Court Opinion

ID: 2758787
Source: CourtListenerOpinion
Date Created: 2014-12-09 18:13:47.277774+00
Date Added: 2024-06-11T11:26:59.279536
License: Public Domain

Affirmed and Opinion Filed December 8, 2014.

                                            Court of Appeals
                                                              S     In The

                                     Fifth District of Texas at Dallas
                                                         No. 05-13-00999-CV

                                   LOUIS MARTIN, JR., Appellant
                                              V.
                          U.S. MERCHANTS FINANCIAL GROUP, INC., Appellee

                                 On Appeal from the 134th Judicial District Court
                                              Dallas County, Texas
                                        Trial Court Cause No. 10-15757

                                           MEMORANDUM OPINION
                                               Before Justices Francis and Myers 1
                                                      Opinion by Justice Myers
           U.S. Merchants Financial Group, Inc. (Merchants) obtained a California default judgment

against Synergy Design Group, Inc. (Synergy) based on a breach of contract complaint. In an

effort to collect the California judgment, Merchants next brought suit in California against

Synergy’s vice president, Louis Martin, Jr.; that suit was dismissed for lack of personal

jurisdiction over Martin. Using an alter ego theory, Merchants then brought suit against Martin in

Texas to collect the California judgment. Following a bench trial, the trial court rendered

judgment against Martin for the amount of the California judgment plus interest and court costs.

           In his issues on appeal, Martin contends the trial court erred by (1) failing to find this

action is barred by statute; (2) failing to find this action is barred by collateral estoppel; (3)

     1
        Justice David Lewis was a member of the panel and participated at the submission of this case, but he did not participate in the issuance of
this opinion. See TEX. R. APP. P. 41(b).
finding the evidence sufficient to support the finding that Martin caused the corporation to

perpetrate a fraud; and (4) finding the evidence sufficient to support the necessary actual fraud

required to pierce the corporate veil. We affirm the trial court’s judgment.

                                   I. Factual and Procedural Background

       Martin and his business partner, Chuck Clark, sold a road flare called the “TurboFlare

360” under the corporate structure of Synergy. To secure a $2.75 million dollar order with Sam’s

Club, Martin was directed to contact Merchants to handle Sam’s Club requirements for

packaging and shipping. Martin negotiated and contracted with Merchants to pay $278,000 for

packaging and shipping services.

       After Merchants completed the packaging and shipping under the contract, Synergy only

remitted payment of $6,773. Merchants filed a breach of contract suit against Synergy in

California in 2004, and was awarded a default judgment. To collect the judgment, Merchants

then brought an action in California to pierce Synergy’s corporate veil using an alter ego theory

against Martin six years later. The California court dismissed the alter ego action for lack of

personal jurisdiction over Martin. Merchants then filed this action against Martin in Texas. After

a bench trial, the trial court found in favor of Merchants, and now Martin appeals.

                                           II. Barred by Statute

       Martin argues that because the California court granted Martin’s motion to quash the

service of process for lack of personal jurisdiction, this action is barred in Texas. Martin argues

Texas law bars this action because the California court barred the action in California. Martin

further argues he cannot be “bound by a judgment in personam resulting from litigation in which

he is not designated as a party or to which he has not been made a party by service of process.”

       We must first determine if this action is barred by Texas law. Martin contends that

because Merchants brought suit against him in California to enforce the Synergy judgment and

                                                –2–
the California court found that it lacked jurisdiction over Martin, the same suit would be barred

in California and is consequently now barred in Texas. The statute on which Martin relies states,

an “action on a foreign judgment is barred in this state if the action is barred under the laws of

the jurisdiction where rendered.” TEX. CIV. PRAC. & REM. CODE ANN. § 16.066(a) (West 2008).

           We review questions of statutory construction de novo. Crosstex Energy Servs., L.P. v.

Pro Plus, Inc., 430 S.W.3d 384, 389 (Tex. 2014). When the statute is clear and unambiguous, we

read the language according to its common meaning “without resort to rules of construction or

extrinsic aids.” State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006). “The plain meaning of the

text is the best expression of legislative intent unless a different meaning is apparent from the

context or the plain meaning leads to an absurd result.” Altus Brands II, LLC v. Alexander, 435
S.W.3d 432, 440 (Tex. App.—Dallas 2014, no pet.) (citing City of Rockwall v. Hughes, 246
S.W.3d 621, 625 (Tex. 2008)).

           Merchants brought suit against Martin in California seeking a declaration that Martin was

Synergy’s alter ego. Martin filed a special appearance and motion to quash service of process for

lack of personal jurisdiction which the trial court granted. 2 However, it is a well-settled rule that

a court’s judgment for lack of jurisdiction does not bar the plaintiff from bringing the action in

another court having jurisdiction. See GMS Props., Inc. v. Superior Court, 33 Cal. Rptr. 163, 169

(Cal. Ct. App. 1963) (quoting E.H. Schopler, Res Judicata Effect of Judgment Dismissing Action,

or Otherwise Denying Relief, for Lack of Jurisdiction or Venue, 49 A.L.R. 2d 1040 (1956)). This

action is not barred in California because a California judgment for lack of jurisdiction does not

     2
       We note, the record does not contain the official court reporter’s trial transcript from the California proceedings. However, it does contain
a copy of a document entitled “Nature of Proceedings” date stamped as “Minutes Entered 10/27/10 County Clerk” which states,
           Matters are called for hearing. The Court issues its oral tentative as fully reflected in the notes of the official court reporter
           this date, incorporated herein by reference. The Court, having read and considered all papers filed and heard argument,
           rules as follows: Specially Appearing Defendant’s Evidentiary Objections are OVERRULED as to item nos. 1-7.
           Defendant Louis Martin, Jr.’s motion to quash summons for lack of personal jurisdiction is GRANTED. The Court’s ruling
           is more fully reflected in the notes of the official court reporter this date, incorporated herein by reference.

                                                                         –3–
bar the plaintiff from bringing the action in another court that does have jurisdiction. See GMS

Props., 33 Cal. Rptr. at 169. We therefore, conclude this action is not barred in Texas under

section 16.066(a) of the civil practice and remedies code.

       Martin also relies on Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 110

(1969), for the proposition that a party cannot be bound by a foreign judgment when that party

was not designated as a party in that suit. We agree that the “consistent constitutional rule has

been that a court has no power to adjudicate a personal claim or obligation unless it has

jurisdiction over the person of the defendant.” Id. (citing Pennoyer v. Neff, 95 U.S. 714 (1878)).

While we agree with this statement of law, the facts in Zenith are distinguishable.

       In Zenith, a district court in Illinois relied on the parties’ pre-trial stipulation that

Hazeltine Research, Inc. (HRI) and Hazeltine Corporation (Hazeltine) were considered one

entity for purposes of the litigation. 395 U.S. at 107. HRI was an Illinois corporation and wholly

owned subsidiary of Hazeltine, which was a New York corporation. HRI was the named

respondent in the litigation, and Hazeltine was not named as a party in the suit. Hazeltine did not

make an appearance in the litigation until Zenith proposed that judgment be entered against it, at

which time Hazeltine filed a special appearance. Hazeltine did not formally participate in the

proceedings until after the district court had entered its initial findings of fact and conclusions of

law. Relying on the pre-trial stipulation made by the parties to the suit, the district court entered

judgments for damages and injunctive relief against Hazeltine as well as against the named

counter-defendant, HRI. Id.      On appeal, the court of appeals vacated the district court’s

judgment, holding that Hazeltine could not be bound by a judgment resulting from litigation in

which it was not designated as a party or to which it had not been made a party by service of

process. Id. at 110. Hazeltine was not a named party, was never served, and did not formally

                                                 –4–
appear at the trial. The stipulation represented HRI’s agreement to be bound by, and to be liable

for, the acts of its parent and was signed by HRI, not Hazeltine. Id. The Supreme Court stated:

            If the alter ego issue had been litigated, and if the trial court had decided that HRI
           and Hazeltine were one and the same entity and that jurisdiction over HRI gave
           the court jurisdiction over Hazeltine, perhaps Hazeltine’s appearance before
           judgment with full opportunity to contest jurisdiction would warrant entry of
           judgment against it. But that is not what occurred here. The trial court’s judgment
           against Hazeltine was based wholly on HRI’s stipulation. HRI may have executed
           the stipulation to avoid litigating the alter ego issue, but this fact cannot foreclose
           Hazeltine, which has never had its day in court on the question of whether it and
           its subsidiary should be considered the same entity for purposes of this litigation.

Id. at 111. In the case at bar, the California court entered a judgment against Synergy–and

Synergy alone–not Martin. Unlike in Zenith, however, Martin does not complain about the

opportunity to participate in the proceeding in California nor the proceeding in Texas below. 3 In

fact, Martin did participate in the California proceeding long enough to be dismissed for lack of

personal jurisdiction. As for the Texas proceeding below, Martin was the only named respondent

and he does not complain to this court about a lack of service of process.

           Here, Martin wants to expand Zenith to mean a separate proceeding to pierce the

corporate veil can never be brought against a litigant if the litigant was not represented when the

corporation was originally found liable. We decline to interpret Zenith so broadly. The parties in

Zenith were not, as here, trying to pierce a corporate veil. Accordingly, Zenith does not support

Martin’s argument that Merchants is barred from bringing this action against him in Texas.

            We decide Martin’s first issue against him.

                                                      III. Barred by Collateral Estoppel

           Martin argues this suit is barred by collateral estoppel because Merchants litigated and

lost the same claim in California. Martin contends the alter ego issue presented in the trial below

     3
       Martin does contend the alter ego issue was litigated in California. However, Martin failed to provide this Court with an official reporter’s
record from the California proceedings so that is not a determination we can make. We further note that Martin does not challenge the validity of
the Synergy judgment.

                                                                       –5–
was identical to the one presented in California: it required the same proof, the same evidentiary

standard, the same evidence, and the same legal arguments.

           Both parties agree we apply California law to determine the effect of the California

judgment. See Centre Equities, Inc. v. Tingley, 106 S.W.3d 143, 150 (Tex. App.—Austin 2003,

no pet.). Under California law, the doctrine of collateral estoppel is well established:

            Traditionally, we have applied the doctrine only if several threshold requirements
           are fulfilled. First, the issue sought to be precluded from relitigation must be
           identical to that decided in a former proceeding. Second, this issue must have
           been actually litigated in the former proceeding. Third, it must have been
           necessarily decided in the former proceeding. Fourth, the decision in the former
           proceeding must be final and on the merits. Finally, the party against whom
           preclusion is sought must be the same as, or in privity with, the party to the
           former proceeding.

Gikas v. Zolin, 6 Cal. 4th 841, 849 (Cal. 1993).

           The party asserting collateral estoppel bears the burden of establishing these

requirements. Esparza v. Cnty. of Los Angeles, 168 Cal. Rptr. 3d 482, 492 (Cal. Ct. App. 2014).

California requires “every estoppel must be certain to every intent, and not to be taken by

argument or inference.” Kemp Bros. Const., Inc. v. Titan Elec. Corp., 53 Cal. Rptr. 3d 673, 679

(Cal. Ct. App. 2007).

           The record does not contain the official court reporter’s record of the October 27, 2010

hearing in California. Further, the one-page summary of the hearing that is provided to this Court

states, “[t]he Court’s ruling is more fully reflected in the notes of the official court reporter this

date, incorporated herein by reference.” Martin argues the pleadings should be enough for this

Court to determine the same issues were litigated. However, nothing in the record supports an

inference, much less a conclusion, that the California court decided if Merchants could pierce the

corporate veil of Synergy. 4 There is simply no basis for concluding the parties fully and fairly

     4
        We note that Martin’s appellate brief included two pages of purported quotes from the California trial judge explaining her ruling, but the
official reporter’s record was not provided for our review.

                                                                      –6–
litigated the issue of piercing the corporate veil. See Kemp, 53 Cal. Rptr. 3d at 675. Without the

official reporter’s record, we cannot review whether or not the issues were identical or actually

litigated, and consequently, we cannot conclude collateral estoppel bars these proceedings in

Texas. We decide Martin’s second issue against him.

                                     IV. Sufficiency of the Evidence

       In his last two issues, Martin challenges the legal and factual sufficiency of the evidence

that Martin caused the corporation to perpetrate a fraud and that he engaged in “actual fraud.”

The trial court’s conclusions of law found “Martin engaged in conduct constituting ‘actual fraud’

. . . by at the outset of the relationship, making false and misleading representations to Merchants

. . . ”; “Martin deceptively represented and misrepresented Synergy’s financial inability to pay

Merchants for the services Merchants provided”; and “Martin, acting in his capacity as an officer

and stockholder of Synergy, misused Synergy’s corporate fiction to defraud Merchants and

evade a legitimate obligation for Martin’s personal benefit.”

       In a legal sufficiency review, we consider the evidence in the light most favorable to the

verdict and indulge every reasonable inference that would support it. City of Keller v. Wilson,

168 S.W.3d 802, 822 (Tex. 2005). “The final test for legal sufficiency must always be whether

the evidence at trial would enable reasonable and fair-minded people to reach the verdict under

review.” Id., 168 S.W.3d at 827. We cannot substitute our judgment for that of the trier of fact,

so long as the evidence falls within this zone of reasonable disagreement. Id., 168 S.W.3d at 822.

       Findings of fact in a case tried to the court have the same force and effect as jury findings

and are reviewed by the same standards used to review challenges to the sufficiency of the

evidence to support jury findings. Altus, 435 S.W.3d at 440. In our factual sufficiency review, we

consider all the evidence, setting aside the finding only if the evidence supporting the finding is

so weak or so against the great weight and preponderance of the evidence that the finding is

                                                –7–
clearly wrong and unjust. See Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001). As

fact-finder in a bench trial, the trial court is the sole judge of the credibility of the witnesses.

Altus, 435 S.W.3d at 440.

        We have traditionally applied the alter ego doctrine to pierce the corporate veil when

there is a “unity between the corporation and the individual to the extent that the corporation’s

separateness has ceased, and holding only the corporation liable would be unjust.” Castleberry v.

Branscum, 721 S.W.2d 270, 272 (Tex. 1986). However, the issue of alter ego has been codified

to a substantial degree. See Latham v. Burgher, 320 S.W.3d 602, 608 (Tex. App.—Dallas 2010,

no pet.). The statute states in relevant part,

        (a) A holder of shares, an owner of any beneficial interest in shares, or a
        subscriber for shares whose subscription has been accepted, or any affiliate of
        such a holder, owner, or subscriber or of the corporation, may not be held liable to
        the corporation or its obligees with respect to:
                 ***
                 (2) any contractual obligation of the corporation or any matter relating to
                 or arising from the obligation on the basis that the holder, beneficial
                 owner, subscriber, or affiliate is or was the alter ego of the corporation or
                 on the basis of actual or constructive fraud, a sham to perpetrate a fraud, or
                 other similar theory;
                 ***
        (b) Subsection (a)(2) does not prevent or limit the liability of a holder, beneficial
        owner, subscriber, or affiliate if the obligee demonstrates that the holder,
        beneficial owner, subscriber, or affiliate caused the corporation to be used for the
        purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily
        for the direct personal benefit of the holder, beneficial owner, subscriber, or
        affiliate.

TEX. BUS. ORGS. CODE ANN. § 21.223 (West 2012). In the context of piercing the corporate veil,

actual fraud is not equivalent to the tort of fraud. In the piercing of the corporate veil, actual

fraud involves “dishonesty of purpose or intent to deceive.” Latham, 320 S.W.3d at 607 (citing

Castleberry, 721 S.W.2d at 273; Priddy v. Rawson, 282 S.W.3d 588 (Tex. App.—Houston [14th

Dist.] 2009, pet. den.); Solutioneers Consulting, Ltd. v. Gulf Greyhound Partners, Ltd., 237
S.W.3d 379, 387 (Tex.App.—Houston [14th Dist.] 2007, no pet.)).

                                                 –8–
       Martin argues specifically that the evidence was legally and factually insufficient to show

that “Martin caused Synergy to do anything about the payment of Merchants, much less

perpetrate a fraud.” We disagree.

       Martin bases his arguments on the theory that he was a “sales representative” with no

control over the corporation. However, the record shows Martin and Chuck Clark, together as

business partners, formed, operated, and were officers in no less than thirteen different

companies between 2002 and 2012. Ten of these companies were formed and administratively

dissolved between August 2002 to September 2007. Clearly, as a founding shareholder and

officer of these corporations, Martin had some control over the actions taken by these businesses.

Martin owned 50% interest in AOS, Inc., a nominee entity created to be a corporate shareholder

of Synergy, Inc. AOS held either 50% or 66.7% ownership interest of Synergy; there is

conflicting evidence as to the exact percentage of ownership held by AOS. Both Synergy and

AOS had allowed their corporate charters to lapse and both also filed for reinstatement around

the time Synergy contracted with Merchants.

       Synergy was incorporated in the State of Florida on August 22, 2002 and thereafter

forfeited its corporate charter. On September 5, 2003, a Corporation Reinstatement form was

filed with the Florida Secretary of State’s office for reinstatement of Synergy’s charter. AOS was

incorporated in the State of Florida in April 2002 and thereafter forfeited its corporate charter.

On September 22, 2003, a Corporation Reinstatement form was filed with the Florida Secretary

of State’s office for reinstatement of AOS’ charter.

       Douglas Farrell, director of sales for Merchants, testified that he only dealt with Martin

during negotiations on the “TurboFlare 360” transactions with Synergy. When negotiating with

Merchants, Martin represented verbally and in writing that he was the “CEO” of Synergy. Farrell

testified that “the fact that we were dealing with the person in charge of the company, a person

                                               –9–
that with whatever representations they might make, would have the final say in the matter and

that their word was binding and bound the company to, you know, obligations for the

transaction.” At trial, Martin admitted that he was not the CEO of Synergy and that it would be

“false” if he had in fact represented himself to be the CEO of Synergy while soliciting business

from Merchants.

       After Merchants gave Martin a quote for the Sam’s deal, Martin called Farrell to

negotiate better terms. During the call, Martin represented that Synergy had a thin profit margin;

the initial pricing Farrell offered to them almost made them unable to do the program; and

Synergy needed reduced pricing. Farrell conferred with the president of Merchants who agreed

to the reduced pricing but required information regarding Synergy’s ability to pay for the

services. Farrell went back to Martin and directly asked him, “Mr. Martin, are you able to pay

this bill?” Farrell recounted Martin’s response:

               But I recall him taking the question rather lightly. And he kind of
       chuckled. He said, oh, you don't need to worry about our creditworthiness or our
       ability to make payment. We certainly -- we certainly are able to pay. Money is
       not an issue. We have the money in reserves and assets to make payment and I
       personally assure you that you will get paid. Please don't worry.

During trial, Martin testified Synergy’s margin for the Sam’s deal was actually between 25% and

50% on the final terms.

       Martin personally assured Farrell that: 1) Martin would oversee the transactions between

Merchants and Synergy, 2) Synergy was financially strong and had sufficient revenue and assets

to pay the anticipated charges by Merchants, 3) Synergy would promptly pay Merchants for the

work, and 4) Merchants had Martin’s “personal assurance” that the debt would be paid. Farrell’s

account of these facts was uncontroverted by Martin.

       Farrell testified that Martin’s representations about Synergy’s finances and personal

assurances of payment were material to Merchants’ decision to extend credit to Synergy. Martin

                                               –10–
never denied making the critical representations relating to himself and Synergy’s purported

financial status. Martin never told Farrell that he did not have the authority to pay Merchant’s

bill without the approval of Chuck Clark. In fact, Farrell did not hear the name “Chuck Clark”

until discovery in this lawsuit.

       After Merchants completed their part of the contract with Synergy and had sent numerous

invoices to Synergy totaling $278,452, Synergy only remitted payment of $6,773. Martin blamed

Clark, claiming Clark controlled all financial matters. Martin testified that Clark maintained the

company checkbook in his office, and Clark “handled all the accounts payable, all the accounts

receivable, all the invoicing, all the tax returns, all accounting issues, all payroll, and most of the

major decisions.” It was also established at trial that Martin never asked Clark to see the books or

financials. However, on February 17, 2004, in response to a Merchants’ email inquiring about

payment status of the past-due invoices, Martin stated,

       I apologize for the delay in payment. I certainly understand your desire to collect
       what is owed as I feel the same way about all of our accounts. I was expecting to
       receive full payment from Sam’s Club by this time, but we have not yet received
       this. As S.D.G. is a smaller company, we are unfortunately unable to make
       payment on these invoices until we receive the income from Sam’s Club. Again,
       my apologies for this delay. Hopefully, we will be receiving final payment from
       Sam’s in the next couple of weeks. As soon as we do, all monies owed to U.S.
       Merchants will be paid in full. I appreciate your continued patience, I will let you
       know as soon as payment is sent.

So again, Martin represented that he was aware of the financial situation of Synergy. This

statement was further shown to be deceptive because according to Synergy’s general ledger and

check register, during the 34-day period immediately preceding Martin’s sending of this email,

Synergy made significant cash deposits totaling $864,051.95, including a $232,575.33 cash

deposit noted as “Sam’s payment” on January 15, 2004 and a $631,476.62 cash deposit from

“Sales” on February 12, 2004. Martin never told Farrell that Synergy received full payment from

Sam’s Club.

                                                –11–
       Further, Synergy’s records reveal payments made between January 20, 2004 and

February 12, 2004, listed as shareholder liabilities totaling $454,912.35, including a payment of

$244,912.35 specifically to AOS and $180,000 directly to Martin. Even though Martin blamed

Clark and complains Clark controlled and represented the financial status of Synergy, Martin’s

personal checking account records reflect a deposit in the amount of $207,000 on February 23,

2004, so Martin was aware Synergy had funds available.

       Merchants offered testimony from John Golle, who had prior business dealings with

Martin and Synergy. Golle testified Martin and Clark used Synergy as a corporate shell to avoid

payment of a large debt, which was litigated to judgment, and remains outstanding and unpaid.

Golle produced financial records of Synergy that were obtained during his litigation with

Synergy, and maintained in his company’s business records. Merchants obtained those records

from Golle when, after being ordered by the court to obtains Synergy’s financial records from

Clark, Martin claimed that he could not produce any of Synergy’s financial records because they

had all been “blown away in a hurricane.” Golle testified, “all of my interaction [with Synergy]

was with Mr. Martin, not Mr. Clark.”

       Since Martin was an originating officer of AOS and wholly negotiated the contract with

Merchants, a reasonable and fair-minded person could determine Martin had sufficient control of

Synergy’s operations. Because Martin approached and misrepresented himself to Farrell,

personally enjoyed the financial benefit from the completion of the Sam’s deal, and repeatedly

falsely represented to Merchants that they would be paid, a reasonable and fair-minded person

could have concluded Martin exhibited “dishonesty of purpose or intent to deceive.” See Latham,
320 S.W.3d at 607. This evidence showed Synergy was used to achieve an inequitable result. A

corporation’s limitation on liability can be ignored only “when the corporate form has been used

as part of a basically unfair device to achieve an inequitable result.” Latham, 320 S.W.3d at 610

                                              –12–
(citing SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 451 (Tex. 2008)). We

conclude viewing the evidence in the light most favorable to the verdict and considering all of

the evidence in a neutral light both lead to the same result: the evidence is sufficient to support

the trial court’s finding that Martin engaged in conduct constituting actual fraud. We decide

Martin’s third issue against him.

                                             V. Conclusion

       Having decided Martin’s issues against him, we affirm the judgment of the trial court.

                                                   /Lana Myers/
                                                   LANA MYERS
                                                   JUSTICE
130999F.P05

                                              –13–
                                         S
                               Court of Appeals
                        Fifth District of Texas at Dallas
                                       JUDGMENT

LOUIS MARTIN, JR., Appellant                         On Appeal from the 134th Judicial District
                                                     Court, Dallas County, Texas
No. 05-13-00999-CV         V.                        Trial Court Cause No. 10-15757.
                                                     Opinion delivered by Justice Myers. Justice
U.S. MERCHANTS FINANCIAL GROUP,                      Francis participating.
INC., Appellee

     In accordance with this Court’s opinion of this date, the judgment of the trial court is
AFFIRMED.

        It is ORDERED that appellee U.S. MERCHANTS FINANCIAL GROUP, INC. recover
its costs of this appeal from appellant LOUIS MARTIN, JR..

Judgment entered this 8th day of December, 2014.

                                              –14–