Mayo Marrs Casing Pulling, Inc. v. P&K Equipment, Inc. et al

Filing 45

MEMORANDUM OPINION AND ORDER re: 28 Amended MOTION to Dismiss for Lack of Jurisdiction . The Court DEFERS ruling on Xzeres Holdings' Motion (ECF No. 28) and ORDERS Plaintiff to file a proposed discovery order that details the specifi c, narrowly tailored discovery requested-i.e., interrogatories and/or depositions on identified persons, requests for production, etc.,-that is no more burdensome than necessary on or before August 10, 2020. It is further ORDERED that Xzeres Holdings shall file a response to Plaintiff's proposed discovery order and state that it either (1) agrees to each request or (2) objects to the request, in good faith, detailing its justification for such objection on or before August 17, 2020. (Ordered by Judge Matthew J. Kacsmaryk on 8/4/2020) (awc)

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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
AMARILLO DIVISION
MAYO MARRS CASING PULLING, INC.
f/k/a TSNT ENTERPRISES, INC.,

§
§
§
Plaintiff,
§
§
v.
§
§
P&K EQUIPMENT, INC.,
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P&K WIND ENERGY, LLC,
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XZERES CORP.,
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XZERES HOLDINGS, LLC,
§
XZERES ENERGY SERVICES, INC.
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a/k/a XZERES ENERGY SERVICES CORP., §
§
Defendants.
§

2:20-CV-057-Z-BR

MEMORANDUM OPINION AND ORDER
This is a breach of contract suit involving multiple business entities. Before the Court is
Defendant Xzeres Holdings, LLC’s (“Xzeres Holdings”) Amended Motion to Dismiss for Lack of
Personal Jurisdiction (“Motion”) (ECF No. 28), filed on April 13, 2020. In response, Plaintiff
requests leave to conduct jurisdictional discovery. For the reasons that follow, the Court defers
ruling on the Motion and permits Plaintiff to conduct jurisdictional discovery. Plaintiff shall file a
written document with the Court detailing the specific, narrowly tailored discovery requested—
i.e., interrogatories and/or depositions on identified persons, requests for production, etc.,—on or
before August 10, 2020. Xzeres Holdings shall file a response to the request by August 17, 2020.
I.

BACKGROUND

In 2012, Plaintiff Mayo Marrs (then known as TSNT Enterprises, Inc.,) negotiated with
Defendants P&K Equipment, Inc., and P&K Wind Energy, LLC, (hereinafter “P&K Entities”) for
the purchase and installation of two wind energy turbines and towers in Childress County, Texas.

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The P&K Entities were an authorized dealer for Xzeres Wind Corp. Thereafter, Xzeres Wind
Corp., became Xzeres Corp.,—one of the three remaining Defendants in this case: (1) Xzeres
Corp., (2) Xzeres Holdings, LLC, (“Xzeres Holdings”) and (3) Xzeres Energy Services, Inc.
(“Xzeres Energy”), a.k.a. Xzeres Energy Services Corp. (collectively the “Xzeres Entities”).
Plaintiff alleges that one or more of the Xzeres Entities manufactured the wind towers.
From the outset, Plaintiff began to experience myriad problems with the wind towers. In
2013, Plaintiff filed suit in Texas state court naming Xzeres Energy1 and the P&K Entities as
defendants. On February 25, 2015, the parties entered into a settlement agreement. In accordance
with the settlement agreement, the state court defendants paid Plaintiff a lump sum of $45,000,
reimbursed Plaintiff $4,940 for repairs, and bi-annual inspections of the wind towers occurred until
2019. However, Plaintiff alleges that Defendants failed to comply with a plethora of other
obligations according to the settlement agreement as problems with the wind towers continued.
In early 2016, Xzeres Energy dissolved as a legal entity. Nonetheless, the bi-annual
inspections continued to occur by persons representing themselves as working for “Xzeres.” Over
the next three years, these individuals performed some of the obligations of the settlement
agreement for the now-dissolved entity, Xzeres Energy. These individuals included Mike Ruhl,
Raymond Mendoza, Tyler Melton, John McCoury, and Ben Fleskes (hereinafter referred to as the
“Maintenance Men”). Plaintiff communicated by email with Mike Ruhl, Skyler Landess, David
Hofflich, and a T. Walkowski. Each of these individuals used email addresses that have a domain
of “xzeres.com” and a signature block including “Xzeres Corp. A Ravago Company.”2
Interestingly, Xzeres Corp. maintains that none of these individuals acted as its employees and/or

Although Plaintiff named Xzeres Energy Services Corp., as a defendant in the 2013 state court suit, the entity that
entered into the settlement agreement signed under the name Xzeres Energy Services, Inc.
2 Ravago Holdings America, Inc., is also a member and manager of Xzeres Holdings. ECF No. 10 at ¶ 2.
1

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contractors. But for whom these individuals worked is both enigmatic and crucial to the resolution
of many issues before the Court—issues that cannot be solved without delving into the complex
corporate structures that cloak the Xzeres Entities.
From its formation until December 2015, Xzeres Corp. was a publicly traded company. On
December 11, 2015, Xzeres Holdings was formed “for the purpose of acquiring and holding all of
the issued and outstanding stock of Xzeres Corp.” ECF No. 30 at ¶ 3. On January 1, 2016, Xzeres
Holdings acquired all of the stock and one hundred percent of the membership interest in Xzeres
Corp. The three managers of Xzeres Holdings and the three officers of Xzeres Corp. are the same
individuals. In June 2019, Xzeres Corp.—claiming it was insolvent—filed an Assignment for
Benefit of Creditors (“ABC”) in Delaware. In the ABC, Xzeres Holdings is the only named secured
creditor, holding a security interest against all of Xzeres Corp.’s assets. To make matters more
complex, another entity, Xzeres Assignee, LLC, enters the fray.
While not a party to this case, Plaintiffs allege that Xzeres Assignee, LLC is set to receive
all of Xzeres Corp.’s assets for the benefit of Xzeres Holdings and to the detriment of Xzeres
Corp.’s creditors—i.e., Plaintiff. Plaintiff further alleges that Xzeres Holdings controls Xzeres
Corp. and Xzeres Assignee, LLC to such a degree that there is an alter ego relationship between
the Xzeres Entities. Plaintiff claims that the Xzeres Entities have played a “shell game” with their
corporate structure to avoid liabilities to current and future creditors.
On February 10, 2020, Plaintiff filed this suit in Texas state court, and Xzeres Holdings
removed it to this Court. While the P&K Entities filed an initial Rule 12(b)(6) Motion to Dismiss
(ECF No. 14), it is Xzeres Holdings’ Rule 12(b)(2) Motion (ECF No. 28) that is before the Court
at this time. Although without specificity, Plaintiff requests that the Court grant leave to conduct
jurisdictional discovery into the relationships between the various Xzeres Entities.
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II.

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LEGAL STANDARD

“A district court has broad discretion regarding whether to permit a party to conduct
jurisdictional discovery.” Mary Kay, Inc., v. Agudelo, No. 3:19-CV-3027-D, 2020 WL 1692964,
at *1 (N.D. Tex. Apr. 7, 2020) (Fitzwater, J.) (citing Wyatt v. Kaplan, 686 F.2d 276, 283-84 (5th
Cir. 1982)). The district court may order jurisdictional discovery after the party seeking discovery
makes a “preliminary showing of jurisdiction.” Fielding v. Hubert Burda Media, Inc., 415 F.3d
419, 429 (5th Cir. 2005) (citing Toys “R” Us, Inc. v. Step Two, S.A., 318 F.3d 446, 456 (3d Cir.
2003)). “If a plaintiff presents factual allegations that suggest with reasonable particularity the
possible existence of the requisite contacts . . . the plaintiff’s right to conduct jurisdictional
discovery should be sustained.” Id. (cleaned up).
“Discovery on matters of personal jurisdiction need not be permitted unless the motion to
dismiss raises issues of fact.” Kelly v. Syria Shell Petroleum Dev. B.V., 213 F.3d 841, 855 (5th Cir.
2000) (internal marks omitted) (citing Wyatt, 686 F.2d at 284). “When the lack of personal
jurisdiction is clear, discovery would serve no purpose and should not be permitted.” Wyatt, 686
F.2d at 284. “A court can deny leave to conduct jurisdictional discovery when the movant fails to
specify the facts it believes discovery would uncover and how these facts would support personal
jurisdiction.” Mary Kay, 2020 WL 1692964 at *1 (citing King v. Hawgwild Air, LLC, No. 3:08CV-0153-L, 2008 WL 2620099, at *8 (N.D. Tex. June 27, 2008) (Lindsay, J.)).
III.

ANALYSIS

Xzeres Holdings asserts that it is not subject to personal jurisdiction in the State of Texas.
Plaintiff seeks to establish this Court’s jurisdiction over Xzeres Holdings in two ways: (1) specific
personal jurisdiction; and (2) the alter ego theory of personal jurisdiction. At issue is whether
Plaintiff meets the requisite preliminary showing of jurisdiction to merit discovery. While Xzeres
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Holdings argues that jurisdictional discovery is unnecessary because it has negated any potential
basis for personal jurisdiction as a matter of law, the Court disagrees. The Court concludes that
jurisdictional discovery is necessary on both theories of personal jurisdiction.
A.

Specific Personal Jurisdiction

This Court may have specific personal jurisdiction over Xzeres Holdings. “Specific
jurisdiction exists when the defendant has purposefully directed his activities at residents of the
forum and the litigation results from alleged injuries that arise out of or relate to those activities.”
Clemens v. McNamee, 615 F.3d 374, 378 (5th Cir. 2010) (internal marks omitted) (quoting Burger
King v. Rudzewicz, 471 U.S. 462, 472 (1985)). To merit discovery, Plaintiff need only make a
“preliminary showing of jurisdiction” at this stage in the litigation. Fielding, 415 F.3d at 429. “A
preliminary showing is less than a prima facie showing.” Harvest Nat. Res., Inc. v. Garcia, No. H18-483, 2018 WL 2183968 at *2 (S.D. Tex. May 11, 2018). “Discovery of jurisdictional facts is
appropriate when the existing record is inadequate to support personal jurisdiction and the record
shows that the requested discovery is likely to produce facts needed to withstand a motion to
dismiss.” Premier Polymers, LLC v. Wendt, 2015 WL 6394441, at *1 (S.D. Tex. Oct. 21, 2015)
(citing Monkton Ins. Svcs., Ltd. v. Ritter, 768 F.3d 429, 434 (5th Cir. 2014)).
Plaintiff meets the requisite “preliminary showing of jurisdiction” to be entitled to
discovery on the issue of personal jurisdiction. Fielding, 415 F.3d at 429. Plaintiff alleges that “the
Xzeres Entities sent employees or contractors to inspect and service the two wind towers in
Childress County, Texas throughout 2016, 2017, and 2018.” ECF No. 27, Ex. A at ¶ 5. Xzeres
Holdings contends that it did not employ the Maintenance Men who serviced and maintained
Plaintiff’s wind towers after the dissolution of Xzeres Energy. However, Plaintiff alleges that
“Xzeres Holdings directed . . . the employees of Xzeres Corp. to perform the services required by
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Xzeres Energy in the [settlement agreement] during the times that such services were actually
provided.” ECF No. 24 at ¶ 24. Plaintiff’s Amended Complaint raises issues of jurisdictional fact
that are not resolved by the pleadings and many other issues of fact remain.
These questions include, among others, (1) how the Maintenance Men were paid, (2) where
that money came from, (3) who directed the activities in Childress County, Texas, (4) what is the
relationship between the services performed by the Xzeres Entities and the email communications
with persons employed by “Xzeres Corp. A Ravago Company.” These facts will inform the
Court’s jurisdictional analysis and may be ascertained through discovery.
While Plaintiff’s allegations fall short of the prima facie showing of personal jurisdiction
required to definitively deny Xzeres Holdings’ Motion, they are sufficient to demonstrate that “the
existence of the requisite contacts with Texas is possible.” Mary Kay, 2020 WL 1692964 at *2.
Discovery may reveal that Xzeres Holdings “purposefully directed” activities in Texas through its
involvement in the performance of the settlement agreement. Accordingly, the Court hereby
FINDS that jurisdictional discovery is appropriate on the issue of specific personal jurisdiction.
B.

Alter Ego Theory of Personal Jurisdiction

Additionally, this Court may have jurisdiction over Xzeres Holdings under the alter ego
theory of personal jurisdiction. Due process allows the Court “to exercise personal jurisdiction
over an individual or a corporation that would not ordinarily be subject to personal jurisdiction in
that court when the individual or corporation is an alter ego or successor of a corporation that
would be subject to personal jurisdiction in that court.” Patin v. Thoroughbred Power Boats Inc.,
294 F.3d 640, 653 (5th Cir. 2002). “To succeed under an alter ego theory, the plaintiff seeking to
establish personal jurisdiction must show that the parent controls the internal business operations
and affairs of the subsidiary.” Di Piazza v. Weather Grp. Television, LLC, No. 5:19-CV-060-C,
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2019 WL 8107917, at *3 (N.D. Tex. Sept. 9, 2019) (Cummings, J.) (cleaned up). Here, Plaintiff
need only make a preliminary showing that Xzeres Holdings controls the internal business
operations and affairs of Xzeres Corp.
“To ‘fuse’ the parent company and its subsidiary for jurisdictional purposes, the plaintiffs
must prove the parent controls the internal business operations and affairs of the subsidiary.” BMC
Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 799 (Tex. 2002) (citations omitted). “In
Texas, a subsidiary corporation’s contacts can be imputed to its parent corporation when the
subsidiary ‘is organized and operated as a mere tool or business conduit’ of the parent.” Lloyd's
Syndicate 457 v. Am. Glob. Mar. Inc., 346 F. Supp. 3d 908, 928 (S.D. Tex. 2018) (quoting Capital
Fin. & Commerce AG v. Sinopec Overseas Oil & Gas, Ltd., 260 S.W.3d 67, 85 (Tex. App.—
Houston [1st. Dist.] 2008, no pet.)). But Plaintiff must also show a “plus factor, something beyond
the subsidiary's mere presence within the bosom of the corporate family.” Di Piazza, 2019 WL
8107917, at *3 (cleaned up).
Xzeres Holdings argues that Plaintiff cannot prevail on its alter ego theory of jurisdiction.
However, “jurisdictional veil piercing and substantive veil-piercing involve different elements of
proof.” PHC-Minden v. Kimberly-Clark Corp., 235 S.W.3d 163, 174 (Tex. 2007). The relevant
factors that the Court considers for the jurisdictional veil piercing—i.e., alter ego theory of
jurisdiction—include:
1.
2.
3.
4.
5.

The amount of stock owned by the parent of the subsidiary;
Whether the entities have separate headquarters, directors, and officers;
Whether corporate formalities are observed;
Whether the entities maintain separate accounting systems; and
Whether the parent exercises complete control over the subsidiary’s general policies
or daily activities.

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Freudensprung v. Offshore Tech. Servs., 379 F.3d 327, 346 (5th Cir. 2004) (citing Hargrave v.
Fibreboard Corp., 710 F.2d 1154, 1160 (5th Cir. 1983)); see also Licea v. Curacao Drydock
Co., 952 F.3d 207, 213 (5th Cir. 2015).
Plaintiff contends that it has made sufficient allegations to invoke alter ego jurisdiction
over Xzeres Holdings. ECF No. 40 at 7. These allegations include the following:
1. Xzeres Holdings owns all of the stock in Xzeres Corp.;
2. For the past two years, Xzeres Corp. and Xzeres Holdings have had the same
shareholders, directors, officers, and employees;
3. Xzeres Holdings and Xzeres Corp. share the same headquarters;
4. Xzeres Corp. received its operating capital from Xzeres Holdings;
5. Xzeres Corp. and Xzeres Holdings do not keep separate books and accounts;
6. Xzeres Corp. and Xzeres Holdings have common business departments;
7. Xzeres Holdings directed the day-to-day operations of Xzeres Corp. for at least the
last four years;
8. Xzeres Holdings controlled the internal business affairs of Xzeres Corp.;
9. While Xzeres Holdings may have a different name than Xzeres Corp., they are for all
intents and purposes the same entity; and
10. Xzeres Holdings used Xzeres Corp. to perform the business functions of the Xzeres
trade name in order for Xzeres Holdings to avoid liability.
ECF No. 24 at ¶¶ 23, 25. Defendant Xzeres Holdings contests some of these allegations. See ECF
No. 30 at ¶¶ 5, 7. Defendant submitted two declarations by Jeff Bittenbinder, the Chief Financial
Officer and Treasurer of Ravago Holdings America, Inc. (“Ravago”) and manager of Xzeres
Holdings. ECF No. 10 at ¶ 1; ECF No. 30 at ¶ 1. These two declarations total about four pages in
length. In the second declaration, Defendant asserts that Xzeres Holdings and Xzeres Corp.
maintain separate accounts and books, that Xzeres Holdings does not direct the day-to-day
operations of Xzeres Corp., and that Xzeres Corp. manages its own operations. ECF No. 30, ¶ 5.
Xzeres Holdings relies primarily on three sentences in support of its Motion. These assertions do
not persuade the Court that discovery is unnecessary on the alter ego theory of personal
jurisdiction.

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Plaintiff’s allegations do not definitively establish a case for substantive-veil piercing.
However, there remain too many issues of fact surrounding the relationship between Xzeres
Holdings and Xzeres Corp. for the Court to reject Plaintiff’s request for jurisdictional discovery.
The Court concludes that Plaintiff has met its burden of a “preliminary showing” of personal
jurisdiction under the alter ego theory and should be granted leave to request discovery limited to
the issue of personal jurisdiction over Xzeres Holdings.
IV.

CONCLUSION

Accordingly, the Court DEFERS ruling on Xzeres Holdings’ Motion (ECF No. 28) and
ORDERS Plaintiff to file a proposed discovery order that details the specific, narrowly tailored
discovery requested—i.e., interrogatories and/or depositions on identified persons, requests for
production, etc.,—that is no more burdensome than necessary on or before August 10, 2020. It is
further ORDERED that Xzeres Holdings shall file a response to Plaintiff’s proposed discovery
order and state that it either (1) agrees to each request or (2) objects to the request, in good faith,
detailing its justification for such objection on or before August 17, 2020. See Fiduciary Network,
LLC v. Buehler, 2015 WL 2165953, at *9 (N.D. Tex. May 8, 2015) (Lynn, C.J.).
SO ORDERED.
August 4, 2020.
________________________________
MATTHEW J. KACSMARYK
UNITED STATES DISTRICT JUDGE

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