent of the parties to the [putative fraudulent] transfer is irrelevant.”).
      In sum, we conclude as a matter of law that Fleet’s allocation of a
$3,202,800 payment to Sagaponack from the proceeds of TestAmerica’s sale did
not constitute a “transfer” subject to TUFTA. Accordingly, we reverse the
district court’s judgment on Faraway’s fraudulent transfer claim against

                                           49
                                  No. 08-11224

Sagaponack and TestAmerica.
            b.     Faraway’s claim against Weisman
      Faraway cross-appeals the district court’s take-nothing judgment in favor
of Weisman on its fraudulent transfer claim against him individually. Faraway
recites three pages of disjointed facts relating to Weisman’s participation in the
litigation, his relationship with TestAmerica, Sagaponack, and Sagaponack
Management, and his involvement in various aspects of the relevant
transactions.    Faraway cites no authority supporting its contention that
Weisman’s involvement with the putative fraudulent transfer and alleged
(though unspecified) benefit therefrom suffices to hold him liable under TUFTA,
notwithstanding the uncontroverted fact that he never received any portion of
the disputed funds. Accordingly, we deem this issue waived due to inadequate
briefing. See Kohler v. Englade, 470 F.3d 1104, 1114 (5th Cir. 2006) (finding
waiver for failure to cite legal authority); FED. R. APP. P. 28(a)(9)(A) (requiring
briefs to present contentions “with citations to the authorities and parts of the
record” relied upon (emphasis added)).
      4.    Exemplary damages for fraud
      We also find that the district court’s judgment imposing $350,000 in
punitive damages against TestAmerica for fraud cannot be sustained. As
TestAmerica points out, “actual damages sustained from a tort must be proven
before punitive damages are available.” Twin City Fire Ins. Co. v. Davis, 904
S.W.2d 663, 665 (Tex. 1995); see also Doubleday & Co. v. Rogers, 674 S.W.2d 751,
754 (Tex. 1984) (“The Texas cases are unanimous in holding that recovery of
actual damages is prerequisite to receipt of exemplary damages.”); TEX. CIV.
PRAC. & REM. CODE ANN. § 41.004 (limiting the availability of punitive damages
to cases in which “damages other than nominal damages are awarded”). Here,
the predicate for punitive damages is not satisfied because no actual damages
resulting from TestAmerica’s alleged misrepresentation regarding the priority

                                        50
                                  No. 08-11224

of the Note were requested or awarded and the only damages potentially
available are for breach of contract. Accordingly, we reverse the award of
punitive damages for fraud.
D.    TestAmerica’s breach of contract counterclaim
      TestAmerica lastly contends that the district court erred by dismissing on
summary judgment its counterclaim that Faraway breached the Subordination
Agreement by filing suit during the suspension period. We review the grant of
summary judgment de novo, applying the same standard as the district court
below. Coury v. Moss, 529 F.3d 579, 584 (5th Cir. 2008). Summary judgment is
proper when there is no genuine issue of material fact, and the moving party is
entitled to judgment as a matter of law. FED. R. CIV. P. 56(c).
       In Texas, “[t]he essential elements of a breach of contract claim are:
(1) the existence of a valid contract; (2) performance or tendered performance by
the plaintiff; (3) breach of the contract by the defendant; and (4) damages
sustained by the plaintiff as a result of the breach.” Aguiar v. Segal, 167 S.W.3d
443, 450 (Tex. App.—Houston [14th Dist.] 2005, pet. denied). The parties do not
dispute the validity of the Subordination Agreement.
      Regarding Faraway’s breach, the Subordination Agreement expressly
prohibits “the holders of Subordinated Debt” from “commencing any Proceeding,
or tak[ing] any action to demand or enforce payment of any Subordinated Debt”
while TestAmerica was in default to its obligations to the Senior Creditors.
TestAmerica undisputedly defaulted on its obligations to Fleet in September,
2000, and, as explained above, the suspension period did not end until the Senior
Creditors were paid from the proceeds of TestAmerica’s January 3, 2003 sale to
HIG. Faraway, as a holder of “Subordinated Debt,” clearly violated its obligation
to refrain from enforcing or demanding payment on the Note by filing suit on
December 31, 2001, while the suspension period remained in effect.
      Finally, Faraway itself      submitted summary judgment evidence

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                                  No. 08-11224

substantiating that TestAmerica had incurred attorneys’ fees during the
suspension period as a result of Faraway’s premature filing of suit, although the
precise amount was disputed. This evidence alone suffices to raise a genuine
issue of material fact that Faraway’s breach caused actual damages. See, e.g.,
Thomas v. Great Atl. & Pac. Tea Co., 233 F.3d 326, 329 (5th Cir. 2000) (noting
that “[w]hen reviewing a grant of summary judgment, we must review the record
as a whole” (emphasis added)).
      Based on the evidence in the summary judgment record, a reasonable jury
could find in favor of TestAmerica on each essential element of its breach of
contract counterclaim. See, e.g., E. & J. Gallo Winery v. Spider Webs Ltd., 286
F.3d 270, 274 (5th Cir. 2002) (noting that summary judgment is proper only “[i]f
no reasonable juror could find for the non-movant” (internal quotation marks
and citation omitted)). We therefore reverse the district court’s grant of partial
summary judgment on TestAmerica’s counterclaim.
                                IV. Conclusion
      Our conclusions render unnecessary any further litigation of Faraway’s
breach of contract claim predicated on TestAmerica’s failure to deliver timely a
Period Income Statement, Faraway’s fraud claim against TestAmerica, and
Faraway’s TUFTA claim against TestAmerica, Sagaponack, and Weisman.
Further, in the litigation that remains, the question of which version of the
Subordination Agreement controls (which consumed so much of the trial) is
irrelevant.   What remains is Faraway’s breach of contract claim against
TestAmerica based on the failure to pay the Note, specifically the question
whether TestAmerica’s debt to Sagaponack is a “debt facility” within the
meaning of the Note and Purchase Agreement. Also remaining is the issue of
damages occasioned by Faraway’s breach of the Subordination Agreement by
filing suit during the suspension period. We do not suggest that another trial is
necessary. We leave that to the district court.

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                                 No. 08-11224

      We AFFIRM the district court’s grant of judgment as a matter of law and
entry of a take-nothing judgment on Faraway’s fraudulent transfer claim under
TUFTA § 24.005(a)(1) against Weisman. We REVERSE the district court’s grant
of partial summary judgment on TestAmerica’s breach of contract counterclaim.
We VACATE the district court’s judgment pursuant to the jury verdict (1) on
Faraway’s contract claims against TestAmerica relating to its payment
obligations under the Agreements and duty to provide a Period Income
Statement; (2) on Faraway’s § 24.005(a)(1) claim against TestAmerica and
Sagaponack; and (3) imposing punitive damages against TestAmerica for fraud.
We REMAND this case for entry of a take-nothing judgment on the TUFTA
claims against TestAmerica and Sagaponack, on the fraud claim against
TestAmerica, and on the contract claim for breach of TestAmerica’s duty to
provide a Period Income Statement, and for further proceedings consistent with
this opinion. Each party shall bear its own costs.

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