SAM SPARKS, UNITED STATES DISTRICT JUDGE.
BE IT REMEMBERED on the 20th, 21st, 22nd, and 26th days of October 2015, the Court held a bench trial in the above-style cause, and the parties appeared in person and through counsel. During trial, the Court heard testimony from the following
This is a tale of two men, Roberto Wendt and Richard Heindl, who started a business together: Wendt with a talent for promoting and selling and Heindl with access to valuable patents necessary for operating a successful steel sheet pile connector business. They established PilePro LLC, a limited liability company in name only. The two men disregarded corporate formalities in favor of operating PilePro LLC as a partnership, with each accessing the company's assets for their own use and benefit. As their business grew and became profitable, the two got along well. However, both became greedy and through the use of Chang, tried to secure the business for themselves by ousting the other. The result was litigation in the United States and in Europe which has continued for years and is still proceeding in both forums.
In this acerbic battle between once-close business partners, Wendt and Heindl have involved countless others and have wasted immeasurable time and the profits of what appears to have been a successful business endeavor, all because of each other's greed, distrust, and dislike of the other. The net result is neither could prove credible or specific damages resulting from the allegedly fraudulent transfer of patents from one company owned by Wendt and Heindl to another company owned by Wendt and Heindl. The tortured history of Wendt and Heindl's relationship should serve as a cautionary tale for those seeking economic success without concern for the greed which follows in its wake.
Defendants' counterclaims are largely founded on the disputed ownership of PilePro LLC.
Richard Heindl, a defendant and counter-plaintiff in the present lawsuit, is Wall's nephew. Although Heindl is not an engineer, "Uncle Georg" hired him as a "Director of Research, Development, and Technical Standards" at ISH. Heindl helped ISH obtain financing for its continued production of Modular Connectors and establish a distribution network with companies outside of Germany.
In 2002, while seeking to expand ISH's distribution network in the United States, Heindl met Plaintiff Roberto Wendt.
On October 27, 2003, PilePro LLC purchased the intellectual property rights for the Modular Connectors from Wall.
Defs.' Trial Ex. 501 (emphasis added).
Per § 501 of the 2003 Amendment, Heindl and Wendt were equal shareholders in PilePro Inc. and both Heindl and Wendt served as directors of the corporation. Accordingly, Schedule B of the 2003 Amendment lists the ownership interests in PilePro LLC
PilePro Inc. 69% Robert Youngman 12% Ian Morgan 8% Dalcemy Inc. 5% Mike Feifarek 4% Lee Wolosky 2%
Id. at 22.
Sometime in 2004,
Defs.' Trial Ex. 501 (emphasis added). Because there is no evidence that anyone other than Heindl and Wendt has ever been a stockholder in PilePro Inc., the majority ownership interest in PilePro Inc. remained, in effect, unchanged. Schedule B of the 2004 Amendment did reflect important changes to the remaining 31% membership interest in PilePro LLC:
PilePro Inc. 69% Robert Youngman 4% Youngman Trust 1 4% Youngman Trust 2 4% Ian Morgan 8% Dalcemy Inc. 5% Mike Feifarek 4% Slydee Corp. 2%
Defs.' Trial Ex. 502. The Court finds the 2004 Amendment is the presently controlling Operating Agreement of PilePro LLC. Moreover, Schedule B of the 2004 Amendment reflects a current and accurate representation of the remaining 31% membership interest in PilePro LLC.
Sometime in 2006, PilePro Inc.'s 69% membership interest in PilePro LLC was transferred to Wendt. The parties purportedly agreed to this transfer for the sole purpose of permitting Heindl to form Steelcom Limited (Steelcom), a British limited liability company, after which Wendt was to transfer a 34.5% membership interest in PilePro LLC to Steelcom. Although there is no evidence of a written agreement by which Wendt was to transfer half of his membership interest in PilePro LLC to Steelcom, Heindl has produced evidence that Steelcom paid Wendt $4,579 in cash in February 2007 "for [] 34.5% ownership shares in PilePro LLC." Defs.' Trial Ex. 601. Moreover, an email from PilePro LLC's Chief Financial Officer (CFO), Humphrey Chang, to Wendt establishes that Steelcom held a 34.5% membership interest in PilePro LLC. Defs.' Trial Ex. 516. Indeed, Wendt elicited this information from Chang and forwarded it to Heindl in response to Heindl's inquiry as to his ownership interest in PilePro Sales Corp. Id. After Chang's email, $280,000 was transferred from PilePro LLC to Steelcom. Defs.' Trial Ex. 560. In addition, a Managing Member's resolution, dated July 1, 2008 and electronically signed by Wendt, explained that Wendt was transferring half of his ownership shares in PilePro LLC, representing 34.5% of PilePro LLC, to Steelcom, and that Steelcom's capital account balance reflected the amount of cash listed on the receipt. Defs.' Trial Ex. 602. Furthermore, Wendt signed a Bill of Sale before a South Dakota notary expressly confirming his sale to Steelcom of a 34.5% membership interest in PilePro LLC. Defs.' Trial Ex. 603. Wendt does not dispute that he signed the Bill of Sale before the notary.
In light of the overwhelming evidence indicating Wendt transferred half of his ownership interest in PilePro LLC to Steelcom, the Court finds Steelcom presently owns a 34.5% membership interest in PilePro LLC.
Roberto Wendt 34.5% Steelcom Limited 34.5% Robert Youngman 4% Youngman Trust 1 4% Youngman Trust 2 4% Ian Morgan 8% Dalcemy Inc. 5% Mike Feifarek 4% Slydee Corp. 2%
In April of 2010, Heindl was terminated as the Vice President of PilePro Sales Corp. and Wall-Profile. Soon after, he was ousted as a managing member of PilePro LLC. At trial there was a wealth of evidence establishing that two amendments to PilePro LLC's Operating Agreement — allegedly signed in 2005 and 2007 (2005 Amendment and 2007 Amendment) — were actually signed sometime between September 2010 and March 2011 by Youngman, Mike Feifarek, Morgan, Doudoroff, Matt Feifarek, and Lee Wolosky. These amendments purported to alter the ownership of PilePro LLC, such that Wendt alone owned a 69% interest in PilePro LLC. The effect of these amendments was to oust Heindl as a member of PilePro LLC. The Court will address these backdated amendments below. See infra Conclusions of Law.
Plaintiffs' claims are largely founded on the disputed ownership of Contexo, a company they claim was formed in Europe to hold an unspecified number of PilePro LLC's non-U.S. patents.
Around May 2006, PilePro LLC hired Chang to provide tax and financial planning consulting services, as well as to advise PilePro LLC on complicated legal matters.
Pursuant to Chang's reorganization plan, on December 5, 2007, Chang and Dwight Williams, the United States attorney representing the PilePro entities, traveled to Switzerland to meet with Enrico Farroni and Roland Harzenmozer, individuals retained by PilePro LLC to provide legal and trustee services in connection with Contexo. Soon after, on December 10, 2007, Contexo was formed. Wall-Profile, a wholly owned subsidiary of PilePro Sales Corp. at the time,
As a result of this capital investment, Chang reassured Wendt that all the necessary legal documentation existed establishing PilePro LLC's control over Contexo. Chang also explained to Wendt that Farroni and Harzenmozer were to serve as Contexo trustees, directors, and shareholders of 100 shares of stock each, but that they knew Contexo was formed to operate for PilePro LLC's benefit. As Wendt's story goes, however, Defendants destroyed the documentation proving PilePro LLC's beneficial ownership of Contexo in order to further their conspiracy to defraud Plaintiffs. Even without this documentation, the Court finds that Contexo is wholly or partially owned by PilePro LLC, Enrico Farroni, and Roland Harzenmozer.
After Contexo's formation, Williams drafted a contract purporting to sell PilePro LLC's non-U.S. patents to Contexo, which was circulated to the parties for several months. Wendt, however, claims an agreement was never reached as to the terms of the assignment contract. According to Wendt, Defendant Matthias Weigel, PilePro LLC's former patent attorney,
However, during a meeting held for Contexo on March 25, 2010, an agreement confirming the 2008 transfer of PilePro LLC's non-U.S. patents to Contexo was signed by Heindl and Farroni (Assignment Agreement). Defs.' Trial Ex. 530. It is undisputed that Wendt attended this meeting, and was therefore present when Heindl and Farroni signed this agreement. Moreover, although Wendt did not sign the Assignment Agreement, he signed the minutes from the meetings. Defs.' Trial Ex. 648. By tolerating the signing of the Assignment Agreement and thereafter signing the minutes, the Court finds Wendt impliedly consented to transfer PilePro LLC's non-U.S. patents to Contexo.
Moreover, it is undisputed that during 2008, Contexo paid PilePro LLC $1.88 million,
In July of 2010, PilePro LLC initiated a lawsuit in Switzerland seeking to invalidate the transfer of PilePro LLC's non-U.S. patents to Contexo. PilePro LLC submitted the backdated 2005 Amendment in support of its claim that the transfer of the non-U.S. patents to Contexo was fraudulent. As noted above, this backdated agreement was not signed until at least September 2010, several months after it was submitted to the Swiss court in July of 2010.
In September of 2010, the Swiss court issued a preliminary injunction against Contexo, freezing the non-U.S. patents PilePro LLC transferred to Contexo. That ruling specifically referred to the 2005 Amendment as evidence that Heindl did not have the authority to sign the March 25, 2010 Assignment Agreement on behalf of PilePro LLC. Defs.' Trial Ex. 556 at 24. Because § 5.1 of the 2005 Amendment lists Wendt as the sole "Managing Member" of PilePro LLC, the Swiss Court concluded, "Richard Heindl was not authorized to solely represent [PilePro LLC]" in signing the March 25, 2010 Assignment Agreement. Id.
Nearly five years later, on May 28, 2015, a Swiss court reconsidering the injunction ruled in favor of Contexo and dismissed PilePro LLC's claims. 2015 Swiss Ruling at 32. The Swiss court concluded Contexo was the lawful owner of the non-U.S. patents purchased from PilePro LLC, PilePro LLC knowingly sold the non-U.S. patents to Contexo for $1.88 million, the March 25, 2010 Assignment Agreement was not backdated, and PilePro LLC impliedly or explicitly authorized the transfer of the non-U.S. patents to Contexo. PilePro LLC's appeal of this decision is currently pending in Switzerland.
On September 7, 2012, Plaintiffs PilePro LLC, PilePro Sales Corp., PilePro Inc., PilePro Steel, LP, and Wendt brought a series of civil RICO and state law claims
Plaintiffs seek an award of compensatory and punitive damages, and declarations that (1) Heindl is not and has never been a shareholder in PilePro Inc., (2) Heindl is not and has never been the CEO of PilePro LLC, (3) Heindl did not have authority to transfer or assign the non-U.S. patents owned by PilePro LLC to Contexo, (4) Wendt or PilePro LLC is a stockholder in Contexo, and (5) the "Backdated Assignment" is void. They also seek to divest Defendants of their respective interests in Contexo and Steelwall GmbH, to enjoin them from engaging in the domestic and international connector markets, and a disgorgement of all attorneys' fees paid to Weigel. Finally, Plaintiffs seek a constructive trust in all proceeds from any patent held by any Defendants.
On March 4, 2013, Heindl and Steelcom counterclaimed against Wendt and the remaining members of PilePro LLC: Morgan, Youngman, Youngman Trust 1, Youngman Trust 2, Mike Feifarek, Matt Feifarek, Doudoroff, and Stacie Bryan
Unable to untangle this mess and unclear on the factual determinations, the Court ordered a bench trial, which occurred October 20-22 and 26th, 2015.
Having considered the testimony of the witnesses and the admitted exhibits, the Court now enters the following conclusions of law.
Before reaching the merits of this case, the Court must first ensure it has the authority to exercise jurisdiction over this
The question, therefore, is whether this Court possesses supplemental jurisdiction over Plaintiffs' state law claims after they voluntarily dismissed their federal law claims. In Boelens v. Redman Homes, Inc., the Fifth Circuit distinguished the question at issue today from the rule prohibiting a plaintiff from ousting removal jurisdiction by voluntarily amending the complaint to drop all federal questions. Where the plaintiff, rather than the defendant, invokes the jurisdiction of federal court, the Fifth Circuit concluded "the plaintiff must be held to the jurisdictional consequences of a voluntary abandonment of claims that would otherwise provide federal jurisdiction." 759 F.2d 504, 508 (5th Cir.1985). In this case, there is no amended complaint superseding the original complaint. However, Plaintiffs orally dismissed their federal question claims at trial, to which defense counsel expressly agreed. Based on the reasoning set forth in Boelens, with no federal claim to which the remaining state claims could be supplemental, there can be no supplemental jurisdiction.
Therefore, the only possible basis for subject-matter jurisdiction in this case is diversity.
Federal Rule of Civil Procedure 21 permits a district court to "drop a nondiverse party whose presence is not essential to the suit to preserve and perfect diversity jurisdiction." Aetna Cas. & Sur. Co. v. Hillman, 796 F.2d 770, 774 (5th Cir.1986); see also Newman-Green, Inc., 490 U.S. at 834, 109 S.Ct. 2218 ("[I]t is well settled that Rule 21 invests district courts with authority to allow a dispensable nondiverse party to be dropped at any time."). However, even a cursory inspection of this lawsuit reveals PilePro LLC is not only a necessary party but also an indispensable one. Although all parties would be prejudiced by dismissal of the case after three years of litigation, the prejudice that would result to Defendants from dismissing PilePro LLC alone is overwhelming. Indeed, the Court declines to give PilePro LLC the prodigious advantage of bringing a lawsuit in federal court only to be dissatisfied with its performance at trial, subsequently obtain dismissal of its original claims, and thereafter assert them in state court with full knowledge of Defendants' evidence and how persuasive its evidence was in the Court's eyes. Accordingly, because PilePro LLC is indispensable, the Court is unable to drop the nondiverse party in order to preserve diversity jurisdiction over Plaintiffs' claims.
Although the Court lacks jurisdiction over Plaintiffs' claims, it may retain jurisdiction over Heindl and Steelcom's counterclaims if an independent jurisdictional ground exists for their counterclaims. See Kuehne & Nagel v. Geosource, Inc., 874 F.2d 283, 291 (5th Cir.1989). By dropping Morgan as a counter-defendant under Rule 21, who the parties agree is dispensable,
Moreover, the Fifth Circuit has held, "if a district court retains jurisdiction over the counterclaim, it may permit the dismissed claims to be asserted as counterclaims to the retained claim." McLaughlin v. Mississippi Power Co., 376 F.3d 344, 355 (5th Cir.2004). Although Plaintiffs were not given the opportunity to reassert their claims
Plaintiffs seek an award of compensatory and punitive damages for breach of fiduciary duty against Chang and Weigel,
Plaintiffs claim Defendants Chang and Weigel breached their fiduciary owed to PilePro Sales Corp. and PilePro LLC. Before trial, both parties briefed Texas law, apparently in agreement as to which state's law applied. During and after trial, however, this implicit agreement fell apart, and the parties submitted a flurry of briefing arguing Nevada, Delaware, or Texas law applies to their various state law claims.
In considering the parties' arguments, the Court applies Texas choice-of-law rules. Mayo v. Hartford Life Ins. Co., 354 F.3d 400, 403 (5th Cir.2004) ("[A] federal court exercising diversity jurisdiction must apply the choice of law rules of the forum state, here Texas."). Choice-of-law issues are determined on an issue-by-issue basis. See Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex.1984). In Texas, "the law of the incorporating state governs a corporation's internal affairs." Sommers Drug Stores Co. Emp. Profit Sharing Trust v. Corrigan, 883 F.2d 345, 354 (5th Cir.1989); see also Askanase v. Fatjo, 130 F.3d 657, 670 (5th Cir.1997) ("Federal courts sitting in Texas apply the law of the state of incorporation when a corporation's internal affairs are implicated.").
Because PilePro Sales Corp. is incorporated under the laws of Nevada, Nevada law determines whether Chang
Plaintiffs first claim Chang owed PilePro Sales Corp. a fiduciary duty and breached that duty by (1) advising Wendt to set up PilePro Steel, LP and (2) engaging in a conspiracy defraud PilePro Sales Corp. As a result of Chang's breach of fiduciary duty, Plaintiffs claim PilePro LLC has been damaged in the amount of $8,050,628. To prevail on a breach of fiduciary duty under Nevada law, which determines whether Chang breached a fiduciary duty owed to PilePro Sales Corp., a plaintiff must establish (1) the existence of a fiduciary duty, (2) a breach of that duty, and (3) the breach was the proximate cause of the damages. See Takiguchi v. MRI Intern, Inc., 47 F.Supp.3d 1100, 1120 (D.Nev.2014). While Chang concedes the first element — that he owed a fiduciary duty to PilePro Sales Corp. and PilePro LLC — he nevertheless insists Plaintiffs failed to prove a breach of fiduciary duty, or in the alternative, Plaintiffs failed to prove that they have suffered any damages as a proximate cause of Chang's alleged breach of a fiduciary duty.
The Court agrees that Plaintiffs failed to prove by a preponderance of the evidence that Chang was responsible for the formation of PilePro Steel, LP. Moreover, because the Court finds Plaintiffs have also failed to prove Defendants conspired to defraud PilePro LLC and PilePro Sales Corp., see infra section II.C, the Court concludes Chang has not breached a fiduciary duty to PilePro Sales Corp.
Plaintiffs further claim Chang owed PilePro LLC a fiduciary duty and breached that duty by (1) forging an employment agreement between Heindl and PilePro LLC, (2) filing fraudulent affidavits in German court, (3) creating the backdated 2005 and 2007 Amendments to PilePro LLC's Operating Agreement and persuading Wendt and Counter-Defendants to sign it, (4) signing sworn affidavits claiming Heindl had no interest in PilePro LLC and then stating the opposite after Wendt fired Chang and Chang began working with Heindl, and (5) engaging in a conspiracy defraud PilePro LLC. As a result of Chang's breach of fiduciary duty, Plaintiffs claim PilePro LLC has been damaged in the amount of $8,050,628.
Under Delaware law, which determines whether Chang breached a fiduciary duty owed to PilePro LLC, a plaintiff must prove (1) a fiduciary duty existed and (2) the defendant breached that duty. Beard Research, Inc. v. Kates, 8 A.3d 573, 601 (Del.Ch.2010). At trial, Chang admitted he falsified the employment agreement between Heindl and PilePro LLC, but he maintained Wendt instructed him to do this. Moreover, to the extent Plaintiffs are alleging breach of fiduciary duty on Heindl's behalf, Plaintiffs lack standing to assert this claim. Moreover, Plaintiffs failed to establish by a preponderance of the evidence that Chang hatched the plan to oust Heindl by creating the backdated 2005 and 2007 Amendments, nor have they established that Chang was responsible for
Nevertheless, even if Plaintiffs had established a breach of fiduciary duty to either PilePro Sales Corp. or PilePro LLC, the Court has no basis on which to make a responsible estimate as to the damages. See Beard Research, 8 A.3d at 613 ("[T]his Court may not set damages based on mere `speculation or conjecture' where a plaintiff fails to adequately prove damages."). To prove their damages in the amount of $8,050,628, Plaintiffs relied on expert testimony from Saul Solomon. However, Solomon only testified as to the blanket economic damages sustained by the various PilePro entities as a result of Defendants' unfair competition, which he estimated were in excess of $8 million. Solomon did not even attempt to distinguish the damages caused to PilePro Sales Corp. and PilePro LLC as a result of Chang's alleged breach of fiduciary duty. This wholesale estimation of Plaintiffs' damages provides the Court with nothing more than speculation and conjecture upon which to base a damages award.
Plaintiffs allege Weigel, as PilePro LLC's former patent attorney, owed PilePro LLC a fiduciary duty and breached that by (1) failing to disclose he was representing Heindl and Contexo in matters adverse to PilePro LLC, (2) failing to disclose that he had prepared the Assignment Agreement and subsequently filed it with various European patent offices, (3) affirmatively misrepresenting to Wendt and Williams that he would continue to loyally represent PilePro LLC following Heindl's termination, (4) using confidential information obtained while working for PilePro LLC to draft new patents for the benefit of Contexo, (5) submitting fraudulent affidavits and declarations to German courts, (6) appearing in legal and patent proceedings in Europe to advocate for Defendants in matters adverse to PilePro LLC, and (7) engaging in a conspiracy to defraud PilePro LLC by fraudulently transferring its patents to Contexo. As a result of Weigel's breach of fiduciary duty, Plaintiffs claim PilePro LLC has been damaged in the amount of $8,050,628.
To determine whether Heindl breached his fiduciary duty to PilePro LLC, a plaintiff must prove (1) a fiduciary duty existed and (2) the defendant breached that duty. See Beard Research, 8 A.3d at 601. Weigel does not dispute he owed PilePro LLC a fiduciary duty. Instead, he argues that Plaintiffs have failed to prove a breach of this duty. Weigel began serving as PilePro LLC's patent attorney in 2004 and continued in that capacity until July 4, 2010. Weigel also served as a patent attorney for Contexo. At trial he testified that from March of 2008 to December of 2009, he was paid by Contexo to register Heindl's new non-U.S. patents with Contexo and by PilePro LLC to register Heindl's new U.S. patents with PilePro LLC. Later, Weigel assisted in the transfer of patents from PilePro LLC to Contexo pursuant to the Assignment Agreement. Despite Plaintiffs' knowledge and consent to Weigel's dual role as a patent attorney for both PilePro LLC and Contexo, Plaintiffs now argue Weigel breached a fiduciary duty to PilePro LLC by serving in this dual capacity.
The Court finds Weigel did not breach a fiduciary duty to PilePro LLC by failing to disclose his representation in Contexo in matters adverse to PilePro
Finally, even assuming Plaintiffs had established breach of fiduciary duty, Plaintiffs' blanket assertion that it suffered $8,050,628 in aggregate damages as a result of Weigel's breach of fiduciary duty, Chang's breach of fiduciary duty, Defendants' fraud, and their conspiracy to defraud is unconvincing, and once again prevents the Court from making a responsible estimate as to the actual damages suffered by Plaintiffs due to Weigel's alleged breach of fiduciary duty.
In Texas, courts only undertake a choice-of-law analysis if there is a conflict of law affecting the outcome of an issue. See Duncan, 665 S.W.2d at 419. The party asserting a conflict with Texas substantive law must demonstrate the existence of a true conflict. Greenberg Traurig of N.Y., P.C. v. Moody, 161 S.W.3d 56, 70 (Tex.App. — Houston [14th Dist.] 2004, no pet.). Absent such a demonstration, Texas law applies. Id. Neither party disputes that Texas law governs Plaintiffs' fraud claims against Defendants. See Pls.' Proposed Findings of Fact and Conclusions of Law [#146] ¶ 102 (citing Texas cases); Defs.' Proposed Findings of Fact and Conclusions of Law [#152] at 6 (failing to dispute that Texas law applies to Plaintiffs' fraud claims). Because neither party has demonstrated that Texas law conflicts with other potentially applicable laws, this Court need not undertake a choice-of-law analysis, and Texas law will govern Plaintiffs' fraud claims. See, e.g., Flagship Credit Corp. v. Indian Harbor Ins. Co., 481 Fed.Appx. 907, 910 (5th Cir.2012) (applying Texas law because the defendant failed to argue that Pennsylvania law differed from Texas law).
Plaintiffs claim Chang and Heindl engaged in fraud by representing to Wendt that Contexo was a company set up for the benefit of PilePro LLC and creating the allegedly fraudulent Assignment Agreement. In addition, Plaintiffs claim Weigel, along with Heindl and Chang, fraudulently transferred PilePro LLC's non-U.S. patents to Contexo without Wendt's permission. In Texas, commonlaw fraud occurs when: (1) the defendant made a representation to the plaintiff; (2) the representation was material; (3) the representation was false; (4) when the defendant made the representation, the defendant (a) knew the representation was
Plaintiffs have failed to establish their claims under Texas law. First, because the Court finds the Assignment Agreement was valid, Chang, Heindl, and Weigel cannot be liable for their involvement in creating and executing this agreement. Second, even assuming Chang and Heindl misrepresented PilePro LLC's status as the beneficial owner of Contexo — which the Court does not concede — Plaintiffs have failed to establish by a preponderance of the evidence the damages suffered as a result of Defendants' alleged fraud.
Plaintiffs allege Defendants conspired to defraud "PilePro" — presumably PilePro LLC — of its interest in Contexo and the non-U.S. patents transferred to Contexo. Under Texas law, which the parties do not dispute governs resolution of this issue, the elements of civil conspiracy in Texas are: "(1) two or more persons; (2) an object to be accomplished; (3) a meeting of the minds of the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as a proximate result." Wackman v. Rubsamen, 602 F.3d 291, 408 (5th Cir.2010) (quoting Tri v. J.T.T., 162 S.W.3d 552, 556 (Tex.2005)). A civil conspiracy requires specific intent. Triplex Commc'ns, Inc. v. Riley, 900 S.W.2d 716, 729 (Tex.1995).
Plaintiffs' conspiracy allegations fail to satisfy even a generous reading of the elements of conspiracy. Plaintiffs have not established that Heindl, Chang, and Weigel even entered into an agreement, much less that they were aware of the "wrongful conduct at the inception of the [purported] combination or agreement." Id. at 719. Indeed, the testimony at trial revealed Weigel and Chang did not meet until sometime in 2010, a fact which casts doubt on Plaintiffs' allegation that Weigel and Chang conspired to defraud PilePro LLC in 2008. Moreover, to constitute a conspiracy, two or more persons must combine "to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means." See In re Enron Corp. Sec, Derivative & ERISA Litig., 623 F.Supp.2d 798, 808 (S.D.Tex.2009). Because the Court finds the transfer of patents from PilePro LLC to Contexo was valid, Plaintiffs' claim must fail, because a conspiracy claim cannot be predicated on a lawful act accomplished in a lawful manner.
Wendt claims that on September 21, 2009, he paid the Tilton School in New Hampshire $101,043.01 in order for Heindl's children to attend this private boarding school (School Loan). Around the same time, Heindl purportedly asked for a $7,000 loan on behalf of his brother (Brother Loan). Wendt claims Heindl falsely represented he would repay both the School and Brother Loans, and he made these representations with the intent to deceive Wendt. Wendt claims he relied on these representations and therefore is entitled to recover damages.
At trial, Heindl testified a PilePro entity, not Wendt, paid for his children to attend the Tilton School. However, Wendt produced a check written from Wendt's USBank account made out to Heindl in the amount of $100,043.01, which listed the purpose of the check as "Simone and Lucas Heindl." Pls.' Trial Ex. 190. This check
Heindl and Steelcom allege Wendt and Counter-Defendants are liable for breach of fiduciary duty, conversion, and breach of contract. Heindl also seeks injunctive and declaratory relief determining Heindl is the owner of the CFC 90 patent, identified as USPTO Patent No. 8055481.
Heindl and Steelcom allege three causes of actions against Wendt and Counter-Defendants based on breach of fiduciary duty: (1) Heindl alleges Wendt and the Counter-Defendants owed him fiduciary duties as shareholders of PilePro Sales Corp. and breached these duties by engaging in a conspiracy to oust Heindl from PilePro Sales Corp.; (2) Heindl and Steelcom allege Wendt and Counter-Defendants owed them fiduciary duties as members of PilePro LLC and breached these duties by engaging in a conspiracy to oust Heindl from PilePro LLC; and (3) Heindl alleges Wendt breached his fiduciary duty owed to Heindl as a shareholder of PilePro Sales Corp. by transferring the assets of PilePro Sales Corp. to PilePro Steel, LP.
According to Heindl's first theory of breach of fiduciary duty, Wendt and Counter-Defendants,
Although Heindl and Steelcom's convoluted post-trial filings obscure the basis of their breach of fiduciary duty claims, it is clear from their counterclaim and proposed findings of fact and conclusions of law that the first two claims of breach of fiduciary duty are predicated on an alleged conspiracy to defraud Heindl and Steelcom.
Because PilePro Sales Corp. was incorporated in Nevada, under the internal affairs doctrine, Nevada law governs this dispute. Under Nevada law, "[a]ctionable civil conspiracy arises where two or more persons undertake some concerted action with the intent to accomplish an unlawful objective for the purpose of harming another, and damage results." Guilfoyle v. Olde Monmouth Stock Transfer Co., 335 P.3d 190, 198-99 (Nev.2014). Thus, in order to prevail, a plaintiff must provide evidence of "an explicit or tacit agreement between the alleged conspirators." Id.
Heindl has failed to produce sufficient evidence from which the Court can reasonably infer Counter-Defendants agreed and intended to harm Heindl. Indeed, at trial, the counter-defendants each testified they did not sign the backdated 2005 and 2007 Operating Agreements, which effectively ousted Heindl from PilePro LLC, with the intent to defraud Heindl. Moreover, Heindl has not provided the Court with any measurable basis for establishing damages. Accordingly, neither Wendt nor the counter-defendants may be held liable on Heindl's first claim for breach of fiduciary duty, because Heindl has failed to establish the necessary predicate of conspiracy upon which his first claim for breach of fiduciary duty rests.
As to Heindl and Steelcom's second claim of breach of fiduciary duty, Delaware law governs. In Delaware, a civil conspiracy requires "(1) [a] confederation or combination of two or more persons; (2) [a]n unlawful act done in furtherance of the conspiracy; and (3) [a]ctual damage." In re Am. Int'l Grp., Inc., 965 A.2d 763, 805 (Del.Ch.2009). It also requires knowledge of the conspiracy. See In re Asbestos Litig., 509 A.2d 1116, 1120 (Del.1986) (requiring at least "knowing participation"). While the evidence adduced at trial clearly establishes that Counter-Defendants signed the backdated 2005 and 2007 amendments to PilePro LLC's Operating Agreement, there is no evidence that they did this with the intention to harm Heindl. Each Counter-Defendant testified that they signed the operating agreement simply because Wendt, the company's President, requested them to. While Wendt may have harbored deleterious motives, his intent
Heindl finally claims Wendt, as President of PilePro Sales Corp., breached the fiduciary duty he owed Heindl by converting the assets of PilePro Sales Corp. for his own personal benefit or for the benefit of PilePro Steel, LP. According to Heindl, "[t]he tortious conversion of the assets ... of PilePro Sales Corp. by Wendt ... for the apparent purpose of obliterating the value of PilePro Sales Corp., and, in addition, decimating any shareholder interest Heindl has in PilePro Sales Corp. is a breach of fiduciary duties that Wendt ... owe to Heindl." Counterclaim [#28] ¶ 64.
Clearly, Wendt, as the President of PilePro Sales Corp., owed Heindl a fiduciary duty. See W. Indus., Inc. v. Gen. Ins. Co., 91 Nev. 222, 533 P.2d 473, 476 (1975) ("Certainly, a corporate officer and director has a fiduciary relationship with his corporation, ... and thus owes a duty of good faith, honesty, and full disclosure."). However, because this breach of fiduciary duty claim is predicated on Heindl's conversion claim, and the Court finds Heindl has failed to establish conversion, this claim must fail. See infra section III.B.
Heindl brings this conversion claim against Wendt, alleging Wendt converted assets of PilePro Sales Corp. to use for his own personal benefit and for the benefit of PilePro Steel, LP. Specifically, Heindl claims Wendt transferred Modular Connectors and other assets belonging to PilePro Sales Corp. to his personal residence for use as inventory in the new PilePro entity, PilePro Steel, LP. He also alleges Wendt transferred cash from PilePro Sales Corp. for the purchase and renovation of a personal residence, which is held solely in Wendt's name.
To establish a claim for conversion of personal property under Texas law,
While the Court finds that Heindl is a shareholder of PilePro Sales Corp. and therefore is legally entitled to his proportional share of the company, there is a dearth of evidence establishing that PilePro Sales Corp.'s inventory and cash assets were transferred to PilePro Steel, LP. Wendt testified that PilePro Steel, LP was created to "have another sales company in
Because Heindl failed to prove Wendt transferred PilePro Sales Corp.'s assets to PilePro Steel, LP, the Court declines to grant Heindl a proportional interest in PilePro Steel, LP or a constructive trust in its assets.
Steelcom brings this breach of contract claim against Wendt and Counter-Defendants, alleging they breached express provisions of the PilePro LLC's 2004 Operating Agreement by conspiring to oust Steelcom from PilePro LLC and violating provisions of the Operating Agreement by taking certain actions which require the approval of at least eighty percent of the ownership interest in PilePro LLC.
Under Delaware law, which governs the claim pursuant to a choice-of-law provision in the 2004 Operating Agreement, the elements of a breach of contract claim are: 1) a contractual obligation, 2) a breach of that obligation by the defendant, and 3) a resulting damage to the plaintiff See Newport Disc, Inc. v. Newport Elecs., Inc., No. N12C-10-228 MMJ CCLD, 2013 WL 5797350, at *3 (Del. Oct. 7, 2013); Defs.' Trial Ex. 502; DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 678 (Tex.1990) (citing RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(2)).
Even if the Court was to find Wendt and Counter-Defendants breached an obligation imposed by the 2004 Operating Agreement, Steelcom cannot prevail on its claim because it failed to prove damages. "The law does not require certainty in the award of damages when a wrong has been proven and injury established. Responsible estimates that lack mathematical certainty are permissible so long as the Court has a basis to make a responsible estimate of damages." All Pro Maids, Inc. v. Layton, No. Civ.A. 058-N, 2004 WL 1878784, at *11 (Del.Ch. Aug. 9, 2004). In this case, Steelcom fails to provide any measureable basis for calculating damages. Its expert witness only testified to the damages suffered by Steelcom in the aggregate as a result of Counter-Defendants'
Heindl seeks injunctive and declaratory relief determining that the CFC 90 patent, identified as USPTO Patent No. 8055481, belongs to Heindl, and Wendt, by registering it in PilePro Sales Corp.'s name, committed fraud. See Defs.' Trial Ex. 642. However, there is a dearth of evidence establishing that the registration of the CFC 90 patent in PilePro Sales Corp.'s name was fraudulent. Because the Court finds Heindl failed to prove Wendt fraudulently registered this patent, the Court declines to grant Heindl injunctive or declaratory relief.
Accordingly,
IT IS FURTHER ORDERED that Counter-Plaintiff Heindl was a 34.5% member of PilePro LLC until his interest was transferred to Counter-Plaintiff Steelcom Limited;
PilePro Sales Corp., which was incorporated in Nevada in 2007, was to serve as the United States operating arm for the PilePro entities. PilePro LLC in turn was to serve as a holding company for the intellectual property rights of the various PilePro entities. The parties do not dispute the ownership of PilePro Sales Corp., which has not changed since its formation in 2007:
Richard Heindl 34.5% Roberto Wendt 34.5% Youngman 7.75% Youngman Trust 1 7.75% Youngman Trust 2 7.75% Mike Feifarek 7.75%
However, in their counterclaims, Heindl and Steelcom allege conversion against Wendt for allegedly transferring PilePro Sales Corp.'s assets to PilePro Steel, LP, which Wendt formed sometime in 2010.
The Court notes that as executives of PilePro LLC, Wendt and Heindl maintained bifurcated responsibilities. Heindl was involved in the invention and design of new steel sheet pile connectors, while Wendt was responsible for the company's North American operations and marketing strategies. See, e.g., Defs.' Trial Ex. 500 at 39.
In the alternative, even if the Swiss judgment is entitled to preclusive effect, that judgment is consistent with the Court's findings to the extent it relates to the valid transfer of patents from PilePro LLC to Contexo.
To be clear, the causes of actions alleged in Heindl and Steelcom's complaint, which the Court considers today, are breaches of fiduciary duty predicated on a conspiracy to defraud. They specifically claim damages "[b]y reason of [Counter-Defendants'] breaches of fiduciary duties." Counterclaim [#28] ¶ 57. They did not plead causes of action for conspiracy or fraud. As a result, the parties' briefing on the statute of limitations for conspiracy and fraud misses the mark.
