Rabin v. McClain, Sr. et al
ORDER GRANTING 65 Motion for Default Judgment. Signed by Judge Xavier Rodriguez. (rf)
UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
ELEANOR Z. RABIN
DOUGLAS A. MCCLAIN, SR., ARGYLL
BIOTECHNOLOGIES, LLC, PADMORE
HOLDINGS, LTD., JAMES T. MICELI,
DOUGLAS A. MCCLAIN, JR. ARGYLL
EQUITIES, LLC, SW ARGYLL
INVESTMENTS, LLC, and ARGYLL
§ Civil Action No. SA-10-CV-981-XR
Before the Court is Plaintiff Eleanor Z. Rabin’s motion for default judgment. After due
consideration of the relevant law, the Court GRANTS the motion and ENTERS default judgment
against Defendants Douglas A. McClain Sr., Douglas A. McClain Jr., James T. Miceli, Argyll
Equities, LLC, Argyll Biotechnologies, LLC, Padmore Holdings, LTD., Argyll Aviation, LLC, and
SW Argyll Investments, LLC.
This matter stems from claims arising out of Defendants’ allegedly fraudulent sale of stock.
Plaintiff alleges that Defendants Miceli, McClain Sr., and McClain Jr. began defrauding investors
through stock sales after working together at an entity known as International Profit Associates
(“IPA”) in Illinois.1 Plaintiff alleges that through IPA, McClain Sr. became involved with a public
entity known as Nextpath Technologies, and began selling large volumes of stock to investors based
on false information for approximately $6,000,000.2 Plaintiff alleges that after McClain Sr.’s
involvement with Nextpath, McClain Sr., McClain Jr., and Miceli left IPA and used money from the
sale of Nextpath stock to finance the start of a new entity, FIT Management.3
Plaintiff alleges that FIT Management financed the start of an entity known as Argyll
Equities, which had the appearance of a legitimate financial/stock lender “but operated more akin
to a Ponzi scheme.”4 Plaintiff alleges that Argyll Equities financed the start up of Argyll
Biotechnologies, and that Argyll Equities and/or Argyll Biotechnologies financed the start up of
Immunosyn.5 Plaintiff asserts that through those entities, Miceli and McClain Jr. financially control
Plaintiff’s Third Amended Complaint, ¶ 26. Plaintiff asserts that in January 1999, Miceli,
McClain Sr., and McClain Jr entered into a partnership agreement “for the purpose of devising,
creating, designing, pursuing, formulating, enacting and engaging in all companies, corporations,
partnerships or legal entities which are or have been or will be used by the parties for the purpose
of creating any income or tangible item recognized as having value foreign or domestic” with a
term of “fifteen years.” Id. at ¶ 24.
Id. at ¶¶ 27-31. Plaintiff alleges that two individuals who were promised unrestricted
stock in Nextpath, but only received restricted stock, filed an action against McClain Sr. in the
United States District Court for Massachusetts, resulting in a judgment against him for
$4,500,000. Id. at ¶¶ 28-32. Plaintiff also alleges that Miceli was convicted of felony
laundering, forgery, perjury, and theft over $100,000 in the State of Illinois. Id. at ¶ 25.
Id. at ¶¶ 33-35
Id. at ¶ 34-37. Plaintiff asserts that because of numerous civil judgments against Argyll
Equities and FIT Management, McClain Sr. did not publically own Argyll Equities, but instead
operated the company as a consultant and secret owner. Id. at ¶ 35.
Id. at ¶ 40. Plaintiff alleges that Argyll Biotechnologies was formed because numerous
persons brought civil suits against Argyll Equities, and that as a result Argyll Equities’ reputation
as a reputable and financially stable company deteriorated. Id. at ¶ 39.
Plaintiff alleges that Argyll Biotechnologies claimed to own, develop, and promote a drug
called SF-1019, and that Immunosyn claimed in its SEC filings and website to have the exclusive
rights to sell SF-1019.7 Plaintiff alleges that McClain Sr., McClain, Jr., and Miceli devised a scheme
wherein they would associate and befriend persons in local communities and provide them false
information to sell Immunosyn stock in exchange for commission and/or gifted stock.8
Plaintiff alleges that McClain Sr. recruited her boyfriend to sell shares of Immunosyn, and
that she learned about the drug SF-1019 from him.9 Plaintiff, who suffers from a neurological
disorder, alleges that after learning of the drug, she called McClain Sr. from Florida to ask if it could
be used to treat her illness.10 Plaintiff asserts that McClain Sr. informed her that the drug would help
her condition and that he would send her some vials for a doctor to administer.11 He also allegedly
informed her that SF-1019 had FDA approval in Utah.12 Plaintiff states that during the call she asked
Argyll Equities, Argyll Investments, and Argyll Biotechnologies are Texas limited
liability companies of which Miceli and McClain Jr. are each 50% owners and officers. Id. at ¶
Id. at ¶¶ 41-42. Plaintiff alleges that during at least 2008, Argyll Biotechnologies
contracted with Iso-Tex Diagnostics, located in Friendswood, Texas, to manufacture SF-1019
and that it was then distributed and administered to patients through various doctors. Id. at ¶
15b. Plaintiff also alleges that Miceli and McClain Sr. were personally involved in the
development of media statements and promotional statements made on their companies’ websites
concerning SF-1019. Id. at ¶ 46.
Id. at ¶¶ 56-59
Id. at ¶ 64.
Id. at ¶ 65.
Id. at ¶ 66.
Id. at ¶ 66.
if she could purchase some of Immunosyn’s stock and McClain Sr. told her that she could.13
Plaintiff asserts that she understood that McClain Sr. worked for Argyll Biotechnologies and that his
family owned the company.14
Plaintiff alleges that in December 2006 she telephoned McClain Sr. from Florida and
informed him that she intended to sell her condo for $80,000 and that she would like to invest the
money in order to obtain enough money to buy another home.10 She claims that she sought advice
from McClain Sr. on investing this money in Immunosyn and he told her that she could buy shares
at $1 per share and that Immunosyn was soon going public on the NASDAQ at $15 per share.11
Plaintiff alleges that McClain Sr. told her that if she sent him the $80,000 he would send her the
stock before it went public and that she would “become a millionaire” from this investment.12
Plaintiff states that she informed McClain Sr. that the $80,000 was all the money she had in the
world and that he told her the money was “guaranteed safe.”12
Plaintiff alleges that during phone calls with McClain Sr. in December 2006 and January
2007, McClain Sr. told Plaintiff that the stock was coming from his family trust.13 Plaintiff alleges
that this information was false and that the stock actually came from another entity known as
Id. at ¶ 67.
Id. at ¶ 67.
Id. at ¶ 68.
Id. at ¶ 68.
Id. at ¶ 70.
Id. at ¶ 69.
Id. at ¶ 72.
Padmore Holdings, that is partly owned by McClain Sr., McClain Jr., and Miceli.14 Plaintiff states
that in January 2007, she sent $80,000 to the bank account of McClain Sr.’s mother.14 Plaintiff
alleges that McClain Sr. received Plaintiff’s $80,000 prior to Immunosyn going public, but that he
did not send her the stock certificates until January or February 2008.15 Plaintiff alleges that
McClain Sr. told her that he did not send her the shares right away because he did not want her to
sell them on the open market.16 By the time Plaintiff received the stock, Immunosyn had gone
public at $15 per share but had significantly decreased in value.17 Upon receipt of the stock, Plaintiff
sold some shares immediately because she was desperate for money.18 However, Plaintiff alleges
she retained the majority of her shares because McClain Sr. told her not to sell her stock because it
would go back to $15 per share after SF-1019 received nation-wide approval by the FDA and was
approved for use in Malaysia.16 Plaintiff held on to the stock but it continued to decline in value.17
Plaintiff finally sold her shares on the OTC for $0.12 per share.16 Plaintiff asserts that the stock was
Id. at ¶ 73. Plaintiff alleges that Padmore Holdings is a British Virgin Islands entity
with agents located in San Antonio and Houston, Texas. Id. at ¶¶ 16, 17. Plaintiff asserts that
Miceli is 45% owner, McClain Jr. is 45% owner, and that McClain Sr. is 10% owner. Id.
Id. at ¶ 71.
Id. at ¶ 74.
Id. at ¶ 75.
Id. at ¶¶ 76-77.
Id. at ¶ 77.
Id. at ¶ 77.
Id. at ¶ 79.
Id. at ¶ 79.
never listed on the NASDAQ and never received FDA approval anywhere.18 She purports to have
Plaintiff filed suit in this Court alleging that the Defendants, personally, through agents, and
through other entities that they control, engaged in false and misleading promotion of Immunosyn
stock, for financial gain, to the detriment of others from April 2007 through the present totaling more
Plaintiff further alleges that McClain Sr., McClain Jr., and Miceli control the
corporate Defendants and have purposefully stripped some of them of assets, regularly transfered
funds between entities, failed to segregate personal assets from business assets, and failed to
maintain corporate formalities.
On December 7, 2010, Rabin filed a complaint against Douglas McClain Sr, Argyll
Biotechnologies, and James Miceli for violation of the Securities Exchange Act, fraud and fraud in
the inducement, breach of contract, violation of the Racketeer Influenced and Corrupt Organizations
Act (RICO), conspiracy to violate RICO, and civil conspiracy. (Docket No. 1). Plaintiff filed an
amended complaint on February 24, 2011, adding Padmore Holdings as a defendant. (Docket No.
3). On May 3, 2011, the Defendants filed answers. (Docket Nos. 8-11). On June 14, 2011, Plaintiff
filed a Second Amended Complaint adding Douglas McClain Jr. as a defendant. (Docket No. 30).
The defendants filed timely answers to Plaintiff’s Second Amended Complaint. (Docket Nos. 42-46).
Id. at ¶ 79.
Id. at ¶ 79.
Id. at ¶¶ 43, 45. Plaintiff alleges that the scheme is similar to McClain Sr.’s false and
misleading promotion of Nextpath stock. Id.
On August 23, 2011, Defendants’ counsel filed a motion to withdraw as counsel of record,
alleging that a personality conflict had arisen and Defendants had not fulfilled their financial
obligations. (Docket No. 49). The Court granted the motion on August 25, 2011, and ordered the
corporate Defendants to obtain legal counsel and cause them to enter an appearance within thirty
days. (Docket No. 53). The corporate Defendants did not cause an attorney to enter an appearance.
On October 6, 2011, Plaintiff filed a Third Amended Complaint adding Argyll Equities,
Argyll Investment, and Argyll Aviation as defendants. (Docket No. 58). The summonses were
returned executed on November 15, 2011, but to this date these Defendants have not filed answers.
(Docket Nos. 62-64). On November 15, 2011, Plaintiff filed a motion for default judgment. (Docket
No. 65). On January 25, 2011, the Court issued an order directing the Defendants to advise this
Court of the status of the case and to show cause for why a default judgment should not be entered
against them. (Docket No. 69). On February 2, 2012, McClain Jr. filed a motion requesting an
additional thirty days to obtain legal counsel, which the court granted. (Docket Nos. 71, 74). To this
date, none of the Defendants have caused an attorney to enter an appearance on their behalf, nor have
they apprised the Court of the status of the case.
Pursuant to FED . R. CIV . P. 55(a), a default judgment is proper “[w]hen a party against whom
a judgment for affirmative relief is sought has failed to plead or otherwise defend.”21 However, in
considering any motion for default judgment, a court must examine jurisdiction, liability, and
damages. The Court examines each in turn.
FED . R. CIV . P. 55(a).
When a party is seeking entry of default under Rule 55, “the district court has an affirmative
duty to look into its jurisdiction both over the subject matter and the parties.”22 Federal courts have
subject matter jurisdiction over any civil actions that involve a question of federal law, or where
there is diversity of citizenship between the parties and the amount in controversy exceeds $75,000.23
For purposes of determining diversity of citizenship, “a corporation shall be deemed to be a citizen
of any State by which it has been incorporated and of the State where it has its principal place of
In this case, the original action was brought in federal court by the Plaintiff pursuant to the
Securities Exchange Act of 1934, 15 U.S.C. §78t, and the RICO statute 18 U.S.C. § 1964 et. seq.25
Thus, Plaintiff asserts claims involving federal questions against all named Defendants in the case.26
Though not necessary, the parties also are diverse,27 and the amount in controversy claimed by
System Pipe & Supply, Inc. v. M/V Viktor Kurnatovskiy, 242 F.3d 322, 324 (5th Cir.
2001) (quoting Williams v. Life Savings and Loan, 802 F.2d 1200, 1203 (10th Cir. 1986)).
28 U.S.C. §§ 1331, 1332.
28 U.S.C. § 1332(c)(1).
Third Amended Complaint, ¶11. See 28 U.S.C. §§ 1331 (“The district courts shall
have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the
Third Amended Complaint, ¶11. Plaintiff also alleges common law causes of action
against Defendants. A district court has supplemental jurisdiction over “claims that are so related
to claims in the actions within...original jurisdiction that they form part of the same case or
controversy.” 28 U.S.C. § 1367(a).
See Third Amended Complaint, ¶¶ 1-10 (stating where parties to the suit reside).
Plaintiff Eleanor Z. Rabin exceeds $75,000.28 Therefore, this Court has subject matter jurisdiction
over the cause of action brought by Plaintiff.
With regard to personal jurisdiction over nonresident defendants, a federal court “may assert
jurisdiction if (1) the state’s long-arm statute applies...and (2) if due process is satisfied.”29 In Texas,
the long-arm statute permits the exercise of jurisdiction over a nonresident to the full extent
compatible with federal mandates of due process.30 Thus, personal jurisdiction is proper when two
requirements are met.
“First, the nonresident defendant must have ‘purposefully availed himself of the benefits and
protections of the forum state by establishing minimum contacts with that forum state.’”31 To
establish “minimum contacts,” it is sufficient to show that the defendant has contacts giving rise to
either specific or general personal jurisdiction.32 “Specific jurisdiction is appropriate when the
nonresident defendant’s contacts with the forum state arise from, or are directly related to, the cause
of action.”33 On the other hand, general jurisdiction is proper “even if the...contacts with the forum
Id. at ¶¶ 79, 85, 92, 98, 110, 117, 125, 128 (requesting lost profits of over $75,000);
see 28 U.S.C. § 1332 (providing the diversity and amount in controversy requisites for a district
court to have original jurisdiction over a civil action in the absence of a federal question).
Johnston v. Multidata Sys. Int’l Corp., 523 F.3d 602, 609 (5th Cir. 2008) (quoting
Cycles, Ltd. v. W.J. Digby, Inc., 889 F.2d 612, 616 (5th Cir. 1989)).
Id. (citing Ruston Gas Turbines, Inc. v. Donaldson Co., 9 F.3d 415, 418 (5th Cir. 1993);
Wilson v. Belin, 20 F.3d 644, 647 (5th Cir. 1994)).
Felch v. Transportes Lar-Mex SA DE CV, 92 F.3d 320, 323 (5th Cir. 1996) (quoting
Wilson v. Belin, 20 F.3d 644, 647 (5th Cir. 1994)).
Id. (quoting Wilson, 20 F.3d at 647).
Wilson v. Belin, 20 F.3d 644, 647 (5th Cir. 1994) (citing Helicopteros Nacionales de
Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984); Bullion v. Gillespie, 895 F.2d 213,216 (5th
state are not directly related to the cause of action, [as long as] the defendant’s contact with the
forum state are both ‘continuous and systematic.’”34
The second requirement is that “the exercise of jurisdiction over the nonresident defendant
must not ‘offend traditional notions of fair play and substantial justice.’”35 In making such a
determination of “fairness,” courts “consider (1) the burden upon the nonresident defendant; (2) the
interests of the forum state; (3) the plaintiff’s interest in securing relief; (4) the interstate judicial
system’s interest in obtaining the most efficient resolution to controversies; and (5) the shared
interest of the several States in furthering fundamental substantive social policies.”36
As an initial matter, Defendants McClain Sr., Argyll Biotechnologies, Padmore Holdings,
McClain Jr. and Miceli have waived any objection to personal jurisdiction by making an answer to
Plaintiff’s complaints.37 However, as noted below, this Court also has jurisdiction over them based
on minimum contacts.
First, it is clear that this Court has personal jurisdiction over Defendant Douglas A. McClain,
Sr. because he is a resident of Texas. In addition, as Texas limited liability companies, it also is clear
that this Court has personal jurisdiction over Defendants Argyll Equities LLC, Argyll
Id. (citing Helicopteros, 466 U.S. at 414 n.9).
Felch, 92 F.3d at 323 (quoting Wilson, 20 F.3d at 647).
Bullion v. Gillespie, 895 F.2d 213, 216 n.5 (5th Cir. 1990) (citing Asahi Metal Indus.
Co. v. Superior Court, 480 U.S. 102, 113 (1987)).
Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640, 653 (5th Cir. 2002).
Biotechnologies LLC, and SW Argyll Investments, LLC.38
Plaintiff then argues that the remaining nonresident Defendants have sufficient contacts with
Texas for the Court to exercise personal jurisdiction over them. While Argyll Aviation, LLC is an
Oregon company with its principal place of business in California, it is alleged to be the alter ego
of Douglas A. McClain, Sr. who is a resident of Texas.39
courts have consistently
acknowledged that it is compatible with due process for a 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.”40
As to Padmore Holdings, Plaintiff alleges that, as part of the same fraudulent scheme
perpetrated upon the Plaintiff, shares of Immunosyn stock were gifted and sold through Padmore
Holdings to numerous Texas residents.41 Plaintiff further claims that this was done to avoid taxes
and trading disclosures.42 Plaintiff also alleges that Padmore has a registered agent in the state of
Texas43 and employs an additional agent in Texas, who is a director of Padmore and likely the
Third Amended Complaint, ¶¶ 3,8-9.
Id. at ¶¶ 5,10,54.
Patin v. Thoroughbred Power Boats Inc., 294 F.3d at 653.
Id. at ¶ 18.
Per its SEC filings, J. Ken Nunley, Esq. of Texas, is an agent of Padmore Holdings, Ltd.
Third Amended Complaint, ¶16. See Perkins v. Benguet Consul. Mining Co., 342 U.S. 437, 444
(1952) (“If an authorized representative of a foreign corporation be physically present in the state
of the forum and be there engaged in activities appropriate to accepting service or receiving
notice on behalf,...there is no unfairness in subjecting that corporation to the jurisdiction of the
accountant as well.44 Furthermore, the owners of the company allegedly have had substantial
business contacts with the State in the form of sales and gifts of stock owned by the company.45
Finally, Plaintiff alleges that the Immunyson stock that she purchased came held by Padmore.46
Thus, it is likely that these contacts with the forum are related to the scheme that defrauded Plaintiff,
rendering the exercise of specific jurisdiction appropriate.47
However, Padmore’s continuous and systematic contacts with Texas are also sufficient to
establish general jurisdiction – the company has both owners and directors residing in the State, it
maintains a Texas office, it employs Texas residents, and stock was transferred on its behalf within
the forum to Texas residents.48 These are the types of “continuous and systematic corporate
activities...[that] are enough to make it fair and reasonable to subject [the company] to proceedings
in personam in [the] [S]tate.”49 Moreover, because of Padmore’s continuing presence in the State,
exercising jurisdiction over it does not offend “traditional notions of fair play and substantial
courts of that state....”).
Third Amended Complaint, ¶16.
Id. at ¶18.
Id. at ¶ 73.
See Wilson, 20 F.3d at 647 (clarifying when a nonresident defendant is subject to the
specific jurisdiction of a court).
See Perkins, 642 U.S. at 445 (finding that the presence of an agent in the state, coupled
with other corporate activities such as directors’ meetings, business correspondence, stock
transfers, payments of salaries, and purchases or property constituted sufficient contracts with the
forum to exercise personal jurisdiction over a nonresident defendant).
justice.”50 The State also has an interest in protecting its residents, some of whom were harmed by
Padmore’s conduct in the State.51
With respect to the two nonresident individuals named as Defendants, James T. Miceli and
Douglas A. McClain, Jr., Plaintiff maintains that the Defendants’ contacts with the forum are
sufficient to establish specific jurisdiction and general jurisdiction. According to Plaintiff, this
Court has general jurisdiction over Defendants due to their continuous and systematic contacts with
Texas, consisting of both business and personal dealings. For a district court to properly exercise
general jurisdiction, the defendant’s contacts with the forum must “occur with such frequency that
the contacts in general are ‘continuous and systematic.’”52 Though there is no requirement that the
contacts be directly related to the cause of action, it is nonetheless necessary that the unrelated
contacts be “substantial.”53 The court can make this determination by “evaluating [the] contacts of
the defendant with the forum over a reasonable number of years, up to the date the suit was filed.”54
The facts as supplied by Plaintiff indicate that Defendants’ contacts with the State are very
See Wilson, 20 F.3d at 647 (providing the second requirement for proper personal
jurisdiction over a nonresident defendant).
See Asahi Metal Indus. Co., 480 U.S. at 113 (considering the interest of the forum state
in making a determination of the fairness of exercising personal jurisdiction over a nonresident
Access Telecom, Inc. v. MCI Telecomms. Corp., 197 F.3d 694, 717 (5th Cir. 1999)
(citing Holt Oil & Gas Corp. v. Harvey, 801 F.2d 773, 779 (5th Cir. 1986)).
Wilson, 20 F.3d at 650 (citing Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 772
Access Telecom, Inc. v. MCI Telecomms. Corp., 197 F.3d 694, 717 (5th Cir. 1999)
(citing Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 569 (2d Cir. 1996).
similar to those of the nonresident defendant in Holt Oil & Gas Corp. v. Harvey,55 in which the Fifth
Circuit held that an examination of the contacts “in toto” revealed “the kind of continuous and
systematic contacts required to satisfy due process.”56 To begin with Defendants have conducted a
great deal of business in Texas.57 Defendants are the sole officers and owners of Argyll Equities,
LLC, a Texas limited liability company.58 Through Argyll Equities, Defendants entered into loan
transactions with Texas residents, who subsequently sued Argyll Equities and Defendant Miceli for
fraud committed within the State.59 A Texas court ultimately entered judgment against the entity and
Furthermore, Defendants also were officers and owners of Argyll Biotechnologies, LLC,
through which they manufactured and distributed a drug within the State of Texas.61 As officers of
the company, Defendants employed at least two Texas residents: Defendant McClain, Sr. and Dr.
801 F.2d 773 (5th Cir. 1986).
Id. at 779.
Third Amended Complaint, ¶¶ 12-23; see Holt Oil & Gas Corp., 801 F.2d at 779
(noting that defendant had “transacted a great deal of business in Texas”).
Id. at ¶¶ 8, 14; see Holt Oil & Gas Corp., 801 F.2d at 779 (acknowledging that
nonresident defendant was the sole shareholder of a company conducting business in Texas).
Id. at ¶ 14.
Id. at ¶ 22. In Holt Oil & Gas Corp., the nonresident defendant was the sole shareholder
of a company that drilled several oil wells in Texas, and the company was also involved in
litigation in Texas. 801 F.2d at 779.
Id. at ¶ 15; see Holt Oil & Gas Corp., 801 F.2d at 779 (commenting on nonresident
defendant’s additional business dealings with a Texas record company, of which defendant
served as a director and had invested money).
Erickson.62 Moreover, Defendants retained the services of an attorney, J. Ken Nunley, to conduct
corporate legal matters, as well as the services of an accountant, Lynn Booker, both of whom are
Texas residents.63 Under Texas law, “a nonresident does business in this state if the nonresident .
. . recruits Texas residents, directly or through an intermediary located in this state, for employment
inside or outside this State.”64
In addition to Defendants’ business related contacts, the Defendants also have benefitted
personally from the transfer of property to Texas.65 Plaintiff claims that Miceli and McClain, Jr.
transferred numerous shares of stock owned by Padmore Holdings, Ltd. to residents of the State.66
In doing so, Defendants personally received money from the sale of said stock.67 Therefore, viewing
the facts in toto, it is clear that Defendants’ personal and business contacts with the State of Texas
“constitute the kind of continuous and systematic contacts required to satisfy due process.”68
Id. at ¶ 15.
Id. at ¶ 15-16.
TEX . CIV . PRAC. & REM . CODE ANN . §17.042 (2010); see Kervin v. Red River Ski Area,
Inc., 711 F. Supp. 1383, 1387 (E.D. Tex. 1989) (considering non-resident defendant’s
employment of a Texas resident as factor in determining that court had general jurisdiction over
defendant (citing TEX . CIV . PRAC. & REM . CODE ANN . §17.042 (1986))).
Third Amended Complaint, ¶ 19.
Id. at ¶ 18; see Perkins 342 U.S. at 445-46 (noting that stock transfers are an activity to
be considered in analyzing continuous ans systematic contacts)).
Id. at ¶ 19; see generally Advantage Investors Mortgage Corp. v. Robertson, 2002 WL
1000924, at *6 (N.D. Tex. May 14, 2002) (finding significant that nonresident Defendant
profited from brokering deals for Texas residents)).
Holt Oil & Gas Corp., 801 F.2d at 779; see Perkins, 342 U.S. 437, 445-46 (1952)
(acknowledging that “directors’ meetings, business correspondence, banking, stock transfers,
[and] payments of salaries” are the types of activities that “make it fair and reasonable to subject
[a non-resident defendant] to proceedings in personam in that state”); Langton v. Cbeyond
Given the Defendants’ history of contacts with and presence in the State, the exercise of
jurisdiction over them would not impose an unfair burden.69 Many of the individuals harmed by
Defendants’ actions were Texas residents, and the State has an interest in providing an efficient
resolution to the controversy.70 Thus, the adjudication of Plaintiffs’ claims against Defendants
Miceli and McClain, Jr. in a Texas court would not “offend traditional notions of fair play and
Because this Court finds that it has general jurisdiction over Miceli and
McClain, Jr., it is not necessary to consider specific jurisdiction.
B. Claims Upon Which Relief May be Granted
When a defendant fails to respond or otherwise defend, his default is considered an admission
of the plaintiff’s well-pleaded allegations of fact related to liability.72 While such allegations are
presumed to be true, “a defendant’s default does not in itself warrant the court in entering a default
judgment. [Rather, t]here must be a sufficient basis in the pleadings for the judgment entered.”73 In
Comm., L.L.C., 282 F.Supp. 2d 504, 509 (E.D. Tex. 2003) (“Conducting business in a forum
regularly directing salespersons into a forum, and soliciting business in a forum are continuous
and systematic activities that support general jurisdiction.” (citing Soma Med. Int’l v. Standard
Chartered Bank, 196 F.3d 1292, 1295-96 (10th Cir. 1999))).
See Bullion, 895 F.2d at 216 n.5 (5th Cir. 1990) (considering the burden upon the
nonresident defendant for purposes of traditional notions of fair play and substantial justice
(citing Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 113 (1987))).
See id. (Examining the interests of the forum state and the interstate judicial system’s
interest in obtaining the most efficient resolution to a controversy).
Jackson v. FIE Corp., 302 F.2d 515, 524 (5th Cir. 2002) (quoting Nishimatsu Constr.
Co., Ltd. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)).
Nishimatsu Constr. Co., Ltd. v. Houston Natl’l Bank, 515 F.2d 1200, 1206 (5th Cir.
other words, the court must determine whether the well-pleaded facts state a claim upon which relief
may be granted.74 In sum, “before entering a default judgment for damages, the district court must
ensure that the well-pleaded allegations in the complaint, which are taken as true due to the default,
actually state a substantive cause of action[,] and that there is a substantive, sufficient basis in the
pleadings for the particular relief sought.”75
Due to Defendants’ failure to respond to the claims against them, the facts pled by Plaintiff
are taken as true, but Plaintiff’s complaint must nonetheless contain substantive causes of action, as
well as a sufficient basis for the relief sought.76 First, Plaintiff alleges claims under the Securities
Exchange Act of 1934 against Defendants Padmore Holdings, LTD. and Argyll Biotechnologies and
seeks out-of-pocket losses, which are the appropriate measure of damages for such a claims.77
In addition, Plaintiff asserts claims of common law fraud, fraud in the inducement, and
breach of contract against McClain Sr. and Argyll Biotechnologies. Accordingly, Plaintiff Foster
“On appeal, the defendant, although he may not challenge the sufficiency of the
evidence, is entitled to contest the sufficiency of the complaint and its allegations to support the
judgment.” Nishimatsu Constr. Co., Ltd., 515 F.2d at 1206 (citing Ohio Central R.R. Co. v.
Central Trust Co. of NY, 114 U.S. 104 (1885)). Furthermore, it is a defense to a claim for relief
that the complaint fails “to state a claim upon which relief can be granted.” FED . R. CIV . P.
12(b)(6); see also McZeal v. Ocwen Fin. Corp., 252 F.3d 1355, 2001 WL 422375, at *1-2 (5th
Cir. Mar. 28, 2001) (affirming denial of plaintiff’s request for default judgment for failure to
state a claim upon which relief could be granted); Bixler v. Foster, 596 F.3d 751, 762 (10th Cir.
2010) (holding that default judgment was improper on claims that were barred or subject to
dismissal under Rule 12(b)(6)).
Tyco Fire & Sec, LLC v. Alcocer, 218 Fed. App’x 860, 863 (11th Cir. 2007) (applying
Id. at 863.
See James v. Nico Energy Corp., 838 F.2d 1365, 1371 (5th Cir. 1988) (noting that the
general measure of damages for a defrauded buyer under Rule 10b-5 is out-of-pocket damages).
seeks recovery of lost profits, which are available under Texas law in breach of contract and fraud
Plaintiff also brings civil conspiracy claims against Padmore Holdings, SW Argyll
Investments, Argyll Investments, Argyll Equities and Argyll Biotechnologies. “[A] co-conspirator
is bound by the overt acts of other conspirators taken in furtherance of the conspiracy, whether or
not said co-conspirator was a member of the conspiracy at the time...”79 Plaintiff seeks all of the
aforementioned damages from Defendants Padmore Holdings, SW Argyll Investments, Argyll
Investments, Argyll Equities and Argyll Biotechnologies collectively. Therefore, Plaintiff has
alleged substantive causes of action against the Defendants, upon which relief can be granted.
Plaintiff further brings a claim for RICO violations against Miceli, McClain Sr., and McClain
Jr., and seeks compensatory damages, lost profits, treble damages, interest, costs and attorney fees.80
Because this Court concludes that Plaintiff is entitled to lost profits under her common law claims,
the Court need not address this cause of action.
As to Defendant Argyll Aviation, although Plaintiff has not pled a specific statute, it appears
she is asserting a claim under the Uniform Fraudulent Transfer Act for the alleged wrongful transfer
See Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d
41, 50 (Tex. 1998) (acknowledging that in cases of common law fraud, “lost profits on the
bargain may be recovered if such damages are proved with reasonable certainty”); S.W. Battery
Corp. v. Owen, 115 S.W.2d 1097, 1098-99 (1938) (finding that recovery of lost profits in a
breach of contract action is permissible when the “amount of loss [is] shown by competent
evidence with reasonable certainty”).
In re Enron Corp. Sec., Derivatives & ERISA Litig., 623 F. Supp. 2d 798, 810 (quoting
U.S. v. Thomas, 686 F. Supp. 1078, 1088 (M.D. Pa. 1988)).
Third Amended Complaint, ¶ 110.
of an airplane.81 The statute provides:
A transfer made or obligation incurred by a debtor is fraudulent as to a
creditor...if the debtor made the transfer or incurred the obligation (1) with
actual intent to hinder, delay, or defraud any creditor of the debtor; or (2)
without receiving a reasonably equivalent value in exchange for the transfer
or obligation, and the debtor: (A) was engaged or was about to engage in a
business or transaction for which the remaining assets of the debtor were
unreasonably small in relation to the business or transaction; or (B) intended
to incur, or believed or reasonably should have believed that the debtor would
incur, debts beyond the debtor’s ability to pay as they became due.82
In support of this claim, Plaintiff alleges that Defendant Argyll Aviation received an airplane from
Argyll Equities, LLC and/or James T. Miceli, Douglas McClain, Jr. and/or Douglas McClain, Sr.,
valued at over $75,000, without receiving a reasonably equivalent value. Based on the uncontested
facts, the Court concludes that a fraudulent transfer occurred.
When a court awards damages to a plaintiff in a default judgement case, the amount “must
not differ in kind from, or exceed in amount, what is demanded in the pleadings.”83
Plaintiff seeks lost profits in the amount of $1,120,000 under her Federal and state law
claims. Plaintiff claims that Immunosyn stock’s opening price was $15 per share, she purchased
80,000 shares, and Plaintiff was unable to sell for this amount due to Defendant’s failure to deliver
the shares to her.84 Had Plaintiff been delivered her 80,000 shares and sold them at $15 per share,
she would have made $1,120,000 in profit. However, Plaintiff alleges that she ultimately sold her
Third Amended Complaint, ¶¶ 126-28.
TEX . BUS. & COM . CODE ANN . § 24.005(a).
FED . R. CIV . P. 54(c).
Third Amended Complaint, ¶ 68.
shares for a total of $15,000. Thus, Plaintiff’s award should be reduced by $15,000 and she is
entitled to $1,185,000 in lost profits.
Due to all Defendants failure to respond to the Plaintiff’s Third Amended Complaint, the
Court hereby GRANTS Plaintiff ELEANOR Z. RABIN motion for entry of default judgment against
Defendants DOUGLAS A. MCCLAIN, SR., ARGYLL EQUITIES, LLC, ARGYLL
BIOTECHNOLOGIES, LLC, PADMORE HOLDINGS, LTD., JAMES T. MICELI, DOUGLAS A.
MCCLAIN JR., ARGYLL AVIATION, LLC, AND SW ARGYLL INVESTMENTS, LLC. Plaintiff
ELEANOR Z. RABIN is entitled to damages in the total amount of $1,185,000. If Plaintiff wishes
to pursue costs and attorney fees, Plaintiff shall file a Bill of Costs and an application for attorney
fees in the manner provided under the Local Rules within fourteen days of the issuance of a final
judgment. Because the Court finds that Defendants are in default, the Court waives the requirement
under Local Rule 7 that Plaintiffs confer with Defendants prior to submitting the application.
It is so ORDERED.
SIGNED this 25th day of April, 2012.
UNITED STATES DISTRICT JUDGE
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